How We Entitled Over 400,000 SF in Major Metros & Challenging Markets

Density drives value in urban real estate. When you want to maximize the buildable square footage of your land, obtaining land use approvals (“entitlements”) is a risky but necessary effort. Our firm has entitled over 400,000 sf of commercial projects in San Francisco, Chicago, and Los Angeles. Here's how we sequence entitlement work to obtain land use approvals as soon as possible, while minimizing risk.

Keep in mind that when doing entitlement work, you can optimize for time or for money, but not both. The more work you can dual-track, the more money you will risk upfront, but the faster the process will go. Having done this a few times, our preferred strategy is to optimize for time over money every time, as long as the ownership vehicle is properly capitalized to do so.

Going slow exposes you to market, supply, and cost risks, which are tougher to manage than entitlement risks. You usually can feel pretty early on if you are likely to obtain the approvals, even if it will take a long time to do so. If you try to conserve cash by waiting to spend on design and permitting until after you are fully entitled, you run the risk of many factors outside of your control turning against you. By the time you break ground, construction costs could have spiked, or new competitors could have delivered, or market cap rates could have changed. Any of these factors can significantly impact the final value of your project.

Here is the process that we’ve followed here at Mason Equity Partners to entitle over 400,000 sf in challenging markets:

1. Pick a project big enough to carry entitlement expenses, with a budget to spare for community concessions. Expect to provide some mix of good aesthetics, trees, and community meeting space. Hiring a fancy architect helps.

2. Assemble your team: lobbyist/lawyer, lobbyist/expeditor, architect, and development manager.

• Pro Tip: In some cities, you need at least two lobbyists. One of them will have a deeper relationship with a specific department than the other, and no one lobbyist can get you through every department.

3. Produce a concept design, plot plan, and render. These should show massing, density, locational context, and illustrate what variances/approvals you need to build a project that pencils.

• Important Note: MINIMIZE COSTS AT THIS STAGE because until you chat with the City, you've got nothing.

4. Present your design to the City AND neighborhood for initial feedback. Do they like the use? Are they open to considering granting the approvals you request?

• You may be asked to adjust your massing, signage, facade, or provide other concessions to please stakeholders

5. If the City/neighbors buy in, you may be comfortable enough to move forward with a formal application.

• If you have a short escrow, you are probably hard on your earnest money, you've spent five figures min on design and third parties, and you're preparing to close.

• Even if you're on a long escrow, you will want to start dual-tracking your entitlement application and design development drawings. Your team should be able to tell you the list of departments you need to apply to and in what order. Just make sure not to forget one or you will get delayed.

6. All you need is a concept design to start your entitlement application, but be warned: You will forever be held to the density and aesthetic shown in your application unless you go through a burdensome process to modify it later! So ask for as much density as you can get, and provide the most economical aesthetic you can.

7. Once you’ve submitted, you could conserve cash by sitting & waiting for the City to process your application before spending any more money on design.

The better approach (assuming sufficient liquidity) is to dual-track design development drawings while you wait for the City to process your application. This maximizes schedule and therefore minimizes cost and cap rate risk, which can radically change the project’s economics.

8. Keep in mind: Problems will come up! City agencies often interpret their codes differently than how they are written.

• If your view is well supported by the code and your team has a good reputation, they will plead the case until someone in the agency agrees with the facts and resolves the problem.

9. If you trust your design, and trust your team, continue with your construction drawings while waiting for the City to process your entitlements.

10. Submit your 50% CDs to the building department, so they can process your building permit while you continue to wait for entitlements.

• If you want to save money, don't start CDs until fully entitled and spend 12 months after entitlement to finish everything.

11. By the time you are fully entitled, you should have 90% CDs, a hard construction budget, plan check comments, and lenders and investors reviewing your deal.

Our team has developed $250M of commercial real estate in top infill markets across the US. We feel that now is a terrific time to tie up real estate in long escrows, while we drive value with land use entitlements. Do reach out if we can be of any help.

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