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8/8/2019 Pipeline DC Building Industry Assn July 2010
1/28
PIPELINEDISTRICT OF COLUMBIA BUILDING INDUSTRY ASSOCIATION
Vie fm the tp
A Streetcar For Washingtons Future
VOLUME XXXVIX JUE/JULy 2010
Matthew J. Klein
President
Akridge
Vice President
District of Columbia
Building Industry
Association
Streetcars frstappeared inWashington, DC in
1862, and by 1916
their tracks covered
more than 200
miles o streets in
Washington and
close-in suburbs. The
streetcar network
in Washington, as
in other cities in the
United States at the
time, provided a
predictable urban
development grid extending to all corners o the
city and linking neighborhoods with an ecient
mode o transportation. But by 1962, streetcars disap-
peared rom Washington and rom most other U.S.
cities largely in avor o buses.
Fortunately, we have the capacity to learn rom our
mistakes; it just takes a while. Its called experience,
proverbially the best teacher. Today, more than 80
cities in the United States have re-introduced street-
cars, or are actively planning to, both to reap the type
o development benefts enjoyed a century ago andat the same time to address contemporary conges-
tion, environmental, and natural resource concerns.
To its credit, Washington is one o those cities.
With the frst stage o a proposed 37-mile streetcar
network under construction on H Street, NE, the
District o Columbia has embarked on a promising
addition to the citys transit system. The popularity
and momentum o the initiative was visibly demon-
strated in the immediate public uproar that ollowed
the City Councils near-elimination o unding or the
H Street line in recent budget balancing exercises.
Supporters recognize streetcars potential to enhance
and revitalize neighborhoods, increase property
values, and stimulate the citys commerce through
improved transportation inrastructure. This has
happened in other markets, it is already happening
on H Street, and it is the reason DCs business com-
munity should work closely with the city to make
the streetcar vision a reality.
Economic Development andRevitalization
The link between transportation and land use hasbeen evident since the early days o the streetcar.
Development centers emerge in locations that can
be easily accessed. The more permanent the trans-
portation inrastructure (e.g., tracks in a roadway), the
more predictable the development pattern and the
increase in density. Modern experience in other cities
has demonstrated that proximity to a streetcar line
correlates to a clear increase in realized density versus
maximum zoned density.
We are a horizontal city that craves linkage between
neighborhoods, both in established and in emerging
areas. While Metro is an immensely valuable trans-
portation resource, it doesnt meet all o our needs or
intra-city circulation. A new transit option with both
permanence and exibility could provide greater
choice and new points o access or area residents
and employees, increasing convenience and opening
doors to additional working, shopping, and entertain-
ment opportunities. Commercial enterprises would
beneft rom a broader client base and new geographic
options or business expansion, relocation, or launch.
continued on page 11
8/8/2019 Pipeline DC Building Industry Assn July 2010
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Silo Busting at the Federal Level
mAKet AtCh
Its hard to walk the halls at the Department oHousing and Urban Development (HUD) these daysand not hear reerence to silo busting, the latest in
ederal inter-departmental management. At some
departments, ocials are making unprecedented
eorts to interrelate. One high-ranking HUD ocial
muses that a typical day might include outreach to
counterparts at the Departments o Transportation
(DOT), Energy (DOE), Health and Human Services (HHS),
Education (ED), and Veterans Aairs (VA), and contact
with independent bureaus such as the Environmental
Protection Agency (EPA). I you dont regularly work
with the ederal sector, you might wonder why such
inter-agency coordination is noteworthy. For those o us
charged with putting to use government unds needed
or certain development and related inrastructure
costs, we can oer countless stories o ederal ace-os
and conicting agendas. Too oten, such discord in theederal sector spills over and results in similar dysunc-
tion at the local level. Accordingly, the emerging trend
osilo busting is a welcome change.
So hows it going and what does it mean or all o us
on the ground? A ew on-going initiatives might be o
interest:
DOT, HUD and EPA: Striving for Livable,Walkable Communities and ImpactingLarger Scale Developments
HUD, DOT, and EPA have ormed an InteragencyPartnership or Sustainable Communities charged with
better coordinating ederal transportation, environ-
mental protection, and housing investments. This eort
was born o the notion that too many people spend ar
too long (and too much money) traveling rom work
to home. Similarly, essential retail and entertainment is
too oten not easily accessible.
This unprecedented initiative seeks to provide tools
and resources or building livable, walkable, and
environmentally sustainable regions. Unortunately,
at this point, the program doesnt come with signif-
cant unding opportunities or private developers.Nonetheless, i larger scale development particularly
development requiring government assistance or cer-
tain housing uses or transportation inrastructure is
in your uture, you should track this emerging initiative.
During our recent round-table gatherings, members
o the DCBIA East o the River Committee considered
how this initiative might impact larger developments in
the District, including the planned development o St.
Elizabeths east campus. I you havent done so, I sug-
gest a cyber-tour to sites such as www.walkscore.com,
www.reconnectamerica.com, and www.americawalks.
org or a quick tutorial beore diving into a thorough
review o ederal web oerings on this sustainable
communities initiative.
HUD and DOE: Advancing EnergyEcient Multifamily Properties
The ederal government spends roughly $5 billion
every year or energy costs at public housing and or
rental assistance operations. HUD Secretary Shaun
Donovan notes that trimming this bill by just fve
percent annually would generate considerable savings
over the next fve yearsreal money in the more-than-
a-little-tight HUD budget.
