Last month we reported to you that the Planning Commission was reconsidering its policies related to the extension of various land use entitlements. On March 26, 2009 the Commission adopted three new resolutions that reflect refinements in its various policies on entitlement extensions. Unfortunately, the Commission’s actions do not necessarily provide developers (specifically office developers) and lenders the kind of comfort they were looking for.
The Commission Action
With respect to office entitlements specifically, the Planning Commission adopted Resolution No. 17846A which states:
“The Planning Commission recognizes that the current global economic crisis has exceeded the depth and breadth of recent economic downturns, resulting in a profound impact on a liquidity and stability of credit markets and the availability of financing for a range of land use development projects; and
The Planning Commission believes that a policy of monitoring projects authorized under Planning Code Section 321 (Office Development Annual Limit), but not yet under construction, and ensuring that those projects under construction proceed as expeditiously as possible under the circumstances, serves the City well; however, the Planning Commission believes that authorized projects that are not diligently pursued should be revoked.”
The Commission identified two office projects approved in 2001 and directed the Planning Commission’s staff to schedule a hearing for revocation of those entitlements. It then went on to identify four other projects that have also exceeded the 18-month performance timeline set forth in the Planning Code, and asked the staff to set each of those for “informational presentations” before the Planning Commission.
Analysis of the Policy
The Planning Commission’s actions are internally inconsistent. On the one hand, it is saying that it understands the difficult economic times we are facing and that these problems are preventing virtually any project from moving forward at this time. Then, in virtually the next breath, the Commission says that it still expects project sponsors to “diligently pursue” their projects and entitlements and presumably if such diligence is not forthcoming, further action may be taken.
As we reported to you in March, there are a variety of reasons why revocation of any entitlement serves little or no purpose to the City, the property owner, or the developer. Developers need certainty that their entitlements are still valid while they wait out an economic downturn. A Commission policy that demands that developers “diligently pursue” their entitlements at a time when everyone acknowledges financing for development is non-existent sends a confusing message to the development community at a time when the last thing the City should want is to create more uncertainty about the City’s development process.
Another problem with the Commission’s resolutions is that they do not state any rationale for their actions. Why is this such a big deal, and why, of all times, is this happening now, in the middle of the greatest economic crisis in 50 years, at a time when there is no shortage in the available office allocation square footage for new projects? It should not be enough to just rely on the Planning Code’s 18-month performance requirement. There is significant evidence in the record that it is virtually impossible to get a large project permitted and under construction within this short period. The Commission should not pressure developers to move forward without clearly articulating the reason why such pressure is needed.
We also disagree with the Commission’s direction to schedule “informational presentations” on four other office entitlements that have exceeded the 18-month performance condition. At the two Planning Commission hearings on the matter of extensions generally, the Commission heard from a wide variety of stakeholders that financing is unavailable but the entitlements need to be preserved so that the projects can move forward quickly once there is a turn in the economy and money starts flowing again. The purpose of holding further informational hearings to explore the status of individual projects is not entirely clear when it is uniformly accepted that no project can get financing right now.
If you would like a copy of the Resolutions adopted by the Planning Commission on March 26 related to entitlement extensions, or have any related questions, please contact either Andrew Junius or Tuija Catalano.
Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.