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FEASIBILITY STUDY Gilroy Mixed-Use Development Team Name Matt Goodwin Daniel Leach Randy Lewis David Lindstrom Caitlin Morici Cameron Page Gilroy Mixed-Use Development 1 Monterey St. Gilroy, CA 90005 California Polytechnic State University San Luis Obispo Construction Management Department CM 475 Development Principles Professor Elizabeth Wise Spring 2008

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Feasibility Study for a Mixed-Use Development in Gilroy, CA.

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FEASIBILITY STUDYG i lroy Mixed-Use D eve l opm e nt Team Na meM att Goo d win D a niel Leach R a nd y Lewis D av i d Lind stro m C a i t lin Morici C a m eron PageG ilroy M i xe d- Us e D e ve l o pm e nt 1 M o nte re y St. G ilroy, C A 9 0 0 0 5 California Polytechnic State University San Luis Obispo Co ns t ru c t i o n M a n a ge m e nt D epar t me nt C M 4 7 5 D e ve l o pm e nt Pri n ci pl es Pro fe s s o r El i z a be t h Wi s e S p r in g 2 0 0 8

TABLE OF CONTENTSEXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY INFORMATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY 03 05 07 13 15 21 29 31

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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EXECUTIVE SUMMARYExecutive Summary A development project requires very detailed preliminary analysis to determine if it is feasible. In our recommendation that it be pursued, it is critical to understand the impact of the project, as well as its risks and rewards. A feasibility study looks at past, present, as well as future indicators to determine a projects viability. It consists of a project description, site analysis, regulatory evaluation, market research, and financial analysis. This study outlines our findings as well as our recommendations for the implementation of our project. Project Scope The idea behind our project is based upon the current trend and popularity of mixed-use developments. We wanted to create a project that we felt would be feasible, but one that would benefit the community. It is clear from our research that the city of Gilroy is looking to revamp its downtown area. Therefore, it has shown a great degree of support towards our project and would like to see that it be implemented as soon as possible. The location of the property is at the Southern end of the city of Gilroy, on the outskirts of downtown. The property is currently without a permanent address, and is simply 1 Monterey Hwy. It is located in close proximity to U.S. Highway 101. For the project, we have proposed 10 office units with 10 condos above on the front edge of the site bordering Monterey Hwy, along with 12 townhouses and parking in the rear of the site. The price on the townhouses would be $2500/month, the condos would be $2000/month, and the offices would be $3500/month. Site Description The site is a vacant dirt lot with no existing uses. It is 1.86 acres of land and is a rectangular shaped property consisting of 76,167 square feet. The site is equipped with utilities, water, sewers, storm drains, etc. The city acknowledged that the project would be faced with very limited barriers, if any at all. Since the site has already been studied as part of the Gilroy General Plan, it will likely be determined as an infill development and make it exempt from further CEQA review. Since this is an infill site, archaeology and biological species should not be a concern. It is possible that there is contamination on site, so your lender will most likely require a Phase 1 study which looks for possible sources of contamination. Any contamination found would need to be remediated. On a positive note, infill development is encouraged by the city, as the infrastructure already exists to serve the site. Therefore, a developer would not be expanding into undisturbed areas which could have sensitive environmental issues. There is also a possibility that the project will be require either a parking study or a traffic study since the only access to the property is from Monterey Hwy. Transportation to and from the site is exceptional for both public and pedestrian transit. It is walking distance from downtown and the bus route runs through Monterey Hwy. According to the city, there are no easements for this property. The only real consideration is the railroad tracks behind the property. There are two concerns with the railroad tracks: noise and aesthetics. The noise issue is somewhat mitigated through building design, by limiting windows along the tracks and/or requiring a high STC (Sound Transmission Coefficient) rating on the windows. Even so, the trains will create a lot of noise; therefore the developer should disclose this fact to future building occupants. Sounds walls are not allowed along this corridor, as they become graffiti magnets. As far as aesthetics, it is important to create a pleasant visual experience for people traveling on the trains. Therefore, landscaping and architectural detailing are required on the rear of buildings adjacent to the tracks. The surrounding uses include a few businesses and a recent housing development directly across the street. Since the city is somewhat small, our site is within a few miles of all major recreation and public services. Police, fire, medical, shopping, and entertainment are in close proximity to the site, which gives the project that much more of an incentive to be implemented.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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Regulatory Evaluation According to the Downtown Specific Plan, the site is located within the Gateway District. The district is suitable for the development of new mixed-use and stand-alone residential properties. The intent of the Gateway District is to create the primary entryway into the downtown area. The uses in the district include residential, office, and commercial services. This project does not require any zoning changes and meets the guidelines depicted in both the zoning ordinance and the specific plan. The property is not in a coastal area, so no coastal permits are needed. There is a residential growth-control ordinance (called the RDO), so if you construct housing, you do need to get a housing allocation, which is available from the city. Environmental Review, Architectural & Site Review, a Tentative Map and a Conditional Use Permit will most likely be required for the project. According to a local developer and city planner, there are no political considerations. The project will benefit the community and the city fully supports it.

PROJECT DESCRIPTIONProject Scope The idea behind our project is based upon the current trend and popularity of mixed-use developments. We wanted to create a project that we felt would be feasible, but one that would benefit the community. It is clear from our research that the city of Gilroy is looking to revamp its downtown area. Therefore, it has shown a great degree of support towards our project and would like to see that it be implemented as soon as possible. The location of the property is at the Southern end of the city of Gilroy, on the outskirts of downtown. The property is currently without a permanent address, and is simply 0 Monterey Hwy. It is located in close proximity to U.S. Highway 101. For the project, we have proposed 10 office units with 10 condos above on the front edge of the site bordering Monterey Hwy, along with 12 townhouses and parking in the rear of the site. The price on the townhouses would be $2500/month, the condos would be $2000/month, and the offices would be $3500/month.

