[bouldercouncilhotline] Hotline: Re: Agenda Item 5A -- will it get the job done?

[cmosupport at bouldercolorado.gov]

Sender: Morzel, Lisa

Why cannot the seller accommodate?  This doesn't make sense to me.

I'd appreciate a chronology of events tonight since August 2016 when this issue / problem became apparent.

Thanks

Lisa

Lisa Morzel,
Member of Boulder City Council

303-815-6723

"We interact with one another as individuals responding to a complex haze of factors: professional responsibilities, personal likes and dislikes, ambition, jealousy, self-interest, and, in at least some instances, genuine altruism.  Living in the here and now, we are awash with sensations of the present, memories of the past, and expectations and fears for the future. Our actions are not determined by any one cause; they are the fulfillment of who we are at that particular moment.  After that moment passes, we continue to evolve, to change, and our memories of that moment inevitably change with us as we live with the consequences of our past actions, consequences we were unaware of at the time." The Last Stand, Nathaniel Philbrick


On Feb 21, 2017, at 3:01 PM, "Becky Marten" <martensb at boulderhousing.org<mailto:martensb at boulderhousing.org>> wrote:

Steve,
This is exactly the problem we’ve been trying to describe. The bank is taking a very conservative approach to the definition of final passage and insists on a closing in April which the Seller can’t accommodate. Hence the single reading to get a closing in March.

Neither of these two facts – the bank’s opinion about final passage and the Seller’s loan maturity – were known to us weeks ago. When they both disclosed, we were short on options.

Betsey

From: Steve Pomerance [mailto:stevepom335 at comcast.net]
Sent: Tuesday, February 21, 2017 2:56 PM
To: Thomas Carr <CarrT at bouldercolorado.gov<mailto:CarrT at bouldercolorado.gov>>
Cc: Council <council at bouldercolorado.gov<mailto:council at bouldercolorado.gov>>; Firnhaber, Kurt <FirnhaberK at bouldercolorado.gov<mailto:FirnhaberK at bouldercolorado.gov>>; Jane Brautigam <BrautigamJ at bouldercolorado.gov<mailto:BrautigamJ at bouldercolorado.gov>>; Jim Koczela <koczelaj at boulderhousing.org<mailto:koczelaj at boulderhousing.org>>; Betsey Martens <martensb at boulderhousing.org<mailto:martensb at boulderhousing.org>>
Subject: Re: Agenda Item 5A -- will it get the job done?

It occurred to me that perhaps the bank is concerned about a referendum — unlikely but possible.

But per the Charter, the referendum period is 30 days after final passage, which means that irrespective of whether the ordinance was passed on second reading at a special meeting at the end of February, or was passed by emergency at the second regular meeting in February (tonight), that the referendum period goes well into March but would be over by the closing date in April.

Sec. 44. - Referendum petition.

If, within thirty days after final passage of any measure by the council, a petition signed by registered electors of the city to the number of at least ten percent of the registered electors of the city as of the day the petition is filed be filed with the city clerk requesting that any such measure, or any part thereof, be repealed or be submitted to a vote of the electors, it shall not, except in the case of an emergency measure, become operative until the steps indicated herein have been taken.



On Feb 21, 2017, at 2:32 PM, Steve Pomerance <stevepom335 at comcast.net<mailto:stevepom335 at comcast.net>> wrote:

Hi Tom,

I appreciate the legal lesson. The “good faith” question sounds like it is at the heart of this.

As to the timing, you say that “the bank would require that the ordinance be final at least thirty days prior to closing.”

As best as I could make sense of Betsey’s email and what I had heard before, the bank only required that the ordinance must go into effect prior to closing, not that it must go into effect 30 days prior to closing. And that to accomplish that, given that both the regular meeting and the special meeting routes were precluded by not taking them, the emergency ordinance was the only way forward.

So could you clarify a few things:

1) When you say “be final”, do you mean that the bank requires that ordinance goes into effect at least 30 days prior to closing? Or that that the bank requires final passage be at least 30 days prior to closing, so that, for a non-emergency ordinance, it would go into effect prior to closing, but perhaps only by a few days?


