Real Estate for Regulators
An Inside View of the Real Estate
Transaction and the Impact of Liability
Sponsored by
Office of Brownfields and Land Revitalization
Rev. 5-08
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EPA
Table of Contents
Section I: Course Objectives and Agenda
Course Instructors
Section II: Presentation Slides
Section III: Presentation Graphs
Section IV: Breakout Exercise #1
Section V: Breakout Exercise #2
Section VI: Breakout Exercise #3
Section VII. Resources
Real Estate Development and Contaminated Sites
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Section I
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Section I
Course Objectives
Agenda
Course Instructors
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aEPA
Real Estate for Regulators:
An inside view of the Real Estate Transaction and the Impact of
Liability
Course Objective
To help participants develop an in-depth understanding of the development process and the
impact of environmental issues.
• The Course Goals are To:
• Provide an in-depth knowledge of the real estate development and finance
process
• Apply environmental decision-making to real development situations
• Improve skills in negotiating environmental agreements with developers by
better understanding the developers perspective
• Analyze real estate transactions and how environmental liability is managed
Real Estate 300 Course Description/Outline Page 1
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EPA
Course Outline
Day I
8:30 a.m. Registration
8:45 Overview
Purpose and goals of course
9:00 Module I: Seed Capital to Cashing Out:
How Finance drives the Development Deal
Real Estate 101 Revisited
The Role of the Developer
Different Perspectives
What is a Proforma’
Introduction to Leverage
Financing Phases
Sources and Uses Schedule
The Deal Structure
Types of Developers/Development
Upside down Properties
Small, Large, Tough & Ugly
Environmental Value Pyramid
Environmental Impact on the Deal
10:45 Break
11:00 Module II: Market Analysis: How the Pros and Locals Decide What to Build
The Real Estate Cycle
What is a Market Analysis?
Different Kinds of Studies
The Market Analysis Process and Market Data
What drives demand?
Supply influences
The Reuse Assessment
Development cycles
Recession or market turn-downs
Development in the Southeast vs. the rest of the Nation
12:00 Lunch
Real Estate 300 Course Description/Outline Page 2
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EPA
1:00 p.m. Module Ill: The Planning Process: Highest and Best Use vs. What will be
Permitted?
Highest and Best Use- How a Developer Analyzes a site
Planning and Zoning• Protecting the Community’s interest
Master Plans, Subdivisions, Variances
Zoning Analysis - what is regulated locally?
Characteristics of a Well Planned Site
Mixed use zoning/overlay districts/dealing with local officials
The Smart Code
What are the regulatory Steps to Site Plan Approval?
The Tasks required before the Site Plan is developed
2:00 Module IV: Deal Structure: The Real Estate Transaction
with Gerald Pouncey, Esq.
Deal Structure Alternatives
Leasing-interim uses
Options, purchase and sale agreements
The effect of Finance on deal structure
Settlement documents
Case Study Examples
Sources of funding- Public/private
Types of real estate and their influence on the deal
Transaction Components
Development rights and agreements
Documentation provided to banks and other financial sources/regulatory agencies
Title insurance/title commitments
Letters of credit
Trusts
4:00 Adjourn
Real Estate 300 Course Description/Outline Page 3
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a’
Day II
8:30 a.m. Coffee and registration
8:45 Module V: Deal Structure Continued: The Impact of Liability
Where are the Risks
Impact of Risk on Deals
Deal breakers
Risk is notjust Environmental
Risk Management Approach
Environmental Risk Management
Which Risks concern developers?
Risks and the Redevelopment Cycle: short, medium and long-term risks
Risk Allocation
Risk Transfer
Risk Reduction
Addressing the Liabilities- including windfall liens
Institutional and Engineering Controls
Case Study Example
10:15 Break
10:30 Exercise 1: You have found the property: What is the best use of the site?
11:00 Exercise 2: You decided to move forward. Review the environmental
information and develop a risk management plan for your project.
11:45 Exercise 3: Your Closing is Scheduled: The Bank is threatening to Pull the
Loan! Solve it!
12:00 p.m. Lunch
2:30 Group Discussion- Putting the Deal Together
3:00 Module VI: Financing the Deal- Sustainability and Project Finance
The Impact of Time on the deal
Sources of Funds Revisited
Cashing Out
The Role of Institutional Owners
Options for Cashing Out
Institutional Controls and Permanent Finance
Sustainability
3:30 Adjourn
Real Estate 300 Course Description/Outline Page 4
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EPA
Course Instructors
Michael B. Taylor, President, Vita Nuova LLC
taylor@vitanuova net
(203) 270-3413
www.vitanuova.net
Mr Taylor is a leading strategist in implementing redevelopment at brownfields, RCRA and Superfund
sites. He is an expert in public-private partnerships for redevelopment as well as in developing
strategies to get highly-encumbered properties back to the market. He works in some of the
toughest areas of the country, including small rural areas, inner city environmental justice
neighborhoods and some of the most contaminated sites in the country.
Mr Taylor chaired the ASTM task group for the National Standard on Sustainable Brownfields
Redevelopment. He has trained over 800 state and federal regulators in real estate and
redevelopment of contaminated properties and contributed to national brownfields and superfund
redevelopment policy. He was a graduate Rockefeller fellow at Yale University. where he studied
Environmental Science, Public Policy and Ethics He graduated Cum Laude in Urban Planning and
Economics from Roanoke College. He recently co-taught a course in Land Use and Environmental
Decision-making at Columbia School of Law.
Barry Hersh
Mr Hersh is one of the leading Brownfields developers in the country, having managed the
acquisition and redevelopment of over $200mm in environmentally-impacted properties nationwide.
His experience in the development field includes over 25 years in various positions including
Development Director for a municipality. Executive Director of a Community Development
Corporation, and senior development official for a Fortune 150 corporation.
He has served as a leader of dozens of community design workshops and charrettes including
waterfront restoration projects, corporate parks, and housing sites Over the past 5 years Mr Hersh
has, in partnership with Vita Nuova, taught real estate redevelopment to over one thousand USEPA
and state regulatory staff members Mr Hersh has led brownfield and waterfront community design
workshops throughout North America and in Europe He is currently an Adjunct Associate Professor
at the City University of New York, and has lectured at many other univeristies and organizations
Mr. Hersh is a leader in the development and planning fields, serving in numerous industry
leadership capacities He was the first chair of the Developers’ Group for the National Brownfields
Association, Chair; Finance Committee of The Waterfront Center, Board Member, Partnership for
Sustainable Brownfields Redevelopment, and is a member of the Urban Land Institute, NAIOP, and
the American Institute of Certified Planners.
Thomas Schruben
Thomas Schruben has had an extensive career in managing environmental risk, first as a consulting
engineer, then as a regulator with the U.S. Environmental Protection Agency, followed by nearly ten
years in the environmental insurance industry. He is nationally known for his extensive knowledge in
identifying, quantifying and managing of environmental risks. Mr. Schruben has developed wide
expertise in federal and State environmental regulatory programs including ha ardous waste listing,
Real Estate 300 Section I Page 5
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EPA
radioactive waste management, above ground tanks, underground tanks, Superfund, RCRA
remediatiori and Brownfields redevelopment.
Mr. Schruben currently consults on environmental risk management, redevelopment opportunities,
insurance recoveries for redevelopers, non profits, property owners, Facility operators
and State clean up funds. He also consults with federal and State environmental regulators on
minimizing environmental risk through redevelopment and technical policy changes to stimulate long
term control of environmental risk.
Mr. Schruben was instrumental in the establishment of national ASTM standards for environmental
risk management. He developed technical symposia for the Air and Waste Management Association
and is a featured speaker at national conferences and seminars on insurance and environmental
issues. Mr. Schruben obtained a B S degree in Civil Engineering from New Mexico State University
Real Estate 300 Section I Page 6
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Section II
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Section I I
Presentation Slides
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Course Objectives
• To help participants develop an in-depth understanding
of the development process and the impact of
environmental issues.
• The goals are to:
provide an in-depth knowiedee of the real estate deve opmere
and finance process
• appi environmental de sion-rnaking to real developqnent
situations
• improve skills in negotiating environmental agreements with
developers by better understanding the developers perspect;ve
• analyze real estate transactions and how environmental
liability is managed
Course Outline
• Modules
• I: Seed Capital to Cashing Out
• Ii: Market Analysis
• 111: The Reuse Process
• IV: Deai Structure
• V: Deal Structure Continued: The Impact of Liability
• VI: Financing the Deal
• Breakout Sessions
• Group Exercise 1: Determining the best use
• Group Exercise #2: Developing a risk management plan
• Group Exercise 3: Bank is threateninq to puU the loan
6EPA
Real Estate for Regulators:
I
An Inside View of the Real Estate
Transaction and the Impact of Liability
June 3-4, 2008
Atlanta, GA
Real Estate For Regulators
Section Il — Page 1
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odule I
From Seed Capital to Cashing Out:
How Finance Drives the Development Deal
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MODULE 1
• From Seed Capital to Cashing Out: How
finance drives the development deal?
Real Estate 100 Revisited
• The Development Model
• Pre-Development
• Idea, Refinement, Due Diligence
• Securing the Deal
• Contract Negotiation, Formal Commitment
• Development
• Construction, Completion and Formal Opening
• Management
• Property, Asset and Portfolio Management
Environmental Value Pyramid
• Real Estate/Environmental Value Pyramid
Real Estate value exceeds
remedlatloi cost
Upside down projects
6EPA
F
Mer inal,,//
Real Estate For Regulators
Section II — Page 2
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Two Perspectives
• Different perspectives on same property
• Shared terminology; different meanings
• Risk
• Due Diligence
• Time
• Residential
• Need to communicate effectively
a
&EPA
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Engaging Developers : A Risky Business
Real Estate For Regulators
Section II — Page 3
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MONEY”
Who is the Real Developer ?
• Developer Adds Value
Equity:
• must have money at risk
• Ownership:
• must have control of site
• FEnancing:
• must have financial capability to complete
project
• Tenant/User:
• must have tenant or capacity to attract
tenant/user
The Role(s) of the Developer
Planner
Promoter
Negotiator
Anaiyst
Creator
Promoter
Provider
Borrower
Negotiator
Promoter
Employer
Client
Manager
6EPA
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User s
Public
Gov/Neighbors
Financial
Entities
Development
Team
Real Estate For Regulators
Section II — Page 4
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Types of Developers/Developments
• Residential
• K. Hovn-3r1 rl
• Toil Brothers
• Retail
• Mills Cotporat on
• Taulman Centers
•BGI
• Office
• Mack-Call
• Tishman-Spever
• Mixed use
• Related Companies
• Avalon Bay
• Build to suit/ Industrial
• ussc Co.
Developers
• Buyers of Contaminated Real Estate
• Private Equity Purchasers
• Spedafty Development Companies
• Local Industrial Dev&opers
• Conversion Specialists- from industrial to
commerc Ial or to retail/residential/mixed use
What is a Proforma?
A statement that represents the probable future net
operating income of an investment property.
This could also be called an:
Operating or Cash Flow Statement
Income & Expense Analysis
APOD (Annual Property Operating Data)
6EPA
Real Estate For Regulators
Section II — Page 5
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• Improvements
284,000 ft’ industrial building
• Site Location
Sarasota, Florida
along 1 75
• Size
* 84 acres
• Historic Use
• Manufacturing
Examp ar o ’1
DI
• Redevelopment Plan:
• Renovate existing building
for office and light
industilal use
• Frontage.to be
restaurants, botei and
highway orienteii retail
• Back acreage to be big
box retail or distribution
Real Estate For Regulators
Section II — Page 6
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Example: Sarasota
• Acquisition Deal:
• Acquire and and building for $10 miflion
• $3 million remediation
• Seller provided with insurance-backed
indemnification
• Seller achieved appraised value rernediation
costs
Example: Sarasota
Exit Strategy:
a Improve groundwater treatment system to
reduce cleanup time to under five years
a Sell retail and industrial parcels when clean
a Lease existing building
• Refinance or sell when fully occupied
6EPA
Example: Sarasota
II
• Environmental
Issues:
• Active RCRA, HSWA
permits and
consent order
• Groundwater & SO
contamination on
and offsite
• 45 acre TCE plume
• Removing Stigma
Real Estate For Regulators
Section II — Page 7
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EPA
• Finance 101
Acqu non Cost
• Land
• Attorneys
• Insurance
• Development Cos
• Hard xsts
• Soft Costs
• Leverage
• Capitalization Rate
Introduction to leverage
EPro$.ctC! .
Ace.Isitlm. SG* Costs, d Costs, RmsdllIor Carry Costs
Toil Pro sct Costs ul 5100,0 (X)
Nat Op.rs6nq Incosos (1101)
Gross
Opsiating EitpflS 5
Nat Op .rating flconrs $10,000.
Cait on Cali Op.ralng RSim
NOtPro )sct Costs $1C000/$100 ,000 10%
L.v.roq.20% Dosn (Eq ty of $20,000). éô%Mor ($80,000)M 6%
Gross V ome $14000
Eop.n s ss
N iC i iF1on $ 200
Ls .d n
Nut Ccol FIoWE ity
$5,2 $20.000 26%
Pr*ol Valu. and CapNuIlzalon
NOVC.p Rut. Prc sct Si. Viii.
$10 ,00Q 10
Sarasota Prolorma
•n
= ‘----“
is,M1,IioPW $&Mji*
$100000
Real Estate For Regulators
Section II — Page 8
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&EPA
Value and Cap Rates
Value (V) = Net Operating Income (NO! )
Capitalization Rate (R)
$1,000,000 = 5120.000
12 %
$1,500,000 = 5120,000
8%
$ 857,143 = $120,000
14%
Value and Cap Rate
0
• Rate for typical property types
• Downtown office 8 5%
• Suburban Office 9 1%
• Industnal 8.9%
• Research & Development 9 2%
• Apartments 8.5%
• Full-service Hotel 9 8%
• Limited-service hotel 111%
• Community Shopping Center 9 1%
• Regional Mall 8.5%
Value (V) = Net Operating Income (NOl )
Capitalization Rate (R)
Example. $12,500,000 (V) $Q0J (f 1O )
8%
Capitalization Revisited
100,000 sf Office building Gross Rent $30 /sf
10 floors - 10,000 sf each Opel Expense $20/sf
NO! = $10/sf
• Tenant for I fir wants deal or 528/sf NOl would be $8/sf
• It remaining floors were rented at $30/st that lowers the
annuai NOl by $20,000 - tiom S 1,000,000 to 980,000
Real Estate For Regulators Section II — Page 9
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6EPA
.e2*
Example:
Sarasota
fl SP.$ISPuF M.
u__a
impact of
.1...1u.. ..
.nvironmen a
Increases and Delay
I2at’. ..
- . The r mcdiation
costs 52,000.000
- ‘ ‘‘ - more and
‘ ei. sr ua. o tmated to tak 2
t1 l years lonqer
l u _ A l _I ’
— I c , .. .e1. s i las
Example:
Sarasota
— . .._...... ““ ‘ “ • What if the
msD.,,n, u
remediatuon takes
longer
• What if the
market softens
u_,.. ,. . .- _ , , •,u_ • Rental rate drops
• - 1* 11w to $15 sr from
1BPSF.
Th capitalization
rate on aIe rises
to 9 5% from
6 5%
Financing Sources and Uses
• Sources ‘ , . —
and
uses -
i.. . s.._
Real Estate For Regulators Section II — Page 10
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6EPA
Pl IC 1
I i
1 vi t Mo lIflOQIW
Si n 1 fmanang taken mat
:I The Deal Structure
I I
eeI4. Soti
Co, .eifliona PJUI85C(J
ri n r
Otitil Rtistnjcturttd
Some Unconventonal
firmnang taken out
II
How Finance Drives Deals
Real Estate For Regulators Section II — Page 11
tJ i E’ ra
Deal Is sold
Major Wall
St tim
purchases
den
Permtinont
f tnancu t9
- all cash taken
out of the deal
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odule2
Market Analysis—How the Pros and Locals
Decide What to Build
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&EPA
• Market Analysis - How the Pros and
Locals Decide What to Build
MODULE 2
II
The Real Estate Cycle
Recovery
t
Peak
4
Trau Downturn
Real Estate For Regulators
Section II — Page 12
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Market Analysis and Feasibility
• Who will be the end-user
• What price will end-user pay
• The impactof
stigma
• Predevelopment
marketing
• Build-to-Suit
What is a Market Analysis
• The purpose of a market analysis is to identify
opportunities for growth and development within the
market.
• Three key questions should be answered by the
study:
1. Will there be users to rent or buy the proposed
product?
2. How quickly and at what rent or price will the
proposed project be absorbed in the market?
3 How night the oroject be planned or marketed t
make it more cornpetiti e in its market?
Who Uses a Market Analysis
i _ •. . t .
6EPA
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Real Estate For Regulators
Section II — Page 13
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Different Kinds of Studies
• What are the different kinds of studies?
• Studies that focus on the market include:
• Analysis of local economies
• Market analysis
• Marketability analysis
• Studies that focus on individual decisions
include:
• Feasibility analysis: Most often related to
financial feasibility.
• Investment Analysis: Evaluates a specific
property as a potential investment.
Market Analysis Process
• Identify objectives
• Determine methodology
What data is available
• How is data measured
• Collect data
• Primary
• Secondary
• Analyze data
• Growth trend analysis
• Supply I demand analyes
• Draw conclusions
‘Market Dath< - How to Find it
• Pnmary
• Drive by look at the area
• Interview - talk with people
• Secondary Data
• Professional / Trade Organizations
• Brokerage community
• Census data
Town / County records
• Government agencies
• Chamber of Commerce
• Data Vendors
6EPA
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Real Estate For Regulators
Section II — Page 14
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6EPA
What Drives Demand?
• Apartments
• # of households, ace, income, inrerest rates, affordability,
apartment rents, housing prices
• Office
• t mpiovment in ndustries wiLt a Piiçjh perccntaçjt of office
woricers ( ttornuvs, accountants, engineers, r surance, etc.)
• Warehouse
• C p cyrnent in ndustries tti
use warehouses
(wholesaling, trucking.
distribution, assembly, etc.)
• Retail
heusehoid income, age
gender, population, s ze
and Lastes/preferences
a...
tj C*a*•.i , Sa
accurate land use
picture
1
I
• Vacancy rates
• Interest rates/availability of financing
• Age and quality of existing stock
• Construction costs
• Land costs
Was w e us’
iiiiIiIIlIIii
Real Estate For Regulators
Section II — Page 15
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&EPA
Property types that have longer construction
times have more severe cycles
Construction Time
6-18 months
18-24 months
18-24 months
24-48 months
• Apartments
• Si urban garden walk-up
• Urban mid, high-rise
• Office
• Ssturban low-rise
• Csoniid,highrrse
Reta
• Strip/stand-alone 6-12 months
• Neghborhood/communfty 12-24 months
• Enclosed malls 36-48 months
Warehouse
• Suburban, single level 6-12 months
. Site Assets and Constraints
Reuse Assessment
• Property features
• Topography, natural features
• Property location and access
• Relation to highways and traffic patterns
• Relationship in region
• Stigma — not just environmental
• Environmental constraints
II
• Property Charactenstics
• Acreage
• Topography
• Existing improvements
• Infrastructure
• Zoning
• Physical setting
• Property features
• Property location and Access
• Nerghbonng land use and municipal development plans
Ownership and Use
• Current and historical of past uses
• Ownership
• Current owner or purchaser preferences and plans
I
Real Estate For Regulators
Section II — Page 16
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6EPA
• Economic Synergies
Economic trends
Reuse Assessment
• Growing industries
• Changing markets
• Demographic trends
• Popu$ation thanges and patterns
• Opportunities for public/private
partnerships
• Available incentives and programs
• Real Estate Market
Land Use Matrix
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II
Real Estate For Regulators
Section II — Page 17
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6EPA
Real Estate For Regulators
Section II — Page 18
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Market Reports
• Geographic Focus
• National trends
• Major urban markets
• Related suburbs
• Data
• Vacancy rates
• Rental rates
• Market activity, absorption
• Construction activity
• Outlook
• Property types
• Office
• Warehouse
• Multi -family
• Single family
• Industrial
• Retail
The Economic Picture
Metro Atlanta Office Market
• Metro Atlanta Office Market 1Q 2008
• Vacancy rates steady
• Reduced activity; leasing has leveled off
• Net absorption fell
a Strong population growth
spurs continued construction
Nø
EPA
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Real Estate For Regulators
Section II — Page 19
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6EPA
Metro Atlanta Office Market
Metro Atlanta Industrial Market
• Industrial Market 1Q 2008
• Decreased level of activity
• Steady leasing; lower sales
New construction primarily outside submarkets
Metro Atlanta Industrial Market
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Real Estate For Regulators
Section II — Page 20
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6EPA
Southeast Retail Marke
• Snapshot of the Southeast Retail Market 2008
• Atlanta subur ban retail continues to expand
• Columbia developers are struggling
• Greenville-Spartanbi rg major projects or’ hoid
• Jacksonville land pnces are stable
• Miami Soi.tl’ Beach remains strong
• Mobile retail market hds stabilized, limited growtl
• Nashville has mirirnal new constrr ction
• Orlando inline shop space has 5lowed
• Richmord has 3 7 million s’ coming online
• Tampa’s new retail is being developed on a pre-
leased basis
Warehouse Space
• Snapshot of Southeast Warehouse Market 2008
• Atlanta vacancy above the U S average
• Broward County absorbed nearly 500,000 sf
• Charicston multimodal logistics project in works
• Greenville-SpartanbLrg attractive for distnbution
• Jacksonville-la’port terminal expansions continue
• Miami continued demand for warehouse space
• Memphis has neariv 3 3 million sf ft of new space
• Mobile container terminal openirg next summei
• Nashville warehouse sector remains in high demand
‘C”
‘-4
Real Estate For Regulators Section II — Page 21
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odule3
The Planning Process: Highest and Best
Use vs. What will be Permitted
-------
• The Planning Process: Highest and Best
Use vs. What will be Permitted?
MODULE 3
Conceiving the Project
• Highest and best use
Mixed use/commercial/residential
• Reuse Assessment
• Developers start with the current planning
and zoning
• Historic use patterns
• Want to build what the market wants
• Creativity
• •
• 3 Alternatives for Selling the Property
1. Sell the property to investors who would
then lease it out.
2. Sell the property for a redevelopment
into residential condominiums,
3. Sell the property to an end user.
a.
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Real Estate For Regulators
Section II — Page 22
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6EPA
Determining Highest and Best Use
1. Sell to investors
• Cu’ ent Market Rerts are I0/sqLIare foot
• Current Opeiatl9g Uxpei’ses a c $3/sq foot
• Annt ,al Net Opernting Incom
Gross Rents (30,000 Sf x $10/sf) $300,000
Operating Expenses (30,000 Sf x $3/sf) 90.000
Net Operating Income (NOl) $210,000
• How much is that income stream worth?
Determining Highest and Best Use
2. Sell for redevelopment into condos
• Cost of Development $39,836 ,000
• Acquisition $ 2,000,000
• Other Costs $37,836,000
• Proceeds From Sale
($250/sf x 180,000sf) $45,000,000
- Potential Profit $ 5,164,000
Determining Highest and Best Use
3. Sell to an End User
Two offers were secured from end users
• $2,600,000 - $2,700,000
• Costs to present owner.
• move to another location for $400,000
• pay a brokerage commission of $100,000
• Net Proceeds $2,200,000
Selling the property to the end user is
therefore the highest and best use
‘ ‘-S
9-,
SM ..
Real Estate For Regulators Section II — Page 23
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Planning
• How can planning help?
• remove impediments
• create value in site
• gain buy-in
• make best use of site assets
• create new assets
EPA
I-
• Planning Strategies
• Assemble Parcels
• Make use of natural
features/resources
• Parcel Site
• Create synergies
between sites
• Create transportation
assets
\‘
t
A
• Environmental: topography, geology, water,
wetlands, soils, vegetation
• Use Categories: residential, commercial, industrial,
institutional
• Intensity: density, size, setbacks
• Character: historic, design
• Access: transportation, visibility
• Legal: Ownership, restrictions, property rights,
zoning
II
Real Estate For Regulators
Section II — Page 24
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Land Use
in general, there is a Planning Department with
decision making guided through:
- Planning Commission made up of local
representatives, usually advisory to a City
Council and Boards
Zoning Variances:
- Board of Appeals aka Board of Adjustments
handles variances where zoning presents a
financial hardship
6EPA
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1
Real Estate For Regulators
Section II — Page 25
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EPA
a -
—
• Conventk iaI
Zonkig
•
.k ’4. •.-
! -
Transect Zoning
Real Estate For Regulators
Section II — Page 26
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&EPA
Real Estate For Regulators
After
4
A. 44
Shopfront & Awning
Section II — Page 27
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GEPA
Real Estate For Regulators
Section II — Page 28
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Before the Site Plan
• Conduct site analysis
Physical Attributes and Constraints
• topography
• physical access to site
• site relationship to region
• subsurface geology
• wetlands
• utilities
• Obtain current survey to use as engineering
base
‘-4
Zoning Analysis
• Conduct zoning analysis
• review zoning code
• permitted uses
• area and buik regulations
• perform build-out analysis
• Identify potential zoning amendments or
revisions
• Identify required permits and approvals
• Requirements vary state to state, county to
county and town to town
Site Plan Design
• Site planning is multi-phase process
• Many iterations are completed as the plan
goes through the approval and permitting
process
• What is included in a site plan?
• Site Layout
Grading & Utilities
• Landscape & lighting
• Storm water management
• Wetlands delineation, if applicable
,_ (\
Real Estate For Regulators Section II — Page 29
&EPA
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6EPA
Required Approvals and Special Permits
• Approvals
• Situ Plan AJ)prcraal (oCal Planninu Bciard 3r COmmbcIQfl)
• Su dr son Appic,vei (local Plernirg Boa d o Coi miss ot-)
• onng Arnendmen (local Zorlng f3oaid of Appeals)
• Spetia bSe pstnl (loca ZBA)
• Fnvironrnent i lrpoct M lycis arlc 1 ipprova (Lcad auorr’s
— local p am ng oodrd or Stjiti envuronm€n sl rt’gulatuTy
• Potential Required Permits
• Water Supp Perm I Stat Or cot fl DO’l Or a e
envlronrnenel regu atoly agencY)
• Was ewater I 1e3:mert System DecmI (Sza c or couI’t’: DOll
or state env ronmenta recu atory agenq,)
• Storm water Porrnt (State en ’. ’ rorinertta regu a.crv
aoenq )
• W. tlar ’ds pr’rnirts (State W l idc cm r. USACOF ‘emit)
a;
Real Estate For Regulators Section II — Page 30
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odule4
Deal Structure:
The Real State Transaction
-------
MODULE 4
• Deal Structure:
The Real Estate Transaction
Deal Structure
9.
• Buyer! Seller Agreements
• Informal
• Term Sheet
• Formal
• Option
• Purchase and Sale Agreement (Deposit)
• Letters of Confidentiality
Addressing Liability Protection
• Contractual/Private Mechanisms
• Regulatory assurances
• Environmental insurance
• Institutional controls
6EPA
r
Real Estate For Regulators
Section 11—Page 31
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Financing Phases
• Land Acquisition
• Special terms for contaminated sites
• Purchase money mortgages/joint venture
• Construction
• Including remediation
• Permanent Sources of Capital
Debt
ncing Phases
High/Medium Risk Meditrn Risk
flWZ23fWW flf- flg
ow Risk - Co!w.
t w.k
6EPA
r
• Addressing Liability Protection:
Contractual/Private Mechanisms
• Preliminary & Pre-closing Agreements
• Representations & Warranties
• Indemnifications
• Environmental Covenants
• Allocating Financial Risk
Land
Construction
Peffnanent
Real Estate For Regulators
Section II — Page 32
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6EPA
Settlement Documents
I Purchase and Sale agreement
2 DeposIt Escrow Agreement
3 Environmental Escrow and
Remediation Agreement
a Legal Description of Property
b Copy of Trenuter Act Form III
Filing
C Initial Environmental
Rmilediatlon Plan
d Copy of Indemnily Agreement
e Purchaser’s Proposal for
Environmental insurance
I Purchaser’s Proposal for Pollution
Uability Insurance
q Descnption of Environmental
Worli
h Copy of Latter of Credrl
I Copy of EnvsoScience
Consultants Contract
I Indemnity Agreement
a Nat Worth Letter — Ancona
b Net Worth Letter — Javelo
c Net Worth Letter - Sutton
5 CertifIcate of Conversion
6 Warranty Deed
7 Conveyance lax Stalements
a Stale
b Local
8 Assignment of Leases
Settlement Documents (cont’d)
9 FIRPTA Affidavit
10 Oosirig Statement
11 Seter’s Axtides of Organization
12 Seller’s Consent so Actien
13 Seller’s Celillcate of Legal
Existence
II Certificate of Legal huistence
for Seller’s Managing Member
15 Purdiatars LLC Operalirig
Agreement
ie Purchaser’s Consent and
Resolution
I Purchaser’s Certificate of Legal
Esistence
18 Survey
19 Owner’S Affidavit
20 Affidavit re Targetedi
21 Phase Il/Ill Environmental
Assessment
22 Tenant Estoppels
23 Landlord EstopSel
24 List of Estoppels Delivered in
January 20004
25 Notices to Tenants
26 DEP’s Post•Clonng
Adurowledgement of Form III
Filing
27 DEP’s Post’Oosin Revocation
of Convent Order No WC 1501
Example: Cleveland I
Cleveland Deal Stnicture
Corporate Owner
• wanted to sell quickly
• already had remediation plan
• low price
• correctly perceived no big upside opportunity
Financial Structure
• pre-arranged funding sourCes
• included conventional mortgage and mezzanine debt
• resulting in 95% leverage
Real Estate For Regulators
Section II — Page 33
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Example: Cleveland
• Environmental liability structure
• PRP group led by corporate owner kept soil and
water contamination responsibility but used Ohio
brownfields program including area-wide
groundwater plan.
