With development pressure off, townships and open spacers flex their dollars

The balance of power has shifted, at least temporarily

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When DeLuca Homes bought 215 acres of farmland in central Bucks County, Pennsylvania, in the late 1990s, it drew up plans for Estates at Sugarmill and Victoria Park, two high-end subdivisions where homes would likely have sold for $600,000 to well over $1 million.

Buckingham Township, where the projects were to be located, was experiencing a growth spurt that more than doubled its population to 19,000 from 1990 to 2007. It didn’t matter that neighbors opposed developing the farmland or that DeLuca faced stiff approval obstacles with the township. The developer pushed forward.

Then the national residential housing market crashed, taking with it DeLuca’s plans. By 2002, the white-hot residential housing market in Bucks County had begun to cool off. In 2007, proposed residential development fell to less than one-third of what was proposed in the peak year of 2001 and it continued to decline in 2008.

Once a sure thing, Sugarmill and Victoria Park turned into drags on DeLuca’s balance sheet. Dirt was never turned. And like many developers across the country who were left holding land after the crash, DeLuca tried to cut its losses.

In March, DeLuca enlisted an unlikely suitor when Buckingham Township paid $5 million for a conservation easement on 200 acres of the land. The easement, paid for with money from the township open space program, limits development on the land, in theory, forever DeLuca still owns the land, but the easement is supposed to guarantee that it will remain farmland regardless of who might eventually buy the property.

The Buckingham Township deal is a win for open-space advocates in a fight that is being repeated across the country. As developers struggle to avoid bankruptcy, municipalities and land conservancies, often working together, are buying up land and easements in the real estate fire sale. Coming up with the cash isn’t easy for strapped municipalities in these tough economic times, but some had dedicated cash for these purposes when times were better, and some of the opportunities seem too good to pass up. The power struggle between developers and slow-growth proponents has shifted, in many cases giving environmentalists the upper hand, at least for now.

“You only get this chance once in a lifetime,” said Judy Schwank, president of 10,000 Friends of Pennsylvania, a nonprofit organization that works to preserve rural open land.

The Buckingham Township purchase blocked development of 85 to 105 homes, said Henry Rowan, a township supervisor and strong supporter of open-space initiatives.

“Absolutely it’s a win, but it’s not a cheap win,” Rowan said, adding that the township paid the developer more than the easement would have cost if the land had not been approved for residential development.

DeLuca has not spoken publically about why it abandoned the projects. Vince DeLuca, the company’s president, did not respond to requests for comment. But several people close to the sale say the downturn in the housing market was the strongest factor.

Townships in other states are also posting open-space wins. In December, Clinton Township in western New Jersey closed a deal to pay $7 million to Pulte Homes for 292 acres that the developer paid $13.6 million for in the late 1990s.

The land had been at the center of a long-running land use battle. Pulte had planned to build as many as 1,000 townhouses and semi-attached houses, which township council president Kevin Cimei said would have increased the township’s population by 30 percent. The proposed construction has been tied up in the courts since Pulte sued the township for blocking the project. Cimei said the township will conserve 260 acres of the land, which includes a high-quality stream and is near an aquifer, and use the remainder for affordable housing. It will use a mixture of township, county, and state open-space funds for the purchase.

As part of the deal, Pulte stipulated that it had to be completed before the end of 2008 — the deadline for the developer to qualify for a federal tax break; the drop in the land’s value would increase the company’s net operating loss for 2008, enabling them to apply for a cash refund against taxes it paid on 2006 profits.

Tax law allows companies to carry back operating losses for two years. Congress and the incoming Obama administration may extend that to five years as part of their economic stimulus package. Pulte, like many other development companies, took advantage of the law to drum up much-needed cash in the housing downturn.

“For us it seems like a very logical move that benefits both the town and the developer,” said Paul Schneier, a regional division president of Pulte Homes.

With developers looking to take advantage of tax write-offs, cut-rate land deals are likely to increase, said Steven Friedman, national director of homebuilder services at Ernst and Young. Friedman said he wouldn’t be surprised if some developers simply begin deeding land over to townships. “It’s a question of what are the carrying costs,” he said.

In addition to federal tax savings, developers and other land owners usually gain state tax savings from selling conservations easements. In Virginia and Colorado, the write-off value can be sold on the open market, making it a particularly profitable move for landowners who need cash.

