A Developer’s Perspective on Financing Brownfield Projects: A Change in Lender’s Attitude?...

A Developer’s Perspective on A Developer’s Perspective on Financing Brownfield Projects:Financing Brownfield Projects:A Change in Lender’s Attitude?A Change in Lender’s Attitude?

Presented by Dan Paris, Acting CEOPresented by Dan Paris, Acting CEO

REM Tech 2006, Banff, ABREM Tech 2006, Banff, ABOctober 11, 2006October 11, 2006

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

IntroductionIntroduction

Have lenders’ attitudesattitudes changed towards brownfield remediation?

Is brownfield financing more readily more readily availableavailable?

What strategiesstrategies will help secure debt financing more easily?

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Cochrane Project (Domtar Lands), Cochrane, ABCochrane Project (Domtar Lands), Cochrane, AB

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Cochrane Project (Domtar Lands), Cochrane, ABCochrane Project (Domtar Lands), Cochrane, AB

Development highlights:

• 68 Acre site: subdivided into 39 new lots

• 25% residential, 40% commercial, 35% light industrial

• New site services & streets

• Phase 1: Remediation & Shopping Center

• Phase 2 & 3: Bal. of remediation, roads & services

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Cochrane Project (Domtar Lands), Cochrane, ABCochrane Project (Domtar Lands), Cochrane, AB

Remediation highlights:

• Former Domtar railway tie-dipping facility

• Creosote soil contamination in several hot spots

• Hydrocarbon soil contamination at shallow depth throughout site

• Groundwater issues

• Air quality issues during remediation

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Cochrane Project (Domtar Lands), Cochrane, ABCochrane Project (Domtar Lands), Cochrane, AB

Approvals & Remediation Process:

• Domtar lands acquired by Conor Pacific (in JV with Urbanex Development Corp.)

• Approvals: 1997 site investigation; 1999 received AIP; 2000 received C of C for Phase 1 lands

• Phase 1 Remediation (“dig & dump”); Phase 2 & 3 Remediation (not yet started)

• Complex municipal approvals inextricably tied directly to Alberta Environment approval

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Cochrane Project (Domtar Lands), Cochrane, ABCochrane Project (Domtar Lands), Cochrane, AB

Financing issues:

• Negative land value: Domtar paid us to clean site and take title & liability

• Laurentian Bank: only lender to issue commitment

• Tranche A ($3M): Soft costs & Ph. 1 remediation; Tranche B ($7.5M): bal. of Ph.1 services & Shg. Ctr.

• Key conditions precedent: 1) Cost Cap & PLL insurance ($600K) in place prior to funding Tr. A; 2) Ph.1 C of C required before funding Tr. B

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Dockside Green, Victoria, BC (cont.)Dockside Green, Victoria, BC (cont.)

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Dockside Green, Victoria, BCDockside Green, Victoria, BC

Development highlights:

• 1.3M sq. ft. building area over 10 years

• 70% residential, 30% ind’l/office/retail/other

• LEED Platinum commitment

• Biomass wood-waste gasif’n & central H/W

• On-site waste water & sewage treatment

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Dockside Green, Victoria, BC (cont.)Dockside Green, Victoria, BC (cont.)

Remediation highlights:

• Excavation and off-site thermal desorption & disposal of Hazardous Waste material

• Thermal desorption material mixed with GVRD biosolids; used to fill Similkameen Coal Mine

• Risk-assessed on-site storage & capping of Contaminated Materials below buildings & greenbelt

• Risk-assessment program tied to LEED Platinum commitment

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Dockside Green, Victoria, BC (cont.)Dockside Green, Victoria, BC (cont.)

Approvals & Remediation Process:

• City of Victoria lands: 1999 site investigation; 2000 received AIP; 2001 Remediation Agreement

• Princess Mary lands: COC on some areas, AIP on balance in 2005

• Quantum Environmental: took over consulting & contracting scope for Dockside Green; secured revised AIP’s in 2005 and 2006

• Quantum will complete risk-assessed remediation in late 2006

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Dockside Green, Victoria, BC (cont.)Dockside Green, Victoria, BC (cont.)

Financing highlights:

• Land loan: pre-remediation (secured w/ clean site)

• Ph. 1 construction loan: 60% loan-to-value (approx. 15% equity required)

• Repaid share of land loan, 50% of soft costs, 100% of construction, financing & marketing costs

• Condition precedents: 1) AIP (rather than C of C); 2) 75% of constr’n costs fixed; 3) 50% pre-sales; 4) many, many covenants & guarantees

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Lender’s Issues are ChangingLender’s Issues are Changing

IssuesIssues < 1995< 1995 20002000 > 2005> 2005

Enviro. Approvals C of C C of C AIP

Remed’n Fin’g Equity Debt Debt

Legislation Uncertainty Negotiated “Polluter Pays”

Commitment After remed’n Before remed’n Before remed’n

Costs Fixed Fixed Good Estimate

Land Abundant Abundant Limited

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Lender’s Issues are Changing (cont.)Lender’s Issues are Changing (cont.)

IssuesIssues < 1995< 1995 20002000 > 2005> 2005

Insurance Didn’t exist Required Not required

Technology Limited Increasing Many options

Gov’t financing None None Grants / loans

Timeline Long Long Short

Lender knowledge None Limited Good

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Strategies for Securing Remediation FinancingStrategies for Securing Remediation Financing

Approvals:

• AIP in place or pending approval (C of C not req’d)

• Municipal rezoning, subdivision & DP in place (or pending); provincial & federal approvals for non remediation issues

• If land owned by City or Province, can get AIP more easily than if owned by private developer

• Support of local & environmental community (to avoid legal issues, such as injunctions, etc)

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Strategies for Securing Remediation FinancingStrategies for Securing Remediation Financing

Development Plan & Business Case:

• Well laid-out case in writing & in plan

• Detailed cost estimates (not necessarily fixed)

• Covenants & guarantees: expect many

• Track record: developer, consultants, contractor

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

Strategies for Securing Remediation FinancingStrategies for Securing Remediation Financing

Development Plan & Business Case:

• Land: free & clear of encumbrances (or undertaking to clear title)

• Marketing: complete (or at least hit pre-sale req’t)

• Insurance: only if req’d by lender

• Exit plan: determine post-remediation value and establish why lift in value is worth funding risk

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB

What’s Next?What’s Next?

Lender’s attitudes will continue to shift

• Legislation will continue to improve and case law will more clearly define liability, responsibility & recourse

• Approval process is becoming more streamlined and regularized

• Out of “Innovation” stage and into “Early Adopter” stage: less resistance, more acceptance

• Land is running out: “do it” or lose business

THANK YOUTHANK YOU

Dan Paris, Acting CEODan Paris, Acting CEO

REM Tech 2006, Banff, ABREM Tech 2006, Banff, ABOctober 11, 2006October 11, 2006

REM Tech 2006, Banff, ABREM Tech 2006, Banff, AB