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Page 20
<br />Prepared for: City of Eugene
<br />Prepared by: PNW Economics, LLC
<br />Market & Financial Analysis of Gordon Lofts MUPTE Program Application
<br />Scenario 2: Applicant-Assumed Rent Income
<br />The second two pro forma scenarios assume that Gordon Lofts somehow achieve planned Amenity
<br />Based Income totaling $563,211 in project Year 1 as discussed in this document.
<br />
<br />Applicant-Assumed Rent Income Without MUPTE
<br />Table 13 reports the results of the pro forma analysis of the project without MUPTE but also assuming
<br />it earns market achievable rents and, aggressively, also earns Applicant-anticipated Amenity (Based)
<br />Income. The primary difference between Table 13 and Table 11 is the inclusion of Amenity Income,
<br />though resulting calculations of performance and return are different as a result.
<br />
<br />Analysis in Table 13 indicates that without MUPTE under this scenario, the project earns a first-year
<br />cash-on-cash return of -5.1%. Cash-on-cash return becomes positive in Year 2 and grows thereafter,
<br />reaching at least 6.6% in year 3.
<br />
<br />Still, without MUPTE, the project is infeasible as the developer would have to absorb a significant cash
<br />loss and negative return on equity in the first year, take more than a year additionally to recover the
<br />loss, and not reach the minimum benchmark 6.0% rate of return until year 4. And though cash-on-
<br />cash return is positive in year 2 and year 3, it must be remembered that a minimum return
<br />benchmark is crucial because equity investor(s) will place their funds where the highest rate of return
<br />occurs given expected risk. Other investment vehicles such as stocks, funds, or other opportunities can
<br />and will achieve at least 6% annually with less risk than complicated real estate development
<br />opportunity.
<br />
<br />Table 13 – Scenario 2 Pro Forma Without MUPTE: Market-Achievable Rents with Amenity Income
<br />
<br />Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
<br />2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
<br />Apartment Rent Income $2,415,543 $2,488,010 $2,562,650 $2,639,529 $2,718,715 $2,800,277 $2,884,285 $2,970,814 $3,059,938 $3,151,736
<br />Retail Lease Income $296,654 $307,037 $317,784 $328,906 $340,418 $352,332 $364,664 $377,427 $390,637 $404,309
<br />Amenity Income $563,211 $580,107 $597,511 $615,436 $633,899 $652,916 $672,503 $692,678 $713,459 $734,863
<br />Misc. Income 4%$108,488 $111,802 $115,217 $118,737 $122,365 $126,104 $129,958 $133,930 $138,023 $142,242
<br />Gross Project Income $3,383,897 $3,486,956 $3,593,161 $3,702,609 $3,815,397 $3,931,629 $4,051,410 $4,174,849 $4,302,057 $4,433,150
<br /> - Vacancy 5%($169,195) ($174,348) ($179,658) ($185,130) ($190,770) ($196,581) ($202,571) ($208,742) ($215,103) ($221,657)
<br /> - Absorption Vacancy & Concessions ($819,937) ($23,083) ($23,775) ($24,489) ($25,223) ($25,980) ($26,760) ($27,562) ($28,389) ($29,241)
<br /> = Effective Gross Income $2,394,765 $3,289,525 $3,389,728 $3,492,989 $3,599,404 $3,709,068 $3,822,080 $3,938,544 $4,058,565 $4,182,252
<br /> - Apartment Operating Expense ($606,304) ($832,658) ($857,638) ($883,367) ($909,868) ($937,164) ($965,279) ($994,237) ($1,024,064) ($1,054,786)
<br /> - Retail Operating Expense ($55,758) ($57,430) ($59,153) ($60,928) ($62,756) ($64,638) ($66,578) ($68,575) ($70,632) ($72,751)
<br /> + MUPTE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
<br /> = Net Operating Income (NOI)$1,732,703 $2,399,437 $2,472,937 $2,548,695 $2,626,780 $2,707,265 $2,790,224 $2,875,732 $2,963,868 $3,054,714
<br /> - Debt Service (79% Loan-to-Cost)($2,087,537)($2,087,537)($2,087,537)($2,087,537)($2,087,537)($2,087,537)($2,087,537)($2,087,537)($2,087,537)($2,087,537)
<br /> = Before Tax Cash Flow ($354,834)$311,900 $385,400 $461,158 $539,243 $619,728 $702,687 $788,195 $876,331 $967,177
<br />Cash-on-Cash Return -5.1% 4.5% 5.5% 6.6% 7.7% 8.9% 10.0% 11.3% 12.5% 13.8%
<br />Value - 6% Cap Rate 6%$28,878,385 $39,990,614 $41,215,612 $42,478,244 $43,779,672 $45,121,089 $46,503,731 $47,928,867 $49,397,808 $50,911,904
<br />Maximum Private Loan (6% Interest)
<br />Loan-to-Cost (Applicant Plan)79%($27,000,000)
<br />Loan-To-Value 75%($29,992,960)$2,992,960 If negative, represents a gap in maximum debt due to insufficient NOI under Loan-to-Value method
<br />Debt Coverage Ratio 1.2 ($27,792,079)$792,079 If negative, represents a gap in maximum debt due to insufficient NOI under Debt Coverage Ratio method
<br />Total Development Cost $34,000,000
<br />Developer-Planned Equity (Total Cost Less Loan)$7,000,000
<br />October 17, 2018, Work Session – Item 2
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