Agenda Packet 10-17-18 Work Session

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Gordon Lofts MUPTE Application MUPTE REVIEW PANEL MINORITY REPORT 100518 H. Hard Construction Cost Contingencies in Excess of 10% Should be Excluded from the Budget, Loan and Debt Service The Applicant includes Contractor and Owner Contingencies for construction hard costs of $4,355,989. These contingencies are 18.9% of the hard construction costs of $23,005,649. The Consultant stated that “a 20% construction contingency is common, particularly in the case of unique, difficult, or unprecedented projects.” The Gordon Lofts project does not seem overly difficult for a 7 story building built on a former parking lot in Eugene, where the north part of the block will be available for staging. The consultant did not cite other ﬁnancial feasibility studies showing construction contingencies for similar speciﬁc projects higher than 10% of hard construction costs, let alone 20% of hard construction costs. A ﬁnancial feasibility study presented to the City of Santa Monica indicated that contingencies for downtown Santa Monica mixed use development could be as much as 10% of hard construction costs. 2 In Oregon, the Low Income Housing Tax Credit appears to limit the construction contingency to 5% of new construction costs. Affordable Housing Investors Council underwriting guidelines appear to identify typical new construction contingencies as being 5%. Underwriting requirements for the Oregon Housing and Community Services apparently provide that the new construction contingency amount is limited to 10% of total new construction costs. Financial pro formas for the Moving Forward Milwaukie opportunity site development concepts appear to assume a Hard Cost Contingency of 7.5% and a Soft Cost Contingency of 7.5%( $2,212,146 as applied to Gordon Lofts). The Olive Lofts MUPTE application used 15% construction contingencies based upon hard construction costs. For purposes of evaluating whether a project could be built without MUPTE, contingencies should be limited. A large contingency such as 18.9 or 20% adds to the project cost and loan, and increases debt service, thus making the project appear less viable. Construction contingencies for MUPTE evaluation should be limited to 10% of hard construction costs, or $2,300,565, a reduction of $2,055,424 from the budget and loan. Reducing the hard cost construction contingencies reduces the project and loan amounts, and debt service, and makes the project more ﬁnancially viable. Beacon Economics, Financial Feasibility Analysis presented to the City of Santa Monica, at 2 5-6 (11/16) https://www.smgov.net/departments/pcd/agendas/Planning.../s2017042606- AB.pdf. Page