Rocky Mountain Real Estate Law

Rocky Mountain Real Estate Law

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

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%.

Location, Location, Location – Are the three rules of real estate now cliché?

Posted in Commercial Real Estate, Leasing, Multi-Unit Housing, Real Estate Development, Real Property, Residential, Retail & Industrial

The origins of the “three rules” of real estate call into question whether location should be viewed as the most important characteristic when evaluating real estate.  At the 17th Annual CU Real Estate Forum, Gunnar Branson highlighted William Safire’s research on the origins of the phrase “location, location, location.”  According to Safire’s research, the earliest record of the phrase was in a 1926 real estate classified ad in the Chicago Tribune: “Attention salesmen, sales managers: location, location, location, close to Rogers Park.”.  As Branson points out, the irony of this link between location and Rogers Park is that property values in Rogers Park are significantly lower than the surrounding neighborhoods despite its proximity to Lake Michigan and downtown Chicago.

Branson argues that the phrase “location, location, location” does not provide the complete picture and is too simple as a framework for evaluating real estate.  According to Branson, the three new rules of real estate are density, diversity and shared ownership.  This analysis certainly seems to hold true as we continue to see more and more mixed use, dense development in our cities.

 

Appeal in Forest City Case Turns on Master Developer Liability for Implied Warranties to Homeowner

Posted in Uncategorized

Last November, Otten Johnson sent out a client alert stemming from a jury verdict in Rogers v. Forest City Stapleton, Inc. and FC Stapleton II, where a Colorado homeowner won a judgment of over $700,000 from the master developer under an implied warranty of habitability claim.  This was the first time a Colorado court had allowed liability to flow back to a master developer when the developer sold a lot to a professional homebuilder.  In our alert, we mentioned that an appeal was possible. 

Forest City filed an appeal in the Rogers case on January 13, 2014, raising three questions: 

  1. Did the trial court err in ruling that the Plaintiff could assert a claim for breach of implied warranties against Forest City?
  2. Did the trial court err in instructing the jury that the Plaintiff could recover on a claim for breach of implied warranties against Forest City?
  3. Did the trial court err in finding that the Plaintiff presented sufficient evidence from which the jury could infer (1) that Forest City “placed” recycled aggregate base course in the roads around Plaintiffs’ house, or (2) that doing so was unreasonable—both of which are necessary to support Plaintiffs’ nuisance claim?

The first two questions address the same issue:  whether a master developer can be held liable to a downstream purchaser for breach of implied warranties.  While the Rogers jury said “yes,” a Colorado judge in a 2011 case sitting on virtually the same facts said “no,” setting the stage for this appeal.  The outcome of Rogers will be important to developers, homebuilders, and homeowners, as it could redraw the lines of liability between these parties for implied warranties.

Brad Schacht and Amy Hansen contributed to this blog post.

The Downtown Denver Residential Boom – January 2014 Update

Posted in Uncategorized

DenverInfill Map

Downtown Denver residents are getting new neighbors—lots of them.  The DenverInfill Blog has released an updated map of the multi-family residential projects that are recently completed, under construction or proposed within a 1.5-mile radius of 17th and Arapahoe.  By DenverInfill’s count, almost 3,000 units have been completed since January 2012, more than 4,400 units are currently under construction and almost 3,000 additional units are proposed.  If all of these projects are completed as planned, this translates to over 10,000 new residential units and $1.5 billion of residential investment in Downtown Denver.  Cup of sugar anyone?

For more information, click here.

Development-Supported Agriculture

Posted in Uncategorized

National Public Radio recently broadcast a story about a developing trend in suburban residential communities called “development-supported agriculture.”   The story highlighted two communities, one located in Fort Collins here in Colorado, Bucking Horse, and a second located outside of Atlanta, Georgia, Serenbe Farms.  These communities and approximately 200 others like them across the country focus on the demand for local agricultural products by replacing traditional community amenities such as pools and golf courses with farmland, livestock facilities and related infrastructure.  One of Otten Johnson’s clients, The Canyons, is planning to include a farm amenity in its development.  Located just south of Denver in the northern Douglas County community of Castle Pines, the Canyons’ “active, life-enriching experience” will include farming.

New Restrictions, Requirements on HOA’s Debt Collection Practices Start January 1, 2014

Posted in Uncategorized

Beginning January 1, 2014, Colorado homeowners’ associations (“HOAs”) face new requirements to collect unpaid assessments, dues, and other debts from homeowners. 

