Reuse and Redevelopment of Business Sites and Facilities

Transcription

1 Reuse and Redevelopment of Business Sites and Facilities A presentation by Lee Smith, President Elesco Limited To the Northwest Economic Development Course Central Washington University Ellensburg, Washington August 20,

2 Issues Discussed in this Presentation Site and/or building issues what do you have to work with? Market opportunities analysis what are your alternatives? Objectives what do you want to accomplish? Regulatory and planning issues what is allowed? Economic / financial issues can you make it work? 2

3 WHO AM I? Managed economic development agencies in Portland, Colorado Springs, Tucson & Seattle. Managed corporate real estate services for international industrial / commercial real estate company. Formed CASI in 1986 to provide consulting services for corporate real estate asset management. Formed Elesco in 1989 to add consulting services for public-sector economic development. 3

4 Types of Properties that Have Been Reused/Redeveloped Forest products mill sites Grain elevators and silos Canneries and wharf facilities Special purpose manufacturing facilities Obsolete warehouses Hospitals, schools, institutional facilities Odd stuff missile silos and torpedo factories 4

5 POPE & TALBOT LUMBER MILL OAKRIDGE, OREGON Reuse and Redevelopment of a ±170-acre former sawmill site and buildings. Reuse was planning and development of an industrial / business park with extensive public and recreational amenities. 5

6 CARNATION MILK PLANT SUNNYSIDE, WA Reuse and Redevelopment of a ±33,000 sq. ft. facility built in 1941 to manufacture canned milk products. Maul Foster Alongi, Inc. conducted the environmental assessment and remediation plan. Reuse focusing on single-user food processing plant or multi-tenant Mercado complex. 9

7 LOOK AT THE WHOLE PROPERTY 22

8 What we build today may be obsolete tomorrow 23

9 SITE AND/OR BUILDING ISSUES Three Types of Obsolescence Functional Obsolescence: Occurs when a property loses value due to its architectural design, building type, size, outdated amenities, local economic conditions, changing technology, manufacturing processes. Economic Obsolescence: Occurs when a property loses value because of external factors such as shifts in markets, resources, transportation. Example is obsolete sawmills due to constraints on timber resources. Also high costs to meet regulatory or environmental upgrades. Structural Obsolescence: Occurs when a property loses value due to physical deterioration or deferred maintenance that is too costly to repair. 24

10 IF YOU BUILD IT, WILL THEY COME? Stephen R. Covey Begin with the End in Mind You need more than goals----- You need reasons----be able to answer the question WHY? 25

11 Community Reasons for Reuse/Redevelopment Turn Non-Performing Properties into Economic or Community Assets Convert a blighted area or facility into a community asset Generate new employment Add new land/facility supply if other resources are limited Develop a new revenue source Increase tax base Maybe provide product at lower cost Protect and preserve a historical or heritage site 26

12 Developer Reasons for Reuse/Redevelopment MAKE A PROFIT 27

13 Or At Least Don t Go Broke! 28

14 Developer Issues Environmental Brownfields vs. Greenfields Minimize liabilities NFA Letter Suitability for reuse or redevelopment Structural, functional adaptability Regulatory issues is rezoning possible? Ability to meet the needs of today s market Location, size, shape, market acceptance Costs Financial feasibility 29

15 REASONS FOR DEVELOPING THE SITE 1. Location for development of Indian-owned businesses, Tribal or individual. Emphasis on government contracting and SBA 8a incentives 2. Location for joint ventures with local manufacturers 3. Location for recruiting non-indian primary businesses 31

16 Steps in the Reuse/ Redevelopment Process Project Initiation Deciding whether to take on the project Preliminary Project Feasibility Resolving the First Three Issues Project Planning and Financing Project Implementation 33

17 Public/Private Partnership to Resolve Issues while Achieving Community Objectives Public Sector Roles Private Sector Roles Non-Profit Sector Roles 34

