Brookhaven Science Associates U.S. Department of Energy
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Brookhaven Science Associates U.S. Department of Energy Presentation Transcript

  • 1. Presentation to DOE/BAO & CH BNL Housing Reconstruction Project Michael J. Bebon ALD Facilities & Operations Michael M. Goldman Deputy General Counsel Susan M. Perino Facilities& Operations Business Manager April 17, 2003
  • 2. Housing Reconstruction Project
    • Presentation Agenda
    • Project Overview
    • Progress to Date
    • Project Documents
      • Request for Proposals
      • Economic Analysis
      • OMB Circular A11 Analysis
    • Next Steps
  • 3. Project Overview – Project Team
    • Integrated BNL/BAO/CH Team
    • Assistance provided by ORNL and PNNL staff and Battelle
    • Team members:
      • BNL: M. Bebon, M. Goldman, S. Perino, J. Giuffre, M. Schaeffer
      • BAO: R. Gordon, L. Sadler, J. Eng
      • CH: H. Ramirez
  • 4.
      • Good quality, safe housing is a requirement for BNL’s users
      • Short term rental housing in the community scarce and expensive
      • Offsite housing a hardship for many BNL users, guests (no car available, no public transportation options, language barrier)
      • Demand for onsite housing increasing
      • Apartment capacity inadequate during summer peak
    Project Overview – Project Drivers
  • 5.
    • Wood frame structures built between 1941 and 1943
      • Life Safety Code issues
      • Electric heat, no air-conditioning
      • Lead contamination in water lines and paint
      • Poor insulation leading to higher energy costs
      • Structural deterioration - rot, termites, water damage
    Project Overview – Project Drivers
  • 6.
    • Current Apartment Complex
    • Number of Units: 70 (Four out of service)
    • Square Footage: 68,000
    • Accommodation Type:
      • One Bedroom (17)
      • Two Bedroom (33)
      • Three Bedroom (12)
      • Four Bedroom (4)
    • Purpose: housing for guests, visitors, new employees and research teams; several months – 1 year
    Project Overview
  • 7. Typical Apartment Exterior
  • 8. Apartment Structural Deterioration Dry rot in floor joist
  • 9. Apartment Floor Failure
  • 10. Project Overview – Scope
    • Build 70 new apartment units varying from 1-4 bedrooms and 2 new “VIP” units. Total 80,000 sq. ft.
    • Build new 12,000 SF Recreation/Community Center
    • Sited on 12 Acre out-leased DOE land within existing apartment area
    • Alternate for addition of 25 new units to be used by Stony Brook University
  • 11.
    • University at Stony Brook (USB) Additional 25 Units
      • Intended for use by USB junior faculty
      • Some have joint appointments with BNL & USB
      • Increased interaction among scientific community
      • USB participation will make overall project more attractive to development community
        • Economies of scale in construction
        • Additional and more economical financing opportunities
        • USB intent to commit to long term lease
      • Likely to reduce per unit rent
      • More flexibility in BNL subleasing administration
    Project Overview - Scope
  • 12. Project Overview - Schedule/Cost
    • RFP issued by 9/30/03
    • Planned October 31, 2004 occupancy
    • Developer TEC estimated at $14.2M
    • Actual cost to BNL to be market-based lease costs
  • 13.
    • In-house planning and project authorization
    • Project Team visits to ORNL and PNNL
    • Developer Workshop May 2002
    • BNL Developed RFP
    • DOE developed Ground Lease
    • Patton-Boggs reviewed/redrafted RFP structure and prepared A11 analysis
    • Construction Agreement and Master Facility Lease prepared
    • Land Appraisal performed by independent consultant
    • Completed Economic Analysis
    • Participated in Oak Ridge NNSA Alternative Financing Workshop
    Progress To Date
  • 14.
    • RFP Structure
      • Request for Proposals Document
      • Exhibit A – Performance Specification
      • Exhibit B – Site Plan
      • Exhibit C – Ground Lease
      • Exhibit D - Construction Agreement & Master Facility Lease
      • Exhibit E – Quotation Pricing Sheet
      • Exhibit F – Reps and Certs
    Project Documents Request for Proposals (RFP)
  • 15.
    • Lease terms
      • 26 year ground lease from DOE to developer
      • 5 year facility lease with 5 year option
    • Base bid and alternates
      • Base: 72 units + Rec/Community Center including maintenance
      • Alt 1: Above without maintenance
      • Alt 2: Additional 25 units with maintenance
      • Alt 3: Additional 25 units without maintenance
    • Ownership transfers to DOE at end of Ground Lease (end of yr 26)
    Project Documents Request for Proposals Document (RFP)
  • 16.
