development agreements between municipalities and private...

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Presenting a live 90-minute webinar with interactive Q&A

Development Agreements Between

Municipalities and Private Parties Attracting Private Funding for Long-Term Development Projects,

Addressing Land Use and Infrastructure Issues

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, DECEMBER 19, 2017

Rob Killen, Shareholder, Kaufman & Killen, San Antonio

Sarah M. Rockwell, Partner, Kaplan Kirsch & Rockwell, Denver

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“ We use our

experience

and relationships to find

the most effective

solution for our clients .”

Leveraging Development

Agreements between Municipalities and Private

Parties

Presented by Rob Killen

December 19, 2017

6

Development Agreements from the

Developer/Business Perspective

Overview

• Important considerations

• Value for developer/business

• Types of agreements

• Sample enabling legislation

• Potential challenges

• Examples

7

Initial Questions

• How much do you need?

• What taxes will be generated?

• How many jobs (temporary/permanent)?

• What is the public purpose?

• Which tool(s) do we use?

• Any other issues?

8

Why Enter into a Development

Agreement

Value for Developer:

Certainty in the development process

Creation of necessary public infrastructure

Offset development costs

9

Categories of

Development Agreements

10

Potential Development Agreement

Incentives

Direct Municipal Assistance

Applicability of Current or Future

Ordinances

Tax Abatement or Reinvestment

Annexation

Special Districts

11

Direct Municipal Assistance

Grants

Fee Waivers

Construction of pubic improvements

Participation in costs of public

improvements

12

Applicability of Current or Future

Ordinances

Permitted land uses upon annexation

Grandfathering/Vested rights

Special zoning districts

13

Tax Abatement or Reinvestment

Tax Abatement

Tax Rebate

Tax Increment Reinvestment Zone

14

Annexation

Non-Annexation Agreement

Delayed Annexation

15

Special Districts

Districts with Land Use Controls

Districts that use existing tax revenues

Districts that can collect taxes and assessments

16

Special Districts

Examples

Municipal Utility District (MUD)

Water Control & Improvement District (WCID)

Public Improvement District (PID)

Special Improvement District

Road District

Municipal Management District (MMD)

Municipal Development District

County Development District

17

Community Benefit

Agreements

18

What is a Community Benefit

Agreement?

A contract between a community group and

developer which requires the developer to create

amenities or other improvements that benefit the

community. The community group agrees to

support the project as part of the agreement.

Although this can be done informally in any

jurisdiction, some jurisdictions have established

laws authorizing CBAs.

19

Who is Using CBAs? Los Angeles

Atlanta

Denver

Milwaukee

Minneapolis

New Haven

New York City

Philadelphia

Pittsburgh

San Diego

San Francisco

San Jose

Seattle

Syracuse

Washington, D.C.

20

Why Enter into a Community

Benefit Agreement?

• Reduce risk by establishing community support

Value to Developer

• Enforceable agreement to provide benefit

Value to community

group

21

Difference Between CBA & Development

Agreement

Developer

City Community

Group

Development

Agreement

CBA

22

Examples of Texas

Statutes Authorizing


23

Texas Developer Participation

Agreement

“Without complying with the competitive sealed bidding procedure of Chapter 252, a municipality with 5,000 or more inhabitants may make a contract with a developer of a subdivision or land in the municipality to construct public improvements, not including a building, related to the development.

…

(a) Under the contract, the developer shall construct the improvements and the municipality shall participate in their cost.

(b) The contract:

(1) must establish the limit of participation by the municipality at a level not to exceed 30 percent of the total contract price, if the municipality has a population of less than 1.8 million; or

(2) may allow participation by a municipality at a level not to exceed 70 percent of the total contract price, if the municipality has a population of 1.8 million or more….

[T]he contract may also allow participation by the municipality at a level not to exceed 100 percent of the total cost for any oversizing of improvements required by the municipality, including but not limited to increased capacity of improvements to anticipate other future development in the area.”

24

http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=LG&Value=252

Texas Non-Annexation Agreement

The governing body of a municipality may make a written contract with an owner of land

that is located in the extraterritorial jurisdiction of the municipality to:

(1) guarantee the continuation of the extraterritorial status of the land and its immunity

from annexation by the municipality;

(2) extend the municipality's planning authority over the land by providing for a

development plan to be prepared by the landowner and approved by the municipality

under which certain general uses and development of the land are authorized;

(3) authorize enforcement by the municipality of certain municipal land use and

development regulations in the same manner the regulations are enforced within the

municipality's boundaries;

(4) authorize enforcement by the municipality of land use and development regulations

other than those that apply within the municipality's boundaries, as may be agreed to by

the landowner and the municipality;

(5) provide for infrastructure for the land, including:

(A) streets and roads;

(B) street and road drainage;

(C) land drainage; and

(D) water, wastewater, and other utility systems;

(6) authorize enforcement of environmental regulations;

(7) provide for the annexation of the land as a whole or in parts and to provide for the

terms of annexation, if annexation is agreed to by the parties;

(8) specify the uses and development of the land before and after annexation, if

annexation is agreed to by the parties; or

25

Texas Non-Annexation Agreement

(9) include other lawful terms and considerations the parties consider appropriate.

