Value capture strategies and financial models

URBAN INFRASTRUCTURE: FULLING ECONOMIC DEVELOPMENT AND ADAPTING TO CLIMATE CHANGE

Gabriel Nagy Development Advisor and International Consultant Architect M.Sc.. PMP. Planning and Urban Economics

Quito, May 23, 2016

FINANCIAL MECHANISMS and VALUE CAPTURE STRATEGIESFUNDING and DELIVERING URBAN TRANSFORMATION PROJECTS (INTEGRATED AND

COMPREHENSIVE URBAN OPERATIONS)

1

Alternative delivery model (PPP) delivering goods, services and urban social infrastructure

Index

Urban Transformation Projects (UTP) Concept Financial instruments

Land Value Capture Concept Land Value Capture Strategies Municipal Payout Structure

Project Integrator and Land Readjustment: An Alternative to Land Acquisition for Land Assembly UTP General Structure and Governance

Delivery Models Alternative Supply Model: Public Private Partnership (PPP) PPP regulatory framework and processes ( Colombia ) PPP Best Practices

Action Plan Disclaimer

2

Urban Transformation Projets UTP “TRANSFORMING CITIES has to do with not only their physical features but also

psychological, cultural, and many other factors.”

“Urban acupuncture is an approach to city planning design to make things happen. Don’t start with everything, start somewhere, make things happen, try it out.”

“Just as good medicine depends on the interaction between doctor and patient, successful urban planning involves triggering healthy responses within the city, probing here and there to stimulate improvements and positive chain reactions. Intervention is all about revitalization, an indispensable way of making and organism function and change.”

“Sometimes, a pinpoint urban project leads to broader cultural changes…”

“…sometimes, a simple, focused intervention can create new energy, demonstrating the possibilities of a space in a way that motivates others to engage with their community.”

“One feature common to all good urban acupuncture is the imperative of preserving or restoring the cultural identity of a place or a community.”

Urban Acupuncture by Jaime Lerner

3

Concept Urban Transformation Projets UTP

Assembling developed or underdeveloped land

Increase supply of environmental goods, transport infrastructure , housing and urban services

innovative supply models with greater private sector participation

4

Why Cities Need Urban Transformation Projects?

Manage and control urban sprawl Provision of infrastructure Management densities and public space

Fiscal Sustainability Strengthening local tax base Increasing or retaining local jobs Local economic development Systems and GIS

Social sustainability Improving connectivity for people, places , destinations and means Building social housing Building community facilities safer communities Infill development projects

5

Why Cities Need Urban Transformation Projects?

Environmental sustainability Generating environmental protected areas Addressing environmental issues Mitigating natural hazards Resilience Greenfield development

Sustainability infrastructure and services Building infrastructure Building utilities and basic services Recovering and preserving architectural heritage Systems and GIS

6

Medellin, Colombia

7

Medellin, Colombia

8

Medellin, Colombia

9

Medellin, Colombia

10

Medellin, Colombia

11

Medellin, Colombia

12

Medellin, Colombia

13

Bucaramanga, Colombia

14


15


16

Quito, Ecuador

17

Quito, Ecuador

18

Quito, Ecuador

19

General Benefit Financial Instruments *

The general public is the beneficiary and financer of urban transformation projects

Instruments:

Subsidies (transport , housing, energy)

Property Tax

Climate Change related instruments

Note: Sustainable Urban Transport Financing from the Sidewalk to the Subway http://dx.doi.org/10.1596/978-1-4648-0756-5 20

http://dx.doi.org/10.1596/978-1-4648-0756-5

Financial instruments Direct Benefit

Benefits received by an specific group

Instruments:

Rates ( parking, congestion , transportation ) tolls

Expense , Licenses , Assignments and Rights (utilities , roads , construction)

Taxes and surcharges (vehicle , distance , fuel , housing, area)

21

Indirect Benefit Financial Instruments

Benefits charged to players who receive indirect benefits from urban transformation projects investment

Instruments:

Exclusive negotiation rights / concessions

Advertising and urban furniture

Employer contributions ( ' subsidies ' private sector)

22

Land Value Capture Concept

Incorporation of rural land to urban sprawl floor , or consideration of rural land as suburban .

rezoning

The authorization of a better use of use of the building , either by raising the occupancy rate or the rate of construction, or both at once .

