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Draft Memorandum July 25, 2013 EPSP Infrastructure Feasibility Analysis Page 2 This infrastructure feasibility analysis provides a more in-depth look at specific product types and development options. The analysis evaluates financial feasibility of each land use and building prototype (i.e. density) and compares major infrastructure improvements with resulting residual land values. Although not the final answer on feasibility, since actual outcomes will depend on a variety of unresolved factors, including development costs (both infrastructure and buildings), pricing, absorption, and regulatory issues, the analysis does provide an additional level of confidence on the relative economic performance of the various alternatives under consideration. EPS also retained its previously used feasibility threshold measures, updated to reflect small changes the type and amount of development in each option, estimated market values, infrastructure cost estimates, and development impact fees. In EPS's experience, an infrastructure program cost burden of about 15 percent of the finished value of the real estate program is supportable. EPS also employs another infrastructure feasibility test that considers the potential annual cost burden, assuming that a Community Facility District is used to finance EPSP infrastructure, to determine whether total tax burden (property tax and CFD together) might exceed a 2.0 percent threshold. Key Findings The key findings from this financial feasibility analysis are described below and summarized in Table 1. • Given current market prices, market rate residential and retail uses are estimated to result in positive residual land values, while inclusionary housing, office and industrial uses with a 0.36 FAR are estimated to result in negative residual land values. While the 8 dwelling units per acre density is estimated to generate the highest values on a per acre basis, for-sale residential uses result in land values ranging between $1.2 and $2.3 million per acre, as shown in Table 1. While high density rental development appears as the weakest residential prospect given today's prices, small real appreciation in multi-family rents would improve this result. Likewise for office and industrial uses, higher FARs and gradual market improvements would also make this product type more appealing to a vertical builder. • While the residual land value provides an indication of relative feasibility among land uses, it has limitations when applied to overall feasibility of the EPSP. Most notably, overall EPSP market and financial performance will require product diversity to facilitate absorption and creation of a unique place. In addition, initial conclusions about relative feasibility among land uses are highly sensitive to the inclusionary housing policy that has not been specified for the Project. Inclusionary housing requirements have substantial impacts on land values and have historically varied for developments in the City. While this analysis assumes that the Project will meet its inclusionary requirement of 20 percent of for-sale units and 15 percent of rental units, all inclusionary uses are assumed to be accommodated in the high density product type. To the extent that lower density product types would be responsible for their respective share of inclusionary housing, development feasibility of the Project would be weakened. • Another key factor affecting development will be the timing for development and absorption, which will be driven by both market and regulatory factors. Full development and absorption of the EPSP is likely to occur over a relatively long time frame (e.g. 7 - 12 years or longer) P:U 21000UL090EastPleasan ton\Reporttln/astructure Burden Memo andumUl1090 Infra_mm3_0724l3.docx