Triangle Land Use Newsletter
September 8, 2009
Authors:
From the Editors
Jason L. Barron
jason.barron@klgates.com
+1.919.743.7343
R. Michael Birch, Jr.
michael.birch@klgates.com
As we look to the end of 2009, it appears that the economic crisis is easing. Surely
there will be continuing challenges in the real estate market, but now is the time to
start looking forward. We can expect the Triangle to continue to grow, and savvy
property owners and developers need to begin positioning themselves for new
opportunities in this dynamic economic landscape.
+1.919.743.7314
Eric M. Braun
eric.braun@klgates.com
+1.919.743.7315 - Raleigh
Therefore, this issue of the K&L Gates Triangle Land Use Newsletter focuses largely
upon emerging opportunities and challenges of which you need to be aware in order
to navigate within this new economic reality. We hope you find this newsletter
helpful as we move toward a more prosperous 2010.
+1.919.466.1263 - RTP
William J. Brian, Jr.
bill.brian@klgates.com
If you have any questions regarding any of these matters addressed in this newsletter,
or if we can be of service to you in connection with any real estate-related challenge,
please contact us.
+1.919.466.1261
Mack A. Paul IV
mack.paul@klgates.com
+1.919.743.7386
Stanford D. Baird
stanford.baird@klgates.com
+1.919.743.7334
William J. Brian, Jr.
bill.brian@klgates.com
919.466.1261
In This Issue
•
Emerging Trends in Public Infrastructure Financing
•
Taking Steps Toward A New Regulatory Framework for Development in
Raleigh
•
Keeping Abreast of the Changes In Durham
•
General Assembly Revises Timetable for Falls Lake Rules
•
New NC Law Designed to Permit More Affordable Housing Developments
•
Twelve Triangle Area Real Estate Lawyers Receive LEED Accreditation
Collin W. Brown
collin.brown@klgates.com
+1.704.331.7531
David H. Jones
david.jones@klgates.com
+1.704.331.7481
Eric M. Braun
eric.braun@klgates.com
919.743.7315
Emerging Trends in Public Infrastructure Financing1
K&L Gates is a global law firm with
lawyers in 33 offices located in North
America, Europe, Asia and the Middle
East, and represents numerous GLOBAL
500, FORTUNE 100, and FTSE 100
corporations, in addition to growth and
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For more information, visit
www.klgates.com.
By Eric Braun, Mack Paul and Michael Birch
The current economic environment has slowed the pace of real estate development,
even in this region. As a result, the public infrastructure improvements traditionally
provided by private development are no longer feasible. To facilitate private
investment and improve the public realm, developers and local governments must
seek innovative tools for financing public infrastructure. Recent legislation provides
two tools that encourage developers and local governments to share in the cost of
Triangle Land Use Newsletter
public infrastructure: special assessment district
financing and project development financing.
Special Assessment District Financing
In 2008, the General Assembly adopted Session Law
2008-165, which authorizes local governments to
impose special assessments to finance the capital
costs of the following projects: water systems,
sanitary sewer systems, storm sewer and flood
control facilities, school facilities, public
transportation facilities and streets and sidewalks. In
addition to the capital costs, the costs of legal
services, purchasing rights-of-way, construction and
up to two years of interest can be capitalized and
paid for by the special assessments.
Local governments may impose special assessments
under this new authority only after first receiving a
petition from owners of property benefited by the
project. The petition must be signed by a majority
of property owners in an area to be assessed
(representing at least 66 percent of the assessed
value of real property to be assessed). Also, the
petition must include a description of the proposed
project, an estimate of the project’s cost, and an
estimate of the portion of the cost to be assessed
against owners of benefited property.
Although local governments have had the authority
to impose special assessments, the recent legislation
makes this tool much more feasible for large
projects. The most advantageous provision of the
new legislation concerns the time period over which
the assessments may be paid. Prior to Session Law
2008-165, property owners within a district were
required to repay the special assessment within ten
years. Special assessments may now be paid in
annual installments over a maximum of thirty years.
By providing for an extended amortization period,
and thereby making the individual assessments more
affordable, the public infrastructure improvements
are now more feasible.
