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CITY OF PONTIAC ● OAKLAND COUNTY ● MICHIGAN

Preliminary Program and Financial Structuring Report URBAN RESOURCE ALLIANCE OCTOBER 28, 2009

STRAND THEATRE ● Preliminary Program and Financial Structuring Report_________

______________________________________Urban Resource Alliance October 2009

ACKNOWLEDGEMENTS: The Strand Theatre Program and Funding Report was prepared as a Technical Visit sponsored by Main Street Oakland County for the City of Pontiac with the cooperation of the following people:

Oakland County L. Brooks Patterson, Oakland County Executive Robert Donohue CMSM, Main Street Oakland County Program Coordinator City of Pontiac Fred P. Leeb, Emergency Financial Manager Khalfani Stephens, Acting Director, Pontiac Growth Group & Economic

Development Corporation Sandy‐Michael McDonald, Pontiac DDA Executive Director Member and Associated firms of the Urban Resource Alliance collaborated in the preparation of this report: Urban Resource Alliance Schervish Vogel Architects, PLC Finnicum Brownlie Architects, Inc Zachary and Associates, Inc Gerdom Management Group Theatre Consultant



TABLE OF CONTENTS:

Preface I. Introduction Purpose Background Assumptions Illustrations II. Program Goals Existing Conditions Space/Area Schedule Schematic Plans Assumptions/Schedule/ Conclusions III. Ownership Structure/Theatre Management Operations Entity Objectives Operating Plan Program Approach 52 Week Booking Plan Preliminary Operational Structure IV. Financial Structuring Approach Preliminary Sources and Uses of Funds Statement Assumptions Proposed Financial Structure V. Challenges/Recommendations Strategic Direction Operational Challenges Recommendations



Preface: This preliminary Phase I feasibility report is based upon construction cost

assumptions provided to the Urban Resource Alliance by the Pontiac Growth Group. The URA has not done a specific line‐item cost estimate for the project. The PGG’s assumptions to complete the project are based upon past knowledge of the construction and conversations with contractors involved in the recent renovation. The URA used the assumptions to project all costs, hard and soft, as a basis for projecting the future funding sources needed to complete the project.

As outlined herein, the operating program of film and live performances,

together with food and beverage operations, is assumed to have the strength of cash flow necessary to sustain the Strand Theatre project to financial viability.

The necessary next phase toward determining the feasibility of the project will

involve determining the structure’s eligibility for historic tax credits; completing the construction cost estimates; analyzing the markets; identifying the costs relating to utilizing the adjacent Pontiac Growth Group building; and projecting the operating revenues, expenses and cash flow. Accomplishing Phase II will validate the financial structuring put forth in Phase I.



I. Introduction



“I can remember a time when where we went to the movies was just as important as the movies we went to see . . . From the moment moviegoers arrived to buy

their tickets, there was a sense of something special, a feeling that to step inside was to enter another time and

place.” – Gene Kelly

Introduction: Purpose‐This study is intended as a First Phase toward a plan to complete the

renovation of the Strand Theatre and to plan for its self‐sustaining operation. Aware of the need for a full feasibility study, which this report is not, Main Street Oakland County seeks to provide impetus by contracting for the formulation of a building program and an operating strategy. Therefore, the purpose of this report is to quantify the financial benefits of the project by demonstrating the potential use of tax incentives.

Background‐Designed by Pontiac architect Leo John Heenan, The Strand Theatre opened in March 1921 with almost 1,200 seats spread amongst a main floor and two balconies. A three‐story Renaissance‐style building, The Strand had a major renovation in 1949 by noted theater architect C. Howard Crane. In its heyday, The Strand was one of eight thriving movie palaces comprising a bustling downtown Theater District. As changes occurred throughout the entertainment business and the community, this once‐vibrant family movie house fell onto hard times. It suffered as other large, downtown theaters did over the years before turning to adult films in the 1970s when it was known as the Campus Theatre. The Strand finally closed near the end of that decade and was purchased by the City of Pontiac in 1986 for potential future restoration and re‐use. There was one “last hurrah” in the early 1990s when Detroit’s Attic Theater briefly staged productions there. At the beginning of this century, Strand Theater Center, Inc., a private, non‐profit 501 (c) (3) corporation was formed and charged with transforming the



