TAKE CHARGE OF YOUR REAL ESTATE RECOVERY Proactive Step-by-Step - - PowerPoint PPT Presentation

TAKE CHARGE OF YOUR REAL ESTATE RECOVERY

Proactive Step-by-Step Process for Developing Your Next Game-Changing Project

WHO WE ARE

Hunden Strategic Partners

HUNDEN STRATEGIC PARTNERS

Master Placemaking

§ Physical Programming § Market Feasibility § Financial Feasibility § Funding Options/Public Incentives § Economic & Fiscal Impact Analysis § RFQ/P Processes § Partnership Options § Business Plans

HOST | STAY | PLAY

ROB HUNDEN, PRESIDENT & CEO

§ Public and Private Sector Employment Experience

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City of Indianapolis Bond Bank/Mayor’s Office 1996 - 1998

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Capital Markets, Consulting 1999 - 2005

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Hunden Strategic Partners – 2006 - Present

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25 Years of Industry Experience Nationwide

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750 Projects and Studies

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Speaker, Teacher and Author

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Move projects from Concept to Reality

COVID-19 OPPORTUNITIES

Challenges & Responsibilities

CHALLENGES – DUH!

Nearly every industry that HSP focuses on has been wiped out due to the pandemic. Hopefully only temporarily. Looting in some cities has been a gut-punch to business confidence and economic resiliency. Is there local support for business? So, why plan new projects?

THREAT AND RESPONSIBILITY

ACTIONS HAVE CONSEQUENCES Whether or not anyone agrees with decisions that local leaders have made, their reaction to the pandemic and unrest has often left our cities – the places we have been trying to rehabilitate for 50 years – as shells of their former selves. Several are still fairly empty.

THREAT AND RESPONSIBILITY

ACTIONS HAVE CONSEQUENCES

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Maslow’s hierarchy of needs: safety and security come first. If people feel they are unsafe, they will leave, and many are.

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Covid gave people permission to work from anywhere. Many want their parents to live with them vs. nursing homes.

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A large % of small businesses have failed. Economic security is key to development. As storefronts are boarded up, problems crop up. Busy streets quash problems.

WHAT CAN WE DO?

Remind our leaders that money and people go where they are treated well.

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Ensure that projects that are developed will be priorities and kept safe, vibrant

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Get activity back onto the streets

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Work to establish revolving loan funds and

• ther incentives to encourage the

development of projects and new businesses (or reboots of closed biz)

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Remind leaders that we are all in this together.

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Economic and other damage to any business affects us all by scaring investment away and lowering the tax base to fund quality of life.

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Outreach to all entrepreneurs to encourage risk-capital, then lower that risk with any incentives available.

WAIT, THERE’S AN UPSIDE? YES INDEED

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Perfect time to study new projects that can be designed with the pandemic and

• ther threats in mind.

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Diversity of uses (both within the buildings and amongst the development) can mitigate negative impacts to one element.

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Low interest rates (really low) to fund projects

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Eager construction and materials industry

• ffer lower bids than before Covid

Perseverance is key! Look at how many war-torn countries have come back stronger than before!

KEY STEPS IN THE DEVELOPMENT PROCESS

Why is Order Important?

HAS THIS EVER HAPPENED TO YOU?

Your mayor/exec asks you to put out an RFP for a Developer for a project you haven’t studied…. Your mayor/exec decides you have to have a bigger/better version of something another city next to you did Your mayor/exec comes back from vacation with big crazy ideas You must now make this magically happen!

CART BEFORE THE HORSE

If you do not go through a logic process, you will confuse yourself and the market you are trying to attract. Deciding what to build before you know the feasibility…. Issuing an RFP before you have a financing mechanism/plan…. Negotiating with developer before getting approvals from politicos…

8-STAGE MODEL OF REAL ESTATE DEVELOPMENT

1) Market Feasibility 2) Site Analysis 3) Financial Feasibility & Gap Analysis; Impact Analysis 4) Financing and Incentive Options 5) Business Plan (Public Projects) 6) Political Leadership/Financial Approval 7) Developer RFQ/P Process + Development Agreement 8) Final Design, Budgeting, Funding

