View the slideshow on the budget and financing of Penn South's HVAC project, as shown at the 2013 Annual Meeting on November 3, 2013.

1. HVAC Project
Financing
Introduction
This presentation will cover:
•Why we need additional funds to complete the HVAC
project.
•How we plan to finance the increased cost of the
project, i.e., borrow from the bank.
•How we will raise the funds to pay the bank.

2. Why we need additional funds
• Unprecedented project to re-pipe entire
occupied high-rise buildings. Engineers and
contractors had no comparison.
• We needed to secure
funds before we bid
out and signed the
contract.

3. Comparative Budget Costs
(in millions of dollars)
October 2010 October 2013
Consultant’s
Estimates
Before Project
Started
Projected
Hard Costs (Construction)
$86.4
$125.6
Soft Costs
$7.9
$19.0
Grand Total
$94.3
$144.6

4. Projected Budget as of October 2013
Hard Costs (Construction)
Asbestos removal
Purchase fan coil units
HVAC mechanical: Replace pipes & pumps,
install FCU's, insulate, close walls, paint
Ceiling and lobby restoration
Increase chiller capacity
Ground floor -- FCU's, Air handlers, duct
work
Other construction
Total Hard Costs
$11.8
$7.5
$94.9
$2.9
$5.0
$2.5
$1.0
$125.6

5. Bidding the mechanical work
Phase I (Buildings 1, 4, and 5)
Our engineers and consultants recommended that
we award the contract to the low bidder. That was
RC Dolner, who charged $5 million per building.
(This did not include mechanical work on the ground
floor.) However, we were unhappy with their work:
• Walls not properly sealed
• Multiple leaks
• Insufficient insulation
• Inadequate contractor staffing and supervision

6. Bidding the mechanical work
Phase II (Buildings 2A, 2B, 3A, and 3B)
The contract for Phase II was
awarded to FW Sims, one of
the largest contractors in the
region. They were the low
bidder among qualified
contractors considered for
Phase II. We have been
pleased with their work.
However, FW Sims’ bid for
Phase II averages over $6.5
million per building.

7. Items with Large Increase
Mechanical Work
(Millions of Dollars)
Total
$57.6
Budget as of 2010
FY 2012 Actual*
FY 2013 Actual
FY 2014 Projected
FY 2015 Projected
Total 2012 - 2015
Cost Per
Building
RC Dolner
FW Sims
FW Sims
FW Sims
$4.6
$15.0
$25.6
$26.3
$27.6
$5.0
$6.4
$6.6
$6.9
$94.5
*Per original contract. Excludes unapproved change orders.

8. Projected Budget as of October 2013
Soft Costs
(Millions of Dollars)
Design & Engineering
Environmental monitoring
Owner's representative
MRH costs: HVAC office, payroll, .
lost rent, legal, etc.
$2.6
$2.5
$2.2
Permits
Mandatory inspection, site safety
Other consultants, etc.
$0.7
$0.6
$1.1
Total Soft Costs
$19.0
$9.3

9. Items With Large Increase
MRH Direct Costs
(Millions of Dollars)
HVAC Rent Loss,
Payroll Legal, etc.
Total
FY 2012 Actual
FY 2013 Actual
FY 2014 Projected
FY 2015 Projected
$1.5
$2.0
$2.0
$1.9
$0.8
$0.4
$0.4
$0.3
$2.3
$2.4
$2.4
$2.2
Total 2012- 2015
$7.4
$1.9
$9.3
Original 2010 Budget
$3.0
$0.8
$3.8
Additional Cost
$4.4
$1.1
$5.5

10. Increased HVAC Office, Security &
Maintenance Staff
HVAC
Maintenance
•
High demand for
staff to prep
apartments, move
beds and furniture.

11. Increased HVAC Office, Security &
Maintenance Staff
HVAC Security
•
Officers are posted at all
building entrances.
•
Roving officers monitor the
work site.
•
Security handles all keys for
apartments, opening doors for
contractors and locking them
when work is done.

