1. Money Basics: A 101 Overview Of Funding Sources For Brownfield Projects May 5, 2008 EPA Brownfields Conference Charlie Bartsch Laurence Eisenstein Michael Hill Vice President/Senior Fellow Partner Principal ICF International Eisenstein Malanchuk Hill & Kehne Melina Kennedy Colleen Kokas Robert Naylor Partner Chief, Office of Brownfield Reuse CFO Baker & Daniels New Jersey DEP CHEROKEE

2. Perspective Gus Speth: Red Sky at NightAmerica and the Crisis of the Global Environment Weve pushed the human enterprise and its effects to the planetary scale... resulting in the globalization of environmental impacts as well as economic activity. Richard Louv: Last Child in the Woods: Saving Our Children from Nature-Deficit Disorder Today kids are aware of the global threats to the environmentbut their physical contact, their intimacy with nature, is fading. Lester Brown: Plan B 3.0 – Mobilizing To Save Civilization As of 2008, more than half of us [humans worldwide] are living in cities – making us, for the first time, an urban species. Today, global demands on natural systems exceed their sustainable yield capacity by an estimated 25 percent [having first exceeded it in 1980]. UN IPCC: Climate Change Fourth Assessment Report, Mitigation Of Climate Change: Sustainable Development and Mitigation The choice of development policies can be as consequential to future climate stabilization as the choice of climate-specific policies.

3. Financing Brownfields: What Can the Public Sector – Especially the Feds – Do to Help? An Overview Charlie Bartsch Senior Fellow, ICF International cbartsch@icfi.com 2008 Brownfields 2008 Detroit, Michigan – May 5, 2008

4. The Brownfields Red Zone How Can Public Programs Address Contaminations Impacts on Financing? Conceptualizing and Planning the Project Economic Analysis for Marketing the Project Dealing with Stigma $ for Site Assessment Additional Underwriting/Site Development/ROR Needs $ for Preparing a Cleanup Plan and Taking It Through VCP/State/Local Regulatory Agencies $ for Cleanup Regular Real Estate Construction/Development Costs When Site is Shovel Ready

5. How Can Grants/Public Financing Initiatives Help? Provide resources directly grants; forgivable/performance-based loans Reduce lenders risk loan guarantees; companion loans Reduce borrowers costs interest-rate reductions or subsidies; underwriting/due diligence assistance Improve the borrowers financial situation re-payment grace periods; tax incentives/abatements

6. Packaging brownfield project financing -- the Pink Floyd strategy Money, its a crime... Share it fairly but dont take a slice of my pie. BF Translation – Its all about leveraging… Creatively using development and environmental programs to meet a range of site redevelopment needs, set an investment climate, attract private financing for – assessment, clean up, demolition, ICs, site prep, renovation/upgrades, marketing, etc. while fitting grant/loan/tax program eligibility and competing for resources Animals, 1977

7. Federal Grant and Loan Programs Used To Meet Brownfield Needs Loans EDAs Title IX (capital for local revolving loan funds) HUD funds for locally determined CDBG loans and floats HUD Section 108 loan guarantees EPA capitalized revolving loans SBA guarantees SBA Section 504 investments USDA business/industry loans Grants HUDs Brownfield Economic Development Initiative (BEDI) HUDs Community Development Block Grants (for projects locally determined) Grants (continued) EPA assessment/cleanup grants EDA public works/economic adjustment grants USDA rural development grants DOT (various system construction and rehabilitation programs) DOTs transportation and community system preservation (TCSP) grants Army Corps of Engineers (cost- shared services)

8. Rehabilitation tax credits Low income housing tax credits New Markets Tax Credits Energy Policy Act of 2005 tax credits Industrial development/revenue bonds Brownfield expensing Federal tax incentives that can be linked to brownfield redevelopment – all at little or no cost to the project….

9. brownfield redevelopment/revitalization planning site acquisition environmental site assessment site clearance, demolition, and removal of buildings rehabilitation of buildings removal or remediation of contamination construction of infrastructure and related improvements that enhance brownfield site value Activities often carried out in partnerships with the private sector, or to leverage private participation How Have these Programs Been Used to Support Brownfield Redevelopment?

