PETALUMA THEATRE DISTRICT PARKING GARAGE PETALUMA, CALIFORNIA Prepared for: Basin Street Properties Project Number 33-1608.00
135 Main Street, Suite 1030 San Francisco, CA 94105 Voice: 415.644.0630 Fax: 415.644.0637 www.walkerparking.com November 25, 2008 Mr. Stephen R. Finn Partner Morgan, Lewis & Bockius LLP One Market, Spear Street Tower San Francisco, CA 94105-1596 Re: Petaluma Theatre District Parking Garage - Financial Analysis Walker Project Number 33-1608.00 Dear Mr. Finn: Walker Parking Consultants is pleased to submit our Financial Analysis for your review. Based upon the results of the enclosed analysis we would highlight the fact that the City of Petaluma ( City ) could benefit by extending the existing twenty-year Parking Garage Easement and Operating Agreement for an additional forty years. While the value of an extension can be viewed from several perspectives, two relevant items would include the value of the physical public parking spaces (216) allowed pursuant to the agreement, and the long-term potential revenues generated from implementing paid parking at the Petaluma Theatre District garage. These are relevant points, as the City currently benefits from the free parking offered at the garage for its merchants, residents and visitors. It is reasonable to assume that the City would desire to continue their relationship with Basin Street Properties and Petaluma Theatre District Parking, LLC, and enjoy these benefits for many years by extending the term of the existing agreement and utilizing the spaces into the future. For this report, we quantified the physical value of the spaces by calculating the estimated land acquisition and development costs associated with constructing 216 new surface or structured public parking spaces. In addition, we analyzed the revenue stream and long-term value of the shared income to the City that could possibly be generated through the implementation of paid public parking and collection of parking fees. In order for the City to develop new public parking spaces and replace those utilized under the easement agreement we project it would cost approximately $ 3.0 million to acquire the land, design and construct a surface parking lot. In addition, approximately $ 9.3 million in land acquisition, design and construction costs would be required to replace the spaces in a parking structure. This pending financial burden could be lifted provided the easement agreement is extended. Moreover, our projections show that the City could realize more than $ 7.1 million in
Mr. Stephen R. Finn November 25, 2008 Page 3 of 21 new revenue related to their shared portion of the revenue generated from implementing paid public parking at the garage. The enclosed report is comprised of a brief written summary of the information used to develop spreadsheets that detail the results of our analyses. The spreadsheets follow the written text and are included as an Appendix to the report. Please note that our analysis is based on limited data and completed in a short timeframe. As a result, the revenue and expense projections are given on an order of magnitude basis. Thank you for the opportunity to participate in the project, and please do not hesitate to contact me with any questions or comments about the enclosed Financial Analysis. Respectfully submitted, WALKER PARKING CONSULTANTS Phillip Schragal Parking Consultant cc: Paul Andronico Basin Street Properties Matt White Basin Street Properties Andy Kapeghian Walker Parking Consultants Enclosure
NOVEMBER 2008 PROJECT # 33-1608.00 INTRODUCTION Basin Street Properties (Basin) and Petaluma Theatre District Parking, LLC (Parking LLC) retained Walker Parking Consultants (Walker) to provide a financial analysis to project the annual net operating income that could be generated from the implementation of paid parking at the Petaluma Theatre District garage. In order to fulfill the requirements of the study, Walker proposed a suitable parking rate structure that is competitive within the existing market and created a financial model to project future parking demand, annual parking revenue, and the annual operating expenses associated with implementing paid public parking at the site. PARKING DEMAND The garage is located in a developing section of downtown Petaluma, California and currently is open to the general public for parking on a daily basis. The garage serves a mixed-use development comprised of retail, office and 100 residential units, as well as a 1,400 seat Cineplex. Residential parkers are served by a 100- space nested area with access control equipment. Parking LLC is obligated through a tenant lease agreement with the Cineplex, to provide 250 spaces free of charge daily until 5:00 p.m. for cinema customers and 350 spaces free of charge in the evening and on weekends. In addition, for another 17 years Parking LLC has an easement agreement with the City of Petaluma to provide 216 spaces for use by the general public during normal