aging jewel into a cultural, film and theater center. Funds were secured and demolition began in early 2002 on an estimated $10 million plan to transform the 82‐year‐old structure – now conjoined with two adjacent historic commercial buildings – into a 30,000‐square‐foot theater center boasting everything from a 600‐seat proscenium theater to a digital screening room. Other portions of the Center were expected to house a flexible "smart space" performance lab seating up to 200, a two‐level cabaret, an upper lounge useful for community or corporate events, a grand main lobby, and an arts‐related boutique. Difficulties with project oversight, cost overruns, constant changes in the plans, and the normal “surprises” that crop up in all restoration projects depleted available funding and the project was halted before completion. Now the sole survivor of Pontiac’s bustling Theater District of the 1930s and 40s (another former theater, the Eagle, was converted to a nightclub) the Strand is poised to re‐open and become the leader in a renewed effort to revitalize the downtown. The goal is to bring audiences, diners and shoppers into the center city, while an enhanced tax base helps new and existing businesses benefit from the influx of downtown traffic. The Strand Theatre is central to alternative downtown development strategies offered by the 2001 Updated Downtown Development Plan. The Plan calls for creating twenty‐four hour activity by attracting entertainment, arts and restaurant uses into the city’s historic fabric and creating new mixed use and residential development to feed it. (DDP Figure 3‐13) The downtown core, vital to the City’s character and economic viability, will be greatly impacted by a vibrant, restored Strand Theatre because of its prominent central location and ability to draw people to downtown. (DDP Figure 3‐14).

Assumptions‐Because the reality of limited funding at this time, the scope of this study deals only with the beginning and the conclusion of a feasibility study and certain broad assumptions are necessary. Revised architectural and engineering drawings have not been prepared to define the remaining scope of work, so construction costs have been assumed. A historic review has not been undertaken, so eligibility for historic tax credits has been assumed. Operating expenses and revenues have not been estimated, so projecting an operating proforma is not possible at this time. A Second Phase of this study addressing the above issues is necessary to fully determine the viability of the Strand Theatre project and what will be necessary to complete its development.



Illustration I (Figure 3-12, 2001 Downtown Development Plan)



Illustration II (Figure 3-13, 2001 Downtown Development Plan)



Illustration III (Figure 3-14, 2001 Downtown Development Plan)



II. Program



Goals: It was the intent of the Urban Resource Alliance in developing the program for

the Strand Theatre to maximize the value of previously completed work to the overall success of the project. The building will be modified only to the extent necessary to improve its ability to optimally accommodate a wide variety of performances and presentations. A team of architects and specialists experienced in the development of historic structures and expert in theatre operations has toured the building, studied the drawings and investigated the existing conditions. The degree of completion for each space was determined, the use of each space studied and modifications proposed to fit the projected operational program. The building is now programmed to accommodate film presentations, music performances, live theatre productions, for diverse public and private (rental) audiences.

A major component of the proposed program is the development of a

restaurant/bar/banquet venue in the adjacent structure, the Pontiac Growth Group Building. A symbiotic relationship must be developed between the theatre operation and the food and drink venue. The use of the adjacent building is assumed in the program but is not reflected in any of the financial projections because it is beyond the scope of this study.

Existing Conditions: At the point construction was halted, the majority of the infrastructure was

complete with most of the “in the walls” work done and awaiting external fixtures. Plumbing, electrical, and HVAC work is mostly complete as is wiring for stage lighting and sound controls. New stairways were installed and a new elevator, though unassembled, is in the building. New structural work to accommodate the stairwells and elevator is in place in the revised lobby layout, though there appear to be some issues with functionality and a fire break where the stairs meet the front wall. A new room layout is mostly complete throughout the building with walls in place. The main seating area has a newly poured concrete floor in a revised seating layout. Though work has been done in the stage area, it’s not clear if all lines and counterweights have been replaced or if the grid has been strengthened to accommodate modern rigging. No exterior work appears to have been done nor has any decorative or finish work been started inside.

