naiop 2014 rec_ubc

UNIVERSITY OF BRITISH COLMBIA

THE UNIVERSITY OF BRITISH COLUMBIA

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Table of Contents

1.0 Executive Summary….................................................................................................................................................

2.0 Project Overview

2.1 Regional Context….........................................................................................................................................

2.2 Local Context…...............................................................................................................................................

3.0 Market Analysis

3.1 Current Market Conditions

3.1.2 Residential….....................................................................................................................................

3.1.2 Office….............................................................................................................................................

3.1.2 Retail…..............................................................................................................................................

3.2 Target Market…...............................................................................................................................................

3.3 Tenant Profile…................................................................................................................................................

4.0 Entitlement and Zoning................................................................................................................................................

5.0 Site Constraints & Opportunities..................................................................................................................................

6.0 Development Strategy..................................................................................................................................................

7.0 Development Proposal…………...................................................................................................................................

8.0 Building Systems…….…………...................................................................................................................................

9.0 Financial Analysis…….…………..................................................................................................................................

10.0 Conclusion…….…………...........................................................................................................................................

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Executive Summary

LOGAN is a mixed-use development proposal that is consistent with Wallingford's unique characteristics and adaptive to dynamic changes that are expected in a transitioning neighborhood. This development plan provides a multi-faceted solution predicated on the importance of accounting for varied market conditions, crafting defined decision making parameters, and realistically delivering the client’s objectives. CLIENT OVERVIEW The client, Teutsch Partners, is a privately-owned real estate services and development firm with a diverse portfolio across a variety of asset classes. In addition to the subject site, the client maintains a presence in Wallingford through ownership of retail, office and residential units held in three properties. They are a developer and owner of institutional-quality real estate. Teutsch Partners is a long-term investor with a traditional holding period of 7-years upon project stabilization. Their internal cost of capital is 12%, and any redevelopment projects require a leveraged IRR of no less than 12%. In addition, new development must be justified on a stabilized project yields on cost of 6% for multifamily and 6.5% for commercial. DEVELOPMENT STRATEGY Our development strategy is driven by timing and flexibility. The property in its existing use is generating stable cash flows and quality returns with the current leases not expiring until April of 2018. This reduces the financial cost of strategically waiting prior to development, providing Teutsch Partners the option related to the timing and choice of development in the face of changing market conditions. Teutsch Partners should take advantage of the time available to: 1. Apply to rezone the property to a C1-65 zoning to improve re-development value. 2. Search to find a lead office tenant concurrent with the rezoning and entitlement process. 3. Development should only begin when both the rezone is achieved and an office tenant is in place. 4. Begin residential construction concurrent with office timeline as we project the rental market to have recovered. This proposed strategy is the optimal solution for re-development because it allows Teutsch Partners the time to rezone, leverage its opportunity to better utilize the site, create the appropriate mix of uses consistent with the evolution of the neighborhood, and achieve higher returns. This strategy effectively addresses development risks through providing an ability to phase multiple uses based on defined decision making triggers tied to the unknown market conditions at the time of development.

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Executive Summary DEVELOPMENT PLAN A vibrant mixed-use development, with ample amenity space and green coverage, LOGAN consists of:

•  Class “A” Office 62,000 SF •  Multifamily Rental 172,875 SF (184 units) •  Eating/Drinking Establishments 4,000 SF •  Office Ground-Level CRUs 2,000 SF •  Total Buildable Area 245,875 SF

LOGAN is a unique opportunity to redefine a prime site across from Gas Works Park through improving its character, streetscapes, and interaction with its surrounding area. This will reinforce the benefits of City investments in the park and trail. In particular, removal of the out-of-context warehouse space will eliminate the danger imposed by large trucks crossing the Burke-Gilman Trail. LOGAN will across from Gas Works Park through the development of a pedestrian and bike-focused restaurant plaza. The city’s goals for the area and investment for the park and trail are reinforced by the development of a pedestrian and bike-focused restaurant plaza. Our proposal takes advantage of the flexibility granted by the current income on the site through delaying development to secure a lead tenant and targeting an upzone to a 65’ height limit. The total project has a 12.5-year timeline consisting of the following:

•  24-month permitting and rezone •  22-month construction timeline •  18-month lease up (spec space and residential) •  7-year hold of asset following stabilization

The proposed development meets all of the client’s objectives, returns a 12% levered IRR, creates a land residual of $16.2 million, and has a return on cost of 6.8%. Although marginal, returns blend a higher developer profit with returns on a built investment grade asset resulting in an overall lower IRR given the strong profitability of the strategy.

PROJECT METRICS

　 SF Buildable IRR - Unlevered IRR - Levered Land Residual YOC

Multi-family 172,875 sf 8.23% 11.13% $10,799,000 6.66%

Office 62,000 sf 8.62% 11.22% $3,621,000 7.14%

Retail 6,000 sf 7.33% 9.82% $58,000 7.19%

Total 245,875 sf 8.69% 12.12% $16,244,000 6.81%

Teutsch Partners has an excellent opportunity to enhance its holding of Mariner Square. Wallingford has a unique locational advantage and presents a rare prospect of influential community building through redevelopment. This proposal targets a growing demographic in the Wallingford community, and by bringing Logan to life, Teutsch Partners can set the tone for the future of Wallingford.

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SEATTLE Seattle is the largest city in the Pacific Northwest, and the eighth fastest growing city in the United States. The area generated approximately 70% of Washington State’s $375 billion GDP in 2012. Some key industries and employers in the region include: aerospace, information and communications technology, and life sciences and healthcare. Large corporations such as Microsoft, Amazon, Costco, Starbucks, and Nordstrom, most of which are headquartered in Seattle. With the City’s rapid growth in technology and communications, there has been a significant amount of in-migration to Seattle. Since 2000, the City of Seattle’s population has increased by 8.1%. The typical higher-paying professional and business services sector will lead employment growth, especially with Amazon’s continued expansions in Seattle. The strength of representation in diverse industries has helped Seattle’s GDP growth outpace many other cities in the United States.

Regional Context

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2007 2008 2009 2010 2011 2012 2013

Seattle City" Washington"US"

Source: US Bureau of Labor Statistics

Figure 2 . Unemployment Rate

7.8%

5.5%

3.2%

Seattle MSA Washington US Source: US Bureau of Economic Analysis

Figure 1. Real GDP Growth 2008-2012

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WALLINGFORD AND MARINER SQUARE Wallingford is one of Seattle’s up and coming neighborhoods, well known for its unconventional restaurants and pubs. Most community retail outlets are independent boutique shops supported by a local community that treasures its neighborhood’s eclectic vibe. Wallingford attracts a young and well-educated population, as seen in Figure 4, partly due to its proximity to the Downtown core. It is also situated between Fremont, a growing tech hub in its own right, and University of Washington, with its major medical research centers. Wallingford is in a good position to benefit from the locational advantages of academic and economic strengths of surrounding neighborhoods.

