Presentation to CALED

35th Annual Training Conference

Getting it Done:

Can Cities Help Development Projects in a Post-RDA World?

Presented by:Larry Kosmont, CRE & Ken Hira, Kosmont Companies

Don Hunt , Norton Rose Fulbright LLPDon Smail, City of Manteca

www.kosmont.com

April 22, 2015

How do the Pieces Fit Together?

The Problems:• Greenhouse Gas Emissions (GHGs)

• Drought

• Climate Change

• Insufficient regional transportation

• Crumbling Infrastructure Aging water transportation infrastructure

Aging sewer infrastructure

Aging electric & utility plants

• New Infrastructure Needed For shift to multifamily housing

Transit-Oriented Development in designated high-quality transit areas (HQTAs)

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Economic Development and Sustainable Public PolicyHow does the new Legislation provide Opportunity?

Sustainable PolicyCompliance

Economic DevelopmentNew Revenues and Jobs

SB 628 (Beall)Enhanced Infrastructure Financing Districts

SB 614 (Wolk)Jurisdictional Changes for Special District/Annexed area for Infrastructure Financing

AB 229 (Perez)Infrastructure and Revitalization Financing Districts on Former Military Bases

SB 743 (Steinberg)CEQA: Environmental Quality Streamlining for TOD / Infill Dev.

AB 850 (Nazarian)Financing Public Capital Facilities: Water Quality

AB 1471 (Proposition 1; Rendon)Financing Water Quality, Supply and Infrastructure Improvement: Bond Issuance

AB 2660 (Aguiar)Infrastructure Financing Act: User Fees and P3s

Local & Regional Infrastructure

AB 32 (Perez)Cap and Trade: Community Development Investment Tax Credits

SB 375 (Steinberg)GHG Emissions Reductions: Sustainable Communities Strategy

AB 1739 (Dickinson)Groundwater Management: Sustainability Plan & Extraction Reporting

SB 1168 (Pavley)Groundwater Sustainability Agency & Plan: High- and Medium-Priority Basins

SB 1319 (Pavley)Sustainable Groundwater Management Act

SB 535 (De Leon)Greenhouse Gas Reduction Fund: Benefits to Disadvantaged Communities

Regional Sustainability 3

Regional JPAConduit Financing

Economic Development Real Estate

ProjectRebate of Taxes /

Revenues

Land Use / Zoning (Higher Density;

Parking)

P3 / Project Delivery Methods

Enhanced Infr. Financing Districts

(EIFDs)

Joint Powers Authorities (JPAs)

Post-RDA Economic DevelopmentCities have 7 BASIC TOOLS for Public/Private Projects

These tools often work best when used together

Special Districts (Tourism, BIDs, etc.)

Real Estate & Property

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Introduction of Post RDA Tools and How To Use Them Effectively

Don Hunt, Partner

48384079

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A. Authorized in 1949

B. Broad range of uses, expanded by the Marks-Roos Local Bond Pooling Act of 1985

C. Example – South Gate Utility Authority• South Gate formed the South Gate Utility Authority

(a Joint Powers Authority) in 2002.• City leased its Water Utility and Wastewater Utility

to the Utility Authority pursuant to the provisions of the California Public Utility Code.

I. Joint Power Authorities

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• City entered into a management agreement with the Authority to manage the utility.

• Utility Authority agreed to make lease payments to City over the term of the lease based on outside engineering valuation of systems.

• Utility operates enterprise as an asset of the Utility Authority during the lease term.

• Utility enterprise reverts back to the City at the end of the lease term.

South Gate Utility Authority Cont.

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Prior to Enactment of SB 628:

• Existing law authorized an infrastructure financing district to fund infrastructure projects through tax increment financing, pursuant to the infrastructure financing plan and the agreement of affected taxing entities.

• Existing law allowed an Infrastructure Financing District to exist not more than 30 years from the date on which the ordinance forming the District is adopted.

