chapter 5: Predevelopment

Learning Objective: Users will be ready to make effective decisions around site selection, acquisition, and environmental studies.

Overview of predevelopment

The predevelopment stage builds on your understanding of the community’s housing needs and its own capacity to embrace development. This phase focuses on identifying and acquiring a site, creating detailed plans for the development, and various steps to take before beginning construction. Note that although both market and financial feasibility assessments are technically part of the predevelopment phase, they are covered in Chapter 6: Market Feasibility and Chapter 7: Financial Feasibility, respectively. However, you will often be working on those processes in tandem with those described in this chapter.

A thorough and well-managed predevelopment phase is critical to the success of the development. There are many details, tasks, and deliverables to keep track of, and other potentially unforeseen variables that may be introduced into the development action plan. A successful predevelopment process makes for a successful construction phase and is important to reducing your organizational liability.

Predevelopment can take months or even years to complete, depending on the type of development and the local requirements. This is also time when rent is not being collected and the primary funding has not been secured, so this can be a period where you will have significant monetary outlays and carrying costs with no income to offset this. Because of this, lenders and other funders have created loan and grant products specifically to assist with this phase of the development for affordable housing. For more information on resources that may be available, see the Funding Sources Inventory.

Because of the complexity of the design, site review, and approval processes for development, you should employ consultant expertise. These could include:

• planners or lawyers with expertise in zoning and land use;

• engineers, architects, and/or landscape architects to produce drawings, plans, and reports;

• your general contractor to advise on construction-related issues and costs;

• environmental experts to conduct site environmental reviews for contaminants and other conditions; and

• market analysts to test the market feasibility of your development model.

In addition, many other stakeholders will be involved in this phase such as lenders and other funders, government officials and staff, and community members. For more information see Building Your Development Team in Chapter 3: Housing Development Models, Team, and Roles.

If possible, hire consultants who have specific experience working in the jurisdiction and with similar types of development as yours. This will increase the likelihood of an efficient predevelopment and approval process.

Site acquisition and assembly

Once you have identified one or more sites that are viable for your development, determine what the process is to acquire it. This will depend on who currently owns the property and the financial condition.

Private land or property acquisition

The most straightforward way to acquire land or property is to purchase it on the private market. One downside of private-market transactions is the potential for competition among other buyers, which can drive up the sale price. With new construction or preservation of affordable homes, including the preservation of unsubsidized affordable housing, price escalation may make a project financially infeasible or may limit the affordability levels your development can achieve.

You may be able to reduce the risks of private land price escalation through off-market acquisition, often identified through direct relationships with real estate brokers or property owners. It’s important that the property broker or owner understands your goals in creating affordable housing and the locations in which you are interested. Familiarity with the funding sources you may use for acquisition may also be helpful.

In addition, some public agencies and CDFIs, in partnership with the private and philanthropic sectors, have created land acquisition funds to assist with land or property acquisition as part of broader affordable housing development initiatives, particularly in areas where price escalation is a risk. Denver’s Regional Transit-Oriented Development Fund and the Impact Development Fund are examples. CHFA has been proud to invest in these funds.

Another way to acquire land or property off-market is through local right-of-first-refusal policies. While the specific eligibility requirements will vary in a municipality’s policy, right-of-first-refusal policies typically enable a buyer to purchase a property before it is listed for sale on the private market. Most of these policies require that a buyer does not change the property tenure, type or affordability. In addition to municipal policies, there is a statewide right-of-first-refusal policy for mobile home parks and some condominiums.

Community-serving land and property

Property can also be accessed through public or community-based institutions, such as cities, counties, park districts, school districts, and faith-based institutions.

One benefit of community-serving land is its cost. If available, municipalities and nonprofits can often access these properties at low or no cost. Using community-serving land may require a developer to make trade-offs in terms of other factors, such as location or development model. For instance, some institutions require affordability in exchange for low- or no-cost land. It may also affect overall site size or scale. Community-serving land can be accessed through public RFPs, searchable public land inventories such as the Colorado State Land Board inventory, or direct outreach to community governments and institutions.

In addition to acquiring community-serving land, you may consider proposing co-locating affordable housing with other community uses of the site. Common examples of co-location are affordable homes near transit facilities, faith-based institutions, health care institutions, community centers, and libraries. Co-location can be especially impactful for specific residents who benefit from living near facilities that serve them. For instance, older adults or persons living with a disability may benefit from living near health care facilities or community centers.