Public investment in goods and services.

Increase in private

property value

23Note: Utilizing Value Capture for Transportation Funding. SB Friedman Development Advisors. http://www.sbfriedman.com

http://dx.doi.org/10.1596/978-1-4648-0756-5

Land Value Capture Strategies

Value capture comprise several mechanisms that have the same concept but with important differences in the design and implementation base.

The fundamental principle behind the recovery strategies of capital gains is that those who benefit from improvements through Urban Transformation Projects (whether or not users one or more service) must pay the respective investments.

24


Land Value/Betterment Levies Tax Incremental Finance - TIF Special Assessment Participation in Capital Gains Utility Fees including transportation Acquisition and sale of land under specific conditions Land readjustment schemes Development impact fee Land banks Negotiated exactions Joint development Construction and air rights Rezoning

25Note: Utilizing Value Capture for Transportation Funding. SB Friedman Development Advisors. http://www.sbfriedman.comNote: Sustainable Urban Transport Financing from the Sidewalk to the Subway http://dx.doi.org/10.1596/978-1-4648-0756-5

http://www.sbfriedman.com/

http://dx.doi.org/10.1596/978-1-4648-0756-5

RECEPTORS

Fig. 1 Land Value Capture Financing Mechanism

GENERATORS

Land Value Capture Strategies Land Value Capture Financing Mechanisms

Land Value Taxes/betterment levies Acquisition and sale of land under specific conditions

Joint development Construction and air rights

Tax increment financing Land readjustment schemes

Rezoning

Special assessment Development impact fee

Utility fees including transportation Land banks

Participation in Capital Gains Negotiated exactions

26


27


28


29

Municipal Payment Structures

Disbursements Debt instruments Compensation funds Construction and Development Rights Participation of Capital Gains Promissory notes Bonds Property Taxes such as the Socio-Economic Stratification Representative titles of Rights Construction TIF

30

Land Integrator (Single Purpose Vehicle)

Conduct Proactive Pre-Development Allows early negotiations on Master Plan and Zoning Activities Predictability of cost and time Economies of scale Performance -oriented efficiency due to their obligation to reward shareholders VxD commitment during the project Leverages on and maximizes limited local resources Captures financial and management capacity facilitates investment Municipality maintains influence Efficiency and lower costs in hiring Generates high residual value

31

GOODS AND SERVICES – SOCIAL INFRASTRUCTUREDELIVERY/SUPPLY MODELS

Land Bank and Urbanism Goods and Services

Deliverables Advantages Model Model Advantages Deliverables

lands Urban works Capital Gains Rights

Predictability of cost and time

VxD commitment during the project

Maximize limited local resources

Capture financial capacity and management of the private sector

It facilitates investment

The municipality maintains influence

Efficiency and lower costs in hiring

Generates high residual value

INTEGRATOR PARTNERSHIPS Collaboration between the public and private sector

Greater assurance that the projects go forward

Health Education Housing Roads Infrastructure Others

Private Developer Scheme

Competitive Partnership

Local Funds Contributions

Incremental Partnership

Private Finance Traditional Public Procurement

32

33

Contratista

Monitoring & Evaluation

Fiduciary

XXXXXXXANIFDN

FINDETER

Shareholder

Shareholder

Shareholder

Shareholder

INCOME

CONTRIBUTIONS

CONTRACTS PAYMENTS

Fig. 3 General Structure – Land Assembly and Urbanization

PTU’s General Structure and Governance

DEBT

DevelopersLots for saleRightsInstruments Direct BenefitIndirect Benefit instruments

MoneylenderLoans and grands from international organizationsClimate Change related instruments

Integrator(Single Purpose Vehicle)URBAN TRANSFORMATION

PROJECT

Land managementMaster Plan and ZoningStructuring project:Pre -feasibilityFeasibility

PAYMENTS

Real Estate Integration (Land Readjustment)Private Initiative in Private and Public Lands

Land Status Valor M2 Area M2 Total Land Value

Input land 100 USD 1000 100,000 USD

Post-development land 200 USD 600 120,000 USD

Compensation + landowner - Municipality 20,000 USD

34

Land Value Capture - Example of Land ReadjustmentRedistribution by Relative Value Method

