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Page 10 of 12 <br />5/5/2026 <br />ATTY/DOCS-ORDINANCE-REGULATIONS/05-05-26 FAIR RATE OF RETURN APPEAL GUIDELINES AND APPEAL FORM <br />REV: 05-05-26 LF <br />Supported Cost = (B₃ − B₁) ÷ Cap <br />Step 4: Feasibility Test – If the Supported Cost is greater than the Verified Substantial Remodel Cost <br />(C) then the Right to Return Rent (B₁) is sufficient and no further rent increases are needed. <br />If: Supported Cost > C → No rent increase above the Right to Return Rent is allowed <br />If: Supported Cost < C → Proceed to calculate the Fair Rate of Return Rent in Step 5 <br />Step 5: Calculate the Annual Fair Rate of Return Rent (A1) <br />This is the annual rent required for the Verified Substantial Remodel Cost (C) to be financially <br />feasible. <br />A1 = B₁ + (C × Cap) <br />Step 6: Calculate the Fair Rate of Return Rent <br />Divide the Annual Fair Rate of Return Rent by 12 months <br />F = A1 ÷ 12 <br />Illustrative Example 1: Fair Rate of Return Rent approved <br />Assumptions <br />1. Base Rent = $3,000/month <br /> <br />2. P0 = Annual Base Rent: $36,000 <br /> <br />3. Cap = Market Cap Rate: 5.5% <br /> <br />4. C = Verified Substantial Remodel Cost per unit: $100,000 <br /> <br />5. Y = 1 (substantial remodel took 1 year to complete) <br /> <br />6. I = Minimum Annual Allowable Increase under the TPA = 5% <br /> <br />7. T = Actual Annual Allowable Increase under TPA = 6.5% <br /> <br />8. S = Stabilization Period = 2 years (fixed number) <br />Step 1: Determine the Right to Return Rent <br />B₁ = P₀ × (1 + T) ʸ <br />B₁ = $36,000 × (1 + 6.5%)1 <br />B₁ = $38,340 (annually) or $3,195 (monthly) <br />8.A. - Page 59 of 85 <br />317