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3B Public Hearing 2012 0521
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3B Public Hearing 2012 0521
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5/30/2012 11:46:42 AM
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CM City Clerk-City Council
CM City Clerk-City Council - Document Type
Staff Report
Document Date (6)
5/21/2012
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_CC Agenda 2012 0521 CS+RG
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\City Clerk\City Council\Agenda Packets\2012\Packet 2012 0521
SA Reso 2012-007
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\City Clerk\City Council\Resolutions\2012
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File Number: 12 -258 <br />Income Approach - This valuation method is a means for real estate investors to <br />determine the value of a property based on its income in comparison to similar <br />properties. Essentially, the investor divides the projected income to be generated by <br />the property by the capitalization rate to come up with a sales value. The market and <br />type of development determine the prevailing capitalization rate. <br />A June 2011 appraisal provided a value of $3,014,000 using the sales comparison approach. <br />If the City sold the property to the highest bidder, it may receive this price. However, City <br />influence on the type of project to be developed would be limited to the Zoning Code. The <br />City's influence on the design and tenants would similarly be limited. Additionally, the <br />developer would not be required to pay prevailing wage for project construction. Lastly, and <br />possibly most important, this methodology does not take into consideration the value of the <br />development as a whole. For example, the highest bidder may not develop a project which <br />serves as a downtown retail catalyst, provides design leadership, creates jobs and sales tax <br />revenue. Additionally, the highest bidder may choose to land bank the parcel which would <br />only provide a slight increase in the property tax revenue to the City and other taxing entities. <br />The income approach is the most common method for valuing commercial real estate. <br />Basing the sale on the value of the Site using the income approach is recommended given <br />that the City influenced the development of the Site and placed the following requirements on <br />Innisfree. <br />Developer will pay prevailing wages on construction <br />$500,000 in off -site improvements <br />Quality architecture, materials and landscaping <br />Generous public gathering spaces <br />Full- service restaurant and desired retail tenants such as Peet's Coffee and Tea <br />The income approach takes into consideration the income projections. The income <br />projections for the Site are solid because 75% of the total project has letters of intent signed <br />with tenants. A detailed project pro forma including construction costs, financing costs, etc. <br />was reviewed by staff and then forwarded to Keyser Marston, a financial consulting firm <br />specializing in public - private transactions. Keyser Marston estimated the land value for the <br />site for development of the proposed Village Marketplace to be 2.17 million dollars based on <br />analysis of Innisfree's pro forma. Keyser Marston's report is attached for your information. <br />The 2.17 million dollar value is based on the following assumptions, which are reasonable in <br />today's market: <br />10% Return on Investment (ROI) <br />Net Operating Income of approximately $705,000 <br />Capitalization rate of 7.5% <br />Other economic benefits of the Village Marketplace include: <br />113 permanent jobs <br />Over $100,000 annually in sales tax revenue to the City, more to others <br />8.5 million dollars added to the property tax roll; annual property tax revenue to taxing <br />agencies of approximately $97,500. <br />Aggressive construction schedule after conveyance; project completion expected within <br />City of San Leandro Page 4 Printed on 511512012 <br />
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