Audio: https://connectdot.connectsolutions.com/p9tt52ani20p/
ROUGH EDITED COPY
FEDERAL HIGHWAY ADMINISTRATION
VALUE CAPTURE SERIES
THURSDAY, AUGUST 3, 2023
JOB NO. 22425
CART CAPTIONING*PROVIDED BY:
LINDA M. FROST
on behalf of
MID-ATLANTIC INTERPRETING GROUP, INC.
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This transcript is being provided in rough-draft format. Communication Access Realtime Translation (CART) is provided in order to facilitate communication accessibility and may not be a totally verbatim record of the proceedings. Due to the nature of a live event, terms or names that were not provided prior to the assignment will be spelled phonetically and may or may not represent the true spelling.
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>> OPERATOR: Ladies and gentlemen, thank you for standing by. Welcome to the value capture conference meeting. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer section, instructions will be given at that time. I'll turn it now over to your host, Pepper Santalucia.
>> PEPPER SANTALUCIA: Hi, everyone, on behalf of Federal Highway. I would like to welcome you to today's session. Managing economic shocks to volume capture funded proms. Eye name is Pepper Santalucia. I work at Volpe Center and will facilitate today's webinar. Of the event will run until 3:00 p.m. eastern time. We're recording the session, and that will be posted to the FHWA web page. We'll provide a link later in the webinar. The speaker slides will be available for download toward the end of the webinar, if you plan to use your attendance today toward continuing education or other training requirements, you can request confirmation of your attendance from FHWA, and we will provide information on how to do that toward the end of the webinar. For a quick orientation of the webinar room, in the top left corner, you'll find audio call-in information in case you want to listen by phone instead of your computer. Unfortunately, we won't be able to take questions verbally from those listening through the compute you are you can listen to the audio chat to submit questions or comments during the convenient. We'll have questions during the presentation and should also have time for questions. We will post written responses with the webinar recording on the FHWA value capture Website. If you don't want to see closed captioning during today's event, you should be able to find a CC button or icon at the top of the webinar room bar at the top of the screen, if you click that you'll have an option to show captions in the dropdown menu that appears. That is available for you.
At this point in I'm I'll introduce Mr. Sasha Page a principle of the financial advisory firm in Washington, D.C. He has over two years of experience advising an infrastructure finance, public development and public-private partnerships with transportation and other infrastructure. Sasha worked with public agencies in Boston, Chicago, Dallas, Miami, and Raleigh Durham, among others.
Fort the past several years, Sasha was assisting FHWA as subject matter expert. And the primary author of the primer that addresses today's topic and we'll make that document available to you later in the webinar. With that, Sasha, I'll turn things over to you.
>> SASHA PAGE: Thank you, Pepper, I'm pleased you can join us on this webinar on economic shocks to value capture. We have presenters to share material to cover. I'm going to begin with material from the primer that Pepper mentioned that my colleagues and I wrote on this topic. I'll have examples from that and will talk about the current economic shock that some of us are experiencing, which is the economic shock of COVID, or post COVID.
So, I plan to go back and forth between some examples, and COVID, in a good way for us to under these issues.
So, first of all i-want to talk a little about value capture techniques, value capture is a process by which a public agency can access value, usually through real estate, at, around, below or above a transportation facility, that could be a train station, a bus stop, and a highway or other respective transportation facilities. Some of the value capture techniques that we talk most about include the ones that you see in the screen. They include special assessment districts where a fee is charged on properties in the district that benefit from infrastructure. It also could include tax increment financing, in a similar way a district is created and incremental future tax revenues from that district, are used to fund the infrastructure. It also includes joint development, as we'll hear some examples, in which a public agency had some surplus property and they developed that to use resources, the value, so to speak, to fund their project or create other benefits.
Value capture also includes impact fees. One-time fees that municipals charge to developers, to pay for the impacts on infrastructure that they create.
It also includes transportation utility fees, these are fees to pay for ongoing maintenance of transportation, and also include naming rights by which an agency sells the name of infrastructure to a for-profit company to enhance their sponsorship.
When we talk a little about sort of framing the situation today, what we see these impacts being, and they include, from the various industry trade publication, national press, big headlines, persistent remote work could slash office values by 44 percent, commercial property distress. These are national headlines. One of the leaders in real estate, Barry Sternlicht calls it a category 5 hurricane affecting commercial real estate. Places like San Francisco, New York, are experiencing significant distress in their commercial office markets. What this means, practically, is that a variety of office buildings are being turned over to lender, there are foreclosures, in major cities, the historic the keys have been turned over in Washington, D.C., Miami, and elsewhere, a number of buildings are changing hands as companies refresh them and sell them for a fraction of their value.
The headlines not all bad news. Some major employers like AT&T are requiring employees to come back to work and releasing some properties they gave up five years ago there are strong sectors, big data, and life sciences. Even in Manhattan which was one. Major areas heavily hit by this office decline, they are seeing, in some days office visits return to 70 percent of pre pandemic level, and, of course, for the retail sector there's pickle ball, demand which is turning big box stores into pickle ball sports facilities. There's hope, many tech firms are kind of leading the economy in some areas, have laid off folks and also, they are scaling back from some of their facilities.
What this means for value capture, and projectors that are funded with value capture, I think it is pretty obvious, lower property value appreciation, means that for tax increment financing, which is based on the incremental value of an asset, those will be affected negatively, and lower assessments means that special assessments are more difficult to do. There's less assets to charge your fee on and there will be less activity that will result most likely in lower income tax fees. Taxes as well. And there's maybe less demand for naming rights, large companies scaling back taking advantage of that sponsorship opportunity.
A couple of examples from the past, the belt line which is a fantastic bike pedestrian and future streetcar line around the center of Atlanta, based on financing, at a major taxing growth, and after the great financial crisis that I get to see, I have to scale back plans dramatically, because the value wasn't there. They have since rediscovered and used other techniques. That's one of several examples. The other thing, assessments not only are assessments lower, but there's less interest of typical property owners. Yes, please, we want to pay another fee. They are probably already in distress, there's probably less interest in a special assessment district.
So, with this where do we go with this? The tools too-to-manage these types from impacts, these are tools that are also used in project financings and more risky types of financing, and those of you who are active in municipal finance, they will probably be so much more familiar. First of all, you have to think of your downside. Good project planning. Looks at forecast of future revenue, and is realistic in saying what happens if we have a scenario that does not realize all of those revenues, assembly project in Georgia, which is a transit or development, with major film studio, they look very carefully what would happen if the TIF district did not provide funding that was necessary, and they supported that with a special assessment district, and we are able luck lie Li, during COVID period, to support themselves when the TIP moneys were not there. It's just good planning. Other tool is over collateralized, make sure the future cash flow to pay the debt service or project cost is greater than what you need and give yourself some additional margins.
So, increase the enumerator, or decrease the denominator in this equation, or build in reserve funds, some have reserve funds, especially municipal bonds. Projects can have other reserve funds as mosaic project did, in Washington, D.C., the mixed-use transportation adjacent project did also in Maryland, they established a TIF, but they established the TIF three years before the project actually began, and that allowed them to build up some cash flow but to demonstrate to lenders that there was adequate funding available in this TIF.
Another method is to reduce early cash flow pressure. And you can do that through a couple of way, you can delay repayment of principle, you have financings, you can only increase the amount of debt service that is paid back each year, based on the expected growth of your assessed value, and then you could also do what is called capitalizing interest, not paying the interest for a couple of years. These are all common techniques that are used in the financial sector for these types of projects. And they have been used, for instance, in the mosaic project that I mentioned earlier.
Another technique is to develop projects by phase, this is done in the E470 project around Denver. It is a 47-mile toll highway which, with its adjacent road, really there's a beltway around Colorado. And they were, because of economic shock in the early '90s, the Gulf War, principally funding was not available. And was expensive but a reasonable way to address in part impact fees.
Last tool is one where you combine a more risky, if you will, funding source like tax increment financing with a more stable one, and more certain one like special assessments or maybe a guarantee from a municipal government. And that's often called a double barrel, or a backstop approach, which was done in the project I mentioned, in rural Georgia, but also the Denver union station project, which is a magnificent development in the heart of Denver. These require support, you have to have two different funding sources if you will, the agreement of the municipal to do that.
So, those are techniques, and as Pepper said, these are explained in detail in the primer that we prepared, but also there's a number of other materials that are available on the FHWA value capture Website.
