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08-20-19 Written CommunicationsCC 08-20-19 Oral Communications (Items not on the agenda) Written Comments 1 Cyrah Caburian From:Eric Schaefer <sericar7@gmail.com> Sent:Monday, August 19, 2019 11:30 AM To:Steven Scharf; Liang Chao; Jon Robert Willey; Darcy Paul Cc:City Clerk; R Wang Subject:For the record: Planning Commissioner Ray Wang speaks for our community Cupertino City Council members,    Ray Wang has the vision and courage to speak for the residents.  You made a wise choice when you appointed him to the  Planning Commission. He is the unfortunate target of a smear campaign by a desperate group that fears loosing control of  Cupertino's fate to a popular government.     City Clerk:  Please add my comments to the next City Council record.    Thank you.      ‐‐   Eric Schaefer  Cupertino resident    “Cities have the capability of providing something for everybody, only because, and only when, they are created by everybody.” ― Jane Jacobs, The Death and Life of Great American Cities  CC 08-20-19 Study Session Item #1 Bicycle Transportation Written Communications 1 Cyrah Caburian From:Dinyar Dastoor <dinyar.dastoor@gmail.com> Sent:Monday, August 19, 2019 7:19 AM To:Steven Scharf; Liang Chao; Rod Sinks; Darcy Paul; Jon Robert Willey Subject:Supporting Safe Bike to Schools as a high priority - Agenda item on 20th Aug study session Hello Mayor Scharf, Vice Mayor Ms Chao, Council member Paul, Council member Willey, Council member Sinks,    For the agenda item - “Study session to discuss how the 2016 Bicycle Transportation Plan”, we would like to bring to attention the priority required for Bike Boulevard network projects as a priority, instead of spending attention, resources and energy on other lower priority projects.     We would like to bring to your attention following points on this topic -     1. Safe Routes to School (SRS) is a very important initiative for city of Cupertino. The map from 2016 shows Bike Boulevard projects designed to create safer routes to School. Prior to the plan, less than 20% of the routes shown in the bike boulevard project were available as safe routes for children going to school.       2. The bike boulevard network project is targeted for safer commute to schools and connecting our middle and high schools. We are now in 2019 and only phase 1 design (#1 & #5 in image) has been finished. Phase 2 and Phase 3 have just begun by very preliminary outreach & design.     2     3. The total cost of three identified phases of Bike Boulevard network project is estimated to be $3m. This crucial project was funded in 2016, but as of today, it is limping along with bandaids and temporary solutions. It will not be finished until late 2020 or even beyond.     4. All this time, instead of prioritizing streets outlined in the Bike Boulevard to create and enhance safe routes to schools, we have been spending money, time and tremendous energy on projects like Regnart Creek that was rated at the bottom of Tier 2 in the list of bike projects, with a score of 48.    5. For some time now, Regnart Creek has been dubbed as Safe Routes to School which is clearly deceptive marketing, given the collision and Bike network stress maps in city’s 2016 Bike plan. The data clearly shows that the streets around Regnart creek neighborhood are the safest and low stress bike and pedestrian commute areas.    6. Regnart Creek is now estimated to be nearly $6m. Legal issues around right of way in some sections still needs to be resolved. Community has been constantly giving feedback that this is not money well spent while starving the crucial projects in the city like the Bike Boulevard project that creates so many more safe routes to school all over the city.     In this study session, city officials have created a flowchart to document why a particular project is given priority, when it is at the bottom of the bike plan, also alluding to the fact that it is highly subjective. In the interest of full transparency, we would like to document why Bike Boulevard -Safe Routes to School is not given higher priority despite scoring higher points over wasteful projects like Regnart Creek project.     Warm regards  Dinyar Dastoor    1 Cyrah Caburian From:David Stillman Sent:Monday, August 19, 2019 11:34 AM To:dinyar.dastoor@gmail.com Cc:City Council; Lauren Sapudar; Roger Lee Subject:FW: Supporting Safe Bike to Schools as a high priority - Agenda item on 20th Aug study session Categories:Blue Category Hi Dinyar,    Thank you for your email.   Please allow me to share a few thoughts.    The Bike Boulevard network was not designed exclusively to create safer routes to school.  As stated in the 2016 Bicycle  Transportation Plan, “These enhanced bike routes will provide neighborhood‐friendly alternatives parallel to bike network  options on major streets.  This [bike boulevard] network supports families and young students wanting to reach schools, parks,  and community amenities on quiet streets with low‐traffic volumes”.  Within the Plan, these routes were evaluated and ranked  according to several weighted criteria, of which “Travel to/near schools” was given 20% weighting but other criteria such as  safety, connectivity, and feasibility also figured into the total.  Consequently, while we anticipate that the bike boulevard  network will likely provide a safe and convenient alternative for many students travelling to schools, this is not the exclusive goal  of the network.     The City, in partnership with all Cupertino schools and both school districts, developed Suggested Routes to School maps to  assist families in determining appropriate routes for biking and walking to school. The maps, which highlight suggested walking  and biking routes, indicate estimated travel times and the locations of stop signs, crosswalks, traffic signals, crossing guards,  crossing flags, bike lanes, and bike routes that are within the attendance boundary of each school.  It is intended that these  maps be used as a tool to help determine a route to school that best compliments a student's specific mode of travel.  Staff  attempted to ensure that the chosen routes were the best of the alternatives available.   These maps were created outside of  the Bicycle master planning process, and there are no plans in place to specifically improve these routes, as the maps are not  intended for that purpose, and routes which may be lacking in certain bicycle‐ and pedestrian‐related improvements were  specifically eliminated from being considered as a suggested route where possible.     We are currently anticipating that the three bike boulevard phases will be completed mid‐2020.  Construction of the first two  phase of the network will begin within the next month or two with the construction of speed tables along Portal, Merritt,  Greenleaf and Beardon.  Phase 3 will begin in early 2020. Initial work for these three phases will be flexible bollards  accompanied by signage and pavement markings as needed. Permanent construction of the three phases with concrete raised  curbs will occur in summer of 2020. With respect to the Regnart Creek Trail, staff was directed by City Council to proceed with  the feasibility study in 2017 and, following that, the design of the trail in August 2018.  As a result, staff has been working  concurrently on this project, as well as other bike and ped projects including the bike boulevard project.  The current cost  estimate for the Regnart Creek Trail is $3.5 million (there has been no $6 million estimate).  Similar to the bike boulevard  project, while we expect the Regnart Creek Trail to provide a convenient alternative for students travelling to and from school, it  will also enhance connectivity to the library, City Hall, Wilson Park, Creekside Park, and the surrounding neighborhoods, thereby  benefiting the community as a whole.    Thank you again for your input.      CC 08-20-19 Item #11 Vallco Written Communications 1 Cyrah Caburian From:Danessa Techmanski <danessa@pacbell.net> Sent:Wednesday, August 14, 2019 10:41 PM To:Steven Scharf; JonWilley@cup.org; Liang Chao; Darcy Paul; Cupertino City Manager's Office Cc:Ray Wang; Kitty Moore; Vikram Saxena Subject:Some Thoughts on Housing At Vallco Hi Mayor Scharf, Council, Manager Feng, and Planning Commissioners,     I know with all of the noise about the housing shortage that it may be tempting to add tons of extra above our RHNA for  insurance or good measure, and that might not be too bad if we had the ability to spread it around so that no one area  of Cupertino becomes a mini San Francisco or a total traffic clog.     I’d love to see a substantial amount of housing at Vallco, maybe even up to 1200 units, but not 2,400. It’s way too much.  Our city was just never laid out to handle that kind of a load in my opinion. I’ve been thinking about how extreme  density affects neighborhoods in places like San Francisco and why I would hate to see that at Vallco. The anonymity,  overcrowding, and dirty air aren’t good for people’s mental or physical health. Sure, you have super density in places like  Paris and New York, but those cities have excellent transit, park spaces, and basic amenities within walking distance.  Paris has a park about every three blocks. Look what a pit San Francisco has turned into with dirty needles, trash, and car  break‐ins everywhere. Do we want our residents to live in overcrowded, anonymous neighborhoods with dirty air and  copious amounts of stressful traffic?  Maybe we should ask how many of our City officials or residents would like to live  in the middle of a 2400‐unit housing complex. Let’s see a show of hands!     Why build way over our RHNA at Vallco when we still have other developers with open housing allocations? I know that  they may be dragging their feet, and a recession is very likely, but they’ll want to build on that land eventually. Excessive  housing at Vallco is also irresponsible since it’s next to one of the most crowded freeway stretches in the Bay Area with  no way to mitigate the traffic or obtain funding for transit. Besides, once we add housing over our RHNA (combined  Vallco, Oaks, Hamptons, Marina and possibly Homestead lanes), the argument will be that we are short on office!    I don’t have to lecture you about office, but the poignant question is why even bother building anything at Vallco if the  added office will negate the desperately needed housing? What’s in it for Cupertino besides a greater housing deficit  and more traffic?    Wiener’s own city sets one of the ugliest examples (besides LA) in the country. CA now has 25% of the country’s  homeless people despite that it only has 12% of the country’s population. As SF tech workers have migrated over into  Oakland the homeless rate there has gone up 47% in the last two years! Within SF, tech workers have pushed 8,000  people out of their homes, or 1% of the city’s population, many of whom are newly drug‐addicted as a way to deal with  the pain and shame of being homeless. San Francisco has 4 new full‐time positions for sweeping up human feces off the  street, and others who pick up used drug needles 12 hours a day. And yet I wonder if MTC will have another $29K  holiday party this year at the taxpayer’s expense?      All of that said however, I believe that the people of Cupertino are lucky enough to have a greater collective  humanitarian conscience and will hopefully never become so numb and oblivious to what is happening in the Bay Area. I  pray that through our City leadership and guidance we can set an example and never even start down the road to an  even greater housing/jobs imbalance. Unfortunately our federal government makes it harder for us by allowing Saudi  Arabia and Abu Dhabi to pour more and more money into our most saturated metropolitan tech and business centers  instead of into the parts of our country where jobs are needed and housing is more affordable. I was just in Denver and  Boulder and the song there is very much the same as here.  2   One last thought, I know that the majority of people don’t live and work in the same city, but I do wonder if those  numbers couldn’t be improved by building housing that better matches the real and particular needs of our local work  force. It seems instead that housing levels and types are developer driven. I would guess that there are many Apple  employees who would be interested in buying starter condos close to work in Cupertino, but they will likely get tons of  apartments and tiny BMR units if SHP has their way. Is that responsible planning? Why is it that cities are not making the  effort to poll and research exactly the types of housing that their local workforce actually needs? I had previously  mentioned the idea of getting together with large employers like Apple to do such a poll—although developers will  probably balk that it won’t  “pencil out.”  It sure seems a lot better than letting Sacramento decide what types of  housing we need since they have little if any understanding about our community other than salaries and family sizes.  Plan Bay Area seems like it’s been as bad as having no plan at all—or worse.    I am writing a paper on the forces behind the housing “crisis” and it sickens me to see that none of the 13 major factors  that continue to drive our problems are even addressed by bills like SB 35.  $$$$$$$$$$$$ reigns supreme. More on that  later…….    Most sincerely,  Danessa Techmanski   1 Cyrah Caburian From:Yan Yu <yanyu2005@gmail.com> Sent:Friday, August 16, 2019 5:13 PM To:City Council Subject:downsize Vallco GPA Dear Citycouncil, Happy Friday! I am a cupertino resident and I support to downsize Vallco GPA: 1. Allocate ZERO office space at Vallco. We already a gigantic Apple spaceship across the street. Have more office buildings would be disaster to rush hour commute and burden local infrastructures beyond its current capacity. 2. Make the project Mainly for shopping and entertainment. The majority of Cupertino land are occupied by housing and office buildings. We as Cupertino resident, would like to keep the Vallco as shopping and entertainment center instead of re-purposing or rezoning it for office building or housing units. Our city needs a balanced development. We barely has any entertainment or shopping centers left. 3. Leave more green landscape on the ground. 4. As mentioned above, keep the Vallco as shopping and entertainment center instead of repurposing it for other uses. definitely, Keep housing units MINIMAL. please keep my comments as public record. Thanks! Best regards, yan 1 Cyrah Caburian From:James Moore <cinco777@icloud.com> Sent:Sunday, August 18, 2019 6:24 PM To:Steven Scharf; Liang Chao; Jon Robert Willey; Darcy Paul; Rod Sinks; Cupertino City Manager's Office; City Attorney's Office Cc:Sue Moore; City Clerk Subject:Please support the passage of the Resolutions and Ordinances (Agenda Item #11) for the 8/20/19 CCC meeting Dear City Council, City Manager, and City Attorneys,  Please conduct the 8/20/2019 CCC Public Hearing, deliberate, and adopt the three Resolutions listed under Agenda Item 11. Additionally, please conduct the first reading of the two related Ordinances. We, our neighbors, and Cupertino friends do not want or need more office. All of us, as long-time residents, have seen that more office brings more stressed out commuters and traffic congestion, and is never accompanied with sufficient and affordable housing. Bay Area media, business interests, and developers, on a daily basis, laud the number of new jobs being created in Cupertino and nearby communities. They rarely mention the severe side effects which include traffic gridlock, increasingly lengthy commute times, shockingly high home prices, sky high rents, lack of affordable housing, and increased toxic and green house gas emissions. Between 2010 and 2017, per Census Bureau data, Cupertino added 11,219 new jobs but added only 2,155 new employee residents. 9,064, or 80% of these new Cupertino-based jobs were taken by employees commuting from outside Cupertino. For the first six months of 2019, Cupertino's unemployment rate averaged 2.4%. Our rate has been below 3% for years. These facts demonstrate that Cupertino residents don't need jobs elicited by more office. Instead of more office, residents, including seniors and children, need relief from the increasingly dangerous traffic conditions plaguing our streets and highways. We, our City, needs a break from this jobs/office onslaught to catch our breath and resolve our unaffordable housing crisis without continuing to worsen it by building more office without sufficient compensating affordable housing. Cupertino, with a "new jobs to new employee residents" ratio of 5.2, more than double that of an overloaded and congested San Francisco County, is fast becoming the Poster Boy City of "Too Much Of A Good Thing". Continuing at our current pace with new job/office creation will lead to our streets resembling a vast and stressed-out parking lot during commute and school drop-off hours. Please note that our Cupertino-specific jobs/office/housing/commute imbalances dwarf those of other West Bay communities as enumerated in Greg Schmid's 9-page "Plan Bay Area 2050 Methodology" provided to MTC/ABAG on August 15, 2019. We and many other concerned citizens supported and signed it. This paper offers valuable insight into our need to balance jobs, office, and housing, and recommends solutions to the numerous problems and challenges confronting Bay Area communities. We rate it a "Must Read" for all Bay Area residents and officials. Thank you for supporting the residents of Cupertino who, in recent years, rarely spend a week without experiencing media, business, and developer interests treating our community as a means to increase their riches at the expense of our suburban quality of life. We, our friends, and close neighbors moved to Cupertino and have stayed because it has been a desirable community to raise our children, enjoy our diverse and friendly neighborhoods, and benefit from our excellent schools, parks, and a wealth of city services. Let's keep Cupertino as a safe and neighborly community Jim and Sue Moore Lindy Lane (west of Bubb) Residents since 1976/1980 **** Please add this letter to Public Comments for the 8/20/19 CCC Mtg **** 1 Cyrah Caburian From:David Rolnick <daverol@sbcglobal.net> Sent:Sunday, August 18, 2019 7:39 PM To:City Council Cc:City Clerk; Cupertino City Manager's Office Subject:Hausrath Economics Group Memo Members of the Cupertino City Council,    I have reviewed the Hausrath Economics Group memo regarding the viability of housing at Vallco.     While I have no particular expertise on evaluating housing and commercial development viability at Vallco, this memo is clearly  lacking even to the most untrained evaluator.    The entirety of the permitted uses (both housing and retail)  need to be completely evaluated together, not solely the 13.1  acres of housing in isolation.  One cannot tell from this memo if the housing element is viable or not because so much of the cost  estimates are missing (construction cost estimates, school fees, city fees, etc.).    The estimated cost of $4.6 million to tear down 13.1 acres of the existing mall implies a cost of about $18.1 million to tear down  all 51 acres of the mall.  It seems to me that the cost to completely tear down the all the existing mall structures will far exceed  this amount.  Even simpler tasks like putting in dedicated bicycle lanes or upgrading the Regnart Creek trail or adding a small  room to the library cost millions.    If the Vallco Property Owner chooses to spend  their own money generating garbage economic viability reports, they can spend  their money doing so.  For the city to waste the taxpayers money on such an unobjective and unserious memo to counter VPO’s  garbage is shameful.   Surely there must be a city employee who could have done a more thoughtful and complete job on this  task.    Regards,    David Rolnick              1 Cyrah Caburian From:David Meyer <david@siliconvalleyathome.org> Sent:Monday, August 19, 2019 9:30 AM To:Steven Scharf; Liang Chao; Darcy Paul; Rod Sinks; Jon Robert Willey Cc:City Clerk; Kriti Garg; Michael Lane Subject:SV@Home letter RE: Item 11 - Vallco Shopping District Special Area Initial GP Amendments Attachments:SVH Letter RE Item 11 - Vallco GP Amendments 081919.pdf Dear Mayor Scharf, Vice Mayor Chao, and Councilmembers Paul, Sinks, and Willey:    On behalf of SV@Home and our members, we write today to reiterate our strong support for the Vallco Town Center SB35  proposal, which will bring 1,201 affordable homes to Cupertino. We’re excited to see this project move forward and glad to see  the latest phase of demolition permits approved. While we were disappointed to see the Vallco Specific Plan repealed by the  Council after months of engagement by community members, the SB35 proposal will be a major step towards meeting the city’s  affordable housing goals.    Since the beginning of the 2015‐2023 Regional Housing Needs Assessment (RHNA) cycle, Cupertino has permitted only 19 new  homes for people who make very low incomes, 56 homes for people who make moderate incomes, and none for people with  low incomes. This leaves a gap of 719 affordable homes in the current cycle alone. And while we applaud the City for supporting  the construction of the Veranda, a Measure A‐funded affordable housing development that is providing 19 new homes for  seniors, including seniors who have recently experienced homelessness, there is a need to tackle this challenge at scale.    We are concerned that the Council is considering actions that will undermine efforts to build more housing in Cupertino,  particularly housing for lower‐income families. The best opportunity for Cupertino to make progress on its goals is through  significant affordable housing development at the Vallco site.    We urge the Council to take action to expedite the development of the Vallco SB35 project so that 2,402 households can find a  place to call home.    Sincerely,    David    David Meyer Director of Strategic Initiatives david@siliconvalleyathome.org (408) 462-1572 Website Facebook Newsletter LinkedIn Twitter Become a Member  Board of Directors Ron Gonzales, Chair Hispanic Foundation of Silicon Valley Janice Jensen, Vice Chair Habitat for Humanity East Bay/Silicon Valley Kevin Zwick, Treasurer Housing Trust Silicon Valley Kathy Thibodeaux, Secretary KM Thibodeaux Consulting LLC Shiloh Ballard Silicon Valley Bicycle Coalition Bob Brownstein Working Partnerships USA Gina Dalma Silicon Valley Community Foundation Katie Ferrick LinkedIn Amie Fishman Non-Profit Housing Association of Northern California Javier Gonzalez Google Poncho Guevara Sacred Heart Community Service Nathan Ho Silicon Valley Leadership Group Janikke Klem Technology Credit Union Jan Lindenthal MidPen Housing Jennifer Loving Destination: Home Mary Murtagh EAH Housing Chris Neale The Core Companies Andrea Osgood Eden Housing Kelly Snider Kelly Snider Consulting Jennifer Van Every The Van Every Group Staff Leslye Corsiglia Executive Director 350 W. Julian Street, Building 5, San José, CA 95110 408.780.2261 • www.svathome.org • info@siliconvalleyathome.org TRANSMITTED VIA EMAIL August 19, 2019 Honorable Mayor Scharf and Members of the City Council City of Cupertino 10300 Torre Avenue Cupertino, CA 95014 Dear Mayor Scharf, Vice Mayor Chao, and Councilmembers Paul, Sinks, and Willey: RE: Item 11 – Vallco Shopping District Special Area General Plan Amendments and Associated Zoning Amendments On behalf of SV@Home and our members, we write today to reiterate our strong support for the Vallco Town Center SB35 proposal, which will bring 1,201 affordable homes to Cupertino. We’re excited to see this project move forward and glad to see the latest phase of demolition permits approved. While we were disappointed to see the Vallco Specific Plan repealed by the Council after months of engagement by community members, the SB35 proposal will be a major step towards meeting the city’s affordable housing goals. Since the beginning of the 2015-2023 Regional Housing Needs Assessment (RHNA) cycle, Cupertino has permitted only 19 new homes for people who make very low incomes, 56 homes for people who make moderate incomes, and none for people with low incomes. This leaves a gap of 719 affordable homes in the current cycle alone. And while we applaud the City for supporting the construction of the Veranda, a Measure A-funded affordable housing development that is providing 19 new homes for seniors, including seniors who have recently experienced homelessness, there is a need to tackle this challenge at scale. Cupertino’s jobs-housing fit ratio is among the highest in Santa Clara County, with nearly 14 low wage jobs for every one existing deed-restricted affordable home. This means that many of the people who work in service jobs critical to the city’s economy cannot afford to live near their job or that they overpay or overcrowd to avoid long commutes. We are concerned that the Council is considering actions that will undermine efforts to build more housing in Cupertino, particularly housing for lower -income families. The best opportunity for Cupertino to make progress on its goals is through significant affordable housing development at the Vallco site. We urge the Council to take action to expedite the development of the Vallco SB35 project so that 2,402 households can find a place to call home. Sincerely, David K Meyer Director of Strategic Initiatives 1 Cyrah Caburian From:Eric Schaefer <sericar7@gmail.com> Sent:Monday, August 19, 2019 11:28 AM To:Steven Scharf; Liang Chao; Jon Robert Willey; Darcy Paul Cc:City Clerk Subject:For the record: Don't gift Vallco property owner with upzone Cupertino City Council members,    Re: Aug. 20 agenda item:  19‐2188 (Z‐2019‐01), "An Ordinance of the City Council of the City of Cupertino amending the zoning  map to rezone 13.1 acres within the Vallco Shopping District Special Area to Mixed Use Planned Development with Multifamily  (R3) Residential zoning P(R3,CG) and General Commercial uses and the remainder of the Special Area to General Commercial  (CG)"     Housing might be a great use for some of Vallco.  But any permanent upzone of the property will provide a windfall for the  current, unreasonable owner and make it harder for a more reasonable owner to acquire and develop the property in line with  the community vision.  Gifting Vallco upzone now also decreases the City's negotiating power with the current or a future Vallco  property owner.    City Clerk:  Please add my comments to the City Council meeting record.    Thank you.      ‐‐   Eric Schaefer  Cupertino resident  “Cities have the capability of providing something for everybody, only because, and only when, they are created by everybody.” ― Jane Jacobs, The Death and Life of Great American Cities  1 Cyrah Caburian From:Eric Schaefer <sericar7@gmail.com> Sent:Monday, August 19, 2019 11:34 AM To:Steven Scharf; Liang Chao; Jon Robert Willey; Darcy Paul Cc:City Clerk Subject:For the record: Remove office from Vallco: Support!     Cupertino City Council members,    Re: Aug. 20 agenda item:   19‐109 (GPA‐2019‐01), a resolution amending the General Plan to remove Office as a permitted use  from the Vallco Shopping District Special Area and remove associated office allocations     Support!    City Clerk:  Please add my comments to the City Council meeting record.    Thank you.  ‐‐   Eric Schaefer    “Cities have the capability of providing something for everybody, only because, and only when, they are created by everybody.” ― Jane Jacobs, The Death and Life of Great American Cities  1 Cyrah Caburian From:Allen, Mark W. <mallen@coblentzlaw.com> Sent:Monday, August 19, 2019 1:28 PM To:City Council Cc:Yu, Charmaine; Cupertino City Manager's Office; Heather Minner Law Email; compliancereview@hcd.ca.gov Subject:Vallco Attachments:Cupertino City Council Letter with Attachments-c.pdf Dear City Council – attached please find a letter from Ms. Yu regarding Item No. 11 at tomorrow’s City Council meeting,  regarding the General Plan Amendments and rezoning for the former Vallco Fashion Mall Site.  