On Dec 05 2013 by H. Ronald Klasko

Tenant Occupancy is Alive (And Well?)

In my last blog, I mentioned that I recently successfully represented a regional center developer before the new Decision Board in connection with a regional center application and exemplar I-526 for which the key issue was job creation based on tenant occupancy methodology.  Although no decision is precedential and each case is dependent upon the facts and presentation, I can share three insights that may be instructive.

First, the main lesson is that tenant occupancy as a job creation methodology is not dead. It may be on life support, but not dead.  Second, the Decision Board process is a very worthwhile one for developing a dialogue and for focusing on the key information that is required for a successful resolution of a petition.  Finally, the facts and the evidence must be extremely strong for tenant occupancy jobs to be counted.

I believe that the key facts that led to the approval of our petition were the following:

  1. We identified, with evidentiary support for our conclusions, the mix of tenants that would eventually lease the premises.  We did not do so by name, but by type of tenant – restaurant, medical office, etc.  We proved the likely mix of tenants by a preponderance of the evidence.
  2. We proved by a preponderance of the evidence that the tenants in the new mixed-use project will produce “net new jobs” and not just be relocated tenants that would leave empty space elsewhere.  We were able to do so by proving that tenants are at “full occupancy” in the area, which is defined as vacancy rates at or below 3%.  We were also able to prove that vacated space is filled with a new tenant within one to two months.
  3. We proved a combination of excess demand for the type of space in question together with proof that the extra supply of space would not create any excess capacity.
  4. We showed that the extra space would “correct market imperfections”, including abnormally high rents and abnormally high unemployment, and specifically that the increased supply of space was essential to growth in employment and reduction in rents.
  5. We presented an expert economic opinion setting forth a “reasonable economic methodology” for projecting tenant occupancy jobs.  The expert opinion concluded that the applicant’s job projection is consistent with the proposed “reasonable economic methodology.”
  6. Finally, we provided an analysis explaining how the documentation was fully compliant with the USCIS Guidance Memorandum on Tenant Occupancy dated December 20, 2012.  A key element of the presentation was emphasizing that the Guidance Memorandum requires a showing of either “constraint on the supply of appropriate commercial space” or “excess demand for such space.”  Although in our case we presented documentation to establish both constraint on supply and excess demand, we emphasized that approving either one or the other by a preponderance of the evidence was sufficient to meet the standards of the Guidance Memorandum.

In summary, my advice to clients remains as it was before this approval.  Reliance on tenant occupancy jobs, other than for increasing a job cushion, is highly risky business. However, given the right facts and a cogent evidentiary and legal presentation, for a project where tenant occupancy jobs are critical, it may be possible to achieve a successful result.