Item 5: MUPTE on East 15th Townhouses

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Public Comments A display advertisement was published in the Register-Guard on October 15, 2008, soliciting comments for 30 days. No comments were received during the 30-day period ending November 11, 2008. The applicant met with the West University Neighbors and received its endorsement on July 15, 2008. Design Features Consistent with the council’s stated interests in the adopted MUPTE Standards and Guidelines, this application proposes infill housing that increases density in the core area and provides new housing using higher grade materials. In this zoning (R-3) the allowed density for this parcel is two to seven units. This is a six-unit development in a three-story building, achieving 86% of maximum density. Examples of other design and sustainability features are included in Attachment F. Impact and Need for Tax Exemptions to Encourage Housing The City and other local taxing districts forgo revenue when property is exempted from taxes. This project proposes new construction on a property that is underdeveloped and under-used based on the zoning. The land continues to be taxed during the exemption period. The improvements will bring substantial revenue, after ten years, beyond what is currently being collected. th The Pro-forma for East 15 Townhouses (below) shows three key reasons that the project would not be built without MUPTE. First, cash flow (CF) is negative through year ten. Without cash flow, banks would not be confident in the project’s ability to repay the debt. Second, the perceived risk is high demonstrated by the Cash on Cash return (CF divided by the equity that is invested by the developer) well below the market-expected 10% to 15% level. The Cash on Cash is negative through year ten. Third, the project valuation is well below the amount needed to qualify for conventional financing. (The value is determined by Net Operating Income (NOI) divided by the capitalization rate.) At project stabilization, the projected value of the property is $747,000. The total cost of the project is $941,000. At 70% loan to value, the project needs to be valued at $900,000 to qualify for $630,000 in bank debt. The applicant projects reducing the rent by 15% when/if the MUPTE is granted. Without MUPTEYear 1Year 2Year 10 Rent Income$ 72,000$ 72,720$ 78,745 Total Cost EQ $ 311,000 - Vacancy (5%)$ 3,600$ 3,636$ 3,937 Conventional Debt$ 630,000 = Effective Gross Rent$ 68,400$ 69,084$ 74,808 Total project $ 941,000 - Operating Exp (25%)$ 18,000$ 18,180$ 19,686 = NOI $ 50,400$ 50,904$ 55,122 - Debt Service$ 58,613$ 58,613$ 58,613 = CF $ (8,213)$ (7,709)$ (3,491) Cash on Cash Return -3%-2%-1% Value $ 747,000$ 754,000$ 817,000 Z:\CMO\2009 Council Agendas\M090112\S0901125.doc