The Southpace Learning Series (SLS) is our continuing education program developed in-house to give our team an in-depth understanding of issues facing our clients. Because our clients’ needs continue to evolve, so will we.
Civil engineering is one of those areas that may not seem to directly relate to commercial real estate transactions, but it absolutely does. If nothing else, we need to know when it’s time to bring in a qualified professional to help our clients make the best decisions possible.
We brought in Blaine House, Director of Corporate Operations for Murray Building Company, to discuss civil engineering and how it relates to commercial real estate. Civil engineering matters should be kept in mind throughout the negotiation, due diligence and development phases on every piece of commercial property.
Our brokers learned in-depth details about different types of surveys, plans and zoning and important tips to help them better advise our clients.
I’ve been in this business a long time, so I’ve seen a lot, and everything we learned reinforced what I’ve experienced. I started in residential lending in 1972 and moved into commercial lending and brokering in 1974, and these civil engineering issues — especially dealing with surveys and floodplains — have been a part of just about every transaction in which I’ve been involved.
When it comes to surveys, the biggest mistake people tend to make is relying on the original survey they may have been provided when they first expressed an interest in the property. There are almost always issues with surveys and how they match up with the title commitment, especially on older properties.
A current survey is always advisable, but this is often realized far too late in the game. By the time problematic issues come to light, many months may have passed and significant amounts of money may have been spent. Construction may have to be halted and plans reconfigured because of just one avoidable mistake. Simply acquiring a current survey can save you time, money and headaches.
We learned that there are three types of surveys:
- Boundary – The most simple and basic type of survey used to establish the boundaries of a land parcel and might, but will not necessarily, provide an outline of the building(s) situated on the property.
- Topographic — A topographic survey (TOPO) is a more accurate and comprehensive map of the site. It includes exact ground elevations, roads, buildings, utility services, trees and significant landscape and drainage features. An accurate TOPO should be physically obtained by canvassing the ground and obtaining accurate elevation readings. Less accurate topographic information is accumulated through geographic information systems (GIS) systems available through local governing authorities.
- ALTA/ACSM Land Title Survey – This gives you the big picture of the property and helps you see what is not readily apparent when you are looking at the site. To be able to evaluate the property and the risks associated with issuing a title insurance policy on the property, a title insurance company must, in part, rely upon an up-to-date and accurate Survey of the property. Title Insurance plays an important role in protecting lenders’ and purchasers’ land investment. It’s also certified and verifies the legal description of the property along with other legal easements and rights of way. Unless you specifically request an ALTA survey, you will most likely get something less than the whole story. While an ALTA is a little more expensive, it is generally a much better investment due to all of the information it provides.
One thing I often get questions about from clients is what the survey says regarding being in a floodplain and how that will impact flood insurance requirements. We learned that the elevation of the land in a flood plain can’t be changed or filled in. The finished floor level of a building can be built above the floodplain, which might mitigate insurance requirements, but the actual topography can’t be changed because of the negative impact that would have on the rest of the floodplain in the area.
Once your survey is done, a site plan is prepared to illustrate how the building will be developed and designed, including parking spaces, roads and general landscaping.
Next up is the grading plan, which is helpful in determining how storm water will move on the property and also aids in determining some of the costs of developing the property.
Upon completion of a grading plan, a utilities plan can then be developed. This will show how water and sewer lines and other utilities will be placed on the property.
Each of these plans relies on the others and serves to create the basic groundwork for the development of the property.
Another important element of civil engineering in commercial real estate involves the zoning of your site, which dictates how the property can be used. Municipal and zoning regulations vary across city and state and are determined by the individual governing bodies. It’s important to know how the property is zoned for BEFORE your client makes the purchase to be sure that the intended use is compatible with the property’s zoning.
Civil engineering issues should be a significant concern in the due diligence process of all commercial real estate transactions. As brokers, we owe it to our clients to make them aware of the importance of addressing such issues and recommend that they engage the proper professionals early in any contemplated commercial real estate transaction.