19 NOVEMBER 2024to the proposed parcel yield, it becomes clearer. Even though total revenue increases with yield, marginal costs will typically increase exponentially for those last few units. Squeezing in those last few lots typically requires some extraordinary engineering element or design consideration and regularly condemns developers and projects to miss or underperform the expected returns. And unfortunately, these decisions sometimes decide if the project winds up being profitable at all.The question turns to the origins of those exponentially higher costs. In my experience, they fall into two categories: "conspicuous" and "inconspicuous." Conspicuous costs include things such as:· Creek crossings were created to get access to additional parts of a parcel.· Retaining walls are built to create additional "useable" lot areas where the existing topography doesn't naturally support it.· Road improvements are required to obtain these higher yields.Inconspicuous causes are less tangible and can be more difficult to recognize and evaluate. They include, for example,· Costs indirectly associated with municipally restricted parts of the project, like disturbance limits or tree save areas· Increased earthwork costs on projects where the entirety or majority is designed as either lot area or restricted area, as there are fewer areas to swap and balance material· Expensive export scenarios where excess material must be trucked off the job because there is little to no room to swap or waste topsoil and structural material Certainly, there will be some parcels, perhaps in other parts of the country than mine, where profit is maximized at maximum yield. But, in my market, with topography, jurisdictional waters, and regulations creating unique constraints on each project, profit is maximized at some point below the absolute maximum yield. My position is simple: developers must continuously examine and estimate the financial impacts of engineering decisions while the design process runs its course.If a $500,000 creek crossing gets access to 10 additional lots, does that additional $50,000-per-lot expenditure create an additional return for the project? Even if the project breaks even from a pure cost perspective, it will cost the project time, and the same return generated now is better than the same return, say, six months later. If a lot is created that requires a retaining wall and costs $80,000, will the resulting home sold on that lot generate a profit of more than $80,000 and justify the wall's inclusion in the design? If not, simply abandoning that lot is the more profitable decision. If developing a lot incurs $40,000 in additional export costs, will that significant sum be returned? Maybe not.Each of these hypotheticals demands analysis. Challenge that creek crossing that only yields ten more lots--and consider the total cost of adding them. Challenge the need for that retaining wall--does it create any value or just make the schedule longer or worse? Many engineers think they are serving their clients best by maximizing yield and, ultimately, costing them profit instead. That is not the engineer's fault--it's the client's. Don't allow them or your lack of evaluation to ask too much of the land.
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