HomeMy WebLinkAboutRDA 03 MCAS DEV PLAN 11-16-98AGENDA DATE: NOVEMBER 16, 1998 RDA NO. 3 11-16-98 i r-Com'" TO: FROM: SUBJECT: WILLIAM A. HUSTON, EXECUTI~T DIRECTOR CHRISTINE A. SI-RNGLETON, ASSISTANT CITY MANAGER SUPPLEMENTAL SERVICES FOR PREPARATION OF DEVELOPMENT PLAN FOR THE MCAS-TUSTIN PROJECT A BUSINESS AND RECOMMENDATION It is recommended that the Agency authorize the Assistant City Manager to exeCute a Consultant Services Agreement with Economic and Planning Systems for supplemental services for completion of a Business and Development Plan, subject to approval of the contract by the City Attorney. FISCAL IMPACT The anticipated costs for supplemental services for preparation of a Business and Development Plan for the MCAS-Tustin project is estimated at $46,170. Partial fimding for a portion of the scope of work has been secured with 1997-1998 Community Development Block Grant funds in an amount of $8,000. The $38,170 balance of anticipated costs for the project has been programmed as part of the Redevelopment Agency's 1998-99 budget for the MCAS-Tustin Project fund. BACKGROUND The Agency in April of 1996 authorized consultant services with the finn of Sedway Kotin Mouchly Group (now PCR/Kotin) for preparation of a Business and Development Plan for the Marine Corps Air Station (MCAS)- Tustin. The Business and Development Plan is one of the required prerequisites to the City of Tustin's Economic Development Conveyance (EDC) application. The EDC process provides the City an oppommity to obtain title to surplus military properties. Its purpose is to foster economic development and creation ofjobs, enhancing economic recovery of areas negatively impacted by base closure. The Business and Development Plan must include the following: William A. Huston Supplemental Services for Business and Development Plan November 16, 1998 Page 2 · A development timetable, phasing plan and cash flow analysis; · A market and financial feasibility analysis describing the economic viability of the project, including an estimate of net proceeds over a fifteen-year period, the proposed consideration or payment to the Department of Defense, and the estimated fair market value of the property; · A cost estimate and justification for infrastructure and other investments needed for the development of the EDC parcel; · Local investment and proposed financing strategies for the development. Based on the economic and financial analysis proposed in the Business and Development Plan, the City would determine whether to seek an economic conveyance of a portion or all of the base. If the City decides to seek an EDC, the Business and Development Plan will become an integral part of that application. In addition, the document is a critical resource document for planning and administration purposes as well as for securing much needed loans, financing and bonds necessary to offset the significant infrastructure improvement costs which must be accommodated for economic development to occur at the base. As the Agency is aware, staff are interested in rapidly transferring the base for reuse by the private sector. The Business and Development Plan is essential to assist the City in detemfining how best to proceed with acquisition and redevelopment of the base. While significant progress on preparation of the Business and Development Plan has occurred, particularly on the preparation of modeled market scenarios for redevelopment of the base, the preparation of the Business and Development Plan was significantly delayed as the City worked its way through various concems and issues with the Navy. Unfortunately, the City now has an immediate need to meet a Navy schedule for submittal of our Economic Development Conveyance Application in early 1999. Economic and Planning Systems (EPS), a subconsultant to PCRJKotin, was to be responsible for completion of a financing plan and strategy for the project. Since the f'mancing plan, any disposition strategy and the final Business and Development Plan need t° be internally consistent and integrated, staff believes the fastest way to ensure expeditious completion of a product acceptable to the Navy would be for EPS to assume a more direct role on the project and to assume additional services for completion of the project. After discussion with PCRJKotin, they concur that EPS should assume supplemental services to complete the Business and Development Plan particularly since EPS has considerably more experience in working on and submitting EDC applications to the Navy than PCR/Kotin (i.e., Treasure Island, Alameda NAS, Mare Island). William A. Huston Supplemental Services for Business and Development Plan November 16, 1998 Page 3 To afford the City the maximum degree of control and to expedite completion of the project, staff would recommend entering into a direct contract with EPS. PCRYKotin's obligation in their contract would be modified to require completion of all their development model nms, assumptions and back-up exhibits and summary information as well as an updated Market Study. They would also continue in a coordination role. A proposed scope of work is attached. Depending on available time and staff resources available, the scope also provides the City with the flexibility to exercise two additional optional tasks for EPS: definition of the business terms for any acquisition for the site and preparation of the EDC application. Costs for the supplemental services for completion of the Business and Development Plan by EPS are anticipated not to exceed $46,170. Christine A. Shin~ Assistant City Manager CAS:kd\ccreport\busdevplan.doc Attachment November 4, 1998 Ms. Christine A. Shingleton Assistant City Manager 300 Centennial Way Tustin, CA 92780 ECONOMIC d~PLANNING SYSTEMS Subject: Proposed Scope and