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Special Assessments/Special Tax Bonds: Do These Bonds Need “Special Attention?”

Special Assessments/Special Tax Bonds: Do These Bonds Need “Special Attention?”. Real Estate Consultant’s Perspective — Avoiding Problems And Cleaning Up Problems William A. Bubniak, Senior Vice President NAI Farbman. 1. Avoiding Problems - Tale Of Two Cities: Dallas vs. Detroit Example.

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Special Assessments/Special Tax Bonds: Do These Bonds Need “Special Attention?”

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  1. Special Assessments/Special Tax Bonds: Do These Bonds Need “Special Attention?” Real Estate Consultant’s Perspective—Avoiding Problems And Cleaning Up Problems William A. Bubniak, Senior Vice President NAI Farbman 1

  2. Avoiding Problems - Tale Of Two Cities: Dallas vs. Detroit Example • Whatever Can Go Wrong Will Go Wrong • Minimizing Problems • Avoid The Herd Mentality On Development • New Area Where All Want To Build v. Starved In Fill Location? • Trying To Anticipate Problems Up Front • Exit Strategy If Problems Develop-Who Is The Next Buyer? • Periodic Inspections Are Critical • Is Construction Type Long Term ? • Does Developer Have “Skin In the Game”? • Are There Design Flaws/Visibility Flaws/Trying To Put Too Much On Site? • Are They Deviating From Seasoned NNN Lease Type On A Commercial Deal? • Any Pre-Leasing? Credit Strength Of Tenants? Is A Particular Tenant Growing Too Aggressively? • Analyze Trends/Growth Patterns - Dallas Problems: Over-Building, Which Eventually Corrects Itself - Detroit Problems: Fundamental Job / Population Loss 2

  3. Appraisals and Broker Opinions Of Value • Find A Specialist In The Property Type And Area You Are Working On • Consult With People “On The Streets” Not Just In The Ivory Towers • Don’t Rely On Replacement/Construction Cost Or Market Capitalization Rates To Support Value: Irrelevant When You Resell • When Comparing Values, Do They Have Same Assumptions And Are They Providing Same Type of Value (e.g. “As Is” Sale, Stabilized Sale) • View Other Sources Of Data Available But Know Limitations (e.g. For Office Deals: www.costar.com, www.realcapitalanalytics.com, www.blacksguide.com, Brokers Reports such as www.cbre.com or www.naiglobal.com) • Test Whether Assumptions Are Believable-Will Rents Really Always Grow 3% Year? • Did Valuation Test True Market Incentives—If Any—Being Offered (e.g. Free Rent, How Net Is Lease, Above Market Tenant Improvement Packages Or Broker Incentives to Lure Deals Beyond “Face” Rental Rates) • Favored Model Is “Argus” For Existing Multi Family And Commercial Valuations (www.argussoftware.com) • Test “Fall Back” Assumptions If Deal Gets In Trouble (Re-Run Deal At Discounted Rents, etc.) • Ask For Argus Or Other Spreadsheet Run So You Can Do “What If” Scenarios/Variations 3

  4. Help!—My Deal Is In Trouble—Cleaning Up Problems Good Receivers / Management Firms Can Create Value In Troubled Deals And Better Position Them For Sale Or Workout • Possibly Can Reduce Expenses, Increase Quality Of Services, Maintain Better Tenant Relationships-Helps Paint Better Picture For A Buyer And Increase “Going Forward” NOI • Institute Tax Appeal If Applicable • Generate Leasing Letters Of Intent To Pass To Buyers (Even If You Don’t Want To Spend Capital To Bring Tenants In) • Can Possibly Institute Simple Cosmetic Changes To Enhance Value • Can Assess Capital Issues To Minimize Re-Trades On Offers • Can Help Avoid Physical And Financial Waste At Site 4

  5. Why Bond Sales / Trades? No Need To Get Into Chain Of Title (Can Minimize Exposure To Capital Outlays, Title, Environmental Issues, etc) Avoid Potential Bad Press By Not Taking Title Sometimes These Buyers Move “Too Quickly” Which Is Good For Sellers Can Minimize Advances Due To Quicker Sales Real Estate Buyers Typically Scrutinize Deals More If Real Estate Has Limited Turnaround Potential Why Real Estate Sales? Tend To Get Greater Sales Proceeds Pool Of Buyers Is Larger May Give You Time To Do Soft Reposition-Capital Work, Lease Up Bond Buyers Need To Be Familiar With Process Of Finishing Foreclosure, Bankruptcy Law And Assuming Risk Of It (Hence, May Want A Large Discount) Selling Troubled Bond Financed Deals 5

  6. Conclusions On Bond Trades vs. Real Estate Sales • Look To See If Simple Things Can Be Done Under Either Sales Route Before Embarking On A Sale Of A Troubled Deal • Do a NPV Analysis On Holding Costs, Potential Gains From Repositioning, How Long Will It Take, How Likely Value Enhancement Is, Etc. To Decide (Use Argus Or Other Similar Multi- Year Modeling Programs To Do So) • In Between Variations May Exist-Real Estate Buyer Assumes Foreclosure Bid/Sale With Borrower’s Consent • Be Mindful Of Securities And Other Disclosure Issues • Real Estate Note Buyers Can Be Troubled Bond Buyers • Can Always Try To Sell Bonds First Then Try Real Estate Sale Route 6

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