Document Moscow_doc_ec038062e3

MARKET ANALYSIS FOR LEGACY CROSSING URBAN RENEWAL DISTRICT, MOSCOW, IDAHO PREPARED FOR THE CITY OF MOSCOW, FEBRUARY 2015 ---PAGE BREAK--- TABLE OF CONTENTS I. INTRODUCTION 1 II. ECONOMIC TRENDS AND CONDITIONS 2 THE NATIONAL ECONOMY 2 THE LOCAL ECONOMY 4 LOCAL DEMOGRAPHIC TRENDS 10 III. RESIDENTIAL MARKET ANALYSIS 16 RENTAL APARTMENTS 16 OWNERSHIP HOUSING 25 IV. COMMERCIAL MARKET ANALYSIS 31 RETAIL SPACE 31 OFFICE SPACE 38 V. CONCLUSION - MARKET OPPORTUNITIES 43 SEGMENTS WITH DEMAND FOR UPSCALE, URBAN APARTMENTS 43 SITES WITH APARTMENT POTENTIAL 44 MIXED-USE EXAMPLES 45 VI. DEVELOPMENT / REDEVELOPMENT POTENTIAL 47 METHODOLOGY 47 FINDINGS 52 A. APPENDIX - PROJECTIONS 56 UNIVERSITY ENROLLMENT AND STUDENT HOUSING DEMAND 56 EMPLOYMENT GROWTH 57 RESIDENTIAL DEMAND 58 COMMERCIAL DEMAND 62 B. APPENDIX – RESIDUAL LAND VALUE CALCULATIONS 66 JOHNSON ECONOMICS, LLC 621 SW Alder, Suite 605 Portland, Oregon 97205 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 1 I. INTRODUCTION JOHNSON ECONOMICS was retained by the City of Moscow to evaluate development opportunities within the Legacy Crossing Urban Renewal District across a number of different land use types, including retail, office and residential uses. The main components of this analysis are: 1) Inspection and evaluation of the study area with respect to competitive market position for the respective land use types. 2) Evaluation of relevant current and projected economic and demographic trends. 3) Evaluation of current market conditions and trends for the respective use types. 4) Evaluation of current and projected demand for the respective use types in light of market conditions and economic and demographic trends. 5) Evaluation of achievable market pricing for the respective use types. 6) Assessment of the redevelopment potential within the study area, including an identification of sites, use types and product types with development potential over the near- to mid-term. This report summarizes the findings and conclusions of our market analysis. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 2 II. ECONOMIC TRENDS AND CONDITIONS THE NATIONAL ECONOMY Economic Output The national economy appears to have recovered from the “Great Recession.” If we ignore the weather- related contraction in the first quarter of 2014, the economy has expanded at healthy rates over the past twelve months. In the second half of 2013 the expansion was 3.4% (annualized), and the growth rate in the second quarter of 2014 was 4.0%, according to preliminary BEA estimates. Private consumption has been the primary driver of growth since the recession, with particularly strong demand for durable goods. Over the last two years, significant contributions have also come from private investment, both in the form of home purchases and corporate investments. FIGURE 3.1: CONTRIBUTIONS TO CHANGE IN REAL GROSS DOMESTIC PRODUCT, ANNUALIZED (2005 – 2013) SOURCE: Bureau of Economic Analysis Though there are signs of strength, the economy faces several headwinds. Domestic demand is still tempered by post-recession caution, both among households and firms, and the government is cutting spending to ensure that it can handle the fiscal challenge represented by aging baby boomers. Further, continued weakness in Europe, Asia and South America translates to low global demand for U.S. goods. All these factors put a drag on employment growth, which in turn restrains consumer spending. This is particularly evident in the service sector, which has expanded by only one percent in each of the last two years. Over the near term, growth is expected to be driven primarily by domestic consumers and firms. U.S. firms have recently shown optimism by boosting their inventory levels and increasing their borrowing. If this optimism persists, hiring and corporate investment might be stronger in the near future. Most predictions for 2014 GDP growth currently hover around 2.5%, while 2015 is expected to see growth around In the long run, annual economic growth is expected to fluctuate around Employment The “Great Recession” eliminated over 8.7 million jobs in the U.S., pushing up the unemployment rate to 10% at its peak. It has taken nearly five years to recover these jobs and bring the unemployment rate – currently at 6.1% –down below its historical average However, the U-6 unemployment rate, which also takes into account workers who are underemployed or who have left the labor market in discouragement, is still high at 12.1%. -10% 0% 2% 4% 6% 8% I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Consumption Private Investment Trade Government Real GDP Growth ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 3 FIGURE 3.2: EMPLOYMENT GROWTH (Y/Y) AND UNEMPLOYMENT RATES, SEASONALLY ADJUSTED, UNITED STATES SOURCE: U.S. Bureau of Labor Statistics Inflation, Monetary Policy, and Interest Rates Inflation has remained subdued since the recession, reflecting the combination of weak global demand for commodities and tepid domestic wage growth. Though there have been signs of increasing domestic wage growth recently, the global outlook is still quite dim, with weakness in China and a Europe dangerously close to deflation. With the Federal Reserve having unwound its stimulative bond buying program and ready to raise short-term interest rates, it is therefore unlikely that inflation will move significantly above the Fed’s 2% target. At the present, the Fed is expected to begin to raise interest rates cautiously in mid- or late 2015. Most economists expect long-term interest rates to climb by around 35 to 50 basis points in each of the next two years. FIGURE 3.3: INTEREST RATES ON MORTGAGES AND 10-YEAR TREASURY NOTES SOURCE: Federal Reserve Bank of Philadelphia, Freddie Mac, Johnson Economics 2% 4% 6% 8% 10% 12% 14% 16% 18% -8,000 -6,000 -4,000 -2,000 0 2,000 4,000 Unemployment New Jobs Employment Growth Unemployment Rate (U-3) Unemployment Rate (U-6) 0% 2% 4% 6% 8% 0% 2% 4% 6% 8% 30-Yr Mortgage Rate 10-Yr Treasury Yield ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 4 Risks of a New Recession Historically, business cycles last about eight years on average, from peak to peak. In terms of GPD growth, the last peak was reached in 2004, and the bottom was hit in 2009. One might therefore think that we should be due for another downturn in the very near future. However, this cycle has been anomalous in many ways, not the least in terms of job recovery. And so far, there are few signs that the economy is getting ahead of itself with over-leveraging and inflated asset prices. There are, however, threats to the U.S. economy from overseas. China, in particular, is a cause of some concern due to its high debt levels and risky investments. With its scale, China could trigger a global recession. However, it has the resources and political will to postpone a crisis for several years. Europe has also been a source of concern recently due to a decline in inflation. If prices across the continent begin to fall, it could have a paralyzing effect on the economy, with ripple effects reaching the United States. With the current momentum in the U.S. economy, these threats are in the near term more likely to cause a deceleration than a recession. If they did cause a recession, it is likely to be shorter and shallower than the previous one. THE LOCAL ECONOMY The economic activity of Moscow is intertwined with that of Pullman, Washington. Together, the two cities form the commercial hub for a large agricultural area and a number of smaller cities in the Palouse region. This overview will therefore look at wider trends in Latah and Whitman Counties as well as more specific trends within the City of Moscow. Employment data is only available at the county level. Both Moscow and Pullman are home to large land-grant universities: University of Idaho in Moscow and Washington State University in Pullman. Students account for more than 40% of the total population of the combined Latah-Whitman region, and the universities employ more than one-fourth of the workforce. Aside from the reliance on the universities, the two counties reflect typical rural economies, with a large agricultural sector and relatively small financial, information, and professional services industries. Employment University and agriculture employment helped limit job losses in the Latah-Whitman region in the most recent downturn. However, like many other parts of Idaho and rural America, the region has seen only weak employment growth since, and the region has not yet regained the jobs it lost in the downturn. The region is currently on a weak trend, with flat growth in 2013 and a decline of 1.6% (Y/Y) so far in 2014. FIGURE 3.5: NON-FARM EMPLOYMENT AND ANNUAL EMPLOYMENT GROWTH (2006 – 2013) SOURCE: Washington State Employment Security Department (WAESD), Idaho Department of Labor 0% 1% 2% 3% 4% 34,400 34,600 34,800 35,000 35,200 35,400 35,600 35,800 36,000 36,200 2006 2007 2008 2009 2010 2011 2012 2013 Annual growth Employment Employment, Latah-Whitman Annual growth, Idaho Annual growth, Latah-Whitman Annual growth, U.S. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 5 Despite relatively stable employment in recent years, the Latah-Whitman region has historically been quite volatile. This is not uncommon for small economies with a narrow economic base. The volatility can be seen in the following chart, which compares growth in Latah, Idaho, and the U.S. since 1980. The chart also shows that local employment growth has underperformed these wider geographies. Weak and unpredictable growth can create a difficult environment for real estate investments and development. FIGURE 3.6: NON-FARM EMPLOYMENT GROWTH SINCE 1980 SOURCE: Idaho Department of Labor Whitman County has experienced stronger growth than Latah County in recent years. This is in large part due to stronger university enrollment, reflecting that demand from students for goods and services have ripple effects in the wider economy. The following charts show employment and on-campus university enrollment in the two counties, illustrating the importance of enrollment. FIGURE 3.7: NON-FARM EMPLOYMENT AND ON-CAMPUS UNIVERSITY ENROLLMENT SOURCE: WAESD, Idaho Department of Labor, City of Moscow -10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Latah Idaho U.S. 10,000 12,000 14,000 16,000 18,000 20,000 22,000 2006 2008 2010 2012 Whitman Employment WSU Pullman Enrollmt. Latah Employment UI Moscow Enrollment 1% 3% 2008 2010 2012 2014 YTD Whitman Employment Growth Latah Employment Growth ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 6 Employment by Industry The manufacturing sector has been the bright spot in recent years, growing from 1,600 to 2,800 jobs between 2006 and 2013. Schweitzer Engineering in Pullman has been the major driver of this growth. Besides manufacturing, the two national growth industries, health and professional services, have also contributed new jobs, though at a slower pace than nationally. Construction has been the laggard. The uptick in construction employment seen elsewhere in the nation over the last two years has been absent in the Latah-Whitman region. FIGURE 3.7: EMPLOYMENT GROWTH BY INDUSTRY SINCE 2006 (LATAH AND WHITMAN) SOURCE: WAESD, Idaho Department of Labor The following chart displays Latah-Whitman’s industry growth compared to Idaho and the United States. Aside from the strong growth in manufacturing, Latah-Whitman has outperformed state and national trends in the professional services sector. Most of the gain in this industry came in 2013, when Latah County alone added around 70 professional services jobs – most of them related to the expansion of Economic Modeling Specialists after its purchase by CareerBuilder. Information and financial services have been the weakest industries relative to state and national trends. These industries are undergoing consolidation and a shift to digital and online content. So far, the region has not succeeded in capturing the new software jobs created in these two industries. Latah County saw a particularly severe loss in the financial industry in 2013, when it lost 38 jobs of the industry), mostly within the insurance sector. -40% -20% 0% 20% 40% 60% 80% 2006 2007 2008 2009 2010 2011 2012 2013 Manufacturing Professional and Business Services Education and Health Services Wholesale Trade Transportation, Warehousing, and Utilities Leisure and Hospitality Government (incl. State Universities) Retail Trade Information and Financial Activities Mining, Logging, and Construction ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 7 FIGURE 3.8: EMPLOYMENT SHARE-SHIFT SINCE 2006 SOURCE: WAESD, Idaho Dept. of Labor, U.S. Bureau of Labor Statistics Retail Employment Retail employment is of particular interest in this study. The retail sector has been weak nationwide after the downturn, reflecting tepid wage growth and cautious use of credit. Brick-and-mortar stores have been the hardest hit, as they continue to cede market share to online competitors. In the nation as whole, gross sales returned to 2007 peak levels in early 2013. However, retail employment has not yet reached pre-recession levels, as self-service scanners and websites increasingly replace in-store sales personnel. Latah owns a disproportionate share of the Latah-Whitman retail market, as it employs roughly 40% more retail workers than Whitman, despite having a smaller population and workforce. Some retail employment has migrated from Latah to Whitman in recent years, in particular due to Wal-Mart closing its Moscow store and opening a Pullman store in late 2010. It reopened its Moscow store in 2012, causing some employment to flow back into Whitman. The Pullman Wal-Mart store, combined with strong WSU enrollment, has fueled a strong sales rebound in Whitman, and the county currently employs 6% more retail workers than in 2006. The rebound has been more muted in Latah, which has seen a decline of 12% in retail employment over this period (figure 3.9). FIGURE 3.9: GROWTH SINCE 2006 IN RETAIL SALES (2006 DOLLARS) AND RETAIL EMPLOYMENT SOURCE: WAESD, Idaho Dept. of Labor, Idaho Tax Commission, WA Dept. of Revenue, U.S. Dept. of Commerce -40% -20% 0% 20% 40% 60% 80% 100% Information and Financial Activities Education and Health Services Leisure and Hospitality Government (incl. State Universities) Retail Trade Transportation, Warehousing, and Utilities Mining, Logging, and Construction Wholesale Trade Professional and Business Services Manufacturing Compared to the U.S. Compared to Idaho -25% -15% 5% 15% 25% 35% 2006 2007 2008 2009 2010 2011 2012 2013 Latah Sales Pullman Sales U.S. Sales Latah Employment Whitman Employment U.S. Employment Moscow W-M closed, reopened Pullman Wal-Mart opened ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 8 The smaller retailers in the Latah-Whitman area do not appear to have participated in the local sales rebound to the degree that Wal-Mart has. If we look at the number of retail establishments rather than the number of employees, there has been a decline in Latah since the downturn, while Whitman has remained stable. (Data on establishments is only available through 2012.) FIGURE 3.10: RETAIL ESTABLISHMENTS (2006 – 2012) SOURCE: U.S. Census Bureau Office Employment Employment in the typical office industries has also been weak. Within Latah County, the combined number of workers in the information, financial, and professional/business services industries has been flat since 2011. Expansion at Economic Modeling Specialists has made up for payroll declines at many other firms. The total number of establishments continued to decline through 2012, with a total loss of 20 firms since 2008. FIGURE 3.11: EMPLOYMENT AND ESTABLISHMENTS WITHIN MAJOR OFFICE INDUSTRIES, LATAH COUNTY (2006 – 2013) SOURCE: Idaho Department of Labor, U.S. Census Bureau 0 20 40 60 80 100 [PHONE REDACTED] 2007 2008 2009 2010 2011 2012 Latah Whitman 0 20 40 60 80 100 120 140 160 180 200 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2006 2007 2008 2009 2010 2011 2012 2013 Firms Workers Prof. Services Employment Financial Employment Information Employment Prof. Services Firms Financial Firms Information Firms LATAH ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 9 The enrollment growth experienced at WSU Pullman appears to have had limited impact on the major office industries in Whitman, although it likely staved off some layoffs and shut-downs that otherwise might have taken place. Eight firms closed their doors between 2007 and 2008, but employment was relatively stable until 2012, when major job losses came in the financial sector. The gain in the number of establishments in 2012 came among small financial firms, perhaps because some laid-off workers started on their own. FIGURE 3.12: EMPLOYMENT AND ESTABLISHMENTS WITHIN MAJOR OFFICE INDUSTRIES, WHITMAN COUNTY (2006-2013) SOURCE: WAESD, U.S. Census Bureau Unemployment Latah-Whitman has historically had unemployment well below state and national averages. However, in recent years, the local unemployment rate has hovered near the state average. Due to the recent weak employment growth, the Latah-Whitman unemployment rate has declined at a slower pace than national and state rates following the downturn. Estimates for mid-2014 indicate that Idaho’s unemployment rate currently is half a percentage point below that of Latah-Whitman FIGURE 3.13: UNEMPLOYMENT RATE (2005 – 2013) SOURCE: Washington State Employment Security Department, Idaho Department of Labor 0 20 40 60 80 100 120 0 200 400 600 800 1,000 1,200 2006 2007 2008 2009 2010 2011 2012 2013 Firms Workers Prof. Services Employment Financial Employment Information Employment Prof. Services Firms Financial Firms Information Firms WHITMAN 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Latah-Whitman Idaho United States ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 10 Unemployment impacts real estate markets in several ways. When the local unemployment rate is higher than in nearby markets, some workers are likely to move to where firms are offering more jobs and higher wages. This has a direct negative impact on residential and retail markets. Office and industrial markets do not necessarily see a negative impact, as firms that are looking to expand or relocate will often prefer areas with good access to inexpensive labor, providing other resources are also available. However, firms that are dependent on attracting skilled labor from outside the market will often consider the prospects of employment for spouses of their employees, and such firms may find that markets with lower unemployment and higher wages offer better prospects overall. Wages Wages in Latah and Whitman are well below state averages. The 2013 average was $31,900 in Latah and $40,800 in Whitman. The state averages, in comparison, were $36,800 in Idaho and $53,000 in Washington. The discrepancy between the two counties reflects the higher share of university jobs in Whitman and higher share of retail jobs in Latah. LOCAL DEMOGRAPHIC TRENDS Population The population of university towns can be difficult to estimate with precision, as students surveyed by the Census Bureau do not always report their college residence as their de facto place of residence. According to official estimates, the City of Moscow had 24,500 people in 2013, with Latah County having a total population of 38,000. Moscow’s population increased by 2,500 over the past ten years – an increase that represents an average annual growth rate of 1.1%. This is below the state average of 1.2%, but higher