Utilities and Government and Real Estate & Retail

VOICES FROM THE INDUSTRY: Delays to development projects cost everybody money

October 27, 2008

Here's a common scenario: A developer gets approval on zoning and planning permits to build a business on a piece of property. The business has signed an agreement to either lease or buy the building once it's completed. The owner of the business then begins making plans to open the new facility.

The developer, meanwhile, goes to work to prepare the property for construction, which includes everything from figuring out the utilities, access road, curbs, sidewalks and landscaping. Working with engineers, planning departments and utility companies, the developer puts together the site plan, files the building permits, and then gets the final approvals from the plan commissions and other necessary entities.

Sometimes it takes weeks, or even months, depending on the complexity of the development and the amount of site preparation needed to develop the land. Processes are in place in every county, town and city in the country. While there may be differences in what's required, everyone has a process a developer and builder must follow.

Some municipalities work more quickly than others to evaluate the plans and issue the required permits. Delays in this process often lead to delays for the developer, the contractors and the business owner, who's eager to open his doors.

There are other snags along the way that can cause delays. Snags caused by human error, emotion and changed minds. These delays can be the difference between whether the business is able to open on time or even open at all.

Mistakes are going to happen. I make mistakes, my company makes mistakes, mayors, governors, engineers and contractors all make mistakes. It's human. It's often understandable. But a mistake also can be costly. In real estate development, mistakes made by municipalities often come at the expense of the developer.

Someone's going to have to pay, but it's not the person causing the delays. It's the developer who pays the cost to correct errors, whether it's a misplaced water line or a road cut. But when the developer pays, it doesn't begin and end there. Everyone downstream of the developer pays: the developers' employees earn less, its contractors earn less, and customers pay more.

No accountability

A significant number of project delays are caused by the lack of consequences for the delayer. While all the permits have been approved, and the developer has the green-light to move forward, someone waves a red flag and decides to take a step back. It's not a difficult decision to rethink something if there are no negative consequences for your decision.

The reasons for a delay are varied: Do we really want another hotel at the intersection? A neighborhood group is worried that the shopping center is going to cause too much traffic. Maybe we need to reevaluate how the city is going to develop the entire neighborhood, and not focus on just this one piece of land.

The cost of delays

Delays not only cost the business owner in lost income, but delays cost taxpayers, too. When development is delayed, it takes longer for the proposed business to begin paying city and state taxes.

Years ago, when the Dow didn't take a 600-point nose dive on a regular basis, and when the real estate industry was booming, developers absorbed the cost of delays. Budgets were built knowing something would happen-a mistake would be made or someone would want to hire a consultant to study the site or traffic patterns or update demographic numbers.

There are no padded budgets now. Financing is hard to come by. There is no room in the budget to absorb the cost of mistakes, changed minds and emotion.

Commercial real estate developers are operating at a time when every minute is important and every dollar is accounted for. Businesses rely on developers to take the project to completion, so doors can open on time and on budget.

That's our job. We can't do our job, however, when approvals are revoked because someone has changed his or her mind.

Here's my proposal: Government entities need to entrust their engineers, plan commissions, and public works and zoning departments to evaluate projects based on whether the proposed development meets that community's guidelines. If it does, and if all the rules are followed, any change or delay must have consequences for those changing or delaying a project.

It's really a matter of holding people accountable for their decisions and commitments. Changes happen. There may be a good reason for them. But once you hand out the rule book, don't change the rules without fair warning and due process.

Most developers are working to bring new businesses, jobs and people to communities. They work to develop shopping areas and restaurants and housing developments to serve the needs of a community.

Our job gets harder every day with tightened credit and higher property taxes and an increase in the cost of doing business.

I'm not asking for rubber stamps for every project. I'm just asking that entities involved in the development process stand by the decisions they make. And when delays occur, then those responsible need to provide the remedy.



Mann is managing partner of Mann Properties, a real estate development company based in Indianapolis.Views expressed here are the writer's.
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