Virtual Deal Simulator
The Upzoning Bet: Entitling a Mixed-Use Infill Site
The land you already own is worth $9.5 million as-of-right. If a rezoning goes through, it's worth $34 million. Everything about how you spend the next nine months should depend on how seriously you treat that gap.
You’ll Practice
- Distinguish a by-right development program from one requiring rezoning, and recognize entitlement risk as equity-like risk that institutional construction lenders generally will not finance
- Quantify the carrying-cost exposure of an entitlement delay -- taxes, pre-development loan interest, and insurance accruing on land that produces no income
- Evaluate community-engagement and political-risk strategy as a real underwriting variable, not a public-relations afterthought
- Compare realistic pre-development capital sources (bridge debt, seller carryback, preferred equity) on cost, certainty of execution, and alignment of interest, not rate alone
- Recognize that an entitlement approval is rarely all-or-nothing, and re-underwrite the actual approved program before proceeding -- not the program originally pitched
The Site You Already Own
Your firm closed on the 2.1-acre parcel at 4th and Winslow eighteen months ago for $3,100,000, financed with a $3,000,000 acquisition loan at 9% interest-only. As-zoned, the site supports a by-right 40-unit garden apartment building with an estimated stabilized value of $9.5,000,000 -- a solid but unremarkable deal. But the corridor has been rezoned for transit-oriented development one block over, and you believe the city would support a mixed-use rezoning here too: 120 residential units over 8,000 square feet of ground-floor retail, with an estimated stabilized value of $34,000,000 once built. The gap between those two numbers is the entire reason you're considering a rezoning application instead of just pulling a building permit.
- Site
- 2.1-acre infill parcel, 4th and Winslow
- Land basis
- $3,100,000 purchase price, $3,000,000 acquisition loan at 9% IO
- As-of-right program
- 40 units, garden apartment; est. stabilized value $9,500,000
- Proposed rezoned program
- 120 units + 8,000 SF retail (mixed-use PUD); est. stabilized value $34,000,000
- Monthly carrying cost
- $32,000 (taxes + acquisition loan interest + insurance)