AgdaPkt 2025.10.13 Joint SA PFA - Laserfiche WebLink

Browse Search

Page 4 The analysis considers the following two scenarios to capture the range of outcomes that a landlord will likely face when undertaking improvements: • No Relocation Cost Scenario: In this scenario tenants remain in place throughout construction period and the landlord experiences no loss in rent (the landlord’s only exposure is direct capital cost). • High Relocation Cost Scenario: In this scenario, in addition to the direct project capital costs, the landlord also incurs both six months of lost rent and relocation assistance equal to four months of FMR, as required under the City’s Relocation Assistance Ordinance when a project displaces a low-income special-circumstances tenant.1 In both scenarios EPS assumes rent increases consistent with the TPA (expressed in real terms) and recognizes higher property taxes from reassessment of new construction.1 Feasibility is anchored to median market rents for covered (pre-2010) buildings, based on data reported by CoStar, while recognizing that actual properties operate above and below the median (this dispersion is reflected in the sensitivity analysis). The NPV of a ten-year cash-flow utilizes a discount rate of 5.5 percent. This reflects the opportunity cost of capital—essentially the rate of return investors might expect from alternative investments such as equities. The analysis does not incorporate additional benefits such as depreciation, interest deductions, or long-term appreciation, all of which would raise effective after-tax returns and further support reinvestment feasibility. Rent growth is modeled in real (inflation-adjusted) terms. Both the “No Relocation Cost” and “High Relocation Cost” scenarios assume a sustained 5 percent real annual increase, with no separate inflation adjustment applied. The governing legal cap is the TPA allowance of CPI + 5 percent (capped at 10 percent). Scenario Results and Data Analysis As summarized in Table 2, the EPS cash-flow analysis suggests that a Redwood City landlord receiving the median rent for units built on or before 2010 (approximately $3.5 per square foot per month) could underwrite building improvements with costs ranging from $180 to $220 per square assuming TPA allowable rent increases. The calibrated break, even thresholds for Redwood City are $220 per square foot in the “No Relocation Cost Scenario” and $180 per square foot in the “High Relocation Cost Scenario” (six, month displacement plus four months relocation assistance at FMR). As a point of comparison, Redwood City landlords can support substantially higher improvement costs than San Francisco or Oakland, locations where local ordinances limit annual rent escalation. 1 Households whose annual household income does not exceed eighty (80) of the area median income. 2 An eligible low-income residential household where, at least one member is 62 years or older, at least one member qualifies as disabled, there is at least one child under 18 years old who is legally dependent, and/or a household that has occupied their rental unit as their primary residence for 5 or more consecutive years. 3 Property taxes are assumed to rise proportionally with higher assessed values following capital investment, but under California’s Proposition 13 framework, increases are capped at two percent annually. This means that periods of higher inflation rents can grow faster than property taxes, though other operating expenses will likely increase with inflation. 9.A. - Page 78 of 84 183