DUE DILIGENCE REPORT

MOHAI REGIONAL HISTORY MUSEUM AT LAKE UNION PARK

The purpose of this document is to present the results of detailed due diligence conducted by both the City of Seattle and The Museum of History & Industry (MOHAI) regarding MOHAI's proposal to transform the former Naval Reserve Building at Lake Union Park ("the Armory") into a regional history museum. A staff team with representatives from the Mayor's Office, the City Council's Central Staff, Seattle Parks and Recreation, and the Law Department, have worked closely with MOHAI's project team over the past year to complete due diligence. This document responds to Resolution 31011, attached as Exhibit 1, which outlined a process for mutual due diligence to determine the feasibility and appropriateness of MOHAI locating its primary public venue to the Armory. The report is organized into the following areas:

1.0 Development Page 1.1 Existing Building Conditions 3 1.2 Scope of Proposed Building Improvements / Design 4 1.3 Building Program and Use 4 1.4 Cost Estimates 4 1.5 Project Management 7 1.6 Schedule 7 1.7 City Alternatives 8

2.0 Project Financing

2.1 Market Research 8 2.2 Fundraising Plan 9 2.3 Business Plan 10 2.4 Historic Tax Credits

3.0 Relationship with Maritime Organizations

3.1 At the Armory 13 3.2 Partnership with Other Maritime Organizations 13 3.3 Wawona 13

4.0 Integration with Lake Union Park

4.1 Parking 14 4.2 Access 15 4.3 Services to Park Users 15 4.4 Work Space for the Parks Department 15

5.0 Expansion Facilities

5.1 Armory 16 5.2 Ancillary Facilities 16 5.3 Future Use of McCurdy Park Facility 16 SUMMARY OF FINDINGS

MOHAI's proposed project appears both feasible and appropriate for the Armory building. MOHAI has proposed a $45.4 million upgrade to the building which will replace all building systems, provide circulation improvements, make ADA upgrades, remediate lead paint and asbestos, and construct new public spaces including a public portico on the west side of the building and new galleries on the third and fourth floors. Included in this budget are also $15.2 million in new exhibits and media. The construction project includes a contingency of 11.4% of total project costs. Although this is lower than the standard contingency the City generally uses, the City's risk is mitigated because MOHAI is accepting the risk of cost-overruns. MOHAI is comfortable with this contingency because it has done extensive cost estimating on the design to date.

Given that the project financing will involve registering the building as a National Landmark, MOHAI will be required to get approval for the design from the National Parks Service. This is not seen as a major risk given that the proposed improvements primarily restore the space as it exists today and would not change the building exterior or envelope.

The mutual due diligence included an assessment of MOHAI's Fundraising Plan. MOHAI has $15 million in hand from the sale of its 800 Pike Street condominium to the State in 2007. It anticipates raising an additional $25 million from private individuals, corporations, foundations, and other non-City government sources by 2012. MOHAI's fundraising approach appears to be sound and several members of its board have considerable fundraising experience. The fundraising target of $25M, however, was tested in April 2007 and City staff have concerns that the changed economic climate in the last year may impact MOHAI's campaign success, particularly in achieving the goal of securing $16M of cash and pledges by the end of 2009 when construction is anticipated to start. MOHAI anticipates establishing a line of credit to provide interim funds to manage its construction cash flow and currently assumes it will need about $3M of bridge financing during construction. Finally, the City will have the opportunity to review and approve the project's finances prior to the start of construction.

The mutual due diligence included an assessment of MOHAI's Marketing Plan. MOHAI's research concluded that the audience for a new history museum at Lake Union is culturally-disposed adults whose interest and involvement with Seattle cultural activities is established; families with children looking for an engaging day together (especially appealing given the proximity of the park); downtown and especially South Lake Union residents and workers; and tourists staying in or visiting the downtown Seattle area. A core constituency is also school groups and teachers from throughout the central Puget Sound region. Collectively, MOHAI expects these groups to generate up to 120,000 visits annually; MOHAI currently draws about 60,000 visitors annually. To sustain that audience, MOHAI will expand its offerings to include post-1950 history; provide programs that encourage civic debate and engagement, and leverage the unique South Lake Union location.

Finally, the mutual due diligence included an assessment of MOHAI's plan for operating the regional history museum. This plan is generally sound and suggests that MOHAI will have adequate revenues to break even on the project in Year 4, with an operating reserve created through fundraising to cover the gap in the interim. MOHAI's business model relies heavily on paid admission and City staff believe the paid admission targets at the proposed pricing levels are ambitious; however, these concerns are mitigated by the fact that MOHAI's operation at the Amory is easily scalable because there is no long term debt expected and effectively no rent as part of the proposed ground lease to the City. The chief financial risk to the

City is that lower-than-expected attendance could impact MOHAI's ability to set aside a major maintenance reserve and thus maintain the building.

