Real Estate Development: Same Game, New Rules

The real estate development game has not really changed much over the years. It is still about creating an economically viable project that the marketplace needs, that tenants and consumers will want and that a community will accept. However, there are constantly changing rules to play by if we want our projects to be built and be successful. These rules have nothing to do with the demands of the marketplace or the economics of real estate development and investment. But, they have everything to do with understanding the people and the process by which our projects ultimate success will be determined.

More than ever before, the concept of private property rights and the ability to build upon the land we own is under attack from ad hoc citizen groups, neighborhood activists, self described land use experts, attorneys, and politicians of every persuasion. Understanding who these folks are and the rules for seeking and obtaining their approval is now an integral part of the real estate development process nationwide.

Lets start with my favorite: “LULU’S – Locally Unwanted Land Uses”

Every state, city and town in this nation has a myriad of land use regulations. A government’s right to zone property for acceptable uses is an established fact. As Developers, we must be cognizant of the rules of land use in every community in which we build. But, we must never fear asking for changes in land use that time, the market or our vision for the property may dictate.

Defining a “LULU” requires understanding who does not want the land use you desire and why. That means understanding these next groups of players in the game and what to do to bring them around to understanding and, hopefully, accepting your proposed land use.

NIMBY’S – The “Not in My Back Yard” folks.

Most developers have had experience with folks who bought a home in a neighborhood with vacant commercial or higher density residential land at its perimeter. They really weren’t concerned with what might get built on that corner untill you came along with your plans for a shopping center, an office building, an apartment complex or some other land use. The land may be currently zoned for your proposed use but the typical homeowner will not have a clue what that means nor will they care. The natural reaction these days for some Nimby’s is to oppose the land use no matter what you say or do. The fear of change is oftentimes the driving motivator.

Working with NIMBY’S is most often a time-consuming process requiring patience, the ability to educate folks about your project and lots of compromise on your part on issues such as project design, traffic flow, amenities, etc. Meeting with these folks personally and early in the process, understanding their fears and motivations and working towards getting their support for your plans is very much part of the formula for a successful project.

Now, there are other groups that will never support your project under any circumstance. These folks fall into several categories and constitute a wide variety of players in the development game.

CAVER’S – Citizens Against Virtually Everything Regardless.

BANANA’S – Build Absolutely Nothing Anywhere Near Anyone

Don’t be fearful of the Caver’s and Banana’s. A large part of the successful developer’s role is understanding the political process in a community and what it takes to get your property ready to build. The entitlement game goes way beyond just land use and zoning. The Caver’s and Banana’s know the political game. You must as well. You could have 100% neighborhood support, the best looking, fully leased project ever conceived but it you can’t get City staff and council approval, a building permit and, ultimately, a certificate of occupancy, you have nothing but a great idea on paper.

The trick is in building your team to combat the Caver’s and Banana’s at every turn. This means building time into your land acquisition contract, counseling the seller of the land and his broker on the political process entailed in actually getting your entitlements on his land. Being personally politically astute is a critical component of being a successful developer today. Build your team with the best consultants that your project needs. Find the ones who know the local players and the rules of the game.

Most importantly, plan and be ready for the end game. Be prepared to “count votes”. In most instances, it only takes a simple majority of the City Council to win your case. The Caver’s and Banana’s will be working on finding votes to stop you. You must counter their attack with honesty, open communication and compromise. Remind the community that what you plan to build will create jobs, provide housing or new business locations, enhance the long-term economic vitality of their city and provide tax revenues in various forms for a long period of time.

Remember, real estate development is a political process and all politics are local unless they’re not!

If there is one piece of advice given me long ago that has served me well as a developer it is this:

While you are thinking about how you are going to spend the millions of dollars you will earn by creating your project, remember that the guy or gal in the planning department making their annual salary really won’t care about your project. In fact, they may even resent you for the very fact that you seek to earn a profit on the risk you will take undertake. Try to make them your new best friend so they will at least help you understand the rules, even when they make them up as they go along.

The real estate development game has always been and will continue to be a puzzle with multiple moving parts…land owners, brokers, contractors, engineers, architects, tenants, bankers, investors, consultants, planners, public officials, and many others. Your job is to know how the game is played and what it takes to win.

Oh, and one last piece of advice. While you are putting together the pieces of the puzzle that is the project you envision, try not to slip on the Banana’s that the Caver’s left on your land when they were visiting with the Nimby’s about how to stop your project before you even get started.

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