Last week the U.S. House of Representatives passed a bill that seeks to delineate what causes a commercial real estate loan to be classified as a “high volatility commercial real estate loan,” or, as it’s more commonly referred to, as a “HVCRE loan.”  Since the rule regarding HVCRE loans was promulgated, there’s been much debate and confusion around that fundamental question.  A synopsis of HVCRE loans and the implications of HVCRE classification can be found here.

The bill, H.R. 2148, the Clarifying Commercial Real Estate Loans Act, defines an HVCRE loan as a loan that is secured by land or improved real property and meets the following criteria:

(1)          it primarily finances, has financed, or refinances the acquisition, development, or construction of real property;

(2)          it has the purpose of providing financing to acquire, develop, or improve such real property into income-producing real property; and

(3)          it is dependent upon future income or sales proceeds from, or refinancing of, such real property for the repayment of such credit facility.

Additionally, H.R. 2148 details which commercial real estate loans do not constitute HVCRE loans—that is, which loans are exempted from HVCRE classification.  These include, but are not limited to, loans that finance the acquisition or refinance of real property producing cash flow sufficient to service the contemplated debt and the property’s expenses.  Loans financing improvements to real property producing that level of cash flow are also exempt.  The bill keeps the existing exemption for a loan that meets both the applicable loan-to-value ratio requirement and the 15% borrower capital contribution requirement but modifies it in two respects.  First, when calculating a borrower’s capital contribution, the value of land will be based upon a recent appraisal rather than its purchase price.  Second, until the loan is reclassified as a non-HVCRE loan, only an amount equal to that 15% contribution must stay in the project; in other words, any equity in excess of that 15% amount may be withdrawn by the borrower.

Importantly, H.R. 2148 also addresses when a HVCRE loan may be reclassified as a non-HVCRE loan.  That reclassification occurs when (1) completion of the development or construction of the real property being financed by the loan occurs, and (2) cash flow being generated by the real property is sufficient to support the debt service and expenses of the project.

The bill will now go before the Senate.

On Thursday, the Denver Election Division released the final unofficial vote totals for the 2017 municipal election, and it appears that Initiative 300 will pass with 54% of the vote.  We discussed the Green Roof Initiative in a post on October 24, but now that the measure has passed, we need to take another look at how its requirements will affect real estate development in Denver moving forward:

  • The Ordinance only applies to buildings of 25,000 square feet or more of Gross Floor Area, a term defined in the Denver Zoning Code.
  • “Industrial buildings” have a lesser coverage requirement than other buildings.
  • “Residential buildings” less than four stories are exempt.
  • The ordinance only applies to “building permit application[s]” and “site plan[s]” submitted on or after January 1, 2018. Because neither of these terms is defined in the Zoning Code, we expect the Community Planning and Development Department to provide some guidance as to which applications and site plans qualify.  When the City passed the Affordable Housing Fee in 2016, the City did not impose the fee for projects that had Concept Plans officially logged with the City by December 29.
  • The ordinance applies to all “roof replacements” for buildings with 25,000 square feet or more of Gross Floor Area. The ordinance does not define “roof replacement,” so again we will be looking to Community Planning and Development for guidance on this provision.

We will closely follow the implementation of this ordinance and provide updated information as it becomes available.

Last week, Denver voters received their ballots for the November 7 municipal election.  In addition to considering a $937 million bond issuance and a Denver Public Schools Board election that has garnered national attention, Denver voters will decide whether to mandate the construction of “green roofs” on large buildings throughout the city.  The proposed ordinance would apply to all new construction and every “roof replacement” on buildings of 25,000 square feet or more beginning in January 2018.

As the name implies, a green roof is a space containing plants and soil on top of a human-made structure.  Proponents cite evidence that green roofs reduce energy consumption, more efficiently manage storm water runoff, ameliorate the urban heat island effect—one recent study found that Denver’s is the third worst in the United States—and improve air quality. Modern green roof technology was developed in Germany in the 1970s, and many U.S. cities have launched green roof incentive programs, including Chicago (2006), Washington D.C. (2006), New York City (2008), and Portland, Oregon (2008). Last October, San Francisco became the first U.S. city to mandate the inclusion of green roofs in certain new construction projects.

The Denver initiative is modeled on a similar ordinance enacted in Toronto in 2009. If voters approve the ordinance, buildings with 25,000 square feet of gross floor area would need a green roof to cover 20% of available roof space. For buildings larger than 200,000 square feet, it would need cover at least 60%. In between, the ordinance provides a sliding scale. Green roof space may be occupied by solar panels, and the ordinance allows for cash-in-lieu fees of $25 per square foot for structures receiving a variance or exemption. The Community Planning and Development Department would evaluate applications for compliance with construction standards contained in the ordinance and issue permits.

Opposition to this initiative is gaining traction. The Editorial Board of the Denver Post took a position against the initiative back in March, and Mayor Michael Hancock, Denver Metro Chamber of Commerce, Downtown Denver Partnership, and several trade and professional associations have followed suit.  Their primary concern is cost, which studies have estimated at $10 to $25 per square foot for initial construction, and around $1 per square foot for annual maintenance. Perhaps the most controversial aspect of the proposed ordinance is its application to every “roof replacement,” which goes beyond the mandate of both the San Francisco and Toronto ordinances.  In a statement issued last week, Mayor Hancock said that the initiative, “goes too far, too fast and provides no flexibility or opportunity for carrots instead of sticks.”

Turnout in these off-year local elections has historically been low—between about 20% and 40% in Denver—which means that as few as 60,000 votes could decide the fate of this initiative.

California Investor Buys former StorageTek/ConocoPhillips Campus in Bid for Amazon

In a bid to have Amazon select Boulder County as its much-ballyhooed second headquarters, California’s Bancroft Capital recently went under contract to purchase the 432-acre property (depicted below) in Louisville that is the former home of StorageTek.  The property is currently owned by ConocoPhillips. Bancroft also developed the Peloton project in Boulder.

Google Buys Property

As it nears completion on the first phase of its new 4-acre campus at 30th and Pearl in Boulder, Google has purchased land and two buildings at its campus for just under $131 million. Google originally intended to lease the buildings.  “The acquisitions make sense fiscally, but also demonstrate our commitment to Boulder,” said Scott Green, the Boulder site lead for Google.  “In our 11 years operating here, Google has come to value the community, its talent base and its quality of life.”

County Adds Senior Housing at Record Rate, Creating Concerns for Some Areas

By 2030, baby boomers are forecasted to comprise roughly 20% of Boulder County residents. Developers have taken note: since 2012, a dozen senior housing developments have been constructed, and three more are under construction or in planning. Together, these projects will add nearly 1,000 units to the county’s senior housing product. But some areas are expressing concerns about providing such an ample supply of senior housing—at least within their limits.  Lafayette, for example, will be home to one third of the new senior housing units and is already reporting that the existing senior population is overwhelming the city’s emergency services.  The city is so concerned, in fact, about the effects of attracting such a large baby boomer population that it’s considering a temporary moratorium on baby boomer-focused construction.  Senior housing experts counter that such a moratorium could exacerbate the county’s growing housing crunch, especially for low- and middle-income elderly who are already under-served.