BOARD OF APPEALS OF THE TOWN HANOVER v. HOUSING APPEALS COMMITTEE and 511 WASHINGTON STREET, LLC

Introduction

This matter came to be heard on August 26, 2008, on the Motion of the Hanover Board of Appeals (Plaintiff/Board) for a Judgment on the Pleadings, and on the Cross Motion of the Defendant, 511 Washington Street LLC (Applicant/Developer), for a Judgment on the Pleadings. At the heart of the instant controversy is a condition of a Comprehensive Permit issued to the defendant 511 Washington Street, LLC on January 21, 2003, which authorized the construction of a seventy-four (74) unit development in Hanover, Massachusetts. The disputed condition restricts occupancy of the individual rental units to households having at least one member who is fifty-five (55) years of age or older. (Condition No. 6) [Note 1]

After the Board subsequently refused to rescind this condition, the Housing Appeals Committee (HAC) eliminated it on appeal. [Note 2] The Board, in turn, appealed that disposition to the Land Court. With the present order, this court affirms HAC’s decision to lift the age restriction from the Developer’s Comprehensive Permit.

Background and Procedural History

The Applicant’s completed development, designated North Pointe (development/project), consists of two apartment buildings containing a total of seventy-four (74) age restricted units. [Note 3] Of that total, nineteen are currently affordable units. The project is located on a 3.88 acre parcel off Route 53 in Hanover. [Note 4]

On January 21, 2003, the Plaintiff granted a Comprehensive Permit to the Applicant authorizing the construction of North Pointe. At the outset, the development was to be financed under a Massachusetts Housing Finance Agency ( MHFA/ MassHousing ) tax credit program with thirty units (approximately 40%) to be rented to households at or below 80% of median income. Subsequently, in the spring of 2004 when the project was approximately one third complete, the Developer sought a change of financing and a reduction in the number of affordable units to nineteen, approximately 25% of the total. The request to reduce the number of affordable units was approved by the Board on August 10, 2004. [Note 5]

In a review of the proposed project, MHFA observed that “[t]he subject development will also be limited to occupancy by adults, 55 and older. This restriction will greatly limit the market potential of the subject and possibly affect achievable rent levels.” [Note 6] Noting that the Applicant had “considerable experience with complex single-family and commercial real estate development,” but lacked “prior…multifamily rental development experience” MHFA recommended that the Applicant strengthen its development team with the addition of a consultant or LLC manager with multi-family rental experience. [Note 7]

In the spring of 2004, the Applicant retained Peabody Properties, Inc. (Peabody) to provide marketing, rental and management services for the project. [Note 8] The Applicant provided Peabody an office at the project that was generally open seven days a week during the lease-up period.

In general, measures adopted by Peabody to attract potential renters included placement of advertisements in newspapers and other publications; production of flyers, brochures and signage; use of open houses and model unit furnishings; acquisition of lists of those meeting certain criteria who might be interested in age restricted housing; cross marketing with other developments represented by Peabody; interaction with local real estate brokers; and development of a web site. During the spring of 2005, Peabody offered a promotion affording a free cruise to anyone leasing a market rate unit. [Note 9] In October of that year, Peabody organized a flu shot clinic at the project in an effort to encourage older persons to visit the premises. It offered short term rentals of furnished units in an effort to appeal to the corporate rental market. It initiated a promotion offering one month’s free rent, as well as a reduction in the security deposit. [Note 10] Notwithstanding these efforts, by August 2005, no more than thirty of the 74 units had been rented. Of the thirty, nineteen were the affordable units, while the remaining eleven were market rate. By the following August, the figures had remained virtually unchanged. [Note 11] The Developer asserts that it has never experienced a positive cash flow, while the negative cash flow has reached as high as $50,000 per month. [Note 12] In this regard, the Developer’s expert took note of “[i]ncreases in energy costs [, which] have [had] a particularly significant impact on the economics of the project because rents include heat and hot water, [both of] which are provided by a central heating unit and boilers.” [Note 13]

On September 22, 2006, in light of this poor economic performance, the Applicant formally requested that Plaintiff lift the age restriction on all its rental units. On December 15, 2006, however, the Plaintiff filed a decision with the Hanover Town Clerk denying the Applicant's request. Relying primarily upon its argument that the project was “uneconomic” as so conditioned, [Note 14] the Applicant appealed the Board's denial to the Housing Appeals Committee (HAC). Thereafter, on January 22, 2008, HAC rendered a detailed, sixteen page decision overturning the Board's determination and directing it to remove the said condition.

