Principles of f Public-Private Partnerships p for Real Estate & Economic Development

PREPARED FOR PREPARED BY

LELAND CONSULTING GROUP

Urban Strategists

PRESENTATION OUTLINE
Introduction Real Estate Development: Principles and Process Public-Private P bli P i t Partnerships: P t hi H How and d Wh Why? ? Public-Private Partnership Case Studies: Otay Mesa Riverplace Tualatin Commons

Principles of Public-Private Partnerships

INTRODUCTION Leland Consulting Group: What we do

Work with public & private sector real estate executives to solve tough problems and:
Stimulate economic success Make great urban places Enhance the human

experience p

Principles of Public-Private Partnerships

INTRODUCTION
Professional Services

Strategic Planning Market Research/Analysis Economic and Demographic Forecasting Land Use Strategies Development Programming Negotiations and Deal Structuring Public-Private Partnerships Financial Analysis Regulatory egu ato y Approvals pp o a s Litigation Support Project Management

Principles of Public-Private Partnerships

DAVE LELAND
40 years industry experience as

Developer Consultant C lt t Advisor Owner Blend of public and private clients Geographic focus: west coast, national, international Counselor of Real Estate (CRE) Frequent ULI panelist and speaker Mixed-Use, Smart Growth leader

Principles of Public-Private Partnerships

Real Estate Development: P i i l and Principles dP Process

SUCCESSFUL PROJECTS
Successful public public-private private development projects require a holistic and balanced approach
Developer Experience

Community G l Goals

Public-Private P t Partnership hi

Financial Fi i l Capability

Design Excellence

Success
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DEVELOPMENT IS AN ITERATIVE PROCESS Backwards

D i Design Feasibility Implementation

A Bit Better
Feasibility Design Implementation

Best Iterative, Holistic, and Multidisciplinary

Preliminary Feasibility Market Assessment Preliminary Financial Analysis Design Political Evaluation Design Implementation Outreach Financial Fi i l Feasibility
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MARKETS ARE UNFORGIVING

Markets are people & their

Needs Desires Ability to pay Willingness Willi t to pay With choice, positive price value is essential People reject places and products that are not responsive i t to their th i needs, d desires, or budget

Principles of Public-Private Partnerships

MARKETS CHANGE
Supply/Dem and Inflection Point

Phase II - Expansion
Declining Vacancy New Construction

Phase III Hypersupply

11 10 9 12 13 3 14 15 5
Increasing Vacancy More Com pletions Increasing Vacancy New Construction

Long-Term Average Vacancy

4 3 2 1

7 6 5

8 Cost Feasible
New Construction Rents

Declining Vacancy No New Construction

16 1

Phase ase I - Recovery eco e y

Negative Rental Growth Below Inflation Rental Growth Rents Rapidly Toward New Construction L Levels l High Rent Growth In Tight Market

Phase IV - Recession
Rent Growth Positive But Declining Below Inflation & Negative Rent G Growth th

Legg Mason W ood W alker, Inc. and Leland Consulting Group

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21st CENTURY MARKET WAVES

Megaregions and Urbanization Asia, Abundance, Automation Energy: E C b S Carbon Scarcity, it

Renewal Emergence Infrastructure Upgrades Aging population Public focus: Human Capital, Education, Amenities Pacific NW Clusters: High Hi h T Tech h and d Cl Clean T Tech h Natural Resources Manufacturing and Trade
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RISK MANAGEMENT
Development involves risk:

Market, capital, and operating risks Risk Ri ki is d determined i db by project j type, developer experience and local conditions Experience is essential Each component must be successful and complement p the others Exceed the markets expectations Public-private Public private partnerships help to mitigate risk

Two thirds of mixed-use developments by inexperienced developers fail fail.

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SUCCESSFUL DEVELOPERS WEAR MANY HATS

Financial Analyst Psychiatrist Lawyer Real Estate Market Analyst Politician

Urban Planner

Visionary Architect & Designer g Public Relations Specialist Manager Engineer g

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AVOID THE SILOS

Silos A

Modern ode Problem ob e

Too many

T Transp portati ion

Design

specialists, not enough generalists

P Plannin ng

Planners should understand how investors think think. Lenders should understand the built environment. Real estate should be part of the planning DNA DNA.
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Financ ce

ENGAGING BOTH SIDES

20th Century:

Left brain thinking 21st Century: Whole brain thinking For individuals and organizations Communication is essential

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Public-Private Partnerships: Wh and Why dH How

WHY PUBLIC-PRIVATE PARTNERSHIPS?

