presentation to caled 35 th annual training conference getting it done: can cities help development...
TRANSCRIPT
Presentation to CALED
35th Annual Training Conference
Getting it Done:
Can Cities Help Development Projects in a Post-RDA World?
Presented by:Larry Kosmont, CRE & Ken Hira, Kosmont Companies
Don Hunt , Norton Rose Fulbright LLPDon Smail, City of Manteca
www.kosmont.com
April 22, 2015
How do the Pieces Fit Together?
The Problems:• Greenhouse Gas Emissions (GHGs)
• Drought
• Climate Change
• Insufficient regional transportation
• Crumbling Infrastructure Aging water transportation infrastructure
Aging sewer infrastructure
Aging electric & utility plants
• New Infrastructure Needed For shift to multifamily housing
Transit-Oriented Development in designated high-quality transit areas (HQTAs)
2
Economic Development and Sustainable Public PolicyHow does the new Legislation provide Opportunity?
Sustainable PolicyCompliance
Economic DevelopmentNew Revenues and Jobs
SB 628 (Beall)Enhanced Infrastructure Financing Districts
SB 614 (Wolk)Jurisdictional Changes for Special District/Annexed area for Infrastructure Financing
AB 229 (Perez)Infrastructure and Revitalization Financing Districts on Former Military Bases
SB 743 (Steinberg)CEQA: Environmental Quality Streamlining for TOD / Infill Dev.
AB 850 (Nazarian)Financing Public Capital Facilities: Water Quality
AB 1471 (Proposition 1; Rendon)Financing Water Quality, Supply and Infrastructure Improvement: Bond Issuance
AB 2660 (Aguiar)Infrastructure Financing Act: User Fees and P3s
Local & Regional Infrastructure
AB 32 (Perez)Cap and Trade: Community Development Investment Tax Credits
SB 375 (Steinberg)GHG Emissions Reductions: Sustainable Communities Strategy
AB 1739 (Dickinson)Groundwater Management: Sustainability Plan & Extraction Reporting
SB 1168 (Pavley)Groundwater Sustainability Agency & Plan: High- and Medium-Priority Basins
SB 1319 (Pavley)Sustainable Groundwater Management Act
SB 535 (De Leon)Greenhouse Gas Reduction Fund: Benefits to Disadvantaged Communities
Regional Sustainability 3
Regional JPAConduit Financing
Economic Development Real Estate
ProjectRebate of Taxes /
Revenues
Land Use / Zoning (Higher Density;
Parking)
P3 / Project Delivery Methods
Enhanced Infr. Financing Districts
(EIFDs)
Joint Powers Authorities (JPAs)
Post-RDA Economic DevelopmentCities have 7 BASIC TOOLS for Public/Private Projects
These tools often work best when used together
Special Districts (Tourism, BIDs, etc.)
Real Estate & Property
4
Introduction of Post RDA Tools and How To Use Them Effectively
Don Hunt, Partner
48384079
5
A. Authorized in 1949
B. Broad range of uses, expanded by the Marks-Roos Local Bond Pooling Act of 1985
C. Example – South Gate Utility Authority• South Gate formed the South Gate Utility Authority
(a Joint Powers Authority) in 2002.• City leased its Water Utility and Wastewater Utility
to the Utility Authority pursuant to the provisions of the California Public Utility Code.
I. Joint Power Authorities
6
• City entered into a management agreement with the Authority to manage the utility.
• Utility Authority agreed to make lease payments to City over the term of the lease based on outside engineering valuation of systems.
• Utility operates enterprise as an asset of the Utility Authority during the lease term.
• Utility enterprise reverts back to the City at the end of the lease term.
South Gate Utility Authority Cont.
7
Prior to Enactment of SB 628:
• Existing law authorized an infrastructure financing district to fund infrastructure projects through tax increment financing, pursuant to the infrastructure financing plan and the agreement of affected taxing entities.
• Existing law allowed an Infrastructure Financing District to exist not more than 30 years from the date on which the ordinance forming the District is adopted.
