Walter Reed Army Medical Center Re-Use

Implementation Framework
November 3, 2011

Vincent C. Gray Mayor of the District of Columbia Victor L. Hoskins Deputy Mayor for Planning and Economic Development

Overview

Background and Context

Development Approaches

Potential Structures
Implementation LRA Considerations

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Motion On October 13, 2011, LRA Committee Members, Tim Shuy and Alice Giancola, introduced a motion to the Planning LRA requesting that the Deputy Mayor for Planning and Economic Development perform an analysis of development implementation options for the reuse of the Walter Reed Army Medical Center site. The analysis requested is to clearly outline advantages and disadvantages of each approach and address important implementation considerations such as timing and financing.

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Implementation Considerations
Military (DOD) Implementation Local Redevelopment Authority (LRA) Land/Master Developer

Local Government

District

ARMY
Public Authority

501(c)(3) SPE

Private

Note: The Master Developer selection will assist in identifying the form of the Implementation LRA.
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Goals Conveyance of 67.5 acres of the WRAMC site at minimal upfront real property cost to the District, through an Economic Development Conveyance (EDC). Fast-track implementation and development to meet Reuse Plan goals. Minimize the need for District capital investment that has caused delay of other large scale projects (e.g., McMillan, Poplar Point, St. Elizabeths).

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Approach: Development approach determines form of Implementation LRA necessary to enable development to proceed
The Implementation LRA (ILRA) is the formal entity that will govern development of the site and the District should select the ILRA structure soon and seek DOD recognition quickly following the submission of the homeless/reuse plan to HUD (March/April 2012). The structure, timeline, necessary milestones, and responsibilities of the Implementation LRA differ depending on which Development Approach is chosen. These criteria should influence the preferred approach decision. The Implementation LRA should also ensure that the Master Developer is selected/inplace in time to inform the economic development conveyance (EDC) application and participate in negotiations with the Army on the economic development conveyance and with the ESCO/Utility provider.

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Walter Reeds unique characteristics make a master development approach highly desirable for successful implementation
Factor Implication
It is advantageous to have a single land developer regardless of whether public or private involved in the up-front conveyance negotiations with the Army, in order to ensure that the projected costs of site-wide infrastructure are taken into account in land value. Therefore, the issue is what, if any, components to make private.

Factor 1: Federal Acquisition Process

Factor 2: Site Infrastructure Factor 3: Long-Term Project
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The extensive site-wide infrastructure needs on the site require coordinated investment, both up-front and on-going as development occurs. Many of the sitewide infrastructure components - such as a central utility plant and significant public open space create value across the site and, therefore, must be implemented by a single land developer rather than individual parcel developers.

The 2+ year pre-conveyance period and the 10-20 year redevelopment period will require continuity of decision-making and funding for an extended period of time.

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Key Decisions The form of Master Developer the District selects to take the lead to act as the land developer, conducting environmental remediation and installing site-wide infrastructure necessary to ready the site for redevelopment.
In-house land development managed by relevant District agencies (DMPED, DGS, etc.). Funded by District sources (e.g., capital budget, TIF) and other grants; costs also offset by future parcel sales and leases. Subject to debt cap and anti-deficiency.

District SPE Private

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501(c)3 non-profit development corporation with DC government Board representation contracted by the Implementation LRA to receive land and provide all master development services. Funded by private capital, federal and other grants; costs also offset by future parcel sales and leases. Not subject to debt cap or anti-deficiency.

Private master developer competitively solicited by Implementation LRA to receive land and independently make all master development decisions. Funded by private capital, land value, federal and other grants; costs also offset by future parcel sales and leases. Not subject to debt cap or anti-deficiency

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Key milestones differ depending upon selected Development Approach in order for ILRA to be established and development to proceed
Option 1: District Agency Option 2: SPE (Development District SPE (District Agency ILRA) Authority ILRA) Council approval of Steps Required to Identify agencies to be involved Steps Required Prior Identify lead and Draft development authority legislation to establish Establish Determine legislation to authorize to Creation of Development Authority and Implementation supporting agencies organizational contracting with SPE. Implementation Determine organizational authorize creation of SPE Recruit LRALRA structure,structure, roles, staff roles, staffing subsidiary Board members, to be detailed hire staff, approval Identify internal funding Obtain Council locate of offices, for additional legislation furniture, etc. responsibilities Option Private 3: Private Developer (either form of ILRA) Prepare RFP/RFQ and selection Steps for criteria appropriate ILRA creation Prepare RFP/RFQ and developer selection criteria

