HR&A Advisors, Inc. Incremental Tier 2 & Tier 3 Development Fees Analysis for the Santa Monica Downtown Community Plan Update November 2016

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3 Incremental Tier 2 & Tier 3 Development Fees Analysis for the Santa Monica Downtown Community Plan Update November 2016

4 HR&A analyzed feasible development fees for incremental floor area increases applicable to Tier 2 and Tier 3 projects under Draft Downtown Community Plan Update standards. Development fees tested include: o Parks and Recreation Fee o Affordable Housing Linkage Fee o Transportation Impact Fee The analysis builds on HR&A s completed analysis for the base fees ( ) and Citywide Tier 2 fees outside of Downtown (2014), which were adopted by the City Council. This analysis tests supportable fee levels for three prototypical Tier 2 and Tier 3 developments, pursuant to the Draft Downtown Community Plan Update, all of which are mixeduse projects that contain the same amount of groundfloor retail space. Above the ground floor, the prototypes include: o o o Office ( TransitAdjacent ) Market Rate + Affordable Rental Residential ( TransitAdjacent ) Market Rate + Affordable Rental Residential ( Mixed Use Boulevard ) Downtown Tiers 2 & 3 Fee Analysis 2

5 The three development prototypes for testing are based on physical parameters provided by City staff, supplemented by other HR&A assumptions. Office/Retail (Transit Adjacent) Residential/Retail (Transit Adjacent) Residential/Retail (Mixed Use Boulevard) Site Area (SF) 15,000 15,000 15,000 Height (Feet) Total FAR Net Floor Area (SF) 52,500 60,000 41,250 Gross Bldg. SF 59,830 70,230 48,750 Total Retail SF 5,000 5,000 5,000 Total Office SF 47,500 Total Units Net Tier 1 SF 15,000 17,500 15,000 Net Tier 2 SF 19,500 33,000 18,250 Net Tier 3 SF 18,000 9,500 8,000 1 Affordable housing share of total units is assumed to be 5% for Tier 1, 7.5% for Tier 2, and 10% for Tier 3. Source: City of Santa Monica Downtown Tiers 2 & 3 Fee Analysis 3

6 To determine the upper limit of feasible fee increases on incremental floor area in Tier 2 and Tier 3 prototypes in the Downtown, HR&A prepared detailed financial feasibility models for each prototype. As with the previous analyses, HR&A prepared static pro forma models to systematically test the financial feasibility implications of increased fees for each prototype. HR&A used two industryaccepted metrics to determine financial feasibility: 1) return on total cost and 2) developer profit margin. This analysis reflects more favorable real estate market conditions than in HR&A s analyses, but tempers these conditions somewhat for the long term. The first part of the current analysis assumes a uniform percentage increase for all three fees. Financial Feasibility Model Illustrative Development Program Total Development Cost (TDC) Hard Costs Soft Costs (As % of Hard Costs) Construction Financing Costs Net Operating Income (NOI) Revenues Expenses (As % of Revenues) Project Returns Return on Cost = NOI/TDC Developer Profit Margin = (NOI/Cap Rate) Sale Costs TDC Downtown Tiers 2 & 3 Fee Analysis 4

7 Revenue and project value assumptions are based on current market conditions, but are adjusted to account for likely market changes. Use Monthly Rent (2016$) Cap Rate Office $4.55 PSF (Modified Gross) 5.7% Retail $6.00 PSF (NNN) 5.9% Market Rate Apt. $3,3005,000 (per unit) 4.8% Affordable Apt. $ (per unit) 4.8% This analysis recognizes the City s fee increases will be in place for several years and therefore should not be predicated on unusually strong current market conditions. On average, actual reported Downtown Santa Monica rents are 515% higher than those shown above. Reported cap rates are as much as 250 basis points lower than those shown above. Sources: HR&A analysis of CoStar rent data, City of Santa Monica 2015 Affordable Housing Rent Schedule, Real Estate Research Corporation Q cap rate data. Downtown Tiers 2 & 3 Fee Analysis 5

8 Since HR&A s analyses, rents have increased for all product types; this analysis captures only a portion of actual rent growth. Use Monthly Rent Monthly Rent 2014 Analysis Analysis Office $4.30 PSF (NNN) $4.55 PSF (Modified Gross) Retail $5.25 PSF (NNN) $6.00 PSF (NNN) Market Rate Apt. $2,0003,800 (per unit) $3,3005,000 (per unit) For new buildings, reported rents in Downtown range from: Office: $ PSF Retail: $ PSF Residential: $3,3007,600 per unit It is likely that any new, nearterm development will command rents at the higher end of the ranges shown above. 1 Rents shown for Downtown prototypes only. Source: HR&A analysis of CoStar, City of Santa Monica 2015 Affordable Housing Rent Schedule Downtown Tiers 2 & 3 Fee Analysis 6

9 RERCreported cap rates for the LA area have decreased for all product types since 2014, dramatically increasing project values. Use Cap Rates 2014 Analysis Cap Rates 2016 Analysis Office 6.4% 5.7% Retail 6.6% 5.9% Residential 5.3% 4.8% For new buildings, reported cap rates in Downtown range from: Office: % Retail: % Residential: % However, these reported rates are based on very few recent transactions. Cap rates provided by RERC reflect average conditions across the Los Angeles area, and may be better suited for longterm feesetting purposes. Source: HR&A analysis of CoStar, Real Estate Research Corporation Q and Q data Downtown Tiers 2 & 3 Fee Analysis 7

10 HR&A assumed all Downtown prototypes would be built as Type V (woodframe) construction over a concrete groundfloor podium. Development Costs per Building Gross Square Foot 1 Prototype Tier 1 Tier 2 Tier 3 Office/Retail LowerDensity Residential/ Retail HigherDensity Residential/ Retail Land Cost 2 $410 $190 $125 Hard/Soft/Financing Cost $470 $450 $470 Total Development Cost $880 $640 $595 Land Cost 2 $400 $190 $155 Hard/Soft/Financing Cost $395 $330 $335 Total Development Cost $795 $520 $490 Land Cost 2 $350 $125 $110 Hard/Soft/Financing Cost $380 $315 $320 Total Development Cost $730 $440 $430 1 Inclusive of parking costs and, for this comparison only, includes just Tier 1 fees for all prototypes. 2 Land cost is assumed to be $500 per square foot of land area, per analysis of sale transactions reflected in recent ValueEnhancement Analyses conducted for the City, rather than supportable land costs derived from residual land value analysis, as previously included in HR&A s analyses, in order to eliminate one more analysis variable. Sources: Marshall & Swift, HR&A Advisors Downtown Tiers 2 & 3 Fee Analysis 8

11 HR&A analyzed the feasible fee increases for incremental Tier 2 and Tier 3 floor areas, by land use, in each Downton prototype. Downtown Tier 2 and 3 Parks and Recreation, Affordable Housing Linkage & Transportation Impact Fees Base Fee Rate Share of SF Tier 1 Fees x % 1 x + Tier 3 SF Floors 56 Tier 1 Fees x % 2 x Tier 2 SF Floors 34 + Tier 1 Fees x Tier 1 SF Floors 12 Total Parks and Recreation, Affordable Housing Linkage & Transportation Impact Fees Sources: City of Santa Monica, HR&A Advisors 1 Tier 3 fees have previously been negotiated casebycase. 2 Tier 2 Fees outside Downtown have been set at 14% higher than Tier 1 Fees. Downtown Tiers 2 & 3 Fee Analysis 9

12 HR&A used two industryaccepted metrics to determine financial feasibility: return on development cost and developer profit margin. A prototype with higher fees would be considered financially feasible if it meets a minimum: o Return on Cost of 0.75% higher than the applicable weighted average cap rate, which aligns with the range of 0.75% to 1.0% factor used in HR&A s analyses. o Developer Profit Margin of 12.5%, which is the midpoint of the 10.0% to 15.0% range used in the 2014 Citywide fees analysis, and more conservative than the 10.0% minimum used in the analyses. Financial Feasibility Model Illustrative Development Program Total Development Cost (TDC) Hard Costs Soft Costs (As % of Hard Costs) Construction Financing Costs Net Operating Income (NOI) Revenues Expenses (As % of Revenues) Project Returns Return on Cost = NOI/TDC Developer Profit Margin = (NOI/Cap Rate) Sale Costs TDC Downtown Tiers 2 & 3 Fee Analysis 10

