Political Due Diligence in Commercial Real Estate

By Patrick Fox  EMAIL

Any company making decisions about a commercial real estate deal does a lot of due diligence. They study demographics, market share, infrastructure, and deal financials among other things. What too many still fail to do is a political due diligence. All land use decisions are political and the question needs to be asked – Is it politically feasible to get this project approved?  We are often brought in by clients who neglected this crucial step.

• After three years of trying and failing to get a retail outlet built in an east coast city, the developer asked us to take a look at the project. We quickly discovered that the mayor had a history with the retailer’s local lawyer and City Hall would never approve anything this guy was involved with. New lawyer hired- project is quickly approved. Three years and hundreds of thousands of dollars lost.

• Another developer had a large-scale retail project that he had been trying to get approved for a couple of years. Come to find out that the Speaker of the House’s mother lived across the street from the site. The Speaker grew up there. The project was never going to happen and all efforts and resources were wasted when a basic look at the local politics would have brought this fatal issue to light.

• A leading grocery chain wanted to locate in a small city. There is support from the city council president to locate the new store in an old high school currently being used as a regional cultural center. Kids take lessons there. Community groups have meetings there and the auditorium is often used for performances by local groups. Several non-profits rent space. Our project manager talks to the mayor about the project and he says he loves the idea. The city cannot afford to maintain the old building and the proposed investment in the heart of the small city is just what they need. Can we get a statement of support from him? NO. Will he speak in favor at a community meeting? No. Will he explain to a reporter how the financial burden is crippling the city? No. “Are you crazy! They would throw me out of office if I did anyone of those things but I wish you luck. It’s a great project.” There was no way this store was ever going to be built and a quick political due diligence would have saved a lot of time and money. The client had to find a new site.

We have countless examples from more than 30 years and over 2000 projects. Today, many of our clients ask us to conduct a political due diligence on their key projects before they get in too deep. Not only is the information crucial when making those early decisions to invest in a site, the information gathered is absolutely necessary when developing an effective strategy and budget to win community support and local approvals.