Waterfront Land Use Plan Update Real Estate Feasibility Study · development within 100 feet of the...

Final Report

Waterfront Land Use Plan Update Real Estate Feasibility Study Prepared for: Port of San Francisco Prepared by: Economic & Planning Systems, Inc. December 8, 2017 EPS #161152

Table of Contents

1. EXECUTIVE SUMMARY ............................................................................................ 1

Summary of Key Findings .......................................................................................... 1

2. INTRODUCTION .................................................................................................... 4

Waterfront Land Use ................................................................................................. 4

Overview of Port Leases ............................................................................................. 6

Study Perspective ..................................................................................................... 7

3. REAL ESTATE FEASIBILITY ANALYSIS ........................................................................... 9

Real Estate Market Review ......................................................................................... 9

Financial Analysis: Full Historic Restoration and Seismic Upgrade .................................. 16

Financial Analysis: Hypothetical Hotel Use .................................................................. 22

Financial Analysis: Intermediate-Term Leasing ........................................................... 24

Technical Appendices

APPENDIX A: Pro Forma Financial Analysis

APPENDIX B: WLUP Hotel Use Feasibility Analysis Update, March 22, 2017

List of Figures

Figure 1 Port Jurisdiction and Generalized Use-Types ......................................................... 4

Figure 2 Trust Objectives for Finger Piers ......................................................................... 6

Figure 3 Port Lease Revenue by Lease Term ..................................................................... 7

Figure 4 Office Vacancy Rates and Rents by Submarket ................................................... 10

Figure 5 Retail Vacancy Rates and Rents by Submarket .................................................... 11

Figure 6 Industrial/PDR Vacancy Rates and Rents by Submarket ....................................... 12

Figure 7 Hotel Occupancy and Average Daily Room Rates – Waterfront Competitive Set ....... 13

Figure 8 San Francisco Capitalization Rates by Land Use 2016 .......................................... 15

Figure 9 Cost Summary for a Community Facility Project .................................................. 18

Figure 10 Long-Term Lease Scenario 1 – Residual Land Value Estimates .............................. 20

Figure 11 Long-Term Lease Scenario 2 – Residual Land Value Estimates .............................. 21

Figure 12 Long-Term Lease Scenario 3 Findings ................................................................ 22

Figure 13 Hypothetical Hotel Feasibility Analysis ................................................................ 24

Figure 14 Net Rent to Port After Debt Service Rent Credits ................................................. 27

Figure 15 Master Tenant Investment Balance Including ROI ............................................... 29

Economic & Planning Systems, Inc. 1 P:\161000s\161152SFPortWLUP\Deliverables\Team\WLUP Final Report 12.8.17.docx

1. EXECUTIVE SUMMARY

In 2015 the Port of San Francisco commenced an update to the 1997 Waterfront Land Use Plan (WLUP). The update relies on creation of the Waterfront Plan Working Group to conduct a public process to develop recommendations to update the Plan. A first phase of the process provided foundational information about the Port, Port partners, and waterfront area regulators. The second phase involves Working Group subcommittee meetings to develop Port-wide recommendations on land use, resilience/environmental sustainability, and transportation planning policy issues.

To inform land use planning efforts for the waterfront sites, the Port engaged a consultant team led by Economic & Planning Systems and supported by Sedway Consulting, SITELAB Urban Studio, and Carey and Company to provide analysis and guidance on real estate economics issues and questions that arise during the WLUP Update. The consultant team’s breadth of expertise includes real estate market and financial feasibility, architecture and planning, historic rehabilitation, and investment analysis. The following is a summary of key findings from the consultant team’s effort.

Summa ry o f Key F ind ings

Rehabilitating a historic pier shed exclusively for public-oriented uses requires a significant subsidy, estimated to range between $32 million and $60 million. The estimated cost of a full rehabilitation and seismic upgrade of a bulkhead, pier, and pier shed ranges between $74 million and $100 million, depending on the condition of the existing pier.1 Given these costs, financial feasibility analysis reveals that even a best-case scenario still suffers a significant funding gap. Similar to the historic rehabilitation project at Piers 15/17 (Exploratorium) which relied on a $300 million capital campaign, a public use project would require funding from outside sources. As shown at right, projects dominated by public-oriented uses would require supplemental funding of roughly $220 to $400 per gross square foot of building space, assuming no rent accrues to the Port of San Francisco.

1 Cost estimates include hard costs (Moffet & Nichol estimates, 2017) and soft costs, and reflect use of historic tax credits and tax increment financing to offset actual cost to the Port.

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WorsePier /HighRent

WorsePier /LowRent

WLUP Real Estate Feasibility Study Final Report December 8, 2017


Rehabilitating a historic pier shed with public-oriented uses, while also balancing the economics of the project, requires that 45 to 90 percent of the building area be higher-value space. To provide pier shed space dedicated to public-oriented uses without external subsidies, a sufficient quantity of office/PDR space is necessary. The amount of public-oriented space that is economically feasible varies depending on the physical condition of the pier and market conditions. Financial feasibility analysis indicates that 58,000 to 122,000 square feet of office/PDR space would be needed to achieve an economic balance, assuming a modest rent must be paid to the Port. The high-value programming might cross-subsidize 18,000 to 82,000 square feet of public-oriented uses. However, under challenging real estate development conditions (i.e., “worse pier” physical conditions and “low rent” market conditions), even a value-maximizing program that excludes public-oriented facilities likely is financially infeasible.

Land value of roughly $40 million may be achievable if a historic pier shed is rehabilitated with a mix of retail and office/PDR uses, assuming good pier conditions and a strong market. A project of this type would preserve historic assets and maximize Port revenue, creating new funding for investment in Public Trust priorities at other sites. The pier shed would be largely dedicated to office uses, while the bulkhead would be programmed with retail. Despite the potential for the Port to create value in this scenario, full restoration and seismic upgrade of a worse condition pier may be financially infeasible if market conditions are weak. In the case of a worse condition pier and low rent environment, an estimated $14 million subsidy would be required to achieve a feasible project.

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Oriented Space(No External Subsidy)

Public‐Oriented Space High‐Value Space

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While hotel uses currently are not permitted on the waterfront, rehabilitation of a historic pier as a hotel has the potential to generate significant Port revenues to promote Public Trust objectives. In 1990, San Francisco voters passed Proposition H, which prohibits all hotel development within 100 feet of the shoreline. Acknowledging that hotel uses currently are not allowed, this real estate feasibility considers the financial feasibility of hotel uses on the waterfront, as a means of understanding the value that a hotel might generate to support Public Trust objectives. The financial feasibility analysis finds that a hotel is highly desirable from a value standpoint. The analysis estimates that rehabilitation of a historic pier as a hotel might support land value of roughly $60 million in a good condition pier/high rent environment. Even in the case of a worse condition pier and weak market conditions, a hotel might generate $17 million in land value for the Port.

