What Is Your Property Strategy When Rezoning Happens?

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One of the cornerstones of zoning is property value protection. Given how often zoning related issues come up and the ordinance gets changed, it is difficult to keep up on the situation. When proposed zoning is in play, there are some formal notices including posting a sign at the property and sending out a notice to those within a certain few hundred feet.

The letter may not look important but it could be as it is only way, besides seeing the posted sign, that notice is given even in this day and age of electronic mail.

So what if the place you own is slated for rezoning. What do you want to know?

1. Understand why the rezoning was needed.

2. Gauge how the proposed plan (which is assumed is in the picture if rezoning is on the table) will fit into the neighborhood. Details such as the property type, unit mix, height and size all help describe the developer’s vision.

3. How often will meetings be held to discuss the project. There are some mid and larger scale projects that require a series of meetings to get feedback from the neighbors.

4. When is the project slated for construction is another useful bit of information to know in case you had planned to do something of substance at your property including selling it.

You may hear up-zoning or down-zoning. Up-zoning give the property more or something maybe more height, a higher ratio to calculate a bigger building or add more permitted uses. A down-zoning is a reduction, something meant to curb the building’s potential size or the number of allowed uses.

During my career I saw rezoning from both perspectives. In Sausalito, the city was trying to curb the number of two-unit buildings that got purchase to convert to a single-family home. So they proposed changing the zoning which would limit the size of a dwelling in some neighborhoods.

At the extreme is a major up-zoning of a property I was valuing. The 20 year-old fast-food restaurant on a busy road, just off a freeway, had experience the “lottery” moment gifted during a rezoning of an area to up-zone to a high-density mixed-use building. The zoning change meant a 15-story mixed-use building could be there rather than this 1,800 square foot restaurant with drive-through window.

So how do you play it? In the case of the up-zoning, I recommended marketing the property for sale and structuring the deal to allow for the continued use of the fast-food restaurant as an interim use.

The market for mixed-use was very hot and financing was readily available. The city clearly wanted to encourage development at this location making it attractive to a developer to pay top dollar. Sadly, the franchisor wanted to ride the wave of future richness and didn’t sell. Values fell by nearly 50% in that area and while the rezoning of the property had increased it valuation, the demand for building was gone. In times of financial distress and down cycles in real estate, selling potential is never easy.

In the case of the down-zoning, people got wind of the proposed change and took the offensive, making it clear to the city that their quiet handling of the rezoning was not appreciated. Needless to say, the zoning change was not made.

It is important to stay abreast of what’s happening in your neighborhood. Open up those letters addressed from your local planning department as you never know if you’re about to open a “lottery” ticket or something quite different.

 

 

 

 

Connecting Flood, Watersheds and Austin’s Development Code

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Zilker Terrace, courtesy of Perales Engineering, Inc.

Most land-use professionals know the impact being located in or adjacent to a flood zone can have on development options. In Austin, special care is required because of the evolving watershed ordinance and a current model being used to approve projects. Properties impacted by flooding need to have additional infrastructure to handle Mother Nature when needed. Those properties within the flood zone will need to be constructed to a higher standard.

Earlier this year, I contacted the Watershed Protection Department to ask “Does Austin have its own set of flood zone data that supplements that from FEMA?” I’d like to thank the engineer for his email reply which I’ve shared here:

“Yes, we regulate development based upon fully developed conditions. The hydrology used for FEMA models is based upon the existing run off rates/ impervious cover in the basins, while our fully developed models assume run off rates based upon the maximum allowed impervious cover by zoning. In our more urbanized watershed the result is that FEMA equals fully developed, but in our less developed watershed there may be some difference. You can view the delineation of the fully developed floodplains on the City’s Development Viewer. Additionally, we are in the process of restudying several of our watershed, and have begun using them to regulate development, prior to completion of the FEMA approval and implementation process. Please let me know if you have further questions.”

Zonability is currently in the process of adding FEMA data but will not be able to mimic the Watershed Department’s model, something we’d like to do to alert our customers of such hazards. Even if we did have this data, we’d still caution clients to proceed with caution when a project has potential for being in a flood zone, primarily because the rules are not as transparent as they should be. I’ve personally heard from a developer who went to the City of Austin and point blank asked the question about the flood hazard and was told it wasn’t an issue. Yet, after submitting for a permit, then the developer was told it was, in fact, an issue.

