The site selection process for a construction project requires that you devote considerable resources to studying factors such as demographics, foot traffic, available transportation, and potential subsidies, among other issues.

The most important pieces of that process are understanding:

• The building’s potential uses (as dictated by zoning laws)
• Potential Floor Area Ratio (FAR) changes, bonus or otherwise
• How the building is permitted to function according to the current Certificate of Occupancy (CO)

An initial feasibility analysis should examine these aspects of the project. It should look at zoning data, the uses permitted under the CO, what additional FAR may be available for future development, and signage allowances and requirements.

Additionally, during this due diligence period, the developer must unearth any open applications (especially life-safety related applications) and violations that could hinder obtaining a new CO.

Before attempting to reposition, renovate or turn over the property, comb through agency reviews to make sure the building is clean. You don’t want to find anything lurking in the paperwork that can hold up a sale.

An edge in negotiations

Thorough due diligence can uncover exposures that could provide leverage during contract negotiations. For instance, a skilled investigator will recognize when other agencies beyond the Department of Buildings (DOB) may be involved. Digging deeper may unearth additional issues that may have a financial impact.

Identifying any potential obstacles before the sale allows a prospective buyer to make an informed decision, while presenting the strongest possible case at the bargaining table—since once these issues come to light, the property becomes less attractive to future buyers.

A costly example

Lack of due diligence can seriously affect a building’s value. One example came to Milrose recently when a developer attempted to refinance a property, only to be denied by the lender because the building didn’t have a valid CO. In this case, the developer had left it up to the subtenant to obtain and maintain the CO. As a result, the subtenant defaulted on their lease and received an eviction notice.

Milrose was able to step in and investigate the delay in issuing the CO. By addressing the open violations/applications that were holding up the certificate, the project team secured the TCO. The developer moved ahead with the refinancing, and the subtenant was allowed to retain occupancy.

The real lesson here is: do your due diligence, every time, and you’ll never be sorry.

For any additional questions or comments on this topic, please contact Milrose Consultants.