D.C. MULTIFAMILY DEVELOPERS: SHOULD YOU CARE ABOUT THE D.C. GREEN BUILDING ACT?

There was much fanfare, at least among proponents of green building, upon the passage of the Green Building Act of 2006 in Washington, D.C. The act was a first-of-its-kind law that establishes green building standards to both public and private commercial and residential construction meeting certain square footage thresholds.

Seems like something that multifamily owners and developers should at least become familiar with, right? Well, probably only certain owners and developers. The act breaks down incentives and requirements among categories of public vs. private, and commercial vs. residential. The good news for many multifamily interests is that the act does not contain mandatory green building standards for private residential projects (although one caveat could be that this is an omission the D.C. Council intends to address).

However, any residential project—whether new construction or substantial improvements—having 10,000 or more square feet of gross floor area must conform to the Green Communities 2006 standard or a “substantially equivalent standard” if the project (i) is situated on land leased from the District of Columbia, (ii) is owned by the District of Columbia or an instrumentality thereof, or (iii) is publicly financed for 15% or more of the total costs. Note that there are other requirements for such public projects, such as completing a Green Communities Self-Certification Check List with the certificate of occupancy application.

While the mandatory aspects of the act are primarily targeted at publicly financed projects, the act’s incentive provisions apply to private residential buildings. Applicants who seek permits for private residential buildings from October 1, 2009 until December 31, 2015 that will fulfill or exceed certification requirements for LEED-NC 2.2, LEED-CS 2.0 or Green Communities 2006 are eligible for grants. As various certification standards change, the D.C. Mayor must amend requirements for the grants and mandatory aspects of the act to reflect such updated standards.

Although the act provides that grants will be awarded from October 1 of this year, the implementing agency, the D.C. Department of Consumer and Regulatory Affairs, has not promulgated specific information about how and under what standards the grants will be given. In the context of the current economic environment, and the resulting falloff in revenues, the awarding of funds may get off to a slow start.

(This entry published by Mark Polston, a member of Womble Carlyle's Real Estate Development group)

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D.C. Grants Itself the Right to Purchase Certain Multi-Family Properties

In late 2008, Washington, D.C. enacted the District's Opportunity to Purchase Amendment Act of 2008. The Act amends the Tenant's Opportunity to Purchase Act ("TOPA") to provide the Mayor, on behalf of the District, with a right to purchase certain "housing accommodations" consisting of 5 or more rental units. The Mayor’s right to purchase is subordinate to the rights of tenants to purchase under TOPA.

The Mayor’s right to purchase only applies to properties that meet certain criteria, including a requirement that at least 25% of the units qualify as “affordable units.” Affordable units are rental units for which the existing monthly rent, including utilities, paid by the tenant is equal to or less than 30% of the monthly income of a household with an income of 50% of the area median income (as determined by HUD).

The HUD area median income for 2008 is $99,000. A quick "back of the napkin" calculation suggests that rent, including utilities, would need to be less than approximately $1240 a month for at least 25% of the units in order for the property to be subject to the Act.

Pursuant to the Act, the seller must provide the Mayor with a notice of sale. This is the same notice that is already required under TOPA. The Mayor has 30 days to notify Seller of an interest to purchase the property. Thereafter, the Mayor has 150 days to negotiate a contract, subject to certain rights to extend both of these time periods.

The Mayor’s right to purchase the housing accommodation may be assigned. If the Mayor or an Assignee exercises the right to purchase the property, the housing accommodation must be maintained as affordable units.

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Financial Stability Plan

On Tuesday, February 10th, United States Treasury Secretary Timothy Geithner and the Federal Reserve Board rolled out the Obama Administration’s plan for spending the second allotment of $350 billion from the Troubled Asset Relief Fund.

Though all of the mechanics are not finalized, the plan expands beyond simply dealing with banks. The “Consumer & Business Lending Initiative” outlined Tuesday (#3 on the “Financial Stability Plan Fact Sheet”) could provide significant relief to businesses and real estate developers who have been unable to borrow money for operations, expansions, or refinancing. As you may recall, in November 2008, the Fed announced the Term Asset-Backed Securities Loan Facility (TALF), whereby the Fed is to purchase loans or loan-backed securities so that funds will be available for loan origination. Previously, Treasury was to use $20 billion to leverage $200 billion from the Federal Reserve. The Consumer & Business Lending Initiative, however, calls for a dramatic increase in TALF by using $100 billion to leverage up to $1 trillion and will expand the initial reach of TALF to include AAA-rated commercial mortgage-backed securities (CMBS).

As to when will TALF be implemented? Federal Reserve Chairman Ben Bernanke has indicated that they are still weeks away from implementing the general TALF program and that the addition of CMBS will not occur until the results of the initial implementation can be reviewed.

And as for whether further expansion of TALF is on the horizon, the Treasury has said that it will continue to consult with the Fed regarding a need to include other asset classes, such as non-Agency residential mortgage-backed securities (RMBS) and assets collateralized by corporate debt.

Secretary Geithner’s full remarks can be found here: http://www.ustreas.gov/press/releases/tg18.htm.

The Federal Reserve Press Release can be found here: http://www.federalreserve.gov/newsevents/press/monetary/20090210b.htm.

(This entry posted by Fritz Vaughan, a member of Womble Carlyle's Government Relations team)

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Springing Guaranty Risks In The Current Economy

Although the credit crisis had its start with the single-family “subprime” residential loan industry, the contagion has now spread to commercial real estate loans.

This is true not only because of the limited available credit to refinance maturing loans, especially loans that were originally financed by conduit lenders, but also because commercial real estate vacancy rates are rising rapidly and values of properties are dropping.

With job cuts rampant and businesses either failing or retrenching, the immediate prospects for a turnaround are poor and the Urban Land Institute has warned that 2009 will be the worst year for the commercial real estate market since the recession of 1991-1992.

Click here to continue reading this article.

This article is by Jeffrey Tarkenton, and was originally published in Law360 on February 5, 2009. Republished with permission.

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