The 5 Most Overlooked Red Flags in Real Estate Development

In real estate development, knowing when to move forward is only part of the equation. Equally important is knowing when to walk away. The most effective developers are not just skilled at spotting opportunity; they are disciplined in recognizing risk. Avoiding the wrong deal can be just as critical to long-term success as closing the right one.

Some risks are easy to spot. Environmental issues, poor soil conditions, and weak market comps are standard items in any due diligence checklist. Others, however, are less obvious. These red flags often hide in zoning regulations, public meeting transcripts, or subtle market signals that are easy to overlook.

If ignored, these warning signs can disrupt a project in costly ways. Delays in entitlements, unexpected infrastructure costs, or lack of buyer or tenant demand can erode the viability of even the most promising site. This article highlights five often-overlooked red flags in real estate development and offers practical advice on how to identify them early.

1. Outdated Zoning That Has Not Been Revisited in Years

A parcel may appear promising based on size, price, or location, but outdated zoning can quickly undermine the feasibility of a project. Zoning that has not been updated in decades often fails to reflect a city’s current goals for density, land use, or housing supply. As a result, sites with strong surface-level appeal may be subject to limitations that are not immediately apparent.

What to look for:

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

• Single-family residential designations such as R1 or RS located within areas that are otherwise seeing urbanization or increased density

• Absence of mixed-use overlays, form-based codes, or other signals that the city is encouraging flexible or higher-density development

Why it is risky: Older zoning may not support the project scale or type needed to make the site financially viable. In these cases, pursuing a variance or rezoning request can add significant time, cost, and entitlement risk. Depending on the jurisdiction, a rezoning may trigger public hearings, opposition from local residents, or added scrutiny from planning staff.

What to do: Begin by reviewing your city’s Housing Element and any relevant Specific Plans. These documents often outline where increased density is being prioritized or where zoning updates are already in progress. Identifying whether your site is located within one of these targeted areas can help you assess the potential for regulatory flexibility or anticipate the challenges ahead.

2. Strong Anti-Development Sentiment in the Community

A project may appear fully viable based on zoning, infrastructure, and price, but organized community opposition can quickly change the equation. In many cities, public resistance is a significant and often underestimated risk. Even when a project complies with local codes, vocal neighborhood opposition can delay or complicate approvals, especially in areas where residents are politically engaged and active in local land use decisions.

What to look for:

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

• Recent appeals, lawsuits, or delays affecting nearby development proposals

• Strong turnout and opposition during public comment at planning commission or city council meetings

Why it is risky: Community opposition can derail projects at any stage of the entitlement process. It may lead to extended hearings, increased scrutiny, or demands for costly design changes. In some cases, the pressure may result in outright rejection of a project that otherwise meets all technical requirements. These challenges introduce uncertainty and are rarely reflected in the initial underwriting.

What to do: Attend local public meetings early in your site selection process, even if your project is not yet under consideration. Observe how the community responds to development proposals and note any recurring concerns. Review recent meeting minutes to identify appeals or objections raised against similar projects. If possible, speak with a local planner or architect familiar with the area. They can often provide insight into the political climate and potential community challenges that may not be obvious from a site visit or desktop review.

3. Infrastructure Bottlenecks No One Is Talking About

A site may appear ideal on paper with favorable zoning, little community resistance, and a desirable location. However, infrastructure limitations can present serious challenges that are not immediately obvious. Sewer lines, stormwater systems, roads, and utilities often receive less attention during early due diligence, but they can have a significant impact on project viability.

What to look for:

• Narrow or deteriorated streets that could complicate construction access or fail to meet fire department clearance requirements

• Evidence of overloaded or aging sewer and stormwater infrastructure

• Utility lines or service systems with no documented plans for upgrades or expansion

Why it is risky: If your project places additional strain on inadequate infrastructure, you may be required to fund off-site improvements or pay mitigation fees. These costs can be substantial and may only come to light late in the entitlement or permitting process. In some cases, the project may need to be redesigned or downsized to fit within capacity constraints. If the city lacks the funding or planning to improve the area’s infrastructure, you could be left absorbing both the cost and the risk.

What to do: Begin by reviewing the city’s Capital Improvement Plan to identify whether infrastructure upgrades are already planned or funded near your site. These plans typically outline projects related to roads, water, sewer, and other public utilities over a multi-year period. Engage a civil engineer or utility consultant early to conduct a preliminary capacity review. This analysis can help you assess whether the existing systems can accommodate your project or whether additional coordination with public agencies will be required. Understanding these conditions upfront can help you avoid costly surprises and prevent delays later in the process.

