Due Diligence Land Mines: Incorrect Zoning Maps

The current real estate market is all about foreclosures, auctions and quick and dirty sales. There's little or no due diligence done on any real estate "transactions" these days and, worse, many buyers (and bidders) rely on incorrect due diligence findings discovered during very quick due diligence reviews. There are numerous due diligence traps, but one of the more common is to simply consult a local zoning map to determine zoning entitlements applicable to a property only to later discover the zoning map is incorrect. What? How could this be?

Why zoning maps show incorrect zoning districts designations for properties

Some municipalities and counties are simply behind on updating their zoning maps. The maps still show old zoning districts for several properties. You must research the public records and zoning files to determine the correct, applicable zoning district for a property. Also, some municipalities and counties had, or have, policies that zoning maps are not updated or modified until all zoning stipulations of approval have been satisfied on a site or until site plan approval has been obtained.

Tell me more about "stipulations"

Stipulations are frequently attached to requests to rezone property from one designation to another. Stipulations often require landscaping, screening and/or right of way exactions beyond that required by the local zoning code. Another very popular stipulation is to require that a site be built in conformance with an approved site plan. Typically, stipulations can only be modified or removed via a public hearing process. Watch those stips!

But wait, won’t planning staff give correct land use entitlements for a property?

Maybe not. Many city planning departments have been hit with severe lay offs. The result is zoning counters are staffed by people that may have absolutely no planning or zoning experience. These folks are well intended, but they may not understand what files need to be reviewed and they likely don't even know their city zoning maps are incorrect.

What about zoning verification letters?

Zoning Verification letters are written by the same well intended people who staff the zoning counter. Remember the general rule: municipalities and counties are not responsible for the acts of their employees. So, how much is that letter worth? Well, maybe enough to satisfy a not particularly savvy lender, but probably not enough to throw your hand up at an auction.

Solar Energy: So Much Potential, So Many Hurdles

We've all been reading a lot about solar energy power plants in Arizona for several months. It's an exciting industry with a lot of potential. Several companies have shown an interest in developing solar energy power plants in the sunny state of Arizona and the future looks bright for this industry. So, why haven't we seen many solar project completions in Arizona? Well, it seems solar projects have to address several development issues that can delay or kill solar projects, particularly projects designed to put energy on the existing grid. Some of the issues (and obstacles) facing solar power plants include:

If you produce it, they will buy? Some solar companies fail to address the most basic of issues facing solar power plants: finding a buyer of their energy production. Arizona essentially has two realistic purchasers of significant megawatts: Arizona Public Service (APS) and Salt River Project (SRP). Of course, some solar projects will be developed in Arizona and sell power to Southern California Edison (SCE) or Pacific Gas and Electric (PG&E) but SCE and PG&E seem to have all the solar power they want to purchase for sometime. If a solar company hasn't first talked to APS, SRP, SCE or PG&E and secured a reasonable assurance of an agreement to purchase power, it's unlikely the solar project will be successful. Several solar companies have learned the hard way that you need to secure a purchase agreement, or reasonable assurances of a purchase agreement, from APS or SRP prior to expending any significant effort on the development issues associated with a solar power plant.

Location, location, location. It's the golden rule of real estate, yet several solar projects have failed to consider one of the most important location decisions relevant to a solar plant: the power plant must be located a reasonable (i.e. economical) distance from a power delivery point. If a substation is located miles from the solar facility or the nearest substation is at capacity and doesn't have room (or the ability) to expand, an otherwise perfect location for the development of a solar project becomes unworkable. It's prudent to place this issue at the top of the list of required criteria for selection of a development site.

Where's the money? We are all waiting for our friendly bankers to open the coffers for even the most well established developments and proposed developments. Solar projects face especially high financing hurdles in this market. A lack of financing kills several solar projects. Although the promise of stimulus funds and government loan guarantees to obtain construction financing is enticing, these funds and guarantees are often very slow to come and funds and guarantees are not so easily obtained. The most successful solar project developers have managed to find significant funds from private investors.

The Great Land Grab. Solar projects tend to require a lot of land. In bad economic times, it's been relatively easy for solar companies to tie up private land for several months while the solar company conducts its due diligence. But there's only so much private land that is workable and available for solar projects and hopefully the market will soon turn and private land owners won't be so willing to enter into agreements with long due diligence periods. Thus, solar companies have to consider alternative owners for their potential development sites. These owners include the Bureau of Land Management (BLM), the Arizona State Land Department (ASLD) and Indian reservations. Indian reservations, ASLD and BLM all provide excellent opportunities for long term leases of large expansions of land offering excellent development opportunities. However, very few solar companies (or law firms) have any significant experience working with the BLM, ASLD or Indian reservations. It is very important to include as a member of the solar development team a person with a lot of experience dealing with these jurisdictions or the development process will be long and painful.

Simon, may I? If a solar project manages to get past the initial hurdles of development discussed above and a particular site seems to meet development needs (adequate water, access to sunlight, adequate vehicular access, etc.), then the project managers can turn to permitting issues. A solar power plant will require various environmental, utility and zoning and land use approvals prior to construction and operation. The good news is these approvals seem to be easier and easier to obtain, but they still require a lot of time and it's critical to have a team that knows which approvals make the most sense for the project and the best approach to obtain those approvals.

Incentives and Competition. Of course one of the biggest contributing factors to the lack of solar projects in Arizona is the lack of incentives available to solar projects within the state. Other states (New Mexico, in particular) offer great financial and other incentives for solar projects. The incentives offered by surrounding, competing states can make it very difficult for Arizona to compete for new solar projects.

This entry addresses some of the bigger picture issues facing solar companies. There's also plenty of good news for the solar industry. The future looks very bright for solar power and with some patience and the right team, a solar project can be quite successful and have a great impact on the future of our planet.