ACTIONS / INACTIONS HAVE CONSEQUENCES

Sioux City, IA Badgerow Building

• Timing, Geography & Lack of Homework

Navy Pier Expansion & Hotel

• Unexpected Developer Creativity

ACTIONS / INACTIONS HAVE CONSEQUENCES

Columbus, IN Conference Hotel & Grocery

• Process Followed
• Pandemic forced a decoupling of hotel from

apts and grocery Tulsa, OK Downtown Mixed-Use District

• Process Followed, but some late curveballs

LESSONS LEARNED FROM OUR PROCESSES

Amarillo, TX Convention Hotel Bedford Park, IL Multi-Use Sports & Event Center Chandler, AZ Wild Horse Pass District Columbus, OH Mixed-Use District Columbus, IN Conference Hotel & Grocery Durham, NC American Tobacco District Hotel Durham, NC Convention Center Management Enid, OK Event Center Hotel Erie, PA Convention Hotel Evansville, IN Convention Hotel Farmer City, IL Mixed-Use Development Fort Worth, TX Convention Center Hotel Indianapolis, IN Convention Center Hotel Michigan City, IN Lakefront Hotel San Juan, PR Entertainment District Sioux City, IA Badgerow Building Sioux City, IA Convention Hotel Tulsa, OK Downtown Mixed-Use District

LESSONS LEARNED FROM OUR PROCESSES

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Process timeline: realistic and efficient

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Due diligence work: market analysis/economic impact study

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Location convenience:

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State and local laws: minimum wage laws, incentives, etc.

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Decision-making process: involve decision makers from the beginning

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Community input: process for fielding and responding to community concerns throughout the process

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Advisor middle-man: intermediary between the public sector and potential developers is key to safeguarding the integrity of the RFQ/P process

IT IT’S TOO GOOD TO BE TRUE… IT PROBABLY IS

Have you or your city been approached to participate in a project that sounded too good to be true? Then the deal changed? Mmmmhmmmm….

• 1. & 2. MARKET FEASIBILITY &

SITE ANALYSIS

Key Steps in the Development Process

MARKET

§ Define market area § Evaluate competitive supply § Evaluate existing demand § Project future market area demand § Compare subject proposal to

competition/comparables

§ Project market demand for subject

proposal

§ Determine ways to make subject more

competitive

HOW TO ASSESS MARKETS FOR… SPORTS, RETAIL, OTHER?

Sports Market Analysis What is the RELEVANT market area? Local Supply/Demand Metro Supply/Demand Regional/National Events Accessibility Weather and Hotel Situation How do Comps Perform? Local Anchor Organizations

HOW TO ASSESS MARKETS FOR… CONVENTION CENTERS?

Convention Market Analysis What is the RELEVANT market area? Relevant Supply Performance Demand Interviews: Convention, Consumer, Sports, Corporate, Local Air Connectivity Walkability Hotel Package! How do Comps Perform?

HOW TO ASSESS MARKETS FOR… ARENAS?

Arena Market Analysis What is the RELEVANT market area? Relevant Supply Performance Demand Interviews: Concert, Family Shows, Leagues Capacity breakpoints Pre-/Post-Activity Premium Amenities How do Comps Perform?

HOW TO ASSESS MARKETS FOR… SITE OPTIONS?

Site Analysis for Sports Accessible? Large enough for venue plus parking? Is it flat? Weather impact surface type? Ownership Hotels, restaurants, retail? Adjacent Uses Synergistic?

Sunday Monday Tuesday Wednesday Thursday Friday Saturday Avg Nov - 17 36.3% 53.2% 61.0% 64.4% 62.1% 68.9% 68.9% 59.5% Dec - 17 28.3% 50.9% 54.7% 53.6% 42.7% 43.8% 39.6% 44.1% Jan - 18 25.3% 42.5% 53.9% 57.2% 36.5% 29.2% 29.9% 40.4% Feb - 18 27.6% 59.3% 65.0% 61.6% 44.9% 42.1% 41.4% 48.8% Mar - 18 40.4% 63.9% 71.9% 69.9% 59.1% 74.6% 70.3% 64.6% Apr - 18 45.9% 69.2% 80.0% 82.6% 79.2% 84.5% 83.4% 73.8% May - 18 39.9% 57.7% 70.0% 74.7% 75.0% 88.4% 87.1% 70.7% Jun - 18 52.1% 83.2% 84.1% 83.9% 69.2% 74.4% 79.8% 75.4% Jul - 18 53.3% 77.0% 78.4% 75.7% 71.0% 67.3% 68.4% 70.1% Aug - 18 46.7% 76.9% 84.2% 84.4% 74.7% 77.9% 82.6% 75.7% Sep - 18 39.7% 59.6% 70.1% 73.4% 68.1% 71.4% 71.3% 64.2% Oct - 18 61.9% 79.2% 85.6% 84.6% 76.9% 86.3% 86.9% 80.5% Average 41.5% 64.6% 71.6% 72.2% 63.6% 67.4% 67.3%

Sources: Smith Travel Research

Occupancy Percent by Day of Week by Month - November 2017 - October 2018

WHAT INFLUENCES VIABILITY & RECOMMENDATIONS?

