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Home My WebLink AboutREVENUE STUDY MARINA PARK_AUG-97lill 11111111111111111111111I G REVENUE STUDY MARINAPARK NEWPORT BEACH, CALIFORNIA Prepared for: THE CITY OF NEWPORT BEACH AUGUST 1997 REVENUE STUDY MARINAPARK NEWPORT BEACH, CALIFORNIA Prepared for: THE CITY OF NEWPORT BEACH August 1997 Prepared By KEYSER MARSTON ASSOCIATES, INC. 55 Pacific Avenue Mall 500 South Grand Avenue, Ste 1480 1660 Hotel Circle North, Ste 716 San Francisco, CA 94111 Los Angeles, CA 90071 San Diego, CA 92108 TABLE OF CONTENTS EXECUTIVESUMMARY.........................................................................................................................1 PURPOSEAND BACKGROUND......................................................................................................................1 METHODOLOGY.........................................................................................................................................1 LANDUSE RESTRICTIONS...........................................................................................................................1 USES CONSIDERED AND REVENUE CONCLUSIONS.........................................................................................2 ILLUSTRATIVE DEVELOPMENT SCENARIOS.....................................................................................................2 LEASEVERSUS SALE ISSUES.......................................................................................................................3 INTRODUCTION.....................................................................................................................................4 BACKGROUND......................................................................................................................................4 5 ORGANIZATION..................................................................................................................................... MAJORASSUMPTIONS.........................................................................................................................5 SECTION1 - SITE OVERVIEW.............................................................................................................8 8 1. ENVIRONS....................................................................................................................................... 2. EXISTING USES............................................................................................................................10 3. LAND USE LIMITATIONS..............................................................................................................12 SECTION II - REVIEW OF POTENTIALS. USES.....................................................................................14 1. EATING AND DRINKING FACILITIES ............................................. !.............................................. 16 18 2. HOTEL ................................. .......................................... ...................................... .... .... I ..... I ... ........ 20 3. CONVENIENCE RETAIL..................................................................................:............................. 22 4. OFFICE........................................................................................................................................... 5. PARKING.......................................................................................................................................22 24 6. OWNERSHIP HOUSING................................................................................................................ 26 7. RENTAL HOUSING........................................................................................................................ 28 8. MARINAPARK (CURRENT USE)................................................................................................... CONCLUSION OF POTENTIAL USES AND VALUE OF REVENUES..................................................30 SECTION III - DEVELOPMENT SCENARIOS.......................................................................................31 31 1. BASELINE SCENARIO................................................................................................................... 2. SCENARIO A Partial Reconstruction.......................................................................................... 31 3. SCENARIO B Major Redevelopment..........................................................................................32 CONCLUSIONOF POTENTIAL USE...................................................................................................34 EXECUTIVE SUMMARY Purpose and Background This study prepared by Keyser Marston Associates, Inc. (KMA) is designed to assist the City of Newport Beach in its evaluation of alternative land uses for the 10.71 acre Marinapark property. The property is currently the site of a mobile home park, American Legion Hall, Girl Scout meeting facility, a marina operated by the American Legion, and Balboa Community Center. Additionally, portions of the site are -used for City recreational activities and public parking. The various leases for all the properties at the site are scheduled to terminate at the same time, on March 31, 2000. Methodology KMA has examined a range of residential and commercial land uses for the site, determined the extent of market support for each, and has estimated the land rent and tax revenues (collectively the "revenues") which would accrue to the City as a result of each land use. Given that the site could be developed with a mix of several uses, the revenues for each land use are expressed as the per square foot, present value of the sum of the revenues over the term of an assumed long term lease. The various components of the revenues (base rent, percentage rent, sales tax, etc.) are discounted at varying rates to reflect KMNs conclusions as to the risk associated with each revenue category. From these unit values, an illustrative mix of uses for the site have been developed to derive a likely range of values. Land Use Restrictions The potential reuse of the property is limited by a number of regulatory restrictions, including the following: Revenue Study August 20, 1997 Marinapark Site 1 m SUMMARY OF POTENTIAL USES PRESENT VALUE PER SQ. FT. CHART A SUMMARY OF USES REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND USE 1 HOTEL 2 OWNERSHIP HOUSING 3 RESTAURANTS 4 CONVENIENCE RETAIL 5 RENTAL HOUSING 6 EXISTING USES 7 PARKING $70.0D ESTIMATED PRESENT VALUE OF REVENUES PER SO. FT. GROUND RENT OTHER REVENUE TOTALREVENUES • $25.80 $37.20 $63.00 43.90 3.60 47.50 34.40 11.10 45.50 39.60 1.40 41.00 23.20 1.80 25.00 24.00 0.00 24.00 7.80 0.20 8.00 KEYSER MARSfON ASSOCIATES, ING. FILENAME: NWaNes; CHART A; DATE: 8119197; JUL I I^ Tidelands Designation: Approximately two-thirds of the property is subject to State Tidelands Trust restrictions, eliminating any residential use from that portion of the site. Charter Restrictions: The City Charter permanently restricts a portion of the site to public use. Local Coastal Plan: The plan requires coastal views and designates the area as Recreational and Environmental Open Space. General Plan: Also designates the area as Recreational and Environmental Open Space. Uses Considered and Revenue Conclusions Based upon KMNs evaluation of local market conditions, KMA has. identified a set of uses for which near term development is indicated. Chart A presents the uses and compares the value of per square foot revenues (ground rent and tax revenues) over the assumed lease term. Generally, residential and hotel uses represent the highest total revenue potential. The extent of commercial development on the Tidelands property can negatively impact the value of the non -Tidelands property by obstruction of the views from this portion of the property. Illustrative Development Scenarios KMA has developed three illustrative development scenarios portraying the range in revenue, which could be generated by the property. These are summarized on Charts B and C and include the following: Revenue Study August 20, 1997 Marinapark Site 2 CHART B ESTIMATED NET REVENUES -ANNUAL REVENUE ESCALATING AT 2.5% PER YEAR REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH ESTIMATED DEVELOPMENT SCENARIO NET REVENUES BASELINE SCENARIO R*4101X SCENARIO A- PARTIAL RECONSTRUCTION $1,044,000 SCENARIO B - MAJOR REDEVELOPMENT $1,378,000 ESTIMATED ANNUAL REVENUES E2,40%000 I I I 1 I I I 1 I I I I I 1 I I I I I I I I I I I I 1 I I I I 1 1 I 1 I I I I I 1 I I I I I I I I I 1 I I I $2,200,000 I 1 I I I I I I I I I 1 i I I 1 I I 1 I I I I I I 1 I 1 1 I I I I $2,000,000 I I I I I I 1 1 I I I I I I I I I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I $1.800,000 __L__L__L__L__L-_L__L__1__L_ 1 I I I I I 1 1 1 I I I I I I I I I I I 1 I 1 1 1 1 I I I I I I I I I I I I 1 1 I 1 I I I I I I 1 $1,800,000 I I I I I I I I I 1 I I I I I I 1 1 1 1 I I 1 1 1 1 I I I I I I I I 1 1 1 I 1 1 I 1 I I I $1,400,000 I I I 1 I I I 1 1 I I I I -r--r--r--r--r--r--1 I I---- - - T--�---r--�-- I I I 1 I I I I 1 I I I I 1 1 I I I I I 1 I 1 1 I I I I I I 1 I I I I I I I I I 1 1 1 I I $1.200,000 1 I I 1 I I I I 1 I I I I I I I I I 1 I 1 1 I I 1 I I $1,000,000 I I I I I I I I I I I I I I I I 1 I I I I I I I I I 1 I I 1 1 I 1 I I I 1 I I I 1 I 1 I I I I I I I I I I 71, II 1 1 I I I I I I I 1 I $800,000 ____L__L-_LI ___L_-1__1__1__1__1__1__1-_1__1__J__J__ I I I I I I I I I I 1 I I I I 1 I I I 1 I I I I 1 I I I 1 I I I I I I I I