Real Estate

Investment Capital in Economic and Real Estate Development

Image courtesy of George Entis, CBRE

Image courtesy of George Entis, CBRE

A recent CBRE study shows that the Los Angeles market has led all US metropolitan areas in foreign investment in real estate so far in 2016. Investment capital spurs economic development by supporting business growth. It boosts real estate development by funding acquisition and new development.

According to Investopedia, the average return on investment for commercial real estate has been about 9.5% in the past 20 years. While the real estate sector has outperformed the S&P 500 index during that time, it can vary greatly based on the type of real estate, the geographic market, and the investor’s acceptable risk level.

Capital investment in real estate is often misunderstood. For example, investors’ returns are based on capital market conditions and cannot be lowered to close a development feasibility gap. Contact RSG to learn more about investment capital’s role in economic and real estate development and how it can help your community.

Written by Dima Galkin, an Associate at RSG

New Tools for Old Problems

 

High technology is everywhere. More technology and apps are being implemented to solve urban planning/real estate challenges.

One such problem is infill development, the process of developing vacant or under-utilized parcels within existing urban areas that are already largely developed. Successful infill development creates complete, well-functioning neighborhoods with residential densities high enough to support transportation, convenience services, and other amenities while offering cultural, social, recreational, and entertainment opportunities, gathering places, and vitality to older centers and neighborhoods.

A case in point for the use of technology is Infill Score, a free tool for citizens, community planners, city managers, and developers to learn strategies to attract investment and revitalize communities. Powered by Crowdbrite.net, Infill Score creates a strong foundation to begin the process of identifying opportunities to have the greatest impact. After taking a self assessment survey, users gain access to 30 strategies to quickly activate and implement their plans. The strategies assure that the new development fits the existing concept and gains neighborhood acceptance while developing a cooperative partnership between government, the development community, financial institutions, non-profit organizations, neighborhood organizations, and other resources, according to one user, Municipal Research and Services Center (MRSC) in Washington State.

RSG anticipates more creative thinking such as this solution to come forward in the future. It reduces the gap between planning and actual project delivery while offering convenience for users.

While technology is a boon to the work we do, RSG still works face-to-face with practitioners and civic leaders to develop new ways to solve age-old problems.

Written by Jim Simon, a Principal at RSG.

Jim Draughon Retires from RSG

RSG is proud to announce that our long-time Director, Jim Draughon, retired on June 25th. Jim is a real estate and affordable housing specialist with over 30 years of experience in the field of housing development and financing. He worked at RSG for over 9 years, dedicating almost a decade of service to the company and its mission of helping communities grow and improve.

Jim, an artist in his spare time, brought the same passionate resolve he uses in his artwork into the office. Though a man of few words, when he talked about his projects, his determination to help his clients and the communities they serve radiated throughout the room and inspired us all to strive for the same goals.

True to his commitment, Jim made sure that RSG could fill the large void left in his wake with industry experts already on staff, trained by Jim himself. However, he will be missed as the quiet yet passionate sage and mentor to the team.

Jim Draughon was a titan in the industry and a valuable teacher to us all. He will be sorely missed, but we wish him only the best as he ventures forth into a well-earned retirement!

Written by Michael Dietz, a Research Assistant at RSG.

Request for Trust

 

Gaining trust is a new way of doing business.  Typically, cities will seek development deals using the traditional RFP process.

There is a new way in which RSG offers advisory or brokerage services.  In some of our recent listings we are seeing multiple diverse offers.  How can a city analyze and differentiate the best outcome?  

In a 2014 Forbes article called “Three Ways To Build Customer Trust,” Marjorie Adams says, “Organizations with great customer relationships are able to grow their businesses without gimmicks, fee cuts or special treatment.  You have to be good at what you do, of course, but having a truly successful business is based on one simple concept: trust.”

RSG brings together staff and broker affiliates to serve a community’s real estate needs.  We view real estate through a community development lens, not simply the bottom line.  RSG has an excellent history of successes creating effective pubic-private partnerships.  Our team knows how to shepherd public and private sector clients through the often convoluted process of buying or selling property with a public agency.  

We are trusted advisors who bring thorough analyses to local governments and private entities.  For every transaction we take into account each city’s goals and visions that came with the original acquisition of the property.  We are cognizant of enhancing property values in terms of both financial and social terms, so that it positively affects the surrounding community through job creation, low environmental impacts, pleasing aesthetics and sensible building design.  RSG is concerned with serving the surrounding community and many other principles that a city can uphold as the property owner.

Bringing ShareKitchen to Coachella

 

Perhaps my favorite part about the Urban Land Institute (ULI) is how it brings together professionals from different specializations to collaborate and communicate about current topics and trends related to land use and communities. One example of this is the Technical Assistance Panels, or TAPs, which ULI assembles to analyze and discuss land use challenges in a specific situation and to develop and present solutions to those challenges. I recently completed a pro bono TAP composed of young professionals, such as yours truly, through the Young Leaders Group of the Orange County/Inland Empire chapter of ULI.

