bbp financial model update financial... · bbp financial model developed/refined over 10+ years 2...

Financial Model Update Public Presentation

July 9, 2015

BBP financial model developed/refined over 10+ years

2

Public updates Executing on the model

2008: One Brooklyn Bridge Park lease approved

2009: First comprehensive maritime inspection

2010: First park sections open (Pier 1 and Pier 6)

2012: Pier 1 Hotel/Condo lease approved

2013: John St and Empire Stores leases approved 2014: First maritime repairs, funded out of operating capital

First model created as part of initial park planning: 2005

Public presentation of financial model: 2009

Committee on Alternatives to Housing process: 2010

Financial Model Update for Board of Directors: 2013

Financial Model Update for Board of Directors: 2014 2014: Pier 6 development RFP issued

• Expenses • Operating Expenses • Maritime Maintenance • Capital Maintenance

• Revenue

• Cashflow projections

OUTLINE

3

OPERATING EXPENSES: Park is 65% complete with 10% under construction1

4

- Under construction

- In design/future phase

1. Numbers are approximate

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

FY2012 FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064

Proj

ecte

d an

n. o

pex

($M

, nom

inal

5 )

Park Maintenance and OperationsManagement and Administration

OPERATING EXPENSES: After initial park build-out, opex grows with inflation

5

NOTE: FY12 to FY15 derived from approved BBP budgets, FY16 from proposed budget, and FY17 to FY65 from projections 1. Expense growth during “Park phase-in” based on (i) addition of new parkland, (ii) increased visitation at existing parkland, and (iii) projected inflation 2. CAGR=Compound Annual Growth Rate 3. Park construction projected to be completed during FY19 4. Expense growth during “On-going maintenance” projected to be 3% annually, the historical average rate of inflation in the US 5. Nominal values include inflation

Projected build-out3

MARITIME MAINTENANCE: Maritime infrastructure is deteriorating

6

Pier 3 pile cross-section showing marine borer damage

Pier 3 pile cross-section showing marine borer damage

BBP maritime assets1

• 13,000 timber piles • 11,000 concrete extensions • 4,500 linear ft of bulkheads2

• 830,000 SF of concrete pier deck (1/3 of park) • 3,200 linear ft of riprap or natural shore

1. Numbers are approximate 2. Concrete and steel

MARITIME MAINTENANCE: Initial cost estimate from 2005 was simplistic

7

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 2053Proj

ecte

d an

nual

exp

endi

ture

($M

, nom

inal

)

Maritime maintenance

Total expense over 50 years was $200M (in $2005) (or $450M in $nominal)

NOTE: Initial financial model from 2005 assumed $200M (real$) of maritime expenses over 50 years; it assumed consistent $4M per year expenses (a straight average), grown with inflation

MARITIME MAINTENANCE: More refined lifecycle cost model created in 2010

8

Quantity and type of maritime assets

Rate of deterioration

Unit cost for repair ($ per linear foot)

$0$10$20$30$40$50$60$70$80$90

$100

2010

2013

2016

2019

2022

2025

2028

2031

2034

2037

2040

2043

2046

2049

2052

2055

2058

2061

Projected expenses ($M)12

Total expense over 50 years projected to be $200M (in $2010) (or $375M in $nominal)

Model inputs

1. Assumed $700 per linear foot in structural repair costs 2. Dive inspections were projected at ~$220K annually ($2005)

MARITIME MAINTENANCE: Cost of repairing maritime infrastructure is escalating

9

Year Projected expense

over 50 yrs1 2010 $200M

2012 $260M 2015 $320M

1. Numbers are in real$ (2010 projection in $2010, 2012 projection in $2012, and 2015 projection in $2015) 2. Project scope and rate of deterioration have remained consistent with earlier projections 3. Unit costs based on awarded marine contracts for BBP work and consistent with regional averages 4. CAGR=Compound Annual Growth Rate

10% CAGR4 from 2010 to 2015

• Steep growth in unit costs for repairs3: o $700/lin. ft. (2010) o $875/lin. ft. (2012) o $1,100/lin. ft. (2015

