Arizona Basic Economic Development Course
Real Estate Development
and Reuse
Scott Sumners Rider Levett Bucknall
January 2017
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Course Outline
1. Introduction
2. Approaches to Development
3. The Real Estate Development Process
4. Environmental Issues
5. Public Sector Involvement
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Background
• 20+ Years in Real Estate Development
– Public + Private Sector
– Tempe Development Review Commission
– BS Urban Planning, ASU
– MPA Public Administration, ASU
– Project Management Professional (PMP)
– Certified Construction Manager (CCM)
Arizona Basic Economic Development Course
Introduction
1
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Public Real Estate Development is Unique
• Public Purpose and Goals
• Types of Resources Available
• Limitations
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Public Purpose and Goals
• Goals Are Difficult to Measure
– Create Jobs
– Broaden the Tax Base
– Increase # of Visitors
• Must Balance Public and Private Interests
• Intertwined with Political Ideology
– Liberals, Conservatives, Moderates
– Political Geography
HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE?
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Types of Resources Available
• Financial
– Operating Funds
– CIP Funds
– Bond Program
• Other
– Land
– Tax Relief
– Expediting / Streamlining
HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE?
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Limitations
• Statutory
• Financial
• Political
• Practical
HOW IS PUBLIC REAL ESTATE DEVELOPMENT UNIQUE?
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Lessons Learned Note: Instructor’s Views Do Not Necessarily Reflect the Views of AAED
1. Public and Private Sectors Need Each Other...
2. Sometimes Bureaucracy is Good...
3. Marketing is Nice, but Results are Better…
4. Consensus is Like a Unicorn…
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Your Role is Unique! City Administration
Arizona Basic Economic Development Course
Approaches to Development
2
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
A Little History…
Migration to City Living
Zoning to Separate
Incompatible Uses
Mixed-Use Development
/ Smart Growth
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Green Building
• Increased Up-Front Costs
• Reduced Operating Costs
• Positive Marketing
“Initial Investment of 2% Results in
20% Lifecycle Savings”
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Green Building
• What is Your Goal?
– Operational Savings
– Visionary Thinking
– Competitive Position
– Generate Sales
– Media Exposure
– Political
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
LEED Sales Pitch: No Additional Cost!
Actual Cost: $3,000,000
LEED Points for
15,000 SF Solar Array:
None
Phoenix
Convention Center
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Burlingame Ranch
Affordable Housing
Aspen, CO
Approach:
No Plaque
Focus on Maximizing Efficiency
Generate Savings for Future Residents
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Types of Development & Redevelopment
Build-to-suit Customized for 1 business
Single tenant
Speculative development Built before securing tenants
Multiple leases
Greenfield development Undeveloped land
Rural & suburban areas
Redevelopment/reuse Infill
Sprawl mitigation
Arizona Basic Economic Development Course
The Real Estate
Development Process
3
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
The Real Estate Development Process
1. Predevelopment 2. Feasibility
Studies 3. Site Analysis
4. Financing 5. Negotiations &
Approvals 6. Construction
7. Marketing 8. Occupancy &
Management
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Predevelopment & Feasibility Analysis
2. FEASIBILITY ANALYSIS
Market Sufficient market demand?
Financial Timely return on investment?
Political Approved by the public sector?
1. PREDEVELOPMENT Business plan
Site control
Building size
Partners
Does the project pencil out?
THE REAL ESTATE DEVELOPMENT PROCESS
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Site & Engineering Analysis
Is the site shovel ready?