Our panel consisted of architects, planners, a lawyer/broker, an environmental engineer, and economic/real estate analysts. The client was ShareKitchen, a non-profit business incubator looking for assistance in developing a comprehensive plan for a Food Innovation Center in Riverside County. ShareKitchen provides space for food-based entrepreneurs who cannot prepare their food for sale at home due to space, equipment, and legal constraints, but who are not yet big enough for a full commercial operation.

The analysis we prepared focused on place, design, and finance. More specifically, we advised ShareKitchen on where to locate its food innovation center, how to structure a purchase with the landowner, how to organize the site, what building elements to include (for practicality as well as for environmental sustainability), how much the project would cost, and how to pay for it.

With a proposed site in the City of Coachella, we presented our findings and recommendations to a packed house at the Coachella City Hall. We were even featured on the local news! Personally, I enjoyed the exposure to the viewpoints of other professionals involved in land use, as well as providing my expertise to a promising business incubator that has already achieved success. I’m excited to see how ShareKitchen will use our recommendations to provide more opportunities for new businesses in Coachella and to bring exciting culinary products to residents of Southern California and beyond.

Click here to view the entire presentation (5 MB, 48 Slides in Total)


Written by Dima Galkin who is an Analyst at RSG.


Photo courtesy of Jessica Candaele.

The Great Real Estate Opportunity

2.5 Acre Development Site in Irwindale - currently available for sale

2.5 Acre Development Site in Irwindale - currently available for sale

To help facilitate the winding down process of local redevelopment agencies, successor agencies were created to manage redevelopment projects currently underway, make payments on enforceable obligations and dispose of redevelopment assets and properties. According to California law, successor agencies must come up with long-range property management plans (“LRPMP”) and submit them to the state.  

The LRPMP must contain a detailed inventory of all real property assets and a set of recommendations regarding how and to whom the assets should be disposed or distributed. This transparent process can be a boon to real estate developers.

Much of the real estate community is not aware of the good opportunity the LRPMP process offers. By looking at the LRPMPs, which are public documents, one can see what is potentially available for sale. RSG is currently working for successor agency clients to help them to sell their properties, as well as for developers/investors who are looking to buy these properties.  The New Year is a great time to take advantage of a way to find some great property.

For more information, see the following links: http://www.dof.ca.gov/redevelopment/long_range_property_management/view.php

Example LRPMP: http://www.dof.ca.gov/redevelopment/long_range_property_management/LRPMPC_Plans/documents/Atwater_LRPMP.pdf

From Rick Caruso and Retail to Andre's and Authenticity

Andre's restaurant's interior and serving area

 

As an alumnus of the USC Price School of Public Policy, I try to keep track of the many interesting and thought-provoking events that the school hosts and to attend them when I can. There was recently just such an event, where Dean Jack Knott had a conversation with renowned real estate developer and fellow Trojan Rick Caruso.

The event occurred at Pacific Theatres at the Grove. Mr. Caruso spoke about his business, his philanthropic endeavors, and his ideas for what makes places attractive and cities great. The success of his projects, such as the Grove at Farmers Market in Los Angeles and the Americana at Brand in Glendale is impressive. The process used to develop those projects is even more interesting. Mr. Caruso explained how his team researches the design of great places (from South Carolina to Florence, Italy) and aims to create not just a place to shop, but a place to enjoy spending time, feel relaxed, and create a physical and psychological association with the place.

Not to take anything away from that, my favorite part of the evening was the dinner I had afterwards, and not just because of the meal. Rather than eat at the Maggiano’s or the Cheesecake Factory at the Grove, I searched online for a place to eat outside of the Grove. And I found a treasure.

Located across the street, Andre’s Italian Restaurant and Pizzeria was a satisfying surprise. Based on the standard real estate measurements, the restaurant should be doomed to fail. Tucked at the back of a shopping plaza, the restaurant has no street frontage and very limited visibility from the street. Access to the “front” door requires walking through a small alley that the restaurant wisely uses for outdoor seating. Far from being a credit tenant (national or regional tenants who are so large that they will continue to pay rent even if a location fails), Andre’s only has a single location.

Yet more than 50 years after its opening, Andre’s continues, relying on affordable prices, friendly staff, and delicious food to keep customers coming back for more. The atmosphere is inviting and oozes authenticity. The food is served cafeteria style. The radio speakers play the songs of 50s crooners.

As successful as the restaurants and retail stores at places like the Grove are, they lack authenticity and edge. When the bottom line includes only dollars and cents, then of course Andre’s and its type cannot compete with the Maggiano’s of the world. But when the bottom line has room for heart and soul, then eateries like Andre’s are able to thrive.

