Secret Squirrel missions of a land use consultant

Having others ask the questions you’re afraid to

Some time ago a client wanted to find a new space for their professional business. They found a home that another business had been using for their office and purchased it. Sometime later, my client questioned whether it was legal for them to operate their business from there. They were afraid to go to the City and ask, for fear they’d be found in violation of City codes but wanted to better understand their situation.

They hired Outdoor Perspectives to quietly investigate the matter for them. We talked with the City and others without disclosing the business or its location, then related our findings back to the client. We discovered the following:

• The property was zoned to allow for professional and legal office space without exception, so they could operate their business on the site but were subject to commercial building codes

• The previous business was using it as a home based business (i.e. using it as their primary residence and their home office). Home based businesses are regulated differently than commercial office space.

• The building did not currently meet commercial building codes. As such, they were non-compliant and subject to a code enforcement action if the City found out and took action against them.

• To bring the office space into commercial building codes compliance, the client would need to:
o Get approval for a Change of Occupancy type from the City

o Bring the building up to commercial standards (i.e. ADA compliant, parking standards etc). Additionally, the improvements done to the structure of the building would need a permit from the City).

In the end, the Client learned how the previous business had been legally operating from the site. Second, they understood what they needed to do to bring their building into compliance. Finally, they had a good idea of what might happen if they choose to continue to operate out of compliance of the City code.

The client was relieved to better understand their situation so they could plan accordingly.

www.outdoor-perspectives.com

Quick Reference Sheet of Significant Changes in 2009 IRC

The 2009 International Residential Code (IRC) took effect last Thursday. The Master Builders Association has put together a good Quick Reference Sheet of Significant Changes to be aware of.

http://www.mbaks.com/library/issues/2009IRCSummaryMatrix_GH.pdf

Court orders $1.15M paid in property rights case

Dorothy English wanted to develop 20 acres she and her late husband bought in 1953, and divide it into eight home sites.

PORTLAND (AP) — The Oregon Supreme Court has ordered Multnomah County to pay the estate of property rights pioneer Dorothy English $1.15 million in a dispute over development restrictions.

The ruling last week ended a long legal battle over whether the county owed English compensation for initially denying permission to develop home sites on her property northwest of Portland.

English died in April 2008 at 95. She wanted to develop 20 acres she and her late husband bought in 1953, and divide it into eight home sites for her family.
She became the spokeswoman for Measure 37, which voters approved in 2004 to give property owners the right to develop their land.
When it passed, she filed the state's first Measure 37 claim. She was joined by 6,500
Oregonians who demanded either compensation for diminished property values or for the right to build, in many cases, extensive subdivisions.
Voters later scaled back development rights by passing Measure 49 in 2007. Most of the original claimants settled for a process that would allow them to build one to three homes.

English continued her battle in the courts.

In December 2006, she won a compensation judgment for $1.15 million. The county agreed to let her develop eight lots instead of paying her the compensation. But English rejected conditions the county attached.

In 2009, the Oregon Court of Appeals ruled in her favor and later scolded the county for engaging in what it called a “war of attrition” against English, who had died the year before.

New Legislation Extends Time Period for Final Plat Approval

Finally, a little good news for builders and developers who are trying to plat properties. The legislature has granted a temporary extension to save preliminary plats that could expire during this economic downturn.

The Municipal Research and Service Center of Washington (MRSC) has issued an opinion on the Washington State Legislature’s recent adoption of Substitute Senate Bill 6544. The legislation, signed by the Governor, extends preliminary plats for two years, from five to seven years until 2014.
_____________________________________________________________________________________
Opinion:
In SSB 6544 (Ch. 79, Laws of 2010), the 2010 legislature extended the statutory time period for submitting final plats for city or county approval from five years after preliminary plat approval to seven years after that approval. It also extended the vesting period for approved final plats from five to seven years. This legislation, which is effective June 10, sunsets on December 31, 2014.

