leveraging public private partnerships for real...

Presenting a live 90‐minute webinar with interactive Q&A

Leveraging Public‐Private Partnerships for Real E D l B d B id d R dEstate Development: Beyond Bridges and RoadsIdentifying New Project Opportunities, Structuring Deals, Navigating the Procurement Process and Financing

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1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, AUGUST 15, 2013

Today’s faculty features:

Guy Maisnik, Partner, Jeffer Mangels Butler & Mitchell, Los Angeles

Larry Kosmont, President and CEO, Kosmont Companies, Los Angeles

Sheri Bonstelle, Partner, Jeffer Mangels Butler & Mitchell, Los AngelesSheri Bonstelle, Partner, Jeffer Mangels Butler & Mitchell, Los Angeles

David Cincotta, Of Counsel, Jeffer Mangels Butler & Mitchell, San Francisco

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Leveraging Public-Private PartnershipsLeveraging Public Private Partnershipsfor Real Estate Development

Presented by:

Larry KosmontKosmont Companies

Sheri BonstelleJeffer Mangels Butler & Mitchell

David CincottaJeffer Mangels Butler & Mitchell

Guy MaisnikJeffer Mangels Butler & MitchellJeffer Mangels Butler & Mitchell Jeffer Mangels Butler & Mitchell

IntroductionIntroduction

• Larry Kosmont, Kosmont Companies

• Sheri Bonstelle, JMBM – Government/Land Use (LA)

• David Cincotta JMBM – Government/Land Use (SF)• David Cincotta, JMBM – Government/Land Use (SF)

• Guy Maisnik, JMBM – Real Estate (LA)

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Description of Existing Climate in 2013Description of Existing Climate in 2013

• Description of Existing Market in General• Description of Existing Market in General

• Description of CA post-Redevelopment

- RDA Property Disposition

- Local budgets, damaged government credit

- Prop 30 revenues to balance State budget (temporary)

AB93 l E i Z- AB93 replaces Enterprise Zones

- Low bond rating to fund development (Fitch GO bonds)

- 35-year history or reducing development funding (Prop 13, Prop 62,35 year history or reducing development funding (Prop 13, Prop 62, Prop 218, eliminate RDA+TIFs) and increase in State, City and County taxes

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Public-Private Financing Provides Mutual BenefitsPublic Private Financing Provides Mutual Benefits

Public Entity provides:y p• Land

• Public Funds•Lower Cost Financing

• Project Incentives (density bonus)• Project Incentives (density bonus)

P i t D l /O /T t idPrivate Developer/Owner/Tenant provides:• Development expertise•Preferred Tenants/Uses

• Private financingPrivate financing• Assumption of risk

The outcome for cities is job and tax revenue growthP3 D l E i D l t

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P3 Deals = Economic Development

Navigating the Process:Navigating the Process:g gg gToolbox forToolbox for

Economic DevelopmentEconomic Development

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Real Estate and PropertyReal Estate and Property

Public Owned Real Estate Types

• Former RDA real estate

• Civic/Government Use real estate (civic centers, fire stations, recreation)

• Surplus Property (City, School District, Utility, other)

• Rights of Way / Streets / AlleysRights of Way / Streets / Alleys

• Parking Lots / Structures

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Real Estate and PropertyReal Estate and Property

How Public Land is Valuable Resource

1. Land lends value to ED projects:

• High commuting costs and transit lines have increased the “location value” of in-fill sites (e.g. parking lots, city / utility yards)( g g y y y )

• “Owned” land values can be propped up by zoning/use actions that add value (density, reduced parking, hours of operation, height, other)

• Utility hook-up and location valued by the private sector & end usersy p y p

• Potential to increase value & property taxes (stable revenue source)

• Equity and/or lease revenue can be borrowed against

2. Many public agency owned properties are under-utilized but need work to facilitate marketability or reuse

• Existing zoning may not support highest & best use

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g g y pp g

• Often needs work (entitlements, assemblage, env. remediation)

Districts and Special Purpose Financing AuthoritiesDistricts and Special Purpose Financing Authorities

