Transcript DIAGNOSIS DOWNTOWN PORTLAND

Principles of
Public-Private Partnerships for
Real Estate & Economic Development
PREPARED FOR
PREPARED BY
LELAND
CONSULTING
GROUP
Urban Strategists
PRESENTATION OUTLINE
• Introduction
• Real Estate Development:
Principles and Process
• Public-Private Partnerships: How and Why?
• Public-Private Partnership Case Studies:
• Otay Mesa
• Riverplace
• Tualatin Commons
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INTRODUCTION
Leland Consulting Group: What we do
Work with public & private
sector real estate executives to
solve tough problems and:
 Stimulate economic success
 Make great urban places
 Enhance the human
experience
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INTRODUCTION
Professional Services
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Strategic Planning
Market Research/Analysis
Economic and Demographic
Forecasting
Land Use Strategies
Development Programming
Negotiations and Deal Structuring
Public-Private Partnerships
Financial Analysis
Regulatory Approvals
Litigation Support
Project Management
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DAVE LELAND
 40 years industry experience as
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• Developer
• Consultant
• Advisor
• Owner
Blend of public and private clients
Geographic focus: west coast,
national, international
Counselor of Real Estate (CRE)
Frequent ULI panelist and speaker
Mixed-Use, Smart Growth leader
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Real Estate Development:
Principles and Process
SUCCESSFUL PROJECTS
Successful public-private development projects require a
holistic and balanced approach
Developer
Experience
Community
Goals
Financial
Capability
Public-Private
Partnership
Design
Excellence
Success
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DEVELOPMENT IS AN ITERATIVE PROCESS
Backwards
Design
Feasibility
Implementation
Design
Implementation
A Bit Better
Feasibility
Best – Iterative, Holistic, and Multidisciplinary
Preliminary
Feasibility
Market
Assessment
Preliminary
Financial
Analysis
Design
Political
Evaluation
Design
Implementation
Outreach
Financial
Feasibility
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MARKETS ARE UNFORGIVING
 Markets are people & their
• Needs
• Desires
• Ability to pay
• Willingness to pay
 With choice, positive price
– value is essential
 People reject places and
products that are not
responsive to their needs,
desires, or budget
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MARKETS CHANGE
Supply/Demand
Inflection Point
Phase III – Hypersupply
Phase II - Expansion
•Declining Vacancy
•Increasing Vacancy
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•New Construction
•New Construction
12
10
9
Long-Term
Average Vacancy
4
3
7
New Construction Rents
6
5
13
8 Cost Feasible
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•Declining Vacancy
15
•No New Construction
•More Completions
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2
1
1
Phase I - Recovery
Negative
Rental
Growth
• Increasing Vacancy
Below
Inflation
Rental
Growth
Rents
Rapidly
Rise
Toward New
Construction
Levels
Phase IV - Recession
High Rent
Growth In
Tight
Market
Rent Growth
Positive But
Declining
Below
Inflation &
Negative
Rent
Growth
Legg Mason Wood Walker, Inc. and Leland Consulting Group
Source: Legg
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21st CENTURY MARKET “WAVES”
 Megaregions and Urbanization
 Asia, Abundance, Automation
 Energy: Carbon Scarcity,
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Renewal Emergence
Infrastructure Upgrades
Aging population
Public focus:
Human Capital, Education, Amenities
Pacific NW Clusters:
• High Tech and Clean Tech
• Natural Resources
• Manufacturing and Trade
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RISK MANAGEMENT
Development involves risk:
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Market, capital, and operating risks
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Risk is determined by project type,
developer experience and local
conditions
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Experience is essential
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Each component must be
successful and complement the
others
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Exceed the market’s expectations
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Public-private partnerships help to
mitigate risk
Two thirds of mixed-use
developments by inexperienced
developers fail.
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SUCCESSFUL DEVELOPERS WEAR MANY HATS
Financial
Analyst
Lawyer
Psychiatrist
Real Estate
Market
Analyst
Politician
Urban
Planner
Visionary
Architect &
Designer
Engineer
Public
Relations
Specialist
Manager
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AVOID THE SILOS
 Silos – A
Planning
Finance
specialists, not
enough
generalists
Design
 Too many
Transportation
Modern Problem
 Planners should understand how investors think.
 Lenders should understand the built environment.
 Real estate should be part of the planning DNA.
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ENGAGING BOTH SIDES
 20th Century:
Left brain thinking
 21st Century:
Whole brain thinking
• For individuals and
organizations
• Communication is
essential
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Public-Private Partnerships:
Why and How
WHY PUBLIC-PRIVATE PARTNERSHIPS?
