1. Equitable Moorage Charges Pacific Coast Congress April 17, 2008 Paul Sorensen, principal, BST Associates

2. 2 Agenda for Rate Study Setting Marina Rates Procedures Process Q&A

3. 3 BST Associates Qualifications Overall Experience 30 years of consulting experience, Focus on waterfront development Marina Master Plans: La Conner, Edmonds, John Wayne, Port Angeles Boat Haven, Port Townsend, Neah Bay (Makahs), Des Moines, Oak Harbor, Shilshole Bay, Jim Clark, Clover Island, Ketchikan, Pensacola (FL) et al Marina Rate Studies (~3,000 slips): Everett (North and South Basins, 12 th Street Marina) La Conner Cap Sante (Anacortes) Des Moines Port Orchard Bremerton Poulsbo

4. 4 Tenant Perspective on Rates It's Tax Time, So Be Sure You Use "The Official IRS Approved Pencil Sharpener….“ Tenants feel about as good about rates as they do about taxes.

5. 5 Owner’s Perspective on Rates Owners generally have no capital set aside for marina redevelopment. They also want to be friends with tenants and don’t want to fight annually over rates. This is good until the marina falls apart.

6. 6 Consultant’s Perspective on Rates You have to raise rates but I understand: that you have long standing relationships and there are political consequences.

7. 7 Rate Review Process Open – Participatory – Fact Based Advisory Committee  Public  Commission — Advisory Committee: Committee/Staff/Consultant — Public Meeting: Tenants/Staff/Consultant/Commission End Result – The “Work Product” Revised Rate Structure for the Marina Transition Plan from Current Rates to New Rates

8. 8 Poulsbo Marina Rate Study The Port has a CIP estimated at $6-12 million. Existing revenues and borrowing capabilities are insufficient to pay for these improvements. Poulsbo Marina rates are at the low-end in Puget Sound. Need to consider a rate increase.

9. 9 Alternative Rate Methodologies CPI Increase Apply CPI increase for your region Cost recovery or replacement Set rates to cover all O&M costs as well as annual costs to replace the marina Market based rates Set rates based on rates at competitive marinas

10. 10 CPI Increase CPI assumes that rates are already at an appropriate level. This is usually not the case. In addition, annual O&M cost increases at marinas are usually higher than the CPI adjustment. CPI has been around 3%/yr, Marina O&M costs around 4-6%/yr, Construction index around 6-10%

11. 11 Port of Poulsbo Marina Rate Trends P ermanent Moorage ($/Lin Ft/Mo)

12. 12 Cost Replacement Good for tenants to see & understand the real costs of owning a marina. In some cases, it may result in rates that are above market. Based on square footage, taking into account the water area used by the boat. It is progressive in that, as the vessel becomes longer, the rate per foot lineal foot increases. It lays out a formula that is accepted when understood.

13. 13 Market Rates Assumes that rates at competitive marinas are set properly and that annual changes cover changes in O&M costs. Used as a backup method for setting rates. Rates based upon where the marina fits in with competitive marinas (rate leader, upper quartile, average …) Phased in over a three to five year period Annual increases should fall within certain limitations

14. 14 Reason for Square Foot Rates Converting to SF moorage will be for the purpose of INCREASING EQUITY within the marina. Smaller boats pay higher SF rates than longer boats when a flat lineal rate is applied Square foot rates mean the lineal rate increases as the boat length increases The market conditions are tighter for longer boats than for shorter boats Smaller boats are negatively impacted by lack of fishing opportunities Tighter market means that higher rates can be charged for longer boats but needs to consider market forces The SF rate structure is simple, straightforward, and easy to implement. For dry stack operations, a cubic foot method is preferred.

15. 15 Square Footage Rate Basis Number of Boats per Acre of Water Area Source: California Department of Boating and Waterways (DBW), Division of Boating Facilities

16. 16 Rent Comparison per Acre of Water The annual rent from 20 foot slips is nearly twice that from 80 foot slips per acre of water area. You only have so many acres of billable water area. There are business and equity reasons to establish progressive rates. Imperative to consider if you are considering a reconfiguration – you will lose revenue by going to longer slips if you have a flat rate.

17. 17 Des Moines Marina Existing Covered Rates (SqFt)

18. 18 Cost Replacement Approach O&M/G&A Direct operating and maintenance expenses General administrative allocations Adjust to next year based upon historical cost trends. Cost replacement values Annualize based on asset value and longevity of assets. Adjust to next year based upon construction cost index. Contingency Reserve (established as a % of asset value) Total cost to recover (add above three components) Divide by square feet of moorage space and by 12 to obtain $/SqFt/month Recommend a phase in process to allow tenants to adjust.

19. 19 La Conner Marina Rates Increase between 2001 and 2006 Covered rates increased 20% to 71% over this time period Open rates increased 12% to 57% over this time period

20. 20 La Conner Covered Slip – 40 feet SqFt rates June 2003 There are 65 slips in this category

21. 21 La Conner Open Slip – 30 feet SqFt rates June 2003 There are 59 slips in this category

22. 22 Rising Construction Costs (Source: US Bureau of Labor Statistics PPI) Construction costs were on a plateau from 1996 to 2003. Increased 30-50% since due to international competition. Steel Cement Flotation materials, etc New plateau or are we going higher? Designers expect 7%+ increases per year for foreseeable future. Putting significant pressure on marina finances because rates have not risen as rapidly.

23. 23 Construction Costs Impact on Rates (Example - Covered Slips at Port Orchard Marina) Cost replacement rates annualize capital costs and build it into the rate base. Port Orchard rates indicate the effect from increased costs. Cost replacement rates are significantly above market rates. Economies of scale plays a role. Requires subsidy for marina construction.

24. 24 Des Moines Covered Rates The existing rate was the current (2006) rate at the Des Moines Marina. The proposed rate was determined by a comparison with competitive marinas. The recommended rates are phased in over three years. As noted above, rates are increased at a minimum of 3% per year and a maximum of 13% per year. The compounding effect of phasing brings rates in year 3 slightly above proposed rates. This partially offsets lost revenue to the City from not raising rates to a competitive level within one year. It should be noted that the competitive rate for 20-foot slips is an anomaly, since there is only one other marina offering covered rates for slips of this length.

25. 25 Amenities It is easier to sell rate increases to tenants if there are more amenities (like parking) but it really is the owner’s responsibility to create a sustainable financial model.

26. Equitable Moorage Charges Pacific Coast Congress April 17, 2008 THANK YOU! Paul Sorensen BST Associates bstassoc@seanet.com (425) 486-7722