On August 26, 2009, the Governor signed Senate
Bill 97, codified as Session Law 2009-525. This law
expands on the flexibility of Session Law 2008-165
by providing: (1) additional projects that can be
financed through special assessment district
financing, and (2) additional sources of financing
that can be secured by special assessments.
First, Session Law 2009-525 broadens the purposes
for which special assessments can be used, to
include those purposes for which project
development financing bonds may be issued.
Projects now eligible for special assessment district
financing include parking facilities, park and
recreation facilities, low and moderate income
housing, and traffic signals. Second, Session Law
2009-525 expands the types of financing sources to
include project development financing debt
instruments. Therefore, special assessments can be
imposed as additional security for any project
development financing bonds associated with the
project. These changes allow a project to be
financed using both project development financing
and special assessment district financing.
Project Development Financing
Project development financing, known in other
areas as tax increment financing, was authorized in
2004. Project development financing allows local
governments to issue bonds for a variety of public
improvements. The bonds are paid off by the
incremental property tax revenue generated by
increased assessed property value within a defined
area that directly benefits from the public
improvements. Once the bonds are retired, the local
government receives the full incremental value of
the increased property tax revenue.
This financing tool encourages targeted investment
in a specific location identified by a local
government and a developer. It also provides the
private developer with needed infrastructure in the
short-term and the local government with additional
property tax revenue in the long-term. The ability
to install infrastructure early in the development
phase should attract additional private investment in
the district to help ensure the success of the project.
For local governments, these financing tools can
help spur economic development by providing
financing, while limiting the financial impact.
Project development financing and special
assessment district financing does not require the
issuing government to pledge its taxing authority as
security for the bonds. Rather, the bonds are
secured by the underlying assets or through a
minimum assessed value agreement. Therefore,
local government bond ratings are not impacted if
any of these bonds go into default. Moreover, the
September 8, 2009
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Triangle Land Use Newsletter
local government must first apply to the Local
Government Commission for approval of the
issuance of the bonds.
The state legislature has provided local governments
and private developers with two tools that can help
facilitate private development and the associated
public improvements. Especially in this
environment, where traditional bank financing is
virtually non-existent, developers and local
governments must take advantage of these
alternative arrangements to accommodate and
encourage growth in the region.
1
Portions of this article originally appeared in the August 7, 2009 edition
of the Triangle Business Journal.
Taking Steps Toward A New
Regulatory Framework for
Development in Raleigh
By Michael Birch, Eric Braun and Jason Barron
As the 2030 Comprehensive Plan update process
enters its final stage, a new, more important process
is emerging within the City of Raleigh Planning
Department – a complete rewrite of the City’s
development regulations. This is the City’s first
comprehensive rewrite in nearly thirty years. The
City Council began its final review of the draft 2030
Comprehensive Plan (“Plan”) and draft Future Land
Use Map (“Map”) on August 3rd. On August 4th,
the City Council authorized the City Manager to
enter into a contract with Code Studio to produce a
complete new set of development regulations called
a unified development ordinance (“UDO”). The
timing of these events are not coincidental because
the UDO will implement many of the policies
adopted during the Plan review process. Since the
UDO will have the force of law, and because it will
address many of the policy and action statements in
the Plan, property owners and developers must
remain involved in the Plan process and prepare to
become involved in the forthcoming UDO drafting
process.
2030 Comprehensive Plan
The Raleigh Planning Commission began reviewing
the Plan and the Map in late March 2009. Over the
course of fourteen meetings, the Planning
Commission considered over 500 comments and
requests to change the land use category for specific
properties. During the review, the Planning
Commission received comments from (a) formal
task forces, such as the Raleigh Affordable Housing
Task Force; (b) city boards, such as the
Environmental Advisory Board; (c) trade
organizations, such as the Greater Raleigh Chamber
of Commerce; and (d) individual property owners.
After reviewing the comments, the Planning
Commission ultimately made over 150 changes to
the Plan 35 and changes to the Map. These changes
were reported to the City Council at its meeting in
late July.
