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FEASIBILITY STUDY

G i lroy Mixed-Use D eve l opm e nt


Team Na me
M att Goo d win
D a niel Leach
R a nd y Lewis
D av i d Lind stro m
C a i t lin Morici
C a m eron Page

G ilroy M i xe d- Us e D e ve l o pm e nt
1 M o nte re y St.
G ilroy, C A 9 0 0 0 5

California Polytechnic State University San Luis Obispo


Co ns t ru c t i o n M a n a ge m e nt D epar t me nt
C M 4 7 5 D e ve l o pm e nt Pri n ci pl es
Pro fe s s o r El i z a be t h Wi s e
S p r in g 2 0 0 8
TABLE OF CONTENTS
EXECUTIVE SUMMARY 03
PROJECT DESCRIPTION 05
SITE EXAMINATION 07
REGULATORY INFORMATION 13
MARKET RESEARCH 15
FINANCIAL ANALYSIS 21
SUMMARY / CONCLUSIONS 29
BIBLIOGRAPHY 31

TABLE OF CONTENTS
EXECUTIVE SUMMARY
1
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
EXECUTIVE SUMMARY
Executive Summary

A development project requires very detailed preliminary analysis to determine if it is feasible. In our recommen-
dation that it be pursued, it is critical to understand the impact of the project, as well as its risks and rewards. A
feasibility study looks at past, present, as well as future indicators to determine a project’s viability. It consists of a
project description, site analysis, regulatory evaluation, market research, and financial analysis. This study outlines
our findings as well as our recommendations for the implementation of our project.

Project Scope

The idea behind our project is based upon the current trend and popularity of mixed-use developments. We want-
ed to create a project that we felt would be feasible, but one that would benefit the community. It is clear from
our research that the city of Gilroy is looking to revamp its downtown area. Therefore, it has shown a great degree
of support towards our project and would like to see that it be implemented as soon as possible. The location of
the property is at the Southern end of the city of Gilroy, on the outskirts of downtown. The property is currently
without a permanent address, and is simply 1 Monterey Hwy. It is located in close proximity to U.S. Highway 101.
For the project, we have proposed 10 office units with 10 condos above on the front edge of the site bordering
Monterey Hwy, along with 12 townhouses and parking in the rear of the site. The price on the townhouses would
be $2500/month, the condos would be $2000/month, and the offices would be $3500/month.

Site Description

The site is a vacant dirt lot with no existing uses. It is 1.86 acres of land and is a rectangular shaped property
consisting of 76,167 square feet. The site is equipped with utilities, water, sewers, storm drains, etc. The city ac-
knowledged that the project would be faced with very limited barriers, if any at all. Since the site has already been
studied as part of the Gilroy General Plan, it will likely be determined as an infill development and make it exempt
from further CEQA review. Since this is an infill site, archaeology and biological species should not be a concern. It
is possible that there is contamination on site, so your lender will most likely require a “Phase 1 study” which looks
for possible sources of contamination. Any contamination found would need to be remediated. On a positive
note, infill development is encouraged by the city, as the infrastructure already exists to serve the site. Therefore,
a developer would not be expanding into undisturbed areas which could have sensitive environmental issues.
There is also a possibility that the project will be require either a parking study or a traffic study since the only ac-
cess to the property is from Monterey Hwy. Transportation to and from the site is exceptional for both public and
pedestrian transit. It is walking distance from downtown and the bus route runs through Monterey Hwy. Accord-
ing to the city, there are no easements for this property. The only real consideration is the railroad tracks behind
the property. There are two concerns with the railroad tracks: noise and aesthetics. The noise issue is somewhat
mitigated through building design, by limiting windows along the tracks and/or requiring a high STC (Sound
Transmission Coefficient) rating on the windows. Even so, the trains will create a lot of noise; therefore the devel-
oper should disclose this fact to future building occupants. Sounds walls are not allowed along this corridor, as
they become graffiti magnets. As far as aesthetics, it is important to create a pleasant visual experience for people
traveling on the trains. Therefore, landscaping and architectural detailing are required on the rear of buildings
adjacent to the tracks. The surrounding uses include a few businesses and a recent housing development directly
across the street. Since the city is somewhat small, our site is within a few miles of all major recreation and public
services. Police, fire, medical, shopping, and entertainment are in close proximity to the site, which gives the proj-
ect that much more of an incentive to be implemented.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
3
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Regulatory Evaluation

According to the Downtown Specific Plan, the site is located within the Gateway District. The district is suitable
for the development of new mixed-use and stand-alone residential properties. The intent of the Gateway District
is to create the primary entryway into the downtown area. The uses in the district include residential, office, and
commercial services. This project does not require any zoning changes and meets the guidelines depicted in both
the zoning ordinance and the specific plan. The property is not in a coastal area, so no coastal permits are needed.
There is a residential growth-control ordinance (called the RDO), so if you construct housing, you do need to get a
housing allocation, which is available from the city. Environmental Review, Architectural & Site Review, a Tentative
Map and a Conditional Use Permit will most likely be required for the project. According to a local developer and
city planner, there are no political considerations. The project will benefit the community and the city fully sup-
ports it.
PROJECT DESCRIPTION
Project Scope
The idea behind our project is based upon the current trend and popularity of mixed-use developments. We wanted to
create a project that we felt would be feasible, but one that would benefit the community. It is clear from our research
that the city of Gilroy is looking to revamp its downtown area. Therefore, it has shown a great degree of support towards
our project and would like to see that it be implemented as soon as possible. The location of the property is at the South-
ern end of the city of Gilroy, on the outskirts of downtown. The property is currently without a permanent address, and is
simply 0 Monterey Hwy. It is located in close proximity to U.S. Highway 101. For the project, we have proposed 10 office
units with 10 condos above on the front edge of the site bordering Monterey Hwy, along with 12 townhouses and park-
ing in the rear of the site. The price on the townhouses would be $2500/month, the condos would be $2000/month, and
the offices would be $3500/month.

Residential Units Office Units

(10) Condos (10) Offices


1,400 s.f. x (10) = 14,000 square feet 1,400 s.f. x (10) = 14,000 square feet
(12) Townhomes Total Office s.f. = 14,000 square feet
-2000 s.f. x (12) = 24,000 square feet
Total Residential s.f. = 38,000 square feet

Total Building s.f. = 52,000 square feet

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
5
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
BUILDING MASSING

(22) Residential Units (10) Office Units

(10) Condos above the business units


(12) Townhomes in the rear of the site
-Broken down into 4, 3 unit blocks

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
6
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
SITE EXAMINATION
SITE LOCATION
x100: Santa Clara County, California, United States

Santa Clara County is located in a temperate


zone that is filled with rich agricultural lands
that take in the cool Pacific Ocean breezes from
Monterey Bay.

