Rocky Mountain Real Estate Law

Rocky Mountain Real Estate Law

Development, Financing and Other Property News from Colorado's Leading Real Estate Law Firm

Update – Construction Defect and Affordable Housing Legislation in Colorado

Posted in Commercial Real Estate, HOA & CCIOA, Housing, Litigation, Multi-Unit Housing, Real Estate Development, Real Property, Residential, Uncategorized

Both sides of the political aisle have expressed interest in legislation to promote affordable housing and to correct what many believe is a problem with Colorado’s construction defects law that is preventing construction of condominiums in the Denver metro area.  One option currently under consideration is Senate Bill 15-177.

As reported here by The Colorado Statesman, whether SB 177 gets to a vote this session remains unclear.  There is some indication that Speaker of the House Dickey Lee Hullinghorst, and other House Democrats including Representative Max Tyler (D-Lakewood) as reported here by the Denver Business Journal, may soon propose alternative bills.

We are among the many who are curious to see the details of what Speaker Hullinghorst and other House Democrats propose.

As U.S. Supreme Court Decides One Sign Case, Cert Petition Gets Filed In Another

Posted in Appellate, Eminent Domain, Land Use, Litigation, Real Property, Zoning

As the outcome of Reed v. Town of Gilbert hangs in the balance, another case challenging a local sign code has been filed with the Supreme Court. This week, the plaintiff in Central Radio Company, Inc. v. City of Norfolk filed a petition for writ of certiorari seeking review of the Fourth Circuit Court of Appeals’ January decision upholding the City of Norfolk, Virginia’s sign regulations against a First Amendment challenge.

The history of Central Radio began in 1998, when Norfolk approved a redevelopment plan allowing for a taking by eminent domain of Central Radio Company’s property as part of an Old Dominion University campus expansion and redevelopment plan. In response to the city’s action and a Virginia state court ruling allowing the city to proceed with its plans, in 2012, the property owners placed a 375 square-foot protest banner on the building which was the subject of the eminent domain proceeding. Because the banner was placed without a permit and exceeded the size limits applicable to temporary signs, the city took enforcement action against Central Radio Company. The trial court denied the plaintiff’s motion for summary judgment, and the Fourth Circuit affirmed. During the course of the proceedings on the plaintiff’s First Amendment action, in 2013, the Virginia Supreme Court found that the city was barred from taking Central Radio Company’s property.

Much like the Gilbert, Arizona sign code in Reed, the Norfolk code regulates signs based upon categories of speech. Category-based regulation of speech is the subject of a federal circuit split that is expected to be resolved by the Reed decision, which will likely be released in June. In upholding the Norfolk sign code, the Fourth Circuit opinion in Central Radio applied logic similar to the Ninth Circuit’s challenged Reed decision. The Central Radio cert petition requests that the Supreme Court require the Fourth Circuit to revisit its decision following the release of the Reed opinion, or in the event that the split goes unresolved following Reed, to resolve the circuit split in favor of the plaintiff. No brief in opposition to the petition has been filed by the City of Norfolk.

Colorado Senate Committee, Mayor Hancock, Support Senate Bill 177

Posted in HOA & CCIOA, Housing, Legislation, Real Estate Development, Residential

The reform of Colorado’s construction-defect law took an important step when the Senate Business, Labor and Technology Committee passed Senate Bill 177 (“SB-177”) on a 6-2 vote.

Prior to voting on SB-177, the Committee heard nearly eight hours of testimony, most notably from Denver Mayor Michael Hancock, who testified in favor of SB-177. Many attribute the historically low rate of condo construction in Colorado—a mere 3% of housing starts today vis-à-vis more than 20% in 2005—to Colorado’s current construction-defect law regime. Count Mayor Hancock among them. He testified that multi-family construction has been curtailed because of developers’ fears of construction-defect litigation and that Colorado’s current law operates as an “artificial barrier to for-sale multi-family housing being built in Denver.” SB-177’s main purpose is “to try and get homeowners and builders to achieve resolution in a dispute before it falls too deeply into the legal system.”