• Buyer responsible for above ground” remediation,
included asbestos, lead and wood block flooring.
• Both turned out somewhat more expected than
projected — but not extraordinary.
• Buyer has Pollution Legal Liability insurance.
• Both cleanups done in 4 years as required by
contract
9.
EPA
r
Real Estate For Regulators
Section II — Page 34
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6EPA
• Site Location
Cleveland, Ohio, East Side. within 2 r.
II
• Size & Improvements
• 57 acres
• 758,000 - 3 buildings
• Historic Use
• Manufacturing, warehousing
• I building having small office component
Environmental Issues
• Lead paint/dust, asbestos
• Subsurface solvents, metals. PCB’s. hydrocarbons
• Asbestos in underground tunnel system
The Strategy:
• Favorable tax treatment
• Assistance on remediation
• Met with neighbors
• Security
• Renamed Nottingham Business Park
• Marketed through broker
Real Estate For Regulators
Section II — Page 35
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6EPA
Example: Cleveland
Acquisition
Purchase as is $500,000
solt COStS 1; a legal. etc 5100.000 600,000
Probable remediatlon costs
.tbo o ground 5700.000
borne ground 700 000
General fis.up costs
primmsi landscaping $2 Q .QQ 250 000
Environmental Insurance
cost of premium S 75 000 75.000
cc buf t ,cIi & 6aen $1. 5OO
Example: Cleveland
Rohabbing good building.
$10.51 s160,000 51.600 000 51,600,000
Carrying conic
acquisition 1 yr 7% 42 000
other Syenr at 7t i 91.875
teacing comm s .v ..s. ,.i , 160.000 293,875
R.I b iog.M n tttg $L 875
Total project costs escludtng bldgs I &
Example: Cleveland
Total value of project excluding bidgs I & 2
Not uf buildIng 3
net rentel of $4/sf (i60 000 vs $4)— S 640000
capital value of vol — 5640.000 — $ 4 571.429
cap rate 14%
morgtn between total costs and total value
154571.429 $3 518987) S 1.05244?
p
Real Estate For Regulators Section II — Page 36
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6EPA
Example: Cleveland
• Baggage In Deal
• Not unusual to have components that do riot work
• Building #1 440.000 sf
• Short term NOl of 5190 000
• Retnediatiori costs S350.000
• Other asperises $200 000
• Annual carrying costs 5200.000
• Budding #2 180,000sf High bays
• Sold in Year 4 $750,000
• Remediatlon costs $350 000
• Carrying coit -4 yrs $360,000
• Plus brokerage
Real Estate For Regulators Section II — Page 37
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odule5
Deal Structure:
The Impact of Liability
.1
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6EPA
• Deal Structure:
The Impact of Liability
MODULE 5
11
Developers
• Buyers of Contaminated Real Estate
• Pnvate Equity Purchasers
• Specialty Development Companies
• Local Industrial Developers
• Conversion Specialists- from industrial to
commercial or to retail/residential/mixed use
The Upside Down Property
Acquisition cost
+ Environmental cleanup costs
÷ Other environmental liabilities
Value of the Site Clean
+ site development
+ taxes and liens
÷ Soft costs/marketing/planning
Value of the Development
Real Estate For Regulators
Section II — Page 38
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EPA
Small, Large, Tough, Isolated and Ugly
• Location, Location, Location
• A contaminated site in a good location is
relatively easy
• Ris¼ issues are more manageable when tt’e
market analysis is positive.
What happens when the market analysis is
bordeiline?
• How can redevelopment at occur on
marginally or negatively valued properties’
• What strategies can be used to create value’
Risk Management
• Every developer approaches risk in their own
way.
• How does the developer identifles, controls
and transfers risk ri the development of
contaminated property
• Caution: Developers may not manage risks in
the same way as regulators
Liability is considered a risk
Where in the Process are the Risks?
• Purchase Phase
• Quantifying Remedrabon costs
• understanding reaulatory pathway
• Can be insured’
• Can lea) sbi wQr
• Building Phase
• Unknowns
• Tin’irq uncertainty
• Cost over runs
• Exposure
• Improcer disposa
• Regulatory change
• Permanent Financing
• No further act’on
• Change ii regulatory
prcces .
• Impact o’ ns ituflonai
COfl•jOl s
• Moniionng costs
• Role of insurance
i, t .s
a
Real Estate For Regulators
Section II — Page 39
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Risk Management Approach
• Risk Management Approach
Proper sequencing of:
• Risk identification
• Risk control
• Risk transfer
‘-4)
Environmental Risk Management
Which Risks Concern Developers?
• Cost over runs
• Deveopers like to piecict the costs early and s a
be ow their early cost astirnates
• Time delays
• 1 l tn proleLt i delayed
• interost on loans accumulate,
• loan covenants lall into violation,
• construaion seasons dose,
• CorIStnJCt’on matenal pnccs increase
• Legal entanglements
• LiaDlity arising from nature of coptamiriatron
• Multip e 1-ederdi, State and Lrxal reqjr-ernents
• Land use restrictions
6EPA
Real Estate For Regulators
Section II — Page 40
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EPA
Which Risks Concern Developers?
• Existing Property and title encumbrances
• Lnvestor and Bdnk 5 ivord popertles thdL have
e nsting t tie pro,f ems
• Stigma and its relative — liability potential
• developers m y go beyond ceen up iequirem ’its to
minimize either or both stiqm a- potsnti3l liab ity
from wntdrnndnLs
• Unidentified or Changed Regulatory Requirements
• Cause delays a d unanticipated costs
Risk Allocation
• Contracts can allocate risk amongst the
parties in any number of ways
• An indemnification is only as good as the
financial backing
• Banks and lenders are more sophisticated in
their review of indemnirications
• This increases the capital needed
• The government sometimes takes on risk
Contract Negotiation:
Addressing Liability Protection
• Government Assurances
• Comfort ietterb
• PPAs
• Involvemenc in the Deal
• Windidli Lien
• Allocating Risk Under Superfund
• Consent Decrees
• Prospective Purc aser Agreements
• Comfort Lptters
• Contanhulated Aaufer Potty
• Lender Liobul ty Amendnienc
Real Estate For Regulators Section II — Page 41
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6EPA
Risk Transfer
• Types of insurance
• Small projects are not always worth insurance
• Developer can negotiate for large policies
• Who gets coverage?
• Selleis, buyers, municipalities, development
authoi ities
• When is insurance appropnate’
Risk Transfer
• The large print granteth and the fine pint
taketh away
• How to review coverage arid terms
• Financing insurance as part of the project
cost
• The cost of the insurance is added Into the
pro forma for the project
• Who pays for the Insurance?
• It’s all part of the deal
0’
The Process: Contract Negotiation
• Environmental Insurance
policies can be used stand alone or supplement
an indemnity agreement
• Third-party bodily injuly and property damage
• Remedial action costs
• Legai defense expense
• Business interruption and Costs of project delay
• Remedial action cost cap or stop bos
• Coiiaterai value or secured oeditor ioss
• Environmental condition(s) at third party disposal sites
resuiting from wastes generated at property
Real Estate For Regulators Section II — Page 42
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Risk Reduction
Developers need to know ASAP what their
legal liabilities are and how they can protect
themselves in the deal.
Must factor costs of liability protection into
pro forma
• Risk —Reward Contract
Case Study
I
EPA
F
0
I I
Real Estate For Regulators
Section II — Page 43
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EPA
The Balance Sheet
• Former ball bearing plant
• Appraised Value- $4.7 mil.
• Potential Remedlatlon - $3 to 6 mu. Cost
• 70% leased! breakeven
• No Interest from Commercial Market
Risk Management
Historical Consent Orders —
• Contaminated Property Transfer
• Hustoncal contamination costs exceed
property value
• Owner’s goal - liquidation - property and the
future environmental responsibilities
• Remediation will take 10+ years
Property Disposition Strategy
Manage the environmental risk by selling
• Find prospective purchasers willing to
complete the environmental work
• Establish the current environmental
conditions
• Clarify sellers objectives and to present those
objectives to prospective purchasers.
• Evaluate prospective purchasers
• Negotiate purchase and sale contract
Real Estate For Regulators
Section II — Page 44
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Purchase and Sale Contract
Remediation plan included:
• Transferring existing consent orders
• Meeting State Transfer Act requirements
• Developing clean up plans
• Conducting the clean up and post clean up
monitoring
• Pursuing responsible parties
Terms to Ensure Success
Manage environmental nsk with:
• Contractual guarantees,
• Obligations,
• Indemnities,
• Representations and warranties;
• Establishing a remediation fund;
• Financial incentives and penalties;
• Insurance; and
• Continuing progress review.
How Do You Know It Will Work?
Testing contractual terms under a variety of
scenarios
Continue to monitor progress
6EPA
Real Estate For Regulators
Section II — Page 45
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Suc cess!
So far so good...
• Developer took over regulatory obligations
• Developer and seller cooperated on
remediation plan
• Developer improved cash flow
• Developer located remediation funds
6EPA
II
ieäköutäseStudy
S
Real Estate For Regulators
Section II — Page 46
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Development Areas
Midville Enterprise Market Analysis
• Site Characteristics
• Site Details:
• Size: 30 acres
• Current Zoning: CD-4
• Location
• Intersection of Midville Beltway and Major Arterial road
• In northwestern neighborhood - to the north of central
business district...mix residential and commercial
• Transportation
• Major interstate loop cirdes city, most heavily traveled
highway in Midville
• Light rail station located onsite
• 8minutestodowntown
• 2 Bus Lines to downtown and to neighborhoods North
&EPA
Real Estate For Regulators
Section H — Page 47
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6EPA
r
Midville Enterprise Market Analysis
4 Major Universities I,
• Geographic Location
• Major Metropolitan City
• Midwestern United States
a Population
• 335,5000
• 20% growth since 2000 census
• City Attributes
• Served by two largest highways
a International Airport
Midville Enterprise Market Analysis
• Psychographic Groups
New BegInnings
• 1Md. 35. 529w Woo ..
00010
• Rs .( . .o . —
No. rnwablarn oso. ©ww
Grey Power
• Oo l& $1 .00 Woo,,.
• Ho.,. oo.*g .Obo,b.ab 0+0
_ ‘9 —. o0+ 0 ,.Nolala ,I
• Cob, .o.o. , ., —,
• Population Data
income
Midville Enterprise Market Analysis
a $69,800 Median Family Income
• This is 66% growth from 1990
• Highest MFI in the State
Population Growth
a 13,301 new residents from 2004 to 2005
• 20% growth since 2000
• Population expected to increase by 55.9% by 2030
Population Density
• Currently 2.67 persons per acre
• Expected to grow to 4.6 persons per acre by 2030
Young Influentials
bso.doo , ,oyA o ,L 9,Iohaaa+
1.o5.. ab 10
10 0 0
Subiatan Sprawl
td . 25 41. 190.00+0, . .
M .0+oo. Do...
• Jog,. Pla ’d 1000+10. o+1. ,
—, o.a
Home Sweet Home
0900 110+100010. lo.d 10 110 1S. G01 lb
Boy TV lab, 5.009010.9010 ,,w+1s.. .101010 bod. 5 . . *510 o.lbjoNo
II
Real Estate For Regulators
Section II — Page 48
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6EPA
Midville Enterprise Market Analysis
• Employment
• Employment
• 3.8% Unen ployrnent
• has fallen by 1.6% since 2003
• Employers
• State Government is the largest employer
• Technology is the largest growing industry and has the
largest growth in employment
• 4 major universities and colleges are located within
the Midville metro area
• Growth
• In 2004 49 major companies anno inced new
operations or expansion in Midville.
• This growth is expected to add 1906 jobs in 2005
Permitted Uses
• Retail Sales
• Wholesale or showro
• Commercial Office
• Hotels, Motels
• Commercial Office
• Governmental auildIngsj l
Midville Planning Considerations
• Development Area
20% Circulat on
15% Open Space
• t 5% Maximum Coverage
• Bulk Limits
• Retail
• max 20,000 sf per acre
• Commercial Office
• max 20,000 sf per acre
• V’larehouse/ Industrial
• max 15,000 sf per acre
• Residential
• max 15 dwelling units per acre
S
CD -4
S
I
L
• Warehouse
• Light Manufacturing
• Multi-family Residential
Real Estate For Regulators
Section II— Page 49
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Midville Planning Considerations
• Parking Spaces Required
Residential — 1 per unit
• Retail — 4 for every 1000 Sf
• Office 4 for every 1000sf
• Warehouse/Industrial 2 per 1000 Sf
• Height
• Retail: 2 story max
• Commercial Office: 2 story max
• Warehouse/Industrial: 1 story max
• Residential: 3 story max
Midville Redevelopment Alternative
EPA
I-
Characteristics of a Well Planned Site
Open Space
/ —TOO
Real Estate For Regulators
Section II — Page 50
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Midville Redevelopment Scheme A
Scheme A Pro Forma
• A 20,000,000 asking price
• High density mixed use live-work-shop development
• Adaptive reuse of the existing building with new stories added
• Area 1: open space
• Area 2: 86400 st resider.ta space
• Area 3:
• Renovated space = 248,000 sf retail; 89,000 sf industrial
• New cor ruction = 138,800sf retail; 11,800 Sf office
• Area 4: 8640() si residential
• Area 5 13000 sf office; 354,S00 si residential
• Area 6: 54,400 sf retail; 25Z,800 f Cffic ;
36,000 Sf residentlal
• Cash on Cash Return of 33.62%
EPA
r
Midville Redevelopment Scheme B
Real Estate For Regulators
Section II — Page 51
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Scheme B Pro Forma
• A 20,000,000 asking price
• Predominantly residential
• Existing building demolished
• Area 1: 154,800 sf residentia’
• Area 2: 163,200 sf residential
• Area 3: 172,800 sf residentia
• Area 4: 86,400 sf residential
• Area 5: 165,600 sf retafi; 481,200 sf residential
• Area 6: 115,200 sf retail; 307,200 sf residential
• Cash on Cash Return of 10.75%
Midville Redevelopment Scheme C
Scheme C Pro Forma
• A 20,000,000 asking price
• High density mixed use commercial development
• Adaptive reuse of the existing building with new
stories added
a Area 1:
• Area 2:
• Area 3:
57,600 sf retail with 57,600 sf office
25,600 sf retail with 25.600 sf office
89,000 sf industrial;
163,700 sf retail; 84,300 sf office
• Area 4: 86,400 Sf retaii with 86,400 sf office
• Area 5:173,400 sf retail with 173.400 sf office
• Area 6: 58,400 sf retail with 58,400 sf office
Cash on Cash Return of 52. 7 0%
6EPA
r
Real Estate For Regulators
Section II — Page 52
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BREAKOUT EXERCISE #1
Plan the Redevelopment
• Deds on: Can this development make
money given what you now know?
• Review the alternatives Schemes A,
B, C
• Review the pro formas for Schemes
A, B, C
• Apply what you have learned to pick
an option
• Report on what option you chose +
why (2 mm)
6EPA
Environmental Impact
Real Estate For Regulators
Section II — Page 53
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BREAKOUT EXERCISE #2
Liability and Risk
• Discuss specific liability and risks that need to
be addressed prior to closing on the site
• Identify potential alternatives to address the
identified liabilities and risks
• Develop a risk management plan to address
the identified liability and risks
BREAKOUT EXERCISE #3
Dealing With The Unexpected
• Discuss potential alternatives to keep the
light rail station on track
• Develop a plan to address the concerns of
the bank and Regional Transit Authority
V
Real Estate For Regulators Section II — Page 54
6EPA
-------
odule 6
Financing the Deal: Sustainability and
Project Finance
-------
MODULE 6
• Financing the Deal — Sustainability and
Project Finance
Impact of Time on the Deal
.2 Year Development Schedule
Yea,
0
1
2
Total
Purchase PrIce
(1,000,000)
(1,000,000)
Cash Flow
(500,000)
200,000
(300,000)
Sale PrIce
2,000,000
2,000,000
Cash Flow
(1,000,000)
(500,000)
2,200,000
100.000
Rewni or
lnvuutmnt 48.7%
RR
28.4%
Impact of Time on the Deal
. What happens when it takes longer
Year
0 1
2
3
4
Purchase Price
(1,000.000)
Cash Flow
•
.
(500,000)
200,000
Sets PrIce
2.000.000
Cash Flow (1,000,000)
(500.000) 2,200,000
Rh 13.1%
EPA
Real Estate For Regulators
Section H — Page 55
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Sources of Funds Revisited
— — a _ I n_ , U-
iitafl an. aM
z-
I : ij :;;
S TW SSST. rrn s ’ risn
Options for Cashing Out
• Sell and pay capital gains
• Refinance debt and pay no taxes
Cashing Out
ft quisltion Purchase Pnce S 9,000000
Insur , Attianeys. etc 200000
Hard Costs Remeduatuon 300.000
Rehab of Existing Bldg
(210 ,000w X’S S 151s 1) $ 4,050,000
Roads & Utilities 200,000
Soft Costs kchltects, Land Use 650,000
Real Estate &okers IQQ.QQQ
8% aS acculsuflon costs(2yrs) 1,472.000
10% of all other costs (lyr) 530,000
Carr’,ing
Costs
Total Pro3ect Costs
2002000
5 16 . 502 ,000
Real Estate For Regulators . Section II — Page 56
S 9.200,000
4550,000
750,000
&EPA
-------
&EPA
Cashing Out
Value: Gross Income (270,000sf x $18/sf) $4,860,000
Operati Expenses ($10 59sf)
Net Operating Income (NOl) $2,000,000
Sale Pnce = NOl/Cap. Rate $2 MM/8 5% $23.5 MM
Project Cost i6.5 MM
Potential Profit on SaleS $7 MM
Should the Developer Sell’ Is There Another Option’
NOI/ Debt Coverage = Cash Available for Debt Service
2.0 MM/i 2 = 1 65 MM
Cashing Out
Interest rate of 6.0%, 25 year amortization penod
Maximum achievable mortgage= $21.3 MM
$16.5 MM
S21.3 MM
Total CostS
Total Mortgage
Equity in Property $0
Cash Taken Out of Deal $5.2 MM
The Role of Institutional Owners
• Institutional Owners
• REIT5 (Real Estate Investment Trusts)
• Pension Funds
• Insurance Companies
• Common Elements
• Long term time frame (10 years or more)
• Well capitalized
• Professionally Managed
Real Estate For Regulators
Section II — Page 57
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Institutional Controls and Permanent Financing
• Does the Control place a burden on the
lender in the event of foreclosure?
• Does the Control limit resale options in the
future?
• Is the Control communicated to all
stakeholders?
• Is the Control easily modified based on
changed conditions?
a...
Institutional Controls
• Administrative or legal mechanisms used to
protect public health and the environment
• Control exposure
• On-going remediation
• Change in Ownership
• Change in use
• New standards
• New conditions
Institutional Controls
• Pnvate Controls
• Deed restrictions
* Restrictive covenants
• Easements
• Regulatory Controls
• Zoning
• Permitting
a Consent orders
• Administrative orders
• Environmental Covenants
6EPA
Real Estate For Regulators
Section H — Page 58
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I
*
Property Life Cycle Process
3 H.’
St k.h Id.
Industrlalizabon’ ‘ ‘
TIms q
I
C ,rrent
Cnndsto
Putws
Cond b
Orgstat
Condttion
6EPA
I fT i’i j’.’ [ 1 L’ TiT i]
‘The best form of InstItutional control Is a
financially-sound redevelopment.”
Barry Hersh
Real Estate For Regulators
Section II — Page 59
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Section III
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Section I I I
Presentation Graphs
-------
a’
*
Presentation Graphs
- Finance 101-Sarasota Proforma
Category Item Amount
Purchase Price (Appraised value - remediation cost) $10,200,000
Insurance, Attorneys $200,000
Total Acquisition Cost $10,400,000
Hard Costs
Remediation $3,000,000
Rehabilitation of Existing Building
270,000 SF @ $15 PSF $4,050,000
Subdivision Roads and Utilities $2,200,000
Soft Costs
Architects, Engineers, Land Use Attorneys $937,500
Real Estate Brokers $300,000
Carrying Costs
8 % of Acquisition Cost for two years $1,664,000
10% of all other costs, average one year $1,048,750
Total Development Costs $13,200,250
Total Project
Costs $23,600,250
Project Sale Price Upon Completion
Sale price of existing building
Income 270,000 SF @ $18 PSF $4,860,000
Expenses $2,860,000
Net Operating Income $2,000,000
Capitalization Rate 8 5%
Sale Price $23,529,412
Land Sales 50 acres @ $250,000/acre $12,500,000
Total Sale Price of Project $36,029.4 12
Net Profit (Total Sale Price of Project - Total Project Costs) $12,429,162
Cash on Cash return 52.67%
Simple annual return over two years 26.33%
Real Estate Development and Contaminated Sites Section ill Page 1
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*
Presentation Graphs
- Introduction to Leverage
Project Costs
Acquisition. Soft Costs. Hard Costs, Remediation, Carry Costs
Total Project Costs of $100000
Net Operating Income (NO I)
Gross Income $14,000
Operating Expenses ($4,000)
Net Operating Income $10,000
Cash on Cash Operating Return
NOl/Project Costs $10 ,000/$100 ,000 10%
Leverage: 20% Down (Equity of $20,000), 80% Mortgage ($80,000) at 6%
Gross Income $14,000
Expenses (S4.000)
Debt Service (Carry) $4800
Net Cash Flow $5,200
Leveraged Return
Net Cash Flow/Equity
$5 200/$20,0O0 26%
Project Value and Capitalization
NOl/Cap Rate = Project Sale Value
$10 ,000/.10 $100,000
Real Estate Development and Contaminated Sites Section III Page 2
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EPA
Presentation Graphs
- Sarasota: Pro Forma Impact of Cost Increases
Category Item Cost
Costs
Acquisition
Purchase Price $10,200,000
Appraised value minus remediation costs
Insurance, Attorneys $200,000
Total Acquisition Cost $10,400,000
Development Costs
Remediation $5,000,000 Two yrs and 67% more
Rehabilitation of Existing Building
270,000 sf at $15/sf $4,050,000
Subdivision Roads and Utilities $2,200,000
Soft Costs: Architects, Engineers
Land Use Attorneys $937,500
Real Estate Brokers $300,000
Cost of Carry $5,825,500
8 % of Acq for four years
10 % of all other costs, average 2 years
Total Development Costs $18,313,000
Total Projects Costs $28,713,000
Project Value Upon Completion
Value
Value of existing Building at sale
270,000 sf © $18 = $4,860,000
NOl = $2,000,000 Cap rate 8.5% $23,529,412
Land Sales
50 acres © 250,000/acre $12,500,000
Total Value of Project $36,029,412
Cash on Cash return $7,316,412 25.48%
Annual return over 2 years 12.74%
Real Estate Development and Contaminated Sites Section III Page 3
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EPA
Presentation Graphs
- Sarasota: Pro Forma when the Market Softens
Category Item Cost
Costs
Acquisition
Purchase Price $10,200,000
Appraised value minus remediation costs
Insurance, Attorneys $200,000
Total Acquisition Cost $10,400,000
Development Costs
Remediation $5,000,000 Two yrs and 67% more
Rehabilitation of Existing Building
270,000 sf at $15/sf $4,050,000
Subdivision Roads and Utilities $2,200,000
Soft Costs: Architects, Engineers
Land Use Attorneys $937,500
Real Estate Brokers $300,000
Cost of Carry $5,825,500
8 % of Acq for four years
10 % of all other costs, average 2 years
Total Development Costs $18,313,000
Total Projects Costs $28.71 3,000
Project Value Upon Completion
Value
Value of existing Building at sale
270,000 sf c $15 = $4,050,000
NOl $2,000,000 Cap rate 9.5% $21,052,632
Land Sales
50 acres @ 200,000/acre $10,000,000
Total Value of Project $31,052,632
Cash on Cash return $2,339,632 8.15%
Annual return over 2 years 4.07%
Real Estate Development and Contaminated Sites Section III. Page 4
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EPA
Presentation Graphs
- Financing Sources and Uses
Phase Buy Build Build Finance Sell
Year 1 Year 2 Year 3 Year 4 Year 5
For the Years Ending Dec.2000 Dec.2001 Dec.2002 Dec-2003 Dec-2004
Sources Of Capital
Net Operating Gains 1.500.000 1.500.000
Debt Funding Proceeds 5.000.000 5.000.000 12.000.000
Equity Contributions 2.000.000 1 500.000 2,200,000
Net Proceeds from Sale 20.000,000
Defined Sources Of Capital 2,000,000 6,500,000 7.200,000 13,500.000 21,500,000
Required Equity Contributions - - -
Total Sources Of Capital $2,000,000 $6,500,000 $7,200,000 $13,500,000 $21,600,000
Uses Of Capital
Property Purchase Price 2.000,000
Total Debt Service 500,000 500,000 1.200,000 1.200.000
Tenant improvements 200,000
Leasing Commissions 500.000
Construction and Remediation
Costs 6.000.000 6.000.000
Capital Costs & Reserves 20,000 20.000
Retirement & Penalties 10.000.000 12,000,000
Defined Uses Of Capital 2,000,000 6.500,000 7.200.000 11,220,000 13.220,000
Available Cash Flow 2,280,000 8.280,000
Total Uses Of Capital $2,000,000 $6,500,000 $7,200,000 $13,500,000 $21,500,000
Money Taken Out 10,560,000
Money Invested 5,700.000
Profit 4,860,000
Rate ol Return (overall) 85 26%
Cash Flow - Equity (2,000,000) (1,500,000) (2,200.000) 2.280.000 8.280,000
Rate of Return (per year. time
adjusted) 24 53%
Real Estate Development and Contaminated Sites Section IllS Page 5
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Presentation Graphs
- Who Uses a Market Analysis
TABLE 1 1 Market Analysis Users and Their Obiectives
Objectives
Lenders
Partners
Developers
Builders
Architects
Designers
Buyers/
Sellers
Property
Managers
Promotion and initial
x
marketing efforts.
Conimunication with
x
x
local politicians and
decision makers for
project approval;
outreach to land Use
and comrnLlnity g upc
Employment and
x
x
x
relocation of corporate
rcnantsib ii yers.
Inv estment strategies or
x
N
financing efforts.
Project planning and
x
x
x
design 1 lang-term.
cash flow proicccJons
x
x
x
x
and financial analysis
for investor pro1 tabiliry
and kndcr risk
assess meat.
Due diligence, multiple
x
x
x
x
levels of review.
Managc.nicnr of completed
x
projects—tenant matters
and maintenance.
Real Estate Development and Contaminated Sites Section III Page 6
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Section IV
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Section I V
Breakout Exercise #1
-------
EPA
Group Breakout Exercise #1
Exercise #1: Plan the Development
• Plan the Redevelopment
• Decision: Can this development make money given what you now know?
• Review the alternatives — Schemes A, B, C
• Review the pro formas — for Schemes A, B, C
• Apply what you have learned to pick an option
• Report on what option you chose + why (2 mm)
Real Estate Development and Contaminated Sites Section IV— Page 1
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EPA
Exercise #1: Plan the Development
In this exercise, participants should review the case study that follows.
The site has been divided into six development areas which contain different characteristics. Three
redevelopment schemes have been provided for the site. Each scheme includes redevelopment
variations for the six parcel areas Pro formas have also been provided for each of the schemes.
Based upon the information provided, breakout groups will choose their preferred redevelopment
scheme.
