Item 4: MUPTE for Student Housing Project

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matching, fully furnished units; interior common areas for gathering, office/computers, gaming; and exterior common areas for small pools, bocce ball, and other recreation space. The development will have onsite staff: five full-time jobs and 12 – 15 part-time jobs. The full-time staff will consist of a manager, assistant manager, leasing director, maintenance supervisor, and assistant maintenance supervisor. Safety measures include comprehensive video camera monitoring of all public spaces in the complex; on-site courtesy officers to patrol the complex and adjacent areas several times each night; and strict lease provisions prohibiting illegal use of drugs and alcohol as well as excessive noise and other disruptive behavior. The resolution includes the provision of project management as a requirement for approval. Capstone also submitted an application for a right-of-way and alley vacations. Their proposal is to th transfer ownership of (vacate) the east/west right-of-way (West 12 Avenue, which functions as an alley) and a portion of the north/south right-of-way (Willamette Alley) from the City to the developer. The east/west right-of-way would be realigned, improved, and rededicated to provide an enhanced bike path between Olive and Willamette streets. Capstone and LTD have agreed to a new bus stop, on th Willamette Street south of 12 Avenue, which would serve Capstone residents conveniently. Public Benefits After reviewing the Capstone application against the public benefit scoring criteria in the Standards and Guidelines, staff determined that the proposed development earned 210 points. Points were awarded for the project through the following benefits: Density: 50 points (10 pts per unit in excess of the minimum code requirement; 50 point max) o Location: 100 points for being located within the Downtown Plan Area o ADA units: 60 points (10 pts per accessible unit) o The applicant indicates that LEED silver certification will be attempted with a minimum of Earth Advantage Silver. However, the project is not at a stage to complete the scoring worksheets for either, so no points were added for green building elements. Financial Analysis The applicant demonstrated that the project as proposed could not be built but for the benefit of the tax exemption. The financing for the project will be required to meet a specific Loan-to-Value underwriting criteria which is expected to be 70 percent. The Loan-to-Value assumption is consistent with today’s tighter real estate lending standards. For this large scale project, Capstone will need to provide 30 percent ($27 million) of the project’s financing in the form of equity. Unlike typical MUPTE projects financed with local equity, the proposed scale of the Capstone development will require institutional sources of equity to be attracted to the project. Additionally, the proposed project will require the investor to assume some risk from the major redevelopment costs associated with the site and from the rate of absorption of the large number of proposed units brought into the local student housing market. Capstone has indicated that their primary equity investor (Kayne Anderson Real Estate Advisors) will require a minimum rate of return of nine percent in the first year. Without the MUPTE savings, the project is projected to generate a six percent rate of return, which is insufficient to attract the required equity investment. (Capstone’s originally submitted pro-forma forecasted a 3.2 percent return on investment without MUPTE. With a more accurate tax savings figure, the projected return on investment without MUPTE has been adjusted to six percent; see Attachment F for more detailed S:\CMO\2012 Council Agendas\M120423\S1204234.doc