Market Assessment and Economic and Fiscal Impact Analysis of the Cumberland Community Improvement District CUMBERLAND CID DECEMBER 2009
BACKGROUND & OBJECTIVES Background RCLCO was retained to assess the current and likely future market conditions within the Cumberland CID (CCID) as well as the economic and net fiscal impacts of the CCID on Cobb County and the State of Georgia. Objectives Characterize and quantify the market within the CCID and estimate current and future economic and fiscal impacts: Characterize the historic and current real estate market conditions in the CCID; Define the current economic and fiscal impacts of existing land uses on Cobb County and the State of Georgia; Assess future development potential within the CCID based on a likely economic forecast for the Atlanta region; and Estimate the future economic and fiscal impacts to Cobb County and the State of Georgia. 1
MARKET CONDITIONS
THE CCID IS A 5 ½-SQUARE-MILE AREA IN SOUTHEAST COBB COUNTY THAT INCLUDES THE INTERSECTIONS OF I-75, I-285 AND U.S. HIGHWAY 41 RCLCO used five census tracts to approximate the CCID area in order to characterize the makeup of employees and households CCID Boundary = Census Tracts Boundary = 3
IN ORDER TO APPROXIMATE MARKET CONDITIONS WITHIN THE CCID, VARIOUS STUDY AREAS AND SOURCE DATA WERE UTILIZED 1. Cumberland CID Boundary Neilson-Claritas and CoStar customized retail and office data 2. Census Tract Boundary ARC household and employment data 5. Apartment Submarket Dale Henson 3. CoStar Retail Submarket 4. CoStar Office Submarket 4
ARC FIGURES SHOW JOB GROWTH RETURNING TO THE CCID AREA OVER THE NEXT TEN YEARS Households and Employment within the CCID 1990-2020, ARC Estimates 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 72,247 71,476 65,565 45,548 17,961 18,721 20,181 14,481 1990 2000 2010 2020 Employment Households Based on Atlanta Regional Commission figures, employment within the CCID contracted by approximately 6,600 jobs over the last 10 years (2000-2010), but will return to peak levels by 2020. As illustrated in this report, RCLCO believes that the ARC estimate is conservative and that the CCID could return to peak employment levels as early as 2013 1. Households within the CCID have continued slow and steady growth over the last twenty years, a trend that should continue into 2020. 1 RCLCO upside scenario has Cumberland returning to peak employment levels at the same time as the Atlanta region (2013). The base case / conservative scenario would have a return to peak levels in 2015. 5
WITH APPROXIMATEY 65,500 JOBS, THE CCID STUDY AREA 1 REPRESENTS 21% OF JOBS IN COBB COUNTY AND A HIGHER PERCENTAGE OF HIGHER PAYING JOBS 12,000 10,000 8,000 6,000 4,000 2,000 0 80% 70% 60% 50% 40% 30% 20% 10% 0% CCID Study Area CCID as a % of Cobb County 1 The CCID Study Area is defined as Census Tracts 303.2, 303.28, 303.39, 39 312.03, and 312.04 SOURCE: Atlanta Regional Commission Envision Six figures ARC s larger Cumberland Superdistrict is estimated to be home to 115,900 jobs. The CCID Area (census tracts) represents 57% of the jobs in this larger Superdistrict and 21% of the jobs in Cobb County. For purposes of comparison, the CCID represents 1.6% of the land area of Cobb County compared to 21% of the county s jobs. 6
THE CUMBERLAND SUBMARKET IS COMPRISED OF 23.4 MILLION SQUARE FEET OF OFFICE SPACE, WITH THE CCID REPRESENTING 17.5 MILLION SQUARE FEET OF OFFICE SPACE WITHIN THIS SUBMARKET Home to an estimated 17,463,800 square feet, 72% of the Cumberland submarket depicted in the chart below; 70% of the space is Class A (CCID); Average rent: $17.80/ sf, Class A Average rent: $21.34/sf (CCID) 20% is currently available (CCID) Median year built: 1982 (CCID) 25,000,000 25% 20,000,000 20% 15,000,000 15% 10,000,000 10% 5,000,000 5% 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 3Q09 0% Cumberland Class A & B Existing Space Cumberland Vacancy Rate SOURCE: CoStar. Chart is for the Cumberland submarket. Bullets are customized for properties within the CCID boundaries. See definitions page for the boundaries of the Cumberland submarket relative to the CCID. 7