Local Context

The subject site Mariner Square is located in South Wallingford. Currently on the property is a 3-storey building with a main retail and warehouse tenant called Fisheries Supply. South Wallingford is in a transitional stage as new developments are arriving within close proximity of the Burke-Gilman Trail, which runs along N Northlake Way. With incoming density, the City of Seattle is prioritizing neighborhood development with public projects such as a large-scale transfer station upgrade and improvements to Gas Works Park. The subject site is surrounded by these projects, which are investments into the revitalization of South Wallingford.

Sour

ce: A

mer

ican

Com

mun

ity S

urve

y Figure 4. Age and Educational Attainment

Figure 3. Neighborhood and Site Context Townhomes Coffee Shop

Existing Buildings

New Residential

Visual Barrier

Gas Works Park

Surf Shop

Condominiums

Figure 3. Neighborhood Context

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Site Context

FREMONT

BALLARD

UNIV. DISTRICT

CBD

WALLINGFORD

BURKE GILMAN TRAIL

GAS WORKS PARK

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RESIDENTIAL Currently, the rental market of Seattle is nearing a peak in rents and a near-record low in vacancy. Wallingford’s vacancy rates are as low as 1.7% for 1-bedroom units. According to Dupre + Scott, market rents for recently built units in Wallingford are currently at $2.42 PSF. Average market rent for similar units in the Belltown/Downtown/South Lake Union submarket is around $2.75 PSF, and rents for some brand new units in South Lake Union are priced upwards of $3.04 PSF. Due to attractive rents, new deliveries between 2013 and 2016 are expected to number 23,000 units, with close to 2,500 new units arriving in the Green Lake/Wallingford area.

Table 1 shows the incoming number of units in Wallingford and forecasted absorption based on a percentage of Seattle net absorption. Looking at construction in the pipeline, the number of expected new deliveries exceeds forecasted absorption in 2015. Excess supply should lead to rent declines and increased market vacancy. However, analysis of historical vacancy and rent growth trends in Seattle indicate a strong probability that rents will readjust and rise with inflation beginning in mid-2017 (Figure 5). Delivering in the next few years to an overly saturated market will be a poor financial decision. The weakening rental market in 2014 and 2015 would expose investors to avoidable risk, therefore postponing development plans that involve rental apartment units will allow deliveries to be timed to a more favorable market landscape.

Market Analysis

Figure 5. Rental Growth and Vacancy Trend

Sour

ce: D

upre

+ S

cott

Year 2014 2015 2016 2017

New Deliveries (# of Units)

729 1631 125 214

Forecasted Absorption* 730 864 682 418

Table 1. Deliveries and Absorption in Green Lake/Wallingford

Source: Dupre + Scott, Kidder Mathews

*Forecast based upon Wallingford capturing between 10-12% of Seattle overall absorption rates

Forecast Period Begins

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OFFICE The Seattle office market has shown its strength in recovering from the 2008 crisis through stable rent growth, declining vacancy, and positive net absorption. The ability of the market to maintain these trends amidst significant new construction is a testament to the job growth and success of industry in the area. In Wallingford, the local office market has a 10% vacancy rate compared to 14% Downtown. New construction in Wallingford is in large Class A projects such as NorthEdge, Emerald Landing, and Stone 34, rather than the traditional Class B product found in the area. Rents range from $28-$34 NNN and growth is projected to follow inflation; new space is typically discounted no more than 10% from comparable Downtown space. In the North Lake Union area, stabilized cap rates on new construction average 6% and TI’s of $60-$70 PSF. Given the variability of absorption in the area, we are targeting a lead tenant prelease to mitigate risk. With a 75% pre-lease, projects in surrounding areas have reached stabilization in 9-16 months. RETAIL The retail market is beginning to see more growth over the last 5 years. Falling vacancy rates and increased absorption in recent months indicate strong retail leasing activity. A large portion of products being constructed in the Wallingford area provide mixed-use ground floor retail. Leasing rates for smaller spaces (1,000-3,000 SF) range from $22-$26 PSF. New office developments and new multi-family developments such as AMLI Residential’s will bring added density to the area, which will help facilitate a growing retail market in South Wallingford.

Market Analysis

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Market Analysis

Key Facts: Wallingford Neighborhood Highlights •  12% population growth since 2000 •  70% have at least Bachelor’s Degree •  Median income is $76,000 •  25% are between ages 25-34 •  31% 1-person households •  2.15 average household size •  56% are renters

TARGET MARKET Young Professionals Currently, the key demographic living in Wallingford is the 25 to 34 years old segment. This population tends to have higher disposable income and fewer financial obligations than older age groups. By 2018, Dupre + Scott is forecasting a 4% growth in this group in the Tri-County area, and this particular age group is expected to dominate the rental apartment market in the coming years. This target market:

•  Enjoys social activities •  Is active and appreciates a healthy lifestyle •  Desires flexibility and mobility •  Values a high level of amenities, convenience, and

proximity to urban cores Source: American Community Survey

34.1%

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15.0%

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$50-$74K $74-$99K $100K+

Wallingford

Seattle City

Figure 7. Household Income

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Market Analysis

Most importantly, flexibility to expand is a determining factor in choosing an office location. These firms, although initially committing to 30,000 to 40,000 SF now, have the potential to double in size in ten years. Our ideal tenant appreciates open spaces to encourage creativity and engagement; yet, they desire to be located in close proximity to bigger corporations in the Downtown core to benefit from knowledge spillover. Finally, they see the immense value in frontage onto the Burke Gilman Trail, proximity to Gas Works Park and Lake Union, and Downtown Seattle views.

OFFICE TENANT PROFILE The majority of new construction in Downtown and South Lake Union typically provide spaces between the 300,000-500,000 SF range, it is becoming increasingly difficult for some tenants to secure leases in new buildings on less than 100,000 SF. In addition, these aforementioned markets are dominated by large firms such as Amazon and Microsoft, which has created a more corporate landscape and deterred potential tenants who value a different kind of work environment. The rapid expansion of Amazon has created a corporate campus environment in South Lake Union, unwelcoming to small to medium sized firms. There is a gap for quality new construction for mid-sized office tenants within a more desirable neighborhood. The booming tech sector has been a key driver of absorption of office space in the North Lake Union area. Tenants desiring to locate in this neighborhood generally demand prime Class A office space. Many have well-defined needs for their space, including but not limited to: an open concept design, tall exposed ceilings, connectivity to the Seattle bike network, and walkability to some dining and retail.

