Agenda Packet 10-17-18 Work Session

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PNW Economics Page 5 Prepared for: City of Eugene Prepared by: PNW Economics Response to MUPTE Citizen Advisory Committee Questions: Obie Companies Application or should be rented if it was the last available unit? Would the model room be part of the 5% assumed vacancy? Consultant Response: Model rooms, which are furnished for purposes of marketing the project to potential renters, are intentionally kept vacant at least as long as the initial lease-up period, in this case for one year. The intentional vacancy of the unit purely for marketing purposes is in excess of stabilized 5% market vacancy and is therefore an income loss in excess of the stabilized 5% vacancy loss. 14.How did you calculate $679,134 for first year “Absorption Vacancy & Concessions,” without amenity income? You indicated that you assumed “a 20% loss in potential rent due to new units being vacant prior to first occupancy (‘absorption’).” Report at 16. Did you base this on Gross Project Income (GPI) or did you exclude Retail Lease Income. 20% of GPI, without amenity income, in the first year in your pro forma is $564,137, which is lower than your number by $114,997. You indicate that a model room will remain vacant (see question 12 above). Are you adding the applicant’s category of “Less to Model Room/Concessions” of $75,248 to the $564,137. which would total $639,385? With the 5% annual vacancy rate and the 20% first year absorption rate, would this total 25% first year absorption vacancy rate? The first year “Absorption Vacancy & Concessions” of 679,134 plus the first year 5% vacancy of $141,034 total $820,168 first year vacancy & concessions, which is 29% of first year GPI, without amenity income. Similar questions would apply to the first year GPI with amenity income, where you use “Absorption Vacancy & Concessions” of $819,937. Consultant Response: Without amenity income (First Scenario), calculations are based on the first income line item “Apartment Rent Income” which is purely assumed unit rents as described in Table 10 of the PNW Economics report. GPI in the First Scenario (market rents only) “zeros out” Amenity Income (pro formas line 3). Per the answer to Question 13, PNW Economics Less to Model Room is included as an expense that is subtracted from Income calculations to achieve Net Operating Income. Absorption Vacancy of 20% for Year 1 includes the 5% stabilized vacancy plus 15% additional absorption vacancy. Absorption Vacancy does not include the intentional vacancy of a Model Unit. Vacancy as described in Year 1 is applied similarly between the First Scenario (market rents only) and the Second Scenario (market rents plus amenity income). 15.Do you believe a developer incentive is appropriate for use in analyzing whether a MUPTE, which is another developer incentive, should be granted? In other words, should the return without MUPTE be deemed inadequate due in part to the developer receiving incentive funds out of the loan, increasing the loan and debt service? Consultant Response: The effect of MUPTE is to reduce operating expenses for the project, thus enhancing the project as investment by equity interests seeking cash payback and ultimately rendering the project a viable investment that can be constructed with equity and debt. MUPTE does not affect the upfront development cost of the project and the resulting permanent financing required. 16.Jerry Johnson previously defined “Return on Equity or Equity Yield Rate or Cash on Cash” as “the net cash flow after interest costs divided by the developer equity,” excluding “payments towards principal as interest costs.” Olive Lofts Report at 7. You defined “Cash- October 17, 2018, Work Session – Item 2