The Redevelopment of Stapleton Airport

The Redevelopment of

Stapleton Airport

2006 Joint Fall CLE Meeting

October 19-21, 2006

Prime Central Location10 Minutes from Downtown Denver, 20 Minutes from DIA

Stapleton’s size is impressive

Stapleton Development Plan• Must be developed in accordance

with the “Green Book”• Adopted as part of the Denver

Comprehensive Plan in 1996• 4000 acres including:

– 1,116 acres of regional open space– 3,000 acres of developable land– 12,000 dwelling units, 12 million

square feet of commercial space– Over 1,100 acres of regional parks

and open space• $5 - $6 Billion in private

development over 30 years• $700 million local and regional

infrastructure• Environmental remediation• Demolition• Minimum 15 year build out

Stapleton Redevelopment Timeline

Property Conveyance

Property Ownership Map

Stapleton Development Plan

• Environmental Sustainability

• Housing Diversity including Workforce Housing

• Economic Opportunities

• Education

• Public Art

• Parks & Open Space

• Technology

• Wellness

Planning Goals• Economic Opportunity• Environmental Sustainability

– live, work, play– implemented based on:

• Sustainability Master Plan with Rocky Mountain Institute• HBA Built Green Required – Energy Star a goal (2006)• Building America Pilot Project• USGBC LEED Commercial Standards

• Quality Physical Design (through City design guidelines and private covenants)

• Housing Diversity (including workforce and affordable housing)

• Zoning• Mixed-Use Zone Districts

Parks & Open Space

• 1,116 acres regional parks & open space

• Additional 109 acres in local parks and town squares

• Increases Denver park system (excluding mountain parks) by more than 30%

• Bike & walking trails reduce need for autos

• Funded:•$15,000 per/acre privately imposed impact fee (SDF)

•TIF for regional parks•Metropolitan District for local parks

Stapleton Development Corporation(SDC) 1995

• City began selling large tracts to different developers before deciding that a Master Developer was a better approach

• Created by City and DURA as vehicle to select a Master Developer, lease site, option to acquire site

• Master Lease and Disposition Agreement (MLD), 1998– between City (DIA) as land owner and SDC– SDC leases site and has rolling option to takedown the land for

15 years– DIA to demolish and remediate site to SNC standards prior to

takedown by SDC– Appraisal set purchase price of developable land at $79.4M plus

CPI increase– No consideration for open space transfers– Includes process for setting environmental standards and use

restriction for open space

Stapleton Master Developer

• 1998 SDC selected Forest City (FC) as Master Developer through RFP process

• Purchase Agreement (2000) between SDC and FC:– Option to purchase 2,935 acres at appraised value of $79.4

million + CPI increase – required takedown of 200 acres the first year, minimum 1,000 acres every 5 years for 15 years

– System Development Fee – Pay $15,000/acre upon takedown to be used by the District for Trunk Open Space development, totals $44M

– Develop according to the Stapleton Development Plan, SDC places covenants on the land

– $5 million down payment/hold option– Forest City has taken down approximately 1,300 acres to

date

Stapleton Master Developer

City/Forest City Development Agreement• Vested the zoning uses and densities for 15

years• Affordable housing

– 20% of rental units must be affordable to persons making 60% of AMI

– 10% of for-sale units affordable to persons at 80% AMI

– Forest City to donate 8 acres of land and work with low income housing providers to make 25% of these affordable units available to “very low-income”persons

Stapleton Infrastructure

• Trunk versus Intract InfrastructureWhat infrastructure?a. Detailed Infrastructure Master Planb. Open Spacec. Community

• Needed when/phasing• Cost

a. Trunk $300,000,000b. Intract $310,000,000

Stapleton Infrastructure Financing

Tax Increment Financing • Created Stapleton Urban Renewal Area with TIF for

25 years • TIF to fund Trunk Infrastructure estimated at $300M

plus financing costs for approximately $900M in financing needs

• City/DURA Cooperation Agreement flows TIF from City to DURA

• City retains increasing portion of sales tax increment to fund City services as Stapleton builds out

• DURA/PCMD Agreement flows TIF from DURA to PCMD for Trunk Infrastructure construction


System Development Fees• Forest City pays PCMD $15,000/acre

to be used exclusively for Trunk Open Space

• Total SDF anticipated to be $44M• System Development Charges –

charges for water/water facilities


Created Title 32 Metro Districts• Two metropolitan districts

– Park Creek Metro District (PCMD) – Westerly Creek Metro District

• Control/service districts• Provide funding of infract infrastructure through District’s mill levies (50 mill

levy cap)• Estimated $310M in infract infrastructure plus financing costs for

approximately $1 billion in financing needs• PCMD constructs all infrastructure (both trunk and infract) using District

funds, TIF and developer advances• Complete environmental remediation beyond SNC• Complete demolition of buildings & runways beyond DIA demolition• Developer advances – Forest City may advance money for infrastructure

construction– Interest on advances for infract infrastructure is 8%, trunk

infrastructure 10%


Control of Infrastructure Planning, Funding and Construction

• Development particulars not known at inception– Needed flexibility in meeting market demands– Needed process for Infrastructure planning,

funding and construction• City, Forest City and PCMD entered into

Master Facilities Development Agreement (MFDA)


Master Facilities Development Agreement (2000)• MFDA in conjunction with PCMD Service Plan provides:

– PCMD cannot spend District TIF funds until an Individual Facilities Development Agreement (IFDA) between City, PCMD and Forest City is signed

