What is Entitlement Risk?
Entitlement risks often go overlooked when it comes to property development. However, this type of risk can be very time-intensive and lead to more expensive development.
How do entitlement risks present themselves?
They present a number of surprises and can make any project a time-consuming process. There’s no guarantee that any project with an entitlement risk will be successful at all.
What is the definition of Entitlement Risk?
Entitlement risk occurs when property developers build new properties. Doing so requires the involvement of city councils and the community. Both are complex because there are a lot of different groups involved. In Canada, the approval process is based on the principle of "first in construction, first-served," and is designed so that a prospective proponent must progressively demonstrate that their project is advancing towards construction and commissioning within a prescribed time period.
Think about the vast number of people and groups a local government serves--including the planning community, city council, government agencies like the police and fire department, and environmental agencies.
The developer needs to obtain permits, and that could mean they need to talk to one or more government agencies. Building permits are difficult enough to obtain on their own, so it’s even harder with any other agency. Permits are also expensive and time time-consuming.
One of the biggest challenges developers face is navigating the permitting process. For example, if an inspector notices something that isn't up to code, or something else needs to be changed, developers may have to stop work, change it, and then go back to the inspector. When developers are required to make changes that far into the project, delays can occur and budgets can be busted. Even after making all the changes, developers may still be at odds with inspectors.
When starting a new project, I always try to plan for various permit scenarios ahead of time and pad budgets and timelines to account for any delays. However, permits have a way of making a mockery of even the best laid out plans.
In addition to local government agencies, developers must contend with the community. People may not have any problems with a project at first, but when they find out, they can get pretty worked up. They might start the project off small, but as the word spreads, they'll gather a lot of people to oppose it.
That power can come from the community speaking out and raising local government representatives to their level. In some cases, community voices can be so loud that it attracts unwanted national media attention.
Developers need to keep a pulse on the community. It can be quiet at first and then grow into something much bigger. When that happens, it can delay a project or derail it completely. Communicating with those few who share a different view can help keep things in check.
Mitigating entitlement risk can be a tough job. It involves communicating with the local government and community members, as well as making contingency plans to prevent risks from happening.
RIISE is a full-service building and construction management company that provides effective and innovative solutions to all clients. At Riise, we take great pride in meeting the highest industry standards. We understand the regulatory and political details required to draft a comprehensive entitlement roadmap.
Contact us to learn how we can help turn your project into a reality.