20210902PAC to PIIC Attach 30LCTOpenOfficePlanFinancialReview.docx

Lloyd Center Tower Open Office Plan– Financial Evaluation
Author:Matt Patton
Date:May 9, 2019CC: Ron Scheirer, Mark Paul, Jana Mejdell, Steve Day, Todd DinehartSummary and Recommendation
It is recommended that the company spend approximately $30 million remodeling the Lloyd Center Tower (LCT) to a concept that allows for greater employee engagement. The remodel is expected to create a sustainable competitive advantage ultimately benefitting customers through higher employee retention and recruitment, enhanced productivity, and greater operational performance. PAC also evaluated the alternative of constructing an equivalent sized building with the same collaborative design concept. The LCT Open Office Plan is recommended because it would result in a $1.6 million present value revenue requirement benefit to customers over relocating.
Alternative 1: Remodel LCTfrom 2019 to 2022
The remodel project is slated to commence in May of 2019, estimated completion date is by the end of 2022. PAC will utilize the Lloyd Learning Center (LLC) as a staging area while LCT is remodeled. The company does not expect to renew the LLC lease when the current term concludes at the end of 2023.
The cost of the remodel is expected to be $30 million, including $800k ofOMAG, plus approximately $200k of annual, ongoing OMAG
Alternative 2:Relocate Headquarters
PAC also evaluated locating a suitable property to either retrofit or build new to the design specified in Alternative 1, and sell its interest in LCT.If the relocation and sale of LCT assets occurred within one calendar year, PAC would likely pursuea like-kind exchange to lessen the tax impact burden from the sale of LCT.
Current market conditions for a property with an equivalent footprint of LCT are limited. Per a conversation with a local commercial real estate executive, constructing a 221,000 square foot building would cost $409 per square foot, including furniture, fixtures, and equipment. The total cost of relocating headquarters is estimated to be $90.7 million,including $800k of OMAG.
According to the same real estate executive, the LCT assets owned by PAC could fetch $250 per square foot or $55.3 million.The appraised value of PAC’s interest in the LCT garage is $11.2 million and $11.29 million for the parking lot. The total estimated value of PAC’s interest in the LCT including the garage and parking lotis $77.8 million. Net proceeds from the sale would be reduced by an estimated 6% for brokerage fees.
The present value of revenue requirements (PVRR) cost or (benefit) for each alternative is summarized below:
Alternative
Total Project Cost
PVRR Cost
PVRR (D) Cost/(Benefit) from Alternative 1
1 – Remodel LCT
$30,043k
$80,780k
2 – Relocate Headquarters
$90,700k
$82,362k
($1,583)
The following financial accounting assumptions were used:
Thirty-one year analysis; 2019 through 2050.
Remaining life of 32 years based on Colliers International Appraisal dated November 13, 2017, page 30.
General plant is allocated to all states.
Oregon property tax rate of 1.21% of net book value.
Income tax rate of 24.5866%.
Discount rate of 6.92%.Attachment1
NBV PER IOWA CURVE @ 01/31/22
Location Description
Sum of Acquis.val.
Sum of Accum/Depr per Iowa Curve
Sum of NBV per Iowa Curve
TOTAL LLOYD CENTER BUILDING - LAND
921,064
0
921,064
TOTAL LLOYD CENTER BUILDING - STRUCTURES
38,726,787
9,229,249
29,497,538
TOTAL LLOYD TOWER - PARKING STRUCTURE - LAND
2,233,762
674,314
1,559,448
TOTAL LLOYD TOWER - PARKING STRUCTURE - STRUCTURES
1,513,609
453,362
1,060,247
TOTAL LLOYD TOWER - SURFACE PARKING LOT - LAND
1,502,298
0
1,502,298
TOTAL LLOYD TOWER - SURFACE PARKING LOT - STRUCTURES
171,020
44,535
126,485
Grand Total
45,068,539
10,401,460
34,667,080