The area is growing as California’s population in-


creases. Low cost housing is a growing trend for
the area, as people are moving out of the more
expensive areas of Silicon Valley to the north.

CALIFORNIA, U.S. SANTA CLARA COUNTY, CA

x10: Gilroy, Santa Clara County, CA

Gilroy, most well known for its Garlic


101 HWY farming, is about to undergo a major
transformation in response to the
city’s general plan. The city is focus-
ing on new developments on the
outskirts of town, which are closer to
the 101 HWY. Which in itself is a vital
asset the city posseses. An hour and
a half to the north is San Francisco,
and the same distance to the south is
San Luis Obispo.

GILROY, SANTA CLARA COUNTY, CA

x1: 1 Monterey Hwy,


Gilroy
MON
T

1 Monterey Hwy. is lo-


EREY

cated in the city’s desig-


HWY

nated “Gateway District”


and is slated for major
redevelopment. Mixed-
use projects are encour-
S ITE aged for this district as
it is the entrance to the
town. The site itself is
fronted by Monterey
Hwy. and is sandwiched
between two business
parks.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION

1 MONTEREY HWY, GILROY, CA


SITE EXAMINATION
REGULATORY EVALUATION
7
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
SITE CONFIGURATION
Property Address: 1 Monterey Hwy, Gilroy, CA 95020
Parcel Number: APN 841-14-011

351’-0”

217’-0”

setback line
5’-0”
property line

5’-0” 5’-0”

Monterey Hwy.
N

Property Dimensions: Gross Dimensions:


length = 351’-0” width = 217’-0”
The site is a basic rectangle measuring 351’ x 217’ producing a total
Gross Total Square Footage:
gross area of 76,167 square feet, or 1.86 acres. However, with the 351’ x 217’ = 76,167 s.f.
setbacks of 5’ from each direction, the site is reduced to 341’x 207’
producing a total buildable area of 70,587 square feet, or 1.62 acres. Dimensions with Setbacks:
length = 341’-0” width = 207’-0”

Buildable Total Square Footage:


341’ x 207’ = 70,587 s.f.

EXISTING USES
The property is an open, empty field that has always been this way. There has been no existing uses as it has never
been used. It is not until recently that Gilroy has decided to build the area as it is the gateway to town.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION 8
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
SURROUNDING USES
Northeast: Behind the parcel is the California railroad tracks. There is a buffer zone already imposed from the city
and state of 15’ to any properties adjacent to the tracks.
Southeast: A small industrial business building that has been there for twnety years. No buildings run up to the
property line, thereby freeing up more open space between our property and the adjacent property.
Southwest: The main and only ACCESS to our property is from Monterey Hwy. Which is also the main road that
runs through town and brings people from HWY 101 into Gilroy. Across the street from the property is a housing
and open space area.
Northwest: Another small business industrial park of a old family owned business. They have fences that run up to
the property line, but nothing that would be overbearing and block out sun onto our sight.

MO N
TERE
HWYY

A
C
F D
E SITE

A B C

D E F

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
9
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
SITE ACCESS
Downtown Gilroy
Access to the site is limited to that
from Monterey Hwy. The entire edge
along Monterey Hwy is open to ac-

MO N
cess.

TERE
Y
HWY
Monterey Hwy is the main route
through Gilroy from Hwy 101, and
our site is located within 1 mile of
the Hwy 101 on and off ramp.

Hwy. 101

SITE FEATURES
Summer Sun Path and Temperature
June 21 [summer solstice]

[ALLOW MOST SUMMER SUNLIGHT]


-50% sun exposed spaces
-50% shaded spaces

Allowing sufficient light to inflitrate


site will result in a comfortable climate.
20: 35 0 5 :4 8 Spaces should be sculpted to allow for
[60. 1 de g ] [ 5 2 .6 d e g ]
these parameters.

Avg. High Temp. = 78.1 degrees


18:00
0 9 :0 0
Avg. Low Temp. = 60.1 degrees
15:00

12:00
[7 8 . 1 d e g ]

Winter Sun Path and Temperature


December 21 [winter solstice]

[ALLOW ALL WINTER SUNLIGHT]


-80% sun exposed spaces
-20% shaded spaces

Avg. High Temp. = 66.1 degrees


Avg. Low Temp. = 52.4 degrees

16 : 5 5 07: 02
[ 52.4 d e g ] [45. 4 deg]
15:00 09:0 0
12:00
[66.1 deg]

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION 10
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
NW WINDS Wind Patterns
12.5 mph
WN W W I N D S 25% / yr
8 .9 mph
58% / yr
West Northwest Winds
-8.9 mph
-58% of the year

Northwest Winds
-12.5 mph
W WI N D S
13.7 mph
17% / yr
-25% of the year

West Winds
-13.7 mph
-17% of the year

Site Views
A d j a cent Business
Due to the low lying buildings adja-
cent to the property, there are maxi-
mal views to the surrounding Central
Pacific Valley and the Central Pacific
Centra l P a c i f i c Mountains.
M o unta ins

Centr al Val l ey, Indu str i al S i te

Centra l P a c i f i c M o u ntai ns

Seismic Map

Our site is located in the moderately-


high seismic hazard zone, therefore we
would have to increase our structural
system to the necessary levels, but
that would be discussed through our
structural engineer.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
11
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
POSITIVE SITE FACTORS
-The temperate climate of Gilroy is very welcoming to a residential development, and encourages us to create
porches, and open spaces on the property for the residences.
-Views to the surrounding areas are open and beautiful.
-The location of the site and its plans for being a new hub of the city, lend the site a lot of potential for growth.
-The location to the freeway, and being along Monterey Hwy. also help the site for access and transportation.

NEGATIVE SITE FACTORS


-Virtually none besides the minimal heat and wind factors, but there are no previous toxic contamination, archael-
ogic remains, rare species, not in a flood zone, nor are there any needs for grading because of the flat site.
-The only major negative factor are the railroad tracks in the rear of the site which poses a noise problem. We miti-
gate that factor with the introduction of sound reducing windows, and vegetation along the mandated railroad
corridor fencing.

LOCAL SERVICES
Local Services

Schools

Shopping and Entertainment

Transportation Facilities
(train and bus)

Police, Fire and Medical Facilities


SITE

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION 12
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
REGULATORY EVALUATION
ZONING INFORMATION
The area our property is located has recently been re-zoned into what Gilroy is calling the “Gateway District.” The
zone is the area that is directly off the 101 freeway and leads into the downtown area. The zoning calls for new de-
velopments of mixed-use, retail, business and residential projects. Our site lies in the heart of this new zoning area
and is primed for a mixed-use project.

