Developing with Other People's Dollars: Leveraging Public Property for Private Development

by Ward and Smith, P.A.
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Downtowns across the country are seeing an increase in population and North Carolina is no exception.

From 2016-2018, 45% of North Carolina's population growth occurred in its seven largest municipalities.  During that same time, rural areas in the state saw their populations decrease. 

This "urbanization," or flow of people from small towns and counties into North Carolina's cities, is increasing the need for development projects and opportunities for developers.  In an already competitive development environment, public-private partnerships ("PPP's") can offer developers opportunities that would not otherwise exist, including the chance to collaborate with municipalities on large-scale projects that can result in cost savings and a competitive advantage. 

What is a Public-Private Partnership?


PPP's can involve different levels of cooperation between private developers and government agencies.  They can range from public contribution to an otherwise private project to private funding, development, and operation of projects that would normally be public responsibilities. 

Some of the most well-known PPP's are massive undertakings to construct convention centers, parking decks, and sports stadiums.  But not every PPP has to be that large.  

This article focuses on one narrow relationship: the relationship of publicly owned real estate and private money in the development of downtown projects.  In particular, it will summarize the process that a municipality and a developer must follow to enable the developer to acquire title to public property for development without violating any laws.

Conveyance of Public Property to Private Parties


Municipalities find themselves owning real estate for a number of reasons, but they are rarely equipped, prepared, or funded to develop that property without outside involvement.  Most often, this results in a sale of municipally owned property to a private party. 

North Carolina has stringent rules in place for these transactions; rules designed to maximize the sales price through sealed and upset bids, or through a public auction designed to obtain the best possible return.  These methods do pump up land prices, but they also require the public agency to give up control of the future development, and do not require, or really even permit, an ongoing development relationship between the buyer and seller outside of the typical regulatory requirements, such as zoning, to develop the property.

Recognizing the opportunity for both the public sellers and private developers, the North Carolina General Assembly enacted North Carolina General Statute § 160A‑458.3(d) entitled "Downtown development projects" (the "Act").  The Act allows a municipality to convey its real property for development in two different ways:

  • Pursuant to North Carolina General Statutes Chapter 16A, Article 22, the North Carolina Urban Redevelopment Law ("NCURL"), if the property was acquired via a redevelopment commission; or,
  • Pursuant to N.C. Gen. Stat. § 160A-457 if the municipality acquired the property directly.

The particulars of these methods are discussed below, but the upshot of the Act is that it grants municipalities additional flexibility to work with developers outside of the normal "highest bid" conveyance restrictions.

Downtown Development Projects


Before digging into the contents of the Act, it's important to understand that not all projects will qualify for special treatment.  A Downtown Development Project ("DDP") under the Act requires a capital project in the municipalities' central business district.  It has to include one or more buildings and include both public and private facilities.  A good example is a conveyance of municipal property to a developer for construction of a privately owned parking deck adjacent to a publicly owned convention center. 

If the project meets the requirements, then the special conveyance rules of the Act apply, along with other benefits such as the opportunity for the municipality to apply for grant funds from federal or state governments to spend on the project.

A DDP project is an opportunity for a municipality to work more closely with a private developer than it would otherwise be allowed to.  Municipalities have an interest in exercising control over these important projects, while developers gain access to public funds and unique real estate that they may end up acquiring at a below market price.

How do Municipalities Acquire the Property?


Since 1975, the NCURL has enabled municipalities to acquire and convey land in blighted areas with the use of a "redevelopment commission."  The NCURL and the rules that guide how a municipality can use it, deserve an article of their own, but to generalize—a municipality can:

  • Establish a redevelopment commission;
  • Designate a certain underutilized area for redevelopment;
  • Adopt a plan to redevelop that area; and,
  • Acquire and convey real estate in that redevelopment area.

Critically, the NCURL allows municipalities to condemn property through eminent domain in certain circumstances.

Because of the procedural challenges associated with using the NCURL, municipalities often choose to acquire property through North Carolina General Statutes § 160A-457 - "Acquisition and disposition of property for redevelopment."  That statute allows a municipality to purchase property without jumping through the additional hoops required by the NCURL.  The municipality won't be able to use eminent domain, but it can still purchase foreclosed property or other available real estates.

These two methods result in the two different methods of conveyance of public property for development allowed by the Act as mentioned above.  Property acquired through the use of a redevelopment commission, even without eminent domain, has to be conveyed through competitive bidding, but with the new ability of municipalities to impose conditions and restrictions on the property designed to guide its redevelopment, and inevitably depress its cost as compared to unrestricted real estate.

Property that was directly acquired by the municipality without using the NCURL does not require conveyance by competitive bidding.  Instead, the municipality can bargain directly with a private party to sell the property at an agreed-upon price. 

There are procedural limits on the negotiation (required notice and hearings, the requirement that the property not be sold below its appraised value, etc.) but the Act allows a private developer the chance to work directly with a municipality without an auction or bid process.

Benefits of Investment Using Downtown Development Projects


The special property conveyance mechanics allowed by Downtown Development Projects make them unique opportunities for properly positioned developers. 

Avoiding the competitive bidding process of traditional public property dispositions can allow developers involved in Downtown Development Projects to gain an advantage over similar projects conducted within the traditional framework. 

Navigating the negotiation and execution of these public-private arrangements can be complex and challenging, but working with an experienced attorney can help.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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