the road to success is paved with gold – financing and developing infrastructure september 26,...

The Road to Success Is Paved with Gold – Financing and Developing Infrastructure

September 26, 2013

2013 ADC BASE REDEVELOPMENT FORUM | PAGE 3

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This Morning’s Line Up

Craig Seymour – RKG Associates John Walker – Deloitte Anne Marie Dowd – MassDevelopment Martine Combal – Walter Reed LRA Jeffrey Donohoe - JDA


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Take-aways …….

Provide an overview of different techniques for funding infrastructure for new development

Illustrate that each situation is different, calling for unique solutions

Identify common themes & Contacts for additional information

Alternative Finance in Base RedevelopmentJohn A. Walker – Deloitte Consulting LLP

26 Sept 2013


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Updating Federal property to meet civilian standards and codes can be costly

Potential for substantial up-front capital expenses Redevelopment timetables can range from 10-20 years, to as

many as 40 or 50 years Years may pass from property conveyance to revenue

generation

Common infrastructure investments: Industrial Reuse: water, sewer, gas, electric, wastewater,

communication improvements Residential Reuse: schools, recreation facilities General Reuse: roads, rights-of-way, runways


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Public assistance has been instrumental to defray early capital costs of redevelopment

Economic Development Administration (EDA) grants Roads, demolition, building improvements

Federal Aviation Administration (FAA) grants Runway improvements and aviation infrastructure

State government categorical grants Foundation grants (Non-profit)


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Financing tools available to developers have included public and private capital

Federal and State Grants Government Appropriations Bonds and Private Debt LRA Revenues


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Terms of property disposition can also support financing

Conveyance structures: Economic Development Conveyance (EDC) Public Benefit Conveyance (PBC)

Debt structure: Favorable interest rates Subordination of payments back to federal agencies


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Alternative financing tools can help bridge the gap between public and private capital

Bonds and Private Debt Tax Increment Financing Revenue Bonds Private Debt Public or Quasi-Public Debt


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Project revenues can secure access to capital markets

LRA Revenues Real Estate Lease and Sale Revenue User Fees Impact Fees Sale of Utility Systems Rent Offsets for Tenants

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Principal funding sources for redevelopment efforts

Base: Acquisition MethodInfrastructure &

DemolitionOverhead &

OrganizationProperty Management Tenant Improvements

Lowry AFB: Extended Payment EDC

plus negotiated sale

EDA Grants; Revenue Bonds; Infrastructure Assessments; Bank Loans; TIF Bonds

Lease Revenue; Land Sales; EDA Grants; OEA Grants; Contract; Revenue

Lease Revenue; Land Sales; Caretaker Agreement; Contract Revenue

Bank Loan; City Loan

Pease AFB: FAA Public Benefit;

ConveyanceEDA Grants; FAA Grants; State Appropriation

State Appropriation; Lease Revenue; Golf Revenue

State Appropriation Lease Revenue

Tenant Funds (rent offset); EDA Grants; State Bonds

Philadelphia Naval Complex :

EDC Founded by City

Service Agreement; Special Congressional; Appropriation; EDA Grant; City Funds; State Grant

OEA Grants; Lease Revenue; City Agency Support (PIDC); TIF Revenues

Caretaker Agreement; Lease Revenue; TIF Revenues

Tenant Funds; City Loan Funds; Special Congressional Appropriation

Source: Frieden; Baxter. From Barracks to Business: The M.I.T. Report on Base Redevelopment. March 2000


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Structuring redevelopment: Lowry AFB

EDC agreement 0% interest rate, 15-year repayment on note to AF AF subordinated payments on note to those of bondholders

Establish revenue Rental income from former on-base housing

700 units yielded an estimated $2.2M in annual net cash flow

Real estate sales Infrastructure fees

Use cash flows to finance infrastructure improvements Obtained an early line of credit Completed revenue bond sale


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Managing obsolete utilities: Lowry AFB

