Presentation to CALED
35th Annual Training Conference
Getting it Done:
Can Cities Help Development Projects
in a Post-RDA World?
April 22, 2015
Presented by:
Larry Kosmont, CRE & Ken Hira, Kosmont Companies
Don Hunt , Norton Rose Fulbright LLP
Don Smail, City of Manteca
www.kosmont.com
How do the Pieces Fit Together?
The Problems:
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Greenhouse Gas Emissions (GHGs)
Drought
Climate Change
Insufficient regional transportation
Crumbling Infrastructure
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Aging water transportation infrastructure
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Aging sewer infrastructure
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Aging electric & utility plants
• New Infrastructure Needed
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For shift to multifamily housing
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Transit-Oriented Development in
designated high-quality transit areas
(HQTAs)
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Economic Development and Sustainable Public Policy
How does the new Legislation provide Opportunity?
Economic Development
Regional JPA
Sustainable Policy
New Revenues and Jobs
Conduit Financing
Compliance
SB 628 (Beall)
AB 32 (Perez)
Enhanced Infrastructure Financing Districts
Cap and Trade: Community Development
Investment Tax Credits
SB 614 (Wolk)
Jurisdictional Changes for Special District/Annexed
area for Infrastructure Financing
AB 229 (Perez)
Infrastructure and Revitalization Financing Districts
on Former Military Bases
SB 743 (Steinberg)
CEQA: Environmental Quality Streamlining for
TOD / Infill Dev.
AB 850 (Nazarian)
SB 375 (Steinberg)
GHG Emissions Reductions: Sustainable
Communities Strategy
AB 1739 (Dickinson)
Groundwater Management: Sustainability
Plan & Extraction Reporting
SB 1168 (Pavley)
Financing Public Capital Facilities: Water Quality
Groundwater Sustainability Agency & Plan:
High- and Medium-Priority Basins
AB 1471 (Proposition 1; Rendon)
SB 1319 (Pavley)
Financing Water Quality, Supply and Infrastructure
Improvement: Bond Issuance
Sustainable Groundwater Management Act
AB 2660 (Aguiar)
Infrastructure Financing Act: User Fees and P3s
Greenhouse Gas Reduction Fund: Benefits
to Disadvantaged Communities
Local & Regional Infrastructure
Regional Sustainability
SB 535 (De Leon)
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Post-RDA Economic Development
Cities have 7 BASIC TOOLS for Public/Private Projects
Real Estate & Property
Joint Powers
Authorities (JPAs)
Enhanced Infr.
Financing Districts
(EIFDs)
Special Districts
Economic
Development
Real Estate
Project
P3 / Project Delivery
Methods
(Tourism, BIDs, etc.)
Rebate of Taxes /
Revenues
Land Use / Zoning
(Higher Density;
Parking)
These tools often work best when used together
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Introduction of Post RDA Tools and
How To Use Them Effectively
Don Hunt, Partner
48384079
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I. Joint Power Authorities
A. Authorized in 1949
B. Broad range of uses, expanded by the MarksRoos Local Bond Pooling Act of 1985
C. Example – South Gate Utility Authority
• South Gate formed the South Gate Utility Authority
(a Joint Powers Authority) in 2002.
• City leased its Water Utility and Wastewater Utility
to the Utility Authority pursuant to the provisions of
the California Public Utility Code.
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South Gate Utility Authority Cont.
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City entered into a management agreement
with the Authority to manage the utility.
Utility Authority agreed to make lease
payments to City over the term of the lease
based on outside engineering valuation of
systems.
Utility operates enterprise as an asset of the
Utility Authority during the lease term.
Utility enterprise reverts back to the City at the
end of the lease term.
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II. Infrastructure Financing Districts
Prior to Enactment of SB 628:
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Existing law authorized an infrastructure financing
district to fund infrastructure projects through tax
increment financing, pursuant to the infrastructure
financing plan and the agreement of affected
taxing entities.
Existing law allowed an Infrastructure Financing
District to exist not more than 30 years from the
date on which the ordinance forming the District is
adopted.
