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7.A. - PaggRJFC�gf36andum Financial Review of Proposed Sequoia Station Development September 28, 2020 Page 4 as well as experience in the Mid -Peninsula market. The analysis is intended to provide a general indication of the attractiveness of alternative land use concepts from the perspective of a real estate developer. The actual performance and outcome of a particular project will depend on a variety of factors that cannot be known for certain in advance, including project design and entitlement considerations, actual development costs, financing terms, and macro -economic trends. Key Findings Figure 2 compares the estimated residual land value of the five Sequoia Station development alternatives described above with site acquisition and improvements costs (assumed constant across all alternatives). The results are also described below. This analysis finds that among the five alternatives evaluated, only the "High Density Office and High Density Office with Housing" are likely to generate a level of financial return necessary to attract interest from real estate investors (both debt and equity). Three out of the five alternatives generate residual land values that are expected to be less than the estimated cost of acquiring the Sequoia Station site and preparing it for new development. While several other land use programs also generate a positive residual land value (i.e., "Lower Density Office" and "Lower Density Housing" projects), the total project values are not sufficient to overcome the significant site improvement and acquisition costs, estimated at about $620 per square foot of land. By way of comparison, vacant or under- utilized land in the DTPP area currently sells for about $180 to $500 per square foot. The results also indicate that office development is likely to generate the highest value for development in the Downtown Core, given the currently stronger per square foot lease rates as well as more efficient land use formats that can be achieved with this product type. However, even the higher density office projects are estimated to result in relatively slim financial returns given the scale of investment required. Meanwhile, higher density residential is not consider financially viable (even performs worse that lower density residential), because of the high per unit cost associated with the steel frame construction needed for this product type. The financial feasibility of any site redevelopment concept at Sequoia Station will be driven by the need to re -build a high performing, Safeway -anchored retail center of 175,000 square feet, provide expensive below grade replacement parking, and dedicated land for Caltrain and affordable housing. In order to provide an equivalent level of retail in a new project (approximately 175,000 square feet), the rest of the development must create enough added value to cover the cost associated of demolishing and then replacing existing retail space and parking, including the below grade transit parking. In other words, the retail replacement component of all the scenarios evaluated represents a significant financial hurdle which can only be overcome with a project that also provides a large amount of additional, high value development. For example, the cost of constructing new underground parking for the retail and transit center alone costs about $73 million. Other site redevelopment costs include tenant relocation, demolition, environmental clean-up, culvert relocation, affordable housing land dedication, and land carry (because development will occur over multiple years), among others. The combined effect of these costs will create a significant financial barrier to the successful redevelopment of Sequoia Station under any circumstances. z:,Iha,.d�,�.�vlak 211111,v211112 111-\1-- �b.vI111-I.mos_za_2121 195