Let me go back now to COVID, impacts to Value Capture. I think you've seen what those impacts could be in some of those techniques. Let's talk about what is happening now, and hopefully this will be setting the table for our conversation with our panelists going forward.
So, one of the biggest impacts, as I've already said, to the real estate sector, potentially Value Capture funded project, is the fact that office occupancy, is hovering around 50 personally, based on the capital system data, which is a great data source. Which is the Kastle key card people have. This tells the story from pro COVID to 50 personal occupancies, although places like Houston, are closer to 60 percent, and places like San Francisco, Philadelphia, and San Jose are less than 50 percent, and closer to 40 percent.
Now, of course, these percentages are very global. They vary by the type of market, actual building as we talk about, they vary by day, as I mentioned, Tuesday is a very high occupancy day, and it is changing as well, as many firms, private firms in some governments require their employees to return to work if not all five day, four days.
But I think for now, my assumption is that the hybrid approach is going to be the one that is used by many white-collar workplaces with people working at the office, two or three days a week, and during the mid. Week, maybe Tuesday, Wednesday, Thursday, in the office Friday is usually not for people in the office and Monday can vary. There are many increasing studies that show that hybrid office work is very productive, Nicholas bloom in standard talks about that, but there are others who say, that's not true. Really, it is much more beneficial to everyone to come back to work, and folks like Michael Bloomberg recently wrote about this, that that's not the case. I think it's fair to say that the impact could be a reduction in space needs in offices of from 10 to 20 percent. Clearly what you're seeing in the major city, you're seeing vacancy rates of 203030 percent, at least for the time being.
In addition, the type of spaces needed for work are changing. There's more need for team-based conferences. For flexibility in offices, you have training and offices of training vocation. If there's less space available. Maybe you have a higher quality office space, maybe your location is more attractive location in the city, or maybe it actually moves entirely some moved from Chicago to Miami and thought it would be a better place to live, that way it's good for some of their employees. What we're talking about. This deal with white collar employee, these are people who work from their desks and prime candidates for work from home. Other employee, who work in faring, warehousing are poor candidates for work from home and there's white coat employees, these are people who often wear some sort of uniform and work in purpose-built environment, these include nurse, doctors, educator, actors even professional football players, they generally have to be in place to do their work. Not entirely, as we see with educators, of course, during COVID, schoolteachers did their work from home, but generally it's not the preferred method right now of delivering the services.
So, when you think about this, I would argue. I would say 30 percent of the workforce could be eligible to work from home, whereas the large portion of the workforce, the majority of them probably do not. I think that's important to keep in context. What this means for real estate, value capture, what that means, commercial office space is not a sector that's growing overall with some exceptions, food, beverage, and retail is also having challenge, retail, of course, has been affected by online shopping for many years, only exacerbated by COVID, and to a certain extent, hotels, and conferencing as well.
On the other hand, the Secretary theories are, quote, winners, of course are residential real estate. There's an enormous demand for housing, although higher interest rates have buffeted that to a certain extent. Office to folks in that business, office to residential conversion, and third location, real estate, leisure locations, and vacation spots as well, generally are benefitting as well and facilities that serve that as well.
Of course, like everything there's qualifications for that, there's a strong demand for LEED buildings and high-quality building, they are not going to go away. Also, buildings with maximized health and safety and maybe the commercial market is not so Rosy, it's difficult to convert a lot of office buildings that are older, but modern office buildings don't last 30, 40 years, they have large floor space, they don't have a lot of windows, they don't lend themselves well to be broken up into apartments. It's really not a panacea for underutilized commercial buildings, we'll hear from that from our panelists a bit more.
Of course, as I mentioned before, the tech, there's increased demand for laboratory space, as Rebecca Hansen will hopefully illuminate, and locations that are close to transit.
So, it's not one picture, and it, of course, is also complicated by different markets.
So, I want to conclude to say for COVID, for programs that are affected right now by real estate. I think for the time being, one can assume occupancy is going to be a challenge for the next five-plus years, there will be fewer days that most white-collar workers spend in an office, and there will be changing locations. Of course, that will impact transportation as we see right now with many transit agencies experiencing much lower passenger activity, especially ones which bring passengers from suburbs to downtown commercial cores. They have much lower activity than in the past, and that for Value Capture, products funded by Value Capture in the future, lower property valuation will affect finance and special assessments. I think we see that now, for project expansion and reconstruction for Penn Station in New York City, the governor said we are not planning on financing improvements, Value Capture, not much if at all given the challenge in that sector. And fewer eyeballs with certain people not using transit, certain part of the city will be a decrease in manning rights.
Hopefully that's a good overview for things that affect economic shocks and value capture. There's a number of links in this presentation which we'll make available to you. This presentation with these links as well. I'm going conclude there, and hopefully, if there are any questions, I will be happy toll answer those either in the chat room or after, or as Pepper said, in a further follow-up.
Thank you. Pepper?
>> PEPPER SANTALUCIA: Great. Sasha, thank you. One comment in the chat, I'm working to convert a decommissioned cruise ship into mixed use housing and commercial space. Certain welcome creative thinkers and innovators in this area. It's not really a question. I think in the interest of time, we will move on to our second presenter, and I'll introduce her now, Rebecca Hansen is the Director of real estate at the Boston planning and development agency, or BPDA, she oversees the agency's real estate portfolio of over 13 million square feet across Boston with the goal of maximizing public benefit generated from public land. This involves managing property such as Charleston Navy yard and the marine industrial park as well as strategic property dispositions.
Prior to her time at BPDA, Rebecca was a transportation engineer in Boston working on traffic and roadway design projects for public and private sectors, Rebecca has MBA from Harvard business school and civil engineering degree from northeastern.
Rebecca, we'll turn it over to you.
>> REBECCA HANSEN: Great. Thank you so much for that introduction, I'm excited to be here with everyone today. Sasha set up my presentation well in terms of giving the background of what is being experienced nationwide and hopefully I can lend a little bit of experience to what Boston itself is experiencing and sort of how we've been managing and looking at both the positives that have come from the market trends and some negatives and how we're trying to respond to that.
So, as said, I'm Rebecca Hansen Director of real estate. Of the Boston agency works very closely with the City of Boston. Our charter is to guide planning and inclusive growth for the City of Boston, creating opportunities to live, work and connect. BPDA separate and driven by a lot of planning efforts lead by my colleagues in the agency. So, the real estate department specifically has 13 million square feet of publicly owned land to support the agency's mission but also address Boston's most critical challenges. In recent times we have expanded and continued to work with other city departments to figure out ways to leverage entire city portfolio to use public land for public good. Again, we're continuing to refine and advance and think about how there are creative ways we can use public real estate.
So, moving on just a quick portfolio snapshot of the land that BPDA currently has. 322 parcels which is equivalent to 299 acres of land spread across the city. A significant amount of that, over half is ground lease, so the BPDA enters in long-term 70-to-90-year ground leases with development partners and those properties are redeveloped to create housing, and other types of uses and BPDA still controls the fee of the land itself.
A significant amount of the property is also public open space and there's a number of community gardens that we water in with the community on as well and we also have a significant parking portfolio that is both in some of our industrial areas but also spread across the city.
Just to give a visual of what that likes like, we have two major loopholes which I'll dive into a little later, one is the Raymond L. Flynn Marine Park which is former and Navy base decommissioned in the late '70s and came into city ownership and has been vacant for a very long time but recently had resurgence of development which I'll speak to. We have the Charlestown Navy yard which is decommissioned as well and scattered sites across the city and downtown. Again, we have property across the city but major loopholes in particular areas.
So, again, I represent the BPDA, but in coordination and to under the City of Boston, I wanted to give folks a high-level overview of our current position. The current city population for Boston is 675,000 people. Certainly, smaller in comparison to some peer cities but acknowledging there's a number of other municipals adjacent to us, we have Cambridge, Somerville, Quincy, Brooklyn, a lot of really close cities that very much act in coordination with the city itself.
Looking at Boston in particular, looking at our adult population, over half of the adult population has a bachelor's degree or higher, which, again, will sort of indicate why we've had success in certain markets. Our foreign-born population is 27.5 percent of our total population. And we have a significant number of residents age between 18 and 34, which is again is due to some of the universities within our city.
