Welcome © 2012 Alvarez-Glasman & Colvin .

Welcome

© 2012 Alvarez-Glasman & Colvinwww.agclawfirm.com

TODAY’S PRESENTATION:

Alvarez-Glasman & ColvinMatthew M. Gorman, Esq.

© 2012 Alvarez-Glasman & Colvin

Redevelopment Woes and Opportunities

What real estate professionals should know about the current state of redevelopment in California

By Matthew M. Gorman, Esq.

Alvarez-Glasman & Colvin is a boutique law firm specializing in representing public agency and private sector clients in the complex fields of real estate, land use and development, environmental law, employment and labor relations, public safety and police litigation, and general liability and risk management.

Founded in 1985 by the Firm’s managing partner, Arnold M. Alvarez-Glasman

Matt Gorman represents public and private parties in land use, redevelopment, and sustainable development projects

For more info: www.agclawfirm.com

Alvarez-Glasman & Colvin


About us

OVERVIEW OF REDEVELOPMENT


Summary of how redevelopment agencies worked


• TAX INCREMENT:

Agencies utilized tax increment as revenue stream to secure bonds and other financing for development of projects that eliminated blight in communities

Summary of how ABx1 26 dissolved redevelopment agencies


• Agencies dissolved and their assets liquidated to the State.

• Successor agencies and other entities established to wind-down agencies’ affairs.

• On-going obligations to be honored (existing agreements, bondholder/ investor rights, etc.).

Overview of the current state of redevelopment agencies


• The Motosantos case affirmed the elimination of redevelopment agencies

• As of February 1, 2012, all agencies are dissolved.

• Successor agencies are in the process of winding-down redevelopment affairs and coordinating the transfer of assets to the State.

Ambiguities in ABx1 26


• The law is extremely ambiguous and unclear on many key points.

• Key terms are currently being interpreted differently by agencies, counties, and the state.

• Several bills are pending to clarify and revise ABx1 26

• KEY: things are unclear and evolving.

HOW REDEVELOPMENT AGENCIES ARE WINDING DOWN


The legal structure of the wind-down process


• Dissolved redevelopment agencies are managed by successor agencies in each community.

• Successor agencies are overseen by oversight boards which have approval over most decisions, subject to State control.

• State Dept. of Finance (DOF) has authority to approve and deny most issues decided by oversight boards and successor agencies.

How redevelopment assets are liquidated or returned to the State


• Successor agencies and oversight boards are to preserve all redevelopment assets for the benefit of the State, and must liquidate all properties in a manner that is expeditious but which maximizes return of dollars to the State.

• With exceptions, successor agencies may not enter into new contracts, but must preserve redevelopment funds for the State.

• Existing contracts are honored if they are “enforceable obligations.”



• What is an “enforceable obligation”?:

All former redevelopment agency contracts must be listed as enforceable obligations on a successor agency’s payment scheduled called their “ROPS” (recognized obligations payment schedule).



• The ROPS must be approved by the successor agency, approved by the oversight board, and approved by DOF.

• Once approved, the items on the ROPS are enforceable obligations which the successor agency may lawfully honor.

• A successor agency is not authorized to honor contracts which are not listed on an approved ROPS.

Redevelopment Property Tax Trust Fund


• Funds which previously would have gone to redevelopment agencies are held by County Auditor-Control in a trust fund, to be disbursed per ABx1 26’s requirements.

• Obligations which are listed on an agency’s approved ROPS may be disbursed by the County to the agency.

• The County has no authority to disburse funds for obligations which are not on the approved ROPS.

Importance of the ROPS


Because the ROPS is key to a successor agency’s legal authority to honor contracts and obtain fund from the County, it is a critical piece of the ABx1 26 framework.

CURRENT REDEVELOMPENT PROBLEMS


Valid projects not listed on ROPS


• Do projects get funded?:

If a city or county has an obligation to be paid from tax increment funds, but that obligation is not on the ROPS, then problems will arise: the obligation will either have to be paid from another funding source (e.g., general fund), or may give rise to a default.

