Planned Unit Development (PUD) – Financing Guide Pros & Cons

Real estate developers often have grand plans, and what is grander than a planned unit development (PUD)? In this article, we cover:

• What is a Planned Unit Development?
• PUDs vs Condos vs Co-ops
• Investing in PUDs
• Pros and Cons
• PUD Zoning Issues
• Helpful Examples
• Planned Unit Development Financing
• How Assets America^® Can Help
• Frequently Asked Questions 

What is a Planned Unit Development (PUD)?

Let’s start with a planned unit development definition. PUD is an agreement for developing a large land parcel to include commercial, residential, industrial, and natural structures. The resulting developments range from 100 to 200 acres of privately owned land.

Typically, PUDs arise as partnerships between government departments and private planners. Urban planners use PUDs to create a mixed-use environment. Ideally, PUDs blend commerce, housing, industry, and recreation in one area.

PUDs can seem to be a reaction to 20^th century ideas about single-purpose zoning, especially in urban areas. Instead, PUDs emphasize integrated activities, efficiency, and convenience.

The diversification inherent in a PUD also helps reduce market risk arising from building in any one real-estate sector. For example, if the office market has a downturn, the residential market might protect the property investment.

Planned Unit Development Design Principles

While each PUD is unique, they tend to share a common set of design principles. Planners design different PUD components at the same time to increase effectiveness and uniqueness. This gives PUDs a significant advantage over piecemeal zoning that can result in incompatibilities. Major PUD design principles include:

• Housing: Frequently, different housing types (single-family, two-family, and multifamily) intermingle rather than being kept separate. Typically, houses have small private yards, but large shared spaces for use by all residents surround the houses. Often, residences are townhouses, and they may also adopt condo ownership.
• Streets: PUDs de-emphasize the typical focus on street grids having maximal traffic flow and lot frontage on all streets. Rather, PUDs use street-type hierarchies that respond to local usage. For example, residential streets support low traffic flow and connect to larger traffic arterials intersecting the PUD.
• Sidewalks and Walkways: The purpose of sidewalks and walkways is to supplement the PUD’s street system. Typically, at least one side of each street has a sidewalk, thereby promoting walkability. The design links schools, shopping areas, and open spaces to residential areas.

How to tell if it’s a condo or PUD townhouse by looking at plat maps (by Sacramento Appraiser Blog)

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Planned Unit Development vs Condo vs Co-op

Typically, private homeowners own the houses and lots in a PUD, with multifamily properties also offering rental housing. Often, PUD residences are townhouses. By contrast, a condominium is an ownership method in which residents own individual units in a multifamily/apartment structure.

However, a homeowner’s association (HOA) composed of condo residents jointly owns the condo building and common areas. The HOA extracts fees from homeowners to maintain roads and commonly owned features. HOAs also enforce rules to maintain the look and feel of the community.

A cooperative is an apartment building owned by a corporation owned by the co-op’s residents. The residents don’t own their apartments, but rather lease their apartments from the corporation. Co-ops appear in only a few areas in the U.S.

Investing in Planned Unit Developments

PUDs give investors the chance to invest in developments that provide varied and efficient space to commercial, residential, and industrial interests. Truly, this is especially important in urban areas where open space is scarce.

Are PUDs a Smart Investment in 2019?

Indeed, PUDs are popular investments right now, thanks to the incredibly strong economy and increased environmental awareness. However, as with all investments, you should perform due diligence and understand all the risks. In particular, because PUDs are public-private partnerships, politics can create problems for investors.

For example, community opposition can scuttle an otherwise sterling PUD plan. It may also be difficult to negotiate new zoning rules. Nevertheless, there are many PUD initiatives available throughout the U.S. Some will certainly work out to be smart investments.

Planned Unit Development Pros and Cons

In this section, we’ll explore various planned unit development pros and cons.

Pros

PUDs increase the values of surrounding property and can convert blighted neighborhoods into burgeoning ones. They attract an influx of new residents and capital. In particular, PUDs have these desirable effects:

1. PUDs provide a variety of housing types and land uses, including at least one regional land use.
2. They promote common, public open spaces by clustering residential land uses.
3. PUDs cut through rigid zoning regulations and enhance the influence of local planning professionals.
4. Developers and municipalities can work together, strengthening the latter’s site plan review and influence over land uses.