TOPICS TO CONSIDER
• Natural Conditions and Contamination
• Road Issues
• Site Access Infrastructure
• Utilities
• Planning and Development
THE REAL ESTATE DEVELOPMENT PROCESS
Arizona Basic Economic Development Course
PAYSON UNIVERSITY CAMPUS RIM COUNTRY EDUCATIONAL ALLIANCE SLE RIM COUNTRY EDUCATIONAL FOUNDATION LLC
Arizona Basic Economic Development Course
Site & Engineering Analysis Example Payson University Campus
• Goal: Develop a University Campus in Payson
• Authority: Rim Country Educational Alliance – Formed by Town of Payson and Town of Star Valley
– Purpose: Higher Education + Workforce Development
• Funding: Rim Country Educational Foundation
• Property: 253 Acres in Payson, AZ
• Schedule: Open by Fall 2018
• Budget: TBD
Arizona Basic Economic Development Course
October 2015
• Alliance + Foundation Members Deliver a $4,100,000 Check to U.S. Forest Service to Acquire the 253-Acre Property
• RSP Retained as Architect
• RLB Retained as Program Manager
Site & Engineering Analysis Example Payson University Campus
Arizona Basic Economic Development Course
Site & Engineering Analysis Example Payson University Campus
Arizona Basic Economic Development Course
Today Master Plan
Site & Engineering Analysis Example Payson University Campus
Arizona Basic Economic Development Course
• Due Diligence & Site Analysis – Geotechnical Survey
– Tree Survey
– Boundary & Easement Survey
– Sanitary District Analysis
– Traffic Impact Analysis
• Design – Highway Access
– Loop Road Through Site
Site & Engineering Analysis Example Payson University Campus
Arizona Basic Economic Development Course
• Coordination w/ Utilities – APS (Power)
– Century Link (Internet/Phone)
– Sudden Link (Cable TV)
– Sanitary District (Sewer)
– Town of Payson (Water)
• Coordination w/ USFS, ADOT, ADEQ, Town of Payson & other Government Agencies
• Next Steps: Finalize Negotiations, Finalize Design, Construction
Site & Engineering Analysis Example Payson University Campus
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Financing
PUBLIC ASSISTANCE TOOLS TRADITIONAL FINANCING TOOLS
• City Property
• Tax Abatement (GPLET, TIF …)
• New Markets Tax Credits
• Low-Income Housing Tax Credit
• Industrial Development Authority
• Historic Preservation Incentives
• Infrastructure Reimbursement
• HUD Grants & Loans
• Debt – Bank Loans
• Equity – Cash
THE REAL ESTATE DEVELOPMENT PROCESS
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
GPLET – What is It?
• Government Property Lease Excise Tax
• Authorized by State as economic development tool in 1996
– ARS Title 42, Chapter 6, Article 5
• Government-owned property is not subject to property tax
• Provides a way to collect tax from private entities who lease
government property
– Restricted Use
– Eight-year Abatement
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Factors Impacting Property Taxes
Property Tax Bill
Changing Property
Values
Other Taxing Jurisdictions
2009 Budget Bill
City Use of GPLET
Increasing Gov’t
Ownership Declining
Commercial Assessment
Ratios
Prop 117, Limits on
Annual AV Growth
Prop 117, Transition
from LPV/FCV to LV
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
GPLET – in Phoenix
• Used exclusively within the
Downtown Redevelopment Area
and Central Business District
• 12 active projects
• Resulting capital investment in
downtown Phoenix
≈ $4.5 Billion
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
GPLET – Why Use It? • Valuable Economic Development Tool
– Encourages redevelopment
– Creates jobs, spending and tax revenues
– Enhances property values & capitalizes on existing public infrastructure
– Generates excise taxes during GPLET
• Example: Arizona Center
– $805 million capital investment
– GPLET lease ended in 2011
– Generating $4.4 million in property taxes
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
GPLET – Example Scenario 1: Status Quo
$10,000
Base Year
Property Tax
Year Status Quo
0 $10,000
1 $10,300
2 $10,600
3 $10,900
4 $11,200
5 $11,500
6 $11,800
7 $12,200
8 $12,600
9 $13,000
10 $13,400
11 $13,800
12 $14,200
13 $14,600
14 $15,000
15 $15,500
16 $16,000
17 $16,500
18 $17,000
19 $17,500
20 $18,000
21 $18,500
22 $19,100
23 $19,700
24 $20,300
25 $20,900
26 $21,500
27 $22,100
28 $22,800
29 $23,500
30 $24,200
Total $500,000
Property Taxes
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
GPLET – Example Scenario 2: Approve GPLET Project
8-Year Abatement
Project
Complete
Ad Valorem
(Traditional)
Tax
25-Year GPLET Agreement
Year Approve GPLET Project
0 $10,000
1 $0
2 $0
3 $0
4 $0
5 $0
6 $0
7 $0
8 $50,000
9 $51,500
10 $53,000
11 $54,600
12 $56,200
13 $57,900
14 $59,600
15 $61,400
16 $63,200
17 $65,100
18 $67,100
19 $69,100
20 $71,200
21 $73,300
22 $75,500
23 $77,800
24 $80,100
25 $82,500
26 $220,000
27 $226,600
28 $233,400
29 $240,400
30 $247,600
Total $2,300,000
17-Year Excise Tax Payments
Property / Excise Taxes
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Year Status QuoApprove GPLET
Project
0 $10,000 $10,000
1 $10,300 $0
2 $10,600 $0
3 $10,900 $0
4 $11,200 $0
5 $11,500 $0
6 $11,800 $0
7 $12,200 $0
8 $12,600 $50,000
9 $13,000 $51,500
10 $13,400 $53,000
11 $13,800 $54,600
12 $14,200 $56,200
13 $14,600 $57,900
14 $15,000 $59,600
15 $15,500 $61,400
16 $16,000 $63,200
17 $16,500 $65,100
18 $17,000 $67,100
19 $17,500 $69,100
20 $18,000 $71,200
21 $18,500 $73,300
22 $19,100 $75,500
23 $19,700 $77,800
24 $20,300 $80,100
25 $20,900 $82,500
26 $21,500 $220,000
27 $22,100 $226,600
28 $22,800 $233,400
29 $23,500 $240,400
30 $24,200 $247,600
Total $500,000 $2,300,000
GPLET – Example Status Quo vs. GPLET Comparison
Property / Excise Taxes
Abatement
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
GPLET – Example Argument – We Can’t Survive the Reduction in Revenue!
