IS SOLAR ENERGY A VIABLE SOURCE OF ENERGY FOR YOUR MULTIFAMILY COMMUNITY?

In California, at least, the answer seems to be “yes”. Multifamily property owners may combine the benefits of that state’s Multifamily Solar Housing (Mash) program with the federal investment tax credit (ITC) to cover 70 to 80 percent of the costs of a photovoltaic electricity-generating system.

As part of the recent federal stimulus package, the ITC may be taken in the form of a grant, which increases the likelihood that installing solar panels is an economically sensible investment. The net effect of the ITC and the Mash program is that solar energy users incur per-kW-hour costs that are less than conventional utility rates.

Funds allocated to state and local governments from the federal stimulus package may also be available for the installation of solar energy systems on multifamily communities, subject to the discretion of each governmental entity receiving stimulus funds. Interested parties should check in with their state and local energy departments to find out if funds are being allocated to such projects (but don’t delay, as the funds must be spent rapidly pursuant to federal legislation).

Operators of low-income housing communities may take advantage of a 9 percent low income housing tax credit and combine it with the ITC to create a substantial reduction in the cost of installation of a solar energy system.

Even if lucrative government tax and other credits and deductions are not available for a particular project, many utility companies are offering incentives that may make solar a viable option.

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

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Awaiting the impact of mortgage reform legislation on multi-family housing

The Congress is currently working to conference an omnibus mortgage reform and foreclosure prevention of sorts. The teeth of such legislation can be found in H.R. 1728, passed by the House on May 7th, and S. 896, passed by the Senate on May 6th. Both bills initially drew moderate attention from the multi-family industry, but it is a pair of floor amendments that became a part of the House version that has many in the multi-family industry contacting their Members of Congress.

The first of these, offered by Rep. Nydia Velazquez (D-NY) as part of a larger sundry amendment sponsored by Rep. Barney Frank (D-MA), would provide the federal government with the ability to identify “at risk” multi-family properties, initiate bankruptcy proceedings, and potentially sell said property at a lower price to an entity that agrees to convert the foreclosed multi-family property into affordable housing. (The full language, Entitled “Title IX – Multifamily Mortgage Resolution,” can be found beginning at the bottom of the second column at http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_record&page=H5347&position=all) Regardless of any positive intentions, the multi-family industry is particularly concerned about the uncertainty created by the lack of clearly defined guidelines in identifying what constitutes a property as “at risk.” It should be noted that a similar amendment was offered by Sen. Charles Schumer (D-NY) and later withdrawn. It is unclear, however, whether there is enough opposition to keep such language out during a conference. Rep. Vasquez’s statement on her involvement in H.R. 1728 is available on her website at http://www.house.gov/velazquez/newsroom/2009/pr-5-7-09-predatory-lending-reforms.html.

The second amendment that has garnered the full attention of the multi-family lobby is an amendment offered by Rep. Bob Filner as part of the aforementioned Frank sundry amendment. Found here under “(c) Landlord Notice to Tenants” in the third column of http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2009_record&page=H5345&position=all, apartment owners would be required to notify current and prospective tenants any time a property is in default or foreclosure. This would be the case regardless of individual state renter protections that already exist.

In the meantime, as your Members of Congress work to iron out language to ensure passage of a final bill aimed at mortgage reform and foreclosure prevention, organizations like the National Multi-family Housing Council have implemented a full court press on these two issues within any such legislation (http://www.nmhc.org/Content/ServeContent.cfm?ContentItemID=5236

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

Permalink: http://womblemultifamilyandmixeduse.blogspot.com/2009/05/congress-is-currently-working-to.html

District of Columbia Enacts Inclusionary Zoning Rules

On May 15th, the District of Columbia finally published its hotly contested rules on inclusionary zoning in the D.C. Register. It has been over two and a half years since the Council passed the Inclusionary Zoning Implementation Act of 2006.

The new regulations require developers of buildings of 10 or more residential units to sell or rent a certain number of units in the building to people with low to moderate incomes.