10. State Brownfield Financing Innovations 23 states offer tax incentives linked to site assessment and cleanup – Ex: TX, MA, WI, MO, KY, CO 19 states target financial assistance programs to brownfields – Ex: FL, OH, IL, IN 13 states offer direct financial assistance – Ex: MN, PA, NJ, DE 10 states have initiatives to enhance/support the brownfield financing process – Ex: MI, MA, WI, CT

11. Local Financing Efforts – Traditional and Emerging Tax increment financing/increment rollovers Tax abatements/variations (e.g., sliding scale phase-ins) Revolving loan funds (RLFs) capitalized by earmarking fees/fines, corporate/banking/ philanthropic contributions General obligation bonds Special/targeted service areas/taxing districts Identifying new revenue streams i.e., project kickers, repayments, impact fees, etc. Adopting advantageous process incentives i.e., easier conveyance of tax delinquent properties, zoning benefits, expedited permitting

12. Insurance Recovery for Environmental Liabilities Larry Eisenstein Eisenstein Malanchuk LLP 1048 Potomac Street, NW Washington, DC 2007 202.965.4700 www.em-law.cocm leisenstein@em-law.com

13. General liability insurance, particularly prior to the mid-1980's, was written broadly, and usually covers environmental liabilities Even if they have insufficient assets to pay for cleanup, companies who contributed to the pollution still have valuable insurance rights essentially all companies bought liability insurance so did many municipalities but frequently no one has pursued insurance recovery, due to lack of knowledge or expertise Even if the old company does not exist, insurance recovery can often be pursued due to: owners or officers with policy rights insurance policy provisions dealing with company liquidation Insurance Recovery for Environmental Liabilities

14. What You Need for Insurance Recovery Insurance evidence policies are great, but not necessary many sources of insurance evidence exist, but are not obvious -- e.g., premium payments on ledgers, old legal files access to financial records, and names of brokers, are key insurance archeology firms can assist in this process Environmental cost data backup for past costs supportable projections of future cost Corporate history asset purchases may not include insurance rights

15. Lessons Insurers want to settle old policies, to obtain closure on their books win-win situation can be created where you get money and they get closure Legal issues and uninsured periods will exist, so recovery is never 100% But governments and small companies routinely undervalue this "asset" Recovery can occur through a negotiated process, without litigation Many firms will now pursue recovery on a success fee basis, if that is desired you pay nothing until money is recovered

16. Michael O. Hill, Esq. 2300 Wisconsin Avenue NW Ste 300 Washington, D.C. 20007 (202) 558-2100 www.hillkehne.com Environmental Insurance: What It Is, And How To Obtain More For Less

17. Environmental Insurance (EI) Products Pollution Legal Liability Protects against unknown pre-existing conditions and new contamination releases Cleanup Cost Cap Protects against cost overruns in the course of a planned cleanup Finite Risk Programs Pairs prefunded expected cleanup costs and EI Insurance Combined With Fixed-Price Contracting Remediation contractors will assume risks and sometimes can obtain lower-cost insurance and provide an overall lower cleanup price Other (tanks, contractors, etc.) For tanks, contractors, etc. Surplus Lines No Rate or Form regulation

18. Insurance Combined With Fixed-Price Contracting Remediation contractors will sometimes assume risks, often With insurance available at lower premiums Because insurers know who the Contractor is, and that it has strong incentives to contain costs; and At an overall lower cleanup price Because the certainty of a long-term cleanup contract, combined with the chance at a windfall in the event that costs are well- contained, offers substantial incentives to offer lower overall price.

19. State & Tribe EI Programs CERCLA § 128(a) allows States and Indian Tribes to use grants to purchase insurance or develop a risk sharing pool, indemnity pool or insurance mechanism. Policies (MA, WI) Pre-negotiated terms (typically in PLL endorsements) Preselected insurer(s): WI: AIG MA: Ace, AIG, XL Massachusetts subsidizes up to lesser of 50% or $150K for public and quasi-public entities, $50K for private. Over $5M in subsidies toward $143M in cleanup, $1B in coverage, at over 250 projects. Wisconsin: Volume discounted (10% discount) State VPLE (WI): Master policy - Groundwater only; VCP sites. Tax Credits (NY): Up to the lesser of 50% of premiums or <$30K.

20. Tax Increment Financing: A Major Tool for Brownfields Redevelopment Melina Kennedy Partner Baker & Daniels Law Firm melina.kennedy@bakerd.com (317) 237-8288 melina.kennedy@bakerd.com

21. 21 What is Tax Increment Financing? A way to capture new property tax revenue generated by new capital investment and use those dollars towards improvements in the same geographic area. Typically, property taxes are the source of revenue for a TIF; however, other sources may be used as well, such as sales and/or income tax. Bonds can be issued to provide up-front dollars with increment pledged to pay off debt.

22. 22 Considerations in Approaching Request for TIF Assistance It is typically a local incentive, so approaching the local agency, such as mayors office, is the best place to start. Many cities have separate economic development organizations that take on city economic development functions. If you dont ask, you wont get!

23. 23 Key Considerations for TIF Confirm flexibility of use of funds (typically statutory). Understand legal obligations (i.e., who backs bonds, what happens if revenue projections are not met, etc.). Likely teammates in TIF deals: city, bond counsel, financial adviser, developer.

