Brooklyn Bridge Park Financials

People for Green Space Foundation Inc.

Prepared for BBPC Board Meeting on November 7, 2014
1

Amazing Transformation of
Downtown Brooklyn
We may have needed
the towers a decade
ago to fund the park
But, does it make
sense to build them
today?
This is about a park
and the future needs
of Downtown
Brooklyn
2

Sworn Commitment to Minimize Housing

BBPDC has committed to building the minimum development necessary to cover the park's
maintenance and operations needs. Accordingly, the plan analyzed in the FEIS and described in
the GPP represents the maximum build-out that would occur as part of the Project. If, once
requests for proposals are issued for the development components, it becomes clear that
market conditions will allow for less development to support the park's needs, the
development program will be reduced accordingly.
Brooklyn Bridge Park Defense Fund v. New York State Urban Development
Corporation, 2006

Key Question: Are the new buildings

at Pier 6 needed to pay for the park?

The Big Picture:

Park Will Rain Cash in Long-Term
Park profit and cash flow dramatically increase
over time:
Park revenue will grow faster than expenses
(driven by faster growth in NYC real estate taxes)
Then park revenue growth accelerates due to
immediate compounding benefit related to tax
breaks, and further accelerates as these tax
breaks expire
In long-term, park expense drops off as one-time
pier expense ($200m+) is paid off, while park
recurring revenue continues to grow and even
accelerate

It is our understanding that these large
excess profits in perpetuity have to be
returned to the state
5

Park Already Overfunded

Starting with park income figures for
FY18 and including the effect of tax
breaks, our analysis shows that park
profits dramatically increase over time

Details available in 9/17

presentation on SavePier6.org

Park Profit Before One-Time Pier Expense ($ in Millions)

Total Park Revenue (Excluding Pier 6)

Operating Expense
Interest Income (1%)
Park Profit

Total
FY18-67
2,095
(1,049)
89
1,136

More than $1 billion in cumulative park profits

over the fifty years

Park profits easily pay for one-time pier

expense (noting that the park already has
$87m in one-time revenue)
6

Misleading Financials Presented

at August 6 BBPC Board Meeting

BBPC only presented one year to its board and the public to justify Pier 6 construction
(source: BBPC presentation dated 8/6/14); and the year chosen (FY18) ignores $4m/yr in
residential tax breaks at OBBP that start to expire shortly thereafter (FY20)

Would be an extra $10m/yr in park income

if all identified tax breaks expired today

We went through hundreds of tax bills and issued a press release about the incremental park
income from the expiration of tax breaks (including the $4.7m/yr from OBBP) on August 18
Press release publicly available on www.SavePier6.org
7

BBPC Now Agrees with $4.7m/yr in OBBP

Tax Breaks But Refuses to Count Others
The projected incremental revenue associated with the expiration of the J-51 tax abatement at the residential portion of 360
Furman is approximately $4M per year ($2014). The projected incremental revenue associated with the expiration of the ICIP tax
abatement at the commercial portion of 360 Furman is approximately $0.7M per year ($2014). Given that the initial baseline
taxable market values for the Pier 1 hotel and Empire Stores have not yet been appraised, and that the twenty-five year ICAP
exemptions have not been applied for, let alone granted, any projections as to the amount of any additional revenue to the Park
upon their expiration would be highly speculative. (Regina Myer, Letter to Local Elected Officials Dated 9/16/14)
Information not included above:

Total Identified Tax Breaks = $10m/yr = $4.7m/yr for OBBP (aka 360 Furman ST)+ $0.3m/yr for Pierhouse commercial
units + conservatively estimated $5m/yr for Empire Stores and Pier 1 hotel

ICAP and ICIP exemptions start to phase out in year 17 of 25

Empire and Pier 1 hotel tax breaks start to phase out in FY33 (based on park assumption that ICAP exemptions
are granted in FY17)

Wrong to exclude tax breaks just because the size of the tax breaks must be estimated

Unclear how BBPC estimates projected PILOT income after tax breaks if unable to estimate certain tax breaks
Empires Stores as example of absurdly low PILOT estimate (even after including a tax break estimate)

Exact value of tax breaks on Empire Stores and Pier 1 hotel will be known after appraisal in just a few years
Why not wait if the BBPC is unable to estimate the value of these significant tax breaks?

Checklist: What Else the BBPC is Missing

Before any Pier 6 development, our cash flow analysis shows that the park is significantly overfunded once
the following factors are properly taken into account:
1.
2.
3.

4.
5.