Recruit SPE Board members, secure staff, locate offices, Develop dedicated Develop operational Steps Required furniture, etc. operational capacity capacity after Steps Required after Develop to execute on dedicated Develop operational capacity Identify capital sources Implementation operational capacity to and Identify capital sources and/or Implementation WRAMC goals and/or obtain funding LRALRA is Established is Recognized execute on WRAMC obtain funding commitment from timelines commitment from to Enable goals and timelines District Identify capital District to Enable Development to Identify capital sources Enter Enterjoint venture into into joint venture sources and approach Development to and approach to risk Proceed agreement(s) with private to manage agreement(s) or build manage Build development developer(s) or build internal Proceed risk development and Build development and development and management and management management capacity management capacity capacity capacity
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Issue RFP/RFQ Receive RFP/RFQ ILRA issues responses developer Select preferred RFP/RFQ partner(s) Receive RFP/RFQ Negotiate responses contractual terms Select preferred partner(s) Negotiate contractual terms
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Overview

Background and Context

Development Approaches

Potential Structures
Implementation LRA Considerations

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Evaluation Criteria
Criteria
Timing / Speed of Implementation

Definition
The choice of land developer may impact how quickly land and vertical development can occur on the site. The land development approach should help to achieve the Reuse Plan goal of accelerated implementation. Key considerations include: (1) Speed of operationalizing master development structure; (2) Commencement of land development, including securing capital funding; (3) Overall Phase I development timeline. The land developer will need capacity to finance and project manage approvals and development of a wide range of infrastructure components, including central utilities, stormwater, roads, parking, and other specialized components. Focusing human and financial resources on the challenges of the Walter Reed redevelopment, and avoiding competition for resources with other projects will better ensure successful and timely implementation of the Reuse Plan.

Functional Capacity to Implement Infrastructure

Funding / Access to Capital

District Control / Oversight

The land developer will require access to significant capital and ability to access a range of funding sources to implement the infrastructure.
The expansive day-to-day operational and project management challenges of Walter Reed require a developer to act efficiently and effectively, while balancing the need for Implementation LRA oversight and accomplishment of a range of social goals imposed by District policies. The development approach should balance operating costs to be incurred by the District with other benefits of each approach. Cost considerations include salaries and other operating costs.

Operating Costs to the District Capital Costs Risk Sharing Legal / Regulatory Considerations

The development approach should balance costs with other benefits of each approach. Cost considerations include up-front costs to the District, and cost efficiency of different land development entities.
Different land development approaches will allow for different levels of risk sharing among the public and private sectors. Site redevelopment will require input from a diverse set of District agencies including approvals for design, preservation and construction.

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Timing / Speed of Implementation

Option 1: District Agency Advantages
-District has complete control of the timeline. -Does not require selection process for master developer or formation of SPE. - Timing for redevelopment is largely under the Districts control as long as the District is willing to provide capital to develop the site and financial incentives to induce the market. -Uses controlled by the District. -Decision-making timeline may be longer than for an independent and/or private entity. -District will need to make decisions based on a range of factors, including political factors, versus private developers who can make business decisions alone. -District will need to fund the full upfront development. -Appropriations risk for funding activities. -Requires RFP process for each parcel.

Option 2: SPE
-After initial capacity is established, may have ability to make decisions more quickly than public sector. -Balance of public and private sector governance will require decisions to be based on a combination of financial and public-sector considerations.

Option 3: Private Developer

-Greater speed of internal decisionmaking, outside of public decisionmaking process. -Enhanced motivation to speed implementation due to financial commitment. - Decisions based solely on financial analysis. -Greater experience and expertise in land development faster learning curve -Necessity of obtaining approvals from public sector. - Implementation timeline is largely outside of public control once land is conveyed.; developer timing may be set to some degree in Development Agreements, but timing clauses may difficult to enforce.

Disadvantages

- Requires new entity to be created and to build capacity; may take the greatest amount of time during initial phases. - Balance of public and private sector governance will require decisions to be based on a combination of financial and public-sector considerations.