Specifically, and pending further review and discussion with subcontractors,

the project status is as follows:



Basement – The basement has been reconstructed under the lobby area to provide the majority of restrooms needed to meet current code. They are accessible by stairs or elevator. There is also a lobby between the restrooms and a storage room. Under the stage, the old orchestra pit has been filled in except for a small, unusable portion that remains. An electrical room is centered against the east wall with rooms identified as being for “laundry” and “production work” to the south. There is a clear area under a trap in the stage floor. Most of the work rooms are not as accessible to the stage as they need to be and might provide more useful space as orchestra or chorus dressing rooms. Additional stage storage is not feasible except for small, light items as there is no easy access to the stage level without a lift. There is also no way to roll trunks into the area.

Main Floor – What was once a grander lobby is not so grand anymore as a new

stairway and the elevator take up a lot of the space. Much of a vaulted ceiling has also been lost for a walkway from the elevator to the balcony public areas. A box office and coat room are on the south side of the lobby, but they have access and space issues. The doorway into the restaurant to the south has been sealed with brick. An office and vestibule is indicated next to a room labeled “Saginaw Room” that is directly behind the box office. Down a corridor on the south side of the seating area are two dressing rooms and a green room. On the north side are an unidentified room and a store room. The stage is small with only a 27 foot proscenium opening and limited depth, typical of the era when it was built. There is a small loading door to the alley with no truck height access and no “direct in” loading capability as the alley limits any trucks to north/south parking.

The seating area has been totally reconstructed with new concrete creating a

“continental seating” configuration, i.e., there are only side aisles and the seating goes all the way across. This configuration requires more space between seat backs as the “aisles,” from the standpoint of fire codes, are in front of the seats where people rest their feet. The new spacing is marginal for this usage and, even thought it improves sight lines, it significantly reduces the seating capacity. In this case, it appears to be about 400. There are also possible ADA issues since there are stairs going down on both sides except for a flat platform across the back. At the back of the seating area are two booths on either side of the elevator shaft for sound and lighting control consoles and personnel.



Second Floor/Balcony – The main floor lobby is open through the second floor except for the elevator walkway. A “donor lounge” and smaller rest rooms are on the north side before entering the screening room, which is long and narrow and appears to hold 100 or less in normal theatre seats. On the south is an ‘L’ shaped room labeled for “rehearsal.” Down the corridor are additional restrooms before two chorus dressing rooms. The seating area is as it was originally constructed, however, the stairways have been removed and it appears the balcony seating was also going to be “continental.” This will definitely not meet code and the stairways will have to be put back to create additional aisles. There is no handicapped access as every seat involves access from a stairway of some sort. It appears to be able to seat about 200. On either side of the elevator shaft at the back of the seating area are two small, open rooms directly above the control booths on the main floor.

Third Floor/Second Balcony – What was apparently a third floor lobby for the

second balcony has become the mechanical/electrical room. Whether sufficient sound proofing was added has not been determined. The seating area is gone and a projection room flanked by two follow spot booths has been built over most of it. Audio and dimmer equipment rooms are behind the booths. All of this area has been wired into new controls as has a catwalk that is suspended above the main seating area for lighting positions. It appears neither the projector nor the follow spots can project past the catwalk to hit the stage. There are also light rails and ladders mounted on the side walls of the seating area, though historical lighting positions on the fronts of the balconies appear to have been removed.

