penn-mckee visioning i - tube city...
TRANSCRIPT
Penn-McKee Visioning I Overview Report
March 28, 2019
Young Preservationists Association
Outline: YPA of Pittsburgh - Penn-McKee Visioning March 28, 2019
i. PREFACE
I. MARKET
A. Demand Generators
i) Retail - Population
One mile - 10,218. Three miles- 63,556
Per capita Income: One mile - $31,610. Three miles - $41,000
County per capita income: $56,333
Food Away from Home: One mile - $8 million. 3 mile - $57 million. 5 mile - $141 million
ii) Specialty a. GAPTrail
South Side Works -218,000 riders/year. Rankin Bridge - 110,000 riders/year
b. Marina i. 186 boats
c. Palisades i. Most weekends - events - bingos to bashes.
iii) Hotel/Residential a) Tourism/Recreation
a. 2014 Survey - Overnight trip- 57% up from 23%. West Newton-15 rooms Connellsville - 54 rooms
b) Employment and Business a. Naval Nuclear Lab, UPMC Hospital, RlDC Others: Mon-Yough Chamber, Kane, Mon-Yough Community Services
c) Marcellus Shale Averaging 200 wells drilled/year in tri-County.
1
d) Hotel Demand Summary 2018: 7 mile - 305,684 room nights
5 mile - 198,361 room nights B. Supply i) Food away from home - leakage.
a. Demand: 3 miles - $57 million of purchasing power/250 sq.ft.= 230,000 sq.ft. b. Supply: 150,000 sq.ft. c. Approximately Yz of demand goes outside 3 mile area for restaurants, etc. d. GAP Trail - $1.1 million from Rankin. $2.4 million from South Side Works.
ii) Hotel a. 5 mile - 790 rooms - 66.1 % occupancy b. 7 mile - 1310 rooms - 64% occupancy
II. Public Improvements
Event space. Access to the Riverfront. Parking.
III. Market Assessment • Restaurant I brewpub
•
•
Bakery, coffee shop, ice cream
60 rooms: adds 4.6% to 7 mile supply of 1310 room adds 7 .5% to 5 mile supply of 790
@ 60% occupancy - 13, 140 Room nights
o Add them up based on demand generators
o Hotels - seasonal. Event planning during winter months.
IV. Financial Analysis
A. Costs
• Demo and abatement - 500,000
• Restaurant-varies ... used $135 sq.ft .
• Hotel - $325 per square foot
2
Estimate: $12.8 million
B. Sources • ISRP, EPA, CITF, NMTC, HTC, RACP, EDA, BIOS, OCS, Foundations.
C. Revenue/Expenses
Model • First floor rents - $15 square foot.
• Occupancy level - hotel
V. NEXT STEPS LOWER HANGING FRUIT •
•
•
•
•
•
•
•
•
Organize CDC - Board, Summer events
Fund raising for planning and event programming CJTF-Feb. Foundations - timetable varies. Community-
Event Planning around McKee Point - Summer
Fund raising for Abatement/demolition . USEPA - Nov. Protected purchaser. City transfer to CDC to be eligible.
PA DCED ISRP- July
Fund raising for building stabilization and improvements RACP-Jan/Feb .
Outreach to restaurant brewpubs .
Aggregate hotel demand - employers, events, GAP Trail
Refine cost estimates
Update reuse strategy o Restaurant and ancillary retail only
o Restaurant/retail & hotel
o Restaurant/retail & housing
3
o Restaurant/retail & hotel & housing
IDGHEST FRUIT
• Secure tenant commitments
• Secure full construction/permanent funding commitments .
• Construction
• Occupancy
• Opening
4
Penn-McKee Visioning I 2018-2019
Young Preservationists Association
Young Preservationists Association DJS Ventures
2018-2019
The Penn-McKee Block Visioning I
M cKEEsPORT fusING, LIKE THE PHOENIX OF ANCIENT MYTHOLOGY, symbolizes a
time of important renewal and regeneration for this proud city at the
confluence of the Monongahela and Youghiogheny Rivers. There is great wisdom in envisioning
economic development strategies around a unique historic asset, and using that asset as a bridge
to the economic drivers in the region; notably the McKee Point Marina, the Great Allegheny
Passage Bike Trail (GAP), and the Palisades event center. Tying all of these elements together in
a comprehensive study is the underlying work illustrated in this plan.
A. 1
McKeesport has a compelling story to share with its visitors and the world.
Our friends at the Pennsylvania State Historic Preservation Office (PHMC) remind us that
effective preservation needs to consider the whole block and not just one building in isolation.
This plan brings all the extant pieces into one picture so as to minimize any risks associated with
the costs of restoring an old hotel. The first, and most important, question that we set out to
answer is this:
DOES IT MAKE SENSE TO SAVE THE PENN-McKEE HOTEL,
AND WILL IT BE COST EFFECTIVE TO DO SO?
This is how we set out to find the answer: we focused on the numbers in a market survey,
because numbers have no bias toward an intended outcome. We also searched for successful
examples of how other Cities had accomplished a similar effort. As I had mentioned to the City
Council of McKeesport when I spoke on July 10, 2018, "We don't have to re-invent the wheel
here. Everything that we're trying to do has already been done successfully by someone else; we
just need to learn how they did it and how to apply it to what we need to do." To this end we
traveled to places like Piqua, Ohio, and Connellsville, Pennsylvania to meet with those who had
managed to restore old hotels or create new boutique ones.
The old Fort Piqua Hotel in Piqua, Ohio, is the place that frequently was referenced in the first
conversations that we had as an important case study for us to consider. Internet searches and
phone calls can reveal many things, but the secret ingredients are best found in person with boots
on the ground, ifl may mix my metaphors. Doug Skowron, who has authored the market survey
and feasibility study that will fill the bulk of this report, and I traveled to Piqua on November 5,
A. 2
2018 and met with the Executive Director of the Piqua Public Library, Jim Oda. Jim was
thoroughly involved in fundraising and managing most of the details of the restoration project,
and was only too kind to share with us his personal insights into the process. The Public Library
is now the anchor tenant of the old hotel building.
An interesting moment of serendipity met us when we pulled into the parking lot in front of the
Library. A woman named Ruth stopped us as I was taking pictures and asked if we were
interested to know that she had personally helped raise $4 million in 10 days to help restore the
building. What makes this feat all the more remarkable is that she did it in 10 days, because they
would've otherwise lost their public funding. We were only too happy to engage her and then
met with Mr. Oda who filled in all the other pieces.
The great lesson to be learned here is this: how many times can you spend the same dollar? The
State of Ohio subsidizes the library, the library pays rent to the city, and the city pays off the debt
service to the bank. There is a circular financial arrangement that moves through the system.
Pictured: Piqua Public Library, Ruth, Jim Oda.
The City of Piqua had determined that the hotel was too big for the
community to sustain as a hotel, so they opted for a public library as
the anchor tenant. This decision came after many out-of-state
developers tried to impose their visions on them. The old Fort Piqua
Hotel had been built in 1891 and had last been used in 1996 and sat
vacant for two years.
A. 3
The city owns the building.The capital stack--or quilt of funding--looks like this:
Federal Rehabilitation Tax Credit 20%.
State Rehabilitation Tax Credit 20%.