Real Estate Development and Contaminated Sites Section IV— Page 2
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EPA
Case Study
MIDVILLE ENTERPRISE SITE
The project is located in the northern valley of a second tier metropolitan area located in the interior
United States The property has historically been used for manufacturing and associated activities
The site was originally developed in 1954 by Brown and Richardson International and operated until
1995. During its operation. BRI manufactured autographic registers, billing machines, knockdown
plated furniture, music stands, and other metal stampings
The property is bordered on the east by Sixth Street, a multi-lane roadway. A mix of commercial,
industrial and office uses are located along Sixth Street West of the property are residential
properties. The property is bordered on the south by the Beltway. South of the highway are large
clusters of residential properties.
Site Address: Sixth Street at the intersection with Beltway
Site acreage: Total site is 30 acres
Property layout: One tax parcel with interior roads
Current zoning: CD-4 Commercial District
Improvements: A 350,000 sf manufacturing building is located in the center of the parcel
Site Assets: A light transit station is located on the eastern side of the property along
Sixth Street
Purchase Price: The asking price for the property is $20,000,000.
Geographic Location
The Midville Enterprise Site is located approximately 4 5 miles from the Central Business District on
the northern edge of the metropolitan beltway at the intersection of Sixth Street.
The metropolitan area has these characteristics:
• Metropolitan City
• Population of approximately 335,500
• 20% growth since 2000 census
• The city is served by a major beltway and interstate
• A light rail passenger train system connects the Central Business District with outlying areas
• An international airport is located within the city limits
• 4 Major Universities
Real Estate Development and Contaminated Sites Section IV— Page 3
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EPA
MIDVILLE ENTERPRISE SITE CASE STUDY
Development Areas
The site is separated into SIX development areas by interior roadways. Approximately 90% of the site
IS currently covered by building or pavement.
Development Area 1:
Development Area 1 includes
bituminous concrete parking lots
and a former waste storage
area
Development Area 2:
Development Areas 2 contains
bituminous concrete parking lots
previously used to serve the
manufacturing plant
Development Area 3:
Development Area 3 contains
the main manufacturing plant
which includes a 350,000 square
foot concrete block and masonry
building The building is in
relatively good condition.
An asbestos survey identified
both friable and non-friable
asbestos in floor tile and in the
DEVELOPMENT ZONES 1 —6 mastic under floor tile and
carpet in the office area and in
insulation on water and steam lines boiler equipment. Abatement of these materials must occur prior
to renovation or demolition of the building. Costs related to this building will be the responsibility of
the developer. The estimated cost of asbestos abatement is $400,000
Development Area 4:
Development Area 4 contains bituminous concrete parking lots previously used to serve the
manufacturing plant
Development Area 5
Area 5 currently contains a 5,000 square foot office/warehouse building that will be demolished prior
to sale Costs for this demolition will be borne by the seller Historically, this area has contained
various smaller support buildings, as well as manufacturing staging areas, and parking facilities A
wastewater treatment facility was previously located in this development area.
Development Area 6:
Development Area 6 contains bituminous concrete parking lots previously used to serve the
manufacturing plant
Real Estate Development and Contaminated Sites
Section IV— Page 4
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MIDVILLE ENTERPRISE SITE CASE STUDY
Development Data
Population Data
• Population as of 2005 was 335,512
• 13,301 new residents from 2004 to 2005
• 20% growth since 2000
• Population expected to increase by 55.9% by 2030
• Population Density
• Currently 2.67 persons per acre
• Expected to grow to 4 6 persons per acre by 2030
• Income
• $69,800 Median Family Income
• This is 66% growth from 1990
• Highest MFI in the State
• Education
91% of people 25+ years were high school graduates and 50% had a bachelors degree or
higher.
Employment
• 3 8% Unemployment
• State Government is the largest employer
• Technology is the largest growing industry
• 4 major universities and colleges are located within the Midville metro area
• In 2004 49 major companies announced new operations or expansion in Midville
• Economic growth is expected to add 1906 jobs in 2006.
Transportation
The city has excellent accessibility from most areas due to the Beltway, a circular highway which rings
the city Midville Enterprise Site can be reached from the southern section of the city via the Beltway
in approximately 20 minutes.
The Midville Enterprise Site is also located between two major local arterial highways that run
North/South through the city. These local highways also provide easy and direct transportation to the
suburbs. Sixth Street is also served by two major bus lines the lead north to adjacent neighborhood
and south to the city center
A light rail system is located along Sixth Street, providing passenger and light cargo transportation A
station is located on Development Area 6 on the site.
The International Airport is served by 11 airlines as well as a number of commuter airlines. The
airport has more than 260 daily scheduled departures, providing ample opportunity for business
travel and shipping The airport also includes a U.S. Customs Service office and operations for 25
freight companies
Real Estate Development and Contaminated Sites Section IV— Page 5
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EPA
Zoning and Planning Data
The Midville Enterprise Site sits on a lot that is zoned as (CD-4) Commercial District. The permitted
uses for this zoning classification are as follows:
• Retail sales including shopping center
• Wholesale or showroom, including auto sales
• Hotel, Motel or restaurant
• Commercial Office
• Government or Public Buildings
• Light manufacturing, including printing or publishing, medical
and dental laboratories.
• Trades (carpentry, plumping other trades)
• Warehousing and distribution
• Buffer Commercial District, including mixed use multi-family
residential.
Maximum uses allowed as-of-right :
• Office space of 20,000 sf/acre or less with a 3 story maximum
• Retail space of 20,000 sf/acre or less with a 3 story maximum
• Residential space as multi-family at 20 dwelling units per acre with a 6 story maximum
• Industrial space of 15,000 sf/acre single story only, and a minimum of 200 buffer between
adjacent uses (not including parking)
• Office, retail and residential uses can be combined, but may not exceed the most restrictive
requirement per use, i.e., first floor could be retail, second floor could be office (totaling a
maximum of 6 stories), and one story of residential above that for a total of 3 stories.
Parking Requirements :
Zoning regulations dictate the quantity of parking required for each use. Overlapping of parking
spaces may be allowed in mixed use developments if parking activities occur at different times of day.
However such requests must be approved during the site plan approval process.
• Residential uses require one space per developable unit, or 5 spaces per
10,000 sf of space
• Retail uses require 40 spaces per 10,000 sf of space
• Industrial requires 20 spaces per 10,000 Sf
• Office requires 40 spaces per 10,000 sf
Real Estate Market Information
2000 — 2004, which has
Residential : $1,800 / mo
• There has been a 18% increase in housing units constructed between
been slightly below population growth
• Monthly homeowner costs, for people with mortgages, were $1,503.
• Single family housing units account for the greatest sales activity.
• Rental units are attractive to young couples, retirees and professionals seeking second residence
close to metropolitan center.
• Average lease rates for upscale residential townhouses and apartment units (2,000 sf) are
$1,750/mo.
Retail : $15.50/sf
• Retail sales were in excess of $7.8 billion, up from $7.2 billion in the previous year
-v
Real Estate Development and Contaminated Sites
Section IV— Page 6
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EPA
• Retail sales in the vicinity of the property accounts for 58% of all retail sales in the County.
• Retail vacancy rates average to 5.8 percent -- the highest it has been since at least 1997.
• Last year was among the busiest for retail developers, who built almost 3.2 million square feet of
shops in multi-tenant centers larger than 15,000 square feet throughout the Metro Area.
• Average lease rates for retail property rose slightly to $15.5/sf.
Office : $18.00 / Sf
• Office vacancy rates dropped to 14 2 percent in the second quarter -- the lowest it has been
since 2002.
• The office market has struggled since the economy took a hit in the early 2000s
• The office vacancy rate was 6.5 percent five years ago. but when companies cut back, the
vacancy rate began a nine-quarter climb before peaking at 16.5 percent.
• New construction plans include:
• a five-story, 204000-square-foot office building is to begin construction in 2006.
• a six-story 50,000 sf building should open before October.
• a 100,500-square-foot office building, the first of five planned buildings.
• Average quoted rents rose to $18 36 /sf in the second quarter, the highest the average has been
in almost two years.
Warehouse/Industrial $5.50 / sf
• Warehouse/industrial vacancy rate fell for the third consecutive quarter, to 18.9 percent -- the
lowest it has been in almost two years. It’s down from 22.3 percent a year ago.
• The regional average quoted rent rose for the first time since 2003, up 8 cents to $5 49/sf
Development Assumptions
Current Construction Costs per Square Foot
Re-Use New Construction
Retail $50 Retail $60
Office $80 Office $100
Industrial $30 Industrial $50
Residential $60 Residential $75
Demolition $25 Sf
Parking $1,200 space
Other Financial Assumption
Soft Costs are 20% of Hard Costs
Carrying Period for Development is 24 months
Interest Rate on Carrying Cost is 8.5%
Vacancy rate is 5%
Capitalization Rate is 8%
Real Estate Development and Contaminated Sites Section IV— Page 7
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MIDVILLE ENTERPRISE SITE CASE STUDY
Redevelopment Scheme A
• Scheme A features a high
density mixed use live-
work-shop development.
• The redevelopment
incorporates an adaptive
reuse of the existing
manufacturing building with
additional stories added to
the building
• A portion of the existing
building is opened up to
create a new interior road
for better circulation
• New construction of multi-
story buildings takes place
on the other development
areas.
• Scheme A incorporates development of the following space
• Development Area 1 open space
• Development Area 2: 86.400 sI residential space
• Development Area 3:
o Renovated space = 248,000 sf retail, 89.000 sf industrial
o New construction = 138.800 sf retail, 11.800 Sf office
• Development Area 4. 86,400 sf residential
• Development Area 5: 136,000 sf office, 354.800 sI residential
• Development Area 6 54,400 sf retail, 252,800 sf office. 36,000 sf residential
Real Estate Development and Contaminated Sites
Section IV— Page 8
-------
DevelopmentscherneAProForma - —
PROJECT COSTS
Purchase Price
Hard Costs
$20,000,000
Square feet 0
Square feet 0
Square feet 0
Square feet 0
Parking Spots. 0
Total Hard Costs (Development Area 1)
Square feetl 0
Square feet 0
Square feet 0
Square feet 86,400
Parking Spots 43
Total Hard Costs (Development Area 2)
p en A
Existing Building
Asbestos Removal abatement of materials in building
Demolition Square feet! 01
Renovation Costs
Retail
Industrial
Office
Residential
Retail
Industrial
Office
Residential
Parking
Square feet 248,000
Square feet 89,000
Square feet 0
Square feet 0
Square feet 138,800
Square feetj 0
Square feetl 44,800
Square feetL 0
Parking Spots 2,084
Total Hard Costs (Development Area 3)
Square feetl 0
Square feet 0
Square feet 0
Square feet 86,400
Parking spotsl 86
Total Hard Costs (Development Area 4)
$400,000
Cost/sf $0
Cost/sf $50
Cost/sf $30
Cost/sf $0
Cost/sf $0
$400,000
$0
$12,400,000
$2,670,000
$0
$0
Development Area I
New Construction
Retail
Industrial
Office
Residential
Parking
r vprn tA 2
New Construction
Retail
Industrial
Office
Residential
Parking
Cost/sf $0
Cost/sf $0
Cost/sf $0
Cost/sf $0
Cost/unit $0
Cost/sf $0
Cost/sf $0
Cost/sf $0
Cost/sf $75
Cost/unit $1,200
$0
$0
$0
$0
$0
$0
$0
$0
$6,480,000
$51,600
New Construction
$0
$6,531,600
$30,778,800
$6,583,200
Development Area 4 -
New Construction
Retail
Industrial
Office
Residential
Parking
Cost/sf $60
Cost/sf $50
Cost/sf $100
Cost/sf $0
Cost/unit $1,200
Cost/sf $0
Cost/sf $0
Cost/sf $0
Cost/sf $75
Cost/unit $1,200
$8,328,000
$0
$4,480,000
$0
$2,500,800
$0
$0
$0
$6,480,000
$103,200
Real Estate Development and Contaminated Sites
Section IV - Page 9
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[ Development Area 5
New Construction
Retail
Industrial
Office
Residential
Parking
Retail
Industrial
Office
Residential
Parking
Square feet O
Square feet___________
Square feet 1 136,000
Square feet 1 354,800
Parking Spotsj 1,103
Total Hard Costs (Development Area 5)
Cost/sf $62]
Cost/sf $0
Cost/sf $100
Cost/sf $75
Cost/sf $1,200
$3,264,000
$0
$25,280,000
$2,700,000
$979,200
through 6 _____
Soft Costs % of hard costs 20%
CARRY COSTS
Purchase Pnce
Months
Rate
$20,000,000
24
8 50%
$3,400,000
$27,400,682
Soft + Hard Costs
Months
Rate
$141,180,480
24
8 50%
$24,000,682
pTALDEVELOPMENTCoSTs _________
$188,581,162
PROJECT VALUE
Industrial Sq Feet 89,000 ___________
Office Sq Feet 433,600 ___________
Retail Use Sq Feet 441,200 __________
Residential per 2000 563,600 ___________
djusted Net Operating Income $20, 158J91
PROJECT VALUE COMPLETED AND OCCUPIED
$251,984,888
111111. . I1iiiI II1ITI 3,4o3
Cash on Cash Return
33.62%
rDev e l 6
New Construction
Cost/sf $0
Cost/sf $0
Cost/sf $100
Cost/sf $75
Cost/unit $1,200
$0
$0
$13,600,000
$26,610,000
$1,323,600
Square feet! 54,400
Square feet 0
Square feet 252,800
Square feet 1 36,000
Square feetl 816
Total Hard Costs (Development Area 6)
$41,533,600
$32,223,200
$23,530,080
Net Operating Income
$$Isf_________
$$Isf $18.00
$$ /sf $15.50
$$Isf $21,600.00
Net Operating Income
Less Vacancy
5%
$489,500
$7,804,800
$6,838,600
$6,086,880
$21,219,780
$1,060,989
Capitalization Rate 8.00%
Real Estate Development and Contaminated Sites
Section IV - Page 10
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EPA
MIDVILLE ENTERPRISE SITE CASE STUDY
Redevelopment Scheme B
• Scheme B features a
predominantly residential
development.
• The redevelopment
requires demolition of the
existing building.
• New construction of
multi-story buildings
takes place on all
development areas
• Scheme B incorporates development of the following space.
• Development Area 1: 154,800 sf residential
• Development Area 2: 163,200 sI residential
• Development Area 3 172,800 sf residential
• Development Area 4. 86,400 sI residential
• Development Area 5: 165,600 sf retail: 481,200 sf residential
• Development Area 6: 115.200 sf retail: 307,200 sf residential
Real Estate Development and Contaminated Sites
Section IV— Page 11
-------
rbeveiopment Scheme B Pro Forma
PROJECT COSTS
Purchase Price $20,000,000
Hard Costs
i Areii2]_ 2] 112]
New Construction ___________ ____________
Retail Square feetf 0 Cost/sf $0 $0
Industrial Square feetL_ 0 Cost/sf $0 $0
Office Square feet 0 Cost/sf $0 $0
Residential Square feet 154,800 Cost/sf $75 $11,610,000
Parking Parking Spots 77 Costlunit $1,200 $92,400
Total Hard Costs (Development Area 1) $11,702,400
[ Development Area 2
New Construction ___________ ____________
Retail Square feet 0 Cost/sf $0 $0
Industrial Square feet 0 Cost/sf $0 $0
Office Square feet 0 Cost/sf $0 $0
Residential Square feet 163,200 Cost/sf $75 $12,240,000
Parking Parking Spots 109 Cost/unit $1,200 $130,800
Total Hard Costs (Development Area 2) $12,370,800
Development Area 3
Existing BuildIng ___________
Asbestos Removal abatement of matenals in building $400,000 $400,000
Demolition Square feetl 347,0001 Cost /sf $25 $8,675,000
Renovation Costs ___________ ____________
Retail Square feet 0 Cost/sf $0 $0
Industrial Square feet 0 Cost/sf $0 $0
Office Square feet 0 Cost/sf $0 $0
Residential Square feet 0 Cost/sf $0 $0
New Construction ___________ ____________
Retail Square feet 0 Cost/sf $0 $0
Industrial Square feet 0 Cost/sf $0 $0
Office Square feet 0 Cost/sf $0 $0
Residential Square feet 172800 Cost/sf $75 $12,960,000
Parking Parking Spots 230 Cost/unit $1,200 $276,000
Total Hard Costs (Development Area 3) $22,311,000
New Construction ___________ ____________
Retail Square feet 0 Cost/sf $0 $0
Industrial Square feet 0 Cost/sf $0 $0
Office Square feet 0 Cost/sf $0 $0
Residential Square feet 86.400 Cost/sf $75 $6,480.000
Parking Parking Spots 58 Cost/unit $1,200 $69,600
Total Hard Costs (Development Area 4) $6,549,600
Real Estate Development and Contaminated Sites Section IV - Page 12
-------
Square feet 165600
Square feet 0 ,
Square feet ________
Square feet 481 .200j
Parking Spots 969;
Total Hard Costs (Development Area 5)
Square feet 115,200j
Square feet _____ 0
Square feet _________
Square feet’ - 307,2001
Square feet _____ 6541
Total Hard Costs (Development Area 6)
Total Hard Costs for Development Areas 1 through 6
$129,203,400
Soft Costs % of hard costs
20% $25,840,680
TOTAL DEVELOPMENT COSTS
PROJECT VALUE
Purchase Pnce
Months
Rate
Soft + Hard Costs
Months
Rate
Net Operating Income
Less Vacancy 5%
$19,100,880
$955,044
$204,801,574
Capitalization Rate
Adjusted Net Operating Income
$18,145,836
8.00%
PROJECT VALUE COMPLETED AND OCCUPIED
PROFIT
Cash on Cash Return
$226,822,950
$22,021,376
1075%
Development Area 5
New Construction
Development Area 6
New Construction
Retail
Industrial
Office
Residential
Parking
Retail
Industrial
Office
Residential
Parking
Cost/sf _____ $50
Cost/sf $0
Cost /s f 1 ______
Cost/sf $75’
Cost/unit $1,200
CostIsf $6O
Cost/sf _________
Cost/sf! $0
Cost/sIt $75 1
Cost/sf j $1,200
$8,280,000
$0
$0
$36,090,000
$1,162,800
$6,912,000
$0
$0
$23,040,000
$764,800
$45,532,800
$30,736,800
CARRY COSTS
$29,757,494
Net Operating Income
$20,000,000
24 1
85O%j
$155,044,080
r 24 1
850% ’
ssisf _____ sooo:
$$ / sf 1 ___________
$$/sf $15501
$$/sf 1 $21,60000
$3,400,000
$26,357,494
$0
$0
$4,352,400
$14,748,480
Industnal Sq Feet
Office Sq Feet
Retail Use Sq Feet
Residential Use psf
280,800’
L 1,365 ,6
Real Estate Development and Contaminated Sites
S ctión IV - Page 13
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EPA
MIDVILLE ENTERPRISE SITE CASE STUDY
Redevelopment Scheme C
• Scheme C features a high
density mixed use
commercial development
• The redevelopment
incorporates an adaptive
reuse of the existing
manufacturing building with
additional stories added to
the building.
• A portion of the existing
building is opened up to
create a new interior road for
better circulation.
• New construction of multi-
story buildings takes place on
all other development areas
• Scheme C incorporates development of the following space.
• Development Area 1. 57.600 sf retail with 57.600 sf office
• Development Area 2 25,600 sI retail with 25,600 sf office
• Development Area 3 89.000 sf industrial, 163,700 sf retail, 84,300 sf office
• Development Area 4: 86,400 sI retail with 86.400 sf office
• Development Area 5 173,400 sf retail with 173,400 sf office
• Development Area 6: 58.400 sf retail with 58,400 sf office
Real Estate Development and Contaminated Sites
Section IV— Page 14
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LDeveiopment Scheme C Pro Forma ____ J
PROJECT COSTS
Purchase Price $20,000,000
Hard Costs
[ Devei pn iiAr a I - -
New Construction __________ __________
Retail Square feet 57,600 Cost/sf [ _ $60 $3,456,000
Industrial Square feet 0 Cost/sf $0 $0
Office Square feet __57,600 Cost/sf $100 $5,760,000
Residential Square feet 0 Cost/sf $0 $0
Parking Parking Spots 461 Cost/unit $1,200 $553,200
Total Hard Costs (Development Area 1) $9,769,200
IDev&opmontArea2 ___
New Construction __________ __________
Retail Square feet 25,600 Cost/sf $60 $1,536,000
Industrial Square feet 0 Cost/sf $0 $0
Office Square feet 25,600 Cost/sf $100 $2,560,000
Residential Square feet 0 Cost/sf $0 $0
Parking Parking Spots 205 Cost/unit $1,200 $246,000
Total Hard Costs (Development Area 2) $4,342,000
[ I nientAr i3 -
Existing Building ______
Asbestos Removal abatement of matenals in building r1400,000 $400,000
Demolition Square feet ö1 Cost/sf $0 $0
Renovation Costs __________ __________
Retail Square feet 163,199j Cost/sf $50 $8,185,000
Industrial Square feet 89,000 Cost/sf $0 $0
Office Square feet 84,300 Cost/sf $80 $6,744,000
Residential Square feet 0 Cost/sf $0 $0
New Construction -______ _______
RetaIl Square feet [ 178,600’ Cost/sf [ $60 $10,716,000
Industrial Square feet 0 Cost/sf $ Ot $0
Office Square feet 168,600 Cost/sf $10 ] $16,860,000
Residential Square feet 0 Cost/sf__________ $0
Parking Parking Spots 3,454 Cost/unit $1,200J $4,144,800
Total Hard Costs (Development Area 3) $47,049,800
Development Area 4 I
New Construction ___________ __________
Retail Square feet 86 ,402j Cost/sf $60 $5,184,000
Industrial Square feet 0 Cost/sf $0 $0
Office Square feet 86,400 Cost/sf $100 $8,640,000
Residential Square feet 0 Cost/sf $0 $0
Parking Parkin9 Spots 691 Cost/unit $1,200 $829,200
Total Hard Costs (Development Area 4) $14,653,200
Real Estate Development and Contaminated Sites Section IV - Page 15
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iDevelopment Area 5 _____—
New Construction
Retail
Industrial
Office
Residential
Parking
Square feetj 173,4001
Square teet [ 01
Square feeti 173,400
Square feetL____0:
Parking Spots 1.387 !
Total Hard Costs (Development Area 5)
Square feet —
Square feet 0
Square feet - — 58,4001
Square feet 01
Square feet 4671
Total Hard Costs (Development Area 6)
Tolal H Costsi mifA Tiiii gh 6
Soft Costs % of hard costs
- -
20% $23,025,400
CARRY COSTS
Purchase Pnce
Months
Rate
$20,000,000
I 24
850%
$3,400,000
$26,885,908
Soft + Hard Costs $138,152,400 $23.485.908
Months 24
Rate 8 50%
TOTAL DEVELOPMENT costs ___ ____ _____ $18 38,3o
PROJECT VALUE
Adjusted Net Operating income ______ _______________$22,604,538
Capitalization Rate
PROJECT VALUE COMPLETED AND OCCUPIED
8.00%
$282,556,719
PRoFIT
— ______——- --— ——- - . -- - — __ _
Cash on Cash Return
52 70%
Development Area 6
New Construction
Retail
Industrial
Office
Residential
Parking
Cost/sf $60
Cost/sf - $0
Cost/sf $100
Cost/sf -— $0
Cost/unit $1,200
Cost/sf $601
Cost/sf $Oj
Cost/sf - _ t901
Cost/sf $0j
Cost/sf $1,2iö ]
$10,404,000
$0
$17,340,000
$0
$1,664,400
$3,504,000
$0
$5,840,000
$0
$560,400
$29,408,400
$9,904,400
Net Operating Income
Industnal Sq Feet - 89,00&
Office SqFeet [ __654,300
Retail Use Sq Feet 743.7001
Residential Use psi 0)
$$ /sf - $5 501
$$/sf $18001
$$ / Sf $15 50j
$$ /sf $0 001
$489,500
$11,777,400
$11,527,350
$0
Net Operating Income
Less Vacancy
5%
$23,794,250
$1,189,713
Real Estate Development and Contaminated Sites
Section IV - Page 16
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Section V
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Section V
Breakout Exercise #2
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a’
Environmental Constraints
MIDVILLE ENTERPRISE SITE CASE STUDY
Brown & Richardson International (BRI) initially developed the site in 1954 and operated until 1985
when the company filed for bankruptcy. The property was abandoned by BRI in 1990 and has been in
the arrears for taxes for the past 10 years. The City of Midvale received a USEPA Brownfield’s grant in
1995. A phase I site investigation was conducted in 1996 in anticipation of a sale of the property. The
investigation identified potential areas of concern on the property Additional investigations were
conducted on the property to determine the distribution of chemicals of concern on the property. The
City is considering foreclosing on the tax lien and putting out an RFQ in order to encourage
development. However, you are considering purchasing the property from the bankruptcy trustee.
The site encompasses 30 acres, divided into six areas for purposes of redevelopment The
manufacturing operations were conducted in a 350,000 square foot concrete block and masonry
building located in the central portion of the site, designated as Area 3. A wastewater treatment
facility and several small support buildings were located in the northeastern portion of the site to the
east of the manufacturing facility, designated as Area 5
Operations conducted within the building included metal fabrication and preparation, metal plating,
metal painting, and packaging and shipping. Metal fabrication and preparation was performed in the
northeast corner of the building with the plating area located to the immediate southeast of the metal
fabrication and preparation area The painting area was located to the immediate southeast of the
plating area A machine shop was also located adjacent to metal fabrication and preparation area.
Plating operations included chrome and nickel plating and a limited amount of cadmium plating
Several below-grade concrete neutralization and process tanks were used in the manufacturing
processes Packaging and shipping operations were conducted in the southeastern portion of the
building
The chemicals handled on the site included plating solutions, acids, chlorinated degreasers, paints,
paint thinners and petroleum-based oils In addition, hydraulic, lubricating and cutting oils containing
PCB were used until 1970 Raw materials and waste chemicals were stored inside the building. Plating
sludge, waste chemicals and oils were stored in drums and tanks in an area to the northwest of the
manufacturing building prior to disposal, designated as Area 1. Effluent from the process operations
was discharged to the wastewater treatment plant. Treated wastewater was discharged to surface
impoundments and evaporation ponds Accumulated sludge was periodically removed from the
ponds and disposed off-site.
An environmental site investigation conducted on the site identified potential sources of chemicals of
concern at the former wastewater treatment facility ponds and impoundments, the waste storage
area to the west of the manufacturing building, and the manufacturing process areas within the
manufacturing building. The wastewater treatment system has been removed and the former
impoundments and ponds have been leveled. Drums and waste materials in the former waste storage
area have also been removed The environmental site investigation did not identify potential sources
of chemicals of concern on areas designated as Area 2, Area 4, and Area 6.
Groundwater and soil samples were collected from the identified source areas to determine the
presence of chemicals of concern at the former manufacturing building, the waste water treatment
facility and the drum and waste storage area Concentrations of chemicals of concern were compared
to regulatory screening levels for residential and non-residential use Based on this and subsequent
investigations conducted to determine the distribution of chemicals of concern, concentrations of
chemicals of concern were identified in soil and ground water on the property and in groundwater
underlying the interstate off of the property to the south Initial cost estimates for cleanup of the
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EPA
property and underlying groundwater to a non-restricted use ranged from $30,000,000 to
$40,000,000 depending on the status of the building on the property lithe building were to remain,
cleanup of soil underlying the building would require demolition and replacement of the floor and
utilities increasing costs to $40,000,000. If the building were to be demolished, cleanup costs were
estimated to be $30,000,000
Subsequent evaluations conducted to determine potential future uses for the property divided the
property into five potential redevelopment areas. Considering these parcels and potential residential
and/or non-residential land use, concentrations of chemicals of concern above residential and non-
residential screening levels were identified in soil and ground water on areas designated as Area 1.
Area 3, and Area 5. Concentrations of chemicals of concern above the screening levels were not
identified in soil or groundwater samples collected on areas designated as Area 2 and Area 4.
Chemicals of concern in groundwater were also present under the northern portion of Area 6
Hydrogeologic data collected during the investigation indicated that depth to groundwater underlying
the site ranges from 20 to 30 feet below the ground surface with a gradient to the south Based on
analytical results collected over the past three years, the distribution of chemicals of concern in
groundwater appears to be stabilized and further migration is not anticipated.
The investigations identified concentrations of chemicals of concern above the screening levels as
follows•
• Area 3: Concentrations of metals including chromium in soil underlying the former process
areas in the building on the former manufacturing building encompassing approximately
100.000 square feet to an average depth of 5 feet based on a residential use (—18,500 cubic
yards) and 75,000 square feet to an average depth of 2 feet based on a non-residential use
(—5600 cubic yards).