13 Based on these feasibility thresholds, fees on incremental Tier 2 floor area could be uniformly increased by 23% above Tier 1 fees, and by 703% on incremental Tier 3 floor area. Office/Retail LowerDensity Residential/ Retail (Mixed Use Blvd.) HigherDensity Residential/ Retail (Transit Adjacent) Fee Increase (% over Tier 1 Across All Fees) Tier 2 Tier 3 23% 703% Profit Margin 12.5% 12.5% ROC Spread 0.8% 0.8% Feasible? Yes Yes Profit Margin 23.5% 25.4% ROC Spread 1.5% 1.6% Feasible? Yes Yes Profit Margin 33.7% 34.7% ROC Spread 2.4% 2.4% Feasible? Yes Yes The office/retail scenario is the only prototype subject to all three fees, and is the limiting factor for uniform fee increases across all three prototypes. Downtown Tiers 2 & 3 Fee Analysis 11

14 Incremental Tier 2 floor area in the Downtown can support higher uniform fee increases over Tier 1 than previously determined for Tier 2 projects Citywide; incremental Tier 3 floor area can support even higher uniform fee increases. But, supportable Downtown Tier 3 fees would exceed maximum allowable fees in two of the impact fee nexus studies (shown in red). Adopted Tier 1 Base 1 Adopted Tier 2 Citywide 1 Tier 2 Downtown 1 Tier 3 Downtown 1 Fee Increase (Over Tier 1) 0% 14% 23% 703% Maximum Allowable Fee 3 01 BRs (x unit) 2 $4,232 $4,824 $5,205 $33,976 $16,554 Parks & Recreation 2 + BRs (x unit) 2 $6,816 $7,771 $8,384 $54,724 $26,661 Retail (x NSF) $1.50 $1.70 $1.90 $12.20 $6.00 Office (x NSF) $2.40 $2.70 $2.90 $19.00 $9.20 Affordable Housing Linkage Retail (x NSF) $10.00 $11.40 $12.30 $80.00 $ Office (x NSF) $11.50 $13.10 $14.10 $92.00 $ Transport. Impact (Area 1) Residential (x unit) 2 $2,774 $3,162 $3,412 $22,269 $4,290 Retail (x NSF) $22.40 $25.50 $27.60 $ $34.70 Office (x NSF) $10.40 $11.80 $12.70 $83.00 $ PSF fees are rounded to the nearest $ Fees only apply to market rate residential units. 3 Per City Nexus Studies: EPS, 2013; RSG, 2013; and Nelson/Nygaard, Downtown Tiers 2 & 3 Fee Analysis 12

15 Stated another way, for the two fee categories that are limited by their nexus studies, the differences between maximum supportable Tier 3 fees and the maximum allowable fees results in surplus feasibility potential i.e., developer return that exceeds the minimum required to attract investment capital. Surplus feasibility potential can be interpreted as the additional cost above the maximum allowable nexus study fee that a Downtown development can bear, while still meeting acceptable financial returns. Assuming that Parks and Recreation and Transportation Impact fees were increased to their maximum justifiable level, there could be potential to translate this surplus feasibility potential into other City policy priorities without affecting financial feasibility. Currently, one of the City s highest priorities is affordable housing; for illustrative purposes HR&A translated this surplus feasibility potential into affordable housing units. Downtown Tiers 2 & 3 Fee Analysis 13

16 For the two residential/retail prototypes only, fees on incremental Tier 2 floor area could be increased by 1,358% and 2033%, over Tier 1 fees, and by 1,915% and 2,400% on incremental Tier 3 floor area over Tier 1 fees, for the lower and higherdensity prototypes, respectively. Tier 2 Tier 3 Fee Increase (% over Tier 1 Across All Fees) 1,358% 1,915% LowerDensity Residential/ Retail (Mixed Use Blvd.) Profit Margin 14.4% 15.1% ROC Spread 0.8% 0.8% Feasible? Yes Yes Fee Increase (% over Tier 1 Across All Fees) 2,033% 2,400% HigherDensity Residential/ Retail (Transit Adjacent) Profit Margin 14.8% 15.3% ROC Spread 0.8% 0.8% Feasible? Yes Yes Downtown Tiers 2 & 3 Fee Analysis 14

17 The Downtown residential/retail prototypes incur only two of the three fees analyzed, and can thus support even higher uniform fee increases over Tier 1. Fee amounts that exceed the maximum allowable are shown in red. LowerDensity Residential/Retail (Mixed Use Blvd.) Supportable Fees Adopted Tier 1 Base Adopted Tier 2 Citywide Tier 2 Downtown Tier 3 Downtown Maximum Allowable Fee 3 Fee Increase (Over Tier 1) 0% 14% 1,358% 1,915% Parks & Recreation 01 BRs (x unit) 1 $4,232 $4,824 $61,712 $85,280 $16, BRs (x unit) 1 $6,816 $7,771 $99,398 $137,359 $26,661 Transport. Impact (Area 1) Residential (x unit) 1 $2,774 $3,162 $40,448 $55,895 $4,290 1 Fees only apply to market rate residential units. 2 Per City Nexus Studies: EPS, 2013; and Nelson/Nygaard, Downtown Tiers 2 & 3 Fee Analysis 15

18 The higherdensity residential/retail prototype (Transit Adjacent) can support the highest uniform Tier 2 and 3 fees of the three prototypes. Fee amounts that exceed the maximum allowable are shown in red. HigherDensity Residential/Retail (Transit Adjacent) Supportable Fees Adopted Tier 1 Base Adopted Tier 2 Citywide Tier 2 Downtown Tier 3 Downtown Maximum Allowable Fee 3 Fee Increase (Over Tier 1) 0% 14% 2,033% 2,400% Parks & Recreation 01 BRs (x unit) 1 $4,232 $4,824 $90,255 $105,798 $16, BRs (x unit) 1 $6,816 $7,771 $145,371 $170,407 $26,661 Transport. Impact (Area 1) Residential (x unit) 1 $2,774 $3,162 $59,156 $69,344 $4,290 1 Fees only apply to market rate residential units. 2 Per City Nexus Studies: EPS, 2013; and Nelson/Nygaard, Downtown Tiers 2 & 3 Fee Analysis 16

19 Translating surplus feasibility to affordable housing indicates that Tier 2 and 3 residential/retail prototypes could support approximately 17% to 33% of their respective units as affordable, depending on project density and affordability level, in addition to maximum allowable Parks & Recreation and TIF fees. Tier 2 & 3 Residential Prototype Affordable Housing Feasibility Capacity (As a Percentage of All Units) Affordability Level Base Assumption Mixed Use Blvd. (LowerDensity) Transit Adjacent (HigherDensity) Tier 2 Tier 3 Tier 2 Tier 3 Tier 2 Tier 3 Extremely Low Income 7.5% 10% 17% 21% 27% 29% Very Low Income 19% 23% 29% 32% Low Income 19% 26% 32% 33% Downtown Tiers 2 & 3 Fee Analysis 17

20 Summary of Conclusions The analysis of three prototypical developments is based on current real estate market conditions, but uses somewhat more conservative rent and cap rate assumptions, to reflect longterm City policies. This analysis relies on similar financial feasibility metrics as in HR&A s development fees analyses. Fee credits for assumed existing retail uses in each prototype reduces total fee amounts, particularly for TIF. The mixeduse office and retail prototype is the only prototype subject to all three fees, and therefore this prototype is the limiting factor for uniform percentage fee increases. Incremental Tier 2 floor area fees could be increased by up to 23% in the Downtown Community Plan area, and by up to 703% for incremental Tier 3 floor area, compared with Tier 1 fees, before causing the mixeduse office and retail prototype to become financially infeasible. Downtown Tiers 2 & 3 Fee Analysis 18

