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Home My WebLink About11/28/1994 Item #4(360) AGENDA ITEM NO.4 CITY OF NEWPORT BEACH OFFICE OF THE CITY MANAGER i NOVEMBER 28, 1994 f ti Nov 7 8 .owe TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: KEVIN J. MURPHY, CITY MANAGER 1� SUBJECT- x0L4M . e—.S/9 PURPOSE: To seek City Council authorization to: (1) begin lease negotiations with the Balboa Bay Club on a new 50 year ground lease; (2) authorize staff to retain special legal counsel to assist in the preparation of the lease; and (3) authorize the staff to establish meetings in the community after January 1st to brief community members on the results of the City's economic and appraisal analysis of the proposed Balboa Bay Club lease. FACTS: 1. The City Council on May 23, 1994 approved the retention of two professional consultant contracts to assist the City in evaluating the proposed lease extension requested by the Balboa Bay Club. The scope of work for the two consultants was approved by the Balboa Bay Club Ad Hoc Committee and work commenced upon City Council approval. The Scope of Work was consistent with City Council Policy F-7 which encompasses how the City manages our Income Property portfolio. 2. City Council Policy F-7 states that whenever the City considers a lease of income property (or an extension of an existing lease), the City shall complete an analysis using..."appraisals or other techniques to determine the highest and best use of the property'. In addition, the Policy requires that we use reputable and independent appraisers, real estate or business consultants. In the case of the Balboa Bay Club this type of independent review is critical to guarantee that the City makes a sound policy decision on an asset which is viewed as extremely valuable and visible in the City's income property portfolio. The decisions we make on this property will impact the City's income stream for many years into the future. 0 0 -2- 3. In two separate meetings in Closed Session in October and November the two consultants for the City, William Hansen and Associates and Keyser Marston and Associates, presented their findings and conclusions. This followed two extensive meetings on the same matter with the Balboa Bay Club Ad Hoc Committee. Copies of the complete appraisal are available for the City Council's review, however, inasmuch as the City may use the document and its conclusion of fair market rents (including percentage rents in the various business areas) to negotiate a new lease, it isn't available for public review or it would undercut our negotiating position. 4. A copy of the reports submitted by Keyser Marston and Associates for their Phase I and Phase II economic analysis is attached for information and review. In Phase I of Keyser Marston's work they concluded that there was a market for the product proposed by the Bay Club in their redevelopment plan and that the economic projections of the Bay Club were realistic and achievable in the current and future marketplace. In Phase 11 of the work, which reviewed various scenarios, including not extending the lease which expires in 2011 and another scenario which considered the City's direct management and operation of the apartment and marina portions of the property, it was concluded that over thirty years it was in the City's financial best interest to extend the current lease and undertake the redevelopment project proposed by the Balboa Bay Club. 5. The City staff is now prepared to negotiate a new lease for the Balboa Bay Club and anticipates a good deal of dialogue and negotiation on the terms and conditions of a lease. To assist in this important document the City Attorney and I recommend that we utilize a preeminent ground lease attorney in the community, Lowell Martindale of O'Melveny and Myers, to assist in drafting the lease and negotiating its terms. Upon approval of this direction the staff will negotiate an appropriate hourly rate and submit a budget amendment for review and approval. 6. The City staff anticipates that the community will have a great interest in this matter and for this reason suggests that the City Council authorize the staff to establish two community meetings to present the results of the appraisal and economic analysis. Inasmuch as this is the holiday season and there may be a large number of residents travelling at this time of the year, we would suggest that these meetings be set for early January. if 0 0 -3- RECOMMENDATION: The City Council authorize staff to commence negotiations on a new lease for the Balboa Bay Club, prepare and return with a budget amendment for special legal counsel services to assist in the drafting of the agreement and negotiations, and authorize the establishment of community meetings to provide information to the community on the work of our two economic and appraisal consultants. I U KEYSER MARSTON Assoc IAT ES INC. 500 SOUTH GRAND AVENUE, SUITE 1480 LOS ANGELES, CALIFORNIA 90071 213/622-8095 PAX 213/622-5204 TO: FROM: SUBJECT: DATE: M E M O R A N D U M Mr. Kevin Murphy, City Manager City of Newport Beach 0 Keyser Marston Associates, Inc. Balboa Bay Club Lease Phase I Study September 14, 1994 ADV/SORB EV: REAL ESTATE REDEVELOPMENT ECONOWC DEVELOPMENT FISCAL POLICY Los ANGELES RICHARD L. Barrs CALVIN E. HoL.us, II KATHLEEN H. HEAD SAN DIEGO GERALD M. TREMBLE ROBERT J. WETMORE SAN FRANCISCO A. JERRY KEYSER Tmaomy C. KELLY KATE EARLS FUNK DENISE E. CoNLEY Keyser Marston Associates, Inc. (KMA) has been retained to provide an analysis and recommendations regarding the possible lease extension on the Balboa Bay Club (BBC) property. KMA has addressed a number of issues in the first phase of the study, including an overview of the current executive meeting/ conference facility market, competitiveness of the Terrace Apartments in the market, a study to determine the impact should the marina and apartments be separated from the club/hotel leasehold, and recommendations for non -rent economic modifications to the lease document. These later recommendations are provided under separate cover. The second phase of the study will be submitted within 30 days of receipt of the City's appraiser assessment of the fair market lease rate. Utilizing this fair market rate, KRA will examine the economic consequences to the City based on three lease options: 1) allowing the entire lease to expire in 2011; 2) approving the proposed lease extension; 