What are Entitlements?
What are entitlements?
Entitlements are land use permits that enable you to increase the value of your property by expanding the boundaries of what you can build (ex. increasing the amount of units allowed) and what you don’t have to build (ex. lessening the amount of required open space). Entitlements are necessary to the development process (especially in Los Angeles) when seeking an optimal return on investment.
The City of Los Angeles specifically, offers many different kinds of entitlements as incentives for developers to build in targeted areas, build properties with more affordable housing units, and develop projects that are beneficial to a given neighborhood. In this article, we will review the entitlement process, some of the different types of entitlements you can take advantage of in Los Angeles, and why its crucial to complete permit applications correctly the first time around.
The Entitlement Process:
The entitlement process can look like a huge and daunting task and, unfortunately, it is! However, if done correctly, entitlements will add tangible value to your development. The entitlement application includes all required elements for a complete project proposal + any of the site specific entitlement permits you are requesting. Because some entitlements are optional and the process can be very confusing, developers may think that their land is entitled to its fullest potential because they got their initial by-right plans approved unaware that they could have utilized more land use permits (i.e. entitlements) and increased the buildable value of the property. This is why it is crucial to consult with a professional firm before submitting your proposal. The chart below gives an overview of what the entire entitlement process looks like for the City of Los Angeles and further emphasizes the importance of working with a professional.
Different Types of Entitlements: Conditional Use Permits (CUP) are required for certain land uses which may need special conditions to ensure compatibility with surrounding land uses. It is crucial to obtain a Conditional Use Permit (CUP) if the owner wants to open businesses in most local districts. Often, the City and County require a discretionary permit with set conditions to regulate specific businesses within their jurisdictions. CUP is time–sensitive and marked with a termination date. However, a CUP status can only be revealed through extensive research. Special permits are required to operate various types of businesses, such as an ABC License CUP for the Sale of Dispensing of Alcoholic Beverages.
Zone Variance: Zone variance is used when you are requesting more than a minor adjustment to the designated zoning regulations. Variance requests can include height increases, lesser amounts of open space, more density, and other adjustments that can increase value rich property space. Although variance requests still go through rigorous assessment before being approved by the city, they give you an opportunity to push the boundaries of what can be done with the property and be strategic with what you are requesting. Density Bonus: The Density Bonus offered by City of LA allows you to build more residential units and less parking than a property is zoned for under the stipulation that a certain number of affordable and/or senior housing units are included in the plans. The size of the density bonus (i.e percentage of units you can build over the zoned amount) is determined by a number of factors such as number of affordable units to be included and the income tier that the affordable housing falls into. Typically, the density bonus offers up to three incentives from a menu of options including height increases, yard/setback modifications, increased number of stories, etc. These incentives are meant to fit the specific needs of the proposed property and should be used strategically. If your property is in a TOC (Transit Oriented Community)zone the incentives will function like the density bonus with even more perks. Hint: properties/land in TOC zones are definitely worth looking into! It its important to note that while density bonuses and TOC do change what you can do with a property, it does not permit you to build outside of the what the land is zoned for. For example, if a property is zoned for multi family residential use, you will not be able to build a mixed-use property without requesting further modifications (zone variance).These are great examples of what types of entitlements are out there. However, you will want to check with a consultant to see what what works and is available for your specific property.
Why Use Entitlement Professionals? It is apparent that the entitlement process is a complicated one. Developers who try and take on their own entitlements without guidance may cost themselves time and money if something goes wrong with their application, while developers who choose to forgo entitling their property all together miss out on crucial financial gains. In fact, even after the property plans are approved and a Letter of Determination is issued, there will be a set of conditions upon approval; including the final parking count, affordable units, and level of affordability, setbacks, etc. There may even be some special conditions which may affect the sales price. This is why its recommended that you work with a firm, like The Code Solution, that specializes in these matters to make sure your property maintains its value and you make the most optimal returns.
Next Steps: After the entitlements stage is complete, you might want to sell if you have multiple properties in the pipeline and are diversifying your options/return potentials, but it is generally recommended to transition into the RTI or “ready to issue” stage of the development process in order to optimize revenue potential. However, a professional firm like The Code Solution will be able to give you guidance in regards to your specific circumstance.
Real Estate Development
Los Angeles Real Estate
Original Blog by Terrakan