WEBVTT

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>> Hello, everybody. So glad to
be

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with you today. For those of you
who have been with us on

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previous Fridays in September
and October, welcome back. If

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you will are joining us for the
first time,

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thank you. We are really excited
that you are here with us today.

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We are going to move through
some bowls, just to find out a
little

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bit more about our audience like
where you are

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from? What is your professional
background? And your years of
experience

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in this topic will help us as we
do future webinars on

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this topic. Here we are, we have
made it

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to webinar 3. the last webinar
in our series of the

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redevelopment Academy. Just a
little bit about why my office
is sponsoring

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these webinars, here at the PA
office of Brownfields and

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land revitalization we primarily
by grants to communities to

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help them assessed and cleanup
sites. We

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also provide clarification of
liability. In the

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land revitalization part of our
program we focus on how to help

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community's reuse properties
that were contaminated

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or perceived to be contaminated
or may even have contamination
left

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in place. We do that while
trying to help

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them achieve environmental
benefits,

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equitable development, and
economic benefits

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as well. For years we have been
working with community's to help

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them with this. We have a lot of
publications that are out. What

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you are seeing are some of the
recent ones. Also in the URL

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box to the right of your screen,
please take a look at these

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resources and use them. Let us
know if you have

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questions.

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>> We are on our third webinar.
Just

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as a reminder

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of what we wanted to share and
what we hope you will get out of

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it, we started in September
talking about how developers
receive and

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deal with contaminated sites
when planning redevelopment.
Last month

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we talked about the role of the
market. We talked about what to

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do when there is no market and
today we are going

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to talk about financing and
funding

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and how to factor those into the
financial bottom line. How do
you

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deal with a site when there are
developers involved and

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how does that affect the other
players involved? We are going
to be talking

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about all of those things.

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We held this series internally
and with our state and private
partners

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last year. We were able to
convert what we learned on that
experience

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to be able to offer this to our
wide audience and committee
members

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this year. We also have a
workshop coming up. You will
hear us mention

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this a few times. It is on
December 10. it is a

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half day. We are going to be
going through

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the workshop where you will be
able to apply the

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concepts through a real estate
scenario.

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You get to basically be the
developer and pitch project that
is to

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the site, owner, and local
government. We are going to

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be going through and having an
opportunity

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to answer questions. I invite
you all

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to use the Q&A box so that we
can have lots of great questions
for

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our presenters.

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Here is our slide for the
conference coming up really
soon,

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next month.

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Please note, I hope that you can
all join us on

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December 12.

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Now I am going to turn it over
to our instructors. They are
going

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to be introduced by Michael
Taylor from

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the nova, the redevelopment
consulting firm. They have done

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a lot of land revitalization
projects across the country,
dealing especially

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with Brownfield sites. Their
work with

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EPA has help communities to
identify feasible opportunities

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and work with them to move sites
into redevelopment. They bring a

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lot of expertise and that is why
we have them with us

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today. I am going to turn it
over to Mike to take it from
here.

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>> Thank you, Aimee. This is the
third and

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last webinar.

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Elaine Richerson helped us with
the last webinar. In this one
she

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was actually the original author
of this program.

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That comes from her experience
working with us in sites across

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the country, figuring out how to
get development to occur

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in first, second, and third and
fourth tier community's.

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She is going to open up a little
bit and show you how about

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uppers make the sites work.

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Tony Bialecki joined us a few
years ago. Tony had a long

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career in economic development,

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most of which was spent in the
city of New Haven. If you
haven't

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been in the last 5-10 years or
so it has really gone through

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a transformation to some degree
due to his efforts

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working downtown, the Brownfield
sites, all kinds of projects

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around the city.

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He is going to bring a lot of
experience to this, showing you

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how to get it done on tough
sites. I will come back and

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talk a little bit more. We have
some

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special guest for you guys
today.

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Two developers who are out there
getting

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it done. They are going to open
their secret toolbox for you and

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show you how they do it. Very
exciting stuff. We are in a

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great time in the market for
them to be talking to you. In
the

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second hour we will be hearing
from them. For now

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Elaine and Tony will be talking
to you about the

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fundamentals of real estate,
evaluating

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redevelopment potential. We have
a site that we are going to talk

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you through and then looking at
financial feasibility. With
that,

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Elaine.

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>> Thank you, Mike. Welcome to
everyone joining us today. The
goals for

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today are to help each of you
understand the basics of real

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estate finance. In doing so you
will have a better

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appreciation for how
environmental cleanup and
liability effects

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and costs. Hopefully this will
better prepare you for

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interaction and negotiations

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within the rules they
development community.

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We hope that through this
webinar and the topics we have
covered in

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earlier webinars you will
appreciate the positive

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opportunity that contaminated
properties present for economic
development

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and how redevelopment can spur
broader

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community revitalization.

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>> The route the course you will
hear a number of

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terms you may be familiar with.

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Some may also be new to you. I
often focus on three of

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them that are particularly
important to our discussion
today. Back of

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the envelope refers to a simple

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mathematical formula that
developers run in the early
stages of the projects

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to determine if a digital
development is feasible. This is
not a complex

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or comprehensive mental
analysis, but rather a quick

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calculation done to decide
whether or not to invest the
time and money

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to further evaluate the site.

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A sources and usage schedule is
a financial chart that

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shows the sources of funding
identified for the project and
the

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expected uses. This schedule is
especially important when
certain

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types of funding such as grants
come with restrictions on how
the

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funds can be used. Leverage

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is the use of borrowed money to
increase the return on
investment.

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Tony will explain how leverage
is used on a deal later on in
this

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webinar.

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>> There are few reasons why it
is

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important for you to understand
real estate finance. First, it
is

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helpful for you to understand
how developers

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make money so that you have
realistic expectations about
what can and

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cannot be accomplished in a
given

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market. This understanding will
help you recognize a good
proposal

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and when a developer might be
selling you a bill of goods.

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Understanding sources and uses
will help you write stronger

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grant applications and find more
grant opportunities that you may

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not have thought of previously.
We are also hopeful

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that this course will help you
leverage other projects your
communities

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and result in more effective
revitalization

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programs.

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>> Let's start by reviewing the
costs that developers incur
while

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completing a development. There
are

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property costs which include
much more than just a purchase
price.

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Developers must pay taxes and
utility bills and other

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holding costs during planning
and construction. For larger

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multiyear developments this
poses a risk that

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tax structures and other rates
estimated in the

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original Performa can change
during the

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construction process. For
Brownfield projects and our
mental conditions

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can affect the project Performa
in a number of

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ways. The hard cost of
remediation must be

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estimated upfront, that the cost
of unknown contamination,

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liability risk, and regulatory
delays that result in increased

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holding cost or loss of a tenant
are much harder for a developer

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to estimate. All of these costs
have the potential to derail a

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project. Developers expect to
invest significant dollars

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in site preparation,
construction,

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and even most on-site
infrastructure costs. However,
not all developments

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can absorb the cost of off-site
infrastructure improvement such

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as extending a water line, or
bringing in natural gas

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and power.

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All of these costs go into a

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project performer that
determines the financial

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feasibility of a project.

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Some key things that you should
look for when talking to a
developer

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about a project include how much
or in what way are they
personally

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investing and the project? Do
they

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have or are they counting on
specific deals with

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lenders, regulators, or other
stakeholders and order to get
the development

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on? How realistic are those
deals? How time critical is

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their development if there are
significant delays, will the

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development fail?

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Are there expectations that they
have put into their

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performer reasonable? That will
help you to evaluate whether or

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not a proposal you are looking
at is valuable.

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>> You may remember this line
from our

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first webinar, so I am not going
to go into a

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lot of detail. This is to remind
you that not all real estate
markets

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are the same. Because of that
project financing is different,

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depending on which market a
property is

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located in. First our markets in
large cities, they attract more

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lenders and investors, they
garner higher

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lease rates and sell rates and
result

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in higher valued development.
These projects can absorb more
environmental

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and infrastructure costs then
projects in

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other markets.

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Projects in second, third, and
fourth tier market such as
smaller

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cities and rural communities are
much more

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challenging. Lease and sells
rates are lower. Interest rates
may be

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higher because the projects are
riskier. These projects often
require

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public assistance to help cover
environmental infrastructure and

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other costs to make the project
viable.

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There are different forms of
financing used in each stage of
a real estate

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development. In the
predevelopment stage the
developer often puts up

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their own money to cover the
cost of planning,

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design, and even potentially
site acquisition. Grants and tax
credits

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may be used to cover due
diligence such as environmental
assessments

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and contributions such as market
studies can be provided by
economic

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development agencies.
Construction costs are typically
covered by a

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variety of loans both public and
bank finance.

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Public funding may be used to
cover infrastructure costs,
especially

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if off-site improvements are
necessary to meet capacity
needs. Grants

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and incentives can also be used
to cover

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environmental remediation and
other construction

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related tasks.

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Once construction is complete
developers tend to convert

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loans to permanent financing
mechanisms such

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as mortgages. Construction phase
loans come at a premium as there

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is no asset to guarantee the
loan.

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Moving to a long-term mortgage

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is much more cost-effective once
the development

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is built.

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Tax increment financing,
commonly referred to as

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a TIF is a method sometimes use
as

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a subsidy. While the structure
varies by the agreement with

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the community generally
financing is based upon and paid
for by the

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expected incremental increase in
property tax revenue once the
development

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is built. These are structured
over an extended amount

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of time.

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Long-term financing of
operations and management of the
property are

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typically paid for by tenant
rent.

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They can also be supported by

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economic development incentives
such as workforce tax credits
and

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other public financing. We have

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talked about the stages of
financing, now I

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want to spend a minute talking
about the sources.

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>> There are essentially three
sources: private-sector,
public-sector,

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and nonprofit. Private-sector
investors include traditional
lenders such

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as banks. It also includes
private-sector institutional

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lending such as insurance
companies, pension funds, and

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00:16:49.000 --> 00:16:55.000
publicly traded funding through
real estate trusts

280
00:16:55.000 --> 00:17:01.000
and commercial mortgage-backed
securities. Public-sector

281
00:17:01.000 --> 00:17:03.000
financing includes tax increment
financing

282
00:17:03.000 --> 00:17:09.000
which we just talked about as
well as economic development
incentives

283
00:17:09.000 --> 00:17:13.000
and public sector direct
investments such as public

284
00:17:13.000 --> 00:17:17.000
infrastructure improvements and
grants. Nonprofits are potential

285
00:17:17.000 --> 00:17:22.934
funding sources that are not
often talked about. Depending on
the property

286
00:17:22.934 --> 00:17:28.934
and redevelopment plan
foundations and nonprofit
institutions

287
00:17:28.934 --> 00:17:34.934
such as universities may very
well invest

288
00:17:34.934 --> 00:17:46.000
in redevelopment.

289
00:17:46.000 --> 00:17:48.000
In our last webinar we discussed
the three types of analysis used

290
00:17:48.000 --> 00:17:54.000
to predict the financial
feasibility of a project. If you
joined

291
00:17:54.000 --> 00:17:58.000
us, hopefully you remembered a
little bit about the
opportunities and

292
00:17:58.000 --> 00:18:03.000
constraints, the market and
usability analysis. Today we
would

293
00:18:03.000 --> 00:18:07.000
like to walk you through the
process of determining financial
feasibility

294
00:18:07.000 --> 00:18:14.000
by exploring the case of one
industrial site located in

295
00:18:14.000 --> 00:18:18.934
the Midwest. This property was
taken through tax foreclosure
and was

296
00:18:18.934 --> 00:18:20.934
under the ownership of the city.

297
00:18:20.934 --> 00:18:26.934
Fortunately the city had
performed a phase I and phase II
on the

298
00:18:26.934 --> 00:18:29.934
property and performed all
appropriate inquiry prior to

299
00:18:29.934 --> 00:18:33.934
taking ownership, ensuring that
the city was eligible for
additional

300
00:18:33.934 --> 00:18:35.934
public funding.

301
00:18:35.934 --> 00:18:41.000
>> The goal was to create a
shovel ready projects that could
be put

302
00:18:41.000 --> 00:18:47.000
out for the development market
through a request

303
00:18:47.000 --> 00:18:50.000
for proposal process, an order
to facilitate redevelopment.
Thereby

304
00:18:50.000 --> 00:18:59.000
creating jobs and increasing tax
revenue.

305
00:18:59.000 --> 00:19:00.000
The opportunities and
constraints analysis on the

306
00:19:00.000 --> 00:19:07.000
property show that this property
had a lot going for it. It was
265

307
00:19:07.000 --> 00:19:10.000
acres, which allow for
significant development. The

308
00:19:10.000 --> 00:19:15.000
access was excellent with real
service and good

309
00:19:15.000 --> 00:19:19.934
local roadways. The location was
good, it was close to a major
shipping

310
00:19:19.934 --> 00:19:22.934
port and three commercial
airports.

311
00:19:22.934 --> 00:19:25.934
The site was located in a
community reinvestment

312
00:19:25.934 --> 00:19:33.934
area that provide economic
development incentives including
job creation

313
00:19:33.934 --> 00:19:37.000
tax credits. At first look the
opportunity looked excellent.
The

314
00:19:37.000 --> 00:19:40.000
site was not without challenges.

315
00:19:40.000 --> 00:19:46.000
Of the 265 acres only 145

316
00:19:46.000 --> 00:19:52.000
for developable. It is still a
large site, but there were

317
00:19:52.000 --> 00:19:57.000
significant restrictions.

318
00:19:57.000 --> 00:20:01.000
The site was located in a
third-year market with limited
demand. A large

319
00:20:01.000 --> 00:20:07.000
site like this is a real
challenge to fill.

320
00:20:07.000 --> 00:20:12.000
>> The foundations from the
former manufacturing building
remained

321
00:20:12.000 --> 00:20:16.000
on site. While these did not
present an environmental
challenge we

322
00:20:16.000 --> 00:20:20.934
do permit engineering challenges
where developers would

323
00:20:20.934 --> 00:20:24.934
incur costs to remove or dispose
tons of concrete debris or need

324
00:20:24.934 --> 00:20:29.934
to design the redevelopment to
place building footings or
parking lots

325
00:20:29.934 --> 00:20:37.000
around the foundation.

326
00:20:37.000 --> 00:20:41.000
>> The most significant strain
was the lack of

327
00:20:41.000 --> 00:20:44.000
modern infrastructure. In order
to achieve the highest and best

328
00:20:44.000 --> 00:20:49.000
development scenario over 1.5
miles of new roadway,

329
00:20:49.000 --> 00:20:54.000
1 mile of sanitary sewer lines,
1 mile and a half of public

330
00:20:54.000 --> 00:21:00.000
water lines, and 2 miles of
storm water lines were needed

331
00:21:00.000 --> 00:21:07.000
throughout the interior of the
site. In addition the site

332
00:21:07.000 --> 00:21:09.000
was contaminated.