3) restructuring the lease to allow for a partial extension of the ground lease to include the club/hotel facility only. The BBC has submitted a redevelopment plan to upgrade the appearance of the club, improve its hotel and conference facility layout, and increase its capacity. A portion of the facility will remain restricted to members only, preserving the exclusive appeal of the club to expand the current membership base. The public portion, including hotel rooms, meetings rooms, and restaurants, will also be improved to capture a portion of the expanding conference facility market. The following summarizes our review. a 0 Page 2 EXECUTIVE MEETING MARKET F_ -I LJ KMA conducted a site inspection of the existing club/hotel facility which suggests that the BBC would benefit from a general upgrade in appearance and meeting facilities. The proposed redevelopment plan addresses these issues. With the upgraded look and more efficient conference facility layout, the BBC would be more competitive with the Orange County coastal hotel/conference facility market. Information regarding recent trends in the national corporate meeting market was found in the Meetings & Conventions trade group's 1994 Meetings Market Report. Statistics for 1993 reflect an increase in total meeting expenditures as well as higher attendance figures. While the total number of meetings scheduled from 1991 to 1993 remains relatively flat, the overall results reflect a rebound in the meetings market due to a 19% jump in corporate profits in 1993, a general recovery of the nation's economy, and an increased emphasis on employee training. The average corporate group size was 69 last year and 82% of corporate meetings have fewer than 100 attendees. The conference facilities proposed by the BBC caters to corporate groups ranging from 5 to 250 people. "Successful Meetings"' State of the Industry 1993 publication cites decisive evidence that small meetings are on the rise and upper class facilities which provide premium service to these groups experience the most success. On a local basis, the Newport Beach hotel market survey, attached as Table 1, suggests the majority of meetings in the area currently average approximately 45-50 attendees. The more upscale conference -oriented facilities, such as the Four Season's Hotel and the Surf and Sand in Laguna Beach, command the highest average room rates. With similar upgrades, the BBC could compete effectively in the existing market, helped further by its desirable bay -front location. In 1993, the BBC hosted nearly 1,500 business and social functions in its existing facilities, of which only 20% required overnight stays. An upgraded facility, marketed effectively, could capture additional business and draw more multiple day events to the club. APARTMENTS A survey of the coastal luxury apartment market shows that the majority of the Terrace Apartment rents are within current market standards. The 3BR Suites and Penthouse units at the Terrace are the most expensive in the survey, ranging from $3,700 to $4,500; however, 13 of the 15 units in this range are currently leased, suggesting that the high prices are not prohibitive. KEYSER MARSTON ASSOCIATES I N C. I Page 3 The general occupancy rates in the area are very good. The Terrace has the lowest occupancy of all comparables, at 91$, which may in part be contributed to the fact that residents must either be a member of the BBC or pay an additional $250/month fee to live in the units. This perception of exclusivity may deter the general public from viewing these units, even though the member dues do not push Terrace rents above market rates. The vacancy level is also reflective of the overall downturn in the economy. As shown on Table 2 attached, competitors' rental rates range from $0.88/sf to $1.91/sf. The Terrace Apartments' rental rates (including 3BR suites and penthouses) range from $1.27/sf - $1.77/sf for members and $1.47/sf - $1.87/sf for non-members. (The difference represents a mandatory club affiliation fee.) Other 2BR/2BTH units with bay views, either located directly on the water or on the bluffs above the bay, command monthly rents from $1,500 (Park Newport) to $2,400 (Newport Marina). A 2BR/2BTH unit at the Terrace leases for between $1,900 - $2,350 for members and $2,050 to $2,500 for non-members. All properties surveyed are similar in age, interior finishes and occupancy levels. The Terrace Apartments offer the best marina views of any of the comparables (with the possible exception of the Anchorage Apartments). The competitive units located away from the water which offer some bay views from the bluffs, such as Promontory Point and Park Newport, make up for the distance from the water with their "self-contained community" amenities. These amenities are similar to those currently offered by the BBC to Terrace residents. The proposed BBC renovation will enhance these amenities. The coastal luxury rental market in Newport Beach commands very high rents largely due to the ocean and bay views available in this area and the inability to create new units. Projects which offer both view and non -view units are still able to command high rents due to amenity packages and the Newport Beach economy in general. To the extent the BBC is committed to its current policy of upgrading the carpet, paint and kitchen/bathroom tile in their units as they become available, the Terrace units are not considered to be obsolete relative to the current market and should be able to compete while maintaining their historic premium rents. BIFURCATION Based on the findings shown in the Newport Beach Apartment study attached, it is reasonable to assume that the Terrace Apartments could command rents at or near their current levels based on their proximity to the water and unit size, even if they were no longer part of the BBC. To compare, the Newport Marina Apartments, which have similar unit characteristics but fewer amenities and no KEYSER M A RSTON A SSOCIAT E5 INC. Page 4 private marina, rent waterfront units for $2,000 - $2,800/month. There is the danger that the higher priced 3BR suites and penthouses at the Terrace may be more difficult to lease without incentives or membership packages currently provided by the BBC. Approximately 50%-60% of the residents are long time renters (over 5 years) and are active members of the club. The remaining residents are required to join the club after one year and begin