So, just a handle of what the land area looks like. So, it is 48.2 square miles which is only .6 percent of the entire state of commute. So, the second smallest major city in terms of land area. As I mentioned there's a number of municipals adjacent to us. Going back to Boston specifically, approximately 48 percent of the land, the square miles that are there, have public or institutional uses. One of the major drivers of revenue and what supports the City of Boston's budget is tax revenue from these properties. So, we're taking essentially half of that off, because of they are tax exempt so we're looking at remainder of the properties that are really bolstering the City of Boston's budget and ability to invest in the community.
Taking a look at ownership of that tax exempt land, there's a significant portion held by Commonwealth of chute, the City of Boston, BPDA has a small portion of that in the scale. We also have a number of schools and universities which I'll be getting into, hospital institutions and other Federal religious institution, et cetera.
So, looking at the commercial land uses, specifically pre COVID, approximately 68 million square feet of that, is office space. So, we have significant financial and tech sectors here, and 25 million is retail space for food and non-food retail establishment, and also, a significant hotel room supply, which pre-COVID was stretched pretty thin and there was a lot of expansion plans but obviously COVID has impacted that as well. Boston is also a center for education, so, there's 29 colleges and universities. There's also a number at our neighboring city in Cambridge, and, again, as I mentioned previously, this certainly impacts the education and age that we experience across the city and does create a significant amount of job opportunities as well, as this is just a break down in this chart, the slides here, showing what are the major colleges and universities in this area.
So, then, just to quickly look at Boston's employment shares certainly dictates how a real estate is used and how it functions and how it is impacted by COVID. I have highlighted here some situations and Indiana stances in which the Boston share of employment is much higher in comparison to the U.S. share. So, what you'll see here is educational service, again, due primarily to the institution, the higher education institutions in our city, finance and insurance, professional and technical services are they large here and we have a significant amount of health care and social assistance which is driven by some of the hospitals that are located within the city as well.
So, all of that is to set the stage in terms of how we were impacted and how we've been able to benefit from some of the trend that the market is experiencing. One of the more positive one, which I'm happy to speak to is the growth of the lab market in Boston. In particular, this has been constant over the past 10, 20 years, but I think we've seen a significant resurgence, expansion, starting in 2020.
So, as stated here in this quote, Boston has a driving ecosystem, but the resources of units, research hospital, venture capital money, NIA, and government incentives to support this industry. The jobs are here and obviously to be able to accommodate that employment, the real estate needs to adapt and change to allow all of these businesses to be located here.
What you see on this chart is lab leasing activities. This is the greater Boston area. So, both the City of Boston, Cambridge which is our neighbor, and then the area surrounding which has a lot of manufacturing uses. So, pretty steady up until 2020, and then a significant increase in the amount of lab leasing activity in 2021 and 2022, and those are trends that we see continuing, and given that influx, and extension of the leasing activity that naturally lend itself to increase the amount of development to increase the amount of lab space that is available. So, the chart on the right shows the lab under construction, and you'll see, pretty stably, the City of Cambridge, has been a leader in the life science industry for a very long time. There's about a one square mile in the Kendall Square area that has significant cluster effect of lab and life science and that continues to reign strong. Boston itself as significant cultural, educational and health institutions, but was typically -- or, lagging behind Cambridge in the amount of life science development face that was being developed, however, that significantly changed over the past couple of years, and now Boston specifically in some of the areas that the BPA owns, is seeing that growth in the market.
So, this is just the snapshot of BPDA's every year, at the end of the year, we publish a year in review of the development that has gone through our regulatory process, and the types of programs that have been approved. So, just to draw your attention, a lot of municipals experience a decrease in the amount of square footage that was going through the permitting process in 2020, '21, and '22. Boston did not experience that dip because of many other places because of the life science trends that we were seeing, in 2021 there was 14.6 million square feet of new development approved. That was slightly lower in 2022 but still a really healthy and strong number. We also saw a significant desire to add to the housing stock, which Boston has a significant shortage. Just to give an idea of what type of commercial development we were seeing, and so, at this time, we were not experiencing any growth in commercial office, but the lap and life science was really driving the growth that we saw in these two years.
And one. Products of that, and speaking to the value capture component, is the current policies that Boston has in place to be able to take advantage of this growth and be able to leverage that to invest in other very needed city projects. So, affordable housing and job training. The City of Boston has a policy called linkage for projects that over 100,000 square feet and requires zoning release, given the current zoning code all of those projects are to pay contribution to neighborhood job trust for job training and job readiness and neighborhood housing trust. And looking at that beyond the tax dollars generated as well, these fees help create much needed affordable housing and being able to support these types of services.
So, what we saw in 2021 was 38 million in linkage fees and 6 million in job training and was increased in 2022, to be 7.5 million in job training.
So, this is a breakdown of the current policy of what linkage was assessed in order to pay toward linkage and what assessment, are of the projects that have to contribute. Those fees are proposed to change in 2024 and 2025. The linkage is broken out as commercial properties. Now there's specific thresholds being proposed toward labs and all other commercial uses with the lab having a higher contribution. So, acknowledging where the market is going and shifting and ability for the lap to generate substantial value to the city, we're going to be able to leverage that and take these funds and reinvest them to other uses, very excited to see them continue and hopefully see continued growth in the sector.
So, where I have a particular focus and interest is in marine industrial park which is something that I mentioned earlier. So, this is a -- or, was a previously low density industrially zoned area, and it continues to be industrially zoned. But one of the uses that is very compatible with industrial use is lab and science.
So, starting, before 2020, really kicking off with vigor in 2020 was a number of development entities that approached the BPDA to redevelop on these sites. The BPDA, the way we dispose of property we have request for proposal, guided by parameters and developers submit proposals to partner and ground lease that space and develop significantly more density.
So, what you'll see here is a visual of what the marine park was like ten years ago and what it is looking like in 2021 and a couple years we have a graphic that shows what it looks like in 2025 which shows even more density, but this was one of the more underdeveloped areas of Boston, now we see a lot of interest in the redevelopment here and in particular, the ability for the clustering effect of the lab and life science. So, something we continue to hear more and more from the industry, is that these uses like to be positioned close together. It is less competition, but more cooperation at of targeting the same workforce, figuring out ways they can be co-located and have the services they need. So, we continue to expect to see more growth at this location in general. And then just to quickly pivot to what are the projects that are in the pipeline. Again, these are what small but to give you a flavor of what is going to be built just in this small section of the city. You're seeing significant investment at -- in the lab and life science, in these sorts of cool innovative projects directly here that are growing through the permitting process.
So, we're really excited for the future, and this will certainly lead to more linkage payments and tax revenue and given this is BPDA property we have been able to collect rent from all of these properties as well.
So, then, something that we're hoping to address, and mitigate based on all of the impacts of COVID, so, like many other cities, Boston experienced a dip in the amount of people that are coming downtown, so, Sasha spoke to this significantly, but there's less people that are coming into the city, less people that are coming on a frequent basis, so, what you see is a lot of companies that are currently leasing space are leaving or reducing the size of their footprint that they are requiring. You see on the left the commercial vacancy rate was 6 percent free COVID and is now 12 percent, which led to a significant re-evaluation what to do with that property. This does not include the space on the market which is significant because a lot of people are trying to re-evaluate their needs and figure out ways to remove themselves from the downtown office space.
As you can see on the right, there were also implications in the amount of per square foot these companies are able to charge and makes them re-evaluate what these properties are being used for and if there's a way to generate more income with the type of uses.
So, again, for those that might be familiar with the City of Boston, so, this map shows a distribution of jobs across the city. So, these areas are much more spouse, and the majority of jobs, and these show where the Marine Park is located. All of these areas have been hit by COVID and the reduction of people traveling to the city, but I think downtown Boston has certainly experienced some of the more, I guess, dramatic reductions in the number of people and so, I just want to -- this is a dashboard available on the BPDA's Website. We have a research team that looks into all of this but as Sasha talked about earlier, who is using this space. And since 2019, there's still a reduction in 18 percent of the people coming into the city, people stopping, and shopping at this location. There's a reduction by about 50 percent of the passengers at this location, which obviously is an indicator of people that are commuting into the city, and spending is also down, so, about 12 percent.
And then as I had mentioned in the previous slide, you can see the multifamily and retail vacancy rates are still pretty stable where they were previously, but that commercial office vacancy rate is continuing to increase, and I think we expect that trend to continue, if nothing is done about it.
So, acknowledging all of the impacts and acknowledging that we want to make sure that downtown continues to thrive and be revitalized, the City of Boston commissioned a revitalization report in partnership with the Boston consulting group to really identify what is the current state of downtown and the impacts of the pandemic. So, what we found was that Boston downtown, which was expected was one of the most foot trafficked neighborhoods in the city and that foot traffic remains about 50 percent below pre pandemic level and economic activity is 40 to 50 percent below pre pandemic levels.