New Market Tax Credits 15%-18% [Term: 19 years, 6 months]
55%-58% of Total Project Cost (TPC)
Uses:
$18 million (Eligible for tax credits)
$3 million (Ineligible for tax credits)
$22 million TPC
Sources:
$9.9 --$10.44M
$4M
$3--$3.5M
$185.000
Tax Credits
33 Private Sources (Includes one $1M gift).
Ohio EPA (Vertical Brownfield Grant).
Foundations.
$17.085--$18.125M (Plus debt service-- D/S--approx. $3M)
The State of Ohio also contributed $200k for the Library. There was no federal
funding. The loan that the city took out was paid off early. The first, second, and
fourth floor were restored, the third floor is still stabilized but empty.
Closer to home, we explored the model of a boutique hotel, in this case The Ace Hotel (pictured
below) in East Liberty. The business model of the Ace was described to us this way: "The hotel
is a platform for the food and beverage." In other words, the restaurant and the bar are the
biggest contributors to paying down the debt service. Ace Hotels is the preferred chain for
Google and they operate the hotel, but are not owners of the building. A market study of the east
end of Pittsburgh determined that the area could support 250 rooms. Three hotels were then built:
in Bakery Square, the Indigo, and the Ace to meet the demand and need.
A. 4
The restoration of the building happened this way: After getting half of their capital stack in a
similar fashion as in Piqua, with Rehabilitation (Historic) Tax Credits (20%) and New Market
Tax Credits (30% after fees) meeting half of the Total Project Cost, and a $700,000 grant from
Health and Human Services, the East Liberty Development, Inc. (ELDI) found that the holding
costs were eating them alive, as detailed in an article on Community Development Corporations
in the Pittsburgh Post-Gazette, March 1, 2019. Kendall Pelling, Project Manager with ELDI told
me that one problem that ELDI faced was that it is too risky for
lenders to take the first position in a hotel development because
they consider them to be a special asset class. So the deal to rehab
the old YMCA was very complicated. As detailed in the Post
Gazette article, a deferred payment mortgage was obtained, and
ELDI also holds debt in the property. Again, Kendall Pelling: "You
could make a wall paper print out of all the different funding
sources that we used." According to Pelling it took a mix of Equity
Investors--including A and B Shares, Foundation Grants, and Debt
to bring it all together. The Ace Hotel has an active event schedule
(picture), and has a robust restaurant and bar business.
The Cobblestone Hotel & Suite in Connellsville also got our attention, as we had been told that
the investors in that property had inquired previously into the Penn-McKee. This hotel is new
construction (our estimate is approximately $7.SM in cost) and on the Great Allegheny Passage.
It's best connection to our study is the frequency of full occupancy, which happens during the
warm months of summer and relates directly to the programming happening on the
Youghiogheny River and on the Bike Trail. Its distance from Pittsburgh (50 miles) make it an
overnight destination for bicyclists traveling the whole trail between Washington, D.C. and
Pittsburgh.
The Great Allegheny Passage is such a key element of the
potential market development that can create a sustainable
environment for the Penn-McKee, so we met with David
Kahley (pictured) of the Progress Fund in West Newton,
Pennsylvania. The Progress Fund seeds new businesses
A. 5
along the Bike Trail. Kahley believes that the key to economic growth is an abundant presence of
cash registers! There's a lot of wisdom to this. Having places for bike riders to stop and eat,
drink, and buy gifts as they peddle on their way makes a lot of sense. The Progress Fund makes
loans between $50,000 and $1.5 million. Specifically of interest is the $200k Craft Brew Fund
that could help establish a Brew Pub in or around the Penn-McKee.
The Rehabilitation Tax Credit, also called the Historic Tax Credit, represents a potential 20%
of the Total Project Cost, which on a $14 million rehab would equal $2.8 million. The extra
benefit that tax credits provide is that they can be "syndicated" to a bank as a way for them to
lessen their tax liabilities and to provide the developer with up-front cash. The building must be
listed on the National Register of Historic Places to qualify, and we know that the nomination for
the Penn-McKee had been rejected in 2015. We brought in an expert on the nomination process,
Jeff Slack, who at the time of his being engaged was the Chair of the Board of the Pennsylvania
State Historic Preservation Office (PHMC), the organization that advances nominations to the
Department of the Interior for consideration. Slack has taken a more comprehensive approach
than the original application using a broader category, which has thus far cleared two hurdles
along its way for nomination. This is an on-going process that will stretch out for several more
months. Slack's work is in the body of the report.
Deputy Secretary of the DCED, Rick Vilello (pictured with
his secretary Evelyn Chianelli) and I met at the end of 2018.
He applauded the comprehensive approach that we are taking
in attempting to link the Penn-McKee with the McKee Point
Marina, the Bike Trail, and the Palisades. He also like the
event strategies that I'll detail in a moment. Vilello said that
the City of McKeesport is eligible for Department of
Environmental Protection (DEP) to clean up asbestos and lead
from the hotel, along with DCED resources, and that there is no conflict in pursuing both funding
streams. He also promoted the potential that the Opportunity Zone provides, and sees that as an
important part of the funding mix. In his time as Mayor ofLockhaven, PA, Vilello led the
rehabilitation of an old Opera House into 20 apartments along with 3 retail spaces. This was done
with help from the PA Housing Finance Agency (PHFA) and $6 million from the DCED. This
A. 6
investment has attracted four to five times more investment in the area. Affordable housing is
often used to save blighted historic buildings, as the work of Pittsburgh History & Landmarks
Foundation (PHLF) demonstrates. A proposal from Trey Barbour of MVAH Partners for such a
potential development for the Penn-McKee is included in the appendix of this proposal.
Landscape Architect Nina Chase from Merritt and Chase provides us with a clear vision of how
the Penn-McKee Block may be transformed--or lost. When we consider that the architect Benno
Janssen built three hotels in Western Pennsylvania, the William Penn, the Penn Lincoln, and the
Penn-McKee, we can see the choices that we have. The William Penn in Downtown Pittsburgh is
beautifully restored while the Penn Lincoln is now a parking lot. Here is what failure looks like;
this is the Penn-McKee as a parking lot:
Positive steps can be taken immediately to prevent this from happening. An Event
Programming Initiative that seeks to bring people in around the Penn-McKee Block every
Friday evening from May through September with concerts by local bands, food trucks, games
for kids, and beer sold by alternating non-profits to help their causes (and tap into their mailing
lists) is an inexpensive way to create a buzz of activity at McKee Point. To take David Kahley's
prescription one step further, not only do you need cash registers, you need people with wallets.
A. 7
This is what success looks like: people
enjoying themselves and spending money
around McKee Point. Restoring the Penn
McKee will not only make perfect sense if
this is happening, it will be a necessity
because of the demand for what it can
provide. A historic asset is the perfect place
around which to create economic renaissance for McKeesport. Event programming is the first
step to get there. There are many more, of course, but let the harvest begin with the low hanging
fruit. A robust schedule of happenings along the River Front that brings people in every Friday
and on Summer Holidays is a great way for McKeesport Rising to take flight like the Phoenix
and inaugurate a new era for this proud city.
Matthew Craig
Executive Director
Young Preservationists Association
A. 8
Penn-McKee Visioning I
TABLE OF CONTENTS
PREFACE
EXECUTIVE SUMMARY
I.
II.