Intermediate lease terms have the potential to stimulate investment in Port facility repairs and improvements, possibly including limited seismic retrofit investments in certain areas of a pier (e.g., to bulkhead buildings) that are not possible with short-term leases. The Port historically has relied primarily on short-term leases to tenant its assets. While short-term leases have supported the Port’s commitment to maximize Public Trust benefits, their limited duration curtails investment in building improvements. Longer leases provide more time to pay off debt or for a tenant to recoup expenditures associated with a capital investment in Port property. Considering the relatively common circumstance in which the Port provides a tenant rent credits for improvements that are the responsibility of the landlord, this study evaluates the feasibility of $5 million to $15 million capital investments. The analysis finds that a 20-year term likely is sufficient to support a $5 million investment, including the necessary amortization period, minimum net rent requirements, and underwriting standards. A $10 million or $20 million investment likely would require leases over 30 years. Alternatively, under a “master tenant” approach, it may be feasible for an investor to recoup larger investments ($20 to $25 million) over roughly 15 to 20 years. Further, additional lease duration would be needed to satisfy minimum Port rent requirements and possibly underwriting standards related to the investment.2

2 Under a master tenant approach, the Port leases an entire facility to a tenant who takes responsibility for capital improvements and sub-leasing. Lease revenue accrues to the tenant, repaying capital improvement costs and generating return on investment.

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Feasibility of Pier Rehabilitation for Hotel Use


2. INTRODUCTION

In 2015 the Port of San Francisco commenced an update to the 1997 Waterfront Land Use Plan (WLUP). The update relies on creation of the Waterfront Plan Working Group to conduct a public process to develop recommendations to update the Plan. A first phase of the process provided foundational information about the Port, Port partners, and waterfront area regulators. The second phase involves Working Group subcommittee meetings to develop Port-wide recommendations on land use, resilience/environmental sustainability, and transportation planning policy issues.

To inform land use planning efforts for the waterfront sites, the Port engaged a consultant team led by Economic & Planning Systems and supported by Sedway Consulting, SITELAB Urban Studio, and Carey and Company to provide analysis and guidance on real estate economics issues and questions that arise during the WLUP Update. The consultant team’s breadth of expertise includes real estate market and financial feasibility, architecture and planning, historic rehabilitation, and investment analysis.

Water f ront Land Us e

The Port of San Francisco is responsible for all asset management, property and lease management, and marketing and leasing for the Port's commercial and industrial property along the 7.5 miles of San Francisco waterfront that extends from Fisherman's Wharf to Heron's Head Park (Pier 96), as represented in Figure 1 below. The Port’s Real Estate Division had revenues of $72 million in FY 2016-17, including $50 million from Commercial/Industrial Rents and $22 million from Parking. The Port currently manages about 590 leases with 410 tenants. In addition, the Port’s Maritime Division manages 126 tenancies, representing 6.0 million square feet and approximately $20 million in annual revenue.

Figure 1 Port Jurisdiction and Generalized Use-Types



The Port has National Register historic districts that include contributing historic resources constructed between 1878 and 1945, including:

Embarcadero Historic District in the Northern Waterfront and Union Iron Works Historic District at Pier 70 in the Southern Waterfront.3

The Port already has developed a focused strategy for historic rehabilitation and complementary maritime and mixed-use development at Pier 70.

The WLUP Update public process focuses on the substantial capital repair needs and vacancies within the Embarcadero Historic District. Though development opportunities exist, new investment in the historic finger piers and bulkhead buildings must respect the historic significance of the bulkheads and pier sheds, consistent with Secretary of Interior Standards for Historic Rehabilitation (Secretary Standards).

In recent years, Pier 1 (2001), The Ferry Building (2003), Piers 1½-5 (2007), and the Exploratorium at Pier 15 (2013) have been successfully rehabilitated and reopened for public enjoyment, meeting Secretary Standards. The National Trust for Historic Preservation has written that “completion of significant rehabilitation projects including the iconic Ferry Building, has contributed to a remarkable urban waterfront renaissance in San Francisco.”4 While precious, the remaining bulkheads and piers require expensive repairs and strategies to support reuse. Through the WLUP and other initiatives, the Port seeks to plan for the future of these facilities, while simultaneously preparing for sea level rise and waterfront resilience.

In addition to sensitivity to historic resources, the revitalization of Port property occurs within the context of the Public Trust Doctrine and Burton Act, which seek to further marine navigation, fisheries, and maritime commerce; public access and environmental restoration; and improvements that attract the public to enjoy the waterfront, for the benefit of the State of California.

The Port has worked closely with staff of the California State Lands Commission and preliminarily identified six key categories that reflect ways in which investments in Embarcadero Historic District piers and bulkhead facilities can deliver Public Trust benefits, as listed below:

1. Historic preservation of a trust asset

2. Seismic and life safety improvements to a trust asset

3. Exterior public access and/or maritime access

4. Trust revenue/investment

3 The National Register of Historic Places is the official list of the Nation's historic places worthy of preservation. Authorized by the National Historic Preservation Act of 1966, the National Park Service's National Register of Historic Places is part of a national program to coordinate and support public and private efforts to identify, evaluate, and protect America's historic and archeological resources (NPS 2017).

4 11 Most Endangered Historic Places, San Francisco Embarcadero (https://savingplaces.org/places/sf-embarcadero#.WXt4_4jyvb1)



5. Interior uses serving trust purposes (quality and quantity)

6. Lease term

Different facilities, pier condition, proposed uses, and public benefit improvements result in various ways in which a project can provide public trust benefits. There is no “one-size fits all” approach. Figure 2 below illustrates a spectrum across which public trust objectives might be achieved at varying scales (the top row represents the most desirable form of improvement).

Figure 2 Trust Objectives for Finger Piers

Source: Port of San Francisco

Land use programming alone does not fully address whether Public Trust benefits will be achieved. The qualities of how uses are programmed, designed, and operated; how they repair and enhance architecture and reveal the Port’s maritime history; and how they generate revenue to perpetuate other waterfront capital investments all play a part in determining attainment of public trust objectives. If a land use program successfully attracts people to the waterfront, serves visitors, supports water-dependent activities, and fosters opportunities to appreciate maritime architecture and history, Trust goals are achieved.

Overv iew o f Por t Leases

The Port historically has relied primarily on short-term leases to tenant its assets. Lease revenue from short-term leases of 10 or fewer years represents about two-thirds of total Port lease revenue. Only about one-third of Port lease revenue comes from tenants with leases of 10 to 30+ years. Short-term leases have supported the Port’s commitment to maximize Public Trust benefits by enabling the Port to readily change uses to respond to leasing needs of maritime and



other Trust-consistent businesses and uses. While short-term leases do generate revenues, short lease duration makes financing or amortizing significant investment in repairs or improvements economically challenging. Most of the piers and bulkhead buildings are close to 100 years old, many in need of expensive repairs and tenant improvements that require longer lease terms.