During my weeks of looking into this, I met Jerry Perales, PE who is truly an expert in water engineering arena. His contact information is linked here to help those who have questions and potential assignments for him (for full disclosure, we have no fee sharing or referral arrangement). The following is my summary for those wanting a 40,000 foot view of developing in Austin given the water-related constraints:

  1. Single-family and duplexes with urban watershed locations – not within Barton Springs Zone – may potentially be able to bypass the water quality controls requirements.
  2. Per a 2009 Austin Contrarian article, if you scroll to the first comment by a local developer, it indicates the costs of $20,000 to $30,000 per lot.
  3. The water quality control has a requirement impacting impervious cover even for single family homes.
  4. Barton Springs Zone has no exceptions to water quality controls. This means IF the property is in the Barton Springs Zone, then plan to spend for the approvals.

Clearly properties without flood-potential issues benefit relative to those with given the time and money requirements. The City of Austin appears to be focused on preventative work and this will mean hiring an engineer to guide the development.

By the way, the photos at the beginning of the piece show devastation but in the end, the issue got corrected.

Zilker Terrace, courtesy of Perales Engineering, Inc.

 

Austin’s 1000+ Page Land Development Code

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The buzz was abound this week about the rewrite of the zoning ordinance here in Austin. Some of my favorite quotes include:

“It’s not a sexy issue, but it is the important issue,” Jason Meeker, City of Austin Zoning and Platting Commissioner. Source

“It’s just so full of things that you cannot even begin to describe what all is in there. You can get a hard copy if you’ve got a few thousand dollars to spend on copies.” -Jackie Goodman, formerly of the Austin City Council and City Planning Commissioner. Source

And there’s a great 7-minute clip to listen in which Council member Bill Spellman discusses how everyone who owns property in Austin has a stake in the rewrite. Source

The bottom line, the current Land Development Code is one heck of a tough document to get through. There are something like 3 major sized binders and if you’ve ever tried to navigate it on line, we’ll you can spend hours and feel as though you’ve gotten no where. I can say I know this first hand because I’ve read the entire document, maybe not in one sitting (no way!) but over the course of 14 months, yes.

My team and I also went through the 200+ documents that form the Neighborhood Plan, packed with incredibly important and relevant data.

We anticipate a bumpy few years during the re-write which is slated to take until 2015. Through all the craziness, we’re so happy we decided to make Austin our flagship!

 

Big House, Little House and Land Value

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This image says plenty and comes from a recently published story in the LA Times discussing how buyers are purchasing homes for their land value.  Zoning alert!

We have a couple of issues at play zoning and economics. These subjects actually go hand-in-hand, something many people may not understand and why I wrote this piece today.

Question: What is motivation these buyers to take the risk of re-developing the lot?

Answer: A pool of buyers willing to pay for “turnkey” homes that meet modern standards including floor plans in that location. This demand indicates land value is worth more when developed with a new, likely larger home relative to what was there. For my readers out there, you’ll recognize the exception is a home with historic zoning. Why? Because chances are tearing down will not be an option.

Real estate values are in the news several times a week – it is considered a leading indicator that the US economy is recovering. During the long lasting recession and slow recovery, financing for those with the means (means = money) has been advantageous. Furthermore, the incentive to take the risk to redevelop a property exists given the near zero interest rates levels.

So, there are homes with locations that offer convenience and quality of life. These are coveted and limited in supply. The incentive is there to “do something” to meet the demand and make money. Together, this makes it ripe for the tear-down-and-build-new activity to get into full swing.

Remember, when it comes to making changes to a property, economics are a major factor and the zoning for that particular property – not necessarily the block – is what gives the insight into what sized home can be built. The next major step is getting the permits (formally called “entitlements”) to do so, something worth writing about next week.

 

 


Zoning and Quality of Life

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There is a reason a city can have so many zoning districts – they’ve set unique rules for each one for more precise controls in concerted effort to create a quality of life. What tools do they, the city, have at their disposal to build a healthy place where people want to live?

1. Concentration of a district – just look at one of our Zonability maps to see how the areas can vary at a basic level (residential, commercial etc.). Is the policy supporting more homes, denser mixed-use development or an expanding office sector? Zoning creates the opportunities including walkable neighborhoods.

