Real Estate Financial Update FMFADA Board June 25, 2009

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Real Estate Financial Update

FMFADA Board

June 25, 2009

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Today’s AgendaToday’s Agenda

Financial analysis update

Overall feasibility

Fiscal impacts

Infrastructure

Residential leaseholds

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The Financial ModelThe Financial Model

20-year time horizon

Annual cash flow estimates

Set up on a planning area and product type basis

• Example: North Gate - New Construction - Town homes

Two perspectives:

• FMFADA

• Municipal service provider

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Model InputsModel Inputs

Real Property Assets:

• Existing building inventory & new construction per Reuse Plan

• Phasing of rehabilitation and new construction activity

Rents/Values

• Rental rates (for Interim Leasing) and ground lease rates

• Residential Leasehold values (e.g., home prices)

External sources of funds

• Commonwealth appropriations/federal grant programs/other

Costs

• FMFADA operations

• Direct building expenses

• Municipal tax rates, fees and charges

• Infrastructure, adaptive reuse, & new construction

• Major and minor improvements

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Model OutputsModel Outputs

Revenue estimates

• Interim Leasing

• Pre-paid leaseholds

• Ground rent

• Other (marina, special events, concessions)

Net income to FMFADA

Net fiscal position to municipal service providers

Net capital or endowment fund position for FMFADA

(retained income)

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Overall Project Feasibility Overall Project Feasibility

Yes, the FMFADA can achieve overall financial feasibility through its leasing program and other revenue sources

• The FMFADA will own marketable buildings with no debt

• Key revenue drivers are Interim Leasing Program (starting in 2011) and Pre-paid Leasehold Program (starting in 2014)

• Ground rent ramps up over 12 years, stabilizes in 2027

• Key cost drivers are scale of FMFADA organization and decisions related to provision of municipal services and infrastructure financing

• There are multiple paths to feasibility

But, • Need to address early year municipal service revenue deficits

• Example: Commonwealth appropriation increase to approximately $2.4M/yr to cover recreation costs Example: Commonwealth appropriation increase to approximately $2.4M/yr to cover recreation costs shifted to FMFADA in this model runshifted to FMFADA in this model run

• $3M improvement fund required for Interim Leasing Program

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Lease Revenue Mix Lease Revenue Mix

Primary Lease Revenue Mix

$-

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

1 3 5 7 9 11 13 15 17 19 21

Year

An

nu

al

Le

ase

Re

ve

nu

e

Interim Leasing

Prepaid Leaseholds (Historic)

Ground Rent

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Fiscal Impact Update Fiscal Impact Update

Municipal Service Provider Perspective

• Does tax revenue match or exceed municipal service costs?

• Additional public safety costs added

• Shifted recreation costs to FMFADA

• $11M net present value revenues net of costs

• However, $7.8M initial investment (deficit) in first six years

• Key findings

• Municipal costs can be controlled to some extent by ramping up public safety services only when needed

• Depending on terms negotiated, Army leaseback of facilities after transfer date may partially mitigate early tax revenue shortfalls

• Significant positive net tax revenue flow after breakeven point reached

• Results sensitive to residential market conditions for pre-paid leasehold program and value/timing of new construction put in place

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Municipal Perspective Municipal Perspective

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Infrastructure Findings Infrastructure Findings

Total preliminary cost of $96M

Matching of pre-paid residential leasehold revenue ($97M) to infrastructure capital requirement is “too close for comfort”

External infrastructure funding sources are available and should be maximized

Every dollar saved increases the potential for the “endowment” fund of the FMFADA

Need to identify other revenue sources/FMFADA charges

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Residential Leaseholds Residential Leaseholds

What are they?

• Under a long-term leasehold, you do not “own” the property

• Instead, you have the right to live in a property for a set period of time as long as you live up to the lease terms

• You are responsible for maintenance and repairs

• This right is referred to as a “leasehold” interest in the land and building, or “leasehold estate.”

• Usually these leases are for 50 or more years

• Leasehold owners can freely sell, assign, or bequeath their lease (if the lease permits it)

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Residential Leaseholds (con’t) Residential Leaseholds (con’t)

How would this work at Fort Monroe?

• The FMFADA has been studying the concept of a “pre-paid” lease

• You can “buy” a leasehold in exchange for a upfront payment

• The “price” of the leasehold may or may not be the same as if you bought a similar house outright, often --but not always-- there is a discount (10 to 15%)

• Your payment would typically have to be financed and you would apply for a loan that is secured against the leasehold (not the property itself)

• The lease would be recorded in the official records and subject to local property taxation (“possessory interest”)

• You would make monthly payment to your lender as you would for any home purchase

• You could freely refinance your loan so long as you had enough remaining years in the lease (at least 10 years longer than the loan term; e.g. 40 years for a 30 year loan).

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Leasehold Example

Colonel’s Row Home

Pre-payment Amount = $850,000

Term = 50-years

Financing:

• 20% leaseholder down payment

• 80% bank financing, 30-year term @6%

• Payment: $4,076 per month

Lease sales price = $950,000

On multi-listings service

Broker’s commission 6%

Term remaining 40 years

New buyer seeks financing

May seek extension of term (lease may have options for this)

2014 Leasehold Purchase2014 Leasehold Purchase 2024 Leasehold Sale2024 Leasehold Sale

The local real estate community needs to be part of the process and is the key to the implementation.

The local real estate community needs to be part of the process and is the key to the implementation.