I I I I I 1 I 1 I 1 I I I I I I I I I I I I I I 1 I I I I I I 1 I I $600,000 1 2 3 4 5 8 7 8 0 10 11 12 13 14 15 18 17 18 10 20 t13ASEUNE SCENARIO—0—SCENARIOA •--k-SCENARIO8 KEYSER MARSTON ASSOCIATES, INC. FILENAME: NWalues; CHART B, DATE: 8/10l07; JJL ESTIMATED NET REVENUES -PRESENT VALUE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH DEVELOPMENT SCENARIO EXISTING BASELINE SCENARIO $10,500,000 SCENARIO A - PARTIAL RECONSTRUCTION $3,400,000 SCENARIO B - MAJOR REDEVELOPMENT $3,100,000 $18,000,000 $16,000,000 $14.000,000 $1z0D0,0D0 $10.000.000 $8,000,000 $0.000,000 $4,00D,000 52,00Q000 $0 SASEUNESCENARIO OWNERSHIP TOTAL DEVELOPMENT HOTEL RESTAURANT RESIDENTIAL REVENUES AND MARKETING NET REVENUES NONE NONE NONE $10,500,000 ($200,000) $10,300,000 $4,700,000 $4,000,000 NONE $12,100,0W ($500,000) $11,500,000 $5,500,000 $2,000,000 $7,300,000 $17,900,WD ($2,000,OD0) $15,900,000 SCENARIO A -PARTIAL RECONSTRUCTION SCENARIO B-MAJOR REDEVELOPMENT OOWNERSHIP RESIDENTIAL ORESTAURANT ■HOTEL MEXISTING KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbmims; CHART C; DATE: 8119W; JJL Baseline Scenario: Assumes current uses and lease terms with mobile home park and marina rents increased to market. The scenario represents approximately $821,000 annually in estimated net revenues and a net present value of $10.3 million. Scenario A: Assumes partial reconstruction in which the mobile home park is eliminated and replaced with hotel and restaurant uses. All other uses are maintained. The marina operation is transferred to the City for operation and brought to market. The scenario represents approximately $1.04 million annually in estimated net revenues and a net present value of $11.6 million. Scenario B: Assumes all existing uses except the American Legion uses are eliminated. Non -Tidelands property (Balboa Boulevard frontage) is ownership housing and Tidelands is developed with a hotel and restaurant. The marina and boat storage operation is transferred to the City for operation and is brought up to market. This scenario represents approximately $1.38.million annually in estimated net revenues and a net present value of $15.9 million. Lease versus Sale Issues The analysis revealed that there is a significant value discount in the market for residential lots leased as compared with the fee value if sold. The City may wish to consider sale of the non -Tidelands property. The analysis concludes that reinvestment of a portion of the sales proceeds and investment earnings may more than offset the appreciation in the value of the property, and generate an equal or greater amount of annual revenue. Revenue Study August 20, 1997 Marinapark Site 3 INTRODUCTION This report summarizes Keyser Marston Associates, Inc. (KMA) analysis of the 10.71 acre property owned by the City of Newport Beach (City) commonly referred to as Marinapark. Marinapark is located on the Balboa Peninsula on the bay side of Balboa Boulevard between 15th and 19th Streets in the City of Newport Beach. The purpose of the analysis summarized herein is to analyze the City's revenue potential generated by leasing the site under various land use alternatives. -As used herein, revenues related to the leasing of the subject site include both anticipated ground lease revenues as well as tax revenues accruing to the City, including transient occupancy tax, sales tax, and property tax, where applicable. BACKGROUND Pursuant to City Council policy, prior to entering into negotiation to renew or extend any ground lease, a revenue study for alternative uses of the property is to be undertaken. The subject site is currently leased to a number of entities including the American Legion, the Girl Scouts, the Power Squadron, a community group that occupies the Balboa Community Center, and individual lessees in the Marinapark Mobile Home Park. All the leases expire in the year 2000 with the exception of the Power Squadron, which is currently on a month -to -month lease. The City has requested that KMA undertake a study in order to identify total revenues the City could reasonably expect from alternative uses. Revenue Study August 20, 1997 Marinapark Site 4 ORGANIZATION The report is organized as follows. Following the introduction, which includes the major assumptions used in the analysis, is Section I of the report. Section I presents an overview of the site, including a description of the site, its environs, and land use limitations. Section II presents a discussion of the potential uses for the site. The analysis of the uses involves both an overview of market demand, potential revenues generated by each use, and the appropriate size requirements (or constraints) for each use. Based on the results in the previous sections, Section III presents three illustration reuse alternatives with revenue projections and conclusions as to each. MAJOR ASSUMPTIONS It was necessary to make certain assumptions in completing this assignment including: 1. It is assumed that the property will be made available only under a long-term lease (up to 50 years) where the sale of the property is not to -be considered and that neither the fee interest in the land nor the ground lease payments will be subordinated. 2. It is assumed that for those alternatives that involve a mix of land uses, that the City, and not a developer, (lessee) would undertake the necessary parcelization and construction of common infrastructure, i.e., access roads, on -site utilities, etc. Appropriate deductions from finished land value have been made to reflect those infrastructure costs. 3. The beach front area immediately in front of Marinapark must remain a public beach in accordance with Section 1402 of the City Charter which states: "there Revenue Study August 20, 1997 Marinapark Site 5 shall be reserved forever to the people use of a strip of bay front land above mean high tide not less than 85 feet in depth of City -owned waterfront property..." KMA has assumed, for its analysis, that 83,335 square feet (1.91 acres) of the site must remain as public beach. Thus, the maximum leaseable area of the subject site is 8.8 acres. 4. All necessary off -site infrastructure (storm drain, sewer, etc.) is in adequate capacity at the site to meet the needs of the identified uses. 5. No new development fees impacting potential uses at Marinapark will be enacted by the City of Newport Beach. 6. None of the uses proposed herein are assumed to result in an increased traffic flow sufficient to require additional improvements to Balboa Boulevard or other arterials serving the area. 7. The relocation of existing tenants will not impede the development of the subject site for any of'the uses identified herein. No relocation costs have been assumed. 8. Maps found in this report are provided for reader reference purposes only. No guarantee as to their accuracy is expressed or implied. 9. The analysis contained in this report is based, in part, on data from secondary sources. While KMA believes that these sources are accurate, KMA cannot guarantee their accuracy. 10. The analysis and conclusions in this report assumes that neither the local nor national economy will experience a major recession. If an unforeseen change Revenue Study August 20, 1997 Marinapark Site 6 occurs in the economy, the conclusions contained herein may no longer be valid. 11. The analysis, opinions, recommendations and conclusions are our informed judgment based on market and economic conditions as of the date of this analysis. Due to the volatility of market conditions and complex dynamics influencing the economic situations and conditions of the development industry, conclusions and recommended actions contained within this report should not be relied upon as sole input for final business decisions regarding current and future use of the property. Revenue Study August 20, 1997 Marinapark Site 7 FIGURE 1 REGIONAL OVERVIEW MARINA PARK SITE CITY OF NEWPORT BEACH LEGEND MARINA PARK T N Miles 0 .5 1 SECTION I - SITE OVERVIEW This section of the report presents an overview of the site environs, existing uses and land use controls that ultimately impact the selected land use alternatives analyzed by KMA. 1. ENVIRONS The subject site is located in the southwestern portion of the City on the Balboa Peninsula. Local access to the site is provided by Newport Boulevard, which turns into Balboa Boulevard and is the main connection with the Costa Mesa Freeway (California State Highway 55) and Pacific Coast Highway. The site fronts Newport Bay between 15th and 19th Streets and is in a transition zone between residential and commercial uses. Immediately adjacent are small commercial uses, a 10 unit apartment complex and a small Southern California Edison facility. The general location of Marinapark is illustrated in Figure 1. Fronting Newport Bay, Marinapark commands sensational views.of the Newport Harbor to the north and, when at the top of a two or three story building, views of the Pacific Ocean' are possible to the south. Within the Peninsula, Marinapark is centered between two commercial concentrations, the commercial/eating and drinking complex encompassing the Newport Pier located approximately two blocks to the west, and the Balboa Fun Zone located approximately one-half mile from the end of the Peninsula near the Balboa Pier. This area of the Peninsula is a major tourist attraction with its proximity to the Balboa Pavilion and Balboa Ferry. A third small commercial complex has been identified on 15th Street, which abuts the subject site. The majority of the retail stores adjacent to the