December 11, 2024

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Perspectives on land development: A ‘Future of Work’ Q&A

Editor’s Note: Recently, WRAL TechWire launched a new series, the “Future of Work” that showcases the changing nature of the Triangle’s economy, its places, and its spaces.  The Future of Work series is supported by commercial real estate firm JLL and other partners.  The first report is here, and the second story is here.  Last week, the series explored the relationship between work spaces, work places, and the current labor market.  The series continues this week, along with a LinkedIn Live broadcast on Tuesday, May 3, at 11 a.m.

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RALEIGH – There’s only so much land.  Real estate is immobile, for the most part.  And part of a parcel’s value is inexorably tied to its location, and its proximity to other parcels of land.

What gets developed, and why?  As economies change, industries emerge, and people seek to relocate to new areas, neighborhoods, and homes, what are the forces that underlie a changing demand for land use?

That’s what WRAL TechWire explores this week in the latest Future of Work reports on land development and land demand.  In addition to the special report, we’ve compiled an in-depth Q&A on the topics of land development, economic development, and the Triangle’s changing land demand.

This Q&A was adapted from a series of interviews conducted by WRAL TechWire (TW) with Matt Winters, executive vice president at JLL (Winters), and Sarah Godwin, director of capital markets (Godwin).  It has been lightly edited for clarity and appears below.

Future of Work special report: Accross the Triangle, an ‘insatiable demand’ for land

Why land is of interest

TW: What do land developers look for? For those based out of region, why are they looking at the Triangle? 

Godwin: Primarily developers, who plan to activate sites for development quickly, at least in areas where approvals, like rezonings, tend to be possible and utilities are available. For land that is more challenging or lengthy to develop, companies called “entitlers” do a brisk business going through the entitlement process and then selling to developers.

There are also some purely speculative land players that put a site under contract with long contract times and then wait to see how the market changes before their closing date.

Out-of-market groups are attracted to everything that Triangle residents love about the area – strong and diverse economy, high quality of life, stellar education system and institutions. Our market has been discovered for being an overall amazing place to live and invest. We talk to at least 5 groups (developers and capital sources) per week that are seeking to understand and invest in the Triangle.

There are a number of national rankings that have attracted interest as well, like Urban Land Institute’s ranking of Raleigh-Durham as the #2 Market for Overall Real Estate and #1 market for Homebuilding.

Land demand, development is focus of WRAL TechWire LinkedIn Live on Tuesday

Economic development

TW: As corporate entities are considering new headquarters locations and/or expansion sites, what are the most important factors, and why?

Winters: Access to talent and labor force remain at the forefront of corporate relocation decisions. Quality of life and costs of doing business continue to drive employee lifestyle preferences and employer decision making, respectively. The key criteria for corporate facilities decision making remains in large part unchanged since before the pandemic began. However, the pandemic has been a great accelerator for major corporate real estate projects in our region. Furthermore, a spotlight has been placed on the importance of an organization’s workplace experience, quality of employee lifestyle, and supply chain reliability.

TW: In what ways does North Carolina’s business and regulatory climate encourage or support land acquisition and development?  

Winters: Corporate recruitment is truly a team effort in the State of North Carolina. A deep bench is absolutely necessary in order to be in the game. Large projects require support and coordination amongst the State of NC, RTRP, EDP NC, utility partners, rail providers, NDOT, local municipal and county EDC partners, just to name a few.

TW: What’s the role of an economic development corporation or an economic development partnership – at state or local level – in preparing land for potential investment.  What are the factors involved?

Winters: Job creation and total investment are the key criteria that are often associated with economic development projects. But that is only scratching the surface when considering the important role that economic development partners bring to the table. Local, county, and state officials serve as connectors between a project need, private investment, and community impact. Coordination amongst team members and partners is key in order to position the site, municipality, county, and state in a position for success.

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Preparing for development

TW: What’s the full process for new developments of residential property in North Carolina?