On August 3rd, the City Council began its review of
the Plan and Map. The City Council scheduled five
public meetings to consider these documents, and
anticipates approving them as early as August 31,
2009. When adopted, the Plan, with its policy and
action statements, and the Map, with its parcelspecific land use recommendations, will guide
growth and development within the City’s planning
jurisdiction for the next two decades.
Although the Planning Commission is
recommending numerous changes to these
documents, the City Council has ultimate authority
to accept or reject these changes. Therefore,
property owners and developers must remain
involved and informed until adoption by the City
Council.
Unified Development Ordinance
On March 31, 2009, the Department of City
Planning issued a request for proposals (RFP) for a
new UDO that encompasses the zoning, subdivision
and site plan regulations. The City signed a contract
with Code Studio for $479,060 on August 4th. The
Department of City Planning expects the UDO
drafting process to last approximately eighteen
months, with adoption scheduled for mid-2011.
According to the RFP, the Planning Department
wants the new development regulations to (a)
address contemporary development and zoning
practices and (b) support the goals and policies of
the Plan.
(a) Contemporary Development and Zoning
Practices
Raleigh’s current development code is considered
“conventional” because it represents the traditional
approach to regulating land uses. Conventional
September 8, 2009
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Triangle Land Use Newsletter
codes separate uses by districts and limit the
intensity of uses through dimensional requirements.
The RFP specifically asks responding firms to
consider new regulatory approaches such as “formbased overlay districts” and “performance-based
zoning.”
Form-based zoning focuses on controlling the
physical form of a building or structure and is
sensitive to how the building relates to the public
realm. A form-based overlay district would be an
additional layer of regulation that would dictate the
form, massing and orientation of buildings in a given
area or corridor. Performance-based zoning focuses
on regulating the impact of a given use on adjacent
properties and the public infrastructure rather than
the specific type of use. This approach provides
flexibility in the location and sizes of uses
depending upon the surrounding environment and
based on a point system that measures compliance
with a list of factors. These two methods represent a
completely new approach to regulating land use in
Raleigh. Each new method has benefits and costs
that must be assessed by the development
community during the drafting process.
(b) Goals & Policies of the 2030 Comprehensive
Plan
The Plan contains numerous action items that
encourage the City to adopt new ordinances or
consider amending existing regulations. Code
Studio will take these action items into account as it
drafts the new UDO. In fact, pursuant to an action
item in the Plan, the Planning Department already
submitted a text change, TC-5-09, that provides the
basis for a parkway corridor overlay district, which
will require setbacks and minimum street tree
plantings along the frontage of certain roads. As
early as October, the City may initiate a rezoning of
certain roads to impose the parkway corridor overlay
district.
The Plan contains over 400 actions, many of which
concern existing or future development regulations.
For example, statements in the Land Use Element
suggest crafting new infill development standards to
protect surrounding neighborhoods, new location
and design standards for big-box retailers, and
stronger language linking future development to
adequate public infrastructure. Also, Environmental
Protection Element action items suggest adopting
regulations that prohibit development on steep
slopes and require low-impact development
practices in environmentally sensitive areas.
Finally, action items under the Housing Element
encourage creation of an inclusionary housing
program and incentive structure to encourage
mixed-income development and housing diversity.
The Plan, when adopted, will serve as a policy
document that guides the future development of
Raleigh. While many of the policies of the Plan are
lofty and commendable, the impending UDO will
seek to convert many of these action items into law.
The finer points of this conversion from policy to
law will be determined during the upcoming process
of drafting the UDO.
The land use attorneys at K&L Gates LLP played an
active role in the Plan review process at the Staff
and Planning Commission level, and will remain
involved as the City Council considers the Plan.
Once Code Studio begins the process of reviewing
and evaluating the existing development
regulations, K&L Gates will be involved and keep
you informed.
Keeping Abreast of the Changes In
Durham
By Bill Brian
Businesses that live or die according to the terms of
local zoning ordinances often are remarkably illinformed about what those ordinances say, and are
even more disconnected from the process by which
those ordinances are changed. Far from
“controlling the process” as anti-development forces
charge, developers too often are caught entirely by
surprise when codes change, and an unexpected
change made at the wrong time in the development
process can destroy the financial basis for a project,
making it impossible to complete. Accordingly,
keeping abreast of changes in local zoning
ordinances is essential to success in the
development business.
