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

Attendees at the Office & Industrial Market Update and 2013 Forecast Summit presented by The Colorado Real Estate Journal and Otten, Johnson, Robinson, Neff & Ragonetti on September 6 heard from a panel of general contractors who reported that developers of industrial properties frequently choose to meet LEED standards without seeking the official LEED certification, because the certification process adds $50,000 to $100,000 to the cost of the building.

Along those same lines, a September 5 Wall Street Journal article focused on a new apartment building to be built in Manhattan by a developer who was one of the first to build a LEED-certified skyscraper a decade ago. For its new building, the developer, the Durst Organization, plans to incorporate “green” features, but will not seek LEED certification. The developer says it wants the chance to be more innovative and not be bound by LEED’s checklist of features.

LEED has been criticized by others for being too lax in its standards, and for certifying buildings before they are actually in operation.

Meanwhile, the U.S. Green Building Council, which oversees LEED standards and certification, has said it is working on updated standards (LEED v4). Members of the Council are currently scheduled to vote on the updated standards in June 2013. According to the Council, “LEED v4 focuses on increasing technical stringency from past versions and developing new requirements for project types such as data centers, warehouse & distribution centers, hotels/motels, existing schools, existing retail, and mid-rise residential.”

It remains to be seen whether changes to the LEED standards will bring developers back into the LEED fold.

As we noted in a previous post, critics of Colorado’s foreclosure process have been pursuing various avenues to reform parts of that process.  They have been particularly focused on the “qualified holder” provision of Colorado statutes, which allows the foreclosing lender to state that it is the owner of the deed of trust being foreclosed, without producing the original documents to prove ownership.  A bill that would have amended the statute to require documentation died in the Colorado legislature earlier this year.  Proponents of the bill then started working on a ballot initiative that, if passed by voters in November’s general election, would have amended the Colorado Constitution to address this issue.

Those proponents recently announced they are not going to continue to pursue the ballot initiative, and will instead return to their original approach of pushing for legislative changes to the foreclosure statute.  According to The Denver Post, the campaign director for the Colorado Progressive Coalition, which had been leading the charge, said she believes the group has built the support it needs to pass the change legislatively.  A new bill is expected to be introduced in the next legislative session, which will begin in January.

This article in today's Denver Post discusses how, despite some regional variation in vacancy rates and rents, the statewide trends suggest optimism among property managers and landlords concerning future demand. 

The recent uptick in multi-family housing construction in some parts of Colorado indicates that developers may be feeling the same way. 

It will be interesting to watch whether this results in sustained multi-family growth. 

A last minute bill has been introduced in the Colorado Senate.   Colorado Senate Bill 12-181, introduced last week by State Senator Lois Tochtrop, proposes new requirements related to construction projects in Colorado.  These proposed changes are not favorable to property owners in Colorado and will limit the ability of property owners to negotiate business terms in their construction contracts.  SB 12-181 is set for a hearing before the Senate Business, Labor and Technology Committee on Wednesday, May 2, 2012. 

SB 12-181 applies to “Building and Construction Contracts” which is defined as any contract subject to Title 38, Article 22 of the Colorado Revised Statutes, Colorado’s mechanics’ lien law.  SB 12-181 contains the following points:

• Colorado Law Must Apply.  Any provision in a Building or Construction Contract for work to be performed in Colorado that makes the contract subject to the laws of another state or contains a dispute resolution provision governed by the laws of another state, is void and unenforceable. 

• Parties Cannot Contract Around Colorado Mechanics’ Lien Law.  Any provision in a Building and Construction Contract that requires a contractor or subcontractor to waive its right to file a mechanics’ lien or claim against a payment bond prior to being paid is void and unenforceable.

• Payment to Subcontractors and Suppliers Required Within 7 Days.  All principals, general contractors and subcontractors must pay their subcontractors and material suppliers within seven days of receipt of services.

• Mandatory Interest Penalty; Costs and Attorney Fees Award.  A 1.5% monthly interest penalty applies to all unpaid amounts, and subcontractors and suppliers who successfully sue to collect this interest penalty will also be entitled to collect their costs of suit, including attorney fees.

• Monthly Progress Payments Required; Retainage Amounts Capped.  Property owners or parties responsible for payment must make monthly progress payments to the general contractor unless the Building and Construction Contract specifies otherwise, and owners or payment parties may only reserve as retainage a maximum of 5% of each payment.