subject site are tourist and convenience retail oriented, comprised of bathing suit shops, beach equipment rentals, clothing stores, surf shops, etc., with the neighborhood serving retail located further to the west. The property is unique in that it is potentially one of the last major undeveloped pieces of property on Revenue Study August 20, 1997 Marinapark Site 8 the Balboa Peninsula. In reviewing potential uses for Marinapark, KMA compared the demographics on the Peninsula with the demographics of the City as a whole (Table 1). In general, the Peninsula is composed of younger residents with a small household size and a per capita income 10% lower than the City as a whole. The Balboa Peninsula has approximately 10,000 full-time residents, which are nearly 15% of the City's full-time population of 67,000. Per capita income on the Peninsula is $51,100, while per capita income in the City is $56,900. Household income is over $106,000 per year. The Balboa Peninsula has a large renter population compared to the rest of the City of Newport Beach. Approximately 63% of the units on the Peninsula are renter occupied. Comparatively, the City is only 44% renter occupied. The large proportion of renter occupied households coincides with the younger median age of 33 that is prevalent on the Peninsula. This compares to a median age of 35 in the City. The Balboa Peninsula's economy is highly seasonal, with peak levels of activity occurring during the summer months and on prime non -summer holidays. While the permanent resident population base for the City is 67,000, the summer population base is estimated at approximately 100,000. Although precise figures are not available, it is safe to assume that a large percentage of the additional 33,000 summertime visitors to the City spend some time on the Peninsula. Permanent residents, part-time residents and visitors all contribute to booming restaurants, lack of parking, and crowded sidewalks on the Peninsula during the summer. In contrast, during the winter months as part-time residents and visitors leave the Peninsula .until the following summer, business closures and reduced operating hours are common. Revenue S1 Marinapark August 1997 TABLE 1 1995 DEMOGRAPHICS REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH POPULATION BALBOA PENINSULA 10,000 CITY EXCLUDING PENINSULA 57,000 CITY OF NEWPORT BEACH 67,000 PER CAPITA INCOME BALBOA PENINSULA $51,100 CITY EXCLUDING PENINSULA $57.917 CITY OF NEWPORT BEACH $56,900 AVERAGE HOUSEHOLD SIZE BALBOA PENINSULA 2.1 CITY EXCLUDING PENINSULA 2.2 CITY OF NEWPORT BEACH 2.2 MEDIAN AGE BALBOA PENINSULA 33 CITY EXCLUDING PENINSULA 40 CITY OF NEWPORT BEACH 35 Soua 0:01gY' Is R AVERAGE HOUSEHOLD INCOME BALBOA PENINSULA $106,200 CITY EXCLUDING PENINSULA $130,605 CITY OF NEWPORT BEACH $126,400 I„ j ht:::a a 1 SOURCE: URBAN DECISIONS SYSTEMS, INC. AND NEWPORT BEACH VISITORS BUREAU KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbval e ; DEMOGRAPHICS; DATE: 8/19197; JJL 2. EXISTING USES The existing uses at Marinapark are described below and illustrated in Figure 2. A summary of current lease term is included in the appendix. The uses are as follows: Mobile Home Park (4.27 acres, 49% of net site area) The Marinapark Mobile Home Park is composed of 60 mobile home spaces, 58 of which are individually leased and the balance occupied by the on -site managers. Within the mobile home park there is limited parking for residents and visitors. Approximately 25 mobile home spaces have unobstructed views of the Bay, the remainder of the spaces have either no view or partial views. It should be noted'that only 17 of the 58 available spaces are occupied full-time by the lessees. All other lessees use their mobile homes as "second" homes. Metered Parking (70 parking spaces, .52 acres, 6% of net site area) There are two city -owned metered parking lots at Marinapark. At the main entrance to the mobile home park (located at the intersection of Balboa Boulevard and 18th Street) is a 23 space city parking lot and at the western end of the subject property is a 47 space city lot. This lot provides direct access to the Newport Harbor and is located along West Bay Avenue between 18th and 19th Streets. American Legion (1.35 land acres, 15% of net site area) The American Legion parcel, immediately east of the mobile home park, contains the American Legion Hall, a 62-space parking lot, a marina with 47 slips and a 52-space dry boat storage facility. The slips and dry storage spaces are made available for lease to the general public by the American Legion. Revenue Study August 20, 1997 Marinapark Site 10 FIGURE 2 ............. --- _ �FS�. ' •.,•W 1 11 1 ..........•.......... ` co: BEACH ..... l.11 ll 1111 ll� - _ ............... l_11._l l _1 PAR- _.� Z. -- --- housa I ......11 TENNIS COURTS BA L a., F W W y WeSi —�LW l l I 111111 I�� NORTH _ •••••-• Site L ._q Low F, W TPgTREET� h n iYggT Las Arenas Park and "Veterans Memorial Park" (2.11 acres, 24% of net site area) Located at the east end of the property fronting Balboa Boulevard is Las Arenas Park, operated by the City of Newport Beach. The park provides four lighted tennis courts, a half basketball court and a playground area. A paved sidewalk bisects the Park and extends toward Newport Bay and separates the mobile home park from the American Legion, both of which are at the back (waterfront) side of the property. This sidewalk also leads to storage for several small boats parked on the sand, which are used by the 16th Street Sailing Base. The 16th Street Sailing Base provides weekend sailing lessons throughout the summer. In addition, there is an open space area immediately behind the American Legion Hall on 15th Street known as the Veterans Memorial Park which is sometimes used for parking. Other (.55 acres, 6% of net site area) Abutting the mobile home park are two buildings on Balboa Boulevard, the Balboa Community Center, which formerly housed the Nautical Museum, and is currently used for Community Services classes and by the Power Squadron, a community group that currently has a month -to -month lease with the City, and the Neva B. Thomas Girl Scout House. The two buildings are separated by a remote parking lot designated for Girl Scout House parking. Both buildings are single story, in average to above average condition and total 24,000 square feet. Other recreational activities taking place on the subject site include sailing lessons, tennis, recreational programs, Balboa Community Center classes, and Power Squadron activities. There is also a public restroom near 19th Street that serves the strip of public beach between 16th and 19th Streets. Revenue Study August 20, 1997 Marinapark Site 11 3. LAND USE LIMITATIONS The potential uses to which the subject site can be used are controlled (or influenced) by the numerous State and City regulatory restrictions. The major factors that govern the uses are as follows: ■ Tidelands - Fundamental to the assessment of use opportunities is the fact that a recent study undertaken by Boundaries Unlimited for the City revealed -that nearly two-thirds of Marinapark is located within the Tidelands. Per state law, Tidelands property is owned by the people of the State of California and granted to the City to administer. The Tidelands Trust Agreement states that the property must remain accessible to the public. As such, certain private uses such as housing, are not permitted on the portion of the site considered to be Tidelands property. Furthermore, KMA's discussions with the State Land Commission advise that the State clearly views timeshares, although often used by visitors, as a residential use. Therefore, KMA assumes that the development of timeshares and the continued use of the mobile home park will not be permissible on the designated Tidelands portion of the subject site. ■ Local Coastal Program (LCP) - The LCP must be taken into account in determining land use patterns along the coastline. Marinapark is currently designated for Recreational and Environmental Open Space. The LCP specifically states that the existing mobile home park will be allowed until the end of the lease, at that time the City can decide if the lease should be renewed or if the property should be changed over to a public use. Revenue Study August 20, 1997 Marinapark Site 12 The LCP also has designated the subject site as a Coastal View Area. This policy is designed to maximize and protect coastal views from private development that restricts views from the roadway. Therefore, KMA assumes that special design measures will be considered for development on the subject site in order to protect its coastal views. It is assumed that the local coastal plan would be amended as necessary, and that commercial use on Marinapark would be allowed so long as coastal views and open space concepts were implemented. ■ General Plan - Consistent with the Tidelands designation and the LCP, Marinapark is designated as Recreational and Environmental Open Space in the City of Newport Beach General Plan. However, this is inconsistent with the zoning for the subject site, which is described below. ■ Zoning - Lastly, the potential uses of the subject site are influenced by the Planned Commur)ity zoning designation on the site.. It is assumed for purposes of this analysis that the property will be- rezoned as necessary to allow a change in use. ■ City Charter - As described earlier, the Charter reserves 1.9 acres, the Revenue St Marinapark area dedicated to expanded beach, for public use. iM August 20, 1997 SECTION II - REVIEW OF