RiNo Park Buildings Business Case Analysis

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July 10, 2017

Purpose and Goal

The public indicated a strong desire to keep and reuse RiNoPark buildings during the park

planning process.

The City of Denver’s North Denver Cornerstone Collaborative and

the Parks and Recreation Department worked with ArLand

Land Use Economics and Artspace to provide a Business Case Analysis in early 2017 to

answer the following questions.

Goals for Business Case AnalysisShould the City keep the buildings? What is the potential fiscal impact to the City?How would the buildings benefit the publicand fill a public service need?Are there opportunities for partnerships?

Area Improvements

The park is in the middle of a rapidly redeveloping area with a number of public improvements planned. The River North Park (RiNo Park) is slated for construction in 2018-2019.

Existing Conditions

(The proposal is to renovate and adaptively use this building)

(The proposal is to partially demolish, renovate and adaptively use two portions )

Existing Site(Includes two city-owned properties with two existing buildings)

There are two existing buildings on the RiNo Park site. Originally, the Interstate Building was to be retained as a park amenity while the Police Services Building was to be demolished.

Future RiNo Park Buildings

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Bldg #12,400 SF

Bldg #27,000 SF

Bldg #33,500 SF with 3,250 SF pavilion

The preferred park concept design (retaining both buildings) results in the Police Services building getting partially demolished and becoming 2 separate buildings (Building #1 and #2) with a plaza between the buildings. The Interstate building (Building #3) is redeveloped into space with a indoor / outdoor pavilion / plaza area.

Local Market Snapshot

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• As of November, 2016 there were 81 site development plans and major projects in the RiNo area:

• Commercial 26%• Mixed-Use 16%• Multi-Family Residential 46%• Office 11%

• Significant number of recently completed and planned developments in RiNo District indicate there is a strong market for commercial and non-commercial uses of the buildings.

As a part of the analysis, a local market snapshot was completed to evaluate current, proposed, and recently completed developments in the area.

Preferred Building Scenarios

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“Preferred” Scenario based on Public Feedback Received in 2015-2016Building #1 – Food and Beverage

Building #2 –Maker / Creative / Artist Space

Building #3 – Event and Office Space

Building #1 (partial demo)Food & Beverage or - Outdoor patio on the park- Active edge along 35th

Street- Activated morning, noon

and evenings

Building #2 (partial demo)Maker/Creative/Artist Space- Library & community space

or creative artist space

Building #3Events & Office Space- All weather/all season

rental space for events on the first floor

- Occupiable and leasable office space on the second floor

Conceptual design of the park included initial conversations with the public about potential building uses and their relationship to the park space.

Estimated Capital Construction Costs for All Three Buildings (Worst Case)

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As part of the Business Case Analysis, estimated construction costs were developed based on a preliminary concept of the of the existing buildings by the project architect, staff review and individual interviews, including:

• Public Works Capital Projects Management – Facilities

• Division of Real Estate• Parks Department• Third Party Architect & Project Consultant• NDCC• Denver Public Library• Boulder and Colorado Springs Public Library• Artspace• Interviews with businesses and developers

in River North

*These costs are preliminary and do not reflect the final project costs. Additional due diligence and costing will be conducted.

Building Scenarios

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- Each of the buildings was analyzed separately for their market and financial feasibility based on the potential land use identified in the initial park planning process.

- Each of the buildings was analyzed assuming a “market rate” user as well as a potential nonprofit user, Interviews were conducted with representatives in each category.

- The follow section describes each of the buildings, the market feedback received, the opportunities and challenges. Based on results from the financial analysis, various scenarios were created based on potential user characteristics.

Building #1 – Food & Beverage

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Market Feedback- Private interest from Food and Beverage- Financially breaks even in Year 15 (Market Rate

Scenario)- While the City has no funding for construction, this

analysis assumes that the costs of core & shell construction and tenant finish costs are split between the City and a non-City entity

- Opportunities:- Park amenities are very desirable- Can serve future area development and growth- Beer / wine / alcohol - Job training nonprofits are also interested but heavily dependent

on outside funding. Would need to be heavily subsidized- Possible phasing:

- Building #1 can be a later phase after park is complete- Suggestion to start inexpensively with a grill rather than a

full commercial kitchen- Challenges:

- Lack of parking can potentially be a hindrance for some Food & Beverage categories

- Trash and truck service access areas required for restaurant use needs to be addressed in the design

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Market Rate NonprofitGross restaurant revenues based on average of City golf course concessions, interviews with restaurants, and industry research

Restaurant revenues and expenses based on actual nonprofit restaurant model operating in RiNo district currently ($100-$150K)

Rent is $23 psf (below market) but feasible for restaurant tenant.