2) You say that you “learned only recently...” When exactly did you and/or BHP learn that there was this issue with the illegal subdivision? And when exactly did you and/or BHP learn of the bank’s timing requirements re the ordinance fixing that going into effect?

Thanks,
Steve

On Feb 21, 2017, at 1:56 PM, Carr, Thomas <CarrT at bouldercolorado.gov<mailto:CarrT at bouldercolorado.gov>> wrote:

Mr. Pomerance,

I wanted to take this opportunity to respond to your email.  As I hope that you can appreciate, this is a complex transaction involving many moving parts.  It also involves a property that some members of community call home.  We learned only recently that the bank would require that the ordinance be final at least thirty days prior to closing.  At that point, there was no alternative to asking council to pass it as an emergency ordinance.
With respect to the question whether this constitutes an emergency under the charter,  when the Boulder City Council adopts an ordinance as an emergency measure, the standard practice is include an finding of an emergency and declares the ordinance is necessary for "the preservation of the public peace, health, or property."  The courts have been deferential to the city council's reasons for declaring an emergency measure and will consider the reasons valid in the absence of a showing of fraud or bad faith.
The Colorado Supreme Court has held that when a home rule city enacts emergency legislation in conformity with the provisions of its charter, the legislative declaration of purpose in enacting the emergency measure is presumed valid and will not be reviewed by the courts in the absence of a showing of fraud or bad faith. If a city charter requires that there be a legislative recitation of the facts constituting the emergency, then such facts must be stated in the emergency measure.   For example, see Colorado Auto Auction Servs. Corp. v. City of Commerce City, 800 P.2d 998, 1006 (Colo. 1990), citing McCray v. City of Boulder, 165 Colo. 383, 390, 439 P.2d 350, 354 (1968).
This is the standard procedure that the city uses to adopt ordinances as emergency measures.  The ordinance for the Tantra Park subdivision issue has been drafted consistent with the above procedures and standards.
Tom Carr


From: Pomerance, Stephen [mailto:stevepom335 at comcast.net]
Sent: Monday, February 20, 2017 4:26 PM
To: Becky Marten <martensb at boulderhousing.org<mailto:martensb at boulderhousing.org>>
Cc: Council <council at bouldercolorado.gov<mailto:council at bouldercolorado.gov>>; Carr, Thomas <CarrT at bouldercolorado.gov<mailto:CarrT at bouldercolorado.gov>>; Firnhaber, Kurt <FirnhaberK at bouldercolorado.gov<mailto:FirnhaberK at bouldercolorado.gov>>; Brautigam, Jane <BrautigamJ at bouldercolorado.gov<mailto:BrautigamJ at bouldercolorado.gov>>; Jim Koczela <koczelaj at boulderhousing.org<mailto:koczelaj at boulderhousing.org>>
Subject: Re: Agenda Item 5A -- will it get the job done?

Betsey,

I read all this, and what is missing is how you all (meaning both BHP and the City) let this slide to the point where it could not be done in two readings at regular council meetings. You now have clarified that you have been working on this for some time, and that it has come to this point is really pathetic.

If people are trying to understand this, it would be useful, and illuminating, to know exactly when you were provided with the title info, and when it was supposed to be inspected per the contract, and then when you actually “caught it”, to use your term, and discovered the subdivision issue.

As you know, when I first heard about this (through a third party) when I was asked for advice about how to handle it just after the first council meeting in February, I suggested to you that you ask that this be handled as a first reading at a special meeting at the study session on 2/14 with the second reading at another special meeting on 2/28, which would have solved both the timing issue and the emergency ordinance issue. And at that point, there was plenty of time to do this. Of course, if you had dealt with it just a week earlier (that is, a week before I heard about it), it could have been done in two regular council meetings and again the 30 days waiting would not have interfered with anything.

In any case, for whatever reason, you chose to not take my suggestion — and IMO that was not a smart move, quite the contrary. I have watched the city processes enough to know that the notion that emergency ordinances are for real public emergencies (as the Charter says) is not how things are viewed internally. BUT, that doesn’t mean that if someone took you to court that the judge would just go along with the City. And if the judge took exception to the City’s approach (which I think has some reasonable probability), that would completely screw up your deal, as I also pointed out to you and as you have stated.

