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<br /> <br /> <br />The Pro-Forma shows three key reasons that the project would not be built without MUPTE. First, the <br />debt coverage ratio [Net Operating Income (NOI) divided by debt service] is low at 0.88 (instead of the <br />common bank preference for 1.25 or higher). Second, the perceived risk is high demonstrated by a Cash <br />on Cash return [Cash Flow divided by the equity that is invested by the developer] which is well below <br />the market-expected 10% to 15% level. Without MUPTE the Cash on Cash return is still at negative 2% <br />in year ten. With MUPTE the Cash on Cash return is projected at a modest 6% in year ten. Third, the <br />project valuation is well below the amount needed to qualify for conventional financing. (The value is <br />determined by NOI divided by the capitalization rate.) At project stabilization, the projected value of the <br />property is $3,910,000. The total cost of the project is $4,275,000. At 75% loan to value, the project <br />needs to be valued at $4,633,000 to qualify for $3,475,000 in bank debt. <br /> <br />The Pro-Forma below shows that the project improves with the MUPTE. The debt service coverage is <br />1.03. The Cash on Cash return reaches 6% by year ten. The project valuation is 75% loan to value, <br />which is similar to loan to value ratios currently in the market. <br /> <br />Year 1 Year 2 Year 10 <br />With MUPTE <br /> <br /> $ <br />Rent Income 377,040 $ 380,810 $ 412,363 <br /> $ <br /> - Vacancy 18,852 $ 19,041 $ 20,618 <br /> $ <br />358,188 $ 361,770 $ 391,745 <br /> = Effective Gross Rent <br /> $ <br /> - Operating Exp 94,260 $ 95,203 $ 103,091 <br /> $ $ $ <br /> - Property Tax <br /> <br />(47,859) (48,816) (57,196) <br />(saved by MUPTE) <br /> $ <br /> = NOI <br />311,787 $ 315,383 $ 345,850 <br /> $ <br /> - Debt Service 301,410 $ 301,410 $ 301,410 <br /> $ <br /> = CF <br />10,377 $ 13,973 $ 44,440 <br />1% 2% 6% <br />Cash on Cash Return <br /> <br /> $ $ $ <br />Value <br />4,619,000 4,672,000 5,124,000 <br /> <br />Timing <br />This application was submitted on March 16, 2009. The council has 90 days to review the Directors <br />Report and Recommendation. If the council hasn’t acted in 180 days, the application is considered <br />approved. The council consideration is currently in the first 90-day time period. <br /> <br /> <br />RELATED CITY POLICIES <br />MUPTE is enabled by state statute. The City of Eugene has participated in the MUPTE program since <br />1978. Encouraging housing in the core area is consistent with numerous adopted planning and policy <br />documents. Examples include: <br /> <br /> <br /> <br />Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc <br /> <br />