RETAIL TENANT PROFILE With the growth in residential and office space in the area, we believe that the site will benefit from a small number of retail units. Of these spaces, a 1,500 SF food and beverage tenant would be ideal for the southeast corner of the site along the Burke Gilman Trail. The tenant should be a unique retailer which offers a quality menu and drink choices at reasonable prices with a fun and casual atmosphere. Additionally, two commercial spaces will be reserved at street level on N 34th Street to animate the sidewalk and improve the pedestrian experience. The retailers will attract customers from neighboring residential and office buildings in addition to residents and employees at LOGAN itself due to the limited alternative options nearby. The tenant will also benefit from significant weekend traffic which include users of the Burke Gilman Trail and Gas Works Park.

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Entitlement and Zoning

SUMMARY OF ALLOWED USES Under the Seattle Municipal Code (SMC) the subject site is listed under a Commercial 1 zoning, which allows for a mix of commercial and residential uses. The site is not under the regulation of an overlay district nor is it subject to shoreline zoning. Uses permitted under the zoning include various multifamily formats, eating and drinking establishments, office space, and retail sales and services.

PARKING

The parking requirements are met with underground structures. The project utilizes DPD incentives through providing carshare stalls to reduce total parking requirements.

BUILDING RESTRICTIONS

The property is currently constrained at a 40 feet height limit and this development proposes a rezone to 65 feet. With this additional height, the property is subject to a maximum FAR of 4.25 for single uses and 4.75 for mixed uses. A total of 5% of the residential floor area must be allocated to amenity spaces.

LAND USE ENTITLEMENT PROCESS The entitlement and permitting process is estimated to take two years. This includes time for rezoning to the targeted Commercial-1 zone with a 65-foot height limit. A short plat will establish the office structure on a separate site. Air space condominiums will be formed for each residential and retail unit.

The base case Master Use Permit (MUP) process will require 16 months and include:

•  Pre-submittal Conferences •  Early Design Guidance (EDG) •  Full Design Review and SEPA •  Public Notice and Comment Period •  Final Review and Decision •  Issuance of MUP

The rezone process will run concurrently with the issuance of the MUP and is estimated to add 8 months to the timeline. Additional time may be required in instances of an extended public comment period. REZONING An increase in height is necessary for Teutsch to financially justify the risks of redevelopment. At a 40’ height limit, returns on redevelopment provide only a marginal improvement relative to the current use. Wallingford is considered by many Seattle developers to be the one of the most challenging neighborhoods for a rezone. The process is highly political and it is difficult to establish a probability for success given the lack of precedent in the area. The potential upzone of the property to a 65-foot height limit will be reviewed by the Seattle DPD, and focus on the impact to Seattle’s Comprehensive Plan, Wallingford’s Neighborhood Plan, surrounding properties, and various services and utilities.

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Entitlement and Zoning

ENVIRONMENTAL MITIGATIONS As our site contains two instances of environmentally critical areas, MUP permitting will require a SEPA (State Environmental Policy Act) review. This is to cover the potential impacts of an archaeological buffer and address the 40% steep slope over a section on the east edge of the site. The SE corner of our site is bisected by a 200’ archeological buffer from the historic shoreline. Throughout construction and excavation, work must stop immediately if resources of potential archaeological significance are discovered. The NorthEdge project west of our site is also impacted by this buffer and recently completed its SEPA review. It was concluded that no known archaeologically significant cultural resources are in the area. Based on SEPA precedent and the steep slope area of our site having already been developed, we do not foresee a material impact from either of the environmentally critical areas.

REZONING Community Level

•  The existing site’s warehouse loading location poses significant danger to users of the Burke Gilman Trail with large trucks

•  The current use is a missed opportunity to enhance the experience of visitors to Gas Works Park

•  The proposed project would significantly improve site interaction with streetscapes and provide added employment, eyes on the street, and services to area residents

•  The proposal self-imposes a maximum height limit of 56’ and is consistent with building forms in the area in stepping down across the site

•  A 56’ height along N 34th would not further impede south-facing views of Lake Union beyond the impact of a 40’ structure

•  The project meets and exceeds relevant goals of the Wallingford Design Guidelines through the provision of ample open space, a variety of amenities, and prominent green cover

Teutsch must show the community that the proposal meets an underserved need in the area. Any pushback on this rezone is anticipated to be in relation to impact on views of Lake Union. Pre-emptive community engagement, particularly with occupants of adjacent residential sites, is essential to minimize delays. Reviewing recent records of public appeals to identify resident concerns and apprehensions is another proactive approach.

ENTITLEMENT PROCESS COSTS Rezone $300,000

SEPA $5,500

Plan Review Fee $125,000

Permit Fee $125,000

Stratification & Short Plat $75,000

Other Predevelopment Soft Costs $1,282,500

Total 1,913,000

Table 2. Entitlement Process Costs

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Site Constraints and Opportunities

Site Characteristic Approach

Constraints

Height • Rezone to 65 feet • Actual maximum height will be 52 feet on N 34th Street to reduce impact on views

Grade • Tiered step-up design • Underground parkade • Creatively using grade in fitness facility design

Opportunities

Unimpeded Views • Common rooftop patios for all residential tenants • Private rooftop patios and view balconies for premium units

Foot, Car, and Bicycle Traffic • Retail units on the north and south arterial roads • Improves safety and design to adjacent section of Burke-Gilman Trail

Risk Adjusted Return

Market Feasibility

Neighborhood Context

Condominium Low Low Low

All residential Moderate Low High

All office Moderate Low Moderate

All retail Low Low Low

Hotel Low Low Low

Mixed-Use High High High

ALTERNATE USES The site’s zoning also allows for many alternative uses. However, there are drawbacks and risks to every alternative, and the final development mix decision was based on the highest and best use for the site which aligns with the client’s objectives. 1.  Condo: Untested market post-housing crisis

2. All residential: Oversaturated market 3. All office: Slower lease-up for large space 4. All retail: Lack of transit access 5. Hotel: Lack of major tourist attractions

Table 3. Alternate Uses Evaluation

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Development Strategy

DEVELOPMENT STRATEGY The current tenant leases in place provide Teutsch Partners with cash flows that significantly reduce the carrying cost on the land while waiting for the most favorable market conditions to move forward with development. Teutsch Partners should take advantage of this flexibility provided by the time available from the current cash flow to:

We strongly recommend Teutsch Partners follow this strategic approach for re-development by taking advantage of the time afforded by having a tenant in place to pursue a rezoning of the current site. The high likelihood of a downturn in the rental housing market means that the time needed for the rezoning process does not affect the recommended development timeline. Additionally, the time available will allow Teutsch Partners to maximize the development value through rezoning, better utilize the site, and integrate the development with the community while achieving stronger financial returns.

