dsi's downtown developer's guide

8/13/2019 DSI's Downtown Developer's Guide

1/64

1

SPRINGFIELD

DEVELOPERSGUIDE

WRITTEN & PUBLISHED BY

DowntownSpringfield, Inc.

PRESENTED BY

CommercialReal EstateNetwork


2/64

1

INTRODUCTIONSpringfield is the heart of Illinois.

That is what the Long Nine envisioned, Abraham Lincoln among them,in 1839 when the capital moved to Springfield from Vandalia.

The core of that vision was to create a community that would serve asa shining beacon of government, commerce and community that wouldmake Springfield the best capital city in America.

Development has proceeded from that dusty or muddy (dependingon current weather conditions) dot on the prairie landscape, into acommunity that has, in many ways, lived up to the Long Nine visionof a shining capital city.

The coal mining and manufacturing that dominated the better part of

the first 150 years of community history have laid the backbone andgroundwork for the 21st Century Springfield.

Development has proceeded from the 19th Century core to enveloplarger expanses of Sangamon County within the expanded city limits.

A renewed interest in historic preservation and development at the coreof the city; including adaptive re-use of existing 19th and early 20thCentury structures has set the stage for development in the centralcity.

The advent of the Mid-Illinois Medical District at Springfield will enablethe community to maximize its potential as a regional health care andmedical research giant in the industry.

Development in other parts of the community will assist the everburgeoning population with its needs for goods and services necessaryto sustain a healthy and growing regional economy.

The publication you are now beginning to read will assist you in yourquest to help Springfield develop and thrive.


3/64

2


4/64

3

TABLE OF CONTENTS

Chapter 1: PREPARATION .............................. 5

Chapter 2: PROFESSIONAL ASSISTANCE ................. 11

Chapter 3: FINANCIALS .......................................19

Chapter 4: SITE SEARCH & SELECTION.................... 23

Chapter 5: CODES & REGULATIONS ....................... 27

Chapter 6: FUNDING PROGRAMS .......................... 31

Chapter 7: TIMELINES ...................................... 41

Chapter 8: MARKETING & PR .............................. 47

Chapter 9: ADMONITIONS & OPPORTUNITIES ............ 51

Chapter 10: TOP TEN LESSONS .............................. 55

Chapter 11: COMMERCIAL REAL ESTATE NETWORK......57

DIRECTORY: REALTORS ...................................... 59


5/64

4


6/64

5

1CHAPTER ONEPREPARATION

So you want to be an urban pioneer?

So you loved the ambiancedowntown during dinner andthe show at the HooglanCenter you saw last week?Perhaps you even enviedthose who were able towalk home just a few blocksfrom the Summer Serenadeconcerts last year or youhavent missed a First

Night since they began.Maybe you love taking yourfamily to a day at KnightsAction Park followed by adrive-in movie but thought

a restaurant would go great over here or you love gettingall your fresh vegertables at the Farmers Market but thinka year round market would be ideal. Perhaps you attendmost of your neighborhood mixers and fundraisers andwant to help your community grow or find yourself drivingby an old hot spot and say to yourself Someone should dosomething with that place.

Whatever draws you to becoming an urban pioneer,this guide is for you. There are any number of interestingbuildings only blocks away from all the action. You mayhave the kernel of a plan for renovation and an idea ofjust the right business or residential opportunity or both butneed help.

Here are eight key issues you will want to consider beforeyou commit your time, money and talent to the project:

MotivationWhat is the primary goal what makes you want to be partof the growth of Springfield? Inconveniences? Love of thecommunity? Are you an amateur historian? Or are youmotivated by making money? Each of these dreams bringswith them sobering realities. An honest self-appraisal is thefoundation for creating a successful project.

The reason you are interested is the most basic building

ONE


7/64

6

ONE

block for success of your project. If your primary goal ismaking money, you may need to wait for someone to giveyou a building! The cost of developing or renovation and theexpense of professional help may put any other propertyout of reach.

If your focus is historical restoration, you need to makesure you have substantial resources available. Therearch, materialsand labor costso f a c c u r a t erestoration wills tretch everyproject budget.There should beno illusion that

you will recoveryour restorationcosts dollar fordollar. Are youdoing the project alone or with one or more partners? Morehands, diverse skills and pocketbooks can transform a dreaminto reality. Whatever your motivation, you will find thatspreading the financial risk and sharing the responsibilitiesof development can help secure your goals.

Building Use

Do you plan residential, commercial, industrial or mixeduse? What is the current zoning on your building? . Haveyou talked to your Alderman, lawyer or City official aboutchanging zoning? Or applied for a planned mixed-usedevelopment? How about the use of the building over theyears? Beyond the environmental assessment required bylenders, has this building ever housed a business that usedhazardous products? You will need to resolve any questionsabout the building history and the viability of your futureplans before moving ahead with the purchase of the site.

Project GoalIs the purchase for owner occupancy, resale, condo orrental. If you plan to occupy the building yourself, this maywell affect your eligibility for: Historic Tax Credits (HTC),City funding, the legal structure of ownership, and privatelending! The State of Illinois does not have a program tounderwrite HTC for residential projects. You will not beable to own the building outright, at least until the 5-yearLLC (Limited Liability Company) with your equity partner

A number of buildings in thedowntown area are zoned R3or R-4, which allow housingover the storefront (retail orcommercial business)


8/64

7

expires. Further, the City is not in the business of fundingprivate housing units, particularly when public tax fundsare involved. You must demonstrate public benefit from theproject and you would be wise to have other commercial orresidential tenants who will also share in the improvements.On the other hand, private lenders may be willing to lookat the project as a residential rather than commercialproject, requiring less equity investment up front becausethe building owners do not demand the same Return onInvestment or Return on Equity required in a standardcommercial transaction.

Each project carries with it unique considerations, whetherit will be owner-occupied, or comprised of units for rent orresale.

Funds from various public and private sources carry withthem explicit or implicit stipulations that will impact yourproject. Your ability to change the destiny of your projectduring the period of involvement of the funding source willbe limited by those restrictions. You will need to weigh andbalance all these considerations before embarking on afinal course.

FinancialsWhat resources do you bring to the table? Are you young,ambitious and idealistic with lots of energy and some

construction skills? Or are you a grizzled veteran of thework world with a sizeable retirement nest egg that you wantto protect? How much money are you willing to commit toa project? Do lenders value in-kind contributions of labor(sweat equity)? Is it possible to undertake a developmentproject without a substantial bankroll? Not likely butNEVER say never!

ReturnsProspective investors evaluate projects based on ROI(return on investment) and ROE (return on equity). Beforewe begin, here are two definitions: 1) leveraged is withdebt, and 2) unleveraged is without debt.

The return on investment is typically an unleveragedinvestment return analysis. The market for the unleveragedreturn (ROI) is determined by the rate of return required byinstitutional investors paying 100% cash for a fully-stabilizeddevelopment and then adjusting for both construction andstabilization risk.

ONE

There are existing projectsaround town that did not requirethe next born child as collateral.However, it should be said thatmost financial advisors and othersexperienced in developmentcaution that lenders do not viewyour labors as comparable todollars invested. In general, forthem to risk their capital, theyneed to know that the ownershave done the same.


9/64


10/64

9

a key distinction being the limitation of liability forlimited partners who are liable only for the amountof their equity investment. In Illinois, all partnershipsmust have at least one general partner.

Limited Liability CompanyAn LLC is a relatively new form of businessorganization created by statute in Illinois. It providesits owners with limited liability, flow-through taxtreatment and operating flexibility by allowingparticipation in management of the business. An LLCis formed by filing articles of organization with theSecretary of State and paying the required filing feeand annual renewals. Members may elect to haveinterests in an LLC just as partners in a partnership.An LLC does not issue shares of stock but is required

to file annual reports. All members can manage thebusiness or elect one or more managers to run thebusiness. An LLC is required to adopt an OperatingAgreement, which provides operational details aswell as how the members relate to each other. Legalcounsel and tax advice should be sought beforesetting up an LLC.

C-Corp or S-CorpA corporation is legally a separate entity fromthe individuals who own and operate it. It is the

most complex form of business organization withshareholders as owners and limited liability in regardto the corporation. The shareholders elect a boardof directors who in turn elect the president whooperates the business. The corporate limited liability,however, does not extend to officers, who can beheld personally liable for all unpaid federal taxes,including withholding taxes for employees. Thedistinction between C and S-Corporations pertainsto taxation and the percentage of revenues frompassive income. It is highly recommended that youconsult with an attorney to discuss the advantages,disadvantages, regulations and requirements of C-and S Corporations.

