Questions after reading back-up material on Casino Finance Plan - Special Commission Meeting - 8/16 @ 5:30 p.m.

(Click title for link to agenda and back-up material)

The staff reports starts off saying that for the past five months, they have been conducting an "in-depth analysis of different financing options for the rehabilitation of the Lake Worth Casino Building."

Let me repeat my long-standing assertion that no analysis has gone into the cost of rehabilitation of the existing building versus building a new building and demolition of the existing building.  We are dealing with public money here and therefore we need an objective analysis of all the alternatives.  The entire "analysis" by city staff does not anticipate that there are more unknowns by dealing with the existing building and therefore costs and time could increase exponentially over the cost and time associated with the construction of a known quantity.

It identifies the need to "relocate" the existing tenants during the the 13 to 14 month construction period - but I couldn't find where the cost for this relocation appears in the analysis.  The need to relocate existing tenants during the construction period would be non-existent with the construction of a new building.  They could move in after the new building was finished.  Any prediction of the relocation cost for existing tenants would be subject to many assumptions, including whether or not the existing tenants will take advantage of their "right to first refusal" of a lease in the rehabilitated building.  Another question, didn't the city, in the latest Request for Proposals for the vacant space in the Casino Building, specifically state that the lease would end at the beginning of the construction period and that any continuation of the lease be subject to renegotiation as it related to the rehabilitated building?  How would extending a "right of first refusal" be in accordance with the City's Procurement Code and ensure that all CCNA requirements are followed?  This is a stated goal in the staff report.

The entire analysis relies on the assumption of a 13 to 14 month construction period - with no allowance for any variation of that time period.  A slippage of this time period - meaning unforeseen conditions or delays in the permitting or construction process - would significantly impact the ultimate financial bottom line of the project.  The prospect of this does not appear in this analysis - even in the "worst case" scenario.  The fact that there are many unknowns in the existing building would lead one to believe that a longer construction period would be a possibility.  Regarding permitting, the assertion is made that this building is "grandfathered" in its existing position on the dune and therefore would not need the permits required for a new building.  Would someone care to point out upon what law this is based?  Has anyone looked into the number and type of permits necessary, the likelihood of their issuance and the time frame involved and where does this appear in this analysis?

So, beyond these global concerns about rehabilitation of the building being the more expensive option and subject to more potential delays than a new building, here are some of the questions I came up with as I reviewed the back-up material:

