Real Estate 101 for public officials

Urban Land Institute Real Estate 101 for public officials

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Real Estate 101 for public officials

June 15, 2012

Urban Land InstitutePrince George’s County

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Topics we plan to coverI. The challenges of contemporary development (infill, TOD,

value-add conversions) (30 minutes)

II. The development process and project viability (40 minutes)

III. Real estate finance (30 minutes)

A.The market

B.Capital sources and rates of return

C.The capital stack

IV. Using public-private tools (40 minutes)

V. Round table discussion (30 minutes)


Learning Objectives:

1. Obtaining the best outcomes for the community based on understanding how real estate development works.

2. Connecting the entitlement process to the development process to achieve community goals.

3. Standards for deals that are fair and defensible to the public.

4. New ways of thinking about how to create better projects that meet community goals within the parameters of the real estate financial requirements.


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• Charles A. Long• Charles A. Long Properties, LLC

[email protected]• Developer specializing mixed use development in California, US• Consultant on redevelopment, capital finance and economic

development• Instructor for ULI Real Estate School on development process,

public-private partnerships and sustainable development• Former city manager of Fairfield and interim manager in

Mammoth Lakes, Hercules and Pinole, CA• Author of “Finance for Real Estate Development “ published April

2011• Served on 14 ULI advisory panels, chairing panels in Salem OR,

Boise, ID and Dallas, TX. • Masters in Public Policy, UC Berkeley; platoon sergeant, US

Army


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Finance for Real Estate Development

published by ULIApril 2011


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Introductions

• Your objectives from this course


The challenges of contemporary development

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East 14th St., San Leandro, CA


“Transformation from a car-dominated tangle of offices, malls and auto

dealers into a livable city”

Development today is more complicated physically and economically


• More urban and mixed use• Public benefits more important• More complicated economics• More conversions from old uses• Less leverage and no “value add” financing• Density confusion

Appleton Mills, Lowell, MA

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Lakeside Steel Plant, Chicago

West End Commons, Oakland, CA


Private sector needs help Obsolescence Barriers—Southwest Center Mall

Market for retail too weak to reposition the center for retail.

Development plan to create Town Center project with 600 residential units and plaza. • New circulation. • New parcelization.

Five property ownersPoor circulation

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Walkable, sustainable places are more valuable


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Community acceptance and entitlement risk

Sector differences in market strength

Parking costs and layout

Resizing the infrastructure

Financing challenges

Conflicts among uses

Getting the density right

Mixed use is hard to do

Silver Spring Town Center


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Mixed use financing challenges• Cost of capital for unitary

development configuration• Longer absorption period for retail• Valuing income and for-sale• Federal pre-sale requirements for

condo projects• Liability on for-sale residential• Interconnected parking and operations

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Entitlement process now is more challenging

• More public involvement

• More review steps• Skepticism about

density.• Development impacts

must be funded• Pre-development risk

results in missed opportunities.


Alameda NAS, Alameda, CA

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The Great Recession has changed the capital stack


DebtMuch lower debt: now 65% or less

EquityMuch higher equity: now 35% or more—recourse provisions tighter

Disappearance of "Gap" financing to pay for “value-add” conversions

Mezzanine or performing debt

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The result of the changes to the capital stack


OVERALL PROJECT RETURNS MUST BE HIGHER TO ATTRACT

CAPITAL

Development today is inherently public private


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Uptown, Oakland, CA

• 665 rental units; 25 percent affordable

• New, one half acre park• $160 million private

cost• $50 million public

investment

Mission BaySan Francisco, CA

• $400 million of infrastructure

• Cleanup of site• Public transit links• 41 acres of open space• Financed with “land

secured” bonds

Inherently public/private because:

1. Insures capture of public benefits in the entitlement process.

2. Addresses greater economic risks and physical complexity.

3. Integrates service costs into project economics4. Brings non-project related resources to

enhance private project viability5. Aids in site assembly6. Enhances co-development opportunities

Public Private Partnerships for Transit Oriented Development

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• Public: – Weak understanding of the private real estate process and

economics– Unrealistic, irresponsible or constraint-driven deal making– Inconsistent and unreliable performance on commitments.