Residential Units (10) Condos 1,400 s.f. x (10) = 14,000 square feet (12) Townhomes -2000 s.f. x (12) = 24,000 square feet Total Residential s.f. = 38,000 square feet Total Building s.f. = 52,000 square feet

Office Units (10) Offices 1,400 s.f. x (10) = 14,000 square feet Total Office s.f. = 14,000 square feet

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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BUILDING MASSING

(22) Residential Units (10) Condos above the business units (12) Townhomes in the rear of the site-Broken down into 4, 3 unit blocks

(10) Office Units

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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SITE EXAMINATIONSITE LOCATIONx100: Santa Clara County, California, United States Santa Clara County is located in a temperate zone that is filled with rich agricultural lands that take in the cool Pacific Ocean breezes from Monterey Bay. The area is growing as Californias population increases. Low cost housing is a growing trend for the area, as people are moving out of the more expensive areas of Silicon Valley to the north.

CALIFORNIA, U.S.

SANTA CLARA COUNTY, CA

x10: Gilroy, Santa Clara County, CA Gilroy, most well known for its Garlic farming, is about to undergo a major transformation in response to the citys general plan. The city is focusing on new developments on the outskirts of town, which are closer to the 101 HWY. Which in itself is a vital asset the city posseses. An hour and a half to the north is San Francisco, and the same distance to the south is San Luis Obispo.

101 HWY

GILROY, SANTA CLARA COUNTY, CA

x1: 1 Monterey Hwy, Gilroy 1 Monterey Hwy. is located in the citys designated Gateway District and is slated for major redevelopment. Mixeduse projects are encouraged for this district as it is the entrance to the town. The site itself is fronted by Monterey Hwy. and is sandwiched between two business parks.TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

T MON EREY HWY

S ITE

1 MONTEREY HWY, GILROY, CA

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SITE CONFIGURATIONProperty Address: Parcel Number: 1 Monterey Hwy, Gilroy, CA 95020 APN 841-14-011351-0

217-0

setback line 5-0 property line 5-0 5-0

Property Dimensions: The site is a basic rectangle measuring 351 x 217 producing a total gross area of 76,167 square feet, or 1.86 acres. However, with the setbacks of 5 from each direction, the site is reduced to 341x 207 producing a total buildable area of 70,587 square feet, or 1.62 acres.

EXISTING USESThe property is an open, empty field that has always been this way. There has been no existing uses as it has never been used. It is not until recently that Gilroy has decided to build the area as it is the gateway to town.

N

Monterey Hwy.

Gross Dimensions: length = 351-0 width = 217-0 Gross Total Square Footage: 351 x 217 = 76,167 s.f. Dimensions with Setbacks: length = 341-0 width = 207-0 Buildable Total Square Footage: 341 x 207 = 70,587 s.f.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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SURROUNDING USESNortheast: Behind the parcel is the California railroad tracks. There is a buffer zone already imposed from the city and state of 15 to any properties adjacent to the tracks. Southeast: A small industrial business building that has been there for twnety years. No buildings run up to the property line, thereby freeing up more open space between our property and the adjacent property. Southwest: The main and only ACCESS to our property is from Monterey Hwy. Which is also the main road that runs through town and brings people from HWY 101 into Gilroy. Across the street from the property is a housing and open space area. Northwest: Another small business industrial park of a old family owned business. They have fences that run up to the property line, but nothing that would be overbearing and block out sun onto our sight.

A C F D E

MO N Y TERE HWY

B

SITE

A

B

C

D

E

F

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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SITE ACCESS

Downtown Gilroy

Access to the site is limited to that from Monterey Hwy. The entire edge along Monterey Hwy is open to access. Monterey Hwy is the main route through Gilroy from Hwy 101, and our site is located within 1 mile of the Hwy 101 on and off ramp.

MO N Y TERE HWY

Hwy. 101

SITE FEATURESSummer Sun Path and Temperature June 21 [summer solstice] [ALLOW MOST SUMMER SUNLIGHT] -50% sun exposed spaces -50% shaded spaces Allowing sufficient light to inflitrate site will result in a comfortable climate. Spaces should be sculpted to allow for these parameters. Avg. High Temp. = 78.1 degrees Avg. Low Temp. = 60.1 degrees

20: 35 [60. 1 de g ]

0 5 :4 8 [ 5 2 .6 d e g ]

18:00

0 9 :0 0

15:00

12:00 [7 8 . 1 d e g ]

Winter Sun Path and Temperature December 21 [winter solstice] [ALLOW ALL WINTER SUNLIGHT] -80% sun exposed spaces -20% shaded spaces Avg. High Temp. = 66.1 degrees Avg. Low Temp. = 52.4 degrees

16 : 5 5 [ 52.4 d e g ] 15:00 12:00 [66.1 deg]

09:0 0

07: 02 [45. 4 deg]

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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WN W W I N D S 8 .9 mph 58% / yr

NW WINDS 12.5 mph 25% / yr

Wind Patterns West Northwest Winds -8.9 mph -58% of the year Northwest Winds -12.5 mph -25% of the year West Winds -13.7 mph -17% of the year

W WI N D S 13.7 mph 17% / yr

Site ViewsA d j a cent Business

Centra l P a c i f i c M o unta ins Centr al Val l ey, Indu str i al S i te

Due to the low lying buildings adjacent to the property, there are maximal views to the surrounding Central Pacific Valley and the Central Pacific Mountains.

Centra l P a c i f i c M o u ntai ns

Seismic Map Our site is located in the moderatelyhigh seismic hazard zone, therefore we would have to increase our structural system to the necessary levels, but that would be discussed through our structural engineer.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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POSITIVE SITE FACTORS-The temperate climate of Gilroy is very welcoming to a residential development, and encourages us to create porches, and open spaces on the property for the residences. -Views to the surrounding areas are open and beautiful. -The location of the site and its plans for being a new hub of the city, lend the site a lot of potential for growth. -The location to the freeway, and being along Monterey Hwy. also help the site for access and transportation.

NEGATIVE SITE FACTORS-Virtually none besides the minimal heat and wind factors, but there are no previous toxic contamination, archaelogic remains, rare species, not in a flood zone, nor are there any needs for grading because of the flat site. -The only major negative factor are the railroad tracks in the rear of the site which poses a noise problem. We mitigate that factor with the introduction of sound reducing windows, and vegetation along the mandated railroad corridor fencing.

