Presenting a live 90-minute webinar with interactive Q&A Mixed-Use Developments: Lessons Learned From Recent Deals Navigating Zoning, Financing, Community Buy-In, and Other Challenges WEDNESDAY, NOVEMBER 7, 2012 1pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Nancy Scull, Partner, McKenna Long, San Diego Doris Goldstein, Doris S Goldstein, Jacksonville, Fla. Robert Diamond, Partner, Reed Smith, Falls Church, Va. Tim Bates, Partner, Robinson & Cole, New London, Conn. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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Documenting Mixed-use Developments Robert M. Diamond 703.641.4273 rdiamond@reedsmith.com
What is a mixed-use development? Horizontal: Reston Town Center, Virginia Columbia, Maryland Vertical: Water Tower Place, Chicago Time Warner Center, New York Olympic Tower, New York 6
Structuring the mixed-use development Simplicity Flexibility Meet developer s objectives Provide a forum for communicating among uses 7
What are the available structures? Strong master and weak subassociations Strong subassociations and weak master Type of Associations: 1. Condominium used to divide ownership of portions of land without subdivision; only option if no air rights subdivision. Benefit of statutory basis but also limited by statute. 2. Cooperative traditional corporate form where cooperative owns the real estate, the owners own stock or are members and the relationship between the two is based on landlord-tenant concepts. 3. Homeowners Association or Planned Community (usually a nonstock or not-for-profit corporation). No statute required, but may have one. Owner owns the lot, association owns common area; based on common law, covenants running with the land and contract law. 4. Limited liability company newer concept for master association. Very efficient and useful for master associations. Few statutory limitations; tax pass-through. 8
Ballston Metro Center half leasehold over Metro station; half fee simple hotel, retail mall, parking garage and residential condominium Components The box who owns who uses who fixes who pays O = office C = residential condo H = hotel R = retail P = parking 9
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Leisure World of Virginia holes in the donut limited liability company Governance structure Each subassociation and each owner NOT in a subassociation is a member. Individual homeowners are NOT members. Five condominiums plus the developer. Developer has voting control until the project is completed. 17
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Implementing the Principals for Mixed Use Vertical Projects and Mixed Use Town Centers Presenter: Nancy Scull Partner, McKenna Long & Aldridge, LLP nscull@mckennalong.com 619.699.2457 802753063.3 mckennalong.com
Challenges of a Mixed-Use Project Odd Couple Residential and Commercial in one building 1. Divergent Interests: Mixed Marriage of Residential and Commercial and not necessarily compatible! 802753063.3 2. Commercial Owners One Goal - Minimize Contact with Residential 3. Residents Two Goals - Protect and maximize my largest investment - 24/7 enjoyment and use 20
Other Challenges of Mixed Use Projects: Major structural components and building systems in one building Maintenance obligations for key building elements cannot be segregated Building must be insured and rebuilt as one work of improvement Control Who should control the operation and maintenance of the Project? Damage by one person can have a major effect on the entire project Liability when things go wrong Dysfunctional Operations and Monetary Liabilities Regulatory Requirements 802753063.3 21
Basic Premises of Every Mixed-Use Project Commercial Owners: Want control but Developer must protect residential interests CC&Rs and Budgets are critical Failure to think through governance, easements, allocation of expenses, insurance, damage and destruction can result in long-term project problems Separate utilities a must! Keep it simple Don't create a battleship to transport a tea cup Limit assessment groupings Clear definitions 802753063.3 22
Example of Vertical Mixed Use: Pacific Station Retail Condos (Whole Foods and Restaurants) Office Condos 802753063.3 Residential Condos 23
Pacific Station: Ownership Common Area is a cloud above All the project except the Units were conveyed to the Master Association 802753063.3 Advantages to conveying all the Property to the Master Association 24
Pacific Station: How Did We Govern the Project? Master Association Members Commercial Association (not individual Condominium Owners) Residential Association (not individual Condominium Owners) Master Board 2 Commercial Representatives gives Commercial Control Master Association Residential Association Commercial Association Owners Owners Owners Owners 802753063.3 25
Challenges at Pacific Station: Commercial Tenant Issues in Vertical Mixed Use The Tenant Mix How it helped the Economics Challenges of Leasing in a Mixed-Use Building Goals of Whole Foods/Restaurant Users Aligning the CC&Rs and the Leases Allocating Assessments with Tenant Caps 802753063.3 26
Example of High Rise Vertical Mixed Use: L.A. Live 802753063.3 Governance and ownership at L.A. Live: Two Hotels and more than 200 Residential Condominiums 27
Vertical Parcels Helped to Subdivide the Project Vertical Parcel Map Roof Condos Hotel Parking 1. Vertical Parcel Maps create building blocks 2. Can be very complex 3. Longer to process / harder to change 4. Allows greater flexibility to convey areas within a city block. 802753063.3 28
Vertical Parcels Can Be Complex 802753063.3 29
Other option at L.A. Live: Subdivide by Condominiums Condominiums 802753063.3 30
