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Judson Brown, City of Santa Ana March 1, 2017 <br />Santa Ana Arts Collective: Financial Gap Analysis Page 3 <br />which equates to an approximately $7.6 million increase in development costs. The Developer <br />provided the following reasons for the increase in development costs: <br />1. The Project includes the acquisition of an existing office building that was 50% occupied <br />at the time of purchase. Many of these tenants had termination options in their leases, <br />which the Developer did not anticipate. Relocation costs were underestimated by <br />approximately $828,000. <br />2. The AHSC Program is requiring a $1.29 million bike lane as a part of the funding <br />commitment that was not included in the original proposal. However, it is important to <br />note that the AHSC Program is providing a $1.29 million grant to off -set these costs. <br />3. The scope of construction necessary to convert the existing office building into a <br />residential use was underestimated in the original proposal. <br />4. Labor and materials costs have increased significantly over previous years. As a result, <br />current cost estimates are substantially higher than the cost estimates obtained for the <br />original proposal. KMA concurs with statement. <br />Tax Credit Equity Rate Decreases <br />Due to uncertainties related to prospective corporate tax changes, the financial markets are <br />currently experiencing substantial volatility. This uncertainty is creating direct impacts on the <br />Tax Credit equity markets, both in terms of demand and pricing. Given this uncertainty, Tax <br />Credit equity rates have dropped significantly. <br />The Project was previously assuming a Tax Credit equity rate of $1.07 per gross Tax Credit dollar. <br />Currently, the Developer is estimating the Tax Credit equity rate at $0.99 per gross Tax Credit <br />dollar. This estimate is validated by the fact that the majority of the projects that KMA is <br />currently reviewing are estimating Tax Credit equity rates between $0.95 to $1.00 per gross Tax <br />Credit dollar. <br />AHSC Program Requirements <br />Affordability Mix <br />To be more competitive for the AHSC Program, the Developer altered the affordability mix of <br />the original proposal to include a larger number of units restricted to extremely -low and very - <br />low income households. This decreased the Project's net operating income, which in turn, <br />decreased the conventional permanent loan that could be supported by the Project. <br />1703001:SNA:TRB <br />65A-19 19090.014.007 <br />