• It's not clear looking at the back-up and the staff memo regarding the three options, but the recommended option (#1) includes a loan from the city's "cash portfolio."  Is this from the cash cow that is fondly known as the city's utility?  If so, there are may things wrong with using utility monies at the beach.  First of all, it is an admission that the project is not financeable through the private marketplace and that the only way would be through the city self-financing the project.  It also relies on a bank loan, of undetermined terms, to pay off this internal borrowing in the future.  Funds for the utility come from sources other than those that have voting rights in the city of Lake Worth.  How would customers in Palm Springs and parts of unincorporated Palm Beach County react to their money being used as a bridge loan for the city's beach redevelopment project?
• I am not sure it is a good idea to have three scenarios, ranging from best to worst.  It is probably prudent, since we are dealing with public money, to use the "worst" scenario as the baseline as it is the most conservative projection.  And, as indicated before, it makes no allowance for a longer permitting and construction period.
• Has the actual site plan been mapped out related to staging areas, temporary exits and entrances, whether or not there will be working parking meter machines, when working ones will be installed and what the costs associated with the new machines will be?  Has anyone looked at the cost/benefit of a gated lot with an attendant - part of which could be paid through the tenants CAM charges?
• As this is written, US treasury bills are carrying their lowest interest rates ever.  It is unclear what the various interest rate assumptions are in this analysis.
• In the City Manager's recommendation, she points out that "many political issues...have yet to be fully resolved which involve the cost effectiveness of renovating the building versus demolishing the structure..."  How is this a political issue?  The analysis should contain an object review of all alternatives, especially if the one that is not explored likely would be the least expensive.  But how does the public know if no one will produce a comparison?  How is this an informed decision?  We have already determined that the building is really only historic if it maintains the current design which no one really wants.  To do anything else and say that it is "historic preservation" and therefore should be done with public money is a misrepresentation of the facts.
• Where are the results of the public survey?  Why is a decision potentially made before the results of that study are public?  There are some design assumptions contained in this analysis.  Are these now "givens" and will be worked around during the public charrette that is going to be held this coming Saturday?  How are the results of the charette going to be figured into the analysis after the fact?  Is the charrette just going through the motions and not really engaging the public?
• Where are the comparables indicated on how the market rents were determined in the undated Marcus and Millchap letter?
• Why would a second floor restaurant with its own "free" patio space go for less per square foot rent that the first floor restaurant?
• I am not sure why Mr. Bray in his July 21, 2010 letter indicates that there are "no historical sales volumes that will truly help us."  Hasn't John G's been in business in that location for at least 30 years?  Haven't there been other tenants that have been there long enough to have a record of a certain sales volume?  How is that privileged information if you are dealing with a publicly owned building?
• Comment regarding one of Mr. Bray's conclusions that retailers measure their trade area in concentric circles and that "Our circles will have a large pocket of marine life."  To quote noted retail expert Robert Gibbs, "Fish don't shop."
• How is property tax accounted for in the rent assumptions?
• Interesting that Mr. Bray points out the need for centralized common area bathroom facilities.  The rehabilitated building would need to meet ADA requirements for bathrooms and I have always wondered how this would be done in some of the small shop areas of the existing building.  This  is an example of a design assumption in this financial analysis.
• Mr. Bray's letter suggests some sort of percentage participation in rent of some tenants, but I can't find where this is carried through in the financial analysis.  Restaurants, many times, have such percentage clauses in their leases.
• From the actual Business Plan document, I would like to know what assumptions went into determining the extent of the beach market area and how tourism fits into this market area.
• Why does the business plan refer to the dimensions of the beach in meters and not feet?
• Page 6 of the Business Plan refers to the location of the building and the ability for one to view  sunrises and sunsets, but doesn't mention the "public."  Where and how is public access being maintained throughout the rehabilitation project?  This should be laced throughout all documents pertaining the the rehabilitation of the existing building.
• Under marketing strategy, it talks about the attractiveness of the project to "major brands and franchises."  Are there going to be requirements for local ownership, how will that be defined and are national brands not welcomed in the project?  If so, how does this affect the projections?
• We should get a legal opinion on the offering a "first right of refusal" and how that complies with the city's procurement code.
• Found the conclusions that "City Commissioners represent specific districts." and that "...current members of the City Commission have a very strong commitment to good government, transparency in government, civic engagement in the governing process, and environmental sustainability" a little hard to swallow.
• What does the "urban renaissance that has occurred over the past decade" refer to?
• Under "public improvements" for the Lake Worth Beach Rehabilitation - those improvements funded by the $5 million grant from Palm Beach County - "alternative power generation (solar film and wind turbines) and rain collection and reuse (rain cisterns)" are listed.  Where are these included in the public improvements and what is their cost?  Where will they be and how will their power and resources be used in the public improvements or rehabilitation of the building?
• Under "Process of the Casino Building Rehabilitation" - "Construction including tenant relocation" is identified but I can't find where the cost associated with this relocation appears in the analysis and what assumptions are used.
• I assume that "western Palm Beach County residents" refers to Wellington and Royal Palm Beach, primarily.
• Are the parking revenue figures accurate for FY 06-07 and FY 08-09?  Why was FY 07-08 left out? 
• How much will the cellphone/credit/debit card operated parking meters cost - how many and when will they be installed?  What is their reliability and track record in salt air environments?
• How does the square footage proposed for the rehabilitation project not represent over-commercialization?  Does it exceed the square footage limitation for retail space in the Beach and Casino zoning district?  What is the status of the beach future land use designation and zoning?
• Will casino building tenants be required to pay for their own security?  Will their uniforms look menacing?
• "Informational Historical Pavers" - Perhaps a good idea, but isn't this a design issue?  Does it have any bearing on the cost of the project and if so, where is that cost included in the analysis?
• Can someone verify the "grandfather status" of the existing building and improvements as it relates to any code issue regarding its location at the top of the dune?
• Have the logistics related to the construction of both the site and the rehabilitation of the building been studied since they will be occurring at the same time?
• How were the parking rates determined?  Was there any consideration for different rates at different times of the day?  Will there be a validation program with the tenants so that they can pay for customer parking if they want to?
• Is the city going to be in the towel-buying-renting-washing business at the pool?
• How does Benny's figure into the financial analysis?  Will its lease rate be adjusted with the new project?
• How were the beach attendance figures calculated that appear on page 21 of the "Business Plan?" - these seem very close to the parking revenue figures for those two years mentioned earlier.
• The event room revenue of $5 per square foot seems low - is this per event regardless of size?  Monthly revenues of $2,000 seem low too.  Isn't this a potential gold mine?

Anyway, those are my questions.  If you ask me, we need a lot more clarification before we go forward based upon this analysis and it would be a good idea to wait for results of the charrette this coming Saturday so that we are sincere in the City Commission's wish to "engage the public."