STRAND THEATRE ● Preliminary Program and Financial Structuring Report________________

____________________________________________Urban Resource Alliance October 2009

SPACE / AREA SCHEDULE: Strand Theatre Building: Pontiac Growth Group Building Space

First Floor Lobby Concessions House Bar Office Office Storage Stage Dressing Green Room Stage Storage Stage Vestibule

Second Floor Lobby Balcony Donor Lounge Screening Room Rehearsal Chorus Projector Booth Corridor Storage

Area (sq. feet)

Total: 11,276

1,811

959

3,168

581

508

93

1,237

882

505

456

1,076

Total: 8,129

1,844

1,755

791

845

865

1,173

143

604

118

Space

Area (sq. feet)

STRAND THEATRE ● Preliminary Program and Financial Structuring Report________________

____________________________________________Urban Resource Alliance October 2009

Strand Theatre Building: Pontiac Growth Group Building Space

Third Floor Corridor Proj. Booth Mechanical Phone Catwalk

Basement Lobby/Restrooms Storage Production Vestibules Net Area Summary: First Floor: Second Floor: Third Floor Basement: Total:

Area (sq. feet)

Total: 2,793

600

600

1,129

72

392

Total: 6,548

1,868

2,563

1,083

1,034

11,276

8,129

2,793

6,548

28,746

Space

Area (sq. feet)



Assumptions/Schedule /Conclusions: Assumptions‐The approach to the Strand Theatre renovation assumed herein is to

regard its completion as primarily the application of finishes and installation of mechanical and electrical equipment. The structural improvements are in place and will, for the most part, be retained. Relatively minor changes are assumed necessary to accommodate certain reprogramming of spaces, such as relocating the concession area, enlarging the stage, providing space for cabaret seating and relocating access to the ticket booth.

It is important to note that the adjacent building to the south (Pontiac

Growth Group building) is regarded as an integral part of the project from a use and a spatial standpoint. A restaurant is located on the first floor; its bar can be located to also serve patrons in the theatre lobby. The second floor can be used as additional dining/banquet space, as screening rooms or a combination of each. For this reason the adjacent building is shown on the schematic plans but please note that it is not included in the Sources and Uses of Funds Statement. The financial data relates only to the Strand Theatre Building.

Schedule‐It is anticipated that pre‐development, construction and set‐up activities

will take place over a two year period. The sequence of general milestones is:

Pre‐Development/Feasibility

Historical Questionnaire to SHPO

Choose Developer (select/negotiate)

Identify Owner/Operator

Architectural/Engineering/Estimating

Financing

Construction

Fittings, Furnishings and Equipment

Project Close‐out

Grand Opening Conclusions‐The Strand Theatre Building as modified and in conjunction with the

PGG building is believed to provide adequate facilities necessary to sustain the operations of a diverse entertainment venue. It will present successful and financially viable entertainments that attract broad, diverse audiences of Pontiac and surrounding Oakland County residents to the Theatre and adjoining restaurant, and draw them into the downtown area where they will utilize other area merchants and establishments



III. Ownership Structure/ Theatre management Operations Entity



Objectives:

To be successful, the Strand Theatre project must create a strong Ownership Structure that maintains a cooperative, synergistic relationship between the Theatre/Film/Entertainment entity and the Food/Drink/Banquet entity. The operating program must be designed around the strengths of the building, its history, quality, and location, maximizing the uses of each available public space.

Operating Plan: Present successful and financially viable entertainments in the recently

renovated Strand Theatre

Main Stage

Present live, high quality professional musical/theatrical programming in the Main Stage for multiple week runs, distinguished from other area offerings by its uniqueness and the feeling of a special experience for all audience members attending.

Integrate a variety of single night music and comedy attractions to balance out the programming and attract different audiences.

Explore partnerships with high quality renters and promoters to further increase Theatre usage and audiences while providing a broader variety of attractions

Exploit the facility’s historical legacy in programming that reflects various periods in the building’s history.

Screening Room(s)/Film Exhibition

Initiate a daily film exhibition schedule in the Screening Room(s) presenting an eclectic mix of main stream current films and classic films intermingled with foreign, art‐house and independent films not otherwise available in the community.

Utilize the full‐sized screen in the Main Stage for special showings of current broad appeal and/or family films integrated among the live attractions.

Encourage local filmmakers with opportunities for showings and discussions

Develop a unique viewing experience with special seating and amenities to distinguish the Screening Room(s) from area multiplexes.

