Mr. Glincher

Hospitality Law

Hotel Development: Port Overview

By Andrew Glincher, Office Managing Partner, Nixon Peabody LLP

Developers are increasingly finding alternative uses for ports. Through the years, port development has been the focus of many big cities from San Francisco to Boston and most recently, in Washington, D.C. as the nation's capital develops its Southwest Waterfront.

Ports can be an economic boom for cities. A lot of wharf property in many big cities originated because of industrial uses related to goods and the shipping industry. Over time, this eventually gravitated to office use and now has expanded to commercial and residential uses. In some cities, ports have become a tourist attraction. Port development in Boston, for example, was expedited by the Big Dig and the redevelopment that followed which drew more attention to Boston's waterfront property such as the Seaport District and the Fort Point Channel.

In Washington, D.C., currently there is more than $2 billion dollars in revitalization projects under construction along the city's rivers. On the Southeast and Southwest D.C. shores, about 2 1/2 square miles of land which were once just parking lots are now being transformed into a maritime-based mixed-use neighborhood with housing, restaurants, shops, offices and cultural attractions.

As ports generate more higher-income uses, this is good news for the real estate industry as the property values rise resulting in many redeveloped high-end apartments, condos, offices, restaurants, and of course, hotels.

What challenges do hotel developers face when building near ports or on waterfront property?

Space is always a challenge when developing along the waterfront. Lots are irregularly shaped or narrow strips. Often port areas are separated from other development by infrastructure (i.e., rail lines and highway systems that were developed to bring materials from the port inland), and are obviously limited by the water on at least one side.

Developers need to create populated areas in waterfront districts (so-called cities within cities). New hotels and other mixed-use residential developments should offer a full range of activities and services. Developers need to make the area pedestrian friendly and allow people to walk through the hotel lobby and go right through the office or restaurants or retail stores. Good examples of this are the Boston Harbor Hotel and the new Intercontinental Hotel in Boston. Public and private uses are integrated through open spaces, expansive walkways and access to the waterfront. Offices and private residences located above and surrounding the hotels round out the retail and restaurant uses. Water views increase property values and the allure of the hotel. Water taxis are another possible amenity. Access to sightseeing vessels or other marine activities may also attract patrons.

There are, however, often significant permitting difficulties that must be overcome. Some harbors are in transition and the active marine industrial uses can conflict with the more genteel commercial and retail uses. Noise and odor can be a factor. Who wants complaints from hotel guests that the neighboring fish company woke the customer up in the wee hours of the morning with fog horns, other noises or the aroma of the daily catch?

Maritime industrial uses are fighting for their survival. They know that their new commercial and residential neighbors may sign a covenant or disclosure statement today acknowledging the working port, but those same neighbors may oppose any expansion of the maritime industrial activities in the future. In New Jersey, a committee of fishermen, residents and conservationists, supported by a grant from the Port Authority of New York/New Jersey, formulated a plan to combine these apparently competing interests. Boardwalks from residential and commercial development could lead to fish markets with dock space for commercial fishermen. Restaurants could truly offer the freshest fish and offer patrons a view of a working port. The key will be to balancing the interests and attractions with the room needed to operate maritime industry.

The public trust doctrine can also pose challenges. In most waterfront areas, the public has rights to access the waterfront, particularly if the area contains land that was filled in over time. In Massachusetts, Chapter 91 of the Massachusetts General Laws protects the public's right to access the waterfront, limits the types of uses within waterfront areas, and requires facilities of public accommodation along filled tideland areas. These use restrictions and requirements must be analyzed thoroughly before embarking upon a development plan. Hotels are one of the more flexible uses but there can be operating requirements imposed by the statutory or regulatory schemes that must be considered.

Recently, the California Coastal Commission agreed to oppose developments that require the sale of public tidelands to individuals, including fractional ownerships for time-share hotel units. The San Diego Unified Port District had partnered with a hotel developer to build an eight-story hotel containing 140 units, 40 of which were time shares. The underlying land was comprised of tidelands owned by the port and categorized as "state-trust" because they were once submerged lands. The Coastal Commission members stated that they did not object to hotel developments on the waterfront, as long as public access is protected and adequate parking is provided. The Commissioners took the position that the proposed development would have "privatized" the tidelands, following a ruling to that effect by the State Lands Commission. The hotel representatives had argued that an opinion of the California Attorney General from 1996 permitted development on state-trust tidelands. The development was expected to generate approximately $1 million in lease revenue annually for the port, and would have improved a partially vacant blighted area.

What's ahead in the future?

It is clear that port development will continue for quite some time but that the development challenges are increasing. In legislation enacted in 2007 (Chapter 168 of the Acts of 2007 - An Act Relative to the Licensing Requirements for Certain Tidelands), the Secretary of the Executive Office of Energy and Environmental Affairs in Massachusetts is named as the "administrator of tidelands," and authorizes him or her to conduct and complete a "public benefit review" for any proposed project that is subject to the licensing provisions of Chapter 91. The Secretary is required to conduct a public benefit review where the project requires an environmental impact report (EIR) pursuant to the Massachusetts Environmental Policy Act, or MEPA, and the Secretary may conduct such a review where the project requires an environmental notification form (ENF) under MEPA. The results of the public benefit review are required to be published on the public record.

In making the "public benefit determination," the Secretary is required to consider the following elements:

Going forward, cities will need to carefully balance industrial, commercial and residential uses for ports. Developers must be mindful of the various stakeholders and their hot-button issues.

Andrew Glincher specializes in the negotiation and resolution of business and real estate disputes. Mr. Glincher has represented developers and owners of retail centers, hotels, movie theatres, office and industrial buildings and parks, utilities, restaurants, subdivisions, apartment complexes, assisted living housing complexes, long-term care facilities and condominium projects. Mr. Glincher is admitted to practice in Massachusetts, the U.S. Court of Appeals, Third Circuit, the U.S. District Court, District of Massachusetts and the U.S. Tax Court. Mr. Glincher can be contacted at 617-345-1222 or aglincher@nixonpeabody.com Extended Bio...

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