CEcD POSSIBLE ESSAY MATERIAL: Real, Finance, BRE 2023 with complete solution

CEcD POSSIBLE ESSAY MATERIAL: Real, Finance, BRE 2023 with complete solution Real Estate Development and Reuses Objectives: - 1. Understanding of the development process; 2. A familiarity with the policies and programs that state, local, and public private economic development organizations and agencies can use to encourage and help finance development; 3. An understanding of how to analyze cash flow and income statements, and how to assess project feasibility; 4. Knowledge of site analysis and land assembly; 5. A familiarity with current environmental rules and regulations; 6. An understanding of regulatory constraints and incentives; 7. An understanding of the process to solicit and select a developer. When working with a Consultant and Developer an EDO will enroll a selection panel: - Often in conducting a search for a consultant or a developer, an EDO will enroll a selection panel representing various stakeholders to review candidate qualifications, analyze project proposals, and recommend a preferred consultant. These selection panels come in all sizes and configurations. Members of the board of the EDO may perform this function, community leaders may sit on selection panels, or sometimes there is a panel with a host of diverse perspectives represented. In some cases the city council or town board becomes the selection panel. The critical issue in forming the selection panel is avoiding a lopsided panel in favor of the project and representative of only a narrow and limiting perspective. Homework needs to be done in providing in-depth education about the project, clear guidelines about the process, and decision making procedures. Selection panels need staff - that is, some person who can serve as staff to the panel: coordinating, arranging, communicating, etc. This requires a great deal of work . If the decision is made to hire a consultant, the development agency should c1early identify the problem and determine what the consultant's end product should be. Before approaching a consultant, the agency should define the following: - • Goals and objectives of the consulting product; • Process for finding and selecting consultants • Problems, challenges, and issues that need consulting support; • Technical, administrative and political constraints; • Role of the agency in the consulting effort; • Budget and schedule for consulting services; • Work tasks to be accomplished; Consultants are identified: - Consultants are identified from personal referrals, professional association directories, trade magazines that feature directories and advertisements, literature mailed to agencies, and on websites, such as WWW.. Most valuable is the professional contacts that one makes with other professionals in various activities. Many times it helps to ask other colleagues who they used and their level of satisfaction with a certain consultant. Consultants can provide a number of services and are often retained to complete feasibility analyses. - Not only do they bring a further measure of objectivity, but they can lend additional expertise that gives the analysis further credibility. The type of consultant chosen should reflect the problem that needs to be addressed. For example, if the EDO requires detailed architectural consultation or wants to know if a project is market feasible, it is wise to select architects and market feasibility consultants, respectively, who have strong private sector experience and are currently serving developers and investors. If on the other hand an EDO desires more of a policy approach to problem solving, then a consultant that specializes in economic development policy may be the right choice. Consultants can be selected through several processes: - 1. Sole-source 2. Pre-qualified Candidate List 3. Request for Proposal (RFP) Sole-source: - For the sole-source scenario, a consultant is selected without a formal competitive process. Sole sourcing mayor may not be legal, depending on local and state statutes. Some statutes specify a dollar amount over which the consulting assignment must be competitively bid. If federal funds are used, there must be a documented selection process. The advantage of sole sourcing is that the consultant can be retained quickly. For legal and political reasons, any agency retaining sole-source consultants should carefully document their reasons for doing so. Pre-qualified Candidate List: - Consultants are sometimes selected from a list of pre-qualified candidates. Many agencies maintain a list of consultants that are pre-qualified to perform certain functions. The agency chooses several to submit a statement on how they would approach the problem, interviews them, and selects the best qualified candidate. The request for qualifications (RFQ) is similar to selecting from a pre-qualified list, except that there is an official announcement and often a more rigorous selection procedure. The announcement, say in trade publications, would help the agency add to its existing pool of candidates. It is useful to have a stable of pre-qualified consultants who can move quickly. Again, time is money. EDOs should seek to review qualifications annually. Request for Proposal (RFP): - The most rigorous selection process is the RFP. It is recommended that the issuing agency distribute the RFP to as many groups or entities as possible. The consultant must submit a full proposal to be considered. The RFP typically is advertised, mailed to a list of possible consultants, and posted on the website. The RFP clearly explains the project specifications, discussed previously, that the agency prepares