Real Estate

This issue of the newsletter examines the impact of the Stormwater Remediation Fee in Maryland and the Regional Congestion Relief Fee in Virginia, effective on July 1, on residential and commercial property owners.

Successor agencies to California’s dissolved Redevelopment Agencies (“RDAs”) continue to wind down the operations of the former RDAs under the supervision of oversight boards pursuant to Assembly Bill X1 26 (“AB 26”) as modified by Assembly Bill 1484 (“AB 1484”). Successor agencies are currently addressing several issues for the first time relating to enforceability of contracts, the distribution of agency funds, and the future of properties formerly owned by RDAs. This advisory explains the current state of successor agencies and how successor agencies are dealing with issues raised by the wind-down process.

The 22nd edition of Pillsbury's Newsletter: Perspectives on Real Estate features articles on energy consumption data reporting (AB1103 and 531), construction and risk management, new foreign tax withholding forms, chapter 9 and public-private partnerships.

The Court of Appeals of the State of California, Second Appellate District has ruled that because the default interest provisions of a promissory note were included within the acceleration clause of a promissory note, the default rate was not triggered when the promissory note matured by its terms. Based on this ruling, default interest provisions in promissory notes should provide that the default interest rate applies not only following a default or acceleration of the maturity date, but also after the scheduled maturity date.

Trouble, in the form of adverse changes in financial conditions or the property marketing environment, sometimes strikes urban real estate development projects during the period between construction contract signing and completion of procurement and construction activities. In many cases, the course of action that will maximize value for all stakeholders is to allow the work to continue. Project completion will result in improvement to a base level and more security from casualty risks, as well as satisfaction of the conditions from a seller or redevelopment agency to drawdown of the land rights. But if financing for that continuation is not available, or if prospects for selling or leasing the improved property appear sufficiently bleak, the developer may reluctantly determine that the construction contracts and work should be suspended for some period of time or terminated altogether.

On December 29, 2011, the California Supreme Court issued a ruling upholding sweeping changes to California redevelopment law. The court upheld Assembly Bill (AB) X1 26, which dissolves all redevelopment agencies in California, while invalidating ABX1 27, which would have allowed redevelopment agencies to continue by making required payments to the state’s education fund. This ruling means that, effective immediately, all redevelopment agencies in California must begin the dissolution and winding-up process as required by ABX1 26.

Effective September 1, 2011, the Texas Legislature enacted the Public and Private Facilities and Infrastructure Act (the Act) for the purpose of enabling private investment in public facilities and infrastructure. The Texas Facilities Commission (the Commission) recently adopted Public-Private Partnership Guidelines (the Guidelines) setting forth the application requirements for qualifying projects and the review criteria and processes by which applications will be evaluated. The Guidelines are intended to provide certainty to the process of proposing and negotiating public-private partnerships (PPPs), which in turn should result in additional development opportunities to private parties while better utilizing and developing the State of Texas’ (the State) real estate assets and providing the State with non-tax revenue sources.

California law directs the Contractors’ State License Board, no later than January 1, 2012, to begin processing applications by limited liability companies for contractors’ licenses. The Board has recently provided guidance on the licensing requirements for LLCs, which differ from those for other types of business organizations.

The California Energy Commission (CEC) recently issued revised draft regulations setting the implementation schedule for its energy use disclosure program under AB 1103. Under the implementation schedule, commercial real estate owners must disclose energy benchmarking data starting on: July 1, 2012, for buildings with more than 50,000 square feet; January 1, 2013, for buildings with 10,001-49,999 square feet; and July 1, 2013, for buildings with 5,000-10,000 square feet.

The Presidio Parkway Project, California’s first public-private partnership (“P3”) to move forward under legislation enacted in 2009, is expected to proceed after a California appellate court denied a request to enjoin the project. Filed on August 8, the decision upheld a lower court ruling dismissing a claim that the project did not meet the requirements of California’s P3 transportation authorization statute.¹ This is significant not only for the Presidio Parkway Project, but also because the legislation applicable to this project is the blueprint for structuring eight other pending transportation projects with a total estimated cost of $25 billion.²

Senior Counsel Les Nicholson, former General Counsel of the U.S. Government Service Administration and former Executive Vice President and General Counsel of Chevy Chase Bank, and Real Estate Associate Alex Phipps, discuss the questions facing borrowers in the wake of the recent economic recession and its effects on banking industry. The lawyers outline what happens to a bank once it fails and provide advice on action to take, should your bank fail. This article originally appeared in the Spring 2011 issue of the American College of Real Estate Lawyers Papers.