In its decision, HAC observed that “[t]hough it originally budgeted $55,000 for marketing, the developer spent over $90,000 on marketing, including $30,000 on advertising.” [Note 15] Moreover, it characterized the foregoing marketing efforts as “extensive.” [Note 16] HAC also found that the Applicant had “proven (and the Board has not refuted) that the unchanged, age-restricted development approved by the Board is uneconomic.” [Note 17] HAC finally concluded that “where there is no allegation of fraud or other misconduct, . . . a developer [should not] be prevented from making a change in a development that has become uneconomic unless the Board has established that there are countervailing local concerns . . . [T]he Board has not done so in this case.” [Note 18] Plaintiff’s appeal from the decision of HAC was filed in the Plymouth Superior Court on February 20, 2008. Thereafter, on May 29, 2008, that appeal pursuant to G. L. c. 30A, § 14, was transferred to the Permit Session of this Court. Plaintiff’s Memorandum Of Law In Support Of Its Motion For Judgment On The Pleadings (Plaintiff’s Memorandum) was filed on June 30, 2008. Thereafter, on August 15, 2008, Defendant 511 Washington Street LLC filed its Memorandum Of Law In Support Of Its Cross Motion For Judgment On The Pleadings (Developer’s Memorandum). Four days later, Defendant Housing Appeals Committee filed its Opposition to Plaintiff’s Motion For Judgment On The Pleadings (HAC’s Opposition). As note above, this court heard these motions on August 26, 2008, and took the matter under advisement.

Discussion

A. HAC’s Statutory Authority

This action is an appeal from an administrative decision of the Housing Appeals Committee, which resides within the Massachusetts Department of Housing and Community Development. HAC is charged with the resolution of disputes arising pursuant to G. L. c. 40B, §§ 20-23, the so-called Comprehensive Permit Law.

In delineating the purpose underlying that statute, the Court in Standerwick v. Zoning Board of Appeals of Andover observed as follows:

We have long recognized that the Legislature’s intent in enacting G. L. c. 40B, §§ 20-23, is to provide relief from exclusionary zoning practices which prevented the construction of badly needed low and moderate income housing . . . The statute reflects the Legislature’s considered judgment that a crisis in housing for low and moderate income people demands a legislative scheme that requires the local interests of a town to yield to the regional need for the construction of low and moderate income housing . . . To effectuate this purpose, the act establishes a streamlined comprehensive permitting procedure . . . permitting a developer to file a single application to the local zoning board of appeals for construction of low or moderate income housing. [Note 19]

447 Mass. 20 , 28-29 (2006) (citations omitted). Thus, the general policy objective animating c. 40B is the promotion of affordable housing for low and moderate income citizens of this Commonwealth. [Note 20]

Especially relevant to the matter at hand, § 22 authorizes an applicant to lodge an appeal with HAC for review of an application granted by a local board of appeals “with such conditions and requirements as to make the . . . operation of such housing uneconomic….” Section 20, in turn, defines “Uneconomic” as follows:

[A]ny condition brought about by any single factor or combination of factors to the extent it makes it impossible for…a limited dividend organization to proceed and still realize a reasonable return in building or operating such housing….

Section 23 speaks to the review and disposition by HAC of the Board of Appeals decision, in relevant part as follows:

[HAC] shall be limited to the issue of whether, . . . in the case of an approval of an application with conditions . . . imposed, . . . such conditions . . . make the construction or operation of such housing uneconomic and . . . consistent with local needs. . . . If [HAC] finds, in [such a] case . . ., that the decision of the board makes the building or operation of such housing uneconomic and is not consistent with local needs, it shall order such board to modify or remove any such condition . . . so as to make the proposal no longer uneconomic . . . Decisions or conditions . . . imposed by a board of appeals that are consistent with local needs shall not be vacated, modified or removed . . . notwithstanding that such decisions or conditions . . . have the effect of making the applicant’s proposal uneconomic.