Gateway District
Section 14.60 Statement of Intent

“The intent of the Gateway District (GD) is to create the primary entryway into the downtown area. The uses in
this district include residential, office, and commercial services. Parking is screened from traffic and pedestrians,. Street
beautifuication with landscape and architectural enhancements is encouraged. Architectural styles should reflect the
City’s extensive and diverse history. The following regulations, except to the extent that they may be modified by a com-
bining district, shall apply to every lot and building in a Gateway District (GD). This district is suitable for the develop-
ment of new mixed-use and stand-alone residential projects.”

SITE

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
13
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Allowable Uses
Commercial uses which contain virtually every possible use, except for industrial work like an automotive tire shop,
are allowed, along with residential uses. It is very clear Gilroy is encouraging a mass development of the area.

Zoning Density
Commercial and mixed-use projects must have a maximum floor to area ratio (FAR) of no more than 0.75. Stand
alone residential projects must have at most 30 dwelling units per acre (du/ac).

Zoning Changes
No required zoning changes.

Additional Entitlements
A conditional use permit, architectural review process and residential growth control ordinance would be imple-
mented.

Political Considerations
No political considerations needed as this project is suitably zoned.

Height Requirements
The building must be no taller than 40’ and 3 stories tall.

Special Zoning
The proximity of the site to the railroad tracks, the site falls under the Railroad Corridor Standards, Section 14.

“Properties that abut the railroad corridor must provide “standard” fencing design that will be commercial
grade, six-foot tall, black poweder coated metal, with vertical slats and top and bottom rail as well as a five-foot mini-
mum landscape planter area adjacent to the railroad corridor. The intent of the City and Public Utilities Commission is
to createa a pedestrian pathway along the east side of the railroad corridor between Tenth Street and Leavesley Road.
Additional articulation should be provided on building facades that face this corridor to promote an aesthetically pleas-
ing view of the Downtown for rail patrons. “

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
14
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
MARKET RESEARCH
Proposed Development Project

Our proposed project is a mix use development that comprises retail/ office and residential units. The two story
development will have office units on the ground floor and additional housing spaces atop these units. The ap-
proximately two acre parcel of land will help bridge the gap between the industrial areas to the downtown area.

Project Target Market

Our project is mainly focused towards primary and secondary markets in and around Gilroy. Due to the location of
our development near the Highway 101, we will most likely see that our costumer base will be local city residents
as well as the residents of the agricultural districts immediately surrounding the city and residents from the rest of
Santa Clara County.

Primary

Our primary market customers will be residents looking for apartments near the downtown area of Gilroy. The
development is located less than a mile from the heart of the city, therefore is an ideal location for residents who
want to avoid downtown traffic, but still want to be close enough to
bike or walk to work or recreation.

Retail-wise, our development is located approximately a half mile from


the Highway 101, and again only a mile from downtown. This makes it
a great location for retail because of the high levels of traffic continu-
ally flowing past the site.

Finally, because our project is mixed use, it may encourage small


business owners to live in one of the residential units, while working
in commercial / retail units on the same site to reduce transportation
costs.

Secondary

The secondary market for our development will be residents in the surrounding agricultural districts, as well as
other residents within Santa Clara County. Our mixed use project would be an ideal location for people who have
lived out in the country and want to move into Gilroy for work or living. Our mixed-use strategy enables enthusi-
astic Santa Clara County citizens to move into a city to start a retail or commercial business, while living only steps
away.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT


MARKET RESEARCH
FINANCIAL ANALYSIS
15
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Market Trends

National Trends

• Low Interest Rates


• Global Warming

Low interest rates have proven to have a positive impact the economy as a whole. Since interest rates have been
seen to decrease it has become more feasible for projects to obtain the required loans. Borrowing is therefore
made cheaper and more affordable for the developer.

Global warming is another issue that affects the nation on the same level. This trend has led us to take on a new
planning approach to development projects that are focused highly upon smart growth and sustainable practices.
Climate actions plans, creating mixed use developments and implementing new policies and regulations in the
planning sector will help to curb this problem.

Regional & Local Trends

The City of Gilroy is on the same track as the rest of the national when it comes to the issues of global warming
and sprawl. The general plan has made changes to improve development through:
• Infill development
• Promote Mixed Use Development
• Promote Transit – Oriented Development
• Housing Mix

These additions made to the general plan are working to integrate the community members of Gilroy. Utilizing
space wisely can help to improve pedestrian orientation and interaction throughout the city. According to the
General Plan of Gilroy, the city has a vision to create an environment where its residents will enjoy living in a small
city that has retained its small town character. The city wishes to utilize these new approaches to remain a rela-
tively compact city that is surrounded by open space and agricultural land.

Local Analysis of the Economy and Demographics

Market Research is crucial in identifying the demand and needs for the city and the regions surrounding the City of
Gilroy. Obtaining information on the demographics and local economy will assist us in understanding what type
of development will best suit our project.

According to the California Real Estate Area demographics the current population is estimated at 47,620. It has ex-
perienced a population growth of approximately 14.85% since year 2000. The growth in the population is a higher
rate in comparison to the State of California’s growth which is slightly lower at 9.46%. As development continues
throughout the City of Gilroy the population will continue to increase. The projected population for the year 2012
is said to increase, although at a lower rate of 9.58%, increasing the population to 52,181.

Age distribution seems to follow the same type of distribution that can be found in cities of similar populations.
The median age is 29.9 years which is relevant to the job sector. A great majority of the population is of Hispanic
decent, approximately 53.8%, but there is also a significant amount of White Non Hispanics within the city limits
(38%).

Targeting specific job types will help develop a better understanding of what sectors will add to the city and feed
into the economy. Retail, management/wholesale, service and agriculture comprise the four major job types. The

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT


MARKET RESEARCH
FINANCIAL ANALYSIS
16
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
greatest impact in the job sector is found in the service industry which is made up of 44% of the total jobs. Whole-
sale management is the second with 18%. Additional units in these sectors will help benefit the economy the
most. The cities unemployment rate 7.6%, lower than previous years yet still greater in comparison to the states
average.

Educational attainment is based on a population 25 years and older where the greatest percentage of the popula-
tion has received high school diplomas. Based on the state average, the percentage of population with a bach-
elor’s degree or higher is below that of the state. Only 13.3% of the population has obtained a bachelors degree
and the percentage is even lower in regards to a graduates or professional degree.

The average household size in the City of Gilroy is 3.5 people which is a higher than the state average of 2.9
people. Incomes vary within the city limits although the median household income is $64,200 slightly higher than
the state of California. The largest income bracket for residents living in Gilroy is between $50,000 and $75,000.
Residents living in poverty are lower than the state average at 10.4%. This indicates that although the economy is
not at its strongest point, it is still somewhat more stable.

