Developing Property for Economic Growth

Transcription

1 Developing Property for Economic Growth May 10, 2018 Bricker & Eckler LLP Columbus, Ohio

2 Introduction Price D. Finley Partner, Bricker & Eckler LLP 100 South Third Street Columbus, Ohio

3 The Scenario We are in the Central Ohio city of Upper Easterburg A 30,000 square foot, 1920s-era warehouse building situated on a 5-acre parcel has been acquired by a developer An adjacent 3-acre parcel is owned by Upper Easterburg. The area surrounding the building has experienced recent growth, including multi-story apartments and street level retail. Parking is becoming an issue in the area. Community leaders want to assist a mixed-use commercial and residential project being proposed by the developer. 3

4 Urban Redevelopment Tools and Policies J. Caleb Bell

5 Urban Redevelopment Tools Abate Taxes Redirect Taxes Add Taxes 5

6 Abate Taxes Abate Property Taxes CRA Enterprise Zone Abate Income Taxes Municipal Job Creation/Retention Tax Credits State Job Creation/Retention Tax Credits Abate Sales Taxes Port Authority Leases 6

7 Redirect Taxes TIF TIF Six Types! 1) Parcel TIF 2) Incentive District TIF 3) Urban Redevelopment TIF 4) Urban Renewal TIF 5) Community Urban Redevelopment Corp. TIF 6) Downtown Redevelopment TIF 7

8 Redirect Taxes TIF 8

9 Redirect Taxes TIF Uses of TIF Revenue: Public Infrastructure Land Acquisition Demolition Utilities NEW Road, Water, and Sewer Maintenance Planning/Soft Costs Debt Service Private Costs of Development (Special TIFs Only) 9

10 TIF Examples - Types 10

11 TIF Examples - Layering 11

12 Add Taxes - Assessments Regular Assessment Add On For Public Infrastructure NCA Charge Add On For Public Infrastructure PACE Assessment Add On For Energy Improvements Assessments are all a form of property tax. 12

13 Add Taxes Assessment Policy SIDs and Assessments can drive development policy: Assessments for parking facilities Downtown assessment districts Co-funding between government and property owners C-PASS Program 13

14 Add Taxes NCA Policy NCAs can drive development policy: No NCA NCA for single development NCA for large-scale development NCA to enhance unvoted debt capacity NCA to cooperate with School Districts, Other Governments Suburban NCA for Every New Development Urban Single NCA For All Needy Developers! 14

15 Add Taxes - NCA 15

16 Add Taxes - NCA 16

17 Add Taxes PACE Policy PACE can drive development policy: Stimulate efficiency, solar, wind, etc. Renovate old buildings Stabilize tenants Energy jobs 17

18 Add Taxes PACE Assessments Solar photovoltaic (i.e., roof-top and ground-mounted solar arrays) Solar thermal systems (i.e., solar water heating systems) Geothermal Wind Biomass Gasification Energy efficiency improvements 18

19 Add Taxes - Ohio s PACE Law Energy Efficiency Improvement is given a special statutory definition: energy efficiency technologies, products, and activities that (1) reduce or support the reduction of energy consumption, (2) allow for the reduction in demand, or (3) support the production of clean, renewable energy and that are or will be permanently fixed to real property. Any equipment in a building that is designed to save electricity, gas, or other forms of energy is eligible for PACE. Renewable technologies are eligible for PACE. 19

20 Columbus Regional PACE District 20

21 Ohio PACE Programs 21

22 PACE Comparing Capital 22

23 PACE Case Study: Delco Lofts Project Urban redevelopment project in Dayton Historic industrial manufacturing building Redeveloped by Crawford Hoying Development Partners 134 market rate apartments, parking, amenities, and first-floor retail 23

24 PACE Case Study: Delco Lofts Project $17.6M Senior/Bridge Financing $4.4M of Federal Historic Tax Credits (+/- 90% face value) $5M in State Historic Tax Credits (+/-75% face value) $3.8M Dayton Port Bonds PACE Financing LED Lighting Windows HVAC Insulation Thermostats/Controls $650,000 Dayton Port Sales Tax Savings 24

25 PACE Case Study: PNC Tower Port Authority + ESID + City + County + State $2,785,000 Bonds $400,000 Loan $920,000 Loan Loss Reserve Grant Stabilized building for existing tenants Building and PACE transferred to new owner 25

26 Add Taxes PACE Assessments Office Projects Urban Projects Retrofit Projects New Construction PACE can help replace equity! 26