4. Low Permit Volume Despite Favorable Zoning

Favorable zoning does not always lead to development. In some cases, a neighborhood may have been upzoned to allow for higher density or new uses, yet years pass with little to no construction activity. When zoning capacity exists but developers are not building, it signals the need for closer investigation.

What to look for:

• Parcels that were upzoned but remain vacant long after legislation was passed

• Infill lots sitting idle despite nearby housing demand

• Large properties with no visible sign of subdivision activity, entitlement applications, or permit filings

Why it is risky: Low permit volume in an area with generous zoning may point to underlying constraints. These could include economic barriers, such as high construction costs relative to achievable rents or sale prices, or procedural hurdles, such as unclear entitlement pathways, discretionary reviews, or inconsistent approvals. In other cases, the zoning code itself may be poorly structured, with standards that are difficult to meet or incompatible with current market demands.

What to do: Begin by comparing current zoning allowances to recent permit activity. If entitlements are in place but little development is occurring, investigate why. Local architects, engineers, and planning consultants often have insight into the specific challenges affecting a given area. They may identify issues related to infrastructure, fees, community opposition, or financing that are not visible in the zoning code. Use this information to assess whether the site presents a manageable challenge or whether those conditions represent an avoidable risk. A lack of activity in a zoned area should not be ignored; it is often a sign that something in the process is not working as intended.

5. Long-Term Retail Vacancy with No Turnover

Retail turnover can be a healthy sign in a transitioning neighborhood. It often indicates that new businesses are entering the market and adapting to shifting demographics. Long-term vacancy, on the other hand, tells a different story. When commercial spaces sit empty for extended periods, despite improvements in zoning or infrastructure, it may suggest that the local economy is not yet strong enough to support sustained investment.

What to look for:

• Storefronts with old or weathered "For Lease" signs that have not changed in months or years

• Vacant ground-floor retail in recently built or renovated mixed-use buildings

• Retail corridors that lack visible pedestrian activity, even during peak hours

Why it is risky: Extended retail vacancy often reflects weak local demand, limited consumer spending, or an oversupply of commercial space. In some cases, it may indicate poor site planning or the absence of anchor tenants capable of drawing foot traffic. These conditions not only affect cash flow for the retail component of a project but can also impact the perception of the neighborhood more broadly. A cluster of empty storefronts can signal stagnation and may slow down adjacent development or leasing activity.

What to do: Speak with commercial leasing brokers who are active in the area. Ask about recent lease comparables, typical concession packages, and whether landlords are seeing meaningful interest. Research historical listings to find out how long certain spaces have been vacant and whether asking rents have changed over time. If the retail picture does not align with the broader narrative of growth, it may be an indication that the area is not yet ready to absorb new development at the scale you are considering. Proceed cautiously and factor these conditions into your underwriting and phasing strategy.

Final Thought: A Good Deal Starts with a Clear Picture

Any experienced developer will tell you that recognizing opportunity is only part of the job. The other part is knowing when to pause, dig deeper, or step back. The red flags outlined in this article outdated zoning, strong community opposition, infrastructure limitations, limited permit activity, and persistent retail vacancy are not always deal-breakers. But they are indicators. They highlight areas where momentum may be slower than expected or where unseen risks may compromise the viability of a project.

These warning signs often go unnoticed. They may be buried in long planning documents, omitted from comps, or overlooked during early site evaluations. Ignoring them can result in lost time, unanticipated costs, or reputational setbacks that could have been avoided with more thorough front-end analysis.

Build a Smarter Process

Skilled developers do not rely on optimism alone. They identify the constraints as carefully as they pursue the opportunities. They evaluate sites not only for what is permitted, but for what is likely to succeed under current conditions. They look beyond marketing narratives to understand political climate, infrastructure capacity, and actual demand.

By incorporating these red flag checks into your early-stage due diligence, you move from reacting to what the market offers to selecting projects that are better aligned with your goals and the realities on the ground.

So before you commit to a site that looks like a sure thing, take a moment to ask:

What am I not seeing? Where could this break down?And how can I answer those questions now, rather than after closing?

That is not being overly cautious. That is being strategic. It is the mindset that separates a developer who chases deals from one who builds a track record of smart, sustainable growth.