than the national growth rate of 0.7%. Pullman has grown significantly faster, due to the strong enrollment growth at WSU. Pullman added 5,400 people over this period, for an annual growth rate of 1.9%. Pullman’s current population is 31,400, while that of Whitman County is 46,600. FIGURE 3.14: TOTAL POPULATION (2000 - 2013) SOURCE: U.S. Census Bureau 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Latah Whitman Moscow Pullman ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 11 The year-to-year population growth in the two cities has been volatile, and largely mirrored enrollment growth at WSU and UI. The post-recession enrollment boost that UI Moscow experienced between 2009 and 2012 pushed annual growth rates above one percent, but the growth rate has since fallen as these students have graduated and the number of new students has declined. FIGURE 3.15: ANNUAL POPULATION GROWTH (2001 - 2013) SOURCE: U.S. Census Bureau There is a significant difference between the population growth of Moscow and Pullman in terms of the segments that have contributed to the growth. Pullman has seen rapid growth among student-age segments (15-29 years old) since the downturn (+16% since 2008), but a decline among other age groups Moscow, on the other hand, saw no change in its student-age population over this period, but an 11% increase among non-student-age segments. It may appear that the influx of students to Pullman is driving away some non-students, causing them to settle in Moscow. FIGURE 3.16: STUDENT-AGE AND NON-STUDENT-AGE POPULATION (2003 – 2013) SOURCE: U.S. Census Bureau 0% 1% 2% 3% 4% 5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Pullman Moscow Idaho United States 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Moscow student-age Moscow non-student-age Pullman student-age Pullman non-student-age ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 12 Household Growth Moscow had 9,600 households in 2012, according to the Census Bureau – an increase of 1,900 units since the 2000 Census. Moscow’s rate of household growth has been higher than its general population growth, due to an increasing share of students living in households rather than group quarters (dormitories). The average annual household growth between 2000 and 2012 was 1.8%, compared to 1.1% population growth. Estimates for 2014 households, produced by Nielsen Claritas,1 indicate 9,494 current households in the city. This represents a decline of around 100 households since 2012 and a negative growth rate of -0.5% in each of the last two years. The average annual growth rate for the 2010 – 2014 period was 0.8%, compared to 1.7% in the prior decade. The following chart displays how the distribution of households across different age groups has changed since the 2000 Census, using estimates for 2014 by Nielsen Claritas. As noted earlier, the estimates likely understate student households. The chart reveals a relatively young population, with particular growth among student-age and empty-nester/retirement households over the period. Growth among the older categories is consistent with wider demographic trends, reflecting the aging of the baby boomer cohort. FIGURE 3.17: HOUSEHOLDS BY AGE (2000 AND 2014) SOURCE: Nielsen Claritas The following chart displays a profile of Moscow’s households by household income (adjusted to current dollars). The chart reveals strong growth among middle- and upper-income households. This likely reflects employment growth at the two universities, as well as growth among firms like Economic Modeling Specialists. It also likely reflects growth in the empty-nester segment, which tends to earn higher wages than younger segments. 1 Nielsen Claritas is a third-party provider of demographic data, which uses census data and a number of other public and private data sources to identify trends and make projections for the near and mid-term future. 0 500 1,000 1,500 2,000 2,500 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households 2000 2014 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 13 FIGURE 3.17: HOUSEHOLDS BY INCOME (2000 AND 2014) SOURCE: Nielsen Claritas The chart below displays median household income by age group in 2000 and 2014 (adjusted for inflation). Moscow has seen income growth among households where the householder is 45 years old and older, particularly in late-family-stage and empty-nester segments. In terms of land use, this typically correlates with an increase in suburban single-family housing and suburban retail centers. FIGURE 3.17: MEDIAN HOUSEHOLD INCOME BY AGE (2000 AND 2014) SOURCE: Nielsen Claritas 0 500 1,000 1,500 2,000 2,500 Under $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000 and more Households 2000 2014 $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 15-24 25-34 35-44 45-54 55-64 65-74 75-84 85+ Age 2000 2014 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 14 COMMUTE PATTERNS The observation that Moscow captures more population growth in non-student segments than Pullman while Pullman achieves higher employment growth is reflected in commute data from the Census Bureau. Commute data is released with a lag and the most recent dataset is from 2011. This dataset shows that Pullman has significantly more workers commuting into the city from the outside than Moscow, while Moscow has more workers commuting out. FIGURE 3.17: COMMUTING WORKERS*, MOSCOW AND PULLMAN * Primary Jobs only. SOURCE: U.S. Census Bureau As the following pie charts reveal, only a small share of Moscow’s workforce commute in from Pullman (panel However, a relatively large share (17.6%) of Moscow’s employed residents work in Pullman (panel This indicates that employment is more abundant in Pullman, and/or that Moscow is a more attractive place of residence. The geographies combined in “Other” all represent less than one percent each. FIGURE 3.18: PLACE OF RESIDENCE AND WORKPLACE FOR MOSCOW WORKERS AND RESIDENTS (2011) SOURCE: U.S. Census Bureau Over the past decade, Moscow residents have increasingly found work in other cities, including in Pullman. Roughly 5,400 Moscow residents (63% of all employed residents) had their primary jobs in Moscow in 2002; by 2011 the number had decreased to 4,500 (53% of all employed residents). Over this period, positions within Moscow were increasingly filled by workers commuting in from other nearby cities, though Pullman’s contribution to Moscow’s workforce remained nearly constant (figure 3.19 and 3.20). Direction Moscow Pullman Commute In 5,057 7,819 Live/Work Within 4,495 5,127 Commute Out 4,051 3,683 0 2,000 4,000 6,000 8,000 Moscow Pullman Where Moscow Workers Live Moscow Lewiston Pullman Coeur d'Alene Boise Potlach Other Where Moscow Residents Work Moscow Pullman Lewiston Boise Coeur d'Alene Spokane Other ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 15 FIGURE 3.19: WHERE MOSCOW WORKERS LIVE (2002 - 2011) FIGURE 3.20: WHERE MOSCOW RESIDENTS WORK (2002 - 2011) SOURCE: U.S. Census Bureau A possible explanation for this trend is that the shift in the employment mix between 2002 and 2011 led to unemployment among many existing Moscow residents while attracting skilled labor from the outside. Over this period, the retail industry lost 460 jobs in Latah County, accounting for 89% of all job losses. The industries that generated the most new jobs over this period were education and health services, gaining 320 jobs. Low-paying positions that do not require higher education tend to be filled by people who live near the jobs, while higher-paying jobs requiring specific skill sets are more difficult to match with local labor and also tend to attract workers who already own homes in other areas and who can afford to commute. The latter may have been exacerbated by the collapse of the real estate market, which prevented many homeowners from selling their homes. Since 2011, the retail industry has gained more than 200 jobs while education and health have remained flat, indicating that this trend by now has reversed or at least subsided. 0 2,000 4,000 6,000 8,000 10,000 12,000 Other Pullman Moscow 0% 20% 40% 60% 80% 100% Other Pullman Moscow 0 2,000 4,000 6,000 8,000 10,000 Other Pullman Moscow 0% 20% 40% 60% 80% 100% Other Pullman Moscow ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 16 III. RESIDENTIAL MARKET ANALYSIS In this section, we analyze the market for residential products at the subject site. The analysis is organized in two parts: one for the rental market and one for the ownership market. Consistent with proposed zoning within the Legacy Crossing Urban Renewal District, only multi-family product types have been considered. However, trends in the single-family market have also been studied in order to gauge wider currents in the residential markets. Moscow’s residential markets remained relatively stable through the nationwide real estate crisis that began in 2007. Sales volumes dropped significantly, but the ownership market experienced only modest price declines. Between 2006 and 2009, there was a steep drop in residential building activity within the city – across all product types – with the total number of permitted units dropping from around 300 to 30 (figure 4.1). The lack of new supply helped support occupancy rates, rents, and sales prices. In the most recent years, the ownership market has continued to recover while the multi-family market has experienced some weakness due to weak enrollment numbers at UI. FIGURE 4.1: RESIDENTIAL BUILDING PERMITS, CITY OF MOSCOW (2004 – 2013) * 2014 YTD SOURCE: City of Moscow The charts displayed above show the dramatic decline in residential building over the past ten years. For multi-family buildings, the construction volume has generally been in the range of 20 to 30 units per year since 2006, with the exception of the Grove project in 2009 and a Baker Street project in 2012. RENTAL APARTMENTS General Overview The apartment market in Moscow is dominated by student-oriented projects. Most of these are located near the UI campus and are built to a basic standard. A number of new off-campus student projects were constructed in the first half of the 2000s, when UI enrollment grew quite rapidly. In 2009, a national developer built the Grove – a 190-unit project with a more upscale profile. This project is located further from campus, on the south side of the city, and caters primarily to older students. Most of the student- focused projects that have been completed after the Grove have been located north of campus on Baker 0 50 100 150 200 250 300 350 Units All Residential Multi-Family Duplex Single-Family 0 2 4 6 8 10 12 14 16 18 0 50 100 150 200 250 Buildings Units Multi-Family, 5+ Units Units Buildings ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 17 Street. In addition to the student-oriented projects, Moscow also has some affordable (tax credit) projects of relatively recent vintage, located on the south and southeast side of Moscow. Recent Trends The apartment market in Moscow has shown some weakness recently, reflecting enrollment declines at UI. Rents fell 2.4% in the fall of 2013 compared to the previous year, while the vacancy rate increased 0.4 percentage points. In most apartment markets, a 5% vacancy rate is regarded as a balanced market, as this is usually the inflection point at which managers begin to either raise or lower rents. However, in markets dominated by student housing, a lower vacancy rate is expected during the school year, reflecting that managers usually aim for full occupancy during this period. The smallest units have fared best in the most recent years. One-bedroom units were the only unit type with rent increases and a drop in vacancy in 2013. These units rely to a lesser extent on the student segment than the larger units that can accommodate roommates. The market for four-bedroom units has been particularly weak. The oversupply of this unit type may to some extent reflect the requirement that freshman students live in on-campus housing, which was introduced in 2010. FIGURE 4.2: AVERAGE FALL APARTMENT VACANCY AND RENT, MOSCOW SOURCE: Palouse Commercial Real Estate Pipeline Supply Two apartment projects are currently in the pipeline in Moscow: one with 18 units in 3 buildings; the other with 120 units in 15 buildings. Both are market-rate projects located on White Avenue southeast of Downtown. According to plans, they will be more upscale than most student projects, and are intended to appeal to a broader tenant base. FIGURE 4.3: PROFILE OF SURVEYED APARTMENT PROJECTS SOURCE: City of Moscow 0% 1% 2% 3% 4% 5% 6% 7% 2011 2012 2013 Vacancy $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2011 2012 2013 Rents 1 Bedroom 2 Bedrooms 3 Bedrooms 4 Bedrooms Average Project Name Location Status Est. Delivery Buildings Units Merrell Apartments 2000 E White Ave Under Construction 2014 - 2015 3 18 Kestrel Project 2300 E White Ave Proposed 2015 - 2016 15 120 Total Units 138 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 18 Apartment Market Survey JOHNSON ECONOMICS surveyed a sample of ten relatively recent apartment projects in order to assess the market for new apartments in Moscow. With the exception of the McConnell Building, all the projects were completed within the last ten years. Seven of the properties are located in Moscow and two are located Downtown Pullman. The McConnell Building, Turnstone Flats, and the two Pullman properties can be considered urban-style buildings, while the remaining properties are garden-style projects. Below, we present a map of these projects. The map is followed by an individual profile of each property and a summary of the most pertinent observations. FIGURE 4.4: MAP OF SURVEYED APARTMENT PROJECTS SOURCE: MapPoint, JOHNSON ECONOMICS 1 The Grove 2 Tule Way 3 Blackk Cove 4 Baker Apartments 5 400 N Adams 6 506 N Jefferson 7 McConnell Building 8 Turnstone Flats 9 Bridgeway Centre (Pullman) 10 Market Square Lofts (Pullman) l Subject SURVEYED PROPERTIES PULLMAN MOSCOW ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 19 FIGURE 4.5: PROFILE OF SURVEYED APARTMENT PROJECTS 1) THE GROVE 209 Southview Ave, Moscow, Idaho Year Built: 2009 [Not discl.] Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 2B/2b 128 67% 807 $950 $1,050 $1.25 3B/3b 64 33% 1,200 $1,287 $1,530 $1.17 Total/Avg: 192 100% 938 $950 $1,530 $1.23 2) TULE WAY 250-258 Baker St, Moscow, Idaho Year Built: 2004 96% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 1B/1b 4 14% 520 $475 $550 $0.99 2B/1b 24 86% 1 730 $670 $720 $0.95 Total/Avg: 28 100% 1 700 $475 $720 $0.96 Notes: Students. In-unit washers/dryers available only in 2B. W/s/g included in rent. No pets. 3) BLACKK COVE 286-310 Baker St, Moscow, Idaho Year Built: 2011-13 98% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 1B/1b 52 100% 1 528 $575 $575 $1.09 Total/Avg: 52 100% 1 528 $575 $575 $1.09 Notes: Mostly students. W/s/g included in rent. No pets. Surface parking. 4) BAKER STREET APARTMENTS 225-249 Baker St, Moscow, Idaho Year Built: 2010-13 100% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 2B/2b 72 100% 1,050 $726 $726 $0.69 Total/Avg: 72 100% 0 1,050 $726 $930 $0.69 5) 400 N ADAMS APARTMENTS 400 N Adams St, Moscow, Idaho Year Built: 2006 88% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 1B/1b 4 50% 600 $575 $575 $0.96 2B/2b 4 50% 1 1,100 $800 $800 $0.73 Total/Avg: 8 100% 1 850 $575 $1,140 $0.84 Occupancy: Community Amenities: Laundry room. Unit Amenities: Vinyl/carpet flooring, laminate countertops, oak cabinets, washer/dryer. Occupancy: Occupancy: Unit Amenities: Carpet/laminate wood flooring, black appliances, washer/dryer. Notes: Student-oriented. Furnished. Individual lease. Rent includes: w/s/g + $25 el., internet, cable. Pets allowed for a fee. No covered parking. Concessions and occupancy not disclosed. Community Amenities: Unit Amenities: Vinyl/carpet flooring, laminate countertops, oak cabinets, washer/dryer. Occupancy: Community Amenities: Unit Amenities: Vinyl floors, oak cabinets, lam. countertops, black/white appl., washer/dryer. Notes: 3 buildings. No pets. Surface parking. Unit Amenities: Vinyl and carpet flooring, laminate countertops, white appliances, oak cabinets. Notes: Includes w/s/g, internet. Surface parking. Occupancy: Community Amenities: Laundry room, surface parking. Community Amenities: Fitness center, outdoor pool, club house (w/coffee bar, game room, pool table, library), volleyball court, basketball court, barbeque area, fire pit, secured access. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 20 SOURCE: Surveyed properties, online listings, JOHNSON ECONOMICS 6) 506 N JEFFERSON APARTMENTS 506 N Jefferson St, Moscow, Idaho Year Built: 2005 100% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 1B/1b 8 100% 620 $650 $650 $1.05 Total/Avg: 8 100% 0 620 $650 $1,050 $1.05 7) MCCONNELL BUILDING 104 S Main St, Moscow, Idaho Year Built: 1891 100% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF Studio 27 77% 250 $400 $450 $1.70 1B/1b 8 23% 350 $475 $620 $1.56 Total/Avg: 35 100% 0 273 $400 $620 $1.67 8) TURNSTONE FLATS 129 W Third St, Moscow, Idaho Year Built: 1936 (2012) 100% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 1B/1b 4 50% 564 $680 $895 $1.43 2B/1b 4 50% 668 $930 $1,100 $1.45 Total/Avg: 8 100% 0 616 $880 $1,100 $1.44 9) BRIDGEWAY CENTRE 350 E Main St, Pullman, Washington Year Built: 2004 100% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 1B/1b 5 83% 0 932 $1,000 $1,147 $1.15 2B/2b 1 17% 0 1,218 $1,234 $1,234 $1.01 Total/Avg: 6 100% 0 980 $1,000 $1,355 $1.13 10) MARKET SQUARE LOFT APARTMENTS 105 W Main St, Pullman, Washington Year Built: 1927 (2006) 100% Type Units Unit Mix Vacant Size (SF) Rent Low Rent High Rent/SF 1B/1b 2 22% 0 684 2B/2b 1 11% 0 1,289 $1,600 $1,600 $1.24 3B/2b 6 67% 0 1,400 $1,700 $1,700 $1.21 Total/Avg: 9 100% 0 1,229 $1,600 $1,700 $1.23 Occupancy: Community Amenities: Laundry room, elevator, secured entry, storage units. Unit Amenities: Vinyl/carpet flooring. Notes: Tenants are mostly young professionals. Note: the property did not participate in our survey, and some unit rents were estimated based on rent levels posted online. Occupancy: Community Amenities: Private parking Unit Amenities: Balconies, granite countertops, oak cabinets, stainless steel appliances, gas heat, gas fireplace, washer/dryer, air conditioning. Notes: W/s/g included. 2nd floor of retail building. Unit Amenities: Exposed brick/rafters/ducts, steel staircase, concrete/tile floors, concrete counter, stainless steel appl., cherry cabinets, walk-in closet, utility room, washer/dryer, a/c. Notes: Above ground-floor retail. Current rents were not disclosed, and rents displayed above are estimates based on past rents: 2B was $1,450 in 2012; 3B was $1,550 in 2011. Unit Amenities: Vinyl/carpet flooring. Occupancy: Community Amenities: Covered parking available, secured access. Notes: Tenants are mostly grad students, professionals and some elderly. Rents include w/s/g. Occupancy: Community Amenities: Storage units. Balcony/patio available. Unit Amenities: Tile/carpet/vinyl floors, bath tub, washer/dryer, gas fireplace, bay windows. Notes: Includes w/s/g and internet. Surface parking. No pets. Occupancy: Community Amenities: Laundry room, elevator, secured entry, storage units. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 21 Orientation and Profile Moscow’s apartment market is dominated by student-oriented projects located near the UI campus. Most of these are of a very basic standard and virtually without community amenities, reflecting the price sensitivity of students and the fact that many amenities are offered on campus. Among the Moscow properties, only the Grove is of a higher standard, with more appointed units and a wide range of community amenities. The latter serves to offset the project’s relative lack of proximity to campus. The two surveyed non-student projects in Moscow, the Turnstone Flats and the McConnell Building, are both located Downtown, but represent two different markets. The Turnstone Flats is a recent redevelopment with modern units catering to young, creative professionals. The McDonald Building is a nineteenth century historic building occupied predominantly by graduate students, professionals and elderly. The building is an expired tax credit project that was renovated in the 1980s. The two Pullman projects are similar to Turnstone Flats in that they offer recently built apartments at Downtown locations. They are also similar in terms of scale and lack of community amenities. Pricing Rents at the more basic student projects generally range between $300 and $400 per bed in two- and three-bedroom units, and between $450 and $650 for studios and one-bedrooms. On a per-square-foot (PSF) basis, these units achieve rents between $0.70 and $1.10 per square foot, with the smaller units capturing the highest PSF rates. In general, these rates represent a premium to on-campus options. The low rates at Baker Street Apartments reflect discounting to fill units that were vacant at semester start. The Grove is at a higher price point, at about $500 per bed, and a $1.23 PSF rate. At Turnstone Flats the rents are in the $680-$1,100 range, or around $1.45 per square foot. The McConnell Building charges $400 to $600 per unit, translating into a high project PSF rate of $1.67 due its micro-size units. The two Pullman properties are at a higher rent level, between $1,000 and $1,700 per unit. Even with their large units, this translates to relatively high blended PSF rates of $1.13 and $1.23. Occupancy Excluding the Grove, which did not disclose occupancy rates, only three units were vacant across the sample. This translates to an overall occupancy rate of 99%, which is quite typical in student markets during the school year. It should be noted that the Grove offered concessions several weeks into the fall semester this year, indicating at least some vacancies at this project. Rents were reduced at properties on Baker Street prior to the semester start in order to fill vacant units. Competitive Position and Achievable Pricing Achievable pricing for an apartment project within the Renewal District will vary depending on the specific site within this area and the level of product execution. We regard sites located along Jackson Street between Third and Sixth Streets to be best positioned, and our following estimates of achievable rents will reflect our expectations for these, with a discount indicated for other parts of the district. Competitive Position Our estimates of achievable pricing are based on our assessment of the competitive position of sites within the Renewal District relative to the surveyed properties. The competitive position, in turn, is primarily a function of locational attributes (access, visibility, views, surrounding land use, nearby amenities), but we also consider the newer vintage and our expectations for project quality and on-site amenities. With respect to the latter, only larger sites will have the scale required to offer on-site amenities with measurable rent impact. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 22 In terms of location, we regard the strongest sites within the Renewal District to be positioned considerably above the less centrally located properties on Baker Street and South Main Street, on par with Turnstone Flats, and below the McConnell Building and the Pullman properties. In terms of amenities, a new development in the Renewal District has the potential to offer a broader range than what is currently offered at any of surveyed projects with the exception of the Grove, which has a larger site and greater economies of scale. At the larger sites within the district, we would expect a community lounge and possibly a fitness room, both of which would justify somewhat higher rents. In terms of building quality, wear, and up-to-date design and layouts, we expect a positioning somewhat above the Pullman projects, Turnstone, and the Grove, and significantly above the remaining projects in the sample. Achievable Pricing The considerations regarding competitive position justify the rent levels indicated by the red curve in the following chart. FIGURE 4.6: PEER GROUP PRICING ANALYSIS SOURCE: Surveyed properties, online listings, JOHNSON ECONOMICS The rent curve shown above indicates achievable rents ranging from $835 per month for a 500-square- foot studio unit to around $1,450 for a large three-bedroom unit. With the unit mix assumed below, this translates to overall project rents of around $1.45 per square foot. Achievable rents are expected to move with the wider market prior to delivery. The rents assume adequate market depth. FIGURE 4.7: ACHIEVABLE PRICING – RENTAL APARTMENTS SOURCE: JOHNSON ECONOMICS $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 100 300 500 700 900 1,100 1,300 1,500 Rent Square Feet The Grove Tule Way Blackk Cove Baker Street Apts. 400 N Adams 506 N Jefferson McConnell Building Turnstone Flats Bridgeway Centre Market Square Lofts SUBJECT Unit Type Units Unit Mix Average Size Avg. Rent Avg. PSF Rent Studio 15 30% 500 $835 $1.67 1B/1b 18 36% 600 $928 $1.55 2B/1b 5 10% 850 $1,152 $1.36 2B/2b 10 20% 1,000 $1,280 $1.28 3B/2b 2 4% 1,200 $1,444 $1.20 Sum/Average 50 100% 699 $1,014 $1.45 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 23 It is important to note that the existing supply, even the higher end Grove project, reflects a product type and execution well below what would be expected for new market-rate construction in most markets. As a result, there is a significant opportunity to deliver a top-of-market property that can establish new price points for Moscow. Market Depth Because students and non-students have somewhat different preferences in terms of location and housing product, we will distinguish between the two segments in our projections for rental apartment demand. Estimates of apartment demand from students are deduced from enrollment projections that JOHNSON ECONOMICS has developed for UI Moscow. Estimates of demand from non-students are developed using a housing demand model developed by JOHNSON ECONOMICS. This model utilizes household growth projections developed by Nielsen Claritas, adjusted to reflect our expectations for local enrollment and employment growth. A more detailed presentation of our demand projections is included in the appendix. Students Our enrollment projections for UI Moscow (on-campus students only) indicate a decline of around 240 students over the coming five years under the baseline scenario. We assume that roughly one-fifth of Moscow students live in households headed by non-students. This indicates a decline in student housing demand of roughly 200 beds. Under the high-growth scenario, our model indicates a net increase of roughly 200 students, translating into demand for around 150 student housing beds. Non-students According to our baseline scenario, which assumes flat enrollment growth (combined UI and WSU) and annual employment growth of 0.5% (Latah-Whitman), the model indicates structural (net new) demand from non-students for around 40 rental apartments over the coming five years (110 under the high- growth scenario). The growth is expected to be concentrated in the lower income brackets, with the strongest growth represented by retirees and young adults. Note that pent-up demand, which is difficult to estimate quantitatively in small geographies,2 is not included in these estimates. FIGURE 4.8: STRUCTURAL (NET NEW) RENTAL APARTMENT DEMAND (2014 – 2019) SOURCE: JOHNSON ECONOMICS 2 Pent-up demand is reflected in unusually large household size averages, which are reported by the Census Bureau’s American Community Survey. However, these estimates are highly uncertain for small geographies. Structural Demand -5 0 5 10 15 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort -20 -10 0 10 20 30 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 24 When demand from renters in turnover is included, the total demand profile represents around 175 lease transactions annually. As is indicated by the following chart, the market is dominated by younger households with modest incomes. However, roughly one-fifth are households with incomes above 50,000, and these represent around 35 lease transactions per year. FIGURE 4.9: TOTAL RENTAL APARTMENT DEMAND (2014 – 2019) SOURCE: JOHNSON ECONOMICS Market Opportunities In light of current enrollment trends and recent declines in market rents, the potential for additional apartment supply in Moscow is somewhat limited. There already appears to be some oversupply in the lower end of the market, as reflected in the deep rent discounts at projects like Baker Street Apartments, measured relative to the higher-quality Grove and Turnstone projects. The promotions offered this fall at the Grove may also indicate limited market depth for more upscale, garden-style apartments focused specifically on students. Our survey might indicate some support for an apartment project oriented toward graduate students and non-students. Both Turnstone Flats and the McConnell Building achieve relatively high rent levels (and a lack of vacancy), without offering luxury units. This suggests some unmet demand for Downtown apartments and/or apartment communities without a student profile. The two projects currently in the pipeline on White Avenue represent many years of projected new non-student demand (not counting pent-up demand), but these will not cater to segments with a preference for Downtown living. They are likely also located too far from campus to appeal to graduate students. Among the sites within the Renewal District, we believe those located near Downtown and at some distance to campus are best positioned to capture demand from graduate students and non-students. The site located directly east of University Pointe (Sixth and Jackson) is likely the strongest candidate in this respect. Sites that are more detached from the vibrant part of Downtown are more likely to be perceived as student projects. It is difficult to estimate the market depth for upscale, urban apartments due to the uncertainty related to pent-up demand (see note 2, preceding page). However, taking into account current enrollment and household growth trends and projected market depth in middle- and upper-income households, we reckon that only a project of limited scale (30 to 70 units) is likely to find adequate market depth at the indicated levels of achievable pricing. Total Demand 0 50 100 150 200 250 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort 0 50 100 150 200 250 300 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 25 OWNERSHIP HOUSING Recent Trends Across the United States, the market for condominiums was disproportionately hard hit in during the downturn, due to its high share of young homeowners. Younger segments were more likely to become unemployed or underemployed during the crisis due to their lack of workplace seniority, and their lack of savings caused many of them to lose their homes in foreclosure. The inordinately high foreclosure rates for condominiums caused a glut of discounted supply on the market, at the same time as demand was choked off by lenders who became hesitant to finance these homes due to their elevated risk. Moscow was spared for the kind of turmoil that the rest of the nation experienced in the wider ownership market, and its small condominium market was to a large degree buoyed by demand from students (or their parents) and investors renting out to students. According to broker Gary Tribble, the condominium market has tracked the wider ownership market over the past years. The ownership market has been relatively stable in recent years, but with a decline in sales volume and pricing in 2013, and some improvement so far in 2014. The feasibility of condominium development within the Legacy Crossing Urban Renewal District has been significantly reduced over the past years since the Federal Housing Administration required that a majority of the units be pre-sold and intended for owner-occupancy before it will approve the development for individual home loans. As a consequence, lenders have set similar or even tougher conditions before they will finance the construction of these projects. The current credit requirements create a particular hurdle for a development near a university campus. Students generally do not qualify for home loans, and non-students who intend to purchase condo units as owner-occupants will likely be wary of buying into projects near campus, where they might expect to have a large number of student renters as neighbors. Satisfying the 50% pre-sale/owner-occupant requirement does therefore not appear feasible under current standards. However, these requirements have already been eased once since the downturn, and may be eased again, potentially allowing for condominium development within the Renewal District in the future. Pipeline Supply There is no known supply of multi-family condominium projects in the pipeline within Moscow. Ownership Market Survey In order to assess the current market for urban condominiums within Moscow, JOHNSON ECONOMICS surveyed a sample of seven multi-family condominium projects. Six of these are located in Moscow, and one is located near the WSU campus in Pullman. The majority of the projects have student residents, and many units are owned by investors. The locations of the properties are shown on the following map, and an individual profile of each project is included on the following pages. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 26 FIGURE 4.8: MAP OF SURVEYED CONDOMINIUM PROJECTS SOURCE: MapPoint, JOHNSON ECONOMICS 1 Blackk Cove Cond. 2 Palouse Crest 3 Rubeck Ridge 4 Deer Park 5 Polk Extension 6 Washington Street 7 Stonegate (Pullman) l Subject SURVEYED PROPERTIES MOSCOW PULLMAN ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 27 FIGURE 4.9: PROFILE OF SURVEYED CONDOMINIUM PROJECTS 1) BLACKK COVE CONDOMINIUM Address: 182 Baker St, Moscow, Idaho Year Built: Total units: Community Amenities: Unit Amenities: Carpet/vinyl flooring, laminate countertops, extra storage. Unit Type Status Size (SF) Price Price/SF #202 3B/1b Sold Jun-2014 1,460 $147,400 $101 #301 3B/1b Off Market 1,460 $149,000 $102 2) PALOUSE CREST Address: 1311 W A St, Moscow, Idaho Year Built: Total units: Community Amenities: Unit Amenities: Carpet/vinyl flooring, oak cabinets, laminate countertops. Unit Type Status Size (SF) Price Price/SF #101 3B/2b For Sale 1,050 $99,500 $95 #103 3B/2b For Sale 1,050 $100,100 $95 #202 3B/2b Off Market 1,050 $112,000 $107 3) RUBECK RIDGE Address: 135 Baker St, Moscow, Idaho Year Built: Total units: Community Amenities: Unit Amenities: Carpet,tile,vinyl flooring, laminate countertops, vaulted ceilings (2nd floor), balconies. Unit Type Status Size (SF) Price Price/SF #204 3B/2b For Sale 1,050 $107,499 $102 #103 3B/2b For Sale 1,050 $100,100 $95 4) DEER PARK Address: 1487 Northwood Dr, Moscow, Idaho Year Built: Total units: Community Amenities: Unit Amenities: Carpet/wood laminate flooring, laminate countertops, walk-in closet, vaulted ceilings. Unit Type Status Size (SF) Price Price/SF #203 3B/2b For Sale 1,050 $112,900 $108 #102 3B/2b Off Market 1,051 $106,500 $101 5) POLK EXTENSION CONDOMINIUMS Address: 1529 N Polk Ext., Moscow, Idaho Year Built: Total units: Community Amenities: Unit Amenities: Vinyl and carpet flooring, laminate countertops, white appliances, oak cabinets. Unit Type Status Size (SF) Price Price/SF #1 3B/2b For Sale 868 $74,900 $86 #2 3B/2b Off Market 1,010 $105,500 $104 1999 4 1996 16 2007 12 1995 16 1993 40 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 28 SOURCE: Latah County MLS, online listings, JOHNSON ECONOMICS Summary of Survey Observations The majority of the surveyed condominium projects are small-scale, low-rise projects built in the late nineties, and without community amenities. Only one of the projects in Moscow was completed within the past ten years (Blackk Cove, 2007). The Moscow projects hold a basic standard, consistent with their primary use as student housing. The Pullman project, Stonegate, which is a lower density townhouse development, was included for what it might reveal about demand and pricing for a more upscale product. It is located near downtown, adjacent to the WSU campus. The surveyed projects have only two sales transactions within the last two years, of which one was in Pullman. Eight units are currently for sale in Moscow, and another four units have been taken off the market within this period without being sold. This indicates low demand. Pricing is typically around $100 per square foot. The one unit that sold in Moscow, a 1,460-square-foot unit at Blackk Cove, sold for $147,000, or $101 per square foot. Most of the units for sale are around 1,000 square feet and have asking prices around $100,000. The Washington Street project stands out with somewhat higher asking prices, roughly $110,000 for 800-square-foot units, translating into a PSF price of $130. The higher prices likely reflect that this is a four-plex located away from the UI campus on the north side of Downtown. The Stonegate project has achieved significantly higher pricing than the Moscow projects, at $300,000 for a 1,900 square foot unit, or $156 per square foot. Most likely, this does not only reflect the higher standard of the units, but also the stronger enrollment growth in Pullman (and thus higher expectations for future prices), Pullman’s larger student pool (and thus more market depth), that the units are townhouses with downstairs garages, and the quad-type configuration (4B/4b). The latter makes the units suitable for renting to four students, which gives these units more utility per square foot than a similarly large unit intended for one household. 