Godwin: The full process, from raw land to groundbreaking on the first home, can take several years from the first conceptual layout and product selection, to rezoning and/or site plan approval, to construction drawings and permits, not to mention all of the interim steps for wetland delineation, NCDOT approvals, and 401/404 permitting through the US Corp of Engineers. It’s an incredibly complex process – the homes under construction today likely started being conceptualized in 2017-2019.

TW: Any added complexity based on city/county zoning or permitting processes? 

Godwin: Rezonings always pose a risk, but the vast majority (but not all) of governing authorities in the Triangle offer what developers desire the most – feedback and transparency throughout the process, in a way that respects everyone’s time, efforts, and contributions to the community. The most complexity is when an area doesn’t have enough water or sewer capacity, or an authority must regulate capacity. There are several areas north of Raleigh, like Franklin County or South Granville, that contend with these constraints, but it’s becoming more common to have utility capacity issues overall with our explosive growth outpacing utility authority’s capital improvement plans. Think of Veridea in Apex.

TW: Are there residential projects considered to be a “gold standard” for the region, whether they’re recently completed or recently announced? 

Godwin: Master developers don’t receive enough praise for their extraordinary efforts and vision. There are several special developments, like Wendell Falls or Chatham Park, that create amazing development atmospheres with a true live-work-play vision from the beginning. With the right master developer, every component is able to focus on what they develop best and thrive.

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Multifamily projects

TW: What about in the commercial, multifamily, residential sector?  What’s the full process from land acquisition to leasing, and what’s the timeline?  

Godwin: Similar to the residential process with an increased level of knowledge needed to finance the project (speculative or pre-leased), marketing to secure any pre-lease tenants needed, and make any final design changes throughout construction (think of buildings that made COVID-related design tweaks). Each commercial or multifamily development, from idea to completion, likely hundreds of professionals that help shepherd it to completion.

TW: Which types of locations are most in demand for multifamily properties right now, and why? 

Godwin: Anything near RTP is extremely liquid and sought-after in recent years, which includes areas of Durham, Cary, and Morrisville, for any product type. On the eastern side of town, both Raleigh and Garner are very in demand. Garner has been interesting, since most interest is residential in nature, but it’s getting looks now for flex and life science.

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Commercial and industrial

TW: How, in North Carolina, are properties “prepared” for investment, such as Triangle Innovation Point, as an example.  Who is involved, and how, and on what timeline? 

Godwin: It takes many, many years. It starts before acquisition, with likely more than a year of finding and connecting with a landowner that wants a sale transaction, then determining an acceptable price and closing timeline & proceeding with initial diligence.  Triangle Innovation Point has been coming together for the past decade, with untold meetings with Chatham County, NCDOT, and other governing bodies. Other critical groups involved in a project that large are wetland consultants, traffic engineers, civil engineers, land planners, utility companies, etc. Public money can be needed if an upfront investment is needed to make the site investor-ready – chasing large tenants in multi-state searches means that your site has to offer a competitive “speed to development” to be on par with other shovel-ready sites.

Winters: Properties are often prepared for investment by extensive due diligence efforts and long term planning. Working alongside municipalities is critical for making necessary infrastructure improvements or preparing a plan for the same. A deep bench including architecture and engineering partners, environmental consultants, land planning staff, sitework/grading contractors, is a must in order to prepare large tracts of land for development and recruitment.

Special report: The future of the Triangle’s economy hinges on its spaces

Current demand

TW: How would you describe current demand for commercially-developable land? 

Winters: There is an insatiable demand for land that can accommodate industrial projects. Competition and pricing have only increased to the crossover with life science projects. Our industrial market was historically dominated by two submarkets, RTP/I-40 and East Raleigh.

Currently, we are seeing demand focused on new areas of the Triangle, including the US-1 corridor towards Sanford, Mebane, and Clayton to name a few. In addition to longtime Raleigh stalwarts in industrial development, there is now great diversity of capital searching for industrial land in the Triangle, leading to increased competition and land values.