– Requires environmental standards to be set for infrastructure parcels to be reconveyed to City after construction

• IFDAs provide:– What Infrastructure– Costs– Source of funds (funds allocated to each IFDA upon execution)– Land takedown– Environmental standards for open space and infrastructure

parcels to be reconveyed to the City

What are the Environmental / Demolition Issues at Stapleton?• Petroleum releases• De-icing compounds

(glycol)• Nitrates in groundwater• Solvents• Asbestos

1. Transite or asbestos wrapped pipe

2. ACM in soil3. Asbestos in

buildings• Buried waste• Undocumented and

undetected conditions• Demolition of buildings• Runway

Environmental and DemolitionHistory of the Project• Performed environmental assessment of soil,

groundwater and buildings• Set remediation standards• Determined remediation method and cost – include

remediation for hauling and disposal because not likely to get fixed price unless short duration

• Hired remediation contractors with fixed price contracts• Purchased cost cap policy to protect against unknowns

and knows with unknown extent• Developed approved material management plan• Implemented runway recycle project• Included demolition projects packaged to all for small

contractors to bid

Managing Environmental Liability Risk at Stapleton• Most significant barrier to contaminated property

development is the legal liability and associated financial risk

• How is environmental liability risk associated with environmental conditions managed at Stapleton?

• Recap of Risks– Remediation cost overruns– Environmental liability

1. CERCLA2. Other regulatory clean-up obligations and liabilities3. Liability to private third parties4. Contractually assumed risks

– Marketability

What are the Environmental Risk Management Methods?

City/SDC as Seller

• Remediation Cost Risks1. Fixed price remediation contracts 2. Cost cap insurance

• Environmental Liability Risks1. Remedy selection and standards2. Statutory liability

a) EPA “Comfort Letter”b) “No Further Action” letters

3. Governmental Immunity Act4. PLL insurance5. Release under purchase

agreement6. Certification of environmental

conditions7. Groundwater use restriction


• Contractual purchase standards 1. Numeric criteria for

residential use2. NFA letter for unrestricted

residential use3. No “pass through” release4. District only: pre-acquisition

review and remediation• Due diligence prior to

conveyance1. Oversight of City remediation2. Phase I/Phase II

environmental site assessment

Forest City as Buyer;District as Transferee


• Insurance program (District)• Materials management

program1. Materials management

coordinator on-call2. Screening and materials

management obligations imposed under construction contracts

• Disclosure program• Standard contractual toolkit• Other

Forest City/District as Developer


• Environmental standards per MFDA/IFDA

• Materials management requirements per MFDA/IFDA

• Approval of any remediation approach

City as Transferee of Infrastructure and Parks

Forest City Enterprises

• Founded in 1922• Publicly traded

(NYSE:FCE.A)• Family controlled• Generational, not

quarterly, focus• Operates in 22 states

and the District of Columbia

Forest City Enterprises

• $7 Billion in assets• Retail - 20 million SF• Apartments - 39,000 Units• Office - 10 million SF

• $700 million under development

• One of the nation’s 20 largest real estate development companies

• Mixed-use capability

Master Developer Disclosure Program

To whom FCS provides information:• Homebuilders• Other commercial purchasers• The public and potential residential

purchasers


Mechanisms used to provide information:• Environmental database and CD-ROMs• Third party hosted web-sites (i.e. Buzzsaw)• Environmental Summaries• The Stapleton Visitor’s Center• The Stapleton Magazine• The Front Porch • Community forums


The type of information FCS provides as it becomes available:

• Environmental information• Homebuilders within a subdivision filing• Bus routes and bus stops• School information• Other commercial uses within a subdivision filing• Retail information• Vendor relationships• Neighborhood activities and groups

Entity Structure for Acquisition, Development, and Ownership

• Single purpose entity• Capitalization• Financing

Tax Considerations

• Conveyance of land from acquisition entity to commercial entities– convey at cost basis– when to convey

• 1031 exchanges• Non-safe harbor transactions• Tax treatment of remediation

expenses

Lessons Learned…City Perspective

• Be as detailed as possible in fixed price contract with assumptions• Schedule demolition and remediation• Developer should pay for remediation cost for changes to schedule• Have material management plan• Have policy for archeological / other finds• Make sure leases have termination if schedule changes• If large project, fund FTE at State level to move NFA and closure of

sites• Do not create a structure that has players that do not bring either

money or land or regulatory powers to the table• The transaction must be structured to provide for maximum flexibility

in order to meet changing market needs over the long life of theproject

• There is never enough money, so structure the transaction so that there is a continuing conversation among all players on financing issues

Lessons Learned…Developer’s Perspective• Residential standards and conservative remedy have been important

• Unknown conditions may be discovered after remediation is completed

• Time is of the essence

• Implementing clean-up standards requires some professional judgment

• Ongoing tension between risk management extremes: “complete control” vs. “complete disclosure and disclaimer”

• Not all NFAs are created equal

• Contracts are subject to constant interpretation and re-interpretation

• Interesting opportunities, such as wetlands banking opportunities may become available as a result of redevelopment

• Redevelopment is a springboard for innovative planning and sustainable development practices

• Infrastructure construction is expensive, both long and short term. It takes more money than either the private or public sectors have to develop infrastructure. It takes funding from all sources and creative uses of all available financing mechanisms to provide adequate infrastructure in a timely manner.

Documents

The Redevelopment of Stapleton Airport