City of Gilroy City of Gilroy


INCOME IN 1999 Number Percent INCOME IN 1999 Number Percent
Households 11,933 100 Families 9,773 100
Less than $10,000 568 4.8 Less than $10,000 328 3.4
$10,000 to $14,999 463 3.9 $10,000 to $14,999 280 2.9
$15,000 to $24,999 853 7.1 $15,000 to $24,999 762 7.8
$25,000 to $34,999 1,041 8.7 $25,000 to $34,999 930 9.5
$35,000 to $49,999 1,713 14.4 $35,000 to $49,999 1,310 13.4
$50,000 to $74,999 2,567 21.5 $50,000 to $74,999 1,991 20.4
$75,000 to $99,999 1,984 16.6 $75,000 to $99,999 1,795 18.4
$100,000 to $149,999 1,936 16.2 $100,000 to $149,999 1,725 17.7
$150,000 to $199,999 443 3.7 $150,000 to $199,999 367 3.8
$200,000 or more 365 3.1 $200,000 or more 285 2.9

Per Capita Income 22,071
Median Earnings
Male full time year round 45,759
Female full time year round 34,710

General Market Indicators: Status of Gilroy’s Real Estate Market

Identifying and analyzing the real estate market indicators of Gilroy will aid us in insuring that our product will be
well received into the local economy. It is imperative that we are not supplying Gilroy with a product type that is
already experiencing surpluses, but rather a type which is/will be experiencing a high latent demand. To do this
effectively we must identify the key indicators of demand, and compare them with current real estate statistics to
determine the current market for our product.

The indicators and statistics that we will consider in this section include:
• Vacancy Rate
• Selling Prices
• Rental Rates
• Supply
• Comparative Projects

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT


MARKET RESEARCH
FINANCIAL ANALYSIS
17
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Vacancy Rate

According to the 2000 census, the rental unit vacancy rate was: 1.6%.
-US Census Bureau, Census 2000
A more recent estimate is more realistic at: 2.26%.
-Sperling’s.com

This number seems unusually low, but could be caused by supply not fully meeting demand in the market. Mean-
ing, there might be a shortage of rental apartments in Gilroy, which would play to our advantage.

We want to point out that we are using a vacancy rate of 4% in our financial analysis because we want a conserva-
tive estimate; 2.26% seems just a little too low to be reliable.

As far as retail is concerned, the retail/office vacancy rate in Gilroy at the end of 2007 was 10%.(BT Commercial)

Selling Prices

The home selling prices in Gilroy have been facing the same fate as most of the country. Due to the mortgage and
loan industry crash, home prices have been slowing dropping for a year now, and have yet to see the definite bot-
tom. To illustrate this, take a look at the follow-
ing graph:

The black line represents the median home


sales price in Gilroy over the past 8 years. It is
fairly easy to see that, as most of the country,
the home prices were climbing quickly in the
early part of the decade, but in the last year
they’ve dropped dramatically.

According to the 2000 Census, the median


home price was $344,100. However since then,
the house market has seen a rise and fall.
More current estimates put the median home
price at around $539,000(MLS.com).

Rental Rates

Median Gross Rent in the 2000 Census was $936.

According to a real estate agent in the area, Gilroy is currently experiencing median residential rental rates of $956.

Retail Rental Rates in the area are currently $20 per square foot.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT


MARKET RESEARCH
FINANCIAL ANALYSIS
18
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Analysis of Supply

The city of Gilroy expects to build 3,450 residential units between the years 2004 and 2013(Residential Develop-
ment Ordinance). This planned addition in supply will affect our development, however due to our location on
Monterey Street, it is reasonable to believe that our property will only gain in value for being so close to the epi-
center of the city.

The next indicator of supply we looked at was the number of residential units that received permits and approval
in Santa Clara County between 2004 and today. The information was summed up into the following graph:

Year Units Estimated Yr. End


2004 5,380
2005 5,613
2006 6,120
2007 4,162
2008 So far: 907 2,177

The supply of residential units spiked to a high in 2006, but in 2007 that number dropped 32%. In 2008 we see an
even greater possible loss in supply. Year-to-date, new permits have only been given out for the construction for
907 new units. This is a major sign that in the county of Santa Clara, residential unit construction is slowing dra-
matically. Keep in mind, these numbers are for the entire county, and Gilroy it self would only constitute a small
portion of the statistics.

Comparative Projects

Although the city of Gilroy has advocated the development of mixed-use buildings in the General Plan, there have
not been any major mixed-use developments outside of the immediate downtown area.

Our project will be the first in its vicinity, and also will be the largest residential/retail mixed-use development in
the city (not including huge community developments constructed in the south-west region of the city).

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT


MARKET RESEARCH
FINANCIAL ANALYSIS
19
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Analysis of the Indicators

All these indicators show that the housing market in Gilroy has been fairly slow the past year or so. This can also be
seen when looking at a chart of total home sales in the city going back to the beginning of 2006.

Period Total Sold Average Price Median Price


2008
Jan – Mar 111 $527,401 $514,435
2007
Jan – Mar 203 $619,262 $640,000
Apr – Jun 154 $654,823 $650,000
Jul – Sep 170 $641,994 $610,872
Oct – Dec 153 $557,483 $541,171
Total: 680 $619,098 $612,250
2006
Jan – Mar 248 $631,819 $640,000
Apr – Jun 268 $693,821 $660,000
Jul – Sep 248 $662,276 $654,000
Oct – Dec 236 $650,321 $677,413
Total: 1000 $660,356 $655,000

Looking at the columns of “Total Sold” we can clearly see a strong decline in home sales in Gilroy since 2006. Total,
the year 2006 saw 1,000 total sales, and then in 2007 that number dropped 32% to 680. The first quarter in 2008
saw an even greater decline in home sales. Last year’s first quarter sales were almost double what they were this
year.

This can mean several things, but overall it tells us the market is currently fairly cold but could see an increase in
activity in the coming year.

Market Research Conclusion

After compiling all of the market data for the City of Gilroy, we feel that our proposed development will cater to
the needs of the residents and surrounding areas. Our mixed use plan follows the updated general plan guidelines
in regards to compact developments. The growth percentage rates show that Gilroy’s population will continue to
increase. As the city continues to grow, our development will offer jobs as well as a housing option for the growing
population. Currently, the real estate market in Gilroy is facing the same hardships as many other cities across the
nation, however, forecasted jobs and population growth, as well as the cities desire to re-urbanize and centralize,
the market is destined to turn around for the better. This will allow our development enough time to be properly
planned out and constructed at reasonable interest rates, and open to a city ready for new mixed-use properties.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION

FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT


MARKET RESEARCH
FINANCIAL ANALYSIS
20
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
FINANCIAL ANALYSIS
Assumptions:

The Pro Forma for the Gilroy mixed-use project was created based on assumptions made through market research,
historical data, market trends and various other items discovered throughout the process. Listed below are the as-
sumptions we made broken into the office units and the separate residential units.

