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Pier 40 Development Feasibility Study Pier 40 Partnership The Park at Pier 40

January 16, 2008

DenisMolnerDesign

P40P directed HR&A to examine potential designs for and financial feasibility of a community program:

• • • • • •

Create a great space to serve Lower Manhattan’s growing population by Enhancing existing active recreation opportunities Providing new open space for River and Harbor enjoyment Retaining the special sense of intimacy and security of the “fields in the doughnut” Providing affordable, much needed space for cultural and other not for-profit users in a dedicated arts space Retaining significant long term parking opportunities Programming uses that do not require automobile access

P40P Premise: The HRP Act imposes multiple constraints on HRPT’s ability to make required capital improvements.

• • • • • •

The HRPT may not incur debt. Uses at Pier 40 must pay for Pier upgrades. Uses of the 15 acre Pier must also generate income, along with only two other sites in the Park, to support all 550 acres of this important waterfront resource. At least 7.5 acres of the Pier must be preserved as open space. Most office and all residential uses are not permissible.

Leases are limited to a 30 year term, which constrains private capital's ability to finance capital improvements.

P40P consultants then defined and evaluated - from design and financial perspectives - this program: Fields & open space Public fields Esplanade and walkways Semi-enclosed, covered open space: the “Green Room” School / institution A secondary or post-secondary school Flexible space programmed as a Visual Arts Market Galleries Open artists’ studios, small not-for-profits, and HRPT Green Room Back of House Parking spaces Monthly spaces Daily spaces 630,500 SF 392,000 SF 203,000 SF 35,500 SF 100,000 SF 100,000 SF 238,000 SF 136,000 SF 100,000 SF 2,000 SF 2,800* 2,500 300

* Maximizing layout efficiencies results in ability to accommodate 2,800 spaces in 381,000 sf

Investment of almost $125M* is necessary to bring the sub- and super-structure to a state of good repair and permit development of the proposed program.

$43,500,000 $21,460,000 $50,750,000 Pile Repair Deck & Fender Roof Seismic Upgrade $7,975,000 *These and all subsequent estimates are shown as 2008 dollars.

Investment of $130M is needed to program the stabilized Pier as indicated in the refined program.

$29,000,000 $18,800,000 $10,900,000 $43,700,000 $26,900,000 Demolition Parking Improvements Visual Arts Market Improvements School Improvements Open Space Improvements

Thus, total development costs of $280M are required. $ 124 M Core infrastructure investments (inclusive of soft costs, contingency) + $ 130 M Space upgrade investments (inclusive of soft costs, contingency) $ 254 M SUBTOTAL: Development costs + $ 26 M Construction carry costs* $ 280 M TOTAL DEVELOPMENT COSTS

* Construction carry costs are a function of the financing assumed, which is discussed subsequently

Operating revenues are estimated to total $24.5M

$4,726,400 $4,000,000 $100,000 $2,100,000 $344,000 $1,950,000 $11,250,000 Long Term Parking Short Term Parking Active Recreation Green Room Events Party Boats Institution Other Tenants (Blended Rent)

Estimated annual operating expenses total $4.2M

($1,000,000) ($20,000) ($400,000) ($1,701,600) Building Maintenance Overhead Active Recreation Pier Inspection per Annum Operator Management Fee

Therefore, more than $15M is annually available to pay debt service and meet other financial objectives.

$ 24.5 M total revenues $ 4.2 M operating expenses - $ 5.0 M lease payment to HRPT $ 15.3 M net operating income

However, the refined P40P program cannot offer a private developer the financial return it would expect.

• •

Much of the program is not commercially financeable. Therefore equity requirements are high, probably in the 35-40% range. For a program of this nature, a developer would seek a return on equity in the range of 15%. The program cannot pay such an ROE.

Conclusion: It is not possible to develop the Pier privately and achieve the established goals.

• •

Not only is paying ROE infeasible, required community fundraising would also likely be hampered by the perception that funds were being raised to subsidize developer return. Therefore, private development requires the introduction of commercial uses and an intensity of use in conflict with community goals for the Pier.

• • • •

HR&A has modeled a plausible structure that preliminarily appears to achieve established goals and satisfy identified financing and legal requirements. HRPT leases Pier 40 to a not-for-profit operator, hereafter called a Conservancy



Alternatively, the Pier could continue to be operated by HRPT or another public entity, an option P40P would welcome, but understands is not desired by HRPT.

Conservancy conducts fundraising, accepts charitable donations in the amount of at least $30M Conservancy borrows at tax exempt rates for all eligible purposes, including parking. Conservancy contracts with parking operator.



Financing secured by parking revenues and School rent Conservancy enters into a master sublease with a private developer to build the Visual Arts Market. Developer borrows at taxable rates.

