OC developers switch condos to fee simple in sluggish economy

OC developers switch condos to fee simple in sluggish economy

ZACK HOOPES ¦ Staff Writer


Preliminary layouts for new cross-streets can be seen at the future site of the Broad Marsh townhouse development. Originally conceived as a condo project, the city’s Planning and Zoning Commission has given tentative approval for the site to be tweaked into a fee-simple subdivision. 
OCEAN CITY TODAY/ZACK HOOPES Preliminary layouts for new cross-streets can be seen at the future site of the Broad Marsh townhouse development. Originally conceived as a condo project, the city’s Planning and Zoning Commission has given tentative approval for the site to be tweaked into a fee-simple subdivision.OCEAN CITY TODAY/ZACK HOOPES(Nov. 30, 2012) Now that the first few, scant glimmers of economic recovery are poking through the clouds, the state of Ocean City’s real estate development has become akin to a George Romero zombie flick — old projects remain alive, sort of.

With so many resort developers’ plans put on hold following the 2008 recession, the city’s Planning and Zoning Commission now frequently oversees not the creation, but the re-animation, of land use proposals that have been moribund over the past five years.

And when those plans do come back from the dead, local developers often have to find new ways of adapting them to a far more restrictive lending market, leading to decisions that would have sounded counter-intuitive during the heyday of the mid-2000s.

“The reason that we cannot continue with the condo project is because of Fannie May’s requirements … [they] are so onerous that people will not finance this condo in the configuration that it’s in,” local attorney Joe Moore told the commission last Tuesday in regards to the Broad Marsh housing development, located on the bayside of 69th and 70th Streets.

Moore is representing the owners of the project in their desire to reconfigure the unfinished portion of the original 2007 project, which currently has only 12 of the proposed 71 units built, from a condominium project into a structurally identical project that would instead offer fully individualized, fee-simple units.

The condominium setup is generally thought to be more attractive to buyers, especially in a vacation setting, where the collectivization of maintenance and operational costs is particularly desirable. But this also means that condos, as a development investment, either make or lose money as a whole, creating a much greater risk when it comes to lending.

For many projects in Ocean City, “fee simple does work better in that respect,” said city Zoning Administrator R. Blaine Smith.

In the case of Broad Marsh, the conversion from condos to fee simple homes would be fairly painless. Since the layout of the project already consisted of row houses, there would be no issues with units that were sitting atop others and essentially landless.

“All we’ll be selling are fee simple titles to the land and the structure above it,” Moore said.

Fee simple structures must also have individual water and sewer connections, whereas condos may have one connection serving multiple units, but this reconfiguration will not be difficult.

The major topic of discussion with regards to the change, then, was the fact that fee simple homes are required to be on a lot with street frontage. Under the Broad Marsh plan, each row house will face a street, but these are streets being put in by the developer, not public ways, and are thus not technically “streets.”

“To do fee simple, it would require a variance to our lot requirements,” Smith said. “Many of these are technically interior units.”

Such roadways could be taken over by the city after the developer builds them, as was done in large subdivisions such as Caine Woods and Montego Bay, but the city may have no current interest in doing so. The city could, however, claim a rightof way for utilities while still leaving the streets in private hands.

“It would not put a burden on the city as far as maintenance of those ways,” Smith said. “My opinion is that they would probably not be deeded to the city.”

“Everything that we would’ve had in the condo, we will have here,” Moore said. “If the city wants easements on these crossings, we would maintain them [privately].”

In order to move forward with the project, Moore said he would be seeking “the most technical of variances” from the city’s Board of Zoning appeals — an exemption from the street frontage requirement — even though the lots were, in fact, street-adjacent, just adjacent to streets that the “city doesn’t want.”

Before doing so, however, he sought to have the Planning and Zoning Commission confirm that it would likely approve the final subdivision plan after the variance was obtained. If not, there would be no point in going before the BZA.

The commission’s concerns centered mainly around the sticky idea of having non-public public ways, particularly in regards to the inability of the city to come in for trash collection and other services.

“When people buy property in a community, they expect a certain standard of amenities,” said Commission Chair Pam Buckley. “Having one pocket in our town [of private service] would be a much different notion, in my opinion.”

The commission also questioned if fee simple sales would give owners the latitude to expand their properties outside of the original design, potentially create a bizarre mish-mash of buildings. Smith cited a number of locations on the island where that has happened, such as the oceanfront row houses on 25th Street where one unit was rebuilt several stories taller than the others.

“That was somewhat of an ill-subdivision, if you want to call it that,” Smith said.

A homeowner’s association agreement would restrict such expansion, Moore said.

With preliminary approval from the commission, the project will now go before the BZA on Dec. 13 and, if the street-front variance is approved, will come back before the commission for final approval of a subdivision.

“We’re not giving anything away tonight, really,” Smith said.

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