No. 32932 (Amendment): Rule R850-140. Development Property

(Amendment)

DAR File No.: 32932
Filed: 09/01/2009 05:44:50 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The proposed changes are being made to this rule in order to incorporate various provisions contained in Board Policy 2008-01, enacted following suggestions made to the agency in a legislative audit.

Summary of the rule or change:

Definitions for "Joint Venture," "Other Business Arrangement," and "Supporting Transactions" were added in Section R850-140-250. Clarification is being made to the process of designating property for development purposes in Section R850-140-300. Section R850-140-350 is a new section on planning. Section R850-140-400 outlines General Provisions for processing Development Transactions and removes outdated procedures. Sections R850-140-500 and R850-140-600 are new sections that outline the processes for approval of "Minor" and "Major" Development Transactions, respectively. Section R850-140-800 is a new section added to address the issues of "Supporting Transactions" and Section R850-140-900 is new to address situations where a need exists to deviate from the transaction approval processes set forth in rule. Changes to Section R850-140-1000 are for clarification purposes. In order to accommodate these changes, many of the sections have been renumbered.

State statutory or constitutional authorization for this rule:

• Section 53C-2-201
• Subsection 53C-4-101(1)
• Section 53C-4-103

Anticipated cost or savings to:

the state budget:

There is no anticipated cost or savings to the state budget as a result of this rule amendment. The changes are largely for clarification purposes and greater structure of existing processes.

local governments:

There is no anticipated cost or savings to local government as a result of this rule amendment. The changes address more of the internal agency actions and procedures rather than changes to compliance issues directed at those with whom we do business.

small businesses:

It is not anticipated that there will be any additional cost or savings to small businesses because of these rule amendments. The requirements that must be met by any business desiring to enter into a development transaction with the agency have not been changed.

persons other than small businesses, businesses, or local governmental entities:

There is no anticipated cost or savings to persons other than small businesses, businesses, or local government entities as a result of the amendments to this rule. The amendments are directed at giving greater guidance and clarification to agency staff in processing development transactions.

Compliance costs for affected persons:

It is not anticipated that there will be any costs for compliance for affected persons. The requirements have not been modified; only the manner in which the agency performs existing processes.

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule modification provides a more detailed definition of terms, and imposes upon the Administration a greater due-diligence obligation prior to presenting proposals for real estate transactions to the Board of Trustees. Consequently, the impact will primarily be upon the Administration rather than upon business. The greater degree of evaluation prior to entering into transactions may require prospective partners (businesses) to provide more detailed information, but it is not anticipated that the additional information will be in excess of what would be required for any private transaction.

Kevin S. Carter, Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

School and Institutional Trust Lands
Administration
675 E 500 S
SALT LAKE CITY, UT 84102-2818

Direct questions regarding this rule to:

• John Andrews at the above address, by phone at 801-538-5180, by FAX at 801-538-5118, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

10/15/2009

This rule may become effective on:

10/22/2009

Authorized by:

Kevin Carter, Director

RULE TEXT

R850. School and Institutional Trust Lands, Administration.

R850-140. Development Property.

R850-140-200. Purpose of Development Property Rules.

This rule permits the agency to designate trust land as development property and thereby[(i)]

1. subject agency activities in connection with such properties to this rule; and[(ii)]

2. exempt agency activities in connection with such properties from the rules listed in R850-140-[600]1000.

R850-140-250. Definitions.

For the purposes of this rule:

1. Development [p]Property: a parcel of trust land that has been designated a development property pursuant to the director's determination that the parcel meets the criteria established in R850-140-300(1).

2. Development [t]Transaction: a transaction entered into by the agency for the purpose of generating financial returns to the trust [on]from real estate development of a particular development property. Development transactions include sales, exchanges, ground leases, development leases, build-to-suit leases, joint ventures, and [o]Other [b]Business [a]Arrangements with respect to development properties.

3. Joint Venture: a transaction in which the agency contributes trust assets to a joint undertaking in which such assets may be subject to risk of loss, including without limitation a transaction in which the agency becomes a member of a limited liability company in exchange for the commitment of trust assets.

