Land development is the beginning stage for any property where construction is going to happen. Before any construction can start on raw land, it must be entitled.

Raw land development tends to be a reliably high yield investment. While it can take time to complete and involves complex processes, there’s a good chance of a high return on investment (ROI) at the end for the patient and motivated developer/investor.

Stages of Retail Land Development

For raw land to be developed, it must go through the 6 stages of development. These are as follows.

Stage 1 Due Diligence—At this stage, retail land developers are researching to find a viable raw land investment project on the path of growth. This is an involved stage that you do not want to get wrong. It is better to spend a longer time in due diligence rather than to rush into a bad situation.

During due diligence, developers are looking at:

• Economic projections
• Expected population growth
• Job creation trends
• New construction plans

Research starts broad and narrows down as you go until you find a specific community and neighborhood for development.

For proper due diligence, you will want to connect with a solid local network, including real estate brokers, business leaders, builders, contractors, and others.  Of course, government is another consideration in this stage. In Toronto, for instance, the Planning Act is provincial legislation that sets out the ground rules for land use planning in the city. It is imperative to make sure that any land development is in compliance with those rules in addition to other related zoning matters.

Stage 2 Acquisition—After a suitable property has been found, it is time to start the raw land acquisition process. While developers can acquire properties many different ways, these are the two most common:

1. Purchasing with cash upfront

A developer can purchase raw land with a cash sum upfront. This is often a risky way to acquire property as it ties up financing in the beginning of an often-long development process. It may take years for the land to be developed then sold.

2. Arranging an option to purchase agreement

Under this type of arrangement, a developer pays a non-refundable deposit in exchange for the right to purchase a property by a set date for a pre-set price. This option frees up more capital to use in development rather than tying it up at the beginning.

Stage 3 Drafting Plans—Before you can begin to develop the land, your plans must be approved by the City Planning Department. Architectural plans and other paperwork must be drafted for submission. These should give details about the proposed economic use of the raw land.

Stage 4 The Entitlement Process—The entitlement process involves submitting all your drafted documents for approval by the city, county, and state authorities in your local area.

Raw land development is often a high yield investment. Getting through the entitlement process means the developer has:

1. Invested time and experience building relationships with local authorities to obtain the necessary approvals for raw land development.
2. Managed competing intentions for the property to secure their intended result.
3. Taken the raw and undeveloped land and made it ready and available for the intended construction project. Often, this will include turn-key access to utilities, municipal water, sewers, roadways, and other public services.
4. Prepared the land for immediate construction.
5. Entitled land gives the benefit of accelerated cash flow, leading to quicker returns for investors constructing on the property.

Stage 5 Selling the Land—Entitled land is far more valuable than raw land. With public infrastructure access, the value can increase to more than 3-5x the original land value.

Newly entitled land is sold by lot or by parcel. Buyers are normally real estate developers or investors. At the point of sale, profits are realized for the raw land developers and their investors.

Stage 6 Handover—After purchase, the newly entitled land is handed over from the land developers to the new owners. The new owners are now free to develop the property as they please.