DETAILED FINDINGS

1.0 Development

1.1 Existing Building Conditions

Existing Building. The Armory was constructed in 1942. It was acquired from the US Navy by Seattle Parks and Recreation (Parks) in 2000. Since that time, the building has been owned and operated by Parks. The central drill hall is used as a multi-purpose space, primarily for special events and other short-term rentals. The perimeter spaces have been converted into office space for parks staff and non-profit organizations.

In 2005 MOHAI engaged LMN Architects to complete a Feasibility Study of the existing Armory to assess its suitability as a new home for MOHAI's main public venue. In late 2007 and early 2008 this study was expanded, resulting in the current Concept Design.

LMN and their consultants relied on many of the reports completed by the City as part of their acquisition of the building from the Navy. Of particular note is the May 2004 report "Evaluation for Future Renovation" (attached as Exhibit 2).

Building Code Compliance. Since the building was transferred to the City from the Navy, Parks has completed seismic upgrades, has replaced the upper roof, and has made various tenant improvements. The following minimum improvements are necessary to continue public assembly uses in the building and will be completed as part of the museum project:

* Compliance with the American with Disabilities Act (including elevators, ramps and lifts)

* Compliance with the Seattle Building Code (including sprinkler, fire alarm systems, and exiting)

* Entire replacement of mechanical and electrical systems to meet current code

In addition, substantial upgrades to building systems, tenant improvements, and exhibitry will be provided to make the building fully functional as a museum.

Historic Covenants. When the building was transferred to the City, the City, Navy, and State Historic Preservation Officer (SHPO) entered into an agreement whereby all improvements to the Armory must allow for the building to remain eligible for the National Register of Historic Places. All planned improvements for the proposed project will require consultation with the SHPO for compliance with the Secretary of the Interior's Standards for Rehabilitation (attached as Exhibit 3). As part of the proposed application for the National Register of Historic Places, we anticipate that the project design will also require review and approval by National Park Service and the SHPO. Concurrently the Armory will also be nominated as a City Landmark and the design reviewed by the City Landmarks Board.

Zoning Compliance. The current building is approved by the Department of Planning and Development (DPD) as community center use. In order for the museum to occupy the building, the new use must be approved by DPD. The Director's finding approving that change was issued on July 17, 2008 (attached as Exhibit 4).

1.2 Scope of Proposed Building Improvements/Design

Improvements. The proposed project is detailed in the LMN Architects Concept Design Narrative dated February 7, 2008 (attached at Exhibit 5).

Architectural Components. The major architectural components of this project include:

* Installation of a new central elevator serving all four levels of the building;

* Conversion of the entire second floor to gallery space;

* Installation of a climate controlled temporary exhibit gallery to meet requirements for hosting national traveling exhibitions;

* Conversion of the perimeter of the first floor of the building to various uses including a cafe, gift shop, classrooms, offices, and other support spaces;

* Installation of a new loading dock and lift to meet museum standards;

* Installation of a new roof top deck in the northeast corner of the building;

* Design of a new portico and canopy on the west side of the building;

* ADA-compliant restrooms serving the museum;

* Separate women and men's ADA-compliant restrooms with a minimum of two fixtures each made available to park users without requiring museum admission; and

* Attainment of LEED Silver Certification as per standards of the United States Green Building Council (USGBC).

Systems. The following systems will also be installed, improved, or replaced:

* Heating, air conditioning, and ventilation;

* Electrical;

* Telecommunications;

* Fire Life Safety.

1.3 Building Program and Use.

Building Program. As part of the Concept Design, LMN Architects completed a detailed programming process with MOHAI staff for the building. The major components are:

* Exhibit Galleries/Event Space 26,150 sf

* Temporary Exhibit Gallery 4,800 sf

* Other Public Spaces 4,096 sf

* Administrative Spaces 2,777 sf

* Support Spaces 2,918 sf

* Utility 2,345 sf

Not all functions from the Montlake facility can be located at the Armory. Concurrent with the development of the Armory, MOHAI will be developing additional administrative, archival, storage, workshop, and support facilities (See Section 5).