I think what a little bit of a shining light is we see that weekend activity is up, which is an indicator that people are still wanting to engage but not in a way they did previously, and this shows the office occupancy remains at 30 percent in comparison to pre COVID.
And so, what is strong, and continues to be strong is the need for residential, in downtown but really across the city, so those rent are increasing which shows there's a strong demand for residential across the city. We also took a closer look at BIPOC businesses and how they were impacted and while downtown was already underrepresented it shows they have been hard hit by the pandemic itself, and I think to the point Sasha brought up, 50 percent of the downtown workers hold jobs that can be done remotely. Really focusing a lot of the people that are working, are in those white-collar jobs, while Boston certainly has a lot of blue collar and white coat, which is a new term I love, the downtown especially is some of the jobs that can be done remotely.
So, what can we do about it? Certainly there's a lot of different ideas from other cities that are thinking of this as well, so, working with the companies to figure out ways we can get people to return, extending housing which is something I'll talk about more, and exploring daily use of downtown just for what it was used for, this work, making sure infrastructure and transit the city, and really honestly growing Boston as tourism hub as well, is something we're focused on. But to pivot to expanded housing downtown which is something that is one of the most promising steps that can be taken we looked at a few different factors of ways this could be done, one of the first is conversion of office space into new residential, and I'll speak more about how we're moving that forward. Continuing to work on our planning efforts to expand and reconfigure the zoning downtown, and expediting our review of projects that are with the B PDA and continue to expand on the affordable housing resources that the city has as well.
So, looking specifically at the downtown office to residential conversion, the Mayor announced a program for downtown offices that would allow, essentially solve a private public partnership to incentivize conversion of these buildings we know there's a lot of barriers to the conversion, the high construction cost, the new codes that are in -- that are enforced with any new development, so, the city is trying to find ways to incentivize people to make that shift and that change, which is something that's currently in progress, but happy to share a little bit of details how it is currently being thought about.
So, as proposed, if a building owner is interested and able to do a conversion of their property from office to residential, they are eligible for rate reduction of standard taxes up to 79 percent for 29 years. This obviously has lots of impact depending on the type of project, but it represents a significant dollar value and significant change in the net operating income for these properties.
And that would be managed through a payment in lieu of taxes program which again is a special tax agreement that would need to be in place here.
And, again, this is all assuming that the projects comply with conclusionary zoning standards, and some other constraints put on programs today.
We want to incentivize this to happen quickly, so the projects that take advantage of this are to start construction by October of 2025 and in order for the city to recoup lost tax revenue, a percentage of the revenue will be collected as well.
This is an exciting program and something we look forward to implementing. But the final parameters continuing to be refined, and the applications are hopefully being made available in the fall for people interested in this program.
So, I show the positives of COVID and what we experienced and how we're' thinking optimistically about conversions and happy to answer questions about that and Boston in general, time permitting. Thank you so much and I'll turn it back over to Pepper.
>> PEPPER SANTALUCIA: I would like to see if I can ask one question of Rebecca if we have time. I think Rick Rybeck has a question about the linkage fees, about how they work, and also, there are two questions, since Rick is asking, is that a bit of a drag, in that it reduced development, was there a fear of that, and specifically, the anticipation is to charge labs a higher rate than other types of projects, is that because there's a recognition that, as you said, Rebecca, labs are growing but maybe office buildings not, they don't want to over penalize those?
>> REBECCA HANSEN: Yeah, I would say linkage is something that has been around a very long time in the City of Boston in its current iteration, this is something that the project is very much an expected contribution to the city, and it is something that they're going through the permitting process, there's many documents that represent their commitment, to mitigate their projects, and help memorialize the recent changes to linkage, certainly there's an analysis and understanding of how this could potentially reduce and impact development, and we learned on a lot of experts to think through that and figure out what the impacts could be and everything we're understanding and hearing, some of the reasons, it, while certainly no one wants to pay an additional fee associated, it is not expected to slow down development, and in fact, is expected to brie able to create new resources to expedite development in other way, more so focused on economic development, and housing creation.
But it is something that we're very closely attune to. Again, I don't know how unique it is to other municipals, but there's still such strong value to be derived by the lab and other commercial developments, that it has not slowed down that development and the development pipeline. But it is something that we are very aware of. And thank you.
>> PEPPER SANTALUCIA: Okay. That's great. Maybe a related question, I would also ask the same question to Andrew Malik who a developer is, when he has a chance. Are there any other requirements for some of the developments that, instead of having linkage, requires the developer to build housing at the same location, and encourage like a mixed-use development?
>> REBECCA HANSEN: So, not associated with linkage. There's no policy to co-locate housing. So, there's another policy that the City of Boston has, inclusionary development policy, that there is a residential project, there is a requirement for a percentage of that housing to be income restricted. So, either developed on site or cause creation elsewhere. That's the case where we're trying to really incorporate new development, and affordable housing in that new development. There's not currently any policies or restrictions or regulations around having mixed use development, and affordable housing co-located with commercial, but I think it is an interesting thing to explore, and to think through a little bit further.
>> PEPPER SANTALUCIA: Great. Thank you. Pepper? Hi, given the time, and if there aren't any other questions in the chat, I'll introduce our next presenter. Andrew Malick. Andrew has over 20 years of experience in the development industry. During the career worked in all three legs of development process, construction, design and development, Andrew was one of the first to see value in the North Park neighborhood of San Diego, where he designed and developed multiple projects. When not working on programs Andrew works passionately to help local and statement government to adopt policies to align with sauce stainable development principles. He apportions p participated with communities Hoke using on helping develop more income in corridors. He authored the San Diego business code, in an effort to boost market rate affordable housing. With that, Andrew, I turn it over to you.
>> Andrew Malick: Thank you, I'm excited to present to you today, I hope some subjects I cover will be interesting and relevant in your jurisdiction. I recognize I am coming from coastal California, and this may not apply yet, but I think this subject matter will apply to most cities in the next ten years. A little background on me, I'm sort of the reluctant developer. I did not start with the intent of becoming a developer. I started my career as corporate general contractor, went back, and got a master’s degree in urban design and architecture, and graduated in 2008. Not a great time to be looking for a job. Stayed on, got a third masters degree in real estate development, and it was that last degree that really allowed me ability to implement from my urban growth ideas in San Diego. So, at the core of my belief, as a developer, the same thing that I teach to my students, and that is, you know, we really have to balance the environmental, the social, and the economic constraints to have true sustainability. So, often, it is forgotten that there is a need to balance the economics. People are focused more on environmental and social needs. But the reality, whether it is publicly funded project, or privately funded one, there is a bunt that we need to stick to
So, as was mentioned in the introduction, I do work, probably most of my time pro bono, just on running policy. To help sort of promote infill development which is, I think, the most reasonable and sustainable way to grow out our culture in southern California. So, one of the policies I worked on locally was to help sort of our local transit agencies develop a plan to develop out their underutilized parking lots, so, we had a light rail system in San Diego, which is one of the first in the country, but was really developed around the idea of the park and ride user as the predominant user type. And as we have started to urbanize, we've seen these underutilized parking lots to host a lot of homes.
So, I was looking for a fight in San Diego County that would be the most applicable for a precedent project which showed, you know, this car culture in Southern California, that you can in fact live in San Diego without a car. And so, I was looking for sort of an Amenity reach area that had the ability to sort of support one of these types of developments and the site we selected was the confluence of bus, rail, light rail, and there's a dedicated bike path that surrounds San Diego bay, so, this site connected to that dedicated bike path which can be used for cycling computers and already is, that actually connects all of the down to the border at Tijuana. And another advantage of this site, was it was next to an existing regional park. Parks are great places to live next to.
So, the board of our local transit agency, did author a development program, following this report that was written by one of these local non-profits, called circulate San Diego, promoting this idea. And so, the Value Capture statement were presented in that document, and sort of -- there was a vision of creating inclusive, environmentally friendly, sustainable communities, there are pedestrian transit oriented, and the goal is to facilitate economic growth and create strong communities. There was an interest in making mixed income communities. If we only build for one demographic at these transit sites, that maybe is not the best way, or so the board thought to develop out these lands. And because we have a housing crisis that's so acute in San Diego, we have the highest housing costs in the nation, San Francisco just recently. The density is important. We need to provide as many homes as possible.
