By Pat Curry. For years, the landowners of a California tract of land known as Northern Territories have watched Sacramento County grow around them. Their 3,500-plus acres of farmland, just north of the Sacramento city line, sit near the county airport and an interstate. In addition, the land is smack in the middle of a growth area expected to create a deficit of 110,000 housing units by 2020.
So what's held up development of this dream tract?
For one thing, under Sacramento's agricultural zoning laws, the Northern Territories' owners — and there are several — may build only a whopping one house per 80 acres. The owners have tried to change that for more than a decade but have repeatedly confronted the same problem — the complexity of the land development entitlement process. The planning costs alone are expected to be $3.5 million, says land development consultant Steve Rosenblatt, who works exclusively with Brookfield Land Co., a division of Brookfield Properties Corp. in Toronto.
Environmental interests have interfered as well. The property is part of a larger, 10,000-acre farming region known as North Natomas, home to several threatened species. The Northern Territories tract also lies on the wrong side of an urban services boundary, created by the county in the 1990s as an urban sprawl "line in the sand." Repeatedly referred to as a "sacred line" for environmentalists, its broaching already has drawn litigation to another project outside the boundary that has suffered the same delays.
"There was a lot of discussion around where that line ought to go," says Robert Sherry, a principal planner for Sacramento County. "When we were done, it was pulled back significantly. The environmentalists feel that they compromised a lot to get that line, and they're very protective of it."
Sewage capacity issues pose yet another obstacle. The regional sanitation district is now expanding capacity but originally hadn't included North Natomas in its planning because there's no development there. Legally, it would be tough to justify the expense for future potential growth, Sherry says. But if the lines installed now only cover current needs, parallel lines will have to be installed later to boost capacity — and the price would skyrocket. What the landowners really want is to be annexed to the city of Sacramento, which isn't required to abide by the county's urban services boundary. But annexation entails its own complex process.
The easiest thing to do would be to sell the ground to a developer and let him or her take all the risks. But some families have owned their parcels for generations; they don't want to leave the area and lose control over what is built.
"Even though they want to take advantage of urban growth for their own profit, they have an emotional tie to the land," say N. Cameron Doyel, who has worked with the landowners for five years. "They want to see a really effective protection of open space."
The landowners finally found some solutions in March 2001, when they began talking with Brookfield. Last July 1, the owners signed a joint-venture agreement with Brookfield to develop a master planned community on the parcel. About 6,000 single-family homes are anticipated at build-out.
Jack DeWit, whose family owns about 500 acres in the parcel, says the landowners liked Brookfield because of the company's resources and track record, and because the company "seemed to share our vision." That vision includes maintaining open space, protecting the environment, and taking a position of stewardship toward the land. "They were willing to invest money to accomplish that and to participate with us in the upside in value," he says. In short, Brookfield was willing to share the profits from the sale of the developed lots.
Under the joint venture, the landowners are contributing the real estate at an undisclosed basis. Brookfield will spend an anticipated $3.5 million to $4 million in entitlement costs over a five-year period, says Rosenblatt, who handled the deal. Brookfield also is negotiating with other landowners to obtain another 500 to 600 acres in North Natomas.
When the lots are sold to builders, the landowners will be paid for the raw land value. Brookfield will recover the money it spent on entitlements, and the two groups will share the profits, though Rosenblatt wouldn't provide the percentage breakdown.
"It's a good fit," he says. "The landowners will maximize their profits much more than if they sold raw land, and we don't have the expense of holding land for long periods of time."
Because environmental issues remain, Rosenblatt says it's difficult to say how much the parcel is worth. He doesn't dispute reports published in the Sacramento Business Journal that the property's value approximates $20 million, and about double that with development entitlements. One thing seems certain, however: Brookfield should have no trouble selling lots, says local real estate appraiser Dave Jarrette.
"All these lots in North Natomas are being snatched up," says Jarrette. "There's unbelievable demand. This will be the next big area for development."
Development is still years away, but if everything goes according to plan, homesite sales will start in 2008, Rosenblatt says. Environmental issues top the list of items that could slow the process, and Doyel (who became a Brookfield employee when the deal was signed and now reports to Roseblatt) says progress also depends on how quickly the neighboring Natomas area of the city builds out, and on the success of the city's infill strategy, "which we think is a very good, wise strategy in terms of the air [quality] and transit issues to gain density."
One important issue already has been addressed. In August, Sacramento city and county staff presented elected officials with a joint memorandum of understanding, which generally says "the county should be the custodian of open space and the city should be the agent for urban development," Sherry says. The agreement also ensures that the airport and wildlife habitat are protected and creates a revenue-sharing agreement "so the county doesn't have to fight the de-annexation on fiscal grounds."
Jarrette predicts that the Northern Territories tract will draw the least opposition from environmentalists of any development being discussed for Sacramento County. It's near the airport, it has an interstate running through it, it's farmland as opposed to wetlands or pristine wilderness, it's next to an existing urban area, and the city and county agree the area should be developed. Plus, Brookfield and the landowners have set aside virtually half the acreage for open space. "Habitat conservation is a huge issue in the Natomas basin," says Jarrette. "With this much open space, they should be OK."
With all the various parties cooperating with one another, future development of the land looks promising. "The ingredients are there to move it forward," Jarrette says. "When you get the city and county behind it, that's pretty good."
Published in BIG BUILDER Magazine, November 2002