1.4 Budget

Capital Project Costs. Working with the Sellen Construction Company, MOHAI and its project team prepared a detailed construction cost estimate of the proposed Concept Design and from that developed a total capital budget including project soft costs, contingencies, and project reserves (attached as Exhibit 6). This is summarized on the following pages:

Capital Budget Summary Budget Design 3,342,700 Construction 22,733,396 Legal, Utilities, Startup 385,000 Project Administration/Real Estate Advisory 1,114,600 Furniture, Fixtures and Equipment 234,975 Exhibits 15,158,673 Information Technology, Communications and Security 298,404 Capital Project Reserves 2,163,387 Totals 45,431,136

Total Project Costs. In addition to the Capital Budget, MOHAI's Business Plan also accounts for additional costs to cover increased staffing for the new project until the new museum opens, costs attributable to increasing MOHAI's endowment and creating an operating reserve. These costs are summarized below:

Total Project Costs Capital and Development Budget Capital Development Institutional Development/Project Expenses 3,450,000

3,450,000 Shell and Core Improvements 19,232,720 19,232,720

FFE, Tenant Improvements 8,876,355 8,876,356

Endowment 8,000,000

8,000,000 Exhibits and Media 15,158,673 15,158,673

Pre-construction Collection and Development Initiatives 657,831

657,831 Capital Campaign Expenses and Materials 1,750,000

1,750,000 Capital Project Reserves 2,163,387 2,163,387

Operating Reserve 1,320,000

1,320,000 Totals 60,608,967 45,431,136 15,177,831

Sources of Funds. The following table summarizes the anticipated sources of funds for the project:

Sources of Funds

Proceeds from Sale of 800 Pike Street 15,000,000 Pre-construction Collections and Development Initiatives Campaign (completed) 657,831 MOHAI Capital Campaign 25,000,000 Proceeds from Montlake Disposition 15,258,059 *see note Sales of Historic Tax Credits 4,693,077 Total Funds Available 60,608,967

*Note: The value of the proceeds from Montlake Disposition include the appraised value of the land and building, and the estimated value of tenant improvements, fixed exhibits, and relocation expenses net of legal and administrative costs.

Summary of 800 Pike Street Proceeds. Included in the Sources of Funds are $15 million in existing funds derived from the sale of the asset at 800 Pike Street, which includes a combination of State and City of Seattle funds already set aside in existing accounts as well as additional net proceeds from the sale of MOHAI's interest in the 800 Pike Street condominium. These are summarized below:

Summary of 800 Pike Street Sale Proceeds

State of Washington 5,750,000 City of Seattle (including accrued interest) 1,227,815

Private Funds and Others 8,022,185

Total Funds 15,000,000

Use of Historic Rehabilitation Tax Credits. The City has proposed that MOHAI use federal Historic Rehabilitation Tax Credits to fund a portion of the costs of the rehabilitation of the Armory.

These tax credits are expected to provide approximately $4.7 million in funding. To accommodate this funding source, MOHAI will create a wholly owned for-profit subsidiary ("MOHAI Inc.") solely for the purpose of accessing tax credits. This subsidiary would be overseen by the current MOHAI's Board of Directors. The City will lease the underlying land to MOHAI under a long-term ground lease and convey the building to MOHAI which will in turn convey the building to its wholly owned subsidiary, MOHAI Inc. MOHAI Inc. will undertake the renovations.

At the time the renovated building is ready to be placed back in service following completion of construction, MOHAI Inc. will lease the building to a Master Tenant which will in turn lease the building back to MOHAI. The building is leased to the Master Tenant (which is the tax credit investor) to allow the Master Tenant the right to claim the historic rehabilitation tax credits. Master Tenant will in turn pay for those by investing back into MOHAI Inc. This arrangement is illustrated in the diagram below.

Diagram Proposed Tax Credit Structure for the Naval Reserve Armory at Lake Union

Each of these transfers will be subject to the requirement that the property and building be used for a regional history museum facility.

This use requirement may not be avoided or set aside by any of the users of the property of the building. As required to secure the tax credits, the terms of the relevant agreements will be for an extended period. The term of the ground lease is expected to be between 50 and 60 years and it will provide that the Armory building reverts to City ownership at the end of its term. Nevertheless, the compliance period for the historic rehabilitation tax credits is five years. MOHAI will obtain the right to call (and thus recover) the Master Tenant's interest in the property following the conclusion of five years.

1.5 Project Management

The Capital Project will be developed under the direction of the Museum of History & Industry, with appropriate review and approval by the City of Seattle. Seneca Real Estate Group, Inc., is providing project management services throughout the course of the project (Mike Stanley, project manager), with additional consulting services provided by LMN Architects (architectural services), Sellen Construction (pre-construction services), Cedar River Associates (business plan development), Collins Group (fundraising counsel), and Weatherhead Experience Design (conceptual exhibit services).

1.6 Project Timeline

Major Milestones. The major milestones for development of the projects are summarized below; a copy of the project timeline is attached.