Office Unit Assumptions:


•Rents per month per unit of $3,500 in the first year
•Rent appreciation per year of 6% each year after
•Vacancy loss per year of 4%
•Operating expenses per unit of $998 in the first year
•Operating expense inflation of 6% each year after

Townhouse Assumptions:
•Rents per month per unit of $2,500 in the first year
•Rent appreciation per year of 6% each year after
•Vacancy loss per year 4%
•Operating expenses per unit of $713 in the first year
•Operating expense inflation of 6% each year after

Condominiums Assumptions:
•Rents per month per unit of $2,000 in the first year
•Rent appreciation per year of 6% each year after
•Vacancy loss per year 4%
•Operating expenses per unit of $570 in the first year
•Operating expense inflation of 6% each year after

Loan Assumptions:
•Market interest APR of 8.5%
•Loan term of 30 years
•Loan to value ratio of 75.00%

Tax Assumptions:
•Income tax rate of 28.00%
•Capital Gains tax rate of 15.00%
•Recapture rate on cumulative depreciation of 25.00%
•Straight line depreciation of 39 years

Project Cost Information:

To understand full financial aspects of this project all development costs must be considered and examined. The
overall development cost of this project is $11,310,000. Using R.S. means as historical cost data the construction
cost was determined to be $150 per SF. Multiplying this number by our 58,000 SF we determined a total hard con-
struction cost of $8,700,000. Soft costs were found to be $2,610,000 using a 30% factor found in R.S. means.
Pro Forma:
Using the assumptions stated above the pro forma, at the end of this section, was put together. Having been ex-
amined over a ten year time frame the IRR can be seen at each year. The final IRR before tax is 12.95%, which is the
highest over the course of the project.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS 21
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Reversion:

In year ten of the project the reversion takes place. Over the ten year time frame the property has appreci-
ated to $ 20,797,486. With assumed selling commissions of 5% this leaves the property with a before tax value
of $ 19,757,612. After subtracting out the remaining loan balance we are left with a final before tax value of $
10,401,316. This yields a 12.95% before tax IRR. Once the depreciation recapture has been claimed and tax on
capital gains this leaves a BTCF of $ 8,515,091, with an IRR of 9.93%%. The table below breaks down the year ten
reversion.

Property Value 20,797,486


Selling Costs 1,039,874
Loan Balance 9,356,296
Net Sale Proceeds 10,401,316

Total BTCF 10,502,540


IRR Before Tax 12.95%

Capital Gain 8,447,612
Tax on Capital Gain 1,267,142
Cumulative Depreciation 2,900,000
Recap. Of Cum. Depr. 725,000

ATCF on Reversion 8,409,174

Total After Tax Cash Flow 8,515,091


After Tax IRR 9.93%

Pro Forma Ratios:

On the attached pages key financial ratios are included taken off the numbers in the pro forma. Our gross rent
multiplier has a value of 8.10 which is good for basic screening of the project. Decided in the terms of our loan
is our loan to value ratio which is solid at 75% which is typical for the industry. Our debt coverage ratio falls just
inside the target 1.1 to 1.3 at 1.12. Our break even point is a reasonable 89%, meaning 89% of our rent covers our
operating and mortgage costs.
To measure this projects profitability several ratios were utilized. Cash on Cash, which measures initial profitabil-
ity, typically falls within 4-10% the first year. Ours falls at 4% which is on the low end, but still acceptable for our
market. It has an after tax ROE in year ten of 4%. Finally its ROR is 8% which should be attractive to investors in our
market area.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS 22
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
ASSUMPTIONS
Vacancy Loss 4% Obtained through market research
Land Cost $ 1,000,000 Found comparable properties through local developer
Construction Loan (%of capital budget) 75% Loan to Value found through Bank of America
Construction Loan Term (Years) 2 Estimated time required for completion of project
Construction Loan Annual Interest Rate 8.50% Based on Interest Only Construction Loans
Take Out Loan to Construction Value Ratio 100% Based on 20% Down Payment
Take Out Loan Terms (Years) 30 Based on standard take out loan term
Take Out Loan Annual Interest Rates 6.00% Based on current interest rates
Appreciation of Rents 6% Based on expected appreciation of property
Operating Expenses 30% Obtained through market research
Appreciation of Property Value 6% Based on appreciation of Gilroy property values
Selling Costs 5% Based on standard real estate agent commission
Construction Costs per SF $ 150.00 Found in R.S. means
Soft Costs (% of construction costs) 30% Found in R.S. means
Office Renting Price per SF $ 2.50 Obtained through market research
Income Tax Rate 28% Based on Tax Code
Capital Gain Tax Rate 15% Based on Tax Code
Recapture rate on Cummulative Depreciation 25% Based on Tax Code
Cap Rate 7% Obtained through market research

CALCULATED VALUES
Total Square Feet 58,000
Total Construction Costs $ 8,700,000
Total Soft Costs $ 2,610,000
Capital Budget $ 11,310,000
Total Construction Loan $ 8,482,500
Initial Equity $ 2,827,500
Market Value at Completion $ 20,797,486

RENT INFO
Rent Per Month Number of Units Total Income
Townhouses $ 2,500 12 $ 30,000
Condos $ 2,000 10 $ 20,000
Office $ 3,500 10 $ 35,000
MONTHLY $ 85,000
YEARLY $ 1,020,000

Square Feet Number of Units Total Square Feet


Townhouses 2000 22 44,000
Condos 1400 10 14,000
Office 1400 10 14,000
TOTAL SF 58,000

SOFT COST
Construction Cost $ 8,700,000

Contractor Contingency $ 565,500


Design Fee $ 435,000
Impact Fees
Transportation $ 217,500
Wastewater $ 304,500
Permit Fees $ 130,500
Planning Service Fees $ 261,000
Improvement Plan Check $ 165,300
Construction Inspection $ 530,700

TOTAL SOFT COST $ 2,610,000 Equal to 30% of Construction Costs

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS 23
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Pro Forma:
Year Year Year Year Year Year Year Year Year Year
OPERATIONS 1 2 3 4 5 6 7 8 9 10

INCOME Mixed-Use 1,020,000 1,060,800 1,097,928 1,136,355 1,176,128 1,217,292 1,259,898 1,303,994 1,349,634 1,396,871
Vacancy Loss 40,800 42,432 43,917 45,454 47,045 48,692 50,396 52,160 53,985 55,875
EFFECTIVE GROSS INCOME 979,200 1,018,368 1,054,011 1,090,901 1,129,083 1,168,601 1,209,502 1,251,834 1,295,648 1,340,996

EXPENSES Operating Expenses 293,760 305,510 317,731 330,440 343,658 357,404 371,700 386,568 402,031 418,112
Net Operating Income 685,440 712,858 736,280 760,461 785,425 811,197 837,802 865,266 893,618 922,884
Debt Service Payments 821,659 821,659 821,659 821,659 821,659 821,659 821,659 821,659 821,659 821,659

