Rocky Mountain Real Estate Law

Rocky Mountain Real Estate Law

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

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.

Supreme Court Will Review Sign Case With Significant Consequences for Governments, Businesses

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

The U.S. Supreme Court has granted a petition for certiorari review in a case with significant practical ramifications regarding the validity of many local sign and advertising regulations, and the ability of businesses, artists and others to freely post outdoor signage.  In Reed v. Town of Gilbert, the Court will be asked to determine whether the Town of Gilbert, Arizona’s sign code meets the constitutional requirement of “content neutrality” under the First Amendment Free Speech Clause.  In doing so, the Court has the opportunity to clear up a division between federal appeals courts regarding the concept of content neutrality.

In 1972, the Court articulated the requirement that regulations of speech be content neutral, saying in Chicago Department of Police v. Mosley, “government has no power to restrict expression because of its message, its ideas, its subject matter, or its content.”  While the First Amendment always disallowed government regulations that gave preference to, say, one side of a political debate over another, the Court’s pronouncement meant that the government could not prefer, say, political debate over religious expression.  Since that time, the federal courts have applied the doctrine of content neutrality in striking down hundreds of local governments’ sign codes that distinguish signs based on their message.

Sign codes’ constitutional validity carries practical consequences for billboard advertisers, business owners, artists, and residents placing everything from political signs to real estate signs and holiday lights.  All of these groups rely on outdoor signage to convey important messages, and sign codes typically impose restrictions on the display of such messages.

At issue in Reed, Gilbert’s sign code distinguishes among a variety of categories of signs.  The Gilbert code provides different regulations for “political signs,” “ideological signs,” qualifying event signs,” “real estate signs,” and others.  Pastor Clyde Reed and Good News Community Church placed temporary signs in street right-of-ways advertising religious services, but Gilbert enforced its sign code against the church’s temporary signs.  The church filed a challenge to the Gilbert sign code.  The Town’s sign code was upheld on summary judgment by the federal district court, and the Ninth Circuit Court of Appeals affirmed.

The Supreme Court’s determination in this case will resolve a split among the federal appeals courts by clarifying the content neutrality concept.  Some federal appeals courts have held sign codes content neutral only if the code can be enforced without any regard to the text or images on a sign’s face, while other courts have permitted some category-based or “context-sensitive” distinctions—like Gilbert’s—among signs.  Potentially at risk are thousands of local governments’ sign codes that rely on category-based distinctions in order to regulate signage.

As of this writing, oral arguments before the Court have not been set.  Business owners, political groups, interested citizens, local governments, and anyone with an interest in outdoor signage or advertising should stay posted for what will likely be an impactful decision.

Denver Announces Transit-Oriented Development Strategic Plan

Posted in Commercial Real Estate, Land Use, Multi-Unit Housing, Parking Issues, Real Estate Development, Real Property, Residential, Retail & Industrial

The City of Denver has released a comprehensive Transit-Oriented Development (TOD) Strategic Plan.  The Plan, which pulls together a variety of City policies and programs and replaces a 2006 TOD Strategic Plan, is intended to provide guidance to three key groups:

- Developers and builders, who can use the Plan to “get information on the City’s TOD focus areas, identify properties for new development, and take advantage of City investments in station areas.”

- Public employees, who are encouraged to use the Plan to “establish a city-wide TOD implementation work program, direct city funds efficiently to the most opportunistic areas, determine the projects that offer the maximum return on public investment, and pursue funding for key infrastructure projects.”

- Residents and business owners in transit station areas, who can use the Plan “as a guide for making real estate decisions, renovating property, or opening a store.”

This article on the Confluence Denver website tells more about the Plan, and the Plan itself can be found here.

Court Order Creating a Special District Cannot Be Overturned Even in the Case of Fraud

Posted in Appellate, Special Districts

In the recent decision Marin Metropolitan District v. Landmark Towers Association, the Colorado Court of Appeals held that an order creating a metropolitan district, once entered, cannot be challenged even if the organizers of the metropolitan district made misrepresentations to the municipal authorities and/or committed a fraud upon the court.  This case relates to the Marin Metropolitan District, which was created in 2007.  Included within the boundaries of the District are the Landmark and Meridian towers, located near I-25 and East Belleview Avenue, as well as some other property in the area.  In 2008, the District issued approximately $30 million in bonds, which were to be repaid through revenue generated from a mill levy (i.e., a property tax) imposed on property within the District’s boundaries.  The Landmark Towers Association is the HOA representing owners of condominium units in the Landmark and Meridian towers, who objected to the imposition of a mill levy to repay the bonds.  The recent Court of Appeals decision stemmed from the HOA’s effort to invalidate the creation of the District, which would have also had the effect of relieving the property owners of the responsibility of paying the mill levy debt service for the bonds.