before retaining a consultant. In addition, there should be a description of the project and services required. The description of required services is very important because consultants will base their response to the proposal on that description. It should be clearly written and consistent with other parts of the RFP. In describing the proposed tasks, the RFP should provide enough detail, including the number of required meetings with agency officials, for the consultant to make realistic cost estimates. The RFP not only conveys information but also acts as a marketing tool. A good RFP should be well organized and written so that it encourages the consultant to invest time and money into a thoughtful response. The RFP should include instructions for submission. Such instructions should include the time, date, and location of submission, as well as submission requirements such as a cost proposal, and an outline of what should be provided in the consultant proposal. Agencies may wish to include budget information or set a budget. Alternatively, they may ask the consultant to propose a budget and make the consultant's cost one of the selection criteria. By excluding the budget, the agency encourages the consultant to price their response competitively. However, it is difficult to compare responses with wide variations in budget. Therefore, agencies may wish to provide a budget range or have a target budget in mind. Selection criteria include the consultant's: - • Understanding of the project; • Approach to the project; • Experience with similar assignments; • Staff qualifications for the project; • Clarity of proposal; • References and contacts from prior project engagements. The RFP should require the following from the consultant: - • Listing of the tasks the consultant is assuming; • Work plan; • Specific responsibilities of consultant's staff; • Detailed timeline and list of deliverables; • Corporate capabilities statement and resume of all personnel working on the project; • List of similar recent projects, information of persons who can testify to the consultant's expertise; • Executive summaries or complete reports from projects that the consultant has recently completed. Selecting a Developer: - • When an EDO wants to develop a piece of property for the private market, it usually contracts for those services with a private-sector developer. This process of solicitation and selecting a developer is often initiated through a request for qualifications (RFQ) or request for proposals (RFP). • An EDO may first issue an RFQ, followed by a RFP. RFQs are used to do an initial evaluation to create a smaller pool of potential developers to respond to an RFP. • Submission requirements are usually limited to a letter stating developer's expression of interests, corporate qualifications, examples of past projects, references, and resumes. • After developer make it past the first cut, the short-list developers are more likely to provide a serious response to the more costly, time-consuming RFP. • The RFP requires the developer to submit a detailed response on how they will finance, develop and operate the project, and the roles and responsibilities of the public and private sector parties. • In some cases, an EDO may sole-source (no bidding) development. • Often, RFPs are issued for publicly owned property. However, in some cases, an RFP is created for privately owned property. The EDO may request development proposals without having ownership of all of the necessary parcels. In these situations, if accepted, issues related to property acquisition should be addressed prior to issuing the RFP. Sometimes an RFP is issued for unspecified properties. Here, the agency specifies the subsidy and desired development, opening competition to multiple sites within a target area. • Developer RFPs are a means of introducing competition in a development project. Ideally, competition ensures that the developer who is eventually chosen has the skills and expertise necessary to bring a project to fruition. Competition also allows a municipality to maintain some control over the project while leveraging public investment. • An agency should never issue an RFP without first gaining community consensus on the project's broad concept and objectives. The creation of the RFP solicitation document often helps clarify issues and build consensus. • An agency should also be aware of state-competitive bidding laws. Laws may require that certain aspects of the RFP process, such as land conveyance, be competitively bid. The RFP may be structured to satisfy the bid requirements. Alternatively, the agency could set legitimate conditions upon which the selected developer wins the competitive bid. • An RFP is a marketing tool and should be prepared as such. It introduces the site concept and opens the opportunity to the development community. It should clearly describe the development opportunity, define development parameters, and describe the development agency's objectives. RFPs: Steps to Finding a Developer: - 1. Project Concept & Objective 2. Solicitation Document. 