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7//- /6 CB RICHARD ELLIS CONSULTING Sedway Group CBRE CB RICHARD ELLIS Mr. Larry Carr September 15, 2005 Page 4 KEY PARAMETERS AND ASSUMPTIONS To support the analysis, key parameters and assumptions required to estimate fiscal revenue impacts and select economic benefits were defined, all of which are fully documented in the exhibits presented in Appendix A. CBRE Consulting utilized conservative assumptions throughout the analysis. The building sizes were obtained from the County Assessor's records, along with the current assessed valuation (see Exhibit 1). Research was conducted with the San Mateo County Assessor's Office to determine the appropriate City of Redwood City property tax rate for the properties, which is 20.12 percent of the 1.0 percent property tax rate (see Exhibit 2). Standard assumptions relevant to each scenario incorporated into the analysis, documented in Exhibit 2, include the following: . annual inflation relevant to retail sales was projected at 3.0 percent; the City's retail sales and use tax rate is 1.0 percent of taxable sales; and the City's utility users' tax rate is 5.0 percent. . . In addition, CBRE Consulting developed assumptions regarding utility rate increases. Electricity rates are highly regulated by the California Public Utilities Commission. Accordingly, increases over time have been erratic, which makes it difficult to establish a projected rate of increase for analytical purposes. Conservatively, the analysis assumes a 1.0 percent annual rate of increase. Natural gas prices are not highly regulated, and research indicates gas rates increased 4.1 percent annually between 1988 and 2004. The analysis therefore assumes a continued 4.1 percent annual increase in gas rates (see Exhibit 3). Finally, based upon recent research published by the International Council of Shopping Centers, the analysis assumes that each employee working in Redwood City spends $2,832 in annual taxable sales in the city for expenditures such as lunch (16 percent), shoppers goods (45 percent), convenience goods (31 percent), and dinner/drinks (8 percent). Due to the limited retail proximate to the Mid Point facility this assumption was reduced by 25 percent to $2,124.3 Other assumptions were developed relevant to each use. An overview of these assumptions, which are documented in Appendix A, follows. Key R&D Tenant Assumptions There are several categories of assumptions unique to the potential reuse of the property by an R&D user. These assumptions pertain to occupancy of the space, the valuation of the property, employee density, utility rates, and tenant improvement allowances. Reuse Potential. According to generally accepted real estate property definitions, the subject property is classified as office space - R&D buildings are a maximum of three stories high. In the Silicon Valley and San Francisco Peninsula markets, office and Class A R&D space are sometimes considered interchangeable by tenants, whether they are traditional office users, technology, or biotechnology companies. Regardless of the use, however, the subject property can be expected to International Council of Shopping Centers, "Office Worker Retail Spending Patterns, A Downtown and Suburban Area Study." The data reflect a professional telephone survey of 1,500 office workers in five metropolitan areas that represent both average- and above-average retail densities. The surveys were conducted from October 1, 2003 to October 30, 2003. The data were published in 2004. The ICSC survey is a standard industry resource. The data are presented in 2005 dollars.