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Infrastructure Financing Districts
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SB 628 authorizes the legislative body of a city or county, defined to include
a city and a county, to establish an enhanced infrastructure financing
district:
to adopt an infrastructure financing plan and issue bonds, which may be
outstanding for up to 45 years from the approval date of the district and
bonds, for which only the district is liable, upon approval by 55% of the
voters;
to finance public capital facilities or other specified projects of community
wide significance, including, but not limited to, Brownfield restoration and
other environmental mitigation;
development of projects on a former military base;
the repayment of the transfer of funds to a military base reuse authority;
the acquisition, construction, or rehabilitation of housing for persons of low
and moderate income for rent or purchase;
the acquisition, construction, or repair of industrial structures for private use;
transit priority projects;
projects to implement a sustainable communities strategy;
utilize any powers under the Polanco Redevelopment Act.
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Infrastructure Financing Districts
• SB 628 requires the legislative body to establish a public
financing authority, defined as the governing board of the
enhanced infrastructure financing authority, comprised of
members of the legislative bodies of the participating entities &
of the public, prior to the adoption of a resolution to form an
enhanced infrastructure district & infrastructure financing plan.
 If a district has only one participating taxing entity, the public
financing authority’s membership shall consist of three
members of the legislative body of the participating entity, and
two members of the public chosen by the legislative body.
 If a district has two or more participating taxing entities,
the public financing authority’s membership shall consist
of a majority of members from the legislative bodies of
the participating entities, and a minimum of two members
of the public chosen by the legislative bodies of the
participating entities.
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Infrastructure Financing Districts
The district shall finance only public capital facilities or other specified
projects of community wide significance, that provide significant
benefits to the district or the surrounding community, including, but not
limited to, the following:
1. Highways, interchanges, ramps & bridges, arterial streets, parking facilities, &
transit facilities;
2. Sewage treatment, water reclamation plants & interceptor pipes;
3. Facilities for the collection and treatment of water for urban uses;
4. Flood control levees and dams, retention basins and drainage channels;
5. Child care facilities;
6. Libraries;
7. Parks, recreational facilities, and open space;
8. Facilities for the transfer and disposal of solid waste, including transfer stations
and vehicles;
9. Brownfield restoration and other environmental mitigation;
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Infrastructure Financing Districts
10. The development of projects on a former military base provided that the
projects are consistent with the military base authority reuse plan and are
approved by the military base reuse authority, if applicable;
11. The repayment of the transfer of funds to a military base reuse authority;
12. The acquisition, construction or rehabilitation of housing for persons of low
and moderate income;
13. Acquisition, construction or repair of industrial structures for private use;
14. Transit priority projects;
15. Projects that implement a sustainable communities strategy.
B.
EIFDs are able to finance and build a wide variety of public
infrastructure projects, including projects that are frequently delivered
through a P3 model. An EIFD’s broad discretion to select potential
projects and access to bond financing with a lower voter threshold
(55%) should broaden the categories of public/private partnership that
can be financed with public debt.
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Infrastructure Financing Districts
• Any debt or obligation of an enhanced infrastructure
financing district is subordinate to an enforceable
obligation of a former redevelopment agency.
• The bill authorizes the legislative body of the city forming
an enhanced infrastructure financing district to choose to
dedicate any portion of its net available revenue, as
defined, to the enhanced infrastructure financing district
through the infrastructure financing plan.
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III. P3s – Public Private Partnership
Recent California local government examples:
a. Oxnard Fire station
b. Long Beach Courthouse
c. City of Rialto Utility Authority
Water and Wastewater
Concession Agreement
d. City of Long Beach Civic Center (City
Hall, Library, Headquarters for Harbor
Commission)
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Oxnard Fire Station
The Challenge:
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City desired an expedited project delivery method to build a much
needed fire station on vacant 2.49 acre parcel without assuming
development or construction risks
Tools Employed
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Real Estate & Property
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P3 Infrastructure Delivery
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Revenue Bonds
The Solution:
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Utilized a JPA to issue bonds and a non-profit to own the project and
install improvements
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Bond proceeds will finance the design, construction and equipping of a
“turn-key” fire station to be leased to the City of Oxnard upon completion
(expected less than 24 months)
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Revenue bonds earned an “A+” rating from S&P despite the bonds
assuming construction risk
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V. Site Specific Tax Revenue Pledge (SSTR)
 Tax revenues (example - sales, TOT) generated by a
specific project used to reduce gap by lowering project
debt or equity.
