The initial stage of a property development project is focused on due diligence, research and permitting, for which financing from lenders can be quite difficult. Property and development due diligence is the comprehensive appraisal performed by the project developer on a property development project to determine the steps required to ready the site for the actual construction and to make investors aware of the risks and issues associated with the property in order to obtain their investment in the project.
Planning/pre-construction phase in a property development project involves the investigation of the site where the project development project will take place, performance of a development needs and use analysis, acquisition of the site, securing the real estate entitlements and designing the building.
Acquisition of a plot of land for a property development project is subject to satisfactory due diligence and transaction documentation, satisfaction of certain other preconditions, investor approval, and confirmation of the amount and terms of the financing, often from several sources and in the form of equity and debt.
When contemplating the purchase of [a site], it is advisable that the purchaser carries out its own environmental due diligence to ensure the site is not polluted.
Construction generally requires local jurisdiction permitting – land-use approval and building approval, which is often the greatest obstacle to capital formation. Environmental due diligence is performed to ensure that the property or building complies with current rules and laws and planned and potential ones in future.
Debt financing at this stage is typically provided by the project sponsor that gets “taken out” by the construction loan. Because of the higher risk at this stage, sponsors expect a higher return on their investment than on those made at later stages.