Turning Building Permits into Profits

Spring 2020 Issue
  • By:
  • Jack Dulin
Managing the process of securing building permits requires patience and extensive knowledge of the rules and regulations in the jurisdiction where the development is taking place. Getty Images

Knowledge is critical when it comes to getting projects through the approval process.

Nearly every project from new construction to remodeling requires building permits. Securing them can be complex and time-consuming. The same goes for entitlements. An extensive list of approvals and entitlements can cost land or building owners a substantial amount of time and money.

“Cutting through the red tape involved in land development, zoning and entitlements is nothing short of a complex series of carefully managed activities and processes,” says George Garcia, founder and president of Las Vegas-based G.C. Garcia, Inc., a real estate development and redevelopment services company. “Government and neighborhood relations, entitlements, due diligence, development coordination, permitting and business licensing are equally key elements.”

According to Garcia, who served as planning director in Henderson, Nevada, and assistant planning director in Overland Park, Kansas, before founding his company, real estate investments need a systematic approach to site exploration and procedural planning. 

Jurisdictional Guidance

Developers, asset managers, landowners and other stakeholders understand the intricacies of entitlements and permits. However, many don’t have the time — or staff — to get through the process. The work of coordinating with government entities can take months — and sometimes years. That can eat into a development’s future profitability.

Additionally, these processes vary drastically from jurisdiction to jurisdiction, which can lead to confusion between developers and municipalities. That is why it is crucial to stay abreast of regulatory changes in areas where projects are being considered and developed.

This is especially important for projects in areas with complex regulatory systems, and due diligence is strongly recommended in cases that involve special-use permitting. This is when a piece of land or property is developed in a way that differs from how the area is zoned.

Know the Area

More U.S. developers are taking their money out of high-cost areas like California and building in fast-growing but less-developed parts of the country. Henderson, Nevada, a small but growing city on the outskirts of Las Vegas, is one such place. According to The Wall Street Journal, nearly 60% of Henderson’s new residents come from the Golden State.

Cities like Henderson often have fewer regulations and are business-friendly, which means reduced development costs and increased profitability. However, don’t assume that smaller, less-complex bureaucracies give out building permits faster. Garcia says it’s important to understand and navigate the intricacies of these jurisdictions.

“When due diligence has been conducted and channels of communication between the developer and municipality have been properly cultivated, building permits are rarely denied in areas of high or low growth,” he says. “What can slow up, or even cancel, a project in the permitting stage is when assumptions are made by a developer that the permits can be attained in the same manner and timeframe as other jurisdictions in which they have worked in the past.”

Consider a developer based in New York City who has a project in a smaller city like Reno, Nevada. They might assume that permitting will be faster in a less complex municipality. But while a city the size of Reno may have less government red tape to cut through, it does not mean that permitting will take less time. For example, jurisdictions can interpret city codes in ways that could be completely misconstrued by out-of-state developers. That can lead to longer negotiations.

As small- and mid-sized cities grow and attract investments, it is critical to understand development standards and protocols in these areas.

Expedited Permitting

Though expedited permitting does require additional fees, it can ensure that a lot gets done in a shorter amount of time. Because a development company, or its development services firm, manages the expediting process from start to finish, it must know the local formalities and regulations. For example, many cities don’t allow expedited permitting for buildings that are zoned for “hazardous occupancy.” These are structures that might store explosive or flammable materials or toxic chemicals.

“A government agency in one part of a state may have completely different interpretations of certain code provisions and standards in a different area or district,” says Garcia. “The developer’s goal should be to minimize any inconsistencies between the development project’s process and an agency’s protocol, especially when time and money are on the line.”

Garcia says he’s worked with many developers and managers who lost hope after finding that their tight deadlines did not align with a jurisdiction’s timeline for standard permitting approvals. That can delay projects and waste money.

When expedited permitting is needed, Garcia says it’s important to monitor the permitting process from beginning to end. First, ensure that an expedited building permit request gets approved, and then monitor the process to make sure the permit review occurs within the shortened timeframe requested by the developer. This all involves staying in close contact with a jurisdiction’s staff.

What About Costs?

Expedited permitting, due diligence, entitlements and other paperwork require room in the budget. Developers’ budgets, and the fees for a development services firm, can vary. It all depends on how much the project complies with, or deviates from, the city’s plans and codes. Budgets should also include supplemental funds for addressing paperwork and planning should city staff members oppose development plans. However, thorough due diligence can define any pitfalls that may add costs.

Some cities offer expedited permitting for extra fees. However, in some cases, this faster process is not enough. If there are a large number of pending expedited permitting applications, or if only a small portion of the process gets expedited, it might not be possible to get the proper permits in less time.

“Streamlined communications between a developer and municipality necessitate the inclusion of a strategic methodology to address local and statewide regulations, thorough knowledge of government and community relations, and wide-ranging local support,” Garcia says.


New Georgia Law Streamlines Permitting

While the speed, complexity and cost of permitting can vary dramatically depending on the jurisdiction, a new law in Georgia should significantly streamline the process in that state. NAIOP Georgia led a three-year effort to get The Private Permitting Review and Inspection Act passed. The law took effect on July 1, 2019.

Key features of the act:

  • All jurisdictions must publish the regulatory fee charged, the schedule for review and the items required for a permitting application to be deemed complete.
  • The fee charged for the permit must be commensurate with the cost of delivering the service and not be a tax to cover other non-applicable activities.
  • Jurisdictions must notify an applicant within five days of submitting an application if it is deemed complete. Following that notification, they must render a final decision on the request within 30 days.
  • If a jurisdiction notifies an applicant that it cannot process the application in 30 days, the applicant has the option to use a third party (architect or engineer, at the applicant’s expense) to review and process the application, but half of the fee must be redirected to the third-party reviewer. The applicant can use a third-party reviewer even if the jurisdiction says it can complete the application in 30 days.
  • In addition to permitting, many developers find scheduling inspections to be problematic. The act requires inspections to be performed within two days of the request made by the developer. As with permitting, the applicant can opt for a third-party service provider to provide the inspection.

The bill also gives applicants more options for meeting local building codes. Applicants can use the standard process or develop an alternate approach, as long as they comply with local laws.

Having these options should speed up permitting and eventually lower costs by introducing competition into the process.

Jack Dulin

Jack Dulin is a manager with Eberly & Collard, an international public relations company.