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This Work Statement outlines the Scope of Work, a Schedule, the Project Team, and Fees and Expenses for the contract between the Town of Chapel Hill and Stainback Public/Private Real Estate, LLC.
Scope of Work
The Scope of Work allows Stainback Public/Private Real Estate, LLC (“SPPRE”) to work closely with the Town Council, the Council Committee on Lots 2 and 5 (“Council Committee”), the public and Town Staff to structure and manage the public/private finance and development of Town Parking Lots Number 2 and 5. The Scope of Work of services to be provided by SPPRE includes the following parts:
· Part One: Pre-Developer Solicitation Process
o Part 1A: Completion of Market Analysis
o Part 2A: Development of Master Plans for the Two Sites
o Part 3A: Cost Estimation and Financial Analysis
· Part Two: Developer Solicitation Process
· Part Three: Negotiation of the Development Agreement
· Part Four: Serve as the Committee’s Owners Representative During Design and Construction
The only segment of the pre-development process not addressed in the four-part scope of work is assisting the selected developer to obtain debt and equity financing for the project. Assisting the developer with obtaining financing is typically not included in the scope of work for a consultant to the primary public partner. But this service can be added to the scope of work, if the Town Council and the developer believe it would be beneficial.
Part One: Pre-Developer Solicitation Process
Preface for Part-One
In order to place the Town Council in a position of strength during the developer solicitation process and during negotiation of the Development Agreement, the Council/SPPRE Team will complete the tasks outlined in Part 1A, Part 1B and Part 1C. The driving force behind this proactive approach is for the Council/SPPRE Team to know whether the proposed development opportunities are market-driven and financially feasible prior to issuing the developer solicitation. This approach provides a basis for the Council not to rely solely on the developer for items such as: market demand, financial measurements, ability to obtain equity and debt financing, etc. Equally important, the Council/SPPRE Team will know whether any private developer actually needs for any public partner to provide a capital and/or non-capital investment in the proposed development projects on Lots 2 and 5.
Scope of Work (Part One):
Part 1A: Market Demand Study
Task 1.1: Prepare Draft Scope of Work for Market Demand Study
SPPRE will develop a draft Scope of Work for a Market Demand Study. The draft Scope of Work will recommend an approach examining demand for housing (condominiums and townhouses), retail and office as they pertain to development of Parking Lots 2 and 5. SPPRE also will recommend any additional uses for the Council Committee to consider including in the study. SPPRE will recommend an approach for studying demand for parking associated with the development of the sites.
In consultation with ERA, SPPRE’s proposed market demand consultant subcontractor on the project, SPPRE also will provide an estimate of the total fee for a study of housing, retail and office components of the study as well as a schedule of fees for providing analysis of other potential uses that the Council Committee may add to the study.
Task 1.2: Complete a Work Session with Potential Key Public Partners
SPPRE will complete a work session with representatives from potential public partners to discuss the development of Parking Lots #2 and #5, and to provide them with the opportunity to ask SPPRE questions about structuring public/private real estate partnerships, public/private finance and the current requirements of the capital market. Entities represented in this initial work session may include:
· The University of North Carolina at Chapel Hill
· Chapel Hill Downtown Commission
· Orange County Economic Development Commission
· Orange County Visitors Bureau
· Chapel Hill/Carrboro Chamber of Commerce
In addition to these potential public partners, it could be worthwhile to meet with key property owners and owners of vacant buildings and/or vacant lots, such as Lonestar Inc., who own strategically located properties in the Downtown.
Task 1.3: Complete a Work Session with Committee on Market Demand Study
After the work session with potential key public partners, SPPRE will complete a work session with the Council Committee on the Market Demand Study and the draft Scope of Work completed as part of Task 1.1. The work session will provide the Committee the opportunity to review the Scope of Work for Market Demand Study and include any additional uses to the study.
Task 1.4: Revise Market Study Scope of Work; Execute and Manage the Market Demand Study Contract
SPPRE will subcontract with Economic Research Associates (ERA), a consulting firm based in Washington DC, to conduct a Market Demand Study at a cost not to exceed $35,000 plus project-related expenses. SPPRE will revise the draft Scope of Work (from Task 1.1) to add uses that the Council Committee decides to add to the Study during Task 1.3. (In July ERA estimated a fee of $25,000 to $35,000 to complete a multi-use market demand study. Members of the Council Committee should recognize that the final Scope of Work desired by the Council Committee may increase or decrease that fee estimate.)
SPPRE will be responsible for negotiating the contract; administration of the contract; and will review all deliverables produced by Economic Research Associates.
Task 1.5: Conduct Public Forum on Market Study Results
After completion of the Market Demand Study, the Council will conduct a Public Forum on the results of the Study to explain the opportunities and challenges related to the development of Parking Lots 2 and 5. SPPRE will attend to answer questions and present findings. 6
Task 1.6: Conduct Review Session with Council Committee
SPPRE and the Council Committee will discuss the Market Demand Study findings, Forum comments, and how to proceed with the Land, Building and Infrastructure Program. SPPRE will attend the meeting.
Task 1.7: Present Market Demand Study Findings and Recommendations to Town Council
SPPRE will present to the Town Council the Market Demand Study findings and its recommendations on whether to proceed based on the study’s results. The Council will decide at the meeting whether to proceed with the next phase (Part 1B) of this Scope of Work and, if so, decide on the uses to include in the Land, Building and Infrastructure Program (Task 1.8).
AT THIS POINT THE COUNCIL WILL DECIDE WHETHER TO PROCEED WITH PART 1B, DEVELOPMENT OF MASTER PLANS FOR THE TWO SITES, OR TERMINATE THE CONTRACT AND NOT PROCEED WITH PART 1B
Part 1B: Development of Master Plans for Both Sites
Task 1.8: Prepare a Land, Building and Infrastructure Program for Lots 2 and 5 Based on Council Direction
Based on direction from the Town Council, SPPRE will develop a building program for Lots 2 and 5. This building program will include land uses, square footage, number of units, parking requirements, etc.