Accordingly, eorts abound to make these properties more
energy ecient. HUD and DOE are working together to
N. Linda Goldstein, E
Goulston & Storrs
Co-Chair, East of the
River Neighborhood
Development
Committee
District of ColumbiaBuilding Industry
Associationcontinued on page 12
http://www.riparchs.com/8/8/2019 Pipeline DC Building Industry Assn July 2010
4/284 PIPELINEAIL 2010
www.hklaw.com
Washington, D.C. | 202.955.3000
Industry Focused. Relationship Driven.
Copyright 2010 Holland & Knight LLP All Rights Reserved
As the largest real estate law practice in both the District of Columbia and the U.S.,
shouldnt we be keeping your company, too?
THE COMPANY WE KEEP.
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PIPELINEJUE/JULy 2010
LeGiSLAtiN/eGULAtiN
Roderic L. Woodson
Partner
Holland & Knight
LLP
Chair, DCBIALegislative/
Government Aairs
Committee
Paul Tummonds
Director
Goulston & Storrs
Vice Chair, DCBIA
Legislative/
Government Aairs
Committee
Cost of Owning and Developing Property
In DC Continues to Escalate
Vacant Property TaxationOn June 15, 2010, as part o the FY 2011 Budget SupportAct, the DC Council adopted several provisions relating
to vacant properties, including a provision to retain the
Mayors proposed vacant property registration require-
ment and the implementation o a higher ee o $250
annually up rom $20. As reported in Spotlight on May 6
and again on June 4, 2010, the Mayors proposal included
a graduated registration ee that would increase up to
$5,000 over a fve-year period with no exemptions. DCBIA
worked to ensure that the registration ee was kept within
reason, and that specifc exemptions were included. In
addition, the Council reinstated a Class 3 vacant property
tax at the rate o $5.00 per $100 o value, and a Class 4 tax
o $10.00 per $100 o value or blighted properties. Vacant
building owners are exempt rom paying the registration
ee or the Class 3 real property tax i the property is or
sale or rent, subject to probate proceedings, under active
construction or rehabilitation, there is a pending applica-
tion or an administrative predevelopment proceeding,
or or undue economic hardship. The exemptions last or
12 to 24 months, depending on which exemption is used.
The cumulative time period o exemptions cannot exceed
three years. DCBIA worked to ensure that vacant land was
not included in the vacant or blighted tax classes, as well
as recommending exemptions to vacant building owners
rom the registration ee and tax.
PLA and First Source LegislationA joint public hearing will be held on June 30 by
Councilmember Mary Chehs Committee on Government
Operations and the Environment and Councilmember
Michael Browns Committee on Housing and Workorce
Development to hear testimony on Bill 18-650, the
Resident Employment and Trade Stimulus Amendment
Act o 2010, introduced by Councilmember Harry Thomas,
Jr., and Councilmember Michael Brown. The bill would
substantially increase the required quota o District
residents employed on government-assisted construction
projects o over $200,000 and mandate a Project Labor
Agreement (PLA) or all such projects. Serious concerns
have been expressed regarding the bills problematic levels
o required resident employment and the increased costs
imposed by PLA participation on virtually all District-
supported development. Other issues o equity have also
arisen in what is seen as an arbitrary legislative intrusion
in ree and competitive labor markets. DCBIA, along with
much o the business community, has taken a position
in strong opposition to Bill 18-650 as counter-productive
public policy and a serious impediment to development in
the District. At this point, the outlook or committee action
on the legislation is unclear.
MS4 Permit RequirementsAs part o its renewed priority clean up o the ChesapeakeBay, the Environmental Protection Agency has issued
proposed new regulations or the Districts MS4 Permit.
DCBIA has prepared detailed comments in response,
citing the imposition o new on-site stormwater reten-
tion standards (90-95%) as unduly stringent and likely to
drive development out o the District to nearby suburban
jurisdictions with more open space and less aggressive
requirements. The comments also note the lack o incen-
tives and exibility (o-site mitigation) in the application
o MS4 proposed regulations, as well as the prospect that
overly stringent requirements will undermine the other
important environmental goals o smart growth, transit-
oriented development.
Federal Payment of ImperviousSurface FeesThe U.S. Government Accountability Oce has recently
inormed WASA that ederal agencies will not pay the
Districts impervious surace area ee to und stormwater
inrastructure improvements, declaring the ee is really a
tax or which the ederal government is exempt. The ed-
eral governments reusal to pay a share o the ee (it owns
about one-fth o the land in the District), in eect, makes
the proposed MS4 permit requirements an ununded ed-
eral mandate and their costs, already projected to increase
substantially over time, an even more crushing fnancial
burden on the private sector.
No Escape from Flood InsuranceIt now seems all but certain that the District will not escape
the requirements or ood-risk insurance and building
code compliance arising rom FEMAs revised 100-year
oodplain maps, although the District is reportedly still
seeking a urther postponement rom FEMA implementa-
tion pending a changed levee up-grade schedule. An
earlier agreement with the District by which FEMA would
deer the issuance o revised oodplain maps pending the
overhaul o the 17th Street levee broke down as agreed-to
completion dates were unmet. In March 2010, FEMA issued
its fnal determination o District ood risk to become
eective September, 2010 at which point an estimated
5,500 property owners with buildings in parts o the low
lying area o downtown and anking the National Mall,
as well as areas o the citys Southwest quadrant, will be
required to secure ood insurance and to comply with
ood-risk related building code requirements.
