Presentation is loading. Please wait.

Presentation is loading. Please wait.

Framework/Overview of the Business Case Supporting the Development of the CCCPA Waterfront Site Real Estate Committee Meeting October 6, 2009 Dr. Eric.

Similar presentations


Presentation on theme: "Framework/Overview of the Business Case Supporting the Development of the CCCPA Waterfront Site Real Estate Committee Meeting October 6, 2009 Dr. Eric."— Presentation transcript:

1 Framework/Overview of the Business Case Supporting the Development of the CCCPA Waterfront Site Real Estate Committee Meeting October 6, 2009 Dr. Eric Anthony Johnson, Ph.D

2 © PA Knowledge Limited Page 2 Agenda/contents Introduction Our process Success is possible How much development is possible? What would this development mean to the Port and the city?

3 © PA Knowledge Limited Page 3 We assembled a multi-disciplinary team to assist the CCCPA This project’s scope of work 1) Market demand analysis Conduct a market study of the potential real estate demand for developing the Port site 2) Site strategy and options Develop real estate development options for the site’s development, while recommending the one with the best risk and return characteristics 3) Quantitative models Build a financial valuation model that supports the options analysis and is flexible enough for future use PA Consulting Group Global planning and strategy consultants with experience leading very large real estate development efforts Kahr Real Estate Real estate specialists with strong market analysis and financial modelling expertise Rebel Group Large scale waterfront and port redevelopment and investment experts with deep international experience

4 © PA Knowledge Limited Page 4 Agenda/contents Introduction Our process Success is possible How much development is possible? What would this development mean to the Port and the city?

5 © PA Knowledge Limited Page 5 Our assignment is the initial stage of a longer pre-development process

6 © PA Knowledge Limited Page 6 primary and secondary information about the Cleveland real estate market, and international and US case studies on successful waterfront developments determine usefulness and importance of data, case studies and create initial development storyboard draft logic flow for the development, noting key decisions and factors for development shape primary and secondary research into quantitative demand that feeds the financial model to determine difference in NPV using different dev options shape results into phased development options with differing NPV and risk characteristics take results of the research, case studies and quantitative models to recommend a a strategy for the Port’s site that is aligned with local demand, best practices, and profitable development phasing We used a comprehensive and inclusive approach to establish the market demand for the port’s current site and development options Collect research Analyze results Create and validate options Develop quant models Quantify options results Recommend options

7 © PA Knowledge Limited Page 7 And to deliver the results in a comprehensive set of outputs that qualitatively and quantitatively summarizes the market’s view of the site’s development potential

8 © PA Knowledge Limited Page 8 Agenda/contents Introduction Our process Success is possible! How much development is possible? What would this development mean to the Port and the city?

9 © PA Knowledge Limited Page 9 International and US waterfront development case studies show that similar places to Cleveland have delivered successful, thriving waterfronts 1.Change is possible – many comparable cities have used (old) port or industrial sites for transformative real estate developments 2.Regenerate cities – Waterfront (re)developments have benefited the wider city – reconnecting downtowns to waterfronts, catalyzing positive economic change, bringing new investments, increasing on-site and adjoining property values, increasing property taxes. However, new development should initially be developed along the waterfront, where the market is strongest. 3.Create uniqueness – Waterfront developments created unique urban places (hence a unique offer in local real estate markets) – waterfront space is a limited commodity, harbor and water related character, working harbors, etc. 4.Mixed use is essential – Almost all waterfront developments are vibrant because of mixed use combining living, working, shopping, leisure, public spaces. These amenities will have an impact on property values near the waterfront. 5.Flexibility is key – Waterfront developments have been driven by a strong development vision, but with flexibility to changing market needs over time. The main points from that analysis are…

10 © PA Knowledge Limited Page 10 6.Accessibility draws demand – Infrastructure and high quality urban spaces draw demand by providing easy accessibility and increasing the likelihood patrons would stay on the water front. Waterfront developments are typically well integrated into surrounding area such as the CBD. 7.Phasing is critical – Waterfront developments are long term (complex) urban projects, typically phased over 25+ years – development phasing has been critical especially in accordance to the availability of funding. 8.Development sponsorship builds momentum – Sponsorship is required to trigger market forces and create development momentum in formulating a development vision, and building a framework for the development of land use, infrastructure, and public facilities 9.Require upfront investments – Waterfront developments require upfront financing, especially of infrastructure and leading facilities, but thereafter can have rolling financing. Development will build on previous successes. 10.Development entity –A development entity, existing or created, has been a common characteristic across the case studies to undertake waterfront developments International and US waterfront development case studies show that similar places to Cleveland have delivered successful, thriving waterfronts