Major Milestones

Intake for Master Use Permit 9/22/2008 Schematic Design Complete 9/29/2008 Issue Design Development Drawings 2/16/2009 Master use Permit Issued 7/2/2009 Issue Construction Documents 8/10/2009 Building Permit Issued 1/11/2010 Start Construction 1/18/2010 Construction Complete/Commence Exhibits 6/3/2011 Exhibit Installation Complete/Commence Soft Opening 1/27/2012 Museum Open June 2012

1.7 City Alternatives

In response to the due diligence requirements in Resolution 31011, Parks commissioned an evaluation of renovation alternatives for the Armory by Ron Wright and Associates in Fall 2007 (attached as Exhibit 7). This evaluation looked at three scenarios for renovating the building a community center, a special events facility, and minimal code upgrades to continue using the building as-is. The evaluation provided a summary program for each scenario and a detailed estimate of renovation costs. The renovation cost estimates were estimated at $18.9 million for developing a community center, just over $21.3 million for a special events facility, and $1.7 million for continuing the existing operations with only minimal fire and

building code upgrades.

2.0 Project Financing

2.1 Market Research

MOHAI's move to the Armory building offers a unique opportunity to reach a greatly expanded audience at a highly visible location. To ensure that it had a clear understanding of its audience and how best to serve them, MOHAI engaged Solid State Information Design (Solid State) in late 2007 to complete an extensive market study. This study assessed MOHAI's current and potential audience and targeting strategies to effectively serve that audience. (Executive Summary attached as Exhibit 8).

Survey Methodology. Solid State interviewed approximately 1,000 Seattle and King County residents through telephone interviews (398 respondents), online surveys (403), sidewalk intercepts (102) and five focus groups (75). Participants were asked an extensive series of questions about how best a new history museum could serve their family and community, and what features would be of particular value, thus predicting visits and repeat attendance.

Findings. The research concluded that there is strong interest in a history museum, provided that the attraction includes significant material on contemporary history and maintains relevance to today's civic issues, includes a strong component of traveling exhibits on significant themes not otherwise available in our region, and is well integrated into the larger array of opportunities at Lake Union Park.

Audience Profile. The audience for a new history museum at Lake Union is generally described as culturally-disposed adults whose interest and involvement with Seattle cultural activities is already well established; families with children looking for an engaging day together (especially appealing given the proximity of the park); downtown and especially South Lake Union residents and workers; and tourists staying in or visiting the downtown Seattle area. A core constituency is also school groups and teachers from throughout the central Puget Sound region. Collectively, these target audiences are reasonably expected to generate up to 120,000 visits annually. MOHAI currently draws about 60,000 visitors annually.

Recommendations for Sustaining Audience. In reaching and maintaining that audience, the study concluded that MOHAI must evolve its offerings to include post-1950 history; provide programs that encourage civic debate and engagement; leverage the unique South Lake Union location, with its waterfront setting and proximity to an emerging neighborhood; launch an appropriate branding strategy that heightens awareness of the museum; and emphasize personal stories and engagement in all its products and programs.

Assessment of Comparable Museums. In developing its plans for the new museum, MOHAI trustees and staff visited and reviewed the programs and capital projects of regional history museums throughout North America that have recently completed major capital campaigns, making group site visits to (and meeting with leadership of) the Royal British Columbia Museum, the Washington State History Museum, the John Heinz Pittsburgh History Center, the National Constitution Center, the United States Memorial Holocaust Museum, and the Newseum, as well as individual visits and discussions with leadership at the Atlanta History Center and the Minnesota State Historical Society.

Without exception, existing museums experienced significant increases in attendance and membership (typically doubling or more), expanded fundraising capacity, and achieved an increased profile in the community following a major capital campaign, provided that the project was built on a solid foundation of audience engagement, business planning, and a strong component of high profile (often traveling) attractions.

Among MOHAI's colleague institutions, the Pittsburgh museum provided the closest corollary a private not-for-profit collection-based institution with a relatively low profile whose move to a historic structure near the downtown allowed it to re-position itself as a major cultural destination for the region. Since opening its new facility in 1996, the Pittsburgh museum has grown from a previous annual attendance of less than 60,000 to 150,000 visitors last year (with a companion rise in fundraising and budget), and its solid partnership with the Smithsonian Institution has enabled it to offer high quality changing programs that have sustained repeat visits.

The example of Pittsburgh, and of similarly successful stories of growth at many of the others, encouraged the MOHAI board to closely study those precedents and to model their best practices and incorporate those into the project planning and business plan development.