II. Infrastructure Financing Districts

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Infrastructure Financing Districts

– SB 628 authorizes the legislative body of a city or county, defined to include a city and a county, to establish an enhanced infrastructure financing district:

– to adopt an infrastructure financing plan and issue bonds, which may be outstanding for up to 45 years from the approval date of the district and bonds, for which only the district is liable, upon approval by 55% of the voters;

– to finance public capital facilities or other specified projects of community wide significance, including, but not limited to, Brownfield restoration and other environmental mitigation;

– development of projects on a former military base; – the repayment of the transfer of funds to a military base reuse authority;– the acquisition, construction, or rehabilitation of housing for persons of low

and moderate income for rent or purchase;– the acquisition, construction, or repair of industrial structures for private use; – transit priority projects; – projects to implement a sustainable communities strategy;– utilize any powers under the Polanco Redevelopment Act.

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• SB 628 requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing authority, comprised of members of the legislative bodies of the participating entities & of the public, prior to the adoption of a resolution to form an enhanced infrastructure district & infrastructure financing plan.

If a district has only one participating taxing entity, the public financing authority’s membership shall consist of three members of the legislative body of the participating entity, and two members of the public chosen by the legislative body.

If a district has two or more participating taxing entities, the public financing authority’s membership shall consist of a majority of members from the legislative bodies of the participating entities, and a minimum of two members of the public chosen by the legislative bodies of the participating entities.

Infrastructure Financing Districts

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The district shall finance only public capital facilities or other specified projects of community wide significance, that provide significant benefits to the district or the surrounding community, including, but not limited to, the following:

1. Highways, interchanges, ramps & bridges, arterial streets, parking facilities, & transit facilities;

2. Sewage treatment, water reclamation plants & interceptor pipes;

3. Facilities for the collection and treatment of water for urban uses;

4. Flood control levees and dams, retention basins and drainage channels;

5. Child care facilities;

6. Libraries;

7. Parks, recreational facilities, and open space;

8. Facilities for the transfer and disposal of solid waste, including transfer stations and vehicles;

9. Brownfield restoration and other environmental mitigation;

Infrastructure Financing Districts

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10. The development of projects on a former military base provided that the projects are consistent with the military base authority reuse plan and are approved by the military base reuse authority, if applicable;

11. The repayment of the transfer of funds to a military base reuse authority;

12. The acquisition, construction or rehabilitation of housing for persons of low and moderate income;

13. Acquisition, construction or repair of industrial structures for private use;

14. Transit priority projects;

15. Projects that implement a sustainable communities strategy.

B. EIFDs are able to finance and build a wide variety of public infrastructure projects, including projects that are frequently delivered through a P3 model. An EIFD’s broad discretion to select potential projects and access to bond financing with a lower voter threshold (55%) should broaden the categories of public/private partnership that can be financed with public debt.

Infrastructure Financing Districts

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• Any debt or obligation of an enhanced infrastructure financing district is subordinate to an enforceable obligation of a former redevelopment agency.

• The bill authorizes the legislative body of the city forming an enhanced infrastructure financing district to choose to dedicate any portion of its net available revenue, as defined, to the enhanced infrastructure financing district through the infrastructure financing plan.

Infrastructure Financing Districts

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Recent California local government examples:

a. Oxnard Fire stationb. Long Beach Courthousec. City of Rialto Utility Authority

Water and WastewaterConcession Agreement

d. City of Long Beach Civic Center (City Hall, Library, Headquarters for Harbor Commission)

III. P3s – Public Private Partnership

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The Challenge:• City desired an expedited project delivery method to build a

much needed fire station on vacant 2.49 acre parcel without assuming development or construction risks

Tools Employed• Real Estate & Property• P3 Infrastructure Delivery• Revenue Bonds

The Solution:• Utilized a JPA to issue bonds and a non-profit to own the project and

install improvements• Bond proceeds will finance the design, construction and equipping of

a “turn-key” fire station to be leased to the City of Oxnard upon completion (expected less than 24 months)

• Revenue bonds earned an “A+” rating from S&P despite the bonds assuming construction risk

Oxnard Fire Station

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Tax revenues (example - sales, TOT) generated by a specific project used to reduce gap by lowering project debt or equity.

