Real Estate Development and Reuse · Approach: No Plaque Focus on Maximizing Efficiency ... Residents . Arizona Basic Economic Development Course Types of Development & Redevelopment

Arizona Basic Economic Development Course

Real Estate Development

and Reuse

Scott Sumners Rider Levett Bucknall

January 2017

Arizona Basic Economic Development Course Arizona Basic Economic Development Course

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)


Introduction

1


Public Real Estate Development is Unique

• Public Purpose and Goals

• Types of Resources Available

• Limitations


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



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


Approaches to Development

2


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”

http://www.breeam.org/

http://upload.wikimedia.org/wikipedia/en/a/ac/Green_Star_logo.png


Green Building

• What is Your Goal?

– Operational Savings

– Visionary Thinking

– Competitive Position

– Generate Sales

– Media Exposure

– Political


LEED Sales Pitch: No Additional Cost!

Actual Cost: $3,000,000

LEED Points for

15,000 SF Solar Array:

None

Phoenix

Convention Center


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 Customized for 1 business

Single tenant

Speculative development Built before securing tenants

Multiple leases

Greenfield development Undeveloped land

Rural & suburban areas

Redevelopment/reuse Infill

Sprawl mitigation


The Real Estate

Development Process

3


The Real Estate Development Process

1. Predevelopment 2. Feasibility

Studies 3. Site Analysis

4. Financing 5. Negotiations &

Approvals 6. Construction

7. Marketing 8. Occupancy &

Management


Predevelopment & Feasibility Analysis

2. FEASIBILITY ANALYSIS

Market Sufficient market demand?

Financial Timely return on investment?

Political Approved by the public sector?

1. PREDEVELOPMENT Business plan

Site control

Building size

Partners

Does the project pencil out?

THE REAL ESTATE DEVELOPMENT PROCESS


Site & Engineering Analysis

Is the site shovel ready?

TOPICS TO CONSIDER

• Natural Conditions and Contamination

• Road Issues

• Site Access Infrastructure

• Utilities

• Planning and Development


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.mygovcost.org/2010/11/16/shovel-ready-stimulus-sightings/&ei=drWUVKvDDMzxoATkjIDIDw&bvm=bv.82001339,d.cGU&psig=AFQjCNF8zlP7jU4r15k8ojx2ZFvJ60rQ3Q&ust=1419118282184362


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


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





Today Master Plan



• Due Diligence & Site Analysis – Geotechnical Survey

– Tree Survey

– Boundary & Easement Survey

– Sanitary District Analysis

– Traffic Impact Analysis

• Design – Highway Access

– Loop Road Through Site



• 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



Financing

PUBLIC ASSISTANCE TOOLS TRADITIONAL FINANCING 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

• Debt – Bank Loans

• Equity – Cash


http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRw&url=http://www.theinquirer.net/inquirer/news/2347243/want-a-job-at-google-youd-better-be-a-white-man&ei=N4CLVPrkM47ooATNx4CwCw&bvm=bv.81828268,d.cGU&psig=AFQjCNGfitl3gHN0XxS8MjiZdKDe8WJGsQ&ust=1418514837145370


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

Property Tax Bill

Changing Property

Values

Other Taxing Jurisdictions

2009 Budget Bill

City Use of GPLET

Increasing Gov’t

Ownership Declining

Commercial Assessment

Ratios

Prop 117, Limits on

Annual AV Growth

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

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

Property Taxes


GPLET – Example Scenario 2: Approve GPLET Project

8-Year Abatement

Project

Complete

Ad Valorem

(Traditional)

Tax

25-Year GPLET Agreement

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

17-Year Excise Tax Payments

Property / Excise Taxes


Year Status QuoApprove 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 Status Quo vs. GPLET Comparison

Property / Excise Taxes

Abatement


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

Abatement

8 Years of

Lost

Revenue

Revenue

Gained in

First 2 Years =


Negotiations & Public Approvals

PUBLIC APPROVALS PRIVATE APPROVALS

• Zoning

• Subdivision

• Site plan review

• Environmental Review

Building permits

• City Council

• Joint venture agreements

• Land acquisition contracts

• Lender commitments

• Architect agreements

• Engineering agreements

• Construction agreements

• Lease/Sale contracts

• Insurance agreements



Construction THE REAL ESTATE DEVELOPMENT PROCESS

Suddenly a heated

exchange took place

between the king and the

moat contractor.


Construction THE REAL ESTATE DEVELOPMENT PROCESS

• Environmental Remediation

• Demolition

• Infrastructure Development

• Construction / Renovation

• Tenant Improvements

• Pre-leasing

Always Carry a Contingency

Architects and Contractors Have

Conflicts of Interest

Time

Cost Quality

“Pick Two”


Marketing THE REAL ESTATE DEVELOPMENT PROCESS

• Public Sector Participation is Limited

• Targets = Tenants / Buyers

• Strategies • Competitive Pricing Structure

• Advertising

• Promotion

• Earned Media

• Broker Relations


Building Occupancy & Management THE REAL ESTATE DEVELOPMENT PROCESS

• 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


Environmental Issues

4


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

x

“Bunny Suit”


Public Sector Involvement

5


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 DEVELOPMENT

• General Plan

• Overlay Districts

• Zoning

• Adjustment / Relief • Variance

• Use Permit

• 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

[email protected]

Documents

Real Estate Development and Reuse · Approach: No Plaque Focus on Maximizing Efficiency ... Residents . Arizona Basic Economic Development Course Types of Development & Redevelopment