Complimenting this mandate, 760 CMR 31.06(7) shifts the burden to the relevant board to demonstrate that the condition being reviewed serves a local purpose, once an applicant has offered sufficient evidence to show that the project as conditioned, is uneconomic. [Note 21]

In addressing whether the condition embodied local needs so as to permit the condition to survive review, HAC observed that “there is virtually no testimony or other evidence of local or regional housing needs that support the age restriction. We find therefore that the Board has not sustained its burden of proving a legitimate local concern that outweighs the regional need for housing.” [Note 22]

B. Standard of Review

General Laws Chapter 40B, Section 22 states that such HAC decisions “may be reviewed… in accordance with the provisions of chapter thirty A.” G. L. c. 30A, § 14, captioned Judicial Review, permits “any person…aggrieved by a final decision of any agency in any adjudicatory proceeding …to a judicial review thereof . . .”

Subsection (5) of § 14, provides that, as a general matter, such review is to be conducted without a jury “and shall be confined to the record.” In turn, subsection (7) sets out the options available to the reviewing court. It may affirm the decision of the agency, remand the matter for further proceedings before the agency, or it may set aside or modify the decision if it determines, inter alia, that the decision is based upon an error of law, that it is unsupported by substantial evidence, or “is arbitrary or capricious, an abuse of discretion or otherwise not in accordance with law.” In addition, subsection (7) further explicates the limited scope of this form of judicial review:

The court shall make the foregoing determinations upon consideration of the entire record, or such portions of the record as may be cited by the parties. The court shall give due weight to the experience, technical competence, and specialized knowledge of the agency, as well as to the discretionary authority conferred upon it.

Thus, the statute itself calls for a reviewing court to accord the administrative decision below, substantial deference.

The recent case of Middleborough v. Housing Appeals Committee is especially helpful in delineating the role of this court in reviewing the HAC decision at bar. 449 Mass. 514 (2007). Specifically, the Supreme Judicial Court observed that “[a] reviewing court must apply all rational presumptions in favor of the validity of the administrative action and not declare it void unless its provisions cannot by any reasonable construction be interpreted in harmony with the legislative mandate.” Id. at 524, quoting Zoning Bd. of Appeals of Wellesley v. Housing Appeals Comm., 385 Mass. 651 , 654 (1982) (ultimately quoting Consolidated Cigar Corp. v. Department of Pub. Health, 372 Mass. 844 , 855 [1977]) (internal quotations omitted). Moreover, “[a]gency action will not be overturned unless it is proven arbitrary, unreasonable, or inconsistent with the agency’s own rules.” Id. In this vein, the Court later opined:

[T]he scope of review of an administrative decision pursuant to G. L. c. 30A, s. 14, leaves little room for appellate discretion. As we noted, the agency’s decision must be upheld if supported by ‘such evidence as a reasonable mind might accept as adequate to support a conclusion’ . . . Our deferential standard of review ‘does not permit a court to treat the proceeding [under G. L. c. 30A] as a trial de novo on the record which was before the administrative board. A court may not displace an administrative board’s choice between two fairly conflicting views, even though the court would justifiably have made a different choice had the matter been before it de novo.’ [Note 23]

That said, the reviewing court must not confuse “judicial deference and restraint [with] abdication.” Fafard v. Conservation Comm. of Reading, 41 Mass. App. Ct. 565 , 572 (1996), quoting National amusements, Inc. v. Boston, 29 Mass. App. Ct. 305 , 310 (1990).

It is worthy of note, that the Board does not address this highly deferential standard as articulated by the Court. Rather, the Board chooses to rely in large measure upon its argument that “the determination of the HAC that the Board’s denial of the Applicant’s…NPC [Notice of Project Change] rendered the project uneconomic is subject to de novo review because it involves a question of law.” [Note 24]

This court rejects the notion that a de novo standard is appropriate under the circumstances that pertain in the instant matter. It is enough to observe that in the face of substantial law to the contrary, see Middleborough, supra; Conservation Comm. of Falmouth v. Pacheco, 49 Mass. App. Ct. 737 , 740 n.3 (2000) (“[it is] well-established [that courts will accord] deference [to] an agency’s findings of fact and interpretation of a statute (or regulations) within its charge [and, therefore, i]f the question is fairly debatable, [the reviewing court] may not displace [the agency’s] choice”), quoting Arthur D. Little, Inc. v. Commissioner of Health & Hospitals of Cambridge, 395 Mass. 535 , 553 (1985) (internal quotations omitted); Arnone v. Dept. of Social Services, 43 Mass. App. Ct. 33 , 34 (1997) (“a court gives due weight to the experience and specialized competence of the agency”), citing Flint v. Commissioner of Pub. Welfare, 412 Mass. 416 , 420 (1992), Plaintiff’s argument is essentially conclusory, lacking convincing legal analysis, citation or other support.

