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M AKING A C AREER OUT OF A C ONVICTION T HAT Y OU L OVE C ITIES N OVEMBER 2008 C ANDACE P . D AMON ‘81. Pier 40 Development Feasibility Study Pier 40 Partnership The Park at Pier 40 January 16, 2008. DenisMolnerDesign.

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slide1

MAKING A CAREEROUT OF A CONVICTION THAT YOU LOVE CITIESNOVEMBER 2008

CANDACE P. DAMON ‘81

slide2

Pier 40 Development Feasibility Study

Pier 40 Partnership

The Park at Pier 40

January 16, 2008

DenisMolnerDesign

slide3

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
slide4

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.
slide5

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
slide7

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.

slide9

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

slide11

Estimated annual operating expenses total $4.2M

($1,000,000)

Program Administration

slide12

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
slide13

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.
slide14

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.
slide15

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.
slide16

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%

slide17

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.
slide18

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
slide19

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
slide20

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

arts cultural entertainment assets are spread across downtown
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

slide22

The challenge: connecting Greensboro’s arts, culture & entertainment resources

Greensboro need not look far for a model.

Elm Street.

THE CONCEPT

vision
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

slide24

North End Cultural Campus

Downtown Design District

The Depot

Southside

THE CONCEPT

downtown opportunity
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

slide26

Public investment in a cultural districtshould:

  • Activate development
  • Enhance the pedestrianexperience
  • Strengthen & connect assets
  • Leverage private & non-profit investment

CONCLUSION

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

THE STRATEGY

a public private non profit partnership should undertake a 4 step investment strategy1
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

a public private non profit partnership should undertake a 4 step investment strategy2
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

a public private non profit partnership should undertake a 4 step investment strategy3
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

city council can advocate for support 6 critical actions
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

uses of funds
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

slide33

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

operating expense escalation eligible operating expense escalation
Operating Expense EscalationEligible operating expense escalation:

*Some leases charge “house bill” electric separately, excluding it from the base.

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

Tenant Electric

in practice the mix of opex lease provisions depend on tenant negotiating power and market trends

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
slide40

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.

slide41

Owner -

Unrecoverable expense

Is capital expense escalatable?

NO

Owner +

Capex contribution to financing of project

YES

savings on tenant electric use can also impact owner cash flow
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

slide43

#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.

slide44

#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

slide45

#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.

slide46

#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.

slide47

#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.

slide48

#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.

slide49

#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.

slide50

MAKING A CAREEROUT OF A CONVICTION THAT YOU LOVE CITIESNOVEMBER 2008

CANDACE P. DAMON ‘81