An agreement under this subchapter must:

(1) be in writing;

(2) contain an adequate legal description of the land;

(3) be approved by the governing body of the municipality and the landowner; and

(4) be recorded in the real property records of each county in which any part of the land

that is subject to the agreement is located.

(d) The total duration of the contract and any successive renewals or extensions may not

exceed 45 years.

(e) A municipality in an affected county, as defined by Section 16.341, Water Code, may not

enter into an agreement under this subchapter that is inconsistent with the model rules

adopted under Section 16.343, Water Code.

(f) The agreement between the governing body of the municipality and the landowner is

binding on the municipality and the landowner and on their respective successors and

assigns for the term of the agreement. The agreement is not binding on, and does not

create any encumbrance to title as to, any end-buyer of a fully developed and improved lot

within the development, except for land use and development regulations that may apply to

a specific lot.

(g) An agreement under this subchapter constitutes a permit under Chapter 245.

(h) An agreement between a municipality and a landowner entered into prior to the effective

date of this section and that complies with this section is validated.

26

http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=WA&Value=16.341

http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=WA&Value=16.343

http://www.statutes.legis.state.tx.us/GetStatute.aspx?Code=LG&Value=245

Texas 380 Agreement

“The governing body of a municipality may establish and provide for the administration of one or more programs, including programs for making loans and grants of public money and providing personnel and services of the municipality, to promote state or local economic development and to stimulate business and commercial activity in the municipality…. The governing body may … contract with the federal government, the state, a political subdivision of the state, a nonprofit organization, or any other entity for the administration of a program…”

27

Potential Challenges to


28

Contract Zoning

In City of Shavano Park v. Ard Mor, 2015 WL

6510544 (Tex.Ct.App. – San Antonio 2015), a

property owner in Shavano Park challenged a

development agreement that would have

provided for annexation and guaranteed the right

to operate a gas station upon annexation,

claiming that this was spot zoning.

29

Contract Zoning

“Impermissible “contract zoning” occurs when a

governmental entity agrees to zone land in a

certain way in exchange for a landowner's

agreement to use the land in a certain way

Zoning is a legislative function a city cannot

cede. Therefore, a city cannot surrender its

authority to determine proper land use by

contract.

30

Contract Zoning

Zoning decisions must occur via the legislative

process and not by “special arrangement” with a

property owner. “[C]ontract zoning is invalid

because, by entering into such agreements, the

city impermissibly abdicates its authority to

determine proper land use, effectively bypassing

the entire legislative process.”

31

Observations on Recent

Economic Development

Trends

32

Observations on Recent Trends

• Utility rate competitiveness

• National (and International) Competition

• “Corporate Welfare” Claims

• Job Creation and other metrics

• Impact of national politics on local decision-

making on development agreements

33

Five Quick Case Studies

in San Antonio

34

Sun Edison Solar Farm

35

SunEdison Solar Farm

Project: Solar farm in south San Antonio

Incentive: Non-Annexation Agreement, Tax Abatement

Value to developer: No City taxes

Value to Municipality: Additional renewable energy

36

TPC San Antonio Golf Courses and JW Marriott Resort

Cibolo Canyons Special Improvement District

TPC San Antonio Golf Courses

and JW Marriott Resort

37

Cibolo Canyons 38

Cibolo Canyons &

JW Marriott Resort

Project: Residential development, 1000+ room hotel

and 2 TPC golf courses

Incentive: Special district, non-annexation

agreement

Value to developer: District collects property, sales,

and hotel occupancy taxes

Value to Municipality: Aquifer recharge zone

protection and destination resort

39

PETCO Co-Headquarters

Project: Creation of corporate headquarters

Incentive: Tax abatement and grant

Value to developer: Cash and no taxes

Value to Municipality: Over 400 high paying jobs

41

City Base West Shopping Center

42

City Base West Shopping Center

Project: Retail shopping center

Incentive: Purchase of real property and drainage improvements

Value to developer: Equivalent of grant for public improvement

Value to County: Job creation, public infrastructure, new retail in

underserved area

43

Microsoft Data Center 44 44

Microsoft Data Center

Project: Data Center

Incentive:

Tax abatement for any future location within San Antonio

Creation of new (lowest) rate through City-owned electric utility

Tax incentives through State Comptroller’s office

Value to developer: Incentives designed to allow for flexibility

in site selection, low energy cost

Value to City: Multi-billion dollar investment in real and

personal property, $1 million grant from Microsoft to UTSA,

creation of joint-use R&D between UTSA and Microsoft

45

Other Examples

46

Agave Apartments

47

Agave Apartments

(Greystar) 48

Westside 211 Public Improvement District 49

Southtown Flats

(Transwestern) 50

DEVELOPMENT AGREEMENTS

Special Considerations For Public Entities

Sarah M. Rockwell, Esq.

Strafford Publications CLE Webinar

Development Agreements between Municipalities

and Private Parties

December 19, 2017

52

Topics

− When is the Public Sector Involved?

− Public Sector Goals

− Pre-Agreement Planning

− Pre-Agreement Documents

− Structuring the Development Agreement

− Processing and Approval

− Monitoring the Agreement Over Time

− Examples

53

1. When Do Public Entities Get

Involved? − Public entity owns the land

− Public entity will contribute significant

project components

− Public sector will provide public financing

− Public/community desire for signature

project

− Transit-oriented development

− Urban redevelopment project

− New community

54

2. Typical Public Sector Goals

− Implement desired project

− Impose enforceable obligations and

timelines on private developer

− Establish road map

− Protect the public interest

− Approval

− Enforce and monitor over

time

55

3. Public Sector: Pre-Agreement

Planning

− Master Planning

− Blueprint for development

− Enhances community support

− Sets expectations

− Some Denver Examples

− Stapleton “Green Book”

− Lowry Reuse Plan

− I-25 and Broadway Station Area Plan

59


Planning

− Development

Solicitation

− RFP

− Obligations and

expectations

− Who makes the

selection?

− How is the selection

approved?

60


Planning

− Do I have the authority?

− State law

− Local charter and ordinances

− What are my limitations?

− Restrictions against joint venture

− Can’t improperly delegate

− Limitations on binding future elected bodies

− Social ordinances

61


Planning

− Negotiating the Agreement

− How does the public sector make decisions?

− Who drafts/reviews?

− Need for regular briefings

of elected officials and

staff

− How/when to involve

the public?

− What is the formal

approval process?

62

− Project Team

− Due Diligence

− Investor/Lender Requirements

− Acknowledge how public sector

negotiations are different

− Prepare to be transparent

− Know your limits

3. Private Sector: Pre-Agreement

Planning

63

4. Pre-Agreement Documents

− Exclusive Negotiation Agreement

− Term Sheet

64

5. Structuring the Agreement:

The Road Map

The Property

Infrastructure Requirements

Public Finance

Environmental Issues

Project Entitlements

Developer Obligations

Public Amenities

Defaults and Remedies

1

2

3

4

5

6

7

8

65


The Property

− What property will be included?

− Timing of property acquisition

− Title issues

− Conditions precedent to takedown

66


Infrastructure Requirements

What infrastructure

is needed?

Who is responsible?

What are the timing

requirements?

Who will operate

and maintain?

67


Public Finance

− How will infrastructure be paid for?

− Developer advances

− Tax increment financing or other non-urban

renewal financing

− State or Federal loans or grants

− Special district financing

− Other financing mechanisms (improvement

districts, community fees, etc.)

68


Environmental Issues

− Environmental condition of the property

− Clean up responsibility

− Clean up standards

− Environmental insurance

− Role of environmental regulatory agencies

69


Project Entitlements

− What entitlements are required and what

is their timing?

− Will vesting be provided? If so, what is

vested and for how long?

70


Developer Obligations

− Takedown requirements

− Development requirements

− Managing the project

− Contracts with developers and homebuilders

− CCRs

− Design Review

− Environmental Liabilities

− Ownership of infrastructure

71


Public Amenities and Other

Requirements

− Affordable Housing

− Parks and Open Space

− Schools

− Public Art

− Other social ordinance requirements

− Community role

72


Defaults and Remedies

− Defaults

− Public entity

− Private entity

− Remedies

− When does developer lose right to complete

the project?

− Consider lender provisions

73

6. Approving the Agreement

− What public bodies must approve?

− Notice Requirements – mail, posting,

newspaper

− Public outreach

− Public hearing?

− Who signs the agreement?

