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Judson Brown, City of Santa Ana May 12, 2017 First Street Apartments Financial Feasibility Page 7 of 7 Financing Deficit As noted, absent the need achieve a successful tiebreaker score in the CTCAC completion for 9% credits, the Project would not exhibit a financing deficit. The City must decide, based on an expectation of the successful tie-breaker score, the amount of subsidy necessary to achieve that score. Operating Expenses and Operating Pro Forma The Developer proposes annual operating expenses per unit of approximately $4,920 per unit not including reserves, based on expenses of its recently completed projects in the region, e.g., Ocean Apartments in Huntington Beach. CSG has not examined specific support for these estimates; they seem on the lower end of the spectrum but not out of the question for an efficient manager. The Developer's proposed operating pro forma uses standard underwriting requirements for tax -credit and bond financing projects: annual income inflation at 2.5% and annual expense inflation of 3.5%; vacancy of 5% annually. These underwriting assumptions along with calculated debt service on the CCRC senior permanent mortgages results in an initial year debt service coverage (DCR) of 1.15, with increasing DCR each year there after. The Developer's proposed operating pro forma indicates a healthy project from an operational perspective. CONCLUSION The Project will be competing for 9% Low Income Housing Tax Credits. Absent the CTCAC particular tie- breaker — and maximum deferred developer fee -- the project would not require funds from the City. However, the nature of the CTCAC competition requires committed public funds in order to be successful. The City must decide the level of tie-breaker it wishes to target in combination with the amount of City funds necessary to achieve that target. CSG Iadvisors SAN FRANCISCO •80A"67 LOS ANGELES NEW YORK