Entitlements: Many people are not familiar with the word or term, Entitlements, but it may be the most significant word in real estate, especially, in commercial real estate. In residential, it is more commonly referred to as zoning. The reason entitlement is so important within commercial real estate is it ultimately determines the value of the property. The use of the property impacts the revenue which dictates the net operating income. Once a cap rate is applied to the net operating income it determines the value of the property.
When evaluating a parcel or property it is critical to understand the local zoning code, the current entitlements, and if a change is considered, the receptivity of the community for the proposed use. Most communities have an entire department dedicated to Zoning. We have successfully re-entitled property in as few as 60 days. However, that is not the norm. Entitling a property can take as long as 1 or 2 years depending on how extensive the change and how much opposition there is from the community. 60 days or 1 to 2 years can have a major impact on your overall project returns, so knowing your entitlements is critical.