2. Scale of buildings including size in square feet and height. Architects have to “run calculations” all the time checking a lot’s viability. Given how unique a lot is, including its topography and the zoning next door can impact what the zoning allows or doesn’t.

3. Distance between buildings – this is called the yards or setbacks. Of the various criteria, this is one of the most difficult to fulfill because the rules change over time making some existing yards too small. Spacing around a home or commercial building does make a difference from both the appearance and how close neighbors feel.

4. Uses – the old adage is that zoning started to separate homes from factories. Well, we don’t have many of those around urban areas but there are still plenty of noise, smell, and traffic related issues the zoning takes into account.

5. Impervious coverage – zoning regulates how water should flow off a property and those lots with more asphalt or hard surfaces have more run off in contrast to say a landscaped area. If the water stays in a yard, then it means less water running over sidewalks into gutters. Could this generate a savings to the sometimes overworked storm drain collection system?

Sure, there are other factors regulated that add a great deal to a neighborhood’s appeal – trees, historic building preservation, size of signs, construction days and times and even fences (height and materials).

These tangibles, the results of people’s work, links back to the pages of rules written and enforced. Enforcement is another issue onto itself…next time.

 

 

 

 

 

White House Award for Zonability

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Eighteen months to the day I committed to working on Zonability full time, I received an email inviting me to Washington, DC to accept an award for Champions of Change.

I was to meet the 16 other recipients for their contributions in technology. The timing was uncanny. The company’s year starts June 1. The week before the email arrived I had made it clear that I needed a sign to tell me I wasn’t wasting my time and our savings.

The award from the White House was a sign of validation. Had it not come when it did, it is quite possible I might have brushed Zonability to the side to seek the comfort of a “normal” job. I’m glad that didn’t happen because all the years of work are starting to pay off – I’m incredibly excited for what we’ll be able to offer in 2013.

http://www.youtube.com/watch?v=jZeXuEeAhzc

 

 

 

 

 

In Austin, Drawings Are Not Optional Anymore

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Drawings for new construction projects have always been a requirement for obtaining a building permit, not so for remodels. However, now a complete set of drawings – stamped by a licensed architect- is required for any remodel beyond cosmetic work.

What does this mean to the consumer?

  1. You’ll need more advanced time to research, find and hire an architect.
  2. Work to hire an architect who can help you maximize the costs associated with the remodel. I call them “value seekers” and they work creatively within the confines of the zoning rules to produce the best results.
  3. Plan on budgeting 5% to 10% onto your budgeted costs for an architect.
  4. An architect assumes incredible liability  (extending for 10 years) when they stamp drawings – don’t expect them to put their license at stake by fudging the drawings with faux pre-existing conditions.
  5.  Expect better results for having a professional involved.

According to Luciana, the old system let the homeowner simply describe their plans such as “remodel kitchen including new cabinets, appliances and countertops.” If they were changing the location of the sink, or adding another, then a plumber would need to pull a permit. The same was true for any electrical work. The city had to manage the process through a myriad of inspections.

Investors with local tradesman contacts and DIY type owners will be the most impacted from the change. Gone are the days when they could piece together a project using the cabinetmaker’s drawings for the kitchen or bathroom, which used to be acceptable.  The stamp is the key difference and, as noted, there is a price to pay for that.

Best advice? Luciana reiterates the silver lining to the new rule is the ability to hire an architect who can help maximize value for the homeowner or investor. As an added bonus, there may be intrinsic value to gain from having professional drawings at the ready when it is time to sell. Well said, Luciana!

Note about Luciana

I’d like to thank and give credit to Luciana Misi, Principal of local architecture firm Lamme & Misi Urban Studio LLP and founder of MINIMIS Modern and Sustainable Architectural Products  for making herself available to interview.  She is an excellent resource for real estate investors, homeowners and people who consider investment aspects of their homes.

 

Austin Home Remodelers: Trapped in the McMansion Maze

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Austin’s McMansion rule has been aptly described by Luciana Misi as the McMansion Maze.  Having read the document and reviewed locations impacted, it seems impossible to avoid it. It applies to most residential remodels where the plans involve changing the home’s exterior and, of course, all new home construction project.

