ECONOMIC DEVELOPMENT IN 2016 - CalSACA Development in 2016… · Challenges with Real Estate...
Transcript of ECONOMIC DEVELOPMENT IN 2016 - CalSACA Development in 2016… · Challenges with Real Estate...
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ECONOMIC
DEVELOPMENT
IN 2016
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Dissolution Recap – SB 107
Annual ROPS
First one due February 1, 2016
Can amend only once per year
New admin allowance provisions
Last and Final ROPS option
Commencing October 1, 2018, CAC’s will
conduct the PPA review and report to DOF
by February 1 – §34186(c)
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Changes to Enforceable Obligations
Some new obligations allowed - §34171(d)(2)
Agreements related to payment of refunding or refinancing debt
State Highway Infrastructure improvements
HUD Section 108 Loans
No longer Enforceable Obligations - §34177.3(b)
No new enforceable obligations for “wind down” activities
Legal expenses when suing DOF
Can only be paid out of admin allowance unless positive final judgement
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Oversight Boards
Local OB County OB – July 1, 2018
Staffed by County or selected City. Costs recovered
through ROPS.
Several OB actions do not need to be approved by DOF
Actions to implement a Long Range Property Management Plan
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It just keeps going…
2011 Bond Proceeds §34191.4(c)
100% of housing bonds
Up to 45% of non-housing bonds based on time of issuance
Override Revenue – §34183(a)(1)(B)
Transfers back to issuing agency if not needed for debt service
Time and Financial Limits - §34189
Eliminated
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ECONOMIC
DEVELOPMENT
IN 2016
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The Most Press Goes To . . .
Enhanced Infrastructure Improvement
Districts (EIFDs)
Community Revitalization Authorities
(CRAs)
Real estate tools
Public benefit trade-offs
Monetizing other assets
Other approaches
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IFD Tools in CA
Type Infrastructure
Financing
District
“IFD”
Infrastructure &
Revitalization
Financing
District
“IRFD”
Enhanced
Infrastructure
Financing
District
“EIFD”
Funding
Mechanism
TIF from Taxing
Agencies Electing
to Participate
TIF from Taxing
Agencies Electing
to Participate
TIF from Taxing
Agencies Electing
to Participate
Voter approval to
form?
2/3 2/3 No
Voter approval to
issue bonds
2/3 2/3 55%
Oversight Local jurisdiction Local jurisdiction Public financing
authority
Private facilities None Some Some
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EIFDs (SB 628)
Formed by city, county
School districts, offices of ed, comm colleges
may NOT participate; other special districts
that levy taxes may
Establish a public financing authority
Board represented by members of forming
legislative bodies and 2 public members
Select a district boundary
Adopt an infrastructure financing plan
Noticing and public hearing requirements
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The District May:
Purchase, improve, develop, rehabilitate, etc. public capital facilities or projects of “communitywide significance”
Roads, transit facilities, parking facilities
Sewer treatment/water reclamation
Flood control
Child care facilities, libraries, parks, recreational facilities
Facilities for solid waste
Brownfield restoration/mitigation
Projects on former military base
Affordable housing
Industrial structures
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Some Rules
Participating agencies can decide how
much tax increment to dedicate to EIFD
Public vote is required to issue bonds –
55% voter approval
Cities/Counties that had RDAs must:
Have finding of completion
Not be in litigation
Have complied with SCO findings
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Major Benefits of EIFD over
Prior Options
Lower voter approval for bond issuance
Greater menu of expenditure options
Some thought given to how former RDA
areas and other taxing agencies
participate
Can generally be formed anywhere
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Community Revitalization and
Investment Authorities (AB2)
Tax increment financing tool
25% low/mod set-aside requirement
Funds projects to revitalize qualified areas
City or County creates Community
Revitalization and Investment Authority
(CRIA)
Authority can formed through adoption of
joint powers agreement with other taxing
agencies
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Who can participate?
Cities, counties and/or special districts
No school entities
May be done as a JPA with multiple agencies
City/county that created an RDA may not form an
Authority unless SA:
Received finding of completion
Has no pending litigation with State
Complied with SCO Asset Review
Governing board:
3 (or majority for JPA) members of legislative body
2 members of public who live/work in area
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Participation by Taxing
Agencies
Non-school entities can essentially opt in
or out at any time with 60 day notice to
Auditor Controller
Except can’t rescind share of taxes pledged to
repayment of debt issued
Makes pay-as-you-go projects higher risk
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EIFD or CRIA and Project Area
Overlap
Project Area
EIFD or
Community Revit/
Investment Area
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Some Rules
Establish a set boundary – “Investment
Area”
Adopt a Plan for reinvestment
May issue bonds, receive grants, or accept
other assistance/investment for projects
30 year limit to establish indebtedness
45 year limit to collect tax increment and
repay debt
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Eligible Projects
Infrastructure improvements
Affordable housing*
Hazardous substance remediation
Building and other physical improvements*
Acquire property for ED purposes*
Direct business assistance for industrial and
manufacturing uses*
Encouraged reuse of previously developed
sites*
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What area qualifies?