A new levee construction schedule has been arrivedat, running rom July 2010 to April 2011, which should
continued on page 14
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Connect with us:bakertilly.com
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frms. We have now joined orces with Baker Tilly. And while
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C
ongratulations. Ater months o preparation and presentationsin response to a request or proposals issued by the Deputy
Mayor or Planning and Economic Development, your develop-ment team has been selected to redevelop a District-owned site. Asdicult as it may have been to get to this stage, greater challengeslie ahead in the negotiation o the requisite disposition and devel-opment agreements with the District o Columbia. The ollowingoutline sets orth the deal documents and issues that are typicallyencountered in such negotiations. A general understanding o theissues involved, along with experienced counsel, will help you toocus your eorts and move through the negotiation process in anecient and eective manner.
Term SheetLike most term sheets used in other real estate transactions,the Districts term sheet begins the negotiation by outliningthe basic terms o the deal. It will incorporate the basic
minimum terms stated in the Districts request or proposals,and will not be binding on either party. Some developers fndit best to negotiate most major legal issues in the term sheet.Others preer a term sheet that sets orth the basic businessterms only and deers negotiation o legal issues until theLand Disposition Agreement. Regardless o your strategy, aterm sheet, even a short one, sets the tone or the negotia-tions and thereore should not be dismissed as an ancillarydocument. You should consult with counsel to determine thebest approach or negotiation o your term sheet and identiyany unique issues presented by your proposed project.
Right of EntryIn conjunction with your selection as the developer, theDistrict will allow you and your team to enter onto the
property to conduct due diligence pursuant to a Right o EntryAgreement. Prior to executing the Right o Entry Agreement,you should take steps to ensure: (i) the parameters in whichyou can conduct your due diligence are broadly defned so asto ensure your particular testing, especially i you suspect thepresence o adverse environmental conditions; (ii) your relatedindemnifcation obligations are appropriately limited in scope;and (iii) the agreement remains in eect through the closing,to ensure your continued access to the property.
Land Disposition and DevelopmentAgreementOnce the parties execute the term sheet, the District willincorporate the agreed upon terms into a Land Disposition
and Development Agreement (LDDA). The LDDA is the prin-cipal operative document that governs your acquisition o theproperty rom the District through a ee simple conveyanceand/or a ground lease. All other major deal documents willbe negotiated concurrently with the LDDA, or subsequentexecution at the closing. The LDDA is structured similarly to atypical land purchase and sale agreement, but because o thepublic interest involved in the conveyance and developmento a District-owned site, the LDDA will also typically provideor, among other things, signifcant District control and reviewover the design, development, and operation o the project. Inaddition to deal specifc project requirements, the ollowingissues will typically be addressed in the LDDA:
Approval of Construction Plans and Drawings . The LDDAwill address the parameters o the Districts approval
rights over the developers construction plans and draw-ings. From the developers perspective, it is importantto incorporate sucient exibility to address possiblesubsequent zoning requirements and non-materialchanges in the plans and drawings.
Other District Approvals. The LDDA will also address theDistricts approval rights or items such as the projectbudget and unding plan, selection o the generalcontractor and other proessionals, easements andcondominium documents, aordable housing and retailleases, and community outreach plans. The extent andparameters o such District approval rights should be gov-erned mainly by the extent o the Districts participatinginterest in the operation o the project, or whether theDistrict will be a party to the subject instrument.
Construction Consultant. The District will likely requirethe developer to hire an independent constructionconsultant to report to the District on matters such asthe conormity o the construction to the approvedplans. Since most project lenders and equity investorswould likely require their own construction consultant,it is important to address this District requirement in amanner so as to avoid conicts and duplicate costs to thegreatest extent possible.
Assignment/Transfers . In order to ensure that the selecteddeveloper remains responsible or the actual constructiono the project, the District will likely place restrictions ondeveloper assignments and transers prior to achieve-ment o stabilization. It is important that each developer
consider its long-term plans or ownership o its projectand negotiate the requisite exibility with regard topossible assignments and transers.
Local Retail Requirement. I the project includes a retailcomponent, the District may require certain minimum set-asides or retailers that are local and/or Certifed BusinessEnterprises (CBEs) at reduced rental rates or a designatedperiod o time. In such event, the extent o the Districtslease approval rights and the subordination o same to anylender approval rights, must be addressed in the LDDA.
D.C. Council Approval. Once the parties fnalize the LDDAand related transaction documents, the District will needto obtain D.C. Council authorization in accordance withD.C. Code 10-801 beore the District may execute the
LDDA. D.C. Council authorization normally provides ora two-year period rom the date o the authorization toconsummate closing under the LDDA. Your ailure to closeby such date will result in the Districts ability to exerciseits remedies under the LDDA, which typically includethe right to terminate the LDDA. The impact o Districtdeaults and orce majeure events upon such outsideclosing date, and the conditions under which the Districtwould agree to seek an extension o its authorization,must be negotiated and set orth in the LDDA.
DC LAND DeAL
Understanding the Land Deal
With the District of Columbia
Edward M. Rogers
Debra D.
Yogodzinski
John H. Brown
Arent Fox LLP
continued on page 16
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Its not just a transaction,
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Over the past two years, the state o the municipalbond market can best be described as on lie support.However today, as a result o the Obama Administrations
New Issue Bond Program, the District o Columbia Housing
Finance Agency (DCHFA) is on track to exceed any oits previous one year totals in mortgage revenue bond
issuances. We are fnally hearing good news rom investors,
developers and public ocials the market is back.
