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HomeMy WebLinkAboutPULSE MARKETING - 1999-04-19 CITY OF HUNTINGTGN BEACH 2000 MAIN STREET CALIFORNIA 92648 OFFICE OF THE CITY CLERK CONNIE BROCKWAY CITY CLERK LETTER OF TRANSMITTAL OF ITEM APPROVED BY THE CITY COUNCIL/ REDEVELOPMENT AGENCY OF THE CITY OF HUNTMGTON BEACH DATE: M04 20 TO: ZC .p- I7 ATTENTION: &Mh-I Name —^ DEPARTMENT: 5[r _ L%4L,f At , REGARDING: C4,scale.Zip See Attached Action Agenda Item ,L—z� Date of Approval Enclosed For Your Records Is An Executed Copy Of The Above Referenced Agenda Item. Remarks: lx'�u Kew 61-11-7 Connie Brockway City Clerk Attachments: Action Agenda Page Agreement Bonds Insurance RCA Deed Other CC: 'Z _ ✓ N e Department RCA Agreenenr Insuranc Other Nam DepM RCA / Agreeren InsuranceOther /�C 0 I�1?7t50 ✓ Name Department RCA Agreemem Insurance Other Na a ✓�/], �� Department RCA Agreement Insurance Other Risk Management Dept. Insurance Received by Name- Company Flame- Date G:Fol;awup/coverltr � (Teiephana:714-536.5227) f�` ri ['4ryllyl 1 j 9 ��i�der� (gym m�� .�s-✓, y Council/Agency Meeting Held:, V erred/Continued to: / 9- 9 9pproved ❑ Conditionally Approved CJ Denied City Clerk's Sign ure ,,Louncj Mee i ate: pHI 5, 1 99 a Department ID Number: CS99-014 CITY OF HUNTINGTON BEACH REQUEST FOR COUNCIL ACTION SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS SUBMITTED BY: RAY SILVER, City AdministratorsCD -<. PREPARED BY: RON HAGAN, Director, Community S i ;:T RON LOWENBERG, Chief of Police 00 SUBJECT: APPROVE AGREEMENT WITH PULS ARKETING FOR FINANCIAL STUDY OF GUN RANGE PROPOSAL Statement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachments) Statement of Issue: Should the city approve a contract with Pulse Marketing for a financial study and market evaluation for the proposed law enforcement/public shooting range facility as submitted by R. W. Randall for the Randall Lumber site? Funding Source: General Fund Unappropriated Fund Balance Recommended Action: Motion to: 1. Approve an amendment to the current year budget by appropriating $24,000 for a financial study and market evaluation for the proposed law enforcement/public shooting range facility as submitted by R. W. Randall for the Randall Lumber site; 2. Approve a contract with Pulse Marketing for the financial study and market evaluation of the Randall proposal for a law enforcement/public shooting range facility, and authorize Mayor and City Clerk to execute same; and 3. Waive the requirement for professional liability insurance for Pulse Marketing. Alternative Action[s): 1. Proceed with development of a long-term lease contract with R. W. Randall without benefit of financial analysis of Randall's proposal for a law enforcement/public shooting range facility; or 2. Do not proceed with a contract with R. W. Randall for a law enforcement/public shooting range facility, or a contract with Pulse Marketing for a financial analysis of Randall's proposal, and direct staff to discontinue efforts to develop a public/law enforcement range in Huntington Beach. ��� 0 REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 Analysis: I. BACKGROUND The City of Huntington Beach is currently in the planning stages for the development of an approximate 80,000 square foot gun range facility on a 6.54-acre site located at 17332 Gothard Street in Huntington Beach. Current plans call for the city to execute a build-to-suit lease/purchase agreement with the owner of the site to construct a facility which will include: pistol and rifle practice ranges, plus space for equipment and ammunition sales, gun rentals, training rooms and food service. It is intended that the facility be utilized by both the public and law enforcement agencies. As part of the planning process, staff is recommending that the city identify and examine similar facilities nationally which have recently been developed in other urban areas and which reflect the current "state of the art" for these types of projects. The city should also assess user demand for the facility. To assist the city in the successful accomplishment of these objectives and to act as a resource in the negotiations with the lessor, staff is requesting that the City Council authorize the hiring of a consultant to provide the following scope of services. II. SCOPE OF SERVICES Task 1: Site Reconnaissance and Information Review This task will initiate consultant's evaluation and include: a careful review of the city's development objectives, an examination of materials which have been prepared to date concerning the project, and a physical investigation of the property related to its location, access and development potential. The steps involved shall include: Meetings with city staff and others related to the project. Review of any market/financial information or other planning documents that have already been prepared for the project, including the lessor's proposal to the city for the project. Visit to the project site to identify physical/location opportunities and constraints, access issues, infrastructure issues, the impact of surrounding land uses, environmental considerations, and other potential planning issues. Task 2: National Best Practices Review During the course of completing this task, consultant's firm shall identify and visit three to five gun range facilities nationally which have been recently developed (12 to 36 months) and which reflect current "state-of-the-art" design and operational practices in the industry. Consultant's focus shall be on facilities, which have similar market characteristics as the subject property. Consultant shall also review recently published shooting/gun related publications and trade journals, and collect marketing and operational information on newly developed projects. Consultant's objectives shall be: Pulse Ma►keting.doc -2- 03/29/99 8:08 AM REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 To develop a detailed understanding as to current and projected industry trends related to shooting and gun ranges. To analyze the principal business and technology developments that are currently affecting the design and operation of facilities nationally. To investigate the anticipatedfplanned shifts in the marketing and operational strategies of facility operators in response to current and projected future market trends. To assess the current competitive positioning and marketing strategies of these facilities. To estimate future utilization patterns, user characteristics, and facility requirements for the gun range industry overall. Using the information developed, consultant shalt be able to advise the city with respect to how the city's facility strategy can best be positioned to take advantage of projected industry trends, how these trends might affect the city's facility's operations, what design and technology characteristics the city's facility should possess to enhance its overall appeal in the future, and how to create a marketing strategy that is responsive to currentffuture market factors. At the conclusion of this task, consultant shall provide the city with a compendium of resource materials, including a slide presentation of the facilities visited. Task 3: 13eview and Evaluate Market/Segment Demand Analysis This task will focus on an evaluation of markettsegment demand for the project, as developed and presented in the preliminary market analysis for the project prepared by Deloitte & Touche. It is consultant's responsibility to supplement and/or update the analysis presented in the Deloitte & Touche report if it is clear from consultant's review that certain assumptions they make as part of their analysis are no longer valid based on business or economic factors that have occurred in the market since the time the report was prepared. It is also consultant's responsibility to review any newly published industry data related to the primary market and selectively interview potential user groups and other knowledgeable local sources to test the present validity of the demand/segmentation assumptions utilized by Deloitte & Touche. The information reviewed as part of this task, plus any supplemental information developed by consultant, should be sufficient to estimate current demand/segmentation for the project. Consultant will then be in a position to make an assessment of the project's utilization by user group, over the next five-year period. Task 4: Prepare Pro forma Financial Analysis Consultant shall undertake a financial analysis for the project based on information provided by the city and the city's representatives, other available industry information, consultant's market research, and information contained in the Deloitte & Touche report for the project. This task will consist of the following steps: Pulse Marketing.doe -3- 03/29/99 8:08 AM REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 Develop income and expense assumptions for the project based on consultant's market research, information provided by the city, and information contained in the Deloitte & Touche report. Evaluate and analyze the terms proposed by the lessor as part of the build-to-suit leasetpurchase agreement, including an analysis of leases for comparable facilities (as available) and other similarly located industrial buildings with "specialized" build-outs. Prepare a pro forma financial operating statement for the project over a five- year period. Perform limited sensitivity analysis on costs and revenues as necessary in order to better understand the financial risk associated with the proposed development. Task 5: Prepare Market and Financial Analysis Report Upon completion of Tasks 1 through 4, prepare a market and financial analysis report for the project, which contains: Consultant's findings with respect to consultant's evaluation of the site's physical characteristics and related consideration. The results of consultant's national best practice review, including brief yet focused case studies for the facilities visited. The results of consultant's analysis/review of market demand for the project from the various segments targeted, including consultant's assessment of probable utilization. A description of consultant's development recommendations with respect to design and operations, including a discussion of any issues related to the overall development strategy. Consultant's evaluation/analysis of the lessor's proposed build-to-suit lease/purchase proposal. The results of consultant's pro forma financial analysis for the project, including a description of each of the operating assumptions utilized. Staff solicited requests for proposals on January 25, 1999, and received two proposals, Pulse Marketing and Deloitte & Touche, the firm that performed the original financial analysis when the city was considering rebuilding an outdoor range in Huntington Central Park. Subsequently, Deloitte & Touche withdrew their proposal to provide the scope of services listed above. Staff believes Pulse Marketing is the best firm to hire for this type of financial report, research national best practices, review marketing evaluation, demand analysis, and financial pro forma. Staff is requesting Council waive the requirement for professional liability Pulse Marketing.doc 4- 03/29/99 8:08 AM REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 insurance since this is a financial service where there is no design liability or service that could result in the city being sued for professional liability. The city used Pulse Marketing to do the pro forma for the Pier Plaza and was very satisfied with their work. In addition to the above-described scope of services, staff will have the report prepared with two alternative options: 1) The City of Fountain Valley is currently proposing to rebuild its "law enforcement only" range at a site yet to be determined in Fountain Valley. If Fountain Valley proceeds with rebuilding a law enforcement only range, the city of Huntington Beach needs to know what impact that may have on the proposed Huntington Beach range facility with regard to law enforcement agency use. 2) It has been suggested by the current operators of The Firing Line, a privately- operated "pistol only° range, that there is no demand for long rifle shooting and that the development of long rifle shooting lanes is not cost effective. This alternative will provide an option for the proposed project without the long rifle lanes so that the city can compare pro forma with and without long rifle capabilities. The City Council Subcommittee on the Gun Range met on February 26, 1999, and approved the staff recommendation on a two to one vote. The minutes of that meeting are attached. 111. COUNCIL BUDGET REQUEST POLICY The current Council policy regarding requests for an appropriation of funds states that the request must meet one of the following criteria: it is an unanticipated emergency; it is required to implement labor negotiations, or it is a new expense that is offset by related new revenues. This request does not fit into any of the three above criteria; however, the gun range project is an ongoing Council program to determine the feasibility of whether to proceed. Failure to appropriate the requested funds will either delay the project for seven months or put Council in the position of making a decision to proceed without an independent financial analysis. The General Fund will be reimbursed for this appropriation from gun range revenue if Council proceeds with the project. If not, these funds will not be returned to the General Fund. Consequently, staff is recommending an exception to the current Council budget request policy. IV. SUMMARY If City Council approves the contract with Pulse Marketing and directs staff to prepare a proposed lease agreement with R. W. Randall, staff anticipates returning to Council in July, 1999 with the financial report and a recommendation on whether to proceed with the range facility under the terms presented by R. W. Randall for a long-term tenant build-to-suit lease at the former Randall Lumber site at 17332 Gothard Avenue in Huntington Beach. Environmental Status: Project will require a Conditional Use Permit which will be processed if City Council determines to proceed based on the financial analysis and proposed lease agreement with Randall. Pulse Marketing.doc 4- 03/29/99 5:06 PM REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 Attachment[sl: City Clerk's Page Number No. Description ...................................:::: ...:.:..::.: ... 1 Professional Services Contract with Pulse Marketing : . . : 2 Minutes of City Council Subcommittee on Gun Range . . 3. FIS RCA Author. RH:cr Pulse Marketing.doc -6- 03/29/99 5:06 PM ATTACHMENT # 1 PROFESSIONAL SERVICES CONTRACT BETWEEN THE CITY OF HUNTINGTON BEACH AND PULSE MARKETING TO PERFORM MARKET/FINANCIAL ANALYSIS OF THE GUN RANGE PROPOSAL SUBMITTED BY R. W. RANDALL THIS AGREEMENT, made and entered into this day of aegiLl 1999, by and between the City of Huntington Beach, a municipal corporation of the State of California, hereinafter referred to as "CITY," and PULSE MARKETING, a sole proprietorship, hereinafter referred to as "CONSULTANT." WHEREAS, CITY desires to engage the services of a consultant to perform market/financial analysis of the gun range proposal submitted by R. W. Randall in the City of Huntington Beach; and Pursuant to documentation on file in the office of the City Clerk, the provisions of HBMC Chapter 3.03 relating to procurement of professional service contracts has been complied with; and CONSULTANT has been selected to perform said services, NOW, THEREFORE, it is agreed by CITY and CONSULTANT as follows: 1. WORK STATEMENT CONSULTANT shall provide all services as described in the Request for Proposal, and CONSULTANT's proposal dated January 8, 1999, (hereinafter referred to as Exhibit "A"), which is attached hereto and incorporated into this Agreement by this reference. Said services shall sometimes hereinafter be referred to as "PROJECT." CONSULTANT hereby designates Thomas D. Tucker who shall represent it and be its sole contact and agent in all consultations with CITY during the performance of this Agreement. 2. CITY STAFF ASSISTANCE CITY shall assign a staff coordinator to work directly with CONSULTANT in the performance of this Agreement. 1 glagree/gunran ge103 11 019 9 3. TIME OF PERFORMANCE Time is of the essence of this Agreement. The services of the CONSULTANT are to commence as soon as practicable after the execution of this Agreement and all tasks specified in Exhibit "A" shall be completed no later than eight (8) weeks from the date of this Agreement. These times may be extended with the written permission of the CITY. The time for performance of the tasks identified in Exhibit "A" are generally to be shown in the Scope of Services on the Work Program/Project Schedule. This schedule may be amended to benefit the PROJECT if mutually agreed by the CITY and CONSULTANT. 4. COMPENSATION In consideration of the performance of the services described herein, CITY agrees to pay CONSULTANT a fee not to exceed Twenty-Four Thousand Dollars ($24,000). 5. PRIORITIES In the event there are any conflicts or inconsistency between this Agreement, the CITY's RFP, or the CONSULTANT's proposal, the following order of precedence shall govern: 1) Agreement, 2) the CONSULTANT's proposal, and 3) the CITY's RFP. 6. EXTRA WORK In the event CITY requires additional services not included in Exhibit "A," or changes in the scope of services described in Exhibit "A," CONSULTANT will undertake such work after receiving written authorization from CITY. Additional compensation for such extra work shall be allowed only if the prior written approval of CITY is obtained. 7 METHOD OF PAYMENT A. CONSULTANT shall be entitled to progress payments toward the fixed fee set forth herein in accordance with the progress and payment schedules set forth in Exhibit "A." 2 &gree!gunrangeM/10!99 B. Delivery of work product: A copy of every technical memo and report prepared by CONSULTANT shall be submitted to the CITY to demonstrate progress toward completion of tasks. In the event CITY rejects or has comments on any such product, CITY shall identify specific requirements for satisfactory completion. Any such-product which has not been formally accepted or rejected by CITY shall be deemed accepted. C. The CONSULTANT shall submit to the CITY an invoice for each progress payment due. Such invoice shall: 1) Reference this Agreement; 2) Describe the services performed; 3) Show the total amount of the payment due; 4) Include a certification by a principal member of the CONSULTANT's firm that the work has been performed in accordance with the provisions of this Agreement; and 5) For all payments include an estimate of the percentage of work completed. Upon submission of any such invoice, if CITY is satisfied that CONSULTANT is making satisfactory progress toward completion of tasks in accordance with this Agreement, CITY shall promptly approve the invoice, in which event payment shall be made within thirty (30) days of receipt of the invoice by CITY. Such approval shall not be unreasonably withheld. If the CITY does not approve an invoice, CITY shall notify CONSULTANT in writing of the reasons for nonapproval, within seven (7) calendar days of receipt of the invoice, and the schedule of performance set forth in Exhibit "A" shall be suspended until the parties agree that past performance by CONSULTANT is in, or has been brought into compliance, or until this Agreement is terminated as provided herein. D. Any billings for extra work or additional services authorized by CITY shall be invoiced separately to the CITY. Such invoice shall contain all of the information required 3 g/agrec.'gunrange.103'10-:99 above, and in addition shall list the hours expended and hourly rate charged for such time. Such invoices shall be approved by CITY if the work performed is in accordance with the extra work or additional services requested, and if CITY is satisfied that the statement of hours worked and costs incurred is accurate. Such approval shall not be unreasonably withheld. Any dispute between the parties concerning payment of such an invoice shall be treated as separate and apart from the ongoing performance of the remainder of this Agreement. 8. DISPOSITION OF PLANS, ESTIMATES AND OTHER DOCUMENTS CONSULTANT agrees that all materials prepared hereunder, including all original drawings, designs, reports, both field and office notices, calculations, maps and other documents, shall be turned over to CITY upon termination of this Agreement or upon PROJECT completion, whichever shall occur first. In the event this Agreement is terminated, said materials may be used by CITY-in the completion of PROJECT or as it otherwise sees fit. Title to said materials shall pass to the CITY upon payment of fees determined to be earned by CONSULTANT to the point of termination or completion of the PROJECT, whichever is applicable. CONSULTANT shall be entitled to retain copies of all data prepared hereunder. 9. HOLD HARMLESS CONSULTANT shall protect, defend, indemnify and hold harmless CITY, its officers, officials, employees and agents from and against any and all liability, loss, damage, expenses, costs (including without limitation, costs and fees of litigation of every nature) arising out of or in connection with CONSULTANT's performance of its services under this Agreement, or its failure to comply with any of its obligations contained in this Agreement by CONSULTANT, its officers, agents or employee, except such loss or damage which was caused by the sole negligence or willful misconduct of the CITY. 10. WORKERS' COMPENSATION INSURANCE Pursuant to Califomia Labor Code section 1861, CONSULTANT acknowledges awareness of section 3700 of seq. of said Code, which requires every employer to be insured 4 glagreelgunrange'03110199 against liability for workers compensation; CONSULTANT covenants that it will comply with such provisions prior to commencing performance of the work hereunder. CONSULTANT shall maintain workers' compensation insurance in an amount of not less than One Hundred Thousand Dollars ($100,000) bodily injury by accident, each occurrence, One Hundred Thousand Dollars ($100,000) bodily injury by disease, each employee, Two Hundred Fifty Thousand Dollars ($250,000) bodily injury by disease, policy limit. CONSULTANT shall require all subcontractors to provide such workers compensation insurance for all of the subcontractors' employees. CONSULTANT shall furnish to CITY a certificate of waiver of subrogation under the terms of the workers compensation insurance and CONSULTANT shall similarly require all subcontractors to waive subrogation. 11. GENERAL LIABILITY INSURANCE In addition to the workers compensation insurance and CONSULTANT's covenant to indemnify CITY, CONSULTANT shall obtain and furnish to CITY, a policy of general public liability insurance, including motor vehicle coverage covering the PROJECT. Said policy shall Indemnify CONSULTANT, its officers, agents and employees, while acting within the scope of their duties, against any and all claims of arising out of or in connection with the PROJECT, and shall provide coverage in not less than the following amount: combined single limit bodily injury and property damage, including productslcompleted operations liability and blanket contractual liability, of$1,000,000 per occurrence. If coverage is provided under a form which includes a designated general aggregate limit, the aggregate limit must be no less than $1,000,000. Said policy shall name CITY, its officers, and employees as Additional Insureds, and shall specifically provide that any other insurance coverage which may be applicable to the PROJECT shall be deemed excess coverage and that CONSULTANT's insurance shall be primary. 5 giagreeigunrangei il0 99 12. PROFESSIONAL LIABILITY INSURANCE CONSULTANT shall furnish a professional liability insurance policy covering the work performed by it hereunder. Said policy shall provide coverage for CONSULTANT's professional liability in an amount not less than $1,000,000 per occurrence and in the aggregate. A claims made policy shall be acceptable if the policy further provides that: A. The policy retroactive date coincides with-or precedes the professional services contractor's start of work (including subsequent policies purchased as renewals or replacements). B. CONSULTANT will make every effort to maintain similar insurance during the required extended period of coverage following project completion, including the requirement of adding all additional insureds. C. If insurance is terminated for any reason, CONSULTANT agrees to purchase an extended reporting provision of at least two (2) years to report claims arising from work performed in connection with this Agreement. D. The reporting of circumstances or incidents that might give rise to future claims. 13. CERTIFICATES OF INSURANCE Prior to commencing performance of the work hereunder, CONSULTANT shall furnish to CITY certificates of insurance subject to approval of the City Attorney evidencing the foregoing insurance coverages as required by this Agreement; said certificates shall: A. provide the name and policy number of each carrier and policy; B. shall state that the policy is currently in force; and C. shall promise that such policies shall not be suspended, voided or canceled by either party, reduced in coverage or in limits except after thirty days prior written notice; however, ten days prior written notice in the event of cancellation for nonpayment of premium. 6 8Vagree/gunrange;03/10/99 CONSULTANT shall maintain the foregoing insurance coverages in force until the work under this Agreement is fully completed and accepted by City. The requirement for carrying the foregoing insurance coverages shall not 'derogate from the provisions for indemnification of City by CONSULTANT under the Agreement. City or its representative shall at all times have the right to demand the original or a copy of all said policies of insurance. CONSULTANT shall pay, in a prompt and timely manner, the premiums on all insurance hereinabove required. 14. INDEPENDENT CONTRACTOR CONSULTANT is, and shall be, acting at all times in the performance of this Agreement as an independent contractor. CONSULTANT shall secure at its expense, and be responsible for any and all payment of all taxes, social security, state disability insurance compensation, unemployment compensation and other payroll deductions for CONSULTANT and its officers, agents and employees and all business licenses, if any, in connection with the services to be performed hereunder. 15. TERMINATION OF AGREEMENT All work required hereunder shall be performed in a good and workmanlike manner. CITY may terminate CONSULTANT's services hereunder at any time with or without cause, and whether or not PROJECT is fully complete. Any termination of this Agreement by CITY shall be made in writing, notice of which shall be delivered to CONSULTANT as provided herein. 16. ASSIGNMENT AND SUBCONTRACTING This Agreement is a personal service contract and the supervisory work hereunder shall not be delegated by CONSULTANT to any other person or entity without the consent of CITY. 7 glogree.1gunrangeiO3'10.`99 17. COPYRIGHTS/PATIENTS CITY shall own all rights to any patent or copyright on any work, item or material produced as a result of this Agreement. 18. CITY EMPLOYEES AND OFFICIALS CONSULTANT shall employ no CITY official nor any regular CITY employee in the work performed pursuant to this Agreement. No-officer or employee of CITY shall have any financial interest in this Agreement in violation of the applicable provisions of the California Government Code. 19. NOTICES Any notice or special instructions required to be given in writing under this Agreement shall be given either by personal delivery to CONSULTANT's agent (as designated in Section 1 hereinabove) or to CITY's Director-of Community Services as-the situation shall warrant, or by enclosing the same in a sealed envelope, postage prepaid, and depositing the same in the United States Postal Service, addressed as follows: TO CITY: TO CONSULTANT: Ron Hagan Pulse Marketing Director of Community Services Thomas D. Tucker City of Huntington Beach 1945 Maverick Lane 2000 Main Street Santa Ana, CA 92705 Huntington Beach, CA 92648 20. IMMIGRATION CONSULTANT shall be responsible for full compliance with the immigration and naturalization laws of the United States and shall, in particular, comply with the provisions of the United States Code regarding employment verification. 21. LEGAL SERVICES SUBCONTRACTING PROHIBITED CONSULTANT and CITY agree that CITY is not liable for payment of any subcontractor work involving legal services, and that such legal services are expressly outside 8 g/agree/gunrang&03/10199 the scope of services contemplated hereunder. CONSULTANT understands that pursuant to Huntington Beach City Charter Section 309, the City Attorney is the exclusive legal counsel for CITY; and CITY shall not be liable for payment of any legal services expenses incurred by CONSULTANT. 22. ATTORNEY'S FEES In the event suit is brought by either party to enforce the-terms and provisions of this agreement or to secure the performance hereof, each party shall bear its own attorney's fees. 23. ENTIRETY The foregoing, and Exhibit "A": attached hereto, set forth the entire Agreement between the parties. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by and through their authorized offices the day, month and year first above written. PULSE MARKETING, a sole proprietorship CITY OF HUNTINGTON BEACH, a municipal corporation of the State of California B : im Ro st r, Owner REVIEWED AND APPROVED: Ma r ATTEST- City Affministrator �� City Clerk �4'3 F9 APPROVED AS TO FORM: City Attorney INITIATED A ROVED: 7h'3�yy Directo of Com nity Services 9 glagree/gunrange/03110/99 �a City of Huntington Beach Hl1NTINGTON BEACH 2000 Main Street California 92648 DECLARATION of NON-EMPLOYER STATUS In order to comply with City Council Resolution No. 97-20, you are required to provide proof of Workers' Compensation insurance. if you have no employees, this form must be signed and returned to: City of Huntington Beach Risk Management Division 2000 Main Street Huntington Beach, CA 92648 1 certify that in the performance or the activity or work for which this permit is issued, I shall not employ any person in any manner so as to become subject to California Workers' Compensation insurance requirements. I authorize the City of Huntington Beach to immediately and retroactively revoke the license or permit issued under this declaration if I hire any employee(s) or become subject to the provisions of the laws requiring Workers' Compensation Insurance. Applicant/Company Name: PITISE MARKETING— Address- 1945 Maverick Santa Ana CA 92705 Applicant's Signatur Date:_ Title: Q L_L _Q_A l _ Location Signed: � Telephone Number: ( 714) 505-3383 G:kRiskMamtlCert-1ns\WC-Wvr.Doc (Rev. 8/13/97) P L' L S E 1945 'Aa•+o•i�k loge March 19, 1999 snrta alga. CA 92705 voice 714-505-3316 fcx: 714.505.3317 na•; an'sel�ix.nauor.cor� Mr. Ron Hagen Director of Community Services N A R K E T I N c City of Huntinton Beach 2000 Main Street Huntington Beach, CA. 92648 Dear Ron: In order to comply with the terms of the contract you sent over, we have made a very diligent attempt to obtain professional liability insurance in the amount of$1.0 million, at a cost we could afford and still make a reasonable fee on the job. As I mentioned to Cheryl on the phone, we have not traditionally carried a professional liability policy, because of the contract and report conditions that are normally associated with our involvement, see attached). We thought we might be able to get reasonably priced coverage from The Hartford, but it did not work out. The minimum annual premium we are being quoted for us to get the required coverage is about $6500, which is painful considering the whole contract is only $22,000. If there is any way to get a waiver for this coverage we would really appreciate it. We have a good track record with the City and I think you know we will make every effort to do a first class job on the project. Your consideration of our request is greatly appreciated and we apologize for any inconvenience this may have caused. i erely omas uc e Market Researcb and Strategic Planning CONDITIONS OF SERVICE • We have no objection to the use of information prodded by us in obtaining financing from institutional or private sources. We do,however, prohibit any use of our work product or the name of Pulse Marketing or its affiliates in any financing documentation involving an offering of securities(as defined by either state or federal securities laws) without our prior review and approval of all such documents and our written consent. • We have no obligation to update our findings and conclusions for changes in market conditions or legal, regulatory or legislative affairs which occur subsequent to submission of our final report though any such changes could affect the validity of our information. • Our information will be based on assumptions and estimates which are subject to uncertainty and variation. These estimates are often based on data obtained in interviews with third parties,and such data are not always completely reliable. In addition, we make assumptions as the future behavior of consumers and the general economy which are often uncertain. Therefore,while our estimates will be conscientiously prepared on the basis of our experience and the data available to us, we make no warranty of any kind that any future financial results estimated will, in fact,be achieved. • Pulse Marketing and its affiliates maximum liability relating to services rendered under this agreement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to Pulse Marketing and its affiliates for the portion of its services and work products giving rise to liability. In no event shall Pulse Marketing or its affiliates be liable for consequential, special, incidental, or punitive loss, damage or expense (including without limitation, lost profits,opportunity costs,etc.)even if it has been advised of their possible existence. • if any dispute, controversy or claim arises in connection with the performance or breach of this agreement, either party may, upon written notice to the other party, request facilitated negotiations. Such negotiations shall be assisted by a neutral facilitator acceptable to both parties and shall require the best efforts of the parties to discuss with each other in good faith their respective positions and, respecting their different interests,to finally resolve such dispute. Each party may disclose any facts to the other party or to the facilitator which it, in good faith, considers necessary to resolve the dispute.However,all such disclosures will be deemed in furtherance of settlement efforts and will not be admissible in any subsequent litigation against the disclosing party. Except as agreed by both parties, the facilitator shall keep confidential all information disclosed during negotiations. The facilitator shall not act as a witness for either party in any subsequent arbitration between the parties. Such facilitated negotiations shall conclude within sixty days from receipt of the written notice unless extended by mutual consent. The parties may also agree at any time to terminate or waive facilitated negotiations. The costs incurred by each party in such negotiations will be borne tryst; the fees and expenses of the facilitator, if any shall be borne equally by the parties. • Pulse Marketing reserves the right to withdraw this proposal at any time prior to the start of work on the engagement in the event that a review by Pulse Marketing or its affiliates discovers any potential conflicts of interest or limitation on our scope of practice which would preclude our performance of the assignment as proposed- Market Resea�rcb and Strategic Planning V r EXHIBIT "A" P U L S F, January 8, 1999 "'` " ": is- =_ t s. • l'- JL=�Z Ik rear CCS o: Mr. Ron Hagen : Director of Community Services M A R K li T I C r, City of Huntingnon Beach 2000 Main St._ PO Box 190 Huntington Beach, CA. 92648 Dear Ron: Pulse Nlarketing is pleased to provide you with this proposal for- market and financial advisory services in connection with the development of a public.law enforcement gun range facility, in Huntington Beach, CA This proposal sets forth our understanding, of the project; our proposed scope of services; our qualifications to undertake this assignment; the proposed project timing and fees and the conditions of service associated with our involvement BACKGROUND Based on our conversation and our review of your preliminary plans, we understand that you are currently in the planning stages for the development of an approximate 80,000 square foot gun range facility on a 6.54 acre site located ai 17332 Gothard Avenue, in Huntington Beach. Current plans call for the City to execute a build-to-suit lease/purchase agreement with the owner of the site, to constrict a facility which will include: pistol and rifle practice ranges, plus space for equipment and ammunition sales, gun rentals, training rooms and foodservice. It is intended that the facility be utilized by both the public and law enforcement agencies. As part of the planning process you are interested in identifying and examining similar facilities nationally, which have recently been developed in other urban areas and which reflect the current "state of the art ' for these types of projects. You are also interested in assessing user demand for the facility and in translating this demand into an estimated financial profornia for the facility. To assist you in the successful accomplishment of these objectives and to act F as a resource in your negotiations with the lessor, you have asked us to provide you with the following scope of services. SCOPE OF SERVICES Our scope of services involves completion of the following tasks Task 1; Site Reconnaissance and Information Review This task will initiate our evaluation and include: a careful review of your development objectives, an examination of materials which have been prepared to date concerning the project and a physical investigation of the property related to its location, access and development potential. The steps involved will include: Market Research and Strategic Planning 1 ♦ Meetings with yourself and others related to the project. ♦ Review of any market/financial information or other planning documents that have been already prepared for the project, including the lessor's proposal to the City for the project. ♦ Visit to the project site to identify physical/locat Iona I opportunities and constraints, access issues, infrastructure issues, the impact of surrounding land uses_ ertvironniental considerations and other potential planning issues. Task 2: National Best Practices Review During the course of completing this task we Nvill identity and visit three to five gun range facilities nationally, which have been recently developed (12 to 36 months) and %vitich reflect current tite `state of the art" design and operational practices in the industry. Our focus �N ill he or. facilities, which have similar market characteristics as the Yal�ject. We will also review recently published shooting gun related publications and trade journals and collect marketing, and operational information on newly developed projects. Our objectives well be'. e To develop a detailed understanding as to current and projected indtrstr}-- trends related to shooting and gun ranges. ♦ To analyze the principal business and technology developments that are currently affecting the design and operation of facilities nationally. ♦ To investigate the anticipated/planned shifts in the marketing and operational strategies of facility operators. in response to current and projected future market trends. ♦ To assess the current competitive positioning and marketing strategies of these facilities. ♦ To estimate future utilization patterns, user characteristics and facility requirements for the industry overall. Using the information developed, we will be able to advise you with respect to how your facility strategy can best be positioned to take advantage of projected industry trends, how these trends might affect your facility's operations, what design and technology characteristics your facility should possess to enhance its overall appeal in the future and how to create a marketing strategy that is responsive to current/future market factors. At the conclusion of this task we will provide you with a compendium of resource materials, including; a slide presentation of the facilities visited. Task 3:_Review and Evaluate Market/Set=_ment Demand Analysis This task will focus on an evaluation of market/segment demand for the project, as developed and presented in the preliminary market analysis for the project, as prepared by Deliotte Touche. Our intention is to supplement and/or update the analysis presented in the Deliotte Touche report, only if issues come to our attention as part of our review, which we believe may need funkier investigation or I f it is clear from our review, that certain assumptions they make as part of their analysis are not longer valid, based on business or economic factors that have occurred in the market, since the time the report was prepared. We will, however, review any newly published industry data related to the primary market and selectively interview potential user groups and other knowledgeable local sources, to test the present validity of the demand/segmentation assumptions utilized by Deliotte Touche. The infonnation reviewed as part of this task, plus any supplemental information developed by ourselves, Should be sufficient to estimate current demandlsegmentation for the project. We will then be in a position to make an assessment of the project's utilization by user group, over the next five yeal- period. Task 4 : Proare Preforma Financial Analysis We will undertake a financial analysis for the project based on intbrination provided by you and Your representatives, other available industry information, our market research and information contained in the Deloitte Touche report for the project. This task will consist of the following steps: ♦ Develop Income and expense assumptions for the project based on our- market research, information provided by you and information contained in the Deloitte Touche report. ♦ Evaluate and analyze the terms proposed by the lessor, as part of a build-to-suit lease/purchase agreement, including an analysis of leases for comparable facilities (as available) and other similarly located industrial buildings with "specialized" build-outs . ♦ Prepare a proforma financial operating statement for the project over a five year period. ♦ Perform limited sensitivity analyses on costs and revenues as necessary, in order to better understand the financial risks associated with the proposed development. Task 5: Prepare Market and Financial Analvsis Report Upon completion of Tasks 1 through d, we will prepare a market and financial analysis report for the project which contains: t Our findings with respect to our evaluation of the site's physical characteristics and related considerations. ♦ The results of our national best practices review, including brief yet focused case studies for the facilities visited. ♦ The results of our analysis/re,,iew of market demand for the project, from the various segments targeted, including our assessment of probable utilization. ♦ A description of our development recommendations with respect to design and operations, including a discussion of any issues related to the overall development strategy. • Our evaluation/analysis of the lessor's proposed build-to-suit lease/purchase proposal. ♦ The results of our profornia financial analysis for the project, including a description of each of the operating assumptions utilized. PROFESSIONAL TEAM AND QUALIFICATIONS Thomas D. `fucker will head our engagement team for the assignment. Mr. Tucker has 20 years of experience in providing market, development and financial advisory services to hospitality, entertainment and leisureitourisrn related companies. A summary of other similar projects; that we have successfully completed for other clients, along with a resume for Mr 'Tucker has been provided to you under separate cover. TIMING :AND FEES The fed: for the professional services outlined including all expenses will not exceed' S'2,000 W:e believe that we can complete the work described in these tasks in approximately six to Wver weeks, from the time we receive your formal authorization to proceed and excluding any time needed for your deliberation with respect to our findings. It is our Firm's policy to require a retainer prior to commencement of any engagement. The amount of the retainer for this engagement is S 12,000 Additional payments are required based on the following schedule- ♦ . Completion off ask 4 $8,000 ♦ Delivery of Final Report S2,000 If at any point during the course of completing this assignment our findings lead us to a negative conclusion(s) concerning the project, we will discuss our findings and alternative approaches with you and reach an agreement on how we should proceed with the engagement. if the decision is made to discontinue our. work, our fees will be based upon.the time and out-of-pocket expenses incurred through that date. In that event, our invoices will be due and payable upon request. CONDITIONS OF SERVICE Other limiting assumptions and conditions associated with our professional involvement are attached to this letter. r ACCEPTANCE In order to confirm acceptance of our proposal, would you please sign the enclosed copy of this letter and return it to us, together with the requested retainer. If you have any questions regarding our proposal, please do not hesitate to call. We are pleased to have the opportunity to propose on this important project and look forward to the possibility of working with you. Sinc rely, UE METING as . Tucker Partner THE FOREGOING PROPOSAL, AND ITS RELATED TERMS AND CONDITIONS IS ACCEPTED IN ITS ENTIRETY BY THE CITY OF HUNTINGTON BEACH. BY: _ TITLE: DATE: CONDITIONS OF SERVICE • We have no objection to the use of information provided by us in obtaining financing from institutional or private sources. We do, however, prohibit any use of our work product or the name of Pulse Marketing or its affiliates in any financing documentation involving an offering of securities (as defined by either state or federal securities laws)without our prior review and approval of all such documents and our-written consent_ • 14'e have no obligation to update our findings and conclusions for changes in market conditions or legal, regulatory or legislative affairs -which occur subsequent to submission of our final report though any such clianges could affect the validity of our information. • Our information will be based on assumptions and estimates which_are subject to uncertainty and variation. These estimates are often based on data obtained in iniervic-t s with third parties, and such data are not always comp!e(clr reliable. In addition. we make assumptions as the future behavior of consumers and the general economy which are often uncertain. Therefore, ti-hile our estimates will be coil scientious]• prepared on the basis of our experience and tite data available to us, we make no warranty of any kind that any future financial results cstimmed-vill. in fact.b_achieved. • Pulsc Marketing and its affiliates maxiiintin liability relating to services rendered tinder this ag,rectttent (regardless of form of action. -whether in contract. negligence or othenyise) shall be limited to the charges paid to Pishsc Marketing and its affiliates for the portion of its sen•ices and nvork products giving rise to liability. In no evcnt shall False Marketing or its affiliates be liable for consequential, special, incidental, or punitive loss, dant,tge or expense (including; without limitation. lost profits, opponunity costs. etc.) even if it has been advised of their possible existence • If any dispute, controversy or claim arises in connection with the performance or breach of this agreement_ either party may upon written notice to the other party, request facilitated negotiations. Such negotiations shall be assisted by a neutral facilitator acceptable to both parties and sgtall require the best efforts of the parties to discuss with each outer in good faith their rt:spectiye positions and, respecsing their different interests, to finally resolve such dispute. Each party may disclose any facts to the outer party or to the facilitator-which it, in good faith,considers necessary to resolve the dispute. However, all such disclosures will be deemed in the furtherance of settlement efforts and will not be admissible in any subsequent litigation against the disclosing; party. Except as agreed by both parties, the facilitator shall keep confidential all information disclosed during negotiations. The facilitator shall not act as a -witness for either party in any subsequent arbitration between the parties. Such facilitated negotiations shall conclude-within sixty days from receipt of the t-Titten notice unless they are othenv6se extended In•mutual consent. The parties may also agree at any time to terminate or waive facilitated negotiations. The costs incurred by each party in such negotiations will be borne tn-it; the fees and expenses of the facilitator, if any shall be borne equally by the parties. • Pulse Marketing resen!es the right to withdraw this proposal at any time prior to the start of work on the engagement in the event that a review by Pulse Marketing or its affiliates discovers any potential conflicts of interest or limitation on our scope of practice which -would preclude our performance of the assignment as proposed. • • • TTi4C#iMENT ........