HomeMy WebLinkAboutItem 5: Resolution Approving MUPTE for Broadway Lofts
ECC
UGENE ITY OUNCIL
AIS
GENDA TEM UMMARY
Action: Adoption of Resolution 5053 Approving a Multiple-Unit Property
Tax Exemption for Residential Property Located at Willamette and
Broadway (First on Broadway, LLC/Broadway Lofts)
Meeting Date: January 23, 2012 Agenda Item: 5
Department: Planning and Development Staff Contact: Amanda Nobel
www.eugene-or.gov Contact Telephone Number: 541-682-5535
ISSUE STATEMENT
The council is asked to consider approval of a Multiple-Unit Property Tax Exemption (MUPTE) for
First on Broadway, LLC’s Broadway Lofts project located at Willamette and Broadway (sometimes
referred to as the Taco Time Building.) The resolution for approval is in Attachment A.
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 the sunset date and reduced the
boundary in September 2011. Also at that time, the council added the option to exempt the commercial
portion of a multi-unit housing project to the extent that the commercial property is required or
considered to be a public benefit. The council amended Eugene’s code provisions in November 2008, to
assist both staff and council in evaluating a MUPTE application with: 1) adoption of approval criteria
and 2) direction to the City Manager to adopt a public benefit scoring system (described below).
First on Broadway, LLC proposes to renovate an existing building to create 19 apartments and ground
floor retail/commercial. (See Attachment B for the Report and Recommendation of the Planning and
Development Director and Attachment C for images of the project.) The project would have two stories
(25,000 square feet), 22 bedrooms, ground floor retail space (6,275 square feet), and lease 25 off-site,
City-owned parking spaces for the residents. The building is not a city landmark nor is it on the
National Historic Register.
Public Comments
A display advertisement was published in The Register-Guard on December 20, 2011, soliciting
comments for 30 days. The period ended on January 19, 2012. As of the writing of this agenda item
summary, no comments have been received in response to the ad. If comments are submitted on or
before January 19, staff will report that information to the council on January 23. The applicant did
provide an email indicating support for the project from the Downtown Neighborhood Association
Chair, included in Attachment D.
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
Public Benefits
After reviewing the Broadway Lofts application against the public benefit scoring criteria in the
Standards and Guidelines, staff determined that the proposed development earned 150 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
Location: 100 points for being located within the Downtown Plan Area
o
Impact and Need for Tax Exemptions to Encourage Housing and Ground Floor Commercial
The City and other local taxing districts forgo revenue when property is exempted from taxes.
Broadway Lofts will continue to generate property tax revenue on the land. The submitted application
estimates the property tax paid will be $7,100 per year. After 10 years, the entire development will be
taxable, generating an estimated $48,400 in year 11. The MUPTE is vital to the development and, if it is
denied, the property could not be converted to a housing use.
The commercial portion of the project is a public benefit and enhances the feasibility. Ground-floor
commercial, including office, but more specifically retail, supports a mix of uses within one building
and within an area. The convenience of multiple uses grouped together increases the walkability of the
area, which directly supports the area’s vitality. Ultimately, a successful mixed-use area increases the
value and likelihood of additional development, resulting in further revitalization, boosting investor and
community confidence. Broadway and Willamette is considered one of the most important intersections
downtown, a gathering place for special community events. Activating these vacant storefronts will
increase pedestrian activity and enhance public safety at this critical area downtown.
While ground-floor uses are desired, the costs and financial risks associated with this development form
can be an impediment. Mixing uses within one building adds costs from a construction and code
standpoint. In addition, desired ground-floor commercial tenants are often difficult to secure, especially
in the current economy. Allowing a tax exemption to include the ground-floor area designated for
commercial use addresses this impediment and helps to stimulate this desired development form.
The City (through its Urban Renewal Agency) provided $500,000 acquisition financing from the
Downtown Revitalization Loan Program in 2011 to support downtown housing and to complete
rehabilitation of the heart of downtown at Willamette and Broadway.
Financial Analysis
The applicant demonstrated that the project as proposed could not be built but for the benefit of the tax
exemption. Staff and the Loan Advisory Committee reviewed the pro-forma and confirmed this
conclusion. (See Attachment E for more information.)
Timing
This application was submitted on November 30, 2011. The City Manager has 90 days (until February
28) to make a recommendation to the council. If the council has not acted in 180 days, the application is
deemed approved.
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
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 approving the exemption based on a demonstration of need and that the
applicant scored 150 public benefit points, which exceeds the 100-point threshold for support.
SUGGESTED MOTION
Move to adopt Resolution 5053 approving a multiple-unit property tax exemption for residential
property located at 39 West Broadway.
ATTACHMENTS
A.Resolution Approving the Property Tax Exemption
B.Report & Recommendation of the Planning and Development Director
C.Image of the Current Site and Proposed Development
D.Email from DNA Chair Indicating Support
E.Financial Analysis
A copy of the MUPTE application for Broadway Lofts is available in the council office for review.
