Real Estate Development and Reuse Scott Sumners Rider Levett Bucknall January 2017
Course Outline 1. Introduction 2. Approaches to Development 3. The Real Estate Development Process 4. Environmental Issues 5. Public Sector Involvement
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)
1 Introduction
Public Real Estate Development is Unique Public Purpose and Goals Types of Resources Available Limitations
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
HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE? Types of Resources Available Financial Operating Funds CIP Funds Bond Program Other Land Tax Relief Expediting / Streamlining
HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE? Limitations Statutory Financial Political Practical
Lessons Learned Note: Instructor s Views Do Not Necessarily Reflect the Views of AAED 1. Public and Private Sectors Need Each Other... 2. Sometimes Bureaucracy is Good... 3. Marketing is Nice, but Results are Better 4. Consensus is Like a Unicorn
Your Role is Unique! City Administration
2 Approaches to Development
A Little History Migration to City Living Zoning to Separate Incompatible Uses Mixed-Use Development / Smart Growth
Green Building Increased Up-Front Costs Reduced Operating Costs Positive Marketing Initial Investment of 2% Results in 20% Lifecycle Savings
Green Building What is Your Goal? Operational Savings Visionary Thinking Competitive Position Generate Sales Media Exposure Political
Phoenix Convention Center LEED Sales Pitch: No Additional Cost! Actual Cost: $3,000,000 LEED Points for 15,000 SF Solar Array: None
Burlingame Ranch Affordable Housing Aspen, CO Approach: No Plaque Focus on Maximizing Efficiency Generate Savings for Future Residents
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
3 The Real Estate Development Process
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
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?
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?
PAYSON UNIVERSITY CAMPUS RIM COUNTRY EDUCATIONAL ALLIANCE SLE RIM COUNTRY EDUCATIONAL FOUNDATION LLC
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
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
Site & Engineering Analysis Example Payson University Campus
Site & Engineering Analysis Example Today Payson University Campus Master Plan
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
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
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
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
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
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
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
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 $13,000 10 $13,400 11 $13,800 12 $14,200 13 $14,600 14 $15,000 15 $15,500 16 $16,000 17 $16,500 18 $17,000 19 $17,500 20 $18,000 21 $18,500 22 $19,100 23 $19,700 24 $20,300 25 $20,900 26 $21,500 27 $22,100 28 $22,800 29 $23,500 30 $24,200 Total $500,000
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 $51,500 10 $53,000 11 $54,600 12 $56,200 13 $57,900 14 $59,600 15 $61,400 16 $63,200 17 $65,100 18 $67,100 19 $69,100 20 $71,200 21 $73,300 22 $75,500 23 $77,800 24 $80,100 25 $82,500 26 $220,000 27 $226,600 28 $233,400 29 $240,400 30 $247,600 Total $2,300,000
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 $51,500 10 $13,400 $53,000 11 $13,800 $54,600 12 $14,200 $56,200 13 $14,600 $57,900 14 $15,000 $59,600 15 $15,500 $61,400 16 $16,000 $63,200 17 $16,500 $65,100 18 $17,000 $67,100 19 $17,500 $69,100 20 $18,000 $71,200 21 $18,500 $73,300 22 $19,100 $75,500 23 $19,700 $77,800 24 $20,300 $80,100 25 $20,900 $82,500 26 $21,500 $220,000 27 $22,100 $226,600 28 $22,800 $233,400 29 $23,500 $240,400 30 $24,200 $247,600 Total $500,000 $2,300,000
GPLET Example Argument We Can t Survive the Reduction in Revenue! Abatement
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
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
THE REAL ESTATE DEVELOPMENT PROCESS Construction Suddenly a heated exchange took place between the king and the moat contractor.
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
THE REAL ESTATE DEVELOPMENT PROCESS Marketing Public Sector Participation is Limited Targets = Tenants / Buyers Strategies Competitive Pricing Structure Advertising Promotion Earned Media Broker Relations
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
4 Environmental Issues
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)
Environmental Issues Where?
Environmental Issues Analysis Phase I Environmental Report Phase II Environmental Report EIR EIS FONSI Finding of No Significant Impact x
Environmental Issues Cleanup Bunny Suit x
5 Public Sector Involvement
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)
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
Public Sector Roles FACILIATOR FACILITATOR ROLE Regulatory approvals Partial financing Infrastructure Streetscape Facade improvement
Public Sector Roles INITIATOR INITIATOR ROLE Define redevelopment area Conceptual design Feasibility study Public participation Issue RFP / RFQ Select developer Sell / lease land
Public Participation STAKEHOLDER OUTREACH Public Forums Neighborhood Associations Community organizations Business Community Property Owners Public Notices Media outreach Surveys
Questions? Scott Sumners Rider Levett Bucknall (602) 443-4848 scott.sumners@us.rlb.com