EXHIBIT A

REPORT AND RECOMMENDATION TO CITY COUNCIL

Application of Ventura Park Plaza Apartments, for a 10-Year Property Tax Exemption

For Transit Supportive Residential Development (Chapter 3.103)

Background:

The Sponsor, Ventura Investors LLC submitted the Property Tax Exemption for New Transit Supportive Residential or Mixed Use Development application dated October 28, 2003. The original application was incomplete. The Sponsor supplied the required documentation as required by Chapter 3.103 in the City Code on January 6^th, 2004.

PDC HDF met with the Developer to review the proposed building plans and financial assumptions. As a result of the meeting the Developer will address the recommendations made by PDC regarding the design of the project. These recommendations will enhance the compatibility of the Project with the surrounding area. The Developer informed PDC that the Sponsor, Ventura Investors LLC, consist of 12 partners, who have experience in development and management of a similar type of property in the same market area. The Partnership has in escrow funds of $900,000 toward the development and operation of the Project. In addition construction financing will be contingent upon the Sponsor offering completion guarantees and operating deficit guarantees.

Portland Development Commission is mandated under Chapter 3.103 of the City Code to review the application for economic feasibility and within 60 days thereafter recommend to the Planning Commission that the application be approved, denied or approve subject to conditions. The Planning Commission’s recommendation is then forwarded to City Council for final approval. Due to the incomplete nature of the original application material, the time-line has been adjusted for Portland Development Commission recommendation of the application.

If final approval is granted to the Application, the limited property tax exemption exempts the value of the Project’s residential improvements from taxation for a period of up to ten years. During this time period the Sponsor will be liable for property taxes on the value of the land. The 2002 property tax paid on the land was $2,064.06

The net present value of foregone property tax revenue should the Application be approved is $633,187.

Project Description

The estimated construction start is April 2004 with an estimated completion date of June 2005. The project will be a single four story elevator building housing 55 rental units whose market rental rates fall within the 40% - 60% MFI. The project will consist of forty one-bedroom and fifteen two-bedroom units. There will be dedicated on-site project parking consisting of 50 stalls, 2 of which are dedicated handicap stalls. The project will have a community room and on-site rental office.

Public Benefits Addressed:

The project meets a number of the City’s housing goals as described in the Gateway Regional Center Urban Renewal Plan, although the site of the project is located on the edge of the Gateway Urban Area.

1)  The Project will meet the goal of increasing the supply of affordable housing available to people of all income levels. Although the subject property is identified as market rate, the estimated rents for the Project after taking into account resident paid utilities, will be affordable to those in the 40% and above range of the family median income.

2)  The market rate profile of the project will meet the objective of mixed income diversity

The Project will provide the following public benefits as required by City Code Chapter 3.103, property Tax Exemption for New Transit Supportive Residential or Mixed Use Development.

1)  The Project will provide a meeting room for community organizations

2)  The Project will provide pedestrian transit amenity in the form of covered benches along Burnside

3)  Achievement of higher density along the light rail

Rental Rates. The project will provide dwelling units at rental rates accessible to a broad income range. Although this is identified as a market rate project, rent levels estimated for this development (after adjusting for tenant paid utilities) reflect affordability across unit sizes ranging from 40% to 60% of area median family income.

Financial Evaluation

The total development budget for the Project is $4,337,043. Project financing will be provided by a private loan and developer equity. Ventura Investors LLC has submitted pro-forma to support their assumptions. The ten year income projections derived from the pro-forma show:

1.  The financial performance of the Project with the tax abatement.

2.  The financial performance of the Project without the tax abatement.

3.  The financial performance of the Project with the rents necessary to achieve feasibility without the tax abatement

As shown in the Cash Flow Summary Scenario 1, the Project’s internal rate of return is 4.30% during the 10 year period of the abatement. The IRR calculation begins in the first full year of operation and first full year of the abatement which will be 2006. This is within the 10% threshold typically applied with the program in accordance with the 1999 PDC Financial Products Manual as amended.

As shown in Cash Flow Summary Scenario 2, the Project’s internal rate of return is negative (6.99%) during the 10 year period without the abatement.

As shown in Cash Flow Summary Scenario 3, in order to achieve the 10% internal rate of return associated with the abatement, rents would need to be approximately an average of 29.11% or $185 and $218 higher for one and two bedroom units respectively. This would exceed market rental rates for the area. The Project is not feasible without the abatement. The estimated ten year value of exempted tax revenue based on a seven percent (7%) discount rate and a three and half percent (3.0%) annual assessment increase is $633,187.

PDC Financial and Property Review Notes on the Project:

1)  The developer fee is below the PDC criteria for a project of this size. The fee for this project is approximately 2.31% of the total project cost. The fee is being deferred as contribution to the required equity. The range of allowable fee for this project size per PDC Guidelines is between 6-9%.

2)  The budget on-site management fee is 6%. The on-site management firm is a related entity of the Ventura Investors, LLC. This fee is reasonable for the project size.

3)  The initial operating costs of $2,235 per unit stabilized without taxes is lower than average. However this is due to the fact that the property is new construction and it is expected that operating costs will increase as the Project ages. This will be the second similar sized and located project that the Developer will build and operate. His operating expenses for the project are based on historical expenses of a similar project in the same market area.

4)  The total development cost of $100 per square of residential space is within a reasonable cost range.

5)  Although not required by the Code, PDC performed an in-house design review of the Project’s blue prints. The Developer and PDC met and conferred on recommendations to improve the design of the project. The Developer was amenable and will make the PDC recommended changes.

6)  The Ventura Investors LLC, acting as the Sponsor will be offering Completion Guarantees and Operating Deficit Guarantees as a condition of the proposed construction financing. The Sponsors have $900,000 as equity currently in an escrow account.

Based on this analysis, the property tax abatement application meets the requirements as proscribed in Section 3.103.045 of the City Code.

Recommendation:

PDC staff has reviewed the Project information and advocates that Loan Committee recommend PDC’s Executive Director refer for approval by the PDC Commission, a ten year property tax abatement for Ventura Park Plaza Apartments.

The financial performance of the Project in this scenario does not achieve a market rate return; therefore the Project is not financially feasible without the abatement. Based upon the financial analysis, the ten year property tax abatement is required to achieve economic feasibility for the Project, as described in Section 3.103.045 of the City Code. All financial sensitivity testing produced in an investor return lower than is permitted under the abatement program in each and every year through year ten.

By: Neal H. Lydon

EXHIBIT B

Ventura Park Plaza Apartments §103.3 TOD Tax Abatement

1)  In which year does the project reach 10% IRR and what is the IRR by year, with and without the abatement?

The Project does not reach a 10% IRR within the 10-year abatement period, either with the abatement or without.

2)  Foregone Revenue

The estimated ten-year value of exempted tax revenue is approximately $633,187 in today’s dollars (assuming a 7 percent discount rate, a three percent annual assessment increase and $0.022 per $1,000 mill rate.)