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Westchester, IL-based Tri-Land Properties Inc. owns and manages more than 2.8 million square feet of commercial retail space, located in the Midwest, Mid-Atlantic and Southeastern regions of the country. Richard Dube, founder, president and owner shares his thoughts on creative financing in the current market.

Ours is a story that is unfortunately all too familiar in these turbulent and challenging economic times: a great development sidetracked by a truly unexpected shortfall of one highly critical component—money.

It was May of 2008, and more than 18 months of hard work and collaboration had paid off when the city of Overland Park, Kansas finally approved its first ever Tax Increment Financing (TIF) district for our redevelopment of the 111,294-square-foot Cherokee South Plaza. Valued at $3.5 million, the TIF dollars would help defray the cost of creating a warm, welcoming and aesthetically pleasing environment satisfying the city’s new stringent zoning code for the established commercial district north of I-435. With enhanced streetscaping, lush landscaping, attractive signage and related architectural detailing, the Cherokee South Plaza redevelopment promised to transform an aging, underperforming asset into a vibrant and productive community destination.

The project was on track, and the TIF approval validated our position: a revitalized Cherokee South Plaza had the potential to bolster the economic prospects of surrounding development and become a true community asset. As with any successful public-private partnership, community engagement was key. We worked closely with city officials to develop the TIF district. We reached out to Overland Park’s residents. And most importantly, we listened. We had successfully brought local residents and municipal leaders on board, and the community shared our enthusiasm for the project. When the news came that Walgreens was ready to sign its lease, everything seemed to be falling into place.

Then came the undesirable news.

Our optimism quickly turned to frustration as the unfortunate realities of a frozen bond market became clear. We needed to monetize the TIF to start construction. Fall of 2008 soon became spring of 2009. The bond markets had not improved. The good news is that Walgreens had executed a ground lease that required them to construct their building, at their own expense; as well as, integrate 2.5 acres of common area improvements to the overall development. Walgreens commenced construction May 2009.

Reworking the Financial Structure

We had invested a great deal of time, energy and money in securing the TIF and signing Walgreens. Undeterred, we scoured the nation looking for innovative ways to monetize the TIF. Finally, in April, we found a way forward. Working closely with a Midwest investment bank and a Midwest investment brokerage firm, we implemented a “dual track” to raise $2.8 million of new equity ($2.4 million for hard construction) in the form of senior subordinated notes or bank qualified notes.

The senior subordinated notes are being actively and successfully subscribed to investors at an attractive 8% return (plus 4% pay-out bonuses on sale of the project). Simultaneously, the bank qualified notes are being provided by the investment bank at a 7.25% rate of return. The result is that the TIF will generate a revenue flow for these new senior subordinated note holders and or bank qualified notes, while the rental stream from Cherokee South Plaza will generate income for our equity investors.

The keys to making this outside-the-box financing work were:

  • Realistic expectations and returns on the new senior subordinated debt, i.e. the paper was priced fairly.
  • Outstanding communication among all vested parties, especially with our equity partners, most of whom are long-term investors with Tri-Land Properties. They understood the special circumstances that made the new level of debt necessary, and they also had an opportunity to participate in the offering.
  • Finding and partnering with new financial partners, and the investors they can bring to the table. The new relationships we have forged have been so successful that our existing investors are already looking forward to our “next deals”.
  • The financing strategy that is driving the redevelopment of Cherokee South Plaza has been so successful that we plan to utilize a similar approach when it comes time to monetize the TIF stream for our other projects in the region, such as the $5.6 million TIF already structured and approved by Kansas City, MO for our Brywood Centre redevelopment.

    The bottom-line lessons here are clear. Be persistent. Be creative. A little lucky. And, control the market; don’t let the market control you.

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