11 © PA Knowledge Limited Page 11 Port Tourism The Flats CBD Dual waterfront area (river and lake) Revitalization effort Browns Stadium Rock and Roll Hall of Fame Other considerations and trends:  Increased attractiveness of urban living  Likely 2011 economic rebound  Optimistic Master planner’s perspective The port’s unique site and high level trends indicate strong drivers for waterfront development Core business zone

12 © PA Knowledge Limited Page 12 Overall demand in Cleveland is weak at the aggregate level, but certain submarkets and products have shown resilience through the downturn Overall MSA housing market has not been strong City residential rent prices are expected to rebound CBD office rates will rebound by 2013 and vacancy rates are dropping But downtown Cleveland shows potential for growth Vacancy Rates MSA level market hindered by availability of cheap housing, urban sprawl, and job losses CBD Residential housing prices are expect recover by 2013: 1. Macroeconomic recovery 2. Increased attractiveness of urban living CBD vacancy rates and rent prices are expected to rise starting 2010 despite no new Class A deliveries expected among aging buildings.

13 © PA Knowledge Limited Page 13 MSA population is stable with residents are moving back into the CBD While the city of Cleveland’s population has shrunken, the residents remained local (within the MSA). But over the same time, the city’s downtown has been growing. Residents moving to the suburbs Residents moving downtown (fastest submarket growth in the MSA)

14 © PA Knowledge Limited Page 14 Sufficient demand exists for each property type and a reasonable development plan can be built on that basis CommercialHotelResidentialRetail Ceiling: 2.6M SQFT Build-out: 1.8M SQFT Demand will pick up after anchor tenants legitimize site as extension of CBD Ceiling: 3200 Rooms Build-out: 3000 Rooms Unique waterfront location and proximity to tourism provide unparallel convenience for visitors Ceiling: 7300 Units Build-out: 2100 Units A small build-out will keep exclusivity of waterfront property and hedge risk over supply Ceiling: 2.8M SQFT Build-out: 1.6M SQFT Supported by the success of the other property types Sources include: US Census Burea – American Community Survey, BEA economic data, Brokers, Colliers, PPR, Grubb and Ellis, CoStar, Team Neo, Case Schiller index, Positively Cleveland, Freddie Mac Conventional Home Price Index, Freddi Mac Growth rates, personal interviews with stakeholders, and various CSU studies.

15 © PA Knowledge Limited Page 15 For a proposed development, from each real estate asset type, the discounted cash flow analysis derives its results from projections of income and expenses over twenty years in today’s dollars Land cost Building costs Lease income Vacancy Operating costs Changes over time Debt Amortization period Interest rate Discount rate Final year lease revenues and value after twenty years InvestmentOperationsFinancingCapitalization Discounted Cashflows Annual cashflows during the holding period Final cashflow from capitalized lease revenue Adapted from a slide by the Real Estate Center Financial return information IRR / NPV Assumptions Capitalization rate Prices and costs Expenses and growth rates Risk information Sensitivity tables

16 © PA Knowledge Limited Page 16 Behind our work is a custom-built demand and financial model to help understand and frame the different possible development scenarios

17 © PA Knowledge Limited Page 17 Behind our work is a custom-built demand and financial model to help understand and frame the different possible development scenarios The demand model shows…  Projections of the demand for each of four main product types (commercial, residential, hospitality and retail) over 20 years  The supporting logic behind each demand curve as changes in the size of the relevant user groups for each property type (for example, renters for residential property)  Assumptions about the growth rate for each user group, in particular the increasing interest in the Port site over time  Sources of the various projections and market data

18 © PA Knowledge Limited Page 18 Behind our work is a custom-built demand and financial model to help understand and frame the different possible development scenarios Demographic trends show stable MSA population and a growing CBD  Economy.com, Census Bureau, TEAM NEO Submarket trends indicate likely 2013 pricing recovery in the CBD  Real Estate Reports from Grubb and Ellis, Colliers, CBRE and others International Case studies place bounds on use mix and phasing strategies  Based on allocations from 10 domestic and international case studies of successful waterfront developments

19 © PA Knowledge Limited Page 19 Behind our work is a custom-built demand and financial model to help understand and frame the different possible development scenarios The financial model shows…  Revenues and costs by product over 20 years, as well as for the project over all  Financial returns for a given level of risk and expected profit (reflected in the discount rate)  Assumptions regarding future capitalization rates to value cashflows after year 20  The value to the land owners of ground leases paid

20 © PA Knowledge Limited Page 20 Behind our work is a custom-built demand and financial model to help understand and frame the different possible development scenarios General Assumptions include  8.5% Cap Rate  6% discount rate for the port / city  $162 million in infrastructure costs  Groundlease revenues paid to the Port allow developers a 15% unleveraged IRR Structural Assumptions  Land leased to developer. Developers own buildings on top of the land  Financial model calculates lease revenues to the port and developer

21 © PA Knowledge Limited Page 21 Agenda/contents Introduction Our process Success is possible! How much development is possible? What would this development mean to the Port and the city?