ONE

Every corporation must registerwith the Illinois Secretary of Stateby filing Articles of Incorporation.Only corporations may and mustuse Corporation, Corp.,Inc. or Incorporated in theirbusiness titles. They mustfile annual reports with theSecretary of State. The Statealso tracks name availability forcorporations only.


11/64

10

ONE


12/64

11

2CHAPTER TWOPROFESSIONAL ASSISTANCE

Is There a Doctor in the House?It goes without saying that the more you can do yourself,the less need you will have for experts. For example, if youhave strong accounting skills, you may be able to createmuch of the financial model yourself. Or you may be able tosave some architectural fees if youre facile with a draftingprogram. (You still must have signed drawings from anarchitect for mixed use rehabs.) Perhaps your renovationis limited and can be handled by an experienced generalcontractor and does not require an architect. Maybe thereis a lawyer in the family who will consult at no charge oran experienced developer who will assist along the way.But no matter how facile and experienced you are, you will

require some professional support for your project. Theseprofessional fees are often included in the project budgetunder the heading of soft costs.

Here is a list of experts you may need to hire:

AttorneyFees: range of $2,000 -$10,000.

The litigious nature of the American

society is a given. To protectyourself, your partners and heirs,legal advice is a must on yourbuilding project. Actually, there arefour areas of your enterprise thatmay require an attorney:

Property acquisition: legalresearch prior to the offer;survey and land description;negotiations and closing. Partnership or incorporation:if you decide not to work alone,you need help to research andexecute partnership or papersof incorporation. Tenant leases and contracts. Historic tax credits: Even an experienced realestate attorney may not have the expertise todeal with the intricacies of this special form of realestate syndication. Shop for an expert who has

TWO


13/64

12

TWO

both the experience and the contacts with lendinginstitutions who are in the business of buying thesecredits. They will obtain the top price for the resaleof credits and help you negotiate the complex legaland tax issues that can impact your project and yourpersonal tax status. You can get more informationon available Historic Tax Credits from the IllinoisHistoric Preservation Agency.

Financial Real Estate AdvisorFees: range of $5,000- $60,000 but may varyaccording to the natureand scope of the work.

Most of us are not financialwizards or experts atthe language or form ofa qualified financial realestate advisor. There are anumber of financial reportsrequired to evaluate andapply for public and privatefunding in support of yourproject. The majority may be outside your experience andseveral far outside your comfort zone! Even if the forms

are not daunting, the specifics of real estate syndicationand government funding will begin to sound like a foreignlanguage. You will want a translator. If you are looking forpublic support, you will want to identify and engage anexpert with the arcane language and rules that pertain tothe specific resources you seek. Included in this advisorsarea of expertise:

Project budget: You may be comfortablewith the budget process at work, preparing apreliminary budget for your building site after visitsand discussions with your architect, developer,contractor and real estate advisor. (See Chapter3 for more details) Working (operating) budget: Projected andactual expenses are often very different. Whileyou will have allowed some room for surprises inthe project budget (usually 10 20% of all otherexpenses and titled change order allowance orcontingencies), you will also want to track the real

If you are looking for public

support, you will want toidentify and engage an expertwith the arcane languageand rules that pertain to thespecific resources you seek.


14/64

13

TWO

costs. (See Chapter 3 for more details) Construction loan: You will likely need help witha construction phase loan, requiring requests forpayment to the vendors. These requests can behandled for a modest fee by a title company. (SeeChapter 3 for more details) Standard Real Estate Analysis: This is animportant aspect of development and one where thenon professional can lose a grip on reality. It includesan amortization schedule (showing your expectedmortgage balance and payments over the term ofthe loan to a final balance of zero), which allows youand prospective investors to evaluate the wisdom ofthe investment. Will you be upside down in yourinvestment if you need to sell in the near future? Italso includes the Return on Investment and Return

on Equity that serve as the basis

For the Gap Analysis below. These tools allow theowner, team and prospective investors to evaluatethe project. (See Chapter 6 for more details)

Gap Analysis: When you intend to requestgovernment funding, the project must meet the needsof investors and also conventional city expectations.The gap analysis evaluates the project with andwithout government assistance over a reasonable

period of projection, in many cases 10 years. Itincludes an estimated fair market value for the projectupon completion. (See Chapter 6 for more details) Other funding requirements: Because TIF (seeexplanation in Chapter 6) is self-funding, it involveseither property tax rebated (similar to an abatedtax) or rising tax revenues to cover an initial cashinvestment up-front. Therefore, tax incrementprojects need to be prepared for submission to theCity. In addition, your real estate advisor may providestrategies and/or coaching for visits or participatein actual presentations and negotiations with the Cityor other funding sources.

AccountantFees: vary according to the nature and extent of thework provided.

A word of caution: you should keep your own tax andfinancial planning separate from the project. Your personal

Because TIF is self-funding, it involves eitherproperty tax rebated(similar to an abated tax)or rising tax revenuesto cover an initial cashinvestment up-front.Therefore, tax incrementprojects need to beprepared for submissionto the City. In addition,your real estate advisormay provide strategiesand/or coaching forvisits or participatein actual presentations

and negotiations withthe City or other fundingsources.


15/64

14

TWO

accountant will provide advice on tax consequences,investments, and impact on retirement. You may endup paying both advisors for a consultation if your projectinvolves complex funding or tax issues

ArchitectFees: between 7-13% of the project

Before you hire, make sure you are clear on the natureof the project and your financial goals and capacity. Youmay want to ask the architect you select to conduct a walk-through inspection with you and assist with evaluation andappraisal of possible sites. If you are tackling an olderbuilding, particularly one with historic status, you will needan experienced hand to navigate through the applicationsfor historic status and Tax Credits (Part 1, 2, and 3). More

important, your architect should have experience workingon restoration projects in older buildings. After a numberof consultations, he/she will provide renderings (useful forpresentations and marketing efforts) and final architecturaldrawings (needed to obtain bids from sub-contractors,create a final project budget, and for the use of the CityBuilding Department for plan review prior to issuing abuilding permit).

Working with the general contractor, your architect willresearch unfamiliar local, state and federal codes applicableto your building and should be available to help with

negotiations on these matters. It is in your best interest thathe/she have a good working relationship with local officialsto assist with meetings on City funds. The architect willhire a structural engineering firm if one is needed to helpcreate plans to address structural problems. If experiencedwith historic building projects, he/she may shepherd yourproject through the application process for the Historic TaxCredit, including negotiations with state and federal officialsresponsible to give the thumbs up to funding.

Some projects will require only minor design. These couldinclude buildings that have been restored by a previous

owner or buildings of fairly recent vintage. You may stillwant to pay an architect to participate in early inspectionsand advise on codes. You want to make sure your projectis viable (structurally as well as financially) and that thereare no code violations that could prove a deal-breaker. Ifyou have a major renovation project in mind, dont everassume you can do this without a pro!

Some projects will require onlyminor design. These couldinclude buildings that havebeen restored by a previousowner or buildings of fairly recentvintage. You may still want topay an architect to participate inearly inspections and advise oncodes. You want to make sureyour project is viable (structurallyas well as financially) and thatthere are no code violations thatcould prove a deal-breaker. If youhave a major renovation projectin mind, dont ever assume youcan do this without a pro!


16/64

15

TWO

DeveloperFees: 4 15% of the construction cost of the project

The developer is active fromthe beginning to the end of theproject, starting with researchand site selection. The primarygoal of a developer is to putthe deal together from theconstruction to the financing ofthe project. Developers are alsoinstrumental in research andnegotiation on local, state andfederal regulations, although thearchitect and contractor can helpeducate the owner/developer.

Other responsibilities: timeline,budget preparat ions andfinancials, and hiring of thecontractor, who hires the sub-contractors and oversees theactual construction phase.

Many urban pioneers choose to act as their own developers.Often a project in downtown Springfield is not affordablewith the hiring of a developer, contractor and otherprofessionals.

General Contractor (GC)Fees: 8 15% of the hard construction costs of theproject.