Denver Water and Denver Wastewater rejected transfer of Lowry infrastructure Real estate income used to upgrade, then convey the assets

under the EDC

Negotiated sale of electric and gas to Public Service Company of Colorado 80% – 90% of electric and gas system upgrades covered by AF;

LRA covered difference


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Results of redevelopment: Lowry AFB

Revenue bonds paid off in 2007 - 4 years early LRA saved $3.5M in interest payments

Redevelopment generated a $5.7B economic impact for metro Denver between 1994 and 2007, when the bonds were retired

100+ businesses, non-profits, and schools located on former federal property

Source: www.denverpost.com/business/ci_4939143


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Facing Today’s Fiscal and Financial Realities

Federal Grants are shrinking State Governments ability to provide grants is strained Private Sector Capital Markets are more risk averse –

especially for longer term projects (El Toro) Local communities are reluctant to use TIF’s or other

special taxing authority to finance infrastructure (Brunswick NAS)

Private Sector developers are much more cautious that pre-2007.


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Conclusion In the case of infrastructure, some type of public infusion

of capital and ownership is critical to demonstrate the commitment of the community to support long term growth.

Identifying short term revenue opportunities opens access to capital markets

Military may need to form public private partnerships with communities and provide financing mechanisms to attract local community and private sector investment

Military could (via OEA) establish a revolving loan fund for infrastructure development.

Leveraging Private Sector Expertise and Investment – Master Developer

Martine Combal – Executive Director

Walter Reed Army Medical Center LRA

26 Sept 2013


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DC/LRA66.57 acres

Department of State

43.53 acres

110.1 Acres

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• 14+ acres of Open Space (21% of Site)

• ~550,000 SF Reuse of Existing Buildings (18% of Program)

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WRAMC – Key Issues

• Role and Importance of the Reuse Plan• Need for Specificity

• What can be built• Timing of development• Inclusion of NOIs & Public Input

• Multi-phase RFQ/RFP Approach• Choosing the right partner up front

Financing Tools for Base RedevelopmentInfrastructure Financing Programs -the Massachusetts Model

Anne Marie Dowd - MassDevelopment

26 Sept 2013


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Massachusetts Development Finance Agency

• Self-supported quasi-public finance and development agency.

• Promotes capital investment and economic development in Massachusetts by providing financing and development solutions.

• Formed in 1998 under Chapter 23G (Massachusetts General Laws) by the merger of Massachusetts Industrial Finance Agency and Government Land Bank. Merged with Mass HEFA in 2010.

• During FY 2012, financed or managed 280 projects statewide representing an investment of nearly $2.5 billion in the Massachusetts economy.

• In FY 2013, supported the creation of more than 2,000 permanent jobs and 7,000 construction jobs.


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Massachusetts Development Finance Agency

• Primary tools Tax-exempt and taxable bonds (91 issues totaling $2.2 billion in FY2012)

Loans and guarantees (52 transactions totaling $45.3 million in FY 2012)

Infurstructure Bond Financing

Real estate planning and development services


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Infrastructure Bond Financing Programs

• Infrastructure Investment Incentives Act (“I-Cubed”)

• District Improvement Financing (“DIF”)

• Local Infrastructure Development Program

All programs set a district and pay for public infrastructure through a tax. How a district is set and what taxes are used will depend on the program.

All three programs can be used independently or in combination to meet a project’s financing needs.

Programs allow for issuance tax-exempt bonds to fund infrastructure.

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What types of Public Infrastructure can be funded?

• Roadways and intersections• Water & waste water facilities and related lines. • Transportation facilities such as train stations, bus depots, etc.• Seawalls, docks, wharves, bridges, culverts, tunnels• Streetscape, sidewalks, electric lines, street lights• Parks, playgrounds and recreational facilities • Parking garages • Brownfield mitigation• Soft and financing costs. • Varies slightly by program

Infrastructure can be in or in support of the district. It must be owned or conveyed to a public entity to be eligible.