Recommended Project Existing Competitive Supply: Size, Quality, Location Performance Local Market: Size, Strength, Tourism Site Location: Access, Visibility, Adjacent Uses Industry: Economics, Realities, Trends Comparables/P eers: Performance, Keys to Success/Failure Existing Demand: Performance of Competition

WHAT INFLUENCES PERFORMANCE OF A RECOMMENDED PROJECT?

Project Performance Supply Growth Local Market Growth Location SWOT Industry Performance Averages Peer Performance Comp Set Performance

PLACER.AI & OTHER TOOLS

§ Analyze location and foot traffic analytics

for retailers and other businesses

§ Key insights: visits, customer journey,

audience, trade area, churn patterns, and special events impact

§ HSP in-house mapping and infographics § Tools to allow the data to tell the story

PLACER.AI

PLACER.AI

PLACER.AI

IN-HOUSE MAPPING – WHY IMPORTANT?

• 3. FINANCIAL FEASIBILITY &

GAP ANALYSIS

Key Steps in the Development Process

FINANCIAL FEASIBILITY

FINANCIAL ANALYSIS Do the profits from the Project support the development cost? That is the key question. For most P3 projects, the answer is no….otherwise private sector would build.

MIND THE GAP!

Projects that do not generate operating cash flow (profit) have zero $ value to the private market. If a project generates operating cash flow (profit), but not enough to pay back the development cost plus profit to investors, then it will have a sizeable financial feasibility gap.

HOW DO WE KNOW THE FINANCIAL GAP?

FINANCIAL EVALUATION We use two approaches to determine the gap, but “supportable financing” is the primary one. How big of a loan can be supported by project cash flows? How much private equity will investors risk based on project cash flow? Cash is KING! Debt + Equity = Supportable Financing. Cost of Project – Supportable Financing = Financial Gap to be Filled

FINANCIAL FEASIBILITY

PROPERTY VALUATION APPROACHES

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Cost

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Sales comparison

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Income or capitalized value: most relied upon

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Add up all future profits from operations

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Add up sales proceed from a sale in 10 years

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Discount that amount to today’s dollars

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That figure is your value

We use the Income Approach to check the supportable financing approach. Typically the results are very similar.

WHY IS MY PROJECT SO HARD?

BANKS LIKE PREDICTABILITY There is a reason that brands proliferate so quickly, and unique projects are, well, unique….predictability! Banks like to loan money to predictable projects (Starbucks, Hampton Inn, etc.). There are dozens of “comps” that give them confidence that this one will perform just like the others. Your cool P3 project usually has few comps

• r the cash flows can’t be predicted with as

much comfort.

THE SCHOOL OF HARD KNOCKS!

SO HOW DO THEY PUNISH MY PROJECT? Banks protect themselves in three ways:

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Higher interest rate (risk/reward)

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Lower loan-to-value ratio

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Higher Debt Coverage Ratio (DCR) SO HOW DO WE MITIGATE THIS? Public sector can provide guarantees or

• ther value to projects to give banks
• comfort. Backstops, rebates, abatements,
• etc. Can also invest directly in project.

FINANCIAL FEASIBILITY – WOO-HOO!

If the value of the project is greater than the cost, then THE PROJECT IS FEASIBLE!

BUT IF THERE IS A $$ GAP, THEN WHAT?

You’ll want to show the benefits to the public in terms of new taxes, new jobs, new spending. If the numbers are big enough, esp if they are larger than the gap (using 10 or more years as a measurement period), then you can rationalize a public investment in the project that mitigates the gap.

IMPACT ANALYSIS

Determines the “but for” numbers. But for the project, what taxes and jobs would not

• ccur??

Rationalize the investment:

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Taxes

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Jobs

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Spending

• 4. FINANCING & INCENTIVE

OPTIONS

Key Steps in the Development Process

USE TOOLS: PUBLIC SECTOR AS A FINANCIAL CONTRIBUTOR TO DEVELOPMENT

Public tools encourage and assist in development and help make projects financially feasible in four ways:

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Reduce front-end cost, the amount that must be financed

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Reduce financing costs, on-going debt service

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Reduce operating costs, i.e. improve project cash flow

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Facilitate process (time=money) with upfront due diligence, etc.

PRIMARY TYPES OF TOOLS

Public sector can be like a swiss army knife and offer many tools:

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Land assembly

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Financing assistance

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Other (easy permitting, fund studies, reduce red tape, etc.)