Durham already is the most challenging jurisdiction
in the Triangle for developers, and it is about to get
more challenging. Two significant changes to the
Durham UDO are in the process of approval. The
first, which is on track for approval this fall, is to
the Downtown overlay provisions of the UDO.
September 8, 2009
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Triangle Land Use Newsletter
New provisions relating to set-backs, buffers, and
height restrictions are included. Most of these
changes are designed to increase flexibility in order
to encourage downtown redevelopment, but some
are inspired by fashionable planning notions, and
some (particularly those relating to buffers near
residential areas) clearly have been inspired by
Durham's own special political problems emanating
from neighborhoods like Trinity Park and Watts
Hillandale. Most troubling of the “fashionable”
concepts is one which will REQUIRE the
subdivision of tracts over three and one-half (3.5)
acres in size located in the downtown area. The
implications for the eventual redevelopment of sites
like that presently occupied by University Ford
could be serious. The rationale given by planners
for this rule is steeped in planning slogans like
“connectivity,” “human scale” and “neighborhood
feel” but, aside from whatever virtue such concepts
have, one cannot help but think that those goals
could be served by less rigorous rules which are
more respectful of market forces. Regardless, it is
essential for anyone who is working in downtown
Durham to be informed about these changes.
Changes to the environmental standards of the UDO,
which will have applicability throughout Durham
County, are coming in 2010. At this point, no
proposed ordinance language has yet been drafted,
but the conceptual framework for substantial
changes has been approved by the Joint City-County
Planning Committee. As every developer knows,
any change to environmental standards, even those
that appear to be innocuous, can have huge impacts
upon the developability of a particular site. Not only
do such regulations impact developers, they also
impact land owners, builders and brokers.
Consequently, everyone who has a stake in the real
estate industry needs to be paying attention to these
proposed UDO changes, and should be making sure
that the decision-makers on the City Council and
County Commission understand the practical
implications of these ideas.
To learn more about these proposed changes to the
Durham UDO, please contact us.
General Assembly Revises Timetable
for Falls Lake Rules
By Stanford Baird
As one of its last acts before adjourning the 2009
legislative session, the General Assembly ratified
legislation to revise the timetable for the
Environmental Management Commission (“EMC”)
to adopt rules implementing a nutrient management
strategy for Falls Lake. The legislation, called
Senate Bill 1020, was ratified on August 11, 2009,
and established a deadline of January 15, 2011 for
adoption of permanent rules. The deadline for such
rules has been extended over the years with the
original deadline of July 2008 extended to July
2009, and now January 2011. The legislation
effected a compromise among the interests of
Durham, Person, Orange, and Granville counties on
one hand and Wake County and the City of Raleigh
on the other. Wake County and Raleigh had
advocated for a shorter timeline. The legislation
authorizes the adoption of temporary rules in
advance of the permanent rules for Falls Lake.
The legislation provides that local governments,
property owners, and other stakeholders will receive
credit in the permanent rules for efforts to
implement policies to reduce runoff and nutrient
loading to surface waters in the Falls Lake
watershed since January 1, 2007 and up until the
effective date of the rules. The legislation also
requires that additional stormwater management
provisions for reduction of nutrient loading from
runoff associated with new development be
implemented within 30 months of the effective date
of the rules. One change of note to the original law
requiring development of the rules is that the EMC
will have to consider the effectiveness of nutrient
loading reduction measures already implemented in
the watershed as well as a cost-benefit analysis of
additional measures to be required.
The Division of Water Quality (“DWQ”) will take
the lead in developing the rules, but they will have
to be adopted by the EMC. DWQ staffers are
meeting with stakeholders as DWQ moves to
develop the Falls Lake rules. Interested parties are
advised to participate in such stakeholder groups or
be represented there.
September 8, 2009
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Triangle Land Use Newsletter
In addition to those provisions mentioned above, the
legislation also establishes new standards for landdisturbing activities in the Falls Lake watershed and
requires all compensatory mitigation for buffer
impacts to take place in the watershed. The
requirements are technical and beyond the scope of
this summary. However, developers, engineers, and
land planners should acquaint themselves with these
provisions as part of the review of any project in the
Falls Lake watershed.