POTENTIAL USES In developing land use scenarios and revenue projections for Marinapark, KMA initially identified potential uses that could be appropriate for the subject site based upon its location and physical characteristics, and reviewed the potential market support for such uses. Based on this review, KMA then established the revenue characteristics (both ground rent and tax revenues) for each use that appeared feasible by projecting the revenues the City could expect to receive over a typical commercial ground lease period (assumed to be 50 years). The revenues are presented in present value terms, i.e., the future 'anticipated revenues were discounted to determine their present worth. This present value is then expressed in a value per square foot of land area by dividing the estimated present value of the potential revenues by the required land area for each use using typical density ratios. It should also be noted that the projection of revenues have included, where appropriate, an allowance for transfer of sales. "Transfer" refers to revenues from sales generated elsewhere in•the City which would be transferred to the site would not produce new revenues to the City. As such, the revenues shown are net of KMA's assessment of the transfer. In calculating the present value, the following assumptions have been made: 1. Revenues such as transient occupancy tax, sales tax, and ground lease payments which are based on sales or gross rent have been escalated at 3% annually to reflect an assumed inflation rate over the projection period. 2. Residential ground lease payments related to ownership housing are assumed to increase only a modest 1 % per year over a 50-year period (as discussed below). Revenue Study August 20, 1997 Marinapark Site 14 3. Ground lease payments from commercial uses that are not based on sales or rents are assumed to increase 15% every 10 years. 4. Property tax revenues have been escalated at 2% per year. 5. In determining present value, the revenues have been discounted at the following rates. The variation in the discount rates reflects the uncertainty associated with future value of revenues based on sales. ■ Ownership housing ground lease revenues (Fixed) 9% ■ Rental housing and commercial - ground lease revenues (Gross Revenue Based) 10-1/2% ■ Other revenues (Productivity Based) 12% ■ Existing Uses 10-1/2% ■ Parking revenues (Use Based) 10% It should be noted that the Newport Harbor is clearly lacking a feature that could attract additional visitors to the Peninsula: a visitor serving marina. Currently, all visiting boats must either anchor (or tie up) to one of the buoy's in the Harbor. The concept of a visitor serving marina allows a place for boats to dock overnight, while providing bathrooms, showers, electricity, and other amenities on site. Similar facilities are found in both San Diego and Dana Point charging rates between $12 to $15 per night. With the majority of a visitor serving marina use being located on the water, only a small amount of land area is required to accommodate this use. KMA has assumed Revenue St Marinapark 15 that no more than 1,000 to 2,000 square feet would be required for the necessary on shore facilities. Thus, to the extent that such a visitor serving marina is constructed, it should not limit or restrict the development opportunities on the subject properties for other uses. The decision to add such a marina should then be based on the relative merits and cost of such a facility. The economics of such a use have been omitted from this analysis. The potential uses and evaluation of the uses considered for Marinapark are as follows. 1. EATING AND DRINKING FACILITIES a. Market Considerations The current eating and drinking facilities on the Peninsula offer, for the most part, moderate dining that appeals primarily to the younger population and visitors to the Peninsula. There are numerous establishments that provide entertainment as well as dining. The strong economic health of the eating and drinking facilities located on the Balboa Peninsula is a reflection of tourism, the beach/ocean environment and the perception that the Peninsula is an entertainment "place to be." An analysis of the restaurants located on the Peninsula suggest sales productivity substantially above industry norms. Based on the current sales volumes and lack of significant vacant restaurant space, there appears to be adequate support for restaurant expansion at the subject site. While somewhat removed from existing commercial concentrations, the excellent views of the water from the property clearly suggest that destination type restaurants are likely candidates for the subject site. Revenue Study August20, 1997 Marinapark Site 16 b. Size Consideration While the site is uniquely located and has the necessary access characteristics for destination type restaurants, it is unlikely the entire site at 8.8 net acres could be developed for restaurant uses in the near -term. Assuming restaurant development and associated parking at a floor area ratio (FAR) of .16 to 1.0, i.e., 7,000 square feet of restaurant space per acre, in all likelihood, not more than 2 acres of land can be developed for restaurants in the near -term, i.e., a total of ±14,000 square feet of restaurant space. C. Land Revenues Typically, restaurant ground leases provide for a base rent against a percentage of gross revenues, generally 3% to 3.5%. The estimate of revenues assuming the City would receive 3% to 3.5% of gross sales are shown in Table 2. A range of sales is provided to reflect the minimum and maximum ground lease payment associated with this use. As indicated, based on the assumptions identified, in. Table 2, when the present value of the ground lease payments are estimated, the value is $28.80 to $40.00 per square foot'of land designated for restaurant use. d. Other Revenue The main sources of "other" revenue to be generated by an eating and drinking facility is sales and property tax revenue. As shown in Table 2, the present value estimate of sales tax revenue when allocated over the appropriate land area results in a value per square foot of $6.50 to $7.80. This is after deducting for an assumed 20% transfer of sales. Discounted at 12%, the present value of property tax revenues are estimated at $4.10 per square foot of land area. Revenue Study August 20, 1997 Marinapark Site 17 TABLE 2 ESTIMATED PRESENT VALUE RESTAURANT USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS: RESTAURANT SIZE 4,000 SQ. FT. SALES PER SQ FT. $500 TO $600 PER SQ. FT SALES PER RESTAURANT PER YEAR $2.0 TO $2.4 MILLION GROUND LEASE 3.0 TO 3.5% OF SALES INFLATION RATE 3.0% DISCOUNT RATE - GROUND RENT 10.5% DISCOUNT RATE - OTHER REVENUE 12.0% ANNUAL GROUND RENT INCL. % RENT LOW (11 $60,0D0 PER SITE PER YEAR HIGH (3) $84,000 PER SITE PER YEAR PRESENT VALUE PER SQUARE FOOT131 LOW $28.80 PER SQ. FT. HIGH $40.00 PER SQ. FT. OTHER REVENUES ESTIMATED SALES TAX LOW $16,000 PER YEAR HIGH $19,200 PER YEAR PRESENT VALUE PER SQUARE FOOTI61 LOW $6.50 PER SQ. FT. HIGH $7.80 PER SQ. FT. TOTAL REVENUE PER SQUARE FOOT OF LAND AREA LOW HIGH PRESENT VALUE OF GROUND RENT $28.80 $40.00 PRESENT VALUE OF OTHER REVENUE 6.50 7.80 PRESENT VALUE OF PROPERTY TAX(6) $4.10 4.10 TOTAL $39.40 $51.90 ROUNDED TO $39.00 $52.00 LOW ASSUMES $500/SO. FT. SALES AND 3 0°h ALLOCATED TO GROUND REM HIGH ASSUMES $600/SQ. FT. SALES AND 3.5°% ALLOCATED TO GROUND REM' 1�) VALUE REDUCED BY 5°h TO REFLECT EFFECT OF STABILIZATION PERIOD Nl PRESENT VALUE DIVIDED BY 25.000 SQ FT. OF REQUIRED LAND AREA, ROUNDED TO NEAREST$.25, AND REFLECTS INCLUSION OF PERCENTAGE RENT PRESENT VALUE DIVIDED BY 25,000 SQ FT. OF REQUIRED LAND AREA; VALUE REDUCED BY 5%TO REFLECT EFFECT OF STABILIZATION PERIOD; INCLUDES A 10%TRANSFER ALLOWANCE ASSUMES PROPERTY TA%ES ON $250 PER SQUARE FOOT ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalues; VALUE-RESTAURANTS;DATE: 8119197; JUL e. Total Revenues The estimated present value of the anticipated ground lease payments, and City's share of sales and property tax revenues results in a revenue value of between $39.00 and $52.00 per square foot. 2. HOTEL a. Market Considerations While there are no major hotels on the Peninsula, KMA identified five smaller motel/hotels. These hotels have an average "published" (or rack) room rate of over $200 per night during the summer months. The most popular lodging facilities on the Peninsula are the bed and breakfasts located on the oceanfront. KMA field surveys revealed extremely high demand during the peak,summer months of June through September. In addition, weekends throughout the year remain at high occupancy levels. In the non -peak periods both occupancy level and published room rates are substantially lower, with room rates often under $100 per night. The annual room sales for the hotels on the Peninsula is estimated by KMA at $30,000 per room. b. Size Considerations There are no specific size constraints to hotels, with facilities in the market place ranging from bed and breakfasts often under 10 units, to larger hotels in excess of 250 rooms. On the Peninsula, with the lack of available land and seasonal demand, the hotels tend to be small, between 10 and 34 rooms. Even with the excellent views afforded by the property, it is unlikely that the entire property completely could be devoted to hotel use (t500 room capacity), given access, view considerations, and Revenue Si Marinapark 18 August20, 1997 height restrictions. For projection purposes, it is assumed that 75 to 100 hotel rooms could be developed at the subject