A hard copy follows via FedEx for  delivery tomorrow.      Thank you.    Mark Allen | Secretary to Charmaine G. Yu, Esq.  Coblentz Patch Duffy & Bass LLP  One Montgomery Street, Suite 3000  San Francisco, CA 94104  415‐677‐5242 | Office 415‐391‐4800  mallen@coblentzlaw.com  www.coblentzlaw.com     This transmittal is intended solely for use by its addressee, and may contain confidential or legally privileged information. If you receive this transmittal in error, please email a  reply to the sender and delete the transmittal and any attachments.        4836-6503-0302.9 Charmaine G. Yu D 415.772.5729 cyu@coblentzlaw.com August 19, 2019 VIA E-MAIL and FEDEX Cupertino City Council 10300 Torre Avenue Cupertino, California 95014 citycouncil@cupertino.org Re: August 20, 2019 City Council Meeting, Public Hearings Item # 11 General Plan Amendments for Vallco Fashion Mall Site Dear Mayor Scharf and City Council Members, This firm represents Vallco Property Owner, LLC (“VPO”), which owns the 50.82-acre site of the former Vallco Fashion Mall (the “Vallco Site” or the “Site”). VPO was recently notified that the City was considering amendments to the general plan and zoning map (the “Amendments”) that would, among other things, severely limit the development of housing and altogether eliminate the development allocation for office uses on the Vallco Site. Because of the grave doubts raised by Planning Commissioners Fung and Takahashi, the proposed resolutions to recommend the adoption of the Amendments failed. Those Amendments are now due to be considered by the City Council. The misgivings expressed by two long-serving Planning Commissioners about the intent and effect of the Amendments were justified. If the Amendments are adopted, and the currently-entitled SB 35 project does not proceed on the Vallco Site, the City will have placed itself at serious risk. For example: x The Department of Housing and Community Development (“HCD”) has made plain that the City’s Housing Element will not be compliant with state law. x The Amendments will expose the City to hundreds of millions of dollars of damages to VPO (plus attorneys’ fees). x The General Plan amendment unlawfully requires another, unknown future General Plan amendment. City Council August 19, 2019 Page 2 4836-6503-0302.9 x The changes to zoning will have citywide impacts that have not been studied and would impact many other properties. x The Amendments violate the California Environmental Quality Act. Indeed, in the event that the SB 35 project is blocked, the best case, albeit improbable, scenario for the City is that the Amendments are deemed valid — and the City is saddled, for the foreseeable future, with a blighted 50-acre parcel with an unusable, partially-demolished mall on it. This is a rushed effort that, as the Planning Commission has confirmed, has nothing to do with an actual planning exercise. Rather, the sole purpose of the Amendments is to ensure that nothing will be developed at the Vallco Site, in the unlikely event that Friends of Better Cupertino, with the City’s support and assistance, prevails in its challenge to the SB 35 project. I. The City Failed to Provide Proper Notice for This Meeting, and It Is Repressing Public Participation. Where the City proposes to substantially amend a general plan, it must grant a 45-day comment period to a slew of other public agencies, including the County of Santa Clara, the school district, and the State Water Resources Control Board.1 (Gov. Code § 65352.) In addition, when the City proposes to amend its general plan in any respect, it must notify certain Native American tribes, and provide them 90 days to request consultation, and then additional time if consultation is requested. (Gov. Code § 65352.3.) Further, although the City has been careful to not propose any changes to the Housing Element, the effect of the changes require modifications to the Housing Element to maintain “horizontal consistency,” which triggers review by HCD. As far as we can tell, the City did not comply with any of these notice provisions. Rather, at least as to the requirement that the City provide Native American tribes the opportunity to conduct, the City has tried weakly to “work around” the statutory requirements as it pushes through the Amendments. The City is proposing to adopt a new General Plan policy (which was not presented to the Planning Commission) that requires coordinating with “applicable Native American tribal representatives following approval of development in the Vallco Shopping District Special Area to ensure appropriate cultural sensitivity training is provided to all contractors prior to the start of ground-disturbing activities.” Of course, this is an 1 It goes without saying that amending a General Plan to remove two million square feet of office space and to allow by-right housing development with no design review is “substantial”. City Council August 19, 2019 Page 3 4836-6503-0302.9 empty solution that will not mitigate the cultural impacts of any future project; the City requiring consultation after the General Plan is amended does not comply with the statute, which requires the consultation to occur “prior to” any amendment. Even setting aside the City’s failure to comply with these notice requirements, the Planning Commissioners pointed out that the best that could be said of the City’s process for the Amendments is that it met the bare minimum required for legal compliance. That might be legal government process, but it is not good, or even acceptable, government process. The redevelopment of the Vallco Site has been the major land use, planning, and community issue in Cupertino for at least five years. The City undertook a multi-year general plan process, then a specific plan process that resulted in the certification of an environmental impact report and approval of a specific plan, which was then subject to a referendum and repealed. Hundreds, if not thousands, of community members participated in years of planning, charettes, campaigning, and organizing about how to address the site. For its part, VPO contributed approximately $4 million to the City’s recent specific plan process (to pay for consultants, lawyers, and others, as well as staff time). During these years of community planning and negotiation, the office use allocation was one of the most hard-fought issues. With that background, it is shocking that the City Council would instruct City staff to hastily and covertly prepare the Amendments, without soliciting any input from the actual property owner. It is appalling that the City Council would consider adopting the Amendments, with only the minimum compliance with notice requirements, and almost no community participation. It is a disservice to City residents to consider the Amendments in the middle of summer, while many residents are away, and on the fastest schedule that the Planning Commission and City Council can muster. The City only sent 96 notices to neighboring Cupertino households within 300 feet of the Vallco Site,2 even though residents from across all parts of the City participated in the prior processes, and the redevelopment of Vallco will affect all City residents, perhaps for generations to come.3 2 Compare this with the citywide notice requirement that applies if a property owner seeks a General Plan amendment. In both instances, the effect is the same: amendment of the General Plan; but the City believes it can hold itself to a different standard and take advantage of a “loophole” in the notice provisions that allows it to notify only a small percentage of City residents. 3 When the FPPC opined that Vice Mayor Chao be permitted to participate in certain decisions about the SB 35 litigated, the basis of its opinion was that the redevelopment of the Vallco Site is so significant City Council August 19, 2019 Page 4 4836-6503-0302.9 Vice Mayor Chao and Councilman Willey campaigned on a platform of “transparency.” They complained that former City Council members failed to conduct City business in a forthright way that allowed for maximum public participation.4 Indeed, at this meeting, at the recommendation of Vice Mayor Chao and Councilman Willey, the City Council will consider proposals to increase the notice requirements for development proposals. But the Amendments raise the question of whether this Council is in fact interested in transparency or simply rather the appearance of transparency, in the event that transparency is not politically convenient. In any event, the Amendments lay bare their actual agenda: if there is an opportunity to kill development at the Vallco Site, it should be undertaken swiftly, before City residents have an opportunity to understand what the City Council proposes to do or, heaven forfend, oppose it. The only plausible reason to undertake the Amendment process in such a hasty and covert way is to deprive those who would oppose the Amendments from having a full opportunity to participate in the process. A project for the Vallco Site has already been approved under SB 35. The Amendments are inconsistent with the approved SB 35 project, and, as the City has correctly confirmed, the Amendments will not give the City any grounds to block or alter the SB 35 project. Friends of Better Cupertino—the political benefactors of Mayor Scharf, Vice Mayor Chao, and Councilpersons Willey and Paul — and Planning Commissioner Kitty Moore have sued the City to block the SB 35 project, but that matter is not scheduled to be heard by the Superior Court until October. Even if that were a legitimate basis for requiring hasty action, which it is not, there is no urgency to the Amendments. The City is nevertheless moving forward, as quickly as it can, without necessary consultation with technical experts or the actual property owner, and with scant notice to the public. II. The City Council Can Only Consider the Resolutions That Were Presented to the Planning Commission. In an effort to try to “repair” defects that were identified by VPO and the Planning Commission, the City has generated additional proposals for the City Council to consider that were not presented to the Planning Commission. Most significantly, the “Tribal Coordination” policy, and the proposals (and recommendations) for specific that its effects may be felt by a broad range of Cupertino residents, many of whom live beyond the 300- foot radius from the Vallco Site that was used to notice these meetings. 4 In fact, Councilman Willey recently complained about a perceived inadequacy in the notice given for the Cupertino Village hotel project, even though that project will have a far narrower impact than the Vallco Project and the Amendments. City Council August 19, 2019 Page 5 4836-6503-0302.9 siting of the 13.1 acre residential site were not presented to the Planning Commission. The City Council is prohibited from acting on these items, and they must “first be referred to the planning commission for its recommendation.” (Gov. Code, § 65356.)5 III. If the City Adopts the Amendments, and the SB 35 Project Does Not Proceed, the City’s General Plan Will Be Non-Compliant With State Law. A. The General Plan Will Not Contain an Adequate Housing Element. HCD has already warned the City that if the SB 35 project does not proceed, the City will be out of compliance with mandatory housing requirements.6 Enforcing compliance with housing requirements against recalcitrant municipalities that are trying to block or delay residential development is a priority for HCD.7 The Amendments make the City’s non-compliance with state law more acute. Cupertino’s militantly anti- affordable-housing reputation is not accidental. It is deserved, even if its public officials have become more savvy about disguising their true purpose. The City’s General Plan must include a Housing Element that identifies “adequate sites for housing.” (Gov. Code § 65583.) A Housing Element is not compliant simply because the City designates “every unoccupied mote” within its boundaries as available for “residential development,” but the inventory needs to include sites that are “actually” available. (Hoffmaster v. City of San Diego (1997) 55 Cal.App.4th 1098, 1111.) The Vallco Site, in particular, is identified as a “Priority Housing Element Site” in the General Plan’s Housing Element, and it must therefore be “suitable and available for residential development.” “Suitable and available” means that there is a “realistic and demonstrated potential” to develop the allotted number of residential units during the planning period. (Gov. Code § 65583(a)(3).) The City must provide information showing that the site will “actually” be suitable for residential development during the planning period, and that the site will accommodate the amount of development attributed to it. (Gov. Code §§ 65583.2(b), 65583(c).). 5 In fact, the only “recommendation” from the Planning Commission is that the City Council adopt a height limit for the Vallco Site. As to the balance of the Amendments, the resolution to recommend them failed, and there is therefore no recommendation for the City Council to act on. 6 On August 2, 2019, HCD issued a letter to the City stating that compliance with state law was contingent on the City proceeding with either the Specific Plan project (which was repealed by the City) or the SB 35 project. If neither proceeds, the City’s housing element will be non-compliant. 7 HCD recently sued the City of Huntington Beach after its housing element fell out of compliance. City Council August 19, 2019 Page 6 4836-6503-0302.9 The Housing Element must also contain a program that sets forth a schedule of actions during the planning period that, among other things, will “remove governmental . . . constraints to the . . . development of housing.” (Gov. Code § 65583(c)(2).) The City’s obligation to demonstrate the potential of its priority housing sites to accommodate residential development is even more acute now, more than halfway through the current planning period, since there is relatively little time left for the housing to be produced. All four Planning Commissioners commented that they had insufficient information to determine whether it would be “actually” feasible to develop the Vallco Site if the Amendments are adopted. Prior to the Planning Commission meeting, VPO submitted a preliminary report from the Concord Group (“TCG”), illustrating the infeasibility of future development pursuant to the Amendments. In response, the City commissioned a “preliminary financial feasibility assessment” by Hausrath Economics Group (“Hausrath”), which purports to show that it would be feasible to develop the Vallco Site (or, at least, 13.1 acres of the Site). Hausrath purports to show that if the $400+ million 8 development of the 13.1 acre residential parcel, alone, goes exactly according to Hausrath’s projection, then that portion of the Site would have a $1 million residual value. Of course, Hausrath ignores the remaining 37 acres of the Site (to which the Amendments impute a colossal negative residual value by mandating infeasible new retail development) and, as to the 13.1 acres, assumes that a developer would assume all of the risks attendant to the residential development for such a paltry, razor-thin upside. But even Hausrath’s conclusion that the 13.1 acres could generate a nominal residual value is implausible and wrong. Hausrath’s preliminary assessment is rebutted by four other in-depth feasibility reports, two of which were commissioned by the City: 2018 reports by Economic & Planning Systems (“EPS”) and TCG, a 2019 TCG report, and a feasibility analysis by Strategic Economics (“SE”) prepared just last month for an August 13, 2019 Planning Commission meeting.9 In 2018, the City engaged EPS, an economic feasibility consultant, to study the Vallco Site.10 The EPS study recognized that office would be an “essential” economic 8 Excluding land costs. All Hausrath cost assumptions come from the 2018 EPS report. 9 The 2019 SE report is Exhibit A to this letter. 10 The 2018 EPS report is Exhibit B. City Council August 19, 2019 Page 7 4836-6503-0302.9 component of any large project on the Vallco Site.11 Also in 2018, TCG prepared an economic feasibility report in connection with VPO’s 2018 SB 35 application.12 Among other things, that report describes the effect of certain aspects of the Amendments, and the portions of the General Plan that will remain un-amended, on the feasibility of developing the Site. Specifically, the City proposes to eliminate office uses, but will retain costly, non-revenue generating elements required by the General Plan, including the requirement that the Site largely be re-used as a shopping center. According to both TCG and EPS, in order for development of a minimum of 600,000 square feet of retail, as required by the Amendments, to be feasible, it must be sufficiently subsidized by other revenue-generating land uses. Indeed, in 2018, TCG concluded that requiring the Site to absorb 600,000 square feet of retail is an “unrealistic scenario” and anything more than 400,000 square feet of retail would result in extraordinarily high (i) ‘carry’ costs and operating losses and (ii) lease transaction and construction costs. Per EPS, in order for a minimum of 600,000 square feet of retail to be “in the realm of financial feasibility,” the City would need to entitle — and allow “by right” — a minimum additional development program of 1,779 residential units (with no more than 15% affordable 13) and 750,000 square feet of office. These 2018 conclusions are consistent with the SE Report concerning the feasibility of proposed changes to the City’s BMR program that was prepared for the City and submitted just last week to the Planning Commission for its August 13, 2019 meeting. SE evaluated the feasibility of retail development and supported the TCG and EPS conclusions: The financial feasibility analysis shows that retail developments are not financially feasible under current market conditions. 11 Consistent with the EPS report, Commissioners Fung and Takahashi both understood that the removing office use will make the Vallco Site “undevelopable.” 12 The 2018 TCG report is Exhibit C. 13 We understand that the City is currently studying updates to the affordable housing requirements and that the Housing Committee has suggested that the City should consider increasing the percentage to 20% or even 25%, and disallow payment of an in-lieu fee. If adopted, those proposals would render any development even more challenging than assumed by EPS. City Council August 19, 2019 Page 8 4836-6503-0302.9 The SE report also acknowledged the challenge in residential development today, determining inclusionary apartment projects to be infeasible as well: The results from the feasibility analysis show that rental development in Cupertino cannot feasibly provide BMR units on-site under current market conditions. . . . In other words, according to SE, an apartment project with any BMR units is not feasible. The Amendments would require VPO to include 15 percent BMR.14 Notwithstanding their conclusion that most forms of development other than office use are infeasible in today’s market, SE (and EPS in 2018) concluded that for- sale residential is potentially feasible. Accordingly, in order to substantiate the Amendments, Hausrath was forced to solely underwrite an inclusionary condominium development, effectively limiting the use of the 459 housing units to for-sale only.15 Even these bleak feasibility outlook suggested by the SE and EPS reports were too optimistic. Attached to this letter is a more comprehensive report prepared by TCG, analyzing the feasibility of the Amendments.16 Using inputs provided by Hello Housing,17 TCG corrected two major inputs by Hausrath that are wildly inaccurate. First, Hausrath assumed (as did EPS) that BMR units would be sold for an average 14 The SE report also point to other material defects in the Hausrath report. For example, Hausrath assumed $42,609 in Permits and Fees per market-rate unit, and $33,609 per BMR unit. The SE Report assumed current “City Fees” to be $59,655 per unit on a blended basis in a 15% BMR condominium project. Correcting this element, alone, results in a negative swing in Hausrath’s report of more than $8 million. This is only one of many items that are inaccurate, or not accounted for, in the Hausrath report. Any one of them would immediately erase Hausrath’s residual value conclusion. 15 Hausrath failed to account for the additional risks attendant to condominium development that any reasonable developer would take into account, and which makes Hausrath’s $1 million residual value even more absurd. For example, condominium developers carry a 10-year tail of construction defect liability. In addition, Developers of condominium projects are also far more susceptible to market volatility – if the project is released during a recession, then the developer has to bear that impact when it brings the units to market, whereas a rental project has the ability and time horizon to weather a recession. 16 The TCG report is Exhibit D to this letter. 17 Hello Housing is the organization that the City engaged to manage its BMR housing program. City Council August 19, 2019 Page 9 4836-6503-0302.9 price of $835,000, but the correct projection is only $482,000.18 Second, Hausrath also assumed (again, as did EPS) that construction costs would be only $349 per foot, but a more reasonable, and current, projection is $486 per square foot. When those two inputs are corrected, the residual value of developing the 13.1 acres 19 plummets by nearly $140 million. The effect of these corrections, separately and together, is depicted in Exhibits 1A, 1B, and 1C to the TCG report. And, of course, that nearly $140 million negative residual value does not account for additional design and improvements required, or logistics necessitated, by the Amendments that will only serve to increase the cost of development and further impair feasibility.20 TCG also studied two scenarios that analyzed feasibility of the entire Site (Exhibits 1D and 1E to the TCG report). In new General Plan Section LU-19.2, the Amendments require the 13.1-acre residential project to carry such major Site-wide improvements as the creation of a “Town Center layout” and “high quality public realm” and a new “street grid” internal to the Site and major improvements to Stevens Creek Boulevard and Wolfe Road to include new features such as bike lanes, wide sidewalks, street trees, and improved pedestrian intersections. The 13.1-acre project will also require VPO to incur the lion’s share of the “Site Costs” (i.e., demolition, site work, open space improvements, and right-of-way and backbone and utility infrastructure) for the entire 50.8-acre Site implemented up-front, as a part of the 13.1-acre project, not the 26% proportionate share that Hausrath unrealistically estimates in their analysis. LU-19.3 goes on to impose significant design and construction burdens on the 37-acre portion of the development by requiring such things as “complete redevelopment” of the Site, a new street network, transit facilities, off-site bike/ped connections and improvements, substantial open space, high-quality architecture, gateway features, hidden parking, and neighborhood buffers, to name a few. This only 18 Indeed, SE projected an average BMR unit price of $375,431. 19 TCG assumed development of 390 market rate condominiums, 69 below market rate condominiums, and 25,000 square feet of retail. 20 The TCG report incorporated many elements of the prior Hausrath and EPS reports, purely for the purpose of simplifying the analysis, even though those elements make the feasibility conclusion more rosy than it should be. In other words, if every element in the Hausrath report were corrected, rather than just the most major ones, TCG’s residual value conclusion would be even lower. Much of the data necessary to correct those other elements is located in the technical appendix to the TCG report. City Council August 19, 2019 Page 10 4836-6503-0302.9 adds to the substantial value loss suffered by the remaining 37 acres as a result of the Amendments’ completely infeasible land use designation. It requires little study to see that the 37-acre development is also infeasible. The Hausrath report is a purely cynical exercise, calculated to provide the City Council with a fig leaf to allow it to proceed with the Amendments. That is political showmanship, not good governance. Every plausible analysis – including the SE report submitted to the Planning Commission last week – points the same direction: if the Amendments are adopted, no project could pencil on the Vallco Site, regardless of whether one looks only at the 13.1 acres or at the entire Site, whether the 13.1 acre portion is developed with rental housing or condos, or any other variation permitted by the Amendments. The City’s strategy is a classic anti-housing maneuver: list a site on the inventory that it knows with certainty will never be developed in the manner that the City has advertised.21 But the Legislature has made clear that inventories must contain sites on which the allotted residential development is reasonably probable. Where there are governmental constraints, the City must set forth a program of actions to remove such constraints. These Amendments do the opposite. They will kill the prospect of any redevelopment of the Vallco Site and will cause the City’s General Plan to violate state law.22 B. The City Is Out of Compliance With Its Housing Element. As HCD set forth in its August 2 letter, the City is not in compliance with its Housing Element. As the HCD Letter explains, the City committed in its Housing Element to either adopt a Specific Plan by May 31, 2018, that allows at least 389 units on the Vallco Site, or allocate units to Priority Housing Element Sites. By rescinding the Specific Plan and not pivoting to Scenario B, and instead taking action that will 21 Planning Commissioner Wang trotted out a “pro-housing” spin on the Amendments that is patently baseless. Commissioner Wang claimed that the Amendments will allow Vallco to put shovels in the ground immediately if it wants to build housing. Commissioner Wang ignored the fact that the Amendments do not delete from the General Plan references to a “complete redevelopment” of the Vallco Site, including the creation of an entire street grid, and a variety of other components that will require a massive planning effort, and could preclude the piecemeal development of exclusively residential portions of the Site. And, of course, Commissioner Wang ignored the existence of the SB 35 project, which includes development of 2,402 residential units, 1,201 of which are affordable. That project is being challenged in Court. 