paying initiation fees and membership dues in addition to the rent upon move -in. Separating the apartments from the BBC leasehold would not affect these member residents as they would still receive the benefit of the club amenities (excluding room service, maid service and other on-site apartment services). However, the loss of the apartment revenues would have other effects on the club. At the current lease level, the apartments contribute approximately 20%-25% of the BBC's annual gross income and an estimated 90% of net operating income based upon the 8/12/94 allocation of income and expense by William Hansen & Associates. The stability of the apartment rental income may be required in order to secure financing for the proposed BBC renovation. It is likely that a lender would require at least 25 to 30 years of future apartment income in order to approve the necessary financing, rather than the 17 years remaining in the existing lease. The improvements will be integral and hotel facility as a whole. integrity of the lease extension the City. to the future success of the club This ultimately impacts the and percentage rents received by KMA's research suggests there is a strong and growing market for executive conference facilities and hotels in the Newport Beach area. The improvements proposed by the BBC address the issues of image and layout efficiencies which should enable the BBC to effectively compete with other facilities in the market. This, coupled with the club's ideal location, indicate the project should be competitive, increasing room nights and meeting room utilization. Removal of the marina from the leasehold extension would likely have little effect on the BBC's operations. Club members currently leasing slips would not lose their privileges if the City controlled the marina. In addition, the level of revenue generated by the marina is not great enough to have a material impact on the BBC's operations or their ability to secure financing for the improvements. Furthermore, future actions by the Coastal Commission regarding improved public access to the property may KEYSER M A RSTON ASSOCIATES INC. 1 0 0 Page 5 make any perceived benefits of the marina area's exclusivity moot. The apartments, on the other hand, contribute a substantial sum to the BBC's operating income and the loss of this revenue through leasehold bifurcation would likely jeopardize the BBC's ability to secure financing for the proposed improvements. The apartments represent a stable source of cash flow that hotel, restaurant, and other "transient" revenues cannot provide. The future success of the club and hotel facility is dependent upon the club's ability to compete in the market. The proposed improvements are necessary in order to reach that end. 94671.NPB 16691.6602 KEYSER MA RSTON ASSOCIATES INC. TABLE 1 16 -Sep -94 BALBOA BAY CLUB NEWPORT BEACH HOTELJCONFERENCE FACILITY STUDY 'muth Coast Hig IStammer. all Beach rooms oco; X2271 I Most exec. rooms 1221 W. Coast Highway Townhouse acoomodetiores; all wt klfchanstbale :ludas block of (See Pool, spa, golf (public course) operations in 2001. Newport beach 70% of business Sept- May is corporate cord. t; snacks Contras) Business is stable, slightly increasing from 1993 Members only clubXxtlifies to be separate 7141645.5000 Not same caliber accomodations as proposed IAC or cher comps. Mkting plan to emphasize conference space (Proposed) Medfftoranean architechnegandawping Maximum capacity In ballroom - 350 Income projections anticipate 43%-62% occ in first 5 years of operation (conservative) •1993 events In existing facility; includes busirres social, civic and charitable events. 2 Sud and Sand 156 160-527 70-80 13 460.2,000 M 10 - 16qComp. wf 50-60 people 2 W 80% May-0et rooms have ocean views 8 balconies 1555 South Coast Highway Seo Comms block of rm Meciiterraneard4 Season's type decor Laguna Beach and meals Pool, private beach; no gym 7141497-4477 Weekends booked year~d; rooms sold -out May - October, currently booking conference and banquet facilydes into 1996 4 diamond hotel 3 Four Season's Hotel 285 5225$ Not Dlscasd 8 480.6,600 51 16 - 46C Negotiable 20250 34 5K 400A Septpct Near Fashion Island; some ocean views 690 Newport Career Drive package; (varies) JwWar Upswlefirdshesfservice Newport Beach depends on (business) Ftlnass room, spa, sauna, pool, tennis 714859-0808 sees. of mtg, Occupancy has increased in 1994; projections g of guest Mays 1or'95 show 4-6% incmase in wnfenmm rooms mrvd (leisure facility use. Large % of executive business is food.etc. from Northeast and Midwest. 4 Marriott - Newport Beach 585 $11504200 Not Disclose! 22 288.8,000 sl 20 - 76C 45.50 people 3 800 75% Jan -Apr & Some views of Back Bay and ocean 900 Newpat canter Drive 30 rooms Oct -Nov Near Fashion Island Newport Beach All rooms have balconies 714/640-4000 Host 15-20 Pools, golf, sauna, gym tennis 250+Evams per year 5 Hyatt Newpodar 410 12S.UOO 22 4008,700 f 0 IM Newport Back Bay 1107 Jamboree Road OoB, tonnis, gym, jogging trails, pools, beach hre d RnwM IOCated acroea street 'muth Coast Hig IStammer. all Beach rooms oco; X2271 I Most exec. rooms (W13040) Townhouse acoomodetiores; all wt klfchanstbale :ludas Pool, spa, golf (public course) at break- 70% of business Sept- May is corporate cord. t; snacks Business is stable, slightly increasing from 1993 Not same caliber accomodations as proposed IAC or cher comps. is 0, TABLE 2 IS -Sep -94 BALBOA BAY CLUB NEWPORT BEACH APARTMENT MARKET STUDY bbcsam.w1o0 DHB 16 • errataApad Balboa Bagtub 28yea 750 includes;mo 1150 membe 135D shipdues) 1350 1616 (Penthouse 2600 units hanm bay new $7-10K investedfunit for carpet, paint, bile, 1221 W.Nwy $000 $2,000 $1,901) $2,350 $2,400 $4,600 appliance up. grades for re-madmtlng Newport Beach $120 $1.74 $1 At $1.74 $1.49 $1.77 Tile in kitchens/baths (studio) $250 addrl rent for non-members; must become member after 1 yr; $160 of mthly tea applied towards $4,000 membership Non-membe Rates (nclud $250/mon member due Spacious floor plans 750 1150 1350 1350 1616 26W Rates include water and gas $1,050 $2,150 $2,050 $2500 $2,550 $4,750 Only 5-6 of the 144 marina slips are used by $1.40 $1.87 $1.52 $1.85 $1.58 $1.83 residents stadia 2 Promontory Pam 71487541000 520 100.00% 750 1050 1080 1185 1425 1490 Some units wl views: + $400.600 premium 200 Promontory West 16 Veen $1.315 $1,825 $1,490 $2,100 $2,080 $2,845 as sham; across street from water Newport Beach $1.75 $1.74 $1.41 $1.77 $1.46 $1.91 Numerous amenities (clubhouse, gym. pools, security. tennis, library, organized activities) Units have basic finishes, Ille In bath/ kitchens, some fireplaces with marble; no moldings, standard appliances; high ceilings Projec lunila very well maintained Rant Includes gas, water, amenities 3 Newport Madre Apia. 7107604919 64 95.00% 621 1109 1217 1442 1723 1785 SBuated on marina channellbuy 919 Bayslde Drtm 25 year $996 $2,000 $1,750 $2,400 $2,100 $2,800 Soma units w/ views: + $300-$4D0 Newport Beach $1.60 $1.80 $1.44 $1.66 $1.22 $1.57 Interium simple, no upgraded finishes (on water) (on water) (on water Open Boor plans; very light Note: 1800 at unit (2BR12BTtQ on eater on market for 3-4 months; recently reduced from $3200 to $2,800 Walk to 021boa Island 4 Park Newport 714/644-1900 1306 NR Disclsd 704 809 1026 27 Isis 1618 Back Bay ews from some units 1 Park Newport Drive 21 yea $855 $1,215 $1,050 $1,500 $1,495 $1,995 Gym, pools, tennis, mailed, billiards, Newport Beach $1.21 $1.50 $1.02 $123 $098 $1.31 sauna, SBO's, planned actiWtias Unit Interiors are simple: basic appliances, fomdca countertops; no molding, marble, or abovectandard detalls. Self-contained community 5 Grenville Apadmerde 71416445189 67 98.00% IVA MA 2168 2168 2500 3000 Pool, spa, gated community 1130 Grenville Drhe 25 yeam $2200 $2,400 $2,500 $2,801) Located near Fashion Island Newport Beach $1.01 $1.11 $1.00 $093 Adjoins Newport Beach C.C. Limited ocean views Large Units Condo conversion slated for 1995 Standard finishes; older fctures 6 Anchorage Apartments 7141548.1501 39 1100.00W 1700 2100 2500 25W M units on water with terraces, 2888 Bay Shore Driva 34 yes $925 $925 $1.950 $2,100 $2,200 $2,200 Standard finishes; plain 2 story bldg. Newport Beach $1.16 $1.16 $1.15 $1.00 $0.88 $0.88 Note: Had dificuitylastyearfilling units; held to rates and reached full occupancy N 1st 1/41994. bbcsam.w1o0 DHB 16 • • KEYSER MARSTON ASSOCIATES INC. 500 SOUTH GRAND AVENUE, SUITE 1480 LOS ANGELES, CALIFORNIA 90071 213/622-8095 FAx 213/622.5204 e TO: FROM: SUBJECT: DATE: M E M O R A N D U M Mr. Kevin Murphy, City Manager City of Newport Beach 0 Cal Hollis Keyser Marston Associates, Inc. Balboa Bay Club Lease Alternatives Analysis Memorandum October 25, 1994 ADVISORS IN; REAL ESTATE REDEVELOPMENT ECONOMIC DEVELOPMENT FISCAL POLICY IDS ANGELES RICHARD L. BOTTI CALwN E. Hocus, II KATHLEEN H. HEAD SAN DIEGO GERALD M. TRRNBLE ROBERT J. WEI'MORE SAN FRANasco A. JERRY KEYSER TErIO C. KELLY KATE EARLE FO DENISE E. CONLEY Enclosed is a summary of the subject memorandum detailing the alternatives analyzed and the assumptions utilized. Prior to the issuance of a final memorandum, we thought it would be helpful for the committee to review this summary and react to the alternatives and assumptions. I would propose we get this reaction at our meeting on Wednesday at which time I will present this material. The alternatives presented are as follows: Scenario 1 Balboa Bay Club expansion as proposed, rent terms per Bill Hansen, except phase-in of percentage rents per current lease is assumed. Scenario 2A No lease extension. City takes over marina in 2011, leases club/hotel portion under a scope of development similar to that proposed by BBC. Apartment lease income is increased to reflect the value of city -owned apartment improvements. Scenario 2B Same as I12AII except hotel/club is not rebuilt, land is ground leased at fair market rental rate (todayfs value increased by CPI to 2011). 0 Page 2 11 We had discussed a third scenario whereby the City would "develop" the hotel/club parcel at the end of the lease itself. As we reviewed this alternative, it became clear that there is too much uncertainty to fairly evaluate this alternative. A review of other experiences with the restaurant/banquet facilities suggest that this level of development will not generate a greater land value than that assumed under alternative Scenario 2B. The more dense commercial uses needed to create the higher land values are not consistent with city ownership, development and management (i.e., a health club and hotel operation). The analysis, based upon the assumptions utilized, suggests the following: 1) When taken over a 30 -year period, the three scenarios generate, in net present value, roughly equivalent returns to the City. 2) For the initial 10 and 20 years of the analysis, the lease extension alternative generates substantially greater net present values returns to the City. This advantage is overcome by the other two alternatives during the final third of the 30 year analysis period. 3) The above conclusions are due to the fact that the current proposal generates substantially more lease revenues initially, while the "no extension" alternatives allows the City to retain the "equity" developed by the City in the apartment and marina improvements at the end of the current lease. Following the meeting with the committee, we will finalize the report to reflect their comments. CEH:0 9478ZNPB 18091.0002 KEYS ER M A RS TO N ASSOCIATES I N C. DEAF SUMMARY OF MAJOR ASSUMPTIONS BALBOA BAY CLUB ANALYSIS NEWPORT BEACH, CALIFORNIA I. SCENARIO 1 -- NEAR TERM CLUB This scenario assumes a new lease and expansion for the Balboa Bay Club ("Club"). This analysis assumes the lease terms as proposed for the entire 30 year period covered by the analysis. Additionally, the lease is assumed to include the phase in percentages remaining for the current lease. Expansion to the Club meeting rooms and hotel facilities is assumed to occur over a 2 year period ending in fiscal year 1998/99. A. Apartments Rehabilitation and construction of the club hotel and meeting space will not create undue hardship or deteriorate the living environment. Nevertheless, rents will not increase during first 2 years and will increase at an annual rate of only 1.5% during construction. As a result of the expansion, rents will return to market rates and increase 3% annually after construction. vacancy rates will not increase over time. B. Marina Capital improvements will be made to the marina facilities as planned. A 20% per year reduction in revenues will be incurred during the 2 year marina reconstruction period to reflect inconveniences created by repairs. Rehabilitation and construction of the club, hotel and meeting space will not create undue hardship or deteriorate the marina environment. Hence, marina revenues will remain level during hotel construction. Vacancy levels will not increase in the marina as a result of the Club expansion, as it is assumed that demand for the facilities will remain strong. After club expansion, demand for slips will increase as club membership increases. Beginning in year 2001/02, revenues will increase by 5% for 2 years in addition to inflationary increases. 