One consequence of the lack of multi-family construction is a shortage of more affordable housing options in Colorado. Mayor Hancock is acutely aware of this issue, stating that “any vibrant, successful city will depend on a true mix of housing types to accommodate the needs of various populations. This includes attainably priced for-sale, multifamily homes that appeal to our growing population of young Millennials, first-time home buyers and older residents looking to downsize their homes.” According to Mayor Hancock, the dearth of multi-family housing options is “pushing our city into a high-cost category and beginning to price out too many of our hard-working residents.”

But the problem goes beyond housing for Mayor Hancock. In his view, by limiting housing options, Colorado’s construction-defect law is also undermining a number of Denver’s goals, including promoting multi-modal transportation options, encouraging density and environmental sustainability, offering a mix of retail uses and diversity of housing types; and connecting residents with opportunities for jobs, healthcare and education. Mayor Hancock believes SB-177 will help increase housing options and advance these goals because it “offers a substantive solution to a pressing impediment to construction of for-sale affordable multifamily housing. It offers a substantive solution to help keep Denver a city of opportunity for all.”

SB-177 now moves to the full Senate. SB-177 is sponsored by Rep. Mark Scheffel, R-Parker, Sen. Jessie Ulibarri, D-Westminster, Rep. Brian DelGrosso, R-Loveland and Rep. Jonathan Singer, D-Longmont.

Real Estate Crowdfunding Making its Way to Colorado

Posted in Commercial Real Estate, Real Estate Development, Real Estate Finance, Uncategorized

Until recently, crowdfunding was thought to apply only to startup tech companies seeking alternative financing sources to launch their business or develop a product. Crowdfunding was not something used to fund real estate development projects. That all changed with Fundrise, which is a company that uses crowdfunding to source equity investments for real estate development. By using crowdfunding, Fundrise gives individuals the ability to invest directly in real estate projects, which is an opportunity they might not otherwise have. Fundrise also makes investments more efficient by eliminating various middlemen and associated fees. Fundrise has funded dozens of multi-million dollar developments around the country including 3 World Trade Center and, most recently, a $15 million dollar project at Larimer and 35th Street in RiNo. Crowdfunding at first disrupted the way entrepreneurs launched their businesses. Now, it seems to be disrupting traditional real estate finance.

The CU Real Estate Annual Forum, held on March 11, 2015, highlighted Fundrise along with two other innovative real estate technology companies: Pivot Desk and Hightower. Pivotdesk seeks to match those with extra space with those in need of such space on short term basis on much more flexible terms than a typical sublease. Hightower helps owners aggregate and display leasing data in real time. These companies indicate a trend of disruption within the real estate industry – changing the rules and potentially displacing competitors.

Millennials and the Rent/Buy Decision: Are Construction Defect Laws a Factor?

Posted in HOA & CCIOA, Housing, Legislation, Multi-Unit Housing, Real Estate Development, Residential

As we’ve written in the past, Millennials have played a significant role in the revival of Denver’s economy. As increasing rent payments threaten to exceed monthly mortgage payments, however, Denver’s popularity among Millennials may diminish. Although worsening affordability has not discouraged Millennials’ interest in living in Denver thus far, as Millennials age and begin to consider homeownership, some believe a supply of more affordable homeownership options may be necessary for their retention.

Condominiums, which often serve as a key transition into homeownership for first-time buyers, are being built at a much lower rate than in years past.  Although a few condominium projects in the Denver metro area are underway (see here and here), the price point may be beyond what Millennial buyers are able to afford and in any case, the number of units remains low.