− Recording

74

7. Monitoring the Agreement

Over Time

− Financial components

− Public and private sector obligations

− Amending the agreement

− How to deal with noncompliance

− Educating new elected officials and staff

informed

75

8. Final Tips for Win Wins

− Up front planning

− Understand goals and constraints

− Respect process and time

− Clear roles for negotiating

and decision making

− Draft provisions carefully

− When you’re stuck, use road map

− Plan for the approval process

− Think through ongoing monitoring

76

Examples from Denver:

− 61st and Pena

− Alameda Station

− Broadway Station

77

61st and Pena Development Agreement

− Parties: City and County of Denver/Rail

Stop LLC (Fulenwider entity)

− Goals:

− Establish parties’ responsibilities for funding

of infrastructure

− Establish mechanism to reimburse Denver for

upfront payments

− Determine process for design review

− Determine joint efforts going forward

78

Table of Contents/Development Agreement related to 61st

Avenue Station TOD Project

TABLE OF CONTENTS

I. Definitions ...........................................................................................................................2

II. Term of Agreement ............................................................................................................8

III. District Agreements ...........................................................................................................8

IV. Phase I Work Design and Construction ..........................................................................9

A. RTD Station Work .................................................................................................9

1. Notice to Proceed........................................................................................9

2. Coordination with RTD .............................................................................9

B. RTD Station-Related Improvements, Joint Infrastructure and Non-

DIA Property Work ...............................................................................................9

V. Funding for Phase I Work ................................................................................................9

A. DIA Funding ...........................................................................................................9

1. Funding for RTD Station and Associated Work .....................................9

2. Funding for Joint Infrastructure ............................................................10

3. Additional Funding for Joint Infrastructure and Non-DIA

Property Work .........................................................................................10

4. Deposit of DIA Deposited Funds ............................................................10

5. Phase I Costs .............................................................................................10

B. Developer Funding ...............................................................................................10

1. Funds Required ........................................................................................10

2. Equity Funding ........................................................................................10

3. Smith 1 Funds ...........................................................................................11

4. SMT Funds ...............................................................................................11

5. Loans .........................................................................................................11

C. Funding for Cost Increases .................................................................................12

1. General ......................................................................................................12

Funding for Cost Increases Prior to Letting of Construction Contracts ........12

D. Additional Contingency .......................................................................................14

VI. Reimbursement and Repayment to DIA........................................................................14

A. Obligation for Reimbursement of DIA Funding of $17 Million ......................14

B. Obligation for Reimbursement of DIA Funding of $3 Million ........................14

C. Obligation for Repayment of DIA Priority Investments ..................................15

1. Land Sale ..................................................................................................15

2. Net Land Sale Proceeds ...........................................................................15

3. DIA Priority Investments Reimbursement ............................................15

4. Net Land Sale Accounting .......................................................................16

D. Obligation for Repayment of Developer Priority Investments ........................17

VII. DIA Conditions Precedent to Closing ............................................................................17

A. Conditions Precedent ...........................................................................................17

1. Title............................................................................................................17

2. Subscription Agreements ........................................................................17

3. Management Rights .................................................................................17

4. Coordination Agreement .........................................................................18

5. District Agreements .................................................................................18

6. Loan Documents.......................................................................................18

7. Legal Opinions .........................................................................................18

VIII. Closing ...............................................................................................................................18

A. General ..................................................................................................................18

B. Closing Deliveries .................................................................................................18

1. For Developer ...........................................................................................18

2. For DIA .....................................................................................................19

79



C. Closing Actions .....................................................................................................19

1. Equity Funds ............................................................................................19

2. Smith, SMT and Lender Funds ..............................................................19

3. DIA Funds.................................................................................................19

4. Development Agreement .........................................................................19

5. Inclusion Agreements ..............................................................................19

6. CCRs and Design Declaration ................................................................19

IX. Pre-Development Activities .............................................................................................19

A. General ..................................................................................................................19

B. Zoning, Site Planning ..........................................................................................20

C. Conditions Covenants and Restrictions/Design Guidelines .............................20

1. CCRs .........................................................................................................20

2. Design Declaration and Design Guidelines ............................................20

3. Coordinating Committee .........................................................................20

4. Smith and SMT Property ........................................................................20

D. Panasonic Related Items......................................................................................21

1. Other Improvements ...............................................................................21

2. Micro-Grid................................................................................................21

E. Development and Marketing Plan ......................................................................21

1. Development of Plan ................................................................................21

2. Vertical Development on DIA Property and Developer

Property ....................................................................................................21