SPPRE will also determine whether the existing infrastructure could accommodate the proposed building program.
The results of this step will be sent to the Council Committee for their review.
Task 1.9: Prepare a Scope of Work for an Urban Designer/Architect and Subcontract with Firm
SPPRE will prepare a scope of work and subcontract with HKS Architects at a cost not to exceed $32,000 plus project-related expenses to prepare a master plan for each property. HKS will complete master plans for Lots 2 and 5, as well as three illustrative sketches. HKS will develop color sketches illustrating the desired character and environment of the proposed developments. The HKS Scope of Work will call for the development of an initial draft for Council Committee review, more detailed drawings incorporating Council Committee comments, and revised final drawings reflecting direction provided by the Town Council. In addition, the Scope of Work will call for HKS to provide the Town a CD-ROM with digital images of the drawings produced and stipulate that the Town has the right to use the images as needed.
Task 1.10: Design Review Session with HKS, Council Committee
During the course of preparing a Master Plan for both Lots 2 and 5, the Council Committee will complete a review session with the HKS Team and SPPRE. HKS will send the initial drawings to the Town and SPPRE prior to the meeting. SPPRE and HKS will attend the meeting.
Task 1.11: Select and Manage a Local Construction Company to Provide a Cost Estimate of the Proposed Development of Lots 2 and 5
In order to provide the Council Committee with an objective third-party estimate of the “hard” cost to construct the proposed developments, SPPRE will hire a local construction company to provide “pre-construction services” for one to two months. The fee should be in the range of $3,500 to $5,000. SPPRE will complete the analysis to select the most appropriate local construction company for this assignment. SPPRE will prepare the Scope of Work and negotiate the contract. While this is an additional expense, the Council Committee will be assured that the cost estimate is based on local labor and material costs.
Task 1.12: Conduct Public Forum, Second Design Review Session with HKS, Council Committee
The Council Committee will conduct a forum to receive public comment on the draft master plans produced by HKS. The forum will be followed by a Council Committee meeting to consider recommendations. SPPRE and HKS will attend the forum.
Task 1.13: Present Master Plans to Council
SPPRE will present the Draft Master Plans to the Town Council and describe the next steps. Council will review the Master Plans and consider any changes and whether to continue with Part 1C. SPPRE will attend the meeting.
AT THIS POINT THE COUNCIL WILL DECIDE WHETHER TO PROCEED WITH PART 1C, COST ESTIMATION AND FINANCIAL ANALYSIS, OR OPT OUT OF THE CONTRACT AND NOT PROCEED WITH PART 1C
Part 1C: Cost Estimation and Financial Analysis
Task 1.14: Subcontract with DesignVision for Producing 3D Computer Renderings of Project for Lots 2 and/or 5 Based on Final Urban Design Plan
After Council authorization to proceed with the next phase (Part 1C), SPPRE will subcontract with DesignVision, Inc. of Lafayette, La., at a cost not to exceed $8,000 to generate three-dimensional computer representations of the final Master Plan sketches produced by HKS. The images will illustrate the master plan concepts in greater detail and from a variety of vantage points. The images, along with HKS drawings, will be used in the Request for Proposals package as well as on the project website to be developed by the Town.
Task 1.15: Prepare “Total Development Budgets” for the Development of Lots 2 and/or 5
The Total Development Budget will provide the Council with all of the major “hard” and “soft” costs required to finance, design, develop and construct the proposed development or developments. Soft costs may add as much as 20 to 35% to the construction cost, or hard cost of the development. Soft costs include costs such as: architect and engineers fees, developer fees, interest during construction, finance transaction fees, etc.
SPPRE will also provide assumptions regarding Loan-to-Value (LTV) for each type of building use. This will allow us to determine the current required balance of debt to equity investment for each building type.
Task 1.16: Complete a Finance Model for Development of Lots 2 and/or 5
SPPRE will complete a 10-year Pro-forma for each development. The Pro-forma will include all sources of income, operating expenses, Net Operating Income (NOI), debt service, land lease payments to the Town of Chapel Hill and the Cash Flow Before Taxes and Depreciation (CFTBD).
The Finance Model for each property will allow the Council/Consultant Team to determine key financial measurements such as: 1) Leveraged and Unleveraged Internal Rate of Return (IRR), 2) Return on Cost (ROC), Debt Coverage Ratio (DCR), etc. These calculations will determine whether the proposed developments are financially feasible using only private equity and debt. If the project(s) cannot be financed 100 percent with private equity and debt, we will determine the cash flow shortfall. If there is a cash flow shortfall, we will develop alternative finance plans to solve the shortfall in Task 1.19 (“Develop Up to Five Alternative Public/Private Finance Plans”).
Each Finance Model will also include comprehensive footnotes describing assumptions and sources of financial input.
Part of the Finance Model for each property will also include a Reversion Value Analysis. This analysis will provide the Committee the Net Sales Proceeds, if the developments are sold in any year from years 1 through 10. In the Development Agreement, SPPRE will incorporate the requirement that when the selected developer sells the building(s), the developer must share a negotiated percentage of the net sales proceeds to the Town of Chapel Hill. The analysis will assume a ten percent (10%) position for the Town to give the Town Councila sense of the nontax income it can expect if the developer sells the development(s) to a third party.
Task 1.17: Complete a Financial Sensitivity Analysis Including Five Variables for Each Development of Lots 2 and 5
SPPRE will complete a Financial Sensitivity Analysis to provide insights into how a project’s cash flow is impacted by an increase or decrease in selected financial and development features. Factors used in this analysis include; interest rates, rental rates, development cost, etc. The results of this analysis will provide the Council/SPPRE Team with information to better assess the risk of ownership and/or investment by either the public or private partner. The Council/SPPRE Team will jointly select which variables to test, and will also want to test the impact on returns from some combination of variables.