Figure 3 Port Lease Revenue by Lease Term

Source: Port Rent Roll, 2017 data and Sedway Consulting

Though long-term leases make up a lesser share of the Port’s lease revenue, these leases are important to the Port’s ability to achieve Trust benefits. Most notably, long-term leases enable the Port to attract significant private investment in Port facilities that provide full historic rehabilitation, renewed maritime facilities, and seismic upgrades that allow the piers to be opened for public use and access to the waterfront. These significant investment and financing requirements necessitate 50- to 66-year lease terms, as demonstrated by projects at the Ferry Building, Pier 1, Piers 1½-5, and the Exploratorium at Pier 15.

Study Perspec t i ve

To assist the Port with considerations around current leasing practices and the potential for leases of various terms to support investment in the Port’s waterfront assets, the WLUP Real Estate Feasibility Study considers:

the potential for real estate value to support full historic restoration and seismic upgrades using long-term leases and

the potential for “intermediate term” leases to support repair and maintenance costs necessary to protect assets in the Embarcadero Historic District.

1 to 5 Years55%

6-10 Years 11%

11-20 Years 13%

21-30 Years 12%

31+Years9%



A particular focus of the study is to help the Port of San Francisco assess the degree to which longer lease terms may be an appropriate approach to maximizing Public Trust benefits. Projects that historically would have occurred under relatively short-term leases are facing increasing costs as the Port’s historic structures deteriorate. While some flexibility in tenanting is lost with longer-term leases, longer leases are likely to support more significant investments to upgrade and maintain the Port’s historic assets.


3. REAL ESTATE FEASIBILITY ANALYSIS

This WLUP Update Real Estate Feasibility Analysis focuses on the potential for the Port to attract investment, achieve historic preservation, and maximize the objectives of the Public Trust through market-based real estate activities. The Study includes:

Review of real estate market trends and current conditions, Financial analysis of full historic restoration and seismic upgrade, and Financial analysis of investment potential by lease term.

The following describes the data, analysis, and findings from the Study. The Appendix to this Report includes additional technical information related to the work.

Rea l E s ta te Marke t Rev ie w

To inform subsequent financial analyses of investment potential on Port lands, this study commenced with market reconnaissance to establish the value potential of waterfront real estate assets. The market review focuses on office, retail, industrial, production-distribution-repair (PDR), and hotel uses, as well as public-oriented facilities. For these uses, the review considers key market reference points, such as vacancy rates, lease rates, sales price trends, hotel occupancy rates, hotel average daily room rates, and capitalization rates. Cultural/public-oriented/recreational uses also are considered, though these uses are discussed in a qualitative manner since market data are not comprehensively tracked. The following summarizes the market data gathered.

Office Market Vacancy Rates and Rents

A major employment hub and center of international commerce, San Francisco is at the core of the nation’s fifth most populous metropolitan area (Primary Statistical Area). In recent years job growth has been robust and the office market has strengthened and expanded to accommodate that growth. In particular, office submarkets along the waterfront have exhibited evidence of notable market potential. However, office rents and vacancy rates, as reported by CoStar, vary significantly within the waterfront submarkets.

Vacancy rates range from 4.0 percent in the Waterfront/North Beach submarket to 12.9 percent in the Rincon/South Beach area. Office rent per square foot (per year) ranges from $55 in the Waterfront/North Beach and Jackson Square areas to nearly $80 in the Mission Bay submarket, as shown in Figure 4.5 The Port’s minimum rent schedule for fiscal year 2016-17 calls for rents at Pier 9 from $48 to $54 per square foot per year, triple net. Converting this to a full service gross rent results in a rent range of about $60 to $66 per square foot per year.6 This

5 Class A Office Full Service (Gross) Rent.

6 Based on an adjustment estimate of $11.60 per square foot per year, as described by Cushman & Wakefield.



extrapolated rental rate is higher than the average for the North Waterfront and Jackson Square subareas as reported by CoStar.

Figure 4 Office Vacancy Rates and Rents by Submarket

Source: CoStar Group

Retail Market Vacancy Rates and Rents

While brick-and-mortar retailing is alive and well in San Francisco, retailers are highly sensitive to location, visibility, accessibility, space format, and other factors. Data from Cushman & Wakefield indicate that the citywide average vacancy rate is 2.4 percent, while average retail rent is about $59 per square foot.7 In the waterfront submarkets, data from CoStar reveal a range of vacancy rates, from almost zero (0.4 percent) in the Rincon/South Beach submarket to nearly 9 percent in the South Financial District. Although rental rate data were not available for every submarket, retail rents average $50 per square foot in the Waterfront/North Beach submarket and nearly $67 per square foot in the Financial District, as shown in Figure 5.

7 Retail rent reported as “triple net” lease rate (NNN), which excludes operating expenses (property taxes, property insurance, and property maintenance costs).



Figure 5 Retail Vacancy Rates and Rents by Submarket


Industrial/PDR Market Vacancy Rates and Rents

Though San Francisco’s waterfront has been transformed in some locations from its historic industrial function as a maritime hub, industrial uses and “flex” uses, known as production-distribution-repair (PDR) uses in San Francisco, continue to occupy remaining industrial space. Data provided by CoStar regarding industrial/PDR uses indicate that vacancy rates vary widely across the waterfront submarkets, from full occupancy in the India Basin submarket (0 percent vacancy) to more than a 16 percent vacancy rate in the Rincon/South Beach neighborhood. Substantial variation also is indicated with regard to rental rates, with the Waterfront/North Beach neighborhood commanding the highest rents at $54 per square foot—likely due in part to the area’s low vacancy rate. Rents are lower in other neighborhoods, ranging from about $25 per square foot in India Basin to about $40 per square in the Rincon/South Beach neighborhood.8

8 Industrial rent reported as “triple net” lease rate (NNN), which excludes operating expenses (property taxes, property insurance, and property maintenance costs).