LOCAL SERVICESLocal Services Schools Shopping and Entertainment Transportation Facilities(train and bus)

Police, Fire and Medical FacilitiesSITE

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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REGULATORY EVALUATIONZONING INFORMATIONThe area our property is located has recently been re-zoned into what Gilroy is calling the Gateway District. The zone is the area that is directly off the 101 freeway and leads into the downtown area. The zoning calls for new developments of mixed-use, retail, business and residential projects. Our site lies in the heart of this new zoning area and is primed for a mixed-use project. Gateway DistrictSection 14.60 Statement of Intent

The intent of the Gateway District (GD) is to create the primary entryway into the downtown area. The uses in this district include residential, office, and commercial services. Parking is screened from traffic and pedestrians,. Street beautifuication with landscape and architectural enhancements is encouraged. Architectural styles should reflect the Citys extensive and diverse history. The following regulations, except to the extent that they may be modified by a combining district, shall apply to every lot and building in a Gateway District (GD). This district is suitable for the development of new mixed-use and stand-alone residential projects.

SITE

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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Allowable Uses Commercial uses which contain virtually every possible use, except for industrial work like an automotive tire shop, are allowed, along with residential uses. It is very clear Gilroy is encouraging a mass development of the area.

Zoning Density Commercial and mixed-use projects must have a maximum floor to area ratio (FAR) of no more than 0.75. Stand alone residential projects must have at most 30 dwelling units per acre (du/ac).

Zoning Changes No required zoning changes.

Additional Entitlements A conditional use permit, architectural review process and residential growth control ordinance would be implemented.

Political Considerations No political considerations needed as this project is suitably zoned.

Height Requirements The building must be no taller than 40 and 3 stories tall.

Special Zoning The proximity of the site to the railroad tracks, the site falls under the Railroad Corridor Standards, Section 14. Properties that abut the railroad corridor must provide standard fencing design that will be commercial grade, six-foot tall, black poweder coated metal, with vertical slats and top and bottom rail as well as a five-foot minimum landscape planter area adjacent to the railroad corridor. The intent of the City and Public Utilities Commission is to createa a pedestrian pathway along the east side of the railroad corridor between Tenth Street and Leavesley Road. Additional articulation should be provided on building facades that face this corridor to promote an aesthetically pleasing view of the Downtown for rail patrons.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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MARKET RESEARCHProposed Development Project Our proposed project is a mix use development that comprises retail/ office and residential units. The two story development will have office units on the ground floor and additional housing spaces atop these units. The approximately two acre parcel of land will help bridge the gap between the industrial areas to the downtown area. Project Target Market Our project is mainly focused towards primary and secondary markets in and around Gilroy. Due to the location of our development near the Highway 101, we will most likely see that our costumer base will be local city residents as well as the residents of the agricultural districts immediately surrounding the city and residents from the rest of Santa Clara County. Primary Our primary market customers will be residents looking for apartments near the downtown area of Gilroy. The development is located less than a mile from the heart of the city, therefore is an ideal location for residents who want to avoid downtown traffic, but still want to be close enough to bike or walk to work or recreation. Retail-wise, our development is located approximately a half mile from the Highway 101, and again only a mile from downtown. This makes it a great location for retail because of the high levels of traffic continually flowing past the site. Finally, because our project is mixed use, it may encourage small business owners to live in one of the residential units, while working in commercial / retail units on the same site to reduce transportation costs.

Secondary The secondary market for our development will be residents in the surrounding agricultural districts, as well as other residents within Santa Clara County. Our mixed use project would be an ideal location for people who have lived out in the country and want to move into Gilroy for work or living. Our mixed-use strategy enables enthusiastic Santa Clara County citizens to move into a city to start a retail or commercial business, while living only steps away.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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Market TrendsNational Trends LowInterestRates GlobalWarming

Low interest rates have proven to have a positive impact the economy as a whole. Since interest rates have been seen to decrease it has become more feasible for projects to obtain the required loans. Borrowing is therefore made cheaper and more affordable for the developer. Global warming is another issue that affects the nation on the same level. This trend has led us to take on a new planning approach to development projects that are focused highly upon smart growth and sustainable practices. Climate actions plans, creating mixed use developments and implementing new policies and regulations in the planning sector will help to curb this problem. Regional & Local Trends The City of Gilroy is on the same track as the rest of the national when it comes to the issues of global warming and sprawl. The general plan has made changes to improve development through: Infilldevelopment PromoteMixedUseDevelopment PromoteTransitOrientedDevelopment HousingMix These additions made to the general plan are working to integrate the community members of Gilroy. Utilizing space wisely can help to improve pedestrian orientation and interaction throughout the city. According to the General Plan of Gilroy, the city has a vision to create an environment where its residents will enjoy living in a small city that has retained its small town character. The city wishes to utilize these new approaches to remain a relatively compact city that is surrounded by open space and agricultural land.

Local Analysis of the Economy and DemographicsMarket Research is crucial in identifying the demand and needs for the city and the regions surrounding the City of Gilroy. Obtaining information on the demographics and local economy will assist us in understanding what type of development will best suit our project. According to the California Real Estate Area demographics the current population is estimated at 47,620. It has experienced a population growth of approximately 14.85% since year 2000. The growth in the population is a higher rate in comparison to the State of Californias growth which is slightly lower at 9.46%. As development continues throughout the City of Gilroy the population will continue to increase. The projected population for the year 2012 is said to increase, although at a lower rate of 9.58%, increasing the population to 52,181. Age distribution seems to follow the same type of distribution that can be found in cities of similar populations. The median age is 29.9 years which is relevant to the job sector. A great majority of the population is of Hispanic decent, approximately 53.8%, but there is also a significant amount of White Non Hispanics within the city limits (38%). Targeting specific job types will help develop a better understanding of what sectors will add to the city and feed into the economy. Retail, management/wholesale, service and agriculture comprise the four major job types. TheTABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

