The 5 Most Overlooked Red Flags in Real Estate Development

In real estate development, success depends not only on identifying promising opportunities but also on recognizing when to walk away. Many developers focus on what could go right, but the most effective ones also consider what could go wrong. Avoiding the wrong deal can be just as important as pursuing the right one.

Some risks are easy to spot. Environmental hazards, poor site conditions, or unfavorable comparable sales are well-known red flags that are typically addressed early in the due diligence process. Others are less obvious. These can be hidden in outdated zoning regulations, buried in long-range planning documents, or signaled by subtle changes in the surrounding community.

These warning signs are often overlooked, yet they can delay entitlements, increase costs, or complicate your exit strategy. The sections that follow outline five of the most commonly missed red flags in real estate development and how to identify them before they become significant obstacles.

1. Outdated Zoning That Has Not Been Revisited in Years

A site may seem ideal based on location, size, or price, but if the zoning code is outdated, the property may not support the type of development you have in mind. Zoning regulations that have not been updated for decades often limit density, prohibit mixed-use projects, or reflect outdated land use priorities that no longer align with current market conditions or policy goals.

What to look for:

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

• Parcels designated as low-density residential (such as R1 or RS) in neighborhoods experiencing urban growth

• Lack of overlays, form-based codes, or any mention of recent planning initiatives

Why it is risky: Old zoning regulations may restrict building types, height limits, or density in ways that make the project financially unviable. Changing the zoning can be time-consuming and politically sensitive. Variance or rezone requests often require public hearings and may face opposition from community members or resistance from city staff. Holding a site during this process increases carrying costs without guaranteed results.

What to do: Start by reviewing your city’s Housing Element and any Specific Plans that cover the area. These documents often identify parcels targeted for increased density or future zoning updates. If your site is not already included, it may still be near a transition zone.

2. Strong Anti-Development Sentiment in the Community

A project may appear viable based on zoning, infrastructure, and site conditions, but community opposition can present a significant challenge. In many cities, organized neighborhood resistance has the potential to delay entitlements, increase project costs, or block development entirely. This is true even when a proposal complies with local land use regulations.

What to look for:

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

• Active petitions, legal appeals, or lawsuits filed against other developments in the area

• Frequent public opposition during city council or planning commission meetings

Why it is risky: Public opposition can introduce delays in the entitlement process, particularly in areas where discretionary review or public hearings are required. Residents may demand changes to project design, scale, or use. In some cases, local officials may side with vocal constituents, regardless of what the zoning allows. These delays and changes can disrupt timelines and erode project feasibility, especially in markets with tight margins.

What to do: Attend public meetings in the area well before submitting an application. Observe how the community responds to development proposals, particularly those that resemble your project in size or type. Review recent public comments and staff reports to understand the concerns that are being raised. Speak with local planning staff, community organizations, and professionals who have worked on similar entitlements nearby. This context can help you anticipate potential opposition and prepare a more effective outreach or mitigation strategy. Early awareness of public sentiment can also help you determine whether a site is worth pursuing at all.

3. Infrastructure Bottlenecks That Are Easy to Miss

Even if a site has appropriate zoning and local support, inadequate infrastructure can limit what can actually be built. Sewer capacity, stormwater systems, street conditions, and utility networks all influence whether a project is feasible. These factors are often overlooked during early site evaluation, but they can significantly affect both entitlement and construction.

What to look for:

• Narrow streets or roadways in poor condition that may restrict construction access or fire department clearance

• Signs of limited or outdated sewer and stormwater infrastructure

• Electrical or water service lines with no scheduled plans for upgrades or expansion

Why it is risky: If your development places additional demand on existing infrastructure, the city may require mitigation measures before issuing permits. These improvements can be costly and may fall entirely on the developer. In some cases, they can delay the project or force changes to the site plan or building program. If the city lacks funding or does not prioritize upgrades in the area, you may inherit responsibility for systems that are not equipped to support your intended use.

What to do: Consult the city’s Capital Improvement Plan to determine whether infrastructure upgrades are planned or funded in the vicinity of your site. If the plan does not include the area, that may indicate future investment is unlikely. Engage a civil engineer early in your due diligence process to review capacity and identify potential bottlenecks. A preliminary analysis can help uncover limitations that may affect design, budget, or schedule. Identifying these issues upfront can save time and help avoid costly revisions later in the development process.

4. Low Permit Volume Despite Favorable Zoning

Zoning regulations may appear to support development, but if construction activity is absent, there may be underlying issues. A neighborhood might be upzoned to allow for higher density or new uses, yet years later, the lots remain vacant and no permits have been filed. When development rights exist but are not being used, it is a signal that something is preventing progress.

What to look for:

• Recently upzoned areas where few or no building permits have been issued

• Vacant infill lots that have remained undeveloped despite proximity to established neighborhoods or transit

• Large parcels with no visible signs of subdivision, entitlement filings, or site activity

Why it is risky: If developers are not building, there is likely a reason. It may be due to construction costs that exceed projected returns, market conditions that do not support absorption, or local permitting processes that are slow or unpredictable. In some cases, the zoning may allow development in theory, but practical limitations in the code, such as excessive setback requirements or rigid design standards, make it difficult to implement.

What to do: Start by reviewing public building permit records and compare them to zoning designations. If the entitlement capacity exists but permit activity is minimal, investigate further. Speak with local architects, land use consultants, or planning staff to understand whether the issue is economic, regulatory, or procedural. If similar sites nearby are also inactive, that may suggest broader market or policy challenges that could affect your project as well. Understanding why development is not occurring can help you refine your approach or avoid pursuing a site that is unlikely to perform.

5. Long-Term Retail Vacancy with No Turnover

Retail turnover can be a healthy sign of economic movement in a neighborhood. It often indicates that new businesses are testing the market and responding to changing demographics. However, when retail spaces remain vacant for long periods with little to no activity, it may suggest that the local economy is not strong enough to support additional development.

What to look for:

• Boarded-up or faded "For Lease" signs that have remained in place for months or years

• Empty ground-floor retail units in recently completed mixed-use or residential buildings

• Retail corridors where pedestrian activity is limited or inconsistent throughout the day

Why it is risky: Persistent retail vacancy may reflect weak local demand, low consumer spending, or poor site planning. It could also indicate a lack of key anchors that typically draw regular foot traffic. In some cases, developers may overestimate the neighborhood’s capacity to support retail, resulting in underperforming commercial spaces that negatively affect the perception and financial performance of the broader project.

What to do: Start by researching retail absorption data and recent leasing activity in the area. Speak with commercial brokers to understand tenant demand, rent expectations, and market conditions. If possible, review how long specific spaces have been listed and under what terms. Ask whether incentives such as tenant improvement allowances or rent abatements are being offered and how frequently. If the local retail environment appears inactive despite new development nearby, that may be a sign the area has not yet reached the level of economic stability needed to support new commercial uses. This insight should factor into your financial modeling and site selection criteria.

Final Thought: A Good Deal Starts with a Clear Picture

Effective due diligence is not just about confirming what a site can support. It is also about identifying what could prevent a project from moving forward. Red flags are not always reasons to abandon a deal, but they are signals that require attention and analysis. They represent points where additional time, cost, or uncertainty could emerge—factors that should be accounted for before moving ahead.

Recognizing these warning signs early allows you to focus on opportunities that align with your strategy and avoid sites that carry unnecessary or avoidable risk. This process helps protect your budget, your timeline, and your credibility.

In some cases, the best decision is to walk away. In others, it may be to proceed cautiously with a more informed plan. Either way, entering a deal with a full understanding of both its potential and its limitations is a defining trait of disciplined, successful development.