The modeled structure assumes the following sources and uses of funds: Sources Conservancy Fundraising Tax Exempt Financing Developer Equity Taxable Financing Total Sources $ 30 M $ 206 M $ 8.5 M $ 34 M $ 280 M 11% 74% 3% 12% 100% Uses Core Infrastructure Space Upgrades Construction Carry Total Uses $124M $130M $ 26M $280M Percent Tax Exempt Eligible 90% 80% 85% 85%

This preliminary structure represents a plausible alternative that may achieve all parties’ objectives.

• • • •

Requires neither a City/State appropriation nor reopening the HRP Act.

Permits payment of $5M annual, escalating rent every year, with significant payments above escalation in later years and/or Allows creation of a Sinking Fund to address future capital needs of the Pier/Park.

Gives Conservancy long term assurance regarding the recreational and open space components of the program and, to the extent desired by other parties, operational control of entire Pier.

The P40P framework warrants the time required for pre development feasibility review. P40 has:

• • • •

Committed to fund feasibility review budget Conducted promising initial discussions with institutional partners Presented a viable financing strategy for review Had preliminary dialogue with key elected officials

The proposed financing/stewardship structure and program offer substantial advantages over other proposals made:

• • • • • • • •

Enjoys community support Recognizes importance of expansive dimensions in a narrow park Is as of right development Stabilizes Pier for the long-term Provides HRPT/Park support above minimum requirements Has low traffic impact Offers access & views to water Establishes precedent-setting partnership of government and community

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August 2008 | DRAFT HR&A ADVISORS, INC. | RYAN-HARRIS | WPC, INC.

Arts, cultural & entertainment assets are spread across

Historical Museum

downtown.

YWCA Children’s Museum Central Library Cultural Center (Future) Civil Rights Museum Triad Stage Carolina Theater Various Elm Street entertainment Depot Arts & antiques Lyndon St. Artworks THE CONCEPT

The challenge:

connecting

entertainment resources Greensboro’s arts, culture &

Greensboro need not look far for a model.

Elm Street.

THE CONCEPT

Vision

Strengthen the role of arts, culture & entertainment in a

network of neighborhoods

linked by a

Church Street boulevard

and tied to the core of downtown by an improved East Washington Street.

THE CONCEPT

North End Cultural Campus Downtown Design District The Depot Southside

THE CONCEPT

Downtown

opportunity

• • Vital to regional economy

East of Elm:

opportunity area

Improved Church St.

Property Tax Revenue

2009

$10-13M

Church St. baseline

TIME

2039

THE STRATEGY

Public investment in a

cultural district

should:

• Activate development • Enhance the pedestrian experience • Strengthen & connect assets • Leverage private & non-profit investment CONCLUSION

A public/private/non-profit partnership should undertake a

4 step

investment strategy.

1. Create the Church Street Investment Council (CSIC) THE STRATEGY

A public/private/non-profit partnership should undertake a

4 step

investment strategy.

1. Create the Church Street Investment Council (CSIC) 2. “Finish” & Manage Elm St.

Civil Rights Museum Connectivity over the railroad E. Lewis St. streetscape Address Elm St. vacancy THE STRATEGY

A public/private/non-profit partnership should undertake a

4 step

investment strategy.

1. Create the Church Street Investment Council (CSIC) 2. “Finish” & Manage Elm St.

3. Invest in Church St.

THE STRATEGY

A public/private/non-profit partnership should undertake a

4 step

investment strategy.

1. Create the Church Street Investment Council (CSIC) 2. “Finish” & Manage Elm St.

3. Invest in Church St.

4.

Connect Church St. to the core of Elm THE STRATEGY

City Council can advocate for & support

6

critical actions.

1. Adopt the

Church Street Investment Strategy

2. Finance

streetscaping

on Church Street 3. Land bank & facilitate a

cultural anchor

at the News & Record parking site 4. Update the

zoning code

to improve the pedestrian experience 5. Create a

shared parking program

to incentivize development 6. Prepare the Greensboro

Transit Facility site

for mixed-use development INVESTMENTS

Total

Y0 Y1 Y2 Y3 Y4 Y5

Uses of Funds

Y6 Y7 Y8 Y9 Streetscaping

$7.4 M

$0.8

$3 $3.6

+ $17K/yr maintenance

Cultural Anchor

$5.9 M

$0.1

≤$5.8

Additional Studies TBD

Residential at Transit Facility

$0.4 M

$0.1

$0.3

TOTAL

$13.7 M

INVESTMENTS

5 N

O V E M B E R

2 0 0 8

Natural Resources Defense Council

New York City

T HE G REEN R IDER FOR C OMMERCIAL L EASES

Forum on Standards for Green Leasing

Gross leases: Two methods to determine base building operating costs

Method Operating costs charged linked to:

