May 03, 2005

Commercial Financing of Condo Conversions Involve Entitlement Risk

There is No Guarantee the Condo Map Will be Approved

When a developer buys an apartment building and wants to convert it to condo's, there is significant amount of entitlement risk. Entitlement risk is the risk that the various government agencies with jurisdiction will not issue the required approvals for the construction project to proceed.

A Condo Map, a Tentative Map, a Condo Declaration, and a Subdivision Map all mean the same thing when you are talking about a condo conversion project. The entitlement risk associated with a condo conversion is the same as getting a tentative map approved on a subdivision that has zoning. The risk is unique to the jurisdiction of wherever the deal is, like any political risk.

If the apartment project is zoned for condominiums, recording a subdivision map and getting DRE approval to sell units is a matter of timing risk.

But there is some Political Risk associated with condo conversions. Generally the Political Risk involves market/subsidized rental housing advocates challenging the rental supply with conversion approvals but before the planning commission vote.

Certain jurisdictions permit conversion without public forum approval. Again, this is a geographic political thing.

C-Loans would llike to thank Erich Beringer of Scripps Investment and Loan for contributing this article. Scripps Investment and Loan is one of the largest hard money construction lenders in California. They specialize in huge land development loans and huge subdivision construction loans in the Western States, primarily in California. They recently closed an $8.6 million construction loan on a residential subdivision for C-Loans. You can apply to Scripps for a construction loan or land development loan by using C-Loans.com.