Area with at least 80% of land that is:
Low-income (max 80% AMI); and
Meets 3 of 4 conditions:
High unemployment
High crime
Deteriorated or inadequate infrastructure
Deteriorated commercial or residential structures
OR
Former military base “principally characterized” by deteriorated or inadequate infrastructure and structures
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Public Meeting
Discuss Plan
Hearing 1
Consider comments
No action
Hearing 2
Consider comments
Modify or reject Plan
Hearing 3
Protest Hearing
<25% Protest: Adopt
25-50% Protest: Election by Mail
>50% Protest: Terminate
At least 30 days between hearings At least 30 days prior to
Hearing 1 notice
10 days prior online &
10 days prior online &
4 weeks prior
newspaper + 10 days
online/mail
10 days prior online, mail & newspaper
Noticing
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Tax Increment – 3% AV Growth
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Base Year Revenue Tax Increment Revenue
$1M Base AV
45 Years
Non-Housing Revenue = $3.8M
Housing Set Aside = $1.3M
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Reporting Requirements
Annual report due by June 30
Adopt at noticed public hearing
Progress report on projects, finances, and
housing
Annual audited financial statements
Protest proceeding held every 10 years
Noticed public hearing
Similar process to plan adoption protest
Housing compliance audit every 5 years
Required after allocating $1 million to LMIHF
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Major Benefits of CRIA
Much greater economic development
powers, closer to a redevelopment
agency, but now with more checks and
balances
Mandated housing set aside
Public vote not required to issue debt
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Leverage Real Estate Assets
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Challenges with Real Estate
Ridiculously, jargon-plagued industry
New tools / old-school thinking
Lots of variables
Land use
Local market forces
Expectations and types of investors
Expectations and types of developers
Volatility of economic forces
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FUNDAMENTALS OF
DEVELOPMENT
Investors
Developers
Users
Investors: invest in real
estate for cash flow
Developers: look to
increase the value of
land
Users: need real estate
for specific purposes
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Today’s real estate investors
REITs
Institutional investors
Insurance companies
Investment banks
Commercial banks
Private equity
Traditional private investors
EB-5 / Direct Foreign Investment
Crowdfunding
City may
never meet
these people
nor know
their
expectations
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Why Real Estate Matters
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Retail Prototype65 Jobs
Office Prototype266 Jobs
Hotel Prototype55 Jobs
Mixed UsePrototype29 Jobs
$ p
er L
and
SF
(3
Acr
e S
ite)
Value of Land vs. City Fiscal and Economic Benefits (Prototypical 3-acre Development in Sample City)
Land Residual / SF
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Why Real Estate Matters
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Retail Prototype65 Jobs
Office Prototype266 Jobs
Hotel Prototype55 Jobs
Mixed UsePrototype29 Jobs
$ p
er L
and
SF
(3
Acr
e S
ite)
Value of Land vs. City Fiscal and Economic Benefits (Prototypical 3-acre Development in Sample City)
Land Residual / SF City Revenue / SF
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Why Real Estate Matters
0
50
100
150
200
250
300
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Retail Prototype65 Jobs
Office Prototype266 Jobs
Hotel Prototype55 Jobs
Mixed UsePrototype29 Jobs
Job
s C
reat
ed
$ p
er L
and
SF
(3
Acr
e S
ite)
Value of Land vs. City Fiscal and Economic Benefits (Prototypical 3-acre Development in Sample City)
Land Residual / SF City Revenue / SF Jobs
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REAL ESTATE TECHNIQUES
Ground Lease
Local agency executes
market (or sub-
vented) ground lease
with developer
Allows developer to
finance land “off
balance sheet”
Tax Subventions
Site specific tax
revenues reimbursed
to project developer
who finances local
agency’s contribution
to project
Can be legally and
politically challenging
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Real Estate Techniques City Selling former RDA Property
Taxing Agency
Compensation
Agreements
SB 470 (2013)
Requirements
Allows city to sell at
fair reuse value, not
just fair market value
2/3 approval of
legislative body
Noticing requirements
No DOF Review
Successor Agency Selling RDA Property
Approval by Local
Oversight Board at Duly
Noticed Meeting
Consistency with LRPMP
Helpful
No DOF Review
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City Purchasing Property
Private Use Voluntary Sale
Appraisal required if financing
Engage experts to perform due diligence
Title report
Environmental
Physical inspection
No tax benefits to seller
Relocation
Resale at FMV
Public Use
Voluntary Sale
(Friendly) Condemnation
Follow State’s Public
