Redevelopment Starts Here: Why the Market Matters May 30, 2018 1 - - PowerPoint PPT Presentation

Redevelopment Starts Here: Why the Market Matters

May 30, 2018

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Michael Taylor, President of Vita Nuova LLC, a national consultancy, leads the repositioning and disposition of complex sites including former nuclear sites, refineries, chemical facilities and sites with significant stigma due to off‐site contamination or other issues. Elaine Richardson has 20 years of experience in senior positions in firms servicing the real estate and environmental industries. She brings leadership and expertise to the position, ensuring that the best possible solutions are provided to clients as well as managing tough issues with stakeholders—public, press, government, and industry. Neil W. Pariser is a Senior Development Consultant with Vita Nuova, bringing decades

• f economic development experience to the Vita Nuova team. Mr. Pariser is the

former Senior Vice President of the South Bronx Overall Economic Development Corporation (SoBRO).

Webinar Instructors Webinar Instructors

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Terms We Will Discuss

Access Site Selection Impact of Time Location Shovel Ready Market Analysis Visibility Financial Feasibility Psychographic

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Course Objectives:

• Develop a basic understanding of real estate market analysis and

how developers look at the market;

• Understand market risks, and how environmental conditions affect

real estate performance now and into the future;

• Enhance decision‐making skills by learning how to attract

developers and promote tough projects in high risk markets; and

• Understand current trends.

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Why is the real estate market important?

• Market driven development has a strong likelihood of success.
• Sustainable redevelopment ensures the long‐term protectiveness of

the remedy.

• Successful redevelopment provides the funding for ongoing O&M of

the site and controls.

• EPA states and tribes can support communities in attracting and

evaluating appropriate redevelopment.

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Where does Development Come From?

• Local Investments
• Local investment will drive local demand
• Most sites are developed by local businesses or developers
• Successful local economies are based on a balance of job creators: industry,

academia, non‐profit….

• Corporate Investments
• Mergers, acquisitions, consolidations drive new facilities
• Infrastructure‐Driven Investments
• Energy
• Technology
• Foreign Direct Investments

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DRAFT – DO NOT CITE

Residential Retail Office Warehouse/Distribution Energy

Types of Developers/Developments Types of Developers/Developments

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Market Analysis and Feasibility

• What are the characteristics that make the site attractive?
• Who are the users that would be interested?
• Are there constraints on development?
• Is there a stigma with the site?
• What price would the users pay?
• How can a deal be done?

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Driving Redevelopment

• Is it really

Location, location, location?

• Access
• Location
• Visibility

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Access

• Characteristics
• Proximity
• Quality/condition
• Capacity
• Feasibility of

improvements

• Types of access
• Local roads and

intersections

• Highways and interstates
• Passenger rail
• Freight rail

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Location

• Neighborhood setting
• Adjacent land uses
• Sensitive receptors
• Local setting
• Population and trends
• Political climate
• Land use decision process
• Regional and State economy
• Regulatory climate
• Economic strategy and

clusters

• Incentives and priorities

Characteristics

• 300,000 cars/day
• Water access
• Large metropolitan

region

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Visibility

Characteristics to Look For

• Road frontage
• Traffic counts
• Buffer areas
• Other vantage points

Developments Relying on Visibility

• Retail
• Hospitality
• Commercial

Developments Seeking Seclusion

• Mission critical
• Power generation
• Heavy industrial

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What Drives Demand?

• Housing
• # of households, age, income, interest rates, affordability, apartment rents, housing prices
• Office
• employment in industries with a high percentage of office workers (attorneys, accountants,

engineers, insurance, etc.)