site. This would require up to t2 acres of land and could take the form of one moderate size hotel or two or three small hotels. C. Land Revenues The estimated land (ground lease) revenues generated by hotels on the subject site, is based on an allocation of between 5.0% to 7.5% of room sales to ground rent. This range assumes a good quality hotel but with only limited amount of common areas and no food and beverages served. Based on an assumed annual room sales of $30,000 per room that could result with a bay front location and at a density of 50 rooms per acre, the present value of the anticipated ground lease revenue is estimated at between $20.70 and $30.80 per square foot of land area as shown in Table 3. d. Other Revenues Table 3 also presents an estimate pf the present value of other tevenues which consist of transient occupancy tax revenues and sales tax revenues generated by hotel guests; and property tax revenues. For projection purposes, a 20% transfer allowance has been made in projecting transient occupancy tax revenues and other revenues. The present value estimate of the transient occupancy tax revenues and the sales tax revenues total $31.00. Property tax revenue is estimated to have a present value of $6.30 per square foot. Revenue St Marinapark 19 August 1997 TABLE 3 ESTIMATED PRESENT VALUE HOTEL USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS HOTEL SIZE SALES PER ROOM SALES PER HOTEL PER YEAR GROUND LEASE DISCOUNT RATE - GROUND RENT DISCOUNT RATE - OTHER REVENUE INFLATION RATE 50 ROOMS PER ACRE $30,ODD PER ROOM PER YEAR $1,500,000 PER HOTEL PER YEAR 5.0 TO 7.5% OF SALES 10.5% 12.0% 3.0% ANNUAL GROUND RENT INCL. % RENT LOW $75,000 PER HOTEL PER YEAR HIGH I21 $112,500 PER HOTEL PER YEAR PRESENT VALUE PER SQUARE FOOT(" LOW HIGH OTHER REVENUE ASSUMPTIONS TAXABLE SALES GUEST PARTY SIZE ASSESSED VALUE TRANSIENT OCCUPANCY TAX RATE $20.70 PER SQ. FT. $30.80 PER SQ. FT. $75.00 PER PERSON PER DAY 2 PEOPLE PER ROOM $75,000 PER ROOM 10% TRANSIENT OCCUPANCY TAX $150,000 PER HOTEL PER YEAR SALES TAX(4) 16,000 PER HOTEL PER YEAR TOTAL $166,000 PRESENT VALUE PER SQUARE FOOT AREA() $31.00 PER SQ. FT. TOTAL REVENUE PER SQUARE FOOT OF LAND AREA LOW HIGH PRESENT VALUE OF GROUND RENT $20.70 $30.80 PRESENT VALUE OF OTHER REVENUE 31.00 31.00 PRESENT VALUE OF PROPERTY TAX 6.30 6.30 TOTAL $5B.00 $6B.10 ROUNDED TO $58.00 $68.00 LOW ASSUMES 5%ALLOCATED TO GROUND REM' HIGH ASSUMES 7.5% ALLOCATED TO GROUND REM �l PRESENT VALUE DIVIDED BY 43,5W SQ FT OF LAND AREA, ROUNDED TO NEAREST $ 25. AND REFLECTS INCLUSION OF PERCENTAGE REM, VALUE REDUCED BY 5%TO REFLECT EFFECT OF STABILIZATION PERIOD 0) ASSUMES 60% YEAR ROUND OCCUPANCY AND INCLUDES ALLOWANCE FOR EXPENDITURES OUTSIDE OF THE CITY R1 PRESENT VALUE DIVIDED BY 43,560 SQ FT OF LAND AREA; VALUE REDUCED BY 5%TO REFLECT STABILZATION PERIOD, INCLUDES 20%TRANSFER ALLOWANCE ON HOTEL ROOM SALES KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalms; VALUE -HOTEL; DATE: 6119197; JUL e. Total Revenues KMA's estimate of total revenues generated by hotel use is presented in Table 3. As shown, the present value of total revenues is estimated at $58.00 to $68.00 per square foot of allocated land area. 3. CONVENIENCE RETAIL a. Market Considerations A survey of retail space on the Peninsula reveals a relatively low vacancy level. Retail space on the Peninsula is leasing in the range of $1.25 to $1.75 per square foot per month on a triple net basis. Both retail concentrations on either side of Marinapark are tenanted with markets, coffee houses, laundromats, ice cream shops, beachwear and beach equipment shops, etc. While low vacancies suggest that the Peninsula has a strong retail base, the rental rates do not suggest a strong demand. In addition, KMA's field survey reveals that the Peninsula is well served by a plethora;bf retail uses. KMA has not identified any significant missing retail tenant types suitable for the subject site. b. Size Considerations It is unlikely that the market is strong enough to support retail development on the entire site although limited development may be possible along the Balboa Boulevard frontage. Furthermore, there appears to be no minimum size limitation. KMA has assumed that 1.0 acre of land could be devoted to retail use. This would result in the development of t10,000 square feet of retail area at a FAR of .23 to 1.0. Revenue Study August 20, 1997 Marinapark Site 20 C. Land Value KMA found few recent commercial land sales that would be a good indicator of land value. An upper range is, however, established by the recent land sale for the construction of a McDonalds restaurant at slightly under $50 per square foot. This site's location is, however, superior to the subject property. In determining the land revenues for retail use at the subject site, KMA assumed that under a ground lease, the City would receive an amount equal to 15% of rents. Using this as a basis, the estimated ground lease revenues (in present value terms) is estimated at approximately $39.60 per square foot of land area. d. Other Revenues KMA would not expect that small retail development at the subject site would generate much in new sales tax revenues, i.e., the majority of sales tax revenues would be transferred from existing uses. The City would, however, receive a limited amount of property tax revenue values at approximately $1.70 per square foot. e. Total Revenues Based on the above consideration, the total revenues, in present value terms, total approximately $41.00 per square foot of land area. Revenue Study August 20, 1997 Marinapark Site 21 TABLE 4 ESTIMATED PRESENT VALUE CONVENIENCE RETAIL USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS RENT SIZE INFLATION RATE DISCOUNT RATE - GROUND RENT DISCOUNT RATE - OTHER REVENUE INITIAL ANNUAL GROUND RENT PRESENT VALUE PER SQUARE FOOTI'I TOTAL REVENUE PER SQUARE FOOT OF LAND AREA $1.75 PER SO. FT PER MONTH 12,000 SQ. FT. PER ACRE 15% EVERY 5 YEARS 10.5% 12.0% $37,8D0 PER ACRE PER YEAR $39.60 PER SO. FT. PRESENT VALUE OF GROUND RENT $39.60 PRESENT VALUE OF OTHER REVENUE 0.06 PRESENT VALUE OF PROPERTYTAXIZI 1.70 TOTAL $41.30 ROUNDED TO $41.00 ASSUMES PROPERTY TAX ES OF $100 PER SQUARE FOOT FOR 12,000 SQ FT. OF REQUIRED LAND AREA, ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC FILENAME: Nbalms; VALUE -RETAIL, DATE: 8/19197; JUL 4. OFFICE KMA also reviewed the market demand for office space. Although not typically characterized as a location for office space, limited amount of local serving office space is located on the Peninsula. Office space leases for the same rate as retail space, between $1.25 and $1.75 per square foot per month on a triple net basis. Most office space can be found on the west end of the Peninsula near Lido and Cannery Village where tenants are normally small and entrepreneurial in nature. In KMA's opinion, it is unlikely that the market is strong enough to support any office development at the subject property. 5. PARKING a. Market Considerations The ability of the Peninsula to attract visitors and its relatively high density often results in a high demand for'the limited number of parking spaces, particularly during the summer months when daytime beach and weekly rental occupancy is at its highest. There are approximately 21 City -owned parking lots and metered parking stretches on the streets located on the Peninsula. Free parking or curb -side parking can be found along the residential streets in the densely populated areas of the Peninsula. In these areas it is even difficult to find non -metered parking during the winter months. KMA's analysis shows that City -owned parking on the Peninsula is generating approximately $800,000 annually before allowances for expenses in collecting revenues. Parking has been noted to be particularly difficult for patrons using the Catalina Flyer; the subject site could be used for such parking, by shuttling people to and from the Catalina 'Flyer located at the east end'of the Peninsula. Revenue St Marinapark 22 August "Lu, b. Size Considerations While the entire property could be devoted to a parking use, demand for parking on the Peninsula is highly seasonal and tends to be concentrated at the commercial hubs near the two piers. Thus, while the entire site could be used for parking, it would likely not be fully utilized. On the other hand, there are no minimum size constraints. C. Land Revenues In determining the value for parking use at the subject site, KMA assumed that the lot would be operated by the City as metered parking and that the parking at the subject site would not be used by patrons of the Catalina Flyer. As presented in Table 5, based on anticipated net revenues, (gross revenue less collection and maintenance expenses) the present value of future revenues (net of collection costs) is estimated at $7.80 per square foot of land area. d. Other Revenues KMA would expect that most parking demand would be generated by the nearby beach traffic and visitors to the Peninsula. Thus, the users of the parking would generate limited sales tax revenues to the City. As indicated in Table 5, KMA has estimated sales tax revenue at $2,000 annually. In present value terms, this is approximately $.50 per square foot. e. Total Revenues Based on the above, the total revenues, in present value terms, total $8.00 per square foot of land area. Revenue Study August 20, 1997 Marinapark Site 23 TABLES ESTIMATED PRESENT VALUE PARKING USE REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS: AVERAGE REVENUE"' SO. FT. PER SPACE MANAGEMENT & COLLECTION SIZE ESTIMATED SALES