333
00:21:09.000 --> 00:21:14.000
>> The environmental conditions
were

334
00:21:14.000 --> 00:21:18.934
very manageable. Soils were
impacted with lead and arsenic,
which allow

335
00:21:18.934 --> 00:21:22.934
for the remediation and
redevelopment to

336
00:21:22.934 --> 00:21:28.934
be integrated. The remediation
plan called for impacted soils

337
00:21:28.934 --> 00:21:30.934
located within utility corridors
or encounter

338
00:21:30.934 --> 00:21:37.000
during redevelopment to be
either relocated on-site under
new roadways

339
00:21:37.000 --> 00:21:41.000
and parking lots or the
contaminated soils would be
excavated and disposed

340
00:21:41.000 --> 00:21:44.000
of off-site.

341
00:21:44.000 --> 00:21:47.000
Other impacted areas would be
capped, building foundations

342
00:21:47.000 --> 00:21:52.000
and roadways and managed under a
long-term soil

343
00:21:52.000 --> 00:21:56.000
management program. Deed
restrictions will be placed to

344
00:21:56.000 --> 00:22:05.000
ensure long-term control
remained in place.

345
00:22:05.000 --> 00:22:12.000
A market analysis looked at
population trends, demographic
labor

346
00:22:12.000 --> 00:22:14.000
statistics, industry clusters,
and commercial lease and

347
00:22:14.000 --> 00:22:18.000
sale rates. Hopefully those of
you who joined us for the
marketing

348
00:22:18.000 --> 00:22:21.934
webinar last month recognized
what goes into

349
00:22:21.934 --> 00:22:26.934
a market analysis. The analysis
found

350
00:22:26.934 --> 00:22:31.934
while the property is located in
an 13 or market, the

351
00:22:31.934 --> 00:22:35.934
overall market was doing well.
There was interest for certain
industrial

352
00:22:35.934 --> 00:22:40.000
and commercial usage. The
analysis also

353
00:22:40.000 --> 00:22:46.000
determine due to the size it was
best developed as a multiuser

354
00:22:46.000 --> 00:22:52.000
industrial park in a phased
approach to respond

355
00:22:52.000 --> 00:22:55.000
to demand.

356
00:22:55.000 --> 00:23:01.000
>> The market analysis
identified three types of

357
00:23:01.000 --> 00:23:05.000
industrial uses. However, as you
will see the financial
implications

358
00:23:05.000 --> 00:23:10.000
of these uses buried. A strong

359
00:23:10.000 --> 00:23:14.000
market for multitenant
warehouses existed. Single users

360
00:23:14.000 --> 00:23:19.934
in this market usually require
something in the range of

361
00:23:19.934 --> 00:23:23.934
50.000 ft.² and a multitenant
developments might be

362
00:23:23.934 --> 00:23:29.934
up to 500.000 ft.². The cost of
building

363
00:23:29.934 --> 00:23:39.000
these warehouse buildings
averaged 38-$42 a

364
00:23:39.000 --> 00:23:45.000
square foot. Lease rates were
about three dollars per

365
00:23:45.000 --> 00:23:51.000
square foot. Manufacturing
accounting for 17% of the states

366
00:23:51.000 --> 00:23:59.000
gross domestic product. Like the
warehouse

367
00:23:59.000 --> 00:24:04.000
market single users were looking
for something in the range of
50.000

368
00:24:04.000 --> 00:24:09.000
ft.² and a multitenant
industrial park could be as
large

369
00:24:09.000 --> 00:24:14.000
as 500.000 ft.². The lease rates

370
00:24:14.000 --> 00:24:18.000
were running a little higher at
about five dollars

371
00:24:18.000 --> 00:24:21.934
a square feet.

372
00:24:21.934 --> 00:24:25.934
>> Industrial flex space is a
little different. The market
show most

373
00:24:25.934 --> 00:24:34.934
of these are owner occupied,

374
00:24:34.934 --> 00:24:35.934
but there was a small demand for
rental space.

375
00:24:35.934 --> 00:24:39.000
These types of buildings are
typically used by building
trades, service

376
00:24:39.000 --> 00:24:44.000
contractors, and stronger --
smaller industrial users. You
might

377
00:24:44.000 --> 00:24:48.000
see plumbers, HVAC contractors
and landscapers using these
types

378
00:24:48.000 --> 00:24:53.000
of buildings. The single users
in this market wanted something
a little

379
00:24:53.000 --> 00:24:57.000
smaller, around 40.000 ft.².
Being

380
00:24:57.000 --> 00:25:00.000
able to fill 500.000 ft.² to
feel the site could be tough
with

381
00:25:00.000 --> 00:25:07.000
this type of building.
Construction cost were generally
at $40 a

382
00:25:07.000 --> 00:25:12.000
square foot, but also ran as
high as 80

383
00:25:12.000 --> 00:25:18.000
foot depending on the amenities
or specialty

384
00:25:18.000 --> 00:25:22.934
industrial fixtures that the
tenant required. Lease rates
were

385
00:25:22.934 --> 00:25:26.934
comparable to manufacturing in
that they ran

386
00:25:26.934 --> 00:25:34.934
about five dollars per square
foot.

387
00:25:34.934 --> 00:25:39.000
>> As I said earlier the city
wanted to provide the market
with a shovel

388
00:25:39.000 --> 00:25:43.000
ready, economically feasible
development opportunity. They
ran a back of

389
00:25:43.000 --> 00:25:46.000
the envelope spreadsheet. These
numbers

390
00:25:46.000 --> 00:25:49.000
represent an overview of what
the development would cost,
including

391
00:25:49.000 --> 00:25:54.000
remediation, infrastructure,
construction costs,

392
00:25:54.000 --> 00:25:59.000
soft costs such as design,
permitting, and legal work, and
carrying costs

393
00:25:59.000 --> 00:26:06.000
such as taxes and interest on
construction loans. The back of

394
00:26:06.000 --> 00:26:10.000
the envelope also projects the
value of the

395
00:26:10.000 --> 00:26:12.000
project at completion based upon
the projected operating income.

396
00:26:12.000 --> 00:26:17.000
That is where those rates play
an important role. Looking at

397
00:26:17.000 --> 00:26:24.000
these numbers, the potential
profit was about

398
00:26:24.000 --> 00:26:29.000
$75.000 and a $30 million
investment on the part of this
developer. The

399
00:26:29.000 --> 00:26:36.000
question here was why would a
developer possibly move forward

400
00:26:36.000 --> 00:26:39.000
on this site and how could he be
done? That is where Tony is
going

401
00:26:39.000 --> 00:26:44.000
to take over to walk you through
that.

402
00:26:44.000 --> 00:26:49.000
>> Thank you, Elaine. This is an
illustration

403
00:26:49.000 --> 00:26:55.000
of real estate deals involving
Brownfields. Looking at

404
00:26:55.000 --> 00:27:00.000
this pyramid it is
representative of

405
00:27:00.000 --> 00:27:05.000
potential deals. The deal falls
into the top of the pyramid and

406
00:27:05.000 --> 00:27:09.000
means the value of the proposed
development exceeds remediation

407
00:27:09.000 --> 00:27:10.000
costs and other development
costs.

408
00:27:10.000 --> 00:27:16.000
If project land in the middle
the project is considered
marginal and

409
00:27:16.000 --> 00:27:21.934
a go or no go depends on

410
00:27:21.934 --> 00:27:26.934
several factors.

411
00:27:26.934 --> 00:27:30.934
Wilbanks another lenders have a
level of comfort? If the numbers

412
00:27:30.934 --> 00:27:34.934
fall in the bottom and the
project is considered

413
00:27:34.934 --> 00:27:39.000
upside down. That will not work
unless

414
00:27:39.000 --> 00:27:41.000
something changes. It should be
noted that the pyramid is sort
of

415
00:27:41.000 --> 00:27:46.000
representative of Brownfield of
element out in the market.

416
00:27:46.000 --> 00:27:52.000
That is most propose projects
are on the lower

417
00:27:52.000 --> 00:27:56.000
level or upside down. If you are
at the top because of the cost,

418
00:27:56.000 --> 00:28:01.000
the time, and risk.

419
00:28:01.000 --> 00:28:06.000
If the deal is upside down what
can

420
00:28:06.000 --> 00:28:12.000
you do? One way is to try to
offset project expenses

421
00:28:12.000 --> 00:28:16.000
by using available public
financing tools. It could be
grants,

422
00:28:16.000 --> 00:28:24.934
low-interest loans, tax
incentives like what Elaine

423
00:28:24.934 --> 00:28:27.934
mentioned.

424
00:28:27.934 --> 00:28:33.934
Other public sector involvement
could include government uses

425
00:28:33.934 --> 00:28:39.000
like libraries, public works
facilities as part of

426
00:28:39.000 --> 00:28:43.000
the development. They contribute
infrastructure light roadways
and

427
00:28:43.000 --> 00:28:45.000
sewers to the development.

428
00:28:45.000 --> 00:28:49.000
Untraditional developers include
Brownfield developers who know
how

429
00:28:49.000 --> 00:28:54.000
to assessed the contamination
and they walk

430
00:28:54.000 --> 00:28:57.000
through the regulatory process.

431
00:28:57.000 --> 00:29:01.000
It is something a lot of
developers avoid because they

432
00:29:01.000 --> 00:29:05.000
don't want to take the risk.
There is also a group

433
00:29:05.000 --> 00:29:14.000
of developers who specialize and
demolition and salvaging

434
00:29:14.000 --> 00:29:30.000
medal structures

435
00:29:30.000 --> 00:29:40.000
>> Developers in certain markets
see the

436
00:29:40.000 --> 00:29:45.000
value increasing. It will tie up
the property until they are

437
00:29:45.000 --> 00:29:50.000
able to recruit tenants. The
back of

438
00:29:50.000 --> 00:29:55.000
the envelope at this point is
similar to the earlier

439
00:29:55.000 --> 00:30:01.000
one that of a showed except the
developer has

440
00:30:01.000 --> 00:30:07.000
identified a $500.000 EPA grants
and a $1.9 million

441
00:30:07.000 --> 00:30:11.000
state contribution to cover
infrastructure. That thereby

442
00:30:11.000 --> 00:30:17.000
lower seat of -- lowers the

443
00:30:17.000 --> 00:30:21.934
total cost resulting and a
potential

444
00:30:21.934 --> 00:30:27.934
profit. At this point the
developer makes a

445
00:30:27.934 --> 00:30:33.934
choice whether to go to the next
step.

446
00:30:33.934 --> 00:30:40.000
The next step

447
00:30:40.000 --> 00:30:43.000
involves Performa.

448
00:30:43.000 --> 00:30:46.000
It is usually a spreadsheet that
provides

449
00:30:46.000 --> 00:30:54.000
a clear representation of future
costs and income and calculates

450
00:30:54.000 --> 00:30:59.000
projected returns. The pending
on the size and nature
performance

451
00:30:59.000 --> 00:31:06.000
can be relatively simple or

452
00:31:06.000 --> 00:31:15.000
sophisticated software looking
at all aspects of the
financials.

453
00:31:15.000 --> 00:31:18.934
bangs, investors and public
partners will want to see

454
00:31:18.934 --> 00:31:27.934
that level of detail.

455
00:31:27.934 --> 00:31:33.934
>> One of the first steps is a
breakdown of sources

456
00:31:33.934 --> 00:31:39.000
and uses of funds. Using the
case study introduced earlier
the use

457
00:31:39.000 --> 00:31:55.000
of column identifies the major
categories of project costs.

458
00:31:55.000 --> 00:32:06.000
in this

459
00:32:06.000 --> 00:32:09.000
case there is no site
acquisition costs. The city owns

460
00:32:09.000 --> 00:32:15.000
the land and is contributing to
land in hopes of resulting

461
00:32:15.000 --> 00:32:18.934
in jobs and taxes. In the other
side are the

462
00:32:18.934 --> 00:32:27.934
sources of funds. In this
project that includes a $500.000

463
00:32:27.934 --> 00:32:32.934
EPA grant a first

464
00:32:32.934 --> 00:32:42.000
construction loan and a second
private mortgage loan in
significant

465
00:32:42.000 --> 00:32:43.000
developer equity.

466
00:32:43.000 --> 00:32:52.000
At this stage everyone wants to
see that the sources and uses

467
00:32:52.000 --> 00:32:55.000
balance out.

468
00:32:55.000 --> 00:33:01.000
>> This slide illustrates the
overall

469
00:33:01.000 --> 00:33:04.000
path at different stages. It
links back

470
00:33:04.000 --> 00:33:14.000
to two earlier slides that were
presented.

471
00:33:14.000 --> 00:33:18.000
in this case a site is
contaminated and requires
cleanup as part of

472
00:33:18.000 --> 00:33:23.934
the overall development. The
developer has a

473
00:33:23.934 --> 00:33:29.934
30 day option.

474
00:33:29.934 --> 00:33:33.934
During this time a lot of people
are

475
00:33:33.934 --> 00:33:38.000
very busy conducting
environmental assessments,
reviewing documents,

476
00:33:38.000 --> 00:33:44.000
seeking initial entitlements in
planning

477
00:33:44.000 --> 00:33:46.000
and zoning.

478
00:33:46.000 --> 00:33:52.000
Community support and
identifying lenders to sign on
to

479
00:33:52.000 --> 00:33:53.000
the project.

480
00:33:53.000 --> 00:33:54.000
In this case a developer sees
conventional financing, but they
were denied

481
00:33:54.000 --> 00:34:00.000
because the banks are concerned
about

482
00:34:00.000 --> 00:34:06.000
the risk.

483
00:34:06.000 --> 00:34:11.000
The source of these funds are
very expensive, given the risk
involved

484
00:34:11.000 --> 00:34:19.934
with cleanup and often involve
more the developers money as

485
00:34:19.934 --> 00:34:22.934
equity also. In this case they
have purchased the site, they
undertake

486
00:34:22.934 --> 00:34:28.934
cleanup and begin down a path to
seek

487
00:34:28.934 --> 00:34:32.934
tenants in an effort to convince
those in

488
00:34:32.934 --> 00:34:39.000
conventional financing there is
now less

489
00:34:39.000 --> 00:34:45.000
risk involved, allowing the deal
to

490
00:34:45.000 --> 00:34:51.000
be restructured.

491
00:34:51.000 --> 00:34:56.000
Developer equity and debt cannot
be reduced. In this

492
00:34:56.000 --> 00:34:58.000
case the project was eventually
sold and

493
00:34:58.000 --> 00:35:09.000
a major Wall Street firm
purchases the property.

494
00:35:09.000 --> 00:35:15.000
>> The turn -- term Rate

495
00:35:15.000 --> 00:35:20.934
is used daily

496
00:35:20.934 --> 00:35:26.934
and published throughout the
country. The

497
00:35:26.934 --> 00:35:30.934
quote capitalization rates is
the annual rate of return on
real estate

498
00:35:30.934 --> 00:35:37.000
based on the income the property
is expected

499
00:35:37.000 --> 00:35:40.000
to generate. This rate is used
to estimate the value of a
project

500
00:35:40.000 --> 00:35:46.000
when completed based upon

501
00:35:46.000 --> 00:35:53.000
expected income. To determine
the value you take the net

502
00:35:53.000 --> 00:36:00.000
operating income you divided by
chosen rate.

503
00:36:00.000 --> 00:36:06.000
There are significant
differences in the value of a
project

504
00:36:06.000 --> 00:36:07.000
using different Rates.

