Pleasanton Economic Outlook

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      Financial Strategy
         FMFADA Board
        November 19, 2009
      Today’s Agenda
         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
         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      BAE and RCLCO have conferred over the past
          several weeks and prepared a joint analysis for

         This presentation shares our analysis and
      Big Picture Economic Conditions
          National economy emerging from steep recession
            •   8M jobs lost
            •   Unemployment at 26-year high

          Blue Chip Economic Indicators - November Forecast for 2010
            •   Consensus forecast GDP growth @ 2.7%
            •   Growth slower than normal recovery

bae    
                1.4% disposable personal income growth
                2% inflation

           Wall Street Journal Survey - November Survey for 2010
            •   Average forecast of solid 2.9% GDP growth
            •   Employment growth slow - 600,000 non-farm jobs
            •   Low inflation @1.8%
            •   Shape of recovery:
                   •   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
         Real estate credit markets have been “frozen” for the past 18
          months and despite some recent “thawing” remain extremely
         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.

bae      $950B+/- commercial real estate debt maturing over next three
      Developers in Down Market
           Lack of capital will constrain developer response to
            opportunities at Fort Monroe, particularly for new

           Developers are reluctant to expend precious equity dollars
bae         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

         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
         Pros:
           •   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

bae      Cons:
           •   Risky: “All of one’s eggs in one basket”
                  •   Encumbers Fort Monroe if partner’s financial conditions deteriorate
                  •   Rare for one developer to excel in all development types
           •   Financial returns: reduced due to lease “sandwiches” with sub-developer
                  •   Too many financial pockets to feed
           •   Lack of control: economic and programmatic interests not always aligned
      The Multiple Developer Scenario
         Pros:
           •   “Best in class” niche developers selected for discrete projects
           •   Improves financial returns by:
                  •   Eliminating master lease
                  •   Fee development opportunities
                  •   Direct end user leases

bae        •
               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:
           •   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:

               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

         174 historic residences
         Good to excellent condition

bae   
          Have value today that can be leveraged
          Low-to-moderate capital investment required
         Can be offered on a cluster-by-cluster or neighborhood
         Developer can be engaged on “fee” basis
           •   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

         Adopt a multiple developer approach

         Reduce scope of first RFI/P/Q to Residential Lease

bae      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
           •   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

      Residential Leasehold Program
         Concept approved by Board:
          Offer long-term (50+ year) leases of historic residences with pre-
          payment of rent
          Establish endowment/pay for capital costs with proceeds

           •   Pioneering product in Hampton Roads
           •   Need to develop support infrastructure (e.g, local lenders, brokers, title
           •   Avoiding fixed rental rates/avoiding “surprises” to leaseholders
           •   Capturing future property appreciation

         Examples:
           •   Sea Colony, Delaware                            •   Hawaii
           •   Pensacola, Florida                              •   Santa Inez, California
           •   Jekyll Island, Georgia                          •   Universities/Colleges
           •   Palm Desert/Palm Springs, California            •   Land Trusts
      Capital Requirements: “Three Buckets”

           Reuse and redevelopment of Fort Monroe will
            require significant capital at three levels:

                  Low                   Medium                      High

bae          Interim Leasing             Residential          New Construction
           •Own land and                                      • Own land only
             improvements “free &    • Own land and           • New construction of
             clear”                    improvements “free &     improvements &
           •Minor upgrades             clear”                   infrastructure
           •Little capital at risk   • Moderate unit rehab    • Highest capital
           • Exposure to “market”    • Site & parking           requirement
             risk                      improvements           • Highest level of risk
           • Leasing and property    • 3rd-party capital      • 3rd-party capital
             management functions      required                 required

           This suggests different contractual arrangements
            and deal structures with private management and
            development entities.