The 5 Most Overlooked Red Flags in Real Estate Development

In real estate development, success is not only about identifying promising opportunities. It also involves knowing when to walk away. While many developers focus on chasing the next deal, the most effective ones understand that avoiding the wrong project can be just as important as pursuing the right one.

Some risks are easy to identify. Environmental contamination, poor site conditions, and weak comparable sales are typically addressed during early due diligence. However, other risks are less visible. These can be found in outdated zoning regulations, overlooked trends in permitting activity, or early signs of resistance within the community.

These warning signs often do not show up in a quick site review or a financial model, but they can significantly affect project timing, costs, and long-term feasibility. This article outlines five commonly overlooked red flags in real estate development and explains how to identify them before they become costly problems.

1. Outdated Zoning That Has Not Been Revisited in Years

A site may check all the boxes in terms of size, location, and price, but if the zoning code is outdated, that value can quickly become theoretical. Zoning that has not been updated in decades often fails to reflect current planning priorities, economic conditions, or housing needs. It may restrict density, prohibit mixed-use development, or impose outdated land use standards that do not align with market realities.

What to look for:

• Zoning maps or land use codes that have not been meaningfully revised since the 1980s or 1990s

• Designations like R1 or RS in areas that otherwise show signs of growth or infill

• No mention of form-based codes, overlay zones, or flexible planning mechanisms that support mixed-use or higher-intensity development

Why it is risky: Older zoning codes can limit what you are allowed to build, regardless of what the market or city may seem ready to support. Pursuing a variance or zone change can be time-consuming, politically sensitive, and expensive. Community opposition or procedural delays may extend your timeline and reduce project certainty, even in cases where the proposed use is aligned with broader housing or planning goals.

What to do: Begin by reviewing the city's Housing Element, which often outlines areas targeted for future upzoning or infill development. Also check for relevant Specific Plans or overlay zones that may already allow more flexible land uses. Tools like Terrakan can help you identify zoning constraints, review historical updates, and determine whether nearby parcels have already been rezoned. This kind of early analysis can clarify whether a property is ready for development or if significant entitlement work will be required to make the site viable.

2. Strong Anti-Development Sentiment in the Community

A site may appear viable based on zoning, infrastructure, and pricing, but community resistance can introduce a level of risk that is often underestimated. In many jurisdictions, organized opposition from residents can delay or block development projects, even those that comply with existing land use regulations. Local politics and public perception frequently play a role in entitlement decisions, especially in areas with a history of neighborhood activism.

What to look for:

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

• Petitions, legal appeals, or lawsuits filed in response to nearby development proposals

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

Why it is risky:

Public opposition can result in prolonged entitlement reviews, additional outreach requirements, or mandated design changes. It may also affect political support for a project, particularly if elected officials are sensitive to community feedback. In some cases, projects that appear by-right on paper may still be delayed or denied due to discretionary review processes or pressure from advocacy groups.

What to do:

Attend public meetings in the area to observe how similar projects are received. Review past meeting minutes or agendas to assess the volume and nature of public feedback on development issues. Speak with local planners, architects, or consultants who have experience working in the area to understand the tone of community engagement and any known opposition groups. If a site is located in a neighborhood with strong anti-development sentiment, it may require a more proactive outreach strategy or adjustments to program, scale, or design to improve its chances of approval. Understanding the community context early can help reduce entitlement risk and inform your overall approach to the site.

3. Infrastructure Bottlenecks That Are Easy to Overlook

A site may be properly zoned and located in a jurisdiction that is supportive of new development, but if the existing infrastructure cannot support additional capacity, your project may face serious challenges. Infrastructure constraints are one of the most overlooked factors in early-stage feasibility assessments. Roads, sewers, stormwater systems, and utilities all have the potential to affect design, cost, and schedule.

What to look for:

• Narrow or poorly maintained streets that may limit access for construction vehicles or emergency services

• Sewer or stormwater systems with known capacity limitations or deferred maintenance

• Utility infrastructure, including water, power, or gas lines, that lacks sufficient capacity and has no upgrade plans in place

Why it is risky: 

If your project increases demand on an already strained system, the local agency may require you to fund mitigation measures, such as utility upgrades or off-site improvements. These added costs can be substantial and may not be accounted for in initial underwriting. In some cases, the infrastructure issues may not be solvable without broader capital investment from the city, which could delay your project indefinitely or require a reduction in scope.