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Timing / Speed of Implementation: Operationalizing Master Developer Structure

November 2011: Today March 2012: HUD Submission August 2012: EDC Application LRA/Developer Preparation of EDC and Negotiation with Utility Provider & Army

Earliest ILRA could be formally recognized Sweet Spot

D
Decide Development Approach

J
Prepare RFP/RFQ

F
Draft and submit legislation

A
Issue RFP/RFQ

J
Council passes legislation

A
Establish SPE entity

S
Select Private Developer and negotiate contract

O
Recruit Board and staff

D J

F
Develop capacity and enter into agreements

Private

District

NOTE: Office of Economic Adjustment instructs that it is essential to the LRAs acquisition of the base from the military to have the developer involved before the conveyance is completed and advises that the LRA to begin the process of selecting a developerAdvisors, Inc. year in advance of expected conveyance. See, Use of Master Developers in Implementing Military Reuse HR&A at least a 13 CONFIDENTIAL DRAFT: FOR DISCUSSION ONLY Plans. P.5 (March 1999).

SPE

Functional Capacity to Implement Infrastructure

Option1: District Agency Advantages
-Existing capacity in a variety of specializations, and ability to coordinate with agencies for implementation and approvals. -Requires long-term commitment to provide resources, capacity, and authority within the District to develop the site. - Can hire development expertise through consultants or new staff. - Human and financial resources not dedicated solely to WRAMC. - Human resources subject to turnover through electoral cycles. - Requires coordination amongst multiple agencies to make decisions and execute. - Procurement process more cumbersome.

Option 2: SPE
- Human and financial resources can be dedicated solely to WRAMC. - Can hire development expertise through consultants or staff.

Option 3: Private Developer

-Ability to dedicate resources to WRAMC. - Expertise of private developer is brought to the site.

Disadvantages

-Requires new legislation to be negotiated and passed prior to developing functional capacities. -New entity will require immediate hiring or detailing of select staff from existing District offices to support initial functions. Will require start-up time and coordination.

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Funding / Access to Capital

Option 1: District Agency Advantages
-Ability to access public financing. -Ability to use appropriations to fund the project.

Option 2: SPE
-Ability to access a range of public, philanthropic, and private funding sources, including access to certain Federal and District programs, depending on the program for implementation. -Revenue generated by Walter Reedspecific activity will be allocated to the budget of the new SPE and therefore will be directly rededicated to functions related to Walter Reed. -Does not necessarily have any dedicated funding streams, especially during initial phases before revenue is generated, unless public funds are specifically allocated to SPE by District or SPE enters into a joint-venture with a private entity. - New entity without explicit backing of District may have difficulty accessing capital markets. -Lack of access to public financing without involvement of public sector.

Option 3: Private Developer

-Access to private capital markets. -Less exposure to challenges associated with Districts debt cap and antideficiency issues. -Ability to access a range of public, philanthropic, and private funding sources, including access to certain Federal and District programs, depending on the program for implementation. -Lack of access to public financing without involvement of public sector. -No access to OEA funds.

Disadvantages

-Unlikely to attract philanthropic or private funding sources. Difficult to enter into joint-venture agreements with private entity(ies). -District debt cap and anti-deficiency could limit ability to finance project. -Revenue generated by Walter Reed-specific activity will be allocated to the budget for the office. The office may or may not choose to use those funds for the Walter Reed project.

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Funding / Access to Capital

District
SPE Private
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$$

Municipal, Federal, and some philanthropic Municipal, Federal, private, and philanthropic but may have difficulty in capital markets Private, Federal, and philanthropic; greatest access to capital markets; less access to public funding

$$$
$$$$

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District Control / Oversight

Option 1: District Agency Advantages
-Mayor and Council retain maximum control of infrastructure development, and of future parcel disposition. - The LRA will be subject to the same Mayoral and Council oversight as the office into which it may be placed. - Subject to political considerations in decision-making.

Option 2: SPE
- Balance of public accountability and private sector know-how. Mayor, Council, and CFO have equal governance representation as combined private sector representation.

Option 3: Private Developer

-Oversight by District can be imposed through transaction documents. -Can better respond to market cycles. -Has potential to be more innovative in approach.

Disadvantages

- Potential to be subject to political considerations in decision-making.

-Lack of direct, day-to-day public sector control of implementation. -Less control by the District of development timeline after conveyance.

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District Control / Oversight

District Agency

District

District Control
Private

SPE

Overall Development Timeline

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Operating Costs to the District

Option 1: District Agency Advantages
-Can utilize existing District resources.

