Every month, Davies Smith co-owner Ian Smith will be checking in with a monthly blog post called the Land Developer’s Manual, in which he discusses various land development topics. This month, Ian walks us through the 5 steps that Davies Smith takes when looking for a site to develop.

Waterfront trail in Mimico: Eleven Superior condos

Step 1: Location, location, location.

Before we invest in a piece of land, we usually ask ourselves the following questions about the location first:

  • Does the location offer something unique?
  • Does it have access to the transit system?
  • Is it close to the city center?

I also believe that it’s important to invest in an emerging area or an area that is under served by the condo market. It’s easy to build in locations where there is already development happening but to some extent, you’re missing out on excellent opportunities.

You can be very successful with a project if you target an area that hasn’t had a project presented to it yet. The feedback that you get from local councillors and planners tends to be positive because they’re looking for more activity in that area.  This is what we did with our Eleven Superior project in Mimico. There wasn’t much activity in the area so we saw that as a prime location.

Step 2: Zoning regulations.

If we like the site, the next thing we’ll do is look at the current zoning regulations for the site and what the potential is for the regulations to be changed or modified. Usually we’ll have a meeting with the planning staff to discuss our plans for the site and to find out if an existing zoning regulation can be changed or improved.

Step 3: Other legal restrictions.

Other regulations that we have to keep in mind include the Planning act, Environmental policies, Historical designations and the Conservation authorities regulation. All of these regulations can place some severe restrictions on what we want to do with a piece of land.

The Conservation authorities regulation for example, may have a huge setback requirement on one boundary of the property which means that you can only build on a certain portion of the site.

The Planning regulations make us aware of what is currently allowed on the site and to review what is likely to be approved if we were to proceed.

Environmental policies help us analyze more accurately what we can do with the land. For example, if the piece of land is a parking lot, the environmental policies will help us determine if the site was once a gas station 10 years ago and if it was decommissioned.

ONYX condos, Mississauga

Step 4: Preliminary work.

The entire process from identifying a piece of land to completion of construction can on average take 4 years. This is why it’s important for us to know from the beginning what want to do with a project.  An initial purchase agreement is often made on a conditional basis which gives us a due diligence period in which we can do some preliminary checks such as talking to the local planners and doing initial soil tests to confirm if the site is able to support the construction we want to do.

There are often some legal costs involved in drafting the purchase of sale agreements so we’ll usually employ some planning consultants and design consultants to confirm what we want to do with the site and to find out if our plans are feasible.

Other forms of research can include going to the City Municipal Planning Department or delving into the Statistics Canada data to find out the economic parameters around a site we’re looking to develop.

We might also do a comparative analysis of land values in an area to see if there are any competing projects working in the area and what kind of sales revenues they are achieving.

Local demographic income base statistics are also quite useful in helping us determine the profile of the potential purchaser in an area and what their affordability range is.

In addition, we might also look at what is in demand in the area. Is it a small studio unit, or is a two bedroom unit and are people looking for a two story loft?

Step 5: Capital for financing construction.

When financing our projects, we usually start with initial developer equity. This is because unless you are prepared to invest some of your own money into a deal, it will be very hard to attract other lenders to invest. The developer equity can either come from a single developer or from a joint venture of a number of companies who come together to invest in a particular opportunity.

Land loans for suite acquisition are also another option for funding. This can either be a third party land loan or a Vendor Take-Back Mortgage (VTB) provided by the vendor of the site. For example, if somebody is selling a site for $5 million, they’ll give a VTB mortgage for half of that.

Another option is Mezzanine capital which is the funding you use between buying the land and starting construction.

Each level of funding has its own security requirements and the last loan, the Construction loan, has the most security requirements. It usually has a per sold requirement, which means that you must have pre-sold a certain percentage of units before the bank can advance on any lending.

Although financing for development is not as easy as it was prior to the 2008-2009 US financial meltdown, if you have a good project that is well designed, then financing is achievable.

Bottom-line whatever we do, we always try to make sure that our planning is well coordinated and that we don’t design anything for sale that isn’t achievable from a planning perspective.

 

Initially trained as a Quantity Surveyor in England, Ian Smith crossed borders to provide his expertise to established companies such as George Wimpey Canada Limited and Bramalea Limited before founding Davies Smith Developments.