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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
Development Agreements
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
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
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
Development Agreements
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
40
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
56
57
58
59
3. Public Sector: Pre-Agreement
Planning
− Development
Solicitation
− RFP
− Obligations and
expectations
− Who makes the
selection?
− How is the selection
approved?
60
3. Public Sector: Pre-Agreement
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
3. Public Sector: Pre-Agreement
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
5. Structuring the Agreement:
The Property
− What property will be included?
− Timing of property acquisition
− Title issues
− Conditions precedent to takedown
66
5. Structuring the Agreement:
Infrastructure Requirements
What infrastructure
is needed?
Who is responsible?
What are the timing
requirements?
Who will operate
and maintain?
67
5. Structuring the Agreement:
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
5. Structuring the Agreement:
Environmental Issues
− Environmental condition of the property
− Clean up responsibility
− Clean up standards
− Environmental insurance
− Role of environmental regulatory agencies
69
5. Structuring the Agreement:
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
5. Structuring the Agreement:
Developer Obligations
− Takedown requirements
− Development requirements
− Managing the project
− Contracts with developers and homebuilders
− CCRs
− Design Review
− Environmental Liabilities
− Ownership of infrastructure
71
5. Structuring the Agreement:
Public Amenities and Other
Requirements
− Affordable Housing
− Parks and Open Space
− Schools
− Public Art
− Other social ordinance requirements
− Community role
72
5. Structuring the Agreement:
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
Table of Contents/Development Agreement related to 61st
Avenue Station TOD Project
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
Table of Contents/Development Agreement related to 61st
Avenue Station TOD Project
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.