Five Mistakes Developers Have Made When Developing a New Condominium Project
Development work is not for the faint of heart. There are so many moving parts in the process, that it sometimes seems overwhelming. Below are just a few considerations from a legal and practical standpoint that highlight some things to consider in your next project.
- Confirm Your Access. About 25 years ago a high rise developer pursued the development of his project in urban Honolulu without checking whether the land had access to a public street. He checked the zoning, the sewer capacity, the setback requirements, the permitted floor area ratio, and other things, but failed to research whether the road that he planned to use to provide access to the project was indeed a public way. As it turned out, it was not. This was a costly mistake, as one might imagine. Access was ultimately obtained, but at an exorbitant price.
- Not Anticipating What You Need From the Neighboring Owner(s). In another project, the developer proceeded to acquire the land, obtain its entitlements, and eventually obtained the building permit to build the project. The project was a high rise that required the use of a crane to deliver materials to facilitate building. The crane needed to swing over lands abutting the project lot to effectively operate to accomplish the task. The neighboring owner refused to grant a temporary easement to permit the crane to swing over its property. This caused a major delay in the project and was expensive to resolve.
- Failing to Check Private Covenants. A developer checked all of the entitlements necessary to build the planned project, but failed to check and read through the encumbrances on title, which were extensive. One covenant on title had a setback requirement that precluded the developer from building within a certain distance from the property line. The developer had to redesign the project to comply with the restriction, and was not able to build the project as originally planned.
- Underestimating Common Expenses. While it is difficult to predict what a budget will be two to three years after a sale is made to a buyer, it is better to be conservative and go high in order to avoid the inevitable claims that a developer will face if maintenance fees soar post-closing. While high maintenance fee estimates may adversely impact sales to some degree, the grief and cost on the back end when claims are made to cancel sales or that the developer underestimated maintenance fees tend to be more costly and damaging in the end.
- Failing to Involve the Permanent Lender Early and Often. If a project will require take-out financing at some point, it is important for the take-out lender to be involved in the early stages of the project in order that the development plan and documents satisfy its underwriting requirements, and, to the extent that FNMA or other secondary markets will be accessed, that those requirements are met as well. This will avoid embarrassing and costly changes in the project plan and documents at inopportune times in the development schedule.