12. MRH HVAC Employment
At Peak during Mechanical Work
HVAC
Office
HVAC
Security
HVAC
Maint.
Total
Buildings 1, 4, & 5
4
13
14
31
Buildings 2 & 3
5
12
20
37
Buildings 6 & 7
5
12
20
37
Buildings 8, 9 & 10
5
12
20
37

13. Items With Large Increase
Environmental Monitoring
Original
Budget
2010
Initial
Bid
2011
Current
Budget
2013
Design and documentation
Construction administration
Environmental specialist
Hygienists -- field monitoring
Laboratory testing
$0.1
$0.1
$0.3
$0.1
$0.4
$0.5
$0.1
$0.4
$0.5
$0.1
$1.6
$0.5
TOTAL
$1.1
$1.1
$2.5
The law required a major increase in hygienists number and hours. Change in
law reduced number of tests that a worker could do in an hour and increased
cost of testing. Fortunately, there was a reduction in the number of tests
required that offset the higher unit cost.

14. New Items Added to Cost of
HVAC
In addition to the increased costs for the
mechanical work and staffing requirements of
the HVAC project, we found that several new
and unanticipated items had to be added to
the HVAC work.
• Lobby ceiling replacement and lobby wall
refurbishment.
• Ground floor mechanical work.

15. New Items
Lobby Restoration
Original budget included $900,000 for ceiling restoration in
lobbies. The walls were to remain and be protected. Examination
showed wallpaper dirty and torn in many places after years of use.
Board decided to have entire lobby refurbished and added to
scope of work. Total projected cost is $2.9 million.

16. New Items
Ground Floor HVAC Improvements
•Original CDM plans left old ground floor FCU’s and
air handlers in place. If this equipment had to be
changed in the next few years, we would have to
tear down our brand new ceilings. The added work
has been done in Buildings 2 and 3. At its November
2013 meeting the Board will consider doing this
work in remaining buildings. New equipment would
be installed, new ductwork added. Proper heating
and cooling would finally come to Laundry and
Community rooms.
•Projected cost for all buildings is $2.5 million.

17. Adding Fourth Year
Why? Project too large for contractors or
Penn South to handle in 3 years.
Reasons for extra cost when construction
work to be done is the same?
–Labor costs increase about 5% a year
–Mobilization one more time
–Supervision for the extra year
–Penn South staff time, HVAC office
Estimated cost of adding 4th year: $5 million.

18. Funding HVAC Completion
•Total projected budget
$144.6 million
•Available funds
–Initial escrow $95.0 million
–City grant
$ 5.0 million
–Interest
$ 1.8 million
Total available
$101.8 million
•Additional funds needed
$ 42.8 million

19. Funding HVAC
In anticipation of the possibility that we might
need more funds than originally borrowed
based on the 2010 consultants’ estimates, we
did discuss with our bank how we might
borrow more money.

20. New Borrowing
•Needed funds per budget
$42.8 million
•Contingency
$ 2.2 million
•Total borrowing
$45.0 million
•Cost to borrow if we have a 7-year interest only
loan starting in July 2014, maturing in 2021 coterminus with our present mortgage:
–Current interest rate 3.8% $1.7 million per year
–If 4.0%
$1.8 million per year
–If 4.5%
$2.0 million per year
–If 5.0%
$2.2 million per year

21. Discussions with Bank
•We are in the process of negotiating the
details of the loan with the bank.
•We are also exploring the possibility of
repaying $5 million of the loan early without
penalty.

22. How to Pay for New Loan
•The Penn South Board of Directors will consider different
ways to pay the debt service on the new loan –
assessment or carrying charge increase.
•We will seek other income sources to minimize impact on
cooperators.
–Seek help from City
–Negotiate lease modifications with commercial
tenants
–Use increased income from first sale assessment.
•Worst case scenario – no outside help
–Minimum: $1.7 million equals 7.7% increase
–Maximum: $2.2 million equals 10% increase

23. Overall Operating and non-HVAC
Capital Expenditures
To keep this report in perspective, let’s look
at Penn South’s record in controlling
operating and non-HVAC capital
expenditures.

26. Conclusion: Remember
•The last increase for the HVAC project was in
2011, three years prior to this second one.
•The last increase for operation expense was
in 2008, five years ago.