Multifamily and Mixed Use Development

Case Study: Client Sells Signature Multifamily Residential Property in Maryland

2011-01-27T11:38:00.001-05:00

In March 2010, Pacific Coast Capital Partners (PCCP) decided to sell Congressional Village, a 404-unit apartment complex in Rockville, Md., a Washington, D.C. suburb. PCCP recently had taken control of Congressional Village when it purchased Lehman Brothers’ preferred equity position in the property-owning entity.

But selling the property was complicated by a number of factors.

Case Study: Multifamily Property Owner in Signature Recapitalization Transaction

2011-01-26T11:55:00.001-05:00

Seven Springs Village, a 982-unit apartment community in College Park, Md., needed new debt financing and a new equity partner, in the face of a maturing CMBS loan and the bankruptcy of the owner’s existing equity partner.

The property’s owner, an affiliate of Ross Development & Investment (RDI), brought in Womble Carlyle real estate attorneys Pam Rothenberg, Richard David and Chris Iavarone to help structure, negotiate and document this recapitalization transaction with many moving parts in an extremely challenging market.

Jennifer Kashatus to Present Telecommunication Strategies at NMHC Apartment Operations & Technology Conference

2010-11-01T14:33:00.002-05:00

DALLAS, TX –Jennifer Kashatus, CIPP, of Womble Carlyle’s Washington, D.C. office, is set to speak at the National Multi Housing Counsel’s Apartment Operations and Technology Conference & Exposition on November 16, 2010, in Dallas, Texas. Kashatus will give a telecom regulatory, legislative and legal update entitled, “What’s at Stake for the Apartment Industry,” with co-panelist, Matt Ames of Costlow & Hubacher. Kashatus’ and Ames’ presentation on current telecommunications strategies will go beyond regulations, legislative developments, and judicial opinions. They will also provide insight on recent and potential policy changes and the subsequent effects on the apartment industry.

Click here to learn more about the 2010 NMHC Apartment Operations and Technology Conference.

Federal Trade Commission Enters Into Settlement with Tenant Screener for Alleged Violations of the Fair Credit Reporting Act

2010-03-08T13:43:00.000-05:00

In February 2010, the Federal Trade Commission (“FTC”) entered into a settlement with First Advantage SafeRent, Inc. (“SafeRent”) stemming from allegations that SafeRent violated the Fair Credit Reporting Act (“FCRA”) by failing to provide renters with proper access to their files. SafeRent compiles reports for landlords on prospective tenants, which include eviction history, lease and payment information, and the results of criminal background checks.

Under FCRA, SafeRent is required to make certain information available to consumers and to enable them to dispute and correct that information in a timely manner. SafeRent, however, refused to accept consumers’ faxed requests for files or to update information. Instead, upon receipt of a faxed request, SafeRent allegedly rejected the faxed requests and directed the consumer to mail in a new request, thus imposing delay into the record process, and potentially preventing consumers from obtaining their desired rental property.

The FTC alleged that SafeRent’s practices violated FCRA and constituted an unfair and deceptive trade practice under the FTC Act. SafeRent settled the dispute with the FTC, agreeing to pay a $100,000 civil penalty. Under the settlement, SafeRent also is required to disclose the contents of a tenant’s file upon the consumer's request and to investigate all reports when the tenant disputes their accuracy.

The FTC’s recent action demonstrates its continued enforcement of consumer protection requirements. Companies subject to FCRA should examine their practices for updating consumer information, and ensure that such practices enable consumers to obtain information and correct misinformation in a timely manner.

To view a printer friendly version of this client alert, click here.

Contact Information

If you have any questions regarding these issues, please contact Jennifer Kashatus at (202) 857-4506 or email, or Pamela Rothenberg at (202) 857-4422 or email, or any of our Privacy or Multifamily Real Estate attorneys.

California institutes the First Statewide Green Building Code

2010-01-15T15:51:00.001-05:00

This week, California because the first State to announce a statewide green building code standard.

“With this first-in-the nation mandatory green building standards code, California continues to pave the way in energy efficiency and environmental protection. Today’s action lays the foundation for the move to greener buildings constructed with environmentally advanced building practices that decrease waste, reduce energy use and conserve resources,” said Governor Schwarzenegger. “The code will help us meet our goals of curbing global warming and achieving 33 percent renewable energy by 2020 and promotes the development of more sustainable communities by reducing greenhouse gas emissions and improving energy efficiency in every new home, office building or public structure.”

Among other things, the code will require that new buildings meet the following standards:

Reduce water consumption by 20%
Divert 50% of construction waster from landfills
Seperate water meters for commercial buildings' indoor and outdoor water use
Moisture-sensitive irrigation systems for large landscape projects

California anticipates that the new code will reduce greenhouse gas emissions by 3 million metric tons equivalent in 2020.

For more information, see the press release here.

HUD Posts New Sexual Orientation/Gender Identity Rules

2009-11-07T12:13:00.008-05:00

On October 21, the Department of Housing and Urban Development issued a press release announced the agency's intention to propose regulations regarding HUD-supported rental programs and their effect on lesbian, gay, bisexual and transgender tenants and prospective tenants; see http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-206. This proposal would require individuals and entities which receive grants from HUD or participate it its programs to comply with state or local sexual orientation or gender identity laws; while "clarifying" that family status discrimination protections extend to families composed of or including LGBT individuals, as well as specifying that FHA-insured mortgage qualifications cannot take sexual orientation or gender identity into account.

This initiative, highlighted by the National Multi Housing Association in their NMHC News at <http://www.nmhc.org/Content/whatsNew.cfm?cID=5459&pID=&t=c>, is extremely significant in its implications for future regulatory and legislative efforts dealing with sexual orientation in the context of fair housing. The HUD notice is careful to point out that the Fair Housing Act's prohibitions on housing discrimination do not currently apply to sexual orientation, further observing that HUD has no data on the subject other than that derived from state and local government studies such as ones which have been published in Michigan and California. However, readers should also be aware that the topic of LGBT discrimination in employment is currently under Congressional review in the Employment Non Discrimination Act (HR 3017, S 1584). Development of data by HUD will almost certainly lead to efforts to amend the Fair Housing Act, so this is an issue to watch carefully.

(This entry posted by Charlie Edwards, a member of Womble Carlyle's Labor and Employment group.)

Think Outside the Box for New Developments

2009-08-12T15:00:00.002-05:00

Given current market conditions, developers of multifamily projects may find it difficult if not impossible to continue developing in the way that they did in the recent past. But this does not mean that it is impossible to develop new multifamily project. Rather, developers must explore new project types and reach out to different development partners to continue doing business.

Multifamilybiz.com showcases a good example in Delanco, New Jersey. Michaels Development Company, an affordable housing developer, has undertaken the first phase of mixed-use project that includes 64,000 square feet of commercial space, one-fourth of which is preleased for health care use, and 120 residential units. The developer is partnering with a church to develop the project, which is being developed on the site of a former amusement park that was owned by the church.

The project illustrates how varying funding sources and development approaches that might not have been attractive to developers in the past can be used to jumpstart projects. While these projects may present complexities beyond those that many multifamily developers are accustomed to, they also present potential benefits. Mixed-use development often is more appealing to local governmental bodies than stand alone multifamily development because it offers opportunities for smart growth and green development. Partnering with a non-profit can also unlock land that might not otherwise be available at an affordable price and also may provide an additional marketing outlet for rental units. Finally, the use of federal assistance, such as the low income housing tax credits that were used in the New Jersey project, can help bridge the financing gap and reduce the amount of developer equity that is required.

(for the full articles go to http://www.multifamilybiz.com/article.aspx?id=2129)

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

Importance of an Effective Moisture Response Program in Multifamily Residential Housing

2009-07-13T14:34:00.001-05:00

When moisture problems and apparent mold growth occur in multifamily residential housing units, landlords may become vulnerable to tenant claims, even in the absence of health concerns.

A recent California appeals court decision underscores the necessity of prompt landlord responses to water intrusion complaints under all circumstances. Jackson v. Rod Read & Sons, 2009 Cal. App. Unpub. LEXIS 4569. (www.courtinfo.ca.gov/opinions/nonpub/C058024.DOC)

The California court found that, as soon as the tenant alerted the landlord to the wet conditions in her unit, the landlord took immediate steps to remedy the situation. Accordingly, the court ruled that, although there were defects in the apartment unit, including a broken pipe, mold and water intrusion, the landlord’s actions in remediating the defects were reasonable. The court went on to find that the tenant had suffered inconvenience, but did not find that the inconvenience would constitute a breach of warranty of habitability under the circumstances.

In maintaining their multifamily housing properties, landlords must respond promptly to moisture-related tenant claims, whether or not there is apparent mold growth or any stated health concerns. Critical to this effort is the creation and implementation of a comprehensive moisture response program (MRP).

An MRP is a detailed program designed to manage and prevent moisture intrusion or infiltration. It should identify any moisture-related issues and resulting mold growth as soon as possible, and have in place a response plan that deals with incidents promptly and thoroughly.

The objective of any MRP is to integrate preventive maintenance procedures into a multifamily residential property’s existing management protocols in an effort to prevent moisture and water intrusion, avoid mold growth, and preserve the safety and value of the property.
Education is an important element to any successful MRP. If everyone associated with a multifamily property, property management and tenants alike, have an understanding of the need to promptly resolve moisture problems, health claims and law suits for water intrusion incidents should be prevented.

In this regard, it is important to remember that tenants have responsibilities. Tenants have a duty to inform their landlord of conditions inside their units of which the landlord would otherwise not be aware, such as leaking pipes or excess humidity. Tenants should be reminded that their own actions may be contributing to moisture problems and apparent mold growth. Landlords should inform tenants of actions they can take to avoid excess moisture and mold growth, such as using bathroom fans while showering, using kitchen exhaust fans when cooking, and running air conditioning units when the weather requires (particularly in hot, humid climates).

Even effective prevention programs cannot entirely eliminate moisture problems in multifamily housing units. Pipe breaks, roof leaks, sewage back-ups, overflowing tubs/sinks/toilets and HVAC condensation lines, as well as other unforeseen water intrusion events, still may occur. When these unfortunate moisture problems do happen, it is absolutely critical for a multifamily property to have and follow a mold response program so that the landlord can quickly identify and correct the cause of moisture and dry out and remediate any impacted areas. Creating and effectively implementing an MRP should ensure fewer claims and lawsuits and a satisfactory result in court, should it come to that.

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

Freddie Mac CME Program Offers Borrower-Friendly Terms

2009-06-29T12:53:00.012-05:00

As the economic crisis and its related fallout continues to chug along, the GSE’s remain one of the main source of financing available for multifamily owners. Those in search of financing should consider Freddie Mac's new Capital Markets Execution (CME) program. CME was just launched in the last month or so. CME multifamily loans are offered on more favorable terms than Freddie's standard portfolio loans. CME loans enter a pool of loans from which Freddie sells loans to an institutional investor who securitizes the loans and then sells securitized bonds backed by the loans themselves.

Here are some specifics:

The CME program offers better interest rates than Freddie Mac's standard loan (up to 30 basis points lower).

The borrower may take out a Freddie Mac supplemental loan after only 12 months.
The CME program also offers some flexibility on appraisals, as it allows for up to a 5 percent discrepancy in the appraisal amount for the property, with a commensurate reduction in the loan amount from the rate-locked amount. No breakage fees are due in such event.

On the down side, the CME loan documents are much less flexible than Freddie Mac's standard loan documents. So, if you have a standard template of loan modifications that you previously customarily used in Freddie Mac loans for your portfolio, those will generally not be accepted under the CME program. We have been advised that material provisions of “favored” borrower’s loan documents that are critical in nature for that borrower (such as those relating to the transfer provisions) will be considered.

Under the CME program, borrowers must be special purpose entities.

Finally, the CME documents provide for defeasance rather than yield maintenance (after the first 2 years).

The information below is from the CME program description on Freddie Mac’s website:

Asset Type Multifamily; age-restricted multifamily, multifamily with student concentration; purpose-built student housing; cooperative housing; Section 8 HAP

Borrowing Entity Borrowers must be a SPE if the loan is $5,000,000 or more

Loan Size* $5 to $100 million (FM may permit loans as low as $3.5m in strong markets)

Loan Terms 5, 7, and 10 year

Interest-Only Period Partial Interest-Only (IO) may be approved at the sole discretion of Freddie Mac; Full Term IO not available

Minimum DCR Acquisition: 5 to less than 7 years: 1.30x; 7 to 10 years: 75% Refinance: 5 to less than 7 years: 1.30x (1.35x for cash-out refi); & 7 to 10 years : 1.25x (1.30x for cash-out refi)

Maximum LTV Acquisition: 5 to less than 7 years: 70%; 7 to less than 10 years: 75%; greater than 10 years: 80% Refinance: 5 to less than 7 years: 65%; 7 to less than 10 years: 70%; greater than 10 years: 75%;

Maximum Amortization 30 years

Amortization Calculations Actual/360 standard; 30/360 available

Lockout Period 2 years

Prepayment Provisions Yield maintenance until securitized followed by 2-year lockout; defeasance thereafter. No penalty for final 90 days. If loan is not securitized within first 2 years then yield maintenance applies for the life of the loan.

Tax & Insurance Escrow Required

Replacement Reserve Deposit Required

Recourse Requirements Non-recourse except for carve outs

Supplemental Loan Availability Yes, available 12 months after closing only with a Freddie Mac Supplemental Mortgage; refer to Supplemental Mortgage term sheet for sizing parameters

Premium Availability Buyups permitted for up to 1% of loan amount

Application Fee Greater of $2,000 or 0.1% of loan amount

Note that this product is not available for new construction projects. Freddie Mac does not offer standard construction loans; however, there is Freddie’s Conventional Forward Commitment Program, which offers forward financing for the new construction or substantial rehabilitation of multifamily conventional, non-subsidized properties. Check out a basic termsheet for this program at http://www.freddiemac.com/multifamily/termsheet_conventional-forward.html.

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

Apartment Defaults In the News

2009-06-18T12:34:00.001-05:00

An interesting analysis of some of the reasons why apartment loan defaults lead other types of commercial real estate loan defaults appeared recently in an article by Ilaina Jonas with the Reuters' News Service. Among the reasons cited are:

1. Apartment building prices peaked before other types of commercial real estate (2006 vs. 2007), so deterioration has come on earlier;

2. Falling rents and occupancies have pushed down values 35 to 45 percent, and this, along with the difficulty of getting any loans, has pushed the default rate higher than for other types of assets;

3. In some markets, prices were driven up by investors planning to convert rental units to condominiums --- until the markets collapsed, and condominiums (now rental condos) down market rents;

4. While the overall U.S. unemployment rate in May was at 9.5 percent, among 18 to 24-year olds, it was 15 percent. About 70 percent of this age group are renters who are now doubling up or moving in with their parents.

None of these are new insights, certainly. From talking with people in the industry, however, it seems that the rate at which young adults are moving back home has been somewhat surprising, and the widespread availability of this option could hardly have been anticipated. It seems reasonable to anticipate, though, that once the job market begins to open up, these young people will be eager to get out on their own again --- and will create a ready market for the industry.

To read the entire article, go to http://www.reuters.com/article/businessNews/idUSTRE55G63220090617

(This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development and Construction groups.)

Now is a Good Time to Reposition an Apartment Community

2009-06-08T12:55:00.002-05:00

Robert A. Koch, AIA, in his May 20, 2009, “White Paper on Apartment Property Repositioning” published in Multi-Housing News, states that this is a good time for apartment owners to consider repositioning their apartment properties. Repositioning involves more than renovation; it also involves matching a property to the market in which it is located. Neighborhoods and what makes an apartment project attractive in the market can change over time.

Reevaluating a property’s positioning is not advisable at this time, it is essential. Current financial conditions have led to dramatic shifts in not only property values but the profiles of prospective tenants. The current turmoil in the financial markets has led to a decline in asset values. At the same time, former homeowners who have been displaced either by foreclosure or by abandoning homes that are under water have led to a pool of prospective tenants who have damaged credit. Foreclosures and loss of value in the residential market have created a shadow rental market for condominium units and houses that is increasing the real inventory of available rental units. Additional units are also available in fractured condominiums (i.e., condominium projects where only part of the available units have been sold) and condominium properties that have been taken off the market and offered as rental properties. These properties are likely to create downward pressure on rents and that trend is likely to continue for some time.

Property owners must face these realities and make a realistic assessment of the positioning of their properties, both where they are and where they want them to be. Only then can a property owner decide how and whether to reposition their property.

(For more information visit http://www.multihousingnews.com/multihousing/content_display/in-focus/e3i4a37a99835be851bdc1c4f4163bcc41e.)

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

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

2009-05-20T13:23:00.003-05:00

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)

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

2009-05-20T11:16:00.003-05:00

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)

District of Columbia Enacts Inclusionary Zoning Rules

2009-05-19T13:26:00.002-05:00

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

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

2009-05-18T10:07:00.001-05:00

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)

Obama to Tax Carried Interest as Ordinary Income

2009-05-14T10:11:00.002-05:00

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.

HUDs 2010 Budget Includes More Funds for Affordable Housing

2009-05-13T09:55:00.002-05:00

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.)

Swine Flu Outbreak Information and Resources for Businesses

2009-05-06T15:42:00.002-05:00

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.

Wi-Fi, Rapidly Becoming the New-Age Dishwasher

2009-04-08T12:12:00.002-05:00

Housing communities are offering an increasing number of amenities to entice renters, including wireless internet. Multi-Housing News recently reported that wireless internet has been an effective retention tool for several property management companies (read the full article here http://tiny.cc/MHNarticle ).

Given the state of the economy more and more people, either by choice or circumstance, are opting into the rental market. Inasmuch, the housing industry focus has shifted from buyers to renters. This shift is evident even in cable programming targeted at these groups. HGTV, a cable network dedicated almost exclusively to “home” improvement programming with shows like House Hunters and Design on a Dime, to name a few, recently launched its newest show all about renters ( http://tiny.cc/newtvshow ). Whatever the circumstance may be for an increased rental market, one thing is for sure, renters are getting a lot of attention.

Today, a dishwasher is a popular -normally standard- amenity that renters expect to be included as part of the lease. However, dishwashers were originally a luxury item. Although patented in the mid 1800’s the dishwasher was not widely manufactured and sold until the 1930’s to private wealthy families. By the 1970’s the dishwasher became more popular and was seen as a kitchen asset. The dishwasher has outgrown the luxury class and has become a common amenity, and we can are seeing the same happening with options like Wi-Fi.

From coffee shops, to airports, to hotels, organizations and business have offered wireless internet to successfully attract and assist clients. Providing wireless internet in multi-family housing communities is an inexpensive amenity to provide that renters will assuredly be looking for. Moreover, wireless internet can help to increase retention rates, resident satisfaction, and property value. Wireless internet has become the new-age dishwasher in that it is no longer a luxury reserved for the elite but a popular amenity to be enjoyed by the masses.

(This entry posted by Christina M. Thomas, a member of Womble Carlyle's Real Estate Development group)

Smart Property Management in a Down Economy

2009-04-06T12:49:00.003-05:00

As the hard times continue to become harder for apartment owners and their renters, smart property management is key. One property manager, Resource Residential, recently described a number of interesting things it is doing to keep occupancy high in the apartments that it manages for Resource Real Estate Investors.

Implementing a New Revenue Management System for Daily Pricing of Apartments

Resource Residential will soon roll out a lease/rent optimization system (LRO) that will enable it to calculate the optimal rent on any given apartment on any given day. The program is similar to that used in other industries (hotel and airline, for example) to price products on a daily basis in accordance with daily supply and demand. The intent is to ensure that all apartments are appropriately priced at all times in every market in which Resource Real Estate has apartment properties.