operating hours. Basin provided Walker with information on the development that included the approximate square footage of the office, retail, casual and fine dining restaurant components, and the size of the Cineplex. We used the information to develop a shared parking model that projects peak vehicle demand throughout the year. The peak demand projections were then utilized to assess potential parking demand for the project site and develop the annual revenue models. The shared parking demand model is shown in Table 1 of the Appendix. REVENUE PROJECTIONS To calculate the projected revenue that could be realized from implementing paid public parking we created a model to project the number of vehicles that would utilize the garage on an annual basis. Since parking is an elastic business, the number of cars parking daily at any location varies, not only from day to day, but also from month to month and is based upon several factors including, but not limited to; current economic conditions, weather, special events that may occur in the area, employee travel and vacation schedules and seasonality. ANNUAL VEHICLES To assist in calculating the annual demand for the Petaluma Theatre District garage, we developed projections using the peak demand from the shared parking model to determine the number of annual vehicles that would choose the structure as their final parking destination. In addition, we conducted a survey of cities surrounding the garage site to ascertain market conditions. 1
NOVEMBER 2008 PROJECT # 33-1608.00 Utilizing the shared parking peak demand, we developed Table 2, which summarizes our projection of vehicles that would park in the structure on an annual basis. The annual vehicle projection table applies a stabilization factor and a percentage of peak demand multiplier to the estimated peak demand to project conditions under slow, moderate and peak operating conditions in an effort to incorporate seasonality into the model. The peak demand is initially multiplied times the stabilization factor and then times a percentage of peak demand; the resulting vehicles calculated are then multiplied times the estimated number of slow, moderate and peak days throughout the year to determine the approximate number of annual vehicles. ANNUAL REVENUE We developed a parking revenue model utilizing the annual vehicle projections and a parking rate structure that we believe is competitive in the current parking market. The model assumes that residential, daily transient and retail parkers would pay to park in the facility. Retail customers would benefit by paying reduced rates associated with a validation program that would be implemented and initially offer three hours of free parking with validation. Revenue collection would be monitored and controlled with a parking access and revenue control system (PARCS) that would be purchased and installed by Parking LLC. Cinema customers would also benefit from the validation program by parking free of charge during the day and on weekends. In addition, for the initial 40 years of the pro forma analysis we assume that parking after 5:00 p.m. would remain free to all users of the facility. The initial validation program would remain in effect for the first four years of operation and in subsequent years would offer two hours of free parking with validation. The model escalates both revenue and expenses 3% per annum throughout the remaining years included in the pro forma analysis. In Table 3, we show the projected average ticket calculations and rate structure for the initial year of operation (2010), the fifth year of operation (2014), when the validation program is reduced from three hours free to two hours free, and finally, for the year (2046) in which paid parking is implemented in the evenings and the validation program offers one hour of free parking. REVENUE SUMMARY The projected revenue that could be realized by implementing the proposed rate structure is detailed in the spreadsheet shown in Table 4 in the report Appendix. OPERATING EXPENSES Table 5 summarizes the projected annual operating expenses associated with implementing paid public parking at the facility. Our analysis assumes the operating expenses for maintaining the parking facility that are already incurred by Parking LLC will remain their responsibility. Going forward, any direct expenses incurred for labor, payroll taxes, workers compensation, fringe benefits, PARCS purchases and maintenance, supplies, contracted services and general expenses associated with paid public parking would be paid with revenue generated from the paid public parking operation and any remaining net revenue would be shared with the City. 2
