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Investors in Northbrook complex say Ridgeland targeting its own collateral for demolition

realestateInvestors who bought $7.9 million in bonds the City of Ridgeland issued to fix up the Northbrook apartment complex say they face the prospect Ridgeland will force demolition of the very buildings the City used to secure the debt.

The investors, CAP IV Ridgeland LLC, hope a pledge they say the City made not to interfere with the bond’s collateral will save the 180-unit subsidized-rent complex from demolition. They have sued in federal court to enforce the pledge they claim the City made.

Just what the bond agreement specified and the sorts of pledges included in it are disputed throughout the suit and in Ridgeland’s response to it. Ridgeland’s specially hired land-use lawyer, Kelly Simpkins of Wells Marble & Hurst, denies nearly all claims made by Frye other than acknowledging Ridgeland issued the bonds in 1999.

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Addressing the purported pledge not to interfere with Northbrook as collateral for the loan, Simpkins insisted: “Ridgeland has not impaired any obligation under contract.”

All the contracts, he said, “contain an implied term that they are subject to a reasonable exercise of Ridgeland’s police power, including the adoption and modification of zoning ordinances.”

The Northbrook complex on Pine Knoll Drive is among more than a dozen rental complexes caught in the cross-hairs of Ridgeland’s effort to limit the building densities of multi-family rental housing and to rezone many of the properties to mixed-use, a designation that allows commercial, office and residential.

With last February’s passage of the new zoning law, the first for the city since 1999, Ridgeland designated the complexes nonconforming uses and declared they have no vested right to remain nonconforming. The new law established a classification system for the nonconforming uses and set demolition schedules for each classification. It sets demolition of rental properties in the lowest category — Class C Nonconforming — for this February, though Ridgeland Development Director Alan Hart said Monday he thinks only a small number of Class C properties exist and noted no actual demolitions have been ordered.

Beyond the Class C are Class B Nonconformity, Administrative Class A Nonconformity and Categorical Class A Nonconformity. Winning a Class A designation offers the fullest protection against forced demolition.

The zoning law mandates that nonconformities “cease any use, condition, operation, or occupancy that makes it a nonconformity.”

That wording could be a death sentence for Northbrook, according to CAP IV attorney W. Davis Frye of Baker Donelson.

“In short, the City has taken official action that will force Northbrook out of business and preclude it from continuing as a going concern,” Frye said in CAP IV’s filing in the U.S. District Court Southern District of Mississippi Northern Division.

Watkins Eager real estate attorney Ben Williams has become familiar with the new classification system through his firm’s so-far unsuccessful efforts to gain a Class A designation for The Gables rental complex.

Class B doesn’t provide the protection of Class A, but nor does it bring the likelihood of full demolition that Class C brings, according to Williams.

“Apartments receiving a ‘Class B’ classification would have to be partially torn down over some time period determined by a complex formula that isn’t easy to follow,” Williams said in a recent interview.

Outside of legal filings, Ridgeland officials and their attorney Simpkins are not commenting on the zoning law and its effect on rental complexes. Baker Donelson’s Frye has not responded to requests for comment.

In its claim for financial damages and injunctive relief,  CAP IV said Ridgeland issued the Urban Renewal Multifamily Housing Revenue Bonds in 1999 to fund the acquisition and renovation of the complex by Mississippi nonprofit AOF/Northbrook Affordable Housing Corp.

Northbrook went up in two phases in 1978 and 1980 and has served as housing for low-and-moderate income families ever since.

CAP IV bought the bonds in 2005 and 2006, owning $7.9 million of the $8 million issued. The bonds are secured solely by Northbrook and the revenue from the operation of Northbrook, according to the CAP IV suit.

The suit says a tax agreement that went with the bond sale specified the City’s long-term commitment to Northbrook as low-and-moderate income housing. Further, according to the suit, the tax agreement declared its “understanding and intent” that Northbrook would be “owned, managed and operated” as a subsidized rental property, for so long as any portion of the bonds remains outstanding and unpaid.

Ridgeland also agreed to a covenant that it would not “knowingly take or permit (to the extent within its control) any action that would adversely affect” Northbrook’s status as a complex for low-and-moderate income residents, the suit says.

Responding, Ridgeland’s Simpkins faulted CAP IV’s suit for not providing section, paragraph or page numbers or the “context” of promises made in the tax agreement.

Northbrook came into the city as part of a 1981 annexation that gave the complex a multi-family zoning classification. However, subsequent zoning law changes before 1999 designated the complex a nonconforming use for not meeting density and parking requirements.

Northbrook has 12.78 units an acre, while the City set a limit of 10 units an acre. But in issuing the bonds, Ridgeland specified Northbrook would not need a zoning change, according to the CAP IV suit.

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