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HomeMy WebLinkAboutItem 2E: Approval of MUPTE for Midtown Terrace ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Adoption of Resolution 4978 Approving a Multiple-Unit Property Tax th Exemption for Residential Property Located at 362 East 12 Avenue, Eugene, Oregon (Midtown Terrace LLC, Applicant) Meeting Date: May 26, 2009 Agenda Item Number: 2E Department: Planning and Development Staff Contact: Richie Weinman www.eugene-or.gov Contact Telephone Number: 682-5533 ISSUE STATEMENT The City Council is asked to approve or deny a resolution granting a Multiple-Unit Property Tax th Exemption (MUPTE) for Midtown Terrace at 362 East 12 Avenue. BACKGROUND In 1975, the Oregon legislature adopted the enabling statutes for the MUPTE and Transit Oriented District Tax Exemption program. This incentive was created as an implementation tool to complement the state land-use laws that were approved in 1973. The intent was to “stimulate the construction of rental housing in the core areas of Oregon’s urban centers…” In July 1977, the council adopted the provisions through a resolution that included “. . . to complement the Eugene Community Goals and Polices adopted in 1974 which stated that “High density dwellings should be encouraged close-in to accommodate those people who prefer to live near the center of activity”…” Since that time both the state statutes and Eugene’s implementation ordinance has been amended. For instance, condominiums are now allowed in addition to rental housing. The council amended Eugene’s regulations and boundary in November 2008. The amendments included an objective evaluation system to aid decision- making. th This proposed 24-unit project would be built at 362 East 12 Avenue which is zoned R-4, high-density residential. There are currently two structures on the .26 acre site. One is a single-story office building that was originally constructed for a medical office. The other is a one bedroom rental house in the rear that is likely a converted garage. There are no significant historic (over 50 years of age) buildings on this parcel. Both buildings will be either demolished or moved. The new development includes seven one- bedroom units, four two-bedroom units and thirteen three-bedroom units. There are 26 parking spaces, including 21 spaces which are covered and secured. Public Comments A display advertisement was published in the Register-Guard on March 30, 2009, soliciting comments for 30 days. No comments were received during the 30-day period ending April 30. The applicant met with the West University Neighbors and received an endorsement. A letter of support is included in Attachment E. Public Benefits The City Council adopted a scoring system to assess public benefit. One hundred points was accepted as a Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc threshold for recommended approval. This project earned 115 points through the following benefits: 1. Density - Exceeding the minimum (50 points earned for 19 units over the minimum density - 10 points for each unit in excess of minimum, with 50 maximum points) 2. Green Building - “Earth Advantage” construction (25 points earned for “Earth Advantage Silver”) 3. Accessibility - ADA accessible units (10 points earned for one fully accessible unit) 4. Parking - In West University Neighborhood, parking exceeding minimum requirements (30 points earned for three additional parking spaces) Design Features Consistent with the council’s stated interests in the adopted MUPTE Standards and Guidelines, this application proposes infill housing that increases density in the core area and provides new housing that includes higher grade materials, sustainability features and unique design elements. In this zoning (R-4) the allowed density is five to 30 units. This is a 24-unit development in a four-story building. Examples of materials, design and sustainability features: ? Short walking distance to the University of Oregon, Northwest Christian University, Sacred Heart Hospital University Campus, shopping, restaurants and LTD bus stops ? Most parking will be beneath the building reducing the heat island effect ? Low VOC paint ? Advanced framing to limit energy use ? Energy efficient appliances ? Extra thermal insulation ? Fresh air inlets for each unit ? Exhaust fans on timers for controlled ventilation ? Upgraded windows with a high U value ? Brick façade Responsiveness to neighborhood character and safety in respect to height, mass, architectural detail, landscaping and open space: The project was designed to achieve density goals, while limiting scale. Setbacks on south and east have been exceeded, roofs hipped, and exterior materials (hips, gables, entry porches, covered balconies, residential style doors and windows) all serve to provide consistency with the neighborhood’s residential character. Allowable height in the R4 zone is 120 feet. Midtown Terrace will be about 48 feet tall. Midtown Terrace will include safety features that include a well-lit parking area and entryways, private entry door at grade level, no entries facing the alley, and locked rooms for bicycle storage. The building th is equipped with fire sprinklers. Six balconies face 12 Avenue, providing