Source : Business Times - 14 Aug 2008
Time-consuming process, so builders shy away from it in a go-go market
Property developers generally earn their money by putting up new buildings, but when the real estate market cools, making it difficult to obtain financing, they often look for other ways to help turn a profit.
New dawn: Brooklyn, New York. During a sluggish market, developers say, the city may be more willing to approve zoning changes to raise tax revenues.
Some developers - and their real estate lawyers - say that rezoning property is one of them. Juan D Reyes III, a partner in the law firm of Riker, Danzig, Scherer, Hyland & Peretti, said he had clients seeking zoning changes with hopes of developing or selling the property once the market improved. This particularly applies in areas zoned for manufacturing.
‘At the height of the market, a lot of developers just wanted to buy it, develop it and get out,’ Mr Reyes said.
Getting a change in zoning, however, can be time consuming.
‘With zoning, even if you’re doing a variance, it’s a minimum of a year,’ he said.
‘A rezoning can take 2-3 years. Now is a good time to be doing that.’
Because obtaining any kind of discretionary city approval can take time and resources, developers may shy away from doing it during a go-go market, said Mitch Korbey, a lawyer with the firm of Herrick Feinstein.
‘Their focus is often elsewhere, on other projects, for a variety of reasons,’ he said.
But when the real estate market comes to a virtual halt, as it has currently, many developers cannot get development financing on favourable terms.
An attractive option is to wait out the torpid market while trying to add value to their property with a rezoning, Mr Korbey said.
Herrick Feinstein has several clients doing just that, specifically on properties zoned for manufacturing.
‘These are areas that are not zoned in a way that permits residential, because you can’t do residential development in a manufacturing zone,’ he said.
‘Yet residential is nearby, and you’ve got a manufacturing zone that’s not so productive, that’s not generating income, that’s adding very few jobs.’
Mr Korbey said he was currently handling a case involving several blocks of contiguous vacant lots and warehouses that were once part of a Rheingold brewery in the Bushwick neighbourhood of Brooklyn.
The developers, Forest Lots LLC, recently applied for a zoning change to permit hundreds of residential units and retail development.
‘We’re at the beginning of a process that’s going to require an environmental review and public input,’ Mr Korbey said.
The developers are gambling that they will get the rezoning as the real estate market picks up, making their land ripe for development.
Though the developers want to build, another option would be to sell the land - most likely at a premium, Mr Korbey said. ‘Obviously, there’s tremendous upside to changing the rules to allow new low- and medium-density housing.’
During a sluggish market, the city may be more willing to approve zoning changes, said Stuart M Saft, a partner with the firm of Dewey & LeBoeuf.
‘The city’s tax revenues fall during a recessionary market, and what the city is looking for is increased taxes,’ he said. ‘If the zoning change will improve the value of the property after the
building is constructed, the city will get an increase.’ - NYT
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