21 Summary of Preliminary Conclusions Supportable net fees for the Tier 2 mixeduse office and retail prototype could total up to $737,000, and up to $4.5 million for the Tier 3 version of this prototype in Downtown. Theses same percentage fee increases would result in lower fee amounts for the other prototypes, because only the Parks & Recreation and TIF Fees apply. The Tier 2 residential/retail prototypes and all Tier 3 prototypes can support fees beyond the maxima allowable per the respective fee nexus studies, which suggests there is surplus feasibility potential available to support other City policy priorities. For illustrative purposes, surplus value potential could be translated into higher percentages of affordable housing. Tier 2 and 3 residential/retail projects Downtown could provide 17% to 33% of total units per project as affordable housing after incurring the maximum allowable fees, depending on Downtown subarea, affordability level and Tier. Downtown Tiers 2 & 3 Fee Analysis 19

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23 PRO FORMA TABLE OF CONTENTS The following pro formas detail HR&A s financial analysis of three prototypical projects within the Santa Monica Downtown Community Plan area in order to test increases to certain Tier 2 and 3 fees. Pro Forma A: Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes Pro Forma B: Uniform 1,358% Tier 2 and 1,915% Tier 3 Fee Increases on MixedUse Blvd Prototype Pro Forma C: Uniform 2,033% Tier 2 and 2,400% Tier 3 Fee Increases on Res. TransitAdjacent Prototype Pro Forma D: Extremely Low Income Affordable Housing Increase Over Parks/Rec & TIF Nexus Study Maxima Pro Forma E: Very Low Income Affordable Housing Increase Over Parks/Rec & TIF Nexus Study Maxima Pro Forma F: Low Income Affordable Housing Increase Over Parks/Rec & TIF Nexus Study Maxima Los Angeles New York Washington, D.C. Dallas

24 Draft Work Product Not for Public Distribution Pro Forma A Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes Summary Results Program Summary (see Sheet A) Prototype Name Office/Retail Office/Retail Residential/Retail Residential/Retail Residential/Retail Residential/Retail Location TransitAdjacent TransitAdjacent TransitAdjacent TransitAdjacent Mixed Boulevard Mixed Boulevard LUCE Tier Permit Requirement # Parcels Bldg. Height (Feet) Stories (#) Site Area (SF) 15,000 15,000 15,000 15,000 15,000 15,000 Gross Bldg. Area (SF) 39,833 59,833 59,347 70,229 39,587 48,751 Floor Area Ratio (FAR) Gross Area Floor Area Ratio (FAR) Net Area Net Leasable Areas Residential (SF) 45,500 55,000 28,250 36,250 Market Rate Units Affordable Units Total Units Retail (SF) 5,000 5,000 5,000 5,000 5,000 5,000 Office (SF) 29,500 47,500 Hotel (SF) Development Costs (see Sheets B&C&D) Land Costs $ 7,500,000 $ 7,500,000 $ 7,500,000 $ 7,500,000 $ 7,500,000 $ 7,500,000 Hard Costs $ 12,783,854 $ 19,302,782 $ 13,214,575 $ 15,428,898 $ 9,242,655 $ 11,087,057 Soft Costs $ 2,818,451 $ 7,688,517 $ 2,867,456 $ 4,035,215 $ 1,923,720 $ 2,854,148 Net Parks/Recreation Fee $ 76,477 $ 441,503 $ 297,784 $ 780,191 $ 183,704 $ 560,482 Net Affordable Housing Linkage Fee $ 364,692 $ 2,136,099 $ $ $ $ Net Transportation Impact Fee $ 295,676 $ 1,894,606 $ 121,401 $ 366,202 $ 48,923 $ 238,091 Other City Costs (see Sheet E) $ 489,790 $ 711,566 $ 554,900 $ 646,612 $ 391,494 $ 465,993 Other Soft Costs $ 2,328,661 $ 6,976,951 $ 2,312,557 $ 3,388,603 $ 1,532,226 $ 2,388,156 Financing Costs $ 2,486,199 $ 3,711,808 $ 2,646,982 $ 3,034,545 $ 2,047,709 $ 2,361,020 Total Development Cost $ 25,588,504 $ 38,203,107 $ 26,229,013 $ 29,998,658 $ 20,714,084 $ 23,802,225 per GSF $642 $638 $442 $427 $523 $488 Net Operating Income (NOI) (see Sheet E) ResidentialMarket Rate Effective Gross Income $ $ $ 2,408,820 $ 2,850,000 $ 1,525,320 $ 1,861,620 Less: Operating Expenses $ $ $ (780,000) $ (915,000) $ (495,000) $ (600,000) Net Operating Income $ $ $ 1,628,820 $ 1,935,000 $ 1,030,320 $ 1,261,620 ResidentialAffordable Effective Gross Income $ $ $ 24,492 $ 34,404 $ 13,992 $ 24,492 Less: Operating Expenses $ $ $ (75,000) $ (105,000) $ (45,000) $ (75,000) Net Operating Income $ $ $ (50,508) $ (70,596) $ (31,008) $ (50,508) Retail Effective Gross Income $ 342,000 $ 342,000 $ 342,000 $ 342,000 $ 342,000 $ 342,000 Less: Operating Expenses $ (10,260) $ (10,260) $ (10,260) $ (10,260) $ (10,260) $ (10,260) Net Operating Income $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 Office Effective Gross Income $ 1,661,322 $ 2,675,010 $ $ $ $ Less: Operating Expenses $ (249,198) $ (401,252) $ $ $ $ Net Operating Income $ 1,346,545 $ 2,168,165 $ $ $ $ Total Net Operating Income $ 1,678,285 $ 2,499,905 $ 1,910,052 $ 2,196,144 $ 1,331,052 $ 1,542,852 Project Component Values (see Sheet F) ResidentialMarket Rate NOI $ $ $ 1,628,820 $ 1,935,000 $ 1,030,320 $ 1,261,620 Cap Rate 4.80% 4.80% 4.80% 4.80% 4.80% 4.80% Value $ $ $ 33,933,750 $ 40,312,500 $ 21,465,000 $ 26,283,750 ResidentialAffordable NOI $ $ $ $ $ $ Cap Rate 4.80% 4.80% 4.80% 4.80% 4.80% 4.80% Value $ $ $ $ $ $ Retail NOI $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 Cap Rate 5.90% 5.90% 5.90% 5.90% 5.90% 5.90% Value $ 5,622,712 $ 5,622,712 $ 5,622,712 $ 5,622,712 $ 5,622,712 $ 5,622,712 Office NOI $ 1,346,545 $ 2,168,165 $ $ $ $ Cap Rate 5.70% 5.70% 5.70% 5.70% 5.70% 5.70% Value $ 23,623,596 $ 38,037,982 $ $ $ $ Total Project Value $ 29,246,308 $ 43,660,694 $ 39,556,462 $ 45,935,212 $ 27,087,712 $ 31,906,462 Developer Returns Developer Profit Total Project Value $ 29,246,308 $ 43,660,694 $ 39,556,462 $ 45,935,212 $ 27,087,712 $ 31,906,462 Less: Total Development Cost $ (25,588,504) $ (38,203,107) $ (26,229,013) $ (29,998,658) $ (20,714,084) $ (23,802,225) Profit $ 3,657,804 $ 5,457,587 $ 13,327,449 $ 15,936,554 $ 6,373,628 $ 8,104,237 % of Value 12.5% 12.5% 33.7% 34.7% 23.5% 25.4% Profit No Fees $ 4,394,649 $ 9,929,795 $ 13,746,633 $ 17,082,947 $ 6,606,255 $ 8,902,809 Feasible? (i.e. = or > 12.5%) YES YES YES YES YES YES Return on Total Development Cost NOI $ 1,678,285 $ 2,499,905 $ 1,910,052 $ 2,196,144 $ 1,331,052 $ 1,542,852 Total Development Cost $ (25,588,504) $ (38,203,107) $ (26,229,013) $ (29,998,658) $ (20,714,084) $ (23,802,225) Return on Cost 6.56% 6.54% 7.28% 7.32% 6.43% 6.48% Return on Cost No Fees 6.75% 7.41% 7.40% 7.61% 6.50% 6.71% Feasible? (i.e. = or > 0.75% + Weighted Cap) YES YES YES YES YES YES Weighted Cap Rate 5.73% 5.72% 4.91% 4.89% 4.97% 4.93% Pro Forma A. Downtown Santa Monica Tier 2 and 3 Uniform Fee Increase Analysis All Prototypes/Summary Page 1 of 7