Rent is 8% of Gross Revenues

Assumes a 5% Vacancy Rate No vacancy assumption

The City has no identified funding. Analysis assumes that core & shell and tenant finish costs are split between the City and a non-City entity

The assumption is that nonprofit organizations do not have the resources for building construction. While the City has no identified funding for building construction, the analysis assumes that the building is made available to the nonprofit.

Assumes that tenant pays all operating expenses (approx. $6.15 psf). Scenario assumes properties are public and therefore pay no property taxes.

The tenant contributes $600 per month toward operating expenses. .

Financially breaks even in Year 15 (pay back of Capital included)

No pay back

NOI of $40K annually NOI of $3,500

Building #1 – Food & BeverageAssumptions

12[a] Clean maker space is computer / video / recording / some crafts.

Market Feedback

- Strong community support for using the space for creative / artistic needs

- Denver Public Library (DPL) is exploring offering “clean” makers space [a]. Location helps fill a DPL service gap and encourages park activation

- There is also strong demand for affordable artists’ space in the community. Alternative non-DPL scenario assumes affordable studios / workspace with revenues covering administrative expenses.

- Opportunities:- Potential donation and partnership opportunities for

potential DPL space- Administrative costs for both scenarios could be offset

by volunteers- Challenges:

- High operational costs for DPL

Building #2 –Maker/Creative/Artist Space

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Library Mission The Denver Public Library (DPL) connects people with information, ideas and experiences to provide enjoyment, enrich lives and strengthen our community.

VisionAn inspired and engaged Denver.

Need• Current library service gaps: RiNo and Globeville• Community has stated desire for library presence and

public creation and community spaces• Library can provide nontraditional library service

while still providing access to collections, Internet and other library resources and work with community partners to deliver community creation, learning and connection opportunities for relatively low cost in this location

• Library presence will help activate the park by providing active, creative programming for all ages inside and outside, working with partners and having staff and customers observing park activities

Alternativesa) Lease from commercial tenant b) Build new library = $14,000,000+ in capital costs

and much higher operating costs

Building #2 –Public Library Makers Space

DPL Vision

Denver Public Library (DPL)

Library estimated annual operating costs for potential RiNo Park location:• 5.5 FTE = $330,706• Additional costs (collections, equipment,

programs, etc.): $160,000• Assumes 48 hour service (minimum current

standard)

DPL Building Assumptions: • 5,000 square feet• Does not include custodial or maintenance, so

either need to increase staffing or pay for external maintenance service

• Operating costs could increase or decrease depending on community programming needs.

• Next step would be to identify specific focus areas.

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Boulder Public Library

• Used existing office / workshop space in the back of the original 1961 library building

• 1,408 square feet• Library Foundation paid for equipment furnishings and raw material

for 1st year• Library paid for infrastructure upgrade: $35K• Equipment (one time): $121K

• Laser Cutter• CNC Machine• Other Major Equipment• Textiles, Glass, Ceramics, Soldering, Screen Printing $7K• Computers and Software• Tech and Electronics• Furnishings• Minor Equipment

• Operations• Annual staffing $187K

• 2 FTE, 2 PT, 1-3 volunteers• The FTEs were moved from other departments

• Program Materials $10K Annually• Open Wednesday-Sunday (20 hours per week)• Average 34 programs per month

• $110 psf for infrastructure updates and equipment, however, in existing functioning building

Colorado Springs Public Library

• Approximately 2,832 sf; adjacent to large common area (not included in calculation)

• Studio C: 4 FTE• Creative Computer Commons: 9.5 FTE• Equipment and Machines: $50K

Building #2 –Public Library Makers SpaceComparison & Assumptions

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DPL Artists’ / Creatives SpaceStrong interest in clean makers’ space and serving the broader community

Increasingly strong demand for affordable maker / creative space in RiNo area as area prices increase

No charge to community; DPL library card Assumes rental fees equivalent to approximately $18.50 per square foot with 5% vacancy assumptions

City has no current allocated funding to pay for core, shell, tenant finish and ongoing operating expenses

City has no current allocated funding to pay for core, shell and tenant finish construction

Capital Costs estimated at $1.9 million Capital Costs estimated at $1.9 million

Net annual operating loss of $535K Net Operating Income of $0

Staffing is estimated at $330,000 annually. Equipment, programs, etc. are estimated at $160,000 annually. Building costs are estimated at $42,900 annually

Assumes that rental fees cover building operating expenses of $7.63 per square foot or about $53,400 in annual building expenses and management / administrative costs of about $30,000. It is assumed that artists’ / creatives would provide their own supplies and equipment.

