How to Manage Land Entitlement Risk During Real Estate Development

Overzealous city council members...

Overbearing NIMBY (not in my backyard) neighbors...

We've all heard the horror stories. And if you have any experience in real estate development, you've probably dealt with your share of land entitlement challenges.

In this video, I highlight a couple of ways to manage land entitlement risks during your next development project.

 

Guide to the video

  • A critical aspect of the real estate due diligence process is anticipating what kinds of land entitlement challenges you may encounter
  • It's impossible to eliminate all entitlement risks during a project, but the right risk management strategy can greatly increase a project's likelihood of success
  • The permitting and approval process largely depends on the size, scope, and municipality of a given project

Video transcript follows

There are all sorts of unknowns you need to contend with during the real estate development process, but land entitlement risk is perhaps the most daunting.

Anytime you’re developing a property from scratch, changing an existing property’s use, redeveloping, or converting a property, there are a series of municipal and state and federal permits and approvals you need to get before you can begin work.

That’s a time-consuming process. And it presents a number of unique challenges from both a risk and capital requirement perspective.

So, in this video, I want to set the stage and define land entitlement risk, but more importantly discuss a couple of potential strategies you can employ to help you manage it on your next project.

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What’s up everyone – it’s Matt Marsh with Marsh & Partners.

Marsh & Partners is a development and national consulting firm that helps business owners and investors maximize their real estate and transform their businesses.

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Common land entitlement challenges

So, I want to first start by talking about the kinds of challenges you might face when getting a project approved.

Consider the land entitlement process and the many government agencies that have a say in how it happens.

You have the local planning department, different local government agencies like environmental, public utilities, engineers, stormwater, the fire department, etc. and ultimately city council. But in some cases, you may also have to work with state and federal agencies like the department of transportation (DOT) or the Army Corps of Engineers.

That’s quite a few different personalities you need to navigate. And a lot of potential bureaucratic red tape that adds friction to the approval process.

In order to break ground on a project, a real estate developer needs to obtain all site plan and construction drawing approvals, building permits and any other permits required by governing agencies.

Not only is it costly and time-intensive, but it’s laden with risk due to the often-convoluted nature of government rules, and the uncertainty of dealing with government officials.

Consider too another wild card – the local community.

Depending on the type of project you’re proposing, you may have to deal with resistance from the public. This resistance can snowball if local representatives rally behind the community or the media gets involved.

Community resistance can be a challenge to predict, but even more difficult to manage in real time.

So, as you craft your real estate development strategy, it’s important to consider and implement a couple of land entitlement risk mitigation strategies to minimize the pain from a project’s inevitable snafus.

Let's dive right in.

 

1. Assemble the right land development team

No real estate developer successfully completes a project by themselves. There are various key players, with distinct roles and responsibilities, that contribute to a project.

But as the real estate developer, it’s up to you to put the right team together for the project.

First and most importantly, you’ll want to make sure that your team is comprised of service providers that have experience in the type of development and the municipality for your project.

When you’re trying to find the right civil engineer, it will also be important to assess their political connections, especially depending on the kind of project you’re pursuing. A well-connected engineer will often help expedite the approval and permitting process and can help get even the most challenging projects approved.

 

2. Enlist the services of a land-use attorney if needed

A land-use attorney won’t be involved in every project. If, for instance, the property’s zoning or allowed land-use facilitates your desired project, it may not be necessary to consult with an attorney.

If your proposed project doesn’t adhere to the prescribed development standards though, a land-use attorney can help you navigate this.

They’re experts in all matters pertaining to land and land-use, zoning laws and municipal development guidelines.

So not only could they help you jump through some of the hoops you may experience during a project, it may be worthwhile to consult an attorney on the front-end to help you anticipate any potential challenges that may arise.

 

3. Understand a municipality's future land use vision

Every municipality has a vision for how they see their growth and evolution in the future. Most codify it in what is called a future land use plan – essentially crafting a long-term plan offering policy guidance for growth and development.

As a real estate developer, understanding the land use plan is a key step for any comprehensive real estate due diligence process.

Because a project that’s tailored to, or meets the municipality's future land use vision, will generally have a higher likelihood of being approved. And if you’re changing a property’s use, or rezoning it, and face pushback from the local community, a city council will often defer to their future growth plan when making policy decisions.

 

4. Investigate what kinds of recent projects have been approved and why

Before you undertake any type of project, it’s critical to understand what types of similar projects have been attempted, whether they were successful, and most importantly why or why not they were successful.

It’s similar to the competitive analysis you’d conduct as part of your real estate development feasibility study, but instead of focusing on the competition, you’ll focus on the project outcomes and the process to get there.

As you investigate recently completed projects that are similar to yours in your area, you’ll want to answer a couple of key questions:

  • Did the project require any sort of rezoning or change in land-use?
  • Was there pushback on the project from the planning department or city council?
  • How did the local community respond to the proposed project?
  • Were there major project changes that resulted from public or private sector pushback?

Much of this is publicly available information. You can also reach out to the developer or other key players on the project to try and gather some of this data.

Ultimately, the answers to these questions may dictate what kind of project you can pursue or how exactly you need to approach the land entitlement process.

 

5. Determine what makes the local planning department & city council tick

Every local planning department and city council have their own personality and set of priorities.

And as towns and cities grow, development and design standards usually tighten, making projects more difficult and expensive to accomplish.

It’s also important to understand that every individual council person comes from a different background and has their own individual concerns distinct from those of the overall council.

What kinds of issues did those council members run on? Was it to provide more access to affordable housing? Or maybe to reduce friction during the permitting and approval process by reducing bureaucratic inefficiencies? Or maybe to make development and growth more challenging?

The point is that you’ll need to weigh the prescribed development regulations against the priorities of local government officials to determine the best course of action to move forward on a project.

If you can work with local leaders as opposed to against them, you’ll have a much higher likelihood of getting a project approved.

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We have a ton of additional information on land entitlement, the land entitlement process, and other resources to help you better understand getting real estate development projects approved.

You can book some time on my calendar if you want to discuss your project or how our land entitlement services can help you navigate development approvals.

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