# t - Y CITY COUNCIL SUBCOMMITTEE ON GUN RANGE CITY OF HUNTINGTON BEACH MINUTES Civic Center, Room B8 February 26, 1999, 3:00 PM Huntington Beach, CA Subcommittee: Chair/Mayor Pro Tern Dave Garofalo; Ron Hagan; Ron Lowenberg; Ed McErlain, Pam Julien; Dave Sullivan Communily S rvices Commission Liaison: Janet Biddle Attendees: Evan P. Carolyn; Ted Carpenter; Dennis Davenport; Dick Don- ald; Marvin Markham; Jim Martin; Pay Mayfield; James Ness; W. Riddell; Tom Tucker; Milton Vaught Public Comments: Biddle made reference to articles in the newspaper concerning $868,000 banked by the Police Department for hiring of offi- cers. She suggested that if funds are available, range costs should come out of the Police Department and not the General Fund. 1 . Hagan updated on the status of the cleanup of the former gun range site in Huntington Central Park. It has been declared a haz- ardous waste site due to the lead content in the soil. A cleanup plan will be formulated for Council approval and funding and eventual submittal to required environmental agencies. The plan will be put out to bid. Hagan noted there are federal funds avail- able for cleanup of contaminated properties. He is making inquiries to Simple Green regarding their technology for soil remediation. The POA trailers have been removed from the site. The site is se- cured and the hazardous waste area has been covered. 2. Hagan explained the proposal from R. W. Randall for the Randall Lumber site. The city would enter into a long-term lease with Ran- dall for a tenant build-to-suit project including everything but furni- ture and window coverings. Randall would provide financing and building. No Certificates of Participation would be needed. The city would issue requests for qualification for a management service to operate the public/law enforcement range. � T r ' w r # 3. Staff is recommending a consultant be hired to do a financial and market analysis in connection with the R.W. Randall proposal. A scope of work proposal from Pulse Marketing was presented. Ho- gan stated the consultant contract could go to City Council for approval April 5, with completion of the report in June or July. 4. Lowenberg, Chief of Police, responded to Mrs. Biddle's concern re- garding the cost of the range coming out of the General Fund. He noted that the funds reported in the newspaper are a combination of state and federal grant monies, all of which are earmarked. Ha- gan indicated that since the project is not long a park issue, it could no longer come out of the Park Fund. MOTION: MOVED BY JULIEN, SECONDED BY GAROFALO, TO RECOM- MEND CITY COUNCIL APPROPRIATE $24,000 FROM THE GENERAL FUND RE- SERVE UTILIZING EXISTING BUDGETED FUNDS FOR CONTRACT PREPARATION FOR FINANCIAL AND MARKET ANALYSIS STUDY OF THE R. W. RANDALL PRO- POSAL FOR TENANT BUILD-TO-SUIT PUBLIC/LAW ENFORCEMENT GUN RANGE PROJECT. Sullivan indicated he could not support the city paying for the market study. He suggested the Police Department put up $20,000 and the NRA put up $10,000. Garofalo noted that the funds should be returned to the General Fund in the event the project moves forward and there is a reve- nue stream. AYES: Garofalo; Julien NOES: Sullivan MOTION PASSED. Julien asked that the Request for Council Action on the Pulse Marketing contract be taken to the April 5 Council meeting. The meeting adjourned at 4:00 PM. The subcommittee's next meeting will be June 25, 1999. Respectfully sub ' to , CHERYL IkOBINSON Administrative Assistant ATTACHMENT #3 9� Potty Number 72 en f07312 ACM. CERTIFICATE OF LIABILITY INSURANCE °° " Mill CEWFIF :4,17 IS MUM3f1D/1999 c zrs c>E �/ 4 ONLY AND CONFER$ NO HTB U THE CERTIFICATE BANTA At1A,400 TA AVr, , BIIite 460 �/� MOLDER. THIS CERTIFICATE DOES NOT AMM EXTEND OR CA g2705 I a No. PZe! ALTER THE COVERAGE AFFGRD® ay THE POLkIEB BELOW. (714)598-1990 FAO,I D INSURERS AFFORDW COVERAGE Ulan Pulse marketing I NRMR* eiA Ah"YORD ZK0VAhN= ,IAMOI/6 D �- mr. Tom Tucker IINs;,RE- 1945 Xiverick Lana `� z - II NSJRER c Santa Ana, CA 92705 C�Uf�I I/Q�1 J/ I'M � �NS00 D �/d ksuaca e VERAGES THE POLICIES OF INSURANCE LISPED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY Fri ROD INDICATED.NOTMTl1STANOW0 ANY REQUIREMENT,TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH TfIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN.THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SU13]ECTTOALL THE TERMS.EXCLUSIONSAND CONDITIONS OF SUCH POLICIES-AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS _ LTR TYPfc Of M8IIIANCE j POLICY PIUMMM ' wqAgwATE MMITID►TT 160" GOVpLL uMuT. fiAC»0=JRRENCE 111,000,000 .COMMERCIAL GEN6RgLUADIUTY.72 99A LN 7312 3/19/1992 3/19/2000 PiafiDAAUGE(Any 9-yorc �I;300,000 mmmr,LMOE i 9cctR '_M90 JW(Ary"90r" 610,0000 PER90A%E ADV INJURY 21,000,000 I-- ; oENenA.A{3OREOATfi :F 2,000,000 GWLAOORTATE LINdTAPPUESPER�� i PRCOIC*_s•CowwOo�n l,000,000 L I POLICY i J I 1 LOG AVT I IkA9LTTT COMB NED SINGLE UM17 ll 1 = AhY AU70 IEa eaddi - A71.LWYEnAIJ'08 0.^nrLr rNA.[RY sc.rFaurcAoAuTos +(Perp�,sn,) I s HIREDAUTOS ROPILY[NJUAY + NON•OwNEO AUf08 I iPt�oadeR} 7-1 PROPERTY DWAGE MWBL►ABUTY :AUTOONLY•EAACENT i JWYAIRO I ;DTHERTHAN MACG i - keOONLY. AEG T WICJE7I1UANUTY F WHOCCUPM CA t '---IoaCLA CLA,MSMAne Az: ,,-�;; IT10 FORM: DlC.IcneLl , �,• A i = ,� s 'RETENTION f i i :1 •- - -- 1YORlI61i Ua1FD{IM(T1OM AJIn I TORS LIMR6 EA I WPLOrE11s Laeumr t y Ci ty ttarney E L I AC-fACVDENT is , ~E L.OSEA5E-EA EMPLOYE -1 - i EL.O$CASS-PCLICY UNIT i I I M 67AG ACUPAL Ron Helan Director Of Community Service dMIRFUMHOLDE I Acoyo AL INvuRm;IMuMHI LATTER:A GANCECOM The City Of HUnt4n9toa Mach, its officers iI10ULDAMIYOFTIEAWYECIBCRDEOPOLA �CINrCtLLIOea iI�IRATION VATS THVd0F.THE HeUme W&UPIRR VILL EMYAMDWOWWA16 a4eTTts G S> 1aYMi, NOTICE 10"M CERTIRIPJT!HOLI M NAIMm TO THI LIFT. SUW- Civic Center, HUhtiagton Beach, Ch 92 714-374-1709 Att2 Cheryl A e AR-27-29 MO}r% ''• L9 ay AC'S PAX 1,C. T IMPORTANT if the certificate holder is an ADDITIONAL INSURER, the poucy(es) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). if SUBROGATION IS WAIVED, subject to the terms and conaitlons of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the Certificate holder in lieu of such endorsement(s)- DISCLAIMER The Certificate of insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s). authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or after the coverage afforded by the policies listed thereon. ? INTERINSURANCE EXCHANGE of the Automobile Club AMENDMENT OF AUTOMOBILE INSURANCE DECLARATIONS ENDORSEMENT PLEASE READ:This endorsement changes the declarations as indicated in the "Subject of Amendment" space below. Insurance is in effect only for the vehicles,coverages and limits of liability shown on this endorsement. ITEM 1.YOUR NAME AND ADDRESS INVOICE DATE . POLICY NUMBER 8-17-98 1 G 7350930 ROYSTER, KIM_M AND TUCKER, THOMAS D PRI 1 L� EFFECTIVE DATE OF THIS ENDORSEMENT: 1945 MAVERICK LN 8-12-98 12:01 A.M. SANTA ANA CA 92705-2562 EXPIRATION DATE OF THIS POLICY: 7-28-99 12:01 A.M. (PACIFIC STANDARD TIME) ITEM 2.DESCRIPTION OF VEHICLES VEH.I TRADE I 1 RESIDENCE I ANTI-THEFT DEVICE AIR NO. I YEAR NAME IDENTIFICATION NO. I LEASED I FINANCED I ZIP CODE I ANNUAL MILES 1 ELOCA ORIC OTHER I BAGS 2I 93 JEEP 1J4FJ78SOPL5234941 NO NO 1 92705 10,001 _ 15,0001 NO INO NO 3 95 CALISIIFDKE30G1RHB513181 NO YES I 92705 5,001 7,5001 NO INO I NO 4 98 TOYO iJT2BG28KXWO231561 YES YES 92705 110,001 - 15,000I NO 1YES I YES ! � I i VEH. SPECIAL EQUIPMENT* SOUND EOUIPMENT* PARKED II I IN VEHICLE USE NO. CAMPER/ OTHER 2-WAY I TELE- RADIO OTHER �- VAN CONV. RADIO PHONE( (GARAGE 2 I I I NO BUSINESS ' 3 I I I I 1 NO PLEASURE 4 I 1 I 1 YES PLEASURE r ' * WARNING: Under Part III of the policy(physical Damage),special coverage limitations apply unless cover specifically purchased for certain equipment.Coverage is indicated by an ,X,r in the appropriate equipment colum I ITEM 3.COVERAGES AND ANNUAL PREMIUMS(COVERAGES ARE NOT IN EFFECT UNLESS INDICATED AND A PREMIUM IS SHOWN) POLIC TY I-LIABILITY I 11-MEDICAL I III-PHYSICAL DAMAGE IV-UNINSURED MOTORIST PAR COVER- 19--RC°ERTY 1 C M I 1 N-CAR L-UN YSUARD I =-GOD!Y IN_URY NIN- AGE$ A-aO�ILY YJJ= I DAMAGE - MEJCr: 1 EyCESS COMPmE-iEYSVE 'ENTA- E-COLL'S'G4 MC7CR"ST $-REOd.°hOEa YSURED MED.PAY. E EXPENSE COLLISION MOTOR VEHICLES T-iCUSAND T-,CUSAND TFO_SAND _HGJSAN7: THC-USA.ND AC-UAL CASH ACTUA:CASH I THOUSAND THOUSAND ti=_H.. I DOLLARS DOLLARS DOLLARS 1 DOLLARS I DCLLAPS i VALUE CA I LESS DOLLARS VAL-E G- LESS JN'YS. JN!41. I DO-LABS COLLARS EACH EtiCF E.AC, SACS EACH -W 1 CF SPEC.=1E� =EP.CAS M.-_= 5P❑C=1E�- DEO rr! EACr ! PACF N.,. PERSON OCCJR. OCCUR. PERSCN 1 PEaSCN LIABIL-Tv DEDUCTOLE I ;14'!LITY DEDJCTID�E WAIVER ---- p=RSOV ACCIDEN' 21 100 300 1 25 1 ACV 1000 1 ACV 1000 x 1 100 300 M1 3 100 300 j 25 1 35000 1000 i 35000 1000 I x I 100 300 T s l 4 100 300 25 1 ACV 1000 i ACV 1000 X 100 300 I I I I i 1 1 ! I I l PREMIUM DISCOUNT (S) APPLIED TO THIS POLICY: 1 SUBJECT OF AMENDMENT GOOD DRIVER MULTI-VEHICLE 1 VEHICLE CHANGE ANTI -THEFT AIR BAGS GARAGE PARKING ;I THIS IS NOT A BILL I AMENDMENT ADDITIONAL PREMIUM OR CREDIT 1 NUMBER I AQD CREDIT 1 1 $543.00 I I E 297 ATTACH TO YOUR POLICY (SEE REVERSE) 0 INTERINSURANCE EXCHANGE of the Automobile Club AMENDMENT OF AUTOMOBILE INSURANCE DECLARATIONS ENDORSEMENT POLICY NUMBER G 7350930 (CONTINUED) POLICY EFFECTIVE DATE 7-28-98 ITEM 4.DRIVERS(UNLESS EXCLUDED) DRIVER DATE MARITAL DRIVER'S LICENSE YEAR FIRST NO NAME GENDER I OF BIRTH STATUS NUMBER LICENSED 1 ROYSTER, KIM M FEMALE 3-13-58 MARRIED B 3862149 74 2 TUCKER, TOM D MALE 1-18-54 I MARRIED A 1574381 70 � I I I � I i I DRIVING SAFETY RECORD STATUTORY I DRIVER IMPROVEMENT CERTIFICATES RATED DRIVER DRIVER GOOD I GOOD VEHICLE N111A9EP.09 Vim.O^CF+kRG°A'c_=TRAF^IC C�'t<VIP,T,CVS N0. PRINCIPALLY-AT- � STATUS STUDENT Al ATLI=E kMERI�At,INjTI'l1TE FAIL'ACC DENTS CA-EGOF.V-1 ; �CATEGO:v-3 I CATEGORY-a DRIVER � DRIVER OF ADVANCED CAIVERS NO. 1 i PRIMARY YES 4 2 I 1 I PRIMARY I YES I I 2 r � ITEM S.ENDORSEMENTS AND CERTIFICATES IN EFFECT AT ISSUANCE NUMBER I TITLE NUMBER I TITLE 2052 LOSS PAYABLE - NOTICE TO LIENHOLDER 2052S LOSS PAYABLE - NOTICE TO LIENHOLDER I I I � I I I I ANY LOSS UNDER PART III-PHYSICAL DAMAGE-IS PAYABLE AS INTEREST MAY APPEAR TO YOU AND VEH NO. 3 VEH NO. 4 GANIS CREDIT CORP TOYOTA LEASE TRUST. PO Box 3245 P 0 Box 3035 BOSTON MA 02241 CEDAR RAPIDS IA 52406 FOR QUESTIONS OR CHANGES CALL 1-800-924-6141 TOLL FREE ITS0020B EA97 CITY OF HUNTINGTON BEACH INTERDEPARTMENTAL COMMUNICA TION To: Ray Silver, City Administrator From: John Reekstin, Director of Administrative Services Subject: FIS 98-24 Approve Agreement with Pulse Marketing for financial Study of Gun Range Proposal Date: March 26, 1999 As required by Resolution 4832, this Fiscal Impact Statement has been prepared for "Approve Agreement with Pulse Marketing for financial Study of Gun Range Proposal." If the City Council approves this action, (total appropriation $24,000), the estimated unappropriated, undesignated General Fund Balance at September 30, 1999 will be reduced to $8,007,232. k4d J n Reekstin, Director of Administrative Services laopted Current; Fund Balance-General Fund Budget Estimate Beginning Fund Balance 10/1198(unaudited) S 8,987.000 S 8.987,000 Plus: Estimated Revenue 107.860,642 109,108,000 Less: Estimated Expenditures (109,890,397) (109.399.000) Less Pending/Approved FIS's (664.768) Less: FIS 99-24 _ (24,000) Estimated 9130199 Balance 1 $ 6.967.245 , $ 8,007,232 Estimated Genera!Fund Balance at September 30,1999 $9,000,000 I ' $8.000.000 l $7.000,000 I I I $6,000,000 1 i I ' $5.000,000 1 I $4,000,000 $6,957,245 j $8,007,232 $3,000,000 "-- I $2,000.000 �i I $1,000,000 l I i ADOPTED BUDGET CURRENT ESTIMATE RCA ROUTING SHEET INITIATING DEPARTMENT: COMMUNITY SERVICES/POLICE SUBJECT: APPROVE CONTRACT WITH PULSE MARKETING FOR FINANCIAL STUDY OF GUN RANGE PROPOSAL COUNCIL MEETING DATE: April 5, 1999 .................. . . ................................... . ...... .........................I........... STATUS: .. .................. .............. ....... A ............... . ..... ....................... �: :: ..................... T.. HM ENTS ;; ; .......Q.................... .. TTAC ............ ............... ................................................ . . .. ....................................................................... ........... . ................................ ............................ . Ordinance (w/exhibits & legislative draft if applicable) Not Applicable Resolution (w/exhibits & legislative draft if applicable) Not Applicable Tract Map, Location Map and/or other Exhibits Not Applicable Contract/Agreement (w/exhibits if applicable) (Signed in full by the City Attomey) Attached Subleases, Third Party Agreements, etc. (Approved as to form by City Attorney) Not Applicable Certificates of Insurance (Approved by the City Attomey) Attached Financial Impact Statement (Unbudget, over $5,000) Attached Bonds If applicable) Not Applicable Staff Report If applicable) Not Applicable Commission, Board or Committee Report (If pplicable) Attached Findings/Conditions f®rpproval and/or Denial Not Applicable--i ..................... . .. ­ ...... ............................................................................... .....................%...........'. ...."...EXPLANATION:T ORAISSINGT'ATTACH AT TACHMENTS ............... .... ....... ...................... ............................ ....... ......................... .............. ........ ................................... . ....... . .... ..... .... ........... ..................... RETURNED"..: -..-.-FORWARDED'............. .................... --------------- Administrative Staff Assistant City Administrator (initial) City Administrator (initial) City Clerk ... ... ... ............................ ............................. . . . .. . . ................... ....... . . .... . ..... ........................................EXPLANATION;FOR RET-URN..:OF...ITEM: .`:: '.�:::::��":�:: .................................. ........................ .................................................... (Below Space For City Clerk's Use Only) RCA Author: REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 Develop income and expense assumptions for the project based on consultant's market research, information provided by the city, and information contained in the Deloitte & Touche report. Evaluate and analyze the terms proposed by the lessor as part of the build-to-suit lease/purchase agreement, including an analysis of leases for comparable facilities (as available) and other similarly located industrial buildings with "specialized" build-outs. Prepare a pro forma financial operating statement for the project over a five- year period. Perform limited sensitivity analysis on costs and revenues as necessary in order to better understand the financial risk associated with the proposed development. Task 5: Prepare Market and Financial Analysis Report Upon completion of Tasks 1 through 4, prepare a market and financial analysis report for the project, which contains: Consultant's findings with respect to consultant's evaluation of the site's physical characteristics and related consideration. The results of consultant's national best practice review, including brief yet focused case studies for the facilities visited. The results of consultant's analysis/review of market demand for the project from the various segments targeted, including consultant's assessment of probable utilization. A description of consultant's development recommendations with respect to design and operations, including a discussion of any issues related to the overall development strategy. Consultant's evaluation/analysis of the lessor's proposed build-to-suit lease/purchase proposal. The results of consultant's pro forma financial analysis for the project, including a description of each of the operating assumptions utilized. Staff solicited requests for proposals on January 25, 1999, and received two proposals, Pulse Marketing and Deloitte & Touche, the firm that performed the original financial analysis when the city was considering rebuilding an outdoor range in Huntington Central Park. Subsequently, Deloitte & Touche withdrew their proposal to provide the scope of services listed above. Staff believes Pulse Marketing is the best firm to hire for this type of financial report, research national best practices, review marketing evaluation, demand analysis, and financial pro forma. Staff is requesting Council waive the requirement for professional liability Pulse Marketing.doc 4- 03/29/99 8:08 AM V 1 �: -� � - � � ��� � �� � .� � � � �� � ���p �' {' �� �3 iE�Ef��--_� l Council/Agency Meeting Held: /,g Deferred/Continued to: / 2- 9 9 011 Approved ❑ Conditionally Approved ❑ Denied City Clerk's OigneL�i­64"i�_ Counci Mee i ate: pril 5, 1999 Department ID Number: CS99-014 d CITY OF HUNTINGTON BEACH REQUEST FOR COUNCIL ACTION �O SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS — =� SUBMITTED BY: RAY SILVER, City Administrators PREPARED BY: RON HAGAN, Director, Community S i RON LOWENBERG, Chief of Police SUBJECT: APPROVE AGREEMENT WITH PULS ARKETING FOR ,;, y FINANCIAL STUDY OF GUN RANGE PROPOSAL Statement of issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachments) s_= Statement of Issue: Should the city approve a contract with Pulse Marketing for a financial study and market evaluation for the proposed law enforcement/public shooting range facility as submitted by R. W. Randall for the Randall Lumber site? Funding Source: General Fund Unappropriated Fund Balance Recommended Action: Motion to: 1. Approve an amendment to the current year budget by appropriating $24,000 for a financial study and market evaluation for the proposed law enforcement/public shooting range facility as submitted by R. W. Randall for the Randall Lumber site; 2. Approve a contract with Pulse Marketing for the financial study and market evaluation of the Randall proposal for a law enforcement/public shooting range facility, and authorize Mayor and City Clerk to execute same; and 3. Waive the requirement for professional liability insurance for Pulse Marketing. Altemative Actions : 1. Proceed with development of a tong-term lease contract with R. W. Randall without benefit of financial analysis of Randall's proposal for a law enforcement/public shooting range facility; or 2. Do not proceed with a contract with R. W. Randall for a law enforcement/public shooting range facility, or a contract with Pulse Marketing for a financial analysis of Randall's proposal, and direct staff to discontinue efforts to develop a public/law enforcement range in Huntington Beach. , 1 a REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID N.UMBtR: CS99-014 Analysis: lysis: I. BACKGROUND The City of Huntington Beach is currently in the planning stages.for the development of an approximate 80,000 square foot gun range facility on a 6.54-acre site located at 17332 Gothard Street in Huntington Beach. Current plans call for the city to execute a build-to-suit lease/purchase agreement with the owner of the site to construct a facility which will include: pistol and rifle practice ranges, plus space for equipment and ammunition sales, gun rentals, training rooms and food service. It is intended that the facility be utilized by both the public and law enforcement agencies. As part of the planning process, staff is recommending that the city identify and examine similar facilities nationally which have recently been developed in other urban areas and which reflect the current "state of the arts for these types of projects. The city should also assess user demand for the facility. To assist the city in the successful accomplishment of these objectives and to act as a resource in the negotiations with the lessor, staff is requesting that the City Council authorize the hiring of a consultant to provide the following scope of services. 11. SCOPE OF SERVICES Task 1: Site Reconnaissance and Information Review This task will initiate consultant's evaluation and include: a careful review of the city's development objectives, an examination of materials which have been prepared to date concerning the project, and a physical investigation of the property related to its location, access and development potential. The steps involved shall include: Meetings with city staff and others related to the project. Review of any market/financial information or other planning documents that have already been prepared for the project, including the lessor's proposal to the city for the project. Visit to the project site to identify physical/location opportunities and constraints, access issues, infrastructure issues, the impact of surrounding land uses, environmental considerations, and other potential planning issues. Task 2: National Best Practices Review During the course of completing this task, consultant's firm shall identify and visit three to five gun range facilities nationally which have been recently developed (12 to 36 months) and which reflect current "state-of-the-art" design and operational practices in the industry. Consultant's focus shall be on facilities, which have similar market characteristics as the subject property. Consultant shall also review recently published shooting/gun related publications and trade journals, and collect marketing and operational information on newly developed projects. Consultant's objectives shall be: Pulse Marketing.doc -2- 03129/99 8:08 AM REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 To develop a detailed understanding as to current and projected industry trends related to shooting and gun ranges. To analyze the principal business and technology developments that are currently affecting the design and operation of facilities nationally. To investigate the anticipated/planned shifts in the marketing and operational strategies of facility operators in response to current and projected future market trends. To assess the current competitive positioning and marketing strategies of these facilities. To estimate future utilization patterns, user characteristics, and facility requirements for the gun range industry overall. Using the information developed, consultant shall be able to advise the city with respect to how the city's facility strategy can best be positioned to take advantage of projected industry trends, how these trends might affect the city's facility's operations, what design and technology characteristics the city's facility should possess to enhance its overall appeal in the future, and how to create a marketing strategy that is responsive to current/future market factors. At the conclusion of this task, consultant shall provide the city with a compendium of resource materials, including a slide presentation of the facilities visited. Task 3: Review and Evaluate Market/Segment Demand Analysis This task will focus on an evaluation of market/segment demand for the project, as developed and presented in the preliminary market analysis for the project prepared by Deloitte & Touche. It is consultant's responsibility to supplement and/or update the analysis presented in the Deloitte & Touche report if it is clear from consultant's review that certain assumptions they make as part of their analysis are no longer valid based on business or economic factors that have occurred in the market since the time the report was prepared. It is also consultant's responsibility to review any newly published industry data related to the primary market and selectively interview potential user groups and other knowledgeable local sources to test the present validity of the .demand/segmentation assumptions utilized by Deloitte & Touche. The information reviewed as part of this task, plus any supplemental information developed by consultant, should be sufficient to estimate current demand/segmentation for the project. Consultant will then be in a position to make an assessment of the project's utilization by user group, over the next five-year period. Task 4: Prepare Pro forma Financial Analysis Consultant shall undertake a financial analysis for the project based on information provided by the city and the city's representatives, other available industry information, consultant's market research, and information contained in the Deloitte & Touche report for the project. This task will consist of the following steps: Pulse Marketing.doc -3- 03/29/99 8:08 AM REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 Develop income and expense assumptions for the project based on consultant's market research, information provided by the city, and information contained in the Deloitte & Touche report. Evaluate and analyze the terms proposed by the lessor as part of the build-to-suit lease/purchase agreement, including an analysis of leases for comparable facilities (as available) and other similarly located industrial buildings with "specialized" build-outs. Prepare a pro forma financial operating statement for the project over a five- year period. Perform limited sensitivity analysis on costs and revenues as necessary in order to better understand the financial risk associated with the proposed development. Task 5: Prepare Market and Financial Analysis Report Upon completion of Tasks 1 through 4, prepare a market and financial analysis report for the project, which contains: 41'h Consultant's findings with respect to consultant's evaluation of the site's physical characteristics and related consideration. The results of consultant's national best practice review, including brief yet focused case studies for the facilities visited. The results of consultant's analysis/review of market demand for the project from the various segments targeted, including consultant's assessment of probable utilization. A description of consultant's development recommendations with respect to design and operations, including a discussion of any issues related to the overall development strategy. Consultant's evaluation/analysis of the lessor's proposed build-to-suit lease/purchase proposal. The results of consultant's pro forma financial analysis for the project, including a description of each of the operating assumptions utilized. Staff solicited requests for proposals on January 25, 1999, and received two proposals, Pulse Marketing and Deloitte & Touche, the firm that performed the original financial analysis when the city was considering rebuilding an outdoor range in Huntington Central Park. Subsequently, Deloitte & Touche withdrew their proposal to provide the scope of services listed above. Staff believes Pulse Marketing is the best firm to hire for this type of financial report, research national best practices, review marketing evaluation, demand analysis, and financial pro forma. Staff is requesting Council waive the requirement for professional liability Pulse Marketing.doc -4- 03/29/99 8.08 AM REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 insurance since this is a financial service where there is no design liability or service that could result in the city being sued for professional liability. The city used Pulse Marketing to do the pro forma for the Pier Plaza and was very satisfied with their work. In addition to the above-described scope of services, staff will have the report prepared with two alternative options- 1) The City of Fountain Valley is currently proposing to rebuild its "law enforcement only" range at a site yet to be determined in Fountain Valley. If Fountain Valley proceeds with rebuilding a law enforcement only range, the city of Huntington Beach needs to know what impact that may have on the proposed Huntington Beach range facility with regard to law enforcement agency use. 2) It has been suggested by the current operators of The Firing Line, a privately- operated "pistol only" range, that there is no demand for long rifle shooting and that the development of long rifle shooting lanes is not cost effective. This alternative will provide an option for the proposed project without the long rifle lanes so that the city can compare pro forma with and without long rifle capabilities. The City Council Subcommittee on the Gun Range met on February 26, 1999, and approved the staff recommendation on a two to one vote. The minutes of that meeting are attached. Ill. COUNCIL BUDGET REQUEST POLICY The current Council policy regarding requests for an appropriation of funds states that the request must meet one of the following criteria: it is an unanticipated emergency; it is required to implement labor negotiations, or it is a new expense that is offset by related new revenues. This request does not fit into any of the three above criteria; however, the gun range project is an ongoing Council program to determine the feasibility of whether to proceed. Failure to appropriate the requested funds will either delay the project for seven months or put Council in the position of making a decision to proceed without an independent financial analysis. The General Fund will be reimbursed for this appropriation from gun range revenue if Council proceeds with the project. If not, these funds will not be returned to the General Fund. Consequently, staff is recommending an exception to the current Council budget request policy. IV. SUMMARY If City Council approves the contract with Pulse Marketing and directs staff to prepare a proposed lease agreement with R. W. Randall, staff anticipates returning to Council in July, 1999 with the financial report and a recommendation on whether to proceed with the range facility under the terms presented by R. W. Randall for a long-term tenant build-to-suit lease at the former Randall Lumber site at 17332 Gothard Avenue in Huntington Beach. Environmental Status: Project will require a Conditional Use Permit which will be processed if City Council determines to proceed based on the financial analysis and proposed lease agreement with Randall. Pulse Marketing.doc -5- 03/29/99 5:06 PM • REQUEST FOR COUNCIL ACTION MEETING DATE: April 5, 1999 DEPARTMENT ID NUMBER: CS99-014 Attachment(s): City Clerk's Page Number No. Description ......... ...... ................... .......... .......................... ................. ......................... ":,:...............%- --:- ,- 1 Professional Services Contract with Pulse Marketing ..... .................................... ................. ........... ......................... ................................................ .................................. 2 Minutes of City Council Subcommittee on Gun Range ....... . .................. ......................................... ........... .. ..... ...... ............. ................. .............. ... ....... 3. ................................. .......... -.-......... PIS RCA Author: RH:cr Pulse Marketing.doc 03/29/99 5:06 PM I � � Hospitality, Sports & Leisure Consulting Practice CityHuntingtonof Beach Evaluation of the Proposed Gun Range ra Final Draft April 10, 1998 - ,.�,.� Deloifte & Touche' «P - 1004 Wilshire Boulevard Telephone:(213)fi86-4B00 Los Angeles, California 90017-2472 Facsimile: (213) 688-0100 April 10, 1998 Mr.Ron Hagan Director Community Services , The City of Huntington Beach 2000 Main Street Huntington Beach, California 92648 Subject.Final Draft Evaluation of the Proposed Gun Range and Youth Sports Facility Dear Mr. Hagan: Deloitte &Touche LLP (D&T) is pleased to deliver to the City of Huntington Beach (City) this final draft of our market analysis, financial analysis and demographic overview, prepared in connection with the proposed gun range and youth sports facility. The City is currently evaluating the feasibility of the development of a gun range for use by both law enforcement'and the general public, as well as the development of a youth sports facility to be located at Central Park. D&T was retained by the City to evaluate the market and financial feasibility of the proposed facilities. It is important to note that the results of our analyses are presented before debt service costs. Because final construction costs, design plans and financing for the proposed facilities are not in place at this time,estimates of debt service costs were not included. It should be noted that our analysis has been based in part on the review and analysis of information provided by unrelated sources, which are believed to be accurate, but cannot be assured to be accurate. In addition, D&T has made significant assumptions in preparing this final draft. Although the assumptions appear reasonable based on the current and anticipated market conditions, actual results depend on the actions of management and other factors, both internal and external, to the project, which frequently vary. It is important to note that because events and circumstances may not occur as expected, there may be significant .differences between the actual results and those estimated in this analysis. This final draft is subject to the Terms and Conditions included herein. Thank you for the opportunity to work on this interesting and challenging assignment. Please contact Mr. Daniel S. Barrett at(213) 553-1605 if you have any questions or comments. Sincerely, DRAFT Delo'rtteTauehe 2029 Century Park East.Sui c 300.Los Angeles,California 90067-2900 Te!eohone:(3101 551.6700 Facsimile:(310)284.9029 Tohmatsu One 1, odd Trade Center.Si-:'s 2200.Long Beach.California 90831-2200' TWephone:(5621 499.8300 facsimile:(5621 437.4761 International 21550 Qcra.d Street,Suite E_C.Woodland H.IIs.California 91367.7125 Te'.eohwe.(8161 593-4800 Faes+miW(61%347.427E 2235 Fa,eday Avenue.Suite C.Carlsbad,California 92008-7209 Te:ephone:1760)9303430 Facsimile.0601 930-3.40 J� CITY OF HUNTINGTON BEACH ADINTER-DEPARTMENT COMMUNICATION $4UW1--=0!BEACH TO: Gun Range Committee FROM: Ron Hagan, Community Services Director DATE: April,15, 1998 SUBJECT: DELOITTE &TOUCHE GUN RANGE REPORT Attached is the Deloitte & Touche LLP Gun Range Report and suggestions from the NRA concerning the report. We will be setting up a Gun Range Subcommittee meeting in the near future. You will be notified of the date and time-of the meeting. We are providing you with this copy so you may have time to review it prior to the meeting. RH:gc Distribution List: (with attachments) Dennis Davenport,NRA Members Council Jim Martin Citizen Hugh Foster, Public Safety Training Ted Carpenter, Cushman& Wakefield Bob Biddle, HB Tomorrow Ed McErlain, Captain HB Police Dept. Bob Franz, Deputy City Administrator Rich Barnard, Deputy City Administrator Janet Biddle, Community Services Commissioner SUGGESTIONS FOR."ROVING THE PRELIMINARY DRAFT EVALUATION OF THE PROPOSED RANGE FACILITY' Table of Contents 1. Market Analysis - Shooting and Training Facility IL Financial analysis - Shooting and Training Facility. , : ' For ease in reviewing these suggestions. they are arranLed(as much as possible)in the same order as the Preliminary Drah Evaluation: headings and page numbers refer 10 eiluivalents in the Preliminary drab Evaluation. I Market Analysis Page 41, Firearm sales While we agrtee that handgun sales have declined from 1992 to 1996, xvc do not conclude that this decline may be ascribed to the same reasons as the PDE`. We believe that there are three basic causes for this decline. First, handgun sales in 1992 and 1993 were at record levels unprecedented in California history. The episode, of civil unrest experienced in Taos Angeles con-*rinced many citizens that there was a very real need for- ' an ability to defend themselves and their property. After the passage of time from that very frightening period, sales returned to a more nonrtal level Second, the years 1992 through 1996 were recessionary in California with Southern California being particularly hard hit. During this recession, discretionary spending was impacted across the entire recreation industry. Given that almost all handgun sales are either for self-defense or recreational uses, a decline during this period should be attributed io these primary causes. The most important fact derived from this data is missing from the discussion of handgun sales in the PDR. The fact that nearly 200,000 handguns were purchased in Orange County in a brief 5 year period is a significant indication of market potential, this is enough handguns for-I in every 13 citizens of Orange County.. (Or enough to equip even resident of Huntington Beach.) This figure, together with the many hundreds of thousands of pre- existing handguns indicates a tremendous market for a shooting and training facility such as we envision. Prrtie 43 , A minor note, the range at Evans Gunsmithing is 50 FEET in lengrth; not 50 yards as listed. A 50-foot range is approxitxtateh, 16.7 yards. 1`4 sqc 40 Another minor note. (although it may have; an impact when determining competitive facilities within a given market areal is that team° of the distances shoevtt appear to be understated. For example; the ranee at the San Gabriel Valley Gun Club is apprONimately 42 road miles from the intersection of Springdale and Edinver. However, it should be noted that Californians tend to e.Npress distance by time of travel rather than mileage. Wiih the excepilon of the one fac.ilily in Huntington Beach, none of the listed facilities are closer than 30 minutes and than• could well be scveraf hours The Sug'estions regardinc,.the te4arket Anal\.sis-deal primarily %%ith assumptions and conclusions of the Preliminary Draft Report (PDR) \Vhile some of the factual data may require revitu for completeness and accuracy.11it5 preliminary lisling of Sii$RCS1iDilS aStitNlleS their TCClk3ac\ ' The "Repone! decline in civilian demand Page 72) lists 2 n1 tllc rea:olis %%ithoui r:; Nupp n;in- cvideri-c depending on traffic conditions. The'time'of travel becomes an important consideration in any market evaluation of the impact of competitive facilities. pages 46 through 52 -Identification of Major Users The PDE does a very good job in studying the Law Enforcement Agency (LEA) demand for this facility, devoting.nearly 5 of the 7 pages of this section to that market segment. The-PDE suffers in its treatment of the vast civilian market, devoting little more than 2 pages to,it Several very large populations.of both handgun and rifle users are absent. All types of formal competitions are ignored along «pith league and local competitions as Nvell as entire classes of the shooting public. As.an example, cowboy action shooting is one of the fastest growing sports in the country. Single action "cowboy" competitions routinely draw hundreds of competitors every month (within the local Southern California area). Another absent area are the hunters, during the months from July to October, both rifle and handgun hunters will fill the 100 meter rifle ranges on most evenings and weekends. This section identifying major users also fails to address the training needs of local educational institutions (such as Golden West College) and of private security, services. Golden West College alone provides'a significant market segment, providing thousands of hours of use. 1'cwes 53 lhrovh 67-,4i7alYsis of Comparuhle 1"acilllies The PDE spends considerable time examining and analvzine %vhar it assumes are 'comparable' facilities. We believe that this is a false assumption and that none of the facilities examined are truly comparable for the following reasons. A. With one exception (facilit%, no. 4) al! of the indoor handgun facilities are only 16.7 yards long verses the &sired length of 25 vards. This difference is critical, as 25 yards is the standard icnuth for a wide variety of shooting disciplines. For example_ all "Bullseve" target matches require 25 yards. It is interesting to note that the one indoor faciliiy with 25 yard ranges shows a utilization rate approximately 67% higher than the other listed 'comparable' ranges. Onc curious note is that while this is the only indoor facility_, \vith a 25 yard capabihN% th.