505
00:36:07.000 --> 00:36:13.000
In real estate and less than 5%
cap rate often reflects a lower

506
00:36:13.000 --> 00:36:19.000
risk profile where the higher
Rate of greater

507
00:36:19.000 --> 00:36:28.000
than 7% is considered a riskier
investment. The

508
00:36:28.000 --> 00:36:33.000
role of leverage. Developers and
investors

509
00:36:33.000 --> 00:36:37.000
use several financial tools to
determine if a project will be
worth it to

510
00:36:37.000 --> 00:36:42.000
them to invest their money and
make a good return on that
money. One

511
00:36:42.000 --> 00:36:48.000
of these is the role of leverage
and that is using

512
00:36:48.000 --> 00:36:57.000
borrowed capital to increase the
return on investment.

513
00:36:57.000 --> 00:37:05.000
But in in its

514
00:37:05.000 --> 00:37:09.000
simplest form the more money a
developer can borrow at a low
rate means they

515
00:37:09.000 --> 00:37:14.000
use less of their own funds and
at a rate that is

516
00:37:14.000 --> 00:37:26.934
advantageous to the developer
and the project.

517
00:37:26.934 --> 00:37:32.934
>> Going back to the Midwest
industrial study, this is

518
00:37:32.934 --> 00:37:41.000
a Performa. Here is what we
presented earlier the Performa
on

519
00:37:41.000 --> 00:37:47.000
this is simplified. It shows the
information

520
00:37:47.000 --> 00:37:53.000
and assumptions made to

521
00:37:53.000 --> 00:37:58.000
calculate returns. On the
left-hand side you find the cost

522
00:37:58.000 --> 00:38:07.000
listed for a variety of factors.

523
00:38:07.000 --> 00:38:13.000
Hard costs, soft costs, and the

524
00:38:13.000 --> 00:38:18.934
carrying costs. Those of the
expenses on the property over

525
00:38:18.934 --> 00:38:23.934
the course of ownership. In this
case it is

526
00:38:23.934 --> 00:38:39.000
spread out over 36 months.

527
00:38:39.000 --> 00:38:45.000
In this case it totals almost

528
00:38:45.000 --> 00:38:51.000
$30.4 million.

529
00:38:51.000 --> 00:38:57.000
Together it totals almost

530
00:38:57.000 --> 00:39:02.000
2.4 million. That reduces the
total development cost of the

531
00:39:02.000 --> 00:39:05.000
developer to just about 28
million.

532
00:39:05.000 --> 00:39:10.000
On the right-hand side we
identify the income from

533
00:39:10.000 --> 00:39:17.000
the leasing-the vacancy factor,
resulting in a net operating
income

534
00:39:17.000 --> 00:39:33.000
of about $2.5 million.

535
00:39:33.000 --> 00:39:43.000
Finally to determine what the
profit is you subtract the total

536
00:39:43.000 --> 00:39:48.000
development cost from the
project value, resulting

537
00:39:48.000 --> 00:40:04.000
in approximately $2.5 million or
11.3% profit.

538
00:40:04.000 --> 00:40:07.000
>> The community role in
redevelopment finance, as we
have

539
00:40:07.000 --> 00:40:10.000
seen there are times when the
financing of

540
00:40:10.000 --> 00:40:13.000
a Brownfield development project
was underwater and even the most

541
00:40:13.000 --> 00:40:17.000
well-intentioned developer
cannot make the

542
00:40:17.000 --> 00:40:20.934
numbers work without some time
of involvement by

543
00:40:20.934 --> 00:40:26.934
community partners. It could be
the

544
00:40:26.934 --> 00:40:30.934
EPA, development Corporation or
municipalities.

545
00:40:30.934 --> 00:40:34.934
As many of you know there are
numerous public financing tools
out there.

546
00:40:34.934 --> 00:40:37.000
Some at the federal level. Most
states have

547
00:40:37.000 --> 00:40:43.000
funding for economic development
rather

548
00:40:43.000 --> 00:40:49.000
it be tax implement financing,
opportunity zones, and most

549
00:40:49.000 --> 00:40:55.000
minutes a pallet he have tax
incentives or provide
infrastructure

550
00:40:55.000 --> 00:41:00.000
investment to a deal that they
feel is valuable to

551
00:41:00.000 --> 00:41:04.000
the community. Understanding if
a deal makes

552
00:41:04.000 --> 00:41:09.000
financial sense to a developer
is really important for
community partners

553
00:41:09.000 --> 00:41:14.000
as they also often have to
convince their

554
00:41:14.000 --> 00:41:18.000
own state and local legislative
agencies community participate
should

555
00:41:18.000 --> 00:41:24.934
if necessary and reasonable.
Also important is

556
00:41:24.934 --> 00:41:28.934
the need to educate the public.
Hopefully it results in

557
00:41:28.934 --> 00:41:34.934
new jobs, taxes, and improve the
health of

558
00:41:34.934 --> 00:41:38.000
the community.

559
00:41:38.000 --> 00:41:48.000
Any questions?

560
00:41:48.000 --> 00:41:54.000
>> We definitely got some
questions. Tanks to everyone

561
00:41:54.000 --> 00:41:59.000
who has been offering up
questions.

562
00:41:59.000 --> 00:42:06.000
Elaine, I want to start with
going back to the sources of
financing

563
00:42:06.000 --> 00:42:08.000
slide.

564
00:42:08.000 --> 00:42:14.000
You broke down what private and
public sector investments

565
00:42:14.000 --> 00:42:18.000
look like and what local
institution investment

566
00:42:18.000 --> 00:42:20.934
looks like, can you tell us a
little bit about where a
developer tends

567
00:42:20.934 --> 00:42:27.934
to look 1st for funding? What
sources tend to

568
00:42:27.934 --> 00:42:30.934
be preferred?

569
00:42:30.934 --> 00:42:37.000
>> It is a good question and
depends on the

570
00:42:37.000 --> 00:42:43.000
types of products.

571
00:42:43.000 --> 00:42:46.000
For starters on a fairly easy
and

572
00:42:46.000 --> 00:42:52.000
conventional redevelopment you
will go to

573
00:42:52.000 --> 00:42:57.000
conventional sources because
they are

574
00:42:57.000 --> 00:42:59.000
the least cost in most cases and
the least number of
restrictions.

575
00:42:59.000 --> 00:43:05.000
All when you get into a more
competent a Brownfield your

576
00:43:05.000 --> 00:43:09.000
traditional banks may not want
to get involved because

577
00:43:09.000 --> 00:43:15.000
the risk is something you do not
understand. You have to go

578
00:43:15.000 --> 00:43:20.934
out to other sources of lenders,
including private and

579
00:43:20.934 --> 00:43:25.934
equity investors, they are all
much higher

580
00:43:25.934 --> 00:43:29.934
interest rates, but they have
the money and they are willing
to take

581
00:43:29.934 --> 00:43:33.934
the risk. You will hear a little
bit

582
00:43:33.934 --> 00:43:43.000
about the cost this comes with
when it comes to these

583
00:43:43.000 --> 00:43:46.000
big projects.

584
00:43:46.000 --> 00:43:50.000
Brownfield projects and larger
ones that have a lot of
infastructure

585
00:43:50.000 --> 00:43:56.000
costs is where you tend to go to
more public, finance support

586
00:43:56.000 --> 00:44:02.000
and other creative means.

587
00:44:02.000 --> 00:44:08.000
>> Thank you. The next question,
Tony, you

588
00:44:08.000 --> 00:44:14.000
talked about what happens within
the 30

589
00:44:14.000 --> 00:44:17.000
day option to purchase, can you
share with us

590
00:44:17.000 --> 00:44:19.934
what is the developer doing
during that time?

591
00:44:19.934 --> 00:44:25.934
I think you said 30 days tended
to be a short amount of time?

592
00:44:25.934 --> 00:44:29.934
>> Sure. It really depends on
the project and the

593
00:44:29.934 --> 00:44:34.934
nature of the project. Certainly
the size and the complexity.
Particularly

594
00:44:34.934 --> 00:44:41.000
with round field, 30 days is not
a

595
00:44:41.000 --> 00:44:50.000
long time. Often times
developers will either

596
00:44:50.000 --> 00:44:57.000
put out an RFP like in a lanes
example.

597
00:44:57.000 --> 00:44:58.000
If a site is interested in
attracting people and they have
done a lot

598
00:44:58.000 --> 00:45:04.000
of due diligence, a lot of that
is

599
00:45:04.000 --> 00:45:07.000
done and it can be a short
timeframe.

600
00:45:07.000 --> 00:45:16.000
If that work is it done,

601
00:45:16.000 --> 00:45:18.000
let's say phase I and phase II
have

602
00:45:18.000 --> 00:45:18.934
not been done. Even if phase I
was done but phase II and phase
3 were

603
00:45:18.934 --> 00:45:23.934
sort of hanging out, that is the
time during which a developer is

604
00:45:23.934 --> 00:45:32.934
going to have to go out and hire
environmental

605
00:45:32.934 --> 00:45:39.000
consultants. Please -- do
testing and further assessment.

606
00:45:39.000 --> 00:45:43.000
30 days is not a long time.
Sometimes it goes to a purchase
and sales

607
00:45:43.000 --> 00:45:49.000
agreement after an initial
option. When you

608
00:45:49.000 --> 00:45:56.000
go beyond the initial option
you've gotten into

609
00:45:56.000 --> 00:46:02.000
a situation where there may
still be issues

610
00:46:02.000 --> 00:46:08.000
hanging out. You have gone
through most and you have sort
of come

611
00:46:08.000 --> 00:46:10.000
to terms on a price, you've come
to terms

612
00:46:10.000 --> 00:46:13.000
on what type of cleanup is
involved.

613
00:46:13.000 --> 00:46:16.000
Again, the sources and uses are
the sources of where that

614
00:46:16.000 --> 00:46:23.000
money is coming from. Is it
coming from the developer? Are

615
00:46:23.000 --> 00:46:29.000
there investors? Is there going
to be some combination? The

616
00:46:29.000 --> 00:46:37.000
30 day is a short timeframe, but
rather it be

617
00:46:37.000 --> 00:46:41.000
60-90-180 days there is still a
lot of legwork

618
00:46:41.000 --> 00:46:44.000
going on.

619
00:46:44.000 --> 00:46:48.000
>> Thank you. We have a couple
questions in about the

620
00:46:48.000 --> 00:46:54.000
Cap rate. Who figures out the
Cap

621
00:46:54.000 --> 00:47:00.000
rate? What is like a load Cap
rate versus a high Cap

622
00:47:00.000 --> 00:47:09.000
rate?

623
00:47:09.000 --> 00:47:15.000
>> Tony, do you want to take
that?

624
00:47:15.000 --> 00:47:18.934
>> Sure. The question is always
what the good Cap

625
00:47:18.934 --> 00:47:26.934
rate? What you're really asking
is what is a good return for

626
00:47:26.934 --> 00:47:30.934
this investment? There is no
universal Cap rate to sort of

627
00:47:30.934 --> 00:47:39.000
target. It depends on a lot of
different factors. An impact the

628
00:47:39.000 --> 00:47:45.000
difference of Cap rate between
properties as well as how one

629
00:47:45.000 --> 00:47:48.000
defines good. Good is a term
used to describe a favorable

630
00:47:48.000 --> 00:47:55.000
investment that one might choose
to make. In determining a good
Cap

631
00:47:55.000 --> 00:48:04.000
rate there are a couple factors
that are important and one is

632
00:48:04.000 --> 00:48:10.000
risk profile. This often goes
with location. It goes

633
00:48:10.000 --> 00:48:18.000
back to what Elaine talked about
earlier. You can

634
00:48:18.000 --> 00:48:22.934
expect lower Cap rate in San
Francisco because there is
probably less risk

635
00:48:22.934 --> 00:48:27.934
in San Francisco real estate. It
is tricky, but you

636
00:48:27.934 --> 00:48:31.934
have more risk

637
00:48:31.934 --> 00:48:35.934
in some of those fourth tier or
13 markets. I don't want to
mention

638
00:48:35.934 --> 00:48:41.000
any cities, but certain cities

639
00:48:41.000 --> 00:48:47.000
would be considered riskier.
With the risk you get a higher
Cap

640
00:48:47.000 --> 00:48:52.000
rate. When you get a lower Cap
rate you have less risk.

641
00:48:52.000 --> 00:48:58.000
Time is another factor with Cap
rate.

642
00:48:58.000 --> 00:49:07.000
It can change over time. It
changes with the local or

643
00:49:07.000 --> 00:49:13.000
national economy. They have to
take into consideration the

644
00:49:13.000 --> 00:49:18.000
asset type. We're talking
multifamily, office,
distribution

645
00:49:18.000 --> 00:49:26.934
centers or hotels. Multi family

646
00:49:26.934 --> 00:49:31.934
for the most part can have lower
Cap rate. Things that

647
00:49:31.934 --> 00:49:38.000
are riskier tells can have a
higher Cap

648
00:49:38.000 --> 00:49:43.000
rate. In leasing situations a
lot has to

649
00:49:43.000 --> 00:49:49.000
do with the strength of the
lease. Solid, single

650
00:49:49.000 --> 00:49:54.000
tenant leases let's say to an
Amazon firm for 10 years with

651
00:49:54.000 --> 00:50:00.000
options to renew would generally
be a lower Cap rate.

652
00:50:00.000 --> 00:50:06.000
Whereas, if you had an office
building or industrial sort

653
00:50:06.000 --> 00:50:11.000
of part with 10 smaller tenants
who have varying

654
00:50:11.000 --> 00:50:17.000
degrees of credit and

655
00:50:17.000 --> 00:50:21.934
varying degrees of time on their
leases, you would probably

656
00:50:21.934 --> 00:50:24.934
have to look at a higher Cap
rate.

657
00:50:24.934 --> 00:50:27.934
>> Tony, that is really helpful.

658
00:50:27.934 --> 00:50:33.934
Who is the actual entity that
figures out what the Cap rate
will

659
00:50:33.934 --> 00:50:34.934
be?

660
00:50:34.934 --> 00:50:38.000
Is it the developer? The bank?

661
00:50:38.000 --> 00:50:43.000
The lender?

662
00:50:43.000 --> 00:50:47.000
>> Our two developers have
probably done and look at these

663
00:50:47.000 --> 00:50:53.000
a lot. For the most part you

664
00:50:53.000 --> 00:50:59.000
can go on any of the larger

665
00:50:59.000 --> 00:51:04.000
real estate firms across the
country

666
00:51:04.000 --> 00:51:10.000
and they sort of publish and
track the Cap

667
00:51:10.000 --> 00:51:15.000
rate through all of these
different assets and different

668
00:51:15.000 --> 00:51:20.934
geographic locations. There is
no one person. There is

669
00:51:20.934 --> 00:51:26.934
no national or federal agency.
There are

670
00:51:26.934 --> 00:51:31.934
some agencies, but they
generally tend

671
00:51:31.934 --> 00:51:40.000
to be more regional and sort

672
00:51:40.000 --> 00:51:46.000
of industrywide. A lot of
historical tracking. In other
words let's

673
00:51:46.000 --> 00:51:51.000
say pick a state or San
Francisco

674
00:51:51.000 --> 00:51:57.000
for instance years ago and look
at the last

675
00:51:57.000 --> 00:52:01.000
10 years. You are sort of
tracking that. Someone is

676
00:52:01.000 --> 00:52:10.000
tracking that. A really large
real estate firm. You tend to
use

677
00:52:10.000 --> 00:52:13.000
those sources.

