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					 Presentation to DOE/BAO & CH


              BNL Housing Reconstruction
                       Project

                                  Michael J. Bebon ALD Facilities & Operations
                                 Michael M. Goldman Deputy General Counsel
                      Susan M. Perino Facilities& Operations Business Manager
                                                                April 17, 2003




Brookhaven Science Associates
  U.S. Department of Energy
   Housing Reconstruction Project
   Presentation Agenda
      Project Overview
      Progress to Date
      Project Documents
        • Request for Proposals
        • Economic Analysis
        • OMB Circular A11 Analysis
      Next Steps



Brookhaven Science Associates
  U.S. Department of Energy       2
   Project Overview – Project Team
      Integrated BNL/BAO/CH Team
      Assistance provided by ORNL and PNNL staff
       and Battelle
      Team members:
        • BNL: M. Bebon, M. Goldman, S. Perino, J. Giuffre,
          M. Schaeffer
        • BAO: R. Gordon, L. Sadler, J. Eng
        • CH: H. Ramirez


Brookhaven Science Associates
  U.S. Department of Energy      3
Project Overview – Project Drivers

        Good  quality, safe housing is a requirement for
         BNL’s users
        Short term rental housing in the community scarce
         and expensive
        Offsite housing a hardship for many BNL users,
         guests (no car available, no public transportation
         options, language barrier)
        Demand for onsite housing increasing
        Apartment capacity inadequate during summer peak


Brookhaven Science Associates
  U.S. Department of Energy     4
   Project Overview – Project Drivers

     Wood frame structures built between 1941 and 1943
        •   Life Safety Code issues
        •   Electric heat, no air-conditioning
        •   Lead contamination in water lines and paint
        •   Poor insulation leading to higher energy costs
        •   Structural deterioration - rot, termites, water damage




Brookhaven Science Associates
  U.S. Department of Energy            5
Project Overview
   Current Apartment Complex
      Number of Units: 70 (Four out of service)
      Square Footage: 68,000
      Accommodation Type:
        •   One Bedroom (17)
        •   Two Bedroom (33)
        •   Three Bedroom (12)
        •   Four Bedroom (4)
      Purpose: housing for guests, visitors, new
       employees and research teams; several months – 1
       year

Brookhaven Science Associates
  U.S. Department of Energy      6
     Typical Apartment Exterior




Brookhaven Science Associates
  U.S. Department of Energy     7
     Apartment Structural Deterioration


 Dry rot in
 floor joist




Brookhaven Science Associates
  U.S. Department of Energy     8
     Apartment Floor Failure




Brookhaven Science Associates
  U.S. Department of Energy     9
   Project Overview – Scope
      Build 70 new apartment units varying from 1-4
       bedrooms and 2 new “VIP” units. Total 80,000
       sq. ft.
      Build new 12,000 SF Recreation/Community
       Center
      Sited on 12 Acre out-leased DOE land within
       existing apartment area
      Alternate for addition of 25 new units to be
       used by Stony Brook University

Brookhaven Science Associates
  U.S. Department of Energy     10
   Project Overview - Scope
      University at Stony Brook (USB) Additional 25
       Units
        •   Intended for use by USB junior faculty
        •   Some have joint appointments with BNL & USB
        •   Increased interaction among scientific community
        •   USB participation will make overall project more
            attractive to development community
             – Economies of scale in construction
             – Additional and more economical financing opportunities
             – USB intent to commit to long term lease
        • Likely to reduce per unit rent
        • More flexibility in BNL subleasing administration
Brookhaven Science Associates
  U.S. Department of Energy              11
   Project Overview - Schedule/Cost
      RFP issued by 9/30/03
      Planned October 31, 2004 occupancy
      Developer TEC estimated at $14.2M
      Actual cost to BNL to be market-based lease
       costs




Brookhaven Science Associates
  U.S. Department of Energy     12
  Progress To Date
      In-house planning and project authorization
    Project Team visits to ORNL and PNNL
    Developer Workshop May 2002
    BNL Developed RFP
    DOE developed Ground Lease
    Patton-Boggs reviewed/redrafted RFP structure and
       prepared A11 analysis
    Construction Agreement and Master Facility Lease
       prepared
    Land Appraisal performed by independent consultant
    Completed Economic Analysis
    Participated in Oak Ridge NNSA Alternative Financing
       Workshop
Brookhaven Science Associates
 U.S. Department of Energy    13
   Project Documents
   Request for Proposals (RFP)
      RFP Structure
        • Request for Proposals Document
        • Exhibit A – Performance Specification
        • Exhibit B – Site Plan
        • Exhibit C – Ground Lease
        • Exhibit D - Construction Agreement & Master Facility
          Lease
        • Exhibit E – Quotation Pricing Sheet
        • Exhibit F – Reps and Certs