24. 24 Example Keystone Industrial Park, Indianapolis Former site of tire dump; some dilapidated housing City used HUD loan to acquire parcels; demo and remediation costs City created a TIF to pay off HUD loan; used TIF revenues and Community Development Block Grants (CDBG) Now it is a viable industrial park with new buildings, new jobs, and a benefit to the area

25. Brownfield Tax Credit Programs Colleen Kokas NJDEP-Office of Brownfield Reuse PO Box 028 Trenton, NJ 08625 609-633-1499 www.state.nj.us/dep/srp/brownfields

26. BF Tax Credits-Federal Taxpayer can fully deduct the cleanup costs in the year incurred Property must be help by taxpayer for use in a trade or business Demonstrate release, threat or release or disposal of hazardous substance For costs incurred through Dec 31, 2007 Requires state sign-off

27. BF Tax Credits-Michigan Single Business Tax BF Redevelopment For non-dischargers 10% of development costs-capped at $1M Site is within a Brownfield Redevelopment Authoritys BF plan Assignable

28. BF Tax Credits-New York BF Redevelopment Credit-tiered from 12% to 22% on business or personal tax credits; credit tied to the increase in value of the property Environmental Remediation Insurance Credit-for 50% of insurance premium capped at $30K Current Program facing change due to Upstate/Downstate inequities and need

29. BF Tax Credits - New Jersey Tax Credits & Reimbursements Reimbursements up to 75% of cleanup costs based on specific new taxes generated from the redevelopment 107 projects eligible $139 M new taxes ($21 M reimbursed) Tax credits for costs through Jan 1, 2007 for 100% of cleanup costs in specific areas of the state No participation

30. BF Tax Credits-Common Themes Cap on Amount-widely variable Eligible Person-not a liable party Restricted Areas of State-distressed areas Specific Costs-remediation and associated costs Assignable Short Duration

31. Overview of Private Equity Capital and Commercial Loans Robert Naylor Chief Financial Officer CHEROKEE rnaylor@cherokeefund.com (919) 743-2543

32. 32 What is private equity capital? Private equity capital is typically raised in funds for a specific purpose (e.g.: In 2005, Cherokee raised $1.24bn in Fund IV for investment in brownfield redevelopment projects) Private equity capital typically comes from large institutional investors (government pension funds, university endowments, corporate pension funds, insurance companies) Many of the large institutional investors, especially when investing in real estate, tend to invest for longer periods of time While investors commit a certain amount of capital at the time a particular fund is being raised, capital is only drawn down by the fund as it is needed

33. 33 Is private equity capital right for your project? Funds have various strategies, including risk profile (value added or opportunity), deal size (minimum equity investments), product types (retail, office, residential), developmental stage (land, horizontal, vertical), and other criteria (geography, brownfields) Most private equity funds have a finite life, so investment opportunities need to begin and end within a certain timeframe Private equity capital requires higher returns than many other types of capital because: Equity is subordinate to debt and other types of financing in the capital structure More complex deals require higher returns than traditional deals (e.g. Brownfield redevelopment including re-entitlement process vs. purchase and re-leasing an existing office building)

34. 34 What do you need to know about commercial loans? Commercial loans (national or local banks) are a common source of project financing Terms are dependent on project-specific factors; key terms include: Size:Often determined by project needs, collateral, valuation Interest rate: Fixed or floating (prime plus, LIBOR plus) Term:Duration of loan (construction typically 3 or 4 years) Repayment:Specified schedule or receipt of income or recapitalization Guarantee:May require a guarantee (recourse) or not (non-recourse) Commercial loans are available for many project types and stages: Pre-development loans (for horizontal infrastructure and other ground work) Construction loans (for vertical construction of structural buildings) Land acquisition loans Mortgage loans for existing buildings and structures Project improvement loans for building upfit

35. Panelists Charlie Bartsch, ICF International, 202/862-1134, cbartsch@icfi.comcbartsch@icfi.com Larry Eisenstein, Eisenstein Malanchuk, LLC, 202/965-4700, leisenstein@em-law.com leisenstein@em-law.com Michael Hill, Hill & Kehne, LLP, 202/558-2100, mhill@hillkehne.commhill@hillkehne.com Melina Kennedy, Baker & Daniels, LLP, 317/237-8288, melina.kennedy@bakerd.com melina.kennedy@bakerd.com Colleen Kokas, New Jersey Department of Environmental Protection, 609/633-1499, colleen.kokas@dep.state.nj.uscolleen.kokas@dep.state.nj.us Robert Naylor, CHEROKEE, 919/743-2500, rnaylor@cherokeefund.comrnaylor@cherokeefund.com