II. Infrastructure Financing Districts
8
Infrastructure Financing Districts
– SB 628 authorizes the legislative body of a city or county, defined to include a city and a county, to establish an enhanced infrastructure financing district:
– to adopt an infrastructure financing plan and issue bonds, which may be outstanding for up to 45 years from the approval date of the district and bonds, for which only the district is liable, upon approval by 55% of the voters;
– to finance public capital facilities or other specified projects of community wide significance, including, but not limited to, Brownfield restoration and other environmental mitigation;
– development of projects on a former military base; – the repayment of the transfer of funds to a military base reuse authority;– the acquisition, construction, or rehabilitation of housing for persons of low
and moderate income for rent or purchase;– the acquisition, construction, or repair of industrial structures for private use; – transit priority projects; – projects to implement a sustainable communities strategy;– utilize any powers under the Polanco Redevelopment Act.
9
• SB 628 requires the legislative body to establish a public financing authority, defined as the governing board of the enhanced infrastructure financing authority, comprised of members of the legislative bodies of the participating entities & of the public, prior to the adoption of a resolution to form an enhanced infrastructure district & infrastructure financing plan.
If a district has only one participating taxing entity, the public financing authority’s membership shall consist of three members of the legislative body of the participating entity, and two members of the public chosen by the legislative body.
If a district has two or more participating taxing entities, the public financing authority’s membership shall consist of a majority of members from the legislative bodies of the participating entities, and a minimum of two members of the public chosen by the legislative bodies of the participating entities.
Infrastructure Financing Districts
10
The district shall finance only public capital facilities or other specified projects of community wide significance, that provide significant benefits to the district or the surrounding community, including, but not limited to, the following:
1. Highways, interchanges, ramps & bridges, arterial streets, parking facilities, & transit facilities;
2. Sewage treatment, water reclamation plants & interceptor pipes;
3. Facilities for the collection and treatment of water for urban uses;
4. Flood control levees and dams, retention basins and drainage channels;
5. Child care facilities;
6. Libraries;
7. Parks, recreational facilities, and open space;
8. Facilities for the transfer and disposal of solid waste, including transfer stations and vehicles;
9. Brownfield restoration and other environmental mitigation;
Infrastructure Financing Districts
11
10. The development of projects on a former military base provided that the projects are consistent with the military base authority reuse plan and are approved by the military base reuse authority, if applicable;
11. The repayment of the transfer of funds to a military base reuse authority;
12. The acquisition, construction or rehabilitation of housing for persons of low and moderate income;
13. Acquisition, construction or repair of industrial structures for private use;
14. Transit priority projects;
15. Projects that implement a sustainable communities strategy.
B. EIFDs are able to finance and build a wide variety of public infrastructure projects, including projects that are frequently delivered through a P3 model. An EIFD’s broad discretion to select potential projects and access to bond financing with a lower voter threshold (55%) should broaden the categories of public/private partnership that can be financed with public debt.
Infrastructure Financing Districts
12
• Any debt or obligation of an enhanced infrastructure financing district is subordinate to an enforceable obligation of a former redevelopment agency.
• The bill authorizes the legislative body of the city forming an enhanced infrastructure financing district to choose to dedicate any portion of its net available revenue, as defined, to the enhanced infrastructure financing district through the infrastructure financing plan.
Infrastructure Financing Districts
13
Recent California local government examples:
a. Oxnard Fire stationb. Long Beach Courthousec. City of Rialto Utility Authority
Water and WastewaterConcession Agreement
d. City of Long Beach Civic Center (City Hall, Library, Headquarters for Harbor Commission)
III. P3s – Public Private Partnership
14
The Challenge:• City desired an expedited project delivery method to build a
much needed fire station on vacant 2.49 acre parcel without assuming development or construction risks
Tools Employed• Real Estate & Property• P3 Infrastructure Delivery• Revenue Bonds
The Solution:• Utilized a JPA to issue bonds and a non-profit to own the project and
install improvements• Bond proceeds will finance the design, construction and equipping of
a “turn-key” fire station to be leased to the City of Oxnard upon completion (expected less than 24 months)
• Revenue bonds earned an “A+” rating from S&P despite the bonds assuming construction risk
Oxnard Fire Station
15
Tax revenues (example - sales, TOT) generated by a specific project used to reduce gap by lowering project debt or equity.