• Area 1: Concentrations of volatile organic and semi-volatile organic chemicals and metals in
soil underlying the former waste storage area encompassing an area of approximately
150,000 square feet to an average depth of 5 feet based on a residential use (—27.800 cubic
yards) and 150,000 square feet to an average depth of 3 feet based on a non-residential use
(—16,700 cubic yards).
• Area 5: Concentrations of volatile organic and semi-volatile organic chemicals and metals
including chromium in soil underlying the former wastewater treatment facility encompassing
approximately 70,000 square feet to an average depth of 8 feet based on a residential use
(—20,700 cubic yards) and 70,000 square feet to an average depth of 5 feet based on a non-
residential use (—13,000 cubic yards)
• Area 1: Concentrations of metals and volatile organic chemicals including toluene and
trichloroethylene (ICE) in groundwater underlay the waste storage area. The distribution of
chemicals of concern in groundwater from this area extends under the interstate to the south
of the site. The distribution of concentrations of chemicals of concern in groundwater above
the drinking water screening levels encompasses a surface area of approximately 200.000
square feet with approximately 100,000 square feet expected to be off-site. Concentrations of
chemicals of concern in groundwater are above screening levels for indoor air (determined in
accordance with the USEPA Draft Guidance for Evaluating the Vapor Intrusion to Indoor Air
Pathway from Groundwater and Soils) in the area of highest concentrations of chemicals of
concern encompasses a surface area of approximately 60,000 square feet. Concentrations of
chemicals of concern underlying area west of the interstate are below the screening levels for
indoor air determined in accordance with the USEPA Draft Guidance for Evaluating the Vapor
Intrusion to Indoor Air Pathway from Groundwater and Soils
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a’
Area 5 and 6: Concentrations of metals and volatile organic chemicals including toluene
and TCE in groundwater underlay the former wastewater treatment facility. The distribution
of chemicals of concern in groundwater related to this area extends to the area designated as
Area 6 The distribution of concentrations of chemicals of concern in groundwater above the
drinking water screening levels encompasses a surface area of approximately 150,000 square
feet Concentrations of chemicals of concern in groundwater are above screening levels for
indoor air (determined in accordance with the USEPA Draft Guidance for Evaluating the Vapor
Intrusion to Indoor Air Pathway from Groundwater and Soils) in the area of highest
concentrations of chemicals of concern encompasses a surface area of approximately 45,000
square feet. Concentrations of chemicals of concern underlying Area 6 are below the
screening levels for indoor air.
Revised cost estimates were developed based on anticipated future land uses associated with
redevelopment of the property. Cost estimates for groundwater cleanup were developed on the
assumption of meeting the selected standards at the property boundary. Two cleanup scenarios were
developed for groundwater. In the first case, groundwater cleanup was assumed to be conducted to
achieve drinking water standards at the property boundary or the boundary of the development area
In the second case, groundwater cleanup was assumed to be conducted to achieve standards for
volatilization from groundwater to indoor at the property boundary or the boundary of the
development area. Cost estimates for soil cleanup were based on the more stringent standard for
direct contact with soil or volatilization from soil to indoor air.
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EPA
Scheme A Remedial Action Plans
Based on the proposed redevelopment the following remedial action plan has been developed for the
site:
Area 1: A RCRA type cap has been proposed for this area to isolated concentrations of volatile
organic and semi-volatile organic chemicals and metals in soil underlying the former waste storage
area from the proposed recreational users of the area. Estimated costs for the cap are $765,000 for
installation and $150,000 for maintenance and monitoring In addition, a groundwater remedial
action system has been proposed to address off-site migration of chemicals of concern in
groundwater. Due to residential properties to the west of the site, the groundwater system is
designed to achieve residential indoor air screening levels at the property boundary. Estimated costs
for the groundwater remedial action system are $2,200,000 for installation, $1,600,000 for eight
years of operation and monitoring, and $100,000 for decommissioning of the system.
Area 2: No remedial action is anticipated in this area
Area 3: Since the building will remain, the floor of the building will act as a cap to isolate
concentrations of metals for future occupants of the building No remedial action costs are expected
for this area.
Area 4: No remedial action is anticipated in this area.
Area 5: Construction activities are estimated to excavate approximately 1000 cubic yards of soil
containing concentrations of chemicais of concern in this area Estimated costs for excavation and
removal of this soil are $625,000. A vapor barrier is also proposed to be placed under the buildings in
this area to isolated vapors in soil from the future occupants of the proposed buildings. The estimated
costs for the vapor barriers are $98,890 for installation and $89,900 for monitoring and maintenance.
In addition, a groundwater monitoring has been proposed to verify that the current distribution of
chemicals of concern has stabilized and to monitoring for longer term natural attenuation. Estimated
cost for the groundwater monitoring is $64,000.
Area 6: No remedial action is anticipated in this area
Implementation of the remedial action plan will require the implementation of restrictive use controls
and long term operation and maintenance agreements
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Development Scheme A Pro Forma
PROJECT COSTS
Purchase Price $20,000,000
Installation Maintenance
Remedlation Costs
For Project Soil Area I $765,000 $150,000
Soil Area 3 $0 $0
Soil Area 5 $348,890 $89,900
Groundwater Area I $2,200,000 $1,700,000
Groundwater Area 5 - $0 $64,000
Total for Remediation L $3,313,890 $2,003,900
Hard Costs
CD I 7eir
New ConstructIon
Retail Square feet 0 Cost/sf $60 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 0 Cost/sf $75 $0
Parking Parking Spots 0 Cost/unit $1,200 $0
Total Hard Costs (Development Area 1) $0
Development Area 2
New Construction
Retail Square feet 0 Cost/sf $60 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 86.400 Cost/sf $75 $6,480,000
Parking Parking Spots 43 Cost/unit $1,200 $51,600
Total Hard Costs (Development Area 2) $6,531,600
Development Area 3
Existing Building
Asbestos Removal abatement of matenats in building $400,000 $400000
Demolition Square feet 0 Cost/sf $25 $0
Renovation Costs
Retail Square feet 248,000 Cost/sf $50 $12,400,000
Industrial Square feet 89,000 Cost/sf $30 $2,670,000
Office Square feet 0 Cost/sf $80 $0
Residential Square feet 0 Cost/sf $50 $0
New Construction
Retail Square feet 138,800 Cost/sf $60 $8,328,000
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 44,800 Cost/sf $100 $4,480,000
Residential Square feet 0 Cost/sf $75 $0
Parking Parking Spots 2,084 Cost/unit $1,200 $2,500,800
Total Hard Costs (Development Area 3) $30,778,800
Development Area 4 -
New Construction
Retail Square feet 0 Cost/sf $60 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 86.400 Cost/sf $75 $6,480,000
Parking Parking Spots 86 Cost/unit $1,200 $103,200
Total Hard Costs (Development Area 4) $6,583,200
[ bevelopment Area 5
New Construction
Retail Square feet 0 Cost/sf $60 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 136,000 Cost/sf $100 $13,600,000
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a’
Residential Square feet 354,800 Cost/sf $75 $26,610,000
Parking Parking Spots 1103 Cost/unit $1,200 $1,323,600
Total Hard Costs (Development Area 5) $41,533,600
Development Area 6
New Construction
Retail Square feet 54,400 Cost/sf $60 $3,264,000
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 252,800 Cost/sf $100 $25,280,000
Residential Square feet 36.000 Cost/sf $75 $2,700,000
Parking Square feet 816 Cost/unit $1,200 $979,200
Total Hard Costs (Development Area 6) $32,223,200
Total Hard Costs for Development Areas I through 6 $117,650,400
Soft Costs % of hard costs and remediatuon costs 20% $24,192,858
CARRY COSTS $28,076,715
Purchase Pnce $20,000,000 $3,400,000
Months 24
Rate 8 50%
Soft + Hard Costs + Remeduation $145,157,148 $24.676,715
Months 24
Rate 8 50%
TOTAL DEVELOPMENT COSTS $193,233,863
PROJECT VALUE
Net Operating Income
lndustnal Sq Feet 89,000 $$ 1sf $5 50 $489,500
Office Sq Feet 433.600 $$ /sf $1800 $7,804,800
Retail Use Sq Ft 441,200 $$ /sf $15 50 $6,838,600
Residential per
2000sf 563.600 $$ / Sf $21,600 00 $6,086,880
Net Operating Income $21,219,780
Less Vacancy 5% $1,060,989
Less Long Term Remediatuon Operating Expenses $2.003.900
Less Environmental Insurance $0
Adjusted Net Operating Income $18,154,891
Capitalization Rate 8.00%
PROJECT VALUE COMPLETED AND OCCUPIED $226,936,138
PROFIT $33,702,274
Cash on Cash Return 17 44%
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EPA
Scheme B Remedial Action Plans
Based on the proposed redevelopment the following remedial action plan has been developed for the
site•
Area 1: A RCRA type cap has been proposed for the portion of this area identified as
open/recreational space to isolated concentrations of volatile organic and semi-volatile organic
chemicals and metals in soil underlying the former waste storage area from the proposed recreational
users of the area. Estimated costs for the cap are $510,000 for installation and $100,000 for
maintenance and monitoring. A vapor barrier is also proposed to be placed under the building in this
area to isolated vapors in soil from the future occupants of the proposed buildings The estimated
costs for the vapor barriers are $56,760 for installation and $51,600 for monitoring and maintenance.
In addition, a groundwater remedial action system has been proposed to address off-site migration of
chemicals of concern in groundwater. Due to residential properties to the west of the site, the
groundwater system is designed to achieve residential indoor air screening levels at the property
boundary. Estimated costs for the groundwater remedial action system are $2,200,000 for
installation, $1,600,000 for eight years of operation and monitoring, and $100,000 for
decommissioning of the system.
Area 2: No remedial action is anticipated in this area
Area 3: Construction activities are estimated to excavate approximately 1500 cubic yards of soil
containing concentrations of chemicals of concern in this area Estimated costs for excavation and
removal of this soil are $375,000.
Area 4: No remedial action is anticipated in this area.
Area 5: Construction activities are estimated to excavate approximately 1000 cubic yards of soil
containing concentrations of chemicals of concern in this area. Estimated costs for excavation and
removal of this soil are $250,000 A vapor barrier is also proposed to be placed under the buildings in
this area to isolated vapors in soil from the future occupants of the proposed buildings. The estimated
costsfor the vapor barriers are $44,000 for installation and $40,000 for monitoring and maintenance
In addition, a groundwater monitoring has been proposed to verify that the current distribution of
chemicals of concern has stabilized and to monitoring for longer term natural attenuation Estimated
cost for the groundwater monitoring is $64,000
Area 6: No remedial action is anticipated in this area.
Implementation of the remedial action plan will require the implementation of restrictive use controls
and long term operation and maintenance agreements
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Development Scheme B Pro Forma
PROJECT COSTS
Purchase Price $20,000,000
Installation Maintenance
Remediation Costs For Project Soil Area I $566,760 $151,600
Soil Area 3 $375,000 $0
Soil Area 5 $669,000 $40,000
Groundwater Area 1 $2,200,000 $1,700,000
Groundwater Area 5 $0 $64,000
Total for Remediation - $3 81O,760 _$1, 5!,6J !
Hard Costs
Development Am t —
New Construction
Retail Square feet 0 Cost/sf $60 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 154,800 Cost /sf $75 $11,610,000
Parking Parking Spots 77 Cost/unit $1,200 $92,400
Total Hard Costs (Development Area 1) $11,702,400
Development Area 2 -
New Construction
Retail Square feet 0 Cost/sf $60 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 163,200 Cost/sf $75 $12,240,000
Parking Parking Spots 109 Cost/unit $1,200 $130,800
Total Hard Costs (Development Area 2) $12,370,800
Existing Building
Asbestos Removal abatement of matenals in building $400,000 $400,000
Demolition Square feet 347,000 Cost/sf $25 $8,675,000
Renovation Costs
Retail Square feet 0 Cost/sf $50 $0
Industrial Square feet 0 Cost/sf $30 $0
Office Square feet 0 Cost/sf $80 $0
Residential Square feet 0 Cost/sf $50 $0
New Construction
Retail Square feet 0 Cost/sf 860 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 172,800 Cost/sf $75 $12,960,000
Parking Parking Spots 230 Cost/unit $1,200 $276,000
Total Hard Costs (Development Area 3) $22,311,000
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EPA
I Deveipprnent Area 4
New Construction
Retail Square feet 0 Cost/sf $60 $0
Industrial Square feet 0 Cost/sf $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 86,400 Cost/sf $75 $6,480,000
Parking Parking Spots 58 Cost/unit $1,200 $69,600
Total Hard Costs (Development Area 4) $6,549,600
rpe!eiopm!ntA!e!5_,
New Construction _______________ ______________
Retail Square feet 165.600 - Cost/sf $50 $8.280.000
Industrial Square feet 0 Cost/sf $501 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 481.200 Cost/sf $75 $36,090,000
Parking Parking Spots 969 Cost/unit $1,200 $1,162,800
Total Hard Costs (Development Area 5) $45,532,800
[ Deve loprnentArea6
New Construction
Retail Square feet L____ 115.200 Cost/sf - $60 $6,912,000
Industrial Square feet 0 Cost/sf -- $50 $0
Office Square feet 0 Cost/sf $100 $0
Residential Square feet 307.200 Cost/sf $75 $23,040,000
Parking Square feet 654 Cost/unit $1,200 $784,800
Total Hard Costs (Development Area 6) $30,736,800
Total HaT Co orDeyolopmentAreaslthrough6 - -- - $129,203,400 I
Soft Costs % of hard costs and remediation costs 20% $26,602,832
CARRY COSTS $30,534,889
Purchase Pnce $20,000,000 $3,400,000
Months 24
Rate 8 50%
Soft + Hard Costs + Remediahon $159,616,992 $27,134,889
Months 24
Rate 8 50%
—— ____ - $210,151,881
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1%
PROJECT VALUE
Industnal Sq Feet 0
Office Sq Feet 0
Retail Use Sq Feet ( 280,800
Residential per
2000 sf 1,365,600
$$Ist —- $ 5 1
$$Isf $1800
$$/sf $1550
$$Isf $21,600 00
Net Operating Income
Less Vacancy 5%
Less Long Term Remediatuon Operating Expenses
Less Environmental Insurance
$19,100,880
$955,044
LI__ $1,955,600
$0
Capitalization Rate
iIT iI 1iII .111 I11iII iuji ,i 6]
8.00%
PROJECT VALUE COMPLETED AND OCCUPIED
PROFIT
$202,377,950
. 77mq 1
Net Operating Income
$0
$0
$4,352,400
$14,748,480
Cash on Cash Return
.3 70%
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EPA
Scheme C Remedial Action Plans
Based on the proposed redevelopment the following remedial action plan has been developed for the
site.
Area 1: A RCRA type cap has been proposed for the portion of this area identified as
open/recreational space to isolated concentrations of volatile organic and semi-volatile organic
chemicals and metals in soil underlying the former waste storage area from the proposed recreational
users of the area. Estimated costs for the cap are $510,000 for installation and $100,000 for
maintenance and monitoring. A vapor barrier is also proposed to be placed under the building in this
area to isolated vapors in soil from the future occupants of the proposed buildings. The estimated
costs for the vapor barrier are $63,360 for installation and $57,600 for monitoring and maintenance.
In addition, a groundwater remedial action system has been proposed to address off-site migration of
chemicals of concern in groundwater. Due to residential properties to the west of the site, the
groundwater system is designed to achieve residential indoor air screening levels at the property
boundary. Estimated costs for the groundwater remedial action system are $2,200,000 for
installation, $1,600,000 for eight years of operation and monitoring, and $100,000 for
decommissioning of the system
Area 2: No remedial action is anticipated in this area.
Area 3: Since the building will remain, the floor of the building will act as a cap to isolate
concentrations of metals for future occupants of the building No remedial action costs are expected
for this area.
Area 4: No remedial action is anticipated in this area.
Area 5: Construction activities are estimated to excavate approximately 1000 cubic yards of soil
containing concentrations of chemicals of concern in this area Estimated costs for excavation and
removal of this soil are $625,000. A vapor barrier is also proposed to be placed under the buildings in
this area to isolated vapors in soil from the future occupants of the proposed buildings. The estimated
cost for the vapor barriers is $44,000 for installation and $40,000 for monitoring and maintenance In
addition, a groundwater monitoring has been proposed to verify that the current distribution of
chemicals of concern has stabilized and to monitoring for longer term natural attenuation Estimated
cost for the groundwater monitoring is $64,000.
Area 6: No remedial action is anticipated in this area
Implementation of the remedial action plan will require the implementation of restrictive use controls
and long term operation and maintenance agreements.
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Development Scheme C Pro Forma
PROJECT COSTS
Purchase Price
Remediation Costs
For Project Soil Area I
Soil Area 3
Soil Area 5
Development Area I -.
New Construction _________
Retail Square feet 57,600
Industrial Square feet 0
Office Square feet 57,600
Residential Square feet - __0_
Parking Parking Spots 4 j• ,
Total Hard Costs (Development Area 1)
Development Area 2
New Construction
Retail Square feet 25,600
Industrial Square feet 0
Office Square feet 25,600
Residential Square feet 0
Parking Parking Spots 205 .
Total Hard Costs (Development Area 2)
Development Area 3
Existing Building
Asbestos Removal abatement of matenals in building
Demolition Square feet 0
Renovation Costs ____________
Retail Square feet _______
Industrial Square feet ______
Office Square feet
Residential Square feet
New Construction _____________
Groundwater Area I
Groundwater Area 5
Total for Rernediation
$400,000
$0
$8,185,000
$0
$6,744,000
$0
$20,000,000 I
Hard Costs
Installation
Maintenance
$573,360
$157,600
SLI_.. ..__!!..
$294,000
$2,200,000
$0
$40,000
$1,700,000
$64,000
Cost/sf
Cost/sf
Cost/sf
Cost/sf
Cost/unit
Cost/sf
Cost/sf
Cost/sf
Cost/sf
Cost/unit
$60
$50
$100
$75
$1,200
$60
$50
$100
$75
$1,200 I
$3,067,360 $1,961,600
$3,456,000
$0
$5,760,000
$0
$553,200
$9,769,200
$1,536,000
$0
$2,560,00D
SD
$246,000
$4,342,000
$400,000
Cost/sf $25 I
163,700 Cost/sf
89,000 Cost/sf
84,300 Cost/sf
0 Cost/sf
Retail
Industrial
Office
Residential
Parking
$50J
L $01
$8O
I $50I
$60
$50
$100
1
$1,200
Square feet 178,600
Square feet 0
Square feet 168,600
Square feet 0
Parking Spots 3,454
Cost/sf
Cost/sf
Cost/sf
Cost/sf
Cost/unit
$10,716,000
$0
$16,860,000
$0
$4,144,800
-------
Total Hard Costs (Development Area 3)
Cost/sf
Cost/sf
Cost/sf
Cost/sf
Cost/unit
Cost/sf $60
Cost/sf _____$50
Cost/sf $100
Cost/sf $75
Cost/unit $1,200
Cost/sf $60
Cost/sf $50
Cost/sf _____$100
Cost/sf $75
Cost/unit $1.200
$5,184,000
$0
$8,640,000
$0
$829,200
$47,049,800
$14,653,200
$29,408,400
$9,904,400
EPA
Development Area 4
New Construction ___________
Retail Square feet 86,400
Industrial Square feet 0
Office Square feet — 86,400
Residential Square feet - 0
Parking Parking Spots 691
Total Hard Costs (Development Area 4)
[ Dey p ?M L5 -
New Construction
Retail Square feet 173,400 $10,404,000
Industrial Square feet 0 _____ $0
Office Square feet 173,400 _________ $17,340,000
Residential Square feet 0 __________ $0
Parking Parking Spots 1,387 __________ $1,664,400
Total Hard Costs (Development Area 5)
Development Area 6_.
New Construction ___________ __________
Retail Square feet ‘ 58.400 __________ $3,504,000
Industrial Square feet ________ 0 $0
Office Square feet 58.400 _____ $5,840,000
Residential Square feet 0 $0
Parking Square feet 467 $560,400
Total Hard Costs (Development Area 6)
$115,127,000’
Purchase Pnce
Months
Rate
rTOTALDEVELOPMENTCOSTS - $189 i]
Soft Costs % of hard costs and remediat on costs
CARRY COSTS
$20,000,000
24
850%
Soft + Hard Costs + Remediation $141,833,232
Months 24
Rate 8.50%
20%
$3,400,000
$24.1 11,649
$23,638,872
$27,511,649
$50
$100
$75
$1,200
-------
EPA
PROJECT VALUE
Net Operating
Income
lndustnal Sq Feet 89.000 $$ I sf $5 50 $489,500
Office Sq Feet 654,300 $$lsf $1800 $11,777.400
Retail Use Sq Feet 743,700 $$ 1sf $1550 $11,527,350
Residential per 2000 sf 0 $$ I sf $21,600 00 $0
Net Operating Income $23,794,250
Less Vacancy 5% $1,189,713
Less Long Term Remeduation Operating Expenses $1,961,600
Less Environmental Insurance $0
AdjustedNetOpera gincome __$ ,6 42,93
Capitalization Rate 8.00%
PROJECT VALUE COMPLETED AND OCCUPIED $258,036,719
L!RPL _ _______________ _____ ____ ____ _________ ___
Cash on Cash Return
36.28%
-------
Breakout Exercise #2: Liability and Risk
Break Out Exercise 2
• Discuss specific liability and risks that need to be addressed prior to closing on the site
• Identify potential alternatives to address the identified liabilities and risks
• Develop a risk management plan to address the identified liability and risks
Real Estate Development and Contaminated Sites Exercise 2
-------
Breakout Exercise #2: Liability and Risk
A cleanup approach that maximizes the sustainability of the redevelopment has been developed The
cleanup plan includes the use of institutional controls in the form of restrictions on the type of
activities and land use acceptable on the site, engineering controls in the form of vapor barriers under
buildings and a cap, and a long-term groundwater treatment system is proposed. Each of these
actions will require some form of control to insure that they are operated and maintained in
accordance with the remedial action plan In this exercise, discuss your plan for addressing short,
medium and long-term risk issues as part of the deal completion phase of the project. This includes
addressing risk and regulatory hurdles and defining strategies for ensuring long-term sustainability of
the cleanup. Prepare your case for presentation to the bank
Real Estate Development and Contaminated Sites Exercise 2
-------
Section V1
-------
Section VI
Breakout Exercise #3
-------
EPA
Unknown Environmental Constraints
A light rail station is to be constructed on Area 6 adjacent to Sixth Street The development of this
light rail station is considered a necessary component of the overall redevelopment. An arrangement
has been made to transfer the portion of Area 6 needed for the light rail station to the Regional
Transit Authority. As noted previously, potential sources of chemicals of concern were not identified in
this area during the environmental investigations. Groundwater containing chemicals of concern
associated with the former wastewater treatment plant on Area 5. however, was identified in the
northern portion of Area 6 including a portion of the land to be transferred to the Regional Transit
Authority. This environmental condition was determined not to be significant to the development of
the light rail station.
The Regional Transit Authority has agreed to move forward with the light rail station contingent upon
the results of a geotechnical investigation to evaluate the structural stability of the soil and to support
the engineering for the new station. Further, the Regional Transit Authority has insisted that they be
protected from potential liability associated with the presence of chemicals of concern in groundwater
underlying the land for the station and remediation of the groundwater
During the geotechnical investigation, metal and other debris, as well as, chemical odors and stained
soil, were observed in a number of soil borings Additional environmental investigations conducted to
determine the potential source and distribution of these odors and debris have identified a former
land fill area consisting of construction and industrial waste. Concentrations of volatile organic and
semi-volatile organic chemicals and metals have been identified in soil encompassing approximately
40,000 cubic yards based on a residential use and 30,000 cubic yards based on a non-residential use
Concentrations of metals and volatile organic chemicals in groundwater underlay the proposed light
rail station are below the screening levels for indoor air determined in accordance with the USEPA
Draft Guidance for Evaluating the Vapor Intrusion to Indoor Air Pathway from Groundwater and Soils.
In addition, to the environmental issues associated with the discovery of the former landfill area, the
structural capabilities of the soil mixed with the debris from the former landfill has been determined
to be inadequate for the construction of the light rail station. Approximately 10000 cubic yards of soil
and debris will need to be removed and replaced with an engineered fill prior to construction of the
light rail station Cost to excavate and dispose of the excavated soil and replace the fill with an
engineered fill is estimated to be $3,000,000. In addition to soil and debris containing chemicals of
concern to be removed for construction of the light rail station, approximately 20,000 cubic yards of
impacted material will remain on the land to be transferred to the Regional Transit Authority. The
estimated cost to excavate and dispose of all the impacted soil and debris is $10,000,000.
The Regional Transit Authority is now threatening to pull out of the redevelopment and locate the
light rail station at an alternate location away from the site. They are concerned about the potential
incremental costs to construct the light rail station and potential liability associated with owning a
property with environmentally impacted soil remaining in place The bank is not willing to increase the
financing already approved for the project. In addition, the bank is threateningto withdraw the
financing if the light rail station is not built
-------
Breakout Exercise #3: Dealing with the Unexpected
Break Out Exercise 3
• Discuss potential alternatives to keep the light rail station on track
• Develop a plan to address the concerns of the bank and Regional Transit Authority
Real Estate Development and Contaminated Sites Exercise 3
-------
Breakout Exercise #3: Dealing with the Unexpected
Without the light rail station, the redevelopment is in jeopardy. The bank is not willing to increase the
financing and threatening to pull the financing if the light rail station is not built. The Regional Transit
Authority is not willing to take ownership of the land with an existing environmental condition There
are two questions that need to be answered: 1) How can the construction of the light rail station
move forward without exposing the Regional Transit Authority to future liability and risk; 2) How can
the additional costs be handled to satisfy the bank.
Real Estate Development and Contaminated Sites Exercise 3
-------
Section VII
-------
Section VII
Resources
-------
Section VII: Resources
Sample Terms of Sale to Provide
Incentives to Buyer to Perform
and to
Protect Seller from Failure of Buyer to Perform
Ensuring that the Funds for Remediation are Available
Buyer will place $$ into a trust or other fund such as a finite risk insurance
contract to cover the upper end of the expected costs of site assessment,
remedial action plan development and regulatory review expenses.
Once the remediation plan is approved by the DEP (or an LEP has developed a
remediation plan):
1. the Buyer will re estimate the clean up cost, and
2. the Buyer will increase the amount in the trust fund to the
estimated cost of remediation, and
3. the Buyer will purchase an insurance product (or add to the trust
fund) an amount to cover cost overruns of 2 times the estimated
cost of remediation.
If buyer resells the property within 5 years of buying the property, the Seller shall
return 30% of the net profits (purchase price - buyers remediation expenses not
covered by trust fund - buyer’s capital improvement expenses - sales expenses)
from the sale to the Seller.
If Buyer fails to:
1. Get an approved remedial action plan or a VCA agreement within 5
years and does not increase the trust fund, or
2. If the Buyer fails to complete the remediation within 2 years
following the estimated time to complete the remediation,
then the Buyer is in default and the Seller has the right, but not the obligation to
1. use the trust fund to conduct further remediation, or
2. use the Seller’s own funds to conduct remediation and recover
against the Buyer, or
3. foreclose on the property, retaking ownership.
Encouraging the Buyer to Replace Seller on Consent Decree
The Seller and Buyer will cooperate during the period prior to the closing date to
assess the site and establish an agreed Voluntary Remediation strategy. This
-------
strategy will be presented to CTDEP for their approval 60 days (30 days
minimum) prior to the date of closing.
Buyer must make best efforts to get CTDEP to change the consent order from
Seller to the buyer’s name.
Cost savings from the fund will be shared between buyer and seller:
1. 80% buyer, 20% seller if the buyer is able to assume responsibility
for the consent order;
2. 50% buyer, 50% seller if the seller remains responsible for the
consent order.
The funds to be distributed when remediation is complete (no further action letter
or LSP sign off and Seller agreement)
If Buyer fails to make best efforts to get CTDEP to change the consent order
from Seller to the buyer’s name within 5 years then the Buyer is in default and the
Seller has the right, but not the obligation to
1. use the trust fund to petition CTDEP to change the consent order,
or
2. use the Seller’s own funds to petition CTDEP to change the
consent order, or
3. foreclose on the property, retaking ownership.
Encouraging Buyer to Complete Remediation
If buyer is unable to get CTDEP to approve a remedial action plan (or a VCA
agreement) within 5 years, the buyer will, at their own expense:
1. re estimate the cost of remediation and obtain insurance to two
times the remedial cost estimate, or
2. alternatively, increase the trust fund to an amount equal to two
times the revised remedial cost estimate, the resulting trust fund will
not be less than 1.5 times the original level.
