June 18, 2020 – At a June 15th public hearing, NAIOP Maryland joined allied real estate groups and brokers to oppose Council Bill 13-20 which would require sellers of apartment buildings of five units or more to provide the Howard County Housing Commission the right to review a contract offer for 90 days and purchase a property on “substantially the same terms” as a contract offer from a private buyer.
NAIOP’s position was based on the threat-to-market function posed by the legislation, which would provide the Commission with both the right to see a bona fide contract offer and a long option period to review the terms and make a purchase decision. Major concerns include a reduced buyer pool exacerbated by the inability of 1031 exchange buyers, who made up about 40% of the market, to meet the time schedule dictated in the bill. Other issues include interest rate risks borne by the contract purchaser who would be unlikely to secure an interest rate lock long enough for the Commission review.
A study of land auction results by the Finance Departments at the University of Taiwan and University of Iowa found that right of first refusal has significant negative impacts on auction success. Among the findings are that right of first refusal:
– discourages bidder entry into an auction;
– creates incentives for bidders to bid less aggressively;
– forces the seller to set a lower offering price to offset the negative effects of the right of first refusal; and
– reduces final sales prices.
In recent years, the Howard County Housing Commission has purchased five rental complexes after receiving a notice of intent to sell. Existing law requires apartment owners to provide such notice. The Housing Commission suspects they have not received notice of all transactions and are concerned that they are in a poor bargaining position when bidding in an open market. With council-imposed building restrictions closing off new construction, aged class B and C residential rental complexes are candidates for renovation and repositioning which is seen as a factor in the reduction of affordable rental units in the county.