• Warehouse
• proximity to ports and transportation hubs
• employment in industries that use warehouses
• (wholesaling, trucking, distribution, assembly, etc.)
• Retail
• household income, age, gender, population, size and tastes/preferences

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Site Selection Criteria

Convenience store Discount (dollar) variety store Fast food Urgent care Fitness center grocery store Retail gasoline and convenience

Land size Building square feet Parking requirement Population required

Preferred Shopping Plaza 7,000 25,000+ within 5 miles skewed female – – 2.5 4 acres 18,000 22,000

Traffic count

Preferred Retail Plaza 5,000 4 spaces per 1,000 sf 75,000+ within 3 miles 40,000+ vehicles / day

Typical initial lease

1.0+ Acre 3,000 8 spaces per 1,000 sf 5,000+ within 1 mile 25,000+ vehicles / day 5 years ‐ ‐2.5 Acres 1.5 10,000 4 5 spaces per 1,000 sf 20,000+ within 3 miles 4,500+ vehicles / day 10 years – – 1 1.5 Acres 3,500 4,000 15 spaces per 1,000 sf 30,000+ within 2 miles 20,000+ vehicles / day 10 years 56,000+ sf combined building, service & parking 15,000 within 1.5 miles vehicles / day 20,000+ 10 years 85 spaces per 1,000 sf 35,000+ within 3 miles 20,000+ vehicles / day

Discount

20,000+ vehicles / day 1.0+ Acre

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Corporate Site Selection

• What drives the process?
• Time
• All site selection projects are

under limited time schedules

• Budgets
• Companies have a definitive

budget they must meet

• Business objectives
• Regulatory climate
• Tax structure
• Operating Environment
• Access to markets
• Workforce needs

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Corporate Site Selection

What can communities do?

• Cooperate regionally
• Companies are looking for multiple options

within a region

• This may cross city, county or even state

boundaries

• Sites are not competing against each other

until the final stage

• You need to be in the game to compete

Gary, IN

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Corporate Site Selection

• What can communities do?
• Make information publicly available
• State and regional websites
• Information must be clear and easy to find
• Existing markets, industries, type of operations,

economic clusters

• Labor pool, training programs, higher education
• Quality of life, housing, communities, schools
• Available properties
• Regional property databases are extremely helpful
• Prepare the Sites
• “Shovel Ready” sites have fewer risks
• Saves substantial time

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Community Input

• Setting Expectations
• Community engagement and planning processes must be based on fact
• Envisioning unrealistic developments creates unrealistic expectations
• Developers shy away from communities with set expectations
• The Community Planning Process
• Builds ownership in the future redevelopment
• Generates support for future use
• Gives developers confidence in the approval process
• Market‐based planning processes give developers comfort that their

investment will be worth the effort

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The Real E state Cycle

• The numbers don’t always tell

the story

• Different developers; different cycle

preferences

• In hot markets, contaminated sites

are more attractive, but developers don’t always have time to focus on the details of contaminated sites

• During the downturn, developers

have more time, but money is tough to come by

Peak Downturn Recovery Trough

“We are in a long cycle, not in boom/bust. The key to the next few years is to expand horizons, market by market, property type by property type.”

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Understanding the Market Analysis Process

• Geographic Focus
• National trends
• Major urban markets
• Related suburbs
• Market Data Reports
• Vacancy rates
• Rental rates
• Market activity, absorption
• Construction activity
• Outlook
• Property types
• Office
• Industrial /Warehouse
• Retail
• Other Commercial
• Multi‐family
• Single family

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Market Data

• Census data
• Occupancy and vacancy rates
• Property sale and leasing trends
• Retail leakage analysis

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Demographics Driving Distribution Warehouse Development

Ideal warehouse labor: low income, high school graduate, between 18‐46, access to public transportation Source: Northpoint Development