    • Construction covered by Davis Bacon Act
    • BNL lease payments monthly – fixed amount; no escalation over 5 year term
    • BNL provides utilities to complex at:
      • no net cost as long as BNL leases back
      • at BNL cost if Developer leases to public after yr 5 or 10
    • Developer provides maintenance under base bid
    • Developer responsible for “re-capitalization”
    • Schedule in RFP a “placeholder” intended to provide sequence after DOE approval
    Project Documents Request for Proposals (RFP)
  • 17.
    • Bids to be valid 180 days
    • Proposal Format:
      • Written Technical Proposal
      • (technical approach, experience, appearance and quality of complex, space efficiency,schedule, other technical documents, resumes of key project team members)
      • Price and Business Proposal
      • (quotation and pricing sheet, financial statements, cost estimating, cost control, cost risk management, identified financing source with expression of interest and terms, disputes and litigation, reps and certs, references, exceptions, authorized individuals)
      • *Also includes proposed rent structure for 5 year option
    Project Documents Request for Proposals (RFP)
  • 18.
    • Evaluation Methodology – Source Evaluation Board (SEB)
      • Technical Approach – 30%
      • Experience – 25%
      • Appearance and Quality – 20%
      • Space Efficiency – 15%
      • Schedule for Occupancy – 10%
      • Price not scored - integrated into overall assessment of best interest of DOE
    • Sequence
      • Competitive range determination (SEB)
      • Best and Final (SEB)
      • Final selection (Source Selection Official)
    • Basis of Award – Best Value
    Project Documents Request for Proposals (RFP)
  • 19. Project Documents Performance Specifications
    • Build to “Commercial” standards.
    • OSHA/Code compliance.
    • Injury free workplace.
    • Maximum height of facilities -- two stories.
  • 20. Project Documents Performance Specifications
    • The developer will provide the following:
      • Sidewalks, vehicle access and parking
      • Landscaping
      • Storm Drain System
      • Suitable HVAC, plumbing, and electrical system for each apartment
      • New appliances
  • 21. Project Documents Performance Specifications
    • BNL will provide the following utility systems for the developer to tap into:
      • Underground potable water (fire protection)
      • Sanitary system
      • Electrical distribution
      • Telecommunications
  • 22.
    • Sited on open space adjacent to apartment area
    • Allows construction to proceed without impacting occupants
    • Will retain best units for summer peak
    • Location near main gate access makes separation of complex feasible if necessary
    Project Documents Site Plan
  • 23.
    • Project to be developed on DOE land rather than using a land title transfer approach:
      • Historical pressure from developers for BNL land would “politicize” any land transfer process
      • DOE/BNL would lose degree of control
      • Land within Pine Barrens designated area –would affect buildability if in private sector
    Project Documents Terms of Ground Lease
  • 24.
    • Term of Lease
      • Approx 26 years, terminating on October 31, 2029
    • Utilities
      • To be invoiced to developer but may be offset against amounts due to developer by BSA pursuant to the Construction Agreement and Master Facility Lease
    • Successor Operator of BNL
      • Any Successor Operator of BNL shall assume any remaining obligation undertaken by BSA on behalf of BNL under the Construction Agreement and Master Facility Lease
    Project Documents Terms of Ground Lease
  • 25.
      • Rent
        • Developer shall have no obligation to pay rent so long as BSA is occupying and using the premises
        • If BSA ceases occupancy, developer shall pay DOE an annual fixed rent based on the fair market value of the premises as housing
      • Title to Improvements
        • Developer to own improvements until such time as the ground lease terminates
      • Mortgage of the Property
        • Developer of the property may mortgage its leasehold interest in the property
    Project Documents Terms of Ground Lease
  • 26. Project Documents Construction Agreement and Master Facility Lease
    • Construction Agreement
      • Schedule
        • Draft contemplates having the facility ready for occupancy by October 31, 2004
      • Facility to be constructed at developer’s sole cost and expense
      • Davis-Bacon Act applicable to construction
      • Performance and payment bonds are required
  • 27.
    • Master Facility Lease
      • Lease term five years with an option to renew for an additional five year period
      • Utilities to be invoiced to Brookhaven but may be offset during the period of Brookhaven’s occupancy
      • Maintenance and repair of the facility are to be provided by developer; however, the RFP requires an alternate with maintenance and repair being provided by Brookhaven
      • Lease may be terminated for convenience by Brookhaven
    Project Documents Construction Agreement and Master Facility Lease
  • 28.
    • General Provisions
      • All DOE mandated flow-down provisions have been included
      • Standard clauses requiring compliance with ES&H training and standards are incorporated
    Project Documents Construction Agreement and Master Facility Lease
  • 29.
