Form revised February 6, 2008

FISCAL NOTE FOR NON-CAPITAL PROJECTS

Department:	Contact Person/Phone:	DOF Analyst/Phone:
Parks and Recreation	Eric Friedli / 684-8369	Jennifer Devore/615-1328

Legislation Title:

AN ORDINANCE relating to the Department of Parks and Recreation; authorizing the Superintendent to enter into a Concession Agreement with Arena Sports Magnuson Park LLC to renovate and provide indoor participant sports programs in Building 27 at Warren G. Magnuson Park.

· Summary of the Legislation:

The proposed legislation authorizes the Superintendent of Parks and Recreation to enter into a 30 year Lease Agreement with Building 11 LLC to renovate and occupy the former Public Works Administration and Maintenance Building 11 at Warren G. Magnuson Park. The purpose would be to develop a multi-use recreation building, consistent with the Sand Point Physical Development Management Plan.  The Lease establishes the conditions under which Building 11 LLC may use and occupy a portion of the facility for a period of 30 years.  Options to extend for 3 additional terms of 5 years is available to the lessee, provided they demonstrate that certain public benefit requirements have been met.  The Lease memorializes the parties’ understandings and objectives pertaining to the provision of recreation opportunities, building renovation, budget, design, construction, project management, and Building 11 LLC financial commitments. 

The Department of Parks and Recreation (DPR) is providing no financial contribution to this project.  Building 11 LLC has pledged to contribute $7,070,000 towards building improvements and any additional funds required to complete the project.  This would alleviate some near-term City expenses required for major maintenance work to the structure.  Prior to submitting applications to the Department of Planning and Development for construction permits, Building 11 LLC is required to certify that they have raised the funds necessary to undertake the building renovations. 

The Lease allows Building 11 LLC to reduce its fair market rent based on the value of its initial capital improvements, as well as subsequent major maintenance expenses.  The value of the capital improvements will be certified by DPR’s Finance Director and may be applied in monthly installments over the term of the Lease.

The Lease requires that Building 11 LLC make available at least 8,000 square feet of the building for water-related recreation activities at rents of no more than 80 percent of the average of market-rate rents in the building. This subsidy is specifically targeted to secure a long-term presence for Sail Sand Point or a similar community boating program as an anchor tenant for the building. In addition, Building 11 LLC will be required to provide public benefits equal to at least 15% of their total rent payment annually. These benefits will be eligible for rent offsets, and must be provided in order for Building 11 LLC to take advantage of the three lease extensions of 5 years that are available after the initial 30 year term. The value of public program offerings will be determined by the Superintendent each year.  Building 11 LLC is required to submit an annual program plan in October of each year outlining its intended use of the facility. 

Building 11 LLC is responsible for all minor and major maintenance during the term of the Lease.  The Lease is contingent on a number of other actions being accomplished as outlined in Section 6 of the Lease.  These include completion of an environmental assessment, zoning code amendments, resolution of shoreline zoning issues, and development of plans for signage and access plans.

· Background:

Building 11 is located in Magnuson Park just east of Sand Point Way NE just north of the entrance road to the National Oceanic and Atmospheric Administration (NOAA) headquarters.  The Sand Point Physical Development Management Plan (PDMP) adopted by City Council Resolution 29429 in 1997 calls for the north end of this building to be developed as a small crafts center for non-motorized boating.  The PDMP called for the south end of the building to be developed by the Muckleshoot Tribe into a fisheries research facility.  Subsequent to the adoption of the PDMP the Muckleshoot Tribe withdrew their interest in the building.  The building currently houses the non-profit group Sail Sand Point, Seattle Raft and Kayak, various artists’ studios, storage, and shop space for Seattle Public Libraries.  These uses are temporary. 

DPR generated $172,374 in 2006, and is projected to generate $187,000 in 2007, from rental revenue related to Building 11.  Maintenance costs for the building in 2006 were $24,129 and in 2007 they are projected to be $25,000.  Maintenance costs include routine janitorial services and minor and major repairs provided by the professional trades.