6) WASHINGTON STREET Address: 529 N Washington St, Moscow, Idaho Year Built: Total units: Community Amenities: Storage units, balconies, two reserved gravel parking spaces per unit. Unit Amenities: Carpet/vinyl/tile floors, laminate countertops, oak or white cabinets. Unit Type Status Size (SF) Price Price/SF #A 2B/1 For Sale 839 $109,500 $131 #B 2B/1 For Sale 839 $107,000 $128 7) STONEGATE CONDOMINIUMS Address: 715 NE Oak St, Pullman, Washington Year Built: Total units: Community Amenities: Two-car garages with direct unit access, views, adjacent to WSU. Unit Amenities: 9' ceilings, stainless steel appl., granite counters, hardwood/tile floors, gas fireplace. Unit Type Status Size (SF) Price Price/SF #E 4B/4b Sold Mar-2013 1,929 $300,000 $156 #D 4B/4b Off Market 1,892 $315,500 $167 2007 10 1995 4 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 29 Competitive Position and Achievable Pricing We would expect a condominium development within the Renewal District to be positioned above all of the Moscow projects in terms of location, building quality, amenities, and vintage. We expect a positioning roughly on par with the Stonegate project, when adjusting for the difference in product type. We regard the Renewal District as offering a comparable location to Stonegate, and we assume a similar unit standard, but with the additional benefit of community amenities. For the purpose of estimating achievable pricing, we considered location premiums for central locations in Moscow, as reflected in single-family and townhouse sales. We further made adjustments to the observed prices for the expected higher standard, newer vintage, moderate community amenities, and for the factors mentioned with respect to Stonegate. The following chart and table illustrate our estimates for achievable pricing. It should be noted that the margin of error is high when there is a lack of good comparables in the current market. Further, the estimates do not take into account market depth and the possible need for discounts in order to achieve acceptable absorption rates. FIGURE 4.10: PEER GROUP PRICING ANALYSIS SOURCE: Latah County MLS, online listings, JOHNSON ECONOMICS FIGURE 4.11: ACHIEVABLE PRICING – CONDOMINIUM FLATS SOURCE: JOHNSON ECONOMICS $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 500 700 900 1,100 1,300 1,500 1,700 1,900 2,100 Price Square Feet Blackk Cove Palouse Crest Rubeck Ridge Deer Park Polk Extension Washington Street Stonegate (Pullman) SUBJECT Unit Type Units Unit Mix Average Size Avg. Price Avg. Price/SF Studio 5 10% 600 $93,000 $155 1B/1b 23 46% 700 $103,500 $148 2B/1b 2 4% 850 $119,250 $140 2B/2b 15 30% 1,100 $145,500 $132 3B/2b 5 10% 1,300 $166,500 $128 Sum/Avg. 50 100% 876 $121,980 $139 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 30 Market Depth Due to the current lending requirements, an urban condominium development will only be feasible within Moscow if there is sufficient demand from potential owner-occupants. Because students typically are not owner-occupants, we will exclude student household from the following demand analysis. The analysis utilizes the same housing model with the same assumptions as for rental apartments, but with focus on households with a preference for multi-family ownership housing. Our demand model indicates a very shallow market for urban condominiums. Under the baseline scenario, a net increase of six households with a preference for multi-family ownership housing is anticipated over the coming five years. With turnover included, roughly 30 transactions are expected within this market segment over the coming five years, or 6 transactions per year. FIGURE 4.11: STRUCTURAL AND TOTAL DEMAND, MULTI-FAMILY OWNERSHIP (2014 – 2019) SOURCE: JOHNSON ECONOMICS Market Opportunities We do not currently regard an urban condominium development to be feasible within the Renewal District. The owner-occupant pre-sale requirement will be difficult to meet, particularly on sites near the UI campus, as potential owner-occupant buyers will likely expect the project to be dominated by students. In addition, current achievable pricing is likely too low to support a well-appointed development with positive impacts on its surroundings. Finally, without the student segment, Moscow does not appear to have adequate demand for this use type. Structural Demand 0 1 2 3 4 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort -2 0 2 4 6 8 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort Total Demand 0 5 10 15 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort 0 2 4 6 8 10 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 31 IV. COMMERCIAL MARKET ANALYSIS RETAIL SPACE Recent Trends The market for retail space in Moscow has seen modest improvement over the past years. Though rents have not changed much, the overall vacancy rate has declined and currently sits at a low 5.9%, according to Palouse Commercial Real Estate. The Downtown vacancy rate is even lower, at 4.4% - the lowest in the Moscow market. The Downtown market is also the submarket that has seen the greatest declines in vacancy over the past three years, indicating relatively strong demand in this submarket. Overall vacancy rates in Pullman are comparable to Moscow’s, though Downtown Pullman currently has 10.6% vacancy. Rents in Moscow are highest west of Downtown, along Pullman Road, at an average of $17 per square foot. Rents in Downtown average $11 per square foot, reflecting the lower traffic volume and smaller and more dated spaces. FIGURE 5.1: MOSCOW RETAIL MARKET TRENDS SOURCE: Palouse Commercial Real Estate Pipeline Supply According to city planners, there are three retail projects currently under construction within Moscow. A 3,200-square-foot restaurant building is going up at the intersection of 6th Street and Jackson Street, with 1,900 square feet pre-leased to Jimmy Johns and the remaining space currently available for pre-lease. Further north on Jackson Street, Hunga Dunga Brewing is remodeling an existing building for a new brew- pub. North of Downtown, at the intersection of Main Street and Rodeo Drive, Meineke Muffler is constructing a service shop. Together, we estimate that the three buildings supply roughly 7,000 square feet of retail space, all to be delivered in 2015. FIGURE 5.2: SUPPLY PIPELINE, RETAIL SPACE * Square footage is estimated SOURCE: City of Moscow, JOHNSON ECONOMICS 2% 4% 6% 8% 10% 12% 14% 2012 2013 2014 Vacancy (2012 - 2014) $15 $17 $11 $8 $11 $0 $5 $10 $15 $20 Rents (2014) Downtown South East West North Project Location Status Delivery Square Footage Jimmy Johns 525 S Jackson St Under Construction 2015 3,200 Hunga Dunga Brewing* 333 N Jackson St Under Construction 2015 1,000 Meineke Muffler* 970 N Main St Under Construction 2015 3,000 Total Square Feet 7,200 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 32 Retail Market Survey JOHNSON ECONOMICS surveyed a sample of eight retail projects, existing and under construction, with recent lease transactions or space available for lease. Five of the projects are located Downtown, and three are located outside Downtown. FIGURE 5.3: MAP OF SURVEYED RETAIL PROPERTIES SOURCE: MapPoint, JOHNSON ECONOMICS Profiles of the surveyed properties are included on the following pages. 1 525 S Jackson 2 University Pointe 3 519 S Main 4 118 E Third 5 Crossler Building 6 Rodeo Center 7 Village Mall 8 1016 W Pullman l Subject SURVEYED PROPERTIES ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 33 FIGURE 5.4: PROFILE OF SURVEYED RETAIL PROPERTIES 1) 525 S JACKSON STREET Address: 525 S Jackson St, Moscow, Idaho Year Built: Total square feet: 3,200 Leased 59% (pre-lease) Lease Type NNN Asking Rate ($/Yr/SF) $19.00 2) UNIVERSITY POINTE Address: 317 W 6th, Moscow, Idaho Year Built: Total square feet: 25,712 Occupancy 100% Lease Type NNN Asking Rate ($/Yr/SF) $13.00 3) 519 S MAIN STREET Address: 519 S Main St, Moscow, Idaho Year Built: Total square feet: 3,000 Occupancy 50% Lease Type NNN Asking Rate ($/Yr/SF) $12.00 4) 118 E THIRD STREET Address: 118-120 E 3rd St, Moscow, Idaho Year Built: Total square feet: 3,883 Occupancy 100% Lease Type Modified Gross Asking Rate ($/Yr/SF) $5.88 2014 1950 Notes: One-story retail/office building with two 1,500 SF. spaces. One currently available. Notes: Freestanding building on 10,000 SF. lot at NWC. Designed primarily for restaurant use. 1,900 SF pre-leased to Jimmy John's; 1,300 SF warm shell offered for $19/SF. 1900 Notes: Two-story historic building with retail on ground floor and office above. Two spaces (1,942 SF. each) leased in September for January 2015 occupancy. 2003 Notes: Retail on ground floor with office above. No space currently available. NNNs estimated to $3-4 PSF. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 34 SOURCE: Loopnet, online listings, Palouse Commercial Real Estate, JOHNSON ECONOMICS 5) CROSSLER BUILDING Address: 111 E 2nd St, Moscow, Idaho Year Built: Total square feet: 4,000 Occupancy 86% Lease Type Full Service Asking Rate ($/Yr/SF) $19.64 6) RODEO CENTER Address: 212 E Rodeo Dr, Moscow, Idaho Year Built: Total square feet: 12,500 Occupancy 63% Lease Type NNN Asking Rate ($/Yr/SF) $15.00 7) VILLAGE MALL Address: 866 Troy Rd, Moscow, Idaho Year Built: Total square feet: 19,642 Occupancy 63% Lease Type Modified Gross Asking Rate ($/Yr/SF) $15.00 8) 1016 W PULLMAN ROAD Address: 1016 W Pullman Rd, Moscow, Idaho Year Built: Total square feet: 2,871 Occupancy Lease Type NNN Asking Rate ($/Yr/SF) $6.96 2005 1885 Notes: Two-story historic building with retail on ground floor and office above (10,000 sf. total). One retail space of 550 SF. currently available. Unknown Notes: Older but recently remodeled building on 8,000 SF. Lot between Wendy's and AutoZone on Pullman Road. Leased to Stiches & Petals. Notes: Strip mall with two spaces available: 1,650 SF. available since 2008; 3,000 SF. available since 2012. Existing tenants are medical service providers. Center for sale for $1.8M, or $144/SF. Notes: Strip mall with recent leases of spaces between 1,194 and 3,000 SF. Center for sale for $2,85M, or $145/SF. 2005 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 35 Summary of Survey Observations The surveyed properties represent a mix of building formats and vintages. With the exception of University Pointe and the new Jimmy John’s building, the Downtown buildings are all more than sixty years old, and mostly occupied by smaller boutiques and secondhand stores. Among the projects located outside of Downtown, two are strip malls that were built within the past ten years, and one is an older freestanding building situated adjacent to the recent University Crossing development on Pullman Road. Rents vary significantly within the sample. The older buildings along Main Street in Downtown range from around $6 per square foot on a modified gross basis to $20 full service. The only triple net lease among these properties has an asking rate of $12 PSF. The building currently under construction at 525 S Jackson Street, which enjoys stronger exposure, has an asking rate of $19, triple net. The smaller spaces in the University Pointe building have leased for around $13, triple net. Due to their vintage and locations, these two properties are important reference points for achievable pricing at other sites in the Renewal District. The two strip-malls in the sample have asking rates of $15 PSF, triple net. However, these have high vacancy rates, and negotiated rates are likely to be lower. The older building on Pullman Road has a low asking rate of $7 PSF, triple net, reflecting its vintage and lack of modern storefront. Its newer strip mall neighbors were offered through pre-lease at $20-25, triple net, in 2011. Competitive Position & Achievable Pricing Among the sites with near-term redevelopment potential within the Renewal District, we regard the corner sites on 3rd/Jackson and 6th/Jackson to be best positioned. These sites have the potential for similar lease rates as 525 S Jackson (Jimmy Johns building). Assuming that the actual transaction rate for the available space at the Jimmy Johns site will be discounted 10% from the current asking price, we estimate achievable rents at these sites to be $17 per square foot, triple net. The Idaho Inn site, which has lower near-term redevelopment potential, is arguably an even stronger retail site, due to more traffic exposure. Assuming a rate premium of 15% for this site, we estimate its achievable rents to be $19-20. Achievable pricing at the other sites within the Renewal District will represent a discount to the mentioned sites. Sites with frontage along SR-8 (Jackson St, 3rd St, Troy Rd) are expected to achieve rates in the $12 - $15 range, with the highest rates on Jackson between 3rd and 6th Streets, and the lowest rates south of College Street. Retail Spending Leakage and Demand Growth In this section, we analyze potential opportunities for retail development in Moscow based on the current spending leakage to surrounding areas and anticipated new demand as a result of household growth over the five-year forecast horizon. For the purpose of these analyses, we define the primary trade area for a retail development in Downtown Moscow as Moscow proper plus the surrounding areas located within a five-mile radius of Downtown. Residents within this trade area are expected to contribute roughly three- fourths of the demand. A ten-mile radius defines the secondary trade area, which includes Pullman. Spending Leakage A comparison of current household retail spending to current retail sales within the defined trade areas reveals patterns of spending leakage – losses of retail sales to other geographic regions. The leakage represents potential unmet demand (identified as “opportunity gap” in the following table) that may be filled by new retailers within the trade area. Smaller towns typically exhibit considerable leakage, as they do not have the household counts required to sustain retail businesses dependent on considerable scale. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 36 FIGURE 5.5: RETAIL SPENDING LEAKAGE, PRIMARY TRADE AREA SOURCE: Nielsen Claritas, JOHNSON ECONOMICS The preceding table indicates annual leakage of nearly $150 million within the primary trade area, representing nearly one-third of total retail spending. The retail categories that show the greatest leakage and thus the greatest opportunity are mostly dominated by large-format stores, oriented toward auto traffic in suburban settings auto dealers, furniture, sporting goods, general merchandise/ department stores). The primary category for boutique stores in a pedestrian, downtown environment is the “Miscellaneous Store Retailers” category, which shows a current oversupply (retailers capture spending from out-of-area households). The category for restaurants and bars also shows oversupply. In other words, the pattern of current spending leakage indicates few immediate opportunities for retail development in Downtown Moscow. The secondary market area shows a greater spending leakage in the categories suitable for Downtown locations (figure 5.6). This explains how Moscow can sustain the “oversupply” indicated for the primary trade area for miscellaneous stores and restaurants/bars. It also indicates that the Moscow-Pullman region might have an opportunity for more retail within these categories. However, the leakage is relatively modest (37% and 20%, respectively), suggesting only limited opportunities in these categories. FIGURE 5.6: RETAIL SPENDING LEAKAGE, SECONDARY TRADE AREA SOURCE: Nielsen Claritas, JOHNSON ECONOMICS MOSCOW (5-Mile Radius) 2014 Demand 2014 Supply Opportunity Opportunity Retail Category (NAICS) (Consumer Spending) (Retail Sales) Gap (Surplus) Gap Motor Vehicle and Parts Dealers-441 100,511,291 50,985,919 49,525,372 49% Furniture and Home Furnishings Stores-442 8,759,614 5,608,153 3,151,461 36% Electronics and Appliance Stores-443 11,028,324 7,359,116 3,669,208 33% Building Material, Garden Equip Stores -444 46,336,323 46,411,953 (75,630) 0% Food and Beverage Stores-445 60,987,574 59,927,375 1,060,199 2% Health and Personal Care Stores-446 19,006,783 26,144,520 (7,137,737) -38% Gasoline Stations-447 50,602,485 25,324,514 25,277,971 50% Clothing and Clothing Accessories Stores-448 23,410,813 11,289,285 12,121,528 52% Sporting Goods, Hobby, Book, Music Stores-451 12,421,396 1,488,801 10,932,595 88% General Merchandise Stores-452 56,722,193 17,739,608 38,982,585 69% Miscellaneous Store Retailers-453 14,705,092 18,776,594 (4,071,502) -28% Non-Store Retailers-454 44,104,658 3,844,075 40,260,583 91% Foodservice and Drinking Places-722 54,821,355 81,098,905 (26,277,550) -48% Total/Average $503,417,901 $355,998,818 $147,419,083 29% MOSCOW-PULLMAN (10-Mile Radius) 2014 Demand 2014 Supply Opportunity Opportunity Retail Category (NAICS) (Consumer Spending) (Retail Sales) Gap (Surplus) Gap Motor Vehicle and Parts Dealers-441 $249,647,393 $170,342,945 $79,304,448 32% Furniture and Home Furnishings Stores-442 $21,106,550 $13,972,085 $7,134,465 34% Electronics and Appliance Stores-443 $28,453,584 $11,644,331 $16,809,253 59% Building Material, Garden Equip Stores -444 $110,528,364 $58,737,209 $51,791,155 47% Food and Beverage Stores-445 $148,371,149 $204,302,837 ($55,931,688) -38% Health and Personal Care Stores-446 $43,802,769 $53,475,963 ($9,673,194) -22% Gasoline Stations-447 $122,671,022 $80,532,935 $42,138,087 34% Clothing and Clothing Accessories Stores-448 $59,805,112 $13,825,885 $45,979,227 77% Sporting Goods, Hobby, Book, Music Stores-451 $32,278,313 $5,475,843 $26,802,470 83% General Merchandise Stores-452 $138,706,899 $20,995,026 $117,711,873 85% Miscellaneous Store Retailers-453 $36,863,065 $23,385,109 $13,477,956 37% Non-Store Retailers-454 $112,835,182 $3,991,901 $108,843,281 96% Foodservice and Drinking Places-722 $139,919,229 $112,137,448 $27,781,781 20% $1,244,988,631 $772,819,517 $472,169,114 38% ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 37 Retail Demand from Household Growth Applying projected household growth rates for Moscow to the primary market area indicates an increase of around 270 households under the baseline scenario. Based on current average household spending, this should lead to a spending increase of approximately $7 million in the primary market. Assuming typical sales-per-square-foot ratios, this translates into demand for an additional 28,000 square feet of retail space. Roughly 20% of this demand is anticipated to be for retail space located in a downtown context, primarily belonging to the categories of miscellaneous stores (boutiques) and restaurants/bars. Household growth is thus projected to support nearly 6,000 square feet of new retail space in Downtown over the coming five years, or 1,200 square feet per year. FIGURE 5.7: PROJECTED DOWNTOWN RETAIL SPACE DEMAND, PRIMARY TRADE AREA (2014 – 2019) SOURCE: Nielsen Claritas, JOHNSON ECONOMICS The secondary trade area is projected to represent additional demand for downtown retail space in the order of 9,000 square feet over the forecast period. Pullman is likely to capture the majority of this demand, but Moscow has the potential to capture some of this demand if it can gain competitive advantage in terms of creating an attractive downtown retail environment. (See appendix for details.) Retail Market Opportunities The preceding market analysis reveals a mixed picture in terms of opportunities for a new retail development within the Renewal District. The high vacancy rates at the malls surrounding the Renewal District indicate general weakness in the Moscow market. Further, spending patterns do not indicate much unmet demand for pedestrian-oriented retail within greater Moscow, and household growth over the forecast horizon is only expected to have a marginal impact. However, the Downtown submarket has seen relatively strong absorption of retail space in recent years, and currently enjoys a very low vacancy rate (4.4% vs. 10% considered normal). With roughly 4,000 square feet of space currently under construction to house a new sandwich restaurant and a brew pub, some of the unmet demand for Downtown retail space is about to be met. However, we expect that the market will have some capacity to absorb additional space over the coming five years. A likely obstacle to new development is the relatively low rent levels in Downtown, which currently average $11 per square foot, according to Palouse Commercial Real Estate. Low lease rates have likely contributed to the current low vacancy rate in this submarket. This means that the unmet demand for retail space in Downtown may be at a rate that cannot support new development. Much of the current demand for retail space comes from antique stores and small boutiques with relatively low rates of sales per square foot. Such retailers are unable to support new construction. MOSCOW (5-Mile Radius) Sales Support NAICS Category Factor 1 2014 2019 '14-'19 ∆ Downtown 441 Motor Vehicle and Parts Dealers $422 238,165 243,815 5,650 0% 0 442 Furniture and Home Furnishings Stores $228 38,434 39,345 912 0% 0 443 Electronics and Appliance Stores $329 33,487 34,281 794 0% 0 444 Building Materials and Garden Equipment $424 109,231 111,822 2,591 0% 0 445 Food and Beverage Stores $469 130,061 133,146 3,085 0% 0 446 Health and Personal Care Stores $304 62,471 63,953 1,482 20% 296 448 Clothing and Clothing Accessories Stores $170 137,615 140,880 3,264 20% 653 451 Sporting Goods, Hobby, Book and Music $217 57,239 58,597 1,358 20% 272 452 General Merchandise Stores $179 317,164 324,687 7,524 0% 0 453 Miscellaneous Store Retailers $138 106,179 108,698 2,519 50% 1,259 722 Foodservices and Drinking Places $291 188,284 192,750 4,466 75% 3,350 Totals/Weighted Averages 1,180,164 1,208,160 27,996 21% 5,830 Spending Supported Retail Demand (SF) Downtown Demand (SF) ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 38 In light of these considerations, we regard purely speculative retail developments to be unlikely over the forecast period. Developments anchored by pre-leased tenants, such as the new Jimmy Johns building, are more realistic, but our analyses indicate only limited demand for retail space from such retailers over the forecast horizon. At sites with strong exposure, we regard some absorption of smaller spaces at adequate rent levels to be likely over the forecast horizon. OFFICE SPACE Recent Trends Moscow’s office market has largely followed the same trajectory as the retail market in recent years, though with somewhat weaker improvements in occupancy. The closing of two auto dealerships in 2013 contributed to increasing vacancy in certain submarkets, but the Downtown submarket saw a decline in the vacancy rate to a low of 3.8%. The overall vacancy rate for office space is 6.8% in and 8.4% in Pullman. Rents have remained flat recently in recent years. The highest rents are found west of Downtown, at an average of $15 PSF, and the lowest are east of Downtown, at around The Downtown submarket currently has an average of reflecting a mix of triple net and gross leases. FIGURE 5.8: MOSCOW OFFICE MARKET TRENDS SOURCE: Palouse Commercial Real Estate Supply Pipeline There is no office development currently in the pipeline in Moscow, according to city planners. Office Market Survey JOHNSON ECONOMICS surveyed a sample of four office projects with recent lease transactions or available space for lease. Three of the projects are located in Downtown Moscow, and one is located in Pullman. Profiles of the properties are included on the following pages. 