The Power of Phasing

By Tony Whitaker

Land development projects are often constructed in sequenced phases designed to meet project needs or goals. Properly used, phasing is a very effective project management tool. In our project consulting work, we have used the concept of phasing to achieve several different purposes.

Phasing is commonly used for relatively large projects that require more financial resources, or will have a longer payback period, than can be justified as a single investment or in a single investment cycle. Phasing is used in these cases to keep the financial investment and the payback period for each portion of the project relatively small. This strategy helps to provide each phased “mini-project” some degree of financial separation and risk isolation.

A variation of this strategy may be used for a project that might have a hard time securing initial funding, but would be expected to have a more robust financial ability later. A good example of this situation is a public charter school, which (in our State) can receive no public funding for construction of capital facilities, but can pay rents or mortgages from received public funds. These funds are approximately proportional to student population, which typically increases over time. In our work with these schools, we will typically develop a strategic masterplan for long-term campus development. The first phase is usually austere, but the stage is set for logical improvements that may be incrementally added on a planned schedule.

Phasing strategies are also frequently used for projects that have multiple uses, especially when a use will require time-dependent or density-dependent conditions to be satisfied before its target market value is realized. In the case of a shopping center with a large anchor user and several outparcels, the smaller parcels would typically have higher value after the anchor is established. Or in the case of a mixed-use development with both residential and non-residential components, business uses may only be viable within the project after the residential areas are sufficiently established to generate some degree of internal commercial demand.

Our office frequently uses the concept of phasing to provide strategic flexibility when establishing vested rights, for example when pursuing a “special use permit” or some other “site-specific development plan” approval process. By statute, these plans establish a (mostly) protected right to implement the project uses and density as shown. At this point in a project, an applicant may not know the optimum phasing boundaries or sequence, yet this entitlement process may require specificity about phasing. For example, specific infrastructure improvements such as roadway widening may be linked to building or occupying a specific component of the project. Once a phasing scheme is approved as a vested right, it can be difficult to substantially alter the approved phasing parameters. Therefore we often recommend breaking the project into more phases than will likely be necessary, since multiple phases can always be implemented at the same time. We also recommend stating on the phasing plan that the indicated phase numbers are for labeling purposes only; and do not require project phasing to strictly follow the numerical sequence.

Phasing is a powerful project management tool. It can be used to establish a logical basis for project implementation, to limit financial risk, to provide an incremental means of developing an otherwise infeasible project, or to provide strategic flexibility to manage unknown future conditions.