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Private Development of Public Land: 7 Key Tips for Developers

05/09/2012 | by Peter Friedenberg

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Private Development of Public Land: 7 Key Tips for Developers

By Peter Friedenberg on May 9, 2012

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 – Partner

Peter Friedenberg’s national real estate practice focuses on complex transactions involving the acquisition, development, ground leasing, land use permitting, financing, leasing, and disposition of properties, as well as facilities operation and management matters.