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Agenda Packet - 2005-06-22 PM j, °swEc° Foothills Plan Technical Advisory y Committee Meeting Agenda OREGON Wednesday,June 22,2005,1:30-3:00 p.m. City Hall—Council Workroom 1:30 Introductions: All 1:35 Review Transportation Analysis: Carl Springer, DKS 2:05 Review Draft TGM Report: Torn Litster, Otak • Feedback loop for neighborhood representatives • Extra CAC meeting December 1. 2004 2:55 Next Steps and Adjourn For more information or questions,please contact Denny Egner at 503-697-6576 or e- mail at degner@ci.oswego.or.us. DKS Associates TRANSPORTATION SOLUTIONS Memorandum To: Lake Oswego Foothills District TAC Members From: Carl Springer,P.E.; John Bosket, P.E. Date: June 22, 2005 Subject: Transportation Performance Findings (v.2.1) P/A No. 04199-000 DKS Associates evaluated the transportation system impacts associated with the proposed Foothills District Plan concepts, and we report our findings in the following memorandum. Our analysis identifies the expected short-term and long-term system impacts associated with this type of development in this downtown district area. Summary The proposed Foothills District Plan concept alternatives included a range of housing and commercial space for development within the 29 acres of lands occupied by warehouse and light industrial uses today. The Foothills District is served by a single connection from State Street,via Foothills Road. The concept plans included lane uses that would require zoning changes within the City's comprehensive plan, and new street connections to State Street. This traffic analysis considers the potential system impacts associated with the re- zone, if that were approved, compared to the zoning currently allowed for this land. The findings and conclusions for this analysis is summarized below: • The existing zoning allows for a wide range of low intensity warehouse, industrial and commercial uses. The `reasonable worst case' land use allowed within current zoning, in terms of commute hour weekday impacts, was assumed to be Light Industrial. • The peak hour trips associated with re-development as Light Industrial use is estimated to be about 372 ",—yj_t s. This is about the same as the level estimated for Alternative • ept Plans. The most intense concept plans was Alternative 1 with 602 :-. our to. + %or d=a'h'+w • Long-term traffic growth(2025) on State Street is expected to increase 35 to 50 percent above today's levels. This added growth is much more than the proportion of traffic added by any of the Foothills District plan concepts. The Foothills development, if the re-zone were completed,represents roughly 10 to 15 percent of DKS 1400 S.W.5%Avenue Suite 500 Portland,OR 97201-5502 (503)243-3500 (503)243-1934 fax www dksassnciates cnm J DKS Associates TRANSPORTATION SOLUTIONS the growth on State Street. The balance is attributed to other growth in the city, or other portions of the county,including the Stafford area near Interstate 205. • If the Foothills re-zone and development plans were approved today, they could fully construct to their build out levels without reaching the maximum congestion allowed under state or city performance standards on State Street. The new street connection to State Street, either at"D" Avenue or Terwilliger Boulevard, depending on the concept plan, would not be required to maintain minimum acceptable performance in the short-term. However, in the long-term, the second connection is important to balance access to the sight, and to reduce the Foothills traffic that uses the State and"A"Avenue intersection during peak hours,because it is one of the most heavily congestion during that period. • Long-term new soluti yyill be required for the State Street Corridor between McVey Avenue and 3ta Street to better serve the high forecasted growth. These solutions could include an additional through lane in each direction on State Street, or a parallel route, making one lane reversible during peak hours, and implementing pricing controls for downtown parking. Further evaluation and administrative action by the city would be required to implement any of these solutions into their transportation system plan. • To support a potential re-zoning for the Foothills District, the system impacts are focused on State Street and"A"Avenue. To offset the higher trip intensity associated with the Alt. 1 (the highest of the three plans considered), the traffic signal should optimized to reduce delays.No other mitigation is required. Background The concept plans evaluated through this study provide general guidance about potential circulation and service capabilities for the Foothills District in Lake Oswego. The general study area spans from McVey Street to Terwilliger Boulevard along State Street, also designated as OR 43 (see Figure 1 for details). Additional steps in the planning process are required beyond this study to implement necessary zoning and comprehensive plan changes to support these types of development. Once those steps are completed, any specific development applications would be required by city ordinance to re-evaluate its ability to safely and efficiently serve its own transportation needs without adversely impacting the city street system. The development applications may well have a different mix of land uses and buildings than the combinations evaluated in this study. Therefore, the findings in this document provide a preliminary indication of the suitability of this site for potential new development only, and any recommended improvements or outstanding issues will need to be reviewed, as appropriate, as specific development applications are made. Traffic Volume Forecasts Traffic volume forecasts were made for 2025 horizon year to account for planned growth around the region, and how traffic volumes are expected to change within the study area, which includes all the major intersections on State Street between McVey Avenue and Lake Oswego Foothills Concept Plan 2 June 22, 2005 DKS Associates TRANSPORTATION SOLUTIONS Terwilliger Boulevard. The Metro regional travel demand model was used for this purpose. The model forecasts includes all planned jobs and housing growth within Lake Oswego and all of the other communities inside the Metro planning area. It was discovered during the forecast process that the employment growth assumed for downtown Lake Oswego has changed significantly since the 2020 forecasts, completed five years ago. An additional 2,600 non-retail employees were targeted for the Foothills site itself, when this site was being considered as a potential high density employment center. By way of comparison, this high employment center trip generation would be three to five times greater than the alternatives now under development through this planning process. Another significant issue noted in the forecasts was the assumption that the Stafford Triangle area has very substantial assumptions in jobs and housing (up to 7,000 new residential units), even though the Clackamas County Comprehensive Plan does not yet include higher urban development densities in this area. Potential Traffic Added by Foothills Concept Plans Three alternative forms of the site were developed through the planning process. The assumed number of housing units,commercial and office space were evaluated to estimate the expected peak hour trip generation for each alternative. The trip rates were based on the standard Institute of Transportation Engineers published information, with an additional factor to account for the expected higher transit usage for this central site. Because of the proximity to several fixed bus routes and a planned streetcar service, the standard trip rates were reduced by 10 percent during commute hours. The housing type in the Foothills District was assumed to be a condominium unit for all cases, and the supporting floor space for other uses was assumed to be half for commercial and half for office in all cases. The resulting trip tallies for each scenario are summarized in Table 1 below. The total number of one-way vehicle trips (in and out of the site) ranged from 376 for Alternative 3 up to 602 for Alternative 1, prior to the reduction for transit trips. There will be additional walking and biking associated with each alternative, but these are not reflected in the values in Table 1, which are limited to automobile,trucks and motorcycle trips. Table 1: Foothills District Trips (PM Peak Hour) Alternative Housing Commercial/ Total Number of Motor Vehicle Trips (Units) Office Space Vehicle Trip Ends (After 10% Transit (Gross Building Reduction) Area) 1 1,070 70,000 602 542 2 1,200 30,000 576 520 3 700 13,000 376 338 • Note that the existing traffic generated by the built land uses within the Foothills District boundaries, typically light industrial and warehouse businesses, will be replaced by these new development, assuming the plan implementation proceeds. Technically,the trips associated with the existing development would be deducted from the new trip tallies Lake Oswego Foothills Concept Plan 3 June 22,2005 DKS Associates TRANSPORTATION SOLUTIONS shown in Table 1 to show the net trip increase, but, for the purpose of this study, they were not, to provide a more conservative estimate of future traffic impacts. The trip patterns to and from the Foothills site were developed using the Metro travel demand model information, which accounts for trip patterns throughout the region. The Foothills site was isolated during the peak hour of travel, and the resulting patterns showed the distribution in Table 2 and illustrated in Figure 2. The majority of site traffic is expected to travel to and from the west via "A" Avenue (38%) , the next highest proportion of trips would be to and from the north on State Street (22%), and the remainder of the site traffic would have origins or destinations south on State Street(20%) or on McVey Avenue (15%). Approximately 5%of the site