It appears that the purpose of this temporary extension is to save preliminary plats that are in jeopardy of lapsing because of the economic downturn. This purpose should help explain which preliminary plats this legislation applies to. The original bill included an intent section that, although deleted in the substitute bill that was adopted, sheds light on legislative intent:

(1) The legislature finds that active land use permits are expiring due to a downturn on the state economy. Considerable cost has been expended by applicants and local jurisdictions to approve projects. Allowing these projects to expire would make it difficult for the state to meet its housing needs in the future and impose considerable staff costs on local governments to perform work that has already been completed.

(2) The legislature further finds that, in the current period of economic challenge, an extension for plat approvals will contribute to the overall employment of the state by employing citizens of Washington as soon as is practicable in the family wage jobs of the land development and home building industries.

The public testimony in favor of the bill, as summarized in the various bill reports, also focused on the current economic climate and its effect on development activity.

To read the full opinion, please go to: http://www.mrsc.org/Subjects/planning/ssb6544.aspx

The Subdivision Process

While every City or County may have its own unique process of subdividing property, most follow a similar general format. I have tried to layout how a typical plot of property might make its way from raw land to finished residential lots.

From Wikipedia
Subdivision is the act of dividing land into pieces that are easier to sell or otherwise develop, usually via a plat. The former single piece as a whole is then known as a subdivision in the United States. If it is used for housing it is typically known as a housing subdivision or housing development, although some developers tend to call these areas communities.
Subdivisions may also be for the purpose of commercial or industrial development, and the results vary from retail malls with independently owned out parcels to industrial parks.

The Subdivision Process

Phase I: Feasibility & Preliminary Preparation
• Review and Research Existing Data & Maps. Recon by consultants as necessary (wetlands, soils etc)
• Initial review of Zoning, Access, Topography, Utilities, Market
• Meet with Jurisdictions
• Preliminary Proforma & Schedule
• Internal Feasibility Results. Proceed or Halt project
• Initial Planning, Hire Engineer
• Field Work (at least enough for submittal): Survey, Mapping, Prelim. Engr., Critical Area review
Action Item: Decide on project feasibility. Prepare Pre-App package, Schedule Pre-App mtg.

Phase II: Pre-Application Meeting
• Submit Pre-App package. Meet with Jurisdiction. Discuss initial findings, potential obstacles & options.
• Post meeting: review possible revisions, variances, or re-designs options
• Hire other professionals (geotech, wetland bio, traffic, landscape arch, etc)
• Applicant could skip the pre-application meeting and move straight to preliminary submittal depending upon jurisdiction and project type
Action Item: Submit Pre-App Package (Application #1). Prepare Preliminary Submittal Package

Phase III: Preliminary Submittal to and Prelim. Approval
• Plat Submittal package and review by agencies planning department
• Complete application  equals a vested project*
• Additional information requests and redline comments
• Work with other jurisdictions (Water & Sewer District, PSE, DOE, etc)
• SEPA determination* (DNS, MDNS, DS EIS)
• Public Hearing
• Issue Preliminary Plat approval with (subject to) conditions
Action Item: Submit Package (Application #2). Respond/Address Jurisdiction comments

Phase IV: Engineering Review
• Engineer will technically design plans for all roads, utilities and other infrastructure to serve project
• Enter development Extension agreements with purveyors
• Approved Engineering plans issued for construction
Action Item: Submit Engineering drawings (Application #3) & redlines

Phase V: Site work construction
• Infrastructure construction
• As-built work & final inspection upon completion with each jurisdiction (Bond as necessary)
Action Item: Hire contractor. Site Inspection & Approval

Phase VI: Final Review & Recording
• Prepare Final Plat maps
• Lot Corner staking
• Redline corrections
• Bond & Final Recording
Action Item: Prepare Final Plat map, Bond & Record

Thanks to Cramer NW http://www.cramernw.com/ for their contribution to this list.