State open-space programs may also be benefiting from the stagnation of land sales to developers. Despite an estimated $1.9 billion budget shortfall, Maryland in December announced plans to spend $72 million for more than 9,200 acres of land to be preserved as parks and open space. Although the land was not slated for development, the purchase includes the largest privately owned forest in the state.

In many cases, land prices have not hit bargain basement levels, but land conservancies say since developers fled the market they have been swamped with offers from private landowners to sell conservation easements.

Jim Engel, executive director of the Tinicum Conservancy in Bucks County, said the organization had its best year in 2008, with purchases of around 600 acres of conservation easements as compared to 175 acres in 2007.

“I think as far as the down market, it actually has created some opportunities,” Engel said. “Where landowners thought they were going to sell out to a developer, they now realize it may not be an option, at least for a while.”

Heritage Conservancy, another Bucks County nonprofit, has also had a good year, said Jeffrey Marshall, vice president of resource protection. “I have been approached by a number of developers looking for alternatives,” Marshall said. Developers are reticent to pay for engineering and legal bills on sites they own, and banks have cut lending for those costs, he said. “It’s not chump change. Why spend it if there’s no light at the end of the tunnel?”

Marshall said falling demand has forced developers who are moving forward with projects to think smaller and leave a portion of their land undisturbed. That has led to an increase in partnership between developers and Heritage, he said.

Builders and developers admit times are dire and say they are looking for creative solutions to ward off bankruptcy. At the Big Builder conference outside Washington, D.C., in November, a group of industry leaders gathered in a small meeting room to brainstorm financial strategies for surviving 2009. First on their lists was clearing their books of land.

Kyle Poole, director of Land Finance Group in Washington, D.C., said municipalities and conservation groups would have found good deals if they had come to the conference looking to buy. “They would have had standing room only,” he said.

Andrew Stark, executive managing director of Cantor Real Estate in White Plains, New York, said developers are in no mood for the battles that once raged with townships over land use. “There is only one story about real estate these days and it’s not about the environment. It’s about survival,” he said.

Despite their gains, open-space advocates and conservancy leaders are feeling more apprehensive than celebratory because it is not clear how long they’ll have the upper hand. Many fear the same struggling economy that knocked developers out of the picture could soon rein in open-space initiatives.

Land conservancies and advocacy nonprofit groups are funded from private donations and foundation grants. Some fear donations could slow as members and foundations find themselves with less money and a growing line of would-be beneficiaries.

In Pennsylvania, Bucks County is in a better position than most municipalities. In 2007, voters approved an $87 million bond measure to buy open space, in addition to the $59 million they approved in 1997. But communities that did not put away money during the boom years and rely on increasing property taxes to fund their budgets could be in trouble, said Schwank of 10,000 Friends of Pennsylvania.

Schwank worries that lost revenue may force municipalities to run lean, and land planning programs and open-space purchases could suffer. Fewer counties may be willing to follow Bucks, she said.

That has already happened. In October, commissioners for Berks County in eastern Pennsylvania proposed cutting county funding for its farmland preservation board from $8 million in 2007 to $1 million per year until 2012. The decision will be made in January.

Cuts would mean a drop in matching state funds for a program that has a waiting list of 110 farmers who have applied to sell conservation easements, said Tami Hildebrand, the preservation board’s executive director. It’s ironic that at a time when farmers are more likely to sell, the county may not have the money to pay, she said.

“If you go to the bank and it does not have the money to give, it’s really sad,” Hildebrand said. “And the bank for me is the county coffers.”

Some open-space advocates also question how much the down market has really helped the battle against suburban sprawl. Budgets, more than the housing market, define how well open-space organizations do, said Marshall of the Heritage Conservancy. There has never been a shortage of landowners who want to sell conservation easements, he said. Like in Berks County, money to buy them is always the limiting factor.

Experts do agree, however, that development pressure will return to exurban areas like Bucks County, despite rising gas prices and the movement toward cities that many predict will follow.

Communities have been given a respite as developers abandon projects and wait out the downturn. When the economy rebounds, the struggle over open space will return, said Eugenie Ladner Birch, a professor at the University of Pennsylvania’s Department of City and Regional Planning.

“Sprawl has been going on for 50 years,” she said. “You don’t just say goodbye.”

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