trips were expected to start or end within the immediate study area during the peak hours of travel. Table 2: Foothills District Trip Distribution (PM Peak Hour) Origin/Destination Percentage of Site Trips '''' -- West on A Avenue 38% Cam*► a^ f�° P North on State Street(OR 43) 22% South on State Street past McVey 20% West on McVey Avenue 15% Local 5% Total 100% Reasonable Worst Case Under Existing Zoning For the purposes of this study, the future base forecast for the Foothills District made assumptions about the reasonable worst-case development allowed under current zoning. This is the benchmark used to assess the relative impacts for proposed re-zoning. The current zoning allows a wide range of lower intensity warehouse, industrial and restricted commercial uses. The use most likely to generate the high level during the weekday commute hours would be a Light Industrial use across all 29 acres of land within the district, not including the sewage treatment plant. Assuming a typical one-story development, there could be up to 380,000 square feet of light industrial use within the district, and that would replace some or all of the current uses without a re-zone. The trip generation (ITE Code 110) estimated for the Foothill Existing Zoning would be 2,650 vehicle trips daily, and 372 vehicle trips during the PM peak hour. Referring back to Table 1, this level of trip generation is similar to Alternative 3 of the Concept Plans. Lake Oswego Foothills Concept Plan 4 June 22, 2005 DKS Associates TRANSPORTATION SOLUTIONS 2025 Traffic Forecast The 2025 volume forecasts along State Street were compared with recent peak hour counts, as summarized below, and illustrated in Figure 3. Table 3: State Street Traffic Volumes (PM Peak Hour Two-Way Total) State Street 2005 2025+Existing 2025 With Percent Growth Percent Growth South of Foothills Foothills 2005 to 2025 Associated with Zoning Alt.1 Foothills Terwilliger 2,750 3,690 3,740 37% 12% "A"Avenue 3,380 4,900 4,900 50% 13% North Shore 3,220 4,630 4,650 47% 13% McVey 2,260 3,050 3,060 35% 11% The 2025 future No Build (without the Foothills Project alternatives) shows major traffic volume increases on State Street,ranging from 35 to 50% over 20 years. The most trip intensive Foothills Plan(Alt. 1)will contribute 11 to 13% of the total growth from 2005 to 2025. The majority of the growth, over 85%,will be created from background development other than in the Foothills area, including the Stafford Basin area noted previously. State Street Performance With the major growth from background development along State Street, several intersections will approach or exceed their capacity during peak commute hours without local or system improvements to serve the increased demand. Existing through volumes on State Street are forecasted to grow to such an extent that side street traffic would routinely not be able to clear on a single traffic cycle,because so much of the signal time will used up by through traffic. As shown in Table 4, the 2025 conditions during the PM peak hour will experience heavy congestion at"A" Avenue,North Shore and Middle Crest. Other intersections are approaching capacity,but could likely be mitigated to minimum acceptable levels. For example, State/Foothills varies for 1.02 to 0.99 with the three alternatives, which is essentially at the current planned capacity; however, the 20-year planning target allows for growth up to 1.10 for this location. Each of the Foothills District plan alternatives have similar impacts at all study locations. The least impacts, in a relative sense, are shown for Alternative 3,which has the lowest site trip generation. The 2025 +Existing Zoning scenario is similar to most of the Alternative Plan conditions,however, in most cases, the Alternatives have lesser impacts than the current zoning,primarily because the current zoning is exclusively an employment use and the alternatives are residential uses. Lake Oswego Foothills Concept Plan 5 June 22, 2005 DKS Associates TRANSPORTATION SOLUTIONS The last column on Table 4 shows the minimum performance target at each location as specified by ODOT in the Oregon Highway Plan. Within the Town Center area, Terwilliger to North Shore, the maximum volume-to-capacity ratio target is 1.10 for 20- year planning purposes. South of that point,the maximum target drops to 1.00. The three intersections at State/"A"Avenue, State/North Shore, and State/Middle Crest will exceed the target in all cases. Further study will be required to develop potential solutions at these locations. The following sections introduce potential solutions for long-term demand in the corridor, and for the Foothills Plan area. Potential Solutions for State Street The long-term needs for the State Street corridor should be addressed by the City and ODOT to develop solutions that could better meet with ODOT's mobility standards and the City's goals for the Downtown Area. The menu of possible strategies could include: • Higher transit services, especially those with dedicated right-of-way—Providing a street car or other off-highway transit solution will give travelers a time competitive option over driving or conventional bus service, which both use the same limited highway facilities. • Enhanced north-south capacity—If the future growth in travel demand is to be met, then additional north-south capacity will be needed. For this section of State Street, one possible option would be to consider reversible lanes between"A" Avenue and McVey Street. • Traffic signal coordination— As the Foothills area develops, and other downtown block re-develop,their could be need for modified timing schemes to improve traffic signal efficiency. • Enhance Other Regional Routes—Implement improvement to major regional routes that parallel State Street (OR 43), including Interstate 5. • Reduce Peak Hour Travel Demand—The other approach to corridor management would focus on managing travel demand, which could include park-and-ride lots, downtown parking pricing and higher frequency bus service. • Regional Planning Coordination —A significant share of the forecasted through traffic growth is generated from land development outside of the city limits. The city should continue to work with Metro and Clackamas County to appropriately plan areas such as the Stafford Basin so that their impacts do not adversely impact the downtown of this community. Mitigation Required to Offset Higher Trip Intensity in Foothills District Comparing the 2025 conditions in Table 4 between the three plan alternatives and the Existing +Foothills Existing Zoning, the only location that has a higher v/c ratio with the plan alternatives is at State Street and"A"Avenue. The others are equal or slightly less than the current zoning conditions. As noted previously, the primary factor for the similarity of impacts despite a higher trip generation total is that the direction of travel during the peak hour.The current zoning is exclusively industrial, and the employment trips associated with that type of use are predominantly outbound from the site during the Lake Oswego Foothills Concept Plan 6 June 22,2005 DKS Associates TRANSPORTATION SOLUTIONS afternoon peak hour; whereas, all of the plan concept alternatives are primarily residential, which has a more balanced volume of trips inbound and outbound during peak hours. Also, the existing zoning does not assume a second connection to State Street, but all traffic would use the Foothills Street access. The above finding shows that the only mitigation required to support a potential re-zoning for this site would be at State Street and"A" Avenue. For the purposes of this discussion, it was assumed that the reasonable worst-case condition with the re-zone that would be required for the Concept Plans would be represented by Alternative 1,which has the highest trip generation level of the three alternatives. The mitigation options at State Street and"A"Avenue are very limited. The object of any mitigation would be to offset the increase in v/c ratio relative to the Existing +Future Zoning alternative, and not to fully mitigate conditions back to the preferred minimum standard of 1.10, as allowed in Town Centers on District Highways. The suggested mitigations for this location include: • Construct a separate southbound right-turn lane from State Street onto"A" Avenue. This mitigation would have substantial impacts on existing buildings, and the current streetscapes along State Street. • A much less disruptive option would be for the traffic signal timing for this location to be optimized to make up the relatively small gap of 0.02 in v/c ratio. The recommended mitigation is to optimize the traffic signal timing at this location to better serve the forecasted traffic demands. This change in traffic signal timing would reduce the current green time band on State Street by approximately 1 second, compared to today's signal parameters. Site Circulation Issues The proposed new street connections to State Street include a potential new connection at "D" Avenue (Alt. 1) or at Terwilliger Boulevard(Alt. 2 and 3). The 2025 analysis shows that either location would operate within the ODOT range of acceptable performance with a traffic signal installed. If the"D"Avenue location, there could be opportunity for traffic intrusion into the neighborhood to west. This should be monitored, and corrective traffic management measures applied as the need arises. In addition, there are physical challenges with both the"D"Avenue and Terwilliger Boulevard locations in terms of being able to construct an east approach leg to State Street, and these are discussed in detail in the Foothill District Concept Plan report. The proposed new traffic signals on State Street(Hwy. 43)would be subject to review and approval by ODOT. An initial analysis was conducted to evaluate how a new traffic signal at either"D" Avenue or Terwilliger Boulevard would effect existing signals a few blocks