IN GROWTH YEARS, THE CUMBERLAND SUBMARKET HAS AVERAGED JUST OVER 400K SF OF POSITIVE ABSORPTION Cumberland Submarket Office Absorption 1994 3Q09 Square Feet 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 (200,000) (400,000) 690,646 527,331 612,583 76,117 991,776 412,740 261,091 142,478 Over the last sixteen years, the Cumberland submarket has absorbed 3.9 million square feet of office space for an average of 243,000 square feet annually. 478,858 221,417 281,295 294,553 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 3Q09 (133,314) (143,255) (192,696) (600,000) (800,000) (631,226) SOURCE: CoStar. See definitions page for the boundaries of the Cumberland submarket relative to the CCID. 8
OVER THE LAST 15 YEARS, THE NW CORRIDOR (I-75) HAS LOST MARKET SHARE WITHIN THE REGION AND THE CUMBERLAND SUBMARKET HAS LOST SHARE WITHIN THE NW CORRIDOR Northwest Corridor and Cumberland Submarket Market Share 1994 3Q09 Occupied Square Feet of Office 19.0% 88.0% 18.5% 86.0% 18.0% 84.0% NW Market Share 17.5% 17.0% 16.5% 16.0% 82.0% 80.0% 78.0% 76.0% 74.0% Cumb berland as a % of NW 15.5% 72.0% 15.0% 70.0% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 3Q09 Northwest Class A & B Occupied Space as a % of Atlanta Cumberland Occupied Space as a % of NW SOURCE: CoStar, The Northwest Corridor includes Cumberland/Galleria, Town Center/Kennesaw, East Cobb and Cherokee County 9
RETAIL WITHIN THE CCID IS CONCENTRATED IN THE SUPER REGIONAL MALL, CUMBERLAND MALL CCID Retail Square Feet by Center Type % Within the CCID Boundaries 3.5 million square feet of retail; Anchored by Cumberland Mall; 90.7% of retail space is reportedly leased; Median year built of the retail centers: 1985 Total retail expenditures within the CCID boundaries estimated to be $947 million annually SOURCE: CoStar. The data above is customized for properties within the CCID boundaries. See definitions page for the boundaries of the Cumberland submarket relative to the CCID. 10
THE CCID REPRESENTS 43% OF COSTAR S CUMBERLAND SUBMARKET WITH HIGHER RENTS IT HAS SLIGHTLY HIGHER VACANCY Cumberland CID Cumberland Retail Submarket CCID as % of Submarket Rentable Retail Space 3,491,156 8,097,295 43% (SF) Current Vacancy Rate 9.3% 8.9% 44% (vacant available) Historic Vacancy Rate n/a 6.4% n/a Avg. Reported Retail Rent $25.50 $15.79 162% Median Year Built 1985 1985 -- 5-Year Absorption (SF) n/a 71,786786 n/a 5-Year New Deliveries (SF) 97,384 303,290 32% % Regional Mall and 47% 27% 75% Power Center SOURCE: CoStar. The Cumberland CID data is customized for properties within the CCID. The Cumberland Retail Submarket is the area defined by CoStar. See definitions page for the boundaries of the Cumberland submarket relative to the CCID. 11
COMPARISON OF CUMBERLAND CID DEMOGRAPHICS SMALL HOUSEHOLDS, RENTERS, SIMILAR INCOMES, HIGH LEVELS OF EDUCATION Resident Demographic Characteristics 2009 Cumberland CID Cobb County Atlanta MSA (28-County) Resident Population 20,336 709,110 5,494,339 Households 11,602 261,651 1,978,507 Average HH Size 1.86 2.67 2.73 Median HH Income $59,887 $66,187 $58,964 % Owner-Occupied 20% 69.4% 68.9% Median Owner-Occupied $295,810 $190,978 $170,986 Hsg Value Median Age 34.1 36.3 35.0 %1- and 2-person HH 81% 55% 53.5% 5% % Bachelors Degree or Higher Avg. Travel Time to Work (minutes) SOURCE: 59.4% 39.5% 30.6% 25.4 34.2 34.0 Neilson-Claritas, Inc. The Cumberland CID data is customized for within the CID boundaries, a smaller area than the data available from ARC. 12
ALTHOUGH CHARACTERIZED BY OLDER APARTMENTS, THE CCID APARTMENT SUBMARKETS GENERALLY PERFORM EQUAL TO OR BETTER THAN THE COUNTY AND THE REGION Apartment communities within CCID boundaries: Estimated 26 communities; 10,436 units with an average community size of 402 units; Accounts for 16% of all units in Cobb County; Median year built: 1982 Median density: 14 units/ acre 1,000 800 600 400 200 95.00% $908 88% 88% $839 88% $814 90.00% 85.00% $664 $649 $663 80.00% 75.00% 70.00% 65.00% 60.00% 0 CCID Submarkets Cobb County Atlanta Region Avg Rent All Apartments Avg Rent Class A Apartments Occupancy 55.00% 50.00% 1 The CCID Apartment submarkets as defined by Dale Henson Associates are Cumberland-Galleria and East Marietta. Units within the CCID account for 35% of those in these two submarkets. NOTE: Rents within the Cumberland-Galleria submarket are higher than the East Marietta submarket. SOURCE: Dale Henson Associates for submarkets, CoStar for properties within CCID boundaries. See definitions page for maps of the submarkets. 13