1 2 3 4

Commence development

when 1 & 2 are met

Commence residential

construction concurrent with office timeline

Search for large pre-lease

office tenant

Rezone the property to

C1-65’

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PHASING AND FLEXIBILITY The proposed layout has been strategically designed to allow for a phased development plan. This allows market conditions to dictate decision making for each component. The strategic timing of development of the office and residential components is contingent two major decision points for the development timing of each individual use:

1.  Finding a Large Pre-Lease Office Tenant: We recommend targeting a technology based, forward thinking and innovative office tenant looking for a open-plan floor plate tenant to occupy a major portion of the area. Office development should begin only after a large office pre-lease is in place, limiting the market absorption risk for office space. 2. Growth Market for Apartment Rental: Over the next 2-3 years, current projections show that rental market deliveries of new product will exceed absorption. This will increase vacancy rates and lease-up times indicating rents will likely decline over the same time period. This suggests the proposed apartments should not be brought to market in 2015 or 2016 and instead when the apartment rental market is recovered. This mitigates absorption and lease-up risk for the residential component.

3. Development Timing Flexibility: Based on office and residential market conditions at the time rezoning is achieved, a development decision will be required. As we have projected, if a pre-leased office tenant has been signed and the residential market has recovered, Teutsch Partners should begin development on both the office and residential components concurrently. Alternatively, if the market conditions stipulate individual strength in either the office or rental markets, development can be phased accordingly. 4. Asset Hold Period Flexibility: We recommend that Teutsch Partners subdivide the current site into two separate parcels according to the different uses proposed for the site. This allows for another layer of strategic risk mitigation by creating the ability to either hold both the office and residential components as one asset, sell the office and hold the residential, or sell the residential and hold the office asset. Furthermore, when Teutsch Partners is considering its exit strategy, this provides the ability to sell the development together or sell the uses as separate assets.

Development Strategy

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VISION LOGAN is a mixed-use office, residential and retail development project that is consistent with Wallingford’s unique characteristics and adaptive to the dynamic changes of the transitioning neighbourhood. The area is characterized by Gas Works Park and the popular Burke-Gilman Trail. LOGAN is aimed at integrating and creating a strong connection with these key Seattle amenities. This LEED Silver development features 62,000 square feet of office space,184 residential apartments and townhomes, and 6,000 square feet of retail space. LOGAN is a mixed use project that brings density to a transitioning neighborhood; bridging two uses with one target market as like minded users will naturally develop a community.

Development Proposal

OFFICE

RESIDENTIAL

ROOFTOP AMMENITY

RETAIL

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SITE PLAN & DESIGN INSPIRATION


Mer

idia

n B

uild

ing

Bur

ke

Bui

ldin

g

Clockwise from top left: Example of building integrated into slope; Office façade inspiration; Communal residential roof top amenity; Restaurant / bar opening onto patio; Stacked townhome inspiration; Residential rental apartment façade inspiration.

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SITE CROSS SECTIONS


North

West

East

South

North Face: Office: Length:220’ , Height: 52’ South Face: Townhouses: Length: 96’ , Height: 50’ Apartments: Length:100’ , Height: 52’

West Face: Office: Length: 75’ , Height: 50’ Apartments: Length: 175’ Height: 60’ Townhouses: Length: 40’ Height: 50’

East Face: Office: Length:75’ , Height: 58’ Apartments: Length: 245’ Height: 60’

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RESIDENTIAL LOGAN offers its residents a lifestyle that is active, and characterized by young, driven professionals. The residential component features both a mix of rental apartments and townhomes. Residents at LOGAN benefit from the great location and a wide range of amenities. Major natural amenities are Gas Works Park and the popular Burke-Gilman trail, a 27 mile walking, biking trail which runs along the south end of the site. Built amenities include a fitness centre located in the central courtyard which will be shared with office users. The fitness centre is designed to blend seamlessly into the slope of the site with a glass wall at one end and skylights that filter natural light into the structure. A communal rooftop space on the most southern part of the apartment structure, directly across from Gas Works Park, will be a focal point of the residential development. The roof will provide ample space for lounging, barbecuing or entertaining guests and is perfectly situated to receive southern exposure. Also included on the rooftop is a greenhouse accessible for all residents to participate in local food production.

Unit Type Size Range (SF) # of Units

Studios 540 - 600 28

1 Bedroom 645 - 765 104

2 Bedroom 900 - 915 40

Townhouses 1,450 12

Design The residential design features a stepped up design that works with the slope to maximize the number of premium views of South Lake Union and the Downtown Seattle skyline. Additionally, the four highest roof tops will have private roof top patios to create an even more premium experience.

Unit Mix LOGAN offers a variety of unit types which appeals to the defined target market. To achieve the highest possible capture rate, the unit mix reflects the demands of young single professionals, and is therefore dominated by 1-bedroom units.


Rent Premiums Wallingford is a desirable place to live. With locational strengths, strong retail activity near its neighborhood center, and valuable natural amenities supplemented by incontestable Seattle skyline views, rent premiums in this neighborhood are justifiable. Amenities such as the courtyard and rooftop patio encourage engagement between LOGAN residents. The fitness studio design is modern

Studio 1 BD 2 BD

SLU 25% 13% 17%

LOGAN 12% 13% 14%

and at the same time invites interaction across residents and employees who live or work at LOGAN. Relative to the market, our development is more aligned with newly built apartment projects near Belltown and South Lake Union such as Via6 and UnionSLU and can thereby justify some premium over market rents (Table 5). These residences strive to not only provide quality accommodations for tenants, but also to create a healthy urban lifestyle.

Table 4. Unit Mix

Table 5. Rent Premium

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OFFICE The office component of LOGAN is Class A with a modern design and range of amenities. A range of on-site retail and dining will support the needs of office tenants. In addition to use of the project’s fitness center and communal areas, the office tenants will have access to post-ride facilities, locker rooms, and rooftop space. The rooftop will become a key feature with activity space and spectacular views of Lake Union and Downtown Seattle. On-site features combined with area amenities such as Gas Works Park and the Burke-Gilman Trail will attract firms that choose to support an active lifestyle. The office space is housed in a 4-floor, 62,000 SF structure. The space is designed as an open concept with 13’ floor-to-floor heights and exposed ceilings. The floor-plate depth is limited to 75’ with a particular focus placed on the maximization of view corridors and natural light.