south at"A" Avenue and at`B"Avenue. Specifically, a progression analysis was conducted to compare the amount of signal green time that can be allocated to the highway approaches at the above locations, and to find if the addition of a new signal north of`B" Avenue would reduce the existing bandwidth to maintain signal coordination. The findings of this analysis showed that adding a new signal at either location (but not both locations) would not change the existing amount of green time in the bandwidth Lake Oswego Foothills Concept Plan 7 June 22, 2005 DKS Associates TRANSPORTATION SOLUTIONS between intersections. Therefore, existing progression patterns between these intersections would not be impacted by the introduction of a new traffic signal. Project Phasing To demonstrate the influence of background traffic growth on State Street in the long-term, a separate analysis was made for the Foothills Concept Plans with only today's traffic volumes. In other words, if one of the Concept Plans were approved and constructed today, how much development could occur before the system performance was adversely degraded? The finding was that the full development envisioned in Alternative 1, the most trip intensive scenario,could be developed with current travel volumes without causing the most congested intersection at State Street and"A"Avenue to degrade below Level of Service E (v/c 0.99) conditions, which is the minimum accepted for this state facility. It is noted that this is an illustrative calculation only. Summary of Findings 1. Relative to the `reasonable worst-case' impacts under current zoning,the Foothills District alternatives generate similar traffic levels and have less impacts on the system, except at State Street and"A"Avenue. 2. The Foothills alternative plans have very similar impacts relative to each other. 3. The incremental impact on State Street of re-zoning the Foothills site and implementing Alternative 1,the highest trip generator considered,would have greater impacts at State Street and"A"Avenue. All other intersections would operate at equal or lesser v/c ratios, primarily because the Concept Plans have a better balance in peak flow volumes, and a higher transit trip share, than the currently allowed industrial uses. 4. Either the"D"Avenue or Terwilliger Boulevard connection will operate adequately during peak hours with new street connection from Foothills. 5. Several key locations (State/A, State/North Shore) are expected to have severe congestion with other potential growth, and alternate solutions need to be considered by the city in conjunction with their next TSP update. x-drtve:projects:2004.p04199-000(lo foothills districO:deliverables:task S:summary memo_r2.doc Lake Oswego Foothills Concept Plan 8 June 22,2005 Lake Oswego Foothills District Plan Table 4: Summary of Traffic Performance Findings 2004 Existing PM 2025+ Foothills 2025 + Foothills 2025+ Foothills 2025+ Foothills ODOT Peak Conditions Existing Zoning Alternative 1 Alternative 2 Alternative 3 Performance Target State Street Level of Level of Level of Level of Level of V/C Ratio V/C Ratio V/C Ratio V/C Ratio V/C Ratio V/C Ratio Intersection with Service Service Service Service Service McVey 0.78 B 0.96 C 0.98 D 0.98 D 0.96 D 0.99 Middle Crest 0.76 A 1.13 E 1.12 E 1.12 E 1.11 E 0.99 Leonard -- F/B -- F/C F/C -- F/C -- F/C 0.99 N. Shore 0.79 B 1.23 F 1.23 F 1.22 F 1.21 F 1.10 Foothills 0.68 A 1.04 C 1.02 C 1.02 C 0.99 C 1.10 AAve 0.93 C 1.25 F 1.27 F 1.27 F 1.26 F 1.10 B Ave 0.78 B 0.90 C 0.90 C 0.90 C 0.90 C 1.10 D Ave -- F/B -- F/C 0.76 B -- F/C -- F/C 1.10 Terwillinger -- F/B -- F/C -- F/C 0.97 D 0.97 D 0.99 Notes: V/C Ratio Volume-to-Capacity Ratio Level of Service Letter rating of congestion based on average intersection delay. For intersections without traffic signals, the first LOS letter refers to the Minor Street approach, the second to the Major Street approach. DKS Associates Volume-capacity ratio for all 2025 scenarios.xls : Summary 6/22/05 at 10:36 AM DKS Associates IHANSPUHTAHON SULUIONS TFQ4/C�� t 0 NO SCALE 94 • 61 \ 1 vB iiD AV \\ \ \ Fo Diothills 1 strict Area A AV `o i / :a cr y . O 4? 4,1 0 MIDDLE CRESTRD [y WILBOR sr tvt LEGEND Figure 1 0 - Study Intersection STUDY AREA - Alternate Site Connection to State Street DKS Associates TRANSPORTATION SOLUTIONSl19%T�c /O BIYp GeR NO SCALE <1 % 9` D A 2% 1 A AV zO S 43 2°/O ,• MIDDLE CREST RD WILBUR ST 15% NI 0% M 4,1 ST LEGEND Figure 2 0 0% - Percent Foothills Traffic Traveling to or from Site SITE TRIP PATTERNS DKS Associates TRANSPORTATION SOLUTIONS ez*I'D cFR 19� NO SCALE vG s° o AV 2750 3690 770 3740 800 1810 2630 h _ 280 3380 A AV 610 MAI 650 4900 ................ ti o,14 3220 RD= 4630 4650 MIDDLE CliEsTRD WILBUR Sr 1420 2260 2250 3050 2270 3060 v- LEGEND 0000 - 2004 Figure 3 ®- Study Intersection i s - 2025 Existing Foothills Zoning TWO-WAY PM PEAK HOUR 0000 - 2025+FoothillsAlt.1 TRAFFIC VOLUMES 4. ,,op JOHNSON GARDNER MEMORANDUM DATE: June 8, 2005 To: Tom Lister OTAK,INC. FROM: JOHNSON GARDNER,LLC SUBJECT: Financial Analysis, Foothill Plan I. INTRODUCTION JOHNSON GARDNER has evaluated the financial characteristics of a series of generalized development scenarios within the Foothills District of Lake Oswego, Oregon. These scenarios are intended to be illustrative, and are based on the general development types assumed in the schematic development scenarios for the district generated by OTAK. The intent of this analysis is to test the general financial characteristics of a series of development forms, and assess the land values that these prototypical developments have the ability to support. An evaluation of the general viability of the overall concepts must include an assessment of the viability of the assumed development forms. To the extent that the development types assumed are not viable, additional public assistance would be needed to achieve the targeted development. The supportable acquisition cost, or residual land value', under the development forms indicates the ability of the programs to pay for underlying land and improvements. To the extent that infrastructure improvements necessary to serve the site are shifted to the developer, the development must either be able to bear the increased cost or will require additional support to be viable. The first development option evaluates the viability of a high rise mixed-use development consistent with Building 2 of Scenario 1 presented as Appendix A. The second option assesses the viability of a mid rise mixed-use development consistent with Building 15 of Scenario 2 and outlined in Appendix B. Finally, the third option weighs the viability of a low rise mixed-use development comparable to Building 18 of Scenario 3 and presented as Appendix C. II. SUMMARY OF FINANCIAL ANALYSES A pro forma evaluation for each of the assumed development programs was completed. Development programs were based on initial schematic programs developed for the area by OTAK Inc, while preliminary cost estimates were prepared by JOHNSON GARDNER based on recent experience. As is usual in these types of analyses, our expectation is that careful program evaluation t A residual land value is defined as the maximum amount that a development program can afford to pay for property acquisition and still generate assumed necessary returns. 520 SW SIXTH AVENUE,PORTLAND,OREGON 97204 503/295-7832 503/295-1107(FAX) and tuning by a developer will likely enhance the yield identified in this analysis. Assumed lease rates and sales prices are based on professional opinion, and informed by internal market research. A. BASIC ASSUMPTIONS The development programs were evaluated using a ten-year cash flow, with a reversion-value at the end of the ten year period. The scenarios assumed fee simple ownership of the property by the developer and conventional financing. As noted previously, estimates of construction costs were based on construction estimates from recent projects and adjusted by JOHNSON GARDNER to reflect recent steel and concrete cost inflation. Financial assumptions were made with respect to lending terms based on recent experience. The following is a brief summary of financial assumptions common throughout the analysis: Capitalization Rate/Income Properties: 8.00% Minimum Debt Coverage Ratio 1.25 Loan to Value Ratio Max 85% Construction Loan Interest Rate 6.00% Points on Construction Loan 1.00% Permanent Loan Interest Rate 7.50% Points on Permanent Loan 1.00% Threshold Return on Sales/Condos 15.00% Threshold Return on Cost/Income 9.00% Income and sales assumptions were based upon the professional opinion, and necessarily assume a fairly generic product. These included the following: Condominiums:Saks Price/S.F. High Rise $335 - $365 per square foot Mid Rise $300- $340 per square foot Low Rise $290- $325 per square foot Parking Spaces Sales Price/S.F $30,000 per space Retail Space Lease Rate/S.F. $26.00 per square foot NNN Land acquisition for high-rise development assumed a one quarter acre parcel size, mid-rise assumed a one acre parcel size,and low rise assumed a two acre parcel size.All three pro formas assumed a land acquisition cost of$40.00 per square foot. This value is merely theoretical, and actual acquisition costs cannot reliably be determined at this time. 