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Young Influentials

• Under 35, $47,000 Income
• Balancing work and leisure
• Buy high end computers, go to

health clubs, eat at nice restaurants, professional jobs

Grey Power New Beginnings Suburban Sprawl Home Sweet Home

• 25 to 44, $50,000 Income
• Own homes, pursue the

American Dream

• Jog on treadmill at home, order

home delivery, blue collar Jobs

• Under 35, $29,000 Income
• Just starting out on career path,

singles or young families

• Rent movies, play games on internet,

live in apartments, white collar or service jobs

• Over 65, $49,000 Income
• Home owning suburbanites who are

aging in place, not moving to retirement communities

• Go to museums, own vacation homes,

watch television

• 25 - 44, $65,000 Income
• Upscale income, small families, comfortable life
• Buy TV sets, have pets, go to movies, eat fast food, have white collar jobs

Demographics and Psychographic Groups

Examples from Claritas.com

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Supply & Demand

• Vacancy rates
• Interest rates/availability of financing
• Age and quality of existing stock
• Construction costs
• Land costs

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DRAFT – DO NOT CITE

Redevelopment that Spurs Market Demand

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The Value of Stimulus Packages

• Infrastructure investments attract developer interest
• Redevelopment projects cannot absorb significant infrastructure costs
• Roads, sewers, and other infrastructure
• Stimulus programs expand the economic benefit of the redevelopment
• Construction
• Improved services
• Resiliency improvements
• New technologies
• Stimulus packages are provided by municipalities,

regional economic development entities, and state economic development groups

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Determining if the Numbers Work

Real Estate Finance Basics

• What goes into a real estate development
• Sources of capital and uses of funds
• How environmental issues change the formula
• How can incentives be used to close the gaps

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Financial Feasibility

• Costs
• Land $250,000 acre
• Operating $4.5 per sf
• Income
• Commercial lease rates

$6 – 12 per sf

• Residential lease rates

$1 – 1.25 per sf

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Real E state/ E nvironmental Value Pyramid

What Happens When the Site is Upside Down?

Real Estate value exceeds remediation cost Marginal Upside down projects

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Financial Risks in Brownfields Redevelopment

• Market risks due to the overall economy
• Changing local market conditions
• Uncertainty in the environmental conditions or cleanup action costs
• Additional financing and insurance requirements due to potential

project risks

• Greater than anticipated entitlement or engineering costs to

redevelop or reposition the property

• Changing cost factors as a result of a delayed timeframe for

development

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Buyers of Contaminated Real E state

• Private Equity Purchasers
• Specialty Development Companies
• Local Industrial Developers
• Conversion Specialists‐ from industrial to commercial or to

retail/residential/mixed use

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E valuating Risk in Brownfields

• Market risk
• Time critical deals
• Time kills all deals
• Financial risk
• Short and long term
• Community issues
• Environmental liability
• Long‐term concerns

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Common Redevelopment Obstacles

• Insufficient information on the environmental conditions and/or uncertain

cleanup costs

• Cleanup costs greatly exceed the fair market value of the property
• Delays due to extensive environmental investigation/cleanup activities or

uncertainties in the regulatory process

• Uncertain legal liability under CERCLA or other federal and state environmental

statutes

• Difficulty in obtaining affordable financing or insurance for property development
• Uncertain responsibility for operating and maintaining engineering controls
• Physical and operational constraints on property use due to engineered or

institutional controls

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Impact of E conomy on Contaminated Properties

• Investors are risk adverse
• Contaminated properties are perceived as risky investments
• Sources of funding limited
• Traditional lenders out
• Venture capital and hedge funds cautious
• Lots of good deals with income‐producing properties
• Public financing key
• Larger percentage will come from public sources

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Questions?

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Small, Large, Tough, Isolated and Ugly:

How to attract developers to tough sites and distressed communities

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Attracting Buyers

• 1st tier real estate market
• Areas with active market – all classes (ind, res, comm)
• Requires little if any public involvement unless sites are

heavily contaminated or other encumbrances. Gateway cities, around ports, major metro areas.

• 2nd tier real estate market
• Areas with active real estate market mostly focused on

residential and downtown.

• Public/Private partnerships required for redevelopment.

Many times, build to suit.

