Real Estate Development

The Bucks County Planning Commission has increased its filing fees for 2018.  The base fees for residential subdivisions, land developments and conversions remain the same, but the additional lot multiplier fees have been increased by $5 for each lot/unit.  The base fees for nonresidential land developments remain the same, but the multiplier fees for developments under 5,000 square feet has increased by $5 per 1,000 square foot of gross floor area and, for developments over 5,0000 square feet, the overall filing fee has increased to $0.15 per square foot.  The filing fees for nonresidential  subdivisions have increased by $5, and the filing fees for curative amendments and rezoning petitions have each increased by $500.

If you should have any further questions about the new review fees, please contact Robert W. Gundlach, Jr. at (215) 918-3636 or rgundlach@foxrothschild.com.

As a supplement to my blog back on August 23, 2017, as to the use of alternate on-lot sewer systems for planning new subdivisions, attached is the PA Builders Association information sheet on the new legislation.

DEP and the Sewage Advisory Committee (“SAC”) continue to work on the regulations referenced in the legislation.  Enclosed is a letter, dated December 11, 2017, containing the SAC’s recommendations to DEP.

More to follow as DEP works to finalize the performance standards and review methodology.

 

December 11, 2017 Letter

 

In June of this year, Councilwoman Maria Quinones-Sanchez of Philadelphia’s City Council introduced Ordinance No. 170678 to require all new and renovated residential development projects in the City of over 10 units to include at least 10% of the project units as “affordable”.  Under the terms of the ordinance, at least 25% of the affordable units have to exists on the project site, while the other 75% can either be built elsewhere or be addressed via a payment into the City’s Housing Trust Fund.  Since the ordinance’s introduction in June, Councilwoman Quinones-Sanchez has been in dialogue with a number of stakeholders, with a hope to have the ordinance brought to a vote in City Council prior to the end of 2017.  The proposed ordinance addresses both new projects and renovations which will be defined to cover alterations costing in excess of $7,000 per housing unit and requiring a zoning permit.  The ordinance also provides for limited increases in density, as implied compensation to developers which provide affordable housing.

Philadelphia, Pennsylvania skylineSupporters of the ordinance argue that it is required to address significant gaps within the City for affordable housing for the many poor residing in Philadelphia, and that the proposed ordinance fairly balances the interests of developers with broader public policy requirements.  Those who object, which includes the local chapter of the Building Industry Association, argue that the requirements are erroneous and inappropriately place upon residential real estate developers the obligation to address a policy concern better met by the broader body politic.

Among the potential variables, and areas that may be subject to amendment in the ordinance, are how many units of affordable housing should be required, whether they should be required on or off site, the extent to which such requirement should apply to renovations, and what corresponding inducements or benefits should be made available to developers in the character of increased density or other types of cost offsets.

In the City of Philadelphia, developers must come to terms with several issues which can increase development costs, including a variety of zoning requirements to provide parking, requirements in certain circumstances to provide economic opportunity plans in connection with projects, and a local norm in Center City development of utilizing union labor.  Some are concerned that the additional imposition of required affordable housing would tip the balance and end or significantly curtail residential development.

In a city with an active housing authority and other public or quasi-public organizations promoting housing opportunities for the poor, a question is presented regarding the appropriateness of achieving a laudatory public policy goal through the imposition of requirements upon a small sector of private business owners.  If the objective of providing housing to the poor is one adopted by local government, should it not be addressed directly via explicit taxing and spending policies, instead of indirectly through the zoning code?  This is the question which will be addressed in hearings and debates soon to occur in Philadelphia City Council.

 

If your development projects fronts on a state road, then it is likely that you will need a Highway Occupancy Permit (“HOP”) from PennDOT. If you need a HOP from PennDOT, then it is very likely that you will need to improve one or more state roads. If you need to improve one or more state roads, then it is also likely that you will need to obtain right of way or easements from third party property owners. Well now . . . as most of you know who have been through this process . . . there is nothing more frustrating in the real estate development approval process than having to obtain right of way from third party property owners. Why is it frustrating? Because, as a developer, you do not have much leverage to force these property owners to grant you this required right of way, particularly when it is needed in order to complete roadway improvements that are being required by PennDOT or the municipality as part of your project.