 Enhance feasibility – projects
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that otherwise wouldn’t happen
Accelerate investment timeline
Provide greater public benefits
Achieve significant policy goals
Improve quality, scale, or
location
Overcome barriers
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Financial
Market
Regulatory
Physical
Political
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WHY PUBLIC-PRIVATE PARTNERSHIPS?
Leverage:
 Strategic management of public
money
 Link public projects to private
investment
 “Build it and they will come” is
not always true…
 Spend limited public $$$ where
you know it will leverage private
investment
 Private to public investment
ratio of 4:1 or 5:1
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WHY PUBLIC-PRIVATE PARTNERSHIPS?
Create investment
momentum:
 Trigger additional
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private investment
Create an anchor for
future projects
Provide an amenity for
residents
Strengthen tax
base
Create a sense
of place
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SUCCESSFUL PROJECTS
Many parts must
simultaneously fit
together …
The whole is
greater than the
sum of its parts.
The Market
Location,
Timing
Visibility,
Design
and Access
Finance
Design
Market
Successful
Leadership &
Project
Communication
Financial
Capability
Developer
Experience
& Capability
Public Policy
& Regulation
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PUBLIC-PRIVATE PARTNERSHIPS DEALS
Every deal is different!
 Financial and nonfinancial participation
 Formal and informal
agreements
 Use all the tools in your
toolbox
 One or more public
agencies (not just the
City)
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RESPONSIBILITIES ARE SHARED
TASK
Downtown
Development Principles
Maximize pedestrian access
Responsibility
Public Private Joint
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Promote development densities
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Define areas where development will be concentrated
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Develop a strong commercial core
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Plan and manage parking effectively
Promote commercial land use intensities
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Promote residential development near transit/shopping
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Promote and provide incentives for infill
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Promote residential units above grade level retail
Provide an adequate amount of retail
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Establish a wide range of land use activities
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Encourage a mix of different housing types
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TYPICAL PUBLIC SECTOR PARTICIPATION
 Expedited permitting
 Master planning
 Regulatory assistance
 Tax abatements
 Land assembly
 Investment in
infrastructure
• Streets
• Sidewalks
• Parks
• Parking
Tualatin Common
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TYPICAL PUBLIC SECTOR PARTICIPATION
 Joint marketing
 Loans, financing
 Tax increment
financing
 Commitment of SDCs
 Community relations
 Many, many more…
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TYPICAL PUBLIC SECTOR PARTICIPATION
Financial Incentives
 TIF
 Tax Credits
 Tax Abatement
 Zero/Low-Interest Loans
 Public-private partnerships
 Grants
• Façade
• TOD
• Energy/Green
 Density bonuses
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WHAT THE PUBLIC SECTOR SEEKS
What the Public Sector Seeks from the Private Developer:
 Developers who know Mixed-use and Place Making
• Know the public scrutiny and won’t back out
• Understand public process
• Have experience in the type of project desired
• Successful track record
 Developers Who are Financially Strong
• Equity or an equity source in place
• Debt sources as well
 An open book process
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WHAT THE PRIVATE SECTOR SEEKS
What the Developer Seeks from the Public Sector:
 Strong Political Will
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Stable City Council/Planning Commission
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Community Support
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Community and Business Alignment
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Favorable (or at least neutral) media
 Public Financial Means
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Urban Renewal
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Bonding Capacity
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Land Control
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Other Needed Incentives and Mechanisms
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TYPICAL DEAL PROCESS
1. RFQ – find your partner
2. MOU – establish the deal outline
3. DDA – create the plan, hammer out the details
4. Ongoing management agreements
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MEMORANDUM OF UNDERSTANDING (MOU)
MOU
 Less complex
 Early stage
 Outline deal points
 Due diligence stage
 May/may not be legally
binding
…but politically
committing
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DEVELOPMENT & DISPOSITION AGREEMENT
DDA or DA
 Next step after the MOU
 Master legal document to
structure partnership
 Legally binding
 Extremely detailed
 Roles & responsibilities
 Recourse
 Many, many deal points…
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DDA DEAL POINTS
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Public contributions