Task 1.18: Complete a Review Session with the Council Committee
SPPRE will present the results of the Finance Model Analysis and Financial Sensitivity Analysis (Tasks 1.16 and 1.17) to the Council Committee at a meeting in Chapel Hill. SPPRE will explain all aspects of the development budgets and the comprehensive financial analysis and the implications of all financial measurements, such as Internal Rate of Return, Return on Cost and Debt Coverage Ratio[ph1]. The review session will be followed by a presentation on the advantages and disadvantages of each of the eight methods to solicit developers; the Council Committee will consider recommending one of the methods for pursuing the development of Lots 2 and 5. SPPRE will attend the Review Session.
Task 1.19: Develop Up to Five Alternative Public/Private Finance Plans
Once the pro-forma for each project has been completed the Council/Consultant Team will know whether the projects are financially feasible. Most projects, especially those with underground parking do not “cash-flow” ”; as a result, alternative public/private finance plans, which are acceptable to the equity and debt capital markets, will be needed. SPPRE will develop up to five (5) plans, each of which will include general sources of equity and debt and techniques to enhance cash flow and/or reduce development costs.
Task 1.20: Develop Up to Five Alternative Ownership, Investment, Development and Operational Scenarios
Concurrently with the development of Alternative Public/Private Finance Plans (Task 1.19), SPPRE will develop up to five (5) scenarios describing alternative roles and responsibilities for the Town, other public partners and the selected private developer(s). Each scenario will, at a minimum, address the role of the “primary public and private partners” for owning, investing, developing and operating the proposed development. The results of Finance Model Analysis and Financial Sensitivity Analysis (Tasks 1.16 and 1.17)will be incorporated into the evaluation of the five scenarios.
Task 1.21: Complete a Review Session with the Council Committee
The results of the development of Alternative Public/Private Finance Plans (Task 1.19) and the Alternative Ownership, Investment, Development and Operational Scenarios (Task 1.20) are critically important to implementing the public/private development of Lots 2 and 5; consequently SPPRE will complete a work session with the Committee. SPPRE will attend the Review Session.
Task 1.22: Complete Work Session, Forum with the Town Council
SPPRE will present the results of Tasks 1.20 and 1.21 to the Town Council and be available for questions on the Council Committee’s recommended developer solicitation process. SPPRE will attend the meeting.
Task 1.23: Attend Town Council Meeting on Whether to Proceed
SPPRE will attend the Town Council meeting at which the Council will consider whether to proceed with Part 2, Developer Solicitation and Selection.
AT THIS POINT THE COUNCIL WILL HAVE DECIDED WHETHER TO PROCEED WITH PART 2, THE DEVELOPER SOLICITATION AND SELECTION PROCESS, OR OPT OUT OF THE CONTRACT AND NOT PROCEED WITH PART 2
Task 1.24: Revise Recommended Public/Private Finance Plan and Ownership Scenario to Incorporate Council’s Changes
After completing the sessions with the Council Committee (Task 1.21) and Council (Task 1.22), SPPRE will incorporate the results of the meetings into SPPRE’s recommended public/private finance plan and ownership scenario. SPPRE will use a bullet format and PowerPoint software to summarize the results of Tasks completed to date.
Task 2.1: Complete an Initial Draft of the Developer Request for Qualifications
The developer Request for Qualifications and Request for Proposals will incorporate the conclusions of work completed to date and especially the “Principles and Priorities for Use of Parking Lots 2 and 5 for the Town of Chapel Hill”, dated February 24, 2003, with subsequent revisions the Council may make.
The draft Request for Qualifications prepared by SPPRE also will include recommended graphics in support of the text and as a means to better “sell” the proposed development opportunities. The Request for Qualifications is the first exposure of the development opportunities and the Town to the real estate industry, so the Request for Qualifications must sell the positive features of the local and regional market, the qualities of the Town, and the enormous amount of work completed by the Town to prepare this development opportunity for developers.
Task 2.2: Simultaneous to Completing the draft Request for Qualifications, SPPRE will Draft Potential Evaluation Criteria for the Developer Request for Qualifications Submittals
SPPRE will recommend for the Council Committee’s consideration the most appropriate format to evaluate the developer Request for Qualifications submittals. Major categories of criteria may include: Proposed Development Manager assigned to the project, level of experience with mixed-use developments at a similar scale, financial backing on projects developed in the last five years, etc.
Task 2.3: Review Draft Request for Qualifications and Evaluation Criteria with the Council Committee
SPPRE will attend a work session with the Council Committee to provide the Committee an opportunity to review the Draft Request for Qualifications and to discuss with SPPRE a number of important items, such as:
· Developing and prioritizing the developer evaluation criteria.
· Identifying the important issues in order to make sure that these items are included in the Request for Qualifications. SPPRE will provide guidance, but the Council Committee will decide which criteria are the most important, which in turn will be emphasized in the drafting of the Request for Qualifications and possibly the development of a weighting system for the criteria.
· In conjunction with SPPRE, the Committee needs to decide what type of developer they want to attract. Options include focusing on: 1) local developers; 2) developers in the North Carolina region; or 3) national developers.
Task 2.4: Revise Request for Qualifications to Incorporate the Council Committee’s Changes
SPPRE will revise the Request for Qualifications to include changes made by the Council Committee at the review session (Task 2.3).
Task 2.5: Develop a List of Potential Developers and Other Real Estate-Related Companies to Receive the Developer Request for Qualifications.
SPPRE will use its network of development-related companies to optimize the
quality and number of private companies receiving the Request for
Qualifications. SPPRE’ network is organized into the following categories: Developers,
Investment Banks (with a Real Estate Group), Construction Companies, Architects,
Engineers, Real Estate Consultants, Landscape Architects, Planning Consultants,
Real Estate Attorneys.
SPPRE also will complete the research required to identify the most qualified developers in the state of North Carolina and particularly, the Chapel Hill Region.