House Bill 13-1276 (“HB 13-1276”), which was approved May 28, 2013 and which amended the Colorado Common Interest Ownership Act (“CCIOA”), requires that in order for an HOA to use a debt collection agency or take legal action to collect unpaid assessments from homeowners, the HOA must adopt and adhere to a written debt collections policy.  This policy must contain certain provisions, including that before an HOA can submit a homeowner’s delinquent account to a collection agency or refer it to an attorney for legal action, the HOA is obligated to send the homeowner a notice of delinquency delineating specific information. 

CCIOA will also require two things before an HOA can foreclose on a lien.  First, the balance of assessments and charges secured by the lien must equal at least six months of common expense assessments based on a periodic budget adopted by the HOA. Second, the HOA board must formally resolve to file a legal action against the specific unit owner on an individual basis.

As for collecting the debt, the HOA must make a good faith effort to coordinate with the unit owner to set up a payment plan that meets the statutory prescriptions of C.R.S. § 38-33.3-316.3.  Among other things, such a plan must allow a unit owner to pay off the debt in equal installments over at least six months.  Importantly, however, an HOA will not be precluded from pursuing legal action against a unit owner if the unit owner defaults under the payment plan. Additionally, the HOA does not need to negotiate another payment plan with a unit owner who has previously entered into a payment plan under the statute.

U.S. Supreme Court Fair Housing Act Case Settles, Disparate Impact Stays Put For Now

Posted in Housing, Uncategorized, Zoning

For the second time in two years, a negotiated settlement will prevent the U.S. Supreme Court from deciding the validity of disparate impact claims under the Federal Fair Housing Act.  The governing body of Mount Holly Township, New Jersey, voted November 13 to approve an out-of-court settlement in the case of Township of Mount Holly v. Mount Holly Gardens Citizens in Action.  The settlement ensures that, for the time being, disparate impact claims remain cognizable under the FHA.

Mount Holly, previously set for oral argument on December 4, was to decide whether the FHA could be violated by neutral policies or actions—including those of private landowners as well as local government regulations—impacting certain groups more than others.  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 protected classes.  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 Mount Holly settlement means that disparate impact claims will remain available to plaintiffs under the FHA.  Private landowners and local governments should therefore remain vigilant about maintaining rules, ordinances, or policies that differentially impact certain racial, ethnic, gender, religious or disability groups.  Courts analyzing disparate impact weigh the actual impact on a protected class against the defendant’s interest in the policy or action.  If disparate impact claims had been invalidated in Mount Holly, the avenues for plaintiffs to show FHA violations—and perhaps violations of other federal laws, including those related to lending discrimination—would be limited to cases of facial or intentional discrimination, both of which can be difficult for plaintiffs to prove.

The Mount Holly litigation, which has been ongoing for nearly ten years, stems from the township government’s designation of blight and implementation of a redevelopment plan for the Gardens neighborhood, populated primarily by low-income and minority residents.  Under the redevelopment plan, the township is acquiring and demolishing existing homes to make way for new market-rate homes and commercial uses. 

The Mount Holly settlement comes only one year after an out-of-court settlement in the case of Magner v. Gallagher, which precluded the Supreme Court from hearing arguments on the same issue presented in Mount Holly.  Fair 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.

Court Rules in Highlands Spot Zoning Case

Posted in Litigation, Uncategorized, Zoning

Denver District Court Judge Robert McGahey has ruled that the U-MS-5 zoning of the four parcels of land in the West Highlands neighborhood was part of a valid legislative action and did not constitute impermissible spot zoning.

The four parcels, located adjacent to the commercial corridor on 32nd Avenue and Lowell Boulevard, were rezoned U-MS-5 during the 2010 citywide legislative rezoning process.  In the case, ten neighbors in the West Highlands neighborhood contended that the Denver City Council’s zoning of the parcels was an ultra vires act, or beyond the powers granted to Denver City Council, and that Denver City Council engaged in impermissible spot zoning.  An impermissible spot zoning occurs when it appears that a rezoning was designed to relieve a particular property from applicable zoning restrictions.

The court held that Denver City Council has the power and authority to make zoning decisions so long as they are made in accordance with a comprehensive plan.  Therefore, zoning determinations are presumed to be valid.  Because there was not clear and convincing evidence that City Council acted in an arbitrary or capricious manner, the court held that Denver City Council’s U‑MS‑5 zoning of the parcels was not an ultra vires act.

