Agenda Packet 9-11-19 Work Session

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PAGE | 5 D.CONCLUSION Our analysis indicates that the project would not be viable without availability of the MUPTE, using the assumptions outlined. The indicated returns are below what we would consider adequate to incur the development risk for this project. Inclusion of the MUPTE over a ten-year period would likely make this project viable. The primary impact of the MUPTE program is a reduction in operating costs for a set period of time, which helps the project meet the loan underwriting standards (1.20 DCR) and reduce the needed equity to an amount that can more reasonably be attracted to the project. As summarized in the following graph, initial equity requirements are higher without the MUPTE because the project cannot qualify for as much debt, and interim annual cash flows are lower. The net gain from an assumed sale in year 15 is lower with the MUPTE, as a higher level of debt is assumed to be supportable. Many of the assumptions used are reliant upon the information provided by the applicant, but this information appears consistent with other projects we have reviewed. The pricing assumptions are aggressive, but the relatively small unit sizes will help keep absolute rents affordable. The debt coverage ratio assumed was 1.20, which we feel could be a bit low. The return parameter used to evaluate viability was return on cost (ROC), which is not influenced by the debt coverage ratio assumption. ($4,000,000) ($2,000,000) $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 PROJECT YEAR PROJECTED DEVELOPER CASH FLOW Without MUPTE With MUPTE - 10 Year September 11, 2019, Work Session – Item 1