• Growth driven by:

o Improved local economy o Numerous active projects in NY Harbor o Limited number of specialty contractors

leads to strong pricing power

Cost increases over previous 5 years Increases driven by unit cost growth2

• Annual rehabilitation of deteriorated elements only

• Remaining non-rehabilitated elements continue to deteriorate

MARITIME MAINTENANCE: Reactive vs. preventative approach

10

Approach

Associated repair

• Steel reinforced concrete encasement (4” to 8” width)

• Transfers structural load from pile, to concrete encasement

• Encase piles to prevent future deterioration

• Repair as many piles upfront as is financially viable

• ¾” epoxy protective encasement (no reinforcing steel or concrete)

• Piles maintain structural capacity

Reactive approach Preventative approach

MARITIME MAINTENANCE: Current expense projection (reactive approach)

11

$0

$20

$40

$60

$80

$100

$120

2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064Proj

ecte

d an

nual

exp

endi

ture

($M

, nom

inal

)

Maritime maintenance Dive inspections

Total expense over 50 years is $320M3 (in $2015) (or $600M in $nominal)

1. Assumes $1,100 per linear foot in structural repair costs, up from previous cost assumption of $875 per linear foot; grown with inflation of 3% per year 2. Dive inspections are ~$250K annually ($2015) for reactive approach 3. Up from previous estimate of $260M from 2012

2 1

MARITIME MAINTENANCE: Current expense projection (preventative approach)

12

$0

$20

$40

$60

$80

$100

$120

2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058 2061 2064Proj

ecte

d an

nual

exp

endi

ture

($M

, nom

inal

)

Maritime maintenance Dive inspections

Total expense over 50 years is $240M3 (in $2015) (or $340M in $nominal)

1. Assumes $1,100/linear foot in structural repair (up from $875/lin ft), $525/lin ft in preventative concrete extension repair, and $425/lin ft in preventative pile repair ; grown with inflation of 3% per year

2. Dive inspections are ~$150K annually ($2015) for preventative approach 3. Up from previous estimate of $210M from 2012

2 1

MARITIME MAINTENANCE: Preventative approach has significant advantages

13

• Cheaper than reactive approach ($80M cheaper in $2015 or $260M in $nominal) o Reduced labor costs o Less material required o Economies of scale in purchasing

• Better for the environment (less fill in East River) • Less market risk of future cost increases • Good long-term investment option1

Preventative maintenance repair Reactive maintenance pile repair

1. BBP’s investment policy limits investment of BBP funds to low-risk, modest return vehicles; current annual rate of return on these investment vehicles is <1%

Based on industry standards • 1% to 2% of initial

construction costs • $130M construction

budget

CAPITAL MAINTENANCE: Refinement of capital maintenance expense estimates

14

2005 estimate 2012 estimate 2015 estimate

Based on lifecycle cost model of all BBP assets • Full asset inventory • Useful life of assets • Replacement value

~$2M per year

Based on industry standards • 1% to 2% of initial

construction costs • $400M construction

budget

~$5M per year ~$5M per year

NOTE: BBP does not receive public funds for on-going capital maintenance

CAPITAL MAINTENANCE: Lifecycle estimate – illustrative example

15

Identify all park assets

Assign useful life to each asset

Determine replacement

value for each asset

Project replacement

expenses over 50 years

1 2 3 4

10 year life $800K1 Replacement

needed in FY22, FY32, FY42 etc.

Pier 5 astroturf (installed FY2012)

1.In $2015; model assumes 3% annual cost inflation

CAPITAL MAINTENANCE: All BBP assets used to project future expenses

16

Artificial Turf Paving / Chip Seal Beaches (Pier 4 and Main St) Picnic Grills Benches (slats, supports) Picnic Tables / Umbrellas Boardwalk at EFF Pier 2 Court Surface Bouldering Wall Plantings and Lawns Buildings Playground Equipment Dog Run Surfaces Playground Surfaces Exercise Equipment Range Fence Ferry Dock at Pier 6 Retention Tanks Floating Dock at Pier 2 Rink Surface Irrigation (pumps, lines) Shade Sails Lights (poles, fixtures) Sports Netting Loop Road + parking lot Squibb Bridge Marine Fence Steel Shed Structure Overwater bridges (7 in total) Vehicles

