Agenda Packet 10-17-18 Work Session

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Page 14 Prepared for: City of Eugene Prepared by: PNW Economics, LLC Market & Financial Analysis of Gordon Lofts MUPTE Program Application •To Obie Companies’ advantage, the developer has major real estate holdings and development track record in the area, which likely translates into a strong relationship with commercial lending. The long-standing business relationship between Obie Companies and its lender will likely mitigate concerns about lending for development on leased land. Assumed Rents, Lease Rates & Escalation Table 10 provides a summary of apartment rents and retail lease rate utilized in the pro forma analyses in this section. •Apartment rents by unit type are based on a competitive premium relative to First on Broadway unit rents. First on Broadway rents were escalated by 5% annually for two years to reflect the likely delivery of the project in 2020, then a 10% premium was added for Gordon Lofts. •The retail lease rate of $2.68 was achieved by assuming a $2.50 per square foot lease rate more commensurate with the prevailing downtown Eugene market, then escalated by 3.5% annually for two years. •Annual apartment rent escalation is assumed to be 3%, while annual retail lease rate escalation is assumed to be 3.5%, both consistent with assumptions in the Gordon Lofts MUPTE application. Table 10 – Gordon Lofts Project Market Apartment Rent & Retail Lease Rate Assumptions Operating Expenses Apartment Operating Expenses Page 41 of the Gordon Lofts MUPTE application documents that operating expenses as a percentage of income without MUPTE is expected to be $976,208, or $7,687 per apartment unit annually including property taxes. Based on the past experience of PNW Economics, the operating expense per unit assumed is high. Adjusting for the unusual expense of making lease payments to Lane County ($62,100 annually), annual operating expense of $7,198 per unit annually is still on the high side. •We would expect annual operating expense per apartment unit to be within the $5,000 to $6,000 range. Assumed Rents 2020 Studio per Month $1,255 1 Bed per Month $1,907 2 Bed per Month $2,723 Retail per Month $2.68 October 17, 2018, Work Session – Item 2