Another Value Capture, sort of position the board took was they wanted everything to be built with a project labor agreement. That was unprecedented for a housing project in Southern California. There's never been sort of a housing project that had been built with a project labor agreement. That was the goal of the board and they wanted to use these sites as sort of pilots for trying to build with build and train workforces. One thing I will say, there's no mention in this document of revenue or profit for the actual agency itself. In fact, what is kind of interesting, the opposite is stated that they said on certain occasions, the trends may choose to invest in these developments. This was written in 2019. I think in today's world there's no chance our transit agency would have any funds to contribute to a development, nor do I think they should. We should be looking to our transit agencies which build transit to support each redevelopment groups.
So, one of the things that was difficult for me as a developer, and for my partner, was that, you know, there's a paradigm shift from sort of urban -- excuse me, from suburban development patterns to urban ones, likewise there's sort of a shift in the way that our transit agency is seen to operate. And, as I mentioned before, we -- when we built out our light rail line in San Diego County, the thought was that these would be park and ride stations. Well, the sort of the philosophy, in sort of the cultural understanding of the staff at the agency, when you've been running for nearly 40-plus years, the light rail line, where your prominent user type is a park and ride user, you're going to be very protective of the needs of the user and try to protect that user base. That philosophy is fundamentally opposed, just sort of building housing on these sites, you know, if you actually look at sort of the parking utilization of that specific parking lot that I showed at the beginning, there might have been a hundred cars or a hundred single occupancies that were riding transit from that site.
The development we were proposing and are proposing would bring a thousand new residents, most of which would not have a parking space on site, and would, you know, really be using the transit. So, we're talking a 10 to 1:00 ratio, and we tried to explain this to our local transit agency, and it was. It was a hurdle to get over with them. They were, you know, seen as being the protectors of their existing user base, but they couldn't see that, you know, this new user group, all of the people that would live there, that maybe that was a better priority for them, because it would allow them to grow ridership 10 to 1. So, there was, you know, here it is 2023, I have not broken ground on this project yet, and there's a lot of back and forth to try to figure out how we can align the goals of the board with sort of you know, the staff on the same page as them.
So, I partnered with -- I'm a market rate developer, I focused on providing middle income housing, trying to do stuff without subsidy, so, I'm traditionally financed and partnered with a tax credit developer, because there are grants -- there's noun profit developer, and they are eligible to apply for grant that support the development of these sites that I would not be able to develop. It also fulfills the goal of doing mixed income communities. They would be doing respected housing -- excuse me, I'll get to that in a second.
So, again, my principals were trying to design socially equitable. Environmentally friendly and economically feasible project, seems rational, reasonable.
You know, we are focused on building mixed income, and so, 40 percent of the homes here would be rent restricted. Everything on the site is rent restricted. My units would be, from the 81 to 110 percent category of rent restriction, and my partner would be doing everything from 60 percent AMI below. Those are sort of educated in how tax rent financing works. There are tax credits and funding sources for housing below 80 percent AMI, and even more sources below 60 percent AMI. There is no gap subsidy financing for present restricted housing in the 81 to 100 -- 81 and above level. So, this was, you know, part of the challenge of me solving, when we developed this, this proposal, is how do I get the grant -- the gap filling subsidies to make a project like this work? So, this is sort of an aerial view of that same parking lot and what we proposed to do, as we develop out the transit sites with housing, we realize we can't put housing on these transit spots that's like vertical suburbs, we want a mix of uses to make it walkable and really a neighborhood. So, that was the philosophy, that we are not designing against housing, we are designing a new neighborhood, we have onsite childcare facilities, we have a small market where we get food stuffs that you forgot at the market that day, whether it be sugar, bread or what have you. In the East Coast, we have these. And overall, we want to reduce friction for mode shift at transit sites between rail and bus, between bike and rail. So, we have all sorts of facilities where you can charge your phone, where you can sit in the shade, where you can, you know, pump up your bike tire and grab a drink before you get on the -- on to the next mode of transit.
So, I won't get too much into the detail for this, but as you can see, it's a relatively large development site, it is four acres, in the urban context, it is relatively large. We really designed this around the pedestrian, and cyclist, and not around the automobile, so, we had raised speed tables at every pedestrian crossing. The philosophy is the vehicle is a guest, on this site, so, instead of the pedestrian stepping down into traffic, the motor vehicle actually has to drive up to the level on these speed tables that have rumble strips and the like. So, it's a completely different philosophy how you build a transit development, versus an urban area otherwise.
And so, here's what I think the important thing to get across. And what I really wanted to explain in this presentation is that we started sort of this project, or the idea of this project, in 2018. The board adopted a formal policy for how to develop these sites in 2019. You know, when I had originally started the project, I had a financing strategy for developing middle income housing. That was rent restricted to 100 percent AMI without any subsidy. At some point in the negotiations the board added this labor requirement, and my strategy went away. Prevailing wage labor is more expensive and the economic at that point changed. I'm still committed to the project, I still think I can find that gap funding. That was sort of one of the hurdles that was initially presented to me, as I was going through the negotiations on this project.
Another thing that happened, in the course of developing this project, is for my partner, the rules for how point -- the point scoring works for awarding tax credits had changed. This is a low resource area. High resource areas are provided, preference, so, we were already sort of moved down the scoring criteria by being in a low resource area, so we were hoping that maybe we would be able to balance that criteria by showing, hey, this actually is best for low income folks, that would participate in these -- in these tax credits, housing units, so, if you don't have to pay for a car payment and can literally live without a car in this neighborhood. We should get extra points for that fortunate times are catch up to us in the state of California. The understanding that developing out transit sites with high density housing, reduce greenhouse gas emissions, and reduction goals, I think there has been a shift in thinking, and we are starting to think of more money and grant funding coming to these project, but at the time when we were signing development agreements we did not know whether or not that was coming down the pipe so there's quite a risk for us to keep proceeding.
Another thing that happened during the course of this project, and here's just what happens in development. You cannot predict everything. I'm on adjacent property owner to the north, sued or threatened to sue the transit agency claiming they had a prescriptive easement through the site. This developer was, I would say, maybe a little bit more old school, in the sense that they were developing an auto oriented site to the north of us which I think was a little frustrating to the whole team in the sense that here we have a ton of traffic now that would be funneling through our site, to get to the roadway, as opposed to going just to the road to the east. So, a quick explanation to this, when the rail line was built a hundred years ago, you know, the property owner didn't have the means to sort of protect his rights to get to the road adjacent, so, when the new property owner bought it, he was actually able to show that they had been using this accessway through our site for the past, you know, hundred years, and therefore, they had the rights to use it in the future.
So, clearly, the transit agency, is stuck between a rock and a hard place. They can either build the -- a tunnel underneath the rail tracks to get this developed, this development access to the roadway, or just grant access to our site.
Obviously, as a of the agency, we didn't have a choice. We had to work with them to make it work. But this did slow down our development quite a bit.
So, another thing that is sort of -- happened during the due diligence of this project, we discovered that there was about $14 million in infrastructure cost, just to get this thing to follow the typical urban infill site what I mean there was no sewer under the site. The closest sewer line was either under the freeway or a half a mile away. In either case we didn't have the greatest options to connect to sewer and didn't have the greatest options to connect to water. There was quite a bit of money that was going to be required to get -- -- I think I lost my connection, but --
>> SASHA PAGE: We hear you.
>> Andrew malick: We hear you. I may ask you to forward the slide.
>> PEPPER SANTALUCIA: Sure, we can do that.
>> SASHA PAGE: No problem, do you want to do that, Pepper?
>> Andrew malick: I got it back. These sites difficult to build out. As part of the Value Capture conversation, this $14 million amount of money was not anticipated when negotiating sort of our development agreement, and the sums of money we would pay in a land lease payment to the agency. And so, that was a surprise to us, how do we together get over that hurdle and fulfill the goal of building out this development. And, obviously, we're doing all of this during COVID. And that slowed things down, and then in the process, because -- you know, politics, politic, we had scandals on the board, we had Changes on the board. We had leadership Ching within the agency, the chief of the agency actually passed away unexpectedly, so, we had sort of a shifting group of people that we were negotiating with, because it never makes things easy.
