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Assurances-Lowering the Requirements

One of the most frequently asked questions by the development community to the City is: “What kind of guarantee do I need to assure the project improvements?” Most City ordinances require either a bond for the value of the said project improvements or a letter of credit from a financial institution. The question is “How do I lower the municipal requirements and the burden on the developer and the project?” In this economy lending institutions are not typically lending money for improvements, so how does a developer move forward with a project and meet the necessary requirements?

Let’s look at an example:

A property owner has just had his engineer complete construction drawings and has the construction estimates approved by the Municipal or County entity. The developer has tried getting financing or a letter of credit from a series of financial institutions but cannot get what is needed.  The question he then asks is “If the Municipal or County entity needs an assurance that I am going to build the infrastructure why don’t I work with them to provide an alternative?” What alternative(s) might be available?

One potential alternative that has become popular due to the lack of financial institution participation is the Third Party Trust Agreement. The basic concept behind this alternative is that upon approval of the final plat the government entity puts the approved lots into a 3rd party trust. These lots remain in the Trust and are not released to any entity until the developer/homebuilder/owner has had the infrastructure constructed  and approved by the Municipal or County entity, at which time the lots are released and ready for home construction.

It must be noted that an amendment of the agreement is not always going to be approved by either staff or the City Council or County Commission, but if the new owner can still show a win-win for both the municipal or county entity and the owner. It is likely the City (or County) will work with the new owner to create some type of relief as to what form that will take that will be up to the Parties.

For further information call (602)-330-8470 Gary Lane, AICP at LBG Development we have “unmatched experience in every facet of development.”  Or write your questions and comments to info@lbgdevelopment.com.

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