    • McKinney Act
      • Inapplicable since there has been no determination by DOE that the land is excess, surplus, unutilized or underutilized
    • Section 161(g) of the Atomic Energy Act
      • Proposed project comes within DOE’s authority. Disposal furthers the mission of BNL.
    • Comprehensive Environmental Response Compensation and Liability Act Section 120
      • EPA must be consulted and a document showing a “Finding of Suitability to Lease” must be prepared
      • Ground lease must contain provisions that would allow DOE re-entry to conduct environmental remediation if contamination is detected
    Project Documents Other Statutory Requirements
  • 30.
    • The alternatives evaluated:
    • Case 1: Public-Private Partnership (Construct a new complex using private sector financing on DOE-provided land)
    • Case 2: “No Project” Alternative (Continue to operate existing apartment units; demolish and rebuild as units fail using appropriated funds)
    • Case 3: Government Funded Construction (Replace existing apartment units with new construction using appropriated funds)
    • Case 4: No Action Alternative (Allow apartment units to fail and remove them from service)
    Housing Reconstruction Economic Analysis
  • 31. Housing Reconstruction Economic Analysis- Factors Used
    • Gov’t cost of construction:
      • Case 3 - $175/sf (Based on fixed price – competitively bid)
      • Case 2 - $195/sf ($20 premium for partial construction)
    • Gov’t cost of maintenance:
      • $5.25/sf/yr (Based on 3% of RPV/yr)
    • Gov’t cost of demolition:
      • $35/sf (Based on unit price of FY02 BNL demolition)
    • Appraised value of land (12 acre site)
      • $3.96M (Based on 2/21/03 appraisal- Appendix G)
    • FMV of Annual Land Lease:
      • 7% of appraised land value
  • 32. Housing Reconstruction Economic Analysis- Factors Used (Cont’d)
    • Occupancy Rates (Based on 10 yr average)
      • 1BR 89%
      • 2BR 86%
      • 3BR 83%
      • 4BR 79%
      • Specialty 80%
      • Weighted Average Occupancy Rate 85.6%
  • 33. Housing Reconstruction Economic Analysis- Factors Used (Cont’d)
    • Rental Income Baseline (‘Maximum Theoretical Rent’ - using proposed unit mix and FY03 rates effective 2/1/03)
      • 15 1BR @ $1,075/mo
      • 40 2BR 1,265
      • 11 3BR 1,495
      • 4 4BR 1,625
      • 2 Specialty 1,800
      • Maximum Theoretical Rental Income = $954,379/yr
      • (Maximum Theoretical Rent X Occupancy Rate = Rental Revenue)
  • 34. Housing Reconstruction Economic Analysis- Factors Used (Cont’d)
    • Weighted average rent escalation -
      • 4.359% - USED 4.5 %
    • Maintenance cost escalation – 3.5%
    • Cost of construction escalation – 3.5%
    • Discount rate for Net Present Value – 3.75%
  • 35. Housing Reconstruction Economic Analysis- Factors Used (Cont’d)
    • Assumed Service Life:
      • Apartments - 25 Years
      • Appliances - 6 Years
      • Mech/Elec Equip - 15 Years
      • Roofing - 20 Years
      • Doors/Windows - 25 Years
      • Plumbing Fix. - 25 Years
  • 36.
    • Case 1: Public-Private Partnership – Cash Flow
      • DOE will lease land to developer for a period of 25 years
      • Fair mkt. lease (triple net) estimated at 10% over current.
      • Occupancy Rate will rise to 95% from current 85.6%.
      • BNL will lease back the complex for a five-year term.
      • BNL to sublease the apartments to visiting scientists.
      • BNL will recover the cost of its lease from the subleases. DOE will provide the use of its land at no cost.
    • The net actual cash flow to DOE/BNL will be zero.
    Housing Reconstruction Economic Analysis - Case 1
  • 37.
    • Case 1: Public-Private Partnership
    • “ Modeled” Cash Flow -
      • Theoretical NPV Demolition Cost ~( $3.1M)
      • Theoretical NPV Land Lease ~ $7.6M
    • Net “ Modeled” Cash Flow ~ $4.5M positive balance
    Housing Reconstruction Economic Analysis - Case 1 (Cont’d)
  • 38.
    • Case 2: “No Project” Case
      • BNL would continue to utilize the existing apartment complex.
      • As apartment buildings fail, the Laboratory would condemn, demolish, and reconstruct the buildings to maintain capacity.
      • Occupancy rate will fall to 70% from current 85.6%.
