Former Railroad Rights-of-Way

 Written by: Joshua M. Alper
 

Many cities and towns, particularly in greater Boston, are criss-crossed with former railroad lines and rights of way, some of which have not been used in many decades, and may not be discernible by inspection.  Purchasers and developers of Massachusetts real estate should be aware of two statutes which affect former railroad property:  (i) General Laws chapter 161C, §7 creates a right of first refusal on the proposed sale, transfer, or disposition of railroad property in favor of the Massachusetts Secretary of Transportation (the “Secretary”); and (ii) perhaps more troubling , G.L. c. 40, §54A requires the consent of the Secretary prior to issuance of a permit to build a structure of any kind on land formerly used as “a railroad right-of-way or any property appurtenant thereto,” a term which includes former railroad property that may be located outside of the former right-of-way.

In the case of purchases directly from a railroad company, G.L. c. 161C, §7 requires the railroad company to make an offer in writing to the Secretary, who may notify the railroad company in writing of its rejection of such offer, or in the event that no response is received within ninety calendar days from the date upon which such offer is made, then the sale or transfer may be completed.

The permitting problem under G.L. c. 40, §54A is more difficult to satisfy because it relates to former railroad rights-of-way, which, because of the passage of time, may not readily be disclosed by inspection or by a fifty year title examination.  Cases continue to arise in which recently constructed buildings are later determined to have been built without the benefit of the Secretary’s consent.

The mere fact of former railroad ownership is not a defect in title which may be covered by title insurance, but is an issue of marketability, and, in any event, is excluded from coverage by the standard forms of title insurance policy which explicitly exclude laws and governmental regulations which restrict, regulate, or prohibit occupancy, use or enjoyment, dimensions or locations of improvements which may be erected on insured land.  The 1994 case of Somerset Savings Bank v. Chicago Title Insurance Company, 420 Mass. 422 makes clear that G.L. c. 40, §54A “does not affect the owner’s title to the property.  It is a restriction that may affect the value of the property and the marketability of the parcel, but it has no bearing on the title . . . .” 

In the event that title discloses the existence of a former railroad right-of-way or land appurtenant thereto, the Massachusetts Department of Transportation has established a procedure to obtain such consent by making application with a request for a public hearing, and submission of development plans through a local building inspector, including the location of proposed buildings and current and/or former railroad property line boundaries. 

Although no regulations have been promulgated by the Department of Transportation a “Statement of Procedures” has been adopted.  In the event that the Secretary does not consent to the issuance of a permit for construction, then a property owner may recover from the Commonwealth under the provisions of G. L. c. 79, as a taking by eminent domain.  In the event that an owner discovers that buildings and improvements have been constructed without having obtained consent from the Secretary an application may be made retroactively, though in that event eminent domain damages may be limited. 

The best way to protect a purchaser is through a thorough and vigilant title examination, including a search for evidence of former ownership by any railroad company, or use as a railroad right-of-way, which may be disclosed either in the direct chain of title, or in confirming boundaries of adjacent properties, or by reference to municipal and regional atlases which may depict former railroad rights-of-way and other prior uses. 

         

Josh Alper is Partner in the firm's Real Estate Department. Read his bio.

Hub and Spoke: An Update

Written By: Jack Slater

In June, the ULI Boston District Council issued “Hub and Spoke: Core Transit Congestion and the Future of Transit and Development in Greater Boston”, in collaboration with the Dukakis Center at Northeastern University, A Better City and MASCO.  The ULI Boston Infrastructure Council, which I Co-Chair, has been engaged in a comprehensive effort to educate key public and private constituencies as to the economic importance of the regional transit system.  The Hub and Spoke Report examines the extent to which current and projected capacity constraints in Boston’s core transit infrastructure could hinder regional economic growth.

The Hub and Spoke Report documented the increasing MBTA ridership in recent years (an average of 3% per year since 2006) and the resulting congestion at the core of the transit system.  One of the factors contributing to this increasing congestion is the growth in transit-dependent development.  Fully one-quarter of all jobs in Massachusetts and one out of six homes are within one-half mile of an MBTA subway, trolley, or commuter rail station.  The Hub and Spoke report was released jointly with a study prepared by the MAPC.  You may obtain a copy of the Report at [boston.uli.org/ULI-in-action/infrastructure].

Various segments of the Green, Orange, Red, and Silver Lines all currently exceed their capacity during portions of the day.  The core transit congestion documented in the Hub and Spoke Report has been cited by various participants in the ongoing discussion regarding solutions to the financing constraints faced by the MBTA and other transportation agencies of the Commonwealth. 

