Brooklyn Bridge Park Financials

People for Green Space Foundation Inc.

Prepared for BBPC Board Meeting on November 7, 20141

Amazing Transformation of

Downtown Brooklyn

We may have needed

the towers a decade

ago to fund the park

But, does it make

sense to build them

today?

This is about a park

and the future needs

of Downtown

Brooklyn

2

Sworn Commitment to Minimize Housing“BBPDC has committed to building the minimum development necessary to cover the park's

maintenance and operations needs. Accordingly, the plan analyzed in the FEIS and described in

the GPP represents the maximum build-out that would occur as part of the Project. If, once

requests for proposals are issued for the development components, it becomes clear that

market conditions will allow for less development to support the park's needs, the

development program will be reduced accordingly.”

– Brooklyn Bridge Park Defense Fund v. New York State Urban Development

Corporation, 2006

3

Key Question: Are the new buildings

at Pier 6 needed to pay for the park?

4

The Big Picture:

Park Will Rain Cash in Long-Term

Park profit and cash flow dramatically increase

over time:

– Park revenue will grow faster than expenses

(driven by faster growth in NYC real estate taxes)

– Then park revenue growth accelerates due to

immediate compounding benefit related to tax

breaks, and further accelerates as these tax

breaks expire

– In long-term, park expense drops off as one-time

pier expense ($200m+) is paid off, while park

recurring revenue continues to grow and even

accelerate

� It is our understanding that these large

“excess” profits in perpetuity have to be

returned to the state

5

Park Already Overfunded

Starting with park income figures for

FY18 and including the effect of tax

breaks, our analysis shows that park

profits dramatically increase over time

– Details available in 9/17

presentation on SavePier6.org

6

Park Profit Before One-Time Pier Expense ($ in Millions) Total

FY18-67

Total Park Revenue (Excluding Pier 6) 2,095

Operating Expense (1,049)

Interest Income (1%) 89

Park Profit 1,136

More than $1 billion in cumulative park profits

over the fifty years

– Park profits easily pay for one-time pier

expense (noting that the park already has

$87m in one-time revenue)

• BBPC only presented one year to its board and the public to justify Pier 6 construction

(source: BBPC presentation dated 8/6/14); and the year chosen (FY18) ignores $4m/yr in

residential tax breaks at OBBP that start to expire shortly thereafter (FY20)

• We went through hundreds of tax bills and issued a press release about the incremental park

income from the expiration of tax breaks (including the $4.7m/yr from OBBP) on August 18

– Press release publicly available on www.SavePier6.org

Misleading Financials Presented

at August 6 BBPC Board Meeting

7

Would be an extra $10m/yr in park income

if all identified tax breaks expired today

BBPC Now Agrees with $4.7m/yr in OBBP

Tax Breaks But Refuses to Count Others

“The projected incremental revenue associated with the expiration of the J-51 tax abatement at the residential portion of 360

Furman is approximately $4M per year ($2014). The projected incremental revenue associated with the expiration of the ICIP tax

abatement at the commercial portion of 360 Furman is approximately $0.7M per year ($2014). Given that the initial baseline

taxable market values for the Pier 1 hotel and Empire Stores have not yet been appraised, and that the twenty-five year ICAP

exemptions have not been applied for, let alone granted, any projections as to the amount of any additional revenue to the Park

upon their expiration would be highly speculative.” (Regina Myer, Letter to Local Elected Officials Dated 9/16/14)

Information not included above:

– Total Identified Tax Breaks = $10m/yr = $4.7m/yr for OBBP (aka 360 Furman ST)+ $0.3m/yr for Pierhouse commercial

units + conservatively estimated $5m/yr for Empire Stores and Pier 1 hotel

– ICAP and ICIP exemptions start to phase out in year 17 of 25

• Empire and Pier 1 hotel tax breaks start to phase out in FY33 (based on park assumption that ICAP exemptions

are granted in FY17)

� Wrong to exclude tax breaks just because the size of the tax breaks must be estimated

• Unclear how BBPC estimates projected PILOT income after tax breaks if unable to estimate certain tax breaks

– Empires Stores as example of absurdly low PILOT estimate (even after including a tax break estimate)

• Exact value of tax breaks on Empire Stores and Pier 1 hotel will be known after appraisal in just a few years

– Why not wait if the BBPC is unable to estimate the value of these significant tax breaks?