“The area around New Carrollton Station has long been considered an ideal candidate for redevelopment because it serves as a commuter hub and a gateway to Washington for travelers coming from the north and east.”

—The Washington Post

The 18^th edition of Pillsbury's Newsletter: Perspectives on Real Estate features articles written by Pillsbury attorneys from practice groups across the firm including Real Estate, Insolvency & Restructuring, Corporate & Securities and Litigation.

This article originally appeared in the May 2010 issue of AAA Handbook on Construction Arbitration and ADR.

The Opportunity
A Chinese real estate investment group was considering its first investment in the U.S. commercial real estate market. It identified a 5,000-unit apartment project in Texas and Maryland that satisfied its investment parameters, but the project was in the midst of the prior owners’ complex Chapter 11 proceeding—the borrowers’ equity had been wiped out, the assets were encumbered by multiple layers of CMBS debt, and the appointed Special Servicer was actively scrutinizing any proposed restructuring transaction.

The 9^th edition of this newsletter features the 2010 legislative outlook for the affordable housing market as well as a diverse array of articles written on topics related to the affordable housing and community development industry. Articles in this issue cover topics ranging from refinancing distressed loans and new markets tax credits to HUD developments, the HFA Initiative, and more.

An overview of Pillsbury's Environment, Land Use & Natural Resources practice highlighting the experience and capabilities of one of the nation's preeminent environmental practices.

Cases That Made a Difference: This 32-page color brochure highlights some of the significant matters handled by Pillsbury litigators in 2009, including cases on behalf of the City of New York, Guantanamo detainees, and across a wide range of industries and clients.

California’s First District Court of Appeal in Suarez v. Pacific Northstar Mechanical, Inc., found that Cal-OSHA provisions, Labor Code §§ 6304.5 and 6400, “impose a duty on each employer, at a multiemployer worksite, to report all nonobvious hazards about which the employer learns because its employees were exposed to them during the course of their work, even if the employer in question did not create the hazard.”

The 17th edition of Pillsbury's Newsletter: Perspectives on Real Estate features articles written by Pillsbury attorneys from practice groups across the firm including real estate, insolvency, corporate & securities and litigation.

The Challenge
Before the turmoil in the credit markets, affordable housing developers that generated tax credits could easily sell them to investors looking to purchase tax offsets. But the recession has meant less profit to offset and a corresponding decrease in demand for tax credits. As tax credit prices have plummeted, nearly 1,000 affordable housing projects across the U.S. have stalled for lack of funding.

The Opportunity
San Francisco has a reputation as one of the most difficult markets for real estate development anywhere in the United States. San Francisco-based Martin Building Company (MBC) worked for 8 years to gain land use approvals on two development projects representing a total of approximately 275 market rate and low-income rental units located in the city’s burgeoning South Beach and Central Waterfront neighborhoods.

The Opportunity
The Los Angeles Unified School District serves 694,288 students, and employs 45,473 teachers and 38,494 staff—making it the second-largest school district in the U.S. and the second-largest employer in Los Angeles County. After L.A. residents passed a $7 billion school bond initiative in November 2008, the District had funding to launch an extensive construction and modernization program—an opportunity to not only upgrade their schools and facilities but also provide much-needed economic stimulus throughout the county.

WebEx founders Subrah Iyar and Min Zhu had an elegant idea: develop an on-demand application that replaced cumbersome and proprietary videoconferencing equipment with a web browser and a telephone. They planned to tap into the best engineering talent in Silicon Valley and Shanghai, and beat the competition to the most attractive global markets by establishing a local sales presence early on.

This article by Insolvency & Restructuring partner David Minnick and Litigation senior associate Ana Damonte originally appeared in the Real Estate Law Journal, published by West.

