Rocky Mountain Real Estate Law

Rocky Mountain Real Estate Law

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

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.

 

 

Colorado Legislature Considering Construction Defect Litigation Reform

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

Senator Ulibarri’s Homeownership Opportunity Act (SB 14-220) was finally introduced Wednesday evening.   This much anticipated bill represents a moderate compromise with bipartisan support to address construction defect litigation in condominium projects.  As has been widely reported in the media, there are very few condominiums being constructed in Colorado, an issue that has the metro area mayors and other leaders concerned.   According to many experts, the primary contributing factor is the pervasive nature of construction defect litigation aimed at Colorado’s condominium projects.   The bill covers two topics related to construction defect litigation – alternative dispute resolution and meaningful disclosure followed by owner consent.

Alternative Dispute Resolution

The Colorado Common Interest Ownership Act (CCIOA) governs the creation and operation of condominium communities in Colorado.  CCIOA encourages the use of alternative dispute resolution such as mediation and arbitration in a variety of places, and CCIOA Section 124  specifically provides that the governing documents for a project may specify situations that must be submitted to binding arbitration.   Consistent with CCIOA’s current provisions, Senator Ulibarri’s bill provides that if the governing documents require that construction defect actions be submitted to mediation or binding arbitration, the developer is entitled to rely on those provisions.  And, therefore, per SB 14-220, if there are allegations of construction defects, those allegations would be resolved through the process set forth in the governing documents (i.e., mediation or binding arbitration), unless those responsible for construction consented to a different process.

The bill also requires

- potential arbitrators make disclosures about potential conflicts of interest and be neutral parties

-all buyers of units in these projects be notified in their sales contracts that the governing documents may require certain disputes be resolved by binding arbitration.

- the arbitration be held in the same judicial district where the project is located, unless the parties agree otherwise.

This bill represents a more thorough implementation of CCIOA’s existing provision allowing the use of binding arbitration, while putting in safeguards for the owners to help ensure that they are aware of any requirement for binding arbitration and the arbitration is not stacked against them by the use of an inconvenient location or arbitrators who have inherent conflicts of interest.

Senator Ulibarri’s bill does not represent a novel approach on this issue.  In a recent decision, the California Supreme Court held that if the governing documents for a condominium project require construction defect claims be resolved in binding arbitration, that requirement will still apply even if an owners association amends the governing documents to remove the binding arbitration requirement.

Meaningful Disclosure & Owner Consent

The second point in SB 14-220 is also CCIOA-based.  CCIOA currently allows an owners association, acting through its board of directors, to initiate construction defect litigation.   In many instances, there are only three members on an HOA’s board of directors.  This means that two owners can commence construction defect litigation for an entire condominium project.   And, as this recent Colorado Court of Appeals case illustrates, owners are often unable to sell their units or refinance, while having no say in whether or not the owners association goes down this path.  While CCIOA puts most decisions for a condominium project in the hands of the HOA board, there are a few things that are viewed as so significant that all owners should have an opportunity to weigh in on them.   Amending the governing documents, adoption of budgets and levy of assessments are examples of the big decisions that require an owner vote.

This bill requires that a thorough written disclosure be made to all owners detailing the nature of the potential claims, the expected duration of the litigation, the estimated costs associated with the litigation, the impact on the ability of owners to refinance and/or sell their units both during and after the litigation, the manner in which the owners association anticipates funding the cost of litigation (including any special assessments or use of reserves), and the likelihood of success.   After making such a written disclosure, an owners association is required to obtain the written consent of owners holding at least a majority of the votes.

This bill promotes transparency to all owners within a condominium project on issues surrounding construction defect litigation and ensures that the very kind of dispute resolution procedures that the legislature has endorsed in CCIOA already aren’t taken off the table.

The “Silver Tsunami” and Real Estate

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

You may not know it, but, as the Denver Post detailed in a recent article, the “Silver Tsunami” has reached the United States, including Colorado.  While the impact thus far has been gentle, when its full magnitude arrives, “[e]verything will be impacted,” including real estate.

The “Silver Tsunami” is the moniker demographic experts have given the aging baby boomer population, which is expected to double by 2030.  Some numbers on the tsunami.  Between 2000 and 2010, the growth of the over-65 crowd outpaced the growth of the state’s population 32% to 17%.  This had never happened before in Colorado.  And this trend is not reversing course.  Far from it:  between 2010 and 2040, Colorado’s population of baby boomers is expected to increase 160%, from 549,625 to 1.4 million. By contrast, during the same time period the state’s population will increase 57%, from 5 million to 7.9 million.  Every day across the country from now until 2030, about 10,000 baby boomers will turn 65—the age most associate with retirement.

What does this have to do with real estate? A lot.

Research suggests this population wants to age in place, and “place” is predominantly in suburbia.  This means providing housing, neighborhoods, and public and private services that allow them to do so.  In terms of housing, this manifests itself in three-foot-wide doorways and ample space in bathrooms and kitchens in case a wheelchair becomes necessary, as well as other “age in place” designs.  Affordable senior housing will also see a sharp increase in demand.  Indeed, by the beginning of 2013, senior housing was one of the top property sectors in terms of demand and investment.  Neighborhoods will need continuous systems of sidewalks at least five feet wide so older adults, including those using ambulatory aids, can go where they please.  Public transportation will need to be conveniently accessible.  To those points, transportation and affordable housing for aging populations have already been identified as the services most lacking.  The Silver Tsunami is also adding further momentum to the “retrofitting suburbia” movement, which likewise emphasizes a reduced dependence on cars, lower maintenance and cost of living, and increased social interaction.  We should also expect an increased demand for health care and assistive facilities.  Zoning codes may also need to be revisited to accommodate and cultivate the above.