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greatest impact in the job sector is found in the service industry which is made up of 44% of the total jobs. Wholesale management is the second with 18%. Additional units in these sectors will help benefit the economy the most. The cities unemployment rate 7.6%, lower than previous years yet still greater in comparison to the states average. Educational attainment is based on a population 25 years and older where the greatest percentage of the population has received high school diplomas. Based on the state average, the percentage of population with a bachelors degree or higher is below that of the state. Only 13.3% of the population has obtained a bachelors degree and the percentage is even lower in regards to a graduates or professional degree. The average household size in the City of Gilroy is 3.5 people which is a higher than the state average of 2.9 people. Incomes vary within the city limits although the median household income is $64,200 slightly higher than the state of California. The largest income bracket for residents living in Gilroy is between $50,000 and $75,000. Residents living in poverty are lower than the state average at 10.4%. This indicates that although the economy is not at its strongest point, it is still somewhat more stable. City of Gilroy INCOME IN 1999 Number Households 11,933 Less than $10,000 568 $10,000 to $14,999 463 $15,000 to $24,999 853 $25,000 to $34,999 1,041 $35,000 to $49,999 1,713 $50,000 to $74,999 2,567 $75,000 to $99,999 1,984 $100,000 to $149,999 1,936 $150,000 to $199,999 443 $200,000 or more 365 Per Capita Income Median Earnings Male full time year round Female full time year round City of Gilroy INCOME IN 1999 Number Families 9,773 Less than $10,000 328 $10,000 to $14,999 280 $15,000 to $24,999 762 $25,000 to $34,999 930 $35,000 to $49,999 1,310 $50,000 to $74,999 1,991 $75,000 to $99,999 1,795 $100,000 to $149,999 1,725 $150,000 to $199,999 367 $200,000 or more 285

Percent 100 4.8 3.9 7.1 8.7 14.4 21.5 16.6 16.2 3.7 3.1 22,071 45,759 34,710

Percent 100 3.4 2.9 7.8 9.5 13.4 20.4 18.4 17.7 3.8 2.9

General Market Indicators: Status of Gilroys Real Estate MarketIdentifying and analyzing the real estate market indicators of Gilroy will aid us in insuring that our product will be well received into the local economy. It is imperative that we are not supplying Gilroy with a product type that is already experiencing surpluses, but rather a type which is/will be experiencing a high latent demand. To do this effectively we must identify the key indicators of demand, and compare them with current real estate statistics to determine the current market for our product. The indicators and statistics that we will consider in this section include: VacancyRate SellingPrices RentalRates Supply ComparativeProjects

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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Vacancy RateAccording to the 2000 census, the rental unit vacancy rate was: 1.6%. -US Census Bureau, Census 2000 A more recent estimate is more realistic at: 2.26%. -Sperlings.com This number seems unusually low, but could be caused by supply not fully meeting demand in the market. Meaning, there might be a shortage of rental apartments in Gilroy, which would play to our advantage. We want to point out that we are using a vacancy rate of 4% in our financial analysis because we want a conservative estimate; 2.26% seems just a little too low to be reliable. As far as retail is concerned, the retail/office vacancy rate in Gilroy at the end of 2007 was 10%.(BT Commercial)

Selling PricesThe home selling prices in Gilroy have been facing the same fate as most of the country. Due to the mortgage and loan industry crash, home prices have been slowing dropping for a year now, and have yet to see the definite bottom. To illustrate this, take a look at the following graph: The black line represents the median home sales price in Gilroy over the past 8 years. It is fairly easy to see that, as most of the country, the home prices were climbing quickly in the early part of the decade, but in the last year theyve dropped dramatically. According to the 2000 Census, the median home price was $344,100. However since then, the house market has seen a rise and fall. More current estimates put the median home price at around $539,000(MLS.com).

Rental RatesMedian Gross Rent in the 2000 Census was $936. According to a real estate agent in the area, Gilroy is currently experiencing median residential rental rates of $956. Retail Rental Rates in the area are currently $20 per square foot.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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Analysis of SupplyThe city of Gilroy expects to build 3,450 residential units between the years 2004 and 2013(Residential Development Ordinance). This planned addition in supply will affect our development, however due to our location on Monterey Street, it is reasonable to believe that our property will only gain in value for being so close to the epicenter of the city. The next indicator of supply we looked at was the number of residential units that received permits and approval in Santa Clara County between 2004 and today. The information was summed up into the following graph: Year 2004 2005 2006 2007 2008 Units 5,380 5,613 6,120 4,162 So far: Estimated Yr. End

907 2,177

The supply of residential units spiked to a high in 2006, but in 2007 that number dropped 32%. In 2008 we see an even greater possible loss in supply. Year-to-date, new permits have only been given out for the construction for 907 new units. This is a major sign that in the county of Santa Clara, residential unit construction is slowing dramatically. Keep in mind, these numbers are for the entire county, and Gilroy it self would only constitute a small portion of the statistics.

Comparative ProjectsAlthough the city of Gilroy has advocated the development of mixed-use buildings in the General Plan, there have not been any major mixed-use developments outside of the immediate downtown area. Our project will be the first in its vicinity, and also will be the largest residential/retail mixed-use development in the city (not including huge community developments constructed in the south-west region of the city).

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

19

Analysis of the IndicatorsAll these indicators show that the housing market in Gilroy has been fairly slow the past year or so. This can also be seen when looking at a chart of total home sales in the city going back to the beginning of 2006. Period Total Sold 2008 JanMar 111 2007 JanMar 203 AprJun 154 JulSep 170 OctDec 153 Total: 680 2006 JanMar 248 AprJun 268 JulSep 248 OctDec 236 Total: 1000 Average Price $527,401 $619,262 $654,823 $641,994 $557,483 $619,098 $631,819 $693,821 $662,276 $650,321 $660,356 Median Price $514,435 $640,000 $650,000 $610,872 $541,171 $612,250 $640,000 $660,000 $654,000 $677,413 $655,000

Looking at the columns of Total Sold we can clearly see a strong decline in home sales in Gilroy since 2006. Total, the year 2006 saw 1,000 total sales, and then in 2007 that number dropped 32% to 680. The first quarter in 2008 saw an even greater decline in home sales. Last years first quarter sales were almost double what they were this year. This can mean several things, but overall it tells us the market is currently fairly cold but could see an increase in activity in the coming year.