This position is another area where urban pioneers attemptto save money. Unless you have experience with theconstruction process and possess substantial businessmanagement experience and strong organizational skills,serving as your own contractor is a little like representingyourself in court: you may have a fool for a client! You shouldconsult with an experienced contractor and then proceedat your own peril! Assuming you employ an experiencedprofessional, make sure the contractor has a license andinsurance, with both liability and workers compensation.Expect the contractor to obtain appropriate permits as thejob progresses. If the GC is not going to work with you onbudget preparation and the project time, he/she shouldbe expected to review these documents. Another task

Architects report that themajor sources of conflictwith clients are: 1) schedule

overruns; 2) escalating costs;and 3) performance issues.Responsible parties for theseproblems may include thecontractor (and the subs),the architect, the developer,and even the client! Thebest way to reduce problemsis strong planning, clearcontracts/agreements, andpreparation for contingencies(change orders).


17/64

16

TWO

before beginning construction is thorough research andnegotiations on local, state and federal regulations. Onthese issues the contractor should work closely with yourarchitect and the appropriate government agencies.

Expect the GC to hire and schedule sub-contractors. He/sheshould be expected to be on-site to supervise their projectsub-contractors (subs) and employees (often rough and finishcarpenters or general laborers for demolition). Contractorsare also responsible to hold subs accountable for the qualityof their work and completion on time. Contractors shouldapply for building permits in their own names, leaving youfree of liability. Approvals come at the end of the permittingprocess and are usually required for the electric, heating,and plumbing work, among other things. Make sure yourcontractor arranges for the required inspections when work

is completed and hold him responsible for those requiredby the code authority. Architects report that the majorsources of conflict with clients are: 1) schedule overruns; 2)escalating costs; and 3) performance issues. Responsibleparties for these problems may include the contractor (andthe subs), the architect, the developer, and even the client!The best way to reduce problems is strong planning, clearcontracts/agreements, and preparation for contingencies(change orders).

Real Estate AppraiserFees: $1000 - $3,000.

Often required to obtain a mortgage, this inspection isrecommended for peace of mind of the purchaser aswell. The bank will want to use an appraiser of their ownchoosing.

BankerFees: negotiable.

Four phases of the project may require funding from alender:

1) the origination mortgage at the time of purchase2) a construction loan (or line of credit)3) a consolidated mortgage (combining the principal/


18/64

17

TWO

interest from the construction loan with the originationmortgage),4) equity partnership for Historic Tax Credits.

You will want to talk to at least three lending institutionsbefore committing for each phase. You may want to considersome or all of the following: Do you have a longstandingbanking relationship? Does your bank specialize in any ofthese types of businesses? Are you comfortable dealingwith a large bank domiciled out of state or do you preferlocal lenders? Who does your developer, contractor,architect or accountant recommend, particularly for theequity partnership on the Historic Tax Credits?

City AldermanFees: none.

This may seem a strange addition to the list of expertson your project. But whatever you are planning to do withyour building, the City is interested! Chances are that CityCouncil members representing downtown wards know agreat deal about city requirements and the latest availablefunding. They are aware of various codes and restrictions,and which City department handles which kind of requests.They may act as ombudsman for you in meetings with Cityofficials. If they are familiar with your project, they will likelyadvocate for you on the floor of City Council when the time

comes for a vote on funding for your project. They mayalso provide invaluable networking assistance. You couldnot afford to pay for the expertise and quiet support theywill bring to your project!


19/64

18

TWO


20/64

19

3

THREE

CHAPTER THREE

FINANCIALS

Help with financial information is typically needed from

an accountant, attorney or bookkeeper for developmentprojects. Here are some basics every would-be owner/developer needs to know.

Property Appraisal and County Assessment

There are severalways to evaluate yourproperty. A simpleway to get an idea ofthe property value forno cost is to call or

stop by the SangamonCounty Assessorsoffice (phone # 753-6725). You can alsoaccess their websiteat www.co.sangamon.il.us They can providea fair market valuefor the property. TheCity will likely require afigure from the Countyassessor if TIF fundingis under consideration(see Chapter 6 ) .However, in manycases the Countys fair market value will be conservative.

Real estate agents are another source for propertyevaluation. Many are familiar with the real estate marketand will provide a written report on value.

Environmental

You will want to make sure the property being considered isfree of environmental issues such as ground contaminationfrom petroleum products, asbestos and lead based paints.You will want to consider the past uses of the property, theage of any existing structures as well as adjacent sites thatcould have an environmental impact on your property. At thevery least, the bank will do an environmental questionnaireto determine environmental risk. Properties with potentialrisk or larger projects will normally trigger an environmentalassessment provided by a professional environmental firm.

The best way to arrive at aproperty value is with an appraisaldone by a paid professional.

Banks will usually make thisa requirement. The cost willtypically run $1,000 - $3,000,depending on the size and valueof your building. This figure willhelp determine the amount thebank will loan you and what kindof equity and/or gap financingmay be needed.


21/64

20

THREE

A property with undetected environmental issues can causesignificant problems for the owner in regard to cleanup andliability.

Plans, Specs

On any construction, rehab, restoration or renovation project,a set of plans showing foundation, floor plan for all levelsand exterior views for all sides of the property is needed.In addition, a description of materials, or specifications, isneeded.

Project Budget and Working Budget

Key items include SOFT COSTS: legal fees; carryingcosts (interest during construction loan); architectural andaccounting fees; general contractor and developers fees;and HARD COSTS: excavating and grading; foundations;

concrete flatwork; well and septic; roof; masonry; heating,cooling and ventilation (HVAC); plumbing (including fixtures)and electrical (including fixtures); carpentry, plastering,painting, insulation; fireplaces and elevators; gutters anddownspouts; landscaping; building permits; driveway andparking lot; millwork (cabinets and countertops); windowsand doors; siding; structural steel and wood support beams;apartment appliances and storage systems.

Often overlooked in the initial budget preparation:

Water, sewer and sprinkler hook-up to City supply Legal fees for incorporation or condo conversion(associated with Historic Tax Credits) Elevator shaft and machine room work including cranerental Hot water heater and water softener Builders risk insurance Renovations or equipment such as HVAC for existingtenant space Exterior storefront or decorative finishing touches, curbcuts for garage access, security systems Surveys and appraisals Exterior sidewalk

Driveway or parking lot expenses Carrying costs or interest on the constructionloan i f the project takes longer than planned

One critical expense line is contingencies, or change orderallowance. No matter how thoroughly you research yourproject and how many quotes you obtain, it is guaranteedthat you will discover unforeseen expenses as the projectprogresses.

Another requirement of a soundbusiness plan for construction,rehabilitation, restoration orrenovation is a project budget. Youcan get assistance in completingthis from your architect and/orgeneral contractor. There aresample budgets included in theappendix of this manual.


22/64

21

T

HREE

It is rare that a project does not end up costing more thanbudgeted. A contingency for 20% of the project is notuncommon.

Operating Budget and Cash FlowAny investor or loan institution will want to be sure thatthe project is viable after it is completed. So the next stepin a plan is to create an operating budget and cash flowprojections. These projections will include income andexpenses generated by the project once it is up and running.It is important that the project produces adequate cash flowto cover all expenses including debt service.

Escrow

It is recommended to set aside a pre-determined amounteach month for real estate taxes, insurance and majormaintenance projects (roof, parking lot resurfacing, exteriorpaint, sky light maintenance, masonry, etc.). If the projectis financed, the bank may require an escrow payment eachmonth for taxes and insurance as part of the regular loanpayment. This escrow payment is put in an escrow accountand accumulates so there will be adequate funds availablewhen the taxes and insurance are due.

Equity

Banks will rarely finance 100% of the cost of a project. Asa general rule, banks finance 80% of a project. That meansthe remaining 20% must come from funds outside the bank.Even with gap financing and other programs available,lenders will typically want some cash equity provided bythe borrower. Banks like to be at 80% of cost or appraisalvalue whichever is less. Also, banks may require additionalequity in more risky projects.

Construction Loan

Unless you plan to bankroll the project from start to finish,

you will need a construction loan. This is a short term(usually 6 months to 1 year depending on the size of theproject), adjustable-rate loan (up to a maximum amountdetermined by the estimated cost, future property value,and/or appraisal) that is issued in disbursements orprogress draws on a predetermined basis (usually onceor twice a month). Construction loans are typically monthlyinterest only payments on the outstanding balance duringthe actual construction phase with permanent financing set

After your initial project budgetis complete, you will want tocreate a working budget thatreflects actual bids from subs insuch a way that you can look athow far over/under budget youare on a particular line item. Ifyou are over budget, you willhave to decide whether youshould: 1) obtain additionalbids; 2) revise the project; or 3)go back to your sub-contractorsfor value engineering, toreduce the amount of theirbid. For example, if you arerenovating an old building and

using Historic Tax Credits, youmay get a bid to manufacture allnew windows. If these come infar over budget, you can chooseto divide up the work betweenvarious subcontractors and dosome of the work yourself tosave money.