27 Questions? J. Caleb Bell Partner, Bricker & Eckler LLP 100 South Third Street Columbus, Ohio

28 Project Finance and Incentive Options Rob McCarthy

29 Preliminary Questions How much does the community want to help? What assistance does the market require? Control over construction, ownership, and control of project? Risk allocation? Relationship between public infrastructure and commercial improvements? 29

30 Options to Consider 1. Upper Easterburg issues debt to pay costs of public infrastructure. 2. Upper Easterburg and property owner/developer work with port authority to issue debt for public infrastructure and, possibly, private improvements constituting port authority facilities. 3. Property owner/developer, with support of Upper Easterburg, establishes new community authority to issue debt and/or provide repayment source for debt issued by port authority. 30

31 City Issuance Upper Easterburg issues debt to pay costs of public infrastructure Maximum control Upper Easterburg constructs, owns, maintains, and operates public infrastructure or contracts with developer to do same State law considerations debt limitations Federal tax considerations parking garage Can be traditional bond structure or Upper Easterburg can work with the developer on more custom structure 31

32 Upper Arlington The Lane acre mixed-use hotel, retail, and residential development Significant parking and roadway requirements (land acquisition, street, utilities, 300-space parking facility) Ground Lease / O&M Agreement Special assessment / TIF structure 32

33 DRD / ID New revenue stream Downtown redevelopment charge or service payments Possibility for loans, grants, operating costs Pledge for debt service 33

34 Port Authority Options Upper Easterburg and developer partner with port authority to finance project Flexible structures; can include public and private portions of project City debt issuance may be avoided Sales tax exemption for commercial project Prevailing wage and competitive bidding 34

35 Ohio Port Authorities (a partial list) 35

36 Bridge Park West Garage Columbus-Franklin County Finance Authority / City of Dublin / Crawford Hoying CFCFA Bonds Ground Lease / O&M NCA and Service Payments (with floor) Refunded by bond fund issue for savings 36

37 800 North High Street Mixed-use commercial, hotel, and retail development Inadequate parking CFCFA-owned parking garage Parking garage revenue backed by special assessment CFCFA financing of commercial facility 37

38 New Community Authority Options Developer establishes new community authority, with support of Upper Easterburg and (possibly) port authority Developer driven structure (generally) City involvement can be minimal if desired Power to levy charges and issue debt Own and operate infrastructure Flexible project size and charge structure 38

39 Bridge Park New Community Authority Four charges: Assessed Debt service Retail charge Hotel charge valuation coverage 39

40 Union Village $1.5 billion new community Anticipated 12,000 residents NCA and multiple TIFs Multiple series of bonds to pay infrastructure costs over time New sports complex with bed tax support 40

41 Delaware Outlets $100 million outlet mall Inadequate roadway infrastructure Berkshire Landing NCA / Delaware County Finance Authority / Delaware County / JEDD 41

42 Yankee Trace Randall Residence Public Improvements Development of significant green field site with signature development features Infrastructure challenges Dayton-Montgomery County Port Authority / City of Centerville / Montgomery County / Randall Residence NCA 42

43 Galena NCA Community north of Westerville and New Albany anticipates tens of thousands of new residents in coming years Desire for new developments to pay costs as community grows 43

44 Questions? Robert F. McCarthy Partner, Bricker & Eckler LLP 100 South Third Street Columbus, Ohio

45 Real Estate Issues Steve Intihar

46 Different Perspectives A. Public Entity 1. Will want certainty as to commitments Politicians need to deliver on promises to the public 2. Will want to see activity Job creation Community assets Vibrancy 46

47 Different Perspectives A. Public Entity (cont d) 3. Will want to be viewed as a good steward of public assets Utilization of the property owned by the public entity Protect the use of public funds 47

48 Different Perspectives B. Private Entity 1. Will want certainty as to commitments Needs certainty in order to raise capital 2. Will need flexibility to address market conditions 3. Will need a competitive return on its investment 48

49 Acquisition Issues A. Public Entity Acquiring 1. Often acquiring property to eliminate blight or spur development 2. If you want a strong commitment from sellers and you want to be a good steward of public funds, you make things easy on sellers Absorb closing costs Make time frames short Eliminate contingencies quickly Proactively manage risk 49

50 Acquisition A. Public Entity Acquiring (cont d) 3. Public entities can fix problems through eminent domain 4. Public entities may have more leverage over utilities to fix easement issues or to obtain access to utilities 50

51 Acquisition B. Private Entity Acquiring 1. In order to enhance the likelihood of return on investment, private entities need time bring a project together. 2. Many private entities likely may not want to buy property until they know it s zoned appropriately, financing entitlements need to be in place, utilities are available, amenities are in place (e.g., parking, parks, etc.), pre-leasing is done, etc. 51