The regulations state that they are not applicable until 90 days pass or until after a rent and price schedule is published, whichever is later. The schedule was not published with the regulations, so it is unclear when these rules will go into effect.

Look out for a follow up entry next week when we will summarize the more salient provisions of the new rules.

Source: Washington Business Journal

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Just When You Think It’s Safe, The Mold Monster Rears It Ugly Head Again

Two recent multi-million dollar verdicts for apartment tenants claiming mold related illness reminds us that there is no room for complacency with an ever-ready plaintiffs trial bar prepared to turn tenant mold cases into big payoffs – again.

According to a white paper published by the Mortgage Bankers Association in June 2005, (updated July 2007), prior to 2000, there were few mold claims and those that did exist generally settled for a few thousand dollars. After a few high profile cases in Texas and California, the number of mold-related cases began to increase. (http://74.125.95.132/search?q=cache:fTFtCUfgwAwJ:www.mortgagebankers.org/files/CREF/committees/UnderwritingandClosing/MoldPapterUpdated7_07.pdf+%22mold:+steps+toward+clarity%22&cd=1&hl=en&ct=clnk&gl=us )

From 2001 through 2003, the number of personal injury mold-related claims in the U.S. had skyrocketed to the point where the media and others began referring to mold litigation as the “next asbestos.” In 2001, mold insurers reportedly paid out $1.3 billion in mold-related claims and more than $3 billion in 2002. (http://www.waptac.org/si.asp?id=948 ) As a result, insurers implemented mold exclusions in their policies to eliminate the risk of paying out uncertain amounts of money in mold-related claims.

In 2003, the National Academy of Sciences’ Institute of Medicine published a report entitled, “Damp Indoor Spaces and Health” (http://www.nap.edu/openbook.php?isbn=0309091934 ), which found there was insufficient evidence to support linking mold and dampness to serious illness or disease. The report also found that people who suffered from asthma or immune problems could be impacted by exposure to mold, but that mold could not cause either condition.

After the Institute of Medicine’s report was published, and relying upon the substance and weight of the report, defense attorneys successfully developed strategies to limit evidence linking diseases of unknown cause to mold exposure. With that success, however, came complacency.

Two recent verdicts show why it is still as important as ever to handle mold claims aggressively.

In April 2009, a Phoenix, Arizona jury awarded $3.3 million to a former tenant for illness and injuries suffered from her exposure to mold in her apartment unit. The jury found that the landlord failed to maintain the premises in a condition fit for human occupation and make timely repairs. (http://toxlaw.com/chatboards/blackmold/topic2379/4.28.09.10.30.08.html and http://www.azcentral.com/news/articles/2009/05/02/20090502mold0502.html ) The Plaintiff’s action alleged that the landlord, one of the largest developers and multi-family residential housing owners in the Phoenix area, failed to warn of mold remediation in neighboring apartment units and for its failure to address water leaks until mold began growing in the building. Plaintiff alleged that she and other tenants had complained to the Defendant of water leaks and she suffered both physical and cognitive injuries. At trial Defendant relied on the testimony of an allergist who told the jury that mold exposure cannot cause long term injury, while the Plaintiff relied on the testimony of three experts: a Certified Industrial Hygienist, who opined that based on the remediation reports, Plaintiff suffered from mold exposures sufficient to cause illnesses; a medical doctor, who opined that Plaintiff had disabling cognitive and physical injuries caused by mold exposure; and a psychologist who opined that testing revealed Plaintiff’s loss of cognitive abilities.

In late 2008, a Los Angeles, California jury awarded $1.5 million to a former tenant for illnesses related to alleged mold exposure, and for failing to make timely repairs. (http://www.wshblaw.com/news.php?type=newsletters,updates ) In this case, Plaintiff alleged that the landlord and its management company failed to properly address complaints of numerous water issues in her unit, including a leaking sink and defective shower drain. It was found that the excess moisture in the unit led to mold growth and that because of the exposure to that mold Plaintiff allegedly suffered breathing problems, joint pain, memory loss, brain damage, among other injuries.