eyes-on-the-street security. All but two of the units will have their entrances off hallways that are only accessible by locked entrance to stairways or elevator. Impact and Need for Tax Exemptions to Encourage Housing: The City and other local taxing districts forgo revenue when property is exempted from taxes. This project proposes new construction on a property that is underdeveloped based on the zoning. The larger structure, a former medical office building, has also been vacant for many years. The land continues to be taxed during the exemption period. The improvements will bring substantial revenue, after 10 years, beyond what is currently being collected. This is illustrated in Attachment F. The annual total property taxes on the property are currently $5,311. Of that the tax on the land is Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc estimated at $1,858 and this will continue to be taxed during the exemption period. Therefore, the $3,453 that is currently being paid in taxes on the existing improvements will come off the tax rolls for ten years ($34,530). However, after ten years an estimated $40,000 will be paid annually. Therefore, the lost revenue will be recovered in the second year. SUMMARY OF PRO FORMA Annual Return on Fully Taxed With MUPTE Investment Owner’s investment 800,000 800,000 Net Operating Income 279,260 311,260 Debt Service 301,410 301,410 Net Income (22,150 9,850 Annual Return on (2.77%) 1.23% Investment Sources Total Cost EQ $ 800,000 19% Conventional Debt$ 3,475,000 81% Total project $ 4,275,000 Pro-Forma Year 1 Year 2 Year 10 Without MUPTE $ Rent Income 377,040 $ 380,810 $ 412,363 $ - Vacancy (5%) 18,852 $ 19,041 $ 20,618 $ 358,188 $ 361,770 $ 391,745 = Effective Gross Rent $ - Operating Exp (25%) 94,260 $ 95,203 $ 103,091 $ = NOI 263,928 $ 266,567 $ 288,654 $ - Debt Service 301,410 $ 301,410 $ 301,410 $ $ $ = CF (37,482) (34,843) (12,756) -5% -4% -2% Cash on Cash Return $ $ $ Value 3,910,000 3,949,000 4,276,000 Staff reviewed and analyzed the project pro forma. It was also reviewed and approved by the City’s loan advisory committee. The pro-forma uses conservative assumptions about property value growth and market assumptions about vacancy and operating expenses. The model assumes that assessed property values increase by 2% per year. The vacancy rate is assumed at 5% of rental income and operating expenses are estimated at 25% of rental income, both standard assumptions in financial underwriting. The listed financial information is based on projections prior to financing, tenanting, and construction. The cap rate was estimated at 6.75%. (Cap rate and operating expense estimates were made after a consultation with a commercial appraiser.) Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc The Pro-Forma 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 low at 0.88 (instead of the common bank preference for 1.25 or higher). Second, the perceived risk is high demonstrated by a Cash on Cash return [Cash Flow divided by the equity that is invested by the developer] which is well below the market-expected 10% to 15% level. Without MUPTE the Cash on Cash return is still at negative 2% in year ten. With MUPTE the Cash on Cash return is projected at a modest 6% in year ten. Third, the project valuation is well 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 $3,910,000. The total cost of the project is $4,275,000. At 75% loan to value, the project needs to be valued at $4,633,000 to qualify for $3,475,000 in bank debt. The Pro-Forma below shows that the project improves with the MUPTE. The debt service coverage is 1.03. The Cash on Cash return reaches 6% by year ten. The project valuation is 75% loan to value, which is similar to loan to value ratios currently in the market. Year 1 Year 2 Year 10 With MUPTE $ Rent Income 377,040 $ 380,810 $ 412,363 $ - Vacancy 18,852 $ 19,041 $ 20,618 $ 358,188 $ 361,770 $ 391,745 = Effective Gross Rent $ - Operating Exp 94,260 $ 95,203 $ 103,091 $ $ $ - Property Tax (47,859) (48,816) (57,196) (saved by MUPTE) $ = NOI 311,787 $ 315,383 $ 345,850 $ - Debt Service 301,410 $ 301,410 $ 301,410 $ = CF 10,377 $ 13,973 $ 44,440 1% 2% 6% Cash on Cash Return $ $ $ Value 4,619,000 4,672,000 5,124,000 Timing This application was submitted on March 16, 2009. The council has 90 days to review the Directors Report and Recommendation. If the council hasn’t acted in 180 days, the application is considered approved. The council consideration is currently in the first 90-day time period. RELATED CITY POLICIES MUPTE is enabled by state statute. The City of Eugene has participated in the MUPTE program since 1978. Encouraging housing in the core area is consistent with numerous adopted planning and policy documents. Examples include: Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc Growth Management Policies Policy 1 Support the existing Eugene Urban Growth Boundary by taking actions to increase density and use on existing vacant land and under-used land within the boundary more efficiently. Policy 2 Encourage in-fill, mixed-use, redevelopment, and higher density development. Policy 3 Encourage a mix of business and residential uses downtown using incentives and zoning. West University Refinement Plan V.9 The City will encourage residential