THE FOR-SALE HOUSING MARKET IS CHARACTERIZED BY EXISTING SINGLE-FAMILY HOMES AND INFILL TOWNHOMES AND CONDOMINIUMS Within the CCID Boundaries 2,330 owner-occupied housing units 1,574 (68% of total) estimated to be single-family detached, with the balance being townhomes and condominiums $295,810 is the estimated median value (2009) Relevant Submarket 1 Over the last decade, the majority of home sales have been for condominium and townhome product; 30% to 40% of all sales have been for new opposed to resale homes, a figure similar to or higher than the region. From 2003 through 2007 (prior to the current downturn), the typical new home has average $280,000 000 for a townhome or condo and $590,000 for a new single-family home, well above metro averages. With several older condominium communities, including several converted apartment communities, there are many affordable ownership opportunities. The average price of a resale condo/ townhome has been $165,000 - $170,000. 1 The CCID for-sale residential submarket is defined as zip codes 30339 and 30080 SOURCE: Neilson-Claritas, Inc., SmartNumbers 14
ANTICIPATED FUTURE MARKET DEMAND
ATLANTA IS EXPECTED TO SEE SIGNIFICANT JOB GROWTH BEGINNING IN 2012 WITH EMPLOYMENT RETURNING TO PRE- RECESSION LEVELS IN 2013 Total Non-farm Employment Growth, Atlanta Metro Areas 1990-2020 150,000 FORECAST 125,000 100,000 75,000 50,000 25,000 0 Return to peak -25,000-50,000 1990 1991 1 1992 1993 1994 1995 1996 1997 1998 1999 9 2000 0 2001 2002 2 2003 2004 2005 2006 2007 2008 2009 (E ) 2010 0 2011 2012 2 2013 2014 2015 2016 2017 2018 2019 2020 0-75,000-100,000-125,000-150,000 SOURCE: 2009-2011 Forecasts based on Georgia State Economic Forecasting Center, subsequent years based on Moody s Economy.com 16
REGIONAL EMPLOYMENT GROWTH WILL DRIVE GROWTH IN THE CCID BASED ON THE FOLLOWING KEY ASSUMPTIONS Employment growth drives demand for office space, filling vacant space, space available through subleases, and eventually new construction; Capital sources will not fund new office development in a given submarket (in this case Cumberland) until vacancies in existing space approach single digits; Assumed 12% vacancies in Class A & B space will justify new construction This is a more conservative assumption than the Cumberland submarket s historic vacancy of 16% The Cumberland submarket will capture a portion new Class A & B office demand, which we estimated to range between 8.2% and 12.6% of the region. From 1994 2007, the Cumberland submarket captured 8.2% of the market, this figure is used for the base case scenario; It is currently 12.6% of the overall market, representing its fair share ; this figure is used for the fair-share/upside scenario The Cumberland CID will capture its fair share of the Cumberland-Galleria submarket (72%) Office growth will drive demand for additional housing and both office growth and housing will drive demand for additional retail 17
THROUGH THE NEXT REAL ESTATE DEVELOPMENT CYCLE, THE CCID WILL LIKELY SEE AN ADDITIONAL 2.1 T0 3.65 MILLION SF OF NET NEW OFFICE DEVELOPMENT THIS TRANSLATES TO 4 TO 9 OFFICE BUILDINGS CCID Net New Office Demand 2014-2020 Square Feet 800,000000 600,000 400,000 200,000 0 500k 100 750k 500 750k 500 550k 500 550k 500 550k 0 0 0 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Base Case Fair Share/ Upside Note: The Galleria office buildings each represents approximately 400,000 sf of office space. That means that 2.1 million sf represents approximately 5 Galleria buildings and 3.65 million sf represent about 9 Galleria buildings. 18