X. Cooperation Regarding Planning and Vertical Development .....................................22

A. General Understanding .......................................................................................22

B. Coordinating Committee .....................................................................................22

Members ...............................................................................................................22

3. Meetings ....................................................................................................22

4. Coordinating Committee Responsibilities .............................................22

C. District Board of Directors ..................................................................................23

XI. Future Funding, Construction and Maintenance of Project Infrastructure ..............23

A. Future Infrastructure Costs ................................................................................23

B. Infrastructure on Each Party’s Land ................................................................23

C. Operation and Maintenance ...............................................................................23

XII. Transfers and Financings ................................................................................................23

A. Developer ..............................................................................................................23

XIII. Informal Dispute Resolution ...........................................................................................24

A. Dispute Notice.......................................................................................................24

B. Panel ......................................................................................................................25

XIV. Default and Remedies ......................................................................................................25

A. Events of Default by Developer ..........................................................................25

1. Funding .....................................................................................................25

2. Loans .........................................................................................................25

3. Cost Increases ...........................................................................................25

4. Compliance ...............................................................................................25

5. District Agreements .................................................................................25

B. Events of Default by DIA ....................................................................................25

1. Funding .....................................................................................................26

2. Cost Increases ...........................................................................................26

3. Compliance ...............................................................................................26

C. Default Notice .......................................................................................................26

80



1. Default Notice ...........................................................................................26

2. Cure ...........................................................................................................26

D. DIA’s Remedies ....................................................................................................26

1. Remedies ...................................................................................................26

2. Remedies ...................................................................................................27

E. Developer’s Remedies ..........................................................................................27

1. Remedies ...................................................................................................27

2. Remedies ...................................................................................................27

XV. Developer’s Representations and Warranties ...............................................................28

A. Authority ...............................................................................................................28

B. Power .....................................................................................................................28

C. No Conflict ............................................................................................................28

D. No Violation ..........................................................................................................28

E. Litigation ...............................................................................................................28

F. Developer Property ..............................................................................................28

G. Developer Control ................................................................................................28

XVI. DIA’s Representations and Warranties .........................................................................29

A. Authority ...............................................................................................................29

B. Power .....................................................................................................................29

C. No Violation ..........................................................................................................29

D. No Consents or Approvals ...................................................................................29

XVII. Miscellaneous Provisions .................................................................................................29

A. Governing Law .....................................................................................................29

B. Multi-Year Fiscal Obligation ..............................................................................29

C. Notices ...................................................................................................................29

Drafting .............................................................................................................................30

E. Entire Agreements; Amendments ......................................................................30

F. Day for Performance ...........................................................................................31

G. Exhibits .................................................................................................................31

H. No Joint Venture, Partnership, Agency, etc ......................................................31

I. No Waiver .............................................................................................................31

J. Survival .................................................................................................................31

K. Usage of Terms .....................................................................................................31

L. Notice of Litigation ..............................................................................................31

M. Force Majeure ......................................................................................................31

N. Changes in Law ....................................................................................................32

O. Conflict of Interest ...............................................................................................32

P. Paragraph Headings ............................................................................................32

Q. Third Party Beneficiary ......................................................................................32

R. Counterparts, Electronic Signatures, and Electronic Records ........................32

S. No Personal Liability ...........................................................................................32

T. No Discrimination in Employment .....................................................................32

U. Appropriation .......................................................................................................33

V. “Including .............................................................................................................33

W. Examination of Records ......................................................................................33

X. Covenants Running with the Land .....................................................................33

Y. Further Assurances ..............................................................................................33

Z. Agreement Subordinate to Agreements with United States ............................33

AA. Bond Ordinances ..................................................................................................33

BB. Actions by DIA/City Under this Agreement ......................................................33

81

Alameda Station

− Parties: D4 Urban/Regional Transportation District

- Goals:

- Establish D4 responsibilities for construction of RTD

transit plaza

- Establish D4 responsibilities for D4 construction of

residential project

Key issues:

- Process for approval of design and construction

- Remedies for non compliance

- Ongoing maintenance of transit plaza

- Lender provisions

82

Broadway Station Redevelopment

Agreement (and ancillary agreements)

− Parties – Broadway Station Metro District No.

1/Denver Urban Renewal Authority (“DURA”)

− Goals:

− Identify horizontal infrastructure eligible for

reimbursement

− Establish City and DURA processes/requirements for

tax increment financing (TIF) reimbursement

− Describe District obligations regarding project art,

hiring, signage, insurance, SBE, other covenants

− Coordinate with numerous other agreements related to

the project.

83

Questions?

Sarah M. Rockwell, Esq.

[email protected]