City agrees to contribute an amount calculated each year based on actual incremental public revenues produced that year by project to reimburse designated infrastructure costs.
Risk remains on Developer to generate verifiable annual public revenues from project.
Contribution may be made directly as a reimbursement or as a contribution to offset financing costs of infrastructure initially financed through a special purpose financing entity such as a community facilities district.
V. Site Specific Tax Revenue Pledge (SSTR)
16
17
City of Manteca Case Studies
• Loss of RDA has had many consequences for local governments.
• RDA was our “tool kit” and we got accustomed to using it; other tools went unused.
• Many unintended consequences: restricted access to bond funds, loss of 99 year lease alternatives, etc.
• Demise of the Enterprise Zone program compounded the challenge.
• Manteca had two major projects at risk.
18
Industrial Service Company• Large Industrial laundry: hi water efficiency facility placed to
serve institutional clients, hospitals, large hotels, etc.
• Site selected within an existing master plan area, so many entitlement issues were addressed.
Project proforma included EZ for 90 employees at $39,500 = $3.5M tax benefit over 5 years
Also invested $8.7 in machinery and equipment, and were due $575K
Demise of EZ wiped out the hiring credit. City and firm are still negotiating with FTB and BOE on the credit.
• Time was the critical factor, and by assigning staff the company open about 3 months early
• 89 employees at opening has grown to 117, and City his helping the firm solicit new clients.
19
Crothall Industrial Laundry - completed
2020
Conference Ctr. & 500-room Hotel• Land sale became a 99 year lease (post-RDA: separate govt.
code section for recreation/exhibition related facilities).
• Ability of the hotel to levy a resort fee to help fund a CFD were hampered by recent San Diego decision.
• Project became 100% prevailing wage: 500 rooms, 1,200 parking space, 20,000 sf convention/exhibition center
• Complex capital stack; lenders unwilling to loan on hotels; Wall Street concern about California’s “next change”
• City subsidy based upon a percent of net new TOT revenue from the project (similar to two sales prior tax deals).
• Project enters EIR phase in two weeks; not finalized, but close to agreeing on framework of the deal.
• Important to keep your legal team on call; changing times!
21
Conference Ctr. & 500-room Hotel
• City had $40M in unspent bond proceeds, a project and a 200 acre site, but no DDA before demise of RDA.
• Major water, sewer and storm drain projects were already planned to cross through the selected site.
• City paid for EIR, two developers paid for a joint Master Plan for hotel/conference center and recreation complex
• Master Plan and EIR were tracked in tandem
• Developer and hotel operator on a fast track to break ground, 16 month construction time frame.
22
Conference/Hotel/Recreation Facility
23
Retail Trends 2015
RETAIL = TIME
Kosmont Retail NOW! ®
Contact: Ken K. HiraSenior Vice President, Kosmont Companies
Southern California State Director [email protected]
24
Retail Trends• In a digital world what works today for Retail centers?
• Food is king - you still can’t eat/drink on the internet…
• “Place” is the new anchor tenant
• Mix of restaurants, entertainment, medical, civic,
residential, transit
• Technology• Omni-channelling, embrace the internet
• Smart phones … shoppers more efficient
-- and have more time to hang out
• Cities• Understand today’s paradigm
• Apply zoning strategies in synch with tenants that attract trips
• Remember public private partnerships?
‹#›25
To the consumer of the future, shopping is about TIME:
Time you Spend when you go out to shop traditionally at stores … BRICKS
Time you Save by shopping more efficiently online, omnichanneling … CLICKS
Time you Invest with friends socially, hanging out, coffee/food/being entertained … PLACE
RETAIL = Time
26
2015 Retail: Something Old, Something New
THE OLD THE NEW
Big Box Small Box “Shrinkage”
Limited Amenities Services & Special Events
Traditional Grocers Specialty Grocers
Parking Transit, Multi-Modal, Walking & Parking
Food Court Market Hall
Retail Only Food + Entertainment /Fitness + Medical/Office + Civic + Housing + More…
Products Experiences
Sales psf as metric Trips as metric
“We’re not overbuilt … we’re Under-Demolished”
27
“Mixed Drink” Program
Mixed-Use/Community Retail
Residential
Entertainment/Fitness
Grocery/Restaurants
Medical/Office/Civic
The trick is maintaining
the right balance and blend
to achieve the best taste!