8

Checklist: What Else the BBPC is Missing

• Before any Pier 6 development, our cash flow analysis shows that the park is significantly overfunded once

the following factors are properly taken into account:

1. Incremental +$10m/yr in income from the expiration of identified tax breaks

2. An immediate compounding benefit on the higher assessed value on park development that

receives tax breaks

3. Gold-plated park expense budget should grow slower than park revenue (driven by PILOT

revenue; note that PILOT is calculated just like property tax for any other city building and that

property tax revenue citywide has increased at more than 4% per year over the last 20 years)

� For first 25 years, taxes and ground leases on development in park conservatively

assumed to grow at 3% per year (versus expenses at 2%)

� Thereafter, for conservatism, assumed to grow with expenses at 2%

4. In long-term, park cash flow accelerates as the $200m+ in one-time pier expense is paid off,

while park recurring revenue continues to grow and even accelerate higher as tax breaks expire

5. Adding to the park surplus, we conservatively assume a total of $32 million in revenue over 25

years ($1m/yr increasing at inflation) from temporary corporate sponsorships/events, private

fundraising and other alternative revenue sources

� Alternative sources could clearly provide much more income (see 2011 BAE study, etc.)

• Hidden money (NOT IN OUR MODEL)

6. BBPC PILOT assumptions have not kept up with increase in real estate value (for instance, Empire

Stores)

7. BBPC ignores value of “profit sharing” arrangements with developers (Pier 1, John ST, Others?)

9

Full Tax Payer Year 1 Year 2 Year 3 Year 4

Assesssed Value 100,000 103,000 106,090 109,273

Growth 3.0% 3.0% 3.0%

Class 2 Tax Rate 13.145% 13.145% 13.145% 13.145%

Taxes Paid = Park Income 13,145 13,539 13,946 14,364

Growth 3.0% 3.0% 3.0%

Property Owner With Tax Breaks Year 1 Year 2 Year 3 Year 4

Assesssed Value 200,000 206,000 212,180 218,545

Growth 3.0% 3.0% 3.0%

Class 2 Tax Rate 13.145% 13.145% 13.145% 13.145%

Taxes Before Tax Breaks 26,290 27,079 27,891 28,728

Growth 3.0% 3.0% 3.0%

Tax Break (13,145) (13,145) (13,145) (13,145)

Taxes Paid = Park Income 13,145 13,934 14,746 15,583

Growth 6.0% 5.8% 5.7%

Tax Breaks Accelerate

Income Growth from Day 1

(Not Just When They Expire)

Effects of Tax Breaks on Park Income

1. From the start (not years in the

future), compounding benefit on the

higher assessed value drives faster

growth in taxes paid for properties

with tax breaks

– Simplified example at left

2. Park PILOT revenue also increases as

tax breaks expire or phase out in

future years

10

But still get faster income growth!

Tax breaks do not expire…

Hidden Money (Not in Our Model / Not in Park Model)

• PILOT assumptions have not kept up with the increase in real estate value

– For instance, absurdly low $3/sqft in PILOT for Empire Stores on

commercial space renting for “high $40s” to “$150 per square foot”

(source: The Real Deal, 11/5/13), even before this year’s big rise in

property value and even if one makes assumptions on tax breaks

(that will expire)

• $1.3m/yr in PILOT from Empire Stores ($2.8m/yr less ~$1.5m/yr in ground lease)

• Implies $3/sqft in taxes on ~360,000 sqft of office and ~75,000 sqft of retail

• Reporter estimates rent roll of $26m (assuming taking rents of 10% below ask)

• BBPC ignores value of “profit sharing” arrangements with developers (Pier

1, John ST, Others?)

11

BBPC Response… (Falsely) Claim Errors

• BBPC at 9/17 CAC Committee Meeting on finances: “It is

a modeling error to grow revenue faster than expenses”

– PFGSF response:

• This is absolutely ridiculous

• Park revenue (mostly PILOT and ground leases

with contractual escalators) has little

relationship to park expenses, and park

revenue (driven by growth in NYC property

taxes) should grow faster than expenses

• Moreover, even assuming the BBPC is correct

and using its expense adjustment of $350m

over the period (see BBPC slide to right), our

model would still show a cumulative profit of

~$800 million over the fifty year period, much

more than needed to pay the one-time pier

expense (noting that the park already has

$87m in one-time revenue)

• PFGSF response to other items:

– Inclusion of corporate sponsorship and other

alternative revenue sources is by design, and the

small ($32m) amount assumed is not material

– Difference on maritime expenses is not material, and

BBPC has yet to provide detail to allow us to

understand the $40m difference

12

Source: 9/17 Committee Meeting of the Community Advisory Council as reported

on the Brooklyn Heights Blog (brooklynheightsblog.com/archives/70371)

• Park operating budget (before one-time pier expense) has been ~$12m/yr for years

– See 2009 BBP Financial Plan, 2011 BAE Study (that sought to raise money to replace housing against the $12m/yr

budget) and 10/13 BBP Board Presentation on Financial Model

• Now, shortly after our press release about the additional income from tax breaks, BBPC announced a $4m/yr increase

(+33%) to its operating budget to $16m/yr due to an increase in its capital replacement reserve

– Rationale is based on ratio found in 2005 Nielsen Study (1.4% of $130m construction budget)

– Why was capital replacement reserve only 0.6% ($2m/yr on a $350m construction budget) in 2009 plan?

