Picture yourself standing on the edge of a chasm. There is a tightrope stretched across it. On the other side waits the opportunity to build or rehab a piece of real estate that could potentially turn a tidy profit. Will you cross?
What — you want to know more? Of course you do; you're no fool. What distance do you have to cross, what supports are available, what's the weather like — especially the wind? If you value your life, you'll try to get a sense of the conditions before you embark on this crossing. And who doesn't value their life?
Replace "life" with "investment" and "tightrope" with "entitlement process," and you'll have a clear understanding of the dilemmas that face real estate developers. "Entitlement," in this context, describes the guarantee that a developer can move ahead with a project. Some types of guarantees are granted outright by law; others require the review of a state or local agency to ensure that the project meets the conditions that are set by law. Those conditions or agency judgments can be simple or complex, and it's this situation that turns entitlement into a process.
After market fluctuations, the entitlement process is the second-greatest source of risk that a potential developer faces when considering investing in a community. And in a free-market economy, market fluctuations aren't a generally accepted point of influence for a municipality. So if you want to promote investment in your town, and you don't intend to buy that investment, you've got to address entitlement risk.
Let's take a closer look at the metaphor, in case I'm not describing the scenario clearly.
In tightrope walking and real estate entitlement, the longer the crossing takes, the riskier it is. Delays expose developers to market fluctuations that can turn a good project sour by the time the project is finished. Those delays generally arise from the complexity of the process. How many sets of regulations must you reconcile as you plan your project? How complex are the regulations, and are they at all vague? How many officials' judgments will you be exposed to as you try to certify that your project meets the conditions set by law? How well defined are the steps by which you may advance? What other stakeholders are involved; and when can they introduce objections that will force you to backtrack?
These questions might seem abstract, but they have vivid implications for would-be developers. Take an example from 2010, when I was hired to help a large developer of office buildings determine whether they would add San Francisco or Seattle to the list of markets in which they invested. One of the deciding factors in the decision turned out to be the difference in the entitlement process between the two cities. San Francisco's entitlement process is so complex that projects of the size that my client intended to engage in typically take more than one economic cycle to gain their entitlements. In other words, you could time your land purchase brilliantly, when prices are at their lowest, and still not manage to put up a building by the time the market peaks and sinks again. You'd then have to wait out the bear market under the increasing likelihood that market conditions would change in ways that are unfavorable to your project.
Some developers have sources of capital that are patient enough to withstand that level of delay and risk. Others do not. If we want to shape strong towns — towns that earn investment instead of buying it — we need to set conditions that are workable whether the investment horizon is three years or thirty. Simplifying the real estate entitlement process would be a very good start.
I owe an apology to all of my fellow structural thinkers who read the Strong Towns journal. For folks like us, it's easier to grasp a topic when the writer gives the overview before launching into the details. I had intended to introduce the "community scorecard" idea by outlining the whole card first. But that draft had no life — like a town without people — so I'm going to break character and lay out the tiles before pulling them into shape. Bear with me, structural thinkers, because the tiles will form a picture in the end. Meanwhile, I have only this to say.
How would you score your community's entitlement process? What factors would you include in the scorecard? Drop me a line or contribute your comments below.
Jennifer Krouse is the founder of Steepletown Studios, Krouse and Company, and Imagining North Adams, a local festival of ideas with a placemaking mission. She is a longtime student of good placecraft and a 2008 graduate of The Stockholm School of Economics.
A complete list of Jen's posts for Strong Towns can be found here.