In the past, developers would obtain right of way, in the form of a PennDOT deed, directly from the property owner to PennDOT. Now, in accordance with PennDOT’s Publication 282, the deed for the right of way must be conveyed from the third party property owner to the applicant, then a separate deed, using PennDOT’s form, from the applicant to PennDOT. In addition, no deed will be accepted without PennDOT’s review of a title search to confirm the owner of the right of way and that there are not any mortgages, judgments or other monetary liens recorded against the subject property. If there are any such monetary liens, then a release may need to be obtained from the mortgagee. Another issue faced by developers, when working to obtain the HOP from PennDOT, are easements that are required by PennDOT or the municipality beyond the right of way area. These include site distance easements (i.e., the right to remove all vegetation within the certain area of a third party property), drainage easements (the right to drain water onto the property of a third party owner), grading easements (the right to regrade the property of a third party owner), among others.

So, what happens when the property owner refuses to grant this required right of way or easement? If you are lucky, you go back to PennDOT and the municipality and explain, and they allow you to modify your plans so that you do not need this right of way or easement. If you are not so lucky, then you have to “beg and plead” either PennDOT or the municipality to condemn the property interest at issue. It is extremely unlikely that you will ever get PennDOT to proceed with this proposed condemnation, unless the proposed roadway work is part of a previously approved PennDOT plan that you are offering to do on their behalf. You have a much better chance at convincing a municipality to condemn the land but, to do so, you normally have to show the municipality that you had the property interest appraised and that you made fair offers to the third party property owner for this property interest. If you can convince the municipality to move forward to condemn the property interest, then you will likely need to enter into an indemnity agreement with the municipality to reimburse them for all costs incurred by the municipality in connection with any such taking. Many times third party property owners will file preliminary objections which can, at times, extend the time period to obtain this property interest for months, and, at times, for years. Putting a good plan in place to address and/or obtain these required third party property interests, up front, and having an open dialogue about the proposed roadway improvements with and without your ability to obtain the third party property interest, again up front, is the best way to handle issues related to obtaining these required right of ways and easements. That is, getting the municipality to “buy-in” to the roadway improvements will help you later to secure the required right of way and easements.

If you should have any questions on this topic, or should need our assistance to help you secure required right of way or easements, please contact Rob Gundlach at (215) 918-3636 or rgundlach@foxrothschild.com.

 

In the case of Cardinal Crossing v. Marple Township, the PA Commonwealth Court was faced with the issue of whether a developer, who spends substantial funds on a development, in reliance on statements of support from a committee formed by the Township (which included Township officials), can recover damages from the Township when the Board of Commissioners did not adopt the requested zoning amendment for the proposed project to proceed forward. The Commonwealth Court, in finding that unofficial action by Township officials cannot bind a Township to take legislative action, upheld the decision of the Court of Common Pleas and found in favor of the Township and dismissed developer’s complaint.

In this case, a developer entered into an agreement of sale with the Archdiocese to purchase property subject to developer obtaining a rezoning to allow the development of 1,100,000 square feet of commercial/office space and 375 townhomes. However, this agreement of sale provided that the sum of $5,000,000 would become non-refundable at the end of the due diligence period. The developer started meeting with representatives of the Township in August of 2014, but did not file its formal application for zoning relief until May 21, 2015; less than 30 days prior to when its $5,000,000 deposit would become non-refundable. The Township’s Planning Commission voted to recommend denial of the requested zoning relief and the Board of Commissioners then voted to deny the application for rezoning in May of 2016 (well after the deposit went non-refundable) and less than 60 days before its agreement of sale with the Archdiocese was scheduled to expire.

In the complaint, developer claimed that the Township representatives, with whom it met, repeatedly represented that the Township wanted the property developed as proposed and that the Township knew or should have known that developer would rely upon these representations; and it relied upon these representations to execute the agreement of sale, pay the deposits and prepare the application for the requested zoning relief. Evidently, the developer spent more than $7,000,000 between its soft costs and the deposit.

