Polaris Financing Case Study

(1)

DEBT SEMINAR

Columbus, OH

April 30, 2009

POLARIS

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What is Polaris?



Over 1,000 acre mixed use development



Retail



Office



Hotel



Restaurant



Entertainment



Residential

(3)

What is Polaris?



Major retail components

 Polaris Fashion Place

 1,500,000 square feet of retail space

 7 anchor tenants including Barnes & Noble,

JC Penney,

Macy’s, Saks Fifth Avenue, Sears, The Great Indoors and Von Maur

 155 specialty stores

 Polaris Towne Center

 440,000 square feet of retail space

 Businesses including Best Buy, Lowe’s, Old Navy, OfficeMax, Kroger and Target

 Other Retail

 Shoppes at Polaris

 Capella Center II Polaris Neighborhood Center  Sancus Retail Center

(4)

What is Polaris?



Major office components



JPMorgan Chase Operations Center

 Approximately 2,000,000 square feet built in two phases

 Approximately 8,000 employees with ability to accommodate 10,000

 Each phase abated for 10 years

 Estimate market value of over $200 million 

McGraw Hill Office Building

 550 employees

 Partially abated for 10 years

 Estimated market value of $20,000,000 

Mettler Toledo

 Over 300 employees

 Originally abated for 10 years with recent 5-year extension  Estimated market value of $17,000,000

(5)

What is Polaris?



Hotel Development



Hilton full service hotel is flagship Polaris

hotel

 252 guest rooms

 Fitness center and indoor pool  Full service restaurant and bar

 Approximately 15,000 square feet of meeting space



Other hotels include Hilton Garden Inn,

Candlewood Suites, Wingate, Extended

Stay Deluxe and Comfort Inn



Residential (Not captured by TIF)



Apartments

(6)

What is Polaris?



Summary of Project



Close to 1,000 acres have been developed



Final build-out projections call for 11,000,000 square feet of

improvements



Well over 100 buildings already constructed and over 200

companies are accommodated

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Polaris Financing History



Land accumulation for Polaris commenced in late

1980’s



In 1994 City began negotiating TIF Agreement with

developer and Olentangy Local Schools



Original TIF negotiations centered upon a proposed

Mills Outlet Mall



School District rejected TIF participation



Political fallout at School District level

(8)

Polaris Financing History



Negotiations commenced anew centered upon

Polaris Fashion Mall



School District approved a modest level of

participation



School District proposal rejected by City



Project became a hotly debated political issue at

City level

(9)

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Polaris Financing History



In 1996, a non-school TIF was created



Revenue flow commenced in 1998 and grew to

over $1.2 million in 5 years

Year Revenue % Increase

1998 $67,959 N/A 1999 $103,757 52.67% 2000 $474,434 357.25% 2001 $858,006 80.85% 2002 $1,283,958 49.64% 2003 $1,573,395 22.54% 2004 $1,523,134 (3.19%) 2005 $1,501,331 (1.43%) 2006 $1,637,540 9.07% 2007 $1,819,674 11.12% 2008 $2,123,484 16.70%

(11)

Polaris Financing History



Initially, some improvements were financed by developer

and reimbursed from TIF cash flow



First financing completed in 2001



$4,000,000 variable rate demand TIF revenue bonds



Backed by bank Letter of Credit



Proceeds used to pay for and reimburse developer for

street improvements (Lyra Drive, Gemini Parkway and

Polaris Parkway)



In 2004, Ohio Department of Transportation accepted bids

for a new interchange construction project estimated at

$27,600,000

(12)

Polaris Financing History



City issued $20,000,000 in TIF revenue bonds in 2004



Refinance balance of 2001 bonds ($2,100,000)



Provide a portion of funds necessary for interchange

project ($15,965,000)



TIF revenue bonds were insured by AMBAC and received

a “A” underlying rating from Standard & Poor’s



TIF revenue stream could not fund entire interchange due

to



Coverage requirements



Inability and unwillingness to finance based upon

speculative revenues



Only completed projects and projects underway were

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Polaris Financing History



The City reserves the right to pursue additional

improvements in the TIF area and to pay for them (or

reimburse the developer) after its obligations to Senior

Lien and Deferred Bond Holders are met



The City of Columbus considers Polaris a TIF success

story



Annual TIF revenues are currently exceeding the

amounts that were projected in 2004 by roughly 7%



Senior and Deferred Bond debt service is comfortably

being paid



The City was able to accomplish the financing plan while

shifting development risk to the developer and

bondholders

(14)

Evaluating Risk

There is Risk Associated with

Every TIF Transaction

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Evaluating Risk



Development Risk Issues



_{Will the project be completed?}



_{Will it be completed in a timely manner?}



Will it be valued at an appropriate level?

Least Development Risk

Well defined Proven

Short development horizon Proven developer

Most Development Risk

Unique project Multiple Phases

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Evaluating Risk



Mitigating Development Risk



_{Developer agrees to minimum assessed}

valuation or minimum payment schedule



_{TIF financing structured with ample}

coverage requirements

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Evaluating Risk



Credit Risk Issues



_{Fluctuation in tax rates (only unvoted}

millage increases with inflation)



_{Developers ability to pay}

(18)

Evaluating Risk



Mitigating Credit Risk



_{Provide coverage sufficient to cover}

maximum tax rate fluctuations



_{Developer secures debt service payments}

with letter of credit or other financial

guaranty



Developer forfeits right to appeal property

valuation



_{Developer signs on to minimum payment}

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Lessons from Polaris



All TIFs involve two types of risk



_{Development Risk}



Credit Risk



In Polaris, City of Columbus has transferred

virtually all development risk to the developer



In Polaris, all credit risk transferred to insurer and

developer



Senior lien bondholders and City essentially

insulated from both types of risk

(20)

Lessons from Polaris



Polaris is unique because of sheer magnitude

of project



Not always possible to protect school

revenue



General obligation support is sometime

necessary



Goal is normally to minimize risk – not

eliminate it

(21)

Lessons from Polaris



Implement TIF early and for entire project

area



Polaris lost some potential revenue by not

creating TIF prior to 1995



Important to monitor TIF revenue and verify

accuracy on an annual basis



First several years of Polaris, State

rollback revenue was not being distributed

to TIF by County. Dispute was settled by

State Department of Taxation

(22)

Lessons from Polaris



Patience is key



_{Developer projections are often optimistic}

in terms of time and dollars



_{Must allow for a prolonged revenue ramp}

(23)

Panel Participants

Bricker & Eckler LLP Price D. Finley, Esq. 100 South Third Street Columbus, Ohio 43215

(614) 227-8897 (Telephone) [email protected]

Argus Growth Consultants, Ltd. Bradford M. Sprague, Vice President 100 South Third Street

Columbus, Ohio 43215

City of Columbus

Hon. Hugh J. Dorrian, City Auditor 90 West Broad Street, Room 109 Columbus, Ohio 43215

Olentangy Local School District Rebecca Jenkins, Treasurer/CFO 814 Shanahan Road

Lewis Center, Ohio 43035 (740) 657-4035 (Telephone)