SUPPORTABLE LAND USE SCENARIOS ARE DRIVEN BY JOB FORECASTS Supportable Land Use Scenarios Base Case Demand 2010-2014 2015-2019 Office Space Absorbed (Includes filling current vacant space): 1,583,297 1,057,206 Net New Office Space Built: 100,000 2,000,000 Net New For-Sale Units (5% vacancy): 1,722 1,214 Net New Rental Units (5% vacancy): 430 303 Net New Regional Retail Space (5% vacancy): 149,579 101,684 Net New Neighborhood Retail Space (5% vacancy): 64,105 43,579 Net New Hotel Rooms-Full Service 317 212 Net New Hotel Rooms-Limited Service 136 91 Net New Jobs 7,571 5,062 The base case scenario assumes that the Cumberland submarket captures 8% of Atlanta office market absorption which represents a fair-share scenario. The base case figure reflects the average market share that Cumberland has captured from 1994 to 2007. Note: Above numbers represent the total for each five year period. This analysis assumes the future breakdown between full-service and limited-service hotels reflects what currently exists within the CCID. Additional analysis would be required to better define future demand. 19
WITH REGIONAL JOBS RETURNING TO PEAK LEVELS BY 2013, RCLCO EXPECTS JOBS WITHIN THE CCID TO RETURN MORE QUICKLY THAN ARC IS FORECASTING ARC RCLCO Base Case Scenario RCLCO Upside Scenario CCID Job Growth 2010-2019 5,900 12,600 19,500 The CCID had over 70,000 employees at its peak in 2000. RCLCO anticipates that the CCID will return to these levels by 2013, while ARC doesn t expect this to occur until 2015 to 2020. Source: Moody s Economy.com, Georgia State t Economic Forecasting Center 20
FISCAL AND ECONOMIC IMPACTS
THE CCID IS A PROFIT CENTER FOR COBB COUNTY; CREATING A POSITIVE NET FISCAL IMPACT Fiscal Impact Analysis examines the direct impact of development within the CCID on the Cobb County operating budget. Current Revenue Impact: $67.8 million Current Expenditure Impact: $63.3 million Current Net Fiscal Impact: $4.5 million Economic Impact Analysis examines the direct, indirect, and induced economic activity in the State of Georgia as a result of employers located with the CCID. Current Impact: 65,500 Total Full-Time Jobs, 1.7% of the Georgia $7.2 Billion Cumulative Labor Income, 2.2% of Georgia $21.2 Billion Cumulative Gross Output, 5.1% of Georgia Note: All budget figures from the Cobb County 2009-2010 Biennial Budget Source: Minnesota IMPLAN Group, RCLCO 22
HOW NEW DEVELOPMENT WITHIN THE CCID IMPACTS THE COBB COUNTY OPERATING BUDGET Direct Operating Tax Revenue Generated by New Development Primary Revenues Real Property Tax Personal Property Tax Business License Revenue Lodging Tax Secondary Revenues Other Charges for Services Other Miscellaneous Revenue - Other Permits, Fines, Etc. Direct Operating Expenditures by County to Support New Development Primary Operating Expenditures Public Safety (Fire and Police) Courts Government Administration Dept of Transportation Other miscellaneous services NOTE: The net fiscal impact does not include estimated capital expenditures necessary for infrastructure construction. 23
METHODOLOGY OF FISCAL IMPACT ANALYSIS RCLCO conducted a fiscal impact analysis of existing commercial and residential development within the CCID boundaries. Current commercial values are based on Cobb County Assessor s data while residential values are based on data from Claritas and RCLCO. Based on interviews with the Cobb County Tax Assessor s s Office, RCLCO assumes a 10% reduction in commercial and residential property values in 2010 (based on 2009 transactions), flat values for 2011 and 2012, and 5% increases for 2013 and 2014. An increase of 2.5 % is assumed for all subsequent years. The Tax Assessor s office expects a 10% drop in values in 2010 but does not forecast for 2011 and beyond. Due to state law, assessed values cannot be increased in 2010 and 2011, but can be increased in 2012. We are assuming they remain flat until 2013. RCLCO also conducted an analysis of the fiscal impact from likely future development within the CCID over a 10-year period from 2010 through 2019. RCLCO utilized job forecasts from Georgia State Economic Forecasting center and Moody s Economy.com to drive the land use demand model. The analyses took into account all major categories of revenues and operating expenditures expected to be received and incurred as a result of the projected development, and incorporated them into a detailed model. The net fiscal impact is equal to the total revenues generated less the cost of providing services, such as public safety and general administration, over the 10-year period. Only operating costs and revenues have been included in the net fiscal impact calculation. Additional revenues allocated to capital expenditures are shown independently. 24