Figure 6 Industrial/PDR Vacancy Rates and Rents by Submarket


Hotel Room Rates and Occupancy

San Francisco is a top ten travel destination in the United States, with significant appeal for both leisure and business visitors.9 The waterfront has become a major attraction and cruise visitors were a major contributor to San Francisco’s record breaking tourism year in 2015.10 Research into the San Francisco hotel market focused on higher-end hotels located along or close to the waterfront, as these higher-quality properties are considered comparable to a hypothetical hotel in a historic waterfront pier shed.11

There are 11 significant hotels within the waterfront market area, according to Smith Travel Research. To assess market conditions for high-end accommodations on the waterfront, this review evaluates a subset of four waterfront market area hotels: the Argonaut, Harbor Court, Griffon, and Vitale. For the purposes of this study, these high-end hotels are identified as the “Waterfront Competitive Set.” Smith Travel Research provides average performance data for this

9 Business Insider, March 21, 2017.

10 SFTravel Press Release, March 29, 2016.

11 The data collected reflect “upper-upscale class” and “luxury class” hotels, standard classifications used by the hospitality industry.



group of properties over the past six years, shown in Figure 7. During this time period, the occupancy rate for this group of hotels has remained very strong at over 85 percent. The average daily room rate increased from 2011 through 2015, but tapered off slightly in in 2016. Nonetheless, the average daily room rate in 2016 still was about $320.

Figure 7 Hotel Occupancy and Average Daily Room Rates – Waterfront Competitive Set

Source: Smith Travel Research



Cultural/Public-Oriented/Recreation Market Examples

Cultural/public-oriented/recreation uses, particularly large-scale operations, are not comprehensively tracked as a separate use or distinct investment asset class, making it difficult to pinpoint market-based parameters for this category. Public-oriented uses may include cultural, entertainment, recreational, educational, or community-focused uses.

San Francisco’s Exploratorium, at Piers 15/17, is an excellent example of a cultural use occupying historic piers. The Exploratorium is a nearly 50-year-old museum, which is extremely popular with school groups across the region. The museum successfully mounted a $300 million capital campaign to fund the seismic upgrading of the piers and building renovation/construction.

As the Exploratorium vacated the Palace of Fine Arts, the landlord, the San Francisco Recreation and Parks Department found it difficult to replace it with a similar use. While there was interest exhibited by cultural and recreational groups to lease major portions of the Palace of Fine Arts, the expense of retrofitting the Palace was cost-prohibitive. These groups were unable to fund the needed capital improvements, much less provide rent to the City.

Chelsea Piers, in New York City, is another important example of successful public-oriented development on a waterfront pier site. The 28-acre mixed-use development consists of entertainment, recreation, retail, and office uses on four historic pier structures. Public-oriented uses include a fitness center, driving range, indoor sports facilities, ice skating rink, aquatic center, and other publicly-accessible spaces. Development, costing roughly $120 million, was privately funded. Other examples of recreational uses include The Bladium Sports Club in Alameda, Touchstone Climbing Gym in San Francisco’s Dogpatch Neighborhood, and House of Air (Indoor Trampoline Gym) in the Presidio.

In general, higher-value uses may be able to subsidize public-oriented uses that typically produce lower revenues. A survey of comparable facilities indicated that lease rates were often between $0.75 and $2.00 per square foot with size requirements in the range of 30,000 to 175,000 square feet. Development costs for these facilities vary quite a bit depending on existing conditions, development intensity, and program requirements, among other factors. For example, Alameda’s Bladium was developed for a total cost of roughly $70 per square foot, while

Photo Credit: Bruce Damonte

Exploratorium

Keith Sherwood Photography

Chelsea Piers



the Exploratorium’s development costs were nearly $800 per square foot. Additionally, numerous proposed public-oriented developments indicate development costs over $600 per square foot. Given the costs calculated for pier renovation presented herein, this could indicate that this use-type could support high-cost renovation/construction. Overall, while there is interest by firms specializing in large-scale recreational uses in occupying space such as the pier sheds, the ability of these companies to fund significant building improvements and pay more than just minimal rent is extremely limited.

Capitalization Rates

The Real Estate Market Review considers capitalization rates expressed in the market. “Cap rates” are a critical market-based factor influencing commercial real estate sale values.12 Capitalization rates for office, retail, industrial, and hotel uses are provided by commercial real estate brokerage firms CBRE and Cushman & Wakefield, as well as by the accounting firm PwC. As shown in Figure 8, capitalization rates are very low and reflect the high desirability of investment property in San Francisco. Capitalization rates for Class A properties are lower than Class B properties, reflecting the higher quality assets in this group, while among land uses, industrial capitalization rates are the lowest, ranging from 4.0 percent to 5.75 percent. Hotels exhibited the widest range, from 4.0 percent to 9.0 percent, indicating the high variability of this asset class.

Figure 8 San Francisco Capitalization Rates by Land Use 2016

Source: CBRE, Inc., Cushman & Wakefield; PwC; and Sedway Consulting.

12 The capitalization rate is equal to annual net property income divided by total property value. This market-based factor indicates the multiple of net property income that a buyer will pay for a property.

Land Use Class A Assets Class B Assets

Office 4.25% ‐ 5.25% 4.75% ‐ 6.00%

Retail 4.50% ‐ 5.50% 5.50% ‐ 7.00%

Industrial/Warehouse 4.00% ‐ 5.00% 5.00% ‐ 5.75%

Hotel 4.00% ‐ 9.00%



F ina nc ia l Ana lys i s : Fu l l H i s to r i c Res to ra t ion a nd Se i sm ic Upg rade

The Port has successfully achieved full historic restoration and seismic upgrade projects on the waterfront through use of a long-term ground lease model. An example of this is found at the Ferry Building, where private entities implemented a four-year, $100 million restoration of the 1898 Beaux Arts building, which is listed both on the National Register of Historic Places and as a registered landmark of the city of San Francisco. Developers transformed the underutilized building into a Class A asset with 175,000 square feet of office space and 65,000 square feet of retail marketplace space, open-air cafés, and restaurants. Another example is the Exploratorium at Piers 15-17. Before this rehabilitation, Piers 15-17 were substantially deteriorated. In both cases, long-term leases of 66 years provided sufficient time for the private sector to make significant investments in the building (and substructure in the case of the Exploratorium) and earn a return on those investments.

Scenario Overview

Building on the Port’s experience with intensive adaptive reuse projects that rely on long-term leases to achieve full restoration and seismic upgrade of Port assets, this Study considers three scenarios for projects of this type:

1. All Trust and Public-Oriented Uses – a land use program devoted to Trust-consistent uses.

Key to Pier Graphics



2. Feasible Public-Oriented Use Program – a land use program that balances Trust-consistent uses and high-value revenue-generating uses.

3. Perimeter Trust and Public-Oriented Uses with Maximized Revenue for Port-Wide Investments – a land use program that includes Trust-consistent public uses but is focused on saving the historic asset and maximizing revenue for other Trust objectives.

All full historic restoration and seismic upgrade scenarios assume a total of 150,000 feet of gross building space and public-oriented uses in the bulkheads. These scenarios reflect a public-private partnership model. Potential land use programs are analyzed for both a pier in good condition and a pier in worse condition. Taking into account a range of rehabilitation cost, the feasibility analysis assesses the financial potential future projects on Port piers.