Considerations for using co-location as a tool to reduce acquisition costs include:

Development process. Is it possible to separate the development process (including financing, development timeline) for each facility? If not, are you able to meet the same timeline (e.g., milestones) as the co-located facility? Is the institution supporting co-location able to assist with coordination across project teams?

Infrastructure. What opportunities are there to share infrastructure and utilities across the co-located facilities?

Design. How will the co-located facilities be integrated with one another? What site improvements may be needed to promote access? Can those improvements be made without significant additional costs, including ways to share them across facilities?

Another option for community-serving land is leasing land or property through ground leases from public entities or other organizations such as community land trusts (see next section). Leasing, rather than acquiring land or property outright, eliminates the land acquisition costs and finances by allowing you to use the land for development without acquiring ownership of the land. At the same time, the landholder, which is often a community-serving institution or public agency, can include stipulations in the lease agreement regarding design, affordability, timelines, or community benefits such as local hiring, leasing, or homebuyer preferences.

Partnerships with community land trusts

Community land trusts (CLTs) are nonprofit organizations designed to steward the use of land, commonly making land available for the development of affordable units to buy or rent.

A CLT typically owns the land or property and then leases it to developers or homebuyers. This model, like others that rely on leasing, decouples land or property costs from the total development costs. However, unless the land is donated, it must still be paid for and factored into development project budgeting. Frequently CLTs need a subsidy to cover the difference in the cost of developing the home and the sale price or rental income. In addition, CLT homes may need additional subsidy to enable them to sell for less than other homes in the community, due to the restrictions imposed on the homebuyer.

Before partnering with a CLT, it is important to consider the following:

Mission and model alignment. Does your organization’s mission align with the CLT’s mission? Does your development model fall within the CLT’s existing property type or model? For instance, some CLTs mix homeownership and rental properties or other land uses. Some aim to produce new homes while others are more focused on preservation.

Community relationships. Do you have close ties to community members or community-based organizations in the CLT’s footprint?

Affordability. Are you willing or able to develop affordable rental or for-sale homes on the land? Are you willing to keep them affordable long term (often in perpetuity)?

Real-estate-owned or other foreclosed property

Real-estate-owned property (REO) refers to property owned by a bank. Foreclosed property could be in any stage of the foreclosure process, including REO.

Using REO or other foreclosed property can support assembly of multiple adjacent parcels into one site for a redevelopment project or infill development. REO or foreclosed properties often have infrastructure and utilities in place; however, if you plan to assemble multiple smaller parcels into one larger site, it is important to determine if additional capacity investments are needed.

Land banks, which are often tasked with disposing of tax-foreclosed properties, may be additional sources of land, especially if the land bank has stated priorities related to affordable housing.

CHFA also maintains the First Look program, which is an additional resource to developers considering REO properties. This program is designed to help support affordable housing efforts by allowing community-based housing organizations the opportunity to purchase certain of CHFA's foreclosed and other real-estate-owned (REO) single family homes in Colorado. In addition to keeping single family homes in homeownership, the CHFA First Look program is intended to help stabilize neighborhoods by facilitating the purchase, rehabilitation, and resale of homes by mission-driven organizations to maintain the homes’ affordability.

If you are interested in using REO or foreclosed property, additional information to examine includes:

Title. Does the property or properties have clear title? In Colorado, most property titles are held by county agencies, although there may be exceptions, such as U.S. Forest Service in some rural areas.

Delinquent property taxes. Is there a lien on the property due to unpaid property taxes? Are you able to cover any costs associated with paying unpaid taxes and any interest or fees?

Property condition. Can the property be rehabilitated without significant additional costs? Can the property be demolished without significant additional costs?

Appraisal. What have nearby properties recently sold for? How do those sales compare with the asking price of the properties?

Appraisals

To obtain private or public financing, a property or vacant land will need to be appraised by a third-party appraiser who may need to be selected by a lender, by an investor, or from an approved list. For both vacant parcels and properties, an appraisal is typically completed using recent sales of similar properties for acquisition of existing properties or overall highest and best use of land for vacant land.