New NC Law Designed to Permit More
Affordable Housing Developments
By Collin Brown and David Jones
Developers of affordable rental and for-sale housing
are often frustrated by the opposition of
neighborhood groups. Their complaints range from
traffic impacts to fears that housing which is
affordable to lower-income families will reduce
surrounding property values to concerns, often
unsubstantiated, that crime will increase. These
opponents are vocal and influential with zoning
officials who are asked to provide entitlements to
permit the development of affordable housing. The
result of successful opposition to affordable projects
in middle and upper income neighborhoods is a
concentration of affordable housing in high poverty
neighborhoods.
On August 28, 2009, Governor Purdue, to the
surprise of many observers, signed Session Law
2009-533 which provides a strong impetus for local
elected and zoning officials to allow affordable
housing to be developed in spite of neighborhood
opposition.
According to the new law, a local government is in
violation of North Carolina’s Fair Housing Act (the
“Act”) if its land use decisions and permitting
actions discriminate against a development based on
the fact that the development includes affordable
housing units. By adding land use decisions to the
list of potential violations of the Act, the legislature
has exposed local governments to new and
substantial liability. This is especially significant
because of the broad remedies available in lawsuits
brought under the Act. Not only does the Act
authorize injunctive and equitable relief, but a party
aggrieved by discriminatory practices may also be
granted actual and punitive damages. Furthermore,
a prevailing party may be awarded court costs and
attorney’s fees.
The law applies to existing or proposed
developments that contain affordable housing units
for families or individuals with incomes below
eighty percent of the area median income. The
statutory language does not indicate that a
development must include a minimum number or
percentage of units in order to qualify for
protection. Thus, it appears that mixed income
developments are protected as long as they contain
some number of affordable units.
To prove a violation of the Act, a party must show
that a local government’s action or inaction in a
land use or permitting matter has the effect of
discriminating against affordable housing. A party
may use direct or circumstantial evidence to prove
that a local government’s action is intentionally
discriminatory against affordable housing. Intent is
present if the local government’s discriminatory act
is “motivated in full, or in any part at all,” by the
presence of affordable housing units. A violation of
the Act can also occur if a local government’s
actions or inactions have discriminatory effects,
even if those impacts are unintended.
However, in this case, there is no violation if the
local government can prove that its actions are
based on legitimate governmental interests and any
resulting discriminatory effects are unintentional.
It is important to note that there is one clear
exception to this law. Local governments may
make land use decisions that are obviously intended
to prohibit development of affordable housing units
if the decision is based on “considerations of
limiting high concentrations of affordable housing.”
However, the statute gives no guidance regarding
what constitutes a “high concentration.” All North
Carolina jurisdictions are required to affirm that
every rezoning decision they make is consistent
with existing adopted land use plans for the
jurisdiction. Localities should consider amending
those plans to include, if they do not already,
policies on the location of affordable housing, or
adopting separate affordable housing locational
policies, and including in their consistency
statements an affirmation of a rezoning decision’s
compliance with those policies. Adopting
locational policies that address levels of
September 8, 2009
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Triangle Land Use Newsletter
concentration of affordable housing will provide
elected officials with guidance in making these
decisions.
It should be much easier for a jurisdiction to reject
an affordable housing development on the basis that
the proposed location is in an area that already has
sufficient affordable housing, if there is a policy in
place that is clear, rational, and fact based.
Presumably, though, such a policy would be subject
to judicial scrutiny to insure that it is rational and
fact based and not a ruse for avoiding the intent of
the new law.