Common Area: Can be an undivided interest in all the building except the Units Common Area is the building except the Units or Separate Interests OR 802753063.3 31
Cloud Condos: Common Area can be a cloud above All the project except the Units can be conveyed to the Association Commercial common area cloud Common Area Is a cloud or clouds Residential common area cloud Association owns the structure 802753063.3 32
Pros and Cons of Vertical Maps vs. Modules / Condominiums Pros of Vertical Maps Creates greatest separation between retail and commercial If retail is a major component could be easier to finance You can use a Master Association which can help to insulate the developer from liability Affords greater protection to condo owners under Civil Code Cons Lengthier processing through the city Creates two levels of associations greater costs Reduces flexibility to change boundaries Complex documentation Pros of Modules / Condominiums Flexibility Processing of a Map with a city or county Cons Retail and Residential may be under governance of one Association or there may be an REA Residential may have greater control unless you use an REA or Mutual Benefit Agreement 802753063.3 33
L.A. Live Governance Alternative Which We Did Not Use Alternative 2: Shared Use & Maintenance Agreement ( SUMA ) REA or Mutual Benefit Agreement Parcel 1 Residential Condominiums and a Residential Association Parcel 2 Commercial Owner or Commercial Association 802753063.3 34
Why We Did Not Use a SUMA More bifurcation of the Building from a legal perspective Commercial Owner/Commercial Association may control most of the building components, insurance and budget BUT Reciprocal easements and lien rights requires an association in California Owners do not owe a fiduciary duty under a SUMA 802753063.3 35
Mixed Use Urban Town Centers: Trends to Create Communities Residential, retail, commercial existing side-by-side 802753063.3 36
Communities Want Town Centers Walkable environment Integrated open-air, multi-use development in an energized public realm Anchored by retail/dining/leisure uses with vertical and/or horizontal residential and office and hospitality Becomes the heart of a community 802753063.3 37
Civita New Urban Town Center in San Diego 4,000 Residencies/900,000 square feet of retail/office/civic/hospitality 802753063.3 38
Governance at Civita One Association Subassociation for Mixed Use and Residential Master Association Residential Association Mixed Use Association 802753063.3 39
One Paseo: Use of Associations and SUMA's High-rise, Mixed Use Retail and Residential High-rise, Mixed Use Retail and Residential Commercial/Residential Mixed Use Retail Mixed Use Residential/ Retail 802753063.3 40
Governance Objectives in a Horizontal Mixed-Use Project Balance the residential owner control Control by a Master Association or Maintenance Corporation: The Focal Point Control to Developer and Major Commercial/Retail Create Assessment Unit/Areas Educate regulatory agencies Provide for ability to make changes Ensure open and effective communication system Create a defined social infrastructure 802753063.3 41
Challenges of the Horizontal Mixed-Use Project Flexibility for document to evolve over decades of development Provide a flexible governance and maintenance structure Flexibility to change Allocable Shares of Assessments Long-Term Master Developer Control 802753063.3 42
STRAFFORD PUBLICATIONS Mixed-Use Developments: Lessons Learned from Recent Deals -- Permitting October 31, 2012 Timothy D. Bates, Partner, Robinson & Cole LLP, New London, Connecticut 860-437-5021 tbates@rc.com 43
What Are You Trying to Achieve? Mixed-Use: A combination of uses in one integrated development project. The most commonly integrated uses are residential, commercial, and office. The integration may occur horizontally, with different uses in different buildings on the same street, or vertically, commonly with office or retail uses on the ground floors and residential spaces in the upper floors. 44
What Are You Trying to Achieve? Form-Based Zoning: Emanating from the city planning concepts of New Urbanism, form-based zoning, while allocating certain areas for certain uses or mix of uses, emphasizes the creation of walkable neighborhoods, seeking to place necessary goods and services within a five- to ten-minute walk of residences. 45
The Permitting Problem.... One cannot easily build Charleston (SC) anymore, because it is against the law. Andres Duany, co-founder of the Congress for New Urbanism. 46
Current Permitting Codes are the Problem. Classic Euclidean zoning codes require separation of units. Town road standards require out-of-scale, wider roads to accommodate snowplows, fire trucks, and moving vans no room for pathways or bikeways. 47
The Result. Sprawl based on strict separation of uses: residential subdivisions, commercial site plans, and industrial parks. An auto-based society. 48
Other Problems. The general public hates sprawl, but it is frightened by density. Financing complex new urbanist projects can be complicated and difficult. 49
New Urbanist Objectives. The neighborhood has a center and an edge, with public parks or structures in the middle and streetscapes radiating out to the edge in decreasing densities. 50
New Urbanist Objectives. The optimal size of a defined neighborhood is a quarter of a mile from edge to edge, allowing a 5- minute walk from home to stores, schools, parks, and transit stops the gallon of milk, gas, paint, and alcohol. 51
New Urbanist Objectives. The neighborhood has a balance of activities, from single-family dwellings to commercial to light industrial live, work, play. 52