Task 2.6: Prepare an Advertisement for the Request for Qualifications
SPPRE will prepare an advertisement of the developer Request for Qualifications to be placed in regional and/or national real estate magazines. SPPRE will provide a list of potential media contacts for use by the Town. Often “selling” the development opportunity in an ad can significantly increase the caliber and number of developers requesting the Request for Qualifications.
Task 2.7: Present Draft Request for Qualifications to Town Council for Consideration
SPPRE will present the revised Request for Qualifications to the Town Council for its consideration.
Task 2.8: Prepare for and Execute a Pre-Proposal Conference
The Council Committee will host a one-to-two hour pre-proposal conference for developers and related companies so that they may better understand the development opportunity and ask questions about the opportunity and the requirements of the Request for Qualifications, as well as see the project site. The Council Committee and SPPRE would need to anticipate developer questions and the most appropriate answer, as well as prepare a PowerPoint presentation, etc.
Task 2.9: Evaluate Up to 15 Developer Request for Qualifications Submittals; Recommend Developer “Short-List”
It is assumed that the Town will receive up to ten (10) proposals from developers in response to the Request for Qualifications. SPPRE will complete an Evaluation Matrix, which will apply the evaluation criteria to each of the developer candidates in tabular format. In addition, SPPRE will prepare a memo summarizing the basis for our recommended “short-list” of five (5) developers.
If the Committee receives more than 15 proposals, SPPRE would need to increase its fee for this task accordingly.
Note: In order to keep consulting fees as low as possible, we are proposing only one round of interviews for developers after the five short-listed teams submit their technical proposals in response to the developer Request for Proposals.
Task 2.10: Prepare a Draft of the Developer Request for Proposals
Once the Request for Qualifications step has been completed and five qualified developers have been identified, SPPRE will prepare a draft of the Developer Request for Proposal (Request for Proposals). The draft including recommended graphics (“the mock-up” copy) will be submitted to the Council Committee for their review.
The Request for Proposals is a highly technical document, which must be written to generate creative solutions from the developers, yet maximize conformance of the requested information. SPPRE will make every effort to obtain comparisons that are based on consistent parameters, but not to the point of inhibiting creative solutions by the five developers.
Task 2.11: Simultaneous to Completing the draft Request for Proposals, SPPRE will Draft Evaluation Criteria for the Developer Request for Proposals
The criteria required to evaluate the developer technical proposals are more complicated than the criteria used for the Request for Qualifications. The evaluation criteria will be primarily focused on proposed deal structure, financial measurements, requested capital and non-capital investment from the Town, and possibly by other public partners, sources of debt and equity, etc.
Task 2.12: Review SPPRE’s Recommended Short-List of Developers and Draft Evaluation Criteria and Request for Proposals with the Council Committee
SPPRE will present to the Council Committee its recommended short-list of developers, and review the draft Request for Proposals and Evaluation Criteria developed by SPPRE. SPPRE will attend meeting.
Task 2.13: Revise Draft Request for Proposals, Evaluation Criteria to Incorporate Council Committee’s Changes
SPPRE will revise the Draft Request for Proposals and Evaluation Criteria to incorporate the Council Committee’s suggested changes.
Task 2.14: Present Recommended Request for Qualifications Short-List, Draft Request for Proposals and Evaluation Criteria to Town Council
SPPRE will present the Request for Qualifications Short-List, Draft Request for Proposals and Evaluation Criteria will be presented to the Town Council for consideration. Following approval by the Town Council, the Town will be responsible for production and distribution of the Request for Proposals to the developers on the short-list; SPPRE will review the “master copy” before it is sent to a printer for production.
Task 2.15: Revise Request for Proposals, Evaluation Criteria to Incorporate Council Changes
SPPRE will revise the Request for Proposals and Evaluation Criteria to incorporate changes made by the Town Council.
Task 2.16: Complete a Comprehensive Evaluation of the Developer Request for Proposals
SPPRE will use the same matrix format to evaluate the technical proposals submitted by the five developers.
SPPRE will complete the financial analysis of each developer’s proposal required to calculate the following financial measurements:
- Internal Rate of Return (IRR) Leveraged and Unleveraged.
- - Return on Cost (ROC).
- - Debt Service Coverage Ratio (DSCR).
- - Maximum Loan Amount
- - Total Project Value (TPV)
- - Development Profit
- - Loan-to Value (LTV)
- These financial measurements provide the Council Committee with information on how potential equity investors and construction lenders will view the developers pro forma. SPPRE will use this information to determine whether the developers actually need capital and non-capital assistance requested from the Town and/or other public partners.
- SPPRE will also analyze the assumptions used by the five developers to determine whether these inputs to the pro forma are in line with the current capital market for equity and debt.
- In addition, SPPRE will analyze the terms of the proposed deal structure between the developer and the Town. SPPRE will pay particular attention to whether the various types of land lease payments from the developer to the Town are contingent and non-contingent income and whether the proposed payments to the Town are subordinated or non-subordinated to the debt service and/or returns on equity.
Task 2.17: In Anticipation of Completing an Interview of Each Developer, SPPRE will Develop Questions for Each Developer
After evaluating each developer proposal, SPPRE will prepare a series of questions for each developer to answer during their respective interviews. Depending on the extent of work required to answer the questions, SPPRE will jointly decide with the Council Committee whether to send the questions to each developer in advance of the interviews, so that developers have ample time to prepare thorough answers.
Task 2.18: Complete a Presentation Summarizing SPPRE’s Pre-Interview Ranking of the Developers
SPPRE will incorporate all of its analyses, developer questions, and pre-interview rankings into a brief report using a PowerPoint format. This format will allow SPPRE to use this deliverable as an efficient method to also make a presentation to the Council Committee, or the full Town Council, prior to completing the interviews of each developer. This will assure the Committee and Council that all of their concerns will be addressed in the developer interviews.
