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HomeMy WebLinkAboutItem 4: Approval of MUPTE Application for Paradigm on Pearl ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Action: Adoption of Resolution 5032 Approving a Multiple-Unit Property Tax Exemption for Residential Property Located at 1647 through 1689 Pearl th Street and 231 through 235 East 17 Avenue, Eugene, Oregon (Pearl Street Sustainable Housing LLC/Applicant) Meeting Date: May 9, 2011 Agenda Item Number: 4 Department: Planning and Development Staff Contact: Amanda Nobel www.eugene-or.gov Contact Telephone Number: 541-682-5535 ISSUE STATEMENT The City Council is asked to consider approval of a Multiple-Unit Property Tax Exemption (MUPTE) th for Pearl Street Sustainable Housing LLC’s project located at 17 Avenue and Pearl Street. (Resolutions for approval and denial are included in Attachments A and B, respectively.) BACKGROUND In 1975, the Oregon legislature adopted the enabling statutes for the MUPTE and Transit Oriented District Tax Exemption program. Since that time, both the State statutes and Eugene’s implementation ordinance has been amended. The council most recently amended Eugene’s code provisions and boundary in November 2008. To assist both staff and council in evaluating a MUPTE application, the code amendments included 1) adoption of approval criteria, and 2) direction to the City Manager to adopt a public benefit scoring system (described below). Pearl Street Sustainable Housing, LLC proposes to build the Paradigm on Pearl, a mixed-use building with 100 apartments, ground floor commercial spaces, and underground parking. (See Attachment C for the Report and Recommendation of the Planning and Development Director.) The project would be constructed using sustainable building practices and green building materials, with the goal of qualifying for LEED gold or platinum certification. The project would have four stories (117,753 square feet), 138 bedrooms, and parking (100 underground and five at-grade spaces). In accordance with zoning requirements, the first floor would have four commercial spaces of approximately 1,200 square feet th each. The project would include a central courtyard facing south across 17 Avenue oriented toward Spencer Butte. The façade of the building is designed to take maximum advantage of natural light with an upscale appearance. The south end of the courtyard would serve as open space through which residents could enter a private courtyard. The target market for the apartments would be families, professionals, and students who appreciate the benefits of living within the urban core. The construction method is planned to allow for conversion to condominiums in the future, as desired by the owners. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc The property currently has six older rental homes and one modular home on site, with little to no reuse potential; three are vacant. The buildings are not city landmarks nor are they on the National Historic Register. The project is not immediately adjacent or contiguous to a historic structure. Public Comments A display advertisement was published in The Register-Guard on March 22, 2011, soliciting comments for 30 days. The period ended on April 21, 2011. Other than the letter of support from the West University Neighborhood association included in Attachment D, no public comments were received. Public Benefits After reviewing the Paradigm on Pearl application against the public benefit scoring criteria in the Standards and Guidelines, staff determined that the proposed development earned 440 points. (A minimum of 100 points is required for the City Manager to recommend that council approve an application.) Points were awarded for the project through the following benefits: Density: 50 points (10 points per unit in excess of the minimum code requirement; 50 point max) o Green Building Features and Quality of Building Materials: 100 points for LEED-certification o Accessibility: 20 points (10 points per unit) o Parking: 270 points (10 points per code space in excess of the minimum code requirement) o The applicant has also expressed an interest in converting some or all of the housing to ownership in the future and is designing the building accordingly. While there are no additional points added in this application, converting to ownership is viewed as a benefit. Impact and Need for Tax Exemptions to Encourage Housing The City and other local taxing districts forgo revenue when property is exempted from taxes. The Paradigm on Pearl project will continue to generate property taxes on the land and will immediately generate new tax revenue on the commercial space. The submitted application indicates that the 2010 property tax was $12,700 and that upon completion the project will pay $20,000 (land and commercial space). After 10 years, the entire development will be taxable, generating an estimated $165,000 on the housing portion in year 11. The application also indicates that MUPTE is vital to the development and, if it is denied, the property will be developed without the majority of the public benefit features (such as, underground parking, accessible units, and green building features). Financial Analysis The applicant has demonstrated that the project as proposed could not be built but for the benefit of the tax exemption. Staff and the Loan Advisory Committee have reviewed the pro-forma and confirmed this conclusion. (See Attachment F for more information.) Timing This application was submitted on March 8, 2011. The City Manager has 90 days (until June 6) to make a recommendation to the council; if the council has not acted in 180 days (September 4), the application is deemed approved. Additionally, the MUPTE statute expires for all projects unable to be constructed by January 1, 2012. In order to qualify for the exemption, the applicant is required to complete construction prior to January 1, 2012. If the project fails to be completed by the deadline due to circumstances beyond the applicant’s control (such as a natural disaster, bankruptcy of key vendors, or dissolution of the related financial institution), the council has the option to grant a one-year extension. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc The applicant provided a signed contract with the General Contractor and a construction timeline showing that construction is expected to be complete on or before January 1, 2012. However, some question remains about the ability to meet this timeline given the scale of the project and experience from other projects. In light of this possibility, should the council decide to grant the exemption, the resolution approving the exemption states explicitly that if the applicant is unable to complete the project and obtain a temporary or final certificate of occupancy for the residential portion of the project prior to the deadline, that the applicant will not receive the tax exemption and will have no expectation of being granted an extension. The applicant is aware of the deadline and implications of not meeting it. 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: 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. Additionally, the MUPTE program is consistent with the current Envision Eugene work and, specifically, the “Promote compact urban development and efficient transportation options” pillar. COUNCIL OPTIONS The council may approve the exemption, deny the exemption, or delay approval in order to request additional information from the developer. CITY MANAGER’S RECOMMENDATION The City Manager recommends approval of the exemption based on a demonstration of need and that the applicant scored 440 public benefit points, which exceeds the 100 point threshold for support. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc SUGGESTED MOTION Move to adopt Resolution 5032 in Attachment A, approving a multiple-unit property tax exemption for residential property located at 1647 through 1689 Pearl Street and 231 through th 235 East 17 Avenue, Eugene, Oregon (Pearl Street Sustainable Housing LLC/applicant). ATTACHMENTS A.Resolution Approving the Property Tax Exemption B.Resolution Denying the Property Tax Exemption C.Resolution Exhibit A – Property Legal Description D.Report and Recommendation of the Planning and Development Director E.WUN Letter of Support F.Financial Analysis G.Image of the proposed development A copy of the MUPTE application for the Paradigm on Pearl is available in the council office for review. FOR MORE INFORMATION Staff Contact: Amanda Nobel Flannery Telephone: 541-682-5535 E-mail: amanda.nobelflannery@ci.eugene.or.us \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc ATTACHMENT A Resolution to Approve RESOLUTION NO. _____ A RESOLUTION APPROVING A MULTIPLE-UNIT PROPERTY TAX EXEMPTION FOR RESIDENTIAL PROPERTY LOCATED AT 1647 THROUGH TH 1689 PEARL STREET AND 231 THROUGH 235 EAST 17 AVENUE, EUGENE, OREGON (PEARL STREET SUSTAINABLE HOUSING LLC/APPLICANT). The City Council of the City of Eugene finds that: A. Pearl Street Sustainable Housing LLC is the owner of real property located at 1647 th through 1689 Pearl Street and 231 through 235 East 17 Avenue, Eugene, Oregon, more particularly described in Exhibit A attached to this Resolution, and 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 Paradigm on Pearl project (“the project”) consists of the development of 100 residential units and will include a combination of studios, one-bedroom, two-bedroom and three- bedroom units, and underground parking for the residents. The project will also include commercial space and parking for patrons of the commercial space, which are not subject to this tax exemption. C. The project is located within the boundaries of the core area as described in subsection (2)(a) 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. The applicant has also provided a signed contract with the General Contractor stating that construction is expected to be complete on or before January 1, 2012. However, some question remains about the ability to meet this timeline given the scale of the project. If the applicant is unable to complete the project and obtain a temporary or final certificate of occupancy for the residential portion of the project on or before January 1, 2012, the applicant will not receive the tax exemption and will have no expectation of being granted an extension of the deadline. H. The applicant has agreed to include in the construction one or more public benefits. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc 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 to the project based on the public benefit scoring system contained in the Standards and Guidelines. 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 Executive Director of the Planning and Development Department’s Report and Recommendation which is attached as Exhibit B, the City Council approves the application of Pearl Street Sustainable Housing LLC for an ad valorem property tax exemption under the City’s Multiple-Unit Property Tax Exemption Program for the residential units to be constructed at 1647 through 1689 Pearl Street and 231 th through 235 East 17 Avenue, Eugene, Oregon, and more particularly described in Exhibit A, subject to the following conditions: 1. The project shall consist of development of 40 studio units, 32 one-bedroom units, 18 two bedroom units and 10 three-bedroom units, for a total of 100 residential units. The project will also include 4,800 square feet of commercial space, and underground parking. The commercial space and parking areas for the commercial space are not subject to this tax exemption. The parking spaces reserved for the residents are included in this tax exemption. 