MARKET ANALYSIS A. Demand Generator
a. Retail ii Specialty Entertainment iii. Hotel/residential
B Supply i. Food Away from Horne ii. Hotel
PHYSICAL IMPROVEMENTS
A. Public Improvements and McKee Point Vision
B. Historic Asset
III. MARKET ASSESSMENT
A. First floor - retail/entertainment
B. Upper Floors - Boutique Hotel
IV. FINANCIAL ANALYSIS
A. USES
B. SOURCES
C. REVENUE/EXPENSES
D. SUMMARY OF FINANCIALS
E. FINANCIALs - SOURCES/USES
F. FINANCIALS- INCOME STATEMENT
v. NEXT STEPS
1 2 2 5 5 6
Al-AS
i-ii
1 1
8
8-15
16
17
17
17
18
18
19
20
20
21
22
23
ITEM
1.
2.
3.
4.
5.
6.
7.
8.
TABLE OF APPENDICES
Demographic Analysis - 1-3-5 Mile Radius of Penn-McKee.
Great Allegheny Passage Trail Map - Pittsburgh to D.C.
Unconventional Wells Permitted & Drilled in PA. -2017 & 2018
Restaurants Within 3 Miles of Penn-McKee Hotel
Analysis of Prospects for National Register Designation and floor plans for former Penn-McKee
Development Budget Prepared by Multi-Family Developer
Stabilization Budget Prepared by second Multi-Family Developer
Summary of Community and Local Government Assistance
EXECUTIVE SUMMARY
The former Penn-McKee Hotel has sat vacant for approximately 25 years. Like other real
estate, its prospects for redevelopment depend on generating sufficient future revenues to pay for
its operating expenses and overhead costs, including debt service. The Young Preservationists
Association of Pittsburgh (YPA) has been tasked with investigating the feasibility of reuse, with
a particular interest as a boutique hotel with a restaurant/retail on the ground floor.
This investigation examined: • the current local demand and supply for such space,
• physical improvements to McKee Point, the area surrounding the Penn-McKee Hotel,
• cost ofrenovations to the Penn-McKee and the potential sources of funds,
• and preliminary projections of income and expenses for a renovated Penn-McKee .
The positive market indications for reuse of the Penn-McKee include: • in 2018 hotel occupancy in a 5 mile radius of the current Penn-McKee averaged 66%.
•
•
•
•
This occupancy rate has fluctuated over the last several years, but is currently at its
highest level.
there are no hotels within 3 miles of the Penn-McKee, and most rooms are approximately
5 miles away at the Waterfront and in West Mifflin.
Within one or two miles of the Penn-McKee, there are several major employers and
employment centers-UPMC McKeesport, Naval Nuclear Research Lab, and RIDC
Industrial Parks.
the Great Allegheny Passage ("GAP") Trail is just one block away, and there are
approximately 110,000 riders that use the Trail near this location. According to a 2014
GAP Trail Survey, over half of the trail users are planning an overnight stay and this
percentage has increased over recent years .
within a 3 mile radius, the supply of local restaurants only absorbs one half of the
consumer demand for restaurants and other food away from home.
Further reuse of McKee Point, the area surrounding the Penn-McKee, would bolster the
prospects for success at the Penn-McKee. Building on the success of the GAP Trail, the marina,
and the Palisades, McKee Point would benefit from further public improvements and
programming such as concerts and other events to create an active "sense of place."
Redevelopment of the Penn-McKee is costly, particularly a reuse such as a hotel with high per
square foot costs. In the Financial Analysis Section, a financial model was developed where the third and fourth floors were renovated for hotel use with 30 rooms per floor, the second floor was
temporarily "mothballed" for future use as hotel or residential, and the first floor was renovated
for restaurant and retail use. The projected cost was $12.8 million. Fortunately, there are
several public incentive programs available to reduce the size of the debt service and overhead,
and these are summarized in the Financial Analysis Section. However, this "capital stack" of
Sources requires tireless work to assemble and can take several years of efforts.
Based on this preliminary financial model, the hotel project can breakeven at approximately 50%
occupancy and generate very positive earnings at 60% occupancy. However, 60% occupancy of
60 rooms for 365 days per year generates 13,140 room nights. This represents about 6.6% of the
current 2018 demand of 198,368 rooms in the 5 mile radius of the Penn-McKee. Hopefully, new
demand generated by the GAP Trail, events, trade shows, and other new happenings at McKee
Point and Palisades Hall can fill some of these 13,140 room nights. However, most likely, the
majority of these room nights have to be captured from the existing demand in the five mile
radius.
As a next step, we suggest that the newly formed McKeesport community development organization begin the task of aggregating the source of 13,140 room nights. Input is needed
from employment anchors such as UPMC McKeesport, the Naval Nuclear Laboratory, RIDC
Park, the membership represented by the Mon-Yough Chamber of Commerce, Kane Community
Living Centers, and others. Ideally, the organization would include on its Board or Advisory
Board representatives from these potential demand generators.
As demand is further clarified, there are a series of incremental steps to move toward a final
market and financial decision on the project. These are described in the last section of the
Report. As one of the first steps, we do suggest applying for available State and Federal funds
to abate the asbestos in the building along with needed interior demolition. In addition to correcting the environmental problem, this will improve the interior appearance for presentation
to potential users and investors. The other Steps include further architectural and estimating
work to refine project costs, outreach to prospective tenants and hotel operators, and outreach to
financial Sources.
If the aggregation of room nights proves positive, it must be emphasized this is not an easy
undertaking, and the capital investment could still take years to assemble. As the project proceeds down the path of feasibility, we believe it is important not to ignore other prospective
uses of the upper floors of the building. For example, we did receive expressions of interest by
ii
developers of multi-family housing. While that is not currently the preferred approach, it still
may be an option that gains the most market acceptance.
As a final note, the reuse of the Penn McKee can serve as a launch pad for further planning and
redevelopment of the 5th Ave commercial corridor. With McKeesport's eligibility under the new
Federal Opportunity Zone program, the time might not be better to develop a Master Plan for the
5th Ave. commercial corridor and attract investors based on both tax incentives and investment
opportunity.
iii
I. MARKET ANALYSIS
A) DEMAND GENERATORS i) Retail
Trade Area - McKeesport has suffered a 20% population loss from 2000 to 2010 due to regional and national loss of jobs in the manufacturing sector, yet it still presents a market opportunity with a population of:
• 10,218 within a one mile radius of the Penn McKee Hotel • 63,556 within a three mile radius of the Penn McKee Hotel • 149,532 within a five mile radius of the Penn McKee Hotel
Moreover, the population loss of the last decade has stabilized with the projected population in 2023 largely the same as the 2010 population. The per capital income level in the one mile radius is $31,610, reflective of the low and moderate income population. However, the per capita income level jumps significantly to over $41,000 in the three and five mile radius.
The buying power represented by the trade area is summarized below, for several purchasing catagories:
1 3 5
Mile Mile Mile
Total Entertainment and Hobbies $ 7,188,000 $ 50,087,000 $120,929,000
Food Away from Home $ 7,934,000 $ 57,428,000 140,750,000
Alcoholic Beverages $ 1,443,000 $ 10,397,000 $ 25,488,000
Total Apparel $ 5,016,000 $ 33,817,000 $ 81,635,000
Total Health Care $ 4,859,000 $ 34,759,000 $ 83,501,000
TOTAL $26,440,000 $141,488,000 $452,303,000
See Item 1 of Appendix for further details.
ii) Specialty Entertainment a) Great Allegheny Passage Bicycle Trail
In addition to the retail trade, the Penn McKee Hotel is situated at the confluence of the Monongahela and the Youghiogheny Rivers. Both the Great Allegheny Passage ("GAP") Trail and a City operated marina are less than a block away. This presents several opportunities to capture purchasing opportunities.