Task 2.19: Complete an Interview of Each of the Five Developers
Developers’ answers will reveal several characteristics, such as: their ability to solve problems, their ability to be creative, how badly they want the project, etc. The evaluation of each developer and the final selection will be based both on objective and subjective criteria, as well as the subjective assessment of their “real” desire to be selected. Being creative, demonstrating enthusiasm and having a strong sense of integrity are all extremely important to ranking the developers.
It is assumed that the five interviews will be completed in three consecutive days. SPPRE will schedule two interviews each day and on the third day we will schedule one interview in the morning and the balance of the day will be used to discuss the Request for Proposalss and the results of the interviews with the Council Committee.
Task 2.20: Prepare a Draft Memo Providing a Detailed Explanation of SPPRE’s Suggested Ranking of the Five Developers
SPPRE will submit a detailed report to the Council Committee explaining the basis of SPPRE’s ranking of three to five developers. The Request for Qualifications and Request for Proposals evaluation matrices will be included in the report, as well as the evaluation of the developer interviews.
SPPRE and the Council Committee will jointly rank at least the top three developers; after this step, the Town will announce a developer has been selected, but there are two in line to negotiate if the Town cannot come to a satisfactory agreement with the number one ranked developer. This approach will keep the pressure on the selected developer to be competitive and negotiate on a timely basis.
Task 2.21: Review Final Summary Report with the Council Committee and Include Changes
SPPRE will attend a meeting with the Council Committee to review the draft summary report with the Committee and incorporate all changes.
Task 2.22: Present Report to the Town Council
SPPRE will present its report to the Town Council. The Council will consider whether to proceed with negotiations of a land lease agreement and/or a development agreement.
Task 2.23: Complete Summary Report; Produce Final Copies
Upon authorization by the Council to proceed with negotiations, SPPRE will finish the Final Summary Report developed during Part 2 and, in conjunction with a printing house, produce 25 bound hard copies. In addition SPPRE will provide an electronic copy for use by the Town.
AT THIS POINT THE COUNCIL WILL DECIDE WHETHER TO PROCEEDWITH PART 3, NEGOTIATION OF LAND LEASE AND/OR DEVELOMENT AGREEMENTS OR OPT OUT OF THE CONTRACT AND NOT PROCEED WITH PART 3
Part Three: The Negotiation of the Land Lease and/or Development Agreements
If both the public and private partner make every effort to negotiate a Development Agreement in a timely manner, negotiations usually require about 60 to 90 days. In order to achieve that fairly fast time schedule, SPPRE, the attorneys and the developer must act like deal makers not deal breakers. Both the public and private partner must be flexible in negotiations-not hung up on one relatively unimportant deal point. Both partners may also have to be creative to solve the typical “gap” financing. Solving the gap in the cash flow and/or reducing the development budget are where the consultant plays an important role.
The negotiations process requires following a process that fosters effective communication between parties; it is difficult at this point to predict how the negotiations discussions will occur. Generally, the process likely will begin with an outline of a Development Agreement, proceeding into discussions between the Council/SPPRE team and the developer on each point. The agreed-upon draft agreement will be sent to attorneys for drafting the final, binding legal documents.
Throughout the negotiations stage, SPPRE will report to the Council Committee and the Town Council as necessary.
Task 3.1: Negotiating the Ground Lease.
[Note: Omit Task 3.1 and skip to Task 3.2, Negotiation of Development Agreement, if the Council decides during the Developer Solicitation and Selection Process (Part 2) not to pursue the Ground Lease option]
There are several advantages to a Ground Lease versus the traditional sale of a property. The most important advantage is that it eliminates a major initial investment by the public/private partnership in land. This frees up capital and permits the selected developer to raise more capital through the mortgage. The financial arrangements of a Ground Lease are flexible, and the tax laws have contributed to the popularity of this method of land control.
A ground lease allows the Town to retain fee ownership while receiving, in effect, an annuity over the term of the lease. SPPRE will use Indexed Rent, which are payments adjusted periodically based on change in the Consumer Price Index, to avoid the negative impact on income to the Town from inflation.
If the Town decides to use a Ground Lease, SPPRE will attempt to use all six types of land lease payments to the Town:
· Construction Period Rent: Developer payments to the Town prior to the opening of a building
· Base Rent: Annual payment to the Town based on land value and maximum percentage of Gross Income
· Indexed Rent (described above)
· CAM Charge: Payments made by the developer or tenant to the Town for public space controlled by the Town
· Percentage Rent: After debt service, required return to developer, and other key expenses, the Town could receive a negotiated percentage of the cash flow before taxes and depreciation
· Net Sales Proceeds: When a private owner decides to sell a building the Town would receive a negotiated percentage of the net proceeds from the sale or refinancing.
Two of these payments will position the Town to share in any financial “upside”, if the developments are successful.
A typical Ground Lease includes 15 to 25 Sections. The major sections address items such as: property; term; development of the property; rent; statements and accountings; taxes; building area; public easement areas and maintenance of public areas; use, nuisance and restrictions; tenant’s leasehold improvements and fixtures; other legal items
Task 3.2: Negotiating the Development Agreement.
Overview
Typically there are 20 to 35 sections included in most Development Agreements. Some of the more important sections include:
- Description of the Proposed Development
- - Approvals and Development Program
- - Development Covenants, Easements and Restrictions
- - Developer Obligations
- - Insurance, Indemnifications and Financing
- - Requirements of Public Partner(s)
- - Operation
- Approval Rights for the Town of Chapel Hill
- One of the most important sections is describing the Approval Rights for the public partner. Using Approval Rights, SPPRE will optimize the Town’s control over the following:
- - Team Members
- - Legal Structure of Development Entity
- - Final Public/Private Finance Plan
- - Source of Debt and Equity
- - Design (Schematic Design (SD) and design Development (DD))
- - Quality of Materials (Outline Building Specifications)
- - Operation of the Building
- Another Source of Income for the Town of Chapel Hill
SPPRE will negotiate the inclusion of “Home-Run Insurance” for the Town in any Agreement for Lots #2 and #5. The provision would have the selected developer pay the Town of Chapel Hill a negotiated percentage of the net income, which exceeds the projected income included in the Final Finance Model. In other words, if the developer of Lots 2 and 5 hits a “home run” financially, the Town will share in the unexpected increase in Cash Flow.