23/64

22

T

HREE

up with monthly principal and interest payments once theproject is complete. Project payments from the constructionloan are typically done by the bank or a title company asbills are received. When a check goes out for payment, alien waiver is sent to be signed and returned to the bank/title

company.

Financing

New condominium projects may be eligible for secondarymarket (conventional) mortgage financing. Banks look ateach loan on a case-by-case basis to determine borrowerqualifications. Most banks will consider a one, three orfive-year balloon or Adjustable Rate Mortgage (ARM)financing in lieu of secondary market eligible loans. Oncethe condominium does become eligible, the full array ofARMs and fixed rate loans (15, 20 or 30-year amortization)

becomes available.For some residential projects, 30-, 20-, and 15-year fixedrate loan programs are available as well as ARM programs(1-, 3-and 5-year). Commercial properties are typicallywritten over a 15 to 20 year amortization with a balloon anda rate fixed for 5 years. For more details on commercialoptions, see Chapter 6 Bank Programs.

Financial Information

In addition to information on the project, your lender willwant personal financial information on each owner of theproject as each owner will typically be personally obligatedon the debt. Information needed will include a personalfinancial statement (banks have these forms) and personaltax returns for the past 3 years. A credit report is usually

run on each individual to help determine credit risk. If theowner of the project is going to be an existing business, thlender will want business returns and financial statements forthe past 3 years in addition to presonal financial informationfor the business owners as noted above.


24/64

23

4

FOUR

CHAPTER FOUR

SITE SEARCH & SELECTION

Searching for the Perfect Site

Site SearchThere is nothing magical about your search. It can be assimple as several afternoons of driving or biking arounddesired districts. Assuming an interest in downtowndevelopment, a good resource is the office and membershipof Downtown Springfield Inc. (DSI). They sponsornumerous events to provide networking opportunities,such as the annual awards banquet, architectural toursand assorted social activities. In the past three years, DSIhas co-sponsored or sponsored multiple informationalseminars and educational events. A second approach isto create your own inventory of potential properties usingthe DSI list, which is available from the DSI office or anycommercial realtor.

Networking should begin with community leaders such asthe aldermen and employees of the local Department ofCommunity Development, and arc out to your own sphere(business associates, friends and neighbors interested

in the downtown) and beyond to owners and tenants inyour target areas. Do not forget realtors whose firms listcommercial properties: they will have a handle on the latestconfirmed and unconfirmed listings.

If you plan to operate a business within your building, you willwant to contact the Springfield Area Economic DevelopmentCouncil (525-1173) and the City of Springfield CommunityDevelopment Department (789-2377). These bodies arewilling and able to assist new and expanding companies

The local Commercial RealEstate Network is also a greatasset. Other sources are realestate listings online

and publications or supplementsby specific firms. These canbe reinforced or expandedby watching the newspaperfor tidbits about Springfieldbusinesses and building ownersthat might produce availablespace.


25/64

24

FOUR

to locate vacant facilities or available land that meetstheir needs. The Springfield Area Economic DevelopmentCouncil maintains a database of available commercial sites.The Regional Planning Commission and the City Councilhave prepared a comprehensive Land Use plan that alsoprovides detailed information about vacant or underutilizedparcels for future development.

Site SelectionLets assume youh a v e n a r r o w e dyour search to twobuildings. One is acommercial structureof 10,000 square feet

that has been vacantfor 25 years; the basicstructure is soundand the architecturalstyle is stunning butit is located in an areathat is in transition.The other is half thesize and perfect for2 residential units; itwas renovated some

years ago and hasa residential tenantwho has been in theupper for 3 years.

This second building is located on a major arterial streetdowntown.

You have done some cursory research using available databases. You managed to find a previous owner of the firstbuilding and the realtor who sold the second property to theprevious owners who restored the upper flat. Youre excitedby your finds and want to get moving before someone else

discovers these gems.

Nows the time to begin some serious evaluations. The firststep is to create rough budgets for each building. Theseshould include the project costs to help determine the size ofthe mortgage and your own obligation. From that a traditionalreal estate evaluation will provide your return on investmentand equity. Beyond the project budget you should alsocreate an operating budget that will include escrow funds for

Another important reality checkis the brutally honest evaluationsof your professional advisors. Adeveloper, architect or appraiserwill help you evaluate the viabilityof the building. A three inchslope to a floor can be erased,if you commit enough resourcesto make repairs. While a vacantbuilding appears to be a real

steal, it may be locatedin an area requiringenvironmental clean-up. Your bargain maybecome a budgetbus te r ! You w i l l

also want to showthe budget to youraccountant and reviewthe plan with yourfinancial advisor.


26/64

25

FOUR

major repairs, standard operating costs (insurance, utility,taxes at the new property value) and reasonable revenuebased on comparable rents or sale prices in the area. Thereare various people available through DSI to assist with all of

the above required steps. You will need to review carefullythe tax implications of this purchase. Your attorney shouldreview any current lease or contracts related to the building.And check for problems with zoning restrictions. Other initiallegal concerns include: street address, parking issues,and team legal status (sole proprietor, partnership, LLCor incorporation). Considerations prior to closing are bankand other closing fees, and utility bills. It is always a goodidea to request a copy of your sellers closing documentsprior to the closing itself. They may contain such nuggetsas final utility bills or other expenses that will provide vitalinformation to you.

A major portion of the downtown area is a Tax IncrementFinancing (TIF) District, which provides for substantialincentives for redevelopment as well as for certain typesof tenants looking in the downtown area. Other parts ofthe city also have TIF districts designated and the benefitsof these districts can be substantial. Enterprise zones aredesignated for several areas of the city also. These canalso be the areas of a TIF district. These zones provideadditional incentives.

PurchaseUnless you are an experienced developer, you will wanthelp from an attorney in negotiating the purchase priceand terms. The closing will involve the following parties:buyer, seller, their respective attorneys, a loan officer fromthe lending institution and a title company official. For yourpart, closing costs may include environmental study, realestate appraisal, bank fees, and tax escrow. On the otherhand, the seller may be responsible for tax escrow, finalutility bills, rent reimbursement (covering tenants advance

payments beyond the date of the sale).

ResourcesSPRINGFIELD PUBLIC LIBRARY- SANGAMON VALLEYCOLLECTIONThese records contain the most comprehensive collectionof historic photographs of the historic downtown area andother areas of the city.


27/64

26

FOUR

STATE JOURNAL REGISTERThe archives of the State Journal Register and theirmicrofilm department contain substantial information aboutproperties in Springfield.

ILES HOUSE FOUNDATIONThis is a museum of Springfield history that containssignificant data about Springfields past.

HISTORIC SITES COMMISSIONAs part of the City Department of Economic Developmentthis commission also maintains a collection of historicinformation on the development of Springfield.

ILLINOIS HISTORIC PRESERVATION AGENCYThe archives of this agency contain data regarding the

Historic American Building Surveys as well as data on theHistoric American engineering Records for properties inthe city.

OTHER SOURCESThere are several other sources available which can addinformation to a search for property history. These includecity directories, title searches for property ownership,census records for information on previous records, taxrecords and other public records related to the ownershipand development of property.


28/64

27

5

FIVE

CHAPTER FIVE

CODES & REGULATIONSPlay the GameThe Difference Between Commercial and Residentialor Mixed Use ExpectationsThere are different requirements that apply to residentialand commercial space. Two specific areas include firecodes egress and sprinkler requirements. Buildings thatare single-family or two-family residential have fewercode requirements than do commercial properties. Whenresidential and commercial uses are located in one building,however, the residential generally rises to the level ofthe commercial space. If you plan to use the building forsomething other than the prior standard use (for example,residential or mixed use in a formerly all-commercial

building), you will want to check on the impact of thatalteration. Dont make assumptions about which codesapply; check with the experts at City Hall! Stay in contactwith the Plans Examiners in the Building Department andthey will guide you and your design team to work throughany problems.

