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Posts from November 2013.

Western Real Estate’s Business, November 2013.

The real estate headlines in Oregon newspapers this month kindled cautious optimism that the economy is in full recovery. One article touted a boom in the residential and commercial markets of Canby, a Portland suburb, while another trumpeted a bash to kick off a $25 million, mixed-use development in downtown Portland.

These positive headlines added to the stimulating effects of last year’s expansion announcements by Nike and Intel. News of those companies’ plans for growth in Hillsboro bolstered the industrial, office, and residential markets in the Sunset Corridor.

Industrial property owners, be vigilant. This uptick in the economic outlook does not mean there should be a corresponding increase in a property’s real market value and a corresponding over-assessment of the property.

It should be simple to spot an inflated assessment. By statute, a property is assessed at its real market value, defined as what a willing buyer and willing seller would agree upon in an open market transaction. Assessments are also subject to Measure 50’s maximum assessed value limitations. The assessed value is the lower of the maximum assessed value or the real market value.

Yet over-assessments are common, and the reasons numerous. Despite the economic uptick, there are still significant economic impacts to industry in Oregon resulting in over-valuation of property by the Counties and the Department of Revenue.

The madness is in the method of assessment, because it is impossible for the assessor to physically inspect and appraise each property on its rolls. Instead, the assessor will typically add up a taxpayer’s historical investments in a property as reported each year, and equate the cumulative sum of those investments to the real market value of the property – without any regard to market conditions.

Market conditions that impact a company and the real market value of the property can be significant, particularly for an industrial property. Take a high tech campus that was built in the 1970’s and designed for a single user. Back then, tech firms favored flex buildings designed for manufacturing, research and development, assembly, and distribution with a typical floor plate of 40,000 square feet. No thought went into an exit strategy when planning the design or layout of the access, parking, integrated utility systems, and location of the buildings on the property.

Fast forward to 2013, when globalization generally calls for overseas assembly plants and distribution centers located strategically to the company’s global market. The need for a single-user campus with six or more dated, 100,000-square-foot flex buildings that share interconnected utilities on a single tax lot is gone. Globalization is an economic force that is external to a company and one that drives down the market price of these facilities. It is a form of obsolescence that is rarely accounted for in a property valuation.

Another factor that assessors typically overlook at industrial sites is functional obsolescence. Consider a facility built 30 or 40 years ago. Technology for the manufacturing processes may have advanced over the years, but the building design, including the ceiling height or floor load, may limit the use of the new technology. The overall utility of the property suffers from functional obsolescence that impairs the market value.

The assessor often lacks the people power to drill down into the details of every property. Because property value reflects not only local market conditions, but also the inherent functional and economic obsolescence unique to the property, a property being taxed solely on a trending basis may be over-assessed.

As appeared in Western Real Estate’s Business November issue. 

 

Dear Euclidians,

Are you coming to Portland for the Legal Issues Workshop or just looking for an opportunity to network with planners from across the state? Plan now to attend a happy hour networking event sponsored by the membership committee of the Oregon Chapter of the American Planning Association and the Euclid Society (Garvey Schubert Barer). Bring a colleague and come on down to Quartet in the South Waterfront district of Portland the first Thursday in December!

We hope to see you there!

When: Thursday, December 5

Time: 5:00 to 7:00 pm

Where: Quartet, 1910 SW River Drive, Portland, OR 97201 (South Waterfront)

Sponsored in Part By: OAPA and Euclid Society (Garvey Schubert Barer)

Click here to register for the Holiday Happy Hour! Space is limited so please register in advance.

        

The Land Use Board of Appeals (LUBA) issued its opinion in the Oregon Shores Conservation Coalition’s appeal on remand of Curry County’s approval of a destination resort and related subdivision approval in Oregon Shores Conservation Coalition v. Curry County, LUBA No. 2013-034 (Crook Point II).  The proposed destination resort is located on a 378-acre tract zoned Forest-Grazing bounded on the west by the Pacific Ocean, on the north by Crook Point (a National Wildlife Refuge) and on the south by Boardman State Park.  The application proposed an 18-hole golf course, a nine-hole golf course, golf shop, lodge, spa, interpretive center, equestrian center, 175 overnight lodging units, resort owner and employee housing, and a land division into 11 lots (10 residential and one large remainder lot).