The Court of Common Pleas held, in ruling in favor of the Township, that no statement of these representatives could rise to the level of an inducement or promise by the Township to grant the requested zoning relief and that developer knew or should have known that the enactment of a zoning amendment was a legislative act that would be binding only upon a vote of the Board of Commissioners. The Commonwealth Court held that there was no official action by the Township that the developer alleged in its complaint that caused it to act to its detriment.

The lesson here is that developers cannot rely upon statements of support by Township representatives (even members of the governing body) outside of a public hearing and should formally file its petition for zoning relief at the earliest possible date and push that application for a decision by the governing body prior to developer’s deposit “going hard” under its agreements of sale. Developers should also insure that they have sufficient time under their agreement of sale to work with all applicable parties and hold the required hearings. If not, developers should “walk away” before they get in too deep as the developer did in this case.

For more information on the subject, please feel free to contact Rob Gundlach at (215) 918-3636 or rgundlach@foxrothschild.com.

In a recent Commonwealth Court decision, Appeal of Chester County Outdoor, LLC, No. 1761 C.D. 2016, 2017 WL 3198266 (Pa. Comm. July 28, 2017), the Court held that, after a successful validity challenge to an ordinance, the challenger must file an application for site-specific relief with the municipality prior to filing an action with the court pursuant to Section 1006-A of the Municipalities Planning Code (MPC).

Chester County Outdoor, LLC (CCO), a billboard developer, filed a challenge to the substantive validity of the East Pikeland Township Zoning Ordinance (the “Ordinance”) with the Township Zoning Hearing Board (the “ZHB”), alleging that the Ordinance unlawfully excluded billboards. CCO did not request site-specific relief from the ZHB, or submit plans for a proposed billboard with the validity challenge.

Before the ZHB made a decision as to the validity challenge, the Township Board of Supervisors adopted a resolution which declared the challenged sections of the Ordinance to be invalid.  The ZHB then issued a decision sustaining the validity challenge, and the Township subsequently adopted a curative amendment to the Ordinance.

After adoption of the curative amendment, CCO filed a declaratory judgment action with the trial court, seeking a declaration that CCO is entitled to site-specific relief to permit a billboard on the subject property, and a hearing held pursuant to 1006-A(d) of the MPC.

Section 1006-A(d) provides, in part, that upon motion by any of the parties or upon motion by the court, the judge of the court may hold a hearing or hearings to receive additional evidence or employ experts to aid the court to frame an appropriate order.

After CCO petitioned for a hearing under 1006-A(d), the Township filed a motion for the ZHB to be appointed the special hearing master under 1006-A(c).  However, after granting the Township’s motion, and reviewing the ZHB’s special master report, the trial court ruled that CCO’s request for site-specific relief did not belong before the trial court because, after prevailing on its validity challenge, CCO should have submitted plans to the Township before filing an action with the trial court.  Because CCO never applied for and been denied site-specific relief form the Township, no relief was available under Section 1006-A of the MPC.  CCO appealed the trial court’s decision to the Commonwealth Court.

The Commonwealth Court ultimately remanded the case back to the trial court and ruled that, while CCO is required to first submit its request for site-specific relief to the ZHB for consideration and determination, the trial court is the ultimate decision maker. The trial court is required under Section 1006-A of the MPC to conduct a de novo review of the evidence, and need not give deference to the ZHB’s findings.  As part of its de novo review, however, the trial court, in its discretion, is permitted to accept the ZHB’s findings as its own.  The trial court is also permitted, but not required, to hold a hearing and take additional evidence.  After conducting its de novo review, the trial court is required to grant the request for site-specific relief, unless the Township meets its burden of proving the materiality of certain “unchallenged, pre-existing, and generally applicable” provisions of the Ordinance, and that the proposed billboard is incompatible with such provisions.  When applying these unchallenged, pre-existing and generally applicable provisions to the billboard proposal, however, the trial court must be mindful to not apply these provisions in a manner that would exclude all billboards, or limit the trial court’s discretion in fashioning site-specific relief to CCO.

