1. A Comparison of Residential and Commercial Real Estate Barry Gross Developers Research May 30, 2013

2. Development Issues Identifying appropriate products alternatives can be complex Municipalities should understand the economics of development Municipalities must understand the impact of impact fees and development regulations Developers will not build unless it is profitable for them Introduction

3. Regulatory influences on development are within the control of city planners and government Cities should: –Cooperate with developers to achieve its objectives –Ensure land within a city reaches its fullest potential –Maximize municipal revenue opportunities –Meet the land-use goals for your city –Mitigate existing city infrastructure deficiencies Introduction

4. What may have been a financial failure under its original land plan… …becomes a profitable project if an appropriate product is identified. Finding the Right Product Mix

5. Construction Costs and Fees per SF South Orange County Development impact fees can inadvertently affect the product mix that developers choose to construct.

6. Impact Fees Payable per Acre South Orange County When designing impact fee programs, planners often overlook unintentional effects that may incentivize particular products. As a result, programs that assess fees on a per-unit basis rather than a per-square foot or valuation basis often discourage density and smaller units, despite a municipality’s best wishes.

7. Residential Assumptions Commercial Assumptions Value Per Acre $1,000,000Value Per Acre $626,000 Retail House Price $800,000Land Price % of Capitalized Value25.00% Land Price - % of House Price25.00%Coverage Ratio 20.00% Land Value per Home$200,000Square Ft 8,700 Density 5Rent / SF $1.50 Final Home Value$4,000,000Gross Rent $156,600 Property Tax Rate1.00%Expenses 20.00%$125,280 Property Tax Retained15.00%Capitalized Value5.00% $2,505,600 Tax Rate Increase2.00%Annual Sales Per SF $400 Household Income$100,000Annual Tax Increase 2.00% Disposable Income %60.00%Taxable Sales Ratio 65.00% Taxable Sales Ratio65.00%Sales Tax to City 1.00% Taxable Sales $39,000 Property Tax Retained 15.00% Sales Tax to City 1.00% Property Tax Rate 1.00% Annual Sales Tax per Unit $390 Assumptions Used in Calculations

8. Comparison of Municipal Cash Inflows ResidentialCommercial Land SaleImpact Fees Sales Tax Revenues Property Tax Total Revenues Land Sale Impact Fees Sales Tax Revenues Property Tax Total Revenues Year 1$1,000,000$200,000 $1,500$1,201,500$626,000$40,000 $939$666,939 Year 2 $1,989$6,000$7,989 $22,620$3,758$26,378 Year 3 $2,029$6,120$8,149 $23,072$3,834$26,906 Year 4 $2,069$6,242$8,312 $23,534$3,910$27,444 Year 28 $3,328$10,041$13,369 $37,853$6,289$44,142 Year 29 $3,395$10,241$13,636 $38,610$6,415$45,025 Year 30 $3,463$10,446$13,909 $39,382$6,543$45,925 City Revenues$1,000,000$200,000$77,158$234,253$1,511,411$626,000$40,000$877,480$146,736$1,690,216

9. 10 Year Comparison of Municipal Cash Inflows 10 Year Cash Flow Cash Flow from 1 Residential Acre Discount %NPV of Land Sale NPV of Impact Fees NPV of Sales Tax Revenues NPV of Cash Flow 0.00%$1,000,000$200,000$19,402$200,093 5.00%$952,381$190,476$15,225$150,560 10.00%$909,091$181,818$12,261$116,628 15.00%$869,565$173,913$10,102$92,680 20.00%$833,333$166,667$8,491$75,313 25.00%$800,000$160,000$7,261$62,407 Cash Flow from 1 Commercial Acre Discount %NPV of Land Sale NPV of Impact Fees NPV of Sales Tax Revenues NPV of Property Tax NPV of Total Revenues Excess NPV Cash Flow 0.00%$626,000$40,000$220,650$125,336$1,011,986 ($407,509) 5.00%$596,190$38,095$173,143$94,309$893,493 ($414,424) 10.00%$569,091$36,364$139,442$73,054$805,274 ($413,410) 15.00%$544,348$34,783$114,889$58,053$737,086 ($407,856) 20.00%$521,667$33,333$96,560$47,175$682,641 ($399,747) 25.00%$500,800$32,000$82,573$39,090$637,948 ($390,267) $1,419,495 $1,307,917 $1,218,684 $1,144,942 $1,082,389 $1,028,215 -- ============ NPV of Res. Cash Flow

10. 30 Year Comparison of Municipal Cash Inflows 30 Year Cash Flow Cash Flow from 1 Residential Acre Discount %NPV of Land Sale NPV of Impact Fees NPV of Sales Tax Revenues NPV of Cash Flow 0.00%$1,000,000$200,000$77,158$780,845 5.00%$952,381$190,476$37,696$365,756 10.00%$909,091$181,818$22,079$206,375 15.00%$869,565$173,913$14,828$134,001 20.00%$833,333$166,667$10,951$95,928 25.00%$800,000$160,000$8,624$73,374 Cash Flow from 1 Commercial Acre Discount %NPV of Land Sale NPV of Impact Fees NPV of Sales Tax Revenues NPV of Property Tax NPV of Total Cash Flows Excess NPV Cash Flow 0.00%$626,000$40,000$877,480$489,119$2,032,599 ($25,403) 5.00%$596,190$38,095$428,698$229,107$1,271,677 ($272,837) 10.00%$569,091$36,364$251,097$129,272$962,996 ($354,361) 15.00%$544,348$34,783$168,633$83,936$809,704 ($380,669) 20.00%$521,667$33,333$124,539$60,088$718,870 ($386,184) 25.00%$500,800$32,000$98,078$45,960$657,222 ($383,051) $2,058,002 $1,544,514 $1,317,356 $1,190,373 $1,105,054 $1,040,273 -- ============ NPV of Res. Cash Flow

11. A Comparison of Residential and Commercial Real Estate Barry Gross Developers Research May 30, 2013