At a height of 54’, the office structure is the most prominent on our site. In recognition of this, steps have been taken to reduce the street level impact of the structure, including a separated first floor/base with 13’ height and step backs at the 3rd and 4th floors. A further step back at the center of the 4th floor makes the facade all but invisible from the street. The bulk appearance that would come from a 220’ face is solved through division into three sections. This involves a solid glass curtain wall at the structure’s center to cause separation along N 34th and blend the rear of the office into the enclosed courtyard space. The office structure was placed at the north end of the site so that its permeable façade and the retail it consists of could add an element of animation to the building and sidewalk along N 34th. The location of the office component of LOGAN was strategically located along N 34th. The street also has commercial uses on either side, making it less attractive location for residential apartments. Furthermore, there is significant commercial traffic flowing along N 34th which best cooperates with the commercial office use.

Place Holder! Show M & B


Office Façade on 34th with 2,000 SF of retail

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RETAIL The restaurant and cafe component of the project is integral to improving the underutilized space directly across from Gas Works Park. Through development of a small pedestrian and bike-friendly plaza with a restaurant/bar and café, our project provides a rare opportunity to lease prime space at one of Seattle’s landmark parks. Improvements made to the Burke-Gilman Trail will maximize the exposure of the plaza as a clear pit stop along the route. A priority of our project is improving the safety at one of the Burke-Gilman’s most dangerous crossings. Varying surface materials and a raised crossing can serve as a beacon to drivers. The 1,500 SF cafe utilizes tables that double as bike stands and provides a repair station in order to create the feel of a ‘drive-in’ coffee shop for cyclists. The adjacent 2,500 SF restaurant and its spacious patio is appealing to a restaurant tenant looking to serve as a neighborhood destination and take advantage of summer traffic to Gas Works Park. The trendy restaurant design complements the park with industrial finishes including large garage doors that open to the outdoors.

PARKING LOGAN features three separate underground parking garages to allow for phased development if required. They are positioned directly below the office, Meridian and Burke buildings and have simple 60’ floor plates stepping down a half storey to meet the requirements of each building. Parking was strategically designed to align with the overall development strategy and goals allowing for phasing.

Although parking provided for retail is limited, local industry professionals have indicated tenants would not be deterred from signing a lease given the large amounts of free 4-hour parking surrounding the development site.

Use SIZE (GFA) PARKING REQUIREMENT

SPACES NEEDED

SPACES PROVIDED

Residential 184 units 1 stall / unit 184 184 Office 62,000 SF 1 stall / 1,000 SF 62 62

Retail 6,000 SF 1 space: 500 SF First 1,500 SF of

any business exempt

3 3

Car Share 5 stalls Reduce parking requirement by 3

for each stall provided

(10) (10)

TOTALS 239 239


Unfinished roof / industrial design in restaurant / cafe Bike friendly café table Bike storage in parkade

Table 6. Parking Programming

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Implementation Timeline

　 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6* Yr 13

　 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Existing Property Operations 24 Months 　　　　　　　　　　　　　　　　　　　　

Entitlement/Rezoning Process 24 Months 　　　　　　　　　　　　　　　　　　　

Construction Process 　　　　　　　　 22 Months 　　　　　　　　　　　

Multifamily Marketing 　　　　　　　　　　　　　 24 Months 　　　　　　

Multifamily Lease Up 　　　　　　　　　　　　　　　 19 Months 　　　　　　

Office Anchor Tenant Search 24 Months 　　　　　　　　　　　　　　　　　　　　

Office Pre-leasing 　　　　　　　　　　　　　 18 Months 　　　　　　　　

Office Lease Up 　　　　　　　　　　　　　　　 12 Months 　　　　　　　　

Retail Pre-leasing 　　　　　　　　　　　　　 12 Months 　　　　　　　　　　

Retail Lease Up 　　　　　　　　　　　　　　　 6 Months 　　　　　　　　　　

Stabilized Operations 　　　　　　　　　　　　　　　　　　　　　 7 Years 　　

Sale of Property 　　　　　　　　　　　　　　　　　　　　　　　　　　　　

The overall project timeline is expected to be approximately 12 and a half years. The property is expected to reach stabilization in Year 7.

* Year 7 – 12 have been omitted while the property is at stabilization

24

SOIL AND SHORING ASSUMPTIONS Based on relevant geotechnical reports, the following assumptions were made about physical conditions of the subject site: •  Fill and glacially consolidated soil types anticipated on the

project site. •  Cobbles and boulders are typically present in these types of

soils and anticipated to be encountered during excavation. •  The proposed development can be supported on shallow or

mat foundations on undisturbed glacially consolidated soils. •  Groundwater is observed at the site; however, the project is not

expected to extend below the groundwater level. •  The lowest level of the development can be constructed as

slab-on-grade. SUSTAINABILITY In addition to fulfilling Green Factor Requirements by the Seattle DPD, this project aims to achieve LEED Silver certification. To obtain this green building standard, some of the requirements LOGAN will fulfill are: bicycle facilities, green vehicle accommodations, rainwater management, providing open space, incorporating low-emissivity materials, and access to natural light and quality views. Energy efficiency is also a priority as it also contributes to savings in utility bills. GREEN STORMWATER INFRASTRUCTURE (GSI) As a part of a green and efficient building case, a GSI system will be implemented. Using a low impact design technique, which has been chosen for its simple yet cost-effective methods, stormwater can be controlled and even harvested for outdoor water use. Our proposed GSI includes: •  Installing a cistern to divert and store roof runoff for lawn

irrigation •  Using permeable and porous pavement surfaces such as

porous concrete or asphalt to reduce runoff volume •  Grass swales alongside roadways as a biofiltration method

RESIDENTIAL The building envelope will be a combination of wood siding and corrugated metal characterized by colorful accent lines. Three out of four of the apartment building structures feature private rooftop patios for each of the premium units with access directly from each unit. The fourth, which is the structure located on the southeast corner of the site, has a shared rooftop patio welcome to all apartment residents. Outdoor seating, a BBQ station, and space for entertaining will enhance the social experience and overall attractiveness of the building. OFFICE The facade of the office building will be primarily designed with glass in order to comply with transparency requirements set out in the Wallingford Design Guidelines as well as maximize natural light and views. A section of this roof will be allocated towards a shared office amenity space; this portion of the roof will require a light load capacity to accommodate for people using the space. RETAIL The retail along N Northlake Way will be located on the ground floor of the southeast residential structure. It will be completely concrete frame and the interior will be branded by an exposed-HVAC design. Raw and unfinished garage doors will integrate with the patio space and complement the old industrial theme of Gas Works Park. The southwest portion of the site is enhanced by a row of 12 stacked townhomes. These townhomes match the envelope of the apartment structures. 6 top floor premium units are represented by private rooftop patios that overlook Lake Union and the Downtown Seattle skyline.

