As the Southern Nevada commercial real estate industry continues to emerge from the Great Recession, with that comes new legal challenges for real estate developers. Mothballed projects are being sold and new owners are inheriting projects designed in a different economic environment. Recent changes in the law will affect how dormant projects are redeveloped.
Real estate development includes a variety of entitlements, which lapse if projects are abandoned or extensions are not obtained. Many development entitlements were not maintained when developers abandoned projects and lenders foreclosed during the Great Recession. Off-site improvements were commenced and abandoned or never started. In many instances, these improvements remain outstanding obligations that will need to be completed by future developers. As successor developers acquire already entitled land, it is imperative that they understand the existing entitlements and whether lapsed entitlements can be renewed. Extensions often include new conditions consistent with current requirements and standards, which can be time-consuming and costly.
Alternatively, redesigning a dormant project can be challenging depending on the current state of construction, size or originally intended use of the project.
The passage of Senate Bill 66 last year revised Chapter 278 of the Nevada Revised Statutes governing development agreements. The changes intend to make it easier for local municipalities to amend or terminate existing development agreements.
The passage of Assembly Bill 125 reformed Chapter 40 of the Nevada Revised Statutes and substantially altered future construction defect litigation. Among other significant changes, homeowners associations are no longer permitted to bring construction defect claims on behalf of all owners, other than for defects to common areas. This change in the law may make condominiums and residential-commercial mixed-use projects more viable in the future.
Late in the real estate boom, several condominium projects were designed but many were shelved or constructed and operated as multi-family complexes. As the market shifts, developers may look to convert such complexes back to condominiums. If the complex was designed and entitled as a condominium, successor developers may not need to obtain approval of new condominium maps. Additionally, units previously rented to tenants that are then sold to condominium buyers, in some instances, may not be classified as a new residence under Nevada law, thereby potentially limiting a developer’s construction-defect liability.
The revitalization of dormant projects in Southern Nevada presents unique challenges and benefits to real estate developers, but is essential to the continued growth of the commercial real estate market in Southern Nevada.
Rebecca Miltenberger and Alisa Nave-Worth are attorneys at Brownstein Hyatt Farber Schreck.