Real Estate Development and Reuse

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1 Real Estate Development and Reuse Scott Sumners Rider Levett Bucknall January 2017

2 Course Outline 1. Introduction 2. Approaches to Development 3. The Real Estate Development Process 4. Environmental Issues 5. Public Sector Involvement

3 Background 20+ Years in Real Estate Development Public + Private Sector Tempe Development Review Commission BS Urban Planning, ASU MPA Public Administration, ASU Project Management Professional (PMP) Certified Construction Manager (CCM)

4 1 Introduction

5 Public Real Estate Development is Unique Public Purpose and Goals Types of Resources Available Limitations

6 HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE? Public Purpose and Goals Goals Are Difficult to Measure Create Jobs Broaden the Tax Base Increase # of Visitors Must Balance Public and Private Interests Intertwined with Political Ideology Liberals, Conservatives, Moderates Political Geography

7 HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE? Types of Resources Available Financial Operating Funds CIP Funds Bond Program Other Land Tax Relief Expediting / Streamlining

8 HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE? Limitations Statutory Financial Political Practical

9 Lessons Learned Note: Instructor s Views Do Not Necessarily Reflect the Views of AAED 1. Public and Private Sectors Need Each Other Sometimes Bureaucracy is Good Marketing is Nice, but Results are Better 4. Consensus is Like a Unicorn

10 Your Role is Unique! City Administration

11 2 Approaches to Development

12 A Little History Migration to City Living Zoning to Separate Incompatible Uses Mixed-Use Development / Smart Growth

13 Green Building Increased Up-Front Costs Reduced Operating Costs Positive Marketing Initial Investment of 2% Results in 20% Lifecycle Savings

14 Green Building What is Your Goal? Operational Savings Visionary Thinking Competitive Position Generate Sales Media Exposure Political

15 Phoenix Convention Center LEED Sales Pitch: No Additional Cost! Actual Cost: $3,000,000 LEED Points for 15,000 SF Solar Array: None

16 Burlingame Ranch Affordable Housing Aspen, CO Approach: No Plaque Focus on Maximizing Efficiency Generate Savings for Future Residents

17 Types of Development & Redevelopment Build-to-suit Speculative development Greenfield development Redevelopment/reuse Customized for 1 business Single tenant Built before securing tenants Multiple leases Undeveloped land Rural & suburban areas Infill Sprawl mitigation

18 3 The Real Estate Development Process

19 The Real Estate Development Process 1. Predevelopment 2. Feasibility Studies 3. Site Analysis 6. Construction 5. Negotiations & Approvals 4. Financing 7. Marketing 8. Occupancy & Management

20 THE REAL ESTATE DEVELOPMENT PROCESS Predevelopment & Feasibility Analysis 1. PREDEVELOPMENT Business plan Site control Building size Partners 2. FEASIBILITY ANALYSIS Market Financial Political Sufficient market demand? Timely return on investment? Approved by the public sector? Does the project pencil out?

21 THE REAL ESTATE DEVELOPMENT PROCESS Site & Engineering Analysis TOPICS TO CONSIDER Natural Conditions and Contamination Road Issues Site Access Infrastructure Utilities Planning and Development Is the site shovel ready?

22 PAYSON UNIVERSITY CAMPUS RIM COUNTRY EDUCATIONAL ALLIANCE SLE RIM COUNTRY EDUCATIONAL FOUNDATION LLC

23 Site & Engineering Analysis Example Payson University Campus Goal: Develop a University Campus in Payson Authority: Rim Country Educational Alliance Formed by Town of Payson and Town of Star Valley Purpose: Higher Education + Workforce Development Funding: Rim Country Educational Foundation Property: 253 Acres in Payson, AZ Schedule: Open by Fall 2018 Budget: TBD

24 Site & Engineering Analysis Example Payson University Campus October 2015 Alliance + Foundation Members Deliver a $4,100,000 Check to U.S. Forest Service to Acquire the 253-Acre Property RSP Retained as Architect RLB Retained as Program Manager

25 Site & Engineering Analysis Example Payson University Campus

26 Site & Engineering Analysis Example Today Payson University Campus Master Plan

27 Site & Engineering Analysis Example Payson University Campus Due Diligence & Site Analysis Geotechnical Survey Tree Survey Boundary & Easement Survey Sanitary District Analysis Traffic Impact Analysis Design Highway Access Loop Road Through Site

28 Site & Engineering Analysis Example Payson University Campus Coordination w/ Utilities APS (Power) Century Link (Internet/Phone) Sudden Link (Cable TV) Sanitary District (Sewer) Town of Payson (Water) Coordination w/ USFS, ADOT, ADEQ, Town of Payson & other Government Agencies Next Steps: Finalize Negotiations, Finalize Design, Construction

29 THE REAL ESTATE DEVELOPMENT PROCESS Financing PUBLIC ASSISTANCE TOOLS City Property Tax Abatement (GPLET, TIF ) New Markets Tax Credits Low-Income Housing Tax Credit Industrial Development Authority Historic Preservation Incentives Infrastructure Reimbursement HUD Grants & Loans TRADITIONAL FINANCING TOOLS Debt Bank Loans Equity Cash

30 GPLET What is It? Government Property Lease Excise Tax Authorized by State as economic development tool in 1996 ARS Title 42, Chapter 6, Article 5 Government-owned property is not subject to property tax Provides a way to collect tax from private entities who lease government property Restricted Use Eight-year Abatement

31 Factors Impacting Property Taxes 2009 Budget Bill City Use of GPLET Increasing Gov t Ownership Declining Commercial Assessment Ratios Other Taxing Jurisdictions Prop 117, Limits on Annual AV Growth Changing Property Values Property Tax Bill Prop 117, Transition from LPV/FCV to LV