SUMMARY OF REVENUE CATEGORIES & ASSUMPTIONS Property Tax: Estimated revenues flowing the County using the applicable millage rate multiplied by the assessed value. Rates used are: - Cobb County -.0096 - Cumberland CID (commercial property p only) -.0050 Assessed value is equal to 40% of the appraised value which is approximately 95% of fair market value. Sales Tax: Estimated the average sales tax generated by existing and new retail uses within the CCID area. Sales taxes include a 4% state sales tax, 1% SPLOST and 1% education taxes. - SPLOST taxes are allocated 100% for capital improvements (jail, courthouse, 800 MZ project) and DOT transportation expenditures. - The SPLOST revenue flow is above and beyond revenues allocated to the net fiscal impact Estimates current average sales per square foot to be $230 based on average rents of $16 per square and assumption that t rent values are 7% of retail sales revenue. Historic i sales per square foot is in the $270 range. Lodging Tax Revenue generated from tax on occupied hotel rooms Tax of 8% for Cobb County. Miscellaneous Revenues and Taxes Allocated on a per-resident basis other miscellaneous taxes and fees, such as motor vehicle taxes, taxes on tobacco/alcoholic beverages, fees, and other charges for services. 25
SUMMARY OF EXPENDITURES & OTHER KEY ASSUMPTIONS Expenditures within the County, such as expenditures for police, fire, libraries, health, etc, are allocated on a per-resident and per-employee basis. All costs and revenues were escalated by an annual rate of 2.5% between 2015 and 2019. These figures are based on expected CPI rates. The model assumes that future residential development within the CCID is multifamily (either rental or for-sale). The model assumes that 70% of planned hotels are full-service and 30% are limitedservice. This emulates what currently exists within the CCID. The model assumes that 70% of retail square footage is in regional serving (greater than 100,000 sf center) and 30% in neighborhood centers (less than 100,000 sf). This emulates what currently exists within the CCID. 26
NET FISCAL IMPACT TO COBB COUNTY: NEW REVENUE GENERATED LESS NEW EXPENDITURES NECESSARY TO SUPPORT PROPERTIES WITHIN THE CCID CCID Revenue Additional tax revenue (property, lodging and other revenue generated by CCID businesses and households CCID Expenditures Cost to provide goods and services to CCID businesses & residents, operate and maintain new public areas NET FISCAL IMPACT - = of $4.5 million $67.8 million $63.3 3 million NOTE: The net fiscal impact does not include estimated capital expenditures necessary for infrastructure. Sales taxes are allocated as 100% to capital expenditures and are not included above 27
CURRENT REVENUE IMPACT OF THE CCID ON COBB COUNTY CCID Revenue as Total of Cobb County Revenue 9% Revenue generated within CCID, $67.8 91% Revenue from other areas of Cobb County, $688.6 Revenue generated within the CCID represents 9% of Cobb County s budget of $756 million. Note: Sales taxes are allocated as 100% to capital expenditures and are not included above 28
SUMMARY OF CURRENT CAPITAL REVENUE SOURCES Both CCID revenue and SPLOST revenue are used to fund capital improvements and DOT transportation projects within Cobb County The CCID had a budget of approximately $6.1 million in revenue in 2009, a significant portion of which was spent on capital improvements. Additionally, RCLCO estimates that based on retail space, occupancy, rents, and corresponding sales per square foot, the CCID area has been generating approximately $6.5 to $8.5 million annually in SPLOST revenues which are used for transportation projects These figures will grown over time as retail sales return to normalized levels and new development stimulates additionally property tax flows and retail sales. 29
SUMMARY OF CURRENT SCHOOL REVENUE FROM PROPERTY TAXES Revenue Source CCID - 2009 Cobb Total - 2009 % of Cobb School Operating Revenue e $34,664,783, $416,993,292 9 8% Revenue generated from commercial and residential property taxes within the CCID represent about 8% of the total within Cobb County Note: The above figures represent school operating revenues generated from property taxes only. Property taxes represented about 50% of total school revenues. 30