- PDE appears to disregard th::i characteristic \With the comment "Utilization Characteristics...may differ from this comparable ranee due to the hi_gher ;,r(yorlio7 u,"'O d ar, use•..." (pale 62. emphasis added). B. Most (if not a411 of the comparable facilities are converted retail or lid-1ht manufacturinu spaces. These are norinally pocriv lit with. inadequate 6 if any) sound stionuallon. i}test i3ciliiitS are itch ecinduci\'L' to i'_ii!'�r CCiir�n'titiQn Or SC OOLIS praCILICC. t0r CClitlPC I,ition. lriuC:cd, nisi of them, c\per icncc an\' tISC Mal ti•.nipll` �ti�a uti� il�:'rC: a CCaiiilil�t� l�3 C;�. ()f iln\ $Glut fill: {iiClli i�' \:"ithln '.? reasonable drivint-- uiSii]iitZ- f C. With one exception; none of the indoor 'comparables include any rifle capability. at all. The exception, number 9 - a private range in Northern California, is currently building six 100 meter lanes despite the location- of 4 competing facilities,two of which are outdoor ranges with 100 meter capabilities(page 211). Pages 67 through 89: Estimation of Potential Market Demand While we believe.that the PDE does an admirable job in understanding and estimating the market for LEA use, it is clear that it fails to accurately address the civilian market. This failure is, in a large measure, due to a failure.to understand the civilian - shooting community and the nature of the proposed facility. One of the best examples of this failure is evidenced on page 69 of the PDE. The total absence of ANY public shooting facility in all of Orange County is mentioned in passing and does not appear to impact any of the subsequent usage estimates. Having the only 100-meter public use facility and the only tactical pistol bay, suitable for the various Action Pistol disciplines within an hour's drive of Huntington Beach is a tremendous market opportunity. The PDE does contain a significant factual error (page 70) in addressing the differences in needs between civilian marksmen and the LEA community. There are very few tactical training techniques that are unique to LEA training (the use of vehicles and lights/sirens is.one that comes to mind). Many civilian competitive shooting disciplines have most of the same-tactical capability requirements as do LEA training. For example, all of the various "Action" shootinc, sports,from NRA Action to Bianchi Cup to Cowboy Action Shooting require the range capabilities as LEA training. It is worth noting that these are among the fastest gro«ing, most popular of all the shooting disciplines in the country. Consider, for example, the Single Action Shooting Society (SASS). This is but one of the 'cowboy action' shooting organizations and has grown from less than 1,000 members in 1991 to over 37,000 in 1997. These Action Shooting sports all require the use of multiple targets,moving targets, turning and reactive targets identical to those used in LEA tactical and combat training7. Page 70 contains another factual error where it provides the opinion that there is a "..rise in anti-gun sentiment among_ the general public." While there is indeed a rise in anti-gun Propaganda, we are not aware of any documented rise in anti-gun se► a.inent. To the contrary, we see numerous indications of increasing support for the second amendment to the U. S. Constitution. As but one example of this strong and increasing support, in 1982 California had-a severe anti-gun measure on the ballot - Proposition 15. This failed by a margin of 2 to is In 1997, the state of Washington had an almost identical measure, initiative I-676. This failed by nearly ; to 1. These election results show the public's sentiments toward the constitutional right to keep and bear arms far better that an unsupported assumption of the PDE. On page 73 there is an omission that has bearings on the projected expenses..•As the' PDE states, there is a hazard of lead contamination (lead dust and particles) caused primarily by the impact of the bullets on the steel backstop of systems similar to the Caswell System mentioned. The omission is that the current, state-of-the-art Supertrap system completely eliminates this potential hazard.- Rather than an expense, the Supertrap catches the bullets _undamaged and the Supertrap Company recovers and recycles the lead, sharing this revenue with the range operation. As a minor point, we note that also on page 73 there is a discussion of the rate of ammunition usage between pistol and rifle users. We agree with that discussion-but what is on from a market evaluation perspective is that rifle ammunition is significantly more expensive(and with a higher mark-up)than pistol ammunition. While pistol ammunition averages about S10_per box of 50 (page 96), rifle ammunition ranges (Tom $13 to over$20 per box of 20. On page 75 the PDE reaches the conclusion that the planned facility is excessive in size and would thus be under-utilized. We do not concur with that conclusion and believe that it can only be reached if based on a series of flawed assumptions ranging from the use of non-comparable competitive facilities through a failure to understand the civilian shooting needs to a miscomprehension of the nature and use of the planned dual- use facility. Our concern is that for many competitions and during the hunting seasons, the planned facility may be inadequate to the public need. SUGGESTED IMPROVEMENTS TO THE PRELTiti'IINARY DRAFT EVALUATION: N14RKET ANALYSIS A. . The PDE assumes a split facility with separate Public and. LEA areas. This assumption is in direct conflict with the very concept of a dual-use facility. The result of this assumption is a significant reduction in revenues. We suggest that the PDE be revised with the assumption that the entire facility is available and open for public use whenever it is not scheduled for LEA use. This would provide additional revenues as the facility will be available to the public most weekends and many evenings. As a minimum, the PDE should be revised based on the assumption that the entire facility will be open to the public on a minimum of 50% of the weekends and that the LEA customers will be using the tactical areas during the other 50%. y B. The PDE recommends that the 'public' side be reduced by 50% in size. For all of the various reasons discussed above, we suggest that this conclusion be revisited. C. While we share the PDE's conclusion that the hours of operation should be limited, we do not share the degree of limitation proposed. Week-day hours of Operation should be froth 10:00 AM to 10:00 PM. few other public recreation facilities close as early as 8:00 o'clock. Week-end hours should run from 8:00 AM until 10:00 PM. We su;nest that the report be revised to reflect these hours in order to accommodate both the public and the l_FA needs- . Total.Proposed Capacity These tables include the following suggested improvements: 1. Range restored to the original configuration of 24 public use pistol positions and 12 rifle positions 2. Hours of public operation'revised to--10-10 weekdays. and 8 AM to 10 PM weekends 3. Tactical side available for public use 50%of weekends 4. Tactical side used by LENS 50%of weekends Exhibit 1 of 5 Total Potential capacity - Public Pistol Usage Number of lanes (public side) 24 Daily hours of operation 12 Total Daily Rentable Hours 288 Number of lanes (tactical side) 24 Daily hours of operation (weekdays) 12 Daily hours of operation (weekends) 14 Total Daily Rentable Hours (weekdays) 288 Total Daily Rentable Hours (weekends) - . 336 Total Days in year 365 Less holidays -5 less maintenance time -5_ I Total available days per year 355 Total weekend days per year 104 less Easter Holiday -1 Total weekend days per year tactical side) 52 Net available weekend days per year 155 Total week days available per year 251 Total weekend Rentable hours per-year 52.080! Total weekday rentable hours per year 72 2881 TOTAL RENTABLE HOURS PER YEAR 12 36 ' 1 (1 l Exhibit 2 of 5 Total Potential capacity - Public Rifle Usage Number of lanes (public side) 12 Daily hours of operation . .12 Number of lanes (tactical side) 6 Daily hours of operation (weekends) 14 Total Daily Rentable Hours (weekdays) 144 Total Daily Rentable Hours (weekends) 252 Total Days in year. - 365 Less holidays -5 less maintenance time -5 Total available days per year 355 Total weekend days per year (public side) 104 less Easter Holiday -1 Total weekend days per year tactical side) 52 Net available weekend days per year 155 Total week days available per year 251 Total weekend rentable hours per year 39,060 11 Total weekday rentable hours per year 36,144 Total Rentable Hours per Year 75,204 Exhibit 3 of 5 Total Potential capacity -LEA Pi.§.tol Usage Number of lanes 24E Daily hours of operation 10 Total Daily Rentable Hours 240 Total Daily Rentable Hours (weekends) 240 Total Days in year 365; less maintenance time -5l less 7 holidays per year -7 Total available days per year 353, Total weekend days per year 104 Total weekend days per year tactical side) 52; INet available weekend days per year 52 TTotal week days available per year 249! i ITOtal weekend rentable hours per year 12,480! Total weekday rentable hours per year 59.760, 3 Total Rentable Hours per Year 7T 2 . f Exhibit 4 of 5 Total Potential capacity - LEA Rifle Usage Number of lanes 6 Daily hours of operation 10 Daily hours of operation (weekends) 10 Total Daily Rentable Hours (weekdays) 60 Total Daily Rentable Hours (weekends) - 60 - Total Days in year 365 less maintenance time -5 less 7 holidays per year -7 Total available days per year 353 Total weekend days per year (LEA side) 52 Net available weekend days per year 52 Total week days available per year 351 Total weekend rentable hours per year 3,120 Total weekday rentable hours per year 15,060 Total Rentable Hodrs,per Year 18,180 Exhibit 5 of 5: 4 Total potential capacity Public and LEA use Available Annual Hours Public Pistol Use 124,3681 Public Rifle Use 75,204- Subtotal 199,572. LEA Pistol Use 72,240 LEA Rifle Use 18,180E Subtotal 90,420'- . k Total Rentable Hours per year 289,992' Estymate of Overall Occupancy Exhibit 1 of 5: Total Estimated Hours of use Utilization estimate - Public Pistol . Annual Use Rate Range Hours Weekdays (Day) 36,144 40.00% 14,458 Weekdays (Night) 36,144 60.0D% 21,686 . Weekends 52,080 75.00% 39,060 Total use rate 124,368 60.47% Total Hours of Use 759204 75,204 Exhibit 2 of 5- Total Estimated Utilization estimate - Public Rifle Annual Use Rate Use Hours iWeekdays (Day) 18,072 40.00% 71229 iWeekdays (Night) 18,072 75.00% 13,554 Weekends 39,060 85.00% 33,201 Total use rate 75,204 71.78% f Lotal Hours of Use 53,984 53,984� Exhibit 3 of 5: Total Estimated i jUtilization estimate - LEA Pistol Annual Use Rate l Range Hours f Weekdays 59,760 70.00% 41,8321 JWeekdays (Night) NA NA NA Weekends 12.480 70.00% 8,736 1 Total use rate 72,240 70.0 % �. 'Total Hours of Use 50,568 50,568 L E Total Estimated xhibit 4 of 5: Utilization estimate - LEA Rifle'Use Annual Use Rate Hours Weekdays (Day) 15,060.. 70.00% 10,542 Weekdays (Night) NA NA NA Weekends 3,120 70.00% 2,184 Total use rate 18,180 70.00% Total Hours of Use 12,726 12,726 Exhibit 5 of 5 Estimate of overall occupancy Public Pistol 75,204 Public Rifle 53,984 LEA Pistol 50,568 LEA Rifle 12.7261 6 Total Lame/Hours Rented per 192,4821 Year l0 It Financial Analysis Develop Financial Operating Profile This section parallels the DPE and follows these five key steps •. Evaluation of major revenue items • Development of operating profile assumptions • Evaluation of major expense items • Development of five year financial model • Application of'sensitivity tests upon key variables MAJOR REVENUE ITEMS Foremost among the sources of revenue items are the rental revenues. The following table identifies those revenues consistent Xvith the conclusions formed in the Market Analysis. LANE RENTALS Table i of 5 Rentals (Incomes) Gross Income Estimate - Pacility Rental Lane Category Hours Rate Totals I Public Pistol -Weekdays 14,458 $&00 S86,746 Public Pistol -Weekends and 64,361 S8.00 S514,886, Evenings Public Rifle -Weekdays 7,229 $10.00 S72,288 Public Rifle -Weekends and 46,755 $12.00 $561,0601 Evenings . 1 LEA Pistol 50,568 S5.00 $252,8401 LEA Rifle 12,726 $7.00 $89,082j Membership use adjustment4 561,7491 Total Facili Rental Income $1,515,153 4 An estimated 10%oldie annual daily users would be members-based can the only membership use figures provided in the PDE(passe 210). - ! l Membership sales: Membership fees provide an additional major source of revenue. Comparable facilitiesi.•sell memberships, which provide for reduced range fees'(or none at all), preference in lane assignments and.other amenities. Our suggestion is that memberships offer free range time during weekdays, a reduced range fee (50%) for evenings and weekends. Also, a combined membership.fee should be offered for both pistol and rive use at the following suggested rates': ` 1. Pistol Range only memberships for$125/year 2. Rifle Range only memberships for$125/year 3. Combined riflelPistol memberships for$175hyear We assume that 70% of the memberships sold will be combined and that the balance will be split between Rifle and Pistol members. We are maintaining the PDE recommendation of 700 memberships in the absence of any other data - at this time. Table 2-of 5 Membership Sales (incomes) 1 Membership Sales Rate Estimated Income Number 7 Pass of Membership i !Pistol Only $125 105 $13,1251 C. Rifle Oniy $125 105 $13,1251 iCornbined Rifle and 5175 ago $85,7501 !Pistol tTotal Membership 700 $112,000i !Income t Ammunition Sales are calculated on the same basis as in the PDE with a 50/5Ct ratio of purchasers buyin i T their ammunition at the ran,_►e. Of those purchasin�u pistol ammunition at the range; this suggestion uses the PDE factor of 90% for reloaded ammunition. Rifle shooters also share a ratio of 50% purchases at the range. However, Rifle shooters seldom purchase reloaded rifle ammunition. 1=or this reason, all rifle ammunition sales are presumed to be newly manufactured ammunition. Comparabie' i,used in the same context as the PDE. It should not be assuntied that lwe are in asreement t�illt L'::a drl�nitiun. Itates suggesrcd are comparable with those presented in the i'DE - pages 60 throuLph 67 and in the Append I%, �I�1{ihCi-�hl�l�;;{�•�[ll;i 701'.,c.mthiaed rifle and pistol. i 5% pistol onk ;--[id I5'Z!, I tie'1111 ' - � '7 Table 3 of 5: Ammunition Sales (Incomes) Ammunition Safes Quantity 8 Price Income Public Pistol (reloads.) 33,842 $9.Q0 --$304,576 Pistol (new) 6,218 $12.50 $77,730 Rifle (new) 13,496 $15.00 $202,440 LEA , Pistol'(reioads) 25284 $9.00 $227,556 Pistol (new) 25284 $12.50 $316,050 Rifle (new) 12726 $15.00 $190,890 Total ammunition Sales $734,496 Table 4 of: 5 Firearm Equipment Sales (Income) Firearm Equipment Saleso Total Rate Income Rental Sales Total Equipment $1,5761-902 - 20.00% $315,380 Table 5 of 5 Total Gross Income , Total Sales Income (Gross) Facility Rentals $1,576.902 Memberships $112,000 Ammunition $734,496 Other $315,380 Total Gross Income $2,738,778 Y Pistol Ammunition is sold in boxes ot750, Rifle ammunition in boxes of 20. Quantity figures assume the same ratio of use(50 pistol rounds/hour and 20 ritle rounds/hour. "Items sold include targets,eye and hearing protection, leather goods(belts, holsters etc.)and instructional materials. It is NOT suggested that the range engage in either gun rentals ol'tirearni sales. Such activities may be handled by c011cessi011aires . I , MAJOR EXPENSE ITEINIS Cost of Goods Sold Ammunition Sales-• Cost of Goods Sold(COGS) Ammunition CoGS is subject to-�.wide range of variables. Foremost among these are the types of ammunition, reloaded pistol ammunition, factory new pistol ammunition, and, factory new rifle ammunition.1 0 We suggest that the proposed facility reload ammunition for sale for the most common calibers. Reloading`provides profit margins 'exceeding 300%. Given the unknown relationship between common and other calibers, we suggest a ratio of 4 to I between common and uncommon calibers (public) and a 100% LEA use of common reloaded calibers. This relationship provides a net margin of 260% for reloaded ammunition. Cost of Goods Sold Sales Margin Cost of Goods (Ammunition) Reloaded Pistol Ammunition $304,576 260.00 $117,144.69 (Public) Reloaded Pistol Ammunition $227,556 260.00 $87,522 (LEA) % Factory Pistol Ammunition S518,490 30.00% $362.943; Factory Rifle Ammunition $190,890 30.00% $133.623, iTotal ammunition CoGS $1,241,512 $701,232i Other Items - Cost of Goods Sold Su�L,uest that the 80% ratio for other items is adequate and unchanFTed from the PDE. This provides the following CoGS for the other items. iCost of Goods Sold (Other Sales Margin Cost i Items)" r i p $315,380 80.00% $252,304 "" This su�IIVTCStion does not include reloaded 1actory rifle ammunition, as the market for this n,pe is verx, small. Most shooters either reload their oxk71 or _ purchase new iactory loads " Other Items onut memberships. The only sellinu costs associated with memberships are administrative and minor advertisin-,cos-.; 14 Memberships-Cost of Goods Sold The only costs associated with the sale of memberships are minor administrative costs and limited advertising costs. These costs are estimated at no more than 10% of the membership.sales. Cost of Goods Sold Sales Margin Cost (Memberships) $112,000 10.0p% $1.1,200 .- TOTAL COST OF GOODS SOLD Total CoGS Ammunition $701,232 Other Items $252,304 Memberships $11,200 Total CoGS $964,737 OTHER EXPENSE ITEMS Staffing Expense: The PDE lists a range of staffing expense of 16% to 25%, the range appearing to be detennined by the ration of full time instructors. Our suggestion is that the faciliny not employ ANY full time instructors. Law enforcement agencies normally employ their ovm instructional staff and would be most reluctant to use civilian employees of the range as tactical instructors. For public users, private instructors would simply rent lanes for the conduct of their classes. (Current planning includes a training (classroom) space which would be.provided free of cost.) For these reasons, the facility would not employ instructors. we suggest planning for 3 full time employees consisting of a Range Master, an Office/Marketing Manager, and a general service maintenance employee. Inexpensive part-time emplo}gees would meet all other staffing requirements_ For these reasons, eve suggest that a rate lower than the recommended PDE rate be used. Staffing Expense Gross'Sales Rate. Cost j $2,738,778 10.00% $273,878 I-S Repairs and Maintenance: We suggest a rate lower than the rate in the PDE because the PDE itself states "...repair and maintenance expenses are generally less than 5% of gross sales." This analysis suggests a rate of 4% of Lane Rental income for repairs and maintenance expense. Repair and Maintenance Rental Rate Cost Expense Income $1,576,902 4.00% $63,076 Utilities We agree that utilities may be assumed to be $2 per square foot. The original configuration is approximately 50,000 square feet and that figure is used for this calculation. Utilities Expense Size Rate Cost 50,000 s . ft. $2 $100,000 TOTAL EXPENSES Total expenses Cost of Goods Sold (Ammunition) $701,232 j Cost of Goods Sold (Other Items) $252,304 I Cost of Goods Sold (Memberships) $11,200 Subtotal CoGS $964,737! Staffing Expense $273,878 i Repair and Maintenance Expense S63,076 Utilities Expense S100,000 Subtotal Other Expenses $436,9541 LTotal Expenses ' $1,401,690` I r, i Base Case Estimate Cash Flow Summary Total Sales Income (Gross). Facility Rentals $1.576,902 Memberships $112,000 Ammunition $734,496 Other $315,380 Total Operating Revenue $2,738,778 Total expenses Cost of Goods Sold (Ammunition) $701,232 Cost of Goods Sold (Other Items) $252,304 Cost of Goods Sold (Memberships) $11,200 Subtotal COGS $964,737 Staffing Expense $273,878 Repair and Maintenance Expense $63,076 Utilities Expense $100,000 Subtotal Other Expenses $436,954 Total Operating Expenses $1.401,690 Surplus (Deficit) From Operations $1,337,088 Less Capital Expenditures -$50,000 Net Operating Surplus Deficit $1,287,088 17 Suggest that the'PDE'be amended to include a 'best case that ismissing from the current PDE. Sensitivity Analysis . Base Exp. +10% Exp. -10%.. Rev+10% Rev-10% Operating Revenues $2,138,778 $2,738,778 $2,738,778 $3,012,656 $2,464,901 Operating Expenses $1,401,690 $1,541,860 $1,261,521 $1.401,690 $1,401,690 Operating Surplus. $1,337,088 $1,196,919 $1,477,257 $1,610,966 $1,063,2101 . Deficit Rev. +10% Rev. -10% Rev. +10% Rev. -10% EX . +10% Exp. -10% Exp. -10% EX .+10% Operating Revenues $2,738,778 $3,012,656 $2,464,901 $3,012,656 $2,464,901 Operating Expenses $1,401,690 $1,541,860 $1,261,521 $1,261,521 $1,541,860 Operating Surplus $1,337,088 $1,470,797 $1,203,379 $1,751,135 $923,041 Deficit BEST CASE l8 TABLE OF CONTENTS page Letter of Transmittal Table of Contents ... Terms& Conditions I.' Executive Summary 1 II. Introduction and Scope of Services 24 III. Demographic Overview 33 W. Market Analysis—Gun Range 41 V. Financial Analysis—Gun Range 93 VI. Market Analysis—Youth Sports Facility 109 VII. Financial Analysis—Youth Sports Facility 174 Appendix TERMS AND CONDITIONS 1. Information and Data. Deloitte & Touche LLP (D&T) is entitled to assume, without independent verification, the accuracy of all information and data that the'.City of Huntington Beach (City) provides to D&T. 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D&T shall not assume any responsibility for identifying structural conditions. D&T's services will be based upon surface rights only (as applicable), and no analysis will be made of the subsurface or of hazardous waste conditions, if any. 'D&T's services shall not take into consideration the possibility of the existence of asbestos, PCB transformers, or other toxic, hazardous or contaminated substances or underground storage tanks, or the cost of removal. D&T is not qualified to detect, and shall not be responsible for detectjng, such substances. 4. Reports. Any reports prepared by D&T are valid only when presented in their entirety and only for the purpose stated therein. 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The City shall indemnify and hold harmless D&T, its partners, principals and employees from and against any and all actions, losses, damages, claims, liabilities, costs and expenses (including, without limitation, reasonable legal fees and expenses) brought against, paid or incurred by any of them at any time in any way arising out of or relating to D&T's services, except to the extent finally judicially determined to have resulted from the intentional misconduct of D&T. 9. Limitation on Damages. D&T, its partners,principals and employees shall not be liable to the City for any losses, damages, claims, liabilities, costs or expenses in any way arising out of or relating to this engagement for an aggregate amount in excess of the fees paid by the City to D&T for its services. In no event shall D&T, its partners, principals or employees be liable for consequential, special, indirect, incidental, punitive or exemplary loss, damage, cost or expense (including, without limitation, lost profits and opportunity costs). The provisions of paragraph 8 and this paragraph 9 shall apply regardless of the form of action, whether in contract, statute, tort (including, without limitation, negligence),.or•otherwise, and shall survive the completion or termination of this engagement. 10. Subsequent Work. D&T, by reason of the services, is not required to furnish additional work or services, or to give testimony,or to be in attendance in court.with reference to the assets, properties, or business interests in question. D&T will Have no responsibility to update any report,'analysis or other document relating to its services for any events' or circumstances occurring subsequent to the date of such report,analysis or other document. 11. Cooperation. The, City shall cooperate with D&T in.connection with the performance by D&T of its services, including providing D&T with reasonable and timely access to the City's information, data and personnel. 12. Non-Exclusivity. Nothing in this report, including these Terms and Conditions, shall be construed as precluding or limiting in any way the right of D&T to provide consulting, auditing or other services.of any kind or nature whatsoever to any person-or entity as D&T in its sole discretion deems appropriate. 13. Force Maieure. D&T shall not be liable for any delays or failures resulting from circumstances or causes beyond its reasonable control, including, without limitation, fire or other casualty, act of God, strike or labor dispute, war or other violence, or any, law, order or requirement of any governmental agency or authority. 14. Independent Contractor. D&T is an independent contractor and D&T's compensation is not contingent in any way upon its conclusions or recommendations. Although it is not D&T's normal practice,D&T reserves the right to use subcontractors. 15. Complete Agreement. This Letter, including these Terms and Conditions, constitutes the entire agreement between the City and D&T with respect to the subject matter thereof and hereof, and supersedes all other oral or written representations, understandings and agreements between the City and D&T relating to the subject matter thereof and hereof. This Letter, including these Terms and Conditions, cannot be changed, except by written instrument signed by both the City and D&T. This Letter, including these Terms and Conditions, shall be binding on the City and D&T, and the City's and D&T's permitted successors and assigns; however, neither the City nor D&T may assign this Letter, including these Terms and Conditions, without the prior written consent of the other, except that the City and D&T may assign this Letter, including these Terms and Conditions, to any successor to all or substantially all of the business or assets of such party. 16. Inconsistencies. In the event of any conflict or inconsistency between the provisions set forth in this Letter and these Terms and Conditions, the provisions of these Terms and Conditions shall govern. I. EXECUTIVE SUMMARY Deloitte & Touche LLP ("D&T") is pleased to submit to the City of Huntington Beach (the "City") preliminary findings derived from a market analysis and financial analysis of two proposed capital projects (the "proposed projects"). The.first proposed project is an indoor gun range with a total of 66 lanes, of which 36 will be available for use by the civilian public, and 30 of which will be available for use by law enforcement agencies. The second proposed project is the construction of a youth sports complex comprising eight soccer fields overlapping eight softball.fields (collectively the-"sports,fields"), and four outdoor roller hockey facilities. The City retained D&T to assist in evaluating the potential of the development and operations of the proposed projects. Specifically, the City is interested in understanding the current market environment and the anticipated operating performance for each of the proposed projects. Proposed Gun Range The proposed gun range is anticipated to be available for use by law enforcement agencies and the general public. In order to accommodate the needs of both of these distinct user groups, the preliminary plans entail segregation of the facility into four separate"ranges" within the facility. These areas are identified as follows: • Public pistol range-writh 24 lanes each measuring 25 yards in length. _ • Public rifle range-with 12 lanes each measuring 100 meters in length. • Law enforcement agency range - with 6 rifle lanes each measuring 100 meters in length_ • Law enforcement agency pistol range - with 24 Ianes each measuring 25 yards in length. Proposed Youth Sports Complex The proposed Youth Sports Complex is anticipated to entail sports fields for softball and soccer, and roller hockey facilities. The preliminary site plans entail development of four roller hockey rinks, and a total of sixteen sports fields, which are designed to overlap. The dimensions of these developments are identified as follows: • Eight lighted softball fields measuring 300"in length • Eight lighted'soccer fields measuring 210' x 330' • Four roller hockey rinks measuring 85'x 185' In addition, the proposed development at Central Park will include concession facilities and a vehicle parking lot. The analyses presented in this report are divided into five major sections, as identified below. Deloitte& Touchc UP:Final Draft Page 1 • Demographic Overview • Market Analysis-Proposed Gun Range • Financial Analysis-Proposed Gun Range • Market Analysis-Proposed Youth Sports Complex • Financial Analysis-Proposed Youth Sports Complex Demographic Overview In order to develop an understanding of the City's unique market environment for the proposed developnients, an analysis of the primary geographic area demographics and economic characteristics has been completed. The following characteristics were evaluated: • Local and regional economies • Market demographic characteristics D&T assessed the potential market demand for the proposed facilities which included an analysis of the factors listed above, as well as other factors. The results of this analysis are summarized below. • The City currently has a population of approximately 196,000. The City is located in Orange County, California (the "County"), which has a population of approximately 2.7. million. "The Los Angeles-Riverside-Orange County CMSA has a population of approximately 15.8 million. • The population of the Orange County MSA is projected to grow by an annual' compounded growth rate of approximately 1.34 percent from 1997 to 2002. • Orange County's 1996 average household EBI was $51,135; 21 percent higher than the U.S. average household FBI. • According to Woods&Poole Economics,Inc.,the unemployment rate for the civilian labor force in Orange County was 6.8 percent in 1993, 5.7 percent in 1994, and 5.1 percent in 1995. In comparison, the unemployment rate for the civilian labor force in California was 9.4 percent in 1993, 8.6 percent in 1994, and 7.8 percent in 1995. Market Analysis—Proposed Gun Range Market demand for the proposed gun range will be determined by a number of factors. The proposed facility is anticipated to be available for use by law enforcement agencies and the general public. It is interesting to note that statistics provided by the State of California Department of Justice indicate registered handgun dealers record of sales decreased by 48% from 1992 to 1996 in Orange County, and decreased by 44% from 1992 to 1996 in all of California. Los Angeles County was reported to experience the largest decrease in registered handgun sales in Southern California-from 1992 to 1996, declining approximately 59%overall. Deloitte& Touche LLP:Final Draft Page 2 Based upon our research, it appears that there may not be sufficient demand to fully utilize a 24 lane civilian pistol range a 12 lane civilian rifle range. As discussed later in this report, it appears that for civilian use market demand would support 12 pistol lanes and six rifle lanes. Therefore, our analysis assumes that 12 pistol ranges and six rifle ranges will be available at the proposed facility. Competitive Facilities There are existing gun ranges in the area that serve both the general civilian public and law enforcement agencies. Presented below is a list of the facilities identified in the competitive area. • Firing-Line Indoor Shooting Range in Huntington Beach • Evans Gun Smittiing in Orange (formerly Shooter's World) • Insight indoor Shooting Range in Artesia • Ms Indoor Pistol Range in Long Beach • Brea Range in Brea(formerly the Firing Line Indoor Shooting Range) • On-Target Gun Smith in Laguna Niguel These facilities are all indoor ranges, and tend to concentrate on serving the general public. It should be noted that the proposed facility is expected to be state-of-the-art, due in part to the City's objective of attracting law enforcement agencies from other cities to use the proposed facility. Therefore, the overall quality of the proposed facility is expected to meet or exceed the quality of the competitive facilities. Other law enforcement agencies in the'market area operate gun ranges for use by their respective departments. Some of these facilities are also available for use by other law enforcement entities. Presented below is a selected list of law enforcement organizations that operate facilities in the area. Deloille& Touche LLP:Final Drufi' Page 3 Selected Gun Ranges Operated by Law Enforcement Entities Type of Open to Pistol Rifle Law Enforcement Agency Range Public lanes' Lanes(1) Costa Mesa Police Department Indoor No Yes No Fountain Valley Police Department Indoor No Yes No Long Beach Pplice Department Outdoor No Yes No Newport Beach Police Department Indoor No Yes No Orange County Sheriffs Department(2) Outdoor Yes Yes No Santa Ana Police Department Indoor No Yes No U.S.Naval Weapons Station in Seal Beach Outdoor No Yes No Notes: (1) Rifle lanes indicates whether or not the facility has shooting lanes capable of supporting long rie firearms. (2) The Orange County Sheriffs Department re-opened a range in late February 1998. Source:Deloine&Trneche LLP Of the facilities mentioned above, some are open for use by other law enforcement entities, and others are only used by that city police department. For example, the Costa Mesa Police Department and.the Newport Beach Police Department each operate ranges for use solely by officers of their respective police departments. Neither of these facilities are available for use by civilians or other law enforcement agencies. On the contrary, the Fountain Valley Police Department currently operates a range for the Fountain Valley Police Department, and other law enforcement agencies. This range is used by officers of various Iocal police departments, including the cities of Huntington Beach, Westminster,and Garden Grove. However,this facility is not available for use by civilians. The Long Beach Police.Department operates two ranges for its own officers, and for officers of other local law enforcement entities. This range is used by various agencies, including the Federal Bureau of Investigation, the California Highway Patrol, Signal Hill Police Department, Downey Police Department, and the South Gate Police Department. This facility is not open for use by civilians. Finally, the Orange County Sheriffs Department in the City of Orange has very recently opened two ranges,'one for use by law enforcement agencies, and one for use by civilians. Law Enforcement Agency Contracts As outlined above, the law enforcement agencies that utilize ranges operated by other law enforcement agencies typically enter into contractual agreements for use of an agency's range. As presented in the Market Analysis for the gun range, it appears standard for agencies to rent blocks of time at a range for weapons qualifications sessions. These agreements often entail the rental of part or all of the range, typically on a monthly, Deloitte& Touche LLP: Final Draft Page 4 bimonthly, or quarterly basis. These- agreements also typically involve a payment structure based upon a fee per officer per year, or, more commonly, a fee per hour for use of the range, regardless of the number of officers that use the range during the designated time period (the "reserved time"). For example, one of the comparable facilities owned by the public sector has multiple contracts with various local law enforcement entities for use of its two ranges. The fee structure for use of these ranges is as follows: a determined fee per officer per year for use of one range, or a determined fee per day for the use of the entire second range by the law enforcement agency. Many law enforcement agencies indicated the payment of a flat hourly fee for a block of time at ranges operated by law enforcement entities: The City of Huntington Beach Police Department currently has.a contract with the City of Fountain Valley Police Department which stipulates the use of the facility by the City's officers for a determined fee per person per visit. It appears common for these agreements to be entered into on an annual basis, rather than on a short term, as needed basis. It appears that most agencies that rent blocks of time at ranges attempt to schedule the majority of their officers' qualifications sessions during these reserved time periods. However, many indicated that their contracts stipulated a flat hourly fee per }person for smaller groups or individuals unable to utilize the range during the reserved time. It should be noted that it is common for law enforcement agencies to rent blocks of time at privately owned facilities under a contractual agreement. The common agreement between agencies and ranges is the rental of a group of lanes, typically dedicated for law enforcement agency use, by the agency with payment on an hourly basis for use of the entire group of lanes. Many of the competitive indoor, privately owned gun ranges have contractual agreements %4ith law enforcement agencies. In addition to the rental of time at a range by a law enforcement agency, the agreement will stipulate the terms of ammunition supplies; that is, which party is to deliver ammunition to be used at the range during the reserved time. The consensus derived from surveys of range operators, is that this is a widely negotiated subject, case sensitive to each individual agreement. The consensus from both private-range operators and law enforcement agency range operators is that approximately 50%of agencies under contract will bring their own ammunition, and 50%will purchase ammunition at the range. It was noted that some agencies will bring their own standard caliber ammunition for general training events, but may purchase exotic ammunition at the range for infrequent training events requiring non-standard caliber ammunition. It is recommended that, to the extent possible, contracts for the use of the proposed facility by other law enforcement agencies be signed before construction begins, as a confirmation of demand for the proposed facility. Deloitre d Touche LLP: Fina!Draft Page 5 Proposed Range in Fountain Valley It is important to note the following major development issue key assumption which applies throughout this market analysis, and the accompanying financial analysis for the .gun range. We have discovered through primary research that the City of Fountain Valley is proposing to construct a regional firing range serving its police.department'and other interested law enforcement agencies. The preliminary design and operating plans entail approximately 40 lanes for handgun shooting, and approximately 14 lanes for long rifle shooting. The design plans also include state-of-the-art target and training equipment, and a wide array of tactics] training capabilities dermanded by law enforcement agencies. If built, this range is anticipated to serve the firearms training and shooting needs of the Fountain Valley Police Department, and potentially the firing range needs of several other interested law enforcement agencies in the area. The current development and operating plans for this range limit its use strictly to law enforcement entities, and exclude public shooting. Should the proposed facility in Fountain Valley be constructed, demand for use of the proposed facility in Huntington Beach by law enforcement agencies may be reduced significantly. For purposes of preparing this analysis, we have been instructed to assume that the proposed regional firing range in Fountain Valley will not be built. It is important to clarify that the assumptions and conclusions included in all of this report apply specifically to the proposed gun range in Huntington Beach only. No attempt has been made to identify the potential market demand. for the proposed gun range in Fountain Valley, and the assumptions generated through this analysis should not be applied to any financial analysis for the proposed gun range in Fountain Valley. Comparable Facilities The operating characteristics of comparable facilities throughout Southern California and parts of Northern California have been evaluated. Operating characteristics generally include the utilization of a facility. Utilization refers to the "occupancy" or use of the facility for "a given period of time; perhaps referred to as a percentage of capacity. For example, a 60% utilization rate would characterize a facility with lanes that are being used by visitors 60%of the time that the lanes are available for use. Presented below are highlights of the research conducted to assess the operating performance of these comparable facilities. The comparable facilities feature fewer lanes than what is anticipated at the proposed facility, based upon review of the preliminary site plans. These facilities generally have between 12 and 40 lanes,with the length of lanes often measuring less than-what is proposed for the range in the City. • The estimated average utilization at these facilities varied, ranging from approximately 30%to approximately 60%on an annual basis. Deloilte c& Touche LLP:Final Draft page 6 • All of the facility operators surveyed indicated a drop in demand from the civilian public shooters over the last five years. The consensus estimate of the overall level of decline in use of ranges by the public is estimated to be between 40%to 50%. • Many operators of gun ranges indicated a fairly constant'demmand for facilities.from law enforcement agencies. In particular, there appears to be demand for long rifle lanes, measuring close to 100 yards in length. There are reportedly no ranges with long rifle capabilities in Orange County. This is evidenced by the fact that many local police department SWAT divisions use facilities outside of the County, such as the San Gabriel Valley Gun Club in Duarte. The proposed facility is anticipated to be utilized by law enforcement agencies and civilian/public shooters. The following groups are potential major users for the facility: • Huntington Beach Police Department • Local law enforcement agencies + Local private security companies • Members of gun clubs • Students of firearms education and training courses • Recreational shooters Several of these user groups .were interviewed and' expressed interest -in using the proposed facility. The majority of law enforcement agencies contacted indicated some potential interest in using the facility for officer weapons qualifications sessions. The gun range in the City, operated by the Huntington Beach Police Officers Association until 1995, was reported to service the firearms training needs of over 70 law enforcement entities. It is anticipated that a portion of these entities would have interest in using the proposed facility,particularly the long rifle Ianes. Operating Profile The estimated operating profile of the proposed gun range was determined based upon assumptions generated through the analysis of the market demand and the operations of comparable facilities. It is recommended that, to the extent possible, design plans for the proposed facility provide the necessary flexibility to adjust operations between law enforcement agency use and civilian use, depending on the levels -of demand demonstrated by the market. In the table below, the Total Available Hours is estimated based upon the anticipated daily hours of operation, the anticipated days of operation, and the number of lanes. The Occupied Hours is an estimate of the number of hours on an annual basis for which all of the lanes will be occupied. This estimate is a result of multiplying the estimated Defoitre& Touche LLP:Firm!Draft Page 7 Utilization Rate by the estimated Total.Available Hours. Presented below is a summary of the estimated annual occupied hours at the proposed gun range. Estimated Facility Utilization Est.Total Total Est. No.of Annual Avail. Est.Daily Occupied Lanes Hours Utiliz. Hours CivifAn pistol range 12 42,120 46% 19,4I2 Civilian rifle range 6 . 