The Road to Success Is Paved with Gold – Financing and Developing Infrastructure

2. The Road to Success Is Paved with Gold – Financing and Developing Infrastructure September 26, 2013

3. This Morning’s Line Up • Craig Seymour – RKG Associates • John Walker – Deloitte • Anne Marie Dowd – MassDevelopment • Martine Combal – Walter Reed LRA • Jeffrey Donohoe - JDA

4. 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

5. Alternative Finance in Base Redevelopment John A. Walker – Deloitte Consulting LLP 26 Sept 2013

6. 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

7. 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)

8. Financing tools available to developers have included public and private capital • Federal and State Grants • Government Appropriations • Bonds and Private Debt • LRA Revenues

9. 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

10. 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

11. 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

12. Principal funding sources for redevelopment efforts Source: Frieden; Baxter. From Barracks to Business: The M.I.T. Report on Base Redevelopment. March 2000

13. 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

14. 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

15. 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

16. 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.

17. 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.

18. Leveraging Private Sector Expertise and Investment – Master Developer Martine Combal – Executive Director Walter Reed Army Medical Center LRA 26 Sept 2013

20. Department of State 43.53 acres DC/LRA 66.57 acres 110.1 Acres

22. 14+ acres of Open Space (21% of Site) • ~550,000 SF Reuse of Existing Buildings (18% of Program)

23. 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

24. Financing Tools for Base RedevelopmentInfrastructure Financing Programs -the Massachusetts Model Anne Marie Dowd - MassDevelopment 26 Sept 2013

25. 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.

26. 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

27. 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.

28. 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.

29. 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

30. 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.

31. 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.

32. “Traditional” Base Redevelopment Funding Sources – Back to the Basics Jeffrey Donohoe – Principal, Jeffrey Donohoe Associates 26 Sept 2013

33. 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

35. 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

36. 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

37. 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

38. Alternative Funding Methods Craig Seymour – RKG Associates, Inc. 26 Sept 2013

39. 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

40. 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

41. The Road to Success Is Paved with Gold – Financing and Developing Infrastructure Questions? September 26, 2013