USING A DEVELOPER:  ISSUES AND OPPORTUNITIES

Why Use a Developer - Four principal reasons
 
¨          Brings specialized expertise in one or more areas

¨          Allows for the employment of private capital & various federal and state tax incentives

¨          Relieves the institution or government of unfamiliar management & capital requirements

¨          Often may be helpful in attracting important tenants 

Institution's Benefits - If properly structured and managed

¨          Allows institution to allocate resources (capital and management) to more appropriate uses

¨          If successful, the venture becomes indefinitely self-sustaining as to operating
and capital requirements

¨          Allows for a more extensive application of various forms of financing, capital
and management resources

¨          Enhances governmental, institutional, and private sector collaboration in several areas

Institution’s Risks - Are generally related to venture failures

¨          Lack of sustained interest / commitment / involvement, often from the institutional side

¨          Market induced financial stresses on the developer

¨          Stagnation and loss of venture progress

¨          Potential loss of institution’s land / other assets

¨          Protracted / stalemated legal proceedings

¨          Loss of institutional prestige & opportunities    
 

Roles / Responsibilities - Depend on objectives of the venture
 

¨          Leadership & commitment required from both sides

¨          Institution is generally the magnet, the source of the market.  It must be ready & able to manage that function.

¨          Developer manages the operational aspects of the project and often is the major source of capital

¨          Both must be organized and resourced to move the venture forward in a collaboration over an extended period of time

Master Developer                
  
In some situations this is appropriate and necessary.  However, the developer must not become in fact the actual master of the institution’s own future use or development of its critical assets and resources. 

Other Critical Issues - Tested models exist to address many of these, including:

¨          Appropriate deal structures

¨          Long term ground leases, including term, extension options & participation features

¨          Valuation models

¨          Cash flow structures and models

¨          Institutional buyout provisions

¨          Sale of developer owned property

¨          Appropriate protections for the developer’s financial position