25 Draft Work Product Not for Public Distribution Pro Forma A Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes A. Physical Parameters Prototype Name Office/Retail Office/Retail Residential/Retail Residential/Retail Residential/Retail Residential/Retail Location TransitAdjacent TransitAdjacent TransitAdjacent TransitAdjacent Mixed Boulevard Mixed Boulevard LUCE Area LUCE Tier Permit Requirement # Parcels Bldg. Height (Feet) Stories (#) Land Area (SF) 15,000 15,000 15,000 15,000 15,000 15,000 Gross Bldg. Area (SF) 1 39,833 59,833 59,347 70,229 39,587 48,751 Floor Area Ratio (FAR)Gross Area Floor Area Ratio (FAR)Net Area Net Leasable Areas (SF) 1 34,500 52,500 50,500 60,000 33,250 41,250 Residential 2 45,500 55,000 28,250 36,250 Retail 5,000 5,000 5,000 5,000 5,000 5,000 Office 29,500 47,500 Hotel # Hotel Rooms Residential Unit Mix Office SF 29,500 47,500 Retail SF 5,000 5,000 5,000 5,000 5,000 5,000 Hotel SF Residential SFTarget 45,500 55,000 28,250 36,250 Market Rate Studio (SF) BR (SF) BR (SF) BR (SF) 1,300 1,300 1,300 1,300 Studio (# units) BR (# units) BR (# units) BR (# units) Subtotal (# units) Affordable 3 Studio (SF) BR (SF) BR (SF) BR (SF) 1,080 1,080 1,080 1,080 Studio (# units) BR (# units) BR (# units) BR (# units) Subtotal (# units) Total Units Parking Residential Market Rate (wtd. avg. per unit) Affordable (avg. per unit) Subtotal Spaces (#) Subtotal Plus Guest Spaces (#) Retail Spaces/500 SF Subtotal Spaces (#) Office Spaces/500 SF Subtotal Spaces (#) Hotel Spaces/Guest Room Subtotal Spaces (#) Total Spaces Number Gross Area/Space (SF)Surface Gross Area/Space (SF)Subt Total Parking Area (SF) 24,150 36,750 29,750 35,000 19,600 24,150 # Surface # Subt. Levels Total Spaces/Levels Spaces/Levels Construction Period (months) Gross Floor Area by Story Site Area 15,000 15,000 15,000 15,000 15,000 15,000 Total Gross Bldg. Area 39,833 59,833 59,347 70,229 39,587 48,751 Total Floors Floor 1 5,556 5,556 5,727 5,727 5,727 5,727 Floor 2 11,111 11,111 14,318 14,318 11,455 11,455 Floor 3 11,111 11,111 14,318 14,318 10,882 10,882 Floor 4 10,556 10,556 12,600 12,600 10,023 10,023 Floor 5 10,000 10,882 10,882 9,164 Floor 6 10,000 10,882 Total Gross Floor Area 39,833 59,833 59,347 70,229 39,587 48,751 FARGross Area Net Floor Area by Story Floor 1 5,000 5,000 5,000 5,000 5,000 5,000 Floor 2 10,000 10,000 12,500 12,500 10,000 10,000 Floor 3 10,000 10,000 12,500 12,500 9,500 9,500 Floor 4 9,500 9,500 11,000 11,000 8,750 8,750 Floor 5 9,000 9,500 9,500 8,000 Floor 6 9,000 9,500 Total 34,500 52,500 50,500 60,000 33,250 41,250 Net/Gross Floor Area Overall 86.6% 87.7% 85.1% 85.4% 84.0% 84.6% 1 Per guidance provided by City Planning staff and adjusted for Tier 1 and Tier 2 scenarios by HR&A based on efficiency factors for Tier 3 scenarios 2 Based on unit mix and net leasable floor area by unit type, per City Planning Staff and HR&A. 3 Assumes 5% for extremely lowincome households in Tier 1 scenarios, 7.5% for extremely lowincome households in Tier 2 scenarios, and 10% for extremely lowincome households in Tier 3 scenarios. 4 Assumes 0.5 spaces/studio; 1.0 spaces/1br unit; and 1.5 spaces/2 & 3BR units. Page 2 of 7 Pro Forma A. Downtown Santa Monica Tier 2 and 3 Uniform Fee Increase Analysis All Prototypes/AProgram

26 Draft Work Product Not for Public Distribution Pro Forma A Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes B. Development Costs Prototype Name Assumptions Office/Retail Office/Retail Residential/Retail Residential/Retail Residential/Retail Residential/Retail Location TransitAdjacent TransitAdjacent TransitAdjacent TransitAdjacent Mixed Boulevard Mixed Boulevard Land Area 15,000 15,000 15,000 15,000 15,000 15,000 Gross Bldg. Area (SF) 39,833 59,833 59,347 70,229 39,587 48,751 Net Leasable Areas (SF) Residential 45,500 55,000 28,250 36,250 Retail 5,000 5,000 5,000 5,000 5,000 5,000 Office 29,500 47,500 Hotel Hotel Rooms Subterranean Parking (spaces) Levels Levels # 125 # 126 # 107 # 189 # 154 Land Cost $ 7,500,000 $ 7,500,000 $ 7,500,000 $ 7,500,000 $ 7,500,000 $ 7,500,000 Hard Cost 1 Construction Type V V V V V V Building Construction/GSF Varies $185 $186 $151 $149 $157 $154 Demo/OnSite Improvements $10 per Land Area $ 150,000 $ 150,000 $ 150,000 $ 150,000 $ 150,000 $ 150,000 OffSite Improvements $100,000 Allowance $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 Building Core & Shell Varies $ 7,369,167 $ 11,128,938 $ 8,961,322 $ 10,464,050 $ 6,215,168 $ 7,507,632 Retail Tenant Improvements $70 x Net Leasable SF $ 350,000 $ 350,000 $ 350,000 $ 350,000 $ 350,000 $ 350,000 Office Tenant Improvements $60 x Net Leasable SF $ 1,770,000 $ 2,850,000 $ $ $ $ Hotel FF&E $25,000 x Rooms $ $ $ $ $ $ Subterranean Parking Surface $5,000 per Space $ $ $ $ $ $ 12 Levels $37,000 per Space $ 2,553,000 $ 3,171,429 $ 3,145,000 $ 3,171,429 $ 2,072,000 $ 2,553, Levels $42,000 per Space $ $ 810,000 $ $ 600,000 $ $ Contingency 4% x Subtotal Hard Costs $ 491,687 $ 742,415 $ 508,253 $ 593,419 $ 355,487 $ 426,425 Subtotal Hard Costs $ 12,783,854 $ 19,302,782 $ 13,214,575 $ 15,428,898 $ 9,242,655 $ 11,087,057 Soft Costs 2 Net Parks/Recreation Fee See Sheet D $ 76,477 $ 441,503 $ 297,784 $ 780,191 $ 183,704 $ 560,482 Net Affordable Housing Linkage Fee See Sheet D $ 364,692 $ 2,136,099 $ $ $ $ Net TIF Fee See Sheet D $ 295,676 $ 1,894,606 $ 121,401 $ 366,202 $ 48,923 $ 238,091 Other City Permits & Fees See Sheet C $ 489,790 $ 711,566 $ 554,900 $ 646,612 $ 391,494 $ 465,993 A&E/Other Professionals 6% x Hard Costs $ 767,031 $ 1,158,167 $ 792,875 $ 925,734 $ 554,559 $ 665,223 Marketing/Leasing Commissions Residential $7.50 x Net Leasable SF $ $ $ 341,250 $ 412,500 $ 211,875 $ 271,875 Retail/Office $3.00 x Net Leasable SF $ 103,500 $ 157,500 $ 15,000 $ 15,000 $ 15,000 $ 15,000 Legal & Accounting 1% x Hard Costs $ 127,839 $ 193,028 $ 132,146 $ 154,289 $ 92,427 $ 110,871 Taxes & Insurance 1% x Hard Costs $ 127,839 $ 193,028 $ 132,146 $ 154,289 $ 92,427 $ 110,871 PreOpening Expenses $4.00 x Net Leasable SF $ $ $ $ $ $ Developer Fee 3% x Hard Costs $ 383,516 $ 579,083 $ 396,437 $ 462,867 $ 277,280 $ 332,612 Contingency 3% x Subtotal Soft Costs $ 82,091 $ 223,937 $ 83,518 $ 117,531 $ 56,031 $ 83,131 Subtotal Soft Costs $ 2,818,451 $ 7,688,517 $ 2,867,456 $ 4,035,215 $ 1,923,720 $ 2,854,148 Subtotal Land + Hard + Softs Costs $ 23,102,305 $ 34,491,299 $ 23,582,031 $ 26,964,113 $ 18,666,375 $ 21,441,205 Financing Costs 3 Loan Term (months) 18 Average Loan Balance 65.00% Construction Loan Interest Rate 6.50% Construction Loan Interest $ 1,464,109 $ 2,185,886 $ 1,494,511 $ 1,708,851 $ 1,182,981 $ 1,358,836 Construction Loan Fees 3.00% $ 693,069 $ 1,034,739 $ 707,461 $ 808,923 $ 559,991 $ 643,236 Capitalized Project Value per Sheet E Permanent Loan Percent x Value 75.00% Permanent Loan Fees 1.50% $ 329,021 $ 491,183 $ 445,010 $ 516,771 $ 304,737 $ 358,948 Subtotal Financing Costs $ 2,486,199 $ 3,711,808 $ 2,646,982 $ 3,034,545 $ 2,047,709 $ 2,361,020 Total Development Cost Land +Hard + Soft + Financing $ 25,588,504 $ 38,203,107 $ 26,229,013 $ 29,998,658 $ 20,714,084 $ 23,802,225 per GSF $ $ $ $ $ $ % x calculated values, per Marshall & Swift Commercial Cost Estimator, May 2016;, to account for certain hard costs and soft costs accounted for separately. 2 Per HR&A's experience with similar projects. 3 Per RealtyRates mortgage rates and terms survey for Q Page 3 of 7 Pro Forma A. Downtown Santa Monica Tier 2 and 3 Uniform Fee Increase Analysis All Prototypes/BDev Costs