– Sudden increase seems dubious as increase in construction budget to $400m is not a surprise and did not happen

overnight

• $400m budget includes $200m base costs (as per 2009 financial plan) that are not relevant to replacement

work required

13

When All Else Fails, Raise Expenses

In a Long-Term Model No One Has Seen

“Revenue model created to match

projected expense,” and recurring

revenue “must meet or exceed

$12m [Not $16m] annually”

(source: 10/13 BBPC Presentation)

So, if $12m/yr last October, why

$16m/yr today??? What changed in

last year? Or since 2011 BAE study?

$6m/yr for BBPC Replacement Reserve?• A threefold increase in the park’s capital reserve estimate– which is not even a near-term expense– is

now the foundation of the BBPC financial justification for Pier 6

• AND, $60m/decade is an enormous figure for capital replacement in an already gold-plated budget for a

park that is mostly hardscape, lawns and only a few buildings

– Where does the money go?

• Like any corporation, the park should do a proper analysis of its capital replacement reserve, especially

now that this reserve will account for ~38% (=$6m/$16m) of its operating expense budget

– Categorize the items that will need to be replaced, estimate their useful lives and replacement cost

14(Source: 2009 Financial Plan) (Source: 2005 Nielsen Study)

Local Elected Officials Uniformly Oppose Towers

And Join CAC in Requesting Financial Justification

15(Excerpt from 10/6/14 Letter to Regina Myer)

The BHA Requests Reduction and Asks

For Financial Justification

“While the BHA has long accepted that Brooklyn Bridge Park will be self-supporting,

using Payments in Lieu of Taxes (PILOTs) as the primary source of revenue, we have

also consistently urged you to build the lowest buildings possible on Pier 6. Based on

the facts we know and the designs we have reviewed, we believe that a 315- foot

structure is simply too tall and we ask that BBPC significantly reduce the size of the

structure. To enable us to understand what height we can support-- and what

tradeoffs are involved in the objective to include affordable housing, which we

strongly support as one of the City's policy priorities-- we request for ourselves and

the larger community your revenue and cost projections and assumptions in sufficient

detail and for a sufficient timeframe for us to review and fully understand your

anticipated long-term financial requirements. This request is consistent with the

efforts of the Community Advisory Council, our elected officials and other members of

the surrounding community.”

– Excerpt from 10/29/14 Letter From The Brooklyn Heights Association to

Regina Myer

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What Is Being Hidden? Why?

• The park is a public asset, and the park corporation is a public entity, and

the public deserves a transparent understanding of what is being done in

their name

• The BBPC should provide the requested detailed financial information to

its board and the public to back up its claims about the need to develop

Pier 6

• Why build within a public park if the park doesn’t need the money?

– Wasn’t housing within the park supposed to be a “necessary evil” to

pay for the park?

– Wouldn’t it be a great shame to take away public park space forever

only to find out a few years later (when Empire Stores is appraised, for

instance) that the park doesn’t need the money?

17

The Opportunity Today:

Improved Financials => New Opportunity Set!

• Reclaim private parcels for needed public park space

• Plan better access, landscaping and experience for everyone

18

Actual Developer

Rendering of new

Pier 6 Within Park

Why are we sticking to a

decade old plan from the

Bloomberg and Pataki

administrations when Brooklyn

is being transformed by a

visionary, new mayor?

19

Appendix:

Actual Developer Renderings of Pier 6

Within the Brooklyn Bridge Park

20(Actual developer renderings of Pier 6 from BBPC presentation dated 8/6/14.)

Surrounding a Park Playground

21

Massive Density in Flood Zone

22

Equivalent of 500 brownstones

within the park entrance

23(Approx. 1.5m sqft in total in OBBP conversion and new Pier 6 development)

Is this a grand entrance to a great park?

24

Forcing park visitors to cross

major roads and walk around

condos to enter their park

Hardscape dominates park already

25

Violating almost all of 13 guiding principles

(including preservation of view planes)

26

Does this look, even feel, like a park?

27

30+ stories within a park

28

Even dog run is squeezed

29

Why build in an overfunded park?

30