678
00:52:13.000 --> 00:52:17.000
>> I have two more quick
questions and a couple more

679
00:52:17.000 --> 00:52:20.934
came in, but I want to save them

680
00:52:20.934 --> 00:52:21.934
for after our developer speaks.

681
00:52:21.934 --> 00:52:28.934
The two questions that I will
ask our presenters

682
00:52:28.934 --> 00:52:34.934
to address: will cleanup and
remediation cost

683
00:52:34.934 --> 00:52:39.000
increase excessively? Is that
covered by a grant? How is that
dealt with?

684
00:52:39.000 --> 00:52:44.000
>> I will start by saying
typically you don't have time in
the middle

685
00:52:44.000 --> 00:52:47.000
of the project one cost are
increasing.

686
00:52:47.000 --> 00:52:53.000
It is often when you have
committed and you are in the
work that you

687
00:52:53.000 --> 00:52:55.000
find out it has increased
because you have

688
00:52:55.000 --> 00:53:00.000
found more materials than
expected, you have found
contamination you

689
00:53:00.000 --> 00:53:04.000
didn't know about or perhaps
there have

690
00:53:04.000 --> 00:53:12.000
been so many delays it is
costing you more in order to
cover those

691
00:53:12.000 --> 00:53:18.934
were mediations.

692
00:53:18.934 --> 00:53:19.934
That is not the time to be
filing grant applications.
Usually that

693
00:53:19.934 --> 00:53:25.934
is covered by the investors. It
is covered by them

694
00:53:25.934 --> 00:53:27.934
going back, the owners
themselves and putting in more
of

695
00:53:27.934 --> 00:53:31.934
their own personal equity and
going back and

696
00:53:31.934 --> 00:53:37.000
either getting additional
financing from the marketplace
or

697
00:53:37.000 --> 00:53:43.000
additional investors. It can
also come off of their

698
00:53:43.000 --> 00:53:46.000
bottom line. That is why it

699
00:53:46.000 --> 00:53:47.000
is risky.

700
00:53:47.000 --> 00:53:54.000
>> One last question before we
move on. It is about the

701
00:53:54.000 --> 00:54:00.000
performer itself: is the rate
per square foot the rate over an

702
00:54:00.000 --> 00:54:08.000
entire year or what is the unit
there?

703
00:54:08.000 --> 00:54:12.000
>> Tony, do you want to explain
that?

704
00:54:12.000 --> 00:54:17.000
>> Sure. In this case it is the
cost per square

705
00:54:17.000 --> 00:54:22.934
foot for how it translates.

706
00:54:22.934 --> 00:54:28.934
In the example we use with a
lanes project you can see

707
00:54:28.934 --> 00:54:34.934
it was actually phases. In other
words

708
00:54:34.934 --> 00:54:37.000
they were going to take an
existing building, renovated,
put

709
00:54:37.000 --> 00:54:43.000
up a new warehouse and that was
the

710
00:54:43.000 --> 00:54:44.000
first phase.

711
00:54:44.000 --> 00:54:46.000
It goes on to a second and
third.

712
00:54:46.000 --> 00:54:52.000
What you are looking at in the
Performa that was

713
00:54:52.000 --> 00:54:57.000
shown is per square foot for
$4.15 times

714
00:54:57.000 --> 00:55:06.000
the size of the building gives
you the number. It is the amount

715
00:55:06.000 --> 00:55:14.000
of money per square foot on an

716
00:55:14.000 --> 00:55:17.000
annual basis.

717
00:55:17.000 --> 00:55:20.934
>> Thank you, Tony. Thanks,
everyone for

718
00:55:20.934 --> 00:55:24.934
your questions. A couple more we
have to we will save. Send your

719
00:55:24.934 --> 00:55:29.934
questions in and will have more
time at

720
00:55:29.934 --> 00:55:32.934
the end.

721
00:55:32.934 --> 00:55:37.000
>> Great, thank you Aimee.
Before we introduce our two
developers

722
00:55:37.000 --> 00:55:42.000
I want to remind everybody about
two things going on. Everything

723
00:55:42.000 --> 00:55:48.000
at the Brownfields conference
will be

724
00:55:48.000 --> 00:55:52.000
great, but two things we want to
note. The workshop we are doing

725
00:55:52.000 --> 00:55:56.000
on the 10th, you will get the
opportunity to act

726
00:55:56.000 --> 00:56:02.000
as a developer, work in a team
and attempt to purchase

727
00:56:02.000 --> 00:56:05.000
a very large, complex
Brownfield. You

728
00:56:05.000 --> 00:56:08.000
will get to work through the
issues.

729
00:56:08.000 --> 00:56:13.000
We will work with you. The last
time we did it

730
00:56:13.000 --> 00:56:19.000
in California we had a bidding
war.

731
00:56:19.000 --> 00:56:21.000
It was a lot of fun. We will
have equity investors

732
00:56:21.000 --> 00:56:22.000
in the room and you guys will be
spending more money than you
will

733
00:56:22.000 --> 00:56:28.000
probably make, but if you get
the deal you can retire. It

734
00:56:28.000 --> 00:56:31.000
is going to be a lot of fun,
12-4 on the

735
00:56:31.000 --> 00:56:40.000
10th. You do have to sign up
ahead of time because materials
will

736
00:56:40.000 --> 00:56:44.000
be provided. Check it out. The
other thing I want to

737
00:56:44.000 --> 00:56:50.000
mention is one of the developers
that I will be introducing will

738
00:56:50.000 --> 00:56:56.000
be speaking at this breakfast,
hosted

739
00:56:56.000 --> 00:57:00.000
by CCLR Wednesday morning. Amy
will say

740
00:57:00.000 --> 00:57:06.000
a few words

741
00:57:06.000 --> 00:57:10.000
either Chad or Jeb will say a
few words. It is a great
opportunity

742
00:57:10.000 --> 00:57:14.000
to see what is going on. We are
going to focus on the

743
00:57:14.000 --> 00:57:21.934
development world and how to get
deals done. You do have to sign

744
00:57:21.934 --> 00:57:24.934
it, but it is free.

745
00:57:24.934 --> 00:57:31.934
See CLR -- CCLR

746
00:57:31.934 --> 00:57:34.934
will be feeding us breakfast
that morning. Without further
ado I would

747
00:57:34.934 --> 00:57:39.000
like to introduce our first
speaker, Chad Meyer is the
president of

748
00:57:39.000 --> 00:57:42.000
Northpoint development.
Northpoint is one of

749
00:57:42.000 --> 00:57:48.000
the fastest-growing industrial
developers in

750
00:57:48.000 --> 00:57:54.000
the country. They on all kinds
of stuff. I think they

751
00:57:54.000 --> 00:58:00.000
are going to top $500 million
this year, super aggressive take

752
00:58:00.000 --> 00:58:05.000
on all kinds of Brownfields.
What is great that

753
00:58:05.000 --> 00:58:10.000
I see is they continue to own
their property. They do not

754
00:58:10.000 --> 00:58:14.000
purchase, build and flip. If
there are

755
00:58:14.000 --> 00:58:19.934
environmental issues it is
always good to have the same
owner that

756
00:58:19.934 --> 00:58:35.934
is going to deal with them.

757
00:58:35.934 --> 00:58:50.000
>> We are headquartered in St.
Louis.

758
00:58:50.000 --> 00:58:56.000
We have offices in several other
locations.

759
00:58:56.000 --> 00:59:02.000
As Mike said, we purchase

760
00:59:02.000 --> 00:59:07.000
anywhere from 3030

761
00:59:07.000 --> 00:59:13.000
500 acres of land per year to
feed our

762
00:59:13.000 --> 00:59:16.000
industrial platform.

763
00:59:16.000 --> 00:59:19.934
On the vertical side that
equates to we built roughly
14.000.000

764
00:59:19.934 --> 00:59:35.934
ft.² of industrial and
manufacturing space.

765
00:59:35.934 --> 00:59:44.000
If it were up to us we would
absolutely

766
00:59:44.000 --> 00:59:48.000
and positively go to the next
interchange and purchase a

767
00:59:48.000 --> 00:59:54.000
nice soybean field that has
never had anything on it and be
off to

768
00:59:54.000 --> 01:00:00.000
the races. The reality is all of
the easy sites are gone. We are

769
01:00:00.000 --> 01:00:03.000
in the 10th year of a strong and
dust real boom that

770
01:00:03.000 --> 01:00:07.000
doesn't look to slow down in the
next 18-24

771
01:00:07.000 --> 01:00:10.000
months. What that has forced us
to do, and we enjoyed it, it
hasn't

772
01:00:10.000 --> 01:00:16.000
been a fight. But to go and look
at

773
01:00:16.000 --> 01:00:21.934
more grittier former
manufacturing-former military
base, former chemical plant

774
01:00:21.934 --> 01:00:25.934
sites for a couple reasons. The
big

775
01:00:25.934 --> 01:00:28.934
push is the infastructure is
there.

776
01:00:28.934 --> 01:00:32.934
Typically you go into a
municipality with a large

777
01:00:32.934 --> 01:00:37.000
Brownfield presence. The city
looked at a blighted area or
areas where

778
01:00:37.000 --> 01:00:41.000
a community has concern about
groundwater contamination and
things

779
01:00:41.000 --> 01:00:45.000
like that. If you can offer a
means to clean these things up
and put

780
01:00:45.000 --> 01:00:50.000
people back to work than the
cities are typically pretty
happy to see

781
01:00:50.000 --> 01:00:53.000
it. The other thing that has
really shifted

782
01:00:53.000 --> 01:00:58.000
in the industrial market, we use
that to drive our decisions but

783
01:00:58.000 --> 01:01:02.000
labor is kind of the name of the
game. Amazon is the one that
really

784
01:01:02.000 --> 01:01:07.000
opened our eyes. We are chasing

785
01:01:07.000 --> 01:01:08.000
a big project in the Cleveland
area.

786
01:01:08.000 --> 01:01:13.000
Without we had the perfect site
and the perfect logistics. We
thought

787
01:01:13.000 --> 01:01:16.000
we had the males and they scored
out on

788
01:01:16.000 --> 01:01:19.934
a side 11 miles away the didn't
make any sense to us. When they

789
01:01:19.934 --> 01:01:24.934
finally set was taxes were
lower. We could've started

790
01:01:24.934 --> 01:01:28.934
construction easier. Access to
the interstate was better, but
when

791
01:01:28.934 --> 01:01:32.934
you look at a 25 mile drive time
there were not enough employees

792
01:01:32.934 --> 01:01:38.000
in the immediate area to staff
and

793
01:01:38.000 --> 01:01:42.000
maintain operations. HR says if
they are not enough employees we

794
01:01:42.000 --> 01:01:46.000
are not building $100 million

795
01:01:46.000 --> 01:01:50.000
building that will have to run a
60-70% capacity. We will go to

796
01:01:50.000 --> 01:01:54.000
a lesser location from a
logistical aspect, but we have

797
01:01:54.000 --> 01:01:59.000
to be able to prove weekend and
for

798
01:01:59.000 --> 01:02:04.000
this place. A warehouse has a
higher attrition rate.

799
01:02:04.000 --> 01:02:09.000
It is really where that
demographic is. As we all know a
lot of

800
01:02:09.000 --> 01:02:15.000
that more affordable 60-$110.000
housing stock

801
01:02:15.000 --> 01:02:18.934
is basically the stuff that was
built after World War II through

802
01:02:18.934 --> 01:02:20.934
the Vietnam era. It builds up
around

803
01:02:20.934 --> 01:02:26.934
a lot of the big manufacturing
bases and those are more of the

804
01:02:26.934 --> 01:02:30.934
blue-collar warehouse type
worker housing stock

805
01:02:30.934 --> 01:02:37.000
that we need to support the
operations. It is replacing

806
01:02:37.000 --> 01:02:43.000
the shopping malls as a way that
people purchase. Every time a
shopping

807
01:02:43.000 --> 01:02:48.000
mall dies a warehouse gets its
wings, which we really love. The

808
01:02:48.000 --> 01:02:54.000
reality is an Amazon warehouse
that employs 2400 people, there
are

809
01:02:54.000 --> 01:02:59.000
still jobs and in a lot of
places that is a greater
employment place

810
01:02:59.000 --> 01:03:01.000
than a shopping mall or former
manufacturing

811
01:03:01.000 --> 01:03:05.000
mall ever employed. He will are
starting to

812
01:03:05.000 --> 01:03:11.000
realize e-commerce or
fulfillment centers and

813
01:03:11.000 --> 01:03:14.000
manufacturing centers are
actually good and what
communities need.

814
01:03:14.000 --> 01:03:17.000
>> That is why we have been
hyperfocus on finding larger

815
01:03:17.000 --> 01:03:25.934
redevelopment opportunities,
which typically involve some

816
01:03:25.934 --> 01:03:33.934
environmental contamination.

817
01:03:33.934 --> 01:03:39.000
I wanted to highlight a project
and talk about what helped from

818
01:03:39.000 --> 01:03:42.000
a regulatory and municipal

819
01:03:42.000 --> 01:03:48.000
standpoint. The project that we
are looking at now was a

820
01:03:48.000 --> 01:03:54.000
former mall that has
manufacturing around it. The
mall

821
01:03:54.000 --> 01:04:02.000
was built in the 70s, it its
heyday in

822
01:04:02.000 --> 01:04:11.000
the mid-80s. They have several
large anchor retailers.

823
01:04:11.000 --> 01:04:15.000
Over time shopping patterns
changed. Like

824
01:04:15.000 --> 01:04:18.934
a lot of malls the mall just
sort of started

825
01:04:18.934 --> 01:04:23.934
to dwindle. At the end of the
day this thing was being used as
an

826
01:04:23.934 --> 01:04:29.934
Hispanic bazaar and a haunted
house. Not exactly what

827
01:04:29.934 --> 01:04:30.934
the city of Arlington, Texas,
wanted.

828
01:04:30.934 --> 01:04:35.934
We came in and were able to
acquire the mall and redevelop
it with a

829
01:04:35.934 --> 01:04:40.000
new warehouse and General Motors
and that up leasing

830
01:04:40.000 --> 01:04:44.000
both warehouses from us. The
main reason was it

831
01:04:44.000 --> 01:04:47.000
was close to their plans, but
also if you look at

832
01:04:47.000 --> 01:04:53.000
the demographics within about a
20 mile radius

833
01:04:53.000 --> 01:04:56.000
they said they could show up
with 1400 employees they want,

834
01:04:56.000 --> 01:05:02.000
wrapping up to 3000 and there
was enough blue collar

835
01:05:02.000 --> 01:05:09.000
bases around to employ the
facility with a 300%

836
01:05:09.000 --> 01:05:15.000
attrition rate.

837
01:05:15.000 --> 01:05:20.934
From a helpfulness standpoint

838
01:05:20.934 --> 01:05:27.934
we did have to get state
agencies as well as the city

839
01:05:27.934 --> 01:05:29.934
on board.

