Autumn on Lake Audobon

Autumn on Lake Audobon
Autumn on Lake Audubon, Photo by Alison Kamat

Friday, May 10, 2013

A New Reston Recreation Center: How much will a new recreation center cost to build and operate?

UPDATE (May 30, 2013):  I discovered an error in my calculation of the forecast cost of the two options for building the Reston recreation center as currently proposed.  My error was to use the given base cost per square foot (cost/sf) rather than the full cost/sf (total cost/total square footage).  I have corrected this error.  I have also escalated the cost/sf as the size of the recreation center proposal shrinks as we done with the 2009 options.   This process is shown in the spreadsheet below:

The result of this process increases the total cost of construction by about half.  Here are the costs for the two options as earlier and currently projected:
  • Option A (62,850 SF) old cost range:  $13.8-15.0 million; new cost range:  $21.2-$26.6 million.
  • Option B (98,000 SF) old cost range:  $21.6-$23.5 million; new cost range:  $34.0-$37.3 million.
The new cost of Option B almost certainly would require an increase in the Reston tax rate.  Option A might not require one. 

I apologize for my error.  Terry Maynard

The cost of building and operating a new recreation center is an important factor in deciding whether it should be built and who ought to pay for it.  Unfortunately, Brailsford & Dunlavey (B&D) has not developed updated financial information for its two new options as of this writing.  Nonetheless, we can take a necessarily preliminary look at what the cost of construction and operation of a new recreation center by updating the many factors and analysis in B&D's 2009 study.  

Overall, we would anticipate that a new recreation center and associated surface parking would cost between $15-$25 million based on the May 6, 2013, B&D presentation to the community of two new options for sizing a recreation center.

In its public meeting update on May 6, B&D identified recreation center options of 62,850 and 98,000 square feet in size according to Reston Patch.  We estimate that the center itself would cost $13.8 million and $23.5 million to build using an average construction cost per square foot of $220-$240 and depending on which size option was selected.  That is 5%-15% higher than the $210 base construction cost per square foot B&D used in its 2009 report.   It allows for inflation and is consistent with other, more recent assessments of recreation center construction costs nationwide that we have reviewed.

In addition, using B&D’s estimate of a requirement for 225-250 parking spaces would add $600,000-$750,000 to the cost.  We believe this parking space requirement is generally low, especially if the larger sized facility option is selected and placed in a suburban location, even if that count meets the County's zoning requirement.  While 250 spaces might suffice for the smaller option in an urban setting with abundant commercial parking nearby and greater walk-in participation, we would expect that 400 or more spaces would be needed for the larger option in a suburban setting, costing $750,000 to $1.2 million at $3,000 per space, the price B&D used for surface parking in its 2009 study.

If a recreation center was built on privately-held land, there would be additional land acquisition costs.  Robert Charles Lesser Co. (RCLCo), in a report just completed for RCC, suggests that the cost of five acres of land for a recreation center site, including parking, could run anywhere from $1.6-$10 million in 2014 depending on the desirability its location.  We assume here that the recreation center will be built on County land at no additional land acquisition cost.

We believe the annual debt service coverage cost for 100% financing by a 20-year AA or better general obligation bond at 2.5% interest would be between $1.0-$1.9 million per year depending on the building option, debt service coverage requirement, and payment method.  (B&D used a mortgage amortization payment process in its 2009 payment forecast, but bond payments are not amortized over the duration of the bond, i.e.—the payments don’t “buy down” the principal.  Interest is paid on the full principal with the principal paid off at the end of period, subject to a bond "call" and other pre-payment opportunities stated in the bond issuance.  This increases the overall annual capital expense requirement.)

Based on the average annual operating costs for the several County recreation centers B&D studied in 2009, we expect that the annual operating cost for a recreation center opened in 2016 will begin at $2.7-$4.3 million per year.   This accounts for the alternative sizes of the center and includes inflation since the 2009 analysis at 2%/year.  That annual operating expense would likely grow with inflation, program additions, capital improvements, etc., in the years following its opening. 

On the plus side, using the basic approach for operating costs above and assuming the recreation center meets B&D’s standard stated in its 2009 report that a “successful” recreation center recovers at least 80% of its operating costs, we can anticipate operating revenues to average between $2.2-$3.4 million dollars if a recreation center is opened circa 2016.   
  • All the Fairfax County recreation centers B&D studied in 2009 recovered more than their operating costs (114% on average) so this estimate of revenues is a conservative in comparison, but other recreation centers certainly recover less of their operating costs through fees, rentals, admissions, etc.  
  • In contrast, the three options presented by B&D in 2009 for a Reston recreation center would have recovered only 74%-80% of their operating cost with the recovery rate dropping as recreation center size dropped.  This could impact the financial "success" of the new options given that they are both smaller than any of the three options B&D presented in 2009.
In short, a reasonable preliminary estimate of the annual net cost for operating a “successful” Reston recreation center to be covered through taxes would run between $1.6-$2.6 million per year, not counting program reserves for maintenance, additional capital projects, and other strategic program needs.  This calculation excludes possible proffers from developers or contributions from other sources.   

All of these financial estimates have to be considered preliminary rough order of magnitude (ROM) estimates based the assumptions and data we described above.  They are subject to review in concert with B&D’s updated financial analysis due on June 3, 2013.  In that regard, they may offer a benchmark for examining changing assumptions and data in B&D's forthcoming financial analysis keyed to the new recreation center options B&D has presented.

If these estimates are reasonably accurate and there is at least moderate growth in Reston's real estate valuation--either from appreciation or new development in the station areas--over the rest of the decade and beyond, tax rates in the Reston small tax district may not have to be raised to accommodate a new recreation center.  Obviously, this would be more likely if the smaller--and less costly--recreation center option is selected.  A favorable tax rate outcome also depends strongly on the "success" of the recreation center in generating high operating cost recovery rates, creating a substantial challenge for RCC management.  We do not, however, discount the possibility that a higher STD#5 tax rate could be needed.

1 comment:

  1. The latest RCC budget lists roughly $7.7 million in expenditures, almost all of which qualify as "operating expenses" that is, not capital spending and only $1.1 million in revenue other than taxes. It would seem prudent therefore to assume that any increase in RCC spending, either for debt service or operating expenses, would have to be matched by nearly as much new tax revenue ($6 in new revenue for every $7 in new spending). Lacking further explanation, the consultant's report seem misleading on this point. First, the discussion of cost recovery lacks details or sources. More important, the statement that FCPA facilities recover all their operating expenses is at odds with FCPA's audited financial statements. The statements indicate that FCPA recovers only about 44% of its costs from fees. Perhaps for the consultants, operating expenses means something different, but, in the end, the taxpayers need to be concerned about all costs not recovered by fees, whether they are capital or operating expenses.


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