4. Other Business Arrangement: a transaction other than a joint venture which involves similar risk of loss of trust assets as a joint venture and which involves material reliance on the economic performance of a third party or other contingent events to generate expected returns. The non-subordinated lease of trust property for development purposes, with the trust's returns based upon a percentage of final property sales, is not an Other Business Arrangement.

5. Supporting Transaction: a transaction entered into by the agency for the purpose of preparing for or supporting real estate development on trust lands, but not directly conveying trust lands for real estate development purposes. Supporting transactions include without limitation: exchange, acquisition or conveyance of lands for assemblage or configuration of development projects; agreements with local government entities with respect to development entitlements and provision of infrastructure; rights-of-entry, dedications and easements for development improvements and amenities on trust lands; and leasing or conveyance of trust lands for necessary development infrastructure and amenities.

R850-140-300. Designation of Development Property.

1. The director may designate a property as a development property upon the director's determination that the following criteria are met:

(a) The property is located in or near [to either a high growth or]an urban area of the State or, in more rural [settings]locations, the property is of a character suitable for current or future commercial, industrial, resort, residential or other real estate development activities; [and]or

(b) The agency has received inquiry from private parties concerning the potential for development of the property or the agency, after preliminary analysis, has determined that the probable highest and best use for the property is for development purposes[; and].

[(c) The agency believes that it is timely and in the best interests of the trust to consider a development transaction involving the property.

]2. The director shall maintain a [listing]database of each property designated as a development property. [The listing shall be available to the public and shall include the date of designation, together with a written finding designating the property to be a development property.]The director may remove property from development designation in his discretion as deemed appropriate for the best interests of the trust beneficiaries.[If the agency fails to achieve a transaction involving a property designated as development property within a period of three (3) years following such property's designation, the property shall cease to be a development property and shall be removed from the development listing. Properties may be redesignated as a development property at a later time if the director finds it to be in the best interests of the trust.]

R850-140-350. Planning.

1. Prior to designating a property as a development property, the agency shall submit the proposed designation to the Resource Development Coordinating Committee (RDCC), and evaluate and respond to comments received through the RDCC process. Participation in the RDCC process shall constitute compliance with Subsection 53C-2-201(1).

2. If the agency chooses to participate in local government planning and entitlement processes, such participation constitutes an additional degree of planning supplemental to the RDCC process, but is not required under Subsection 53C-2-201(1).

R850-140-400. Development [ Property ]Transactions - General Provisions .

1. Subject to the board notice and approval provisions contained in R850-140-500 and R850-140-600, [T]the agency may solicit and reject proposals, make offers, counter offers and otherwise negotiate freely with interested parties in its efforts to arrange development transactions that are in the best interests of the trust. Development transactions will be structured according to the circumstances of the market and the attributes of the particular development property.

2. Prior to entering a development transaction, the agency shall initiate an appropriate advertising program designed to effectively solicit interested parties. Advertising may be implemented through print media, internet, signage, direct mail or other appropriate marketing methods.

3. In [undertaking such efforts,]negotiating development transactions, the agency shall [consider]undertake appropriate due diligence with respect to the proposed transaction, including consideration of the following criteria[with regard to a proposed development transaction]:

(a) The ownership, character, reputation, financial status, credit and litigation history and prior real estate development experience of the party with whom the development transaction is proposed.

(b) The financial attributes of the proposed development transaction.

(c) The legal structure of the proposed development transaction.

(d) The potential effects of the proposed development transaction upon nearby trust lands[.]; and

(e) Whether the proposed transaction will bring the highest long-term return to the trust compared to other reasonably foreseeable alternatives.

4. Development transactions shall result in the trust receiving not less than fair market value for the sale, use or exchange of the development property in question.

5. The purchase, sale or exchange of land in connection with a development transaction shall be supported by either an appraisal or a detailed internal analysis of value.[

2. At such time as the agency determines that it is appropriate to seek a development transaction, the agency shall initiate an advertising program designed to effectively solicit interested parties. Advertising may be implemented through print media, signage, direct mail or other appropriate marketing methods.