C. Nature of the Age Restriction

Plaintiff first argues that the age restriction was not a condition of the Board’s approval, inasmuch as it had initially been proposed by the Developer itself as part of its original submission to the Board. [Note 25] Specifically, the Plaintiff makes the following assertions:

The condition in the Comprehensive Permit limiting the residents of the rental units to persons aged fifty-five (55) and older was not a condition the Board imposed upon the Project. Instead, this was a fundamental element of the Project as originally conceived and proposed by the Developer…Here, the HAC failed to Recognize that the Town did not “impose” the age restriction as a condition upon the Project . . . . The Board submits that where it approved the comprehensive permit project exactly as proposed by the Developer, and the Developer was able to construct the Project as permitted, the Applicant should not be able to alter a fundamental part of the project absent extraordinary circumstances, which are not present here….The senior renters were promised an age restricted Promise in perpetuity by the Developer. [Note 26] . .

For its part, HAC rejected this argument concluding that it was without merit. [Note 27]

In so doing, HAC relied upon 760 CMR 31.03 (3), [Note 28] captioned Changes After Issuance of a Permit. In so doing, it made the following observation: A considerable amount of time usually passes between issuance of a permit and . . . the end of construction and lease up . . . and changed circumstances during that time are common. As a result, our regulations clearly permit the developer to petition without regard to whether the permit conditions or design parameters were imposed by the Board, negotiated, or proposed by the developer.

R. 1140 (emphasis added). In fact, a simple reading of the Board’s decision leads to the inescapable conclusion that Condition No. 6, setting forth the age restriction, is what it plainly purports to be, a condition or enforceable requirement of the Board’s own approval.

Suffice it to say that the Plaintiff provides neither legal analysis nor authority in support of its contrary position. In any event, this line of argument overlooks the fact that the Board explicitly included the age restriction among the numerous conditions to its approval of the comprehensive permit. It is beyond debate that the Board adopted this requirement as its own, regardless of its genesis. I conclude, therefore, that Condition No. 6’s age restriction was imposed by the Board upon the Developer and upon this Project, as a condition of its approval.

D. Application of MHP Guidelines

In analyzing whether the development as conditioned was uneconomic, HAC utilized [Note 29] the Massachusetts Housing Partnership (MHP) [Note 30] Guidelines. According to HAC, “in addressing what constitutes a reasonable return on investment, [the MHP Guidelines] indicate that a Return on Total Cost (ROTC) of at least 2½ % above the current yield on 10 year U.S. Treasury Bill is generally required to fairly compensate the investor” for the risks associated with permitting, construction, and operations. Taking issue with the application of these Guidelines, the Board’s expert opined that a ROTC of 1½ % [Note 31] above the 10 year Treasury Bill rate would constitute a reasonable return. [Note 32]

Beyond its assertion that the definition of “uneconomic” poses a purely legal question, requiring de novo review by this court, [Note 33] the Board argues that the project is fully constructed and operating, and is set to achieve a reasonable rate of return over the long term. [Note 34] It is for this reason that the Board’s expert argued before HAC that a return of 1½ % above the Treasury Bill rate was appropriate inasmuch as the additional “1 % of the margin above treasury is attributable to permitting and construction risk,” i.e risk no longer present because the development had already been completed. [Note 35]

HAC rejected this argument, noting simply that the MHP Guidelines do not allocate pre- and post-construction risk in this fashion. HAC opined that in any event, the Developer should not be penalized for risk that had materialized after the completion of construction. [Note 36]

This court concludes that HAC’s use of the MHP Guidelines to determine whether the development as conditioned is uneconomic, was appropriate. As the HAC decision well indicates [Note 37] HAC did not impose this standard, borrowed from MHP, “for reasons extraneous to the prescriptions of the regulatory scheme”…or for reasons “related…to an ad hoc agenda.” Fafard, 41 Mass. App. Ct. at 567-568. See id. at 569 (opining “[i]n the administration of controls limiting the use of land – as with any exercise of the police power – uniformity of standards and enforcement are of the essence [because i]f the laws are not applied equally they do not protect equally.”)