      • Rental Rates equivalent to current FMV rates.
      • Capital renewal costs were annualized over 25 yrs.
    • The net present value of this case is ($22,839,621) negative.
    Housing Reconstruction Economic Analysis - Case 2
  • 39.
    • Case 3: Government-Funded Construction
      • Government appropriated funds would be used to construct the new apartment complex.
      • Occupancy rate and rental revenue identical to Case 1.
      • The existing units would be demolished in the future as funding became available.
      • Capital renewal costs projected as per schedule above.
    • The net present value of this case is ($1,236,030) negative.
    Housing Reconstruction Economic Analysis – Case 3
  • 40.
    • Case 4: No Action
      • Progressive decrease in the inventory of housing units as individual buildings failed structurally and were condemned.
      • Expected rate of failure same as Case 2.
      • The poor quality of the existing units and their associated safety issues (lead, asbestos) would continue until structural failure occurred.
      • Maintenance cost escalation would accelerate.
      • Given expected building failure schedule, this alternative would decrease BNL’s apartment capacity by more than 50% over the next 10 years and completely eliminate the availability of apartment housing at BNL by 2018.
    • Not a viable option- NPV analysis not performed.
    Housing Reconstruction Economic Analysis – Case 4
  • 41.
    • The net present value of the cases analyzed above are as follows:
    • Case Number Description Net Present Value of Cash Flows
    • 1 Public-Private Partnership $0
    • 2 No Project ($22,839,621)
    • 3 Government Funded ($1,236,030)
    • 4 No Action N/A
    • Based on this analysis, the public-private partnership is in the best interest of the Department of Energy and should be the approach used to address the need for reconstructing the apartment area at Brookhaven National Laboratory.
    Housing Reconstruction Economic Analysis - Conclusion
  • 42.
    • General
    • Project structured to qualify as Operating Lease under OMB Circular A 11 Appendix B
    • Criteria 1,2, &3 are not applicable to the “out-lease” of DOE property and are, therefore, not applicable to the Ground Lease.
    • Review of Criteria
    • Criterion 1: Ownership of asset remains with the lessor during the term of the lease and is not transferred to the government at or shortly after the end of the lease term.
      • Lessor’s 26 year leasehold interest extends beyond BSA’s 10-yr term of use.
      • Upon termination of the 10 year facility lease, neither BSA nor the developer is obligated to enter a new lease.
    Project Documents OMB Circular A 11 Analysis
  • 43.
    • Criterion 2: The lease does not contain a bargain-price purchase option.
      • The facility lease does not contain a bargain-purchase option.
    • Criterion 3: The lease term does not exceed 75 percent of the estimated economic life of the asset.
      • BSA’s use/occupancy obligation under the Facility Lease (assuming a 10-year term because of the single 5-year option right) is about 38 percent of the economic life of the Lessor’s development.
      • No options to renew or extend BSA’s use beyond the first 5-year option (10-year total term).
    Project Documents OMB Circular A 11 Analysis
  • 44.
    • Criterion 4: The present value of the minimum lease payments over the life of the lease does not exceed 90 percent of the fair market value of the asset at the beginning of the lease term.
      • “ Revenue neutral” -The present value is zero, and thus meets the less than 90% criterion.
      • NPV of BSA’s 10-year obligation is 84.6% of FMV of residential improvements.
    • Criterion 5: The asset is a general purpose asset rather than being for a special purpose of the Government and not built to the unique specifications of the Government as lessee.
      • The assets (housing and recreational facility) developed by the Developer/Lessor are for general (market) purposes.
      • Will adhere to local zoning and spec’s, not to DOE or BSA spec’s.
    Project Documents OMB Circular A 11 Analysis
  • 45.
      • Developer assumes market risk.
      • Viable residential demand outside of BNL
      • No provision for DOE or BSA to acquire interest in the facility.
    • Criterion 6: There is a private sector market for the asset.
      • The site is located in Suffolk County, New York on L I
      • Proximity to large-scale residential communities.
      • Area is premier suburban residential location for NYC
      • High demand for residential housing.
    Project Documents OMB Circular A 11 Analysis
  • 46.
    • Conclusion
    • The business parameters of the Public-Private Partnership Case to develop a new apartment housing complex at Brookhaven National Laboratory meet the applicable OMB Circular A-11 Appendix B criteria for designating the Construction Agreement and Master Facility Lease as an Operating Lease.
    Project Documents OMB Circular A 11 Analysis
  • 47.
    • Outreach
    • Work w/OECM on template
    • DOE review and approval
    • BNL issues RFP
    • CERCLA-EPA determination/release
    • Build it!
    Next Steps