21,060 46% 9,706 L.E.A.pistol range 24 61,680 70% 43,176 L.E.A.rifle range 6 15,420 70% 10,794 Total 48 140,280 59% 83,089 Source:Deloitte& Touche LLP In the course of our analysis, consideration was given to 24-hour operation of the proposed facility. The City expressed an interest in exploring the possibility of operating the proposed facility on a continuous basis for law enforcement agency use, with a goal of improving utilization for this segment of the market. As part of this potential operating plan, the proposed facility would, as a policy, not allow law enforcement Agencies to book blocks of time as standing reservations, but would instead.require agencies to call ahead for a specific number of lanes. Our research demonstrated that these potential law enforcement users expressed a strong desire to continue current industry practice of maintaining regular blocks of reserved time at gun ranges for a number of reasons, including preserving confidentiality of training methods, types of weapons used in training and certain officers' identities, as well as being able to maintain lane configurations. Furthermore, our research indicated that there did not seem to be levels of demand from law enforcement agencies or the general public to justify incurring the potential significant increases in operating costs associated with 24-hour operation, even should law enforcement agencies accept a wholesale change of prevailing industry practice. After discussions with the City on this subject, it was agreed that standard industry operating practice should be used in the analysis. Financial Analysis—Proposed Gun Range D&T prepared a cash flow model to estimate the operating potential of the proposed gun range based -upon the anticipated potential demand determined through the market analysis. In order to prepare this financial analysis,operating and financial characteristics of competitive,and comparable facilities had been obtained from facility operators,major users,and other related parties. A financial model was developed to evaluate the operating and financial performance of the proposed gun range. Presented below is an estimated summary of operations for the Deloilte& Touche LLP:Final Draft Page 8 first five years. It is important to note that the results of our analysis are presented before debt service costs. Because final construction casts, design plans and financing for the proposed facility are not in place at this time, estimates of debt service costs were not included. Summary of Operations Gun Range Year 1 Year 2 Year 3 • Year 4 Year 5 Operating Revenues S1,161,763 S1,241,471 SI,324,916 S1,364,663 $1,405,603 Operating Expenses $1,079,683 S1,147,354 $1,2I8,159 S1,253,203 $1,299,300 Surplus(Deficit)From Operations S82,080 $94,117 S106,757 S111,460 S116,304 Source:Deloitte& Touche LLP 00rating,Revenues Significant assumptions for the operating revenues of the proposed facility have been derived in order to estimate operating cash flow. Revenue will-be generated by the gun range through various sources, including law enforcement agency lane rental fees, civilian public lane rental fees, ammunition-and equipment sales, and education and training courses. Revenue assumptions for each of these sources of revenue were . developed based upon review of operating and financial characteristics of comparable and competitive existing facilities, and conversations with facility operators, major users, and other related parties. This section identifies some of the more common types of revenue generated from shooters at gun ranges, and provides brief insight as to the characteristics of these revenue items. Further details of these items are presented throughout the report. Presented below is a summary of anticipated operating revenues for the first year of operations. Deloitre& Touche LLP:Final Draft Page 9 Estimated Facility Operating Revenue Estimated as a Estimated Competitive Year 1 Dollar Amount as a%of Comparable Operations Per Unit Gross Sales Ranges Facility Rental Revenue Civilian pistol range(1) $99,391 S8.00 NA $7.50-S 10.00 Civilian rifle range(1) 55,908 $9.00 NA na L.E.A.pistol range(1) 215,880 $5.00 NA $3.15-S8.00 L.E.A.rifle range(1) 75,558 $7.00 NA $6.00,S8.00 Subtotal $446,737 NA NIA na Other Revenue Sources Membership Sales $62,500 $125 . NA $99-S279 Ammunition Sales(2) 351,555 $9.00510.00 NA $8.75-S13.99 Gun Rentals 10,530 S3.00 NA S2.50-S3.00 Equipment Sales(3) 232,353 NA 20% 280/o-50% Education and Training Courses 58,088 NA 5% 5% Subtotal $715,026 NA NA NA Total Operating Revenues $1,161,763 NA NA NIA Note: (1) Represents hourly rates per lane. ..(2) Lower rate reflects reloaded ammunition, the higher rate reflecu factary ammunition. (3)Equipment Sales as a percentage of gross sales is reported to be generally higher for privately owned facilities due to a generally stronger emphasis on retail equipment and product sales from privately owned indoor facilities. Source:Deloitte& Touche LLP Operating Expenses Expenses are anticipated to be incurred at the gun range for various items, including cost of goods sold, staffing expenses, repairs and maintenance, utilities, and other expenses. Expense assumptions for each of these items were developed based upon review of operating and financial characteristics of existing facilities, and conversations with facility operators, major users, and other related parties. Presented below is a summary of the anticipated operating expenses for the first year of operations. Deloitte& 7'ouche LLP:Final Draft ^Page 10 Estimated Facility Operating Expenses Year I Cost of Goods Sold $494,978 Facility Operating Expenses ~ Staffing expense $290,441 Repairs and maintenance 58,088 utilities 70;000 Other 116,176 Capital Replacement 50,000 Subtotal $584,705 Total Operating Expenses $1,079,683 Source:Deloitte& Touche LLP Operating Fxpense Ratio Analysis (Margin Analysis) According to gun range operators, and an evaluation of financial information provided to D&T-for comparable facilities, the cost of goods sold represents a significant operating expense.. According to gun.range operators, the cost of goods sold will vary across different types of sales items. For the purposes of this analysis, in order to reflect this variation, the cost of goods sold expense is estimated separately for ammunition sales, and then for all other applicable sources of revenue Ammunition Sales - Cost of Goods Sold A common consensus was that for reloaded ammunition, the average mark-up in price is often between 30% and 50%. For factory manufactured ammunition, the average mark- up in price'is reportedly often close to 30%or lower. This translates into a cost of goods sold expense ranging from approximately 67% to approximately 77% for reloaded ammunition. In addition, this translates into a cost of goods sold expense of approximately 77%for factory ammunition. It is important to note the typical margins on ammunition sales because this is a potential source of revenue generated at a gun range. Conversations with range operators indicated a potential for higher profit margins from ammunition sales if ammunition is purchased in large bulls quantities from vendors, rather than purchased in smaller quantities,on an as needed basis. Other Items- Cost of Goods Sold The profit margins on equipment were noted to vary depending upon the popularity of the product. For instance, it was noted that exotic, rare expensive handguns sell with higher profit margins than standard caliber pistols. The cost of goods sold expenses for various Deloitte& Touche LLP:Final Draft Page 11 types of revenue sources at a comparable�property have been analyzed. The cost of goods sold for equipment, accessories, firearms, and other sales items typically ranged from approximately 60%to over 85%. An exception is the cost of goods sold ratio for sales of targets, which appears to be approximately 35%. However, it is .important to note that targets are typically priced from $0:25 to $1.00 each at existing facilities, and the average shooter generally purchases one target per hour. As a result; the revenue generated from the sale of targets is generally not significant. Some interviews indicated that educational courses could potentially offer good margins, as the only additional cost of these courses is the salary expense for the instructor(s). As an example, a firing range in Northern California reported to offer approximately 50 classes per year with an average of ten persons per class, and one instructor per class. It was commented that participants in education courses pay a fee for the class, and often purchase ammunition at the facility if the course involves actual firing time. Classes at various facilities tend to range from $40 to $65 per person, and instructors are often full time employees of the facility, or perhaps are sub-contractors of the facility paid on an hourly basis. However, although these courses may exhibit good profit margins, it was commented by several operators that the number of courses and resulting revenue does not generally account for more than 5% of the total facility's gross revenue. In addition, it was commented by several range operators that the interest in educational courses has declined in concert with the general decline in demand for gun ranges in California. Some range operators had commented that it was likely the proposed facility would concentrate more efforts on operating the range rather than operating a professional firearms dealership. As a result, these individuals commented that it is likely that the facility would tend to sell lower margin firearms and equipment, such as standard caliber firearms,rather than unique,exotic weapons with higher profit margins. Market Analysis—Proposed Youth Sports Complex The proposed facility is anticipated to entail sports fields for softball and soccer, and rinks for roller hockey. The preliminary site plans entail development of four roller hockey rinks, and a total of sixteen sports fields, which are designed to overlap. In addition,the proposed development at Central-Park will include two concession facilities, a tot lot and a vehicle parking lot. Based upon our research, it appears that there may not be sufficient demand to fully utilize four roller hockey rinks in one location. • As discussed later in this report, it appears that market demand would support two to three rinks. Therefore, our analysis assumes that three roller hockey rinks will be available at the proposed facility. Deloitte d Touche LLP: Final Draft Page 12 Cojupetitive Facilities There are existing facilities in the market area that have softball and/or soccer fields, and there are existing roller hockey facilities in the area. Presented below is a list of selected facilities identified in the competitive area. Selected Competitive Facilities with Soccer and Softball Fields Open Softball Soccer Area No.of No.of Park or School Location Acres Fields Fields 1) Murdy Community Center Huntington Beach 15 2 - 2) Worthy Community Park Huntington Beach 12 2 - 3) Edison Community Center Huntington Beach 40 2 2 4) Greer Park Huntington Beach 16 1 - 5) Golden West College Huntington Beach na 2 - 6) Huntington Beach H.S. Huntington Beach 20 1 2 7) Marina High School Huntington Beach 28 3 3 8) Edison High School Huntington Beach 24 3 3 9) Fountain Valley High School Huntington Beach na 2 3 10) U.C. Irvine(1) Irvine na - 9 11) TO Craig Regional Park Fullerton 124 4 - 12) Yorba Regional Park Anaheim 175 2 - 13) Mile Square Regional Park(2) Fountain Valley 130 3 3 14) Ralph B.Clark Regional Park Buena Park 105 3 - Note: (1)Soccer field configuration at U.C.Irvine can range from 4 to 9 fields. (2) Total park area is one square mile, but 130 acres is public park area with sports fields. Source:Deloitte& Touche LLP The parks in the area are generally available for use by youth and adult sports organizations. However, some.schools give priority to youth sports organizations over adult sports organizations when determining field allocation schedules. Organized roller hockey is played in indoor or outdoor roller }jockey rinks. There are generally three characteristics of roller hockey rinks that differentiate facilities: 1) whether it is an indoor or an outdoor facility, 2) whether the facility is used for roller hockey only, or whether it offers recreational skating sessions as well, and 3) whether the facility is privately owned and operated for profit, or owned by the public sector and operated not for-profit. Indoor facilities are often built with wood or plastic surface floors, and plastic and glass protective boards surrounding the rink.. Outdoor facilities are often built -Mth cement or asphalt floors, and typically include protective wood boards. Many roller hockey facilities are devoted solely to roller hockey, while some have a mix of roller hockey and public recreational skating sessions. In some instances, roller rinks Deloitte& Touche LLP:Final Draft Page 13 are dedicated solely to public recreational skating,- and do not offer roller. hockey. Privately owned facilities are owned by an individual, a company, or another non-public, legal entity. Facilities owned by the public or non-profit agencies are owned by either a city, a county, or another local governmental entity. In many cases, the facilities owned by the public sector are .outdoor rinks, primarily due to the costs and maintenance associated with indoor facilities. The table below depicts selected competitive facilities owned by the private sector. Selected Competitive Privately Owned Roller Hockey]Facilities Roller Recreation Rink City Hockey Skating 1) Holiday Skating Center Orange No Yes 2) Skate Depot Cerritos No Yes 3) Skate-0-Rama Roller Rink Downey No Yes 4) Whittier Skateland Whittier Yes Yes 5) Lakewood Glacial Garden Skating Lakewood Yes Yes 6) Torrance Skate Association Torrance Yes Yes 7) Inline Sports Center Corona Yes Yes S) Skate Junction West Covina No Yes 9)StuaVsRoilemorld Fullerton Yes Yes 10) Surf City Skate Zone Seal Beach Yes Yes 11) Wayne Gretzky's Inline Roller Center Irvine Yes Yes Source:GTE Superpages,Deloitte&Touche LLP There are numerous roller hockey facilities operated by the public sector within the Southern California area. Many of these facilities are operated by non-profit agencies, such as the YMCA, or are operated by the city itself, such as the Long Beach Municipal Roller Hockey Center, or are operated by private third parties as concessionaires. The table below illustrates a selected list of competitive outdoor roller hockey facilities operated by the public sector. Deloiue 8c Touche LLP:Final Draft Page 14 Selected Competitive Roller Hockey Facilities Owned by the Public Sector Roller Recreation Rink Operator Locatiori Hockey Skating 1) Anaheim YMCA/Disney Goals Anaheim Yes No 2) Lakewood YMCA Lakewood Yes No 3) City of Long Beach Long Beach Yes No 4) Saddleback Valley U.H.S.D: * Rancho Santa Margherita Yes- NA 5) Cities of Cypress and La Palma* Cypress Yes NA Note: *indicates roller rinks not yet constructed but planned. Source:Deloitte& Touche LLP The competitive roller hockey rinks owned by the private sector as listed above are a mix of indoor and outdoor facilities. The competitive roller hockey rinks open to the public sector listed above are all outdoor facilities. Many of these competitive facilities offer . roller hockey programs for both youths and adults. The operating characteristics of existing facilities throughout Southem California have been evaluated.' Presented below are summary highlights of the research- conducted regarding operating profiles of competitive facilities. • The existing facilities with sports fields generally feature fewer fields than what is anticipated at the proposed facility, based upon review of the preliminary site plans. None of the existing roller hockey facilities feature four rinks in one location. • All of the cities contacted indicated heavy use of their sports fields by organized sports groups, and by "walk-on" users. In fact, all of the city representatives interviewed indicated the desire for some form of field supervisory position to ensure proper regulation of field use. Many cities require advance registration for field use so an allocation schedule can be determined. According to conversations with persons familiar with this situation in Orange County,the ideal situation would be the establishment of permanent or part time employees at a park to monitor the use of its sports fields. In Huntington Beach, there are reportedly no full time onsite supervisors at any of the fields dedicated solely to the supervision of the sports fields. For example, at each of Edison and Murdy Community Centers there is .1 full time director, 1 full time maintenance staff, and approximately 8 part time staff working 5 to 20 hours per week, usually students. However, these staff members are primarily responsible for overseeing the activities of the community centers. The City of Costa Mesa has instituted a Park Ranger Program to help supervise -its athletic fields. The program consists of two full time employees that rotate across the Deloirte 8 Touche LLP:Final Draft Page 15 city parks and schools maintained by the city, as well as sites with reserved picnic areas. The purpose of this program is to supervise use of sports fields, to ensure the appropriate registered team is using the appropriate field at the correct time, and to monitor the activities of"walk-on" players. The City of Irvine has five major parks in the city that have on-site staff. For these five parks, one employee per park is scheduled to work from 4.3Opm to 10:OOpm in order to supervise the use of fields. • Many of the roller hockey operators surveyed indicated a constant demand for facilities. However, it was often noted that the number of facilities in the last five years has greatly increased. Many of the existing facilities in the competitive area were reported to have been built since 1990. Potential Users It is important to note that the preliminary development plans entail an overlapping of a total of eight soccer and eight softball fields. The current site plan arranges four soccer and four softball fields in the central west portion of the project along Golden West Street (the "front fields"), and an additional four soccer and four softball fields in the northeast portion of the project along Talbert and Gothard Streets (the "back fields"). Because the soccer and softball fields are designed to overlap each other,the availability of the soccer fields will be limited by the allocated use of time for softball garnes, and vice versa. Unless the plan can be changed to accommodate separate use, it is currently anticipated that the front fields will be used for the City Adult Softball Program (the "City Program" or the "City.Adult Softball Program") throughout the year, with the exception of six weekends, for which the fields will become available for use by youth soccer events. In an attempt to maximize the use of the front fields for these six weekends, it is anticipated that the fields will be used for youth soccer tournaments, and not regular season games. In addition, it is anticipated that these front fields will be utilized by other adult softball programs when not utilized by the City Adult Softball Program or youth soccer tournaments. In contrast, the preliminary allocation of the back fields involves an undetermined mix of both soccer and softball events, including practice sessions and regular season games for both sports. Therefore, for the purposes of this analysis, the major users of soccer and softball fields identified in this report are those organizations that meet the current anticipated field allocation plans of the proposed facility. In other words, for soccer organizations, emphasis has- been placed on identifying those organizations potentially having interest in hosting youth soccer tournaments on part or all of the eight fields, and those organizations potentially interested in utilizing the back four fields for games and practice sessions. For softball organizations, emphasis has been placed on identifying those organizations potentially having interest in using the front fields on a limited basis, restricted by the City Program and youth soccer tournaments, Deloirte& Touclre LLP:Final Draft Page 16 r, and those organizations potentially having interest in using the back four. fields for regular seasoa games and practice sessions. As for the proposed roller hockey rinks, it is anticipated that both adult and youth programs will be organized at Central Park,if built. The major user groups identified in this analysis based upon these assumptions and conditions have been classified into four categories, as presented below. • Adult softball organizations • Youth softball organizations • Youth soccer organizations • Youth and adult roller hockey leagues Each category. of sports organization is detailed separately because of the different anticipated utilization characteristics of each of these major users. The proposed sports fields are anticipated to be utilized by youth and adult softball organizations, and youth soccer organizations. The proposed roller hockey rinks are anticipated to be utilized by both youth and adult players. The following groups have been identified as potential major users for the proposed facilities: Adult Softball • City of Huntington Beach Adult Softball Program(the "City Program") • United States Specialty Sports Association("USSSA") • Players Softball Tournament Series("PSTS") Youth Softball • South Huntington Beach Junior Miss Softball • Huntington Beach Girls Softball • High School Softball Leagues (from local schools such as Edison High School, Ocean View High School, and Liberty Christian School) Youth Soccer • North Huntington Beach Soccer Club • South Coast Soccer Club • Wolf Pack Soccer Club • AYSO Region 5 • AYSO Region 55 • AYSO Region 56 • AYSO Region 143 Deloitte& Touche LLP:Final Draft Page 17 • i Youth and Adult Roller Hockey Unlike other sports that simply utilize sports fields at a particular venue, a roller hockey program is typically organized and managed by a concessionaire or the venue where the events are to be held. Therefore, the potential major users of proposed roller hockey rinks are the youth and adult players that register with the facility's "in-house" roller hockey program. Several of these user groups were interviewed and expressed interest in using the proposed sports complex. The majority of sports organizations contacted indicated interest in using the fields for regular season games, play-off games, and perhaps practice sessions. Annual Tournaments Particular interest in the use of fields at the proposed complex was indicated by those sports organizations that host annual tournaments in the City which require multiple fields for an entire weekend or two. Presented below are selected organizations that host annual tournaments at facilities in the City. Selected Sports Organizations that Host Annual Tournaments in Huntington Beach Organization Sport AYSO Region 5 Youth Soccer AYSO Region 55 Youth Soccer AYSO Region 56 Youth Soccer AYSO Region I43 Youth Soccer Wolf Pack Soccer Club Youth Soccer North Huntington Beach Soccer Club Youth Soccer South Coast Soccer Club Youth Soccer City Adult Softball Program Adult Softball Source:Delolite& Touche LLP Based upon interviews with these organizations, it is anticipated that the eight soccer and eight softball fields Mill potentially be utilized by some of these organizations for annual tournament events. Deloitte& Touche LLP:Ffnat Draft Page 18 Operating Profile The estimated operating profile of the proposed Youth Sports Complex was determined based upon assumptions generated through the market-analysis. Presented below is a summary of the expected operating profile of the-complex. _ -- Estimated Facility Utilization Year 1 Softball City Program Regular season games 2,100 City Program Play-off games 408 City Program Tournaments 319 Adult Tournaments(Saturdays) 1,775 Youth Softball 3,732 Subtotal 8,335 Soccer Youth Soccer-all seasonal events 3;732 Youth Soccer Tournaments -288 Subtotal 4,020 Roller Hockey 3,440 Total for All Sports 15,794 ]Vote:Each event depicted in this table is represents one hour. Numbers may not sum due to rounding. Source:Deloitte& Touche LLP For analytical purposes, each event depicted above is assumed to represent one hour of field use. For example, 'each regular season or playoff game, practice session, or tournament game is assumed to endure one hour. Financial Analysis—Proposed Youth Sports Complex D&T prepared a cash flow model to estimate the operating potential of the proposed facilities based upon the anticipated operating profiles determined through the market analysis. In order to prepare this financial analysis, operating and financial characteristics of competitive,and comparable facilities had been obtained from facility operators,major users, and other related parties. It is important to note that the results of our analysis are presented before debt service costs. Because the final construction costs, design plans Deloitte& Touche LLP: Final Draft Page 19 and financing for the proposed facility are not in place at this.time, estimates of debt service costs were not included. The information obtained from the facilities contacted during this analysis was used to develop operating assumptions for the proposed facilities: . A summary of the results of these analyses is shown below. _ Summary of Operations Youth Sports Complex Year 1 Year 2 Year 3 Year 4 Year 5 Operating Revenues Primary Operations(1) S344,613 S354,951 S365,599 S376,567. S387,864 Ancillary Operations(2) 367,754 386,163 397,748 409,680 421,970 Total Complex operating Revenues $712,366 $741,114 $763,347 S786,247 S809,835 Operating Expenses $696,339 S717,229 $764,972 $760,909 $793,736 Surplus(Deficit)From Total Operations $16,027 $23,884 ($1,625) $25,339 $26,099 Excluding Parking and Concession Income ($351,727) ($362,278) (S399,372) (S384,34I) (S395,871) Excluding Parking Income ($163,010) (S160,524) (S191,565) (S170,300) ($175,409) Excluding Concession Income ($172,689) (S177,870) (S209,431) ($188,702) (S194,363) Capital Replacement Costs S50,000 S50,000 S50,000 $50,000 $50,000 Surplus(Deficit)From Total Operations (S33,973) ($26,116) (S51,625) ($24,661) (S23,901) Note: (1) Primary Operations include revenues from soccer, softball, and roller hockey event-related fees, excluding parking and concession revenues. (2) Ancillary Operaiions include revenues from parking acid concessions income. These are net dollar amounts. Source:Deloitte& Touche LLP This table illustrates the significance of the concession facility at the proposed complex. Extensive research was conducted on comparable facility operations and potential user profiles to develop these cash flow projections. Significant estimates were made regarding operating profiles of existing facilities. f Deloitte& Touche LLP:Final Draft Page 20 Operating Revenues Revenue is anticipated to be generated at the proposed Youth Sports Complex through various sources, including sports field rental fees, in-house roller hockey league membership fees, roller rink rental fees, and pick-up hockey games. Additionally, the concession facility and.parking lot-will generate revenue to the facility based.upon the attendance at events. Revenue assumptions for each of these sources of revenue were developed based upon review of existing facilities operating and financial characteristics, and conversations with facility operators,major users, and other related parties. Preliminary plans for the proposed fields include the potential allocation of the four "front" fields for use by the City's Adult Softball Program during weekday evenings and throughout most of the day on Sundays. This assumption has been incorporated throughout this report. It is important to note that this allocation of fields to the City Program represents no incremental revenue to the City from membership fees, although concession and parking revenues generated by participants in the City Program at the proposed facility are included. The City Program will still operate at mine fields within the City, only four of those fields will be at Central Park, rather than at existing parks. To the extent that those four existing fields in the City could be rented to other softball organizations that do not currently rent fields within the City, indirect incremental revenue may be generated. It is noted that this analysis does not account for any revenues or expenses directly related to the .City Adult Softball Program, as these would not represent'incremental revenues or expenses to the City. However, the maintenance and repairs expense, lighting expense, and staffing expense required at Central Park are taken into consideration in this analysis. Presented below is a summary of anticipated operating revenues for the first year of operations. Deloirre R Tauche LLP: Final Draft _ Page 21 Estimated Facility Operating Revenues Year 1 Softball Field Rental Fees $42,450 Soccer Field Rental Fees 25,188 Subtotal $67,638 Roller Hockey League Membership Fees $189,000 Rink Rental Fees 39,375 Pick-up Hockey Games 48,600 Subtotal $276,975 Other Revenue Sources Concessions(net) $188,716 Parking(net) 179,037 Subtotal $367,754 Total Operating Revenues $712,366 Source:Deloitte& Touche LLP Operating Expenses Expenses are anticipated to be incurred at the Youth Sports Complex for various items, including maintenance and repairs, field lighting, staffing, utilities, and capital replacement. Expense assumptions for each of these items were developed based upon review of existing facilities operating and financial characteristics, and conversations with facility operators, major users, and other related parties. Presented below is a summary of the anticipated operating expenses for the first year of operations. Deloitte& Touche LLP:Final Draft Page 22 Estimated Facility Operating Expenses Year 1 Softball and Soccer Fields Total maintenance&repairs. $353,400 Field lighting 45,879 Field water 25,000 Staffing 30,000 • Subtotal S454,279 Roller Hockey Total maintenance&repairs $28,500 Utilities 17,200 Staffing Management 100,000 Event-related 96,360 Subtotal 196,360 Total $242,060 Capital replacement $50,000 Total Operating Expenses $746,339 Source:Deloille& Touche LLP Deloille& Touche LLP:Final Draft Page Z3 II. INTRODUCTION AND SCOPE OF SERVICES Deloitte & Touche LLP ("D&T") is pleased to submit to the City of Huntington Beach (the "City") preliminary findings derived from market and financial analyses of the two proposed capital projects. The.first proposed project is an indoor gun range (referred to herein as the "proposed range"). The second proposed project is a multiple-field, multiple-roller hockey rink sports complex (referred to herein as the "Youth Sports Complex",the "Complex",or the "development at Central Park"). The City has proposed the development of-both of these projects and retained D&T to assist the City in evaluating the potential of the operations of these facilities. Specifically, the City is interested in understanding the current market environment for each of the two proposed projects, and the anticipated operating performance of each of the proposed facilities, if built. Preliminary plans for both of the proposed facilities entail ownership and management by the City. At the time of this report, there has been no identification of the final location for the proposed gun range. Based upon the most recent site plans developed by the City's landscape architect, the preliminary site is at Central Park, bordered to the north by Talbert Avenue, to the west by Gothard Street, to the south by Ellis Avenue, and to the east by Golden West Street. The proposed Youth Sports Complex will be located at Central Park, with similar boundaries. At the time of this report, final design plans have ' not been completed for the project. However, preliminary development plans indicate the following configurations: Proposed Gun Range The proposed facility is anticipated to be available for use by law enforcement agencies and the general public. In order-to accommodate the needs of both of these distinct user groups, the preliminary plans entail segregation of facility space into four separate "ranges" within the facility. These areas are identified as follows: • Public pistol range-with 24 lanes each measuring 25 yards in length. • Public rifle range-with 12 lanes each measuring 100 meters in length. Law enforcement agency range - with 6 rifle lanes each measuring 100 meters in length. • Law enforcement agency pistol range - with 24 lanes each measuring 25 yards in length. Proposed Youth Sports Complex The proposed facility is anticipated to entail sports fields for softball and soccer, and roller hockey rinks. The preliminary site plans entail development of four roller hockey rinks, and a total of sixteen sports fields, which are designed to overlap. The dimensions of these developments are identified as follows: Deloitre& Touche LLP: Final Draft Page 24 • Eight lighted softball fields measuring 300 feet in length • Eight lighted soccer fields measuring 210 feet in width and 330 feet in length • Four roller hockey rinks measuring 85 feet in width and 185 feet in length • Restroom and concession building with field equipment maintenance area • Six hundred and thirty vehicle parking spaces _The analyses presented in this report are divided into five major sections, as identified below. . • Demographic Overview • Proposed Gun Range--Market Analysis • Proposed Gun Range-Financial Analysis • Proposed Youth Sports Complex-Market Analysis • Proposed Youth Sports Complex-Financial Analysis Presented in this section of the report are summaries of the major tasks completed in each of these five sections. Demographic Overview In order to develop an understanding of the,City's unique market'.environment for the proposed developments, an analysis of the primary geographic area demographics and economic characteristics has been completed. The following major tasks have been completed: • Inspection of the site of the proposed facilities and the surrounding area. • Review of key market and demographic information provided by the following sources: 1. Woods &Poole Economics,Inc. 2. Sales&Marketing Management's 1997 Survey of Buying Power 3. Orange County Register Online 4. International Association of Amusement Parks and Attractions This introduction provides useful- insight to the demographic and economic characteristics of the primary area The analysis presented in this section of the report helps facilitate the market and financial analyses prepared for each of the two proposed projects. A market analysis has been prepared separately for each of the two proposed capital projects due to the distinct characteristics and determinants of demand exhibited by each. The market analyses presented in this report have been prepared to estimate the regional Deloiue& Touche LLP: Final Draft Page 25 need and opportunity for the proposed facilities. These analyses provide a foundation for the assumptions to be used in the development of the financial analyses. Market Analysis--Proposed Gun Range The foIlowring tasks have been completed for the Market.Analysis of the'proposed gun range: • Inspection of the site of the proposed facilities and the surrounding area. • Collected information from representatives of the following law enforcement agencies: 1. Fountain Valley Police Department 2. Huntington Beach Police Department 3. Westminster Police Department 4. Newport Beach Police Department 5. Garden Grove Police Department 6. Long Beach Police Department 7. Burbank Police Department 8. California State.University at Long Beach Police Department 9. University of California at Irvine Police Department 10. U.S. Federal law enforcement agency(confidential) 11. California State law enforcement agency(confidential) 12. San Diego Police Department 13. Seal Beach Police Department 14. Costa Mesa Police Department 15. San Bernardino Police Department 16. Yorba Linda Police Department 17. Golden West College Police Academy Deloitte& Touthe LLA:Final Draft page 26 • Collected'information from representatives of the following gun clubs and/or related organizations: I. Santa Clara Valley Gun Club 2. California Rifle and Pistol Association 3." National Rifle Association,Members Council of Huntington Beacll._ .. 4. Huntington Beach Gun Club 5. Brea Rifle and Pistol Club 6. San Diego Revolver Club 7. Super Trap Bullet Containment Systems, Inc. ' 8. Advanced Interactive Systems • Collected information from representatives of the following gun ranges: 1. Firing Line Indoor Gun Range in Huntington Beach - 2. Firing Line Indoor Gun Range in Northridge 3. Firing Line Indoor Gun Range in Burbank 4. Brea Range 5. Target Range 6. - Santa Anita Shooting Range 7. as Range and Gun Room 8. Angeles Shooting Range 9. Prado-Tiro Olympic Shooting Park 10. The Range 11.Evans Gun Smithing 12. On Target Gun Smith 13..Orange County Sheriffs Department 14. American Indoor Shooting Range 15. Brandens Gun Sales and Indoor Range 16. Safer Arms Gun Shop and Range • Analysis of existing gun ranges in the market area to understand the current market competition. • Analysis of selected existing facilities to identify the degree to which these facilities exhibit characteristics similar to what might reasonably be expected for the proposed gun range. • Preparation of estimates of the potential market demand for the proposed gun range. Specifically, the usage,.number of events, and annual attendance for the proposed range have been evaluated and estimated. " • Evaluation of the key facility sizing and configuration characteristics for the proposed gun range based upon results of the market demand analysis. Deloitte& Touche LLP: Final Draft Page 27 Financial Analysis--Proposed Gun Range In conjunction with a review of the regional market area, an evaluation of the financial demand of the proposed gun range has been conducted. Based upon the market analyses, and review of existing facility' characteristics, the key operating .variables and assumptions to be incorporated into a cash flow model have been generated. The cash flow model provides estimates of the facility's operating gross revenues and the surplus or deficit after operating expenses. The objective of this portion of this study is to assist the City with an evaluation of an operating and financial profile for the proposed facility for the first five years of operation. This portion of this analysis includes the following tasks: • Evaluation of major revenue items at existing gun facilities, including: 1. Lane rental rates 2. Ammunition sales 3. Membership fees 4. Training and education course fees 5. Gun rental fees 6. Equipment sales 7. Other revenues Upon analyzing this data, the anticipated revenue features of the proposed'guri range were generated. The result of this task is an estimation of gross operating revenues for the proposed range. • Evaluation of operating profiles at existing facilities, and the anticipated operating profile at the proposed facility based upon the estimation of market demand generated through the market analysis. The following assumptions were generated: 1. Total available hours 2. Estimated utilization or occupancy rate 3. Number of occupied hours- 0 Evaluation of the major expense items at existing facilities. Upon analyzing this data; the anticipated expense characteristics of the proposed facilities were generated. The following assumptions were developed: 1. Cost of goods sold expense 2. Staffmg expense 3. Repairs and maintenance expense 4. Utilities expense 5. Capital replacement expense 6. Other expenses Deloiue& Tauche LLP: Final Draft Page 28 Market Analysis—Proposed Youth Sports Complex The following tasks have been completed for the market analysis of the proposed Youth Sports Complex: ..r. • Inspection of the site of the proposed development. • Collection of information from representatives of the following soccer organizations; 1. North Huntington Beach Soccer Club 2. AYSO Region 5 3. AYSO Region 55 4. AYSO Region 56 5. AYSO Region 143 6. Save Our Kids Foundation 7. California Youth Soccer Association S. Wolf Pack Soccer Club 9. Coast Soccer League 10. South Coast Soccer Club • Collection of information from representatives of the following softball organizations: l. United States Amateur Softball Association 2. South Huntington Beach Junior Miss Softball 3. Huntington Beach Girls Softball 4. United States Specialty Sports Association 5. Players Softball Tournament Series 6. City of Huntington Beach Adult Softball Program • Collection of information from representatives of the following roller hockey rinks: 1. Stuart's Roller World 2. Holiday Skating Center 3. Fountain Valley Skating Center 4. Surf City Skate Zone 5. Circuit Skate Center 6. Inline Sports Center 7. Bayshore Roller Hockey Facility 8. Disney Goals 9. Lakewood YMCA 10. Anaheim YMCA 11. West Valley YMCA Deloitte& Touche LLP:Final Draft Page 29 12. California Street Hockey Association 13. Skate O Rama Roller Rink 14. Whittier Skateland 15. Saddleback Valley Unified High School District 16. City of Cypress 17. Waynie'Gretzky's Inline Roller Hockey Center 18. Lakewood Glacial Garden 19. Skate Depot 20. Torrance Skate Association . 21. Skate Junction 22. Skate Express • Collection of information from representatives of the following organizations regarding soccer, softball, and/or roller hockey activities in Orange County: 1. USA Roller Skating Confederation 2. USA Hockey Inline 3. Santa Ana Parks and.Recreation Department 4. Los Angeles Department of Parks and Recreation 5. Bakersfield Parks and Recreation Department 6. University of California at Irvine("UC Irvine") 7. Westminster Parks and Recreation Department 8. Fullerton Parks and Recreation Department 9. Irvine Parks and Recreation Department 10. Huntington Beach Community Services Department 11. Anaheim Parks and Recreation Department 12. Brea Parks and Recreation Department 13. Fountain Valley Parks and Recreation Department 14.Buena Park Parks and Recreation Department 15. Santa Monica Parks and Recreation 16. San Bernardino Parks and Recreation 17. Ocean View Little League - 18. Huntington Valley Little League 19. YMCA of Newport Beach 20. YMCA of Orange. 