27 Draft Work Product Not for Public Distribution Pro Forma A Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes C. City Fees & Permit Costs Prototype Name Assumptions Office/Retail Office/Retail Residential/Retail Residential/Retail Residential/Retail Residential/Retail Location TransitAdjacent TransitAdjacent TransitAdjacent TransitAdjacent Mixed Boulevard Mixed Boulevard Land Area 15,000 15,000 15,000 15,000 15,000 15,000 Gross Bldg. Area (SF) 39,833 59,833 59,347 70,229 39,587 48,751 Residential Units Market Rate Studios BR BR BR Affordable Studios BR BR BR Residential (Net Leasable SF) 45,500 55,000 28,250 36,250 Retail (Net Leasable SF) 5,000 5,000 5,000 5,000 5,000 5,000 Office (Net Leasable SF) 29,500 47,500 Hotel (Net Leasable SF) New Affordable Hsg. Linkage Fee 1 N/A N/A $ 364,692 $ 2,136,099 $ $ $ $ New Parks Fee 1 N/A N/A $ 76,477 $ 441,503 $ 297,784 $ 780,191 $ 183,704 $ 560,482 New TIF Fee 1 N/A N/A $ 295,676 $ 1,894,606 $ 121,401 $ 366,202 $ 48,923 $ 238,091 Planning Permits 2 Development Review $17,738 per project $ $ $ $ $ $ Development Agreement $25,000 per project $ $ $ $ $ $ Architectural Review Board $3,588 per project $ 3,588 $ 3,588 $ 3,588 $ 3,588 $ 3,588 $ 3,588 CEQA Categorical Exemption $15,648 per project $ 15,648 $ 15,648 $ 15,648 $ 15,648 $ 15,648 $ 15,648 Subtotal $ 19,236 $ 19,236 $ 19,236 $ 19,236 $ 19,236 $ 19,236 Other Requirements 3 Arts Fee New Residential/Commercial 1.00% x $200/SF $ 79,667 $ 119,666 $ 118,693 $ 140,457 $ 79,174 $ 97,502 Tenant Improvements 1.00% x $50/SF $ 17,250 $ 26,250 $ 2,500 $ 2,500 $ 2,500 $ 2,500 Child Care Fee Market Rate Residential $ per unit $ $ $ 6,693 $ 7,547 $ 4,272 $ 5,126 Retail $4.84 x leasable area $ 24,200 $ 24,200 $ 24,200 $ 24,200 $ 24,200 $ 24,200 Office $6.76 x leasable area $ 199,420 $ 321,100 $ $ $ $ Hotel $3.39 x leasable area $ $ $ $ $ $ School Facilities Fee Residential $3.48 x leasable area $ $ $ 158,340 $ 191,400 $ 98,310 $ 126,150 Commercial $0.56 x leasable area $ 19,320 $ 29,400 $ 2,800 $ 2,800 $ 2,800 $ 2,800 Subtotal $ 339,857 $ 520,616 $ 313,226 $ 368,904 $ 211,256 $ 258,278 Bldg./Construction Permits 2 Plan Check Residential 4+ stories $ $0.98 x leasable area $ $ $ 44,968 $ 54,246 $ 28,122 $ 35,935 Commercial <10K SF $ $1.36 x leasable area $ 14,112 $ 14,112 $ 7,312 $ 7,312 $ 7,312 $ 7,312 Commercial >10K SF/4 stories $0.41 x leasable area $ 9,964 $ 17,285 $ $ $ $ Mechanical $778 per project $778 $778 $778 $778 $778 $778 Electrical $778 per project $778 $778 $778 $778 $778 $778 Plumbing $778 per project $778 $778 $778 $778 $778 $778 Building Permits/Inspections Multifamily 4+ Stories $1.10 x leasable area $ $ $ 49,971 $ 60,377 $ 31,075 $ 39,839 Commercial 1Story $1.28 x leasable area $ 12,890 $ 12,890 $ 6,507 $ 6,507 $ 6,507 $ 6,507 Commercial 4+ stories $0.80 x leasable area $ 19,485 $ 33,800 $ $ $ $ Tenant Improvements <10K SF $0.38 x leasable area $ 3,981 $ 3,981 $ 2,057 $ 2,057 $ 2,057 $ 2,057 Tenant Improvements >10K SF $0.30 x leasable area $ 7,294 $ 12,652 $ $ $ $ Geotechnical Reports $2,655 per project $ 2,655 $ 2,655 $ 2,655 $ 2,655 $ 2,655 $ 2,655 Subtotal $ 72,715 $ 99,710 $ 115,805 $ 135,489 $ 80,063 $ 96,640 Utility Fees 2 Water Meter 3 $4,291 3/4" meter per project $ 4,291 $ 4,291 $ 4,291 $ 4,291 $ 4,291 $ 4,291 Fireline Meter 3 $26,816 4" meter per project $ 26,816 $ 26,816 $ 26,816 $ 26,816 $ 26,816 $ 26,816 Wastewater Capital Facilities Studio/1BR Units $1,168 per unit $ $ $ 46,720 $ 53,728 $ 30,368 $ 35,040 2BR Units $1,557 per unit $ $ $ 17,127 $ 21,798 $ 10,899 $ 15,570 3BR Units $1,947 per unit $ $ $ 7,785 $ 12,456 $ 4,671 $ 6,228 Commercial $779 per 1,000 leasable SF $ 26,876 $ 40,898 $ 3,895 $ 3,895 $ 3,895 $ 3,895 Subtotal $ 57,982 $ 72,004 $ 106,633 $ 122,983 $ 80,939 $ 91,839 per GSF $19.72 $43.56 $11.40 $14.42 $11.13 $ Based on current fee rates; see Sheet D for Tier sensitivity calculation details. 2 Per FY City fee schedules. 3 Includes meter and capital facilities charges. Page 4 of 7 Pro Forma A. Downtown Santa Monica Tier 2 and 3 Uniform Fee Increase Analysis All Prototypes/CCity Cost Detail