3. After the agency has identified an interested party with whom to seek a development transaction and negotiated core business terms with the interested party, the director will deliver a summary description of the proposed development transaction to the board.

4. Prior to completing a development transaction, the agency shall conduct a financial analysis of the transaction. The financial analysis shall examine whether the development transaction provides for the return to the trust of at least fair market value for the sale, use or exchange of the property in question. Analysis of fair market value shall be based upon market research, staff experience or outside appraisals, or a combination of these factors as the agency determines necessary based on the particular circumstances of each development transaction.

5. Upon completion of the requirements set forth in R850-140-400(1)-(4), a development transaction shall be presented to the director or the board, as required by law, for final approval. The board or the director, as appropriate, may approve or reject a proposed transaction consistent with their fiduciary obligations.]

6. Formal contract documentation of any development transaction shall be subject to approval by a representative of the attorney general's office. [The]No party [with whom the trust is negotiating]to a proposed development transaction shall have [no]any vested rights in [and to the development property in question]the transaction until the formal contract documents have been approved by the agency representative of the attorney general's office, approved by the board [as appropriate,]if required by rule or statute, approved and executed by the director , and delivered.[

7. If, as a result of a development transaction, a property is improved and/or subdivided, such property shall be conveyed or leased for consideration no less than the fair market value of such property as improved and subdivided. The consideration resulting from the transaction on such improved and/or subdivided property shall be allocated between the trust and the developing entity as provided for in the development transaction.]

R850-140-500. Development Transactions -- Approval of Minor Development Transactions.

1. For purposes of this rule, a minor development transaction is a proposed development transaction that:

(a) involves a projected commitment of trust lands or assets of less than $5 million; or

(b) if the proposed development transaction is a joint venture or Other Business Arrangement, involves a projected commitment of trust lands or assets of less than $2 million.

2. The agency shall provide the board with the following information with respect to a proposed minor development transaction:

(a) a description of the parties to and terms of the proposed transaction;

(b) an economic analysis of the proposed transaction;

(c) a description of the competitive/advertising process used in soliciting offers for the transaction;

(d) a declaration of staff conflicts of interest, if any;

(e) if the transaction will involve the subordination of trust assets in connection with a joint venture or Other Business Arrangement, a description of the assets and an analysis of relevant risks to those assets; and

(f) other relevant information derived from the agency's due diligence activities.

3. The board must approve any proposed minor development transaction that is a joint venture or Other Business Arrangement in accordance with Subsection 53C-1-303(4)(e).

4. The director may approve any proposed minor development transaction that is not a joint venture or Other Business Arrangement after compliance with R850-140-500(2).

5. The board or director, as appropriate, may approve, conditionally approve, or reject any proposed minor development transaction consistent with their fiduciary obligations.

R850-140-600. Development Transactions -- Approval of Major Development Transactions.

1. For purposes of this rule, a major development transaction is a proposed development transaction that:

(a) involves a projected commitment of trust lands or assets of $5 million or more; or

(b) involves a projected commitment of trust lands or assets of $2 million or more if the proposed development transaction is a joint venture or Other Business Arrangement.

2. Prior to entering negotiations for a major development transaction, the agency shall provide the board with the following information:

(a) relevant information concerning the property and the financial aspects of a possible transaction, including:

(i) property value;

(ii) financial goals for a proposed transaction;

(iii) timeliness of a proposed transaction; and

(iv) type of transaction contemplated;

(b) a summary of the anticipated competitive process and advertising program to be utilized in soliciting proposals; and

(c) other information requested by the board to assist it in evaluating the proposed transaction.

3. Prior to seeking final board approval of a major development transaction, the agency shall provide the board with the following information:

(a) a statement of the key terms of the transaction;

(b) the results of the agency's due diligence activities under R850-140-400(3)(a);

(c) a projected financial pro forma for the transaction;

(d) the results of the competitive process and advertising process utilized to select the proposed transaction; and

(e) a declaration of staff conflicts of interest, if any;

(f) a description of legal risks assumed by the trust;

(g) an analysis of the financial strength and commitment of the parties to the transaction; and

(h) if the transactions will involve the subordination of trust assets in connection with a joint venture or Other Business Arrangement, a description of the assets and an analysis of relevant risks to those assets.