Cost Estimates

The Port’s pier structures vary in their age and physical condition. As such, the costs associated with substructure repair can vary significantly from one pier to the next. In order to capture the range of potential costs associated with the Port’s dilapidated piers, this analysis incorporates substructure repair and cost data from Moffatt & Nichol for (1) a good-condition pier and (2) a worse-condition pier.

In addition to substructure costs, EPS reviewed critical development cost data from third-party sources (e.g., RSMeans) to make informed assumptions about additional vertical development and soft costs (e.g., architecture, engineering, permits, and fees). Figure 9 illustrates the differences in cost estimates between a better-condition and a worse-condition pier, using



potential cost profiles for a public-oriented facility project. In addition to traditional project costs, the cost comparison highlights cost offsets that might be achieved through historic tax credits and tax increment financing from the City and County of San Francisco.

Figure 9 Cost Summary for a Community Facility Project

Financial Feasibility Analysis

In order to directly compare the three land use scenarios, EPS assessed their financial feasibility using the two pier conditions (good and worse condition) as well as two market conditions (high rent/low rent). Each of the three scenarios was then tested across these variables, creating the following four alternatives within each scenario:

1. Good Pier/High Rent – Based on a representative pier in fair to good physical condition requiring minimal repairs and in a strong real estate market with a competitive location.

2. Good Pier/Low Rent – Based on a representative pier in fair to good physical condition requiring minimal repairs and in a weak real estate market with a noncompetitive location.

3. Worse Pier/High Rent – Based on a representative pier in poor physical condition requiring repairs to structural elements and in a strong real estate market with a competitive location.

Cost Item1 Good Condition Worse

Condition

Superstructure Repair and Seismic $27,904,870 $37,774,157

Substructure Repair, Seismic, Apron Rebuild, and Utilities $37,336,612 $55,262,145

Tenant Improvement $4,000,000 $4,000,000

Soft Costs $20,598,296 $26,157,260

Other Costs2 $8,654,635 $10,322,324

Total Costs $98,494,412 $133,515,885

Building Square Feet 150,000 150,000

Cost per Square Foot $657 $890

Cost Offsets

Historic Tax Credits ‐$15,267,747 ‐$21,396,504

Tax Increment ‐$9,068,147 ‐$12,292,491

Net Costs $74,158,519 $99,826,890

Net Cost per Square Foot $494 $666

[1] Costs are based on development of public oriented pier shed that encompasses 140,000 gross sq. ft. of community facilities, and

10,000 gross sq. ft. of retail.

[2] Includes: Developer ROI and development contingency



4. Worse Pier/Low Rent – Based on a representative pier in poor physical condition requiring repairs to structural elements and in a weak real estate market with a noncompetitive location.

In each scenario, the 10,000-square foot bulkhead is set aside for visitor-serving retail uses and a small amount of trust-consistent storage space is set aside for low-revenue-generating maritime uses. The results of the financial feasibility analysis for each scenario are summarized below. Detailed documentation of the calculations can be found in Appendix A. In some cases, for example the all trust/public use scenario considered, the residual land value estimate for the project is negative. This indicates that, without subsidies, revenue from reuse is insufficient to financially justify the required cost, and a profit-driven private entity would not undertake the project.

Scenario 1 - All Trust/Public Oriented Uses

The Exploratorium at Piers 15-17 is an example of an “All Trust” scenario, in which rehabilitation requires non-Port sources of investment capital (e.g., private funds or grants). In this case, the Exploratorium mounted a significant capital campaign, raising $300 million to relocate the museum to the San Francisco waterfront and to pay for needed upgrades to the pier as well as to adaptively reuse the bulkhead and pier shed. The need for a capital subsidy for public-oriented uses is consistent with the findings of our analysis, which concludes that public-oriented uses are unlikely to produce positive residual land value for the Port.



Figure 10 Long-Term Lease Scenario 1 – Residual Land Value Estimates

The analysis shows that a public subsidy of $32 million to $60 million likely is required to achieve full rehabilitation and seismic upgrade of a bulkhead, pier, and pier shed with land use programming that is exclusively public oriented. While the retail use produces positive land value in all cases except the most conservative test, it is insufficient to cross-subsidize a significant public-oriented facility. It is not unusual for museums and other cultural attractions that are not profit driven to draw on external public and private funding sources for capital investment, and this analysis finds that likely would be the case here.

Scenario 2 - Feasible Public-Oriented Use Program

Scenario 2 seeks to maximize the amount of pier space that is dedicated to public-oriented uses, while balancing the economics of the project with a sufficient quantity of high-value office/PDR space to achieve a modest lease rate for the Port. The analysis targets land value of $1.5 million, the equivalent of about $100,000 in rent annually. The amount of public-oriented facilities within the pier shed varies depending on the physical condition of the pier and market conditions.

Retail Public-

OrientedTotal

Good Pier / High Rent

Development Program 10,000 140,000 150,000 Residual Land Value / Subsidy Required1

$2,853,000 -$35,385,000 -$32,532,000

Good Pier / Low Rent


$465,000 -$35,385,000 -$34,920,000

Worse Pier / High Rent


$1,142,000 -$59,342,000 -$58,200,000

Worse Pier / Low Rent


-$1,246,000 -$59,342,000 -$60,588,000

Note: Development program represents gross square footage figures.

1Defined as revenue plus tax increment plus historic tax credits less total rehabilitation costs. Negative numbers indicate that outside revenues sources (private funds or grants) are needed to accomplish the development program.

Pier / Market ConditionsLand Uses



Figure 11 Long-Term Lease Scenario 2 – Residual Land Value Estimates

The analysis shows that depending on the condition of the pier and the specific per-square-foot rents received, a range of 58,000 to 122,000 square feet of office/PDR space would be needed to achieve an economic balance. However, under the worse pier/low rent test, even a value-maximizing program that excludes public-oriented facilities is found to yield a negative land value. In this test, there is no program identified that would be possible without some form of additional project subsidy.

Scenario 3 - Maximize Revenue for Port-Wide Investments

This scenario seeks to preserve historic assets, maximize lease revenue, and create new funding for investment in Public Trust priorities at other sites. In this scenario, the pier shed largely is dedicated to office uses, while the bulkhead is programmed with retail. Based on the Real Estate Market Review, office uses command strong rental rates and likely are the most financially feasible anchor for pier shed reuse.

Office Retail Public-

OrientedTotal


Development Program 58,177 10,000 81,823 150,000 Residual Land Value / Subsidy Required1

$16,725,000 $3,136,000 -$18,362,000 $1,500,000



$11,750,000 $749,000 -$10,999,000 $1,500,000



$8,002,000 $1,142,000 -$7,644,000 $1,500,000

Worse Pier / Low Rent2

Development Program 140,000 10,000 - 150,000 Residual Land Value / Subsidy Required1

-$12,984,000 -$1,246,000 $0 -$14,230,000



2As shown, there is no feasible inclusion of community facilities space in a worse pier / low rent alternative. Furthermore, both commercial uses generate negative returns on land value indicating that without subsidy, no private sector real estate activitiy could cover costs under this alternative.