Marketing Less Expensive Resource Real Estate Properties to Current Tenants to Keep Occupancy Rates High Across the Portfolio

Some tenants in "Class A" properties may no longer be able to afford their rent payment, but are reluctant to move to something they would consider inferior. To address this, Resource Residential has embarked on what it calls a "guerilla" marketing campaign to promote Resource Real Estate's "Class B", fully amenitized, properties that are in similar high quality neighborhoods, with access to the same schools and the same level of public services. Keeping tenants within Resource Real Estate's portfolio of properties while still enabling them to significantly reduce their monthly rent payments is a win-win for all.

Assisting Residents "Weather the Storm" by Organizing Inexpensive Community and Social Activities

In what seems to be an excellent customer care initiative, Resource Residential is organizing community and social events at Resource Real Estate's properties for tenants. For example, Resource Residential is hosting movie nights and other events that promote camaraderie and bonding within the community. These events help ease tenants' anxieties, help them save on entertainment fees, and also build loyalty and a sense of belonging to the community.

For more information on Resource Residential, go to its website at www.resourceresidential.com.

(This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development and Construction groups.)

Administration's Plans for Buying Trouble Loans

2009-04-01T09:58:00.003-05:00

In an article entitled "Administration’s Plans for Buying Troubled Loans: What Does it Mean for MultiFamily," Multifamily Housing News observes that the Obama Administration’s plan to increase activity in the credit markets and lower interest rates will be good news for the multifamily housing industry. The Federal Reserve plans to use part of $1 trillion that has been targeted to reinvigorate the financial industry to purchase Commercial Mortgage Backed Securities (CMBS) and infuse capital into banks through asset purchases. This will provide some relief, most likely through lower interest rates and increased liquidity. As with all complex plans, the devil will be in the details.

It simply is too soon to breathe a sigh of relief and expect markets to normalize. There are a number of unknowns. First, as has happened with the bailout of troubled banks, increasing banks liquidity and improving their balance sheets does not guaranty that they will begin lending large amounts of money. Further, several portions of the plan hinge on partnerships between private equity and the government. This will only be a game for substantial players. It remains to be seen whether these players will have enough faith and confidence in the government to risk the large sums that the plan requires. Finally, even if some liquidity is returned to the CMBS market, it may turn out that the number of purchasers of CMBS securities has been permanently and substantially reduced. This would both reduce the volume of transactions and likely lead to increased interest rates.

(This entry is posted by Erica Harvey, a member of Womble Carlyle's Real Estate Development group.)

Rollercoaster week for Card Check Legislation

2009-03-26T14:35:00.002-05:00

A couple of weeks ago on this blog, Charlie Edwards updated you on the introduction of H.R. 1409, The Employee Free Choice Act (EFCA), more commonly known as “Card Check.” If you are not familiar with this legislation, please take a moment to read this WCSR client alert: http://www.wcsr.com/resources/pdfs/le031209.pdf.

It has been a rollercoaster week for folks embroiled in the card check debate. The week started with the somewhat surprising announcement on Sunday, March 22, by the newly formed Committee for a Level Playing Field for Union Elections (headlined by Costco, Starbucks, and Whole Foods) that members of the Committee were supporting a “third way” proposal for card check legislation. (Full story here: http://www.washingtonpost.com/wp-dyn/content/article/2009/03/21/AR2009032101449.html).

Essentially, their plan is to guarantee unions worksite access to employees and timely elections while not allowing the stealthy sign-up and mandatory arbitration provisions supported by EFCA proponents. Thus far, this third way proposal has gained little traction. Opponents of card check legislation currently remain staunchly opposed. And although those in the pro-card check movement are spinning this as a sign that their side is gaining momentum, they are not yet willing to make such policy concessions, nor are their supporters in Congress. Sponsors of EFCA (Rep. Tom Harkin, D-IA, and Rep. George Miller, D-CA) even issued a sharp rebuke: http://edlabor.house.gov/newsroom/2009/03/miller-andrews-harkin-statemen.shtml.

Just a couple of days later, the momentum suddenly appears to have swung back in the other direction. The reason for this is an announcement by Sen. Arlen Specter (R-PA) in a floor speech on Tuesday, March 24, that he will not cast the deciding vote to block a filibuster on the current legislation given the current state of the economy. While this could stall, if not kill, the legislation in the Senate for now, Specter has left open the possibility of making some concessions through select revisions to the National Labor Relations Act.

Specter’s full remarks and suggested revisions can be found here: http://specter.senate.gov/public/index.cfm?FuseAction=NewsRoom.NewsReleases&ContentRecord_id=39dce122-fce9-5df9-bc36-a3d7dc60fa54.

Meanwhile, the Bureau of Labor Statistics issued its annual report on the status of union organizing in the private sector, which highlights why this effort to encourage union victory is so critical to the future of Labor. http://www.bls.gov/news.release/union2.nr0.htm
In the absence of some massive resuscitation, the union movement may find itself dealing with governmental employers and those in the private sector in heavily pro-Labor industries or localities.

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

Deputy Assistant Secretary for Multifamily Housing Programs at HUD announced

2009-03-19T15:10:00.002-05:00

On Tuesday, March 17th, President Obama appointed Carol Galante as Deputy Assistant Secretary for Multifamily Housing Programs at the U.S. Department of Housing and Urban Development (HUD). In this role, Galante will be charged with overseeing a portfolio of more than $58 billion, including financing support for the development and preservation of privately-owned rental housing, as well as the implementation of certain policies aimed at promoted sustainable development.

Currently, Galante serves as President of BRIDGE Housing Corp., a large nonprofit developer of affordable housing based in California. She has been the recipient of numerous accolades, including being recognized as Multifamily Executive magazine's 2008 Executive of the Year.

The full HUD press release can be found here: http://www.hud.gov/news/release.cfm?content=pr09-022.cfm.

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

Renter Protection Legislation

2009-03-18T16:19:00.001-05:00

The New York Times is trumpeting the need for broader renter protections and, in doing so, is advocating for a piece of legislation currently awaiting action by the House Committee on Financial Services.

In an Editorial published in print on March 18, 2009, the Times outlines protections that are already in place for renters living in buildings that are foreclosed by Fannie May and Freddie Mac, as well as protections for those living in foreclosed buildings bought by states, localities, and nonprofits under the federal Neighborhood Stabilization Program.

The point of the Times piece, though, is that the vast majority of delinquent mortgages are not owned by the aforementioned entities, but rather banks who are not required to respect the same protections granted in the above scenarios. As a result, in certain circumstances, renters who have not been informed by their landlord that a foreclosure is imminent can be informed that they will be evicted at the last minute.

For the purpose of protecting renters from sudden homelessness, Rep. Keith Ellison (D-MN) was joined by Reps. Maxine Waters (D-CA), Michael Capuano (D-MA), and Carolyn McCarthy (D-NY), have introduced HR 1247, or the Protecting Tenants at Foreclosure Act of 2009. This legislation would create a uniform federal standard requiring 90-day notice before the eviction of a bona fide tenant and would permit renters to remain in their residences through the terms of their leases, except when the new owner plans to occupy the property as a primary residence.

The full New York Times Editorial can be found here: http://www.nytimes.com/2009/03/18/opinion/18wed3.html?_r=1&emc=eta1

The full text of HR 1247, which is a relatively short piece of legislation, can be found here: http://www.thomas.gov/cgi-bin/query/z?c111:H.R.1247:

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

Upcoming Maturing Mortgage Crisis

2009-03-17T16:24:00.002-05:00

There are so many negative things swirling around in light of our current deplorable market conditions, sometimes it is hard for me to settle upon the particular piece of bad news to focus on as I start each day. Today, I am feeling the (now customary) pit in my stomach about the upcoming volumes of mortgage loans secured by multifamily assets that will be maturing in the next 24 months.

The Mortgage Bankers Association recently reported that $171 billion of multifamily and commercial mortgages (i.e., one-tenth of the outstanding balance) that are held by non-bank lenders and investors will mature in 2009. In particular, large volumes of multifamily loans are expected to mature after 2009 and 2010. “There will be about $29 billion coming due in 2009 and $26 billion in 2010. The volumes of maturing multifamily loans will increase as five- and 10-year loans become due in 2011 and 2012, and in 2015 and 2016…” http://www.multihousingnews.com/multihousing/content_display/news/e3i15435a14e5c99a2089a10d3c168dd630

NMHC reports that in the next two years, an estimated $80-$100 billion in multifamily mortgages will mature and need to be refinanced. “With credit markets virtually collapsed, however, owners who are meeting their financial obligations but who—by sheer timing—are in the unlucky position of having their mortgages mature in 2009 and 2010 may be forced into foreclosure.” NMHC believes that the multifamily industry is “facing a serious risk of waves of defaults and bankruptcies of otherwise performing apartment properties unless the Federal Reserve and the Treasury Department take action." http://www.multihousingnews.com/multihousing/content_display/news/e3if08da6d1db7f9cb40bd1e4bf35036baf

How should multifamily owners and investors anticipate and plan for the maturity of their mortgage loans in the absence of any foreseeable capital markets activity enabling them to refinance? Here are a few things to consider:

1. To state the obvious, start by analyzing whether to hold on to, bail out of or attempt to reorganize your community in light of the upcoming maturity of its financing. If a workout approach may make sense, evaluate what is in it for both the borrower and the lender. In today’s market, many lenders have the incentive to work with borrowers because they do not want to take properties back. Assess what is needed from the borrower’s perspective to try to make property work. What type of modifications to the economic terms of the loan would allow the property to get back on track? What upside will flow to the lender to support a work out approach from the lender’s perspective? What does the borrower need (for example retention of management fees) to stay engaged in working through the property’s issues and not just handing the keys back to the lender?

2. Another critical factor to consider is the financial condition of the lender. If the lender is, itself, facing financial difficulties, it may be productive to consider a loan workout approach, even if your project’s circumstances appear particularly bleak. We are seeing a number of circumstances where troubled lenders will agree to extend the maturity date of a loan and otherwise modify the loan’s economic terms (including leaving the loan as interest only rather than amortizing) to avoid the loan going into default. We have also seen circumstances where lenders will agree to a borrowers purchase of both performing and non-performing loans at significant discounts in order to permit the lender to raise desperately needed cash.

3. Carefully review your loan documents before taking any action, in particular any voluntary bankruptcy filing, as a strategy to reorganize your community’s debts. Many of the loan documents that were signed in recent years contain “full” springing recourse provisions triggering material liability under a wide variety of circumstances. Typically, upon a voluntary bankruptcy filing, guarantors of the loan become personally liable for the repayment of the entire outstanding balance of the loan (including interest, fees and collection costs). Please a more detailed analysis of the risk of full springing recourse in loan workout transactions prepared by my colleague, Jeff Tarkenton. http://www.wcsr.com/default.asp?id=114&objId=297

4. Communicate early and often with your lender. In particular and if possible, initiate discussions with the lender before the community is in extremis – while the borrower (or its principals or affiliates) still have some cash to feed back into the deal to achieve negotiating leverage with the lender. However, do not invest additional cash or other resources into the community until the lender is prepared to enter into a comprehensive restructuring agreement that puts the community back on track.

These times are certainly among the most challenging and stressful many real estate professionals have seen in their careers. Those that stay focused on the horizon and directly and proactively manage loans that will be maturing in the near term have a better chance to emerge from the darkness with their multifamily portfolios relatively intact.

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group.)

NMHC Four-Point Capital Crisis Plan

2009-03-16T15:53:00.002-05:00

As we mentioned in a previous blog entry, there is a credit crisis looming that may cause a wave of bankruptcies in the coming years. Roughly $160-400 billion in commercial mortgages will be coming due in the next two years, of which $60-80 billion is multifamily mortgages.

Fannie Mae and Freddie Mac are virtually the only sources of debt financing for multifamily owners, accounting for nearly 90 percent of the funds provided to multifamily borrowers over the past year. With the credit markets still tightly contracted, multifamily borrowers are having trouble securing capital to refinance existing properties, despite the fact that default rates for multifamily mortgages held by the Fannie Mae and Freddie Mac reported at the end of 2008 were 0.21 percent and 0.03 percent, respectively.

To address this crisis, the NMHC is urging the Treasury and the Federal Reserve, under authority granted to that as part of TARP, to take the following actions:

Purchase multifamily mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac. Federal Reserve/Treasury purchases are important to invigorate the multifamily MBS investor market which has begun to show limited signs of activity.
Purchase longer term debt issuances by Fannie Mae and Freddie Mac so that the government sponsored enterprises (GSEs) can support their lenders’ funding needs without having to rely on mismatched short-term debt. This is essential to align the GSEs’ capital needs with longer-term multifamily loan products.
The Federal Reserve should purchase highly rated commercial mortgage-backed securities (CMBS). This would restore investor confidence, restart trading in the frozen CMBS market and establish a market-clearing price for a variety of real estate assets, including commercial and multifamily mortgages.
In separate action, the Federal Housing Finance Agency should exempt multifamily loans from GSE mortgage portfolio limits through December 31, 2010 or until a new secondary market structure for multifamily loans is operational, whichever comes first. Based on Fannie Mae’s and Freddie Mac’s strong multifamily loan portfolio performance, exempting these loans will have virtually no impact on the overall portfolio risk of the two enterprises.

More information about NMHC's plan can be found at here.

Employee Free Choice Act Reintroduced; Battle Lines Are Already Drawn

2009-03-13T15:32:00.001-05:00

On Tuesday, March 10, George Miller (D-CA), Chairman of the House Education and Labor Reform Committee, introduced the Employee Free Choice Act (H.R. 1409). Asserting that the bill would “give workers the ability to stand up for themselves” and heralding the effort as a key component of economic recovery, Chairman Miller insisted the EFCA would restore employee rights. Co-sponsor Tom Harkin (D-IA) explained, “just as the National Labor Relations Act, the 40-hour week and the minimum wage helped to pull us out of the Great Depression and into a period of unprecedented prosperity, so too will the Employee Free Choice Act help reinvigorate our economy.”

The bill, essentially the same as one passed by the House but killed in the Senate two years ago, faces a stiff fight. Although President Obama has pledged his support to the legislation, employer organizations have mobilized a well-coordinated campaign to highlight what they perceive as significant weaknesses in the Act, also countering with their own proposal, the Secret Ballot Protection Act. To make matters even more confusing, on March 11 Joe Sestak (D-PA) proffered yet another alternative, the National Labor Relations Moderation Act (H.R. 1355), which Congressman Sestak describes as a “middle ground” compromise to preclude a divisive confrontation. As the rhetoric on either side escalates, examination of the key features of EFCA is essential.

To read about the key features of EFCA, continue here.

(This entry was published by Charlie Edwards, a member of the firm's employment law practice group.)

Evacuation from Building in 1993 Supports Lawsuit for Emotional Distress a Decade Later

2009-03-11T08:43:00.002-05:00

Plaintiffs who purchased a former manufacturing facility in Hoboken, New Jersey, for conversion to loft apartments brought emotional distress claims against prior owners after it was discovered that their newly remodeled 16-loft building contained puddles of mercury under the floor which caused detectable levels of mercury vapors in the air.

The building was purchased by the Plaintiffs in 1993 and was converted into 16 loft condominium living/working spaces. During renovation in 1995, Plaintiffs discovered puddles of mercury between layers of flooring and in crawl spaces. They subsequently learned that the building was used from 1910 to 1964 to manufacture mercury vapor lamps. (See report about Hoboken, New Jersey site by Purdue University, http://www.purdue.edu/envirosoft/mercbuild/src/know.htm#case)

In January 1996, the building was evacuated by local health authorities, and was subsequently named by the United States Environmental Protection Agency (EPA) as a Superfund site in 1997. The site underwent an extensive 10-year cleanup which cost an estimated $14 million and resulted in the building being demolished. (http://www.epa.gov/superfund/sites/rods/fulltext/r0297166.pdf)

In 1996 Plaintiffs filed suit against the former owners in Federal Court for property damage and personal injury claims. The case was consolidated with the claims brought by the EPA and the matter was ultimately settled and dismissed. (Parker v. General Electric, 96-CV-3774) In 2007, Plaintiffs filed suit in New Jersey State Court claiming physical injury and emotional distress under the theory of strict liability based on the abnormally dangerous activity doctrine. (Schley v. General Electric, L-251-07)

In the Schley case, Plaintiffs’ expert opined that most of the Plaintiffs had signs of significant psychological distress, and three Plaintiffs actually showed symptoms of post-traumatic stress disorder. Plaintiffs’ claims of emotional distress stemmed from being forced to evacuate their homes and undergo medical screenings.

The New Jersey court denied the Defendants’ motion to dismiss the claim, rejecting Defendants’ arguments that Plaintiffs’ expert evidence of emotional distress consisted solely of inadmissible net opinions. Judge Sarkisian found that the expert reports were not merely net opinions because the reports stated facts and provided scientific methodology on which their conclusions were based and were thus valid. Judge Sarkisian also agreed with the Plaintiffs that New Jersey law did not have a “bright-line rule” requiring expert testimony prove emotional distress claims. Judge Sarkisian found that Plaintiffs’ claims of distress were not frivolous and were distinguishable from aggravation, embarrassment, headaches, and loss of sleep, which have all been deemed insufficient in other cases. (http://www.law.com/jsp/article.jsp?id=1202428006961)

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

Silence is Not Golden: SEC No Action Letter Indicates that Certain Tenant In Common Interests are Securities

2009-03-03T17:33:00.001-05:00

A No Action Letter issued by the SEC (the “Letter”) to Omni Brokerage, Inc., Argus Realty Investors, L.P., and PASSCO Companies, LLC (the “Issuers”) on January 14, 2009 indicates that the sale of certain undivided tenant in common interests (“TIC Interests”) evidencing joint ownership of real property likely constitutes a sale of securities, and therefore would be subject to the registration and anti-fraud provisions of the Securities Act of 1933 (the “Act”). The SEC had previously been silent as to whether it would treat the sale of TIC Interests as the sale of securities (rather than simply the sale of real estate). The Letter is the first guidance that the SEC has issued directly on the subject.

For more information, please click here.

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

2009-02-26T15:51:00.004-05:00

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)

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

2009-02-20T09:53:00.004-05:00

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.

Financial Stability Plan

2009-02-18T14:51:00.001-05:00

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)

Springing Guaranty Risks In The Current Economy

2009-02-11T17:54:00.001-05:00

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.

IRS provides temporary relief for REITs with option of paying dividends in stock

2009-01-30T16:14:00.000-05:00

In order to qualify as a REIT for federal income tax purposes, generally a REIT must distribute at least 90% of its net taxable income to its stockholders. If a REIT is unable to distribute 90% of its net taxable income then it will be subject to federal income tax at the applicable corporate rate. Only taxable distributions may be counted towards satisfying the 90% requirement.

A stock dividend will not generally be treated by the IRS as a taxable distribution. However, in December, the IRS issued Revenue Procedure 2008-68, which provided that a stock dividend issued in lieu of cash dividend by a publicly-traded REIT will be treated as a taxable distribution that may satisfy the 90% requirement.

Revenue Procedure 2008-68 states that a distribution of stock by a REIT will be treated as a taxable distribution equal to the value of the cash that could have been received by the stockholder, provided that the following requirements are satisfied:

The stock is publicly traded on an established securities market in the U.S.
The distribution is declared with respect to a taxable year ending on or before December 31, 2009.
Each shareholder may elect to receive its dividend in either cash or stock of the REIT of equivalent value, provided that any limitation instituted by the REIT on the amount of total cash available is not less than 10% of the aggregate distribution.
If too many shareholders elect to receive cash, each shareholder electing to receive cash is entitled to a pro rate share of the cash corresponding to their respective dividend, but in no event will any shareholder electing to receive cash receive less than 10% of their dividend in cash.
For shareholders participating in dividend reinvestment plans (DRIP), the DRIP applies only to the amount of cash the shareholder would have received absent the DRIP.

This new revenue procedure will permit cash-strapped, publicly-traded REITs an opportunity to preserve capital in 2009. Already, a handful of multifamily REITs have announced plans to distribute stock as part of their dividends.