• Private sector: – Uncertain about how to craft a partnership with a public

entity. – Frustration with process and constraints– Failure to capture opportunities

And yet, neither sector fully understands the other


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Ultimately, this is about governance

• Have a shared vision for the future---build a community consensus.

• Set clear, predictable and high development standards.

• Develop the competence to understand constraints and opportunities in real estate economics.

• Build partnerships with the private sector based on fiduciary principles that protect the public interest.

• Have strong leaders and committed citizens

It’s about leadership

• With a focus on transit-oriented development,

redevelopment, revenue creation and smart

growth, the Council is encouraging a more

business-friendly Prince George’s County by

expanding economic opportunities and

commercial development.

• Excerpt from Prince George’s County Annual Report


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It’s about competing effectively as a quality place to live.

Prince George’s County has tremendous potential

15 Transit Stations

2,200 acres of vacant land within ½ mile of stations.

Source: Andrew Scott, Maryland Department of Transportation

What makes great communities?


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Knowledge you need

• Risk Profile of the development process• Development finance• Project viability• Deal standards• How to use the tools


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Organizational norms you need

• Leadership• Community vision• Collaborative decision-making across

departments• Delegation of authority to carry out the

mission.


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Group discussion

1. What challenges do you perceive that Prince George’s County faces in achieving high quality development?

2. Got examples?


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The Development Process and Project Viability

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Development is…a separate self financing enterprise that goes from small to large.

Urban Land Institute Real Estate 101 for public

officials

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The Development Process has three phases


80% to 90% of project value is created in the pre-development phase


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Acquisition, design, entitlement, financing, risk management

Project Value

Pre-development work manages risk for all phases

By the start of construction, risks should be reduced to factors that have already been addressed and are controlled through good management.


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Pre-development can be expensive and time consuming ($100 million project)

Item CostDue diligence on land purchase $100,000Market analysis and marketing $200,000Project design $2,000,000Environmental analysis and entitlement process

$1,000,000

Pre-construction services $250,000TOTAL $3,500,000



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Questions1. Why do developers have the highest risk of

losing money before construction starts?

2. What implications does this risk profile have for developers in Prince George’s County?

3. What measures has Prince George’s County taken that address this risk profile?


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Project viability

and residual land

value

Three elements to evaluate project viability:


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1. Project Value: based on either total sales or on valuation of the stream of income

2. The Hurdle Rate: The minimum rate reflecting the cost of capital and time that the capital is used.

3. Project Costs: A valid estimate.

–Developer profit

A Project is “viable” if


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VALUE minus COSTSis sufficient to pay:

–Cost of Capital

–Income projects (retail, office, apartments, etc.): INCOME DIVIDED BY A “CAP RATE”.

PROJECT VALUE BASED THE MARKET


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–For Sale Project: (primarily residential) Gross sales less marketing

How to value an “income” project.


• Income project produce annual income from rent, maintenance charges and other sources.

• Apartments, offices, retail stores, business parks are all, usually, income projects.

• The income after expenses is called “Net Operating Income” of NOI. It is the same as annual profit.

• The market values the NOI using something called a “capitalization rate”.

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A capitalization rate is simply an shorthand indicator of market strength.


Cap Rate=Net Operating Income (NOI)

Project Value

Project Value=NOI

Cap Rate

High cap rate indicates market weakness and low cap rate indicates market strength.

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Cap rates reflect market sentiment


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Cap rate P/E Ratio2% 503% 33

4% 25 5% 20 6% 16.7

Cap rate is the inverse of the P/E ratio used in the stock market


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Average S&P stocks 15.5General Electric 14.31Microsoft 19.96Starbucks 45.22Whole Foods Mkt.32.18

Some stock P/E ratios


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What does a high P/E (or low cap rate) signal about expectations of growth in income?