Incremental +$10m/yr in income from the expiration of identified tax breaks

An immediate compounding benefit on the higher assessed value on park development that
receives tax breaks
Gold-plated park expense budget should grow slower than park revenue (driven by PILOT
revenue; note that PILOT is calculated just like property tax for any other city building and that
property tax revenue citywide has increased at more than 4% per year over the last 20 years)


For first 25 years, taxes and ground leases on development in park conservatively
assumed to grow at 3% per year (versus expenses at 2%)


Thereafter, for conservatism, assumed to grow with expenses at 2%
In long-term, park cash flow accelerates as the $200m+ in one-time pier expense is paid off,
while park recurring revenue continues to grow and even accelerate higher as tax breaks expire
Adding to the park surplus, we conservatively assume a total of $32 million in revenue over 25
years ($1m/yr increasing at inflation) from temporary corporate sponsorships/events, private
fundraising and other alternative revenue sources


Alternative sources could clearly provide much more income (see 2011 BAE study, etc.)

Hidden money (NOT IN OUR MODEL)

6.
7.

BBPC PILOT assumptions have not kept up with increase in real estate value (for instance, Empire
Stores)
BBPC ignores value of profit sharing arrangements with developers (Pier 1, John ST, Others?)
9

Tax Breaks Accelerate

Income Growth from Day 1
(Not Just When They Expire)
Full Tax Payer

Year 1

Year 2

Year 3

Year 4

Assesssed Value
Growth

100,000

Class 2 Tax Rate

13.145% 13.145% 13.145% 13.145%

Taxes Paid = Park Income

Growth

Property Owner With Tax Breaks

13,145

Year 1

103,000 106,090 109,273

3.0%
3.0%
3.0%

13,539
3.0%

13,946
3.0%

14,364
3.0%

Year 2

Year 3

Year 4

Assesssed Value
Growth

200,000

Class 2 Tax Rate

13.145% 13.145% 13.145% 13.145%

Taxes Before Tax Breaks

Growth
Tax Break
Taxes Paid = Park Income
Growth

206,000 212,180 218,545

3.0%
3.0%
3.0%

26,290

27,079
3.0%

27,891
3.0%

28,728
3.0%

(13,145)

(13,145)

(13,145)

(13,145)

13,145

13,934
6.0%

14,746
5.8%

15,583
5.7%

Effects of Tax Breaks on Park Income

1.

From the start (not years in the

future), compounding benefit on the
higher assessed value drives faster
growth in taxes paid for properties
with tax breaks
Simplified example at left

2.

Park PILOT revenue also increases as

tax breaks expire or phase out in
future years

Tax breaks do not expire

But still get faster income growth!

10

Hidden Money
(Not in Our Model / Not in Park Model)
PILOT assumptions have not kept up with the increase in real estate value
For instance, absurdly low $3/sqft in PILOT for Empire Stores on
commercial space renting for high $40s to $150 per square foot
(source: The Real Deal, 11/5/13), even before this years big rise in
property value and even if one makes assumptions on tax breaks
(that will expire)
$1.3m/yr in PILOT from Empire Stores ($2.8m/yr less ~$1.5m/yr in ground lease)
Implies $3/sqft in taxes on ~360,000 sqft of office and ~75,000 sqft of retail
Reporter estimates rent roll of $26m (assuming taking rents of 10% below ask)

BBPC ignores value of profit sharing arrangements with developers (Pier

1, John ST, Others?)

11

BBPC Response (Falsely) Claim Errors

BBPC at 9/17 CAC Committee Meeting on finances: It is

a modeling error to grow revenue faster than expenses
PFGSF response:
This is absolutely ridiculous
Park revenue (mostly PILOT and ground leases
with contractual escalators) has little
relationship to park expenses, and park
revenue (driven by growth in NYC property
taxes) should grow faster than expenses
Moreover, even assuming the BBPC is correct
and using its expense adjustment of $350m
over the period (see BBPC slide to right), our
model would still show a cumulative profit of
~$800 million over the fifty year period, much
more than needed to pay the one-time pier
expense (noting that the park already has
$87m in one-time revenue)

Source: 9/17 Committee Meeting of the Community Advisory Council as reported

on the Brooklyn Heights Blog (brooklynheightsblog.com/archives/70371)

PFGSF response to other items:

Inclusion of corporate sponsorship and other
alternative revenue sources is by design, and the
small ($32m) amount assumed is not material
Difference on maritime expenses is not material, and
BBPC has yet to provide detail to allow us to
understand the $40m difference
12

