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					MEMORANDUM

DATE:          December 8, 2005

TO:            Tom Bonfield

CC:            John Fleming
               David Cardwell

FROM:          Owen Beitsch
               REAL ESTATE RESEARCH CONSULTANTS
               518 South Magnolia Avenue
               Orlando, FL 32801

               PH (407) 843-5635 FAX (407) 839-6197

               E-Mail OMB@RERCinc.COM or RERCOMB@AOL.COM

RE:            Proposed Maritime Park, Pensacola, FL

               VIA E-MAIL. HARD COPY WILL NOT FOLLOW UNLESS REQUESTED.



INTRODUCTION

This memorandum summarizes our evaluation of the proposal for the development of Maritime
Park submitted by CMPA. In general, we find it to be a responsive, thoughtful and reasonable
proposal based upon the material received and the general criteria we were provided at the
outset.

HISTORY AND CONCEPT

The proposed development concept evolves from a plan that was itself the product of
substantial public participation and input. As we understand the plan’s history, it was adopted by
the City Council reflecting its policy intentions to preserve the waterfront for the public’s use and
enjoyment. Implicit in that statement of policy was that any program aggressively avoid
perceptions associated with Port Royal, a private enclave ostensibly accessible only to its
relatively affluent owners.




                                        \\Rercsvr\Shared\RERC\Jobs 2005\25143 - Pensacola\Final Report\Pensacola, Final Report 120805.Doc
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Consistent with these themes and emphasis, the CMPA submission calls for uses that are
largely public or community in nature, including parks, promenades, and other open spaces,
museum, marina, civic center, and multi-use facility. These public spaces are complemented by
spaces we would describe as quasi-public – shops and restaurants, for example – because they
are broadly accessible to all members of the community. There are also spaces relatively
private in their orientation including office space and some residential but these are limited and
secondary to the public uses. In both the publicly prepared plan and the CMPA proposal, the
private uses, while having waterfront access, are removed from the water with this amenity
preserved exclusively for the public and quasi-public uses. In total, very little of the proposal
constitutes fully private development. As we envision this plan, it is a park with a limited number
of vendors or concessionaires included as a way of offsetting costs that might traditionally be a
public sector burden.

The plan and park will be implemented in the CRA, generating tax increment revenue. These
future revenues, as well as past revenues that may have accrued, have to be spent in the area
designated by the Community Redevelopment Plan. These revenues are not new taxes and, in
large measure, they are taxes that would have gone to Escambia County but for the existence
of the CRA. By law, these dollars must be spent to advance community development. A plan
for Maritime Park was adopted by the City Council reflecting its policy intention to preserve the
general area where Maritime Park is to be located.

The $40,000,000 allocated for this project are largely costs associated with the park itself.
These dollars will be supported by tax increment revenues generated within the boundaries of
the CRA. The private development elements clearly benefit from these expenditures but they
are not the focus of this capital investment.

We describe the plan and its context for several reasons:

   •   The plan was generated by public input. Its adoption signals the City’s desire to secure
       this area for the active and passive recreational use of the larger community. Certainly,
       other uses or visions are possible on these lands but the current concept has some
       official standing as explicitly or implicitly reflected in the Council’s actions.

   •   Adherence to the plan mandates that any proposal to develop these lands provide a
       specific complement of facilities both public and private.

   •   The plan, though accommodating private uses, is in reality largely public in nature. Only
       a fraction of the property has been allocated to private initiatives in keeping with the
       plan’s vision.

   •   Controls embedded in the development plan and currently reflected in the area’s land
       development regulations regulate what might otherwise be possible or permissible on
       this property.

   •   CMPA has offered a response that recognizes the limits, opportunities, and special
       considerations of the site and plan.
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   •   Tax increment revenues are explicitly authorized for these and similar types of activities.
       The dollars generated in this area are not available to be spent on miscellaneous
       projects elsewhere in the City.


REASONABLENESS OF PROPOSED PLAN

By virtue of adopting and specifying a tightly defined vision, the range of possible responses to
the City’s RFP was fairly narrow. Given the emphasis on public elements requested in the RFP,
it would be difficult to imagine that CMPA had not complied with the City’s requirements. That
said, it is also apparent that there were initially elements in the proposal that needed some
refinement, and it is reasonably apparent that CMPA has made a good faith effort to offer more
detail. This detail was discussed at length in the public workshop several weeks ago and offers
the foundation of a workable development program. More details have yet to be finished but it is
assumed that these will follow the basic framework that was presented, and it will be codified in
the development agreement to follow. Generally, the framework is embedded in the Term
Sheet which was also discussed at the workshop so there is a broad consensus on what each
party’s rights and obligations are as the planning and predevelopment processes continue. We
are also of the opinion that the City has been diligent in establishing this framework to guide
more detailed negotiations. Neither party should be surprised at the form a final development
agreement will take.


