Transcript The Move-In and Move

Welcome
© 2012 Alvarez-Glasman & Colvin
www.agclawfirm.com
© 2012 Alvarez-Glasman & Colvin
TODAY’S PRESENTATION:
Redevelopment Woes and
Opportunities
What real estate professionals should know about
the current state of redevelopment in California
By Matthew M. Gorman, Esq.
Alvarez-Glasman & Colvin
Matthew M. Gorman, Esq.
About us
Alvarez-Glasman & Colvin
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Alvarez-Glasman & Colvin is a boutique law firm specializing in
representing public agency and private sector clients in the
complex fields of real estate, land use and development,
environmental law, employment and labor relations, public safety
and police litigation, and general liability and risk management.
Founded in 1985 by the Firm’s managing partner, Arnold M.
Alvarez-Glasman
Matt Gorman represents public and private parties in land use,
redevelopment, and sustainable development projects
For more info: www.agclawfirm.com
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OVERVIEW OF REDEVELOPMENT
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Summary of how redevelopment
agencies worked
• TAX INCREMENT:
Agencies utilized tax increment
as revenue stream to secure
bonds and other financing for
development of projects that
eliminated blight in communities
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Summary of how ABx1 26 dissolved
redevelopment agencies
• Agencies dissolved and their assets liquidated
to the State.
• Successor agencies and other entities
established to wind-down agencies’ affairs.
• On-going obligations to be honored (existing
agreements, bondholder/ investor rights, etc.).
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Overview of the current state of
redevelopment agencies
• The Motosantos case affirmed the elimination
of redevelopment agencies
• As of February 1, 2012, all agencies are
dissolved.
• Successor agencies are in the process of
winding-down redevelopment affairs and
coordinating the transfer of assets to the State.
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Ambiguities in ABx1 26
• The law is extremely ambiguous and unclear
on many key points.
• Key terms are currently being interpreted
differently by agencies, counties, and the
state.
• Several bills are pending to clarify and revise
ABx1 26
• KEY: things are unclear and evolving.
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HOW REDEVELOPMENT AGENCIES ARE WINDING DOWN
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The legal structure of the wind-down
process
• Dissolved redevelopment agencies are
managed by successor agencies in each
community.
• Successor agencies are overseen by oversight
boards which have approval over most
decisions, subject to State control.
• State Dept. of Finance (DOF) has authority to
approve and deny most issues decided by
oversight boards and successor agencies.
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How redevelopment assets are liquidated
or returned to the State
• Successor agencies and oversight boards are to
preserve all redevelopment assets for the benefit
of the State, and must liquidate all properties in a
manner that is expeditious but which maximizes
return of dollars to the State.
• With exceptions, successor agencies may not
enter into new contracts, but must preserve
redevelopment funds for the State.
• Existing contracts are honored if they are
“enforceable obligations.”
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How redevelopment assets are liquidated
or returned to the State
• What is an “enforceable obligation”?:
All former redevelopment agency
contracts must be listed as enforceable
obligations on a successor agency’s
payment scheduled called their “ROPS”
(recognized obligations payment
schedule).
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How redevelopment assets are liquidated
or returned to the State
• The ROPS must be approved by the
successor agency, approved by the oversight
board, and approved by DOF.
• Once approved, the items on the ROPS are
enforceable obligations which the successor
agency may lawfully honor.
• A successor agency is not authorized to honor
contracts which are not listed on an approved
ROPS.
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Redevelopment Property Tax Trust Fund
• Funds which previously would have gone to
redevelopment agencies are held by County
Auditor-Control in a trust fund, to be disbursed
per ABx1 26’s requirements.
• Obligations which are listed on an agency’s
approved ROPS may be disbursed by the
County to the agency.
• The County has no authority to disburse funds
for obligations which are not on the approved
ROPS.
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Importance of the ROPS
Because the ROPS is key to a successor
agency’s legal authority to honor contracts
and obtain fund from the County, it is a critical
piece of the ABx1 26 framework.
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CURRENT REDEVELOMPENT PROBLEMS
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Valid projects not listed on ROPS
• Do projects get funded?:
If a city or county has an obligation to
be paid from tax increment funds, but
that obligation is not on the ROPS,
then problems will arise: the obligation
will either have to be paid from another
funding source (e.g., general fund), or
may give rise to a default.
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Valid projects not listed on ROPS
• Example:
Some agreements for the financing of
redevelopment projects involve
investors who are guaranteed regular
payments, but if those agreements are
not listed on the approved ROPS,
payments must either be made by
other sources or result in defaults.