As to some of your other comments, it is still not clear to me how the seller could sell the property if it is illegally subdivided without the City taking some action — which still says to me that the City still holds the cards. As you put it, "The ordinance is required to fix the existing illegal subdivision whether or not BHP is the buyer. “ So it seems to me that the City could make this work without an emergency ordinance because they have all the leverage.

As to the affordability issues, it would be interesting to know how much subsidy the City is providing to get you to 40% PA, since the City is currently extracting 20% from new development (ignoring the ridiculous 25% reduction for fee in lieu) with no subsidy whatsoever.

I could go on about this, but since I know it won’t make any difference, I’ll stop now. But I will say that I’d like to see a commitment to a MUCH higher percentage of PA housing. 40% won’t reasonably preserve the current income distribution, which presumably is the whole point (although given your support for the ridiculously low $12/ft2 linkage fee, I’m not even sure what your objective really is.) You have to get to at least 50% PA and probably higher before it will do more than just delay the inevitable.

Steve


On Feb 20, 2017, at 12:00 PM, Betsey Martens <martensb at boulderhousing.org<mailto:martensb at boulderhousing.org>> wrote:

Steve,

These are such great questions and suggestions. Thanks for taking the time to think through whether this is the best, and right, way to add units to our affordable inventory. I’ve answered your questions inside the body of your emails below. But, let me do a summary paragraph here.

We want to be clear that the subdivision problem was created prior to this Seller’s ownership. They missed it and we caught it. Since that time, in the fall of 2016, they have been very cooperative in working with BHP and the City staff in reviewing options to solve it. The solution all parties landed on was to solve by ordinance. A plan was developed in 2016 to have a February/March reading of the ordinance and close in March as the current contract calls for.

The current proposal in front of Council to expedite the plan does not advantage the Seller. The advantage accrues to the City’s 10% affordable housing goal. Absent the single reading solution, BHP can’t meet our contractual requirement to close on March 24. We then fall out of contract for this property and the Seller can complete the ordinance as originally planned (in two readings) and make any reasonable decision which could include putting it back on the market at a price that reflects the current income generated.

The performance clauses in a contract are the Buyer’s. The Seller must sell to the Buyer, but only if the Buyer can meet the contractual closing date. Without closing before the end of March, we can’t. More detail is below.

In your third round of questions, with a request for more detail about contract structure, we start bumping into our Purchase & Sale contract that binds us to strict confidentiality about the terms.

The City Attorney’s Office has been working with us since the discovery of the subdivision problem and advises this course of action.

I hope I can make some progress below because we would really love your support on this acquisition. I think we find common ground when BHP is successful in acquiring existing units. Sadly, the acquisition market in Boulder is intensely competitive and we are, for very tangible reasons of cash buyers willing to waive due diligence and close quickly, often out-competed. Here we have an exceptional opportunity, if we can get through this final hurdle.

Betsey
________________________________
From: Pomerance, Stephen <stevepom335 at comcast.net<mailto:stevepom335 at comcast.net>>
Sent: Monday, February 20, 2017 7:08 AM
To: Council
Subject: Agenda Item 5A -- will it get the job done?

To the Council:

In addition to the issues that I pointed out in earlier emails re the emergency ordinance for the Tantra property excusing the illegal subdivision, I have some concerns as to whether it will actually get the job done, and also how BHP got into this fix. I certainly agree that we’re in a calendar “fix”. Our original plan was to have a first and second reading on Feb 21 and Mar 7 and close ten days later. Two things happened subsequently. Our lender couldn’t get comfortable, reasonably, with the risk of closing before the 30-day referendum period expired on April 7 and our logical solution of closing on April 8, following the 30-day period, became impossible due to an April 1 loan maturity that we had no reason to have knowledge of and only found out about when the Seller rejected our request for an additional extension of the contract to April 8.

I hope one of you will ask these questions and get some answers.