Option 2: SPE
-May be able to utilize existing District resources, if specifically devoted to SPE. -Ongoing operations costs can potentially be reduced by entering into a joint-venture with a private entity. - New entity will require immediate hiring or detailing of select staff from existing District offices to support initial functions. Will require start-up time and coordination. -Extent of availability of District resources must be defined and negotiated through legislative process.

Option 3: Private Developer

-Limited need for public resources. -Development agreement could stipulate that private developer pays specific District expenses.

Disadvantages

- Requires significant up-front public investment and, except for certain OEA funding, District would be compensated for capital and operating expenditures only as parcels are disposed of.

- Ability of private developer to pay specific District expenses could be limited by residual land value.

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Development Cost Efficiency

Option 1: District Agency Advantages
-Can utilize lower-cost public financing.

Option 2: SPE
- Can enter into joint-venture with private entity(ies) to share costs.

Option 3: Private Developer

-Could limit Districts capital investment. -Limited need for public resources. -More nimbleness in procurement could reduce costs. -Developer responsible for maintenance and development costs. -Development agreement could stipulate that private developer pays specific District expenses. - Limit to availability of private funds.

Disadvantages

- Requires significant up-front public investment and, except for certain OEA funding, District would be compensated for capital and operating expenditures only as parcels are disposed of. - Disposition of parcels will be subject to market conditions.

-As new entity without track record or explicit backing of District or private entity, cost of capital may be greatest. - Up-front capital sources to support operations must be identified and secured; may require public investment or raising of philanthropic or other sources.

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Risk Sharing
Option 1: District Agency Advantages
- District could realize a long-term reward from up-front investment. Depending on the structure of the deal with the private developer(s), the District could get a return on its equity by sharing in proceeds at the back end. - Development risk retained within public sector.

Option 2: SPE
- Ability to enter joint ventures and other development structures with private entities to share risk and profit of development.

Option 3: Private Developer

-Ability to shift majority of development risk away from public sector. -Very little, if any, on-going expense exposure for the District.

Disadvantages

- In order to effectively contain risk from District, requires entity to be initially capitalized through funding sources or joint venture agreements which will need to be secured.

- Undeveloped land is likely to have minimal, and potentially negative, land value due to the level of infrastructure investment needed. The District would receive less revenue from land sale as a result of the need for private sector capital risk.

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Legal / Regulatory Issues

Option 1: District Agency Advantages Disadvantages
-Ability to coordinate approvals across relevant agencies. - Procurement process to convey individual parcels. - Requires new legislation to be negotiated and passed. - New legislation will be subject to interpretation given minimal precedence of non-profit SPE structures in District.

Option 2: SPE

Option 3: Private Developer

- Fewer legal and regulatory requirements for conveying parcels or obtaining funds.

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Overall Comparison
Option 1: District Agency Option 2: SPE Option 3: Private Developer

Timing / Speed of Implementation Capacity to Implement Infrastructure Funding / Access to Capital

Initial

Ongoing

Control / Oversight
Operating Costs to the District Development Cost Efficiency

Risk Sharing
Legal / Regulatory Considerations
Most Effective in Fulfilling Criteria HR&A Advisors, Inc. Moderately Effective in Fulfilling Criteria Less Effective in Fulfilling Criteria Least Effective in Fulfilling Criteria 23

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Overview

Background and Context

Development Approaches

Potential Structures
Implementation LRA Considerations

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Option 1 District Agency: Governance

Policy and Project Management

Mayor

Office of the CFO

City Administrator

Deputy Mayor for Planning and Economic Development

Approvals

City Council

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Option 2 SPE: Governance

SPE Board
Chair

Deputy Mayor

Private Citizen A (industry expert)

Private Citizen B (industry expert)

Private Citizen C (industry expert)

Council Chair designee (e.g., Ward CM, EcDev Chair)

Ex-officio

OCFO designee

Ex-officio

Ex-officio

Private Citizens would have 3-year terms, staggered with initial Private Citizen A serving a 2-year term Private Citizens would need to meet certain professional qualifications An ex-officio Advisory Board can provide input from other initiative stakeholders (e.g., local community, Federal partners)

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Option 3 Private Developer: Governance

Negotiation and Approval of Development Agreement

Mayor

Office of the CFO

City Administrator

Deputy Mayor for Planning and Economic Dev

City Council

Planning and Development

Private Developer Board of Directors

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Characteristics of a 501(c)(3) SPE

Legislative

An SPE will be authorized by Council approval of proposed legislation to create a Development Authority with the ability to create subsidiary SPEs.