52 Acquisition B. Private Entity Acquiring (cont d) 3. Private entities will want expansive contingencies, rights to extend contingency periods, cooperation from the seller, full disclosure from the seller. 4. Parties need to know the public meeting schedules and make sure those schedules work with the contract contingencies. 52

53 Acquisition C. Public Entity Selling 1. When selling to a private entity, a public entity will want some teeth to enforce commitments made by the private developer. (a) Reversions or options to repurchase trigger by failure to commence, failure to complete or changed use. (b) Rights of first refusal if project sold prior to stabilization. (c) Value Guarantees/Minimum Service Payments to support TIF or Community Authority assessments. (d) Use Restrictions. (e) Conservation Easements, Access Easements, etc. 53

54 Options for Ownership Structures A. Public Entities 1. Community Development Corporations 2. Community Development Authorities 3. Constitutional prohibitions against joint ventures with private entities 54

55 Options for Ownership Structures B. Private Entities 1. Typically own the project through a limited liability company structure Equity investors have varying interest 2. Traditional Mortgage Debt 3. Mezzanine Debt or Preferred Equity 55

56 Rezoning A. Political Process 1. Takes time 2. Elections matter and can affect timing 3. Community input matters 4. Schools matter 5. Publicity matters 6. Appeals and referenda matter 56

57 Rezoning B. Know the Process Going In C. Private Entity Get a local expert engaged early 57

58 Preparation for Development A. Public Entities 1. Clear useless structures 2. Environmental Remediation 3. Infrastructure Construction 4. Amenities construction (parks, transportation, etc.) 5. Maintain Some Income - Surface Parking/Events 58

59 Preparation for Development B. Private Entities 1. Address issues during due diligence, prior to acquisition if possible 2. Financing 3. Entitlements 4. Infrastructure and utilities 5. Pre-leasing 59

60 Preparation for Development B. Private Entities (cont d) 6. Title and survey review 7. Geo-technical review/subsurface Structures 8. Subdivision/platting 60

61 Questions? Steve Intihar Partner, Bricker & Eckler LLP 100 South Third Street Columbus, Ohio

62 Construction Best Practices for Thorny Issues Doug Shevelow, P.E

63 Thorny Issues Do public procurement statutes apply? Project delivery method Prevailing wage Notice of commencement 63

64 Procurement Statutes? 1) Who holds the construction contract? Public owner: Look for exceptions to public bidding. E.g. Port authority, new community authority, Charter city 64

65 Procurement Statutes? 2) Who holds the construction contract? Private entity: More flexibility 65

66 Project Delivery Design-Bid-Build Multiple prime contractors General Contractor Construction Manager at Risk 66

67 Project Delivery Design-Build The new old way 67

68 Prevailing Wage The third rail Does it really add cost? 68

69 69

70 Prevailing Wage 1) Is the improvement being constructed by a public authority who is not exempt from PW? Exempt: Schools, port authority, county or municipal hospital Then PW applies. (Assume spending threshold exceeded.) 70

71 Prevailing Wage 2) Will the public authority lease the improvements within 6 months of completion? Then PW applies. 71

72 Prevailing Wage 3) Is the construction pursuant to a contract with the public authority and for the public authority? Then PW applies. 72

73 Prevailing Wage Pursuant to means contract must be the animating force. Episcopal Retirement Homes v. ODIR: No. Lease/sublease back to county not animating force because county not involved in planning or approval. 73

74 Prevailing Wage Pursuant to means contract must be the animating force. Zurz v. 770 W Broad. Yes. Lease was animating force when required private lessor to make tenant improvements to satisfaction of public tenant. Even though no public money used to pay contractor! 74

75 Prevailing Wage For the public authority. Possessory interest or Using public funds 75

76 Prevailing Wage TIF implications Naked TIF : Bonds or reimbursement not backed by public authority PW probably does not apply b/c no public funds Reimbursement TIF: Publicly supported, e.g. TIF revenue bonds. PW probably applies b/c public funds 76

77 Prevailing Wage Bond Validation (ORC ) Ask the Common Pleas Court to declare that contracts associated with a particular issuance are compliant with the law, including that they are not subject to PW. 77

78 Notice of Commencement Public or private NOC? No head fakes 78

79 Questions? Doug Shevelow, P.E. Partner, Bricker & Eckler LLP 100 South Third Street Columbus, Ohio

80 Thank you! Steve Intihar Rob McCarthy Price Finley Caleb Bell Doug Shevelow, P.E