2.2 Fundraising Plan

In 2007, MOHAI commissioned a fundraising feasibility study to assess the likelihood of success in raising private and other non-City funds to complete the new museum project. In that study, the Alford Group interviewed nearly 40 philanthropic and civic leaders to assess the prospects of a significant capital campaign to create a new museum at Lake Union Park. As a result of their findings, the Alford Group recommended that MOHAI "proceed immediately with a 30-36 month campaign to raise $25 million in private support to fund the relocation to the Armory."

Among the key findings of the Alford Group study:

* Within the philanthropic community, MOHAI has strong recognition, positive reputation, and is perceived as providing a valuable resource to the community. But that same group believes that the museum is not as well known or appreciated by the population at large.

* MOHAI is well positioned for the project, and that integrated collections/program enhancement, a new home, and a stronger endowment has appeal to the philanthropic community.

* The majority of study participants believed that a $25 million private campaign goal is attainable, and a majority of the participants indicated that they would be "very likely" to financially support the campaign.

The MOHAI Board of Trustees approved the findings in 2007, and in Fall 2007 retained the Collins Group to develop and manage a capital campaign to raise $25 million in private and non-city support (attached as Exhibit 9).

Timeline. The $25 million capital campaign launched in January 2008 with board gifts, will continue through 2009 with leadership gifts, extends into 2010 with major gifts, and will conclude in 2011 and 2012 with a broad-based community gift phase, reaching completion on opening day in June 2012.

Leadership. Campaign leadership includes co-chairs Linda Johnson, Glen Milliman, and Phyllis Lamphere, and committee members Maggie Walker, Gary Neumann, Bruce Blume, Carol James, and Penny Peabody. Additional committee members will be specifically charged to serve on task forces focused on various levels and types of gifts. The committee is staffed by Angela Beard, MOHAI Development Director, and the Collins Group, campaign counsel (Kate Roosevelt, Jim Hopper, and Mandi Moshay).

Gifts. The campaign is expected to raise 48 lead gifts ($100,000 and above); 235 major gifts ($10,000 and above) and approximately 1,320 community gifts (up to $5,000).

Goals. In addition to raising $25 million from a variety of donors, the successful fundraising campaign envisioned in the plan will result in stronger partnerships between MOHAI and its donors and community volunteers as excitement about the campaign grows. The campaign plan also lays the groundwork for increased annual giving both before and after completion of the project and leads to an expanded membership base to support the operations of the new museum.

2.3 Business Plan

The new museum development is based on a five year business plan, which was created in close partnership with MOHAI's architectural concepts and exhibit and program plans, and forecasts increases in both earned and unearned income to sustain a healthy and dynamic regional asset for years to come. The plan specifically outlines sources of earned income, unearned (including interest and contributed) income, expenses (including program, personnel, maintenance, and capital), and net income. MOHAI's business plan is attached as Exhibit 10. The draft was completed in August 2008 and has not been updated to reflect the extent of MOHAI's leasehold interest at the Armory.

Earned Income Projections. MOHAI's earned income is derived from admissions, memberships, programs, store, cafe, facility rentals, catering, photo sales, and exhibit production services. Admissions are a key variable in earned income driving the membership, store, and cafe projections. The business plan includes projections of earned income based on three levels of first full year (June 1, 2012May 31, 2013) memberships and admissions: a low of 2,500 memberships and 100,000 admissions; a mid-range of 3,500 memberships and 120,000 admissions; and a high of 4,500 memberships and 150,000 admissions.

Admission prices at MOHAI are (effective August 15, 2008) $8.00 for adults, $7.00 for seniors, and $6.00 for youth (age 5-17). In 2012, MOHAI's admission rates will be modified to provide free admission for youth 13 and under, which is intended to encourage youth and families to visit the Museum. General admission rates for ages 14-61 will be $9.50 and for seniors $8.50.

The tables below summarize earned income at these three levels, with the percentage of earned income at 50 percent in 2012 under the midrange projection. The percentage of earned income is highest in 2012 due to high initial facility rental and catering income. Earned income declines to 43 percent in 2013 and then grows to 50 percent of total income in 2017 under the mid-range projection

Unearned Income. MOHAI's unearned income includes annual fund income, special events, grants, interest earnings, and City of Seattle support. City of Seattle support is anticipated to be $300,000 per year. Unearned income is anticipated to total $1.8 million in 2012, growing to $3 million in 2017 under the mid-range projection.

Expenses. MOHAI's expenses are anticipated to increase commensurate with its level of operation at Lake Union Park, with the mid-range and higher-range admissions projections allowing MOHAI to have a more stable and robust operation than the low projection. Sixty-one percent (61%) of MOHAI's expenses are for personnel and 39 percent for non-personnel expenses under the midrange projection. MOHAI anticipates a staff of 49 at Lake Union Park under the mid-range projection. Non-personnel expenses are: 45 percent occupancy costs (utilities, rental of storage space and administrative offices,

insurance, repairs and maintenance, building repairs, and security); 24 percent marketing and advertising costs; 15 percent exhibits; 14 percent supplies and other equipment; and 2 percent administrative costs.