• 3rd tier real estate market
• No significant development
• Some public investments/almost always build‐to‐suit.
• 4th tier real estate market
• Rural

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Strategies for Rebuilding

• Lorain, OH ‐ Clearing a Path for Success.
• Toledo, OH ‐ When “speculative development” is

the right thing to do!

• Gary, IN ‐ Starting from Scratch: What to do when

there is no market?

• South Bronx, NY – Taking back the neighborhood

block by block.

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Clearing a Path for Success

Lorainharborawp.com– Lorain, Ohio

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Request for E xpression of Interest Process

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Before communities talk to developers: Create a Clear Landing Pad for Buyers

• Lead with public investment
• Get institutions and foundations engaged
• Clear land‐remove title issues
• Conduct environmental due diligence
• Work with property owners to set expectations
• Work with communities to calibrate expectations to market
• Make sure to incorporate indigenous residents’ concerns

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Starting from Scratch: What to do when there is no market?

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Rebuilding From Scratch: The Miller Station Story

Lakefrontdistrict.com Train operator wanted to close station/ consolidate City development approval process was convoluted, not trusted Richest and poorest lived across tracks No market activity Proved train station viable for transit‐

• riented development

Created “as‐of‐right” development standards, Created vision for development Created new district that incorporated richest and poorest Invited Market

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www.LakefrontDistrict.com

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Miller station Miller Beach Aetna

Road Removed

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CONNECTIVITY TO THE TRAIN STATION CONNECTIVITY TO THE TRAIN STATION

New Miller Station

Access from South Lakefront District Access from Miller District Access from Glen Ryan

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Lakefront District Current Status

• “As‐of‐right” Zoning approved for district
• Funding for origination station and double‐tracking in progress
• Funding for creating boulevard from Michigan highway obtained
• Funding for new infrastructure to lake obtained
• Meridian Hospitality Group named as master developer

http://www.meridianhospitalitygroup.com/

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Taking Back the Neighborhood Block by Block

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When “speculative” development is the right thing to do!

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Connectivity Map Connectivity Map

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uc a s Co unty De pa rtme nt o f Pla nning a nd De ve lo pme nt

PARTNE RS

K e y Spo nso r Ne ig hb o rho o d re vita liza tio n Ne ig hb o rho o d de sig n suppo rt Jo b pre p / Jo b tra ining F und Spe c ia l Pro je c ts Ac c e ss to fo unda tio ns Pro pe rty a c q uisitio n / jo b c re a tio n Co mmunity Org a niza tio n Gre e n ho using Va c a nt pro pe rty ma na g e me nt Ac c e ss to fe de ra l pa rtne rs

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South Bronx – 1970s

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Taking back the neighborhood block by block

• Define neighborhoods and understand their relationships

to their surroundings. Market study, demographics will help point out out potential uses.

• Every community has nodes of strengths inherent in it.

Vacant land is an asset. You need to identify your assets and familiarize yourself totally with them.

• Development = property and property = ownership whether

it be municipal or private. You must engage owners and

• ther stakeholders in the development process. They live

and work there and understand their needs and wants. Creativity in development is seeing the untapped idea and working it.

• Find that special niche in your community that has the

potential to spur development. Community development is a building by building and block by block effort.

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How communities can assist orphaned sites

• Acquisition and long‐term ownership
• Acquisition and interim ownership with subsequent transfer to a third

party

• Municipality, county, or other agency leases to developers
• Acquisition and “simultaneous” transfer to a third party
• Collaboration with the current property owner
• Transfer tax liens
• Incentives to promote redevelopment

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RE

• Development upcoming events
• Real Estate Finance Basis – June 5th
• What goes into a real estate development
• Sources of capital and uses of funds
• How environmental issues change the formula
• How can incentives be used to close the gaps
• Workshops
• Lenexa, KS ‐ June 7th
• Philadelphia, PA ‐ June 28th ‐ live streaming nationwide
• San Francisco, CA ‐ July 18th
• Washington, DC ‐ July 25th

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