Brookhaven Science Associates
  U.S. Department of Energy        14
   Project Documents
   Request for Proposals Document (RFP)
      Lease terms
        • 26 year ground lease from DOE to developer
        • 5 year facility lease with 5 year option
      Base bid and alternates
        • Base: 72 units + Rec/Community Center including
          maintenance
        • Alt 1: Above without maintenance
        • Alt 2: Additional 25 units with maintenance
        • Alt 3: Additional 25 units without maintenance
      Ownership transfers to DOE at end of Ground
       Lease (end of yr 26)
Brookhaven Science Associates
  U.S. Department of Energy       15
   Project Documents
   Request for Proposals (RFP)
      Construction covered by Davis Bacon Act
      BNL lease payments monthly – fixed amount; no
       escalation over 5 year term
      BNL provides utilities to complex at:
        • no net cost as long as BNL leases back
        • at BNL cost if Developer leases to public after yr 5 or 10
      Developer provides maintenance under base bid
      Developer responsible for “re-capitalization”
      Schedule in RFP a “placeholder” intended to
       provide sequence after DOE approval
Brookhaven Science Associates
  U.S. Department of Energy          16
   Project Documents
   Request for Proposals (RFP)
      Bids to be valid 180 days
      Proposal Format:
        • Written Technical Proposal
          (technical approach, experience, appearance and quality
          of complex, space efficiency,schedule, other technical
          documents, resumes of key project team members)
        • Price and Business Proposal
          (quotation and pricing sheet, financial statements, cost
          estimating, cost control, cost risk management,
          identified financing source with expression of interest
          and terms, disputes and litigation, reps and certs,
          references, exceptions, authorized individuals)
          *Also includes proposed rent structure for 5 year option

Brookhaven Science Associates
  U.S. Department of Energy        17
   Project Documents
   Request for Proposals (RFP)
      Evaluation Methodology – Source Evaluation Board (SEB)
        •   Technical Approach – 30%
        •   Experience – 25%
        •   Appearance and Quality – 20%
        •   Space Efficiency – 15%
        •   Schedule for Occupancy – 10%
        •   Price not scored - integrated into overall assessment of best
            interest of DOE
      Sequence
        • Competitive range determination (SEB)
        • Best and Final (SEB)
        • Final selection (Source Selection Official)
      Basis of Award – Best Value
Brookhaven Science Associates
  U.S. Department of Energy                18
   Project Documents
   Performance Specifications
      Build to “Commercial” standards.
      OSHA/Code compliance.
      Injury free workplace.
      Maximum height of facilities -- two stories.




Brookhaven Science Associates
  U.S. Department of Energy     19
   Project Documents
   Performance Specifications
      The developer will provide the following:
        • Sidewalks, vehicle access and parking
        • Landscaping
        • Storm Drain System
        • Suitable HVAC, plumbing, and electrical system
          for each apartment
        • New appliances




Brookhaven Science Associates
  U.S. Department of Energy     20
   Project Documents
   Performance Specifications
      BNL will provide the following utility
       systems for the developer to tap into:
        •   Underground potable water (fire protection)
        •   Sanitary system
        •   Electrical distribution
        •   Telecommunications




Brookhaven Science Associates
  U.S. Department of Energy       21
   Project Documents
   Site Plan
      Sited on open space adjacent to apartment
       area
      Allows construction to proceed without
       impacting occupants
      Will retain best units for summer peak
      Location near main gate access makes
       separation of complex feasible if necessary



Brookhaven Science Associates
  U.S. Department of Energy     22
   Project Documents
   Terms of Ground Lease
      Project to be developed on DOE land rather
       than using a land title transfer approach:
        • Historical pressure from developers for BNL land
          would “politicize” any land transfer process
        • DOE/BNL would lose degree of control
        • Land within Pine Barrens designated area –would
          affect buildability if in private sector




