Item 4: MUPTE for Student Housing Project

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ATTACHMENT F Financial Analysis The financial information Capstone submitted in their application is based on projections prior to finalizing financing, construction, and tenanting. This analysis is based on the conservative approach that the project is built at one time. (Phasing would increase the cost of the project due to mobilization, lost economies of scale, and increased design and other soft costs; and reduce the return on investment.) The financial assumptions included in Capstone’s MUPTE application pro-forma have been analyzed and adjusted as necessary to more accurately reflect the expected financial performance of the project. Of particular note, the projected tax savings in Capstone’s pro-forma were overstated by their assumption that the full construction value of the project would be used for tax assessment purposes. The changed property ratio used in assessing real property would result in a lower taxable value and lower tax savings than projected in their pro-forma. The result of this adjustment is an increased projected return on investment in the “without MUPTE” scenario. Capstone’s originally submitted pro-forma forecasted a 3.2% return on investment without MUPTE. With the more accurate tax savings figure, the projected return on investment without MUPTE has been adjusted to 6%. There are no adjustments made that result in a lowering of the projected return. Sources Annual debt Total Cost service Equity $ 27,176,000 30% Conventional Debt $ 61,963,000 70% $4,699,780 Total project $ 89,139,000 The $27 million in equity is anticipated to come primarily from Kayne Anderson Capital Advisors, a firm that provides private real estate equity principally in off-campus student housing properties located in close proximity to large universities. A minimum of 9% return (Cash on Cash) is needed in year 1 to secure the proposed equity investment. Capstone plans to use conventional bank construction financing, with the permanent, take-out financing anticipated from Fannie Mae’s Dedicated Student Housing program. Underwriting for the permanent financing is based on a maximum 75% loan-to-value and minimum 1.30 debt service coverage ratio. Additionally, the project must be near a campus with student enrollment of 10,000 (50% full-time), be within two miles of campus or on a university sanctioned public transportation line, have 12-month leases with parental guaranties, and not be on university- owned land nor offer food service. Based on Capstone’s experience financing similar projects, they project that the project will be underwritten at 70% loan-to-value. Standard underwriting criteria for similar projects typically require one parking space per bedroom. Capstone originally proposed 0.9 spaces per bedroom. Further discussions with their