Sources: NYTimes, IRS Revenue Procedure 2008-68

Barney Frank Requests Assistance for the Commercial Real Estate Industry

2009-01-14T17:32:00.004-05:00

In an entry I posted on this blog on December 23rd, I mentioned that the commercial real estate industry was seeking a bailout. Apparently, Congress was listening.

The Wall Street Journal last night reported that House Financial Services Committee Chairman Barney Frank (D-MA) introduced H.R.384, entitled the TARP Reform and Accountability Act of 2009. The bill is intended to reform the Troubled Assets Relief Program and includes a provision encouraging the Fed and the Treasury to extend a $200 billion debt-relief program targeted at consumer debt to commercial real estate.

But the industry is pushing for assistance above and beyond that requested by Chairman Frank. In a letter to lawmakers, it urged them to create a seperate facilility for commercial real estate:

"Many steps are needed to address this issue, but the first and most significant action would be for policy makers to request that the Treasury Department provide, at a minimum, $20 billion in TARP funds to revive the broader private commercial mortgage markets."

Information on the H.R. 384 can be found here.

Apartment Owner Sued for Common Area Second Hand Smoke

2009-01-14T11:27:00.001-05:00

In a ruling issued earlier this week, the 2nd District Court of Appeal in Los Angeles ruled that a 7-year old asthmatic girl had standing to file suit as a tenant against an apartment owner over secondhand smoke in outdoor and common areas of the community, such as swimming pools, barbecues, playgrounds and dining facilities. (Birke v. Oakwood Worldwide, 09 C.D.O.S. 409).

The suit was brought by the girl’s father, a California civil litigator, who claims that the court’s ruling establishes a national precedent. As reported in law.com, the girls’ father asserted that: "This is the first time," he said, "that a court anywhere in the country -- and I can say that with some certainty because we did the research -- has ruled that outdoor secondhand smoke can constitute a public and private nuisance." http://www.law.com/jsp/article.jsp?id=1202427433265

Noteworthy is that a concurring judge in the opinion indicated that he would have also let the case move forward under the federal Americans with Disabilities Act. Can you imagine the possible wave of class action suits against apartment owners lurking in the wings under the ADA for injuries caused by second hand smoke?

This case underscores the need for apartment owners and managers, to the extent they have not previously done so, to consider imposing a clearly defined smoke free policy on their entire communities, including outdoor and common areas. If adopted, the policy should be specifically included in the community’s form apartment lease and associated rules and regulations, as well as conspicuously posted in the community’s common areas.

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group.)

Green Building Contracting

2008-12-26T14:05:00.002-05:00

Every developer knows that self-protection in the drafting of a construction contract is a key to success (and a good way to avoid financial disaster). But in a new environment of green building incentives and regulation, there are some new twists and turns to be navigated. Navigating this rather uncharted territory will determine the winners and losers in the real estate development world.

In each construction contract to which they are a party, Owners will need to protect the green building-related tax incentives and other benefits they may have built into their budgeting for a given project. In this context, examples of contract-related damages would be loss of rental income, forfeiting of tax credits or deductions and rescission of density bonuses granted due to meeting green building criteria. Because of the nature of these potential losses, Owners should be careful not to agree to limiting damages in the construction contract to direct damages.

Making sure that a project complies with green building regulations that are popping up in cities and states all across the U.S. is essential. With respect to construction contracts, Owners will need to do their own diligence with respect to their contractors to verify that they are aware (and have experience) with navigating green building requirements in a given jurisdiction. This not only affects legal compliance, but also project budgeting. Owners would be wise to shift as much liability as possible to the contractor in the construction contract, and make sure that the contractor’s insurance policies cover losses due to failure to comply with green building legal requirements.

(This entry posted by Mark Polston, a member of the Real Estate Development group)

Beware of Loan Purchase Transactions

2008-12-26T10:23:00.002-05:00

I continue to look on a daily basis for the transactional light at the end of this very long and dark tunnel that is virtually devoid of any real estate deals. I have recently seen some sparks and flickers involving transactions focused on the purchase of debt instead of the underlying collateralized real estate. A client recently called me to discuss how to structure a deal involving the purchase of a loan to obtain control of a fractured condominium project. Another contact at a large global brokerage firm advised me that his firm is increasingly involved in a number of transactions involving the sale of loan paper. And, only a few days ago, The New York Times ran an article underscoring that loans on distressed properties present not just a burden, but also an opportunity. http://www.nytimes.com/2008/12/24/business/24loan.html?ref=business

The proposition for all of these deals is that the purchaser of a loan and the associated documentation can position itself to take ownership of the underlying property serving as collateral for the loan through a foreclosure process, should the borrower under the loan default. Cash hungry lenders are increasingly considering the sale of loans to both get the non-performing debt assets off of their books and to increase their liquidity positions.

It remains to be seen whether these loan purchase transactions actually amount to a meaningful shift in the commercial real estate market, as reported by The New York Times, or simply just some sparks and flickers in an otherwise dead deal market. In any event, I caution anyone who is contemplating a loan purchase to be mindful of the significant risks involved in these transactions, not the least of which is an intervening bankruptcy filing by the borrower that can be extremely costly to resolve and can stall the transaction for months. An analysis of these issues is reflected in an article that my partner, Jeff Tarkenton, and I recently published in The Real Estate Finance Journal. http://www.wcsr.com/resources/pdfs/real040408.pdf

In today’s dark economic times, loan purchase transactions may present an meaningful opportunity to gain control of valuable real estate assets at distressed prices. However, there is no doubt that if you are not careful about properly understanding and managing the risks associated with a loan paper transaction, you may end up owning just a bunch of legal documents and nothing more. And, who needs to own more legal documents?

(This entry posted by Pamela V. Rothenberg, a member of Womble's Real Estate Development group)

Real Estate Developers Ask for a Bailout

2008-12-23T15:55:00.002-05:00

The WSJ and the Washington Post report that some of the country's biggest commercial property developers (including developers of multifamily real estate) have sought out government assistance as debt comes due.

Although the numbers vary by source, roughly $530 billion in commercial mortgages will be coming due in the next three years, with $160 - $400 billion coming due in 2009. Delinquency rates have begun to rise as rent prices fall and vacancies rise for commercial properties; despite the rise, delinquency rates are still below historic levels (i.e the vast majority of these loans are performing).

The problem is these types of loans are underwritten for five, seven, or 10 years with a balloon payment due at maturity. At maturity the loan is typically refinanced by the property owner. But the credit markets are virtually frozen (in large part because hardly anyone is securitizing commercial mortgages) and little, if any credit is available for refinancing (except for loans being made by HUD, Fannie Mae, and Freddie Mac).

To address this problem, property owners are asking the Treasury and the Federal Reserve to include the commercial real estate industry in the $200 billion loan program to rescue the consumer debt market, money intended to help investors purchase securities backed by those assets. Property owners hope that including commercial real estate will encourage banks to refinance mortgages coming due because the banks could securitize the mortgages. Some property owners have gone one step further and asked the Treasury to set up a separate fund just for commercial real estate.

The Treasury and Federal Reserve have said they will consider including commercial real estate in the $200 billion loan program.

Unfortunately, including commercial real estate in this loan program may not be enough to save the industry if only $200 billion is available and $160-400 billion in loans are coming due in 2009. Even if the program includes enough money to cover commercial real estate, Lenders may not be able to underwrite the loans; they may not be able to accurately price the assets because of plummeting property values.

Night, night; don't let the bed bugs bite. When Personal Parasites Get Out of Control, what are companies to do?

2008-12-17T11:15:00.002-05:00

Bed Bugs are more than just a common nuisance; owners and operators of residential properties, including university and college housing, apartments, hotels and resorts, are learning that bed bugs do not discriminate and are facing costly expenditures for eradication. In fact, responsibility for remediating bed bug infestation is falling squarely on the shoulders of property managers and exposing companies to new levels of liability. With the rise in reported complaints, the housing industry faces increased costs for extermination, property destruction, rent abatement, and sometimes legal economic, non-economic, and punitive damages. Bed bug related cases are quickly becoming more common place as Plaintiffs advance a variety of legal theories, including claims for overexposure of pesticide, gross negligence, battery, breach of warranty, and emotional distress.

Laws addressing the bed bug boom are also in flux because courts continue to modify owner and operator liability, and state and local housing departments are in the process of implementing and revising regulations. Some cities have even set forth strict protocols governing extermination and disposal procedures, subjecting noncompliant properties to fines, inspection orders, and even jail time. Because the law is in a constant state of change, property owners and operators should consult legal counsel to learn the applicable law, their responsibilities, if any, and develop an action plan to respond to tenant allegations of bed bug infestation.

Because bed bugs are transitory, property managers need to remain vigilant of signs of infestation and resident complaints. Teaming up with a local and reputable extermination company to treat infestation as soon as noticed can help prevent the spread. Quick investigatory responses to resident complaints will go a long way and help minimize liability.

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

Cohousing Projects -- An Unlikely But Viable Opportunity In These Troubled Times

2008-12-04T16:12:00.000-05:00

I just read an article in the New York Times about how a developer was able to unload an unfinished project in Brooklyn that was intended to be high-end condominiums. A group of Brooklyn residents incorporated as Brooklyn Cohousing L.L.C., has contracted with the developer to buy the unfinished project (known as Carlton Mews) and, to quote the article, "fill it with families whose lives revolve around the courtyard and 6,000 square feet of common space where residents can cook together, play together, do woodworking or take an art class together." The idea is to create a thriving community that allows its participants to be as private or social as they like.

According to the article, there are about 110 cohousing projects in the United States and Canada, most in areas more rural than New York City, but there are a handful of other urban cohousing ventures, for example in Boston, Seattle and Oakland, CA. Not to be confused with the hippie communes of earlier days, cohousing projects are for sophisticated people who know what they are getting into, who have enough money to live elsewhere, but who intentionally choose to live in a community where they know their neighbors, their children can play with other children and have friends and neighbors of all ages, where they can share meals with one another frequently and where the adults can hang out together.

The reason cohousing projects may be an opportunity for some developers who have stalled projects on their hands is that, as with the project in Brooklyn, the development can be sold to one entity, instead of having to attempt piecemeal sales. Also, it appears that present-day cohousing ventures, unlikely as it may seem, may well have the financial wherewithal to do a deal.

To read the full article from the Times, go to http://www.nytimes.com/2008/11/30/realestate/30cov.html?_r=1&pagewanted=2

(This entry posted by Karen Estelle Carey, a member of Womble Carlyle's Real Estate Development and Construction group.)

Property Management Practices Under Scrutiny: Md. Attorney General Reaches $80,000 Settlement With Management Company Plus Restitution

2008-11-11T15:04:00.004-05:00

State Attorney Generals are scrutinizing property management leasing and maintenance practices. The risk of an enforcement action can reduce your bottom line. Thus, every property management company should ensure that they are compliant with the Attorney Generals’ interpretation of state landlord and tenant law. Otherwise, you may find yourself facing civil penalties, requests to reimburse state investigation costs, and claims for restitution.

Md. Enforcement Decisions

For example, on October 16, 2008, Attorney General Douglas F. Gansler’s Consumer Protection Division reached a settlement agreement with JPI Apartment Management Company (“JPI”) for alleged violations of the Maryland Security Deposit Law and the Maryland Application Fee Law. http://www.oag.state.md.us/Press/2008/101608.htm

After investigating JPI management practices, the Attorney General’s Office found JPI violated state law by:

Collecting security deposits from prospective tenants with their rental applications and then refusing to refund the deposit if the tenant declined to sign the lease;
Deducting liquidated damages from security deposits;
Failing to provide consumers who paid security deposits with receipts that contained all notices as required pursuant to Md. Code Ann. Real Property § 8-203.1 http://mlis.state.md.us/asp/web_statutes.asp?grp&8-203.1 ;
Collecting security deposits from consumers in excess of the statutory limit of two months rent Md. Code Ann. Real Property § 8-203(b) http://mlis.state.md.us/asp/web_statutes.asp?grp&8-203 ;
Charging application fees that exceeded the statutory limit Md. Code Ann. Real Property § 8-213(b) http://mlis.state.md.us/asp/web_statutes.asp?grp&8-213 ; and
Failing to include a statutory notice informing consumers of their rights when they signed rental applications as required by law.

Even though JPI denied violating any laws, they agreed to modify their management policies. In accordance with that agreement, JPI will no longer deduct liquidated damages from tenants’ security deposits, retain security deposits from prospective tenants who do not sign leases, or charge tenants application fees in excess of $25, unless the fee represents actual costs for processing lease applications which exceed the statutory limit. JPI must also fully disclose tenants’ rights in its lease applications.

As a result, JPI must recompense residents and past prospective tenants monetary amounts deducted from the security deposits, overcharged in applications, or paid for security deposits in excess of the state limits, on top of the Attorney General’s Office $30,000 bill for its investigation costs and a $50,000 civil penalty.

This decision follows two prior settlements in 2007 against Property Management companies for charging excessive application fees, improper deduction of fees for early termination of the lease agreement, and assessment of improper charges for cleaning fees. (See, February 6, 2007 Press Release, Attorney General Settles with Horning Brothers, Winterset Apartments, L.L.C., and Owings Park, L.L.C., http://www.oag.state.md.us/Press/2007/020607c.htm January 26, 2007 Press Release, Attorney General Settles with Associated Estates Realty Corporation (“AERC”) http://www.oag.state.md.us/Press/2007/012607.htm).

Each company was assessed fines. “AERC agreed to pay restitution equal to the termination fees it deducted from consumers’ security deposits, as well as the cleaning fees it charged consumers,” along with a $30,000 assessment for the Attorney General’s Office investigation costs and a $75,000 civil penalty. Horning Brothers was also responsible for payment of restitution, costs of the investigation and a $15,000 civil penalty. Whereas, Winterset and Owings Park’s civil penalty was reduced to $5,000 for complying with their settlement terms.

Similar Enforcement Decisions

Several other State Attorney Generals are also monitoring property management practices, assessing civil penalties and fines and requesting reimbursement. A few examples:

June 11, 2008 Texas Attorney General settled with Rainier Management, Ltd., for violations of the Texas Deceptive Trade Practices Act by failing to honor residential lease contract terms. A fine of $5,000 was assessed and Rainier has a duty to file an accounting and provide full refunds to tenants for service payments. See, Copy of Assurance of Voluntary Compliance, http://www.oag.state.tx.us/newspubs/releases/2008/061108rainier_avc.pdf
On June 2, 2008, the Vermont Attorney General settled with Black Ink Property Management, LLC for violations of the Consumer Fraud Act for noncompliance with Vermont’s lead paint law. Black Ink was required to pay a $5,000 civil penalty and perform essential maintenance practices to comply with existing law. http://www.atg.state.vt.us/display.php?pubsec=4&curdoc=1471; (See also, http://www.atg.state.vt.us/display.php?pubsec=4&curdoc=1405, December 28, 2007, Vermont Attorney General Press Release announcing settlement with Parkside Properties for similar charges and penalties).
On May 16, 2008, the Maine Attorney General obtained a court-ordered consent decree that bars Port Property Management from automatically charging an early termination fee. Not only were they ordered to stop charging early termination fees and assessed a $10,000 civil penalty, but they are also obligated to refund money to tenants who were improperly charged those fees between January 1, 2005 and December 31, 2007. http://www.maine.gov/tools/whatsnew/index.php?topic=AGOffice_Press&id=55984&v=article
On October 25, 2007, in Idaho, owners property management companies were alleged to violate the Idaho Consumer Protection Act, for misrepresenting the safety of tenant security deposits by commingling those fees with the general operating account, and Idaho’s landlord-tenant laws for refusing to refund those security deposits. Not only must those owners reimburse the Attorney General’s Office $2,049.80 for investigative fees and costs, but the owners are now restricted to managing no more than 50 properties. The owners must also provide to the state an accounting of their business income and expenses for the past two years. http://www2.state.id.us/ag/newsrel/2007/nr_oct252007.htm

Whether it is leasing practices or maintenance provisions, Attorney Generals are monitoring property management companies to ensure compliance with landlord-tenant law. To avoid costly investigations and enforcement penalties and refunds, ensure that your practices are compliant with local law and practices.

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

Ten Battle-tested Rules for Communicating Well in Hard Times

2008-11-10T10:04:00.000-05:00

The line of organizations delivering bad news these days is a long one. And with the financial market challenges causing a ripple effect across the broader economy, that line may be long across America for some time. Communicating tough news is an unenviable task, and legal advisers are increasingly called upon to guide clients through the delivery of news that can be jarring: layoffs, declining profits, product recalls and ethical breaches, to name a few. Henry Fawell, a Strategic Communications consultant at Womble Carlyle based in the firm's Baltimore office, outlines how you can communicate effectively as an organization during difficult financial times.

Click here to read more... http://www.wcsr.com/?id=680&objid=199

NEW LAW MAY POSE NEW CHALLENGES

2008-10-30T09:44:00.004-05:00

Responding to protests from plaintiff’s attorneys and a variety of public interest groups, and faced with a surprising degree of support from the business community, Congress hammered out the ADA Amendments Act, or “ADAAA”—an unwieldy acronym for an even more unwieldy name (“Americans with Disabilities Act Amendments Act”). The new law, effective January 1, 2008, promises to usher in a lengthy round of litigation challenges over the next several years.

The principal focus of the ADAAA is on employment. There is no change in employer coverage—employers with 15 or more employees are subject to the law. But sweeping “corrections” are found in the amendments, which are claimed “to restore the intent and protections of The American with Disabilities Act of 1990.” An extensive list of “major life activities” is included (the ADA did not give examples). “Mitigating measures” such as medication and medical devices to be used to alleviate limitations, are no longer required in determining whether a disability exists; this provision expressly overrules Supreme Court decisions which had concluded that individual responsibility should take hold before an employee was required to accommodate a disability. Conversely, eyeglasses and contact lenses are not “mitigating measures” within the ADAAA language, so one who has correctable vision impairment is not entitled to be treated as if the devices weren’t available.

Conditions which are episodic or in remission are considered disabilities irrespective of their current impact. On the other hand, Congress found that no reasonable accommodation is mandated for a “regarded as” disability, rejecting the contrary views of some courts. (It has never been clear to the writer why a nonexistent “disability” would require an accommodation just because an erroneous perception was in play.)

That cursory review of the changes to ADA Title I—the employment section of the law—is of concern to employers, but there are other aspects of the ADA which impact on the multi-family housing industry. Remember that the Fair Housing Act Amendments, dealing with the interior design of rental units, and their concentration on limitations on mobility, are not affected by the ADAAA; so let’s look at the principal ADA concern of our readers, the public accommodations language of Title III governing rental offices, clubhouses, recreation facilities, walkways and other common areas. The impact of the ADAAA changes on Title III is more subtle, but should not be ignored: The new law restructures the definitions of “disability,” “major life activities,” and “regarded as having such an impairment,” adding “rules of construction regarding the definition of disability” and making all four subsections applicable to all four ADA Titles. (The other two are “public services” (Title II) and “miscellaneous provisions” (Title IV).)

Both Title I and Title III prohibit discrimination based on disability, but “discrimination” has different meanings in the two: While employers have a wide range of actions and prohibitions they must comply with to avoid discriminating, public accommodations and commercial facilities have four basic requirements: ensuring full and equal enjoyment of goods and services they provide to all, including those with disabilities; making reasonable accommodations to the disabled when necessary unless such accommodations would “fundamentally alter” the nature of the goods or services; and providing necessary auxiliary aids and services; removal of architectural barriers “and communication barriers that are structural in nature.” The latter obligation may yield to “available alternative methods” if removal of barriers is not “readily achievable.” Note particularly that “barriers” has a broad meaning, and includes such things as issues for the visually impaired which may be accommodated by Braille, sign language or other “auxiliary aids.” (Latest case in point-an orthopedist’s office in New Hampshire which told a patient she needed to provide a family member, rather than an American Sign Language interpreter, to facilitate future appointment.)