According to data from the GAP Trail Alliance, in 2017 the trail generated approximately 218,000 riders/year at the South Side Works and 110,000 riders/year at the Rankin Bridge. According to surveys from the Rails to Trails Conservancy, riders spend an average of $10 per outing. That is $2.18 million of buying power passing the South Side Works and $1.1 million passing the Rankin Bridge. There are very few options to stop and purchase a lunch or snack along these sections of the trail. If a destination stop was created for these riders, it presents an economic opportunity for retail/entertainment use on the first floor of the Penn McKee Hotel.
b) Marina The marina consists of 186 slips that are fully occupied, plus repair and fueling facilities. The boat owners are primarily local individuals, so there is limited demand for hotel space. However, during the months the marina is active, it is a people generator. The boaters can generate demand for restaurant space and retail space.
c) Palisades The Palisades Social Hall holds up to 600 guests. The Palisades hosts approximately 10 wedding receptions per year that can generate demand for hotel rooms. In addition, the Palisades has weekend events throughout the year consisting of everything from bingos, dances, trade shows, and parties. According to Dan Carr, who manages the facility for the City of McKeesport, these events do not generate many out of town guests. However, such nearby activity would generate demand for restaurant uses on the first floor of the Penn McKee.
In addition, if the Penn-McKee were to reopen with a boutique hotel on the upper floors, there would be opportunities for joint marketing efforts. The hotel and the Palisades could jointly market their facilities for small trade shows and other events requiring both hotel space and event space.
iii) Hotel/Residential a) Tourism and Recreation
Great Allegheny Passage - (See Item 2 of Appendix for Map of GAP Trail). 110,000 travelers passed along by the Rankin Bridge in 2017. According to a 2014 User Survey, 57% of trail users were planning a multiple day trip. In 2011, only 23% were planning a multiple day trip. The percentage of overnight travelers is growing. In 2014, the average amount spent on overnight stays was $124.58.
2
In West Newton, approximately 20 miles up the Youghiogheny River from McKeesport, 15 rooms were recently added along the GAP trail in 4 separate houses that were converted to bed and breakfast establishments. In addition, a Trailside Cafe, Ice Cream Shop, & Bike and Canoe Outfitters were also recently opened. Financial assistance was provided by The Progress Fund, a local economic development organization that encourages revitalization through recreation and tourism. The GAP Trail has been the economic engine behind this growth. West Newton along with the Allegheny Trial Alliance, has won an award from the American Planning Association for their recreation-based tourism efforts.
Approximately 40 miles upstream on the Youghiogheny, in 2017 Connellsville saw the opening of a 54 room Cobblestone Hotel and Suites along the GAP Trail. Less than a 5 minute ride away, Kickstand Kitchen, a bike-themed sandwich shop, opened in June 2018 in a formerly abandoned building just off the trail.
b) Employment and Business Activity Large Employers - approximately 1,000 employees or more
• Naval Nuclear Research Lab - West Mifflin • UPMC Hospital - McKeesport • RIDC Industrial Parks - approximately 1,000 employees occupy the Regional
Industrial Development Corporation Parks in Duquesne and McKeesport. The largest employers include:
Duquesne • American Textile • Food Bank
McKeesport • Dura-Bond • • • •
People's Gas - Service Center Duquesne Light - Service Center Consolidated Power Stericycle
• Pure Penn Based on estimates by the staff of RIDC, another 100 jobs are anticipated over the next three years by both current and future employees in the two Industrial Parks.
Other Significant Employers • Penn State - Penn-State Allegheny Campus is looking for event space for receptions such
as Alumni events, donor events, cocktail hours, and would host approximately 4-5 events/ year at a new Penn-McKee Hotel.
• Community College of Allegheny County - South Campus • Kane Community Living Centers • Mon-Yough Community Services
3
c) Marcellus Shale Activity
The area roughly defined by northeastern Washington County, southeastern Allegheny County, and southwestern Westmoreland County has seen a dramatic increase in unconventional wells permitted and drilled. See Item 3 of Appendix for Map of Permits Issued and Wells Drilled. The countywide information is further detailed below:
2015 2016 2017 2018 County Issued Drilled Issued Drilled Issued Drilled Issued Drilled
Allegheny 47 23 40 14 116 26 84 16
Westmoreland 37 5 35 3 47 7 138 44
Washington 361 160 323 136 514 209 315 105
TOTAL 445 188 398 153 677 242 537 165 ------~- --
Gas workers are frequently brought in temporarily and generate demand for hotel space.
d) Hotel Demand Summary. Overall demand for hotel space has increased by 71 % since the Great Recession of 2009 within 7 miles of the Penn McKee. Within 5 miles of the Penn McKee it has increased by 40%. It should be noted, however, the growth occurred in the early part of the decade up to 2015. Since 2015, demand has been somewhat stagnant. It is noted however, within 5 miles of the Penn McKee demand increased 6.1% in 2018. Still as detailed below, in 2018 the hotels in the seven mile radius filled 305,684 room nights and 198,368 room nights in the 5 mile radius. When divided by 365 days/year, that yields an average demand in 2018 of 837 rooms per night in the 7 mile radius and 543 rooms per night in the 5 mile radius.
7 mile radius 5 mile radius
Year Demand O/o Demand %
Room Nights Change Room Nights Change --
2009 178,418 141,903
2010 237,337 33.0% 159,608 12.5%
2011 273,012 15.0% 162,653 1.9%
2012 283,576 3.9% 158,623 -2.5%
2013 307,071 8.3% 184,141 16.1%
2014 317,710 3.5% 193,423 5.0%
2015 321,127 1.1% 196,102 1.4%
4
l 20161 299,543 -6.7% 184,513 -5.9%
2017 294,619 -1.6% 186,879 1.3%
2018 305,684 3.8% 198,368 6.1% I
*Source: Smith Travel Research
B) SUPPLY i) Food Away from Home. As indicated, within 3 miles of the Penn-McKee Hotel, there
is approximately $57 million of purchasing power for Restaurants and other "Food Away From Home". On the supply side, there is approximately 115,000 square feet of restaurants and other prepared food available within that 3 mile radius, according to data compiled by Co-Star. (See Item 4 of Appendix.) Using an average per square foot sales of $250 for restaurants (compiled by Baker Tilly International) that equates to Restaurant sales of approximately $115 million. Using that same $250/square foot sales figure and applying it to the $57 million of purchasing power, there is a demand for approximately 230,000 square feet of restaurant space. Consequently, there is a leakage of approximately 115,000 square feet of restaurant space out of the area. Of course, developments such as the Waterfront most likely accounts for much of this leakage, but it still indicates a need for a local, moderately priced restaurant that can capture this underserved market within a 3 mile to 5 mile radius.