uses in all parts of the plan area. V.11 The City and the neighborhood shall study ways to encourage a variety or mix of structure types providing both owner and rental opportunities and appealing to a diverse population. COUNCIL OPTIONS The council may approve the exemption, deny the exemption, or may delay approval in order to request additional information from the developer to determine that a satisfactory public benefit has been met. CITY MANAGER’S RECOMMENDATION The City Manager recommends approving the resolution to grant the exemption. SUGGESTED MOTION Move to adopt Resolution 4978 approving a Multiple-Unit Property Tax Exemption for residential th property located at 362 East 12 Avenue, Eugene, Oregon (Midtown Terrace LLC, Applicant). ATTACHMENTS A. Resolution Approving a Property Tax Exemption for Midtown Terrace B. Resolution Denying Approval for Midtown Terraces C. Report from the Planning and Development Director D. Comments Submitted by West University Neighborhood Association E. Letter from the Applicant F. Images of the Current Property G. Table Illustrating Tax Projections for the Property through Year 11 Note: A copy of the MUPTE application for Midtown Terrace will be placed in the Council Office for review. This includes a site plan and images of the proposed development. FOR MORE INFORMATION Staff Contact: Richie Weinman Telephone: 682-5533 Staff E-Mail: richie.d.weinman@ci.eugene.or.us Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc ATTACHMENT A RESOLUTION NO. _____ A RESOLUTION APPROVING A MULTIPLE-UNIT PROPERTY TAX TH EXEMPTION FOR RESIDENTIAL PROPERTY LOCATED AT 362 EAST 12 AVENUE, EUGENE, OREGON (MIDTOWN TERRACE LLC, APPLICANT). The City Council of the City of Eugene finds that: th A. Midtown Terrace,LLCis the owner of real property located at 362 East 12 Avenue, Eugene, Oregon, more particularly described in Exhibit A attached to this Resolution. Midtown Terrace LLC has submitted an application pursuant to the City’s Multiple-Unit Property Tax Exemption Program (Sections 2.945 and 2.947 of the Eugene Code, 1971), with respect to residential units to be constructed on the property. B. The project consists of the development of seven one-bedroom units, four two-bedroom units, and 13 three-bedroom units, for a total of 24 residential units. C. The project is located within the boundaries of the core area as described in subsection (2) of Section 2.945 of the Eugene Code, 1971. D. The project could not financially be built “but for” the tax exemption. E. The applicant solicited comments from city-recognized affected neighborhood associations. F. The requirements in the Standards and Guidelines for Multiple-Unit Housing Property Tax Exemptions adopted by Administrative Order No. 53-09-01-F related to proximity to historic resources have been satisfied. G. The applicant has complied with the provisions of the Standards and Guidelines as described in the Report and Recommendation attached as Exhibit B to this Resolution which was prepared by the Executive Director of the Planning and Development Department (“the Director”) as designee of the City Manager. H. The project will be completed on or before January 1, 2012, and the owner has agreed to include in the construction one or more public benefits. I. The proposed project will be at the time of completion, in conformance with all local plans and planning regulations, including special or district-wide plans developed and adopted pursuant to ORS chapters 195, 196, 197, 215 and 227, that are applicable at the time the application is approved. J. The project is not designed for, and will not be used as transient accommodations. K. Granting the application is in the public interest. In making this determination, the City Council has considered the number of points awarded based on the public benefit scoring system contained in the Standards and Guidelines. Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc L. The Report and Recommendation attached as Exhibit B recommends that the application be approved and the exemption granted. In making that recommendation, the Director found that the applicant submitted all required materials, documents and fees as set forth in Section 2.945 of the Eugene Code, 1971, and the Standards and Guidelines, and the applicant is in compliance with the policies contained therein. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF EUGENE, a Municipal Corporation of the State of Oregon, as follows: Section 1. Based upon the above findings which are adopted, and the City Council’s review of the Report and Recommendation of the Executive Director of the Planning and Development Department attached as Exhibit B, the City Council approves the application of Midtown Terrace LLC for an ad valorem property tax exemption under the City’s Multiple-Unit Property Tax Exemption Program for the th residential units to be constructed at 362 East 12 Avenue, Eugene, Oregon, and more particularly described in Exhibit A, subject to the following conditions: 1. The project shall consist of development of seven one-bedroom units, four two- bedroom units, and 13 three-bedroom units, for a total of 24 residential units, which are not designed for, nor will be used as, transient accommodations. 