The Market Meltdown: In 2007, the national housing
bond market peaked. The upward market trend that had
been building or several years reached its apex with a
notable 61% increase in market activity between 2005 and
2007. However, increased bond sales activity rom $9.4 bil-
lion to $16.1 billion between 2005 and 2007, took an even
more precipitous drop o 75% when sales ell to $4 billion
in 2009. Similarly, the mortgage revenue bond market in
the District slowed signifcantly in calendar year 2009 with
the DC Housing Finance Agency issuing a mere $17 million
in bonds or only one project.
The Fix: In response to a sudden about ace in the credit
and capital markets, the previous and current administra-
tions proposed two economic stimulus bills to Congress,
the Housing and Economic Recovery Act o 2008 (HERA)
and the America
Recovery and
Reinvestment Act
o 2009 (ARRA).
Taken together,the two pieces
o legislation
approved over
$1 trillion to
stimulate the
American economy.
The New Issue Bond Program (NIBP): On October 19,
2009, the Obama Administration used HERA authority to
create a new initiative or state and local housing fnance
agencies (HFAs) called the New Issue Bond Program (NIBP).
The program was implemented through a partnership
o the U.S. Department o the Treasury, Fannie Mae and
Freddie Mac and was designed as an additional tool tohelp stabilize the U.S. housing market by providing tem-
porary fnancing or HFAs to issue new mortgage revenue
bonds. As a result, bonds totaling more than $15 billion
were issued nationally.
AffDABLe hUSiNG eBUiNDS
Obamas New Issue Bond Program
Harry D. Sewell
Executive Director
District of Columbia
Housing Finance
Agency
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Property Value Enhancement
Transit investments have a solid history o increasing property values.
When new transit is announced, property values increase exponen-
tially, then generally plateau upon completion o construction orcontinue to increase with system expansion.
Robert Charles Lesser Company (RCLCO), an international real estate
advisory frm, has generated projections or property value increases
along the Districts H Street line based on Portlands experience with
streetcar-related development. The projected average value increases
or properties located within two blocks o the line are dramatic:
approximately 69 percent or single amily homes; 32 percent or raw
land; an average o 20 percent or condominiums, apartments, and
hotels; and 13 to 15 percent or oce and retail. These numbers do
not account or the eects o zoning changes, which make the value
proposition even more conservative. And these projections are just or
the frst fve miles o DCs proposed 37-mile system.
Transportation Impacts
Washington continues to get denser, as infll sites and emerging
markets respond to new development. Our height restrictions have
developers constantly seeking and planning creative ways to maxi-
mize densities wherever appropriate. As new retail, oces, residences,
and entertainment uses emerge and make our city more interesting
we put added strain on a very fnite transportation inrastructure.
We need to constantly fnd new and ecient ways to move people
into and around our city. Streetcars oer an attractive and ecient
alternative to bus and auto trips. A streetcar can hold 71 percent more
riders than a 40-oot bus and wont contribute to tailpipe emissions or
our dependence on oil. Experience in other cities clearly shows that
ridership on streetcar lines ar exceeds that achieved on comparablebus lines. Portland Streetcar Inc. reports that a streetcar attract 30 to
50 percent more ridership than a comparably routed bus. A Tacoma,
Washington, streetcar route that replaced a bus line saw ridership
triple within a year.
Why Streetcar?
Many o the development benefts o streetcars mentioned
above can be attributed to other orms o mass transit as
well. But streetcars unique attributes in terms o cost,
building logistics, and transportation unction make them
the right option or Washington, DC.
Generally, streetcar construction is limited to the top o theroadbed and can be built very quickly. Portland built its frst
line at a pace o one block per month. Shorter construction
schedules mean less disruption to business, and, when the
economic benefts are layered in, the investment argu-
ments become even more compelling. Streetcars, thereore,
oer one o the most cost-eective new investments we
can make in our transportation inrastructure. Per-mile
construction costs are less than 18 percent o the price
o building Metros Silver line, or example, which total
$226 million per mile. Experience in other cities has also
demonstrated that operating a streetcar system can be
more aordable than comparable rail or bus service.
Finally, streetcars can make a contribution to the areas development
environment that compliments and enhances rail transit. Where
rail transit is designed to carry lots o people over long distances at
high speeds, providing the nodes or transit-oriented development,
streetcar routes support linear development by radiating out romthose nodes. Such linear development links neighborhoods that
otherwise lack good transit connections. Smaller than trains, streetcars
travel shorter distances and move at the speed o other trac. They
provide that last mile connection that makes heavier rail work better.
The Need For Private Sector Support
DC city leaders, including Tommy Wells, Jim Graham, Gabe Klein, and
Scott Kubly, among others, have shown the vision and commitment to
champion the streetcar network. Even more importantly, the city has
indicated an interest in engaging the private sector in the planning
o the system and its operations. Build-out o the streetcar plan will
require thoughtul public-private collaboration to establish construc-
tive fnancing solutions. The creation o the New York Avenue Metrostation provides proo that such collaboration can work to create a
transportation and economic development tool that is a win or all
involved.
