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When Visions Diverge

When Visions Diverge: What Happens When Property Owners and Cities Want Different Land Use

The crack of the gavel thunders through the room over the buzz of hushed whispers. Alone at the podium, the property owner stands stunned by the city council action denying the vision for a property. The investment in preplanned designs, attorneys, consultants and engineering circles the drain.

Hanging above it all is the “vision.” A parcel of land, lines on a drawing, colors on a map and the ghost of a citywide vote. A document, called a general plan, presses down on the hope, the plan and the decision, “Motion to deny the development proposal passes. The council finds the project is not consistent with the general plan.”

Jordan Rose, founder of Rose Law Group

Jordan Rose, founder of Rose Law Group.

“During the recession, some investors looked at bargains and not zoning,” says Scottsdale land use attorney Jordan Rose, founder of Rose Law Group. “There was less diligence, and some acquired land without regard to what the general plan said about the property.”

Development plans have been stalled or blocked by recent Valley city zoning actions. Several cases―primarily in the East Valley―have brought the issue into greater focus. The recovery-driven interest in turning properties or resurrecting old plans causes some of the conflict.

In many ways, local governments are market-driven, but driven by a different market than commercial real estate. The Arizona legislature forces towns and cities to depend on sales tax for general fund revenues―the basic operating income for key community services. This in turn drives local governments to create retail and employment site opportunities through the general plan. Without revenue-generating undeveloped land, a city council is not going to have the wherewithal to fund future growth and the requisite public safety, parks and libraries.

The sales-tax dependence led to cities to be very protective of revenue-generating land set aside in the general plan. Retail business has significantly changed over the past decade, but local government funding mechanisms continue to use 20th century revenue models for a 21st century economy.

The General Plan
In Arizona, every city and county needs a general or comprehensive plan to provide a long-range blueprint of development patterns within current and future boundaries. Plans are supposed to be updated every decade and ratified by the voters. Several plans are slated for ratification this year―including Tempe, Scottsdale and Mesa.

“A general plan is a large and complex document, it carries a lot of implications that are not apparent when voting for ratification,” says Ralph Pew, member and manager, Pew & Lake, PLC, Mesa.

The comment “the plan can’t be changed because voters approved it” is often raised during a project hearing when there are proposals to amend the land use map. Pew says, “The plan itself contains the standards for approving major and minor amendments. Change is a planned part of the process.”

John Berry, founder of Berry Riddell & Rosensteel LLC, Scottsdale, says that preparation is the key, “When a client comes to us, we start with the staff, listen to neighbors and talk with elected officials to try to foresee any major issues. It’s incumbent on the developer to give the city the facts to support the project. Opinions and project economics alone are not going to gain an approval.”

Rose agrees, “We’ve seen clients with plans that just don’t fit with the general plan. This means a lot of work up front to move the project forward, but sometimes, we have to tell them, ‘it isn’t going to be approved.’”

Before the recession, development was moving so quickly that a zone change or general plan amendment denial just meant the developer moved on. “We don’t have a lot of land use litigation in Arizona,” says Pew. “Pre-recession, the pace of development and number of opportunities, made it possible for the developer to shrug off a denial and move on to the next project.”

It’s different in the planning pipeline now. “When the recession ended, we were tickled to get applications once again,” reminisces Mesa Planning Director John Wesley. “There was an appetite to make things happen, and most projects were approved. That’s different now.”

Developers are seeing the difference during the hearing process.

“Councils are busy and they don’t like controversy,” says Berry. “The key to success is to listen closely to any objections early in the process and eliminate as many issues up front. When I go before a city council, I want to be able to say we have many points of agreement and just a few points of disagreement, if any.”

Pew emphasizes that getting an approval requires more work on the facts up front, “The more information we can give a city with the application showing the need for change, the easier it is for the city council to ultimately say ‘yes.’”

All three attorneys say that they will provide economic analysis, traffic reports and other empirical facts to back up an application.

Wesley says that he’s seeing more of that too, “It used to be developers would come in and say the project doesn’t pencil without the changes being approved. That doesn’t show any benefit to the city, and today, the council is less likely to be persuaded.”

Converging Goals
Cities and developers are looking more closely at project and city objectives to see how the divergent goals can be brought closer together. “In Mesa, we had a pattern of putting commercial development on every major street corner. Recently, an owner showed us that the area was barely supporting existing commercial on two of the corners, and a third corner still had undeveloped commercial zoning. Their argument made sense and the city approved a residential rezone.”

Even with numbers and well-reasoned arguments, sometimes visions are irreconcilable. “There are some properties in cities where general plan amendments are just not going to be approved,” cautions Rose. “We see cities with long range plans for an area, and the council is not going to change their vision on a piece-by-piece basis.”