Petitioners, Oregon Shores Conservation Coalition and Oregon Coast Alliance, appealed the decision because the County did not comply with the requirements of Goal 17 when it applied its comprehensive plan provisions.  The major dispute in this second round continued to be the exact location of the “coastal shorelands” boundary, as defined by Goal 17, on the subject property.  Under Goal 17, “coastal shorelands” is defined as those areas immediately adjacent to the ocean, all estuaries and associated wetlands and coastal lakes.  Goal 17 requires that coastal shoreland include, at a minimum, areas subject to ocean flooding and lands within 100 feet of the ocean shore, as well as adjacent areas of geologic instability where the geologic instability is related to or will impact a coastal water body.

Petitioners claimed that the County misapplied Goal 17 because the County’s decision was not supported by the applicant’s geologic report.  Petitioners contended the report failed to correctly analyze the geologic hazard from cliff erosion on the property by limiting its analysis to erosion of cliff faces that occurs from ocean waves hitting the cliff faces.   Petitioners successfully argued that the geologic report failed to analyze cliff erosion geologic hazards that are not the result of waves but that could still impact the ocean due to erosion from increased storm water runoff, or diversion or alteration of water courses, or wind or rain.  LUBA agreed and remanded for further consideration of other geologic hazards that could impact the ocean.  LUBA directed that if erosion of sea cliffs or other “adjacent areas of instability” from any source “will impact a coastal water body,” those sea cliff areas or other areas must be included in the coastal shoreland. LUBA faulted the applicant’s geologic report for excluding areas that contain sandy soils and groundwater flow that reportedly eroded the area and deposited slide materials in the ocean, as well as areas that the report characterized as “in a state of rapid erosion.”

In addition, the Petitioners challenged the County’s failure to apply the Goal 17 requirement to include the 100 foot setback area from the ocean shore as coastal shoreland.  With respect to the 100 feet of ocean shore setback area included in the coastal shoreland definition, LUBA concluded the County misinterpreted the boundary.  Although Goal 17 does not contain a definition of “ocean shore,” LUBA determined that the definition of the term under ORS 390.605(2) (as it applies for scenic and recreational purposes) is equally applicable to Goal 17. Therefore, Goal 17’s use of ocean shore is defined as “the land lying between extreme low tide of the Pacific Ocean and the statutory vegetation line as described by ORS 390.770 or the line of established upland shore vegetation, whichever is further inland.”

The County claimed it was not required to directly apply Goal 17’s setback area because it could rely on the requirements of its acknowledged comprehensive plan.  However, LUBA disagreed because the County is not permitted to adopt an interpretation of its comprehensive plan that is inconsistent with Goal 17.  Because the County’s comprehensive plan provision does not exempt or take exception to the Goal 17 minimum requirement that the coastal shorelands “at least” must include “lands within 100 feet of the ocean shore” when locating the coastal shoreland boundary, LUBA held that the coastal shoreland boundary, at a minimum, must include those lands.  In review of the applicant’s geologic report, LUBA concluded the report does not include any evaluation of or conclusion whether the shoreland boundary is located at least 100 feet from the ocean shore.

It is easy to imagine that the technical criticisms will continue in round three of Crook Point.  Although Goal 17 is not an oft-litigated topic, any consideration of coastal development should closely consider the technical guidance of this opinion.

