Equitable Moorage Charges

Pacific Coast CongressApril 17, 2008

Paul Sorensen, principal, BST Associates

2

Agenda for Rate Study

Setting Marina Rates Procedures Process

Q&A

3

BST Associates Qualifications Overall Experience

30 years of consulting experience, Focus on waterfront development

Marina Master Plans: La Conner, Edmonds, John Wayne, Port Angeles Boat Haven,

Port Townsend, Neah Bay (Makahs), Des Moines, Oak Harbor, Shilshole Bay, Jim Clark, Clover Island, Ketchikan, Pensacola (FL) et al

Marina Rate Studies (~3,000 slips): Everett (North and South Basins, 12th Street Marina) La Conner Cap Sante (Anacortes) Des Moines Port Orchard Bremerton Poulsbo

4

Tenant Perspective on Rates

It's Tax Time, So Be Sure You Use "The Official IRS Approved Pencil Sharpener….“

Tenants feel about as good about rates as they do about taxes.

5

Owner’s Perspective on Rates

Owners generally have no capital set aside for marina redevelopment. They also want to be friends with tenants and don’t want to fight annually over rates.

This is good until the marina falls apart.

6

Consultant’s Perspective on Rates

You have to raise rates but I understand:• that you have long standing relationships and • there are political consequences.

7

Rate Review Process

Open – Participatory – Fact Based Advisory Committee Public Commission

— Advisory Committee: Committee/Staff/Consultant— Public Meeting: Tenants/Staff/Consultant/Commission

End Result – The “Work Product” Revised Rate Structure for the Marina Transition Plan from Current Rates to New Rates

8

Poulsbo Marina Rate Study

The Port has a CIP estimated at $6-12 million.

Existing revenues and borrowing capabilities are insufficient to pay for these improvements.

Poulsbo Marina rates are at the low-end in Puget Sound.

Need to consider a rate increase.

9

Alternative Rate Methodologies

CPI Increase Apply CPI increase for your region

Cost recovery or replacement Set rates to cover all O&M costs as well

as annual costs to replace the marina Market based rates

Set rates based on rates at competitive marinas

10

CPI Increase

CPI assumes that rates are already at an appropriate level.

This is usually not the case.

In addition, annual O&M cost increases at marinas are usually higher than the CPI adjustment.

CPI has been around 3%/yr, Marina O&M costs around 4-6%/yr, Construction index around 6-10%

11

Port of Poulsbo Marina Rate Trends Permanent Moorage ($/Lin Ft/Mo)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

2000 2001 2002 2003 2004 2005 2006 2007 2008

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Rate w/LET Annual increase

12

Cost Replacement

Good for tenants to see & understand the real costs of owning a marina.

In some cases, it may result in rates that are above market.

Based on square footage, taking into account the water area used by the boat.

It is progressive in that, as the vessel becomes longer, the rate per foot lineal foot increases.

It lays out a formula that is accepted when understood.

13

Market Rates

Assumes that rates at competitive marinas are set properly and that annual changes cover changes in O&M costs.

Used as a backup method for setting rates. Rates based upon where the marina fits in with

competitive marinas (rate leader, upper quartile, average …)

Phased in over a three to five year period Annual increases should fall within certain limitations

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Reason for Square Foot Rates Converting to SF moorage will be for the purpose of

INCREASING EQUITY within the marina. Smaller boats pay higher SF rates than longer boats when a flat

lineal rate is applied Square foot rates mean the lineal rate increases as the boat length

increases The market conditions are tighter for longer boats than for

shorter boats Smaller boats are negatively impacted by lack of fishing

opportunities Tighter market means that higher rates can be charged for longer

boats but needs to consider market forces The SF rate structure is simple, straightforward, and easy

to implement. For dry stack operations, a cubic foot method is preferred.

15

Square Footage Rate BasisNumber of Boats per Acre of Water Area

Source: California Department of Boating and Waterways (DBW),Division of Boating Facilities

0

20

40

60

80

100

120

140

16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80

16

Rent Comparison per Acre of Water

The annual rent from 20 foot slips is nearly twice that from 80 foot slips per acre of water area. You only have so many acres of billable water area.

There are business and equity reasons to establish progressive rates.

Imperative to consider if you are considering a reconfiguration – you will lose revenue by going to longer slips if you have a flat rate.

