Property Development - What's an Entitlement and Why Do I Need it to Build?

What is An Entitlement?

The definition of entitlement with regard to land development is the legal method of obtaining approvals for the right to develop property for a particular use. The entitlement process is complicated, time consuming and can be costly, but know what you can and can't do with a piece of property is vital to determining the real estate feasibility of your project. Some examples of entitlements are as follows:

Entitlement Examples:

1. Zoning and zoning variances for building heights, number of parking spaces, setbacks. Your land use attorneys and zoning experts come into play here. My advice is to heavily rely on their expertise and follow their directions to avoid unnecessary delays in your approval process.

2. Rezoning. Depending on the current use allowed for the property, you might need to have the site rezoned which is a complicated process and sometimes cannot be done.

3 Use Permits. You may need to obtain conditional use permits and this goes hand in hand with zoning and zoning variances.

4. Road approvals. Do you need to put in existing roads? Who maintains the roads? Are there shared roads via easements? These are all questions that you need to have the answers to and be prepared to comply with in the regulatory process.

5 Utility approvals. Are utilities available to the site? Do you need to donate land to the city in exchange for utility entitlements? Again, you will need to comply with the municipality regulations and standards.

6. Landscaping approvals. The city planning and development agencies must also approve your design and landscaping. Your architect and engineers will be most helpful in this area.

Hire an Experienced Development Team:

The best advise is to hire an experienced development team of architects, developers, lawyers, project consultants, civil, soil, landscape and structural engineers and consultants at the onset to help you analyze, review, interpret and advise you regarding design studies, applicable zoning and code requirements, and maximum development potential of the property. Without an experienced team, it is extremely difficult and a lot of time will be wasted in trying to complete the regulatory process because the very nature of the regulatory process is so complicated.

Here is how the process works. First, remember to keep in mind that the process is very slow and frustrating and can take approximately 3 to 12 months or sometimes years depending on how complicated the project is. Part of the reason is that each city planner has different interpretations of their local rules. Today, approvals involve jurisdictions overlapping such as city, county and state and these jurisdictions do not communicate with each other. It is extremely crucial that you establish good working relationships with these planners to obtain your approvals. Again, this is why you need to work with a development team that has already built these relationships with local staff of the local jurisdiction where your property will be developed. These relationships will streamline and help to expedite your approval process. Your experienced team of experts will be able to negotiate issues for you and eliminate additional requests by the local jurisdiction to avoid further delays in obtaining your approvals.

Regulatory Process:

Majority of development projects must go through certain aspects of the entitlement process and some projects will be required to go through several public hearing processes for approval depending on each jurisdiction's rules. To begin, commercial development of land requires a review and approval from the local Development Review Board or Planning Department Review Division. Each municipality has a different name but the functions are similar.

The process starts with obtaining site approval from the local Planning and Development Department. By contacting the local Planning and Development Department Review Division, your expert team will then put together a land use pre-application which complies with the codes of that particular jurisdiction. By complying with the codes, this will eliminate additional requests by the jurisdiction, further review and extension and unnecessary delays of the approval process.
Next a meeting date will be set. You and/or your representatives will meet with the Planning Department to discuss the proposed project and review process. The process includes approval of your site plan, elevations, colors, landscaping, vicinity map, etc. Environmental information will need to be submitted also. There is usually a fee that accompanies the application. The fees vary from jurisdiction to jurisdiction.
If for some reason your site plan is denied, you can appeal to the City Council. The appeal process varies from each jurisdiction.
Once you obtain site approval, then you will need design approval, master use permits. The design approval process is where your architect will design the building shell, core layout, exterior appearance, building height, site layout, landscaping concepts, traffic impact, site access and utility layouts and submit them for approval.
Neighborhood hearings are generally required for all general plan conditional use permits. You may be required to send out written notice or post information on the site. Normally the City will send notices to the neighbors also. Signs should be placed on the property, and an open house meeting is generally held. Your development team will be instrumental in advising and assisting you so that you have a higher probability of achieving success in obtaining neighborhood approval. Be prepared, even if you comply with the regulatory process codes and regulations, there is always the possibility that the neighborhood may have their own agenda and that the hearings and decisions may not be favorable to your project going forward. This is where your attorneys and the rest of your development team's expertise and participation are crucial.

