Agenda Packet 10-17-18 Work Session

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PNW Economics Page 7 Prepared for: City of Eugene Prepared by: PNW Economics Response to MUPTE Citizen Advisory Committee Questions: Obie Companies Application is currently under construction. That project comprises both a significant, new apartment project along with a boutique hotel. Total development costs per square foot expected for that project adjusted to 2018 dollars ($229 per square foot vs. $297 per square foot for Gordon Lofts) indicate credibility for the Gordon Loft development cost assumptions in our opinion for three reasons: a)We would expect a 25% to 30% total cost-per-square-foot premium for the 7-story construction typology planned for Gordon Lofts over Independence Landing. Gordon Lofts is a “5-Over-2” or “Seattle Midrise” project, whereby a 20-foot reinforced concrete podium is built to house ground floor commercial uses and five stories of wood-frame (“stick- built”) apartments on top. This type of construction is definitively more expensive per square foot than five-story construction, which can be built with significantly more wood frame component, and therefore commensurately (25%-30%) cheaper as a result. b)We would expect that rents at Gordon Loft, as a “5-over-2” or “Seattle Midrise” construction type would need to be 25% to 30% to make it financially feasible. And in fact, the “Amenity Based Income” premium that our MUPTE review discusses compared to base rents is a 26% average rent premium over current market. c)It is our understanding that Obie Companies would retain ownership of Gordon Lofts as an income property for indefinite duration as part of their broader downtown development plan. In our experience, developers as long-term owners – and especially as part of a broader development effort – will tend to have different financial return criteria than other types of developers. First, owner-developers who face long-term depreciation and cost-of-replacement planning will tend to develop projects of higher construction quality that do not deteriorate and pose higher capital replacement costs later in the lifetime of the project. The typical real estate developer will develop a project, lease it up to stabilized occupancy to maximize its value, and then after a definite duration will sell the project at its maximum value once stabilized. Most developers, therefore, do not expect to be taking on renovation/capital costs when planning the project and its construction costs because they do not plan to be owning the project in later years. Obie Companies likely does expect to hold Gordon Lofts based on past development track record and, therefore, PNW Economics finds it credible that development costs for Gordon Lofts may be planned for purposes of minimizing later-year, significant repair and replacement costs. 20.How has the consultant accounted for property taxes? Are they based on averages from the 2017 NAA survey? In the proformas with MUPTE an exact amount is used, does this overstate the averaged amount? Consultant Response: Based on our own experience modeling urban renewal and property tax exemptions under Oregon’s property tax law (Measure 50), we find the Applicant’s analysis of property tax rate and taxable assessed value of their project (cost of replacement-based) to be credible. Therefore, we utilized their results for our own analysis. Oregon property tax law is distinct compared to national averages for keeping property tax rates permanent and then applying reductions (“change October 17, 2018, Work Session – Item 2