Great Location - Rule Lx76

That cool refreshing drink. No, not lemonade, water. It is the most important natural resource in the world. In the U.S., there are continued efforts to manage and conserve the use and access to H2O as there should be.

Water tap fees are a significant line item in new real estate development proformas. Real estate developers know this. Further, the cost of water tap fees vary from city to city. Real estate developers know this too. The problem is that the cost of water tap fees can vary widely. While that is the case, developers can wrap those costs into the proforma to decide if the fees are reasonable and whether or not the development will move forward. But what are these fees exactly anyway?

A water tap fee is a fee that is assessed to a developer or tenant when a municipality installs a tap on a water main on behalf of said developer or a tenant. It all makes sense. The cost of accessing water isn't free to anyone and the assessment is a pass-through for the most part. However, I've consulted on projects where the water tap fee was exorbitant and the landlord put the entire burden of the fee on the tenants of the project that needed water taps. Is that fair? It's definitely necessary and it's a cost of business. The problem is that while developers are aware of this cost and can budget for it, most local tenants do not budget for these costs and national tenants despise paying them. The national tenants usually have enough leverage to negotiate how much, if any, of the fee that they will have to pay. Local tenants and their brokers don't have the leverage or experience to ask if the fees can be eliminated or reduced. In those instances, the tenants drown in the cost of the water tap fee and are forced to make a sacrifice from elsewhere within their budget and compromise the launch of their new location.

A great location has reasonable water tap fees that are communicated with prospective tenants.