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Judson Brown, City of Santa Ana June 4, 2022 <br />WISEPlace PSH Preliminary Financial Gap Analysis Page 13 <br /> <br /> 2206004.SA.TRB <br /> 19090.018.025 <br /> <br />The following describes the basic cash flow assumptions: <br />1. Year 1 is based on the pro forma rent and expense assumptions presented in the <br />stabilized NOI analysis (Table 2). <br />2. Additional revenue and expense assumptions are as follows: <br />a. The affordable rental income, PBV subsidy income and miscellaneous <br />income are escalated at 2.0% per year. <br />b. The general operating expenses and OCHFT monitoring fees are escalated <br />at 3.0% per year. <br />c. The property taxes are escalated at 2.0% per year. <br />d. The social service expenses are escalated at 2.5% per year. <br />e. The replacement reserve deposits remain constant. <br />As shown in Table 4, the Project’s NOI is negative in Year 1, and becomes increasingly <br />negative over the 20-year period. KMA estimates that the operating deficits during this <br />20-year period total $2.12 million. In comparison, the Developer is assuming a $2.10 <br />million COSR for the Project, which is approximately equal to the KMA estimate. <br />CASH FLOW ANALYSIS (TABLE 5) <br />KMA prepared a 55-year cash flow analysis for the Project. The cash flow analysis is <br />based on the assumptions outlined above. As shown in the cash flow, the Project <br />operates at a break-even amount during the first 20 years due to the withdrawal of <br />funds from the COSR. <br />However, it is important to note that the COSR is expected to be fully expended by Year <br />20. At that time, the Project’s NOI will become immediately negative, and the Project <br />will not be operationally feasible. <br />As such, the City must anticipate that the Project will require additional operating <br />subsidies after Year 20, or the Project will need to be restructured to generate more <br />rental income. Furthermore, under the current structure, the Project does not generate <br />any residual receipts payments. <br />EXHIBIT 3