bae Financial Strategy FMFADA Board November 19 2009

bae Financial Strategy FMFADA Board November 19, 2009

Today’s Agenda bae § § § § BAE/RCLCO Analysis Capital market conditions Developers in down markets Current RFI/Q/P solicitation strategy Master versus multiple developer partners FMFADA as “master developer” Recommended revision to developer RFI/Q/P process

BAE and RCLCO Analysis bae § In the course of performing their respective work, BAE and RCLCO have independently come to the same conclusion regarding FMFADA’s master developer RFI/P/Q strategy § BAE and RCLCO have conferred over the past several weeks and prepared a joint analysis for FMFADA § This presentation shares our analysis and recommendations

Big Picture Economic Conditions § National economy emerging from steep recession • • § bae Unemployment at 26 -year high Blue Chip Economic Indicators - November Forecast for 2010 • • § 8 M jobs lost Consensus forecast GDP growth @ 2. 7% Growth slower than normal recovery 1. 4% disposable personal income growth 2% inflation Wall Street Journal Survey - November Survey for 2010 • • Average forecast of solid 2. 9% GDP growth Employment growth slow - 600, 000 non-farm jobs Low inflation @1. 8% Shape of recovery: • • Half of respondents: “U-shaped” -slowness followed by solid growth 31% “V-shaped” -strong rebound 11% “L-shaped” - economy stabilizes at lower level 7% “W-shaped” or “Double-dip” recession

Constraints on Capital Availabiliity bae § Real estate credit markets have been “frozen” for the past 18 months and despite some recent “thawing” remain extremely challenging. § The “great de-leveraging” of commercial real estate is expected to absorb much of real estate capital over the next several years, constraining capital available for new projects. § $950 B+/- commercial real estate debt maturing over next three years

Developers in Down Market bae § Lack of capital will constrain developer response to opportunities at Fort Monroe, particularly for new development § Developers are reluctant to expend precious equity dollars for pre-development activities as would be required for planning new development at Fort Monroe § Soliciting a master developer for the entirety of Fort Monroe will attract interested parties seeking to “tie-up” the property and “wait-out” the market

Current RFQ/RFP Strategy bae § RFP for leasing and property management entity • Action: Fiscal year 2010 - NO CHANGE § RFQ, RFP, and ENA for Master Developer • National outreach • Experience and financial resources key criteria • Use selection process to get up front concessions • Action: Fiscal year 2010 - NEED TO REVISE § RFP for marina operator in partnership with U. S. Army • Action: Fiscal year 2011 - NO CHANGE

Master Developer Pros and Cons § bae Pros: • • § Single entity handles real estate on behalf of FMFADA Integrated planning and development Access to private/public debt and equity markets “Lean and mean” staffing of FMFADA Cons: • Risky: “All of one’s eggs in one basket” • • • Rare for one developer to excel in all development types Financial returns: reduced due to lease “sandwiches” with sub-developer • • Encumbers Fort Monroe if partner’s financial conditions deteriorate Too many financial pockets to feed Lack of control: economic and programmatic interests not always aligned

The Multiple Developer Scenario § Pros: • • “Best in class” niche developers selected for discrete projects Improves financial returns by: • • • bae • • • § Eliminating master lease Fee development opportunities Direct end user leases Access to private/public debt and equity markets Deal structure can be customized to fit the opportunity Greater control by FMFADA to balance economic and programmatic interests Cons: • • • Lower degree of integrated planning Increases staffing requirements for FMFADA assumes master developer role

FMFADA as Master Developer Under a multiple development partner scenario the FMFADA acts as master developer providing: bae § § § Integrated planning Overall real estate marketing and branding Infrastructure financing and construction Lease negotiation and execution Project coordinating and monitoring Lease administration As a master developer, FMFADA will require a larger staff than previously planned.

Near Term Development Opportunity Prepaid Residential Leaseholds bae § § § 174 historic residences § Developer can be engaged on “fee” basis § Good to excellent condition Have value today that can be leveraged Low-to-moderate capital investment required Can be offered on a cluster-by-cluster or neighborhood basis • Developer invests little of own capital and is compensated by a fee (percent of project value and performance bonus) Leaseholds used as collateral to secure financing

Recommendations bae § Adopt a multiple developer approach § Reduce scope of first RFI/P/Q to Residential Lease Program § Postpone Industry forum to mid-2010 § • • Allows participation of new Interim Director of Real Estate • Time to formulate Residential Leasehold program details Permits FMFADA to resolve planning, historic tax credit, and infrastructure issues “Soft” Marketing Campaign • • Identify and brief potential “best in class” developers Ensure developer market understands and buys into program Line up local lender and real estate community support Need to ensure qualified developer response

Background Slides bae

Residential Leasehold Program § Concept approved by Board: Offer long-term (50+ year) leases of historic residences with prepayment of rent Establish endowment/pay for capital costs with proceeds bae § § Issues: • • Pioneering product in Hampton Roads • • Avoiding fixed rental rates/avoiding “surprises” to leaseholders Need to develop support infrastructure (e. g, local lenders, brokers, title companies) Capturing future property appreciation Examples: • • Sea Colony, Delaware Pensacola, Florida Jekyll Island, Georgia Palm Desert/Palm Springs, California • • Hawaii Santa Inez, California Universities/Colleges Land Trusts

Capital Requirements: “Three Buckets” § bae Reuse and redevelopment of Fort Monroe will require significant capital at three levels: Low Medium High Interim Leasing Residential Leasehold New Construction • Own land improvements “free & clear” • Minor upgrades • Little capital at risk • Exposure to “market” risk • Leasing and property management functions § • Own land improvements “free & clear” • Moderate unit rehab • Site & parking improvements • 3 rd-party capital required • Own land only • New construction of improvements & infrastructure • Highest capital requirement • Highest level of risk • 3 rd-party capital required This suggests different contractual arrangements and deal structures with private management and development entities.