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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
• Cashflow projections
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
• Cashflow projections
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
$40
FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064
Cas
h ba
lanc
e ($
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
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
$40
FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064
Cas
h ba
lanc
e ($
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 fund balance” years not included
BBP projected to run out of money
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
$40
FY2016 FY2020 FY2024 FY2028 FY2032 FY2036 FY2040 FY2044 FY2048 FY2052 FY2056 FY2060 FY2064
Cas
h ba
lanc
e ($
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
BBP projected to run out of money
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)
Annual net income (left axis)Cash balance (right axis)
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
32