Figure 12 Long-Term Lease Scenario 3 Findings

The analysis finds that high value uses might be able to support land value of nearly $40 million (or lease revenue $2.7 million per year) in a good condition pier/high rent environment. However, full restoration and seismic upgrade of a pier in worse condition likely is financially infeasible if economic conditions are weak and the project location is suboptimal. With stronger market conditions the full restoration and seismic upgrade of the worse condition pier appears feasible. EPS estimates that $10 million in land value (about $700,000 annually rent) is supportable in this case.

F ina nc ia l Ana lys i s : Hypothet i ca l Ho te l Use

In 1990, San Francisco voters passed Proposition H, which prohibits all hotel development within 100 feet of the shoreline and required the Port complete a comprehensive land use plan. The hotel ban applies even if the hotel is entirely contained within a historic pier building. Acknowledging that hotel uses currently are not allowed, this real estate feasibility considers the financial feasibility of hotel uses on the waterfront, as a means of understanding the value that hotel uses might generate to support the Port and its Public Trust objectives. This is an analytical exercise only, and does not represent a Port proposal for hotel uses.

Office Retail Total


Development Program 140,000 10,000 150,000

Residual Land Value / Subsidy Required1 $36,280,000 $2,853,000 $39,133,000



Residual Land Value / Subsidy Required1 $14,111,000 $465,000 $14,576,000






Residual Land Value / Subsidy Required1 ‐$12,984,000 ‐$1,246,000 ‐$14,230,000

Note: Development program respresents gross square footage figures





The consultant team, including SiteLab urban designers and Carey and Company historic architects, first conducted analysis to determine that it is possible to adapt a historic pier shed for hotel use, and still respond to Secretary of Interior Standards for historic rehabilitation. In particular, the consultant team considered the capacity of a historic pier shed to accommodate a hotel, including the following:

size and geometry; ability to provide basic hotel functions and amenities; ability to provide functional requirements such as “back of house” activities; and infrastructure and utilities.

The consultant team’s analysis finds that the basic requirements of a successful hotel can be accommodated within a pier shed. Appendix B presents the team’s physical feasibility study of a waterfront hotel. The physical feasibility study reflects lessons learned from precedent waterfront pier hotels, such as the Pier One Hotel in Sydney.

Similar to the full historic restoration and seismic upgrade scenarios discussed above, the financial analysis of hotel development assumes a total of 150,000 feet of gross building space, with hotel-supportive uses in the bulkhead (e.g., service/management, restaurant/kitchen). The hotel program is analyzed for a pier in good condition and a pier in worse condition. Taking into account the range of rehabilitation cost, feasibility analysis provides a planning-level assessment of the viability of a hotel project within a historic Port pier.

The financial feasibility analysis finds that a hotel is highly desirable from a value standpoint. A hotel project might be able to support land value of roughly $60 million (or lease revenue $3.0 million per year) in a good condition pier/high rent environment. Even in the case of a worse condition pier and weak market conditions a hotel may be financially feasible. In this case, EPS estimates $17 million in land value (about $1.2 million annually rent) is supportable.



Figure 13 Hypothetical Hotel Feasibility Analysis

F ina nc ia l Ana lys i s : In te rm ed ia te -Te rm Leas ing

Long-term development projects take years to complete, and the Port needs to maintain ongoing leasing, management, and improvement of its properties. To this end, the Port seeks effective leasing strategies to manage facilities in the face of growing flood risk from sea level rise, which increasingly is a constraint on long-term leases. Sea level rise projections indicate that flood risk will increase over time, with as much as one foot of rise possible by 2030 and two feet of rise possible by 2050.13 Intermediate lease terms help the Port or its tenants to invest more in facility repairs and improvements, possibly including limited seismic retrofit investments in certain areas of a pier (e.g., to bulkhead buildings).

13 San Francisco Sea Level Rise Projections, Upper Range for Long-range Planning. National Research Council’s (NRC) upper-end estimate reflects the event that future GHG emissions and land ice melting accelerates beyond current predictions.

Pier / Market Conditions Hotel Use

Good Pier / High Average Daily Rate

Development Program 150,000

Residual Land Value / Subsidy Required1 $61,292,412

Good Pier / Low Average Daily Rate



Worse Pier / High Average Daily Rate



Worse Pier / Low Average Daily Rate







In the Intermediate-Term Leasing scenarios, pier shed leases must be managed so that the occupancy associated with the anticipated use program does not trigger a requirement for seismic upgrade of the entire pier shed substructure (i.e., complies with industrial occupancy standard under Port Building Code), which requires a long-term lease. This limitation restricts the amount of floor area that can be used for higher occupancy uses, including public-oriented activities. The analysis assumes that 20,000 to 40,000 square feet of a typical 100,000 square foot pier shed may be used for a high-intensity use (e.g., office/PDR tenancies that can generate high revenue to pay for repairs), with the rest of the shed used for low-occupancy, low-revenue industrial storage leases, including maritime support uses.

Though current use of intermediate-term leases is relatively rare, it can allow the Port to make incremental improvements to piers and structures which are not possible under short-term leases. For example, roof repairs, utilities upgrades, partial structural repairs, and some seismic improvements may be achievable with intermediate-term leases.

Scenario Overview

Building on the Port’s experience with the improvement needs of its historic bulkheads and pier sheds as well as the occupancy limits in buildings with seismic deficiencies, this study considers two scenarios for projects of this type:

1. Port-Managed Scenario ($5 million to $15 million investment)

2. Master-Tenant Scenario ($25 million to $30 million investment)

Scenario 1 - Port-Managed Investment with Intermediate Lease

In this scenario, the Port manages tenant leasing. The tenant makes capital investments in the pier ($5 million to $15 million investment assumed). The scenario envisions retail, restaurant, or other “activated” uses in the bulkhead and 40,000 square feet of office/PDR in the pier shed, with the remainder of the available space allocated to light industrial warehouse uses also located in the pier shed. The analysis considers lease terms ranging from 10 to 30 years.

The investment in the Port asset might be achieved through tenant financing (i.e., capital from the tenant rather than from external sources) or a commercial loan (i.e., debt-based funding arrangement between a business and a financial institution). In either case, if the improvements that are funded are the landlord’s responsibility, then the Port could offer “rent credits” to reimburse the tenant for improvements.

