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Finding balance in financial uncertainty

Finding balance in financial uncertainty. Speakers Mark Ruff, Senior Financial Advisor, Ehlers Rick Collins, Vice President of Development, Ryan Companies Bob Streetar , Community Development Director, City of Oakdale. The Problem: Capital Market. Reaction: Modern Life.

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Finding balance in financial uncertainty

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  1. Finding balance in financial uncertainty • Speakers • Mark Ruff, Senior Financial Advisor, Ehlers • Rick Collins, Vice President of Development, Ryan Companies • Bob Streetar, Community Development Director, City of Oakdale

  2. The Problem: Capital Market

  3. Reaction: Modern Life • In the former days of real estate boom and bust, cities would just wait • Modern elements of infrastructure complicate matters • Roads to build • Sewer and water treatment plans to pay for • Schools to fill • Higher expectations • Plain vanilla is not good enough

  4. Gap Financing: Nibble Around Edges • Less land required for ROW/fewer setbacks • Pay now for future ROW • Lower fees for park dedication • Defer fees including City WAC/SAC/STAC • Longer paybacks • Special assessments? • TIF New District • TIF Pooled from Older District

  5. Gap Financing: Higher Risk • Buy part of land or outlots and hold • Cities have patient money • Land bank for long term • Sites for public and private use

  6. Gap Financing: Serious Cash • G.O. Improvement Bonds • Only 20% of debt service from assessments • G.O. TIF Bonds • Only 20% of debt service from TIF • G.O. Abatement Bonds • Can finance public improvements

  7. Forethought • Agreement there is a problem • City attorney involvement • Special treatment • Findings • Focus on big need or key sites

  8. Goals • Quantify risk • Risk of doing nothing • Risk of development going elsewhere • Risk of homeowners losing confidence in City • Rating agency risk • 10% debt, 20% management, 40% economy

  9. Requirements • Good development partner • Financing thought about ahead of time • Subordination agreement: • Political implications of revisiting agreements • Bank view of special assessments • Provide some security

  10. Current Market • Market Vacancy too high to support New Construction • Financing (generally) not available for Speculative Development • Build-to-Suit Developments are being completed • Developers on the Sidelines • Preserving cash reserves • Selling land, not buying

  11. Banks Say They Are Willing to Make Loans, But… • Not on raw land (unless VERY LOW loan-to-value) • Property appraised values depressed due to weak sale market • Regulators forcing banks to “whip their loan portfolios into shape” • Developers have to “buy down” loans to achieve LTV guidelines • Result of lower LTV, lower appraised values:more developer equity required

  12. Developers have reduced Development Capacity Reduced people resources Reduced capital available for “pursuit” (pre-development) costs Focus on investing resources to create 2011 or 2012 returns/profits

  13. What is Important to Developers? • Acknowledge current market conditions • Don’t expect developers to fund City’s up-front costs • Certainty of outcomes (anticipating your Council’s actions/reactions) • Collaborative approach to: • Solving problems • Identifying and pursuing funding sources • Managing risks

  14. Oakdale MallSite Plan Flexibility

  15. Oakdale MallSite Plan Flexibility

  16. Oakdale MallSite Plan Flexibility

  17. DEVELOPMENT CHALLENGES • Reduced developer capacity • Difficulty in obtaining financing for land acquisition • Reduced demand for space DEVELOPMENT CHALLENGES

  18. OAKDALE SOLUTION • Paid for predevelopment costs • Financed the acquisition of the Mall • Participated in the risk should nothing happen DEVELOPMENT CHALLENGES

  19. TECHNICAL FEASIBILITY • (Is the City able?) • Financial resources • Legal authority (tools) • Outside grant resources • Special legislation • Staff capacity TECHNICAL FEASIBILITY ? DEVELOPMENT CHALLENGES

  20. BENEFIT – COSTS Increased tax base Added jobs Removal of blight Lower acquisition cost Lower financing cost Lower public construction cost V. Financial risk Political risk TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? DEVELOPMENT CHALLENGES

  21. POLITICAL FEASIBILITY (Is the Council Willing?) Passive v. Energetic Role TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? DEVELOPMENT CHALLENGES POLITICAL FEASIBILITY ?

  22. MOVING AHEAD Developers - dance with the one that brought you Councils – Be willing to consider change TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? DEVELOPMENT CHALLENGES POLITICAL FEASIBILITY ?

  23. Q&A

  24. Thank you!

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