How do you leverage zoning incentives and bonuses for commercial real estate development?

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Zoning incentives and bonuses are tools that local governments use to encourage certain types of development, such as affordable housing, green buildings, historic preservation, or public amenities. By offering developers more flexibility, density, or height in exchange for meeting specific criteria, zoning incentives and bonuses can help overcome land use and zoning challenges and create opportunities for commercial real estate. In this article, you will learn how to leverage zoning incentives and bonuses for your commercial real estate development projects.

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1 Identify zoning incentives and bonuses

The first step is to identify what zoning incentives and bonuses are available in your target area and how they align with your project goals. You can research the zoning code, the comprehensive plan, the neighborhood plan, or the specific area plan to find out what types of incentives and bonuses are offered, what the eligibility requirements are, and what the application process is. You can also consult with planning staff, local officials, community groups, or other stakeholders to get more information and feedback.

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Marc Kuhn

CEO @ MAK Capital | CRE Developer | Follow Me to Unlock Passive Investment Opportunities in Luxury Storage & Multifamily Real Estate
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I think you should do this before every deal. There is no reason not to do this. Zoning incentives and bonuses can be beneficial to your deal.

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Adrian Del Rio

I sell Apartments and Mobile Home Parks. I purchase income properties too!
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Definitely explore zoning incentives especially in "Opportunity Zones". I thankfully spoke with a neighboring owner during the due diligence phase of a heavy lift renovation apartment complex I purchased. I utilized a PILOT program where for a fee based on the % of the project cost I obtained a property tax freeze at its current basis for 10 years!

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Samir Bhandari

Co-Founder and CFO @ hBits | Ex MD - Nomura | JP Morgan | UBS | Bank of America | IIM-A | CA | Banker for more than 3 decades.
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I leverage zoning incentives and bonuses by closely collaborating with urban planners to identify opportunities for density bonuses, tax abatements, and expedited permitting. These incentives can significantly reduce development costs and enhance project feasibility. I ensure we align our projects with city goals, such as affordable housing or green spaces, to maximize these benefits. This proactive approach not only boosts our financial performance but also contributes positively to community development.

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2 Evaluate the costs and benefits

The next step is to evaluate the costs and benefits of applying for zoning incentives and bonuses for your project. You need to consider the trade-offs between the additional development rights and the additional obligations or restrictions that come with them. For example, you may be able to build more units or stories, but you may also have to provide more affordable housing units, open space, parking, or design features. You need to weigh the financial feasibility, the market demand, the regulatory compliance, and the community impact of your project with and without zoning incentives and bonuses.

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Jess Larsen

Fund Manager, Podcaster, Counter Child-Trafficking Charity Founder.
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This week at Graystoke Investments, I have been getting closer to pulling the trigger on buying a 180-acre parcel in an opportunity zone. Weighing the financial feasibility for zoning incentives needs to be done at the project & fund level, but also at the investor level. Too often, even large, sophisticated investors aren't 100% sure how to do the calculation, and they don't want to look dumb by having to ask you. Get out in front of this. Show them that the formula would work roughly like X if they use the following assumptions. It's one more way you can serve them. Help them save face. Do them a favor, make it easy for them to look smart when they go back and explain it to their people.

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3 Negotiate the terms and conditions

The third step is to negotiate the terms and conditions of the zoning incentives and bonuses with the relevant authorities and stakeholders. Depending on the type and scale of the incentives and bonuses, you may need to go through a formal approval process, such as a rezoning, a variance, a special permit, or a site plan review. You may also need to sign a development agreement, a covenant, or a contract that specifies the obligations and expectations of both parties. You need to be prepared to present your project vision, demonstrate your public benefits, address any concerns or objections, and secure any support or endorsements.

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4 Implement the project and monitor the compliance

The final step is to implement the project and monitor the compliance with the zoning incentives and bonuses. You need to follow the approved plans, specifications, and conditions of the zoning incentives and bonuses throughout the construction and operation of your project. You also need to report and document your progress and performance to the relevant authorities and stakeholders. You need to be aware of any changes or amendments that may affect your zoning incentives and bonuses and communicate them promptly. You need to maintain a good relationship with the community and the regulators and ensure that your project delivers the promised benefits.

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How do you leverage zoning incentives and bonuses for commercial real estate development?

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1 Identify zoning incentives and bonuses

2 Evaluate the costs and benefits

3 Negotiate the terms and conditions

4 Implement the project and monitor the compliance

Commercial Real Estate Analysis

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