Moreover, HAC is invested with the express authority under G. L. c. 40B, § 23 to determine whether a given project is uneconomic. Consequently, the failure of § 23 and the accompanying regulatory scheme to set forth precise standards in this regard, lends weight to the argument that HAC may reasonably devise its own standards. See Fogelman v. Chatham, 15 Mass. App. Ct. 585 , 589, 590 (1983) (observing “interstices are filled in routinely, lines drawn, and simple ambiguities resolved; [therefore,] it is enough if a general policy is stated with reasonable clarity, [allowing] the detailed application of that policy to particular fact situations [to] be left to administrative bodies and the courts”). In the case at bar, HAC reasonably filled in the “interstices” [Note 38] as it had previously done in cases before it. As such, the HAC decision was neither arbitrary nor capricious.

E. Substantial Evidence

In addition to the positions considered above, Plaintiff advances two additional substantive arguments, [Note 39] both of which apparently seek to undermine the HAC decision by claiming a lack of substantial evidence. First, Plaintiff asserts that the development is not uneconomic, and, second, that the development is economic. However, even a cursory examination of the administrative record will serve to refute these contentions. This court will address each in turn, below.

i. The Development Is Not Uneconomic

In its Memorandum, the Board argues that the Applicant “failed to prove that the age restriction caused the project to be uneconomic,” when it bore the relevant burden of persuasion. [Note 40] Developer’s expert, however, determined while conducting “his analysis at three different rent levels,” that the ROTC for this development would be 5.4%, 5.9% and 6.7%, respectively. [Note 41] While rejecting Plaintiff’s position concerning a reasonable rate of return for the development, see supra, § D, HAC utilized [Note 42] the somewhat lower Treasury Bill rate of 4.87%, as advanced by Plaintiff’s own expert, rather than the 5% suggested by the Developer’s expert, and still arrived at ROTC below what the Guidelines classify as a reasonable return. [Note 43]

The Board responds that all affordable units have long since been rented to senior citizens, and, second, it asserts that HAC found “that the Project can achieve a reasonable return rate of 6.6%.”

However, the rental of 19 affordable units out of a 74 unit total does not serve to render the project in its entirety “a success.” Once again, Plaintiff puts forth this argument in summary fashion, offering neither analysis nor support. Moreover, Plaintiff’s assertion that “a fair amount” of the market units had been leased is vague and, at very least, unhelpful. See supra, note 40.

Even so, Plaintiff’s statement relative to a 6.6% rate of return, supra, mischaracterizes HAC’s conclusion. [Note 44] HAC nowhere determined that 6.6% constituted a reasonable rate of return. [Note 45] On the contrary, it observed that even the primary analysis submitted by the Board’s own expert, which showed a 6.6% ROTC, merely served to corroborate the testimony of the Developer’s expert that the ROTC was in a range that would render the Project uneconomic under the MHP Guidelines. See supra, note 43.

As such, there is more than sufficient evidence on the record to support HAC’s conclusion that the Applicant’s development as conditioned will not garner a reasonable rate of return as established by MHP Guidelines, and is, therefore, uneconomic. See Rogers v. Conservation Comm. of Barnstable, 67 Mass. App. Ct. 200 , 205-206 (2006) (explaining that “[a] finding is based on substantial evidence if experience permits the reasoning mind to make the finding; [i.e.,] whether the finding could have been made by reference to the logic of experience”), quoting New Boston Garden Corp. v. Assessors of Boston, 383 Mass. 456 , 466 (1981), quoting Boston Edison Co. v. Selectmen of Concord, 355 Mass. 79 , 92 (1968) (internal quotations omitted) (emphasis in original).