BEF TAX CASH FLOW 2,827,500 (136,219) (108,802) (85,379) (61,198) (36,234) (10,462) 16,142 43,607 71,958 101,225
BEF TAX RETURN ON EQUITY -4.82% -3.85% -3.02% -2.16% -1.28% -0.37% 0.57% 1.54% 2.54% 3.58%

TAX CALCULATIONS ON OPERATIONS:

DEDUCTIONS Operating Expenses 293,760 305,510 317,731 330,440 343,658 357,404 371,700 386,568 402,031 418,112
AVAILABLE Interest Payments 674,600 665,529 655,899 645,676 634,822 623,298 611,063 598,074 584,284 569,643
Depreciation Expenses 290,000 290,000 290,000 290,000 290,000 290,000 290,000 290,000 290,000 290,000

EFFECTIVE GROSS INCOME 979,200 1,018,368 1,054,011 1,090,901 1,129,083 1,168,601 1,209,502 1,251,834 1,295,648 1,340,996

DEDUCTIONS Operating Expenses 293,760 305,510 317,731 330,440 343,658 357,404 371,700 386,568 402,031 418,112
CLAIMED Income Remaining 685,440 712,858 736,280 760,461 785,425 811,197 837,802 865,266 893,618 922,884

Current Interest Claimed 674,600 665,529 655,899 645,676 634,822 623,298 611,063 598,074 584,284 569,643
Surplus Current Interest 0 0 0 0 0 0 0 0 0 0
Income Remaining 10,840 47,328 80,381 114,785 150,604 187,899 226,738 267,192 309,334 353,241
Banked Interest BOY 0 0 0 0 0 0 0 0 0 0
Draw of Banked Interest 0 0 0 0 0 0 0 0 0 0
Balanced Bank Int EOY 0 0 0 0 0 0 0 0 0 0
Income Remaining 10,840 47,328 80,381 114,785 150,604 187,899 226,738 267,192 309,334 353,241

Current Deprec Claimed 10,840 47,328 80,381 114,785 370,000 370,000 370,000 370,000 370,000 370,000
Surplus Current Deprec 279,160 0 0 0 0 0 0 0 0 0
Income Remaining 0 242,672 209,619 175,215 (219,396) (182,101) (143,262) (102,808) (60,666) (16,759)
Banked Deprec BOY 0 0 0 0 0 0 0 0 0 0
Draw Banked Deprec 0 0 0 0 0 0 0 0 0 0
Balance Banked Deprec EOY 279,160 0 0 0 0 0 0 0 0 0
Income Remaining 0 (195,343) 209,619 175,215 589,396 (182,101) (143,262) 472,808 (60,666) (16,759)
Tax on Remain Income 0 (54,696) 58,693 49,060 165,031 (50,988) (40,113) 132,386 (16,987) (4,693)

AFTER TAX CASH FLOW 2,827,500 (136,219) (108,802) (144,073) (110,258) (201,265) 40,526 56,256 (88,779) 88,945 105,917
AFTER TAX RETURN ON EQUITY -4.82% -3.85% -5.10% -3.90% -7.12% 1.43% 1.99% -3.14% 3.15% 3.75%

REVERSION

Property Value 12,310,000 13,048,600 13,831,516 14,661,407 15,541,091 16,473,557 17,461,970 18,509,688 19,620,270 20,797,486
Selling Costs 615,500 652,430 691,576 733,070 777,055 823,678 873,099 925,484 981,013 1,039,874
Loan Balance 11,162,940 11,006,810 10,841,051 10,665,067 10,478,230 10,279,868 10,069,272 9,845,687 9,608,312 9,356,296
Net Sale Proceeds 531,560 1,389,360 2,298,889 3,263,269 4,285,807 5,370,011 6,519,599 7,738,517 9,030,944 10,401,316

Total Bef Tax Cash Flow (2,827,500) 395,340 1,280,558 2,213,510 3,202,071 4,249,573 5,359,548 6,535,742 7,782,124 9,102,903 10,502,540
Internal Rate of Return Before Tax -86.02% -35.07% -10.78% 0.37% 6.02% 9.11% 10.89% 11.95% 12.58% 12.95%

Capital Gain 384,500 1,086,170 1,829,940 2,618,337 3,454,037 4,339,879 5,278,872 6,274,204 7,329,256 8,447,612
Tax on Capital Gain 57,675 162,926 274,491 392,750 518,106 650,982 791,831 941,131 1,099,388 1,267,142
Cummulative Depreciation 290,000 580,000 870,000 1,160,000 1,450,000 1,740,000 2,030,000 2,320,000 2,610,000 2,900,000
Recapture of Cumm Deprec 72,500 145,000 217,500 290,000 362,500 435,000 507,500 580,000 652,500 725,000

After Tax Cash Flow on Reversion 401,385 1,081,434 1,806,898 2,580,519 3,405,202 4,284,029 5,220,269 6,217,386 7,279,056 8,409,174

Total After Tax Cash Flow (2,827,500) 265,165 972,632 1,662,826 2,470,261 3,203,937 4,324,555 5,276,524 6,128,607 7,368,001 8,515,091
Internal Rate of Return After Tax -90.62% -43.71% -19.29% -6.82% -0.81% 3.84% 6.60% 7.96% 9.15% 9.93%

Internal Rate of Return


YEAR OF SALE
BEFORE TAX IRR Equity CFYR1 CFYR2 CFYR3 CFYR4 CFYR5 CFYR6 CFYR7 CFYR8 CFYR9 CFY10
1 -86.02% (2,827,500) 395,340
2 -35.07% (2,827,500) (136,219) 1,280,558
3 -10.78% (2,827,500) (136,219) (108,802) 2,213,510
4 0.37% (2,827,500) (136,219) (108,802) (85,379) 3,202,071
5 6.02% (2,827,500) (136,219) (108,802) (85,379) (61,198) 4,249,573
6 9.11% (2,827,500) (136,219) (108,802) (85,379) (61,198) (36,234) 5,359,548
7 10.89% (2,827,500) (136,219) (108,802) (85,379) (61,198) (36,234) (10,462) 6,535,742
8 11.95% (2,827,500) (136,219) (108,802) (85,379) (61,198) (36,234) (10,462) 16,142 7,782,124
9 12.58% (2,827,500) (136,219) (108,802) (85,379) (61,198) (36,234) (10,462) 16,142 43,607 9,102,903
10 12.95% (2,827,500) (136,219) (108,802) (85,379) (61,198) (36,234) (10,462) 16,142 43,607 71,958 10,502,540