Task 3.3: Complete Financial Analysis
Throughout the negotiations SPPRE will complete any financial analyses and develop additional public/private finance plans, if required. If there is a cash flow shortfall, SPPRE will use five key approaches to solve a cash flow shortfall:
· Part 1: Leverage government-owned real estate
· Part 2: Creative public and private sources of financing
· Part 3: Creative public/private finance and credit-enhancement techniques
· Part 4: Sixty ways to enhance cash flow and reduce development costs
· Part 5: Federal, state and local government development, investment and operational incentives.
Typically, the solution is the result of using all, or some combination of these five types of actions.
AT SOME POINT DURING PART 3, THE COUNCIL MAY ELECT TO END NEGOTIATIONS AND EITHER SELECT ANOTHER DEVELOPER TO NEGOTIATE WITH OR OPT OUT OF THE CONTRACT AND NOT PROCEED WITH PART 4
SPPRE will serve as the Town’s representative during the construction of Lots 2 and 5. The primary objective of the Part Four scope of services is to monitor the developer’s progress on three fronts: time, quality and budget. In this role, the primary responsibilities of SPPRE will be to:
· Review developer contracts with architect and contractor.
· Assure the Committee that the developer adheres to the proposed development budget.
· Represent the Committee at major project management meetings.
· Monitor the Program, Evaluation and Review Technique (PERT) or Critical Path Method (CPM) prepared by the contractor.
· Assure the Committee that key building materials approved by the Committee are used during construction.
· Monitor developer “draws” on the construction loan.
· Periodically monitor the relationships between the developer, construction lender, permanent lender and equity investors.
· Review the developer’s various types of insurance policies for the project.
· Review cash controls established by developer.
· Monitor major inspections/approvals by Town building officials.
· Monitor pre-leasing of space.
SPPRE will commit the necessary resources to complete the tasks on a timely basis. Achieving the anticipated timeframe will require the cooperation of the Council Committee, the Town Council, other Town officials and staff and any other participating governments, including availability of meetings and availability of data and internal information, etc. throughout the course of the engagement.
Part One: Complete the Balance of the Pre-Development Process
It is expected that completion of Part One will require about nine months or more.
Part Two: Manage the Developer Solicitation Process
It is anticipated that the Tasks included in Part Two, including the time allocated for the competing developers to prepare their respective Request for Qualifications and Request for Proposals, will require about nine months to complete. The timeframe can only be achieved with the full cooperation of the Council Committee, other Town officials and staff and any other participating governments, including availability of meetings and availability of data and internal information, etc. throughout the course of the engagement.
Part Three: Negotiations with the Developer
Part Three of the consulting contract is the negotiation of the Ground Lease and/or Development Agreement. It is estimated that this phase of the project should require about 90 days.
Part Four: SPPRE Serves as Owner’s Representative for the Town
The time required to complete the services included in Part Four of the Scope of Work are highly dependent on the ultimate building and infrastructure program and the prop public/private finance plan. The larger and more complicated the building program and structure the longer the construction schedule. If the final public/private finance plan includes several public partners and/or multiple sources of financing, the more time required. At this point in time, it is extremely difficult to estimate the time required to obtain financing and complete construction, but it is estimated that the time required to review Schematic Design drawings, Design Drawings and Construction Drawings and to monitor the construction process is approximately two years.
The following is an estimate of the time required to complete the balance of the pre-development process, the time required for the developer to obtain financing and to complete construction of a $40 to $50 million development. The dates are included for illustrative purposes only.
· Part 1A: Five Months (October 2003-February 2004)
· Part 1B: Two Months (March 2004 – April 2004)
· Part 1C: Two Months (May 2004 – June 2004)
· Part Two: Nine Months (July 2004 to March 2005)
· Part Three: Three to Four Months (April 2005 to July 2005)
· Developer Obtains Financing: (August to November 2005)
· Completion of SD, DD and CD Drawings: (January 2006 to August 2006)
· Part Four: Fifteen to Eighteen Months: (September 2006 to February 2008)
Fees
Throughout this process the Town may determine it is not in its best interest to proceed with the remainder of the project. The Town reserves the right to terminate this contract following the completion of each of the following parts: Part 1A, Part 1B, Part 1C, and Part 2. The total fees for Parts 1A, 1B, 1C and 2 are fixed; fees for the developer negotiations phase (Part 3) will be invoiced at an hourly rate, with a cap on fees set at $50,000 not to be exceeded without Town Council authorization.
In addition, at some point in the process the Town Council may decide to pursue the development of either Lot 2 or Lot 5, rather than both sites as contemplated in this Work Statement. If the Council decides to consider development proposals for just one of the two sites, the Town and SPPRE will negotiate reducing the professional fee and subcontractor fees for unfinished tasks to adjust for the corresponding reduction in the amount of work.
In addition to the professional fee, Direct Expenses (e.g., airfare, lodging, ground transportation, mileage, parking, purchase of materials, if any, etc.) will be billed at cost. Allocated Expenses, calculated at nine and one-half percent (9½ %) of the professional fees totals, to cover telephone, facsimile, and overnight mail expenses, secretarial and accounting support, and other indirect costs.
Part One: Complete the Balance of the Pre-Development Process
The following tables include the fee for all professional man-hours related to completing each task and Allocated Expenses. It also includes estimated fees for work SPPRE will be subcontracting out to other firms.