 City agrees to contribute an amount calculated each year
based on actual incremental public revenues produced
that year by project to reimburse designated infrastructure
costs.
 Risk remains on Developer to generate verifiable annual
public revenues from project.
 Contribution may be made directly as a reimbursement or
as a contribution to offset financing costs of infrastructure
initially financed through a special purpose financing
entity such as a community facilities district.
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City of Manteca Case Studies
• Loss of RDA has had many consequences for
local governments.
• RDA was our “tool kit” and we got accustomed to
using it; other tools went unused.
• Many unintended consequences: restricted
access to bond funds, loss of 99 year lease
alternatives, etc.
• Demise of the Enterprise Zone program
compounded the challenge.
• Manteca had two major projects at risk.
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Industrial Service Company
• Large Industrial laundry: hi water efficiency facility placed to
serve institutional clients, hospitals, large hotels, etc.
• Site selected within an existing master plan area, so many
entitlement issues were addressed.
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Project proforma included EZ for 90 employees at $39,500 = $3.5M
tax benefit over 5 years
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Also invested $8.7 in machinery and equipment, and were due
$575K
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Demise of EZ wiped out the hiring credit. City and firm are still
negotiating with FTB and BOE on the credit.
• Time was the critical factor, and by assigning staff the
company open about 3 months early
• 89 employees at opening has grown to 117, and City his
helping the firm solicit new clients.
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Crothall Industrial Laundry - completed
2020
Conference Ctr. & 500-room Hotel
• Land sale became a 99 year lease (post-RDA: separate govt.
code section for recreation/exhibition related facilities).
• Ability of the hotel to levy a resort fee to help fund a CFD
were hampered by recent San Diego decision.
• Project became 100% prevailing wage: 500 rooms, 1,200
parking space, 20,000 sf convention/exhibition center
• Complex capital stack; lenders unwilling to loan on hotels;
Wall Street concern about California’s “next change”
• City subsidy based upon a percent of net new TOT revenue
from the project (similar to two sales prior tax deals).
• Project enters EIR phase in two weeks; not finalized, but
close to agreeing on framework of the deal.
• Important to keep your legal team on call; changing times!
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Conference Ctr. & 500-room Hotel
• City had $40M in unspent bond proceeds, a project and
a 200 acre site, but no DDA before demise of RDA.
• Major water, sewer and storm drain projects were
already planned to cross through the selected site.
• City paid for EIR, two developers paid for a joint Master
Plan for hotel/conference center and recreation complex
• Master Plan and EIR were tracked in tandem
• Developer and hotel operator on a fast track to break
ground, 16 month construction time frame.
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Conference/Hotel/Recreation Facility
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Retail Trends 2015
RETAIL = TIME
Contact: Ken K. Hira
Senior Vice President, Kosmont Companies
Southern California State Director
Kosmont Retail NOW! ®
khira@kosmont.com
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Retail Trends
• In a digital world what works today for Retail centers?
• Food is king - you still can’t eat/drink on the internet…
• “Place” is the new anchor tenant
• Mix of restaurants, entertainment, medical, civic,
residential, transit
• Technology
• Omni-channelling, embrace the internet
• Smart phones … shoppers more efficient
-- and have more time to hang out
• Cities
• Understand today’s paradigm
• Apply zoning strategies in synch with tenants that attract trips
• Remember public private partnerships?