4. The board must approve any proposed major development transaction prior to the director's execution of the transaction.

5. The board or director, as appropriate, may approve, conditionally approve, or reject proposed major development transactions consistent with their fiduciary obligations.

R850-140-[ 500 ] 700 . Amendments to Development Transactions.

[When promoting, negotiating, approving and documenting amendments to a development transaction, the agency shall adhere to the following conditions:]1. The agency may amend development transactions subject to the conditions contained in Subsections R850-140-700(2) through(4).

[(a)]2. No amendment to a development transaction shall [be entered into which ]result[s] in the trust receiving less than fair market value for the sale, use or exchange of the property in question.[

(b) In connection with any amendment that materially modifies the financial terms of a development transaction,]

3. [t]The director shall deliver a summary description of the terms of [the ]proposed material amendment s to minor or major development transactions to the [members of the ]board with sufficient detail to permit the board to review the proposed amendment consistent with its statutory duties.

[(c) Upon completion of the requirements set forth in paragraph (b) above, the proposed amendment shall be presented to the director for final approval. Amendments to joint ventures and other business arrangements shall require approval by the board. The board or the director as appropriate may approve or reject a proposed amendment to a development transaction consistent with their fiduciary obligations.]4. All amendments that will materially modify the financial terms of a joint venture, Other Business Arrangement, or major development transaction must be approved by the board.[

(d) Formal contract documentation of any amendment to a development transaction shall be subject to approval by a representative of the attorney general's office. The party with whom the trust is negotiating the amendment shall have no vested rights in and to the terms of the proposed amendment until the formal contract documents are approved by the representative of the attorney general's office, approved by the board as appropriate, executed by the director, and delivered.]

R850-140-800. Supporting Transactions.

1. The agency may enter into supporting transactions as necessary to promote prudent and profitable development of trust lands designated as development properties.

2. The purchase, sale or exchange of land in connection with a supporting transaction shall be supported by either an appraisal or a detailed internal analysis of value.

3. The board must approve any proposed supporting transaction that involves the purchase, sale or exchange of land having a value in excess of $500,000.00.

R850-140-900. Deviation from Rules.

In situations where the board determines that an economic opportunity favorable to the trust beneficiaries may otherwise be lost, or other good cause exists that is in furtherance of the statutory obligations of the board, the board may authorize the agency to deviate from the transactional approval processes set forth in this rule, so long as the board and agency's actions are otherwise in compliance with law.

R850-140-[ 600 ] 1000 . Exemption From Rules.

The agency, in connection with its activities in [promoting, negotiating, approving and documenting development transactions,]managing and conveying development property, shall be subject to all rules [and board policies ]applicable to the agency, except the following, which shall not be applicable:

(a) [Rule 850-3. Applicant Qualifications and Application Forms.]R850-3-300. Application Forms.

(b) R850-3-400. Application Processing.

(c) [Rule ] R850-4. Application Fees and Assessments.[

(c) Rule 850-5. Payments, Royalties, Audits and Assessments.]

(d) [Rule ] R850-30. Special Use Leases.

(e) [Rule ] R850-40. Easements.

(f) R850-41. Rights-of-Entry.

(g) [Rule ] R850-80. Sale of Trust Lands. (Except R850-80-250.)[

(g) Rule 850-81. Right of Noncompetitive Purchase.]

(h) [Rule 850-82. Preference Right Sales.

(i) Rule ] R850-90. Land Exchanges.

KEY: development, land sale, real estate

Date of Enactment or Last Substantive Amendment: [September 16, 1996]October 22, 2009

Notice of Continuation: September 14, 2006

Authorizing, and Implemented or Interpreted Law: 53C-2-201; 53C-4-101(1); 53C-4-103

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