Pop quiz 1What is the project value?

NOI Cap Rate$3,000,000 5% $3,000,000 6%$2,000,000 4%$2,000,000 5%


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Web sites where you can obtain current market data


• Real Estate Research Corporation www.rerc.com

• Real Capital Analytics http://global.rcanalytics.com/

• National Council of Real Estate Investment Fiduciaries (NCREIF) http://www.ncreif.com

http://www.rerc.com/

http://global.rcanalytics.com/

http://www.ncreif.com/


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DETERMINING THE HURDLEThe cost of capital is the blended cost of

equity and debt over the time to construct. Example

Cost of equity: 20% per year (30% of costs) = 6%

Cost of debt: 5% per year (70% of costs) = 3.5%

TOTAL ANNUAL COST OF CAPITAL = 9.5% If a project takes 2 years to construct, cost of capital is: 9.5% per year or a total of about 20%.


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Typical hurdle rates based on duration of development period

1-year: about 10%2-years: about 20%3-years: about 30%

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Hurdle rates for other capital structures and construction periods

Months to achieve project value

Debt Equity

Hurdle Rate% funding

Interest % funding

Annual return

36 75% 6.00% 25% 20% 31%

36 80% 6.00% 20% 20% 29%

24 75% 6.00% 25% 20% 20%

24 80% 6.00% 20% 20% 18%

12 80% 6.00% 20% 20% 9%



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THE COSTS: A realistic cost estimate includes:

1. Building costs2. Site Development (demolition, grading, utilities and landscaping)3. Parking (may be included in building for some types of projects)4. Connection and impact fees5. Offsite costs such as traffic signals or road improvements6. Design (architecture, engineering, consultants, etc)7. Marketing (brokers, advertising, etc.)8. Construction management9. Financing /legal/administrative10. Taxes during construction

11.Contingency: 10-15% in early stagesDO NOT LUMP COSTS

YOU CANNOT CUT THE BOARD LONGER

OK. Once you have Project Value and Hurdle Rate, then you can determine how much you can afford to spend on a project compared to what it is estimated to cost.


Maximum supported investment

=Project Value

1 + hurdle rate

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If estimated project costs exceed the Maximum Supported Investment then the project is not viable and the developer will abandon the project.

Pop quiz 2What is the maximum supported investment?

Project Value Hurdle Rate$36,000,000 20% $39,000,000 30%$50,000,000 25%$60,000,000 25%


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The return on a project pays:• Cost of debt: interest on a construction loan

(4%-6%)• Return on equity: return to investors (15% to

20%)• Developer profit: based on project

performance after paying costs of capital.


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Developer profit comes from:• Fees: Developer fee of 2-4% of cost with incentive

bonuses. • Co-investment: Developer is an equity investor in

10-15% of equity requirement. • Sharing of success:

– Participation in profits over the “preferred return” of 8-12%

– Higher participation in profits over a target of 15-18%.

If the costs of development change, the developer risks a loss because the land price has already been

determined.

Residual Land Value is:The price the project can afford after accounting for the other costs of development.

Urban Land Institute Real Estate Development Process II

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Obtaining site control by tying up the land is the first major decision a developer makes and is based

on market and costs.

Residual land value is the land component of supported investment.


MINUSCosts without land

=Residual land value

Project Value

1 + hurdle rateSupported investment

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Pop quiz 2What is the project residual land value?

Project Value Project Cost (w/o land) Hurdle Rate$36,000,000 $25,000,000 20% $39,000,000 $25,000,000 30%$50,000,000 $35,000,000 25%$60,000,000 $43,000,000 25%


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Cash-on-cash hurdle rate allows quick evaluation early in project

Once a property is tied up, do a more detailed analysis based on more

accurate information


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Example on 3 acresScenario 1: -80 townhomes.