AFTER TAX IRR Equity CFYR1 CFYR2 CFYR3 CFYR4 CFYR5 CFYR6 CFYR7 CFYR8 CFYR9 CFY10
1 -90.62% (2,827,500) 265,165
2 -43.71% (2,827,500) (136,219) 972,632
3 -19.29% (2,827,500) (136,219) (108,802) 1,662,826
4 -6.82% (2,827,500) (136,219) (108,802) (144,073) 2,470,261
5 -0.81% (2,827,500) (136,219) (108,802) (144,073) (110,258) 3,203,937
6 3.84% (2,827,500) (136,219) (108,802) (144,073) (110,258) (201,265) 4,324,555
7 6.60% (2,827,500) (136,219) (108,802) (144,073) (110,258) (201,265) 40,526 5,276,524
8 7.96% (2,827,500) (136,219) (108,802) (144,073) (110,258) (201,265) 40,526 56,256 6,128,607
9 9.15% (2,827,500) (136,219) (108,802) (144,073) (110,258) (201,265) 40,526 56,256 (88,779) 7,368,001
10 9.93% (2,827,500) (136,219) (108,802) (144,073) (110,258) (201,265) 40,526 56,256 (88,779) 88,945 8,515,091

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS 24
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
Real Estate Investing Ratios

Financial Summary
Potential Gross Income $ 1,396,871
Vacancy $ 55,875
Effective Gross Income $ 1,340,996
Operating Expenses $ 418,112
Net Operating Income $ 922,884
Debt Service $ 821,659
Cash Flow Before Tax $ 101,225

Total Development Cost $ 11,310,000


Loan $ 8,482,500
Equity $ 2,827,500

Gross Rent Multiplier $ 11,310,000 8.10


$ 1,396,871

Loan to Value $ 8,482,500 75%


$ 11,310,000

Debt Coverage Ratio $ 922,884 1.12


$ 821,659

Breakeven Point $ 1,239,771 89%


$ 1,396,871

Expense Ratio $ 418,112 31%


$ 1,340,996

Cash on Cash $ 101,225 4%


$ 2,827,500

After Tax Return on Equity $ 105,917 4%


$ 2,827,500

Rate of Return $ 922,884 8%


$ 11,310,000

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS 25
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
MONTHLY AMORTIZATION SCHEDULE

PERIOD BEGINNING BALANCE PAYMENT INTEREST PRINCIPAL ENDING BALANCE


1 $ 11,310,000 $ (68,472) $ 56,550 $ 11,922 $ 11,298,078
2 $ 11,298,078 $ (68,472) $ 56,490 $ 11,981 $ 11,286,097
3 $ 11,286,097 $ (68,472) $ 56,430 $ 12,041 $ 11,274,056
4 $ 11,274,056 $ (68,472) $ 56,370 $ 12,101 $ 11,261,955
5 $ 11,261,955 $ (68,472) $ 56,310 $ 12,162 $ 11,249,793
6 $ 11,249,793 $ (68,472) $ 56,249 $ 12,223 $ 11,237,570
7 $ 11,237,570 $ (68,472) $ 56,188 $ 12,284 $ 11,225,287
8 $ 11,225,287 $ (68,472) $ 56,126 $ 12,345 $ 11,212,941
9 $ 11,212,941 $ (68,472) $ 56,065 $ 12,407 $ 11,200,534
10 $ 11,200,534 $ (68,472) $ 56,003 $ 12,469 $ 11,188,066
11 $ 11,188,066 $ (68,472) $ 55,940 $ 12,531 $ 11,175,534
12 $ 11,175,534 $ (68,472) $ 55,878 $ 12,594 $ 11,162,940
13 $ 11,162,940 $ (68,472) $ 55,815 $ 12,657 $ 11,150,283
14 $ 11,150,283 $ (68,472) $ 55,751 $ 12,720 $ 11,137,563
15 $ 11,137,563 $ (68,472) $ 55,688 $ 12,784 $ 11,124,780
16 $ 11,124,780 $ (68,472) $ 55,624 $ 12,848 $ 11,111,932
17 $ 11,111,932 $ (68,472) $ 55,560 $ 12,912 $ 11,099,020
18 $ 11,099,020 $ (68,472) $ 55,495 $ 12,976 $ 11,086,043
19 $ 11,086,043 $ (68,472) $ 55,430 $ 13,041 $ 11,073,002
20 $ 11,073,002 $ (68,472) $ 55,365 $ 13,107 $ 11,059,895
21 $ 11,059,895 $ (68,472) $ 55,299 $ 13,172 $ 11,046,723
22 $ 11,046,723 $ (68,472) $ 55,234 $ 13,238 $ 11,033,485
23 $ 11,033,485 $ (68,472) $ 55,167 $ 13,304 $ 11,020,181
24 $ 11,020,181 $ (68,472) $ 55,101 $ 13,371 $ 11,006,810
25 $ 11,006,810 $ (68,472) $ 55,034 $ 13,438 $ 10,993,373
26 $ 10,993,373 $ (68,472) $ 54,967 $ 13,505 $ 10,979,868
27 $ 10,979,868 $ (68,472) $ 54,899 $ 13,572 $ 10,966,296
28 $ 10,966,296 $ (68,472) $ 54,831 $ 13,640 $ 10,952,656
29 $ 10,952,656 $ (68,472) $ 54,763 $ 13,708 $ 10,938,947
30 $ 10,938,947 $ (68,472) $ 54,695 $ 13,777 $ 10,925,171
31 $ 10,925,171 $ (68,472) $ 54,626 $ 13,846 $ 10,911,325
32 $ 10,911,325 $ (68,472) $ 54,557 $ 13,915 $ 10,897,410
33 $ 10,897,410 $ (68,472) $ 54,487 $ 13,985 $ 10,883,425
34 $ 10,883,425 $ (68,472) $ 54,417 $ 14,054 $ 10,869,371
35 $ 10,869,371 $ (68,472) $ 54,347 $ 14,125 $ 10,855,246
36 $ 10,855,246 $ (68,472) $ 54,276 $ 14,195 $ 10,841,051
37 $ 10,841,051 $ (68,472) $ 54,205 $ 14,266 $ 10,826,784
38 $ 10,826,784 $ (68,472) $ 54,134 $ 14,338 $ 10,812,447
39 $ 10,812,447 $ (68,472) $ 54,062 $ 14,409 $ 10,798,037
40 $ 10,798,037 $ (68,472) $ 53,990 $ 14,481 $ 10,783,556
41 $ 10,783,556 $ (68,472) $ 53,918 $ 14,554 $ 10,769,002
42 $ 10,769,002 $ (68,472) $ 53,845 $ 14,627 $ 10,754,376
43 $ 10,754,376 $ (68,472) $ 53,772 $ 14,700 $ 10,739,676
44 $ 10,739,676 $ (68,472) $ 53,698 $ 14,773 $ 10,724,903
45 $ 10,724,903 $ (68,472) $ 53,625 $ 14,847 $ 10,710,055
46 $ 10,710,055 $ (68,472) $ 53,550 $ 14,921 $ 10,695,134
47 $ 10,695,134 $ (68,472) $ 53,476 $ 14,996 $ 10,680,138
48 $ 10,680,138 $ (68,472) $ 53,401 $ 15,071 $ 10,665,067
49 $ 10,665,067 $ (68,472) $ 53,325 $ 15,146 $ 10,649,921
50 $ 10,649,921 $ (68,472) $ 53,250 $ 15,222 $ 10,634,699
51 $ 10,634,699 $ (68,472) $ 53,173 $ 15,298 $ 10,619,401
52 $ 10,619,401 $ (68,472) $ 53,097 $ 15,375 $ 10,604,026
53 $ 10,604,026 $ (68,472) $ 53,020 $ 15,451 $ 10,588,575
54 $ 10,588,575 $ (68,472) $ 52,943 $ 15,529 $ 10,573,046
55 $ 10,573,046 $ (68,472) $ 52,865 $ 15,606 $ 10,557,440
56 $ 10,557,440 $ (68,472) $ 52,787 $ 15,684 $ 10,541,755
57 $ 10,541,755 $ (68,472) $ 52,709 $ 15,763 $ 10,525,993