Governance
Authorities

An SPE will be overseen by a Board of Directors. The Board may include a selections of ex-officio members, as well as private citizens with particular expertise related to the redevelopment. Typically the organization is run on a day-to-day basis by a chief executive.

An SPE may be exempt from certain District requirements, such as CBE contracting requirements.

Operations
Funding Oversight
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An SPE may operate independently of District administration and agencies with varying degrees of autonomy.

Initially, in the absence of public funding commitments, the SPE will have no dedicated sources of funding. The SPE may leverage a variety of funding sources including Federal and non-government funding, as well as entering Joint Ventures to leverage the value of the property to obtain private equity.

District may retain some oversight of an SPE by virtue of the presence of ex-officio members on the SPE board or through the development contract with the Implementation LRA.

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Characteristics of a Private Master Developer: The agreement between the

Implementation LRA and the master developer will define the master developers requirements and role.

Legislative
Governance Authorities Operations Funding

Council approval will be required for final selection of private master developer.

A private master developer will privately govern and manage the development. The development transaction will be governed by a development agreement between the private master developer and the Implementation LRA>

A private master developer can not be granted authorities directly. All authorities must lie with the Implementation LRA. A private master developer would operate independently of the District and/or the Implementation LRA. The contract with the Army must be administered by the Implementation LRA. The Army will not agree to an assignment of the EDC agreement, except to another entity that meets the Implementation LRA requirements like the District. A private master developer would not be subject to public outreach requirements; those requirements would lie with the Implementation LRA. May leverage a variety of funding sources including federal and non-government funding. In addition, may leverage other municipal funding sources such as TIFs, PILOTs, and Special Assessment funds, through mechanisms created by the Implementation LRA. May leverage revenue bonds - the issuer would be a District authority that issues bonds with a revenue pledge from the project. The Implementation LRA can express oversight of a private master developer in selected ways through the development agreement. The development agreement can include development timing requirements, although these can be difficult to enforce. The agreement can also include audit requirements that are in alignment with the audit requirements that will be imposed as part of the conveyance agreement between the Army and the Implementation LRA.

Oversight
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Overview

Background and Context

Development Approaches

Potential Structures
Implementation LRA Considerations

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Key Decisions - Implementation LRA is the only party authorized to acquire property through an Economic Development Conveyance.

Implementation LRA District Government Development Authority

Note: The current Planning LRA is the District Government. Structure of the Implementation LRA is to be determined by the District based on the legal, regulatory, economic, and other requirements necessary for an ILRA.

The Implementation LRA must be accountable to its respective governmental jurisdictions, as well as the public, over the long term; have the authority to enter into legal commitments, hold title, incur debt, and manage real property; have the ability to pledge full faith and credit, be responsible for implementing all or part of the redevelopment plan; and a city, county, or some other local public entity will be able to assume the obligations of the LRA if it is dissolved.
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The selection of a Master Development approach will assist in identifying the form of the Implementation LRA.

District District

ARMY

Implementation LRA

SPE

Private

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The selection of a Master Development approach will assist in identifying the form of the Implementation LRA.
Master Development Approach Implementation Local Redevelopment Authority (LRA)

District District Private

Private SPE

Public Authority

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Precedents of BRAC Implementation LRA approaches

Local-Government
City of Alameda Village of Glenview Fort City of Indianapolis City of Long Beach City of Orlando City of San Diego Town of Stratford City of Vallejo (Mare Is.) Village of Rantoul (Chanute) Rickebacker Port Authority Sacramento County (Mather) City of San Francisco (Hunters Point) City of Tustin (MCAS Tustin) Miami Dade County, FL City of New Orleans
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Separate Development Authority

Charleston Redevelopment Authority Harrison Redevelopment Authority Mass. Development Finance Agency (Devens) Fort Ord Reuse Authority (multiple jurisdictions) Public Authority/Airport Authorities Castle Joint Powers Authority England Authority Inland Valley Development Authority (Norton) Pease Development Authority Williams Gateway Authority (with university partner) Nonprofit Development Corporation/Authorities Griffiss Local Development Corporation Philadelphia Industrial Development Corporation

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Implementation LRA Funding

The Implementation LRAs activities will initially be funded by an OEA grant to develop the EDC application and undertake base transition activities. The Implementation LRA will also ask the selected master developer (unless it is the District) to pay for out of pocket expenses that are not covered by the OEA funding during the negotiations with the Army and the initial acquisition of the land (depending upon the value of the land).

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