Develop a second screening room and additional public space on the second floor above the restaurant in the building to the south of the Theatre to provide more options and variety in film presentations. This space is referred to as the “Cinema” later in this report.



Restaurant

Develop the adjoining restaurant as an integral part of Theatre program offerings yet with an identity and reputation strong enough to stand alone

Partner with the restaurant’s operators to manage and provide bar, concession and other food needs for the Theatre.

Preserve the historic Strand Theatre for the benefit of the community through

ongoing conservation, further renovation and restoration of the physical structure, and the development of a special and unique audience experience; improve functionality of stage and technical support functions within the building’s current configuration; develop additional concession/bar/gathering areas and an additional screening room.

Maximize the number and variety of Strand Theatre audiences; project a fresh,

visionary brand identity to drive sales, communicate the organization’s role in, and benefit to, the community, and position the Strand for growth into the future.

Operate the organization in a manner that ensures artistic quality, program

success, organizational integrity and responsible growth; provide a solid financial foundation and managerial leadership to support all activities; assure superior customer service to create a “special occasion” for every event.

Program Approach: The goal of completing The Strand renovation is to attract broad, diverse

audiences of Pontiac and surrounding Oakland County residents to the Theatre and adjoining restaurant, and bring them into the central business area to utilize other area merchants and establishments. This requires near nightly activity to provide a regular presence and sustained traffic flow. The attached 52 Week Booking Plan shows how a variety of entertainments could be organized into a schedule that sees the Theatre open up to 324 days.

The chart is organized into two sections. On the left is a layout of the possible

attractions broken out with the number of productions, the number of ticketed events for each, and the number of days that the Theatre is in use for each. The other side of the chart shows how these attractions are spread among the Theatre’s three main venues – the Main Stage, Screening Room, and the additional Cinema to be built over the restaurant. The chart breaks out both the number of days the rooms are in use as well as the weekends scheduled. Given that a number of weekends are not attractive for bigger events, the Main Stage only uses 46 weekends, while the Cinema is open every weekend and has the most days of usage as main stream films can play regularly throughout the year.

STRAND THEATRE ● Preliminary Program and Financial Structuring Report____________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________________Urban Resource Alliance October 2009

Total Events Main Stage Cinema Screening Room

Productions Ticketed Events

Rehearse Load-in/out

Total Days

Total Days

Total Weekends

Total Days

Total Weekends

Total Days

Total Weekends

Plays/Musicals 4 64 12 60 60 8 0 0 0 0

Jazz at The Strand 4 4 0 4 4 4 0 0 0 0

Classical Nouveau 4 4 0 4 4 4 0 0 0 0

Music/Comedy 12 12 0 12 12 10 0 0 0 0

Co-promotions 8 8 0 8 8 6 0 0 0 0

Rentals 8 32 32 56 56 8 0 0 0 0

Current film 52 680 0 324 24 4 324 52 84 12

Classic/Art film 44 252 0 216 0 0 0 0 216 36

Children's films 6 6 0 0 0 0 0 0 0 0

Festivals 2 16 6 14 14 2 0 0 8 0

Total 144 1,078 50 698 182 46 324 52 308 48

52 WEEK BOOKING PLAN



Preliminary Operational Structure

Strand Theatre LLC

General Partner

Strand Theatre

Operations LLC

Strand

Restaurant LLC

Film

Restaurant

Rental

Banquet Facility

Live

Performance

Bar



IV. Financial Structuring



Approach: The completion of the development of the Strand Theatre will require a blend of

traditional debt and equity financing together with public tax credit incentives including Federal and State Historic Investment Tax Credits, New Market Tax Credits, Brownfield S.B.T Credits, as well as the contribution of the theatre by the Pontiac Growth Group as additional equity.

The following Sources and Uses Projection quantifies the various financing

sources and leverages the historic credits and mortgage loan to create equity of $1,200,000.

The entity that is formed meets the criteria of these various tax credit programs

as indicated by the flow chart. It is a for‐profit LLC that takes on the responsibility of the development of the theatre and syndication of all the tax credit programs.