Brookhaven Science Associates
  U.S. Department of Energy      23
   Project Documents
   Terms of Ground Lease
     Term of Lease
       • Approx 26 years, terminating on October 31, 2029
   Utilities
       • To be invoiced to developer but may be offset against
         amounts due to developer by BSA pursuant to the
         Construction Agreement and Master Facility Lease
   Successor Operator of BNL
       • Any Successor Operator of BNL shall assume any
         remaining obligation undertaken by BSA on behalf of
         BNL under the Construction Agreement and Master
         Facility Lease


Brookhaven Science Associates
  U.S. Department of Energy        24
   Project Documents
   Terms of Ground Lease
         Rent
             • Developer shall have no obligation to pay rent so long
               as BSA is occupying and using the premises
             • If BSA ceases occupancy, developer shall pay DOE an
               annual fixed rent based on the fair market value of the
               premises as housing
         Title to Improvements
             • Developer to own improvements until such time as the
               ground lease terminates
         Mortgage of the Property
             • Developer of the property may mortgage its leasehold
               interest in the property

Brookhaven Science Associates
  U.S. Department of Energy           25
  Project Documents
  Construction Agreement and Master Facility Lease

       Construction Agreement
         • Schedule
              – Draft contemplates having the facility ready for
                occupancy by October 31, 2004
         • Facility to be constructed at developer’s sole cost
           and expense
         • Davis-Bacon Act applicable to construction
         • Performance and payment bonds are required



Brookhaven Science Associates
  U.S. Department of Energy           26
   Project Documents
   Construction Agreement and Master Facility Lease
       Master Facility Lease
         • Lease term five years with an option to renew for
           an additional five year period
         • Utilities to be invoiced to Brookhaven but may be
           offset during the period of Brookhaven’s
           occupancy
         • Maintenance and repair of the facility are to be
           provided by developer; however, the RFP requires
           an alternate with maintenance and repair being
           provided by Brookhaven
         • Lease may be terminated for convenience by
           Brookhaven
Brookhaven Science Associates
  U.S. Department of Energy     27
   Project Documents
   Construction Agreement and Master Facility Lease

      General Provisions
        • All DOE mandated flow-down provisions have
          been included
        • Standard clauses requiring compliance with
          ES&H training and standards are incorporated




Brookhaven Science Associates
  U.S. Department of Energy     28
    Project Documents
    Other Statutory Requirements

   McKinney Act
     • Inapplicable since there has been no determination by DOE
       that the land is excess, surplus, unutilized or underutilized
   Section 161(g) of the Atomic Energy Act
     • Proposed project comes within DOE’s authority. Disposal
       furthers the mission of BNL.
   Comprehensive Environmental Response
    Compensation and Liability Act Section 120
     • EPA must be consulted and a document showing a “Finding
       of Suitability to Lease” must be prepared
     • Ground lease must contain provisions that would allow DOE
       re-entry to conduct environmental remediation if
       contamination is detected
Brookhaven Science Associates
  U.S. Department of Energy         29
                     Housing Reconstruction
                       Economic Analysis
The alternatives evaluated:
Case 1: Public-Private Partnership (Construct a new complex using
        private sector financing on DOE-provided land)
Case 2: “No Project” Alternative (Continue to operate existing
        apartment units; demolish and rebuild as units fail using
        appropriated funds)
Case 3: Government Funded Construction (Replace existing
        apartment units with new construction using appropriated
        funds)
Case 4: No Action Alternative (Allow apartment units to fail and
        remove them from service)


 Brookhaven Science Associates
   U.S. Department of Energy      30
               Housing Reconstruction
           Economic Analysis- Factors Used
      Gov’t cost of construction:
        • Case 3 - $175/sf (Based on fixed price – competitively bid)
        • Case 2 - $195/sf ($20 premium for partial construction)
      Gov’t cost of maintenance:
        • $5.25/sf/yr (Based on 3% of RPV/yr)
      Gov’t cost of demolition:
        • $35/sf (Based on unit price of FY02 BNL demolition)
      Appraised value of land (12 acre site)
        • $3.96M (Based on 2/21/03 appraisal- Appendix G)
      FMV of Annual Land Lease:
        • 7% of appraised land value