3. Marketing the Solicitation Document 4. RFP Outline 5. Evaluation & Selection 6. Developer Negotiations 7. Disposition & Development Agreement Project Concept & Objective - • First, the issuing agency must formulate the project concept. This effort includes project goals and objectives, market analysis, conceptual design, financial analysis and funding options. The concept must also describe the expected relationship of the city and EDO with the developer and with the manager of the site, if different than the developer. In deciding the lead local EDO, consideration should be given to keeping certain developer information confidential. • The EDO board and its staff should establish policies about prospective developer contact with the EDO. Developers and related parties should have to contact the EDO staff prior to contacting its board members. This prevents undermining the authority of the staff. Many EDOs stipulate that answers to individual questions are provided to all prospective developers. Procedures should be specified in the RFP. • The lead agency may also want to include a local developer in the development and/or review of the RFP or hold a developer workshop to preview the RFP concept and solicit feedback. Many times, communities put together proposals that may look good on paper but in fact neither support the market nor prove to be economically feasible. Solicitation Document The solicitation document, with incentives (If relevant), should be approved prior to issuing the RFP. An RFP should include most or all of the following: - • Project concept and background: Type of development, how it "fits" with the rest of the area; • Market study or briefer market summary; • Suggested deal structure including public funding if appropriate; • Operational relationship; • Preliminary financial analysis (optional); • Schedule for project and developer selection; • Evaluation criteria and selection process; • Rules for contacting agency and political leadership; • Submission requirements; • Confidentiality statement. The responding developers should be given enough latitude to respond creatively. That is, the RFP should not be so rigid that it stifles conceptual novelty. It should demonstrate a way for the developer to participate and realize a return on investment and encourage the developer to respond with an even better way to participate and realize public and private objectives. The RFP should include a list of submission requirements (an RFP outline is included below): - • Corporate qualifications, information on similar projects; • Project team organization, individual resumes; • Developer understanding and approach; • Proposed development program and commitments; • Public-sector responsibilities; • Private-sector responsibilities; • Conceptual site plan and drawings; • Capital costs and financial deal (provide a standard form); • Financial credentials. The solicitation is the best opportunity to maximize the agency's influence in its relationship with the developer. - For example, the agency should require that all respondents complete a standard form so that proposals can be easily compared with others. The agency may require that the respondents commit to or comment on specific sensitive issues that will have to be resolved in negotiations. For example, if the subsidy depends on the public maintaining land ownership, state it in the RFP and request that developers comment. Prospective developers' willingness to adhere to the submission requirements and format will depend on the attractiveness of the development opportunity. For a very appealing opportunity, the agency should expect strict adherence. For less appealing opportunities, the agency may be lucky to get multiple responses. It should be noted that a development team may spend upwards of $100,000 to prepare a development proposal for a larger-scale urban project. Therefore, the public agency must be very sensitive to the cost and time commitment required to respond to an RFP. Marketing the Solicitation Document The solicitation document is sent to a list of developers to respond. This list can be compiled by drawing on various sources. - • Regional real estate journals; • Local commercial leasing guides; • Discussions with fellow professionals; • National organization annual directories (e.g., IEDC, Urban Land Institute, National Association of Industrial and Office Properties, International Council of Shopping Centers, state and local builders associations); • Responses to advertising in local and perhaps national newspapers; • Internet / e-marketing services. RFP Outline A successful developer RFP should be well put together and easy to understand. The average RFP includes the following components: - 1. Front Material; 2. Introduction; 3. Setting and Site; 4. Public Agency Development Program; 5. Public Agency Project Objectives; 6. Proposal Requirements; 7. Selection Process; 8. Supplemental Items. List main components of an RFP: - 1. Front material (cover, intro letter, RFP summary, TOC) 2. Intro (objectives, background, site overview) 3. Setting & site (regional/local/site with maps & demographics) 4. Public agency development program (origin & hx, general goals/obj, other project info, disposition) 5. Public agency project objectives (requirements, preferences, terms, resources/support) 6. Proposal requirements (developer credentials, project proposal: what? when? how much?, terms, responsibilities) 7. Selection process 8. Supplemental items (contacts, restrictions, certifications, confidentiality) Evaluation & Selection The responses to the RFP should be evaluated against criteria weighted by importance. Criteria typically include the following: - • Appropriateness of project concept; • Benefits to the community in terms of economic development objectives; • Financial risk and return to the development agency; • Knowledge and experience with similar projects; • Financial strength to consummate the proposed deal; • Design appeal (If applicable); • Thoroughness, creativity, and clarity of response. Developer Negotiations - Because of the complexity of large public-private deals and the need for greater flexibility during development, the selection of the developer is more likely to establish