Municipal Building – Lease Option at Byram Plaza November 23, 2019 – Joseph Sabatini, Byram Township Manager

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INTRODUCTION In late July 2019, David Romano, Vice President & CFO of RoNetco Supermarkets, Inc.,

presented Mayor Alex Rubenstein with a leasing brochure for Byram Plaza and stated there was

approximately 12,800 square feet of contiguous space available. It was presented that if the

Township could utilize this size space for both the municipal offices and police department, a

police sally port, as well as an area employee parking and police vehicles, could be added on the

back of the building.

This began the process of exploring the feasibility of the Township entering into a leasing

arrangement at the Byram Plaza for location of the Municipal Building, in place of the plan for

renovation and expansion of the current facility that was being considered.

An initial meeting was held on August 9, 2019 with the management team of Byram Plaza. At

the August 13, 2019 meeting of the Mayor and Council, it was deemed that Mayor Rubenstein

had a conflict of interest and would recuse from all further discussion and negotiations.

Councilman David Gray was appointed to participate in the process along with Township

Manager Joe Sabatini.

It was decided that any proposed leasing arrangement would be vetted by the Council, and if it

presented a feasible opportunity, it would be reported back to the Building Subcommittee for

future discussions.

Mr. Romano was directed to recuse from the Building Subcommittee, due to a direct conflict of

interest.

From August through November, the Council’s focus was on the financial viability of entering

into a leasing arrangement, compared to a 20-year municipal bond for a combined renovated/new

building located at 10 Mansfield Drive. A major component to be considered was equity of a

Township owned building compared to an indefinite leasing arrangement.

Mr. Romano presented various floor plan layouts for both the municipal office and police

department within the leased space. These plans were completed without consultation with

Township officials and did not reflect the space allocations of the previously designated program

being used for renovation/new build plans.

The Council’s conclusion was that the proposed available space could potentially provide

flexible options for layout of the floor plan, however this was not a discussion of the Council

since the primary driver was the financial viability of the leasing arrangement.

The analysis also did not include any discussion of plans for the existing municipal site (demo,

renovation, future uses, etc.) and the financial impact of the costs associated with that case.

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FINANCIAL SUMMARY The Township was presented with varying lease scenarios (proformas) which initially included a

20-year, triple-net lease option (monthly lease + common area maintenance fee (CAM) + taxes).

After requesting the lowest possible leasing price, the Township was presented with a 30-year

proforma which became the primary comparison to the 20-year debt service for the combined

renovated/new building located at 10 Mansfield Drive.

Municipal Build – 20-Year Debt Service

Municipal bonding has a fixed year principal amount with a decreasing interest payment. The

bonding scenario used $5,500,000 as the amount of the bond with a 4% interest rate for the

twenty-year term. Bond Counsel informed the Township that – based on current market

conditions – an interest rate of 2.3% is a more conservative, realistic rate for issuance of a 20-

year permanent debt. Both rates are included in the summary.

20-Year Debt Service Summary

Principal Amount: $5,500,000

Interest: 4.0% 2.3%

Total Interest: $2,310,000 $1,328,250

Total Principal and Interest: $7,810,000 $6,828,250

Byram Plaza – 30-Year Proforma:

This lease scenario is a triple-net lease, including a monthly lease payment, CAM fee, and taxes.

- The initial monthly rent payment is presented at $11.65 per square foot with an annual

one-percent escalator applied for all years.

- CAM fee presented in the proformas is provided at $2.54 per square foot with a half-

percent escalator each year.

- Taxes are presented as a proportional square footage expense based on the total tax

obligation for Byram Plaza. This number is presented with a 1.38% escalator in the

proformas. NOTE: FOR ANALYSIS PURPOSE THIS WAS KEPT AT THE 2019 TAX

LIABILITY OF $58,186 FOR 13,376 SQUARE FEET.

Additionally, this scenario includes a 20-year debt service to reimburse for the improvements to

the Byram Plaza site to accommodate the municipal services. This is presented as a principal

amount of $1,686,400 with a 4.5% interest rate for a twenty-year term, resulting in an annual

payment of $128,028.

30-Year Proforma Summary

Rent Payments: $5,421,828

Improvements (P&I): $2,560,560

CAM Payments: $1,096,723

Taxes $1,745,580

Total: $10,824,691

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CONCLUSION: At its November 18, 2019 meeting, the Council reached the conclusion that entering into a lease

agreement with Byram Plaza was not economically feasible, and therefore not in the best interest

of current and future Township taxpayers.

This decision was based on the financial comparisons in the tables below, and the fact that after a

30-year lease, the Township would have no equity to show after outlaying almost $11 million in

rent payments.

Additionally, expenses that would be necessary to address the existing municipal site – whether

it be demolition, renovation, or re-purposing for other uses – would further increase the overall

expenses to Township taxpayers.

