By Steve Hendley, Partner, Construction Services Manager
For tenants calculating business location expenses or developing a building for a particular type of use, plan for the inclusion of fees imposed by System Development Charges (SDCs), which can be significant.
Government agencies impose SDC fees to recover the cost of a particular user’s impact on public services such as water, sewer and transportation. Each type of use (i.e. school, manufacturing and heavy industrial, etc.) affects public services differently, and fees are calculated based on the user’s impact on those services as a monetary solution paid to the city.
Take for example, the SDC fees for the construction of a new manufacturing building. The transportation fee for a manufacturing user is assessed at $3,526.00 per 1,000 square feet. A 10,000 square foot building then has a fee of $35,260.00 just for transportation system development. Sewer and water in this example can add an additional $15,000 and $8,000 respectively. SDCs in this example total and add $58,260.00 to the project cost.
In the case of a new tenant buying or leasing existing space, there are likely credits from the original use applied to offset the cost. If for example, a retail user takes over the space of the former manufacturing user, SDCs are calculated for the retail use and the manufacturing fees already paid are credited against that new fee calculation.
The City has an SDC worksheet available that will assist a new user in calculating the fees that will be imposed by their occupancy. For a small fee, under $100.00, the City will calculate the new fee, research any previous fees paid for possible credits and give a user the fee they can expect based on the criteria provided. However, users should not rely on the City’s assessment alone. The criteria and details provided are important to review with a professional experienced in navigating the process with the City to be sure the current and past assessments are accurate. Miscalculated fees due to a number of factors can result in extra costs amounting to tens of thousands of dollars.
SDC charges often come as a surprise during the buying or leasing process for new tenants and owners. The more research and effort involved in collecting the information to satisfy the necessary due diligence, the more confidence users will have in proceeding with the project. The due diligence effort should be shared between all involved parties in the project. Look for an experienced brokerage team that collaborates between property managers and construction service providers who are well versed in city fees to address the issues and alleviate surprises.
Steve Hendley is a partner and manager of Compass Commercial Construction Services, LLC, a division launched by Compass Commercial Real Estate at the beginning of 2009, Steve guides brokers and their clients through the development and construction process often associated with the buying and leasing of space. Providing this service in-house, allows brokers (and their clients) to stay focused on their primary business, not the business of building and renovation.