Citizens' Alliance for Property Rights Meeting

Thursday, March 4th: I'll be speaking at the Citizens Alliance for Property Rights montly meeting. I'll be leading the discussion on innovative land use topics in King County. Come join us at 7:00pm

King County CAPR is dedicated to the protection of private property and the rights of property owners.
The King County Chapter meets at 7:00 PM on the first Thursday of each month at the Issaquah IHOP Restaurant located at 1433 NW Sammamish Rd. Issaquah, WA.

Builders Cash in on Tax Refunds

Extension of net operating loss carry-back provision to five years are returning millions of dollars to public builders, some of which are using the money to buy land at bargain prices.


Christmas came a little late, but with a huge satchel of gifts for many of America’s largest home builders: Nearly $2 billion in total tax refunds for the last three months of 2009.

On Tuesday, Pulte, the housing industry’s largest builder, reported that its earnings loss for the three months ended Dec. 31, 2009 had narrowed to $116.9 million. That improvement in no small measure resulted from a whopping $800 million tax refund that Pulte gained from a law change that now allows companies carry back net operating losses up to five years.

The net operating loss (NOL) carryback provision was one of the key lobbying points—the other being the extension of the federal tax credit for home buyers—that NAHB and its largest members pushed Congress hardest for to resuscitate the housing sector. Pulte’s tax benefit, which helped offset $925 million in quarterly land impairments and other writedowns, is the largest among the almost $2 billion in total NOL refunds that 10 of the industry’s publicly traded builders reaped in their latest quarters. (See chart below.)

Two other public companies, Hovnanian Enterprises and Toll Brothers, ended their latest fiscal years before the law went into effect, and therefore reported losses for of $250.8 million and $78.8 million, respectively, in their fourth quarters. Both builders, however, intend to take full advantage of the law change. Larry Sorsby, Hovnanian’s CFO, told investors that his company is “now expecting a $275 million to $295 million tax refund in our second quarter of 2010.” Toll believes it will recover $161.8 million in 2010 from filing its 2009 tax return.

Indeed, the tax refunds that large public builders have received so far could be just the tip of the iceberg. D.R. Horton, for one, has submitted a claim for a $352 million refund for the current quarter.

During their first quarters of 2010, Ryland Group is counting on refunds of $99.4 million, Meritage Homes $93 million, KB Home $190.7 million, and Standard Pacific $103 million.

Lennar is also banking on a $320 million tax refund in early 2010. “Our improved balance sheet enables us to continue to capitalize on distressed land-buying opportunities, which will improve our operating results in 2010 and beyond,” said its CEO Stuart Miller.

M.D.C. Holdings expects to do the same. As it was closing the books on 2009, the Denver-based builder raised new capital by issuing $250 million in new debt. M.D.C. also expects to receive a $143 million tax refund during the first quarter of 2010. “Given these enhancements to our liquidity, we are well-positioned to continue making investments in 2010 as we build our land pipeline to support future home closings,” wrote M.D.C.’s chairman and CEO Larry Mizel.

John Caulfield is senior editor for BUILDER magazine.

Company Quarterly net income for three months ending 12/30/09 Tax refund

_______________________________________________

Pulte $(116.9) million $800 million

Lennar $35.6 million $251.1 million

KB Home $100.7 million $191.7 million

M.D.C. Holdings $127.2 million $142.6 million

D.R. Horton $192 million $113 million

Beazer $50 million $101 million

Ryland Group $39 million $97.6 million

Standard Pacific $82.7 million $94.1 million

Meritage Homes $43 million $90 million

M/I Homes $7 million $31 million

TOTAL $560.3 million $1.9 billion

Lenders — and tenants — like 'apodments'

It's a rooming house. You get a single bed, table, chair and refrigerator. No closet and you share a kitchen facility. While older rooming houses dot the City of Seattle a new one hasn’t been built from the ground up for years. At $500-650/month, it’s fully leased out. Will there be more like it to come? Some say the developer used a loophole and the rooming house didn’t go through the environmental and design review like “congregate housing” normally would. Stay tuned.


