downtown case study: hypothetical new construction fresno … · 2016-12-19 · fresno general plan...
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Fresno General Plan Implementation / Infill Development Task Force 1
Downtown Case Study: Hypothetical New Construction
Fresno Street & H Street – “Kidney Bean Plaza”
The “Kidney Bean Lot” at Fresno Street & H Street, outlined in red. There are over 4,000 parking stalls (in
blue) in the immediate vicinity of Fulton Mall (in brown).
Note: This case study is for discussion purposes only. This particular parcel was chosen for this case study because it presents several challenges and
opportunities common to infill projects in Fresno (and elsewhere in California), including:
It is an RDA-owned parcel that does not yet have a disposition plan.
It requires significant infrastructure investment – In this case, reconstruction of the intersection
at H Street and Fresno Street.
Existing utilities and infrastructure are likely insufficient to serve the proposed increased
intensity.
It is within one block of the future High Speed Rail station, and within walking distance of a
number of amenities, including the Cultural Arts District, Chukchansi Park, Civic Center, and
Mariposa Plaza and the Fulton Mall.
Description Fresno’s Successor Agency to the former Redevelopment Agency (dissolved in 2011) retains ownership
of the parcel at Fresno Street and H Street in Downtown Fresno (outlined above, in red). This parcel is
known locally as the “Kidney Bean Lot” because of its rounded lot lines (which are a vestige of the
1960’s revitalization plan by Victor Gruen that also resulted in the “pedestrian-ization” of Fulton Street).
The parcel is currently used as surface parking. It is across the street from the future High Speed Rail
station, which will be located across H Street at Mariposa. A Phase 1 environmental was completed in
July 2013, and no significant environmental issues were found. The Successor Agency will be soliciting an
RFP for “Transit Oriented Development” for the site in late 2013.
Fresno General Plan Implementation / Infill Development Task Force 2
Lot Specifications This case study assumes a reconstructed lot with squared corners, per the specifications in the
drawing below.
With a reconstructed intersection at H Street and Fresno, the square lot would be about 145’ x
323’ – about 1.1 acres (~46,800 sf). The existing parcel is 1.36 acres, about 175’ x 320’.
Zoning The Fulton Corridor Specific Plan (which is expected to go before City Council for adoption in March,
2013) identifies a Central Business District-1 Zone for this parcel. This zone is characterized by:
Active streetscapes
Solid massing on the lower floors to generate a consistent street wall
Ground floor commercial, retail, and office activity to support active streetscapes and walking
Flexible use of upper floors and the floor area behind shopfronts for a wide variety of office,
civic, lodging, housing, or additional commercial uses
New buildings are block-scale and between 2 and 15 stories
Site view looking West from the intersection of Fresno and Broadway Streets
Fresno General Plan Implementation / Infill Development Task Force 3
Site view looking east from H Street
Proposed Project The case study envisions 65 units of market-rate housing and 10,000 sf of ground-floor retail. The pro
forma assumes no public subsidy in order to illustrate the financing gap.
Financials LAND: The former Redevelopment Agency paid $473,300 for the property (including acquisition
and relocation costs) in 1967. The lot has not been appraised recently, but other nearby parking
lots were appraised late last year at about $10.00 per square foot. At that rate, the lot would be
valued at around $468,000.
INFRASTRUCTURE: The City estimates the cost of reconstructing the intersection at Fresno and
H Street, including regrading and reconstructing the adjacent underpass on the other side of H
Street, to be about $4 million. The City is currently in conversation with the CA High Speed Rail
Authority regarding inclusion of these costs in the construction budget for High Speed Rail.
For the purposes of this exercise, the portion of the work specifically related to the Kidney Bean
Lot is estimated at 10% of that total, or $400,000.
NEW CONSTRUCTION: Construction cost is estimated at $30,210,000 – about $90/sf for
commercial and residential components combined.
TOTAL DEVELOPMENT COST: $31,083,000
EQUITY: Case study assumes 20% equity.
RETURNS: Because of the large debt service required without subsidy (80% TDC), return on total
assets is between 2% and 3% for the first 10 years. Return on equity is negative.
Fresno General Plan Implementation / Infill Development Task Force 4
Downtown Area Assets. “Kidney Bean Lot” is circled in red.
Downtown Area Assets. Hotel Fresno site is circled in red.