The costs associated with the use of funds generally fall into four categories: the

acquisition, hard construction related costs, soft costs and costs associated with the tax credit financing.

Because the scope of this study was limited, the construction costs were

assumed to be fixed at approximately $4,000,000. This provided the basis on which to estimate all the other costs and establish the financing mix and amounts.

STRAND THEATRE ● Preliminary Program and Financial Structuring Report____________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________________Urban Resource Alliance October 2009

PRELIMINARY SOURCES AND USES OF FUNDS

Strand Theater Sources and Uses of Funds NMTC Calculation21-Oct-09 Equity (State Historic) 1,125,985 $

0.72 1,563,869 $

Sources: Construction Permanent

NMTC Equity 437,883 $ Equity

MBT Credit Equity - $ 822,100 $

Equity (Federal Historic) 1,308,958 $ 0.72

Financing 1,817,997 $ Construction Loan (7.5%) 822,100 $

- $ NMTC Equity 509,039 $

NMTC 1

Loan A (7.5%) (Loan) 2,027,400 $

2,027,400 $ Loan A 2,027,400 $

Federal Historic Tax Credit 1,308,958 $ 1,308,958 $

0.72 State Historic Tax Credit 1,125,985 $

1,125,985 $ 2,815,833 $

Equity 1,226,317 $ 1,226,317 $

NMTC Equity 788,433 $ Total 6,510,760 $

6,510,760 $

Surplus/Shortage (0) $ (0) $

Total NMTC Equity 1,226,317 $

State Historic Federal Historic Michigan BusinessUses: Tax Credit Tax Credit Tax CreditAcquisition Total Allocation 5,688,660 $

Acquisition 50,000 $ 50,000 $

Loan Loss Reserve (1%) 170,660 $ Working Capital Reserve (1%) 170,660 $ Construction