Specific Regulations

Federal Employer Identification Number/FEIN (IRS)The FEIN is required of all partnerships, limited liabilitycompanies, C-corporations and S-corporations for taxpayer

identification. The state of Illinois accepts the FEIN issuedby the Internal Revenue Service for Illinois tax forms. Ifyou change from a sole proprietorship to a partnership orcorporation, you must request a new FEIN. To apply, useform SS-4 Application for Employer Identification Number.The form is available at the local IRS office or on the Internetat www.irs.gov/forms. Send the completed form to thespecified IRS office. Sole proprietors can use their SocialSecurity number as their business taxpayer number.

Zoning Regulations

(City of Springfield, Department of Building & Zoning, 789-2171, Third Floor, Municipal Center West)

Springfield has zoning ordinances that regulate what typeof tenants (industrial, commercial, residential) can occupya building. The districts allow specific uses. If you needto apply for a zoning change or permit for a special use,allow at least three months time from the application duedate for the legal process through the Planning & Zoning

The historic Pasfield Buildingwas expanded with an addition

on a previously demolished infillsite. The new two-story buildingcompliments the three story1880s structure. A new centralfoyer connects historic and newbuilding areas on the first floor,The brick and limestone facadeof the new addition matches

texture, detail and scale of the

Pasfield Building. The previouslyenclosed and modernizedPasfield storefront was replaced

with a more historically accuratefaade, including a replica of theoriginal small metal cornice at

the second floor level.

The project owner and the A/Eteam worked closely with theCity from the start of the project.This was the first new officebuilding in the central HistoricDistrict in many years. Some of

the issues that had to be resolvedincluded a careful review of theconnections between historicand new buildings.

CASE STUDY


29/64


30/64

29

FIVE

work may begin. However, if the construction documentsubmittals indicate code or ordinance violations, reviewcomments are sent back to the design professional, whomust respond satisfactorily to all concerns before a permit isissued. Permits for mechanical, plumbing, fire suppressionand electrical work are issued separately to only licensed/registered contractors following issuance of a buildingpermit.

Requesting Building Departmentperiodic inspections duringconstruction is the next steptoward obtaining a Certificateof Occupancy. Work must beapproved by electrical, plumbing,mechanical and structuralbuilding inspectors. After allfinal inspection approvals, aCertificate of Occupancy canbe issued and the business is

permitted to open. If there are minor problems with the work,the Building Department may issue a temporary Certificateof Occupancy (usually 30 days) and the problems must becorrected within that time.

Part I Environmental (Environmental Protection Agency)

After a historical review of your building (see Chapter 4), youmay determine that further research is required because ofpotentially dangerous uses housed in the building at sometime in the past. Perhaps an oil tank was in the basement ora gasoline tank was buried in the back of the building. CityFire Department records may help in your search, althoughthey should not be considered as the only source. You maywant to contact the Fire Department at 789-2170. If a titlesearch shows a history of potentially dangerous buildinguses, a bank will require that a Phase I Environmental Auditbe satisfactorily completed before executing a loan. If doubtexists with the Phase I, the lender may require a Phase II

Environmental Audit to be satisfactorily completed. Furtherenvironmental assistance for businesses is availablethrough the Illinois Environmental Protection Agency HelpLine at (888) 372-1996.

Fire and Safety RegulationsFire and safety regulations change according to theintended use. Therefore each building is considered on an

Most turn-of-the-centurybuildings do not meet the currentstructural requirements for floorloads especially on the upperstories. Careful planning isrequired to limit heavy loads(such as file rooms) and toprovide the additional supportrequired to meet new officeloading requirements.

T h e e x i s t i n g s t a i r s a r enot compliant with currentregulations. A new enclosed fire

stair was included in the projectabove after discussions with

the City to provide a fire-safeprimary exit.

There were significant shoringand installation challenges withcutting large openings in antiquebrick walls (at the connection).The old masonry and mortarneeded to be carefully supportedduring demolition and installationof new supporting structure.

The City required the process tobe engineered, and as a result, it

went smoothly.

T. David Parker, AIA MML LTD.Architects and Planners.


31/64

30

FIVE

individual basis. Generally, checking for appropriate zoningwill be the first step in a rehab. Next check with the BuildingDepartment to identify requirements for the specific use(including Illinois Accessibility Code) and if services of adesign professional will be required. Upon determination ofzoning and building requirements, the Fire Department willthen be able to better identify specific fire and life safety codeneeds. This process involves a review of the proposals ofthe design professional. Adjustments will be recommendedand an official review of needs issued during the buildingpermit plan review process. The best friend of newcomersto real estate development is an experienced architectwho can help navigate complex issues and governmentregulations, explaining design and budget implications tothe clients along the way!

The Fisher/Latham Buildings

North 6th Street

Owner: Oxmore LPArchitects: Melotte Morse

Leonatti, Ltd.

The project Owners and

Design Team had a very good

rapport with the City from the

beginning to the end. The Citys

Code Department, Office of

Economic Development and

Code Inspectors were all part

of the process of restoring these

very deteriorated Lincoln-erabuildings to usability.

The financial planning with the

City was very important in all

stages of the work to make sure

that Historic Tax Credits were

verified and sold, to provide

the document at ion needed

for the Citys financial support

programs.

CASE STUDY


32/64


33/64

32

SIX

project up to a maximum of 20% of the total rehabilitationcost. Depending on the need and location (high priorityarea- Phase II), the Citys participation can be in the form ofa loan, grant or a combination of both. The City will usuallysubordinate its lien position to the primary lender. Buildingrehabilitation loans can be amortized up to 10 years andcan have a negotiable interest rate between 0% and 5%(at the discretion of OPED). But all loans must be paid in fullby December 1, 2016 (by the expiration of the Central AreaTIF District). Owners/contractors must adhere to applicableprevailing wage requirements and must agree and disclosethis requirement on all construction-related contracts.

Downtown Residential Assistance Program:This program was designed to assist property ownerswho propose to develop upper floor residential livingunits within the Central Area TIF. This program has threecomponents:

(1) Residential Assistance(2) Architectural Assistance

(3) Residential Rebate

Residential Assistance:The City will participate in the project up to a maximumof 50% of all reasonable residential-related rehabilitationcost. Depending on the need, the Citys participation canbe in the form of a loan, grant or a combination of both. The

City will usually subordinate its lien position to the primarylender. Building rehabilitation loans can be amortized up to10 years and can have an interest rate between 0% and 5%(at the discretion of OPED) but all loans must be paid in fullby December 1, 2016. Owners/contractors must adhere tostrict prevailing wage requirements and must disclose thisfact on all construction-related contracts.

Architectural (Feasibility Study) Assistance Program


34/64

33

SIX

This program is part of the Downtown ResidentialAssistance Program and was designed to assist propertyowners in determining the feasibility of residential or rentaldevelopment of upper-story building projects located withinthe Central Area TIF District. A maximum grant of $2,000,per building, is provided for architectural expenses relatedto the residential feasibility study.

Residential Rebate:A one-time per unit rental rebate equal to six months rent, or$3,000, will be made payable to the developer once a one(1) year lease is executed by a tenant and after the tenanthas occupied the unit for at least one month.

Downtown Facade (purchase) Programs:This program is designed to assist property owners thathave buildings located within the Central Area TIF. Onlycertain expenses are considered eligible in the restorationof facades. This program was revised in 2004 and now hasthree additional options for qualified properties:

Option 1: Historic Restoration Program

Option 2: Facade Redevelopment Program

Option 3: Tall Building Facade Program

Option 4: Existing Facade Purchase Program

With all options, the City purchases a facade easementin exchange for city assistance. The assistance amountdepends on which restoration option the property ownerchooses.

Option 1: (Historic Restoration)The purchase amount is based on 75% of all TIFeligible facade-related costs, or $75,000 (per street-facing facade), whichever is less.

With the historic facade restoration (Option 1), thereis also a $2,000 grant for historical facade-relatedarchitectural expenses.


35/64

34

SIX

To be eligible for a historic renovation, the propertymust be one of the following:

a) Located within the downtown National RegisterHistoric District

b) Listed on the Potentially Eligible forLandmarking List (a.k.a. the Demolition DelayList)

c) Receive local landmark designation by theSpringfield City Council

Option 2: (Facade Redevelopment)The purchase amount is based on 75% of all TIFeligible facade-related costs, or $40,000 (per street-

facing faade), whichever is less.

Option 3: (Tall Building Facades)The owner will choose whether to restore thebuilding facade historically (Option 1) or a simpleredevelopment (Option 2). The total purchase pricefor the Tall Building Facade Program will be basedon two factors: 1) The first five floors of the buildingwill be calculated according to whichever Optionthe owner chooses, and 2) The upper floors will becalculated at $8,000 per floor above the fifth floor.

