MEMORANDUM

TO: Mayor and Council, Borough of Edgewater
FROM: DeCotiis, FitzPatrick & Gluck, LLP
RE: Grand Cove Marina
DATE: September 28, 1999

The Borough Council has been evaluating the potential of acquiring the Grand Cove Marina ("Marina") located at the base of Route 5 on River Road. The Borough has addressed a myriad of issues including under what legal authority it could acquire and operate the Marina, and various financing alternatives; the ultimate goal being to preserve open space and the Marina "in perpetuity." To this end, the Council commissioned the real estate consulting fin-n of Atlantic Coast Realty Advisory Group (ACRAG), to undertake a preliminary assessment of the Marina. In February 1998, ACRAG issued a Report ("ACRAG Report" or "Report" attached as Exhibit A) outlining the concept of a Redevelopment Plan for the property as part of a public/private partnership. Subsequent to the ACRAG Report, the Council commissioned Appraisal Consultants Corp. to perform a formalappraisal of the property. The appraisal, which was accepted by the Council on September 8, 1999, values the marina property at $3,552,400. While the property owners have stated that the property is worth $6,000,000, they have not provided a formal appraisal as of the date hereof.

At the Council's direction, we have worked with William Kitchen, CPA, in performing the assessment of potential acquisition alternatives. To date, we have explored the following:

A. A potential partnership with the County (including funding from the County Open Space Fund);

B. A partnership with the present property owners; and

C. The financial impact of:

1 . Purchasing the site and conversion of same into a public park; and

2. Purchasing and redeveloping the Marina site.

Below we set forth the status of such discussions to date together with the assumptions made in making this evaluation. Further, set forth in Exhibits B and C are the financial evaluations for the various options set forth in "C" above. We note that in performing this evaluation, the largest variable is the actual purchase price considering the Borough appraised value of approximately $3.5 million and the stated owner's asking price of $6 million. Exhibits B and C provide a financial evaluation for three purchase price scenarios: $3,552,400, $4,776,200 and $6,000,000.

A. Status of Discussions with County.

With respect to County participation, we have met and provided information on a number of occasions with County officials. Generally, the discussions contemplate a partnership between the County and Borough and request the County to provide funding for up to 100% of the cost of acquisition of the Marina property. The concept discussed calls for the Borough to acquire the property through whatever means necessary (subject to reimbursement by the County) and to absorb all costs incurred to redevelop and/or rehabilitate the property. Further, the concept discussed envisions the creation of a Joint Marina Commission to oversee the operation of the Marina on a long-term basis. While the County appears to be interested in assisting the Borough, the level of participation at this time is unclear. Attached as Exhibit D are copies of the letters sent to and received by the County in this regard. In addition, we have requested that the County Open Space Advisory Committee provide acquisition funding to the Borough through the Open Space, Recreation, Farmland and Historic Preservation Trust Fund ("Fund") whether or not a County partnership is achievable.

Open Space Funding. In or about November 1998, the County of Bergen formed the Open Space, Recreation, Farrnland and Historic Preservation Trust Fund ("Fund") to preserve and maintain open space within the County. The Fund is anticipated to provide up to $3,700,00 the first year and is overseen by the Bergen County Open Space Advisory Committee ("Committee"). Funds are eligible to communities for improvements to outdoor recreation areas and for purchase of property for both active and passive outdoor recreational activities and conservation. All projects require endorsement by the Mayor and Council and will likely require a 50% municipal funding match. Although no formal application process is in place, nor is one expected to be finalized until the Spring of 2000, the Committee has made two exceptions to date by recommending funding prior to the adoption of such application process ($800,000 and $500,000 to the communities of River Vale and Ha'p'orth, respectively). This funding was made available due to an immediate threat of development for the particular sites in question. Nevertheless, we have attended two advisory Committee meetings and prepared both an outline and presentation materials (in consultation with County officials) for submittal to the Committee. The submittals state that funding of up to $6.5 million (including acquisition and redevelopment costs) may be required. Considering the size of the grants recently made together with the Fund's 1999 budget of $3,700,000, we do not believe it likely that Edgewater will receive the total funding that would be necessary to acquire and rehabilitate the Marina. As of the date hereof, it does not appear as though funding will be available to the Borough until the Spring, at the earliest, unless we can demonstrate an immediate threat. This appears to be difficult considering the property owner's letter to the Fund, attached hereto as Exhibit E, and statements in the newspapers that they intend to preserve the Marina.