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‹#›
RETAIL = Time
To the consumer of the future, shopping is about TIME:
Time you Spend when you go out to shop traditionally at stores
… BRICKS
Time you Save by shopping more efficiently online, omnichanneling
… CLICKS
Time you Invest with friends socially, hanging out, coffee/food/being
entertained
… PLACE
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2015 Retail: Something Old, Something New
THE OLD
THE NEW
Big Box
Small Box “Shrinkage” 
Limited Amenities
Services & Special Events
Traditional Grocers
Specialty Grocers
Parking
Transit, Multi-Modal, Walking & Parking
Food Court
Market Hall
Retail Only
Food + Entertainment /Fitness + Medical/Office
+ Civic + Housing + More…
Products
Experiences
Sales psf as metric
Trips as metric
“We’re not overbuilt … we’re Under-Demolished”
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“Mixed Drink” Program
Mixed-Use/Community Retail
Residential
Entertainment/Fitness
Grocery/Restaurants
Medical/Office/Civic
The trick is maintaining
the right balance and blend
to achieve the best taste!
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Kosmont Retail NOW!®
• Cities need a strategy that strikes the right balance of
ingredients …
• Kosmont Retail NOW!® is a tool kit for both public and
private sectors to attract retail.
• It is a comprehensive & proactive retail attraction initiative
which identifies existing conditions, sets a path, targets
tenants & produces results.
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Analyze, Strategize, Implement:
“Cash Registers vs. Wallets” … Surplus / Leakage
Surplus
Sales Surplus / Leakage Per Capita in $000s:
($1.2)
(27%)
($1.0)
(22%)
($0.4)
(9%)
$2.6
57%
($0.1)
(3%)
$4.3
58%
$2.0
24%
($1.3)
(14%)
$0.0
0%
Note: Spending potential based on number of households, average household income, and estimated percentage
of income spent on retail goods and services; Source: CA Retail Survey (2012); U.S. Census Bureau (2010);
Bureau of Labor Statistics (2011); ESRI (2013)
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Victorville – Mall of Victor Valley
The Challenge
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Top Regional Location (High Desert)
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Resulting decline in sales tax
revenue for City of Victorville
Macerich lost several major tenants
from significant regional shopping
mall (Gottschalks & Mervyns
bankruptcies)
The Solution
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Kosmont evaluated & negotiated public-private options to retain & attract
retailers; to generate jobs and sales tax revenue for the community
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Site Specific Tax Revenue (SSTR) sharing arrangement vis-à-vis
Development Agreement between Macerich and City to pass through
sales tax amounts greater than threshold value
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Re-tenanting and architectural redesign revitalized aging mall
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Mall of Victor Valley – The Circle of Retail Life
The Fallen
The Survivors
The New Arrival
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Mall of Victor Valley – The ReDesign
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City of South Gate – “azalea” Retail Center
The Challenge & Evolution of Deal
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Formerly a pipe mfg plant, the 32-acre
site lay fallow & blighted for years.
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City bought site in 2006 to revitalize
community
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South Gate has highest population density in LA County, yet
residents must drive far for basic goods and quality restaurants.
The Evolution of the Deal and the Solution
• Kosmont worked closely with the City and Primestor to fulfill the
City’s objectives while minimizing financial project gap assistance.
• Negotiated Infrastructure Financing Agreement to fund off-site
improvements; reduced risk for both City and developer
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City of South Gate – “azalea” Retail Center
The Results
• 372,000 sf project opened Summer 2014 with major national credit
retailers (Wal-Mart, Forever 21, Chiptole) & modern architecture
• Public amenities include City Hall Annex, outdoor public plazas and
event areas with a minimum of 24 public events per year
• Project will generate $2.5m per year in sales (2% sales tax rate)
• Enables City to recapture sales tax leakage & create 1,400 jobs
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City of South Gate – “azalea” Retail Center
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TAKEAWAYS
1. Today’s Consumers think of Retail in terms of TIME
2. New format – “Community Retail”
3. Internet is Blending with, not destroying Brick & Mortar – the
result is a “Marriage of choices”
4. Keep track of where people NEED to and WANT to show up in
person (grocery stores, restaurants and bars, outlet centers)
5. You can’t eat or drink over the internet … yet
6. Bricks, Clicks and Place – the key to retail is in the balance. The
Mall isn’t dead, it’s just going “back to the mixture”
7. Cities needs a retail strategy not a retail study to achieve
economic development objectives in a post RDA world
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GREAT SCOTT!
THE FUTURE FOR RETAIL IS BRIGHT
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Thank You
Any Questions?
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