18 Private Sector Participation:? Project Initiation DEVELOPMENT PROCESS Real Estate Developer Building/Property Owner Public Agency Existing Building(s)/Property Owned, Option to Buy, Interest Assemble Development Team Preliminary Overview Evaluation Option Property Option Expire Sell Property Non-Profit Quasi-Public Groups Development Objectives Non-Economic Public Use Public/Quasi-Public Sector Participation Funding of Studies Staff Support Background Studies 35

19 Who are the Players? Nez Perce Tribal Enterprises Nez Perce Tribal Council Nez Perce Governmental Agencies (Several) Clearwater Economic Development Association Northwest Intermountain Manufacturers Association Great Northwest Railroad (GNWR) State of Idaho Various agencies Port of Lewiston 36

20 What is Status of Site? 68-Acres Owned by Nez Perce Tribe in Fee Acquired from Potlatch Corporation Currently vacant; some agricultural uses Former sawmill operations Packaging, warehousing, distribution Adjacent to US Highway 95 Adjacent to GNWR Railroad still operating Adjacent to Clearwater River 37

21 Preliminary Evaluation 39

22 Preliminary Decision GO WITH FURTHER SITE EVALUATION AND MARKET FEASIBILITY STUDY COMPETING CONCEPTS LONGHOUSE GOLF COURSE 40

23 Project Feasibility Real Estate Developer Financial Institutions Private Sources/Owners MARKET AND ECONOMIC EVALUATION SITE AND LOCATION EVALUATION STRUCTURAL AND PHYSICAL EVALUATION ARCHITECTURAL AND HISTORICAL EVALUATION Funding of Studies Staff Support Fund Raising Liaison with Public Groups 41

24 Market Issues TEMPLATE FOR MARKET ASSESSMENT OF INDUSTRIAL SITES TARGET MARKETING STRATEGIES / ECONOMIC FEASIBILITY ANALYSIS Step 1: Select the primary regional market Geographic location Map showing location within regional context Transportation connections to market centers (highway, rail, air, barge, ocean shipping) Special features, e.g., seaport facilities, that offer connections to larger markets 42

25 Market Area 43

26 Market Area Overlay NIMA 44

27 Market Issues Step 2: Describe and assess the primary regional market Population & demographic patterns, trends and forecasts ogeographic patterns of population growth and densities oemployment, incomes, disposable incomes (compare to state) Economic patterns, trends and forecasts oo Industrial mix defined by NAICS sectors oo Sizes of industries oo Employment and establishment growth trends oo Geographic locations of industries within the primary market 45

28 Market Issues Step 3: Industry cluster analysis Group employment patterns by industry clusters Identify gaps / linkage opportunities Rank industries and clusters by location quotients (RCI), shift/share, other techniques 46

29 Market Issues Step 4: Supply analysis Assess competing industrial sites in the primary market Established industrial sites / parks services, sizes, occupants, available land, prices Current development of industrial sites / parks types of planned uses, services, sizes, prices Planned development of industrial sites / parks types of planned uses, services, sizes, prices 47

30 Market Issues Step 5: Demand analysis Quantify future demand New businesses siting in the region Absorption rates Employment forecasts by sector emphasis on industrial employment if appropriate Translate employment growth forecasts into building space and land requirements 48

31 Market Issues Step 6: Market share analysis Describe competitive position of target site within the regional market Community business support capabilities Site business support capabilities (infrastructure, access, services, etc. Describe competitive enhancement opportunities Describe potential types of customers for the site Quantity potential absorption rates 49

32 Market Issues Step 7: Target industry analysis and marketing selection Project trends of future employment / establishment growth by industry and / or clusters Identify linkage-based potential demand from existing industries Rank target industries / clusters based on market share and competitive position Add industries/clusters that are suitable for recruitment from outside markets Profile target industries and their site location requirements 50

33 Site Issues Transportation and Access Utilities Highway Access Rail Access River Access Internal Connectivity Potable Water Wastewater Stormwater Management Fire Suppression Telephone and Internet Site Power Natural Gas Environmental Studies Regulatory Requirements and Constraints Implications for Future Development 51