On August 11, 2009, Judge Gropper of the United States Bankruptcy Court for the Southern District of New York denied motions to dismiss bankruptcy peti­tions of several special-purpose entity subsidiaries (SPEs) of General Growth Properties, Inc. (GGP) that were solvent, financially healthy companies structured to be remote from the bankruptcy risks of GGP and its other affiliates. The ruling has major implications for the future of structured financing and will require parties in structured finance transactions to reassess the risk that a special purpose bankruptcy-remote entity may be put into bankruptcy along with its parent and affiliates despite measures intended to prevent this.¹

In Sanders Construction Company, Inc. v. Cerda, 2009 DJDAR 9714, issued June 29, 2009, the Fourth District Appellate Court confirmed that, by operation of Labor Code § 2750.5, an unlicensed subcontractor’s workers are statutory employees of the general contractor, which may obligate it to pay their wages.

As maturity dates for billions of dollars in commercial mortgage loans approach and borrowers worry that refinancing will be difficult, if not impossible, Congress and the IRS reportedly are considering modifications to the rules governing real estate mortgage investment conduits (REMICs) used to structure commercial mortgage-backed securities (CMBS). The proposed reforms would facilitate, among other things, the restructuring of commercial mortgage loans before they are transferred to “special servicing” due to a default or a reasonably foreseeable default.

The Federal Deposit Insurance Corporation’s June 3 announcement of the postponement of the Legacy Loans program, which was a key component of the Treasury Department’s Public Private Investment Program (PPIP), is not expected to slow the Obama administration’s effort to stimulate credit markets through the use of FDIC-guaranteed debt and government equity. The other component of PPIP—the Legacy Securities program—is in the latter stages of development, and the Term Asset-Backed Securities Loan Facility (TALF) has generated significant interest from investors looking for favorably priced debt to acquire asset-backed securities (ABS).

The 8th edition of this newsletter revised with California Legislative updates features several articles written on topics related to the Affordable Housing and Community Development industry. Articles in this issue cover a diverse range of topics from stimulus funding legislation and regulations to renewable energy tax credits.

Many Authorities are Basing Taxes on the Assessed Value When Property is Purchased at Distressed Prices.

California recently enacted a multi-faceted set of laws aimed at increasing compliance with existing building standards that are designed to ensure that individuals with disabilities have full and equal access to public accommodations. The legislation creates incentives for property owners and tenants to obtain inspection certifications by providing expedited court procedures for early, less costly resolution of construction-related accessibility claims.

The 15th edition of Pillsbury's Perspectives on Real Estate Newsletter features several articles written by members of Pillsbury's Real Estate section. Topics include Participating Mortgages, Real Estate Workouts, Real Estate Outsourcing, Eminent Domain, Greenwashing, CDARS- the Certificate of Deposit Account Registry Service, California Foreclosure Reform Law and Using Construction Engineers.

An English Court of Appeal decision has re-affirmed the principle that pre-contractual negotiations are not admissible in English court proceedings as evidence to help the court interpret any disputed provision of the contract, except where the court is being asked to correct a clear mistake (rectification) or where the parties have used an undefined term in a specific and unusual way (the private dictionary principle). This principle has cost the claimant, Persimmon, £3.5 million.

The 14th edition of Pillsbury's Perspectives on Real Estate Newsletter features several articles written by members of Pillsbury's Real Estate Section. Topics include Rooftop Leasing, Green Hospitality, China's Real Estate Industry, Certificates of Insurance and Wages of Subsidy.

Read about some recent work Pillsbury has completed for clients and how these deals exemplify the skills and experience of our firm's 100+ real estate attorneys.

Owners of unimproved or unoccupied land in the District of Columbia may soon face a significantly higher tax bill. The passage of B17-86, the “Nuisance Properties Abatement Reform and Real Property Classification Amendment Act of 2008,” currently pending before the DC City Council, would change the way real property is classified for taxation purposes, and increases the tax rate on vacant property.

From January 1, 2008, through March 3, 2008, property owners in Virginia were paying an additional tax on the sale of their real property (the “Congestion Relief Fee”). All of the Congestion Relief Fees will now be refunded to the taxpayers (i.e., property owners/sellers) under a new plan approved by the General Assembly and signed into law by the governor on March 25.

On February 29, the Supreme Court of Virginia ruled that legislation authorizing the Northern Virginia Transportation Authority (NVTA) to impose the “Congestion Relief Fee” and other taxes and fees (“Transportation Taxes”) violated the Commonwealth’s Constitution. This decision, however, does not mean that the Transportation Taxes are permanently dead. Political leaders have stated their desire to quickly restore the taxes in a manner that satisfies the court’s constitutional requirements. Because of this, we encourage clients to anticipate the revival of the Congestion Relief Fee or similar tax in future real estate transactions.