Description of DistrictsBusiness Improvement Districts (PBIDs)

• Special purpose non-profit that performs variety of services to improve image of an area & promote a business district often to supplement city services

• Assessment on parcels/businessesAssessment on parcels/businesses• Managed by payors – usually a private non-profit corporation • Oversight by local government • Formed under two state laws – 1989 Act and 1994 Act• Voted by property owners by adopted by resolution of City or CountyVoted by property owners by adopted by resolution of City or County• Examples Downtown Center BID, Gateway to LA BID

Tourism Improvement Districts (TIDs) – “Hotel Districts”• Funds raised through an increase in the TOT which is used to provide tourismFunds raised through an increase in the TOT which is used to provide tourism

related services and programs in the district.• Approved by hotel operators• Local Government oversight

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Description of DistrictsParking Authorities

• Commission-led local government entity (law enacted in 1949)• Manages parking operations and revenue citywide• May be used to acquire property and fund new parking facilitiesMay be used to acquire property and fund new parking facilities• Landlord for parking leases and concession agreements• Established in 1990 to finance public works in suburban areas

Infrastructure Financing Districts – A “D.O.A.” District• Established in 1990 to finance public works in suburban areas• Uses Tax-Increment Financing• Requires public vote for district formation and bond issuanceRequires public vote for district formation and bond issuance• Cannot be used in prior RDA areas• Has only been used twice (Legoland and Rincon Hill in SF)

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Description of DistrictsCommunity Facilities Districts (Mello Roos)

• Special district legislation established in 1982 to help local gov’t finance needed community facilities and services through the levy of voter approved special taxes

• Services:Services: • Police, fire protection / Improvement maintenance• Flood protection / Hazardous material removal

New Types of Districts in CaliforniaNew Types of Districts in CaliforniaRestaurant Improvement Districts

• Assessment often based on number of employees • City of Newport Beach

Wine Promotion DistrictsWine Promotion Districts• Currently being investigated by several communities• Assessment based on tasting room sales• Funding for promotional activities to increase number of visitors and to

attract new wineries to the area

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attract new wineries to the area• Napa and Temecula currently in process

Land Use & ZoningLand Use & Zoning

Types of Processes

Expedited Processing of Entitlements and Permits – For the private sector time is money. Reduced processing time can be a win-win.

Development Agreement (DA) - Like a prenuptial agreement, DAs can lock in benefits for the public and private sector. Lock in fees in exchange for infrastructure investment.

Specific Plans incorporate economic development priorities and convert them to zoning Spec c a s co po ate eco o c de e op e t p o t es a d co e t t e to o gpolicy objectives such as increased density for preferred uses (mixed use, retail, tax and job generators)

Transfer of Development Rights (TDR) & Development Opportunity Reserve (DOR) –p g ( ) p pp y ( )Specific Plans with an Economic Development “kicker”. Reward the Buyer/investor not the owner!

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Land Use & ZoningLand Use & Zoning

Development Opportunity Reserve (DOR)

Problem: Upzoning used to stimulate economic development often results in a windfall to existing landowners, not targeted users

Th B i ht Id C bi S ifi Pl ith E iThe Bright Idea – Combine Specific Plans with an Economic Development “Kicker”

Zoning should protect and advance community desires as identified in the General Plan P l d it i t “R A t”Pool new density into a “Reserve Account”

• Approve increased density to new projects that comply with pre- set “community objectives”

• Establish additional density, but do not distribute per parcelE i b fit t t t d t i ti• Economic benefit goes to targeted uses, not existing owners

Example:Burbank Media Overlay District Zone (1991- present) – allows more density through

CUP f j t th t t it l

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CUP process for projects that meet community goals

Taxes and RevenuesTaxes and Revenues

TIF Financing

TIF is the most powerful tool for economic development

• Tax-Increment Financing (TIF) model allows local agencies access to significant & long-term source of funds

• based upon property tax which is a stable funding source

• TIF as a tool does not require a “redevelopment agency”

• Abolished in CA as of February 1 2012• Abolished in CA as of February 1, 2012

• California now only one of 3 states w/o tax increment, 47 other states (and DC) use it without a redevelopment agency

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TIF Financing

How Tax Increment Revenue Works

Base Year - Once a project area was designated and a redevelopment plan was adopted, a base year was established for the project area. This frozen base year represented the property tax base prior to any redevelopment activity.

