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. q. �-�o : .... ,.. :. Major retailers are anticipated to occupy 50,950 sq.ft. on the ground floor and the arrtiapated rent is in the range of $22.80 per sq. ft. per year triple net. For the small space users on the ' ground floor, an average rent in the range of $30 per sq. ft. per year triple neYis anticipated. Additional considerations in the projection of the net operating income for the cinema and retail component indude: • A vacancy and co0ection allowence is estimated at 5% of effective gross income generated by the small shop spaces. • Operating expenses indude a management expense of approximately 3% of effective gross income, and capital reserve repiacements of $20,000. As shown in Table 2, gross potential revenues for the cinema and retail space are estimated at $3.93 million. The resulting cinema and retail net operating income, after allowance for vacancy and operating expenses, is estimated at $3.74 million per year. - _ �� _ C. Supportab/e Deve/operConslderation forAirRights overPublic Land Table 2 presents the supportable private investment in the Projed. The table concludes with the supportable Developer consideration for the air rights parcels. The supportable private investment is based upon the net operating income and the retum on total investment (ROI). The supportable investment is the stabilized net operating income divided by the target ROI. It is our judgment that the supportable investment for the Project must retum a retum at stabilization of approximately 11.5%. This retum level is needed to attract the necessary debt and equity to finance the Project. This finding is based upon KMA's negotiations with several major retail developers, including CIM Group, DDR, Forest City, and Madison Marquette. As shown in Table 2, the supportable investment is $32.53 million and is determined by dividing the net operating income of $3.74 million by 11.5%, the target ROI. Deducting the estimated construction costs of $25.05 million from the supportable investment yields a supportable Developer consideration for land of $7.5 million. D. Reuse Value As stated above, given the spec�c Project agreed to in the DDA, the reuse value can be defined as the difference between the development cost for the Project, and the total amount a private developer or investor can afford to invest. It is our judgment that a fair consideration for the interests being conveyed to the Developer is $7,500,000. Keyser Marston Assodates, Inc. 18610.001\017-023.doc p� �p