Fixed Percentage Operating Expense Escalation

• Consumer price index • Porter’s wage • Flat % • • Usually includes base year of existing costs covered by owner Increases above the base passed to tenant • If no base year, all costs passed to tenant

Fixed Percentage

Operating expense charges ≠ Actual resource usage and costs

Operating Expense Escalation

Eligible operating expense escalation:

Typical Escalatables* • Salaries • Security • Repairs & maintenance • Insurance • Administrative • Janitorial • Elevators • Utilities Other, Possible Escalatables • Capital Improvements • Installations that save operating costs • Changes in law/code • Interest on Capital Expenditures * Some leases charge “house bill” electric separately, excluding it from the base.

Tenants are responsible for their own operating costs except, sometimes, electricity.

Tenant Electric Direct Meter

• Tenant pays utility directly.

Submeter

• Owner bills tenant based on private submeter reading, usually marked up 2-12%.

Electric Rent Inclusion (ERI)

• Per SF estimate of tenant electric costs included in additional rent.

Electric Rent Inclusion (ERI) estimation varies.

Calculation Methodology • Based on equipment and systems survey.

• Rule of thumb $/SF estimate Frequency of Estimate Review • Bi-yearly • Multi-year intervals • Never

In practice, the mix of opex lease provisions depend on tenant negotiating power and market trends.

• •

Larger tenant

Operating Cost Escalation Electricity: Direct or Submeter • •

Smaller tenant

Fixed Percentage Electricity: Electric Rent Inclusion

Benefit from energy efficiency investments tied to mix of lease provisions in a building.

Does lease use Operating Expense Escalation?

*

NO

Owner +

Fixed Percentage Lease

Large $ savings from energy project

YES Are the reduced expenses from the energy project escalatable?

NO YES

Owner +

Reduction in base for new tenants

Tenant +

Reduction in base for existing tenants * If the house electric bill is shared pro rata, it is removed from this calculus. Owner loses % of savings charged to tenant.

Is capital expense escalatable?

NO

Owner -

Unrecoverable expense YES

Owner +

Capex contribution to financing of project

Savings on tenant electric use can also impact owner cash flow.

Submeter

YES

Owner -

Possible mark-up loss from savings

Electric Rent Inclusion

YES

Owner +

Savings until next survey

#1 Operating Expense Clause (OEC)

Most sf in NYC governed by an opex clause.

• Larger lease = more negotiating power • Tenants prefer base + escalation

2003 Leasing Activity

Implication: Prioritize OEC to affect maximum square footage.

#2 OEC: Capital Expenditure Escalation Most tenants renew their leases.

• • Capex escalation less likely in older leases.

Tenants tend to renew using prior leases as basis.

Year Built of Commercial SF

More than 80% of NYC commercial SF was built before 1980, with buildings increasing in size over time In NYC, a given square foot is more than 80% likely to have its lease renewed

#3 OEC: Demand charge allocation Peak charges are many times higher than off-peak. • Submeters may not have time-of-day measurement capacity.

• Demand charges may be allocated pro rata.

Typical Hourly Blended Cost Variability - Summer 2008 Typical Hourly Blended Cost Variability $0.35

$0.30

$0.25

$0.20

$0.15

$0.10

$0.05

$0.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Hour Ending

Implication: Tenants may not face full time-of-day pricing incentive.

22 23 24

#4 OEC: Allocation of house bill electric Many buildings are a mix of submetered and ERI. • • Absent meters, accurate allocation of house bill is difficult.

Problem of demand, overtime AC allocation heightened.

Implication: Incentives for efficiency are misaligned.

#5 Electric Rent Inclusion As much as 100 M sf in NYC operate under Electric Rent Inclusion.

• Owners less likely to fit smaller tenants with own submeter.

• Affects

≈

300 mil SF by complicating house bill calculation.

425 Million SF of NYC Commercial Office Space

Implication: ERI a high priority for attention after OEC.

#6 Maintenance and Repairs LEED & other ratings increasingly important to tenants. • • Increasing number of buildings seeking LEED certification Tenants may select a building or pay premium for LEED status

NYC LEED Applications

Implication: Tenant may expect maintenance of LEED status.

#7 Tenant TI Standards & Data Sharing May be challenging to standardize but can affect virtually all SF over time.

• Ownership and management are highly concentrated •

≈

3-5% of the market turns over annually

425 Million SF of NYC Commercial Office Space Other !4 Owners 6 Property Managers

Implication: Handful of stakeholders can affect 80% of market.

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