Buyer is to manage the remediation efforts. Cost savings from the fund will be
shared between buyer and seller.
1. 80% buyer, 20% seller if the buyer is able to assume responsibility
for the consent order;
2. 50% buyer, 50% seller if the seller remains responsible for the
consent order.
The funds to be distributed when remediation is complete (no further action letter
or LSP sign off and Seller agreement)
If Buyer fails to:
1. Get an approved remedial action plan or a VCA agreement within 5
years and does not increase the trust fund, or
-------
2. If the Buyer fails to complete the remediation within 2 years
following the estimated time to complete the remediation,
then the Buyer is in default and the Seller has the right, but not the obligation to
1. use the trust fund to conduct further remediation, or
2. foreclose on the property, retaking ownership.
Encourage Buyer to Pursue Recovery from Responsible Party
If Seller pursues Responsible Party for cost recovery for 5 years or until DEP
transfers responsibility for the consent order to the buyer, whichever comes first,
thereafter the buyer assumes seller’s recovery rights and pursues recoveries
from Responsible Party. Recoveries from Responsible Party, after reasonable
attorney fees will be shared between buyer and seller - 90% seller, 10% buyer if
settlement made before seller transfers recovery rights to the buyer; 50% seller,
50% if settlement occurs after the seller transfers recovery rights to the buyer.
If Buyer assumes seller’s recovery rights and pursues recoveries from
Responsible Party, recoveries from Responsible Party, will be shared between
buyer and seller. The seller will receive the lesser of: 50% of the net recovery
(after reasonable attorney fees) or 30% of the gross recovery.
Ensuring that Seller Receives an Appropriate Price for the Property
The Seller and Buyer will cooperate during the period prior to the closing date to
assess the site and establish an agreed reasonable worst case estimated cost of
remediation. The Buyer will conduct site assessment activities prior to the close
of the sale that meets the goals of listed in the offer of sale and as approved by
Seller. Buyer will pay Seller at closing the agreed value of the property minus
the reasonable worst case estimated cost of remediation.
Once the remediation plan is approved by the DEP or the LSP has developed a
remediation plan:
1. the Buyer will re estimate the clean up cost, and
2. the Buyer will increase the amount in the trust fund to the estimated
cost of remediation, and
3. the Buyer will purchase an insurance product (or add to the trust
fund) an amount to cover cost overruns of 2 times the estimated
cost of remediation, and
4. The Buyer will pay the Seller 50% of the difference between the
reasonable worst case estimate that was made prior to the date of
closing and the sum of:
a. the Buyers investigation and remediation expenses to date,
and
-------
b. the new estimate of the cost of remediation, and
c. the cost of cost cap and environmental liability insurance (or
15% of the amount in the trust fund if no insurance is
purchased).
-------
EPA
I. Web Sites for Key Liability Risk Guidance
• Due Diligence Criteria that trigger most federal liability protections:
All Appropriate Inquiry Proposed Regulations: 70 Fed Reg 66070. November 1, 2005
www epa gov/brownfields
website contains federal rule, summary and comparison to Interim Standard ASTME 1527-00
• Qualifications for Environmental Professionals who conduct all appropriate inquiries for federal
protections:
www epa . gov/brownfiolds
website also contains summary and comparison with prior ASTM qualifications
• Guidance on requirements to qualify for federal protections under CERCLA Amendments of 2002
Brownfields Law)
Interim Guidance Regarding Criteria Landowners Must Meet in Order to Quality for Bona Fide
Prospective Purchaser, Contiguous Property Owner, or Innocent Landowner Limitations on
CERCLA Liability (Common Elements) - (3/6/03). Provides general guidance on the common
elements of the landowner liability protections.
http : //www.epa . gov/compliance/resources/policies/cleanup/superfund/common-elem-guide. pdf
• Common Elements Guidance Reference Sheet - (3/6/03)
Reference sheet highlights the main points made in EPA ’s March 2003 “Interim Guidance
Regarding Criteria Landowners Must Meet in Order to Quality for the Bona Fide Prospective
Purchaser, Contiguous Property Owner, or Innocent Landowner Limitations on CERCLA Liability
http : / /www epa gov/compliance/resources/policies/cleanup/superfund/common-elem-ref pdf
• General Guidance on Brownfuelds Liability Risks
Brownfields Handbook How to Manage Federal Environmental Liability Risks - (11/1/02).
Brownfields Handbook provides a compilation of tools and a discussion of how to use them in
evaluating the benefits of reusing a brownfields property.
http //www epa gov/compliance/resources/publicationsfcleanup/brownhields/handbooklbfhbkcmp
• Institutional Controls as a means of controlling environmental risks
Institutional Controls: A Citizen’s Guide to Understanding Institutional Controls at Superfund.
Brownhields . Federal Facilities, Underground Storage Tank, and Resource Conservation and
Recovery Act Cleanups - (2/1/05)
Fact Sheet provides community members with general information about the role of institutional
controls (ICs) in Superfund, Brownfields, Federal Facilities, Underground Storage Tanks (UST)
and Resource Conservation and Recovery Act (RCRA) cleanups occurring in their neighborhoods.
http / /www.epa . gov/superfund/actionhic/guide/citguide.pdf
EPA maintains a website on current issues concerning institutional controls at:
-------
EPA
www.epa .gov/superfund/actionhic/
• Land Use and Institutional Controls 12-20-2005
“Provides links to information about land use and institutional controls.”
URL: http: / /www epa govfbrownfields/tools/tti lucs. htm
• Instruments Used to Control Liability Risks:
1. Comfort Letters:
EPA - Policy on the Issuance of Comfort/Status Letters (05-08-2006)
http: //wvwsi epa gov/Compliance/resources/policies/cleanup/superfund/com
2. Prospective Purchaser Agreements
Guidance on Agreements with Prospective Purchasers of Contaminated Property (5/24/95) and
attachment Model Prospective Purchaser Agreement (Revised 10/1/99)
Bona Fide Prospective Purchasers and the New Amendments to CERCLA - (5/31/02).
Provides discussion describing when, primarily because of significant public health, EPA will
consider providing a prospective purchaser with a covenant not to sue now that the
Brownhields Amendments are law
http //epa.gov/compliance/resources/policies/cleanup/superfund/bonf-pp-cercla-mem. pdf
3. Covenants Not to Sue
Bona Fide Prospective Purchasers and the New Amendments to CERCIA - (5/31/02)
Provides discussion describing when, primarily because of significant public health, EPA will
consider providing a prospective purchaser with a covenant not to sue now that the
Brownhield’s Amendments are law
http .//epa.gov/compliance/resources/policies/cleanup/superfund/bonf-pp-cercla-mem .pdf
4 Ready for Reuse Determinations
“Guidance for Preparing Superfund Ready for Reuse Determinations” provides information
needed to make and document RfR Determinations and the nature of the evaluations EPA will
conduct in preparing RIR Determinations A fact sheet on the RfR guidance is also available from
the Superfund program web site.
5. Insuring Federal Liability Protection through compliance with State Voluntary Cleanup Program:
Memoranda of Agreement (MOAs) on State Voluntary Cleanup Programs (VCPs) 12-20-2005
“List of Memoranda of Agreement on State Voluntary Cleanup Programs”
http://www.epa.govfbrownfields/html-doc/statemoa htm
6. Map of States with Memoranda of Agreement on State Voluntary Cleanup Programsi 2-20-2005
“This is a map of states with memoranda of agreement on state voluntary cleanup programs”
http.//www.epa gov/brownhields/html-doc/usmoamap.htm
7 Memorandum Re: Interim Approaches for Regional Relations with State Voluntary Cleanup
Programsl2-20-2005. “This memorandum sets out the baseline criteria which EPA will employ to
evaluate the adequacy of State voluntary cleanup programs.”
http.//www.epa gov/brownfields/htm -doc/vcp htrn
8. Windfall Liens
-------
Interim Enforcement Discretion Policy Concerning Windfall Liens Under Section 107(r) of
CERCLA - (7/16/03)
This memorandum discusses EPA and DOJ interim policy implementation of the new CERCLA
107(r) windfall lien provision contained in the 2002 Brownfielcis Amendments
www.epa .gov/compliancelresources/policies/cleanup/superfund/interim-winclfall-lien pdf
II. Web-based Resources
Archived Internet Seminar: Real Estate Finance Basics
littp . / /www clu - in org/conf/tio/refinancebasics 050906 /
This 2-hour mini-course is a concentrated introduction to the core concepts of real estate
finance and development These concepts are also covered in greater depth in the “Real
Estate 100’ class, Anatomy of a Real Estate Development: What Government Regulators
Need to Know about Real Estate Development The course is targeted for attendees that
have not attended Real Estate 100 and would like to successfully participate in the R J
Estate 200 class. Real Estate Development and Contaminated Sites. Achieving Success in
Today’s Regulatory Environment Topics include market analysis and feasibility, the financing
of environmentally challenged properties, the impact of leverage, and property valuation
techniques
III. Recommended Text
Mike E. Miles, Gayle Berens and Marc Weiss
Real Estate DeveIopment Principles and Process
Third Edition, (Washington D.C Urban Land Institute, 2000)
Joshua Kahr, Michael C. Thomsett
Real Estate Market Valuation and Analysis
ISBN: 0-471 -65526-0
Wiley, October 2005
This in-depth look at the core tools of real estate valuation will show you how to analyze
the real estate market and assess the financial feasibility of a project. Many people go
with their instincts or past experience when reviewing the financials and fail to utilize the
useful data and analytical tools available in this field. Get the analytical data and tools
you need to assess the financial feasibility of any project. The companion CD-ROM
includes vital data so you can to see how household income, population, and crime are
shaping the real estate landscape
-------
Retail Market Trends North America
Grubb & Ellis Research
Lummer 2008
( rubh E11is®
Property Solutions Worldwide
Contents
Introduction 1
Shopping Center Rental Rates
Pad Site Sales Prices 2
State of the Market—A Conversation
with Michael Dee 3—4
Premium Urban Rental Rates . . .5
Metro Spotlight 6—7
Retail Market Trends
is a newsletter published annually
by Grubb & Ellis Company. To obtain
additional copies or other Grubb & Ellis
publications, please contact:
Robert Bach
Senior Vice President, Chief Economist
Phone: 312.698.6754
Erin O’Leary
Manager, Affiliate Research Services
312.698.6789
Grubb & Ellis Company
1551 N Tustin Avenue
Suite 200
Santa Ana, CA 92705
E-mail: research@grubb-ellis.com
Internet: www.grubb-elUs.com
For more information on Canadian
narkets, please visit Avison Young at
www.avisonyoung.com or contact
Sherman DeSouza at 416.673.4039 or
sdesouza@ay-on.com.
The SHyer Lining
Do you really want to read another article describing how challenging the coming
year is going to be for shopping center landlords and tenants? Just in case you do,
we cover that inside—foreclosures, gas prices, high debt levels, credit squeeze, job
losses, the “R” word and, of course, retail leasing market conditions. But there is a sil-
There are three reasons to expect the
slowdown to .be short and shallow.
ver lining: There are three reasons to expect the slowdown, recession or whatever
you call it, to be short and shallow. First, the Federal Reserve has been throwing
everything plus the kitchen sink at the credit squeeze to get banks lending again,
including aggressively cutting interest rates, unprecedented lending to investment
banks and stepping in to keep Bear Stearns from collapsing. In short, the Fed has our
back. Second, the rest of the world continues to grow, boosting U.S. exports thanks
to the weak dollar, which will add a percentage point of growth to gross domestic
product this year. And third, corporate debt levels are low (unlike consumer debt), so
there is reason to think that layoffs and cuts to capital spending might be less severe
than the 2001 recession. A shorter recession, if it comes to pass, would result in
fewer layoffs, putting a floor under consumer spending.
-------
Retail Market Trends Summer 2008
Rental Rates, In-line Shop Space
Note: Rental rate data refer to in-line shop space in grocery-anchored center, 3,000-
square-foot national credit tenant, newly developing suburban trade area, first genera-
ton space, white-box build-out. Rates are per square foot. quoted on an annual, triple
net basis. Canadian data, courtesy of Avison Young, use the exchange rate of $1
Canadian = $1 US.
Pad Site Prices
Note: Sales price data refer to 1-acre pad site (vacant land) suitable for a bank.
restaurant, drug store, etc.; mall-adjacent, newly developing suburban trade area.
Sales prices are per square foot. Canadian data, courtesy of Avison Young, use the
exchange rate of $1 Canadian $1 US.
New York
San Franasco
Orange County
San Jose
Toronto, Canada
Washington, DC
San Diego
Chicago
O I+ F%PO
Riverside-San Bern.
Los Angeles
Calgary, Canada
Las Ve”
Portland
Vancouver, Canada
Boston
Bozeman. MT
-
ittsburgh
Orlando
Sacramentc’
Detroit
1 AJbuquerqu€
Jacksonville
Mobile
• New Jersey
San Antonio
Dallas-Fort W rth
Austin
Houston
Atlanta
Nashville
Tampa
Boise, ID
Columbus, OH
Denver
Kansas City
Regina, Can d
Fr cnn
St lruii
Cincinn
Columbia, S
Kalispell, MT
South P ”
Montreal, Canada
Omaha
Winnipeg,
4homa C’
fl IA,ur e
Richmond
Phoenix
Portland
New Jersey
Chicago
Sacramento
Denver
Nashville
South Bend
Tampa
Grand Rapkis
Houston
Pittsburgh
Dallas-Fort Worth
Regina, Canada
Austin
San Antonio
Fresno
lndianapolit
Jacksonville
Atlanta
Albuquerque
Kansas City
Omah
Detroit
St Louis
Winnipeg, Canada
Cincinnati
Greenville
Mobile
Des ”
Cleveland
Columbus, OH
Columbia, SC
(- ,_I_____, ,_
1.
:
I
i i
,
. ._._._.j I i
JI
1 1
—
10 20 30 40 50 60
Few such properties ava able
—
—
Washington, DC
Boston
Orange County
Los Angeles
Miami
San Jose
Vancouver, Canada
Riverside-San Bern.
Calgary, Canada
Las Vegas
(I.I. J
Miam
Oakland
+
San P ”
>.
C
a
E
0
C.)
0
w
-o
2
8
(.4
0
j l
Kalispell, MT
f Ainr , r ,rjic
10
Boise, ID
Wchita
Oklahoma City
Montreal, Canada
New York
San Francisco
Toronto, Canath
$0
2
-------
Retail Market Trends Summer 2008
State of the Market
In the following inter-
view, Michael Dee,
Senior Vice
President, National
Director of Retail,
Grubb & Ellis
Company, shares his
views on the indus-
try and his outlook
for the future.
What’s the outlook for leasing activity
compared with last year? Have we hit
bottom yet or is there more weakness
ahead?
We are seeing slower leasing activity
compared with last year across every mar-
ket, especially unanchored centers in sec-
ndary and tertiary markets. Activity has
Allen off sharply for mom-and-pop stores
and smaller chain tenants. It’s not all doom
and gloom, but it’s a big change from last
year. We haven’t hit bottom yet. The bal-
ance of this year will be challenged, and
the outlook for 2009 is fuzzy. Knowing how
far in advance retailers develop their
expansion plans, I wouldn’t be surprised if
the slowness extends into the first half of
2009. Retailers will tailor their expansion
plans for next year based on this year’s
sales, which will be sluggish.
Has the media over-hyped distress in the
retail market? Is the media having an
impact on leasing activity?
No. The downturn is real and not a prod-
uct of over-reporting. The decline in leas-
ing activity goes hand in hand with real
problems in the economy. Retailers are
going into bankruptcy, closing stores and
caling back expansion plans. When you
Lee Starbucks closing 100 stores, that’s a
tell-tale sign from one of the most aggres-
sive retailers out there. FedEx Kinko’s
plans to add 60 stores this year compared
with around 500 in the last two years
combined. Pier 1 Imports is closing down.
Retailer after retailer is struggling, and it’s
tough out there.
What types of retailers are expanding this
year, and what types are standing pat or
contracting?
Anything linked to the housing market is
weak, particularly home improvement and
furniture. Blockbuster has been cutting
back for a long time, focusing on reloca-
tions, closures and renegotiating leases.
Casual dining outlets are feeling the pain
as are some clothing stores such as
Banana Republic and Gap. Shopping
center developers are having trouble get-
ting retailers to commit to planned cen-
ters, which affects their financing options.
Jewelry store sales are down, but I
recently visited a gold and silver jewelry
exchange store, which pays cash for old
jewelry. It was my first visit to one of these
(not as a customer, I should add), and the
store was mobbed. People were lined up
just to talk with someone, trying to get
cash for their jewelry. I believe this is a
sign of the times, unfortunately.
On the expansion side of the equation,
discounters will see continued growth in
the next 18 months. Kohl’s, TJ Maxx,
Target and Wal-Mart are expanding cau-
The Economic Story: Mixed Signals
3
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Retail Market Trends Summer 2008
State of the Market (continued)
tiously. That’s a direct correlation with the
economy in which we find ourselves,
Consumers want quality name brands but
at a perceived discount. Service oriented
retailers will do well, an example being
Jackson Hewitt Tax Service, which is
embarking on a major expansion cam-
paign in new markets. Cellular and acces-
sory stores are steady. Fitness centers
such as LA Fitness and Gold’s Gym are
expanding, as are day spas. People seem
to want to pamper themselves and stay in
shape despite the slow economy, or
maybe they just want to escape their
problems. Healthcare-related tenants
including urgent care clinics, dentists, chi-
ropractors and optical services are fairly
immune to economic cycles. They like the
convenience, visibility, parking and access
‘hat come with a good retail center, and
landlords welcome them since they often
have good credit, bring a steady flow of
customers and are willing to sign longer
term leases.
What are the most interesting new retail
concepts that you see?
In the current economic cycle, retailers are
not out there testing new concepts. There
are always exceptions such as Tesco’s
Fresh & Easy markets, but even there the
company has delayed the rollout of new
stores. We will see more new concepts
when the economy returns to health.
Will certain regions of the U.S. or certain
markets perform better than others this
year? What markets and regions do you
see lagging behind?
It’s a coastal phenomenon. The markets
.that were so strong on the East and West
‘coasts have been hit the hardest, such as.
Southern California and Florida. I put
Arizona in that category although it is
obviously not on the coast. Retailers who
were busy on the coasts are now looking
for opportunities in Texas, the Carolinas
and a few other areas.
How will the following types of retail cen-
ters perform in the slower market that is
forecasted for this year? Which ones will
suffer, and which ones will hold their own?
1. In-town retailing including downtown
projects, gentrifying in-town neighborhoods
and infill developments? Slow. Many urban
mixed-use projects are having trouble filling
their ground floor retail space. Poor design
sometimes plays a role particularly in rela-
tion to parking, but the main issue is that
condo development and sales have fallen
through the floor, which has at least tem-
porarily delayed the addition of new house-
holds to these trade areas.
2. Ethnically oriented retailers? Pretty
good. Ethnic populations continue to
grow, particularly Hispanic, and retailers
targeting this segment will do well in the
long term.
3. Malls? Slow. They have reinvented
themselves with food courts, movies and
open-air lifestyle wings, but they are
experiencing slower sales. Occupancy
costs for malls are always higher, and
cost-conscious retailers will take a hard
look at opening stores in centers with high
occupancy costs, particularly if they can
find competitive open-air centers.
4. Department stores? Slow, even for the
likes of Kohl’s, Target and J.C. Penney,
which had been the standouts. Sears and
Macy’s are having a tough time. Upscale
department stores such as Nordstrom,
which should in theory be holding up well,
also are seeing sales fall in the current
market.
5. Lifestyle centers? Steady. This contin-
ues to be an attractive product type for
developers and consumers especially in
temperate climates. These centers are not
setting any records in the current market
but are faring better than some. Lifestyle
centers can offer lower rental rates to
attract mall tenants. However, some
lifestyle centers have gotten ahead of the
residential growth curve, which has now
stalled, leaving them with partially formed
trade areas.
6. Grocery-anchored neighborhood cen-
ters? Steady. They are not immune to mar-
ket cycles but tend to fare better because
grocery stores bring foot traffic on a consis-
tent basis. Many centers have done a good
job of integrating service-oriented retailers.
Those in mature trade areas will outperform
those on the urban fnnge where residential
development has halted.
7. Unanchored strip centers? Struggling.
Mom-and-pop retailers who would consid-
er opening a third or fourth outlet in better
times are holding back this year.
What does the shopping center invest-
ment landscape look like, and where will it
be within a year?
It’s challenging because the credit mar-
kets remain dysfunctional. Shopping cen-
ters have gotten a bad rap due to the
struggling housing market and slower
consumer spending. These are real, but
some investors with cash to spend are
hoping to get shopping centers at a dis-
count. We haven’t seen much of that yet
because we haven’t seen many dis-
tressed sales, but that could be changing
if the economy softens further and lenders
remain tight-fisted.
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Retail Market Trends Summer 2008
Rental Rates, Premier Urban Shop Space
Note: Rental rate data refer to premier retail space ocated in oi near downtown except in predominanty suburban markets, 3,000-square-foot naflonal credit tenant, white-box build-out. Rates are per square
foot, quoted on an annual, triple net basis. Canadian data, courtesy of Avison Young, use the exchange rate of Si Canadian Si US.
New York: Fifth Avenue (48th —59th)
Los Angeles: Rodeo Drive
San Francisco: Union Square
Chicago: Michigan Ave. at Oak St.
San Jose: Westfield Valley Fair
Toronto, Canada: Bloor St. West
Vancouver, Canada: Robson St.
Boston: Newbury St.
Montreal, Canada: St. Catherine’s St. W.
Miami: South Beach (Collins Ave—Lincoln Rd.)
Washington, DC: Gallery Place, 7th and F Str
Seattle: Olive to University, from 4th to 7th
Philadelphia: Walnut
Baltimore: Annapolis
San Diego: Horton Gaslamp
Orange County: Irvine Spectrum
Riverside-San Bern.: Rancho Cucamonga
Calgary, Canada: 17th Ave. SW.
Oakland: Downtown Walnut Creek, N. Main St.
Las Vegas: Summerlin
Portland: Pearl District
San Antonio: Riverwalk
Denver: Lower Downtown
Kansas City: Country Club Plaza
New Jersey: Ridgewood: Englewood
Phoenix: Downtown Scottsdale
St. Louis: Clayton/Brentwood/Frontenac
Sacramento: Downtown Plaza
Atlanta: Midtown
Nashville: Downtown
Austin: Downtown
Albuquerque: Cottonwood
Fresno: North Fresno/River Park
Orlando: Downtown
Dallas-Fort Worth: UptownNictory
Pittsburgh: South Side
Cincinnati: Fountain Square
Houston: Uptown/Galleria area
Tampa: New Tampa
Boise, ID: Karcher Interchange
Columbus, OH: Arena District
Indianapolis: Wholesale District
Cleveland: E. 4th St.
Des Moines: West Glen
Richmond: Downtown
Bozeman, MT: Downtown
Colorado Springs: Downtown
Columbia, SC: Vista
Jacksonville: Metro South
Kalispell, MT: Downtown
Winnipeg, Canada: Polo Park/St.James
Regina, Canada: Victoria Ave. E.
Minneapolis: Minneapolis Downtown
Omaha: Downtown
South Bend: University Park area
Greenville: Downtown
Grand Rapids: Downtown
Oklahoma City: Bricktown
Detroit: Fox Theatre Area
Wichita: Old Town
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5
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Retail Market Trends Summer 2008
NORTHERN CALIFORNIA!
PACIFIC NORTHWEST
Fresno: Retailers are hesitant to expand during
.. 2008. Landlords are more willing to negotiate con-
cessions especially for a strong tenant willing to
IY sign a five-year lease... Oakland-East Bay: Retail
remains strong in Downtown Walnut Creek. Mixed-use developments
have come to a screeching halt, except in urban locations...
Portland: New major developments include Cascade Station and
several smaller centers in Vancouver... Sacramento: Suburban
development is slowing to a crawl. The longer and deeper the hous-
ing slump goes, the greater the effect on the local retail market... San
Francisco: Retail sales have softened, but the hotel and restaurant
sectors are performing well given the weak U.S. dollar and strong
tourist trade... San Jose-Silicon Valley: Shopping center vacancy
remains fairly low, but softening consumer spending will negatively
impact retailers, pushing vacancy up and rental rates down...
Seattle: The core premier downtown retail market continues to thrive
with vacancy around 1%. No significant deliveries of retail space are
scheduled.
SOUTHERN CALIFORNIA!
PACIFIC SOUTHWEST
Los Angeles: The retail market has remained very
healthy, and select submarkets have experienced
substantial rental rate increases. Depending on the
scope and depth of the recession, the market may
be able to “ride it out”... Orange County: Increased vacancy is mak-
ing landlords more willing to negotiate on rents and concessions.
Tenants continue to take down space in the best centers, though
the velocity of demand has cooled off from last year... Riverside-
San Bernardino: With home foreclosures among the highest in
the nation, the market is adding fewer new residents and less dis-
posable income. Mid-tier luxury retailers will experience reduced
sales volume in cities to the west... San Diego: High incomes,
stable employment levels and high barriers to entry have kept
national retailers interested in San Diego. Overall vacancy less
than 5% has kept property values high.
MOUNTAIN/SOUTHWEST
Albuquerque: Activity should be especially strong
in the South Valley, Rio Rancho, West Mesa and
Far North East Heights areas... Boise: This year
will see rent adjustments primarily in unanchored
strip centers, as well as concessions on TIs and
abated rent from landlords... Bozeman: The retail market is expand-
ing with the addition of new tenants like Rosauers Supermarket,
‘F ,
Sportsman’s Warehouse, Office Depot, IHOP, Linens n’ Things, and
Bed Bath & Beyond... Colorado Springs: The market will be sta-
ble unless the downturn is protracted... Denver: Economic funda-
mentals remain solid thanks to continued job and population growth
projected for the region. Urban rents are increasing due to a large
volume of infill construction with high asking rates... Kalispell: A
large mall totaling 750,000 square feet is planned, resulting in a
retail market shift from the central part of town to the north... Las
Vegas: With national tenants reducing the number of planned
openings, it is the most challenging market seen in recent years...
Phoenix: Healthy tenant demand continues along with near-record
construction levels. In-migration remains strong though job growth
was down in 2007.
TEXAS/GREAT PLAINS
Austin: As more mixed-use developments come
online such as the Domain Mueller Austin and
Crestview Station these will help ease problems
like gndlock insufficient parking and high gas
pnces Dallas Fort Worth Strong demographic
and employment fundamentals are supporting growth, keeping occu-
pancy rates stable. The retail sector will maintain its vitality, largely due
to pre-leased construction... Des Moines: Aviva will build a new
360,000-square-foot campus next to the Wells Fargo corporate cam-
pus on the south side of Jordan Creek Town Center... Houston:
There is an overabundance of new construction with over 12 million
square feet of retail development underway. Many of the stores
scheduled to open in the coming months were in the pipeline before
the housing market began to weaken... Kansas City: The tremen-
dous amount of retail development over the past few years has
increased competition for tenants and prevented noticeable rent
growth... Oklahoma City: National retailers have paused or com-
pletely halted expansion in the local market... Omaha: The market is
beginning to see a rise in the vacancy rate primarily due to softening
in the small shops segment... San Antonio: With more than 4.7 mil-
lion square feet of new retail space under construction, vacancy will
likely increase because absorption will take awhile to catch up... St.
Louis: Although many retailers are slowing their expansion plans,
many are looking at how they can improve their portfolios through
repositioning, relocating or expanding existing locations... Wichita:
Job growth, record-low unemployment levels and a stable residential
market will attract retail and restaurant tenants to Wichita. Due to a
recently overbuilt strip center market, plenty of Class A, move-in-ready
spaces are available for tenants:
6
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Retail Market Trends Summer 2008
GREAT LAKES/OHIO VALLEY
Chicago: Retailers are freezing their budgets.
P’ Landlords offering well located space are more
accommodating to tenants whom they might have
passed over when the market was stronger
Cincinnati: Declining demand, store closures and
the delivery of new space already in the construction pipeline will lead
to slightly higher vacancy rates. Competitive pressure will push asking
rents lower, while new development will proceed cautiously...
Cleveland: Retailers that had been expanding are taking a breather,
except for new locations that were already committed. Several new
projects are expected to get underway in traditionally underserved
perimeter counties that have seen a significant growth in population...
Columbus: The local slowdown is mainly attributed to limited compa-
fly expansion plans as well as a number of large corporate cut-
backs... Detroit: The continued success of sporting venues and the
completion of three major casinos are generating more foot traffic
downtown... Grand Rapids/West Michigan: With limited new con-
- struction, tenants will be scrambling to fill what space is available...
