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

The Problem: Capital Market 2

3  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 Reaction: Modern Life

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 6

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 7

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 8

Forethought  Agreement there is a problem  City attorney involvement  Special treatment  Findings  Focus on big need or key sites 9

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 10

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 11

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

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

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

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

Oakdale Mall Site Plan Flexibility

DEVELOPME NT CHALLENGE S DEVELOPMENT CHALLENGES 1. Reduced developer capacity 2. Difficulty in obtaining financing for land acquisition 3. Reduced demand for space

DEVELOPME NT CHALLENGE S OAKDALE SOLUTION 1. Paid for predevelopment costs 2. Financed the acquisition of the Mall 3. Participated in the risk should nothing happen

DEVELOPME NT CHALLENGE S TECHNICAL FEASIBILITY ( Is the City able? ) 1. Financial resources 2. Legal authority ( tools ) 3. Outside grant resources 4. Special legislation 5. Staff capacity TECHNICAL FEASIBILITY ?

DEVELOPME NT CHALLENGE S 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 ?

DEVELOPME NT CHALLENGE S POLITICAL FEASIBILITY ( Is the Council Willing? ) Passive v. Energetic Role TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? POLITICAL FEASIBILITY ?

DEVELOPME NT CHALLENGE S MOVING AHEAD Developers - dance with the one that brought you Councils – Be willing to consider change TECHNICAL FEASIBILITY ? BENEFIT – COSTS ? POLITICAL FEASIBILITY ?

Q&A

Thank you!