“In Mesa, we have some neighborhoods where there is flexibility, if an owner makes a case,” points out Wesley. “But there are some areas where we need to protect the city’s plans even if the land remains vacant for a while.”

A Need for Change
Some point to the success of the Price Corridor in Chandler where the city held firm on keeping land use for large corporate and single-tenant users. That is changing this year following a report by The Maguire Group the city commissioned. Changing economics and use patterns opened the door to maintaining the same corporate center feel, but now permitting smaller users and multi-tenant buildings. As soon as the amendment’s approval was imminent, the Douglas Allred Company filed plans for a hotel and mid-rise office on the Park Place campus.

Allred Park Place building five shell.

Allred Park Place building five shell.

“We’re starting to see cities, like Queen Creek, take a look at actual absorption rates and land use needs when considering general plan amendments,” says Pew. “Policy is starting to move away from the pre-recession rigidity that all commercial and employment lands needed to be preserved.”

Before the economy plunged, it was common for land owners to seek highest-and-best use zoning in order to better position the land for sale. The convergence of Internet shopping, the housing crisis and a push for infill development changed land use demand and affected patterns.

“Cities are becoming aware that we’re starting to run out of land area,” explains Wesley. “We’re looking more carefully at changes, because there is generally no going back.”

“As long as land remains undeveloped, it is possible and sometimes reasonable to change zoning again,” says Pew. “With the real estate market shift, owners start looking at what’s going to work. It’s possible cities are going to see requests to shift zoning to match market demand rather than market value.”

Finding Balance
Wesley talks about listening to developer ideas and goals, “Sometimes what’s wanted isn’t a perfect fit, but we’ve worked with owners to try and accomplish their objectives. We had a recent project where we mixed land uses so that both (Mesa) and developer goals were mostly achieved.”

“A lot of the time, the public is wed to the general plan,” reflects Rose. “The general plan is a vision for a community, it can’t just be simply dismissed. There are a lot of moving parts.”

In conversation with each of the three attorneys, one word is in their comments again and again: “understand.”

“Listen and understand what the neighborhood expects from a development,” Berry says.

Rose advises, “Understand what’s expected and be creative to bring ideas to the table.”

“Understanding the stakeholders and the project neighborhood is a big key to success,” counsels Pew.

Understanding city expectations can be the first step on the road to meeting an owner’s property objectives.

Jordan Rose

Jordan Rose – 50 Most Influential Women in Arizona Business

Jordan Rose – Owner, Rose Law Group

In 2000, Rose founded Rose Law Group, a fullservice law firm that that is known for its work in real estate, litigation, family, tax, estate planning, intellectual property and environmental issues. Rose Law Group is currently the largest law firm owned by a woman in the Southwestern United States.

Surprising fact: “I love listening to sports radio.”

Biggest challenge: “The recession hit and instead of prolonged pouting, I decided to use it as an opportunity for expansion and practice area diversification. We ended up growing during the downturn, expanding litigation and tax; and adding estate planning, criminal, intellectual property and family law practices.”

Fifty Most Influential Women in Arizona Business – Every year in its July/August issue Arizona Business Magazine features 50 women who make an impact on Arizona business. To see the full list, read the digital issue >>

legal

Top Lawyers list: Government relations

Az Business magazine’s 2013 top lawyer list was created after the editorial department asked Arizona law firms to nominate their two best attorneys from 16 different categories for consideration. Those nominees were put on a ballot and were voted on by their peers in the legal community and the readers of Az Business magazine to determine the exclusive 2013 Az Business Magazine Top Lawyers list.

Clare Abel
Burch & Cracchiolo, P.A.
602-234-9920
bcattorneys.com
Abel concentrates her practice primarily in the areas of real estate, zoning and condemnation Law. She is listed in Southwest Super Lawyers, Best Lawyers in America and Arizona’s Finest Lawyers.

S. David Childers
Kutak Rock LLP
480-429-4880
kutakrock.com
Childers served on the U.S. Secretary of Health & Human Services’ Task Force on Long-Term Health Care Policies, and the Governor’s Private Sector Task Force on Long Term Care and the University of Arizona College of Business & Public Administration National Board of Advisors.

Robert D. Dalager
Gallagher & Kennedy, P.A.
602-530-8540
gknet.com
Dalager practices governmental affairs and land use law.  Prior to joining Gallagher & Kennedy, Dalager was with the Arizona State Senate for nearly 10 years.

Gregory Y. Harris
Lewis and Roca LLP
602-262-0218
lrlaw.com
Harris has extensive experience appearing before state and federal agencies and in state and federal court, and appears regularly before the Arizona Legislature.