Some cite the inability to qualify for financing and low demand as the reasons for the decreased number of condominium projects. Others, including Denver’s Mayor Hancock, credit the chill on condominium construction to Colorado’s construction defect laws, which they say have resulted in increased insurance costs that make condominium development economically infeasible. Apartments, which are not subdivided into individually-owned units, are not subject to laws governing common interest communities that have resulted in increased liability exposure for condominium developers. A 2013 report quantified the difference, finding that insurance costs associated with condominium projects are 2 to 3 times greater than those associated with apartment developments. Based on this finding, it makes sense that some developers otherwise interested in condominiums elect to build apartment projects instead. .

A bill introduced in February aims to revise the current construction defect laws applicable to condominiums. Senate Bill 15-177 would amend Colorado’s Common Interest Ownership Act, C.R.S. § 38-33.3-101 et seq., as follows:

  • Encourage alternative dispute resolution of construction defect claims by requiring a homeowners’ association to mediate the claim and by limiting the ability of homeowners’ associations to unilaterally amend the declaration applicable to their community to remove a commitment to resolve construction defect claims by mediation or arbitration.
  • Require homeowners’ associations to inform their members of, among other things, the projected cost and duration of a construction defect claim and the effect that the claim could have on the value and marketability of their condos (both those subject to the claim and those not subject to the claim).
  • Require a majority of unit owners to vote to file a class-action lawsuit, rather than just a majority of homeowners’ association members (the current requirement).

In attempting to reform its construction defect laws, Colorado joins a number of other states concerned about the overall reduction in the number of condominium projects in their respective states. Senator Jessie Ulibarri, a Millennial and co-sponsor of Senate Bill 15-177, hopes that reform will mean that members of his generation who have been driven into Denver’s expensive rental market will be able to buy a home. Whether Millennials are truly interested in homeownership and are economically positioned to become homeowners remain questions to be answered.

Recent Leases Indicate Diversified Economy in Downtown Denver

Posted in Commercial Real Estate, Leasing, Real Estate Development

Denver.

 

 

 

 

 

 

 

 

 

 

Recent Leases Indicate Diversified Economy in Downtown Denver

After a period of strong leasing activity by oil and gas firms in downtown Denver, the falling price of oil may have raised concerns that the office market would be negatively affected. However, two recent office leases support the conclusion of some experts that Denver is the top real estate market in the country. Cable giant Liberty Global leased three floors, consisting of over 70,000 square feet in the Triangle Building in Lower Downtown. In addition, financial services company Transamerica has leased over 120,000 square feet at 1801 California. These two major leases show that oil and gas is not the only game in town for the downtown office market. Hopefully, this will make Denver’s economy more robust even if there are further downturns in the price of oil.

Denver’s Urban Rebound – Should we thank the Millennials?

Posted in Commercial Real Estate, Multi-Unit Housing, Real Estate Development, Real Property

Last fall we reported that it appears that Denver’s steady growth in recent years will continue in 2015 based on an emerging trends report issued by Urban Land Institute and PwC.  As we move forward in 2015, the statistics in support of this growth are reported on an almost daily basis.  Here’s a snapshot of some of those statistics:

While these statistics certainly present a bright economic future for Denver and Colorado, what’s interesting about them is the underlying focus on what is causing this growth, particularly in Denver’s urban core.  Many experts attribute the growth in Denver’s urban core (and in other cities across the country) to the Millennial generation that desires to live, work and play in an urban setting, in stark contrast to the suburban lifestyle in which much of the generation grew up.  The Millennial generation also continues to face the realities of the housing meltdown and continues to rent because they can’t qualify for a mortgage or afford to purchase a home – resulting in pressure on the urban rental market and increased rent.  And, as this generation populates city centers, companies are following, driven by decisions focused on recruiting the talent that wants to live and work in the urban core.

Another interesting side effect of the Millennial move to the urban core is a decrease in car ownership in Denver.  A study by the Colorado Public Interest Research Group reported that the Denver metro area experienced a 10.6% decrease in vehicle-miles traveled per capita from 2006 to 2011, a 13.5% increase in miles traveled on public transportation from 2005 to 2010 and a 23% decrease in miles driven by Millennials from 2001 to 2009.  The Millennial generation certainly isn’t the only explanation for the rebound in Denver’s urban core and experts also attribute the rebound to a societal shift focusing on the restoration of the urban form of the early twentieth century.  The website www.denverinfill.com/blog provides a fascinating graphic of nearly all of the infill projects in Denver’s urban core over the last 15 years.