So, what's the message I want to get across? That is, look, development is complicated. We need to be able to design agreements, for success, and to design them for success, you need to make sure there's flexibility to solve some of the problems that I describe in the previous slide. And so, we had a very, very smart chief counsel at the agency, that was very, very focused on making sure that there was one board action to improve the development. And staff had the ability to sort of make sort of minor changes to the development agreement, without going back to the board. You know, if the politics of the board change, you don't have to go back to the board, and now because the politics are changed, the board members requiring additional constraints on the developer, which may kill the development deal.
So, that was something we wrote into the agreement. And then probably, as it relates to this discussion in Value Capture, we designed into sort of the land lease payment, some elasticity. So, the way it worked was there a market return on investment for investing for a multifamily real estate project in Southern California, and that's translated into something called a cap rate. So, what we did, we said, look, whatever is required to guarantee that we can get that group of investors to invest that project, achieve that cap rate, if there is excess cash flow, beyond that minimum return that's required to investors, only then will be pay the land lease payment and it goes over and above whatever that threshold is.
So, this allows us the ability to guarantee to investor, hey, you're going to get paid and it allows the agency to know that we can deliver a development, and they will participate in the upside if there is an upside. So, that was the way that we wrote the agreement, and I could get into the legal ease of that, but it will probably take an entire other presentation.
So, I'll flip through a couple slides. All can see the principles when we are working when we developed the site and what we were thinking. We had to maintain a park and ride site at the entry to the project. We have a bus turn around so the bus can actually drive into the property and drop writers off right in front of the train station there. And tried to develop all of the open space at grade with sort of public plazas where people can come and sit under shade trees, or, you know, sit on benches and that sort of thing.
The same of this project as I said is called the Palm City Transit Village I'll end there, if there are any questions p-I'm happy to answer it.
>> SASHA PAGE: Great, we have a little bit of time, there are some questions asking about the nature of the HVAC, what climate adaptations did you include, what kind of additional cost this -- -- did your project, and you’re for the greening?
>> Andrew malick: That's a great point. Our project did apply for epic grant, state California grant from the energy commission, state of California, this is a hundred percent electric project, and what our proposal was, from this epic grant was to, not only supply onsite power generation in the form of solar energy panels on the roofs and facades of the building, also, on site storage, the idea was if we could actually store locally the power that was generated, that in the evening time from 6:00 p.m. to 8:00 a.m., that we would be completely off grid, and reduce all of the energy costs for our residence.
Yeah.
>> SASHA PAGE: That's great. You talk about hour your middle-income housing developer. Can you explain a little more how attractive that market is for most developers and how you see this relating to transit development, and that's I think a unique make et cetera that you seem to be active in
>> Andrew malick: In Southern California most of the houses we built was single family development. We actually made it illegal in many places in the country was build multifamily housing. It was thought to devalue the price of single-family home, so, as such, we were building two, three, four, five-bedroom homes, and locally what we ended up doing was we had just a deficit of studios and one bedroom. All of the SROs and studio buildings in the first phase of redevelopment were torn down, they were thought to be a blight on our city. So, what I have been able to figure out is there is a market solution to building sort of smaller studios in one bedroom, where you can actually keep the price points relatively low. Because you build a smaller footprint, so, where I may be getting a Pryor price per square foot for that 400 square foot studio. The whole dollar rent is much less than the solution of sharing a bedroom in a very, very expensive single-family home and actually preferred by the tenant. They rather have their privacy and have their own space, I build a couple housing project projects with this philosophy in San Diego, build a significant amount of ratio, the project is either a small studio or something called co-living, where, again, that three- or four-bedroom apartment is presented by the bedroom, and then, again, reducing the rent for each individual tenant. So, that is a strategy that has worked pretty well. I will tell you where it does not work and where I have not figured out a way to deliver middle income housing to the market in multifamily context is that family housing. We have a hard time building two, three-bedroom units for families, that's keeping the project low. The cost of land is very, very expensive, it is really hard. My present per foot numbers if you build larger scare footage, have to go way down to kind of keeping that middle income category. That's where I would like, on this project to try to find subsidy and make sure I'm not just building small apartment for the middle-income renters of these transit sites but more even mix of housing types.
>> SASHA PAGE: Thank you. One last question and we'll move to Sarosh. In San Diego, I don't know if they have that, but would that be -- is that a good alternative for develop others to say, I'm not billing -- I'm not forced to build affordable housing here, but I will pay a fee to build that elsewhere?
>> Andrew malick: I'm very frustrated by the idea -- again there's very many different ways for linkage fees. There's a proposal in the city, that any property that sold over a certain dollar value, $5 million, would have to pay pretty significant tax. That has affected development in L.A. County significantly. So, the way I look at that type of tax or fees, it's a tax of having production as well. We need to find other places to subsidize housing that doesn't discourage developers and investors from going into the market. If you weren't getting enough food from a farmer, you wouldn't tax the farm. You know, it seems a little backwards to me that that's the way we are thinking about solving this problem, we don't have enough affordable housing, so what we're going to do -- we don't have enough housing in general, right? The problem is, we don't have enough supply. So, we also don't have enough housing, but we don't have housing in general. The idea of taxing the upper income housing to pay for lower income housing, that affects the supply level at the upper income category. You're creating a new problem, you know, by potentially solving the other problem in fact you're not solving, because you can't tax that new construction, nobody is texting or building then, then you really haven't created any new sources applied. It's a complicated problem.
>> SASHA PAGE: Appreciate your contribution.
>> Andrew malick:
>> PEPPER SANTALUCIA: The last presenter is Sarosh Olpadwala, Sarosh is responsible for over receiving strategic planning. Asset management. Negotiations, dispositions, and development, all of the real estate functions for diverse portfolio of over 90 district-based projects. They vary in size from 19 million condominium and initiative to reclaim the Anacostia river Waterfront. In addition, Sarosh manages the office of public partnerships and development finance vehicles for the district such as tax refinancing, tax abatements and certain loans and grants.
Since his appointment in 2015, Sarosh cleated 54 projects worth over 2 .5 billion in development value and 8 billion square feet of development. This includes the D.C. united soccer statement, entertainment sport arena and 800 residential units.
Sarosh, I'll turn it over to you now.
>> SAROSH OLPADWALA: Absolutely. Thank you. Can you hear me okay?
>> PEPPER SANTALUCIA: Yes.
>> SAROSH OLPADWALA: Okay, great, great. Yeah, thanks so much for having me. I appreciate the prior presenters, and I -- structured this presentation around, basically best practices and ways that people on the phone or in the webinar could potentially use these tools and things like that. Let's focus on DC specifically, and I'm happy to answer questions as we move on. That said, I want to speak a little because it's a little unique. A lot -- most of the agencies tend to be -- development agencies, whereas DMPED, it's in the Mayor's office. You can see it circled, and the district itself is a plat organization. So, it can be actually quite efficient to get projects moving along. Can we quite efficient to get decisions made. That doesn't mean we don't have projects that take 15, 20 years, but it just a unique format and worked really well for us.
There are a couple of independent entities such as CFO, OAG. The zoning and historic presentation review board. Those being independent sometimes can lead to issues on our projects but at this point we've been able to manage through them. A little quickly about my service, within the Deputy Mayor's office, we have sister agencies, business development that focused on retail and corporate attraction, we work together on that, and industrial revenue bonds that jurisdictions that that fits within the Deputy Mayor's office and that provides for -- basically municipal bonds that can be used for non-profit.
The focus of my office is primarily on increasing affordable housing, generating tax revenue, and, we have three primary types of projects within our agency, disposition, land disposition, special financing projects such as TIFs and tax abatement and products that have affordable financing, and that's not necessarily managed within my entity, but it's within the Deputy Mayor's cluster of agencies, so, we'll cover that, has production trust fund. And so basically, and I apologize this slide is really out of date, I don't know how it got in here, but we completed about 50 projects since 2015, and, you know, 8 to 10 million square feet, but we have a fairly large portfolio as mentioned in the introduction. Really a diverse portfolio on the baseball stadium, the soaker stadium are in our portfolio, we have a number of really large, what we call big campus project, St. Elizabeth's Walter Reed, those are over a hundred acres each. So, yeah, there's just a lot of diversity of projects, and kind of work that we get done.
So, in terms of best practices and things that really work for us, all of our dispositions governed by a law called the eco-code 10-801. It actually works very real. Oftentimes what you find, when trying to do specifically land value deals, when trying to take the value of the land and turn it into a public benefit and other benefits and other values, there's just the wide variety of opinions as to what people think should or should not be included.