Enhance feasibility projects

that otherwise wouldnt happen Accelerate investment timeline Provide greater public benefits Achieve significant policy goals I Improve quality, lit scale, l or location Overcome barriers
Financial Market Regulatory Physical Political

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WHY PUBLIC-PRIVATE PARTNERSHIPS?

Leverage: Strategic management of public money Link public projects to private investment Build Build it and they will come come is not always true Spend limited public $$$ where you know it will leverage private investment Private to public investment ratio of 4:1 or 5:1

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WHY PUBLIC-PRIVATE PARTNERSHIPS?

Create investment momentum:
Trigger additional

private investment Create an anchor for future projects Provide an amenity for residents Strengthen tax base Create a sense of f place l
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SUCCESSFUL PROJECTS
Many parts must simultaneously fit together The whole Th h l i is greater than the sum of its parts.
The Market Location, Timing Visibility, Design and Access

Design

Successful Leadership & Project

Finance

Market

Communication

Financial Capability

Developer Experience & Capability

Public Policy & Regulation

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PUBLIC-PRIVATE PARTNERSHIPS DEALS

Every deal is different! Financial and nonfi financial i l participation ti i ti Formal and informal agreements Use all the tools in your toolbox One or more public agencies (not just the City)

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RESPONSIBILITIES ARE SHARED

TASK Downtown Development Principles Maximize pedestrian access
Promote development densities Define areas where development will be concentrated Develop a strong commercial core Plan and manage parking effectively Promote commercial land use intensities Promote residential development near transit/shopping Promote and provide incentives for infill Promote residential units above grade level retail Provide an adequate amount of retail Establish a wide range of land use activities Encourage a mix of different housing types Responsibility Public Private Joint

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TYPICAL PUBLIC SECTOR PARTICIPATION

Expedited permitting Master planning Regulatory assistance Tax abatements Land L d assembly bl Investment in

infrastructure Streets Sidewalks Parks Parking

Tualatin Common

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TYPICAL PUBLIC SECTOR PARTICIPATION

Joint marketing Loans, , financing g Tax increment

financing g Commitment of SDCs Community y relations Many, many more

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TYPICAL PUBLIC SECTOR PARTICIPATION Financial Incentives TIF Tax Credits Tax Abatement Zero/Low-Interest Loans Public-private partnerships Grants Faade TOD Energy/Green Density D it b bonuses
Principles of Public-Private Partnerships 25

WHAT THE PUBLIC SECTOR SEEKS

What the Public Sector Seeks from the Private Developer: Developers who know Mixed-use and Place Making Know the public scrutiny and wont back out Understand public process Have experience in the type of project desired Successful track record Developers Who are Financially Strong Equity or an equity source in place Debt sources as well An open book process

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WHAT THE PRIVATE SECTOR SEEKS

What the Developer Seeks from the Public Sector: Strong Political Will Stable City Council/Planning Commission Community Support Community and Business Alignment

Favorable (or at least neutral) media Public P bli Fi Financial i lM Means Urban Renewal Bonding Capacity C Land Control Oth Needed Other N d dI Incentives ti and dM Mechanisms h i
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TYPICAL DEAL PROCESS

1 RFQ find your partner 1.

2. MOU establish the deal outline

3. DDA create the plan, hammer out the details

4 Ongoing management agreements 4.

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MEMORANDUM OF UNDERSTANDING (MOU)

MOU Less complex Early stage Outline deal points Due diligence stage May/may not be legally binding but politically committing

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DEVELOPMENT & DISPOSITION AGREEMENT

DDA or DA Next step after the MOU Master M t legal l ld document tt to structure partnership Legally g y binding g Extremely detailed Roles & responsibilities Recourse R Many, many deal points