Brookhaven Science Associates
  U.S. Department of Energy               31
          Housing Reconstruction
    Economic Analysis- Factors Used (Cont’d)
      Occupancy Rates (Based on 10 yr average)
        • 1BR          89%
        • 2BR          86%
        • 3BR          83%
        • 4BR          79%
        • Specialty    80%
        Weighted Average Occupancy Rate 85.6%



Brookhaven Science Associates
  U.S. Department of Energy     32
          Housing Reconstruction
    Economic Analysis- Factors Used (Cont’d)
      Rental Income Baseline
        (‘Maximum Theoretical Rent’ - using proposed unit mix
       and FY03 rates effective 2/1/03)
        •   15       1BR         @ $1,075/mo
        •   40       2BR             1,265
        •   11       3BR             1,495
        •   4        4BR             1,625
        •   2        Specialty       1,800
                  Maximum Theoretical Rental Income =
                               $954,379/yr
        (Maximum Theoretical Rent X Occupancy Rate = Rental Revenue)

Brookhaven Science Associates
  U.S. Department of Energy            33
          Housing Reconstruction
    Economic Analysis- Factors Used (Cont’d)
      Weighted average rent escalation -
       4.359% - USED 4.5%

      Maintenance cost escalation – 3.5%

      Cost of construction escalation – 3.5%

      Discount rate for Net Present Value – 3.75%

Brookhaven Science Associates
  U.S. Department of Energy     34
          Housing Reconstruction
    Economic Analysis- Factors Used (Cont’d)
      Assumed Service Life:
       • Apartments       -          25 Years
       • Appliances       -           6 Years
       • Mech/Elec Equip -           15 Years
       • Roofing          -          20 Years
       • Doors/Windows -             25 Years
       • Plumbing Fix.    -          25 Years


Brookhaven Science Associates
  U.S. Department of Energy     35
                  Housing Reconstruction
                 Economic Analysis - Case 1
           Case 1: Public-Private Partnership – Cash Flow
            •    DOE will lease land to developer for a period of 25 years
            •    Fair mkt. lease (triple net) estimated at 10% over current.
            •    Occupancy Rate will rise to 95% from current 85.6%.
            •    BNL will lease back the complex for a five-year term.
            •    BNL to sublease the apartments to visiting scientists.
            •    BNL will recover the cost of its lease from the subleases.
                 DOE will provide the use of its land at no cost.
           The net actual cash flow to DOE/BNL will be zero.


Brookhaven Science Associates
  U.S. Department of Energy            36
               Housing Reconstruction
           Economic Analysis - Case 1 (Cont’d)

           Case 1: Public-Private Partnership
            “Modeled” Cash Flow -
            •    Theoretical NPV Demolition Cost   ~( $3.1M)
            •    Theoretical NPV Land Lease        ~ $7.6M


           Net “Modeled” Cash Flow ~ $4.5M positive balance




Brookhaven Science Associates
  U.S. Department of Energy          37
                  Housing Reconstruction
                 Economic Analysis - Case 2
             Case 2: “No Project” Case
              • BNL would continue to utilize the existing apartment
                complex.
              • As apartment buildings fail, the Laboratory would
                condemn, demolish, and reconstruct the buildings to
                maintain capacity.
              • Occupancy rate will fall to 70% from current 85.6%.
              • Rental Rates equivalent to current FMV rates.
              • Capital renewal costs were annualized over 25 yrs.

          The net present value of this case is ($22,839,621)
         negative.

Brookhaven Science Associates
  U.S. Department of Energy          38
                 Housing Reconstruction
                Economic Analysis – Case 3
            Case 3: Government-Funded Construction
              • Government appropriated funds would be used to construct the
                new apartment complex.
              • Occupancy rate and rental revenue identical to Case 1.
              • The existing units would be demolished in the future as funding
                became available.
              • Capital renewal costs projected as per schedule above.


            The net present value of this case is ($1,236,030) negative.




Brookhaven Science Associates
  U.S. Department of Energy               39
                    Housing Reconstruction
                   Economic Analysis – Case 4
                 Case 4: No Action
              •      Progressive decrease in the inventory of housing units as
                     individual buildings failed structurally and were condemned.
              •      Expected rate of failure same as Case 2.
              •      The poor quality of the existing units and their associated safety
                     issues (lead, asbestos) would continue until structural failure
                     occurred.
              •      Maintenance cost escalation would accelerate.
              •      Given expected building failure schedule, this alternative would
                     decrease BNL’s apartment capacity by more than 50% over the
                     next 10 years and completely eliminate the availability of
                     apartment housing at BNL by 2018.


