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Shopping Centers Today -> May 2002
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AVOIDING THE FIVE DEADLY (ENTITLEMENT) SINS
By Jeffrey Goldfarb
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Plans in hand, you gaze out upon your newly acquired property at one of the busiest intersections in town and pat yourself on the back for pulling off one of the greatest coups in property acquisition history. Yup, you not only beat out several other developer-suitors, but you managed to structure the deal to work a great financial return — that is, so long as the city grants you the required general plan amendment, zone change, tentative tract map and conditional use permit; the U.S. Army Corps of Engineers provides the necessary wetlands permit; and the Department of Fish and Game issues the requisite 1604 Agreement. But, of course, everyone will play ball, especially the city. After all, think of all the sales tax benefits the municipality will reap as a reward for granting your applications. This is going to be a breeze!
And the Titanic was unsinkable. Experience has taught us one great universal truth: that the governmental land-use permit process is, at best, unpredictable. After 15 years of attending planning commission and city council meetings, both as an assistant city attorney and as a representative for applicants, I have seen people repeatedly make the same costly mistakes when seeking development entitlements. Accordingly, and with all due respect to the omitted vices of sloth and gluttony, the following, in no particular order, represent the Five Deadly Entitlement Sins for permit applicants.
Sin No. 1: Ignoring Stakeholders
Time and time again I have seen otherwise sophisticated developers
ignore the residents likely to be affected by their project until
the night of the hearing on their project. This is a bad idea. If
you do not attempt to work with these persons or groups before the
public hearing, you can be fairly certain that they will show up
on the night of the hearing and, in excruciating detail, explain
to the permitting authority how you are destroying the community
and the city.
The better course is to first research and evaluate all the potential community stakeholders who may be interested in your project. You can often obtain this information by discussing the issue with city staff. If you discover that there are people likely to object to your project, decide whether and to what extent you can accommodate their concerns. You may be able to forestall the imposition of undesirable or unworkable conditions, or even a project denial, by holding one or more meetings with stakeholders to explain your project and attempt to co-opt them in advance.
Nonetheless, there are situations in which you know nothing will be gained by meeting or engaging opponents because they are unshakably opposed to your plan. But you still shouldn’t ignore them. On the contrary, in these situations it is even more important to learn as much as you can about the opposition in order to plan your tactics.
I was faced with just such a situation when representing a developer who intended to construct a project that included a Wal-Mart. A survey of potential stakeholders revealed that the Retail Clerks Union was among the opponents. Unions have long fought Wal-Mart in the courts — unsuccessfully — for the right to come onto the retailer’s property to organize employees, so we knew that any attempt to negotiate with this group would be futile. But we also learned that opponents planned to challenge the project’s environmental impact report. Consequently, we drafted the report in a manner that neutralized the union’s challenge.
Sin No. 2: Being Penny Wise and Pound Foolish
Trying to save money by cutting corners can be costly. There is
a plethora of regulatory acts that require the submission of various
reports, studies and inventories. One shoddily prepared report can
send you back to the proverbial drawing board and, worse, make you
litigation fodder. So hire quality experts (or, in some situations,
ensure that the city does the same with regard to your project)
and make sure that all the necessary studies have been properly
prepared. Ultimately, cutting corners will only cut into your bottom line.
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The California Environmental Quality Act (CEQA) stands out as a stellar example of an instance in which an attempt to save money may well result in your spending substantially larger sums of money in the long run. CEQA requires the local approval authority to analyze (on the developer’s dime) a project’s environmental impact. If the project can be modified to reduce the environmental impact to a level of insignificance, a document called a “mitigated negative declaration” may be prepared. CEQA also provides, however, that if a “fair argument” can be raised that the project may have a significant environmental impact, an impact report must be prepared. Such reports are a lot more complicated, and therefore expensive, to prepare than mitigated negative declarations, so there is a natural tendency to try and go the mitigated declaration route. But this can be shortsighted. If after you have gotten your mitigated negative declaration accepted an opponent makes a fair argument that the project may have a significant effect on the environment, the court will invalidate the project approvals and require the preparation of an impact report. As a result, you will have wasted all the time and money spent on the preparation of the mitigated negative declaration, only to be required to prepare the impact report anyway. Had you prepared an impact report in the first instance, any opponent wishing to challenge the sufficiency of the environmental documentation would have had a much more difficult time; when opposing an environmental impact study, an opponent has to demonstrate that, given the evidence provided in both the impact report and the other project-related documents, no reasonable person could conclude that the project will not have a significant environmental impact as mitigated. So by incurring the extra costs at the front end and preparing an environmental impact report, you substantially improve the likelihood that your project will survive your opponent’s attack.