840
01:05:29.934 --> 01:05:32.934
The mall had a special place in
the heart of a lot of the
locals.

841
01:05:32.934 --> 01:05:40.000
They had also realized this
thing was kind of on its last
leg is not

842
01:05:40.000 --> 01:05:43.000
already dead. They finally got
on board and realize
manufacturing

843
01:05:43.000 --> 01:05:47.000
at a distribution center will be
better than watching this thing

844
01:05:47.000 --> 01:05:53.000
continue to deteriorate. There
were some environmental
contaminations

845
01:05:53.000 --> 01:05:58.000
involved with this. Fortunately
when you're bringing new jobs
and

846
01:05:58.000 --> 01:05:59.000
new investments everyone is on
board.

847
01:05:59.000 --> 01:06:04.000
The biggest thing that we were
able to do is get the state and

848
01:06:04.000 --> 01:06:08.000
local municipality to lock arms
with us and allow a lot of that

849
01:06:08.000 --> 01:06:13.000
redevelopment to occur. The most
important thing

850
01:06:13.000 --> 01:06:18.067
for us is that we were able to
do a side-by-side testing
program

851
01:06:18.067 --> 01:06:24.000
through demolition, to kind of
be able

852
01:06:24.000 --> 01:06:30.000
to continue building the play
midflight. We handle

853
01:06:30.000 --> 01:06:35.000
the cleanup as part of the
construction process and we
didn't

854
01:06:35.000 --> 01:06:40.000
have to wait for months of due
testing, work up a store
management

855
01:06:40.000 --> 01:06:44.000
plan and then wait

856
01:06:44.000 --> 01:06:48.000
for demolition, go back and
clean everything up.

857
01:06:48.000 --> 01:06:51.000
In this case the regulatory
agencies were super helpful in
the fact that

858
01:06:51.000 --> 01:06:56.000
we set a laundry list of things,
if you encounter this, this is

859
01:06:56.000 --> 01:07:02.000
the remediation. We were able to
keep 100%

860
01:07:02.000 --> 01:07:07.000
of the material on site, treated
on site.

861
01:07:07.000 --> 01:07:11.000
We did that through having
ongoing, full-time testing.
Since we had

862
01:07:11.000 --> 01:07:14.000
a prescribed soil management
plan we were able to

863
01:07:14.000 --> 01:07:21.934
take care of things as they
popped up.

864
01:07:21.934 --> 01:07:25.934
>> I think this

865
01:07:25.934 --> 01:07:30.934
is a great example of a failed
shopping mall. Our total
investment was $160

866
01:07:30.934 --> 01:07:32.934
million. It is more than a cost
to build the

867
01:07:32.934 --> 01:07:38.000
mall. The beautiful thing about
the

868
01:07:38.000 --> 01:07:42.000
mall is it was 100 acres, it was
flat, and had a lot of
electricity,

869
01:07:42.000 --> 01:07:44.000
store and water. A lot of that
infastructure was able to

870
01:07:44.000 --> 01:07:49.000
be reused without the city
having to pony up and put in

871
01:07:49.000 --> 01:07:58.000
new infrastructure. At full tilt
this thing will

872
01:07:58.000 --> 01:08:00.000
have between 3000 full-time
employees. It was really a
win-win.

873
01:08:00.000 --> 01:08:04.000
The other beautiful thing about
e-commerce and manufacturing is

874
01:08:04.000 --> 01:08:10.000
what the city is able to enjoy
is income taxes as well as ad

875
01:08:10.000 --> 01:08:13.000
valorem taxes plus personal
property taxes.

876
01:08:13.000 --> 01:08:18.000
Obviously we love it when we get
big abatements. The thing

877
01:08:18.000 --> 01:08:21.934
that the cities have really seen
is a lot of these facilities

878
01:08:21.934 --> 01:08:27.934
and manufacturers love seeing
this type

879
01:08:27.934 --> 01:08:31.934
come in.

880
01:08:31.934 --> 01:08:37.000
Also, a lot of these companies
will offer work programs for
high

881
01:08:37.000 --> 01:08:42.000
school students who are not
going on to college or secondary
education

882
01:08:42.000 --> 01:08:47.000
to work afternoon shifts and
weekend shifts and get their CTL

883
01:08:47.000 --> 01:08:56.000
or forklift training or things
like that.

884
01:08:56.000 --> 01:09:03.000
The cities have said once their
citizens or

885
01:09:03.000 --> 01:09:10.000
their constituents see higher
employment rates they actually
witness

886
01:09:10.000 --> 01:09:16.000
drops in human welfare calls to
the fire and police. Instead

887
01:09:16.000 --> 01:09:21.934
of thinking you need a ride to
the hospital to get a check out,

888
01:09:21.934 --> 01:09:25.934
these people are at work. They
have benefits, they have jobs.
An addition

889
01:09:25.934 --> 01:09:32.934
to the incremental tax revenue
the burden on the local police
and

890
01:09:32.934 --> 01:09:34.934
hospital systems have actually
dropped.

891
01:09:34.934 --> 01:09:42.000
It is really a win when we can
find these sites and put them
back into

892
01:09:42.000 --> 01:09:45.000
productive use.

893
01:09:45.000 --> 01:09:49.000
>> As we mentioned labor is the
name of the game. We

894
01:09:49.000 --> 01:09:54.000
looked at a former Navy weapons
and aviation

895
01:09:54.000 --> 01:09:58.000
manufacturing campus in the
heart of Dallas. They

896
01:09:58.000 --> 01:10:04.000
were doing all of the good stuff
from firing the

897
01:10:04.000 --> 01:10:10.000
pleated uranium into a burn for

898
01:10:10.000 --> 01:10:18.934
a while. They also had on-site
treatment. A lot of

899
01:10:18.934 --> 01:10:23.934
that treatment also meant when
you're done with the chemicals
them into

900
01:10:23.934 --> 01:10:29.934
this hole and the ground. They
just kind of go away on their
own. That

901
01:10:29.934 --> 01:10:34.934
was done through the 40s and
50s. The cleanup was pretty

902
01:10:34.934 --> 01:10:39.000
extensive. Again, this is an
area at its peak when the
military was

903
01:10:39.000 --> 01:10:43.000
making the B-1 bombers, the fire
jets, even parts

904
01:10:43.000 --> 01:10:49.000
of the space shuttle there were

905
01:10:49.000 --> 01:10:52.000
23.000 people.

906
01:10:52.000 --> 01:10:58.000
Over time a lot of the
production and the need

907
01:10:58.000 --> 01:11:01.000
for military aircraft dwindled
and this place

908
01:11:01.000 --> 01:11:06.000
basically shut down. The reason
we were

909
01:11:06.000 --> 01:11:10.000
so interested in taking on this
environmental site

910
01:11:10.000 --> 01:11:14.000
was that it was basically 400
acres in the heart of dollars
that you

911
01:11:14.000 --> 01:11:19.934
could not necessarily find
anywhere else. The image on

912
01:11:19.934 --> 01:11:24.934
the right is a heat map of the
labor demographics strictly from

913
01:11:24.934 --> 01:11:27.934
the perspective of an e-commerce
or warehousing or

914
01:11:27.934 --> 01:11:31.934
manufacturing employee. The way
that we were able to find those

915
01:11:31.934 --> 01:11:38.000
is the U.S. Census data has
tapestries that basically give

916
01:11:38.000 --> 01:11:45.000
the wage types and the
employment code for the type of

917
01:11:45.000 --> 01:11:49.000
workers that would include
forklift drivers, CDL or
commercial

918
01:11:49.000 --> 01:11:55.000
truck drivers, pick and pack
operators, general warehouse

919
01:11:55.000 --> 01:11:59.000
workers as well as office
managers and shipping and

920
01:11:59.000 --> 01:12:05.000
receiving managers. You take all
of those

921
01:12:05.000 --> 01:12:11.000
employment profiles and we can
actually map where those people

922
01:12:11.000 --> 01:12:17.000
live. This is basically like a
storm app. The darker red means

923
01:12:17.000 --> 01:12:20.934
the greater density of that
employment profile or

924
01:12:20.934 --> 01:12:26.934
employee profile. If you look at
where

925
01:12:26.934 --> 01:12:27.934
this is it is the dot in the
middle of the

926
01:12:27.934 --> 01:12:33.934
map. Within 7 miles we had
thousands of

927
01:12:33.934 --> 01:12:35.934
available workforce. A lot of
them are driving over 25 minutes
away

928
01:12:35.934 --> 01:12:42.000
from where they lived to find
jobs in manufacturing plants

929
01:12:42.000 --> 01:12:48.000
and warehouses. This will make
the hockey buzzer go off for us.
It

930
01:12:48.000 --> 01:12:51.000
was a big site with good scale.

931
01:12:51.000 --> 01:12:53.000
There was existing water,
existing sewer,

932
01:12:53.000 --> 01:12:59.000
heavy power that was available
because we have to support the
manufacturing

933
01:12:59.000 --> 01:13:03.000
of the aircraft in its heyday
virtually being unused

934
01:13:03.000 --> 01:13:08.000
by the city of Dallas. The
really

935
01:13:08.000 --> 01:13:12.000
attractive part was despite the
environmental hurdles it

936
01:13:12.000 --> 01:13:17.000
was surrounded by the
blue-collar worker profile that
we

937
01:13:17.000 --> 01:13:20.934
look for. If you are a new
company hoping to make a major
investment

938
01:13:20.934 --> 01:13:24.934
having the ability to have a
50.000 employee

939
01:13:24.934 --> 01:13:28.934
recruiting base within 10 miles
of your new facility is a
wonderful

940
01:13:28.934 --> 01:13:35.934
thing, especially any type
unemployment market. This is

941
01:13:35.934 --> 01:13:40.000
one where the state was aware.
They knew that it was a problem.
Dallas

942
01:13:40.000 --> 01:13:45.000
was screaming to get anything
done. The environmental

943
01:13:45.000 --> 01:13:47.000
scared away the previous
developers.

944
01:13:47.000 --> 01:13:53.000
This really involved getting
with the state of Texas, getting

945
01:13:53.000 --> 01:14:02.000
with the city, the county, and
with the EPA because

946
01:14:02.000 --> 01:14:03.000
there was federal level
contamination at some point

947
01:14:03.000 --> 01:14:05.000
when this thing was transition.

948
01:14:05.000 --> 01:14:07.000
We basically said okay, the
beauty part of what we do is we
are going

949
01:14:07.000 --> 01:14:12.000
to come in. We know what we are
going

950
01:14:12.000 --> 01:14:14.000
to build. We're going to cover
the whole site with engineered
controls

951
01:14:14.000 --> 01:14:19.934
that are going to happen to look
like big,

952
01:14:19.934 --> 01:14:22.934
concrete warehouses.

953
01:14:22.934 --> 01:14:25.934
We can control where the storm
runoff goes. We can't attain

954
01:14:25.934 --> 01:14:30.934
the runoff. We will also be able
to test before this stuff is
dumped

955
01:14:30.934 --> 01:14:34.934
into Mountain Creek Lake, a lake
to the Southwest that

956
01:14:34.934 --> 01:14:41.000
had been contaminated. There

957
01:14:41.000 --> 01:14:46.000
was ongoing dredging. A lot of
issues.

958
01:14:46.000 --> 01:14:47.000
This is one where the fact that
we knew we were coming in with a

959
01:14:47.000 --> 01:14:53.000
massive industrial developments
in the form of the concrete

960
01:14:53.000 --> 01:14:56.133
warehouses and truck courts that
we

961
01:14:56.133 --> 01:14:59.300
the restricted the entire
property.

962
01:14:59.300 --> 01:15:09.000
We got the state to allow us to
a sickly do a prescribed soil
management

963
01:15:09.000 --> 01:15:17.000
plan where we kind of had a
shopping list.

964
01:15:17.000 --> 01:15:24.934
>> we had a kind of prescribed
and

965
01:15:24.934 --> 01:15:28.934
ended up paying a testing agency
to have to -3 full-time testing

966
01:15:28.934 --> 01:15:32.934
agents out there. As we found
soil or discoloration

967
01:15:32.934 --> 01:15:40.000
we would do rapid lab testing,
get it tested,

968
01:15:40.000 --> 01:15:45.000
identify it, documented.
Document the cleanup. On a 400

969
01:15:45.000 --> 01:15:49.000
acre site at the end of the day
I think we only hauled about 160

970
01:15:49.000 --> 01:15:55.000
yards off site. The rest of it
were able to treat

971
01:15:55.000 --> 01:15:58.000
with lime or mix in with other
suitable soil, put it underneath

972
01:15:58.000 --> 01:16:04.000
the parking lot, It with rock.
For the

973
01:16:04.000 --> 01:16:08.000
most part nine of it ever left
the site. The punch line on the

974
01:16:08.000 --> 01:16:12.000
whole story is we ended up
tearing down to a

975
01:16:12.000 --> 01:16:18.067
half million square feet of old,
nasty, chemical filled pipes. We

976
01:16:18.067 --> 01:16:21.000
were able to get this place and
often 22.000

977
01:16:21.000 --> 01:16:26.000
full-time employees to basically
three security guards that were

978
01:16:26.000 --> 01:16:34.000
drunk most of the time.

979
01:16:34.000 --> 01:16:36.000
It basically had zero employment
base, the tax base had whittled

980
01:16:36.000 --> 01:16:41.000
away and it was becoming a hot
spot for crime. We ended up
tearing

981
01:16:41.000 --> 01:16:43.000
everything down. Home Depot
signed a 20 year lease with us
and open

982
01:16:43.000 --> 01:16:48.000
the first half of the facility
about a month ago. At

983
01:16:48.000 --> 01:16:52.000
full tilt they are going to have
about 1500 full-time employees

984
01:16:52.000 --> 01:16:59.000
with benefits. We are working on
another tenant.

985
01:16:59.000 --> 01:17:01.000
Home Depot basically located
here because of the existing
infastructure

986
01:17:01.000 --> 01:17:05.000
that was so important. They said
the single deciding factor was
the

987
01:17:05.000 --> 01:17:09.000
fact that they had the flu,
labor force that surrounded

988
01:17:09.000 --> 01:17:12.000
his former manufacturing
facility.

989
01:17:12.000 --> 01:17:16.000
At the end of the day since we
are going to own the building
long-term

990
01:17:16.000 --> 01:17:20.934
Home Depot was not afraid of the
environmental and

991
01:17:20.934 --> 01:17:25.934
ongoing monitoring. They are
simply leasing the building

992
01:17:25.934 --> 01:17:31.934
from us. We were able to place a
policy on the facility as a

993
01:17:31.934 --> 01:17:37.000
named insurer and they were
comfortable enough and sign a
long-term lease.

994
01:17:37.000 --> 01:17:42.000
A great success story. It really
involves

995
01:17:42.000 --> 01:17:48.000
coming with a redevelopment
plan, reincorporated a
remediation

996
01:17:48.000 --> 01:17:49.000
plan into the demolition and
construction.

997
01:17:49.000 --> 01:17:54.000
It could not have been done
without the city and all

998
01:17:54.000 --> 01:17:57.000
the other regulatory agencies
really stepping up to see the
end game.

