Transcript Pleasanton Economic Outlook

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Financial Strategy
FMFADA Board
November 19, 2009
Today’s Agenda
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BAE/RCLCO Analysis
Capital market conditions
Developers in down markets
Current RFI/Q/P solicitation strategy
Master versus multiple developer partners
FMFADA as “master developer”
Recommended revision to developer RFI/Q/P process
BAE and RCLCO Analysis
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In the course of performing their respective work,
BAE and RCLCO have independently come to the
same conclusion regarding FMFADA’s master
developer RFI/P/Q strategy
BAE and RCLCO have conferred over the past
several weeks and prepared a joint analysis for
FMFADA
This presentation shares our analysis and
recommendations
Big Picture Economic Conditions
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National economy emerging from steep recession
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Unemployment at 26-year high
Blue Chip Economic Indicators - November Forecast for 2010
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8M jobs lost
Consensus forecast GDP growth @ 2.7%
Growth slower than normal recovery
1.4% disposable personal income growth
2% inflation
Wall Street Journal Survey - November Survey for 2010
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Average forecast of solid 2.9% GDP growth
Employment growth slow - 600,000 non-farm jobs
Low inflation @1.8%
Shape of recovery:
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Half of respondents: “U-shaped” -slowness followed by solid growth
31% “V-shaped” -strong rebound
11% “L-shaped” - economy stabilizes at lower level
7% “W-shaped” or “Double-dip” recession
Constraints on Capital Availabiliity
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Real estate credit markets have been “frozen” for the past 18
months and despite some recent “thawing” remain extremely
challenging.
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The “great de-leveraging” of commercial real estate is expected to
absorb much of real estate capital over the next several years,
constraining capital available for new projects.
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$950B+/- commercial real estate debt maturing over next three
years
Developers in Down Market
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Lack of capital will constrain developer response to
opportunities at Fort Monroe, particularly for new
development
Developers are reluctant to expend precious equity dollars
for pre-development activities as would be required for
planning new development at Fort Monroe
Soliciting a master developer for the entirety of Fort Monroe
will attract interested parties seeking to “tie-up” the
property and “wait-out” the market
Current RFQ/RFP Strategy
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RFP for leasing and property management entity
• Action: Fiscal year 2010 - NO CHANGE
RFQ, RFP, and ENA for Master Developer
• National outreach
• Experience and financial resources key criteria
• Use selection process to get up front concessions
• Action: Fiscal year 2010 - NEED TO REVISE
RFP for marina operator in partnership with U.S. Army
• Action: Fiscal year 2011 - NO CHANGE
Master Developer Pros and Cons
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Pros:
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Single entity handles real estate on behalf of FMFADA
Integrated planning and development
Access to private/public debt and equity markets
“Lean and mean” staffing of FMFADA
Cons:
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Risky: “All of one’s eggs in one basket”
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Rare for one developer to excel in all development types
Financial returns: reduced due to lease “sandwiches” with sub-developer
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Encumbers Fort Monroe if partner’s financial conditions deteriorate
Too many financial pockets to feed
Lack of control: economic and programmatic interests not always aligned
The Multiple Developer Scenario
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Pros:
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“Best in class” niche developers selected for discrete projects
Improves financial returns by:
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Eliminating master lease
Fee development opportunities
Direct end user leases
Access to private/public debt and equity markets
Deal structure can be customized to fit the opportunity
Greater control by FMFADA to balance economic and programmatic interests
Cons:
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Lower degree of integrated planning
Increases staffing requirements for FMFADA
FMFADA assumes master developer role
FMFADA as Master Developer
Under a multiple development partner scenario the FMFADA acts as
master developer providing:
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Integrated planning
Overall real estate marketing and branding
Infrastructure financing and construction
Lease negotiation and execution
Project coordinating and monitoring
Lease administration
As a master developer, FMFADA will require a larger staff than
previously planned.
Near Term Development Opportunity
Prepaid Residential Leaseholds
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174 historic residences
Good to excellent condition
Have value today that can be leveraged
Low-to-moderate capital investment required
Can be offered on a cluster-by-cluster or neighborhood
basis
Developer can be engaged on “fee” basis
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Developer invests little of own capital and is compensated by a fee
(percent of project value and performance bonus)
Leaseholds used as collateral to secure financing
Recommendations
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Adopt a multiple developer approach
Reduce scope of first RFI/P/Q to Residential Lease
Program
Postpone Industry forum to mid-2010
• Allows participation of new Interim Director of Real Estate
• Permits FMFADA to resolve planning, historic tax credit, and infrastructure
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issues
Time to formulate Residential Leasehold program details
“Soft” Marketing Campaign
• Identify and brief potential “best in class” developers
• Ensure developer market understands and buys into program
• Line up local lender and real estate community support
• Need to ensure qualified developer response
Background Slides
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Residential Leasehold Program
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Concept approved by Board:
Offer long-term (50+ year) leases of historic residences with prepayment of rent
Establish endowment/pay for capital costs with proceeds
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Issues:
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Pioneering product in Hampton Roads
Need to develop support infrastructure (e.g, local lenders, brokers, title
companies)
Avoiding fixed rental rates/avoiding “surprises” to leaseholders
Capturing future property appreciation
Examples:
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Sea Colony, Delaware
Pensacola, Florida
Jekyll Island, Georgia
Palm Desert/Palm Springs, California
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Hawaii
Santa Inez, California
Universities/Colleges
Land Trusts
Capital Requirements: “Three Buckets”
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Reuse and redevelopment of Fort Monroe will
require significant capital at three levels:
Low
Medium
High
Interim Leasing
Residential
Leasehold
New Construction
•Own land and
improvements “free &
clear”
•Minor upgrades
•Little capital at risk
• Exposure to “market”
risk
• Leasing and property
management functions
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• Own land and
improvements “free &
clear”
• Moderate unit rehab
• Site & parking
improvements
• 3rd-party capital
required
• Own land only
• New construction of
improvements &
infrastructure
• Highest capital
requirement
• Highest level of risk
• 3rd-party capital
required
This suggests different contractual arrangements
and deal structures with private management and
development entities.