ITEM 119-109-R0503

Student Assistance Foundation

Executive Summary for SAF Facilities Options

April 16, 2003

Overview

The SAF board was apprised by Senior Management that the organization needed to start some long range planning regarding the facilities that SAF currently has in relation to the expected growth of the organization over the next few years. Over the last few months, SAF has worked with Karhu and Cullen Architects P.C. in Helena, Montana, Streeter Brothers Development Group in Billings, Montana, as well as, local parties that may hold properties or options for SAF to consider in addressing its space needs.

The attached documentation along with drawings and photographs of the proposed options provide a more detailed review of the options, cost, as well as issues that these options present. Below is a table that summaries the options and costs. SAF management has also provided an indicator next to the options it considers to be the most feasible at this time to pursue further.

Action:

At this time SAF management would like to proceed with further analysis of the short term, mid-term and long term options that are the most feasible. SAF management is more than willing to research any of the other options as directed by the Board.

Student Assistance Foundation

Capacity of Existing Facilities

April 16, 2003

Background:

On November 25, 2002, the SAF board was provided a document along with some background information on the existing facility. As part of that document SAF Senior Management identified several short and long term issues that needed to be addressed as SAF continues to grow.

Action :

The SAF board was apprised by Senior Management that the organization needed to start some long range planning regarding the facilities that SAF currently has in relation to the expected growth of the organization over the next few years. Below is a table that identifies the square footage assigned to each entity in the existing Montana Higher Education Complex. (Attachment A contains the floor diagrams of the Montana Higher Education Complex).

Current Square Footage by Entity:

*Note: Square Footage figures from Auto CAD drawings and Common Space calculated from lease agreement percentages

Options for Short Term, Mid-Term and Long Term Growth:

Option 1 – Expand Hours of Operation

Expand SAF’s hours of operation from 8:00 am – 5:00 pm to 5:00 am – 7:00 pm. Under this proposal SAF would run two shifts of employees. The first shift would work from 5:00 am – 2:00 pm with a 60 minute lunch. The second shift of employees would work from 11:00 am to 8:00 pm with a 60 minute lunch.

This option will require the installation of twenty five (25) workstations along with four (4) offices in the basement. This space is needed for growth and to allow communications between first and second shift employees. It also requires adding women’s and men’s restrooms in the basement.

This option will require approximately $100,000 in funding to install restrooms, workstations and equipment for loan servicing activities. The existing outstanding debt of $2,550,000 plus the $100,000 would be refinanced for a total of $2,650,000.

Issues:

This option does not address additional parking for employees during shift overlap.

Option 2 – Add Remote Parking Space

There are some possibilities for providing additional parking for employees to the building. A one (1) acre of land at the intersection of Colonial Drive and Broadway is for sale. SAF could purchase that land and develop additional parking. Approximately 60-75 parking space could be built.

The cost estimate for this project would be $332,500. The existing outstanding debt of $2,550,000 plus the $332,500 would be refinanced for a total of $2,882,500.

Issues:

Safety would be a concern for employees working a second shift. Employees would need to walk from the existing building East on Broadway to the new parking area. During the winter SAF would need to contract for additional snow plowing and removal from the sidewalk on Saint Peter’s property. In addition, SAF would not be able to monitor access to the parking lot without an access gate or security cameras. This cost is not in the current estimate.

(Attachment B provides a photograph of the one (1) acre parcel of land available at Colonial Drive and Broadway).

Option 3 – Add Adjacent Parking Space through Saint Pete’s Hospital

Contact was made with Saint Peters Hospital President and CEO, John H. Solheim. At this time Saint Peters is engaged in some master planning for the hospital complex. Mr. Solheim stated that Saint Peters was not interested in selling any of their property to SAF due to future needs that they envision. Three (3) options were presented to Mr. Solheim:

1. SAF purchase a stip of land to the East of the complex to build angled parking.

An estimate has not been fully developed due to the lack of interest.

Issues:

SAF will have more information near the end of April 2003 when the Saint Peter’s Board and the architects have adopted their master plan. However, no contact has been initiated by Saint Peter’s and Mr. Solheim stated in the initial meeting that Saint Peter’s was not interested in selling the land.

Option 4 – Add Adjacent Parking – Purchasing Westgate Duplexes

SAF is exploring another option with the manager of the Colonial Terrace Apartments that reside to the West of the Montana Higher Education Complex (White Duplexes). SAF would like to see if there is any interest in selling four (4) of the duplex units. SAF would gradually demolish the one duplex at a time as the staff increases to accommodate additional parking. The remaining units could be used to house new employees that may come from outside the Helena area. This would be an added recruitment tool.

At this time, the manager is checking with the owner to ascertain whether there is any interest in this type of transaction with the owner. Currently, each duplex brings in approximately $21,600 per year in the form of rental income. Rental Income on an annual basis for the four (4) duplexes amounts to $86,400.

Terry Bass the complex manager is touching base with the owners of Colonial Terrace Apartments which is Gatewest Properties in Missoula, Montana. A recent appraised value of the units came in at $225,000 for each unit. This would be a starting point for discussions on purchasing the units.

