Waterfront Vacant Land Due Diligence Framework

How to Determine if Waterfront Vacant Land Will Work for your Home or Development Project

Undeveloped waterfront land **with development potential** is becoming increasingly more rare. Not only is there a limited amount of waterfront vacant land remaining, but every year environmental regulations on development are becoming more restrictive rendering a considerable portion of waterfront land unbuildable. 

This post is going to be the first in a series detailing various due diligence frameworks I encourage my clients contemplate to help determine if a waterfront property is a good fit for their desired development outcome. 

ZATUM

The high-level framework that encourage my clients to apply during the waterfront vacant land due diligence process is an acronym: ZATUM. 

ZATUM stands for: Zoning, Accessibility, Topography, Utilities, and Marketability. The following paragraphs will briefly elaborate on these subsections to help start the process of evaluating a waterfront property. As with all development projects, we highly recommend meeting with the planning department at the municipality with regulatory authority over the development process before closing the sale, preferably before making an offer, unless it's a highly competitive property in which case you could lock up the land with a feasibility contingency and explore the characteristics more thoroughly. 

Z for Zoning

The first category, Zoning, is determined by the municipality with regulatory authority over the property. This could be the City, County, or Parishes. For single family development projects, such as building a waterfront home, a residential use is almost always a possibility unless for some unique reason the property is zoned for commercial or industrial use. If you are investigating a waterfront property for a subdivision, whether that is cutting a single parcel into two lots or a larger project in which you cut a single parcel (or combination of parcels) into an even larger number of waterfront lots, you will want to ensure that the underlying zoning allows for the density you are seeking to develop. An example of this is a property one of my client's owns that is 55 acres made up of 3 tax parcels. The zoning on this property is what the municipality refers to as RR-5, which stands for Rural Residential with 1 dwelling + DADU per 5 acres. There are many creative ways to approach this density of zoning, but fundamentally RR-5 means that, through a Long Plat process (could be named something different in your municipality), one could create 11 home sites out of the 55 acres (55 acres divided by 5 acre minimum lot size = 11 lots). In many cases, municipalities offer GIS maps or equivalent through which you can look up the underlying zoning of a given parcel to quickly determine if the foundation for your development is feasible. 

A for Accessibility

This category sounds exactly like it you might expect: is there access to the property and, if not, can access be created. Access to waterfront properties can oftentimes be more challenging than the traditional pedestrian home sites because many times waterfront lots are accessed via private road or easement agreement, as compared to a County maintained road. If the waterfront property you are evaluating is landlocked and not immediately accessible, we recommend consulting with a land use attorney to help determine if access can be created. Here in Washington State, if no legal access exists, one can sue to establish legal access effectively forcing a neighbor to grant an easement through their property so you can access yours. As previously mentioned, please consult a qualified attorney for this evaluation; I am not an attorney and this is not legal advice. 

T for Topography

The slope of a waterfront property can materially impact the development potential. Fundamentally, it will most certainly impact the construction cost if the slope is great, but the municipality issuing the building permit may also have steep slope regulations that prevent you from establishing a buildable home site. This is one of several categories to discuss with the planning department at the governing municipality, which they are often willing to discuss. Something that often goes hand-in-hand with topography is whether there are additional shorelines or water classifications on the property, which oftentimes have setbacks that restrict all building, vertical or otherwise, within the predetermined distance from the shoreline. This subject is robust enough to warrant a post of its own, so we will detail that in the near future. 

U for Utilities

Depending on the size of the development project you are seeking to pursue, utility requirements will typically scale alongside the number of future home sites you are seeking to establish. In all cases, there are three fundamental utility requirements: Water, Power, and Sewage. For single family residential projects, highly marketable waterfront vacant land listings will oftentimes have all three utility requirements on the property or stubbed out in the utility easement adjacent to the street. If a waterfront vacant land listing doesn't have utilities on site or in the utility easement, you will want to determine the following:

1. Power: unless you are intending to build an off-grid waterfront retreat, power supply is most often provided by the local public utility district (PUD) or equivalent. If there is no power availability at the street or on the neighboring properties, you will want to determine how far away the power supply is, then meet with the PUD and ask them to provide an estimate of cost to bring power to your property. The PUD may require you to engage a contractor qualified to tackle the power line expansion, which most horizontal infrastructure contractors would be happy to provide considering they will likely get the contract to complete the work. Typically, the power line expansion does not include the cost to connect the property to power, which is often an additional expense the PUD requires, such as installing a meter and/or a connection fee. 
2. Water: There are effectively two options when it comes to water supply: public/community water systems or a well. Again, depending on the size of the development project you are seeking to pursue, if you are seeking to develop a subdivision with multiple waterfront (or non-waterfront) lots, the municipalities planning department will likely require you to procure a statement of "Water Availability" from the public/private water system within which you are seeking to expand. Alternatively, if you are seeking to develop a single family waterfront home and there is no public/private water system into which you can connect, you will need to drill a well or reach an agreement with a neighbor to compensate them for shared access to their existing well. The latter is somewhat rare as water is becoming an extremely valuable commodity and people with high-producing wells understand the value and typically reserve the water for their own use. If you are required to drill a well, the governing municipality will typically have minimum gallons-per-minute (GPM) requirements for the construction of a single family home. Make sure to ask your municipality what their GPM requirements are during the planning meeting you have within you feasibility contingency. Next, you'll want to ask the municipality if they have an online resource to research the neighboring property well depths and GPM's. In my market, this is available at a state level, but since the public publishing of well digging reports is relatively new (read, the last 40-50 years) the number of well digging reports available online is a small fraction of the total number of wells dug. Some things to look for on the neighboring well reports are: how deep are the neighbor's wells and what GPM did they report at the time they were dug. VERY VERY roughly, a rule of thumb for the cost of a well is $100 per foot. So, if your neighbor's well is 200 feet deep, you can expect to pay $20,000 for the well. Again, this is a very rough rule of thumb and factors like the underlying geology and availability of well digging vendors can significantly impact this cost. Finally, one thing to understand is that even if you pay $20,000 for a well to be dug, it is possible that you don't receive an adequate GPM for the construction of a single family home. We highly recommend you contact a trusted well digging company to request their professional opinion on the underground water availability in the location in which you seek to build a waterfront home.
3. Sewage: This utility category is also typically bifurcated into two options: public/private sewer systems and private septic systems. If the property on which you are seeking to build is located in an area served by a sewer system, chances are you will be required to connect to the sewer system and, in many cases, pay a late-comers fee to the utility district. Even if your property is a reasonable distance from the end of the sewer system, to get a construction permit, you may be required to expand the sewer line to reach the property on which you seek to build. This is yet another subject you will want to cover during your meeting with the planning department: "is my property located within the defined boundaries of the sewer system?" If sewer service is not available at your property, you will be required to install a septic system or connect to a neighboring LOSS, which stands for Large On-site Septic System. The latter is rare, so chances are you will be required to install your own septic system. Typically for development permits, a municipality will require you to complete a "perk test" for every septic system you seek to install. For example, a single family home + DADU that will be connected to one septic system would require one satisfactory perk test. Alternatively, if you are seeking to develop a waterfront subdivision, you will generally need to complete a perk test for every lot that results from the subdivision of your larger property. The type of earth under the surface of your property will determine if a septic system is possible and, if so, what type of septic system you will be required to install, whether that be a gravity system, engineered/pre-treated system, or a fully custom system. We are starting to see more waterfront properties fail to qualify for a drainfield, so homeowners are installing solely a septic tank and committing to pumping the tank as often as required to qualify for a building permit. 

As you can tell in these utility categories, I am barely scratching the surface on the details you may encounter when determining if utility service is available at your future waterfront development site. 

M for Marketability

While you might say to yourself about your waterfront development project, especially a single family home, "I am building my forever home," we always recommend considering the future marketability of what you are developing before you close on the purchase of the waterfront property. All too often, we see property owners who have over-improved a waterfront property to the extent that they spent far more in development than the price at which the market values the property. There are certainly circumstances where a property owner doesn't care if they get their money back out of the property through the eventual sale, but in most cases, we recommend evaluating the current market values of similar properties and determining what the construction cost of your desired improvements may be, so that you can make an appropriate investment into the land, planning, and construction and not be significantly over the market value of the improved property. Alternatively, if you are planning a multi-lot development project for resale, you should especially consider how much you land purchase plus development costs will be, then subtract that from the future selling price, less cost of sale, to determine what your profit margin may be for the waterfront development project. 

Conclusion

We hope this high-level framework for the due diligence process of evaluating waterfront vacant land for a development project is helpful. We have used it a countless number times to help clients make an informed decision before investing hundreds of thousands of dollars, and in some cases, millions of dollars, into waterfront vacant land. We will continue to publish our thought process for evaluating properties in future posts, so stay tuned for more! As always, please let us know if you have any follow up questions. And, if you are investigating a waterfront property in your market, please let us know and we'll connect you with a waterfront specialist who knows your shoreline regulations better than the average agent.