What to do: 

Begin by reviewing the city’s Capital Improvement Plan to determine whether infrastructure improvements are planned or budgeted for the area surrounding your site. These plans can provide insight into timelines, project priorities, and funding allocations. It is also critical to engage a civil engineer early in the process to evaluate system capacity and identify any red flags that could affect entitlements or construction. A preliminary infrastructure assessment should be part of any comprehensive due diligence strategy. It allows you to confirm that the site can physically accommodate the intended project and helps avoid delays or unexpected costs that could compromise feasibility.

4. Low Permit Volume Despite Favorable Zoning

Zoning designations can suggest that an area is ready for new development, but if little or no activity is taking place, that should raise questions. Favorable zoning is only one part of the development equation. If projects are not moving forward, there may be other barriers that are not immediately obvious in a zoning map or planning document.

What to look for:

• Recent zoning changes that allow increased density, but no meaningful increase in building permit activity

• Long-vacant infill lots in otherwise established areas

• Large undeveloped parcels with no recent entitlement filings or subdivision applications

Why it is risky: If the legal framework allows development but no one is building, there is often a reason. It may be related to construction costs that exceed achievable rents or sales prices, unclear permitting pathways, or zoning standards that are difficult to implement. For example, zoning may allow more units, but excessive parking requirements or restrictive design standards could make the site functionally unbuildable. In some cases, political concerns or community resistance may be limiting the pace of entitlements even after upzoning has occurred.

What to do: Compare recent building permit records with existing zoning designations to identify whether permitted activity aligns with entitlement capacity. If the numbers do not match, speak with local architects, engineers, or entitlement consultants to understand why. These professionals often have firsthand knowledge of the practical constraints developers are facing in the area. If issues like design feasibility, market absorption, or unclear regulations are limiting progress, they should be reflected in your pro forma and entitlement timeline. Factoring in these risks early can help you avoid sites where zoning appears favorable but practical development remains unlikely.

5. Long-Term Retail Vacancy with No Turnover

Retail activity can serve as an important indicator of neighborhood growth. In many cases, turnover in commercial spaces signals that the local market is evolving, with businesses adapting to shifting demographics and consumer demand. However, when storefronts remain vacant for extended periods, especially in areas that have seen recent public or private investment, it may suggest deeper issues that limit development potential.

What to look for:

• Storefronts with old or faded "For Lease" signs that have remained in place for months or years

• Empty ground-floor retail space in recently completed or renovated buildings

• Commercial corridors with minimal pedestrian traffic, even during peak business hours

Why it is risky: Persistent retail vacancy can reflect weak local demand, limited disposable income, or a poor match between available space and tenant needs. It may also point to structural issues such as poor visibility, lack of parking, or insufficient foot traffic to support commercial uses. In some cases, developers may have included retail to meet zoning requirements, but the area has not yet reached a point where ground-floor commercial use is viable. Vacant retail can also affect the perception of the neighborhood and reduce the value of surrounding residential or mixed-use space.

What to do: Begin by reviewing retail absorption data and vacancy rates for the area. Speak with local leasing agents to understand recent market trends, tenant interest, and the types of uses that are performing well. Ask how long spaces have been on the market and whether any incentives, such as rent concessions or tenant improvements, are being offered. If retail absorption remains low despite new development in the area, consider whether your project relies on commercial activation for its success. In many cases, delaying retail delivery or exploring alternative ground-floor uses may be a more appropriate strategy. Understanding the local retail environment early can help you avoid unrealistic projections and design a program that aligns with actual market demand.

Final Thought: A Good Deal Starts with a Clear Picture

Comprehensive due diligence involves more than confirming what a site is zoned for or what can be built. It also requires identifying risks that may compromise a project’s success. Red flags are not always a reason to walk away, but they should always prompt closer analysis. These indicators help define the boundary between a manageable challenge and a problem that could derail your timeline, budget, or exit strategy.

Knowing how to spot these risks early allows you to make informed decisions. It helps you allocate time and resources more effectively, and it reduces the likelihood of encountering surprises late in the process. Whether the issue is outdated zoning, limited infrastructure, community opposition, or market conditions that have not yet caught up with policy, it is better to identify those signals before you commit.

In some cases, the right decision is to step away from a deal that looks attractive on the surface but carries too much uncertainty. In others, the right move is to proceed with caution, having done the work to understand what obstacles may lie ahead.

A strong development strategy is not based on assumptions. It is built on discipline, research, and the ability to look at a site with a clear and critical lens. When you have that clarity, you put yourself in a better position to pursue opportunities that are both viable and aligned with your goals.