Acquisition Guidelines
Requires appraisal
first in all cases
Notice to property
owner of appraisal
Fair compensation
(maximum value)
Tax benefits to Seller
Relocation
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Not for all circumstances
Pros
Control of site and land
use entitlements useful
Few developers willing
to act as your economic
developer
Many ways to ensure
optimal development
Appreciating markets
have lower risk
Cons
Risk spread to public
agency
Requires sophisticated
skills to underwrite
Difficult to subsidize
today
Can trigger additional
project costs and delay
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San Carlos – Landmark Hotel
Project
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Acquisition
1 Increase net revenues to General Fund
2 Maximize return on investment (ROI) for
City funds (ROI >5%)
3 Economic growth and diversification of
commercial base
4 Timing and readiness of project
5 Maximize private investment in City
6 Key site/location
(significant/substantive/catalytic)
7 Revitalization of commercial districts or
neighborhoods
8 Other, non-fiscal community (public
facility or infrastructure) benefits resulting
from project
A role for the city
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Development in 2014
Threats Owner/User Impatient
for Deliveries
Costs Increasing (Title 24)
NIMBY, CEQA & Entitlement Delays
Build-to-Suit Risky
Not enough new models for retail real estate
Office transforming (utilization and design)
Multifamily higher yielding
Opportunities
Very attractive markets,
especially industrial,
office in some markets
Demand very strong for
new product
Infill sites, large logistics
center sites in demand
Financing and equity
available
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Developer wants site, but
won’t close without permits…
Developer wants
contingencies in place
Property owner wants to sell now
Entitlements Building Permits
Developer Buys Property
Six Months
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Sellers not interested in upside
to City or waiting, willing to sell
now…
Developer wants
contingencies in place
Property owner wants to sell now
Entitlements Building Permits
Developer Buys Property
Six Months
Property owner won’t
sell on contingency
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City could acquire and hold site
during entitlement/permit
period…
Property owner wants to sell now
Entitlements Building Permits
Developer Buys Property
Six Months
City Buys Property – Takes on carrying
costs/risks
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City could acquire and hold site
during entitlement/permit
period…
City Buys Property – Takes on carrying
costs / risks
City does not have enough money
City figures out how to finance
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How Lease Financing Works
Basic Framework
“Lender”
•Submits proposed bid
•Agrees to provide up-front Lease Payment for Project
City
•Solicits bids
•Pledges budget appropriation for leaseback payments
Parties Involved
City
• Lessee / Lessor
Financing Authority
• Originates Leases & Assigns to Bank
“Lender”
• Bank or other Financier
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Key Facts
Solicited bids from over 40 parties
Banks, private investors, pension funds, County
Process took few weeks
Lenders needed some coaching on applicability of tool
Terms very attractive
Rates as low as 3% taxable
Not all require pledge of essential asset
City required prevailing wage on construction
Innovative use of public financing
Developer closed on project 2 days ago
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Other Opportunities
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Public Benefits
Permitted by Right
Discretionary
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Public Benefits
What is the VALUE of the additional floors to the developer,
And should they be the sole beneficiary of that value?
Should there be a PUBLIC benefit as well?
Discretionary
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Talent Pipeline Management
Source: US Chamber of Commerce
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Talent Pipeline
Academies
Foundation Board School District
Partners
Pa
rtn
ers
City
Chambers
Businesses
De
sir
ed
Re
su
lt
Ne
two
rk
Businesses need
employees
Employees need
training
Businesses and
schools often
struggle to work
together
And what is the
City’s role?
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Cell Towers
Can only produce revenue for the City if
it is NOT in public right of way
Be careful how original site is permitted
New legislation means that once the site is
established, instrument can be changed
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Technology Infrastructure
City as internet service provider –
preparing for the Internet of Things
Concerns
Security
Personal data
Volume needs not well understood
Changes/fluidity in billing structures
If nothing else – need to understand how
data can be used
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The Future City