FUTURE COBB COUNTY OPERATING REVENUE GENERATED FROM EXISTING AND NEW DEVELOPMENT WITHIN THE CCID Annual Operating Revenue from New Development 2010-2019 $100,000,000 $90,000,000 $80,000,000 000 000 $70,000,000 $60,000,000 $50,000,000 $40,000,000, $30,000,000 $20,000,000 $10,000,000 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenue from Existing Development Revenue From New Development 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 TOTAL Revenue (in millions) from Existing Development $61.0 $61.0 $61.0 $64.4 $67.8 $69.5 $71.2 $72.9 $74.6 $76.3 $680.0 Revenue (in millions) from New Development $0.0 $0.8 $1.9 $3.2 $6.1 $9.2 $11.6 $14.2 $16.1 $17.2 $80.3 TOTAL $61.0 $61.8 $62.9 $67.6 $73.9 $78.7 $82.8 $87.1 $90.7 $93.5 $760.3 31
FUTURE COBB COUNTY OPERATING EXPENDITURES TO SERVE EXISTING AND NEW DEVELOPMENT WITHIN THE CCID Annual Operating Expenditures from New Development 2010-2019 $100,000,000 $90,000,000 $80,000,000, $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Expenditures (in millions) from Existing Development Expenditures (in millions) from New Development 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 TOTAL Revenue (in millions) from Existing Development $57.0 $57.0 $57.0 $60.2 $63.3 $64.9 $66.5 $68.1 $69.7 $71.3 $635.0 Revenue (in millions) from New Development $0.0 $0.5 $1.0 $1.6 $3.5 $6.0 $7.9 $9.8 $11.1 $11.7 $53.1 TOTAL $57.0 $57.5 $58.0 $61.7 $66.8 $70.9 $74.4 $77.9 $80.8 $83.0 $688.1 32
THE NET FISCAL IMPACT TO COBB COUNTY FROM EXISTING AND NEW DEVELOPMENT WITHIN THE CCID IS POSITIVE, SUGGESTING THAT THE CCID IS A PROFIT CENTER/DONOR TO COBB COUNTY Annual Net Fiscal Impact from New Development 2010-2019 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Net Fiscal Impact (in millions) from Existing Development Net Fiscal Impact (in millions) from New Development 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 TOTAL Net Fiscal Impact (in millions) from Existing Dev. $4.0 $4.0 $4.0 $4.26 $4.5 $4.6 $4.7 $4.8 $4.9 $5.0 $45.0 Net Fiscal Impact (in millions) from New Dev. $0.0 $0.3 $0.9 $1.66 $2.6 $3.2 $3.8 $4.4 $4.9 $5.4 $27,2 TOTAL $4.0 $4.3 $4.98 $5.92 $7.1 $7.8 $8.5 $9.2 $9.87 $10.49 $72.2 The cumulative net fiscal impact of the CCID on Cobb County between 2010 and 2020 is estimated to be $72.2 million Note: The net fiscal impact is the total revenues generated within the CCID less the expenses for services required. All figures are annual operating figures and do not include capital expenditures 33
CCID S REVENUE IS LIKELY TO DIP SLIGHTLY IN THE NEAR TERM AND THEN INCREASE TO $8.5 MILLION BY 2019 Forecasted CCID Annual Revenue 2009-2019 $10,000,000 $9,500,000 $9,000,000 $8,500,000 $8,000,000 $8,552,878 $8,324,592 $7,986,901 $7,500,000 $7,547,559 $7,000,000 $7,120,294 $6,500,000 $6,601,716 $6,000,000 $6,145,220 $6,005,019 $5,500,000 $5,619,294 $5,530,698 $5,549,622 $5,000,000 2009 2011 2013 2015 2017 2019 34
FUTURE COUNTY SPLOST REVENUE GENERATED WITHIN THE CCID AREA IS LIKELY TO INCREASE BY APPROXIMATELY $1 MILLION BY 2019 Forecast SPLOST Annual Revenue in CCID Area 2009-2019 $8,000,000 $7,800,000 $7,600,000 $7,400,000 $7,200,000 000 $7,000,000 $6,800,000 $6,600,000 $6,400,000 $6,623,194 $6,517,539 $6,747,530 $6,884,574 $7,451,252 $7,359,340 $7,270,295 $7,184,119 $7,100,811 $7,020,372 $6,200,000 $6,000,000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Note: The current SPLOST expires year-end 2011. This chart assumes that a 2012-2018 SPLOST will be approved by voters. 35
TYPES OF ECONOMIC IMPACTS ANALYZED: DIRECT, INDIRECT, AND INDUCED Direct Impacts Operation of businesses within the office/flex/manufacturing space Construction of all proposed uses Includes the following factors: Number of jobs created Employment wages Direct business sales/gross revenues Indirect Impacts Created by investment or spending by suppliers whose goods and services are used in processes or services within future office/flex/manufacturing space and during construction Includes the following factors: Number of spinoff jobs created locallyll Employment wages of spinoff jobs Indirect business sales/gross revenues Induced Impacts Results from household income changes (direct or indirect effects on wages and employment) lead to a further effect on consumer spending throughout local economies. RCLCO calculated the induced impacts based on employment and wages generated from operations within future office/flex/manufacturing space and associated with construction 36