Tax Increment - Any subsequent increases in assessed value above the base year were identified as tax increment. • Annually, the agencies were allowed to collect tax increment revenue up to the

amount of debt incurred. • An agency needed to incur debt in order to collect tax increment revenue.

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TIF Financing

How Tax Increment Works (continued)

Debt - Debt could be incurred in many ways, including the following enforceable obligations:

A. Issuing bonds (tax allocation, tax revenue, housing, etc.)B. Entering into legally binding agreements such as disposition and development

agreements (DDAs).

Affected Taxing Entities - The tax revenues generated by the base year assessed value would then be allocated to the affected taxing entities (e.g., school districts, county governments, library districts, etc.).

The affected taxing entities (ATEs) continued to collect their share of the property tax rate for the life of the project area.

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TIF FinancingTax Increment Example

$140,000

$80 000

$100,000

$120,000

$ 0,000

$20 000

$40,000

$60,000

$80,000

$0

$20,000

1 2 3 4 5 6 7 8 9 10 11

Project Year Base Year TI (80% Money)

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TI (20% Housing SA) Statutory Pass-Throughs


TIF Financing

FINANCING TOOL THE BASICS

TIF is a “Power Tool”. But these “Hand Tools” work well too:

Lease Revenue Bonds Government income stream (utility, parking) set up in a along term lease obligation and then borrowed against

Lease-Leaseback Lease/sublease of asset between two public agencies enables lease payments to be leveraged (borrowed)

Site Specific Tax Revenue Pledge (SSTR)

Tax revenue (sales, hotel) generated by a specific project used to reduce gap by lowering project debt or equity

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Additional Financing Tools

• Lease Revenue Bonds

• Lease Leaseback• Lease-Leaseback

• Site Specific Tax Revenue Pledge

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Ground and Lease-back Still Primary Vehicle of Choice for Cities

• Key Provisions

• Structuring Techniques

• LimitationsLimitations

• Financeability

• Difficulties in Securing Dept against publicly-owned property

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Existing and NewExisting and NewggLegislationLegislation

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Existing and New LegislationExisting and New Legislation

• United States Legislation

• California Legislation - Governor's economic development program and proposed bills

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Project ExamplesProject Examplesj pj p

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Schlage Lock/Visitacion Valley Project ‐ SFg / y j

• Former Redevelopment Agency Project Area/ Brownfield• Privately owned – Proposed for Development Agreement with City and

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y p p g yCounty of San Francisco

Schlage Lock/Visitacion Valley Project ‐ SFg / y j

• Former Redevelopment Agency Project Area/ Brownfield• Privately owned – Proposed for Development Agreement with City and

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County of San Francisco

Laurel Heights ‐ UC San Franciscog

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Offered for sale or lease by the University of California – San Francisco

Golden State Warriors Arena – San Francisco

Proposed arena for Golden State Warriors on San Francisco Port Property

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Railroad Roundhouse – San Francisco

• Conversion of railroad roundhouse to office space

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• Ground lease with Port of San Francisco

Heritage Fields/O C t G t P k P j t I iOrange County Great Park Project ‐ Irvine

• Former Marine Corps Air Station, El Toro • Purchased from the Federal Government for

$850 million through 4‐lot public bidd l• Land Use Entitlements‐General Plan/Zone Change‐Specific PlanDevelopment Agreement with owner‐Development Agreement with owner, City and RDA‐Vesting Tentative Tract Maps, Parcel Maps & Finance MapMaps & Finance Map

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Heritage Fields/O C t G t P k P j t I iOrange County Great Park Project ‐ Irvine

• Public Benefits‐Orange County Great Park land – Great Park Master Plan‐Wildlife Corridor‐Affordable Housing‐Police Site, School Site, Streets

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Spring Mountain Ranch – Riverside Countyp g y