21. YMCA of Fullerton 22. YMCA of Yorba Linda/Placentia 23. YMCA of Laguna Niguel 24. YMCA of Huntington Beach • Analysis of existing recreation facilities in the market-area to understand the current market competition. Deloirte& Touche LLP:Final Draft page 30 • Analysis of selected existing facilities to identify the degree to which these facilities exhibit characteristics similar to what might reasonably be expected for the proposed sports complex. • Preparation of estimates of the potential market demand for the proposed sports facilities. Specifically; the usage, number'of events, and annual attendance for the proposed spdfts complex have been evaluated and estimated. • Evaluation of the key facility sizing and configuration characteristics for the proposed sports complex based upon results of the market demand analysis. Financial Analysis--Proposed Youth Sports Complex In conjunction with a review of the regional market area, an evaluation of the financial potential of the proposed sports complex has been conducted. Based upon the market analyses, and review of existing facility characteristics, the key operating variables and assumptions to be incorporated into a cash flow model have been developed. The cash flow model provides estimates of the facility's operating gross revenues and the surplus or deficit after operating expenses. The objective of this portion of this study is to assist the City with an evaluation of an operating and financial profile for the proposed sports complex for the first five years of operation. This portion of this analysis included the following tasks: • Evaluation of major revenue items at existing competitive facilities, including: 1. Soccer and softball field rental rates 2. Roller hockey in-house Ieague membership fees 3. Roller hockey rink rental fees 4. Roller hockey pick-up game fees 5. Ancillary operations-food and beverage concessions 6. Ancillary operations-vehicle parking fees It is important to note that revenue assumptions for food and beverage concessions, and vehicular parking fees are estimated in this section of the report because they are dependent upon the attendance at various sports activities anticipated to be held at the proposed sports complex. • Evaluation of operating profiles at existing facilities, and the anticipated operating profile at the proposed facility based upon the estimation of market demand generated through the market analysis. The following assumptions are generated: 1. Total available hours. 2. Estimated utilization or occupancy rate 3. Number of occupied hours Deloirre& Towhe LLP:Final Drafr Page 31 • Evaluation of the major expense items at existing facilities. Upon analyzing this data, the anticipated expense characteristics of the proposed facility were developed. The following assumptions were developed: I. Sports field maintenance and repairs expense 2. Sports field lighting expense 3. Sports field staffing expense 4. Roller hockey rinks maintenance and repairs expense S: Roller.hockey,utilities expense 6. Roller hockey staffing expense 7. Capital replacement expense Deloitte& Touche LLP:Final Draft Page 32 III. DEMOGRAPHIC OVERVIEW The market demand of the proposed projects in Huntington Beach, California, (the "City") will be determined by a number of factors, including the demographic and-economic characteristics of the area, the competitive supply of existing facilities, and the demand for such facilities in the area. In order to develop an understanding of the City's unique market environment for the proposed gun range, an analysis of the primary geographic area demographics has been performed. Presented in this section of the report is an introduction to the demographic and economic characteristics of the area: It is important to note the following key assumption which applies throughout this market analysis and the accompanying financial analysis for the gun range. We have discovered through primary research that the City of Fountain Valley is proposing to construct a regional firing range serving its police department and other interested law enforcement agencies. The preliminary design and operating plans entail approximately 40 lanes for handgun shooting, and approximately 14 lanes for long rifle shooting. The design plans also include state-of-the-art target and training equipment, and a wide array of tactical training capabilities demanded by law enforcement agencies. If built, this range is anticipated to serve the firearms training and shooting needs of the Fountain Valley Police Department, and potentially the firing range needs of several other interested law enforcement agencies in the area. The current development and operating plans for this range limit its use strictly to law enforcement entities, and exclude public shooting events. Should the proposed facility in Fountain Valley be constructed, demand for use of the proposed facility in Huntington Beach by law enforcement agencies may be reduced significantly. Therefore, for the purposes of preparing this market and financial analysis, it is assumed that the proposed regional firing range in Fountain Valley will not be-built. It is important to clarify that the assumptions and conclusions defined herein for all-of this report_apply specifically to the proposed gun range in Huntington Beach only. No attempt has been made to identify the potential market demand for the proposed gun range in Fountain Valley, and the assumptions generated through this analysis should not be applied to any financial analysis for the proposed gun range in Fountain Valley. Demographic Overview This analysis entails an overview of the local market area as well as selected key demographic and economic characteristics. The local market area, defined by its location, borders, and access routes, is analyzed to develop an understanding of. Huntington Beach's unique market environment. The key demographic and economic elements can indicate market support and are presented and evaluated as well. Deloitre& Touche LLP: Final Draft Page 33 Description of Local Market Area The City is located along the Southern California coast, approximately 18 miles southeast of Long Beach, 35 miles southeast of Los Angeles and 90 miles northwest of San Diego. The City . is part of Orange County and comprises approximately 28 square miles of land. It is bounded to the northwest by the City of Seal Beach, to the north by the City of Westminster, to the east by the City of Fountain Valley, and to the south by the City of Newport Beach. The City was incorporated on February 17, 1909 and is a Charter City, administered by a Council/Administrator government. The 405 Freeway, a major north/south thoroughfare passing through the City of Huntington Beach's eastern boundary, is the most proximate major artery to Huntington Beach. The regional airports of John Wayne Orange County Airport, Los Angeles International Airport, and Long Beach Airport serve air transportation needs. Bus service and rail freight services are also available. There are currently 35 elementary schools and five high schools within the City. Higher educational facilities that are proximate to the City include Golden West College, Orange Coast College, University of California Irvine, and State Universities.at Long Beach and Fullerton. The City has a world class Central Library located in the 300-acre Central Park, in the center of town, in addition to three branch libraries. There are a variety of cultural attractions throughout Orange County including the Huntington Beach Arts Center and the Huntington Beach School District's School of Performing Arts. There are 56 public parks and 8.5 Holes of beaches in the City. The City has a modern Civic Center and hosts a state-of-the-art police facility (except for the gun range). The City owns the Huntington Beach Municipal Access Channel, HBTV-3 that is operated through the Public Information Office. Demographic and Economic Characteristics In' order to develop an understanding of the City's unique demographic and .economic environment for the proposed shooting facility and its potential operating characteristics, the base economic and demographic characteristics for the Huntington Beach market area have been analyzed. The Metropolitan Statistical Area ("MSA") definition provided by Sales & Marketing Management's, "1997 Survey of Buying Power"is utilized to analyze the Huntington Beach area. The United States Office of Management and Budget (OMB) defines a MSA as a geographic area with a significant population nucleus, along with any adjacent communities that have-high degree of social and economic interaction with that nucleus. This section highlights key demographic and economic characteristics of the City of Huntington Beach and of Orange County. Deloitte& Touche LLP: Final Draft Page 34 Resident Population As mentioned previously, the City of Huntington Beach is located in Orange County which is contained within the Orange County MSA-. The table below illustrates the population for these and other selected jurisdictions. POPULATION STATISTICS 1997 2002 1997/ Population Population 2002 (000's) (000's) CAGR(1) City of Huntington Beach 195.7 NA NA Orange County MSA 2,655.7 2,838.9 1.34% Los Angeles-Long Beach MSA 9,410.3 9,550.7 0.30% Los Angeles-Riverside-Orange County CMSA 15,942.6 16,466.9 0.78% State of California 32,686.8 34,149.6 0.88% United States 267,540.6 279,027.7 0.84% (1)CAGR-compounded annual growth rate. JVA-not avallable Sources: Sales&Markerinz Mana ement's, "J997 Survey of Buying Powvr`and Deloltte&Touche LLP. The City currently has a population of approximately 196,000 people. The Orange County MSA population is approximately 2.7 million people. The Los Angeles-Long Beach MSA and the Los Angeles-Riverside-Orange County CMSA have populations of approximately 9.4 and 15.8 million, respectively. The population of the Orange County MSA is projected to grow by an annual compounded growth rate of approximately 1.34 percent from 1997 to 2002. The populations of the Los Angeles-Long Beach MSA and the State of California are projected to grow by 0.3 percent and 0.9 percent annually,respectively, from 1997 to 2002. According to this data, Orange County is expected to grow faster than the region and state. Deloitte& Touche LLP:FinarDraft Page 35 Age The age distribution of an area provides useful insight as to the potential market demand of its residents. The age distribution for the City,the Orange County MSA and selected other areas are presented in the following chart. Through observing the age.distribution of the Orange County . MSA,patterns of age distribution in these geographic areas can be identified. .. AGE DISTRIBUTION (Years) ]0 C/. . ■ChY otHm&z=Beth G age C=ry MSA p Lot Angeles-Lena Beach MSA 2 Swe at Glitoreia 4 ■uaiwd Sures s S C/. 0.OY. Under 18 18-74 2. 4 Sources:Safe)&Afarkeft Manafemenl's, "1997 Survey of Buying Power"and Delottte&ToucAe LLP. The chart illustrates that the City has approximately 21.2 percent of its population falling below the age of 18 years, or approximately 18.5 percent less than the national distribution of 26.0 percent. The segment of the population within the City falling between the ages of 18 and 24 years represents approximately 10.7 percent of the population, or approximately 17.6 percent greater than the national distribution of 9.1 percent. The distribution-of the City's population falling between the ages of 25 and 34 years represents approximately 18.5 percent of the population, or approximately 21.7 percent greater than the national distribution of 15.2 percent. Those persons falling between the ages of 35 and 49 years within the City represent the largest distribution of the population at approximately 27 percent of the total population. Based on this data, the City distribution by age is higher than average for each categories, except for the "under 18 years old" category. Deloitte& Touche LLP:Final Draft Page 36 Resident Income To understand the purchasing power of the Orange County MSA, the average household effective buying income (EBI) for the Orange County MSA was analyzed. EBI .is defined as personal income (aggregate wages, salaries and all other sources of income).less personal tax and non-tax payments. The following table illustrates'the average household income for 'Orange County. AVERAGE HOUSEHOLD EFFECTIVE BUYING INCOME 1996 Average 2001 Average 19961 Household Household 2001 BSI EBI CAGR(1) Orange County MSA S51,I35 $58,045 2.6% State of California $44,430 S50,408 2.6% United States $42,191 S48,838 3.0% (1)CAGR d compounded annual growth rare Sources: Sales&Marketing Management's. "1997Survey ojBuytng Poner",Deloltre d�Touche LLP. According to Sales & Marketing Management's, "1997 Survey of Buying Power," Orange County's 1996 average household EBI was $51,135; the State of California's average household EBI was W,430 in 1996; and the United States average household EBI was $42,191 in 1996. Compared to the average household EBI for the United States, Orange County's average household EBI is 21 percent higher. Based upon this data, it appears that residents of this area may have more disposable income to spend on leisure,recreation activities. Deloitte& Touche LLP:Final Draft Page 37 Retail Sales The following chart illustrates a summary of the retail sales per household for the Orange County MSA,the State of California and the United States. RETAIL SALES 1996 2001 1996/ - Retail Sales/ Retail Sales/ 2001 Household Household CAGR(1) Orange County MSA $29,321 $32,846 2.3% State of California $24,216 $26,948 22% United States $24,992 $28,930 3.0% (1)CAGR a compounded muaral growth rate Sources. Sales Qa Marketing Alanage—nt's, '1997 Survey of Buying Power',DeWitt&Taudw Up. The retail sales per household in 1996 for the Orange County MSA and the State. of California are $29,321 and $24,216,'respectively. Compared to the.United States, the retail sales per household in the Orange County MSA is approximately 17 percent higher, while the' same measurement of retail sales for the State of California is approximately 3 percent lower. Employment Employment diversification and the unemployment rate-can potentially indicate the economic strength of a given region. According to Woods&Poole Economics, Inc., the largest employing industry in the Orange County MSA is the service sector, accounting for approximately 34 percent of the employment in 1997. Comparatively, the service sector accounts for approximately 33 percent of the State of California employment. The retail trade sector is the second largest segment in both the Orange County MSA and the State of California, accounting for approximately 16 percent of each geographic region's total employment. The following chart illustrates the employment distribution for 1997 for these and other industries. Deloitte& Touche.LLP:Final Draft Paga m 1997 EMPLOYMENT BY INDUSTRY SYadLccal Govtrnment Federal Military Cpvcrr-ment FedRil Civilian Government Bernie. ARE Retail 4 wholcss!e { Trans.Cotrn=.Util. Msaufkctuing constnrtioa i Mining Agricultural F.;. r ! I 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 4o.o% Orange Carmty t California Source:Woods&Poole Economics,Inc.1997 According to Woods & Poole Economics, Inc., the unemployment rate for the civilian labor force in Orange County was 6.8 percent in 1993, 5.7 percent in 1994, and 5.1 percent in 1995. In comparison, the unemployment rate for the civilian labor force in California was 9.4 percent in 1993, 8.6 percent in 1994,and 7.8 percent in 1995. To develop an understanding of the level of corporate support within the City of Huntington Beach, D&T identified the top five firms that employ the largest number of persons. The following chart illustrates the top-five employers within the City Huntington Beach: Deloitte& Touche LLP: Final Draft Page 39 • r TOP FIVE EMPLOYERS IN HUNTINGTON BEACH Company Employm McDonnell Douglas Aerospace 8,000 Cambo Manufacturing Co. .650 Huntington Beach Medical Center 470 Waterfront Hilton Beach Resort 350 Bally's Health Club Services 300 Total 9,770 Source:Orange Cowuy 1te&ter on-line. ` According to the Orange County Register on-line information service, the top three business activities have the following number of firms located in the City:retail trade- 997 firms, services - 698 firms, and manufacturing - 394 firms. In addition, the five largest employers employ a. total of over 9,700 persons in the manufacturing and service industries. Deloirre& Touche LLP Final Draft Page 40 IV. MARKET ANALYSIS --- GUN RANGE The market demand of the proposed new shooting facility in Huntington Beach, California, (the "City") will be determined by a number of factors, including the demographic and economic characteristics of the area, the competitive supply of shooting facilities, and the demand for such facilities in the area. Several of these factors have been analyzed, and are detailed mi this section of the report. Presented below are the key topics of the market analysis. • Analysis of comparable facilities • Estimation of potential market demand • Determination of facility sizing/configuration characteristics The analysis conducted in this phase considers these factors, and is supported by market and industry data collected during this engagement from interviews with knowledgeable participants familiar with gun ranges in Southern California, as well as published sources. Firearm Sales In addition to the economic and demographic characteristics of the area,the level of firearm sales in an area provides an indication of the potential demand for shooting ranges in the vicinity. Presented below is an overview of the number of handgun.registrations in .the Southern California area for the five-year period from 1992 to 1996. Dealers Record of Sale- Registered Handguns %Change - 1992 to County 1992 1993 1994 1995 1996 I996 Orange 44,012 52,038 39,813 28,196 22,702 -48% Riverside 15,446 18,898 14,055 9,547 7,419 -52% San Bernardino 18,058 - 22,928 18,814 11,300 16,721 -7% Los Angeles 117,033 123,656 92,959 61,854 47,651 -59% Subtotal 194,549 217,520 165,641 110,897' 94,493 -51% California 367,375 418,719 361,502 238,755 207,318 -44% Source:State of California Department of Justice 'Deloitte& Touche LLP: Final Drab Page 41 Analysis of Competitive Shooting Ranges- This section of the report identifies the existing gun ranges in the market area and analyzes the current market competition. D&T conducted approximately 41 interviews with local facility managers, gun clubs, and major users, and 'analyzed historical operating data from these facilities. This section of the report reviews the following areas: f • Identification of competitive facilities and their characteristics _ • Identification of major users of competitive gun ranges • Analysis of utilization andfinancial characteristics of competitive facilities In the first step of this analysis, D&T identifies and evaluates the competitive facilities in terms of their size and range configuration, age, condition, and location. This section also presents and evaluates major users of competitive gun ranges in terms of their demand generating capabilities. Finally, this section provides a review of the utilization and financial operating performance of these competitive gun ranges. The data revealed through this analysis provides guidance and benchmarks as to the necessary utilization factors, as well as expected revenue and expense levels necessary for financially feasible operations. Overview of the Proposed Facility The City's landscape architecture and planning firm,Nuvis, has completed a preliminary drawing for the layout of the gun range. These'design plans were generated based upon months of negotiations, recommendations, analyses, and input from numerous parties. Law enforcement agencies, the City of Huntington Beach Police Department, the City of Huntington Beach Community Services Department, other relevant City departments, interested organizations, such as the National Rifle Association, Super Trap, and structural and design architects, all provided recommendations based upon experience with other ranges, evaluation of the market demand in the area, objectives of the City, safety concerns, cost concerns, utilization concerns, and training needs of the local police department and other law enforcement agencies. As a result of these meetings, Nuvis had drafted various plans according to different scenarios. The most recent plans for the proposed facility entail the following: • 24 position public pistol lanes measuring 25 yards in length. • 12 position public rifle lanes measuring 100 meters in length. • 5 position law enforcement agency rifle lanes measuring 100 meters in length. • 24 position law enforcement agency pistol lanes measuring 25 yards in length. The objectives of the City for the construction of a gun range are 1)to serve the firearms training needs of the City of Huntington Beach Police Department, 2) to serve the firearms training needs of other law enforcement agencies in the area, and 3) to serve the firearms training and recreational shooting demands of'the general public. The identification of competitive firing ranges will include existing and planned firing ranges that serve both law enforcement agencies Deloine& Touche LLP: Final Drafi Page 42 and civilian public shootersl. D&T identified facilities outlined in this section of-the analysis through conversations with participants involved with gun ranges in the local area. Shooting Facilities Owned by the Private Sector The competitive facilities identified are owned and operated by both the .private and public sectors. Private sector ownership of gun facilities generally includes ownership by corporations, partnerships, individuals, or other forms of legal ownership. Public sector ownership generally includes ownership by law enforcement agencies, or_other local government entities. Because the proposed facility is anticipated to be an indoor facility, D&T identified primarily indoor shooting facilities owned by the private sector. Selected competitive indoor gun ranges owned by the private sector are presented in the following table. Selected Indoor Gun Ranges Owned by the Private Sector Lane Rifle Number Length Pistol Lanes Gun Ammunition Range Name City of Lanes (Yards) Lanes (1) Rentals Sales Pro Shop Firing-Line indoor Shooting Huntington Beach 16 16.7 Yes No Yes Yes Yes Evans Gunsmithing Orange 16 50 ' Yes No Yes Yes . Yes JR's Indoor Pistol Range Long Beach 16 16.7 Yes No Yes. Yes Yes Brea Range Brea 12 16.7 Yes No Yes Yes Yes On Target Gunsmith Laguna Niguel 20 25 Yes No Yes Yes Yes Note:(I)Rifle Lanes indicates whether or not the facility has lanes for long rifle shooting. Source:Deloitte& Touche LLP The number of lanes at these selected indoor facilities ranges from 12 to 20. None of these facilities has long rifle lanes, i.e. lanes of approximately 100 yards in length or more, for long range rifle training. All of these facilities offer gun rentals, and ammunition and other equipment sales, typically through some form of a "pro-shop". Some of the competitive indoor facilities owned by the private sector are part of facility chains, such as the Firing Line indoor Shooting Ranges, which have facilities in Huntington Beach,Burbank, and Brea. All of these facilities are open to both the civilian public and law enforcement agencies. Further details of these facilities will be presented throughout this report. 1 In accordance with the assumption that the proposed Fountain Valley Police Department regional firing range will not be built,this range is not included in any identification or analysis of competitive facilities. Delcirte& Touche LLP:Final Drafr Page 43 Shooting Facilities Owned and Operated by-the Public Sector If built, the proposed gun range will be owned by the City of Huntington Beach. Although the .operating agreement of the proposed facility has yet to be completed, it is anticipated that the City, or the Police Department, or a combination thereof, will operate the facility. Therefore, D&T identified those gun ranges operated by the public'sector. The fotloNving table presents selected competitive gun ranges owned and operated by the public sector. Selected Law Enforcement Operated Gun Ranges . Type of Open to Pistol Rifle Law Enforcement Agency Range Public Lanes Lanes(1) Costa Mesa Police Department Indoor No Yes No Fountain Valley Police Department Indoor No Yes No Long Beach Police Department Indoor No Yes No Newport Beach Police Department Indoor No Yes No Orange County Sheriffs Departrnent(2) Indoor Yes Yes No Santa Ana Police Department Indoor No Yes No U.S.Naval.Weapons Station in Seal Beach_ Outdoor: No Yes No Notes. (1)Rifle Lanes indicates whether or nov the facility has lanes for long roe shooting. (2)The Orange County Sheriffs Department range reportedly re-opened in February 1998. Source:Deloitte& Touche LLP It should be noted that all of the selected existing facilities serve only law enforcement agencies, with the exception of the Orange County Sheriffs Department. The Orange County Sheriffs Department gun range opened for law enforcement use on February 18, 1998. The scheduled hours for this section of the range are Wednesday through Sunday from 7:45am to 11:30am and 12:00pm to 3:30pm. The public range opened on February 21, 1998, and follows the same hours of operation. In addition to the shooting ranges identified in the table above, facilities with long range rifle capabilities, (i.e. typically firing lanes 100 yards in length) operate in Southern California. The most common facilities used by law enforcement agencies for long range rifle training include the following: San Gabriel Valley Gun Club in Duarte • Prado-Tiro Olympic Shooting Paris in Chino • Camp Pendleton, south of Orange County 0 Lake Elsinore Sports Association in Lake Elsinore Deloitte& Touche LLP:Final Draft Page 44 It should be noted that there are law enforcement agencies in Southern California that operate ranges Mth long range rifle capabilities. For example, the Rio Hondo Police Academy in Whittier (Rao Hondo Community College) has a 25 yard, 12-position range, a 50 yard, 12- position range, and a 100 yard,6-position rifle range. These are all outdoor ranges with overhead baffled covering.open for dusk and night shooting. However, it was commented on several occasions through interviews with various individuals familiar with the shooting range market that there is no location close to Huntington Beach that has long range rifle lanes near 100 yards in length. The Angeles Shooting Range,' an outdoor facility located in Southern California, has been identified as a competitive outdoor gun range. This range has a greater number of lanes than the number of lanes proposed at the City range. In addition, this outdoor facility encompasses a large area with a mix of 5 different ranges. However, the operating profile and financial characteristics of this facility provide insight as to the potential operating financial characteristics of the proposed facility. Key data for the Angeles Shooting Range is presented below. • This facility provides one range dedicated to public use. The range has 52 rifle benches with a total distance measuring 700 yards. There is a shorter rifle range dedicated to public use that has 16 benches,with a total distance measuring I00 yards. • There are four dedicated ranges for law enforcement agency use. There is one 25-yard firing area with positions for approximately 30 people. This area is used for handgun firing only. There is one 100-yard firing area which has room'for approximately 70 people'at a time. Another section with a total length measuring 300 yards is located in a carryon and has a mix of 50 and 100 yard firing areas within its boundaries. The maximum capacity of shooters in this section at one time is estimated to be approximately 150. On average,- two jaw enforcement,agencies per day use this facility. It was commented that a large metropolitan police department uses the facility for its training academy. • Admission fees per shooter per day range from S6 to $11. The variation in pricing is a result of discounts to law enforcement agencies, range members, and NRA members. The law enforcement agency fee is $6 per shooter per day. Distance When evaluating the competitive facilities in Southern California, one must note the distance in miles between these facilities and the City of Huntington Beach. The following table illustrates the distances between selected existing facilities and the geographic center of Huntington Beach. Deloitte& Touche LLP: Final Draft Page 45 Distances Between Selected Existing Gun Ranges and the Geographic Center of Huntington Beach* Facility City Miles Firing-Line Indoor Shooting Range Huntington Beac 3 Evans Gunsmithing Orange 14 Insight Indoor Shooting Range Artesia 16 IR's Range&Gun Room Long Beach 19 _ Brea Range Brea 20 On Target Gunsmith Laguna Niguel 23 Sharp Shooter Torrance 25 Prado-Tiro Olympic Shooting Park Chino 30 Santa Anita Shooting Range Monrovia 33 San Gabriel Valley Gun Club Duarte 35 Firing-Line Indoor Shooting Range Burbank 43 Source:GTE SuperPages Interactive Service Many law enforcement agencies in Orange County, including the Police Departments for the Cities of Huntington Beach,. Westminster, Garden Grove, Seal Beach, and Yorba Linda, currently use the San Gabriel Valley Gun Club range in Duarte for rifle.training sessions. . Identification of Major Users of Competitive Gun Ranges This section details the generators of demand for gun ranges by analyzing the major users; those that frequently visit shooting ranges. A diverse selection of primary users ranging from members of local police forces, to contestants in organized shooting matches, to individual rifle and pistol enthusiasts could potentially utilize this facility. Many major users have formed associations or membership clubs,while others are less organized. Presented below are summaries of interviews with major users of competitive ranges, and an estimate of their influence on the market demand for a potential new facility in the City of Huntington Beach. The major user groups identified in this analysis have been classified into four categories, as presented below. • Law enforcement agencies • Firearm associations,organizations, and other affiliations • Personal firearms training and education users • General public Each category of major user identified above is detailed separately because of the different anticipated utilization characteristics of each of these major users. Deloitte& Touche UP: Final Draft - Page 46 Law Enforcement Agencies Law enforcement agencies are anticipated to contribute a significant portion of the total revenue generated from operations of the proposed facility. As stated previously, the City's objectives for the proposed facility include serving the firearms training needs of the City Police Department, and other interested law enforcement agencies. According to our research, more than 70 law enforcement agencies used the original gun range in Huntington Beach operated by the City of Huntington Beach Police Officers' Association ("PDX'). It is anticipated that the City will market the new gun range to these organizations, and to other law enforcement agencies identified as potential misers of a new gun range in the City. D&T contacted a sample of these law enforcement agencies to estimate the current firearm training facility needs of these agencies. Presented below are summaries of the conversations held with members of selected law enforcement agencies2. Large Police Departments D&T interviewed representatives of a local police department with a staff of approximately 100 officers requiring weapons qualifications. All of these officers require quarterly weapons qualifications for handguns, and a much smaller percentage of these officers require weapons qualifications for rifle use. The department currently uses the Fountain Valley Police Department range for handgun qualifications, and the San Gabriel Valley range for rifle qualifications. The-department indicated that it would have potential interest in utiliting the proposed facility for its pistol and rifle qualifications if the facility provided long-range lanes'for rifle qualifications for its SWAT and sniper training needs. D&T also interviewed representatives of a local police department with a staff of approximately 200 officers requiring weapons qualifications. These officers have quarterly handgun qualifications, while a staff of approximately 20 persons require monthly rifle qualifications. The department currently uses the. Fountain Valley Police Department range for handgun qualifications, and the San Gabriel Valley and Camp Pendleton ranges for rifle qualifications. This department indicated that it would have potential interest in using a range in Huntington Beach for its qualifications if the facility provided long-range lanes for rifle qualifications. The department also commented that the capacity to offer low light shooting practice sessions would -be an attractive component of an indoor range. 2 Due to the security issues surrounding some of the topics discussed during these interviews, the names of the law enforcement agencies summarized in this section have been omitted. Deloiale& Touche LLP: Final Draft Page 47 Small Police Departments Representatives of a smaller, local police agency were contacted to discuss its use of gun ranges. This agency has approximately 32. users requiring quarterly handgun qualifications, and approximately 8 users requiring long rifle qualifications on a bi-annual basis. This agency currently uses the U.S. Naval Weapons-Station in Seal Beach for its handgun training, and the San Gabriel Valley or Camp Pendleton ranges for its rifle training. This agency uses the range far handgun training free of charge due to a long standing contract between the agency and the Federal Government, dating back to,the 1940s. According to this agreement; the agency may train -its personnel at the Naval Weapons Station free of charge, with the restriction that it provides its own ammunition and schedules its training sessions around the needs of the facility. This agency indicated that it could at some point have potential interest in using the Huntington Beach proposed range, as long as the pricing was in line with market fees. A local police agency with' approximately 50 persons requiring bi-monthly handgun qualifications was contacted. In addition, this agency has approximately 30 officers qualified to carry rifles, and has a smaller group of approximately 10 officers trained for rifle shooting. Officers from this agency currently use Evans Gunsmithing in Orange for handgun qualifications, and San Gabriel Valley and Lake Elsinore Sports Association ranges for rifle qualifications. D&T interviewed representatives of a local police deparnnent with approximately 25 persons requiring semi-annual handgun qualifications. Officers of this agency used the old facility in Huntington Beach on occasion, and have used numerous facilities in the Orange County area. Interviews with this agency revealed that gun ranges in the area quote lane rental fees that vary significantly. This agency reported quotes of$50.00 per hour at On-Target in Laguna Niguel, and $40.00 per hour at Evans-Gunsmithing in Orange. The agency also reported a quote of $25.00 per hour at the Santa Ana Police Department's range. At each of these facilities the fee entitles the department to use an entire room for as many shooters that can safely fit. This quote includes the use of the facility's eight 25 yard lanes on an hourly basis. This agency was quoted approximately $7.00 per person per hour for additional shooters that missed scheduled sessions at the range. D&T also interviewed a local police department with 21 sworn officers requiring quarterly handgun qualifications. This agency currently rents a block of time at the Firing-Line in Huntington Beach for its qualification session needs. This agency currently rents the facility for three hours in the morning on two days per quarter. The facility rental fee is approximately $100.00 per day. In addition, this agency purchases ammunition at the range for all training sessions conducted at the facility. Approximately one-half of the department's personnel are scheduled for each day. Each officer is generally required to complete two qualification sessions per quarterly visit, with each session requiring approximately 50 rounds of ammunition. In addition, once a year a shotgun qualification session is incorporated into the standard quarterly Deloitte& Touche LLP:Final Draft Page 48 visit detailed previously. The shotgun session generally requires approximately 20'rounds of ammunition. State and Federal Agencies D&T interviewed representatives of a state law enforcement agency to discuss its current firearms training facility needs. .This agency has a total of approximately 300 persons requiring quarterly handgun qualifications, although only one-half of these persons, or approximately 150, are located in Orangq County. This agency currently .has an arrangement with .,Evans Gunsmithang in Orange.,For the 150 persons in Orange County, this agency indicated the need for three 8 hour days with approximately 50 shooters per day. Personnel employed by this agency do not have rifle qualification requirements. D&T interviewed representatives of a local branch office of a federal government agency to discuss any potential interest in utilizing a new range in Huntington Beach. This agency historically used the old range operated by the POA, and indicated a potential interest in-using a new facility in the area. This entity consists of approximately 30 people that require quarterly handgun qualifications. Out of this total, approximately 25 persons are required to register for rifle qualifications every 60 days. This organization currently uses the Prado-Tiro Olympic Shooting Park in Chino for all of its firearms qualification sessions. This agency indicated an interest in using the proposed facility if the length of lanes were at least 50 yards. Although this organization currently provides its own ammunition for all qualification events at the Pmdo-Tiro Olympic Shooting Park, its representatives noted that the agency might be willing to purchase ammunition from the proposed facility for special qualification sessions, such as high power rifle training. D&T also interviewed additional law enforcement agencies. The information obtained from these entities was consistent with the data presented above. Based upon our interviews with these law enforcement agencies, there appears to be demand from these agencies for a new facility in Huntington Beach. In particular, demand appears to be for a facility with long-range rifle capabilities. On several occasions representatives commented that the only reliable venues for SWAT and special teams rifle training are the San Gabriel Valley Gun Club, the Lake Elsinore Sports Association range, and the range at Camp Pendleton. Further indications of demand are summarized below in the Evaluation of Potential Market Demand section of this report. Law Enforcement Agency Contracts The law enforcement agencies that utilize ranges operated by other law enforcement agencies typically enter into contractual agreements for use of an agency's range. It appears standard for agencies to rent blocks of time at a range for weapons qualifications sessions. These agreements often entail the rental of part or all of the range, typically on a monthly, bimonthly, or quarterly basis. These agreements also typically involve a payment structure based upon a fee per officer Deloiue& Touche LLP:Finn!Draft Page 49 per year, or, more commonly, a fee per hour for use of the range, regardless of the riumber of officers that use the range during the designated time period (the "reserved time"). For example, the City of Long Beach Police Department has multiple contracts with various local law enforcement entities for use of its two ranges. The fee structure for use of these ranges is as follows:-a determined fee per officer per year for use of one range, or a determined fee per day for the use of the entire second range by the law enforcement agency. Many law enforcement agencies indicated the payment of a flat hourly fee for a block of time at ranges operated by law enforcement entities. The City of Huntington Beach Police Department currently has a contract with the City of Fountain Valley Police Department which stipulates the use of the facility by the City's officers for a determined fee per person per visit. It appears common for these agreements to be entered into on an annual basis, rather than on a short term, as needed basis. It appears that most agencies that rent blocks of time at ranges attempt to schedule the majority of their officers' qualifications sessions during these reserved time periods.,However,many indicated that their contracts stipulated a flat hourly fee per person for smaller groups or individuals unable to utilize the range during the reserved time. It should be noted that it is common for law enforcement agencies to rent blocks of time at privately owned facilities under a contractual agreement. The common agreement between agencies and ranges is the rental of a group of lanes, typically dedicated for law enforcement agency use, by the agency with payment.on an hourly basis for use of the entire group of lanes. Many of the competitive indoor, privately owned gun ranges have contractual agreements with law enforcement agencies. In addition to the rental of time at a range by a law enforcement agency, the agreement will stipulate the terms of ammunition supplies; that is, which party is to deliver ammunition to be used at the range during the reserved time. The consensus derived from surveys of range operators, is that this is a widely negotiated subject, case sensitive to each individual agreement. The consensus from both private range operators and law enforcement agency range operators is that approximately 50% of agencies under contract will bring their own ammunition, and 50% will purchase ammunition at the range. It was noted that some agencies will bring their own standard caliber ammunition for general training events, but may purchase exotic ammunition at the range for infrequent training events requiring non-standard caliber ammunition. Firearm Associations, Organizations, and Other Affiliations Members of gun and firearm associations that hold organized meetings at gun ranges will be potential frequent users of the proposed gun range. Many of these organizations are local gun clubs that meet at ranges on a monthly basis for shooting matches. Membership in these clubs can range from a few enthusiasts to several dozen shooters. A sample of gun clubs interviewed in this analysis includes the following: Dcloirie& Touche LLP:Final Draft Page 50 • Members'Council of the National-Rifle Association of Huntington Beach • Huntington Beach Gun Club • Brea Rifle&Pistol Club • San Diego Revolver Club • Santa Clara Valley Gun Club • California Rifle and Pistol Association Members of these organizations meet at gun ranges for target practice, equipment training, and education on current events shaping the future of the sport. These meetings often conclude with a social gathering of the membership. D&T interviews with representatives of these groups yielded significant information on gun range usage,as summarized below. • Members of gun clubs come from a wide array of shooting disciplines, including action pistol, air rifle and pistol, high power rifle silhouette, long range pistol silhouette, smallbore rifle,cowboy,bull's eye target rifle and pistol. • Members of gun clubs use both indoor and outdoor facilities for recreational shooting, target practice, and.shooting matches. It was indicated that the old range operated by the POA was used by many members of gun clubs in the vicinity. • Some members of gun clubs-prefer outdoor facilities for shooting events because the natural light is reportedly more conducive to shooting. However, some of these same shooters commented'that they currently use indoor facilities, such as the Firing-Line.Indoor Gun Range in Huntington Beach; due to their location. Representatives indicated that in general, a local indoor facility would be preferred to a distant outdoor facility, indicating potential demand for the proposed new indoor facility in Huntington Beach. • Many frequent gun range users, including.members of gun clubs, often supply their own ammunition. In addition, many users shoot reloaded ammunition, which is generally less expensive than factory ammunition. Reloaded ammunition is constructed from recycled bullet casings from bullets retrieved from a range backstop. When a bullet is fired, the enclosing casing of the bullet can be recycled,and re-filled with lead. This-process results in "reloaded ammunition". It was commented that an average shooter at an indoor range could fire anywhere between 50 and 100 rounds of ammunition per hour. For frequent gun range users, reloaded ammunition provides a cost saving. • Many of the users interviewed formerly used the old range in Huntington Beach, and indicated interest in a new facility in the area. Deloitte& Touche LLP: Final Draft Page 51 Personal Firearms Training and Education Vsers Many civilians utilize gun ranges for weapons training, firearms education and personal safety training. To accommodate this demand, many facilities offer firearms training and education courses, as well as private tutorials for firearms training. Many facilities .even.provide classrooms for education sessions. According-to D&T facility interviews, the typical offering of training and education courses generally involved firearms safety and shooting techniques. Often, facilities also offered advanced training courses for more experienced civilian shooters. A sample of some of the typical courses offered includes the following: • Basic firearms class - teaching firearm safety and shooting techniques within a supervised shooting environment. • Basic firearm safety certification classes - classes and/or videos available for preparation for certification needs. • Pepper spray and tear gas training and certification for carrying permit. • Firearms qualification classes for security guards. • Private instruction on firearm safety and shooting techniques. The frequency of and attendance at these courses varies across facilities. One indoor facility in Orange County offers a weekly three-hour basic firearms.class;a weekly two-hour basic firearm safety certification course, a daily half-hour pepper spray and tear_ gas certification.course, and various security guard training courses taught weekly, biweekly, and monthly. 