Comparison Summary A (Bonded Debt at 4%)

Byram Plaza Lease (30-year proforma): $10,824,691

Municipal Building (20-year debt service): $7,810,000

Difference: $3,014,691

Comparison Summary B (Bonded Debt at 2.3%)

Byram Plaza Lease (30-year proforma): $10,824,691

Municipal Building (20-year debt service): $6,828,250

Difference: $3,996,441

APPENDICE: Appendix 1: 30 Year Lease Option - CAM & Taxes Included

Appendix 2: 30 Year Lease Option – NO CAM & Taxes

Appendix 3: 20 Year Municipal Building Debt Service – 4.0%

Appendix 4: 20 Year Municipal Building Debt Service – 2.3%

Appendix 1: 30 Year Lease Option - CAM & Taxes Included

YEAR RENT CAM TAXES IMPROVEMENTS TOTAL LEASE to DATE2020 $155,830 $33,975 $58,186 $128,028 $376,019 $376,0192021 $157,436 $34,145 $58,186 $128,028 $377,795 $753,8142022 $159,041 $34,316 $58,186 $128,028 $379,571 $1,133,3852023 $160,646 $34,488 $58,186 $128,028 $381,348 $1,514,7332024 $162,251 $34,660 $58,186 $128,028 $383,125 $1,897,8582025 $163,856 $34,833 $58,186 $128,028 $384,903 $2,282,7612026 $165,461 $35,007 $58,186 $128,028 $386,682 $2,669,4432027 $167,066 $35,182 $58,186 $128,028 $388,462 $3,057,9052028 $168,671 $35,358 $58,186 $128,028 $390,243 $3,448,1482029 $170,410 $35,535 $58,186 $128,028 $392,159 $3,840,3072030 $172,149 $35,713 $58,186 $128,028 $394,076 $4,234,3832031 $173,888 $35,892 $58,186 $128,028 $395,994 $4,630,3772032 $175,627 $36,071 $58,186 $128,028 $397,912 $5,028,2892033 $177,366 $36,251 $58,186 $128,028 $399,831 $5,428,1202034 $179,105 $36,432 $58,186 $128,028 $401,751 $5,829,8712035 $180,844 $36,614 $58,186 $128,028 $403,672 $6,233,5432036 $182,716 $36,797 $58,186 $128,028 $405,727 $6,639,2702037 $184,589 $36,981 $58,186 $128,028 $407,784 $7,047,0542038 $186,461 $37,166 $58,186 $128,028 $409,841 $7,456,8952039 $188,334 $37,352 $58,186 $128,028 $411,900 $7,868,7952040 $190,207 $37,539 $58,186 $285,932 $8,154,7272041 $192,079 $37,727 $58,186 $287,992 $8,442,7192042 $193,952 $37,916 $58,186 $290,054 $8,732,7732043 $195,958 $38,106 $58,186 $292,250 $9,025,0232044 $197,965 $38,297 $58,186 $294,448 $9,319,4712045 $199,971 $38,488 $58,186 $296,645 $9,616,1162046 $201,978 $38,680 $58,186 $298,844 $9,914,9602047 $203,984 $38,873 $58,186 $301,043 $10,216,0032048 $205,990 $39,067 $58,186 $303,243 $10,519,2462049 $207,997 $39,262 $58,186 $305,445 $10,824,691

$5,421,828 $1,096,723 $1,745,580 $2,560,560 $10,824,691

Appendix 2: 30 Year Lease Option – NO CAM & Taxes

YEAR RENT IMPROVEMENTS TOTAL LEASE to DATE2020 $155,830 $128,028 $283,858 $283,8582021 $157,436 $128,028 $285,464 $569,3222022 $159,041 $128,028 $287,069 $856,3912023 $160,646 $128,028 $288,674 $1,145,0652024 $162,251 $128,028 $290,279 $1,435,3442025 $163,856 $128,028 $291,884 $1,727,2282026 $165,461 $128,028 $293,489 $2,020,7172027 $167,066 $128,028 $295,094 $2,315,8112028 $168,671 $128,028 $296,699 $2,612,5102029 $170,410 $128,028 $298,438 $2,910,9482030 $172,149 $128,028 $300,177 $3,211,1252031 $173,888 $128,028 $301,916 $3,513,0412032 $175,627 $128,028 $303,655 $3,816,6962033 $177,366 $128,028 $305,394 $4,122,0902034 $179,105 $128,028 $307,133 $4,429,2232035 $180,844 $128,028 $308,872 $4,738,0952036 $182,716 $128,028 $310,744 $5,048,8392037 $184,589 $128,028 $312,617 $5,361,4562038 $186,461 $128,028 $314,489 $5,675,9452039 $188,334 $128,028 $316,362 $5,992,3072040 $190,207 $190,207 $6,182,5142041 $192,079 $192,079 $6,374,5932042 $193,952 $193,952 $6,568,5452043 $195,958 $195,958 $6,764,5032044 $197,965 $197,965 $6,962,4682045 $199,971 $199,971 $7,162,4392046 $201,978 $201,978 $7,364,4172047 $203,984 $203,984 $7,568,4012048 $205,990 $205,990 $7,774,3912049 $207,997 $207,997 $7,982,388