1 C. Club Operation The Club will remain in operation during the construction period. No operational inconveniences will occur which would decrease total membership during this period. Prior to the completion of construction it is assumed that membership revenues will remain constant. After completion of construction, memberships will increase over a two year stabilization period. After stabilization (year 1999/00), membership fees will increase 3% annually. D. Hotel & Meeting Rooms During construction, hotel and meeting room revenues will decrease to $1.04 million annually to account for a reduction in usable space. Over a 2 year stabilization period, revenues will increase to $6.055 million ($4.78 million in real terms) as the new and upgraded facilities become available. After stabilization, hotel and meeting room revenues will increase 3% annually to account for inflation. Sales from other revenues sources will remain as a constant percentage of all other revenues based on the 1994/1995 percentages provided by the appraisal report. 2 0 0 II. SCENARIO 2 -- NO IMPROVEMENTS OR LEASE This scenario assumes that the City does not extend or change the lease terms. Hence, the Balboa Bay Club is not rebuilt or expanded in the near-term. It is assumed that the deterioration of the Club will continue at a gradual rate and then slowly accelerate toward the end of the lease. Deterioration in marina and apartment operations will be delayed, but will accelerate later in the lease term as needed capital investment does not occur. The specific assumptions with respect to the performance of the project through the remaining term of the lease will follow. In addition, this scenario has been differentiated into two extension alternatives (extensions A & B) which account for the City's usage of the project following the maturity of the current lease term. A. Apartments Vacancy level will remain at 6% through year 2004/05. Beyond year 2004/05 vacancy will increase according to the following table to reflect increases in deferred maintenance: Operating Vacancy Year Rate 2005/06 7% 2006/07 8% 2007/08 9% 2008/09 10% 2009/10 20$ 2010/11 50% As a reflection of the current economy, it is assumed that rental rates will remain constant over the next two years. Rents are assumed to increase thereafter at 3% per year until 2008/09, when rent rates will remain constant, reflecting deferred maintenance. B. Marina Capital improvements will be made to the marina facilities in the first 2 years as currently planned. A 20% per year reduction in revenues will be incurred during the 2 year reconstruction period to reflect the inconveniences created by the repairs. 3 i 15 0 0 Vacancy rates will remain constant through year 2005/06 and increase thereafter according to the following schedule to account for deterioration of the marina due to deferred maintenance: Operating Vacancy Year Rate 2005/06 7% 2006/07 8% 2007/08 9% 2008/09 10% 2009/10 15% 2010/11 30% C. Club Revenues Without the proposed improvements of the Club, it is assumed that membership dues, guest fees and other membership revenues will remain constant for the first 2 years. Thereafter, as the economy improves, gross revenues will increase 3% annually through year 2000/01. Due to the uncertainty of the Club's future, from year 2001/02 through 2005/06 revenues are expected to decline 5% annually and from year 2006/07 to the end of the current lease term revenues are assumed to decline 10% annually. Initiation fees will decline at 5% per year until year 2005/06, at which point initiation fee revenues will terminate. D. hotel and Meeting Rooms Hotel and meeting room revenues will remain constant at current levels over the first 2 years. Between years 1996/97 and 2006/07 revenues will increase 3% annually as the expanded economy creates additional demand for meetings and conferences. From 2007/08 through the end of the lease term revenues will decrease 10% annually. For projection purposes, sales from other revenues sources, i.e., food, beverage, et. cetera -will remain as a constant percentage of all other revenues based on the 1994/1995 rate. E. Lease Extensions The following assumptions were made regarding new lease terms and site disposition for the project upon conclusion of the current lease term. The assumptions describe two alternative disposition approaches. \ko 1. Extension Scenario A No significant improvements to the property will be made during the remaining term of the existing lease other than those listed below. At the end of the current lease period (2011), a similar club/ hotel program to the one proposed, as used in Scenario 1, is developed and the proposed lease percentage rents are applied through the remaining period of this analysis. For the Terrace Apartments, new lease terms equal 9% of the capitalized value of the stabilized/ improved property income, less rehab costs of $25,000/unit (in 1994 dollars), as shown in Table A. Revenues decrease by 50% during 2011/12 to allow for rehabilitation. Rents are assumed to return to market levels after rehabilitation and 1 year of absorption. The marina is assumed to be operated by the City. it is assumed that the City will be responsible for reconstructing the marina over a 2 year period. Marina revenues are expected to decline by 20% during reconstruction period to account for inconveniences caused by the repairs and then return to market rates by the following year. Net marina revenues after current lease maturity are calculated as a percentage of gross revenues based on the appraiser's estimate of expenditures to gross income upon stabilization after adjustment for property tax. Marina reconstruction is assumed to be financed by bond issuance ($1.2 million +10% issuance costs and reserve funds in 1994 dollars) for 10 years at 7% interest. Additionally, the City will fund a replacement reserve (earning 5% interest annually) equal to a payment of $1.2 million in 1994 dollars every 10 years. Meeting room and hotel facilities are assumed to be leased under proposed percentage rents and improved after termination of the current lease agreement. Club membership fees are assumed to stay level during a construction period of 2 years. Upon completion of construction, membership and initiation fees are assumed to return to market rates after a two year stabilization period. Extension Scenario B Scenario B uses all of the assumptions of Scenario A, except as they relate to the area currently being used by club meeting rooms and hotel facilities. Club meeting rooms and hotel facilities are assumed to be demolished after the term of the current lease. Land is assumed to be leased for 9% of appraised value ($8.0 million in 1994 dollars) and increased every 5 years by 3% compounded annually. 