The court further held that spot zoning did not occur on these parcels because they were subject to the same treatment as other Denver properties during the citywide rezoning process.  The court found that the treatment of these parcels was not unique and there was no indication that the City intended to target the parcels to relieve them of zoning restrictions.

This case is particularly notable because it is a spot zoning challenge to a legislative rezoning scheme.  All previous Colorado spot zoning cases have involved situations in which a property owner seeks and is granted a rezoning for their specific property.  As shown in this case, it appears that a court is less likely to find that a particular property was singled out for special treatment when the rezoning was part of a larger rezoning process.  This case also demonstrates the broad discretion and authority granted to Denver City Council in making zoning decisions for the City and County of Denver.

Otten Johnson attorneys Tom Macdonald and Heather Park represented the property owners in this case.

DOJ: Amendment 64 Implementation can Proceed Without Federal Interference (For Now)

Posted in Uncategorized

doj memo.jpgToday, the federal government made clear that it does not currently intend to interfere with Colorado’s efforts to implement a system to regulate the cultivation, distribution and sale of marijuana to adults for recreational purposes.  Federal authorities also clarified their approach toward state-regulated medical marijuana industries. 

Specifically, United States Deputy Attorney General James M. Cole issued a memorandum directed to all United States Attorneys, setting forth the Department of Justice’s (DOJ) policy toward marijuana businesses in states that have legalized marijuana for medical and/or recreational use.  The memorandum is cast as guidance for prioritizing the “limited investigative and prosecutorial resources” available to the federal government.

Like the two previous federal memoranda addressing state-level efforts to liberalize marijuana laws, which were issued in 2009 and 2011, today’s memorandum makes clear that marijuana remains illegal for all purposes under federal law, and that federal authorities will enforce federal drug laws where appropriate.  Particularly, the memorandum highlights eight enforcement priorities that will guide federal authorities:

  • Preventing distribution of marijuana to minors;
  • Preventing revenue from marijuana businesses from going to criminal organizations;
  • Preventing diversion of marijuana from states where it is lawful to other states;
  • Preventing state-authorized marijuana activities from being used as a pretext for other illegal activity;
  • Preventing violence and use of firearms in the marijuana industry;
  • Preventing driving under the influence of marijuana and other adverse public health consequences associated with marijuana use;
  • Preventing cultivation of marijuana on public lands; and
  • Preventing marijuana possession or use on federal property.

While the memorandum stresses that it does not change federal law, and does not bind federal authorities, it makes clear that federal authorities are at least willing to allow Colorado and Washington state an opportunity to implement “strong and effective regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement interests.”  Federal authorities will watch the implementation of these regulatory regimes close, and, if they fail to live up to expectations, federal authorities may act.  If anything, this reinforces the importance of the process playing out at the state and local level in Colorado, as final regulations and procedures are developed and implemented to regulate the coming recreational marijuana industry. 

Today’s memorandum also provides clarifying guidance concerning medical marijuana businesses, noting that they should not be an enforcement priority, regardless of their size or commercial nature, provided that the operation in question “is demonstrably in compliance with a strong and effective state regulatory system.”  This represents a reversal of policy guidance provided in the 2011 memorandum, which had drawn a distinction between medical marijuana patients and their caregivers, on the one hand, and large-scale, for profit commercial enterprises, on the other hand.  In some states, U.S. Attorneys had seized on this distinction to justify targeting large-scale medical marijuana businesses.  In Colorado, however, federal authorities have generally taken a hands-off approach toward state-regulated medical marijuana businesses, which seems even more likely to continue in light of today’s memorandum.

It is important to emphasize that today’s memorandum is nothing more than a statement of current policy. It is not law, and it binds no one.  U.S. Attorneys in various states may have differing interpretations of the policy guidance, which could lead to variations in enforcement from state to state.  If state-level regulatory regimes fail to live up to federal scrutiny, federal authorities could quickly change their approach.  Indeed, nothing prevents federal authorities from issuing new policy guidance down the road, which could reverse course.  For example, when a new presidential administration comes into office in 2017, it could choose to completely ignore the Obama administration’s approach, and instead aggressively enforce federal marijuana laws. 

That said, the significance of today’s memorandum cannot be understated.  The previous two DOJ memoranda on state-sanctioned marijuana activities have had an enormous impact on the development of medical marijuana industries in a number of states.  In removing the most significant potential barrier to the full implementation of Amendment 64 (and Washington state’s similar measure), today’s memorandum will likely have a similarly profound impact.