Real Estate Financial Update FMFADA Board June 25, 2009

1. Real Estate Financial Update FMFADA Board June 25, 2009

2. Today’s Agenda Financial analysis update Overall feasibility Fiscal impacts Infrastructure Residential leaseholds

3. The Financial Model 20-year time horizon Annual cash flow estimates Set up on a planning area and product type basis Example: North Gate - New Construction - Town homes Two perspectives: FMFADA Municipal service provider

4. Model Inputs Real Property Assets: Existing building inventory & new construction per Reuse Plan Phasing of rehabilitation and new construction activity Rents/Values Rental rates (for Interim Leasing) and ground lease rates Residential Leasehold values (e.g., home prices) External sources of funds Commonwealth appropriations/federal grant programs/other Costs FMFADA operations Direct building expenses Municipal tax rates, fees and charges Infrastructure, adaptive reuse, & new construction Major and minor improvements

5. Model Outputs Revenue estimates Interim Leasing Pre-paid leaseholds Ground rent Other (marina, special events, concessions) Net income to FMFADA Net fiscal position to municipal service providers Net capital or endowment fund position for FMFADA (retained income)

6. Overall Project Feasibility Yes, the FMFADA can achieve overall financial feasibility through its leasing program and other revenue sources The FMFADA will own marketable buildings with no debt Key revenue drivers are Interim Leasing Program (starting in 2011) and Pre-paid Leasehold Program (starting in 2014) Ground rent ramps up over 12 years, stabilizes in 2027 Key cost drivers are scale of FMFADA organization and decisions related to provision of municipal services and infrastructure financing There are multiple paths to feasibility But, Need to address early year municipal service revenue deficits Example: Commonwealth appropriation increase to approximately $2.4M/yr to cover recreation costs shifted to FMFADA in this model run $3M improvement fund required for Interim Leasing Program

7. Lease Revenue Mix

8. Fiscal Impact Update • Municipal Service Provider Perspective • Does tax revenue match or exceed municipal service costs? • Additional public safety costs added • Shifted recreation costs to FMFADA • $11M net present value revenues net of costs • However, $7.8M initial investment (deficit) in first six years • Key findings • Municipal costs can be controlled to some extent by ramping up public safety services only when needed • Depending on terms negotiated, Army leaseback of facilities after transfer date may partially mitigate early tax revenue shortfalls • Significant positive net tax revenue flow after breakeven point reached • Results sensitive to residential market conditions for pre-paid leasehold program and value/timing of new construction put in place

9. Municipal Perspective

10. Infrastructure Findings • Total preliminary cost of $96M • Matching of pre-paid residential leasehold revenue ($97M) to infrastructure capital requirement is “too close for comfort” • External infrastructure funding sources are available and should be maximized • Every dollar saved increases the potential for the “endowment” fund of the FMFADA • Need to identify other revenue sources/FMFADA charges

11. Residential Leaseholds What are they? Under a long-term leasehold, you do not “own” the property Instead, you have the right to live in a property for a set period of time as long as you live up to the lease terms You are responsible for maintenance and repairs This right is referred to as a “leasehold” interest in the land and building, or “leasehold estate.” Usually these leases are for 50 or more years Leasehold owners can freely sell, assign, or bequeath their lease (if the lease permits it)

12. Residential Leaseholds (con’t) How would this work at Fort Monroe? The FMFADA has been studying the concept of a “pre-paid” lease You can “buy” a leasehold in exchange for a upfront payment The “price” of the leasehold may or may not be the same as if you bought a similar house outright, often --but not always-- there is a discount (10 to 15%) Your payment would typically have to be financed and you would apply for a loan that is secured against the leasehold (not the property itself) The lease would be recorded in the official records and subject to local property taxation (“possessory interest”) You would make monthly payment to your lender as you would for any home purchase You could freely refinance your loan so long as you had enough remaining years in the lease (at least 10 years longer than the loan term; e.g. 40 years for a 30 year loan).

13. Leasehold Example 2014 Leasehold Purchase 2024 Leasehold Sale • Colonel’s Row Home • Pre-payment Amount = $850,000 • Term = 50-years • Financing: • 20% leaseholder down payment • 80% bank financing, 30-year term @6% • Payment: $4,076 per month • Lease sales price = $950,000 • On multi-listings service • Broker’s commission 6% • Term remaining 40 years • New buyer seeks financing • May seek extension of term (lease may have options for this) The local real estate community needs to be part of the process and is the key to the implementation.