The complexities have gotten locals speaking up and asking for better guidance. The topic has made to the city for discussion no fewer than 3 times in the last 24 months with the latest proposed amendment focusing on how to calculate square feet in the attic.

To help readers understand what is involved, let me set up an example.

Imagine you own a one-story home in the Central Austin Neighborhood. You have both the interest and money to remodel it and, as part of this hypothetical remodel, you’d like to double its size by adding a second story.

Here is what the pro sees as a “must-do” when you call them asking for a proposal to doing the drawings (see our blog on drawings):

Step 1: How will the zoning accept or reject this idea of adding on? To do so, they need to look up the zoning, all layers of it.

Step 2: How will the neighboring properties be impacting by this proposal?

Step 3 What will be the path to get approvals? Will it require going before the Residential Design and Compatibility Commission  (RDCC) board, the group that oversees if the McMansion rules are being properly adhered to?

Once the pro knows if the addition looks potentially feasible, they’ll want to visit the property to see firsthand how the property sits on its site, especially as it relates to those next door.  Of all the parts of the McMansion rules, this stirs up tension since the add-on can’t “dwarf” the neighbor.

At the same time there is an underlying need to maximize the potential of the lot. The tension between design, functionality and value are all at play. It is definitely an evolving project.

According to Luciana, the key issues of scale and design could have been better handled if the rules had been written with a focus on the building’s envelope. We’ll continue to track officially changed McMansion rules.

Note about Luciana

I’d like to thank and give credit to Luciana Misi, Principal of local architecture firm Lamme & Misi Urban Studio LLP and founder of MINIMIS Modern and Sustainable Architectural Products for making herself available to interview.  She is an excellent resource for real estate investors, homeowners and people who consider investment aspects of their homes.

My House is Historic?

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Thomas Jefferson’s Monticello, Waterfall by Frank Lloyd Wright, the Farnsworth House by Mies van der Rohe are all from different eras but potentially share something in common with this 1961 home in West Austin.

Can you guess?

The answer is that they are all considered to be “historic resources” in the area they are located. In writing about the West Austin home, I’m simply trying to make a point that in this era of preservation, you might be surprised by what counts as worth preserving. What we are increasingly finding is that any construction over 50 years old has potential for someone to deem it a part of history that must be retained.

For those new to real estate, there are tax breaks given to those property owners who agree to maintain the property to a higher degree of stasis than a regular property in order to preserve it as part of its historic status. The trade off is once historic status is granted, or a city deems a property worthy of preserving (as in the case of this West Austin home), the land value changes.

Here’s why.

If the property were free and clear of any historic status or encumbrance, then the logical step in figuring out the property’s value is to focus on what might be built on the lot using common sense parameters. Common factors that impact value are what the zoning allows at that location, what the neighborhood vibe supports and what people will pay in rent or as a purchase price. However, if add in the historic designation, the “might be built” potential changes greatly once a property is committed to essentially freezing in time.

We ran a Zonability report on the Old West Austin property to check out the zoning potential for lot size, building (home) size, height and uses. On a 1.04 acre lot, it is feasible by the zoning to have a two-story home over 18,000 sf.

Whoa! I couldn’t believe it. Several years ago, the City Council approved the passage of additional zoning known informally as “the McMansion” ordinance. It’s formally called RDS, Residential Design Standards, and I was convinced there had to be something in that awkwardly written document to prevent someone from building such a large home.

I consulted with local architect Luciana Misi, who specializes in knowing the zoning to help her clients realize a property’s value potential. I shared with her the Zonability findings and she wrote back:

“A home size of 2,300 square feet is not the largest area allowable; rather, the ordinance calls for the greater of, 2300 or .4 ratio to the lot size.  It is written this way because it makes development of small lots much more feasible, which is what the City wants.”

Of course, the zoning regulations have some checks and balances to keep home size in scale such as impervious coverage, which includes all the man-made items that cover the lot (like walkways, decks, the actual buildings, etc.). Neighborhoods have also enacted additional rules worth researching since they may have impact maximum home size, subdividing lots (a natural question for this West Austin property) and use of the property.

Bottom line?

If the 1961 West Austin property officially becomes known as “historic,” which will be decided in an upcoming Planning Commission meeting, then the owner will have fewer choices as to what she can do with her property and the intrinsic value of that property will be impacted by the decision.