$5,421,828 $2,560,560 $7,982,388

APPENDIX 3$5.5 MILLION MUNICIPAL BUILDING DEBT SERVICE SUMMARY

INTEREST RATE = 4.0%

Due Date Principal Interest Total2020 Year 1 275,000.00$ 220,000.00$ 495,000.00$ 495,000.00$ 2021 Year 2 275,000.00$ 209,000.00 484,000.00 979,000.00$ 2022 Year 3 275,000.00$ 198,000.00 473,000.00 1,452,000.00$ 2023 Year 4 275,000.00$ 187,000.00 462,000.00 1,914,000.00$ 2024 Year 5 275,000.00$ 176,000.00 451,000.00 2,365,000.00$ 2025 Year 6 275,000.00$ 165,000.00 440,000.00 2,805,000.00$ 2026 Year 7 275,000.00$ 154,000.00 429,000.00 3,234,000.00$ 2027 Year 8 275,000.00$ 143,000.00 418,000.00 3,652,000.00$ 2028 Year 9 275,000.00$ 132,000.00 407,000.00 4,059,000.00$ 2029 Year 10 275,000.00$ 121,000.00 396,000.00 4,455,000.00$ 2030 Year 11 275,000.00$ 110,000.00 385,000.00 4,840,000.00$ 2031 Year 12 275,000.00$ 99,000.00 374,000.00 5,214,000.00$ 2032 Year 13 275,000.00$ 88,000.00 363,000.00 5,577,000.00$ 2033 Year 14 275,000.00$ 77,000.00 352,000.00 5,929,000.00$ 2034 Year 15 275,000.00$ 66,000.00 341,000.00 6,270,000.00$ 2035 Year 16 275,000.00$ 55,000.00 330,000.00 6,919,000.00$ 2036 Year 17 275,000.00$ 44,000.00 319,000.00 7,227,000.00$ 2037 Year 18 275,000.00$ 33,000.00 308,000.00 7,227,000.00$ 2038 Year 19 275,000.00$ 22,000.00 297,000.00 7,524,000.00$ 2039 Year 20 275,000.00$ 11,000.00 286,000.00 7,810,000.00$

Totals 5,500,000.00$ 2,310,000.00$ 7,810,000.00$

APPENDIX 4$5.5 MILLION MUNICIPAL BUILDING DEBT SERVICE SUMMARY

INTEREST RATE = 2.3%

Due Date Principal Interest Total2020 Year 1 275,000.00$ 126,500.00$ 401,500.00$ 401,500.00$ 2021 Year 2 275,000.00$ 120,175.00 395,175.00 796,675.00$ 2022 Year 3 275,000.00$ 113,850.00 388,850.00 1,185,525.00$ 2023 Year 4 275,000.00$ 107,525.00 382,525.00 1,568,050.00$ 2024 Year 5 275,000.00$ 101,200.00 376,200.00 1,944,250.00$ 2025 Year 6 275,000.00$ 94,875.00 369,875.00 2,314,125.00$ 2026 Year 7 275,000.00$ 88,550.00 363,550.00 2,677,675.00$ 2027 Year 8 275,000.00$ 82,225.00 357,225.00 3,034,900.00$ 2028 Year 9 275,000.00$ 75,900.00 350,900.00 3,385,800.00$ 2029 Year 10 275,000.00$ 69,575.00 344,575.00 3,730,375.00$ 2030 Year 11 275,000.00$ 63,250.00 338,250.00 4,068,625.00$ 2031 Year 12 275,000.00$ 56,925.00 331,925.00 4,400,550.00$ 2032 Year 13 275,000.00$ 50,600.00 325,600.00 4,726,150.00$ 2033 Year 14 275,000.00$ 44,275.00 319,275.00 5,045,425.00$ 2034 Year 15 275,000.00$ 37,950.00 312,950.00 5,358,375.00$ 2035 Year 16 275,000.00$ 31,625.00 306,625.00 5,965,300.00$ 2036 Year 17 275,000.00$ 25,300.00 300,300.00 6,259,275.00$ 2037 Year 18 275,000.00$ 18,975.00 293,975.00 6,259,275.00$ 2038 Year 19 275,000.00$ 12,650.00 287,650.00 6,546,925.00$ 2039 Year 20 275,000.00$ 6,325.00 281,325.00 6,828,250.00$

Totals 5,500,000.00$ 1,328,250.00$ 6,828,250.00$