November 30 2010 The Importance of Thinking Strategically

November 30, 2010 The Importance of Thinking Strategically Tribal Development Seminar Steve Walker, Managing Director Heartland, LLC

Pursuing development strategically includes employing a rigorous methodology to evaluate and manage the develop process. The most successful developments are visionary, creative, carefully planned and effectively implemented. Real estate development plans are business plans and should function as a road map, stating what the destination is, describing the process to get there, and anticipate and prepare for when roadblocks arise and detours are required. 2

Thinking Strategically Context Clear Vision and Project Objectives Measurable Goals Due Diligence/Feasibility Process Design and Development Team Implementation Process Management Tools 3

Context Past development practices: Design of infrastructure and building systems predominantly by engineering community. Focus – optimizing efficiencies of land plan, roads, utilities and buildings. Market, operations and financial analysis and aesthetics often secondary. Overriding emphasis on costs, sourcing financing and construction. 4

Context Forward development practices: Development focus broadened to address social, cultural, economic, ecological, community and lifestyle issues. Financial performance – initial, mid-term and long-term Approach requires leadership vision, a holistic methodology and decision making process and multidisciplinary design and development team. Management tools to quantify and measure these evaluation metrics. 5

Context As a society we are increasingly focused on understanding the limits of our natural resources, the threat of climate change, and more recently the social and economic repercussions of this recession. Sustainability has become more than just the latest buzzword - a reset button has been pushed, a paradigm shift has occurred. Sustainability is now one of the core values and filters that people view development. We are increasingly thinking seven generations in the future. 6

Clear Vision and Project Objectives What is the purpose for this development? Who is it for? What is the market demand that it will fulfill? Why is the right place? What is the right project for this location? What is the development aesthetic? Why will people come here and how will they use this place? How is success to be measured – financial, sustainability, community, and lifestyle performance? 7

Measurable Goals Like any business plan, the development plan should: Establish the desired outcomes. Identify measurable goals for the specific project and the metrics of how these goals are to be evaluated throughout the stages of predevelopment feasibility, development phases, leasing, operations, and sale(s) (if applicable). 8

Measurable Goals Financial Performance What are the “financial” metrics that the project should be evaluated to? Community What are the “community” project goals during predevelopment, horizontal development, vertical construction and operations? Lifestyle What are the “lifestyle” project goals? How will people interact and experience this place? Why will they return? Why will they live, work and recreate here? Development is more than buildings it is the total place 24/7. Sustainability What are the “sustainable” project goals during predevelopment, horizontal development, vertical construction and operations? 9

Measurable Goals • Growth Projections (5, 10, 15 Year Estimate) • District Growth Potential (5, 10, 15 Year Estimate) • Financial Feasibility Sub-Model • Topic Area Sub-Models üTransportation üWater üEnergy üSolid Waste Sustainability Strategy • Alternative Scenarios for Sub. Model Roll Up üGrowth Scenario üPerformance Benchmarks üCost (Uses) üRevenue (Sources) Identify Optimum Sustainable Strategy EXTERNAL FACTORS + INTERNAL FACTORS üPartnerships • Performance Benchmarks üBaseline (BAU) üGood • Financial Performance üBetter üIRR/ROI üBest üPayback Periods üBenefit per Cost üNet Cash 10 OPTIMIZED SCENARIO

Due Diligence/Feasibility Process Opportunities § § § Physical Market Political Regulatory Alternative Analysis Financial § § Pro Forma and Sensitivity Analysis Evaluate project alternatives Sensitivity of financial performance to changes in project assumptions Realistic § § and Constraints Analysis and Flexible Program Flexibility in types of uses, densities, sizes, heights, parking and phasing Flexibility in land plan to respond to changing market conditions Phasing to Manage Cash Outlay and Product Diversification to Maximize Absorption § § § Phasing – land plan, infrastructure plan and building plan Phase Cash Outlays - match near-term absorption and revenues Maximize Breadth and Depth of Uses and Products – accelerate absorption and revenues 11

Design and Development Team Integrated Design and Development Team that gets it: Design and Project Management Architecture Land Planning Engineering Landscape Architecture Science Disciplines 12

Design and Development Team Assembling the right design and development team upfront and providing it with the right leadership and direction is the most important step in achieving a successful development. The least cost/maximum ability to positively affect the financial cost and performance of a potential development is during the initial planning stages. Performance Cost Initial Planning Stage Construction Phase 13

Implementation Process • Vision • Preferred Vetted Program & through Strategy Feasibility • Project Team Assignments • Concept Development • Land Development • Operations • Design Development • Construction • Sales • Commissioning • Construction Documentation • Entitlements • Financing Collaborative Process Critical Thinking 14 • Leasing

Management Tools The extent and complexity of the tools to manage a development project vary with the demands of each project. File Management System Contact List Due Diligence/Feasibility Check List Pro Forma (including detailed integrated budgets for predevelopment, vertical construction, operations or operating subsidies, financing, revenues and sensitivity analysis) Critical Path/Timeline Building Budgets for Specific Vertical Building Projects Critical Path for Specific Vertical Building Projects Sustainability Performance Model Community and HOA Budgets 15

We live in a very challenging and exciting time. New thinking, innovation and informed risk taking are core ingredients to moving forward with successful developments. No one has all of the answers, the goal is to know what are the critical questions to ask. Strategic Thinking Clear Vision Measurable Goals Due Diligence/ Feasibility Methodology Design & Development Team 16 Implementation Plan Management Tools