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9.A. - Page 17 <br /> MEMORANDUM <br /> To: Diana O'Dell <br /> From: Walter Kieser and Ben Sigman <br /> Subject: Financial Analysis of Redwood City Development Prototypes; <br /> EPS #141053 <br /> Date: November 26, 2014 <br /> The Economics of Land Use This memorandum presents findings from a pro forma financial analysis <br /> of six real estate development prototypes found in Redwood City. The <br /> purpose of the analysis is to assess the current economics of real estate <br /> development in the City and to consider the degree to which the City <br /> may be able to capture value from future development projects for the <br /> purpose of funding a community benefits program. <br /> The motivation for exploring an incentive zoning/community benefits <br /> program is the City's desire to obtain additional concessions from <br /> developers beyond those that can be obtained through "nexus-based" <br /> conditions of approval or development impact fees. In this sense the <br /> program would emulate a development agreement negotiation where a <br /> city offers, as a matter of contract, regulatory incentives in return for <br /> community benefits beyond those that otherwise would be obtained. In <br /> contrast to the highly discretionary Development Agreement procedure <br /> that State law has established for adopting development agreements, an <br /> incentive zoning/community benefits would incorporate a predetermined <br /> menu of incentives and benefits. <br /> The financial analysis builds on a set of development prototypes <br /> identified previously (see EPS Memorandum dated October 3, 2014). <br /> The prototypes include commercial office and residential uses across a <br /> range of densities. Figure 1 provides an overview of the development <br /> prototypes considered. <br /> Economic&Planning Systems,Inc. The analysis utilizes a well-accepted "static" pro forma financial <br /> One Kaiser Plaza, Suite 1410 feasibility framework to assess the feasibility of the various development <br /> Oakland, CA 94612-3604 prototypes. This approach compares real estate development value at <br /> 510.841.9190 tel <br /> 510.740.2080 fax project stabilization (i.e., after project lease up is complete) with the <br /> cost of project development, in constant dollars. The analysis <br /> Oakland determines value based on assumptions including market-supportable <br /> Sacramento lease rates, operating costs, and capitalization rates. Development cost <br /> Denver <br /> Los Angeles assumptions reflect standard (location adjusted) construction costs, <br /> www.epsys.com <br />