Construction 4,000,000 $ 4,000,000 $

4,000,000$

4,000,000$

4,000,000$ Construction Contingency (10%) 400,000 $

400,000 $ 400,000$

400,000$

400,000$ Permit Fees 40,000 $

40,000 $ 40,000$

40,000$

40,000$ Testing, Surveys, Soil Borings 45,000 $

45,000 $ 45,000$

45,000$

45,000$ FF&E (Included in Construction) - $

- $ -$

-$

-$

Soft Costs Predevelopment Fees and Costs 100,000 $

100,000 $ 100,000$

100,000$

-$ Soft Cost Contingency 117,507 $

117,507 $ 117,507$

117,507$

-$ Financing Fees 20,274 $

20,274 $ 20,274$

20,274$

-$ Interest - Construction Loan 55,492 $

55,492 $ 55,492$

55,492$

-$ Interest - Loan A 182,466 $

182,466 $ 182,466$

182,466$

-$ A/E Fees (10%) 400,000 $

400,000 $ 400,000$

400,000$

400,000$ Historic Designation Fees 25,000 $

25,000 $ 25,000$

25,000$

-$ Economic Consultant 50,000 $

50,000 $ 50,000$

50,000$

-$ Development Fee 200,000 $

200,000 $ 200,000$

200,000$

-$ Insurance and Taxes 20,000 $

20,000 $ 20,000$

20,000$

-$ Misc. Development Costs 20,000 $

20,000 $ 20,000$

20,000$

-$ Marketing and Promotion 50,000 $

50,000 $ 50,000$

50,000$

-$ Obsolete District Petition & Exemption Certificate

District Petition & Certificate Application 5,000 $ 5,000 $

5,000$

5,000$

-$ City District Establishing Fee 1,800 $

1,800 $ 1,800$

1,800$

-$ Michigan Business Tax Credit

Part I 4,000 $ 4,000 $

4,000$

4,000$

-$ Brownfield Plan 3,000 $

3,000 $ 3,000$

3,000$

-$ Part II 3,000 $

3,000 $ 3,000$

3,000$

-$

PBRA Application Fee 1,000 $ 1,000 $

1,000$

1,000$

-$ PBRA Processing Fee 1% of estimated Credit 10,000 $

10,000 $ 10,000$

10,000$

-$ State Application Fee for Part II 10,000 $

10,000 $ 10,000$

10,000$

-$ State Administrative Fee 6,839 $

6,839 $ 6,839$

6,839$

-$ Legal/Accounting 100,000 $

100,000 $ 100,000$

100,000$

-$ Construction Draw Servicing (CDE) 7,200 $

7,200 $ -$

-$

-$ Compliance Monitoring (CDE) 14,222 $

14,222 $ -$

-$

-$

Origination Fee - 4% (CDE) 227,546 $ 227,546 $

-$

-$

-$ Loan Loss Reserve - 3% (CDE) 170,660 $

170,660 $ -$

-$

-$ Working Capital Reserve - 3% (CDE) 170,660 $

170,660 $ -$

-$

-$ Misc. 95 $

95 $ -$

-$

-$ Total 6,510,760 $

6,510,760 $ $7,044,453 $7,044,453 4,885,000

20% 20% 20%1 The NMTC allocation is estimated at: 5,688,660 $

1,408,890.68

1,408,890.68

977,000$ *A Deferred Developer Fee of 20% or 1,304,953 is included as part of the basis in the calculation of Eligible Historic Tax Credits 99.90% 99.90% 99%

1,407,482$

1,407,482$

967,230$ 0.80 0.93 0.85

1,125,985$

1,308,958$

822,146$

For Planning Purposes Only



Assumptions: New Markets Tax Credit

Assumptions ‐ For the purposes of maximizing the financial resources available to the project it is assumed that he Strand Theater will be developed by a for‐profit entity. Further, that the project will be developed as a historic structure in accordance with US Department of Interior Standards. Finally, that the existing structure will qualify as a Brownfield under Michigan law and therefore be eligible for tax credits. The following describes the components assumed for the Strand Theater project: Strand Theater non‐profit – One possible structure would be to include a non‐ profit entity in the ownership of the for‐profit LLC. Strand Theater LLC for‐profit – The LLC would be an investment LLC that would be made up solely or in the majority by an equity investor (99%) and with incidental ownership by the Strand Theater non‐profit. Equity – The amount of equity in a New Markets Tax Credit (NMTC) project is based upon a 39 percent credit to be earned out over a seven year period. The resulting equity is usually 27 percent of the defined NMTC project. Loan A – Loans for NMTC projects usually may be repaid interest‐only for 7 years. Principal repayment for the same period is limited. CDE – A Community Development Entity is a corporation that has received an allocation from the US Department of Treasury of NMTC. The CDE is a pass‐through for all funds that are a part of a project’s NMTC ‘s basis, Federal Historic Tax Credits – Tax credits for federally designated historic buildings may receive a 20 percent tax credit on eligible basis. Credits have been placed for about 93 cents for $1.00 of tax credit. State Historic Tax Credits – Tax credits for locally designated historic buildings may receive from a minimum of a 5 to a maximum of a 20 percent tax credit on eligible basis. Credits have been placed for about 85 cents for $1.00 of tax credit for Michigan Business Taxes.

Brownfield Tax Credits – Tax Credits may accrue to buildings that are of the condition of the Strand Theater. Buildings may receive from a minimum of a 12.5 to a maximum of a 20 percent tax credit on eligible basis. Credits have been placed for about 85 cents for $1.00 of tax credit for Michigan Business Taxes.



Bank or Sec. 108 or NMTC 39% Investor

Proposed Financial Structure

Strand Theatre LLC

For-Profit

Strand Theatre

Project

$6,510,760

Community Development

Entity $5,688,660

Strand TheatreNon-Profit (Optional)

Brownfield Tax Credit

$822,100

Equity

$1,226,317

Loan A

$2,027,400

Federal Historic Tax

Credit $1,308,958

State Historic Tax Credit

$1,125,985



V. Challenges/Recommendations



Strategic Direction: Present successful and financially viable entertainments in a renovated Strand Theatre that attract broad, diverse audiences of Pontiac and surrounding Oakland County residents to the Theatre and adjoining restaurant, and bring them into the downtown to patronize other area merchants and establishments.