New Urbanist Objectives. Street design is appropriate for the uses on the street smaller streets with sidewalks and principally residential areas and a limited number of through streets. Each street has its own transect establishing setbacks, height, and bulk of each building You must build to not within the defined building area to create a sense of place. 53
New Urbanist Objectives. Public spaces and buildings shall be placed in central areas. For retail, no setbacks, often zero lot lines. Off-street parking in rear of commercial buildings and in back alleys of residential buildings. No more snoot houses. 54
Examples. Kentlands in Gaithersburg, Maryland, Ninth Square in New Haven, Connecticut, and Atlanta Station in Atlanta, Georgia. 55
The Solution. If your municipality allows or encourages mixed-use development, use the regulations it gives you. New York City/Chicago: vertical integration. Usually planned development districts, planned unit developments, and special design districts. Watch out for different fire and building codes within building depending on uses. 56
The Solution. If not, invent your own zoning regulations. Special permit: Special use allowed in certain zones usually commercial and denser residential zones that provides higher densities, the ability to mix use, and an integrated street, sidewalk, park layout based on an overall plan. Appropriate for smaller developments. Overlay zone or special design districts: allowed in areas of municipalities where new growth is encouraged. Provides an alternative on top of standard Euclidean zoning. Explicitly permits a mix of uses and creation of new urbanist communities. 57
The Solution. Village zoning: Applies to a defined area of town with established character and densities and seeks to build on those characteristics. All proposals for new construction and changes in exterior appearance are subject to review by a special village commission. Close review of proposed streets to make sure they are in scale with the existing network. Open spaces are to reinforce open space patterns of the district. Locally significant features of the area, buildings, sight lines, and vistas are to be integrated into the design. Close regulation of exterior signs, site lighting, etc., to support a coherent theme. Attention to scale: proportion, massing, detailing. Best for preserving and developing already established, perhaps prezoning, communities. 58
New Urbanist Zoning Regulations. Requires intense study of a town or area zoned. Incorporates build to requirements, special street design, mandated building placement, frontage types, building heights, and locations for civic spaces. 59
New Urbanist Zoning Regulations. Shared parking is mandated, and parking locations specifically prescribed and, if possible, hidden. Street size, road speeds, and parking spaces are clearly delineated. Adopted in Hamden, CT, for two major arteries Dixwell Avenue and Whitney Avenue. 60
Specific Challenges. Roadways: Well-designed mixed-use communities often call for roadways which do not meet town or state standards. Are those standards waivable? If not, perhaps your development has to be private and has to, by itself, maintain the roadways. 61
Specific Challenges. Open spaces have to be thought out and financed. How are they maintained? Who pays for them? Who has access to them? Densities are likely to be higher in mixed-use, new urbanist communities than in other parts of your town. This can be a challenge to the planning and zoning commissions in permitting. Densities are particularly high in transit-oriented development. Fire and building codes may be different for first floor retail than upstairs residential, and retail may need to be phased in. 62
Specific Challenges. As noted, financing different aspects of the mixed-use plan can be challenging. Development may need to be staged, and the interests of the town and the developer may be different in terms of sequencing. 63
Special Concerns for Mixed-Use Development. Don t forget about wetlands. Developable area has to be defined, while protecting wetlands, before you create a master plan. 64
Special Concerns for Mixed-Use Development. Have a good traffic study. Showing how your new roads can handle residential and commercial traffic, given their dimensions, can be challenging. 65
Special Concerns for Mixed-Use Development. Perform a parking study. Try to justify shared parking wherever possible in order to allow denser developments. Hide infrastructure, but provide enough of it. 66
Special Concerns for Mixed-Use Development. Consider charettes as a way of securing community buy-in to the development process and the ultimate product. 67
Doris S. Goldstein, Esq. www.newtownlaw.com 904.730.2960 dgoldstein@newtownlaw.com 68
Mixed use is about symbiotic relationships. 69
Interaction is part of the design. Balance of power is part of the legal strategy. 70
Understand the end game. Know what to spin off, what to keep. 71
Manage homeowner expectations. 72
Be consistent. Always know what hat you re wearing. 73
Never underestimate homeowners ability to misunderstand the deal. They just don t get it, do they? 74
You need really, really clear documents. Plain English helps but it s not enough. Consider recording an executive summary ahead of the documents. 75
You re in it for the long haul. 76
The longer you re in... the greater the chance for conflict. 77
Formulas are important, but you can t anticipate everything. Documents need to have principles, guidelines and ways to resolve disputes. 78
You need lines of communication even when the documents disenfranchise. 79
When necessary, mediate even when the legal claim is totally bogus. 80