Abatement
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
GPLET – Example Facts:
1) Yes, There is a Loss in Revenue for 8 Years
2) Lost Revenue is Typically Recaptured Within 2 Years
Abatement
8 Years of
Lost
Revenue
Revenue
Gained in
First 2 Years =
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Negotiations & Public Approvals
PUBLIC APPROVALS PRIVATE APPROVALS
• Zoning
• Subdivision
• Site plan review
• Environmental Review
Building permits
• City Council
• Joint venture agreements
• Land acquisition contracts
• Lender commitments
• Architect agreements
• Engineering agreements
• Construction agreements
• Lease/Sale contracts
• Insurance agreements
THE REAL ESTATE DEVELOPMENT PROCESS
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Construction THE REAL ESTATE DEVELOPMENT PROCESS
Suddenly a heated
exchange took place
between the king and the
moat contractor.
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Construction THE REAL ESTATE DEVELOPMENT PROCESS
• Environmental Remediation
• Demolition
• Infrastructure Development
• Construction / Renovation
• Tenant Improvements
• Pre-leasing
Always Carry a Contingency
Architects and Contractors Have
Conflicts of Interest
Time
Cost Quality
“Pick Two”
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Marketing THE REAL ESTATE DEVELOPMENT PROCESS
• Public Sector Participation is Limited
• Targets = Tenants / Buyers
• Strategies • Competitive Pricing Structure
• Advertising
• Promotion
• Earned Media
• Broker Relations
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Building Occupancy & Management THE REAL ESTATE DEVELOPMENT PROCESS
• Public Sector Participation is Limited
• Asset Management • Set Rates and Charges
• Allocate Common Expenses
• Contract for Property Management
• Contract for Capital Improvements
• Contract for Maintenance
• Refinancing
• Reporting
• Maintain Relationship w/ Owner
Arizona Basic Economic Development Course
Environmental Issues
4
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Environmental Issues – What?
• Brownfield Site (US EPA): “real property, the expansion, redevelopment or reuse of
which may be complicated by the presence or potential
presence of a hazardous substance, pollutant, or
contaminant.”
• Common Contaminants
– Asbestos
– Lead Paint
– Polychlorinated biphenyls (PCBs)
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Environmental Issues – Where?
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Environmental Issues – Analysis
• “Phase I” Environmental Report
• “Phase II” Environmental Report
• EIR
• EIS
• FONSI – “Finding of No
Significant Impact” x
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Environmental Issues – Cleanup
x
“Bunny Suit”
Arizona Basic Economic Development Course
Public Sector Involvement
5
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Public Incentives
• Basic Premise:
Project Would Not Happen Without Incentive
• Justification
• Jobs
• Visitation
• Fiscal Return
• Catalyst for Future Development
• Other Policy Goals (e.g. Develop Urban Core;
Develop High-Wage Market Sector)
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Public Sector Roles – REGULATOR
PLANNING DEVELOPMENT
• General Plan
• Overlay Districts
• Zoning
• Adjustment / Relief • Variance
• Use Permit
• Design Review Board
• Plan Review
• Building Permits
• Inspections
• Certificate of Occupancy • Temporary
• Phased Occupancy
• Final
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Public Sector Roles – FACILIATOR
FACILITATOR ROLE
• Regulatory approvals
• Partial financing
• Infrastructure
• Streetscape
• Facade improvement
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Public Sector Roles – INITIATOR
INITIATOR ROLE
• Define redevelopment area
• Conceptual design
• Feasibility study
• Public participation
• Issue RFP / RFQ
• Select developer
• Sell / lease land
Arizona Basic Economic Development Course Arizona Basic Economic Development Course
Public Participation
STAKEHOLDER OUTREACH
Public Forums
Neighborhood Associations
Community organizations
Business Community
Property Owners
Public Notices
Media outreach
Surveys
Arizona Basic Economic Development Course
Questions?
Scott Sumners Rider Levett Bucknall
(602) 443-4848