Agenda Packet 10-17-18 Work Session

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Page 1 Prepared for: City of Eugene Prepared by: PNW Economics, LLC Market & Financial Analysis of Gordon Lofts MUPTE Program Application 1.Executive Summary Introduction PNW Economics, LLC was retained by the City of Eugene to review the Obie Companies/Gordon Lofts, LLC Multi-Unit Property Tax Exemption (“MUPTE”) program application as part of City market and financial analysis of the project. Specifically, PNW Economics, LLC was tasked with: •Reviewing project application assumptions including market comparables, bank underwriting assumptions, and other pertinent assumptions; •Evaluate projected cash-on-cash return for the project without MUPTE and with MUPTE, which grants a ten-year property tax exemption for the project in order to incent its financial performance such that investment and development is possible and positively contributes to the downtown Eugene economy in place of property underutilization; and •Communicates all analysis and findings appropriately for review by community members and elected officials. This document represents completion of these tasks for review by the City of Eugene and its partners and stakeholders. Summary of Findings •The project as planned is consistent with competitive projects in downtown Eugene in terms of unit types (mix), sizes and project concept. •The project plans apartment rents that are found to be plausible for the prevailing market in downtown Eugene, particularly compared to the most competitive apartment developments currently in downtown. •In addition to standard apartment rents, the project expects to earn “Amenity Based Income” from units, which is basically defined as additional rent for different units depending upon such things as views, balconies, or other unit-specific features. •Analysis of Amenity Based Income assumptions indicates that the amenity rent, 26% or $0.65 additional per square foot above and beyond documented average unit rents in the application, would push project rents significantly higher than what the market will likely achieve. •The planned lease rate for retail space in the ground floor of the project, or $2.75 per square foot monthly, is found to be implausibly above market for the site due to its currently speculative nature, the speculative nature of the planned market adjacent to the space, its lack of visibility from 6th Avenue if a market is developed, and it not physically connected to 5th Street Market, which earns $2.78 per square foot monthly on average. •Anticipated operating expenses for both the apartments and the retail space were found to be high and were adjusted downward for purposes of pro forma financial analysis. October 17, 2018, Work Session – Item 2