Part 1A: Market Demand Study
|
Step |
Task # |
Tasks |
Fees - SPPRE |
Fees - Other Firms |
|
1 |
1.1 |
SPPRE Prepares Draft Scope of Work for Market Demand Study |
$1,060 |
|
|
2 |
1.2 |
Complete Work Session with Potential Key Public Partners |
$2,120 |
|
|
3 |
1.3 |
Complete a Work Session with Committee on Market Demand Study (Same Day as Work Session with Potential Key Public Partners) |
$1,060 |
|
|
4 |
1.4 |
Revise Market Study Scope of Work; Execute and Manage the Market Demand Study Contract (Consultant Conducts Market Demand Analysis) |
$4,240 |
$35,000 |
|
--- |
|
· Market Demand Analysis Consultant - Expenses |
|
To be determined |
|
5 |
1.5 |
Conduct Public Forum on Market Study Results |
$2,120 |
|
|
6 |
1.6 |
Conduct Review Session with Council Committee [SPPRE to attend] |
$2,120 |
|
|
7 |
1.7 |
Present Market Demand Study Findings and Recommendations to Town Council. (Council Decides Whether to Proceed, Makes Recommendation on Land, Building and Infrastructure Program |
$2,120 |
|
|
|
|
Allocated Costs: SPPRE |
$1,410 |
|
|
|
|
Estimated Direct Costs (estimated)s: airfare, lodging, ground transportation, mileage, parking, purchase of materials, etc.: SPPRE |
To be determined |
|
|
|
|
Total Fees: MARKET STUDY |
$16,250 |
$35,000 |
Part 1B: Development of Master Plans
|
Step |
Task # |
Tasks |
Fees - SPPRE |
Fees - Other Firms |
|
8 |
1.8 |
Prepare a Land, Building and Infrastructure Program for Lots 2 and 5 Based on Council Direction |
$1,680 |
|
|
9 |
1.9 |
Prepare a Scope of Work for an Urban Designer/Architect and Subcontract with Firm (Architect Prepares Plans) |
$1,060 |
$32,000 |
|
--- |
|
· Architect - Expenses |
|
To be determined |
|
10 |
1.10 |
Design Review Session with HKS, Council Committee |
$2,120 |
Fees Included in $32,000 |
|
11 |
1.9 |
Architect Revises Master Plan Draft Incorporating Committee comments |
|
Fees Included in $32,000 |
|
12 |
1.11 |
Select and Manage a Local Construction Company to Provide a Cost Estimate of the Proposed Development of Lots 2 and 5 (Firm Provides Services) |
$4,240 |
$5,000 |
|
13 |
1.12 |
Conduct Public Forum, Second Design Review Session with HKS, Council Committee |
$2,120 |
Fees Included in $32,000 |
|
14 |
1.13 |
Present Master Plans to Council (Council decides whether to proceed) |
$2,120 |
|
|
15 |
1.9 |
Architect Revises Urban Design Plan Incorporating Council Changes, Produces Final Drawings |
|
Fees Included in $32,000 |
|
|
|
Allocated Costs: SPPRE |
$1,267 |
|
|
|
|
Direct Costs: airfare, lodging, ground transportation, mileage, parking, purchase of materials, etc.: SPPRE |
To be determined |
|
|
|
|
Total: MASTER PLAN DEVELOPMENT |
$14,607 |
$37,000 |
Part 1C: Cost Estimation and Financial Analysis (For Both Sites)
|
Step |
Task # |
Tasks |
Fees - SPPRE |
Fees - Other Firms |
|
17 |
1.14 |
Subcontract with DesignVision for Producing 3D Computer Renderings of Project for Both Sites Based on Final Urban Design Plan Deliverable: Computer Modeling of Final Urban Design Plan for Two Sites |
$1,325 |
$8,000 |
|
18 |
1.15 |
Prepare “Total Development Budgets” for the Development of Lots 2 and 5 |
$3,800 |
|
|
19 |
1.16 |
Complete a Finance Model for Two Developments (Lots 2 and 5) |
$15,920 |
|
|
20 |
1.17 |
Complete a Financial Sensitivity Analysis Including Five Variables for Each Development of Lots 2 and 5 |
$4,600 |
|
|
21 |
1.18 |
Complete a Review Session with the Council Committee |
$4,240 |
|
|
22 |
1.19 |
Develop Up to Five Alternative Public/Private Finance Plans |
$11,840 |
|
|
23 |
1.2 |
Develop Up to Five Alternative Ownership, Investment, Development and Operational Scenarios |
$6,360 |
|
|
24 |
1.21 |
Complete a Review Session with the Council Committee |
$2,120 |
|
|
25 |
1.22 |
Complete Work Session/Forum with the Town Council |
$6,720 |
|
|
26 |
1.23 |
Attend Council Meeting on Whether to Proceed with Part 2 |
$2,120 |
|
|
27 |
1.24 |
Revise Recommended Public/Private Finance Plan and Ownership Scenario to Incorporate Council’s Changes |
$3,180 |
|
|
|
|
Allocated Costs: SPPRE |
$5,786 |
|
|
|
|
Estimated Direct Costs: airfare, lodging, ground transportation, mileage, parking, purchase of materials, etc.: SPPRE |
To be determined |
|
|
|
|
Total: COST ESTIMATING STAGE |
$66,686 |
$8,000 |
Part Two: Manage the Developer Solicitation and Selection Process
The following table includes the fee for all professional man-hours for each task for Managing the Developer Solicitation and Selection Process.