22 If the City approves the Amendments, the Site should be removed from the Housing Element inventory, and replacement sites must be identified. The City must provide the proposed amendments to the Housing Element to HCD for review and comment. City Council August 19, 2019 Page 11 4836-6503-0302.9 ensure that no housing will be developed on the Site, the City is out of compliance with its Housing Element. If the City desires to pursue this third path, it must also amend its Housing Element to make it consistent with this amended Land Use Element. Of course, to do so would require review and approval by HCD, a process the City now apparently wants to avoid. Without amending the Housing Element, the entire General Plan suffers from a lack of “horizontal consistency.” HCD’s letter also confirms the folly of the path on which the City has now embarked. According to HCD, the only reason the City is not currently in violation of its housing obligations is because of the approved SB 35 project. If Friends of Better Cupertino, with the City’s assistance, prevails in the lawsuit challenging the SB 35 project, then the “housing element will no longer demonstrate adequate sites to accommodate the RHNA” and that this “may result in revocation of the City’s housing element compliance.”23 HCD also warned that in such case, it may notify the Attorney General’s Office, which has authority to bring an enforcement action. So if the true intent is—as Commissioner Wang claims—to gain “leverage” in the event Friends of Better Cupertino prevails, the Amendments will have the opposite effect. They will put the City directly in the Attorney General’s crosshairs. C. The General Plan Amendment Unlawfully Requires a Subsequent General Plan Amendment. The City runs afoul of other aspects of state law governing general plans. One of the Amendments’ more unusual (and unlawful) features is that they require a future General Plan amendment: Create a Vallco Shopping District Specific Plan and a related General Plan amendment prior to any development on the site portion of the site with the Regional Shopping designation, which shall seek to provide substantial additional housing opportunities at the site, and that lays out the land uses, design standards and guidelines, and infrastructure improvements required. The current, un-amended General Plan requires the adoption of a specific plan prior to development of the Vallco Site. This is a commonplace method by which to “phase” the planning of a large development; the specific plan must be consistent with 23 In theory, if VPO opted not to proceed with the SB35 project (for example, as a result of obstacles created by the City), the City will not be in compliance with its Housing Element. In other words, if the City wants to avoid being sued by the State, it should be doing everything to assure that the SB 35 project gets built, instead of working with Friends of Better Cupertino to block it. City Council August 19, 2019 Page 12 4836-6503-0302.9 the General Plan. The City is turning this method on its head—the Amendments propose to amend the General Plan to say that prior to development of the Vallco Site, the City “shall” adopt another General Plan amendment. There is no way to even guess what that further amendment might be, or what it might require or allow. It is patently illegal to amend the General Plan in this manner. A city’s general plan is its most important land use planning document. (Citizens of Goleta Valley v. Board of Supervisors (1990) 52 Cal. 3d 553, 570–71 (1990).) It is the “constitution for all future development.” (Lesher Communications, Inc. v. City of Walnut Creek (1990) 52 Cal. 3d 531, 540.) All “subordinate” planning documents (like specific plans and zoning) must be consistent with it. The Government Code sets out a number of requirements for a legally adequate General Plan, but the most fundamental one is that the General Plan include a “comprehensive, long-term” plan for the physical development of the City. (Gov. Code § 65300.) That requirement is carried forward in several “elements.” The Amendments propose to amend the land use element, which is “the central framework for the entire plan and is intended to correlate all land use issues into a set of coherent development policies.” (Barclay & Gray, California Land Use & Planning Law, at 13 (36th ed. 2018).) The land use element must include: the proposed general distribution and general location and extent of the uses of the land for housing . . . [and] a statement of the standards of population density and building intensity recommended for the various districts and other territory covered by the plan. (Gov. Code § 65302.) Courts enforce compliance with these minimal requirements. (Camp v. Mendocino County (1981) 123 Cal.App.3d 334, 348 (a general plan must show “substantial compliance with the statutory requirements”).) Failure to comply will invalidate the General Plan, and a court may enjoin a city from taking other actions (like approving subdivisions) until the document is compliant. (Gov. Code § 65755.) Failure to provide population density and building intensity renders a general plan inadequate. (Twin Harte Homeowners Association v. City of Tuolumne (1982) 138 Cal.App.3d 664, 699.) City Council August 19, 2019 Page 13 4836-6503-0302.9 The Amendments violate all of these general plan requirements. The Amendments are neither “comprehensive” nor “long term” because they contemplate that future residential development will be determined by another General Plan amendment, at some point in the future. The Amendments are a temporary placeholder, where development is contingent on some future action. The Amendments also fail to include the land use regulations for the Vallco site, including the distribution, location, and extent of the land for housing. The Amendments simply contemplate that a future amendment will “provide substantial additional housing opportunities.” Further, the fact that a future amendment will add “substantial” housing means that the General Plan, if the Amendments are adopted, will not include the actual standards of population density for whatever development may be permitted by the future amendment. The General Plan should be a stable vision for the City’s future, not a document that says “we’ll figure it out later.” Finally, even if one were to set aside all of these violations, this City Council cannot obligate a future City Council to undertake a legislative action, which is why the General Plan must always be comprehensive, and not rely on future City Councils to take any particular action. A leading land use treatise advises that a city, when assessing its General Plan, should be able to affirmatively answer to the following questions: “Does it serve as a yardstick? Can one take an individual parcel and check it against the plan and then know which uses would be permissible?” (California Land Use & Planning Law, at 33.) Here, the answer is clearly no. This shoddy work shows the City’s true intentions. The City is not going through a legitimate planning exercise that will help the community and property owner understand the future uses of Vallco, and to actually achieve any meaningful economic benefit from its property. Instead, as Planning Commission Chair Wang said, it is simply seeking to gain “leverage” in the event the City “loses” the lawsuit. IV. The Amendments Downzone the Vallco Site’s Housing Capacity. The City is marketing the Amendments by claiming that they simply remove office use while otherwise maintaining the status quo with regard to the Site’s housing capacity. That is false. Even if one were to assume that redeveloping the Site is economically feasible without the office use, the Amendments actually reduce the housing capacity of the Site. City Council August 19, 2019 Page 14 4836-6503-0302.9 At present, there are 389 residential units specifically allocated to the Vallco Site, and there is no specific area on the Site where they must be placed. But that figure is not a maximum, because the General Plan allows the City to allocate units from other parts of the City to the Vallco Site through approval of a conditional use permit and without any amendment to the General Plan. The limitation on the number of residential units is actually governed by the General Plan’s density limit of 35 units per acre, which generates an actual maximum of 1,778 units. By reducing the portion of the Site that can be used for residential from 50 acres to 13.1 acres, but maintaining the density limit, the City has reduced the Site’s housing capacity to only 459 units. This is simply another example of the City’s sham disclosures about the actual effect of the Amendments. But it is more than a sham disclosure; it is illegal. State law requires that whenever the number of housing units that could be developed on a site is reduced, that reduction must be based on findings that the limitation promotes the public health, safety, and welfare of the City. (Gov. Code § 65863.6.) Here, of course, the City has failed to make any such findings. Nor could it. The downzoning is unlawful. V. The City Council Cannot Identify a 13.1-Acre Portion of the Vallco Site that Should Be Zoned for Residential. One of the Amendments proposes that the City Council identify a 13.1-acre portion of the Vallco Site where the 389 residential units will be developed. If this were a proper planning exercise, the City would have studied where it made the most sense to place the residential and non-residential portions of the site, and would study the traffic, aesthetic, noise, and other impacts that would flow from that decision. Indeed, the Government Code requires that a staff report with recommendations, and the basis for those recommendations, be provided whenever a City considers rezoning a parcel of 10 acres or more. (Gov. Code § 65804.) Here, the Amendments were rushed, and none of that was done. No technical reports were prepared. City staff made no recommendation to the Planning Commission as to where that 13.1-acre portion should be set, or even if it should be a single portion, rather than being divided into two or more portions of the Site that would total 13.1 acres in total size. The draft resolution before the Planning Commission simply identified a number of parcels that could be rezoned, but it does not even state the size of each nor whether any would add up to precisely 13.1 acres. City Council August 19, 2019 Page 15 4836-6503-0302.9 While the Planning Commissioners failed to come to any decision, they were unanimous on one point: they lacked sufficient expertise and information to ascertain where the 13.1-acre portion(s) should be set. The Staff Report for the City Council meeting includes four “potential alternative locations” for the residential use with only a cursory explanation of the differences between the locations. These “potential alternative locations” were not, but should have been, presented to the Planning Commission. The Staff Report does not provide a specific recommendation to the Council on a preferred location. The City Council— whose members have no real estate or property development experience—also lacks the expertise to do so without sufficient study of the potential sites, or a recommendation from staff, technical experts, or the Planning Commission. If the City is going to reduce the area where residential is allowed, it must provide some staff recommendation to guide the City Council’s decision, and to allow members of the public and the property owner to comment. Instead, the City Council is being asked to make a decision with minimal information, and no guidance from actual professionals who would understand the scope of the task at hand. There is no justification for slogging ahead with this critical decision in an informational vacuum. If the City Council chooses to disregard these problems, and decides that it ought to select that 13.1-acre portion or portions of the Site to zone for residential development, the City’s failure to solicit public participation will become even more problematic. The 2014 EIR studied the allocation of 800 residential units on the Vallco Site, but it presumed that the sites could be placed throughout the Site, and did not study the impact of confining the residential units to only a fraction of the Site. As Planning Commissioner Fung pointed out, based on his rough view of the Vallco Site, the only portion of the Site that might be suitable for placement of the 13.1 acres would be the section that directly abuts other residences. The owners and residents of those homes, and other Cupertino residents, would surely want to understand how concentrating housing on the portion of the Vallco Site closest to them will affect traffic on adjacent streets, and understand any other impacts that may result from this decision. The City also fails to consider the implications of its arbitrary selection of potential residential sites. The City ignores parcel lines and the fact that the City prohibits construction over parcel lines. It is unclear whether the city intends to saddle the property owner with awkward setbacks from lot lines in the middle of the residential sites, or whether it will require a subdivision map to change the parcels to conform to City Council August 19, 2019 Page 16 4836-6503-0302.9 the eventual residential site. The proposed potential allocations could also create split- zones, and the City does not have a split-zone ordinance that clarifies how development standards are interpreted for such parcels. Finally, the siting of the 13.1 acre residential site will govern how the remainder of the Site is developed, and the City has not yet studied what those impacts may be, from a feasibility or environmental perspective (or any other). LU-19 is the section of the Land Use Element that addresses the Vallco Site. It imposes a host of requirements, many of which only really make sense when there is a “complete redevelopment” of the Site. For example, LU-19 requires “a central town square on the west and east” sides of Wolfe Road, and requires that the Site’s development be interspersed public recreational and gathering spaces. The 13.1 acre residential site will be subject to only a few of those Development Standards, but the rest of the Site remains subject to all of them (limits on above- ground parking, neighborhood buffers, etc.). The City has not studied whether creating the 13.1 residential site will make it impossible to develop the remaining portions of the Vallco Site in a manner consistent with the Development Standards, or whether certain of the location options are preferable to others. For example, Location B would make it virtually impossible to develop the remainder of the Site in a manner consistent with the Development Standards. The City has not given these considerations any thought, at all. VI. The Amendments Include Arbitrary Land Use Regulations That Will Affect Developments Other Than Vallco. A. The City Has Illegally Singled Out the Vallco Site for a Restrictive Zoning Designation. The Amendments remove the “Commercial/Residential/Office” designation for the Vallco Site, and replace it with two new land use designations: “Regional Shopping” and “Regional Shopping/Residential.” The “Regional Shopping” designation is not found in any other land use designation. Singling out this site for a General Plan designation that is not found anywhere else in the city, without furthering any stated purpose, and against the wishes of the property owner is arbitrary, discriminatory, and against the law. (Avenida San Juan Partnership v. City of San Clemente (2011) 201 Cal.App.4th 1256.) City Council August 19, 2019 Page 17 4836-6503-0302.9 The City has not provided any justification for why this site should be subject to a more restrictive designation, especially when all technical experts—EPS, SE and TCG—have confirmed that retail development must be subsidized or is not feasible. This restriction is even more dubious, given the City’s claim that it desires to reduce traffic and greenhouse gas emissions, because retail often generates a significantly greater volume of traffic than residential or office.24 In addition, the new “Tribal Coordination” policy applies only to the Vallco Site. There is no rational reason for singling out the Site in this manner. B. The Amendments to the Zoning Code Will Fundamentally Alter the City’s Approach to Planned Development and Will Complicate Development Across the City. The Amendments do not comply with City procedures for changes to the Zoning Code. For example, there are no proposed factual findings for the zoning change of the 13.1 acres of the Vallco Site to P(R3,CG). But City residents should also understand that these proposed changes to the Zoning Code will likely affect development across the City, not just at the Vallco Site. The changes are ambiguous, and will leave developers and property owners unclear about which development standards might apply to their properties. These (presumably) unintended consequences are yet another result of the lack of scrutiny, diligence, and care that was taken in preparing the Amendments. According to the Municipal Code, Planned Development (“PD”) zoning is “intended to provide a means of guiding land development . . . that is uniquely suited for planned coordination of land uses and to provide for a greater flexibility of land use intensity and design because of accessibility, ownership patterns, topographical considerations, and community design objectives.” (Cupertino Mun. Code § 19.80.010.) PD zoning does not set uniform development standards to sites with a particular designation. It sets site-specific standards. In other words, the site is “planned” for a specific development, and the zoning standards conform to that plan. Not surprisingly, in order to accomplish this planned zoning, rezoning to a PD district requires significant planning, generally through the preparation and adoption of a “conceptual development plan.” This document effectively becomes the zoning and 24 Planning Commissioner Fung described exactly this traffic pattern in the July 30 hearing. Retail creates a greater overall volume of traffic, albeit at hours that are more dispersed than office. City Council August 19, 2019 Page 18 4836-6503-0302.9 sets all the development standards. It must include a general description of the proposed uses, proposed traffic-circulation system, a topographical map of the site and neighboring properties, and a landscaping plan. (Cupertino Mun. Code § 19.80.040.A.) Further, when approving a PD rezoning, in addition to making the findings applicable to all rezonings, the City must make findings about the conceptual development plan, including about its consistency with the General Plan, and must confirm that the plan “provides for an organized and unified system of land uses and land use intensities which would be compatible with the surrounding neighborhood” and that it would “not create undue and unreasonable traffic congestion in the area.” (Cupertino Mun. Code § 19.80.040.B.) None of this has been done. There is no conceptual development plan. Staff has not prepared any of the findings required. No one even knows where the 13.1- acre site is that will be rezoned.25 The City cannot ignore its own Municipal Code and the mandatory process that it sets forth for PD zoning. In apparent recognition of this flaw, the City attempted to address it by committing an even greater sin: the Amendments propose to revise the Municipal Code provisions applicable to PD zoning generally. However, as one might have guessed would occur, the proposed revisions are unclear, and may affect zoning across the City, not just at the Vallco Site. Section 19.80.030 specifies how uses for PD zones are determined. Subsection F gives specific direction on uses for certain mixed-use residential areas (for example, for Priority Housing Sites, residential development that does not exceed the number of permitted units “shall be a permitted use”). With regard to development standards, Section 19.80.030 says that they are established together with the “conceptual and definitive plans” for the project. (Cupertino Mun. Code § 19.80.030.E.) The next section then describes what must be included in a conceptual plan and the findings required for approving one. (Cupertino Mun. Code, § 19.80.040.) In sum, section 19.80.030 governs how uses are established, and section 19.80.040 addresses development standards. The City now proposes to up-end and confuse the orderly process of how PD zones have historically been established and entitled. The Amendments propose to retitle Section 19.80.030 as “Establishment of Districts-Permitted and Conditional Uses 25 It would be impossible for staff to create a “topographical map of the site and the neighboring properties.” City Council August 19, 2019 Page 19 4836-6503-0302.9 and Development Standards,” even though Section 19.80.040 governs development standards. The Amendments then make three changes to Section 19.80.030: (1) sites listed under Section 19.80.030(F) are exempted from preparing a conceptual development plan; (2) the newly created, as-yet-unidentified 13.1-acre portion of Vallco that will be the designated site for the 359 residential units is added to Subsection (F); and (3) “[d]evelopments which are not subject to discretionary approval by the City” (in other words, developments subject only to ministerial approval) must “comply with the development standards of the underlying zoning district.” But the proposed zoning amendment is silent about development regulations applicable to discretionary approvals. Apparently, no conceptual plan will be required for Subsection (F) listed sites, but there is no guidance about what development regulations would apply. Further, Subsection F includes many other sites, not just Vallco, such as the Monte Vista Village Special Area. The Amendments provide no guidance about how the City will treat already-approved conceptual plans for these other sites.26 If the intent of the Amendments is to require the development standards for projects listed in Section 19.80.030(F) to comply with the “underlying zoning,” then that would, for example, change the zoning for all of Monte Vista Village. This would be a significant change to zoning throughout the City. It appears that the City’s intent is to rezone 13.1 acres of Vallco to allow a mix of residential and commercial uses. But because there is no general mixed-use zoning district, the only option was to use the planned development designation. The problem then became that PD districts require a conceptual plan, which was impossible to create in the compressed timeframe demanded by City Council. So, rather than taking the time to do so, the City now proposes to simply eliminate the “planned” aspect of a series of sites, including Vallco, which undermines the entire purpose of having PD zoning districts. There is no justification for forcing the Amendments forward without adequate notice to City residents who are likely interested in, and affected by, the development of the impacted sites. 26 No notice of the Planning Commission meeting was given to the owner of the Monte Vista Village Special Area, or the residents who live in proximity to it. City Council August 19, 2019 Page 20 4836-6503-0302.9 VII. The Amendments Cannot Proceed Without Environmental Review. A. The City Must Prepare and Certify a Supplemental EIR. Approval of the Amendments will also violate the California Environmental Quality Act (“CEQA”). CEQA requires the City to analyze and disclose the environmental impacts that a “project”27 may cause. City staff believe that the Amendments were already analyzed and disclosed as part of the 2014 Environmental Impact Report that the City prepared as part of prior General Plan amendments (the “2014 EIR”), and that no further analysis is required. That conclusion is wrong. A supplemental report must be prepared under either of the following conditions: (a) Substantial changes are proposed in the project which will require major revisions of the environmental impact report[, or] (b) Substantial changes occur with respect to the circumstances under which the project is being undertaken which will require major revisions in the environmental impact report.28 Both of these conditions apply to the Amendments. In 2014, the Vallco Mall was 85% occupied. The General Plan amendments proposed in 2014 were intended to facilitate and encourage redevelopment of the Vallco site to “create a new ‘downtown’ for Cupertino,” and the 2014 EIR analyzed the reasonably anticipated impacts from that change. Today, the Vallco Mall is almost completely vacant. A portion of the Vallco Mall has been demolished. The currently-proposed amendments will prohibit office uses on the site, even though office use was one of the central uses contemplated in the 2014 EIR. The current amendments will block redevelopment of the Vallco Site and will have the opposite effect of the amendments that were proposed in 2014. The 27 A “project” for CEQA purposes means an activity that may cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment, and which is undertaken by a public agency, or requires discretionary approval from such an agency. (Pub. Res. Code § 21065.) 28 Pub. Res. Code, § 21166. City Council August 19, 2019 Page 21 4836-6503-0302.9 Mall’s newly vacant condition will be prolonged by these new amendments, perhaps indefinitely. The protracted vacancy of such a large property will cause blight to surrounding properties, because, if the City and Better Cupertino have their way, those properties will be directly adjacent to a partially or completely demolished, fenced-off, completely vacant, former mall site. As Planning Commissioner Takahashi pointed out, the Amendments will turn the Vallco Site into a “ghost town.” Urban decay and all of its typical symptoms—multiple long-term vacancies, dumping, graffiti and vandalism, abandoned vehicles, etc.