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Draft Memorandum July 25, 2013 EPSP Infrastructure Feasibility Analysis Page 10 Additional valuation considerations were applied in the analysis of higher-density housing, affordable housing and industrial/flex uses, as discussed below. EPS relies on a variety of sources to estimate real estate values, including current market data concerning residential and commercial transactions occurring in the City and surrounding areas. In particular, EPS reviewed residential sales data from The Gregory Group and commercial sales data from CoStar Group. EPS also considered real estate values developed as part of continuing work on the Fiscal Impact Analysis of the City of Pleasanton General Plan, to ensure basic consistency. Based on guidance from the EPSP team, EPS assumes that the 30 dwelling units per acre product will be rental and affordable housing is provided within this category. The analysis assumes that the affordable units will represent 20 percent of the for-sale and 15 percent of the rental residential program. For the residual land value feasibility test, negative land values resulting from affordable housing development are deducted from the positive values of other development prototypes. For the purposes of the cost to value ratio infrastructure cost burden screen, EPS assumes that the affordable housing included in the EPSP options will not contribute to funding of the infrastructure costs. That is, affordable housing is valued at zero. The Specific Plan options call for between 1.1 million and 2.3 million square feet of industrial/flex space. The relative magnitude of this particular use within the overall program makes it critical to the infrastructure feasibility evaluation. To address this notion, the EPS analysis conservatively assumes that infrastructure/flex value is at the lower end of the value spectrum, $95 per square foot (the observed range of value is roughly $95 to $500 per square foot). The assumption of low-value industrial/flex reflects an $8 million soil mitigation cost required to support new industrial/flex developments. This value also reflects uncertainty associated with the specific nature of the industrial/flex space development as well as the probability that such a large amount of industrial/flex space could be developed over a longer-term time horizon. To the extent that certain real estate product types do not generate sufficient economic value to allow for a "fair share" contribution to project-wide infrastructure costs, the overall Project feasibility will be more challenging. Improved Land Value As described above, EPS developed a set of vertical pro formas for each land use and estimated a residual land value based on the difference between finished market values and vertical development costs. Improved land values are commonly used feasibility indicators and typically range between 15 and 25 percent of total building value. If the land value does not achieve this range, the project is not likely to be feasible as values do not support land costs. Improved land for each development option is shown in Table 1. For land uses with negative land value (with the exception of inclusionary residential units), EPS assumes the value of zero. Land values are highly variable and subject to a number of site-specific and market factors. It is 5 Given that the soil mitigation cost applies predominantly to industrial uses, it is netted out of finished industrial value for the purpose of this analysis, which translates into a lower industrial land value. P:1 121000U21090Eas lPleasantonlReport1InfraslrucNle Burden Memorandum11 21090_Iofra mm3 072413.doa