FEASIBILITY OF THE PLAN

The plan is reasonable based upon the data that we had available to review. Though we did not
complete a detailed market analysis, the information we reviewed conforms with our own
independent assessment of the conditions we observed in Pensacola. The costs of
development, the potential timing of various elements in the plan, the sale or rental incomes that
might be realized, and the proposed mix of uses all seem reasonable, given the guidelines of
the adopted plan.

Certainly, like any concept, elements could change and probably will but the latitude to exercise
change is at least one of the details that will be codified in the development agreement. At the
current stage of planning, we think CMPA and its consultants have made a credible effort in
evaluating its development options.

These points are worth noting:

   •   Most assumptions are largely conservative. Costs are potentially higher than they might
       really be and revenues are potentially understated. Still, the relationships hold up to
       scrutiny.

   •   The expectations from CMPA’s perspective are modest and yet the group remains
       committed to the project as proposed.

   •   Specific to costs, the team has evaluated possible construction cost impacts from
       Katrina and has evaluated the ways in which these costs might or might not be
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       absorbed. Differing data suggest a range of possible impacts so conclusions remain
       speculative. Importantly, the team has recognized and prepared a contingency strategy.

   •   Discussions between City staff and CMPA have served to tighten assumptions of the
       development program. CMPA has been willing to consider various alternatives as part of
       its analysis.

   •   As the arrangement between the City and CMPA is structured, there are no inherent
       benefits to overstate or understate the financial performance of the plan. To the degree
       that conditions are materially better than represented, the City benefits commensurate
       with the terms of the land lease.

   •   Various options considered the impacts of a possible DRI. Wile we are not opining on
       that evaluation, it appears that the scale of the project will avoid the added costs that
       would come from a more intense building program.


FINANCIAL OBJECTIVES OF THE CITY

It is not clear that a full set of financial objectives has been articulated for the project but it has
been characterized as a way of mitigating certain public costs of operating a major park. The
City’s dollars are allocated primarily to horizontal infrastructure that supports the park and some
limited private development. The proposal appears to satisfy the objective of cost containment
based on a review of the maintenance and operations budget that extends from the
development program. Over time, the actual costs of operations should be satisfied by the
arrangements in place. Aside and apart from these revenue streams, the City and its CRA could
realize several hundred thousand dollars of tax increment and land lease revenue to support
other redevelopment initiatives in the downtown.

A review of the memorandum prepared by Barry Abramson describing CMPA’s assumptions for
future tax increment revenue may be modestly aggressive based on the anticipated tax values
of specific properties. Since these valuations themselves do not secure the financing for the
project as proposed, CMPA’s outlook should not be a problem. If the values are achieved as
described, the City will clearly benefit. In any case, a change in valuation assumptions is likely
to reduce collections by only 5% to 10% based on the actual mix of development. Residential
development will, as illustrated, provide the highest values but residential uses in the proposed
program are purposefully limited to emphasize the public nature of the larger project.

The actual terms of the land lease have not been settled but these are outlined in the Term
Sheet. At this point, we believe the structure outlined is reasonable and, given the relatively
conservative nature of the analysis, the structure appears only to offer upside potential for the
City.
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NON-PROFIT AND CONVENTIONAL DEVELOPMENT

Asked during the workshop if it is common for non-profits to join with a public entity in ventures
such as this, we answered that it is not uncommon, describing the experience of the Orlando
Neighborhood Improvement Corporation (ONIC) and the development of the Hughes Supply
headquarters in downtown Orlando. At an estimated cost of about $60,000,000 this initiative is
one of Orlando’s largest and most successful redevelopment efforts and potentially more
complex than Maritime Park. It is the largest new project in the historic Parramore area of the
City, and it has been a powerful force in attracting interest and more investment in the
neighborhood.

Non-profits can be very attractive partners because of their altruistic missions. They can,
however, lack adequate capitalization and may not have well defined plans. In this case, as in
the case of ONIC, these are not issues, and the community benefits by having a benevolent
partner in its development entity. The City is likely to insist, in any case, that staff or someone
performing in staff’s stead, act to oversee or coordinate whatever milestones or short term
responsibilities have been assigned to CMPA.