'However, the vast majority of facility operators interviewed indicated an offering of education and training sessions. Some of these facilities directly employ staff with proper licensing to teach firearms safety courses, and other facilities hire sub-contractors as instructors for these courses. It is anticipated that visitors participating in firearms training and education courses will generate demand for the,proposed facility. Further details of firearms courses offered at facilities are presented throughout this report'. General Public The general public not associated with groups or associations is likely to generate additional demand for the proposed facility. Experienced gun enthusiasts as well as novices may be potential customers of the proposed gun facility. Many of the competitive facilities surveyed indicated membership structures of varying lengths of time. and features to attract and retain general civilian shooters. Typical incentives for purchasing facility membership include reduced daily or hourly fees at the range, discounts on rentals, ammunition and supplies, and access to member events, such as member competitions, member educational courses, etc. Annual or monthly fees are most common, with a price depending upon the needs and services desired by members. More details about membership structures and fees will be presented throughout this report. Deloirte& Touch,;LLP:Final Draft Page 31 Analysis of Utilization-and Financial Chafacteristics of Competitive Facilities Utilization refers to the "occupancy" of the facility for a given period of time; presented herein as a percentage of capacity. For example, a 60% utilization rate would signify a facility with lanes that are being used 60% of the time for which the lanes are available. The revenue and expense characteristics associated with a facility's operations and financial performance o£a gun range are the direct result of utilization. The number of visitors and number of rounds per user are primary drivers of the revenues and expenses of a gun range. For the purposes of this analysis, D&T examined the financial performance of both comparable facilities (with similar characteristics to the proposed facility) and competitive facilities (those operating in the same region as the proposed facility). The operating characteristics of the proposed facility, specifically utilization and financial characteristics, are anticipated to closely resemble the operating characteristics of comparable and competitive facilities. For this reason, the analysis of utilization and financial characteristics of competitive facilities is presented in the Analysis of Comparable Facilities section below. Analysis of Comparable Facilities In order to develop an understanding of comparable gun ranges for the proposed facility, D&T identified comparable facilities based upon the anticipated size, amenities, and services offered. Twelve gun,ranges have .been identified as comparable based upon these attributes, and are detailed in this section. Specific characteristics of these projects have been identified and evaluated. Three steps involved in this process included: • Identification of comparable gun ranges • Analysis of comparable facilities and their market characteristics • Comparison of the characteristics of the comparable facilities to the proposed facility Identification of Comparable Gun Ranges D&T reviewed existing facilities, focusing on the following facility attributes: number of shooting lanes, availability for use by law enforcement entities and civilian shooters, lane rental rates and membership structures, and utilization characteristics. D&T identified comparable gun ranges in different geographic locations to provide a comparative sample of facility characteristics. D&T contacted both facilities operated by law enforcement agencies and those operated by the private sector. A list of the comparable facilities surveyed for this analysis is presented below. Deloirte& Touche LLP: Final Droft Page M Comparable Gun Ranges 1. Indoor gun range located in Southern California 2.- Indoor gun range located in Southern California . .3. Indoor gun range located.in Southern California 4. Indoor gun range located in Southern California S. Indoor gun range located in Southern California 6. Indoor gun range located in Southern California 7. Indoor gun range located in Northern California S. Indoor gun range located in Central California 9. Outdoor facility located in Southern California 10. Outdoor facility located in Southern California 11. Indoor gun range located in Northern California The financial characteristics of the facilities contacted are highlighted in this section of the report. Due to the privileged and confidential nature of this information,the names and complete financial performance of the facilities are not presented. However, D&T obtained and analyzed sufficient data to provide useful information on some of the operating and financial characteristics of facilities in the competitive market area It should be noted that both outdoor and indoor facilities have been identified in this section of the report. Although the proposed facility is anticipated to be indoor, many user groups, including law enforcement agencies, currently use-outdoor facilities. Therefore, some of the characteristics of outdoor facilities, such as demand from law enforcement agencies, will potentially provide helpful insight as to the potential demand characteristics from law enforcement agencies at the proposed facility. Due to the confidential nature of this data, the facility names and operators have not been provided in this report. It should be noted that all of the facilities operated by.the public sector are outdoor ranges, and that the majority of the facilities operated by the private sector are indoor ranges. In addition,the proposed facility is anticipated to be larger than the comparable facilities identified. Analysis of Comparable Facilities and Market Characteristics The operating and market characteristics of the comparable facilities are presented in this section of the report. Each facility has been evaluated individually; consequently, the amount of data and market research presented below varies from facility to facility. Common characteristics analyzed include the following: • Demographic characteristics of the market area • Utilization features of comparable facilities • Financial characteristics of comparable facilities Deloitte& Touche LLP: Final Draft Page 54 Summary of Comparable Gun Ranges Number of Civilian Avg.Lane Comparable Facility Type of Lanes per . Length of Civilian Lane Rental LEA. LEA.Lane Utilization Name Location Range Ownership Range Lanes(yards) Use Fees Use Rental Fees (1) Facility Number 1(2) Southern California Outdoor Public Sector 20,and 12 2S-,50-,and No NA Yes S1501afPrcer/yr. NA !S- or S2dOtday Facility Number 2(3) Southern California Outdoor Public Sector 6,40,40,and 25-,and 50- Yes S6 per No NA 50%-60% 40' person per day Facility Number 3 Southern Cnlifomia Indoor Private Sector 16 16.7 Yes S8 per Yes S501hour for 8 30% person per lanes hour Facility Number 4 Southern Califomia Indoor Private Sector 14 16.7 Yes S8 per Yes NA 40% person per hour Facility Number 5 Southern Califomia Indoor Private Sector 12 16.7 Yes $8 per Yes 250/hour for 6' 309/6 person per lanes hour Facility Nttmber 6 Southern California Indoor Private Sector 14 16.7 Yes $8 per Yes S50/hour for 7 30% person per lanes hour Facility Number 7 Southern Califomia . Indoor Private Sector 20 25 Yes S7.50 per Yes NA 500A person per hour Facility Number 8 Southern California Indoor Private Sector 12 16.7 Yes $9 per Yes •S50/hour for 6 30% person per lanes !tour Facility Number 9 Northern Califomin Indoor Private Sector 24 25 Yes NA Yes S35/hour for 8 33% Inncs Facility Number 10 Central Cnlifomia Indoor Private Sector 16 16.7 Yes Si0 per Yes NA 606% person per day Facility Number I I Northern California Indoor Private Sector 12 16.7 Yes $8 per Yes S351hour for 6 NA person per lams hour 1 Note: (1) Estimate of average lane utilization as a percentage of total capacity...(2) This facility has Iwo ranges, one has 20 lanes, and one has 12 lanes. The two reported L.F.A. Lane Rental Fees represent quoted fees for each of fire two ranges. (3) This facility has four separate ranges for police rtse, grm club use, and civilian use. .Source: Delaitte& Touche LLP Deloitte& Tonche LLP: Final Draft :Page 55 Overview of Comparable Gun Ranges Numerous gun ranges were identified and contacted during primary research efforts. Some of these facilities were identified as not being comparable to the proposed project due.to various reasons, including size, location, or business focus (i.e. retail sales of firearms versus operations of a gun range). D&T identified the eleven facilities summarized above as being `.:comparable" gun ranges based upon the major users, and the operating, financial, and other characteristics exhibited by these facilities. Summaries of the important characteristics of the comparable facilities are presented below. Further details of each comparable facility are presented in the Appendix to this report. Ownership and Type of Range Two of the eleven comparable facilities are owned by the public sector, the remaining nine comparable ranges are owned by the private sector. Both of the ranges owned by the public sector are outdoor ranges, while all of the ranges owned by the private sector are indoor ranges. There are indoor facilities owned by the public sector, such as local police departments, but these tend to be much smaller ranges, and are sometimes not open for use by other law enforcement agencies. For example,the Costa Mesa Police Department operates a small indoor gun range for use solely by officers of that department. This relationship between ownership and type of range appears to.be somewhat standard, as many operators, major users, and other parties contacted by D&T during research indicated initial surprise at the thought of a proposed indoor facility to be owned by the public sector. Segregation of Ranges by User Groups The vast majority of the comparable facilities identified by D&T that serve both the civilian public and law enforcement agencies have separate ranges for each of these two user groups. Because the needs of these two user groups are different, some facilities develop separate ranges for civilian shooters and law enforcement agencies. In certain instances, where the facility has one range, the facility will close one-half of the range to the general public for law enforcement agency training sessions. In some instances, a facility may have defined hours of operation for the general public, and may have different hours of operation for law enforcement agency training sessions. Historical Demand Based upon interviews with representatives of the comparable facilities, the demand for gun ranges by the civilian public has declined significantly over the last three to five years. The majority of those range operators interviewed had indicated an overall decline close to 50% over the last three to five years in California. Demand for guns, training courses, and use of fu-ing ranges in Southern California was reportedly at an ali-time high between 1992 and 1994. It was suggested that this increase in demand during these years was partially the result of civil unrest in Deloiue& Tou;.he LLP: Final Draft Page 5E Southern California, and the fear of future government bans on certain firearms. it was suggested that possible reasons for this decline include a rise in anti-gun sentiment among the general public, possibly driven by a common association of guns with violence, and a decline in interest in shooting as a recreational sport. Health Issues Interviews with representatives of indoor facilities revealed concerns for health issues involved with indoor facilities. Indoor facilities have to deal with lead contamination to a greater extent than outdoor facilities. 7 ead dust is exposed into the air from the initial firing of each round in the range. Lead is also exposed in the range upon the impact of the bullet in the range back-stop. The back-stop is that portion of the range behind the targets that absorbs the fired shots. In order to mitigate the effects of lead exposure, indoor facilities require adequate ventilation systems in the range portion of the facility. In addition,the back-stop must be cleaned and the lead must be removed on a continual basis to prevent lead build-up. Lead removed from the back-stop must be properly and legally disposed. If untreated,the lead dust particles can build up in the fans and ventilation system of the range. Because lead is a hazardous material, indoor facilities must follow guidelines and regulations designated by appropriate state health regulators. Utilization Utilization at the comparable facilities range from approximately 30% to approximately 60%. For the civilian public ranges at all of the facilities, in general, day hours during the weekdays have the lowest occupancy and attendance levels, weekday evenings have somewhat greater occupancy and attendance levels, and weekends have the highest occupancy and attendance Ievels. At all of the facilities, law enforcement agencies typically utilize the facility during weekday mornings, afternoons, and evenings. It had been commented by representatives of certain facilities with only one range used by both users at distinct, scheduled hours, that law enforcement agencies used the range on weekends only on occasion, but it was generally scheduled around the hours set aside for general public shooting sessions. Many law enforcement agencies interviewed during research conducted by D&T indicated the tendency to 'schedule qualification sessions for officers based upon their regular work schedules. For example, officers scheduled to work evening hours would participate in qualification sessions during evening hours, subject to the hours of operation at the gun ranges. Other Market Issues According to interviews with general public civilian shooters, and range operators, the general civilian public appears to demand lanes of at least 25 yards in length at indoor facilities. Many of the comparable indoor facilities have lanes measuring 16.7 yards, or 50 feet. Some of the operators of these facilities with 50 foot lanes commented on the desire for longer lanes at their own facilities. Deloitte d Touche LLP:Final Draft - Page 57 The vast majority of law enforcement agencies interviewed had indicated desire for a range with an ability for tactical firearms training involving automobiles or special vehicles. There are reportedly no indoor facilities in Southern California that offer this capability. Comparison of the Characteristics of the Comparable Facilities to the Proposed Facility The purpose of this section is to identify the degree to which the comparable facilities exhibit characteristics similar to what might reasonably be expected for the proposed facility. In order to facilitate this analysis, the characteristics of comparable facilities have been evaluated and compared to the anticipated characteristics of the proposed facility. Key characteristics to be compared include the following: • Location • Number of lanes • Length of lanes • Types of users • Utilization • Financial characteristics It is important to note that no single characteristic justifies the expectation that the operating profile of a particular facility might reasonably be comparable to the anticipated operating profile of the proposed property. For example, the fact that a comparable range has a similar number of lanes 'to the proposed facility does not indicate in itself that the occupancy, or financial characteristics of this facility should be similar to those characteristics expected at the proposed facility. At the same time, the fact that a comparable range has a single characteristic that is different from that characteristic of the proposed facility does not necessarily indicate that other characteristics at the comparable facility are not appropriate to use in formulating assumptions regarding the operation of the proposed facility. For this phase of the analysis, the important characteristics of individual comparable facilities were evaluated together to assess the extent to which these characteristics are similar to what might reasonably be expected for the proposed facility. - The important characteristics of comparable facilities are summarized again in the following exhibit. Deloirte 8c Touche LLP:Final Draft Page 58 Summary of Operating Characteristics of Comparable Facilities Numb--of Avg.Lane Comparable Facility Type of Lanes per Length of Civilian L.EA. L.E.A.Lane Utilization Name Location Range Range. Lanes(yards) Use Use Rental Fees (1) Facility Number 1(2) Southern California Outdoor 20.and 12 25-,50-,and No Yes S150/officerly"r. NA 75- orA20Q/day Facility Number 2(3) Southern California Outdoor 6,40,40,and 25-,and SO- Yes No NA 50°/,W% 40 Facility Number 3 Southem Califarnia Indoor 16 16.7 Yes Yes S501hour for 8 306/a lames Facility Number Southefn'Califomia Indoor 14 16.7 Yes Yes NA 40% Facility Number 5 Southern Califarnia Indoor 12 16.7 Yes Y« SSO/ltaur for 6 30% larws Facility Number 6 Southern California Indoor 1; 16.7 Yes Yes $501hour for 7 30% lanes Facility Number 7 Southern California indoor 20 25 Yes Yes NA 50Ye Facility Number 8 Southern California Indoor 12 16.7 Yes Yes S50/hour for 6 30"/e lanes Facility Number 9 Northern California Indoor 23 25 Yes Yes S351hour far g 33% lanes Facility Number 10 Central California Indoor 16 16.7 Yes Yes NA 60019 Facility Number I i Nomh=California Indoor 12 16.7 Yes Yes S351hour for 6 NA lanes Note. L.E.A. = law enforcement agency. (I) Average lane occupancy is the reported estimate of average lane utilization as a percentage of total capacity. (2) Thu facility operates one range with 20 lanes,.and one range with 12 lanes. The range with 20 lanes can be rented for S1501of cer/year;the range with 12 lanes can be rented for$200 per day. (2) This facility has separate ranges for police use, gun club use, and civilian public use, each with separate restrictions. Sources:Interviews with facility managers and operators and Deloitte&Touche LLP. The type of range (indoor or outdoor) was considered in this-evaluation- However, as mentioned above, many gun range users, civilians, and law enforcement agencies, utilize both indoor and outdoor facilities. 1n fact, D&T interviews with selected law enforcement agencies and civilian shooters that used the old range in Huntington Beach indicate potential interest in using the proposed indoor range in the City based upon other attributes,for example-the desirability of its location. Therefore, for the purposes of this analysis, this characteristic in itself does not qualify nor disqualify any operating characteristics at a given comparable facility from being considered similar to those characteristics anticipated at the proposed facility. This assumption applies to the comparable facility evaluations in this section presented below. Presented below is a summary of the evaluation of comparable facilities according to the characteristics identified above. Deloitte& Touche LLP:Final Draft Page 59 Comparable Facility Number 1 • Location: This facility is near the proposed facility, within an estimated 20 miles from Huntington Beach. • Number of bays-. This facility has a similar number of bays as the proposed._facility, with a total of 32 lanes. Therefore,the potential number of shooters at any given point is similar to the potential number of shooters at the proposed facility. In this respect, from the viewpoint of a law enforcement agency,the lane rental fee structure could be anticipated to be similar to what night be expected at the proposed range. It is common for law enforcement agencies to rent blocks of time at ranges; therefore, the fee for a block of time is anticipated to be similar at facilities with a similar number of lanes. However, this is an outdoor facility, which must be taken into consideration. • Length of bays: The facility has bays measuring 25, 50, and 75 yards in length. These lengths are similar to the anticipated length of bays at the proposed facility. • Types of users: the facility is open to law enforcement users only, and not civilian users. Because of this, the demand and utilization characteristics of this facility will provide useful insight as to demand and utilization characteristics for law enforcement entities, but will not pro-6de any insight as to demand and utilization characteristics for civilian shooters. Utilization: For the reason previously stated,the utilization characteristics of this facility will provide insight for law enforcement entities, but not civilian shooters. Operating characteristics: The lane rental fees of this facility could reasonably be expected to be similar to the anticipated lane rental fees at the proposed facility due to the similarities addressed above. This facility has a similar number of lanes reserved for law enforcement use, the location is close to Huntington Beach, other law enforcement agencies use this facility, and the lengths of bays are similar to the preliminary designs for the proposed facility. Based upon this data,it is reasonable to assume that this facility exhibits characteristics similar to what might reasonably be expected at the proposed facility, in terms of law enforcement agency operations. Comparable Facility Number 2 • Location: This facility is located in a separate metropolitan area than the proposed facility. • Number of bays: This facility has 40 shooting positions in 3 of the ranges, and 6 positions in the designated civilian range. Therefore, the potential number of shooters at any given point for the three larger ranges is similar to the potential number of shooters at the proposed Deloitte&- Touche LLP:Final Draft Page 60 facility. In this respect, from the viewpoint of a law enforcement agency, the lane rental fee structure could be anticipated to be similar to what might be expected at the proposed range. However, this is an outdoor facility, which must be taken into consideration. • Length of bays: The facility has 2 ranges with bays measuring 50 yards.in length. The one range open to the­public has bays measuring 25 yards in length.- These lengths are similar to the anticipated length of bays at the proposed facility. Types of users: Two of the ranges are dedicated to the local police department, one is reserved for a revolver club, and the fourth range is open to the public. This configuration is different from the proposed facility, which will be available to other law enforcement agencies. Because of this, the utilization characteristics of this facility will not likely be similar to those anticipated at the proposed facility. + Utilization: For the reason previously stated, the utilization characteristics of this facility could provide insight for civilian shooters,but not other law enforcement agencies. • Financial characteristics: The lane rental fees of this facility could reasonably be similar to the anticipated lane rental fees at the proposed facility for civilian users. The length of lanes is similar, although the number of lanes is fewer at this facility. Based upon this data, the characteristics of use_.rs of this facility, such as the percentage of civilians that bring their own ammunition, and the number of rounds fired on average by a typical visitor, can provide useful insight as to the potential characteristics of civilian users at the proposed facility. Comparable Facility plumber 3 • Location: This facility is located in the same metropolitan area as the proposed facility. • Number of bays: This facility has 16 lanes in total, of which 8 can be rented by law enforcement agencies for weapons training. The number of lanes is fewer than the number anticipated at the proposed facility, but as stated previously, this facility can still provide good indications of operating characteristics at indoor facilities visited by these agencies. • Length of bays: The facility has bays measuring 50 feet in length. This length is shorter than the anticipated length of bays at the proposed facility. In all other respects alone, this comparable facility is directly comparable to the proposed facility. • Types of users: This facility is available for use by.civilian shooters and law enforcement agencies. For this characteristic,the facility is comparable to the proposed facility. Deloitre d Touche LLP: Final Draft Page 61 • Utilization: The characteristics indicated above, such as the type of users, and location, are similar to those of the proposed facility. For.these reasons, it could be anticipated that the proposed facility might experience similar utilization' characteristics as this comparable facility. However, differences between this facility and the proposed facility, such as length of lanes, the size of the facility, the capability for long range rifle shooting, the tactical training center with squad car capabilities, could reasonably be anticipated to generate a different occupancy at this facility than can be anticipated at the proposed facility. However, due to the proximity of this facility and the underlying presumptions 'of demand in the immediate area, it appears that the proposed facility is likely to experience a utilization rate similar to this comparable facility. • Financial characteristics: The lane rental fees of this facility could reasonably be expected to be similar to the anticipated lane rental fees at the proposed facility for civilian users and for law enforcement agencies. Due to the differences in size, length of lanes, and number of amenities at the proposed facility, the pricing characteristics at the proposed facility might•be anticipated to be slightly higher. However, the reasonably low utilization of this facility indicates that market conditions (i.e. low demand) are likely to affect pricing at the proposed facility. Therefore, for purposes of this analysis the financial characteristics of the proposed facility and this comparable facility are assumed to be similar. Based upon these observations, it is reasonable to assume that this facility provides solid comparable information upon which base assumptions about the proposed facility can be based. Comparable Facility Alumber 4 • Location: This facility is located in the same metropolitan area as the proposed facility. • Number of bays: This facility has 14 lanes in total, fewer than'the number anticipated at the proposed facility. • Length of bays: The facility has bays measuring 50 feet in length, shorter than the anticipated length of bays at the proposed facility. • Types of users: This facility is available for use by civilian shooters and law enforcement agencies, although law enforcement officers that utilize this facility do so -for off-duty . shooting activities. • Utilization: The characteristics indicated above, such as the type of users, and location, are somewhat similar to those of the proposed facility. For civilian users, it appears that this comparable facility may exhibit similar utilization characteristics. Overall utilization characteristics of the proposed facility may differ from this comparable range, due to the higher proportion of civilian use at this comparable range. Deloitre& Touche LLP: Final Draft Page 62 S • Financial characteristics: The lane rental fees of this facility could reasonably be somewhat similar to the anticipated lane rental fees at the proposed facility for the civilian section. Based upon this data, it is reasonable to assume that this facility exhibits many characteristics similar to what might reasonably be expected at the proposed facility. Comparable Facility Number S Location:This facility is located in the same metropolitan area as the proposed facility. . . • Number of bays: This facility has 12 lanes in total, of which 6 can be rented by law enforcement agencies for weapons training. The number of lanes is fewer than the number anticipated at the proposed facility. • Length of bays: The facility has bays measuring 54 feet-in length, shorter than the anticipated length of bays at the proposed facility. • Types of users: This facility is available for use by both civilian shooters and law enforcement agencies. • Utilization: The characteristics indicated above, such as the type of users, and location, are similar to those of the proposed facility. ' Although there are differences between this range and the proposed facility, including size, length of lanes, it is anticipated that the utilization characteristics of this facility may represent similar characteristics anticipated at the proposed facility. • Financial characteristics: The lane rental fees of this facility could reasonably be somewhat similar to the anticipated lane rental fees at the proposed facility for civilian users and for law enforcement agencies. The fees appear to be somewhat similar to fees at other facilities in the region. Based upon this data,it is reasonable to assume that this facility may exhibit many characteristics similar to what might reasonably be expected at the proposed facility. Comparable Facility Number 6 Location: This facility is located in the same metropolitan area as the proposed facility. • Number of bays: This facility has 14 lanes in total, of which 7 can be rented by law enforcement agencies for weapons training. The number of lanes is fewer than the number anticipated at the proposed facility. Deloitte& Touche LLP:Final Draft Page 63 • Length of bays: The facility has bays. measuring 50 feet in length, shorter than the anticipated length of bays at the proposed facility. • Types of users: This facility is available for use by civilian shooters and law enforcement agencies. For this characteristic,the facility is comparable to the proposed facility. • Utilization: The characteristics indicated above, such as the type of users, and location, are similar to those of the proposed facility. This comparable facility is primarily used by civilian shooters. It is anticipated that the utilization characteristics exhibited at this comparable facility for the civilian shooters will be somewhat similar to those'characteristics found at the proposed facility's civilian range. However,the anticipated utilization of the law enforcement range at the proposed facility is anticipated to be different than the overall utilization of this comparable facility. • Financial characteristics: The lane rental fees of this facility could reasonably be somewhat similar to the anticipated lane rental fees at the proposed facility for civilian users and for law enforcement agencies. Based upon this data,it is reasonable to assume that this facility may exhibit many characteristics similar to what might reasonably be expected at the proposed facility. Comparable Facility Number 7 • Location: This facility is located in the same metropolitan area as the proposed facility. • Number of bays: This facility has 20 lanes in total. This is similar to the number of lanes on either handgun range of the proposed facility, at 24 lanes each, according to the most recent site plans. Although the total number of lanes for both civilian and law enforcement use proposed at the City range is larger than this number, as stated previously in this report, this characteristic is similar to that anticipated at the proposed facility. • Length of bays: The facility has bays measuring 25 yards in length. This length is comparable to the anticipated length of some of the bays at the proposed facility. in this respect alone,this facility maybe comparable to the proposed facility. • Types of users: This facility is available for use by civilian shooters and law enforcement agencies. It should be noted, however, that the user base of the proposed facility is anticipated to be weighted more heavily to the law enforcement agency market. • Utilization: An estimate of average annual utilization was reported to be approximately 50%. Because of the similar characteristics between these two facilities, this utilization rate may be similar to what night reasonably be expected at the proposed facility, although the proposed facility is anticipated to include more lanes. Deloiue& Touche LLP:Final Draft Page 64 • Financial characteristics.: The lane rental fees of this facility for civilian shooters could reasonably be considered similar to the anticipated lane rental fees at the proposed facility for civilian users. Based upon this data, it is reasonable to assume that this facility exhibits many characteristics similar to what might reasonably be expected at the proposed facility. Comparable Facility Number 8 • Location:This facility is located in the same metropolitan area as the proposed facility. • Number of bays: This facility has 12 lanes, smaller than the expected number of lanes at the proposed facility. • Length of bays: The facility has bays measuring 50 feet-in length, shorter than the anticipated length of the bays at the proposed facility. 'lopes of users: This facility is available for use by civilian shooters and law enforcement agencies. It should be noted,however,that the proposed facility is anticipated to be weighted more heavily to the law enforcement agency market. • Utilization: An estimate of average annual utilization was reported to be approximately 30%. Because of the similar characteristics between these two facilities,this utilization rate may be similar to what might reasonably be expected at the proposed facility for civilian use. Due to its size, however,this range may not provide appropriate data to make assumptions about the total utilization of the proposed facility. • Financial characteristics: The lane rental fees of this facility for civilian shooters could reasonably be considered similar to the anticipated lane rental fees at the proposed facility. Based upon this data,it is reasonable to assume that this facility may exhibit many characteristics similar to what might reasonably be expected at the proposed facility. Comparable Facility Number 9 • Location: This facility is located in a different metropolitan area than the proposed facility. • Number of lanes: This facility has 24 lanes in total, organized into three sections of eight lanes each. One section is available for rental by law enforcement agencies for.weapons training. • Length of lanes: The facility has lanes measuring 25 yards in length, comparable to the proposed facility. Delcitte& Touche LLP: Final Draft Page 65 • Types of users: This facility is available for use by civilian shooters and law enforcement agencies, comparable to the proposed facility. • Utilization: An estimate of average annual utilization was reported to be approximately 33%. In addition, it was indicated that the average daily attendance at the.range is from_30 to 40 persons per day during the weekdays, and from 60'to 80 persons per day. during weekends. Although there are similar characteristics between this facility and the proposed facility, the average utilization at the proposed facility is expected to be higher due to the size, target audience, and additional amenities that are not provided at the comparable facility. • Financial characteristics: The lane rental fees of this facility could reasonably be considered similar to the anticipated lane rental fees at the proposed facility for civilian users and for law enforcement agencies. Based upon this data,it is reasonable to assume that this facility may exhibit many characteristics similar to what might reasonably be expected at the proposed facility. Comparable Facility Number 10 • Location: This facility is located in a different metropolitan area than the proposed facility. • Number of lanes: This facility has 16 lanes in total,.of which eight lanes-are primarily.used by the public, and eight of which are reserved for law enforcement agency use, or for civilian overflow use.. The number of lanes is fewer than the number anticipated at the proposed facility. • Length of lanes: The facility has lanes measuring 50 feet in length, shorter than the anticipated length of bays at the proposed facility. • Types of users: This facility is available for use by civilian shooters and law enforcement agencies. in Utilization: An estimate of average annual utilization was reported to be approximately 60%. The average utilization at the proposed facility is expected to differ due to the size, target audience, and competitive facilities of the proposed facility. • Financial characteristics: The lane rental fees of this facility could reasonably be considered similar to the anticipated lame rental fees at the proposed facility-for civilian users. No information on lane rental fees for law enforcement agencies was provided. Based upon this data, it is reasonable to assume that this facility may exhibit many characteristics similar to what might reasonably be expected at the proposed facility. Deloitte d Touche LLP: Final Draft - Page 66 Comparable Number 11 • Location: This facility is located in a different metropolitan area than the proposed facility. • Number of lanes: This',facility'has'12 lanes in total.-Six of these lanes are available for rent' to law enforcement agencies for private firearms training sessions. V ... • Length of lanes: This facility has lanes measuring 50 feet in length, shorter than the anticipated length of bays at the proposed facility. • Types of users: This facility is available for use by civilian shooters and law enforcement agencies. • Utilization: An estimate of average annual utilization was not provided. However, the estimated daily attendance was reported to be 60 shooters for both weekdays and weekends. • Financial characteristics:The lane rental fees of this facility could reasonably be considered similar to the anticipated lane rental fees at the proposed facility for civilian users and law enforcement agencies. Based upon this data,it is reasonable to assume that this facility may exhibit many characteristics similar to,what might reasonably be expected at the proposed facility. Estimation of Potential Market Demand -This section provides insight to the potential market demand for the gun range; specifically, the overall utilization. To formulate an estimate of potential market demand requires an understanding of not only the market demographic and economic characteristics, but also of the user groups and their levels of interest in a new gun range in the City. To achieve this understanding,the following tasks have been conducted: • Evaluation of demand by identifying and interviewing potential users • Estimation of anticipated usage,events, and overall utilization The first part of this section highlights. the common suggestions and concerns from various interviews with potential users, facility operators, and other interested parties. In the second part of this section, D&T has estimated the overall utilization of the proposed facility. The tasks conducted to facilitate this analysis are presented below. • Step 1: Indicate total potential capacity - defined as the number of lanes multiplied by the total fours of available use. Deloitte& Touche LLP:Final Draft Page 67 • Step 2: Indicate utilization estimates -"based upon reported occupancy for competitive and comparable facilities (where provided), and conversations with knowledgeable participants in the shooting range market in Orange County. Step 3: Calculation of overall occupancy estimate-by multiplying results of Steps 1 and 2. Presented below are summaries of interviews with potential users. This section is followed by the calculation of estimated overall utilization. Evaluation of Demand by Identifying and Interviewing Potential Users The anticipated demand has been estimated by identifying and interviewing potential users of the proposed facility. In addition, comparable facilities have been contacted in order to better evaluate the current market environment for firing ranges in Orange County. The user groups and related parties contacted in this analysis are identified in this section. Law Enforcement Agencies • Huntington Beach Police Department • Fountain Valley Police Department • Westminster Police Department . Newport Police Department • Garden Grove Police Department a Seal Beach Police Department • Costa Mesa Police Department • Yorba Linda Police Department • Golden West College Police Academy • Long Beach Police Department • Burbank Police Department • San Diego Police Department • San Bernardino Police Department • California State University at Long Beach Police Department • University of California at Irvine Police Department ' • U.S. Federal law enforcement agency(confidential) • California State law enforcement agency(confidential) D&T interviewed representatives of these law enforcement agencies in order to evaluate.the potential market demand from these major users. The suggestions and indications of demand revealed from these conversations are summarized below. . Deloine d rouche LLP: Final Draft Page 68 • Demand for.long rifle firing capabilities in Orange County.. The available options for users demanding long rifle firing training include the San Gabriel Valley Gun Club in Duarte, Camp Pendleton, Prado-Tiro Olympic Shooting Park in Chino, and a few other locations in Southern California. No ranges in the immediate area surrounding Huntington Beach and throughout Orange County with lanes measuring 100 yards or greater could be identified. Many law enforcement agencies, including the Huntington Beach Police Department, are required to train for long range rifle tactics at facilities far from their jurisdiction. Police departments, including those from Huntington Beach, Westminster, Garden Grove, Seal Beach, and Yorba Linda, use the San Gabriel Valley Gun Range for training of selected officers for rifle shooting. • Capability for low lighting conditions. Many agencies interviewed expressed interest in the ability to reduce lighting levels in indoor facilities to simulate "night training" for shooting sessions. • Ability for tactical firearms training involving automobiles or special vehicles. Many agencies interviewed indicated a desire for a facility with the capabilities of firearms training involving automobiles, such as squad cars, or motorcycles. There are reportedly no indoor facilities in Southern California that offer this capability. The Burbank Police Department operates an outdoor range and allows this type of weapons training. • Moving targets and barricades. Several law enforcement agencies interviewed indicated interest in .a facility with moving targets. Suggestions of-such targets included targets moving laterally,targets turning towards the shooter,and pop-up targets. In addition, several agencies indicated interest in a range providing barricades, such as different size walls and curbs, from which to shoot. It was also commented that equipment that provides moving targets at various distances along the lanes provides greater safety as it eliminates any necessity for persons to move into the line of fire to move or retrieve a target. • Private shooting session capability. All of the law enforcement entities interviewed indicated the need for private shooting sessions. The three key concerns proposed by these constituents relate to 1) the confidentiality needs of law enforcement personnel, 2) the need for access to shooting lanes,and 3)the unique facility needs of law enforcement agencies. The first concern, the need for confidentiality, comprises two underlying components. First, there is concern for the confidentiality of the identity of certain law enforcement professionals. For example, numerous undercover agents from certain agencies muss not have their identities and/or agency associations revealed to civilian shooters. Second, there is concern for the confidentiality of the type of firearms training conducted by law enforcement agencies. It has been expressed that some of the tactical and combat training sessions conducted by law enforcement agencies needs to remain confidential to remain effective. 