|
Step |
Task # |
Tasks |
Fees - SPPRE |
|
28 |
2.1 |
Complete an Initial Draft of the Developer Request for Qualifications |
$3,980 |
|
29 |
2.2 |
Simultaneous to Completing the Draft Request for Qualifications, SPPRE will Draft Potential Evaluation Criteria for the Developer Request for Qualifications Submittals |
$1,680 |
|
30 |
2.3 |
Review Draft Request for Qualifications and Evaluation Criteria with the Council Committee |
$2,120 |
|
31 |
2.4 |
Revise Request for Qualifications to Incorporate the Council Committee’s Changes |
$1,680 |
|
32 |
2.5 |
SPPRE Develops List of Companies to Receive RFQ |
$3,360 |
|
33 |
2.6 |
Prepare an Advertisement for the Request for Qualifications |
$840 |
|
34 |
2.7 |
Present Draft Request for Qualifications to Town Council for Consideration |
$2,120 |
|
35 |
--- |
Town Distributes RFQ |
----- |
|
36 |
--- |
Developers Respond to RFQ |
----- |
|
37 |
2.8 |
Prepare for and Execute a Pre-Proposal Conference |
$5,480 |
|
38 |
2.9 |
Evaluate Up to 15 Developer Request for Qualifications Submittals; Recommend Developer “Short-List” |
$11,840 |
|
39 |
2.10 |
Prepare a Draft of the Developer Request for Proposals |
$6,720 |
|
40 |
2.11 |
Simultaneous to Completing the draft Request for Proposals, SPPRE will Draft Evaluation Criteria for the Developer Request for Proposals |
$2,300 |
|
41 |
2.12 |
Review SPPRE’s Recommended Short-List of Developers and Draft Evaluation Criteria and Request for Proposals with the Council Committee |
$2,120 |
|
42 |
2.13 |
Revise Draft Request for Proposals, Evaluation Criteria to Incorporate Council Committee’s Changes |
$1,680 |
|
43 |
2.14 |
Present Recommended Request for Qualifications Short-List, Draft Request for Proposals and Evaluation Criteria to Town Council |
$2,120 |
|
44 |
2.15 |
Revise Request for Proposals, Evaluation Criteria to Incorporate Council Changes |
$1,060 |
|
45 |
--- |
Town Publishes, Distributes RFP |
----- |
|
46 |
--- |
Developers Prepare Response to RFP |
----- |
|
47 |
2.16 |
Complete a Comprehensive Evaluation of the Developer Request for Proposals |
$14,320 |
|
48 |
2.17 |
In Anticipation of Completing an Interview of Each Developer, SPPRE will Develop Questions for Each Developer |
$1,590 |
|
49 |
2.18 |
Complete a Presentation Summarizing SPPRE’s Pre-Interview Ranking of the Developers |
$3,800 |
|
50 |
2.19 |
Complete an Interview of Each of the Five Developers (3 days) |
$7,420 |
|
51 |
2.20 |
Prepare a Draft Memo Providing a Detailed Explanation of SPPRE’s Suggested Ranking of the Five Developers |
$7,960 |
|
52 |
2.21 |
Review Final Summary Report with the Council Committee and Include Changes |
$2,120 |
|
53 |
2.22 |
Present Report to the Town Council |
$2,120 |
|
54 |
2.23 |
Complete Final Summary Report; Produce Final Copies |
$2,300 |
|
|
|
Allocated Costs |
$8,619 |
|
|
|
Estimated Direct Costs: airfare, lodging, ground transportation, mileage, parking, purchase of materials, etc.: SPPRE |
To be determined |
|
|
|
Total: PART 2 |
$99,349 |
Part Three: Manage Negotiation with the Developer
Fees for Part Three of the consulting contract are based on the number of hours required to negotiate the Ground Lease and/or Development Agreement.
The hourly rates for consulting services calculated for Parts 1A, 1B, 1C and Part 2 are as follows:
· John Stainback, Managing Partner: $270 per hour.
· John Infantino, Partner: $240 per hour.
· Will Reed, Finance Analyst: $155 per hour.
For Part Three of the consulting contract, SPPRE’s fees will not exceed $50,000 without prior written authorization from the Town of Chapel Hill. John Stainback’s hourly rate for Part Three will be increased to $289 per hour to adjust for two years of inflation and increases in the cost of doing business.
In addition to professional fees, the Direct Expenses (e.g., airfare, lodging, ground transportation, mileage, parking, purchase of materials, if any, etc.) will be billed at cost. The invoice amount will include Allocated Expenses calculated at nine and one-half percent (9½ %) of the professional fee, to cover telephone, facsimile, and overnight mail expenses, secretarial and accounting support, and other indirect costs.
Part Four: Serve as Owner’s Rep During Construction
The fee structure to review the design and construction drawings and to assure the Town that the selected developer delivers what was promised in the Development Agreement is one-and one-quarter (1.25%) of the Total Development Budget required to finance, design and construct the development of Lots 2 and 5.
Summary of Fees
The following is a summary of fees for SPPRE and subcontractors to SPPRE. The SPPRE fees include allocated costs calculated at 9.5 percent of the total professional fees for each part.
PART ONE
Part 1A
· Market Demand Analysis Consultant: $35,000 plus expenses.
· SPPRE: $16,250, plus Direct Expenses.
Total – Part 1A: $51,250, plus project-related expenses
Part 1B
· Architect: $32,000, plus project-related expenses.
· Third-Part Cost-Estimating Firm: $5,000
· SPPRE: $14,607, plus Direct Expenses.
Total – Part 1B: $51,607, plus project-related expenses
Part 1C
· Computer Modeling Firm: $8,000
· SPPRE: $66,686, plus Direct Expenses.
Total – Part 1C: $74,686, plus project-related expenses
PART TWO
· SPPRE: $99,349 plus Direct Expenses.
PART THREE
· SPPRE: Hourly Rate Basis with a $50,000 cap not to be exceeded without written permission from the Council Committee, plus Direct and Allocated Expenses.
PART FOUR
· SPPRE: 1.25% of the Total Development Budget paid on a monthly basis
Stipulations Applicable to All Parts of the Contract
The Scope of Work client meetings for each phase of work; if Town officials or staff requires additional meetings and presentations the final fee will be increased to reflect the time required for the additional meetings and presentations.
This agreement is terminable upon 10-days written notice by either SPPRE, or the Town of Chapel Hill; however, the Town will remain liable to SPPRE for all fees earned or accrued to the date that notice is received.
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