28 Draft Work Product Not for Public Distribution Pro Forma A Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes D. Parks/Recreation, Afforable Housing Linkage, and Transportation Impact Fees Prototype Name Office/Retail Office/Retail Residential/Retail Residential/Retail Residential/Retail Residential/Retail Location TransitAdjacent TransitAdjacent TransitAdjacent TransitAdjacent Mixed Boulevard Mixed Boulevard Land Area 15,000 15,000 15,000 15,000 15,000 15,000 Gross Bldg. Area (SF) 39,833 59,833 59,347 70,229 39,587 48,751 Residential Units Market Rate Studios BR BR BR Affordable Studios BR BR BR Residential (Net Leasable SF) 45,500 55,000 28,250 36,250 Retail (Net Leasable SF) 5,000 5,000 5,000 5,000 5,000 5,000 Office (Net Leasable SF) 29,500 47,500 Hotel (Net Leasable SF) Adopted Parks/Recreation Fee X% x Adopted Fees Assumptions Tier 1 Tier 2 Tier 3 Market Rate Housing 100% 123% 803% 01 BRs 100% 123% 803% $4, per unit $ $ $ 178,968 $ 374,119 $ 115,193 $ 259, BRs 100% 123% 803% $6, per unit $ $ $ 122,626 $ 409,882 $ 72,321 $ 304,852 Affordable Housing 100% 123% 803% $0 per unit $ $ $ $ $ $ Retail 100% 123% 803% $1.52 x leasable area $ 7,619 $ 7,619 $ 7,619 $ 7,619 $ 7,619 $ 7,619 Office 100% 123% 803% $2.36 x leasable area $ 80,287 $ 445,313 $ $ $ $ Hotel 100% 123% 803% $3.18 x leasable area $ $ $ $ $ $ Subtotal Fee $ 87,906 $ 452,932 $ 309,213 $ 791,620 $ 195,133 $ 571,911 Less: Fee on Existing SF Retail 100% 123% 803% $1.52 x leasable area $ (11,429) $ (11,429) $ (11,429) $ (11,429) $ (11,429) $ (11,429) Office 100% 123% 803% $2.36 x leasable area $ $ $ $ $ $ Net Fee $ 76,477 $ 441,503 $ 297,784 $ 780,191 $ 183,704 $ 560,482 Adopted Affordable Housing Linkage Fee X% x Adopted Fees Assumptions 100% 123% 803% Retail 100% 123% 803% $9.97 x leasable area $ 49,857 $ 49,857 $ 49,857 $ 49,857 $ 49,857 $ 49,857 Office 100% 123% 803% $11.46 x leasable area $ 389,620 $ 2,161,027 $ $ $ $ Subtotal Fee $ 439,477 $ 2,210,884 $ 49,857 $ 49,857 $ 49,857 $ 49,857 Less: Fee on Existing SF Retail 100% 123% 803% $9.97 x leasable area $ (74,785) $ (74,785) $ (74,785) $ (74,785) $ (74,785) $ (74,785) Office 100% 123% 803% $11.46 x leasable area $ $ $ $ $ $ Net Fee $ 364,692 $ 2,136,099 $ $ $ $ TIF Fees X% x Adopted Fees Assumptions 100% 123% 803% Market RateArea 1 100% 123% 803% $2, per unit $ $ $ 177,409 $ 422,210 $ 104,931 $ 294,099 Market RateArea 2 100% 123% 803% $3, per unit $ $ $ $ $ $ Affordable 100% 123% 803% $0.00 per unit $ $ $ $ $ $ RetailArea 1 100% 123% 803% $22.40 x leasable area $ 112,017 $ 112,017 $ 112,017 $ 112,017 $ 112,017 $ 112,017 RetailArea 2 100% 123% 803% $32.11 x leasable area $ $ $ $ $ $ OfficeArea 1 100% 123% 803% $10.35 x leasable area $ 351,684 $ 1,950,614 $ $ $ $ OfficeArea 2 100% 123% 803% $11.52 x leasable area $ $ $ $ $ $ HotelArea 1 & 2 100% 123% 803% $3.84 x leasable area $ $ $ $ $ $ Subtotal $ 463,701 $ 2,062,631 $ 289,426 $ 534,227 $ 216,948 $ 406,116 Reduction for Existing Retail Allowance $ (168,025) $ (168,025) $ (168,025) $ (168,025) $ (168,025) $ (168,025) NET TIF Fee $ 295,676 $ 1,894,606 $ 121,401 $ 366,202 $ 48,923 $ 238,091 Combined New Fees $ 736,845 $ 4,472,208 $ 419,185 $ 1,146,393 $ 232,627 $ 798,573 Page 5 of 7 Pro Forma A. Downtown Santa Monica Tier 2 and 3 Uniform Fee Increase Analysis All Prototypes/DFee Sensitivities

29 Draft Work Product Not for Public Distribution Pro Forma A Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes E. Net Operating Income Prototype Name Assumptions Office/Retail Office/Retail Residential/Retail Residential/Retail Residential/Retail Residential/Retail Location TransitAdjacent TransitAdjacent TransitAdjacent TransitAdjacent Mixed Boulevard Mixed Boulevard Land Area 15,000 15,000 15,000 15,000 15,000 15,000 Gross Bldg. Area (SF) 39,833 59,833 59,347 70,229 39,587 48,751 Residential Units Market Rate Studio BR BR BR Affordable Studio BR BR BR Retail (Net Leasable SF) 5,000 5,000 5,000 5,000 5,000 5,000 Office (Net Leasable SF) 29,500 47,500 Hotel (Net Leasable SF) Parking Spaces Residential Retail Office Hotel ForRent Residential Market Rate 1 Studio Rent/Unit/Month Varies $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 1BR Rent/Unit/Month Varies $3,800 $3,800 $3,800 $3,800 $3,800 $3,800 2BR Rent/Unit/Month Varies $4,300 $4,300 $4,300 $4,300 $4,300 $4,300 3BR Rent/Unit/Month Varies $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 Units Income/Year $ $ $ 2,473,200 $ 2,926,800 $ 1,566,000 $ 1,911,600 Other Income $ x Unit $ $ $ 62,400 $ 73,200 $ 39,600 $ 48,000 Gross Income $ $ $ 2,535,600 $ 3,000,000 $ 1,605,600 $ 1,959,600 Less: Vacancy & Collection Loss 5.0% x Gross Income $ $ $ (126,780) $ (150,000) $ (80,280) $ (97,980) Effective Gross Income (EGI) $ $ $ 2,408,820 $ 2,850,000 $ 1,525,320 $ 1,861,620 Less: Operating Expenses (incl. reserve) 1 $ 15,000 x Unit $ $ $ (780,000) $ (915,000) $ (495,000) $ (600,000) Net Operating Income $ $ $ 1,628,820 $ 1,935,000 $ 1,030,320 $ 1,261,620 ForRent Residential Affordable (VL) 3 Studio Rent/Unit/Month $ 340 $ 340 $ 340 $ 340 $ 340 $ 340 1BR Rent/Unit/Month $ 389 $ 389 $ 389 $ 389 $ 389 $ 389 2BR Rent/Unit/Month $ 437 $ 437 $ 437 $ 437 $ 437 $ 437 3BR Rent/Unit/Month $ 486 $ 486 $ 486 $ 486 $ 486 $ 486 Units Income/Year $ $ $ 24,492 $ 34,404 $ 13,992 $ 24,492 Other Income 0.0% x Units Income $ $ $ $ $ $ Gross Income $ $ $ 24,492 $ 34,404 $ 13,992 $ 24,492 Less: Vacancy & Collection Loss 0.0% x Gross Income $ $ $ $ $ $ Effective Gross Income (EGI) $ $ $ 24,492 $ 34,404 $ 13,992 $ 24,492 Less: Operating Expenses (inc. reserve) 1 $ 15,000 x Unit $ $ $ (75,000) $ (105,000) $ (45,000) $ (75,000) Net Operating Income $ $ $ (50,508) $ (70,596) $ (31,008) $ (50,508) Retail 2 Average Rent/SF/Month (NNN) Varies $ 6.00 $ 6.00 $ 6.00 $ 6.00 $ 6.00 $ 6.00 Gross Rental Income/Year $ 360,000 $ 360,000 $ 360,000 $ 360,000 $ 360,000 $ 360,000 Less: Vacancy & Collection Loss 5.0% x Gross Income $ (18,000) $ (18,000) $ (18,000) $ (18,000) $ (18,000) $ (18,000) Effective Gross Income (EGI) $ 342,000 $ 342,000 $ 342,000 $ 342,000 $ 342,000 $ 342,000 Less: Unreimbursed Operating Expenses 3.0% x EGI $ (10,260) $ (10,260) $ (10,260) $ (10,260) $ (10,260) $ (10,260) Net Operating Income $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 Office 2 Average Rent/SF/Month (MG) $ 4.55 $ 4.55 $ 4.55 $ 4.55 $ 4.55 $ 4.55 Gross Rental Income/Year $ 1,610,700 $ 2,593,500 $ $ $ $ Parking Income 4 $2,223 Wtd. Avg./Space/Yr. $ 131,157 $ 211,185 $ $ $ $ Less: Vacancy & Collection Loss 5.0% x Gross Income $ (80,535) $ (129,675) $ $ $ $ Effective Gross Income (EGI) $ 1,661,322 $ 2,675,010 $ $ $ $ Less: Operating Expenses 15.0% x EGI $ (249,198) $ (401,252) $ $ $ $ Less: Parking Expense 50.0% x Parking Income $ (65,579) $ (105,593) $ $ $ $ Net Operating Income $ 1,346,545 $ 2,168,165 $ $ $ $ Total Net Operating Income $ 1,678,285 $ 2,499,905 $ 1,910,052 $ 2,196,144 $ 1,331,052 $ 1,542,852 1 Per HR&A's experience with similar projects. 2 Per HR&A review of thirdparty market data (i.e. CoStar Group data for similar, recently constructed buildings in the Downtown Community Plan area). 3 Per City's 2015 rent schedule. 4 Assumes $200/month reserved (10% of supply); $165/month unreserved (85%); and $500/month daily use (5%). Page 6 of 7 Pro Forma A. Downtown Santa Monica Tier 2 and 3 Uniform Fee Increase Analysis All Prototypes/ENet Ops Income

