Every deal that crosses our investment committee arrives with a clean pro forma: unit count, rents, construction cost, exit cap rate, IRR. By the time a deal gets that far, the financial underwriting is usually the easy part — a spreadsheet, however sophisticated, is just arithmetic applied to assumptions. The real underwriting, the part that actually determines whether a deal is fundable, happens earlier, and it happens in a planning department conference room, not a spreadsheet.
I say this as the person on our platform whose job is specifically to run that earlier process, and to tell my colleagues when a deal that pencils beautifully on paper is going to die in entitlement, or take eighteen months longer than the pro forma assumes to get there.
Where deals actually die
Almost never in a formal denial. Formal denials are rare and usually predictable well in advance. Deals die from delay — a continuance requested by a planning commissioner, a community meeting that surfaces an objection nobody anticipated, a required traffic study that adds four months, a historic preservation review triggered by a building nobody realized was locally significant. Each of those, individually, is manageable. Stacked together on a deal with a tight construction financing commitment and a rate lock expiring on a schedule, they can turn a good deal into a dead one.
Our Jacksonville project with Oldivai, an adaptive-reuse and workforce-housing redevelopment in the Springfield Historic District, is a good example of entitlement complexity done right rather than avoided: historic district review, adaptive-reuse code provisions, and a community engagement process that started before we had a signed purchase agreement, not after. That sequencing — relationship and process before capital commitment — is the actual skill, and it’s largely invisible in a pro forma.
What we do differently
We treat entitlement risk as a distinct underwriting category with its own diligence checklist, run in parallel with financial underwriting rather than after it: current zoning and any pending rezoning or overlay changes, community engagement history for the site and submarket, comparable entitlement timelines for similar projects with the same planning department, and an honest read on local political dynamics that no zoning code will tell you about directly.
A pro forma tells you what the deal is worth if it gets built as drawn. Zoning tells you whether it ever will.
The sponsors who get burned aren’t usually the ones who ignore entitlement risk entirely — they’re the ones who treat it as a checklist item to clear rather than a genuine underwriting variable with its own probability distribution. We build entitlement timeline risk into our return models the same way we build in construction cost contingency, because in most of the markets we operate in, it’s a larger source of variance to the actual outcome than construction cost ever is.