2% 4% 6% 8% 10% 12% 14% 2012 2013 2014 Vacancy (2012 - 2014) $9 $15 $5 $12 $6 $0 $5 $10 $15 $20 Rents (2014) Downtown South East West North ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 39 FIGURE 5.9: MAP OF SURVEYED OFFICE PROPERTIES SOURCE: MapPoint, JOHNSON ECONOMICS 1 Federal Building 2 University Pointe 3 Crossler Building 4 Corporate Pointe l Subject SURVEYED PROPERTIES MOSCOW PULLMAN ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 40 FIGURE 5.10: PROFILE OF SURVEYED OFFICE PROPERTIES SOURCE: Loopnet, online listings, Palouse Commercial Real Estate, JOHNSON ECONOMICS 1) FEDERAL BUILDING Address: 220 E 5th St, Moscow, Idaho Year Built: Total square feet: 43,049 Leased 100% Lease Type Unknown Negotiated Rate ($/Yr/SF) $16.16 2) UNIVERSITY POINTE Address: 317 W 6th, Moscow, Idaho Year Built: Total square feet: 25,712 Occupancy 100% Lease Type NNN Asking Rate ($/Yr/SF) $13.00 3) CROSSLER BUILDING Address: 111 E 2nd St, Moscow, Idaho Year Built: Total square feet: 4,000 Occupancy 77% Lease Type Full Service Asking Rate ($/Yr/SF) $10.49 4) CORPORATE POINTE Address: 840 SE Bishop Blvd., Pullman, WA Year Built: Total square feet: 17,321 Occupancy 100% Lease Type NNN Asking Rate ($/Yr/SF) $16.00 1973 Notes: Sold for $2.38M or $55/SF in 2012, with an estimated $3M in neeeded renovations. Quoted lease rate based on public GSA lease-back contract for 25k SF. Parking for 108 vehicles. 2003 Notes: Retail on ground floor with office above. No space currently available. NNNs estimated to $3-4 PSF. Unknown Notes: Two-story building adjacent to Pullman Regional Hospital. Existing tenants are medical/dental, title company, etc. Two suites (1,668 and 2,004 SF) available from Jan 2015. 1885 Notes: Two-story historic building with retail on ground floor and office above (10,000 sf. total). One office space of 915 SF. currently available. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 41 Summary of Survey Observations The four surveyed properties represent different office formats. The Federal Building is a civic office building, which will likely have specific requirements set by its governmental tenant that might warrant above-market rents. University Pointe and the Crossler Building are both mixed use buildings with ground floor retail and office and the second floor. These buildings are oriented more toward office tenants within industries like information, finance, and professional services. However, the two buildings are of very different vintage, being built almost 120 years apart. University Pointe is the best reference point for achievable pricing within the Renewal District, given its location as well as its vintage. Corporate Pointe is the only suburban project in the sample. It is similar to the Federal Building in that it is a pure office building oriented toward larger tenants. However, its tenants are mostly from medical sectors, reflecting its location near Pullman Regional Hospital. The highest rents in the sample are captured by the projects oriented toward government and medical sectors. This likely reflects a combination of the specific requirements set by these types of tenants as well as the general stability of their industries. As discussed in the section on local economic trends, other typical office industries have generally seen declines in firm and employee counts recently (with EMSI as a notable exception). The lack of demand from these industries has likely prevented rent increases for smaller downtown office spaces. According to Shelley Bennett at Palouse Commercial Real Estate, up-to- date office space typically leases for around $12 per square foot, triple net, and there is little demand for space at higher rent levels. Competitive Position & Achievable Pricing Among the sites within the Renewal District, we regard sites located near Gritman Medical Center to be best positioned, as these can capitalize on the desire among medical services providers to be located near a major hospital. With access to and visibility from major arterials (SR-8, Highway 95), such sites might capture triple-net lease rates around $15 to $16 per square foot. Sites with similar access and exposure but located further from the Hospital are likely to be positioned similarly to University Pointe, and might capture rates around $13 to $14, although special build-to-suit arrangements could warrant higher rates. Sites that have neither of these attributes are not likely to lease for more than $10-$12. The quoted rates assume adequate market depth. Market Depth Demand for office space is a direct result of employment in office-space-utilizing industries. JOHNSON ECONOMICS has developed a model that converts expected employment growth by industry into office space demand by applying typical rates for office space utilization within each industry and rates for typical space per employee. Employment growth projections are based on industry-specific forecasts produced by the State of Idaho, adjusted to reflect the impacts of anticipated enrollment growth at UI Moscow and WSU Pullman. A more detailed presentation of the methodological steps involved in the modeling is included in the appendix. Reflecting our relatively low growth expectations for the Latah-Whitman economy over the next five years, our demand model indicates a modest increase in office space demand over this period. Under the baseline scenario, the net increase within Latah County is estimated to 21,000 square feet of space over the period, or approximately 4,000 square feet per year. This estimate reflects overall employment growth of 0.5%. Our high-growth scenario, which reflects employment growth of 1.0%, indicates demand for 45,000 square feet over the period, or around 9,000 per year. Downtown office space is assumed to capture nearly half of this demand, or roughly 10,000 square feet over the forecast period. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 42 FIGURE 5.11: PROJECTED OFFICE SPACE DEMAND (2014 – 2019) SOURCE: JOHNSON ECONOMICS Office Market Opportunities Moscow’s office market is relatively tight at the present, and our projections indicate some support for new office development over the coming five years. The two industries that have produced most of the gains in office employment in the recent past are health services and professional and business services. Based on our market depth projections, these industries will also contribute the majority of the new demand over the coming five years. In this context, there might be an opportunity for a medical office development on sites near Gritman Medical Center. A development intended to capitalize on demand within the professional/business services industry would likely have to involve EMSI, which is the main driver of growth in this industry. Apart from EMSI and health services, the demand is anticipated to be limited and to come at rent levels that for the most part will be inadequate to justify new development. Office Space-Utilizing Demand Avg. Space '14-'19 Downtown Downtown Employment Sector 2014 2019 Per Job 1 2014 2019 Change (SF) Capture Demand Construction 7 7 285 2,015 2,137 123 0% 0 Manufacturing 19 19 285 5,372 5,547 175 0% 0 Wholesale Trade 15 15 285 4,227 4,398 170 0% 0 Retail Trade 94 98 285 26,774 27,851 1,078 0% 0 T.W.U. 26 27 285 7,314 7,553 239 0% 0 Information 104 106 285 29,629 30,295 666 50% 333 Financial Activities 362 375 285 103,311 106,943 3,631 75% 2,724 Professional & Business 713 738 285 203,265 210,410 7,145 50% 3,572 Education 37 38 285 10,475 10,736 262 0% 0 Health Services 385 403 285 109,677 114,935 5,258 50% 2,629 Leisure & Hospitality 88 92 285 24,961 26,222 1,261 0% 0 Other Services 149 154 285 42,480 43,865 1,385 50% 693 Government 1,930 1,930 285 550,128 550,128 0 20% 0 Total 3,929 4,004 1,119,630 1,141,022 21,393 47% 9,951 1 Average office employment density by industry sector based on Urban Land Institute guidelines. Total Office Empl. Total Office Space Need (SF) ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 43 V. CONCLUSION - MARKET OPPORTUNITIES The use types that are likely to exhibit the strongest market support in Central Moscow over the near- to mid-term are upscale, urban apartments and medical office space. We regard these as feasible development forms even in a generally weak market environment. In the case of apartments, there are indications of pent-up demand for upscale options; in the case of medical office space, the demographic composition of the local population indicates a steady increase in demand. Slight declines in employment, enrollment, or household formation are not likely to materially impact the market support for these use types. The analysis also indicates some support for additional commercial space within the study area, though not at a scale that will justify larger developments. Smaller retail spaces could potentially work as part of a mixed-use development with apartments, something that in turn would enhance the marketability of the apartments. However, we expect absorption of new retail space (priced at rent levels that can support new construction) to be slow in the near future, and pre-leases will likely have to be in place in order to make a larger retail component viable. A relocation of the University bookstore is a possible solution that makes a mixed-use project immediately viable without causing a dilution of the Downtown retail market. In the following, we will focus on urban apartments, due to the immediate potential for this development form within the Renewal District and the benefits such a development might offer for Downtown Moscow and the University of Idaho. SEGMENTS WITH DEMAND FOR UPSCALE, URBAN APARTMENTS Non-Students An upscale apartment project in the Renewal District is likely to draw support from a broad range of segments. We expect young professionals, empty-nesters, and retirees to dominate. Demand from these segments is indicated by the current tenant profile at Turnstone Flats and the McConnell Building, as well as our demand projections for Moscow. The latter indicate that retirees will be the single largest segment in terms of net new apartment demand over the coming five years. However, most of the pent-up demand is likely to be among younger cohorts, which dominate the current renter base. Our projections indicate that roughly 35 lease transactions annually will involve apartment households with incomes above $50,000, a segment that has few apartment options in the current market. Students We also expect students to contribute to some of the demand for upscale apartments. Students are sometimes underestimated in the context of high-end spending, including spending on apartment rent, due to the fact that student loans and transfers from parents are not commonly taken into account. An analysis performed by JOHNSON ECONOMICS in the Portland Metro Area indicated that older students in particular are willing to stretch their budgets and take on debt to pay for apartment rent. The analysis revealed that apartment renters in the 25-to-34-year cohort with annual incomes below $15,000 (students and non-students) spent an average of 127% of their income on rent, while 15-to-24-year-olds in the same income bracket spent 97% on average.3 In other words, income is a poor indicator of typical spending among students. This is true for retail spending as well as for rent. Across the nation, student housing developers have recognized that today’s students have a stronger preference for well-amenitized apartment projects than previous generations. Consequently, numerous 3 Based on an analysis of Microdata Samples from the American Community Survey (U.S. Census Bureau), collected across the Portland Metro Area between 2007 and 2011, representing 5% of the population. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 44 luxury student projects have been built in recent years. The two Grove projects in Moscow and Pullman are modest reflections of this trend. Many developers have also perceived increasing demand for more urban locations among students. Examples of this can be found in Eugene, Oregon, where several recent student projects have been built in or near Downtown. A project named 13th & Olive is an example of a student-oriented project that is both upscale and urban. Among a number of other amenities, this project includes a pool, which is unusual for urban projects. FIGURE 6.1: 13TH & OLIVE (EUGENE, OREGON) SOURCE: Capstone Collegiate Communities The trend toward stronger high-end demand from students is often ascribed to the higher expectations set by today’s students, reflecting the increasing comfort of middle-income American homes. However, in many cases, it is the parents rather than the students who decide on (and pay for) the more upscale apartment options, which promise a safer, cleaner, and generally better environment for their young. We expect the same dynamics to be in place in Moscow, and we suspect that the availability of such housing could increase the marketability of UI Moscow. SITES WITH APARTMENT POTENTIAL There are several sites within the Renewal District that have potential for urban apartments. We have highlighted four sites in the image to the right. The potential of the site in the north end of the Renewal District (First and Almond St.) is primarily as a mid-market option, given the character of its surroundings. The site located south of Crites Seed has potential for a large-scale student project, which is unlikely to be realized in the current environment. Its potential for a mixed-use or pedestrian- oriented development is limited given its detachment from the more vital, pedestrian parts of Downtown. In the following, we will focus on the two smaller sites on Sixth Avenue, due to their more immediate development potential and greater benefits to the City and the University. Sixth & Jackson The vacant lot located at the southwest corner of W Sixth Street and W Jackson Street is likely the strongest candidate for an upscale, urban apartment development. Located only one block from Main Street, this site is directly linked to the pedestrian Downtown area. A study earlier conducted by JOHNSON ECONOMICS indicates a strong price impact associated with pedestrian access to urban amenities like restaurants, bars, and movie theaters.4 The site’s marketability is further enhanced by its arterial access 4 JOHNSON GARDNER, “An Assessment of the Marginal Impact of Urban Amenities on Residential Pricing,” 2007. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 45 and visibility, which makes for convenient living and allows it to be easily sighted by passersby. The site’s connection to Downtown makes it a good candidate for a non-student-focused apartment project, though its proximity to campus makes it an attractive option for students as well. The Sixth and Jackson site is also has retail potential, and thus is suitable for a mixed-use development. In addition to its exposure to auto-traffic along two arterial streets, the site benefits from foot traffic between the UI campus and Downtown. It is also likely to benefit from Downtown pedestrian retail traffic, and might serve to extend the Downtown pedestrian environment to the existing University Pointe building. As mentioned, the current market for retail space is quite weak, and a lease by the University bookstore is one possible way to secure occupancy until there is firmer demand from other retailers. Given the site’s qualities, however, it has commercial potential that goes beyond student-oriented services. At a size of roughly 35,000 square feet, we estimate that this site should be able to accommodate at least 50 apartment units over three stories (13,000 sf. footprint), leaving adequate space for tenant and retail parking on a surface lot behind the building. Sixth & Asbury On the other side of University Pointe there is a group of parcels that together make up another potential apartment site. These parcels are currently occupied by Taco Time, the HR department of UI, and a small Wells Fargo ATM building. Redevelopment through assemblage of these sites would likely require a substantial level of effort and time. This site is more detached from Downtown and located closer to the UI campus. Consequently, its residential potential is primarily as a student housing site. Given the scale of the site, it can house a large number of student units. In the current environment, a large-scale student housing project is not realistic unless the university decides to close and repurpose some of its existing student housing buildings. The retail potential of the site is somewhat lower than the previous site, reflecting its lack of exposure to traffic along Jackson Street and longer distance to Downtown. However, the pedestrian link to Downtown will be strengthened if the development is preceded by a project on the Sixth and Jackson site. However, in the current market, a pedestrian-oriented, mixed-use project would likely have to include student- oriented services on the ground floor. A student-focused project on this site would likely function similarly to 13th & Olive in Eugene, catering primarily to older students who prefer to live off campus and close to Downtown. MIXED-USE EXAMPLES There are multiple examples in the Northwest of urban-style, mixed-use projects located in suburban or small-town settings where prevailing rent levels do not justify structured parking or steel/concrete structures. The following are three examples of concepts that we regard to be feasible on the two mentioned sites. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 46 Orenco Station (Hillsboro, Oregon) Orenco Station is a suburban town center that was built around a new light-rail station. The Nexus apartment project is a three-story, wood-frame complex, with retail and tenant parking on surface lots behind the buildings. The parking lots are accessed via alleyways, as shown in the picture below. Rents range from $880 for studios to $1,700 for three-bedroom units. Because the units are relatively large, these rents translate into a relatively low per-square-foot range ($1.20 to $1.40). Bell Tower at Old Town Square (Wilsonville, Oregon) Another example is the Bell Tower in Wilsonville – a city of about 14,000 residents. The four-story wood- frame building features 52 apartment units above 5,000 square feet of retail and an at- grade parking garage. Rents range from around $800 for the smallest studios to around $1,800 for the largest two-bedroom units ($1.50 to $1.65 per square foot). The Bell Tower site is comparable in size to the Sixth and Jackson site. The 951 (Boise, Idaho) The 951 is a mixed-use project currently under construction along Parkcenter Boulevard, southeast of Downtown. The building is a four-story structure with 68 apartment units and 4,000 square feet of retail space on the ground floor. The project will offer covered parking behind the building. The site is about twice the size of the Sixth and Asbury site. The project is scheduled to open in January 2015. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 47 VI. DEVELOPMENT / REDEVELOPMENT POTENTIAL This component of our analysis utilizes a predictive model which projects the potential new development activity within a study area. The model is designed to forecast new real estate development, redevelopment and rehabilitation in the study area. METHODOLOGY The Model is Excel-based, and translates user inputs on existing and expected conditions in a study area into an estimate of the magnitude of new development activity that can be expected over a planning period. The model is a designed from a “production” perspective, and delivers a predicted development pattern in a specific study area under a specific set of assumptions with respect to the development environment. The following steps describe an application of the Model: 1. The user inputs a range of indicators on existing conditions in the area. 2. The model generates a “baseline scenario” based on existing conditions. 3. The Model produces projections of the anticipated amount of development in the corridor under the scenario. LIKELIHOOD OF DEVELOPMENT MODULE PREDICTED MAGNITUDE AND FORM OF DEVELPOMENT SUPPORTABLE VALUE CURRENT VALUE PRICING COST RETURN ZONING PREDICTED DEVELOPMENT/ REDEVELOPMENT RESIDUAL PROPERTY VALUE MODULE ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 48 A key component of this approach is the utilization of a “production” model, which is intended to mimic a developer’s decision tree. As such, the Model solves for the “highest and best use” development form on the basis of predicted financial return. To do this, the Model uses a pro forma based predictive model to generate predominant development profiles for the study area. This model evaluates highest and best use development forms under a range of assumptions, based on the implied residual property value5 under each use. This allows a calculation of the likely predominant development form within the study area, based on market dynamics and zoning entitlements. It also establishes a residual property value for the area, which enables an evaluation of the extent to which existing properties can be expected to redevelop. The development/redevelopment module is intended to simulate the development decision tree, factoring in the impact of the key inputs on decisions to undertake development activity. The model is based on a series of simplified pro formas for 27 theoretical development programs that characterize the relationship between key variables, predicted development form and associated residual property values. The module generates a generalized determination of the “highest and best economic use” based on the theoretical development programs, as well as an associated residual property value associated with each program under the scenario. This information is reconciled with information on the existing inventory information and zoning, resulting in a predicted pattern of investment. “Highest and Best Use” The development/redevelopment module initially solves for a development solution that represents the highest and best use of the property under the assumptions used, as well as outputting an associated residual property value. The highest and best economic use of the site is defined as the allowable land use program that yields the greatest return to the existing property, and the residual property value reflects the maximum acquisition value supported by that program under the assumptions used. There may be additional considerations in determining the overall highest and best use of land from a community and planning perspective, but this Model focuses on the economic component which tends to be most relevant to private developers. The highest and best use determination is based on the allowable use that has the highest indicated residual property value. The model currently incorporates a total of 27 theoretical development programs, but the number and nature of program options can be varied. An entitlement screen is necessary, since use types identified as having the greatest residual values may not be allowed under existing zoning. In the model, this is done using a matrix that evaluates whether or not the theoretical 5 “Residual Property Value” reflects the maximum supportable acquisition value of the property under an assumed development program (i.e. what the developer is willing to pay given the planned and permitted uses of the site). The permitted use that yields the highest Residual Property Value is considered the most attractive use in terms of financial return to the developer. DEVELOPMENT/REDEVELOPMENT MODULE Highest and Best Use Determination Residual Property Values Existing Inventory Vacant Redevelopable Improvements Predicted Investment Development Redevelopment Investment in Existing COMPONENTS OF THE DEVELOPMENT/ REDEVELOPMENT MODEL ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 49 programs are allowable under the range of zoning codes in the study area. If the use is not allowed, the highest and best allowed use is determined. Threshold for Development Development and redevelopment activity is predicted by the model when the residual property value exceeds the property value under the existing use. If the residual value is greater than or equal to the market value of the property, it is assumed to represent a “rational” development or redevelopment opportunity – i.e. a developer can purchase the property at current market value for anew intended purpose that places a greater value on the site. While development and/or redevelopment is considered viable in these instances, it does not necessarily mean that it will occur within the study time frame. There are a number of additional factors that impact redevelopment, and the Model assumes that only a portion of opportunities identified as viable will be realized within the study horizon. COMPARISON OF RESIDUAL PROPERTY VALUE TO REAL MARKET VALUE (PER SQUARE FOOT) Output Measures Predicted development/redevelopment is broken down into multiple categories: 1) predicted levels of new development, 2) predicted levels of redevelopment, and 3) investment in existing structures. The units of measure include:  The dollar value of construction and investment activity in physical improvements.  Projected net change in real market value in the study area associated with new construction  Net change in square footage of commercial space, as well as residential units in the study area. The model does not address the direct, indirect or induced impact of the construction activity funded. Limitations and Assumptions As with any model, this Model has limitations resulting from gaps in knowledge and data. If Residual Value < Market Value (PSF) NOT RATIONAL DEVELOPMENT/REDEVELOPMENT Point in Time Determination: Subject to Change RESIDUAL PROPERTY VALUE (PSF) Value of Property if Redeveloped MARKET VALUE PROXY (PSF) Real Market Value with Adjustments RATIONAL DEVELOPMENT/REDEVELOPMENT If Residual Value > or = Market Value (PSF) Must be Market Balanced Can be Stratified Based on Relative Viability DEVELOPMENT PACE ASSUMPTION % of Rational Assumed Per Year Not Only Measure of "Rational" ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 50  First and foremost, it is impossible to precisely predict future development activity in a large study area given the multitude of property owners, individual investment decisions, real estate market cycles, general economic conditions and unforeseeable events. For this reason, it is recommended that this Model be used to consider the potential magnitude and character of development, rather than the precise numerical results generated.  The Model uses specific parcel-level data to generate quantified measures of predicted development activity, but it is important to remember that this Model is actually generating a broad study-area-wide estimate of development activity. In no cases should this Model be used to reach definitive conclusions about what will happen on any given parcel. Any Model outputs that identify parcels, whether in map or database form, should specify that it is making no firm predictions or guarantees on the eventual development or lack of development on specific properties. The actual output is a probability estimate of development/redevelopment, and is intended to be utilized in aggregate as opposed to at the site level.  Key variables in the model, such as capitalization rates, lending terms and construction costs, are highly variable. The model incorporates only a single set of assumptions for these variables. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 51 Assumptions The following is a list of key assumptions used in the model scenario: The assumptions used were based on our market analysis, as well as professional experience. Specific terms are likely to vary substantively on a site specific level. CURRENT MARKET PRICING (MARGINAL, ASSUMING NEW PRODUCT) 10 Rental Residential $1.35 Per Square Foot Per Month 11 Ownership Residential $139 Per Square Foot 12 Office Space $16.00 NNN (Triple Net Lease) 13 Retail Space $18.00 NNN (Triple Net Lease) 14 Parking - Rental Residential $50.00 Per Covered Secured Space per Month 15 Parking Price - Ownership $0 Per Covered Secured Space 16 Parking - Office Space $50.00 Per Covered Secured Space per Month 17 Average Annual Pricing Growth Trend (Residential-Rental) 0.0% AAGR/Inflation Adjusted 18 Average Annual Pricing Growth Trend (Residential-Owner) 0.0% AAGR/Inflation Adjusted 19 Average Annual Pricing Growth Trend (Office) 0.0% AAGR/Inflation Adjusted 20 Average Annual Pricing Growth Trend (Retail) 0.0% AAGR/Inflation Adjusted OPERATING CHARACTERISTICS Structural Vacancy 24 Rental Residential 5.0% 25 Office 10.0% 26 Retail 10.0% Operating Expenses 27 Rental Residential 33.0% 28 Office 5.0% 29 Retail 5.0% FINANCIAL CHARACTERISTICS 30 Rental Residential Cap Rate 5.75% 31 Office Cap Rate 7.00% 32 Retail Cap Rate 7.00% 33 Ownership Residential, Return on Cost 15.00% ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 52 FINDINGS This section presents the results of applying the predictive model to the Legacy Crossing Urban Renewal District (URA). Current Property Values Current properties in the URA were classified based on their indicated overall value per square foot. This information was derived from assessor records. The total value of the property (land and improvements) was divided by the square footage of the parcel to calculate an estimated value per square foot. The following map summarizes the results of this analysis: ESTIMATED CURRENT VALUE PER SQUARE FOOT, LAND AND IMPROVEMENTS Properties with relatively low land values per square foot are assumed to be easier redevelopment opportunities, as there is a greater likelihood that the residual land value under a new development program would exceed the cost of acquisition. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 53 Residual Land Values The residual land value reflects the maximum site acquisition cost a development program can support under a set of assumptions. From a developer perspective, variables such as achievable pricing, construction costs and necessary profit are largely fixed, and the variable that is adjusted is the acquisition cost of land. Changes in achievable pricing, costs or perceived risks impact residual land values. As summarized in the following graphic, the residual land values for the range of development forms are highest for wood-frame rental residential development, mixed-use projects and low rise retail. Market conditions in the Moscow area do not support a number of prospective development forms in the model under the assumptions used, which are shown to have no residual land value.6 6 The detailed assumptions and schematic pro formas are included in Appendix B of this report. OFFICE MIXED-USE RETAIL OWNERSHIP RESIDENTIAL RENTAL RESIDENTIAL $0 $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 office high rise office mid/struc office mid/podium office mid surf + struc 2 office mid surf + struc 1 office mid/surf office low rise mid rise dept store retail retail low rise MU res/ret high rise MU res/ret mid/struc 2 MU res/ret mid/struc 1 MU res/ret mid/surf MU res/ret type v/podium MU res/ret 3-story wood w/surf SM MU res/ret 3-story wood w/surf LG residential high rise residential mid/struc 2 type v/podium 2-story wood w/surf 3-story wood townhome 3-story wood Zero Park residential high rise residential mid/struc 2 type v/podium 2-story wood w/surf 3-story wood townhome INDICATED RESIDUAL PROPERTY VALUES BY DEVELOPMENT FORM ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 54 Residual values vary from market values in that they reflect what someone can pay while still meeting their return requirements, not what they will pay. The actual market value of property will typically be lower unless the market is unusually competitive. Supportable land values in the study area are relatively modest, reflecting current achievable pricing in the district. Under current conditions, we would expect new development to be primarily wood frame construction, with single story retail space and three story rental apartments. Mixed-use development is also a likely outcome, with supportable values similar to those of rental apartments in locations that can support ground floor retail tenants. Market Value Relative to Residual Land Value The following map presents the results of the Baseline scenarios for the URA. Areas shown in dark purple are those with the greatest redevelopment potential due to current property values which are low relative to the potential value of new development. Areas displayed in lighter purple are somewhat likely to develop, and those in blue or white have a low likelihood to redevelop because the current uses still retain enough value to make the parcels prohibitively expensive for redevelopment. DEVELOPMENT PROSPECTS, BASELINE SCENARIO Note that the Model results are not an assurance that any specific property is likely or unlikely to redevelop. Each property has unique issues which make sale or redevelopment more or less likely, including the rights of current users, the property owner’s plans and preferences, or unknown constraints. ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 55 Development Forecast The model categorizes the study area property inventory based on the ratio between market value and residual land value. The level of predicted development/redevelopment is then calculated using development probability factors. These have been derived from our work in other jurisdictions, which has allowed us to calibrate the estimates through a back casting exercise base on observed development patterns for properties with similar relationships. The study area was estimated to include over 6.8 million square feet of area (roughly 157 acres), of which approximately 8% was estimated to develop or redevelop over the next ten years. The following figure presents the results for the scenario run by product type. The predominant predicted development form is predicted along with construction investment, projected housing units, commercial space and net change to real market value. DEVELOPMENT/REDEVELOPMENT FORECAST, BASELINE SCENARIO URA / TEN YEAR PERIOD Source: Johnson Economics LLC Zoning restrictions do not seem to be limiting development significantly in the near term, as the building types currently providing the best economic return do not challenge the height or limits. The development forecast are intended to model a series of site specific decisions, and the overall model does not factor in the depth of demand. In a market with limited depth such as Moscow, the overall depth of product demand may be a limiting function in addition to the economics of specific projects. <.75 .75-1.25 1.25-2.0 2.0-4.0 >4.0 Total TOTAL 1,587,417 585,368 382,905 536,487 3,744,867 6,837,045 Dev Probability 17% 9% 7% 5% 4% 8% DEVELOPED 266,686 53,854 25,655 24,678 149,795 0 520,668 SQUARE FEET OF LAND (Scale Adjusted) RMV/Residual Category RMV/ Net Predicted Predominant Construction Residential Commercial Dev. or Current Change in Development Form Investment Units Space Redev. RMV RMV MU res/ret 3-story wood w/surf SM $15,144,719 114 21635 $20,215,435 $2,001,805 $18,213,630 retail low rise $16,064,802 0 114749 $24,431,614 $1,941,044 $22,490,570 TOTAL $31,209,522 114 136384 $44,647,049 $3,942,849 $40,704,199 TOTAL/REHAB/RENOVATION $8,082,283 OVERALL TOTAL $48,786,482 Predicted Development Yield ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 56 A. APPENDIX - PROJECTIONS Demand for the types of real estate analyzed in this study is modeled on the basis of expectations for local university enrollment, employment growth, and demographic shifts. Our modeling begins with enrollment, due to its impact on employment and demographics. Because the States of Idaho and Washington do not produce enrollment projections for their public universities, JOHNSON ECONOMICS developed projections for WSU Pullman and UI Moscow informed by projections from the Oregon University System. Employment projections – which are used as inputs in our models of demand for commercial space – are largely based on projections from the State of Idaho, adjusted to reflect the expected impact of university enrollment. The demographic modeling – which informs our housing demand models – is based on projections produced by Nielsen Claritas, adjusted to reflect projected enrollment and employment growth. UNIVERSITY ENROLLMENT AND STUDENT HOUSING DEMAND The Oregon University System (OUS) develops enrollment