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have to be made to recent sales, primary reliance is establishing the reuse value has been placed on the use of the income approach to value. The income approach is based upon the income and cost characteristics of the Project. For the purpose of determining the reuse value of the land, the residual value can be defined as the difference between the development cost of the Project, excluding land, and the value of the Project (total amount the developer can afford to invest). The amount the developer can afford to invest is based upon the projected net operating income revenue generated by the Project and the value of the Project at completion. The economics of the proposed Minimum Project must be determined on the basis of the costs and revenues generated by the Minimum Project. This section of the report presents the estimates of the development costs and revenues and the assumptions made to determine these estimates. A. Development Costs Development cost estimates are based on information provided by the Developer, Creekside Associates, LLC. KMA has not conducted an independent evaluation of the construction costs and KMA recommends that a signed construction contract be submitted to the Agency prior to close of escrow. Overall, it is important to note that, per the Agreement, the Developer is responsible for designing and developing a high quality office complex with architectural and site upgrades and building materials of higher quality than would typically be found in a standard office complex. The Developer's estimated development costs are intended to reflect the costs to meet these requirements. Table 1 presents the estimated direct and indirect development costs for the Project. These components are to be financed and owned by the Developer. As shown in Table 1, the total development costs, before land, are estimated at $18.9 million, or $145 per square foot of rentable building area. The major assumptions behind the development cost estimate are as follows: ■ The office shell cost, inclusive of office tenant improvements, is estimated to average $95.50 per sq. ft. of net rentable area. The shell costs reflected are higher than typical for a standard office complex. In addition, the Developer will build out a 2,000 sq.ft. restaurant on the ground floor. Tenant improvements for this space are estimated at $250,000. ■ The Developer's direct costs also include all on-site and off-site costs, including site landscaping, the fountain/plaza and creekwalk, traffic signal and site preparation contingency allowance. Total on-site and off-site costs are estimated 'J ^ Keyser Marston Associates, Inc. 19096.001\002-002.doc Page 11