When All Else Fails, Raise Expenses

In a Long-Term Model No One Has Seen

Park operating budget (before one-time pier expense) has been ~$12m/yr for years
See 2009 BBP Financial Plan, 2011 BAE Study (that sought to raise money to replace housing against the $12m/yr
budget) and 10/13 BBP Board Presentation on Financial Model

Now, shortly after our press release about the additional income from tax breaks, BBPC announced a $4m/yr increase
(+33%) to its operating budget to $16m/yr due to an increase in its capital replacement reserve
Rationale is based on ratio found in 2005 Nielsen Study (1.4% of $130m construction budget)
Why was capital replacement reserve only 0.6% ($2m/yr on a $350m construction budget) in 2009 plan?
Sudden increase seems dubious as increase in construction budget to $400m is not a surprise and did not happen
overnight
$400m budget includes $200m base costs (as per 2009 financial plan) that are not relevant to replacement
work required

Revenue model created to match

projected expense, and recurring
revenue must meet or exceed
$12m [Not $16m] annually
(source: 10/13 BBPC Presentation)
So, if $12m/yr last October, why
$16m/yr today??? What changed in
last year? Or since 2011 BAE study?
13

$6m/yr for BBPC Replacement Reserve?

A threefold increase in the parks capital reserve estimate which is not even a near-term expense is
now the foundation of the BBPC financial justification for Pier 6
AND, $60m/decade is an enormous figure for capital replacement in an already gold-plated budget for a
park that is mostly hardscape, lawns and only a few buildings
Where does the money go?
Like any corporation, the park should do a proper analysis of its capital replacement reserve, especially
now that this reserve will account for ~38% (=$6m/$16m) of its operating expense budget
Categorize the items that will need to be replaced, estimate their useful lives and replacement cost

(Source: 2009 Financial Plan)

(Source: 2005 Nielsen Study)

14

Local Elected Officials Uniformly Oppose Towers

And Join CAC in Requesting Financial Justification

(Excerpt from 10/6/14 Letter to Regina Myer)

15

The BHA Requests Reduction and Asks

For Financial Justification
While the BHA has long accepted that Brooklyn Bridge Park will be self-supporting,
using Payments in Lieu of Taxes (PILOTs) as the primary source of revenue, we have
also consistently urged you to build the lowest buildings possible on Pier 6. Based on
the facts we know and the designs we have reviewed, we believe that a 315- foot
structure is simply too tall and we ask that BBPC significantly reduce the size of the
structure. To enable us to understand what height we can support-- and what
tradeoffs are involved in the objective to include affordable housing, which we
strongly support as one of the City's policy priorities-- we request for ourselves and
the larger community your revenue and cost projections and assumptions in sufficient
detail and for a sufficient timeframe for us to review and fully understand your
anticipated long-term financial requirements. This request is consistent with the
efforts of the Community Advisory Council, our elected officials and other members of
the surrounding community.
Excerpt from 10/29/14 Letter From The Brooklyn Heights Association to
Regina Myer

16

What Is Being Hidden? Why?

The park is a public asset, and the park corporation is a public entity, and
the public deserves a transparent understanding of what is being done in
their name
The BBPC should provide the requested detailed financial information to
its board and the public to back up its claims about the need to develop
Pier 6
Why build within a public park if the park doesnt need the money?
Wasnt housing within the park supposed to be a necessary evil to
pay for the park?
Wouldnt it be a great shame to take away public park space forever
only to find out a few years later (when Empire Stores is appraised, for
instance) that the park doesnt need the money?
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The Opportunity Today:

Improved Financials => New Opportunity Set!
Reclaim private parcels for needed public park space
Plan better access, landscaping and experience for everyone

Actual Developer
Rendering of new
Pier 6 Within Park
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Why are we sticking to a

decade old plan from the
Bloomberg and Pataki
administrations when Brooklyn
is being transformed by a
visionary, new mayor?
19

Appendix:
Actual Developer Renderings of Pier 6
Within the Brooklyn Bridge Park

(Actual developer renderings of Pier 6 from BBPC presentation dated 8/6/14.)

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Surrounding a Park Playground

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Massive Density in Flood Zone

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Equivalent of 500 brownstones

within the park entrance

(Approx. 1.5m sqft in total in OBBP conversion and new Pier 6 development)

23

Is this a grand entrance to a great park?

Forcing park visitors to cross

major roads and walk around
condos to enter their park

24

Hardscape dominates park already

25

Violating almost all of 13 guiding principles

(including preservation of view planes)

26

Does this look, even feel, like a park?

27

30+ stories within a park

28

Even dog run is squeezed

29

Why build in an overfunded park?

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