This is summarized below: Demand for "Food Away from Home" in the 3 mile radius:
$57 million purchasing power /$250 sales per square foot= +/-230,000 Square Feet
Supply of "Food Away from Home": +/-115,000 sq.ft
Leakage: 115,000 sq.ft* $250 per square foot= $29 million of purchasing power
A first floor restaurant of 7, 000 square feet, if it could capture $25 0 per sq .ft. and generate $1. 7 5 million of sales, would absorb only 6% of this leakage. As discussed above, the market opportunity is further enhanced by the GAP Trail. There is approximately $1.1 million of purchasing power passing along that trail nearby. Many riders look for opportunities to reach a "destination" before returning, and an attractive restaurant could also pull riders from the Southside Works and add another $3.5 million of buying power. That is an additional $4.6 million of captive buying power, along the GAP Trail, with very limited competition.
With a restaurant as an anchor, other ancillary retail could also fill remaining first floor spaces, such as a bakery/coffeehouse, bookstore, bikeshop, etc. Another possible anchor for the first floor is a national drug store chain.
5
ii) Supply - Hotel
There are 790 hotel rooms within 5.1 miles of the Penn-McKee location. If you further add in the Monroeville market by expanding to a 7 mile radius, there are 1,310 hotel rooms.
Property Distance Municipality Rooms Opened Parent Company (
Holiday Inn Express 3.2 West Mifflin 91 1966 Intercontinental Hotels
Taylor's Motel 3.8 North Versailles 50 1951
Springhill Suites 4.6 West Mifflin 94 2001 Marriot Hotels
EconoLodge 4.6 Jefferson Hills 35 1954 Choice Hotels
Hampton Inn 4.7 West Mifflin 69 1997 Hilton Worldwide
Comfort Inn 4.9 West Mifflin 73 1996 Choice Hotels
Courtyard Pittsburgh 4.9 W. Homestead 94 2005 Marriot International
Extended Stay America 5 West Mifflin 101 2003 Extended Stay America
Holiday Inn Express 5.1 West Mifflin 70 2012 Intercontinental Hotels
Hampton I. Waterfront 5.1 W. Homestead 113 2012 Hilton Worldwide
SUB TOTAL-5 Miles 790
Residence Inn 6.4 Wilkins 124 2011 Marriot
Comfort Inn 6.9 Penn Hills 154 1969 Choice Hotels
Double Tree Hilton 7 Monroeville 191 1980 Hilton Worldwide
SUB TOTAL-Monroeville 469
2 Others 51
TOTAL 1,310
*Source - Smith Travel Research
Since the Great Recession in 2008, hotels in Allegheny County have experienced a 53% growth in revenue, according the tax receipts received by Allegheny County from the 7% hotel occupancy tax in Allegheny County. Within the 7 mile market, the growth since the Great Recession is even more impressive with and 84.3% increase in revenues from 2009 to 2017. Approximately 300 rooms were added to the seven and five mile market in 2011 and 2012. There have been no new additions to the supply since 2012. While the overall growth in revenue has been strong in the seven and five mile market, the growth reached its high in 2015, and has been somewhat flat since. See details below:
t -- -------------- -- --------- ---- --------- -- --- -]
Hotel Revenue by Year - (in millions) -- T - - ---- - ~------ - - -- --- ------ - -- - -j~-- - - -- -
Year I Allegheny % 7 Mile % i 5 Mile %
I I 1 County Change Change i Change I _L......_ ---
6
20091 $318.5 $15.9 $13.3
2010 $351.6 $21.7 $14.5
2011 $396.2 $26.3 $15.2
2012 $416.7 $28.6 $15.6
2013 $431.1 $31.5 $18.8
2014 $451.9 $33.1 $19.9
2015 $490.1 $34.2 $20.6
2016 $492.3 $32.2 $18.7
2017 $485.9 52.6% $29.3 $18.0
2018 $30.5 91.8% $19.3 45.1% ---··---- --·-· - -----~·------·------ ·-·----·-.. ·--····-·-·------·
*Source: Smith Travel Research
Occupancy rates in the seven and five mile area also reflect the overall growth since 2009. The best year in the seven mile market was 2015 with 67.2% occupancy and an average daily rate (ADR) of $106.63. The best occupancy year in the 5 mile market was last year, 2018. Occupancy rates averaged 66.1 %, however the ADR was $97.06, more than two dollars lower than the 7 mile ADR of $99.81. See below:
Hotel Performance Data - 7 and 5 Mile Radius
Year -i-;----
Occupancy % ADR % Occupancy
7mile
% I ADR %
Change Change 5-mile Change Change -·---------·- ·-----·~---+~~~~~~~~+-~--~--~---
2009 58.9% $89.18 61.5% $93.58
2010 64.8% 10.0% $91.33 2.4% 62.3% 1.3% $90.73 -3.0%
2011 68.2% 5.2% $96.41 5.6% 66.1% 6.1% $93.38 2.9%
2012 67.1% -1.6% $100.76 4.5% 64.9% -1.8% $98.29 5.3%
2013 64.2% -4.3% I $102.76 2.0% 61.4% -5.4% $102.21 4.0%
20141 66.4% 3.4% $104.17 1.4% 64.5% 5.0% $102.79 0.6%
2015 67.2% 1.2% $106.63 2.4% 65.4% 1.4% $105.03 2.2%
2016 62.6% -6.8% $104.49 -2.0% 61.5% -6.0% $101.44 -3.4%
2017 61.6% -1.6% $99.31 -5.0% 62.3% 1.3% $96.38 -5.0%
2018 63.9% 3!.% I $99.81 0.5% _ _J__ ----
66.1% 6.1% $97.06 0.7%
*Source: Smith Travel Research
It must be noted that the Occupancy Rates described above are annual averages. The hotel business is typically very seasonal with peaks in July through October and valleys in November through March. For example, see below for occupancy rates by month for the 5 mile radius for 2018.
7
5 mile radius
Occupancy
Jan 18 48.0%
Feb18 51.0%
Mar18 62.2%
Aprl8 66.5%
May18 66.1%
Jun 18 75.2%
Jul18 77.1%
Augl8 78.0%
Sept18 72.3%
Oct 18 77.9%
Nov 18 63.4%
Dec 18 55.5%
*Source: Smith Travel Research
This has implications for the future success of the Penn-McKee. With the availability of the Palisades, the programming and event planning during the winter season will be a critical component to this project.
II. PHYSICAL IMPROVEMENTS A. PUBLIC IMPROVEMENT- MCKEE POINT
To distinguish this project in the market place, there also must be a new vision for this location. With the GAP Trail, marina, Palisades, and two rivers, this location can develop its own brand as unique river-based recreation and entertainment center - McKee Point.
The following pages 9-15, represent this vision for McKee Point.
8
MCKEESPORT VISIONING/
The renovation of the Penn-McKee Hotel in Mckeesport offers an opportunity
to envision a vibrant future for both the Hotel and its context. The vision for the Penn-McKee Hotel includes a holistic understanding of Downtown
McKeesport's urban fabric, with particular focus on its connection to the
riverfront. The concept design proposes a series of public realm improvements, including streetscape enhancements, gateway activation, facade renovations,
and a new flexible riverfront plaza.
Proposed streetscape enhancements include the extension of key Downtown connector streets to the riverfront, to
provide easy pedestrian, vehicular, and cyclist connections. 6th Avenue,
7th Avenue and the alley behind the Penn-McKee Hotel have been extended to Water Street. 5th Avenue has been reimagined with streetscape
enhancements including brick paving, street trees, new lighting and signage,
creating a welcoming connection between Downtown McKeesport and
the Riverfront. Mulberry Street and the alley behind the hotel include new
cobblestone pavement to create an enjoyable pedestrian experience.
