All Forum Posts by: Michael Frost

Development ground lease.  Provisions in the docs for entitlements.  Conceptually lessee is not paying anything until approval.

Hello all-

Generally speaking, (for vacant land) will the appropriate capitalization of the net ground lease payments always be greater than a typical/comparative fee simple transaction?

We have a scenario in my town  (I happen to be a council member), where we are evaluating an entitlement change for a vacant piece of land with a signed ground lease.  It is important for me to understand the value value being created by our potential up-zone.

Considering we have a copy of the ground lease, triple net with per unit payments, I thought the analysis to be pretty straightforward.  Choose a cap rate and present value pretty easy (I thought).  Subsequently, we have had appraisers provide market based appraisals.  

The differences in value between the two is so vast I couldn't believe it.  Not cap rates, not differences in timing.  etc. 

Can someone provide some guidance on if this?  Perhaps just a different return required on land acquisition between "lessee" and "lessor"?  

thanks 

Sorry - one last item. I am currently building a 1200 square ft detached ADU. (3 beds 2 bath). In order to reduce fees, I did identify the structure as 749 sq. ft. ADU, plus an addition of 450 sq. ft. to the existing structure. (I do have a 1 hr firewall)

Under this scenario- I paid no development impact fees- and I paid school fees on 749 square ft.  I probably saved about 8k.

I see your point now. Reclassifying as an "addition" shouldn't matter, considering it states "new construction". Although- I do believe an "ADU" is technically a new residential "use" - The issue with flipping to an "addition" would be that it is not a new "Use".

I am splitting hairs here- but I think that is what they are hanging their hat on.

FYI - In Dana Point we would not charge School Fees on any addition less than 500 square ft.

For the record- I agree with you that LBSD charging you is ridiculous.   Here is what i found on the LBSD website for the fees-

Its been a while since i have dived into this.  But I was mistaken.  The 500 square ft. requirement is in the Education code section 1760.    (a)(C)(i)

Assuming you simply were building an "addition" as long as the net add is less than 500 square ft- it would not apply.

Capistrano Unified School District (South Orange County)

John-   

Long story short. (assuming you meet development standards). I believe building anything less than 500 square ft- you will save money if you can define the project as an "addition" vs. an "ADU". Now, you may be taking advantage of the ADU code for other components- but if a project is under 500 square ft, there are no fee savings........

As for fees-  

You are exactly correct. The HCD clearly identifies any ADU project under 500 square ft. as not applicable for School fees. (BTW- I think new HCD booklet is really good)

Although- my guess is this- the 2020 ADU legislation actually says, "Local Agencies" and 'Special Districts" cannot charge fees. Unfortunately, within the fee section (66000) of government code, a "school district" is determined to not be a "Local Agency" or "Special District". So school districts are leveraging that discrepancy in order to continue to apply fees.

So why did HCD write that fees are not applicable for project under 500 square  ft?   (That notion is not contained within any of the new legislation)   Most likely, HCD is referencing the standard fee section of the government code- and it does state that a owner can add up to 500 square ft to their property and not pay "school fees".

So- you can see the problem here. Simply do an addition to a house of under 500 square ft. no school fees. But do that same project defined as an "ADU"- school districts now apply the fee.

Assuming, you have the flexibility to define your project as an "addition", and still accomplish your goals- you would be exempt from school fees, developer fees, sprinklers are still off the table etc....

@Chad New -  I am in TCA territory also.  Up on their website they acknowledge no impact fees.   If this website allowed attachments i would attach.

@Steven Weiss- agreed. I actually just got approved an 1149 square ft product. 749 ADU and 400 square ft. additional living quarters (for the main house). As soon as city inspections done- I have a door going in.