DPR’s 2007-2012 Asset Management Plan includes $1.7 million (unfunded) for the roof replacement for Building 11.  There are additional necessary improvements (window, seismic, HVAC) which are not included in the next six year Asset Management Plan.  Building 11 LLC’s proposed development of Building 11 alleviates the City’s need for capital improvement funding to perform major maintenance, and the need to make further improvements to the building for at least 40 years.  In addition, the capital investment made by Building 11 LLC to improve this building would alleviate the City’s need either to fund major maintenance capital investments to the aging building or to fund complete demolition to avoid safety liabilities.

In 2005, DPR issued a Request for Proposals (RFP) to find organizations interested in developing indoor recreation opportunities such as a theater, indoor soccer, hockey, basketball, climbing walls, tennis center, and velodrome or events venue.  Brochures were mailed to businesses and real estate brokers in the northwest and ads were placed in the Puget Sound Business Journal and the National Real Estate Investor.  The intent was to identify developers with the expertise and financial capability to develop the facility.

The intent of the RFP process was to:

1. Identify service providers that could offer parks and recreation programs to the public and achieve the vision for the development of Magnuson Park

2. Preserve the integrity of the Sand Point Historic District

3. Relieve the City of the financial liability associated with the buildings.

Building 11 LLC was the only entity that submitted a qualified proposal in response to the RFP for Building 11.  A review committee assessed the proposal and determined it met the City’s requirements.  The Superintendent concurred and Building 11 LLC was selected as the building developer.

· Please check one of the following:

____ This legislation does not have any financial implications.  (Stop here and delete the remainder of this document prior to saving and printing.)

__X__ This legislation has financial implications.  (Please complete all relevant sections that follow.)

Appropriations:  N/A

Fund Name and Number	Department	Budget Control Level*	2008 Appropriation	2009 Anticipated Appropriation
TOTAL

Notes:  None

Anticipated Revenue/Reimbursement: Resulting From This Legislation:

Fund Name and Number	Department	Revenue Source	2008 Revenue	2009 Revenue
TOTAL

Notes:  No revenue is anticipated in 2008 or 2009 as a result of this legislation.  Renovation of the building is anticipated in 2009 with revenue beginning in 2010.  Attachment 1 shows anticipated revenues and expenses over the thirty year life of the Agreement.

Total Regular Positions Created, Modified, Or Abrogated Through This Legislation, Including FTE Impact:  N/A

Position Title and Department	Position # for Existing Positions	Fund Name & #	PT/FT	2008 Positions	2008 FTE	2009 Positions*	2009 FTE*
TOTAL

*

Notes: None

· Do positions sunset in the future?  N/A

Spending/Cash Flow: N/A

Fund Name & #	Department	Budget Control Level*	2008 Expenditures	2009 Anticipated Expenditures
TOTAL

Notes: N/A

· What is the financial cost of not implementing the legislation?

By not implementing this legislation the opportunity to preserve Building 11 will not be realized.  DPR engaged in a significant effort to identify an entity that met the parks and recreation mission was consistent with the development of a multi-use regional park and had solid financial viability.  The fact that only a single proposal was received indicates there are no other viable options.   

The building does not meet current building codes and does not have a permanent certificate of occupancy.  Without this Lease the use of the building will be gradually reduced and within 2-3 years all tenants and programs will be discontinued and revenues will fall to zero.

Without this legislation the building would be mothballed and/or demolished in the next 1-3 years.  The estimated cost to demolish the building down to the foundation is $1.5 million.  The demolition cost of removing the foundation has not been estimated as the building is constructed on an extensive piling system that supports the building and surrounding parking area.  The demolition of the building would result in the loss of a building that contributes to the Sand Point Historic District.

· What are the possible alternatives to the legislation that could achieve the same or similar objectives?

