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Navigating Financial Uncertainty: Strategies for Successful Urban Development

This insightful discussion, featuring Mark Ruff, Rick Collins, and Bob Streetar, delves into the complexities of urban development within the current financial landscape. Topics include modern challenges posed by capital market reactions, gap financing solutions, and the critical roles of municipalities and developers. The speakers stress the need for collaboration, adaptability, and strategic risk management to foster sustainable growth. They also address political feasibility and the practical steps local governments can take to ensure the viability of development projects amidst ongoing economic uncertainties.

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Navigating Financial Uncertainty: Strategies for Successful Urban Development

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Presentation Transcript

  1. Finding balance in financial uncertainty • Speakers • Mark Ruff, Senior Financial Advisor, Ehlers • Rick Collins, Vice President of Development, Ryan Companies • Bob Streetar, Community Development Director, City of Oakdale

  2. The Problem: Capital Market

  3. Reaction: Modern Life • In the former days of real estate boom and bust, cities would just wait • Modern elements of infrastructure complicate matters • Roads to build • Sewer and water treatment plans to pay for • Schools to fill • Higher expectations • Plain vanilla is not good enough

  4. Gap Financing: Nibble Around Edges • Less land required for ROW/fewer setbacks • Pay now for future ROW • Lower fees for park dedication • Defer fees including City WAC/SAC/STAC • Longer paybacks • Special assessments? • TIF New District • TIF Pooled from Older District

  5. Gap Financing: Higher Risk • Buy part of land or outlots and hold • Cities have patient money • Land bank for long term • Sites for public and private use

  6. Gap Financing: Serious Cash • G.O. Improvement Bonds • Only 20% of debt service from assessments • G.O. TIF Bonds • Only 20% of debt service from TIF • G.O. Abatement Bonds • Can finance public improvements

  7. Forethought • Agreement there is a problem • City attorney involvement • Special treatment • Findings • Focus on big need or key sites

  8. Goals • Quantify risk • Risk of doing nothing • Risk of development going elsewhere • Risk of homeowners losing confidence in City • Rating agency risk • 10% debt, 20% management, 40% economy

  9. Requirements • Good development partner • Financing thought about ahead of time • Subordination agreement: • Political implications of revisiting agreements • Bank view of special assessments • Provide some security

  10. Current Market • Market Vacancy too high to support New Construction • Financing (generally) not available for Speculative Development • Build-to-Suit Developments are being completed • Developers on the Sidelines • Preserving cash reserves • Selling land, not buying

  11. Banks Say They Are Willing to Make Loans, But… • Not on raw land (unless VERY LOW loan-to-value) • Property appraised values depressed due to weak sale market • Regulators forcing banks to “whip their loan portfolios into shape” • Developers have to “buy down” loans to achieve LTV guidelines • Result of lower LTV, lower appraised values:more developer equity required

  12. Developers have reduced Development Capacity Reduced people resources Reduced capital available for “pursuit” (pre-development) costs Focus on investing resources to create 2011 or 2012 returns/profits

  13. What is Important to Developers? • Acknowledge current market conditions • Don’t expect developers to fund City’s up-front costs • Certainty of outcomes (anticipating your Council’s actions/reactions) • Collaborative approach to: • Solving problems • Identifying and pursuing funding sources • Managing risks

  14. Oakdale MallSite Plan Flexibility

  15. Oakdale MallSite Plan Flexibility

  16. Oakdale MallSite Plan Flexibility

  17. DEVELOPMENT CHALLENGES • Reduced developer capacity • Difficulty in obtaining financing for land acquisition • Reduced demand for space DEVELOPMENT CHALLENGES

  18. OAKDALE SOLUTION • Paid for predevelopment costs • Financed the acquisition of the Mall • Participated in the risk should nothing happen DEVELOPMENT CHALLENGES

  19. TECHNICAL FEASIBILITY • (Is the City able?) • Financial resources • Legal authority (tools) • Outside grant resources • Special legislation • Staff capacity TECHNICAL FEASIBILITY ? DEVELOPMENT CHALLENGES

  20. BENEFIT – COSTS Increased tax base Added jobs Removal of blight Lower acquisition cost Lower financing cost Lower public construction cost V. Financial risk Political risk TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? DEVELOPMENT CHALLENGES

  21. POLITICAL FEASIBILITY (Is the Council Willing?) Passive v. Energetic Role TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? DEVELOPMENT CHALLENGES POLITICAL FEASIBILITY ?

  22. MOVING AHEAD Developers - dance with the one that brought you Councils – Be willing to consider change TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? DEVELOPMENT CHALLENGES POLITICAL FEASIBILITY ?

  23. Q&A

  24. Thank you!

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