projections for all its state-funded colleges and universities. These projections take into account high school class sizes and trends in high school graduation and college enrollment, which are wider trends that can be assumed to take place in Idaho and Washington as well as Oregon. Growth rates projected by the OUS can therefore be assumed to provide a good starting point for projections specific to Moscow and Pullman. Based on recent trends, the OUS expects larger universities located in larger urban areas to enjoy stronger growth than smaller universities with more rural locations. Because UI Moscow and WSU Pullman exhibit characteristics of both these types of universities, we have weighted the projected growth rates for these two university types equally. We further adjust the growth rates by assuming that these schools will exhibit a growth differential to the Oregon schools that reflects the growth differential of the past five years, but at half the magnitude. This yields the following projections for on-campus enrollment at the UI Idaho and WSU Pullman: ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 57 FIGURE A.1: HISTORICAL AND PROJECTED ENROLLMENT (2005 – 2022) SOURCE: Oregon University System, City of Moscow, JOHNSON ECONOMICS The projections indicate a decline of nearly 250 students over the coming five years under the baseline scenario, reflecting an annual growth rate of We assume that roughly one-fifth of Moscow’s students live in households headed by non-students. This indicates a decline in demand for student housing of around 200 beds. Under the high growth scenario, an increase of around 200 students is indicated, translating into demand for around 160 additional student housing beds. The combined enrollment projections for UI Moscow and WSU Pullman indicates virtually flat enrollment over the coming five years under the baseline scenario. Under the high scenario, an increase of around 1,250 students is indicated, for an average annual growth rate of 0.8%. These projections are used as inputs in the projection of employment growth in the Latah-Whitman region, which in turn informs projections of residential and commercial real estate demand in Moscow. EMPLOYMENT GROWTH Employment growth is modeled at the county level, using industry-specific growth projections on the state level as a starting point. Applying the industry-specific growth rates projected by the State of Idaho to Latah County’s employment mix indicates an overall annual employment growth rate of 1.4%. Given the reliance of the Latah economy on regional university enrollment, this growth rate should be adjusted to reflect the projected flat combined enrollment growth for UI Idaho and WSU Pullman. For the purpose of projecting employment growth for Latah County, we weighted state employment projections and our enrollment projections equally. Only public administration, which is dominated by university employment, was weighted 100% by the enrollment projections. This indicates overall annual employment growth of roughly 0.5%. Baseline Scenario Fall Small Large W.Avg. Enr.mt. Growth OUS Diff. Enr.mt. Growth OUS Diff. Enr.mt. Growth 2005 -2.1% 0.7% -0.7% 17679 0.8% 1.5% 11528 -1.5% -0.8% 29207 -0.1% 2006 -2.3% -0.1% -1.2% 17300 -2.1% -1.0% 10938 -5.1% -3.9% 28238 -3.3% 2007 2.2% 0.5% 1.3% 17583 1.6% 0.3% 10756 -1.7% -3.0% 28339 0.4% 2008 4.5% 5.9% 5.2% 17753 1.0% -4.2% 10882 1.2% -4.0% 28635 1.0% 2009 7.1% 6.4% 6.8% 18234 2.7% -4.1% 10950 0.6% -6.2% 29184 1.9% 2010 5.2% 4.9% 5.0% 18232 0.0% -5.0% 11327 3.4% -1.6% 29559 1.3% 2011 2.3% 2.4% 2.4% 19255 5.6% 3.2% 11520 1.7% -0.7% 30775 4.1% 2012 -1.0% 0.5% -0.3% 19989 3.8% 4.1% 11464 -0.5% -0.2% 31453 2.2% 2013 0.4% 1.3% 0.8% 19446 -2.7% -3.6% 11143 -2.8% -3.6% 30589 -2.7% '08-'13 Avg. 3.0% 1.8% -1.2% 0.5% -2.5% '14-'22 -0.6% -1.3% 2014 0.2% 1.0% 0.6% 19446 0.0% -0.6% 11067 -0.7% -1.3% 30513 -0.2% 2015 0.8% 0.9% 0.8% 19492 0.2% -0.6% 11018 -0.4% -1.3% 30510 0.0% 2016 1.4% 1.3% 1.4% 19641 0.8% -0.6% 11027 0.1% -1.3% 30667 0.5% 2017 0.8% 0.9% 0.8% 19684 0.2% -0.6% 10976 -0.5% -1.3% 30660 0.0% 2018 0.6% 0.8% 0.7% 19701 0.1% -0.6% 10911 -0.6% -1.3% 30612 -0.2% 2019 0.4% 0.6% 0.5% 19681 -0.1% -0.6% 10825 -0.8% -1.3% 30506 -0.3% 2020 -0.2% 0.0% -0.1% 19545 -0.7% -0.6% 10676 -1.4% -1.3% 30221 -0.9% 2021 0.5% 0.5% 0.5% 19529 -0.1% -0.6% 10595 -0.8% -1.3% 30124 -0.3% 2022 0.8% 0.7% 0.7% 19556 0.1% -0.6% 10538 -0.5% -1.3% 30094 -0.1% Projected OUS WSU Pullman UI Moscow Pullman/Moscow Historical ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 58 FIGURE A.2: PROJECTED EMPLOYMENT GROWTH RATES, LATAH COUNTY SOURCE: State of Idaho, JOHNSON ECONOMICS RESIDENTIAL DEMAND (Non-student Households) JOHNSON ECONOMICS has developed a demographically driven housing demand model to forecast near-term residential market depth. The demand forecast begins with estimates produced by Nielsen Claritas of market area household growth stratified by age and income cohort, which are the best predictors of tenure split. The projections from Nielsen Claritas are adjusted to reflect our observations with respect to employment and market trends. Local census data (the American Community Survey) is used to derive assumptions of propensities to own or rent as well as preferences for single- and multifamily housing. Projections are developed for a high-, low-, and baseline growth scenario. Over the coming five years, we expect a net increase in demand for new housing (ownership and rentals) in the PMA of roughly 150 units under the baseline scenario, representing annual growth of 0.5%. These estimates represent our estimates of underlying demand, and not of realized household growth, which may be constrained by supply. The following chart displays how we anticipate housing demand to be distributed across age segments. The chart indicates particular growth concentrations in housing demand among family-age and retirement-age segments, and only weak growth in the other segments. 2013 State-projected Projected university Projected Latah Employment Sector Employment annual growth enrollment annual growth Construction 349 2.4% 0% 1.2% Manufacturing 375 1.3% 0% 0.6% Wholesale Trade 294 1.6% 0% 0.8% Retail Trade 1,864 1.6% 0% 0.8% T.W.U. 85 1.3% 0% 0.6% Information 115 0.9% 0% 0.4% Financial Activities 400 1.4% 0% 0.7% Professional & Busines 787 1.4% 0% 0.7% Education 731 1.0% 0% 0.5% Health Services 953 1.9% 0% 0.9% Leisure & Hospitality 1,735 2.0% 0% 1.0% Other Services 549 1.3% 0% 0.6% Public Administration 6,434 1.2% 0% 0.0% Total 14,671 1.44% 0% 0.5% Baseline Scenario ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 59 FIGURE A.3: PROJECTED DISTRIBUTION OF PMA HOUSEHOLDS BY AGE (2014 AND 2019) SOURCE: Nielsen Claritas, JOHNSON ECONOMICS With respect to income, the demand growth is anticipated to be mostly among low- and middle-income households (figure 8.5). FIGURE A.4: PROJECTED DISTRIBUTION OF PMA HOUSEHOLDS BY INCOME (2014 AND 2019) SOURCE: Nielsen Claritas, JOHNSON ECONOMICS Based on existing segment-specific tenure splits among Moscow’s households, we anticipate one-third of the new household growth to represent demand for rental housing and two-thirds for ownership housing. Rental Apartment Demand Most of the net new demand for rental housing is expected to be for rental apartments. The following charts display estimated market depth for rental apartments by age and income cohort, both from structural demand (net-new household growth) and total demand (net-new demand and turnover demand). 0 200 400 600 800 1,000 1,200 1,400 1,600 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households 2014 2024 0 200 400 600 800 1,000 1,200 1,400 Under $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000 and more Households 2014 2024 ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 60 Structural Demand Based on the existing propensity among Moscow households to rent single-family and multi-family housing respectively, we have a baseline demand forecast for roughly 40 new rental apartments over the five-year forecast period, or almost ten units annually. The growth is expected to be concentrated in low- and middle-income households made up mostly of family-age households and retirees. FIGURE A.5: PROJECTED STRUCTURAL RENTAL APARTMENT MARKET DEPTH (2014-2019) SOURCE: Nielsen Claritas and JOHNSON ECONOMICS Total Demand Profile Demand for rental apartments in the market area will come from existing renter households in turnover as well as from new households. In order to estimate turnover within the market area, we use local, segment-specific turnover rates calculated from census data, which in turn are applied to the distribution of existing renters. Turnover households, by definition, vacate existing units which become vacant supply. Therefore, structural demand is a better measure of new units needed annually, while total supply better reflects the profile of the leasing demand that will drive new-unit absorption. Turnover demand tends to benefit new projects disproportionately, as these are able to offer up-to-date units and amenities. New projects also tend to benefit from additional publicity and marketing efforts. The market area has a total demand profile of approximately 850 lease transactions over the five-year forecast horizon, or nearly 175 units annually. Young adults are expected to dominate this market. In terms of income, the demand is anticipated to be concentrated among low- and middle-income households. FIGURE A.6: PROJECTED TOTAL RENTAL APARTMENT MARKET DEPTH (2014-2019) SOURCE: Nielsen Claritas and JOHNSON ECONOMICS Structural Demand -5 0 5 10 15 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort -20 -10 0 10 20 30 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort Total Demand 0 50 100 150 200 250 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort 0 50 100 150 200 250 300 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 61 Demand for Multifamily Ownership Housing For ownership housing, we follow the same approach as for rental housing, making projections for net new demand as well as for total demand. Structural Demand Our demand model indicates very small increase in the demand for multifamily ownership housing over the forecast horizon. The baseline estimate indicates a net increase of six households with a preference for this housing type, or roughly one additional household per year. The growth is expected primarily among middle-income retirees. FIGURE A.7: PROJECTED STRUCTURAL MULTIFAMILY OWNERSHIP MARKET DEPTH (2014-2019) SOURCE: Nielsen Claritas and JOHNSON ECONOMICS Total Demand With turnover included, only 30 sales transactions are expected within this market segment over the coming five years, or 6 transactions per year. Young and middle-aged households in middle-income segments are anticipated to dominate the market: FIGURE A.8: PROJECTED TOTAL MULTIFAMILY OWNERSHIP MARKET DEPTH (2014-2019) SOURCE: Nielsen Claritas and JOHNSON ECONOMICS Structural Demand 0 1 2 3 4 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort -2 0 2 4 6 8 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort Total Demand 0 5 10 15 < $15,000 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 - $199,999 $200,000+ Households Income Cohort 0 2 4 6 8 10 15-24 25-34 35-44 45-54 55-64 65-74 75+ Households Age Cohort ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 62 COMMERCIAL DEMAND Retail Space Demand In order to assess the nature and depth of demand and the likely pace of absorption of retail space in Moscow, JOHNSON ECONOMICS modeled future demand for retail space based on anticipated household growth. In this analysis, local average per-household retail expenditures are applied to our household growth estimates for the Planning Area. The total expenditures are in turn converted to retail space demand utilizing typical per-square-foot sales figures. For this analysis we defined the primary trade area as the city of Moscow and ancillary developed areas within a 5-mile radius of the city’s geographic centroid. A secondary trade area was defined within a 10-mile radius, including Pullman. The following tables display estimated average household retail spending within the two trade areas, based on estimates from Nielsen Claritas: FIGURE A.9: AVERAGE HOUSEHOLD RETAIL SPENDING (2014) 1 2014 dollars SOURCE: Nielsen Claritas and JOHNSON ECONOMICS In order to estimate household growth over the coming five years, we have applied the projected growth rate for Moscow (see previous): FIGURE A.10: PROJECTED TRADE AREA HOUSEHOLD GROWTH (2014 – 2019) SOURCE: Nielsen Claritas and JOHNSON ECONOMICS Applying current average household retail spending to our household growth estimates indicates an increase in retail spending of $7.3 million within the primary trade area and $18 million within the secondary trade area: PRIMARY MARKET AREA Per Household NAICS Category Expenditures1 Estimated Households in 2014: 11,286 441 Motor Vehicle and Parts Dealers $8,906 442 Furniture and Home Furnishings Stores $776 443 Electronics and Appliance Stores $977 444 Building Materials and Garden Equipment $4,106 445 Food and Beverage Stores $5,404 446 Health and Personal Care Stores $1,684 448 Clothing and Clothing Accessories Stores $2,074 451 Sporting Goods, Hobby, Book and Music St $1,101 452 General Merchandise Stores $5,026 453 Miscellaneous Store Retailers $1,303 722 Foodservices and Drinking Places $4,857 Totals/Weighted Averages $36,214 SECONDARY MARKET AREA Per Household NAICS Category Expenditures1 Estimated Households in 2014: 25,789 441 Motor Vehicle and Parts Dealers $9,680 442 Furniture and Home Furnishings Stores $818 443 Electronics and Appliance Stores $1,103 444 Building Materials and Garden Equipment $4,286 445 Food and Beverage Stores $5,753 446 Health and Personal Care Stores $1,699 448 Clothing and Clothing Accessories Stores $2,319 451 Sporting Goods, Hobby, Book and Music St $1,252 452 General Merchandise Stores $5,379 453 Miscellaneous Store Retailers $1,429 722 Foodservices and Drinking Places $5,426 Totals/Weighted Averages $39,144 HOUSEHOLD GROWTH Scenario 2014 2019 Households MOSCOW (5-Mile Radius) 11,286 11,554 268 MOSCOW-PULLMAN (10-Mile Radius) 25,789 26,401 612 HOUSEHOLD FORECAST '16-'26 Δ ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 63 FIGURE A.11: PROJECTED TRADE RETAIL SPENDING (2014 – 2019) SOURCE: Nielsen Claritas and JOHNSON ECONOMICS The next step is to apply typical sales-per-square-foot ratios for the different types of retail to estimated retail spending. This produces estimates of additional square footage demanded within the trade areas. Finally, we apply capture rates for downtown retail space for the different types of retail. Most of these retail forms will lead to demand at auto-oriented shopping centers rather than at pedestrian-oriented downtown locations. We assume the greatest capture rates for restaurants/bars (75%) and miscellaneous stores MOSCOW (5-Mile Radius) Per Household NAICS Category Expenditures 2014 2019 '14-'19 ∆ 441 Motor Vehicle and Parts Dealers $8,906 $100.5 $102.9 $2.4 442 Furniture and Home Furnishings Stores $776 $8.8 $9.0 $0.2 443 Electronics and Appliance Stores $977 $11.0 $11.3 $0.3 444 Building Materials and Garden Equipment $4,106 $46.3 $47.4 $1.1 445 Food and Beverage Stores $5,404 $61.0 $62.4 $1.4 446 Health and Personal Care Stores $1,684 $19.0 $19.5 $0.5 448 Clothing and Clothing Accessories Stores $2,074 $23.4 $24.0 $0.6 451 Sporting Goods, Hobby, Book and Music Stores $1,101 $12.4 $12.7 $0.3 452 General Merchandise Stores $5,026 $56.7 $58.1 $1.3 453 Miscellaneous Store Retailers $1,303 $14.7 $15.1 $0.3 722 Foodservices and Drinking Places $4,857 $54.8 $56.1 $1.3 Totals/Weighted Averages $36,214 $308.2 $315.5 $7.3 MOSCOW-PULLMAN (10-Mile Radius) Per Household NAICS Category Expenditures 2014 2019 '14-'19 ∆ 441 Motor Vehicle and Parts Dealers $9,680 $249.6 $255.6 $5.9 442 Furniture and Home Furnishings Stores $818 $21.1 $21.6 $0.5 443 Electronics and Appliance Stores $1,103 $28.5 $29.1 $0.7 444 Building Materials and Garden Equipment $4,286 $110.5 $113.2 $2.6 445 Food and Beverage Stores $5,753 $148.4 $151.9 $3.5 446 Health and Personal Care Stores $1,699 $43.8 $44.8 $1.0 448 Clothing and Clothing Accessories Stores $2,319 $59.8 $61.2 $1.4 451 Sporting Goods, Hobby, Book and Music Stores $1,252 $32.3 $33.0 $0.8 452 General Merchandise Stores $5,379 $138.7 $142.0 $3.3 453 Miscellaneous Store Retailers $1,429 $36.9 $37.7 $0.9 722 Foodservices and Drinking Places $5,426 $139.9 $143.2 $3.3 Totals/Weighted Averages $39,144 $759.8 $777.9 $18.0 Household Retail Spending (In Millions) Household Retail Spending (In Millions) ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 64 FIGURE A.12: PROJECTED TRADE RETAIL SPACE DEMAND (2014 – 2019) SOURCE: Nielsen Claritas and JOHNSON ECONOMICS The estimates displayed above indicate a five-year increase in downtown retail space within Moscow of nearly 6,000 square feet, or roughly 1,000 square feet per year. The secondary trade area indicates demand for downtown retail space of around 15,000 square feet over the forecast period. Demand generated outside the primary trade area but within the secondary trade area is thus estimated to be nearly 9,000 square feet. Pullman is likely to capture the majority of this demand, but Moscow has the potential to capture part of this demand if it can gain competitive advantage in terms of creating an attractive downtown retail environment. Office Space Demand Our projections for office space demand are directly deduced from employment growth projections, based on typical rates of office space utilization within each industry and typical rates of office space per office worker. Based on industry-specific rates of typical office space utilization, we have a baseline projection of 60 additional office space workers within Latah County over the coming five years: MOSCOW (5-Mile Radius) Sales Support NAICS Category Factor 1 2014 2019 '14-'19 ∆ Downtown 441 Motor Vehicle and Parts Dealers $422 238,165 243,815 5,650 0% 0 442 Furniture and Home Furnishings Stores $228 38,434 39,345 912 0% 0 443 Electronics and Appliance Stores $329 33,487 34,281 794 0% 0 444 Building Materials and Garden Equipment $424 109,231 111,822 2,591 0% 0 445 Food and Beverage Stores $469 130,061 133,146 3,085 0% 0 446 Health and Personal Care Stores $304 62,471 63,953 1,482 20% 296 448 Clothing and Clothing Accessories Stores $170 137,615 140,880 3,264 20% 653 451 Sporting Goods, Hobby, Book and Music $217 57,239 58,597 1,358 20% 272 452 General Merchandise Stores $179 317,164 324,687 7,524 0% 0 453 Miscellaneous Store Retailers $138 106,179 108,698 2,519 50% 1,259 722 Foodservices and Drinking Places $291 188,284 192,750 4,466 75% 3,350 Totals/Weighted Averages 1,180,164 1,208,160 27,996 21% 5,830 MOSCOW-PULLMAN (10-Mile Radius) Sales Support NAICS Category Factor 1 2014 2019 '14-'19 ∆ Downtown 441 Motor Vehicle and Parts Dealers $422 591,549 605,581 14,033 0% 0 442 Furniture and Home Furnishings Stores $228 92,607 94,804 2,197 0% 0 443 Electronics and Appliance Stores $329 86,398 88,448 2,050 0% 0 444 Building Materials and Garden Equipment $424 260,554 266,735 6,181 0% 0 445 Food and Beverage Stores $469 316,414 323,920 7,506 0% 0 446 Health and Personal Care Stores $304 143,970 147,385 3,415 20% 683 448 Clothing and Clothing Accessories Stores $170 351,551 359,890 8,339 20% 1,668 451 Sporting Goods, Hobby, Book and Music $217 148,741 152,270 3,528 20% 706 452 General Merchandise Stores $179 775,583 793,982 18,398 0% 0 453 Miscellaneous Store Retailers $138 266,172 272,486 6,314 50% 