Valid projects not listed on ROPS


• Example:

Some agreements for the financing of redevelopment projects involve investors who are guaranteed regular payments, but if those agreements are not listed on the approved ROPS, payments must either be made by other sources or result in defaults.

Potential impacts to bondholders and investors


• Investors in redevelopment projects that are not listed on an approved ROPS are at risk of default.

• In some cases, DOF has been responsive to approve these items on ROPS, but in other cases it’s not clear whether approval will be given.

Contracts that are “against public policy”


• ABx1 26 allows otherwise valid contracts to be excluded from the ROPS if they are “not otherwise void as violating … public policy.”

• No guidance or authority is provided on how this requirement is interpreted, exposing many types of otherwise valid contracts to exclusion from ROPS.

Contracts that are “against public policy”


• Effect:

Exclusion from the ROPS will likely mean a void contract or a contract which cannot be performed by the agency – potentially exposing otherwise valid contracts to termination without cause.

Who’s in control?


• The numerous “moving parts” involved in ABx1 26 are difficult to manage and it’s unsure who has control over certain functions.

• Although DOF has authority to approve or deny items on the ROPS, who decides if an item is “against public policy”?

• If investors’ interests are threatened, do they sue the successor agency, the oversight board, the County, DOF, or all of them.

What are “administrative costs”?


• ABx1 26 limits the costs that a successor agency may incur to administer its winding-down affairs (“administrative costs”).

• “Administrative costs” may include attorney fees, staffing, consultants, marketing and liquidation costs, etc.

• It is unlikely that agencies can adequately fund these activities through the limited administrative cost allowance permitted under ABx1 26.

Local government reliance on redevelopment reimbursement


• Many redevelopment agencies had joint agreements between the redevelopment agency and the city which provided reimbursement to the city of certain redevelopment funds and other financial arrangements.

• The cities rely on these agreements to help fund general municipal services (including police and fire service and similar public safety services).

Local government reliance on redevelopment reimbursement


• In many instances, DOF has rejected these city-agency agreements on the ROPS, meaning that a revenue source which cities relied on might not be available: this exposes many cities to extreme budget problems, cash flow problems, and could create a severe budgetary crisis for some cities which relied on those funds to balance their books.

OPPORTUNITIES POSED BY THE WIND-DOWN PROCESS


Acquisition of redevelopment property being liquidated


• Because agencies must liquidate their properties, real estate professionals may find numerous potential deals created as a result of ABx1 26.

• Note that agencies must liquidate properties in a means that maximizes revenues to the State – so “windfall” deals are unlikely.

• However, because redevelopment properties often have unique characteristics, opportunities for unique deals are likely.

Enhanced bargaining power to partner with local agencies


• Do to the fiscal pressures faced by local governments, coupled with their loss of redevelopment power, real estate professionals may have greater leverage to advance their projects.

• Local governments might be more welcoming of proposed deals that would provide benefits to business and improve property in this age of tight budgets and a depressed property market.



• Although redevelopment funding is not available, local governments might be willing to offer incentives such as: expedited processing and entitlement, relaxed dedication requirements, conditions of approval which are favorable to the developer, etc.

• Non-redevelopment funding (e.g., housing funds) may be available to assist projects, and opportunities for “inventive” funding structures.



• Key:

This may allow real estate professionals to form projects that draw from multiple sources in combination with city incentives (e.g., incorporating solar energy on a housing project for federal tax rebates, coupled with city housing funds and relaxed dedication requirements, to make a project financially viable).



• And remember:

Local governments retain non-redevelopment powers, such as powers to approve development agreements under the Planning & Zoning Law, and these powers may serve as a framework to memorialize the parties’ obligations and a legal means by which the city can agree to unique project conditions.

Possible collaboration with oversight boards


• Because oversight boards are now part of the liquidation approval process, real estate deals will need to involve their approval.

• The membership of oversight boards may have their own interests, separate from the city and others, which could open further doors for collaboration.



• Example:

Oversight board members include school district and community college district appointees, so proposed projects which involve properties near school sites, or which contain a school-related element (e.g., satellite school site, park/athletic facility, etc.), may be proposed to leverage support for other funding in addition to oversight board support.