30 Draft Work Product Not for Public Distribution Pro Forma A Uniform 23% Tier 2 and 703% Tier 3 Fee Increases on All Prototypes F. Returns Prototype Name Assumptions Office/Retail Office/Retail Residential/Retail Residential/Retail Residential/Retail Residential/Retail Location TransitAdjacent TransitAdjacent TransitAdjacent TransitAdjacent Mixed Boulevard Mixed Boulevard Land Area 15,000 15,000 15,000 15,000 15,000 15,000 Gross Bldg. Area (SF) 39,833 59,833 59,347 70,229 39,587 48,751 Residential Units Market Rate Studio BR BR BR Affordable Studio BR BR BR Retail (Net Leasable SF) 5,000 5,000 5,000 5,000 5,000 5,000 Office (Net Leasable SF) 29,500 47,500 Hotel (Net Leasable SF) Project Value ResidentialMarket Rate Net Operating Income From Sheet E $ $ $ 1,628,820 $ 1,935,000 $ 1,030,320 $ 1,261,620 Cap Rate % Value NOI/Cap Rate $ $ $ 33,933,750 $ 40,312,500 $ 21,465,000 $ 26,283,750 ResidentialAffordable Net Operating Income From Sheet E $ $ $ $ $ $ Cap Rate % Value NOI/Cap Rate $ $ $ $ $ $ Retail Net Operating Income From Sheet E $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 $ 331,740 Cap Rate % Value NOI/Cap Rate $ 5,622,712 $ 5,622,712 $ 5,622,712 $ 5,622,712 $ 5,622,712 $ 5,622,712 Office Net Operating Income From Sheet E $ 1,346,545 $ 2,168,165 $ $ $ $ Cap Rate % Value NOI/Cap Rate $ 23,623,596 $ 38,037,982 $ $ $ $ Total Project Value $ 29,246,308 $ 43,660,694 $ 39,556,462 $ 45,935,212 $ 27,087,712 $ 31,906,462 Developer Returns Developer Profit Total Project Value From above $ 29,246,308 $ 43,660,694 $ 39,556,462 $ 45,935,212 $ 27,087,712 $ 31,906,462 Less: Total Development Cost From Sheet B $ (25,588,504) $ (38,203,107) $ (26,229,013) $ (29,998,658) $ (20,714,084) $ (23,802,225) Profit $ 3,657,804 $ 5,457,587 $ 13,327,449 $ 15,936,554 $ 6,373,628 $ 8,104,237 % of Value 12.5% 12.5% 33.7% 34.7% 23.5% 25.4% Return on Total Development Cost NOI From Sheet E $ 1,678,285 $ 2,499,905 $ 1,910,052 $ 2,196,144 $ 1,331,052 $ 1,542,852 Total Development Cost From Sheet B $ (25,588,504) $ (38,203,107) $ (26,229,013) $ (29,998,658) $ (20,714,084) $ (23,802,225) Return on Cost 6.56% 6.54% 7.28% 7.32% 6.43% 6.48% 1 Based on Real Estate Research Corporation cap rate data for Q Page 7 of 7 Pro Forma A. Downtown Santa Monica Tier 2 and 3 Uniform Fee Increase Analysis All Prototypes/FReturns

31 Draft Work Product Not for Public Distribution Pro Forma B Uniform 1,358% Tier 2 and 1,915% Tier 3 Fee Increases on MixedUse Blvd Prototype Summary Results Program Summary (see Sheet A) Prototype Name Residential/Retail Residential/Retail Location Mixed Boulevard Mixed Boulevard LUCE Tier 2 3 Permit Requirement # Parcels 1 1 Bldg. Height (Feet) Stories (#) 4 5 Site Area (SF) 15,000 15,000 Gross Bldg. Area (SF) 39,587 48,751 Floor Area Ratio (FAR) Gross Area Floor Area Ratio (FAR) Net Area Net Leasable Areas Residential (SF) 28,250 36,250 Market Rate Units Affordable Units 3 5 Total Units Retail (SF) 5,000 5,000 Office (SF) Hotel (SF) Development Costs (see Sheets B&C&D) Land Costs $ 7,500,000 $ 7,500,000 Hard Costs $ 9,242,655 $ 11,087,057 Soft Costs $ 4,195,840 $ 5,867,693 Net Parks/Recreation Fee $ 1,611,888 $ 2,473,113 Net Affordable Housing Linkage Fee $ $ Net Transportation Impact Fee $ 826,681 $ 1,251,232 Other City Costs (see Sheet E) $ 391,494 $ 465,993 Other Soft Costs $ 3,804,346 $ 5,401,701 Financing Costs $ 2,259,869 $ 2,642,411 Total Development Cost $ 23,198,364 $ 27,097,161 per GSF $586 $556 Net Operating Income (NOI) (see Sheet E) ResidentialMarket Rate Effective Gross Income $ 1,525,320 $ 1,861,620 Less: Operating Expenses $ (495,000) $ (600,000) Net Operating Income $ 1,030,320 $ 1,261,620 ResidentialAffordable Effective Gross Income $ 13,992 $ 24,492 Less: Operating Expenses $ (45,000) $ (75,000) Net Operating Income $ (31,008) $ (50,508) Retail Effective Gross Income $ 342,000 $ 342,000 Less: Operating Expenses $ (10,260) $ (10,260) Net Operating Income $ 331,740 $ 331,740 Office Effective Gross Income $ $ Less: Operating Expenses $ $ Net Operating Income $ $ Total Net Operating Income $ 1,331,052 $ 1,542,852 Project Component Values (see Sheet F) ResidentialMarket Rate NOI $ 1,030,320 $ 1,261,620 Cap Rate 4.80% 4.80% Value $ 21,465,000 $ 26,283,750 ResidentialAffordable NOI $ $ Cap Rate 4.80% 4.80% Value $ $ Retail NOI $ 331,740 $ 331,740 Cap Rate 5.90% 5.90% Value $ 5,622,712 $ 5,622,712 Office NOI $ $ Cap Rate 5.70% 5.70% Value $ $ Total Project Value $ 27,087,712 $ 31,906,462 Developer Returns Developer Profit Total Project Value $ 27,087,712 $ 31,906,462 Less: Total Development Cost $ (23,198,364) $ (27,097,161) Profit $ 3,889,348 $ 4,809,301 % of Value 14.4% 15.1% Profit No Fees $ 6,327,917 $ 8,533,645 Feasible? (i.e. = or > 12.5%) YES YES Return on Total Development Cost NOI $ 1,331,052 $ 1,542,852 Total Development Cost $ (23,198,364) $ (27,097,161) Return on Cost 5.74% 5.69% Return on Cost No Fees 6.41% 6.60% Feasible? (i.e. = or > 0.75% + Weighted Cap) YES YES Weighted Cap Rate 4.97% 4.93% Pro Forma B. Downtown Santa Monica Tier 2 and 3 Mixed Use Boulevard Prototype Analysis/Summary Page 1 of 8