2. The project shall be completed on or before January 1, 2012. No extension shall be expected, if the project is not completed by January 1, 2012. 3. No later than 18 months after receiving a Certificate of Occupancy, the applicant shall submit to the City’s Planning and Development Department documentation of Leadership in Energy & Environmental Design (LEED) certification (copy of U.S. Green Building Council Rating Certificate and final LEED review). \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc 4. 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 on the property described in Section 1 above (approximately 95% of the above-ground structure) and the underground parking reserved for the residential units (approximately 98.5% of the underground parking area) 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, 2012. Section 4. This Resolution shall become effective immediately upon its adoption. The foregoing Resolution adopted and effective the ____ day of ___________, 2011. Deputy City Recorder \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc ATTACHMENT B Resolution to Deny RESOLUTION NO. _______ A RESOLUTION DENYING A MULTIPLE-UNIT PROPERTY TAX EXEMPTION FOR RESIDENTIAL PROPERTY LOCATED AT 1647 THROUGH TH 1689 PEARL STREET AND 231 THROUGH 235 EAST 17 AVENUE, EUGENE, OREGON (PEARL STREET SUSTAINABLE HOUSING LLC/APPLICANT). The City Council of the City of Eugene finds that: A. Pearl Street Sustainable Housing LLC is the owner of real property located at 1647 th through 1689 Pearl Street and 231 through 235 East 17 Avenue, Eugene, Oregon, more particularly described in Exhibit A attached to this Resolution, and 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 Paradigm on Pearl project (“the project”) consists of the development of 40 studio units, 32 one-bedroom units, 18 two-bedroom units, and 10 three-bedroom units, for a total of 100 residential units. The project will also include 4,800 square feet of commercial space, and underground parking. The commercial space and parking areas for the commercial space are not subject to this tax exemption. The parking spaces reserved for the residents are included in this tax exemption. C. The project is located within the boundaries of the core area as described in subsection (2)(a) of Section 2.945 of the Eugene Code, 1971. D. The Report and Recommendation of the Executive Director of the Planning and Development Department (“the Director”) attached as Exhibit B to this Resolution 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. E. Notwithstanding the recommendation to approve the application, the City Council has determined that granting the application is not in the public interest. 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. Having considered the above findings and the Report and Recommendation of the Director attached as Exhibit B, the City Council finds that it would not be in the public interest to grant the application of Pearl Street Sustainable Housing LLC for an ad valorem property tax exemption under the City’s Multiple-Unit Property Tax Exemption Program for the residential units and residential \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc th parking to be constructed at 1647 through 1689 Pearl Street and 231 through 235 East 17 Avenue, Eugene, Oregon. Therefore, the application is denied. 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 ___________, 2011. Deputy City Recorder \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc ATTACHMENT C Resolution Exhibit A – Property Legal Description \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc ATTACHMENT F Financial Analysis The Pro-Forma for the Paradigm on Pearl (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 1.02, 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 3% by year 10. 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 $11.9 million. The total cost of the project is $13.1 million. At 75% loan to value, the project needs to be valued over $13.3 million to qualify for $10 million in bank debt. Sources Total Cost EQ$ 3,110,00024% Conventional Debt$ 10,000,00076% Total project$ 13,110,000 Pro-Forma Without MUPTEYear 1Year 2Year 10 Rent Income$ 1,214,400$ 1,226,544$ 1,328,171 - Vacancy (5%)$ 60,720$ 61,327$ 66,409 = Effective Gross Rent$ 1,153,680$ 1,165,217$ 1,261,763 - Operating Exp (25%)$ 288,420 $ 306,636 $ 332,043 = NOI$ 865,260 $ 858,581 $ 929,720 - Debt Service$ 848,135 $ 848,135 $ 848,135 = CF$ 17,125$ 10,446$ 81,585 Cash on Cash Return 1%0%3% Value$ 11,935,000$ 11,842,000$ 12,824,000 dsc 1.02 The pro-forma uses conservative assumptions for property value growth and market assumptions for 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 financial information is based on projections prior to financing, tenanting, and construction. The cap rate was estimated at 7.25%. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc With MUPTEYear 1Year 2Year 10 Rent Income$ 1,214,400$ 1,226,544$ 1,328,171 - Vacancy (5%)$ 60,720$ 61,327$ 66,409 = Effective Gross Rent$ 1,153,680$ 1,165,217$ 1,261,763 - Operating Exp$ 288,420 $ 306,636 $ 332,043 - Property Tax $ (135,935)$ (138,654)$ (162,455) (saved by MUPTE) = NOI$ 1,001,195$ 997,235 $ 1,092,175 - Debt Service$ 848,135 $ 848,135 $ 848,135 = CF$ 153,060 $ 149,100 $ 244,040 Cash on Cash Return 5%5%8% Value$ 13,810,000$ 13,755,000$ 15,064,000 dsc 1.18 The Pro-Forma above shows that the project improves with the MUPTE. The debt service coverage is 1.18. The Cash on Cash return reaches 8% by year 10, only slightly below the market expectation. The project valuation is 72% loan to value, which is similar to loan to value ratios currently in the market. \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc ATTACHMENT G Image of the Proposed Development \\Cesrv500\cc support\CMO\2011 Council Agendas\M110509\S1105094and atts A-C and F-G.doc ûèèûùôï÷îèø ûèèûùôï÷îè÷ åçîð×ÈÈ×ÊÍÖéÇÌÌÍÊÈ