999
01:17:57.000 --> 01:18:01.000
Not to point out everything that
was wrong with the site, but
what

1000
01:18:01.000 --> 01:18:07.000
we could do and say what
could've been a year-long
process

1001
01:18:07.000 --> 01:18:08.000
and truncate it into a couple of
months to start

1002
01:18:08.000 --> 01:18:10.000
construction.

1003
01:18:10.000 --> 01:18:16.000
>> That is great. Maybe next
year will have you back and you
can

1004
01:18:16.000 --> 01:18:20.934
talk about Houston, Northern
California and the other sites
you are working

1005
01:18:20.934 --> 01:18:29.934
on. Great stuff. I would like to
move on to our

1006
01:18:29.934 --> 01:18:31.934
second developer.

1007
01:18:31.934 --> 01:18:38.000
If you think about the
development world Northpoint
might be the largest

1008
01:18:38.000 --> 01:18:43.000
industrial developer out there.

1009
01:18:43.000 --> 01:18:52.000
These guys, this is the company
right here.

1010
01:18:52.000 --> 01:18:54.000
Great guys who have done a lot
of complex stuff will talk

1011
01:18:54.000 --> 01:18:59.000
to you about a site in New
Jersey that they

1012
01:18:59.000 --> 01:19:03.000
just finished. I will say Mike
is going to be one of our equity
investors

1013
01:19:03.000 --> 01:19:08.000
at the workshop. You will get to
meet

1014
01:19:08.000 --> 01:19:13.000
him if you come out. Steve, take
it away. You

1015
01:19:13.000 --> 01:19:18.934
have about 20+ minutes to get
through your project.

1016
01:19:18.934 --> 01:19:23.934
>> Thank you, Mike. That
afternoon, everyone.

1017
01:19:23.934 --> 01:19:28.934
Catalyst is really two
employees, Mike McMullen and

1018
01:19:28.934 --> 01:19:34.934
myself went out on our own
little over five years ago,
based in

1019
01:19:34.934 --> 01:19:44.000
the tri-state area and
California.

1020
01:19:44.000 --> 01:19:45.000
All of our projects seem to
always revolve

1021
01:19:45.000 --> 01:19:49.000
around New Jersey. That is where
we have been focus. It worked
its

1022
01:19:49.000 --> 01:19:51.000
way out there. The New Jersey
market

1023
01:19:51.000 --> 01:19:57.000
for the Brownfield has been a
very good market in the last

1024
01:19:57.000 --> 01:19:59.000
five years. We have done about
two and half million

1025
01:19:59.000 --> 01:20:05.000
square feet and just literally
finished all three projects in
the last

1026
01:20:05.000 --> 01:20:11.000
three or four months. One is for
the project

1027
01:20:11.000 --> 01:20:16.000
you are going to see for

1028
01:20:16.000 --> 01:20:19.934
1.000.300 ft.², and million 100
ft.² on another, and about

1029
01:20:19.934 --> 01:20:25.934
150.000 on another. It is all to

1030
01:20:25.934 --> 01:20:34.934
be industrial.

1031
01:20:34.934 --> 01:20:39.000
Based on our conversations we
know we have created $3.3
million

1032
01:20:39.000 --> 01:20:47.000
in new annual taxes. All of them
were underperformers with
literally

1033
01:20:47.000 --> 01:20:51.000
nothing going on at all. We have
created about 1500

1034
01:20:51.000 --> 01:20:54.000
jobs on the different projects.

1035
01:20:54.000 --> 01:21:01.000
One in Florence, New Jersey.

1036
01:21:01.000 --> 01:21:07.000
The former still plant that you
are looking at on

1037
01:21:07.000 --> 01:21:12.000
the screen, our focus had been
on very good real estate in

1038
01:21:12.000 --> 01:21:18.000
there and shake with very

1039
01:21:18.000 --> 01:21:23.934
good markets. When we saw this
property it was

1040
01:21:23.934 --> 01:21:25.934
92 acres in a great job market.
A lot of

1041
01:21:25.934 --> 01:21:31.934
employee based here, convenient
to

1042
01:21:31.934 --> 01:21:38.000
the port. Close to New York
City, close to the

1043
01:21:38.000 --> 01:21:44.000
term Pike.

1044
01:21:44.000 --> 01:21:51.000
A train line right next to it
and a train station within

1045
01:21:51.000 --> 01:21:55.000
two blocks. The still plant had
been closed for

1046
01:21:55.000 --> 01:22:01.000
about seven years. There was a
small

1047
01:22:01.000 --> 01:22:05.000
leaseback property to bend
rebar.

1048
01:22:05.000 --> 01:22:11.000
That is not been finished. That
was a location where

1049
01:22:11.000 --> 01:22:16.000
a lot of the other rebar was
coming. They have kept

1050
01:22:16.000 --> 01:22:19.934
that eight They have kept that 8
acres which led to a bunch of
different

1051
01:22:19.934 --> 01:22:25.934
complications during the process
of remediation, demolition and

1052
01:22:25.934 --> 01:22:31.934
so forth. The real problem was
not the plant that was

1053
01:22:31.934 --> 01:22:35.934
about 40 years old, it was the
former

1054
01:22:35.934 --> 01:22:42.000
plant that had been there for 80
years prior and then

1055
01:22:42.000 --> 01:22:47.000
whatever use was before that.
Before that

1056
01:22:47.000 --> 01:22:51.000
we believe it was a brick plant
in the 1800s. The site had a lot

1057
01:22:51.000 --> 01:23:00.000
of different industrial uses and
a lot

1058
01:23:00.000 --> 01:23:03.000
of contamination.

1059
01:23:03.000 --> 01:23:12.000
That is a photo of what is being
built now. It is a build to suit

1060
01:23:12.000 --> 01:23:16.000
for Home Depot. We did the
horizontal development. That is

1061
01:23:16.000 --> 01:23:24.934
been our specialty.

1062
01:23:24.934 --> 01:23:31.934
We then sold it.

1063
01:23:31.934 --> 01:23:35.934
It is their new modular

1064
01:23:35.934 --> 01:23:40.000
logistics center. They're going
to be doing more warehousing
direct

1065
01:23:40.000 --> 01:23:45.000
to consumers and commercial
builders and others. They will
be picking

1066
01:23:45.000 --> 01:23:50.000
up things there instead of
having to go

1067
01:23:50.000 --> 01:23:56.000
into stores. Home Depot is doing
this process across

1068
01:23:56.000 --> 01:24:05.000
the country. There is a train
station within

1069
01:24:05.000 --> 01:24:10.000
two blocks. You had all access
to everywhere in

1070
01:24:10.000 --> 01:24:16.000
New Jersey. The location was top
level with

1071
01:24:16.000 --> 01:24:20.934
a direct truck route, a public
roadway that

1072
01:24:20.934 --> 01:24:25.934
was falling apart. It made it
much easier to

1073
01:24:25.934 --> 01:24:34.934
avoid driving through downtown.
Part

1074
01:24:34.934 --> 01:24:39.000
of the process was when we

1075
01:24:39.000 --> 01:24:44.000
acquired this, and I will go
through the whole

1076
01:24:44.000 --> 01:24:50.000
acquisition process, sitting on
the redevelopment agency there
was

1077
01:24:50.000 --> 01:24:56.000
a representative from New Jersey
DEP. Having that

1078
01:24:56.000 --> 01:25:02.000
person there was a good way to
expedite

1079
01:25:02.000 --> 01:25:07.000
the project.

1080
01:25:07.000 --> 01:25:13.000
Getting them done in a timely
way is key. Having

1081
01:25:13.000 --> 01:25:18.934
someone involved to negotiating
the

1082
01:25:18.934 --> 01:25:24.934
redevelopment agreement.

1083
01:25:24.934 --> 01:25:28.934
Basically we ended up with a
public amenity package

1084
01:25:28.934 --> 01:25:34.934
to the city of about $6.4
million. Will show

1085
01:25:34.934 --> 01:25:41.000
you later that there will be an
amphitheater on

1086
01:25:41.000 --> 01:25:45.000
the water that will be billed
for over 200 people plus

1087
01:25:45.000 --> 01:25:48.000
a public space. We donated an
historic

1088
01:25:48.000 --> 01:25:51.000
building and the money to
renovate.

1089
01:25:51.000 --> 01:25:58.000
We donated the acquisition funds
to purchase land

1090
01:25:58.000 --> 01:26:02.000
adjacent to our site that was
also adjacent to a senior center

1091
01:26:02.000 --> 01:26:06.000
that is going to be laid out in
creating an outdoor space for
them

1092
01:26:06.000 --> 01:26:11.000
an outdoor exercise area. No one
from

1093
01:26:11.000 --> 01:26:15.000
the public had ever had access
to the site or to the waterfront
for

1094
01:26:15.000 --> 01:26:20.000
over 80 years. We dedicated over
10%

1095
01:26:20.000 --> 01:26:21.534
open space to get down to the

1096
01:26:21.534 --> 01:26:24.000
waterfront where the
amphitheater will be and

1097
01:26:24.000 --> 01:26:29.000
where there is extra land that
has been donated that will

1098
01:26:29.000 --> 01:26:35.000
also be landscape for people to
have access to the

1099
01:26:35.000 --> 01:26:38.000
water.

1100
01:26:38.000 --> 01:26:44.000
>> As I mentioned there was a
copper smelter here. All of the

1101
01:26:44.000 --> 01:26:50.000
sellers testing have been based
on what was in the still

1102
01:26:50.000 --> 01:26:53.000
plant. -- steel plant

1103
01:26:53.000 --> 01:26:57.000
What we went looking for was
what was here before then?

1104
01:26:57.000 --> 01:27:02.000
We knew that it was bad. The
whole deal have been contingent
on us

1105
01:27:02.000 --> 01:27:05.000
closing when the workplan was
approved. The

1106
01:27:05.000 --> 01:27:09.000
seller decided that was going to
take

1107
01:27:09.000 --> 01:27:16.000
too long and came back want to
get done when the remedial
investigation

1108
01:27:16.000 --> 01:27:19.934
was completed and approved,
which sounded okay.

1109
01:27:19.934 --> 01:27:23.934
We needed to commence our equity
partners. We convince them

1110
01:27:23.934 --> 01:27:28.934
it was possible. Well, they came
back to Weston said we just want

1111
01:27:28.934 --> 01:27:31.934
to close in two months that
timeframe. We do

1112
01:27:31.934 --> 01:27:35.934
not want to wait until the
remedial investigation is
complete.

1113
01:27:35.934 --> 01:27:40.000
We want you to put up a very
large remediation funding which
we need

1114
01:27:40.000 --> 01:27:46.000
you to, with an us to improve.
We want

1115
01:27:46.000 --> 01:27:51.000
50% escrow just in case you are
wrong. Those were the changes
that

1116
01:27:51.000 --> 01:27:55.000
happened. As all really state
development projects happen

1117
01:27:55.000 --> 01:27:59.000
they never go as planned. That
is why we have a timeline. We
try to

1118
01:27:59.000 --> 01:28:05.000
meet those with a linear look.
Things happen. We

1119
01:28:05.000 --> 01:28:11.000
call those on this call the 'oh

1120
01:28:11.000 --> 01:28:15.000
my God' moments. Yet add in the
fact that

1121
01:28:15.000 --> 01:28:20.934
it is Brownfield and you're
dealing with a property that has
had historic

1122
01:28:20.934 --> 01:28:25.934
uses on here. We were able to
put together

1123
01:28:25.934 --> 01:28:29.934
the funding and do enough
investigation during that do
diligence where we

1124
01:28:29.934 --> 01:28:34.934
got comfortable with what we
thought was there and that was
going back

1125
01:28:34.934 --> 01:28:41.000
to all the arsenic, the PCBs and
other

1126
01:28:41.000 --> 01:28:45.000
issues. Back in the day in the
early 1970s the

1127
01:28:45.000 --> 01:28:54.000
environmental regulations were
not what they are today. They

1128
01:28:54.000 --> 01:28:59.000
basically just smeared the site,
pushing it all

1129
01:28:59.000 --> 01:29:01.000
down to the river. Whatever
contamination

1130
01:29:01.000 --> 01:29:07.000
was they spread it over those
years and they just demolished
buildings

1131
01:29:07.000 --> 01:29:11.000
in place to the source that we
did not know what

1132
01:29:11.000 --> 01:29:16.000
was where. All of the building
plans we looked at were far from
accurate.

1133
01:29:16.000 --> 01:29:21.934
In the end we ended up being
reactive that we came in

1134
01:29:21.934 --> 01:29:26.934
below budget.

1135
01:29:26.934 --> 01:29:29.934
The escrow, after the building
is built we will get back that
$3.7

1136
01:29:29.934 --> 01:29:39.000
million. Investors were quite
happy with that.

1137
01:29:39.000 --> 01:29:45.000
>> Part of what we did and what
the seller wanted and our equity

1138
01:29:45.000 --> 01:29:50.000
partners wanted was to be the
most conservative on

1139
01:29:50.000 --> 01:29:55.000
the environmental. In other
words they wanted to see a
flurry wall.

1140
01:29:55.000 --> 01:29:57.000
We planned it out. It was funny,
during a call

1141
01:29:57.000 --> 01:30:01.000
with the consultants they hired
a different consultant who said

1142
01:30:01.000 --> 01:30:06.000
you don't even need it. It was a
fun moment

1143
01:30:06.000 --> 01:30:09.000
to go at the seller a little
bit.

1144
01:30:09.000 --> 01:30:16.000
Our plan was always to build the
wall. It is a 4400 linear
square-foot

1145
01:30:16.000 --> 01:30:22.934
flurry wall. It was up to 75
feet deep brown -- down by the
water.

1146
01:30:22.934 --> 01:30:30.934
It was constructed and about
three months. It stops and maybe

1147
01:30:30.934 --> 01:30:34.934
75 feet deep. It is only 3 feet
wide. We spent six months in
design

1148
01:30:34.934 --> 01:30:39.000
work with that. It was an
interesting process

1149
01:30:39.000 --> 01:30:43.000
to watch. The fact that they
could get it done in three
months and

1150
01:30:43.000 --> 01:30:47.000
we were under budget was a great
thing. All

1151
01:30:47.000 --> 01:30:53.000
testing is working just great.
We also remove

1152
01:30:53.000 --> 01:30:57.000
arsenic, soils, but the main
plan was to

1153
01:30:57.000 --> 01:31:00.000
The site. During that process we
brought in 500.000 tons of feel

1154
01:31:00.000 --> 01:31:04.000
to raise the site and raise it
out of the floodplain, being on
the

1155
01:31:04.000 --> 01:31:10.000
water the site has flooded
during super storm Sandy

1156
01:31:10.000 --> 01:31:17.000
pretty heavily. That was our
plan. You need a

1157
01:31:17.000 --> 01:31:20.934
very solid base for the new
modern industrial buildings that
you are

1158
01:31:20.934 --> 01:31:23.934
building.

1159
01:31:23.934 --> 01:31:27.934
>> This is the overall site
plan. We tried to show the

1160
01:31:27.934 --> 01:31:29.934
public amenities that you will
see.

