Now What? Five Ways To Potentially Create Opportunity After The Demise Of Redevelopment

If you have been wondering how to generate opportunities out of the wreckage of redevelopment in California, this article can help.  Hopes were raised recently by legislative proposals including Senate Bill 1156 (proposed the creation of a redevelopment agency-like entity that would have required greater cooperation from taxing agencies) and three bills that would have loosened the requirements for the establishment of Infrastructure Financing Districts.  Those hopes were dashed when, just prior to the deadline of October 1, 2012, Governor Brown vetoed all of the legislative efforts to establish new or enhanced economic development tools for local governments. 

Despite the recent legislative defeats, because former redevelopment agencies still collectively own thousands of properties, those assets seem like a particularly target rich environment.  Further, the initial legislation disbanding redevelopment contemplated an expeditious property disposition strategy.  Such an approach left many thinking that valuable properties would be quickly sold off to the public at rock bottom prices. 

As of June 27, 2012, when the property disposition rules were changed due to the passage of Assembly Bill (AB) 1484, the mass sell-off had not occurred.  AB 1484 provides new mandates as to how and when dispositions of former redevelopment agency properties will occur.  Not surprisingly, the legislation provides only a minimum of practical guidance.  Therefore, the following outlines some potential strategies that those in the development community might implement to position themselves to take advantage of the demise of redevelopment as we knew it. 

By way of background, following the California Supreme Court’s decision in California Redevelopment Association v. Matosantos (upholding the dissolution statute (AB 26) and striking down the opt-in statute (AB 27)) numerous questions remained concerning implementation of the redevelopment agency dissolution process.  AB 1484 represented an effort by the legislature to provide additional details regarding some of those issues.  Of importance to this article, new Health and Safety Code section 34191.3 temporarily suspends the application of the expeditious property disposition requirements imposed by Health and Safety Code sections 34177(e) and 34181(a).  In its place, the newly adopted Health and Safety Code section 34191.5 authorizes the adoption of a “long-range property management plan that addresses the disposition and use of the real properties of the former redevelopment agency.”

The new legislation provides specific direction regarding the elements that a Successor Agency must include in its long-range property management plan.  Significantly, the list of permissible actions is no longer limited to dispositions.  The options under a property management plan include “the retention of the property for governmental use . . ., the retention of the property for future development, the sale of the property, or the use of the property to fulfill an enforceable obligation.”  In addition to the use or disposition strategy, the property management plans must include, among other things, an inventory of the properties, an estimate of the current value of each property, and a description of each property’s potential for transit oriented development and advancement of local agency planning objectives. 

With the above as guidance, the critical question for the development community becomes how to take advantage of any opportunities that exist.  The options are many and the potential approaches will likely vary from jurisdiction to jurisdiction.  The following, however, are things a savvy and proactive developer might consider:

1. Review now the publicly available information about the properties owned by the successor agencies as well as assets that redevelopment agencies transferred to their respective cities and counties last year in anticipation of the legislative changes to redevelopment.  With that knowledge, one can prepare a plan for targeting properties that present the best opportunities.
2. Encourage Successor Agency staff and elected decision makers to begin the preparation of the long-range property management plan as early as feasible.  While the law gives the Successor Agency until well into next year, at the earliest, to submit the plan to their Oversight Board and the State Department of Finance, early action by the Successor Agency and the Oversight Board can be used to shape the long-range property management plan and to prepare for the prompt disposition of property upon its approval.
3. Be aware that the long-range property management plan is not necessarily the only means for property disposition by a Successor Agency.  For example, while Health and Safety Code section 34191.3 has suspended the disposition “REQUIREMENTS” of sections 34177(e) and 34181(a), it does not necessarily supersede the authority to dispose of property under those provisions and some dispositions of property by a successor agency are currently being pursued on that basis.  Flexibility may also exist with respect to dispositions involving housing developments, particularly those that include affordable units.  In order to structure such an individual sale for success, one needs to carefully assess and address appraisal, valuation and title insurance issues and to work closely with the Successor Agency in properly documenting and presenting the transaction.
4. Consider the potentially conflicting interests of the representatives of the respective Oversight Boards, one of the entities that must approve the long-range property management plan.  Some Oversight Board members may be more interested in securing the proceeds from a quick sale for the taxing entity he or she represents than cooperating with a successor agency’s desire to implement a hold for future development strategy.  Therefore, an opportunity may exist to engage in direct discussions with potentially sympathetic Oversight Board members.  As this is a more political option than some of the others, it requires a careful evaluation of the potential impacts on a developer’s relationship with the Successor Agency as the developer will likely need the support of the agency staff and governing board to secure the property’s entitlements.
5. Regularly monitor Successor Agency and Oversight Board agendas and minutes posted on the internet.  Although it may be too late to influence the decision making once an item is already placed on an agenda, the information can nonetheless be helpful in developing strategies for future actions.

Much remains uncertain about what will happen as a result of the demise of redevelopment.  Particularly as it relates to the many real property assets formerly owned by redevelopment agencies, uncertainty can also lead to opportunity.  Developers interested in exploring that potential would be advised to immediately begin working with experienced and creative legal counsel and development consultants, as well as the applicable local agencies, to put themselves in the best possible position.