UC/PNC Outlook Conference 2015 Debt Markets panel with Laura Brunner Port of Greater Cincinnati Development Authority UC Real Estate Program

1. UC/PNC Outlook 2015:
Real Estate Debt Markets
Laura Brunner
President & CEO
Port of Greater Cincinnati
Development Authority
March 6, 2015
1

2. Private Sector
Practices
• Risk Tolerance
• Market Focus
• Sense of Urgency
Public Sector
Tools
• Resources / Tools
• Credibility
• Long Term
Perspective
Value Creation
• Jobs
• Property Values
• Residents
PLANNING
STRATEGY
STEWARDSHIP
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OUR STRATEGY: TO BE THE MOST SOUGHT
AFTER DEVELOPMENT PARTNER

3. 3
Stage of Growth and Risk Profile
DesperateStart-Up
Established &
Looking to Grow
Port Authority Tools
Port Authority tools are primarily debt-related
• Reduce cost of capital or construction costs
• Access to capital on more attractive terms
Commercialize
Finding the right tools:

4. Freedom Center
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$539 million for 15 financing projects
Development Bond Financing
Freedom Center
Red Bank Village
Queen City Square
Oakley Station

5. 5
CONSIDER: since 2010
CLEVELAND:
EB-5 Deal Value: $232 Million
HERE:
No large-scale development deals
with EB-5…yet

6. Greater Cincinnati EB-5
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7. Port Authority EB-Program: Roles
Partnership with the Cleveland International Fund (CiF)
 Start with the Port Authority
Port Authority
• Market program locally
• Pipeline generation
• Preliminary due diligence
• Offer bond financing to EB-5 projects when appropriate
Regional Center (CiF)
• Loan and EB-5 underwriting
• Solicit foreign investment
• Manage investors and immigration process
• Program compliance

8. Most common in EB-5 investments
• Over 90% of EB-5 applications via Regional Centers
• Investors invest in the Regional Center, which then invests in the
project, rather than direct investment into projects or companies
• Operates within a defined geographic region, although does not
have exclusivity to any given region
Benefits:
• Can do other types of financing
(i.e. flexible, senior debt, and mezzanine financing)
• Can use Economic Modeling to estimate job creation,
counts both direct and indirect jobs
• Can aggregate funds to do larger scale investments
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Regional Center Model

9. EB-5 for Development Finance
• Works best as a portion of the capital stack
– Senior debt at higher LTV and/or lower interest rates
than traditional debt
– Mezzanine debt to fill a financing gap
• Works with a variety of asset types
• Projects with public sector participation are more
significant to foreign investors
• Can be combined with TIF, New Markets Tax Credits, other
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10. • Minimum $30 million project
• Senior Mortgage or Mezzanine Debt
• 5 Year Term, Interest Only
• Office, Retail, Hotel, Multifamily, Industrial,
Infrastructure
• Anywhere in Hamilton County,
urban areas of Hamilton and Middletown
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Port Authority EB-5 Requirements

11. Case Study: The Flats East Bank
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Centered on the construction of the
Ernst & Young office tower,
attached Aloft Hotel,
and space for retail and restaurants.
Phase 1 completed in 2013.
Total EB-5 Investment: $45 million
Total Project: $275 million
EB-5 Investors: 90
Job Creation: Estimated 1,800+
Status: Closed | Fully Funded

12. • $65 million office development
• Maximum EB-5 investment of $16 – 20 million
• Senior Debt or Mezzanine Debt, as opposed to
Equity position
Examples

13. Recent Ohio projects financed with
Lease Structure:
CLEVELAND:
- Flats East Banks
- Eaton
TOLEDO:
-The Andersons
COLUMBUS:
- Lane Avenue Development
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CONSIDER:

14. 14
Structured Lease

15. • Port Authority not required to pay state and local sales
tax on construction materials – even if the project is for
economic development purposes
• To use this incentive, Port Authority must have an
ownership interest in the project – even if those
properties are leased to private entities
• Property transfer and lease arrangements
made on a case-by-case basis
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Structured Lease

16. $25 million new construction project (hard costs)
• Assume 50% of hard cost for construction materials
• Hamilton County sales tax 6.75%
• Goal: 80% of savings retained by client post transaction fees & expenses
• Total savings to client: $675,000
$5 million new construction project (hard costs)
• Add on to a project where the Port Authority has another role
• Assume 50% of hard cost is for construction materials
• Hamilton County sales tax of 6.75%
• Goal: 80% of savings retained by client post transaction fees & expenses
• Total savings to client: $135,000
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Structured Lease - Examples

17. Structured Lease - Bond Financing
• Port Authority specific financing option
– capital or operating lease
• Port Authority purchases or constructs the facility;
leases facility to a master lessee who makes lease payments to
cover debt service on the bonds
• Master lessee can be a developer or an end user
• The bondholder has recourse only to the lease payments made by
the lessee or any guarantor or to the asset leased or financed
• Lease bond financings are credit dependent
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18. 18
303 Broadway
Queen City Tower
Lease Bond Financed Projects

19. TOLEDO-LUCAS COUNTY:
$30 million in energy efficiency projects,
$18 million (approx.) in PACE projects
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CONSIDER:

20. Property Assessed Clean Energy
(PACE)
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21. 21
Barriers to Upgrading

22. What is PACE?
• Innovative financing to support energy efficiency
and renewable energy upgrades
• Property requests assessment on property tax bill
to raise capital for improvements
Benefits
• No net out-of-pocket expense
• 100% of project costs can be financed
• Debt terms extended to 15 years,
to achieve positive cash flow on retrofits
What type of Project qualifies?
• Demonstrated cost savings; reduced energy consumption or generation
• End-of-Life cycle equipment replacement
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Property Assessed Clean Energy (PACE)

23. Five Ohio Bond Funds have financed
more than 100 deals for $400 million
None in Cincinnati
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CONSIDER:

24. Southwest Ohio Regional
Bond Fund
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25. Southwest Ohio Regional Bond Fund:
Eligible Borrows and Projects
Eligible Borrowers:
• Industrial or commercial companies including manufacturing,
distribution, housing, education
• Infrastructure projects (TIF & Special Assessment Projects, PACE)
• Non-profit or 501 c(3) entities
• Governmental
Eligible Projects:
• Acquisition and/or renovation of existing buildings
• Construction of new buildings
• Acquisition of land
• Purchase and installation of equipment
• Financing costs and soft costs

26. Upcoming Event:
Innovative Real Estate Finance Tools
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UC Real Estate Center
Professional Development Series
March 24, 2015
7:30am-11:00am
Susan Thomas, Vice President of Public Finance,
Port of Greater Cincinnati Development Authority
Matt Staarmann, Managing Director,
Ross, Sinclaire & Associates
Public finance and other non-traditional funding sources for real estate development

27. Thank you
UC/PNC Outlook 2015:
Real Estate Debt Markets
Laura Brunner
President & CEO
Port of Greater Cincinnati
Development Authority
lbrunner@cincinnatiport.org
cincinnatiport.org @PGCDA