—can be expected if the Vallco Site is not redeveloped to some productive use in the near future. Because the possibility of blight was not analyzed at all in the 2014 EIR and there is sufficient evidence to support a “fair argument” that the Amendments will cause blight, a supplemental EIR must be prepared that studies at least that issue. (Friends of Coll. of San Mateo Gardens v. San Mateo Cty. Cmty. Coll. Dist. (2017) 11 Cal.App.5th 596, 608.29) The 2018 EPS report, the 2019 SE report, and the TCG report are exactly such evidence. Those reports show that if the Amendments are adopted, a centrally-located, 50-acre parcel in the City will remain the site of a vacant and partially or wholly demolished mall for the foreseeable future—an outcome that was never contemplated in the 2014 EIR. The public is entitled to know that urban decay and blight are reasonably likely outcomes of these General Plan amendments, to understand the severity of those impacts, to understand whether the City intends to make any effort to mitigate that impact, and to be presented with alternatives to the General Plan amendments and all of the other disclosures that are required by CEQA. The Response to Comments prepared for the City council meeting claims that “there is no substantial evidence that the uses cannot be developed on the site.” But the EPS, TCG, and SE reports provide exactly that evidence. In addition to the blight-inducing aspects of the Amendments, they also presage the possibility of development that could exceed the scope of what was studied in the 2014 EIR. The Amendments require a subsequent amendment or amendments to the 29 San Mateo Gardens concerned a project that was approved after a mitigated negative declaration. The 2015 General Plan was approved after certification of an EIR, but the EIR contained no analysis of blight. Therefore, for purposes of this potentially significant environmental impact, the state of public disclosure is as if there had been a negative declaration: no analysis at all. Even if the more substantial evidence standard applies, all of the available evidence points to the need to study the potential impacts of a protracted vacancy. City Council August 19, 2019 Page 22 4836-6503-0302.9 General Plan that will provide “substantial additional housing opportunities.” Such development is a reasonably foreseeable consequence of the Amendments, and the City must determine whether providing the anticipated “substantial additional housing opportunities” will cause environmental impacts that were not studied in the 2014 EIR. B. The Residential Development Requires a Project-Specific Analysis. The 2014 EIR is a “program EIR,” and “does not evaluate the impacts of individual projects under the General Plan.” According to that EIR, “subsequent projects will require a separate environmental review.” The Amendments do authorize such a project on the Vallco Site – development of 389 residential units. The 2014 EIR studied the allocation of 800 residential units throughout the Vallco Site. It did not study the impact of concentrating the residential units on a currently unidentified fraction of the Site. When a program EIR is used, an agency must later prepare a project EIR if there is evidence to support a fair argument that the project may have significant environmental impacts. (Sierra Club v. County of Sonoma (1992) 6 Cal.App.4th 1307, 1319.) No one has yet analyzed or disclosed the traffic or other impacts that might result from that concentration. And because residential development is now “by-right” there will be no additional opportunities for the City to conduct further environmental review or to impose additional conditions of approval. It is also unclear whether, and how, the City could impose any mitigation measures on the by-right development.30 The City also failed to analyze the potential impacts of by-right development at the proposed potential locations. The specific location of the development is critical to understanding the circulation and impacts to specific intersections. The location of residential developments is also important to understand the air quality impacts, and 30 If the residential development is, in fact, “by-right,” then these complications arise. But it is far from clear that the Amendments actually create a “by-right” residential development opportunity. The Amendments do not specify what development standards may apply to the 13.1 acre residential site, but we assume that the R3 development standards are “imported” by the P(CG/R3) zoning designation. Some of those development standards are subjective, and would require the City to exercise discretion when authorizing the residential development, which conflicts with the entire premise of “by-right” development. In addition, PD districts (like the one proposed to be created by the Amendments) require a development permit, but “by right” development should not require any such permit. The Amendments therefore create “vertical inconsistency,” where the zoning will be inconsistent with the General Plan, and a situation of great uncertainty as to which development standards will apply, and how City staff should treat any proposal to develop the 13.1 acre residential site. City Council August 19, 2019 Page 23 4836-6503-0302.9 specifically whether implementation of the project would expose sensitive receptors to substantial concentrations of air pollution. C. The Municipal Code Amendments Affect Other Sites Throughout the City, Impacts of Which Must Be Studied. As described above, the amendments to the Planned Development zoning impact other planned development districts, including all planned development districts in Monte Vista and all residential planned development districts. The City cannot proceed with the Amendments without analyzing those impacts. As a matter of good governance, it would also presumably want input from the owners of those properties. D. Effect on General Plan Mitigation Measures Was Not Analyzed. Even if, as the City’s EIR addendum claims, the Amendments simply reduce the impacts of the previously analyzed redevelopment of the Vallco Site, the City should have studied whether the mitigation measures should also be reduced. The CEQA Guidelines require mitigation to bear a reasonable relationship to the impacts of the project. The presumed reduction in transportation impacts could render some of the proposed transportation improvements required by the General Plan EIR mitigation unnecessary, and it would be illegal for the City to require the property owner to provide or pay for such improvements. Moreover, if the impacts are reduced, but the required mitigation measures are not, the feasibility of development becomes even more bleak, and the measures no longer have any nexus to the impacts. VIII. The Amendments Constitute an Unconstitutional Taking of Vallco’s Property. The Amendments restrict the vast majority of the 50-acre Site to retail use only, even though that use must be subsidized to be developed. The City has not offered any justification for such a restriction, except to say that it is “temporary” and the City plans to change it again in the future. That violates the requirement that a General Plan provide a comprehensive, long-term vision for the City, and Vallco certainly cannot count on the City to amend the General Plan again to provide for an economically viable development in light of the City’s overt hostility to developing Vallco into any productive use. The Fifth Amendment protects property owners against having to bear the burden of using their property in a manner that, in fairness, should be subsidized by City Council August 19, 2019 Page 24 4836-6503-0302.9 the entire community. (Armstrong v. United States (1960) 364 U.S. 124.) The City’s actions disregard these protections, placing unreasonable restrictions on the property that render any development infeasible. These actions amount to both a regulatory taking under Penn Central Transportation Co. v. City of New York (1978) 438 U.S. 104, and a total taking under Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003. A. The Amendments Meet the Requirements of a Regulatory Taking for which the City Is Liable. A government action that unreasonably reduces the value of property, even on a temporary basis, can make the City liable to the owner for the lost value. (Lockaway Storage v. Cty. of Alameda (2013) 216 Cal.App.4th 161, 184.) A court will evaluate three factors to determine the City’s liability. (Avenida San Juan Partnership v. City of San Clemente, 201 Cal.App.4th 1256 (2011) First, the court will evaluate the economic impacts of the Amendment on the value of the Vallco Site. The Amendments render the Vallco Site functionally undevelopable in the manner that VPO intended. VPO need not show that it no longer is able to make any use of the property, or that every economically feasible use is lost. (For example, any evidence that the City may muster showing that the Vallco Site might be economically feasible as a mobile home park, or a collection of single-family homes, is irrelevant.) Rather, VPO need only show that it is unable to pursue the use that it reasonably intended: a large, mixed-use development with significant residential, office, and retail uses. (Lockaway, 216 Cal.App.4th at 185.) Second, a court will evaluate the extent to which the Amendments interfere with VPO’s economic expectations. VPO reasonably expected that it would be able to proceed with the type of development that it intended to pursue. Indeed, under a prior City Council, a specific plan was approved for the Site that would have fulfilled those expectations. As Planning Commissioner Fung recognized, under the Amendments, roughly 37 acres of the Vallco Site will be rendered completely unusable. The City own numbers value land in Cupertino at $10 million per acre. Rendering 37 acres valueless contravenes any reasonable economic expectation, and the City’s own figures will set the “floor” for any damages award to Vallco. Finally, a court will evaluate the “character” of the Amendments. The “character” of the Amendments is punitive and designed to kill the prospect of redeveloping the Vallco Site in the event that VPO is unable to proceed with the SB 35 City Council August 19, 2019 Page 25 4836-6503-0302.9 project. In Lockaway, the County of Alameda was adjudged liable for a regulatory taking and attorney’s fees, because the “character” of its actions constituted a “showstopping u-turn” on a property owner’s development plans, a description that applies equally here. B. The Amendments Amount to a Total Taking of the Property. Under Lucas, a land use restriction that deprives a property of all economically beneficial use amounts to an unconstitutional taking of property. Here, the Concord report demonstrates that the Amendments are so restrictive that any development would result in a financial loss to the developer, even without accounting for the cost of the land. And as discussed above, the City has provided little to no justification for this deprivation. The City must therefore compensate the property owner for the loss in value. IX. The Amendments Are Abusive, Arbitrary, and Discriminatory. The City Council must exercise its authority for the benefit of its constituents. It cannot wield its power in an arbitrary and discriminatory manner, to punish VPO, to try to run it out of town, or for any other improper purpose. There are no circumstances warranting the adoption of the Amendments, nor has the City prepared appropriate analyses to understand the effect of the Amendments. The only purpose of the Amendments is to destroy the possibility that VPO can redevelop its property. The Amendments are therefore abusive, arbitrary, and discriminatory, and, if adopted, will be set aside. (Arnel Development Co. v. City of Costa Mesa (1981) 126 Cal.App.3d 330; Avenida San Juan Partnership v. City of San Clemente (2011) 201 Cal.App.4th 1256.) X. Vice Mayor Chao Must Continue to Recuse Herself From Discussion and Decision on The Amendments. Because Vice Mayor Chao lives within 1,000 feet of the Vallco Site, she is required to recuse herself from all deliberation and voting on these Amendments. The FPPC’s letter on Vice Mayor Chao’s recusal relied on the size of the project since such a large project would have impacts to at least 25% of the City’s population. Although we continue to disagree with that analysis, it does not apply and provides no legal protection here because the Amendments propose to materially reduce the size of any City Council August 19, 2019 Page 26 4836-6503-0302.9 project on the Site.31 Vice Mayor Chao recused herself from the prior discussion on the Amendments. She should do the same when the Amendments come before Council. Very truly yours, Charmaine G. Yu CGY:mwa cc: Deb Feng, City Manager (via e-mail: manager@cupertino.org) Heather Minner, City Attorney (via e-mail: Minner@smwlaw.com) Department of Housing and Community Development, Division of Housing Policy Development (via e-mail: compliancereview@hcd.ca.gov) 31 The letter states that the FPPC assumes that the facts are “complete and accurate” and says that if the underlying facts change, additional advice must be sought. EXHIBIT $ ECONOMIC FEASIBILITY ANALYSIS CUPERTINO BELOW MARKET RATE (BMR) HOUSING PROGRAM Prepared for: City of Cupertino 7/16/19 TABLE OF CONTENTS Introduction .............................................................................................................................1 BMR Requirements for Residential Development ...............................................................3 Approach................................................................................................................................................... 3 Financial Feasibility Methodology ........................................................................................................ 10 Key Results ............................................................................................................................................ 19 Peer Cities ............................................................................................................................................. 32 Non-Residential Linkage Fee ...........................................................................................34 Approach................................................................................................................................................ 34 Peer Cities ............................................................................................................................................. 45 Key Takeaways ..................................................................................................................47 Appendix .......................................................................................................................................49 1 TABLE OF FIGURES Figure 1: Description of Prototypes ............................................................................................................ 6 Figure 2: City of Cupertino BMR Income Limits and Income Target for Pricing BMR Units .................... 7 Figure 3: Inclusionary Housing Scenarios Tested for Ownership Prototypes (Detached Single-Family Prototype 1, Small Lot/Townhouse Prototype 2, and Condominium Prototype 3) .................................. 8 Figure 4: Inclusionary Housing Scenarios Tested for Rental Prototypes (Lower Density Rental Prototype 4 and Higher Density Rental Prototype 5) .................................................................................................. 9 Figure 5: Minimum Return Thresholds by Prototype .............................................................................. 11 Figure 6: Market Rate Residential Sale Prices and Monthly Rents, By Prototype ................................ 13 Figure 7. Market Rate Residential Value Calculation, by Prototype ...................................................... 14 Figure 8. Below Market Rate Residential Values, by Prototype and AMI Level .................................... 15 Figure 9. Retail Revenue Assumptions and Capitalized Value .............................................................. 16 Figure 10: Development Cost Assumptions ............................................................................................ 18 Figure 11: Return On Cost for Ownership Prototypes by Inclusionary Housing Scenario .................... 21 Figure 12: Yield on Cost under Different Inclusionary Housing Scenarios for Multi-Family Rental Prototypes 4 and 5.................................................................................................................................... 21 Figure 13: Yield on Cost Under Different Revenue Assumptions for Lower Density Multi-Family Rental (Prototype 4) with 15% BMR Requirement ............................................................................................. 22 Figure 14: Feasibility of Lower Density Multi-Family Rental Prototype (Prototype 4) with 15% Inclusionary BMR Requirement and Increased Revenues ..................................................................... 22 Figure 15: Yield on Cost Under Different Cost Assumptions for Lower Density Multi-Family Rental (Prototype 4) with 15% BMR Requirement ............................................................................................. 23 Figure 16: Feasibility Results of Lower Density Multi-Family Rental Prototype (Prototype 4) with 15% Inclusionary BMR Requirement and Lower Costs ................................................................................... 23 Figure 17: Yield on Cost Under Different Revenue Assumptions for Higher Density Multi-Family Rental (Prototype 5) with 15% BMR Requirement ............................................................................................. 24 Figure 18: Feasibility Results of Higher Density Multi-Family Rental Prototype (Prototype 5) with 15% Inclusionary BMR Requirement and Higher Revenues .......................................................................... 24 Figure 19: Yield on Cost Under Different Cost Assumptions for Higher Density Multi-Family Rental (Prototype 5) with 15% BMR Requirement ............................................................................................. 25 Figure 20: Feasibility Results of Higher Density Multi-Family Rental Prototype (Prototype 5) with 15% Inclusionary BMR Requirement and Lower Costs ................................................................................... 25 Figure 21. Detailed calculation of the City of Cupertino’s permits and fees for each prototype (Per Unit) ................................................................................................................................................................... 26 2 Figure 22: Financial Feasibility Results for Single-Family Detached Prototype 1 ................................. 27 Figure 23: Financial Feasibility Results for Small Lot Single-Family/Townhouse Prototype 2 ............ 28 Figure 24: Financial Feasibility Results for Condominium Prototype 3 ................................................. 29 Figure 25: Financial Feasibility Results for Lower Density Rental Apartments Prototype 4 ................ 30 Figure 26: Financial Feasibility Results for Higher Density Rental Apartments Prototype 5 ............... 31 Figure 27: Inclusionary Housing Requirements and Housing Mitigation Fees in Peer Cities ............. 33 Figure 28. Description of Development Prototypes ................................................................................ 35 Figure 29. Hard Costs Assumptions by Prototype ................................................................................... 36 Figure 30. Land Comparables for Office and Hotel ................................................................................ 37 Figure 31. Soft Cost Assumptions by Prototype ...................................................................................... 37 Figure 32. Revenue Assumptions by Prototype ...................................................................................... 39 Figure 33. Office Comparables ................................................................................................................ 39 Figure 34: Retail Comparables in Cupertino ........................................................................................... 39 Figure 35: Yield on Cost Thresholds by Prototype .................................................................................. 40 Figure 36. Summary of Financial Feasibility of Office/R&D Prototype .................................................. 40 Figure 37. Summary of Financial Feasibility of Hotel Prototype ............................................................ 41 Figure 38. Summary of Financial Feasibility of Retail Prototype ........................................................... 41 Figure 39. Office/R&D Pro Forma Results .............................................................................................. 42 Figure 40. Hotel Pro Forma Results ......................................................................................................... 43 Figure 41. Retail Pro Forma Results ........................................................................................................ 44 Figure 42. Non-Residential Linkage Fees (per Gross S. Ft. of Net New Space) in Nearby Cities ........ 46 Figure 43: Current and Maximum Housing Mitigation Fees Based On Nexus for Ownership Prototypes ................................................................................................................................................................... 47 1 INTRODUCTION Strategic Economics was retained by the City of Cupertino (the “City) to evaluate potential changes to the Below Market Rate (BMR) Housing Program. The BMR program requirements are currently as follows: x The City currently has a BMR Housing Program that imposes an inclusionary requirement of 15% on for-sale and rental residential developments with seven or more units. For rental developments, the BMR units must be affordable to very-low (up to 50% Area Median Income “AMI”) or low-income (up to 80% AMI) households 1. For-sale developments must provide BMR units affordable to median- (up to 100% AMI) and moderate-income (up to 120% AMI) households.2 x Small residential projects of less than seven units can pay the City’s Housing Mitigation In-Lieu Fees 3 (the “Housing Mitigation Fees”) or provide one BMR unit. The Housing Mitigation Fees are based on the City’s 2015 Residential Below Market Rate Housing Nexus Analysis and Non- Residential Jobs-Housing Nexus Analysis (the “2015 Nexus Study”). Housing Mitigation Fees are currently set at $17.82 per square feet for detached single family, $19.60 per square feet for small lot single family/townhomes, $23.76 for attached multifamily residences (ownership and rental), and $11.88 per square foot for commercial/retail uses. x The City first adopted linkage fees for office and Research and Development (“R&D”) projects in 1992 and expanded the program to apply to retail and hotel developments in 2004. The City updated the non-residential linkage fees in 2015 (based on the 2015 Nexus Study) to the current levels of $23.76 per square foot for office/R&D uses, and $11.88 per square foot for hotel and retail uses.4 The City Council is considering modifying the BMR Housing Program, providing direction to examine the following issues: x Study the potential to increase the inclusionary requirements to 20% or 25% x Explore inclusionary housing policy to include units for extremely-low income/disabled persons x Include median- and moderate-income units in rental projects x Study inclusionary housing programs in other cities as a comparison x Study the economic feasibility of increasing non-residential linkage fees on new office/R&D, hotel, and retail developments This report provides technical findings on the economic feasibility of increasing the City’s BMR requirements for residential developments and non-residential developments. It also provides findings regarding the potential for including extremely-low income housing units and/or median-and moderate-income units in rental projects. The report also summarizes inclusionary housing programs and non-residential linkage fees in other cities in Santa Clara County. The report is divided into three sections. 1 Rental BMR policy states that 40% of affordable units must be set aside for low income, and 60% for very low income units. 2 For-Sale BMR policy states that half of affordable units must be set aside for median income households, and half for moderate income households. 3 Housing Mitigation In-Lieu Fees: A fee assessed in accordance with the City's General Plan Housing Element, Municipal Code (CMC 19.172) and the City's BMR Housing Mitigation Program Procedural Manual. 4 Keyser Marston Associates, “City of Cupertino: Non-residential Jobs-Housing Nexus Analysis,” City of Cupertino, April 2015. 2 x Section II: The first section focuses on the BMR requirements on housing development. x Section III: The second section is focused on the non-residential linkage fees on new office/R&D, hotel, and retail developments. x Section IV: The third section provides key takeaways and conclusions. The appendix to the report provides additional background data on housing trends. 3 BMR REQUIREMENTS FOR RESIDENTIAL DEVELOPMENT Approach The following summarizes the methodology of the financial feasibility analysis. SStep 1. Develop Prototypes The first step in the financial feasibility analysis is to review the types of residential and mixed-use (residential and retail) projects that would be subject to the BMR policy. In close coordination with City staff, Strategic Economics updated the residential and nonresidential prototypes used in the 2015 Nexus Study, ensuring that they represent the ownership and rental residential development types that are likely to occur in city in the short term. The prototypes varied based on assumptions regarding building type, density, unit size, etc. Step 2. Develop Assumptions about BMR Units Strategic Economics worked closely with City staff to develop assumptions about the percentage of inclusionary units that should be tested, the income targets, and the affordable sales prices and rents. Maximum sales prices and rents were calculated using the method and parameters established by City policy, in coordination with Hello Housing, the BMR Program administrator. Step 3. Collect Key Inputs and Build Pro Forma The financial feasibility of each prototype is measured using a static pro forma model that solves for the profit to the developer. A pro forma model is a tool that is commonly used to estimate whether a project is likely to be profitable. The key inputs into the financial feasibility analysis are the revenues (rents/ sales prices), development costs, and land costs. Strategic Economics collected and summarized data on land prices, residential values, and construction costs using the following data sources: x Costar, a commercial real estate database that tracks rental multifamily properties and property transactions x Interviews with local developers and brokers x Redfin, a real estate brokerage firm that collects data on residential sales prices x Review of pro formas from other projects and clients Step 4. Calculate Financial Feasibility The pro forma model tallies all development costs, including land costs, hard costs (construction costs), soft costs, and financing costs. The pro forma also tallies the project’s total value. The project’s total value is the sum of (1) the estimated value of the condominiums or townhomes (i.e. the average per unit sale price multiplied by the number of units), and (2) if applicable, the capitalized value of retail. The project’s ROC is then calculated by dividing the project’s net revenue (i.e. total value minus total development costs), by total development costs. To understand the potential impact of inclusionary requirements on financial feasibility, the ROC results for each prototype and inclusionary housing scenario are compared to developers’ typical expectation of return, or the threshold for feasibility. If the ROC for a project is above the threshold for feasibility, it is considered financially feasible. If the ROC is below the threshold, it is not financially feasible. 4 More details on each step of the analysis is provided in the section below. DDEVELOPMENT PROTOTYPES The analysis estimates the feasibility of different inclusionary requirements for five residential prototypes, as described in Figure 1. The building characteristics of each development prototype, including size, density (floor-area-ratio), and parking assumptions are based on prototypes analyzed as part of the City’s 2015 Nexus Study 5. These development prototypes represent the range of typical residential development expected to come online in Cupertino in the short term. These prototypes are mostly based on recently completed projects or development proposals in the pipeline in Cupertino. It is also assumed that future development will likely be located along Stevens Creek Boulevard, and in existing residential neighborhoods, given that these locations have been identified in the City’s General Plan and Heart of the City Specific Plan as key areas for new residential and mixed-use development. The prototypes vary based on the following characteristics: x Ownership and Rental. Three of the prototypes include only for-sale units (Prototypes 1, 2, and 3) and two are rental developments (Prototypes 4 and 5). x Mixed-Use and Residential Only. Two of the prototypes (Prototypes 1 and 2) are 100% residential while the attached multifamily prototypes have a ground-floor retail component (Prototypes 3, 4, and 5). x Project Density and Size o The single-family detached prototype 1 represents detached single-family custom-built homes with an average density of 4.5 dwelling units per acre. Because this prototype has fewer than eight units, it would be allowed to pay the in-lieu fee or provide one BMR unit under the current BMR policy. The small number of units in this prototype reflects the fact that there are few potential single-family detached sites in Cupertino that can accommodate more than 7 units. o Prototype 2 represents two-story small lot single-family and townhome developments with a density of 15 dwelling units per acre. o Prototype 3 is a three-story multi-family condominium building with a density of 35 units per acre. Parking is accommodated in an above-ground podium. o Prototype 4 is a three-story multifamily rental building with a density of 40 units per acre. Parking is accommodated in an above-ground podium. o Prototype 5 is a higher-density six-story project with a density of 76 units per acre. This prototype is based on a Housing Element site that allows six to eight story heights. Parking is accommodated in an above-ground podium. x Parking Ratios. The City requires 2 parking spaces per unit. However, for the multi-family prototypes there are opportunities to achieve parking reductions under certain conditions. The assumptions in the pro forma are as follows. o For Prototype 1 and Prototype 2, the assumption is that the development would provide all of the required parking. 