The appraisal step carries some level of risk, namely that the appraised value may be lower than the market value of the property causing an “appraisal gap.” Projects with few or no comparable real estate transactions could have an increased risk of a gap. This includes smaller multifamily buildings in single family neighborhoods, an institutional or office building that will be converted to homes, or sites in areas where recent sales suggest lower sales prices.

If you are hiring your own appraiser, seek one who has experience with similar development models and local market conditions. If a lender or investor is selecting an appraiser, work with that lender or investor to ensure they select one who will bring this experience.

Design

Once you have a site selected, it will be time to work with your architect, engineers, landscape architect, green building consultant, and other design professionals to create a development vision. The architectural plans and drawings will be necessary components of most development review processes and will create a specific plan for contractors to estimate costs and implement.

Construction approach

The approach and technologies you use to construct your development will be key to consider before you begin your design process. Knowing that you prefer one approach over another will inform what is possible.

Onsite construction involves the development being built entirely at the development site, often referred to as a “stick-built” or “site-built” approach. This approach offers the greatest flexibility for your development, but in some cases may be the most expensive and/or time-consuming approach due to the labor required.

Offsite construction involves completing some aspects of construction in another location, often achieving some combination of faster production, reduced costs, greater material efficiency, and/or greater quality control. Offsite approaches include:

• Manufactured homes that are built entirely offsite and then shipped to the site. These structures are regulated by state standards issued by the Colorado Department of Local Affairs (DOLA).

• Modular construction approaches that create entire rooms or housing units of a building that are shipped to the site and connected to form the final building. These structures are regulated by local building codes.

• Panelized systems in which individual, flat building elements such as wall segments, roof trusses, and other components are created offsite and then assembled onsite. These structures are regulated by local building codes.

While offsite approaches have advantages, they may also impose limitations on building configurations, materials, etc. If this is an approach you are considering, ensure you understand these limitations before beginning design and ideally work with an architect who has experience with this approach.

Other approaches. Several other approaches to housing development are being explored, including utilizing cross-laminated timber models, 3D-printing technology, converting shipping containers into housing units, etc. While exploring the effectiveness or promise of these approaches is beyond the scope of this guide, it is critical to confirm that your construction approach is allowable under local regulations and building codes. What’s allowable often limits exploring alternative materials and methods.

Development phasing

A development does not always need to be completed all at once. For example, if you plan to build 100 apartments on a site, you may have the option of building 50 units today and 50 units five years from now. If you are unable to secure enough financing to construct 100 units, for example, this may be your best option. Unfortunately, this also comes with a cost—phasing your development effectively means that you will have to develop using individual processes with separate approvals, permitting, and project management required for each phase.

When considering whether to phase your development, ask the following questions:

• Do the budget and site fit a comprehensive phased project over several smaller projects?

• Do zoning requirements present complicated barriers you will need to overcome multiple times?

• Are additional special permits required for a phased development and will this add to costs or timelines?

• Will this approach work with existing financing tools?

Green building, sustainability, and health

What approaches and technologies will you incorporate into your development that will increase the energy and water efficiency, reduce the operating costs, create healthy conditions for your residents, and reduce your development’s environmental impacts? To explore how you can achieve these goals, see the Green Building and Sustainability Brief.

Disaster resilience

Developments should be constructed or adapted for resilience against natural disasters, such as high winds, tornadoes, landslides, floods, winter storms, and wildfires. Specifics will vary by location and site, so ensure you understand your development’s susceptibility and work with your design team to mitigate risks. Additional resources for understanding risks and mitigating approaches are included at the end of this chapter.

Designing for people of all abilities

When designing your building, consider the implications for people with diverse abilities. There are multiple frameworks that may be useful to consider:

• Among other things, the Fair Housing Act, the Uniform Federal Accessibility Standards, the Americans with Disabilities Act (ADA), and some local ordinances provide requirements and guidelines which you will need to follow when relevant. Your architect and design team can help you understand the implications for your development.

• Visitability is a framework relevant for single family homes that focuses on making homes accessible and easy to navigate for residents and visitors who have trouble with steps or use wheelchairs or walkers. Some municipalities have adopted ordinances that require or encourage visitability in new homes. There are three basic requirements for a visitable home: at least one entrance with no steps, doors with 32 inches of horizontal clearance, and one wheelchair-accessible bathroom on the main floor.

