The 5 Most Overlooked Red Flags in Real Estate Development

In real estate development, success relies not only on finding the right opportunities but also on knowing which ones to avoid. While it is natural to focus on what could go well, experienced developers pay equal attention to what might go wrong. Passing on the wrong site can often save more time and capital than pursuing a deal that does not align with your goals.

Some risks are easy to identify. Issues such as environmental contamination, geotechnical challenges, or weak comparable sales tend to surface early in the due diligence process. Other risks are less obvious and require closer inspection. These may be embedded in outdated zoning codes, hidden within city planning documents, or revealed through subtle shifts in neighborhood activity.

When missed, these issues can lead to delays in entitlements, increased costs during design and permitting, or unexpected friction during implementation. What follows are five red flags that are often overlooked in early site evaluation, along with guidance on how to recognize them before they impact your timeline, budget, or overall project feasibility.

1. Outdated Zoning That Has Not Been Revisited in Years

A site may appear attractive based on location, size, or price, but zoning is often what determines whether a project is viable. In many cases, zoning regulations that have not been updated in decades fail to support current land use goals or reflect today’s market realities. If a property is governed by outdated zoning, it may not permit the density, flexibility, or uses needed to make a project feasible.

What to look for:

• Zoning maps or municipal code references that have not been updated since the 1980s or 1990s

• Parcels zoned for low-density residential uses such as R1 or RS in areas that otherwise show signs of urban infill or redevelopment

• Lack of any mixed-use designations, form-based codes, or planning overlays that support higher-intensity uses

Why it is risky: Zoning that restricts density or use may prevent a project from moving forward without a rezone or variance. These processes can be costly and unpredictable. They often require community outreach, public hearings, and extended review periods. Even if zoning relief is technically possible, local political dynamics or neighborhood opposition can create additional delays and reduce project certainty.

What to do: Review your city’s Housing Element and Specific Plan updates to see if the parcel is located within an area targeted for increased density or land use flexibility. These documents often indicate whether changes are already planned or supported by local policy. If the property is outside these target areas, assess whether a rezoning application is realistic based on recent cases in the area.

2. Strong Anti-Development Sentiment in the Community

Even if a project aligns with existing zoning and meets technical requirements, community opposition can significantly disrupt the development process. In many jurisdictions, organized neighborhood resistance can delay entitlements, increase legal exposure, or in some cases, stop a project altogether. Public sentiment, particularly in politically active communities, is an important factor that should not be overlooked.

What to look for:

• Yard signs or flyers with messages such as “Stop the Rezone” or “No Density Here”

• Public petitions, formal appeals, or lawsuits related to similar nearby developments

• Frequent opposition during public comment at city council or planning commission meetings

Why it is risky: Projects that are technically compliant with zoning and planning policies may still face resistance during entitlement hearings. This opposition can lead to longer review timelines, additional requirements, or demands for costly design modifications. Strong public opposition may also influence elected officials or planning commissioners, regardless of a project's legal basis. These delays and changes can add significant cost and uncertainty to your development timeline.

What to do: Attend local planning or city council meetings before pursuing a site. Observe how the community responds to other proposals and identify recurring themes in public feedback. Review past meeting minutes and staff reports for similar projects to evaluate how they were received. Speak with local planning staff, architects, or consultants who have worked in the area to better understand the political and community climate. This type of early due diligence can help you anticipate risks that are not apparent in the zoning code or parcel data and may influence whether a site is worth pursuing.

3. Infrastructure Bottlenecks That Are Easy to Overlook

A site may appear viable from a zoning and entitlement standpoint, but inadequate infrastructure can present a significant obstacle to development. Streets, utility lines, stormwater systems, and sewer capacity are often overlooked during early evaluations, yet they can be critical to determining whether a project is feasible.

What to look for:

• Narrow or deteriorated roadways that could complicate construction access or fire department compliance

• Limited or outdated sewer and stormwater systems that may not support additional capacity

• Aging electrical, gas, or water infrastructure with no scheduled upgrades

Why it is risky: If your project adds demand to already strained systems, the city may require off-site improvements or mitigation measures. These costs can be substantial and may not be recoverable through the project’s pro forma. Delays can also occur if the city lacks the resources or political will to support the necessary upgrades. In some cases, you may be required to redesign the project to reduce its impact or delay development until infrastructure conditions improve.

