18 h Annual Robert C. Sneed TEXAS LAND TITLE INSTITUTE CONDOMINIUMS AND MIXED- USE PROPERTIES December 4-5, 2008 Hyatt Regency Hill Country Resort & Spa San Antonio Robert Doc Watson Fidelity National Title Insurance Company 1445 Ross Avenue, Suite 4700 Dallas, TX 75202
Robert "Doc" Watson Vice President and Counsel National Title Services Fidelity National Title Insurance Company 1445 Ross Avenue, Suite 4700 Dallas, Texas 75202 A fellow of the American College of Real Estate Lawyers and a four-time Texas Super Lawyer, Robert "Doc" Watson has been board certified in Commercial Real Estate Law and Residential Real Estate Law by the Texas Board of Legal Specialization since 1983. He has completed more than 5,000 title examinations and has more than twenty years experience of advising a local title insurance agency owned by one of his two prior law firms. Doc is Vice President and Counsel for the Dallas National Title Services office of Fidelity National Title Insurance Company. That office handles commercial real estate transactions exclusively, many of which are multi-site, multi-state transactions. A former Chairman of the Board of the Texas Young Lawyers Association (1985), Doc served on the Board of Directors of the State Bar of Texas from 1995 to 1998 and on the Board of Trustees of the Texas Bar Foundation from 2002 to 2005. He is currently serving on the Council of the Real Estate, Probate, and Trust Law Section of the State Bar and is a member of the Real Estate Forms Committee of the State Bar. He is a frequent speaker on real estate topics. Doc graduated from Baylor University in 1972 and received his J.D degree from Baylor University School of Law in 1976. He was an adjunct professor at that law school from 1991 to 2000, teaching the property law and the real estate finance courses.
Mixed Use Properties Closing Issues Presented by Robert Doc Watson Fidelity National Title Insurance Company, Dallas Materials by Richard Melamed Attorney at Law, Bellaire A "mixed-use" project combines various real estate applications, e.g., retail, restaurant, multifamily, for-sale residential, office, hotel, and entertainment, to create a single "walkable live/work/play environment What is It? 1
Epic History of Real Estate Development Small towns built on river or rail line Urban Neighborhoods Suburban Sprawlstrip centers Malls Lifestyle Centers Mixed Use Development Recent Growth A tremendous growth in the number of mixed-use projects has occurred in recent years due to numerous factors, including: infill of vacant or underdeveloped urban areas neighborhood regeneration emulation of other existing, successful mixed-use projects, 2
Urban Nostalgia and "urban nostalgia," i.e., suburban mixed-use projects which attempt to export an old-time downtown look to suburbia. As long as energy prices and land values continue to rise, the trend for mixed-use development will likely continue to gain momentum Master Planning One reason public planners desire mixed-use development is that it can provide for an urban center where citizens can live, work and play, thus reducing the number of vehicle trips and, theoretically, traffic congestion. 3
Traffic Planning Mixed-use development is often associated with masstransit use, and many government planners objectives for transitoriented development. Parks and Recreation Areas Combining mixed-use development with public open spaces and parks may go hand in hand toward a public entity s objective of creating high-density urban development 4
From the Developer s Perspective The developer wants the economies of scale and allure of a mixed use project but prefers to own and manage only that portion of the project within the developer's expertise; Return on Capital Division of the project creates additional alternatives for sale 5
Synergy The sum of the value of the individual uses (both for sale and financing) may be greater than the undivided project. Financing financing for a particular use may be easier to place or available on more attractive terms; 6
Multiple Ways to Skin the Cat Partition or Laterally sever the air space Make an airspace condo Make a condo by uses Form a vertical PUD New ways coming monthly Not In MY State, Pal! Vertical PUD Common Interests Developments A "Common Interest Development" or "Vertical PUD" is a statutorily created means of dividing and owning air space. This structure is not used in Texas because the state has not adopted the Uniform Common Interest Ownership Act ("UCIOA") or a similar statute. 7
Lateral Severance- Air Rights Three-dimensional plats are common in California for mixed-use projects. Neither Dallas nor Houston recognizes three-dimensional plats. However, there are several mixed use projects in or near downtown Dallas structured as air rights deals. Three Dimensional Plats Some municipalities recognize threedimensional plats. After acceptance and approval by the appropriate municipal authorities, three-dimensional plats are filed of record along with the more traditional two-dimensional plats. 8
What You Will Most Likely See Another means of dividing airspace into airspace parcels is an air rights subdivision accompanied by CC&Rs. It s a Condo project! Common Elements In order to qualify as a condominium under the Texas Condominium Act, there must be at least one common element shared by the units. The common element or common area is owned by the condominium unit owners as tenants-incommon and the use of the common elements are typically administered by the association. The common elements will often consist of the land, the structure and perhaps the parking, driveways and additional items. 9
CCRs For Air Rights However, the Texas Condominium Act has minimum requirements with respect to several issues, such as the number of votes required to terminate the condominium, insurance to be carried by the association, disclosure requirements and condemnation provisions, whereas no such minimum requirements exist for CC&Rs dealing with air rights. 10
Horizontal Projects In a horizontal mixed-use project, components are sideby side rather than being stacked on top of each other. Ownership need not be separated on a vertical plane. A horizontal mixed-use project splits ownership on a traditional two dimensional basis, in accordance with the surface of the ground. Although the ownership of the surface lot may extend up to the sky (or as high as zoning regulations permit), the horizontal mixed-use project is not concerned with identifying ownership beyond a two-dimensional metes and bounds or lot and block description. 11
Horizontal Stacking Multi-acre development Separate buildings Each parcel owner has his own chain of title Subject to some complex CCRs Vertical Projects A vertical mixed-use project stacks different uses on top of one another. A common combination is retail on the ground level and residential or office above. 12
Special airspace master units based on use Parking garage, lobby, access routes are general common elements Some parking will be a limited common element to be sold with the master unit Master unit owner can subdivide and sell off portions Vertical Stacking 13
Master Units Today, many mixed-use projects are structured as condominiums comprising two or more "mega units" or "master units." For example, in a mixed-use project containing retail, residential and office, there could be as many as three master units based upon usage: (i) a master retail unit containing all the retail parts of the project; (ii) a master residential unit containing all of the residential parts of the project; and (iii) a master office unit containing all of the office elements of the project. 14
Title Issues (Keep in mind you are developing a condo project) Condo Declaration and Platting Reciprocal Easements Shared facilitiescommon elements Parking Amenities Easements and Licenses Vertical Stacking? Horizontal Stacking Master Declarations and Sub Declarations Then add in complex financing and you are home free! 15