2. The project shall be completed on or before January 1, 2012. 3. The project shall include all of the public benefit design elements as required in the Standards and Guidelines and described in Section 2.5 of the Report and Recommendation attached as Exhibit B. 4. No later than 18 months after receiving Certificate of Occupancy, the applicant shall submit to the City’s Planning and Development Department documentation of Earth Advantage Silver certification. 5. The project shall be in conformance with all local plans and planning regulations, including special or district-wide plans developed and adopted pursuant to ORS Chapters 195, 196, 197, 215 and 227. Section 2. The residential units to be constructed upon the property described in Section 1 above are declared exempt from local ad valorem property taxation beginning July 1 of the year following certification of completion and continuing for a continuous period of ten years unless earlier terminated in accordance with the provisions of Section 2.947 of the Eugene Code, 1971. Section 3. The City Manager, or the Manager’s designee, is requested to forward a copy of this Resolution to the applicants, and to the other affected taxing districts, within ten days, and to cause a copy of this Resolution to be filed with the Lane County Assessor on or before April 1, 2010. Section 4. This Resolution shall become effective immediately upon its adoption. Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc The foregoing Resolution adopted and effective the ____ day of May, 2009. ___________________________________ City Recorder 00226219.DOC Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc ATTACHMENT B RESOLUTION NO. _____ A RESOLUTION DENYING A MULTIPLE-UNIT PROPERTY TAX EXEMPTION TH FOR RESIDENTIAL PROPERTY LOCATED AT 362 EAST 12 AVENUE, EUGENE, OREGON (MIDTOWN TERRACE LLC, APPLICANT). The City Council of the City of Eugene finds that: th A. Midtown Terrace,LLCis the owner of real property located at 362 East 12 Avenue, Eugene, Oregon, more particularly described in Exhibit A attached to this Resolution. Midtown Terrace LLC has submitted an application pursuant to the City’s Multiple-Unit Property Tax Exemption Program (Sections 2.945 and 2.947 of the Eugene Code, 1971), with respect to residential units to be constructed on the property. B. The project consists of the development of seven one-bedroom units, four two-bedroom units, and 13 three-bedroom units, for a total of 24 residential units. C. The project is located within the boundaries of the core area as described in subsection (2) of Section 2.945 of the Eugene Code, 1971. D. The project could not financially be built “but for” the tax exemption. E. The applicant solicited comments from city-recognized affected neighborhood associations. F. The requirements in the Standards and Guidelines for Multiple-Unit Housing Property Tax Exemptions adopted by Administrative Order No. 53-09-01-F related to proximity to historic resources have been satisfied. G. The applicant has complied with the provisions of the Standards and Guidelines as described in the Report and Recommendation attached as Exhibit B to this Resolution which was prepared by the Executive Director of the Planning and Development Department (“the Director”) as designee of the City Manager. H. The project will be completed on or before January 1, 2012, and the owner has agreed to include in the construction one or more public benefits. I. The proposed project will be at the time of completion, in conformance with all local plans and planning regulations, including special or district-wide plans developed and adopted pursuant to ORS chapters 195, 196, 197, 215 and 227, that are applicable at the time the application is approved. J. The project is not designed for, and will not be used as transient accommodations. K. The Report and Recommendation attached as Exhibit B recommends that the application be approved and the exemption granted. In making that recommendation, the Director found that the applicant submitted all required materials, documents and fees as set forth in Section 2.945 of the Eugene Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc Code, 1971, and the Standards and Guidelines, and the applicant is in compliance with the policies contained therein. L. Notwithstanding the above findings and the Report and Recommendation of the Executive Director of the Planning and Development Department attached as Exhibit B, granting the application is not in the public interest. In making this determination, the City Council has considered the number of points awarded based on the public benefit scoring system contained in the Standards and Guidelines. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF EUGENE, a Municipal Corporation of the State of Oregon, as follows: Section 1. Based on the above findings, which are adopted, the City Council denies the application of Midtown Terrace LLC for an ad valorem property tax exemption under the City’s Multiple-Unit Property th Tax Exemption Program for the residential units to be constructed at 362 East 12 Avenue, Eugene, Oregon, and more particularly described in Exhibit A. Section 2. The City Manager, or the Manager’s designee, is requested to forward a copy of this Resolution to the applicant within ten days. Section 3. This Resolution shall become effective immediately upon its adoption. The foregoing Resolution adopted and effective the ____ day of May, 2009. ___________________________________ City Recorder 00227013.DOC Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc ATTACHMENT C REPORT AND RECOMMENDATION of the Executive Director of the Planning & Development Department Midtown Terrace LLC Application for Multiple-Unit Property Tax Exemption The Director of the Planning & Development Department of the City of Eugene finds that: 1. Midtown Terrace, LLC is the owner of real property located at 362 East 12th Avenue, Eugene, Oregon, and more particularly described in Attachment A to this Report and Recommendation. Midtown Terrace, LLC has submitted an application pursuant to the City’s Multiple-Unit Rental Housing Property Tax Exemption Program (Section 2.945 and 2.947 of the Eugene Code, 1971) with respect to the residential units to be constructed on the real property. 2. As the City Manager’s designee, I have reviewed the application and find that: 2.1 The project will provide 24 units of multiple-unit housing. 2.2 Construction is expected to be complete on or before January 1, 2012. 2.3 The project is located in the core area described in subsection (2) of Section 2.945 of the Eugene Code, 1971. 2.4 The applicant has submitted all materials, documents and fees required by the City as set forth in Section 2.945 of the Eugene Code, 1971, and the Standards and Guidelines for Multiple-Unit Housing Property Tax Exemptions adopted by Administrative Order No. 53-09-01-F. 2.5 The applicant responded to the public benefit criteria as follows: 2.5.1 Public Benefits: •Density. The project will include nineteen units in excess of the minimum required density. •Green Building Features. Applicant plans to attain Earth Advantage Silver Certification. EWEB has advised that “If all the agreed upon requirements and specifications are completed and pass site inspections, the project will be certified as Earth Advantage.” (Applicant must submit to the City’s Planning and Development Department documentation of Earth Advantage Silver certification no later than 18 months after receiving Certificate of Occupancy.) •Mixed Income. None of the housing units will be dedicated to controlled income and affordable rental housing. •Homeownership. None of the housing units will be dedicated to homeownership. •Accessibility. The project will include one unit that is ADA accessible. Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc •Historic Sensitivity. The project does not include preservation and enhancement of an existing historic locale. •Location. The project is not in the Downtown Plan Area. •Parking. The project will provide three parking spaces beyond what is required by the Code. •Other. The project will include 25 secured bicycle storage facilities (more than one per unit). •Longevity of Public Benefits. All public benefits included in the project will extend beyond the period of the tax exemption. •Points Awarded. Based on the Standards and Guidelines’ Public Benefit scoring system, this project has been awarded 115 public benefit points. 2.5.2 A two-tenant commercial office building (approximately 3,000 sq. ft.) and a one bedroom house will be demolished to allow for the construction of the 24-unit structure. 2.5.3 The applicant has demonstrated that the project would not be built without the benefit of the tax exemption. 2.5.4 The applicant solicited comments from the West University Neighborhood Association (WUN) and, by letter dated August 3, 2008, WUN supported the use of MUPTE funding for the project on the conditions that the design features presented remain in the project and that the “general” criteria are used to evaluate the project’s site review application. 2.5.5 The project will not be used as transient accommodations. 3. A display ad soliciting recommendations or comments from the public regarding this project was published in the Register-Guard on March 30, 2009. The period for comment expired on April 29, 2009. No comments were received in response to the ad. Therefore, based upon the above findings, the project is, or will be at the time of completion, in conformance with all applicable local plans and provisions of the Eugene Code, 1971, planning regulations, the Metropolitan Area General Plan, and the criteria set forth in the City’s adopted Standards and Guidelines, and I recommend that the application be approved. Dated this _____ day of May, 2009. ________________________________________ Executive Director, Planning & Development Department 00226227.DOC Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc ATTACHMENT F ATTACHMENT G VALUE OF VALUE OF CUMULATIVE TAXES PAID EXEMPTION TAXES ON LAND, CUMULATIVE CURRENT BY NEW YEAR PAID DURING TAXES ON TAXES PROJECT MUPTE LAND,COLLECTED FORGONE AFTER 10 EXEMPTION DURING DURING YEAR PERIOD EXEMPTION EXEMPTION EXEMPTION PERIOD EXPIRES 1 1,858 1,858 3,,453 2 1,858 3,716 6,906. 3 1,858 5,574 10,359 4 1,858 7,432 13,812 5 1,858 9,290 17,265 6 1,858 11,148 20,718 7 1,858 13,006 24,171 8 1,858 14,864 27,624 9 1,858 16,722 31,077 10 1,858 18,580 34,530 11 40,000 Z:\CMO\2009 Council Agendas\M090526\S0905262E.doc