5 t'1 11 It is assumed that loss of facilities will not cause a reduction in the market rents of the apartments. No percentage revenues are assumed. 94774.NPB 16091.0002 6 �G 0 TABLE 1 PROJECTED GROSS REVENUES SCENARIO 1 - NEAR TERM EXPANSION OF CLUB FACILITIES BALBOA BEACH CLUB NEWPORT BEACH, CALIFORNIA 0 OPERATING CLUB MEMBERSHIP HOTEL 8 TOTAL 'f$ APARTMENTS MARINA DUES INITITATION MTG ROOMS OTHER REVENUES 1 1994/95 $3,150,000 $696,000 $2,500,000 $200,000 $1,910,000 $4,460,000 512,9161000 2 1995/96 3,150,000 696,OD0 2,500,000 200,000 1,910,000 4,480,000 12,916,000 3 1996197 3,197,000 870,000 2,50,000 200,000 1,040,000 4,118,000 11,925,000 4 1997/98 3,245,000 870,000 2,500,000 200,000 1,040,000 4,143,000 11,998,OOD 5 1998/99 3294,000 870,000 2,500,000 200,000 1,040,000 4,169,000 12,073,000 6 1999/00 3,545,000 941,000 3,716,000 297,000 2,308,000 5,899,000 16,504,000 7 2000/01 3,651,000 1,018,000 4,932,000 394,000 4,613,000 7,705,000 22,313,000 8 2001102 3,761,000 1,049,000 6,149,000 492,000 5,679,000 9,140,000 26,470,000 9 2002/03 3,874,000 1,080,000 6,333,000 507,000 6,055,000 9,414,000 27,263,000 10 2003104 3,990,000 1,112,000 6,523,000 522,000 6,237,000 9,696,000 28,080,000 11 2004/05 4,110,000 1,145,000 6,719,DDD 538,000 6,424,000 9,988,000 28,924,000 12 2005106 4,233,000 1,179,000 6,921,000 554,000 6,617,000 10287,000 29,791,000 13 2006107 4,380,000 1,214,000 7,129,000 571,000 6,816,000 1,596,000 30,686,000 14 2DO7108 4,491,000 1,250,000 7,343,OD0 588,000 7,020,000 10,914,000 31,606,000 15 2008/09 4,626,000 1,288,000 7,563,OD0 606,000 7231,000 11,242,000 32,556,000 16 2009110 4,765,000 1,327,000 7,790,000 624,000 7,448,000 11,579,000 33,533,000 17 2010/11 4,908,000 1,367,000 8,024,000 643,000 7,671,000 11,927,000 34,540,000 18 2011 / 12 5,055,000 1,408,ODD 8,265,000 662,000 7,901,OD0 12,285,000 35,576,000 19 2012113 5,207,000 1,450,000 8,513,000 682,000 8,138,000 12,653,000 36,643,000 20 2073/14 5,383,000 1,494,000 8,768,000 702,000 8,382,000 13,032,000 37,741,000 21 2014/15 5,524,000 1,539,000 9,031,000 723,000 8,633,000 13,423,000 38,873,000 22 2015116 5,690,000 1,585,000 9,302,000 745,000 8,892,000 13,826,000 40,040,000 23 2016/17 5,861,ODD 1,633,000 9,581,OD0 767,000 9,159,000 14,241,000 41,242,000 24 2017/18 6,037,ODD 1,682,OD0 9,888,000 790,000 9,434,000 14,669,000 42,480,000 25 2018/19 6,218,000 1,732,000 10,164,000 814,000 9,717,000 15,108,000 43,753,000 26 2019/20 6,405,000 1,784,000 10,469,DDD 838,000 10,009,000 15,562,000 45,067,ODD 27 2020/21 6,597,000 1,838,000 10,763,DDD 863,000 10,308,000 16,029,000 46,419,000 28 2021 /22 6,795,000 1,893,000 11,106,ODD 889,000 10,618,000 16,509,000 47,810,000 29 2022/23 6,999,000 1,950,000 11,439,000 916,000 10,937,OOD 17,005,000 49,246,000 30 2023/24 7,209,000 2,009,000 11,782,ODO 943,000 11,265,ODD 17,515,000 50,723,000 PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.XLS E*anslon DATE: l0Y25194 ANALYST:EDF ,c� n CHART 1 PROJECTION OF GROSS REVENUES SCENARIO 1 - NEAR TERM EXPANSION OF CLUB FACILITIES BALBOA BAY CLUB NEWPORT BEACH, CALIFORNIA 314,000,000 $12,000,000 $10,000,000 $8,000,000 $8.000.000 $4.000,000 $2,000,000 $0 YEAR END (JUNE 30) APARTMENT GROSS REVENUES S14,OD0,000 $12,000,000 $10,000,000 $8,0D0,000 $8,000,000 S4,0DD,OD0 $0 Ilk IRRRR YEAR END (JUNE 50) $80,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 310,000,000 CLUB GROSS REVENUES 314,000,000 $12,000,000 $10,000,000 $8,000,000 $8,000,000 $4,000,ODO $2,000,000 $0 gg ss p R R R R R R R R YEAR END (JUNE 90) 9 HOTEL & MEETING ROOM GROSS REVENUES $14,000,000 $12,000,000 $10,000,000 $8,000,000 $8,000,000 $4,000,000 $2,000.000 $0 R� R id R R R YEAR END (JUNE 30) TOTAL GROSS REVENUES $0 ' RRRRRRRRRR YEAR END (JUNE 30) PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMAY.LS Expansion Chart DATE: 10/25/94 ANALYST: EDF qp TABLE 2 PROJECTED GROSS REVENUES SCE SCENARIO 2A- NO NEAR TERM IMPROVEMENT, FACILITIES REBUILT AFTER CURRENT LEASE M130A BEACH CLUB NEWPORT BEACH, CALIFORNIA OPERATING CLUB MEMBERSHIP HOTEL & TOTAL YFAR APARTMENTS MARINA Q= INITITATION NM ROOMS OTHER REVENUES 1 1994/95 $3,150,000 $696,000 $2,500,000 $200,000 $1,910,000 $4,378,000 $12,834,000 2 1995/96 3.150.000 696,000 2,500,000 190,000 ' 1,910,000 4,373,000 12,8'19,000 3 1996/97 3,245,000 870,ODD 2,5751000 181,000 1,967,DW 4,576,000 13,414,000 4 1997/98 3,342,000 870,ODD 2,652,000 172,0DO 2,0W,0DD 4,692,000 13,754,000 5 1996/99 3,442,000 896,00D 2,732,000 163,000 2,087,000 4,825,ODD 14,145,000 6 1999/00 3,545,0DO 923,000 2,814,000 155,000 2,150,000 4,964,000 14,551,000 7 2DOD/01 3,652,000 951,000 2,8981000 147,000 2,215,000 5,106,000 14,989,000 8 2D01 /02 3,761,000 979,000 2,753,000 140,000 2,281,000 5,133,000 16,047,000 9 2002103 3,874,000 11009,000 2,615,000 133,000 2,349,OOD 5,167,000 15,147,000 10 2003104 3,990,000 1,039,000 2,484,000 126,000 2,419,ODO 5,207,000 15,265,000 11 2004!05 4,110,000 11070,000 2,3W,OW 120,000 2,492,000 5,256,000 16,408,000 12 2005105 4,188,000 1,079,000 2,242,000 0 2,687,000 5,217,000 16,293.000 13 2006/07 4,266,000 1,099,000 2,018,000 0 21644,000 5,192,000 15,221,000 14 2007/08 4,348,000 1,120,000 1,816,000 0 2,360,000 5,003,000 14,667,000 15 2009109 4,429,000 1,141,000 1,634,000 0 2,142,000 4,639,000 14,185,W0 16 2DD9 / 10 3 937 ODO ' 1 110 ODD ' 1,471,000 0 1,928,000 4 373 000 12,819 000 17 2010111 '(;s1aDD6:::'4i,�lOG« ;1,3k9WMi SS 18 2011/12 1,231,000 753,000 1,324,000 0 867,500 2,162,000 6,337,5W 19 2012113 2,610,000 753,000 1,324,000 186,000 867,500 2,972,000 6,712,500 20 2013/14 5,363,000 1,146,000 3,253,000 373,000 3,253,000 6,931,000 20,319,000 21 2014/15 5,524,000 1,539,000 6,506,000 698,000 6,506,000 10,755,000 31,5281000 22 2015/16 5,690,000 1,559,000 9,302,000 745,000 8.892,000 13.559,000 39,747,OW 23 2016117 5,861,000 11606,000 9,581,000 767,000 