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 2011Loan 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

7

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

9

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

10

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

NICAL

FEAS

IBILIT

Y ?

DEVELOPMENTCHALLENGES

BENEFIT – COSTSIncreased tax base

Added jobsRemoval of blight

Lower acquisition costLower financing cost

Lower public construction cost

V.

Financial riskPolitical riskTE

CHNIC

AL FE

ASIBI

LITY ?

BENEFIT – COSTS ?

DEVELOPMENTCHALLENGES

POLITICAL FEASIBILITY(Is the Council Willing?)

Passive v. Energetic Role

TECH

NICAL

FEAS

IBILIT

Y ? BENEFIT – COSTS ?

POLITICAL FEASIBILITY ?

DEVELOPMENTCHALLENGES

MOVING AHEADDevelopers - dance with the one

that brought you

Councils – Be willing to consider change

TECH

NICAL

FEAS

IBILIT

Y ? BENEFIT – COSTS ?

POLITICAL FEASIBILITY ?

Q&A

Thank you!