Engineering Inc. - September/October 2007 - (Page 33) Guest columN laNd developmeNt LaNd deveLOpers CaN prOfit frOm iNCreased eNtitLemeNt ChaLLeNges By David Garland As the housing market evolves, it is inevitable that many developers and home builders will be caught in the undertow of the downward cycle. To make matters worse, the maze of community, county and state regulations is getting more confusing for land owners, engineers, architects and developers. In fact, entitlement and regulatory issues, driven by multiple sources of influence, are one of the largest concerns within the development and home-building industry today. Understanding these forces and preparing for their impact can enhance project appeal, add revenue opportunities and favorably position you and your clients for future prosperity. These forces include: n Organized Activism: Citizens who historically have acceded to the decisions of local and regional regulatory officials now seemingly challenge them at every turn. Organized campaigns launched by neighborhood- or special-interest groups force officials to risk their office on every vote, no matter how reasonable a development application might be. n Demographics: By 2040, America’s population is projected to increase by 83 million people. Experts predict this growth will be concentrated in resource-constrained metropolitan areas, adding to traffic and infrastructure woes. n Zoning and Code Restrictions: To combat the possible consequences of growth, regulatory agencies have instituted urban growth boundaries, launched comprehensive planning campaigns and urged the use of “smart growth” initiatives. n Affordable Housing: Additional housing David Garland demand has and will continue to be met with new stipulations and regulations that call for affordability components. The premise of the affordability component is that not enough low-cost housing exists, particularly in the shadow of the recent housing boom. The policy response in most states has been to subsidize rental housing development, or mandate percentages of for-sale units that must be sold below market rates. The net effect is that the costs of affordable housing requirements are borne by the landowner, developer, builder or some combination thereof. n Environmental Awareness: Growing environmental awareness requires greater due diligence and analysis of a project’s potential impact on the surrounding infrastructure and ecosystem. From complying with EPA guidelines to applying for LEED certification standards, there is an underlying, unspoken assumption that we are moving from “Every developable structure could have a green component” to “Every structure should incorporate sustainable practices in its design.” As these forces converge, requirements for affordable housing, development impact fees, higher permit fees, special impact fees and the like will be based on the assumption that developers have the resources to consistently meet evolving policy. In reality, policy forces developers to continually reinvent cost-cutting mechanisms. New Opportunities There is a flip side to that coin: If there is one thing that added regulation provides besides longer entitlement time frames, it is uncertainty in receiving intended approvals. Where it once took mere months to gain approvals for a project, today it might take a year or two. The difficulty in receiving entitlements will be commensurate with the added value of the property upon approvals. This means that by obtaining tentative maps, planning commission approval, city approvals or the equivalent (even without necessary building permits), the value of land will be substantially increased, and not just due to land appreciation over time. Now, more than ever before, the ideas and expertise of development consultants are critical to differentiating one project from the next and adding necessary economic value for development. Strategies for obtaining approvals, and thus the increased land value, are of utmost importance. Outsourcing of the entitlement process is a growing trend throughout such heavily regulated states as California, Oregon and New York. This niche opportunity will only expand in other states as development constraints mount and provide opportunities for consultants such as civil engineers and land planners. As conflicting political, social, demographic, economic and environmental influences converge, there is bound to be uncertainty and volatility. For those who know how to navigate these waters, a wellspring of opportunity awaits. n David Garland is vice president of development of Hansen PSC, Inc., a strategic investment and land development firm in Menlo Park, Calif. Garland can be reached at dgarland@hansenpsc.com. september / october 2007 eNGINeerING INc. 33
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