9,159,ODD 13,965,OW 40,9W,WO 24 2017/18 6,037,000 1,654,000 9,666,000 790,000 9,434,000 14,384,000 42,167,000 25 2018/19 6,218,000 1,704,ODD 10,164,000 814,000 9,717,000 14,816,000 43,433,000 26 201912D 6,405.000 1,755,DW 10,469,00 838,000 10,009,000 15,261,OW 44,737,000 27 2020121 6,597,000 1,807,OW 10,783,000 SMADO 10,309,OW 15,718,000 46,077,000 28 2021/22 6,795,000 1,862,000 11,106,OOD 8001000 10,618,000 16,190,000 47,460,000 29 2022123 6,999,000 1,917,000 11,439,000 916,000 10,937,000 16,675,OW 48,883,00D 30 2023/24 7,209,000 1,975,00 11,782,000 943,000 11,2S5,00D 17,175,OW 50,949,000 NOTES: YEAR IN WHICH GROSS REVENUES FIRST DECLINE YEAR IN WHICH CURRENT LEASE TERMINATES PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBG101AA.XLS No Improve DATE: 10nS94 ANALYST: EDF CHART 2 PROJECTION OF GROSS REVENUES SCENARIO 2A — NO NEAR TERM IMPROVEMENT, FACILITIES REBUILT AFTER CURRENT LEASE BALBOA BAY CLUB NEWPORT BEACH, CALIFORNIA 14,000,000 12,000,000 10,000,000 8,000,000 8.000.000 4,000,000 2.ODD.000 0 $14,000,000 $12,000,ODD $10,000,OD0 $6,000,000 $6,000.000 $4,000.000 $2.ODD.000 $o $60.000.000 $60,000,000 $40.000,000 $30,ODO,O00 $20.000.O D $10,000,00O APARTMENT GROSS REVENUES i IRARR�A� YEAR END (JUNE 30) CLUB GROSS REVENUES L" YEAR END (JUNE 30) 514,000,000 $12,000,000 $10,000,000 $8,000,000 $8,000,000 $4,000.000 $2.000.000 YEAR END (JUNE 30) MARINA GROSS REVENUES HOTEL & MEETING ROOM GROSS REVENUES $14,000,000 $12,000,000 $10,000,000 $8,070,000 $6,000,000 $4,000,000 $2,070.000 $D II TOTAL GROSS REVENUES $o . YEAR END (JUNE 301 YEAR END (JUNE 30) PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.XLS No Improve Chart DATE: 1025194 ANALYST: EDF 0 0 CHART S PROJECTED REVENUES COMPARISON OF SCENARIOS' BALBOA SAY CLUB NEWPORT BEACH, CALIFORNIA APARTMENT REVENUES $14,000,000 81$000,000 $10,000,000 $8,OW,000 $6,000,000 $4,000,000 $2,000,000 $0 G r s YEAR END (JUNE 30) • • • • SCE ' -SCQL m $14,000,000 CLUB MEMBERSHIP REVENUES $12,DDO,ODD $10,D00,000 Wow.000 $8,000,000 84,000,000 $2,W0,000 $0 � a oo g $ So n p mm pN � W N N N tV fm`l N N N YEAR END (JUNE 30) • • - • • • BCETMRp 1-SCDNRp TA $eo,oWI $60,OW,OW $4,000,000 $30,000,000 $20,000,000 $10,000,000 so $14,OW,000 $12,000,000 $10,OW,000 $6,00,000 $6.000,000 $4,000,000 $2,000,000 80 YEAR END (JUNE 80) • • • • • • SL41Np 1-SCEHWp ]A MARINA REVENUES & MEETING ROOM REVENUES $12,000,000 $10,000,000 $6,000,000 $6,000,006 $4,600,000 $2,000,006 gg �y YEAR END (JUNE SO) • • • • • • SCBUIi1D1-SCEWAIO ]A TOTAL REVENUES 8 R R R R R R YEAR END (JUNE $6) •• SCENARIO -SCENAR1O2A NOTE:' FOR THIS COMPARISON, THE REVENUE FROM SCENARIO 1 IS COMPARED TO REVENUE FROM SCENARIO 2A, WHERE THE CLUB IS REBUILT AFTER THE CURRENT LEASE TERMINATES PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.XLS GmssR&40mnp DATE: 1027154 ANALYST. EDF 0 TABLE 3 0 ESTIMATED CITY GROUND LEASE REVENUES SCENARIO 1 - NEW LEASE AND NEAR TERM EXPANSION AS PROPOSED BALBOA BAY CLUB NEWPORT BEACH, CALIFORINA NOTES: NET PRESENT VALUE C 9% $19,838,000 I SEE TABLE 1 2 ASSUMES NEW LEASE TERMS 3 PHASE IN OF PERCENTAGE RENTS OF 76.9%,84,51)% & 92.48% FOR YEARS 1, 2 8 3, RESPECTIVELY, TO REFLECT PHASE IN FROM ORIGINAL LEASE PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.XL.S Scenario 1 DATE: 10/25194 ANALYST: EDF PERCENTAGE OPERATING TOTAL GROSS GROUND YEAR REVENUES' LEASE 1 1994/95 $12,916,000 $925,000 3 2 1995/96 12,916,000 1,017,000 3 3 1996/97 11,925,000 1,114,000 3 4 1997/98 11,998,000 1,214,000 5 1998/99 12,073,000 1,223,000 6 1999/00 16,504,000 1,500,000 7 2000/01 22,313,000 1,830,000 8 2001/02 26,470,000 2,068,000 9 2002103 27,263,000 2,129,000 10 2003/04 28,080,000 2,193,000 11 2004105 28,924,000 2,259,000 12 2005/06 29,791,000 2,327,000 13 2006107 30,686,000 2,396,000 14 2007/08 31,606,000 2,468,000 15 2008/09 32,556,000 2,542,000 16 2009/10 33,533,000 2,619,000 17 2010/11 34,540,000 2,697,000 18 2011/12 35,576,000 2,778,000 19 2012/13 36,643,000 2,862,000 20 2013114 37,741,000 2,948,000 21 2014/15 38,873,000 3,036,000 22 2015/16 40,040,000 3,127,000 23 2016/17 41,242,000 3,221,000 24 2017/18 42,480,000 3,318,000 25 2018/19 43,753,000 3,417,000 26 2019/20 45,067,000 3,520,000 27 2020121 46,419,000 3,625,000 28 2021/22 47,810,000 3,734,000 29 2022123 49,246,000 3,846,000 30 2023/24 50,723,000 3,962,000 NOTES: NET PRESENT VALUE C 9% $19,838,000 I SEE TABLE 1 2 ASSUMES NEW LEASE TERMS 3 PHASE IN OF PERCENTAGE RENTS OF 76.9%,84,51)% & 92.48% FOR YEARS 1, 2 8 3, RESPECTIVELY, TO REFLECT PHASE IN FROM ORIGINAL LEASE PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC-KMA.XL.S Scenario 1 DATE: 10/25194 ANALYST: EDF 9 TABLE 4 0 CRY REVENUE SCENARIO 2A - CURRENT LEASE THROUGH 2011; NEW APT. LEASE, CRY OWNED MARINA S HOTELICLUB RECONSTRUCTION AFTER 2011 BALBOA BAY CLUB NEWPORT BEACH, CALIFORNIA NEW LEASE, RECONSTRUCTION PREPARED BY NEYSER MARSTON ASSOCMTiS. INCL FiL2 820434AIL6 S=KbA DAT@ 1GQ594 ANALYSE! EDF TOTAL PERCENTAGE NEW NEW HOTELS MARINA TOTAL OPERATING PROJECT GROSS RENTFROM APARTMENT CLUB LEASE NET CRY YEAR REVENUES' EXISTING LEASE 2 LEASE REVENUES' REVENUES • INCOME REVENUE 1 1804195 $12,834,000 SB13.000 $913,000 2 1985198 12,819,OW 1,004.000 1A04,000 3 1988197 13,414,000, 1,176.000 1,178,000 4 1997198 13,754.000 1,300,000 1,301DA00 5 1998199 14,145ADO 1,338,000 1,338,000 8 1999100 14,551ADD 1,378,000 1,37SA00 7 2000101 /4,959,000 1,416A00 1,418.000 a 2001102 15,047A00 1,443,000 1A43,000 9 2002103 15,147,000 1,470,000 1,470,000 10 2003104 15,265AO0 1AS8,000 1ASSA00 11 2004105 15,408,000 1,628,000 1,5281000 12 2005106 15,293,000 1538A00 1,536,000 13 2008107 15$21,000 1,548,000 1,545,000 14 2007108 14,887,000 1,531,000 1,531,000 15 2008109 14,185,ODO 1,518,000 1518,000 18 2009110 12,819,000 1,385,000 1,385,000 17 2010111 8,805,000 1.025,000 1.025,000 18 2011112 • 5,584,500 58651000 $224,000 $38.000 927,OOD 19 2012113 7,958,500 1552,000 274,000 38,000 1,984,000 20 2013114 19,173,000 2,839,000 706,000 33OA00 3,875,000 21 2014115 20,889,000 2,838,000 1,263,000 621,000 4523,000 22 2015116 36,188,000 2,839,000 1A84,000 GNAW 4,858,000 23 2016117 39,A93,ODO 3,059,324 1,735,000 671AW 5,465,324 24 2017118 40,513,000 3,059,324 1,787,000 706,000 5552,324 25 2018119 41,729,000 3,059,324 1,841,000 743AM 5,543,324 26 2019120 42,982,000 3.059,324 1,895000 781,000 5,736,324 27 2020121 44,270,000 3,059,324 1.053,000 820,000 5,832,324 28 2021122 45,598,000 3,545595 2,011,000 1,170,000 6,727595 29 2022123 46,966,000 3,548,595 2A71,000 1,211 A00 