Agenda Packet 10-17-18 Work Session

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PNW Economics Page 2 Prepared for: City of Eugene Prepared by: PNW Economics Response to MUPTE Citizen Advisory Committee Questions: Obie Companies Application development on leased land, lenders usually require that the lease term extend 5 to 10 years beyond the term of the permanent loan for recourse purposes should the loan default. 3.Would most multi-family housing financing options allow use of a 30 year amortization as opposed to requiring use of a 25 year amortization? Consultant Response: 25 years is a very common term for permanent financing of development. Terms can range from 17 years to 30 years, but truly a 30-year term for permanent commercial lending on a multifamily housing project is not the most common. 4.Your tables show apartment operating expenses which you calculated using a national average, resulting in expenses of $6,153 per unit in the first year. When multiplied times 127 units, this results in apartment operating expenses of $781,431. Your table uses $606,304 in the first year. Did you reduce the first year expenses due to absorption issues? The second year presumably would be $781,431 plus 3% or $804,874. How did you get $832,658 in the second year, which is almost $28,000 more than the $804,874? A similar differential is carried through years 3-10. Consultant Response: Indeed, first year expenses are reduced by absorption vacancy loss and model unit vacancy loss as defined in the review report pages 16-17. In the second year, occupancy is assumed to have reached stabilized 95% occupancy along with the 3% escalation of expenses between year 1 and year 2. Years 2 through 10 assume continued 95% occupancy with 3% annual escalation in expenses. 5.As you pointed out, the commercial leases for the first floor commercial space would be triple net (NNN), which means that the commercial tenant pays the property taxes. Report at 15. The property taxes for the commercial space would not be paid by the owner/applicant or would be reimbursed to the owner/applicant by the tenants. You apparently removed the commercial space property taxes as an expense in your pro formas. Should your pro formas on page 19 and 21 add back as a negative expense, for the with MUPTE scenario, only the apartment property taxes and not the total property taxes including commercial? Similarly, should the applicant’s pro forma without MUPTE include as an expense only the apartment property taxes and not the property taxes attributable to the commercial space? Consultant Response: Although the City would need to confirm the technical workings of MUPTE, PNW Economics’ reading of the exemption is that it is based on the total taxable assessed value of improvements regardless of who actually pays the tax bill. Therefore, reduction from MUPTE is fully credited to the Applicant in its pro forma. How the Applicant chooses to reimburse commercial tenants, if it chooses to, would be up to the Applicant. In terms of the Applicant’s pro forma, it would be our recommendation that the Applicant reduce its operating expense by the extent to which retail tenants pay property tax on the commercial space along with the triple-net lease rate. 6.The county allows a 3% property tax reduction for payment on the November due date. Should this reduction be included in the applicant’s without MUPTE pro forma for property taxes? This may not be relevant to your analysis which appears to use national averages for expenses including property taxes, except that you add back the actual estimated property October 17, 2018, Work Session – Item 2