ii. The Development Is Economic

After arguing that the project is not uneconomic, Plaintiff then advances the proposition that “[t]he Project is [e]conomic.” [Note 46] By way of support, Plaintiff cites primarily the Pre-Filed Testimony before HAC of the Board’s own expert, Russell Tanner (Tanner). [Note 47] Tanner indicated that “the Project is likely to achieve a reasonable objective of approximately 6.6. % [ROTC] and a capitalized value sufficient to support the invested capital and a modest fee.” [Note 48] In this regard, he observed that “HAC has rigidly applied the MPH guidelines,” but that “such a rigid application is not supported by G. L. c. 40B, § 23. He opined that the MHP guidelines . . . “were not meant to be inflexible and rigid mandates from which no deviation could be made.” [Note 49]

Tanner further cited the MHP Guidelines for the proposition that a ROTC of at least 2½ % to 3½ % above the current yield on 10-year Treasury Notes is generally required to fairly compensate investors for the risks associated with permitting, construction, and operations. However, he argued that, as the permitting and construction phases, which typically represent significant risk, had already been completed, “it is appropriate that the required [ROTC] should be reduced.” [Note 50] He proposed, therefore, that an appropriate reduction would be in the order of 1 % so as to arrive at a corrected ROTC of 1½ % above the 10 year Treasury rate, which Plaintiff places at 4.07 % [Note 51] in September 2005, resulting “in a bottom range of 6.37% [sic].” [Note 52]

In response, HAC noted that instead of the 5% Treasury rate used by the Developer’s expert, the Board’s expert used a treasury rate of 4.87%. Utilizing the standard set out in the MHP Guidelines, a reasonable return based upon the lower 4.87% figure, would be 2½ % higher or 7.37 %, i.e. a figure well above the 6.6% derived by the Board’s own expert. For this reason and as noted above, HAC observed that “[t]his evidence corroborates the developer’s proof, and we find the developer has proven (and the Board has not refuted) that the unchanged, age-restricted development approved by the Board is uneconomic.” [Note 53]

Furthermore, on the basis of the facts before it, HAC could properly conclude that a return on total cost of 6.6% [Note 54] would render the Project uneconomic, and that the 6.6% return as posited by the Board’s own expert was attributable to the age restriction placed upon the project by Condition No. 6 of its decision. As previously noted, it is uncontroverted that the Developer has experienced substantial difficulty renting the project as conditioned by the Board. It has experienced a negative cash flow of up to $50,000 per month since the apartments were first introduced to the market. [Note 55]

Thus, in arguing that the project is economic, the Board presents nothing conceptually distinct from its argument that the project was not uneconomic. For substantially the same reasons set forth supra, at § E.i., this court concludes that HAC’s determination that the development as conditioned is not economic, is fully supported by “substantial evidence.” The administrative record surely “permit[s] the reasoning mind to make the finding” that the development as conditioned is uneconomic. Moreover, it cannot be said that the record “points to no felt or appreciable probability of the conclusion or points to an overwhelming probability to the contrary.” Rodgers, 67 Mass. App. Ct. at 205. Indeed, as stated by the Court in Wolbach v. Beckett, “[a]ll [the Boards’] challenges to [the agency’s] decision are, in fact, arguments to the effect that we ‘should make independent findings on our own initiative from the record more in accordance with the Plaintiff[s’] theory of the case in place of making a determination as to whether substantial evidence exists to support [HAC’s] findings.” 20 Mass. App. Ct. 302 , 308 (1985), quoting Number Three Lounge, Inc. v. Alcoholic Beverages Control Commn., 7 Mass. App. Ct. 301 , 309 (1979).

Conclusion

Given the evidence before the Housing Appeals Committee, the Committee’s broad experience and expertise, and the deferential standard that is to be accorded such expertise, I conclude that the Board has failed to meet its burden of demonstrating that HAC’s decision was unsupported by substantial evidence. So too, it has failed to demonstrate that the HAC decision was arbitrary, capricious, or legally untenable. It is apparent from this record and especially from those portions extracted above, that HAC’s decision is not only thoughtful, but well reasoned, fully consistent with the regulatory and statutory scheme, and predicated upon ample evidentiary support.

Accordingly, it is

ORDERED that Plaintiff's Motion for Judgment on the Pleadings be, and hereby is, DENIED. It is further

ORDERED that Defendant 511 Washington Street LLC’s Cross Motion for Judgment on the Pleadings is hereby ALLOWED.

Judgment to issue accordingly.

SO ORDERED

By the Court. (Grossman, J.)

Attest:

Deborah J. Patterson

Recorder

Dated: April 2, 2009.