If SAF purchased four (4) units and tore the units down and developed parking for approximately 80 -100 vehicles, units could continue to be rented out until SAF decided that parking was needed. If SAF purchasedFour (4) units it would cost approximately $900,000. An additional $250,000 would be needed in order to demolish the units, design and construct parking spaces. Total estimated cost = $1,150,000. The existing outstanding debt of $2,550,000 plus the $1,150,000 and other fees would be refinanced for a total of $3,700,000.

Issues:

The units are over priced.

(Attachment C is a photograph of the four (4) duplexes that reside to the West of the Montana Higher Education Complex).

Option 5 – Renovate Existing Building

Renovate existing space in the SAF areas of the Montana Higher Education Complex. Commons areas such restrooms, conference rooms, along with safety and ADA compliance issues would be addressed. Through renovation of existing space the following efficiencies would result in additional workspace for SAF employees as well as other building occupants.

A renovation of the second floor of the building would add three (3) enclosed offices, one (1) conference room, eleven (11) workstations, two (2) common area conference rooms, additional water closets in the women’s restroom and would enlarge the stair way for easier access from the first floor (ADA) issue.

Renovating the first floor of the building would eliminate four (4) enclosed office spaces, eliminate one (1) conference room (111b), it would add up to thirty (30) workstations, reconfigure conference room 142 into a smaller conference room and a receptionist area as well as two (2) borrowers meeting rooms. In addition, exterior windows would be installed as well as a coffee bar.

Renovation of the ground floor would add two (2) additional enclosed offices up to twenty five (25) workstations, construct another women’s and men’s restroom facility.

The estimated cost of this option is $866,398. The existing debt service of $2,550,000 would be refinanced along with other fees for a total cost of $3,416,398.

Issues:

This option does not address additional parking for employees or the disruption to operations during construction.

(Attachments D and E illustrate changes to the existing space presently occupied by SAF within the Montana Higher Education Complex).

Option 6 – Add Building Addition to East Side of Complex

Extend East side of the building on all three floors by mirroring the west side of the existing building. This option would add approximately 9,000 square feet of space to the building.

A building addition would provide approximately forty one (41) additional workstations, two (2) conference room on the first and second floors as well as 3,000 square feet of storage space in the basement area.

The estimate for this option is $1,566,436. The existing outstanding debt of $2,550,000 plus the $1,566,346 plus $150,000 for new office equipment and other fees would be refinanced for a total of $4,266,436.

Issues:

This option does not address additional employee parking, it reduces green space around the building, thus it will minimize disruption to ongoing operations during construction.

(Attachment F contains an illustration of the additional space that would be gained per floor if the 9,000 square feet were built)

Option 7 – Terminate OCHE and MGSLP Leases

Another option for SAF to consider would be to terminate the leases that OCHE and MGSLP have with SAF. As of July 1, 2002, OCHE’s lease expired and SAF is required to give them one (1) years notice to vacate the space. Currently, OCHE contributes $84,351 per year to debt service, $9,185 to the renewal and replacement fund (R&R), and $46,132 for utilities and general maintenance run for a total of $139,668 per year. This amounts to $13.17 per rentable square foot ($84,351/10,606 = $7.95, $9,185/10,606 = $0.87, $46,132/10,606 = $4.35).

MGSLP’s existing lease runs through 2014. Currently, MGSLP contributes $134,408 per year to debt service, $15,640 to the renewal and replacement fund (R&R), and $73,508 for utilities and general maintenance for at total of $223,556 per year. This amounts to $13.23 per rentable square foot. ($134,408/16,896 = $7.95, $15,640/16,896 = $.93, $73,508/16,896 = $4.35)

If the existing leases were terminated SAF would gain 7,486 square feet of usable office space from the MGSLP condo and an additional 7,473 feet of office space from OCHE condo.

The MGSLP condo would provide approximately 40 workstations or cubes, 2 conference rooms, 14 enclosed offices, 1 coffee bar, 1 large storage room and 1 copy work room. The OCHE condo would provide 12 workstations or cubes, 22 enclosed offices, 2 conference rooms, 1 coffee bar, 1 print/copy room. Gear Up space would provide 4 enclosed office spaces and a large conference room.

It is estimated that this option would cost SAF in lost revenue from OCHE and MGSLP (debt service, renewal and replacement and utilities and general maintenance) on an annual basis. However, the loss of the debt service and renewal and replacement contributions could be recovered through refinancing the existing debt service. The operating costs would need to be absorbed by SAF.

Since MGSLP’s lease runs through 2014, SAF would need to present a cash incentive for MGSLP to terminate early. Using a Net Present Value (NPV) calculation based on MGSLP’s current lease payments versus what the space could be leased for today a number is arrived at looking at the cash flow of the net rental differential over time. This annualize amount through 2014 equates to $1,460,002 in terms of total cash flow. Using a Net Present Value (NPV) calculation on this cash flow at 5% discount rate would equate to $736,997 in today’s dollars to buy MGSLP out of the lease. In addition, SAF would need to renovate some of the vacated space at an estimated cost of $150,000. Total estimated cost of this option plus other fees is $2,569,997.

Issues:

This option is involves a high degree of politics. SAF will also absorb the full cost of the debt service as well as maintenance, repairs, utilities and other facility related expenditu