IMPORTANCE OF LAND ASSEMBLY

LAND ASSEMBLY

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Major role of development agency or city/county

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Saves time, effort, money for private sector

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Allows for more flexibility with larger parcels

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Can write down cost

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Ownership is known and favors redevelopment

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Can be contributed as incentive to private project

EXAMPLES OF FINANCIAL ASSISTANCE

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Bond financing (reduces interest cost); revolving loan fund

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Loan guarantees (reduces risk and cost)

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Tax credits/abatements

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Tax increment financing (TIF)

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Leases

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Historic tax credits (state and federal)

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Opportunity zones (federal)

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Special improvement districts

USE OF TIF SUPPORTED FUNDS

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Infrastructure

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Property acquisition

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Relocation assistance

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Environmental remediation

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Feasibility studies

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Project finance

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Façade improvements REFER TO STATE LAW FOR CONSTRAINTS AND ALLOWABLE EXPENSES!

OTHER INCENTIVES

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Air rights. transfer of rights to develop above or below a price of public land. typical above public parking garages and with public transit projects.

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Land write-downs. public sells land for less than market value to developer as an incentive.

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Technical support (funding feasibility studies)

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Public infrastructure via community development block grants and other bonding abilities

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Zoning incentives/density bonus

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Ease of permitting/waiving fees

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TIF without TIF: abate taxes, PILOT

• 5. BUSINESS PLAN:

OWNERSHIP, FINANCING, MANAGEMENT (GOVERNANCE)

Key Steps in the Development Process

OPS CHOPS (EXECUTION IS EVERYTHING)

Ownership Management Marketing/Sales Funding – Upfront Capital Funding – Ongoing Support (Operations & Capital Reserves) Preference for an Enterprise Model: Facilities Operate as a Business,

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Revenues & Expenses Tracked

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Impact Tracked

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Accountability

OPERATING MODELS

Numerous operating models, but primarily fall into three categories:

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Private Management

§ Authority/Nonprofit Hires § Management (can be independent

• r private)

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Public Management

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Departmental mixed with other items

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Enterprise Option

OPERATING TRENDS

Trend is toward private management, regardless of ownership of facility:

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Dallas

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Chicago

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Detroit

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Los Angeles

• 6. POLITICAL/FINANCIAL

APPROVAL

Key Steps in the Development Process

ORDER IS IMPORTANT…

Get Political Approval and Buy-In for the project and financing approach BEFORE going to market. Do you have the funds to fill the gap? Do you have the political approval to provide the funds? The X factor for all projects is leadership

• 7. DEVELOPER SELECTION:

RFQ/P PROCESS & DEVELOPMENT AGREEMENT

Key Steps in the Development Process

SOLICITING A DEVELOPER

Developer selection is initiated through a request for qualifications (RFQ) or request for proposals (RFP)

PURPOSE OF RFQ / RFP

§ Tool to achieve public goal § Means of introducing competition in

a redevelopment project to ensure a qualified development team is selected

§ A marketing tool to attract private

development

KEYS TO A SUCCESSFUL PROCESS

Have your recent market and financial feasibility study complete Get political and financial buy-in to the deal (generally) Be prepared to discuss financial incentives with developers Site Control is Key

RFQ / RFP OPTIONS

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RFQ followed by RFP

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Developer’s expression of interests

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Generally preferred process

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Most efficient, but will seem longer than antsy election-driven officials want

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RFP only (good for management company selection)

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RFQ only (decent for architect selection)

MEMORANDUM OF AGREEMENT (MOA/U) /TERM SHEET

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Agreement with “preferred developer”

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Clearly define project

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Detail performance and schedule

• bligation

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Set performance guarantees

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Determine option payment

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Specify termination provision

DEVELOPMENT AGREEMENT

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Puts term sheet into a legal document

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Formal contract

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Developer needs to secure private financing

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Public to commit to financial and related tools

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Real estate attorney on your side of the table ($$$)

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ALWAYS SET TIMELINES!

• 8. FINAL DESIGN, BUDGETING

& FUNDING

Key Steps in the Development Process

BUDGET GOES UP, FUNDING CAN DRY UP!

Deal points regarding land control, funding, incentives, can impact loans and insurance Lawyers are a pain, slow process, but critical Project viability may change as costs go up Impact Analysis Rationalizes Investment KEEP THE MOMENTUM GOING!

CALL TO ACTION

These fields have been plowed before, so advisors can help guide you through this process. Market and financial feasibility consultant on board to do the homework; Impact Analysis is Key Process Advisory: Site Control, Incentives, Political Buy-In RFQ/P process

THANK YOU!

To download this presentation, visit:

https://hundenpartners.com/downloads/

QUESTIONS?

Rob Hunden, President & CEO Hunden Strategic Partners 213 W Institute Place, Suite 707 Chicago, Illinois 60610 (M) 312.933.3637 (O) 312.643.2500 rhunden@hundenpartners.com www.hundenpartners.com