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The Road to Success Is Paved with Gold – Financing and Developing Infrastructure . September 26, 2013. This Morning’s Line Up. Craig Seymour – RKG Associates John Walker – Deloitte Anne Marie Dowd – MassDevelopment Martine Combal – Walter Reed LRA Jeffrey Donohoe - JDA. Take- aways …….

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the road to success is paved with gold financing and developing infrastructure
The Road to Success Is Paved with Gold – Financing and Developing Infrastructure

September 26, 2013

this morning s line up
This Morning’s Line Up
  • Craig Seymour – RKG Associates
  • John Walker – Deloitte
  • Anne Marie Dowd – MassDevelopment
  • Martine Combal – Walter Reed LRA
  • Jeffrey Donohoe - JDA
take aways
Take-aways …….
  • Provide an overview of different techniques for funding infrastructure for new development
  • Illustrate that each situation is different, calling for unique solutions
  • Identify common themes &
  • Contacts for additional information
alternative finance in base redevelopment
Alternative Finance in Base Redevelopment

John A. Walker – Deloitte Consulting LLP

26 Sept 2013

updating federal property to meet civilian standards and codes can be costly
Updating Federal property to meet civilian standards and codes can be costly
  • Potential for substantial up-front capital expenses
    • Redevelopment timetables can range from 10-20 years, to as many as 40 or 50 years
    • Years may pass from property conveyance to revenue generation
  • Common infrastructure investments:
    • Industrial Reuse: water, sewer, gas, electric, wastewater, communication improvements
    • Residential Reuse: schools, recreation facilities
    • General Reuse: roads, rights-of-way, runways
public assistance has been instrumental to defray early capital costs of redevelopment
Public assistance has been instrumental to defray early capital costs of redevelopment
  • Economic Development Administration (EDA) grants
    • Roads, demolition, building improvements
  • Federal Aviation Administration (FAA) grants
    • Runway improvements and aviation infrastructure
  • State government categorical grants
  • Foundation grants (Non-profit)
financing tools available to developers have included public and private capital
Financing tools available to developers have included public and private capital
  • Federal and State Grants
  • Government Appropriations
  • Bonds and Private Debt
  • LRA Revenues
terms of property disposition can also support financing
Terms of property disposition can also support financing
  • Conveyance structures:
    • Economic Development Conveyance (EDC)
    • Public Benefit Conveyance (PBC)
  • Debt structure:
    • Favorable interest rates
    • Subordination of payments back to federal agencies
alternative financing tools can help bridge the gap between public and private capital
Alternative financing tools can help bridge the gap between public and private capital
  • Bonds and Private Debt
    • Tax Increment Financing
    • Revenue Bonds
    • Private Debt
    • Public or Quasi-Public Debt
project revenues can secure access to capital markets
Project revenues can secure access to capital markets
  • LRA Revenues
    • Real Estate Lease and Sale Revenue
    • User Fees
    • Impact Fees
    • Sale of Utility Systems
    • Rent Offsets for Tenants
principal funding sources for redevelopment efforts
Principal funding sources for redevelopment efforts

Source: Frieden; Baxter. From Barracks to Business: The M.I.T. Report on Base Redevelopment. March 2000

structuring redevelopment lowry afb
Structuring redevelopment: Lowry AFB
    • EDC agreement
      • 0% interest rate, 15-year repayment on note to AF
      • AF subordinated payments on note to those of bondholders
    • Establish revenue
      • Rental income from former on-base housing
      • 700 units yielded an estimated $2.2M in annual net cash flow
    • Real estate sales
    • Infrastructure fees
  • Use cash flows to finance infrastructure improvements
    • Obtained an early line of credit
    • Completed revenue bond sale
managing obsolete utilities lowry afb
Managing obsolete utilities: Lowry AFB
  • Denver Water and Denver Wastewater rejected transfer of Lowry infrastructure
    • Real estate income used to upgrade, then convey the assets under the EDC
  • Negotiated sale of electric and gas to Public Service Company of Colorado
    • 80% – 90% of electric and gas system upgrades covered by AF; LRA covered difference
results of redevelopment lowry afb
Results of redevelopment: Lowry AFB
  • Revenue bonds paid off in 2007 - 4 years early
    • LRA saved $3.5M in interest payments
  • Redevelopment generated a $5.7B economic impact for metro Denver between 1994 and 2007, when the bonds were retired
  • 100+ businesses, non-profits, and schools located on former federal property