32 Draft Work Product Not for Public Distribution Pro Forma B Uniform 1,358% Tier 2 and 1,915% Tier 3 Fee Increases on MixedUse Blvd Prototype A. Physical Parameters Prototype Name Residential/Retail Residential/Retail Location Mixed Boulevard Mixed Boulevard LUCE Area LUCE Tier 2 3 Permit Requirement # Parcels 1 1 Bldg. Height (Feet) Stories (#) 4 5 Land Area (SF) 15,000 15,000 Gross Bldg. Area (SF) 1 39,587 48,751 Floor Area Ratio (FAR)Gross Area Floor Area Ratio (FAR)Net Area Net Leasable Areas (SF) 1 33,250 41,250 Residential 2 28,250 36,250 Retail 5,000 5,000 Office Hotel # Hotel Rooms Residential Unit Mix Office SF Retail SF 5,000 5,000 Hotel SF Residential SFTarget 28,250 36,250 Market Rate Studio (SF) BR (SF) BR (SF) BR (SF) 1,300 1,300 Studio (# units) 3 4 1BR (# units) BR (# units) 6 9 3BR (# units) 3 4 Subtotal (# units) Affordable 3 Studio (SF) BR (SF) BR (SF) BR (SF) 1,080 1,080 Studio (# units) 1 1 1BR (# units) 1 2 2BR (# units) 1 1 3BR (# units) 1 Subtotal (# units) 3 5 Total Units Parking Residential Market Rate (wtd. avg. per unit) Affordable (avg. per unit) Subtotal Spaces (#) Subtotal Plus Guest Spaces (#) Retail 3 6 Spaces/500 SF 1 1 Subtotal Spaces (#) Office Spaces/500 SF Subtotal Spaces (#) Hotel Spaces/Guest Room Subtotal Spaces (#) Total Spaces Number Gross Area/Space (SF)Surface Gross Area/Space (SF)Subt Total Parking Area (SF) 19,600 24,150 # Surface # Subt. Levels Total Spaces/Levels Spaces/Levels 35 Construction Period (months) Gross Floor Area by Story Site Area 15,000 15,000 Total Gross Bldg. Area 39,587 48,751 Total Floors 4 5 Floor 1 5,727 5,727 Floor 2 11,455 11,455 Floor 3 10,882 10,882 Floor 4 10,023 10,023 Floor 5 9,164 Floor 6 Total Gross Floor Area 39,587 48,751 FARGross Area Net Floor Area by Story Floor 1 5,000 5,000 Floor 2 10,000 10,000 Floor 3 9,500 9,500 Floor 4 8,750 8,750 Floor 5 8,000 Floor 6 Total 33,250 41,250 Net/Gross Floor Area Overall 84.0% 84.6% 1 Per guidance provided by City Planning staff and adjusted for Tier 1 and Tier 2 scenarios by HR&A based on efficiency factors for Tier 3 scenarios 2 Based on unit mix and net leasable floor area by unit type, per City Planning Staff and HR&A. 3 Assumes 5% for extremely lowincome households in Tier 1 scenarios, 7.5% for extremely lowincome households in Tier 2 scenarios, and 10% for extremely lowincome households in Tier 3 scenarios. 4 Assumes 0.5 spaces/studio; 1.0 spaces/1br unit; and 1.5 spaces/2 & 3BR units. Page 2 of 8 Pro Forma B. Downtown Santa Monica Tier 2 and 3 Mixed Use Boulevard Prototype Analysis/AProgram

33 Draft Work Product Not for Public Distribution Pro Forma B Uniform 1,358% Tier 2 and 1,915% Tier 3 Fee Increases on MixedUse Blvd Prototype B. Development Costs Prototype Name Assumptions Residential/Retail Residential/Retail Location Mixed Boulevard Mixed Boulevard Land Area 15,000 15,000 Gross Bldg. Area (SF) 39,587 48,751 Net Leasable Areas (SF) Residential 28,250 36,250 Retail 5,000 5,000 Office Hotel Hotel Rooms Subterranean Parking (spaces) Levels Levels 189 # 154 Land Cost $ 7,500,000 $ 7,500,000 Hard Cost 1 Construction Type V V Building Construction/GSF Varies $157 $154 Demo/OnSite Improvements $10 per Land Area $ 150,000 $ 150,000 OffSite Improvements $100,000 Allowance $ 100,000 $ 100,000 Building Core & Shell Varies $ 6,215,168 $ 7,507,632 Retail Tenant Improvements $70 x Net Leasable SF $ 350,000 $ 350,000 Office Tenant Improvements $60 x Net Leasable SF $ $ Hotel FF&E $25,000 x Rooms $ $ Subterranean Parking Surface $5,000 per Space $ $ 12 Levels $37,000 per Space $ 2,072,000 $ 2,553, Levels $42,000 per Space $ $ Contingency 4% x Subtotal Hard Costs $ 355,487 $ 426,425 Subtotal Hard Costs $ 9,242,655 $ 11,087,057 Soft Costs 2 Net Parks/Recreation Fee See Sheet D $ 1,611,888 $ 2,473,113 Net Affordable Housing Linkage Fee See Sheet D $ $ Net TIF Fee See Sheet D $ 826,681 $ 1,251,232 Other City Permits & Fees See Sheet C $ 391,494 $ 465,993 A&E/Other Professionals 6% x Hard Costs $ 554,559 $ 665,223 Marketing/Leasing Commissions Residential $7.50 x Net Leasable SF $ 211,875 $ 271,875 Retail/Office $3.00 x Net Leasable SF $ 15,000 $ 15,000 Legal & Accounting 1% x Hard Costs $ 92,427 $ 110,871 Taxes & Insurance 1% x Hard Costs $ 92,427 $ 110,871 PreOpening Expenses $4.00 x Net Leasable SF $ $ Developer Fee 3% x Hard Costs $ 277,280 $ 332,612 Contingency 3% x Subtotal Soft Costs $ 122,209 $ 170,904 Subtotal Soft Costs $ 4,195,840 $ 5,867,693 Subtotal Land + Hard + Softs Costs $ 20,938,495 $ 24,454,750 Financing Costs 3 Loan Term (months) 18 Average Loan Balance 65.00% Construction Loan Interest Rate 6.50% Construction Loan Interest $ 1,326,977 $ 1,549,820 Construction Loan Fees 3.00% $ 628,155 $ 733,643 Capitalized Project Value per Sheet E Permanent Loan Percent x Value 75.00% Permanent Loan Fees 1.50% $ 304,737 $ 358,948 Subtotal Financing Costs $ 2,259,869 $ 2,642,411 Total Development Cost Land +Hard + Soft + Financing $ 23,198,364 $ 27,097,161 per GSF $ $ % x calculated values, per Marshall & Swift Commercial Cost Estimator, May 2016;, to account for certain hard costs and soft costs accounted for separately. 2 Per HR&A's experience with similar projects. 3 Per RealtyRates mortgage rates and terms survey for Q Pro Forma B. Downtown Santa Monica Tier 2 and 3 Mixed Use Boulevard Prototype Analysis/BDev Costs Page 3 of 8