Agenda Packet 10-17-18 Work Session

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Prepared for: City of Eugene Prepared by: PNW Economics Response to MUPTE Citizen Advisory Committee Questions: Obie Companies Application MEMORANDUM To: Amanda Nobel Flannery Anne Fifield CITY OF EUGENE From: Bill Reid, Principal PNW ECONOMICS Subject: Response to MUPTE Citizen Advisory Committee: Consultant Questions Date: August 29, 2018 This memorandum is intended as a response to questions from the City of Eugene MUPTE citizen advisory committee regarding PNW Economics’ review of Obie Companies’ MUPTE application. Each question from the advisory committee are addressed in turn below. 1.Does use of 25 year rather than 30 year amortization have a significant effect? See Report at 13. It appears to significantly increase the cash on cash cash flow return by about 2% each year under the various scenarios, reduce non-viability, with MUPTE and without amenity income, from 5 to 3 years, and achieve adequate DCR in year 2 rather than year 6, under your analysis. Consultant Response: All things equal, a 30-year term for debt would decrease annual debt service by order of magnitude observed in the question and would generally enhance cash flow and cash-on- cash return under all scenarios. But all things are not equal, and a longer-term permanent loan would necessarily be charged a higher interest rate by the lender. So we cannot know exactly what the annual debt service payment would be on a 30-year vs. a 25-year without knowing the consequence to the interest rate from extending the term, though we can be certain the rate would go up by some amount. Though different terms and interest rates are an interesting hypothetical, our charge was to critically review application assumptions only as documented by the Applicant. 2.Would use of 30 year amortization rather than 25 year amortization reduce the annual debt service on the project by about $145,000? Why would someone who had a choice use a 25 year rather than a 30 year amortization, especially if they were focused on cash flow cash on cash return? Consultant Response: Again, with a longer term on the permanent loan, we only know that the interest rate would be higher by some amount. Therefore, it cannot be said with certainty how much annual debt service would decrease with a longer term and higher interest rate. 25-year terms are very common on permanent commercial loans. 30-year terms are actually more common for home mortgage loans than for commercial loans. A 25-year term for permanent debt may also be necessary due to the fact that this development is planned to occur on leased land. In order to borrow for Exhibit B to Attachment E October 17, 2018, Work Session – Item 2