Steve Pomerance

Resent-From: <council at bouldercolorado.gov<mailto:council at bouldercolorado.gov>>
From: "Pomerance, Stephen" <stevepom335 at comcast.net<mailto:stevepom335 at comcast.net>>
Date: February 18, 2017 at 6:08:12 PM MST
To: Council <council at bouldercolorado.gov<mailto:council at bouldercolorado.gov>>
Subject: Re: Agenda Item 5 A, emergency ordinance
>From the staff memo —
1) Has BHP committed to the City to have all these units be price controlled and affordable? If so, what is the proposed income mix, number of units for purchase vs rental, etc.? Where is the documentation on this?  The commitment is to have 40% of the units available at 60% of the area median income based upon the amount of subsidy we are receiving from the City. Our current financing is flexible enough so that the affordability can increase over time.

2) Is the purchase contract that BHP signed with the current owner(s) a “specific performance” contract, that requires the current owner(s) to sell to BHP? The purchase contract is a specific performance contract that requires the Seller to sell the property to BHP on or before the agreed upon Closing Date. Or does it simply have specific damages that the current owner(s) must pay if they choose to not perform on the contract? If the latter, what are the penalties for non performance? And how do those compare to the potential increase in value/sales price if the purchase contract were to expire and the property sold on the market, as the memo discusses? Obviously, it would be counterproductive if the City’s ordinance ended up just giving more sales profit to the owners and leave the units at market prices. The ordinance is required to fix the existing illegal subdivision whether or not BHP is the buyer.  While it could be done with two readings, that would require extension of the contract by BHP beyond what the seller is willing to agree to in order to secure our financing.  As a result, without the emergency ordinance process, the Seller would in fact benefit by earning a larger profit in a market sale and the units would remain at market rate.


3) Given that the sales contract was signed in August, what was the due date for BHP to review and accept that the seller’s title to the property was adequate? Was this requirement met? What issues did BHP note at that time? What was the cure period for those issues?  See below.

4) When did BHP identify that there was this issue with the illegal subdivision? If before the beginning of February, why wasn’t this put on the regular agenda? If before the first study session in February, why wasn’t this brought forward at a special meeting so it could be dealt with in two readings (at special meetings at the first and second study sessions in February) so the 30 day period could have occurred in March before the contract expired?  We identified the issue in a timely manner during our initial due diligence period when we reviewed the property legal description.  Since that time we have been working with the seller, title company and the City housing and legal staff to find a solution agreeable to all parties.  We initially planned a March closing with a first reading of the subdivision ordinance on Feb 21 and a second reading on March 7 and a closing on March 18. The problem arose when our lender, reasonably, was unable to get comfortable with the risk associated with the 30-day referendum period and we learned that the Seller had loan maturity on April 1. That created a calendar box.