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Potential impacts to bondholders and
investors
• Investors in redevelopment projects that are
not listed on an approved ROPS are at risk of
default.
• In some cases, DOF has been responsive to
approve these items on ROPS, but in other
cases it’s not clear whether approval will be
given.
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Contracts that are “against public policy”
• ABx1 26 allows otherwise valid contracts
to be excluded from the ROPS if they are
“not otherwise void as violating … public
policy.”
• No guidance or authority is provided on
how this requirement is interpreted,
exposing many types of otherwise valid
contracts to exclusion from ROPS.
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Contracts that are “against public policy”
• Effect:
Exclusion from the ROPS will likely
mean a void contract or a contract
which cannot be performed by the
agency – potentially exposing
otherwise valid contracts to termination
without cause.
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Who’s in control?
• The numerous “moving parts” involved in ABx1
26 are difficult to manage and it’s unsure who
has control over certain functions.
• Although DOF has authority to approve or
deny items on the ROPS, who decides if an
item is “against public policy”?
• If investors’ interests are threatened, do they
sue the successor agency, the oversight
board, the County, DOF, or all of them.
© 2012 Alvarez-Glasman & Colvin
What are “administrative costs”?
• ABx1 26 limits the costs that a successor
agency may incur to administer its windingdown affairs (“administrative costs”).
• “Administrative costs” may include attorney
fees, staffing, consultants, marketing and
liquidation costs, etc.
• It is unlikely that agencies can adequately fund
these activities through the limited
administrative cost allowance permitted under
ABx1 26.
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Local government reliance on
redevelopment reimbursement
• Many redevelopment agencies had joint
agreements between the redevelopment
agency and the city which provided
reimbursement to the city of certain
redevelopment funds and other financial
arrangements.
• The cities rely on these agreements to help
fund general municipal services (including
police and fire service and similar public safety
services).
© 2012 Alvarez-Glasman & Colvin
Local government reliance on
redevelopment reimbursement
• In many instances, DOF has rejected these
city-agency agreements on the ROPS,
meaning that a revenue source which cities
relied on might not be available: this exposes
many cities to extreme budget problems, cash
flow problems, and could create a severe
budgetary crisis for some cities which relied on
those funds to balance their books.
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OPPORTUNITIES POSED BY THE WIND-DOWN PROCESS
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Acquisition of redevelopment property
being liquidated
• Because agencies must liquidate their
properties, real estate professionals may find
numerous potential deals created as a result
of ABx1 26.
• Note that agencies must liquidate properties in
a means that maximizes revenues to the State
– so “windfall” deals are unlikely.
• However, because redevelopment properties
often have unique characteristics,
opportunities for unique deals are likely.
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Enhanced bargaining power to partner
with local agencies
• Do to the fiscal pressures faced by local
governments, coupled with their loss of
redevelopment power, real estate
professionals may have greater leverage to
advance their projects.
• Local governments might be more welcoming
of proposed deals that would provide benefits
to business and improve property in this age of
tight budgets and a depressed property
market.
© 2012 Alvarez-Glasman & Colvin
Enhanced bargaining power to partner
with local agencies
• Although redevelopment funding is not
available, local governments might be willing
to offer incentives such as: expedited
processing and entitlement, relaxed dedication
requirements, conditions of approval which are
favorable to the developer, etc.
• Non-redevelopment funding (e.g., housing
funds) may be available to assist projects, and
opportunities for “inventive” funding structures.
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Enhanced bargaining power to partner
with local agencies
• Key:
This may allow real estate professionals to
form projects that draw from multiple
sources in combination with city incentives
(e.g., incorporating solar energy on a
housing project for federal tax rebates,
coupled with city housing funds and relaxed
dedication requirements, to make a project
financially viable).
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Enhanced bargaining power to partner
with local agencies
• And remember:
Local governments retain nonredevelopment powers, such as powers to
approve development agreements under the
Planning & Zoning Law, and these powers
may serve as a framework to memorialize
the parties’ obligations and a legal means by
which the city can agree to unique project
conditions.
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Possible collaboration with oversight
boards
• Because oversight boards are now part
of the liquidation approval process, real
estate deals will need to involve their
approval.
• The membership of oversight boards
may have their own interests, separate
from the city and others, which could
open further doors for collaboration.