• Key point:

The process allows for the creation of unique projects that blend public and private dollars, pulling resources and support from a variety of city, school, and private interests.

POSSIBILITES FOR FUTURE CHANGES IN THE LAW


Key areas of pending legislation


• Clarifying local government’s right to redevelopment reimbursement.

o Allowing reimbursement for “reimbursement agreements.”

o Determining when redevelopment agencies were “formed.”



• Narrowing the scope of “administrative costs.”

o Allowing agencies to “spread the cost.”

o Flexibility over expensive items (e.g., attorney fees, consultants).



• Clarifying the status of the entities.

o Is an oversight board part of the successor agency or a separate entity?

o Can the oversight board enter into agreements itself?

o Is the successor agency a city body or independent?



• Withholding County trust funds.

o Can the County withhold funds that an agency failed to return?

o What about problems that appear on agencies’ audits?

o Can agencies force the County to disburse trust funds?

WHAT REAL ESTATE PROFESISONALS SHOULD DO?


Review and respond to the ROPS


• Examine the ROPS for any on-going projects.

• Demand inclusion on the ROPS for projects not listed.

• Assert claims for projects or contracts that are not included on ROPS.

Review bond agreements and other documents at issue


• Take steps to understand what rights may be triggered if bond or other investment agreements are not on the ROPS or face potential risks.

• Some bond agreements have unique provisions which may enhance risks or require prompt action.

Communicate with agencies on available properties and options


• Now may be a good time to commence dialog with successor agencies and oversight boards on proposed projects.

• Agencies are familiar with the properties they must now liquidate and may be willing to entertain discussion on unique projects.

• Dialog with city officials, successor agency staff, oversight board members, and others on how projects can be assembled with properties that must be liquidated.

Initiate dialog with oversight boards


• Build a good relationship with oversight board members.

• How can you show that your project will benefit the community and reduce blight?

• Show that your project will help them fulfill their obligations to the community at the State.

• Make their job easy – explain how your profits are fair and will improve neighborhoods and local business.

Consider proposals for using liquidated properties


• Redevelopment properties may have problems, so build creative projects.

• Identify agency properties that can be rehabbed and funded with unique revenue sources.

• Consider innovative approaches – use the synergy of the liquidation process to partner with community groups, investors, and cities to pursue unique projects for a unique time.

Leverage bargaining power


• Present options to agencies and oversight boards.

• Consider what non-monetary things a city or agency could do that would help advance projects (e.g., offer exceptions to onerous standards, relax dedication requirements, agree to expedited permitting).

Leverage bargaining power


• Consider unique financial structures that successor agencies and their cities might be willing to fund (e.g., housing dollars, formation of assessment districts, rebates, reduced permit fees, etc.).

• Assemble proposals that leverage bargaining power but are fair to cities and the public.

This time only comes once


• Remember:

This may be a “once in a lifetime” event, so why not take advantage of it and use the opportunity to push the envelope on innovative projects.


CONCLUSION

About Alvarez-Glasman & Colvin

Alvarez-Glasman & ColvinMatthew M. Gorman, Esq.


Located in City of Industry with offices in Napa Valley. Projects throughout California. Specializing in real estate, land use, municipal law,

environmental law, public agency law, and redevelopment. Founded Sustainable Building Practice Group in 2011 Founded Redevelopment Transition Practice Group in

2012 For more info: www.agclawfirm.com or

www.AGCecolaw.com Matt Gorman: chairs the firm’s Sustainable Development

Practice Group and is active in land use, redevelopment, and real estate law.

Contact Info


Phone Numbers:

• So. Cal.: 562.699.5500• No. Cal.: 707.944.0540

Internet:

• www.agclawfirm.com• www.AGCecolaw.com

E-Mail:

• [email protected]

Address:

13181 Crossroads Pkwy N.Suite 400 – West TowerCity of Industry, CA 91746

Welcome © 2012 Alvarez-Glasman & Colvin .

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