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Real Estate Economic Analysis of Proposed Developments & Negotiation Support
Client: The City of Oak Creek, Wisconsin
dashed line separator The City of Oak Creek retained Gruen Gruen + Associates (GG+A) to complete analysis of the real estate economics of proposed developments for the 27th Street corridor and to provide advice on the negotiation of development agreements.

The purpose of one analysis was to identify if a Tax Increment Finance (TIF) subsidy is needed to facilitate private feasible development of an office building, industrial building, and retail building in the Liberty Corporate Preserve. The developer Liberty Property Trust (“Liberty”) had proposed an approximately $4.0 million developer-funded TIF to facilitate the feasible development of the Liberty Corporate Preserve.

GG+A obtained information and estimates of the spatial dimensions, cost elements, market or revenue inputs, and financial and investment parameters of the proposed office building development and other uses proposed. To make estimates of the financial or investment parameters, we interviewed individuals active in raising debt and equity for development and reviewed secondary data on capital markets. We reviewed secondary data on the relevant warehouse, office, and retail space markets and conducted interviews with local brokers to obtain perspective on rents and absorption.

GG+A simulated the real estate investment of each specified building development option. We estimated the investment results of the development options based on the estimated cash flows produced from cost and revenue forecasts and stipulated financial terms from the viewpoint of a prospective developer. We analyzed the likely feasibility of development, or the need for a subsidy (incentive) in order to bridge a feasibility gap, based on a financial measure referred to as a residual land value assuming a required internal rate of return (“IRR”) on the equity investment from the cash flow and the resale value of the development.

Based on the results of this analysis analysis, a development agreement was negotiated that provided for a significantly lower amount of TIF subsidy to the developer of the Liberty Corporate Preserve. GG+A prepared a report summarizing the analysis and participated in discussions with the developer and its representatives as well as legal and public finance advisors for the City.

GG+A also evaluated a request of an existing business to obtain TIF assistance to expand a plant from 88,000 square feet by 102,000 square feet of additional space. Based on cost and other information contained in the application, GG+A evaluated the potential feasibility of the plant expansion from the perspective of a hypothetical developer. GG+A also forecast and compared the present values of the future annual property taxes for the 17-year TIF period estimated to result from the expansion of the plant to the initial “investment” of the requested amount of TIF assistance and considered the economic impacts of the expansion. GG+A prepared a report summarizing the analysis and findings and a development agreement was completed consistent with the findings.




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