Agenda - Economic Development Authority - 09/17/2015

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Patrick Brahma Analysis of Request For Assistance — PSD Apartments September 17, 2015 Page 2 Generally, this project meets the expectations of a multifamily housing development with regards to the financing structure, projected revenues, on-going operational costs and developer fee. Following are our findings with regards to the analysis completed for the development: • Our analysis confirms the maximum supportable first mortgage the developer can secure for this project based on current underwriting criteria is $14.165 million, assuming a 20 year loan at 4.0%. The developer is proposing to bring approximately $4.7 million in equity, which is 25% of total project costs. This financing structure is in line with typical market rate projects. • The total development costs for this project are approximately $18.9 million, or $154,814 per unit. Based on our experience with similar projects, we would expect total development costs to range between $150,000 and $200,000 per unit. This development is at the lower range, due primarily to the lack of underground parking which cannot be accommodated on the site due to high water table issues. • The developer fee of $275,000 is under two (2) percent of total development costs. For a project of this nature, we would expect to see a developer fee between 2% to 5%, so the fee is below typical industry standards. • Land acquisition at $10,977/unit is within the range of $8,000 to $12,000 we typically see. However, we are of the opinion that the market in Ramsey is closer to the $8,000/unit. • Proposed rents range between $999 per month for a 1 -bedroom unit, to $1,625 for a 3 -bedroom unit. The average rent is projected at $1.33 per square foot. Typical market rate project rents range from $1.50 to $2.00 sq/ft, dependent upon location. Based upon the configuration of units (several 3 -bedroom units) and area rents, we are of the opinion that the market for rents in Ramsey should be in the $1.40 to $1.50 range. • The operating costs are projected at $4,300/unit (The market range of operating costs is $3,500 to $4,500). The management costs are projected at 4.50% of effective gross income (EGI). We would expect to find management fees ranging between 3% and 5% of EGI. Based on our analysis and conversations with the developer, we conclude that the operating expenses may be a little high, primarily due to a higher maintenance budget and caretaker unit allowance. • Vacancy is underwritten at 7%. Although this was typical several years ago, most lending institutions are allowing a 5% vacancy rate for underwriting purposes. • Replacement reserves of $287/unit are slightly below the minimum industry standards of $300/unit. The developer is of the opinion this is sufficient to provide for future improvements and is an acceptable amount for their lender's underwriting criteria. Generally, we would prefer to see more reserves set aside for future viability.