So, what we find, is that having something like an actual statute that talks about the disposition, talks about the process, talks about the requirements, it is really helpful. On the one hand it limits our discretion in certain aspects. But on the other hand, it provides basically the benchmark that everybody is aware of, at the jump, so they know what they are getting into. At the same time, and some of these slides are from preparations, where we're talking to the private sector, it is really important, and I would encourage anybody doing these kinds of projects you find people coming into these project, in your jurisdictions who have not worked with the government before, setting them down and explaining it to them, and, you know, someone might not want to do it. That's totally fine, too. I have had people come to me, from the real estate industry in D.C., and they say, hey, you are doing all of these cool projects and I think we would really want to try one, I'm like, no, I don't think you would. Because your business model is not set up to do the kind of work we do. It is very different toward the government. You have to be a little thoughtful about people who are participating. If you get people -- and this has nothing to do with their intentions, they C have the best intentions ever, if they haven't really thought about what it takes to do a project with the government, it could end pretty negatively.
So, this is just an example of the kind of projects. We have eight wards in D.C., and DMPED project, and we have a real wide variety of projects all over the city.
So, working with DMPED, also working with DMPED, and also lessons for other jurisdictions, wee which we have very straightforward standardized RFPs. We lay out exactly what we want to get in these projects. We have certain requirements, these are our legal requirements. CBE is women owned, local residents, and affordable housing side is very clearly laid out, and it is very deeply affordable. So, DMPED produces majority of 30 percent units that are in the District that are not nationally occur and there are not that many naturally occurring, but you can see for the rental, which is the primary product that we produce, 75 -- of the 30 percent, 75 percent have to be under 50 percent and 20 percent have to be under 30 percent and when underwriting a 30 percent unit, you're underwriting it at zero. So, our land, we're expected to extract a lot of value out of your land. The other thing when doing projects is to set down ground rules with your counter party, very early on. Even at the RFP stage, before they decided to bid on it. If you weed some people out who don't end up bidding, that's not a bad thing. That's a good thing. Want to have proposals that you can kind of take to the bank so to speak, we talk about things, that the land is really important to have projects aligned with the district's public benefit priority. We've had programs that come in and have these really amazing innovations on them, but they don't necessarily align with what we're looking for, and so kind of that alignment is important to talk to people about. Expectations, it's one of those things that you don't have to bring this up, but you should really bring this up, right up front and be clear to folks. As I said, it's something that I think people when they get into the nitty-gritty of the project, sometimes leaves lose a little bit of folks on that.
And then of course just other straightforward things and in the middle, you probably can't read it, this is a list of all of document we have to take to council when doing a disposition. When doing renege takeoff, or disposition, we have let people know there's a huge amount of overhead, and legal fees. You have to be ready for that.
This is just a quick splattering of some of the different disposition projects that we've done in the district. As I mentioned, at the stadium city center, which is former convention center site, right downtown, really beautiful project, we also built a -- the entertainment sports arena which is home for the Washington mystics. Over here, McMillen sand filtration site. This probably was actually started in 20 at 6. Honestly, I don't even remember, and we broke ground on it, literally last fall. So, the other thing about government project, you have to -- Andrew touch on it a little bit, you really have to understand that they take a long time, and they are difficult.
Skyland Town Center was started in 2003 and we broke ground on it in 2016. Now it is almost done. If you have a government that's willing to persevere with you, you'll get it done eventually but these projects take a lot of time. That's just an example. All of this stuff is on our Website if you're interested in checking it out. Feel free to go there.
What kind of special financing do we use? Primarily, we use the land value. We really like to use the land value where we can, but other tools that we tip Clay use is tax increment financing, and this is a great tool in a lot of areas where we have underserved neighborhood, so there isn't -- the development, there isn't the tax base that you might see in other areas of the city, and so once you put in a 2 million, 3 million square foot development, of course, you can pay yourself back through that increment.
Thinking about the second part of this presentation, which is the economic shocks side, you can over TIF your land. In a lot of ways, TIF feels a bill like free money, but it's not. You have to remember that the additional taxes you're getting are meant to pay for something, right? If you're bringing a thousand new residents or 5,000 new resident, you can't spend awful that tax money on bringing them there, because you got to build the schools and fire stations and infrastructure, and things like that, and also, at least from the district, depending on how we structure the TIF, the bond is counted again, the district's debt count, and so you have to think how much debt you're saddling your jurisdiction with, and then, of course, it does affect your bond rating, or the rating of the municipal. And so, you it can have long-term ramification, our Chief Financial Officer, does a really incredible job. It's definitely a balance. Because on the one hand I want to extract as much value as possible from the TIF, on the other hand they have very strong service ratios, you know, they are very conservative in some of their analytics, and, you know, that's -- that's their prerogative, and we try to respect it as much as possible. But I think it also protects the district from issues related to your own shock. We had done very well, none of our projects had needed to dip into any of our back stock.
What are other tools we use? We also use tax abatements. And tax abatements and tax exemptions, they are different, they talk about abatements right now. One of the abatements that we are working through, is conversion -- so, obviously, similar to what Rebecca was talking about in Boston, D.C., is having some issues with return to work, obviously. There's was a general accounting office study about the return to work, and this is intended to help take office buildings and convert them into residential, and we have had quite a bit of success. I think ease actually leading the country right now, we had 19 conversions done in the process, and tools like this really help people catalyze projects that might not otherwise have been feasible.
So, what other tools do we use? This is something called housing production trust fund, a subsidy tulle we use to fund low and very low-income units. It's great if your jurisdiction can put together something like this. It's not the easiest. This has been around since 2010 maybe, but it was not very well used for a very long time. And what really helped us get it used is that, I don't think Andrew mentioned, you have to have a really consistent set of underwriting standards, you have to have a consistent set of quantitative standard, that way people can take down projects, they can basically require land two or three years before they are planning to apply for the HPTF, but they know if there's some expectation, they follow the process, it is competitive but they have expectation of getting it.
That's been really important, and since the administration started, we not only closed on $40 billion worth of planning.
Real quick here, I am not sure how I'm doing on time. This is an example of TIF. A $190 million TIF, this is the second phase being built toward the right of the picture and this is called The Wharf. This is unclaimed reclaimed land. If you go down here, during the day, particularly nice summer day, it is absolutely packed, and there's a theater, and there's residential, there's hotel, there's shops, restaurants, it is really incredible. Pam Hoffman is a lead on the project, they did an incredible job. It really served its purpose. In addition to the tax revenue and jobs and everything like that, it helps to catalyze neighbor, neighborhoods, further, to state the directions is east. Orientation of the picture is not north/south.
Then another project that is going really, really well, it's called the yards project, this started in 2003. It is also known as southeast Federal center because it basically was the Navy yard, which you can see here, extended all of the way to past where the ballpark is, where the national park is, and this is actually the first -- I want to say the first Navy yard in the country, it's from 1783. And they used to build some of these very long building us see here. They used to build the guns for these battleships, it is incredible, I can't even describe how they built them. But incredibly machinery in these places. Anyway, the production stopped many years ago and decided to redevelop it. The feds, actually, through the GSA, exposed it through the city and it was purchased by Brookfield. The way the district participated is through something known as PILOT payment in lieu of taxing, and we used taxes when Federal was transferred over to district, and it is usually taxed, POLOT is the best tool for that.
Another tool we use is special assessment district. This is the ballpark, we contracted in 2006, 2007 to use special assessment area-wide, especially with geographical based special assessment, it was turned over to a general district-wide fee. It was generally accessible. Of the bond was for 600, $700 million, and it has been paid become much more quickly than estimated, and, again, so, you know, kudos to the OFCO and underwriting standards. Of course, land value is the key to DMPED's value capture and Walter Reed, this is an example of Walter Reed and the way we use land value here is not just in getting quite a bit of affordable housing, but also in all of the infrastructure, so the developer basically spade, we will do all of the infrastructure, and create all of the pad, et cetera, so forth, and just figure out how to do it from the land. So, you see up here ANIJ, we opened these buildings and 14A through F, are housing for senior, so, land value is an amazing tool for value capture and one that we've used quite well.
So, with that, I'll wrap up and if anybody has any questions.
>> SASHA PAGE: Great, suck, Sarosh. I think we have a couple of questions. Probably for you and Rebecca, and I am not sure if Andrew has thoughts, does DMPED or any agencies in DC take an equity position in your project, in other words, share net revenue, as opposed to typical ground lease?