Oral Arguments Heard (Finally) In U.S. Supreme Court Disparate Impact Case

Posted in Appellate, Housing, Land Use, Litigation, Multi-Unit Housing, Real Estate Development, Real Estate Finance, Residential, Tax, Zoning

When resolving the question of whether disparate impact is a proper theory on which to bring a Federal Fair Housing Act (FHA) claim, the third time may be the charm.  Last year, we reported on Township of Mount Holly v. Mount Holly Gardens Citizens in Action, which was the second Supreme Court case in two years raising the question of whether disparate impact should be recognized under the FHA.  That case, like Magner v. Gallagher in 2012, was settled out of court and never got to oral argument.  The Supreme Court finally got a bite at the disparate impact apple on January 21 of this year, when it heard oral argument in the case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

“Disparate impact,” when used in the context of civil rights litigation, means that a neutral policy or action, whether public or private, has a differential effect on at least one protected group as compared with others.  As we described last year,

The FHA prohibits discrimination among and against certain “protected classes,” including race, religion, sex, national origin, familial status, or disability.  All eleven federal courts of appeals have determined that FHA violations can occur by facial or intentional discrimination, or by policies or actions which—although facially neutral as to protected classes—may negatively affect [a] protected class.  The dispute over the availability of disparate impact analysis in FHA claims arises because of language differences between the FHA and other civil rights laws which more clearly permit disparate impact analysis.

The subject of Inclusive Communities is the Federal Low Income Housing Tax Credit program.  These tax credits are made available through state agencies to developers of affordable housing.  Each state is responsible for determining how the limited supply of tax credits is to be allocated among affordable housing projects.  The Texas Department of Housing and Community Affairs (TDHCA) applies an eleven-factor test, which looks at items such as income levels and the financial feasibility of the project, to make this determination.  The Inclusive Communities Project’s mission is to encourage the integration of affluent, white suburban neighborhoods through placement of low-income residents in affordable housing projects in the Dallas suburbs.  Asserting that the eleven-factor test encouraged the location of affordable housing in low-income and predominantly minority areas, ICP filed suit against TDHCA on a disparate impact theory.  ICP believed that the method for allocating tax credits had differentially impacted minority residents’ ability to freely obtain housing in white areas and increased racial concentrations in low-income areas.  The district court and the Fifth Circuit Court of Appeals found in ICP’s favor.

In the subsequent petition for writ of certiorari, the Supreme Court was asked to answer two questions: is disparate impact cognizable under the FHA?  And if disparate impact is available, what is the proper standard of review in disparate impact cases?  As we noted last year, “[f]air housing advocates, including the Obama administration, have sought to prevent the FHA disparate impact issue from reaching the Supreme Court due to predictions that the Court’s conservative majority would treat disparate impact review unfavorably, which would also potentially affect fair lending laws.”

As usual, it is difficult to determine from oral argument how the Supreme Court will decide the case.  However some observers have noted with surprise that Justice Scalia was at times hostile toward the anti-disparate impact position, which may indicate a ray of hope for fair housing advocates.  In any event, an outcome in favor of ICP would benefit affordable housing developers and fair housing advocates, while a victory for TDHCA would put state and local governments on much stronger ground in enacting and applying facially netural land use regulations.  An opinion in the case is expected in June.

For more information on the relationship between the FHA and local zoning—particularly with respect to housing for people with disabilities—readers should check out the recent publication Group Homes: Strategies for Effective and Defensible Planning and Regulation, available from ABA.