But the uture o streetcars in Washington is ar rom assured, as
evidenced by the challenge o maintaining unding in the Council
budget. Spending on transportation inrastructure has long been a
struggle in the District with its competing spending priorities, and
current budget diculties dont make things any easier. While our
metrics may be a little dierent, the public and private sectors can
both recognize the strong return on investment potential o streetcars
The private sector needs to be an active part o the solution in seeing
that streetcars return to Washington streets. While there are some
transportation oerings rom the past that should stay in the past the Pinto comes to mind good ideas like the streetcar should clearly
be a part o our uture. s
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mAKet AtCh continued from page 3
mAKet AtCh
extend use o DOEs weatherization programs to certain multiamily
housing properties. Unortunately, at the local level, old habits die hard
and many jurisdictions continue to ocus on weatherization o single
amily units, turning a blind eye to the critical need to weatherize larger
multiamily properties. Cynics will note that even though conservation
experts suggest that signifcantly greater savings per dollar is achieved
by reducing energy demand at large multiamily properties, mayors
generally score more political points by supporting programs to widely
distribute weather stripping to single amily dwellers.
I you support eorts to advance energy conservation eorts at public
housing and government-assisted rental properties, dont despair.
Legislation is pending on Capitol Hill that will give owners increased
incentives to make their buildings more energy ecient. For their part,
government ocials seem reasonably open to suggestions or sensible
reorm. In the interim, small sums o stimulus monies or green retroft
are owing and the notice o unding or another (again small) Energy
Innovation Fund will soon be issued. While much o the greening eortto date has been directed toward making the ederally-impacted
housing portolio more energy ecient, the drum beat signals that
private buildings are the next rontier. This may be a good time to move
your best ideas to the oreront, through DCBIA or your national trade
associations.
HUD and VA: Addressing the Needs of Homeless
Veterans:New Ways of Transforming Distressed
Public Housing (HHS and DE to step up)
A new plan to end homelessness among military veterans is expected
to soon hit the Presidents desk. Federal data demonstrates that
veterans are overrepresented among the total homeless population.
Early on, HUD Secretary Donovan and VA Secretary Eric Shinseki
committed to meeting the permanent housing needs o homeless
vets. They created benchmarks to allocate unds to public housing
authorities and dedicated VA case managers to meet veterans housing
needs. Despite eorts to date, we are ailing to address the needs o
our troubled veterans. In the District and elsewhere, the challenge
o providing permanent housing or veterans is simply not a priority,
although many analysts expect increased political pressure on local
housing ocials rom veterans groups i, as anticipated, the population
o homeless vets swells with those returning rom the wars in Iraq and
Aghanistan.
With respect to improving the lives o other needy populations,the Administration soon will make available $65 million in competitive
Choice Neighborhood Initiative pilot grants. Watch or a ormal Notice
o Funding Availability this summer. This is a test eort to replace the
HOPE VI program used to redevelop some o the nations worst public
housing. Similar to the sustainable communities initiative described
above, the choice neighborhoods eort advances sustainable mixed-
income neighborhoods by linking housing, transportation, and jobs.
What makes this eort unique is that the government seeks to also
address the need or educational opportunities, including early
childhood development yet another example o silo busting. s
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I you are a commercial building owner, or areinvolved in the design o a government building,you may have government-provided monies avail-able to you that can help make your buildings more
energy ecient.
The Section 179D tax deduction allows a taxpayerto take a deduction or part or all the costs oenergy ecient commercial building propertyplaced in service between January 1, 2006 andDecember 31, 2013. The deduction is available tocommercial building owners and primary designerso government buildings or the installation oenergy ecient lighting, HVAC (heating, ventila-tion and air conditioning), hot water systems andbuilding envelopes (walls, windows, etc.). These
projects must exceed a specifed energy eciency standard but can resultin a signifcant tax savings when implemented.
Representative SavingsReznick Group believes that the 179D deduction oers a signifcant taxsavings opportunity or a variety o our clients notably commercial realestate developers, architectural and engineering frms, and designers. Thechart below provides examples o the value o this tax deduction or aproject based on a buildings square ootage:
Square ft. Lighting HVAC Buildingenvelope
Total
Min.deduction
Max.deduction
Max.deduction
Max.deduction
50,000 $15,000 $30,000 $30,000 $30,000 $90,000
100,000 $30,000 $60,000 $60,000 $60,000 $180,000
250,000 $75,000 $150,000 $150,000 $150,000 $450,000
500,000 $150,000 $300,000 $300,000 $300,000 $900,000
750,000 $225,000 $450,000 $450,000 $450,000 $1,350,000
1,000,000 $300,000 $600,000 $600,000 $600,000 $1,800,000
Section 179D Who Benets Most?Architectural and engineering rms that design government build-ings can reap signifcant tax savings benefts rom the 179D. Whenever aproject is a government building, including K-12 public school projects,
the designer may be entitled to the 179D deduction. The deduction hasenabled some design frms to experience ZERO income tax liability or2006, 2007 and beyond.
CmmeCiAL ppetY tAX DeDUCtiNS
Understanding the Section 179D Tax Deduction
Lorraine Reale
Principal, Reznick
Group
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DC LAND DeAL continued from page 7
DC LAND DeAL
Ground LeaseGiven the Districts preerence to stimulate economic developmentwhile retaining ee ownership and control o its land, many developmentprojects with the District involve long-term ground leases. The orm o theground lease will typically be attached to the LDDA as an exhibit. Whilethere will be some specifc requirements unique to a deal with the District,negotiating a ground lease with the District should be approached in thesame manner as a similar transaction with a private land owner. The goalo the developer should be to ensure adequate exibility and controlover the development and operations o the leasehold improvements,and to structure the transaction so as to make the lease and develop-ment fnanceable on market terms. Several issues or consideration whennegotiating a District ground lease are as ollows:
Ownership Structure. I there are multiple uses and componentswithin the project, you will need to determine whether to use a singleground lease or multiple ground leases, and whether a condominiumregime or regimes, or subdivision into air rights parcels should beutilized. I more than one ownership entity is to be used, issues o
control and development responsibility will need to be negotiatedwith the District.