Interviews with commercial banking lenders reveals some of the key underwriting factors that are likely to apply to tenants seeking funds for property improvement, including the following:

Lease term (must exceed the loan term); Tenant revenue must be 10 times debt service; Strong tenant balance sheet; Strong credit rating; and Seismic risk (probable maximum loss standards and potentially earthquake insurance).

The EPS analysis illustrates the degree to which a tenant’s capital investment capacity increases with the lease term due to the greater time over which investments are amortized. The calculations assume that the Port would agree to provide rent credits to cover debt service on



loans for capital investments in Port real estate. Starting with the potential rent from high-value office/PDR uses, the analysis deducts the necessary debt service on the assumed level of capital investment. In some cases, the rental value of the space is insufficient to support debt service, but when amortized over longer periods of time capital investments become more affordable relative to rental value.

Figure 14 presents the findings from analysis of the Port-Managed Scenario. The chart reveals estimated net rent that could accrue to the Port after a rent credit provides for debt service on capital investment. As shown, debt service on a $5 million capital investment amortized over 10 years can be funded through rent, though the resulting net rent to the Port is only about $1.00 per square foot per month. Given that the Port may require lease revenue of at least $2.00 per square foot, this analysis finds that the $5 million investment is supportable with a 15-year lease. However, based on discussions with the banking community, the required lease term is likely to be even longer, perhaps 20 years, owing to underwriting standards.

Figure 14 also shows that a $10 million investment likely would require a 15-year lease and a $15 million investment likely would require a 20-year lease to generate any positive rent for the Port after rent credits for debt service. Neither the $10 million nor $20 million investment scenario yields significant net rent for the Port after rent credits for debt service. Given that the Port likely will require lease revenue of at least $2 per square foot, this analysis finds that only the $5 million investment is supportable using lease terms of less than 30 years.



Figure 14 Net Rent to Port After Debt Service Rent Credits

($5.00)

($4.00)

($3.00)

($2.00)

($1.00)

$0.00

$1.00

$2.00

$3.00

$4.00

10-Year 15-Year 20-Year 25-Year 30-Year

Net

Ren

t to

Por

t of S

an F

ranc

isco

(P

er S

F P

er M

onth

)

Lease Term (Years) -->

$5M $10M $15M

Capital Investment Cost Scenario

Investment

Scenario Debt Amortization

Amortization

and Minimum

Port Rent

Underwriting

Standards

Lease Term

Required

$5M investment < 10 years 15 years + 5 years ~ 20 years

$10M investment 15 years > 30 years + 5 years > 30 years

$15M investment 20 years > 30 years + 5 years > 30 years



Scenario 2 – Master Tenant-Managed Investment with Intermediate Lease

In this scenario, the Port leases an entire facility to a master tenant who takes responsibility for capital improvements ($15 million to 30 million in investment assumed) and sub-leases the facility. Unlike the Port-Managed Scenario, the Master Tenant Scenario reflects a situation in which the Port leases property to a tenant as-is, then the tenant makes investments to improve the facility and leases space to subtenants. Lease revenue from the subtenants repays the master tenant for capital improvements, along with a necessary return on investment. The scenario envisions a significant investment, such as seismic rehabilitation of a bulkhead. As a result, higher-intensity uses are supported in that area of the building. However, occupancy still would be limited in the pier shed.

The analysis relies on an illustrative program that includes retail, office/PDR and warehouse uses. The calculations reflect a relatively high-value project that would be attractive to a master tenant: the program includes about 40,000 square feet of office/PDR, likely the maximum amount that could be done without a full seismic upgrade of the facility. The analysis also, assumes that the project occurs at a competitive location on the Embarcadero waterfront, with rents that are above average for the waterfront area. The analysis assumes the same rental rates for each investment test included in the scenario, reflective of the assumption that that the master lessee may be working with a pier in better or worse condition.

The analysis finds that $20 million to $25 million in capital investment likely is supportable under strong market conditions with a lease term of roughly 20 years, using the master tenant model. However, the analysis also finds that larger investments likely will require significantly longer lease terms (beyond the time horizon of this analysis) in order for returns to justify capital investment. Figure 15 presents the master tenant’s investment balance including return on investment (after rental revenue) for each of the investment tests. As shown, the Master Tenant can recoup the $20 million investment and 12 percent return by year 14 or the $25 million investment by year 20. However, the $30 million investment and associated return cannot be achieved within the 35-year time horizon analyzed. Port minimum rent requirements and lender underwriting requirements likely would lengthen the necessary lease term additionally.



Figure 15 Master Tenant Investment Balance Including ROI

-$60,000,000

-$50,000,000

-$40,000,000

-$30,000,000

-$20,000,000

-$10,000,000

$0

$10,000,000

$20,000,000

1 6 11 16 21 26 31

$20M $25M $30M

Lease Term (Years) ‐‐>

Capital Investment Scenario

TECHNICAL APPENDIX A:

Pro Forma Financial Analysis

Economic & Planning Systems, Inc. A-1 P:\161000s\161152SFPortWLUP\Deliverables\Team\WLUP Final Report 12.8.17.docx

TECHNICAL APPENDIX A

Pro Forma F ina nc ia l Ana lys i s

The following tables document the financial feasibility calculations of the three scenarios that are outlined in the Financial Analysis: Full Historic Restoration and Seismic Upgrade section. Financial feasibility was tested for each scenario under both a good condition and a worse condition pier as well as under strong rent market conditions and low rent conditions. The appendix also includes technical documentation of hypothetical hotel financial feasibility.

Scenario 1 – All Trust/Public Oriented Uses

Table A1 through Table A9 document the financial feasibility results of an all trust/public oriented pier shed renovation. This scenario is focused on providing the maximum public use on site and includes retail uses within the bulkhead of the pier. Retail comprises 10,000 square feet of the 150,000 gross-square-foot pier shed. Depending on the physical condition of the pier and the achievable rents associated with it, development of this nature would require a subsidy of roughly $32 million to $60 million.