Building Systems

25

RETURNS AND PROJECT PROFITABILITY Logan meets all of the client objectives as outlined in Table 9. The unlevered project IRR of 8.7% can be broken into an IRR on the development aspect alone of 16% and a subsequent investment of 5.2% for the property held as an investment; as shown on table 10. We believe, given the market and site restrictions our proposal delivers the highest, most realistic land residual for the site, a detailed calculation of land residual can be found in Appendix 2. The financial summary shows the overall project profitability at stabilization, while project returns and key ratios are provided below Given a projected timeline of 2 years for a successful rezoning, Table 7 reflects the financial impact on the IRR of extending the holding period due to a delay in one of the strategic development triggers. Leasing, operating and construction cost assumptions are given in Appendix 3. The project exposure to overall market risk, including projected rises in both cap and interest rates is broken down in Appendix 4. Other sources of risk, including changes in the rental multi-family market, as well as the office market is examined in Appendix 4.

Table 9. Unlevered Development Vs Investment IRR

Development IRR 16.16%

Investment IRR 5.19%

Financial Analysis

Table 8. Project Returns

Project IRR - Unlevered 8.69%

Project IRR - Levered 12.12%

Equity Multiple 4.361x

Equity Invested $23,601,000

YOC (NOI/ Total Dev Costs) 6.81%

YOE (NOI - Debt Pmts / Equity) 5.31%

Investment IRR* 5.19%

Table 7. Financial Summary

PROJECT COST 　 % of Total PSF

Buildable

Land Cost $10,000,000 12% $40.67

Development Costs 　　　

Construction Costs 　　　

Multi Family $42,058,000 52% $243.29

Office $18,064,000 22% $291

Retail $1,399,000 2% $233

Pre-Development Costs $3,307,000 4% $13

Financing $5,872,000 7% $23.88

Total Development Costs $70,700,000 88% $288

TOTAL PROJECT COSTS $80,700,000 100% $328

　　　　

PROJECT REVENUE 　　　

Net Sale Revenue (at disposition) $89,803,000 94% 　

Operating Income at Stabilization $5,663,000 6% 　

　　　　

TOTAL PROJECT REVENUE $95,466,000 100% $388

NET PROFIT $14,766,000 　 $60

PROFIT/COST 18.30% 　　

*Adjusted for inflation

Table 10. Holding Period Current 48 Months Levered Project IRR 12.12% 11.01% Unlevered Project IRR 8.69% 8.37% Land Residual $16,244 $16,092

26

Financial Analysis

ALTERNATE USES When modeling other uses our analysis focused on an rental apartment development and a single office development because our market analysis suggested these were the best uses of the site. Given that returns are similar, our more diversified development proposal is preferred because the overall exposure to any one asset class falls. Furthermore, the flexibility in the timing and sale of components enhances the attractiveness of the multi-use strategy (Table 11). shows the relative returns on other potential options. Our analysis indicates, even without rezoning a multi-use development has the highest overall returns. Given the client’s objectives, the sale of condos as an alternative development strategy would only be justified if they delivered significantly greater returns. The returns on a condo project can be seen in Appendix 4, and although the development value is marginally higher than our proposal, we felt the returns could not outweigh Teutsch Partners’ core objectives. Should these objectives change, our strategy can easily be adapted to convert the rental component into condominium parcels for sale.

Table 11. ALTERNATIVE DEVELOPMENT PROGRAMS All Apartments All Office Multi Use Logan

SQFT Buildable 180,000sf 180,000sf 180,645sf 245,875sf

IRR Unlevered 7.39% 7.33% 7.68% 8.69%

IRR Levered 9.17% 9.42% 9.78% 12.12%

Land Residual $7,983,000 $6,971,000 $7,319,000 $16,243,000

YOC 6.20% 6.45% 6.33% 6.81%

27

Financial Analysis

FINANCING ASSUMPTIONS This strategy assumes a Teutsch Partners is the sole equity investor. As per the client’s assumptions, the equity contribution includes the current assed value of the land at $10M, and $13.6M in additional funds required by lenders for development. Should any type of joint venture be entered, overall projected returns to the client would be affected. The project requires both a construction loan, and take out financing at stabilization from either one or individual lenders depending on the clients relations with respective banking professionals, a full breakdown of the financing assumptions are provided in Appendix 2. Given that financing will not commence until construction which could be as long as 4 years out; a 100 bps has been added to both the construction and term financing to account for future uncertainty in spreads. A 2% equity contingency contribution has been added to the deal to provide room at the end of the construction financing should cost overruns exceed projections, this mitigates the need for emergency bridge financing. Upon take out, the full value of the construction loan is recovered, which provides a $2M contingency for any post development expenditures, and replenishes the developers capital upon stabilization. There is still additional room in the current deal structure for additional debt should the client choose to extract equity from the project. The term financing runs for 7 years, matching the desired hold period where the remaining balance is assumed to be covered by the cash upon sale of the asset.

REZONE SCENARIO A successful rezone dramatically improves the profitability and performance of the invested capital. The rezoning strategy adds $9 million in land residual at an additional equity investment of only $2 million. The marginal equality multiple is shown in Table 12*. With an estimated direct additional fixed cost of $300,000 and no additional time drag, the cost of rezoning is low compared to the upside potential on overall returns. A full rezoning cost summary, is provided in Appendix 2. Given the low costs associated with the rezoning strategy, the required break even probability is negligible.

Table 12 C1-40 C1-65 Difference

Gross Buildable Area 180,645 sf 245,875 sf 65,230 sf

Land Residual $7,320,000 $16,244,000 $8,924,000

IRR - Unlevered 7.68% 8.69% 100 BPS

IRR - Levered 9.78% 12.12% 234 BPS

Equity Invested $21,573,000 $23,601,000 $2,028,000

Equity Multiple 3.515 x 4.361 x 0.846 x

28

Financial Analysis

EXIT STRATEGIES 1. Property Sale after Holding Period (Consistent with RFP) Teutsch Partners will operate the property for seven years and sell the property to other institutional investors or REIT. Although this produces a lower overall project return, by mixing development and investment returns. The concrete construction helps retain value for sale, and appeals to a wider range of potential institutional buyers. 2. Property Sale at Stabilization At stabilization, Teutsch Partners has the ability to dispose of the asset as a pure development project on its investment potential at a capitalized value of $102.8 million, yielding the for-mentioned developer return of 16% 3. Selling Components of the Property The institutional quality of development and robust entitlement allows a high level of flexibility in terms of investor exit strategies. As the office component is established on an entirely separate lot and all residential and retail units established in separate air space condominiums, there exists full opportunity to sell components of the asset as desired. The legal separation and construction phasing allow Teutsch Partners to consider selling off different components of the property on a flexible timeline.

