CITY COUNCIL AGENDA PACKET WORKSHOP

17 of 19 guidance only – cost factors may vary substantially within an actual project and are subject to change over time. (See Attachment 2, Figure 1) For rental products, under current economic conditions, the cost to develop, exclusive of fees comes much closer to meeting the return that can be expected from market rents, meaning there is limited capacity to absorb additional fees. (See Attachment 2, Figure 2) Indicator 2: Project Rates of Return This indicator evaluates project feasibility based on a developer’s expected return on cost (12% for-sale projects), or yield on cost (5.5% for rental projects). The return-on- cost and yield-on-cost metrics are established based on industry standards and take account of the margin and return on investment a developer will typically expect to see when making a decision to invest in a project. If the return-on-cost or yield-on-cost falls below the threshold, it is unlikely that a developer would choose to move forward with a project. (See Attachment 2, Figures 3 and 4) The analysis suggests that for single-family homes, it would be infeasible to increase the inclusionary rate (assuming units are produced on site) without pushing expected returns below the threshold of feasibility; and, even reducing the inclusionary rate to 15% results in returns on cost that are somewhat below the margin of feasibility, particularly for Single-Family Detached projects. However, the analysis also suggests that the current in-lieu fee rate per unit could be increased by some degree, and projects would still remain feasible. With respect to the inclusionary rate for single family detached, the analysis conservatively assumes that the on-site affordable unit would be the same type and size as the market rate unit. If the City’s IZO permits smaller or different unit types to be proposed to meet the inclusionary requirements (e.g., apartments, duets or townhomes vs. detached SFRs), then the margin of feasibility would improve. For ownership townhomes, there is also room to increase the in-lieu fee rate, but in all scenarios, the 20% inclusionary requirement is highly infeasible, improving slightly for the 15% scenario. The same conclusion is true for multifamily condominium projects. For rental housing projects, there is no apparent room for either an increase in inclusionary rates, or in-lieu fees, under current market conditions, with yield-on-cost currently falling well below the 5% expected developer return to be considered feasible. Indicator 3: Comparison to Peer Jurisdictions EPS conducted a comparison of Pleasanton’s fees on a per unit basis compared to those of six nearby peer jurisdictions including Dublin, Livermore, Danville, San Ramon, Fremont, and Walnut Creek, for a prototypical single-family project, and prototypical multi-family project.7 A similar analysis was completed for a prototypical office project. (See Attachment 2, Figures 5, 6 and 7) 7 Single Family Prototype: 3,000 sq. ft. detached single-family unit Multi-Family Prototype: 800 sq. ft. apartment