                 Not a viable option- NPV analysis not performed.
Brookhaven Science Associates
  U.S. Department of Energy                  40
               Housing Reconstruction
            Economic Analysis - Conclusion
         The net present value of the cases analyzed above are as follows:


         Case Number            Description                              Net Present Value
                                                                         of Cash Flows

                1               Public-Private Partnership               $0

                2               No Project                               ($22,839,621)

                3               Government Funded                        ($1,236,030)

                4               No Action                                N/A

         Based on this analysis, the public-private partnership is in the best interest of the
         Department of Energy and should be the approach used to address the need for
         reconstructing the apartment area at Brookhaven National Laboratory.

Brookhaven Science Associates
  U.S. Department of Energy                     41
   Project Documents
   OMB Circular A 11 Analysis
         General
          Project structured to qualify as Operating Lease under
           OMB Circular A 11 Appendix B
          Criteria 1,2, &3 are not applicable to the “out-lease” of DOE
           property and are, therefore, not applicable to the Ground
           Lease.

         Review of Criteria
          Criterion 1: Ownership of asset remains with the lessor
           during the term of the lease and is not transferred to the
           government at or shortly after the end of the lease term.
              • Lessor’s 26 year leasehold interest extends beyond BSA’s 10-yr
                term of use.
              • Upon termination of the 10 year facility lease, neither BSA nor the
                developer is obligated to enter a new lease.
Brookhaven Science Associates
  U.S. Department of Energy               42
   Project Documents
   OMB Circular A 11 Analysis

           Criterion 2: The lease does not contain a bargain-price
            purchase option.
              • The facility lease does not contain a bargain-purchase option.


           Criterion 3: The lease term does not exceed 75 percent of
            the estimated economic life of the asset.
              • BSA’s use/occupancy obligation under the Facility Lease
                (assuming a 10-year term because of the single 5-year option right)
                is about 38 percent of the economic life of the Lessor’s
                development.
              • No options to renew or extend BSA’s use beyond the first 5-year
                option (10-year total term).


Brookhaven Science Associates
  U.S. Department of Energy               43
   Project Documents
   OMB Circular A 11 Analysis
            Criterion 4: The present value of the minimum lease
             payments over the life of the lease does not exceed 90
             percent of the fair market value of the asset at the
             beginning of the lease term.
              • “Revenue neutral” -The present value is zero, and thus meets the
                less than 90% criterion.
              • NPV of BSA’s 10-year obligation is 84.6% of FMV of residential
                improvements.
            Criterion 5: The asset is a general purpose asset rather
             than being for a special purpose of the Government and not
             built to the unique specifications of the Government as
             lessee.
              • The assets (housing and recreational facility) developed by the
                Developer/Lessor are for general (market) purposes.
              • Will adhere to local zoning and spec’s, not to DOE or BSA spec’s.


Brookhaven Science Associates
  U.S. Department of Energy               44
   Project Documents
   OMB Circular A 11 Analysis
        • Developer assumes market risk.
        • Viable residential demand outside of BNL
        • No provision for DOE or BSA to acquire interest in the facility.


      Criterion 6: There is a private sector market for the asset.
        •   The site is located in Suffolk County, New York on L I
        •   Proximity to large-scale residential communities.
        •   Area is premier suburban residential location for NYC
        •   High demand for residential housing.




Brookhaven Science Associates
  U.S. Department of Energy                45
   Project Documents
   OMB Circular A 11 Analysis
                                Conclusion

       The business parameters of the Public-Private Partnership
       Case to develop a new apartment housing complex at
       Brookhaven National Laboratory meet the applicable OMB
       Circular A-11 Appendix B criteria for designating the
       Construction Agreement and Master Facility Lease as an
       Operating Lease.




Brookhaven Science Associates
  U.S. Department of Energy          46
   Next Steps
        Outreach
        Work w/OECM on template
        DOE review and approval
        BNL issues RFP
        CERCLA-EPA determination/release
      Build          it!


Brookhaven Science Associates
  U.S. Department of Energy     47

				
DOCUMENT INFO
Description: Need Free Template for Standard Rental Lease document sample