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FINANCIAL <br />ANALYSIS <br />anchor tenant (as yet undetermined), a new <br />arena is likely to generate sufficient <br />revenues to service the debt requirements <br />and which would be incurred in the <br />development of the facility, as well as <br />facility operational costs. <br />• The majority of the arena's revenues will be <br />achieved through the anchor tenant's events. <br />Failure on the part of the proposed <br />ownership group to secure a minor league <br />professional hockey franchise would render <br />the project financially infeasible under any <br />economic conditions. <br />Analytical Approach <br />A comprehensive financial model has <br />been developed to analyze the proposed arena <br />project's financial feasibility and the extent to <br />which the facility will require financial support. <br />The model includes a detailed development <br />budget and a ten-year operating pro forma <br />showing all operating revenue, operating <br />expenses, and debt service based on certain <br />financing assumptions. The model integrates all <br />o f these elements such that any change in <br />assumptions within one of these components <br />automatically forces a corresponding adjustment <br />in other elements affected by that assumption to <br />maintain the model's internal consistency For <br />e xample, an increase in the amount of initial <br />equity funds contributed to the project would <br />have the effect of reducing the amount of debt <br />which the project must incur, thus lowering both <br />the initial financing fees (which further lowers <br />the initial development cost) and lowering the <br />level of annual debt service, reconciling these <br />e lements against one another and restoring the <br />model to internal balance. <br />Revenue assumptions shown in the <br />model are based on the market analysis <br />comprising the second component of this <br />feasibility study and assumptions detailed in the <br />introduction to this report. The development <br />cost and operating cost assumptions shown are <br />based on comparison to similar projects, the use <br />of industry averages (where appropriate), Ellerbe <br />Becket's and B&D's industry expertise. <br />Conservative assumptions have been utilized <br />wherever possible to allow the City of Everett to <br />proceed through design and construction with the <br />knowledge that the detail -related decisions can <br />be made within the established financial <br />parameters without compromising the project <br />scope or quality. <br />The financial model and sensitivity <br />analyses illustrated in the hard copy print-outs at <br />the end of this report represent the combination <br />of assumptions and economic conditions <br />governing the project's feasibility which B&D <br />considers likely as of the date of publication of <br />this report. Because the analysis is in fact a <br />computer model rather than a static print-out, <br />these assumptions may be altered at anytime to <br />re-evaluate the project's finances as more <br />information becomes available. <br />Findings: Development Costs <br />The arena's development cost may vary <br />significantly with numerous factors, including <br />the type of financing implemented, actual facility <br />design characteristics (such as the total seating <br />capacity and level of amenities), conditions in <br />the construction market at the time of bidding, <br />and site acquisition costs. The hard costs of <br />construction for the proposed arena were <br />developed based on a program of architectural <br />requirements with costs per square foot <br />associated with each program element, which <br />City of Everett — Arena Feasibility Analysis <br />Page 36 <br />