180+ asset groups identified Projected capital

maintenance expenses

$0$5

$10$15$20$25$30$35$40

FY20

16FY

2019

FY20

22FY

2025

FY20

28FY

2031

FY20

34FY

2037

FY20

40FY

2043

FY20

46FY

2049

FY20

52FY

2055

FY20

58FY

2061

FY20

64

Projected capital maintenance expenses ($nominal)

Annual contribution to capital reserve fund ($nominal)

Average of ~$5M ($2015) per year

NOTE: Above list of assets not comprehensive

In n

omin

al $

M

• Expenses • Revenue

• One-time Revenue • Recurring Revenue


OUTLINE

17

18

Projected one-time revenue

Site One-time rev

($M) One Brooklyn Bridge Park $4 Pier 1 $27 John Street3 $31 Empire Stores $32 TOTAL $93

ONE-TIME REVENUES: Revenues from upfront rent, PILOST1, and PILOMRT2

1. PILOT=Payment in Lieu of Sales Tax 2. PILOMRT=Payment in Lieu of Mortgage Recording Tax 3. Includes estimated $10M in participation rent on initial sales

$0

$5

$10

$15

$20

$25

$30

Projected one-time revenues ($M)

OBBP

Pier 1

John St

Empire Stores

RECURRING REVENUE: Model assumptions

19

Revenue variables Assumptions

PILOT amount

PILOT growth rate

Ground rent amount

Resi: Based on DOF market values for comparable buildings1

Comm: Based on projected NOI2 of each project

Ground rent growth rate

3% annual growth in DOF market value3

Site Annual

rent Growth rt

(per yr) OBBP $1.4M 3.0% Pier 1 $0.8M ~1.8%4

John Street $0.2M 3.0% Empire Stores $1.6M 2.3% Marina $0.3M 2.0%

1. DOF=Dept of Finance; ~$120/SF for Pier 1 residential, John St, and OBBP 2. NOI=Net Operating Income 3. Based on historical annual rate of inflation in US 4. Growth rate is 7.5% every 5 years 5. Projected revenue based on first stabilized year of each asset 6. Participation for Pier 1 hotel and Empire Stores assumed to be zero; current projections suggest project revenue and profit thresholds will not be met 7. Includes ~$200K per year in annual Park Transfer Fee beginning in FY2020 8. Includes revenues from marina, concessions, parking, permits, and events NOTE: Model assumes current tax rates (10.684% for commercial and 12.855% for multifamily residential) in all future fiscal years

Projected recurring revenue

Rev. per year ($2015 in M)5

OBBP $2.3 Pier 16 $3.2 John St.7 $1.0 Empire Stores6 $2.7 Other8 $1.7 TOTAL $10.9

Defined in leases

RECURRING REVENUE: Expiration of tax abatements

20

Type Length of full abatement

Length of phase out

Abatement expires

Additional rev. to BBP at expiration

($2015 in M)2

OBBP (residential) J-51 10 yrs 5 yrs 2024 $4.0

OBBP (commercial) ICIP 15 yrs 10 yrs 2034 $0.7

Empire Stores ICAP 15 yrs1 10 yrs1 2042 $1.9

Pier 1 hotel ICAP 15 yrs 10 yrs 2042 $1.7

NOTE: Years are fiscal years; Empire Stores and Pier 1 hotel abatements have not yet been granted, therefore abatement expirations are projections 1. Only applies to office space and first 10% of building’s retail; all retail over 10% of total building size has a 10 year full abatement and 5 year partial abatement 2. All values are projections based on projected future DOF valuations; Source: BBP