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS 26
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
ANNUAL AMMORTIZATION SCHEDULE
Selling Price $ 11,310,000.00
Loan to Value 100%
Loan Amount $ 11,310,000.00
Term 30
Interest 6.00%
Monthly Payments $ (68,471.60)
Yearly Payments ($821,659.19)

YEAR BEGINNING BALANCE PAYMENT INTEREST PRINCIPAL ENDING BALANCE


1 $ 11,310,000 $ (821,659) $ 674,600 $ 147,060 $ 11,162,940
2 $ 11,162,940 $ (821,659) $ 665,529 $ 156,130 $ 11,006,810
3 $ 11,006,810 $ (821,659) $ 655,899 $ 165,760 $ 10,841,051
4 $ 10,841,051 $ (821,659) $ 645,676 $ 175,983 $ 10,665,067
5 $ 10,665,067 $ (821,659) $ 634,822 $ 186,838 $ 10,478,230
6 $ 10,478,230 $ (821,659) $ 623,298 $ 198,361 $ 10,279,868
7 $ 10,279,868 $ (821,659) $ 611,063 $ 210,596 $ 10,069,272
8 $ 10,069,272 $ (821,659) $ 598,074 $ 223,585 $ 9,845,687
9 $ 9,845,687 $ (821,659) $ 584,284 $ 237,375 $ 9,608,312
10 $ 9,608,312 $ (821,659) $ 569,643 $ 252,016 $ 9,356,296

Financial Summary

Given the research and number crunching we feel like this project will be a success.
It turned out to be a little risky in the beginning, yet in the end it was able to give positive feedback. The
construction and project costs made for slow first years, but our rate of return continued to grow year
after year. Through strong design and organized planning we feel like we will be able to have a respect-
able rental income which will lead to our success over the ten years. Thus, given the sturdy income and
rate of return over the ten years, this project is definitely “a go” and we will continue towards comple-
tion.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS 27
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY
SUMMARY / CONCLUSIONS
The proposed development in Gilroy is a fairly simple project. It is congruent with the Specific Plan’s vi-
sion of the Gateway District. The site has no significant features that would hinder the project. The site
location allows for auto, pedestrian, as well public transit. It is also in very close proximity to shopping
centers, entertainment venues, and medical facilities. The city has been encouraging these types of
mixed-use developments as a means to revamp the downtown area. The project meets zoning require-
ments and does not require any zoning changes. Therefore, a developer would face very few obstacles
from the city when going through the application review process.

From our market research we were able to conclude that the current real estate market in Gilroy is fairly
cold. However, after analyzing various market indicators and researching the local trends in the area,
we feel confident that our development will be received well into the Gilroy community. This belief is
supported by the fact that the city of Gilroy is starting to push for more mixed-use projects, and that the
population is forecasted to continue growing for the next few years. With these expected increases in
demand for both mixed-use ventures as well as residential units, our development is sure to succeed.

Financially, the project turned out to be a little risky yet in the end it was able to give positive feedback.
Through strong design and organized planning we feel like we will be able to have a respectable inter-
nal rate of return over the first ten years. The project costs slow the rate of return down in the beginning
of the project, but the sturdy rent helped raise the rate of return over time. Thus, through the pro forma
and ratios conducted we feel this will be a sound investment with time.

After performing a very detailed feasibility study, we believe that the proposed development in Gilroy
will be successful from the perspective of an investor, a developer, and most importantly the commu-
nity.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page
SUMMARY / CONCLUSIONS
BIBLIOGRAPHY
29
BIBLIOGRAPHY
1. US Census Bureau, Census 2000, United States Government
2. Sperling’s Best Places, Gilroy, California, Accessed on May 26,2008, http://neighbor
hoods.rdesk.com/city/Gilroy-California.aspx
3. City Data, On Board LLC, Accessed on May 26, 2008, http://www.city-data.com/city/
Gilroy-California.html
4. MLS.com: America’s Real Estate Portal, MLS Network Inc, Accessed on May 26, 2008
5. House Hunt Services, OnBoard LLC, Accessed May 27, 2008, http://www.househunt.
com/sold-price-history.php?st=CA&zp=95020
6. Trulia Real Estate Search, Trulia, Inc., Accessed on June 1, 2008, http://www.trulia.com/
real_estate/Gilroy-California/
7. City of Gilroy General Plan 2002-2020, Gilroy City Council and Planning Commission,
Adopted June, 2002
8. Santa Clara Retail Report 2007, NAI BT Commercial Resources, Accessed on June 1,
2008, http://www.terranomics.com/research.asp?Report=Santa+Clara
9. City of Gilroy, California, United States. 2008. May 25th, 2008.
http://www.ci.gilroy.ca.us
10. Google Earth. 2008. May 25th, 2008.
http://earth.google.com
11. Doran, Tammy. Real Estate Agent at Intero Real Estate in Morgan Hill.
12. Warda, David. Developer in Gilroy.
13. Durkin, Melissa. City of Gilroy Planner.
14. McIntyre, Laura. City of Gilroy Planner.

TABLE OF CONTENTS
EXECUTIVE SUMMARY
PROJECT DESCRIPTION
SITE EXAMINATION
REGULATORY EVALUATION
MARKET RESEARCH
FEASIBILITY STUDY: GILROY MIXED-USE DEVELOPMENT FINANCIAL ANALYSIS
CALIFORNIA POLYTECHNIC STATE UNIVERSITY SAN LUIS OBISPO_CM 475 SPRING 2008 SUMMARY / CONCLUSIONS
Matt Goodwin, Daniel Leach, Randy Lewis, David Lindstrom, Caitlin Morici, Cameron Page BIBLIOGRAPHY 31