Leasehold Mortgagee Provisions. Among the most important provi-sions to be negotiated and incorporated into a ground lease are thosegoverning the rights and protections o lenders in the event o adeveloper deault under the ground lease, and the interaction o samewith the Districts deault remedies. Extended cure rights, subordina-tion and recognition agreements are among the related issues to beaddressed in the ground lease.
Casualty/Condemnation. I the project is damaged by casualty, theobligation to rebuild the improvements should be made subject tothe lenders rights to receive the insurance proceeds, and should belimited to the actual insurance proceeds received by the developer.Similarly, in the event o a condemnation o the project, the allocation
o the award should go frst to the project lender, and thereater beapportioned between the developer and the District based on therelative value o the leasehold improvements and leasehold estate.
Subtenants/Non-Disturbance Agreements. To acilitate commercialleasing in the project, the ground lease should allow or subtenancies,within specifed parameters, and should provide or non-disturbanceprotections or the subtenants.
Construction and Use CovenantSince the LDDA is generally extinguished upon the developers acquisitiono the property, the construction obligations and related provisions in theLDDA are typically incorporated into a Construction and Use Covenant tobe executed and recorded at the closing. In addition to the constructioncovenants, the Construction and Use Covenant typically reiterates many othe other covenants the developer agreed to in the LDDA, including com-
pliance with the approved project budget and unding plan, the approvedcommunity participation and outreach plan, the First Source HiringAgreement, the CBE Agreement, and assignment restrictions. I the projectinvolves retail uses, the Use part o the Construction and Use Covenantwill set orth the developer s covenant to abide by the retail plan and localretailer requirements, as outlined above. Certain prohibitive uses may alsobe negotiated by the District in conjunction with projects retail spaces andset orth in the Construction and Use Covenant. The terms o the construc-tion related covenants should expire upon the projects completion, whilethe terms or other covenants, such as the retail uses, may continue or anextended period o time.
Aordable Housing CovenantThe LDDA will require that an Aordable Housing Covenant be executed atthe closing and recorded against the residential portion(s) o the project.The Aordable Housing Covenant will outline the developers obligationsto make a specifed percentage o the housing units in the project avail-able to low and/or moderate income residents. Each project will have itsown set o requirements as laid out in the Districts request or proposalsto redevelop the property, emphasizing the required number o aord-able units at specifed area median income levels, the requisite size o theaordable units, the exterior and interior fnishes o the aordable units,the locations and distribution o the aordable units within the residentialbuildings o the project, and the amenities to be made available to occu-pants o the aordable units. The developer will be required to determinetenant eligibility and the District will impose upon the developer anongoing annual reporting requirement on its aordable housing program.
Development and Completion GuarantyIn addition to the letters o credit to be posted under the LDDA, the
District will also typically require a Development and Completion Guarantyto be entered into by an acceptable guarantor at the closing on theproperty. The guaranty covers completion o construction o the projectin accordance with the terms o the LDDA and the Construction and UseCovenant. To provide exibility over the long term, the developer shouldnegotiate the ability to substitute a designated or existing guarantor withone o equal or greater net worth.
DeedI the transaction involves a transer o ee interest in the subject property,such interest will be transerred via a special warranty deed. The ormo deed, which will be attached to the LDDA as an exhibit, is consistentwith that o other special warranty deeds typically used in the District oColumbia, with one exception. The Districts deed will usually include aright o re-entry by the District in the event o a deault by the developer
in the completion o construction pursuant to the Construction and UseCovenant. Due to the potential draconian eect o such re-entry rights andthe potential impact on the developers ability to fnance the project, thedeveloper must be sure to negotiate adequate notice and cure rights oritsel and its lenders. The right o re-entry should expire and be releasedupon the developers completion o construction o the project.
Other Agreements with District AgenciesTwo other agreements that are typically required in any developmenttransaction with the District are the Certifed Business Enterprise Agreement(to be executed with the D.C. Department o Small and Local BusinessDevelopment), and the First Source Hiring Agreement (to be executed withthe D.C. Department o Employment Services). These agreements evidencethe Districts commitment to ensure participation o District residents andDistrict based businesses, particularly local, small, and disadvantage busi-
ness enterprises, in the development, equity investment and contractingopportunities derived rom the redevelopment o District-owned sites.These agreements must be negotiated with the respective agencies andfnalized prior to the developers execution o the LDDA.
ConclusionThe above discussion highlights several o the typical deal documentsand issues you will ace when engaging with the District to redevelop aDistrict-owned site. The key to a successul negotiation with the Districtis to be pro-active, persistent and consistent in addressing the numerousissues involved in the transaction. Experienced counsel will help you tonavigate the negotiations in an eective and ecient manner. s
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From everyday maintenance and building renovations to green building construction, the high-powered
contractors and electricians of NECA and IBEW Local 26 are the cost-ef fective, 24/7 solution when
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On Thursday, evening, May 20, at the Hilton Washington, hundreds o DCBIA members and their guestscelebrated the 26th Annual Awards Dinner and the presentation o the Associations 2010 AchievementAwards to a stellar group o individuals who have made remarkable contributions to the District o Columbia,
making it a sought ater place to live and visit and to work and do business. The celebrated honorees Deborah Ratner Salzberg, President o Forest City Washington, Bob Peck, Commissioner o the GSA Public
Buildings Service, and Allen Lew, Executive Director o the DC Oce o Public Facilities Modernization, received
the Achievement Awards rom a group o highly accomplished presenters, including Congresswoman Eleanor
Holmes Norton, Mayor Adrian Fenty and Councilmember Jack Evans.