In addition, the Court held that the trial court is not permitted to apply the curative amendment to CCO’s request for site-specific relief because it was adopted after CCO filed its validity challenge.  In the event that the trial court concludes that CCO’s proposed billboard (i) is incompatible with any of the Ordinance’s “unchallenged, pre-existing, and generally applicable provisions,” and/or (ii) that the proposed billboard is contrary to the public health, safety and welfare, the trial court must consider alternative sites and/or alternative configurations for the proposed billboard and fashion some form of site-specific relief to CCO.

Kevin Scott writes:

In case you missed it last week, The Wall Street Journal and others reported (sub. req.) that the rate index LIBOR is going to be discontinued by the end of 2021. LIBOR has been the base index for most all variable rate loans, bonds, interest rate swaps and other instruments for many years. Various industry working groups are trying to establish an alternative index to replace LIBOR.

Globe on financial reportWhile most of the loan documents utilized over the years already have provisions that take effect if LIBOR is discontinued, it is doubtful that those provisions received much, if any, scrutiny.

For companies or individuals with LIBOR loans, please consider the following:

  1. If the loan matures prior to December 2021, there should be nothing to do. However, if the loan is a revolving line of credit, with annual renewals, even that loan will need to be reviewed.
  2. If the loan extends beyond December 2021, they should review the documents to see if there is a replacement mechanism that makes economic sense and actually works. Below are a few examples:

LIBOR: for any Interest Period for a LIBOR Loan, the per annum rate of interest (rounded up, if necessary, to the nearest 1/8th of 1%) determined by Agent at or about 11:00 a.m. (London time) two Business Days prior to such Interest Period, for a term equivalent to such period, equal to the London Interbank Offered Rate, or comparable or successor rate approved by Agent, as published on the applicable Reuters screen page (or other commercially available source designated by Agent from time to time); provided, that any such comparable or successor rate shall be applied by Agent, if administratively feasible, in a manner consistent with market practice.

If, for any reason, such rate is not available, the term LIBOR Rate shall mean, with respect to any LIBOR Rate Loan for the LIBOR Interest Period applicable thereto, the rate of interest per annum determined by Purchaser to be the average rate of interest per annum at which deposits in Dollars are offered for such LIBOR Interest Period to major banks in London, England at approximately 11:00 A.M. (London time) 2 London Business Days prior to the first day of such LIBOR Interest Period for a term comparable to such LIBOR Interest Period.

As you can see, both examples rely on the lender to choose the replacement index. The first example probably works. The second, which continues the reliance on London-based banks, probably does not work, as it was manipulation of the rate index in London that caused the demise of the index in the first place.

  1. For all new loans, the successor index language should be reviewed carefully to make sure it is clearly written and commercially reasonable.

I am sure we will all be hearing a lot about this in the coming months and I suspect that banks will begin reviewing their documents and proposing amendments as required.


Kevin Scott is a partner in the firm’s Corporate Department, resident in its Philadelphia office.

Obtaining financing for your development project is one of the most important aspects of moving your development plans from paper to reality. Recently, the New Jersey Economic Development Authority (the “Authority”) created a Real Estate Impact Fund (the “REIF”). The REIF supports private and public redevelopment projects on underutilized property in New Jersey by facilitating the procurement of financing for small and mid-size development projects.

Through the REIF’s private component, for-profit and non-profit developers and businesses may obtain up to $3 million in financing from the Authority. REIF funding may be used for a variety of purposes, including property acquisition and assembly; demolition and site clearance; environmental investigation and remediation; pre-development costs; on-site infrastructure; general construction and/or rehabilitation; and associated soft development expenses.

To be eligible for REIF financing, the development project must be located in a “targeted area.” Targeted areas include: Urban Aid Municipalities; projects in Fort Monmouth; and New Jersey university/college sponsored projects that promote emerging technologies or industries. The total cost of the planned development project should not exceed $15 million. In addition, the project must create or maintain one full-time job for every $65,000 in REIF financing procured.

