Property rights litigation: Challenges, risks and financial settlement in the case of the Thompson Valley Towne Center

Journal of Real Estate Practice and Education, 2002 by Holsapple, Eric, James, Bruce A, Worzala, Elaine M

The bankruptcy court approved the contract of sale in June of 1997, but gave each co-owner the right of first refusal to purchase the property on the same terms and conditions contained in the development contract ($1,000,000), provided they closed prior to the developers. As typical for a development contract, the closing was contingent on the property being annexed to the City of Loveland and zoned for development. If one of the co-owners decided to exercise his/her right to purchase the property prior to the developers' closing, the developers would lose their predevelopment investment and any increase in the value of the site created by the entitlement process. This added significant risk as the developers estimated the entitlement process would take 9-18 months and cost an additional $200,000 in out of pocket expenses. Although none of the co-owners were believed to have the financial capability or the experience to develop the site, nothing would prevent a coowner from selling his/her right of first refusal to another experienced developer. Therefore, the developers and trustee went back to the judge for contract clarification, but did not gain any additional comfort. The developers had to decide quickly whether to continue with the purchase and its associated risks or to drop the contract. Due more to entrepreneurial instinct than to analysis of financial ratios, the developers opted to commit the additional funding ($100,000) required to gain the planning approvals.

The majority of the property linkages for the subject site were positive. Located between Thompson Valley High School and the Loveland Hewlett Packard Campus (now Agilent Technologies), the property had a fully developed residential subdivision bordering the north and west sides. Transportation linkages included a four-lane arterial (South Taft Avenue) bordering the east side and 14th Street SW bordering the south side of the property. Although 14th Street SW was generally a four-lane thoroughfare, the street was limited to a two-lane section adjacent to the property. As part of the zoning approval, the City of Loveland required the developers to improve the road to four lanes, although the city agreed to participate in the cost of the improvements. The cost of widening 14th Street SW was estimated at $2,000,000 and the developers' portion of the improvement was estimated to be $800,000.

An 8-acre gulch and irrigation ditch owned by Hewlett Packard was located at the southeast comer of the site. To make the project work, the developers needed to negotiate access easements and a view easement to ensure that no buildings would be constructed that could block visibility of the tenants in the shopping center. Additionally, to obtain adequate access for the neighborhood shopping center, one of Hewlett Packard's current accesses to Taft Avenue would have to be relocated. A comprehensive agreement that included access relocation, a view easement and other critical easements was negotiated with Hewlett Packard and resulted in an additional $600,000 in off-site costs to be covered by the developers.