The City could fund the renovation of the building and make it available for community use, however, this would not be consistent with the objective to alleviate the City of financial responsibility for improvements to the building

· Is the legislation subject to public hearing requirements:  No

· Other Issues:  None

Please list attachments to the fiscal note below:

Attachment 1:  Building 11 LLC in Building 11 pro forma

Attachment 2:  Contract Summary

Building 11 LLC
Facility:	58,780	sq. ft.
CPI adjustment	3.0%	annual
Base Rent	$    4.00
Base Rent Escalation	15%	cumulative CPI every 5 years
Minimum Rent per month	400
Percentage of Gross	10.00%
Total Capital Contribution	7,077,000
Annual Capital Rent Offset Max	230,320	Capital investment straight-lined over X years - minimum rent
Eligible Gross Revenue
Interest/discount rate	7.5%
NET PRESENT VALUE
Base Rent	3,888,825
Percentage Rent	109,229
Rent offset	(2,900,744)
Public Program Offset	(413,555)
NET Rent	1,097,310
City Administration	273,073
NET TO CITY	824,236

		Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
Eligible Gross Revenue		60,000	61,800	63,654	65,564	67,531	69,556
REVENUES
Base Rent	15,019,998	235,120	235,120	235,120	235,120	235,120	270,388
Percentage Rent	452,408	6,000	6,180	6,365	6,556	6,753	6,956
Rent offset	(9,212,800)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)
Public Program Offset	(460,640)
NET Rent	6,259,605	10,800	10,980	11,165	11,356	11,553	47,024
EXPENSES
City Administration	1,131,019	15,000	15,450	15,914	16,391	16,883	17,389
NET TO CITY	5,128,587	(4,200)	(4,470)	(4,748)	(5,035)	(5,330)	29,635

	Year 7	Year 8	Year 9	Year 10	Year 11	Year 12	Year 13	Year 14
Eligible Gross Revenue	71,643	73,792	76,006	78,286	80,635	83,054	85,546	88,112
REVENUES
Base Rent	270,388	270,388	270,388	270,388	310,946	310,946	310,946	310,946
Percentage Rent	7,164	7,379	7,601	7,829	8,063	8,305	8,555	8,811
Rent offset	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)
Public Program Offset
NET Rent	47,232	47,447	47,669	47,897	88,690	88,932	89,181	89,437
EXPENSES
City Administration	17,911	18,448	19,002	19,572	20,159	20,764	21,386	22,028
NET TO CITY	29,322	28,999	28,667	28,325	68,531	68,168	67,794	67,409

	Year 15	Year 16	Year 17	Year 18	Year 19	Year 20	Year 21
Eligible Gross Revenue	90,755	93,478	96,282	99,171	102,146	105,210	108,367
REVENUES
Base Rent	310,946	357,588	357,588	357,588	357,588	357,588	411,226
Percentage Rent	9,076	9,348	9,628	9,917	10,215	10,521	10,837
Rent offset	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)
Public Program Offset							(230,320)
NET Rent	89,702	136,616	136,896	137,185	137,483	137,789	191,743
EXPENSES
City Administration	22,689	23,370	24,071	24,793	25,536	26,303	27,092
NET TO CITY	67,013	113,246	112,826	112,393	111,946	111,487	164,651

	Year 22	Year 23	Year 24	Year 25	Year 26	Year 27	Year 28
Eligible Gross Revenue	111,618	114,966	118,415	121,968	125,627	129,395	133,277
REVENUES
Base Rent	411,226	411,226	411,226	411,226	472,910	472,910	472,910
Percentage Rent	11,162	11,497	11,842	12,197	12,563	12,940	13,328
Rent offset	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)
Public Program Offset	(230,320)
NET Rent	192,068	192,403	192,748	193,103	255,153	255,530	255,918
EXPENSES
City Administration	27,904	28,742	29,604	30,492	31,407	32,349	33,319
NET TO CITY	164,164	163,661	163,144	162,611	223,746	223,181	222,599