RECURRING REVENUE: Growth driven by expiring tax breaks, inflation

21

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

FY20

16

FY20

18

FY20

20

FY20

22

FY20

24

FY20

26

FY20

28

FY20

30

FY20

32

FY20

34

FY20

36

FY20

38

FY20

40

FY20

42

FY20

44

FY20

46

FY20

48

FY20

50

FY20

52

FY20

54

FY20

56

FY20

58

FY20

60

FY20

62

FY20

64

Proj

ecte

d an

nual

reve

nue

($M

nom

inal

)

1. Growth driven by commencement of ground rent and by PILOT values increasing as buildings are constructed and occupied 2. CAGR=Compound Annual Growth Rate 3. Assumes 3% inflation of PILOT, defined escalation terms on ground leases as shown in previous slide

• Expenses • Revenue


OUTLINE

22

CASHFLOW PROJECTION: Assuming no Pier 61 (reactive maritime approach)

23

($400)

($300)

($200)

($100)

$0

$100

$200

($100)

($80)

($60)

($40)

($20)

$0

$20

$40

FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064

Cas

h ba

lanc

e ($

M n

omin

al) (

gree

n lin

e)

Net

inco

me

($M

nom

inal

) (bl

ue b

ars)

Annual net income (left axis)Cash balance (right axis)

1. Cashflow projection assumes no revenues from Pier 6 development sites 2. Includes all projected expenses (opex, maritime, and capital maint.) and all projected revenues (one-time, recurring, and rev from abatement expirations) 3. “Cash balance” is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year NOTE: Cost of borrowing during negative “Cash balance” years not included

3

BBP projected to run out of money

in FY2029…

...and at low point, reserve

balance is negative $350M+

2

CASHFLOW PROJECTION: Assuming no Pier 61 (reactive maritime approach)

24

($400)

($300)

($200)

($100)

$0

$100

$200

($100)

($80)

($60)

($40)

($20)

$0

$20

$40


Cas

h ba

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e ($

M n

omin

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gree

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e)

Net

inco

me

($M

nom

inal

) (bl

ue b

ars)



3


in FY2029…

...and at low point, reserve

balance is negative $350M+

2

Not Financially Self-Sufficient

CASHFLOW PROJECTION: Assuming no Pier 61 (preventative maritime approach)

25

($400)

($300)

($200)

($100)

$0

$100

$200

($100)

($80)

($60)

($40)

($20)

$0

$20

$40


Cas

h ba

lanc

e ($

M n

omin

al) (

gree

n lin

e)

Net

inco

me

($M

nom

inal

) (bl

ue b

ars)

Annual net income (left axis)

Cash balance (right axis)

1. Cashflow projection assumes no revenues from Pier 6 development sites 2. Includes all projected expenses (opex, maritime, and capital maint.) and all projected revenues (one-time, recurring, and rev from abatement expirations) 3. “Cash balance” is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year NOTE: Cost of borrowing during negative “Cash fund balance” years not included


in FY2016…

...and not recover for ~50 years

3

2

CASHFLOW PROJECTION: Assuming no Pier 61 (preventative maritime approach)

26

($400)

($300)

($200)

($100)

$0

$100

$200

($100)

($80)

($60)

($40)

($20)

$0

$20

$40


Cas

h ba

lanc

e ($

M n

omin

al) (

gree

n lin

e)

Net

inco

me

($M

nom

inal

) (bl

ue b

ars)

Annual net income (left axis)

Cash balance (right axis)



in FY2016…

...and not recover for ~50 years

3

2

Not Financially Self-Sufficient

($100)

($80)

($60)

($40)

($20)

$0

$20

$40

$60

$80

$100

Cash balance can’t fall below zero; assumes BBP doesn’t go into

debt

CASHFLOW PROJECTION: What does a self-sustaining park look like?

