Federal Real Property Exchanges

Association of Defense Communities(ADC); Installation Innovation16 March 2015

Marc WaddillSenior Vice President, Public InstitutionsJLL

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Agenda

I. Introduction to Federal Real Property Exchanges

II. Federal Exchange Authorities

III. Example Projects

IV. Exchange Participants

V. Sample Timeline

VI. Exchange Financing

VII. Exchange Financial Feasibility

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Introduction to Federal Real Property Exchanges

What is an Exchange?• Exchange of title to Federal real property for constructed assets

• Exchange of title to Federal real property for in-kind consideration, including but not limited to:o Design and construction services for renovation of propertyo New construction of a replacement building

Why pursue an Exchange?• No Federal funds required• Acquire new facilities, improve space utilization, and dispose of underutilized

assets (not excess) in furtherance of the goal of reducing the Federal footprint• No screening process associated with traditional disposal

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Federal Exchange Authorities

Department of Defense (DoD)• Acquisition Exchange: 10 U.S.C. § 18240 authorizes the Secretary of a military

department to acquire a facility, or addition to an existing facility, needed to satisfy military requirements for a reserve component by carrying out an exchange of an existing facility / land under the control of that Secretary through an agreement with a State, local government, local authority, or private entity

General Services Administration (GSA)• Exchange for Services: Section 412 of PL 108-447, 118 Stat. 2809, 3259 authorizes

GSA to exchange real property for in-kind consideration, including construction services on other GSA property

• Exchange for Acquisition: 40 U.S.C. § 3304 and 40 U.S.C. § 581(c) authorize GSA to acquire real property by exchange where GSA is providing real property and other consideration

• Exchange for Disposition: 40 U.S.C. § 543 authorizes an executive agency designated or authorized by GSA to dispose of surplus property by exchange

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Example Project: Camp Parks (Dublin, CA)

• Current status:o Exchange agreement signed in 2011o Groundbreaking 6 March 2013o As of March 2015, first phase of the project

was complete and acceptedo An example of how the Army, local municipality, and private-sector developer

can work together for a win – win – win

Phased transfer of a 172-acre parcel in Dublin, CA to occur as each new project is completed

and accepted

Government Received from Exchange Partner

New phased construction of six projects approx. 150k SF, plus

infrastructure on adjacent Government-owned land

Exchange Partner Received from Government

Example Project: Boston (MA)

• Current status:o Proposed exchange announced

September 2008o Property is still under control of the

Army Reserve

13 land parcels totaling 8.1 acres in Boston’s Seaport district,

including 620k SF office building

Government Will Receive from Exchange Partner

Construction services on Devans RFTA, MA

Exchange Partner Will Receive from Government

620,000 SF Office Building at 495 Summer Street, Boston

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• Current status:o RFI released late 2012, responses

were due early 2013o Phase 1 RFP released

December 19, 2014, responses due February 10, 2015

o Expected award in May 2016

Example Project: FBI Building (DC)

Existing FBI facility – J. Edgar Hoover Building

Existing FBI facility (J. Edgar Hoover Building) and associated land, totaling approx. 2.8M GSF

and 6.6 acres

Government Will Receive from Exchange Partner

New construction of a 2.1M RSF FBI facility for11,000 personnel in one of three possible locations: Springfield, VA; Greenbelt, MD;

or Landover, MD

Exchange Partner Will Receive from Government

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Example Project: Denver Federal Center (CO)

• Current status:o GSA is in negotiations with the

City of Lakewood regarding the exchange

60-acre parcel located north of the RFD Federal Station Center

in Lakewood, CO

Government Will Receive from Exchange Partner

Construction services on the Federal Center - upgrades in an

existing building on GSA site

Exchange Partner Will Receive from Government

Proposed Exchange Parcel, Lakewood, CO

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Example Project: DOT Volpe Center (Cambridge, MA)

• Current statuso Government issued a Request for Information (RFI) on August 26, 2014 o Stage 1 of the solicitation process will consist of a Request for

Qualifications (RFQ)o Stage 2 will follow and consist of a Request for Proposals (RFP) o City of Cambridge introduced the potential re-zoning of the Volpe block to

the Planning Board on January 6 and a follow-up discussion is planned for January 27

Portion of the 14-acre Federally owned property in Kendall

Square, including associated buildings

Government Will Receive from Exchange Partner

New construction of a 390K GSF state-of-the-art research and

office facility for the Volpe Center with associated parking

Exchange Partner Will Receive from Government

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Participants

1. Government (Direct)• Strategic planning used to identify potential exchange parcels; Government to

make appropriate parcels available if vacant or consolidate operations if underutilized

• Receives new and/or upgraded facilities

2. Private sector (Direct)• Constructs new and/or upgraded facilities in exchange for land to be developed

for private-sector use• Earns appropriate risk-adjusted return on investment

3. Local Jurisdiction (Indirect)• ‘Partner’ with both Government and Private-Sector in the development process• Entitlements (land use restrictions, zoning, permitting): significant impact on value

of exchange parcel

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Sample Timeline

• Government receives services (i.e., construction, renovation or other) in advance of Exchange Parcel(s) being conveyed to private sector

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

EXAMPLE PROJECT TIMELINE

Services Period: Construction, Renovation, and Other Services

Capital Investment

Conveyance to Private Sector

Value of Asset is Realized by Private Sector

Private Sector Ownership

Financing

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Capital Financing Sources

Government Loans/Grants/Tax Credits

Tax Increment Financing (TIF)

Investment Grade Debt

Junior (Subordinate) Debt

Mezzanine Debt

Equity (Retained Earnings or Stock Offering)

Private Equity

Cost of Capital

Low Risk High Risk

Example 1 (Financing @7.5%)

Example 2 (Financing @15.0%)

Example 3 (Financing @22.5%)

$-

$100

$200

$300

$400

$500

$600

$700

$800

$500 $500 $500

$62 $132 $212

Financing CostsScope of Work

Total Cost ($ millions)

Financing (cont’d)

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Financing Cost Sensitivity: Holding Scope of Work Constant

Example 1 (Financing @7.5%)

Example 2 (Financing @15.0%)

Example 3 (Financing @22.5%)

$- $50

$100 $150 $200 $250 $300 $350 $400 $450 $500

$445 $396 $351

$55 $104 $149

Financing CostsScope of Work

Total Cost ($ millions)

Financing (cont’d)

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Financing Cost Sensitivity: Holding Exchange Parcel Value Constant

Financial Feasibility

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Valuation Considerations

What Government Receives What Exchange Partner Receives

• Site and Infrastructure Costs• Hard Costs• Soft Costs• Contingencies• Security Restrictions• Sustainability Requirements• Government Involvement & Review

Process during Design & Construction (i.e., risk of delays and change orders)

• Environmental Conditions• Title• Facility Condition• Entitlements• Timing of Conveyance• Market Conditions

Financial Feasibility (cont’d)

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What Exchange Partner

Receives

What Government

Receives

If Value Received is less than Conveyed Asset Cash Equalization Payment by Private Sector

If Value Received is more than Conveyed Asset Scoring Implications

EXCHANGE PARCEL VALUEFair Market Value of Exchange Parcel Less Market Risk Associated with Future ConveyanceLess Financing Costs for New Facilities

EXCHANGE PARCEL VALUE

VALUE RECEIVED BY GOVERNMENTDesign CostsPlus Exchange Partner Soft CostsPlus Construction Hard and Soft CostsPlus Cash Equalization Payment (if any)VALUE RECEIVED BY GOVERNMENT

Thank You!

ADC Installation Innovation16 March, 2015