32 GPLET in Phoenix Used exclusively within the Downtown Redevelopment Area and Central Business District 12 active projects Resulting capital investment in downtown Phoenix $4.5 Billion

33 GPLET Why Use It? Valuable Economic Development Tool Encourages redevelopment Creates jobs, spending and tax revenues Enhances property values & capitalizes on existing public infrastructure Generates excise taxes during GPLET Example: Arizona Center $805 million capital investment GPLET lease ended in 2011 Generating $4.4 million in property taxes

34 GPLET Example Scenario 1: Status Quo $10,000 Base Year Property Tax Property Taxes Year Status Quo 0 $10,000 1 $10,300 2 $10,600 3 $10,900 4 $11,200 5 $11,500 6 $11,800 7 $12,200 8 $12,600 9 $13, $13, $13, $14, $14, $15, $15, $16, $16, $17, $17, $18, $18, $19, $19, $20, $20, $21, $22, $22, $23, $24,200 Total $500,000

35 GPLET Example Scenario 2: Approve GPLET Project 8-Year Abatement Project Complete 25-Year GPLET Agreement 17-Year Excise Tax Payments Ad Valorem (Traditional) Tax Property / Excise Taxes Year Approve GPLET Project 0 $10,000 1 $0 2 $0 3 $0 4 $0 5 $0 6 $0 7 $0 8 $50,000 9 $51, $53, $54, $56, $57, $59, $61, $63, $65, $67, $69, $71, $73, $75, $77, $80, $82, $220, $226, $233, $240, $247,600 Total $2,300,000

36 GPLET Example Status Quo vs. GPLET Comparison Abatement Property / Excise Taxes Year Status Quo Approve GPLET Project 0 $10,000 $10,000 1 $10,300 $0 2 $10,600 $0 3 $10,900 $0 4 $11,200 $0 5 $11,500 $0 6 $11,800 $0 7 $12,200 $0 8 $12,600 $50,000 9 $13,000 $51, $13,400 $53, $13,800 $54, $14,200 $56, $14,600 $57, $15,000 $59, $15,500 $61, $16,000 $63, $16,500 $65, $17,000 $67, $17,500 $69, $18,000 $71, $18,500 $73, $19,100 $75, $19,700 $77, $20,300 $80, $20,900 $82, $21,500 $220, $22,100 $226, $22,800 $233, $23,500 $240, $24,200 $247,600 Total $500,000 $2,300,000

37 GPLET Example Argument We Can t Survive the Reduction in Revenue! Abatement

38 GPLET Example Facts: 1) Yes, There is a Loss in Revenue for 8 Years 2) Lost Revenue is Typically Recaptured Within 2 Years 8 Years of Lost Revenue = Revenue Gained in First 2 Years Abatement

39 THE REAL ESTATE DEVELOPMENT PROCESS Negotiations & Public Approvals PUBLIC APPROVALS Zoning Subdivision Site plan review Environmental Review Building permits City Council PRIVATE APPROVALS Joint venture agreements Land acquisition contracts Lender commitments Architect agreements Engineering agreements Construction agreements Lease/Sale contracts Insurance agreements

40 THE REAL ESTATE DEVELOPMENT PROCESS Construction Suddenly a heated exchange took place between the king and the moat contractor.

41 THE REAL ESTATE DEVELOPMENT PROCESS Construction Time Environmental Remediation Demolition Infrastructure Development Construction / Renovation Tenant Improvements Pre-leasing Always Carry a Contingency Quality Pick Two Cost Architects and Contractors Have Conflicts of Interest

42 THE REAL ESTATE DEVELOPMENT PROCESS Marketing Public Sector Participation is Limited Targets = Tenants / Buyers Strategies Competitive Pricing Structure Advertising Promotion Earned Media Broker Relations

43 THE REAL ESTATE DEVELOPMENT PROCESS Building Occupancy & Management Public Sector Participation is Limited Asset Management Set Rates and Charges Allocate Common Expenses Contract for Property Management Contract for Capital Improvements Contract for Maintenance Refinancing Reporting Maintain Relationship w/ Owner

44 4 Environmental Issues

45 Environmental Issues What? Brownfield Site (US EPA): real property, the expansion, redevelopment or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. Common Contaminants Asbestos Lead Paint Polychlorinated biphenyls (PCBs)

46 Environmental Issues Where?

47 Environmental Issues Analysis Phase I Environmental Report Phase II Environmental Report EIR EIS FONSI Finding of No Significant Impact x

48 Environmental Issues Cleanup Bunny Suit x

49 5 Public Sector Involvement

50 Public Incentives Basic Premise: Project Would Not Happen Without Incentive Justification Jobs Visitation Fiscal Return Catalyst for Future Development Other Policy Goals (e.g. Develop Urban Core; Develop High-Wage Market Sector)

51 Public Sector Roles REGULATOR PLANNING General Plan Overlay Districts Zoning Adjustment / Relief Variance Use Permit DEVELOPMENT Design Review Board Plan Review Building Permits Inspections Certificate of Occupancy Temporary Phased Occupancy Final

52 Public Sector Roles FACILIATOR FACILITATOR ROLE Regulatory approvals Partial financing Infrastructure Streetscape Facade improvement

53 Public Sector Roles INITIATOR INITIATOR ROLE Define redevelopment area Conceptual design Feasibility study Public participation Issue RFP / RFQ Select developer Sell / lease land

54 Public Participation STAKEHOLDER OUTREACH Public Forums Neighborhood Associations Community organizations Business Community Property Owners Public Notices Media outreach Surveys

55 Questions? Scott Sumners Rider Levett Bucknall (602)

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