RELATIONSHIP OF DIRECT, INDIRECT & INDUCED ECONOMIC IMPACTS Indirect Impacts The affect of business to business spending that is, businesses within the CCID purchasing goods from suppliers who then re- spend that money on employees and other investments. Direct Impacts Total Employees within the CCID and their wages and production output. Induced Impacts The economic affect of employees spending their income in the local economy, and subsequent re-spending by other businesses and employees. 37
SUMMARY OF IMPACTS: DIRECT, INDIRECT, AND INDUCED JOBS Description Direct Indirect Induced Total Total Labor Income CCID Total Output Total CCID 65,553 30,734 38,598 134,885 $ 7,227,046,528 $ 21,293,261,051 11 Ag, Forestry, Fish & Hunting 1 103 200 304 $ 8,179,968 $ 43,586,940 21 Mining 0 7 5 12 $ 1,006,676 $ 3,660,751 22 Utilities 43 103 139 285 $ 50,314,992 $ 255,071,696 23 Construction 1,951 498 207 2,656 $ 114,713,688 $ 351,031,648 31-33 Manufacturing 492 481 592 1,565 $ 105,731,984 $ 720,362,432 42 Wholesale Trade 3,582 739 1,223 5,544 $ 439,730,048 $ 1,165,133,056 44-4545 Retail trade 5,415 472 8,517 14,404404 $ 416,073,024 024 $ 1,004,968,640 640 48-49 Transportation & Warehousing 336 1,149 906 2,391 $ 125,569,096 $ 340,045,312 51 Information 5,357 2,290 568 8,215 $ 921,473,664 $ 4,054,524,672 52 Finance & insurance 7,291 3,816 2,562 13,669 $ 1,050,852,544 $ 3,206,089,984 53 Real estate & rental 3,001 1,995 3,243 8,240 $ 228,833,520 $ 2,482,679,552 54 Professional- scientific & tech svcs 10,687 6,388 1,535 18,610 $ 1,367,186,688 $ 2,680,656,128 55 Management of companies 6,492 559 202 7,253 $ 722,831,552 $ 1,585,387,648 56 Administrative & waste services 9,557 6,789 2,164 18,510 $ 563,454,656 $ 1,059,821,440 61 Educational svcs 754 40 1,084 1,878 $ 65,548,492 $ 119,718,080 62 Health & social services 2,573 41 6,926 9,540 $ 464,600,288 $ 861,117,888 71 Arts- entertainment & recreation 344 606 1,124 2,074 $ 47,904,456 $ 148,102,576 72 Accomodation & food services 6,018 2,226226 4,169 12,413 $ 254,664,016 $ 754,498,816498 816 81 Other services 1,318 1,288 2,028 4,634 $ 112,500,472 $ 268,010,720 92 Government & non NAICs 341 1,144 1,203 2,688 $ 165,876,704 $ 188,793,072 Georgia 3,806,478 3,806,478 $ 329,070,700,000 $ 416,050,447,174 % of Georgia 1.7% 3.5% 2.2% 5.1% Source: Minnesota IMPLAN Group 38
CRITICAL ASSUMPTIONS Our conclusions are based on our analysis of the information available from our own sources and from the client as of the date of this report. We assume that the information is correct, complete, and reliable. We made certain assumptions about the future performance of the global, national, and local economy and real estate market, and on other factors similarly outside either our control or that of the client. We analyzed trends and the information available to us in drawing these conclusions. However, given the fluid and dynamic nature of the economy and real estate markets, as well as the uncertainty surrounding particularly the near-term future, it is critical to monitor the economy and markets continuously and to revisit the aforementioned conclusions periodically to ensure that they stand the test of time. We assume that the economy and real estate markets are close to bottoming out for the current cycle, and that t they will grow at a stable and moderate rate starting ti in 2010, more or less in a straight line on average for the duration of the analysis period (to 2020 and beyond). However, history tells us that stable and moderate growth patterns are not sustainable over extended periods of time, and that the economy is cyclical and that the real estate markets are typically highly sensitive to business cycles. Further, it is very difficult to predict when the current economic and real estate downturns will end, and what will be the shape and pace of growth once they are recovered. With the above in mind, we assume that the long term average absorption rates and price changes will be as projected, realizing that most of the time performance will be either above or below said average rates. Our analysis does not take into account the potential impact of future economic shocks on the national and/or local l economy, and does not necessarily account for the potential ti benefits from major "booms,"" if and when they occur. Similarly, the analysis does not necessarily reflect the residual impact on the real estate market and the competitive environment of such a shock or boom. Also, it is important to note that it is difficult to predict changing consumer and market psychology. 39