What to do: Start by reviewing the city's Capital Improvement Plan (CIP), which outlines planned investments in infrastructure over a multi-year period. Determine whether the site is located within an area identified for upgrades or whether improvements are already funded. Engage a civil engineer early to evaluate infrastructure capacity and identify any limitations that may impact project scope, schedule, or costs. Understanding these constraints in the early stages of site analysis can help you avoid delays and manage expectations when assessing development potential.

4. Low Permit Volume Despite Favorable Zoning

Zoning regulations may suggest that an area is ready for development, but if no one is building, that should prompt further investigation. A site with generous entitlements can still face barriers that prevent projects from moving forward. If a neighborhood has been upzoned yet remains largely inactive, it may indicate deeper issues that are not immediately apparent.

What to look for:

• Recently upzoned parcels that continue to sit vacant

• Infill lots in established areas that show no signs of permitting or construction activity

• Larger properties with no evidence of subdivision applications or entitlement progress

Why it is risky: Low permit activity in areas with seemingly favorable zoning may point to hidden challenges. These could include high construction costs relative to achievable rents or sales values, uncertainty in the approval process, limited financing options, or a zoning framework that does not translate well into buildable projects. Sometimes the code allows for increased density but includes restrictive design requirements, parking ratios, or setback rules that limit its practical use.

What to do: Start by comparing zoning designations with actual building permit records in the area. This will help you determine whether the existing entitlements are being used. If the activity is low, speak with local professionals such as architects, entitlement consultants, or planners to understand the reasons. They can often provide insights into market conditions, policy barriers, or other structural issues affecting development. Use this information to determine whether the site is viable or if the conditions that appear promising on paper do not hold up in practice. Adjust your strategy accordingly to avoid committing resources to a site that may not perform as expected.

5. Long-Term Retail Vacancy with No Turnover

Retail activity can offer important clues about a neighborhood’s trajectory. In areas experiencing growth, it is common to see commercial spaces turn over as new tenants move in to serve a changing population. On the other hand, when retail spaces remain vacant for extended periods, it may be a sign that the local economy is not yet strong enough to support new development.

What to look for:

• Boarded-up storefronts or "For Lease" signs that appear unchanged over several months or longer

• Ground-floor retail in new or recently completed buildings that remain unoccupied

• Retail corridors with little to no pedestrian traffic during normal business hours

Why it is risky: Persistent vacancy in commercial spaces can reflect several underlying issues. These may include limited local spending power, poorly located or designed retail space, or a broader lack of demand from tenants. In some cases, retail that was included to satisfy a zoning requirement may not align with market conditions. Empty storefronts can also affect how the area is perceived, potentially reducing interest from residential buyers, tenants, or other commercial operators.

What to do:

 Start by reviewing local retail absorption data to understand market dynamics. Speak with commercial brokers who are active in the area and ask about recent leasing activity, concessions, and common reasons why spaces remain vacant. If possible, identify how long specific storefronts have been on the market and whether they have received any serious interest. If the surrounding neighborhood is showing signs of growth, but the retail market is underperforming, consider whether the site depends on retail performance to be viable or whether the project can be adjusted to reflect current demand. Understanding the retail context is essential to avoid overestimating how quickly an area is ready to support ground-floor commercial use.

Final Thought: A Good Deal Starts with a Clear Picture

Due diligence is not only about confirming what can be built. It is equally about identifying what might prevent a project from moving forward. Red flags are not always reasons to abandon a site, but they are important decision points. Recognizing them early can help you avoid costly delays, unnecessary design changes, or financial risk that could have been mitigated with better front-end analysis.

Many of the issues discussed in this post are not immediately visible. They are often hidden in outdated zoning codes, overlooked during infrastructure review, or buried in community sentiment that only becomes clear once a proposal is submitted. By learning to identify these signals before committing, you improve your ability to select projects with a higher likelihood of success.

In some cases, the right call is to walk away. In others, it is about walking in with a clearer understanding of what the project will require and where the challenges may arise. In either case, being able to spot problems early gives you more control over how you allocate time, capital, and effort.

That kind of discipline is what separates speculative decisions from strategic ones. It is not hesitation. It is good development practice.