December 3, 2010

1. December 3, 2010 Developer Agreements & Evaluating Private Sector Financial Statements

2. Irgens Overview Framing the Issues Developer Agreements Evaluating Private Sector Financial Statements Discussion Today’s Presentation

3. Irgens Overview • A Strategic Partner • Who We Are • Financial Capabilities

4. Irgens… A Strategic Partner “ First and foremost, you have to understand the customer’s objectives and capabilities. And you have to know the customer well enough to guide and lead them to the best possible conclusion. Successful partnerships are formed when people feel comfortable and trust one another.” - Mark F. Irgens Manager/President

5. Who We Are A multi-faceted real estate development and services firm… • In business for more than 25 years • Offices in Milwaukee, Chicago and Phoenix • Staff of 65 highly-qualified professionals • Hundreds of successful projects totaling more than $3 billion in value • Current projects worth $250+ million • Manage and lease 4.3million SF of real estate • Committed to “green”

6. Financial Capabilities • Irgens is an operating company • Projects are owned through individual special purpose entities (LLCs) • Irgens performs as managing member • Ability to raise debt and equity • Long-term relationships with lenders and other funding sources • Oversee all financial details by experienced, internal asset managers • Create and maximize real estate value for clients

7. Framing the Issues • When is a Developer Agreement Necessary? • When is Financial Evaluation Necessary? • What are the Risks?

8. When is a Developer Agreement Necessary? • Developer is looking for something from the municipality • Land • Grant • Loan • Loan Guarantee • Land improvements • When you care about your career and reputation

9. When is a Financial Evaluation Necessary? • Developer is looking for something from the municipality • Land • Grant • Loan • Loan Guarantee • Land improvements • When you care about your career and reputation

10. What Are the Risks? • Completion • Runaway Budget • Market Risk • Operational default • Failure to repay the loan • Failure to realize the necessary tax increment • Lender foreclosure • Fraud/misrepresentation • TIF debt gets put back to the municipality • Career Risk • Reputation Risk

11. Developer Agreements • Review Risks • Essentials • Nice to Have • When to Get it in Writing • Some Object Lessons • Resources

12. Developer Agreements - Essentials • The Parties to the deal • The real parties with the $$$$ • Project description • Proof of blight • Statement of current value • Expected project benefits (value creation) • Municipality’s obligations (how much $$$, when to pay, etc.) • How developer gets paid • Time of performance

13. Developer Agreements - Essentials • Security for the deal • Guarantee • LLC • Parent Company • Personal • Insurance • Project upkeep • Bind successors and assigns

14. Developer Agreements – Nice to Have • Cash flow participation • Use restrictions • No assignment without permission • Non-precedent setting • Police powers not affected • Loss-sharing with lenders • Other special considerations (MBE participation, Resident’s preference, Living wage, Buy local, etc.)

15. When to Get it in Writing • Just met? No • Getting serious? No • Got a deal? Good time to get started • Lender’s commitments? YES

16. Some Object Lessons • Remember the Golden Rule • Don’t kill the Golden Goose • Manage Risk – Don’t try to Eliminate it • Keep your eye on the objectives • Try hard • Be creative • Don’t be afraid to walk away if the deal is no good • Think in terms of Not Yet as opposed to No • Get it in Writing

17. Resources • Your peers in other municipalities • Consultants/Advisors • Get a penny’s worth of free advice • GFOA • Bond Lawyers • WAPA • International Economic Development Council [IEDC] • National Assn of Development Companies [NADCO]

18. Evaluating Financial Statements • Which Entity’s Financial Statements to Evaluate? • What to Look For • Danger Signs • Protections • Balancing Risks and Rewards • Resources

19. Which Entity’s Statements to Evaluate? • Developer risk shedding – the LLC • Not much initial value • The “parent” entity • Personal finances • Guarantor’s finances

20. What to Look for • Audited Balance sheet (Ideally for the previous three years) • CASH IS KING • Liquidity ratios • Debt outstanding • Total equity • A/R and A/P • Look at the notes • Track record of developer • Any failures? • Do they stand behind their deals? • Reputation in the marketplace

21. What to Look for • Audited Profit and Loss Statements (Ideally for the Last three years) • Profitability • Revenue growth • Expenditure growth in line with revenues? • Gross profits • Profits from operations versus sale of assets • Analysis • Ability to digest growth • Payment cycle • Revenue cycle

22. Danger Signs • Low cash • Current ratio < 1.25 • Shrinking profitability • Owners taking $$$$ out of the company • “Borrowing” from one entity to fund another • Over-leveraging • Balance sheet unable to backstop “pessimistic” performance of the current deal

23. Protections • Security • Parent entity • Personal guarantee • Know who you are dealing with • Track record • Get independent advice about the deal if you are unsure • Involve your fellow staff, CDA, Council, Board • Keep risk and potential rewards in balance

24. Balancing Risks and Rewards • Don’t kill the Golden Goose • Pioneers get the best deals • Always ask yourself “What’s in it for my city/village?” • Tax base • Employment • Quality of life • Other • Consider the impacts of the deal on the larger real estate market

25. Resources • Your peers in other municipalities • Consultants/Advisors • Get a penny’s worth of free advice • GFOA • Bond Lawyers • WICPA • Municipal Auditors • International Economic Development Council [IEDC] • National Assn of Development Companies [NADCO]

26. Optional Review • Development Agreement

27. Discussion