Riverfront gateways are designed to anchor the newly extended streets. The
gateways provide visual extensions to
the streets and invite users to the riverfront
edge.
The existing Civil War era homes are proposed to be renovated with full facade restorations and integrated
ADA access. Creating destination retail opportunities within the renovated homes will enliven both 5th Avenue and Mulberry Street, drawing residents
and visitors between the hotel and the riverfront.
A new riverfront plaza will create a
welcoming front door to McKeesport from the Youghiogheny River and the Great Allegheny Passage Trail. The plaza has been designed to be flexible for
multiple uses, including trail access, car parking, boat parking, farmer's markets,
food truck pop-ups, musical events, and more. The plaza's new pavement creates
a level, continuous surface that can be populated with different programming
opportunities depending on the time of year. In conjunction with the new plaza, Water Street has been designed to accommodate a wider seating area
for the cafe and future riverfront-facing retail. Streetscape improvements include
new sidewalks, street trees, lighting, street furniture, and signage.
MCKEESPORT VISIONING/ CONCEPT PLAN
RIVERFRONl GATEWAY
PLEXIBLE EVENT PLAZA
RlVERFRONT GATEWAY
.J
RIVERPRONT GATEWAY
\ f
* ·111tJRIQt·!§G.ijijiJ4ii.liE#
n
*
SCALE I .. = 100· (!)
~· • ,-
,-.. ,. A51i'11&,,.-~· ~
V>
~
0 Q
G
;t ~ rn z c rn
MULBERRY STREET
,..----------,' ~ UQ
u u~ z c m
STRAWBERRY STREET
I I I
D 0 MARKEf STREET
' ,,
, ~Ff tL ~'i:~ ~~·
LJ--. : .. ·w:·•;'4i1i
·..:.i
~3
~. ~>-'
.· .. ¥····.·· .. · .... ··· .. ·~ .... ·'.· .. O~J;s:AAt~~~~~iii~W'%ii ~ ,.. c F. ?; rn.
::~: .· k ~~-~:. :(·,' ,•<
I • +·:~~ I STRAWBERRY STREET
,......
'< "' ::;;
"' g ::;; ); "' 0
~ () 7' m m C/'I ""IC
0 ;;:::i -l
< C/'I
0 z z Q
.......__
(')
0 z (') rn CJ -1 CJ
s; z
II. B. HISTORIC ASSET The Penn-McKee Hotel was previously nominated for historic listing on the National Register of Historic Places. Once approved for the listing on the National Register it would be eligible for the Federal historic tax credit (see Section IV - Sources).
However, the previous nomination was not approved by the State Historic Preservation Office (SHPO) and the National Park Service concurred. As part of this feasibility study, YPA reviewed the previous application and the State and Federal decision to reject the application.
Based on these discussions, YPA believes that the SHPO would favorably receive a revised application. The previous application placed a great deal of emphasis on the historical significance of the property in politics and government. This was due to the 194 7 KennedyNixon debates on the Taft-Hartley Act that took place at the Penn-McKee. The SHPO found that this debate was just one stop among many on the campaign trail and the debate had little historical significance, since the House of Representatives had already passed the Act. ·
After further discussions between YPA representatives and the SHPO, it was suggested that a revised application emphasize the historical significance of the Hotel on commerce. Specifically highlighting the Penn-McKee as a Main Street Hotel important to the life of the community. Under this criterion, architectural detail becomes somewhat less important, and the priority shifts to the importance of the site for community events and community life. As the local saying goes, "if it happened in McKeesport, it probably happened at the Penn-McKee."
The Appendix - Item 5 contains a summary of these findings in a letter and memo from Jeff Slack, a historic preservation consultant to YPA. It also contains the historic floor plans for the Penn - McKee.
16
III. MARKET ASSESSMENT Fifth Ave: McKee Point Hotel and Recreation Center.
A. First floor - retail/entertainment As described in Section LB., there is significant leakage in consumer expenditures for "Food purchased away home" within the 3-mile trade area. Consumers are going outside the trade area for restaurant consumption. Given the outdoor amenities of McKee Point, the first floor should try to attract a themed restaurant and/or brewhouse with a unique decor - hanging kayaks and bicycles, etc. This could be the anchor tenant and hopefully, occupy approximately one-half of the first floor. Along the store fronts on 5th Avenue, remaining tenants could include a bakery, coffee shop, ice cream shop, outdoor clothing store, etc. If the pursuit of a restaurant does not come to fruition, as another alternative, the large footprint (13,000+ square feet) would also be ideal for a modem drug store.
B. Upper floors - Boutique Hotel Given the nearest hotels are three to five miles away, given there are over 65,000 people within the three mile radius and three major employers, given the GAP Trail is at the doorstep, a modest-sized hotel is worthy of exploration. The 3rd and 4th floors of the Penn-McKee actually had 34 rooms (see Appendix - Item 5). Today's typical hotel room is 325 square feet. The upper floors of the Penn-McKee are approximately 11,900 square feet. Adding on 75 square feet of common area per room, 400 square feet was used as the divisor to yield 30 rooms per floor. If two floors were renovated for hotel use, that would add 60 rooms to the local supply or 4.6% to the 7 mile radius and 7 .6% to the 5 mile radius. In a market that has not grown in the last 4 years, any new supply must distinguish itself as well as provide competitive advantages. There are several positive factors to consider:
• The GAP Trail has generated demand for 15 rooms in the small town of West Newton, which has population of2,633.
• The GAP Trail and the local economy has generated a supply of 54 rooms in Connellsville, which has a population of 2,391.
• The seven-mile supply of 1,310 hotel rooms is overwhelmingly standardized hotel space - designed, built, and operated by national hotel chains.
• There is no unique "boutique" or historic hotel product in the five or seven mile trade area and the Penn-McKee can create a unique experience for the guest.
• The existing supply of hotels is accessible on local roads that are not limited access and drive times are approximately 20 minutes and more during rush hours.
If, similar to West Newton, the GAP Trail can generate demand for 15 rooms, then that leaves 45 rooms for the market to absorb at an new Penn-McKee. McKeesport has a population of 19,731, with 65,000 within a three mile radius. · Connellsville has a population of 2,391. Connellsville has a new 54 room Cobblestone Motel. McKeesport has no hotel within 3 miles. It would appear that the population density of McKeesport is sufficient to absorb 45 rooms,
17
particularly with three major employers - UPMC McKeesport, the Naval Research Lab, and the RIDC Industrial Parks. This reuse of the Penn-McKee would require parking for guests and 'shoppers. Generally, one parking space would need to be available for each hotel room or a total of 60 spaces. In addition, approximately 3 spaces would need to be available for each 1,000 square feet of retail space on the first floor. In total, roughly 100 spaces would need to be available for this development.