Real Estate Buzz: Lenders — and tenants — like 'apodments'
Daily Journal of Commerce
By MARC STILES
Real Estate Editor

Those who doubt whether small and humble are good traits to bring to a development project haven't been paying attention to what's been occurring on Seattle's Capitol Hill, where Calhoun Properties and Kauri Investments opened Videre, a congregate-style apartment project, last summer.

The 46 units average 130 square feet. (That's not a typo.) Each comes with its own bathroom, bed, table, chair and fridge. Tenants share very basic kitchens — one for every eight units — and pay $495 to $650 per month, which also covers utilities, including broadband Internet. Videre leased up pretty much right away and today there's no vacancy. So it's no surprise that Kauri and Calhoun have been raising rents.

“Residents speak with their checkbooks,” says Dirk Mulhair, who operates Calhoun Properties with his father, Gary.

Now comes the real stamp of approval from someone with an even bigger checkbook: Sound Community Bank. It is providing permanent financing at a fixed rate of 7 percent for 10 years with 30-year amortization. These days, that's “pretty awesome,” says Kauri Chairman Jim Potter.

Despite the project's solid economics, lining up financing wasn't easy. Community banks are under pressure not to lend on commercial real estate in general. The Videre, with its tiny units — “apodments,” Dirk Mulhair calls them — and communal kitchens, is especially difficult. For Fannie Mae and Freddie Mac, which will still finance multi-family projects, the unique character of Videre put it out of their comfort zone, said mortgage broker Dan Piantanida, vice president of GP Realty Finance, the Bellevue company that lined up the deal.

“We've just never seen a product quite like this,” he said. “It took some education on our part.” Once he went over the economics with Sound Community Bank representatives and had them visit Videre, which is at 216 23rd Ave. E., the deal was done.

Piantanida said it's ironic that these days, when experts say that the region's apartment vacancy rate is headed toward historic highs, it's easier to secure standard financing for apartment projects than nontraditional multi-family developments, such as Videre and Calhoun Properties' other boarding house-like properties.

Calhoun owns a total of 140 units in the University District and Capitol Hill, including the ones at Videre it owns jointly with Kauri. All 140 units are leased, Dirk Mulhair said.

The idea of rooming houses — all that density along with what Dirk Mulhair says is their reputation as “crack-ridden, slum-lord-owned, rundown places” — is enough to scare off even the boldest of investors and the bravest of tenants. He says the key to operating a successful boarding house is a hands-on management style that emphasizes respect and dignity for tenants. “We are very customer-driven.”
Calhoun and Kauri refer to their tenants as “partners.” Dirk Mulhair says he knows every resident by name. The process of signing a lease is thorough. Properties have onsite managers and security systems, and the buildings are regularly maintained.
Residents range from baristas to white-collar professionals who live outside the city but want a place to stay when they're in town.

The formula works in good times and bad, according to Piantanida's research. Over the last five years, he says, the vacancy rate for these kinds of projects is less than 1 percent. Plus, Seattle “needs this kind of housing.”

“There's a very deep market for this kind of product,” says Potter. The key is finding in-city sites close to transit lines, grocery stores and other necessities.
Not surprisingly, he and the Mulhairs plan to build more “apodments.” Potter talks about doing three this year, and says he's talking with the Seattle Housing Authority about a project at Rainier Vista. He has another site lined up in Seattle but won't say any more about that until the deal closes this spring.

Innovative Land Use Techniques, Part 1

Copy of slide show materials from last weeks real estate presentation

http://http//www.slideshare.net/JeffMcCann

LAND ENTITLEMENTS

Real Estate Dictionary: Entitlement--The right to develop land with government approvals for Zoning density, utility installations, occupancy permits, use permits, and streets.

