When Infrastructure Costs Should Kill a Deal and When They Shouldn’t
ASK:
Infrastructure costs are high. How do we know whether to walk away or move forward?
ANSWER:
Infrastructure costs are a normal part of development. The real question is not whether they exist, but whether they create value that can be supported in the underwriting or whether they make the project economically unworkable.
Over the course of my career, I’ve worked on projects where major infrastructure upgrades were absolutely necessary and ultimately justified the deal. I’ve also worked on projects where similar costs would have quietly killed feasibility, even though the site looked attractive on paper.
For example, we’ve delivered larger mixed-use and commercial projects where adding turn lanes, signalization, or major roadway improvements was the only way to secure anchor tenants and unlock long-term value. Those infrastructure costs were significant, but they directly supported leasing, absorption, and long-term performance.
On the other end of the spectrum, we’ve evaluated smaller infill projects where requirements like lane widening, undergrounding overhead power lines, or extending utilities simply could not be supported by the projected revenue. In those cases, the infrastructure did not enhance value.
At I&D Consulting, we evaluate infrastructure costs through three specific lenses: timing, recoverability, and alignment.
Timing asks whether infrastructure costs can be phased, deferred, or sequenced in a way that aligns with entitlements, leasing, and construction. Costs that must be paid upfront carry far more risk than those that can be spread over time.
Recoverability asks whether the infrastructure investment improves the long-term performance of the asset. Does it support higher rents, better tenants, increased density, future cost-sharing as benefiting properties are developed, or stronger exit value? If the answer is no, the cost deserves scrutiny.
Alignment asks whether the infrastructure supports the project’s actual revenue model. A cost that makes sense for a large-format or mixed-use project may be fatal for a smaller infill deal. Context matters.
Projects should be walked away from when infrastructure costs exceed the value they unlock or introduce timing risk that cannot be managed through financing or phasing. Projects should move forward when those costs are predictable, financeable, and clearly tied to long-term value creation.
The most dangerous decision in development is not walking away.
It is moving forward without clarity.
KEY TAKEAWAYS:
- Infrastructure costs must be evaluated in context, not in isolation
• Timing and recoverability are as important as total cost
• Phasing can fundamentally change feasibility
• Clarity early prevents sunk-cost decisions later
People Also Ask
1) When should infrastructure costs be evaluated?
Most infrastructure requirements can and should be identified early during initial feasibility, before a purchase contract is finalized. Additional requirements may surface later during entitlements once traffic studies, utility research, and technical reports are completed. Early identification allows risk to be priced and structured properly.
2) Can infrastructure costs be shared?
Sometimes. Cost sharing may be achieved through negotiated development agreements, improvement districts, public participation, or adjustments to the purchase price. These conversations are most productive when they happen early, once infrastructure requirements are identified but before positions harden.
3) Should infrastructure affect purchase price?
Typically yes. Infrastructure obligations impact feasibility for any proposed development. That said, pricing outcomes also depend on location, market cycle, leverage, and the motivations of both buyer and seller. There is no one-size-fits-all answer, but infrastructure risk should never be ignored in pricing discussions.