•  Selling the property as a whole to one single investor •  Separate the property into two components (office, and multifamily with retail) and sell them individually to two investors •  Sell the office property to an investor at stabilization while retaining the multifamily with retail component •  Sell the multifamily with retail property to an investor at stabilization while retaining the office component •  Develop one portion of the site, and sell the remaining land independently

29

Conclusion

The challenge put forth in the RFP was to identify the highest and best use for the given site and propose a development plan. Teutsch Partners refined the range possible answers to this solution by imposing objectives for the proposal.

•  Internal cost of capital of 12% annually •  Leveraged IRR of no less than 12%for all new developments •  Yield on cost at stabilized occupancy of 6% on rent for multifamily projects, and 6.5% on commercial projects •  Long term investment horizon •  Institutional quality real estate

Our solution is LOGAN: a commercial and residential mixed-use development that is animated with generous amenity space and green coverage. With a total buildable area of approximately 230,000 SF, this proposal is delivering 62,000 SF of Class A office space, 200 rental residential units, and a total of 7,000 SF of retail. The strategy behind this development is to deliver a meaningful product to the community of Wallingford; the gains of such a project can be enhanced given ideal market conditions. On the grounds that the market will be optimal for new deliveries post 2017, our solution is to bring LOGAN online in 2018. Teustch Partners will have a reduced holding cost during this period with the current cash flows from the existing tenant and utilize the postponement of development to apply for a rezone. This is the best strategy because it allows Teutsch Partners to leverage its opportunities of the site while significantly mitigating its development risk. It provides strong flexibility in its ability to adapt to changing market conditions and phase each component if needed. Our answer to the RFP is LOGAN: a project that actualizes the needs of Teutsch Partners and their site. Rather than proposing a solution that attempts to maximize returns within the limitations of the current market conditions, LOGAN capitalizes on future opportunities that will provide the best returns under preferred market conditions. Wallingford is a transitioning neighborhood that requires a complex market timing strategy. Our team understands these dynamics, which is why we have put forth a proposal that addresses the changing market conditions while reflecting the realism of challenges in property development. Our strategy is comprehensive in its solution, reinforced with a compelling design, and competitive in its yields. A strong development plan will revitalize the site and LOGAN is the solution to make life happen.

30

The Team

Graham Russell BCom 2014

Real Estate & Finance

Michael Buchan BCom 2014


Korbin daSilva MSc. 2015

Planning/Urban Design

Trevor Shumka BCom 2014 Real Estate

Elizabeth Cheong BCom 2015

Real Estate & Marketing

Nazanin Karimi BCom 2015 Real Estate

Alice Wang BCom 2014 Real Estate

Jenny Ng BCom 2014


31

Acknowledgments

The 2014 UBC NAIOP Team would like to extend their many thanks to the following: Academic Advisors Professor Tsur Somerville, UBC Professor Mark Monroe, UBC Local Mentors Chris Kay, Townline Homes Curtis Neeser, Beedie Development Group Hanson Ng, Great Northern Way Property Trust Hugo Vasquez, Mondevo Projects Inc Peter Russell, City of Richmond Expert Advice Jim Aalders, CEI Architecture Mark Holland, New Monaco Dr. Maged Senbel, UBC School of Community and Regional Planning Local Judges Ben Taddei, Real Estate Development Professional Darren Kwiatkowski, Shape Properties Gino Nonni, Serracan Properties Ltd. Graeme Silvera, Ivanhoe Cambridge John Conicella, British Pacific Properties Ltd. Stanley Hamilton, UBC

Support and Assistance Adam Mitchell, Bentall Kennedy Andrew Tong, Concert Properties Austin Besse, Weber Thompson A-P Hurd, Touchstone Brian Rockey, People’s Bank Bryce Taylor, GLY Construction Cameron MacGregor, Concert Properties Craig Dailly, Bentall Kennedy CJ Bowles, CBRE Darren Mewha, Concert Properties David Van Skike, Van Ness Feldman Gary Nakagawa, PWGSC George Beasley, Residential Seattle Greg Inglin, Colliers Jeff Peterson, CPL John Scott, CEI Architecture Kevin Wallace, Wallace Properties Larissa Sweeney, North Pacific Properties Lee Graeve, Intervest Mortgage Leslie Marta, Concert Properties Marcy Purdy, CoStar Marc Ricou, Bentall Kennedy Marco de Sa e Silva, Davis Wright Tremaine LLP Matt Elley, AMLI Mike Herzog, BNB Builders Mike Scott, Dupre + Scott Monica Wallace, Wallace Properties Nick Carkonen, CBRE Robin Lore, Bentall Kennedy

Ryan Iles, Paragon Sam DeBord, Seattle Home Tim McKay, Colliers Todd Henderson, CBRE T.J Rak Windermere Real Estate Yosh Kasahara

APPENDICES

33

APPENDIX 1 - Rental Trends and Comparables

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0% R

ent F

luct

uatio

ns

Forecast

Forecast Period Begins

Apartment Average Rents and Average Unit Sizes

Neighborhood Name Studio 1-BR 2-BR/1 2-BR/2

SLU Union SLU 506 sf 814 sf 919 sf 928 sf

$3.00 $2.90 $3.02 $3.00

SLU Stackhouse Apartments

438 sf 613 sf

1007 sf

$3.30 $3.42 $3.20

34

APPENDIX 2 - Financial Assumptions

CONSTRUCTION LOAN ASSUMPTIONS Loan Amount $48,886,000

Current Interest Rate (Prime + 100 bps) 4.25%

Future Uncertainty Spread 1.00%

Nominal Interest Rate 5.25%

Loan-To-Cost 70%

Loan Fee 1%

Loan Term 3 Years

TERM LOAN ASSUMPTIONS 　

Loan Amount $54,758,000 Current Interest Rate (10 Yr Bond + 275 bps)

5.00%

Future Uncertainty Spread 1.00% Nominal Loan Rate 6.00% Loan-To-Value 65% Debt Service Coverage Ratio 1.25 Loan Fee 0.5% Amortization 25 Years Loan Term 7 Years

INVESTMENT PARAMETERS Multifamily Office Retail

Stabilized Cap Rate 5.00% 5.75% 6.50%

Terminal Cap Rate 6.00% 6.75% 7.50%

Expenses of Sale 2.00% 2.00% 2.00%

Operating Cost Inflation 2.50% 2.50% 2.50%

CONSTRUCTION COST ASSUMPTIONS PSF Multifamily Office Retail Total Land $41.52 $41.52 $41.52 $10,000,000 Zoning + Entitlement (Pre construction) $8.69 $6.03 $6.03 $1,913,000