MOHAI has a current staff of 32. Staff increases are anticipated to occur gradually between now and 2012 with increased staff focused on providing improved education, public program, curatorial, and exhibits support. MOHAI's 2008 operating budget is $2.6 million, which will grow to $4.6 million in 2012 under the mid-range projection reflecting additional costs for Armory building occupancy, rental of administrative and storage space outside of the Armory, and increased marketing, education, and public programming funding.

Net Income Major Maintenance Reserve. MOHAI plans to have a $1.32 million operating reserve from the capital campaign to sustain its 2012-2017 operation and to provide for any initial major maintenance expenses for the Armory. MOHAI plans to balance its annual operating budget by 2016 and will, under each attendance scenario, retain an operating reserve at the end of 2017. MOHAI will begin reserving funds for major maintenance of the Armory in its sixth year of operation in addition to the operating reserve shown in this business plan. MOHAI will continue a major maintenance reserve throughout its ownership of the building.

Business Plan Summary Year 2012 2013 2014 2015 2016 2017 (100,000 admissions opening year/2,500 memberships) Attendance 72,507 96,375 101,888 110,562 116,952 122,799 Income

Earned Income $1,627,339 $1,834,289 $2,052,997 $2,265,726 $2,453,178 $2,614,555 Unearned Income $1,811,970 $2,710,579 $2,785,067 $2,877,663 $2,952,110 $3,039,684 Total Income $3,439,308 $4,544,868 $4,838,063 $5,143,389 $5,405,287 $5,654,239 Expenses

Personnel $2,644,613 $3,049,958 $3,157,046 $3,268,515 $3,384,586 $3,505,490 Other Expenses $1,502,397 $1,839,957 $1,885,956 $1,933,105 $1,981,433 $2,030,969 Total Expenses $4,147,010 $4,889,915 $5,043,002 $5,201,620 $5,366,019 $5,536,459 Net -$707,702 -$345,047 -$204,938 -$58,231 $39,268 $117,781 Reserve $1,316,244 $608,542 $263,495 $58,556 $325 $39,593 Net $608,542

$263,495 $58,556 $325 $39,593 $157,374 % Earned Income 47% 40% 42% 44% 45% 46% % Unearned Income 53% 60% 58% 56% 55% 54% (120,000 admissions opening year/3,500 memberships) Attendance 87,008 115,650 122,266 132,674 140,342 147,359 Income

Earned Income $1,823,538 $2,055,733 $2,307,488 $2,545,679 $2,764,591 $2,956,055 Unearned Income

Unearned Income $1,799,330 $2,693,320 $2,763,450 $2,854,554 $2,927,411 $3,013,533 Total Income $3,622,868 $4,749,052 $5,070,938 $5,400,234 $5,692,002 $5,969,589 Expenses

Personnel $2,658,624 $3,065,020 $3,173,237 $3,285,921 $3,403,297 $3,525,605 Other Expenses $1,642,397 $1,983,457 $2,033,044 $2,083,870 $2,135,967 $2,189,366 Total Expenses $4,301,022 $5,048,477 $5,206,281 $5,369,791 $5,539,264 $5,714,971 Net -$678,154 -$299,425 -$135,343 $30,442 $152,738 $254,618 Reserve $1,316,244 $638,090 $338,666 $203,322 $233,765 $386,503 Net $638,090 $338,666 $203,322 $233,765 $386,503 $641,121 % Earned Income 50% 43% 46% 47% 49% 50% % Unearned Income 50% 57% 54% 53% 51% 50% (150,000 admissions opening year/4,500 memberships) Attendance 108,760 144,562 152,832 165,842 175,427 184,199 Income

Earned Income $2,102,519 $2,400,862 $2,703,301 $2,990,306 $3,260,740 $3,496,847 Unearned Income $1,800,232 $2,694,397 $2,764,714 $2,855,861 $2,928,786 $3,014,978 Total Income $3,902,751 $5,095,259 $5,468,015 $5,846,168 $6,189,526 $6,511,825 Expenses