>> SAROSH OLPADWALA: That's a great question, and actually, we don't take equity in the sense that we don't actually invest any money, but we do, in certain cases, have -- I think Andrew mentioned something similar, we do have hurdles, so, hurdle rates in the waterfall where they make certain rates and have to return a certain cash flow and for instance, on the Walter Reed project we have something where a percentage of the sales return to the district. So, there's a number of different tools. The district has some very unique financial structure, including something known as ant deficiency law, so, we tend not to invest via financial mechanisms.
>> SASHA PAGE: Okay. Thank you. Thy think Rebecca has reply played in our chat. I believe, Rebecca if I'm correct in the downtown office residential conversion, there may be a similar mechanism where you have a slide where the city will require a 2 percent payment on future sales. In some way the city is saying we want the upside if you sell this residential property that has in part been financed through reduction in taxes for 29 years, is that right?
>> REBECCA HANSEN: I think I would describe it in the market is transfer fee, anyone that takes advantage of that program, when there is a transfer from one entity to another, the city, the agency looks to take a percentage of that. So, I wouldn't necessarily depict it as equity per se, but certainly sharing during the upside during the sale, as being part of that transaction, one good look at it similarly, but it is typically described as transfer fee.
>> SASHA PAGE: Okay. Thank you.
Sarosh, in terms of sectors you're looking for in the future you're mentioning. I know there's a football team in some suburbs of D.C. that may be looking for a home. Are you and your colleagues looking to create a sport entertainment area around a future football site, anything you can tell us that's publicly knowledgeable?
>> SAROSH OLPADWALA: Yeah. There's -- publicly, the Mayor has been very clear that she believes that the best home for the Washington commanders is Washington, D.C. And we have contemplated, the land that the client, or the prior football stadium was on, it is called RFK, that was the name of the stadium, RFK stadium, that land is actually owned by the Federal Government, and we had an operating agreement on the stadium. So, we are in the process of trying to get that land from the Federal Government right now. Actually, Congress just submitted a bill last Thursday. And so -- but at the same time, what we've also been clear on, let get the land to the district first and we'll put it up to the people in the community to decide on the future uses.
>> SASHA PAGE: Okay, thanks. A question for Rebecca and Sarosh. For some of your projects, related issue that comes up a lot with TOD and may come in your jurisdictions, how do you address the issues of gentrification, you build a new project, new housing, new offices, or new facilities and it has impact of the neighborhood and raises rents and affect lower income residents. How do you deal with that if you have policies that your agency has dealt with. Rebecca, why don't you start?
>> REBECCA HANSEN: Sure, I'll speak about the land that the DDPBA owns. We decide what mitigating factors to make sure displacement doesn't occur. That's what we look for and situationally how they address it. The City of Austin is one of the first to comply with affirmative fair housing, so, any project, residential, commercial, needs to submit, essentially a fact sheet or information about their property and who has the theft being displaced and how that's mitigated. And how it is permitted and review. It's not an area I deal with closely. I have a lot more colleagues that are more knowledgeable. The idea of what the impact will be, that's something required across the board for these projects, and we know those have some of the most opportunity and really potential, given their proximity to transit and reducing people's dependence on vehicle traffic.
>> SASHA PAGE: Thank you. Sarosh?
>> SAROSH OLPADWALA: Thank you. So, sort of similar to Boston, we certainly take that into consideration in the RFP, and the competitive analysis stage. But the other thing we have done, it also depends neighborhood by neighborhood. So, for instance, we were looking at -- as I mentioned earlier, a 150-acre campus in one of our most underserved areas, so, when looking at doing the project, instead of doing it as a master developer, where you give all of the land to the developer and it is up to them to figure out what pace they want to build in and what they want to do, we decided to break up the campus and do it as single parcels, that was intended to make sure it wasn't throwing a big rock into the pond, and have big ripples that push everybody out. Actually, one of the things, when we built the town home project which was 88 townhomes we created a home buyers’ club, because their housing presented us from saying, these ten units will go to people in this neighborhood. So, what we did, is create a home buyers’ club and help people in the neighborhood basically get ready for purchasing these homes and we ended up actually it had successful and all of the affordable homes that went in that town home development, were actually sold to hyper local neighborhood residents.
So, there's a couple of different tools. The Mayor also has got something called the housing -- the Black home ownership strike force, so, similar to Rebecca, there's a lot of people in the district who are very focused on these issues, you know, one of our projects, for instance has to go through a planning process. That takes it -- that is certainly taken into consideration. So, there's a lot of different tools that we use, and a lot of different ways that we try to ensure that legacy residents can participate in the economic benefits.
>> SASHA PAGE: Okay. Thank you.
>> Can I chime in for a second? We have maybe a slightly different worry in San Diego than a more mature city. That is, we have lower development, densities, citywide. And one of the concerns that we have here is that, you know, you want to protect the people that are living in these lower cost units. But sometimes, doing so, makes more expensive the redevelopment or adding supplies through the market. I think what we have to be very, very careful of is not presenting future sort of turnover of United States utilized land which is our most important resource, right, and what we have a limited supply of, when we do this. So, one of the ways you can do that, we have very low densities around us that could be high density is giving preferential application status for the low-income unit on high density site to those in the surrounding community. So, the idea is that we now have the ability to go and reduce displacement of existing residents, and maybe one- or two-story structures and redevelop that land into ten story structures and create even more housing. Ultimately housing in Southern California is the supply problem, if we can't create more supply, we're not going to solve the problem.
>> SASHA PAGE: Thank you, Andrew, appreciate that.
One more question. Rebecca, Sarosh, you can jump in if appropriate. What can smaller agencies, municipal agencies learn from your experience. You have larger staff, professional staff, you have more resources. What would you tell them to do with much limited resources? Rebecca, would you like to start?
>> REBECCA HANSEN: Sorry, could you clarify in terms of --
>> SASHA PAGE: Sure, yeah. I'm trying to think, what are some lessons learned that you would share with the smaller agency, in a smaller city that doesn't have the resources to manage property and to implement some of these policies that you all are doing
>> REBECCA HANSEN: Yeah. I think, certainly we have a lot of insights by nature of the scale of projects we work on, into what is the market looking for, what are creative ways we can think about how to adapt with the market itself, so, I would say, there's a lot of great resources out in the ecosystem, coming from private sources, around CRE and others, that are specifically identifies trends in different area, and figuring out where the market is going and how things are shifting. So, I think being able to attend sessions like this, under the context of, you know, how things are changing in an ecosystem and being able to leverage property to take advantage of those trends is something that can I think apply across the board. That was something we were I believe to take advantage of given our property and our position in an industrial area, I think something similarly can be done if there's a high demand for residential in a high area or other commercial uses. I think constantly being aware of trend and shifts is something anyone can do in their area.
>> SASHA PAGE: Great. Thank you, Sarosh, with a minute left?
>> SAROSH OLPADWALA: Absolutely. I think that looking at other jurisdictions, is really helpful, for instance. We published all of our rental contracts document on our Website, and that is that much of 'issue, one of the way Weise were able to make those more efficient is by as much as possible, standardizing your processes, and even your documentation and how you structure your deal, because the more variability it is, the more management time it takes to try to figure out which situation felts where and obviously with contracts, you can't fully standardize them, but where we've really been successful and really been able to ramp up our -- both our production and quality production, we have very standard processes, we let the counter parties know our processes so there aren't misunderstandings and things like that, I do think for a small shop, having that sort of deliberate methodology, will allow you to do, you know, many more deals.
>> SASHA PAGE: Great. Thank you so much. I think we have to close now and thank you, all for participating. Pepper?
>> PEPPER SANTALUCIA: Thanks, Sasha, thank you to our presenters and also to the FHWA web conferencing office who supports us. Folks you'll see an evaluation tool in front of you now. Hopefully you spare a few minutes to give us some feedback. If you would rather do that via e-mail, you can the valuecapture@dot.gov e-mail. And thank you for your participation today, in the webinar today. Also send that request to valuecapture@dot.gov. The presentation and primer that Sasha's presentation was based on the pod share file on the left side, if you hover over those files there's a downward pointing area that initiates the download of the files.
Click on the three buttons in the upper right corner of the file share window, you have a chance to download them both at once.
We appreciate your precipitation. We have five more webinars coming up before the end of the caliber year, so, hoping you can make it to those, and with that, we will end today's event. Thank you very much for establishing.
>> OPERATOR: Thank you. Ladies and gentlemen that does conclude your conference, we do thank you for joining. You may now disconnect.
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