In a slightly dierent twist this year, original caricatures o the Achievement Awards (the crystal obelisk),
were skillully sketched by architect Darrel Rippeteau and presented to the awardees: Big Bob The Other
Washington Monument, Dedicated Debby Dedicated to Urban Development, and Magic Allen DC
School Children Discover a New Landmark. We thank Darrel or his incredible creativity and enormous
contribution to this years awards program!
The event was a huge success or DCBIA as evidenced by the buzz in the room and the many guests who stayed
long into the evening catching up with colleagues. Surprisingly, despite the continued tight economy, DCBIAexperienced a 20% increase in both sponsorships and attendance. We wish to express our great appreciation
to all who participated. Hope to see you again next year!!
HAPPY SUMMER EVERYONE!!
AADS DiNNe 2010
DCBIA Members Celebrate 2010 Achievers
Christopher H.
Collins
Holland & Knight
LLP
Ernest Drew Jarvi
CB Richard Ellis
Co-Chairs
DCBIA Awards
Dinner
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BBEENNEEFFAACCTTOORRSSAkridgeArent Fox LLPArnold & Porter LLPBaker TillyBalfour Beatty ConstructionBernstein Management CorporationBoston PropertiesBrailsford & DunlaveyBrookfield PropertiesClark Construction Group, LLCDouglas Development CorporationForest City Washington
Fort Lincoln New Town/ConcordiaGroup/CSG Urban Partners
Goulston & StorrsHines | ArchstoneHolland & Knight LLPThe JBG CompaniesMcKissack & McKissackMCN BuildPillsbury Winthrop Shaw Pittman, LLPRepublic Properties Corporation
William C. Smith & CompanyTerra Nova Title & Settlement ServicesTishman SpeyerTurner Construction Company
Venable LLPVornado/Charles E. Smith
PPAATTRROONNSS
High Tide Design, LLCLeftwich & Ludaway, LLC
Washington Business Journal
TTAABBLLEESSPPOONNSSOORRSS
Anacostia Holding CompanyThe Bozzuto GroupCB Richard Ellis, Inc.DLA PiperDRI Development Services/Transwestern
Ellisdale ConstructionForrester Construction CompanyThe George Washington UniversityHESS Construction + Engineering
JAIR LYNCH Development Partners &Greenstein DeLorme & Luchs
Louis Dreyfus Property GroupPatton Boggs LLPPEPCORIPPETEAU ARCHITECTSSaul Ewing LLP
David M. Schwarz ArchitectsSIGAL Construction CorporationSmoot Construction Company of DCSorg ArchitectsUrban PaceVOA Associates Incorporated
CCOONNTTRRIIBBUUTTOORRSS
AECOMBingham McCutchen LLPCommonwealth Land Title Insurance CompanyDesign AllianceEYA
Fanning Howey Associates, Inc.Grunley Construction Company, Inc.Miller & Long CompanyPerkins+Will
FFRRIIEENNDDSS
Bank of America Merrill LynchBohler EngineeringBowman Consultingcox graae + spack architectsDewberryDistrict PropertiesThe Donohoe Companies, Inc.Hughes Group ArchitectsLehman Smith McLeishLoiederman Soltesz Associates, Inc.
Manhattan Construction CompanyMcQuade Brennan, LLPMetropolitan Washington Airports AuthorityNorthwestern MutualStudley, Inc.SunTrust BankVerizon Washington, DC Inc.Wilkes Artis, CharteredThe Wilkes Company
HILTON WASHINGTON, Washington, DC
THURSDAY, MAY 20, 2010
Our Thanks!2010 Awards Dinner Sponsors
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CmmeCiAL ppetY tAX DeDUCtiNS continued from page 13
CmmeCiAL ppetY tAX DeDUCtiNS
Commercial building owners involved in cost segregation projectscan take these one-year deductions in addition to the cost segregationdeduction. The items typically deducted under 179D would be 39- yearassets and not reallocated to a 5 to 15 year lie. Key projects that can
qualiy or the 179D deduction include energy eciency lighting retroftsand geothermal and thermal storage. It is important to note that the costsegregation must be done beore the energy retroft has started in order toproperly identiy and value the items that will be replaced in conjunctionwith the planned energy retroft.
Qualifying for the Section 179D Deduction.Have You Found the Money?The Section 179D tax deduction can provide signifcant cost savingsin two ways: (1) overall tax savings and (2) cost savings due to energyeciency improvements. But beore you start counting the money youcan save rom 179D, it is important to ask yoursel the ollowing questions:
1. Are you are a designer, architect, engineer, contractor, environ-
mental consultant or energy services provider who created orwill create the technical specifcation or a new or reurbishedgovernment owned building that incorporates energy ecientcommercial building property between January 1, 2006 andDecember 31, 2013?
2. Do the energy eciency improvements to your commercialbuilding property include a part o the interior lighting systems,
heating, cooling, ventilation and hot water systems or thebuilding envelope? Think about the steps you are taking or didtake to LEED certiy buildings.
