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Judson Brown, City of Santa Ana <br />May 9, 2017 <br />Santa Ana Arts Collective Financial Feasibility <br />Page 5 of 5 <br />➢ Total Develooer Fee <br />➢ Equals Fee to be Paid in Cash (both current and deferred) $1,000,000 <br />➢ Less <br />➢ Equals current Developer Fee (i.e., paid during development $749,474 <br />process) <br />The deferred Fee is calculated as the net present value (NPV) of the amounts available to pay deferred developer fee <br />payments over 14 years, discounted at a 4% estimated cap rate for Class A multifamily properties in Santa Ana (Source: <br />Marcus & Millichap Multifamily Research Market Report, Fourth Quarter 2016) <br />Financing Deficit <br />Based on the Sources and Uses as adjusted by CSG, the Project financing demonstrates a ($1,481,215) <br />financing shortfall. The Developer must identify other financing sources — either the City or other sources, <br />such as Federal Home Loan Bank's Affordable Housing Program (AHP) — to alleviate the financing <br />shortfall. <br />Operating Expenses and Operating Pro Forma <br />The Developer proposes annual operating expenses per unit of approximately $6,725 per unit not <br />including reserves, and approximately $7,325 per unit including reserves. CSG has not examined specific <br />support for these estimates, but they appear reasonable based on our recent experience with other <br />projects. <br />The Developer's proposed operating pro forma uses standard underwriting requirements for tax -credit <br />and bond financing projects: annual income inflation at 2.5% and annual expense inflation of 3.5%; <br />vacancy of 5% annually. These underwriting assumptions along with calculated debt service on the CCRC <br />senior permanent mortgages results in an initial year debt service coverage (DCR) of 1.15, with increasing <br />DCR each year there after. The Developer's proposed operating pro forma indicates a healthy project <br />from an operational perspective. <br />CONCLUSION <br />The Project, as analyzed using most recent CTCAC rents and certain budget modifications as proposed <br />by CSG, demonstrates a financial shortfall of ($1,481,215). The City may choose to fill this financing deficit <br />on behalf of the Developer, or require the Developer to pursue other sources. <br />CSGIadvlsors SAN FRANCISCO 65A -),M LOS ANGELES NEW YORK <br />