Financing MXD Progressive Development

1
Financing MXD Progressive Development

• ORHow I Came to Realize I Was NOT Going to
  Shortly Die

2
Arcadia Land Co. Principals

• Joseph Duckworth, Wayne, Pa.
• Robert Davis, Seaside, Fla. And San Francisco,
  Ca.
• Christopher B. Leinberger, Albuquerque, N.M.
  (www.cleinberger.com)
• HDIC Arcadia PartnerPat Bryan, Albuquerque, N.M.

3
Arcadia Land Company

• Suburban Philadelphia--40 acre residential/retail
  in-fill. Partner--Pitcairn Trust
• Suburban Philadelphia80 acre residential/retail
  in-fillno partner
• Downtown Albuquerque, N.M.--Retail, Office,
  Residential, Arts and Parks redevelopment.
  Partner--McCune Fdn.

4
Arcadia Land Company

• Independence, Mo.1400-acre residential/retail
  new town. Partners include Church of Christ
  (Reorg Mormans) and Forest City.
• SeasideFinal build out of downtown.

5
(No Transcript)
6
(No Transcript)
7
(No Transcript)
8
(No Transcript)
9
(No Transcript)
10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
(No Transcript)
16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
(No Transcript)
20
(No Transcript)
21
(No Transcript)
22
Elements of Conventional Development

• Simple
• Modular
• Segregated by Income and Race/Class
• Formula Driven
• Privacy the Highest Value for Residential
  For-Sale Products
• Parking Convenience Visibility the Highest
  Value for Income Products

• Well Understood Product Types
• Transportation Car and Truck Driven
• Short-Term Return and Finance Driven
• Disposable Product
• Suburban (0.2-0.4 FAR) and Semi-rural (Under 0.2
  FAR) Character

23
(No Transcript)
24
Elements of Progressive Development

• Complex
• Mixed-Use
• Integrated
• Grows from the Location
• Multi-Modal Transportation System
• Privacy AND Urbanity in For-Sale Residential
• Parking Convenience and Walkability in Commercial

• Poorly Understood MXD Product Types
• Walkability is THE key supported by multi-modal
  system
• Mid- and Long-Term Return Driven and Financed
• Built for the Ages
• Urban Character (Over 1.0 FAR)

25
Strategic Options for Development Company

• Product FocusSame Product/Multiple Locations
• Location FocusNew Products/Same Location

26
Two Truisms of Development

• Understand Your Exit Strategy Before You Tie Up
  the Land
• Do NOT fall in Love with Your Projects

27
Underwriting Methodology

• Discounted Cash Flow/Net Present Value
• Short-Term Basis5-7 Year Asset Class
• HistoryReal Estate as a Mid-to Long-Term Asset
  Class
• Compare Historic/Progressive vs Conventional
  Project (Theatre Block)

28
Comparison of Conventional Vs. Progressive
Financing

• 3-5 Year Time Horizon
• DCF/IRR
• Low Equity/High Debt
• Recourse Debt
• Low DCRs
• Build and Flip

• 10 Year Time Horizon
• CCF and/or Overhead Coverage Ratio
• Higher Equity/Lower Debt (Gold Lofts)
• Non-Recourse Possible
• Higher DCRs
• Build and Hold (PPC)

29
(No Transcript)
30
Progressive Product Types

• Vertical Retail/Housing (Rental or For-Sale) Ex.
  Gold Lofts
• Vertical Retail/Office Ex. Crossroads
• Bury the Big Retail Box (Retail, Office and
  Housing) Ex. Theatre Block
• Bury the Parking Deck Ex. Silver Court and Gold
  Lofts
• Vertical Retail/Artists Studios Ex. Fort
  105/Nicks Place

31
(No Transcript)
32
(No Transcript)
33
(No Transcript)
34
(No Transcript)
35
(No Transcript)
36
Locations for Progressive Development

• Downtowns
• Second Generation Cores, e.g., Medical Ctr, Park
  Cities, Uptown Dallas
• Suburban Downtowns, e.g., Post Oak, Tysons
  Corners
• Universities, e.g., Cambridge Sq, UT, U of Penn
• New Suburban, e.g., Addison Center, Reston Town
  Center

37
Disadvantages of Progressive Development

• More Complex/Hard to Do
• May be Illegal
• Mixed-Use Development Financing is Far More
  Difficult
• More Equity Means Fewer Deals
• Need for Critical Mass to Create Walkable,
  Special Place
• You and Colleagues Will Question Your Sanity

38
Advantages of Progressive Development

• Build Long-Term Wealth Due to Upward Spiral
• Non-Recourse Debt Possible
• Civic Investment Possible
• Memory/Emotion Kicks In As Asset
• May Be Able to Wear White Hat (no guarantee)
• Feel Better About What You Build

39
www.cleinberger.com

• Building for the Long-Term (Urban Land)
• Financing Progressive Development (Brookings
  Institution)
• Financing Mixed-Use Development (Urban Land)
• UpcomingHow to Revitalize an American Downtown
  (Brookings Institution)

40
(No Transcript)
41
Historic District Improvement
CompanyCatalytic Developer for Downtown
Albuquerque
42
HDIC Partners

• Arcadia Land Company
• McCune Charitable Foundation
• Downtown Action Team

43
Catalytic Developer Requirements

• Site Control, may include condemnation
• Patient Capital Base
• Long Term Vision
• Short Term Desire to Get Things Done
• Willingness to Encourage Competition
• Unique Relationship with City
• Acceptance of High Risk Investments

44
Spectrum of Catalytic Developers

• City Department--Community Redevelopment Agency
  (LA)
• Separate Agency--Centre City Development (San
  Diego)
• Non-profit/City--RiverCity Development
  Corporation (Chattanooga)
• Private/Non-profit--Historic District Improvement
  Company (Albuquerque)

45
Historic District Improvement Co

• Catalytic Developer
• McCune Foundation Investment
• Mid-term Long-term Investment Horizon
• New Urbanism Design Orientation
• Private/Public J/V with City
• Changing Investment/Tenant Attitude

46
How to Form a Catalytic Developer

• Buy Vs Make---You Must Make
• Locally Committed Individuals Who Can Financially
  Support Themselves
• Patient Capital Source
• Private/Public Joint Venture Approach
• Luxury of Time to Create Critical Mass
• Doing Well While Doing Good Philosophy
• Be Prepared for No Good Deed Goes Unpunished