5 Keyser Marston Associates (2015). Residential Below Market Rate Housing Nexus Analysis. 5 o For the condominium prototype 3, developers can lower parking by 10%, assuming that the reduction is justified by a parking study. o For multi-family rental housing prototypes 4 and 5, developers can receive parking reductions on residential units in the scenarios where 5% of the housing units are for very low-income households, in accordance with Gov’t Code Sec. 65915(p). 6 FFIGURE 1: DESCRIPTION OF PROTOTYPES Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Detached Single Family Small Lot Single Family/Townhome Condominium Lower Density Rental Apartments Higher Density Rental Apartments Tenure For-Sale For-Sale For-Sale Rental Rental Unit Mix 5 bedrooms 3 bedrooms 2 and 3 bedrooms Studios, 1, 2, and 3 bedrooms Studios, 1, 2, and 3 bedrooms Format Low-rise, large sites Low-rise, small sites Mid-rise, small sites Mid-rise, small sites Higher density, small sites Number of Units 7 50 100 100 100 Parcel Size (Acres) 1.6 3.3 2.9 2.9 1.3 Residential Program Studios - - - 10 10 1-BD - - - 45 45 2-BD - - 50 40 40 3-BD - 50 50 5 5 4-BD 0 - - - - 5-BD 7 - - - - Total 7 50 100 100 100 Dwelling Units Per Acre 4.5 15 35 35 76 Ground Floor RRetail (Sq. Ft.) 0 0 10,000 10,000 15,000 Parking 2-Car Garage + Driveway 2-Car Garage + Driveway Podium Podium Podium Parking Requirement (Per Unit) 4 2.8 2 2 2 Parking Requirement (Commercial) n/a n/a 4 per 1,000 sq. ft. 4 per 1,000 sq. ft. 4 per 1,000 sq. ft. Required Parking Spaces 28 140 240 240 260 Reduced Parking Spaces (a) 28 140 216 185 205(a) For the condominium prototype 3, developers can lower parking by 10%, assuming that the reduction is justified by a parking study. For multi-family rental housing prototypes 4 and 5, developers can receive parking reductions on residential units in the scenarios where 5% of the housing units are for very low-income households (50% AMI), in accordance with Gov’t Code Sec. 65915(p).Source: Strategic Economics, City of Cupertino. 7 BBMR HOUSING PROGRAM ASSUMPTIONS Strategic Economics built a pro forma model that tested the feasibility of various inclusionary housing scenarios under the existing BMR housing program and alternative scenarios. Below is a summary of the existing BMR program: x The City currently has a BMR Housing Program that imposes an inclusionary requirement of 15% on for-sale and rental residential developments with seven or more units. For rental developments, the BMR units must be affordable to very low or low-income households 6. For-sale developments must provide BMR units affordable to median- and moderate-income households.7 x Small residential projects of less than seven units can pay the housing mitigation fee or provide one BMR unit. The housing mitigation fees are based on the 2015 Nexus Study, and are currently set at $17.82 per square feet for detached single family, $19.60 per square feet for small lot single family/townhomes, $23.76 for attached multifamily residences (ownership and rental), and $11.88 per square foot for commercial/retail uses. x The BMR program uses income limits published annually by the California Department of Housing and Community Development (HCD) for Santa Clara County, per household size. For some income categories, the income targets for pricing BMR units are slightly different from household income limits that determine eligibility. Maximum BMR sales and rent prices are determined by the City and its BMR program administrator, Hello Housing, based on the maximum affordable housing cost provisions of Section 50052.5 of the California Health and Safety Code, Section 6920 of the California Code of Regulations, and most recent published HCD income limits. The household income limits for BMR eligibility as well as the income targets for pricing BMR units are shown in Figure 2. FIGURE 2: CITY OF CUPERTINO BMR INCOME LIMITS AND INCOME TARGET FOR PRICING BMR UNITS Household Income LLimits Income Target for PPricing BBMR Units Ownership Median 100% AMI 90% AMI Moderate 120% AMI 110% Ami Rental Extremely Low 30% AMI 30% AMI Very Low 50% AMI 50% AMI Low 80% AMI 60% AMI Sources City of Cupertino Housing Element; City of Cupertino Housing Mitigation Program Procedural Manual. The inclusionary housing scenarios tested in this analysis reflect the range of policy options under consideration by the City for ownership and rental development. They are summarized below and shown in Figure 3 and Figure 4. 6 Rental BMR policy states that 40% of affordable units must be set aside for low income, and 60% for very low-income units. 7 For-Sale BMR policy states that half of affordable units must be set aside for median income households, and half for moderate income households. 8 OWNERSHIP DEVELOPMENT Strategic Economics tested the economic feasibility of the development of ownership housing (single- family, townhouse, and condominium prototypes) under five different inclusionary scenarios: x Scenario 0 (No Requirements): This scenario assumes that the project is 100% market- rate, with no affordable units and no in-lieu fees required. x Scenario 1 (Existing Policy): This scenario mirrors the City’s existing inclusionary housing requirement. The development projects must provide 15% of the units at prices affordable to median- (100% AMI) and moderate-income households (120% AMI). x Scenario 2 (20% Inclusionary): This scenario requires new ownership projects to include at least 20% BMR units, targeting median and moderate-income households. x Scenario 3 (25% Inclusionary): This scenario requires new ownership projects to include at least 25% BMR units, targeting median and moderate-income households. x Scenario 4 (In-Lieu Fees): This scenario assumes that the development is required to pay in-lieu fees instead of providing affordable units on-site. These scenarios are summarized in Figure 3 below. FFIGURE 3: INCLUSIONARY HOUSING SCENARIOS TESTED FOR OWNERSHIP PROTOTYPES (DETACHED SINGLE-FAMILY PROTOTYPE 1, SMALL LOT/TOWNHOUSE PROTOTYPE 2, AND CONDOMINIUM PROTOTYPE 3) Inclusionary Housing Scenarios % of Units at BMR PPrices Income Targets for BMR Units* In--Lieu Fee Payment Scenario 0 (No Requirements) 0% N/A No Scenario 1 (Existing Policy) 15% 8% of units at 90% AMI 7% of units for 110% AMI No Scenario 2 (20% Inclusionary) 20% 10% of units at 90% AMI 10% of units at 110% AMI No Scenario 3 (25% Inclusionary) 25% 13% of units at 90% AMI 12% of units at 110% AMI No Scenario 4 (In-Lieu Fees) 0 N/A Yes *Per the City of Cupertino Housing Mitigation Program Procedural Manual, the maximum sales price for median income BMR units is set at 90% AMI. The maximum sales price for moderate income BMR units is set at 110% AMI. Sources: City of Cupertino Housing Mitigation Program Procedural Manual, 2018; Strategic Economics, 2018. RENTAL DEVELOPMENT Strategic Economics tested the economic feasibility of the development of ownership housing (single- family, townhouse, and condominium prototypes) under five different inclusionary scenarios: x Scenario 0 (No Requirements): This scenario assumes that the project is 100% market- rate, with no affordable units and no in-lieu fees required. x Scenario 1 (Existing Policy): This scenario mirrors the City’s existing inclusionary housing requirement. The development projects must provide 15% of the units at prices affordable to low-income (80% AMI) and very low-income households (50% AMI). x Scenario 2 (20% Inclusionary): This scenario requires new ownership projects to include at least 20% BMR units, targeting median and moderate-income households. 9 x Scenario 3 (25% Inclusionary): This scenario has a higher inclusionary requirement of 25% and targets lower income groups. The income targets include low-income (80% AMI), very low-income (50% AMI), and extremely low-income households (30% AMI). x Scenario 4 (In-Lieu Fees): This scenario assumes that the development is required to pay in-lieu fees instead of providing affordable units on-site. These scenarios are summarized in Figure 4 below. FFIGURE 4: INCLUSIONARY HOUSING SCENARIOS TESTED FOR RENTAL PROTOTYPES (LOWER DENSITY RENTAL PROTOTYPE 4 AND HIGHER DENSITY RENTAL PROTOTYPE 5) Inclusionary Housing Scenarios % oof Units at BMR Rents Income Targets for BMR UUnits* In--Lieu Fee Payment Scenario 0 (No Requirements) 0% N/A No Scenario 1 (Existing Policy) 15% 9% of units at 50% AMI 6% of units at 60% AMI No Scenario 2 (20% Inclusionary) 20% 10% of units at 50% AMI 10% of units at 60% AMI No Scenario 3 (25% Inclusionary) 25% 10% of units at 50% AMI 10% of units at 60% AMI 5% of units at 30% AMI No Scenario 4 (In-Lieu Fees) 0 N/A Yes *Per City policy, pricing for low-income BMR units is set at 60% AMI. Sources: City of Cupertino Housing Mitigation Program Procedural Manual, 2018; Strategic Economics, 2018. 10 Financial Feasibility Methodology This section describes the method used to measure financial feasibility and the major cost and revenue assumptions underlying the analysis. Additional information is provided in the Appendix. MMEASURING FINANCIAL FEASIBILITY The financial feasibility of each prototype is measured using a static pro forma model that solves for the profit to the developer. A pro forma model is a tool that is commonly used to estimate whether a project is likely to be profitable. For a policy analysis like this one, we use development prototypes to represent typical projects. However, it is important to note that individual development projects may be less or more profitable than these prototypes, depending on the specifics of the development program, development costs (construction and land), sources of financing, and other factors. Furthermore, because it is a static model reflecting today’s market conditions, the pro forma analysis does not factor in changes in prices/rents, construction costs, or financing. For the purposes of measuring financial feasibility in this analysis, developer profit was measured by using one of two metrics: x Return on cost (ROC) for ownership housing. ROC is a common measure of project profitability for residential ownership development. The pro forma model tallies all development costs, including land costs, hard costs (construction costs), soft costs, and financing costs. The pro forma also tallies the project’s total value. The project’s total value is the sum of (1) the estimated value of the condominiums or townhomes (i.e. the average per unit sale price multiplied by the number of units), and (2) if applicable, the capitalized value of retail. The project’s ROC is then calculated by dividing the project’s net revenue (i.e. total value minus total development costs), by total development costs. x Yield on cost (YOC) for rental housing. YOC is a common measure of profitability for income- generating projects, such as residential rental development. The pro forma model tallies all development costs (land costs, hard costs, soft costs, and financing costs). The pro forma also estimates total revenues: the project’s net annual operating income is the stabilized income from the property (i.e. rental income generated from both the residential and retail uses), minus operating expenses and an allowance for vacancy. The YOC is estimated by dividing the total annual net operating income by total development costs. RETURN THRESHOLDS To understand the potential impact of inclusionary requirements on financial feasibility, the ROC and YOC results for each prototype and inclusionary housing scenario are compared to developers’ typical expectation of return. These return thresholds are summarized in Figure 5 and discussed below: x For the Single-Family Detached Prototype 1, the minimum ROC threshold ranges between 10 to 15%, based on developer interviews for new single-family development in Cupertino. x For the Small Lot Single-Family/Townhouse Prototype 2 and the Condominium Prototype 3, the minimum ROC threshold ranges between 18 to 20%, based on a review of pro forma models for new multifamily ownership projects in Santa Clara County. x For the Lower Density Apartment Prototype 4 and the Higher Density Apartment Prototype 5, the minimum YOC threshold ranges between 4.75% and 5.25%. According to the developers interviewed for this study, and a review of recent development project pro formas in the Silicon 11 Valley, the minimum YOC for a new multi-family development project should usually be 1.0 to 1.5 points higher than the published capitalization rate (cap rate). The current cap rate for multifamily properties in the San José Metropolitan Area is between 3.75 to 4.25%.8 The cap rate, measured by dividing the net operating income generated by a property by the total project value, is a commonly used metric to estimate the value of an asset. Cap rates rise and fall along with interest rates. In a climate of rising interest rates, it is important to set the expectations of YOC at a conservative level, to allow for a margin between the cap rate and the rate of return.. It is also important to consider that investors consider a wide range of factors to determine if a development project makes financial sense, and some investors may have different levels of risk tolerance than others. FIGURE 5: MINIMUM RETURN THRESHOLDS BY PROTOTYPE Return on Cost Thresholds Prototype 1: Detached Single Family 10-15% Prototype 2: Small Lot/Townhomes 18-20% Prototype 3: Condominiums 18-20% Yield on Cost Thresholds Prototype 4: Lower-Density Rental Apartments 4.75-5.25% Prototype 5: Higher-Density Rental Apartments 4.75-5.25% Source: Developer interviews and a review of recent project pro formas, 2018; Strategic Economics, 2018. REVENUE ASSUMPTIONS MARKET RATE RESIDENTIAL There is significant pent-up housing demand in Santa Clara County and the broader Bay Area region, as housing development has not kept up with employment growth. Between 2009 and 2015, Santa Clara County added over 170,000 new jobs between 2010 and 2015, but only 29,000 new housing units.9 Apartment rents accelerated beginning in 2011, as the economy emerged from the Great Recession, and continued growing at an average annual rate of nearly eight percent until 2015. Since then rents have continued to grow at a slower pace of about four percent. Sales prices in Cupertino and Santa Clara County have been escalating at a rapid rate over the last five years. In Cupertino, the median sales price for a single-family home increased from $1.68 million in 2014 to $2.37 million in 2018. 10 Similarly, the median sales price for a condominium climbed from $895,500 in 2014 to $1.4 million in 2018.11 The market-rate sale prices and rents assumed for each prototype are summarized in Figure 6. The values are calculated as a weighted average to reflect that different types of units have different unit 8 CBRE Investor’s Cap Rate Survey (H1, 2018). 9 SPUR, “Room for More: Housing Agenda for San José,” August 2017. 10 Santa Clara County Association of Realtors, 2014 and 2018. https://www.sccaor.com/pdf/stats/2014.pdf https://www.sccaor.com/pdf/stats/2018.pdf. 11 Ibid 12 values. For new single-family detached development (Prototype 1), sale prices were based on sales of newly built single-family homes in Cupertino as reported by Redfin. Sales prices for small lot single- family/townhomes (Prototype 2) and condominium projects (Prototype 3) were based on recent re- sales in Cupertino as reported by Redfin. The Appendix to this report (Figures A-1 through A-3) includes detailed information on the project comparables used to inform these estimates. Because of the lack of recently built apartment projects in Cupertino, the rental rate estimates for rental units (Prototypes 4 and 5) were based on developer interviews and a review of recently built, comparable apartment projects in Cupertino and neighboring cities (Mountain View, Sunnyvale, Campbell, and Santa Clara), as reported by Costar. Since Cupertino’s apartment buildings command higher rents than in the other cities, a 5% premium was applied over the market area’s weighted average. Figure A-4 in the Appendix includes detailed information on the project comparables used to inform these estimates. 13 FFIGURE 6: MARKET RATE RESIDENTIAL SALE PRICES AND MONTHLY RENTS, BY PROTOTYPE UUnit Mix Unit Size (Sq. Ft.) Sale Price Per Sq. Ft. Sale Price Per Unit Prototype 1: Single Family 5-BD 100% 3,700 $946 $3,500,200 Prototype 2: Small Lots/Townhomes 3-BD 100% 1,850 $970 $1,794,500 Prototype 3: Condominiums 2-BD 50% 1,350 $1,100 $1,485,000 3-BD 50% 1,600 $1,000 $1,600,000 Weighted Average Unit Size/Sale Price 1,475 $1,050 $1,542,500 Prototype 4: Lower--Density Rental Studios 10% 680 $4.94 $3,360 1-BD 45% 800 $4.73 $3,780 2-BD 40% 1,100 $4.30 $4,725 3-BD 5% 1,400 $4.13 $5,775 Weighted Average Unit Size/Monthly Rent 938 $4.54 $4,216 Prototype 5: Higher--Density Rental Studios 10% 680 $4.94 $3,360 1-BD 45% 800 $4.73 $3,780 2-BD 40% 1,100 $4.30 $4,725 3-BD 5% 1,400 $4.13 $5,775 Weighted Average Unit Size/Monthly Rent $4.54 $4,216 Source: Strategic Economics, 2018. The total value of market-rate units is summarized in Figure 7. For the ownership prototypes (Prototypes 1, 2, and 3), the total project value is obtained by multiplying the per unit sale price by the total number of units. For the rental prototypes (Prototypes 4 and 5), an income capitalization approach is used. This approach first estimates the annual net operating income (NOI) of the prototype, which is the difference between project income (annual rents) and project expenses 14 (operating costs and vacancies). The NOI is then divided by the current cap rate to derive total project value.12 FIGURE 7. MARKET RATE RESIDENTIAL VALUE CALCULATION, BY PROTOTYPE PPrototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Detached Single Family Small Lot Single Family/ Townhome Condo Lower Density Rental Apartments Higher Density Rental Apartments Weighted Average Monthly Rent (a) per unit n/a n/a n/a $4,216 $4,216 Annual Rent per unit n/a n/a n/a $50,589 $50,589 Vacancy Allowance n/a n/a n/a 5.00% 5.00% Operating Expenses % gross revenue n/a n/a n/a 30.00% 30.00% Annual Net Operating Income per unit n/a n/a n/a $32,883 $32,883 Capitalization Rate (b) n/a n/a n/a 4.25% 4.25% Sales Value/Capitalized Value per unit $$3,500,200 $1,794,500 $1,5542,500 $773,714 $773,714 Total Units 7 50 100 100 100 Total Residential Value (c) total project $24,501,400 $89,725,000 $154,250,000 $77,371,412 $77,371,412 (a) See Figure 5 for details on how the per unit sale price was derived. (b) CBRE, H1 2018 Cap Rate Survey. Cap rates for the San José Metropolitan Area were between 3.75% and 4.25% for infill multifamily Class A. (c) Assuming all units are market rate. Total residential value is calculated by multiplying the per unit sales value/capitalized value (which is a weighted average) by the total number of units. Sources: CBRE, 2018; CoStar, 2018; Strategic Economics, 2018. BELOW MARKET RATE HOUSING BMR residential values at different AMI levels are summarized in Figure 8. Maximum sales prices and rents were provided by Hello Housing, the City’s BMR program administrator. Sales prices and rents for BMR units were calculated using the method and parameters established in the City’s Policy and Procedures Manual for Administering Deed Restricted Affordable Housing Units (“BMR Manual”).13 An income capitalization approach is also applied to BMR units to derive total residential value. 12 As mentioned above, the CBRE Investor’s Cap Rate Survey (H1, 2018) estimates the cap rate for infill multifamily Class A in San José Metro Area to range from 3.75 to 4.25%. 13 Maximum sales price calculations incorporate a 10% down payment, as well as an interest rate based on a 10-year rolling average for 30- year fixed-rate mortgages, according to data from Freddie Mac. Resale prices for existing BMR units are determined by the City. Annual housing costs associated with BMR rental units, including rent, utility costs, parking fees, and other costs, may not in sum exceed 30% of the annual income associated with the income target for which the unit is designated. 15 FFIGURE 8. BELOW MARKET RATE RESIDENTIAL VALUES, BY PROTOTYPE AND AMI LEVEL Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Income Target for Pricing BMR Units Detached Single Family Small Lot Single Family/ Townhomes Condominium Lower Density Rental Apartments Higher Density Rental Apartments 30% AMI (Extremely Low) n/a n/a n/a $116,806 $116,806 50% AMI (Very Low) n/a n/a n/a $211,968 $211,968 60% AMI (Low)* n/a n/a n/a $260,224 $260,224 90% AMI (Median)* $483,270 $344,879 $322,981 n/a n/a 110% AMI (Moderate)* $612,662 $462,872 $435,374 n/a n/a *Per policy, the maximum price for BMR units for low income is set at 60% AMI, median income at 90% AMI, and moderate income at 110% AMI. Note: All values are weighted averages, according to each prototype’s unit mix. Affordable sale prices and rents were provided by the City of Cupertino and Hello Housing, based on 2018 Santa Clara County income and rent limits, published by the California Tax Credit Allocation Committee, and the 2018 Santa Clara County maximum utility allowance, published by HUD. RETAIL COMMERCIAL Retail lease assumptions were developed from Costar listings for comparable ground floor retail spaces in Cupertino, with capitalization rates reported by CBRE for the San José Metro Area. The annual net operating income and capitalized value were calculated based on the assumptions shown in Figure 9. 16 FFIGURE 9. RETAIL REVENUE ASSUMPTIONS AND CAPITALIZED VALUE Unit New Retail (NNN) Assumptions Monthly Rent, Triple Net (a) Per SF $4.25 Vacancy Percent 10% Operating Expenses Percent Pass through Capitalization Rate Percent 7.00% Capitalized Value Gross Annual Retail Income Per SF $51.00 Less Retail Vacancy Per SF -$5.10 Less Operating Expenses Per SF $0.00 Annual Net Operating Income Per SF $45.90 Capitalized Value Per SF $655.71 (a) Based on recent lease transactions in Cupertino for recently constructed ground-floor retail. Under a triple net lease (NNN) the tenant pays operating expenses, including real estate taxes, building insurance, and maintenance (the three "nets") on the property in addition to the rents. (b) Based on the CBRE H1 2018 Cap Rate Survey. Cap rates for the San José Metropolitan Area were between 4.5% to 5.5% for (Class A) and 6.25% to 7.25% (Class B) for Neighborhood Retail. Source: CBRE, 2018; Costar, 2018; Strategic Economics, 2018. 17 DDEVELOPMENT COSTS The development costs incorporated into the pro forma analysis include land costs, hard costs (construction materials and labor), soft costs, and financing costs. Cost assumptions are summarized in Figure 10 and described below. LAND COSTS A critical factor for development feasibility is the cost of land. To determine the market value of sites zoned for residential use in Cupertino, Strategic Economics interviewed developers and reviewed recent pro formas for similar development projects in Cupertino and nearby communities. Recognizing that one of the key factors that drives the value of the site is the permitted density, this analysis assumes that sites zoned for single family detached homes are valued at $9 million per acre ($207 per square foot), while sites zoned for higher-density housing are valued at $10 million per acre ($230 per square foot). Note that these values are approximations for the purposes of the feasibility analysis; in reality, the value of any particular site is likely to vary based on its location, amenities, and property owner expectations. HARD COSTS Hard costs are based on Strategic Economics’ review of pro formas for similar development projects, as well as interviews with developers active in Cupertino and surrounding cities. The assumptions for hard costs, shown in Figure 10, include estimates for basic site improvements and construction costs for residential areas, retail areas, and parking structures. It should be noted that construction costs have been escalating rapidly in the Bay Area in the last several years14; project feasibility is highly sensitive to changes in construction cost assumptions. SOFT COSTS AND FINANCING COSTS Soft costs include items such as architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, developer overhead, and city fees, as shown in Figure 10. City fees and other development impact fees were calculated for the individual prototypes based on data provided by City staff. Detailed fee calculations are shown in Figure 21. Other soft costs were estimated based on standard industry ratios, calculated as a percentage of hard costs. 14 Terner Center for Housing Innovation, UC Berkeley. Understanding the Drivers of Rising Construction Costs in California (Ongoing Research), https://ternercenter.berkeley.edu/construction-costs. 18 FFIGURE 10: DEVELOPMENT COST ASSUMPTIONS MMetric Estimate Land Costs Land zoned for single-family per site acre $9 million Land zoned for townhomes/multi-family/mixed-use per site acre $10 million Hard Costs Site Costs (demo, infrastructure, etc.) per site sq. ft. $30 Residential Area Single Family (includes 2-car garage) per gross sq. ft. $95 Townhomes (includes 2-car garage) per gross sq. ft. $150 Stacked condominiums (Type V) per gross sq. ft. $275 Stacked apartments (Type V) per gross sq. ft. $235 Higher density apartments (Type 3 modified) per gross sq. ft. $300 Retail Area (Including T.I) per gross retail sq. ft. $130 Surface parking per space $10,000 Podium parking per space $35,000 Soft Costs Architectural, Engineering, Consulting % of hard costs 6% Taxes, Insurance, Legal, Accounting % of hard costs 3% Other % of hard costs 3% Contingency % of hard costs 5% Developer Overhead and Fees % of hard costs 4% City Permits and Fees (a) Prototype 1 per unit $153,022 Prototype 2 per unit $83,463 Prototype 3 per unit $67,755 Prototype 4 per unit $65,949 Prototype 5 per unit $67,241 Financing Costs Financing % of hard and soft costs 6% (a) Includes City fees and permits, school district fees, and sanitation district fees paid on the residential and retail component of each prototype for market rate units. Includes housing mitigation fee for the retail component. Sources: Developer interviews, 2018; City of Cupertino, 2018; Cupertino School District and Fremont High School District, 2018; Strategic Economics, 2018. 