27

Maritime expenses drive down park

cash balance

Maritime expenses decrease + tax

abatements expire City can

sweep excess PILOT2

2. 2006 PILOT legislation allows City to sweep excess PILOT funds after FY2026

Cash balance

1. “Cash balance” is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year

1

NOTE: For illustrative purposes only; does not represent a real projection

CASHFLOW PROJECTION: Pier 6 development site Proposed Building Program Subject to approval by BBP Board

28

1. Affordable Unit mix includes 50% at 165% AMI, 25% at 130% AMI, 25% at 80% AMI 2. Specific tenant to be named at a later date

• Residential Units: o 192 market rate condominium units o 147 mixed income rental units

– 117 permanently affordable1

– 30 market rate • Ground Floor Retail

o ~5,000 SF • Community Facilities/Amenities

o 75-seat universal Pre-K o Additional park restrooms o 1,500 SF additional community facility2

• 30’ Building Height Reduction • Union Construction

o Approximately 500 jobs

CASHFLOW PROJECTION: Pier 6 development site financial offer Subject to approval by BBP Board

29

One-time revenue Recurring revenue

Upfront rent $106M

PILOST1 $4M

PILOMRT1 $6M

Participation2 $0M

TOTAL $116M

Ground rent3 $0.6M/yr

PILOT1 $1.6M/yr

Park Transfer Fee4 $0.3M/yr

TOTAL $2.5M/yr

1. Projected values based on current DOF valuation of comparable buildings 2. Participation rent offer is 15% of all revenues over an average net per square foot sales price of $2,000; given current market conditions, BBP is not

projecting any revenue from this offer 3. Growth rate is 7.5% every 5 years 4. Beginning ten years after Substantial Completion, BBP receives Park Transfer Fee of 0.75% of the sale price of each sold unit

CASHFLOW PROJECTION: With Pier 6 (preventative approach)

30

($300)

($200)

($100)

$0

$100

$200

$300

$400

($30)

($20)

($10)

$0

$10

$20

$30

$40

FY20

16

FY20

18

FY20

20

FY20

22

FY20

24

FY20

26

FY20

28

FY20

30

FY20

32

FY20

34

FY20

36

FY20

38

FY20

40

FY20

42

FY20

44

FY20

46

FY20

48

FY20

50

FY20

52

FY20

54

FY20

56

FY20

58

FY20

60

FY20

62

FY20

64

Cas

h ba

lanc

e ($

M n

omin

al) (

gree

n lin

e)

Net

inco

me

($M

nom

inal

) (bl

ue b

ars)


1. “Cash balance” is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year NOTE: Figures include annual 1% return on invested capital (i.e., the cash balance)

1

CASHFLOW PROJECTION: With Pier 6 (preventative approach) Adjusted for inflation1, With City Sweep

31

($300)

($200)

($100)

$0

$100

$200

$300

$400

($30)

($20)

($10)

$0

$10

$20

$30

$40

FY20

16

FY20

18

FY20

20

FY20

22

FY20

24

FY20

26

FY20

28

FY20

30

FY20

32

FY20

34

FY20

36

FY20

38

FY20

40

FY20

42

FY20

44

FY20

46

FY20

48

FY20

50

FY20

52

FY20

54

FY20

56

FY20

58

FY20

60

FY20

62

FY20

64

Cas

h ba

lanc

e ($

2015

in M

) (gr

een

line)

Net

inco

me

($20

15 in

M) (

blue

bar

s)

Annual net income (left axis)Annual City sweep (left axis)Cash balance (right axis)

Average of $3M/year ($2015) of City Sweep from FY2035 to FY2065

3

2

1. Assuming 3% annual inflation 2. City is permitted to sweep excess PILOT revenues no sooner than FY2025; model projects City sweep could begin in FY2035 3. “Cash balance” is aggregate beginning balance of operating, capital maintenance, and maritime maintenance reserve funds in any given year NOTE: Figures include annual 1% return on invested capital (i.e., the cash balance)

• Model has long history and has been publicly vetted over 10+ years

• BBP constantly refining model assumptions to reflect latest on-the-ground realities and market dynamics

• Despite major economic changes over past decade, current projections are still largely in-line with originally conceived financial plan

• Without revenues from Pier 6 development sites BBP cannot fulfil its mandate to be financially self-sufficient

• The recommended Pier 6 RFP proposal provides an appropriate level of revenues to ensure the park remains financially solvent

Conclusion

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bbp financial model update financial... · bbp financial model developed/refined over 10+ years 2...

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