The Importance of Thinking Strategically Tribal Development Seminar November 30, 2010 Steve Walker, Managing Director Heartland, LLC

Pursuing development strategically includes employing a rigorous methodology to evaluate and manage the develop process. The most successful developments are visionary, creative, carefully planned and effectively implemented. Real estate development plans are business plans and should function as a road map, stating what the destination is, describing the process to get there, and anticipate and prepare for when roadblocks arise and detours are required. 2

Thinking Strategically  Context  Clear Vision and Project Objectives  Measurable Goals  Due Diligence/Feasibility Process  Design and Development Team  Implementation Process  Management Tools 3

Context Past development practices:  Design of infrastructure and building systems predominantly by engineering community.  Focus – optimizing efficiencies of land plan, roads, utilities and buildings.  Market, operations and financial analysis and aesthetics often secondary.  Overriding emphasis on costs, sourcing financing and construction. 4

Context Forward development practices:  Development focus broadened to address social, cultural, economic, ecological, community and lifestyle issues.  Financial performance – initial, mid-term and long- term  Approach requires leadership vision, a holistic methodology and decision making process and multidisciplinary design and development team.  Management tools to quantify and measure these evaluation metrics. 5

Context As a society we are increasingly focused on understanding the limits of our natural resources, the threat of climate change, and more recently the social and economic repercussions of this recession. Sustainability has become more than just the latest buzzword - a reset button has been pushed, a paradigm shift has occurred. Sustainability is now one of the core values and filters that people view development. We are increasingly thinking seven generations in the future. 6

Clear Vision and Project Objectives  What is the purpose for this development?  Who is it for?  What is the market demand that it will fulfill?  Why is this the right place?  What is the right project for this location?  What is the development aesthetic?  Why will people come here and how will they use this place?  How is success to be measured – financial, sustainability, community, and lifestyle performance? 7

Measurable Goals Like any business plan, the development plan should:  Establish the desired outcomes.  Identify measurable goals for the specific project and the metrics of how these goals are to be evaluated throughout the stages of predevelopment feasibility, development phases, leasing, operations, and sale(s) (if applicable). 8

Measurable Goals  Financial Performance What are the “financial” metrics that the project should be evaluated to?  Community What are the “community” project goals during predevelopment, horizontal development, vertical construction and operations?  Lifestyle What are the “lifestyle” project goals? How will people interact and experience this place? Why will they return? Why will they live, work and recreate here? Development is more than buildings it is the total place 24/7.  Sustainability What are the “sustainable” project goals during predevelopment, horizontal development, vertical construction and operations? 9

Growth Projections (5,10,15 Year Estimate) District Growth Potential (5,10,15 Year Estimate) Financial Feasibility Sub-Model Topic Area Sub-Models Transportation Water Energy Solid Waste Performance Benchmarks Baseline (BAU) Good Better Best Alternative Scenarios for Sub- Model Roll Up Growth Scenario Performance Benchmarks Cost (Uses) Revenue (Sources) Partnerships Financial Performance IRR/ROI Payback Periods Benefit per Cost Net Cash Identify Optimum Sustainable Strategy EXTERNAL FACTORS + INTERNAL FACTORS OPTIMIZED SCENARIO 10 Sustainability Strategy Measurable Goals

Due Diligence/Feasibility Process  Opportunities and Constraints Analysis  Physical  Market  Political  Regulatory  Alternative Analysis  Financial Pro Forma and Sensitivity Analysis  Evaluate project alternatives  Sensitivity of financial performance to changes in project assumptions  Realistic and Flexible Program  Flexibility in types of uses, densities, sizes, heights, parking and phasing  Flexibility in land plan to respond to changing market conditions  Phasing to Manage Cash Outlay and Product Diversification to Maximize Absorption  Phasing – land plan, infrastructure plan and building plan  Phase Cash Outlays - match near-term absorption and revenues  Maximize Breadth and Depth of Uses and Products – accelerate absorption and revenues 11

Design and Development Team Integrated Design and Development Team that gets it:  Design and Project Management  Architecture  Land Planning  Engineering  Landscape Architecture  Science Disciplines 12

Design and Development Team Assembling the right design and development team upfront and providing it with the right leadership and direction is the most important step in achieving a successful development. 13 Performance Cost Initial Planning Stage Construction Phase The least cost/maximum ability to positively affect the financial cost and performance of a potential development is during the initial planning stages.

Implementation Process 14 Vision Vetted through Feasibility Preferred Program & Strategy Project Team Assignments Concept Development Design Development Construction Documentation Entitlements Financing Land Development Construction Commissioning Operations Leasing Sales Collaborative Process Critical Thinking

Management Tools The extent and complexity of the tools to manage a development project vary with the demands of each project.  File Management System  Contact List  Due Diligence/Feasibility Check List  Pro Forma (including detailed integrated budgets for predevelopment, development, vertical construction, operations or operating subsidies, financing, revenues and sensitivity analysis)  Critical Path/Timeline  Building Budgets for Specific Vertical Building Projects  Critical Path for Specific Vertical Building Projects  Sustainability Performance Model  Community and HOA Budgets 15

We live in a very challenging and exciting time. New thinking, innovation and informed risk taking are core ingredients to moving forward with successful developments. No one has all of the answers, the goal is to know what are the critical questions to ask. 16 Strategic Thinking Measurable Goals Clear Vision Due Diligence/ Feasibility Methodology Design & Development Team Implementation Plan Management Tools