In slow times, rezoning appeals to developers

August 14, 2008
In slow times, rezoning appeals to developers
Time-consuming process, so builders shy away from it in a go-go market

(NEW YORK) Property developers generally earn their money by putting
up new buildings, but when the real estate market cools, making it
difficult to obtain financing, they often look for other ways to help
turn a profit.

Some developers - and their real estate lawyers - say that rezoning
property is one of them. Juan D Reyes III, a partner in the law firm
of Riker, Danzig, Scherer, Hyland & Peretti, said he had clients
seeking zoning changes with hopes of developing or selling the
property once the market improved. This particularly applies in areas
zoned for manufacturing.

'At the height of the market, a lot of developers just wanted to buy
it, develop it and get out,' Mr Reyes said.

Getting a change in zoning, however, can be time consuming.

'With zoning, even if you're doing a variance, it's a minimum of a
year,' he said.

'A rezoning can take 2-3 years. Now is a good time to be doing that.'

Because obtaining any kind of discretionary city approval can take
time and resources, developers may shy away from doing it during a go-
go market, said Mitch Korbey, a lawyer with the firm of Herrick
Feinstein.

'Their focus is often elsewhere, on other projects, for a variety of
reasons,' he said.

But when the real estate market comes to a virtual halt, as it has
currently, many developers cannot get development financing on
favourable terms.

An attractive option is to wait out the torpid market while trying to
add value to their property with a rezoning, Mr Korbey said.

Herrick Feinstein has several clients doing just that, specifically
on properties zoned for manufacturing.

'These are areas that are not zoned in a way that permits
residential, because you can't do residential development in a
manufacturing zone,' he said.

'Yet residential is nearby, and you've got a manufacturing zone
that's not so productive, that's not generating income, that's adding
very few jobs.'

Mr Korbey said he was currently handling a case involving several
blocks of contiguous vacant lots and warehouses that were once part
of a Rheingold brewery in the Bushwick neighbourhood of Brooklyn.

The developers, Forest Lots LLC, recently applied for a zoning change
to permit hundreds of residential units and retail development.

'We're at the beginning of a process that's going to require an
environmental review and public input,' Mr Korbey said.

The developers are gambling that they will get the rezoning as the
real estate market picks up, making their land ripe for development.

Though the developers want to build, another option would be to sell
the land - most likely at a premium, Mr Korbey said. 'Obviously,
there's tremendous upside to changing the rules to allow new low- and
medium-density housing.'

During a sluggish market, the city may be more willing to approve
zoning changes, said Stuart M Saft, a partner with the firm of Dewey
& LeBoeuf.

'The city's tax revenues fall during a recessionary market, and what
the city is looking for is increased taxes,' he said. 'If the zoning
change will improve the value of the property after the building is
constructed, the city will get an increase.'