28
• Cities need a strategy that strikes the right balance of ingredients …
• Kosmont Retail NOW!® is a tool kit for both public and private sectors to attract retail.
• It is a comprehensive & proactive retail attraction initiative which identifies existing conditions, sets a path, targets tenants & produces results.
Kosmont Retail NOW!®
29
Analyze, Strategize, Implement:“Cash Registers vs. Wallets” … Surplus / Leakage
Note: Spending potential based on number of households, average household income, and estimated percentage of income spent on retail goods and services; Source: CA Retail Survey (2012); U.S. Census Bureau (2010); Bureau of Labor Statistics (2011); ESRI (2013)
Sales Surplus / Leakage Per Capita in $000s:
Surplus
($1.2) ($1.0) ($0.4) $2.6 ($0.1) $4.3 $2.0 ($1.3) $0.0 (27%) (22%) (9%) 57% (3%) 58% 24% (14%) 0%
30
The Challenge
• Top Regional Location (High Desert)
• Macerich lost several major tenants from significant regional shopping mall (Gottschalks & Mervyns bankruptcies)
• Resulting decline in sales tax revenue for City of Victorville
Victorville – Mall of Victor Valley
The Solution
• Kosmont evaluated & negotiated public-private options to retain & attract retailers; to generate jobs and sales tax revenue for the community
• Site Specific Tax Revenue (SSTR) sharing arrangement vis-à-vis Development Agreement between Macerich and City to pass through sales tax amounts greater than threshold value
• Re-tenanting and architectural redesign revitalized aging mall
31
The Fallen
Mall of Victor Valley – The Circle of Retail Life
The Survivors
The New Arrival
32
Mall of Victor Valley – The ReDesign
33
The Challenge & Evolution of Deal
• Formerly a pipe mfg plant, the 32-acre site lay fallow & blighted for years.
• City bought site in 2006 to revitalize community
City of South Gate – “azalea” Retail Center
• South Gate has highest population density in LA County, yet residents must drive far for basic goods and quality restaurants.
The Evolution of the Deal and the Solution• Kosmont worked closely with the City and Primestor to fulfill the
City’s objectives while minimizing financial project gap assistance.
• Negotiated Infrastructure Financing Agreement to fund off-site improvements; reduced risk for both City and developer
34
The Results
• 372,000 sf project opened Summer 2014 with major national credit retailers (Wal-Mart, Forever 21, Chiptole) & modern architecture
• Public amenities include City Hall Annex, outdoor public plazas and event areas with a minimum of 24 public events per year
• Project will generate $2.5m per year in sales (2% sales tax rate)
• Enables City to recapture sales tax leakage & create 1,400 jobs
City of South Gate – “azalea” Retail Center
35
City of South Gate – “azalea” Retail Center
36
1. Today’s Consumers think of Retail in terms of TIME
2. New format – “Community Retail”
3. Internet is Blending with, not destroying Brick & Mortar – the result is a “Marriage of choices”
4. Keep track of where people NEED to and WANT to show up in person (grocery stores, restaurants and bars, outlet centers)
5. You can’t eat or drink over the internet … yet
6. Bricks, Clicks and Place – the key to retail is in the balance. The Mall isn’t dead, it’s just going “back to the mixture”
7. Cities needs a retail strategy not a retail study to achieve economic development objectives in a post RDA world
8. Cities need a retail strategy not a retail study, focus on longevity and tenants that embrace omnichannelling
9. Community retail
10. – you can’t eat over the internet….yet
11. REVISIT - Time, community retail, blending (marriage of choices),
TAKEAWAYS
37
GREAT SCOTT!
THE FUTURE FOR RETAIL IS BRIGHT
38
Thank You
Any Questions?
39