M AKING A C AREER OUT OF A C ONVICTION T HAT Y OU L OVE C ITIES N OVEMBER 2008

1. MAKING A CAREEROUT OF A CONVICTION THAT YOU LOVE CITIESNOVEMBER 2008 CANDACE P. DAMON ‘81

2. Pier 40 Development Feasibility Study Pier 40 Partnership The Park at Pier 40 January 16, 2008 DenisMolnerDesign

3. 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

4. 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.

5. P40P consultants then defined and evaluated - from design and financial perspectives - this program: • * Maximizing layout efficiencies results in ability to accommodate 2,800 spaces in 381,000 sf

7. 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. *These and all subsequent estimates are shown as 2008 dollars.

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

9. 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

10. Operating revenues are estimated to total $24.5M

11. Estimated annual operating expenses total $4.2M ($1,000,000) Program Administration

12. 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

13. 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.

14. 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.

15. 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.

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

17. 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.

18. 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

19. 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

20. CHURCH STREET INVESTMENT STRATEGY August 2008 | DRAFT HR&A ADVISORS, INC. | RYAN-HARRIS | WPC, INC. Prepared for the City of Greensboro, Action Greensboro & Downtown Greensboro Incorporated

21. Arts, cultural & entertainment assets are spread across downtown. Historical Museum 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

22. The challenge: connecting Greensboro’s arts, culture & entertainment resources Greensboro need not look far for a model. Elm Street. THE CONCEPT

23. 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

24. North End Cultural Campus Downtown Design District The Depot Southside THE CONCEPT

25. Downtown opportunity • Vital to regional economy • East of Elm: opportunity area Improved Church St. Property Tax Revenue $10-13M Church St. baseline TIME 2009 2039 THE STRATEGY

26. Public investment in a cultural districtshould: • Activate development • Enhance the pedestrianexperience • Strengthen & connect assets • Leverage private & non-profit investment CONCLUSION

27. A public/private/non-profit partnership should undertake a 4 step investment strategy. • Create the Church Street Investment Council (CSIC) THE STRATEGY

28. A public/private/non-profit partnership should undertake a 4 step investment strategy. • “Finish” & Manage Elm St. • Create the Church Street Investment Council (CSIC) Civil Rights Museum Connectivity over the railroad E. Lewis St. streetscape Address Elm St. vacancy THE STRATEGY

29. A public/private/non-profit partnership should undertake a 4 step investment strategy. • “Finish” & Manage Elm St. • Create the Church Street Investment Council (CSIC) • Invest in Church St. THE STRATEGY

30. A public/private/non-profit partnership should undertake a 4 step investment strategy. • “Finish” & Manage Elm St. • Create the Church Street Investment Council (CSIC) • Invest in Church St. • Connect Church St. to the core of Elm THE STRATEGY

31. City Council can advocate for & support 6 critical actions. • Adopt the Church Street Investment Strategy • Finance streetscaping on Church Street • Land bank & facilitate a cultural anchor at the News & Record parking site • Update the zoning code to improve the pedestrian experience • Create a shared parking program to incentivize development • Prepare the Greensboro Transit Facility site for mixed-use development INVESTMENTS

32. Uses of Funds 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 $0.3 $0.4 M $0.1 TOTAL $13.7 M INVESTMENTS

33. 5 N o v e m b e r 2 0 0 8 The Green Rider for Commercial Leases Forum on Standards for Green Leasing Natural Resources Defense Council New York City

34. Gross leases: Two methods to determine base building operating costs

35. Fixed PercentageOperating expense charges ≠ Actual resource usage and costs

36. Operating Expense EscalationEligible operating expense escalation: *Some leases charge “house bill” electric separately, excluding it from the base.

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

38. Electric Rent Inclusion (ERI) estimation varies.

39. Smaller tenant • Fixed Percentage • Electricity: Electric Rent Inclusion 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

40. Benefit from energy efficiency investments tied to mix of lease provisions in a building. Owner + Fixed Percentage Lease Large $ savings from energy project Does lease use Operating Expense Escalation?* NO YES NO Owner + Reduction in base for new tenants Tenant + Reduction in base for existing tenants Are the reduced expenses from the energy project escalatable? YES * If the house electric bill is shared pro rata, it is removed from this calculus. Owner loses % of savings charged to tenant.

41. Owner - Unrecoverable expense Is capital expense escalatable? NO Owner + Capex contribution to financing of project YES

42. Savings on tenant electric use can also impact owner cash flow. Submeter Owner - Possible mark-up loss from savings YES Electric Rent Inclusion Owner + Savings until next survey YES

43. #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.

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

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

46. #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.

47. #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.

48. #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.

49. #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 6 Property Managers Implication: Handful of stakeholders can affect 80% of market.

50. MAKING A CAREEROUT OF A CONVICTION THAT YOU LOVE CITIESNOVEMBER 2008 CANDACE P. DAMON ‘81