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REDWOOD CITY FAIR AND AFFORDABLE HOUSING ORDINANCE <br /> <br />Economic & Planning Systems, Inc. 28 Cumulative Impacts <br />Financing Costs <br />Developers and property owners emphasized that higher interest rates have <br />significantly affected refinancing costs and project feasibility, particularly for <br />properties requiring substantial rehabilitation. Due to cash-flow constraints, <br />property owners often rely on commercial loans to finance large repairs and <br />rehabilitation projects. However, interest rates have increased substantially in the <br />post pandemic era in response to inflationary pressures and other factors, driving <br />up project financing costs. <br />While loan terms for commercial real estate can vary significantly depending on <br />project specifics and borrower credit, the 10-year Treasure Bill is a well-accepted <br />indicator of general trends. As illustrated in Figure 1, the average annual yield for <br />a 10-year T-Bill has increased significantly since 2020, mirroring a parallel trend in <br />commercial real estate interest rates. <br />Figure 1. Annual Yield on 10-Year Treasury <br /> <br />Property Maintenance, Repair and Management Costs <br />Stakeholders reported that routine maintenance, contractor services, replacement <br />materials, and building repairs have become increasingly expensive. Owners of <br />older properties noted that deferred maintenance is often not an option because <br />aging systems require ongoing investment to remain functional and habitable. <br />These cost pressures have been accentuated by State, and in some cases local, <br />electrification requirements that are triggered when repairing or replacing building <br />systems, equipment, appliances, etc. These include new requirements in <br />California’s 2025 Energy Code, (part of the Title 24 Building Standards Code), that <br />push for conversion from gas to electric water and heating systems (e.g., heat <br />pump HVAC and water heaters). <br />0.00% <br />0.50% <br />1.00% <br />1.50% <br />2.00% <br />2.50% <br />3.00% <br />3.50% <br />4.00% <br />4.50% <br />5.00% <br />2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 <br />8.A. - Page 87 of 168 <br />97