If a non-profit is a suitable vehicle, then why not simply authorize the City to undertake this
development initiative? Real estate development, in our opinion, is an appropriate role for
government only if there are no other alternatives. The activity involves too many unforeseeable
events and imposes unnecessary risks which, in this case, can be shifted to another party.
Pursuant to a deal being consummated between the City and CMPA, the City’s risk capital to
support certain planning activities is relatively limited compared with the longer term community
benefits that will be realized as both private and public activities come on line. No deal will
advance, as outlined in the Term Sheet, until CMPA has satisfied several obligations, most of a
financial nature or necessitating the actual expenditure of capital.


VALUE OF THE LAND

There have been some criticisms that the plan undervalues the land. The plan may, in fact, do
that as a result of the requirements for parking, open space, access to water, and height
restrictions. These requirements stem from the policy emphasis on public uses and the adopted
plan’s general discouragement of intense residential activity in this area.

Given such restrictions, we believe the plan does a credible job of balancing financial interests
with community interests. If the plan were not required to adhere to the vision of the adopted
plan, the subject properties could be more valuable but the conditions imposed create the
parameters in which the proposed plan has evolved.

In reality, there is very little private development in the master plan – that is, profit motivated
development – and little of the property’s acreage is available for that purpose, approximately
8.4 acres in total. In comparison, a program that utilizes the majority of the site might envision
development on approximately 15 acres and still yield property for some limited open space and
parking. What the value might be if the larger site were truly available for such use is idle
speculation at this point. However, the value of the land is inherently less than it might be if all
were available for relatively unrestricted development activity.
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Barry Abramson’s memorandum compares the value calculated for the subject land with that
supported by the Floridian transaction and concludes the area of the subject used for private
development generates similar values, approximately $11-$12 per building square foot. The
methods used by CMPA that attribute value in relationship to cost and risk are typical of those
used to determine a supportable land basis. We agree both with the methods and the valuation
estimates of that specific area.

What the memo fails to observe is that a development approach comparable to the Floridian
has not been encouraged at the subject location and that it would compete with privately
capitalized housing initiatives elsewhere in the downtown. In our mind, a focus on intense
residential development could be contrary to policy and/or have the effect of actually reducing
underlying land value on a present value basis because there will probably be longer
development and absorption periods.


ECONOMIC IMPACTS OF THE PROJECT

We have reviewed the economic impact study completed by the Haas staff. With some minor
exceptions, we would have executed it the same way. As is often the case, these impact studies
are generalized analyses made using very preliminary assumptions. We believe the
assumptions used were not unreasonable under the circumstances. Having made these
observations, we also believe, as Dr. Harper author of the study stated, that material variations
in the program could have different results. His statement is correct but we are not sure what a
material variation would be at this point since the program still has some formative elements. In
any case, the development program and its elements are largely consistent with the adopted
plan.

If the City believes it is necessary to do a second study, RERC can do that but neither this or a
similar study really focuses on the right issues. The outcome of such a study serves primarily to
quantify what appears to be the obvious while not adequately addressing the benefits and
impacts that may not otherwise be realized. Such studies show none of the opportunity costs
inherent in not proceeding nor do they adequately identify the catalytic impacts in the downtown
that result from the full range of activities being planned.


NEXT STEPS

It is appropriate for questions that have been raised to be answered but the need to continue a
dialogue should not convey the idea that the submission is at all flawed. Like all proposals of
this type, it will require some refinements, and these will be in accordance with the Term Sheet
and ultimately codified in the development agreement. Possibly the biggest issue the City faces
is determining what mechanism it will use to establish priorities among plan elements in case
construction costs increase more than expected as the result of Katrina. These priorities will be
dealt with before the City has to make its final commitments to proceed but the matter is
important enough to mention at this point.
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We will be available to review subsequent documents submitted by CMPA or others, including
further reviews of the team’s structure if there are still some concerns regarding the team’s
management or the City’s capacity to monitor the team’s progress. As indicated to you, RERC
could remain involved over the initial phases of the project to coordinate actions among the City,
the CRA, CMPA, and CMPA staff or advisors and would be pleased to accept those
responsibilities as the various roles become better defined. As we have discussed before,
RERC functions as staff in other communities, and one of its partners provided oversight to the
Hughes project in Orlando that was referenced earlier.

				
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