The Raleigh Durham region has emerged as a top life science cluster in the US, competing along with long time stalwarts such as Boston, San Diego, and Philadelphia.

Again, its starts with the talent and labor force that exists in the Triangle region due to our educated workforce and quality of life, among other reasons.

Conversion of flex and industrial space is occurring because these properties may be converted in less time than a greenfield project. Speed to market continues to drive much of this conversation.

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Challenges and hurdles

TW: What are the hurdles that need to be passed along the acquisition of and later, the development of, land?  

Godwin: There are two types of hurdles – the municipal/county approvals and the physical challenges of each site. We’ve covered the approvals component. Developers are typically tackling both of those at the same time. The physical limitations of a site should receive more attention, since they can be quite large cost elements in development – not all sites are made equal. Significant topography, parcel configuration, stream/wetland impacts, subsurface rock, or unsuitable soils can be unpredictable and drive up the overall development cost of a site by extreme margins. That’s part of why sale “comparables” for land are difficult to compare against one another, since they don’t tell the whole story.

Winters: Users of office, life science, and manufacturing real estate are seeking properties with speed to market in order to expedite their process. Most often, occupiers do not have time to secure and entitle raw land and complete all infrastructure improvements, in addition to designing, permitting, and building their facility.

Because of this, developers often seek to prepare sites that are shovel ready with infrastructure improvements in place. End users are willing to develop within their site, they are not willing to develop to their site, meaning offsite improvements, entitlements, utilities and infrastructure must be in place in order to meet the timeline needs of the end user.

TW: How are clients and also property owners or potential property owners factoring in climate risk or other sustainability concerns to their acquisition models or their construction choices? 

Godwin: This is happening on the margins and especially if a landowner, master developer, or ultimate tenant has a preference for green building or more sustainable development.

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New vs. upfit

TW: When does it make sense for a client to consider new facility construction at an existing site versus seeking existing facilities that could be upfit to meet needs?

Winters: When considering new construction projects vs. modifying an existing structure, size, timeline and complexity of the end user’s needs are always at the forefront of their decision making. Life science projects with complex process equipment and infrastructure needs, often warrant highly customized build outs and high levels of capital investment.

In such cases, most of these companies prefer to own the real estate and build to suit their own needs. Less intensive uses with a need for shorter term occupancy periods and greater flexibility for future growth may lend themselves towards modifying existing buildings.

Special report: Space in high demand, even as future of work remains uncertain

Triangle and beyond

TW: What are all the potential uses of vacant, undeveloped land today.  Where is there still land in the Triangle?  

Godwin: All potential uses are possible today, from traditional development types like multifamily, office, and flex, as well as newer product types like multi-story lab buildings, life science GMP, and build-to-rent residential. For a number of reasons, including zoning, utilities, etc., most sites have one primarily future use, but there are a number of areas in the heart of the Triangle that could be a good fit for either multifamily, office, or life science.

Land sale processes with multiple possible uses are extremely fun since you get a lot of different perspectives. Land is available all over the Triangle, but the largest areas with vacant land tend to be the most utility constrained, usually sewer. Many parts of Apex near Veridea, northern parts of Durham County, and Johnston County come to mind.

TW: Where else in North Carolina is showing early signs of future growth and development? 

Godwin: Wilmington has started to thrive in recent years, with a substantial number of developers and investors looking closely at residential, retail, and industrial needs in this market. The Triad has started to appeal more to outside developers as well, due to proximity to Raleigh-Durham and Charlotte and as a faster place to get approvals.

This editorial package was produced with funding support from JLL and other partners.  WRAL TechWire retains full editorial control of all content.

More from the series

Special report: The future of work is happening now

Special report: What workers want, now and in the future

Special report: How the ‘Future of Work’ is changing company approaches to space, place