1161
01:31:29.934 --> 01:31:32.934
That is the apathy are down
there.

1162
01:31:32.934 --> 01:31:49.000
It is actually by the train
line.

1163
01:31:49.000 --> 01:31:51.000
The orange is where the senior
center is and where that will
have

1164
01:31:51.000 --> 01:31:55.000
access to the site and the land
we donated to them.

1165
01:31:55.000 --> 01:32:01.000
Also, the main roadway coming
through the site is now going to
be required

1166
01:32:01.000 --> 01:32:07.000
by the city and

1167
01:32:07.000 --> 01:32:11.000
dedicated to the city. Most
tenants will not

1168
01:32:11.000 --> 01:32:18.000
want a public roadway and we had
to design around

1169
01:32:18.000 --> 01:32:22.934
that factor. And actually allow
them to drive to the site and
open

1170
01:32:22.934 --> 01:32:28.934
the South in of the town where
they had major

1171
01:32:28.934 --> 01:32:31.934
traffic congestion. This will be
another route to get up to the
term

1172
01:32:31.934 --> 01:32:34.934
Pike and the Outerbridge
Crossing for the people on the
south side

1173
01:32:34.934 --> 01:32:39.000
of the town. In the process we
ended up having to

1174
01:32:39.000 --> 01:32:45.000
move a public sewer line that
was on our site.

1175
01:32:45.000 --> 01:32:48.000
Of course we ended up paying for
it. We ended up moving another

1176
01:32:48.000 --> 01:32:53.000
water line off-site the came up
after

1177
01:32:53.000 --> 01:32:56.000
the fact. It will improve the
flow of water in the

1178
01:32:56.000 --> 01:33:03.000
whole area. Overall the top
building if the

1179
01:33:03.000 --> 01:33:07.000
lease backed building that they
continue to own. It was built
only

1180
01:33:07.000 --> 01:33:16.000
about 10 years ago. We did get

1181
01:33:16.000 --> 01:33:18.934
it approved if they ever do
vacate it, since

1182
01:33:18.934 --> 01:33:23.934
we do own the land for another
110.000 ft.² at a later

1183
01:33:23.934 --> 01:33:26.934
time.

1184
01:33:26.934 --> 01:33:32.934
>> Part of the public amenities
is that whole train line

1185
01:33:32.934 --> 01:33:37.000
is going to be raising that
mine.

1186
01:33:37.000 --> 01:33:44.000
Super storm Sandy had a major
effect on it. On the

1187
01:33:44.000 --> 01:33:50.000
other side of the street and the
train line is a public park

1188
01:33:50.000 --> 01:33:56.000
being built. Once it is raised
there is going to be

1189
01:33:56.000 --> 01:33:59.000
a connection from the public
park under the train line

1190
01:33:59.000 --> 01:34:04.000
to the whole amphitheater area.
That was an important

1191
01:34:04.000 --> 01:34:08.000
part for the city as well.

1192
01:34:08.000 --> 01:34:14.000
>> When we evaluated the project
and the real estate

1193
01:34:14.000 --> 01:34:18.934
risk, obviously the market, we
bought the site. The

1194
01:34:18.934 --> 01:34:21.934
whole plan needed to be amended.

1195
01:34:21.934 --> 01:34:25.934
We had already met with the city

1196
01:34:25.934 --> 01:34:28.934
and felt that they were going to
do that and we're going to need

1197
01:34:28.934 --> 01:34:30.934
a payment in lieu of tax
agreement. And then of course
always

1198
01:34:30.934 --> 01:34:37.000
the underground geotechnical is
the

1199
01:34:37.000 --> 01:34:39.000
major issue.

1200
01:34:39.000 --> 01:34:40.000
The Brownfield risk is obviously
the cost overruns. We took care

1201
01:34:40.000 --> 01:34:43.000
of the damages in the sense that
we did not take on the liability

1202
01:34:43.000 --> 01:34:48.000
for the off-site environmental
or natural resource damages.
That is

1203
01:34:48.000 --> 01:34:53.000
something we can ever get our
hands around. We left that with

1204
01:34:53.000 --> 01:34:57.000
the seller since they were
already responsible.

1205
01:34:57.000 --> 01:35:00.000
That was part of the way we
quantified the risk. We were
dealing with everything

1206
01:35:00.000 --> 01:35:05.000
that could possibly

1207
01:35:05.000 --> 01:35:08.000
lead the fight, making it better
for them if and when they have
to

1208
01:35:08.000 --> 01:35:18.000
deal with natural resource
damages.

1209
01:35:18.000 --> 01:35:24.934
>> Why do we take the risk? Why
were we able to convince a
private

1210
01:35:24.934 --> 01:35:27.934
equity fund? You will see later
the original development with

1211
01:35:27.934 --> 01:35:31.934
over $28 million. Because of the
environment risk all of that

1212
01:35:31.934 --> 01:35:38.000
was basically equity cash.

1213
01:35:38.000 --> 01:35:44.000
As you've seen the location, the
access inside

1214
01:35:44.000 --> 01:35:49.000
in the northern New Jersey
market are irreplaceable.

1215
01:35:49.000 --> 01:35:53.000
You cannot find a site this big,
which was part

1216
01:35:53.000 --> 01:35:59.000
of the fun of it. It

1217
01:35:59.000 --> 01:36:05.000
was something that we can talk
about for the rest of our

1218
01:36:05.000 --> 01:36:10.000
careers probably. We did
compartmentalize the risk even

1219
01:36:10.000 --> 01:36:16.000
though we were only able to do
due diligence and

1220
01:36:16.000 --> 01:36:18.067
not getting the RI approved.
That was a risk

1221
01:36:18.067 --> 01:36:22.000
factor and something that we
have to explain to our
investors. We

1222
01:36:22.000 --> 01:36:35.000
had to explain and prove out to
the seller.

1223
01:36:35.000 --> 01:36:39.000
The industrial market has only
gotten better in

1224
01:36:39.000 --> 01:36:44.000
New Jersey. It was something
that we felt the market

1225
01:36:44.000 --> 01:36:48.000
was strong and the state where
it was we would be very happy.
It

1226
01:36:48.000 --> 01:37:00.000
has gone better thankfully for
all of us. That was one

1227
01:37:00.000 --> 01:37:03.000
major factor.

1228
01:37:03.000 --> 01:37:08.000
The big surprise that we found,
the oh my God moment was

1229
01:37:08.000 --> 01:37:14.000
the buried industrial ways. We
didn't know where

1230
01:37:14.000 --> 01:37:16.000
everything was or have enough
time to do enough

1231
01:37:16.000 --> 01:37:18.934
testing, we knew that there were
problems. We found everything we

1232
01:37:18.934 --> 01:37:22.934
needed to find. Mostly a lot of
underground structures, and

1233
01:37:22.934 --> 01:37:26.934
a lot of things that were not
showing up

1234
01:37:26.934 --> 01:37:29.934
on the plans that had never been
documented were there and had to

1235
01:37:29.934 --> 01:37:34.934
be dealt with.

1236
01:37:34.934 --> 01:37:37.000
We have to a lot of underground
demolition in taking out
structures,

1237
01:37:37.000 --> 01:37:41.000
boys. We found having a
leaseback property when they
wanted power

1238
01:37:41.000 --> 01:37:47.000
coming from a substation and us
needing to

1239
01:37:47.000 --> 01:37:48.000
demo lies -- demolish that
substation to

1240
01:37:48.000 --> 01:37:54.000
demolish the building without
any real plans on where the
water lines

1241
01:37:54.000 --> 01:37:58.000
were, none of these were
documented.

1242
01:37:58.000 --> 01:38:01.000
What we did have was not
accurate.

1243
01:38:01.000 --> 01:38:07.000
We found all of these
underground structures. We found

1244
01:38:07.000 --> 01:38:11.000
no one knew there was an
oilfield electrical

1245
01:38:11.000 --> 01:38:17.000
transmission line. Thankfully a
representative have been

1246
01:38:17.000 --> 01:38:28.934
out there.

1247
01:38:28.934 --> 01:38:33.934
We did have to pay for all those
extra

1248
01:38:33.934 --> 01:38:39.000
things including keeping the
power source available while we
demolished

1249
01:38:39.000 --> 01:38:43.000
the building. It was an
interesting process to say the
least of not

1250
01:38:43.000 --> 01:38:46.000
knowing where anything was.

1251
01:38:46.000 --> 01:38:51.000
In addition we found a lot of
buried railroad ties that had

1252
01:38:51.000 --> 01:38:53.000
been on the site for years. The
more you dove down

1253
01:38:53.000 --> 01:38:56.000
the more you have to deal with
them.

1254
01:38:56.000 --> 01:38:58.000
Of course you had to pay to get
rid of them and dispose of them

1255
01:38:58.000 --> 01:39:01.000
properly.

1256
01:39:01.000 --> 01:39:06.000
>> Our project budget on the
whole remediation we were

1257
01:39:06.000 --> 01:39:16.000
on budget. We did have a lot of
unanticipated costs.

1258
01:39:16.000 --> 01:39:19.934
That was a problem and it became
a big problem with our
investors.

1259
01:39:19.934 --> 01:39:20.934
It is something thankfully the
market

1260
01:39:20.934 --> 01:39:26.934
was so good in New Jersey we
were able to

1261
01:39:26.934 --> 01:39:27.934
work through.

1262
01:39:27.934 --> 01:39:32.934
$3 million more in cash had to
be put in. It

1263
01:39:32.934 --> 01:39:37.000
involved us having to do another
project with

1264
01:39:37.000 --> 01:39:41.000
them cross collateralized and
any money we made on the other
project

1265
01:39:41.000 --> 01:39:45.000
encase the budget increased
above what

1266
01:39:45.000 --> 01:39:50.000
we anticipated. It was not a fun
process to go through. It is one

1267
01:39:50.000 --> 01:39:59.000
of those oh my God moments. The
entitlements, we

1268
01:39:59.000 --> 01:40:02.000
were required, the city then
wanted us to do a

1269
01:40:02.000 --> 01:40:03.000
full site plan, which we hadn't
intended to do, which took more

1270
01:40:03.000 --> 01:40:09.000
time and money. We were able to
deal

1271
01:40:09.000 --> 01:40:16.000
with it. We actually met our
time frames. We added some of
these

1272
01:40:16.000 --> 01:40:19.934
extra tasks that nobody
anticipated and we were still
able to get it

1273
01:40:19.934 --> 01:40:27.934
done in literally one month
earlier, just 35 months. That

1274
01:40:27.934 --> 01:40:34.934
was helpful.

1275
01:40:34.934 --> 01:40:40.000
Overall, when you are dealing
with private

1276
01:40:40.000 --> 01:40:44.000
equity firms they are looking
for higher returns. If they

1277
01:40:44.000 --> 01:40:50.000
are willing to take this kind of
risk they want

1278
01:40:50.000 --> 01:40:53.000
big returns.

1279
01:40:53.000 --> 01:41:02.000
It is a big investment.

1280
01:41:02.000 --> 01:41:08.000
We did meet our

1281
01:41:08.000 --> 01:41:13.000
time frames.

1282
01:41:13.000 --> 01:41:17.000
When you divide that over three
years with the price of the
private

1283
01:41:17.000 --> 01:41:22.934
equity firm the returns add up.
I

1284
01:41:22.934 --> 01:41:27.934
think this project versus a
second or third TMR get is what

1285
01:41:27.934 --> 01:41:31.934
kept it moving forward. We had a
lot of

1286
01:41:31.934 --> 01:41:35.934
interest from buyers. We did the
horizontal

1287
01:41:35.934 --> 01:41:40.000
development. We had a lot of
vertical industrial firms who
wanted to buy

1288
01:41:40.000 --> 01:41:47.000
it from us that normally would
never take on dealing with

1289
01:41:47.000 --> 01:41:50.000
the environment, all of the site
work that we did and all of the

1290
01:41:50.000 --> 01:41:56.000
alternatives and permits that
needed to go in

1291
01:41:56.000 --> 01:41:58.000
with that.

1292
01:41:58.000 --> 01:42:02.000
Doing the verticals they want to
pay you a premium. We entered
into

1293
01:42:02.000 --> 01:42:11.000
a contract about eight months
into the process.

1294
01:42:11.000 --> 01:42:17.000
It worked out well. They

1295
01:42:17.000 --> 01:42:20.934
are doing a build to suit for
Home Depot and could be bringing

1296
01:42:20.934 --> 01:42:26.934
about 600-700 jobs. The annual
taxes here are going to be

1297
01:42:26.934 --> 01:42:27.934
$2.3 million.

1298
01:42:27.934 --> 01:42:31.934
It is a pilot agreement and they
will only be increasing every
few

1299
01:42:31.934 --> 01:42:35.934
years. In addition all the taxes
created from the jobs and the
people

1300
01:42:35.934 --> 01:42:40.000
working there. Based on what
Home

1301
01:42:40.000 --> 01:42:45.000
Depot believes probably 60-70%
will be local people leaving

1302
01:42:45.000 --> 01:42:49.000
right now to work elsewhere.
When they get this

1303
01:42:49.000 --> 01:42:54.000
built and they do the job fairs
I think the majority of

1304
01:42:54.000 --> 01:42:55.000
the people will be coming here.

1305
01:42:55.000 --> 01:42:59.000
We were required to put in a lot
of my cracks cause they always
felt

1306
01:42:59.000 --> 01:43:05.000
people could bike to the site
and live nearby to

1307
01:43:05.000 --> 01:43:10.000
avoid car traffic. In addition
with the EEP being involved

1308
01:43:10.000 --> 01:43:15.000
early on they require green
infrastructure, which we did do.
As

1309
01:43:15.000 --> 01:43:22.934
I said, having the reps from DEP
there it was able to help us
expedite

1310
01:43:22.934 --> 01:43:25.934
and explain to internal people
this is a real project with real
public

1311
01:43:25.934 --> 01:43:31.934
benefits that are significant.
The city is behind it. I think
it helped

1312
01:43:31.934 --> 01:43:38.000
to get things done internally,
even though we

1313
01:43:38.000 --> 01:43:44.000
had an OSRP we still needed

1314
01:43:44.000 --> 01:43:49.000
other things. As everyone will
tell you time on

1315
01:43:49.000 --> 01:43:52.000
these projects is what kills
you.

1316
01:43:52.000 --> 01:43:58.000
The longer it drags the less
profit and the bigger dangers of

1317
01:43:58.000 --> 01:44:02.000
the market falling apart on you.
In this case we hit the

1318
01:44:02.000 --> 01:44:08.000
market right and it has
continued to be good. No one
knows how long

1319
01:44:08.000 --> 01:44:13.000
that is going on. With the jobs
and the

1320
01:44:13.000 --> 01:44:18.934
taxes it is a project that we
look back as a very

1321
01:44:18.934 --> 01:44:24.934
successful project. It was an

1322
01:44:24.934 --> 01:44:28.934
interesting project.

1323
01:44:28.934 --> 01:44:32.934
There were a lot of moments when
dealing with some of those
structures

1324
01:44:32.934 --> 01:44:46.000
and some of the processes.