Operational Challenges: Programming

Designing an interesting, appropriate and profitable mix of programs to attract audiences, overcome competitive challenges, and drive customer traffic and concession revenue

Developing a unique, programmatic identity for the facility that will distinguish The Strand from other performance venues in the area and from organizations that might rent the facility

Attracting high quality, popular attractions with the limited income potential of 600 seats and restrictive stage facilities

Providing near nightly activities to maximize revenues, build traffic in the restaurant and increase traffic flow into the downtown

Adjusting existing design and construction work to improve functionality for both audience and performer

Integrating activities between the Main Stage, Screening Room(s), restaurant and ancillary rooms to maximize revenues and heighten the audience’s “sense of occasion” when attending activities

Capitalizing on the historical significance of the Theatre as a building, its superior performance environment, and the long history of community service it represents

Preservation and Historical Significance

Identifying and restoring those design and structural elements that represent and define the Theatre’s history and contribute to securing appropriate historic tax credits

Maintaining the interior and exterior of The Strand in a manner that reflects positively on the facility as a premier performance venue and significant historical site

Marketing

Creating an identity/brand/image to communicate the Theatre’s role in the community and drive sales

Pricing the products appropriately for the community and the direct competition while producing sufficient revenues to fund the attractions



Attracting new audiences and drawing audiences from other long‐standing area arts organizations and entertainment facilities and the increasing array of new performance venues and offerings

Communicating its quality and exploiting the facility as a first‐class venue

Expanding marketing budgets to drive attendance increases without reducing profit margins

Finance, Operations and Customer Service

Developing and maintaining sufficient cash flow and profits to cover operating costs, pay taxes, service any debt and provide return on investment

Ensuring an appealing venue to enhance the audience’s experience; improving audience amenities without extensive building renovations and associated construction costs

Enhancing functionality of the Theatre’s limited stage facilities and production capabilities to meet professional, technical, and contractual requirements and expand programming without extensive building renovations and associated construction costs

Maximizing revenues from all events and insuring adequate compensation for the facilities and services provided

Providing superior customer service to audiences and renters to assure the feeling of a “special occasion” for every visit to The Strand

Developing and administering rental agreements with rental rates both competitive and appropriate for the quality of the venue; establishing a reputation for a staff that is highly skilled, competent and easy to work with in a venue that is attractive to promoters

Assuring timely and meaningful financial and management reporting to better evaluate operations and make critical management and policy decisions

Management

Securing an investor/operator to pull the project together

Providing growth and return on investment to satisfy community supporters and investors while providing tax revenues to the City of Pontiac

Attracting and retaining high quality, experienced, professional staff to oversee activities and the facilities

Affording a staffing structure of sufficient size to best meet organizational demands

Maintaining a deep sense of “community responsibility”



Recommendations: Feasibility Study/Development Plan‐To fully determine the viability of the Strand

Theatre project and what it will take to complete its development a Phase II of this study is necessary in the form of a feasibility study/development plan. A historical study must be accomplished to determine eligibility for the historic tax credits. Programming and design drawings must be refined. An operating proforma based upon estimates of hard construction costs, development (soft) costs and operating expenses and revenues must be developed to test this study’s assumptions and reveal the project’s merits.

Downtown Plan‐To help insure the Strand Theatre becomes a self‐sustaining

entertainment/restaurant venue serving the diverse audiences of Pontiac and Oakland County, it must be woven into the fabric of the downtown and the existing entertainment district. The Arts community must also be regenerated. That the city pursues recommendations of the 2001 Updated Downtown Development Plan is crucial. Improvements such as restoration/adaptive reuse of historic downtown structures, mixed use infill development, daylighting the Clinton River, introducing residential and live/work lofts to downtown, dealing with the Phoenix Center and reestablishing the street grid will provide a steady presence of people downtown. A synergistic relationship between the Strand Theatre and downtown Pontiac will emerge from a solid downtown implementation plan that adds a financial strategy to a physical plan.

preliminary program and financial structuring · pdf filepreliminary program and financial...

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