19 Key Results This section summarizes the findings of the financial feasibility analysis under different inclusionary housing scenarios for each prototype. Figure 11 and Figure 12 demonstrate the return obtained by each prototype, compared to the minimum threshold for feasibility. Figure 21 shows development costs by type and detailed City fees. Figure 22 through Figure 26 provide the pro forma results for each prototype. Ownership residential development can feasibly support higher inclusionary requirements than rental development. While growth in apartment rents has reportedly started to plateau in Santa Clara County in the last year, ownership prices (including condominium prices) continue to increase, making it generally more feasible to build ownership projects.15 Detached single-family development (Prototype 1) can support an inclusionary requirement of 15%, 20%, or the payment of Housing Mitigation Fees. As shown in Figure 11, the single-family detached Prototype 1 shows positive project revenues for Scenarios 1, 2, and 4, achieving a return on cost (ROC) well above the minimum threshold of 10%. Recent sales prices of newly constructed single-family homes in Cupertino are sufficient to offset development costs as well as support inclusionary requirements or the payment of Housing Mitigation Fees. However, the single-family detached prototype cannot support an inclusionary requirement of 25% (Scenario 3), which generates a return of less than 1%. Figure 22 provides more detailed pro forma results for this prototype. Small lot/townhome development (Prototype 2) can also support all inclusionary requirement of 15%, 20%, or the payment of Housing Mitigation Fees. As shown in Figure 11, Prototype 2 shows positive project revenues for Scenarios 1, 2, and 4, achieving a return exceeding the minimum threshold of 15% required for feasibility. Although there has been limited townhome construction in recent years in Cupertino, recent townhome re-sales suggest that prices for new construction would generate sufficient revenues to offset development costs as well as support any inclusionary requirement or the payment of Housing Mitigation Fees. Figure 23 provides more detailed pro forma results for this prototype. A mixed-use condominium prototype (Prototype 3) can support inclusionary requirements of 15%, 20%, or the payment of Housing Mitigation Fees. As shown in Figure 11, Prototype 3 shows positive project revenues for Scenarios 1, 2, and 4, achieving a return well above the minimum threshold of 15%. Despite the lack of recent condominium construction in Cupertino, condominium re-sales suggest that prices for new construction would support any of the scenarios that impose an inclusionary requirement or the payment of in-lieu fees. Figure 24 provides more detailed pro forma results for this prototype. The lower density mixed-use apartment prototype (Prototype 4) is nearly feasible as a 1100% market- rate project. Without any BMR requirements, the lower density rental prototype achieves a yield on cost of 4.5%, below the minimum requirement of 4.75%, as shown in Figure 12. The lower density rental prototype does not generate sufficient revenues to support inclusionary requirements or in-lieu fees under current rents and costs. Figure 25 provides the pro forma for this prototype. 15 Mercury News, Louis Hansen, May 16, 2018. Bay Area condo market heats up as alternative to pricey homes. https://www.mercurynews.com/2018/05/16/bay-area-condo-market-heats-up-as-alternative-to-pricier-homes/ 20 The higher density rental multifamily prototype (Prototype 5) can support Housing Mitigation Fee payments (Scenario 4) but cannot feasibly provide inclusionary BMR units under current market rents, construction costs, and land costs. Prototype 5 achieves a higher YOC than Prototype 4, largely due to the greater efficiencies of a higher density project, and is financially feasible in Scenario 1 and Scenario 4 (see Figure 12). Figure 26 provides more detailed pro forma results. The lower density mixed-use apartment prototype (Prototype 4) can feasibly provide up to 15% inclusionary BMR units if it could command 15% higher revenues or if construction and land costs were reduced by 15%. If a lower density rental project were able to achieve higher revenues (15% higher) on the apartment units and on the ground-floor retail space, as shown in Figure 13 and Figure 14, the project could feasibly accommodate an inclusionary requirement of 15% BMR units. Alternatively, if a development project were able to secure a construction bid and purchase a site that reduced these costs by 15%, the lower density mixed-use apartment prototype could feasibly provide 15% inclusionary BMR units (see Figure 15 and Figure 16). The higher density mixed-use apartment prototype (Prototype 5) can feasibly provide inclusionary BMR units if it can command 10% higher revenues or if construction and land costs were reduced by 5%. If a higher density rental project can achieve 10% higher rents on the apartments and retail space, the project can feasibly accommodate an inclusionary requirement of 15% BMR units (see Figure 17 and Figure 18). In another scenario, if a higher density mixed-use apartment could secure a construction bid and site that is 5% less expensive, this prototype could also feasibly provide 15% inclusionary BMR units (see Figure 19 and Figure 20). 21 FIGURE 11: RETURN ON COST FOR OWNERSHIP PROTOTYPES BY INCLUSIONARY HOUSING SCENARIO Inclusionary Housing Scenarios Prototype 1: Prototype 2: Prototype 3: Single Family Detached Small Lot SF/Townhouse Condominiums Minimum Required Return 10-15% 18-20% 18-20% Scenario 0 (No Requirements) 31% 41% 38% Scenario 1 (Existing Policy) 15% 26% 23% Scenario 2 (20% Inclusionary) 14% 21% 19% Scenario 3 (25% Inclusionary) 1% 16% 14% Scenario 4 (In-Lieu Fees) 28% 37% 33% Source: Strategic Economics, 2019. FIGURE 12: YIELD ON COST UNDER DIFFERENT INCLUSIONARY HOUSING SCENARIOS FOR MULTI-FAMILY RENTAL PROTOTYPES 4 AND 5 Inclusionary Housing Scenarios Prototype 4:: Prototype 5:: Lower Density Rental Higher Density Rental Minimum Required Yield on Cost 4.75%-5.25% 4.75%-5.25% Scenario 0 (No Requirements) 4.52% 4.93% Scenario 1 (15% Inclusionary) 4.22% 4.63% Scenario 2 (20% Inclusionary) 4.10% 4.50% Scenario 3 (25% Inclusionary) 3.94% 4.34% Scenario 4 (In Lieu Fees) 4.40% 4.76% Source: Strategic Economics, 2019. 22 FIGURE 13: YIELD ON COST UNDER DIFFERENT REVENUE ASSUMPTIONS FOR LOWER DENSITY MULTI-FAMILY RENTAL (PROTOTYPE 4) WITH 15% BMR REQUIREMENT Revenue Assumptions Monthly Market RRate Apt. Rent per Unit Monthly RRetail Rent per SF Yield on CCost Feasibility RResults Current Apartment and Retail Rents $4,216 $4.25 4.22% Not Feasible Increased Rents (15% Higher Revenues) $4,848 $4.89 4.82% Feasible Source: Strategic Economics, 2019. FIGURE 14: FEASIBILITY OF LOWER DENSITY MULTI-FAMILY RENTAL PROTOTYPE (PROTOTYPE 4) WITH 15% INCLUSIONARY BMR REQUIREMENT AND INCREASED REVENUES Source: Strategic Economics, 2019. 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% Current Apartment and Retail Rents Increased Rents (15% Higher Apartment and Retail Revenues)Profit (Yield on Cost) Minimum Threshold for Feasibility of 4.75% 23 FIGURE 15: YIELD ON COST UNDER DIFFERENT COST ASSUMPTIONS FOR LOWER DENSITY MULTI-FAMILY RENTAL (PROTOTYPE 4) WITH 15% BMR REQUIREMENT Cost Assumptions Construction Cost per Unit Land Cost per Unit Yield on Cost Feasibility Results Current Costs $385,958 $250,000 4.22% Not Feasible Reduced Costs (15% Lower Costs) $328,064 $212,500 4.90% Feasible Source: Strategic Economics, 2019. FIGURE 16: FEASIBILITY RESULTS OF LOWER DENSITY MULTI-FAMILY RENTAL PROTOTYPE (PROTOTYPE 4) WITH 15% INCLUSIONARY BMR REQUIREMENT AND LOWER COSTS Source: Strategic Economics, 2019. 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% Current Costs Reduced Costs (15% Lower Costs)Yield on CostMinimum Threshold for Feasibility of 4.75% 24 FIGURE 17: YIELD ON COST UNDER DIFFERENT REVENUE ASSUMPTIONS FOR HIGHER DENSITY MULTI-FAMILY RENTAL (PROTOTYPE 5) WITH 15% BMR REQUIREMENT Revenue Assumptions Monthly MMarket Rate Apt. Rent per UUnit Monthly Retail RRent per SF Yield on CCost FFeasibility Results Current Rents $4,216 $4.25 4.63% Not Feasible Increased Rents (10% Higher Revenues) $4,637 $4.68 4.91% Feasible Source: Strategic Economics, 2019. FIGURE 18: FEASIBILITY RESULTS OF HIGHER DENSITY MULTI-FAMILY RENTAL PROTOTYPE (PROTOTYPE 5) WITH 15% INCLUSIONARY BMR REQUIREMENT AND HIGHER REVENUES Source: Strategic Economics, 2019. 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% Current Rents Increased Rents (10% Higher Apartment and Retail Revenues)Yield on Cost Minimum Threshold for Feasibility of 4.75% 25 FIGURE 19: YIELD ON COST UNDER DIFFERENT COST ASSUMPTIONS FOR HIGHER DENSITY MULTI-FAMILY RENTAL (PROTOTYPE 5) WITH 15% BMR REQUIREMENT Cost Assumptions Construction Cost per Unit Land Cost per Unit Yield on Cost Feasibility Results Current Costs $460,195 $131,579 4.63% Not Feasible Reduced Costs (5% Lower Costs) $437,185 $125,000 4.85% Feasible Source: Strategic Economics, 2019. FIGURE 20: FEASIBILITY RESULTS OF HIGHER DENSITY MULTI-FAMILY RENTAL PROTOTYPE (PROTOTYPE 5) WITH 15% INCLUSIONARY BMR REQUIREMENT AND LOWER COSTS Source: Strategic Economics, 2019. 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% Current Costs Reduced Costs (5% Lower)Yield on Cost Minimum Threshold for Feasibility of 4.75% 26 FIGURE 21. DETAILED CALCULATION OF THE CITY OF CUPERTINO’S PERMITS AND FEES FOR EACH PROTOTYPE (PER UNIT) Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Detached Single Family Small Lot Single Family/Townhome Condominium Lower Density Rental Apartments Higher Density Rental Apartments Planning Fees Planning Applications $9,210$1,289$645 $400 $400CEQA$3,571 $2,447 $1,223$1,223$1,223Consultant Review $2,111 $296 $148 $148 $148 Housing Mitigation Fee (Non-residential only) $0 $0 $1,188 $1,188 $1,782 Public Works Fees Transportation Impact Fee $6,177 $3,380 $4,374 $4,374 $4,871 Grading$420 $59 $29$29$29Tract Map $1,350 $189 $94 $94 $94 Plan Check and Inspection $543 $76 $38 $38 $38 Storm Drain Fees $4,902 $501 $367 $354 $312 Parkland Dedication (a) $105,000 $60,000$54,000 $54,000 $54,000Building Division Fees Building Fees $11,428 $10,592 $1,664 $1,133 $1,199 Construction Tax $752 $752 $1,075 $1,075 $1,237 Other Fees School District Fees (b) $7,012$3,506$2,826 $1,808 $1,823Sanitary Sewer District Connection Permit Fee $350 $350 $70 $70 $70 Stormwater Management Fee $197 $28 $14 $14 $14 Estimated City Fees, Total Per Unit $153,022 $83,463 $67,755 $65,949 $67,241 (a)Parkland dedication fees waived for affordable units.(b)Based on the average of Cupertino School District and Fremont Union High School District school fees.Sources: City of Cupertino, 2018; Fremont Union School District; Cupertino School District; Cupertino Sanitary Sewer District, 2018. 27 FIGURE 22: FINANCIAL FEASIBILITY RESULTS FOR SINGLE-FAMILY DETACHED PROTOTYPE 1 Scenario 0 (No BBMR Req.) Scenario 1 (15% On--Site) Scenario 2 (20% On--Site) Scenario 3 (25% On--Site) Scenario 4 (In--Lieu Fees) Total Units 7 7 7 7 7 Market Rate Units 7 6 6 5 7 Affordable Units 0 1 1 2 0 Fractional Units 0 0.05 0.4 0 0 Revenues Residential Capitalized Value $24,501,400 $21,484,470 $21,484,470 $18,596,932 $24,501,400 Per Unit $3,500,200 $3,069,210 $3,069,210 $2,656,705 $3,500,200 Development Costs Land Costs Land Costs $14,000,000 $14,000,000 $14,000,000 $14,000,000 $14,000,000 Per Unit $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 Direct Costs Gross Residential Area (a) $2,775,564 $2,775,564 $2,775,564 $2,775,564 $2,775,564 Subtotal Direct Costs $2,775,564 $2,775,564 $2,775,564 $2,775,564 $2,775,564 Per Unit $396,509 $396,509 $396,509 $396,509 $396,509 Per Gross Sq. Ft. $95 $95 $95 $95 $95 Indirect Costs City Fees (b) $1,071,155 $991,537 $1,169,211 $861,155 $1,532,693 Other Soft Costs (c) $582,868 $582,868 $582,868 $582,868 $582,868 Per Unit $83,266.92 $83,266.92 $83,266.92 $83,266.92 $83,266.92 Subtotal Indirect Costs $1,654,023 $1,574,405 $1,752,079 $1,444,023 $2,115,561 Per Unit $236,289 $224,915 $250,297 $206,289 $302,223 Financing $265,775 $260,998 $271,659 $253,175 $293,468 Per Unit $37,968 $37,285 $38,808 $36,168 $41,924 Total Development Costs $18,695,363 $18,610,968 $18,799,302 $18,472,763 $19,184,593 Per Unit $2,670,766 $2,658,710 $2,685,615 $2,638,966 $2,740,656 Per Gross Sq. Ft. $640 $637 $643 $632 $657 Feasibility Net Revenue (d) $5,806,037 $2,873,502 $2,685,168 $124,169 $5,316,807 Return on Cost (e) 31% 15% 14% 1% 28% (a) Includes costs for site prep and 2-car parking garage (b) Figure 14 shows detailed City fees. Includes fractional in-lieu housing mitigation fee for scenario 1 and 2. Parkland dedication fees waived for affordable units. (c) Includes architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, and developer overhead (d)Net revenue is the project total revenue minus total development costs. (d) Return on cost is the net revenue, divided by total development costs. (e) Return on cost is the net revenue, divided by total development costs.Source: Strategic Economics, 2018. 28 FIGURE 23: FINANCIAL FEASIBILITY RESULTS FOR SMALL LOT SINGLE-FAMILY/TOWNHOUSE PROTOTYPE 2 Scenario 0 (No BMR Req..) Scenario 1 (15% On--Site) Scenario 2 (20% On--Site) Scenario 3 (25% On--Site) Scenario 4 (In--Lieu Fees) Total Units 50 50 50 50 50 Market Rate Units 50 42 40 37 50 Affordable Units 0 8 10 13 0 Revenues Residential Capitalized Value $89,725,000 $79,265,818 $75,818,755 $72,312,696 $89,725,000 Retail Capitalized Value $0 $0 $0 $0 $0 Total Capitalized Value $89,725,000 $79,265,818 $75,818,755 $72,312,696 $89,725,000 Per Unit $1,794,500 $1,585,316 $1,516,375 $1,446,254 $1,794,500 Development Costs Land Costs Land Costs $33,333,333 $33,333,333 $33,333,333 $33,333,333 $33,333,333 Per Unit $666,667 $666,667 $666,667 $666,667 $666,667 Direct Costs Site Prep/Demo $4,356,000 $4,356,000 $4,356,000 $4,356,000 $4,356,000 Gross Residential Area (a) $15,651,677 $15,651,677 $15,651,677 $15,651,677 $15,651,677 Subtotal Direct Costs $20,007,677 $20,007,677 $20,007,677 $20,007,677 $20,007,677 Per Unit $400,154 $400,154 $400,154 $400,154 $400,154 Per Gross Sq. Ft. $192 $192 $192 $192 $192 Indirect Costs City Fees (b) $4,173,154 $3,693,154 $3,573,154 $3,393,154 $5,986,154 Other Soft Costs (c) $4,201,612 $4,201,612 $4,201,612 $4,201,612 $4,201,612 Per Unit $84,032 $84,032 $84,032 $84,032 $84,032 Subtotal Indirect Costs $8,374,767 $7,894,767 $7,774,767 $7,594,767 $10,187,767 Per Unit $167,495 $157,895 $155,495 $151,895 $203,755 Financing $1,702,947 $1,674,147 $1,666,947 $1,656,147 $1,811,727 Per Unit $34,059 $33,483 $33,339 $33,123 $36,235 Total Development Costs $63,418,723 $62,909,923 $62,782,723 $62,591,923 $65,340,503 Per Unit $1,268,374 $1,258,198 $1,255,654 $1,251,838 $1,306,810 Per Gross Sq. Ft. $608 $603 $602 $600 $626 Feasibility Net Revenue (d) $26,306,277 $16,355,895 $13,036,032 $9,720,772 $24,384,497 Return on Cost (e) 41% 26% 21% 16% 37% (a) Includes 2-car parking garage (b) Figure 14 shows applicable city fees. Only Scenario 4 pays in-lieu housing mitigation fees. Parkland dedication fees waived for affordable units. (c) Includes architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, and developer overhead (d) Net revenue is the project total revenue minus total development costs. (d) Return on cost is the net revenue, divided by total development costs. (e) Return on cost is the net revenue, divided by total development costs. Source: Strategic Economics, 2018. 26 FIGURE 21. DETAILED CALCULATION OF THE CITY OF CUPERTINO’S PERMITS AND FEES FOR EACH PROTOTYPE (PER UNIT) Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5 Detached Single Family Small Lot Single Family/Townhome Condominium Lower Density Rental Apartments Higher Density Rental Apartments Planning Fees Planning Applications $9,210 $1,289 $645 $400 $400 CEQA $3,571 $2,447 $1,223 $1,223 $1,223 Consultant Review $2,111 $296 $148 $148 $148 Housing Mitigation Fee (Non-residential only) $0 $0 $1,188 $1,188 $1,782 Public Works Fees Transportation Impact Fee $6,177 $3,380 $4,374 $4,374 $4,871 Grading $420 $59 $29 $29 $29 Tract Map $1,350 $189 $94 $94 $94 Plan Check and Inspection $543 $76 $38 $38 $38 Storm Drain Fees $4,902 $501 $367 $354 $312 Parkland Dedication (a) $105,000 $60,000 $54,000 $54,000 $54,000 Building Division Fees Building Fees $11,428 $10,592 $1,664 $1,133 $1,199 Construction Tax $752 $752 $1,075 $1,075 $1,237 Other Fees School District Fees (b) $7,012 $3,506 $2,826 $1,808 $1,823 Sanitary Sewer District Connection Permit Fee $350 $350 $70 $70 $70 Stormwater Management Fee $197 $28 $14 $14 $14 Estimated City Fees, Total Per Unit $153,022 $83,463 $67,755 $65,949 $67,241 (a) Parkland dedication fees waived for affordable units.(b) Based on the average of Cupertino School District and Fremont Union High School District school fees.Sources: City of Cupertino, 2018; Fremont Union School District; Cupertino School District; Cupertino Sanitary Sewer District, 2018. 27 FIGURE 22: FINANCIAL FEASIBILITY RESULTS FOR SINGLE-FAMILY DETACHED PROTOTYPE 1 Scenario 0 (No BBMR Req.) Scenario 1 (15% On--Site) Scenario 2 (20% On--Site) Scenario 3 (25% On--Site) Scenario 4 (In--Lieu Fees) Total Units 7 7 7 7 7 Market Rate Units 7 6 6 5 7 Affordable Units 0 1 1 2 0 Fractional Units 0 0.05 0.4 0 0 Revenues Residential Capitalized Value $24,501,400 $21,484,470 $21,484,470 $18,596,932 $24,501,400 Per Unit $3,500,200 $3,069,210 $3,069,210 $2,656,705 $3,500,200 Development Costs Land Costs Land Costs $14,000,000 $14,000,000 $14,000,000 $14,000,000 $14,000,000 Per Unit $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 Direct Costs Gross Residential Area (a) $2,775,564 $2,775,564 $2,775,564 $2,775,564 $2,775,564 Subtotal Direct Costs $2,775,564 $2,775,564 $2,775,564 $2,775,564 $2,775,564 Per Unit $396,509 $396,509 $396,509 $396,509 $396,509 Per Gross Sq. Ft. $95 $95 $95 $95 $95 Indirect Costs City Fees (b) $1,071,155 $991,537 $1,169,211 $861,155 $1,532,693 Other Soft Costs (c) $582,868 $582,868 $582,868 $582,868 $582,868 Per Unit $83,266.92 $83,266.92 $83,266.92 $83,266.92 $83,266.92 Subtotal Indirect Costs $1,654,023 $1,574,405 $1,752,079 $1,444,023 $2,115,561 Per Unit $236,289 $224,915 $250,297 $206,289 $302,223 Financing $265,775 $260,998 $271,659 $253,175 $293,468 Per Unit $37,968 $37,285 $38,808 $36,168 $41,924 Total Development Costs $18,695,363 $18,610,968 $18,799,302 $18,472,763 $19,184,593 Per Unit $2,670,766 $2,658,710 $2,685,615 $2,638,966 $2,740,656 Per Gross Sq. Ft. $640 $637 $643 $632 $657 Feasibility Net Revenue (d) $5,806,037 $2,873,502 $2,685,168 $124,169 $5,316,807 Return on Cost (e) 31% 15% 14% 1% 28% (a) Includes costs for site prep and 2-car parking garage (b) Figure 14 shows detailed City fees. Includes fractional in-lieu housing mitigation fee for scenario 1 and 2. Parkland dedication fees waived for affordable units. (c) Includes architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, and developer overhead (d) Net revenue is the project total revenue minus total development costs. (d) Return on cost is the net revenue, divided by total development costs. (e) Return on cost is the net revenue, divided by total development costs. Source: Strategic Economics, 2018. 28 FIGURE 23: FINANCIAL FEASIBILITY RESULTS FOR SMALL LOT SINGLE-FAMILY/TOWNHOUSE PROTOTYPE 2 Scenario 0 (No BMR Req..) Scenario 1 (15% On--Site) Scenario 2 (20% On--Site) Scenario 3 (25% On--Site) Scenario 4 (In--Lieu Fees) Total Units 50 50 50 50 50 Market Rate Units 50 42 40 37 50 Affordable Units 0 8 10 13 0 Revenues Residential Capitalized Value $89,725,000 $79,265,818 $75,818,755 $72,312,696 $89,725,000 Retail Capitalized Value $0 $0 $0 $0 $0 Total Capitalized Value $89,725,000 $79,265,818 $75,818,755 $72,312,696 $89,725,000 Per Unit $1,794,500 $1,585,316 $1,516,375 $1,446,254 $1,794,500 Development Costs Land Costs Land Costs $33,333,333 $33,333,333 $33,333,333 $33,333,333 $33,333,333 Per Unit $666,667 $666,667 $666,667 $666,667 $666,667 Direct Costs Site Prep/Demo $4,356,000 $4,356,000 $4,356,000 $4,356,000 $4,356,000 Gross Residential Area (a) $15,651,677 $15,651,677 $15,651,677 $15,651,677 $15,651,677 Subtotal Direct Costs $20,007,677 $20,007,677 $20,007,677 $20,007,677 $20,007,677 Per Unit $400,154 $400,154 $400,154 $400,154 $400,154 Per Gross Sq. Ft. $192 $192 $192 $192 $192 Indirect Costs City Fees (b) $4,173,154 $3,693,154 $3,573,154 $3,393,154 $5,986,154 Other Soft Costs (c) $4,201,612 $4,201,612 $4,201,612 $4,201,612 $4,201,612 Per Unit $84,032 $84,032 $84,032 $84,032 $84,032 Subtotal Indirect Costs $8,374,767 $7,894,767 $7,774,767 $7,594,767 $10,187,767 Per Unit $167,495 $157,895 $155,495 $151,895 $203,755 Financing $1,702,947 $1,674,147 $1,666,947 $1,656,147 $1,811,727 Per Unit $34,059 $33,483 $33,339 $33,123 $36,235 Total Development Costs $63,418,723 $62,909,923 $62,782,723 $62,591,923 $65,340,503 Per Unit $1,268,374 $1,258,198 $1,255,654 $1,251,838 $1,306,810 Per Gross Sq. Ft. $608 $603 $602 $600 $626 Feasibility Net Revenue (d) $26,306,277 $16,355,895 $13,036,032 $9,720,772 $24,384,497 Return on Cost (e) 41% 26% 21% 16% 37% (a) Includes 2-car parking garage (b) Figure 14 shows applicable city fees. Only Scenario 4 pays in-lieu housing mitigation fees. Parkland dedication fees waived for affordable units. (c) Includes architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, and developer overhead (d) Net revenue is the project total revenue minus total development costs. (d) Return on cost is the net revenue, divided by total development costs. (e) Return on cost is the net revenue, divided by total development costs. Source: Strategic Economics, 2018. 29 FIGURE 24: FINANCIAL FEASIBILITY RESULTS FOR CONDOMINIUM PROTOTYPE 3 Scenario 0 (No BMR Req.) Scenario 1 (15% On--Site) Scenario 2 (20% On--Site) Scenario 3 (25% On--Site) Scenario 4 (In--Lieu Fees) Total Units 100 100 100 100 100 Market Rate Units 100 85 80 75 100 Affordable Units 0 15 20 25 0 Revenues Residential Capitalized Value $154,250,000 $136,743,959 $130,983,540 $125,110,729 $154,250,000 Retail Capitalized Value $6,557,143 $6,557,143 $6,557,143 $6,557,143 $6,557,143 Total Capitalized Value $160,807,143 $143,301,101 $137,540,683 $131,667,871 $160,807,143 Per Unit $1,608,071 $1,433,011 $1,375,407 $1,316,679 $1,608,071 Development Costs Land Costs Land Costs $28,571,429 $28,571,429 $28,571,429 $28,571,429 $28,571,429 Per Unit $285,714 $285,714 $285,714 $285,714 $285,714 Direct Costs Site Prep/Demo $3,733,714 $3,733,714 $3,733,714 $3,733,714 $3,733,714 Gross Residential Area $50,703,125 $50,703,125 $50,703,125 $50,703,125 $50,703,125 Gross Retail Area $1,300,000 $1,300,000 $1,300,000 $1,300,000 $1,300,000 Parking $7,560,000 $7,560,000 $7,560,000 $7,560,000 $7,560,000 Subtotal Direct Costs $63,296,839 $63,296,839 $63,296,839 $63,296,839 $63,296,839 Per Unit $632,968 $632,968 $632,968 $632,968 $632,968 Per Gross Sq. Ft. $343 $343 $343 $343 $343 Indirect Costs City Fees (a) $6,775,479 $5,965,479 $5,695,479 $5,425,479 $10,398,879 Other Soft Costs (b) $13,292,336 $13,292,336 $13,292,336 $13,292,336 $13,292,336 Per Unit $132,923 $132,923 $132,923 $132,923 $132,923 Subtotal Indirect Costs $20,067,815 $19,257,815 $18,987,815 $18,717,815 $23,572,415 Per Unit $200,678 $192,578 $189,878 $187,178 $235,724 Financing $5,001,879 $4,953,279 $4,937,079 $4,920,879 $5,212,155 Per Unit $50,019 $49,533 $49,371 $49,209 $52,122 Total Development Costs $116,937,963 $116,079,363 $115,793,163 $115,506,963 $120,652,839 Per Unit $1,169,380 $1,160,794 $1,157,932 $1,155,070 $1,206,528 Per Gross Sq. Ft. $634 $630 $628 $626 $654 Feasibility Net Revenue (c) $43,869,180 $27,221,739 $21,747,520 $16,160,909 $40,154,304 Return on Cost (d) 38% 23% 19% 14% 33% (a) Figure 14 shows detailed city fees. In-lieu housing mitigation fees apply to non-residential sq. ft. and Scenario 4. Parkland dedication fees waived for affordable units. (b) Includes architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, and developer overhead. (c) Net revenue is the project total revenue minus total development costs. (d) Return on cost is the net revenue, divided by total development costs. Source: Strategic Economics, 2018. 30 FIGURE 25: FINANCIAL FEASIBILITY RESULTS FOR LOWER DENSITY RENTAL APARTMENTS PROTOTYPE 4 Scenario 0 (No BMR Req.) Scenario 1 (15% On--Site) Scenario 2 (20% On--Site) Scenario 3 (25% On--Site) Scenario 4 (In--Lieu Fees) Total Units 100 100 100 100 100 Market Rate Units 100 85 80 75 100 Affordable Units 0 15 20 25 0 Revenues Residential Net Operating Income $3,288,285 $2,942,477 $2,831,310 $2,691,717 $3,288,285 Retail Net Operating Income $459,000 $459,000 $459,000 $459,000 $459,000 Total Net Operating Income $3,747,285 $3,401,477 $3,290,310 $3,150,717 $3,747,285 Total Capitalized Value $83,928,555 $75,791,903 $73,176,197 $69,891,657 $83,928,555 Per Unit $839,286 $757,919 $731,762 $698,917 $839,286 Development Costs Land Costs Land Costs $25,000,000 $25,000,000 $25,000,000 $25,000,000 $25,000,000 Per Unit $250,000 $250,000 $250,000 $250,000 $250,000 Direct Costs Site Prep/Demo $3,267,000 $3,267,000 $3,267,000 $3,267,000 $3,267,000 Gross Residential Area $27,553,750 $27,553,750 $27,553,750 $27,553,750 $27,553,750 Gross Retail Area $1,300,000 $1,300,000 $1,300,000 $1,300,000 $1,300,000 Parking $7,560,000 $6,475,000 $6,475,000 $6,475,000 $7,560,000 Subtotal Direct Costs $39,680,750 $38,595,750 $38,595,750 $38,595,750 $39,680,750 Per Unit $396,808 $385,958 $385,958 $385,958 $396,808 Per Gross Sq. Ft. $338 $329 $329 $329 $338 Indirect Costs City Fees (a) $6,594,875 $5,784,875 $5,514,875 $5,244,875 $8,942,363 Other Soft Costs (b) $8,332,958 $8,105,108 $8,105,108 $8,105,108 $8,332,958 Per Unit $83,329.58 $81,051.08 $81,051.08 $81,051.08 $83,329.58 Subtotal Indirect Costs $14,927,832 $13,889,982 $13,619,982 $13,349,982 $17,156,520 Per Unit $149,278 $138,900 $136,200 $133,500 $171,565 Financing $3,276,515 $3,149,144 $3,132,944 $3,116,744 $3,410,236 Per Unit $32,765 $31,491 $31,329 $31,167 $34,102 Total Development Costs $82,885,097 $80,634,876 $80,348,676 $80,062,476 $85,247,506 Per Unit $828,851 $806,349 $803,487 $800,625 $852,475 Per Gross Sq. Ft. $707 $688 $685 $683 $727 Feasibility Net Revenue (c) $1,043,457 ($4,842,973) ($7,172,479) ($10,170,819) ($1,318,952) Yield on Cost (d) 4.5% 4.2% 4.1% 3.9% 4.4% (a) Appendix shows detailed city fees. Excludes affordable housing mitigation in-lieu fee, except in Scenario 4. Parkland dedication fees waived for affordable units. (b) Includes architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, and developer overhead. (c) Net revenue is the project total revenue minus total development costs. (d) Yield on cost is the total project net operating income divided by total development costs. Source: Strategic Economics, 2018. 31 FIGURE 26: FINANCIAL FEASIBILITY RESULTS FOR HIGHER DENSITY RENTAL APARTMENTS PROTOTYPE 5 Scenario 0 (No BMR Req.) Scenario 1 (15% On--Site) Scenario 2 (20% On--Site) Scenario 3 (25% On--Site) Scenario 4 (In--Lieu Fees) Total Units 100 100 100 100 100 Market Rate Units 100 85 80 75 100 Affordable Units 0 15 20 25 0 Revenues Residential Net Operating Income $3,288,285 $2,942,477 $2,831,310 $2,691,717 $3,288,285 Retail Net Operating Income $688,500 $688,500 $688,500 $688,500 $688,500 Total Net Operating Income $3,976,785 $3,630,977 $3,519,810 $3,380,217 $3,976,785 Total Capitalized Value $87,207,126 $79,070,475 $76,454,769 $73,170,229 $87,207,126 Per Unit $872,071 $790,705 $764,548 $731,702 $872,071 Development Costs Land Costs Land Costs $13,157,895 $13,157,895 $13,157,895 $13,157,895 $13,157,895 Per Unit $131,579 $131,579 $131,579 $131,579 $131,579 Direct Costs Site Prep/Demo $1,719,474 $1,719,474 $1,719,474 $1,719,474 $1,719,474 Gross Residential Area $35,175,000 $35,175,000 $35,175,000 $35,175,000 $35,175,000 Gross Retail Area $1,950,000 $1,950,000 $1,950,000 $1,950,000 $1,950,000 Parking $8,190,000 $7,175,000 $7,175,000 $7,175,000 $8,190,000 Subtotal Direct Costs $47,034,474 $46,019,474 $46,019,474 $46,019,474 $47,034,474 Per Unit $470,345 $460,195 $460,195 $460,195 $470,345 Per Gross Sq. Ft. $401 $392 $392 $392 $401 Indirect Costs City Fees (a) $6,724,069 $5,914,069 $5,644,069 $5,374,069 $9,688,129 Other Soft Costs (b) $9,877,239 $9,664,089 $9,664,089 $9,664,089 $9,877,239 Per Unit $98,772 $96,641 $96,641 $96,641 $98,772 Subtotal Indirect Costs $16,601,308 $15,578,158 $15,308,158 $15,038,158 $19,387,168 Per Unit $166,013 $155,782 $153,082 $150,382 $193,872 Financing $3,818,147 $3,695,858 $3,679,658 $3,663,458 $3,985,299 Per Unit $38,181 $36,959 $36,797 $36,635 $39,853 Total Development Costs $80,611,823 $78,451,384 $78,165,184 $77,878,984 $83,564,835 Per Unit $806,118 $784,514 $781,652 $778,790 $835,648 Per Gross Sq. Ft. $688 $669 $667 $664 $713 Feasibility Net Revenue (c) $6,595,303 $619,090 ($1,710,416) ($4,708,755) $3,642,291 Yield on Cost (d) 4.9% 4.6% 4.5% 4.3% 4.8% (a) Appendix shows detailed city fees. Excludes affordable housing mitigation in-lieu fee, except in Scenario 4. Parkland dedication fees waived for affordable units. (b) Includes architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, marketing costs, and developer overhead. (c) Net revenue is the project total revenue minus total development costs. (d) Yield on cost is the total project net operating income divided by total development costs. Source: Strategic Economics, 2018. 