Development and land
purchase phasing
Purchase price
Upside participation
Ability to resell property
Design standards
Timeline
Roles and responsibilities
Offsite plan
Development obligations
Performance requirements
Remedies for nonperformance
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OTHER AGREEMENTS
 Land leases
 Parking leases
 Easements
 Building leases
 Maintenance
agreements
 Marketing agreements
Tualatin Commons
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COMMUNICATE EARLY AND OFTEN
 Understand your
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partners and key
players
Develop a
communication
strategy
Build public trust
through involvement
Be responsive to each
other’s needs
Have a common
vision
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Case Studies:
Otay Mesa, Riverplace, Tualatin Commons
OTAY MESA: THE SETTING
 High volume
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border
crossing
Huge
potential, low
investment
4.9 jobs per
acre
New economy
Growth
pressures
Otay
Mesa
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OTAY MESA: GOALS
 “A moment of opportunity:
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Looking Back from 2025”
Strengthen the economic base
Diversify employment and
investment
Balance land uses
Improve access and mobility
Plan for harmonious
relationships between uses
Meet the need for housing
Create complete places
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OTAY MESA: PROCESS
 Strategic Framework
 Stakeholder
workshops and
coordination
 Economic and
physical research
 Case studies
 Otay Mesa
Community Plan
Update
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OTAY MESA: IMPLEMENTATION
 Fund SR-11, SR-125,
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and I-905 projects
Provide additional industrial land,
sanctuary in East County
New border crossing
Establish urban office campuses
Develop underutilized land
Attract educational institutions
Expand workforce housing options
Define future role of Brown Field
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OTAY MESA: IMPLEMENTATION
 Celebrate success!
 Cultivate champions
 Establish partnerships
 Prioritize decisions
 Pursue multiple projects
and activities
 Brand the Mesa
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OTAY MESA: OTHER MODELS
 Hillsboro, OR
 Brownsville, TX
 Emeryville, CA
 Las Colinas, Irving, TX
 Irvine Business
 Santa Theresa, NM
Complex, CA
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RIVERPLACE
12-acre riverfront urban resort in Downtown Portland
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RIVERPLACE OWNERSHIP STRUCTURE
Weyerhaeuser
Portland General Corp.
100%
100%
50%
50%
WRECO
CWDC
Cornerstone
Columbia
Development
Company
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RIVERPLACE PRODUCT MIX
 Luxury boutique hotel
Program Element
 Condominiums
Residential
Number Units /
Rooms / Stores
Square Feet
190
235,000
 Apartments
Retail
13
23,220
Office
4
41,600
 Athletic club
Hotel
74
76,600
1
47,000
 Office building and
Total
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Athletic Club
423,420
retail
Multiple restaurants
Entertainment retail
Parking
Marina
Esplanade
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RIVERPLACE DETAILS
 Goal: Create a
residential
neighborhood and
destination on the
waterfront
 Deal Structure:
• PDC: Site cleanup,
land write down,
build marina
• Cornerstone:
Development,
Columbia successful
bidder
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RIVERPLACE
Lessons Learned
 Market issues
 Retail issues
 Noise issues between
uses
 No back door
 Triangular site
constraints
 Inadequate parking
 Construction complexity
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TUALATIN COMMONS
Redevelopment of 19-acre former dog food factory:
Tualatin Sherwood Road
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TUALATIN COMMONS
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Goals based on citizen input:
Strong civic focus;
Pedestrian and vehicular circulation;
Day and night uses;
Strong visual presence at major
entrances;
Improved economic climate for downtown
businesses;
Convenient and adequate parking;
Links to nearby retail, civic, and recreation
uses;
Downtown built for the long term (50+
years); and
Retention of downtown's retail market
share.
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TUALATIN COMMONS
 Located in a floodplain,
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built a 3.1 acre lake $5
million public, $35 million
private
Hotel
Multiple restaurants,
limited retail
Condominiums and
apartments
Office buildings
Public open space
Program Element
Number Units /
Rooms / Stores
Square
Feet
Residential
69
Live-Work
7
Retail
4 restaurants
13,000
Office
4
87,000
Hotel
60
Public Plaza
Lake
20,000
3.1 acres
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TUALATIN COMMONS
 The “Heart of the City”
 Not one developer but
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many
City responsible for
maintenance and
planning events for public
areas
Emphasis on public art
Marketing
Citizen group “Tualatin
Futures”
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CASE STUDY CONCLUSIONS
 Flexibility and diversity with
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multiple developers versus
one developer
Community support and
ownership
Political support
Important to ensure quality
on all levels
Understand the market for
ALL uses
Anticipate problems before
they arise
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LELAND CONSULTING GROUP
Urban Strategists
Portland • Denver • San Angelo • Mexico