•1458 single family home development•Land Use Entitlements•Land Use Entitlements‐Zone/Change/General Plan Amendment‐Specific Plan‐Development Agreement

•Public Benefits‐School Site ‐ School District CFD

•Six Tentative Tract Maps

‐Public Reservoir Site‐Public Trails‐Public Roads and Infrastructure‐Highland Water Company SiteHighland Water Company Site‐Joint community facility

agreements – Street, Flood, Sewer‐Conservation Easements for

h bit t d ildlif

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habitat and wildlife

Ponte Vista Project – Los Angelesj g

• Former Navy housing site830 nit ho sing de elopment• 830 unit housing development

• City of Los Angeles Proposed Entitlements‐Zone/ChangeS ifi Pl‐Specific Plan‐Development Agreement

• Private Roads – Access to adjacent school

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Redondo Beach Marine Ave. Hotel Projectj

Challenge: City wants to better utilize area near Metro station; odd lot & shape; multiple ownership; vacant condition deterred privateshape; multiple ownership; vacant condition deterred private development

Project:

• 147 room Hilton Garden Inn & 172-room Marriott Residence Inn located147 room Hilton Garden Inn & 172 room Marriott Residence Inn located adjacent to Metro station

• UNDER CONSTRUCTION as of APRIL 9, 2013

• Community use of meeting rooms; Fwy Billboard use for CityCommunity use of meeting rooms; Fwy. Billboard use for City

Tools Used:

• Ground Lease

• Lease-Leaseback

• Site-Specific Tax Revenue Pledge (Prop & TOT)

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• Mezzanine Reserve Fund

Redondo Beach Waterfront Revitalization

International Boardwalk

Pier Plaza

Marina Properties

Add’l Properties in RFQ

Challenge: Redondo Beach’s aging waterfront increasingly struggles toChallenge: Redondo Beach s aging waterfront increasingly struggles to compete with neighboring South Bay cities to the northProject:• RFQ issued for 15+ Acres of Waterside Development

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• TOOLS USED: Kosmont structured Lease-leaseback financing for 15 acres of land acquisition to be paid back from property cash flow

Macerich – Mall of Victor ValleyMacerich Mall of Victor ValleyChallenge: Lost several major tenants from a

significant regional shopping mall; decline in sales tax revenue for Citysales tax revenue for City

Project:

• Extreme Mall Makeover: Net increase of 47,000 retail SF (531 000 t t l SF)(531,000 total SF)

• New Macy’s and JC Penney (replacing shuttered Gottschalks and Mervyns)

• JCP opened in OCT. 2012 & MACY’s in Mar. 2013

Tools Used:

• Site-Specific Tax Revenue (SSTR)

• Development Agreement

• Operating Covenant

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City of South Gate – “azalea” Retail CenterCity of South Gate azalea Retail CenterChallenge: Formerly a pipe mfg plant, the 32-acre site lay fallow &

blighted for years

Project:

• 372K sf regional retail center (Wal-Mart, Ross, Marshalls)

• Public Plaza & Events Center City Services AnnexPublic Plaza & Events Center, City Services Annex

• UNDER CONSTRUCTION; OPENING MID 2014

Tools Used:

• Utility Bonds for off-sites

• Site-Specific Tax Revenue (SSTR)

• New Market Tax Credits (NMTC)

• EDA Grant

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Thank YouThank You

Larry KosmontKosmont Companies

865 South Figueroa Street

David CincottaJeffer Mangels Butler & Mitchell

Two Embarcadero Centerh lSuite 3500

Los Angeles, CA 90017213-417-3300

[email protected]

5th FloorSan Francisco, CA 94111

415-398-8080 [email protected]

Sheri BonstelleJeffer Mangels Butler & Mitchell

1900 Avenue of the Stars7th Floor

Guy MaisnikJeffer Mangels Butler & Mitchell

1900 Avenue of the Stars7th Floor7th Floor

Los Angeles, CA 90067310-203-8080

[email protected]

7th FloorLos Angeles, CA 90067

310-203-8080 [email protected]

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