B. Status of Discussions with Present Property Owners.

As authorized by the Council, we have met on several occasions with the current owners of the Marina, W.H.P. 14, LLC, to discuss the prospect of entering into a partnership to provide for the preservation of the marina in perpetuity. In meeting with the owners, we outlined the expressed concerns of the Borough Council and set the following general Council goals. Specifically:

- Preservation of the Marina
- Creation of additional Open Space
- Public access to the Waterfront
- Preservation of the View Corridor

In short, the current owners of the Marina state that they intend to maintain the Marina and can do so with a retail development on the site while at the same time meeting the referenced goals. Their plan, as presented to the Council in closed session on June 22, 1999, calls for rehabilitation of the Marina and existing restaurant and construction of a retail commercial addition to the existing structures. The plan calls for the creation of a public (fishing) pier, public walkway and public waterfront park area. In return, however, they requested that the Borough provide a tax abatement on any new improvements, that the Borough either provide or assist in seeking favorable financing from a governmental agency; such funding could be provided either by the Bergen County Improvement Authority, Edgewater Housing and Redevelopment Authority, or Borough of Edgewater. Among the Council's stated concern in this regard has been that the proposed arrangement does not guarantee that the Marina would be preserved "in perpetuity."

Subsequently, as further directed by the Council, we approached the owner with respect to the Borough possibly purchasing all but the proposed retail component of the site with a long term lease back from the existing property owners. The intention being to provide a comfort level to the Council that the property would not be developed at some time in the future. On or about September 20, 1999, the owners rejected this concept, but proposed the following to address the Council's concerns with respect to future development. Specifically, they proposed a deed restriction to prohibit future development and a first option agreement whereby the Borough would have the first right to purchase the Marina site if the owners claimed hardship at some time in the future. While the Borough would need to fully evaluate what type of a site encumbrance (i.e., deed restriction) will guarantee that the Marina and other open spaces remain as such in perpetuity, we believe that the Council's goal of prevention could be accomplished by the proposed combination of deed restriction and first option agreement. The purchase options would allow the Borough to purchase the site at some later date on a preestablished price should the owner claim undue hardship. In addition to the referenced tax abatement and financing requested by the owner, they also requested "developers assistance" in paying for the requested open space improvements. Such assistance could come from the Borough itself, the Open Space Fund or through grants.

This scenario should result in protection of the Marina at little or no cost to the Borough taxpayers, although the Borough would lose the long term security of actual ownership, in fee.

If the Borough chose to move forward with this option, the first step would be to negotiate a memorandum of understanding with the property owners to incorporate the general parameters of an agreement. Thereafter, we would concurrently negotiate the terms of a redeveloper's agreement and redevelopment plan as discussed in more detail below.

C. Purchase and Operation as a Public Park/Redevelopment by Borough.

1 . Purchase and Operation as a Public Park/Open Space and/or Marina.

Exhibit B sets forth the financial evaluation for the purchase of the Marina to be used solely as a waterfront park. Under this scenario, the Marina operations would be discontinued and we assumed no revenues generated from the site operations. Additionally, in evaluating the estimated annual cost to the Borough, we did not provide the costs of administration and insurance that would be necessary to maintain and operate a public park. For comparison purposes, the Borough Administrator has advised that the Borough spends approximately $103,500 to maintain Veterans Field. Further, Exhibit B assumes the same three purchase price scenarios as Exhibit C. The costs would generally be the same as for a redevelopment scenario except for reduced procurement, and financing costs. Additionally, there would be a cost associated with rehabilitation of the site for such park purposes. While the actual costs would depend on the level of improvement to the site desired by the Council, for comparison purposes only, we assumed the rehabilitation costs to be $396,000 with contingency (the same estimated costs set forth in Exhibit C for yard rehabilitation). Additionally, set forth in Exhibits B-1 and B-2 is the financial evaluation for the purchase of the property and operation of the Marina. Exhibit B-1 assumes the rehabilitation of the Marina as contemplated under the ACRAG report while Exhibit B-2 assumes no upgrades other than implementing some level of safety precautions with respect to the vacant building, pier and docks. The Council has estimated those improvements to be approximately $217,000.

