3B Public Hearing 2012 0521 - Laserfiche WebLink

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