IV. FINANCIALANALYSIS A) USES:
A preliminary analysis was completed of the cost to redevelop the Penn-McKee property with a retail/entertainment use on the first floor and some combination of a boutique hotel and residential on the upper floors. See Pages 20 and 21. This is a preliminary analysis based on assumptions for square foot costs. It also utilized construction cost estimates compiled by a developer of multi-family housing (See Item 6 -Appendix) and a residential multi-family general contractor (See Item 7 - Appendix). Further architectural design work and estimating and budgeting work is required. The following is a list of major construction cost assumptions:
• Demolition - abatement - As part of this feasibility study, YPA conducted a Phase I Environmental Assessment of the Penn-McKee property, along with testing for the presence of asbestos and other hazardous materials. The Study found asbestos in the insulation along piping and te boiler, floor tile and mastic, roofing material, and limited areas of the plastic. There was also limited lead-based paint clean-up and other waste. The study noted cost economies if the abatement was done in conjunction with overall interior demolition. The study also provided an estimate in the range of $500,000 for the combination of demolition and abatement of asbestos and other hazardous materials.
•
•
•
•
Site Work - improvements - No specific estimate was obtained, but a place holder was provided to address the need for public space improvements and adequate parking.
Restaurant - first floor - this is primarily open space with a per square foot cost of $13 5 square foot for shell space and plumbing, electric, HVAC, and life safety provided to this open space. Distribution and extensions of these building systems and specific restaurant improvements were not factored into this estimate.
Boutique Hotel - upper floors - an approximate national average for hotel construction is $325 per sq.ft., according to industry sources. Because the exterior shell of the building is constructed, an average of $285/sq.ft. was used for the upper floors.
Residential Cost - One floor dedicated to monthly leases. Local residential construction averages about $190 sq .ft. for apartments according to industry sources. Because the exterior shell of the building is already constructed, an average of $150/sq.ft. was used for residential construction.
18
B) SOURCES A community economic development project of this size and scope is a financing challenge. Several programs are available and are listed here as potential sources of financing.
• Industrial Site Reuse Program - State of Pennsylvania, Department of Community ·. and Economic Development. Program provides grants to municipalities and economic development agencies for abatement of asbestos and other hazardous materials.
• Community Investment and Tourism Fund - Allegheny County. Program provides grants to allow municipalities, and others to carry out important infrastructure-related projects, or development of key sites for future use.
• Federal Opportunity Zone Designation - this is a new program that provides deferral of capital gains taxes if the proceeds are reinvested in an Opportunity Zone such as McKeesport. If the investment is held for 10 years of more, the deferral of the original capital gain tax becomes permanent and the appreciation in the Opportunity Zone asset also becomes tax free. Final guidelines are still in the process of being issued by the Treasury.
• New Market Tax Credit - Federal Tax Credit Program targeted to distressed communities, such as McKeesport. A NMTC investor receives a tax credit of 3 9% of the total Qualified Equity Investment. The credit is realized over a seven year period and effectively translates into a source of financing for approximately 21%to25% of the total project costs.
• Federal Historic Tax Credit - Federal Tax Credit Program for the rehabilitation of properties designated as historic by the U.S. Department of Interior and the State Historic Preservation Office. As mentioned, The YPA is in discussions with these offices to pursue designation of the Penn-McKee as a historic structure. The HTC investor receives a tax credit of 20% of the total qualified investment in the project, which generally only includes costs that are directly related to the repair or improvement of structural and architectural features of a historic building. The credit is realized upon certification of substantial completion. The HTC translates into a source of equity for 20% of all qualified expenditures.
• Redevelopment Assistance Capital Program - State of Pennsylvania. Budget Office. Grant program managed by the Office of Budget and the Governor's Office. Requires a 50% match. In the most recent funding round, grants range in size from $500,000 to $8,000,000, with most awards in the $1 - $2 million dollar range. Typically, there is one application round per year.
• Local/Regional Foundations - The Pittsburgh area benefits from the existence of several foundations established by successful entrepreneurs during the last 100 years of regional industrial growth. Foundations include the R.K. Mellon Foundation, the Heinz Endowments, the Hillman Foundation, the Allegheny Foundation, among others. Several foundations have been known to invest in transformative real estate projects in distressed areas.
• "Incentive" Debt - community economic development sources such as Bridgeway Capital or the State Business in Our Sites (BIOS) program are both
19
•
•
possibilities. The State BIOS would be preferred because it can offer deferred payments for up to 5 years for the project to complete renovations and lease up. However, the program window only opens periodically, and funding is not always available on a timely basis. Bridgeway does currently have funding available. Office of Community Services - Federal Department of Health and Human Services - Community Economic Development Program. Up to $800,000 is available as either equity or deferred loan for community economic projects that will hire from the unemployed. One annual application, usually in the Spring. Others (See Item 8 of the Appendix for Sources from the Department of Community and Economic Development.)
C) REVENUE/EXPENSES: Revenue: Hotel - an average daily rate of $100 was used, based on the local averages in the five and seven mile radius. Occupancy rates started at 45% and increased to 60 -65% by Year 5.
Residential - the assumption in this pro forma is that one of the upper floors would be "mothballed", until either further hotel demand is generated or perhaps conversion to market rate residential apartments.
Restaurant/retail - average rate of $15 square foot was used for the first floor space. This is on the high-end of the market for retail space in the McKeesport area, but is justified based on the newly renovated space.
Expenses: Hotel: Variable costs including utilities, labor, maintenance, management, and marketing were based on averages in the hotel industry. This includes 7% for utilities, 42% for labor, 28% for other operating costs, and management and marketing fees of 5% and 7% respectively.
Restaurant: It is assumed the first floor would be separately metered for the restaurant. Other retail tenants would also pay a separate utility add-on to their lease.
D. SUMMARY OF FINANCIALS The :financial model on Pages 21 and 22 was built for illustrative use during this initial analysis. As cost figures are further confirmed, the model can be updated for presentation use to :financial sources and others. While illustrative, the model is instructive. If the project developers can successfully access the described capital stack, it enables the project to reduce its debt service overhead. This translates into a lower breakeven occupancy rates then would otherwise occur with conventional funding sources. In this particular model, the breakeven point for hotel occupancy is approximately 45%, which is far below the seven mile average occupancy rate of 64% and five mile occupancy rate of 66%. If the project can approach the average seven and five mile occupancy rate plus generate first floor rents of $15/square foot, it generates income before debt service of approximately $250,000.