City agrees to contribute an amount calculated each year based on actual incremental public revenues produced that year by project to reimburse designated infrastructure costs.

Risk remains on Developer to generate verifiable annual public revenues from project.

Contribution may be made directly as a reimbursement or as a contribution to offset financing costs of infrastructure initially financed through a special purpose financing entity such as a community facilities district.

V. Site Specific Tax Revenue Pledge (SSTR)

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City of Manteca Case Studies

• Loss of RDA has had many consequences for local governments.

• RDA was our “tool kit” and we got accustomed to using it; other tools went unused.

• Many unintended consequences: restricted access to bond funds, loss of 99 year lease alternatives, etc.

• Demise of the Enterprise Zone program compounded the challenge.

• Manteca had two major projects at risk.

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Industrial Service Company• Large Industrial laundry: hi water efficiency facility placed to

serve institutional clients, hospitals, large hotels, etc.

• Site selected within an existing master plan area, so many entitlement issues were addressed.

Project proforma included EZ for 90 employees at $39,500 = $3.5M tax benefit over 5 years

Also invested $8.7 in machinery and equipment, and were due $575K

Demise of EZ wiped out the hiring credit. City and firm are still negotiating with FTB and BOE on the credit.

• Time was the critical factor, and by assigning staff the company open about 3 months early

• 89 employees at opening has grown to 117, and City his helping the firm solicit new clients.

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Crothall Industrial Laundry - completed

2020

Conference Ctr. & 500-room Hotel• Land sale became a 99 year lease (post-RDA: separate govt.

code section for recreation/exhibition related facilities).

• Ability of the hotel to levy a resort fee to help fund a CFD were hampered by recent San Diego decision.

• Project became 100% prevailing wage: 500 rooms, 1,200 parking space, 20,000 sf convention/exhibition center

• Complex capital stack; lenders unwilling to loan on hotels; Wall Street concern about California’s “next change”

• City subsidy based upon a percent of net new TOT revenue from the project (similar to two sales prior tax deals).

• Project enters EIR phase in two weeks; not finalized, but close to agreeing on framework of the deal.

• Important to keep your legal team on call; changing times!

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Conference Ctr. & 500-room Hotel

• City had $40M in unspent bond proceeds, a project and a 200 acre site, but no DDA before demise of RDA.

• Major water, sewer and storm drain projects were already planned to cross through the selected site.

• City paid for EIR, two developers paid for a joint Master Plan for hotel/conference center and recreation complex

• Master Plan and EIR were tracked in tandem

• Developer and hotel operator on a fast track to break ground, 16 month construction time frame.

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Conference/Hotel/Recreation Facility

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Retail Trends 2015

RETAIL = TIME

Kosmont Retail NOW! ®

Contact: Ken K. HiraSenior Vice President, Kosmont Companies

Southern California State Director khira@kosmont.com

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Retail Trends• In a digital world what works today for Retail centers?

• Food is king - you still can’t eat/drink on the internet…

• “Place” is the new anchor tenant

• Mix of restaurants, entertainment, medical, civic,

residential, transit

• Technology• Omni-channelling, embrace the internet

• Smart phones … shoppers more efficient

-- and have more time to hang out

• Cities• Understand today’s paradigm

• Apply zoning strategies in synch with tenants that attract trips

• Remember public private partnerships?

‹#›25

To the consumer of the future, shopping is about TIME:

Time you Spend when you go out to shop traditionally at stores … BRICKS

 

Time you Save by shopping more efficiently online, omnichanneling … CLICKS

 

Time you Invest with friends socially, hanging out, coffee/food/being entertained … PLACE

RETAIL = Time

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2015 Retail: Something Old, Something New

THE OLD THE NEW

Big Box Small Box “Shrinkage”

Limited Amenities Services & Special Events

Traditional Grocers Specialty Grocers

Parking Transit, Multi-Modal, Walking & Parking

Food Court Market Hall

Retail Only Food + Entertainment /Fitness + Medical/Office + Civic + Housing + More…

Products Experiences

Sales psf as metric Trips as metric

“We’re not overbuilt … we’re Under-Demolished”

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“Mixed Drink” Program

Mixed-Use/Community Retail

Residential

Entertainment/Fitness

Grocery/Restaurants

Medical/Office/Civic

The trick is maintaining

the right balance and blend

to achieve the best taste!