• Universal Design focuses on creating environments that “can be accessed, understood, and used to the greatest extent possible by all people regardless of their age, size, ability, or disability.”[11] This has implications for both designing the building itself and fixtures, features, and appliances within the building.

Process considerations

Be highly involved in the design process to ensure your design team understands your goals and requirements for the project. This includes not only how you want a building to look aesthetically, but also:

• How would you like the building to be configured on the site and connect to the surrounding environment?

• What uses do you expect for interior spaces and how do you want those to relate to one another? Do you expect them to change over time? For example, if you are planning to have onsite services in addition to affordable housing, what types of spaces will these services require?

• Do you have experiences with other similar developments you have visited or lived in? What did you like or dislike about them that could inform your plan?

• Do you have an expected budget and timeline for construction?

• How much do you want your architect to prioritize less expensive materials or other design components to save on costs?

• Does design meet the unique needs of residents to ensure function and quality of life?

• Do you have other concerns or expectations the design should address?

Development review and approval processes

Once you have acquired or secured the option to purchase your site, your development proposal will need to be approved for construction. These approvals are also referred to as real estate entitlements.

The process, timeline, levels of government involved, and approvals needed vary substantially based on jurisdiction and scope of development. For example, some jurisdictions have clearly defined approval processes, while others may be more time-intensive or complex. For example, a redevelopment may require less review than new construction on a vacant site. Also, some developments may require public hearings or approval by a commission or board. This section will describe some general aspects, but it is critical that you engage the local planning department early to understand the required approval process and timeline.

Generally, approvals can be classified as one of the following types:

Land use/zoning reviews confirm that your development plan conforms to local land use regulations. If so, the jurisdiction will issue a use permit that confirms this. If not, a rezoning or zoning variance will be required (see Site Selection above). If a variance or rezoning is required, a use permit will often be included with the approval of the variance.

Site plan and engineering approvals confirm that the development plan complies with local land development regulations such as those related to parking requirements; pedestrian infrastructure; greenspace; utilities, sewer, and water supply; roads and traffic; public safety; and emergency access. Note that for rehabilitation projects, approval may require updating key systems and structures to comply with the current building code.

Design and aesthetics approvals confirm that the architecture and landscaping plan meet the community’s standards.

Environmental impacts of the development must be studied and approved. See the Environmental Review section below for more detail.

Building plans, permits, and inspections are completed once the above approvals have been received. The developer will submit construction drawings to the building department to ensure site plan consistency and building code compliance. When the building department approves the drawings, it will issue building permits, and construction can begin. Upon completion of key construction milestones, inspections will be scheduled to ensure compliance with jurisdictional building codes and regulations. See Chapter 8: Project Construction for more information.

Process considerations

In some jurisdictions, affordable housing development is a stated priority and may be eligible for more expedited reviews. The City of Fort Collins, for example, provides expedited development review and permit processing for developments that meet specific affordability requirements. Check to see if there is a similar policy for your development.

In all cases, you will depend heavily on local government staff review processing, so it is important to learn who is involved at which stages of the approval process.

In addition, it’s helpful to understand the community’s priorities. Unlike the development process, which is pushing toward a single outcome, local government staff are often charged with striking a balance between multiple competing priorities. For example, there may be priorities to create more affordable housing, preserve greenspace, create more jobs, and improve the local tax base.

Understanding priorities can help you show how your development might align with community needs. Expect to be asked questions related to these priorities by city staff, planning board members, and community members.

Because of the variation in process, approval timelines can vary considerably. City staff should be able to give you an expected timeline. For planning purposes, it is generally better to assume a longer timeline. It is worth noting, however, that many approvals and permits have a set duration for which they can be exercised before expiring.

Fees and exactions

In addition to the time cost for approvals and any consulting expenses incurred, during the approval process you may be charged fees, which vary across jurisdictions. Some fees cover the cost of the approval and permitting processes. Other fees, called impact fees, offset the cost of additional public infrastructure and services that are required for the development. For example, utility connection or tap fees may be charged to connect the development to existing utility infrastructure.

In some cases, there may be other requirements of the development that are not fees but add costs to the project, such as providing green space or including a public facility.

However, because affordable housing is often a public goal, your development may also be eligible for waivers from certain fees and requirements, so this is worth inquiring about.