ENHANCING VALUE THROUGH ENTITLEMENTS AND DEVELOPMENT AGREEMENTS John D. DiTullio, Esq., A.I.C.P. Ballard Spahr Andrews & Ingersoll, LLP 3300 North Central Ave., Suite 1800 Phoenix, AZ 85012-2518 ditullioj@ballardspahr.com (602) 78-5421 Ballard Spahr presentation for Ballard Spahr Real Estate Department 1
Ballard Spahr Real Estate Department Once of the preeminent practices in the nation 131 real estate lawyers active in markets throughout the United States Chambers 2006 describes Ballard s real estate practice in the following way: Visibility on a national level enhances this firm s reputation for all-around, outstanding quality. Thanks to the multidisciplinary support offered, this substantial firm handles real estate work of all types and on any scale. Ballard Spahr Real Estate Department Chambers continues: The strengths of key individuals were felt to complement each other well, leading clients to describe the team as a whole as strong and formidable in its professionalism. Ballard s real estate department is one of the biggest real estate departments in the country. Unparalled network of relationships in the real estate industry 2
Representing Real Estate Clients in all 50 States Additional projects: Tuscany, Italy; Cabo, Mexico and St. John, Virgin Islands 2004-2006 Multi-family Housing Shaded states denote client representations 3
General Plan Issues Seek most flexible category for your proposed use Does an equivalent to a Master Planned Community designation exist in local ordinances? If not, can you get one adopted? Establishing broader general plan categories may reduce number of trips through General Plan amendment process General Plan Issues Where possible, avoid single annual major amendment process (A.R.S. 9-461.06.H.) Does local ordinance interpretation of state major amendment statute provide for discretion? 4
I. General Plan Issues If no local definition of major GPA amendment exists (even though required by state law), develop strong minor amendment rationale and sell it. Burden high under state GPA law: Major Amendment means a substantial alteration of the municipality s land use mixture or balance as established in the municipality s existing general plan land use element. I. General Plan Issues Get involved with General Plan process in communities you propose to be active in. If you don t, your competition, local activists, etc., will. Goal: keep your project within the minor amendment process less time and attention 5
II. Zoning Issues Understand the district limitations relating to your project s design needs Existing districts necessitate many future zoning amendments? Makes you very vulnerable Changing staff, P&Z, council, neighbors, etc. II. Zoning Issues Minimize trips to the altar! Can I use other zoning mechanisms PAD, PUD, Mixed Use Zones? These open the door to design and, many times, administrative process flexibility and innovation. 6
II. Zoning Issues More flexible zoning districts Can provide a long-term stability factor to get you through regime changes Downside more time, cost, suspicion upfront Must provide the vision of potential build out scenarios use drawings, 3Ds to show how flexibility promotes viability and market sensitivity II. Zoning Issues Consider using specific zoning plan mechanism in cities and counties (less than one million persons) without flexible zoning mechanisms in place (A.R.S. 9-461.08, 11-825) 7
II. Zoning Issues Specific zoning plans may include Zoning ordinances Subdivision regulations Development standards Public infrastructure provisions and renaming issues Administrative processes and procedures II. Zoning Issues Use zoning buffers (creation of zoning parcel at least 150 feet deep within a parcel) to prevent supermajority vote ¾ vote of all council (even if absentexcept for conflict of interest) 20% of land on one side Irregular parcels gray area 8
III. Development Agreements Vested rights by contract Land uses Development standards rules of the game Public infrastructure obligations Public Infrastructure financing mechanisms III. Development Agreements Pursuit of stability predictability better understanding of future obligations Avoid entering into development agreements that place you in a more disadvantaged situation than existing properties in the jurisdiction 9
III. Development Agreements Prop 207 waivers Exotic fee/extraction arrangements not within dollar to dollar parameters No rational nexus, no proportional exaction or benefit Don t waive menu of remedies (without damages you may have nothing at all) III. Development Agreements Define major and minor amendments what triggers a new public review, hearing and action by council? Examples: How much can I move around uses administratively? How much density can be transferred? 10
III. Development Agreements Credits / offsets for development impact fees or other exactions Wherever possible, seek EDU credit in terms of number of units at time of cost expenditure Dollar for dollar credit language vitiates value of development impact fee credit as fees go up over time and number of units payable by rising fees goes down III. Development Agreements Articulate the component scope of constructed infrastructure and associated costs credit calculation design, management, carrying cost as well as actual construction costs Understand jurisdictions impact fee study and components going into fee Establish timeframes for city public infrastructure construction paid for by fees 11
III. Development Agreements Oversizing, payback, reimbursement agreements Nail down methodology for paybacks for infrastructure benefiting other properties Preferably city pays you back and city collects from benefited property owner If have to wait for new development, don t be limited to a payback term and try to get reasonable interest III. Development Agreements Development Fees Pre-annexation agreement context can seek waiver of fees, or Establish a fee schedule escalation rate known X amt years 0-4 X+ amt years 4+ - 8 Establish a lock on rate for certain number of years 12
III. Development Agreements Get right to pre-pay fees for specific number of EDU s at today s rates Check out city or county development fee system structure All fee systems must do the following: Result in beneficial use to development Separate fund and accounting to be used only for specific improvement to benefit development III. Development Agreements Interest stays in fund Credit for dedication of public sites and improvements Collect only when permits for dwelling units issued Amount must bear a reasonable relationship to burden of development 13
III. Development Agreements City must factor in contribution made or to be made in future in cash, taxes, fees or assessments by property owner towards capital costs Can t double charge CFD units if CFD has provided infrastructure Annual report and accounting failure to file report no collection till report filed III. Development Agreements Infrastructure Financing Options in Development Agreements Identify obligations of jurisdiction: Municipal improvement districts Community facility districts Set parameters and predictability of CFD in development agreement policies and procedures exhibit or attach a form of CFD agreement as exhibit 14
III. Development Agreements Other CFD related matters to include or think about in a development agreement: Initial bonding authorization amount GO bond target tax rate Special assessment amount authorization Special assessment lien to value ratio CFD ability to issue bonds without landowner consent O&M obligation of developer who pays for shortfall and how long III. Development Agreements Definition of what qualifies as public infrastructure or public infrastructure purpose for inclusion in CFD acquisitions costs Insist on full statutory menu of eligible improvements Interest on construction improvements until accepted Value of land dedicated for public purposes Management, design, legal costs 15
III. Development Agreements Participation in choice of professionals - bond counsel, financial advisor, underwriter, district engineer (RFP process requirements, enhances sunshine/competition) ENHANCING VALUE THROUGH ENTITLEMENTS AND DEVELOPMENT AGREEMENTS John D. DiTullio, Esq., A.I.C.P. Ballard Spahr Andrews & Ingersoll, LLP 3300 North Central Ave., Suite 1800 Phoenix, AZ 85012-2518 ditullioj@ballardspahr.com (602) 78-5421 16