Budget, MCAS Tustin EDC Business Plan; EPS #8192 Dear Chris: In line with our conversation last week, this letter sets forth a proposed scope of work and budget to complete the Business Plan and financial analysis needed for the MCAS Tustin EDC application. Based on our prior discussions and review of work to date, we believe the work effort described herein will provide the analysis and documentation needed for the EDC in the most efficient and timely manner. We will work closely with you and other City staff throughOut this effort tO develop the strategies and policy parameters that are integral to implementation of the Business Plan. We also will work with PCR/Kotin Consulting as needed to ensure full and efficient use of the work they have completed to date. As you know, we have already begun this work in order to meet the very tight time line. Nevertheless, there is still time to modify and refine the scope of work presented in the proposal to better meet your needs, if necessary. We are very pleased to have the opportunity to work with you on this exciting and important project, and we look forward to helping re-establish the project momentum on a solid base of analytical tools and sound business strategies. PROPOSED SCOPE OF WORK TASK 1: PREPARE CASH FLOW MODEL In order to test alternative development, disposition, and financial alternatives, it will be necessary to develop a fast and flexible cash flow model. EPS will build a new model of the MCAS Tustin project, derived from EPS cash flow models developed for other base reuse projects. This model will incorporate, in a more aggregated form, the land and building data, infrastx~cture costs, and other assumptions utilized by PCR/Kotin Consulting in their model. A key element of this task is relating infrastructure improvements to specific land areas that may be appropriate for individual dispositions. We will want to build in as much flexibility as possible for alternative strategy testing, but we will no doubt be somewhat 1815 Fourth Street, Suite B Phone: 510-841-9190 ~-a~,,~ s ^ c a A M ~, T o Phone: 916-649-8010 Berkeley, CA 94710-1910 Fax: 510-841-9208 ~ Fax: 916-649-2070 www.epsys.com ' Ms. Christine Shingleton November 4, 1998 Page 2 limited in how much refinement to existing cost data can be done in the available time. Therefore, we will seek to strike a balance between flexibility in "packaging" land and infrastructure, on the one hand, and being able to readily use existing data on the other. The model will be designed to allow for the testing of alternative assumptions on a variety of development parameters, including absorption, price, land use, building reuse, disposition packaging, financing, and asset management and operating costs. The model will include a cost allocation component that will assign infrastructure costs to the various land uses and subareas within the plan. TASK 2: PREPARE TAX INCREMENT'MODEL EPS will develop a tax increment forecasting model that will work in conjunction with the cash flow model. This model will' allow us to develop tax increment forecasts specific to each of the development/disposition scenarios that are tested. TASK 3: REVIEW AND SUMMARIZE MARKET POTENTIALS EPS will review prior market work prepared by ERA as well as recent "comparable" updates prepared by PCR/Kotin Consulting. This information will be synthesized into a summary to be included in the Business Plan and will provide the basis for the market assUmptions reflected in the financial analyses. TASK 4: CONDUCT DEVELOPMENT AND DISPOSITION WORKSHOP The Business Plan and cash flow model for the MCAS Tustin reuse program will need to reflect a nUmber of decisions about how the development and disposition of the property will be carried out. We propose to develop the assumptions and strategies to be embodied in the financial analysis in an intensive workshop with staff and any other consultants deemed appropriate, in order to get everyone's best thinking in the shortest possible time. We have tentatively scheduled this workshop on November 18 and 19. Key issues that Will be addressed in the workshop include the folloWing: · Organizational and Operations Strategy. We will need to define the organizational entity that will carry out the reuse program (i.e., whose cash flows are being projected), its roles and responsibilities. An element of this issue is how the master developer roles will be divided up between the public and private sector. Development and Disposition Program. The size, configuration, sequence, and timing of districts or land areas that will be subject to individual dispositions needs to be identified. The relationship between the land disposition program and the infrastructure development program needs to be specified. Ms. Christine ShingIeton November 4, 1998 Page 3 Financing Strategies/Assumptions. Elements of the financing program need to be defined, including land-based developer funding responsibilities (e.g., through Mello-Roos or assessments), application of tax increment financing, and use of other public sources including land disposition proceeds, lease revenues, and exisling citywide funding so~ces such as impact fees and CIP expenditures. Development Alternatives and Issues. The range of development alternatives and issues to be tested in the model need to be defined clearly. Currently, PCR/Kotin is charged to look at two absorption scenarios, and eight additional alternatives related to specific deVelopment issues. It may be useful to st:ructure the latter as queries- i.e., what are the implications of doing this versus that--rather than full alternatives to make the analysis more focused and manageable. Define Tasks -- Draft EDC Application. EPS will bring an outline of a Draft EDC Application to the workshop, to be reviewed