Despite these verdicts, the science remains on the side of the defense. The National Academy of Sciences’ Institute of Medicine’s report, “Damp Indoor Spaces and Health” (http://www.nap.edu/openbook.php?isbn=0309091934 ), as well as other position statements issued by the American College of Medical Toxicology, have discredited allegations of “toxic” injures due to mold exposure in the residential environment. (http://www.acmt.net/cgi/page.cgi?aid=12&_id=52&zine=show ).

As these verdicts demonstrate, though, not all judges will exclude “junk science” prior to trial. Juries will hear competing medical testimony, while contrasting an ill individual plaintiff with a landlord – perhaps a corporate one -- defendant. Preventing mold-related lawsuits from happening in the first place remains the best defense. Implementing proven operations and maintenance programs designed to maintain asset value and reduce the likelihood of mold lawsuits requires an upfront investment of resources; adhering to a program requires a continual commitment. But at the end of the day, these costs are more predictable than a jury.

(This entry posted by Erin Miller, Jim Mitchell, John Sweeney and Sky Woodward, all members of Womble Carlyle's Products Liability Litigation team)

Permalink: http://womblemultifamilyandmixeduse.blogspot.com/2009/05/just-when-you-think-its-safe-mold.html

Obama to Tax Carried Interest as Ordinary Income

This week the Obama administration released the Green Book, a document that details the administration's FY2010 revenue proposals (details of the budget can be found online). Included in the Green Book was a plan to tax carried interest as ordinary income and not as capital gains (as it is currently taxed). The tax rate for ordinary income is set to rise to a top rate of 39.6% starting in 2011, while capital gains now are generally taxed at 15%.

Obama's proposal to tax carried interest as ordinary income is similar to legislation (HR 1935) introduced by Sander Levin (D-MI) on April 3rd. This bill is more detailed that previous bills introduced in the House, and includes a 40% penalty for underreporting carried interest income to the IRS.

Real estate partnerships, many of which involve carried interest, would be affected by these carried interest tax proposals, and there is a fear that such a plan could increase this country's shortage of affordable housing (readers can follow NHMC's coverage here).

Although similar plans have failed to pass the Senate in recent years, the current administration is focused on its adoption.

Permalink: http://womblemultifamilyandmixeduse.blogspot.com/2009/05/obama-to-tax-carried-interest-as.html

HUDs 2010 Budget Includes More Funds for Affordable Housing

HUD Secretary Shaun Donovan has announced the FY 2010 budget for the Department of Housing and Urban Development. The budget will include an increase in support for affordable housing. These additional funds will support an increase in the Section 8 Housing Choice Voucher program, full funding of the Community Development Block Grant (CDBG) Program, and a $1 billion contribution to the National Housing Trust Fund Program (NHTF) (replacing the now non-existent contributions that were to be made from the profits of Fannie Mae and Freddie Mac).

Of the initiatives outlined in the budget, the program that will have the greatest immediate impact on the multifamily housing industry will be the increase in Section 8 funding. Assuming that the budgeted funds are appropriated, Section 8 funds can flow to tenants and then to owners of rental properties relatively rapidly.

The other programs that will see an increase in funding, including CDBG, NHTF, and the new Choice Neighborhood Initiative (which HUD proposes as a replacement for the HOPE VI Program) may benefit the multifamily housing industry but their impact will take longer to materialize. These programs are geared toward neighborhood stabilization and revitalization, and most of the funds likely will be used for replacement or renovation of existing properties. It will take longer to get the dollars that are funded under these programs out of HUD and into the development pipeline.

For more information read this article from Multifamily Housing News or visit the HUD website. (This blog entry was published by Erica Harvey, a member of the real estate development practice group.)

Permalink: http://womblemultifamilyandmixeduse.blogspot.com/2009/05/huds-2010-budget-includes-more-funds.html

Swine Flu Outbreak Information and Resources for Businesses

With the recent concerns and extensive media coverage about the "swine flu" outbreak, all businesses would be well served to take time to get the most current information available, and to evaluate how this outbreak might impact their business.

Click here to learn more about how your business can prepare.

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