Market Research ConclusionAfter compiling all of the market data for the City of Gilroy, we feel that our proposed development will cater to the needs of the residents and surrounding areas. Our mixed use plan follows the updated general plan guidelines in regards to compact developments. The growth percentage rates show that Gilroys population will continue to increase. As the city continues to grow, our development will offer jobs as well as a housing option for the growing population. Currently, the real estate market in Gilroy is facing the same hardships as many other cities across the nation, however, forecasted jobs and population growth, as well as the cities desire to re-urbanize and centralize, the market is destined to turn around for the better. This will allow our development enough time to be properly planned out and constructed at reasonable interest rates, and open to a city ready for new mixed-use properties.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

20

FINANCIAL ANALYSISAssumptions:The Pro Forma for the Gilroy mixed-use project was created based on assumptions made through market research, historical data, market trends and various other items discovered throughout the process. Listed below are the assumptions we made broken into the office units and the separate residential units. Office Unit Assumptions: Rentspermonthperunitof$3,500inthefirstyear Rentappreciationperyearof6%eachyearafter Vacancylossperyearof4% Operatingexpensesperunitof$998inthefirstyear Operatingexpenseinflationof6%eachyearafter Townhouse Assumptions: Rentspermonthperunitof$2,500inthefirstyear Rentappreciationperyearof6%eachyearafter Vacancylossperyear4% Operatingexpensesperunitof$713inthefirstyear Operatingexpenseinflationof6%eachyearafter Condominiums Assumptions: Rentspermonthperunitof$2,000inthefirstyear Rentappreciationperyearof6%eachyearafter Vacancylossperyear4% Operatingexpensesperunitof$570inthefirstyear Operatingexpenseinflationof6%eachyearafter Loan Assumptions: MarketinterestAPRof8.5% Loantermof30years Loantovalueratioof75.00% Tax Assumptions: Incometaxrateof28.00% CapitalGainstaxrateof15.00% Recapturerateoncumulativedepreciationof25.00% Straightlinedepreciationof39years

Project Cost Information:To understand full financial aspects of this project all development costs must be considered and examined. The overall development cost of this project is $11,310,000. Using R.S. means as historical cost data the construction cost was determined to be $150 per SF. Multiplying this number by our 58,000 SF we determined a total hard construction cost of $8,700,000. Soft costs were found to be $2,610,000 using a 30% factor found in R.S. means. Pro Forma: Using the assumptions stated above the pro forma, at the end of this section, was put together. Having been examined over a ten year time frame the IRR can be seen at each year. The final IRR before tax is 12.95%, which is the highest over the course of the project.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

21

Reversion:In year ten of the project the reversion takes place. Over the ten year time frame the property has appreciated to $ 20,797,486. With assumed selling commissions of 5% this leaves the property with a before tax value of $ 19,757,612. After subtracting out the remaining loan balance we are left with a final before tax value of $ 10,401,316. This yields a 12.95% before tax IRR. Once the depreciation recapture has been claimed and tax on capital gains this leaves a BTCF of $ 8,515,091, with an IRR of 9.93%%. The table below breaks down the year ten reversion. Property Value Selling Costs Loan Balance Net Sale Proceeds Total BTCF IRR Before Tax 20,797,486 1,039,874 9,356,296 10,401,316 12.95% 10,502,540 8,447,612 1,267,142 2,900,000 725,000 8,409,174 8,515,091 9.93%

Capital Gain Tax on Capital Gain Cumulative Depreciation Recap. Of Cum. Depr. ATCF on Reversion Total After Tax Cash Flow After Tax IRR

Pro Forma Ratios:On the attached pages key financial ratios are included taken off the numbers in the pro forma. Our gross rent multiplier has a value of 8.10 which is good for basic screening of the project. Decided in the terms of our loan is our loan to value ratio which is solid at 75% which is typical for the industry. Our debt coverage ratio falls just inside the target 1.1 to 1.3 at 1.12. Our break even point is a reasonable 89%, meaning 89% of our rent covers our operating and mortgage costs. To measure this projects profitability several ratios were utilized. Cash on Cash, which measures initial profitability, typically falls within 4-10% the first year. Ours falls at 4% which is on the low end, but still acceptable for our market. It has an after tax ROE in year ten of 4%. Finally its ROR is 8% which should be attractive to investors in our market area.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

22

ASSUMPTIONSVacancy Loss Land Cost Construction Loan (%of capital budget) Construction Loan Term (Years) Construction Loan Annual Interest Rate Take Out Loan to Construction Value Ratio Take Out Loan Terms (Years) Take Out Loan Annual Interest Rates Appreciation of Rents Operating Expenses Appreciation of Property Value Selling Costs Construction Costs per SF Soft Costs (% of construction costs) Office Renting Price per SF Income Tax Rate Capital Gain Tax Rate Recapture rate on Cummulative Depreciation Cap Rate $ 4% 1,000,000 75% 2 8.50% 100% 30 6.00% 6% 30% 6% 5% 150.00 30% 2.50 28% 15% 25% 7% Obtained through market research Found comparable properties through local developer Loan to Value found through Bank of America Estimated time required for completion of project Based on Interest Only Construction Loans Based on 20% Down Payment Based on standard take out loan term Based on current interest rates Based on expected appreciation of property Obtained through market research Based on appreciation of Gilroy property values Based on standard real estate agent commission Found in R.S. means Found in R.S. means Obtained through market research Based on Tax Code Based on Tax Code Based on Tax Code Obtained through market research

$ $

CALCULATED VALUESTotal Square Feet Total Construction Costs Total Soft Costs Capital Budget Total Construction Loan Initial Equity Market Value at Completion $ $ $ $ $ $ 58,000 8,700,000 2,610,000 11,310,000 8,482,500 2,827,500 20,797,486

RENT INFOTownhouses Condos Office Rent Per Month $ 2,500 $ 2,000 $ 3,500 Number of Units 12 10 10 MONTHLY YEARLY Number of Units 22 10 10 TOTAL SF $ $ $ $ $ Total Income 30,000 20,000 35,000 85,000 1,020,000

Townhouses Condos Office

Square Feet 2000 1400 1400

Total Square Feet 44,000 14,000 14,000 58,000

SOFT COSTConstruction Cost Contractor Contingency Design Fee Impact Fees Transportation Wastewater Permit Fees Planning Service Fees Improvement Plan Check Construction Inspection TOTAL SOFT COST $ $ $ $ $ $ $ $ $ $ 8,700,000 565,500 435,000 217,500 304,500 130,500 261,000 165,300 530,700 2,610,000 Equal to 30% of Construction Costs