• Change Orders.  General contractors must submit the costs of any change orders to owners for payment within 30 days of the change order.  Owners or payment parties will be required to pay at least 50% of any disputed change order amounts.

Recent stories in the business section of the Denver Post have featured real estate development around light rail stations.  First, there was the story of the Denver Federal Center, and a few days later an article on the Denver Design District.  This appears to be a continuation of the theme that transportation will drive future development in Denver.  As reported in an earlier post, Regional Transportation District is taking a more flexible approach with transit oriented developments.  All of this seems like great news.  However, as reported in today’s Denver Post, FasTracks is at least $2 billion short in funding, and RTD’s board voted 13-1 against placing a sales tax increase on the November ballot.  It is not surprising that a sales tax increase in this climate is not feasible politically.   Given that many of the newly planned developments in the Denver area seem to be linked to transit, this shortfall in FasTracks funding may slow down some of it.    However, given the general state of the economy, not all of it may come to fruition that quickly anyway.

Photo by vxla (Flicker)

In order to facilitate the settlement of the western United States in the nineteenth century, the federal government broke the land up into “townships” that were generally 36-square mile blocks.  Each township was then broken into “sections” of roughly one square mile, or 640 acres.  Each section was further divided into “quarter sections,” and further into “quarter quarter sections” of 40 acres each.

Sometimes when we are working on acquisitions or financings of raw land, we encounter roads that follow the section lines, usually 30 feet on either side of the line.  There is often no deed, easement or dedication for these roads, and the question comes up as to whether there is some statutory basis for these roads.  If there is no statutory basis, then we need inquire about whether there is a prescriptive easement for these roads.  (See the note below on prescriptive easements.)

So, is there statutory authority for those roads?  There isn’t now, but there used to be. 

In 1885, the Colorado General Assembly passed a law [PDF] that allowed commissioners of a county, by an order at a regular meeting, to declare any section or township line “on the public domain” to be a public highway.  As pointed out by H. Keith Corey of Grand Junction (see part (3) of his paper), this statute was repealed in 1953, but its repeal did not remove any roads that were in place prior to repeal.  Before repeal, El Paso, Weld and Mesa Counties passed resolutions pursuant to this statute.  See Book 571, Page 55[PDF] of the El Paso County real property records and Book 86, Page 273 [PDF] of the Weld County real property records.

If you are looking at land that has one of these roads located on a section line, and the county passed a resolution pursuant to the 1885 statute before 1953, then you should assume that there is a public highway for the first 30 feet inside the section line.

Thanks to Ian Cortez of Ulteig Engineers, who brought this up at a surveying seminar, and to David Knapp at Land Title for sharing his experience on this issue.

NOTE:  Generally, a prescriptive easement arises when a party adversely uses property in the same manner as if it had an easement, and such use is continuous and uninterrupted for the period of prescription.  Almost every element of a presciptive easement is loaded with specific, and sometimes controversial, meaning, so the analysis needs to handled carefully.  Note that a prescriptive easement (and its cousin, adverse possession) usually cannot be established by private parties against governmental entities, so you probably can't make one of these public highways go away without the county's consent.

Photo by goingslo (flickr)

Anton Troianovski had an interesting article in the Wall Street Journal on how downtown office markets are currently improving faster than suburban office markets.  In part, Troianovski observes, this may be based on the types of businesses that tend to be in the two markets (mortgage companies and home builders in suburban markets, while downtowns tend to be home to government offices and big banks).  

But he also notes that a possible "secular shift is under way in the American workplace" because younger people want to work in downtown markets.  Downtown Denver is specifically mentioned in this article as a beneficiary of this trend.  Whether this trend continues as the job market solidifies over the coming months and years will be worth watching.

Photo by paul (dex) (flickr)

Last month the Town of Berthoud, Colorado approved a mixed use development known as PrairieStar.  The development is anticipated to contain residential housing, a school, a research and development facility, an equestrian center, retail and business components, and, most notably, a 25 acre solar farm.  Developers of the project, Scott Sarbaugh and partner Richard McCabe, anticipate that PrairieStar will ultimately reach “net-zero energy consumption” status as a result of the large solar component. 

In addition to the solar farm, the PrairieStar development includes many additional green touches including a community garden, an irrigation system using nonpotable water and an energy center for recharging electric cars.

