finding balance in financial uncertainty speakers mark ruff, senior financial advisor, ehlers rick...
TRANSCRIPT
Finding balance in financial uncertainty Speakers
Mark Ruff, Senior Financial Advisor, Ehlers Rick Collins, Vice President of Development,
Ryan Companies Bob Streetar, Community Development
Director, City of Oakdale
The Problem: Capital Market
2
Market is Deleveraging: What will 2011 Look Like?
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2007 2009 2011
Loan Breakout
Value
A-Note 45%
B-Note 15%
Mezzanine 15%
Equity 25%
A-Note 65%
B-Note 15%
Mezzanine 10%
Pref. Equity 8%
Equity 2%
A-Note 55%
B-Note 15%
Mezzanine 10%
Equity 20%
$ 80 million 1st Trust
$ 39 million 1st Trust
$52.5 million 1st Trust
3
In the former days of real estate boom and bust, cities would just wait
Modern elements of infrastructure complicate matters
Roads to build Sewer and water treatment plans to pay for Schools to fill
Higher expectations Plain vanilla is not good enough
Reaction: Modern Life
Gap Financing: Nibble Around Edges Less land required for ROW/fewer setbacks Pay now for future ROW Lower fees for park dedication Defer fees including City WAC/SAC/STAC
Longer paybacks Special assessments?
TIF New District TIF Pooled from Older District 6
Gap Financing: Higher Risk
Buy part of land or outlots and hold Cities have patient money
Land bank for long term Sites for public and private use
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Gap Financing: Serious Cash
G.O. Improvement Bonds Only 20% of debt service from assessments
G.O. TIF Bonds Only 20% of debt service from TIF
G.O. Abatement Bonds Can finance public improvements
8
Forethought
Agreement there is a problem City attorney involvement
Special treatment Findings
Focus on big need or key sites
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Goals
Quantify risk Risk of doing nothing Risk of development going elsewhere Risk of homeowners losing confidence in
City Rating agency risk
10% debt, 20% management, 40% economy
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Requirements
Good development partner Financing thought about ahead of time Subordination agreement:
Political implications of revisiting agreements Bank view of special assessments
Provide some security
11
Current Market Market Vacancy too high to support New
Construction Financing (generally) not available for
Speculative Development Build-to-Suit Developments are being
completed Developers on the Sidelines
Preserving cash reserves Selling land, not buying
Banks Say They Are Willing to Make Loans, But… Not on raw land (unless VERY LOW loan-
to-value) Property appraised values depressed
due to weak sale market Regulators forcing banks to “whip their
loan portfolios into shape” Developers have to “buy down” loans to
achieve LTV guidelines Result of lower LTV, lower appraised
values:more developer equity required
Developers have reduced Development Capacity Reduced people resources Reduced capital available for “pursuit”
(pre-development) costs Focus on investing resources to create
2011 or 2012 returns/profits
What is Important to Developers? Acknowledge current market conditions Don’t expect developers to fund City’s up-
front costs Certainty of outcomes (anticipating your
Council’s actions/reactions) Collaborative approach to:
Solving problems Identifying and pursuing funding sources Managing risks
Oakdale MallSite Plan Flexibility
Oakdale MallSite Plan Flexibility
Oakdale MallSite Plan Flexibility
DEVELOPMENTCHALLENGES
DEVELOPMENT CHALLENGES
1. Reduced developer capacity
2. Difficulty in obtaining financing for land acquisition
3. Reduced demand for space
DEVELOPMENTCHALLENGES
OAKDALE SOLUTION1. Paid for predevelopment costs
2. Financed the acquisition of the Mall
3. Participated in the risk should nothing happen
DEVELOPMENTCHALLENGES
TECHNICAL FEASIBILITY(Is the City able?)
1. Financial resources
2. Legal authority (tools)
3. Outside grant resources
4. Special legislation
5. Staff capacityTECH
NIC
AL F
EASI
BILI
TY ?
DEVELOPMENTCHALLENGES
BENEFIT – COSTSIncreased tax base
Added jobsRemoval of blight
Lower acquisition costLower financing cost
Lower public construction cost
V.
Financial riskPolitical riskTE
CHNIC
AL F
EASI
BILI
TY ?
BENEFIT – CO
STS ?
DEVELOPMENTCHALLENGES
POLITICAL FEASIBILITY(Is the Council Willing?)
Passive v. Energetic Role
TECH
NIC
AL F
EASI
BILI
TY ?
BENEFIT – CO
STS ?
POLITICAL FEASIBILITY ?
DEVELOPMENTCHALLENGES
MOVING AHEADDevelopers - dance with the one
that brought you
Councils – Be willing to consider change
TECH
NIC
AL F
EASI
BILI
TY ?
BENEFIT – CO
STS ?
POLITICAL FEASIBILITY ?
Q&A
Thank you!