Draft EUG Master Plan Update, February 2010

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CHAPTER 5 FINANCIAL FEASIBILITY ANALYSIS The decision as to whether to allow the properties to be marketed on a ground lease or for sale basis should be determined prior to offering the properties for alternative uses. There is reluctance in the marketplace to enter into ground leases as they are very difficult to finance. The Lessees typically request a subordination clause so financing can be obtained; however, this creates considerable risk for the Lessor as they become a second or third place lien holder if subordination is granted. In addition, what happens to the structural improvements at the end of the lease term also causes concern as most ground leases have a provision to allow the Lessee to purchase the site at the end of the lease term. A local example of how ground leases can adversely affect the marketing of properties is the example of the University of Oregon’s Riverfront Research Park. This project only allows ground leases, (typically 99 years), yet, there has been very little activity and demand for these properties. There are other factors in the lack of market acceptance, but the ground lease situation is viewed by many in the real estate market as being one of the major impediments to market acceptance. If a sale is contemplated, then compatibility of uses becomes an issue as does the potential need for future Airport expansion. A sale can be consummated with a reservation for the City to have the first right of refusal on any future sale or if needed for tax purposes, the City could reserve an option to buy back the property for a specified price at a specified date. Wetland mitigation could be a factor for some properties. The current cost of mitigation, on a one- for-one basis, is approximately $60,000 per acre, which is above the price the property could achieve in the market; therefore it is highly unlikely that any prospective user would undertake wetland mitigation. With regard to the potential use of the larger acreage parcels, the recommendation is to market these for agricultural uses. A ground lease for this type of use will not be difficult to achieve as many uses of this type do not require the construction of improvements. A use such as the raising of nursery stock, Christmas trees or the continuation of the raising of grass seed crops are a few of the recommended uses for these larger parcels which are all zoned for agricultural uses. Rates of return for these types of uses currently range from 4-6 % of the underlying land value. Annual increases tied to the Consumer Price Index are many times asked for, but in agricultural ground leases Lessees typically do not accept such rate increases. This range of uses would not produce a significant increase in the income currently being generated, assuming the current arrangements are at market rates. The 20-acre parcel located to the Northeast of the new runway could conceivably be used for a commercial range of uses. However, if utility services are not available, then the range of uses is severely limited. One consideration is that if a large user is contemplated, such as a hospitality (Motel/Hotel) facility, then a lagoon system may be necessary. The Airport overlay zone precludes any use/development that may attract waterfowl/ birds, and open lagoons are difficult to locate near runways. A closed system could be constructed; however, the costs may be prohibitive. The same situation goes for water service as any overnight lodging facility would require fire sprinklers and without gravity flow water service, it is not feasible to construct a reservoir system to accommodate this need. Stormwater runoff is required to be treated prior to entering the watershed, so to accommodate a large paved area it will be very difficult to make this accommodation and not have an open settling pond system. If utility services become available, then the range of uses and eventual prices will be greater than if not. The recent (2008) sales in the vicinity indicate unit prices in the $2-$3.50 per square foot of land area, and these sales have 5-37 Eugene Airport Master Plan Update (February 2010)