1 Deloitte& Touche LLP: Final Draft Page 69 The second concern is the need -for access to shooting lanes. Law enforcement representatives commented that law enforcement professionals often hold training and qualification sessions during their regular shifts. Therefore, any delays in'training sessions due to the lack of available shooting lanes could result in fewer officers available for active duty,or an increase in overtime expenses for the agencies. The third concern is the difference in facility needs between civilian shooters and law enforcement agency personnel. As a general statement, law enforcement agency personnel utilize shooting facilities for qualification requirements, tactical and combat training and education, performance improvement, and other events, including recreational shooting events. On the other hand, civilian shooters utilize ranges for.recreational shooting events, target practice, different types of shooting matches,weapons training,and other social events. 'Tactical and combat training and education are unique requirements of law enforcement users. One example of such tactical training needs is firearm training involving vehicles. • Different law enforcement agencies have different ammunition needs. For example, conversations with the City of Long Beach Police Department revealed that many other law enforcement agencies utilizing the department's outdoor facility bring their own ammunition and targets. At a confidential indoor facility in Northern California, it was commented that out of the 11 agencies that use the facility on a contract basis,2 purchase-ammunition at the facility, and 9 bring their own ammunition. A general consensus among practitioners of this industry is that approximately 50%of entities will bring their own ammunition; and 50%will purchase from the range... • Qualification sessions typically last one hour per person. This time estimate was reported to represent an average time for a typical quarterly qualification session. In addition, it was commented that the typical number of rounds fired per person per qualification is approximately 50 rounds. This number ranged from 50 rounds to 100 rounds. • Flexibility is important to law enforcement agencies. it had been indicated by different agencies that they desire a range operator to be flexible to their training needs. For example, some departments have personnel that would like to train at night rather than during the day. Some training sessions require low lighting, or other effects brought in by the department of the facility. It is apparently important to range masters and law enforcement entities renting blocks of time at ranges to know that the operators are flexible, and can accommodate an agency's needs. Gun Range Operators D&T contacted a total of 19 indoor and outdoor, private and publicly operated,.gun ranges during this analysis. Some of these ranges have been presented as competitive-or comparable facilities in this report; others have not due to characteristics that may have made them not directly comparable to the proposed facility. D&T contacted these gun range operators in order Deloitte d Touche LLP:Final Draft Page 70 to evaluate the potential market demand from major users. The suggestions and indications of demand revealed from these conversations are summarized below. • Retail gun and equipment sales shop is recommended as market demand warrants. Various operators of indoor gun facilities with full service retail gun shop noted that a retail store can provide significant income f6r a gun range.-`One individual noted that.an expensive gun range provides a very. slow return payback if funded solely from hourly lane rentals and ammunition sales. The sale of retail guns and equipment, and even related sporting goods equipment can help amortize the initial investment of the gun range. D&T's interviews with range operators revealed a concern for the need for experienced personnel to manage the retail firearm sales department. The sale of guns to law enforcement entities may provide only small profit margins because of agencies' ability to command price discounts. In addition, certain rare or exotic guns can justify higher profit margins than standard guns of more popular caliber,according to range operators. As a result, it reportedly takes an experienced, and knowledgeable staff to manage the pricing, and purchasing of guns for retail sale. In addition, it was commented that a market exists for used gun sales (trade- ins),which also requires experienced professionals knowledgeable on pricing issues. • Uniform and equipment sales to law enforcement agencies may not be highly profitable. The operator of an indoor facility with a full service retail gun shop commented that uniform and equipment sales to law enforcement agencies may not provide a high margin. Reportedly, many agencies purchase supplies in bulk, and therefore command discounted prices. Furthermore, many agencies desire vast selections of equipment, although the volume of purchases for individual equipment selections may be small. This can create an inventory problem for vendors serving customers with these purchasing patterns. It was noted further that agencies.often seek more than one bid on equipment and uniform purchases, and that national entities may have stronger competitive advantages than a single facility in competing for this segment of the equipment sales market. However, it should be noted that many of the law enforcement agencies interviewed had indicated potential interest in a new equipment and uniform vendor in the area. Some of these agencies indicated they would like to have two or three bids from vendors for their purchases. Others commented that perhaps officers would have interest in buying individual holsters and other related equipment as necessary. The City may wish to consider the profitability of providing law enforcement items for sale at the facility versus the potential attraction such a sales facility might present to law enforcement users seeking a "one-stop" source for training and equipment needs. The needs and views of the City Police Department may be an important.factor in this consideration. • Sack-stop systems. Representatives of numerous agencies, and a few privately operated facilities, indicated that the state-of-the-art Super Trap system is the back stop system of choice. The Super Trap system is comprised of condensed pieces of shredded rubber serni- Deloitte& Touche LLP: Final.Drcf, Page 71 truck tires that are compacted to form'a back-stop system that "catches" bullets in whole, rather than fragmenting bullets into numerous pieces, as the steel trap systems do. Interviewees commented that an alternative back-stop system, the Caswell sheet steel system, may require additional maintenance and attention when compared to the Super Trap. The Caswell.system is.a custom-built collection of steel sheets configured to fit an indoor range. Users commented that with this system, lead'can tend to cluster on the steel, ultimately twisting the steel sheets, and requiring additional maintenance. The'Super Trap is reportedly .being used or is planned to be installed at law enforcement operated ranges for approximately IS police departments in the Southern California area, including Beverly Hills, El Segundo, Buena Park, Gardena, Costa Mesa, and Fullerton, and the Orange County Sheriffs Department. It should be noted, however, that interviews with range operators throughout California did find a nix of supporters and opponents to this particular back-stop system. Any final determination of back-stop systems should follow consultations with engineers, .design architects, and the facility operator(s) to ensure all objectives of all interested personnel are accomplished through the final back-stop selection. • Reported decline in civilian demand for gun ranges. Conversations with facility operators in Southern California indicated a substantial decline in demand for gun facilities from the civilian public. In multiple interviews, operators commented that the decline in overall business for firing ranges, and related operations was close to 50% over the last three to five years. It was suggested that possible reasons for this decline include the following: 1. A rise in ariti-gun sentiment among the general public, possibly driven by a common association of guns with violence. 2. Demand for guns, training courses, and use of firing ranges was reportedly at an all- time high between 1992 and 1994. It was suggested that this increase in demand during these years was partially the result of civil unrest in Southern California, and the fear of future government bans on certain firearms. 3. A decline in interest in shooting as a recreational sport. A review of statistics presented by the California State Department of Justice indicate a significant decline in handgun sales in Southern California. 'The exhibit located in the Analysis of Primary Geographic Area Demographics section of this report presents these figures. • Demand from law enforcement entities is fairly constant. Several facility operators indicated that demand for gun range time from law enforcement agencies has been fairly constant over the last few years, while demand from civilian shooters has declined. Operators noted that locating the proposed facility near law enforcement agencies without their own ranges might provide significant stable demand from law enforcement officers who might use the facility for qualification, practice on an individual basis prior to qualification, or participation in off duty firearm carry licensing requirements. Deloine& Touche LLP:Final Draft Page 72 • Additional liability insurance. Some-facilities contacted require law enforcement-agencies under contract to provide additional liability insurance for their officers. One operator indicated that workmen's compensation insurance was also required, as well as the individual signatures on a release form. • Potentially hazardous lead material. Operators commented that lead dust,.and particles from shots and the back-stop system can cause major problems for facility operators if the facility and its equipment are not properly maintained. Appropriate maintenance procedures are also necessary for ancillary systems, such as ventilation systems and fans, which can absorb lead build-ups if not maintained and cleaned on a regular basis. In addition, employees responsible for removal, maintenance, or cleaning of any aspect of the range involving lead exposure should be required to wear appropriate clothing, masks, and equipment to protect against lead overexposure. • Ammunition purchases—factory vs. reloaded ammunition. -Several operators commented that the vast majority of users purchasing ammunition at a range tend to purchase reloaded ammunition due to the cost savings. The consensus among operators is that approximately 50% of visitors will purchase ammunition at the range. Of this number, approximately 90% to 95% were estimated to purchase reloaded ammunition. It was suggested that a common price differential between factory and reloaded ammunition may be approximately $1.00 to $3.00 per box of 50 rounds. It was noted, though, that some visitors will tend to purchase factory manufactured bullets for certain events and guns,such as high power rifle matches. • Ammunition purchases - rifle lane users vs. pistol lane users. Operators interviewed noted-that, in general, users of rifle lanes do not use as much ammunition as users of pistol lanes in a similar amount of time, because of the timing, precision, and accuracy desired by most long gun shooters, and because the process of loading and aiming a rifle takes longer than the process of loading and firing a handgun. • Length of lanes is important. From conversations with persons familiar with 'shooting facilities and shooter profiles, it had been indicated that for many shooters, longer lanes are preferred over shorter lanes. This was reported to apply directly to indoor facilities because some of these ranges can have movable targets at varying distances along the firing line. Thus,the greater the length of bay, the more possibilities of target arrangements. Organizations and Associations, and Civilian Shooters D&T interviewed representatives of the following organizations to evaluate the potential demand for the proposed facility by this market segment of users. • National Rifle Association Members' Council of Huntington Beach • Huntington Beach Gun Club • Brea Gun Club Deloine& Touche LLP:Final Drafi Page 73 • Santa Clara Valley Gun Club • California Rifle and Pistol Association The typical user generally shoots between 50 and 100 rounds per hour. Interviews with active shooters indicated this reported usage. Many shooting enthusiasts reportedly prefer outdoor facilities. Several civilians and organizations interviewed commented on the advantages of an outdoor facility. Some of these include natural lighting and natural barriers, such as wind, that provide a "realistic" shooting environment. Others commented that the outdoors provided an atmosphere conducive to the sport of shooting. Certain individuals that partake in various shooting disciplines, such as Cowboy Action Shooting, were noted to prefer outdoor shooting events to indoor ranges. However, as indicated previously, many of those individuals who had indicated a preference for outdoor facilities had indicated a preference for location over the type of range. The supply of gun clubs includes shooters from numerous shooting disciplines. A sample of the types of gun clubs found in Southern California includes the following; • Airgun Pistol and Rifle • Long Range Pistol Silhouette • Action Pistol • Shotgun • Air Rifle Smallbore Rifle • Air Rifle Silhouette • Schuetzwen Glide Watch • Black Powder • Smallbore Hunter Silhouette High Power Rifle • Short Range Pistol Silhouette • Hunters Pistol Silhouette • Three Gun • High Power Rifle Silhouette • Smallbore Rifle Silhouette Estimation of Overall Utilization Based upon the interviews from selected potential users of the facility, an estimate of the overall utilization has been generated. As stated previously, the methodology used to generate this estimate consists of three steps. The concept is to estimate the total number of possible hours for which the facility is likely to be in operation. An estimation of the likely utilization of the facility is then generated. In order to estimate the overall occupied hours the utilization rate is multiplied by the total number of possible hours. Each of these steps are summarized below. Prior to calculating estimates of utilization for the proposed facility, a utilization conclusion must be generated. Based upon a review of the operating profiles of comparable facilities, the following observations and conclusions have been made. Deloirre& Touche LLP:Final Drofr Page 74 Proposed Civilian Pistol and Rifle Ranges • Demand from civilian shooters for gun ranges in Southern California appears to have declined dramatically over the last three to five years, after having peaked sometime near 1992. Some range operators had indicated an overall decline in demand from.civilian shooters at their ranges approaching nearly 50%over the last five years. ... • Utilization rates at comparable facilities serving primarily civilian shooters are between 30% and 60%. Those facilities identified in this analysis which are located within Orange County reported utilization rates generally close to the lower end of this range. • All of the comparable facilities generally have between twelve and twenty four pistol lanes, and none of these facilities have long-range rifle lanes. The length of lanes at comparable facilities often measures less than the length of lanes proposed for the range in the City. • Primary research conducted by D&T indicates that there are no indoor facilities with long- range rifle lanes in Southern California. Interviews with range operators suggest that the construction, and operation expenses of maintaining an indoor facility with I00-yard or 100- meter lanes outweigh the anticipated revenue generated from the lanes. Operators had commented that the financial and economic attributes of constructing such a facility would have a rather lengthy payback period when considering the construction costs, monthly rent expenses, and hourly lane rental fees. Based upon these observations, it is reasonable to conclude that there is not sufficient demand from civilian public shooters in the local area to support development of the proposed facility with the current size and lane configuration designs for the civilian public pistol and rifle ranges. Development of.a 24 lane civilian pistol range and a 12 lane civilian rifle range, as currently proposed, would create one of the largest indoor facilities in an area occupied by smaller gun ranges experiencing relatively low-utilization rates. Based upon current operating profiles of existing facilities identified in this analysis, it is reasonable to conclude that a new gun range in the market area would likely experience utilization characteristics similar to that of existing facilities in the area. 'To the extent that utilization is a significant driver of financial performance, in this case, it does not appear to make economic sense for the development of a large gun range that is anticipated to experience relatively low utilization rates._ However, it appears in general that there,is demand in the area from civilian shooters for indoor gun ranges. Thus, it is reasonable to believe that construction of a new facility with amenities, such as long-range rifle lanes,will attract civilian shooters. Presented in the Recommendations section are recommended changes to the current civilian range size and lane configuration designs in order to reflect the current level of demand expressed by the market in an attempt to realize a more acceptable utilization rate. Deloitte& Touche LLP: Final Draft Page 75 Proposed Law Enforcement Agency Pistol and Rifle Ranges • Demand from law enforcement agencies for gun ranges in Southern California appears to be consistent. Many range operators indicated a stable demand for use of their ranges by law enforcement agencies. • The vast majority of law enforcement agencies interviewed indicated potential interest in utilizing a new range in the City. All of the agencies interviewed indicated potential interest in utilizing the long-range rifle lanes at the proposed facility. • More than 70 law enforcement agencies used the old range in the City operated by the POA before its closure in 1995. Historical operating and financial information from the POA was not available. The relatively large number of contractual agreements between the facility and the numerous law enforcement agencies suggests a strong Ievel of demand in the area from law enforcement agencies. It also suggests that the location of Huntington Beach is attractive to many law enforcement agencies in the area. • Many law enforcement agencies in Orange County, including the Police Departments for the Cities of Huntington Beach, Westminster, Garden Grove, Seal Beach, and Yorba Linda, currently use the San Gabriel Valley Gun Club range in Duarte for rifle training sessions. This facility is approximately 35 miles from Huntington Beach. The Prado-Tiro Olympic Shooting Park in Chino is approximately 30'miles from Huntington Beach. The required travel time to and from these ranges for officers often generates additional expenses for local police departments, sometimes in the form of overtime salary expenses. The vast majority of the law enforcement agencies interviewed indicated a preference for utilizing a facility with long-range rifle capabilities located in Huntington Beach to utilizing the existing facilities in either Duarte,or Chino. Based upon these observations, it is reasonable to conclude that there is sufficient demand from, law enforcement agencies in the local area to support development of the proposed facility with the current size and lane configuration designs of the law enforcement agency pistol and rifle ranges. Construction of the law enforcement agency ranges according to the current design plans would result in one of the largest indoor ranges in the area dedicated to law enforcement agencies. In addition, it would be the only range (indoor'or'outdoor) in the Orange County area to offer long-range rifle shooting capabilities. Based upon the research gathered through this analysis, it is reasonable to conclude that the utilization of the law enforcement agency ranges will be somewhat higher than the utilization of the civilian public ranges. To the extent that utilization is a significant driver of financial performance, in this case, it appears justifiable for the development of this section of the facility. Deloitte& Touche LLP:Final Draft Page 76 Recommendations The following recommendations are based upon a review of primary research conducted in this analysis,and the resulting conclusions on utilization. • Construction of the proposed gun range should not entail development of a'24.1ane civilian pistol range, nor a 12 lane civilian rifle range. It appears that the current level of market demand for gun ranges in Orange County will not feasibly support a facility of this size. It is estimated that development of a reduced number of lanes in the civilian pistol (12) and'rifle ranges (6) will be more adequately supported by the current level of demand from civilian gun range users. • The civilian pistol and rifle ranges should have limited hours of operation during the weekdays and weekends. Many of the facilities serving civilian shooters do not open until 10:OOam. To a further degree, certain comparable facilities are closed during certain weekdays, or operate only evening hours. The hours of operation at the proposed facility should be scheduled to match those hours most likely to be demanded by the market, as well as those hours of operation necessary to fulfill the City's original objectives. The overall size, length of lanes, inclusion of rifle lanes,and location of the proposed facility, are all anticipated to create a competitive advantage for the proposed range over,the existing facilities in the area. Therefore, if the numbers of lanes in each of the civilian ranges (pistol and rifle) are reduced from the current design plans to numbers that are closer to the numbers of lanes at existing competitive and comparable facilities, it is anticipated that the proposed range will experience an.overall utilization rate closer to the higher end of the range given (i.e. from approximately 30% to 60%) for the civilian ranges. However, it is important to note that this assumption is based upon the assumption of the development of the range with.a lower number of civilian pistol and rifle lanes. It is anticipated that construction of the range Aith the current number of civilian lanes would result in an overall utilization rate closer to the lower end of the range given for the civilian ranges. No changes appear to be necessary to the current design plans for the law enforcement agency pistol and rifle ranges. The forecast of, operating results for the proposed range takes these recommendations into consideration. Therefore, the forecast is generated based upon a lower number of civilian lanes than currently proposed, but the same. number of law enforcement agency lanes as currently proposed. In the forecast, it is assumed that the civilian pistol and rifle ranges vdli be open for business for ten hours per day every day of the week. In addition, it is assumed that the law enforcement agency pistol and rifle ranges will be open for business for ten hours per day every - day during the week days, but will not be open for business on weekends. It is important to note that the resulting forecast of overall utilization may appear high when compared to existing facilities, but this is a result of changes recommended specifically to improve overall utilization. The recommended changes to the nurriber of lanes, and the recommended hours of operation are presented to avoid expenditures on what appear to be potentially under-utilized facility areas. Deloilre& Touche LLP: Final Drafr Page 77 Calculotionsfor Utilization Estimates Step 1: Indicate total potential capacity. Defined as the number of lanes multiplied by the total hours of available use. This defines the total possible number of hours for which the facility can be.used. The exhibits on the following three pages depict the.calculations performed to estimate the total potential capacity. Deloirre 8 Touche LLP: Final Draft Page 78 Exhibit 1 of 5: Exhibit 2 of 5: Total Potential Capacity - Civilian Pistol Range Total Potential Capacity- Civilian Rifle Range Civilian Civilian Rifle Range Number of lanes 12 Number of lanes 6 Daily hours of operation 10 Daily hours of operation 10 Total daily rentable hours 120 Total daily rentable hours 60 Total days in year 365 . Total days in year 365 less one week maintenance (7) less one week maintenance (7) less one week holidays (7) less one week holidays (7) Total available days per year 351 Total available days per year 351 Total weekend days in year 96 Total weekend days in year 96 less one weekend maintenance ' (2) less one weekend maintenance (2) Net available weekend days per year 94 27% Net available weekend days per year 94 27% Net available weekdays per year 257 73% Net available weekdays per year 257 73% Total available days per year 351 100% Total available days per year 351 100% Total daily rentable hours 120 Total daily rentable hours 60 Total weekend rentable hours per year 11,280 27% Total weekend rentable hours per year 5,640 27%fl Total weekday rentable hours per year 30,840 73% Total weekday rentable hours per year 15,420 73% Total annual rentable hours 42,120 100% Total annual rentable hours 21,060 100% Source:Deloitle& Touche LLP Source:Deloille& Touche LLP . r Deloitle do Touche LLP:Final Draft Page 79 Exhibit 3 of 5: Exhibit 4 of 5: Total Potential Capacity- L.E.A. Pistol Range*, Total Potential Capacity-L.E.A. Rifle Range* Law rnforeement Agency Pistol Range Law Enforcemat Aeency Rifle Range ' Number of lanes 24 Number of lanes 6 Daily hours of operation 10 Daily hours of operation 10 Total daily rentable hours 240 Total daily rentable hours 60 Total days in year 365 Total days in year 365 less one week maintenance (7) less one week maintenance (7) less one week holidays (7) less one week holidays (7) Total available days per year 351 Total available days per year 351 Total weekend days in year 96 Total weekend days in year 96 less one weekend maintenance (2) less one weekend maintenance (2) Net available weekend days per year 94 27% Net available weekend days per year 94 27% Net available weekdays per year 257 73% Net available weekdays per year. 257 73% Total available days per year 351 100% Total available days per year 351 . 100% Total daily rentable hours 240 Total daily rentable hours 60 Total weekend rentable hours per year 0 0% Total weekend rentable hours per year 0 0% Total weekday rentable hours per year 61,680 I00% Total weekday rentable hours per year 15,420 100% Total annual rentable hours 61,680 100% Total annual rentable hours 15,420 100% Note: *For analytical purposes, the law enforcement pistol range is Note: "For analytical purposes, the law enforcement rifle range is assumed to be closed on weekends. assumed to be closed on weekends. Source:Deloitte& Touche LLP Source:Deloitte& Touche LLP e Deloitte cF Touche LLP: Final Draft Page 80 f. Exhibit 5 of 5: Total Potential Capacity Civilian and L.E.A.Pistol and Rifle Ranges Avail. Hours per %of Year Total Civilian Pistol Range 42,I20 30% Civilian Rifle Range 21,060 15% Subtotal 63,180 45% Law Enforcement Pistol Range 61,680 44% Law Enforcement Rifle Range 15,420 11% Subtotal 77,100 55% Total rentable hours per year 140,280 100% Source:Deloirte& Touche LLP Based upon the calculations above, it is estimated that the total annual hours for which lanes can be rented is 140,280 per year. It is interesting to note that the law enforcement agency ranges collectively are anticipated to contribute approximately 55%of the total available hours per year. This number is larger than the anticipated collective contribution of available hours from the civilian ranges due to a larger number of law enforcement agency lanes. The collective total for law enforcement agency ranges is not significantly larger than that of the civilian ranges because of the assumption that the law enforcement agencies will not operate during the weekends. Step 2: Indicate utilization estimates. Based upon reported utilization characteristics for competitive and comparable facilities (where available), and conversations with knowledgeable participants in the shooting range market in Orange County, estimates of utilization have.been derived for the proposed project. The exhibits on the following three pages illustrate these assumptions. Deloilre& Touche LLP.Final Draft Page 81 Exhibit I of 5: Exhibit 2 of 5: Utilization Estimate- Civilian Pistol Range Utilization Estimate-Civilian Rifle Range Avail. Annual Avail. Est. Avail. Annual Avail. Est. Days per Hours per Hours per Daily Days per Hours per Hours per Daily Year Day Lane Utiliz. Year Day Lane Utiliz. Weekdays 257 Weekdays 257 Day hours 6 1,542 35% Day hours 6 1,542 35% Night hours 4 1,028 50% Night hours 4 1,028 50% Total 10 2,570 41% Total 10 2,570 41% Weekends 94 Weekends 94 Day hours 6 564 60% Day hours 6 564 60% Night}tours 4 376 60% Night hours 4 376 60% Total . 10 940 60% Total 10 940 60% Total 351 Total 351 Day hours 6 2,106 42% Day hours 6 2,106 42% Night hours 4 1,404 .53% Night hours 4 1,404 53% Total 10. 3,510 46% Total 10 3,510 46% Source: Deloirre& Touche LLP -Source:Deloitte& Touche LLP c Deloirte& Touche LLP: rinal Draft Page 82 Exhibit 3 of 5• Exhibit 4 of 5: Utilization Estimate- L.E.A. Pistol Range* Utilization Estimate-L.E.A. Rifle Range* Avail. Annual Avail. Est. Avail. Annual Avail. Est. Days per Hours per Hours per Daily Days per Hours per Hours per Daily Year Day Lane UtiIiz. Year Day Lane. Utiliz. Weekdays 257 Weekdays 257 Day hours 6 1,542 70% Day hours 6 1,542 70% Night hours 4 1,028 70% Night hours 4 _ 1,028. 70% Total 10 2,570 70% Total 10 2,570 . 70% Weekends 94 Weekends 94 Day hours 0 0 0% Day hours 0 0 0% Night hours 0 0 0% Night hours 0 0 0% Total 0 0 0% Total 0 0 0% Total 351 Total 351 Day hours 6 1,542 70% Day hours 6 1,542 70% Night hours 4 1,028 70% Night hours 4 1,028 70% Total 10 2,570 70% Total 10 2,570 ' 70% Note: *For analytical purposes, the law enforcement pistol range is Note: *For analytical purposes, the law enforcement pistol range is assumed to he closed on weekends. assumed to be closed on weekends. Source:Deloitte& Touche LLP Source:Deloitte& Touche LLP Deloitte& Touche LLP: Final Draft Page 83 Exhibit 5 of 5: Overall Utilization Estimate Civilian and L.E.A. Pistol and Rifle Ranges Avail. Hours per Est. Year ,Utiliz. Civilian Pistol Range 42,120 46% Civilian Rifle Range 21,060 46% Subtotal 63,180 46% Law Enforcement Pistol Range 61,680 70% Law Enforcement Rifle Range 15,420 70% Subtotal 77,100 70°% Total rentable hours per year 140,280 59% Source:Deloitte& Touche LLP Based upon these calculations, it is estimated that the overall utilization of-the proposed facility will be approximately 59%. This number is a weighted average based upon the individual -- utilization estimates for each type of range at different times and days, and the corresponding total rentable hours per year. It is important to note that the resulting forecast of overall utilization may appear high when compared to existing facilities, but this is a result of changes recommended specifically to improve overall utilization. Step 3: Calculation of overall occupancy estimate. This is calculated by multiplying results of Steps 1 and 2. The exhibits on the next five pages detail these calculations and the resulting estimates of occupied hours. Deloiile& Touche LLP: Final Draft Page 84 Exhibit 1 of 5: Estimate of Overall Occupancy-Civilian Pistol Range Est.Annual Total Avail. Annual Avail. Est. Occupied Annual Est. Days per Hours Hours per Daily Hours per No.of-. ..Occupied Year per Day Lane Utiliz. Lane Lanes Hours Weekdays 257 Day hours 6 1,542 35% 540 12 6,476 Night hours 4 1,028 50% 514 I2 6,168 Total 10 2,570 41% I,054 12 12,644 Weekends 94 Day hours 6 564 60% . 338 12 4,061 Night hours 4 376 60% 226 12 2,707 Total 10 940 60% 564 12 6,768 Total 351 Day hours 6 2,106 42% 878 12 10,537 Night hours 4. 1,404 53% 740 12 8,875 Total 10 3,510 . 46% 1,618 12 19,412 Source:Deloitre& Touche LLP The estimated daily utilization for the civilian pistol range represents the percentage of total capacity for which this particular section of the range is operating. The overall total estimate of 46%utilization is consistent with the xange of utilization of approximately 30%to approximately 60% quoted at comparable facilities in the immediate area. This utilization estimate takes into consideration periods of low activities, such as weekdays. The utilization estimate during the night hours is higher than that anticipated during weekday day hours to account for difficulty of employed civilian shooters to visit the facility during normal work hours. Deloitte& Touche LLP: Final Draf Page 85 Table 2 of 5: Estimate of Overall Occupancy-Civilian Rifle Range Est. Annual Total Avail. Annual Avail. Est. Occupied Annual Est. Days per Hours Hours per Daily Hours per No. of Occupied Year per Day Lane Utiliz. Lane Lanes Hours Weekdays 257 . Day hours 6 1,542 35% 540 6 3,238 Night hours 4 1,028 50% 514 6 3,084 Total 10 2,570 41% 1,054 6 6,322 Weekends 94 Day hours 6 564 60% 338 6 2,030 Night hours 4 376 60% 226 6 1,354 Total 10 940 60% 564 6 3,384 Total 351 Day hours 6 2,106 42% 878 6 5,269 Night hours 4 .1,404 53% 740 6 4,438 Total 10 3,510 -46% 1,618 6 9,706 Note: Totals may not sum due to rounding. Source:Deloitte& Touche LLP The estimated daily utilization for the civilian rifle rangd represents the percentage of total capacity for which this particular section of the range is operating. Because no civilian rifle ranges exist in the area, there is no comparison of this estimate to utilization characteristics at other indoor facilities. Based upon conversations with persons familiar «zth ranges and characteristics of rifle shooters, the utilization is anticipated to be similar to the estimate-of utilization for pistol lanes. This utilization estimate takes into consideration periods of low activities, such as weekdays. The utilization estimate during the night hours is higher than that anticipated during weekday day hours to account for difficulty of employed civilian shooters to visit the facility during normal work hours. Deloiue& Touche LLP: Final Draft Page 86 Table 3 of 5: Estimate of Overall Occupancy-Law Enforcement Agency Pistol Range Est.Annual Total Avail. Annual Avail: Est. Occupied Annual Est. Days per Hours Hours per' Daily Hours per ' No. of Occupied Year per Day Lane Utiliz. Lane Lanes Hours Weekdays 257 Day hours 6 1,542 70% 1,079 24 25,906 Night hours 4 1,028 70% 720 24 17,270 Total 10 2,570 70% 1,799 24 43,176 Weekends 94 Day hours 0 0 0% 0 24 0 Night hours 0 0 0% 0 24 0 Total 0 0 0% 0 24 0 Total 351 Day hours 6 1,542 70% 1,079 24 25,906 Night hours 4 1,028 70% 720 24 17,270 Total 10 2,570 70% 1,799 24 43,176 Source:Deloine& Touche LLP The estimated daily utilization for the law enforcement agency pistol range represents the percentage of total capacity for which this particular section of the range is operating. The overall total estimate of 70% utilization is higher than the 30% quoted utilization rates at comparable facilities. The utilization is anticipated to be higher than the rate experienced at comparable facilities because the proposed facility is anticipated to attract a larger number of law enforcement agencies than most of the comparable facilities. This estimate of 70% takes into consideration the responses from agencies interviewed, the number of agencies that utilized the old range in the City, and any periods of low activity that might arise between agency quarterly, monthly, or bimonthly qualifications. The utilization estimate during the right hours is equivalent to the estimate during the day hours during weekdays due to the anticipation that officers on duty for'both day and night shifts will use their regular shifts for qualification sessions, or other training. Deloitte& Touche LLP:Final Draft Page 87 Table 4 of 5: Estimate of OveraU Occupancy-Law Enforcement Agency Rifle Range Est. Annual Total Avail. Annual Avail. Est. Occupied Annual Est. Days per Hours Hours per Daily Hours per No.of . .Occupied Year per Day Lane Utiliz. Lane Lanes Hours Weekdays 257 bay hours 6 1,542 70% 1,079 � 6 6,476 Night hours 4 1,028 70% 720 6 4,318 Total 10 2,570 70% I,799 6 10,794 Weekends 94 Day hours 0 0 0% 0 6 0 Night hours 0 0 0% 0 6 0 Total 0 0 0% 0 6 0 Total 351 Day hours 6 1,542 70% I,079 6 6,476 Night hours 4 1,028 70% 720 6 4,318 . Total . 10. 2,570 70% 1,799 6 10,794 Source:Deloitte& Touche LLP The estimated daily utilization for the law enforcement agency rifle range represents the percentage of total capacity for which this particular section of the range is operating. There is no comparison of this estimate to utilization characteristics at other indoor facilities in the area with long rifle lanes because there are no such facilities in the area The utilization is anticipated to be somewhat higher than the estimate of utilization for pistol lanes because there are no lanes of this length in the area, there is reportedly demand from law enforcement agencies for long- range rifle lanes, and the number of lanes appears not to be significantly large enough to over saturate the market. This utilization estimate is 70% during the weekdays; this section of the facility is anticipated to be closed during weekends. . Presented in the following table is the overall estimate of utilization for the entire facility on an annual basis. Deloitte& Touche LLP: Final Draft Page 88 Table 5 of 5: Estimate of Overall Occupancy-Civilian and L.E.A Pistol and Rifle Ranges Est. Avail. Hours Est. Occupied. per Year Utilmi Hours Civilian Pistol Range 42,120 46% 19,412 Civilian Rifle Range . _.. .-. 