In essence, Land Entitlement is what happens with a project before a shovel of dirt is turned.

Entitlements are the backbone of any development. Entitlements dictate “what, where and how much” can be built on a particular property. The “what, where and how much”—have a lot to do with determining the value of a property. A property that has a large number of uses is typically more valuable than the same property with a very limited use.

Entitlements are a legal agreement with the governing jurisdiction to allow a certain development to occur on the site. Entitlements outline the density, function and setback requirements allowed for the property.

Typically, developments can only be financially viable if they can obtain a certain density or usage. Entitlements are the key to legally securing this right from the governing jurisdiction.

When reviewing a development application, a jurisdiction will consider potential impacts such as traffic and environmental risks as well as community acceptance of the proposed development. They will likely require studies from the owner as well as proposed conceptual designs of the project.

Applying for entitlements is a challenging process. Depending on the size of the project and intended use, entitlements can take from a few months to many years to obtain. This is in large part based on the complexity of the project and public acceptance of it.

Community Banks Must Lend

I agree, the construction sector has been hit harder by this economic downturn than any other industry. Additionally, Pat Hillyer raises a sound point, "we" need to let our legislators know what is going on. We need banks to start lending to our local builders to bring jobs back.

The Miter Box
A Cross-Section of News and Opinion--Julianna Ross
With unemployment at historically high levels and billions of dollars flowing into the financial sector from Federal bailouts, taxpayers expect the needs and provisions to eventually intersect and provide relief to so-called ordinary Americans. Extensions of unemployment benefits and first time homebuyer tax credits are nice, but it’s hard to erase the vision of financial fat cats rolling in enormous pay bonuses just months after enjoying bailout dollars plucked from the pockets of the nearest newborn.

Irrefutably, no single industry has been hit as hard in this economic correction as construction. The construction sector is unique because it encompasses numerous and diverse fields factored into the GDP including real estate, utilities, wholesale, local government, forestry, manufacturing, transportation and warehousing, waste management, and science (a burgeoning profit center churning out all those new-fangled sustainable products). Yet mention homebuilder’s plights these days and it seems like every politician, regulator and lender is content to ignore one of our country’s most potent employment engines.

“Banks are so focused on the mess they’ve created for themselves,” says Nick Schmitt, a local private investment and banking consultant. “They are focused on their problem loans instead of the future. Once TARP is gone, banks will have to turn to entrepreneurial ways to generate new loans.” In a climate where many builders say it’s hard to even get a bank’s attention unless they stop paying on their loans, there is no reward for good behavior and understandable frustration. “I’m being forced into an early retirement,” says one Seattle builder, 42, who has as an exemplary lending track record. This is a builder fueling the other small businesses of local suppliers, employing staff and quickly selling through his stock of well-designed homes, even throughout 2008 – 2009.

Martha Rose, one of King county’s first spec builders of sustainable housing, launched an ambitious letter writing campaign on behalf of her business and the opportunity she sees as having a permanent impact on how people build. “The letter explains that spec construction loans must be made available to builders of homes that are super energy efficient. Green builders do not have access to other sources of funding and currently are lumped together with all spec builders,” she writes on her blog. The letter is to accompany an individual or business moving their money out of federally funded banks and into community banks, in return for the local banks agreeing to lend again, this time to responsible and environmentally minded builders.

Unfortunately, it is now the commercial credit crisis that has many of those community banks landing in the regulation handcuffs of their bigger brethren. Everyone agrees, the old days are gone and aren’t coming back. What option does an entire segment of industry have in a time like this?

One source cites Oregon Congressman Jeff Merkley’s bill titled Banking on our Communities (www.merkley.senate.gov). It strives to put TARP funds to work in partnership with private investors, recapitalizing community banks so they can lend again to small businesses and consumers. In fact, private investors could be the biggest winners coming out of the crisis, as builders begin imagining new partnerships and ways of securing funding. “We all know when a void is created, it gets filled,” says Scott Cameron of Windermere. “The banks need a plan, because they’ve created a void.”