Personnel $2,967,627 $3,438,821 $3,559,947 $3,686,054 $3,817,393 $3,954,228 Other Expenses $1,642,397 $1,983,457 $2,033,044 $2,083,870 $2,135,967 $2,189,366 Total Expenses $4,610,024 $5,422,279 $5,592,991 $5,769,924 $5,953,359 $6,143,594 Net -$707,274 -$327,020 -$124,976 $76,243 $236,166 $368,232 Reserve $1,316,244 $608,970 $281,951 $156,974 $233,218 $469,384 Net $608,970 $281,951 $156,974 $233,218 $469,384 $837,615 % Earned Income 54% 47% 49% 51% 53% 54% % Unearned Income 46% 53% 51% 49% 47% 46%

3.0 Relationships with Maritime Organizations

The Museum of History & Industry envisions Lake Union Park as the vibrant center of maritime heritage in the region, and foresees that

the Armory will play a significant role in sharing that heritage through exhibits, programs, and robust partnerships with maritime heritage colleagues at the park. Along with other maritime heritage organizations already resident at South Lake Union, MOHAI will participate in a Maritime Heritage Partnership at the Armory, including the Historic Ships Wharf.

3.1 At the Armory

As home to the region's largest and most significant collection of maritime-related artifacts, MOHAI at the Armory will feature dramatic maritime elements integrated into the larger story of the region's history, with several opportunities for in-depth interpretive displays related specifically to maritime history. Drawing on iconic reminders of our maritime past including artifacts from the SS Portland, the Beaver, the Decatur, the Nebraska, the great shipbuilding yards, classic recreational boats, hydroplanes, and much more, MOHAI at the Armory will feature highlights from nearly 200 years of nautical history, all in the context of how that history shaped our world. And the building itself will become a great artifact that speaks eloquently to the maritime past, through its historical associations and its unique nautically-themed architecture.

3.2 Partnerships with Other Organizations

MOHAI has long been a key partner in the consortium of maritime heritage organizations in the region, and has served as home to the Puget Sound Maritime Historical Society (PSMHS) since the mid-1950s. With its move to the Armory, MOHAI will continue to work with PSMHS on developing maritime exhibits and programs. In addition, MOHAI will formalize its relationships with three key partners at the site Northwest Seaport, Virginia V, and the Center for Wooden Boats to form the Maritime Heritage Partnership at the Armory site. MOHAI is in the process of developing detailed agreements with each of these partner organizations. The partnerships are based on increased programmatic collaborations, cross promotional marketing, and cooperative use of facilities including a consolidated information center at the Armory.

As part of these collaborations, MOHAI and its key partners are already at work on joint applications to state and federal grant programs, joint marketing and educational materials, and collaborative displays and interpretive signage at the park.

3.3 Wawona

A key component of maritime heritage at the park will be integration of the story of the Wawona, the legendary schooner whose history is closely associated with Lake Union and the park itself. Although a careful analysis in 2006 concluded than the Wawona cannot feasibly be preserved as a floating vessel, MOHAI, Northwest Seaport (owner of the Wawona), and the Center for Wooden Boats collaboratively explored options for on-land interpretation, with an agreement reached with the City of Seattle and the affected parties in 2007 (attached as Exhibit 11). In accordance with that agreement, the vessel has been documented to the standards of the Historic American Engineering Survey (complete), and will be removed and dismantled to determine which elements are worthy of later preservation and display, and removed to Magnuson Park for storage. Current plans call for a significant on-land commemoration of the ship, with opportunities for hands-on exploration, at the southeast corner of the park in the uplands of Waterway #4, with other elements from the ship incorporated into an interior display at the Armory in the future.

4.0 Integration with Lake Union Park

4.1 Parking

Parking and access are important for the successful redevelopment of the Armory into a Regional History Museum. This was reinforced in the market research completed by the Museum and integrated into the business plan. To that end, the City commissioned a Parking Management Plan for Lake Union Park by Transpo Associates, attached as Exhibit 12. The Museum also commissioned a parking study by Transportation Solutions Incorporated (TSI) to ensure that there was adequate parking available within reasonable distance of the Armory, attached as Exhibit 13.

MOHAI Demand. The parking requirements were determined by TSI based on 120,000 visitors per year and are summarized below.

MOHAI Visitor Parking Needed 120,000 Attendance

Winter Summer

Weekday Weekend Weekday Weekend Daytime Visitors 120 300 790 780 Daytime Parking 17 33 76 64 Evening Parking (events) 106 204 171 261

Other Tenant Demand. The City's parking study for the development of Lake Union Park projected parking requirements for all tenants. The Center for Wooden Boats was projected to need between 244 and 255 spaces per day in the winter and between 448 and 469 in the summer. Discussions with the Center, City Staff, and the Museum revealed that the Center projected demand had been overstated with their actual summer requirement closer to 150-180 spaces and the winter much lower. The City is in the process of re-confirming the actual demand for the Center and other tenants of the park.