'While we feel that these numbers represent appropriate baseline assumptions, developers evaluating project feasibility may vary in their assumptions, which would either increase or decrease their perceived need for assistance. The retail, office and industrial space was assumed to have a stabilized LAKE OSWEGO FOOTHILLS DISTRICT PAGE 2 • 11 WO vacancy rate of 10%, while condominium sales were assumed to occur over an eighteen month period. The analysis assumed threshold requirements in terms of a minimum return on investor's equity necessary for development to occur. A 9.0% return on investment was assumed for income properties. Return on investment is defined as the net operating income (NOI) during the first stabilized year divided by the total project cost. The threshold for condominiums was assumed at a 15% net return on sales,which reflects the net yield from sales divided by the cost. The yield that an individual developer or investor may be willing to accept can vary significantly, and these measures should be viewed merely as guidelines. B. SUMMARY OF FINDINGS The following table outlines the general financial characteristics of the development programs modeled. SUMMARY OF DEVELOPMENT SCHEMES LAKE OSWEGO FOOTHILLS DISTRICT DEVELOPMENT Coet of Indicated Residual Land Value Viability Gap Description Development 1/ Value 21 Total S/SF Total %of Value %of Costs HIGH RISF Mixed-use condominium development consisting of $23,006,371 $25,034,918 -$1,311,797 -$120.46 S1,747,397 % )% ;695 65 dwelling units,11,087 S.F.of commercial retail space,and 144 subterranean parking stalls. min RISE Mixed-use condominium development consisting of $23,442,971 $25,379,741 -$257,322 •$5.91 $1,999,722 7.9% tt.5% 64 dwelling units,3,000 S.F.of commercial retail space,and 132 subterranean parking stalls. LOW RISE Mixed-use condominium development consisting of $12,959,557 $12,325,007 $745,826 $8.56 $2.738.974 22.2% 21.1% 25 dwelling units,2,500 S.F.of commercial retail space,and 52 subterranean parking sills. II Plopery acquisition assumed at$40 POP 2/Editors capitalized value at first stabilized year as well as built sale value of condominiums based on assumptions outlined.Not intended as a legal representation of value. Our analysis indicates that each of the development schemes will be largely driven by the strength of achievable condominium values in the area. However, a significant level of public assistance will be necessary to make any of the development scenarios viable from a private investment perspective under the assumptions outlined. It should be noted that relatively modest shifts in achievable sales prices and/or development costs could substantively alter the results. The results of individual scenarios are summarized below, as well as in greater detail in the accompanying pro formal. C. HIGH RISE SCENARIO This development program assumes a ten floor mixed-use building comprised of 65 dwelling units averaging 900 square feet, and 11,087 square feet commercial retail. The development is thought to be similar to Building 2 of Scenario 1. The structure would be accompanied by 144 subterranean parking stalls. A general assumption of $40.00 per square foot was used as a proxy for land acquisition costs. • LAKE OSWEGO FOOTHILIS DISTRICT PAGE 3 Astem Under our threshold assumptions, these figures demonstrate the viability of outlined development scenario. The calculations indicate a net equity requirement of $72,010 with an estimated 7.6% viability gap (as a percent of development costs). HIGH RISE DEVELOPMENT SCENARIO LAKE OSWEGO FOOTHILLS DISTRICT COST SUMMARY: MEASURES OF RETURN: Per SF _ Total Indicated Value @ Stablization $25.034918 Acquisition Cost $5.29 5435.600 Value/Cost 109% Direct Construction Cost S215.85 S17,772,260 Return on Investment(ROI) 10.4% Other Construction $0.00 SO Return on Sales(ROS) 4,2% Soft Costs $58.28 54.798,510 internal Rate of Return(Income Component) 154.9% Modified Internal Rate of Return @ 84v Rcinventmcnt 43.3% ESTIMATION OF VIABILITY GAP TOTAL $279.42 S23.006,371 Targeted Return on Sales 15.00% EQUITY ASSUMPTIONS: Calculated ROS 4.2% Total Development Cost $23,006,371 Calculated Gap-Condos(includes puking) $2,177.066 (.)Pemmanent Loan (2,709,062)Targeted Return on Investment(ROI) 9.0% (.)Applied Condomsum Revenue (20,225,298)Calculated ROI 10.4% Calculated Gap-Income Components (S429.668) Total Calculated Gap $1.747397 Net Pernanent Loan Equity Required 2.6% S72,010 Overall Gap as%of Development Con 7.6% The viability gap under this scenario is just over$1.7 million reflecting significantly negative residual land value. In other words, under our assumptions, a developer would require the subsidy of up to 7.6% of total development costs to meet his threshold yield requirements. These costs would include property acquisition as well as any additional charges for offsite infrastructure improvements. D. MID RISE The Mid Rise development scenario assumes a less dense five floor mixed use development consisting of 64 dwelling units averaging 1,150 square feet and 3,000 square feet of commercial retail. This development can be comparable to Building 15 in Scenario 2. The development would also include 132 subterranean parking stalls. MID RISE DEVELOPMENT SCENARIO LAKE OSWEGO FOOTHILLS DISTRICT COST SUMMARY: MEASURES OF RETURN: Per SF Total Indicated Value @ Stablization $25,379,741 Acquisition Cost $18.84 S1,742,400 Value/Cost 108% Direct Construction Cost $184.73 $17,087,064 Return on Investment(ROI) 14.6% Other Construction $0.00 SO Return on Sales(ROS) 4.4% Soft Costs $49.88 54.613,507 Internal Rate of Return(Income Component) 55.9% Modified Internal Rate of Return @ 8%Reinvencment ESTIMATION OF VIABILITY GAP TOTAL $253.44 S23,442.971 Targeted Return on Sales 15.00% EQUDTYASSUMPTIONS: Calculated ROS 4.4% Total Development Cost S23,442,971 Calculated Gap-Condos(includes parking) $2,423,300 (-)Permanent Loan (576.155)Targeted Return on Investment(ROI) 9.0% (-)Applied Condornium Revenue (22,765,141)Calculated R01 14.6% Calculated Gap-Income Components ($423,578) Total Calculated Gap $1.999.722 Net Permanent Loan Equity Required 15.0% S101,674 Overall Gap as%of Development Cost 8.5% Despite a lower cost per square foot than high rise development, the assumed mid rise configuration will have slightly higher development costs due to the increase in units size and hence, a larger building in terms of square footage. The overall cost of the assumed development program is $23,442,971, with an indicated value at stabilization of$25,379,741. The indicated gap under this program is roughly 8.5% of total development cost, reflecting a slightly negative residual land value LAKE OSWEGO FOOTHILLS DISTRICT PAGE 4 IS ill of-$257,322 or -$5.91 per square foot. This concept would require approximately $2.0 million in public subsidy. E. Low RISE The low rise development program is notably comparable to Building 18 in Scenario 3. The development consists of 25 dwelling units with an average size of 1,450 square feet as well as 2,500 square feet of commercial retail. The project will include 52 subterranean parking stalls. LOW RISE DEVELOPMENT SCENARIO LAKE OSWEGO FOOTHILLS DISTRICT COST SUMMARY: MEASURES OF RETURN: Per SF Total Indicated Value @ Stablization $12,325,007 Acquisition Coat $74.94 $3,484,800 Value/Cost 95% Direct Construction Cost $160.44 $7,460,439 Return on Investment(ROI) 10.0% Other Construction $0.00 $0 Return on Sales(ROS) -8.0% Soft Costs $43.32 $2,014,318 Internal Rate of Return(Income Component) 20.4% Modified Internal Rate of Return @ 8%Reinventmcnt 16.8% ESTIMATION OP VIABILITY GAP TOTAL 5278.70 $12,959,557 Targeted Return on Sales 15.00% EQUITY ASSUMPTIONS: Calculated ROS -8.0% Total Development Cost $12,959,557 Calculated Gap-Condos(includes packing) $2,812,084 (•)Permanent Loan (562,006)Targeted Return on Investment(ROI) 9.0% (•)Applied Condomium Revenue (12,232,900)Calculated R01 10.0% • Calculated Gap-Income Components ($73,110) Total Calculated Gap $2,738,974 Net Permanent Loan Equity Required 22.7% $164,651 Overall Gap as%of Development Cost 21.1% The figures indicate an estimates viability gap of 21.1% of total development cost. This development type would require significant public assistance to be viable. Under the threshold assumption, the residual land value is approximately$745,826 or$8.56 per square foot. Conclusions • The low-rise development concept provides the highest (and only positive) residual land value of the three scenarios. In essence, the low rise scenario is the only concept in which the developer could afford to pay for the land. However, the per-square-foot residual land value falls considerably below the assumed market rate, making this scenario unviable under the assumptions used. • The relative gap between the high-rise and mid-rise development concept is negligible. If achievable pricing rises in real terms (adjusted for inflation), or steel costs decline substantially, the high-rise solution would become the highest and best use of the site. Of the three development concepts, high-rise development would require the least amount of public assistance relative to its overall estimated value. • The high-rise and mid-rise scenarios are close to being self sufficient (requiring no subsidy) from a private investment perspective. For example, in the high-rise concept, a 4.0% annual achievable sales price appreciation over the next two years would essentially drive the calculated viability gap to zero (ceteris paribus). Alternatively, with steel prices projected to fall by as much as 10% through 2006, a 7% reduction in hard construction costs would have the same effect. In other words, a number cost and value assumptions are reasonably conservative under current conditions. As circumstances are projected to improve in the foreseeable future, the high-rise and mid-rise development concepts are currently viable LAKE OSWEGO FOOTHILLS DISTRICT PAGE 5 enough to which slight mobility in the aforementioned assumptions will likely yield an increasingly viable result. The calculated gap for low-rise development is such that unlikely assumption shifts would be required to become self sufficient. In addition, low-rise wood frame development costs will nor be significantly responsive to price shifts in the steel market. LAKE OSWEGO FOOTHILLS DISTRICT PAGE 6 ....1 --,......-= i or APPENDIX A FOOTHILLS DEVELOPMENT SCENARIO 1 . il. ,.....!.. ..:. ,:_AAIUN= . . .. %41: ta_MR-.a,.,,,,,_,4 Al..__1„:"".""14 _.,.,,..' .„,,,. • ' --- -""'""--- .r.-.------------, ,;--..e.k.,• , ' ‘ , , , .,.. . .,.. . .• Inj .--.1 Ir m 4;11 ilf 1,--- oki4"--7";•-laq 7.1' —.-.1.-*; .