Item 4: MUPTE for Student Housing Project

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ATTACHMENT K Other Information Requested at the April 9 Work Session 1.How much is Capstone paying for the property? The City is not involved with the property sale. Capstone’s budget indicated a land cost of $6.6 million from the MUPTE application. This amount does not include the purchase of lot 900, which is still under negotiations. 2.What is the total cost of Phase I only? The estimated cost of Phase I is $52 million. 3.Provide more information on Capstone’s retention of property ownership or management. Their current business model is to maintain management but not ownership. Capstone currently manages 19 developments with a total of 11,144 beds. 4.Will Capstone use local contractor, subcontractors, suppliers, and workers? Capstone has not made the final selection of the general contractor at this time. Capstone policy is to encourage the use of local contractors, suppliers, and workers for the project as much as possible. It is anticipated the general contractor will use a high percentage of qualified local and area subs, suppliers and workers. 5.What happens to the MUPTE if the bank lowers the interest rate on Capstone’s loan? Capstone plans to use conventional bank construction financing, with the permanent, take- out financing anticipated from Fannie Mae’s Dedicated Student Housing program. The pro- forma debt service is based on a 30-year fixed loan at 6.5%. The City’s financial advisor at Western Financial Group confirmed that the interest rate assumption is reasonable based on the current market and on the hedge needed to account for estimating a rate two years from now. He cited a recent student housing project financed by Fannie Mae whose rate, adjusted to taxable was 7.5%. Additionally, the City’s Loan Advisory Committee includes two bank representatives who confirmed the interest rate estimate. Holding all other aspects of the project constant, the Capstone interest rate would need to fall by 250 basis points from today’s level (to 5%) to have the project generate 9% return needed to attract the equity without the MUPTE savings. 6.How do we verify the “but for” requirement in the MUPTE analysis? The theory behind MUPTE is that multi-unit housing development is desired in the targeted area and that the development would not occur “but for” the granting of the exemption. The tax exemption is a tool used to off-set real financial obstacles associated with developing multi-unit housing in the core. The obstacles could be related to lease rates insufficient to support new construction, higher land cost, higher construction cost resulting from multi- story construction and higher quality urban design, parking constraints, code requirements, and environmental conditions related to prior uses. As property taxes are a major operating expense in a development project, the property tax exemption provided by the MUPTE program can play a significant role in improving Net Operating Income. The MUPTE can