A major distinction between Title I and Title III is the question of enforcement procedure. Employment claims under Title I start with a charge of discrimination filed with the Equal Employment Opportunity Commission, and the process from that point is identical to that of other private-sector employment discrimination cases: Investigation and attempted conciliation by EEOC, followed by a notice of right to sue (or, in rare cases, EEOC’s filing suit on behalf of the charging party), then litigation in a U.S. District Court. By contrast, the enforcement mechanism under Title III is described in Section 308 of the ADA, 42 U.S.C. § 12188: The remedies and procedures of Title I of the 1964 Civil Rights Act, and not those of the Fair Housing Act, apply; there is no necessity of filing an administrative complaint with any governmental agency, attempting prelitigation resolution, or even making the complaint known to anyone including the alleged discriminator if that would be a “futile gesture”—that is, if a person with a disability “has actual notice that a person or organization covered by this subchapter does not intent to comply with its provisions; and either the Attorney General or private plaintiffs—including organizations who would be able to file housing discrimination lawsuits—can initiate the litigation. In addition to court-ordered remedial steps such as injunctions, Title III allows monetary damages, but not punitive damages, for aggrieved persons only in actions brought by the Attorney General. The AG can also obtain civil penalties “to vindicate the public interest”: up to $50,000 for a first offense, and ‘not exceeding $100,000 for any subsequent violation. The prevailing party (other than the United States) can recover attorneys’ fees and costs from the loser, so in a government brought case, there is frequently a request by the aggrieved person or organization to intervene as an additional plaintiff.

Therefore, although the specter of large damage recovery is not as much of an issue under Title III, there can be significant costs in remediation and other compliance steps, not to mention the expense and effort which flow out of any litigation. Watch for creative approaches by advocates for the disabled to convert the employment-focused amendments to the ADA into another weapon in the housing discrimination arsenal.

(This entry posted by Charlie Edwards, a member of Womble Carlyle's Labor and Employment group.)

Outlook for Apartment (and Storage) REITs Not So Bad

2008-10-28T09:30:00.001-05:00

According to a recent article in The New York Times, some real estate investment trusts are not faring so badly in this otherwise dreadful investment climate. Third quarter earnings were strong in both apartment and storage REITs, apartments posting a 12.5 percent gain and storage surging by 19.3 percent.

REIT investors appear to have more confidence in these two sectors for several reasons. The current difficulties associated with home prices and mortgage availability are keeping households in the rental market. Tenant turnover has slowed, and operators have been able to trim operating expenses as a result (e.g., spending less on replacing carpet, repainting). Fannie and Freddie continue to be active apartment lenders, with adequate capital available for this sector. Particularly in areas where the economies seem to be relatively stable, the apartment sector is anticipated to continue to be strong.

Storage REITs appear to be doing well in areas at the opposite end of the economic spectrum. They did best in the regions that had the worst housing markets and where foreclosures have been on the rise. Evidently, people need a space to store possessions when they move into smaller houses or apartments.

The article discusses several apartment REITs and storage REITs that are favored by analysts just now, click http://www.nytimes.com/2008/10/12/realestate/commercial/12sqft.html?_r=1&ref=business&oref=slogin to read about them.

(This entry posted by Karen Estelle Carey, member of the multi-family practice at Womble Carlyle.)

Zero Trans Fat Homes?

2008-10-23T12:31:00.003-05:00

Michelle Kaufmann, an architect known for her line of prefab homes, recently proposed a standardized "nutrition" label to communicate the benefits of a green building to potential buyers. She notes that we traditionally buy a home based on qualities like location, curb appeal, size, and upfront costs, but exclude important factors like sustainability, healthfulness of the indoor environment, and the cost of operating a home.

The purpose of the sustainability label is to quantify the advantages of a green home in easy to understand terms. Her proposed label, similar to the nutritional label found on packaged food products, lists key figures such as energy consumption, carbon dioxide emissions, and insulation values. The label would allow consumers to compare the long-term cost benefits of homes on the market and a home's contribution to improving the environment. In the same way that nutritional labels have changed the way people buy food (for example, the recent push for zero trans fats), Michelle Kaufmann hopes that a standardized sustainability label will change the way people buy homes.

The label could also be married to existing green building standard, such as LEED. The LEED distinction on the label would promote USGBC's brand, and listing key figures on the label will help distinguish a LEED building from one built using traditional building standards.

This idea could also have implications for the multifamily market as green takes hold. It could give prospective purchasers another way to evaluate a multifamily building, and it could give potential renters a way to compare apartments in different multifamily developments.

For more information and an example of a "sustainability label" see Michelle's blog entry and her whitepaper.

Department of Housing and Urban Development Financing

2008-10-13T14:52:00.006-05:00

Conventional wisdom tells us that, with markets in crisis, debt is virtually unavailable to investors and developers in the multifamily housing market. While the ability to obtain debt from private financial institutions has changed drastically, there remains a reliable source of financing for multifamily projects: the Department of Housing and Urban Development (HUD).

Section 221(d)(4) of the National Housing Act allows for-profit developers to obtain a mortgage loan in an amount up to the lesser of:

1. 90 percent of the HUD replacement cost estimate, OR
2. the amount that 90% of net operating income can debt service considering up to a maximum 95% stabilized occupancy rate.

Here are a few other criteria to consider in pursuing Section 221(d)(4) loans:

Loans are non-recourse with respect to the borrower’s personal liability.
Loans are assumable by a qualified buyer approved by the lender, subject to a 1% assumption fee.
The subject property must remain rental property for five years from the date of the loan.
The borrower must make monthly deposits into an escrow account for real estate taxes, special assessments, hazard insurance, replacement reserves and an amount equal to 1/2% of principal balance for mortgage insurance premiums.

It is important to bear in mind that the borrower has very little negotiating power when it comes to HUD loan documents. The documents therefore provide little flexibility for a borrower’s particular situation.

(This entry posted by Mark Polston, a member of the Real Estate Development group)

Immigration Law and the Fair Housing Act: The Tensions in Rental Housing

2008-10-09T11:31:00.001-05:00

As most owners and managers of multifamily communities are aware, the Fair Housing Act (“FHA”) prohibits discrimination in most housing related transactions based upon a person’s race, color, religion, sex, national origin, disability, or familial status. This means, among other things, that under the FHA, landlords are prohibited from requiring disclosure of national origin as a part of an application or lease for rental housing. At the same time federal immigration and state laws impose criminal penalties for anyone, including any landlord, who “knowingly or in reckless disregard” of an immigrant’s undocumented status “conceals, harbors or shields [the immigrant] from detection.” Penalties for noncompliance can include a fine, prison sentence of up to five years, or both.

How can owners and managers comply both with the FHA and avoid the draconian penalities associated with a violation of immigration law requirements? In other words, how can landlords best reconcile these seemingly conflicting legal requirements?

Owners and managers can take some comfort in the fact that there currently are no federal, state or local laws that expressly require verification of citizenship for renting or leasing purposes. This circumstance will likely change when the next presidential administration takes over, as both presidential candidates, who have very different opinions on immigration, have articulated their intentions to introduce legislation that will address that national concern about illegal immigration. “While McCain supports tightening the borders and sending undocumented immigrants "to the back of the line" for citizenship, he steers clear of the issue during campaign rallies and press events. Obama supports tightening the borders and sending undocumented immigrants "to the back of the line" for citizenship and addresses immigration at campaign rallies and press events.” http://www.diversityinc.com/public/4390.cfm Whichever approach is taken, the likelihood is that the multifamily industry will suffer either a direct impact or a trickle down effect from these new legal requirements.

In the interim, and based on the current state of the law, here are some general guidelines that landlords can follow to endeavor to walk the minefield of tension between the requirements imposed by the FHA and existing immigration laws:

Questions Concerning National Origin are Impermissible: Asking prospective residents to verify the country of their citizenship on rental housing applications/leases runs afoul of the FHA and exposes landlords to the risk of FHA enforcement action, fines, and other penalties.

Questions Concerning U.S. Citizenship or Legal Status are Permissible (But be Careful): Whether a person is a U.S. citizen or whether a non-citizen is legally present in the U.S. are not defined under the FHA as protected characteristics. Thus asking specifically whether a prospective resident is a U.S. citizen does not violate the FHA. However, since neither the FHA nor any existing immigration laws expressly require a landlord to ask this question, give thought to whether this question is essential and whether you might be better off not asking anything of prospective residents concerning this subject. If the response from prospective residents is that they are not legally present in the U.S., then you have been put on notice of their illegal status and leasing to them may expose you to civil and/or criminal liability.

Compliance with City/County Immigration Ordinances; Proceed with Caution: Be careful about blindly following city/county immigration ordinances. More than one hundred localities have considered enacting ordinances imposing bans on leasing or renting to undocumented aliens. These ordinances impose monetary penalties and in some cases, may revoke the business licenses of offenders. However, these ordinances either have been struck down by the courts as unconstitutional or have been placed on hold pending the outcome of ongoing litigation. If your local jurisdiction enacts an ordinance that effectively requires you, as a landlord, to also serve as an immigration officer, seek legal advice about the best means to employ to satisfy these requirements without concurrently violating the FHA.

Requirements for Government Documentation are Permissible. Landlords may impose a requirement for prospective residents to produce either a driver’s license or a government identification document with a photo without violating the FHA. However, if Landlords choose to do so, they must be sure to enforce these requirements in a nondiscriminatory and uniform fashion and should therefore apply the requirements consistently to all potential tenants. Failure to do so, could result in non-compliance with the FHA.

(This entry posted by Christina Thomas, a member of Womble's Real Estate Development group)

How Commercial Mortgage Loans Are Affected By The Emergency Economic Stabilization Act of 2008 Overview

2008-10-08T11:34:00.006-05:00

The Emergency Economic Stabilization Act of 2008 (“EESA”) provides up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets from financial institutions.[1] Some aspects of the bill apply more broadly to financial institutions, but the core of the legislation is the Troubled Asset Relief Program (known as “TARP”).

The heart of the credit crisis has been the contagion in the credit markets initially caused by subprime loans and other single-family residential loans which were either originated without adequate underwriting (e.g. so-called “liar” loans) or in which the loan balance now substantially exceeds the collateral value due to the precipitous decline in home values over the last year. The initial focus on the purchase of troubled assets by the Treasury under EESA is therefore likely be on the purchase of residential mortgage loans and securities, including residential mortgage-backed securities (RMBS) secured by residential mortgages.

However, there is also a growing crisis involving commercial real estate loans, particularly commercial real estate loans used to finance land, acquisition and development loans to developers of single-family residential projects and financing for residential condominium projects[2].

The Act addresses the purchase of troubled assets in the form of both residential and commercial mortgages as well as securities backed by those mortgages.

[1] This summary is based on the version of the Act passed by the Senate on October 1, 2008. The House of Representatives enacted the Act without changes on Friday, October 3, 2008.

[2] See, e.g., After Lehman, Banks Jettison Commercial Property, The Wall Street Journal (September 17, 2008). See also Collateralized Damage: Commercial Mortgage Securities Are at a Standstill (July 23, 2008) at www.http://knowledge.wharton.upenn.edu

Link to full alert on the bailout act and how it could affect commercial mortgage loans is found in pdf format at: http://www.wcsr.com/resources/pdfs/capmkt100308.pdf

(This entry posted by Gary Chamblee, a member of Womble Carlyle's Capital Markets Business group)

The "Green Preference" trend will continue accelerate

2008-10-07T16:23:00.003-05:00

There are strong indications that this "green preference" trend will only accelerate.

Tim Sanders, author of the recently published Saving the World at Work (Doubleday), has done extensive research concerning the lifestyle demands of the rising generation of consumers, who take ecology seriously. Among his findings are that they increasingly demand to become identified with businesses that share their sense of eco-consciousness.

For example, they want to be proud of the "greenness" of where they work and live, so they can display these associations on their personal Facebook pages and blogs. They also pay more attention to a company's social contributions than to celebrity endorsements and even the content of a firm's advertising.

Thus, home buyers and apartment renters will increasingly seek out builders and communities that actively reflect their own sense of "greenness" and should be willing to spend a premium to live in a place they deem "Facebook-worthy."

A related finding is that one-fifth of the most affluent young workers plan to leave their current jobs because they perceive their companies as doing too little of social value. Thus, even beyond the initial impulse or decision to buy or rent, realtors that earn reputations for supporting ecology are likely to foster loyalty and enthusiastic endorsements among their most influential young clients.

In sum, ecology is an integral part of the outlook (and spending decisions) of those upon whom our economy will depend. Multfamily owners, developers and managers who attract the attention and deserve the loyalty of prospective residents are paving the way to their own future success.

(This entry posted by Peter Gutmann a member of Womble's Cable and Broadcast group)

Opportunities for Property Management Companies Under the EESA

2008-10-06T09:03:00.000-05:00

It seems to be the conventional wisdom that the Emergency Economic Stabilization Act ("EESA" or "Bailout Plan") that President Bush signed into law last Friday afternoon will not immediately free up capital markets, make credit more available, or in general alleviate our serous economic problems. That said, the text of the Bailout Plan, hot off the press, is being eagerly studied by many businesses, including those in the multi-family housing sector, to determine what business opportunities have been created by the new legislation.
Indeed, it appears that there are many. Section 101 of the EESA contemplates that Treasury will enter into a variety of agreements with a variety of third party service providers, including firms that will provide property management services for troubled assets purchased by Treasury. At the same time, these service providers will be subject to a good deal of scrutiny and oversight required by the new legislation.

For a discussion of these and other provisions of the EESA relevant to property managers and others in the multi-family housing industry, see a summary of the legislation prepared by Womble Carlyle's EESA Action Team by clicking on this link. http://www.wcsr.com/?id=680&objid=181

(This entry posted by Karen Estelle Carey, a member of the EESA Action Team and Womble Carlyle's Multi-Family Housing Group.)

Home Buyers Increasingly Focus on “Green Features” over Luxury Amenities

2008-10-03T10:51:00.001-05:00

In a recent article, Builder Online reported that green features, such as solar panels and energy-efficient appliances, are beating out luxury amenities as selection criteria for home buyers. http://www.builderonline.com/green-building/green-features-beat-out-luxury-amenities.aspx

There is little doubt in my mind that this sustainability trend will similarly impact the multifamily industry, as prospective residents increasingly focus on the “green factor” in their rental decisions. As a consequence, the incorporation and implementation of sustainability features and practices will be a compelling means by which owners and managers can differentiate their communities.

This trend reminds me of a time, about seven to ten years ago, before apartment communities ubiquitously offered residents high-speed internet services. Ultimately, high speed data services, whether through cable or telephony systems, became the norm. However, the apartment owners and managers that were first movers to offer “new economy” communications services captured more market share than others who ignored this trend and clearly established themselves as thought leaders in the industry.

Similar opportunities abound for owners and managers that are the first movers in embracing and incorporating green features and practices into their apartment homes.

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development group)

Non-Traditional Households are on the Rise - The Impact on Owners and Managers

2008-10-02T08:47:00.002-05:00

Recently released census data, known as the American Community Survey (ACS), indicates that “non-traditional” households headed by single men and single women will continue to rise. http://www.builderonline.com/demographics/the-rise-of-non-traditional-households.aspx According to the Census data, “non-family” households totaled 37 million. The ACS Census data covers the social, economic and housing characteristics of the nation’s population.

Researchers at the Joint Center for Housing Studies at Harvard University project that between 2010 and 2020, the number of unmarried householders with children is projected to increase from 11.0 million to 11.8 million. “Married couples are a shrinking share of American households…Several trends have contributed to this shift, including higher labor force participation rates for women, delayed marriage, high divorce rates, low remarriage rates, and greater acceptance of unmarried partners living together. The resulting growth in unmarried-partner, single-parent and single person households has increased the share of adults in all age groups heading independent households.”

How will the apartment industry be impacted by the decreasing number of households with married couples? Stated differently, how should multifamily developers, asset and property managers change the communities they develop and/or rehabilitate, as well as their approach to managing those communities, to most effectively target the needs of these increasing numbers of non-traditional households?

Here are some suggestions:

To differentiate their communities and address this changing resident constituency, owners and managers should focus on offering amenities and ancillary services required by non-traditional households, such as increased after-school programs, dog walking, grocery shopping, dry cleaning, house cleaning and on-site concierge services.
Resident selection criteria should be re-evaluated to address the differing circumstances presented by “non-traditional household” rental applicants, with any proposed changes in selection criteria being carefully scrutinized to avoid jeopardizing the integrity of the asset.
Property management professionals should be trained to “sell” to the non-traditional households and to focus on their particular needs and circumstances.
From a development perspective, unit designs should incorporate the needs of the non-traditional family – with the objective of enabling the owner to offer unique floor plans and associated pricing points.

The reality for most people is that they are looking for a home, not a house or an apartment. Given these changing demographics, to stay ahead of the curve, owners and managers should focus on how to best offer non-traditional households the specific services, amenities and unit designs that mesh with their needs and lifestyles.

(This entry was posted by Pamela V. Rothenberg, a member of the Womble Carlyle Real Estate Development Group and Kelly Treesh, President of Multfamily Consulting, LLC, http://multifamilyconsulting.com/pages/1/index.htm)

HUD's Neighborhood Stabilization Program

2008-10-02T08:40:00.002-05:00

On September 26, 2008, the U.S. Department of Housing and Urban Development (HUD) announced an allocation of $3.92 billion to states, with particular concentration on hard-hit areas trying to react and counteract the effects of high foreclosures. The program is entitled the Neighborhood Stabilization Program (NSP). It is intended to aim emergency assistance to state and local governments whose communities have been especially hard hit by mortgage foreclosures. The funds will be used to acquire and redevelop foreclosed properties in neighborhoods with a high potential of becoming abandoned areas. HUD expects that requiring housing counseling for families receiving homebuyer assistance will prevent future foreclosures and hopes to ensure that homebuyers obtain mortgage loans from lenders who agree to comply with secure lending practices.

The funds will be supplied through the Community Development Block Grant Program (CDBG) under the Housing and Economic Recovery Act of 2008. This money will purchase, at a discount, foreclosed homes and demolish or rehabilitate the housing to respond to falling home values and increasing foreclosures. Alternatively, state and local governments may use the grants to offer assistance to low and moderate income homebuyers to use toward down payment and closing costs. Grantees can create "land banks" to assemble, temporarily manage, and dispose of vacant land with the hope that this will fortify neighborhoods and encourage re-use or redevelopment of urban property.

HUD plans to allocate funds by following the Congressional directive to target areas based on the number/percent of foreclosures, subprime mortgages and mortgage defaults and delinquencies based on data from government agencies and private sources. In order to assist communities in administering the NSP, HUD will issue specific rules that ensure, that the funds be put to use for specific activities within 18 months.

This new initiative is consistent with existing HUD revitalization programs such as the HOPE VI grant program, which is intended to assist in replacing obsolete and deteriorated public housing with new housing. While facially, the NSP is targeted at homeownership and not multifamily housing or mixed use development, by permitting governmental agencies to acquire tracts of land, the NSP does not seem to preclude use of this land for multifamily or mixed use development, especially if this development improves the overall community. In certain cases, development of multifamily and mixed use projects will be complementary to homeowners. And in general, once NSP is implemented and funded it can strengthen troubled communities and increase the value existing multifamily projects and make new multifamily and mixed use projects more feasible.

For more on HUD’s methodology for allocating CDBG Appropriation refer to the HUD release from September 26, 2008, which can be found at http://www.hud.gov/news/release.cfm?content=pr08-148.cfm

(This entry posted by Erica Harvey, a member of the Real Estate Development Group)

The Greening of the Multifamily Industry – Cost-Effective Practices

2008-09-29T14:41:00.002-05:00

Virtually every time I speak with a multifamily owner, developer or manager about how the topic of “green” is impacting their communities, I am told, in general, that the incorporation of sustainability features into their apartment buildings or green practices into their management approaches is too costly and “makes no economic” sense.

As a “green” devotee, I find this response quite troubling. While it is true that green building features do result in increased costs, how is it possible that the energy savings associated with implementing these measures, together with increasingly available governmental and other incentives, do not offer off-setting benefits that make sustainability practices economically sensible?