°'''.-... '41'. 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LEM !*444,444Y/S4 1P.M4 4 n f---1 ....1 rwt, ool vais. ,,Aill 0 i..i.r.,?......1... lettin OW .......,,,,....., 41 MONIS DONT iffiCitit HAI Ii...ranore woe.... . 'Ilii".'Uwe a DERVAINEE ONUS I 1141C47. 1.= Mug,.NW Gq a lib lkopp LAKE OSWEGO FOOTHILLS DISTRICT PAGE 7 a APPENDIX B FOOTHILLS DEVELOPMENT SCENARIO 2 iiiiiiii-.,: r 4 Li 117 - • ` ^� 0 !otis a�i _� :, 0� �, ,ram .-^ 0 " " 4«' y. .:.. 1Jf` �s �,V ..:S-Yf' f:..'-.,,„.;t 4,-, yr: -..-+ . .mom' i 4y ". ,� r. ('i :r 1- • 1 -, 0 4- 7-. V\ .(''" ` allf k ' aim—" ` . fi : �, ; M.0 R(qR < _ . r ,ti p t, . v i .�, ti elf •-" l ,I was ` 1. t 4_ . tip Mk Ir p + C•. VA ,;i ��:y �6 *.- ::.art€ ah R r rTTT i" . ,•..Al WF w -ii "� J.. ltetui..__txrclwnu.iw�aar._..._ .. .. _ n - — L'..,.ar..n.like. unlxr.ERE nun ROOTNIICS DISTRICT REEINEMCNT PEAK41 ,"1..ir . DEVELOPMENT SCENARIO 2 w fug N t.*Onto ,�rnl'.:nl� LAKE OSWEGO FOOTHILLS DISTRICT PAGE 8 ad APPENDIX C FOOTHILLS DEVELOPMENT SCENARIO 3 ;.., i, is it , . i... ii1,:s... --ii ,:. -. 1111 Tikil, 11in i t„.",,.. . lit.* ii. , I . _ ..i=i?'„ .,,,,,.::,..'.- . ., , . 'is aL t,.„k,4,1 I.a•,,o-,','.,.*'.i*'r..„'.f,MjONri.l.Ilir,r„i Vsi4:*.i;.I..4'.,'iIP,,.a iI:f/i i'.A s,i/i,'.,.,.•*..:z'i-....,.I.lM'e'4"OVt11...W.-1a.a1..1i.I.U...1.'.,i..tti,bt 0$,7 .,.:.,,t.,_1..l9-'-_e-,,,/,.0'1.,,,,,k,,•'t,'74-c..,:.1-.,.,i 11,.-2.4,-...0.-;r,„,_,-jI_:,i,..i.--1".,r -•4 1.0 N...e-i'*-,, kiI \-• 4 - IN �! w ,au.t.ezEiTE :•rIE.0 iit, EMI i,00.m.L.4s'MI.A �«.. - - i_1 >.�dr.wl l;..., «..r►. 0 Emgallag N.m4 UIIRICIfILfW f00TNILLS DISTIKI kfINEMENT PLAN :4[Y,e-lost t 6 DEVELOPMENT SCENARIO 3 i.r IG7 44 lir Ommr .%t.,i _ru! LAKE OSWEGO FOOTHILLS DISTRICT PAGE 9 slit! APPENDIX D DETAILED PRO FORMAS LAKE OSWEGO FOOTHILLS DISTRICT PAGE 10 LOW RISE CONDOMINIUMS W/GROUND FLOOR RETAIL 25 Dwelling Units L' JL � 4c k " LOW RISE \`'o I CONDOMINIUMS SUMMARY INFORMATION June 3, 2005 AREA SUMMARY: CONSTRUCTION LOAN ASSUMPTIONS: Parcel Size (SF) 87,120 Construction Loan Amount $9,648,351 Building Size(SF) 127,000 Interest Rate 6.00%, Efficiency Ratio 32% Term (months) 18 Saleable and Leasable Area(SF) 41,081 Drawdown Factor 0.69 Residential Units 25 Construction Interest $576,328 Density(Units/Acre) 12.50 Construction Loan Fee(%) 1.00% Construction Loan Fee($) $96,484 INCOME SUMMARY: PERMANENT FINANCING ASSUMPTIONS: Total Average Gross Sales DCR LTV SF Price/SF Income Interest Rate 7.50%, 7.50% Residential Units 36,080 $339.05 $12,232,900 Term (Years) 30 30 Gross Income Debt-Coverage Ratio 1.25 Office/Industrial Space 0 $0.00 $0 Loan-to-Value 75% Retail 2,500 $18.90 $47,250 Stabilized NOI (Year 2) $49,680 $49,680 Parking 2,501 2.590618 $6,480 CAP Rate 8.00% Vacancy/Collection Loss ($5,373) Supportable Mortgage $473,676 $465,751 TOTAL 5,001 $9.67 $48,357 Annual Debt Service $39,744 $39,079 COST SUMMARY: MEASURES OF RETURN: Per SF Total Indicated Value 0 Stablization $12,119,928 Acquisition Cost $27.44 $3,484,800 Value/Cost 96% Direct Construction Cost $56.42 $7,165,599 Return on Investment(ROI) 7.7% Other Construction $0.00 $0 Return on Sales (ROS) -5.3% Soft Costs $15.23 $1,934,712 Internal Rate of Return(Income Component) 14.7% Modified Internal Rate of Return @ 8% Reinventment 12.9% ESTIMATION OF VIABILITY GAP TOTAL $99.10 $12,585,110 Targeted Return on Sales 15.00% EQUITY ASSUMPTIONS: Calculated ROS -5.3% Total Development Cost $12,585,110 Calculated Gap-Condos (includes parking) $2,418,491 (-) Permanent Loan (473,676) Targeted Return on Investment(ROI) 9.0% (-)Applied Condomium Revenue (11,943,030) Calculated ROI 7.7% Calculated Gap-Income Components $90,078 Total Calculated Gap $2,508,569 Net Permanent Loan Equity Required 26.2% $168,404 Overall Gap as%of Development Cost 19.9% SOURCE:Johnson Gardner LLC LOW RISE CONDOMINIUMS INCOME ASSUMPTIONS RESIDENTIAL PROGRAM NO. OF TOTAL SALES PARKING AVG PRICE/ TOTAL , UNITS SF PRICE/S.F. SALES 1/ UNIT INCOME Floor 1 7 10,660 $290 $246,400 $476,829 S3,337,800 Floors 2-3 18 25,420 $325 $633,600 $494,172 $8,895,100 TOTAL 25 36,080 $315 $880,000 $489,316 $12,232,900 OFFICE/INDUSTRIAL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Office 90% 0 $18.00 $0 Industrial 0 (00% 0 $5.40 $0 TOTAL 0 0 $0.00 $0 RETAIL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Retail-Ground Floor 2,500 100% 2,500 $18.90 $47,250 TOTAL 2,500 2,500 $18.90 $47,250 PARKING #OF RENT/ LEASABLE ANNUAL OPERATING ANNUAL SPACES SPACE SF RENT/SF COSTS/SF INCOME Housing Parking 44 $0 0 $0.00 $0 Income Property Parking 8 $75 2,501 $2.88 $0.29 $6,480 TOTAL 52 $10 2,501 $2.59 $6,480 1/Assumes housing spaces sold to condominium buyers at$20,000 per space. SOURCE:Johnson Gardner LLC LOW RISE CONDOMINIUMS DEVELOPMENT COST ESTIMATE Area/ Total Basis Unit Cost Cost Acquisition Cost: 87,120 $40.00 $3,484,800 $3,484,800 Construction Costs: Site Work Incl. Construction Estimate 41,660 $120.00 $4,999,200 Design/Escalation Contingency 41,660 $6.30 $262,460 Ground Floor Retail 2,500 $100.00 $250,000 Structured Parking 52 $30,000 $ ,560,1 000 Private Infrastructure Building share from Phase C of Scenario 3 1/ $93,939 TOTAL $7,165,599 Soft Costs Architecture/Engineering Studies 1.0% $71,656 Developer Fee 3.0% $214,968 Architecture/Engineering/Interior Design 6.0% $429,936 City Permit/Fee Allowance 2.0% $143,312 Other Soft Costs 15.0% $1,074,840 Subtotal $1,934,712 Total Soft Costs $1,934,712 TOTAL DEVELOPMENT COSTS $12,585,110 SOFT COSTS % 15.4%Yo 1/Private infranstructure for the mid rise scenario utiliezed the building's likely share of cost from Phase C in Scenario 3 plus a 30% SOURCE: Howard S.Wright and Johnson Gardner LLC JOHNSON GARDNER MEMORANDUM DATE: June 8, 2005 To: Tom Lister OTAK,INC. FROM: JOHNSON GARDNER,LLC SUBJECT: Financial Analysis, Foothill Plan I. INTRODUCTION JOHNSON GARDNER has evaluated the financial characteristics of a series of generalized development scenarios within the Foothills District of Lake Oswego, Oregon. These scenarios are intended to be illustrative, and are based on the general development types assumed in the schematic development scenarios for the district generated by OTAK. The intent of this analysis is to test the general financial characteristics of a series of development forms, and assess the land values that these prototypical developments have the ability to support. An evaluation of the general viability of the overall concepts must include an assessment of the viability of the assumed development forms. To the extent that the development types assumed are not viable, additional public assistance would be needed to achieve the targeted development. The supportable acquisition cost, or residual land value', under the development forms indicates the ability of the programs to pay for underlying land and improvements. To the extent that infrastructure improvements necessary to serve the site are shifted to the developer, the development must either be able to bear the increased cost or will require additional support to be viable. The first development option evaluates the viability of a high rise mixed-use development consistent with Building 2 of Scenario 1 presented as Appendix A. The second option assesses the viability of a mid rise mixed-use development consistent with Building 15 of Scenario 2 and outlined in Appendix B. Finally, the third option weighs the viability of a low rise mixed-use development comparable to Building 18 of Scenario 3 and presented as Appendix C. II. SUMMARY OF FINANCIAL ANALYSES A pro forma evaluation for each of the assumed development programs was completed. Development programs were based on initial schematic programs developed for the area by OTAK Inc, while preliminary cost estimates were prepared by JOHNSON GARDNER based on recent experience. As is usual in these types of analyses, our expectation is that careful program evaluation ' A residual land value is defined as the maximum amount that a development program can afford to pay for property acquisition and still generate assumed necessary returns. 520 SW SIXTH AVENUE,PORTLAND,OREGON 97204 503/295-7832 503/295-1107(FAx) ® and tuning by a developer will likely enhance the yield identified in this analysis. Assumed lease rates and sales prices are based on professional opinion,and informed by internal market research. A. BASIC ASSUMPTIONS The development programs were evaluated using a ten-year cash flow, with a reversion value at the end of the ten year period. The scenarios assumed fee simple ownership of the property by the developer and conventional financing. As noted previously, estimates of construction costs were based on construction estimates from recent projects and adjusted by JOHNSON GARDNER to reflect recent steel and concrete cost inflation. Financial assumptions were made with respect to lending terms based on recent experience. The following is a brief summary of financial assumptions common throughout the analysis: Capitalization Rate/Income Properties: 8.00% Minimum Debt Coverage Ratio 1.25 Loan to Value Ratio Max 85% Construction Loan Interest Rate 6.00% Points on Construction Loan 1.00% Permanent Loan Interest Rate 7.50% Points on Permanent Loan 1.00% Threshold Return on Sales/Condos 15.00% Threshold Return on Cost/Income 9.00% Income and sales assumptions were based upon the professional opinion, and necessarily assume a fairly generic product. These included the following: Condominiums: Sales Price/S.F. High Rise $335 - $365 per square foot Mid Rise $300- $340 per square foot Law Rise $290- $325 per square foot Parking Spaces Sales Price/S.F. $30,000 per space Retail Space Lease Rate/S.F. $26.00 per square foot NNN Land acquisition for high-rise development assumed a one quarter acre parcel size, mid-rise assumed a one acre parcel size,and low rise assumed a two acre parcel size.All three pro formas assumed a land acquisition cost of$40.00 per square foot. This value is merely theoretical, and actual acquisition costs cannot reliably be