21,060_._..: .46% 9,706 Subtotal 63,180 46% 29,119 Law Enforcement Pistol Range 61,680 70% 43,176 Law Enforcement Rifle Range 15,420 70% 10,794 Subtotal 77,100 70% 53,970 Total rentable hours per year 140,280 59% 83,089 Note: Totals may not sum due to rounding. Source:Deloitte& Touche LLP The total overall estimate of utilization for the proposed facility is 59%. This is a weighted average of utilization estimates for each of the'sections of the range (i.e.'civilian versus law enforcement agency). This figure takes into consideration all of the slow periods, such as weekdays for civilian shooters. It is important to note that the resulting forecast of overall utilization may appear high when compared to existing facilities, but this is a result of changes recommended specifically to improve overall utilization. Determination of Facility Sizing and Configuration Characteristics This section of the analysis evaluates key sizing and configuration characteristics for the proposed gun range. In order to complete this analysis, the relevant characteristics of comparable facilities have been evaluated, and knowledgeable professionals within this industry have been consulted. The City's landscape architecture and planning firm.,Nuvis, has completed a preliminary drawing for the layout of the gun range. These design plans were generated based upon months of negotiations, recommendations, analyses, and input from numerous parties. Law enforcement agencies, the City of Huntington Beach Police Department, the City of Huntington Beach Community Services Department, other relevant City departments, interested organizations, such as the National Rifle Association, Super Trap, and structural and design architects all provided recommendations based upon experience with other ranges, evaluation of the market demand in the area, objectives of the City, safety concerns, cost concerns, utilization concerns, and training needs of the local police department and other law enforcement agencies. As a result of these Deloicce& Touche LLP: Final Draft Page 89 meetings, Nuvis-had. drafted various plans "according to different scenarios. The most recent plans for the proposed facility entail the following: • 24 position public pistol lanes measuring 25 yards in length 12 position public rifle lanes measuring 100 meters in length • 6 position law enforcement agency rifle lanes measuring 100 meters in length • 24 position iaw enforcement agency pistol lanes measuring 25 yards in length An evaluation of these characteristics has been performed based upon the analysis of market demand detailed in tliis report. This evaluation involved the following tasks: • Identification of the types of shooting Ianes desired by the market • Identification of the physical sizing parameters for lanes desired by the market • Determination of the number of lanes of each type most appropriate Types of Shooting Lanes Based upon an evaluation of market demand as described above, there appears to be demand for both pistol and long range rifle lanes. Pistol lanes are in demand from law enforcement agencies and civilians. Many law enforcement agencies currently use the Fountain Valley Police Department range for quarterly pistol qualifications. Some of these agencies indicated this facility has restricting hours'of operation, and only has 8 lanes. Those agencies interviewed indicated an interest for more lanes, and longer hours of operation for officers working different shifts. Civilian shooters interviewed indicated interest in additional lanes in the area because there is currently only one facility in the City, the Firing-Line Indoor Gun Range of Huntington Beach. Long range rifle lanes are also in demand. There are no.facilities offering long range rifle lanes in the immediate area. As a result, agencies and civilians must travel out of the area for long range rifle shooting. Some of the local police departments interviewed (including the City of Huntington Beach Police Department) indicated that they use the San Gabriel Valley Gun Club in Duarte for long range rifle training, an estimated 30 miles away from Huntington Beach. All of the agencies contacted throughout this analysis indicated interest in a facility with firing lanes of at least 100 yards. All of the civilian organizations contacted throughout this analysis also indicated interest in a facility with this type of lane. It should be noted that all of the issues involved with estimating demand for a particular type of lane were discussed among all of the participants at the City meetings held prior to the drafting of this site plan. The research conducted for this report appears to support the conclusions derived from these meetings, and the resulting preliminary plan. Deloirte 8 Touche LI_P: Final Draft Page 90 Physical Sizing Parameters of Lanes Representatives or various law enforcement entities indicated that 25-yard firing lines are adequate for pistol training needs, but that 50-foot fining lines are considered inadequate. Some of the competitive facilities in the surrounding area, such as the Firing-Line Indoor Gun Range in Huntington Beach and Brea, and JR'S Indoor Pistol Range in Long Beach each provide only 50 foot firing lines. On Target Gunsmith in Laguna Niguel has 25-yard firing lines, and Evans Gun Smithing in Orange has 50-yard firing lines. One facility in Northern California with 50-foot lanes has indicated the desire for longer lanes at that facility. For the rifle lanes, the current plans for 100 meter bays appears appropriate for market demands. All of the law enforcement agencies contacted had indicated interest in 100-yard lanes. Many civilian organizations contacted also indicated interest in long-range rifle lanes. It should be noted that all of the issues involved with estimating demand for a particular type of lane were discussed among all of the participants at the City meetings held prior to the drafting of this site plan. The research conducted for this report supports the conclusions derived from these meetings and the resulting preliminary plan. Number of Lanes The preliminary number of pistol and rifle lanes include the following: for civilians - 24 public pistol lanes and'12 public rifle lanes; for law enforcement entities - 24 agency pistol lanes and 6 rifle lanes. As indicated throughout this report, the number of--lanes at the proposed facility is greater than the number of lanes at any of the facilities evaluated herein. According to conversations with law enforcement entities, the number of lanes at Fountain Valley Police Department range (eight pistol) is insufficient. The Firing-Line in Huntington Beach has 16 lanes, although only eight are rented at time for law enforcement agency use. Law _Enforcement Agency Lanes It appears that the number of lanes for law enforcement agencies can reasonably be expected to be supported-by the market demand. The rifle lanes, in particular, are anticipated to be utilized by local, state, and federal law enforcement entities in the area, as there is no facility with long range rifle lanes in the immediate area. The pistol lanes dedicated to law enforcement entities also appear to be reasonably supported by market demand, as there are no facilities with a comparable number of lanes for law enforcement training. As reported earlier, all of the law enforcement entities contacted had indicated potential interest in using the facility. In addition, the list of more than 70 organizations that used the old range provides support for demand in the area from agencies. Deloitte& Touche LLP: Final Draft Page 91 Civilian Lanes The lanes dedicated for civilian shooters, currently 24 for pistol use and 12 for rifle use in the preliminary site plans, are reasonably anticipated to experience a lower utilization rate than the law enforcement agency lanes. This assumption is based upon several-observations. . First, conversations with operators of gun fanges in the area indicated a decline iit_.demand from. civilian shooters. It was commented by one operator that this decline was especially prevalent for "walk in" shooters, i.e. the occasional recreational shooter without a membership. Second, a review of financial results for several facilities in the Southern California market all reported a decline in gross sales from 1994 to •1996. These results add support to any discussion about declining demand. Third, one of the closer facilities to the proposed development in Huntington Beach has reported a current utilization of approximately 30% of capacity. This facility has 16 lanes, although the lanes are shorter than those planned for the proposed facility, and has no long range rifle capabilities. However, this reported utilization must be taken into consideration when forecasting utilization assumptions for any proposed development in Huntington Beach. It had been indicated that the original design configurations and site plans were composed in 1996. It has also been indicated that gun clubs, local police departments, City personnel, and other interested parties had provided input into the design configurations based upon experience, safety.concerns,law enforcement objectives, and other criteria. Based upon the analysis in this report, it is recommended that a more appropriate number of civilian pistol and rifle lanes would more closely resemble the number of lanes of comparable facilities in the area. For purposes of this analysis, the number of civilian pistol lanes anticipated to be supported by the market is estimated to be 12 and the number of civilian rifle lanes anticipated to be supported by the market is estimated to be 6. Deloiue d Touche LLP_ Final Draft Page-92 V. FINANCIAL ANALYSIS - GUN RANGE A number of factors influence the potential financial performance of the proposed gun range_ Some of these factors.include .the demographic and economic characteristics of the area (as discussed in the Market Analysis), the potential'demand for a new indoor shooting range, and the revenue and expense characteristics of the facility's-operations. The following section documents the anticipated financial characteristics associated with the project's operations. In order to evaluate the operating performance of the gun range, a cash flow model has been prepared to illustrate the anticipated results from operations. The operating assumptions identified in this analysis have been derived from interviews with major users, and operators of existing gun ranges, and other third parties actively participating at shooting facilities. Develop Financial Operating Profile The purpose of this section of the report is to develop a financial operating profile for the proposed gun range for the first five years of operation. This profile estimates operating revenues and expenses for the proposed facility, and summarizes its potential operating performance (before financing). In order to develop an understanding of anticipated operations of the proposed complex D&T performed five key steps: • Evaluation of major revenue items • Development of operating profile assumptions • Evaluation of major expense items • Development of five year financial model • Application of sensitivity tests upon key variables The first step of this analysis identifies the major revenue items and generates related revenue assumptions. The second step provides the operating profile assumptions, most notably utilization and occupancy characteristics of the project. These two steps collectively determine the overall revenue from the project's operations. The third step identifies the major operating expenses identified and generates related expense assumptions. The fourth step provides a five-year operating forecast. It is through this step that the anticipated operations of the proposed facility can be evaluated 'at a stabilized occupancy and utilization. Finally, the fifth step demonstrates the results of sensitivity analysis on key revenue and expense assumptions in order to evaluate the results upon the operating forecast. In the course of our analysis, consideration was given to 24-hour operation .of the proposed facility. The City expressed an interest in exploring the possibility of operating the proposed facility on a continuous basis for law enforcement agency use, with a goal of improving utilization for this segment of the market. As part of this potential operating plan, the proposed facility would, as a policy.. not allow law enforcement Deloirte 8 Touche LLP: Final Droftt -Page 93 agencies to book blocks of time as "standing reservations, but would instead require agencies to call ahead for a specific number of lanes. Our research demonstrated that these potential law enforcement users expressed a strong desire to continue current industry practice of maintaining regular blocks of reserved time at gun ranges for a .number of reasons,- including preserving confidentiality of training.methods, types of weapons used in training and certain officers' identities, as well as being able.to.maintain lane configurations. Furthermore, our research indicated that there did not seem to be levels of demand from law enforcement agencies or the general public to justify incurring the potential significant increases in operating costs associated with 24-hour operation, even should law enforcement agencies accept a wholesale change of prevailing industry practice. After discussions with the City on this subject, it was agreed that standard industry operating practice should be used in the analysis. Evaluation of Major Revenue Items D&T assumptions for the operating revenues of the proposed facility in order to estimate operating cash flow, which are presented in this section. It is expected that revenue will be generated through various sources, including law enforcement agency lane rental fees, civilian public hourly lane rental fees, ammunition-and equipment sales, and education and training courses. Assumptions generated for each of these revenue items are summarized below. Latin Enforcement Agency Lane Rental Fees A primary objective for the facility is to secure contracts with other law enforcement agencies to serve their firearms training needs. D&T contacted a number of law enforcement agencies and gun ranges in order to estimate_ the potential revenue generated from these organizations. The market analysis of this report summarizes these investigations. Presented below are summaries of the market data used to generate law enforcement lane rental fee assumptions for the pistol range. • One local police department pays $9.00 per shooter per visit at a local police department gun range. • A local police department pays $45.00 per year per shooter at a local police department range. Assuming 4 quarterly qualification sessions, this equates to $11.25. per visit per shooter. • A local division of a federal agency pays $175.00 per day for shooters at a local outdoor shooting range. This price includes an unlimited number of shooters (as possible), for as many hours as necessary during the day. It was commented that this agency has approximately 30 shooters with qualifications requirements; assuming all 30 shoot in one day, this relates to a price of approximately $5.83 per shooter per visit. A local police department pays $25 per hour for 8 lanes at a local police department range for group sessions. This equates to approximately $3.13 per lane per hour. it Deloirre& Touche LLP:Final Draft Page 94 was also indicated that smaller sessions involving those individuals unable to use the reserved time each pay approximately$6.00 per hour. • A local police department pays $50 per hour for 10 lanes at a local range, and $40 per hour at a different range. At these facilities, the reported rates equate to a fee of$5 per hour per lane. • A local police department operating a gun range-charges $200 per day for.-12 lanes. This equates to$16.67 per lane per day. o A local police department pays $100 for 3 hours for 8 lanes at an indoor range in the area. This equates to approximately$4.17 per lane per hour. • An indoor facility in Northern California charges approximately $35 per hour for 8 lanes. This equates to $4.38 per lane per hour. s A local police department charges law enforcement agencies approximately $8 per person per hour for use of its range. An indoor facility in Northern California charges $35 per hour for use of 6 lanes. This equates to$5.83 per hour per lane. • An outdoor facility in Southern California charges $90 for half a day. This facility is reportedly frequently used by law enforcement agencies for rifle training. Based upon this information, D&T estimated lane rental fee for officers of law enforcement agencies to be $5.00 per person per hour for the pistol range. This is within the range of fees illustrated above. Based upon conversations with law enforcement entities, it appears the officers that require rifle qualifications are distinct from those that require pistol qualifications. Usually, the group requiring rifle qualifications includes members of SWAT teams, or other special teams of law enforcement entities. For the purposes of this analysis, the contract of time and fees at the proposed facility for use of its law enforcement agency rifle range is assumed to be different than that of the pistol range. D&T estimated the lane rental fee for officers of law enforcement agencies to be $7.00 per person per hour for the rifle range. This estimate is slightly higher than that for the pistol range. However, this estimate has been conf=ed by actual fees at other ranges, such as the Angeles Shooting Range, which charges $6.00 per shooter per day for use of its outdoor ranges, and the Prado-Tiro Olympic Shooting Park, which charges $8.00 per shooter per hour for use of its outdoor range. In addition, because there are no gun ranges-in the vicinity that offer long range rifle lanes, and there appears to be demand for this capability, a slight premium for these users appears reasonable. Civilian Public Lane Rental Rates These fees generally range from 57.50 for a day to $10.00 per hour,-depending upon the time of day. Many facilities offer special rates, such as lower rates before 5:00 pm, or discounts for -a second shooter (e.g. half price). Included in these rates in certain Deloirle Touche LLP:Feral Draft Page 95 instances are rentals of eye and ear protective equipment, such as goggles or eye glasses, and ear protective devices. Some facilities do not include this equipment in the lane rental fee, but charge a minimal amount for use, such as $0.25 or $0.50 per use. For the purposes of this analysis, the estimated individual hourly lane rental rate is assumed to include the.rental of this equipment. An indoor range..in the competitive market"area currently charges $7.99 per hour per person for a lane rental fee. For the purposes of this analysis, the estimated civilian public lane rental rate for use of the civilian pistol range is $8.00 per person per hour, which includes both the lane rental fee and the protective equipment rental fee. There are no indoor facilities offering long range rifle lanes in the market area. As such, there is no direct comparison of lane rental rates. However, because D&T's primary research indicates that the civilian public generally pays a slight premium for use of pistol lanes when compared to the fees paid by law enforcement agencies, it is anticipated that there will be a slight premium for the public use of the rifle lanes as well. As stated previously, for purposes of this analysis, the law enforcement agency lane rental rate for rifle lanes is estimated to be $7.00 per person per hour. .This estimate appears to be reasonably within the range of fees quoted for outdoor facilities with long rifle lanes. Therefore, for purposes of this analysis, the estimated lane rental rate for civilian public rifle lanes is $9.00 per person per hour. Membership Fees Fees range from $99 to $279 per person per year. However, it should be noted that the fee structure for memberships varies at different facilities, and includes different services and products, and lane availability schedules. For example, at one indoor facility in the competitive area, a series of memberships are available, including a thirty-day pass offering free range time and gun rentals for $20 per person or $30 per family; a one year shooter's discount membership offering unlimited free range time for $99 per person or $149 per family; and a full privilege one year membership offering unlimited free range time and free gun rentals for $125 per person or $199 per family. Many of the facilities interviewed had indicated a stratification of membership fees generally between$100 and $150 per person per year. For purposes of this analysis, the estimated membership fee per person is $125 per year. Gun Rental Rates Gun rental rates at comparable facilities are reported to be within the range of$2.50 to $3.00 per gun, with generally no time restrictions imposed. Customers, however, are responsible for ammunition, which is available for purchase at each of the facilities. It had been indicated that the common types of guns available are standard pistol and rifle selections, such as .22, .38, .357, .40, .45, and 9mm caliber guns, and could include other firearms as demanded. For purposes of this analysis, the estimated gun rental rate is $3.00 per gun per visit. Deloitue d Tourhe LLP: Final Draft Page 96 Ammunition Sales Ammunition sales can provide a potentially significant source of revenue to gun ranges, as. some 'visitors and members purchase ammunition at the range. Range operators indicated that more frequent shooters tend to use reloaded ammunition at ranges because- it costs less than factory manufactured ammunition. One range interviewed quoted a price of$10.99 for a box of 50 rounds of reloaded ammunition, and $13.99 for a similar box of factory ammunition. One diregt competitor in the area sells boxes of 50 rounds of ammunition for $8.75 to $9.75, depending upon the gun caliber. The Huntington Beach Police Department reported its ammunition expenditures to be $0.16 per round for .45 caliber ammunition, and $0.15 per round for 9mrn ammunition. Based upon our interviews with gun range operators, the estimated average sales price of ammunition at the proposed facility is estimated to be $9.00 for reloaded ammunition, and $10.00 for factory manufactured ammunition. Deloitte& Touche LLP:Final Draft Page 9i Firearm Equipment Sales Sales of firearm equipment can be a potential source of revenue for a facility that provides a pro shop in addition to the firing range. Many of the competitive and comparable gun ranges (privately owned indoor facilities) surveyed maintained a sales shop on-site. -Products sold include guns, cleaning equipment, instructionll..products, ammunition, and other gun-related items. These items are anticipated to be sold at competitive market prices. For the purposes of this analysis, D&T conducted an evaluation of the mix of gun and product sales at other facilities. For example, at some indoor facilities surveyed, the sales of gun and firearm products were reported to be between 28% and 50%of total sales. The facilities reporting that 50% of their total sales were derived from equipment sales stated that their sales operations offered full service gun and firearm goods store. For this analysis, it is estimated that firearm and equipment sales will represent a smaller percentage of total sales than exhibited at some of the comparable facilities. Some of the comparable facilities indicated as part of their business plan the intent to be in business primarily to sell retail items, such as firearms and equipment, to the general public. It is anticipated that the proposed facility will maintain a pro shop to sell firearms and equipment. ' However, based upon the objectives determined by the City of primarily serving the firearms training needs of the Huntington Beach Police_ Department, other law enforcement agencies, and civilian shooters, it is anticipated that more emphasis will be placed on operating the range than operating the pro shop. Therefore, we estimated that approximately 20% of total sales will result from firearm equipment sales, excluding ammunition sales. Firearm and Related Education and Training Courses Firearm and related education and training courses at the facility can generate potentially significant revenue. Many of the competitive ranges offer some form of firearm education and training courses. Many facilities have full time staff that are certified to teach courses, while others arrange the courses,provide the environment,and hire outside contractors to teach the courses. A sample of common firearm courses includes basic, intermediate, and advanced firearm safety training. Some facilities offer private one on one training sessions. More details -of firearms .classes,- prices and attendance are presented in the Market Analysis of this report. For the purposes of this analysis, D&T conducted an evaluation of the variety of education class sales at comparable facilities, which indicates that the percentage of revenue generated from education courses is less than 5% of total sales. For purposes of this analysis, the estimated percentage of sales derived from education and training courses is anticipated to be approximately 5% of total sales. For purposes of this analysis, a 3.0% inflation rare is applied to revenue items each year. Deloitle& Touche LLP:Final Drafi Page 98 Development of Operating Profile Assumptions In this section of the report, the utilization and demand characteristics investigated inithe Market Analysis are used to estimate an operating profile for the proposed complex. These characteristics influence the operating performance of the project - how often the complex is being used, and by whom. The application of these characteristics to the revenue assumptioiis derived previously determines the potential financial performance of the project. Please refer to the Market Analysis of this report for further details on the anticipated operating utilization at the proposed facility. The estimated utilization and occupied hours are presented below. Estimated Annual Utilization and Total Annual Occupied Hours Proposed Facility Est.Total Total Est. No.of Annual Avail. Est.Daily Occupied Lanes Hours Utiliz. Hours Civilian pistol range 12 42,120 46% 19,412 Civilian rifle range 6 21,060 46% 9,706 L.E.A.pistol range 24 61,680 70% 43,176 L.E.A. rifle range 6 15,420 70% 10,794 Total 48 140,280 59% 83,089 Note: Totals may not sum clue to rounding. Source:Deloitte& Touche LLP As concluded in the Market Analysis, the estimated overall utilization of the proposed facility is 59%. The resulting total annual occupied hours is estimated to be approximately 83,089. In addition to the estimate of overall occupied hours per year,-other relevant assumptions have been generated for this analysis. These assumptions are summarized below. • Membership sales: At some of the comparable facilities the reported number of active members ranged from 400 to more than 1,500. Based upon an evaluation of membership levels at comparable facilities, the number of lanes at these facilities, the number of lanes anticipated at the proposed facility, and the amenities anticipated at the proposed facility, it is estimated that the proposed facility will have approximately 700 members. This number is slightly larger than the number of members reported at a comparable facility in Southern California with fewer lanes. However, because of Deloitte& Touche LLP: Final Droft Page 99 the size, and variety of lane configurations of the proposed facility this estimate: appears reasonable. • Ammunition sales: Range operators, law enforcement entities that use ranges, and other knowledgeable.participants interviewed by D&T indicate that the proportion-of law enforcement agencies that purchase ammunition at a facility and the proportion of those entities that bring their own department issued ammunition varies dramatically according to department policy and the terms of each agency's contract with a given facility. Some agencies simply rent time at a gun range for weapons qualification sessions, and other agencies rent time and purchase ammunition. For the purposes of this analysis, it is estimated that 50% of the agencies will purchase ammunition at the facility, and 50%will bring their own ammunition. Based upon conversations with gun range operators, the common consensus is that 50% of civilian visitors will purchase ammunition at a facility, and 50% will supply their own ammunition. It had also been reported on several instances that frequent users of gun ranges tend to use reloaded ammunition. The percentage of all shooters that use reloaded ammunition was reported by operators and major users to range from 70% to 99%,with frequent comments suggesting a consensus of close to 90%of shooters. For the purposes of this analysis, it is assumed that 90% of those shooters that purchase ammunition at the range (estimated to be 50% of all shooters) will purchase reloaded ammunition. Based upon conversations with law enforcement entities, gun range operators and members of gun clubs, it is estimated that a typical shooter at a gun range will generally fire between 50 and 100 rounds per hour, with a consensus estimate close to 50 rounds per hour. For purposes of this analysis, the average number of rounds fired per person per hour is 50. • Gun rentals: Based upon an evaluation of operating data of a comparable facility, it appears that the average number of gun rentals per day is approximately 8 rentals. As the proposed facility is slightly larger than this comparable facility, for the purposes of this analysis the estimated number of gun rentals per day is 10. Based upon conversations with law enforcement entities, and gun range operators, it is reasonable to assume that law enforcement entities will provide their own firearms and will not rent, guns from the facility. Therefore, this estimate only reflects gun rentals to civilian shooters. • Civilian members: It is estimated that 20% of visitors to the civilian rifle and pistol lanes will have memberships at the facility. It should be noted that officers of law enforcement agencies may have personal memberships at the facility and may'shoot on off-duty time. The estimate of the number of members takes this into consideration. Based upon the common features and benefits of range memberships at comparable facilities, it is anticipated that the memberships offered at the proposed Deloirre& Touche LLP: Final Draft Page 100 facility will include free range timQ. As such,.for the purposes of this analysis, it is anticipated that 20% of visitors to the civilian ranges will pay annual membership fees, but will not pay hourly lane rental fees. Evaluation of Major Expense Items Significant assumptions related to the operating expenses of the proposed facility have been derived. The major expense assumptions generated in this section of the report are derived from conversations with gun range operators, major users of facilities, and a review of financial information provided by selected indoor facilities in Southern California. Presented in this section are the assumptions for expense items to be used in the financial model. For analytical purposes, a 3.0% inflation rate is applied to facility operating expenses, other than cost of goods sold.(which is assumed to be dependent upon the estimated expense ratios and the mix of revenue sources). It should be noted that certain expense stems are estimated as a percentage of gross sales, based upon recommendations and suggestions given by range operators. Cost of Goods Sold According to gun range operators,.and an evaluation of financial information provided to D&T for comparable facilities, the cost of'goods sold represents a significant operating expense. According to gun range operators, the cost of goods sold will vary across different types of sales items. For the purposes of this analysis, the cost of goods sold expense is estimated separately for ammunition sales and for all other applicable sources of revenue. . Ammunition Sales- Cost of Goods Sold A common consensus was that for reloaded ammunition, the average mark-up in price is often close to between 30% and 50%. For factory manufactured ammunition, the average mark-up in price is often close to 30% or lower. This translates into a cost of goods sold expense ranging from approximately 67% to approximately 77% for reloaded ammunition. In addition, this translates into a cost of goods sold expense of approximately 77% for factory ammunition. As stated previously, it is common at gun ranges for reloaded ammunition sales to represent close to 90% of the facility's total ammunition sales. Consequently, it is common for factory ammunition sales to represent close to 10% of the facility's total ammunition sales. For analytical purposes, these estimates have been used in this report to represent the distribution of types of ammunition anticipated to be sold at the proposed complex. In order to calculate the estimated overall cost of goods sold for ammunition sales, the estimates of 90% and 10% have been applied to the estimates of cost of goods sold to generate a weighted average cost of goods sold. This calculation results in an estimated cost of goods sold for Deloine& Toucl:e LLP: Final Draft Page 101 ammunition sales of approximately.72%.• For the purposes of this analysis, it is assumed that the cost of goods sold for ammunition sales will-represent 72% of gross ammunition sales. Other Items- Cost of Goods Sold The profit margins on equipment was noted to vary depending upon the popularity of the product. For instance, it was noted that exotic, rare expensive handguns sell with higher profit margins than standard caliber pistols. The cost of goods sold expenses for various types of revenue sources at a comparable property have been analyzed. The cost of goods sold for equipment, accessories, firearms, and other sales items typically ranged from approximately 60%to more than 85%. Some range operators had commented that it was likely the proposed facility would concentrate more efforts on operating the range rather than operating a professional firearms dealership. As a result, these individuals had commented that it is likely that the facility would tend to sell lower margin firearms and equipment, such as standard caliber firearms, rather than unique, exotic weapons with higher profit margins. Based upon these conversations, and a review of the operating information provided by comparable facilities, the average cost of goods sold for items other than ammunition is estimated to be approximately 80%. For the purposes of this analysis, the average cost of goods sold expense for other sales items is estimated to be 80% of gross sales of other items. Staffing Expenses Facilities need a team of employees to facilitate the operations of a range. Generally, staff are assigned to the retail area for sales of equipment and ammunition, and to the range area for supervision and range monitoring. Some ranges use full-time maintenance employees, while others might outsource,the maintenance and cleaning of the facility. Some ranges employ certified full-time instructors, while others hire outside contractors to teach instructional courses. The staffing needs of a facility depend upon the size of the facility, and the audience targeted. Representatives of law enforcement agencies and range operators indicate that many law enforcement agencies provide their own range master for qualification sessions at gun facilities. However, the facility may often provide its own range master to oversee the agency-and answer any questions during the agency's use of the range. Conversations with an experienced firearms instructor with more than ten years of experience as an instructor indicated the need for at least one firearms instructor per five students, as a general rule. In addition, interviewees indicated that for a gun range the size of the proposed facility, at least two full time instructors/groundskeepers are necessary to address maintenance issues and to assist patrons. As stated in the Market Analysis of this report, four facilities surveyed indicated having staffing needs of either seven or eight full-time employees at each facility. A smaller, five-lane facility contacted during research indicated the need for four full-time employees. It is anticipated that the operation of the proposed facility Deloiue& Touche LLP:Final Draft Page 102 will require more employees than the number reported at-the comparable facilities due to the larger size and number of lanes at the proposed facility. D&T interviewed range operators to estimate the staffing expenses at the proposed facility. In addition, D&T reviewed the financial statements of comparable facilities and compared the results to reported characteristics at other facilities. For.thepurposes of this analysis, this expense category is estimated by calculating a percentage of gross sales, based upon an evaluation of the comparable facilities. Staffing expenses at these facilities ranged from nearly 16% of gross sales to approximately 25% of gross sales. These percentages are comparable to what was revealed through telephone conversations. For the purposes of this analysis, it is estimated that staffing expenses will represent 25% of gross sales. Repairs and Maintenance The range will require regular repairs and maintenance in order to continue to operate. Some of the repairs and maintenance items suggested as common expenses include cleaning supplies and equipment, purchases of small tools, paint replacement, overhead target system replacement, and small maintenance items, such as additional screws, bolts, nuts, etc. Based upon an evaluation of financial information for comparable facilities, and conversations with gun range operators, repairs and maintenance expenses are generally'less than 5%.of gross sales. For purposes of this analysis, the-repairs and maintenance expense estimate is 5%of gross sales. Utilities Indoor facilities require complete ventilation systems to filter the smoke away from shooters and out of the range. The smoke and potentially hazardous lead from gunshots must be removed from these indoor facilities because they are enclosed, and sometimes underground. In addition, adequate lighting systems must be installed and operated during shooting sessions to keep the lanes and targets visible. Other common utilities, including electricity, sewer, water, and heat, are necessary for gun range operation. Based upon conversations with gun operators and review of financial information for comparable facilities, it appears that utility expenses are close to $2.00 per square foot per year. For the financial information provided by comparable facilities,the utility expenses represented less than 5% of gross sales on an annual basis. For purposes of this analysis, it is assumed that the utility expenses in the base year are $2.00 per square foot. This dollar amount is assumed to increase each year by the inflation rate. D&T interviewed range operators to estimate the annual utility expenses using this figure; however, the estimated size of the building has yet to be determined. Based'upon the preliminary site plans, the length.and configuration of the lanes, and the assumption of a lower number of civilian pistol and rifle lanes, it appears the facility is slightly less Delaitte& Touche LLP:Final Draft Page 103 than 35,006 square feet. For the purposes of this analysis, 35,000 square feet has been used. The base year utility expenses are thus $70,000. Other Expenses Indoor facilities will incur other expenses during operations. Some of these expenses can include insurance, office supplies, telephone expenses, and other operating costs. It is estimated that these costs can represent approximately 10% to 15% of gross sales. For the purposes of this analysis, it is assumed that other expenses will represent approximately 10%`6f gross sales. Insurance expenses have'been assumed to be covered under the City's existing'insurance arrangements. Capital Replacement Expense Capital replacement expenses vary significantly among comparable facilities and on a year-by-year basis. Typically, however, facilities set aside annual amounts in order to fund required capital replacement expenditures. The amount set aside is generally a function of the cost of the facility. For analytical purposes, the annual payments required to fund capital replacement expenses are assumed to be$50,000. Expenses Not Included in this Analysis Based upon conversations with-range operators, there are additional expenses that effect privately operated facilities that may or may not effect the proposed facility. Some of the most common expenses that may not apply to the proposed facility include rent expense and insurance expense. Expenses of this nature have been excluded from this analysis. Rent Expense Rent expense is reported to be a large expense item for indoor facilities operated by the private sector. According to a review of financial information for indoor comparable facilities, it appears that this expense may be close to 15% to 20% of gross sales, depending upon the size and utilization of a range. One range operator interviewed indicated that the construction of an indoor long rifle lane range would be financially infeasible due to the significant rent expenses.associated with a.building measuring 100 yards or 100 meters. It was indicated that it would be difficult for a private operator to recover the rent expense for a space in a building this size based upon hourly lane rental fees and ammunition sales. The most recent site plans for the proposed project entail construction of the facility at Central Park. As this site is owned by the City, for the purposes of this analysis it is assumed that there is no rent expense. Should the facility be constructed'on a site that requires payment of rent, the operating expense assumptions utilized in this report would increase to include these rental payments. Deloitte& Touche LLP: Final Draft Page 104 insurance Liability insurance is a required expense for the operations of a gun range. In addition to the facility's own insurance policy, some facilities may require _individuals or law enforcement agencies to provide their own insurance coverage. For example, a local police department in Southern California operates an outdoor facility, and requires contract law enforcement agencies using the range to provide liability insurance, workmen's compensation insurance, and signature of an indemnification clause prior to • using the facility. Because the facility is anticipated to be owned by the City, it is assumed that the facility will be covered through some form of City-wide umbrella insurance coverage. According to conversations with operators at gun ranges. owned by local police departments, it is common for a City policy to cover the insurance of these facilities. Because of this, it is assumed that there are no additional insurance coverage expenses in the financial operating forecast presented further in this report_ Pro erL% Taxes Because the City will own the proposed gun range, it is assumed that no property taxes will be levi6d against it. Development of Five Year Financial Model The objective of this section of the Financial Analysis is to develop a five year forecast highlighting the anticipated operating results for the proposed facility. Presented below is the base case estimate of operations for the proposed facility.based upon the utilization estimates derived in the Market Analysis, and the revenue and expense assumptions derived above. Deloitte& Touche LLP: Final Draft Page 105 T Base Case Estimate Cash Flow Summary Year 1 Year 2 Year 3 Year 4 Year 5 Stabilization Adjustment to Civilian Ranges 80% 90% 100% 100% - 100% Number of occupied hours Civilian pistol range-(1) 15,530 17,471 19,412 19,412 19,4I2 Civilian rifle range-(1;) 7,765 8,736 9,706 - 9,706 _-9,706 L.E.A-pistol range 43,176 43,176 43,176 43,176 43,176 L.E.A.rifle range 10,794 -10,794 10,794 10,794 10,794 Subtotal 77,265 80,177 83,089 83,089 83,089 Operating Revenues Facility Rental Revenue Civilian pistol range S99,391 $115,170 $I3I,806 S135,760 S139,832 Civilian rifle range 55,908 64,783 74,141 76,365 78,656 L.E.A.pistol range 215,880 222.356 229,027 235,898 242,975 L.E.A.rifle range 75,559 77,825 80,159 82,564 95,041 Subtotal S446,737 S480,134 S515,133 $530,587 $546,504 Other Revenue Sources Membership Sales S62,500 $64,375 566,306 - S68,295 S70,344 Ammunition Revenue 351,555 375,748 40I,077 413,109 425,502 Gun Rentals 10,530 10,846 11,171 11,506 11,852 Equipment Sales 232,353 248,294 264,983 272,933 281,121 Education and Training Courses 58,088 62,074 66,246 68,233 70,280 Subtotal S715,026 S761,337 S809,783 $834,077 S859,099 Total Operating Revenue $1,161,763 S1,241,471 S1,324,916 S1,364,663 $1,405,603 Operating Expenses Cost of Goods Sold S494,978 $529,666 S563,929 S580,847 $598,273 Facility Operating Expenditures Staffing expense S290,441 S310,368 S331,229 $341,166 S351,401 Repairs and maintenance 58,088 62,074 66,246 68,233 70,280 Utilities 70,000 72,100 74,263 76,491 78,786 Other 116,176 124,147 132,492 136,466 140,560 Subtotal $534,705 S568,688 $604,229 $622,356 $6411027 Total Operating Expenses S1,029,683 $1,097,354 S1,168,159 $1,203,203 $1,239,300 Surplus(Deficit)From Operations S132,080 $144,117 S156,757 S161,460 $166,304 Less Capital Expenditures 50,000 50,000 50,000 50,000 50,000 Net Operating Surplus(Deficit) $92,090 S94,117 S106,757 S111,460, S116,304 (I) -Includes both membership and hourly users. Deloiae.& Touche LLP.Final Draft Page 106 Base Case Estimate Per Unit Summary Year 1 Year 2 Year 3 Year 4 Year 5 Operating Revenues Facility Rental Revenue Civilian pistol range $8.00 S8.24 S8.49 ' S8.74 $9.00 Civilian rifle range S9.00 S927 S9.55 S9.83 $10.13 L.E.A.pistol range S5.00 $5.15 S5.30 S5.46 S5.63 L.E.A.rifle range $7.00 S721 $7.43 $7.65 $7.89 Subtotal na na na na na Other Revenue Sources Membership Sales S125 S129 S133 S137 $141 Ammunition Revenue Price-Factory S 10.00 S 10.30 $10.61 S 10.93 $11.26 Price-Reload $9.00 $9.27 S9.55 $9.83 S10.13 Gun Rentals $3.00 S3.09 S3.18 S3.28 $3.38 Equipment Sales 20% 20% 20% 20% 20% Education and Training Courses 5% 5% 5% 5% 5% Subtotal na na na na na Operating Expenses E Cost of Goads Sold(C.O.G.S.) C.O.G.S.-other items 80% 80% 80% 80% .80% C.O.G.S.-ammunition 72% 72% 72% 72% 72% Facility Operating Expenditures Staffing expense 25% 25% 25% 25% 25% Repairs and maintenance 5% 5% 5% 5% 5% Utilities $2.00 $2.06 $2.12 S2.19 $225 Other 10% 10% 10% 10% 10% Subtotal na na na na na Less Capital Expenditures $50,000 S50,000 $50,000 $50,000 $50,000 Notes: Revenue and expense items have a 3.0% annual inflation adjustment. Figures illustrated above as percentages represent percentages of gross revenue, except for cost of goods sold expense percentages, which are calculated based upon applicable revenues. Capital expenditures of $50,000 is an estimated budget amount. This dollar amount is not subject to the 3.0% annual inflation adjustment. Source:Deloitte& Touche LLP Deloitte Bc Touche LLP: Final Draft - Page 107 Application of Sensitivity Tests Upon Key Variables In order to evaluate the resulting effect upon the operating surplus or deficit for the proposed facility, a series of sensitivity tests were performed. For analytical purposes, the following sensitivities were applied to the base case illustrated above: • Increase/decrease in expenses by 10%. Other assumptions remain constant. • Increase/decrease in revenues by 10%. Other assumptions remain.constant... • Increase/decrease in utilization by 10%. Other assumptions remain constant. • Increase in expenses by 10%,and a global decrease in utilization by 10%. Other assumptions remain constant. It is important to note that many of the expenses identified in this analysis have been estimated as a percentage of gross sales. For the purposes of this sensitivity analysis,these same percentages have been applied under the various scenarios listed above. Based upon these sensitivity tests, the following outcomes were derived: Expenses Expenses- Revenues Revenues- Utilization Utilization Expenses+10%, Base Case +10% 10% +10% 10% +10% -10% Utilization-10% Operating Revenues $1,161,763 $1,161,763 $1,161,763 $1,277,940 $1,045,587 $1,268,202 $1,055,324 $1,055,324 Operating Expenses $1,079,683 $1,187,652 $971,715 $1,175,652 $983,715 $1,168,967 $990,400 $1,089,440 Operating Surplus(Deficit) $82,080 ($25,889) $190,048 $102,288 $61,872 $99,235 $64,924 ($34,116) Note: These expenses include the Capital Replacement Cost estimate of$50,000 per year. Source: Deloitte&Touche LLP Deloitte cC Touche LLP: Preliminary Draj?-Subject to Revision Page 108