a broad framework. Typically, the selected developer is designated the preferred developer, subject to satisfactory negotiations. If the negotiations with the preferred developer are not successful, the developer of the second-best proposal is offered a chance to close a deal. Negotiations often take a two stage process. In the first stage, the development agency and developer draft a memorandum of understanding (MOU). The purpose of the MOU is to clarify early on both parties' intentions. Since it is non-binding, it can be negotiated relatively quickly. The MOU would clearly define the project's performance and schedule, obligations, and the responsibilities of various parties, including who will secure financing. It would set performance guarantees, option payments, and specify termination provisions. The MOU would be mutually executed as a non-binding document, establishing firm principles for binding negotiations. Disposition & Development Agreement - Once an MOU is developed and approved by the board, a more detailed binding agreement, known as the disposition and development agreement, is drafted. This agreement refines previous agreements, and defines and establishes a schedule for subsequent contracts required for development. It should require a developer deposit that is forfeited if they are unable to obtain financing. A real estate attorney should assist in preparing this document. The real estate development process has eight distinct phases: - 1. Phase I: Predevelopment 2. Phase II: Market, Financial, and Political Feasibility 3. Phase Ill: Site and Engineering Analysis 4. Phase IV: Financing (Debt Capital, Equity Capital) 5. Phase V: Contractor Negotiations & Public Approvals 6. Phase VI: Construction 7. Phase VII: Marketing 8. Phase VIII: Building Occupancy and Management Phase I: PREDEVELOPMENT (Site, Location, and Site Control): - • The outline of the real property development process bears a strong resemblance to that of a business plan; in essence, it is a business plan for an endeavor, which has the potential to be very profitable or very costly. • Most developers go through the planning process twice for a project. The first pass is a broad-brush attempt to find major problems with the project; if found, the project is likely to be scrapped. • During predevelopment, the developer or business considers possible sites. Alternately, they have a site and they are considering possible building sizes and uses. In discussions with prospective tenants, owners, lenders, partners, consultants, and government staff, the developer does a "quick and dirty" analysis of the project to conceptualize potential fatal flaws. If a project looks favorable, the developer will (if they have not already done so) secure site control. Two components comprise an initial assessment of development potential: - • The first is the site itself: its physical characteristics, access, and basic infrastructure. The other component is the location. This refers to the site's relative spatial position within the local context, including the convenience to customers, goods and services, transportation thoroughfares, and mass transit. • Site and location are particularly important in real estate because they are unique assets. A building is fixed in its location, and therefore its value is subject to its surroundings. For example, a building well-suited for retail conversion may be located in an area with poor transportation access. Site (Phase I) - Physical conditions, access, visibility, utilities, and parking are among a developer's first considerations when embarking on property development. In general, the more accessible a site is, the greater its market potential. The following are questions to consider when looking at the site: - • What is the topography and shape? How well will the site accommodate development or reuse? • How does the site "read" from the road? Is it easily visible from important high-traffic corridors? How does it look from the primary approach route? • Do nearby roads allow for easy access to the site? • How accessible is the site for private vehicles? Pedestrians? Mass transit? Truck and rail service? • What is the lot size? Is it adequate to support parking? If not, is affordable parking available? • Are utilities and public services (police, fire, etc.) affordable and adequate? Location (Phase I) - Regional characteristics are an important consideration in the formal market analysis. Regional transportation systems and spending patterns can be discerned through field observations, discussions with local business owners, and a cursory analysis of the area before a formal feasibility study. While a thorough market analysis is use-specific, there are some general questions that guide a brief analysis of regional characteristics: - • What kinds of businesses seem to be doing well in the neighborhood? Do they have plans for expansion? • What income brackets characterize local neighborhoods? • What is the regional transportation infrastructure system like? Does it provide ready access to the site and thereby increase access to a larger market? • What are the commercial traffic patterns among principal and supporting activities? • Is there access to mass transit? What is the level of usage by day, week, and hour? • What are private vehicular traffic patterns like? Where are the major thoroughfares? Are there any planned improvements or new routes? • Is there heavy-truck or rail service? What kind of uses could this site serve? • What is the size and location of the nearest airport? • How is transportation access to relevant support services, suppliers and labor? How long does it take to travel to