NOVEMBER 2008 PROJECT # 33-1608.00 The expense model assumes the following; a pay on foot operation with an allocated portion of a facility manager that will oversee the location, and an allocation for customer service representatives that would be present at the facility to answer customer questions, monitor activity, service the pay on foot stations and parking equipment, reconcile daily sales and deposit the daily parking revenue into the owner s bank. The expenses do not include any other ancillary staffing (i.e. cashiers or customer service employees), and assume the cost of security coverage and annual real estate taxes assessed on the property are paid by Parking LLC. PRO FORMA ANALYSIS Based upon the projected annual revenue and operating expenses required to operate the facility, Table 6 provides a sixty-year net operating income analysis for the project. The pro forma for the proposed parking structure projects cumulative annual net operating income of approximately $14.3 million for the life of the analysis. The pro forma further assumes that Parking LLC will share 50% of the net operating income with the City; resulting in a revenue share of $7.1 million for the City of Petaluma over the life of the agreement. PROJECTED VALUATION OF PUBLIC SPACES If consummated, the proposed extension to the easement agreement would save the City from having to incur any expense related to replacing the 216 public spaces that Parking LLC is currently obligated to provide once the 20 year agreement expires. To calculate the monetary value of the spaces, we developed Table 7, which is included in the Appendix. In conclusion, extending the existing 20-year agreement by 40 years through the implementation of paid parking at the Petaluma Theatre District garage could possibly benefit both Parking LLC and the City of Petaluma by providing cost savings to the City, and added revenue for both parties in future years. 3
NOVEMBER 2008 PROJECT # 33-1608.00 STATEMENT OF LIMITING CONDITIONS 1. This report is to be used in whole and not in part. 2. Walker s report and recommendations are based on certain assumptions pertaining to the future performance of the local economy and other factors typically related to individual user characteristics that are either outside Walker s control or that of the client. To the best of Walker s ability we analyzed available information that was incorporated in projecting future performance of the proposed subject site. 3. Financial projections presented in this report are conceptual estimates in nature. The projections in this report will differ from actual results. 4. All information, estimates, and opinions obtained from parties not employed by Walker Parking Consultants/Engineers, Inc. are assumed to be true and correct. We can assume no liability resulting from misinformation. 5. None of this material may be reproduced in any form without our written permission, and the report cannot be disseminated to the public through advertising, public relations, news, sales, or other media. 6. We take no responsibility for any events or circumstances that take place subsequent to the date of our field inspections. 7. The quality of a parking facility s on-site management has a direct effect on a property s economic viability. The financial projections presented in the analysis assume responsible ownership and competent management. Any departure from this assumption may have a significant impact on the projected operating results. 8. The estimated operating results presented in this report were based on an evaluation of the overall economy, and neither take into account nor make provisions for the effect of any sharp rise or decline in local or national economic conditions. We do not warrant that the projections will be attained, but they have been prepared on the basis of information obtained during the course of this study and are intended to reflect the expectations of a typical parking patron. 9. This report was prepared by Walker Parking Consultants. All opinions, recommendations, and conclusions expressed during the course of this assignment are rendered by the staff of Walker Parking Consultants as employees, rather than as individuals. 10. This report is set forth as a market and financial analysis of the proposed subject property: this is not an appraisal report. 11. The conclusions and recommendations presented in this report were reached based on Walker s analysis of the information obtained from the client and our own sources. Information furnished by others, upon which portions of this study are based, is believed to be reliable; however, it has not been verified in all cases. No warranty is given to the accuracy of such information. Any significant differences between these assumptions and actual performance may have an impact on the financial projections of the subject parking operation. 4
APPENDIX APPENDIX
