On today’s show we are talking about how to look at a property through the lens of a developer.

So often when I talk to the seller of a property, they will tell me about the zoning of the property and how the property has so much potential.

Sometimes they will tell me what is possible with a zoning change. Some have even gone so far as to tell me what another property sold for that was approved for a 20 story apartment building. Somehow that is supposed to justify their asking price.

The value of a development property is based on what you can actually build on it, not what you might dream of building, or what you might want to build, or what the city might approve in a decade from now.

My first question is where will the parking be located and how many spaces are possible?

That will ultimately determine the density and the number of dwelling units that are possible.

Some areas will allow for one parking spot per unit, whereas others want more.

If the property has a mixed use component, you need to factor in the parking for the commercial elements.

Some downtown projects that are close to public transportation will sometimes allow for less than one parking space per unit. I always want to supply at least one space per unit. Zoning is all well and good, but the market wants parking.

In a market downturn, I want to eliminate the fundamental objections that a prospective resident might have. Let the vacancy go to the properties that lack parking, or to the ones that lack modern amenities.
The second thing I look at is access. Where will cars and pedestrians access the property and does the flow actually work? Is there an existing curb cut in the sidewalk, or will we need to apply for one?

The third thing I look at is the overall dimensions of the property including the setback requirements and the height restrictions. The other restriction is the floor area ratio. Simply put, if your floor area ratio is, for example 3, and the building is going to cover 100% of the land, then you will only be able to build 3 stories. If the building covers 50% of the property, then you might get 6 stories, subject to any other restrictions.

Sometimes a larger property doesn’t translate into a larger building. You see an apartment has certain natural dimensions. It would be rare to design an apartment that is longer than about 35 or 40 feet in one direction. If you want two apartments separated by a hallway, the ideal dimension for the width of the building is around 75 or 80 feet. If the property is too wide or deep in that dimension, you won’t be able to make a larger building.

At the other end of the spectrum, there are properties that are too small to make into an apartment building.

Some properties are restricted by the size of shadow they cast on neighbouring properties. In that case a shadow study might be required to prove you won’t be adversely affecting the neighbours.

When you look at a property that has development potential, understanding the true scope of its potential is an exercise in understanding the constraints. Are all the utilities available at the property line? Is there an overhead electrical transmission line that you will have to work around?

The key is to work with an urban planner, or an architect who specializes in the type of building that you have in mind. When you are talking to the right person, you will know it instantly. They will be looking at the project through the lens of a developer to understand the constraints and clearly know the limits on the development potential.

If you are going to do the work to get the entitlements on the property, then you as the buyer are creating that value. The seller gets no part of the value increase because they didn’t do the work to create the value.