TAX REVENUE DISCOUNT RATE ANNUALREVENUE METER REVENUE LESS: MANAGEMENT & COLLECTION NET REVENUE PRESENT VALUE PER ACRE PRESENT VALUE PER SQUARE FOOT1�) OTHER REVENUE ESTIMATED SALES TAX REVENUE PRESENT VALUE PER SQUARE FOOT TOTAL REVENUE PER SQUARE FOOT OF LAND AREA $310 PER SPACE PER YEAR 325 SQ.FT. 20% OF GROSS REVENUE 130 SPACES PER ACRE $2,000 PER YEAR 10% $40,300 (8,100) $32,200 PER ACRE $341,600 PER ACRE $7.80 PER SQ. FT. $2,000 PER YEAR $0.50 PER SO. FT PRESENT VALUE OF PARKING FEES $7.80 PRESENT VALUE OF OTHER REVENUE 0.50 PRESENT VALUE OF PROPERTY TAX 0.00 TOTAL $8.30 ROUNDED TO $8.00 BASED ON 1995 REVENUE COLLECTION ATTHE SUBJECT SITE ($310 PER SPACE) M ROUNDED TO THE NEAREST$.25 KEYSER MARSTON ASSOCIATES, INC. FILENAME: NWalms; VALUE•PARKING; DATE: 8119197; JJL 6. OWNERSHIP HOUSING a. Market Considerations Ownership housing on the Peninsula is popular with waterfront views extremely desirable. There are a wide -range of housing styles and designs on the Peninsula that results in wide variances in market price. Recent home sales range between $200,000 to over $2.0 million, depending on views, size and improvements. In addition, it is not uncommon for homes to include a small one bedroom apartment to produce income. Notwithstanding the region -wide softness in the residential market over the last several years, the residential market on the Peninsula remains strong. The only limitation foreseen for ownership residential use is the fact that the land (lots) are assumed to be leased rather than sold. Construction of single family or ownership units on leased land has met with market resistance and will require a substantial discount in the value of the land from fee ownership in order to be successful. b. Size Considerations Other than the limitation created by the fact that the subject property land is assumed to be leased rather than sold in fee, there are no market constraints on the amount of ownership residential development that could be developed on Marinapark. However, there are other factors that will limit the size of development. These are primarily Tidelands and open space/view corridor issues. For purposes of this analysis, KMA has assumed that all residences would have to be developed on the "upland" portion of the property and such development would have to provide for view corridors from Balboa Boulevard. Assuming the development of the uplands portions of the ,property to R-2 standards that would include one ownership as well as one rental unit (determined as the highest and best use in the July 3, 1996 appraisal report by Fuller & Revenue SI Marinapark 24 August lu, Associates) the number of units (lots) that could be developed is estimated at 30. C. Land Revenues The analysis presented by Fuller and Associates establishes fair market rents for R-2 lots at Marinapark. This analysis, dated July 3, 1996, indicated an annual fair market rent from $25,200 annually for improved lots with water views to $17,500 for improved rear lots with no (or limited) views. Assuming that residential development is limited to the uplands portion of property only, all of the units will have bay views. However, depending upon the extent of commercial development on the Tidelands portion of the subject property, some of the unit's view may be restricted. Thus, the high estimate shown on Table 6 assumes the views are not restricted while the low estimate assumes development on the Tidelands portion of the site will restrict views. As shown on Table 6, on a per square foot basis the present value pf the anticipated ground lease revenue per square foot of the area allocated -to residential, i.e., the upland area is $35.40 to $52.40. This estimate is net of a 5% discount for assumed absorption period of three years, and an assumed $500,000 cost to improve the 30 lots. d. Other Revenues In addition to the ground lease revenues, residential development should increase taxable retail expenditures within the City that should result in enhanced sales tax revenues. Assuming that 75% of new sales are retained in the City, the present value of the anticipated sales tax revenue amounts to under $.80 per square foot of land area. Property tax revenues are estimated at $3.20. Revenue Study August 20, 1997 Marinapark Site 25 TABLE 6 ESTIMATED PRESENT VALUE OWNERSHIP HOUSING REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS ANNUAL RENT PAYMENT") LOW t21 $17,5D0 PER LOT HIGH $25,200 PER LOT DEVELOPMENT SIZE (UPLANDS PORTION) 30 LOTS INFLATION RATE 1% DISCOUNT RATE 9.0% ANNUAL GROUND RENT LOW $525,000 PER YEAR HIGH $756,0D0 PER YEAR PRESENT VALUE PER SQUARE FOOT`�T LOW $35.40 PER SO. FT. HIGH $52.40 PER SO. FT. OTHER REVENUES ASSUMPTIONS ! PER CAPITA INCOMEI4I $51,100 PEOPLE PER UNIT 4 PEOPLE TAXABLE EXPENDITURES 25% OF INCOME INFLATION RATE 3% DISCOUNT RATE 12% SALES TAX REVENUE $11,500 PER YEAR PRESENT VALUE PER SQUARE FOOT(3) $0.80 PER SQ. FT. TOTAL REVENUE LOW HIGH PRESENT VALUE OF GROUND RENT $35.40 $52.40 PRESENT VALUE OF OTHER REVENUE 0.80 0.80 PRESENT VALUE OF PROPERTYTAXIs1 3.20 3.20 TOTAL $39.40 $56.40 ROUNDED TO $39.00 $56.00 FULLER & ASSOCIATES, JULY 3, 1998 APPRAISAL REPORT C4 30% REDUCTION OF HIGH ESTIMATE TO REFLECT RESTRICTED NEW AND INTRODUCTION OF USES ON TIDELANDS PORTION OF THE PROPERTY I'I REFLECTS NET SITE IMPROVEMENT COSTS OF M,000; REDUCED BY 5%TO REFLECT STABILIZATION PERIOD; ROUNDED TO THE NEAREST $ 25; ASSUMES LAND AREA IS UPLAND PORTION OF THE SUBJECT PROPERTY OR 3,53 ACRES (4) SOURCE: URBAN DECISIONS SYSTEMS 0) BASED ON $1,0W oW VALUE PER IMPROVED LOT AND INFLATED BY 2%ANNUALLY AND DISCOUNTED AT 9°%; ROUNDED TO THE NEAREST $.25 KEYSER MARSTON ASSOCIATES, INC FILENAME: NWaWas; VALUE -OH; DATE: 8119/97; JJL e. Total Revenues As shown in Table 6, when all major revenue sources are taken into account, the estimated value of the upland portion of the subject site, if leased for ownership residential use, is $39.00 to $56.00 per square foot of land area. The higher value can be achieved if the Tidelands portion of the property is developed with commercial uses so as to not restrict views and that are not conflicting with residential development. 7. RENTAL HOUSING a. Market Considerations The 1990 U.S. census' indicates that the Peninsula contains upwards of 1,400 rental units. KMNs survey of rental housing inventory identified a limited number of traditional apartment complexes on the Peninsula, all with few units. These are in addition to the rental units that are often included as part of an ownership unit. Most rental units are available only under a short-term (nine month) lease, in order to remain accessible as summer weekly rentals. There is virtually no inventory of land on which to expand the supply of rental housing. An analysis of the summer rental market confirmed that, during the months of June through September, there is an extremely high demand for housing. These short-term rentals command rents of $1,200 - $2,000 a week for a two to three bedroom unit. During the rest of the year, nine month rental units lease for $850 - $1,250 per month for a low to moderate quality apartment. Revenue Study August 20, 1997 Mannapark Site 26 b. Size Considerations Against the perceived demand for housing on the Peninsula, it is possible, in KMNs opinion, to develop the entire uplands portion of the subject property with rental housing. Discussions with the City Planning Department and 30th Street Architects suggest that the site could be developed with residential units at a density of 18 units per acre, upwards of 64 residential units could be added which represents less than a 3% expansion of the existing rental housing inventory. It is also KMA's opinion that given the range of amenities found in proximity to the site and the excellent, regional accessibility to the employment centers located in Irvine and Newport Beach, the uplands portion of the subject property could be developed in one phase. C. Land Revenues In projecting the ground lease revenues, KMA has assumed that the annual per unit gross ground rent will'be between $20,000 and $26,600., The low range projection assumes in part that the Tidelands.portion of the property is developed with commercial uses in a manner that will restrict views, while the high rangd assumes unrestricted views. The land revenues are based on the City receiving 20% of gross rents, an allocation that KMA believes is supported by the market. Table 7 presents the present value of the ground rent between $20.00 and $26.40 per square foot of land area. d. Other Revenues The development of residential units will generate additional retail sales in the City and property tax revenues. 