CRITICAL ASSUMPTIONS For all the reasons outlined, we recommend the close monitoring of the economy and the marketplace, and updating this analysis as appropriate. Further, the project and investment economics should be stress tested to ensure that potential fluctuations in revenue and cost assumptions resulting from alternative scenarios regarding the economy and real estate market conditions will not cause failure. In addition, we assume that once the current cycle is over, the following will occur in accordance with current expectations: Economic, employment, and household growth. Other forecasts of trends and demographic and economic patterns, including consumer confidence levels. The cost of development and construction. Tax laws (i.e., property and income tax rates, deductibility of mortgage interest, and so forth). The availability and cost of capital and mortgage financing for real estate developers, owners and buyers, at levels present in the market before the most recent run up (i.e., early 2000s levels). Competitive projects will be developed as planned (active and future) and that a reasonable stream of supply offerings will satisfy real estate demand. Major public works projects occur and are completed as planned. Should any of the above change, this analysis should probably be updated, with the conclusions reviewed accordingly (and possibly revised). 40
GENERAL LIMITING CONDITIONS Reasonable efforts have been made to ensure that the data contained in this study reflect accurate and timely information and are believed to be reliable. This study is based on estimates, assumptions, and other information developed by RCLCO from its independent research effort, general knowledge of the industry, and consultations with the client and its representatives. No responsibility is assumed for inaccuracies in reporting by the client, its agent, and representatives or in any other data source used in preparing or presenting this study. This report is based on information that to our knowledge was current as of the date of this report, and RCLCO has not undertaken any update of its research effort since such date. Our report may contain prospective financial information, estimates, or opinions that represent our view of reasonable expectations at a particular time, but such information, estimates, or opinions are not offered as predictions or assurances that a particular level of income or profit will be achieved, that particular events will occur, or that a particular price will be offered or accepted. Actual results achieved during the period covered by our prospective financial analysis may vary from those described in our report, and the variations may be material. Therefore, no warranty or representation is made by RCLCO that any of the projected values or results contained in this study will be achieved. Possession of this study does not carry with it the right of publication thereof or to use the name of "Robert Charles Lesser & Co." or "RCLCO" in any manner without first obtaining the prior written consent of RCLCO. No abstracting, excerpting, or summarization of this study may be made without first obtaining the prior written consent of RCLCO. This report is not to be used in conjunction with any public or private offering of securities or other similar purpose where it may be relied upon to any degree by any person other than the client without first obtaining the prior written consent of RCLCO. This study may not be used for any purpose other than that for which it is prepared or for which prior written consent has first been obtained from RCLCO. 41