memorandum - City of Vancouver

MEMORANDUM To:

Eric Holmes, City Manager

From:

Peggy Sheehan, Community Development Programs Manager

Date:

7/18/2016

Re:

Two Multi-family Tax Exemption Program Applications

Staff has received Multi-family Tax Exemption Program applications for two projects: 1. Block 6 at the Waterfront (8-year exemption) 2. Hutton Block (12-year exemption) Both projects will be reviewed during a City Center Redevelopment Authority (CCRA) meeting on July 21. The Council public hearing is scheduled for August 15th. Background: Since 1997 the City has used the Multi-Family Housing Tax Exemption Program authorized under Vancouver Municipal Code (VMC) 3.22. This program allows for an eight or twelve year tax exemption for developments in two areas of the City, the Vancouver City Center Vision (VCCV) Subarea and the Fourth Plain Corridor Subarea. To be eligible for the twelve year exemption the development must provide 20 percent of the units to households earning up to 115% of area median income. To date, 13 projects have been approved for the Multi-Family Housing Tax Exemption Program. Five projects are complete and one is currently under construction. The general intent of Multi-family Tax Exemption Ordinance is to encourage development that provides places to live close to employment, shopping, entertainment and transit services and encourage affordable housing opportunities. In addition to the expected outcomes, applying the ordinance to these specific projects will have a beneficial effect by means of: • Promoting development activity to meet current housing needs. • Allowing development of vacant/underutilized sites. • Encouraging development on difficult-to-develop parcels. • Providing an affordable housing component (Hutton Block). • Providing construction employment opportunities. • Providing new development in a low/moderate income neighborhood.

Multi-Family Tax Exemption Program Block 6 at the Waterfront Location – 655 West Columbia Way, Vancouver, WA 98660 Developer – Gramor Development Project Description This project is a 6 story, mixed-use building located on Vancouver’s waterfront at 655 West Columbia Way. The project includes 6,564 feet of ground-floor commercial space and 53 units of market-rate rental apartments (mix of 1, 2, and 3-bedroom units, and penthouse suites). The total development will be 72,948 square feet and development costs (excluding land) are projected to be $22,243,173. The developer is applying for an 8-year tax exemption. Proposed rents are as follows: Unit Type

# of Units

Unit Sq. Ft.

3

Monthly Rent $1,726

Entry-level 1Bedroom 1-Bedroom 2-Bedroom 3-Bedroom Penthouse

19 20 9 2

$2,167 $2,925 $3,709 $3,641

811 1,094 1,388 1,363

Rent/Sq. Ft.

646 $2.67

Financial Information - Analysis based on preliminary budgets and cash flow projections. Information is considered confidential and not for public disclosure. In addition, the financial evaluation is not a condition for approval of the tax exemption. 

Debt Coverage Ratio (DCR): Equal to estimated annual net operating income divided by estimated annual debt service. The DCR is the primary measure to determine if a property will be able to sustain its debt payments based on cash flow. A debt coverage

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ratio over 1.25 suggests the developer could obtain financing for the amount of proposed debt. o City reference for analysis: ~1.25 o For this project: 1.13 with exemption Development Fee: The amount of development fees represented as a percentage of total development cost. o City reference for analysis: ~4.0% o For this project: 2.49% Development Yield: Equal to estimated annual net income before debt service divided by the estimated total development cost. This measures the annual rate of return in relation to the total cost of the development. o City reference for analysis: ~6% o For this project: 7.7% Cash on Cash Return: Equal to estimated annual net income after debt service divided by the estimated total cash investment. This measures the annual rate of return in relation to the amount of cash or equity invested. o City reference for analysis: ~7.0% o For this project: 3.6% with exemption Internal Rate of Return: The effective annual rate of return using the sum of annual cash flows discounted to present value. The higher a project's IRR, the more desirable it is to undertake the project. o City reference for analysis: ~10% o For this project: 12.6% with exemption and assuming sale in year 20 Net Present Value of Cash Flows (20 years): The present value of incoming and outgoing cash flows over a period of time (in this case, 20 years). A positive NPV indicates that the projected net cash flow generated by a project (in present dollars) generates a return higher than the designated discount rate or desired rate of return. o City reference for analysis: Positive using a discount rate of ~7.0% o For this project: Positive 12.6 Fair Return for Developer: o City reference for analysis: Various return calculations not excessively higher than the reference points o For this project: Estimated return is not excessive

Net Present Value of Tax Revenue (20 Years)** Total Tax Revenue City of Vancouver Tax revenue