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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Pro Forma:OPERATIONS Mixed-Use Vacancy Loss EFFECTIVE GROSS INCOME INCOME EXPENSES Operating Expenses Net Operating Income Debt Service Payments 2,827,500 Year 1 1,020,000 40,800 979,200 293,760 685,440 821,659 (136,219) -4.82% Year 2 1,060,800 42,432 1,018,368 305,510 712,858 821,659 (108,802) -3.85% Year 3 1,097,928 43,917 1,054,011 317,731 736,280 821,659 (85,379) -3.02% Year 4 1,136,355 45,454 1,090,901 330,440 760,461 821,659 (61,198) -2.16% Year 5 1,176,128 47,045 1,129,083 343,658 785,425 821,659 (36,234) -1.28% Year 6 1,217,292 48,692 1,168,601 357,404 811,197 821,659 (10,462) -0.37% Year 7 1,259,898 50,396 1,209,502 371,700 837,802 821,659 16,142 0.57% Year 8 1,303,994 52,160 1,251,834 386,568 865,266 821,659 43,607 1.54% Year 9 1,349,634 53,985 1,295,648 402,031 893,618 821,659 71,958 2.54% Year 10 1,396,871 55,875 1,340,996 418,112 922,884 821,659 101,225 3.58%

BEF TAX CASH FLOW BEF TAX RETURN ON EQUITY TAX CALCULATIONS ON OPERATIONS: DEDUCTIONS AVAILABLE Operating Expenses Interest Payments Depreciation Expenses

293,760 674,600 290,000 979,200 293,760 685,440 674,600 0 10,840 0 0 0 10,840 10,840 279,160 0 0 0 279,160 0 0 (136,219) -4.82%

305,510 665,529 290,000 1,018,368 305,510 712,858 665,529 0 47,328 0 0 0 47,328 47,328 0 242,672 0 0 0 (195,343) (54,696) (108,802) -3.85%

317,731 655,899 290,000 1,054,011 317,731 736,280 655,899 0 80,381 0 0 0 80,381 80,381 0 209,619 0 0 0 209,619 58,693 (144,073) -5.10%

330,440 645,676 290,000 1,090,901 330,440 760,461 645,676 0 114,785 0 0 0 114,785 114,785 0 175,215 0 0 0 175,215 49,060 (110,258) -3.90%

343,658 634,822 290,000 1,129,083 343,658 785,425 634,822 0 150,604 0 0 0 150,604 370,000 0 (219,396) 0 0 0 589,396 165,031 (201,265) -7.12%

357,404 623,298 290,000 1,168,601 357,404 811,197 623,298 0 187,899 0 0 0 187,899 370,000 0 (182,101) 0 0 0 (182,101) (50,988) 40,526 1.43%

371,700 611,063 290,000 1,209,502 371,700 837,802 611,063 0 226,738 0 0 0 226,738 370,000 0 (143,262) 0 0 0 (143,262) (40,113) 56,256 1.99%

386,568 598,074 290,000 1,251,834 386,568 865,266 598,074 0 267,192 0 0 0 267,192 370,000 0 (102,808) 0 0 0 472,808 132,386 (88,779) -3.14%

402,031 584,284 290,000 1,295,648 402,031 893,618 584,284 0 309,334 0 0 0 309,334 370,000 0 (60,666) 0 0 0 (60,666) (16,987) 88,945 3.15%

418,112 569,643 290,000 1,340,996 418,112 922,884 569,643 0 353,241 0 0 0 353,241 370,000 0 (16,759) 0 0 0 (16,759) (4,693) 105,917 3.75%

EFFECTIVE GROSS INCOME DEDUCTIONS CLAIMED Operating Expenses Income Remaining Current Interest Claimed Surplus Current Interest Income Remaining Banked Interest BOY Draw of Banked Interest Balanced Bank Int EOY Income Remaining Current Deprec Claimed Surplus Current Deprec Income Remaining Banked Deprec BOY Draw Banked Deprec Balance Banked Deprec EOY Income Remaining Tax on Remain Income AFTER TAX CASH FLOW AFTER TAX RETURN ON EQUITY 2,827,500

REVERSION Property Value Selling Costs Loan Balance Net Sale Proceeds Total Bef Tax Cash Flow Internal Rate of Return Before Tax Capital Gain Tax on Capital Gain Cummulative Depreciation Recapture of Cumm Deprec After Tax Cash Flow on Reversion Total After Tax Cash Flow Internal Rate of Return After Tax (2,827,500) (2,827,500) 12,310,000 615,500 11,162,940 531,560 395,340 -86.02% 384,500 57,675 290,000 72,500 401,385 265,165 -90.62% 13,048,600 652,430 11,006,810 1,389,360 1,280,558 -35.07% 1,086,170 162,926 580,000 145,000 1,081,434 972,632 -43.71% 13,831,516 691,576 10,841,051 2,298,889 2,213,510 -10.78% 1,829,940 274,491 870,000 217,500 1,806,898 1,662,826 -19.29% 14,661,407 733,070 10,665,067 3,263,269 3,202,071 0.37% 2,618,337 392,750 1,160,000 290,000 2,580,519 2,470,261 -6.82% 15,541,091 777,055 10,478,230 4,285,807 4,249,573 6.02% 3,454,037 518,106 1,450,000 362,500 3,405,202 3,203,937 -0.81% 16,473,557 823,678 10,279,868 5,370,011 5,359,548 9.11% 4,339,879 650,982 1,740,000 435,000 4,284,029 4,324,555 3.84% 17,461,970 873,099 10,069,272 6,519,599 6,535,742 10.89% 5,278,872 791,831 2,030,000 507,500 5,220,269 5,276,524 6.60% 18,509,688 925,484 9,845,687 7,738,517 7,782,124 11.95% 6,274,204 941,131 2,320,000 580,000 6,217,386 6,128,607 7.96% 19,620,270 981,013 9,608,312 9,030,944 9,102,903 12.58% 7,329,256 1,099,388 2,610,000 652,500 7,279,056 7,368,001 9.15% 20,797,486 1,039,874 9,356,296 10,401,316 10,502,540 12.95% 8,447,612 1,267,142 2,900,000 725,000 8,409,174 8,515,091 9.93%