determined at this time. While we feel that these numbers represent appropriate baseline assumptions, developers evaluating project feasibility may vary in their assumptions, which would either increase or decrease their perceived need for assistance. The retail, office and industrial space was assumed to have a stabilized LAKE OSWEGO FOOTHILLS DISTRICT PAGE 2 • vacancy rate of 10%, while condominium sales were assumed to occur over an eighteen month period. The analysis assumed threshold requirements in terms of a minimum return on investor's equity necessary for development to occur. A 9.0% return on investment was assumed for income properties. Return on investment is defined as the net operating income (NOI) during the first stabilized year divided by the total project cost. The threshold for condominiums was assumed at a 15% net return on sales, which reflects the net yield from sales divided by the cost. The yield that an individual developer or investor may be willing to accept can vary significantly, and these measures should be viewed merely as guidelines. B. SUMMARY OF FINDINGS The following table outlines the general financial characteristics of the development programs modeled. SUMMARY OP DEVELOPMENT SCHEMES LAKE OSWEGO FOOTHILLS DISTRICT DEVELOPMENT Cost of Indicated Residual Land Value Viability Gap Descdpdon Development 1/ Value2i Total Siff Total %ofYalue__%of Casa EMI RISE • Mined-use condominium development consisting of $23,006,371 S25.034.918 •$1,311,797 -S120.46 S1,747.397 7.0% 7.6% 65 dwelling units.11.087 S.F.of commercial retail space.and 144 subterranean parking stalls. MID RISE Mined-use condominium development consisting of S23,442.971 S25,379,741 -S257.322 -S5.91 S1.999.722 7.9% 8.5% 64 dwelling units.3,000 S.F.of commercial retail space,and 132 subterranean parking stalls. Low RIWB Mined-use condominium devdopment connoting of S12.959,557 S 12325,007 S745,826 $8.56 52.738.974 222.2% 21.1% 25 dwelling min,2,500 S.F.of commercial retail space,and 52 subterranean parking stalls. I I Property acquuition assumed at S40 PSF 2/Relleces capitalued value at fiat stabilized year as well as bulk sale value of condominiums based on awumpsions oudined.Not intended as a legal representation of value. Our analysis indicates that each of the development schemes will be largely driven by the strength of achievable condominium values in the area. However, a significant level of public assistance will be necessary to make any of the development scenarios viable from a private investment perspective under the assumptions outlined. It should be noted that relatively modest shifts in achievable sales prices and/or development costs could substantively alter the results. The results of individual scenarios are summarized below, as well as in greater detail in the accompanying pro formas, C. HIGH RISE SCENARIO This development program assumes a ten floor mixed-use building comprised of 65 dwelling units averaging 900 square feet, and 11,087 square feet commercial retail. The development is thought to be similar to Building 2 of Scenario 1. The structure would be accompanied by 144 subterranean parking stalls. A general assumption of $40.00 per square foot was used as a proxy for land acquisition costs. LAKE OSWEGO FOOTHILLS DISTRICT PAGE 3 SKIM- Under our threshold assumptions, these figures demonstrate the viability of outlined development scenario. The calculations indicate a net equity requirement of $72,010 with an estimated 7.6% viability gap (as a percent of development costs). HIGH RISE DEVELOPMENT SCENARIO LAKE OSWEGO FOOTHILLS DISTRICT COST SUMMARY: MEASURES OP RETURN: Pet SF Total Indicated Value @ Sahli-ration $25,034,918 Acquisition Cost $5.29 $435,600 Value/Cost 109% Direct Construction Cost S215.85 $17,772,260 Return on Investment(RO1) 10.4% Other Construction 50.00 S0 Return on Sales(ROS) 4.2% Soft Costs $58.28 84,798,510 Internal Rate of Return(Income Component) 154.9% Modified Internal Rate of Return @ 8%Reinventment 43.3% ESTIMATION OF VIABILITY GAP TOTAL $279.42 $23,006,371 Targeted Return on Sales 15.00% EQUrlY_ASSUMPTIONS: Calculated ROS 4.2% Total Development Cost $23,006,371 Calculated Gap-Condos(includes parking) $2,177,066 (-)Permanent Loan (2,709,062)Targeted Return on Investment(ROI) 9.0% (-)Applied Condomium Revenue (20,225,298)Calculated ROI 10.4% Calculated Gap-Income Components ($429.668) Total Calculated Gap $1,747,397 Net Permanent Loan Equity Required 2.6% $72,010 Overall Gap as%of Development Cost 7.6% The viability gap under this scenario is just over $1.7 million reflecting significantly negative residual land value. In other words, under our assumptions, a developer would require the subsidy of up to 7.6% of total development costs to meet. his threshold yield requirements. These costs would include property acquisition as well as any additional charges for offsite infrastructure improvements. D. MID RISE The Mid Rise development scenario assumes a less dense five floor mixed use development consisting of 64 dwelling units averaging 1,150 square feet and 3,000 square feet of commercial retail. This development can be comparable to Building 15 in Scenario 2. The development would also include 132 subterranean parking stalls. MID RISE DEVELOPMENT SCENARIO LAKE OSWEGO FOOTHILLS DISTRICT COST SUMMARY: MEASURES OF RETURN: - Per SF Total Indicated Value @ StaMization $25,379,741 Acquisition Cost $I8.84 S 1,742,400 Value/Cost 108% Direct Construction Cost $184.73 $17,087,064 Return on Investment(ROI) 14.6% Other Construction $0.00 $0 Return on Sales(ROS) 4.4% Soft Costs S49.88 S4,613.507 Internal Rate of Return(Income Component) 55.9% Modified Internal Rate of Return @ 8%Reiuvcnunou 31.1% ESTIMATION OF VIABIIdTY GAP TOTAL $253.44 $23,442,971 'Targeted Return on Sales 15.00% EQUITY ASSUMPTIONS: Calculated ROS 4.4% Total Development Cost $23,442,971 Calculated Gap-Condos(includes parking) $2,423.300 (-)Permanent Loan (576,155)Targeted Return on Investment(ROI) 9.0% (-)Applied Condomium Revenue (22,765,141)Calculated ROI 14.6% Calculated Gap-Income Components ($423.578) Total Calculated Gap 51,999.722 Net Permanent Loan Equity Required 15.0% $101,674 Overall Gap as%of Development Cost 8.5% Despite a lower cost per square foot than high rise development, the assumed mid rise configuration will have slightly higher development costs due to the increase in units size and hence, a larger building in terms of square footage. The overall cost of the assumed development program is $23,442,971, with an indicated value at stabilization of$25,379,741. The indicated gap under this program is roughly 8.5% of total development cost, reflecting a slightly negative residual land value LAKE OSWEGO FOOTHILLS DISTRICT PAGE 4 9 of-$257,322 or -$5.91 per square foot. This concept would require approximately $2.0 million in public subsidy. E. LOW RISE The low rise development program is notably comparable to Building 18 in Scenario 3. The development consists of 25 dwelling units with an average size of 1,450 square feet as well as 2,500 square feet of commercial retail. The project will include 52 subterranean parking stalls. LOW RISE DEVELOPMENT SCENARIO LAKE OSWEGO FOOTHILLS DISTRICT COST SUMMARY: MEASURES OP RETURN: Per SF Total Indicated Value @ Seablization $12,325,007 Acquisition Cost $74.94 $3,484,800 Value/Cost 95% Direct Construction Cost $160.44 S7,460,439 Return on Investment(ROI) 10.0% Ocher Construction $0.00 $0 Return on Sales(ROS) .8.0% Soft Costs $43.32 $2,014.318 Internal Rate of Return(Income Component) 20.4% Modified Internal Rate of Return @ 8%Reinventment 16.8% ESTIMATION OP VIABILITY GAP TOTAL $278,70 $12,959,557 Targeted Return on Sales 15.00% EQUITY ASSUMPTIONS: _ Calculated ROS -8.0% Total Development Cost S12,959,557 Calculated Gap-Condos(includes parking) $2.812,084 (-)Permanent Loan (562.006)Targeted Return on Investment(ROD 9.0% (-)Applied Condomium Revenue (12,232.900)Calculated ROI 10.0% Calculated Gap-Income Components ($73,110) Total Calculated Gap $2,738,974 Net Permanent Loan Equity Required 22.7% S 164.65I Overall Gap as%of Development Cost 21.1% The figures indicate an estimates viability gap of 21.1% of total development cost.This development type would require significant public assistance to be viable. Under the threshold assumption, the residual land value is approximately$745,826 or$8.56 per square foot. Conclusions • The low-rise development concept provides the highest (and only positive) residual land value of the three scenarios. In essence, the low rise scenario is the only concept in which the developer could afford to pay for the land. However, the per-square-foot residual land value falls considerably below the assumed market rate, making this scenario unviable under the assumptions used. • The relative gap between the high-rise and mid-rise development concept is negligible. If achievable pricing rises in real terms (adjusted for inflation), or steel costs decline substantially, the high-rise solution would become the highest and best use of the site. Of the three development concepts, high-rise development would require the least amount of public assistance relative to its overall estimated value. • The high-rise and mid-rise scenarios are close to being self sufficient (requiring no subsidy) from a private investment perspective. For example, in the high-rise concept, a 4.0% annual achievable sales price appreciation over the next two years would essentially drive the calculated viability gap to zero (ceteris paribus). Alternatively, with steel prices projected to fall by as much as 10%through 2006, a 7% reduction in hard construction costs would have the same effect. In other words, a number cost and value assumptions are reasonably conservative under current conditions. As circumstances are projected to improve in the foreseeable future, the high-rise and mid-rise development concepts are currently viable LAKE OSWEGO FOOTHILLS DISTRICT PAGE 5 enough to which slight mobility in the aforementioned assumptions will likely yield an increasingly viable result. The calculated gap for low-rise development is such chat unlikely assumption shifts would be required to become self sufficient. In addition, low-rise wood frame development costs will not be significantly responsive to price shifts in the steel market. LAKE OSWEGO FOOTHILLS DISTRICT PAGE 6 illli 1 IF k P' APPENDIX A FOOTHILLS DEVELOPMENT SCENARIO 1 . . ,.., .... _ , _____ ... .. E ' AI All 7, . j 141..?1,1!!"'"