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PNW Economics <br />Page 8 <br />Prepared for: City of Eugene <br />Prepared by: PNW Economics <br />Response to MUPTE Citizen Advisory Committee Questions: Obie Companies Application <br />ratios”) to the value of new construction to adjust them to the base year of the permanent property tax <br />rates. National averages fail to address this distinct aspect of Oregon property tax law. <br />21.Where are other expenses covered in the consultants proformas and what is the <br />source? <br />Consultant Response: Per the answer to Question 7, we assumed a flat, total annual operating <br />expense – excluding applicable property taxes – based on National Apartment Association 2017 <br />operating cost survey data cited in our review report. We did not itemize cost categories. <br />22.Where is Obie at in the process for getting financing? <br />Consultant Response: We would defer to the Applicant for the answer to this question. We would <br />expect, however, that the process of guaranteeing financing awaits the decision by the City regarding <br />the MUPTE. While our review of Application pro forma analysis indicates differences of quantified <br />results, we agree with the conclusion that MUPTE is a crucial contributor to the financial viability of <br />the Gordon Lofts project, and its enhancement of developer cash flow will undoubtedly be viewed <br />favorably by lending as well as possible equity investment partners. In other words, we expect that <br />award of MUPTE will likely have crucial effect upon quantitative financial results as well as <br />development deal structure and financing reality. <br />23.Seems strange that they can build a project that won’t pencil. Reid’s report seems to be <br />a different reality than Obie’s market study. <br />Consultant Response: First, the market study by Johnson Economics in our understanding has not <br />been released for review. Second, please see the answer to Question 19, particularly part c.) for an <br />explanation for why development costs may credibly be higher and thus early year financial return <br />may be lower than optimal for a typical project. We would also note that because of previous, nearby <br />successful development, Obie Companies may also not be seeking equity investment partners in <br />similar manner to other apartment projects. Equity partners may be involved in the broader <br />development plan including the hotel and market. For review purposes, all of us are looking at the <br />financials for the mixed-use apartment project by itself. We do not, however, have access to broader <br />development plan pro forma analysis and information that equity investors besides Obie Companies, if <br />any, might be viewing that takes into account other development (new hotel, market) that may <br />financially mitigate early poor performance by the Gordon Lofts component. It should also be noted <br />that if Obie Companies is the primary (if not sole) source of equity investment in the project, and as <br />owner-developer, they are less sensitive to cash-on-cash performance than a typical developer or <br />project. Outside equity investment partners are typically more sensitive to measures of cash return <br />and payback because they see this as one of many investment options for their money and purely see it <br />that way. Obie Companies, on the other hand, would more likely look at this project as a long-term <br />source of additional cash flow that may underperform early in terms of standard return measures, but <br />ultimately provides growing cash flow and does not view this project as one of many options for <br />investment of funds purely based on rate of return. In summary, and in other words, different <br />October 17, 2018, Work Session – Item 2