So salute, Andre’s! Thank you for creating a haven for people seeking to eat in a unique restaurant, to experience something new and authentic, to enliven their evening in an unusual way. We need more restaurants and retailers like you. Here’s to the next 50 years of Andre’s!

Written by Dima Galkin who is an Analyst at RSG.

A New Challenge

 

As a firm that deeply cares about Community and Economic Development and ultimately the fate of our Cities, we are constantly grappling with ways that we can help our Cities succeed despite the tough economic times.  It is extremely difficult to try to summarize the immensity and scope of the problems that different Cities face, but here are some quick observations being on the front line of the process:

The Challenge - After being wiped out from the redevelopment dissolution, many communities are strapped for resources and long-reaching fiscal challenges.  All of a sudden Cities are in the business of selling property, either because of obligation to do so under the law or driven by a larger asset management strategy to put the community on the right track. We are often asked by our City Clients the same questions: “Do we need an RFP, should we advertise, go to auction, and what are reasonable business terms now that we don’t have an RDA to help make a project work? Please help!”

Our Double Bottom Line Solution - After really analyzing the challenge we developed a guiding mandate to ensure that every transaction that we are involved in:  #1 - meets specific Community Development goals and #2 - is financially successful.

What does this really mean?  In basic terms, it means taking into account each City’s’ goals and visions that came with the original acquisition of the property.  It means enhancing the value of the property not solely on a financial basis but also positively impacting the surrounding community through job creation, low environmental impacts, pleasing aesthetics and sensible building design, a thought towards serving the surrounding community and many other principles that a City can uphold as the property owner.

Some of these problems can be tackled via a rigorous methodology; has a highest and best use analysis been completed?  Have the interests and values of the local community been adequately understood?  Can we carefully develop opinion of value calculations for different real estate solutions to better weigh the financial impacts of different types of projects?  What terms will the City be willing to negotiate on, and what are the guiding principles that the City will not waiver on?

A Time of Hope - My final observation is that we are at the early stages of developing creative strategies to meet the unique challenges of each City Client and that in some ways we are in a new phase of redevelopment, and that’s an exciting prospect.

Written by Andrew Gee, who is a Senior Associate at RSG.

Private Developers Unveil Proposals to Revamp Long Beach Civic Center

 

At a special study session of the Long Beach City Council on Tuesday, October 14, two developer teams finally unveiled their proposals for the redevelopment of the City’s 37-year-old Civic Center, which currently includes City Hall, a library, the 4.8-acre Lincoln Park, a shuttered state courthouse, and parking. It’s been a long time coming.

In 2005, seismic studies conducted in the wake of Hurricane Katrina revealed that City Hall was in danger of collapsing in the event of an earthquake with a similar magnitude as the 1994 Northridge quake. Naturally, this finding immediately prompted discussions among City officials regarding upgrading or replacing the Civic Center. About eight years later, in April 2013, the City issued a Request for Qualifications (RFQ) to solicit developers interested in constructing the new Civic Center. In October 2013, the City announced the three short-listed proposers and, in June 2014, received Request for Proposals (RFP) responses from two of the three, Long Beach CiviCore Alliance (LBCCA) and Plenary-Edgemoor Civic Partners (PECP).

Prior to beginning the RFP process, the City estimated that retrofitting the existing City Hall to address the seismic deficiencies would cost about $194 million. Rather than paying that hefty price to upgrade an inefficiently designed and somewhat functionally obsolescent 40-year old building, the City devised another alternative: identify a private developer who would design, build, and finance a brand-new Civic Center in exchange for 1) a maximum of $12.6 million in annual payments for 40 years from the City, which would rent the new public facilities and 2) the right to develop on the City’s unused portion of the 16-acre land. In its RFP, the City also expressed interest in the inclusion of a headquarters building for the Port of Long Beach in the new Civic Center and stipulated that Lincoln Park must be not only retained, but upgraded.

If successfully completed as described, the two developments proposed by LBCCA and PECP on October 14 would certainly transform the look and feel of the Civic Center area. Both proposals include an aesthetically and functionally modern City Hall, library, park, and port headquarters building, as well as a significant private mixed-use project comprising a hotel, residential units, and retail. LBCCA’s design also includes an “innovation village,” which is described as a hybrid between a technology incubator and an adult education facility that would be a collaborative effort with Long Beach City College and California State University Long Beach. Unlike the alternative of simply retrofitting City Hall for the purposes of withstanding a terrible natural disaster, the proposed developments could result in myriad benefits, including new jobs, new City revenue, new residential units, public facilities that better meet community needs, and potentially a more vibrant downtown. And the City would gain all this for no more than $12.6 million per year, which is the City’s estimated cost of operating and paying debt for the current Civic Center. However, the City would inherently take on some of the construction risk and also would forgo ownership of the public buildings and land until the end of the 40-year lease agreement.

What do you think about Long Beach’s proposed plan? What are your thoughts on public-private partnerships in general?

Written by Dominique Clark who is an Analyst at RSG.