-net sales of $24 million -costs (before land) of $16,000,000.-land value at 20% hurdle is $4.0 million.

Scenario 2: -210 apartments in podium configuration. -NOI at $30/sf rent is 3.3 million. -Project value is $65.5 million at 5% cap-costs (before land) of $42 million.-land value at 30% hurdle is $8.4 million.

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Land Value Changes with Use.


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$250,000 $250,000

Construction

Design, finance, management,

marketing

$65,000$65,000$60,000 $60,000

$25,000 $50,000Agency requirements

$75,000$100,000 Residual Land Value

Sale price of house #1: $500,000 Sale price of house #2: $500,000

Profit

An example using Agency requirements

How should an agency establish its requirements?


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But, make the requirements clear and consistent over time so that land prices can

adjust to reflect what a project can afford based on the market and other costs of development.

Make the requirements as high as possible because quality development produces value

for the community.


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High quality, consistent standards are less risky and produce high value

" Simplify the process for developers. By streamlining permitting and construction processes, getting departments to work together to promote infill, and ensuring requirements are consistent, cities can smooth the way for good development." --Bay Area Greenbelt AllianceBackground material\Smartinfill executive summary.pdf

• Developers prefer to compete on value, not cost.

• Policies may cost more but make the community more valuable.

• First, create a great place to live: education, parks, transportation and the long term value will pay for the costs.

• The entitlement is long and costly?• The public agency suddenly changes the

development conditions?• The public agency’s development

conditions are uncertain? • The cost of development conditions

causes total costs to exceed project value?

What happens to a project’s financial viability if: :


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Questions1. What are the implications of basic real estate

economics for establishing development standards in Prince George’s County?


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Real estate finance

65Urban Land Institute Real Estate 101 for public officials

$4.575 trillion invested in U. S. private real estate in 2007 (2008 Emerging Trends)28.1% was Equity 71.9% was Debt

Private investors 44.1%REITs

32.3%Pension funds 12.9%

Foreign Investors 4.1%

Banks 56.9%CMBS

22.5%

Life insurance 8.8%

REIT unsec. 6.3%

Public >0%

Life Insurance 2.5%Public Co. 3.5% Private financial .6%

Govt. credit 3.5% REIT sec .8%

THE REAL ESTATE___________

Political / Physical / EconomicOpportunities & Constraints

CAPITAL

THE MARKET___________

USERS

DEBT SOURCE:Lenders

EQUITY SOURCE:Owners and

Investors

PUBLIC SECTORAGENCIES

DEVELOPER__________

OPERATOR

FUNDSFUNDS

Basic Financing Structure Involving Debt and Equity

PUBLIC PARTICIPATION

COMMODITY AND/OR VALUE

SALE, LEASE, OR OCCUPANCY $

ENTITLEMENT

TAXES AND FEES

DEBT SERVICE RETURN

RETURN

VISION, SKILLSPRE-DEVELOPMENT,

REQUIRED CO-INVESTMENT

CONSTRUCTION AND PERMANENT DEBT FINANCING

PRE-DEVELOPMENT AND PERMANENT EQUITY FINANCING

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Financing terminology does not always mean the same thing to everyone—lenders and investment

firms talk funny, make them explain! • Interest rate

Swap• Lock• Promote• Recourse• Non-recourse• IRR• Preferred return• Waterfall

• Mezzanine• Bridge• LTC/LTV/DCR• Pre-buys• Participating

debt• Deed of trust• Credit Spread• LIBOR

• Promotional interest• Bankable takeouts• Pari Passu• Inter-creditor

agreements• Capital Event• Notional principal• Leverage

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Stacking the capital


Debt• DCR• LTV• LTC

Equity

• Developer co-invests• Preferred and promotional return• Target return and upside

The value-add playPays out based on value creation

Performance guarantees with recourse for:• Project completion• Cost estimates• Lease up


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Typical return requirements


Debt15-25 year amortization2-15 balloon4.5% to 8% interest

Equity

• Preferred 9%-12%• Target 15%-20%• Total potential 25% or greater

Projected 20% or greater Mezzanine or performing debt

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Application


DebtConstruction and permanent

finance only—NO PRE-DEVELOPMENT.