32 Peer Cities Strategic Economics researched BMR housing programs in peer cities, including: San Jose, Santa Clara, Campbell, Mountain View, Sunnyvale, and Palo Alto. The key findings from the research are explained below and summarized in Figure 27. INCLUSIONARY REQUIREMENTS As shown in Figure 27, all of the cities have inclusionary requirements for ownership housing. They are typically set at 15%, with the exception of Mountain View and Sunnyvale, which have requirements of 10% and 12.5%, respectively. For rental housing, Palo Alto and Sunnyvale have a housing mitigation fee, but no inclusionary requirements. However, both cities are considering revising their policies on rental housing. TARGET INCOME For inclusionary requirements on ownership housing, all of the peer cities have targeted moderate- income households, roughly defined as between 80 and 120% of AMI. For rental housing, the income target is typically low-income (up to 80% AMI), although San Jose also targets very low-income households (up to 50% AMI). Santa Clara has targeted moderate-income households for both ownership and rental housing requirements. Cities that charge housing mitigation fees on rental or ownership housing have set their fees based on nexus studies that measure the affordable housing needs of very-low, low-, and moderate-income households. None of the peer cities have targeted extremely-low income households for their inclusionary requirements. However, city staff from Sunnyvale and San Jose have indicated that they are providing funding to develop housing for extremely-low income households through the revenues they have collected from housing mitigation fees, in-lieu fees, and other housing funds. Local revenues are often combined with Santa Clara County Measure A funds – which are specifically targeted to extremely-low income households – as well as 9% and 4% Low Income Housing Tax Credits (LIHTC) and Section 8 vouchers from the Santa Clara County Housing Authority. ALTERNATIVE MEANS OF COMPLIANCE All of the cities prefer that units are built onsite, but they allow alternative means of complying with inclusionary requirements. Developers can typically satisfy the requirement by providing units off-site, paying in-lieu fees, or dedicating land for affordable housing. However, in some cases, the developer must first demonstrate that the inclusionary requirement is not feasible. For example, the City of Palo Alto requires that the applicant present “substantial evidence to support a finding of infeasibility” and of “feasibility of any proposed alternative.” In other cities, like Mountain View, Sunnyvale, and Santa Clara, developers must receive approval from the City Council for the alternative. In Sunnyvale and San Jose, developers that pursue an alternative to the onsite inclusionary requirement must provide a higher number of affordable units. 33 FIGURE 27: INCLUSIONARY HOUSING REQUIREMENTS AND HOUSING MITIGATION FEES IN PEER CITIES City Inclusionary RRequirement Target Income for BMR Policy Housing Mitigation Fee/In Lieu Fees Alternatives to ccompliance Ownership Rental Ownership Rental Ownership Rental Cupertino 15% 15% 1/2 of BMR units at Median (100% AMI) and 1/2 of BMR units at Moderate (120% AMI)* 60% of BMR units at Very Low (50% AMI) and 40% of BMR units at Low (60% AMI) -Single family: $17.82/sf -Small lot single family/Townhome: $19.60/sf -Multifamily attached: $23.76/sf -Multifamily Attached (up to 35 du/ac): $23.76/sf -Multifamily attached (over 35 du/ac): $29.70/sf Onsite units are preferred, but alternatives may be possible with City Council approval. These include: on-site BMR rental units where ownership units or a fee is required; purchase of off-site units to be dedicated/rehabbed as for-sale or rental BMR units; development of off-site units to be dedicated as for-sale or rental BMR units; land for development of affordable housing. An Affordable Housing Plan is required. Mountain View 10% 15% Moderate (80 - 120% AMI) Low (50-80% AMI) In-lieu fee of 3% of sales price $34/sf (applies to fractional units only) Onsite units are preferred, but City Council can approve other alternatives. Sunnyvale 12.5% None Moderate (Below 120% AMI) Low (Below 80% AMI) In-lieu fee of 7% of sales price $17/sf For ownership units, onsite units are preferred. With Council approval, developers may provide alternatives if they result in a higher number of BMR units. San Jose 15% 15% Moderate (Below 120% AMI) 9% Mod (80% AMI) 6% VLI (30-50% AMI) In-lieu fee of $153,000 per unit. $17.41/sf for projects of 3 to 19 units in size Developers have the option of providing units off-site or paying in-lieu fees, but the affordable housing requirement is 20%, and the target income is lower. Santa Clara 15% 15% Moderate (Below 100% AMI) Moderate (Below 100% AMI) $20-$30/sf, depending on housing type Alternatives include dedication of land for affordable housing, development of affordable units at an off-site location, or some combination thereof, with approval from City Council through a Development Agreement. Campbell 15% 15% Moderate (Below 110% AMI) Low (Below 70% AMI) $34.50/sf for projects of 6 units or less None Developers can dedicate land or pay in lieu fees. Palo Alto 15% None 2/3 BMR units at 80-100% AMI and 1/3 BMR units at 100-120% AMI Mod (80-120% AMI) Low (50-80% AMI) VLI (30-50% AMI) $50-$75/sf depending on housing type $20/sf Developers can dedicate land, pay in lieu fees, provide rental units within the ownership project, convert or rehabilitate affordable housing units. They must first demonstrate that the inclusionary requirement is not feasible. *Sales prices set at 110% for BMR moderate income unit and 90% for a BMR median income unit. Source: Interviews with City staff, BMR housing ordinances, Strategic Economics, 34 NON-RESIDENTIAL LINKAGE FEE The City is considering updating non-residential fees, otherwise known as commercial linkage fees, on new workplace buildings (office, R&D, hotel, and retail development projects). Linkage fees are used to mitigate the impacts of an increase in affordable housing demand associated with a net increase in worker households. as employees at new non-residential developments seek housing nearby. The funds raised by the linkage fees are deposited into a housing fund specifically reserved for use by a local jurisdiction to increase the supply of affordable housing for the workforce. Linkage fees are one of several funding sources that jurisdictions can use to help meet affordable housing needs of new workers. The City first adopted linkage fees for office and R&D projects in 1992, and expanded the program to apply to retail and hotel developments in 2004. Following a 2015 nexus study update completed by Keyser Marston Associates, the City amended the fees for all three uses to their current levels--$23.76 for office/R&D uses, and $11.88 for hotel and retail uses.16 This memo report provides updated policy analysis, including a financial feasibility analysis, and a review of current non-residential linkage fees in neighboring cities to establish a recommendation on updated linkage fees in Cupertino. Approach MMETHODOLOGY The financial feasibility of establishing updated non-residential linkage fees in Cupertino was tested using a pro forma model that measures profit for the developer or investor. Yield on cost (YOC) is a commonly used metric indicating the profitability of a non-residential project. The pro forma model tallies all development costs, including land, direct construction costs, indirect costs (including financing), and developer fees. Revenues from lease rates or hotel room rates are the basis for calculating annual income from the new non-residential development. The total operating costs are subtracted from the total revenues to calculate the annual net operating income. The YOC is then estimated by dividing the annual net operating income by the total development costs. The fee levels were then added as an additional development cost to measure the resulting change in the YOC. DEVELOPMENT PROTOTYPES The analysis estimates the feasibility of potential linkage fees for three non-residential prototypes: office/R&D, hotel, and retail. The building characteristics of each development prototype, including size, density (floor-area-ratio), and parking assumptions are based on a review of projects that were recently built, and in planning stages in Cupertino, as well as recently built and pipeline projects in surrounding areas. Based on the development activity in Cupertino, the following is assumed regarding each prototype: x Office/R&D: Based on a review of market activity in the City, recent and proposed developments in neighboring cities, it is assumed that the office/R&D development project would be a speculative building serving the tech industry. 16 Keyser Marston Associates, “City of Cupertino: Non-residential Jobs-Housing Nexus Analysis,” City of Cupertino, April 2015. 35 x Hotel: Newer hotel development projects in Cupertino and surrounding areas are typically upscale, select-service chains that serve business travelers. x Retail: The retail development prototype is assumed to be a small low-density retail center. The details regarding the size, density (floor-area ratio), parking, and other key assumptions for each prototype are summarized in Figure 28 below. FIGURE 28. DESCRIPTION OF DEVELOPMENT PROTOTYPES Prototype Description Office//R&D Hotel Retail Project Type Class A Office Speculative Building Select-Service Upscale Business Hotel Neighborhood Retail Shopping Center Parcel Size (Sq. Ft.) 174,240 87,120 21,780 Parcel Size (Acres) 4 2 0.5 Total Stories 4 5 1 Floor-Area Ratio (without parking) (a) 1.50 1.20 0.35 Gross Building Area (GSF) 261,360 104,544 7,623 Efficiency Ratio (b) 90% n/a 90% Net area (NSF) 235,224 n/a 6,861 Number of rooms n/a 140 n/a Total Parking Spaces 825 155 30 Surface 93 70 30 Structured Garage 732 0 0 Underground 0 85 0 Parking Ratio (per room) n/a 1.1 n/a Parking Ratio (per 1,000 SF) 3.2 1.5 4.0 Notes: (a) The Floor-Area Ratio (FAR) is often used as a measure of density. In this analysis, it is calculated as the gross building area, not including parking, divided by the parcel size. (b) The Efficiency Ratio refers to the ratio of gross building area to ne leasable area. An efficiency ratio of 90% means that 90% of the gross building area is leasable space. In hotels, revenue is informed by room count, rather than square footage, and therefore the net area is omitted. DEVELOPMENT COSTS The development costs incorporated into the pro forma analysis include hard costs, (construction materials and labor) land costs, soft costs (indirect costs), and financing costs. HARD COSTS Hard costs are based on Strategic Economics’ review of pro formas for similar development projects, industry publications, and interviews with developers with projects in Cupertino and nearby jurisdictions. The assumptions for hard costs by prototype are described in Figure 29. They include estimates for basic site improvements, construction costs for the building, and costs for parking by type. In addition, the cost of construction includes a tenant improvement allowance for office/R&D and retail uses, as well as a Furniture, Fixtures, and Equipment (FF&E) allotment for hotel uses, which are both typical for this market. 36 FIGURE 29. HARD COSTS ASSUMPTIONS BY PROTOTYPE Cost Category Metric Office/R&D Hotel Retail Site Prep Per Site Sq. Ft. $3 $3 $3 Construction Costs Per Gross Building Sq. Ft. $300 $250 $165 Per Room $342,472 Parking Costs Cost per Space Surface $7,000 Structured Garage $30,000 Underground $60,000 Land Costs Entitled Land Per Site St. Ft. $137.74 $137.74 $75.00 Per Acre $6,000,000 $6,000,000 $3,267,000 Tenant Improvement Allowance Per Building Net Sq. Ft. $75 n/a $35 Furniture, Fixtures, Equipment Per Room n/a $35,000 n/a Source: Costar, 2019; HVS Consulting, 2017; review of pro formas for comparable development projects in Santa Clara County; interviews with developers in Cupertino and Santa Clara County, 2019; Strategic Economics, 2019. LAND COSTS One of the critical cost factors for a non-residential development project is land cost. To determine the land value of sites zoned for commercial uses, Strategic Economics analyzed recent sales transactions and estimates for properties in Santa Clara County and interviewed developers. Land values are similar for both hotel and office development in the Cupertino area, based on a review of recent transactions. Comparable values for office and hotel sites are showed in Figure 22 below. As shown, the land values typically range from $120 to $185 per square foot. One exception in the Cinnabar Street land sale for over $200 per square foot, which is in the Diridon Station Area, and planned for higher intensity development projects than the prototypes for this study. For the purposes of this analysis, it is assumed that sites zoned for office/R&D or hotel would have a land value of $138 per square foot ($6 million per acre). There are fewer land sales transactions for sites that are entitled for low-density retail development. However, a review of smaller retail property transactions shows that typically the land values are usually under $100 per square foot. For the purposes of this analysis, it is assumed that a low-density retail site in Cupertino would have a land value of $75 per square foot (about $3.2 million per acre). 37 FIGURE 30. LAND COMPARABLES FOR OFFICE AND HOTEL Property Jurisdiction Year Sold Acres Estimated Value Per Sq. Ft. Land PProposed LLand Use 4995 Patrick Henry Dr. Santa Clara 2016 48.6 $118 Office 357-387 Cinnabar St. (a) San Jose 2017 5.6 $210 Office 767 Mathilda Ave. Sunnyvale 2017 3.28 $146 Hotel 10801 N. Wolfe Rd. (b) Cupertino 2018 1.72 $185 Hotel Notes: (a) 357-387 Cinnabar St. is in the Diridon Station area, and part of Google's transit village, which will have a significantly higher FAR than the office prototype. (b) Estimated value for 10801 N. Wolfe Rd. is based on valuation from CBRE in 2018 rather than a sales transaction. Sources: Costar, 2019; CBRE, 2018; SOFT COSTS Soft costs (often referred to as indirect costs) include items such as architectural fees, engineering fees, insurance, taxes, legal fees, accounting fees, city fees, and marketing costs. Cupertino’s Traffic Impact Fee was calculated based on the City’s fee schedule. Other permits and fees were calculated for each prototypes based on estimates generated for new development projects as part of the feasibility analysis for the Vallco Specific Plan. Soft costs were estimated based on standard industry ratios, calculated as a percentage of hard costs. These assumptions are shown in Figure 31. FIGURE 31. SOFT COST ASSUMPTIONS BY PROTOTYPE Soft Cost Metric Office/R&D Hotel Retail City Permits and Fees Traffic Impact Fee Office Per Gross Building Sq. Ft. $17.40 $4.70 $9.94 Hotel Per Room $3,387 Other Permits and Fees Per Gross Building Sq. Ft. $48.01 $38.34 $57.16 Subtotal City Permits and Fees Per Gross Building Sq. Ft. $65.41 $43.04 $67.10 Other Soft Costs Arch, Eng., & Consulting % of Hard Costs 5% 5% 5% Taxes, Insurance, Legal, Acct % of Hard Costs 3% 3% 3% Developer Overhead % of Hard Costs 4% 4% 4% Subtotal Other Soft Costs (Excluding Fees) % of Hard Costs 12% 12% 12% Construction Financing % of Hard + Soft Costs 6% 6% 6% Source: Review of pro formas for comparable development projects in Cupertino, 2019; Individual developer interviews, 2019; Vallco Specific Plan Feasibility Analysis, 2018; Strategic Economics, 2019. 38 REVENUES Revenue assumptions for each prototype are informed by a range of resources, including commercial broker reports, hospitality industry reports, and Costar, as well as from interviews with developers and brokers active in Cupertino and Santa Clara County. They are summarized in Figure 32. Office: For office rents, Strategic Economics reviewed Cupertino’s office market and the greater Santa Clara County office market. The largest office development in Cupertino has been the Apple Park project, which is a build-to-suit development specifically intended for Apple. There has been minimal recent speculative office development in Cupertino targeting other users. (Main Street was the only such project completed in the last five years, and most of the space has also been leased to Apple.) Buildings that are leased by Apple typically achieve rents of $4 per square foot per month (NNN), compared to lease rates of $4.50-$5.00 per square foot for tech office buildings in neighboring West San Jose and Sunnyvale (see Figure 33). This is due to the fact that landlords are willing to accept a lower rent for a long-term lease with Apple, due to the low risk associated with a major corporation. According to brokers and developers, there is potential to achieve higher rents for buildings that attract other smaller tech office tenants. For the purposes of this analysis, the rental rate assumption is $4.50 per square foot per month (NNN). While this rental rate is higher than the current average office rent in Cupertino, it is a reasonable estimate for a new, multi-tenant tech office building in the Silicon Valley. Hotel: The assumptions of hotel revenues are based on a combination of data sources, including interviews with hotel developers in Cupertino, and data from STR, a hotel research firm that tracks hotel room rates, vacancy rates, and revenues per available room for properties in Cupertino (see Figure 32). Retail: Strategic Economics reviewed leases from 2018 and 2019 for retail spaces in Cupertino, as summarized in Figure 34. Average lease rates (asking NNN) were between 4.25 to 5.42. All of these recent leases were for restaurant spaces on Stevens Creek Boulevard. For the purposes of this analysis, it is assumed that the retail space would lease for about $4 per square foot per month (NNN). 39 FIGURE 32. REVENUE ASSUMPTIONS BY PROTOTYPE Prototypes Metric Assumption Retail Annual Rent (NNN) Per Net Sq. Ft. $48.00 Vacancy Rate 5% Operating Expenses % of Gross Revenue 10% Annual Net Operating Income Per Net Sq. Ft. $40.80 Office/R&D Annual Rent (NNN) Per Net Sq. Ft. $54.00 Vacancy Rate 5% Operating Expenses % of Gross Revenue 7% Annual Net Operating Income Per Net Sq. Ft. $47.52 Hotel Gross annual Room Income RevPAR (a) $79,154 Gross Annual Other Revenue (b) Per Room $27,704 Gross Revenue Per Room $106,858 Vacancy Rate (c) n/a Operating Expenses 70% of Gross Revenue ($74,800) Annual Net Operating Income $32,057 Source: Costar, 2019; STR Trends Report, 2019; Individual developer interviews, 2019; Strategic Economics, 2019. Notes: (a) RevPAR is a measure of revenue per room, calculated as occupancy percentage times average daily rate. (b) Other Revenue for hotels based on data from STR Consulting, and from hotel developer interviews. (c) Vacancy is already reflected in RevPAR estimate. FIGURE 33. OFFICE COMPARABLES Project Name Address City Year Built Mo. RRent/ Sq. Ft. Lease TType Source Lot 11 @ Santana Row 500 Santana Row San Jose 2017 $4.45 NNN Costar Santana Row 700 Santana Row San Jose 2019 $4.45 NNN Costar Bldg. 5 Pathline Park (a) 700 Mary Ave Sunnyvale 2019 $4.95 NNN Costar Main Street 19319 Stevens Ck. Cupertino 2016 $3.75-$4.00 NNN Interviews FIGURE 34: RETAIL COMPARABLES IN CUPERTINO Project Name Address Year Built Mo. Rent// SSq. Ft. Lease Type Source The Biltmore 20030-80 Stevens Creek Blvd 2015 $4.50 NNN (asking) Costar Main Street 19369 Stevens Creek Blvd 2016 $5.42 full service Costar Saich Way Station 20803 Stevens Creek Blvd 2015 $4.25 NNN (asking) Costar 40 YIELD ON COST THRESHOLDS In order to understand how the introduction of non-residential linkage fees impacts financial feasibility, the yield on cost (YOC) results can be compared to an investor’s expectations of return for each type of development. The YOC thresholds for this analysis were established relative to capitalization rates (cap rates) for each product type in the Bay Area. The cap rate, which is measured by dividing net income generated by a property by the total project value, is a commonly used metric to estimate potential returns. To ensure that the financial analysis is conservative and does not reflect peak market conditions, the thresholds selected for determining project feasibility are slightly higher than the published cap rates. Office/R&D projects with a YOC of above 6.0% and hotel projects with a YOC above 7.5% were considered feasible in this analysis. Retail projects were considered feasible with a YOC higher than 7.0%. These thresholds are summarized in the Figure 35 below. FIGURE 35: YIELD ON COST THRESHOLDS BY PROTOTYPE Prototype Yield on Cost Threshold Published CCap Rate Office/R&D (Class AA) 6.0% 4.50%-5.25% Hotel (Select Service) 7.5% 7.0%-8.0% Retail 7.0% 6.25-7.25% Source: CBRE Cap Rate Survey, H2 2018; HVS, 2019; Developer interviews. RESULTS Using the YOC thresholds defined above, the following summarizes the results of the financial feasibility of different linkage fee scenarios for each prototype. The pro formas for each prototype is shown in Figure 39,, Figure 40, and Figure 41.. OFFICE/ R&D As shown in Figure 36 and Figure 39, the prototypical office/R&D project can support the existing linkage fee of $23.76 per square foot, which generates a YOC of 6.04%. A linkage fee of $25 (Scenario 2) would also be feasible. However, the prototype cannot feasibly support a fee higher than $30 per square foot. At this fee level, the prototype is only marginally feasible, with a yield on cost of 5.99%. FIGURE 36. SUMMARY OF FINANCIAL FEASIBILITY OF OFFICE/R&D PROTOTYPE Fee Scenario Fee LLevel Per Sq. Ft. Yield on Cost Office Feasibility Current Linkage Fee $23.76 6.04% Feasible Scenario 1 (No Fee) $0 6.25% Feasible Scenario 2 $25 6.03% Feasible Scenario 3 $30 5.99% Marginally Feasible Note: Office/R&D projects must have a minimum yield on cost of 6.0% to be considered feasible Source: Strategic Economics, 2019. HOTEL As summarized in Figure 37 for hotel projects, the existing linkage fee of $11.88 is financially feasible, with a yield of cost of 7.65%. A fee of $15 per square foot (Scenario 2) is marginally feasible, resulting 41 in a YOC of 7.46%. A higher linkage fee of $20 per square foot (Scenario 3) is not feasible (see Figure 40). FIGURE 37. SUMMARY OF FINANCIAL FEASIBILITY OF HOTEL PROTOTYPE Fee Scenario Fee Level Per Sq. Ft. Yield on Cost Hotel Feasibility Current Linkage Fee $11.88 7.50% Feasible Scenario 1 (No Fee) $0 7.65% Feasible Scenario 2 $15 7.46% Marginally Feasible Scenario 3 $20 7.39% Not Feasible Note: Hotel projects must have a minimum yield on cost of 7.5% to be considered feasible Source: Strategic Economics, 2019. RETAIL The financial feasibility analysis shows that retail developments are not financially feasible under current market conditions. Even without a linkage fee (Scenario 1), the retail project achieves a yield on cost that is lower than the threshold of 7.0 % (see Figure 38 and Figure 41). There may be cases in which a retail project could support the current Housing Mitigation Fee if it were combined with other land uses (residential or office) in a mixed-use project. FIGURE 38. SUMMARY OF FINANCIAL FEASIBILITY OF RETAIL PROTOTYPE Fee Scenario Fee Level Per Sq. Ft. Yield on Cost Retail Feasibility Current Linkage Fee $11.88 6.35% Not Feasible Scenario 1 (No Fee) $0 6.48% Not Feasible Scenario 2 $15 6.32% Not Feasible Scenario 3 $20 6.26% Not Feasible Note: Retail projects must have a minimum yield on cost of 7.0% to be considered feasible. Source: Strategic Economics, 2019. 42 FIGURE 39. OFFICE/R&D PRO FORMA RESULTS Office/R&D Site and Building Characteristics Parcel Size (Sq. Ft.) 174,240 Parcel Size (acres) 4.00 Total Stories 4 - 5 stories Building Type Steel FAR (without parking) 1.50 Revenues Income $12,702,096 Net Operating Income $11,177,844 Project Costs Land Costs $24,000,000 Direct Costs Site Prep $522,720 Gross Building Area $78,408,000 Tenant Improvement Allowance $17,641,800 Parking $22,611,000 Subtotal Direct Costs $119,183,520 per net Sq. Ft. $507 per gross Sq. Ft. $456 Indirect Costs Soft Costs $14,302,022 City Permits and Fees (excl. non-residential linkage) $12,548,925 Subtotal Indirect Costs $26,850,948 Financing Costs $8,762,068 Total Development Cost Including Land (TDC) $178,796,536 per net Sq. Ft. $760 Fee as % of Total Development Cost Scenario 1: No Linkage Fee 0% Scenario 2: Linkage Fee of $25/Sq. Ft. 2.84% Scenario 3: Linkage Fee of $30/Sq. Ft. 3.53% Current Linkage Fee ($23.76/Sq. Ft.) 3.36% Yield on Cost (NOI/TDC) Scenario 1: No Linkage Fee 6.25% Scenario 2: Linkage Fee of $25/Sq. Ft. 6.03% Scenario 3: Linkage Fee of $30/Sq. Ft. 5.99% Current Linkage Fee ($23.76/Sq. Ft.) 6.04% Source: Strategic Economics, 2019. 43 FIGURE 40. HOTEL PRO FORMA RESULTS Hotel Site and Building Characteristics Parcel Size (Sq. Ft.) 87,120 Parcel Size (acres) 2.00 Total Stories 5 stories Building Type Concrete FAR (without parking) 1.20 Revenues Income $15,494,376 Net Operating Income $4,648,313 Project Costs Land Costs $12,000,000 Direct Costs Site Prep $261,360 Gross Building Area $26,136,000 FF&E $5,075,000 Parking $5,590,000 Subtotal Direct Costs $37,062,360 per gross Sq. Ft. $355 Indirect Costs Soft Costs $4,447,483 City Permits and Fees (excl. non-residential linkage) $4,499,679 Subtotal Indirect Costs $8,947,162 Financing Costs $2,760,571 Total Development Cost Including Land (TDC) $60,770,093 per room $419,104 Fee as % of Total Development Cost Scenario 1: No Linkage Fee 0% Scenario 2: Linkage Fee of $15/Sq. Ft. 1.69% Scenario 3: Linkage Fee of $20/Sq. Ft. 2.52% Current Linkage Fee ($11.88/Sq. Ft.) 2.00% Yield on Cost (NOI/TDC) Scenario 1: No Linkage Fee 7.65% Scenario 2: Linkage Fee of $15/Sq. Ft. 7.46% Scenario 3: Linkage Fee of $20/Sq. Ft. 7.39% Current Linkage Fee ($11.88/Sq. Ft.) 7.50% Source: Strategic Economics, 2019. 44 FIGURE 41. RETAIL PRO FORMA RESULTS Retail Site and Building Characteristics Parcel Size (Sq. Ft.) 21,780 Parcel Size (acres) 0.50 Total Stories 1 story Building Type Concrete FAR (without parking) 0.35 Revenues Income $329,314 Net Operating Income $279,917 Project Costs Land Costs $1,633,500 Direct Costs Site Prep $65,340 Gross Building Area $1,257,795 Tenant Improvement Allowance $266,805 Parking $213,444 Subtotal Direct Costs $1,803,384 per net Sq. Ft. $263 per gross Sq. Ft. $237 Indirect Costs Soft Costs $216,406 City Permits and Fees (excl. non-residential linkage) $511,470 Subtotal Indirect Costs $727,876 Financing Costs $151,876 Total Development Cost Including Land (TDC) $4,316,636 per net Sq. Ft. $629 Fee as % of Total Development Cost Scenario 1: No Linkage Fee 0% Scenario 2: Linkage Fee of $15/Sq. Ft. 1.74% Scenario 3: Linkage Fee of $20/Sq. Ft. 2.58% Current Linkage Fee ($11.88/Sq. Ft.) 2.05% Yield on Cost (NOI/TDC) Scenario 1: No Linkage Fee 6.48% Scenario 2: Linkage Fee of $15/Sq. Ft. 6.32% Scenario 3: Linkage Fee of $20/Sq. Ft. 6.26% Current Linkage Fee ($11.88/Sq. Ft.) 6.35% Source: Strategic Economics, 2019. 