Wall Street-backed Private Equity: Q4 2017 Meeting Wall Street-backed Private Equity: A Conversation on how Private Equity is Repurposing Surplus Property

David Kirshenbaum, Senior Vice President, Hilco Wall Street-backed Private Equity Discussion Discussion Guests Art Frye, President, Spaulding & Slye Investments, An Operating Division of Jones Lang LaSalle With over 25 years of experience with a background in asset managing, developing, designing and constructing complex real estate projects, Mr. Frye is responsible for Spaulding & Slye Investments’ investment and portfolio strategy and financial performance, while overseeing a national real estate portfolio currently consisting of over 3.5MSF of commercial real estate with a market value of approximately $1.7B USD. David Kirshenbaum, Senior Vice President, Hilco David joined Hilco in 2011 and has multiple senior-level responsibilities. As the leader of the Corporate Services Group, David leads HRE’s efforts related to the strategic real estate repositioning and disposition of our clients’ non-retail related property portfolios. David also focuses international transactions being executed by US companies and private equity firms in the context of consolidation/M&A activity.

Wall Street-backed Private Equity Discussion Discussion Premise As many of us are aware, over the past 20 years Wall Street has infrequently dabbled in the acquisition and repurposing of Brownfield property. Today, certain institutional capital is aggressively looking to acquire select, environmentally-impacted property in their pursuit of obtaining risk-based, double-digit returns (in the high 20s IRR) Our discussion today will focus on two areas of investment capital: acquisitions under $10M; and acquisitions over $20M; and how they differ when deployed by a Fund Manager vs. a Developer, e.g. acquisition criteria, risk profile and deal structure.

Wall Street-backed Private Equity Discussion Discussion Topics/Questions [ Art ] Tell us a little bit about Spaulding & Slye, and the funds you work with; and why is surplus property of interest to you as a fund manager? [ David ] David, as an owner/operator, and even as an abitur, you must have an interesting perspective on how to utilize institutional capital, as well as private equity…is there a typical ownership structure that Private Equity prefers vs. Institutional Capital? If so, what does each look like?

Wall Street-backed Private Equity Discussion Discussion Topics/Questions [ Both ] This is a 2-part question: (1) How comfortable are your capital sources in assuming environmental liabilities related to cleaning up a site? If so, how do you mitigate environmental risks? (2) will you take entitlement risk, meaning will you close on a site without reuse entitlements?   [ David ] What assurances can an SPE offer a seller, weather contractual or utilizing market-based financial instruments, i.e. cost cap insurance policy, to ensure that once you buy their property (1) it’s going to get cleaned-up; and (2) it’s not going to “come back” to them?

Wall Street-backed Private Equity Discussion Deal Structure Scenario Deal Structure Scenario: PE vs. Developer Owner received an unsolicited LOI for $6M on a underutilized site that is leased to a tenant; lease expires in 18mos Owner gets a BOV from a Broker estimating market-value of $10M; site has an estimated clean-up cost of $1.5M; Broker concurrently procures a $10M LOI from a corporation that wants the site for their new HQ Seller wants to pursue the path of least amount of work How does PE structure that deal? How does a developer? [ Both ] What is your “sweet spot?” Describe your ideal deal structure and acquisition scenario…