Nikolich v. Village of Arlington Heights, 870 F Sup 2d 556 (N.D. Ill., 2012) involved Defendant’s denial of 30 units of housing for those with mental illness, and a Motion for Summary Judgment by Defendant. The Complaint in this case had three theories, including the Fair Housing Act (“FHA”), the Americans With Disabilities Act (“ADA”) and the Rehabilitation Act. Plaintiffs were either developers or prospective users of such housing. Defendant’s housing plan showed an unmet need for 180 units for those with special needs. Upon Staff advice, Plaintiffs applied for nine amendments or variances from the underlying zone, including a Comprehensive Plan Amendment and rezoning. The applications had no historic precedent; nevertheless the Planning Staff recommended approval. The Planning Commission recommended approval by a 4-3 vote; however, the Village Board denied the application on a 4-3 vote.

The Court stated that there was not enough evidence to show that mentally ill residents would be better off at the residential density Plaintiffs proposed and also observed that 16 units could be built without variances; however, Plaintiffs could not have secured public financing to pursue that option. The Court was unimpressed by the notion of charging higher rents to make up the difference. Moreover, the housing tax credits had expired by the time the suit was brought and there were no financial arrangements in place to fund the housing. The court proceeded to test the three theories advanced against Defendant’s action.

Plaintiffs advanced three separate theories under the FHA – disparate treatment, disparate impact, and failure to make reasonable accommodation. Disparate treatment can be intentional (however, there was no such evidence under existing zoning patterns or from what was allowed under the existing zoning – i.e., 16 units without variances). The Court did not find that the dimensional requirements of the underlying zones were unreasonable or aimed at the disabled. The court noted that it was the plaintiff who asked for discretionary amendments and variances and then found that the ordinance was on its face, “fairly debatable.” Thus, there was no showing that the Plaintiffs were treated differently from other applicants. The Defendant was shown to provide housing for some mentally ill now, and proposed to do more in the future. There was also evidence that the Defendant did not, and would not, have made a different decision if the proposed housing did not involve the disabled. The Court concluded:

“In short, Arlington Heights cannot be said to have treated [this project] differently than any other project involving non-disabled residents because no one has ever been granted zoning variances of this scope. Moreover, there are a number of supportive housing projects already serving mentally ill residents in Arlington Heights, and more are planned for the near future * * * facts that buttress the determination that the Village Board is not biased against such projects but rather denied the project at hand for the legitimate zoning reasons identified at the May 17 meeting. Thus plaintiffs’ disparate treatment contention is doomed.”

As to the disparate impact claim, which was to show a facially neutral ordinance, fell disproportionately on a protected class, the Court said that the neutral policy (i.e., the zoning scheme which would require amendments and variances, to get to Plaintiffs’ objective) did not fall disproportionately on the handicapped.

As to Plaintiffs’ failure to accommodate claim, Plaintiffs must show the accommodation was reasonable and also necessary to ameliorate the effects of renters’ disabilities. The rule to which accommodation was requested must be shown to limit the disabled by reason of their handicap. Plaintiffs could not show that this was the result (“but for”) or their hardship – i.e., the variances for density, minimum unit size, and number of parking spaces – if all potential tenants would have been affected, the reasonable accommodation provision does not apply. None of the variances were shown to ameliorate the effects of Plaintiffs’ disabilities, but would only make the project more financially feasible for the developer. The Court rejected this financially feasibility test because it did not apply to any specific disability. The Court also questioned whether an “interactive process” of reasonable accommodation applied to local governments in the exercise of their land use regulatory authority. The fact that the handicapped could live elsewhere, albeit more expensively, was of no matter, particularly if alternatives existed on the very site without variances. The Defendant’s Motion for Summary Judgment was thus granted.

This case may be correctly decided on the facts and the contentions made. However, it may well be true that if there are economies of scale that allows for provision of affordable housing to the disabled, the purposes of the three enumerated acts may be unmet. The realities of development may exclude the disabled from access to housing – apparently with the blessing of the law.

Nikolich v. Village of Arlington Heights, 870 F Sup 2d 556 (N.D. Ill., 2012).

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We regularly update clients about changes in real estate law and on industry trends. This includes briefing clients on legislative proposals in the federal tax, housing and other legal areas affecting their businesses. Staying current enables you to anticipate and prevent legal problems as well as capitalize on new developments.
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