20
Penn McKee Hotel & Brewpub - Sources/Uses
PROJECT COSTS I I Title Insurance 40,000 Transfer Tax & Real Estate Taxes during construction 25,000 Land - to be purchased 0 Financing Fees - NMTC & HTC 400,000 Tap-in Fees 30,000 Misc. Closing Costs 40,000 Legal 100,000 Interest during Construction 250,000 Appraisals 5,000
j l
Building Permits 20,000 •
Architects & Engineering Fees 500,000 Development Fees 500,000 Permanent Loan Fees 75,000 Contingency 140,000 Total Land and So.ft Costs 2,125,000
Construction Site Improvements & Public Space Improvements 500,000 Asbestos Abatement and Demolition 500,000 Builders Risk Insurance 25,000 Renovations- 1st floor Restaurant@ $135/sq.ft. 2,098,980 Renovations - Two Floors - Hotel & $280/sq.ft. 6,646,080 Renovations - One Floor - Residential@ $150 sq.ft. 0 Contingency 904,940 I '
Total Construction 10,675,000
TOTAL PROJECT COSTS 12,800,000 I '
SOURCES Amount Historic Tax Credit 2,135,000
New Market Tax Credit 3,072,000 Redevelopment Assistance Capital Grant 3,500,000 EPA Clean Up Grant 300,000 ISRP Clean Up Grant 200,000 Community Investment and Tourism Grants 500,000
Foundations 1,543,000
Debt - 5.5% 20 year term. 1,550,000
TOTAL SOURCES 12,800,000
: 122 5th Ava. • Mcl(eesport, PA. ,INVESTMENT ANALYSIS
·Annual Rent Rentabla Slzo Year1 Yesr2 Year3 Year4 Year6 Year6 Year7
; First Floo_r - Occupancy Rate 13,216: 80.00% 90,00% 95,00% 95.00% 95.00% 95,00% 95.Q_O%
:second Floor 11,868: 0% 0% 0% 0% 0% 80% 90% Third Floor- Rooms and ~_upancy _r_ala 30 45% 45% 60% 66% 60% 60% 60%
; F_ourth_ Floor".' Roon_is ~md QC.C!Jpancy rate 30, 45% 50% 55% 60% 65% 70% 75% ; First Floor - Rent per Square Foot 1§,00 1§.45 15.91 16.39 16.88 17.39 17.91
: 2nd floor - Rent pilr Squ~f!t ~oqt $14 $14 U6 $16 $16 $16 $15 ! 3rd Floor-Average Dally Rate - ttotel $100 $100 $100 $105 $105 $110 $110 :4th Floor-Average Dally Rate· Hotel $100 $100 $100 $105 $105 $110 $110
: Rent - Flr&t Floor $168,590 $_183l66 $199,794 $20:5:,788 $211,902 $218,?2(> $224,870 Re11t - Second Floor $0 $0 lO $0 $0 $142,416 $160,218
'Rent-Third Floor $480.654 $48Q,654 $5S4,060 $616,839 $672,916 $704,959 $704,959 'Rent· Fourth Floor $480,654 $5S4,060 $~87,466 $672,916 $726,992 $622,452 $881,199
iTotalRent $1.119896 $1198460 $1321320 $1495643 $1 613869 $1888148 S1 971 246
54000'
;LHa ; lHilltles--va,rla_ble 7% !H'~,393 J78,393 $78,393 $76,393 $7~,39_3 $78,393 $_7_8,~S:,3
Labar - variable 42% $403,749 $4,26,1~0 $471,041 $541,1;97 $588,801 $641,513 $a6_6,186
:other Operating costs 26,%: ~6~,168 $284,12\l $314,027 $361,131 $~9~,534 $427,675 $444,124
'. f!lanagemen1 F~Variable 5%' $55,995 $59,924 ~6,086 $74,77! $_80,693 $9~,407 t98,662
:Ma~ellng/Programs/Cost of $ales 7% 6_7,292 7_1,030 78,507 90,283 98,134 1\)6,919 111,031
,ln&un:moo-~Flxed $45,000 $45,000 $45,000 $45,000 $45,000 $45,000 $45,000
; ~al Eslalc& Taxes-Fixed w/ Aha~ $4_5,QOO $45,000 $45,000 $45,000 $46,000 $105,~0 $1_05,000
:M~ntenance-flxed 2%' $22,398 $23,970 $26,426 $29,911 $32,277 $3!,763 $39.426
'Total Expenses $1J~,993 $1,033,616 $1,124,480 $1,266,192 $1,360,632 $1,536,670 $1,587,722
iNct Operating Income $132905 $164864 $196660 $22.9351 $253037 $351A78 $383 524
Dabt1 1,550,00Q $127,947 $127,947 $12],947 $12?,~7 $12?,947 $127,947 ~1~7 •. 947 "o9bt2 0 $0 $0 $0 $0 $0 1Debt3 $0' .. $0 $0 $0 $0 $0 $0 $0
'Debt Service 1550000 I $127947 $127.947 $127947 $127947 $127947 5127947 $127947
Cash Flow Equl1y
$4,966 $36,916 $66,913 $10i,404 $125,090 $223,531 $_265,577
Cumul11lve Cuh Flow $4958 $41674 5110787 $212,191 $337.280 $560811 $816389
V. NEXT STEPS.
1) Begin the process of aggregating demand for hotel nights with the newly formed McKeesport community organization leading the effort. This organization can aggregate the prospective room nights from various demand generators as well as spearhead the redevelopment of McKee Point and the 5th Ave. Corridor. (See Step 10). Included on the Board of Advisory Board should be representatives of the major employment centers - UPMC McKeesport, the Naval Nuclear Laboratory, RIDC, the Mon-Yough Chamber of Commerce, a representative with marketing and event planning experience, and community representatives.
2) Secure funding for additional planning and fund raising. The path to reuse of this site will not be a short one. It has sat vacant for 25 years. Generating the momentum and the $12+ million of funding to finance renovation will take at a minimum 2 years. Funds are needed for project management and to develop budgets based on architectural and engineering evaluation. SOURCES of Funding - planning:
• Community Investment and Tourism Fund. • Local Foundations . • Local community fund raising.
3) Secure funding for demolition /abatement. As previously discussed, asbestos abatement will need to occur before any renovations can begin. lt is most economical to complete the abatement as part of the demolition of the interior. By completing the abatement/demolition, the interior of the building becomes much more presentable to potential users or investors, regardless of the nature of the future reuse. SOURCES of Funding- abatement/clean-up:
• State: Industrial Site Reuse Program • Federal: EPA-Clean Up Grant
4) Reach out to the local restaurant/brew pub and hotel industry. The project can only move to fruition if there are industry partners including first floor tenants and a hotel operator. As part of the future planning effort, representatives of the building owner need to contact these industry sources to solicit and secure their interest and commitment.
5) Additional architectural/engineering work to refine cost estimates. As discussed, the cost figures used in this Study were generated based on industry estimates. There is a need to generate cost estimates based on actual drawings and specifications. This is an incremental process ranging from concept drawings and budget estimates to final construction drawings and actual construction bids. The skills of an architect and/or general contractor are needed to further refine project costs.
6) Update Financial Sources/Uses and Pro Forma Income Projections. With industry partners and more refined cost estimates, the project team can further refine the Financial Models.
23
7) Approach prospective permanent financing sources. With updated financial models and prospective industry partners, the project team can approach the identified financing programs.
8) Secure tenant/operator/financing commitments. The project team is then ready to fully engage in the tireless work of assembling the financing for the project. It is not unusual for a project of this type to have 10 to 15 different sources of funding, with many commitments contingent on each other.
9) Evaluate prospects for success based on tenant/financing response. The ultimate decision for this project will emerge based on the feedback from prospective tenants and financing sources. There is a need to "listen to the market". This particular model has prospects for success, but it will take a concerted effort over a number of years. If this particular model does not get the positive feedback required, there are other possible options for use of the Penn-McKee, including multi-family housing.
10) Launch a broaderplanning effort for downtown McKeesport. We have previously discussed the importance of adding public improvements and creating public event space, so that the Penn-McKee Hotel is part of a larger revitalization of McKee Point. We conclude by emphasizing the importance of McKee Point becoming a launch pad for a larger revitalization of downtown McKeesport. The Penn-McKee Hotel and McKee Point will have difficulty surviving as an island in a sea of a distressed downtown. There is also a need for a larger planning effort for the 5th Ave Corridor including assembling parcels for redevelopment. With the new Federal Opportunity Zone designation providing substantial tax advantages for investment in downtown McKeesport, this is an opportune time for such a planning effort.
24