4 Keys to the Balancing Act of the Approvals Process
Say what you mean and do what you say.
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In real estate development the majority of money made and lost is in the approvals process. It is also the time when the risk is the highest.
In the approvals process, there are far more ways to fail than to succeed.
To successfully navigate the process you have to manage three different processes simultaneously: Design & Construction, the Public Relations/Review/Meetings and Financial Feasibility.
At any given time, decision-making is driven by the perceived financial risk-reward of the project. So, it is both an iterative and open-ended process until it is complete or it is time to call it quits.
Throughout the process, there are four key elements that will enable project success.
Key 1: Build the right team to help guide you through the approvals process.
This involves identifying a land-use attorney with relationships and experience permitting projects in the municipality where you intend to build.
The effective management of attorneys during the development process is an entire post in its own right.
But I will say you should manage the attorneys and not let them manage you.
By this, I mean you are in charge, and you need to make decisions based on what is best economically for the project. It is easy to get caught up in the process, have the attorney tell you something they think is extremely important, and lose sight of what’s best for you and the project. Keep that in mind as you listen to your attorney’s advice. They are advisors, not project leaders.
The approvals consultant, typically a planner or civil engineer associated with the civil engineering team, is also an important team member to help you navigate the process. He (or she) should have experience with this type of project and with the municipality, county, or state where you plan to build. Their experience can be invaluable as they should know who to call to ask for advice when you hit a roadblock, and they should anticipate what will come up as challenges to your project.
Work with them to prepare for any public conversations about the project and public meetings. Like the land-use attorney, they should be listened to too closely. But keep in mind they have an agenda and possibly a personal/professional history with people who are part of the process.
They do not have a bird's-eye view of what is happening with other parts of the project. So, manage the project accordingly with input from all the right parties, not just one.
Key 2: Initiate a proactive public conversation with community stakeholders.
Identify the community members who are most likely interested in your project. These people usually include a municipal representative, such as a city council member, a state representative, a local neighborhood group, and definitely the neighbors within one mile of the project. Set up conversations with them one-on-one and use those conversations to prepare for larger public forums.
Facilitate conversations with the community so you can understand their priorities and learn about what may concern them about the project. It is extremely important to listen to the community as you are creating something that will impact them. You, as the business owner, are also joining this community, so you want to do right by them. This is a relationship-driven business.
Build relationships with your community and identify ways to help the neighbors and towns where you build. This is definitely one of the most satisfying parts of the development process.
In a recent project, we worked with the city councilor to identify youth athletics facilities in the neighborhood that were in dire need of investment. As part of our contribution to the community, we provided more than $500,000 to upgrade the soccer fields, basketball courts, and outdoor ice rink.
I can’t think of a better way to help a community than to help the children have a safe and fun place to play together. Building goodwill with the community is a key part of the development process. A solid public relations campaign that focuses on listening and communicating your vision is required to do this.
Key 3: Design the right building and work with the construction team to ensure you can deliver on your promises.
While you are shepherding your project through the public meeting process, you also work on the design of your building. The initial design is whatever you need functionally with an effort made to address what you think the community cares about. Then as you begin your public conversations with the neighbors you begin to learn what really matters to them.
One-on-one conversations with neighbors and through public forums will help you learn about the priorities that need to shape your project. These changes can include either offsite or onsite improvements.
Some project onsite improvements we have made in our projects include:
Landscape buffering with bushes and trees will be added to block views of neighboring properties.
Changes the entrance locations or directions of traffic flow for vehicles entering or exiting a property.
The creation and relocation of bus stops adjacent to the property.
Operating restrictions: activities allowed at certain times of the day.
Relocation of the building’s height and/or massing to diminish impacts on neighboring properties, such as shadows and views.
Inclusion of affordable housing in our projects
Some offsite improvements we have contributed to our constructed include:
Youth sports facility upgrades
Funding for and construction of traffic lights, crosswalks, and streetscape improvements.
Affordable housing funds
Funds for planning and engineering studies for neighborhood improvements.
Whatever improvements you make, the critical part is to focus on listening to the community where you want to build. This will facilitate your learning and build trust, making your project a valuable part of the city or town.
Another meaningful conversation to have with the city is on the construction process.
Who do you plan to use for the project? Have they built there before? What will be the length of the construction process? Will the city require you to work with them on access and work days/hours?
All of these questions need to be answered early on.
This generally requires you to have your general contractor onboard in a pre-construction capacity. This is highly recommended as it also facilitates better budgeting and can help you mitigate escalating construction costs.
Either way, make sure you have answers to construction impact questions. This will help build trust with community stakeholders if you deliver on them.
Key 4: Manage the approvals process with go/no-go milestones to minimize financial risk.
As you decide to begin the approvals process, it is important to clearly identify your go/no-go milestones. This helps you manage the risk of the process.
The entire process is fraught with risk, so it is extremely important to continuously monitor potential pitfalls.
So, how do you identify these milestones?
Answer these questions to determine when you need to stop and think about whether you and your partners should proceed with the project approvals process.
If we continue, how much money will we have to spend to learn more about whether the project is something key stakeholders will support?
How much time is required to get to the next milestone?
Are the trajectory of the conversations with key stakeholders generally positive?
If not, do those who oppose your project have enough influence to sink it?
More generally, is the financial risk and opportunity cost of continuing the approvals process worth it? Your opportunity cost is the time and energy you will invest in this project versus another project.
What is your next move if another project appears to be more financially compelling?
All of these questions revolve around strategy.
What are your firm's priorities? If your firm is committed to working in a specific city or area on a product type (multifamily, industrial), then you may be more willing to continue investing in a project that is less compelling or less likely to get approved.
Your leadership on establishing company priorities will help you more quickly get to a Go or No-Go decision.
Whatever your choice, make sure to be decisive and move forward.
Best of luck to you and your approvals team with the process, John
What we are reading this week:
The Orlando Magic were knocked out of the playoffs on Sunday by the Cavaliers, so that has been a bit of a downer for those of us in Central Florida. But it is great to see them make it further than they have in the last 10+ years…so maybe next year?
The Celtics now face Cleveland and it should be an interesting match-up. Porzingis is out with an injury, hopefully he will make it back to the line up soon. He is huge for rim protection with the Celtics holding teams almost 14% below what they score when he’s not on the court. Apparently he is expected to come back in a few weeks.
The New York Knicks continue their play-off run facing the Indiana Pacers. This is a classic match-up we look forward to watching. The Knicks are short-handed and could get tired out with the strong offense of the Pacers.
Out West I am particularly excited to watch the Timberwolves and Nuggets series. Not sure who I am going to root for, but I both teams are exciting and put on a show every time.
The OKC and Mavericks series will be fun to follow with Luka and Shai Gilgeous Alexander match up providing some awesome tv. Enjoy! Let us know who you want to win it all in the comments below.