Cons

PUDs have a few cons:

1. PUDs typically require longer periods to plan and to obtain permits. Drawn out real estate projects can hit snags that faster projects might dodge. Longer PUDs can be unpleasant from a cost perspective because of the wide variety of spaces involved. Often, specialist firms must provide expensive expertise while the developer’s land lays fallow. However, experienced developers have found ways to shave PUD time requirements and streamline processes.
2. However well-intentioned a PUD is, it often does little to improve the lot of residents in blighted neighborhoods. Naturally, it is these neighborhoods that developers tear down and reconstruct as PUDs. While PUDs can help alleviate the symptoms of urban decay, they may not help ameliorate the causes. Often, PUDs can seem walled off from their surroundings.
3. Even if they have walking areas, PUDs do not necessarily alleviate the need for cars. In a suburban setting, PUD residents still rely on cars to get to downtowns and central hubs.

Planned Unit Development Zoning

PUDs follow a zoning paradigm different from the standard narrow zoning that previously predominated. PUDs employ integrated zoning that encourages varied multiple land uses in adjacent parcels.

Typically, numerous residential properties dominate PUD land areas, and they include single-dwelling, two-dwelling, and multi-family dwelling properties. The result is a diversified neighborhood, larger than typical. The housing component of PUDs attracts supporting facilities, including hospitals, synagogues, gyms, and retirement homes, to name just a few.

Generally, PUD zoning favors best land use, protecting the most favorable sites from industrial and commercial uses. The PUD neighborhood concept includes the grouping of shopping district service areas. Moreover, PUD zoning reserves land for shopping clusters of varying sizes, with provisions for traffic control and off-street parking.

Industrial zoning helps shorten the commuting distance of PUD residents. In fact, PUDs provide zoning regulations that integrate industrial districts while controlling nuisance and environmental concerns. These controls include off-street parking, setbacks, and height regulations. Typically, PUDs favor light industry over heavy industry.

Planned Unit Development Examples

For those of you who would like to examine some real-world examples of PUDs:

1. Bonner County, Idaho: This large rural county actively promotes PUDs.
2. Kittitas PUD: This PUD is located in Ellensburg, Washington.
3. Bayview Ridge Urban Growth Area: This Skagit County, Washington area was reconfigured to support PUDs.

Financing for PUDs

Developers typically already own the land upon which they will construct PUD properties. These are large investments, as they include the construction of residential, commercial, and industrial properties, as well as park land. Naturally, the developer constructs the elements of the PUD separately.

Typically, construction loans pay out in installments at the end of each milestone. Normally construction loans are interest only, with a balloon payment at the back end. As properties gain their certificates of occupancy, they receive refinancing, usually in the form of mini-perms. Once stabilized, the properties receive long-term take-out-loan financing.

Real Estate 101:  Planned Unit Developments (Including Financing Tips)

How Assets America^® Can Help

Assets America^® is pleased to offer PUD financing starting at $20 million, though typically our loans start at $20M. We provide a full range of loans, including construction, mini-perm, take-out, and bridge loans, among others. We have the expertise to navigate you through the complexities of PUD financing, so contact us before making your next move.

Frequently Asked Questions

What is the purpose of planned unit development zoning?

PUD zoning is flexible, replacing the bounds of existing zoning requirements. With PUD zoning, developers can meet land use goals and overall community density requirements without zone restrictions. Developers can include commercial, residential, and industrial properties in a PUD project.

What is a planned unit development rider?

A PUD rider is a document appended to a mortgage that specifically refers to a planned unit development. It indicates that the property is subject to a homeowner’s association arrangement or some other community living arrangement.

How does planned unit development zoning differ from ordinary zoning?

Ordinary zoning usually is narrow in scope and applies to a large area. PUD zoning is flexible and can apply to a smaller area. PUD zoning facilitates the mixing of different property types within a single development process.

What is the difference between a land lease and a planned unit development?

In a land lease, the lessee gets use of a land parcel in return for lease payments to the landlord. Developers can build PUDs on land subject to a land lease, but usually build PUDs on land they own.

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