Option 4: (Existing Facade Purchase)The purchase amount will be based on the numberof stories, for a maximum purchase price not toexceed $25,000 (approximately $8,335 per floor fora three-story building). Facade purchases are onlyavailable on properties that are in good/very goodcondition*. Assistance is at the discretion of the Officeof Planning and Economic Development.

With Option 4, assistance IS NOT AVAILABLE for anyfacades that are in poor condition, or need any repairor maintenance. Determining the condition of thefacade is the sole discretion of the Office of Planningand Economic Development.

Downtown Accessibility (elevator) AssistanceProgram:This program is designed to assist property owners in makingthe upper floors of downtown buildings more accessible to


36/64

35

SIX

persons with disabilities. This program allows propertyowners to a) install ADA (Americans with Disabilities Act)compliant elevators in buildings that do not have ADAelevators; or b) rehabilitate older, non-compliant elevatorsand make them ADA compliant. The program only allowsfor one elevator per building and the elevator must serviceall floors (excluding the basement) in that building. A grantis available for up to 50% of all elevator-related project costsor $50,000, whichever is less. If the building is servicedby at least one ADA compliant elevator, then a property isnot eligible for this program. However, a rehabilitation loanmay qualify.

Lease Payment Assistance Program:This program is designed to encourage new retailbusinesses and restaurants to start-up within the CentralArea TIF district*. Small to medium sized retail businesses(excluding service businesses and businesses wherealcoholic beverages account for 50% or more of theirsales**) are eligible for this program, but must submit acompleted application after signing a multi-year lease, orwithin 90 days from the first day of opening. The programwill reimburse business owners 50% of their first 12 monthslease payments, up to a maximum amount of $10,000,after the business has been in operation for one year. TheOffice of Planning and Economic Development reservesthe right to lower the inducement amount if the lease

amount is considered unreasonable and to reject any andall applications. Reimbursement is made one year fromthe date on the signed agreement and: 1) after a new oneor multi-year lease is signed confirming the business willremain open in the Downtown TIF area, 2) after verificationfrom the Department of Revenue that sales taxes arecurrent, and 3) after verification from the landlord that alllease payments are current.

*To be eligible, business owners cannot be related in anyway to the property owner

** Businesses closing shop and relocating to a TIF arenot eligible for this program, unless special circumstancesare involved. The Office of Planning and EconomicDevelopment has the right to determine what constitutesspecial circumstances.

*** Restaurants may serve alcoholic beverages but foodsales must be the majority of sales and food servicemust be available during all business hours. The Office


37/64


38/64

37

SIX

TIF Administrator800 E. Monroe, Room 107Springfield, IL 62701

217/ 789-2377 /Ext. 469

Enterprise ZoneThe Springfield Enterprise Zone was established toencourage job creation and capital investment in areasof economic distress and to promote neighborhoodrevitalization in targeted areas.

The Enterprise Zone Sales Tax Exemption on buildingmaterials allows materials to be purchased within the Stateof Illinois free of city and state sales tax. The EnterpriseZone Property Tax Abatement is eligible to qualifying

projects that make improvements to the property that resultin an increased assessed value over $30,000. The citysportion of the property taxes may be abated on a slidingscale. (Properties also located in a TIF district are exemptfrom the Property Tax Abatement benefit.) Other attractiveincentives to building or rehab within an Enterprise Zoneinclude State Tax Incentives such as Investment TaxCreditsand Utility Tax Exemptions. For more information,call the Springfield Office of Planning and EconomicDevelopment at 789-7377.

State ProgramsOpportunity Illinois(State Treasurers Office, (312) 814-8953)This program provides the borrower with a below-marketrate of interest during the first 5 years of the loan whichreduces debt service costs. The Treasurers office depositsfunds equal to the loan amount into the borrowers bankand gets a determined rate of interest for its investment.In turn, the bank loans this money out to the borrower at arate that is typically 3% over the rate paid to the TreasurersOffice.

Historic Preservation: Preserving and protectinglandmarks of historic significance (examples:architecturally significant buildings, historic sites,museums, train depots). These projects must bedesignated as a historic landmark or located within adesignated historic district and must follow the Secretaryof Interiors Standards for Rehabilitation. Funding level:Up to $10 million.


39/64

38

SIX

Non profit Development: Loans to expand or improvethe operations for the public good. Faith basedorganizations are eligible as well.

Illinois Department of Commerce and EconomicOpportunity (DCEO)The States Participation Loan Program can participatein up to 25% of the total project, not less than $10,000 ormore than $750,000. DCEOs rate and maturity will typicallymatch the bank. The purpose of the program is to provideassistance to small businesses that provide employmentopportunities. Funds can be used for the purchase ofland and buildings, construction or renovation. There isa Minority, Women and Disabled Participation LoanProgram, a Development Corporation Participation LoanProgramand an Enterprise Zone Financing Program. For

more information, contact Jack Weatherford at 782-3891.

Federal Programs

Small Business Administration 504 LoansThe SBA 504 Loan Program provides long-term subordinated,fixed-rate financing for major fixed assets having at leastten years of useful life. The program is used for owneroccupied properties. Investment properties are typicallynot eligible. These loans are to be used by eligible smallbusinesses to fund up to 40% of the cost of the land andbuildings, machinery and equipment, and renovationexpenses. Business owner must invest at least 10% equityinto the project (a startup or a single purpose buildingrequires additional equity) and a bank funds the remaining50% of the project. Terms are 20 years for buildings. Thestatewide CDC for SBA 504 loans is the Small BusinessGrowth Corporation. They are located in Springfield andcan be reached at 787-7557.

Small Business 7a Loan Program

This SBA loan program can also be used to finance owneroccupied real estate projects. With this program, the federalgovernment provides a partial loan guarantee to the bankmaking the loan. There is a local SBA office in Springfield.They can be reached at 793-5020.

Historic Rehabilitation Tax Credits(National Register website: http://www.nps.gov/hisotry/hps/tps/tax/

index.htm)


40/64

39

SIX

These federal funds areadministered by individualstates and are availablefor any building thatqualifies as a CertifiedHistoric Structure (listedon the National Registeror located in a HistoricDistrict and significant tothat district).

In the 1970s the NationalPark Service developedprofessional Standardsf o r R e h a b i l i t a t i o n ;federal tax incentiveswere added to stimulateprivate investments inrehabilitation of historic

structures.

The City of Springfield has designated many properties aseither landmarks or as part of a historic district.

For more information, contact Mike Jackson, F.A.I.A.,Preservation Architect, Illinois Historic Preservation Agency:www.Illlinois-history.govor (217)785-5031

Bank Programs

Programs vary from lender to lender. Some banks haveexpertise in specific areas like construction financing andgovernment financing. To effectively comparison shop forcurrent offerings and rates, you will want to consult with atleast three area lenders:

1.Commercial Real Estate Loans (fixed or floating rate)for the acquisition of property, typically amortized for15-20 years

2.Construction Lines of Credit with End Loan PermanentFinancing

3.Working Capital Lines of Credit


41/64

40

SIX

4.SBA Financinga. 7(a) Programb. 504 Programs

5.Personal Mortgage Lending (see Chapter 3 underFinancing for details)


42/64

41

7CHAPTER SEVENTIMELINES

Project Timeline and Construction Phase

Prior to beginning construction work, many projectsrequire a construction loan to cover expenses until thework is complete. Typically, only the interest is paid tothe bank during this period. The principal is rolled into amortgage when the project is finished. Interest costs can besubstantial and vary based on the amount borrowed, agreedpercentage and the length of time the construction loan isheld. Therefore, it is crucial to complete construction in atimely manner. Proper planning is critical to the success ofthe project and will result in the earliest possible cash flow

from renters or buyers.

The First Steps (Pre-Construction Phase)

The Basics:Determine the parties (individual ownership, partnership,company or corporation) in the project.

Select a building. Research Historic Tax Credits and Cityfunding potential.

The Team:- Make a decision about your role: owner, developer and/orgeneral contractor.- Make a list of professionals you need to hire: architect,attorney, accountant, general contractor.- Research the names of experts, local or out of town.- Engage the appropriate professionals.-Begin preliminary discussions with financing sources.Research:- Research your building and applicable codes andregulations. Explore prospective government funding

sources.- Empower the architect to open discussions with City officialsabout codes, regulations and construction challenges.- Gather pricing information for as many items as you can(windows, elevators, plumbing fixtures, etc.) and get bidsif possible.- Obtain Business Owners Liability insurance (umbrellapolicy may be required by lender to provide excess liabilitycoverage), title insurance, Builders Risk and Liability

SEVEN


43/64

42

SIX

insurance, contractors liability insurance and floodinsurance.

