Top 4 Rookie Infill Development Mistakes

Some of the most expensive mistakes in infill development happen before construction even begins. They're often made by relatively inexperienced investors who assume that because something exists, it must be suitable for their proposed development. Today we're examining four of the biggest risks that can turn an apparently profitable infill project into a financial disaster. The first, and arguably most important, is geotechnical risk. The soil stability can determine whether you can build, or face hundreds of truckloads of export and import to replace the soil on the property. 2. Municipal servicing capacity. One of the most dangerous assumptions in infill development is that because water and sewer services exist in the street, adequate capacity must be available. That is simply not true. An existing single-family home might have a modest water connection and a sanitary sewer lateral designed for a single household. Replacing that house with twenty apartments creates an entirely different demand profile. The municipal water main might not have sufficient capacity to meet the domestic water requirements and fire protection demands of the proposed building. 3. The geometry of the sanitary sewer system. Sewer systems generally rely on gravity. Wastewater flows downhill through pipes installed at carefully designed slopes. For gravity drainage to work, the elevation of the sewer connection must be sufficiently low relative to the building's drainage outlets. 4. Site topography The developer wants to maximize the building footprint while maintaining parking, access, and landscaping. The building needs a level foundation, but the surrounding ground is anything but level. Suddenly, retaining walls become necessary, and retaining walls are not simply concrete walls holding back dirt. Depending on their height and location, they may require engineered foundations, drainage systems, waterproofing, reinforcement, and special construction techniques. ------------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1) iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613) Website: [www.victorjm.com http://www.victorjm.com/](http://www.victorjm.com http://www.victorjm.com/) LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce) YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734) Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso) http://www.facebook.com/realestateespresso%5D(http://www.facebook.com/realestateespresso) Email: [[email protected] mailto:[email protected]](mailto:[email protected] mailto:[email protected]) **Y Street Capital:** Website: [www.ystreetcapital.com http://www.ystreetcapital.com/](http://www.ystreetcapital.com http://www.ystreetcapital.com/) Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital) http://www.facebook.com/YStreetCapital%5D(https://www.facebook.com/YStreetCapital) Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)

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  Welcome to the Real Estate Espresso Podcast, your morning shot of what's new in the world of real estate investing. I'm your host Victor Manash. On today's show, we're talking about the top four rookie mistakes that I see newer investors making when it comes to infill development. You take a parcel of land in an established neighborhood, it's often surrounded by existing buildings with roads, utilities and services, and creating additional housing where demand already exists. On the surface, it seems a lot less risky than developing a greenfield site on the outskirts of a city. After all, the infrastructure is already there, the roads are built, the water and sewer lines are in the street and the neighborhood's established. But appearances can be deceiving. Some of the most expensive mistakes in infill development happen before construction even starts, and they're made by relatively

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  inexperienced investors who can assume that because something exists, it must be suitable for their proposed project. Well, today, we're going to examine four of those risks. The first, and arguably the most important, is the geotechnical risk. When you purchase a vacant lot or an older property for redevelopment, you've got very little information about what's beneath the surface. You just don't know what's under there. You might have organic material which compresses, it's great for building gardens, but terrible for supporting buildings. You might have construction debris. You might have expansive clay that will tend to pump as the moisture content change. You might have a high water table, or you could have bedrock that requires chipping or blasting to get it out. The difference can be hundreds of thousands of dollars. Imagine underwriting a 20-unit apartment building with a conventional

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  foundation. Your engineer has already got spread footings designed based on an assumed soil bearing capacity, but then the geotechnical investigation reveals that the upper several meters consists of unsuitable fill. Suddenly, the foundation design changes and you've got to both excavate and replace the unsuitable material. You've got to install engineered ground improvements, or use deep foundations extending down to some load-bearing strata. Everything above the surface hasn't changed, but the construction budget can increase dramatically. That's why the geotech investigation's got to be one of the earliest things that you focus on in due diligence. A few boreholes, a professional expert can reveal conditions that fundamentally change the economics of the project. The second major risk is municipal

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  servicing capacity. And one of the most dangerous assumptions in infill development is that the water and sewer exist, because they exist in the city, that they have the capacity and therefore are available. That's not necessarily the case. An existing single-family home might have modest water connection and a sanitary sewer, but as soon as you change to a multi-unit apartment building, now all of a sudden, you might have fire suppression needs that far exceed the demands of domestic water use for a single-family home. There might not be sufficient capacity to meet the fire protection demands of that building. The sanitary sewer might already be operating near its design capacity. In some cases, the municipality has both stormwater sewer and sanitary sewer combined together. And while the sanitary sewer might have capacity,

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  in heavy rainfall situations, there can be circumstances where the sanitary sewer backs up because of the deluge of rainwater. The third risk is related to servicing, but it deserves special attention. If the geometry is such that the sewer cannot be gravity-fed, after all, water flows downhill through pipes at carefully designed slopes. For gravity drainage to work, the elevation of the sewer connection has to be sufficiently low relative to the building's drainage outlets. There's a fairly narrow range of depths that are actually going to work. If you can't get that geometry to work, you might be looking at an expensive sewer lift station. Those often require backup power, alarm systems, one-way check valves, redundancy, and if they're going to be maintained by the city, they're going to have to be built

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  to city standards, and they're probably going to have to supply more than just your building. Even a modestly sized sewer lift station can easily cost a quarter million dollars. We're installing one right now for a project of 104 townhouses, and that one's three-quarters of a million dollars. So sewer lift stations are not something to gloss over. The fourth major risk is the site topography itself. A parcel might look reasonably flat when viewed from the street, but a detailed topographic survey can reveal significant elevation changes across the property. Depending on where those elevation changes occur, could significantly alter the layout of your building, including the stormwater management. Now, imagine a property that slopes downward towards the rear property line. That's beautiful for building, say, a walkout basement, but if the frontage of your property is not level, it's going to

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  be very difficult to build driveway access. When you're going into a driveway, it's okay if you go up the drive or down the drive, but you don't want to be at an angle from left to right. That front of the driveway needs to be flat, and usually, the front of the house needs to be flat as well. So in order to create those conditions, you often end up having to build very expensive retaining walls. Those retaining walls are not just concrete walls holding back the dirt. They could be providing engineered foundations, drainage and waterproofing for the entire site. Those can be incredibly expensive, sometimes costing hundreds of thousands of dollars. These are characteristics of the site that you want to get answered as early in the due diligence process as possible. The geotech may require you spending a bit of money, but the rest you can figure out just by asking

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  the right questions of the right people. It can make the difference between a profitable one and one that's going to lose money. As you think about that, have an awesome rest of your day. Go make some great things happen. We'll talk to you again tomorrow.