“Innovative Approaches to Land Assembly” Prepared by bbp A S S O C I A T E S Basile Baumann Prost & Associates 177 Defense Highway, Suite 10 Annapolis, Maryland 21401
A Holdout’s Last Stand
AGENDA � Barriers to Land Assembly � Innovative Land Assembly / Financing Techniques � New Model for Land Assembly � Case Studies � Questions?
Barriers to Land Assembly � Private property owners uninterested/unwilling to sell - Understanding objectives - Money vs. other � Finding capital: financing land assembly challenging because of no demonstrable short-term revenue stream - Need for patient money - Land Banking � Speculative rush pushes up land values - Clandestine approach (straw men) to land assembly (e.g. Disney World) - Plans of area tend to raise land value expectations - Land value ratchet
Barriers to Land Assembly � Acquisition Costs – property owner expectations of the value of their land - Price of individual parcel v. the value of all of parcels assembled - Existing value v. reuse value � Ownership - Fractured - Absentee owners - Title issues � Structural government barriers - Particularly for government owned property - City and County having jurisdiction over same property (taxation handled by one and redevelopment by another)
Barriers to Land Assembly � Inflexible zoning / regulatory environment - Time period to get site assembled, entitled, zoned, platted and approved � Legal issues: takings, due process and the use of eminent domain (e.g. Kelo v. City of New London) � Not planning for infrastructure concurrently with land assembly process (NIMBYism reaction)
Innovative Land Assembly / Financing Techniques � State housing finance agency funds have shown to be effective sources of capital and leverage money for land assembly (e.g. affordable housing) � Brownfield funding offers model for funding of land assembly (e.g. EPA pilot grants, clean-up funds, etc.) � California cities use TIFs to assemble land � Corporate and family foundations (patient money)
Innovative Land Assembly / Financing Techniques � Corporate and family foundations (patient money) � Private sector incentives (density bonuses, rezoning, taxes, etc.) � Most innovative land assembly financing techniques built on public/private partnerships � Incentives for owners - Tax issues - Value expectations � Like Kind Exchanges (1031)
New Model for Land Assembly � Turning the landowners into pro rata shareholders in a development entity that would acquire unified ownership and the development project � New development entity could be LLC or special purpose development corporation � Landowners could receive shares based on the proportional “value” of their property/improvement � Shares would reflect market value of the entire development project, not just their parcel � Market-based strategy would allow landowners to participate in upside of development project
FINANCING LAND ACQUISITION / ASSEMBLY Skyland Redevelopment, Washington, DC (Anacostia Metro Station Area) � Redevelopment of rundown strip mall and adjacent vacant property � 18.5 acre site which includes 1940s-era Skyland Shopping Center (11 acres) and vacant residentially zoned land (7.5 acres) � Project Co-Developer: National Capital Revitalization Corporation � Goal is to implement City and community’s vision for the site and improve the neighborhood
FINANCING LAND ACQUISITION / ASSEMBLY Skyland Redevelopment, Washington, DC � 17 different parcels controlled by 15 property owners, 30 different tenants � Previous attempts to assemble land have failed � Community & government support � Government financed study shows retail sales leakage
FINANCING LAND ACQUISITION / ASSEMBLY Skyland Redevelopment � NCRC (local government development corp.) purchasing property and will act as the landowner � NCRC selects developer to undertake vertical development; will pay ground lease � Project build out includes: - Total of 915,000 sq. ft. - 315,000 sq. ft. of retail - 600 residential units - $125 million project
FINANCING LAND ACQUISITION / ASSEMBLY
FINANCING LAND ACQUISITION / ASSEMBLY � NCRC forms $150 million strategic equity partnership with Morgan Stanley to provide investment capital for its projects in DC, including Skyland project - Translating totality of real estate assets into LLC � Received additional $40 million in TIF financing - Assist with land acquisition - Attract new tenants to site - Infrastructure upgrades
FINANCING LAND ACQUISITION / ASSEMBLY � Property acquired by NCRC through negotiation and potential condemnation � Relocation company assisting business owners at Skyland � Selected property owners looking at potential participation in project ( equity investment approach )
Equity Investment Approach to Land Assembly � Landowners contribute their land (and improvements) as “shares” and receive a portion of the distribution from cash flow generated � Value of the asset - LLC shares - Cash & LLC shares - Cash � Vertical developer pays long term ground lease to NCRC � Opportunity for all parties to participate in project’s upside � LLC business entity minimizes landowners and NCRC risk exposure
Equity Investment Approach to Land Assembly
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market, Washington, DC � Redevelopment of 24- acre underutilized site into mixed use Town Center � Creation of a “New Town at Capital City Market Revitalization Development and Public/Private Partnership Act of 2006”
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � Adjacent to rail line � Former freight rail utilization / wholesale produce / meat market � Formally along WMATA (Metro) transit line with no station � Creation of infill transit station through small area plan / Benefit Assessment District (developer / property owner driven) � Market area quadrant not seen as development site but retained wholesale market � New Plan provides for retention, upgrading, consolidation of market places � Development maximized next to transit station
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � Existing major property owner / operator / small developer � Familiar with market, operations, owners, tenants � Undertakes Predevelopment Activities - Planning - Market Evaluations - Community Liaison � Introduces / passes special legislation � Attracts major developer / money (Apollo)
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � City Council approved legislation designates one of the property owners as developer (joint venture) � District model for developing large tracts of underutilized land to create workforce housing, needed community facilities / services, jobs, and increase tax base
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � Site will be rezoned from low-density, light industrial uses to mixed use commercial � Authorizes use of tax incentives, economic and other development initiatives
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � Financial toolbox includes tax abatement, TIF, PILOT � Once developer obtains control of 50% of land then remaining land can be acquired through condemnation - 45+ property owners - Other participating land owners include DC, Gallaudet University (these owners control > 50%) - Eminent domain still requires Council approval (Bill however unanimously passed by Council) - Creates incentive to participate under potential eminent domain threat
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � Address Objectives / Concerns of Owners - Low Value Basis - Relatively Significant Cash Flows - Increasing Property Tax Burdens - Management / Administrative Issues - Code Violation Issues - Value Expectations - Historic Attachment to Market
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � Plan allows for existing property owners and/or lessees to: - Invest in the project and become equity owners - Become fee simple owners in the new retail and warehouse facility - Participate in like-kind 1031 property exchanges � Plan allows existing retailers and wholesalers to continue their businesses in new revitalized market � Plan addresses project phasing
FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market � Plan addresses needs of existing tenants - Upgraded new space - Replaces physically/functionally obsolete space - Addresses code/health violations - Condominium creates ownership opportunities - District incentives maintains relatively modest occupancy costs
MODELS FOR LAND ASSEMBLY � Public Model – Skyland � Private Model – New Town at Capital City Market � Requires Predevelopment Packaging � Addresses Multiple Stakeholders - Tenants - Property Owners - Community - Public Sector - Future Private Developer � Addresses Financing Issues
Questions? Jim Prost and David Starnes Basile Baumann Prost & Associates 177 Defense Highway, Suite 10 Annapolis, MD 21401 410-299-7800 jprost@bbpa.com / dstarnes@bbpa.com www.bbpa.com
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