• Managing Municipal Real Estate Assets Post-Redevelopment
  • May 3, 2012 | Authors: Nancy Park; Ethan Walsh
  • Law Firm: Best Best & Krieger LLP - Sacramento Office
  • This legal alert is the first in a two-part series on managing municipal real estate assets. The series will discuss how to develop a framework that can be used for both the disposition of former redevelopment agency assets and the management of municipal real estate assets going forward. The concepts covered will be discussed in greater detail at in-person seminars to be held on June 5 in Sacramento and June 13 in Riverside.

    “Successor agencies” throughout California are in the early stages of winding down redevelopment operations in their communities. While most are currently immersed in the process of seeking approval of their enforceable obligations and assuring they receive the funds necessary to meet all their outstanding obligations, they will soon need to move on to the process of disposing of their redevelopment agency’s real estate assets, as required under AB 1X 26.

    Successor agencies are required to “expeditiously” dispose of redevelopment agency assets, and many fear there will be a massive fire sale of redevelopment agency property. However, while AB 1X 26 does require successor agencies to dispose of holdings expeditiously, it also requires that the assets be sold “in a manner aimed at maximizing value.” This second goal suggests that successor agencies need not sell their properties quickly, but instead have the ability to take a more methodical and strategic approach to the required divestment of their real estate assets in order to maximize value.

    A more strategic approach to property sales will benefit not only the taxing entities that will share in the revenues from the sale of property, but also the city or county that created the redevelopment agency. Cities and counties may be able to use this approach to continue their economic development efforts, and will also receive a share of the sale proceeds and property tax generated by the sale and possible development of these properties. Moreover, it benefits all parties to approach property sales in such a manner that ensures that real property sold will be developed for productive use and not merely held for speculation.

    In developing this strategic approach to property disposition, successor agencies should consider asset management best practices used by real estate investors, both large and small, throughout California and beyond. Taking a strategic approach to property sales will not only help to maximize the value of a former redevelopment agency's assets in a manner consistent with the statute, but can also serve as a framework to better manage the city or county's real estate assets in the future. The process includes inventorying all assets; analyzing, valuing and prioritizing such assets; creating a disposition plan; and designing an asset management program for all remaining assets to be held. This process can be a daunting exercise in data collection, analysis, self-examination, municipal goal setting and prioritization, and real estate market comparison and valuation. There are specific iterations and formulas that should be applied, as well as qualitative criteria to be compared and measured.

    The specific steps, resources and discipline of strategic asset management will be the topic of our next legal alert, and culminate in a more detailed, two-way discussion at our in-person seminars in June.