Sin No. 3: Not Paying Close Attention To The Conditions Of Approval
Under virtually every circumstance, the approval of any entitlement
will require the developer to undertake certain work as the project
goes onward. These can run the gamut from minor requirements (fire
lanes shall be red-striped, for example) to such major conditions
as the completion of roadwork.
Once the extremely short project appeal period is over, there is no way to eliminate or modify an overly burdensome condition of approval without filing an application for project modification, which typically involves starting the whole public hearing and approval process over again. It cannot be said enough that you must pay close attention to the conditions of approval.
Most conditions of approval have at least two elements that bear close examination: “substance” (the work to be performed), and “timing” (the point in the development process when the work must be performed).
The substance of the condition needs to be examined because you must decide if the project proceeds will justify the burden imposed.
The timing must be scrutinized because you have to decide if you can comply. If after close examination you discover that either of these elements of the condition have created shortness of breath, palpitations or hives, run, don’t walk, to the phone and call your land-use lawyer.
A land-use lawyer can be very helpful, because there are statutes and judicial decisions that strictly control the conditions that may be imposed on your project. Under the U.S. Constitution, current Supreme Court decisions and the laws of most states, you cannot be required to perform a condition that is not proportionate to the impact your project creates. If your project does not create much traffic, for example, you cannot be required to dedicate land for a new traffic lane. If your beachfront project does not affect public access to the beach, you cannot be required to dedicate an easement for the public to walk across your beachfront property.
Governmental entities do not always take this into account. As a result, a condition that seems overly burdensome may well be illegal because it imposes burdens that are disproportionate to your project’s impacts.
Sin No. 4: Failing to Recognize That It’s Not One-Stop Shopping
The entitlement process has many, many layers. Gone are the days
when a developer could count on obtaining all the necessary project
approvals from the local city hall. Today there are so many regulatory
agencies with permit authority over a single project that it is
sometimes hard to keep track of them. The developer of a restaurant
located in a beach community that contains some California coastal
sage, on a site that develops ponding after significant rainfall,
will not only be required to get city permits, but may also need
permission from agencies that include, but are not limited to, the
county, the Department of Fish and Game, the California Coastal
Commission, the Regional Water Quality Control Board, the Department
of Alcoholic Beverage Control, and the Army Corps of Engineers.
So it is crucially important to determine from whom you will need
permits before committing to development.
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I recall an applicant in California whose application for a small and relatively uncontroversial project sailed through the municipal planning commission. Tract map and conditional use permit in hand, he began developing the project. But because unknowingly he had not obtained the necessary permit from the state Coastal Commission, the city was required to immediately order him to immediately stop all work on the project. After what seemed like an eternity the Coastal Commission issued the permit but, unfortunately for the developer, the agency required some substantial changes to the project that were inconsistent with the design approved by the city. As a result, the applicant now had to go back to the city. The man’s headaches could have been prevented had he first thoroughly investigated the web of needed approvals by working with the staffs of both the city and the Coastal Commission.
Sin No. 5: Forgetting to Figure Out Who Governs
Sometime during the disco era, a brilliant graduate student at Yale
University wrote his doctoral thesis on who really wields power
in urban government. He did this by examining each position of the
New Haven, Conn., city government. The thesis was subsequently published
under the title “Who Governs?”
The author discovered that all power is not reposed in the elected officials. Rather, it is divided in many ways in the governmental process. Sometimes power is based on official position, sometimes it is based on the personal relationships that have been established among the various employees and elected officials. There is a vitally important lesson for the developer here: He must determine “who governs.”
When you apply for your project’s entitlements, the permitting authority’s codes or rules will explain who issues the permits you seek. The people who issue your permit, however, are probably not the ones you must convince that your project should be approved. Typically, staff has a tremendous amount of credibility with the decision-making body, and its recommendation carries substantial weight. As a result, a lobbying effort aimed exclusively at the official decision makers may ignore some of the people who actually govern the process. So staff members can be your strongest resources in the development process. Not only are they the gatekeepers to the final decision makers, they are also liaisons to the community and often have the institutional memory required to provide you with the information necessary to craft your application. Embrace the planning staff. Find out what they know about the community, particularly the people that live in the vicinity of your project. Ask them to identify the community opinion makers. Have staff tell you about the hot-button issues with the neighborhood and the broader community. Staff will also have the inside skinny on the decision makers, and may well know each one’s personal and political agendas. Staff will know whether one of them favors a certain type of architecture, for instance. This information can be used to tailor your project or presentation to the particular persons who will be voting on your project.
Conclusion
The development process can be an extremely fickle undertaking.
You will often need many different approvals from a host of different
bodies and jurisdictions that possess extremely broad power to deny
your project or at least impose expensive conditions on the approvals.
If you avoid these five deadly sins of the entitlement process,
will you be assured of project approval? Hardly! But your chances
of being able to manage the process to obtain a positive result
are significantly higher. And in this crazy world, that’s worth a lot.
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