It is against this backdrop, that I read with great interest (and relief) a recent Multi-Housing News article entitled “Green Design Makes Sense.” http://www.nxtbook.com/nxtbooks/nielsen/mhn_200809/index.php?startid=20

The article underscores that, contrary to the generally-held view of many multifamily developers, owners and managers, “green developments do not have to cost that much more” and “in the development of green multi-housing, certain measures are relatively cost-efficient but still go a long way toward achieving environmental sustainability.”

Some of the sustainability features that can be cost-effectively incorporated into the design or rehabilitation of a multifamily community include using Low-VOC paints, finishes and adhesives, installing dual-flush toilets, orienting the direction of a green building in relation to the sun’s exposure, using increasing amounts of post-consumer recycled materials, regionally sourcing of materials, installing mechanical systems such as high-efficiency motors and local control of equipment, and using green roofs to reduce water runoff and heat emission.

AvalonBay Communities, Inc., an apartment REIT that is leading multifamily green development, is piloting several green projects, including a 500+ unit community under development in New York. “The measures taken by AvalonBay include the use of high-efficiency condensing boilers, low-rate ventilation fans, high-efficiency elevators and lighting and Energy Star appliances.” It is noteworthy that the costs of these sustainability features are being offset by reimbursements to be paid to AvalonBay from the New York State Energy Research and Development Authority program. This is good news since, as the pace of the sustainability trend continues to accelerate, increasing number of state and local jurisdictions will also begin to offer similar incentives.

Another California-based affordable housing developer has gone so far as to install photovoltaic cell solar panels for generating solar energy for one of its communities. The incremental costs associated with the use of this solar system were offset by a rebate from the State of California, increased equity from the sale of tax credits and increased debt borrowing capacity, both of which were tied directly to the developer’s incorporation of the solar sustainability features into the community, as well as the annual savings in electricity charges realized by the developer through its use of solar power.

I am not only comforted by these examples of the greening of the multifamily industry, but also convinced that apartment owners, developers and managers will increasingly focus on and incorporate sustainability features into their communities. Further, I believe that this trend will accelerate, as new technologies emerge that make these practices even more feasible and cost-effective, governmental incentives for “being green” become more pervasively available, and other associated off-setting economic benefits (such as greater equity investments and loan amounts and energy cost savings) begin to accrue to owners, developers and managers in connection with their adoption of sustainability features and practices.

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development Group)

House Energy Bill Seeks Improved Energy Efficiency and Green Development for the Built Environment

2008-09-23T12:45:00.001-05:00

On Tuesday of last week, the U.S. House of Representatives passed the much talked about energy bill, H.R. 6899, by a vote of 236 to 189. Politicians and the press have spent a great deal of energy focusing on this year's hot button issue, offshore drilling, but the bill also includes a number of provisions that could have an impact on sustainable development and construction. For example, Title VI of the bill is a reformulation of a bill originally proposed by Rep. Ed Perlmutter (D-Co) last spring, the Green Act of 2008.

Among other things, Title VI seeks to cause a 20% reduction in energy consumption for single and multifamily structures built or rehabilitated with HUD assistance; creates an energy efficiency demonstration program that applies to multifamily properties in certain enumerated federally assisted program (e.g. Section 8); establishes incentives for increasing the energy efficiency of multifamily housing, including discounts on premiums for mortgage insurance and allowing mortgages to exceed certain dollar amount limits prescribed by law; and authorizes HUD to make grants to states, cities, and counties to carry out energy efficiency programs for new and existing multifamily housing.

Rep. Perlmutter stated in a recent press release, "The Green Act measures will help revitalize our economy by making energy efficiency practices more affordable, accessible and achievable by consumers, businesses and government entities. By prioritizing energy efficiency practices, we can ease the woes of homeowners, lenders, financial markets, builders and our environment."

Earlier this summer, Karen Carey summarized the testimony of representatives of the National Multi-Family Housing Counsel (NMHC) and the National Apartment Association (NAA) who offered a number of recommendations to improve the original Green Act of 2008. Some, but not all, of these recommendations were incorporated into Title VI, such as including the new National Green Building Standard as one of the applicable green building standards. See Karen's entry for a summary of the other recommendations and a link to the full testimony.

Sen. Saxby Chambliss (R-Ga) predicted that the House energy bill would go nowhere in the Senate. The Senate intends to unveil its own energy bill before it recesses next week, but does not intend to address it until after the November elections.

Sources: HR 6899, Atlanta Journal Constitution

Have We Hit Bottom Yet?

2008-09-15T09:22:00.004-05:00

My last blog entry was entitled "Looking for Bad News" and my commentary centered around the notion that the more bad news we receive, the less bad news there would be left to disclose.

I am now rethinking that theme, as I opened the newspaper this morning to find that in the last twenty-four hours, Lehman Brothers had declared that it will file for Chapter 11 bankruptcy protection, Merrill Lynch disclosed that it will sell out to Bank of America for $50 billion (i.e., a price amounting to $25-$30 per Merrill Lynch share) and American International Group (AIG) indicated that is seeking a billion dollar rescue from the Federal Reserve.
http://www.nytimes.com/2008/09/15/business/15lehman.html?th=&adxnnl=1&emc=th&adxnnlx=1221472832-GJPAxJenkleodqcxhk7BVw

This all follows last week's announcement that the federal government had taken over the two mortgage giants, Fannie Mae and Freddie Mac, who now live in the uncertain land of conservatorship.

Perhaps my new theme should be that bad financial news propagates more really bad financial news. Whichever concept may ultimately be correct (and I am now clearer that we will only ascertain the truth by looking backwards in hindsight), there is little doubt that the topography of American finance is now being dramatically redefined.

It is hard to conceive of a financial world without Lehman Brothers and Merrill Lynch. It is difficult to envision the ramifications of the consolidation into Bank of America of such extensive brokerage and consumer banking power. The implications of the Fannie Mae and Freddie Mac conservatorship remain unclear, although reports from leaders in the multifamily industry continue to underscore that for the apartment industry, it is business as usual with Fannie Mae and Freddie Mac continuing to issue loan commitments, lock interest rates and close financings.

The current question for me (and I am sure everyone else) is what is next? Should we brace for the failure of Washington Mutual, the nation's largest savings and loan bank? How many other banks will also go down? (This weekend I was told by a banking industry expert that we should expect to see in the nature of 250 banks fail.) How will all of this impact the apartment industry? Most importantly, have we hit bottom yet? (I don't think so.)

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development Group.)

California bill seeks to prevent urban sprawl

2008-09-11T09:16:00.001-05:00

The Wall Street Journal recently reported that a revolutionary bill has just passed both houses of the California legislature and is on its way to Governor Schwarzenegger's desk for his signature or veto. The Bill, Senate Bill 375, intends to cut carbon-dioxide emissions by rewarding cities and counties that prevent sprawl and improve public transportation.

The bill requires California's regional planning authorities to develop plans to meet a set of emission reduction goals in order to receive transportation funding. Builders who construct projects closer to public transportation will be graced with a lighter regulatory hand (e.g. reduced requirements for environmental studies).

There were a number of concerns, including an increase in the cost of housing, the loss of a city's right to determine the use of its land, and a fear that the law would impede California's growth, but the bill was ultimately supported by environmentalists, local governments, and builders.

Proponents hope that this bill will be a model used by other states to reduce the spread of sprawl, increase transportation-minded development, and lower carbon-dioxide emissions.

No word yet on whether the Governor will sign the bill into law.

http://online.wsj.com/article_print/SB122031252260888829.html

(This entry posted by Chris Iavarone, a member of the Real Estate Development Group)

Switching to Digital TV --- Avoid a Public Relations Fiasco

2008-09-10T14:51:00.000-05:00

I was just reading a piece by Betsy Feigin Befus of the National Multi-Family Housing Council about the upcoming (February 17, 2009) nation-wide switch from analog to digital television. According to varous groups who have been studying the state of consumer preparedness, nearly half of the consumers who will not be able to use their TV sets after February 17 are unaware of the impending switch.

Apartment owners have no legal obligation with respect to the conversion itself. Nonetheless, in cases where residents receive television programming via over-the-air rooftop antennae, the apartment owner would be prudent to determine whether the equipment can be modified to receive the digital signal, or whether it needs to be replaced ---- which will likely take some time. It's probably safe to say that residents consider ready access to television programs a condition of habitability, and not an amenity. Unless apartment owners address this situation very soon, they are likely to have a very ugly public relations situation on their hands come February 17.

On the other hand, apartment owners can do a lot (in addition to addressing the situation described above) to help their residents be ready for the switch. Ms. Befus' piece contains much helpful advice, and is available at http://www.multihousingnews.com/multihousing/search/article_display.jsp?vnu_content_id=1003844509.

(This post submitted by Karen Estelle Carey, a member of the multi-family housing team.)

Real Estate Investment Opening Up to Chinese Investors

2008-09-03T15:53:00.001-05:00

The WSJ reports that Chinese regulators have authored a law that would give Chinese insurers greater freedom to invest in commercial real estate. This change in investment rules is included in a revision to the insurance law making its way through Chine's legislature and could go into effect as early as the end of this year. Although real estate investment by insurance companies is not new to the US market, the WSJ reports that Chinese insurers are relatively restricted on what assets they may invest in and have been lobbying for years for greater flexibility.

This change in investment laws could produce an influx of capital into the U.S. commercial real property market at a time when new sources of capital are badly needed. However, the WSJ suggests that the availability of this capital, and the extent to which Chinese insurers invest is the U.S. commercial real property market, will depend on the administrative rules that result from this legislation. For that reason, we should not expect an immediate influx in capital.

http://www.wsj.com
http://online.wsj.com/article_print/SB121977142246573319.html

(This entry posted by Chris Iavarone, a member of the Real Estate Development group)

REIT's and Senior Housing Now More Compatible

2008-08-25T16:07:00.006-05:00

Prior to the enactment last month of the Housing Assistance Tax Act of 2008 (the "Act") (for a detailed explanation of the Act, you can go to the following link , a real estate investment trust (a "REIT") could not in a tax-efficient manner derive the economic benefit of operating or managing a "health care facility," a term that includes a nursing home, assisted living facility, congregate care facility or a qualified continuing care facility. Instead, most REIT's that owned senior housing facilities with a health care component triple net leased those facilities to a third-party lessee and operator who would not only provide health care services to the senior residents, but would have to bear the rental risks associated with such a facility. Even a "taxable REIT subsidiary" (a "TRS") of a REIT was prohibited prior to the Act from directly operating or managing a health care facility such as a nursing home or an assisted living facility. For an illustration of how a TRS could own, but not operate, such a "health care facility," you should look at the following link.

By way of background, a REIT must derive at least 95 percent of its gross income from passive sources and at least 75 percent of its gross income from real estate sources. While rents generally qualify as income under both of those tests, rents may be disqualified under those tests if they entail provision of non-customary services to tenants, such as health care services. Several years ago, Congress allowed the provision of certain non-customary services through a TRS, resulting in the incurrence of a corporate level tax on income derived from such services.

Unfortunately, Congress in its infinite wisdom decided that a corporation that operates or manages a health care facility or a hotel or other lodging facility cannot qualify as a TRS. Significantly, however, Congress also decided that a TRS could provide rights to an "eligible independent contractor" to operate and manage a lodging facility if such rights were held by the corporation as a franchisee, licensee or in any similar capacity and the lodging facility was either owned by the TRS or leased to the TRS by the REIT. Moreover, under its arrangement with the "eligible independent contractor," the TRS could bear the expenses for operation of the lodging facility and could receive the revenues from the operation of the facility, net of expenses of operation and management fees payable to the independent contractor. In other words, for a number years, a TRS has been able to derive the economic benefit of operating a hotel or lodging facility, so long as that facility is actually managed by an independent third-party contractor. Such a TRS can reduce its corporate tax liability by paying deductible rent to its parent REIT that actually owns the hotel or lodging facility. Prior to the Act, a comparable arrangement was not possible for a health care facility.

Under the Act, a REIT can now own a senior housing facility, such as a nursing home or an assisted living facility, that provides health care services, and lease that facility to a TRS. The TRS, in turn, can derive the economic benefit from, and assume the rental risks associated with, such a facility so long as it is operated by an independent third-party contractor that is otherwise engaged in the business of operating those types of facilities. Because the rent payable by the TRS to the REIT is deductible by the TRS and is qualifying rental income to the REIT on which the REIT need not pay tax if it distributes the income to its shareholders, the Act creates a potentially tax-efficient structure for a REIT to own and indirectly operate senior housing facilities that provide health care services. Because real estate private equity funds with tax-exempt investors often employ REIT's to block "unrelated business taxable income," it will be interesting to see whether this change in the law correspondingly changes the investor profile for senior housing.

(This entry posted by Howard Solodky, a member of Womble Carlyle's Tax Practice Group)

The saying in Washington goes the federal government works in two ways; inaction and over-reaction

2008-08-22T10:26:00.003-05:00

The long awaited housing bill has been enacted H.R. 3221, the Housing and Economic Recovery Act (HERA) http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3221enr.txt.pdf is in reaction to the inaction of the federal government in the run up to the subprime housing crisis. Whether this legislation is an over-reaction is yet to be seen. More importantly, how is this 260-page bill going to effect the multi-family housing market?

HERA makes significant changes to the Low Income Housing Tax Credit (LIHTC) program increasing the available credits by ten percent from $2.00 to $2.20 per capita. In addition, on July 22, HUD made major changes to FHA Multifamily Mortgage Insurance program and the LIHTC program through Mortgagee Letter 2008-19 http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-19ml.doc. I would recommend anyone interested in these programs take a look at the excellent Washington Update put out by the National Multi Housing Council on July 31 http://www.nmhc.org/Content/ServeContent.cfm?ContentItemID=4825&IssueID=80 (Membership required).

But the headline on this bill has to be “Reform of the Government Sponsored Entities!” Section 1101 of HERA creates a new federal agency the Federal Housing Finance Agency (FHFA) by merging OFHEO (the regulator of Fannie Mae and Freddie Mac) and the Federal Home Loan Banks. This at a time when Fannie Mae and Freddie Mac are trading below five bucks a share with investor confidence badly shaken. I have concerns that the disruption of setting up FHFA, a new regulator, and all the procedures and movement of desks that entails could lead to LESS oversight in the short-run at a time when Freddie and Fannie are most vulnerable.

That said, it seems to me that anything that settles the markets and makes capital more available for housing should help apartment owners. Patrick Duffy’s http://www.housingchronicles.com/ has a great blog on this notion. He goes further, however, to state that employment concerns are causing the “Shadow Market” to begin to encroach on the standard rental market. The shadow market is best shown in the movie “Kit Kittredge, An American Girl” http://www.americangirl.com/movie/ where Kit’s family is forced to take in borders to pay the mortgage during the Great Depression. This bears watching and is not likely to be touched by HERA.

As far as home ownership and its effect on the rental market goes, HERA is a mixed bag. It allows moderate income first-time buyers essentially a zero-interest loan of up to $7,500 that has to be paid back over 15 years. That may induce a few folks into the market. At the same time, the legislation prohibits (starting Oct. 1, 2009) seller-financed downpayment programs like ones run by AmeriDream and Nehemiah Corporation. While this prohibition should reduce defaults because buyers have “more skin in the game” by virtue of making downpayments out of their pockets, it will take out of the market a segment of buyers thus reducing the demand and increasing housing supply. These factors could ultimately increase the number of renters because potential buyers that cannot afford closing costs will need to stay in rental housing longer.

It will be interesting to see how the markets react to the now implicit federal guarantee the Freddie and Fannie have received. Also, will lenders start lending again to either single- or multi-family housing buyers? Will the new Congress and President pull back on home ownership efforts by focusing on improving incentives for the rental market or will the concept of “a chicken in every pot” http://www.presidentsusa.net/1928slogan.html be replaced by a house for every family? Time will tell, but my money is still on the enthusiasm of wealth creation made possible by ownership.

(This entry posted by Mark Harkins, a member of Womble Carlyle's Federal Government Affairs team)

2008-08-21T12:20:00.002-05:00

On August 13, the US Attorney for the Southern District of New York filed suit against AvalonBay Communities and other development partners in Avalon Chrystie Place, a mixed-use property in Lower Manhattan which opened in 2005. At issue in the litigation are the requirements of the 1991 Fair Housing Act Amendments regarding accessibility for individuals with disabilities - a phrase which, in the FHAA context, deals principally with those who use wheelchairs. As a press release by AvalonBay points out, the suit does not claim that any specific person was discriminated against by the defendants; instead, the seven-page complaint is the standard Department of Justice pleading, with general allegations concerning the design of the property: inaccessible common areas, plus units lacking accessible routes (hallways wide enough for a wheelchair to be turned around), reinforcements for installation of grab bars in bathrooms, and other wheelchair-related problems in kitchen and bath areas. The defendants contend they complied fully with New York City's Local Law 58, which has been deemed the functional equivalent of the federal statutory requirements.

This filing is being heralded by DOJ as "the government's first lawsuit in Manhattan alleging violations of the Fair Housing Act in the design and construction of multifamily housing," while the disability rights community asserts that the law's requirements are often being disregarded in a conscious and knowing manner. Additionally, the New York Times reports that the US Attorney has sent letters to leading architects and landlords in the city, warning them of possible noncompliance and suggesting they may be next.
http://www.nytimes.com/2008/08/14/nyregion/14building.html?em

It should be remembered that legal complaints are only contentions. The Fair Housing Act Amendments are broadly-worded, and the requirements of the statute are subject to exceptions and interpretations which make any comment on the merits of the government's claim inappropriate. There is a great deal of room for differences of opinion, as well as for unpredictable variances in outcomes, and the prudent multifamily industry player makes use of every available resource to attempt to avoid these issues where possible. However, neither the Department of Justice, HUD, nor private or public-interest plaintiffs are required to afford a defendant any sort of warning or opportunity for discussion before the litigation trigger is pulled. Devising an action plan entails a thorough knowledge of legal requirements starting at the design and construction stages as well as a multi-disciplinary response plan (architectural, communications, and legal) which is ready to put into action quickly. Operating in an environment in which the public is being told that the industry is acting in knowing disregard of the law requires that this issue be given a very high priority and that the record be corrected at every opportunity.

(This entry posted by Charlie Edwards, a member of Womble Carlyle's Labor and Employment Practice)

Looking for Bad News

2008-08-20T09:12:00.003-05:00

I opened the newspaper this morning to again find more bad news about Fannie and Freddie, not that it came as a surprise. The New York Times is reporting that a government bailout of the mortgage giants is virtually inevitable.
http://www.nytimes.com/2008/08/20/business/20fannie.html?_r=1&th&emc=th&oref=slogin

By my estimation, we have been slugging through this financial crisis for a little more than a year. (I can almost recall to the day last summer when my 900 mile an hour real estate practice came to a screeching halt.) Rather than continuing to wallow in my depression about the nation’s dismal financial circumstances and the fact that the capital markets remain virtually shut down, I am adopting a new mental approach to the situation.

First, I have resigned myself to the fact that more bad news is coming. We are not at the bottom yet. (Again no surprise.) Second, I believe that instead of holding our breaths and hoping for the best, we need to get to the bottom of this mess as quickly as possible, no matter how far down the bottom leads us and how painful it will be once we get there. That is the only way we can start to climb back up again. Therefore, I want to immediately hear from all companies about their upcoming and anticipated losses, failures, bulk sales, bankruptcies and the like. Don’t hold back. Let it rip right now. Bring it on.

Finally, I am forcing myself to believe that as more bad news is released, there will be less bad news left to be disclosed in the future. By definition, there will occur some moment in time, whenever it should take place, that the all of material financial company losses and failures -- that are so dramatically affecting the capital markets and real estate valuations -- will have been disclosed. At that point, I am willing to believe that the markets will stabilize and little will be left to do but to evaluate the next course of action for those companies that are still left standing and are materially intact.