Marketing $0.80 $16.55 $8.22 $1,213,000 Parking $42.61 $33.57 $20.02 $9,568,000 Hard $162.33 $157.80 $97.80 $38,434,000 Soft $19.32 $77.19 $97.19 $8,710,000 Financing $24.38 $24.38 $24.38 $5,872,000

LEASING ASSUMPTIONS Multifamily Office Retail

Annual Rent PSF (NNN) 33.24 29 26.1

Vacancy 4.00% 3.00% 3.00% Parking Rent 125 125 N/A Capture Rate 10 Units / Month 6,000 sf / Qtr 3,500 sf/ Qtr OPEX Ratio 22.00% 25% 25.00% MGMT Fee 4% 3.00% 4.00%

LAND RESIDUAL (At Development)

Cumulative NOI $6,237,000

Net Stabilized sale revenue $102,811,000

Less total development costs ($80,699,000)

Less Developer Fee (@ 15%) ($12,105,000)

Land Residual $16,244,000

35

STABILIZED REVENUE ASSUMPTIONS Rent Revenue

Multifamily $4,897,000 Rent Office $1,753,000 Rent Retail $149,000

Parking Revenue Multifamily $278,000 Office $79,000

Storage Revenue Multifamily $11,100

Recoveries Office $556,000 Retail $38,000

Total Revenue $7,761,100

STABILIZED EXPENSE ASSUMPTIONS Operating Expense

Multifamily ($1,077,000) Office ($556,000) Retail ($38,000)

Bad Debt & Vacancy Expense Multifamily ($207,000) Office ($71,600) Retail ($5,600)

Property Management Fee Multifamily ($207,000) Office ($69,000) Retail ($7,484)

Total Expense ($2,239,000)

STABILIZED NOI ASSUMPTIONS NOI $5,522,100 Capital Expenditure Structural Reserve ($78,000) Office Stabilized TI ($121,000) Retail Stabilized TI ($19,000) Asset Management Fee Multifamily ($18,000) Office ($8,000) Retail ($700) Annual Debt Payment Term Loan ($4,234,000) Stabilized Levered Cash Flow $1,043,400

SOURCES OF CASH USES OF CASH 　　　　 Land (Sunk Equity) $10,000,000 Land $10,000,000 Pre-Development $3,126,000 Zoning + Entitlement (Pre construction) $1,913,000 Development Equity $10,475,000 Marketing $1,213,000 Total Equity $23,601,000 Parking $9,568,000 　　 Hard $38,434,000 Construction Financing* $52,108,000 Soft $8,710,000 1st Mortgage $54,758,000 Financing $5,872,000 Total Debt $106,866,000 Total Development Costs $75,710,000

　　 1st Mortgage Buyout $46,534,000 　　 Principal Payments $8,224,000 　　 Debt $54,758,000

Total Sources $130,467,000 Total Uses $130,468,000

*includes accrued interest & fees

APPENDIX 3 - Financial Returns

36

APPENDIX 4 - Financial Sensitivity

CONSTRUCTION COST Multifamily Construction Cost $135 $142 $150 Unlevered Project IRR 12.54% 12.12% 11.63% YOC 6.93% 6.81% 6.68% 　　　　

Office Construction Cost $130 $140 $150 Unlevered Project IRR 12.36% 12.12% 11.87% YOC 6.88% 6.81% 6.75%

TERMINAL CAP RATE

Multifamily Cap Rate 5.5% 6.0% 6.5%

Levered Project IRR 13.01% 12.12% 11.29%

　　　　

Office Cap Rate 5.25% 6.75% 7.25%

Levered Project IRR 12.44% 12.12% 11.83%

CONDOS Value/ Unit $315,000 $450 /sf Additional Soft Costs $1,000 /unit Commissions 5% $1,575 /unit Total Value $298,250 $426.07 /sf Logan Value $416.23 /sf

Difference $9.84 /sf

MARKET SCENARIO SENSITIVITY Office Fully Pre-Leased Strong Rental Market Weak Rental Market

Recovery Baseline

Fully leased office space

Multifamily Capture rate increases by 10 units/ month

Multifamily capture rate falls by 50% NA

Base rents increase by $3/ PSF Rents grow a 5% over 2018-2019 Rents grow below inflation at

1.5% NA

IRR Levered 12.76% 13.28% 10.31% 12.12% IRR Unlevered 9.02% 9.32% 7.69% 8.69% Land Residual $19,484,000 $18,665,000 $14,927,000 $16,243,000 YOC (NOI/ Total Dev Costs) 6.97% 7.03% 6.39% 6.81%

HOLDING PERIOD Current 48 Months Levered Project IRR 12.12% 11.01% Unlevered Project IRR 8.69% 8.37% Land Residual $16,244 $16,092

37

APPENDIX 5 - Condensed Cash Flow

CONDENSED CASH FLOW 　 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 12 Year 13 Rent Revenue $1,240 $1,240 $341 $4,076 $7,492 $7,761 ... $8,829 Operating Expenses ($357) ($357) ($263) ($1,764) ($2,203) ($2,240) … ($2,539) ($2,600) NOI $0 $883 $883 $0 $78 $2,311 $5,289 $5,521 … $6,290 $6,397

Development Costs Land Cost ($10,000) Zoning and Entitlement ($1,127) ($832) Marketing & Leasing Costs ($525) ($797) ($26) Construction Costs ($15,372) ($46,148) Total Development Costs ($10,000) ($1,127) ($832) ($15,372) ($46,673) ($797) ($26) $0 … $0 $0

Capital Expenditure -$185 Funds from operations ($10,000) ($245) $50 ($15,372) ($46,598) $1,474 $5,188 $5,443 … $6,016 $0　

Asset Management Fee ($1) ($12) ($26) ($28) … ($31) ($32) Terminal Value $102,928 Sales Commissions -$2,059 Funds Before Financing ($10,000) ($245) $50 ($15,372) ($46,599) $1,462 $5,162 $5,416 … $5,985 $107,145 Debt Construction Financing $3,356 $42,392 ($49,175) Permanent Financing $51,662 ($4,234) … ($4,234) ($47,946)

Total Debt $3,356 $42,392 $2,487 ($4,234) … ($4,234) ($47,946)

Levered Cash Flow ($10,000) ($245) $50 ($12,016) ($4,207) $1,462 $7,922 $1,182 … $1,751 $59,199

* Year 8 – 12 have been omitted while the property is at stabilization

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APPENDIX 7 – FLOOR PLATES

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MERIDIAN BUILDING

BURKE BUILDING

naiop 2014 rec_ubc

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