$2,609,829 $671,793

Total Deferred Property Taxes City Deferred Property Taxes

$1,131,521 $435,891

**Estimated discounted present value of construction sales tax, utility tax and property tax over 20 years.

Construction Jobs: Approximately 202

Multi-Family Tax Exemption Program Hutton Block Location – 1506 Main Street Developer – Master Development Project Description This project is a 4 story, mixed-use building located at 1506 Main Street. The project includes 2,000 feet of ground-floor commercial space and 108 units of market-rate rental apartments (studios, 1- and 2-bedroom units, and live/work units). The total development will be 66,960 square feet and development costs are projected to be $15,798,587. The developer is applying for an 12-year tax exemption. Proposed rents are shown below. Unit Type # of Units Monthly Rent Rent/Sq. Ft. Studio 44 $565-710 1-Bedroom 40 $990-1,130 $1.95 1-Bedroom Townhouse 12 $2,070 2-Bedroom Townhouse 8 $2,460 Live/Work 2 $1,950 Retail 2 $1,950

Financial Information - Analysis based on preliminary budgets and cash flow projections. Information is considered confidential and not for public disclosure. In addition, the financial evaluation is not a condition for approval of the tax exemption. 

Debt Coverage Ratio (DCR): Equal to estimated annual net operating income divided by estimated annual debt service. The DCR is the primary measure to determine if a property will be able to sustain its debt payments based on cash flow. A debt coverage ratio over 1.25 suggests the developer could obtain financing for the amount of proposed debt. o City reference for analysis: ~1.25 o For this project: 1.16

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Development Fee: The amount of development fees represented as a percentage of total development cost. o City reference for analysis: ~4.0% o For this project: 0% Development Yield: Equal to estimated annual net income before debt service divided by the estimated total development cost. This measures the annual rate of return in relation to the total cost of the development. o City reference for analysis: ~6% o For this project: 6% Cash on Cash Return: Equal to estimated annual net income after debt service divided by the estimated total cash investment. This measures the annual rate of return in relation to the amount of cash or equity invested. o City reference for analysis: ~7.0% o For this project: 2.0% Internal Rate of Return: The effective annual rate of return using the sum of annual cash flows discounted to present value. The higher a project's IRR, the more desirable it is to undertake the project. o City reference for analysis: ~10% o For this project: 5.5% Net Present Value of Cash Flows (20 years): The present value of incoming and outgoing cash flows over a period of time (in this case, 20 years). A positive NPV indicates that the projected net cash flow generated by a project (in present dollars) generates a return higher than the designated discount rate or desired rate of return. o City reference for analysis: Positive using a discount rate of ~7.0% o For this project: Positive using a discount rate of 6.0% Fair Return for Developer: o City reference for analysis: Various return calculations not excessively higher than the reference points o For this project: Estimated return is not excessive

Net Present Value of Tax Revenue (20 Years)** Total Tax Revenue City of Vancouver Tax revenue Total Deferred Property Taxes City Deferred Property Taxes

$2,079,375 $761,580 $702,479 $270,613

**Estimated discounted present value of construction sales tax, utility tax and property tax over 20 years.

Construction Jobs: 103

MULTI-FAMILY TAX EXEMPTION PROJECTS (JUNE 2016) Name of Project

Address

Heritage Place

300 W 8th St, 98660

Vancouver Center

601 Columbia St, 98660

Uptown Village

127 W 25th St, 98660

Prestige Plaza

Exemption Start Date/ Current Status 1/1/2001 paying taxes 1/1/2004 paying taxes

Exemption Period (Years)

Construction Costs

# of Units

# of 115% AMI Units

Proposed Rents

Proposed Unit Mix

8

137

-

8

112

-

1/1/2004 paying taxes

8

22

-

305 E Mill Plain, 98660

May-14

12

$10,445,879

100

20

$965-1,475

studio, 1 and 2 bedroom

15 West (Federal tax credit project - limited to 60% AMI)

400 W Mill Plain, 98660

May-16

12

$17,400,000

120

120

$671-847

studio, 1, 2 and 3 bedroom

13 West (Federal tax credit project - limited to 60% AMI)


approved - in construction

12

$15,027,000

92

92

$714 - 754

studio and 1 bedroom

The Uptown

1700 Main St, 98660

8

$37,000,000

167

-

$1,155-1,585


610 Esther

610 Ester St, 98660

8

$25,113,150

119

-

$1,199-1,499


Vancouver Center Fourth Tower


12

$17,500,000

113

22

$895-1,850


1510 C Street

1510 C St, 98663

approved - not started

8

$2,110,000

16

-

$850-1,200

studio and 1 bedroom

Our Hero's Place

412 E Mill Plain, 98660

approved - not started

8

$11,600,000

48

-

$907-1,650


Broadway and 19th

Broadway & 19th, 98663

12

$3,225,000

36

7

$850-1,200


E Street and 16th

513 E 16th St, 98663

12

$4,200,000

48

9

$1,100-1,150


The Waterfront - Block 6

655 W Columbia, 98660

8

$24,124,173

53

-

$1,726-3,709

studio, 1, 2 and 3 bedroom

Hutton Block

1506 Main St, 98660

12

$15,798,587

108

21

$565-2460


TOTAL:

$183,543,789

1291

291

*Proposed rents at time of project application may not reflect current or future rents.

approved - not started approved - not started approved - not started

approved - not started approved - not started application submitted application submitted