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• Cities need a strategy that strikes the right balance of ingredients …

• Kosmont Retail NOW!® is a tool kit for both public and private sectors to attract retail.

• It is a comprehensive & proactive retail attraction initiative which identifies existing conditions, sets a path, targets tenants & produces results.

Kosmont Retail NOW!®

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Analyze, Strategize, Implement:“Cash Registers vs. Wallets” … Surplus / Leakage

Note: Spending potential based on number of households, average household income, and estimated percentage of income spent on retail goods and services; Source: CA Retail Survey (2012); U.S. Census Bureau (2010); Bureau of Labor Statistics (2011); ESRI (2013)

Sales Surplus / Leakage Per Capita in $000s:

Surplus

($1.2) ($1.0) ($0.4) $2.6 ($0.1) $4.3 $2.0 ($1.3) $0.0 (27%) (22%) (9%) 57% (3%) 58% 24% (14%) 0%

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The Challenge

• Top Regional Location (High Desert)

• Macerich lost several major tenants from significant regional shopping mall (Gottschalks & Mervyns bankruptcies)

• Resulting decline in sales tax revenue for City of Victorville

Victorville – Mall of Victor Valley

The Solution

• Kosmont evaluated & negotiated public-private options to retain & attract retailers; to generate jobs and sales tax revenue for the community

• Site Specific Tax Revenue (SSTR) sharing arrangement vis-à-vis Development Agreement between Macerich and City to pass through sales tax amounts greater than threshold value

• Re-tenanting and architectural redesign revitalized aging mall

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The Fallen  

Mall of Victor Valley – The Circle of Retail Life

The Survivors

The New Arrival

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Mall of Victor Valley – The ReDesign

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The Challenge & Evolution of Deal

• Formerly a pipe mfg plant, the 32-acre site lay fallow & blighted for years.

• City bought site in 2006 to revitalize community

City of South Gate – “azalea” Retail Center

• South Gate has highest population density in LA County, yet residents must drive far for basic goods and quality restaurants.

The Evolution of the Deal and the Solution• Kosmont worked closely with the City and Primestor to fulfill the

City’s objectives while minimizing financial project gap assistance.

• Negotiated Infrastructure Financing Agreement to fund off-site improvements; reduced risk for both City and developer

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The Results

• 372,000 sf project opened Summer 2014 with major national credit retailers (Wal-Mart, Forever 21, Chiptole) & modern architecture

• Public amenities include City Hall Annex, outdoor public plazas and event areas with a minimum of 24 public events per year

• Project will generate $2.5m per year in sales (2% sales tax rate)

• Enables City to recapture sales tax leakage & create 1,400 jobs

City of South Gate – “azalea” Retail Center

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City of South Gate – “azalea” Retail Center

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1. Today’s Consumers think of Retail in terms of TIME

2. New format – “Community Retail”

3. Internet is Blending with, not destroying Brick & Mortar – the result is a “Marriage of choices”

4. Keep track of where people NEED to and WANT to show up in person (grocery stores, restaurants and bars, outlet centers)

5. You can’t eat or drink over the internet … yet

6. Bricks, Clicks and Place – the key to retail is in the balance. The Mall isn’t dead, it’s just going “back to the mixture”

7. Cities needs a retail strategy not a retail study to achieve economic development objectives in a post RDA world

8. Cities need a retail strategy not a retail study, focus on longevity and tenants that embrace omnichannelling

9. Community retail

10. – you can’t eat over the internet….yet

11. REVISIT - Time, community retail, blending (marriage of choices),

TAKEAWAYS

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GREAT SCOTT!

THE FUTURE FOR RETAIL IS BRIGHT

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Thank You

Any Questions?

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