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Infrastructure Investment Incentives Act (“I-Cubed”)

• I-Cubed legislation passed as Chapter 293 of the Acts of 2006 as amended by Chapter 129 of the Acts of 2008 and Chapter 238 of the Acts of 2012.

• Program has a $325 million state-wide maximum with up to 3 projects or $108.3 million per community.

• This program is for large development projects with public infrastructure between $10 and $50 million. Can be applied for in stages.

• A Developer applies to the Commonwealth, MassDevelopment and the municipality to set a district and net new state tax revenue is used to fund the public infrastructure.

• Main qualifier is that the project has to have more net new state tax revenue than what the Commonwealth would pay as debt service on a bond. Projected net new tax revenues is expected to cover debt service to be at least 1.5x.

• Types of revenues include:

1. Payroll Taxes2. Sales Taxes3. Hotel Taxes4. Business Taxes5. Construction Wage and Sales Taxes

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District Improvement Financing (“DIF”)

• MGL Chapter 40Q “District Improvement Financing” passed in 2003 and amended in 2011 and 2012. Program called TIF in other states.

• Municipality sets a District and agrees to use new incremental property taxes to fund the public infrastructure for the District.

• If borrowing, District or municipality issue debt based on incremental taxes from new growth that would not happen without infrastructure investment.

• Bonds issued by municipality or MassDevelopment and the credit is based upon the incremental property taxes within the District.

• Newer Districts may initially require credit support from the municipality or the developer to issue bonds.

• Commonwealth approval no longer required.

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Local Infrastructure Development Program• General legislation was signed on August 7, 2012 as Chapter 23L.

• New legislation allows a property owner to finance public infrastructure through the tax-exempt bond market.

• Property owner petitions the municipality to set a Development Zone and agrees to pay for the public infrastructure through an additional special assessment tax on the property.

• Debt service paid through a special infrastructure assessment on the property. These assessments work like a betterment and can travel with the property, if it is sold.

• Credit on bonds is based on the property owner and/or credit enhancement.

• Tax-exempt bonds and/or notes to be issued by MassDevelopment.

“Traditional” Base Redevelopment Funding Sources – Back to the Basics

Jeffrey Donohoe – Principal, Jeffrey Donohoe Associates

26 Sept 2013


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Pease Development Authority

First base to close in 1988 BRAC round Located 40 miles north of Boston Three towns had jurisdiction

Eventually transferred via Airport PBC Leased land +/- 20 year process (2 economic cycles) Now ~8,000 high quality jobs High tech, biomed, aviation, R&D, financial services


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Major Infrastructure Systems Water and sewer systems operated by the

City of Portsmouth System had a number of “cross country”

lines, which did not follow existing rights-of-way Relocated by City Users on the system had to pay a proportionate

share based on anticipated development Ten years


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Roadways Site has excellent highway access State funded interchange improvements EDA grant for main entrance/gateway Developed Park & Ride as part of southern access

upgrades (now major regional transportation hub) Most roadway maintenance costs paid by municipal

services fee PDA applies for grants where possible to support

the City’s roadway program


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Lessons Learned

Strong state support needed to overcome local jurisdictional issues

ANG – offset costs to keep airport open Early success (gateway, 1st major tenant)

is key Flexibility and patience to weather multiple

economic & real estate cycles

Alternative Funding Methods

Craig Seymour – RKG Associates, Inc.

26 Sept 2013


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Pay It Back from Future $$$

Tax Increment Financing Property Taxes on New Development Sales Taxes on New Revenues Income Taxes on New Jobs

Special District Fees Additional “Tax” on Real Estate/Users

DIFs, SIDs

Impact Fees


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Purchase Model New Quincy Center

City of Quincy & Street-Works (developer) 4 million SF mixed-use project Replaces aging commercial core of City Developer installs “Implementing Public

Improvements” – streets, utilities, parking garages

City promises to buy back when built and occupied, using tax-backed bonds

The Road to Success Is Paved with Gold – Financing and Developing Infrastructure

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September 26, 2013

the road to success is paved with gold – financing and developing infrastructure september 26,...

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