The Hub and Spoke Report also highlighted the potential limiting effect of this increasing transit congestion on future economic development and growth in areas served by public transportation.  The Report identified specific “Hot Spots” where transit congestion may grow unacceptably worse in the next decade, including downtown Boston, Longwood Medical Area, Back Bay, the Seaport and Kendall Square in Cambridge.  Because of the “hub and spoke” design of the MBTA transit system, transit congestion in these core locations will affect future transit-oriented development in suburbs and Gateway Cities along the outer “spokes” of the system as well.

To advance the conversation about public transportation financing, MassDOT is sponsoring a series of statewide forums to engage the general public.  More information about the MassDOT transportation forums is available at the MassDOT website.

It is anticipated that the Legislature will take up the issue of a comprehensive transportation funding solution early in the next legislative session.  The ULI Boston Infrastructure Council intends to continue to be involved in these discussions and, in particular, to keep at the forefront the issue of addressing core transit congestion. To that end, the ULI Infrastructure Council has established a Transportation Finance Committee which is tasked with continuing ULI’s efforts.  The Commonwealth needs to plan for and invest in the MBTA’s core capacity to prevent worsening congestion and enable economic growth throughout eastern Massachusetts.

Permit Extension Act Extended Once More in Massachusetts

Written by: Tracey Stockton

The development community within the Commonwealth was the recipient of a welcome benefit following Governor Deval Patrick’s signature of the “Jobs Bill” on August 7, 2012.  The Jobs Bill, otherwise known as “An Act Relative to Infrastructure Investment, Enhanced Competitiveness & Economic Growth in the Commonwealth,” contains provisions that extend the Permit Extension Act (Section 173 of Chapter 240 of the Acts of 2010) and makes the extensions granted available to a larger number of permit holders (Sections 74 and 75 of Chapter 238 of the Acts of 2012).

In response to the slowdown in real estate development activity since 2008, in 2010, the Commonwealth enacted legislation extending the term for execution of permits, orders, variances and other forms of state and local governmental approval relevant to the development of real property for an additional period of 2 years from the date upon which a protected permit would have expired by its terms.  The 2010 legislation applied to permits issued during the period beginning August 15, 2008 and continuing through August 15, 2010.  The recently enacted legislation improves the position of existing permit holders in two ways:  first, those permits benefitting from the 2010 legislation are extended for an additional 2 year period, providing affected permit holders with a period of 4 years from the stated date of expiration of covered permits within which to undertake the work contemplated thereby.  Second, permits issued subsequent to August 15, 2010 through August 15, 2012 are now covered by the statute, providing affected permit holders with the ability to move forward on the permitted activity at any time through and including the last day of the 4^th year after the stated date of expiration of the subject permit.

While the legislation is broad in its applicability, permits issued by the federal government or any United States agency are unaffected by this state Act, as are permits issued under sections 20 to 23, inclusive of chapter 40B of Massachusetts General Laws (relating to zoning approvals with respect to low or medium income housing), and any permit issued by the division of fisheries and wildlife under Chapter 131 of Massachusetts General Laws (protecting certain wildlife species).  Note permits issued under Chapter 131A the Massachusetts Endangered Species Act (MESA) are included in the Act.

For many developers, the extension of time and the increased applicability of the extension to permits issued subsequent to August 15, 2010 will provide the opportunity to extend timelines to accommodate continued caution in the financial markets and the affect of the current economic climate on industry sectors and construction starts.

LEED Certification – Worth the Cost?

Written by: Paula G. Curry

Dana Developer has just acquired a coveted brownfield site in Blackacre and is planning to construct a 300,000 square foot Class A office building with retail at street level.  There is no question that the facility will be built at least to minimum LEED-certifiable standards, as the Blackacre building code requires this for all new construction.  Because of the project’s location on a brownfield site, its proximity to public transportation, its innovative design features, and a state-of-the art bike rack, Dana believes the project should be able to achieve LEED Gold certification.  Should she go for it?  Aside from the feel-good aspects of achieving certification, are there quantifiable, positive impacts on project value that she could realize?

The answer is apparently still evolving.  A recent article by Reese Fox at Deloitte Financial Advisory Services LLP sets out some of the possible implications of LEED certification on real estate appraisal.  As this article points out, one mainstay approach to valuation is the analysis of “comps.”  According to the USGBC website, approximately 9 billion square feet of space are in some stage of LEED certification, which would seem to indicate that the pool of comparable projects is fairly large.  However, in real estate “location is everything” – and, while the number of certified projects is growing (1.6 million square feet daily, worldwide, according to USGBC), there may not be other similar LEED certified projects in Blackacre.  Other potential issues in valuing a LEED certified building include depreciation of particular features of green buildings, evaluating the premium potential tenants may be willing to pay to occupy space in such a project, and comparing construction costs (which are often higher for LEED certified buildings than for conventional construction).  Perhaps the most challenging aspect of valuing green buildings is putting a price tag on obtaining the actual LEED certification vs. simply building to a greener standard.  Some commentators have recently cautioned that using terms like “LEED Compliant” or “built to LEED standards” could be viewed as misleading and should perhaps be avoided. 

