We’ve all heard the mantra, “Now is the time to buy!” Well, that also holds true for land acquisition. Distressed properties in the hands of lenders and court-appointed receiverships that have either partial or full land entitlements can be purchased at very low prices today. However, as the housing market recovers, the land prices will also increase.
In many states, the land entitlement and permitting processes can take between one and two years to complete, and so, with the market recovery projected to return in two to three years, the ability to meet the market is contingent on utilizing the next 18 months to secure your land entitlements.
We see the entitlement process becoming more difficult and time consuming as each state tightens its environmental regulations. Additionally, many properties have land entitlements that were approved with low densities. With the market focus on affordability, many of those existing entitlements will need to be revised to meet the future market demand.
Understanding the local political sensitivity and relationships that could affect the development, the scope of work required, and necessary costs to maintain the existing entitlements are the key elements in securing the capital investment for the long-term investment value.
In the last 12 months, I have heard many horror stories where successors in interest have obliterated their development agreement, specific plan, and approved tentative tract map by not having an understanding of the local political landscape until it is too late. One misstep can unravel existing valuable land entitlements.
In addition, many city budgets are deficient, and local agencies are waiting in the wings for the opportunity to add conditions of approval that will recover lost revenue through past negotiations and provide renewed sources of revenue. If you are not careful, you could open up development impact fees that were stayed at a lower rate under a development agreement. Or, capital improvements that were negotiated out previously can show up as a new condition of approval of a revised tentative tract map. Be cautious with your revisions to the land plan and amendments to approved tentative maps.
The good news is investors that can invest in projects with long-term build-out plans will see a large return on their investment within three to five years. Now is the time to secure those land deals, secure new land entitlements, work through your revisions to existing entitlements, and prepare for the new market.
