Just yesterday I had the following discussion with my civil engineer regarding a proposed $35mm workforce housing development to be financed with tax-exempt bonds – a typical day in the life of a developer:
Engineer: “The city wants us to obtain an easement for this 6-square foot piece of private ground to install these offsite stormwater improvements.”
Me: “Ok. But it’s a public improvement, why should I be the one to obtain the easement? That neighbor will likely ignore me. After all, I’m a for-profit developer intending to build apartments near his single family home.”
Engineer: “The city will step in only after you have made an attempt to obtain the easement, but failed.”
Me: “Ok. What will it cost and how much time will it take? Will it hold up my permits? I cannot close on my bond financing without them.”
Engineer: “The easement will probably cost about $2,000. Really not much at all. The city will issue your permits prior to obtaining the easement, but won’t let you begin construction until the easement is obtained. It’ll probably take 6 months to obtain the easement.”
Me: “What you described isn’t a $2,000 problem, it’s a $1,052,000 problem.”
Engineer: “How’s that?”
Me: “At closing, $35 million will get funded into a Trustee account earning 6% (or more) annual interest. Our construction start will get pushed back 6 months which will cost us $1,050,000 in interest, plus the $2,000 to acquire the easement. Does the city not understand the time value of money?”
Engineer: “Wow. I had no idea.”
From the piece:
“First and foremost, local officials should take a hard look at their internal regulatory and permitting requirements. In real-estate development, time is money. Regulatory and permitting processes often unnecessarily add to this burden.”
A link to the piece is found here