Opportunities:- RiNo BID indicates substantial donation opportunity to fund

capital improvements for this purpose

NA

Library alternatives include:- Lease space from commercial landowner- Build new library - $14 Million + in capital and much

higher operating costs

NA

Building #2 –Maker/Creative/Artist Space

Assumptions

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Market Feedback

- Heavy demand for larger Parks and Recreation event / pavilion space

- Office interest from BID- City has no allocated funding. Analysis assumes

that a source is found to pay for core & shell, tenant finish for event space and outdoor pavilion and portion of office space

- Financially breaks even (worst case)

- Opportunities:- Pavilion space will be indoor / outdoor- Modeled on City Park Pavilion but planned as all

weather space with year round use- Continuing homeless issue in area. Office space user

would help provide “eyes on the park”- Challenges:

- Lack of parking for upper-level office space tenants

Building #3 –Events & Office Space

Building #3 –Events & Office Space

Assumptions

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Market Rate Nonprofit

Assumes event space on 1st floor of building and in pavilion area operated by City Parks and Recreation Department. Assumes market rate office tenant on 2nd

floor.

Assumes event space on 1st floor of building and in pavilion area operated by City Parks and Recreation Department. Assumes nonprofit / affordable office tenant on 2nd floor.

Net event space revenues and expenses based on City Park Pavilion with an increase based on recent changes to Parks fee policy ($74,000). Assumed an annual growth rate of 0.5% instead of 3%

Same as market rate

Tenant pays $31 psf NNN (market) and 1/3rd of operating expenses.

Tenant pays $18.50 psf and an unidentified source pays for operating expenses (Per interview with Denver Shared Spaces)

Operating expenses estimated at $6.63 per square foot.

Operating expenses estimated at $6.63 per square foot.

Financially breaks even in Year 16 (pay back of capitalincluded)

$1.8 Million initial capital costs. Financially breaks even in Year 35

NOI of $80K NOI of $50K

All Three Buildings‘Market Rate’ Summary

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Building #1Food & Beverage

- Building capital costs:$970,000- Annual operating costs (annual):

$14,700- Potential annual revenues: $42,400

Building #2Maker/Creative/Artist Space

- Building capital costs: $1.9 million

- Annual operating costs $53,400- Potential annual revenues:

$56,600

Building #3Event and Office Space

- Building capital costs:$1.8 million- Annual operating costs: $44,800- Potential annual revenues:

$115,200

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All Three Buildings Primarily Market Rate User Summary

Capital Costs LibraryProgramming & Equipment Costs

Annual Building Operating Costs

Annual PotentialRevenues

Building 1Food & Beverage

($970,000) -- ($14,700) $42,400

Building 2Maker/Creative/ArtistSpace

($1,900,000) $0 [1] ($53,400) $56,600

Building 3Event and Office Space

($1,800,000) -- ($44,800) $115,200

TOTAL ($4,670,000) $0 ($112,900)

$214,200

[1] Non DPL scenario where it is assumed that artists’ / creatives provide their own equipment

All Three Buildings‘Non-Profit’ Summary

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Building #1Food & Beverage

- City capital costs:$970,000- Annual operating costs: $14,700- Potential annual revenues: $11,900

Building #2Library (DPL) Creative Space

- City capital costs: $1.9 million- Annual operating costs:$42,900- Potential annual revenues: $0- Program Expenses: $490,000

Building #3Event and Office Space

- City capital costs:$1.8 million- Annual operating costs:$44,800- Potential annual revenues:

$98,600

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All Three Buildings Primarily Non Profit User Summary

Capital Costs Library Annual Program-ming& Equipment Costs

Annual BuildingOperating Costs

Annual potential revenues

Building 1Food & Beverage

($970,000) -- (14,700) $11,900

Building 2Library Creative Space

($1,900,000) ($490,000) ($42,900) $0

Building 3Event and Office Space

($1,800,000) -- ($44,800) $98,600

TOTAL ($4,670,000) ($490,000) ($102,400) $110,500)

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RecommendationsRecommendations Why?

- Preserve the opportunity to keep the buildings Strong public support for keeping the buildings. They complement the park and provide public benefit

- Seek opportunities to fund raise and establish a process for partnerships

Interviews indicate the potential for private donors, other sponsorships, and partnerships to help pay for building redevelopment, operations and maintenance

- Continue to refine building site plan There is a need to address parking, delivery and service issues with all buildings

- Refine cost estimates, complete additional due diligence, and evaluate phasing

Current cost estimates assume that all 3 buildings are redeveloped at once. More detailed building evaluation and cost estimates should be conducted incorporating the potential for phasing which may be contemplated depending on funding availability, tenant readiness and other RiNo area infrastructure improvements

- Prioritize Building #3 Large event space is needed within City; at least one market rate office tenant is interested

- Continue working with DPL on clean space and programming needs in Building #2

Building #2 can help provide affordable maker space as well as serve the larger Elyria-Swansea library needs.

- Refine food & beverage program in Building #1

Interest on part of workforce training tenant is heavily dependent on funding availability. Market rate tenants would like to start slow (no heavy investment in commercial kitchen) to test the market.