Source: www.denverpost.com/business/ci_4939143

facing today s fiscal and financial realities
Facing Today’s Fiscal and Financial Realities
  • Federal Grants are shrinking
  • State Governments ability to provide grants is strained
  • Private Sector Capital Markets are more risk averse – especially for longer term projects (El Toro)
  • Local communities are reluctant to use TIF’s or other special taxing authority to finance infrastructure (Brunswick NAS)
  • Private Sector developers are much more cautious that pre-2007.
conclusion
Conclusion
  • In the case of infrastructure, some type of public infusion of capital and ownership is critical to demonstrate the commitment of the community to support long term growth.
  • Identifying short term revenue opportunities opens access to capital markets
  • Military may need to form public private partnerships with communities and provide financing mechanisms to attract local community and private sector investment
  • Military could (via OEA) establish a revolving loan fund for infrastructure development.
leveraging private sector expertise and investment master developer
Leveraging Private Sector Expertise and Investment – Master Developer

Martine Combal – Executive Director

Walter Reed Army Medical Center LRA

26 Sept 2013

slide20

Department of State

43.53 acres

DC/LRA

66.57 acres

110.1 Acres

slide22

14+ acres of Open Space (21% of Site)

  • ~550,000 SF Reuse of Existing Buildings (18% of Program)
wramc key issues
WRAMC – Key Issues

Role and Importance of the Reuse Plan

Need for Specificity

  • What can be built
  • Timing of development
  • Inclusion of NOIs & Public Input

Multi-phase RFQ/RFP Approach

  • Choosing the right partner up front
financing tools for base redevelopment infrastructure financing programs the massachusetts model
Financing Tools for Base RedevelopmentInfrastructure Financing Programs -the Massachusetts Model

Anne Marie Dowd - MassDevelopment

26 Sept 2013

massachusetts development finance agency
Massachusetts Development Finance Agency
  • Self-supported quasi-public finance and development agency.
  • Promotes capital investment and economic development in Massachusetts by providing financing and development solutions.
  • Formed in 1998 under Chapter 23G (Massachusetts General Laws) by the merger of Massachusetts Industrial Finance Agency and Government Land Bank. Merged with Mass HEFA in 2010.
  • During FY 2012, financed or managed 280 projects statewide representing an investment of nearly $2.5 billion in the Massachusetts economy.
  • In FY 2013, supported the creation of more than 2,000 permanent jobs and 7,000 construction jobs.
massachusetts development finance agency1
Massachusetts Development Finance Agency
  • Primary tools
      • Tax-exempt and taxable bonds (91 issues totaling $2.2 billion in FY2012)
      • Loans and guarantees (52 transactions totaling $45.3 million in FY 2012)
      • Infurstructure Bond Financing
      • Real estate planning and development services
infrastructure bond financing programs
Infrastructure Bond Financing Programs
  • Infrastructure Investment Incentives Act (“I-Cubed”)
  • District Improvement Financing (“DIF”)
  • Local Infrastructure Development Program

All programs set a district and pay for public infrastructure through a tax. How a district is set and what taxes are used will depend on the program.

All three programs can be used independently or in combination to meet a project’s financing needs.

Programs allow for issuance tax-exempt bonds to fund infrastructure.

what types of public infrastructure can be funded
What types of Public Infrastructure can be funded?

Roadways and intersections

Water & waste water facilities and related lines.

Transportation facilities such as train stations, bus depots, etc.

Seawalls, docks, wharves, bridges, culverts, tunnels

Streetscape, sidewalks, electric lines, street lights

Parks, playgrounds and recreational facilities

Parking garages

Brownfield mitigation

Soft and financing costs.

Varies slightly by program

Infrastructure can be in or in support of the district. It must be owned or conveyed to a public entity to be eligible.

infrastructure investment incentives act i cubed
Infrastructure Investment Incentives Act (“I-Cubed”)

I-Cubed legislation passed as Chapter 293 of the Acts of 2006 as amended by Chapter 129 of the Acts of 2008 and Chapter 238 of the Acts of 2012.