In North Carolina jurisdictions, all zoning decisions
are typically preceded by public hearings where
citizens can express their concerns about or support
of a proposed new development. If a local zoning
board or city council turns down an affordable
housing project following a public hearing where the
only point that the opposition speakers made was
that their property values would be reduced, would it
be possible for the board or council to argue that the
decision was not “motivated in any part” by the
presence of affordable housing? If a local zoning
board turned down an affordable housing project due
to traffic concerns, and the following year allowed a
project that was not classified as affordable, but that
had the same density as the affordable project, then
would that be circumstantial evidence of the same
motivation? What would happen in a jurisdiction
that would appear to have adequate infrastructure,
but which routinely rejects all multi-family rental
projects and routinely approves all projects where
the median home price exceeds $500,000? Is that
circumstantial evidence of an intention to reject
affordable housing solely because it is affordable?
To argue their cases for affordable housing
developments, developers and advocates should be
prepared to demonstrate the adequacy of
infrastructure in existence or be prepared to make
those expenditures necessary to make the
infrastructure adequate for development. They also
need to understand housing patterns within the
jurisdiction and demonstrate that affordable housing
is not already concentrated in the neighborhood in
question.
In some North Carolina jurisdictions, zoning
decisions are a quasi-judicial proceeding requiring
sworn testimony and findings of fact. In other
jurisdictions, however, zoning proceedings are far
more informal and the record often does not reflect
the reasons underlying the decisions.
To try to avoid some of the issues raised above,
local governments should, at a minimum, be much
more specific in their findings as to why land use
decisions were made, even if the jurisdiction does
not utilize a quasi-judicial process otherwise. A
simple show of hands or voice voting “aye” or “no”
following a motion to approve may no longer be an
adequate way to make zoning decisions that affect
affordable housing developments in North Carolina.
Twelve Triangle Area Real Estate
Lawyers Receive LEED Accreditation
With more than 60 lawyers in the United States and
London having earned accreditation as Leadership
in Energy and Environmental Design Accredited
Professionals (LEED-AP) from the U.S. Green
Building Council (USGBC), global law firm K&L
Gates LLP now offers one of the largest groups of
LEED-accredited lawyers in the industry. To date,
only 750 lawyers have achieved LEED-AP
accreditation, according to the Green Building
Certification Institute’s LEED Professional
Directory.
Setting the industry standards for sustainable
building and development, the USGBC’s LEED-AP
accreditation equips lawyers to work with design,
construction and operations professionals to ensure
that sustainability goals are effectively implemented
according to the Council’s LEED Green Building
Rating System. In addition, companies seeking
LEED Certified facilities often require legal
representation to ensure that leases, construction
contracts, and operational agreements comply with
green building standards. The USGBC projects that
green building will grow to become a $60 billion
industry by 2010.
The following twelve lawyers in the Raleigh and
RTP offices of K&L Gates LLP earned
accreditation as LEED AP:
Suzanne Allaire
Stanford Baird
Jason Barron
September 8, 2009
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Triangle Land Use Newsletter
Earned accreditation as LEED AP (cont’d)
Camden Betz
Michael Birch
Eric Braun
Patrick Byker
Michael Ovsievsky
Nathaniel Parker
Mack Paul
Michael Thornton
C. Allen York
K&L Gates Triangle Land Use Practice Group
Raleigh
Stanford D. Baird
Jason L. Barron
Robert M. Birch, Jr.
Eric M. Braun
Michael F. King
Mack A. Paul
Alan H. Peterson
+1.919.743.7334
+1.919.743.7343
+1.919.743.7314
+1.919.743.7315
+1.919.743.7310
+1.919.743.7326
+1.919.743.7301
Research Triangle Park/Durham
Eric M. Braun
William J. Brian, Jr.
Patrick L. Byker
Lewis A. Cheek
John E. Markham, Jr.
Nathaniel C. Parker
Craigie D. Sanders
+1.919.466.1263
+1.919.466.1261
+1.919.466.1264
+1.919.466.1188
+1.919.466.1268
+1.919.466.1118
+1.919.466.1259
Charlotte
Collin W. Brown
John H. Carmichael
Stephen R. McCrae
Roy H. Michaux, Jr.
Bailey Patrick, Jr.
+1.704.331.7531
+1.704.331.7509
+1.803.329.2602
+1.704.331.7462
+1.704.331.7454
South Carolina
Stephen R. McCrae
+1.803.329.2602
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©2009 K&L Gates LLP. All Rights Reserved.
September 8, 2009
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