January 1, 1900

by Henry T. Chou

Homebuilders are not naturally inclined to hold undeveloped land for long periods of time. In an ideal world a homebuilder turns land into homes and sells them as soon as possible because undeveloped land cannot be monetized. Additionally, the cost of carry, including real estate taxes, financing costs and completion guarantees, provides strong incentives for builders to keep building. The stronger sales are the more land builders seek to acquire. In this context, the real estate market compels builders to respond swiftly to consumer preferences.

In today’s depressed real estate market, certain products that were attractive as little as one or two years ago are no longer in high demand. In most circumstances, builders who have approvals or zoning for such products cannot carry their undeveloped land indefinitely while hoping that the demand will improve some years down the line. While it is often unappealing to abandon vested approvals in today’s climate of frequent regulatory changes, economic realities require builders to explore alternative strategies for turning a profit on their properties.

Exploring Potential Changes to Existing Approvals

An example of a housing product that is no longer in great demand is age-restricted (55 and over) housing. In recent years, age-restricted housing was an option that was both palatable to New Jersey municipalities seeking to limit the size of their school districts and builders who could effectively market the product to a particular segment of society. However, the inventory of new age-restricted housing has begun to pile up and demand for the product has waned.

Given the right set of circumstances, builders with zoning or approvals for age-restricted housing may be able to seek a zone change or modify their approvals to allow for non-agerestricted housing. Municipal governing bodies and planning boards that originally preferred age-restricted housing may be amenable to such a change if they realize that the undeveloped land will remain fallow for a long period of time, during which no ratables will be generated. While a certain measure of the town’s attitude depends on local politics, experience has shown that it may be possible to remove the age-restriction if the builder can demonstrate through expert testimony that the additional municipal costs generated by schoolchildren are offset by the higher property taxes associated with non age-restricted housing.

Additionally, local decision-makers might be agreeable to removing the age restriction if the builder can provide some form of a lawful public benefit, such as a dedication of land for open space or an agreement to provide onsite recreational facilities that would be open to the entire town. Builders seeking a rezoning of their property can also propose alternative development schemes that complement or support projects that are existing or under construction in town. For example, if the builder’s rezoning proposal includes a road or bridge that will link two existing streets or neighborhoods, the town may deem the proposal to be beneficial from a planning and public policy standpoint and view it in a more favorable light.

Similarly, changes to approvals and applicable zoning may be achieveable to swap one form of residential development for another (i.e., single family housing for townhouses), or to swap nonresidential zoning for residential zoning (or vice-versa). Obviously, each town has its own set of circumstances, so any rezoning proposal should be based on a thorough understanding of the town’s unique needs and desires along with an analysis of the local market conditions.

Maintaining and Extending Approvals

If the builder simply wants to maintain an existing approval and wait out the housing slump, he or she also has the ability to extend or toll approvals under the Municipal Land Use Law. Upon application, a planning board can grant one year extensions of preliminary site plan or subdivision approvals, not to exceed a total of two years. Final site plan or subdivision approvals are also eligible for one year extensions, not to exceed a total of three years. Additionally, if an objector, environmental group or any other entity has filed a lawsuit challenging the approval, the developer may be entitled to a “tolling” of the approval and additional extensions of the approval.

Tax Appeals

A builder may also choose to pursue a tax appeal if he or she is carrying undeveloped property that has been devalued within the last few years. For tax purposes, many properties continue to be assessed based on the elevated property values at the height of the market. Clearly, the value of land and housing has dropped substantially since that time. By filing a tax appeal, a builder who desires to hold onto an undeveloped tract has the opportunity to lessen the costs of carry. In general, the annual tax appeal deadline is April 1, but particular tax appeal issues should be discussed with counsel.

Conclusion

The strategies mentioned above are only a sampling of the options available to builders during these challenging times. In today’s climate, builders must embrace innovative alternatives in addition to cost-saving measures in order to maximize viability. The Land Use team at Hill Wallack LLP is dedicated to creating and implementing such cutting-edge strategies on behalf of its clients.

Henry T. Chou is a partner of Hill Wallack LLP and a member of the firm’s Land Use Division. His practice is concentrated in the land development application and permitting process and the litigation of land use matters. He has significant experience in Mt. Laurel affordable housing litigation and administrative matters before the New Jersey Council on Affordable Housing.