If wetlands are located on the property you will need special documentation that states whether the Wetlands Act applies or not. If it does, either it will result in significant or insignificant impact as granted by evidence of a permit. Sometimes it is best to set aside or donate the wetlands portion of the property and avoid development issues. Your development team will be able to advise you on the best course of action once they have assessed all the information and reviewed the reports.

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Property Development - Feasibility Studies

A feasibility study is performed at many stages of development in order to analyze and determine whether the project is financially and environmentally worth developing. In the beginning the numbers are very general and conservative. By the time the project starts construction, the numbers should be quite accurate.

Usually a developer will conduct his first feasibility study after he has tied up the contract through a purchase and sale agreement or an option to buy. The study researches whether there is a demand for the proposed development project and present and future competition. A lot of the information can be obtained from local planning authorities. Based upon the results, if the demand projection indicates there is a higher demand than what is currently available, then the developer assumes the project will be successful and should proceed with the development.

Most feasibility studies take into consideration needs legal issues, technical issues, financial and economic concerns and benefits and cultural needs.

Property Due Diligence:

Once the developer has decided to move forward with the project, his engineer or architect will draw preliminary plans and specifications for the development. This would include the layout of the project, buildings, utilities, and other site work. The engineer along with the developer if he prefers would then meet with local zoning and planning authorities to determine if the site complies with local zoning ordinances or whether zoning changes will be needed. Zoning compliance is extremely crucial to the development process and should be reviewed and analyzed in the very beginning of the development process. If during this property due diligence period any major hurdles or concerns come up a new feasibility study should be immediately performed to determine if the project should move forward.

An engineer's cost estimate for the site work along with an architect's cost estimate for the building are prepared during the property due diligence period. The developer will take these cost projections and create a cash flow analysis of the project based on the timing of permitting, construction, and finally occupancy. The cash flow analysis is part of a much more detailed feasibility study created at this time.

Bank Approval and Financing:

The developer will then obtain a development mortgage loan financing commitment once the initial plans and specifications are completed and a fairly accurate cost for the project has been estimated. The lender will usually request a copy of the preliminary market feasibility study, proposed project description, financial statements and any information about other projects the developer has developed. Development loans customarily provide funds to pay for the purchasing the site, permitting costs and construction costs.

Final Property Feasibility Study:

After permits have been awarded for the project but prior to actual construction beginning, it is in the best interest of the developer to conduct one last feasibility analysis of the project. The development costs should be quite solid and need very little revision. It is the market and demand for such a project that most needs to be checked at this point. It can often be a long time between the first feasibility study and this one and economics and demographics can change.

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Slope Stability Check Necessary Before Property Purchase

Whether you are buying your first or your tenth home, its always exciting buying a new house. However its important to not get too excited about your new home before you have done your due diligence. There are quite a number of checks you need to do - including that your your lender is happy to give you that mortgage - but one that is often missed is a geotechnical report.

In some areas of the country slope stability and ground subsidence can be a real issue and its important to make sure that you proposed purchase is not subject to either! Many newer sub divisions are created by bulldozing existing hills or cutting building sites out of the hillside itself. There is nothing intrinsically unsafe about this practice but its important that the correct engineering calculations were made at the time so that the house is not in damage of being damaged or, at worst, demolished by the retaining wall failing to support the hillside behind it.

Substance is a gradual process where the land which a home was built on was not compacted adequately prior to the house being constructed. Subsidence is usually a gradual process and you may be able to see cracks in the house's floors, walls or even outside hard surfaces such as patios and drive ways.

In contrast a slope stability problem you may not know about until there is a landslip. Landslips are occasionally slow and gradual - but more likely are triggered by something, an earthquake or a prolonged period of heavy rainfall are common causes of landslips. It is a great deal more difficult for a layman to work out whether a house could be at risk from landslip.

If you are looking at a property with a significant retaining wall or cut slope near it there are a couple of things you can do to minimize your risk. First you can check with your insurance company to see if they have a premium loading for the property or area. If the area has been the source of a higher than normal number of claims this is a hint that you should proceed with a specialist engineering report.

Even if your insurer doesn't have a problem this doesn't mean there may not be one. If you can see evidence of rock or mud falls from a cut slope - or notice that a retaining wall is bulging or seems to be under stress - seek specialist advice before committing to the property!

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