Indianapolis: Hamilton Town Center, a 950,000-square-foot lifestyle
center, opens its first phase in May, which may impact the venerable
stleton Square Mall area... Minneapolis-St. Paul: Many retail
. nters are waiting on significant pre-leasing prior to breaking
ground... South Bend: Open-air lifestyle centers continue to expand
throughout St. Joseph County.
NORTHEAST/MID-ATLANTIC
Baltimore: As construction costs remain high, the
attitude has shifted from “if you build it, they will
come” to “wait and see.” Maryland is a beneficiary of
the Base Realignment and Closures (BRAC) which
is relocating thousands of jobs to the state, keeping
optimism high.. Boston: A number of overseas funds have recently
purchased retail buildings in central Boston. Several million square feet
of urban and suburban retail development is coming online over the
next 24 months... New Jersey: A slumping housing market combined
with turmoil in the credit markets, a weakening labor market and volatile
energy prices are overshadowing New Jersey consumers... New York
City: Expect the market to soften as foreign, chain-store and big-box
retailers pull back on their store requirements because of a weak U.S.
economy... Philadelphia: A rise in local unemployment rates coupled
with deteriorating consumer confidence levels have put the brakes on
he steady rise in rents that retail space had enjoyed over the past
t years... Pittsburgh: Entertainment and restaurant venues are
expected to benefit from a planned new hockey arena in the CBD for
the Pittsburgh Penguins and the first slots casino built on the North
Shore of the CBD/Fringe area... Washington, DC: New projects still
command higher rents due to construction costs. The region has not
been affected as dramatically as other parts of the U.S.
SOUTHEAST
Atlanta Suburban retail markets continue to
expand with steady rental rate growth occumng as
new development spreads north Rehabbed cen
ters are commanding rates on par with new con-
struction... Columbia: Developers are struggling
to get financing for land to continue expanding... Greenville-
Spartanburg: Several major projects have been put on hold due to
financing issues, although the market is faring relatively well amid the
national economic downtum... Jacksonville: Land prices are stable
in most areas with a slight increase in the main trade areas of the
county... Miami: South Beach remains strong with support from inter-
national tourism. Tenants are showing greater caution in expanding
and evaluating the economics of their leases... Mobile: The retail
market has stabilized following three years of steady expansion.
Growth is expected to resume in response to ongoing economic
development initiatives... Nashville: With minimal new construction
being completed, vacancy is expected to level out... Orlando: Inline
shop space activity has slowed in all but the hottest submarkets.
Many owners have begun offering incentives, especially in second
generation space... Richmond: Another 3.7 million square feet of
retail space will be delivered over the next year... Tampa: The retail
market is expected to slow in tandem with the economy. New retail
development will be built on a pre-leased basis and in established
submarkets.
CANADA
Calgary: Close to 5.5 million square feet of new
retail space is planned for delivery between 2008
and 2011... Montreal: The low unemployment rate
is fueling consumer spending and contributing to
strong retail sales. Falling vacancy rates are
accompanied by an increase in rental rates... Regina: Retail growth
continues in east and northwest Regina. Substantial new retail devel-
opment also is planned in southwest Regina... Toronto: Many U.S.-
based retailers, lacking confidence in domestic markets, are looking to
Toronto as a possible new market to be tapped in 2008...
Vancouver: The retail rental market continues to drive on despite the
high Canadian dollar. Supply shortages are expected throughout the
balance of 2008... Winnipeg: Retail vacancy levels recently
achieved a 17-year low despite more than 3 million square feet of
power centre development over the past few years. The economic
slowdown and mortgage crisis south of the border combined with high
construction costs is expected to dampen power centre development.
7
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Warehouse Market Trends North America
Grubb & Ellis Research
1 hird Quarter 2007
•
Property Solutions Worldwide
Contents
The Bottom Line 1
Vacancy Rates 2
Commentary 3-4
Rental Rates 5
Metro Spotlight 6-7
Warehouse Market Trends
is a newsletter published semi-annually by Grubb
& Ellis Company. To obtain additional copies or
other Grubb & Ellis publications, please contact:
Robert Bach
Senior Vice President
Phone: 312.698.6754
Grubb & Ellis Company
500 West Monroe Street
Suite 2800
Chicago, IL 60661
E-mail: research@grubb-ellis.com
Internet: www.grubb-ellis.com
For more information on Canadian markets, please
visit Avison Young at www.avisonyoung.com or
contact Sherman DeSouza at 416.673.4039 or
sdesouza@ay-on,com.
Market in Balance
10% — 8.5 8.4 8.0 8.2 7.9 7.9 7.8 7.8 7.8
I I
I I
9%-:
The Bottom Line
U.S. Warehouse Vacancy Rate
The market for warehouse/distribution space has been remarkably stable
for the past five quarters with vacancy shifting by less than 10 basis points.
Construction activity continues to creep higher every quarter, but absorp-
tion of space has kept pace thanks to a number of factors: very strong
imports, still-healthy corporate profits, retail sales that have held up rea-
sonably well despite the housing crash, and the ongoing re-engineering of
supply chains, often with the assistance of third-party logistics companies.
Expect demand for space to remain moderate over the next few quarters,
with little overbuilding and broadly stable rental rates.
8%
7%
I I I I I I I I I
Q3105 Q4/05 01/06 02/06 03/06 04/06 Q1107 02/07 03/07
© 2007 Grubb & Ellis Company
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Warehouse Market Trends Third Quarter 2007
Total Market Vacancy Rates
Note: Vacancy data refer to warehouse/distribution buildings with size thresholds ranging from 5,000 square feet in smaller markets to 25,000 square
feet in larger markets. Inventory includes multi-tenant, single-tenant and owner-occupied space. Canadian data are courtesy of Avison Young.
Calgary, Canada
Edmonton, Canada
Vancouver, Canada
Los Angeles
Kalispefi, MT
Bozeman, MT
Fresno
Oakland-East Bay
Regina, Canada
Wichita
Bakersfield
Winnipeg, Canada
Orange Co., CA
Austin
Orlando
Riverside-San Bernardino
Minneapolis-St. Paul
Portland, OR
Houston
Toronto, Canada
Tampa Bay
New Jersey, Southern
Lincoln, NE
Boise, ID
Madison
Albuquerque
Omaha
San Jose
Las Vegas
Miami
Montreal, Canada
Denver
BrowardCo., FL
Milwaukee
Long Island
San Antonio
Phoenix
Columbia, SC
Halifax, Canada
Kansas City
Norfolk
South Bend, IN
Colorado Springs
St. Louis
Jacksonville
Delaware
Washington, DC
Seattle
Dallas-Fort Worth
Greensboro-Winston Salem
Nashville
Chicago
Reno-Sparks
Charleston, SC
Philadelphia
New Jersey, No. & Central
Grand Rapids
Mobile
San Diego
Cincinnati
Indianapolis
Palm Beach Co., FL
Baltimore
Charlotte
Columbus, OH
Cleveland
Greenville, SC
Sacramento
Pittsburgh
Boston
Atlanta
Detroit
Raleigh
Richmond
Kalamazoo, MI
Memphis
Oklahoma City
0 /
I0
4
8
2
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© 2007 Grubb & Ellis Company
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Warehouse Market Trends Third Quarter 2007
Commentary
Is Real Estate Ready for
Logistics?
By Linda G Tresslar
Managing Director, Strategic Consulting,
Grubb & Ellis Company
Great changes have been afoot in the
areas of supply chain management and
logistics over the past decade. The flow
of commodities and manufactured
goods worldwide has grown exponentially, fueling quantum
leaps in infrastructure improvements to keep pace with glob-
al demand. But has the industrial real estate marketplace in
the U.S. kept pace? Do we even know what we don’t know,
to paraphrase a recent popular quote? While you can no
longer pick up any news print without becoming aware of the
increasingly global nature of our economy, there has been
‘tie focus until recently of the role that the industrial real
estate market needs to play in this evolving market of global
logistics. The key unknown is whether real estate can
respond to become part of the successful supply chain con-
tinuum or will it be an antiquated part of the process?
Developing economies have the advantage of having to
respond to real estate requirements with a relatively blank
slate, while more developed economies in Europe and the
U.S. are faced with free market responses and lots of exist-
ing real estate product that may or may not meet current
user requirements. If other aspects of the supply chain con-
Warehouse Market Terms and Definitions
tinuum, such as rail and other transport modes are forced to
find ways to circumvent and minimize real estate use, how
will this impact the long-term health of our industrial real
estate markets? A key part of the answer lies in being able
to gauge whether our existing industrial real estate product
is sufficient to meet the changing dynamics of the global
supply chain. If not, how do we determine the optimal real
estate solutions?
The markets that are poised from a
physical location perspective to provide
optimal real estate solutions will prove
to be the Ion g4erm winners.
Global Infrastructure—Global Traffic Jams
Ports, waterways, rail and trucks—all aspects of the logistics
continuum are going though major growing pains throughout
the world. The flow of goods is driven by global dynamics
and there is no turning back. This is true for the U.S. indus-
trial real estate market as well. We have seen the inflow of
imports increase steadily over the past decade (up from
$500 million to over $1.8 billion between 1990 and 2006),
putting pressure on existing ports and railways which have
long lead times to respond to increases in demand. We
have not added any new ports or major rail systems during
this time. Ports are stressed to capacity for the most part.
Certain key markets in the U.S., like the greater Chicago
industrial market, are experiencing sig-
nificant supply chain delays, causing
inventory gridlock and increased supply
chain costs, as goods are backlogged
waiting for the transition from rail to
other end-market modes of transporta-
tion. The current logistics answer for
some is to travel all the way around the
tip of South America to reach the East
Coast. This may not appear to make
any sense, yet in some cases, this
route shaves days (money) off the sup-
ply chain cost and speeds end market
delivery.
Inventory: Warehouse/distribution inventory includes all multi-tenant, single tenant and owner-occupied buildings
at least 10,000 square feet.
Construction Type: Speculative (“spec”) construction is designed to attract tenants likely to be in the market
when the project is leasing. Build-to-suit construction is designed for a specific tenant.
Physical Features: Warehouse/distribution buildings typically have office build outs of 5 to 10 percent, clear
heights of 16 feet and up, typical bay depths of up to 400 feet, typical suite sizes of 25,000 square feet and up,
and dock-high loading.
Vacancy and Availability: The vacancy rate is the amount of physically vacant space divided by the inventory.
The availability rate is the amount of space available for lease divided by the inventory.
Net Absorption: The net change in physically occupied space over a period of time.
sking Rent: This is the dollar amount asked by landlords for available space expressed in dollars per square
3ot per year in most parts of the country and dollars per square foot per month in areas of California and selected
other markets. Warehouse rents are expressed as triple net where all costs including, but not limited to, real estate
taxes, insurance and common area maintenance are borne by the tenant on a pro rata basis.
Average Weighted Asking Rent: An average market rent where the asking rent for each building in the market is
weighted by the amount of available space in the building.
3
© 2007 Grubb & Ellis company
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Warehouse Market Trends Third Quarter 2007
commentary (continued)
What can the real estate market do to alleviate these costly
traffic jams? It will require building the appropriate type of
real estate in the optimal locations should it not exist today,
and with speed to market pressures of these users, can it
be built fast enough or will they be forced to accept inferior
solutions? The markets that are poised from a physical loca-
tion perspective to provide optimal real estate solutions will
prove to be the long-term winners, given that they are pro-
viding market responsive solutions.
You Have to Have a Place to Put It—How Is
Real Estate Responding?
New industrial warehouse product is being built in key logis-
tics markets throughout the U.S. that can meet the needs of
the new breed of supply chain users. But is this product
being built fast enough and in the right places to effectively
‘neet the challenges presented by the current global supply
hain dynamics? And how does one measure the supply /
demand equilibrium? Do our previous methods provide reli-
able measures of market health and suitability for the user?
A key step, which this warehouse report provides, is to focus
attention specifically on the warehouse inventory in a market
and its relative health. Then one can begin to assess
whether the market also exhibits the key market attributes
that will ensure its ability to meet future global supply chain
requirements, not just for the real estate attributes but for
other aspects including transportation, etc.
For most of the time that industrial real estate has been for-
mally tracked as an asset class, it has been measured and
tracked market by market on a square footage basis. The
only cost factors measured have been real estate, rents and
other real estate related operating costs, not any other sup-
ply chain related market costs. We have focused on the
amount of ‘space:in a market, the age of overall inventory
and how fast it is absorbed. Not until fairly recently have
market measures begun to focus on industrial space based
)fl its usage type. Ceiling height, cross docking, and other
physical attributes that are essential to logistics users of
warehouse have not been identified and tracked in most
markets, leaving potential users without the ability to gauge
a market’s capacity and strength relative to their specific use
requirements. How much of U.S. industrial real estate is built
to handle the new requirements of supply chain and logis-
tics? And how much existing warehouse product is suitable
to these needs? Are we asking the right questions before
building industrial product these days? Developers will pay
close attention to a user’s specifications, but how often do
they delve deep enough to understand how they may be
able to improve supply chain dynamics that the user may
not even be considering or be aware of.
How Do We Know If Real Estate Is Ready?
With the market for industrial real estate continuing to shift
toward logistic and supply chain driven manufacturing and
warehousing, it is time to move our methods for measuring
the health and capacity of industrial real estate ma particu-
lar market or region based on the new demands of this
growing user base. The increase in volume and speed of
goods flow has spurred the ongoing development of inter-
modal facilities throughout the United States, responding to
the need to combine, in a physical place, the confluence of
rail, air or water transport to warehouse to truck for continua-
tion of supply chain dynamics. Yet, we do not typically seg-
ment a market’s industrial real estate to track intermodal,
separate from warehouse; We also do not monitor other
aspects of a market that are directly linked with real estate in
the global supply chain, such as transportation costs,
drayage costs, to give users a more complete picture of the
relative viability of a market’s industrial real estate product.
Until the real estate industry begins to develop not only
product specifically geared to improving global supply chain
dynamics, but compelling means of measuring and monitor-
ing its relative market health, the industry will not be able
effectively benefit from the significant shifts afoot in the glob-
al economy and its attendant supply chain.
© 2007 Grubb & Ellis company
4
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Warehouse Market Trends Third Quarter 2007
Asking Rental Rates
Note: Rental rate data refer to space that is available on the market at the end of the quarter. Rates are per square foot, quoted on a triple net basis.
Rates for each building are weighted by the amount of available space within the building. Canadian data are courtesy of Avison Young. Canadian
rental rates are in U.S. dollars using the exchange rate of $1 Canadian $O.958361 US.
MARKET: WAREHOUSE-DISTRIBUTION WTD. RENT
Long Island
Palm Beach Co., FL
Broward Co., FL
Bozeman, MT
Austin
Washington, DC
Las Vegas
Oran eCo., CA
San Diego
Kalispell, MT
Los Angeles
Edmonton, Canada
Vancouver, Canada
Miami
Calgary, Canada
Halifax, Canada
Albuquerque
Phoenix
San Jose
Boise, ID
Orlando
Tampa Bay
Toronto, Canada
Oakland-East Bay
Sacramento
New Jersey, No. & Central
Montreal, Canada
Boston
Colorado Springs
Seattle
Norfolk
.verside-San Bernardino
Regina, Canada
Baltimore
Houston
Portland, OR
Minneapolis-St. Paul
Bakersfield
Winnipeg, Canada
New Jersey, Southern
Indianapolis
St. Louis
Delaware
Philadelphia
Charleston, SC ________________________________________
Pittsburgh
Chicago
Denver ___________________________________
Raleigh
San Antonio __________________________________
Detroit
Omaha
Reno-Sparks
Jacksonville
Mobile
Milwaukee
Fresno ____________________
Dallas-Fort Worth __________________________________
Wichita ________________________________________
Charlotte ______________________________________
Madison _____________________________________
Columbia, SC _________________________________
Atlanta ____________________________________
Nashville
Richmond _______________
Cleveland _______________
South Bend, IN ______________
Cincinnati ________________
Oklahoma City
Grand Rapids
Greensboro-Winston Salem _______________________________
Kalamazoo, Ml
Kansas Ci
Greenville, S
Memphis
Columbus, OH
Lincoln, NE
-
2
4
8
10
5
© 2007 Grubb & Ellis Company
-------
Warehouse Market Trends Third Quarter 2007
Metro Spotlight
NORTHERN
CALIFORNIA/PACIFIC
NORTHWEST
Fresno: Unique to the
Central Valley are cold stor-
age and packing facilities
along with cotton gins, warehouses and indus-
trial zoned land set in rural areas. A number of
facilities are currently on the market for sale
with non-agricultural users looking at purchas-
ing and converting the properties...
Oakland-East Bay: Over 431,000 square
feet of absorption dropped the warehouse
vacancy rate in the 1-80/1-880 corridor by 70
basis points to 2.8 percent. San Leandro and
Emeryville drove the market this quarter...
Portland: Increasing rental rates are luring
speculative developers back into the market.
Land values and sales have picked up significantiy
in the last 12-18 months... Sacramento:
Absorption of warehouse space totaled
380,000 square feet this quarter... San
Jose-Silicon Valley: Despite the credit
squeeze, most companies are moving forward
with their growth and expansion plans...
Seattle: Asking rents for warehouse space in
Kent have remained at their recent peak.
Rents in prime submarkets will inch up even
as new construction is delivered.
____________ Bakersfield: Demand
_______________ has decreased slightly, but
_______________ lease rates are stable...
Los Angeles: Vacancy
is at an historic low. The warehousing and
wholesale trade sectors are driving the mar-
ket... Orange County: Proximity to the
ports of Los Angeles and Long Beach are
spurring demand, but lease opportunities for
large tenants are nearly nonexistent...
Riverside-San Bernardino: Willing to
pay a premium to be closer to the Los Angeles
ports, many large distribution users west of
1-15 are signing lease renewals rather than
tI
J L. ULJjL i
. . .L
SOUTHERN
CALIFORNIA
moving east, near 1-215, for lower rents. Large
tenants seeking to locate in the western sub-
markets are hard pressed to find spaces in
excess of 100,000 square feet... San Diego:
The credit squeeze resulted in a slight softening
of asking rates and sales prices.
MOUNTAIN!
SOUTHWEST
Albuquerque: Spec
construction is gradually
increasing, but very little of
it is warehouse space...
Boise: The availability of new warehouse
space has decreased, placing landlords in a
stronger position... Bozeman: Absorption of
new warehouse product has slowed with the
downturn of construction related companies...
Colorado Springs: The market is seeing
moderate leasing activity... Denver: Overall
industrial vacancy rates moved lower this quarter
in a majority of submarkets. But in the major
warehousing submarkets, users are being cau-
tious in their expansion plans or actually down-
sizing in some cases... Kalispell: With few
properties available, warehouse space is quickly
absorbed... Las Vegas: Blue Diamond Center
and Arroyo North, both of which have plans for
expansion, will help meet the high demand for
warehouse product in the Southwest submar-
ket... Phoenix: Construction is at record lev-
els, driven by distribution product in Southwest
Phoenix. Overall net absorption has been lack-
luster so far this year... Reno: New big-box
spec space is attracting moderate interest.
TEXAS!
GREAT PLAINS
Austin: Warehouse prod-
uct absorbed 231,000
square feet this quarter,
pushing vacancy down by
70 basis points to 3.9 percent... Dallas-Fort
Worth: Demand for warehouse space has
been robust this year, trailing only the booming
Riverside-San Bernardino market east of Los
Angeles... Houston: Warehouse space
absorbed an astonishing 2.5 million square feet
in the third quarter, pushing the yearly total to
nearly 5.1 million square feet. The robust
demand is due to increased activity at the Port
of Houston and the booming energy industry,
which is forcing oilfield service companies to
expand or relocate to the area... Kansas
City: The market is poised to take on a more
important role for regional and national distribu-
tion companies with the development of two
multi-modal rail yards in Gardner, Kan. and
Grandview, Mo... Lincoln: Quoted rates have
been sliding for the past four quarters...
Oklahoma City: Tenant and investor interest
is strong. Buildings for sale of any size are hard
to find... Omaha: Year-to-date absorption of
warehouse space has been strong at nearly
700.000 square feet... San Antonio:
Warehouse properties absorbed nearly 300,000
square feet in the third quarter, pushing vacancy
lower by 20 basis points... St. Louis: Several
spec warehouse projects were completed and
entered the market vacant in the third quarter,
causing a slight dip in rental rates... Wichita:
Global demand for aircraft has pushed vacancy
sharply lower over the past year.
GREAT LAKES!
OHIO VALLEY
Chicago: The 12.5 mile
1-355 extension will open in
November, making Will
County even more attrac-
tive for mega-distribution projects. Will County
is the primary location for international contain-
er shipments in the Chicago area due to the
BNSF Intermodal Center in Elwood...
Cincinnati: Leasing activity is healthy,
though net absorption of warehouse space is
slightly in the red this year... Cleveland:
Tenants will have several new options when 1
million square feet of spec space is delivered
over the next six months. This will keep rents
down for existing and redeveloped product...
Columbus: Spec development is strong in
© 2007 Grubb & Ellis Company
6
-------
Warehouse Market Trends Third Quarter 2007
1 etro Spotlight (continued)
the Licking submarket, particularly Etna, and
the Southeast submarket surrounding the
Rickenbacker intermodal facility... Detroit:
Cost cutting in the automotive industry has
pushed warehouse absorption into the red
year-to-date by 560,000 square feet... Grand
Rapids/West Michigan: The market has
slowed, though year-to-date absorption of
warehouse space, about 821,000 square feet,
is running slightly ahead of the same period
last year... Indianapolis: Bulk distribution
nd logistics facilities are in demand, along
with midsize buildings. Plainfield remains the
hub of activity... Kalamazoo: Leasing activi-
ty picked up in the third quarter...
Milwaukee: The market saw modest rent
gains and lower vacancy this quarter...
Minneapolis: Some key properties with sig-
nificant absorption this quarter include IGH
flistribution Center in Inver Grove Heights and
in Distribution Center II in Eagan...
South Bend: Although the warehouse mar-
ket in the South Bend area is quite small,
areas of northwest Indiana in closer proximity
to Chicago offer excellent potential for a multi-
modal inland port development.
NORTHEAST!
MID-ATLANTIC
Baltimore More than
715,000 square feetwas
leased in the third quarter
by Restoration Hardware,
Solo Cup, Time Critical Freight and Delsey
Luggage Inc. in the BWI Area/Route 1 and
Harford County submarkets, pushing vacancy
lower... Boston: The warehouse market saw
negative absorption of 365,000 square feet in
the third quarter, giving back part of the nearly
1.4 million square feet absorbed over the prior
three quarters... Long Island: Though not
j ig distribution market, asking rental rates
warehouse space are the highest in North
America... New Jersey: The warehouse mar-
ket has been manic-depressive in recent quar-
ters, swinging between large negative and posi-
tive absorption totals. Nearly 6.2 million square
feet is in the construction pipeline...
Philadelphia: The market posted its healthi-
est quarter this year, absorbing nearly 3 million
square feet of warehouse space. Demand was
robust in the Northeastem Pennsylvania submar-
ket... Pittsburgh: Along the Route 576
Findlay Connector, the signage has been
installed for West Port, the 1,000 acre develop-
ment at Exit 4, and the water and sewer installa-
tion is on schedule for a spring 2008 delivery.
This could help put western Pennsylvania on the
logistics map... Washington, DC: Dulles
International Airport is a magnet for bulk distribu-
tion space. A number of leases have been
signed along the Route 28 Corridor, which pro-
vides direct access to the airport.
I SOUTHEAST
Atlanta: Vacancy remains
several percentage points
above the U.S. average,
though moderating con-
struction activity should
help the market recover... Broward
County: The warehouse market absorbed
nearly 500,000 square feet this quarter...
Charleston: A subsidiary of Dubai
International announced its intention to pur-
chase 1,300 acres near Orangeburg, S.C. for
development of a multimodal logistics project.
The site is near the proposed Jasper, S.C. port
expansion, which will be far larger than the
Charleston or Savannah ports and will be run
jointly by the states of South Carolina and
Georgia... Greenville-Spartanburg:
Adidas is consolidating distribution operations
from three states to a new 1.9 million-square-
foot facility in Spartanburg, which will be com-
pleted in 2009. The combination of available
land and decent interstate access makes the
region attractive for the development of other
distribution facilities... Jacksonville:
Jaxport Terminal expansions continue to bolster
demand for space... Miami: Strong demand for
warehouse space drove absorption above 1.2
million square feet year-to-date... Memphis:
Nearly 1.3 million square feet of new space has
been delivered this year with an additional 2 mil-
lion under construction... Mobile: Mobile
Container Terminal opening next summer will
offer an improved option for shippers to reach the
Midwest and Southeast... Nashville: The
warehouse sector remains in high demand,
absorbing almost 1 million square feet year-to-
date... Orlando: The market is growing as a
distribution hub for Florida, absorbing nearly 1.9
million square feet of warehouse space in the
third quarter alone... Palm Beach County:
Absorption was negative for the third quarter and
also year-to-date, though asking rent for ware-
house space is up by double digits over the past
four quarters... Raleigh-Durham:
Companies related to housing construction have
leased a lot of warehouse space since 2005,
making the sector susceptible to a slowdown...
Richmond: An agreement was finalized by
Liberty Property Trust with a distribution tenant
for a 100.000-square-foot build-to-suit near the
airport. Several other large users are in the mar-
ket kicking the tires... Tampa: Warehouse
rents dipped in the third quarter, but not enough
to seriously dent the landlord’s market.
CANADA
(courtesy of Avison Young)
Calgary: Warehouse
• vacancy is tied with
Edmonton for the lowest
— __ ________ rate in North America...
Edmonton: Several new developments are
nearing completion, providing some options for
users... Halifax: Construction has been vibrant
this year... Montreal: Vacancy and rental
rates remained stable in the third quarter...
Regina: National and international firms are
targeting distribution facilities in Saskatchewan...
Toronto: The supply of vacant land is constrict-
ing... Vancouver: Warehouse space is in
very short supply... Winnipeg: Most new
development taking place within the City
boundary is situated in the Southwest.
7
© 2007 Grubb & Ellis Company
-------
Grubb & Ellis Office Locations
Warehouse Market Trends Third Quarter 2007
•
© 2007 Grubb & Ellis Company
Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis.
Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
Property Solutions Worldwide
-------
Richard Bowers & Co: 01 2008 Atlanta office market report
Absorption rates nearly double compared to Qi 2007; quoted rental rates up $.55
Qi 2008 summary
Atlanta (April 9, 2008) — The 2008 calendar year started strong for the Atlanta office market,
posting positive absorption of 376,152 square feet, nearly double the 190.362 from Qi 2007.
Urban submarkets absorbed 161,209 square feet, led by Midtown with 129,031 fol towed by
downtown with 53,791. Buckhead suffered negative absorption of 21,613 square feet. Suburban
submarkets had positive absorption of 214,943 square feet; 125,756 square feet in the 1-285/GA -
400 submarket, 113,656 in Decatur, and 105,569 in the Georgia 400 North submarkets.
Average rental rates across all Atlanta submarkets increased modestly from $21.15 in the fourth
quarter of 2007 to $21.43 in the first quarter of 2008, supporting previous predictions by Richard
Bowers & Co., that rental rates should increase by as much as $1 per square foot over 2008. The
average rental rate for the urban corridor is $24.05 per square foot compared to the suburbs at
$20.11 per square foot, nearly a $4.00 per square foot differential.
With no new deliveries of commercial office space in the quarter, vacancy rates decreased
slightly from 15.33 percent in Q4 2007 to 15.04 percent in QI 2008. However, five new
Buckhead office towers under construction total 2,465,771 square feet and will be delivered over
the next three years: Sovereign in 2008 with 496,921 square feet; Terminus 200 in 2009 with
564,850 square feet; Two Alliance Center in 2009 with 493,000 square feet; 3630 Peachtree in
2009 with 425,000 square feet; and Phipps Tower in 2010 with 486,000 square feet. Because of
all the new office and other commercial and residential development, traffic congestion will
certainly become more pronounced in Buckhead due to the small number of major roads and
limited expressway accessibility.
Existing office buildings afford excellent values and concessions compared to new office towers,
many of which are priced at or above $30.00 per rentable square foot. Notwithstanding, new
buildings also offer concessions and excellent tenant improvement allowances. Because of
higher gasoline prices and longer commutes, a number of major companies are also considering
locations that offer public transportation, favoring the urban corridor and particularly Downtown,
-------
a submarket with excellent values and lower rental rates than the other urban submarkets,
Midtown and Buckhead.