According to Alan Greenspan, an end to the decline in housing prices is “a necessary condition for an end to the current global financial crisis." "Stable home prices will clarify the level of equity in homes, the ultimate collateral support for much of the financial world's mortgage-backed securities. We won't really know the market value of the asset side of the banking system's balance sheet -- and hence banks' capital -- until then." http://online.wsj.com/article/SB121865515167837815.html?mod=dist_smartbrief Clearly, we need to get to the bottom of this crisis sooner rather than later to achieve that necessary market housing market stabilization.

Consequently, I am now going to be looking for bad news. I am going to take pleasure in learning that Lehman is negotiating the bulk sale of enormous portions of its real estate portfolio so as to better enable Lehman to withstand further losses on mortgage securities
http://www.bloomberg.com/apps/news?pid=20601206&sid=avq8Su7sXcWM&refer=realestate
I am going to eagerly await news that more companies are filing bankruptcy or disclosing their mounting losses.

At some point, and the sooner the better for me, we will move from being in the middle of the crisis (which is where some experts believe we now reside http://www.nareit.com/portfoliomag/08julaug/capital.shtml) and proceed to the bottom of it. I eagerly look forward to the moment we hit the lowest point, so that we can start to lick our wounds, put on the bandages and get going again.

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group)

EXPLOSIVE POPULATION GROWTH CERTAIN TO AFFECT MULTIFAMILY INDUSTRY

2008-08-19T15:08:00.002-05:00

The U.S. Census Bureau recently released projections that the U.S. population will rise from just over 300 million today to 439 million by 2050. The effect is akin to adding 17 additional New York Cities. It has been estimated that in addition to the 36,000 new schools and transportation infrastructure necessary to handle a projected 106 million more passenger vehicles, there will need to be at least 52 million new housing units.

Unless trends reverse dramatically, most of those additional 135 million souls will live in the nation’s metropolitan areas. This is not only because America’s rural areas will continue face stagnant or declining populations due to lack of job opportunities.….as of 2042, the Census Bureau estimates that for the first time in U.S. history, whites will be in the minority. The Census Bureau has concluded that by then the non-white Hispanic population will reach 133 million and the African-American population, 66 million. These and other minority groups and immigrants have historically clustered in and around urban areas, and there is no indication that this paradigm will shift dramatically anytime soon.

Given such demographic trends, along with increasing fuel costs, stifling traffic congestion and tighter restrictions on developing open spaces, much of the needed 52 million new housing units will be located around public transportation hubs and/or near employment clusters. It is simply not conceivable that most or all of the necessary housing could take the form of single-family homes surrounded by spacious lawns or in bucolic country cottages. Instead, most of the housing will take the form of multifamily communities---condominiums, apartments and densely arranged townhomes.

Even if the market seems rather unpredictable at the moment, the multifamily industry has many good reasons---about 52 million of them---to be optimistic about its long-term prospects.

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

Freddie and Fannie – the Bright Spots

2008-08-19T09:26:00.002-05:00

In the face of today’s depressing economic conditions, there are fewer and fewer options for even the most qualified real estate borrowers to finding financing for their deals. At a recent real estate event that I attended in the DC Metropolitan area, I was intrigued (and agitated) to hear a top level executive at one of the preeminent DC-based real estate companies admit that his company (one with an unblemished track record that you would never think would have the slightest difficulty finding debt) had been unable to attract lenders for some transactions they had on their drawing boards. He indicated that he was “taking the summer off.”

To make matters worse, virtually all of the news that we hear about Freddie and Fannie is bleak – their stock prices are dropping like rocks and it seems as though the question of whether they will require a bailout is one of “when” and not “if.” http://seekingalpha.com/article/91472-fannie-freddie-bailout-to-wipe-out-equity-holders

Given that the two mortgage giants are two of the very few number of lenders actively advancing loans to the multifamily sector in today’s gloomy market, I was quite encouraged to read a recent New York Times article entitled “Mortgage Giants Find a Bright Spot in Rental Financing.” http://www.nytimes.com/2008/08/13/business/economy/13fannie.html?_r=1&ref=business&oref=slogin While financing for multifamily housing represents only a small portion of their portfolios, multifamily debt “has been a rare bright spot” for Fannie and Freddie. Currently, according to the Mortgage Bankers Association, they hold about one-third of the outstanding multifamily debt. “As a result, both Fannie Mae and Freddie Mac, though often associated exclusively with single-family housing, are rapidly increasing their multifamily portfolios.”

Multifamily players should take some comfort not only in the fact that Fannie and Freddie are actually advancing loans in today’s investment climate (that continues to evolve on a daily, if not hourly basis), but that the apartment sector is the “bright spot” in Fannie and Freddie’s portfolio. I submit that the multifamily sector will continue to be a focal point for Fannie and Freddie (and one would hope other lenders as well as the markets settle down), given that the apartment industry is benefiting in a perverse way from the subprime melt down and its ripple effects, as fewer renters moving out of apartments to buy homes. http://multifamilyexecutive.com/industry-news.asp?sectionID=565&articleID=752919&refresh=true

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group)

Senior Housing

2008-08-11T14:19:00.003-05:00

As baby boomers start to reach retirement age, it is becoming increasingly important to establish the proper housing to support this enormous generation. Indeed, the senior population is on track to double between 2010 and 2030, and by this latter date, about one in five Americans will be at least 65 years old. These demographic trends are anticipated to vastly affect the supply and the type of senior housing to be built in the next decades as older people choose to downsize by moving out of their houses and into more manageable living situations. Baby boomers will likely seek out rental based multifamily properties, whether they are geared toward independent living, assisted living, or common-age retirement communities. While they are choosing to leave home ownership, the baby boomers do not seem to be looking for institutional-style housing. The preferred multiunit homes will tend to have a residential feel and a homey touch. It is worth noting, also, that although these seniors are expected to move into rental spaces, they will not comply with the typical, often short-term, rental cycles of traditional multifamily units.

Baby boomers may be the most important source of demand for apartment developers and, more importantly, apartment owners in the coming decades. Thus, multifamily housing must be specialized for this group. The new generation of seniors seems to prefer high-end units with access to quality care and amenities. There is a market, also, for seniors who want to rent with the advantages and services that are associated with high-end condos. Moreover, longer life expectancies will create a demand for excellence in assisted living and elderly housing. These increasing needs make room for growth in this sector, and, combined with the lack of opportunity in other areas of real estate, give investors reason to start focusing on the baby boomer generation.

(This entry posted by Jessica Hamilton.)

Foreclosure Crisis --- What Effect on Apartment Renters?

2008-07-31T10:03:00.003-05:00

Each day we hear more sad stories about people who have lost their homes to foreclosure. The statistics are staggering: for example, just this morning NPR reported that 1 in 25 homes in Stockton, CA are in foreclosure.

Needless to say, property managers have been keenly interested in how many new rental applicants are dispossessed homeowners forced into the apartment sector. Not many, it turns out, according to new research performed for the National Multi-Family Housing Council (NMHC) by Bruce Innes of Innes Works Consulting (http://innesworks.com/). It seems that evicted home owners only account for between two and six percent of apartment applicants, which is surprising given the number of foreclosures occurring every day.

The research, presented in a new NMHC white paper titled "Renter Credit Quality in a Volatile Housing Market", also examined whether the creditworthiness of apartment applicants has declined based on mortgage defaults or inability to pay home loans, and found that mortgage problems appeared to affect only 5.4 percent of rental applicants.

Overall, it appears that the foreclosure crisis is having a positive impact on the apartment sector in at least one way. There has evidently been a huge slowdown in the number of renters moving out to become homeowners, and that fact alone strengthens the financial health of the apartment industry.

To find out more about the research, go to the NMHC's website, http://www.nmhc.org/.

(This entry posted by Karen Estelle Carey, a member of the Real Estate Development group and multi-family housing team)

Housing Rescue Bill – What about the Multifamily Sector?

2008-07-29T09:37:00.001-05:00

On Saturday, July 26, 2008, Congress approved legislation that is intended to rescue the failing housing market by setting up a $300-billion fund to help hundreds of thousands of homeowners facing foreclosure. http://www.reuters.com/article/ousiv/idUSN2141192720080728.

The bill also grants broad authority to the Treasury Department to offer emergency financing to mortgage giants Fannie Mae and Freddie Mac that could be in the range of tens of billions of dollars. To achieve that result, the bill raises the national debt ceiling to $10.6 trillion. The bill contains a broad new regulatory structure for the mortgage giants, including the establishment of an independent regulator, a new overseeing federal agency whose director will be appointed by the president and confirmed by the Senate.

Given that Fannie Mae and Freddie Mac own or guarantee almost half of the $12 trillion in outstanding U.S. mortgages, this intervention is yet another effort by the President, Congress and the Federal Reserve to endeavor to control the impact of the failing U.S. housing sector on the U.S. economy as well as the global financial system. President Bush is expected to sign the bill early this week.

The impact, if any, of this legislation on the multifamily industry remains unclear. Perhaps by putting a “safety net” under Fannie Mae and Freddie Mac, the confidence of global financial investors will be bolstered and the world will once again become a safer place for multifamily financing and real estate-based lending in general. However, no relief to the liquidity crunch appears to be in sight.

There are continued reports of banks refusing to finance even the most creditworthy transactions (http://www.nytimes.com/2008/07/28/business/economy/28credit.html) and the CMBS (commercial mortgaged-back securities) market remains in a comatose if not moribund state (http://knowledge.wharton.upenn.edu/article.cfm?articleid=2022), thereby eliminating the customary sources of debt relied upon by multifamily owners, developers and asset managers.

What is astounding about these circumstances is that the subprime meltdown that triggered the current global crisis and shut down the financing world as we have come to know and rely on it had little if anything to do with the core value of the multifamily and other real estate assets that are now being so dramatically impacted by it.

At this point, the only available course appears to the “wait and see” approach. At some point, rationality should prevail and financing should become available for soundly underwritten multifamily acquisition and development transactions that are predicated upon reasonable assumptions about rents, operating costs, values and other relevant fundamentals.

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group)

The Ripple Effect From the Mortgage Housing Crisis

2008-07-11T08:54:00.002-05:00

As the ripple effect (or should I say tidal wave?) from the mortgage housing crisis continues to reveal its true depth, we all wake this morning to find that the Bush Administration is now considering a takeover of Fannie Mae and Freddie Mac, the nation’s two largest mortgage finance companies. If implemented, this plan conceives that the two mortgage giants would be placed in a conservatorship, where the shares of the companies would be reduced to zero and losses on the mortgages they own or guarantee would be borne by taxpayers. The hope is that such a rescue step would prevent the financial system from collapsing, since the distress of the two companies has long-ranging impact on the global economy, given the number of oversees companies that hold shares in Fannie Mae and Freddie Mac.

The press about this subject (http://www.nytimes.com/2008/07/11/business/11fannie.html?pagewanted=1&_r=1&th&emc=th) largely focuses on the need to keep the housing mortgage market alive. If Fannie Mae and Freddie Mac are unable to borrow due to their declining creditworthiness, they will be unable to purchase residential mortgages from commercial lenders. As a result, home buyers will likely be unable to obtain loans for the purchase of homes and the nation’s housing market will be frozen, since banks will not likely make capital available to home buyers without the comfort that they can “exit” from those mortgages through a purchase of the same by Fannie Mae or Freddie Mac.

Clearly the dismal state of affairs for Fannie Mae and Freddie Mac will materially impact the availability of debt for the multifamily industry, which to date, has been one of the few asset classes within the real estate marketplace that still believed it had a reliable source of mortgage financing from those companies for acquisitions, dispositions and mandatory refinancings (i.e., for mortgages coming due).

Query whether the multifamily market may also come to a standstill (similar to the risks now presented to the housing market) and whether there are any steps that owners and managers should proactively be taking to best position themselves to address the challenges that continue to unfold as a result of the unprecedented meltdown in the capital markets. As one real estate industry player recently remarked, we are nowhere near the bottom of this yet. We are just touching the soft mushy stuff in the pond that deceives us into feeling like it may be the floor, but it’s really just only about halfway down.

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development group)

"Employee Free Choice Act"

2008-07-10T09:01:00.003-05:00

As the attached article demonstrates, the Service Employees International Union, a labor organization which has been active in attempts to achieve representation of building maintenance workers employed by large contractors, is now turning its sights to smaller - and, presumably, less-well-defended - employers. This development highlights the significance of the a bill currently pending before Congress, the euphemistically-termed "Employee Free Choice Act." If that legislation passes, "free choice" as represented in a secret-ballot election conducted by the National Labor Relations Board would become a thing of the past, with employers being required to recognize unions if a majority of employees sign authorization cards. There would be no informational opportunity through which employers could present views regarding the lack of need for union representation. And even if the proposed statutory language is altered to take away this "shotgun wedding" aspect, another significant feature would require employers to arbitrate over contract terms if initial talks didn't produce a collective bargaining agreement.

Employers with concerns over this new challenge are welcomed to share their questions and comments with us over the coming months. No matter how the November elections turn out, this issue will certainly be front and center in 2009.

The article mentioned above is available at: http://washington.bizjournals.com/washington/stories/2008/06/30/daily26.html

(This entry posted by Charlie Edwards, a member of Womble Carlyle's Labor and Employment Practice.)

EPA's New Lead-Based Paint Renovation Rule Impacts Multifamily Housing

2008-07-09T12:38:00.001-05:00

On March 31, 2008, EPA issued a rule requiring the use of lead-safe practices and other actions aimed at preventing lead exposure during multifamily housing renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing.

The rule does not apply to minor maintenance or repair activities where less than six square feet of lead-based paint is disturbed in a room or where less then 20 square feet of lead-based paint is disturbed on the exterior. (Window replacement is not minor maintenance or repair and is always subject to the rule.) The rule also does not apply to renovations where it is determined by a certified inspector or risk assessor, or by a certified renovator, using an EPA recognized test kit, that the renovation will not involve lead-based paint.

The rule’s new requirements will be phased in over the next two years.

1. Effective June 23, 2008, Use Renovate Right or Protect Your Family Pamphlets
Beginning June 23, 2008, EPA requires that anyone performing renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing provide either the new EPA pamphlet, Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools, or the EPA pamphlet that is now being used, Protect Your Family from Lead During Renovation, Repair & Painting, to comply with the existing requirement to provide a lead hazard information pamphlet to the occupants of pre-1978 housing before beginning renovations.
EPA also recommends that anyone performing renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing (1) read about lead hazard information for renovation, repair and painting activities in the new EPA pamphlet, Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools; (2) read about lead-safe work practices for contractors in the EPA pamphlet, Contractors - Lead Safety During Renovation; and (3) follow those lead-safe work practices, specifically containing the work area, minimizing the dust and cleaning up thoroughly.
2. Effective December 22, 2008, Use Renovate Right Pamphlet and Disclosure Form.
Beginning December 22, 2008, before starting a renovation in multifamily housing built before 1978, the multifamily property owner (or their contractors) must have tenants sign the new EPA Pre-Renovation Disclosure Form, and must provide tenants the EPA pamphlet, Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools.
3. Effective April 22, 2010, Use Certified Renovators and Lead-Safe Work Practices.
Beginning April 22, 2010, all multifamily property owners must use only certified Renovation Firms or individual Certified Renovators to perform renovation, repair, and painting projects that disturb lead-based paint in pre-1978 housing. Renovation Firms (which will include any multifamily property owner or manager performing renovations through its employees) that perform renovation, repairs, and painting jobs in pre-1978 multifamily housing must apply to EPA or a state that has an approved program for certification to perform renovations. Firms will have to apply for re-certification every five years.
Each renovation, repair and painting project subject to the new rule requires certain lead-safe work practices. Renovation Firms must post signs clearly defining the work area and warning occupants and other persons not involved in renovation activities to remain outside of the work area. Before beginning the renovation, the renovation firm must isolate the work area so that no dust or debris leaves the work area while the renovation is being performed. Waste from renovation activities must be contained to prevent releases of dust and debris. After the renovation is complete, the renovation firm must clean the work area and a certified renovator must verify the cleanliness of the work area using a procedure involving disposable cleaning cloths.
Renovation Firms must keep records to demonstrate that it has been certified and its workers have been certified as Renovators or trained on-the-job by Certified Renovators in lead-safe work practices and that it has followed lead-safe work practices on the job. To make recordkeeping easier, Renovation Firms may use the Sample Recordkeeping Checklist that EPA has developed to help contractors comply with the renovation recordkeeping requirements that will take effect in April 2010.
4. Prohibited Practices.
The EPA has prohibited certain work practices for every renovation, repair and painting project in multifamily housing, including minor maintenance or repair jobs otherwise not subject to the requirements of the new rule. Specifically prohibited are: (1) pen flame burning or torching; (2) sanding, grinding, needle gunning, or blasting with power tools and equipment not equipped with a shroud and High Efficiency Particulate Air (HEPA) vacuum attachment; and (3) using a heat gun at temperatures greater than 1100° F.
The EPA publications mentioned above are available in both English and a Spanish translation on the EPA website http://epa.gov/lead/pubs/renovation.htm.
(This entry published by John Sweeney, a member of Womble Carlyle's Products Liability Litigation team)

The GREEN Act of 2008

2008-06-30T08:47:00.001-05:00

On May 15, 2008, a group of Congressional Representatives introduced H.R. 6078, the "GREEN Act of 2008". The bill was referred to the House Financial Services Committee.
On June 11, 2008, the National Multi-Family Housing Council (NMHC) and the National Apartment Association (NAA), through Alan George of Equity Residential, testified before the Committee. NMHC and NAA presented a number of specific recommendations for improving the bill.

1. Remove the mandatory green requirements in the Hope VI program, the effect of which, in NMHC's and NAA's opinion, will be to impose undue costs and burdens on both the developers and residents participating in these affordable housing programs.

2. Tie minimum energy efficiency standards and sustainability benchmarks to nationally recognized codes and standards, as has been done in the development of the new National Green Building Standard (NGBS) which, according to NMHC and NAA, has been written to be seamlessly incorporated into existing codes, and which also has followed the strict standard-setting procedures established by the American National Standards Institute (ANSI). See http://www.nahb.org/news_details.aspx?newsID=6222

3. Expand the bill's proposed energy efficient demonstration program to include both new and existing multi-family properties in all federally assisted properties, not just those that are Section 8, so long as the programs are not mandatory in nature.

4. Convene a blue-ribbon task force to develop policy reommendations concerning the best way for the FHA to establish mortgage insurance or rate incentives for energy efficient multi-family properties to insure that any changes in the FHA's program do not negatively impact the supply of affordable housing.

5. Remove the bill's directive that at least 50 percent of paved surfaces that are not shaded be covered by solar energy panels, green roofs, or be part of a geothermal system, and instead allow developers and local governments the flexibility that is necessary to achieve the goal of more sustainable properties, e.g., California and Chicago require white (solar reflecting) roofs in some applications.

6. Create in the bill an Energy Star designation for multi-family properties so that owners of multi-family housing stock can market their energy efficient properties just as is done with single family homes.

To read the entire testimony and to find a copy of H.R. 6078, go to http://www.nmhc.org/.

(This entry posted by Karen Estelle Carey, a member of the Real Estate Development group and multi-family housing team.)

Garcia v. Brockway: Wait-and-See Gamble Can Be Risky for Fair Housing Plaintiffs

2008-05-20T13:48:00.002-05:00

In a ruling significant to fair housing-related litigation, the US Court of Appeals in San Francisco, in a rare en banc (all the judges in the Circuit who aren't on "senior status") decision, has ruled that private plaintiffs have to file suit to complain about Fair Housing Act issues, including those involving design features to accommodate tenants and applicants with disabilities, within two years of the date on which the claim "accrues" -- which, in most cases, means the date of issuance of the certificate of occupancy for the property.