On the legal front, caselaw will certainly evolve in the future concerning the value of LEED certification.  In a recent tax appeal before the Oregon Tax Court, CLP Elements LLC v. Benton County Assessor, the tax assessor argued for a higher building valuation based in part on the fact that the property had made substantial progress toward achieving LEED Silver certification (and was, at the time, purported to be the only privately-fund LEED Silver project in Oregon – did someone mention comps?).  The property owner countered that the property was not certified on any level, and would, in fact, never be certified.  The court decided the case on other grounds.  However, we can expect to see the LEED certification argument raised in other cases and in other contexts.

How much value do you put on LEED certification? Let us know!

Private Development of Public Land: 7 Key Tips for Developers

Written by: Peter Friedenberg

Developers seek out publicly-owned land for private development projects for a number of reasons, ranging from the unique locations available (e.g., waterfront) to the lower up-front costs of ground leasing vs. purchasing the site.  As the pressure increases on state agencies to find sources of additional revenue, more and more of these sites are becoming available for development.  In some cases the developers themselves initiate the conversations which ultimately lead to the state’s disposition of a parcel of surplus land.

Although these private development projects on public land have many of the same characteristics as more traditional private development of privately-owned land, there are some significant distinctions that the developer needs to identify and incorporate into its approach to the project.  The developers who understand the constraints under which state agencies operate, the varied constituencies who weigh in on the size and composition of the project, and the goals of the agency with which they are dealing (other than simply maximizing their return), progress to a successful building opening.  By contrast, those who insist on forcing the agencies to do things their way, or constantly threaten to go over the heads of their negotiating counterparts, will find themselves enmeshed in long and difficult negotiations which may cause them to miss a market cycle.

So, to prevent you (or your client) from experiencing that dismal result, here are 7 things to which private developers should pay attention in negotiating for the development of public land:     

1.         Use prior deal terms to help you.  Always get copies of the final signed documents from recent comparable deals negotiated by this agency (under the Massachusetts Public Records Law (M.G.L. c. 66) or the federal Freedom of Information Act, if applicable).  Once deal documents are signed, they generally become public records and have to be produced in response to an appropriate request.  This “data mining” is critical to establish the parameters of what this agency has done in the past, how they handled specific issues, and what they can and cannot agree to.  In effect, this raises the “floor” from which your negotiations start.

 

2.         Make it easy for the agency to get to “yes”.  Generally, the fewer surprises you provide to the agency, the better.  Be pro-active about identifying issues and alerting the agency to them – sandbagging is never appreciated.  If this is a transaction that was approved by their Board up front, agency staff will have limited ability to vary the key terms from what was presented to and approved by their Board, so don’t ask them to do it.  If there are issues or factual questions that need to be researched during negotiations, volunteer to take the first cut at them since you have access to more resources than they do.  In general, if you have information concerning the site (title or survey information, for example), share it with them early.

 

3.         “How would it look in the Herald?”  Not surprisingly, agency personnel from top to bottom are very sensitive to the public perception of what they are doing (the “How would it look on the front page of tomorrow morning’s Boston Herald?” standard).  Don’t ask them to do something that does not meet that standard – they won’t do it and you’ll lose credibility.  Instead work with them to develop a position that will withstand that public scrutiny.   

 

4.         Escalate and use other channels, but only when necessary.  Use all of the available multiple channels for discussions/negotiations (e.g., team meetings, lawyer to lawyer, business person to agency staffer, senior business person to senior agency personnel, and friendly political figures to agency heads).  Select the appropriate forum or group depending upon the issues you are looking to raise.  Be judicious in deciding on what issues and how often to go over the head of your primary negotiating counterpart, since each time you do that you lose some capital with them.  Always make sure that the same message/request/demand is being conveyed across all of these lines of communication, or else you will be the one later getting whipsawed for making conflicting (and possibly impossibly inconsistent) demands. 

 

5.         Know your “enemy”.  Have some understanding of how these deals differ from private development deals.  Specifically, have some familiarity with the agency’s Enabling Act and how it treats issues like the need for competitive public disposition processes, the tax status of projects built on their land, and whether local zoning, or building codes, or MGL Chapter 91 applies to projects on this site.  Keep in mind that public agencies frequently require private developers to pay the agency’s attorneys, appraisers, engineering consultants, and advisors (often without a cap), in addition to the developer paying its own expenses.