Slip Length Berths per acre Mo Rate/linft Mo Rent Annual Rent20 86.3 10.00 17,260 207,12040 26.8 10.00 10,720 128,64080 10.9 10.00 8,720 104,640

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Des Moines MarinaExisting Covered Rates (SqFt)

$0.43

$0.41

$0.43

$0.42

$0.41 $0.41

$0.40

$0.39

$0.39

$0.40

$0.40

$0.41

$0.41

$0.42

$0.42

$0.43

$0.43

$0.44

20 24 28 32 36 40 50

Rat

e pe

r Sq

Ft o

f Wat

er A

rea

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Cost Replacement Approach O&M/G&A

Direct operating and maintenance expenses General administrative allocations Adjust to next year based upon historical cost trends.

Cost replacement values Annualize based on asset value and longevity of

assets. Adjust to next year based upon construction cost index.

Contingency Reserve (established as a % of asset value) Total cost to recover (add above three components) Divide by square feet of moorage space and by 12 to

obtain $/SqFt/month Recommend a phase in process to allow tenants to adjust.

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La Conner Marina Rates Increase between 2001 and 2006

Covered rates increased 20% to 71% over this time period

Open rates increased 12% to 57% over this time period

Length Rate Inc # Slips % Slips26' 19.5% 34 7.3%30' 24.7% 160 34.2%35' 38.4% 50 10.7%40' 56.9% 65 13.9%45' 49.2% 21 4.5%50' 71.0% 36 7.7% subtotal 366 78.2%

Length Rate Inc # Slips % Slips26' 12.3% 1 0.2%30' 21.8% 59 12.6%35' 26.4% 2 0.4%40' 35.9% 18 3.8%45' 56.8% 2 0.4%50' 56.8% 20 4.3% subtotal 102 21.8%Total 468 100.0%

Covered

Open

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La Conner Covered Slip – 40 feet

0

10

20

30

40

50

60

2002

-1

2002

-7

2003

-1

2003

-7

2004

-1

2004

-7

2005

-1

2005

-7

2006

-1

2006

-7

Num

ber o

f Boa

ts

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00$10.00$11.00$12.00

Rat

e pe

r mon

th ($

/line

al fo

ot)

Vacanies Waitlist Rates

SqFt rates June 2003

There are 65 slips in this category

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La Conner Open Slip – 30 feet

0

2

4

6

8

10

12

14

16

2002

-1

2002

-7

2003

-1

2003

-7

2004

-1

2004

-7

2005

-1

2005

-7

2006

-1

2006

-7

Num

ber o

f Boa

ts

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Rat

e pe

r mon

th ($

/line

al fo

ot)

Vacanies Waitlist Rates

SqFt rates June 2003

There are 59 slips in this category

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Rising Construction Costs(Source: US Bureau of Labor Statistics PPI)

100

110

120

130

140

150

160

170

180

190

200

19

96

19

98

20

00

20

02

20

04

20

06

PP

I In

de

x f

or

We

ste

rn U

S

Construction materials

Metals & Metal Products

Construction costs were on a plateau from 1996 to 2003.

Increased 30-50% since due to international competition.

Steel Cement Flotation materials, etc

New plateau or are we going higher?

Designers expect 7%+ increases per year for foreseeable future.

Putting significant pressure on marina finances because rates have not risen as rapidly.

23

Construction Costs Impact on Rates(Example - Covered Slips at Port Orchard Marina)

Cost replacement rates annualize capital costs and build it into the rate base.

Port Orchard rates indicate the effect from increased costs.

Cost replacement rates are significantly above market rates.

Economies of scale plays a role.

Requires subsidy for marina construction.

$0$2$4$6$8

$10$12$14$16$18

28 32 36 42 52

Slip Length (feet)

$/Li

neal

Foo

t/Mon

thExisting POM

Market - Median

Market - Upper Quartile

Cost Replacement

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Des Moines Covered Rates

The existing rate was the current (2006) rate at the Des Moines Marina. The proposed rate was determined by a comparison with competitive marinas. The recommended rates are phased in over three years. As noted above, rates are increased at a minimum of 3% per year and a maximum of 13% per year. The compounding effect of phasing brings rates in year 3 slightly above proposed rates. This partially offsets lost revenue to the City from not raising rates to a competitive level within one year. It should be noted that the competitive rate for 20-foot slips is an anomaly, since there is only one other marina offering covered rates for slips of this length.

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Amenities

It is easier to sell rate increases to tenants if there are more amenities (like parking) but it really is the owner’s responsibility to create a sustainable financial model.

Equitable Moorage Charges

Pacific Coast CongressApril 17, 2008

THANK YOU!

Paul Sorensen

BST Associates

bstassoc@seanet.com

(425) 486-7722