Project Planning:

- Establish a working budget after a review with yourarchitect and/or general contractor.- Prepare a project timeline (pre-construction)- Research designs, plans, details, materials and finishesyou would like to use. Visit showrooms, magazines or theInternet.- If there are no tenants: create marketing plan to attractand secure leases from prospects. Letters of intent or actualleases may be requested by funding source. A marketingplan is the absolute minimum.- If current tenants: plan for alternate living arrangementsand business interruption for your residential or commercialtenants. You can reduce this down time through carefulplanning to allow on-going work in other parts of the buildingas long as possible. When doing demolition in a buildingwith tenants, clean up every workday, keeping in mind howyou like to live and work.

Historic Tax Credits:- Apply for historic designation for your building, if applicable,and get approval of Historic Tax Credits.

Architectural Prep:

- Work with the architect to develop initial plans andsketches.- Approve final drawings from the architect.- Obtain written bids based on final drawing and makeappropriate adjustments to the working budget.

Construction Prep:- Complete any demolition work needing to be done.- Contract with sub-contractors. (A payment schedulewill be outlined in the contract and usually based on the

percentage of the work completed. Have your architectapprove payments before you issue them. Retain enoughmoney at every stage so that you can finish the job withanother company if necessary.)- Apply for permits.

Loans:- Secure private loans and City or other fundingcommitments.

SEVEN


44/64

43

- Begin shopping for lenders for construction loans, finalmortgage or balloon note, and if pertinent, Historic TaxCredit. Lenders will need the following:

-Set of plans-Complete itemized cost breakdown-Description of materials or specifications

-Copy of contract to purchase-Projected income and expenses once the project iscomplete. This is critical as it provides the primaryrepayment source for the loan.-Financial statements and tax returns on all borrowers(business and individual)If approved, the lender will order the appraisal anddetermine if an environmental study needs to be done on

the property. It is a good idea to get the lender involved asearly as possible once preliminary plans have been made.Theres no sense in doing a lot of work and spending a lotof money on a project if financing cannot be obtained..Once preliminaries are completed (funding in place, finaldrawings complete and subs engaged), and constructionis underway, speed is of the essence. If you have beenfortunate to complete demolition concurrent with thepreconstruction phase, you may have saved many weeksof work. The goal is to complete the construction phase

as quickly as possible. Whenever you begin construction,you can be assured that there will be surprises - even afterdemolition is complete. The hope is that the surprises do notproduce lengthy delays or budgetbusting expenses. That iswhy most budgets include an allowance for change orders(5-20% of the total cost of the project). Your project can alsobe delayed by sub-contractor scheduling conflicts. This isespecially true if you are a onetime developer: subs havelittle incentive to meet your timetable, as there will be norepeat business. Any lengthy delays increase the budget,too, because your carrying costs on the construction willincrease with each passing day.

Make a Plan and Work It

Construction Phase Tasks:Complete initial interior demolitionRepair/replace masonryInstall structural supportsPlace HVAC condensers on the roof

SEVEN


45/64

44

Repair/replace/install elevatorRepair/rebuild/install stairwaysRepair/replace roof(OPTIONAL) Install rooftop deckBegin repair/replacement of windowsRepair/replace storefront and entrancesSandblast interior brick and woodInstall mechanicalsComplete major interior demolition (stairways, garage,entrances)Build/rebuild garageRepair existing or install new stairwaysComplete window repairBuild interior wallsStub in plumbingStub in HVAC

Hang and tape drywallInstall sprinkler systemPaint interior surfacesInstall electrical hook-upsActivate HVACTest and activate sprinklersInstall hardwood floorsRestore elevator carInstall cabinets and countertopsInstall plumbing fixturesInstall carpet

Install kitchen appliancesInstall public area flooringCreate a Punch List (unfinished items)

A word of advice about the punch list: when work iscomplete, walk through the project with your architectand make a list of outstanding items that have not beencompleted as agreed in the terms of your contracts. Do notissue final payments to your general contractor (or if youare the general contractor, to the various subs) until theirwork is complete.

Budget:- Keep your construction cost contingency allowance at 20%or more. There are almost always overruns in constructionprojects.- Be sure to determine the value of subsidies before youbegin your project. Some can play havoc with your budgetprojections because of specific requirements.

SEVEN


46/64


47/64

46

Amenities Appropriate To The Market:- For any overruns you should evaluate how much morerent/sale price you need to meet your investment goals.Again, explore the market rental rates for comparable

properties

Beware Pre-Leasing Euphoria:Dont put much faith in the early interested prospects.It will take time and money to lease all your units.

Caveat Emptor:(Buyer Beware): Scheduling of Sub-ContractorsThis is an art that experienced general contractors havemastered. If you are acting as your own contractor,remember that your subs have no special motivation to meet

your timeline expectations because they may not expectto do business with you again. Anyone in the constructiontrades will tell you that timelines are really goals. Somethinghappens, and there are delays. The schedule looks great; thereality is a different matter! Faced with the choice betweena one-time general contractor and a repeat customer, itseasy to see why subs opt to service their long-standingcustomers first. You may want to consider hiring a generalcontractor or at least consult your architect who can doyour scheduling for you.

Record Keeping and Computer Software Support:Every project requires good record keeping. Microsoft hasa software package called Microsoft Project that mightbe helpful in the construction process. The manual thataccompanies this software states:

Effective project management is vital at the start of aproject when youre determining what needs to be done,when, by whom and for how much money. Effective projectmanagement is also essential after you kick off the project,when you are continually controlling and managing theproject details. You frequently analyze the project tracking

the schedule, the budget, resource requirements and thescope of tasks. In addition, youre managing the level ofquality in the project, planning for risks and contingenciesand communicating with the members of the project teamas well as upper management or customers.

Well said. Effective management is indeed the key to asuccessful project.

SEVEN


48/64

47

8CHAPTER EIGHTMARKETING & PR

Celebrate!You have been talking about this project for weeks, maybemonths. All your friends and family have heard some of thewar stories more than once. Why do you need to marketthe project? And how do you do it, lacking a big budget orany prior experience?

When you approach a bank for a loan, apply for Historic TaxCredits, or make an appeal for City funds, you are marketingthe project. When you meet with an existing commercial

tenant to discuss your plans and the impact on their existingbusiness, you are also marketing your project. When you hireprofessionals to assist with the work, you are promoting yourplans. When you advertise in the newspaper for tenants,you are selling your location. While each approach includesdifferent information and requires a distinct approach, theyall share elements such as details of your plans, goals andan invitation and attempt to persuade others to join yourproject. One key to success in telling your story is to knowthe entire history of the building (see Chapter 4). Knowingthe previous owners and tenants may help dispel (or could

amplify) environmental concerns. If you are applying forHistoric Tax Credits, the more you know about the role ofyour building in the history of the community, the better yourcase. A human-interest or historical approach will propellocal media attention. Once your research is complete,there are several tools you may want to create to tell yourstory and convince others to help:

Photo album or brag book Just like Grandma, youcan carry around a portable history of your project or current

EIGHT


49/64

48

status report. There are small brag books for purchase online that use your own digital photos and captions. Theymay cost as little as $10 to produce and make a BIG impact!Photos can begin with the interior/exterior before picturesand conclude with the Grand Opening or the finishedproduct. History book This could include your marketingplan, copies of your presentations, construction quotes,research documentation, financials, curriculum vitae ofowners, funding applications, funding presentations, timelogs, layouts, project timeline, meeting notes, selectedphotos, professional contracts, correspondence andnotes, marketing samples, purchase offer, partnership orincorporation papers, leases, tax ID, insurance contracts,rental applications and forms. Storyboards or window displays One way to let the

public know changes are coming is to create a large andattractive window display mixing photos, memorabilia andexterior sketches or floor plans. If you are computer savvy,you may be able to create your own storyboards, scanningold photos and documents and placing an Excel file forconversion to a .pdf that can be provided to a local companythat produces the finished display. PowerPoint presentations This staple of the businesssales call is also useful in making a pitch for funding. Youcan tailor the story to each audience, dropping or addingstandard slides accordingly. You can also insert photos

and sketches to help flesh out your plans or illustrate apoint. Standard slides could include: building history, teamleadership (owners), project goals and budget, financials(including operating cash flow, funding affect on budget,standard real estate analysis), and marketing plans. If you are working with the City of Springfield, SangamonCounty, State of Illinois or U.S. government funding sources,it behooves you to spend some quality time thinking aboutwhat they can get from working with you. Then include thatinformation in your presentation for assistance. Be lavishin your praise! Everyone likes a public pat on the back.

