|
<br />PAGE | 4
<br />the return on equity is 9.9%. While the project is considered viable, the indicated returns do not reflect a project
<br />providing above-normal returns.
<br />
<br />The following is a ten- year summary pro forma of the development assuming the MUPTE:
<br />
<br />
<br />
<br />Under this scenario the net residual value is projected at $6.19 million at the end of year 10, reflecting a higher principal
<br />payment due to the greater level of debt supported. When property taxes are introduced in year 11, the project is still
<br />capable of meeting the debt service requirements of the primary loan due to assumed rates of escalation. The project
<br />does provide adequate cash flow to refinance in later years to reduce the equity requirement. This would increase the
<br />IRR but would not impact initial return on cost.
<br />
<br />While the indicated return is adequate to induce development the first stabilized year, this does not account for the fact
<br />that the exemption is of limited duration. An alternative approach to evaluate the impact of the MUPTE is to model the
<br />impact as a discounted cash flow, with annual property tax savings discounted to current dollars at an 8.00% annual
<br />rate. When this was done for the subject project, the current value of the abatement exemption was about $669,000.
<br />The impact on the “viability gap” is $1.4 million, reflecting the ability of the abatement to reduce equity requirements
<br />through the forecast period. The discount rate reflects the cost of capital to the developer, which is significantly higher
<br />that that used by a public agency as the opportunity cost of that money is viewed as being higher.
<br />
<br />
<br />
<br />SIMPLIFIED CASH FLOW
<br />10-YEAR CASH FLOW W/MUPTE
<br />Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
<br />REVENUE
<br />Gross Rent Revenue $734,640 $734,640 $753,006 $771,831 $791,127 $810,905 $831,178 $851,957 $873,256 $895,088
<br />Miscellaneous $13,270 $13,270 $13,602 $13,942 $14,290 $14,648 $15,014 $15,389 $15,774 $16,168
<br />Less Vacancy ($166,799) ($37,396) ($38,330) ($39,289) ($40,271) ($41,278) ($42,310) ($43,367) ($44,451) ($45,563)
<br />Total Income $581,111 $710,515 $728,277 $746,484 $765,146 $784,275 $803,882 $823,979 $844,578 $865,693
<br />EXPENSES
<br />Operating Expenses $155,587 $155,587 $159,477 $163,464 $167,550 $171,739 $176,032 $180,433 $184,944 $189,568
<br />Insurance $5,114 $5,114 $5,242 $5,373 $5,507 $5,645 $5,786 $5,931 $6,079 $6,231
<br />Admin & Management $40,901 $40,901 $41,924 $42,972 $44,046 $45,147 $46,276 $47,433 $48,618 $49,834
<br />Utilities and Garbage $38,456 $38,456 $39,417 $40,403 $41,413 $42,448 $43,509 $44,597 $45,712 $46,855
<br />Repairs & Maint.$58,205 $58,205 $59,660 $61,152 $62,680 $64,247 $65,854 $67,500 $69,187 $70,917
<br />Marketing and Advertising $12,911 $12,911 $13,234 $13,565 $13,904 $14,251 $14,608 $14,973 $15,347 $15,731
<br />Subtotal
<br />NOI Before Taxes and Reserves $425,524 $554,928 $568,801 $583,021 $597,596 $612,536 $627,850 $643,546 $659,634 $676,125
<br />Less Estimated Taxes $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
<br />Less Required Reserves $24,868 $24,868 $25,490 $26,127 $26,780 $27,450 $28,136 $28,839 $29,560 $30,299
<br />NOI Available for Debt Service $400,656 $530,060 $543,311 $556,894 $570,816 $585,087 $599,714 $614,707 $630,074 $645,826
<br />Development Costs ($8,274,950)
<br />1st Mortgage Debt Service (1.20 DCR, 5.5%, 30 yrs)$6,482,987 $356,564 $441,716 $441,716 $441,716 $441,716 $441,716 $441,716 $441,716 $441,716 $441,716
<br />Equity $1,791,963
<br />Net Cash Flow ($1,791,963)$44,092 $88,343 $101,595 $115,178 $129,100 $143,370 $157,997 $172,990 $188,358 $204,110
<br />DCR - 1st Mortgage 1.12 1.20 1.23 1.26 1.29 1.32 1.36 1.39 1.43 1.46
<br />September 11, 2019, Work Session – Item 1
|