'The present value of these revenues are estimated at $1.90 per square foot and $1.70 per square foot of land area, respectively. Revenue Study August 20, 1997 Marinapark Site 27 TABLE 7 ESTIMATED PRESENT VALUE RENTAL HOUSING REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH LAND REVENUE ASSUMPTIONS EFFECTIVE GROSS RENT LOW HIGH SIZE GROUND LEASE DISCOUNT RATE INFLATION RATE ANNUAL GROUND RENT LOW HIGH RATE MONTHS ANNUALLY $1,250 12 WKS. $12,000 I'I $1,000 9 MOS. 8.100 $20,100 $1,500 12 WKS $14,400 pI $1,500 9 MOS. 12,200 RI $26,600 64 RENTAL UNITS 20% OF EFFECTIVE GROSS RENT 10.5% 3.0% $257,280 PER YEAR $340,480 PER YEAR PRESENT VALUE PER SQUARE FOOT(3) LOW $20.00 PER SQ. FT. HIGH $26.40 PER SQ. FT. OTHER REVENUE ASSUMPTIONS PER CAPITA INCOME(') PEOPLE PER UNIT TAXABLE EXPENDITURES LEAKAGE ALLOWANCE DISCOUNT RATE INFLATION RATE SALES TAX REVENUE PRESENT VALUE PER SQUARE FOOT() TOTAL REVENUE PRESENT VALUE OF GROUND RENT PRESENT VALUE OF OTHER REVENUE PRESENT VALUE OF PROPERTY TAX(5) TOTAL ROUNDEDTO $43,400 3 PEOPLE 25% OF INCOME 25% OF SALES TAX REVENUE 12% 3% $13.020 PER YEAR $0.90 PER SQ. FT. LOW HIGH $20.00 $26.40 0.90 0.90 0.70 0.70 $21.60 $28.00 $22.00 $28.00 ASSUMES 20% VACANCY FACTOR ASSUMES 10%VACANCY FACTOR ( REDUCED BY 5%TO REFLECT STABILIZATION PERIOD; ROUNDED TO THE NEAREST $.25 0) PER CAPITA INCOME VALUE FROM TABLE 6 REDUCED BY 15%TO REFLECTTYPICAL RENTER In BASED ON $100,000 VALUE PER UNIT AND INFLATED BY 2°% ANNUALLY AND DISCOUNTED AT 9%; ROUNDED TO THE NEAREST $ 25 KEYSER MARSTON ASSOCIATES, INC. FILENAME: NWal a ; VALUE•RH, DATE: 8/19197; UL e. Total Revenues The total revenue generated from the development of 64 units of rental housing on the upland portion of the subject site, is estimated at $22.00 to $28.00 per square foot of land area, depending upon what assumptions are made with respect to development on the tideland portion of the site. 8. MARINAPARK (CURRENT USE) As a basis of comparison, the following describes the current use and land revenues achievable for such uses. Tidelands restrictions may inhibit continued mobile home park use. a. Market Considerations , 0 L Mobile Home Park Currently, Marinapark Mobile Home Park is at full occupancy, which is a reflection of both high demand for housing in the area and current lease rates for spaces. The spaces are currently renting between $743 and $1,053 per month with the average space rent of $896 per month. Other mobile home parks within the City have monthly rents between $600 and $1,800 depending on location and view. Marinapark Mobile Home Park differs from its nearest direct competitor (the mobile home park on Lido Island) in that it has more parking, better beach frontage, and more open space between trailers. Lease rates on Lido currently range between $1,100 and $1,850 per month. Even with an increase in monthly rent to market levels at the subject property, in KMA's opinion, the demand for spaces will remain high. Revenue Study August 20, 1997 Marinapark Site 28 ii. American Legion KMA field surveys indicated high demand for boat slips and dry storage at the marina operated by the American Legion on the subject site. There is a waiting list for both wet and dry storage. This high demand is accounted for by both the general shortage of well located available slips on the Peninsula and the current low rental charges. Spaces at the American Legion marina currently rent for $11 a lineal foot per month, while other marinas in the Newport Beach area charge between $6 and $14 per foot. KMA is of the opinion that there would be demand for these boat slips even if the rental rates were increased to $14 per lineal foot per month. iii. Municipal Parking KMA reviewed the City records regarding the revenues generated by the two public parking lots at the subject property. This review would, suggest that the lots are not in high demand, a conclusion verified by numerous visits to the site. b. Land Revenues Table 8 presents KMA's estimate of the probable land revenues resulting from continuing the current uses on the subject property, after rental adjustment to market. The anticipated land revenues for the major components at the subject site range between $20,000 to $650,000 annually.' As shown in Table 8, of the existing uses, the mobile home park generates the highest revenues at $650,000 annually. When the present value of the estimated revenues from all uses is allocated over the entire subject property, the resulting value is $24.00 per square foot of land area. This low value reflects the fact that approximately one-third of the site is assumed to be non - Revenue Study August 20, 1997 Marinapark Site 29 TABLES ESTIMATED PRESENT VALUE EXISTING USES REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH Am .i SQ. FT. EXISTING ADJUSTED EXISTING ADJUSTED LAND USE MAJOR INCOME PRODUCING USES AMERICAN LEGION 58,700 $107,000 $159,000 ICI $22.90 $34.00 MUNICIPAL PARKING 22,700 22,000 20,000 1�1 12.20 7.80 MARINA PARK MOBILE HOME PARK 186,000 535,000 650,000 I3I 36.20 43.90 SUBTOTALNVEIGHTED AVERAGE 267,400 $664,0W $829,000 $31.20 $38.70 OTHER USES VETERANS MEMORIAL PARK 18,200 $0 $0 $0.00 $0.00 LAS ARENAS PLAYGROUND 12,900 0 0 0.00 0.00 LAS ARENAS TENNIS COURTS 60,600 0 0 IZI 0.00 0.00 GIRL SCOUT HOUSE 12,000 0 0 0.00 0.00 COMMUNITY SERVICES 12,000 6,000 6,000 IZI 6.30 5.60 PUBLIC BEACH 55,800 0 0 0.00 0.00 SUBTOTAL/WEIGHTED AVERAGE + 171,500 $6,000 $6,000 $0.00 $0.00 PRESENT VALUE PER SQUARE FOOT $23.90 ROUNDED $24.00 INCREASED BY KMA TO REFLECT KMNS REVISED RENTAL SCHEDULE AND CONT. OPERATION BY THE LEGION, SEE APPENDIXTABLE A INCOME ADJUSTED FOR EXPENSES RELATED TO PUBLIC USES �l INCREASED BY KMA TO REFLECT WAS REVISED RENTAL SCHEDULE, SEE APPENDIXTABLE B FOR ESTIMATION OF REVISED INCOME KEYSER MARSTON ASSOCIATES, INC. FILENAME; NW3Wes; EXISTING; DATE: SI19197; JJL revenue generating. C. Other Revenues The main source of 'other revenue" being generated by the subject site are minor amounts of possessory interest property tax and sales tax revenues. The present value estimate of these revenues when allocated over the entire subject property is less than $.25 and, therefore, insignificant. d. Total Revenues Based on the above, the land revenues range between $6,000 and $650,000 annually. When the total land revenues of $835,000 are allocated over the entire site, the resulting value is $24.00 in present value terms. CONCLUSION OF POTENTIAL USES AND VALUE OF REVENUES Table 9 presents a summary of the KMA analysis of individual land uses including the existing use of the subject property. As indicated, the highest value is generated by hotel use primarily due to the revenues generated by transient occupancy tax. 'For comparison purposes, assumes the Marina is operated by the American Legion. Revenue Study August 20, 1997 Marinapark Site 30 TABLE 9 DEVELOPMENT OPPORTUNITIES REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH . ....., .... 12.p�Ta+ . MARKET DEMAND - DEMAND ADEQUATEDEMAND IN. ACREAGE GROUND LAND USE ASSESSMENT ENTIRE SITE FOR TIDELANDS ONLY REQUIRED LEASE TOTAL() RESTAURANTS STRONG NO NO 1.0-2.0 $34.40 $45.50 HOTEL ABOVE AVERAGE TO STRONG NO POSSIBLY 1.0 25.80 63.00 CONVENIENCE RETAIL AVERAGE TO BELOW AVERAG NO - NO NONE 39.60 41.00 PARKING POOR (STRONG IN SUMMER) UNLIKELY UNLIKELY NONE 7.80 8.00 OWNERSHIP HOUSING STRONG YES NA NONE 43.90 47.50 RENTAL HOUSING ABOVE AVERAGE TO STRONG YES NA NONE 23.20 25.00 EXISTING USES ABOVE AVERAGE TO STRONG YES YES NONE 23.60 24.00 NINE C x4 �x 3 g, x.• VALUE PRESENTED IS AVERAGE OF HIGH AND LOW REVENUE ESTIMATE ROUNDEDTOTHE NEAREST$1.00 KEYSER MARSTON ASSOCIATES, INC FILENAME: Nbval e : DEVLOI DATE: BM9/9T, JJL SECTION III - DEVELOPMENT SCENARIOS In projecting potential city revenues from Marinapark, KMA has created two development scenarios. These development scenarios are based on KMA's understanding of both the land use constraints, i.e., coastal zone, tidelands, etc. as well as the characteristics of each use in terms of market demand, absorption limitation and revenue characteristics. For comparison purpose, a baseline scenario has been developed projecting revenues with the continued use, with lease rates brought to market for the mobile home spaces and marina/dry storage uses. The description of the scenarios is as follows: 1. BASELINE SCENARIO The baseline scenario assumes that (1) all of the uses remain, (2) that the market rents are revised for both the trailer park spaces and the American Legion boat slips, and (3) that the cost to complete necessary site upgrades totals $200,000. No revenue is assumed for the Girl Scout House or former museum building. Based on the data and projections presented in Section II, the estimated net annual revenues and present value of anticipated revenues over a 50-year period is presented in Table 10. The present value of these revenues is estimated at $10.3 million. 2. SCENARIO A Partial Reconstruction This scenario involves replacing the trailer park with uses that are consistent with the restriction applicable to tidelands property on which the majority of the mobile home park is located. Under this scenario, the other uses on the site, i.e., public parking, Girl Scouts, American Legion, parks, etc., would remain. The trailer park site totaling 4.27 acres would be developed with a major restaurant(s) using t2.0 acres with the Revenue Study August 20, 1997 Marinapark Site 31 TABLE 10 BASELINE SCENARIO REVENUE STUDY FOR ALTERNATIVE USES ' MARINA PARK CITY -OF NEWPORT BEACH USE LAND AREA ACRES TOTAL REVENUEIIJ --------------------------------- ANNUAL ------------------------------------------ EXISTING USES"' 8.8 $835,000 LESS: AMORTIZATION OF SITE (14,000) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $821,000 ------------------------------ PRESENTVALUE----------------------------------------- EXISTING USES() LESS: AMORTIZATION OF SITE DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES 8.8 $10,500,000 ($200,000) ALL REVENUE IS ASSUMED TO BE LAND REVENUE C4 ASSUMES AMERICAN LEGION CONTINUES TO OPERATE MARINA AT MARKET RATES AND MOBILE HOME PARK SPACE RENTS ARE AT MARKET KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nb4ms; BASELINE; DATE: 8/19/97; JJL remainder of the land (t1.7 acres) devoted to a hotel. The land area devoted for a hotel would be suitable for ±85 rooms. It is assumed that the City will take over the operation of the marina. Under this scenario the new uses would not have Balboa Boulevard frontage. Thus, signage must be provided for the restaurant and hotel along Balboa Boulevard and that existing access to the portion of the site reconstructed would be upgraded. This, in turn, may require the reconfiguration/ elimination of some of the existing uses along the Balboa frontage. Table 11 presents KMA's estimates of net annual and present value revenues under this partial redevelopment. As shown, the initial annual net revenues should increase over the baseline scenario by $223,000 (from $821,000 to $1.04 million). The net present value over the 50-year projection period shows a $1.3 million increase (from $10.3 million to $11.6 million). 