The plaintiffs, as well as the advocacy groups supporting them who often file their own FHA suits as plaintiffs, had argued that the time for filing was not triggered until the plaintiff "encountered" a violation by leasing or attempting to lease an apartment, but the 9-judge majority was not persuaded by this "continuing violation" concept. The three dissenting judges strongly disagreed with their colleagues, and it is not unlikely that the Supreme Court will be asked to resolve the question. As it stands now, this ruling is binding authority only in the 9 states (AK, AZ, CA, HI, ID, MT, NV, OR and WA) and two territories (Guam and the Northern Marianas) in the Ninth Circuit, but it is already being brought to the attention of judges in cases pending nationwide. Read more about these significant developments and their impact on fair housing litigation here.

(This entry was posted by Charlie Edwards, a member of the Labor and Employment practice.)

Full Ninth Circuit Court of Appeals Affirms Lower Court’s Holding in Garcia v. Brockway

2008-05-13T19:16:00.001-05:00

In a case that is being closely watched in the multi-family housing industry, the Ninth Circuit Court of Appeals yesterday released its opinion affirming the lower court’s holding that the 2-year statute of limitations for a private civil action alleging violation of the Fair Housing Act’s accessibility requirements for design and construction is triggered, i.e., the violation is complete, at the conclusion of the design and construction phase, which occurs on the date the last certificate of occupancy is issued.

The plaintiffs had asserted three theories to extend the limitations period: (1) that the violation was a continuing one that did not end until the defects were corrected; (2) that the statute did not begin to run until the aggrieved person encountered the design and construction defect; and (3) that the statute did not begin to run until the aggrieved person discovered the design and construction defect.

As to the first theory, the Court said that the plaintiffs (and HUD) confused a continuing violation with the continuing effects of a past violation, and that a failure to design and construct in accordance with the FHA accessibility requirements was not an indefinitely continuing practice but instead a discrete instance of discrimination that ended when design and construction were complete.

The Court treated the second and third theories as essentially the same, and failing for the same reason --- that the FHA’s limitations period does not start when a particular person encounters, discovers, or even is injured by a housing practice, but rather the limitations period starts when there is an “occurrence or termination of a discriminatory housing practice”, 42 U.S.C.

(This entry posted by Karen Estelle Carey, a member of the Real Estate and Construction practice.)

“Dealing” with the “Early Exit”

2008-05-05T12:05:00.002-05:00

Today’s uncertain market conditions are driving many institutional investors to exit from multifamily deals sooner than they originally projected. These unanticipated and premature dispositions are affecting transactions of all types, including new developments, renovation deals and straight forward acquisitions where the communities in question were initially purchased as “long term” holds.

Some institutional investors are “cashing out” of these communities because they are over-leveraged in general (and need to achieve better loan to value ratios across their portfolios). Others are either over-committed in particular market sectors or simply feel the need, given the ongoing market “melt downs,” to take immediate action to increase their liquidity. Some institutions who are facing significant losses with respect to certain investments in their portfolios, have no choice but to prematurely liquidate performing properties in an effort to offset those losses. “Earlier than expected” dispositions are also being triggered by those who are unclear about how much higher multifamily cap rates will rise in their given submarkets and are choosing to “cut their losses” by selling their communities before things get even worse.

This trend in the multifamily market place is presenting compelling challenges for the developer or fee partner (i.e., the ”promoted partner”) who typically entered into a joint venture relationship with these “early exiting” institutional investors based on an economic structure where they received a “promoted” or “profits interest” in the deal. The most meaningful compensation to be received by the promoted partner is usually paid by the joint venture at the end of a deal with a longer lifecycle. Stated differently, in these transactions (as originally conceived), the big payoff for the promoted partner usually occurs only after the community is built, rehabilitated or held for a longer period of time than the prematurely short hold periods sometimes resulting from today’s unfavorable economic environment.

The promoted partner almost always has little leverage in the negotiations of the joint venture documentation with the early exiting institutional investor. Consequently, it is unlikely that there will be any meaningfully protective provisions for the promoted partner in the governing joint venture agreement to guard against an early exit that is adverse to the promoted partner. To the contrary, most often the joint venture agreement will give the early exiting institutional investor unilateral rights to make all major decisions, including a decision to sell the property or the investors interests in the joint venture, free from any rights in favor of the promoted partner. (As everyone in real estate knows, “cash is king” and the institutional investor in the typical multifamily deal, being the “cash king,” is understandably afforded liberal rights in the joint venture agreement to protect and liquidate its disproportionate cash investment in the deal as it sees fit.) While the joint venture agreement may contain a buy/sell provision, the promoted partner is usually not well served by reliance on that provision since the outcome of any buy/sell trigger is so uncertain.

Promoted partners who are facing the scenario of an institutional investors’ unexpected and premature forced sale of a community should consider an approach that takes the parties outside of the four corners of the (less than favorable) joint venture agreement. In other words, the promoted partner should develop a “term sheet” for negotiating a new informal deal with the institutional investor that, at a minimum, gives the promoted partner time to find an alternative investor for the community in question. This term sheet might also include rights in favor of the promoted partner to make an offer to purchase the community at a price that is below the institutional investor’s perception of “market” or at a price that matches a third party offer for the property (similar to a right of first refusal), but that eliminates a feasibility period (since the promoted partner is familiar with the asset) and includes a “quicker close” than the institutional investor might achieve in the current market. The specifics of this informal new deal must be developed and tailored to the specific asset in question and inclusive of terms that are responsive to the particular needs of the institutional investor that are driving its decision to trigger an early exit from the community.

The early exiting institutional investor may be receptive to this approach since the interests of the promoted partner and the investor are aligned from the standpoint that the investor wants to find a way out of the deal and the promoted partner wants to preserve its position in the deal by finding a replacement for the institutional investor. By cutting a new deal with the promoted partner, the institutional investor may also avoid the headaches of having the promoted partner trigger its buy/sell rights at an inopportune time, creating delays and other headaches for the institutional investor that might have a chilling effect on the sale. Further, if the relationship between the promoted partner and the institutional investor is a good one, the institutional investor may be inclined to work with the promoted partner to achieve the investor’s exit from the community in a manner that is mutually satisfactory for both parties involved so as to preserve the relationship (and the pipeline of deals the promoted partner brings to the institutional investor) for the future and at a time when the real estate cycle becomes more favorable.

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development group.)

Workouts for Underperforming Communities

2008-04-30T09:09:00.002-05:00

In an increasingly common scenario in today’s deplorable market conditions, multifamily owners and asset managers are struggling with under-performing rental communities – the communities have declining occupancy levels, are unable to make debt service payments or required capital repairs and are facing the maturity of their existing debt, with no meaningful refinancing prospects on the horizon.

What steps should owners and asset managers consider taking in the near term to preserve their assets and, if necessary, successfully take them through a “workout” transaction?

While any program for an under-performing asset must be tailored to the specific factors affecting that particular asset, the starting point in most situations is to try to identify the objectives that the existing lender will have for the community. For example, some lenders are working extensively with borrowers to maintain the relationships and enable their borrowers to retain their assets. Other banks are accelerating their loans on the first sign of default with the objective of reducing their exposure (especially as market values continue to decline). Loans that have been securitized will likely provide the fewest opportunities for consensual “workout” deals, because the loan servicers that manage these types of loans have little discretion and limited options to modify the terms of the governing loan documents with a view toward helping the troubled borrowers.

Another variable to consider is whether the owner, asset manager or its principals are exposed to any personal liability under guaranties or other loan documents securing the existing financing. In particular, if a guaranty contains a “springing recourse” provision, the guarantors will typically face full recourse liability for the repayment of the entire loan if the owner or one of its affiliates voluntarily files a bankruptcy petition or fails to contest an involuntary bankruptcy filing. Such “springing recourse” provisions significantly limit the options available to the owner of a troubled asset to rely on the bankruptcy laws to “reorganize” the asset since few borrowers will want to risk triggering a guarantor’s personal obligation to repay the entire loan.

Owners and asset managers should review the terms of the existing loan and associated documents to evaluate whether there are any favorable provisions that might assist them in negotiating a workout with their lenders. If the loan documents require any “clean up” (i.e., they contain ambiguities or other provisions that might offer an advantage in the workout negotiations), the owner or asset manager may have greater leverage to achieve a loan extension or forbearance agreement from the existing lender. This approach may provide the owner or asset manager with sufficient time to weather current market conditions and find a take out loan, avoiding a more costly foreclosure for the lender, especially if the collateral securing the loan has materially declined in value.

It is difficult to predict whether a lender will want to pursue foreclosures in the current economic environment. The fact there have been few real estate bankruptcies filed affecting multifamily rental communities in the last year suggests either that most lenders are willing to work with their borrowers or that the most recent changes to the Bankruptcy Code have generally rendered single asset real estate bankruptcy filings to be futile (or maybe some combination of both). On the other hand, if the values of communities continue to drop, lenders may elect to become more aggressive in dealing with under-performing assets.

(This entry posted by Pamela V. Rothenberg, a member of Womble Carlyle's Real Estate Development group, and Jeffrey Tarkenton, a member of Womble Carlyle's Bankruptcy and Creditors' Rights group)

Naming Issues

2008-04-27T09:10:00.004-05:00

Apartment owners and managers should vigilantly protect the brand and goodwill that they create in each of the submarkets in which they own and operate their apartment communities. The branding of a single apartment community, a multi-property portfolio or even an asset or property management company itself and the creation of the associated goodwill occurs through the consistent use by the owner and its property manager of their trade names, logos and other proprietary names and marks (i.e., their “Intellectual Property”) over an extended period of time.

The need to protect Intellectual Property does not end when an owner moves into a “disposition” mode for a single community or a portfolio of properties. In fact, to the contrary, the Intellectual Property of the owner and the property manager should be expressly excluded from the assets being sold.

However, what happens during the transition period immediately following a sale? It is simply not realistic to expect a purchaser to immediately discontinue the use of the Intellectual Property starting on day one of its ownership of a community. One practical way to address this issue is for the parties to enter into a “name license agreement” that survives for a short period following the closing on the sale of the community or portfolio.

Through a name license agreement, the seller can grant to the purchaser a non-exclusive, revocable and limited license to use the Intellectual Property for a specific period of time, typically not more than ninety (90) days, following the closing of the sale. The sole purpose of the name license agreement (which should be stated in the agreement) is to facilitate the transition of ownership to the purchaser and the agreement should prohibit the purchaser from using the Intellectual Property in conjunction with any other property or in any other respect.

The agreement should also state that the seller is not warranting any of its rights in the Intellectual Property and that the purchaser is using the same at its own risk. The seller should have the right to immediately terminate the name license agreement if the purchaser fails to comply with its terms in any respect (hence the need to state that the license is “revocable”). Finally, the agreement should prohibit the purchaser from assigning its license to use the Intellectual Property so that these rights are personal only to the purchaser.

A name license agreement is really a “win win” document for both a seller and a purchaser. It permits the parties to address in a pragmatic way the unavoidable transition issues relating to the Intellectual Property rights associated with the assets being sold and puts a seller in a better position to protect its brand and associated goodwill.

(This entry posted by Pamela V. Rothenberg, a member of the Real Estate Development group.)

Fair Housing Act Accessibility: Examples of Covered Multi-Family Dwellings

2008-04-14T10:35:00.001-05:00

As litigation over Fair Housing Act (FHA) design and construction accessibility requirements continues to increase around the country, we are getting more and more questions about what kinds of multi-family housing are, in fact, subject to these requirements.

To start with, the accessibility design and construction requirements apply to all buildings built for first occupancy after March 13, 1991, that fall under the definition of "covered multifamily dwellings (CMFDs)". CMFDs are:

1. all dwelling units inside buildings that have one or more elevators if there are at least four dwelling units in the building, and

2. all ground floor dwelling units in buildings without an elevator that have at least four dwelling units.

If a dwelling unit falls into one of the above two categories, it is a CMFD. This is true regardless of whether it is an apartment, condominium, townhouse, vacation timeshare unit or college dormitory.

Continuing care retirement facilities (CCRCs) (a fast-growing sector in our aging society) are covered even if they include health care facilities, providing that the CCRC has at least one building with four or more dwelling units ---- but there is a nuance here. To be a "dwelling" under the FHA, the unit must be intended to be used as a residence for more than a brief period of time. It is possible, therefore, for some units in a CCRC to be deemed CMFDs while others are not. While this nuance might be useful to a CCRC encountering an accessibility challenge, certainly the safest approach would be to design and construct each unit about which there could be a question as if it were a CMFD.

(This entry posted by Karen Estelle Carey, a member of the Real Estate and Construction practice.)

Transfer of Interests in Real Property Entities Soon to be Subject to Tax in Maryland

2008-04-08T15:46:00.002-05:00

For decades, owners of real property located in Maryland have been able to avoid transfer and recordation taxes on the property's sale by selling interests in the entity that owned the real property, rather than directly selling the real property itself. But the Maryland legislature, by enacting into law the Maryland Tax Reform Act of 2007, will be closing that loophole shortly.

The act revises Title 12 and 13 of the Maryland Property Tax Code to impose transfer and recordation taxes on each transfer of a "controlling interest" in a "real property entity," as if the real property were conveyed by deed. The new transfer and recordation taxes apply to all transfers of controlling interests completed after June 30, 2008. Unless exempt, the real property entity is required to pay the tax to the Maryland State Department of Assessments and Taxation within 30 days of the transfer of a controlling interest.

Transfer of a "controlling interest" entails the sale of more than 80% of the total value of all classes of stock of a corporation, the beneficial interest of a trust, or the total interest in capital and profits of any other entity (such as a limited partnership or limited liability company) to the extent that the applicable corporation, trust or other entity constitutes a "real property entity."

A "real property entity" is any entity that beneficially owns real property located in Maryland if the Maryland real property constitutes at least 80% of the value of the entity’s assets, and the aggregate value of the Maryland real property is equal to or exceeds $1,000,000. When valuing the real property, no reduction is given for the amount of any mortgage, deed of trust, lien or other encumbrance.

There are a handful of notable exemptions to the new transfer and recordation taxes. Transfer and recordation taxes are not imposed on the transfer of a controlling interest in a real property entity if (a) the transfer would otherwise be exempt from recordation tax if the real property were transferred between the parties by deed, (b) the transferee and the transferor are owned by the same persons and in the same proportions, (c) the transfer of a controlling interest is completed in stages over a period of more than 12 months, or (d) the transfer of a controlling interest, though it may take place in stages over a period of less than twelve months, is not effected pursuant to an intentional plan or contract to do so. In addition, although the parameters are not entirely clear, the act exempts transfers of controlling interests in real property entities between certain commonly controlled entities, though the availability and applicability of this exemption may be somewhat limited.

If an entity does not quality for an exemption, then the entity itself (not the transferor or transferee) is liable for the transfer and recordation tax. The tax liability is calculated as a percentage (ranging from 1.16% to 3.00%, depending upon the county) of the "consideration payable" for the transfer of the controlling interest. In calculating the consideration payable, the entity must add to the amount of actual consideration paid by the transferee(s) all debts owed by the real property entity, including all mortgages, deeds of trust, or other liens against its real property. It may subtract the amount of all assets of the entity other than its Maryland real property.

(This entry published by Chris Iavarone and Kevin Pigott, members of the Real Estate Development group)

Bright Spot for Housing Investors?

2008-03-27T14:56:00.002-05:00

A recent article in the New York Times highlights how the recent economic woes could actually benefit multifamily rentals. “People had been painting residential with a broad brush, and that’s what held back the stocks in 2007,” Mr. Anderson said. Many skittish investors seem to have eschewed all companies in the housing market, even those involved in rentals. “Now they may be looking for ways to play the residential market,” he said, “and one way to do that is to take a look at the rental business, which is once removed from the broader housing turmoil going on.”

Apartment REIT's are up 15.6% this year through Thursday.

The full article can be found at: http://www.nytimes.com/2008/03/23/realestate/23sqft.html?_r=1&ex=1364184000&en=bbae4cc558c3dc19&ei=5088&partner=rssnyt&emc=rss&oref=slogin

(This entry published by Melissa M. Morgan)

FCC Further Extends Exclusivity Rules—Releases Order Banning Exclusive Contracts Between Telecommunications Providers and Residential Building Owners

2008-03-27T14:51:00.002-05:00

On March 21, 2008, the Federal Communications Commission released the full text of a Report and Order adopted on March 19, 2008 which summarily prohibits telecommunications providers from entering into exclusive contracts to provide service in Multitenant Environments (“MTEs”). Previously, the Commission had only banned such exclusive deals for service in commercial, or predominantly commercial MTEs.

The Order piggybacks a similar order adopted by the Commission on November 13, 2007, which banned such deals between multichannel video programming distributors and owners of Multiple Dwelling Units. Both orders take the unprecedented action of voiding existing exclusive contracts between providers and owners of MTEs as the order applies retrospectively to existing contracts as well as any future agreements. The highlights of the Order are as follows:

The Order bans exclusive contract provisions in agreements between telecommunications providers and MTEs which serve exclusively or predominantly residential customers. Thus, any conceivable type of MTE is now addressed by the Commission’s rules.

The Order applies retrospectively, and prohibits the use and enforcement of existing exclusive contracts, declaring such contracts null and void 60 days after publication of the Report and Order in the Federal Register.

The Order discusses both the policy basis and legal authority to prohibit such exclusive agreements. Specifically, the Commission found such practices “unreasonable” under Section 201 of the Communications Act of 1934, as amended, and noted that the D.C. Circuit has held the Commission to have the authority to regulate in this manner.

Interestingly, the Commission also utilized one paragraph of its Order to entertain a Fifth Amendment analysis that its action did not constitute an unconstitutional regulatory taking. Similar to the actions taken in the November 13, 2007 order, the FCC relied on its “ancillary jurisdiction” to take sweeping regulatory action. However, its limited analysis may not be sufficient to withstand challenge by telecommunications providers and MTE owners.

This Report and Order, along with the November 13, 2007 Order mark a dramatic shift in Commission policy as the Commission concluded that the harms of exclusive contracts between MTE owners and providers outweighed any potential benefits to consumers and that the new rules will increase choice and competition for consumers residing in MTEs and other real estate developments. The Report and Order similarly rejected the potential benefits of exclusivity clauses as insignificant.

(This entry published by Danielle M. Benoit and Mark Palchick, members of Womble Carlyle's Telecommunications group)

This memorandum should not be construed as legal advice.

Latest Regulatory Guidance Regarding Accomodations to Individuals with Disabilities

2008-03-26T10:47:00.003-05:00

The attached link contains the latest regulatory guidance regarding accommodations to individuals with disabilities which are required in multi-family rental housing units governed by the Fair Housing Act Amendments, as well as those accommodations which are required of public accommodations under the Americans With Disabilities Act. We caution you that the recitation of legal requirements found in the HUD/Justice interpretations goes well beyond the actual language of the federal statutes upon which they rely; however, not all judges seem to be impressed with that distinction.

As a further cautionary note, many state and local building codes attempt to impose similar requirements on multi-family properties which are constructed primarily or exclusively for private ownership, such as condominiums. Not all of the state and local requirements have a sound foundation in enforceable legislation, but proceed on the theory that multi-family occupance by owners renders the properties "commercial" for regulatory purposes. Given the potential for properties to "revert" to rental status, as well as the potential for owners' renting their units, this regulatory attitude may have at least some basis in fact rather than simply representing an unwarranted expansion of power.

Nonetheless, vast discretion is given to the regulators in the interpretation and enforcement of the law, and special interest groups are likely to raise legal challenges even in situations in which governmental intervention is not forthcoming. When the expense of litigation is considered, it may be prudent to consider compliance with these broad interpretations rather than attempting a narrow approach since, based on a cost-benefit analysis, it can be more effective to avoid doing battle with those who have no concern for economic issues.

http://www.nmhc.org/Content/ServeFile.cfm?FileID=6206

(This entry published by Charlie Edwards, a member of Womble Carlyle's Labor and Employment group)

More on Fair Housing Accessibility and the Statute of Limitations Issue

2008-03-25T14:39:00.001-05:00

Today's Ninth Circuit en banc hearing on the Fair Housing statute of limitations for design and construction (see earlier blog) is being closely followed by litigants in other Fair Housing cases in which the statute of limitations for design and construction complaints also is an issue. For example, mega-developer A.G. Spanos is a defendant in a Fair Housing accessibility case filed in June, 2007 (amended complaint filed October 12, 2007) in federal district court for the Northern District of California. The complaint alleges violations of the accessibility requirements of the FHA and the ADA in more than 10,000 individual dwelling units in apartment properties located in numerous states.