46506204T
46840001T
46505219T
46606444T
46510220T
46828444T
46511218T
46612101T
46608401T
46621520T
46828445T
46821617T
46821219T
45932315T
46504033ST
46704020ST
46828443T
46703035ST
46835049T
46835047T
46706508T
46609305T
46620650T
46621417T
46609305T
46609409T
46614501
46835015T
46615419T
46621330T
46821220T
46825515T
46614403
46620654T
46835055T
46829113T
46828223T
46822320T
46707316T
46825511T
46621113T
46614504
46704023ST
4661450846614505
46825311T
46708116T
46707410T
46822216T
46614502
45908235T
46819214T
46614503
46707307T
46621325T
46609301T
46828221T
46621213T
46707103T
46818225T
46614507
46822319T
46708327T
46707306T
46822301T
46707405T46707406T
46825315T
45825029T45825033T45825021T
45825031T
46621115T46835046T
46818228T46818223T
46828205
46515107T
46618101T
46828222T
46707105T
46621417T
45230618T
45908129T
45230319T
46513313T
46513211T
46818206T
46828434T
46621417T 46621118T
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EL DORADO
DIVISADERO
City Of FresnoRedevelopment Agency
City Of Fresno And RDA Owned Properties
ASSUMPTIONS BUILDING-WIDE ASSUMPTIONS PercentOp. Cost Inc./Year 2.00%Reserves Inc./Year 3.00%
RESIDENTIALUnit Type # Units SF $/SF Mo. Rent Ann. Rent
Studio 20 700.00 1.15 805 193,200 RESIDENTIAL1 BR 30 850.00 1.20 1,020 367,200 ASSUMPTIONS Percent2 BR 12 1,050.00 1.15 1,208 173,880 Rent Inc./Year 2.00%3 BR 3 1,400.00 1.08 1,512 54,432 Vac. Year 1 10%
0 0 0 Vac. Year 2 5%0 0 0 Vac. Year 3 & Future 3%
TOTAL 65 788,712
Total Residentail SF 260,000
COMMERCIALDescription Leaseable SF $/SF/Mo $/SF/Year Annual Rent
10,000 1.05 12.60 126,000 COMMERCIAL0 0.00 0 ASSUMPTIONS Percent0 0.00 0 Rent Inc./Year 2.00%
Total Commercial SF 10,000 126,000 Vac. Year 1 25%Leaseable SF $/SF/Mo $/SF/Year Ten. Cont. Vac. Year 2 10%
Tenant Contributions 0 0.00 0 Vac. Year 3 & Future 5%Tenant Contributions 5,000 0.00 0 Other Income Increase 3%Tenant Contributions 0 0.00 0 Weighted Op. Exp. 3%TOTAL TENANT CONTRIBUTIONS 5,000 0 0
Total Building SF 270,000% Residential 96.30%
% Commercial 3.70%
TOTAL INCOMEResidential Income 788,712Commercial Income 126,000Tenant Contributions 0Other Income 0TOTAL INCOME 914,712
OPERATING EXPENSES (COM + RESID)
Ground Floor Retail
Kidney Bean Plaza - No Subsidy
1
Management Fee 13,000Advertise/Market 8,000Legal 2,000Administrative 6,000Utilities 5,000Trash 2,000Maintenance/Repairs 15,000Grounds 8,000Real Estate Property Tax 2,000Insurance 2,000Other 0Total Operating Expenses 63,000 6.89% Percent of RevenueReplacement Reserves 8,000Total Operating Exp. and Reserves 71,000 7.76% Percent of Revenue
Kidney Bean Plaza - No Subsidy
2
CAPITAL BUDGET
Land AcquisitionLand Cost 468,000Site Improvements 400,000Site Grading & Preparation 5,000
Total Land Acquisition 873,000
Construction CostsConstruction Cost Per Square Foot 90Total Square Footage 270,000
24,300,000
Contingency 10% 2,430,000Permits & Impact Fees 200,000Architect & Engineer 1,100,000Legal 100,000Developer Fee 2,000,000Construction Finance Fees 80,000
Total Construction Cost 30,210,000
Total Development Cost 31,083,000
FINANCING REQUIRED% Equity invested 20%Less: Equity Invested $6,216,600Total Debt $24,866,400
Kidney Bean Plaza - No Subsidy
3
DISCOUNTED CASH FLOW ANALYSIS - 10 Year Period
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10IncomeAnnual Rent - Residential 788,712 804,486 820,576 836,987 853,727 870,802 888,218 905,982 924,102 942,584Vacancies 91,471 47,108 29,113 29,986 30,885 31,812 32,766 33,749 34,762 35,805Residential Income Less Vacancy 697,241 757,379 791,463 807,002 822,842 838,990 855,451 872,233 889,340 906,779
Annual Rent - Commercial 126,000 128,520 131,090 133,712 136,386 139,114 141,896 144,734 147,629 150,582Vacancies 31,500 12,852 6,555 6,686 6,819 6,956 7,095 7,237 7,381 7,529Commercial Income Less Vacancy 94,500 115,668 124,536 127,027 129,567 132,158 134,802 137,498 140,248 143,053
