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DRAFT Commissioner Allen referred to Peter MacDonald's email regarding valuation of the property and land values per square feet. She noted that Mr. MacDonald's valuation method was very different from that in the staff report, indicating that land in the Downtown has never sold for over $100 per square foot, versus the methodology used in the staff report which brought up the cost of the land to over $660 per square foot. She asked staff to explain the methodologies and why one was chosen over the other or if there is flexibility there. Ms. Stern explained that calculated as an opportunity cost, the formula is basically the number of square feet that the owner is foregoing development on, times the rent that it could have gotten from that area, times 12 months to determine the annual income, and then divided by the capitalization rate percentage. She continued that applied to 511 Main Street, the calculation would be 666 square feet of plaza, times $3.75 monthly rent per square foot, times 12 months, divided by 6.5 percent capitalization rate = $461,076. She added that Pamela Ott, Director of Economic Development, is present and may want to add more information on the matter. Commissioner Allen inquired if that included all the building cost. Ms. Ott explained that Mr. MacDonald's calculation refers to the cost of acquiring the land and the cost of constructing the building itself, which are the fixed costs that go into the consideration. She indicated that staff is actually looking at current market value of property, which includes the capitalization rate. She added that this formula includes the calculation of what the opportunity gained or opportunity lost to that property owner is as a result of using land for a public plaza rather than for constructing a building. Commissioner Allen inquired if it included all improvement costs that the tenant needed to make. Ms. Ott said yes. She stated that the capitalization rate includes the operating income and cost, and factors in the capital cost as well. Mr. Dolan stated that it might be of interest to the Commission to know, in terms of the history of that one particular site, that the City wanted the plaza, that it was the City's thinking that there had to be some way to make the developer whole instead of just demanding that the plaza be provided, and that it was the City's idea to have a set of rules to use elsewhere. Commissioner Pearce stated that her understanding is that this is just a mechanism to allow the City Council the flexibility to do this. Ms. Stern said yes. She added that it does not mandate the City Council to allow everyone to do this. She indicated that the City Council will review the proposal to determine whether or not it is appropriate, and there will be a judgment call by the City Council that the developer meets the criteria and the objectives of the Downtown Specific Plan that the proposed plaza is in the right place, designed properly, and so forth. DRAFT EXCERPT: PLANNING COMMISSION MINUTES, 1/8/2014 Page 3 of 11