1. Developer Agreements & Evaluating Private Sector Financial Statements
December 3, 2010
Developer Agreements & Evaluating
Private Sector Financial Statements

2. Today’s Presentation Irgens Overview Framing the Issues
Developer Agreements
Evaluating Private Sector Financial Statements
Discussion

3. Irgens Overview
A Strategic Partner
Who We Are
Financial Capabilities

4. Irgens… A Strategic Partner
“ First and foremost, you have to understand the customer’s objectives and capabilities. And you have to know the customer well enough to guide and lead them to the best possible conclusion. Successful partnerships are formed when people feel comfortable and trust one another.”
- Mark F. Irgens
Manager/President

5. Who We Are A multi-faceted real estate development and services firm…
In business for more than 25 years
Offices in Milwaukee, Chicago and Phoenix
Staff of 65 highly-qualified professionals
Hundreds of successful projects totaling more than $3 billion in value
Current projects worth $250+ million
Manage and lease 4.3million SF of real estate
Committed to “green”

6. Financial Capabilities
Irgens is an operating company
Projects are owned through individual special purpose entities (LLCs)
Irgens performs as managing member
Ability to raise debt and equity
Long-term relationships with lenders and other funding sources
Oversee all financial details by experienced, internal asset managers
Create and maximize real estate value for clients

7. Framing the Issues
When is a Developer Agreement Necessary?
When is Financial Evaluation Necessary?
What are the Risks?

8. When is a Developer Agreement Necessary?
Developer is looking for something from the municipality
Land
Grant
Loan
Loan Guarantee
Land improvements
When you care about your career and reputation

9. When is a Financial Evaluation Necessary?
Developer is looking for something from the municipality
Land
Grant
Loan
Loan Guarantee
Land improvements
When you care about your career and reputation

10. What Are the Risks? Completion Runaway Budget Market Risk
Operational default
Failure to repay the loan
Failure to realize the necessary tax increment
Lender foreclosure
Fraud/misrepresentation
TIF debt gets put back to the municipality
Career Risk
Reputation Risk

11. Developer Agreements
Review Risks
Essentials
Nice to Have
When to Get it in Writing
Some Object Lessons
Resources

12. Developer Agreements - Essentials
The Parties to the deal
The real parties with the $$$$
Project description
Proof of blight
Statement of current value
Expected project benefits (value creation)
Municipality’s obligations (how much $$$, when to pay, etc.)
How developer gets paid
Time of performance

13. Developer Agreements - Essentials
Security for the deal
Guarantee
LLC
Parent Company
Personal
Insurance
Project upkeep
Bind successors and assigns

14. Developer Agreements – Nice to Have
Cash flow participation
Use restrictions
No assignment without permission
Non-precedent setting
Police powers not affected
Loss-sharing with lenders
Other special considerations (MBE participation, Resident’s preference, Living wage, Buy local, etc.)

15. When to Get it in Writing
Just met? No
Getting serious? No
Got a deal? Good time to get started
Lender’s commitments? YES

16. Some Object Lessons Remember the Golden Rule
Don’t kill the Golden Goose
Manage Risk – Don’t try to Eliminate it
Keep your eye on the objectives
Try hard
Be creative
Don’t be afraid to walk away if the deal is no good
Think in terms of Not Yet as opposed to No
Get it in Writing

17. Resources Your peers in other municipalities Consultants/Advisors
Get a penny’s worth of free advice
GFOA
Bond Lawyers
WAPA
International Economic Development Council [IEDC]
National Assn of Development Companies [NADCO]

18. Evaluating Financial Statements
Which Entity’s Financial Statements to Evaluate?
What to Look For
Danger Signs
Protections
Balancing Risks and Rewards
Resources

19. Which Entity’s Statements to Evaluate?
Developer risk shedding – the LLC
Not much initial value
The “parent” entity
Personal finances
Guarantor’s finances

20. What to Look for
Audited Balance sheet (Ideally for the previous three years)
CASH IS KING
Liquidity ratios
Debt outstanding
Total equity
A/R and A/P
Look at the notes
Track record of developer
Any failures?
Do they stand behind their deals?
Reputation in the marketplace

21. What to Look for
Audited Profit and Loss Statements (Ideally for the Last three years)
Profitability
Revenue growth
Expenditure growth in line with revenues?
Gross profits
Profits from operations versus sale of assets
Analysis
Ability to digest growth
Payment cycle
Revenue cycle

22. Danger Signs Low cash Current ratio < 1.25 Shrinking profitability
Owners taking $$$$ out of the company
“Borrowing” from one entity to fund another
Over-leveraging
Balance sheet unable to backstop “pessimistic” performance of the current deal

23. Protections Security Parent entity Personal guarantee
Know who you are dealing with
Track record
Get independent advice about the deal if you are unsure
Involve your fellow staff, CDA, Council, Board
Keep risk and potential rewards in balance

24. Balancing Risks and Rewards
Don’t kill the Golden Goose
Pioneers get the best deals
Always ask yourself “What’s in it for my city/village?”
Tax base
Employment
Quality of life
Other
Consider the impacts of the deal on the larger real estate market

25. Resources Your peers in other municipalities Consultants/Advisors
Get a penny’s worth of free advice
GFOA
Bond Lawyers
WICPA
Municipal Auditors
International Economic Development Council [IEDC]
National Assn of Development Companies [NADCO]

26. Optional Review
Development Agreement

27. Discussion