3. SCENARIO B Major Redevelopment Under this scenario, the Tidelands portion of the subject property Would be developed with visitor serving uses that are consistent with state law covering use of tidelands. The uplands portion of the site would be developed with residential use, as residential use presents the highest and best use of the uplands portion. Inasmuch as the value of the uplands property will be impacted by the extent of development occurring on the Tidelands portion of the property, under the major redevelopment alternative, the value of the entire site is enhanced by limiting the development on the Tidelands portion of the property, thereby, enhancing the value of the uplands portion of the subject property. Thus, KMA has assumed that the American Legion facility would remain and that the Tidelands portion of the property would be used only for a small hotel, one restaurant and open space. Under this scenario. It is also assumed that the City will take over the operation of the marina. Revenue Study August 20, 1997 Marinapark Site 32 I TABLE 11 SCENARIO A - PARTIAL RECONSTRUCTION REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH USE LAND AREA (ACRES) LAND REVENUE TOTAL REVENUE -------- ANNUAL --------------------- ----- RESTAURANT 2.00 $280,000 $370,000 HOTEL 1.70 180,000 440,000 OTHER EXISTING(') 5.10 _ 270,000 270.000 TOTAL 8.80 $730,000 $1,080,000 LESS: AMORTIZATION OF SITE (36,000) (36,0D0) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $694,000 $1,044,000 ------------------------------------ PRESENTVALUE----------------------------------------- RESTAURANT 2.00 HOTEL 1.70 OTHER EXISTING"' 5.10 TOTAL 8.80 LESS: AMORTIZATION OF SITE DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES rr rrr rr rrr rr rrr ($500,000) $7,800,000 $11,600,000 ASSUMES REPLACEMENT OF MOBILE HOME PARK, THEREFORE REVENUES GENERATED FROM AMERICAN LEGION, PARKING AND COMMUNITY SERVICES REVENUES REDUCED BY 15%TO REFLECT FRONTAGE IMPROVEMENTS. KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalms; SCENARIOA; DATE: 8/19/97; JJL 1 The anticipated revenues under this scenario are presented in Table 12. As shown, it is assumed that the uplands portion of the property would be used "for ownership residential. The annual net revenues should increase over the baseline scenario by $557,000 (from $821,000 to approximately $1.38 million). The net present value over the 50-year projection period shows a $5.6 million increase (from $10.3 million to $15.9 million). This scenario has a projected net present value of $4.3 million over partial reconstruction (Scenario A) of Marinapark. Development of ownership residential through a ground lease of the uplands property raises a number of economic and public policy issues. First, a substantial discount has been applied to the fee value of the property (30%). Secondly, reappraisals to market value are not assumed over the term of the lease, reflecting the experience of the Irvine Co. and others who have met substantial political public opposition to such increases. Rents are allowed to increase only 1% annually. Finally, public agency's who are landlords face continued exposure to tenant complaints, particularly from residents. Given the inherent problems with ownership housing on leased land, it may be appropriate for the City to consider other housing types including time shares. Time shares on the uplands property may be a logical extension of the hotel located on the Tidelands portion of the site and produce additional transient occupancy tax revenues to the City. It should be noted that given the demand for beachfront property, the City might want to consider joint use of the American Legion building for community meeting space. Revenue Study August 20, 1997 Marinapark Site 33 TABLE 12 SCENARIO B - MAJOR REDEVELOPMENT REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH USE LAND AREA (ACRES) LAND REVENUE TOTAL REVENUE ---------------------------------------- ANNUAL ------------------------------------------ RESIDENTIAL (30 LOTS)(') 3.53 $570,000 $610,000 HOTEL 2.00 210,000 510,000 RESTAURANT 1.00 140,000 187,000 OTHER EXISTING() 2.27 246,000 246,000 TOTAL 8.80 $1,166,000 $1,553,000 LESS: AMORTIZATION OF SITE (175,000) (175,000) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $991,000 $1.378,000 ------------------------------------- PRESENTVALUE----------------------------------------- RESIDENTIAL (30 LOTS)I1) 3.53 $6,800,000 $7,300,000 HOTEL 2.00 2,200,000 5,500,OD0 RESTAURANT 1.00 1,5D0,000 2,000,000 OTHER EXISTING(') 2.27 3,100,000 3,100,000 TOTAL 8.80 $13,600,D00 $17,900,000 LESS: AMORTIZATION'OFSITE ($2000,000) ($2,0=00) DEVELOPMENT AND MARKETING ESTIMATED NET REVENUES $11,600,000 $15,900,000 REFLECTS THE MIDPOINT VALUE BETWEEN LOTS WITH VIEWS AND LOTS WITH LIMITED OR NO VIEWS C4 ELIMINATES ALL EXISTING USES EXCEPTTHS AMERICAN LEGION; REVENUES REDUCED BY 15°%FOR FRONTAGE IMPROVEMENTS , KEYSER MARSTON ASSOCIATES, INC. FILENAME: Nbvalms; SCENARIOS; DATE: 8119197; JUL CONCLUSION OF POTENTIAL USE KMA's analysis of potential City revenues clearly suggests that the City revenues can be maximized by redevelopment of the entire site. Specifically, KMA would conclude: 1. The upland portion of the subject property should be used for residential. This analysis would suggest that housing create the highest revenue for this portion of the site. 2. The City would be best to limit development on the tideland portion of the subject property so as to maximize the value of the upland portion of the property. While either hotel or restaurant use is viable, hotel use and limited restaurant space may be more compatible with the residential nature assumed to take place on the upland portion of the site, and would limit potential noise impact to properties on Lido Island. , 3. As previously mentioned, the value of the upland portion of the property has been impacted by the assumption to lease rather than sell the uplands portion of the subject property. The City, however, may want to consider selling the fee interest in the uplands portion, especially if there is a desire by the City to see ownership housing development. Based upon conclusions as to value contained in Fuller and Associates' appraisal report, KMA believes the annual reinvestment earnings the City could expect from sale proceeds for the uplands portion of the property alone is significantly higher than annual revenues the City would receive from leasing the uplands property. KMA has estimated that the City could enhance the present value of the revenues by $1.8 to $3.1 million compared with leasing the land, even after taking into consideration the loss of land appreciation resulting from a site. Revenue Study August 20, 1997 Marinapark Site 34 APPENDIX Revenue Study August 20, 1997 Marinapark Site 35 TABLE A AMERICAN LEGION SLIP DRY STORAGE FEE ADJUSTMENT ESTIMATED NET OPERATING INCOME REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH AVERAGE CURRENT SLIP AND SPACE RENT $11 PER FOOT PER MONTH ADJUSTED SLIP AND SPACE RENT $14 PER FOOT PER MONTH CITY OPERATES MARINA SLIP SPACE ADJUSTED ANNUAL INCOMEI'I $237,000 $122,000 VACANY AND COLLECTION AT 5% $12,000 $6,000 EFFECTIVE GROSS INCOME $225,000 $116,000 (LESS): OPERATING EXPENSES AT $715 PER SLIP AND $350 PER SPACE ($34,000) ($18,000) NET OPERATING INCOME $191.000 $98,000 TOTAL REVENUE $289,000 AMERICAN LEGION CONTINUES TO OPERATE MARINA SLIP SPACE EFFECTIVE GROSS INCOME $225,000 $116,000 CITY SHARE AT 50% 40% $113,000 $46.000 TOTAL CITY SHARE $159,000 BASED ON 47 SLIPS WITH AN AVERAGE BOAT SIZE OF 30 LINEAL FEET AND AND 52 SPACES WITH AN AVERAGE BOAT SIZE OF 14 LINEAL FEET. KEYSER MARSTON ASSOCIATES, INC. FILENAME: NWalues, AMLGADJ, DATE: 81IM7; JJL ,r TABLE B MOBILE HOME PARK LEASE RATE ADJUSTMENT ESTIMATED NET OPERATING INCOME REVENUE STUDY FOR ALTERNATIVE USES MARINA PARK CITY OF NEWPORT BEACH AVERAGE CURRENT SPACE RENTj.. $896 PER MONTH ADJUSTED SPACERENT $1,071 PER MONTH INCOME SPACE RENT $745,200 UTILITY CHARGES 15.312 TOTAL SCHEDULE INCOME $760,512 LESS: ASSUMED VACANCY DUE TO RATE INCREASE @ 2D/01" $15,210 ($15,210) OPERATING EXPENSES(3) REPAIRS & MAINTENANCE $1,200 JANITORIAL SUPPLIES 240 MAINTENANCE -LANDSCAPE 12,000 TRASH 6,600 UTILITY -GAS 18,000 TOTAL OPERATING EXPENSES ($38,040) GEN. & ADMIN. EXPENSESI31 COMPUTER SERVICE $876 INSURANCE -WORKERS COMP 1,816 CONSULTING FEES 6,000 LEGAL FEES 6,000 MANAGEMENT FEES 25,548 OFFICE SUPPLIES/EXP. 240 POSTAGE & DELIVERY 180 SALARIES 16,666 TAXES -PAYROLL 1,991 TOTAL GENERAL & ADMINISTRATIVE EXPENSES ($59,317) N B -OP;. TOTAL NET OPERATING INCOME $647,945 ROUNDED TO $650,000 SPACE RENT RANGES FROM $743 TO $1.053 PER MONTH; AVERAGE SPACE RENT @ $896 PER MONTH f8 THE MOBILE HOME PARK IS CURRENTLY AT FULL OCCUPANCY; THE VACANCY RATE REFLECTS NATURAL VACANCY DUE TO RATE INCREASE �! EXPENSES BASED ON 94195 FISCAL YEAR ACTUALS KEYSER MARSTON ASSOCIATES, INC. FILENAME: NbsNes; MHPADJ, DATE: 8119/97; JJL