Annual Gross Rent 914,712 942,153 970,418 999,530 1,029,516 1,060,402 1,092,214 1,124,980 1,158,730 1,193,492Effective Gross Income 791,741 815,493 839,958 865,157 891,111 917,845 945,380 973,741 1,002,954 1,033,042
ExpensesAnnual Operating Expenses 63,000 64,260 65,545 66,856 68,193 69,557 70,948 72,367 73,815 75,291Real Estate Taxes 2,000 2,060 2,122 2,185 2,251 2,319 2,388 2,460 2,534 2,610Replacement Reserves 8,000 8,240 8,487 8,742 9,004 9,274 9,552 9,839 10,134 10,438Total Operating Expenses 73,000 75,190 77,446 79,769 82,162 84,627 87,166 89,781 92,474 95,248Sale Price/Year 10Free & Clear / CFBF 718,741 740,303 762,512 785,387 808,949 833,218 858,214 883,961 910,479 937,794
Debt ServiceAnnual Debt Payment -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013
Cash Flow After Financing -667,272 -645,710 -623,501 -600,625 -577,064 -552,795 -527,799 -502,052 -475,533 -448,219
Income Tax Payment -407,673 -393,404 -378,658 -363,418 -347,667 -331,389 -314,564 -297,175 -279,202 -260,625
Cash Flow After Taxes -6,216,600 -259,599 -252,305 -244,842 -237,207 -229,396 -221,407 -213,235 -204,878 -196,332 -187,594
Return on Total Assets 2.31% 2.38% 2.45% 2.53% 2.60% 2.68% 2.76% 2.84% 2.93% 3.02%
Return on Equity -4.18% -4.06% -3.94% -3.82% -3.69% -3.56% -3.43% -3.30% -3.16% -3.02%
Kidney Bean Plaza - No Subsidy
4
DEBT PAYMENT CALCULATIONS
Interest Rate 3.80%Term of Loan (years) 30
Total Development Cost 31,083,000Less: Equity Invested 6,216,600Total Debt 24,866,400
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Annual Payment -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013 -1,386,013Total Debt 24,866,400 24,425,310 23,967,459 23,492,210 22,998,901 22,486,847 21,955,334 21,403,624 20,830,949 20,236,512Interest Paid 944,923 928,162 910,763 892,704 873,958 854,500 834,303 813,338 791,576 768,987Amortization -441,090 -457,851 -475,249 -493,309 -512,055 -531,513 -551,710 -572,675 -594,437 -617,025
Kidney Bean Plaza - No Subsidy
5
SALE PRICE
Estimated Sale PriceCap Rate (1st Stabilized Year) 10.00%Value (Year of Sale): 9,377,937
Book ValueTotal Development Cost 31,083,000Add: Capital Improvements 91,711Less: Depreciation 8,836,364Net Book Value: 22,338,347
Gain on SaleSelling Price 9,377,937Less: Broker, Lawyer Fees 468,897Net Selling Price: 8,909,040Less: Net Book Value 22,338,347Gain on Sale: -13,429,307
Tax PaymentGain on Sale -13,429,307Capital Gains Tax 15.00%Capital Gains Tax Payment: -2,014,396
Net Cash to SellerNet Selling Price 8,909,040Less: Mortgage Loan Balance 19,619,487Less: Capital Gains Tax Payment: -2,014,396Net Cash From Sale: -8,696,051
Kidney Bean Plaza - No Subsidy
6
TAX PAYMENT CALCULATIONS
Calculation of Tax Payment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Cash Flow After Financing -667,272 -645,710 -623,501 -600,625 -577,064 -552,795 -527,799 -502,052 -475,533 -448,219Add: Replacement Reserves 8,000 8,240 8,487 8,742 9,004 9,274 9,552 9,839 10,134 10,438Add: Mortgage Amortization -441,090 -457,851 -475,249 -493,309 -512,055 -531,513 -551,710 -572,675 -594,437 -617,025Less: Depreciation 883,636 883,636 883,636 883,636 883,636 883,636 883,636 883,636 883,636 883,636Taxable Income -1,101,819 -1,063,255 -1,023,401 -982,211 -939,641 -895,645 -850,173 -803,175 -754,599 -704,392Tax Rate 37.00% 37% 37% 37% 37% 37% 37% 37% 37% 37%Tax Payable: -407,673 -393,404 -378,658 -363,418 -347,667 -331,389 -314,564 -297,175 -279,202 -260,625
Kidney Bean Plaza - No Subsidy
7
NET PRESENT VALUE CALCULATIONS
Discount Rate 12.00%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Total CFAT for Each Year
-252,305 -252,305 -244,842 -237,207 -229,396 -221,407 -213,235 -204,878 -196,332 -8,883,645
Discount Factor (Discount Rate =12%)0.892857143 0.797193878 0.711780248 0.635518078 0.567426856 0.506631121 0.452349215 0.403883228 0.360610025 0.321973237
PV of Each Cash Flow-225,273 -201,136 -174,274 -150,749 -130,166 -112,171 -96,457 -82,747 -70,799 -2,860,296
NPVSum of All PVs: -4,104,068Less: Equity Invested 6,216,600NPV: -10,320,668
Kidney Bean Plaza - No Subsidy
8