1

MAKING A CAREER OUT OF

A CONVICTION THAT YOU LOVE

CITIESNOVEMBER 2008

CANDACE P. DAMON ‘81

Pier 40 Development Feasibility Study

Pier 40 Partnership

The Park at Pier 40January 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.

Fields & open space 630,500 SF

Public fields 392,000 SF

Esplanade and walkways 203,000 SFSemi-enclosed, covered open space: the “Green

Room” 35,500 SF

School / institution 100,000 SF

A secondary or post-secondary school 100,000 SF

Flexible space programmed as a Visual Arts Market 238,000 SF

Galleries 136,000 SFOpen artists’ studios, small not-for-profits, and

HRPT 100,000 SF

Green Room Back of House 2,000 SF

Parking spaces 2,800*

Monthly spaces 2,500

Daily spaces 300

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

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.

$50,750,000

$7,975,000$21,460,000

$43,500,000

Pile RepairDeck & FenderRoofSeismic Upgrade

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

$10,900,000

$26,900,000

$43,700,000

$29,000,000

$18,800,000

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

$11,250,000

$1,950,000$344,000

$2,100,000

$100,000

$4,000,000

$4,726,400

Long Term ParkingShort Term ParkingActive RecreationGreen Room EventsParty BoatsInstitutionOther Tenants (Blended Rent)

Estimated annual operating expenses total $4.2M

($1,111,616)

($1,701,600)

($400,000)

($20,000)

($1,000,000)

Conservancy Administration

Building Maintenance Overhead

Active Recreation

Pier Inspection per Annum

Operator Management Fee

($1,000,000)

Program Administration

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

• 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.

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

• 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.

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

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:

SourcesConservancy 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%

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

20HR&A ADVISORS, INC. | RYAN-HARRIS | WPC, INC.

Prepared for the City of Greensboro, Action Greensboro & Downtown Greensboro Incorporated

CHURCH STREET INVESTMENT

STRATEGYAugust 2008 | DRAFT

Arts, cultural & entertainment assets

are spread across downtown.

Depot

Historical Museum

YWCA

Children’s Museum

Central Library

Cultural Center

(Future) Civil Rights Museum

Triad Stage

Carolina Theater

Arts & antiques

Lyndon St. Artworks

Various Elm Street entertainment

THE CONCEPT

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

Elm Street.

Greensboro need not look far for a model.

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

The Depot

Downtown Design District

Southside

North End Cultural Campus

THE CONCEPT

Downtown opportunity

Church St. baseline

Improved Church St.

TIME2009 2039

$10-13M

• Vital to regional economy• East of Elm: opportunity area

THE STRATEGY

Property Tax Revenue

CONCLUSION

Public investment in a cultural district should:

• Activate development

• Enhance the pedestrian experience

• Strengthen & connect assets

• Leverage private & non-profit investment

A public/private/non-profit partnership should undertake a 4 step investment strategy.

1. Create the Church Street Investment Council (CSIC)

THE STRATEGY

2. “Finish” & Manage Elm St.

Civil Rights Museum

Connectivity over the railroad

E. Lewis St. streetscape

Address Elm St. vacancy

1. Create the Church Street Investment Council (CSIC)

THE STRATEGY

A public/private/non-profit partnership should undertake a 4 step investment strategy.

3. Invest in Church St.

2. “Finish” & Manage Elm St.

1. Create the Church Street Investment Council (CSIC)

THE STRATEGY

A public/private/non-profit partnership should undertake a 4 step investment strategy.

4. Connect Church St. to the core of Elm

3. Invest in Church St.

2. “Finish” & Manage Elm St.

1. Create the Church Street Investment Council (CSIC)

THE STRATEGY

A public/private/non-profit partnership should undertake a 4 step investment 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

Uses of Funds

INVESTMENTS

Total Y0 Y1 Y2 Y3 Y4 Y5 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

Residential at Transit Facility

Additional Studies TBD

$0.4 M $0.1

$13.7 MTOTAL

$0.3

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 CouncilNew York City

Gross leases: Two methods to determine base building operating costs

Method Operating costs charged linked to:

Fixed Percentage

• Consumer price index• Porter’s wage• Flat %

Operating Expense Escalation

•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 PercentageOperating expense charges ≠ Actual resource

usage and costs

Operating Expense EscalationEligible 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

•Tenant pays utility directly.

Direct Meter

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

Submeter

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

Electric Rent Inclusion

(ERI)

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.

Smaller tenant• Fixed Percentage• Electricity: Electric

Rent Inclusion

Larger tenant• Operating Cost

Escalation• Electricity: Direct or

Submeter

Does lease use Operating Expense

Escalation?*

Owner +Fixed Percentage Lease

Are the reduced expenses from the energy project escalatable?

Owner +Reduction in base for new tenants

Tenant +Reduction in base for existing tenants

NO

YES

NO

YES

Large $ savings

fromenergy project

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

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

Is capital expense

escalatable?

Owner -Unrecoverable expense

NO

YESOwner +Capex contribution to financing of project

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

Submeter

Electric Rent Inclusion

YES

YES

Owner -Possible mark-up loss from savings

Owner +Savings until next survey

#1 Operating Expense Clause (OEC)

2003 Leasing Activity

Most sf in NYC governed by an opex clause.

• Larger lease = more negotiating power

• Tenants prefer base + escalation

Implication: Prioritize OEC to affect maximum square footage.

#2 OEC: Capital Expenditure Escalation

Year Built of Commercial SF

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

In NYC, a given square foot is more than 80% likely to have its lease renewed

#3 OEC: Demand charge allocationPeak charges are many times higher than off-peak.

• Submeters may not have time-of-day measurement capacity.

• Demand charges may be allocated pro rata.

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

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour Ending

Ble

nd

ed

Co

st

($/k

Wh

)

Typical Hourly Blended Cost Variability

#4 OEC: Allocation of house bill electric Many buildings are a mix of submetered and ERI.

Implication: Incentives for efficiency are misaligned.

• Absent meters, accurate allocation of house bill is difficult.

• Problem of demand, overtime AC allocation heightened.

#5 Electric Rent InclusionAs 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.

Implication: ERI a high priority for attention after OEC.

425 Million SF of NYC Commercial Office Space

#6 Maintenance and RepairsLEED & other ratings increasingly important to tenants.

Implication: Tenant may expect maintenance of LEED status.

NYC LEED Applications

• Increasing number of buildings seeking LEED certification

• Tenants may select a building or pay premium for LEED status

#7 Tenant TI Standards & Data SharingMay 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

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

425 Million SF of NYC Commercial Office Space

Other!4 Owners

6 Property Managers

50

MAKING A CAREER OUT OF

A CONVICTION THAT YOU LOVE

CITIESNOVEMBER 2008

CANDACE P. DAMON ‘81