The Growing Challenges of Land Entitlement

This post originally appeared on SimonCRE Insights Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.

The entitlement process is and always has been complicated, time-consuming and often costly. But to know what can be done with a piece of property is vital to determining the real estate feasibility of your project.

Generally considered the riskiest, the land entitlement phase is a process by which the development entity gains the legal right to parcel land and develop a particular structure. This process sits at the confluence of all development factors: local politics, due diligence, financial support, and patience.

We’ve previously discussed the challenges of zoning, an element that determines what certain land can be used for. Now we look at the growing challenges of land entitlement.

Different interpretations

Whether government agencies refuse to issue the required approvals to allow the project to proceed, or the process simply takes an exceptionally long time, there is almost always entitlement risk.

The entitlement process can take anywhere from 3 to 12 months, or sometimes longer.

Part of the reason entitlement takes so long is that city planners have different interpretations of local rules. You likely run into different attitudes and alignments between staff, planning commission, and city council. This can complicate the matter and delay a project’s launch.

At the same time, most development projects will go through several different aspects of the entitlement process, and some may also be required to go through multiple public hearings for approval.

Efforts to capitalize on dwindling land supply

Pressure is also on cities to capitalize on the dwindling availability of land, so they are making approvals increasingly harder and more costly to obtain.

The reality is, the price of a piece of land has three components:  (1) the value of the physical fixtures, (2) the price of the land, and (3) the value of the things you can legally do with the land.

The value of the right to build can rise or fall with demand, just as the value of land can rise or fall with demand. So, as land supplies dwindle because of increased demand, the value of entitlements also increases.

The results…

Strained feasibility

• We’re seeing continued challenges in making projects feasible as land prices and construction costs continue to rise and the entitlement process remains challenging. Developers need to ensure proper and thorough due diligence before starting new projects to help minimize lengthy timelines and potential cost overruns.

Entitled property values soaring

At the end of the day, the entitlement process takes experience, patience and the right team with the right attitude to successfully sail through political issues, bureaucracy, and never-ending meetings and negotiations.