Table 1: Shared Parking Analysis Peak Parking Demand 1 Land Use - Transient Demand Input 2 Units Weekday Weekend Capture Ratio 3 Weekday Weekend Retail Customers 125,000 s.f. 290 260 90.0% 261 234 Retail Employees 40 38 Casual Dining Customers 12,000 s.f. 69 125 90.0% 62 113 Casual Dining Employees 9 12 Fine Dining Customers 7,500 s.f. 51 99 90.0% 46 89 Fine Dining Employees 8 12 Cineplex Customers 1,400 seats 186 227 90.0% 167 204 Cineplex Employees 8 11 Office - Visitors 95,000 s.f. 19 0 90.0% 17 0 Office Employees 227 0 Residential Owners/Renters 100 units 70 98 100.0% 70 98 Residential Visitors 3 14 Transient Demand (excludes employees/visitors) 685 809 624 738 Employee/Visitor Demand 295 87 90.0% 266 78 Peak Demand 980 896 889 816 1 Peak weekday demand at 2:00 p.m. in December, peak weekend demand at 8:00 p.m. in December per Walker's Shared Parking Model. 2 GLA represents the approximate gross leasable area. 3 The capture ratio represents the percentage of weekday and weekend vehicles that choose to park in the Basin Street facility. Source: Walker Parking Consultants 5
Table 2: Annual Vehicle Projection Annual Vehicles Stabilization January - December Peak Factor 1 % of Peak 2 Vehicles/Day 3 Days/Year Vehicles Transient - Slow 889 95.0% 50% 422 112 47,295 Transient - Moderate 889 95.0% 70% 591 221 130,652 Transient - Peak 889 95.0% 90% 760 32 24,323 Total 554 365 202,270 1 Stabilization factor is the percentage of vehicles realized in relation to the development's maturation process. 2 Represents the percentage of peak demand that will park on slow, moderate and peak days throughout the year. 3 Represents the average vehicle exits on slow, moderate & peak days. Source: Walker Parking Consultants 6
Table 3: Projected Rate Structure and Average Ticket Calculations, 2009, 2014 and 2046 Projected Average Ticket - Transient and Monthly - 2009 Projected Average Ticket - Transient and Monthly - 2014 Projected Average Ticket - Transient and Monthly - 2046 Category Tickets Ticket Pct. Rate Revenue Category Tickets Ticket Pct. Rate Revenue Category Tickets Ticket Pct. Rate Revenue Transient - Regular 100 Transient - Regular 100 Transient - Regular 100 < 1 hour 3 3.0% $ 0.50 $ 1.50 < 1 hour 3 3.0% $ 1.00 $ 3.00 < 1 hour 3 3.0% $ 4.00 $ 12.00 < 2 hours 5 5.0% 1.00 5.00 < 2 hours 5 5.0% 1.50 7.50 < 2 hours 5 5.0% 6.50 32.50 < 3 hours 6 6.0% 1.50 9.00 < 3 hours 6 6.0% 2.00 12.00 < 3 hours 6 6.0% 7.50 45.00 < 4 hours 7 7.0% 2.00 14.00 < 4 hours 7 7.0% 3.00 21.00 < 4 hours 7 7.0% 9.00 63.00 > 4-10 hours 18 17.5% 5.00 87.50 > 4-10 hours 18 17.5% 5.00 87.50 > 4-10 hours 18 17.5% 11.00 192.50 > 10-12 Hours 1 1.0% 6.00 6.00 > 10-12 Hours 1 1.0% 6.50 6.50 > 10-12 Hours 1 1.0% 12.00 12.00 > 12-24 hours 1 0.5% 7.00 3.50 > 12-24 hours 1 0.5% 7.50 3.75 > 12-24 hours 1 0.5% 14.00 7.00 Total - Transient/Regular 40 40.0% $ 3.16 $ 126.50 Total - Transient/Regular 40 40.0% $ 3.53 $ 141.25 Total - Transient/Regular 40 40.0% $ 9.10 $ 364.00 Transient - Validated Retail - Validated Retail - Validated < 1 hour 3 3.0% - $ - < 1 hour 3 3.0% - $ - < 1 hour 3 3.0% - $ - < 2 hours 7 7.0% - - < 2 hours 7 7.0% - - < 2 hours 7 7.0% 4.00 28.00 < 3 hours 43 43.0% - - < 3 hours 43 43.0% 1.00 43.00 < 3 hours 43 43.0% 6.00 258.00 < 4 hours 4 4.0% 2.00 8.00 < 4 hours 4 4.0% 3.00 12.00 < 4 hours 4 4.0% 9.00 36.00 > 4-10 hours 2 2.0% 5.00 10.00 > 4-10 hours 2 2.0% 5.00 10.00 > 4-10 hours 2 2.0% 11.00 22.00 > 10-12 Hours 1 0.5% 6.00 3.00 > 10-12 Hours 1 0.5% 6.50 3.25 > 10-12 Hours 1 0.5% 12.00 6.00 > 12-24 hours 1 0.5% 7.00 3.50 > 12-24 hours 1 0.5% 7.50 3.75 > 12-24 hours 1 0.5% 14.00 7.00 Total - Transient/Validated 60 60.0% $ 0.25 $ 24.50 Total - Transient/Validated 60 60.0% $ 1.20 $ 72.00 Total - Transient/Validated 60 60.0% $ 5.95 $ 357.00 100.0% 100.0% 100.0% Cinema - Validated Monthly - Regular 75 75.0% $ 50.00 $ 3,750 Monthly - Regular 75 75.0% $ 57.00 $ 4,275 < 1 hour 2 2.0% - $ - Monthly - Employee 25 25.0% 25.00 625 Monthly - Employee 25 25.0% 26.00 650 < 2 hours 3 3.0% 2.00 6.00 Total - Monthly 100 $ 43.75 $ 4,375 Total - Monthly 100 $ 49.25 $ 4,925 < 3 hours 86 86.0% 2.00 172.00 < 4 hours 5 5.0% 9.00 45.00 > 4-10 hours 3 3.0% 11.00 33.00 > 10-12 Hours 1 1.0% 12.00 12.00 > 12-24 hours 0 0.0% 14.00 - Total - Transient/Validated 100 100.0% $ 2.68 $ 268.00 Monthly - Regular 75 75.0% $ 145.00 $ 10,875 Monthly - Employee 25 25.0% 72.00 1,800 Total - Monthly 100 $ 126.75 $ 12,675 Source: Walker Parking Consultants 7
Table 4: Projected Revenue 8
9
Source: Walker Parking Consultants 10
Table 5: Projected Expenses 11
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Source: Walker Parking Consultants 13
Table 6: Pro Forma Summary 14
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Source: Walker Parking Consultants 16
Table 7: Projected Valuation of Public Spaces Projected Valuation of Public Spaces Description Factor Sub-Total Total Spaces 216 Area (s.f./space) 330 Total Area - Surface Lot (s.f.) 71,280 Total Area - Structure (s.f.) 46,400 Surface Lot Land Acquisition (cost/s.f.) $ 30.00 $ 2,138,400 Hard Construction Costs (per space) $ 3,500 756,000 Soft Costs (% of hard costs) 20.0% 151,200 $ 3,045,600 Structure Land Acquisition (cost/s.f.) $ 30.00 $ 1,392,000 Hard Construction Costs (per space) $ 20,000 6,600,000 Soft Costs (% of hard costs) 20.0% 1,320,000 $ 9,312,000 Source: Walker Parking Consultants 17