There are many ways to announce your project. Here area few:

Paid print ad Are you looking for tenants? If they areresidential renters, you will want to include this in your mix.Include this cost in your budget, and since you pay by theword keep the description brief but enticing. Perhaps we could try a DSI version? A mini-Upper StoryTour?

EIGHT


50/64

49

The DSI office can spread the word to others interestedin downtown development. The organization produces anewsletter several times a year, and also sends a weeklyamalgam of news, member announcements and ads,activities listings and other items of interest to downtownboosters. Your project will definitely qualify.

Open House You may wish to host your own openhouse for the public. Again, this can be done in conjunctionwith the DSI architectural tours or events that are held inthe spring and fall that generally include open houses atbuildings of architectural or historic interest. Or you canproduce your own open house. (Mayors Media Conference If you are working withCity officials and receiving government assistance, youmay well be considered for inclusion in the weekly mediaconference. No matter who presides over the City Council,they are always ready to applaud new and exciting projectsdowntown! At times, when there is a dearth of goodnews, you may be approached before you ever decidehow to broach the subject with someone at City Hall.)Possibility? Media Release If you have never written one, talk tosomeone experienced in this art. It is not black magic, buthere are several suggestions to help you create a winningrelease. Limit your release to one page with the copydouble-spaced in a font no less than 10 points. You may

want to come up with a catchy title and grab the attention ofyour readers who are media pros and not easy to impress.Make sure you have included within the first paragraphor two the precise who-what-why-where-when of youractivity. If your announcement is more in the vein of newsthan specific celebration or event, you may want to call theprint media news desk (or Business reporter) and the newsdirector of television and radio stations. DSI can help youidentify people in the media industry in Springfield whowould be willing to volunteer their time to help you write,prepare and distribute your materials.

Media Interviews Do you have the ear of a radiopersonality, newspaper editorial writer or TV reporter? Letthem know what you are doing, and invite them in! Humaninterest and news stories blend in a downtown developmentproject. And everyone is always looking for a fresh angleon the downtown story or to be the first news team on thescene. DSI has (will have) a copy of Making News in Mr.LincolnsHometown that provides addition tips and contacts for

EIGHT


51/64

50

various print and broadcast media in and around the city.You can make photocopies Letter to the Editor Write to the local newspapers orcall one or more of the local network TV stations. Most invitereader-inspired stories. And good news from downtown isalways welcome. When contacting a television station,make sure you have some bullet points ready that explainwhat youve done, and why its unique. Formal announcement If you are associated with a realestate developer or realtor, they may well want to producean announcement for their regular mailing list. Perhaps youhave a mailing list of your own. Chamber of Commerce Are you a member of theGreater Springfield Chamber of Commerce? The Chamberpublishes a newsletter, offers a variety of services for smalland large businesses, and routinely makes announcements

relating to local business expansion. Springfield Convention and Visitors Bureau - Hereis another public avenue for partnership. If your projectincludes recreational space indoors or out particularlyif your venue provides an activity to attract visitors toSpringfield you might be in a position to interest the SCVBin a public announcement.. TV Network or Cable Shows From national cabletelevision programs to your own local television stations,this medium could get your property anything from a fewminutes on the evening news, to a whole program on your

local PBS station. Your best bet is to email a televisionproducer with your press release and some photos; thenfollow up with a phone call a few days later. If your propertyis extra unique, you might contact the producers of programson HGTV, DIY or TLC. Keep in mind the national programsget hundreds of queries and proposals, so your chanceson the national level are relatively small.

EIGHT


52/64

51

9

NINE

Building On Our HistoryIn evaluating the redevelopment and the new developmentin Springfield that has occurred over the past several yearsthere are two major reasons for this activity. The first is aresult of the rich history that exists because of the time spenthere by Abraham Lincoln and the existence of the statecapitol. These facts have caused a strong desire to preservethis history through the restoration and redevelopment ofmany of the buildings of the Lincoln era. This is very evidentin the downtown area and several historic areas adjacentto downtown. This redevelopment was not necessarily

for profit purposes, but for pride and preservation ofSpringfields historic past. The second major reason is dueto the strong and stable economic environment of the area.Springfield consists of an economy that is very resistant tomajor swings. As a result, business owners and investorsalike can become a part of the Springfield market with theexpectation that their investment will have a high degreeof a chance for success.

Curtis TilletCommercial Broker

Coldwell Banker Devonshire

It does not take many conversations with the early pioneersof urban redevelopment in Springfield to conclude that thereare plenty of lessons to be learned on all sides. But amongthe most pressing concerns was the need for improved andstreamlined partnerships with both the city and local lendinginstitutions. Those of us working in downtown developmentnow owe a hearty thanks to our predecessors. They helpedmake todays discussions with lenders much more fruitful.Each project benefits from the success of the previousone.

Key to a successful building rehabilitation projectincludes up-front planning and construction costestimating to evaluate the functional, aesthetic andfinancial merit of the potential project.

Bruce FerryAIA, Architect and Developer

CHAPTER NINE

ADMONITIONS & OPPORTUNITIES


53/64

52

Political and market forces are at work today, and theyalways have been in the past. The local economicenvironment, long-depressed real estate valuesdowntown, and plentiful examples of successful urban loftliving models across the country have also had a positiveimpact.

Several quotes from Springfield trailblazers areinstructive:Our family decided to rehab the K-Mart building downtownon the corner of 5thand Adams with a personal reward inmind. My wife and I wanted to live downtown. We wereable to make the project cash flow, back before downtownrehabilitations had taken off. This was due to help fromthe city with a low interest loan, structuring the tenants tobe first floor retail, second floor office and the remainingspace residential leases. The first few years, while we livedin one of the apartments, we went out to dinner downtownsomewhere different every night. We walked to one of fourrestaurants and enjoyed it very much. I was so pleasedwhen I was back in Springfield for a Christmas visit thisyear to see downtown bustling with many more choices fordining and shopping!

Gene GerberCommercial Developer

A long tested strategy proven to result in downtownrevitalization across the country is to attract apartmentdwellers with disposable income to well-maintainedbuildings. They provide the impetus for entrepreneurs toestablish restaurants, retail and offices which add hustleand bustle to the streets, not to mention increased propertytax revenue to the City. In Springfield the City providesfinancial incentives for rehabbing downtown through thetax increment financing or TIF funds.

Carolyn OxtobyCommercial DeveloperAnd From The Finance Viewpoint

In general, the local banks are receptive to developersprojects as long as there is some equity in the project andthere is demand for the project. Banks want to be paidfrom cash flow generated by the project once it is done and

NINE


54/64

53

NINE

not from liquidation. Office and retail space seems to beample throughout the City. Additional residential space isneeded downtown as demand has grown in recent years.Downtown parking continues to be an issue, although theproblem is more perceived than actual. There is plentyof parking within walking distance to any downtownlocation.

John MaxfieldCommercial Lender

Illinois National Bank

It is clear that we need a strong and evolving partnershipwith the City to make this happen. It is not enough tostudy and report endlessly on possibilities or undertakeindividual projects in a planning vacuum. With the Cityas a partner, we must develop a working relationshipestablished on trust, mutual respect and collaboration.Prospective developers must come prepared with budgets,professional support and do-able plans; city officials mustseek out appropriate partners and create working modelsfor partnership that include a cocktail of funding optionsand cooperation in codes and building requirements.

With equity investment and willing hands, Springfield canrealize the dreams of the visionaries who love this city.

We meet with at least four peoplea month that want to start a newbusiness in downtown Springfield.Their energy and enthusiasm iscontagious and reaffirms that

Springfield is the place to dobusiness.Victoria Clemons

Executive Director, DSI, Inc.


55/64

54


56/64

55

10

TEN

CHAPTER TEN

TOP TEN LESSONSEnough Already!

Okay, okay we went on longer than we intended. Hereis a chapter for the speed-readers, those of you who readonly Cliff Notes and still aced the tests. These conceptsare so big weve even increased the font to accommodatethe ideas.

1.

dsi's downtown developer's guide

Documents