The outlook for the remainder of the year is moderately optimistic, despite some space being
returned to the market by AT&T and others, a number of tenants who have reduced space or
gone out of business, and additional subleasing availability. Atlanta is still the second-fastest
growing U.S. city in terms of population, with the world’s busiest airport, and it will continue to
perform relatively well, particularly with limited new deliveries and with several out-of-town
users considering Atlanta for major relocations.
About Richard Bowers & Co:
Founded in 1980, Richard Bowers & Co. is Atlanta ‘s premier local commercial real estate firm.
The firm engages in leasing and sales of office, industrial, retail, land and investment properties.
Online at www. richardbowcrs.coin .
-------
RICHARD BOWERS & CO. 04/04/08
QUARTERLY OFFICE REPORT
Categ: Urban/Suburban
Market Analysis Summary
1st Quarter 2008
1st Quarter 2008 1st Quarter 2007
Year to Date Absorption 376,152 190,362
1st Quarter’s Absorption 376,152 190,362
Total Existing Square Feet 130,046,429 128,105,358
Total Available Square Feet 19,565,208 20,842,050
Percent Of Total Space Vacant 15.04% 16.27%
Average Quoted Rental Rate $21.43 $20.88
Space Delivered YTD - Square Feet 0 100,788
(Does not include net losses)
Net Absorption 2008 Total Available Square Feet :
Midtown 129,031 1-75/1-285 3,155,107
I-285/GA-400 125,756 Downtown 2,945,718
Decatur 113,656 I-285/GA-400 2,848,508
GA-400 North 105,569 Midtown 2,066,274
Downtown 53,791 GA-400 North 1,838,390
Total Existing Square Feet: Submarket Occupancy Rate
I-285/GA-400 21,980,673 1-75 Corridor 93.43%
1-75/1-285 18,639,466 Decatur 91.83%
Downtown 17,059,337 1-285/1-85/Northiake 91.31%
GA-400 North 15,153,001 NE Expressway - South 88.52%
Midtown 13,713,498 GA-400 North 87.87%
Average Quoted Rental Rate
BuckheadILeno $26.33
Midtown $25.44
I -285/GA-400 $22.69
Downtown $21.23
1-75/1-285 $21.19
-------
Urban
Downtown
Midtown
BuckheadlLenox
Urban Totals
Suburban
Airport/South
Decatur
GA-400 North
I-20W/Greenbriar
I-285/GA-400
1-285/1-85/Northiake
I-285E/Stone Mm
1-75 Corridor
1-75/ 1-285
I-75N/MariettalJF
NE Expressway-North
NE Expressway-South
Peachtree Corners
Suburban Totals
Total/W. Averages
Total
Sq.Ft .
17,059,337
13,713,498
12,798,170
43,571,005
2,960,322
1,141,165
15,153,001
321,053
21,980,673
4,480,184
403,932
1,127,333
18,639,466
3,094,873
4,501,115
4,663,151
8,009,156
86,475,424
130,046,429
Vacant
Sq. Ft .
2,945,718
2,066,274
1,637,458
6 ,649,450
644,882
93,226
1,838,390
53,827
2,848,508
835,862
35,118
74,062
3,155,107
482,589
1,014,170
535,098
1,304,919
12,915,758
Totals By Submarket
1st Quarter 2008
Occupancy
Rate
82.73%
84.93%
87.2 1%
84.74%
78.22%
91.83%
87.87%
83.23%
87.04%
81.34%
91.3 1%
93.43%
83.07%
84.41%
77.47%
88.52%
83.7 1%
85.06%
19,565,208 84.96%
Absorption
This Otr
53,791
129,031
( 21,613)
161,209
(47,528)
113,656
105,569
505
125,756
(9,876)
(58,038)
20,100
6,847
(29,397)
26,486
(50,584)
11,447
214,943
Absorption
YTD
53,791
129,031
( 21,613)
161 .209
(47,528)
113,656
105,569
505
125,756
(9,876)
(58,038)
20,100
6,847
(29,397)
26,486
(50,584)
11,447
214,943
Avg. Rent
Rate
$21.23
$25.44
$26.33
$24.05
$16.49
$20.24
$19.47
$14.31
$22.69
$17.63
$13.61
$22.23
$21.19
$18.83
$18.44
$ 18.45
$17.13
$20.11
376,152 376,152 $21.43
Area Map
Area Boundaries
1. Downtown
2. Midtown
3. Buckhead/Lenox
4. 1-75 Corridor
5. 1-75/1-285
6. 1-75N/MariettalJohnson Ferry
7. 1-20 W/Greenbriar
8. Airport/South
9. 1-285 E/Stone Mountain
10.Decatur
11. 1-285/1-85/Northlake
12. NE Expressway-South
13. NE Expressway-North
14. Peachtree Corners
15. I-285/GA-400
16. GA-400 North
Atlanta Office Market: Comparison by Submarkets
Richard Bowers & Co.
www.richardbowers.com
404-816-1600
-------
Class “A”
Average
Vacant Occupancy Rental
Rata Rata
Vacant Occupancy
SoFt Rate
Urban Corridor
Downtown
Midtown
BuckheadlLenox
Urban Totals/Averages
Suburban
Airport/South
Decatur
GA-400 North
l-20WlGreenbriar
l-285 1GA-400
l-285 1 1-85fNorihlake
I-2S5EIStone Mtn
1-75 Corridor
1-7511-285
l-75N/Marietta/JF
NE Expressway-North
NE Expressway-South
Peachtree Corners
Suburban Totals/Averages
Totals & Averages
9,168.016 1.493,503 83 71% $2262
9.677.960 1.595.885 83 51% $27 90
8.002.167 960.676 8799% $2842
26,848.143 4.050.064 84.91% $26.25
757.469 219.525 7102% $1983
405,038 31.857 92 13% $23 14
11,183,564 1,256,086 8877% $2048
0 0 n/a n/a
14.545.701 1.707.721 8826% $2448
522.357 104.486 8000% $1984
54.681 25,153 5400% $2080
212,000 0 10000% $3000
12.308,332 1.956,923 84 10% $23 II
1.558.599 211.779 8641% $2065
2.869,722 638.971 77 73% $1999
474,436 27,319 94 24% $2181
2.285.643 189.956 91 69% $1989
47,l 77,542 6.369.776 86.50% $22.41
74,025.685 10,419,840 85.92% $23.80
Total
Comparison by Sub-Market, continued
Class “B”
Total
EL
Vacant Occupancy
_ft Rate
Average
Rental
Rate
Class “C”
Total
Sci Ft
Average
Rental
Rate
6,687.357
3.217.018
4.546.070
14,450.445
1.320531
292.172
657.158
2.269,861
8025%
90 92%
85.54%
84.29%
$1996
$2024
$2306
$21.00
1.141.470
736.127
3.949,437
53.000
86.368
61.369
577.304
8,480
92 43%
91 66%
85 38%
8400%
$1599
$1865
$1661
$23 25
6.202.092
2.247.830
220.668
840.033
791.336
466.532
5,265
65,779
87 24%
7925%
97 61%
92 17%
$1998
$17 58
$1272
$2049
5,648,873
1,168.356
1.599.569
3,728,385
5.091.185
1,036.684
206.982
372.017
481,554
883.812
81 65%
82 28%
7674%
87 08%
8264%
$17 74
$1757
$15.69
$1838
$1639
32,627,025
5,043,482
84.54%
$17.78
47,077,470
7,313,343
84.47%
$18.77
1.203,964
81&520
249.933
2,272,417
131.684
178.217
19.624
329,525
8906%
7823%
92 15%
85.50%
$1771
$1685
$1905
$17.55
1,061,383
0
20.000
268.053
338,989
0
5.000
45,347
6806%
n/a
7500%
83 08%
$1466
nit
$17 00
$1254
1.232,880
1,709.997
128,583
75,300
349.451
264.844
4.700
8,283
71 66%
8451%
96 34%
8900%
$15 34
$1700
$1208
$1969
682,261
367.918
31.824
460,330
632.328
161.500
63,828
3,182
26,225
231.151
76 33%
82 65%
90 00%
94 30%
63 44%
$1504
$1509
$1700
$1559
$1312
6,670,857
1,502.500
77.48%
$15.31
8,943,274
1,832,025
79.52%
$15.88
Richard Bo ser, & (.0.
sichardboner .co,n
404-816-1600
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SOUTHEAST SNAPSHOT. OCTOBER 2007
Southeast Real Estate Business Magazine
Atlanta Retail Market
When looking at Atlanta’s retail sector, mixed-use continues to be the biggest trend, and it is having an effect on both
urban and suburban areas.
In urban areas, a lack of land has forced developers to use land for the highest and best use, causing many to go vertical
Cousin’s Terminus development, featuring high-rise towers offering residential, office and retail space, in Buckhead at the
corner of Peachtree and Piedmont roads is transforming one of the key intersections in the city with its mix of office.
residential and retail components However, the most exciting retail project in Buckhead. and perhaps in the entire Atlanta
area, is The Streets of Buckhead Ben Carter’s $1 2 billion visionary project will turn the former Buckhead Village area —
once ground zero of Atlanta nightlife — into an 800,000-square-foot mixed-use mecca, with high-end shopping believed to
rival Rodeo Drive in Beverly Hills and Madison Avenue in New York City The project recently broke ground with the
demolition of Ci’s Landing. once one of Atlanta’s favorite watering holes
Moving south along Peachtree is Midtown, one of the hottest retail markets in the city Midtown encourages people to walk,
so it is no wonder that it has become the epicenter for the live/work/play concept With its mix of street-front restaurants
and shops below office and condominium towers, the area attracts pedestrian traffic 7 days a week The new Atlantic
Station development has given the Atlanta market a new retail destination, arid it has become the project to which others
seek to be compared
Midtown also has the distinction of being selected as the home of Donald Trump’s first Atlanta project. Trump Towers
Located at the corner of 15th and West Peachtree streets, the $300 million development will feature two condominium
towers and luxury retail
Downtown, the mixed-use story us best illustrated by Allen Plaza. Barry Real Estate’s $1 5 billion project that, when
complete. will encompass 200,000 square feet of retail and restaurants along with its office and residential components
The project has brought life to a formerly underutilized part of the submarket, and features a restaurant. French American
Brasserie. that has quickly earned itself a place among the city’s other fine dining establishments In addition, Barry is in
talks with Publix to bring a grocery store to the project, which would be the first major retailer to come to the Central
Business District in a long while
Moving north, one of suburban Atlanta’s most exciting projects is Prospect Park in Alpharetta, Georgia Thomas
Enterprises’ 64-acre mixed-use property will offer upscale luxury in a suburban location The project’s retail component is
The Forum Collection, 770.000 square feet of high-end. open-air retail that will become a destination for north Fulton
County residents who once needed to drive into Buckhead to take advantage of luxury shopping It will also bring a much
needed multiplex cinema to the area along with a spa and a Jazz and supper Club, among other entertainment features In
addition to Prospect Park. Vickery in Forsyth County is one of the best examples of suburban live/work/play in a dense
residential market north of Atlanta
With growth to the north, south, east and west, the Atlanta retail landscape is large enough to accommodate a variety of
players Companies such as Sembler. Cousins, Inland. Thomas Enterprises and Ben Carter Properties are dominating the
scene with high-profile projects. while new retailers are continuing to find a foothold in the Atlanta market QSR5. or quick-
service restaurants, seem to be expanding so rapidly. it is hard to keep track of those entering the market Raving Brands.
with its flagship. Moe’s. has set the standard in the city, however, there are a number of others gaining ground Rising
Roll. 5 Guys Burgers. FROOTS. Jittery Joe’s and Rita’s Ice, to name but a few, have brought some interesting new concepts
to the Atlanta marketplace Both H Mart and Grand Mart are catering to the Hispanic and Asian markets. primarily in the
Gwinnett County area
Occupancy rates vary REITs seem to be at 93 percent to 97 percent occupancy, grocery-anchored centers hover between
88 to 93 percent occupancy, while shadow strips and independents are running 10 to 20 percent lower Independent strip
centers without national brands are having trouble attracting credit worthy tenants
Looking toward the future, the Georgia Highway 400/north Fulton County market will continue to be strong. with retail
growth in the Cumming area Midtown and Buckhead continue to thrive with residential condominiums and restaurants
catering to both working singles and empty nesters Having no geographic boundaries. Atlanta’s growth will continue in all
directions, with what was once thought of as the ‘hinterlands’ ripe for affordable housing. thus, ensuring the adage that
residential drives retail continues to prove true
— Jeff McMullen is with Richard Bowers & Company in Atlanta
-------
SOUTHEAST SNAPSHOT. OCTOBER 2006
Southeast Real Estate Business Magazine
Atlanta Industrial Market
Demand for Atlanta industrial space has grown during the past 2 years and this year has been no exception with tenants
taking down more than 3 3 million square feet of space by mid-year The demand has prompted speculative construction.
which is currently more than 11 million square feet And as those projects are starting to deliver, the vacancy rate has
inched up to 14 4 percent
Activity was strong across almost all submarkets. with two experiencing notable activity The most active submarket in
Atlanta is the Northeast, which has seen a glut of large leases signed during the past year Significant tenants include The
Home Depot , Spectrum Brands Inc Reckitt Benckiser. Global Equipment Co and Anderson Merchandising Demand for
space in the Northeast is being matched by 3 2 million square feet currently under construction The other submarket with
significant activity is Airport/South Atlanta This submarket currently has almost 6 5 million square feet under construction
and nearly 1 5 million square feet has been occupied this year Just recently. Kimberly-Clark leased 1 3 million square feet
from Oakmont Industrial Group and IDI announced plans to develop a 950.000-square-foot center to be named The
Southside Industrial Park Business Center
Investment in Atlanta’s industrial market will be robust during the remainder of this year During second quarter. investors
spent in excess of $638 million on Atlanta industrial properties The new bulk buildings with long-term credit leases are
producing low cap rates and high prices per square foot In addition, older multi-tenant portfolios are attractive, however,
they obtain lower prices due to typically high vacancy and obsolete functionality One of the most notable deals was the
portfolio sale of a 14-building, 2 8 million-square-foot portfolio by MK Management/Kuniansky Holdings to Crow Holdings
for $109 7 million Another significant portfolio deal was the sale of Northwoods Business Park and Franklin Forest Business
Park. totaling 900.791 square feet First Industrial sold the office properties for $71 7 million
Throughout last year, developers combed Atlanta and its surrounding areas in search of land for industrial development
This trend will continue as Atlanta is a linchpin in the country’s logistics network, largely due to its inter-modal capabilities.
low cost basis and reputation as the southeastern distribution hub Further, import activity in Savannah is expected to
increase by 20 percent before 2010 Also, the logistics trend of maximizing distribution efficiency by consolidating into
larger and more modern facilities will continue
Although demand in Atlanta’s industrial market is strong. it is being matched by equally robust construction This
equilibrium is causing vacancy to stabilize around 14 percent and will keep leasing opportunities readily available for
tenants searching the market As rental rates stabilize somewhat, concessions will linger throughout the year For lease
rates to increase and for concessions to subside, vacancy must slide closer to the 10 percent mark
— Kevin Fairris is the director of Grubb & Ellis’ national client services group in Atlanta
-------
RICHARD BOWERS & Co.
FIRST QuARTER 2008
RKETREPORT
The Richard Bowers & Co. First Quarter Office Market Report reflects
an ongoing positive outlook despite serious economic concerns in oil
and food price increases, money markets, financing of residential real
estate and retail real estate sales. First quarter absorption was 376,152
square feet. The five leading submarkets in quarterly absorption were
Midtown, l-285/GA-400, Decatur, GA-400 North, and Downtown.
Average rental rates increased from $21.15 per square foot at year-
end 2007 to $21.43 in 2008’s first quarter, while occupancy levels
increased from 84.67 percent to 84.96 percent during the same period.
No new buildings delivered in the first quarter. Urban corridor activity
is continuing favorably with two submarkets, Midtown and Downtown,
among Atlanta’s top five in quarterly absorption. The average rental
rate for the urban corridor is $24.05 per square foot as compared to
the suburbs at $20.11 per square foot, nearly a $4.00 per square foot
differential. Notwithstanding, the suburbs recorded 214,943 square
feet of positive absorption in the first quarter, compared to 161,209
square feet along the urban corridor. Occupancy levels in the suburbs
are slightly higher than the urban corridor at 85.06 percent as compared
to 84.74 percent.
Limited new deliveries will occur in 2008: 496,921 square feet along
the urban corridor in one building, The Sovereign at 3344 Peachtree
Road; and 1,163,850 square feet in nine smaller buildings in the
uburbs.
The Buckhead/Lenox submarket is experiencing tremendous
office activity; five new office towers are under construction. Other
significant development in this submarket consists of new high-rise
residential structures, hotels, and additional retail space, including the
St. Regis Hotel and residential condominiums at West Paces Ferry
and the Mansion Hotel and residential condominiums at Peachtree
and Stratford. New retail development includes the ground-floor
retail at many of the new high-rise developments. The new Streets
of Buckhead development by Ben Carter will add 500,000 square
feet of retail space as well as a 300,000 square foot office tower. The
five new Buckhead office towers under construction total 2,465,771
square feet and will be delivered over the next three years: Sovereign
in 2008 with 496,921 square feet; Terminus 200 in 2009 with 564,850
square feet; Two Alliance Center in 2009 with 493,000 square feet;
3630 Peachtree in 2009 with 425,000 square feet; and Phipps Tower
in 2010 with 486,000 square feet. Because of all the new office and
other commercial and residential development, traffic congestion
will certainly become more pronounced in Buckhead, particularly
because of the small number of major roads and limited expressway
accessibility.
The office market still affords excellent values, particularly for
creditworthy tenants who are willing to sign long-term leases. The
leading submarkets in square footage availability, the 1-75/1-285
submarket with 3,155,107 square feet available and Downtown
with 2,945,718 square feet, provide excellent opportunities. Other
submarkets with major square footage availability, the l-285/GA-400
submarket at 2,848,508 square feet, Midtown at 2,066,274 square
eet, and the GA-400 North submarket at 1,838,390 square feet,
ll offer excellent values. Notwithstanding, given current economic
conditions, outstanding opportunities remain throughout all submarkets.
Furthermore, growth in rental rates has been relatively stagnant over
the last seven years. First quarter 2001 average rental rates were at
$21.59 per square foot as compared to first quarter 2008 rental rates at
$21.43 per square foot, despite seven years of increases in operating
C o
7.oc
C
( 0
C)
(0
>
Total Square Feet:
Vacant Square Feet:
Percent Occupied:
Absorption for Quarter:
Average Rental Rates:
Space Delivered YTD*:
Class “A” Avg. Rental Rate:
130,046,429
19,565,208
84.96%
376,152
$21.43
0
METRO ATLANTA OFFICE MARKET SUMMARY
I ST QUARTER 2008
16.Oc’
I5.O’
I
L
I
.coo
. . ! # , ‘
ATLANTA’S To FIVE RANKING SUBMARKETS
NetAbsorDtion 1st Quarter 2008: Total Available Sauare Feet :
Midtown 129,031
l-285/GA-400 125,756
Decatur 113,656
GA-400 North 105,569
Downtown 53,791
Total Existing Sauare Feet :
I-285/GA-400
1-75/1-285
Downtown
GA-400 North
Midtown
21,980,673
18,639,466
17,059,337
15,153,001
13,713,498
Averaae Quoted Rental Rate :
Buckhead/Lenox $26.33
Midtown
l-285/GA-400
Downtown
1-75/1-285
$25.44
$22.69
$21.23
$21.19
1-75/1-285
Downtown
l-285/GA-400
Midtown
GA-400 North
3,155,107
2,945,718
2,848,508
2,066,274
1,838,390
Submarket Occuoancv Rate :
1-75 Corridor
NE Expressway-South
l-285E/Stone Mountain
l-285/GA-400
Buckhead/Lenox
93.43%
91 .83%
91 .31%
88.52%
87.87%
OFFICE MARKET SNAPSHOT
- Excludes Net Losses
-------
expenses and taxes. Certain other major national office markets
have had significant increases in rental rates over the last five
years, some higher than our average rental rates, particularly in
New York, Boston, Washington, D.C., and San Francisco, among
)thers.
Existing office buildings afford excellent values and concessions
as compared to new office towers, many of which are priced
at or above $30.00 per rentable square foot. Notwithstanding,
new buildings also offer concessions and excellent tenant
improvement allowances. Because of higher gasoline prices
and longer commutes, a number of major companies are also
considering locations that offer public transportation, favoring
the urban corridor and particularly Downtown, a submarket with
excellent values and lower rental rates than the other urban
submarkets, Midtown and Buckhead.
The outlook for the remainder of the year is moderately optimistic.
despite some space being returned to the market by AT&T and
others, a number of tenants who have reduced space or gone out
of business, and additional subleasing availability. Atlanta is still
the second-fastest growing US city in terms of population, with
the world’s busiest airport, and it will continue to perform relatively
well, particularly with limited new deliveries and with several out-
of-town users considering Atlanta for major relocations.
82.73%
84.93%
87.21%
84.74%
URBAN CORRIDOR SUBMARKETS
1 Downtown
2
3
Midtown
Buckhead / Lenox
OFFICE TOTALS By SUBMARKET
Urban
Downtown
Midtown
3uckhead/Lenox
Urban Totals
Suburban
Airport/South
Decatur
GA-400 North
l-20W/Greenbriar
l-285/GA-400
l-285/l-85/Northlake
l-285E/Stone Mtn
1-75 Corridor
1-75/1-285
l-75N/Marietta/Johnson F
NE Expressway-North
NE Expressway-South
Peachtree Corners
Suburban Totals
Total/Wgt. Averaaes
Total
Sq. Ft .
Vacant Occupancy
Sq.Ft .
Absorption
This Qtr .
53,791
129,031
(21,613)
Absorption
Year to Date
53,791
129,031
(21,613)
Avg. Rent
$21 .23
$25.44
$26.33
17,059,337
13,713,498
12,798,170
2,945,718
2,066,274
1,637,458
43,571,005
6,649,450
2,960,322
1,141,165
15,153,001
321,053
644,882
93,226
1,838,390
53,827
78.22%
91.83%
87.87%
83.23%
(47,528)
113,656
105,569
505
(47,528)
113,656
105,569
505
$16.49
$20.24
$19.47
$14.31
21,980,673
4,480,184
403,932
1,127,333
2,848,508
835,862
35,118
74,062
87.04%
81.34%
91.31%
93.43%
125,756
(9,876)
(58,038)
20,100
125,756
(9,876)
(58,038)
20,100
$22.69
$17.63
$13.61
$22.23
18,639,466
3,094,873
4,501,115
4,663,151
8,009,156
3,155,107
482,589
1,014,170
535,098
1,304,919
83.07%
84.41%
77.47%
88.52%
83.71%
6,847
(29,397)
26,486
(50,584)
11,447
6,847
(29,397)
26,486
(50,584)
11,447
$21.19
$18.83
$18.44
$18.45
$17.13
86,475,424
130,046,429
12,915,758
19,565,208
85.06%
84.96%
214,943
376,152
214,943
376,152
$20.11
$21.43
SUBURBAN SUBMARKETS
4 Airport I South
5
6
7
8
9
10
11
12
13
14
15
16
Decatur
GA-400 North
l-20WlGreenbriar
1-285 E / Stone Mountain
1-285 I GA-400
1-285 / 1-85 / Northlake
1-75 Corridor
l-75NlMarietta/Johnson Ferry
1-7511-285
NE Expressway-North
NE Expressway-South
Peachtree Corners
161,209 161,209
$24.05
Richard Bowers & IC N
VISIT US AT - WWW.RICHARDBOWERS.COM W U K L U W I 0 E
260 PEACHTREE STREET • SUITE 2400 ‘ATLANTA, GEORGIA 30303 . PHONE: 404-816-1600 • FAX: 404-880-0077
METRO ATLANTA SUBMARKETS
-------
Industrial Market Trends Atlanta
. Grubb & Ellis Research
First Quarter 2008
“Wait and See” Syndrome
Dominates First Quarter
Executive Summary
The Atlanta industrial market forged ahead despite a decreased level of
activity during the first quarter. New leasing activity could be characterized
as consistent but at a lower level than throughout most of 2007. A broad
based fear of “pulling the trigger” on new space in the midst of a slowing
economy generally has decision makers holding out for more positive signs
of an economic upturn. In some cases, corporate directives are filtering
down to local markets, creating a temporary “freeze” on spending. This has
been interpreted as a sign of companies protecting the bottom line rather
than struggling to remain profitable. Despite this reduced level of activity
the industrial market shows positive absorption activity and reduced
vacancy levels.
Development Highlights
Several significant projects were announced or broke ground during the
first quarter, many of which were located well outside Metro Atlanta
submarkets. In Jackson County IDI broke ground on Jefferson Distribution
Center, a planned five building business park to contain approximately 2.8
million square feet. Newell Rubbermaid also announced early in the year it
would build an 800,000-square-foot distribution center in Union City. This
move will come as part of a larger initiative by Newell Rubbermaid to
17.3%
12.4%
12 4
-
n
n
11.4%
n
101%
n
n
• Grubb&Ellis®
Property Solutions Worldwide
Contents
Executive Summary 1
Development Highlights . . .1-2
Leasing Activity 2
Sales 2-3
Forecast 3
u*W
is a newsletter published quarterly by
Grubb & Ellis Company. To obtain
additional copies or other Grubb & Ellis
publications, please contact:
1 W ir
Research Manager
E-mail: dan.wagner grubb-ellis.com
Grubb & Ellis Company
3424 Peachtree Road, NE, 8th Floor
Atlanta, GA 30326
Internet: www.grubb-ellis.com
180%
16.0%
14.0%
12.0%
3 10.0%
8.0%
6.0%
4.C .
. ‘
—
8
8.
.
‘
S
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ii
i• • •
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‘
8
.
S
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(
Vacancy Rate by Submarket’
* All Classes of Space
© 2008 Grubb & Ellis Company
-------
industrial Market Trends First Quarter 2008
consolidate its network of distribution facilities. Further south in Macon, lDl
acquired approximately 250 acres for a logistics hub. From this location
goods can be delivered to most major southeast metro areas within one
business day. Macon was also chosen by Kumho Tires for a massive
facility that will bring about 450 jobs to the state by the fall of 2009.
Construction is slated to begin in the spring of this year. Kia Motors
decision to build a new plant in West Point also led to at least one supplier
choosing to locate nearby. Daehan Solution will build a 160,000-square-
foot manufacturing plant in Harris County and create approximately 300
jobs in the process.
Leasing Activity
Leasing activity has been steady in large footprint first generation
warehouse and distribution buildings as companies consolidate operations
and centralize large scale operations. Carlisle Tire & Wheel signed a
676,000 square foot lease at Interstate South in McDonough and will
combine some of its operations into this new space once completed.
Another large deal that took place during the first quarter involved Harman
Consumer Group inking a five year lease for 305,000 square feet at
Majestic Airport Center II.
Small to mid-sized industrial users have been reluctant to commit to new
space and the “wait and see” mentality among business leaders has put a
damper on significant new leasing activity. In the Fulton Industrial
submarket, Viking SupplyNet, a sprinkler system manufacturer, signed a
five year, 39,000 square foot lease at 800 Westlake Parkway. Another mid
to large-sized tenant, Scientific Games, subleased 80,000 square feet from
Alcoa in Alpharetta and will use the facility for its shipping and receiving
operations. In South Atlanta, TNT Parts, Incorporated leased 70,000
square feet at 3000 South Corporate Parkway.
Sa s
First quarter sales activity slowed but significant transactions took place
in the historically active submarkets of Northeast, Northwest and
Airport/North Clayton.
Research Analyst Nor eastJR5 Conidor
andrea.frankIin@grubb-eI s.com WP Carey purchased a cold storage facility from Schwan FOod Company
Sara HIH for $25 million. Schwan Foods will in turn lease freezer space in the facility.
Database Coordinator
sara.hiI!©grubb-eUis.com
First Industrial bolstered its industrial inventory with the purchase of 596
Valentine Industrial Parkway, an 850,000-square-foot cross dock facility
Graphic Designer
frances, scar lette@grubb-eflis.com in Pendergrass.
i i 2008 Grubb & Ellis Company 2
-------
ndustriaI Market Trends First Quarter 2008
Eugenia Investments acquired 2395 Pleasantdale Road in January for $5.5
million. The 97,000 square foot facility is currently 93 percent leased.
Micromeretics purchased a 137,190-square-foot warehouse at 4356
Communications Drive for $4,300,000, or 31.34 per square foot.
PJrport/South Mans
Sealy & Company, Incorporated purchased 1040 Southern Road in March
for $6,312,400, or $30.09 per square foot. The 210,000-square-foot
warehouse is fully occupied.