5) How does this emergency ordinance meet the requirements of Charter section 17? Does this ordinance not create a “special privilege” for the benefit of the Applicant (the property owner(s)) since they have violated the BRC and so cannot sell the property without this special treatment? And how is the ordinance necessary for the "preservation of the public health, safety, and property", given that all it really does is relieve the property owner of the costs and penalties associated with having illegally subdivided this land and related actions?   This question is better answered by the CAO.
"Further, the Applicant has loan maturity on Tantra Lake as of April 1, 2017. Given an increase in value to the property since going under contract with the Applicant in August 2016, the Applicant will not extend the Purchase and Sales Agreement beyond March 31, 2017."
 Normally a purchase contract has a series of contingencies that the buyer (BHP) puts in with dates to review whatever it wants to. One point that is in all contracts that I have ever seen is review of the title. The contract was signed in August, but apparently it took them until the middle of February to discover the flaws in the title (We discovered the problems in a timely manner and in fact it was only BHP’s careful due diligence that surfaced this issue after previous transactions on this parcel had missed it. Since discovery we have been evaluating with City staff a variety of solutions and all parties landed on this one), and to ask for this emergency ordinance (the timing of the ordinance was carefully planned and related to significant complexity in the financing of the acquisition. We didn’t, and weren’t required to, know what the Seller’s loan maturity was until we advised them that we would close on April 8.). Or was this known earlier? Maybe you should inquire.
 On Feb 18, 2017, at 5:49 PM, Steve Pomerance <stevepom335 at comcast.net<mailto:stevepom335 at comcast.net>> wrote:
 One further point —
 If I understand it correctly, the staff memo is saying that the property was illegally subdivided and therefore, under the BRC, it cannot be sold. Well, if that is the case, then it would appear that the threat by the owner to raise the price once the current contract expires is empty (the Seller does not threaten this but it is certain in the Boulder market that sales prices are based on income, which has increased substantially since our initial contract date), because the owner cannot sell it without the City agreeing to approve the  formerly illegal subdivision (as the emergency ordinance is intended to do) or taking some other steps (which were not explored in the memo) and/or dealing with the legal consequences of having performed the illegal subdivision (also, not explored.) This seller did not cause the problem and has been very cooperative in trying to find a solution to cure. It is BHP asking for preference so that we don’t fall out of contract. The seller could continue with a normal ordinance process and when eventually approved, sell the property to a market buyer at that time.
So, at least based on what I read and how I understand it, it would appear that the City holds all the cards, and can dictate the process, timing, etc. And, yes, the owner might end up paying some late payment penalties for closing the deal after the mortgage came due, and possibly other legal costs
well, that’s not the City’s problem, the City wasn’t the one that illegally subdivided the land
It would be the City’s loss, not problem, if we lose this unusual opportunity to buy a large amount of affordable housing. This is a seller’s market. If we can’t get comfortable with this single reading process, BHP will have to terminate the contract due to lack of financing and the property will be sold to the new highest bidder.
Of course, I may not fully understand this (per the convention with large commercial transactions, the Seller has asked for strict confidentiality about the deal terms so we haven’t shared more with you. The City Attorney’s Office is fully briefed and recommended this course of action. I’d be happy to sit down with you after closing, if we close, to go through the whole thing), but that’s what it looks like at first glance. And if that is accurate, then no emergency ordinance is needed. If the ordinance doesn’t pass we will fall out of contract. It is that simple.
 On Feb 18, 2017, at 7:50 AM, Steve Pomerance <stevepom335 at comcast.net<mailto:stevepom335 at comcast.net>> wrote:
 To the Council:
Re: Agenda Item 5 A, you should not have been put in the position of having to pass an emergency ordinance on this matter.
 Emergency ordinances have significant risk in situations like this. A citizen could take you to court over this, and they would have a pretty good argument. And someone making such a move could screw up the deal, irrespective of how the legal process ultimately turns out, given the late date relative to the timeline of the deal.

There is no information provided as to the specifics of how this situation is such an emergency as to require this ordinance "for the preservation of the public peace, health, or property” as the Charter mandates. On the contrary, it appears that this is simply solving a financial situation that, to put it baldly, BHP screwed up. I don’t think we could have done anything differently. See above. And this ordinance is arguably creating a “special privilege”, which is forbidden by the Charter.
As to the timeline, even if BHP didn’t know about this in time to get it on the agenda for your first meeting in February (and I cannot believe that they were so completely unaware, given the size of this deal and the title work that should have been done), I do know that they did have time to ask you to hold short special meeting at your study session last week and another one at the study session next week. That way this ordinance could have been passed using the ordinary processes, which would have allowed the proper 30 day waiting period for the ordinance to go into effect prior to the loan maturity date, and which also would have obviated the risks.
You should ask that this mess be investigated so that you can know how this happened, who was responsible, and hopefully make the corrections that would ensure that it doesn’t happen again. I realize that holding anyone responsible is not in the current culture, but maybe it’s time for a change.

Steve Pomerance

P.S. Your legal staff should have provided you with the Charter section related to this type of action, so that you know the full language in the Charter and could determine if your action is legal and appropriate. Since they didn’t, here it is:
Charter Sec. 17. - Emergency measures.

No ordinance shall be passed finally on the date it is introduced, except in cases of emergency, for the preservation of the public peace, health, or property, and then only by a two-thirds vote of the council members present. The facts showing such urgency and need shall be specifically stated in the measure itself. No ordinance making a grant of any franchise or special privilege shall ever be passed as an emergency measure.

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Betsey Martens
Executive Director
Boulder Housing Partners
Providing Homes, Creating Community, Changing Lives

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