2. Redevelopment.

Should the Borough decide not to purchase the Marina site for conversion to a park, and assuming the Borough is unable to reach terms with the present property owners, another option available to the Borough is the purchase and redevelopment of the site. While the level of redevelopment would be as dictated by the Borough Council, the financial analysis assumes rehabilitation and enhancement of existing Marina, creation of waterfront park and fishing pier, and rehabilitation and operation of a riverfront restaurant. The Borough could acquire, redevelop and operate the site on its own or it could procure a private developer to do so. It is assumed that a County/Borough partnership would operate under this scenario as well.

Attached as Exhibit C is the preliminary financial evaluation of various alternatives available to the Borough and their respective costs to the Borough. In preparing such evaluation, we have relied upon the validity of certain assumptions as set forth in the following paragraphs.

In an effort to make more space available for park/recreation purposes and based upon comments from the County, the ship store and rack storage have been eliminated from the financial evaluation. Note that should the Council decide to pursue such options, the potential revenues are set forth in the ACRAG Report and may be analyzed at a later date.

Further, potential revenues from the operation of a ferry service have not been evaluated at this time. Once the Borough decides to move forward, the demands of a "stop and go" ferry service together with the financial ramifications should be explored. The operation of a ferry service does not appear to be a determining factor in the decision whether to proceed, but rather would simply be an enhancement to the Project.

Further, the redevelopment concepts and financial evaluation discussed herein are preliminary and without the benefit of detailed engineering, planning and financial feasibility study. Once the Borough determines which alternative to pursue, the Borough will need to conduct its due diligence on the site, including a Phase I and Phase 11 environmental site assessment and a dredging analysis.

With respect to the dredging issue, the financial evaluation for each of the alternatives assumes a $2.4 million dredging cost(60,000 cy @.$40.00 cy disposal). While it appears as though the current owners may have undertaken at least some dredging, the need for continuous dredging for all of the marinas in Edgewater is common knowledge and should not be ignored. The extent to which dredging will be necessary will not be known until after the referenced due diligence is performed. It is in the best interests of the projects long-term viability to either provide for the funding to perform major dredging at this time or to create a reserve to perform the work at a later date.

The evaluation further assumes certain costs under the present state of facts. These costs are estimated and may change depending upon the option chosen and based upon the results of the referenced due diligence. (For example, if contamination is discovered, unanticipated site remediation costs will be incurred). A brief explanation of other cost assumptions is as follows:

Procurement and acquisition costs include legal, financial, engineering, appraisal and other costs to acquire the Marina and procure a redevelopers The process to condemn and take property as well as procure for a redeveloper is dictated by law.

Financing costs include the costs of issuing debt to acquire the Marina and fund the rehabilitation work. Costs include underwriter's discount, legal, financial, bond ratings, printing, credit enhancement, trustee fees and bond counsel.

Capitalized interest represents the amount of financing needed to pay interest on the issued debt until all services are in operation and capable of funding the interest and principal on the debt. Although this amount may not be needed for the Marina operations, it may be required for the financed restaurant rehabilitation as well as any other restoration work that will not generate revenue until work is completed. This amount may not be needed if the Borough decides to issue notes initially until rehabilitation work is completed and then at that time retire the notes and issue permanent debt. The advantages and disadvantages of either alternative are not a subject of this report but should be discussed in more depth if the Borough elects to purchase the Marina.

Debt service reserve fund would be required by ratings agencies and bond insurers. It equals I year of debt service (principal and interest) and would be available for investment. The earnings on the fund would be considered as revenue to the Marina and can be used to assist in the payment of the annual debt payments.