Northwest
Capital Commercial Investments Incorporated acquired Barrett Distribution
Center in Cobb County for $10,420,252, or $64.14 per square foot from
Margolias Realty Group.
National Envelope Corporation sold 1325 Highlands Ridge Road,
a 103,000-square-foot warehouse, for $4.9 million to Pannattoni
Investments LLC.
Compass Chemical International purchased the 50,000-square-foot 5544
Oakdale Drive for $3,000,000, or $60 per square foot.
Forecast
Diminished leasing activity is an indicator that tenants are generally holding
out for definitive signs of an economic upturn. As tenants delay the decision
making process, pent-up demand is building and should result in increased
activity down the road. At the moment landlords are sharpening their pencils
and offering concessions to retain credit tenants. In some cases landlords
have been willing to buy out the last year or more of lease obligations for
newly signed tenants. Mid-sized industrial product in the 40,000 to 150,000
range has been most affected by the lack of activity and all indications point
to this trend continuing through the end of 2008.
3 © 2006 Grubb & Ellis Company
-------
Industrial Market Snapshot Atlanta First Quarter 2008
By Submarket
(All Property Types)
AtrportlNosth Clayton
Carmttlonfl-20W
Central Atlanta
Chattahoochee Industrial
Fulton lndustnalll-20W
North Central/GA 400 Comdor
Northeastll-85 Comdor
Northwestll-75 Comdor
Snapfingerll .20E
South Atlanta
Stone Mountatn
Suburban Total
Totals
By Property Typo
(All Submarliets)
Total (1)
SF
14.193,461
1.770,760
17,942,767
75.443.386
26,583,673
85,962,105
25,236,041
96,388.747
56,544,013
31 .462,333
125,730,756
28.334.262
586,190,304
586,190,304
Vacant (2)
SF
2,560.216
85,800
1,155,348
6,897,723
1,527,554
10,698.688
2,872,720
11,923,235
4,997,273
3,162,444
18.215,279
1,737.209
65,833,489
65,833,489
Vacant%
173%
48%
64%
91%
57%
124%
114%
12.4%
88%
101%
145%
61%
11.2%
11.2%
Under ConsU
SF
109,850
1,632.012
306,177
2,262.694
350,368
194,994
465,549
5,321,644
5,321,644
(3
Asking Rent (4)
WHIDIst R&DlFlex
$375
$233
$461
$479
$495
$284
$592
$388
$4.57
$371
$299
$451
$3.66
$3.66
$824
$515
$7.65
$648
$4.64
$883
$758
$8.86
$556
$510
$643
$7.32
$7.32
Asking Rent
General Industrial
34,244,064
1,630.256
48%
$401
R&DlFlex
61,324,831
7,244,047
118%
$7.32
WarehouselDistnbutian
490,621,409
56.959,186
11 6%
$366
5,321,644
Totals 586,190,304 85,833,489 11.2% 5,321,644 $4.11
(1) Inventory includes multi-tenant, single-tenant and owner-occupied buildings with at least 10.000 sq ft
(2) Vacant space includes both vacant direcl and vacant sublease space
(3) Space under construction includes speculative and build-to-suit for lease projects and owner-built projects
(4) Asking rates a, per square foot per year. triple net Rates for each building are weighted by the amount of available space within the building
•Grubb & Ellis statistics are audited annually and may result in revisions to previously reported quarterly end final year-end figures
Industrial Market Terms and Definitions
lentcsy Industrial Inventory includes all multi-tenant, single tenant and owner-occupied buildings at least 10.000 square feet
Construction Type Speculative (“spec”) construction is designed to attract tenants likely to be in the market when the project is leasing Build-to-suit construction is designed
for a specific tenant
Indi fr l odu 1 fpe& industnal buildings are categorized as warehouse/distribution, general industrial, R&D/flex and incubator based on their physical charactenstics
including percent office build-out, clear height, typical bay depth, typical suite size, type of loading and typical uses
ensy and Avallebliltyt The vacancy rate is the amount of physically vacant space divided by the inventory The availability rate is the amount of space available for lease
divided by the inventory
Aaldrig Rest The dollar amount asked by landlords for available space expressed in dollars per square loot per year in most parts of the country and dollars per square
foot per month in areas of California and selected other markets lndustnal rents are expressed as tnple net where all costs including, but not limited to, real estate taxes,
insurance and common area maintenance are borne by the tenant on a pro rats basis
Avs eWe ttedAeIth’ig Rent An average market rent where the asking rent for each building in the market is weighted by the amount of available space in the building
• G’” ibb E11 © 2008 Grubb & Ellis Company
- — Some of ihe data in this report has been gathered from third party sources and has not been independently venfied
Property Solutions Worldwide by Grubb & Ellis Grubb & Ellis makes no warranties or representalions as to the completeness or accuracy thereof
-------
•
Property Solutions Worldwide
Contents
Overview
Market Activity
Construction Update
.1
Outlook 3
Construction Watch
Market Snapshot
Atlanta Office Market Trends
is a newsletter published quarterly by
Grubb & Ellis Company. To obtain
additional copies or other Grubb & Ellis
publications, please contact:
Dan Wagner
Research Manager
E-mail: dan.wagner grubb-elIis.com
Grubb & Ellis Company
3424 Peachtree Road, NE, 8th Floor
Atlanta, GA 30326
Phone: 770.552.2474
Internet: www.grubb.ellis.com
.5
Construction Increases
Despite Stalled Absorption
Overview
The Metro Atlanta office market exhibited reduced leasing activity during the
first quarter of 2008 - not an unexpected result of economic forces impacting
space requirements for tenants in the marketplace. The lingering drought,
stagnating housing market, tightening lending standards and increasing cost
of energy have placed downward pressure on many sectors of the economy.
However, Metro Atlanta’s fundamentals remain strong and have counter-
acted some of the negative effects of an economy in flux with continued
increases in employment, personal income growth and strong consumer
spending. Additionally, Metro Atlanta ranked 2nd in the nation in population
growth over the last year and added approximately 55,000 new jobs during
the same period. The positive job growth is particularly important as it is
directly correlated to office space demand and may also stem potential
negative absorption.
22%
21%
20%
19%
18%
17%
10/06 20/06
30/06 40/06 4Q/06 20/07 30/07 40/07 10/08
Office Vacancy Rate*
* All Classes of Space
© 2008 Grubb & Ellis Company
-------
Office Market Trends First Quarter 2008
Market Activity
Despite some significant new deals executed, overall net absorption fell
during the first quarter with approximately 280,000 square feet worth of net
occupancy losses. The majority of the loss was experienced in the Central
Perimeter and Midtown submarkets and to a lesser degree in Buckhead.
Homebanc Mortgage filed bankruptcy in August of 2007 and recently vacated
its 160,000 square foot space at 2002 Perimeter Summit. Additionally, Central
Perimeter took a direct blow when AT&T Wireless announced it would move
out of its 300,000 square foot space at Glenridge Highlands Two and relocate
to Lenox Park in Buckhead.
Office Net Absorption
* All Classes of Space
Atlanta Office Market Trends Contributors
Andrea Franklin
Reserach Analyst
andrea.frank lin©grubb -ellis.com
Frances Scariette
Graphic Designer
frances.scarlette grubb-ellis.com
The majority of the recently emptied space has yet to be backfilled, but there
is light at the end of the tunnel in the form of prospects rumored to be in the
hunt for new space. Among them are software giant Oracle Corporation,
which is said to be looking for approximately 100,000 square feet of space,
and AutoTrader.com, which could take up to 500,000 square feet. Additionally,
the Reznick Group recently helped reduce vacancy at 2002 Perimeter
Summit by expanding into an additional 25,000 square feet.
The FIRE (Finance, Insurance & Real Estate) rich Midtown and Downtown
office environments essentially canceled out each other’s quarterly absorption
with Midtown losing 200,000 square feet and Downtown absorbing 191,000
square feet. Cousins’ 191 Peachtree Tower continued its successful run
signing Deloitte to a 260,000 square foot renewal and expansion deal and
bringing the tower to 87 percent leased. Newmark Southern Region recently
announced it will occupy 21,000 square feet in the 201 17th Street building at
Atlantic Station in Midtown.
A bit further north, IT Services Firm Wipro Technologies signed a 30,000
square foot lease at Piedmont Center 14. There are a good number of tenants
seeking space in Buckhead and more favorable rates may appear as an
abundance of new space delivers to the market over the next two years.
The North Fulton office submarket market posted negative overall net
absorption activity in the first quarter, with occupancy losses totaling 45,000
square feet. Despite the overall negative activity, the Class A sector of the
market posted positive absorption of 132,000 square feet - a vast
improvement over fourth quarter’s net occupancy loss of 175,000 square feet.
Asking rental rates for Class A space in North Fulton are averaging $20.67 per
2
S
E
1Q/07 2Q/07 30/07 40/07 10/08
© 2008 Grubb & Ellis company
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ffice Market Trends First Quarter 2008
square foot, which is roughly $1.50 per square foot less than the Metro
Atlanta average, making this submarket attractive to companies seeking a
suburban office environment. Recent activity in North Fulton includes
International Environmental Management Inc. inking a 19,000 square foot
deal at the Northwinds V building and Gresham Smith and Partners
renewing for 10,000 square feet at Georgia 400 Center II.
Construction Update
Buckhead is “bucking” the trend of reduced development activity in the face
of slow growth with nearly two million square feet under construction.
Projects such as Tishman Speyer’s Two Alliance Center and the office
component of Regent Partners 3344 Peachtree are competing for tenancy,
to the likely detriment of older Class A and upper B properties which
inevitably lose their luster once new product delivers. Additionally, Crescent
Resources is adding to the building boom and recently broke ground on
Phipps Tower, a 475,000-square-foot project located on the Buckhead Loop.
The redevelopment of Buckhead Village will add another 300,000 square
feet into the mix with the Buckhead Esplanade building complemented by
high-end retail and residential properties.
Further south, the Daniel Company’s 12th & Midtown building will add
789,000 square feet to the office inventory and will include a 400 room hotel
and 60,000 square feet of retail space. Atlantic Station is also active this
quarter with continued construction of 271 17th street, which is slated to
deliver nearly 300,000 square feet. Approximately half of the building is
already committed. In North Fulton, Jones Lang LaSalle has two projects
under construction totaling 360,000 square feet, and there are several
smaller Class B projects under development or slated to begin construction
in the coming weeks.
Outlook
Leasing activity has leveled off, but it could be worse. The race to secure
tenancy for new office towers in the Buckhead and Midtown submarkets will
likely benefit tenants in the marketplace in the form of free rent. Despite this
factor decision makers appear to be in a “wait and see” mode. Metro
Atlanta’s near-term demand will remain low until this cycle breaks - how and
when it breaks remains to be seen. Metro Atlanta needs consistent positive
job growth paired with a bit more time for recovery in the lending and
financial markets to trigger demand for new space.
4.281.580
3.786.017
3.907.171
3. j2
3,817,102
—
Available Office Sublease Space
* All Classes of Space
5.000 . . . . . .
4.000,000
3.000.000.
2,000.000.
1.000,000
1Q/07 20/07 30/07 4Q/07 10/08
3
© 2008 Grubb & Ellis Company
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Office Market Trends First Quarter 2008
150,000 O2.6 4
100,000
33,698 36,416
50,000 0 0 2,976 3,216 8.514 13,154_
0 — Ii 1( ° ’ (2,724)
(50,000) (52,500) (45,508)
e 2 (100,000) (107,191)
(150,000)
(200,000) “ (191,774)
(250,000) 122 1 g) (0 )
c J •a
f 9 ; p
QI 2008 Net Absorption By Submarket
*Class A Space
2,400,000 -- _____________________________________________________________
1,900,000
1.323,274
1,400,000
900,000
406,772
255,978
400,000 0 0 0 0 0 0 0 0 o 75,000 77,142
(100,000) .. ,. 2 -
— ‘ ,
QI 2008 Under Construction By Submarket
*All Classes of Space
© 2008 Grubb & Ellis Company 4
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Office Market Trends First Quarter 2008
Nationwide coverage delivered through the Grubb & Ellis system.
Construction Watch
First Quarter 2008
New Speculative Development New Build-to-Suit Development New Owner Occupied Development
Under Preleased Completed Completed
Construction % This Qtr YTD
CBD - - 10,923 10,923
Suburban 4,091,215 29.5% 400,160 400,160
Total 4,091,215 29.5% 411,083 411,083
Under Completed Completed
Construction This Qtr YTD
- - -
354,953 - -
354,953 - -
Under Completed Completed
Construction This Qtr. YTD
- - -
171,251 10,000 10,000
171,251 10,000 10,000
5
‘C
H a
© 2008 Grubb & Ellis Company
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Office Market Snapshot Atlanta First Quarter 2008
C lassA
81.269,287
14,031.763
173%
(149543)
(149.543)
3,760.237
504,123
2,555.199
ClasaB
61.442,392
9.248.716
180%
(198.246)
(198.246)
330.978
-
1.075.298
Class C
5,759,461
1,308,517
243%
67,890
87.890
-
-
146,960
Telals
138,471.140
24,678,996
17.8%
(279,899)
(279,899)
4,091,215
504,123
3,177,457
(1) Inventory includes multi-tenant and single tenant buildings with at least 20,000 sq ft
(2) Vacant space includes both vacant direct and vacant sublease space
(3) Space under construction includes speculative and build-to-suit for lease projects
(4) Asking rates are per square foot per year full service Rates for each building are weighted by the size of the building
Gn.,bb & Ellis statistics are audited annually and may result in revisions to previously reported quarterly and final year-end figures
Office Market Terms and Definitions
Inventory: Office inventory includes all multi-tenant and single tenant buildings at least 20,000 square feel Owner-occupied, government and medical buildings are
not included
ConstructIon Type Speculative (spec) construction is designed to attract tenants likely to be in the market when the project is leasing Build-to-suit construction is
designed for a specific tenant
Office Building Classifications. Grubb & Ellis adheres to the BOMA guidelines Class A properties are the most prestigious buildings competing for premier office users
with rents above average for the area Class B properties compete for a wide range of users with rents in I he average range for the area Class C buildings compete for
tenants requinng functional space at rents below the area average
Vacancy and Availability. The vacancy rate is the amount of physically vacant space divided by the inventory The availability rate is the amount of space available for
lease divided by the inventory
Net Absorption The net change in physically occupied space over a penod of time
Asking Rent: The dollar amount asked by landlords for available space expressed in dollars per square foot per year in most parts of the country and dollars per square
foot per month in areas of California and selected other markets Office rents are reported as full service where all costs of operation are paid by the landlord up to a base
year or expense stop
Average Weighted Asking Rent: An average market rent where the asking rent for each building in the market is weighted by the building size
• 6’” ‘bb Elli © 2008 Grubb & Ellis Company
£ ___ £ Some of the data in this report has bean gathered from third party sources and has not been independently vented by Grubb 6 Eliis
Property Solutions Worldwide Grubb 8 Eitis metres no warranties or representations as to the compieteness or accuracy thereof
BySubmarket
(All Classes)
CBD Total
Total (I) Vacant (2)
SF SF
17,432.875 3613,949 207%
Net Absoisillon
Vacant ¶1. Current Qtr Year To Date
17,432,875 3,613,949 20.7%
Under CansL (3)
SF
191,765 191,765
191,765 191,765
Asklne Rent (4)
Class A Class B
Ai rpoltlSouth Atlanta
Budthead
Central Penmeter
CumbeilandlGafena
Decalar
East Cobb
1.20 EastlConyers
1-20 WestlDouglaedle
Manafla lKermesaw
Midtown
NE 1-85 Inside 1-285
NE 115 Outside l-285lGeinnett
$2298 $2188
- $22.96 $21.88
255.978
1,953,049
3,984,416 754,728 189%
12,984,293 1,942,160 150%
22,561,351 3,374,487 150%
20,095,991 4,043,496 201%
1,452,552 216,446 149%
498,848 53,881 108%
680,553 128.649 189%
487,097 43,260 89%
2.180.931 386,008 168%
14,160,404 2,664,341 188%
6,546,942 724.119 111%
7,461,293 1,844,429 247%
6.442.377 1,260,175 196%
17,513.626 2,961,175 169%
3,101,584 6t4,765 198%
886,097 72,928 82%
121 ,038,265 21,065,047 17.4%
67,835 67,835
(95,907) (95.907)
(354,493) (354.493)
13,865 13,865
20,560 20,560
61,117 61,117
(21,502) (21,502)
(6,844) (6,844)
(200,066) (200,986)
(13,177) (13,177)
127,097 127,097
(58,049) (58.049)
(45,508) (45.508)
50,939 50,939
(7,531) (7,531)
(471,664) (471,664)
NororssnlPeachtree Corners
Nets FuftonlForsyIh
NoittsakeiStone Mountain
Nalthside Dnvall-75
Suburban Total
75,000
1,323,274
$2135 $1822
$2855 $2198
$2399 $1931
$2266 $1760
$2448 $2025
- $1836
$2250 $1819
- $2450
$2124 $1854
$2808 $2042
$1929 $1857
$2062 $1843
$2035 $1681
$2067 $1889
$1975 $1731
- $1927
$24.30 $18.88
Totals
77,142
406,772
By Class
(All Subnia,kets)
138,471,140 24,678,996 17.8%
4,091,215
(279,899) (219,899) 4,091,215 $24.06 $19.09
Available for Sublease
CBD Subuiban
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EPA.56F O 243
Addressing Long-Term Stewardship:
Hi hft hts fro r the F e d
In 2004, EPA formed the Long-Term Stewardship (LTS) Task Force to evaluate the current state of long-
term stewardship across its various waste cleanup programs. The Task Force included representatives
from each of EPA’s cleanup programs, including the Superfund, Resource Conservation and Recovery Act
(RCRA), Underground Storage Tanks (UST), Brownfields, Federal facilities, and enforcement programs,
and state cleanup programs. The Task Force identified and addressed a variety of challenges facing EPA
and its partners responsible for ensuring the implementation, oversight and enforcement of LTS. These
challenges generally fall into the following six categories:
• Roles and Responsibilities
• Institutional Controls
• Engineering Controls
• LTS Costs
• LTS Funding and Resources
• Information Management
Within these categories, the Task Force identified recommendations to address the challenges most seri-
ously affecting federal, state, tribal and local governments at LTS sites. The results of the Task Force’s ef-
fort are documented in its report Long-Term Stewardship: Ensuring Environmental Site Cleanups Remain
Protective Over Time (available at http://www.epa.gov/oswer/Iandrevitalization/publications.htm).
The purpose of this fact sheet is to build upon the LTS Task Force efforts by highlighting LTS projects that
address the challenges identified by the Task Force. This fact sheet is the first in a series intended to cre-
ate awareness of LTS issues and approaches to addressing LTS challenges. The fact sheet highlights the
following projects:
• Mississippi Department of Environmental Quality Brownfields Program IC Information Sharing
Project
• National City’s Land Use Control Implementation Plan
• Missouri Department of Natural Resources’ Long Term Stewardship and IC Tracking System
-------
Aississippi Department of Environmental Quality Brownfields
Program IC Information Sharing Project
The State of Mississippi’s Department of Environmental Quality (MDEQ) developed an information
sharing system to improve the state response program; specifically to increase access to and the
usefulness of the public record. There are two components to this system: (1) a Geospatial Pilot
Project using Google Earth, and (2) an Excel Spreadsheet with links to deed notices and survey
plats in Adobe PDF format. Simplicity and ease of use are emphasized. In the wake of Hurricane
Katrina, DEQ applied for and received a CERCLA 104(k) Brownfields grant to identify brownfields
in communities on the Gulf Coast for consideration early in the rebuilding process.
Using approximately 10 percent of the grant the staff of the Groundwater Assessment and Remediation Division (GARD) of MDEQ cre-
ated a Google Earth coverage map for the Mississippi Gulf Coast that includes pertinent information about sites that may have environ-
mental conditions for consideration prior to rebuilding. The coverage includes MDEQ’s existing brownfields inventory of CERCLNUnc0n-
trolled Sites, Underground Storage Tank Sites, Agency Interests, Above Ground Storage Tank sites, Pest Control Sites and Dry Cleaners.
Some of the data were collected from within MDEQ while other data were collected from the Mississippi Department of Agriculture and
Commerce (e.g., Above Ground Storage Tank Sites), from city directories (e.g., Dry Cleaners and Pest Control Sites), and EPA. The
Google Earth Coverage, identified as a link entitled “GIS,” can be found at http://www.brownfields.ms under the Announcements section.
EPA Section 128(a) Brownfield funding is being utilized to maintain and enhance the coverage with plans to take the project statewide in
the near future after roles and responsibilities are clearly defined.
ie second component of the system involves MDEQ’s existing brownfields inventory (http://list.brownfields.ms). Using EPA Section
.28(a) Brownfield funding, MDEQ maintains this simple excel spreadsheet of pertinent information about sites in Mississippi. The IC
component involves links to Deed Notices and Survey Plats for sites with institutional controls in place. The link is a PDF file of the Deed
Notice identifying the Activity and Use Limitations (AULs) for the site and a map (e.g., survey plat) identifying the area within the property
where the AULs apply.
MDEQ identified a number of challenges in both maintaining and utilizing the system. First, because the Google Earth Coverage includes
data that are not directly controlled by the GARD staff, data quality, roles and responsibilities are issues that must be considered. MDEQ
is considering a wiki” philosophy with the Google Earth Coverage. In other words, the Google Earth Coverage would rely on interested
stakeholders to be a part of the continuous improvement of the system with an understanding that errors are expected and will be ad-
dressed on an ongoing basis. Second, bringing the knowledge of these tools down to the local level (e.g., construction companies, local
public works directors/employees, local government, water well drillers, etc.), particularly in a mostly rural state requires a tremendous
amount of outreach and education, requiring additional resources. Finally, as the number of sites using ICs grows, so do the responsibili-
ties for MDEQ, particularly relating to awareness through the years.
For more information on Mississippi’s online access to ICs, con-
tact Trey Hess at Mississippi’s Department of Environmental
Quality at TreyHess@deq.state.ms.us or 601.961.5654.
T P (nefore — Lcnqs ‘ommerckl aundr riroperty boto ’e cIear p
and rec.evek oment n Tupe’o. M ssiss pp (Photo cou; esv of
Mi. s;ssspoi Depa 7ent of Environmeotal Quaiity}
BOTTOM — F a’ Park nas deed nohc st ng a n t es that are
not aHowed on tne riroperty (Photo COWIC$V of M:ss ’ss pp Department
ofEnmentaiOual’t
11 1 _ tI
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National City, California is addressing issues of long-term stewardship to ensure properties
with ICs are identified early on in the development process. The city is doing this through the
development of a Land Use Control Implementation Plan (LUCIP) and by tying permitting
activities to LTS. As efforts to address LTS continue, the city has made great progress since
drafting the LUCIP in 2005.
The city recognized the need to define, communicate and formalize LTS roles and responsibilities through the development of a LUCIP.
EPA approved National City’s proposal to use 10 percent, or $20000, of its 2005 EPA Assessment grant to develop the LUCIP. The city
met with regulatory agencies, including the California Department of Toxic Substances Control (DTSC), San Diego County and the State
Water Resources Control Board to define LTS roles and responsibilities for each. The basic roles and responsibilities remain the same
with the regulatory agencies responsible for selecting, implementing, monitoring and enforcing the institutional and engineering controls
on a property, while the city takes a more proactive approach to communicate regulatory actions on properties to applicants.
As part of the LUCIP, National City intends to tie its permitting system to LTS activities. The initial plan was to require the applicant to
apply for a permit on a property with ICs or [ Cs and then the regulatory agency would designate its approval by completing an approval
form. Although the agencies were enthusiastic about the concept to tie US to permitting, the State Water Resources Control Board did
not have the staff or money to do the additional work required to undertake this new lC/ [ C permitting approval process.
T 0 address funding at the city level, National City is paying for the analysis of the fee structure for building and other permitting fees to
3velop a LUCIP fee (expected to be minimal) that will cover the cost of additional city US responsibilities. Once an appropriate LUCIP
fee is identified and implemented, the city plans to tie its electronic city parcel map—which contains regulatory information including the
regulatory agency involved at each applicable property—to the permitting process so each applicant is aware of Cs or [ Cs. The city
included regulatory information on its parcel map by using EPA Assessment grant funds to hire a consultant to go through hard copy
notebooks and files to identify properties with regulatory actions.
The city is also working on a strategy to standardize how lCs are recorded and has developed a Web site, the Brownftelds Redevelop-
ment Environmental Information System (BREIS), to allow easy access to environmental and redevelopment-related information, includ-
ing ICs within National City (www.naaonalcitybreis.org).
For more information on National City’s LTS work
contact Patricia Beard, National City’s Redevelop-
ment Manager at PBeard@ci.national-cityca.us
or 619336.4255.
TOP (bek.rt” Fora& rr3e i ss nq at. to
w ;k g yard ‘and n Na io ’ C tv, aU .wri
(PhotQ i .;o ii.esy of NationL CIty)
BOTTOM Re derirq he . )atew y
project, orr ereai reje t V h ate)
restauront ana ceed r rL tn.r’ dua tc U e aLr .
of ra :drJoLa; mat.ena )s rerfl . onsde rR&do;in j
co inesy of NatIonal CL?y)
iational City’s Land Use Control
Implementation Plan
-------
Missouri Department of Natural Resources’
Long Term Stewardship and IC Tracking System
The State of Missouri Department of Natural Resources (DNR) can share IC and [ C data with
EPA’s comprehensive Institutional Control Tracking System (ICTS) due to the assistance of a
component added to its existing Superfund/Brownfields project management data system SMARS
(Site Management and Reporting System). DNR designed its LTS database within SMARS with a utility to export long-term stewardship
data to federal, state and local partners who are looking for information on sites where contamination remains after the remedy is com-
plete. Funding for the US data sharing project was received from EPA in Superfund and Brownfield grants.
SMARS currently houses LTS information for Superfund, Federal Facility, Brownfields Voluntary Cleanup Program (BVCP) and Missouri’s
other state response programs. The LTS component of SMARS includes housing IC information for Missouri’s Storage Tanks Sites.
Missouri’s cleanup programs use a range of institutional controls to affect long-term stewardship. These include maintaining ground
water protection areas, restrictive covenants with a monitoring contract, listing on the Registry of Confirmed Abandoned or Uncontrolled
Hazardous Waste Disposal Sites in Missouri, deed notices, and ground water protection areas. The engineering controls in place and
requiring monitoring range from large structures, such as the disposal cell at the Weldon Spring Superfund site, and ground water pump
and treatment operations, as well as fences, caps, signs and other typical physical controls. Approximately 550 statewide sites are cur-
rently being tracked in the LTS database, although many more sites are suspected to be applicable and have not yet been added. The
LTS data in SMARS are entered and maintained by DNR’s environmental project managers. DNR plans an initiative in 2008 to provide
this information to its local government partners to ensure the online LTS information is available to a wide public audience.
In 2006, Missouri DNR conducted an evaluation of its strengths and weaknesses related to LTS. The study took a comprehensive look
. the department’s LTS responsibilities and the resources available. The objective was to help the department judge how well it met
iose responsibilities for sites with ICs/ECs and to develop a set of recommendations to address areas requiring improvement. This study
was developed to ensure that the responsibilities that are inherent in risk-based cleanups are addressed. Failures of ECs and lCs were
reported around the country and Missouri sought to address the issue proactively. To accomplish this, all program areas were reviewed
to see what processes were in place to ensure that stewardship was effective for sites with ICs and [ Cs, and that all sites with an envi-
ronmental legacy were covered by some LTS process. The study was published in a report entitled “Missouri Long Term Stewardship:
Current Practices and Future Recommendations.” Subsequent to the completion of this report, the department convened a work group
to study the report’s nine major recommendations and prepare action plans to address and implement them.
The report estimated that the cost to implement all of the recommendations to improve statewide LTS processes could range from
$500,000 to $900,000 per year with an addition of up to 10 full time staff. DNR is currently developing action plans to address five of
the LTS recommendations. One recommendation has been partially realized as the Missouri legislature passed environmental covenant
legislation during its 2007 session.
For more information and/or a copy of the report on the sta-
(us of Missouri’s L TS data sharing project, contact Robert
Stout at Missouri’s Department of National Resources at
Robert.Stout@dnr.mo.gov or 573.751.7402.
TOP (Lk ) Fc .wrher z nd
w .3st’ in Snnn eld. M ss’.ur pr court s nr A tj . sour;
OepE nn ?ent of iva urai Re, o i i;e >
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(x)ve anI i .nibi;s th -trt _ n of dOy . .u hnc n
of th ’ frr e quarry where rnath , ne ocUvitv b’: U . {flO
(Photo cooaesv of Ct ’ 0! Spn,igflelci. M oor!)
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