Local governments likely cannot address the Silver Tsunami alone.  They are “struggling with the immensity of the issue, how broad and deep the challenges are. The topic is so big, they don’t know where to start.”  This is compounded by the fact that per-capita tax revenues to Colorado and many local governments are also expected to decline as the baby boomers move out of their peak earning years and into retirement.  This presents an opportunity for private development and investment.  For those who may be skeptical of any opportunity, one need only look just outside Denver, in Wheat Ridge, Colorado.  There, in 2012, two retail centers built in the 1950’s and 1960’s were razed and replaced with a new 88-unit senior affordable housing development that opened with a 600-person waiting list.

Highlights from the 2014 Rocky Mountain Land Use Institute Conference

Posted in Conservation Easements, Green Building, Housing, Land Use, Litigation, Multi-Unit Housing, Real Estate Development, Residential

The Rocky Mountain Land Use Institute held the 2014 installment of its annual conference at the University of Denver Sturm College of Law March 12-14. The 2014 conference, which saw a record number of registrations, was titled “Moving Beyond Recession: What’s Next?” and focused on the need to balance population and economic growth in the Mountain West with the environmental limitations of our region. In keeping with the conference’s theme, many conference participants followed the “Conservation in Metropolitan Regions” track of sessions, which focused on providing open space and environmental resources in the major population centers of the West. Attendees—who came from throughout the Rocky Mountain region and the United States—included urban planners; federal, state and local government officials; real estate developers; professors of planning, law and other disciplines; current students; and public- and private-sector land use and real estate lawyers. The Thursday morning keynote address was delivered by former Secretary of the Interior and former U.S. Senator Ken Salazar, who focused his remarks on the importance of sustainable growth and public outdoor recreational resources in the West.

Otten Johnson was a Summit sponsor of the conference, and many Otten Johnson lawyers featured prominently in the conference program. Rocky Mountain Land Use Institute Chairman and Otten Johnson shareholder Tom Ragonetti moderated the first-ever, daylong “Dynamics of the Land Use Case” seminar, an intensive training program on the fundamentals of the land use and real estate development process. As part of that seminar, Jim Johnson discussed how to assemble the right consulting team, and Tom Macdonald, Bill Kyriagis, and Brian Connolly spoke about various approaches for addressing an adverse land use decision. In the regular conference program, Tom Ragonetti facilitated a lunchtime discussion with a number of Denver-area residential developers discussing innovative approaches to homebuilding, Tom Macdonald shared his thoughts on the practical impacts of the 2013 U.S. Supreme Court decision in Koontz v. St. Johns River Water Management District, and Brian Connolly spoke on the topic of local government obligations under federal fair housing law and moderated a panel event on best practices for improving communication between the public and private sectors in the real estate development process.

 

Highlights From CREJ’s Multifamily Housing Conference and Expo

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

On March 13, the Colorado Real Estate Journal hosted its annual Multifamily Owners and Managers Conference and Expo.  The Conference assessed the present and future of Colorado’s multifamily housing market with an emphasis on the Denver metro area.  Speakers included economists, consultants, property managers, lenders, investors, and developers. They canvassed topics ranging from the demographic, political, and sociological forces driving Colorado’s multifamily market, to current market lending terms and expected investor returns and grappling with the diminished supply and rising costs of construction labor. The presenters’ general consensus is to approach the multifamily housing market in the Denver metro area with caution.  Factors supporting development include projected population and job growth, the costs of buying and owning a home in the area, Colorado’s quality of life, the redevelopment of Union Station, and Denver’s national status as a burgeoning metropolitan city.  Countervailing considerations include overbuilding, rising construction costs, tightening regulations on lending, and tapering rent increases.

A few other highlights from the conference are below:

  • Based on the numbers of building permits issued, there are roughly 20,000 new apartment units in the Denver metro pipeline. Based on a number of factors, including construction delays resulting from labor shortages, however, the number of units delivered in 2014 is expected to  fall far short of that number.
  • Prospective tenants are showing an increasing demand for distinctive amenities and community elements.  Two of the most popular are amenities for pets and bicycles, including dog parks, dog-bath stations, secured bicycle storage, and bicycle mechanic areas equipped with work stands, tools, and, in some apartment communities, a mechanic. Tenants are seeking apartments with community areas that have all the trappings of their units to augment their living spaces, be it a community lounge with multiple large flat-screen LCD televisions or a communal wine cellar.
  • While the Denver metro area garners the most attention with respect to multifamily housing, other markets in the state are also performing well and may present opportunities for development and investment. Based on rent growth and vacancy rates, the Greeley market was strong in 2013, and the average apartment rent in the Fort Collins-Loveland market rivals the Denver metro area’s average rent.
  • Developers are seeing marked increases in the cost of construction labor. Multiple developers stated that over the past 24 months, these costs have grown anywhere from 20% to 30%.