Rededications - a good business field for real estate developers?

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When it comes to rededications, many people think of almost mystical procedures that are only possible for a few privileged players with the appropriate contacts.

But is this really the case? Or is this a business field that is also exciting for smaller developers or even private individuals?

In this blog post, I analyze the topic using the example of my hometown Vienna. Even if the saying "Vienna is different" now comes to mind for some readers, the key points of the process are probably quite similar elsewhere.

Let's start with the bad news first; there is no legal right to redesignate a particular piece of land, regardless of the quality of the arguments.

Now the good news; the procedure follows fixed rules, so results can often be at least guessed at in advance.

Rezoning is an instrument of urban development, so it is worth starting with its tasks and goals.

The most important task of urban development is to adapt the structural development of the city to the changed framework conditions, such as a continuous increase in population, and to ensure that the cityscape does not change for the worse. This also includes the subsequent use of areas which, for whatever reason, are no longer used as they were in the past.

In order to fulfill this task, the city regularly prepares so-called urban development plans, in which the strategic directions are recorded.

The city can concretize or enforce compliance with its concept through various instruments. These include:

  • the determination of the type of use, i.e. whether apartments or production areas are to be built at a location, for example
  • the imposition of building bans for a temporary period in order to work on a dedication concept in peace and quiet
  • the definition of building regulations, which determine how high or in which construction method buildings may be built
  • the conclusion of urban development contracts, which regulate under which ancillary conditions a developer may benefit from a dedication or what he has to contribute

Decisions are based on concept documents as well as laws and regulations. Among the most important are:

  • The Urban Development Plan ("STEP") looks at the entire city and is primarily strategic in nature. It sets the direction of urban development at the level of society as a whole.
  • Urban development concepts, in short "SEK" are a link between "STEP" and zoning and are dedicated to a functionally coherent part of the city, where several foreseeable developments can be considered in context.
  • The zoning plan shows what may be built from a dedication point of view, e.g. apartments or offices.
  • The zoning plan regulates in detail the constructional usability of a floor area/property. The buildability is determined in particular by building lines, building classes and building methods. In contrast to the zoning plan, it is therefore not a question of the entire site, but rather specifically of the planned construction on the individual property.
  • The Building Code states at the outset that the zoning plans and the development plans serve the orderly and sustainable design and development of the urban area (§1 para. 1 BO for Vienna).
  • Also not unimportant is the Garage Act. Developers have practical experience with the Garage Act, e.g. with regard to the obligation to provide parking spaces or a compensatory levy to be paid.

By studying the above works and observing "city-changing" processes such as large company relocations, it is often possible to anticipate rezoning potential, for example when the city wishes to rezone an abandoned company property or the area surrounding it in order to create additional living space.

As already mentioned, the process follows fixed rules.

The first point of contact in Vienna is "MA 21", which is responsible for district planning and land use. When this department decides to draw up a new zoning plan, opinions are sought. First of all, the district is important, but others can also give feedback on the concept, which is made available for public inspection.

In the next step, the zoning plan is revised, if necessary, and the urban development contract is negotiated and submitted to the municipal council for resolution. After the municipal council has passed a resolution, the plan is republished and becomes valid.

If developers or (wealthy) private individuals wish to enter this field of business, the following steps are, in my experience, purposeful:

First; obtaining an understanding of planning policy goals.

Second; analyzing current practices. From this, patterns can sometimes be identified that can help.

Third; professional preparation. This includes several planning sketches, a comprehensible argument for benefits from an urban development perspective, and serious comparative examples.

Fourth; conducting the discussions with the right mindset. This includes an awareness that change should always be to the benefit of all stakeholders. In other words, one should be prepared to give something, e.g. a non-profit share, which is customary in Vienna and necessary for reasons of social mix, when obtaining a residential designation. It is also important to work with reputable companies. Imagine how pleasant it is for politicians or civil servants to speak out in favor of a rezoning and the developer then builds with a dubious construction company, which is then involved in a sales tax fraud, for example. Always remember: Politicians are only human beings who usually want to be re-elected. Corruption, scandals or the suspicion of favoring individual players are usually detrimental to this goal.

Rededications take time and involve certain imponderables. Nevertheless, they are a highly interesting business field for long-term investors with the right mindset, especially in the current interest rate and yield environment.