6,828,595 30 2023124 48,374,ODD 3,545595 2,134,000 1,254,000 6,934,595 NET PRESENT VALUE l9% $18,911,000 NOTES 1 00CLUDES GROSS MARINA REVENUES AFTER YEAR 20192111 2 ASSUMESCURRENTLEkWTE K4STHROUGH2O11, PHASE IN OF PERCENTAGE RENTS OF 789%84.59%82248% FOR YEARS 1, 283, RESPS=4ELY 3 BASED ON 9% RETURN OF NETVALUE OF APARTMENT (SEE TABLE 4 ASSUMES 3%ANNUALLY COMPOUNDED ESCALATION EVERYB YEARS 4 ASSUMES PROPOSED LEASE RATES 5 CALCULATED AS A PERCENTAGE OF GROSS INCOME BASED ON APPRAISERS ESTIMATE OF EIWEDWE(LESS PROP. TATO TO GROSS REVENUE RATIO NET OF ALLOWANCE OF $310,000 ANNUALLY FOR INIAL MARfNA BOND AND REPLACEMENT RESERVE OF CHO,000 ANNUALLY NEW LEASE, RECONSTRUCTION PREPARED BY NEYSER MARSTON ASSOCMTiS. INCL FiL2 820434AIL6 S=KbA DAT@ 1GQ594 ANALYSE! EDF 0 TABLE 5 CITY REVENUE SCENARIO 2B - CURRENT LEASE THROUGH 2011; NEW APT. LEASE, CITY OPERATED MARINA A GROUND LEASE ON REMAINING LAND IN 2012 BALBOA BAY CLUB NEWPORT BEACH, CALIFORNIA OPERATING YEAR TOTAL PROJECT GROW REVENUES' PERCENTAGE RENT FROM EXISTING LEASE 3 NEW APARTMENT LEASE REVENUES GROUND LEASE 4 MARINA NET INCOME 4 NET CITY INCOME 1 1994195 $12,834,00) 013,000 $913,000 2 1995196 12,819,000 1,OD4,ODD 1,004,)00 3 1996197 13,414,000 1,176,000 1,176ADD 4 1997/98 13,764,000 1,300,000 1,300,000 5 1998/99 14,145,000 1,338,)00 1,338,000 6 1989 / 00 14,551,000 1,378,)00 1,378,000 7 2000/01 14,889,000 1,418,000 1A18,OW 8 20DI/02 15,047,000 1,443,000 1,443,00D 9 2002/03 15,147,000 1,470,000 1 A70,00D 10 2003/04 15,265,000 1A9SA00 1,498,000 11 2034105 15,408,000 1,528,000 1,528,000 12 2005/06 15,293,)00 1,538,000 1,53000 13 2006107 15,221,030 1,548,000 1,548,000 14 2007108 14,887,000 1.531.0DO 1,531,000 15 2008/09 14,185,000 1,519,000 1,519,000 18 2009110 12,819,000 1,385,OW 1,385,000 17 2010111 9,808,000 1,025,000 1,025,000 18 2011112 • 1,231,000 $685,000 $1,190,000 $38,000 1,893,OW 19 2012/13 2,610,000 1,662,030 1,190,000 38,000 2,880,000 20 2013 / 14 5,363,000 2,639,000 1,190,000 330,000 4,159,000 21 2D14/15 5,524.000 2,839,000 1,190.000 621,000 4,450.000 22 2D15/16 5,690,000 2.639A W 1,190,000 638,000 4,455,000 23 2018 117 5,881,000 3,059,324 1,380,000 671,000 5,110,324 24 2017 / 18 6,037,000 3,059,324 1,380,000 705,000 5,145,324 25 2018/19 6,218,OW 3,059,324 11380,000 743,000 5,182,324 28 2019/20 6,405,000 3,059,324 1,360,000 781,000 5,220,324 27 2020121 6,697,000 3,059,324 1,380,000 820,000 5,259,324 28 2021/22 6,795,00D 3,548,585 1,60.000 1,170,000 6.31.595 29 2022/23 .98.00D 3,54.595 1AGAO) 1,211,000 6,357,%5 30 2023/24 7,209.00D 3,54.595 1,80.0)0 1,254,000 .400,595 NET PRESENT VALUE 0 9% $18,814,000 NOTES!' I WAY APARTMENT REVENUES AFTER 20162011 2 ASSUMES CURRENT LEASE TERMS THROUGH 2011, PHASE IN OF PERCENTAGE RENTS OF 7691E 81.09% 892.46% FOR YEARS 1, 283, RESPECTIVELY 3 BASED ONO% RETURN OF NET VALUED, APARTMENT (SEE TAKE4 ASSWES3%ANNUALLYCOMPOU7DEOEBCALATION EVERYO YEARS 4 9.0% RETURN ON APPRAISERS ESTIMATE OF IANDVALUE(60 MILLION IN 1994 DOLLARS)INCREAim EVERY S YEARS BY3%CWIPOUNDEDANNUALLY. 5 CALCULATEDASA PERCENTAGE OF GROSSINOOMEBASM WIAPPRHSERB ESTIMATED, SWENSE(LES9 PROP. TAXI TO GROSS REVENUE RATIO NET OF ALLOWANCE OF $.110.00ANNUALLY FOR INITIAL MARINA BONDAND REPLACEMENT RESERVE OFS21UM ANNUALLY • NEW LEASE, RECONSTRUCTION PREPARED BY NEYSEi MARSTONASSOCIATEB. INC. RLE BBC4 QA)l8Stwurb B DATE 100804 ANALYST: EDF CHART 4 COMPARISON OF NET CITY INCOME BALBOA BAY CLUB NEWPORT BEACH, CALIFORNIA $7,000,000 $6,000,000 $5,000,000 W $4,000,000 0 z z t - W Z $3,000,000 $2,000,000 $1,000,000 $0 in n V) w n oo .- eo w n ao Cl) 0 0 0 0 W N N N N N N N N N N T r r YEAR END (JUNE 30) —� Scenario 1 Scenario 2A - - - Scenario 2B PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBC4CAA.XLS Net Income Chart DATE 10Y25G4 ANALYST: EDF 0 CHARTS 0 COMPARISON OF NOMINAL AND NET PRESENT VALUE OF CITY REVENUES SCENARIOS 1, 2A & 2B BALBOA BAY CLUB NEWPORT BEACH, CALIFORNIA NOMINAL REVENUES YEARS 1-10 580,000.000 $50,000,ODD $40.000.000 $30,000,000 $20,000,000 $10,000,000 $0 SCENARIO SCENARIO 2A SCENARIO 2B NOMINAL REVENUES YEARS 1 - 30 $SO,OOD,o00 $80,000.000 $70,000,000 $80,000,000 $50,000,ODo $40,000,OOD 530.000,000 $20,000,000 $10,000,000 $0 SCENARIO SCENARIO 2A SCDIAR102B PREPARED BY KEYSER MARSTON ASSOCIATES, INC $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000.000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,DOo $2,o00.000 $0 $20,000,000 $18,000,000 $16,000,000 $14,000,000 $12000.000 $10,000,000 $5,000,000 $6.000,000 $4.000,000 $2,000,000 NPV YEARS 1-10 SCENARIO SCENARI02A SCENARIO 2B NPV YEARS 11- 20 SCENARIO SCENARIO 2A SCENARIO 28 NPV YEARS 21-30 SCENAMI SCENARIO 2A SCENARIO 28 NPV YEARS 1 - 30 FILE: BBC-KMA.XLS NPV DATE:10rX44 ANALYST: EDF A SCENARIO SCENARIO 2A SCENARIO 28 NOMINAL REVENUES YEARS 11- 20 $60,000.000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 50 SCENARIOI SCENARIO 2A SC84ARID26 NOMINAL REVENUES YEARS 21-3D $60.ODD.000 $50,000,000 $40,000,000 $30,000,ODO $20,000,000 $10,000,000 $O*n SCENARIO SCENARIO 2A SCENARIO 2B NOMINAL REVENUES YEARS 1 - 30 $SO,OOD,o00 $80,000.000 $70,000,000 $80,000,000 $50,000,ODo $40,000,OOD 530.000,000 $20,000,000 $10,000,000 $0 SCENARIO SCENARIO 2A SCDIAR102B PREPARED BY KEYSER MARSTON ASSOCIATES, INC $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000.000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,DOo $2,o00.000 $0 $20,000,000 $18,000,000 $16,000,000 $14,000,000 $12000.000 $10,000,000 $5,000,000 $6.000,000 $4.000,000 $2,000,000 NPV YEARS 1-10 SCENARIO SCENARI02A SCENARIO 2B NPV YEARS 11- 20 SCENARIO SCENARIO 2A SCENARIO 28 NPV YEARS 21-30 SCENAMI SCENARIO 2A SCENARIO 28 NPV YEARS 1 - 30 FILE: BBC-KMA.XLS NPV DATE:10rX44 ANALYST: EDF A 0 0 TABLE A VALUE OF TERRACE APARTMENTS BALBOA BAY CLUB NEWPORT BEACH, CALIFORNIA GROSS INCOME (STABILIZED)1 (LESS) OPERATING EXPENSES 2 NET OPERATING INCOME CAPITALIZED VALUE (LESS) REHABILITATION EXPENSE ADJUSTED VALUE REQUIRED ANNUAL RETURN $5,363,000 (2,154,000) $3,209,000 9% CAPITALIZATION RATE $35,656,000 144 UNITS $44,000 /UNIT 3 (6,336,000) $29,320,000 9% $2,639,000 NOTES: 1 ASSUMES STABILIZED RENTS AS OF YEAR 2013114 2 ASSUMES APPRAISER'S ESTIMATED RATIO OF EXPENSES TO GROSS INCOME UPON STABILIZATION 3 REHABILITATION COST EQUALS $25,ODD PER UNIT PER YEAR IN 1994 DOLLARS. COST IS FOR REPLACEMENT OF INTERIOR IMPROVEMENTS SUCH AS CABINETS, PLUS SYSTEM UPGRADES. PREPARED BY KEYSER MARSTON ASSOCIATES, INC. FILE: BBGIGM.XLS Apartment Value DATE: 10/ 504 ANALYST: EDF V\