Upping the Odds on Entitlements Saving Time, Money, and Increasing Your Chances of Success

March 2015

Author: Jessica Alizadeh

Colorado Real Estate Journal

In the high-stakes game of real estate, the entitlement process can be the craps table of development.  From annexation or rezoning to site plans and building permits, obtaining all of the required approvals for a new land use is high risk, high reward, deceptively simple, and incredibly complex.  Done right, entitlement efforts represent a competitive advantage that can mean significant returns, but rolling the dice on legal, political, and technical approvals can also lead to a total loss of your sunk costs with nothing to show for your efforts.  While there are no guarantees when it comes to entitlements, there are ways to help mitigate the risks, regardless of the size of your project.  Following are a few of the most frequently overlooked aspects of entitlements that can save you time and money, but more importantly, may mean the difference between a constructed project and a failed concept.  

Assemble a Quality Team that Knows the Locality – Ask any entitlements professional or planning director, and they will tell you that no matter the development, the quality of the entitlements team is directly related to the timing and efficiency of the review process.  It goes without saying that entitlements team members should come with strong recommendations.  A less obvious point is that it is critical that at least one member of the “core team”—the architect, civil engineer, and land use attorney—has recent experience submitting and processing an application within the jurisdiction where the proposed project is located.  This is not to say all members, but the “one-member rule” is key because efficient and successful entitlement comes down to how well your team understands a multi-faceted process. 

The submittal process varies significantly by jurisdiction, even within the Denver area.  Consequently, even with a team chocked full of the best in the business, time and money are at higher risk if no one on the core team knows the ins and outs of the jurisdiction’s objectives and process.  For example, if a team member knows that a city is not receptive to a particular design or product, that understanding can prevent entire rounds of submittals and redlines.  Likewise, knowledge that a locality requires applicants to include significant design detail in their submittals is an important consideration in evaluating the financial risk of seeking entitlements there.    

Assess Before a No...or Yes – This often shortchanged step stands to make the single largest impact on your success paradigm.  A proper entitlements assessment can do two things.  First, it expands the universe of potential development sites available to you, and second, it eliminates locations early-on where the risks outweigh the potential upside.  It may sound elementary, but too often even sophisticated developers don’t draw a bright line between entitlement assessment and dipping a toe in the process itself. 

Here’s why.  Assessment costs money and involves the same core team.  Developers may be tempted instead to engage in a kind of soft process, labeling it an assessment, until they hit a red flag.  This is especially true where a site is under contract with a government approval contingency. 

The trouble with this approach is that it almost always ends up costing more and leading to mistakes.  If the site is ultimately a “no,” by the time you are certain it will not accommodate your proposed use, you are much further into architectural, civil, and legal fees than a thorough assessment would have cost.  Moreover, the informality likely led to costly missteps even if the entitlements proceeded.  At the other end of the spectrum, the failure to perform an adequate assessment frequently thwarts projects that may well have been achievable. Thus, a formal assessment is critical to improving the probability of successful entitlements.

Your assessment protocol doesn’t need to be overly complicated, but it should include at a minimum an articulated checklist and a time limit.  If you are under contract, the time limit should correlate with the due diligence period.  If you already own the land, it is best to limit the inquiry to a 30 to 60 day window.  If you don’t already have one, your checklist should be detailed and address 1) an analysis of legal feasibility under all governing laws, codes, and plans; 2) a technical analysis given the site specifics and code restraints; 3) an assessment of political feasibility under both the current climate and a re-election cycle; and 4) a best case and fall back development plan (e.g., you would like 400 multi-family units, but the site will still pencil at 310).  

Respectfully Question Authority
It is undeniable that in a process based on approvals, the county or municipality holds a tremendous amount of power.  However, provided you have done your own assessment, the necessary approvals may be less subjective than you think.  A common entitlements mistake is to accept substantially all of the local government’s direction at face value because they are better informed than you are, and they determine your fate.

The costs associated with this misstep tend to accumulate during the process.  It begins at the pre-application meeting with broad direction that significantly shapes your project and it continues through the final hearing.  Governmental input touches nearly every aspect of your project, including use, site layout, design, fees, improvements, agreements, dedications, easements, and many others, so failing to respectfully question the basis for their input and requirements may result in needless expenditures and disproportionate exactions. 

As subjective as planning and technical review staff may seem, they have two primary mandates.  The first is to make sure the rules are followed.  They must ensure that your project conforms to the applicable laws that they are hired to administer and enforce.  Submitting a quality application (that is, thoughtfully designed, well-written, internally consistent, and conforming to the local government’s technical requirements) helps staff perform this function.

You may be surprised to find out that mistakes are common in the drafting and application of zoning laws.  Thus, having technical and legal experts that can respectfully question proposed recommendations or reframe issues rather than immediately implementing a potentially costly change can prove invaluable. 

The second staff mandate is to protect the interests of the local government which may or may not align with yours.  Thus, while staff can be both helpful and knowledgeable—and even if they support your proposed project—it is not the job of staff to be your advocate.  It is their job to seek the best deal possible for their employer--ideally within the bounds of their code and pertinent constitutional requirements.  Accordingly, some asks are requirements, and some asks are negotiable.  Maneuvering these issues carefully will help you arrive at a deal that is good for the locality but doesn’t compromise the project.   

Perception is Political Reality
Finally, the importance of politics in entitlements cannot be overemphasized, and is far too complex to discuss here in detail.  As opposed to staff approvals, elected and appointed officials who sit on governing authorities such as a planning boards, boards of adjustment, historic preservation commissions, design review boards, city councils, or county commissions may be very subjective in their approach.  You can successfully run the entitlements gauntlet over the course of several months or even years, and leave your final hearing with a denial, even when you thought you had the votes.  Therefore, it is always surprising when developers underestimate the power that the elected or appointed official’s constituents have to convince the official to change his or her mind.    

As a starting point to lower your political risk, the one-member rule applies to politics, too.  At least one team member should have a recent and clear understanding of local political issues.  Occasionally this is the developer, but more than likely it is a core team member or a hired political consultant.  The key here is that simply working in the locality is not the same as understanding its political intricacies. 

A second, but no less important point is that the elected or appointed official’s perception may as well be reality.  It is driven by the quality and quantity of input they receive from constituents, and thus you can never underestimate the importance of keeping project stakeholders informed through ongoing community outreach that begins early in the process. You should document your outreach and document your support.  

 While entitlements are generally inherently risky, implementing and refining your approach can help to ensure a higher rate of success at higher profit margins.  Thoughtful consideration of the entitlements team, multi-faceted due diligence, quality applications, careful attention to differentiate rules from requests, and (particularly with larger projects) early outreach to the community
 

This Article is published for general information, not to provide specific legal advice.  The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.

Copyright © 2015 Fairfield and Woods, P.C., ALL RIGHTS RESERVED.