Internal Rate of ReturnYEAR OF SALE BEFORE TAX 1 2 3 4 5 6 7 8 9 10 IRR -86.02% -35.07% -10.78% 0.37% 6.02% 9.11% 10.89% 11.95% 12.58% 12.95% Equity (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) CFYR1 395,340 (136,219) (136,219) (136,219) (136,219) (136,219) (136,219) (136,219) (136,219) (136,219) CFYR2 1,280,558 (108,802) (108,802) (108,802) (108,802) (108,802) (108,802) (108,802) (108,802) CFYR3 CFYR4 CFYR5 CFYR6 CFYR7 CFYR8 CFYR9 CFY10

2,213,510 (85,379) (85,379) (85,379) (85,379) (85,379) (85,379) (85,379)

3,202,071 (61,198) (61,198) (61,198) (61,198) (61,198) (61,198)

4,249,573 (36,234) (36,234) (36,234) (36,234) (36,234)

5,359,548 (10,462) (10,462) (10,462) (10,462)

6,535,742 16,142 16,142 16,142

7,782,124 43,607 43,607

9,102,903 71,958

10,502,540

AFTER TAX 1 2 3 4 5 6 7 8 9 10

IRR -90.62% -43.71% -19.29% -6.82% -0.81% 3.84% 6.60% 7.96% 9.15% 9.93%

Equity (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500) (2,827,500)

CFYR1 265,165 (136,219) (136,219) (136,219) (136,219) (136,219) (136,219) (136,219) (136,219) (136,219)

CFYR2 972,632 (108,802) (108,802) (108,802) (108,802) (108,802) (108,802) (108,802) (108,802)

CFYR3

CFYR4

CFYR5

CFYR6

CFYR7

CFYR8

CFYR9

CFY10

1,662,826 (144,073) (144,073) (144,073) (144,073) (144,073) (144,073) (144,073)

2,470,261 (110,258) (110,258) (110,258) (110,258) (110,258) (110,258)

3,203,937 (201,265) (201,265) (201,265) (201,265) (201,265)

4,324,555 40,526 40,526 40,526 40,526

5,276,524 56,256 56,256 56,256

6,128,607 (88,779) (88,779)

7,368,001 88,945

8,515,091

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

24

Real Estate Investing RatiosFinancial Summary Potential Gross Income Vacancy Effective Gross Income Operating Expenses Net Operating Income Debt Service Cash Flow Before Tax Total Development Cost Loan Equity $ $ $ $ $ $ $ 1,396,871 55,875 1,340,996 418,112 922,884 821,659 101,225

$ 11,310,000 $ 8,482,500 $ 2,827,500

Gross Rent Multiplier

$ $

11,310,000 1,396,871

8.10

Loan to Value

$ $

8,482,500 11,310,000

75%

Debt Coverage Ratio

$ $

922,884 821,659

1.12

Breakeven Point

$ $

1,239,771 1,396,871

89%

Expense Ratio

$ $

418,112 1,340,996

31%

Cash on Cash

$ $

101,225 2,827,500

4%

After Tax Return on Equity

$ $

105,917 2,827,500

4%

Rate of Return

$ $

922,884 11,310,000

8%

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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MONTHLY AMORTIZATION SCHEDULEPERIOD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 BEGINNING BALANCE $ 11,310,000 $ 11,298,078 $ 11,286,097 $ 11,274,056 $ 11,261,955 $ 11,249,793 $ 11,237,570 $ 11,225,287 $ 11,212,941 $ 11,200,534 $ 11,188,066 $ 11,175,534 $ 11,162,940 $ 11,150,283 $ 11,137,563 $ 11,124,780 $ 11,111,932 $ 11,099,020 $ 11,086,043 $ 11,073,002 $ 11,059,895 $ 11,046,723 $ 11,033,485 $ 11,020,181 $ 11,006,810 $ 10,993,373 $ 10,979,868 $ 10,966,296 $ 10,952,656 $ 10,938,947 $ 10,925,171 $ 10,911,325 $ 10,897,410 $ 10,883,425 $ 10,869,371 $ 10,855,246 $ 10,841,051 $ 10,826,784 $ 10,812,447 $ 10,798,037 $ 10,783,556 $ 10,769,002 $ 10,754,376 $ 10,739,676 $ 10,724,903 $ 10,710,055 $ 10,695,134 $ 10,680,138 $ 10,665,067 $ 10,649,921 $ 10,634,699 $ 10,619,401 $ 10,604,026 $ 10,588,575 $ 10,573,046 $ 10,557,440 $ 10,541,755 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ PAYMENT (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) (68,472) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ INTEREST 56,550 56,490 56,430 56,370 56,310 56,249 56,188 56,126 56,065 56,003 55,940 55,878 55,815 55,751 55,688 55,624 55,560 55,495 55,430 55,365 55,299 55,234 55,167 55,101 55,034 54,967 54,899 54,831 54,763 54,695 54,626 54,557 54,487 54,417 54,347 54,276 54,205 54,134 54,062 53,990 53,918 53,845 53,772 53,698 53,625 53,550 53,476 53,401 53,325 53,250 53,173 53,097 53,020 52,943 52,865 52,787 52,709 PRINCIPAL $ 11,922 $ 11,981 $ 12,041 $ 12,101 $ 12,162 $ 12,223 $ 12,284 $ 12,345 $ 12,407 $ 12,469 $ 12,531 $ 12,594 $ 12,657 $ 12,720 $ 12,784 $ 12,848 $ 12,912 $ 12,976 $ 13,041 $ 13,107 $ 13,172 $ 13,238 $ 13,304 $ 13,371 $ 13,438 $ 13,505 $ 13,572 $ 13,640 $ 13,708 $ 13,777 $ 13,846 $ 13,915 $ 13,985 $ 14,054 $ 14,125 $ 14,195 $ 14,266 $ 14,338 $ 14,409 $ 14,481 $ 14,554 $ 14,627 $ 14,700 $ 14,773 $ 14,847 $ 14,921 $ 14,996 $ 15,071 $ 15,146 $ 15,222 $ 15,298 $ 15,375 $ 15,451 $ 15,529 $ 15,606 $ 15,684 $ 15,763 ENDING BALANCE $ 11,298,078 $ 11,286,097 $ 11,274,056 $ 11,261,955 $ 11,249,793 $ 11,237,570 $ 11,225,287 $ 11,212,941 $ 11,200,534 $ 11,188,066 $ 11,175,534 $ 11,162,940 $ 11,150,283 $ 11,137,563 $ 11,124,780 $ 11,111,932 $ 11,099,020 $ 11,086,043 $ 11,073,002 $ 11,059,895 $ 11,046,723 $ 11,033,485 $ 11,020,181 $ 11,006,810 $ 10,993,373 $ 10,979,868 $ 10,966,296 $ 10,952,656 $ 10,938,947 $ 10,925,171 $ 10,911,325 $ 10,897,410 $ 10,883,425 $ 10,869,371 $ 10,855,246 $ 10,841,051 $ 10,826,784 $ 10,812,447 $ 10,798,037 $ 10,783,556 $ 10,769,002 $ 10,754,376 $ 10,739,676 $ 10,724,903 $ 10,710,055 $ 10,695,134 $ 10,680,138 $ 10,665,067 $ 10,649,921 $ 10,634,699 $ 10,619,401 $ 10,604,026 $ 10,588,575 $ 10,573,046 $ 10,557,440 $ 10,541,755 $ 10,525,993TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