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Possible collaboration with oversight
boards
• Example:
Oversight board members include school
district and community college district
appointees, so proposed projects which
involve properties near school sites, or
which contain a school-related element
(e.g., satellite school site, park/athletic
facility, etc.), may be proposed to leverage
support for other funding in addition to
oversight board support.
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Possible collaboration with oversight
boards
• Key point:
The process allows for the creation of
unique projects that blend public and
private dollars, pulling resources and
support from a variety of city, school,
and private interests.
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POSSIBILITES FOR FUTURE CHANGES IN THE LAW
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Key areas of pending legislation
• Clarifying local government’s right to
redevelopment reimbursement.
o Allowing reimbursement for
“reimbursement agreements.”
o Determining when redevelopment
agencies were “formed.”
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Key areas of pending legislation
• Narrowing the scope of “administrative
costs.”
o Allowing agencies to “spread the
cost.”
o Flexibility over expensive items (e.g.,
attorney fees, consultants).
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Key areas of pending legislation
• Clarifying the status of the entities.
o Is an oversight board part of the
successor agency or a separate
entity?
o Can the oversight board enter into
agreements itself?
o Is the successor agency a city body
or independent?
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Key areas of pending legislation
• Withholding County trust funds.
o Can the County withhold funds that
an agency failed to return?
o What about problems that appear on
agencies’ audits?
o Can agencies force the County to
disburse trust funds?
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WHAT REAL ESTATE PROFESISONALS SHOULD DO?
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Review and respond to the ROPS
• Examine the ROPS for any on-going
projects.
• Demand inclusion on the ROPS for
projects not listed.
• Assert claims for projects or contracts
that are not included on ROPS.
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Review bond agreements and other
documents at issue
• Take steps to understand what rights
may be triggered if bond or other
investment agreements are not on the
ROPS or face potential risks.
• Some bond agreements have unique
provisions which may enhance risks or
require prompt action.
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Communicate with agencies on available
properties and options
• Now may be a good time to commence dialog
with successor agencies and oversight boards
on proposed projects.
• Agencies are familiar with the properties they
must now liquidate and may be willing to
entertain discussion on unique projects.
• Dialog with city officials, successor agency
staff, oversight board members, and others on
how projects can be assembled with
properties that must be liquidated.
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Initiate dialog with oversight boards
• Build a good relationship with oversight board
members.
• How can you show that your project will
benefit the community and reduce blight?
• Show that your project will help them fulfill
their obligations to the community at the State.
• Make their job easy – explain how your profits
are fair and will improve neighborhoods and
local business.
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Consider proposals for using liquidated
properties
• Redevelopment properties may have
problems, so build creative projects.
• Identify agency properties that can be
rehabbed and funded with unique revenue
sources.
• Consider innovative approaches – use the
synergy of the liquidation process to partner
with community groups, investors, and cities to
pursue unique projects for a unique time.
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Leverage bargaining power
• Present options to agencies and
oversight boards.
• Consider what non-monetary things a
city or agency could do that would help
advance projects (e.g., offer exceptions
to onerous standards, relax dedication
requirements, agree to expedited
permitting).
© 2012 Alvarez-Glasman & Colvin
Leverage bargaining power
• Consider unique financial structures that
successor agencies and their cities might
be willing to fund (e.g., housing dollars,
formation of assessment districts,
rebates, reduced permit fees, etc.).
• Assemble proposals that leverage
bargaining power but are fair to cities
and the public.
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This time only comes once
• Remember:
This may be a “once in a lifetime”
event, so why not take advantage of it
and use the opportunity to push the
envelope on innovative projects.
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CONCLUSION
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© 2012 Alvarez-Glasman & Colvin
About Alvarez-Glasman & Colvin
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Located in City of Industry with offices in Napa Valley.
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Projects throughout California.
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Specializing in real estate, land use, municipal law, environmental
law, public agency law, and redevelopment.
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Founded Sustainable Building Practice Group in 2011
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Founded Redevelopment Transition Practice Group in 2012
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For more info: www.agclawfirm.com or www.AGCecolaw.com
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Matt Gorman: chairs the firm’s Sustainable Development Practice
Group and is active in land use, redevelopment, and real estate law.
Alvarez-Glasman & Colvin
Matthew M. Gorman, Esq.
Contact Info
Phone Numbers:
• So. Cal.: 562.699.5500
• No. Cal.: 707.944.0540
Internet:
• www.agclawfirm.com
• www.AGCecolaw.com
E-Mail:
• [email protected]
Address:
13181 Crossroads Pkwy N.
Suite 400 – West Tower
City of Industry, CA 91746
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