EquityPre-development after project viability has been confirmed IF entitlement risk is low.

Value add play on project with existing cash flow.


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80% leverage on a project that costs $10 million and produces $12 million in valuation after 2 year construction


Debt$8.0 million

Equity$2.0

million

Repay bank loan plus interest: $8,560,0002 year construction

effective loan period 1 year

Investor/developer Distribution$3,440,000

31.1% Leveraged rate of return

Costs

Sales or Value

80% Leverage

Unleveraged rate of return=9.5%

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60% leverage on a project that costs $10 million and produces $12 million in valuation after 2 year construction


Debt$6.0 million

Equity$4.0 million

Repay bank loan plus interest: $6,420,0002 year construction

effective loan period 1 year

Investor/developer Distribution$5,580,000

18.11% Leveraged rate of return

Costs

Sales or Value

60% Leverage

Unleveraged rate of return=9.54%

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The Waterfall


Cash Flow after paying loans and costs

Return of principal

Preferred return (including developer co-investment)

Promotional return parri pasu to investment dollars to meet target total returns

Some percentage distribution to developer

Larger percentage return to developer

Ongoing small percentage distribution to investors

1st Dollars out

2nd Dollars out

3d Dollars out


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How about the developer's profit?

There is not just one way:• Equity investors require developer's interest

to be aligned with theirs. • Profits to developer will be paid after

preferred return to investors• Developer's share of profits increases with

profits. • Some developers take some profits from

"fees"

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TYPICAL FINANCIAL STRUTURE

Capitalization Leverage 65-80% depending on guarantees Equity (20-35%) contributions

90% Investors group10% Co-investment from Developer

Distributions Cash flow to equity participants, usually with preferred

return to equity and waterfall distribution to investors and Developer

"Capital" event – success to Developer and Investor Group after hurdle return based on IRR



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Typical deal structure Financings are about relationships. Recognize that “who”

you partner with is just as important as the property you buy. The trustworthiness and reliability of the developer is just as important as the merits of the particular project.

Equity and debt partners invest through a joint venture agreement allowing major decisions to be made jointly and insuring alignment of interest!

Developer must co-invest in the project

Developer guarantees hard and soft costs and completion


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Typical deal structure (continued)

You spend 95% of the time negotiating 5% of the issues that never occur.

Take profits when they are available.

Provide for a 3 to 7 year holding period. Sell when business plan is completed – win, lose or draw.

• Provide success fees to the developer and investor group on sale or refinance after meeting the required IRR hurdle.

• Allow the developer to take market rate fees for services (property management, construction, etc.)

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Fiduciary parameters• Validate all the assumptions: especially the market

and the costs.

• Are the developer’s financial transactions open and transparent to the outside investors?

• Include provisions in the joint venture agreement allowing removal of the developer for cause.

• Create a “buy-sell” provision, but don’t rely upon it to solve all the problems.


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Questions

1. How will familiarity with private real estate finance help you achieve higher quality development in Prince George’s County?



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Using public private tools


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7 Tools you need to understand1. Developer selection and negotiations2. Community planning/Entitlements3. Site assembly and cleanup4. Creating a development entity5. Municipal financing6. Equity investment tools (including tax

credits)7. Co-investment opportunities


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The 10 principles1. Properly Prepare for Public/Private

Partnerships

2. Create a shared vision

3. Understand your partners and key players

4. Be clear on the risks and rewards for all parties

5. Document a clear and rational decision-making process

6. All parties must do their homework

7. Secure consistent and coordinated leadership

8. Communicate early and often

9. Negotiate a fair deal structure

10. Build trust as a core value• 82

COMPETENCE

Steps in the process (publicly initiated)

• Public agency creates a vision through a community-based decision process.