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DDA DEAL POINTS

Public contributions Development and land purchase phasing Purchase price Upside participation Abilit t Ability to resell ll property t Design standards Timeline Roles and responsibilities Offsite plan Development obligations Performance requirements Remedies for nonperformance
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OTHER AGREEMENTS
Land leases Parking leases Easements Building leases Maintenance

agreements Marketing agreements

Tualatin Commons

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COMMUNICATE EARLY AND OFTEN

Understand your

p partners and key y players Develop a communication strategy Build public trust through involvement Be responsive to each others other s needs Have a common vision
Principles of Public-Private Partnerships 33

Case Studies:
Otay Mesa Mesa, Riverplace Riverplace, Tualatin Commons

OTAY MESA: THE SETTING

High volume

border crossing Huge potential, p , low investment 4.9 jobs per acre New economy Growth pressures

Otay Mesa

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OTAY MESA: GOALS

A moment of opportunity:

Looking Back from 2025 Strengthen the economic base Diversify employment and investment Balance land uses Improve access and mobility Plan for harmonious relationships between uses Meet the need for housing Create complete places

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OTAY MESA: PROCESS

Strategic Framework Stakeholder

workshops and coordination Economic and physical research Case C studies t di Otay Mesa C Community it Pl Plan Update

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OTAY MESA: IMPLEMENTATION

Fund SR-11, SR-125,

and I-905 projects P id additional Provide dditi li industrial d ti ll land, d sanctuary in East County New border crossing Establish urban office campuses Develop underutilized land Attract educational institutions Expand workforce housing options Define future role of Brown Field

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OTAY MESA: IMPLEMENTATION

Celebrate success! Cultivate champions p Establish partnerships Prioritize decisions Pursue multiple projects

and activities Brand the Mesa

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OTAY MESA: OTHER MODELS

Hillsboro, OR Emeryville, CA Irvine I i Business B i

Brownsville, TX Las Colinas, Irving, TX Santa S t Theresa, Th NM

Complex, CA

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RIVERPLACE
12-acre riverfront urban resort in Downtown Portland

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RIVERPLACE OWNERSHIP STRUCTURE

Weyerhaeuser 100% 50% WRECO 50%

Portland General Corp. 100% CWDC

Cornerstone Columbia Development Company

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RIVERPLACE PRODUCT MIX

Luxury boutique hotel Condominiums Apartments Athletic club Office building and
Program Element Residential Retail Office Hotel Athletic Club Total Number Units / Rooms / Stores 190 13 4 74 1 Square Feet 235,000 23,220 41,600 76,600 47,000 423,420

retail M lti l restaurants Multiple t t Entertainment retail P ki Parking Marina Esplanade

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RIVERPLACE DETAILS
Goal: Create a

residential neighborhood and destination on the waterfront Deal Structure: PDC: Site cleanup, land write down, down build marina Cornerstone: Development, Columbia successful bidder
Principles of Public-Private Partnerships 44

RIVERPLACE
Lessons Learned Market issues Retail issues Noise issues between uses No back door Triangular site constraints Inadequate parking Construction complexity

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TUALATIN COMMONS
Redevelopment of 19 19-acre acre former dog food factory:

Tualatin Sherwood Road

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TUALATIN COMMONS

Goals based on citizen input: Strong civic focus; Pedestrian and vehicular circulation; Day and night uses; Strong visual presence at major entrances; t Improved economic climate for downtown businesses; Convenient and adequate parking; Links to nearby retail, civic, and recreation uses; Downtown built for the long term (50+ years); and Retention of downtown's retail market share.
Principles of Public-Private Partnerships 47

TUALATIN COMMONS
Located in a floodplain,
Program Element Residential Live-Work Retail Office Hotel Public Plaza Lake 3.1 acres Number Units / Rooms / Stores 69 7 4 restaurants 4 60 20,000 13,000 87,000 Square Feet

built a 3.1 acre lake $5 million public public, $35 million private Hotel Multiple restaurants, limited retail Condominiums and apartments Office buildings Public open space

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TUALATIN COMMONS
The Heart of the City Not one developer but

many City responsible for maintenance and planning events for public areas Emphasis on public art Marketing Citizen group Tualatin Tualatin Futures

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CASE STUDY CONCLUSIONS

Flexibility and diversity with

multiple developers versus one developer Community support and ownership p Political support Important to ensure quality on all levels Understand the market for ALL uses Anticipate problems before they arise
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