Supply. Near term parking supply (within 1/4 mile recommended distance for MOHAI parking by TSI) is 820 stalls and 1,390 stalls within 1/2 mile. TSI has determined that there is adequate parking in the expanded area for the average visitor day, even before CWB's demand is revised downward.

Additional Parking. The key to resolving visitor parking is having parking supply in the immediate area which visitors can be directed to. This is anticipated to be in the 120 stalls to be provided by Vulcan and made available for general public parking in the development adjacent to the Park on the South Side of Valley Street and other nearby lots.

Other Parking Issues:

* North Parking Lot. The primary uses of this lot will be to meet ADA parking requirements, to provide a drop off area for school and tour buses, and to allow for deliveries to the Museum. Careful coordination between the Parks Department, MOHAI, and other park tenants will be important to ensure that it operates successfully for all users.

* Temporary Lot. Parks is installing a temporary lot with 48 parking spaces at the south end of the park just north of Valley Street. Use and management of this lot will be available to the general public, as well as patrons of the Museum and other tenants of the Park. This lot will be regulated to ensure frequent turnover thus supporting park/museum users and discouraging long-term parking.

4.2 Access

Vehicular access to the museum shall take place exclusively from the service road on the eastern edge of the park adjacent to Waterway #4. Since buses and deliveries can not exit via the Terry Avenue Walk, MOHAI and the City shall work together to develop a plan for improvements to the east wharf as necessary to allow for the safe turn around of school buses, trucks, and other delivery vehicles. The service road may be managed via a key card or other control system to discourage the general public from seeking parking in the north lot but to ensure ADA access.

4.3 Services to Park Users

The development of the Museum within Lake Union Park will allow for the introduction of several amenities not currently found in the Park:

* Cafe. The museum renovation shall include the development of a cafe that will serve both museum attendees as well as park patrons.

* Portico. The project also includes the creation of a large portico on the west side of the Armory that will provide a gathering space for park users and outdoor seating.

* Restrooms. The project will also include restrooms that can be accessed independently from the interior museum space by park users without admission to the museum.

4.4 Work Space for the Parks Department

The development of the Museum within Lake Union Park will include work space for City staff in connection with the operation and maintenance of Lake Union Park.

5.0 Expansion Facilities

5.1 Armory

There are no plans by the Museum to expand the Armory both under the current project and, given the historic nature of the structure and limitations within the Park, would be extremely difficult to undertake in the future.

5.2 Ancillary Facilities

There is not currently enough space within the Armory to accommodate all of the Museum's "back of house" functions (attached as Exhibit 14). Approximately 28,500 square feet of space will need to be leased to replace functions that will not fit within the Armory. MOHAI has included funding in its business plan to accommodate the cost to rent suitable space to meet these needs. This is summarized below:

Off-Site Ancillary Facilities Total Collections 17,700 Storage/Support/Library/Partners/Growth Total Office 6,274 Admin Offices/Growth Total Shop 4,500 Exhibit Storage/Shop/Growth

Grand Total 28,474 Excluding Existing Storage at Glant and Mukilteo

Replacing the existing auditorium would require an additional 8,840 square feet.

5.3 Future Use of McCurdy Park Facility

Once the Museum vacates its Montlake facilities the site will be used to support the construction of the replacement of the SR 520 Bridge. When that project is complete, those areas not permanently needed for the expansion of the highway will revert to park use.

Exhibits:

1. Resolution 31011

2. May 2004 report "Evaluation for Future Renovation" (3,779 KB)

3. Agreement between the City, Navy and State Historic Preservation Officer (SHPO) re: Historic Preservation (486 KB)

4. DPD preliminary ruling on the change of use to Maritime Heritage Center (415 KB)

5. LMN Architects Concept Design Narrative dated February 7, 2008 (9,992 KB)

6. Sellen Cost Estimate (84 KB)

7. Lake Union Naval Reserve Building, Evaluation for Future Renovation, Feb 18, 2008 (4,177 KB)

8. Market Positioning Research Executive Summary (366 KB)

9. MOHAI Fundraising Campaign Plan (931 KB)

10. MOHAI Business Plan (432 KB)

11. City/NWS MOA re: Wawona (2,421 KB)

12. 2006 Lake Union Park Parking Management Plan, Transpo Associates (358 KB)

13. 2007 TSI Memo on MOHAI's Parking Needs (453 KB)

14. Summary of MOHAI's Ancillary Space needs. (18 KB)

Due Diligence Report

MOHAI Regional History Museum at the Armory, Lake Union Park

DPR MOHAI 2008 FISC Attachment B

September 12, 2008 1 DPR MOHAI 2008 FISC Attachment B