Item 5: Resolution Approving MUPTE for Broadway Lofts

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Annual D/S ATTACHMENT E Financial Analysis The Pro-Forma for Broadway Lofts (below) shows three key reasons that the project would not be built without MUPTE. First, the debt coverage ratio (Net Operating Income (NOI) divided by debt service) is 1.22, below the amount needed to qualify for conventional financing. (The common bank preference is for 1.25 or higher.) Second, the perceived risk is high demonstrated by the Cash on Cash return (Cash Flow 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 4% by year 10. Third, the project valuation is below the amount needed to qualify for conventional financing. (The value is determined by NOI divided by the capitalization rate.) At project stabilization, the projected value of the property is $3.25 million or 77% loan to value. Sources Total Cost EQ$ 1,392,573 33% City$ 300,0007% Conventional Debt$ 2,500,000 60% Total project$ 4,192,573 The City (through its Urban Renewal Agency) provided $500,000 in acquisition financing from the Downtown Revitalization Loan Program - $300,000 to be repaid within 10 years and $200,000 to be repaid upon reaching 12% return. The $200,000 portion is included as part of equity for this analysis. The total loan would be due on sale of the property. Pro-Forma Without MUPTEYear 1Year 2Year 10 Rent Income$ 347,772 $ 351,250 $ 380,353 - Vacancy (5%)$ 17,389$ 17,562$ 19,018 = Effective Gross Rent$ 330,383 $ 333,687 $ 361,335 - Operating Exp (25%)$ 86,943$ 87,812$ 95,088 = NOI$ 243,440 $ 245,875 $ 266,247 - Debt Service$ 199,404 $ 199,404 $ 199,404 = CF$ 44,036$ 46,471$ 66,843 Cash on Cash Return 3%3%4% Value$ 3,246,000$ 3,278,000$ 3,550,000 dsc 1.22 S:\CMO\2012 Council Agendas\M120123\S1201235.doc