GrowSmart Maine: Leveraging Private Sector Investments and Public Funds to

Support Smart Growth

2007 – Sanford Mill 2nd floor 2013 – Sanford Mill 2nd floor

Presentation Goals:

1. Sanford Mill case study

2. Discuss how public funds can attract private investment to otherwise unfeasible Smart Growth projects.

Private Investment: Key Question:

Ratio of Risk Vs. Quantifiable Return

Credit Tenant Retail Development:

Risks:

Tenant credit

Lease negotiations

Interest rate fluctuations

Sources:

Debt:

Local bank/CMBS

Predictable & Competitive

Equity:

Ample investors, low return

requirements due to low risk

Large Scale Historic Redevelopment:

Risks: Municipal and financings approvals

Market demand

Construction costs

Remediation costs

Contingency

High up front investment prior to close

Tenants: Pre-leasing very difficult

Interest rate fluctuations: impossible to lock

Ability to close funding gaps

Sources:

Debt: Bank with vision & appetite for risk = Small pool

Equity: High risk, & long wait for ROI = Small pool

Other: Brownfields Loans/Grants

Housing Funds (LIHTC/Grants)

Historic Tax Credits (Federal & State)

Other State and federal grant and loan funds

TIF financing

Sanford Mill Quick History Goodall textile mills constructed between 1882 and 1925.

Our mill, known as Mill #1, was built in 1915.

Woolen mills closed in 1955 leading to a period of makeshift users and renovations. Environmental issues, functional obsolescence and high operating costs and a soft rental market served as barriers to redevelopment.

Sanford Mill Development Timeline: 2007/2008: City of Sanford and Northland Enterprises signed a development agreement;

2008: City declared a slum and blight district and took the 66,000SF Mill #1 by eminent domain;

2009: City utilized SMPDC and EPA funds to complete environmental clean up of the Mill;

2010: Northland continued to work on development scenarios/courting tenants and trying to close funding gap;

2011: December: Northland purchased the building from the City via seller financing. Riverfront Community Bond money was utilized to complete roof replacement;

2012: November: $11.5 MM renovation began with one 4,400 SF commercial lease signed;

2013: August: Construction complete on 36 Mixed-income units and 22,000sf of commercial space. There was a 200 person waitlist for the apartments and a second commercial lease was signed during construction;

2014: As of November, all commercial space is projected to be leased, and the apartments have no on-going vacancy.

Sources and Uses imbalance:

As complete appraised value: $2.3milion

Total development cost: $11.5million

How does a private developer afford to pay $11.5 mm to develop something that will be “worth” 2.3mm?

The Solution to the Sanford Sources & Uses imbalance:

Source Amount Private/ Public

Bangor 1st position debt $980,000 Private

SMPDC 2nd position debt $1,005,000 Public (Brownfield’s RLF)

Bangor TIF Loan $514,000 Public & Private

Riverfront Grant (DECD) $505,000 Public

Developer Contribution $892,000 Private

State Historic Equity $2,050,000 Public & Private

Federal Historic Equity $1,654,000 Public & Private

NSP III grant

(DECD/HUD)

$3,900,000 Public

$11,500,000

After the $400,000 in EPA Brownfield money used for clean-up under City ownership:

Keys to Sanford Mill project’s success: Teamwork

• City of Sanford

• EPA Brownfield funding

• SMPDC – Revolving Loan fund

• State of Maine DECD

• Visionary lender in Bangor Savings

Patience

• 6 years from concept to construction completion. A long predevelopment phase presents challenges to the Developer, the City, and the Construction team

Creativity

• Creation of Slum & Blight district providing the option to use Eminent Domain

• Creation of Historic District to allow for Historic Tax Credits

• Brownfield’s grants during City’s ownership, and SMPDC loan during the Private ownership

• NSP III funding from DECD for housing units (mixed income requirements)

• Creation of the TIF district

• Zoning change

Other Obstacles to consider:

1. Market – Is there demand for this type of space?

2. Timing – Packaging multiple sources of funds (Private and Public) takes a lot of time. How long will they “hold” the fund reservation?

3. Certainty of the path forward - Are the steps to gain municipal approvals clear and unambiguous? Is the approval for public investment clear and defined?

4. Community support/education – These deals are magnets for critics and people who like to second guess progress. Could they disrupt the approval process/ funding sources?

Lessons Learned: Keys to Success

1. Team mentality between the developer, municipality, lenders, investors, public financing sources, construction professionals and tenants.

2. Open problem solving and understanding of each other’s perspective and goals.

3. A local “quarterback”.

Josh Benthien – Partner Josh@northlandus.com

207-780-0223