“Innovative Approaches to Land Assembly” Prepared by bbp ASSOCIATES Basile Baumann Prost & Associates 177 Defense Highway, Suite 10 Annapolis, Maryland 21401 A Holdout’s Last Stand AGENDA Barriers to Land Assembly Innovative Land Assembly / Financing Techniques New Model for Land Assembly Case Studies Questions? Barriers to Land Assembly Private property owners uninterested/unwilling to sell - Understanding objectives - Money vs. other Finding capital: financing land assembly challenging because of no demonstrable short-term revenue stream - Need for patient money - Land Banking Speculative rush pushes up land values - Clandestine approach (straw men) to land assembly (e.g. Disney World) - Plans of area tend to raise land value expectations - Land value ratchet Barriers to Land Assembly Acquisition Costs – property owner expectations of the value of their land - Price of individual parcel v. the value of all of parcels assembled - Existing value v. reuse value Ownership - Fractured - Absentee owners - Title issues Structural government barriers - Particularly for government owned property - City and County having jurisdiction over same property (taxation handled by one and redevelopment by another) Barriers to Land Assembly Inflexible zoning / regulatory environment - Time period to get site assembled, entitled, zoned, platted and approved Legal issues: takings, due process and the use of eminent domain (e.g. Kelo v. City of New London) Not planning for infrastructure concurrently with land assembly process (NIMBYism reaction) Innovative Land Assembly / Financing Techniques State housing finance agency funds have shown to be effective sources of capital and leverage money for land assembly (e.g. affordable housing) Brownfield funding offers model for funding of land assembly (e.g. EPA pilot grants, clean-up funds, etc.) California cities use TIFs to assemble land Corporate and family foundations (patient money) Innovative Land Assembly / Financing Techniques Corporate and family foundations (patient money) Private sector incentives (density bonuses, rezoning, taxes, etc.) Most innovative land assembly financing techniques built on public/private partnerships Incentives for owners - Tax issues - Value expectations Like Kind Exchanges (1031) New Model for Land Assembly Turning the landowners into pro rata shareholders in a development entity that would acquire unified ownership and the development project New development entity could be LLC or special purpose development corporation Landowners could receive shares based on the proportional “value” of their property/improvement Shares would reflect market value of the entire development project, not just their parcel Market-based strategy would allow landowners to participate in upside of development project FINANCING LAND ACQUISITION / ASSEMBLY Skyland Redevelopment, Washington, DC (Anacostia Metro Station Area) Redevelopment of rundown strip mall and adjacent vacant property 18.5 acre site which includes 1940s-era Skyland Shopping Center (11 acres) and vacant residentially zoned land (7.5 acres) Project Co-Developer: National Capital Revitalization Corporation Goal is to implement City and community’s vision for the site and improve the neighborhood FINANCING LAND ACQUISITION / ASSEMBLY Skyland Redevelopment, Washington, DC 17 different parcels controlled by 15 property owners, 30 different tenants Previous attempts to assemble land have failed Community & government support Government financed study shows retail sales leakage FINANCING LAND ACQUISITION / ASSEMBLY Skyland Redevelopment NCRC (local government development corp.) purchasing property and will act as the landowner NCRC selects developer to undertake vertical development; will pay ground lease Project build out includes: - Total of 915,000 sq. ft. - 315,000 sq. ft. of retail - 600 residential units - $125 million project FINANCING LAND ACQUISITION / ASSEMBLY FINANCING LAND ACQUISITION / ASSEMBLY NCRC forms $150 million strategic equity partnership with Morgan Stanley to provide investment capital for its projects in DC, including Skyland project - Translating totality of real estate assets into LLC Received additional $40 million in TIF financing - Assist with land acquisition - Attract new tenants to site - Infrastructure upgrades FINANCING LAND ACQUISITION / ASSEMBLY Property acquired by NCRC through negotiation and potential condemnation Relocation company assisting business owners at Skyland Selected property owners looking at potential participation in project (equity investment approach) Equity Investment Approach to Land Assembly Landowners contribute their land (and improvements) as “shares” and receive a portion of the distribution from cash flow generated Value of the asset - LLC shares - Cash & LLC shares - Cash Vertical developer pays long term ground lease to NCRC Opportunity for all parties to participate in project’s upside LLC business entity minimizes landowners and NCRC risk exposure Equity Investment Approach to Land Assembly FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market, Washington, DC Redevelopment of 24- acre underutilized site into mixed use Town Center Creation of a “New Town at Capital City Market Revitalization Development and Public/Private Partnership Act of 2006” FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market Adjacent to rail line Former freight rail utilization / wholesale produce / meat market Formally along WMATA (Metro) transit line with no station Creation of infill transit station through small area plan / Benefit Assessment District (developer / property owner driven) Market area quadrant not seen as development site but retained wholesale market New Plan provides for retention, upgrading, consolidation of market places Development maximized next to transit station FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market Existing major property owner / operator / small developer Familiar with market, operations, owners, tenants Undertakes Predevelopment Activities - Planning - Market Evaluations - Community Liaison Introduces / passes special legislation Attracts major developer / money (Apollo) FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market City Council approved legislation designates one of the property owners as developer (joint venture) District model for developing large tracts of underutilized land to create workforce housing, needed community facilities / services, jobs, and increase tax base FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market Site will be rezoned from low-density, light industrial uses to mixed use commercial Authorizes use of tax incentives, economic and other development initiatives FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market Financial toolbox includes tax abatement, TIF, PILOT Once developer obtains control of 50% of land then remaining land can be acquired through condemnation - 45+ property owners - Other participating land owners include DC, Gallaudet University (these owners control > 50%) - Eminent domain still requires Council approval (Bill however unanimously passed by Council) - Creates incentive to participate under potential eminent domain threat FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market Address Objectives / Concerns of Owners - Low Value Basis - Relatively Significant Cash Flows - Increasing Property Tax Burdens - Management / Administrative Issues - Code Violation Issues - Value Expectations - Historic Attachment to Market FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market Plan allows for existing property owners and/or lessees to: - Invest in the project and become equity owners - Become fee simple owners in the new retail and warehouse facility - Participate in like-kind 1031 property exchanges Plan allows existing retailers and wholesalers to continue their businesses in new revitalized market Plan addresses project phasing FINANCING LAND ACQUISITION / ASSEMBLY New Town at Capital City Market Plan addresses needs of existing tenants - Upgraded new space - Replaces physically/functionally obsolete space - Addresses code/health violations - Condominium creates ownership opportunities - District incentives maintains relatively modest occupancy costs MODELS FOR LAND ASSEMBLY Public Model – Skyland Private Model – New Town at Capital City Market Requires Predevelopment Packaging Addresses Multiple Stakeholders - Tenants - Property Owners - Community - Public Sector - Future Private Developer Addresses Financing Issues Questions? Jim Prost and David Starnes Basile Baumann Prost & Associates 177 Defense Highway, Suite 10 Annapolis, MD 21401 410-299-7800 email@example.com / firstname.lastname@example.org www.bbpa.com
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