In negotiations between developers and local municipalities, this type of sustainable (and sustainably marketed) project is likely to shed a different light on the developer.  Not only does it appear that sustainable developments like PrairieStar are particularly marketable to the end user, but in the current green climate they should be appealing to the local jurisdiction for entitlement approval.

Photo by Foreign and Commonwealth Office (Flickr)

Residents of the northern Douglas County City of Castle Pines North, or Castle Pines as it's now known, voted on Tuesday to abolish the City's recently established urban renewal authority.  The yes votes on Question 300 outnumbered the no votes by almost 2 to 1.  In abolishing the City's urban renewal authority, residents decided not to grant City Council and the urban renewal authority - here one and the same body - the urban renewal powers granted to such authorities by Colorado's urban renewal laws (31-25-101, C.R.S.), including the ability to capture and direct to the construction of new public improvements incremental tax revenues created by virtue of new or redeveloped portions of the City.  So, why did Castle Pines' residents reject the authority  I've got some ideas, but first a little background on urban renewal. 

Urban renewal laws have been on the books for more many years, and the authorities created under the laws have successfully implemented numerous urban renewal projects across Colorado. The Denver Urban Renewal Authority is just one such example.  Urban renewal laws grant urban renewal authorities the power to issue bonds to pay for qualifying elements of an urban renewal project, which typically consists of public streets, drainage improvements, sewer lines and other public infrastructure, but in any event, improvements that are intended to eliminate blight.  The urban renewal authority captures the incremental property and sales tax generated on redeveloped property (for a maximum period of 20 years), calculated as the difference of such taxes before and after developing the property.

Urban renewal projects are permitted, as an initial matter, only within areas where an urban renewal plan has been adopted by the municipality containing the urban renewal authority.  To establish an urban renewal plan for a particular area, the municipality must first determine that the area is "blighted."  It is this determination of "blight" where residents often run into issues. 

I believe the residents of Castle Pines didn't like their community being labeled as blighted, as most people don't like to have their property labeled as blighted.  Unfortunately, the urban renewal law requires a finding of "blight", based on a number of indicia as a prerequisite to establishing an urban renewal authority, notwithstanding that many of the indicia don't fall into the category of conditions most people associate with blight - like faulty lot layout, defective title conditions, unusual topography and inadequate street layout.  

Also, I believe the residents of Castle Pines thought the incremental tax dollars captured by the urban renewal authority amounted to a tax increase.  With or without an urban renewal authority, the incremental taxes generated by development are collected by the government.  But, the rationale behind the urban renewal law is that such increment would not be available if the development did not occur.  In other words, the development enabled by public financing of a portion of the public improvements would not have occurred, and therefore the increment would not be available, but for the urban renewal's ability to capture the increment.  In sum, the urban renewal authority is not responsible for tax increases, it merely uses the increased taxes collected by virtue of development to encourage development.  

Finally, I believe the residents may have thought "urban renewal" should be relegated exclusively to urban areas.

The real debate here should not be focused on whether a community contains indicia of blight or if the development is located in an urban area, but instead on specifically when and where it is appropriate to use tax increment financing to stimulate development, if at all.  If the debate does not focus on these issues, the public will continue to get lost in the meaningless distinction between the practical and legal interpretations of "blight" and "urban" under the urban renewal law.  Urban renewal laws could be easily reconstituted to address specifically when and where tax increment financing is appropriate, and I think they should be.

Despite today’s economic reality, real estate developers should consider the unique opportunities of pursuing land use entitlements now.  While there is expense entailed in pursuing annexation, zoning, subdivision and related approvals, many jurisdictions are experiencing a significant drop in tax and fee revenues due to reduced development activity.  Accordingly, developers who are able to pursue land use entitlements during this difficult economy may find these jurisdictions more responsive to development proposals than they historically have been.

Although obtaining entitlements now may be “early” (end users or the ultimate land plan may be unknown), jurisdictions have been recognizing such circumstances and the need for flexible zoning that will allow for diverse development opportunities.  Planned Unit Development (PUD) or similar zoning can provide for standards that differ from the jurisdiction’s generally applicable zoning or technical standards to accommodate a variety of users.

Because there are fewer development applications being submitted today, applications may be processed in an abbreviated period of time.  And, as it traditionally may take years to process and obtain final approval of complete land use entitlements, there is no better time than the present to initiate that process.