Presenting a live 90 ‐ minute webinar with interactive Q&A Public ‐ Private Partnerships for p Real Estate Development Structuring, Documenting and Implementing PPP Deals TUES DAY, FEBRUARY 1, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Tony Canzoneri, Partner, McKenna Long & Aldridge , Los Angeles . Roy, Partner, McKenna Long & Aldridge , Los Angeles Dennis S Allan D. Kotin, Principal, Allan D. Kotin & Associates , Los Angeles The audio portion of the conference may be accessed via the p y telephone or by using your computer's speakers. Please refer to the instructions emailed to regist rants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
Continuing Education Credits FOR LIVE EVENT ONLY For CLE purposes, please let us know how many people are listening at your location by completing each of the following steps: • In the chat box, type (1) your name , (2) your company name and (3) the number of attendees at your location number of attendees at your location • Click the arrow to send
Tips for Optimal Quality S S ound Quality d Q lit If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory and you are listening via your computer speakers, you may listen via the phone: dial 1-866-443-5798 and enter your PIN when prompted Otherwise please send us a chat or e mail when prompted. Otherwise, please send us a chat or e-mail sound@ straffordpub.com immediately so we can address the problem. If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Qualit y To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again press the F11 key again.
Overview of Real Estate Development PPP Tony Canzoneri and Dennis Roy McKenna Long & Aldridge LLP Allan Kotin Allan D. Kotin & Associates F b February 1, 2011 Webinar 1 2011 W bi mckennalong.com
C Contact Information t t I f ti Tony Canzoneri tcanzoneri@mckennalong.com 213 687 2103 213.687.2103 Dennis Roy droy@mckennalong.com 213.687.2132 Allan Kotin akotin@adkotin.com 213.623.3841 5
O tli Outline of Presentation f P t ti • Overview (Kotin) • Process and Documentation (Canzoneri, Roy) Process and Documentation (Canzoneri, Roy) • Recap (all speakers) • Q&A • Example 6
Today’s Speakers as a Prototype for Today s Speakers as a Prototype for Negotiating Team For both sides, public and private • Transaction Attorney • Government Relations / Land Use Attorney • Financial Advisor (Real Estate Economist) 7
D fi iti Definition of Public Private Joint Ventures f P bli P i t J i t V t A public-private joint venture in real estate is for purposes of this presentation, a transaction which meets three tests: 1. 1 It would not occur without public participation It would not occur without public participation 2. It is a negotiated transaction not merely compliance with some application formula 3. It involves public agency participation through and past completion in both regulatory and contractual roles 8
Th Three Major Categories of PPJV’s M j C t i f PPJV’ 1. REDEVELOPMENT (Policy-Driven) TRANSACTIONS - Driven by policy considerations; - For private development that would not occur without public inducement or assistance; - Usually associated with economic development, downtown revitalization or affordable housing. U ll i t d ith i d l t d t it li ti ff d bl h i - Governmental powers and funding sources 2. ASSET MANAGEMENT TRANSACTIONS - Involves deployment of publicly owned land for private development; Involves deployment of publicly owned land for private development; - Often closely associated with other public activities, e.g., ports, marinas, airports - Objectives differ in that revenue is the major objective but policy considerations do apply 3 3. PRIVATE DEVELOPMENT OF PUBLIC FACILITIES PRIVATE DEVELOPMENT OF PUBLIC FACILITIES - Currently popular and often referred to as P3 for “ public private partnership ” - Related to but not same as privatization; - Not considered here except in situations requiring joint development of public and private facilities 9
R Residential Land Uses id ti l L d U • Affordable housing is particularly suitable to redevelopment. p • Residential multi-family works for both redevelopment and asset management since it is easy to lease apartment land land. • Residential for sale is hardly ever appropriate for asset management since ground leasing for ownership housing is not acceptable except in very special circumstances. 10
C Commercial - Office i l Offi • Often an important part of redevelopment transactions. • There is some hope that the project may justify its full cost There is some hope that the project may justify its full cost at some time. • Works for asset management as well since offices do f function well as ground leases. ti ll d l 11
C Commercial - Retail i l R t il • Core function of redevelopment in California and some other states because of importance of sales tax. p • The market may not be there now but a successful project will create a market. • Works for asset management as well because it is suitable W k f t t ll b it i it bl to ground leasing. 12
I d Industrial Land t i l L d • Sometimes associated with redevelopment as a form of revitalization. • Can work although not used frequently for asset management because land values are not that high. 13
H t l Hotel and Hospitality d H it lit • Excellent asset management use because hotels work very well on ground leases. y g • Works equally well in redevelopment and asset management. • U Use that can often repay the subsidy if successful. th t ft th b id if f l 14
R d Redevelopment Transactions l t T ti • Key element in redevelopment transactions is the “gap”. • The gap is the difference between what a project costs to The gap is the difference between what a project costs to build and what it’s worth when it is built. • Most redevelopment transactions cost more to build than th they are worth, at least initially. th t l t i iti ll • Measuring and defending the gap is an important part of the transaction process. p 15
R d Redevelopment Transactions - 2 l t T ti 2 EMINENT DOMAIN is a strength and a weakness of • redevelopment. • The advantage agencies have is that they can sell land they do not own. • The disadvantage is they do not know what it costs. g y • Uncertainties associated with the cost and time of condemnation are severe. • • Need special techniques to deal with these uncertainties Need special techniques to deal with these uncertainties. • Recent and proposed restrictions in reaction to the KELO court decision: backlash has made it illegal to condemn owner occupied housing for “private” use owner occupied housing for private use. 16
R d Redevelopment Transactions - 3 l t T ti 3 • Redevelopment transactions can be either performance based or front-end assistance • Ability to borrow against tax increment or other public revenue sources create a capital flow which can be used for front end assistance for front-end assistance. • Performance based assistance can be granted by letting a developer have his own increment or other public revenue sources back over time. 17
D fi i Defining the “Gap” th “G ” Understanding the financial aspects of a Proposed Project and the “Financial Gap” that Communities Are Asked to Fill p If They Can? Incentives Associated with New Development or I ti A i t d ith N D l t Redevelopment Are Almost Always a Function of a “Gap” Between the Returns and the Costs 18
D fi iti Definition and Example d E l The General Statement of the “Gap” Has Two Critical Implications: Two Critical Implications: – A Public Infusion of Capital or a Reduction in Public Costs Is Necessary to Make Returns Match Costs OR – A Reduction in Expenses or an Additional Source of Income Is Needed to Make Returns Match Costs Income Is Needed to Make Returns Match Costs 19
Example From Recent Major Example From Recent Major Shopping Center Starting Point Base Case - In $000's UNASSISTED MODIFIED NET OPERATING INCOME (NOI) 8,200 8,200 Cap. Rate p 12.00% 11.50% $68,300 $71,300 Investment Value Land Cost 10,200 10,200 Sitew ork 12,800 12,800 Hard (Building) Costs 24,900 24,900 City Fees 2,900 2,900 Other Costs (soft costs, less offset for land sales) 26,500 Oth C t ( ft t l ff t f l d l ) 26 500 26 500 26,500 Parking Costs 28,900 28,900 Total Project Costs $106,200 $106,200 Remaining Financing Gap $ 37,900 $34,900 Revenue Gap Required Return (% on Cost) $12,700 $12,200 Less: Net Operating Income ($8,200) ($8,200) Annual Revenue Gap $4,500 $4,000 20
Recommend
More recommend