• Involve the property owners!• Solicits developer through RFP, RFEI, RFQ • Selects and executes an ENA or Sole Source

Agreement. • Negotiates and executes a DDABuild trust while conducting due diligence on

the project and on each otherUrban Land Institute Real Estate 101 for public officials

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Steps in the process (privately initiated)

• Public agency creates a vision through a community-based decision process (HOPEFULLY)

• Developer approaches public agency• Agency and developer agree to negotiate leading

to an agreement. Build trust while conducting due diligence on

the project and on each other


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Negotiation is about problem-solving

• Don’t treat the process as a hard bargaining situation

• Know your project economics and don’t make concessions you can’t afford.

• Build the relationship of trust • Build community ownership


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• Understand the local public information laws. • Disclose to an outside 3d party consultant• Recognize that the final deal must meet the

open book requirement. • Don’t be ashamed about return requirements

Sharing Proprietary information


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Community planning reduces entitlement risk

Principles• Include all stakeholders• Base the plan on the market• Analyze all the impacts• Develop implementation tools• Identify public infrastructure

needs• Imbed flexibility• Develop knowledge/skill in real

estate• Use the RFQ

Walnut Creek, CA downtown plan

Livermore, CA downtown specific plan

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Site assembly challenges

• AVOID USING EMINENT DOMAIN.

• Few property owners understand the real estate.

• Long term owners. • Mistrust of developers and city. • Fear of limiting options by

choosing one. • Potential for gaming the process.


Morgan Hill, CA Downtown Opportunity Sites

–Cleanup will increase land value by up to $130 million–4 property owners: concerned about distribution of costs, value and cooperation. –Agency can force clean up and bill owners–Agency to use TIF and land secured bonds to equalize costs and fund infrastructure for access and circulation.

Newark, CA150 acre industrial site conversion to

TOD


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• Cities and counties protect “health and safety”.• Land sales by competitive bid only, not economic use.

• Need authority to invest in and subsidize projects based on economic merit. – Redevelopment agency– Economic development corporation– Business improvement district– Land Development Corporation

Create a development entity


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Base Assessed Value=

Value of project area

when formed

Incremental Assessed Value =

Value created from new

investment

Property Tax $

Tax Increment $

CITY/COUNTY

Redevelopment Agency

Invest in project area

Provide Services

Redevelopment finances investment from increased value

Urban Land Institute Real Estate Development Process II

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• Pre-development costs• Land acquisition• Public Facilities• Financing gap• Incentive payments• Backup guarantees

Use the development entity


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Tax exempt financing lowers cost and increases leverage


• Public financing takes many forms

• Land secured financing for infrastructure/cleanup

• Housing revenue bonds

• Lease revenue financing for facilities

• Revenue and general obligation bonds

• Federal regulations limit use to public purpose and require compliance with IRS regulations for use of funds.

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Berkeley Reparatory Theater

Land Secured Bonds: assessment bonds are the primary means of financing infrastructure and

cleanup


• Assessment or annual tax levy can be passed on to users

• Delinquencies result in tax lien and foreclosure

• BE CAREFUL! ESTABLISH FINANCING STANDARDS.

•Private financing subordinates to public financing.

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Mission Bay

Hunters Point


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New Public Incentives Paradigm– Important layer in capital stack– Bonds and/or private placement of municipal

obligations the rule, not the exception– Multiple revenue sources– Public participation is evaluated on whether it

is needed to make the project pencil– Private capital sources rely on public capital

sources to meet underwriting criteria

Courtesy of Richard Klawiter, DLA Piper, Chicago


PHASE 1PLANNED

DEVELOPMENT

CHICAGOLAKESIDE

MASTER PLAN

Lakeside Steel Plant site conversion

35 million square feet

Dwelling units maximum 13,575

Commercial Area approximately 17.5 million square feet

Source: Jeffrey Owen, DLA Piper, Chicago

Urban Land Institute Real Estate 101 for public officials • 97

LAKESIDE PHASE 1 CAPITAL STRUCTURE

TIF BOND ISSUANCE CLOSING CONDITIONS:

RETAIL PRE-LEASE 1 TOWER PAD SALE SECURE PRIVATE EQUITY ANDFINANCING COMMITMENT

Bonds supported by TIF City GO Bonds $55MSecond lien bonds $41MTotal TIF bonds $96M

Private EQUITY $75MPrivate DEBT $226M

Source: Jeffrey Owen, DLA Piper, Chicago


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Land as equity: Pinole Valley Shopping Center

Pinole, CA

• Agency purchased site from foreclosure along with two gas stations for $7.3 million in 2004.

• Ground leased site to developer for 80% of net cash flow (NOI after debt service)

• Developer signed Trader Joe’s and Walgreens.

• Developer obtained financing to renovate the center based on the Agency land value serving as the equity.

• With sale, Agency receives 80% of net proceeds after paying off permanent loan.

Renovation of a 70,000 square foot neighborhood shopping center built in the 1960’s.


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Tax Credits provide equity in return for tax benefits to the tax credit purchaser

Low Income Tax Credits• Subsidize affordable rent-

restricted housing• $9 billion annual market –

awarded at the state level to specific projects

• Rigorous compliance requirements

New Market Tax Credits• Subsidize capital investments in

low income communities• $3 to $4 billion annual credit

market awarded federally to entities

• Rigorous compliance requirements

Courtesy of Leslie Eckstein, Wells Fargo Bank


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Argonaut Hotel, San Francisco

• Historic rehabilitation• Uses Historic Tax

Credits as equity. • Rent income maintains

the historic ships


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Appleton Mills: Lowell, MA

1.9 million square feet of mixed-use, transit-oriented developmentUp to 725 units of market rate and affordable housing, Up to 425,000 square feet of commercial spaceUp to 55,000 square feet of retail Total Cost $47,078,544Tax credit equity $26,282,806

Courtesy of Jim Keefe, Trinity Financial

• Examples:– Cleanup– Theater– Golf course– Park– Highway interchange– Streetscape downtown– Stadiums

Co-investment creates development value for public and private sectors


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Union City, CA• Intermodal TOD site• Community Theater as co-

investment• Brownfield site cleaned up by the

redevelopment agency

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Rancho Solano and Paradise Valley Golf Courses, Fairfield, CA

• Developer donates land to the city (180 acres for each golf course)

• City uses lease revenue financing for building golf courses

• Developer captures increased value of homes build around course.



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Deal Standards (1-6)1. Competence2. Price the benefits3. Align interests 4. Share success5. Have a “holding period” for returning the

public investment6. Have a stop loss for the public agency:


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Deal Standards (7-12)7. Validate the market and the costs8. Use the open book9. Third party verification10.Build in accountability11.Recognize that things will go wrong 12.Keep it simple

1. Make deals based on the real estate, not wishful thinking: Validate the deal based on the real estate economics and on what the markets will actually support.

2. Build trust and ownership: Who is involved in the partnership is as critical as what the project is. Developers and communities need to take the time to use the “open book” and to develop relationships of consistency and trust.

3. Do the hard work competently: Public private partnerships are complicated and require resilience and persistence to accomplish. They require a competent team on both sides of the table who take the time and effort to craft complex deals.

Or…


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Questions

1. What preparation does a community need to take to be able to be effective at public private partnerships?

2. What do you believe are the most important deal standards?


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Round Table Discussion1. What were the most important take-aways from

today and how will you apply what you learned to improving the quality of development in Prince George’s County?

2. What additional background or knowledge would help you in applying what you have learned today?

3. What worked well and what could be improved?

Documents

Real Estate 101 for public officials