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ANNUAL AMMORTIZATION SCHEDULESelling Price Loan to Value Loan Amount Term Interest Monthly Payments Yearly Payments YEAR 1 2 3 4 5 6 7 8 9 10 BEGINNING BALANCE $ 11,310,000 $ 11,162,940 $ 11,006,810 $ 10,841,051 $ 10,665,067 $ 10,478,230 $ 10,279,868 $ 10,069,272 $ 9,845,687 $ 9,608,312 $ $ 11,310,000.00 100% 11,310,000.00 30 6.00% (68,471.60) ($821,659.19) PAYMENT (821,659) (821,659) (821,659) (821,659) (821,659) (821,659) (821,659) (821,659) (821,659) (821,659) INTEREST 674,600 665,529 655,899 645,676 634,822 623,298 611,063 598,074 584,284 569,643 PRINCIPAL $ 147,060 $ 156,130 $ 165,760 $ 175,983 $ 186,838 $ 198,361 $ 210,596 $ 223,585 $ 237,375 $ 252,016 ENDING BALANCE $ 11,162,940 $ 11,006,810 $ 10,841,051 $ 10,665,067 $ 10,478,230 $ 10,279,868 $ 10,069,272 $ 9,845,687 $ 9,608,312 $ 9,356,296

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Financial Summary Given the research and number crunching we feel like this project will be a success. It turned out to be a little risky in the beginning, yet in the end it was able to give positive feedback. The construction and project costs made for slow first years, but our rate of return continued to grow year after year. Through strong design and organized planning we feel like we will be able to have a respectable rental income which will lead to our success over the ten years. Thus, given the sturdy income and rate of return over the ten years, this project is definitely a go and we will continue towards completion.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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SUMMARY / CONCLUSIONSThe proposed development in Gilroy is a fairly simple project. It is congruent with the Specific Plans vision of the Gateway District. The site has no significant features that would hinder the project. The site location allows for auto, pedestrian, as well public transit. It is also in very close proximity to shopping centers, entertainment venues, and medical facilities. The city has been encouraging these types of mixed-use developments as a means to revamp the downtown area. The project meets zoning requirements and does not require any zoning changes. Therefore, a developer would face very few obstacles from the city when going through the application review process. From our market research we were able to conclude that the current real estate market in Gilroy is fairly cold. However, after analyzing various market indicators and researching the local trends in the area, we feel confident that our development will be received well into the Gilroy community. This belief is supported by the fact that the city of Gilroy is starting to push for more mixed-use projects, and that the population is forecasted to continue growing for the next few years. With these expected increases in demand for both mixed-use ventures as well as residential units, our development is sure to succeed. Financially, the project turned out to be a little risky yet in the end it was able to give positive feedback. Through strong design and organized planning we feel like we will be able to have a respectable internal rate of return over the first ten years. The project costs slow the rate of return down in the beginning of the project, but the sturdy rent helped raise the rate of return over time. Thus, through the pro forma and ratios conducted we feel this will be a sound investment with time. After performing a very detailed feasibility study, we believe that the proposed development in Gilroy will be successful from the perspective of an investor, a developer, and most importantly the community.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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BIBLIOGRAPHY1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. US Census Bureau, Census 2000, United States Government Sperlings Best Places, Gilroy, California, Accessed on May 26,2008, http://neighbor hoods.rdesk.com/city/Gilroy-California.aspx City Data, On Board LLC, Accessed on May 26, 2008, http://www.city-data.com/city/ Gilroy-California.html MLS.com: Americas Real Estate Portal, MLS Network Inc, Accessed on May 26, 2008 House Hunt Services, OnBoard LLC, Accessed May 27, 2008, http://www.househunt. com/sold-price-history.php?st=CA&zp=95020 Trulia Real Estate Search, Trulia, Inc., Accessed on June 1, 2008, http://www.trulia.com/ real_estate/Gilroy-California/ City of Gilroy General Plan 2002-2020, Gilroy City Council and Planning Commission, Adopted June, 2002 Santa Clara Retail Report 2007, NAI BT Commercial Resources, Accessed on June 1, 2008, http://www.terranomics.com/research.asp?Report=Santa+Clara City of Gilroy, California, United States. 2008. May 25th, 2008. http://www.ci.gilroy.ca.us Google Earth. 2008. May 25th, 2008. http://earth.google.com Doran, Tammy. Real Estate Agent at Intero Real Estate in Morgan Hill. Warda, David. Developer in Gilroy. Durkin, Melissa. City of Gilroy Planner. McIntyre, Laura. City of Gilroy Planner.

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENTCALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page

TABLE OF CONTENTS EXECUTIVE SUMMARY PROJECT DESCRIPTION SITE EXAMINATION REGULATORY EVALUATION MARKET RESEARCH FINANCIAL ANALYSIS SUMMARY / CONCLUSIONS BIBLIOGRAPHY

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