REIF-financed projects can be either new construction or substantial rehabilitation. Potential REIF-eligible projects include: mixed-use (residential and minimum 20% commercial); retail; office; industrial; entertainment venues; associated parking garage structures; and/or land acquisition/assemblages. Residential only projects are not eligible to receive REIF financing.

Obtaining REIF financing requires the completion of an online application and compliance with other certain requirements, such as consulting with a New Jersey Business Development Officer. We can assist you in preparing your application and complying with the application process requirements.

Please contact Rob Gundlach for more information at 215-918-3636 or rgundlach@foxrothschild.com.

Effective July 1, 2017, the City of Philadelphia established a single Department of Planning and Development.  The Department will have three divisions.  The Division of Planning and Zoning will include the Art Commission, the Historical Commission, the City Planning Commission, and the staff for the Zoning Board of Adjustment.  The Division of Development Services will include the development services group which had previously been a part of the Commerce Department.  Lastly, the City’s office of Housing and Community Development, the Philadelphia Housing Development Corporation and the Philadelphia Land Bank will be organized within the Division of Housing and Community Development.

Philadelphia Skyline
Copyright: rudi1976 / 123RF Stock Photo

The idea for the reorganization has been promoted by City Council President Darrell Clarke since 2015 and was approved by the voters as a charter change in November of that year.  In connection with the establishment of the new Department, the Land Bank and the Historical Commission, along with the Development Services section will increase staff.  The remaining sub-groups will not enjoy staff increases.

Within the new Department, particular attention will be paid to the Land Bank which has enjoyed only limited success since its creation in 2013.  While the Land Bank faces challenges associated with assuming duties previously held by a range of departments and agencies, its most acute challenge is likely securing approval for transactions from City Council, particularly in light of the Council’s historic informal policy (known as councilmanic prerogative) of requiring approval from the District City Councilperson in connection with the sale of city property.

The different city offices and agencies which are being coordinated within this single Department will not immediately relocate, so the Department’s offices will continue to be spread among different floors of 1515 Arch Street and 1234 Market Street.  This unorthodox approach will present management challenges to the Director of the Department, Anne Fadullon.

When the Philadelphia Zoning Code was amended in August, 2012, a Transit–Oriented Development (“TOD”) Overlay District was included.  Such districts have become increasingly favored by urban planners as a way to encourage development adjacent to transit hubs, with associated increase in the use of public transit and a decrease in reliance upon private transportation.  However, the provision included in the 2012 Zoning Code proved cumbersome, and during the intervening 4+ years, no parcel in Philadelphia has been so designated.  In response, Councilwoman Blondell Reynolds Brown and Councilman Bill Greenlee jointly introduced on February 23, 2017, a new ordinance amending the TOD overlay (ordinance # 170162).

Public transit
Copyright: 06photo / 123RF Stock Photo

The main objective of the proposed new Overlay District is to both simplify the application of the TOD and increase bonuses, which would be available to landowners and developers who utilize it. To achieve the simplification, the Overlay District would apply to any parcel located within 500 feet of a designated transit station.  It is anticipated that stations will be so designated only by action of City Council, and presumably only after approval of the District City Council person in whose district the TOD will be designated.

There will be a development bonus of 30% of the otherwise permitted FAR for parcels located in the TOD.  Furthermore, bonus FAR is available for green buildings, next income housing, provision of public space, provision of underground parking, and certain transit connections.  Where bonuses of 150% are available, generally, in the Philadelphia Zoning Code for provision of such items, in the TOD, bonuses can be accumulated allowing for an increase of FAR of 200%.

One interesting provision of the proposed new ordinance is that for the first time, Philadelphia would impose a maximum amount of parking which can be made available in connection with a project.  This change will be welcome by planning professionals, who hope similar provisions will be applied in Center City.

It is certainly unclear whether or not City Council will pass the ordinance in the form introduced, but if passed, the City’s planning professionals will seek to convince members of City Council to designate a small number of pilot TOD districts, which will be tested to see whether increased development can be triggered by this approach.

As of this blog post, City Council’s Rules Committee has not scheduled the ordinance for a public hearing.  It appears that usual, short-term concern about parking availability may delay the implementation of this forward-looking approach.