3. Will the property reduce the systems total annual energy and power
costs by 50 percent or more? I the property will result in a less than50 percent reduction, there is a sliding scale which may still yield adeduction. The calculation o energy eciency is intended to be uelneutral, e.g. a heating source can be a gas or oil urnace.
4. Do you have a written allocation statement with the required inor-mation either as a separate document or a part o your contract? Thestatement will clariy that you have the right to take the deduction orwhat portion o the deduction has been allocated to you.
Answering yes to each o these items may lead to a tax deductionresulting in a permanent beneft. It is important to note that it is not toolate to review old projects and assess i you could take advantage o thisdeduction. An amended tax return can be fled or open tax years.
With governments and communities greening up their ootprints and
ocusing on LEED certifcations and energy eciencies, the opportunityto utilize the Section 179D deduction is here. Make sure you bring this ideato the table. Who know, you may have ound money!
For more inormation on Reznick Group, including our services relatedto the Section 179D tax deduction as well as cost segregation studiesor commercial property owners, please contact Reznick Group atwww.reznickgroup.com/contact-us. s
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AffDABLe hUSiNG eBUiNDS continued from page 25
AffDABLe hUSiNG eBUiNDS
On November 13, 2009, DCHFA was allocated $193 million under NIBP o
which it allocated $168 million to its multiamily program and $25 million
to single amily activities. As a result o HERA legislations sunset date, all
bonds under NIBP had to be issued by December 30, 2009. Board, sta
and our partners rallied to meet the deadline which included securingemergency resolutions rom the DC City Council just beore its year-end
recess. The DCHFA team navigated this transaction through unchartered
waters as this has not been done beore.
Once the bonds were issued, they were securitized by Freddie Mac with
proceeds escrowed or drawdown by DCHFA as its development projects
close. Additional NIBP requirements include a limit to each HFA o only
three opportunities over the course o CY 2010 to break escrow andthe
requirement that all projects are closed and unded beore December 16,
2010. Undoubtedly, the undamental goal o the NIBP is simple, albeit, the
programs requirements or use are multi-layered and complex.
The First Escrow Break: DCHFA became the frst HFA in the country
to close a multi-deal transaction under NIBP when it completed its frst
escrow break on April 14, 2010. The frst escrow break included three proj-
ects that had been languishing in its pipeline as a result o the restrained
capital market. DCHFA issued NIBP bonds and market bonds purchased
by private investors in the amounts o $19.5 million and $6.5 million
respectively to und Village at Chesapeake, Webster Gardens and Fort View
Apartments. The transaction resulted in the unding o three multiamily
projects or a total development cost o $55.8 million and the preservation
o 232 units o aordable housing in the District.
The Projects:Webster Gardens, one o the earliest garden-style apartments
built in the city, is also home to some residents who have lived there or
over 50 years. The 52 unit complex located in the Petworth neighbor-
hood o Ward 4 and built in 1921, is on the National Historic Registry and
oers one and two bedroom apartments. The project is being developed
by a partnership between Somerset Development, THC Aordable
Housing, Inc. and the tenants association. A somewhat unique eature
o this project is that the tenants association will be entitled to 10% othe projects annual cash ow, a projected $100,000, or use as a resident
services und. The projects total development cost is $13 million and upon
completion o the renovation, three o the units will be Uniorm Federal
Accessibility Standards (UFAS) compliant and made available to amilies
with mobility impaired members.
Fort Stevens Apartments is a 62 unit vacant property in the Brightwood
neighborhood o Ward 4. This two, our-story building project built in 1939
is also on the National Historic Registry and will oer one, two and three
bedroom units upon completion. This project is also being developed by
the Somerset Development /THC Aordable Housing, Inc. partnership or a
total development cost o $19.2 million.
The renovations oVillage at Chesapeake, a 118 unit complex o fve, our-
story buildings located in the Congress Heights neighborhood o Ward 8,
included new kitchens, bathrooms and ooring with additional improve-
ments to landscaping, encing, signage, security and lighting. The total
development cost o the renovation was $23 million and the project wasdeveloped by a or-proft aordable housing Connecticut-based company
called VestA Corporation.
The Agency: DCHFA was established in 1979
to stimulate and expand homeownership and
rental housing opportunities in Washington,
D.C. It accomplishes its mission by issuing
mortgage revenue bonds that lower the
homebuyers costs o purchasing homes
and the developers costs o acquiring,
constructing and rehabilitating rental
housing. DCHFA embraces its responsibility
with conviction and pledges its best eorts to
serve as the citys champion or homeowners
and renters and to act as the citys principalcatalyst or neighborhood investment. For
more inormation on DCHFAs participation in
the NIBP or or general inormation about the
agency and its programs, email your request
to [email protected] or visit the website at
www.dcha.org. s
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5100 WIsOsI AVEUE, .W., sUIE 301
WAshIO, .. 20016
202/966-8665 n AX 202/966-3222
WWW.bIA.O
President . . . . . . . . . . . . . . . . . . . . . . . Merrick T. Malone
Vice President . . . . . . . . . . . . . . . . . . . . Matthew J. Klein
Vice President . . . . . . . . . . . . . . . . . . . . . . . . Jair K. Lynch
Vice President . . . . . . . . . . . .Deborah Ratner Salzberg
Secretary . . . . . . . . . . . . . . . . . Christopher J. DonatelliTreasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Todd Stokes
Gail Edwards
Executive Vice President & Managing Editor
The PIPELINE is published bi-monthly by the
District o Columbia Building Industry Association.
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