3,157 722 Foodservices and Drinking Places $291 480,552 491,952 11,400 75% 8,550 Totals/Weighted Averages 2,922,543 2,991,872 69,328 21% 14,763 1 Based on national averages derived from "Dollars & Cents of Shopping Centers," Urban Land Institute, 2008. Median sales for neighborhood scale centers were used. 2014 dollars. Demand (SF) Spending Supported Retail Demand (SF) Spending Supported Retail Demand (SF) Downtown Demand (SF) Downtown ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 65 FIGURE A.13: PROJECTED GROWTH IN OFFICE EMPLOYMENT, LATAH COUNTY (2014 – 2019) SOURCE: Idaho Department of Labor and JOHNSON ECONOMICS Assuming average office space of 285 square feet per worker, the net growth in office employment is expected to generate demand for roughly 20,000 square feet of new office space. Much of this demand is likely to be for office space in suburban or even rural locations. Applying assumed capture rates for Downtown Moscow indicates net new demand in the order of 10,000 square feet over the coming five years, or roughly 2,000 square feet per year. One-third of this demand is anticipated within professional and business services, predominantly due to growth at EMSI. Financial services and medical/health services are each expected to account for roughly one-fourth of the demand. FIGURE A.13: PROJECTED GROWTH IN OFFICE EMPLOYMENT, LATAH COUNTY (2014 – 2019) SOURCE: Idaho Department of Labor and JOHNSON ECONOMICS Office Space-Utilizing Demand Base Year Annual Office '14-'19 Employment Sector 2013 Growth 2014 2019 Share 1 2013 2014 2019 Change Construction 349 1.2% 353 375 2% 7 7 7 0 Manufacturing 375 0.6% 377 389 5% 19 19 19 0 Wholesale Trade 294 0.8% 297 309 5% 15 15 15 0 Retail Trade 1,864 0.8% 1,879 1,954 5% 94 95 98 3 T.W.U. 85 0.6% 86 88 30% 26 26 27 1 Information 115 0.4% 116 118 90% 104 104 106 2 Financial Activities 400 0.7% 403 417 90% 362 365 375 10 Professional & Business 787 0.7% 792 820 90% 713 718 738 20 Education 731 0.5% 735 753 5% 37 37 38 1 Health Services 953 0.9% 962 1,008 40% 385 388 403 15 Leisure & Hospitality 1,735 1.0% 1,752 1,840 5% 88 88 92 4 Other Services 549 0.6% 552 570 27% 149 150 154 4 Public Administration 6,434 0.0% 6,434 6,434 30% 1,930 1,930 1,930 0 Total 14,671 0.5% 14,737 15,077 3,929 3,943 4,004 60 1 Share of office space-utilizing employemnt provided by the Urban Land Institure, converted to NAICS by Johnson Economics Office Space-Utilizing Empl. Total Empl. Growth Office Space-Utilizing Demand Avg. Space '14-'19 Downtown Downtown Employment Sector 2014 2019 Per Job 1 2014 2019 Change (SF) Capture Demand Construction 7 7 285 2,015 2,137 123 0% 0 Manufacturing 19 19 285 5,372 5,547 175 0% 0 Wholesale Trade 15 15 285 4,227 4,398 170 0% 0 Retail Trade 94 98 285 26,774 27,851 1,078 0% 0 T.W.U. 26 27 285 7,314 7,553 239 0% 0 Information 104 106 285 29,629 30,295 666 50% 333 Financial Activities 362 375 285 103,311 106,943 3,631 75% 2,724 Professional & Business 713 738 285 203,265 210,410 7,145 50% 3,572 Education 37 38 285 10,475 10,736 262 0% 0 Health Services 385 403 285 109,677 114,935 5,258 50% 2,629 Leisure & Hospitality 88 92 285 24,961 26,222 1,261 0% 0 Other Services 149 154 285 42,480 43,865 1,385 50% 693 Government 1,930 1,930 285 550,128 550,128 0 20% 0 Total 3,929 4,004 1,119,630 1,141,022 21,393 47% 9,951 1 Average office employment density by industry sector based on Urban Land Institute guidelines. Total Office Empl. Total Office Space Need (SF) ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 66 B. APPENDIX – RESIDUAL LAND VALUE CALCULATIONS ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 67 PROTOTYPE OFFICE PROGRAMS several floors of structured parking one basement parking level parking under podium struc pkg outside bldg footprint struc pkg outside bldg footprint all surface parking all surface parking office high rise office mid/struc office mid/podium office mid surf + struc 2 office mid surf + struc 1 office mid/surf office low rise Property Assumptions Site Size (SF) 20,000 13,000 10,000 25,000 20,000 20,000 10,000 Bldg Footprint 19,000 12,000 9,500 8,500 7,500 3,500 4,000 Stories 8 5 2 4 3 3 1 FAR 10.45 6.46 2.85 2.04 1.50 0.53 0.40 Building Square Feet 152,000 60,000 19,000 34,000 22,500 10,500 4,000 Efficiency 85% 85% 85% 85% 85% 85% 90% Leasable Area 129,200 51,000 16,150 28,900 19,125 8,925 3,600 Parking Ratio/000 SF 1.0 1.0 2.0 2.0 3.0 3.0 3.0 Parking Spaces 129 51 32 57 57 26 10 Parking SF/Space - Surface 350 350 350 350 350 350 350 Parking SF/Space - Structure 425 425 375 425 375 425 425 Parking Spaces - Surface - - - 14 29 26 10 Parking Spaces - Structure 129 51 32 43 29 - - Structured Parking % 100% 100% 100% 75% 50% 0% 0% Structured Parking Stories 3 2 1 2 1 0 0 % of Struc Pkg in Bldg FP 100% 100% 100% 0% 0% 0% 0% Cost Assumptions Base Construction Cost/SF $205 $185 $160 $160 $160 $140 $130 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Construction Cost/SF $205 $185 $160 $160 $160 $140 $130 Base Parking Costs/Space $35,000 $30,000 $25,000 $35,000 $30,000 $0 $0 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Structured Parking Cost/Space $35,000 $30,000 $25,000 $35,000 $30,000 $0 $0 Income Assumptions Base Income/Sf/Yr. $16.00 $16.00 $16.00 $16.00 $16.00 $16.00 $16.00 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Achievable Pricing $16.00 $16.00 $16.00 $16.00 $16.00 $16.00 $16.00 Parking Charges/Space/Mo $50 $50 $50 $50 $50 $50 $50 Expense Assumptions Vacancy/Collection Loss 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Base Operating Expenses 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Operating Expenses 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Reserve & Replacement 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Valuation Assumptions Base Capitalization Rate 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Capitalization Rate 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% 7.00% Cost Cost/Construct w/o prkg. $31,160,000 $11,100,000 $3,040,000 $5,440,000 $3,600,000 $1,470,000 $520,000 Total Parking Costs $4,515,000 $1,530,000 $800,000 $1,496,250 $855,000 $0 $0 Estimated Project Cost $35,675,000 $12,630,000 $3,840,000 $6,936,250 $4,455,000 $1,470,000 $520,000 Income Annual Base Income $2,067,200 $816,000 $258,400 $462,400 $306,000 $142,800 $57,600 Annual Parking $77,400 $30,600 $19,200 $25,650 $17,100 $0 $0 Gross Annual Income $2,144,600 $846,600 $277,600 $488,050 $323,100 $142,800 $57,600 Less: Vacancy & CL $214,460 $84,660 $27,760 $48,805 $32,310 $14,280 $5,760 Effective Gross Income $1,930,140 $761,940 $249,840 $439,245 $290,790 $128,520 $51,840 Less Expenses: Operating Expenses $96,507 $38,097 $12,492 $21,962 $14,540 $6,426 $2,592 Reserve & Replacement $57,904 $22,858 $7,495 $13,177 $8,724 $3,856 $1,555 Annual NOI $1,775,729 $700,985 $229,853 $404,105 $267,527 $118,238 $47,693 Property Valuation Return on Cost 4.98% 5.55% 5.99% 5.83% 6.01% 8.04% 9.17% Threshold Return on Cost 8.05% 8.05% 8.05% 8.05% 8.05% 8.05% 8.05% Residual Property Value ($13,616,257) ($3,922,114) ($984,686) ($1,916,307) ($1,131,686) ($1,200) $72,457 RPV/SF ($680.81) ($301.70) ($98.47) ($76.65) ($56.58) ($0.06) $7.25 SUPPORTABLE PROPERTY VALUE PROGRAM OPERATING ASSUMPTIONS ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 68 PROTOTYPE RETAIL PROGRAMS struc pkg outside bldg footprint all surface parking mid rise dept store retail retail low rise Property Assumptions Site Size (SF) 40,000 10,000 Bldg Footprint 18,500 3,900 Stories 2 1 FAR 2.31 0.39 Building Square Feet 37,000 3,900 Efficiency 90% 100% Leasable Area 33,300 3,900 Parking Ratio/000 SF 3.0 4.0 Parking Spaces 99 15 Parking SF/Space - Surface 350 350 Parking SF/Space - Structure 425 425 Parking Spaces - Surface 25 15 Parking Spaces - Structure 74 - Structured Parking % 75% 0% Structured Parking Stories 3 0 % of Struc Pkg in Bldg FP 0% 0% % Site Requirements 5% 10% Site Coverage Check 97% 95% Cost Assumptions Base Construction Cost/SF $170 $140 Adjustment Factor 0% 0% Construction Cost/SF $170 $140 Base Parking Costs/Space $30,000 $0 Adjustment Factor Parking Cost/Space $29,500 $0 Income Assumptions Base Income/Sf/Yr. $16.20 $18.00 Adjustment Factor 0% 0% Achievable Pricing $16.20 $18.00 Parking Charges/Space/Mo $0 $0 Expense Assumptions Vacancy/Collection Loss 10.0% 10.0% Base Operating Expenses 5.0% 5.0% Adjustment Factor 0% 0% Operating Expenses 5.00% 5.00% Reserve & Replacement 3.0% 3.0% Valuation Assumptions Capitalization Rate 7.00% 7.00% Adjustment Factor 0% 0% Capitalization Rate 7.00% 7.00% Cost Cost/Construct w/o prkg. $6,290,000 $546,000 Total Parking Costs $2,190,375 $0 Estimated Project Cost $8,480,375 $546,000 Income Annual Base Income $539,460 $70,200 Annual Parking $0 $0 Gross Annual Income $539,460 $70,200 Less: Vacancy & CL $53,946 $7,020 Effective Gross Income $485,514 $63,180 Less Expenses: Operating Expenses $24,276 $3,159 Reserve & Replacement $14,565 $1,895 Annual NOI $446,673 $58,126 Property Valuation Return on Cost 5.27% 10.65% Threshold Return on Cost 8.05% 8.05% Residual Property Value ($2,931,644) $176,057 RPV/SF ($73.29) $17.61 SUPPORTABLE PROPERTY VALUE PROGRAM PROPERTY OPERATIONS ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 69 PROTOTYPE MU RETAIL/RESIDENTIAL PROGRAMS integrated pkg struc integrated pkg struc separate pkg struc surface parking some under- podium parking surface parking surface parking MU res/ret high rise MU res/ret mid/struc 2 MU res/ret mid/struc 1 MU res/ret mid/surf MU res/ret type v/podium MU res/ret 3- story wood w/surf SM MU res/ret 3- story wood w/surf LG Property Assumptions Site Size (SF) 11,500 11,500 20,000 10,000 10,000 10,000 60,000 Density 180 140 95 60 60 35 35 Unit Count 47 36 43 13 13 8 48 Ave Unit Size 750 750 750 750 750 750 750 Apt. Building Square Feet 35,250 27,000 32,250 9,750 9,750 6,000 36,000 Bldg Footprint 4,406 5,400 6,450 2,438 3,250 3,000 18,000 Apt. Stories 8 5 5 4 3 2 2 Retail Stories 1 1 1 1 1 1 1 TOTAL STORIES 9 6 6 5 4 3 3 Percent of Retail 50% 50% 30% 50% 50% 50% 25% Retail Square Footage 2,203 2,700 1,935 1,218 1,625 1,500 4,500 Ground Floor Non-Retail (parking) 2,203 2,700 4,515 - 1,625 - - Parking Ratio/1000sf. 4.0 4.0 4.0 4.0 4.0 4.0 4.0 FAR 5.36 3.76 2.26 0.98 1.30 0.60 0.60 Parking Ratio/Unit 1.0 1.0 1.0 1.0 1.5 1.5 1.5 Total Parking Spaces 56 47 51 18 26 18 90 Parking SF/Space - Surface 350 350 350 350 350 350 350 Parking SF/Space - Structure 425 425 425 425 425 425 425 Parking Spaces - Surface - - - 18 - 18 90 Parking Spaces - Structure 56 47 51 - 26 - - Structured Parking % 100% 100% 100% 0% 100% 0% 0% Structured Parking Stories 6 3 2 0 1 0 0 % of Struc Pkg in Bldg FP 50% 50% 0% 0% 50% 0% 0% % Site Requirements 20% 20% 20% 20% 20% 20% 20% Site Coverage Check 65% 80% 71% 92% 55% 99% 89% Cost Assumptions Apt Base Construction Cost/SF $210 $195 $195 $165 $165 $140 $140 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Construction Cost/SF $210 $195 $195 $165 $165 $140 $140 Retail Base Construction Cost/SF $150 $150 $150 $150 $150 $140 $140 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Construction Cost/SF $150 $150 $150 $150 $150 $140 $140 Base Parking Costs/Space $40,000 $35,000 $30,000 $35,000 $15,000 $0 $0 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Parking Cost/SF $40,000 $35,000 $30,000 $35,000 $15,000 $0 $0 Income Assumptions Apt. Base Income/Sf/Mo. $1.35 $1.35 $1.35 $1.35 $1.35 $1.35 $1.35 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Achievable Pricing $1.35 $1.35 $1.35 $1.35 $1.35 $1.35 $1.35 Retail Base Income/Sf/Yr. $18.00 $18.00 $18.00 $18.00 $18.00 $18.00 $18.00 Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Achievable Pricing $18.00 $18.00 $18.00 $18.00 $18.00 $18.00 $18.00 Parking Charges/Space/Mo $50 $50 $50 $50 $50 $50 $50 Expenses Apt. Vacancy/Collection Loss 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Retail Vacancy/Collection Loss 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Operating Expenses 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Apt. Operating Expenses 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% Retail Operating Expenses 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Reserve & Replacement 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Valuation Capitalization Rate 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% Adjustment Factor 0% 0% 0% 0% 0% 0% 0% Capitalization Rate 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% Cost Cost/Construct w/o prkg. $7,732,950 $5,670,000 $6,579,000 $1,791,450 $1,852,500 $1,050,000 $5,670,000 Total Parking Costs $2,240,000 $1,645,000 $1,530,000 $0 $390,000 $0 $0 Estimated Project Cost $9,972,950 $7,315,000 $8,109,000 $1,791,450 $2,242,500 $1,050,000 $5,670,000 Income Apt. Annual Base Income $485,393 $371,790 $444,083 $134,258 $134,258 $97,200 $583,200 Retail Annual Base Income $39,654 $48,600 $34,830 $21,924 $29,250 $27,000 $81,000 Annual Parking $33,600 $28,200 $30,600 $0 $15,600 $0 $0 Gross Annual Income $558,647 $448,590 $509,513 $156,182 $179,108 $124,200 $664,200 Less: Apt. Vacancy & CL $24,270 $22,430 $25,476 $7,809 $8,955 $6,210 $33,210 Less: Retail Vacancy & CL $3,965 $4,860 $3,483 $2,192 $2,925 $2,700 $8,100 Effective Gross Income $530,411 $421,301 $480,554 $146,180 $167,227 $115,290 $622,890 Less Expenses: Apt. Operating Expenses $152,171 $115,289 $138,140 $41,728 $41,350 $30,027 $181,497 Retail Operating Expenses $1,784 $2,187 $1,567 $987 $1,316 $1,215 $3,645 Reserve & Replacement $15,912 $12,639 $14,417 $4,385 $5,017 $3,459 $18,687 Annual NOI $360,544 $291,186 $326,430 $99,080 $119,544 $80,590 $419,062 Property Valuation Return on Cost 3.62% 3.98% 4.03% 5.53% 5.33% 7.68% 7.39% Threshold Return on Cost 6.90% 6.90% 6.90% 6.90% 6.90% 6.90% 6.90% Residual Property Value ($4,747,672) ($3,094,920) ($3,378,136) ($355,507) ($509,973) $117,965 $403,357 RPV/SF ($412.84) ($269.12) ($168.91) ($35.55) ($51.00) $11.80 $6.72 SUPPORTABLE PROPERTY VALUE PROGRAM OPERATING ASSUMPTIONS ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 70 PROTOTYPE RENTAL RESIDENTIAL PROGRAMS integrated pkg struc integrated pkg struc podium parking Surface Parking surface parking No Parking residential high rise residential mid/struc 2 type v/podium 2-story wood w/surf 3-story wood townhome 3-story wood Zero Park Property Assumptions Site Size (SF) 10,000 10,000 10,000 10,000 10,000 10,000 Density 200 150 56 28 28 130 Unit Count 45 34 12 6 6 29 Ave Unit Size 750 750 750 750 1,000 600 Efficiency Ratio 85% 85% 90% 100% 100% 85% Building Square Feet 39,706 30,000 10,000 4,500 6,000 20,471 Stories 8 5 3 2 3 3 Bldg Footprint 4,963 6,000 3,333 2,250 2,000 6,824 FAR 5.96 4.20 1.33 0.45 0.80 2.05 Parking Ratio/Unit 1.0 1.0 1.5 1.5 1.5 - Total Parking Spaces 45 34 18 9 9 - Parking SF/Space - Surface 350 350 350 350 350 350 Parking SF/Space - Structure 425 425 350 425 425 425 Parking Spaces - Surface - - - 9 6 - Parking Spaces - Structure 45 34 18 - 6 - Structured Parking % 100% 100% 100% 0% 50% 0% Structured Parking Stories 4 2 1 0 1 0 % of Struc Pkg in Bldg FP 50% 50% 50% 0% 0% 0% % Site Requirements 20% 20% 20% 20% 20% 20% Site Coverage Check 84% 102% 57% 59% 65% 82% Cost Assumptions Base Construction Cost/SF $210 $195 $165 $125 $135 $145 Adjustment Factor 0% 0% 0% 0% 0% 0% Construction Cost/SF $210 $195 $165 $125 $135 $145 Base Parking Costs/Space $40,000 $40,000 $20,000 $0 $0 $0 Adjustment Factor 0% 0% 0% 0% 0% 0% Parking Cost/Space $40,000 $40,000 $20,000 $0 $0 $0 Income Assumptions Base Income/Sf/Mo. $1.35 $1.35 $1.35 $1.35 $1.35 $1.35 Adjustment Factor 0% 0% 0% 0% 0% 0% Achievable Pricing $1.35 $1.35 $1.35 $1.35 $1.35 $1.35 Parking Charges/Space/Mo $50 $50 $50 $50 $50 $50 Expenses Vacancy/Collection Loss 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Operating Expenses 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% Adjustment Factor 0% 0% 0% 0% 0% 0% Operating Expenses 33% 33% 33% 33% 33% 33% Reserve & Replacement 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Valuation Capitalization Rate 5.75% 5.75% 5.75% 5.75% 5.75% 6.25% Adjustment Factor 0% 0% 0% 0% 0% 0% Capitalization Rate 5.75% 5.75% 5.75% 5.75% 5.75% 6.25% Cost Cost/Construct w/o prkg. $8,338,235 $5,850,000 $1,650,000 $562,500 $810,000 $2,968,235 Total Parking Costs $1,800,000 $1,360,000 $360,000 $0 $0 $0 Estimated Project Cost $10,138,235 $7,210,000 $2,010,000 $562,500 $810,000 $2,968,235 Income Annual Base Income $546,750 $413,100 $145,800 $72,900 $97,200 $281,880 Annual Parking $27,000 $20,400 $10,800 $0 $3,600 $0 Gross Annual Income $573,750 $433,500 $156,600 $72,900 $100,800 $281,880 Less: Vacancy & CL $28,688 $21,675 $7,830 $3,645 $5,040 $14,094 Effective Gross Income $545,063 $411,825 $148,770 $69,255 $95,760 $267,786 Less Expenses: Operating Expenses $179,871 $135,902 $49,094 $22,854 $31,601 $88,369 Reserve & Replacement $16,352 $12,355 $4,463 $2,078 $2,873 $8,034 Annual NOI $348,840 $263,568 $95,213 $44,323 $61,286 $171,383 Property Valuation Return on Cost 3.44% 3.66% 4.74% 7.88% 7.57% 5.77% Threshold Return on Cost 6.61% 6.61% 6.61% 6.61% 6.61% 7.19% Residual Property Value ($4,862,772) ($3,224,095) ($570,109) $107,794 $116,826 ($583,776) RPV/SF ($486.28) ($322.41) ($57.01) $10.78 $11.68 ($58.38) SUPPORTABLE PROPERTY VALUE PROGRAM PROPERTY VALUATION ---PAGE BREAK--- CITY OF MOSCOW I LEGACY CROSSING 71 PROTOTYPE OWNERSHIP RESIDENTIAL PROGRAMS integrated pkg struc integrated pkg struc podium parking Surface Parking surface parking residential high rise residential mid/struc 2 type v/podium 2-story wood w/surf 3-story wood townhome Property Assumptions Site Size (SF) 10,000 10,000 10,000 10,000 10,000 Density 200 150 56 28 28 Unit Count 45 34 12 6 6 Ave Unit Size 800 800 800 800 1,100 Building Square Feet 36,000 27,200 9,600 4,800 8,250 Stories 8 5 3 2 3 Bldg Footprint 4,500 5,440 3,200 2,400 2,750 FAR 6.75 4.35 1.28 0.48 1.10 Parking Ratio/Unit 1.5 1.5 1.5 2.0 2.0 Total Parking Spaces 68 51 18 12 12 Parking SF/Space - Surface 350 350 350 350 350 Parking SF/Space - Structure 425 425 350 425 425 Parking Spaces - Surface - - - 12 6 Parking Spaces - Structure 68 51 18 - 6 Structured Parking % 100% 100% 100% 0% 50% Structured Parking Stories 7 3 1 0 1 % of Struc Pkg in Bldg FP 50% 50% 50% 0% 0% % Site Requirements 20% 20% 20% 20% 20% Site Coverage Check 77% 92% 54% 71% 82% Cost Assumptions Base Construction Cost/SF $231 $215 $182 $138 $149 Adjustment Factor 0% 0% 0% 0% 0% Construction Cost/SF $231 $215 $182 $138 $149 Base Parking Costs/Space $44,000 $44,000 $22,000 $0 $0 Adjustment Factor 0% 0% 0% 0% 0% Parking Cost/Space $44,000 $44,000 $22,000 $0 $0 Income Assumptions Sales Price/SF $139 $139 $139 $139 $139 Adjustment Factor 0% 0% 0% 0% 0% Achievable Pricing $139 $139 $139 $139 $139 Parking Charges/Space $0 $0 $0 $0 $0 Expenses Sales Commission 6.0% 6.0% 6.0% 6.0% 6.0% Cost Cost/Construct w/o prkg. $8,316,000 $5,834,400 $1,742,400 $660,000 $1,225,125 Total Parking Costs $2,992,000 $2,244,000 $396,000 $0 $0 Estimated Project Cost $11,308,000 $8,078,400 $2,138,400 $660,000 $1,225,125 Income Gross Income - Units $4,503,600 $3,402,720 $1,200,960 $600,480 $1,032,075 Gross Income - Parking $0 $0 $0 $0 $0 Gross Sales Income $4,503,600 $3,402,720 $1,200,960 $600,480 $1,032,075 Less: Commission ($270,216) ($204,163) ($72,058) ($36,029) ($61,925) Effective Gross Income $4,233,384 $3,198,557 $1,128,902 $564,451 $970,151 Property Valuation Return on Sales -62.56% -60.41% -47.21% -14.48% -20.81% Threshold Return on Cost 15.00% 15.00% 15.00% 15.00% 15.00% Residual Property Value ($7,626,797) ($5,297,046) ($1,156,746) ($169,173) ($381,516) RPV/SF ($762.68) ($529.70) ($115.67) ($16.92) ($38.15) PROGRAM INCOME SUPPORTABLE PROPERTY VALUE