 

6.         Take a breath once in a while.  Accept the fact that the pace of these deals generally is much slower than comparable private deals.  For one thing, real estate development is not the core mission of most public agencies.  Issues that arise and need the attention of other parts of the agency (e.g., environmental experts, engineering experts) will compete with core mission for the attention of these people.  There is not much you can do to alter the timeline other than keeping your team focused on the task at hand and nudging the staff to move your project along.  In extreme cases, see #4 above.  

 

7.         Don’t risk it all.  Remember that the agency always has the alternative of just saying “no” and doing nothing with the property – and they will rarely be criticized for doing that.  Development is not generally their core mission, so one more or one less development project won’t make much of a difference to them.

 

Armed with these tips, go out and get something built!

Peter Friedenberg is chair of the firm's Real Estate Department. Read his bio and connect with him LinkedIn and Google+

5 Basics of Title Insurance Endorsements

Written by: Andrew Royce

Title insurance, in the form of owner’s and lender’s policies, has long been a mainstay of real estate practice.  As important as the basic policies, are the numerous endorsements available on forms approved by the American Land Title Association (“ALTA”).

Almost 80 different endorsements are available, some of which are included only in owner’s policies and some only in lender’s policies.  They cover such widely varying issues as zoning, covenants, encroachments, usury, subdivision, survey matters and environmental matters.

The price of each endorsement varies – some are issued for no cost, some carry nominal charges of $50 or $100, and some, such as zoning, can cost several thousand dollars.

Certain endorsements will only be issued upon satisfying specific requirements – the title insurer won’t typically issue a zoning endorsement, for example, unless it has received sufficient evidence that the property complies with basic use and dimensional zoning requirements.  However, such evidence is less extensive than would be required for a full-fledged zoning opinion letter.  For completed and occupied structures, the zoning endorsement has largely replaced the zoning opinion letter for most commercial lenders, representing a real cost savings for the property owner.

Some states regulate title insurance more than others and limit the types of endorsements that may be issued.  In Texas, for instance, a much smaller assortment of endorsements is available.

ALTA is constantly revising its endorsement forms and issuing new ones.  Most recently, on April 2, 2012, ALTA issued 16 new endorsements, focusing largely on energy projects and what is referred to as “land under development.”  At the same time, ALTA also revised several existing endorsements, including the widely used ALTA 9 endorsements governing covenants, conditions and restrictions and the ALTA 13 leasehold endorsements.

It behooves real estate attorneys and developers to familiarize themselves with the wide array of available title insurance endorsements since they can be a simple and relatively low cost way of addressing title, survey, zoning and other legal shortcomings of a particular property.

What Real Estate Developers Should Know About Affordable Housing

Written by: Geoffrey H. Smith

The return of real estate development to the Boston area creates a renewed focus on the complex legal framework associated with Boston development projects. One particular hurdle developers familiarize themselves with are requirements by the City of Boston to include affordable housing components in their projects. Because affordable housing elements generally result in lower returns on investment, the City of Boston and Mayor Thomas Menino recognized the need for government to implement affordable housing policies requiring creation of affordable housing stock in large development projects within the city.

Signed in February 2000, Mayor Menino’s Executive Order, “Order Relative to Affordable Housing,” lays out these guidelines for developers:

• Any project undertaken or funded by any agency of the city or developed on city property that proposes ten or more housing units must make no less than 10% of those units affordable to moderate-income and middle-income households.
• Any developer of private property proposing a project with ten or more housing units, and seeking relief of any kind from the Boston Zoning Code, must make 10% of the units in those projects affordable to moderate and middle-income households.
• If developers choose to include the requisite affordable units on or off-site, 50% of those units must be affordable to households earning less than 80% of the metropolitan-area median income and no more than 50% of those units may be affordable to households earning between 80% and 120% of the metropolitan-area median income
• Units must be comparable in size and quality to the average of all market-rate units in the development and developers will need to ensure long term affordability of these units.
• The preference is for on-site units, however, if a developer can demonstrate a reason they cannot provide on-site units, they can instead provide a number of affordable units off-site, at a different location, equal to 15% of the total number of on-site units in the project, or they can make a cash contribution to an affordable housing fund in an amount equal to an estimate of the development cost for each affordable unit of housing multiplied by 15% of the total number of units within the proposed project.
• What constitutes an “affordable unit” is influenced by federal guidelines.
• The Boston Redevelopment Authority reviews and approves proposals for meeting affordable housing goals.

 

For more information on meeting affordable housing guidelines, please refer to a recent article in Banker and Tradesman, “What Every Developer Should Know About Affordable Housing.”