Entitlement Strategy is Essential to Securing Value Creation Opportunities

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By Jay Vincent, Senior Vice President for Business Development, The Saint Consulting Group

After reviewing a transcript from a publicly traded real estate company’s Q2 earnings call recently, I was reminded how critical political due diligence is to important real estate projects.  In today’s commercial real estate market, many firms aim to redevelop properties in order to create value opportunities in aging centers.

Redevelopment can earn higher rents, secure long term lease renewals and attract new tenants to redeveloped space. It can be a real win – win for tenants and landlords.  But when thinking of the community and the end game of entitlement, how viable is the value creation opportunity?  In some cases, the project may not be viable at all due to political opposition from residents, leaders, influencers and the like.  So what is at stake?

For publicly traded companies that have positioned key redevelopment opportunities as growth drivers in forward looking statements, there is a lot at stake. First and foremost, missing the mark on earning entitlements can have an impact on expected future revenue, share price and obviously EPS unless some cost cutting is in place or another property is performing better than expected.  If plans for redevelopment are expected to contribute directly to increased earnings, and that blows up … well, you do the math.  There is a lot at stake.

But the harm does not necessarily end there.  Missing the mark on a key entitlement can be fodder for analysts looking to downgrade the stock, and it can offer an opportunity for competitors seeking to question the viability of future redevelopment efforts elsewhere. This inevitably leads to courting of tenants by other owners and may cause existing tenants to lose confidence in the redevelopment plan of their existing landlord.  That kind of harm is in some ways irreparable and has a way of snowballing for a shopping center.  Just Google image search the word blight and you will see what I am talking about.

From this quick review we know that credibility, reputation and earnings are certainly at stake.  So, how can a firm ensure its future earnings, reputation and stock price are not staked on the hopes of a project that is doomed due to community and political opposition.  Take these five steps of political due diligence to inform your planning process:

  1. Know what all of your direct abutters to your center think about the existing development
  2. Learn what direct abutters and other stakeholders think about potential changes
  3. Keep track of what these stakeholders say and do about the project in a database
  4. Gauge the decision makers’ views on the project where possible
  5. When it comes to time for a vote, turn out those supporters and mitigate the opposition

The last step, could be to just give me a call and we can chat about it.  Reach me at vincent@tscg.biz

Jay Vincent is senior vice president for business development for The Saint Consulting Group

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