A developer that seeks to create a special metropolitan district must go through the statutory process set forth at C.R.S. § 32-1-101, et seq.  This involves, among other things, submitting plans to counties and/or municipalities, holding public hearings, obtaining signatures from taxpayers within the proposed district’s boundaries, filing a petition for organization with the district court, providing various notices, and holding an election.

In this case Landmark Towers HOA sought to invalidate the creation of the Meridian Metropolitan District by alleging that the organizers failed to (1) provide notices as required by the statute; (2) have a sufficient number of taxpaying electors sign the organizational petition; and (3) have a proper election.  After holding a three-day evidentiary hearing, the trial court agreed with the HOA that a fraud likely occurred and that the District was never properly approved by the required number of taxpaying electors.  Nevertheless, the trial court dismissed the lawsuit based on the statutory bar found in C.R.S. 32-1-305(7), which provides:

If an order is entered declaring the special district organized, such order shall be deemed final, and no appeal or other remedy shall lie therefrom. The entry of such order shall finally and conclusively establish the regular organization of the special district against all persons except the state of Colorado in an action in the nature of quo warranto commenced by the attorney general within thirty-five days after entry of such order declaring such special district organized and not otherwise. The organization of said special district shall not be directly or collaterally questioned in any suit, action, or proceeding except as expressly authorized in this subsection (7).

The Colorado Court of Appeals agreed with the trial court’s interpretation of this statutory provision and concluded that the statute bars all claims seeking to attack the formation of a special metropolitan district.  The Court relied, in part, on the public policy argument that there is a strong need to have certainty “in view of the need for accelerating contract negotiations and the taking of other action looking to accomplish the purposes of the district, free of the fear of subsequent attack of the district’s legal existence.”  This could be seen as an important ruling for developers throughout Colorado, many of whom rely heavily on special district financing.

It should be noted that this case is distinct from another pending case that relates to the Marin Metropolitan District and the Landmark Towers HOA, though the two are related.  In Landmark Towers Association, Inc., et al. v. UMB Bank, N.A., et al., Arapahoe County District Court Case No. 11CV1076, the District Court ordered that the Marin Metropolitan District could not assess taxes against the Landmark Towers property to pay roughly $30 million in general obligation bonds, and had to refund certain taxes already paid.  While the trial court order on those issues was appealed, the appeal was dismissed by the Colorado Court of Appeals as premature, and the case remains pending before the trial court.

Traffic on I-70 West of Denver: Only Incremental Changes, But They May Help

Posted in Land Use, Real Estate Development, Resorts, Uncategorized

TrafficColorado Department of Transportation (“CDOT”) Executive Director Don Hunt was recently interviewed on Colorado Public Radio’s Colorado Matters by Ryan Warner.  Hunt discussed the latest plans for the I-70 corridor west of Denver. Convenient travel to the mountains is a major benefit to living in the Front Range, but as traffic worsens, the value of this benefit is impaired.

Hunt indicated that there was no one major fix for the traffic congestion on I-70 west of Denver that was feasible at this time.  Instead, CDOT will be implementing a series of more limited changes to mollify the negative aspects of the traffic on this stretch of I-70.

One of the new projects is a “peak period shoulder lane” on the inside or left shoulder that will add an additional traffic lane to east boundI-70during peak traffic.  This will be implemented initially between the intersection of U.S. 40 and I-70 (the so-called Empire Junction), at the west end, and Floyd Hill, at the east end.  The plan is to impose tolls to use this lane, but with those tolls, the speeds in the shoulder lane may be significantly higher.  This lane is expected to open in 2015 and is projected to save 30 minutes of travel time during peak periods.

Hunt stated that this shoulder lane could also serve as a high speed lane for buses.  Buses could be more beneficial than a train system because buses can go directly to ski area and other mountain destinations without “forcing” a transfer in Summit County.

Neither the “Advanced Guideway System” or a private firm’s recent proposal would be financially feasible, Hunt said.  The private firm’s proposal included multiple toll lanes and a third tunnel bore of the Eisenhower-Johnson Memorial Tunnel near Loveland Pass.

Without a major breakthrough, CDOT is left to continue to make modest changes to I-70.  These changes are likely to be an improvement, but the traffic on I-70, and the steps CDOT takes to address it, will continue to be a sensitive issue for ski areas and other mountain communities west of Denver.