!'"'...iii . ,. .n 1 Iiiimull la ' , , )1111rilillillit . ... - , ,•gi . ...... .. -.; - • )1, 1, OM- IN - •-'''.a.:'.61 -.'.. . . '1 - MI til 'i, - , 4 . . ---- =-- '- 1.--v-L --=,. ' , - '.'.-''';'-`'-':';",.'e,.-'--- ..f;-1 . I 1!:`''-•4,1110.'431104,1ftiti -V4=a-7j t ' \,....,-,;-•.,-- --,,-.. . - -, ,, ;417-7 - t -.ro , . ...,t:,, -- e, J.,-:.•-0 .* ...:-.: .i.r.'.VAiir .:,, ,:::-. .°"-.-. ' '' 7 BM AV • li Wilial DIA*:' .+ ''';.':-71.,L7--:' .^-"t;''',01:- ".51115- '. TWO.'ir'fr'IN,'' ' '' •.-;'', 4'..-':-'''..'-''''.--. lif#J-1.4114,.._ dir,f,4t::./..--.,•'' ' -..-,'•s-',4 1 '.''''',.??, 'ti..11,•.!!'iti;::::-.:-.._;.',„/ -\ r' ''-• --..4'1,.-.:'''....,,,„, '-'• .;;/ ',01PiliPti,/ ,-* .41' ' -,. iim',:mitr,. ',.• ' ' -al: ,. • e4674,-.+.1/,'..''.' ' vt......., —..-- .--'==-...• _ V.., ..-.. ri.. !iri, :, .., ' ..-- -ar.. , 4•A •- • - o''.... • a , 44, 1 1•4,',.,,e.41ir :lark i'111110` .• .. .,, ... ,;.....„.,,,...„.,;„, if :.,..,.. .. 11, 4.Wiu AIN 'i''':..'l. ,:„).0 • * Mk 16-1,111\v %',--- lit 44 . i 7:----.7. . s ' ,..--- iliz......'„,,,„.- ,... , ..,..., .. .: . 1_1 lenet. 470 In. , ........,........ I__ I ;Vent.1....9 1.II Item en..eaV DEW tOMIlil MI FOOTHILLS DISTRICT PaINEMENI PLAN .i..t..' I) DEVELOPMENT SCENARIO I ( In..I q.ui,omp PAGE 7 LAKE OSWEGO FOOTHILLS DISTRICT r'mt't_ at ~1lr, APPENDIX B FOOTHILLS DEVELOPMENT SCENARIO 2 ii. .— I. I; mom= aM V NW-"' 1, ' ! • • B•. ► I.. °' is ENIM o 'ri i„ ‘." saswcu_ oii;ii, D_ :.:,,,,,:-:' -_i.,-- ---: -. t.1( • III 11. sl r t .�w'l�n ,,� L'��._�r^ -ram:' rV �` } � - 0 a <, RTT z alit "�! � ' luau u !—ooewr o r : J ..... s:«.. Gaii “...........,..ur0,4 r w ,.w.. ..-. _. -� 0 .,,. - Kann AM _ NILLS NOW AEINEEMENE PUN '°'"10014. `Ae a DEVELOPMENT S(ENAMO 2 ann., :'y d Id,Dr.m Md S.]OPS LAKE OSWEGO FOOTHILLS DISTRICT PAGE 8 .® ',1® APPENDIX C FOOTHILLS DEVELOPMENT SCENARIO 3 • � lL . r!•; .�. . r ixaaaats..r.. I a m!, 4`'/ .3�E[ it `- A 0 z*, (t . y ' " aT- � � . .N RN i ' I d c ,,. =� iiii �` alit �t =.__ = rt V �u ,Te axQ 114114 liklik.1/4441tfigr6It .ram..; ! , t 1e- aid sm,fir 4..11 W..e .a i=l blan+hmilso !IN w. RR I Nair Nrtlonnrt PUY fODNI DISTII(1 ENI PUN `ourot ai ' DE4ElGPNENT SCENARIO 3 KV.* „c Cn.1 IN Ormv *0 T• LAKE OSWEGO FOOTHILLS DISTRICT PAGE 9 4:1i_ APPENDIX D DETAILED PRO FORMAS LAKE OSWEGO FOOTHILLS DISTRICT PAGE 10 7..1MiliLOW RISE CONDOMINIUMS W/GROUND FLOOR RETAIL 25 Dwelling Units 4J` LOW RISE \� CONDOMINIUMS SUMMARY INFORMATION June 3, 2005 AREA SUMMARY: CONSTRUCTION LOAN ASSUMPTIONS: Parcel Size(SF) 87,120 Construction Loan Amount $9,648,351 Building Size(SF) 127,000 Interest Rate 6.00% Efficiency Ratio 32% Term (months) 18 Saleable and Leasable Area(SF) 41,081 Drawdown Factor 0.69 Residential Units 25 Construction Interest $576,328 Density(Units/Acre) 12.50 Construction Loan Fee(%) 1.00% Construction Loan Fee($) $96,484 INCOME SUMMARY: • PERMANENT FINANCING ASSUMPTIONS: Total Average Gross Sales DCR LTV SF Price/SF Income Interest Rate 7.50% 7.50% Residential Units 36,080 $339.05 $12,232,900 Term(Years) 30 30 Gross Income Debt-Coverage Ratio 1.25 Office/Industrial Space 0 $0.00 $0 Loan-to-Value 75% Retail 2,500 $18.90 $47,250 Stabilized NOI (Year 2) $49,680 $49,680 Parking 2,501 2.590618 $6,480 CAP Race 8.00% Vacancy/Collection Loss ($5,373) Supportable Mortgage $473,676 $465,751 TOTAL 5,001 $9.67 $48,357 Annual Debt Service $39,744 $39,079 COST SUMMARY: MEASURES OF RETURN: Per SF Total Indicated Value @ Stablization $12,119,928 Acquisition Cost $27.44 $3,484,800 Value/Cost 96% Direct Construction Cost $56.42 $7,165,599 Return on Investment(ROI) 7.7% Other Construction $0.00 $0 Return on Sales(ROS) -5.3% Soft Costs $15.23 $1,934,712 Internal Rate of Return(Income Component) 14.7% Modified Internal Rare of Return @ 8% Reinvenunent 12.9% ESTIMATION OF VIABILITY GAP TOTAL $99.10 $12,585,110 Targeted Return on Sales 15.00% EQUITY ASSUMPTIONS: Calculated ROS -5.3% Total Development Cost $12,585,110 Calculated Gap-Condos (includes parking) $2,418,491 (-) Permanent Loan (473,676) Targeted Return on Investment (ROI) 9.0% (-)Applied Condomium Revenue (11,943,030) Calculated ROI 7.7% Calculated Gap-Income Components $90,078 Total Calculated Gap $2,508,569 Net Permanent Loan Equity Required 26.2% $168,404 Overall Gap as%of Development Cost 19.9% SOURCE:Johnson Gardner LLC LOW RISE CONDOMINIUMS INCOME ASSUMPTIONS RESIDENTIAL PROGRAM NO. OF TOTAL SALES PARKING AVG PRICE/ TOTAL UNITS SF PRICE/S.F. SALES 1/ UNIT INCOME Floor 1 7 10,660 $290 $246,400 $476,829 $3,337,800 Floors 2-3 18 25,420 $325 $633,600 $494,172 S8,895,100 TOTAL 25 36,080 $315 $880,000 $489,316 $12,232,900 OFFICE/INDUSTRIAL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Office 90% 0 $18.00 $0 Industrial 0 100% 0 $5.40 $0 TOTAL 0 0 $0.00 $0 RETAIL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Retail-Ground Floor 2,500 100% 2,500 $18.90 $47,250 TOTAL 2,500 2,500 $18.90 $47,250 PARKING #OF RENT/ LEASABLE ANNUAL OPERATING ANNUAL SPACES SPACE SF RENT/SF COSTS/SF INCOME Housing Parking 44 $0 0 $0.00 $0 Income Property Parking 8 $75 2,501 $2.88 $0.29 $6,480 TOTAL 52 $10 2,501 $2.59 $6,480 1/Assumes housing spaces sold to condominium buyers at$20,000 per space. SOURCE:Johnson Gardner LLC LOW RISE CONDOMINIUMS DEVELOPMENT COST ESTIMATE Area/ Total Basis Unit Cost Cost Acquisition Cost: 87,120 $40.00 $3,484,800 $3,484,800 Construction Costs: Site Work Incl. Construction Estimate 41,660 $120.00 $4,999,200 Design/Escalation Contingency 41,660 $6.30 $262,460 Ground Floor Retail 2,500 $100.00 $250,000 Structured Parking 52 $30,000 $1,560,000 Private Infrastructure Building share from Phase C of Scenario 3 I/ $93,939 TOTAL $7,165,599 Soft Costs Architecture/Engineering Studies 1.0% $71,656 Developer Fee 3.0% $214,968 Architecture/Engineering/Interior Design 6.0% $429,936 City Permit/Fee Allowance 2.0% $143,312 Other Soft Costs 15.0% $1,074,840 Subtotal $1,934,712 Total Soft Costs $1,934,712 TOTAL DEVELOPMENT COSTS $12,585,110 SOFT COSTS % 15.4% 1/ Private infranstructure for the mid rise scenario utiliezed the building's likely share of cost from Phase C in Scenario 3 plus a 30% SOURCE: Howard S.Wright and Johnson Gardner LLC MID RISE CONDOMINIUMS SUMMARY INFORMATION June 8, 2005 AREA SUMMARY: CONSTRUCTION LOAN ASSUMPTIONS: Parcel Size(SF) 43,560 Construction Loan Amount $19,837,318 Building Size(SF) 92,500 Interest Rate 6.00% Efficiency Ratio 95% Term (months) 18 Saleable and Leasable Area(SF) 87,646 Drawdown Factor 0.56 Residential Units 64 Construction Interest $952,020 Density(Units/Acre) 64.00 Construction Loan Fee(%) 1.00% Construction Loan Fee($) $198,373 INCOME SUMMARY: PERMANENT FINANCING ASSUMPTIONS: Total Average Gross Sales DCR LTV SF Price/SF Income Interest Rate 7.50% 7.50% Residential Units 73,390 $349.93 $25,681,550 Term(Years) it) 30 Gross Income Debt-Coverage Ratio 1.25 Ofice/Industrial Space 0 $0.00 $0 Loan-to-Value 75% Retail 3,000 $26.00 $78,000 Stabilized NOI (Year 2) $99,127 $99,127 Parking 11,256 2.590618 $29,160 CAP Rate 8.00% Vacancy/Collection Loss _ _ ($10,716) Supportable Mortgage $945,125 $929,313 TOTAL 14,256 $6.77 $96,444 Annual Debt Service $79,301 $77,975 COST SUMMARY: MEASURES OF RETURN: Per SF Total Indicated Value @ Stablization $25,379,741 Acquisition Cost $18.84 $1,742,400 Value/Cost 108% Direct Construction Cost $184.73 $17,087,064 Return on Investment(ROI) 14.6% Other Construction $0.00 $0 Return on Sales(ROS) 4.4% Soft Costs $49.88 $4,613,507 Internal Rate of Return(Income Component) 55.9% Modified Internal Rate of Return @ 8% Rcinvcntmcnt 31.1% ESTIMATION OF VIABILITY GAP TOTAL $253.44 $23,442,971 Targeted Return on Sales 15.00% EQUITY ASSUMPTIONS: Calculated ROS 4.4% Total Development Cost $23,442,971 Calculated Gap-Condos(includes parking) $2,423,300 (-) Permanent Loan (576,155) Targeted Return on Investment(ROI) 9.0% (-)Applied Condomium Revenue (22,765,141) Calculated ROI 14.6% Calculated Gap-Income Components ($423,578) Total Calculated Gap $1,999,722 Net Permanent Loan Equity Required 15.0% $101,674 Overall Gap as%of Development Cost 8.5% SOURCE:Johnson Gardner LLC MID RISE CONDOMINIUMS INCOME ASSUMPTIONS RESIDENTIAL PROGRAM NO. OF TOTAL SALES PARKING AVG PRICE/ TOTAL UNITS SF PRICE/S.F. SALES 1/ UNIT INCOME Floor 1 13 12,710 $300 $390,000 $323,308 $4,203,000 Floors 2-4 41 45,510 $325 $1,230,000 $390,750 $16,020,750 Floor 5 10 15,170 $340 $300,000 $545,780 $5,457,800 0 0 $0 $0 $0 $0 TOTAL 64 73,390 $324 $1,920,000 $401,274 $25,681,550 OFFICE/INDUSTRIAL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Office 90% I, $26.00 $0 Industrial 0 100% 0 $5.40 $0 TOTAL 0 0 $0.00 $0 RETAIL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Retail-Ground Floor 3,000 100% 3,000 $26.00 $78,000 TOTAL 3,000 3,000 $26.00 $78,000 PARKING # OF RENT/ LEASABLE ANNUAL OPERATING ANNUAL SPACES SPACE SF RENT/SF COSTS/SF INCOME Housing Parking 96 $0 0 $0.00 $0 Income Property Parking 36 $75 11,256 $2.88 $0.29 $29,160 TOTAL 132 $18 11,256 $2.59 $29,160 1/Assumes housing spaces sold to condominium buyers at$20,000 per space. SOURCE:Johnson Gardner LLC MID RISE CONDOMINIUMS DEVELOPMENT COST ESTIMATE Area/ Total Basis Unit Cost Cost Acquisition Cost: 43,560 $40.00 $1,742,400 $1,742,400 Construction Costs: Site Work Incl. Construction Estimate 89,500 $135.00 $12,082,500 Design/Escalation Contingency 89,500 $6.93 $620,625 Ground Floor Retail 3,000 $110.00 $330,000 Structured Parking 132 $30,000 $3,960,000 Private Infrastructure Building share from Phase C of Scenario 2 1/ $93,939 TOTAL $17,087,064 Soft Costs Architecture/Engineering Studies 1.0% $170,871 Developer Fee 3.0% $512,612 Architecture/Engineering/Interior Design 6.0% $1,025,224 City Permit/Fee Allowance 2.0% $341,741 Other Soft Costs 15.0% $2,563,060 Subtotal $4,613,507 Total Soft Costs $4,613,507 TOTAL DEVELOPMENT COSTS $23,442,971 SOFT COSTS % 19.7% 1/ Private infranstructure for the mid rise scenario utiliezed the building's likely share of cost from Phase C in Scenario 2 plus a 30% SOURCE: Howard S.Wright and Johnson Gardner LLC MID RISE CONDOMINIUMS TEN-YEAR CASH FLOW- INCOME PROPERTY COMPONENTS (n" Stabi(ixsd YEAR YEAR 1 YEAR 2 I YEAR 3 YEAR 4 YEAR 5 I YEAR 6 l YEAR 7 YEAR 8 YEAR 9 I YEAR 10 Gross Scheduled Income/Residential $0 $0 $0 $0 $0 $0 $1) $0 $0 $0 Gross Scheduled Income/Office $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross Scheduled Income/Retail 78,000 80,340 82,750 85,233 87,790 90,423 93,136 95,930 98,808 101,772 Gross Scheduled Income/Parking 29,160 30,035 30,936 31,864 32.820 33,804 34,819 35.863 36,939 38.047 Miscellaneous Income 0 0 0 0 0 0 0 0 0 0 Vacancy&Collection Loss 158 9381 111.0371 1113691 (11.710) (12.061) (17.4231 (122251 j13.1791 (13.5751 (13.987) EFFECTIVE GROSS INCOME $48,222 $99,337 $102,317 $105,387 $108,549 $111,805 $115,159 $118,614 $122,172 $125,838 (-)Operating Expenses-Residential 0 0 0 0 0 0 0 0 0 0 (-)Operating Expenses-Commercial (2112 12111 (2111 17111 (2111 (2U) (2LU (211). 