Note: Levering Land to Enable Urban Transformation. The World Bank. January 2013

Real Estate Integration (Land Readjustment)Private Initiative in Private and Public Lands Centenial Road project

No early negotiations on Master Plan and Zoning No predictability of cost and time

Centenial Road project Early negotiations on Master Plan and Zoning Predictability of cost and time

35

400 Ha988 Acre

Soacha, Ciudad Verde, Colombia

36

Soacha, Ciudad Verde, Colombia

37


38

Lot 11000 M210,764 square

feet


feet


feet


feet


feet

40% Negotiated exactions


48%

80%


39


feet


feet


feet


feet


feet



48%

80%

Land Status Value M2 Net Area M2 Total Land Value

Case 1 200 USD 12,000 2,400,000 USD

Case 2 200 USD 20,000 4,000,000 USD


40

Real Estate Integration (Land Readjustment)Private Initiative in Heritage Site

41

GENERATORS RECEPTORS

Quito, Ecuador

42

Quito, Ecuador

43

Quito, Ecuador

44

Public Private Partnership - PPP

economies of scale, performance -oriented efficiency due to their obligation to reward shareholders

regulatory flexibility

knowledge and extensive experience in complex industrial and commercial activities

combine safety and public sector commitment with the experience and efficiency of the private sector

It distributes the risks and responsibilities between the two parties , according to their capacity to manage them ( World Bank 2013 )

They are not a source of funding, but a way to raise funds

the benefit is general, therefore , who pays is the general public

45

t1

t2t1

Long Term

30 yearsOPEXCAPEX

Short Term

Fig. 2 Law 80/93 and 1150/07 vs. Law 1508/12

30 yearsOPEXCAPEX

Short Term Long Term• RISKS• Operation• Accessibility• Maintenance• Exchange Rate• No payment leasing fee

Future Commitments

46

Public Private Partnership - PPP

RISKSLand AcquisitionDesignTechniciansPurchasesFinancingConstructionLegal

Contractual Process Public and Private Initiative (Colombia)

47

Processes and Timing – Prefeasibility (Colombia)

REGISTRO RUAPP

Registro (5 días)

48

Processes and Timing – Feasibility (Colombia)

REGISTRO RUAPP

Registro (5 días)

Máximo 2 años

PUBLICACION SECOP

Dentro 6 meses desde concepto DNP y por 2 meses máximo 4

49

Best Practices - Public Private Partnerships

Include all stakeholders in planning process

Set priorities Area of intervention Project Type

Set acquisition model

Identify resources and set timing Financial sources Other potential sources and mechanisms

50

Best Practices - Public Private Partnerships Get to know all partners and stakeholders

Assess impact and benefits

Economic feasibility Market analysis Cash flow and projections extraordinary costs Public infrastructure included in private project public goods desired risks

Review financial ‘gap’

Measure risk, returns and income

Assess community goals

51

Real Estate IntegrationPrivate Initiative in Public Lands

SUCCESSFUL DEVELOPMENT

Single Purpose Vehicle Fiduciary Agreement Master Plan Structuring Individual Infrastructure Projects

Address Development Readiness of Site Evaluate Proposal

Prepare Proposal - Feasibility Select

Prioritize and Choose Acquisition Model Unsolicited Proposal -

Prefeasibility

Solicit Proposals

Negotiate Agreement Conduct Community Review

52Note: Utilizing Value Capture for Transportation Funding. SB Friedman Development Advisors. http://www.sbfriedman.com

http://dx.doi.org/10.1596/978-1-4648-0756-5

DISCLAIMER

The opinion and recommendations in this document are exclusive responsibility of the author. This are the author’s notes on Housing Finance, Housing and Community Development issues.

This information sheet is not to be interpreted as an advertisement of a public offering. This briefing is being delivered on a confidential basis. Any reproduction or distribution in whole or in part, or the disclosure of its content, without a prior written content is prohibited and all recipients agree they will keep confidential all information contained herein and not already in public domain.

For more information please contact Gabriel Nagy at [email protected]

53

mailto:[email protected]

THANK YOU

54

Economy & Finance

Value capture strategies and financial models