Yvonne R. Hunter
Fennemore Craig, P.C.
602-916-5386
fclaw.com
Hunter’s practice focuses primarily on government affairs. Hunter formerly served as an Assistant Arizona Attorney General in the Arizona Attorney General’s Office.

Joseph A. Kanefield
Ballard Spahr LLP
602-798-5468
ballardspahr.com
Kanefield’s practice is focused on government relations, civil and appellate litigation, public-private partnerships, administrative law, state and local tax matters, gaming, and election and campaign-finance law.

Timothy A. La Sota
Tiffany & Bosco, P.A.
602-452-2712
tblaw.com
La Sota practices in the areas of government relations, regulatory and administrative law, election law, land use and procurement.

Paige A. Martin
Kutak Rock LLP
480-429-4827
kutakrock.com
Martin, an AV Preeminent Peer Review Rated partner in the firm’s Scottsdale office, and primarily represents governmental entities and private employers.

Mary R. O’Grady
Osborn Maledon, P.A.
602-640-9352
omlaw.com
As a former solicitor general for the State of Arizona, O’Grady has a unique breadth of experience with public law issues. Her areas of expertise include election and campaign finance law and state constitutional law.

Jordan Rose
Rose Law Group
480-505-3939
roselawgroup.com
Rose practices in the areas of government relations, municipal issues, land use, zoning, administrative law, renewable energy, and lobbying.

John B. Shadegg
Steptoe & Johnson LLP
602-257-5204
steptoe.com
Shadegg, former U.S. Congressman, was elected to the U.S. House of Representatives in1994 and served eight terms before retiring from Congress in 2010.  He practices in Steptoe’s Government Affairs and Public Policy group.

David K. Udall
Udall Shumway PLC
480-969-3043
udallshumway.com
Udall has successfully represented a variety of clients with zoning and development issues before the City of Mesa, Maricopa County, Town of Gilbert, City of Chandler, and Casa Grande.

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Banks Need Accurate Information To Handle Real Estate Assets

As an unintended consequence of the current real estate market, bankers are (reluctantly) being forced into the real estate business. They weren’t necessarily planning on it, but it is a consequence nonetheless.

Arizona Business Magazine, September 2008Right now, lenders are in the position where they have all kinds of real estate and land assets that they need to figure out what to do with. Many banks might not realize that they need certain tools to help understand these assets in order to make educated business decisions. Borrowers may be close to default and banks need to figure out what makes the most sense — selling the asset, keeping it or doing some sort of deal to get a non-performing asset off the books for a period of time until it becomes performing.

Lenders will typically consult with a financial consultant on a bank’s assets, but each real estate asset is truly unique. Performance should be analyzed from a land use/zoning/platting perspective. It is impossible to make a good business decision on the potential disposition (or purchase) of land if you do not have all of this information. Documents granting approvals have to be studied, federal regulatory schemes complied with (404 issues, etc.), development agreement terms studied, ordinance provisions reviewed, etc.

Saying a property is “entitled” can be misleading. The property may be entitled to something, but to what exactly is it entitled? Entitlements are a complex process with multiple steps along the way, each step potentially adding another layer of value to a particular asset. Depending upon where a property is in the process, it may be worthwhile for banks to examine the possibility of continuing the entitlement process in order to add more value. The only way to perform a thorough analysis of any real estate asset is to employ a real estate expert who understands the entitlement process, and the complex legal documents attached to a piece of real estate.

Banks need a comprehensive assessment of real estate assets, which outlines what they have and gives them options for going forward with the assets to realize the most value. The quick and easy decision to simply sell the asset and get it off the books is oftentimes the wrong choice, and banks need to do their homework before making any hasty decisions. Land holding assessment should show each asset and a choice of strategies, along with time lines and cost estimates to get the asset to perform. Very few real estate experts are qualified to perform these non-biased assessments. A broker may have pertinent market knowledge, but to fully evaluate the situation,one must have a very specific understanding of the entitlement process, which is crucial to the value of a piece of land.

Another problematic issue facing banks involves inaccurate real estate appraisals. There are many aspects of the development process that an appraiser might not take into account, which can alter the appraised value of a property. Items such as impact fee credits, development agreements, community facilities districts (a type of funding mechanism for large real estate developments), and improvement costs are just a few examples of relevant pieces to the puzzle that should be analyzed by a qualified real estate expert, in order to make a proper evaluation.
Arizona Business Magazine, September 2008
Although it might not be the plan to get back a piece of real estate, it is a consequence of today’s market. Banks need to equip themselves to make informed business decisions about these unique assets. Involving a law firm with deep experience in land use and zoning is a must, in order to get the type of complete assessment necessary to make these decisions.

Jordan Rose is the president and managing partner of Rose Law Group PC, a full-service real estate and business law firm. Lauren Elrod is an attorney with the firm.