Item 6: MUPTE on Pearl on Campus

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application. However, staff examined the application and new criteria and find that it is very likely that it would have been in compliance. The Planning and Development Director has reviewed this application and recommends approval. This report is in Attachment C. A copy of this MUPTE application will be placed in the Council Office for review. Public Comments A display advertisement was published in the Register-Guard on November 20, 2008, soliciting comments for 30 days. One comment was received during the 30-day period. The comment opposed the MUPTE program. The applicant met with the West University Neighbors and received their endorsement on December 4, 2008. Design Features Consistent with the public benefit criteria 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 three to ten units. This is an eight-unit development in a three-story building, achieving 80% 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. The pro-forma for The Pearl on Campus (below) shows three key reasons that the project would not be built without MUPTE. First, cash flow (CF) is negative until year five. With cash flow at such low levels, 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 only reaches two percent by year ten. Third, the project valuation is well below the amount needed to qualify for conventional financing. (The project value is determined by Net Operating Income (NOI) divided by the capitalization rate.) At project stabilization, the projected value of the property is $1.6 million. The total cost of the project is $1.8 million. At 70% loan to value, the project needs to be valued at $2 million to qualify for $1.4 million in bank debt. Z:\CMO\2009 Council Agendas\M090112\S0901126.doc