New Year’s Resolutions for Denver Real Estate

Posted in Commercial Real Estate, HOA & CCIOA, Housing, Interstate Land Sales Full Disclosure Act, Legislation, Multi-Unit Housing, Real Estate Development, Real Property

The Denver real estate market has experienced steady growth in the last couple of years, but will it continue into the new year?

It appears so, according to an emerging trends report released by Urban Land Institute and PwC.  The report ranked Denver in the top five real estate markets in the United States based on three broad categories of investment, development and homebuilding.  Only three cities ranked higher than Denver—Houston, Austin and San Francisco.  On account of the significant growth of the millennial population, industry exposure to the technology and energy industries and a strong overall economy, the report predicts that Denver will continue to be a sustainable real estate market.

Notwithstanding the optimistic predictions for 2015, Colorado seems to have some New Year’s resolutions in mind.  Here are some things to watch:

  •  Despite the demand for owner‑occupied, multi‑family housing, condominium development in Colorado has been at a near standstill.  This is largely due to fear of litigation under Colorado’s existing construction defect law.  In 2015, a legislative bill will likely be introduced again to address the existing problems.  Reform may encourage new condominium development in Colorado.
  • In September 2014, the Interstate Land Sales Full Disclosure Act (“ILSA”) was amended to exempt condominium developments from certain ILSA requirements (for more detailed information, click here.)  This amendment, which takes effect in March 2015, may also help jumpstart condominium development in Colorado.
  •  New legislation may be introduced regarding oil and gas drilling restrictions in Colorado this year.  Governor John Hickenlooper has created a 19-member oil and gas task force to provide recommendations regarding local government control of oil and gas drilling.  The recommendations are expected to be published by March 2015.  Legislative responses to the task force’s findings may ultimately have an impact on the energy industry’s long‑term investment in Colorado.

Senate Passes Bill Exempting Condos from Certain ILSA Requirements

Posted in Commercial Real Estate, Housing, Interstate Land Sales Full Disclosure Act, Legislation, Multi-Unit Housing, Real Estate Development, Real Property, Residential

Last week, the United States Senate unanimously approved an amendment to exempt condominium developments from certain provisions of the Interstate Land Sales Full Disclosure Act (“ILSA”).  The bill, which also passed unanimously through the House of Representatives last year, is now being sent to the President for his signature and will take effect 180 days thereafter. 

Congress enacted ILSA in 1968 in response to the growing number of land sellers taking advantage of unsuspecting purchasers, who purchased the land sight unseen.  Upon inspecting the land, buyers may have found their newly acquired properties to be under water, on steep slopes, or suitable only for grazing.  By the time purchasers of these properties realized they had been conned, their binding purchase agreements generally left them with inadequate remedies. 

ILSA attempted to remedy these problems by requiring sellers of non-exempt land to both file a statement of record with the government and also furnish a property report to the prospective buyer.  If the seller fails to provide the property report, the buyer may revoke the purchase agreement for two years from signing.  ILSA also contains a second prong that, in effect, makes unlawful any sale, lease, or offer that constitutes a fraud, or intent to defraud, on the purchaser. 

During the recent economic downturn, condominium buyers used ILSA to revoke their purchase agreements, sometimes even after closing, when developers either failed to comply with ILSA’s onerous registration requirements or mistakenly believed the development fell under one of ILSA’s complicated exemptions.  ILSA became a tool for savvy consumers to use in playing the market, giving them the right to revoke purchase agreements that became economically disadvantageous.

The proposed amendment to ILSA will clarify and expand the exemptions available to condominium developers by:

- exempting all condominium developments, regardless of size, from the registration and disclosure provisions, but not the anti-fraud provisions (unless they meet some other exemption);

- exempting all condominium developments from both the seven-day revocation period for all buyers and the two-year revocation period that arises from the seller’s failure to provide a property report; and

- requiring that the condominium unit purchased be an improved lot under the act, that is, physically habitable with the necessary utilities connected, but no longer requiring the rest of the development to be completed at the time of purchase.