1325
01:44:46.000 --> 01:44:52.000
>> We want to turn it over to
Aimee to ask a few

1326
01:44:52.000 --> 01:44:56.000
questions.

1327
01:44:56.000 --> 01:44:58.000
>> That was excellent. Thank you
to our developers. We definitely

1328
01:44:58.000 --> 01:45:02.000
got a few questions in. Let me
get started. Do you think there
is a

1329
01:45:02.000 --> 01:45:07.000
rule of thumb relative to a
profit margin

1330
01:45:07.000 --> 01:45:13.000
when accepting the risk
including a

1331
01:45:13.000 --> 01:45:18.000
Brownfield redevelopment?
Basically what kind

1332
01:45:18.000 --> 01:45:23.934
of return are you expecting
because you are assuming

1333
01:45:23.934 --> 01:45:34.934
a higher risk?

1334
01:45:34.934 --> 01:45:40.000
>> I guess anybody can answer,
right?

1335
01:45:40.000 --> 01:45:43.000
>> Right.

1336
01:45:43.000 --> 01:45:45.000
>> From our perspective, chat
may be different

1337
01:45:45.000 --> 01:45:49.000
because he owns the building,
which is something we intend to
do in

1338
01:45:49.000 --> 01:45:57.000
the future as well. We are
looking at land development and
having private

1339
01:45:57.000 --> 01:46:03.000
equity investors. We are trying
to build on

1340
01:46:03.000 --> 01:46:07.000
an annual aces. We all know
there is

1341
01:46:07.000 --> 01:46:12.000
going to be something that comes
up. In this

1342
01:46:12.000 --> 01:46:20.000
case the $3 million extra cost
came up.

1343
01:46:20.000 --> 01:46:23.000
>> We look at it a little
differently.

1344
01:46:23.000 --> 01:46:27.000
We don't ever have

1345
01:46:27.000 --> 01:46:33.000
a sale. What we typically do is
charge a

1346
01:46:33.000 --> 01:46:38.000
fee. We can barely keep our
lights on, but it is anywhere
from

1347
01:46:38.000 --> 01:46:44.000
3 1/2 to 5% of the total project
cost. That is the fee we

1348
01:46:44.000 --> 01:46:50.000
charge that helps us pay
accounts and property managers.
The

1349
01:46:50.000 --> 01:46:55.000
way that we can actually pay
everyone is we collect a

1350
01:46:55.000 --> 01:46:59.000
portion of the rent proceeds.
Consider it just by purchasing

1351
01:46:59.000 --> 01:47:04.000
a house. If someone said go
purchase a couple rental
properties for me

1352
01:47:04.000 --> 01:47:10.000
we essentially charge a 3% -5%
deal to get it

1353
01:47:10.000 --> 01:47:14.000
teed up and positioned.

1354
01:47:14.000 --> 01:47:18.000
When the renter comes in in our
case it is a big industrial
occupier.

1355
01:47:18.000 --> 01:47:21.934
You purchase a building and you
have a mortgage on it, which is

1356
01:47:21.934 --> 01:47:26.934
hopefully a long-term 20-30

1357
01:47:26.934 --> 01:47:31.934
year mortgage. Whatever you
could charge in rent is

1358
01:47:31.934 --> 01:47:37.000
in excess of what your loan
payments are and it is the
spread you make.

1359
01:47:37.000 --> 01:47:41.000
In some cases

1360
01:47:41.000 --> 01:47:45.000
once you have net rent coming in
you can make 10%-15% dividends
on

1361
01:47:45.000 --> 01:47:49.000
an ongoing basis. The fees that
we

1362
01:47:49.000 --> 01:47:52.000
charge our 3-5% so that we have
a larger stake

1363
01:47:52.000 --> 01:48:01.000
of equity in the deal if we do
have to have partners. It is
just

1364
01:48:01.000 --> 01:48:05.000
a difference. Like the guys
previously said they do need to
make a profit.

1365
01:48:05.000 --> 01:48:07.000
It is risky. Everybody looks
really

1366
01:48:07.000 --> 01:48:16.000
smart right now because the tide
is

1367
01:48:16.000 --> 01:48:19.934
rising. On -- another 2008
happens and you have tens of
millions tied

1368
01:48:19.934 --> 01:48:24.934
up. Your returns need to be risk
adjustment. There is a ton

1369
01:48:24.934 --> 01:48:28.934
of risk that definitely warrant
a

1370
01:48:28.934 --> 01:48:33.934
20-25% return. As they say you
are pretty happy when you hit
it. By

1371
01:48:33.934 --> 01:48:37.000
the time you get it down to the
end you are probably happy to

1372
01:48:37.000 --> 01:48:42.000
get 80% of what you project. At
the end of the day it is still a

1373
01:48:42.000 --> 01:48:43.000
great outcome and a good story
to tell.

1374
01:48:43.000 --> 01:48:50.000
>> That is really helpful. The
both of you

1375
01:48:50.000 --> 01:48:53.000
speak to whether or not you use
environmental insurance

1376
01:48:53.000 --> 01:48:57.000
in your project? Is that a tool
that you

1377
01:48:57.000 --> 01:48:59.000
guys use?

1378
01:48:59.000 --> 01:49:04.000
>> This is Chad at Northpoint.
Obviously we

1379
01:49:04.000 --> 01:49:10.000
do it. We plan on owning these
things for 10-30 years.
Hopefully we

1380
01:49:10.000 --> 01:49:15.000
are clipping coupons every month
as the rent checks come in.
There

1381
01:49:15.000 --> 01:49:18.934
are a couple of things.
Sometimes we will purchase

1382
01:49:18.934 --> 01:49:23.934
sites similar to

1383
01:49:23.934 --> 01:49:26.934
ones the horizontal is done. We
need land for our inventory to
build

1384
01:49:26.934 --> 01:49:32.934
and lease buildings. By the time
a

1385
01:49:32.934 --> 01:49:35.934
responsible group has something
similar to where you really

1386
01:49:35.934 --> 01:49:41.000
actually don't even need it. We
will put a policy on because by

1387
01:49:41.000 --> 01:49:47.000
that time when the cleanup is
generally done the policies

1388
01:49:47.000 --> 01:49:50.000
are generally cheap. You can get
a $50 million policy for
$300.000.

1389
01:49:50.000 --> 01:49:57.000
It covers knowns and unknowns.
The real reason in

1390
01:49:57.000 --> 01:50:02.000
a lot of cases the main reason
that we do it is for marketing
purposes.

1391
01:50:02.000 --> 01:50:06.000
Like the site in Denver where
Home Depot was entering into a
long-term

1392
01:50:06.000 --> 01:50:11.000
lease they said we are not going
to change the title, we are
still

1393
01:50:11.000 --> 01:50:15.000
a name brand. If some dirt bag
attorney comes

1394
01:50:15.000 --> 01:50:19.934
on they are going to sue and
they know Home Depot can't
afford it.

1395
01:50:19.934 --> 01:50:22.934
Pull us as a name to ensure and
we will go ahead and

1396
01:50:22.934 --> 01:50:27.934
enter into the lease. For the
most part it is really putting

1397
01:50:27.934 --> 01:50:33.934
a policy in place so that these
corporate operators and the

1398
01:50:33.934 --> 01:50:34.934
guys back at headquarters could
say we have

1399
01:50:34.934 --> 01:50:37.000
insurance in place so if there
ever is a dirt bag attorney that
shows

1400
01:50:37.000 --> 01:50:43.000
up wanting to sue everyone we
have a shock absorber

1401
01:50:43.000 --> 01:50:48.000
and a policy. We as Northpoint
will usually guarantee the

1402
01:50:48.000 --> 01:50:50.000
deductible risk.

1403
01:50:50.000 --> 01:50:53.000
>> We also put a policy in
place.

1404
01:50:53.000 --> 01:50:59.000
We always do. It is only for

1405
01:50:59.000 --> 01:51:03.000
the unknowns. The investors like
to

1406
01:51:03.000 --> 01:51:07.000
see it. The sellers like to see
it. The future tenants or buyers

1407
01:51:07.000 --> 01:51:12.000
and developers want to see it.
The goal is to never use

1408
01:51:12.000 --> 01:51:20.934
it. It is nice to have it. There
is no such thing as cost

1409
01:51:20.934 --> 01:51:26.934
Insurance anymore.

1410
01:51:26.934 --> 01:51:30.934
It is a nice belt

1411
01:51:30.934 --> 01:51:33.934
and suspenders to have and we
always do as well.

1412
01:51:33.934 --> 01:51:40.000
>> Just for our

1413
01:51:40.000 --> 01:51:43.000
audience, 'PLL' stands for?

1414
01:51:43.000 --> 01:51:46.000
>> Pollution liability
insurance.

1415
01:51:46.000 --> 01:51:50.000
>> Excellent. A few more
questions.

1416
01:51:50.000 --> 01:51:56.000
To chat about your Northpoint
project, you mentioned a few
minutes ago

1417
01:51:56.000 --> 01:52:00.000
that you charge 3 1/2-5%. Who
are you

1418
01:52:00.000 --> 01:52:05.000
charging that to?

1419
01:52:05.000 --> 01:52:11.000
>> The downside is no one
actually pays. What we do is for

1420
01:52:11.000 --> 01:52:17.000
simple math, say there is 20
million bucks worth of

1421
01:52:17.000 --> 01:52:20.934
Lanza purchase at $80 million of
the building.

1422
01:52:20.934 --> 01:52:22.934
You have a total development
cost.

1423
01:52:22.934 --> 01:52:27.934
The whole basket of goods is
$100 million. For basically
identifying

1424
01:52:27.934 --> 01:52:31.934
them and putting the deal
together,

1425
01:52:31.934 --> 01:52:38.000
you know, finding a tenant and
putting a lease on it, we would

1426
01:52:38.000 --> 01:52:39.000
charge 3-5%.

1427
01:52:39.000 --> 01:52:47.000
Say $100 million we charge a 3%
the period again, we don't

1428
01:52:47.000 --> 01:52:49.000
sell it.

1429
01:52:49.000 --> 01:52:51.000
What we will do is put some of
our own cash into the deal. We
will

1430
01:52:51.000 --> 01:52:56.000
basically compute that fee,
which is

1431
01:52:56.000 --> 01:53:00.000
a way to basically get the
equivalent of putting more cash
into a project

1432
01:53:00.000 --> 01:53:05.000
so that we own more the
economics. When the rent check

1433
01:53:05.000 --> 01:53:07.000
comes in we get a larger
percentage. In the event

1434
01:53:07.000 --> 01:53:11.000
that we would ever refinance or
sell

1435
01:53:11.000 --> 01:53:18.934
to someone that fee would be
paid in the event of a sale or
refinance

1436
01:53:18.934 --> 01:53:24.934
so that we would get a larger
percentage.

1437
01:53:24.934 --> 01:53:28.934
If a end user comes along and
says build

1438
01:53:28.934 --> 01:53:31.934
of a plant they will find a
site, title it, get a permit to,
and then

1439
01:53:31.934 --> 01:53:34.934
flip us the keys when you are
done.

1440
01:53:34.934 --> 01:53:40.000
In that case when we are
complete and GM would write the
check we

1441
01:53:40.000 --> 01:53:46.000
would get paid the fee along the
way through the development or
at

1442
01:53:46.000 --> 01:53:49.000
the end of the process for
completion.

1443
01:53:49.000 --> 01:53:54.000
Typically we will put that be at
risk.

1444
01:53:54.000 --> 01:53:56.000
In a long-term ownership it is a
different animal. There is
really

1445
01:53:56.000 --> 01:53:57.000
no one there to pay you the fee.

1446
01:53:57.000 --> 01:54:01.000
A lot of our investors require
us to leave it in so that we are

1447
01:54:01.000 --> 01:54:04.000
not dragging checks out. It
keeps

1448
01:54:04.000 --> 01:54:08.000
everyone aligned and makes sure
we have skin in the

1449
01:54:08.000 --> 01:54:11.000
game.

1450
01:54:11.000 --> 01:54:14.000
>> So questions for panelist:
how does a public

1451
01:54:14.000 --> 01:54:18.000
amenity package come about? This
is kind of a

1452
01:54:18.000 --> 01:54:21.934
larger question that maybe Chad
could address afterwards about

1453
01:54:21.934 --> 01:54:27.934
how often our community benefits
part of a project?

1454
01:54:27.934 --> 01:54:33.934
>> Our redevelopment agreement
was negotiated through the
redeveloping

1455
01:54:33.934 --> 01:54:40.000
agency that had meetings that
took over

1456
01:54:40.000 --> 01:54:44.000
two years to get to. It is about

1457
01:54:44.000 --> 01:54:48.000
80 pages, not including
exhibits.

1458
01:54:48.000 --> 01:54:53.000
Typical agreements in New Jersey
or the boilerplate stuff

1459
01:54:53.000 --> 01:54:58.000
that is legally required our
15-20 pages. This one

1460
01:54:58.000 --> 01:55:04.000
was extensive. It was during all
of those meetings

1461
01:55:04.000 --> 01:55:06.000
and negotiations, we literally
had meetings for a

1462
01:55:06.000 --> 01:55:09.000
while for every three weeks.
They kept bringing up more
things that

1463
01:55:09.000 --> 01:55:14.000
they wanted. It was the way the
town had seen the project
recently.

1464
01:55:14.000 --> 01:55:19.934
It started a few years earlier,
much to their credit.

1465
01:55:19.934 --> 01:55:23.934
They got $400.000 for a sewer
line that had to

1466
01:55:23.934 --> 01:55:29.934
be updated. They wanted to then
get more public amenities and we

1467
01:55:29.934 --> 01:55:35.934
were the last really big
project. They came out with

1468
01:55:35.934 --> 01:55:39.000
a wish list and created wish
lists and kept expanding them.
They met

1469
01:55:39.000 --> 01:55:45.000
with their own councilmembers
and mayor and it

1470
01:55:45.000 --> 01:55:48.000
kept growing.

1471
01:55:48.000 --> 01:55:51.000
Thankfully the project can
sustain it. It is probably one
of the only

1472
01:55:51.000 --> 01:55:57.000
ones that actually could.

1473
01:55:57.000 --> 01:55:59.000
It was their own wishes between
the

1474
01:55:59.000 --> 01:56:05.000
Council, the mayor, and speaking
with their

1475
01:56:05.000 --> 01:56:07.000
own population in what the city
needed.

1476
01:56:07.000 --> 01:56:08.000
>> And the redevelopment agency
required it?

1477
01:56:08.000 --> 01:56:12.000
>> Yes. If we wanted to get the
zoning or

1478
01:56:12.000 --> 01:56:16.000
redevelopment plan change it was
already an industrialized site.

1479
01:56:16.000 --> 01:56:19.000
We needed to change parking
ratios.

1480
01:56:19.000 --> 01:56:24.834
It was a 20-year-old zoning
plan. We needed

1481
01:56:24.834 --> 01:56:25.601
to basically give in.

1482
01:56:25.601 --> 01:56:27.400
>> [ Event has exceeded
scheduled time. Captioner must
proceed to

1483
01:56:27.400 --> 01:56:29.000
captioner's next scheduled
event.

1484
01:56:29.000 --> 01:56:34.000
Disconnecting at 3:00. ]