22 © PA Knowledge Limited Page 22 By linking our estimates of demand with the phasing and development blocks available over twenty years, we estimate 6.7 million sq ft of BUA are possible Note that numbers under the phase show gross land area, not built-up area for each phase (which is shown in callout boxes) BUA (sq ft) 486,000 BUA (sq ft) 414,000 BUA (sq ft) M BUA (sq ft) M BUA (sq ft) M

23 © PA Knowledge Limited Page 23 To arrive at the combined supply and demand estimate for the site, we spread our demand model estimates over the available development blocks by phase Demand model results by product over time Physical development blocks available over time Blended BUA plan for the site’s land area over time  Determines the ceiling for demand by product  Used to create development options  Determines the physical limit for development on the site by product  Not time bound  Determines the plan that links development BUA to completed development blocks  20-year implementation focus  Flexible, as market needs dictate

24 © PA Knowledge Limited Page 24 The recommended development plan’s BUA is staged to maintain and increase demand over the twenty year forecast period Approximate ft 2 (‘000) by phase and product Build out recommendations for the base level of demand across the physical development blocks Phase12345Project Residential ,771.9 Commercial ,847.9 Retail ,603.6 Hotel Special Purpose Total (ft 2 ) , , , ,771.4 Unit estimates Residential units ,085 Hotel rooms , ,170 3,009 Sums are rounded, unit numbers are approximate

25 © PA Knowledge Limited Page 25 Agenda/contents Introduction Our process Success is possible! How much development is possible? What would this development mean to the Port and city?

26 © PA Knowledge Limited Page 26 Nominal development costs and revenues are within reason for a large project Nominal Development Revenues (M USD) Moderate demand development plan Demand maximizing development plan Nominal project level revenues (not including ground lease payments) $3,251.0$4,180.5 Total ground lease payments (to the land owners)$1,015.01,088.6 Of which, Ground leases during first twenty-years$ Capitalized future revenues after year twenty$ Nominal Development Costs (M USD) Non-Infrastructure Development Costs$873.01,161.6 Infrastructure Development Costs$ Total Development Costs$1,035.01,324.1 Numbers may not total exactly because of rounding Option valued in the remainder of the report

27 © PA Knowledge Limited Page 27 Infrastructure costs are divided into cost categories (in today’s dollars) and represent a consensus view of general site-level improvements needed Infrastructure cost estimates (M USD) Transportation (roads and other)$25.0 Connection infrastructure – direct port site works15.0 Water and wastewater15.5 Parking10.0 Public spaces48.0 Utility connections20.5 Site preparations28.5 Total Development Costs162.5 These general infrastructure estimates need to be refined and are not quantity surveyor-type estimates based on actual units of materials needed, etc.

28 © PA Knowledge Limited Page 28 The infrastructure investment is distributed, not tied to a single location RTA Station Pedestrian footbridges (2) Actual location: TBD Road extensions of main arteries Internal roads, sidewalks and parks are as noted in this plan. Flats Trolley extension from Public Square Parking and off-ramp into garage. Actual location: TBD Distributed infrastructure throughout site Soft cost included in total infrastructure allocation but are not location specific

29 © PA Knowledge Limited Page 29 Site-level ground lease revenues value the site to be as much as $376.8 million, depending on the owner’s risk and profit expectations Entity Discount rate Site level (PV USD M) Per acre (whole site) (PV USD M) Per developable acre (PV USD M) Land owner6% Developer12% Land Area = 113 Acres (55 Developable) Equals the nominal 1.088M USD shown earlier

30 © PA Knowledge Limited Page 30 Groundlease revenues for the site increase over time as the site matures and additional phases are developed Newly developedAlready developed Equals the nominal 1.088M USD shown earlier

31 © PA Knowledge Limited Page 31  Gain feedback from Committee/Board on the findings  Finalize report deliverable by October 13 th Next steps for delivering the final report


Download ppt "Framework/Overview of the Business Case Supporting the Development of the CCCPA Waterfront Site Real Estate Committee Meeting October 6, 2009 Dr. Eric."

Similar presentations


Ads by Google