	Year 29	Year 30	Year 31	Year 32	Year 33	Year 34	Year 35
Eligible Gross Revenue	137,276	141,394	145,636	150,005	154,505	159,140	163,914
REVENUES
Base Rent	472,910	472,910	472,910	472,910	472,910	472,910	472,910
Percentage Rent	13,728	14,139	14,564	15,000	15,450	15,914	16,391
Rent offset	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)
Public Program Offset
NET Rent	256,318	256,730	257,154	257,591	258,041	258,504	258,982
EXPENSES
City Administration	34,319	35,348	36,409	37,501	38,626	39,785	40,979
NET TO CITY	221,999	221,381	220,745	220,090	219,415	218,719	218,003

	Year 36	Year 37	Year 38	Year 39	Year 40
Eligible Gross Revenue	168,832	173,897	179,114	184,487	190,022
REVENUES
Base Rent	472,910	472,910	472,910	472,910	472,910
Percentage Rent	16,883	17,390	17,911	18,449	19,002
Rent offset	(230,320)	(230,320)	(230,320)	(230,320)	(230,320)
Public Program Offset
NET Rent	259,473	259,980	260,502	261,039	261,592
EXPENSES
City Administration	42,208	43,474	44,778	46,122	47,505
NET TO CITY	217,266	216,506	215,723	214,917	214,087

CONTRACT SUMMARY

Contracting Party/ Lessee/ Concessionaire/Other: Building 11 LLC

Contract Title and Contract Type: Magnuson Park Building 11 Lease Agreement

Non-Profit______  or  For Profit___X___

New__X - Long Term Lease____   or Renewal (or extension of existing Lease) ______

Premises: Building 11 at Warren G. Magnuson Park.

Term of Lease:  30 years with an option for three extensions of 5 years each, provided certain public benefits are provided in the preceding term.

Purpose of Lease (description of license):  Lessee shall primarily use the building for the encouragement and development of park and recreation activities, with a focus on water-related recreation such as sailing, kayaking, canoeing and other non-motorized boating activities, the retail sale of recreation-oriented goods and services, and providing services such as child care and food and beverage services for the benefit of users of the park. 

Lessee may use up to 25,000 square feet of the building for commercial uses allowed under applicable zoning and land use laws, ordinances, statutes, rules and regulations.

Rent:  An annual base rent of $235,120 ($19,593.33 monthly) plus additional rent equal to 10% of subtenant rent.  For purposes of calculating additional rent, “subtenant rent” means and includes all base rent, percentage rent and fees of any kind collected by Lessee from third parties, including licensees and subtenants, for use and occupancy of the building for other permitted uses. 

Adjustments to Rent (if any): Up to 23% of the base rent only may be reduced during the first 5 years in the form of public benefit rent offsets, and up to 15% thereafter during the remainder of the term. An additional 75% of the base rent may be reduced in the form of capital improvement rent offset limited to the cost of initial alterations and subsequent major maintenance costs.

Public Benefit (e.g., description of permitted use):  Preservation of a contributing building to the Sand Point Historic District. Public programs for the encouragement and development of sailing, kayaking, canoeing and other non-motorized boating activities and meeting rooms, storage, office, child care, food and beverage services, and artist studios will be available. The Lease requires that Building 11 LLC make available at least 8,000 square feet of the building for water-related recreation activities at rents of no more than 80 percent of the average of market-rate rents in the building for the term of the Lease.

Maintenance: Lessee shall be responsible for all minor and major maintenance of the building during the Term of this lease including but not limited to repairs of cracking and breaking glass, regular exterior painting and masonry maintenance, roof repairs and replacement, and HVAC repair and replacement. 

Other Pertinent Information: The Lease is contingent on a number of other actions being accomplished as outlined in Section 6 of the lease.  These include completion and acceptance of an environmental assessment, zoning code amendments and resolution of shoreline zoning issues.