12111 12111 • NET OPERATING INCOME $48,011 S99,127 $102,107 $105,176 $108.338 $111,594 $114,949 $118,403 $121,962 $125,627 (-)Annual Debt Service 0 (48,343) (48.343) (48343) (48,343) (48,343) (48,343) (48,343) (48,343) (48.343) CASH FLOW(PRE-TAX $48,011 $50,784 $53,764 $56,834 $59,995 $63,252 $66,606 $70,061 $73,619 $77,284 Total Developer Cash Flow $48,011 $50,784 $53,764 $56,834 $59.995 $63,252 S66,606 $70,061 $73,619 $77.284 Return on Equity $101,674 47.22% 49.95% 52.88% 55.90% 59.01% 62.21% 65.51% 68.91% 72.41% 76.01% Presenr Value $600,143 $1,239,084 $1,276,335 $1,314,705 $1,354,225 $1,394,930 $1,436,857 $1,480,042 $1,524,522 $1,570,337 Cap Rate 8.00% Primary Debt Coverage Ratio 2.05 2.11 2.18 2.24 2.31 2.38 2.45 2.52 2.60 Return on Investment(NOI/Cost) 0.42% 0.44% 0.45% 0.46% 0.48% 0.49% 0.51% 0.52% 0.54% Assumed Rent and Cost Escalator ] 3.0% SOURCE:Johnson Gardner LLC HIGH RISE CONDOMINIUMS W/GROUND FLOOR RETAIL 65 Dwelling Units HIGH RISE CONDOMINIUMS SUMMARY INFORMATION June 8, 2005 AREA SUMMARY: CONSTRUCTION LOAN ASSUMPTIONS: Parcel Size(SF) 10,890 Construction Loan Amount $19,801,750 Building Size(SF) 82,337 Interest Rate 6.00% Efficiency Ratio 96% Term (months) 18 Saleable and Leasable Area(SF) 78,892 Drawdown Factor 0.53 Residential Units 65 Construction Interest $894,312 Density(Units/Acre) 260.00 Construction Loan Fee(%) 1.00% Construction I,oan Fee ($) $198,017 INCOME SUMMARY: PERMANENT FINANCING ASSUMPTIONS: Total Average Gross Sales DCR LTV _ SF F Price/SF Income Interest Rate 7.50% 7.50% Residential Units 58,425 $390.08 $22,790,250 Term (Years) 30 30 Gross Income Debt-Coverage Ratio 1.25 Office/Industrial Space 0 $0.00 $0. Loan-to-Value 75% Retail 11,087 $26.00 $288,262 Stabilized NOI (Year 2) $288,967 $288,967 Parking 9,380 2.590618 $24,300 CAP Rate 8.00% Vacancy/Collection Los'. _ ($31,256) Supportable Mortgage $2,755,155 $2,709,062 TOTAL 0,467 $13.74 $281,306 Annual Debt Service $231,173 $227,306 COST SUMMARY: MEASURES OF RETURN: Per SF Total Indicated Value @ Stablization $25,034,918 Acquisition Cost $5.29 $435,600 Value/Cost 109% Direct Construction Cost $215.85 $17,772,260 Return on Investment(ROI) 10.4% Other Construction $0.00 $0 Return on Sales (ROS) 4.2% Soft Costs $58.28 $4,798,510 Internal Rate of Return (Income Component) 154.9% Modified Internal Rate of Return n 8%r, Reinvenintent 43.3% ESTIMATION OF VIABILITY GAP TOTAL $279.42 $23,006,371 Targeted Return on Sales 15.00°/0 EQUITY ASSUMPTIONS: Calculated ROS 4.2% Total Development Cost $23,006,371 Calculated Gap-Condos(includes parking) $2,177,066 (-) Permanent Loan (2,709,062) Targeted Return on Investment(ROI) 9.0% (-)Applied Condomium Revenue (20,225,298) Calculated ROI 10.4% Calculated Gap-Income Components ($429,668) Total Calculated Gap $1,747,397 Net Permanent Loan Equity Required 2.6% $72,010 Overall Gap as%of Development Cost 7.6% SOURCE:Johnson Gardner LLC HIGH RISE CONDOMINIUMS INCOME ASSUMPTIONS RESIDENTIAL PROGRAM NO. OF TOTAL SALES PARKING AVG PRICE/ TOTAL UNITS SF PRICE/S.F. SALES 1/ UNIT INCOME Floors 2-4 28 21,525 $335 $982,154 $292,608 $8,193,029 Floors 5-7 24 21,525 $350 $841,846 $348,983 $8,375,596 Floors 8-10 13 15,375 $375 $456,000 $478,587 $6,221,625 0 0 $0 $0 $0 $0 TOTAL 65 58,425 $351 $2,280,000 $350,619 $22,790,250 OFFICE/INDUSTRIAL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Office 90% U $26.00 $0 Industrial 0 100% i) $5.40 $0 TOTAL 0 0 $0.00 $0 RETAIL TOTAL NET/ LEASABLE ANNUAL ANNUAL SF GROSS SF RENT/SF INCOME Retail-Ground Floor 11,087 100% 11,087 $26.00 $288,262 TOTAL 11,087 11,087 $26.00 $288,262 PARKING #OF RENT/ LEASABLE ANNUAL OPERATING ANNUAL SPACES SPACE SF RENT/SF COSTS/SF INCOME Housing Parking 114 $0 0 $0.00 $0 Income Property Parking 30 $75 9,380 $2.88 $0.29 $24,300 TOTAL 144 $14 9,380 $2.59 $24,300 1/Assumes housing spaces sold to condominium buyers at$20,000 per space. SOURCE:Johnson Gardner LLC HIGH RISE CONDOMINIUMS DEVELOPMENT COST ESTIMATE Area/ Total Basis Unit Cost Cost Acquisition Cost: 10,590 $40.00 $435.600 $435,600 Construction Costs: Site Work Incl. Construction Estimate 71,250 $160.00 $11,400,000 Design/Escalation Contingency 71,250 $8.93 $636,522 Ground Floor Retail 11,087 $120.00 $1,330,440 Structured Parking 144 $30,000 $4,320,000 Private Infrastructure Building share from Phase B 1/ $85,298 TOTAL $17,772,260 Soft Costs Architecture/Engineering Studies 1.0% $177,723 Developer Fee 3.0% $533,168 Architecture/Engineering/Interior Design 6.0% $1,066,336 City Permit/Fee Allowance 2.0% $355,445 Other Soft Costs 15.0% $2,665,839 Subtotal $4,798,510 "Total Soft Costs $4,798,510 TOTAL DEVELOPMENT COSTS $23,006,371 SOFT COSTS % 20.9% 1/ Private infranstructure for the high rise scenario utilized the building's likely share of cost from Phase B in Scenario 1 plus a 30%c SOURCE: Howard S.Wright and Johnson Gardner LLC • HIGH RISE CONDOMINIUMS TEN-YEAR CASH FLOW- INCOME PROPERTY COMPONENTS Learrtrp Srabiliud YEAR YEAR 1 1 YEAR 2 I YEAR 3 I YEAR 4 'I YEAR 5 I YEAR- - I YEAR 7- 1 YEAR 8 I 'YEAR 9 I YEAR 10 Gross Scheduled Income/Residential $0 $0 $0 $0 $0 $0 $0 $0 $0 SO Gross Scheduled Income/Office $0 $0 S0 $0 S0 $0 $0 $0 $0 S0 Gross Scheduled Income/Retail 288.262 296,910 305.817 314,992 324.441 334,175 344,200 354,526 365.162 376,117 Gross Scheduled Income/Parking 24.300 25.029 25,780 26.553 27,350 28.170 29,015 29,886 30,783 31,706 Miscellaneous Income 0 0 0 0 0 0 0 0 0 0 Vacancy&Collection Loss (171,9091 (32.194) 133.1601 (34.1541 (35.179) 136.235) (37 322) (38.4411 (39.594) (402821 EFFECTIVE GROSS INCOME $140,653 $289.745 $298,437 $307.390 $316,612 $326,111 $335,894 $345,971 $356,350 $367,040 (-)Operating Expenses-Residential 0 0 0 0 0 0 0 0 0 0 (-)Operating Expenses-Commercial (ZZ81 (778) (778) 1778) 1778) 1778) (778) (778) (7781 1228.) NET OPERATING INCOME $139,875 $288,967 $297,659 $306,612 $315,834 $325,332 $335,116 $345,192 $355,571 $366,262 (-)Annual Debt Service 0 (227,306) (227,306) (227,306) (227.306) (227,306) (227,306) (227,306) (227,306) (227,306) CASH FLOW(PRE-TAX) $139,875 $61,661 $70,353 $79,306 $88,528 $98,026 $107,810 $117,886 $128,266 $138.956 Total Developer Cash Flow $139,875 $61,661 S70,353 $79.306 $88.528 $98,026 $107,810 $117,886 $128,266 $138,956 Return on Equity $72,010 194.24% 85.63% 97.70% 110.13% 122.94% 136.13% 149.71% 163.71% 178.12% 192.97% Present Value $1,748,432 $3,612,083 $3,720,738 $3,832,652 $3,947,923 S4,066,653 $4,188,944 $4,314,904 $4,444,643 $4,578,274 Cap Rate 8.00% Primary Debt Coverage Ratio 1.27 1.31 1.35 1.39 1.43 1.47 1.52 1.56 1.61 Return on Investment(NOI/Cost) 1.26% 1.29% 1.33% 1.37% 1.41% 1.46% 1.50% 1.55% 1.599/o Assumed Rent and Cost Escalator I 3.0% SOURCE:Johnson Gardner LLC LOW RISE CONDOMINIUMS TEN-YEAR CASH FLOW- INCOME PROPERTY COMPONENTS Lrax-„v Stabilized YEAR YEAR 1 1 YEAR 2 1 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 1 YEAR 8 YEAR 9 YEAR 10 Gross Scheduled Income/Residential $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross Scheduled Income/Office $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross Scheduled Income/Retail 47.250 48,668 50,128 51,631 53,180 54,776 56,419 58,112 59,855 61,651 Gross Scheduled Income/Parking 6,480 6,674 6,875 7,081 7,293 7,512 7,737 7.970 8.209 8,455 Miscellaneous Income 0 0 0 0 0 0 0 0 0 0 Vacancy&Collection Loss .(79 552) (5.534) (5.700) (5.871) (6.047) (6.229) (6.416) (6.6081 (6.8061 (7.011) EFFECTIVE GROSS INCOME $24,179 $49,808 $51,302 $52,841 $54,426 $56,059 $57,741 $59,473 $61,257 $63,095 (-)Operating Expenses-Residential 0 0 0 0 0 0 0 0 0 0 (-)Operating Expenses-Commercial (128) (128) (128) (128) (128) 1128) (128) (128) (1281 (1281 NET OPERATING INCOME $24,051 $49,680 $51,174 $52,713 $54,299 $55,931 $57,613 $59,345 $61,130 $62,967 (-)Annual Debt Service 0 (39.079) (39,079) (39,079) .(39,079) (39,079) (39,079) (39,079) (39,079) (39.079) CASH FLOW(PRE-TAX) $24,051 $10,601 $12,095 $13,634 $15,219 $16,852 $18,534 $20,266 $22,050 $23,888 Total Developer Cash Flow $24,051 $10,601 $12,095 $13,634 $15,219 $16,852 $18,534 $20,266 $22,050 $23,888 Return on Equity $168,404 14.28% 6.29% 7.18% 8.10% 9.04% 10.01% 11.01% 12.03% 13.09% 14.18% Present Value $300,637 $621,002 $639,680 $658,918 $678,733 $699,143 $720,165 $741,818 $764,120 $787,092 Cap Rate 8.00% Primary Debt Coverage Ratio 1.27 1.31 1.35 1.39 1.43 1.47 1.52 1.56 1.61 Return on Investment(NOT/Cost) 0.39% 0.41% 0.42% 0.43% 0.44% 0.46% 0.47% 0.49% 0.50% Assumed Rent and Cost Escalator I 3.0% SOURCE:Johnson Gardner LLC MID RISE CONDOMINIUMS W/GROUND FLOOR RETAIL 64 Dwelling Units