Program has a $325 million state-wide maximum with up to 3 projects or $108.3 million per community.

This program is for large development projects with public infrastructure between $10 and $50 million. Can be applied for in stages.

A Developer applies to the Commonwealth, MassDevelopment and the municipality to set a district and net new state tax revenue is used to fund the public infrastructure.

Main qualifier is that the project has to have more net new state tax revenue than what the Commonwealth would pay as debt service on a bond. Projected net new tax revenues is expected to cover debt service to be at least 1.5x.

Types of revenues include:

  • Payroll Taxes
  • Sales Taxes
  • Hotel Taxes
  • Business Taxes
  • Construction Wage and Sales Taxes
district improvement financing dif
District Improvement Financing (“DIF”)

MGL Chapter 40Q “District Improvement Financing” passed in 2003 and amended in 2011 and 2012. Program called TIF in other states.

Municipality sets a District and agrees to use new incremental property taxes to fund the public infrastructure for the District.

If borrowing, District or municipality issue debt based on incremental taxes from new growth that would not happen without infrastructure investment.

Bonds issued by municipality or MassDevelopment and the credit is based upon the incremental property taxes within the District.

Newer Districts may initially require credit support from the municipality or the developer to issue bonds.

Commonwealth approval no longer required.

local infrastructure development program
Local Infrastructure Development Program

General legislation was signed on August 7, 2012 as Chapter 23L.

New legislation allows a property owner to finance public infrastructure through the tax-exempt bond market.

Property owner petitions the municipality to set a Development Zone and agrees to pay for the public infrastructure through an additional special assessment tax on the property.

Debt service paid through a special infrastructure assessment on the property. These assessments work like a betterment and can travel with the property, if it is sold.

Credit on bonds is based on the property owner and/or credit enhancement.

Tax-exempt bonds and/or notes to be issued by MassDevelopment.

traditional base redevelopment funding sources back to the basics
“Traditional” Base Redevelopment Funding Sources – Back to the Basics

Jeffrey Donohoe – Principal, Jeffrey Donohoe Associates

26 Sept 2013

pease development authority
Pease Development Authority
  • First base to close in 1988 BRAC round
  • Located 40 miles north of Boston
  • Three towns had jurisdiction
    • Eventually transferred via Airport PBC
    • Leased land
    • +/- 20 year process (2 economic cycles)
    • Now ~8,000 high quality jobs
    • High tech, biomed, aviation, R&D, financial services
major infrastructure systems
Major Infrastructure Systems
  • Water and sewer systems operated by the City of Portsmouth
  • System had a number of “cross country” lines, which did not follow existing rights-of-way
    • Relocated by City
    • Users on the system had to pay a proportionate share based on anticipated development
    • Ten years
roadways
Roadways
  • Site has excellent highway access
  • State funded interchange improvements
  • EDA grant for main entrance/gateway
  • Developed Park & Ride as part of southern access upgrades (now major regional transportation hub)
  • Most roadway maintenance costs paid by municipal services fee
  • PDA applies for grants where possible to support the City’s roadway program
lessons learned
Lessons Learned
  • Strong state support needed to overcome local jurisdictional issues
  • ANG – offset costs to keep airport open
  • Early success (gateway, 1st major tenant) is key
  • Flexibility and patience to weather multiple economic & real estate cycles
alternative funding methods
Alternative Funding Methods

Craig Seymour – RKG Associates, Inc.

26 Sept 2013

pay it back from future
Pay It Back from Future $$$
  • Tax Increment Financing
    • Property Taxes on New Development
    • Sales Taxes on New Revenues
    • Income Taxes on New Jobs
  • Special District Fees
    • Additional “Tax” on Real Estate/Users
      • DIFs, SIDs
    • Impact Fees
purchase model
Purchase Model
  • New Quincy Center
    • City of Quincy & Street-Works (developer)
    • 4 million SF mixed-use project
    • Replaces aging commercial core of City
    • Developer installs “Implementing Public Improvements” – streets, utilities, parking garages
    • City promises to buy back when built and occupied, using tax-backed bonds
the road to success is paved with gold financing and developing infrastructure1
The Road to Success Is Paved with Gold – Financing and Developing Infrastructure

Questions?

September 26, 2013