The 7th edition of this newsletter features several articles written on several topics related to the Affordable Housing and Community Development industry. Articles in this issue cover a diverse range of topics from renewable energy tax credits to affordable university housing.

Edited by: Christian D. Dubois and Noa L. Clark

If you would like to be added to our affordable housing newsletter mailing list, please send an email to affordablehousing@pillsburylaw.com.

The 13^th edition of this newsletter features several articles written on several topics related to the Real Estate industry. Topics include Solar Power, Wind Farms, Construction, Leasing, Series LLCs, "Carried Interest" Tax Legislation, and the state of the Subprime Market.

The 12^th edition of this newsletter features several articles written by members of Pillsbury's Real Estate Section. Topics include Bulk Sales, Green Real Estate, Leasing, Condo-Hotels and Transfer Taxes.

On June 19, 2006, a sharply divided U.S. Supreme Court issued its highly anticipated decision regarding the scope of jurisdiction under federal Clean Water Act Section 404 governing filling of wetlands and other discharges of dredged or fill material into “waters of the United States.” The Court overruled the Sixth Circuit Court of Appeals and rejected assertion of jurisdiction by the U.S. Army Corps of Engineers (“Corps”) over wetlands located on lands owned by Michigan developers John Rapanos and June and Keith Carabell.

On June 23, 2005, the U.S. Supreme Court decided the case of Kelo v. New London. The specific question in Kelo was whether a local government's condemnation of non-blighted private property for purely economic development purposes is constitutional. That question hinged on whether economic development qualifies as a "public use" within the meaning of the United States Constitution's Fifth Amendment Takings Clause. The backdrop for Kelo is the distressed municipality of New London, Connecticut, which had experienced a period of significant economic downturn. In order to assemble contiguous acreage for a large scale mixed-use redevelopment project, a development corporation sponsored by the city initiated condemnation proceedings against certain owners who had refused the development corporation's purchase offers for their properties. These property owners challenged the taking by stating that it was an impermissible use of the city's powers. Affirming a decision of the Connecticut Supreme Court, the U.S. Supreme Court held that, under the right circumstances, economic development can be sustained as a "public use" under the Fifth Amendment. The Kelo decision has broad implications for municipalities, real estate developers, and individual property owners alike.

This edition features several articles written by members of Pillsbury's Real Estate Section. Topics include affordable housing, litigation, transit-oriented development and a brief narrative on what the April 2005 merger means to Pillsbury's Real Estate Section.Edited By: Robert Haight, James Rishwain, Barry Langman and Ryan Staley.

Summary

Under Section 502(b)(6) of the Bankruptcy Code, Chapter 11 debtors have a very powerful statutory tool to limit a landlord’s recovery under a long term real property lease when the lease is rejected in bankruptcy. Generally, under Bankruptcy Code Section 502(b)(6), a landlord’s claim for damages resulting from the termination of a real property lease will be limited to the obligations due under the lease for the greater of (i) one year or (ii) fifteen percent, not to exceed three years, of the remaining term of the lease, plus amounts due under the lease on the earlier of the bankruptcy filing date or the date the property was surrendered. However, two recent judicial decisions, one by the Third Circuit Court of Appeals and the other by a California bankruptcy court, clarify that a lessee may be denied the ability to remain a Chapter 11 debtor when it is solvent and files for bankruptcy relief as a strategic maneuver solely to reject a lease and limit a landlord’s lease recovery. Knowledge of this evolving caselaw may impact your ability to protect your rights in certain situations.

The Affordable Housing Newsletter, featuring:

• Federal and State Politicians Inadvertently Squeeze Affordable Housing by Gary P. Downs
• As Federal and State Subsidies to Older Projects Expire, Developers and Public Entities Focus on Affordable Housing Preservation by Gary P. Downs and Jason A. Hobson
• No End in Sight to Toxic Mold Uncertainty by John S. Poulos and Pual R. Schrecongost
• New Markets Tax Credit Update by Jason A. Hobson
• The Hidden Costs of Preprinted Form Purchase Agreements by Monique L.C. Wright and Rachel B. Horsch
• New Revisions of California Prevailing Wage Law Create Further Uncertainty by Matthew Africa