The entitlement process has always been complicated, time-consuming, and frequently expensive. However, understanding what can be done with a piece of property is essential for determining the real estate feasibility of your project.
The land entitlement phase, generally regarded as the riskiest, is a process by which the development entity obtains the legal right to parcel land and build a specific structure. This process combines all development factors, including local politics, due diligence, financial support, and patience.
We’ve previously discussed the difficulties of zoning, which determines what a piece of land can be of use. Now we’ll look at the growing issues surrounding land entitlement.
Various interpretations
Whether government agencies refuse to issue the necessary approvals to allow the project to proceed, or the process takes an unusually long time, entitlement risk exists almost always.
The entitlement process can take three to twelve months or even longer.
Part of the reason entitlement takes so long is that city planners interpret local rules differently. Staff, planning commission, and city council are all likely to have different attitudes and alignments. It can complicate matters and cause a project’s launch to be delayed.
Simultaneously, most development projects will go through several stages of the entitlement process, and some may be required to go through multiple public hearings for approval.
Attempts to profit from dwindling land supply
Cities are also under pressure to capitalize on the dwindling availability of land, making approvals more difficult and expensive to obtain.
The truth is that the price of a piece of land is made up of three parts: (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 fluctuates with demand, just as land value fluctuates with demand. As a result, as land supplies dwindle due to increased demand, the value of entitlements rises.
The outcomes
Restricted feasibility
We continue to face challenges in making projects feasible as land prices and construction costs rise, and the entitlement process becomes more difficult. Developers must conduct thorough due diligence before embarking on new projects to reduce lengthy timelines and potential cost overruns.
Property values for entitled property are skyrocketing
Due to the significant challenges of the entitlement process, the value of entitled (but undeveloped) land is increasing. Because of the risks and challenges involved in obtaining entitlements, titled properties command a premium.
To successfully navigate through political issues, bureaucracy, and never-ending meetings and negotiations, the entitlement process requires experience, patience, and the right team with the right attitude.
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