34 Project Planning & Financial Analysis Real Estate Developer Commercial Banks R.E.I.T.s Financial Institutions Mutual Savings Banks Pension Trust Private Industry Insurance Companies Business Organizations Syndications DEVELOPER KIT AND SOLICITATION (AS REQUIRED) SCHEMATIC DESIGN SECURE PUBLIC DEVELOPMENT APPROVALS OPTION EXPIRE LENDERS PRESENTATION PACKAGE SECURE FINANCING SECURE PROPERTY FEASIBILITY ANALYSIS AND DEVELOPMENT PLAN SELL PROPERTY NON-ECONOMIC PUBLIC USE Site Improvements Long-Term Public Leases State Created Bonding Agencies Grants and Loans Public Infrastructure Improvements Federal Program Funds Tax Abatements/Incentives Community Devel. Block Grants Revolving Funds 52

35 Partnership Options Developer buys property and takes all risks Private equity and private debt Public regulatory support Public agency acquires property, provides all financing, pays developer a fee for services Shared risks Fee paid regardless of outcome as long as developer performs Public agency acquires property, gives developer option Shared financial contributions, shared returns 53

36 Hypothetical Development Costs for Recycling a Warehouse to Flex/Office Uses Acquisition Costs (60,000 sq. ft. x $10/psf) $ 600,000 Renovation/Construction Costs Building (60,000 sq. ft. x $10 psf) $ 600,000 Site Improvements / Brownfield Mitigation 700,000 $1,300,000 Indirect Costs Architectural & Engineering Fees $ 117,000 Legal, Accounting, Market Consultation 26,000 Interim Financing for Acquisition & Construction 125,000 $ 268,000 Contingency (4% of Project Costs) $ 86,720 Total Development Costs (rounded) $2,254,720 54

37 Strategy #1 BUY DOWN THE COSTS 55

38 Effects of Cost Buy-Down Acquisition Costs (60,000 sq. ft. x $10/psf = $600,000) Costs after $300,000 CDBG Grant $ 300,000 Renovation/Construction Costs Building (60,000 sq. ft. x $20 psf) $ 600,000 Site Improvements 700,000 $1,300,000 Indirect Costs Architectural & Engineering Fees $ 117,000 Legal, Accounting, Market Consultation 26,000 Interim Financing for Acquisition & Construction 125,000 $ 268,000 Contingency (4% of Project Costs) $ 74,720 Total Development Costs $1,942,720 Equity requirement reduced from $466,000 to $210,220 Potential ROI increases to 33.3% 56

39 STRATEGY #2 LOWER THE INTEREST RATES 57

40 Effects of Lower Interest Rates Still at $10.00 per square foot rents Gross Annual Revenues $ 495,000 Net Income Before Debt Service $ 192,000 Economic Value (CAP Rate = 10) $1,920,000 Mortgage Loan Obtainable $1,440,000 Annual Debt Service 6.5%, 30 Years $ 111,000 Cash Flow Before Income Taxes $ 81,000 Maximum 15% ROI $ 540,000 Maximum Project Cost (Mortgage + Equity) $1,980,000 Essentially break-even on costs of $1,942,720 58

41 STRATEGY #3 APPLY TAX INCENTIVES 59

42 Effects of Tax Incentives/Abatements $10.00 psf rents; $25,000 annual tax abatement Gross Annual Revenues $ 495,000 Expenses minus $25,000 $ 278,000 Net Income Before Debt Service $ 217,000 Economic Value at 10 CAP Rate $2,170,000 Mortgage Obtainable (75%) $1,628,000 Debt Service (8.5%, 30 Years) $ -151,000 Cash Flow Before Taxes $ 66,000 Maximum 15% $ 440,000 Maximum Project Cost $2,068,000 Project pencils with surplus of $125,280 60

43 Project Implementation PROJECT MANAGEMENT AND IMPLEMENTATION PH YSIC AL BU ILD IN G / SITE REHABILITATION PROJECT COMPLETION PROJECT MARKETING Public Infrastructure Improvements Implementation 61

44 Flow Chart for Site Redevelopment 62

45 NEZ PERCE MANUFACTURING CENTER 63

46 66