Tag Archives: Entitlement

What Is The Value Of An Entitlement?

An entitlement is the “fact of having a right to something.” When you are dealing with real estate that generally means that a property has been approved for a use or uses that other properties have not been approved for. The entitlement may be as important as allowing the development of a casino hotel on a site making it worth millions more than properties that adjoin it, or it may be as minor as being on a roadway that allows on-street parking.

When someone talks about having a property with entitlements you have to find out what they are and decide if the enhance the value of the property for you. If, for example, the property has been approved for a 30-story building but you are looking to build a 3-story building the entitlement may have no value to you. The seller of the property will tout how much value is added by the entitlement, which may be true for some buyers, but if you don’t need the enhancement you likely won’t want to pay for it.

Some jurisdictions approve zoning changes and provide development approvals for limited periods. So sellers advertise that a property has been “approved for development” but buyers think the approvals in place are indefinite. Entitlements can however be fleeting, when you buy a property you may have the approvals in place to develop it but months later you may have to go through an entirely new zoning change process that costs thousands of dollars with no guarantee that the approval will be granted again.

Some entitlements, like tax abatements, may apply to a property and save an owner millions of dollars if they meet a strict set of criteria. To get any benefit at all from some entitlements you have to construct a building, invest in a business, employ people and do it all before the abatement / entitlement expires.

Some property owners spend a great deal of time and money acquiring rights or entitlements that buyers may not think are valuable. If you go through the process of getting your site approved for a high-rise condominium building and the market for condominiums tanks you could find that all the time and money that you spent on that entitlement is worthless because no one wants to develop the property for that use.

I often have to explain to an owner as an appraiser or as a broker that an entitlement they fought hard for now had has little or no value at all. Some owners reasonably don’t want to accept the fact that the entitlement that they fought so hard for doesn’t mean much, but waiting for demand to return may never happen.

An entitlement can indeed be valuable, it can be an important factor that makes one property worth more than most or any others. It can also establish a right to do something that you cannot benefit from. It may be approved for commercial development but in a location that won’t support it. I suggest that you consult a professional and verify that entitlements are valid and not temporary.