The NAHB’s Put Housing First coalition was successful in lobbying for the $8,000 first time homebuyer credit and also its extension. Now it’s time to form a new coalition and let our elected officials know that we want community banks lending to community builders and bringing back jobs. “Our banks and our legislators don’t understand, and it’s our fault,” states Pat Hillyer of Umpqua Bank. “You’ve got to let them know what’s going on.”

Senator Patty Murray’s office recently reported holding dozens of meetings with small builders and is introducing legislation after the Thanksgiving break to focus credit and support on community banks lending to local builders. “Start a parade, and I’ll lead it,” Senator Warren G. Magnuson once said, and it is time to get this parade started and push our elected officials to lead. The needs and contributions of Main Street homebuilders cannot be ignored.

-- Julianna Ross, Publisher, The Builder’s Journal
The Miter Box is an ad-hoc column welcoming opinions about all topics concerning the residential building market, particularly as they pertain to King and Snohomish counties of Washington State.

Rural zoned condominium lot

A family owned some property in the rural area of King County. The property included the main home as well as a secondary home that was built many years ago. They wished to have the ability to sell one of the homes and keep the other.

The normal way would be to subdivide the property via a short plat. Short platting the property probably would have cost them about $110,000 for applications, engineering, site construction, bonding etc. and taken about 3 years to complete. Unfortunately, they didn’t even have enough area (a large enough lot) to subdivide, so that wasn’t an option.

In talking with their engineer, they learned of a creative solution for their problem. Cramer Northwest Inc. advised them to do a Condo Survey. The Condo survey accomplished their objective utilizing a different code. In the end, they got their two lots (just like in a short plat) but at a fraction of the time and expense of one.

Method..............~Cost............Time

Short Plat.................$110,000...........3 years
Condo Survey..........$9,500...............7 months

===============================
Savings................91%..............80%

Disclaimer: The codes in your jurisdiction may not be the same. The key to this example is that the clients had two existing homes on the same lot. Please consult a professional such as Cramer Northwest http://www.cramernw.com/ to discuss your particular case.

Report Cards are in

Last week the Municipal League released a study titled "Rights, Wrongs and Reforms: Selected Issues on Land Use regulations in King County." Issues from multiple perspectives are discussed and worth considering.

http://www.mbaks.com/library/issues/LandUseReportFinal.pdf

High Appreciation hid a lot of mistakes...for a while

I have a very intelligent friend. Heck, some say his IQ is way up there near the genius level—but that doesn’t make him a smart real estate investor. Here was a lifelong engineer wanting to become a home builder simply because the market was so hot that no one could lose.

One day he called me and asked for a favor. He wanted me to look at a vacant lot he was considering buying to build a spec home on. I quickly did a CMA and a NewHome Trends report to pull up comparables and headed to the site. I spend two hours with him walking the lot and the neighborhood. We went through a due diligence checklist I worked up for him. While most things looked fine, there were still a number of questions he would need to get answered by the local planning department.

When he told me what he was going to pay for the lot I said I thought he was paying full retail price—and maybe even a little more. Off the cuff I told him if he could avoid adding a fire hydrant in the street, sprinkling the home and get a sewer easement from a neighbor (to avoid pumping the sewage up to the main) then he might be alright. If he couldn’t accomplish at least two of these then he was overpaying for the Lot. I recommended he get his questioned answered and then determine how much lower he needed to reduce his offer by to be safe.

He was in such a hurry to buy that he didn’t take the time to check into the feasibility items I warned him about. He believed that even if he was overpaying for the lot, he could make up the difference with the appreciation that was bound to occur on the land during the time he was building the home.

Unfortunately, there were too many instances like this where people were so excited to buy that they ignored market signs and failed to do the proper feasibility before buying land and homes.

A proper due diligence report would have identified many of the problems the Buyer ended up encountering.