with staff. Subsequently, a discussion will be held on assigning reponsibility for drafting the components of this document. PresentationJDiscussion to Council Subcommittee. After the above issues have been addressed in a full day workshop, we will be prepared to meet with the two Council members on the M£AS subcommittee the following day to brief them on project status and key issues and receive their input. TASK 5: PREPARE CASH FLOW ANALYSES Based on the strategy and policy parameters, assumptions, and modeling frameworks derived from the prior tasks, we will prepare pro forma cash flow analyses of the development program to test the feasibility of the Business Plan under alternative strategies and assumptions, and to estimate the present value of the property. A key component of this task will be to develop a financing strategy to be incorporated in the financial analysis. Only land based financing will. be included in the cash flow, for purposes of calculating the net present value of the Navy land. Public financing 'sources, such as tax increments and City funds, may be part of the project finandng, but will not appear in the cash flow estimate of N-PV, since doing so would only pass those funds through to the Navy in whatever consideration is offered for the purchase .of the base. While we do not intend this to be an open-ended task, it is difficult to spedfy at this time exactly how many runs of the model will be necessary to fully evaluate the most appropriate strategy and arrive at an estimate of value that is realistic and defensible. We believe it is important to retain flexibility in this critical task..Therefore, we have budgeted an amount we believe will allow us to conduct a thorough analysis; however, if additional analysis is needed when this budget is exhausted, we would ask that either Ms. Christine ShingIeton November 4, 1998 Page 4 a supplemental budget be authorized, or additional runs be billed on a time and materials basis. TASK 6: DRAFT EDC BUSINESS PLAN EPS will prepare a narrative Business Plan to be included in the EDC application. The Business Plan will document the organizational and operations plan, market potentials, development and diSposition program, cash flow, and financing strategies, It will demonstrate the feasibility of the project and provide the basis for the proposed business terms of the EDC conveyance. OPTIONAL TASK 1: DEFINE EDC STRATEGY AND BUSINESS TERMS At the City's discretion, EPS will assist in the definition of the.EDC strategy and business terms. Work on this task could either be billed on a time and materials basis or be subject to a supplementary scope. Some of this work will, of course, flow naturally out of the economic analysis of the project. OPTIONAL TASK 2: DRAFT EDC APPLICATION Eps is prepared to assist in the Rafting of the EDC application, at the City's direction. The EDC application must include a number of elements in addition tO the Business Plan and business terms, including: a description of the property requested and intended uses, EDC rationale, and legal authority; an analysis of the economic impact of the base closure on the commtmity; a description of the financial condition of the City; and a discussion of the consistency of the EDC with the redevelopment effort and the pr. ospects for success. EPS could do all or portions of the application, working with Agency staff. However, given the short time frame, a collaborative effort might be the best approach. The budget for this effort could either be T&M, or subject to a supplemental scope. PROPOSED'MANAGEMENT, SCHEDULE, AND BUDGET MANAGEMENT_ Jim Musbach will serve as Prindpal-in-Charge and will be responsible for managing the overall work effort and the development of the Business Plan. Tim Youmans, Principal, will provide additional senior level oversight and input on all phases of the effort and will contribute to the technical work on financing and implementation strategies. Russ Branson will serve as day-to-day project manager and will have primary responsibilities for the cash flow model. David Zehnder will provide technical assistance in the cash flow modeling and analysis. ~192.~'XT. DOC Ms. Christine ShingIeton November'4, 1998 Page 5 SCHEDULE The City wants to retain its original deadline for submitting an EDC application by December 31, 1998, and EPS is committed to make every effort to meet that very challenging time frame. Meeting this aggressive schedule will require an extraordinary work effort, and close coordination between EPS and the City, as well as cooperation from PCR/Kotin Consulting. Our objective is to complete the cash flow model and some initial financial analysis prior to the workshop to be held on November 16 and 17. During this time, we will also start drafting the market section and other pieces of the Business Plan. Financial analyses will be completed between the workshop and the last council meeting on December 6. It is our understanding that a verbal presentation will be made to Council on December 6 to seek guidance on the business terms. Drafting of the Business Plan and coordination/drafting of the EDC application will continue through the remainder of December· BUDGET The estimated budget is sttmmarized in Table 1. We estimate that we can complete the Business Plan for a budget not to exceed $46,170 without prior authorization. Optional tasks would be subject to supplemental budget or time and materials billing, as directed by the City. Again, let me reiterate how pleased we are to have the oppOrtunity to assist you in this important effort. We look forward to working with you and to assisting in the consummation of a successful EDC conveyance and reuse of the former MCAS Tustin. Sincerely, ECONOMIC & I'~L~G SYSTEMS, INC. Mr. James R. Musbach Principal