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
FOR MORE INFORMATION
Staff Contact: Amanda Nobel Flannery
Telephone: 541-682-5536
E-mail: amanda.nobelflannery@ci.eugene.or.us
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
ATTACHMENT A
Resolution to Approve
A RESOLUTION APPROVING A MULTIPLE-UNIT PROPERTY TAX
EXEMPTION FOR RESIDENTIAL PROPERTY LOCATED AT 39 WEST
BROADWAY, EUGENE, OREGON (First On Broadway, LLC/Applicant).
The City Council of the City of Eugene finds that:
A.
First On Broadway, LLC is the owner of real property located at 39 W. Broadway Street,
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 the rehabilitation of the existing building to
include residential units and commercial space.
B.
The project, known as Broadway Lofts, consists of the development of ten studio units;
six one-bedroom units; and three two-bedroom units, for a total of 19 residential units. In addition, the
project will include 6,275 square feet of commercial space on the ground floor.
C.
The project is located within the boundaries of the downtown 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 Nos. 53-09-01-F and 53-11-05 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 Executive
Director”) as designee of the City Manager.
H.
The project will be completed on or before January 1, 2022, 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 to the project based on the public benefit scoring
system contained in the Standards and Guidelines.
S:\CMO\2012 Council Agendas\M120123\S1201235.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 Executive 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’s Report and Recommendation which is attached as Exhibit B, the City Council
approves the application of First On Broadway, LLC for an ad valorem property tax exemption under
the City’s Multiple-Unit Property Tax Exemption Program for the rehabilitation of the existing building
located at 39 West Broadway Street, Eugene, Oregon, more particularly described in Exhibit A, to
include residential units and commercial space, subject to the following conditions:
1.
The project shall consist of the development of ten studio units; six one-bedroom units;
and three two-bedroom units, for a total of 19 residential units. In addition, the project
will include 6,275 square feet of commercial space on the ground floor.
2.
The project shall be completed on or before January 1, 2022.
3.
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 and commercial space to be developed on the property
described in Section 1 above (100% of the increase in value of the building) are declared exempt from
local ad valorem property taxation beginning July 1 of the year following issuance of a Certificate of
Occupancy 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 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 January, 2012.
Deputy City Recorder
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
Resolution Exhibit A – Property Legal Description
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
ATTACHMENT B
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
ATTACHMENT C
Image of the Current Site & Proposed Development
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
ATTACHMENT D
Email from DNA Chair indicating support
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
Annual D/S
ATTACHMENT E
Financial Analysis
The Pro-Forma for Broadway Lofts (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
1.22, 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 4% by year 10. Third, the project valuation is 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 $3.25 million or 77%
loan to value.
Sources
Total Cost
EQ$ 1,392,573 33%
City$ 300,0007%
Conventional Debt$ 2,500,000 60%
Total project$ 4,192,573
The City (through its Urban Renewal Agency) provided $500,000 in acquisition financing from the
Downtown Revitalization Loan Program - $300,000 to be repaid within 10 years and $200,000 to be
repaid upon reaching 12% return. The $200,000 portion is included as part of equity for this analysis.
The total loan would be due on sale of the property.
Pro-Forma
Without MUPTEYear 1Year 2Year 10
Rent Income$ 347,772 $ 351,250 $ 380,353
- Vacancy (5%)$ 17,389$ 17,562$ 19,018
= Effective Gross Rent$ 330,383 $ 333,687 $ 361,335
- Operating Exp (25%)$ 86,943$ 87,812$ 95,088
= NOI$ 243,440 $ 245,875 $ 266,247
- Debt Service$ 199,404 $ 199,404 $ 199,404
= CF$ 44,036$ 46,471$ 66,843
Cash on Cash Return 3%3%4%
Value$ 3,246,000$ 3,278,000$ 3,550,000
dsc 1.22
S:\CMO\2012 Council Agendas\M120123\S1201235.doc
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 7.5%.
With MUPTEYear 1Year 2Year 10
Rent Income$ 347,772 $ 351,250 $ 380,353
- Vacancy (5%)$ 17,389$ 17,562$ 19,018
= Effective Gross Rent$ 330,383 $ 333,687 $ 361,335
- Operating Exp$ 86,943$ 87,812$ 95,088
- Property Tax
$ (39,729)$ (40,524)$ (47,480)
(saved by MUPTE)
= NOI$ 283,170 $ 286,399 $ 313,728
- Debt Service$ 199,404 $ 199,404 $ 199,404
= CF$ 83,766$ 86,995$ 114,324
Cash on Cash Return 5%5%7%
Value$ 3,776,000$ 3,819,000$ 4,183,000
dsc 1.42
The Pro-Forma above shows that the project improves with the MUPTE. The debt service coverage is
1.42. The Cash on Cash return reaches 7% by year 10. The project valuation is 66% loan to value.
S:\CMO\2012 Council Agendas\M120123\S1201235.doc