Spanos and the other defendants filed motions to dismiss based in part on the bar of FHA's 2-year statute of limitations, and citing the Ninth Circuit's earlier panel decision that the running of the statute of limitations cannot be avoided by invoking the "continuing violation" doctrine. Spanos' brief quoted the Ninth Circuit's observation that a non-compliant building is "more akin to a continuing effect than a continuing violation under the FHA" and that "if Congress wanted to leave developers on the hook years after they cease having any association with a building, it could have phrased the statute to say so explicitly." (Memorandum of Points and Authorities in Support of Defendants' Motion to Dismiss Plantiffs' First Amended Complaint (Case NO. C07-03255-SBA)).

At least one defendant's motions to dismiss was heard on March 11, 2008 and among the proposed orders submitted to the judge was an order staying the lawsuit as to that defendant pending the Ninth Circuit's en banc decision on today's hearing.

(This entry published by Karen Estelle Carey, a member of the Real Estate Development group)

National Green Building Standard Almost Ready

2008-03-24T12:25:00.001-05:00

In a previous posting we discussed the new green building standard being developed jointly by the National Association of Home Builders (NAHB), the International Code Council (ICC) and the NAHB Research Center. The new standard is intended to be seamlessly incorporated into existing building codes, thereby providing a code-based standard for jurisdictions considering mandatory green building requirements. In contrast to currently existing green building rating systems (e.g., LEED), the proposed standard specifically addresses multi-family development and construction.

The NAHB, ICC and NAHB Research Center have developed the National Green Building Standard with the goal of obtaining ANSI approval, so that the standard would be available for adoption by local building departments. The ANSI public comment period on the proposed draft closed on February 8, 2008, and the standard is currently anticipated to be released later this spring.

For more information on the National Green Building Standard, and a copy of the current draft, go to http://www.nahbrc.org/technical/standards/greenbuilding.aspx.

(This entry published by Karen Estelle Carey, a member of the Real Estate Development group)

Full Ninth Circuit Court of Appeals to Hear Fair Housing Accessibility Case on March 25, 2008

2008-03-17T09:24:00.004-05:00

Full Ninth Circuit Court of Appeals to Hear Fair Housing Accessibility Case on March 25, 2008
Some time ago, we reported on the Garcia v. Brockway case (503 F.3d 1092 (9th Cir.2007), an important fair housing accessibility lawsuit. At issue is when the two-year statute of limitations for actions alleging defective design and/or construction under the Fair Housing Act begins to run --- when construction is completed, or when the alleged violation is discovered. The plaintiffs appealed a decision from a panel of the Ninth Circuit affirming two lower court rulings that the statute begins to run when construction is completed (when the last certificate of occupancy is issued).

The plaintiffs argued the "continuing violation" theory, that there is no statute of limitations on these claims as long as a unit is allegedly out of compliance with the accessibility requirements of the Fair Housing Act. On January 7, 2008, the court ordered a full 15-judge panel to rehear the case. The "en banc" rehearing is set for March 25, 2008.

The National Multi-Family Housing Council and the National Apartment Association filed a friend of the court brief, arguing that application of the continuing violation theory would render the statute of limitations contained in the Act meaningless. To read NMHC/NAA's amicus brief, go to http://www.blogger.com/www.nmhc.org/goto/4499.

(This entry published by Karen Estelle Carey, A member of the Real Estate Development group.)

National Green Building Standard for Multifamily Construction Continues to Develop

2008-02-11T16:35:00.000-05:00

The National Association of Home Builders (NAHB), the International Code Council (ICC) and the NAHB Research Center are continuing their work on a new standard for green buildings, with the goal of obtaining ANSI approval. Thereafter, the standard (as an ANSI standard) would be available for adoption by local building departments. The new standard will specifically address multifamily development and construction and is intended to be incorporated seamlessly into local building codes. Participation by ICC building officials encourages cities and counties to adopt the new standard.

The standard is being developed by a Consensus Committee made up of various stakeholders, including architects, builders, code officials, engineers, environmental advocates, manufacturers, and trade organizations. The next meeting of the Consensus Committee is scheduled for December 3 and 4, 2007 at the National Housing Center, 1201 15th Street, NW in Washington, DC. The purpose of the meeting is to provide a public venue for debate of public comments that have not yet been considered.

The entire development process is anticipated to be complete by the end of 2008. After completion of the ANSI process, the standard will be promulgated as a joint publication between NAHB and the International Code Council (ICC). For more information on the development of the new standard, go to http://www.nahbrc.org/technical/standards/greenbuilding.aspx.

(This entry published by Karen Estelle Carey, A member of the Real Estate Development group)

Sprinklers and Smoke Detectors --- Must We Retrofit Existing Apartments?

2008-02-11T16:33:00.001-05:00

It appears from a November 9, 2007 National Multifamily Housing Council building code update that many apartment owners and property managers are being pressured by local building officials to retrofit existing apartments with sprinklers and smoke detectors based on misinformation about what federal law requires.

The fact is that there are no federal requirements to retrofit sprinklers or smoke detectors. And the International Building Code (IBC) also contains no requirements for such retrofits. However, if an apartment building is in a jurisdiction in which the International Fire Code (IFC) has been adopted, there is a requirement for retrofitting of smoke detectors (although not sprinklers). The detectors can be battery powered if they are being placed in an existing building where no construction is taking place.

Likewise, in jurisdictions that are subject to the National Fire Protection Association (NFPA) regulations (jurisdictions in which the IBC and the IFC have not been adopted), existing buildings must be retrofitted with smoke detectors, but not sprinklers, and the detectors can be battery operated.

So to answer to the question "must we retrofit", you must determine which codes apply in the jurisdiction in which the facility is located. Persuading the local building officials that you need not retrofit is, of course, another matter.

(This entry published by Karen Estelle Carey, A member of the Real Estate Development group)

Good News for the Apartment Industry from the Ninth Circuit Court of Appeals

2008-02-11T16:22:00.000-05:00

A panel decision affirmed two lower court rulings that the two-year statute of limitations for civil actions alleging defective design and/or construction under the Fair Housing Act begins to run when the property is first occupied, and not when the alleged violation is discovered. The cases at issue involved apartment communities in the Las Vegas area and in Idaho. The court said that a failure to design or construct properly is not a "continuing violation", but is a discrete act, which is over with at the end of the design and construction stage (as a practical matter, this would mean at the end of the construction stage).

If this opinion stands up on appeal, it will be very good for the apartment industry. It will limit litigation in states covered by the Ninth Circuit (California, Oregon, Washington, Arizona, Montana, Idaho, Nevada, Alaska and Hawaii). Both plaintiffs have filed petitions for panel rehearing and rehearing en banc (Garcia on October 4, 2007 and Thompson on November 6, 2007)

The case is Garcia v. Brockway, 503 F.3d1092 (9th Cir.2007)

(This entry published by Karen Estelle Carey, A member of the Real Estate Development group)

Maryland Legislature Votes to Close Loophole in Property Transfer/Recordation Tax

2007-11-21T12:26:00.000-05:00

The Tax Reform Act of 2007, which was passed by the Maryland legislature early in the morning of November 19th and signed into law by Gov. Martin O'Malley the same day, ushers in a host of new and increased taxes in Maryland. The headlines have been full of references to slot machines and higher sales taxes, but one obscure yet significant provision has remained hidden in the shadows outside the otherwise intense press coverage. The Act snuffs out a loophole widely used by real estate investors to circumvent Maryland's taxes on the transfer of real property and the recordation of property deeds.

While transfers of Maryland real property from one person or entity to another result in substantial transfer and recordation taxes (1.2% to 3%, depending on the county), real estate investors have avoided such taxes by transferring ownership in the entity which owns the property, such that the property technically continues to be owned by the same company, although indirectly controlled under new ownership. The new law, which takes effect on June 30, 2008, will require taxes on transfers of a "controlling interest" (i.e., a more than 80% ownership interest) in an entity that owns real property.

Those of us who regularly deal with large-scale property transfers in Maryland, which has historically had a lucrative multifamily and mixed-use market, will be scouring the details of this legislation in the coming weeks, as it may well have a chilling effect on a property market already enmeshed in a slowdown. Only time will tell...by the time the law takes effect next June, we may be in a completely different market (let's hope).

Atlantic Yards gets under way

2007-02-26T13:40:00.000-05:00

From The New York Times, Feb. 20, 2007:

Construction crews were expected to take the first steps today toward building the huge Atlantic Yards project near downtown Brooklyn, according to an aide to Bruce C. Ratner, the developer. The first stages of the work will involve subcontractors removing contamination from a bus depot, then demolishing that structure. Forest City Ratner Companies will build a temporary Long Island Rail Road yard in its place, so that a giant platform can be built above the permanent rail yard to support much of the $4 billion development. The city and state approved the project despite heated opposition from residents who said it would overwhelmingly congest the local streets and transit system. The development will include thousands of apartments, commercial buildings, a hotel and an arena for the Nets, the basketball team Mr. Ratner owns.

-----------------------------

So it's under way. We will see what happens with the pending lawsuit.

Mixed use grows in an unfashionable part of Alexandria, Va.

2007-02-20T13:12:00.000-05:00

Alexandria, Va., is one of Washington, D.C.'s closest suburbs, and most of it has been built up for decades. But one area, the Carlyle neighborhood, has historically been home primarily to rail yards. Now, a major mixed-use project has opened there, in the wake of the U.S. Patent and Trademark Office's recent move to Alexandria.

Carlyle Square, a $95-million mixed-use development, just opened to its first residents. The 205 luxury apartments that now have their first tenants are just the beginning, with 145 condominium units and more than 20,000 square feet of retail and restaurant space are slated to open later this year, and groundbreaking for yet more buildings is also scheduled.

“Alexandria is obviously a great historic community in the Washington, D.C., metro area,” Dave Stockard, chief executive of Post Properties, the developer, told the Washington Examiner. “The entire region is entirely built out. But Carlyle, given its industrial roots [wasn’t] . . . having a large site like that represented an opportunity to create a mixed-use environment that doesn’t come along very often.”

Mixed-use or multi-use: is there a difference?

2007-02-19T11:43:00.000-05:00

The following, in its entirety, is a dispatch from Riccardo A. Davis, managing editor of Retail Traffic magazine, from the Conference on Open-Air Centers sponsored from Feb. 14-16, 2007, in Phoenix by the International Council of Shopping Centers:

Hospitality is top of mind among the attendees of the 2007 ICSC Conference on Open Air Centers.

But it’s not the accommodations or the level of service being rendered at the conference site in Phoenix, the Arizona Biltmore Resort and Spa.

During the welcoming reception Wednesday evening, upbeat developers and architects were abuzz about their as yet announced mixed-use projects.

While they wouldn’t share specific details such as the projects’ site, each noted a key driver in its anticipated success as the hotel.

The next morning during the general session titled, “Mixed Use” - Should Your Company Be in Mixed-Use Development," two panelists, both developers of mixed-use projects, added fuel to the fire.

“With hotels, you get a premium on residential sales, rentals and higher occupancy rates,” said Yaromir Steiner, CEO of Steiner + Associates. He added that demand for hotels is rising because they are seen as critical to generating above-average returns at mixed-use projects.

Steiner’s fellow panelist, Lee Wagman, CEO of The Martin Group, notes mixed-use’s fast-growing popularity is fueled by projects that most successfully combine several elements into a cohesive whole.

He was clear, his definition of mixed-use incorporates three or more components into a live, work and play environment that creates a high-density hub.

Wagman says, “Two uses is “multi-use, not mixed-use.”

Are multi-use and mixed-use actually different? Or can the terms be used interchangeably? Are they in fact being used interchangeably when it might make more sense to preserve a distinction?

New D.C. development on H Street, N.E.

2007-02-16T10:58:00.000-05:00

The interesting blog DCmud, http://dcmud.blogspot.com/, reported earlier this month:

"On February 6, the DC Board of Zoning Adjustment unanimously approved plans submitted by H Street Ventures LLC to build a mixed-use development at 601-645 H Street, NE.

H Street Ventures wants to turn this stretch of block into a 312,000-square-foot residential, retail and office complex valued at nearly $150 million. According to documents filed with the Board, the developer is hoping to build 240 residential units (no decision yet whether condos or rentals), with 13,000 square feet of retail space and 180,000 square feet of office space."

The blog points out that the project had faced much community opposition after it was proposed almost a year ago. The main issue concerned the nine-story building planned to be built in between two existing buildings. There was concern about the height and scale of the building compared with the rest of the block.

The developer subsequently worked with neighborhood associations and advisory neighborhood commissions to reach consensus on a reconfigured, more pleasing scale for the building, Throughout the negotiations, groups including the Stanton Park Neighborhood Association and the Near Northeast and Northeast Capitol Hill advisory neighborhood commissions emphasized the importance of adhering to the H Street Overlay, which provides master planning and development guidelines for the corridor. This is the first project under the newly adopted guidelines.

Construction is expected to start later in 2007, with completion in 2009. This is a good example of how a fairly large mixed-use project can address neighborhood activists' concerns and proceed on time.

Development near new ballpark is on its way

2007-02-15T17:00:00.000-05:00

After more than a decade, a mixed-use development across the street from D.C.'s new baseball stadium is almost ready to go up. The 5.8-acre site will house four buildings with a total of 1.1 million square feet of space, including retail, apartments, offices, and a 235-room hotel. The location is planned as a destination for baseball fans who are in the area for a Nationals game.

The developer, FRP Development of Sparks, Md., worked with the Anacostia Waterfront Corp. and with waterfront developers to deal with issues like parking, traffic, and access.

This now-bleak waterfront area of the city's Southeast quadrant, adjacent to the Anacostia River, will be completely unrecognizable in three or four years as development spreads south and east of Capitol Hill and as the new stadium goes up.

A luxury mixed-use project rises in Maryland

2007-02-14T15:16:00.000-05:00

The Washington Business Journal is reporting this week (Feb. 9-15, 2007) that Park Potomac, a $500-million luxury mixed-use community, is being built in Rockville, Md., just off I-270, in affluent Montgomery County.

The developer, Foulger-Pratt, plans to build 454 condominium units, as well as 570,000 square feet of office space, 145,000 square feet of retail, and a 156-room hotel. Those condominium units ... well, the first phase starts at $500,000 and goes up to $1.9 million per unit, and the second phase starts at $800,000 and goes beyond the $2 million mark. The idea is to market them to people whose kids have grown and who don't need their 5,000-square-foot homes any more.

A well-known suburban law firm, Shulman, Rogers, Gandal, Pordy & Ecker, has signed on as a tenant for 65,000 square feet of the office space and will move in around August 2009.

So some residents will be able to walk out of their apartment, do their shopping, and consult their attorney -- all without leaving the complex.

Eastern Loudoun County will get major mixed use project by 2018

2007-02-13T17:26:00.000-05:00

On Jan. 16, the Loudoun County Board of Supervisors approved a zoning application for One Loudoun, a large proposed mixed-use development in eastern Loudoun County, 30 miles from Washington, D.C., and three miles from Dulles International Airport. The project would take a decade to complete -- it won't be finished till 2018 -- and will include 1,040 housing units, 700,000 square feet of retail space, and 3 million square feet of office space.

This ambitious project, a joint venture of developers Miller and Smith and The Meridian Group, did attract some controversy. Two members of the board voted no, on the grounds that the new project would take business away from Dulles Town Center, which was opened in 1999. (See my Feb. 5, 2007, posting.)

One Loudoun has been formally recognized by the Smart Growth Alliance of the Washington, D.C., area, as a "Smart Growth" project.

Treehuggers and mixed use

2007-02-12T08:21:00.000-05:00

The Treehugger Web magazine, www.treehugger.com, whose name accurately reflects its writers' concern with the environment, sustainable living, and green construction, wrote on Saturday, February 10, 2007, about a new "green" mixed-use project that will open in downtown Chapel Hill, N.C., in 2009.

The Greenbridge project, designed by "eco-architect" William McDonough, will incorporate
solar energy, rain water harvesting, living roofs and many other environmentally friendly features, according to the magazine. The developers claim it will be the first LEED Gold certified mixed-use development in North Carolina.

According to an article last fall in the Chapel Hill News, however, not all residents are happy with the prospective nine-story structure. Despite all of its "green" features, they think it may be too large for its surroundings.

"Any building can be a beautiful addition, can be well designed and can be an asset to the community," Catherine Frank, executive director of The Preservation Society of Chapel Hill told the newspaper reporter. "But I also believe an incredibly important part of what creates the atmosphere of our downtown is its human scale, and I'm afraid that as we start to lose that human scale, we will be Anytown, U.S.A."

Again, it is interesting that different people have different perspectives on growth. One person's environmentally friendly building can be another person's eyesore.

Atlantic Yards: An opponent's view

2007-02-11T09:02:00.000-05:00

The Feb. 5, 2007, issue of Multi-Housing News has an op-ed by Daniel Goldstein, the lead plaintiff in a major federal court case against Atlantic Yards, the huge mixed-use project planned for Brooklyn, N.Y. Goldstein is also the spokesperson for Develop Don't Destroy Brooklyn, which leads the opposition to Atlantic Yards.

The 8-million-square-foot project would include a 20,000-seat basketball arena and 16 high-rise towers. Real estate attorneys, advocates of mixed use, followers of the Supreme Court's 2005 Kelo decision on eminent domain, and community activists nationwide will want to follow the case, which was filed in the Eastern District of New York in October 2006.

Goldstein argues that the approval process for Atlantic Yards circumvented the normal legal steps that constitute "democratic oversight" and that developer Bruce Ratner essentially received a rubber stamp from city and state government.

Goldstein says that the Achilles' heel of the project is the fact that eminent domain will be required to make it happen. He says that although the Kelo case allowed eminent domain to be used for economic development -- in the Supreme Court's view a "public use" -- there are exceptions set forth in Justice Kennedy's 5-4 majority opinion.

The new urbanism and the tragedy of New Orleans

2007-02-09T11:30:00.000-05:00

The current issue of The American Prospect, a liberal policy-oriented magazine, has an article by Kellie Lunney, a D.C.-based reporter for National Journal here in D.C., about post-Katrina New Orleans and the question of rebuilding much of the city along "green" lines.

Lunney, who covers housing and urban redevelopment issues for National Journal with considerable flair and in-depth knowledge, makes a point about "the new urbanism" that I had never seen before. (I spent a week in New Orleans last summer as part of a pro bono project undertaken by the law firm I work for, Womble Carlyle Sandridge & Rice, and I toured many devastated areas and read a good deal about the hurricane's effects.)

Here is Lunney's interesting contention:

"Pre-Katrina New Orleans was already a kind of new urbanist city for the working poor. It had relatively high density, affordable prices, one of the nation's best ratios of income to housing costs, and an above-average rate of homeownership among African Americans, as well as fine parks and a decent system of public transportation -- the key elements of the new-urban formula. Indeed, as the nation witnessed the tragedy of people trapped in the flooding city, one big reason why more residents could not get out was that nearly 35 percent of black households owned no cars, and relied instead on buses and trolleys."

She also points out that "it's more than a little ironic that a diffuse army of planners is seeing New Orleans as an opportunity to promote sustainable development, at a time when more than two-thirds of the city's onetime residents are more concerned about having an affordable roof over their heads -- one that will not blow away in the next big storm. To most locals,
'sustainable' has more to do with making sure the levees hold than with energy-efficient buildings or a new urbanism."

The article can be found at http://www.prospect.org/web/page.ww?section=root&name=ViewPrint&articleId=12328.