WLUP Real Estate Feasibility Study Final Appendix A December 8, 2017


Table A1 All Trust/Public Oriented Uses Summary Table

Retail Public-

OrientedTotal



$2,853,000 -$35,385,000 -$32,532,000



$465,000 -$35,385,000 -$34,920,000



$1,142,000 -$59,342,000 -$58,200,000



-$1,246,000 -$59,342,000 -$60,588,000






Table A2 Good Pier/High Rent – Retail Pro Forma

DEVELOPMENT PROGRAM ASSUMPTIONS

Site (Square Feet) 6,667

FAR 1.5

Gross Building Area (Square Feet) 10,000

Rentable Area (Square Feet) 90% of GBA 9,000

BUILDING VALUE

Gross Potential Rent $5.42 per SF/Month (NNN) $585,000

Losses to Vacancy 5.0% of GPR ‐$29,250

Collection Losses 0.0% of GPR $0

Losses to Concessions 0.0% of GPR $0

Gross Retail Revenue $555,750

Operating Expenses 5% of Gross Revenue ‐$27,788

Net Operating Income ‐ Retail $527,963

Net Operating Income ‐ Parking $0 per Space/Month $0.00

Net Operating Income $527,963

Building Value 6.0% Capitalization Rate $8,799,375

Disposition Cost 3.0% of Building Value ‐$263,981

Net Value $8,535,394

PROJECT COSTS

Construction Costs

Substructure Direct Cost $279 per SF (Site) $1,860,324.64

Superstructure Direct Cost $249 Cost/SF (GBA) $2,489,107

Tenant Improvement $50 Cost/SF (GBA) $500,000

Total Construction Cost $4,849,432

Soft Costs

Architecture and Engineering 4.0% of Construction Cost $193,977

Other Professional Services 1.0% of Building Direct Cost $48,494

Permits and Fees $45 per Square Foot (GBA) $450,000

Taxes and Insurance 4.0% of Building Direct Cost $193,977

Financing 4.0% of Building Direct Cost $193,977

Marketing/Leasing 3.0% of 10‐Year Lease Value $145,483

Developer Fee 4.0% of Building Direct Cost $193,977

Total Soft Costs $1,419,886

Other Project Costs

Development Contingency 5.0% of Hard and Soft Costs $313,466

Developer ROI 10.0% of Net Value $853,539

Total Other Costs $1,167,005

Total Project Cost $7,436,324

ADDITIONAL FUNDING SOURCES

Historic Tax Credits 20% of Qualified Costs $1,069,300

Tax Increment 30 Year Bond $684,645

RESIDUAL LAND VALUE

Residual Land Value $2,853,014

Per Square Foot (GBA) $285.30



Table A3 Good Pier/High Rent – Public-Oriented Facilities Pro Forma



FAR 1.5



BUILDING VALUE

Gross Potential Rent $2.00 per SF/Month (NNN) $3,024,000




Gross Retail Revenue $2,872,800


Net Operating Income ‐ Retail $2,729,160


Net Operating Income $2,729,160


Disposition Cost 3.0% of Building Value ‐$1,023,435

Net Value $33,091,065

PROJECT COSTS

Construction Costs

Substructure Direct Cost $279 per SF (Site) $26,044,545


Tenant Improvement $25 Cost/SF (GBA) $3,500,000


Soft Costs

Architecture and Engineering 4.0% of Construction Cost $2,575,682


Permits and Fees $45 per Square Foot (GBA) $6,300,000

Taxes and Insurance 4.0% of Building Direct Cost $2,575,682

Financing 4.0% of Building Direct Cost $2,575,682

Marketing/Leasing 3.0% of 10‐Year Lease Value $1,931,761

Developer Fee 4.0% of Building Direct Cost $2,575,682


Other Project Costs

Development Contingency 5.0% of Hard and Soft Costs $4,178,523

Developer ROI 10.0% of Net Value $3,309,107





Tax Increment 30 Year Bond $8,383,502

RESIDUAL LAND VALUE

Residual Land Value ‐$35,385,074

Per Square Foot (GBA) ‐$252.75



Table A4 Good Pier/Low Rent – Retail Pro Forma



FAR 1.5



BUILDING VALUE













PROJECT COSTS

Construction Costs





Soft Costs









Other Project Costs



Total Other Costs $904,378





RESIDUAL LAND VALUE

Residual Land Value $465,187




Table A5 Good Pier/Low Rent – Public Oriented Pro Forma



FAR 1.5



BUILDING VALUE












Net Value $33,091,065

PROJECT COSTS

Construction Costs





Soft Costs









Other Project Costs








RESIDUAL LAND VALUE





Table A6 Worse Pier/High Rent – Retail Pro Forma



FAR 1.5



BUILDING VALUE













PROJECT COSTS

Construction Costs





Soft Costs









Other Project Costs








RESIDUAL LAND VALUE





Table A7 Worse Pier/High Rent – Public-Oriented Pro Forma



FAR 1.5



BUILDING VALUE












Net Value $33,091,065

PROJECT COSTS

Construction Costs





Soft Costs









Other Project Costs








RESIDUAL LAND VALUE





Table A8 Worse Pier/Low Rent – Retail Pro Forma



FAR 1.5



BUILDING VALUE













PROJECT COSTS

Construction Costs





Soft Costs









Other Project Costs








RESIDUAL LAND VALUE





Table A9 Worse Pier/Low Rent – Public-Oriented Pro Forma



FAR 1.5



BUILDING VALUE












Net Value $33,091,065

PROJECT COSTS

Construction Costs





Soft Costs









Other Project Costs








RESIDUAL LAND VALUE





Scenario 2 – Feasible Public Oriented Uses

The second scenario identifies the maximum supportable amount of community facilities space while still achieving a land value of $1.5 million, or equivalently about $100,000 in annual rent. This analysis shows that public-oriented space likely cannot be supported by market value given a worse condition pier, in a low rent environment. In this case, the residual land value is found to be negative. Tables A10 through A23 document the feasibility calculations for Scenario 2.

Table A10 Feasible Public Oriented Uses Summary Table

Office Retail Public-

OrientedTotal



$16,725,000 $3,136,000 -$18,362,000 $1,500,000



$11,750,000 $749,000 -$10,999,000 $1,500,000



$8,002,000 $1,142,000 -$7,644,000 $1,500,000

Worse Pier / Low Rent2

Development Program 140,000 10,000 - 150,000 Residual Land Value / Subsidy Required1

-$12,984,000 -$1,246,000 $0 -$14,230,000



2As shown, there is no feasible inclusion of community facilities space in a worse pier / low rent alternative. Furthermore, both commercial uses generate negative returns on land value indicating that without subsidy, no private sector real estate activitiy could cover costs under this alternative.




Table A11 Good Pier/High Rent – Office Pro Forma



FAR 1.5



BUILDING VALUE

Gross Potential Rent $5.83 per SF/Month (FS) $3,665,148




Gross Office Revenue $3,481,891

Operating Expenses 30% of Gross Revenue ‐$1,044,567

Net Operating Income ‐ Office $2,437,324

Net Operating Income ‐ Parking $0 per Space/Month $0




Net Value $47,284,080

PROJECT COSTS

Construction Costs



Tenant Improvement Cost $40 Cost/SF (GBA) $2,327,078


Soft Costs




Taxes and Insurance 4.0% of Construction Cost $1,033,805

Financing 4.0% of Construction Cost $1,033,805

Marketing/Leasing 3.0% of Construction Cost $775,354

Developer Fee 4.0% of Construction Cost $1,033,805


Other Project Costs








RESIDUAL LAND VALUE


Per Square Foot (GBA) $287