• Developing a Municipal Real Estate Management Strategy
  • May 21, 2012 | Authors: Nancy Park; Ethan Walsh
  • Law Firm: Best Best & Krieger LLP - Sacramento Office
  • This legal alert is the second in a two-part series on the disposition of former redevelopment agency assets and the management of municipal real estate assets going forward. The concepts covered will be discussed in greater detail at in-person seminars to be held on June 5 in Sacramento and on June 13 in Riverside.

    As successor agencies begin the process of disposing of the assets of their former redevelopment agencies, they should develop a strategy and orderly process that will best serve their community and the agencies that will benefit from this process. To develop a disposition strategy, the successor agency should start with a few basic steps:

    1. Make an Inventory of the Property

    While this may seem obvious, it is an essential first step and the foundation on which the remainder of the process is based. Many redevelopment agencies accumulated properties, easements and covenants on property over the course of several decades. The county assessor's office, title companies and independent third party databases such as CoStar, LoopNet and Realquest all can serve as resources to develop a complete inventory. In addition, various city departments that previously oversaw components of the redevelopment agency’s responsibilities may have evidence of property interests. Each property should have a basic property profile with key information collected.

    2. Value the Assets

    Once the successor agency has determined the inventory, it should start the process of valuing the property. This includes determining which properties are the most marketable, which have the most economic development potential, which are being used or are needed for public purposes, and which are not likely to generate interest in the private market. Redevelopment agencies often held lands that suffered from contamination, remnant parcels that may not have independent development potential, and other properties encumbered by various covenants and deed restrictions. There may be agency owned properties that are currently being used for public purposes, which the successor agency will transfer to the city pursuant to the processes provided in the existing law. Further, redevelopment agency properties acquired with low and moderate income funds would be "housing assets" not retained by the successor agency, and properties acquired with tax exempt bond proceeds may be subject to other restrictions. With all of its properties, however, the successor agency should solicit input from a wide range of resources to determine the appropriate value. Properties must be analyzed on a current basis as well as on a highest and best use basis. Appraisers, real estate brokers, local real estate developers and investors, as well as city and county staff, can all offer insight into the likely value of the properties.

    3. Maximizing the Value

    In order to maximize the value of the properties, the successor agency should consider more than the value of the property today. The timing of sales, how properties are marketed and how they are packaged for sale will all play a role in getting the best value for the properties that are to be sold.

    In addition, successor agencies should evaluate both the sales price and the future tax revenues to be generated if properties are developed and put into productive use. This approach was used to finance redevelopment projects for over half a century, and is a factor that should be part of the successor agency's strategy. Successor agencies that use this approach should document the benefit to both their oversight board and the State Department of Finance. This disposition strategy could be affected by pending or future legislation, which will be discussed in greater detail at our seminars in June.

    The process outlined above can benefit the successor agency and taxing entities in the short term and fulfill the goals of AB 1X 26. This process could also be adjusted and used to provide long term benefit for a city or county as a comprehensive approach to real estate asset management. The process is part of portfolio management best practices used by institutional real estate investors for many years. On a practical level, it results in a summary of information which can be used as a powerful decision-making tool today and, if regularly updated, for years to come.