Further, the estimated costs of rehabilitation, dredging, restaurant restoration and contingency are as estimated in the ACRAG Report. It should be noted that the ACRAG Report provides an estimate for restaurant rehabilitation based on 6,325 square feet; the second floor of the existing structure. Depending on a decision of what to do with the first floor (see prior discussion about ship store and alternatives) the cost of restaurant rehabilitation as well as revenue projections, if anything.

Further the ACRAG report provides for various sources of revenue both gross and net of projected operating expenses. The assumptions taken from the Report are as follows:

Net Revenues

1. Seasonal slips $126,000
2. Transient slips 28,080
3. Winter slips (wet) 18,900
4. Winter dry 67,200*
5. Gas dock 100,000
6. Restaurant 132,193

Total projected Marina revenue $472,373

*Contingent on available space compared to open space requirements.

If the Borough does not wish to operate the Marina and other on-site facilities, we have identified two viable alternatives:

First, it may enter into a land lease with a private operator pursuant to the Local Lands and Buildings Law. This would in essence require a bid be prepared and released to the public. The necessary yard and dock repairs may be passed on to the operator in the bid documents; or

Second, it may negotiate with a developer to make the requisite upgrades and operate the Marina and other improvements pursuant to a Redeveloper's Agreement with the Borough, pursuant to the Housing and Redevelopment Authorities Law (Redevelopment Law). While the Redevelopment Law does not require competitive negotiation, we would recommend that the Borough follow a competitive negotiation process prior to selecting a developer. Under this scenario, the Borough is required to include the site within an approved Redevelopment Area and would need to adopt a formal Redevelopment Plan, which would set forth the redevelopment concept. Per our discussions with the Borough Planner, we understand that the site is already included within a Redevelopment Area. If the Borough chooses this option and assuming if it cannot reach an agreement with the property owners, we recommend the following procedures:

1 . Preparation and Issuance of a Solicitation of Interest/Request for Qualifications (SOI/RFQ). In order for the Borough to both assess interest in the project from Qualified Developers, and to identify viable redevelopment alternatives, we recommend issuance of an SOI/RFQ. The document would also request that developers submit a conceptual plan for the redevelopment of the Marina site which would be consistent with the Borough's articulated goals.

2 . Adoption of a Redevelopment Plan. In order to redevelop the property in accordance with the Redevelopment Law, the Borough would need to include the site within a delineated redevelopment area and adopt a Redevelopment Plan. Per discussions with the Borough Planner, Joe Burgis, the site is already part of a redevelopment area. Therefore, the Borough need only adopt a Redevelopment Plan. We would recommend that the plan be drafted after receipt and consideration of the conceptual plans identified in #1 immediately above.

3. Issuance of Request for Proposals. Upon the adoption of a Redevelopment Plan, the Borough should issue a Request for Proposals to seek formal proposals from qualified developers to develop the property in accordance with the Redevelopment Plan.

Provided the site is within a Redevelopment Area, we believe all of the above could be accomplished prior to institution of condemnation proceedings. Therefore, if the Borough is unable to reach an agreement with the present property owner either with respect to redevelopment of the site or agreeing to a purchase price, the above approach will allow the Borough to fully evaluate the financial feasibility of redeveloping the marina site before acquiring same.

CONCLUSION

In summary, and as set forth in greater detail above, while the discussions with the County have generally been positive, the level of County participation is unclear. With respect to the property owners, they stated they are willing to work with the Borough to address the stated goals. They are not willing to sell a portion of the site and have stated informally that they will sell the entire site for $6,000,000. The property owners are willing, however, to agree to a deed restriction in return for certain concessions of the Borough (tax abatement and below market financing). If the Borough is unable to reach an agreement with the County or property owners, the Borough may pursue its rights of condemnation and options under the Redevelopment and Housing Authorities Law. The various scenarios are set forth in Exhibits B and C (financial evaluations). Absent complete funding by the County or a partnership with the present property owners, the alternatives presented all require various degrees of taxpayer participation. Additionally, grants may be available to offset some costs to the Borough. The option chosen will dictate the appropriate and prudent course of action.