45 Peer Cities A large share of municipalities in San Mateo and Santa Clara counties, particularly cities that are desirable locations for tech and biotech companies, have adopted non-residential linkage fees. Figure 42 summarizes non-residential linkage fees in these jurisdictions. For office/R&D uses, most cities have set linkage fees between $15 and $25 per square foot. The majority of cities have lower fee levels for retail uses, typically in the range of $5 to $10 per square foot. The non-residential linkage fees for hotel uses are usually between $5 and $15 per square foot. The cities of Palo Alto and San Francisco have higher linkage fees than the rest of the local jurisdictions. These cities also have higher average retail and office rents, and hotel room rates than other Bay Area locations. Many municipalities provide exemptions or fee reductions for the following types of projects: x Smaller non-residential projects. For example, non-residential linkage fees do not apply to projects adding less than 5,000 gross square feet in Redwood City, San Carlos, San Mateo City, Colma, or Burlingame. Projects adding less than 3,500 gross square feet in unincorporated land in San Mateo County, and less than 10,000 gross square feet in Menlo Park or East Palo Alto are also exempt. Some cities also tie their fee to building size on a sliding scale. Mountain View offers a 50% fee reduction for office projects under 10,000 square feet, and hotel or retail projects under 25,000 square feet. Sunnyvale also offers a 50% fee discount for the first 25,000 square feet of any project. x Prevailing wage. Multiple jurisdictions, including Redwood City, San Carlos, San Mateo City, and San Mateo County, provide 25% fee reductions for projects that pay prevailing wage. x Community-serving facilities. Most cities exempt projects such as hospitals/clinics, child care, public, educational, religious, and/or non-profit uses. Additionally, projects that are replacing property damaged from natural disasters are also often exempted. It is common for jurisdictions to allow alternative means of complying with non-residential linkage fee requirements. Developers can typically satisfy the requirement by providing affordable housing either on or off-site, or by dedicating land for affordable housing. East Palo Alto and Palo Alto allow for the requirement to be met by either converting market-rate units to affordable units, or by rehabilitating existing affordable units. In most cases, the applicant must first prove that an alternative is necessary. For example, Palo Alto requires that the applicant present “substantial evidence to support a finding of infeasibility” of paying the fee, and of “feasibility of any proposed alternative.” Many cities have either enacted or updated their fees in the last four years, and fees are typically adjusted annually, based on either ENR’s Construction Cost Index for the San Francisco Bay area, or on the national Consumer Price Index. 46 FIGURE 42. NON-RESIDENTIAL LINKAGE FEES (PER GROSS S. FT. OF NET NEW SPACE) IN NEARBY CITIES Jurisdiction Office/ R&D/ Medical Office Hotel Retail/ Restaurant/ Services Date Fee Was Adopted Burlingame (a) $18 - $25 $12 $7 2017 Colma $5 $5 $5 2006 Cupertino $23.76 $11.88 $11.88 2015 East Palo Alto $10.72 none none 2016 Foster City $27.50 $12.50 $6.25 2016 Los Altos $25 $15 $15 2018 Menlo Park $17.79 $9.66 $9.66 2018 Mountain View (a) $13.14 - $26.27 $1.41 - $2.81 $1.41 - $2.81 2014 Palo Alto $36.22 $21.08 $21.08 2017 Redwood City $20 $5 $5 2015 San Bruno $12.50 $12.50 $6.25 2015 San Carlos $20 $10 $5 2017 San Francisco (b) $19.04 - $28.57 $21.39 $26.66 1996 San Mateo City $25 $10 $7.50 2016 San Mateo County $25 $10 $5 2016 Santa Clara City (a) $10 - $20 $5 $5 2017 South San Francisco $15 $5 $2.50 2018 Sunnyvale (a) $8.25 - $16.50 $8.25 $8.25 2015 Source: City Ordinances and Fee Schedules; 21 Elements, 2019; Silicon Valley at Home, 2019; Strategic Economics, 2019 Notes: (a) Fees vary based on project size in four cities: Burlingame, Mountain View, Santa Clara, and Sunnyvale. Hotel and retail projects under 25,000 sq. ft, and office projects under 10,000 sq. ft. in Mountain View are charged the lower fee; In Burlingame, Santa Clara and Sunnyvale, office projects under 50,000 sq. ft., 20,000 sq. ft. and 25,000 sq. ft. respectively pay the lower fee. (b) San Francisco's fees for R&D are $19.04 per sq. ft., while its fees for office are $28.57 per sq ft. Small Enterprise Workspace and Production/Distribution/Repair fees are $22.46 per sq. ft. 447 KEY TAKEAWAYS Based on the economic feasibility analysis, Strategic Economics offers the following conclusions regarding the City Council’s direction on the BMR Housing Program. Is it financially feasible to increase the inclusionary requirements to 20% or 25%? x For ownership housing prototypes, it would be financially feasible to raise the inclusionary requirement from 15% to 20%.The analysis indicates that the existing requirement of 15% and a higher requirement of 20% are economically feasible for single-family detached, small lot single-family/townhouse, and condominium developments. x Ownership housing prototypes can support a higher Housing Mitigation Fee per square foot. The analysis shows that single-family detached, small lot single-family/townhouse, and condominium developments could support paying the maximum housing mitigation fee (in-lieu fee). The maximum nexus-based fees are $30.10-$30.60 per square foot for single-family detached; $35.60 per square foot for small lot single-family/townhouse development; and $35.10 per square foot for condominiums. The City’s Housing Mitigation Fees cannot exceed the maximum housing impact fees justified by the 2015 Nexus Study (see Figure 43 below). Exceeding the amounts shown below would require conducting a new nexus study. FIGURE 43: CURRENT AND MAXIMUM HOUSING MITIGATION FEES BASED ON NEXUS FOR OWNERSHIP PROTOTYPES Prototype Current Housing Mitigation Fee Maximum Nexus- Based Fee Return on Cost At Maximum Fee IIs Maximum Fee Feasible? Single-Family Detached $17.82 $30.10-$30.60 25.5% Yes Small Lot SF/ Townhouse $19.60 $35.60 34.2% Yes Condominium $23.76 $35.10 31.4% Yes Source: Keyser Marston Associates (2015). Residential Below Market Rate Housing Nexus Analysis x The rental apartment prototypes cannot feasibly support an inclusionary requirement under current rents and construction/land costs. The higher density rental housing prototype can support payment of Housing Mitigation Fees of nearly $30 per square foot, but cannot feasibly provide inclusionary BMR units under today’s rents, construction costs and land costs. However, with increases in rental revenues or decreases in construction costs and land costs, rental housing development could potentially support the current inclusionary requirement of 15%. Can the inclusionary housing policy be amended to include units for extremely low income/ disabled persons? The results from the feasibility analysis show that rental development in Cupertino cannot feasibly provide BMR units on-site under current market conditions. An increase in revenues or a decrease in construction and land costs could make it possible for lower density and higher density rental prototypes to provide 15% inclusionary BMR units for very low income and low income households. Under current market conditions, it is not financially feasible for the inclusionary housing policy to include units for extremely low-income households. 48 However, there are strategies that could allow the City to generate funding for the development of extremely low-income units, and for disabled persons. City staff from Sunnyvale and San Jose have indicated that they are providing funding to develop housing for extremely low-income households through the revenues they have collected from housing mitigation fees, in-lieu fees, and other housing funds. These local revenues are often combined with Santa Clara County Measure A funds – which are specifically targeted to extremely-low income households – as well as 9% and 4% Low Income Housing Tax Credits (LIHTC) and Section 8 vouchers from the Santa Clara County Housing Authority. Can the inclusionary housing policy be amended to include median-income and moderate-income units in rental projects? The results from the feasibility analysis show that rental housing development in Cupertino is not feasible with an inclusionary requirement of 15% under current conditions (see Figure 25 and Figure 26). However, a 15% increase in project revenues or a decrease in construction and land costs of 15% could make the low density rental prototype feasible with a 15% BMR requirement. The higher-density rental prototype can feasibly provide Housing Mitigation Fees at the current level. An increase in revenues of 10% or a decrease in construction and land costs of 5% can make the higher density rental prototype feasible with a 15% BMR requirement. Adding a requirement for median-income and moderate-income units in addition to the existing inclusionary requirement of 15% would not be economically feasible for the rental prototypes. For this reason, it is not financially feasible for the inclusionary housing policy to be amended to also require units for median-income and moderate-income households. Can the BMR requirements for non-residential development (linkage fees) be increased for office/R&D, hotel, and retail developments? x For office and R&D development, it would be possible to raise the Housing Mitigation Fees tto a level between $25 to $30 per square foot. As shown in Figure 39, the office/R&D prototype is feasible with a non-residential linkage fee of $25 per square foot. At $30 per square foot, the prototype achieves a yield on cost that is slightly under the threshold required for feasibility. x For hotel development, it may be possible to increase the Housing Mitigation Fees to between $12 and $15 per square foot. At the current fee level of $11.88, a hotel project is feasible (Figure 37). With a fee of $15 per square foot, the project achieves a yield on cost that is slightly lower than the threshold for feasibility. x The financial feasibility analysis shows that retail developments are not financially feasible under current market conditions. Even without a Housing Mitigation Fees, the retail project achieves a yield on cost that is lower than the threshold of 7.0% (see Figure 38). There may be cases in which a retail project could support the current Housing Mitigation Fee if it were combined with other land uses (residential or office) in a mixed-use project. 49 APPENDIX The appendix includes additional information on: x Recent single-family sales for new construction in Cupertino (Figure A-1) x Recent townhome re-sales in Cupertino (Figure A-2) x Recent condominium re-sales in Cupertino (Figure A-3) x Recent rental project comparables in Cupertino and surrounding cities (Figure A-4) 50 FIGURE A-1: RECENTLY BUILT SINGLE FAMILY COMPARABLES Address City Lot Size Beds Baths Price Square Feet Price/Sq. Ft. Year Built 21825 Lomita Ave Cupertino 9,671 5 4.5 $3,380,000 3,891 $869 2016 21800 Almaden Ave Cupertino 11,098 5 3.5 $3,220,000 3,555 $906 2017 10240 Lebanon Dr Cupertino 9,048 5 4.5 $4,100,000 3,623 $1,132 2018 10257 Glencoe Dr Cupertino 9,375 5 4.5 $3,593,800 3,727 $964 2016 7425 Heatherwood Dr Cupertino 9,396 5 4 $3,650,000 3,763 $970 2017 805 Rose Blossom Dr Cupertino 8,660 5 4.5 $2,980,000 3,339 $892 2017 10308 N Stelling Rd Cupertino 9,612 5 4.5 $3,350,000 3,769 $889 2017 10381 Bret Ave Cupertino 9,374 5 4.5 $3,270,000 3,727 $877 2016 20861 Dunbar Dr Cupertino 9,750 5 3.5 $3,998,000 3,949 $1,012 2016 Weighted AAverage $3,512,995 3,705 $946 Sources: Redfin, 2018; Strategic Economics, 2018. Sources: Redfin, 2018; Strategic Economics, 2018. 51 FIGURE A-2: RECENTLY BUILT TOWNHOME COMPARABLES Address City Lot Size Beds Baths Price Square Feet Price/Sq. Ft. Year Built 10280 Park Green Ln #836 Cupertino 2,176 3 2.5 $1,760,000 1,670 $1,054 2006 10281 Torre Ave #817 Cupertino 2,176 3 2.5 $1,800,000 1,670 $1,078 2006 10700 Stevens Canyon Rd Cupertino 1,570 3 2.5 $1,852,000 2,239 $827 2007 20652 Gardenside Cir Cupertino 1,480 3 2.5 $1,680,000 1,704 $986 1990 20679 Gardenside Cir Cupertino 1,440 3 2 $1,665,000 1,640 $1,015 1990 23020 Stonebridge St Cupertino 3,348 3 2 $1,830,000 2,202 $831 1980 23030 Stonebridge Cupertino 3,348 3 2 $1,698,000 2,202 $771 1980 22981 Stonebridge Cupertino 3,348 3 2 $1,710,000 2,202 $777 1980 10910 Lucky Oak St Cupertino 1,312 3 3.5 $1,780,000 2,082 $855 1980 10826 Northridge Sq Cupertino 1,487 3 2 $1,455,000 1,389 $1,048 1978 10107 Lamplighter Sq Cupertino 1,753 3 2.5 $1,740,000 1,727 $1,008 1975 10174 Potters Hatch Cmn Cupertino 1,575 3 2.5 $1,816,000 1,785 $1,017 1974 10020 Mossy Oak Ct Cupertino 1,662 3 2.5 $1,680,000 1,645 $1,021 1972 10142 Amador Oak Ct Cupertino 1,854 3 2.5 $1,600,000 1,614 $991 1970 WWeighted Averages: All years $1,728,250 1,,841 $934 SSince 2000 $1,808,896 1,,860 $970 Sources: Redfin, 2018; Strategic Economics, 2018. 52 FIGURE A-2: RECENT RE-SALES OF TOWNHOME COMPARABLES Address City Beds Baths Price Square Feet Price/Sq. Ft. Year Built 20488 Stevens Creek Blvd #2207 Cupertino 2 2 $1,338,000 1,171 $1,143 2003 20488 Stevens Creek Blvd #2309 Cupertino 2 2 $1,430,000 1,171 $1,221 2003 19999 Stevens Creek Blvd #209 Cupertino 2 2 $1,266,000 1,039 $1,218 2003 19999 Stevens Creek Blvd #101 Cupertino 2 2 $1,265,000 1,192 $1,061 2003 19503 Stevens Creek Blvd #317 Cupertino 2 2 $1,400,000 1,158 $1,209 2006 19503 Stevens Creek Blvd #251 Cupertino 2 2 $1,200,000 1,087 $1,104 2006 19503 Stevens Creek Blvd #139 Cupertino 2 2 $1,468,000 1,130 $1,299 2006 19503 Stevens Creek Blvd #261 Cupertino 2 2 $1,530,000 1,359 $1,126 2006 19503 Stevens Creek Blvd #331 Cupertino 3 2 $1,728,000 1,502 $1,150 2006 20488 Stevens Creek Blvd #1813 Cupertino 3 3 $1,930,000 1,766 $1,093 2003 20488 Stevens Creek Blvd #1401 Cupertino 3 2 $1,480,000 1,578 $938 2003 WWeighted Averages: 22--Bd $1,367,604 1163 $1,171 33--Bd $1,720,858 1615 $1,060 Sources: Redfin, 2018; Strategic Economics, 2018. 53 FIGURE A-3: RECENT RE-SALES OF CONDOMINIUM COMPARABLES Address City Beds Baths Price Square Feet Price/Sq. Ft. Year Built 20488 Stevens Creek Blvd #2207 Cupertino 2 2 $1,338,000 1,171 $1,143 2003 20488 Stevens Creek Blvd #2309 Cupertino 2 2 $1,430,000 1,171 $1,221 2003 19999 Stevens Creek Blvd #209 Cupertino 2 2 $1,266,000 1,039 $1,218 2003 19999 Stevens Creek Blvd #101 Cupertino 2 2 $1,265,000 1,192 $1,061 2003 19503 Stevens Creek Blvd #317 Cupertino 2 2 $1,400,000 1,158 $1,209 2006 19503 Stevens Creek Blvd #251 Cupertino 2 2 $1,200,000 1,087 $1,104 2006 19503 Stevens Creek Blvd #139 Cupertino 2 2 $1,468,000 1,130 $1,299 2006 19503 Stevens Creek Blvd #261 Cupertino 2 2 $1,530,000 1,359 $1,126 2006 19503 Stevens Creek Blvd #331 Cupertino 3 2 $1,728,000 1,502 $1,150 2006 20488 Stevens Creek Blvd #1813 Cupertino 3 3 $1,930,000 1,766 $1,093 2003 20488 Stevens Creek Blvd #1401 Cupertino 3 2 $1,480,000 1,578 $938 2003 WWeighted Averages: 22--Bd $1,367,604 1163 $1,171 33--Bd $1,720,858 1615 $1,060 Sources: Polaris Pacific, 2018; Redfin, 2018; Strategic Economics, 2018. 54 FIGURE A-4: RECENTLY BUILT RENTAL COMPARABLES Rent Per Unit Unit Size Rent Per Sq. Ft. Project Name City Year Built Stories Studios 1--BD 2--BD 3--BD Studios 1--BD 2--BD 3--BD Studios 1--BD 2--BD 3--BD Nineteen 800 Cupertino 2014 6 $4,026 $5,477 0 1,339 1,562 $3.01 $3.51 Main Street Lofts Cupertino 2018 4 $3,508 $3,995 916 1,044 $3.83 $3.83 Verve Mountain View 2017 3 $3,860 $5,071 $6,195 737 1,112 1,286 $5.24 $4.56 $4.82 Domus on the Boulevard Mountain View 2015 4 $3,868 $4,876 788 1,061 $4.91 $4.60 Elan Mountain View Mountain View 2018 4 $3,860 $5,071 $6,195 737 1,112 1,286 $5.24 $4.56 $4.82 Montrose Mountain View 2016 4 $3,816 $5,443 739 1,154 $5.16 $4.72 Madera Apartments Mountain View 2013 4 $4,113 $5,510 849 1,181 $4.84 $4.67 Carmel the Village Mountain View 2013 5 $3,282 $3,623 $5,866 573 797 1,258 $5.73 $4.55 $4.66 6tenEAST Sunnyvale 2017 4 $3,309 $3,515 $4,414 $5,185 701 808 1,136 1,406 $4.72 $4.35 $3.89 $3.69 Naya Sunnyvale 2016 4 $3,250 $4,336 693 1,038 - $4.69 $4.18 481 On Mathilda Sunnyvale 2016 4 $3,098 $3,251 $4,160 701 781 1,174 $4.42 $4.16 $3.54 Encasa Apartments Sunnyvale 2016 3 $2,854 $3,356 $4,235 $5,854 572 856 1,163 1,688 $4.99 $3.92 $3.64 $3.47 Anton 1101 Sunnyvale 2015 4 $3,145 $3,280 $4,490 569 704 1,069 $5.53 $4.66 $4.20 2295-2305 Winchester Blvd Sunnyvale 2014 3 $3,371 $4,248 662 1,005 $5.09 $4.23 Ironworks Sunnyvale 2017 7 $3,520 $4,036 $5,109 . 784 1,174 1,365 $4.49 $3.44 $3.74 Solstice Sunnyvale 2013 6 $2,955 $3,329 $4,099 462 778 1,122 $6.40 $4.28 $3.65 Orchard City Lofts Campbell 2018 3 $2,946 $3,707 $4,817 607 924 1,237 $4.85 $4.01 $3.89 Revere Campbell Campbell 2015 5 $3,662 $3,912 $5,219 1,015 1,198 1,233 $3.61 $3.27 $4.23 Monticello Village Santa Clara 2016 6 $3,356 $3,244 $4,074 920 842 1,251 $3.65 $3.85 $3.26 Weighted Average $3,225 $3,568 $4,541 $5,516 677 790 1,137 1,383 $4.71 $4.49 $3.98 $3.98 Sources: Costar, 2018; Strategic Economics, 2018. EXHIBIT % Report Vallco Special Area Real Estate Market Assessment Prepared for: City of Cupertino Prepared by: Economic & Planning Systems, Inc. May 14, 2018 EPS #171128 Table of Contents 1.INTRODUCTION AND KEY FINDINGS ............................................................................ 1 2.SOCIOECONOMIC CONTEXT ...................................................................................... 5 Population ................................................................................................................ 5 Employment............................................................................................................. 6 3.RETAIL REAL ESTATE MARKET CONDITIONS ................................................................. 12 Market Trends ........................................................................................................ 12 Pipeline Projects ..................................................................................................... 15 Retail Conclusion .................................................................................................... 16 Project Profiles ....................................................................................................... 17 4.OFFICE REAL ESTATE MARKET CONDITIONS ................................................................. 22 Market Trends ........................................................................................................ 22 Pipeline Projects ..................................................................................................... 25 Office Conclusion .................................................................................................... 25 Project Profiles ....................................................................................................... 26 5.RESIDENTIAL REAL ESTATE MARKET CONDITIONS .......................................................... 29 Residential Permitting .............................................................................................. 29 Market Trends ........................................................................................................ 31 Pipeline Projects ..................................................................................................... 34 Residential Conclusion ............................................................................................. 35 Project Profiles ....................................................................................................... 36 6.HOTEL MARKET CONDITIONS .................................................................................. 40 Hotel Conclusion ..................................................................................................... 40 Project Profiles ....................................................................................................... 43 List of Figures Figure 1Site Location Relative to Highways and Freeways .................................................. 1 Figure 2Cupertino Employment Trend ............................................................................. 9 Figure 3Employment Sector Trends in Santa Clara County ............................................... 10 Figure 4Average Retail Rental Rate per Square Foot in Cupertino and Santa Clara County ... 13 Figure 5Retail Market Performance in Cupertino ............................................................. 13 Figure 6Retail Market Performance in Santa Clara County ................................................ 14 Figure 7Taxable Retail Sales in Cupertino ...................................................................... 15 Figure 8Office Lease Rates in Cupertino and Santa Clara County ...................................... 23 Figure 9Office Market Performance in Cupertino ............................................................. 24 Figure 10Office Market Performance in Santa Clara County ................................................ 24 Figure 11Residential Building Permits in Cupertino ........................................................... 30 Figure 12Residential Building Permits in Santa Clara County .............................................. 30 Figure 13Total Residential Building Permits in Selected Jurisdictions ................................... 31 Figure 14Average Multifamily Rental Rate per Square Foot in Cupertino and Santa Clara County ................................................................................... 32 Figure 15Multifamily Market Performance in Cupertino ...................................................... 32 Figure 16Multifamily Market Performance in Santa Clara County ........................................ 33 Figure 17Value of Condominium (For-Sale) Units in Cupertino ........................................... 34 Figure 18Cupertino Hotels ............................................................................................. 41 List of Tables Table 1Santa Clara County Historical Population Growth Trends ........................................ 7 Table 2Santa Clara County Jobs-to-Working Residents Ratios ........................................... 8 Table 3Cupertino Commute Patterns ..............................................................................9 Table 4Santa Clara County Employment Trends by Industry ........................................... 11 Table 5Santa Clara County Pipeline Retail Development ................................................. 16 Table 6Santa Clara County Pipeline Office Development ................................................. 25 Table 7Santa Clara County Pipeline Multifamily Development .......................................... 35 Table 8Hotel Inventory in Cupertino............................................................................. 41 Table 9Cupertino Hotel Performance (2017) ................................................................. 42 Economic & Planning Systems, Inc. 1 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx 1. INTRODUCTION AND KEY FINDINGS The 58-acre Vallco Special Area (Site) is home to the 1970s-era Vallco Shopping Mall, located off of Interstate 280 in the City of Cupertino, as shown in Figure 1. The Mall’s decline was reaffirmed with the closure of its anchor tenants including Macy’s, Sears, and J.C. Penney during 2015 and 2016. As of early 2018, the 1.2 million-square foot Vallco Mall was about 85 percent vacant, with AMC Theatres, Cupertino Ice Center, Bowlmor Lanes, Cold Stone Creamery, Dynasty Seafood Restaurant, and Benihana remaining as tenants.1 As part of an effort to revitalize the Vallco Special Area (Site), the City is working to develop a Specific Plan, along with an Environmental Impact Report (EIR) that evaluates possible alternative reuses. Figure 1 Site Location Relative to Highways and Freeways Source: ArcGIS Online; Economic & Planning Systems, Inc. The City of Cupertino retained Economic & Planning System (EPS), as part of a larger consultant team (Team), to assist with the preparation of a Specific Plan for the Site. This initial assessment of market conditions and reuse opportunities seeks to provide essential, foundational local and regional market information to inform land use options. This report focuses on four primary land use types which EPS agreed upon with City staff, including office, retail, residential, and hotel uses. As part of this market assessment, EPS has considered socioeconomic and real estate market trends as well as detailed information concerning new, high-performing local and regional projects, including their market positioning, architectural format, amenity offerings, and market 1 AMC Cupertino Square 16 closed during March, after data collection for this report had concluded. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 2 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx value. In subsequent tasks, EPS will coordinate with City staff and the Team to prepare detailed development options for the Site and to evaluate the financial viability of those alternatives. Key Findings 1. Cupertino’s economic performance and competitive market position is strong, primarily fueled by the dominant high-tech sector of Silicon Valley. Between 2006 and 2015, Cupertino experienced a 46.3 percent increase in jobs, largely driven by growth in the technology-driven sectors. In contrast, population growth in Cupertino over the last decade has lagged behind employment growth, and has been modest compared to growth rates of neighboring cities and Santa Clara County overall. While job growth has benefitted some residents, over 90 percent of Cupertino jobs are held by nonresidents. Despite the growth imbalance, the City’s jobs-to-resident ratio remains below some of the most employment rich jurisdictions in the County. The region’s strong economic climate has positioned Cupertino as a highly attractive location for development, with strong market performance across residential, office, and hotel land uses. Retail development potential is more limited, largely owing to national shopping trends that are negatively affecting brick-and-mortar retailers. Nonetheless, excluding Vallco from the market data reveals that retail vacancy in Cupertino is a very low 2 percent Citywide and there likely are strategic opportunities for new retail development. 2. The location of the Vallco Site is likely to successfully capture demand for office and housing but being between nearby, well-established “super-regional malls” and “lifestyle centers” limits the potential for a significant retail project. The growing high-tech sector in the South Bay has catalyzed significant demand for housing and office space, evidenced by Countywide real estate development and market price escalation. Demand for these land uses likely would be strong at the Site, given its convenient freeway access and central location in Silicon Valley. While the Site location also is appropriate for retail, the competitive landscape for retailing at Vallco has become more challenging over time as major super- regional malls and lifestyle centers now serve this Source: CoStar Group; ArcGIS Online; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 3 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx trade area. These centers include Westfield Valley Fair and Santana Row in San Jose, the Stanford Shopping Center in Palo Alto, and the Great Mall in Milpitas, all of which are located within a 20-minute drive of Cupertino. 3. The closure of retail anchors at the Vallco Site reflect broader national trends affecting retail, with traditional mall stores and indoor retail formats needing to evolve to meet current consumer preferences for experiences and services. Retail reuse of the Site would require unique positioning that complements rather than competes with regional and local retailers. After the 2008 recession, consumers altered their spending habits. Shifting spending patterns and competition from online retail have resulted in a sustained demand for luxury and value-oriented retail real estate, with internet purchases now capturing a significant share of mid-market retail sales. In general, successful malls have evolved tenant mixes and formats to cater to luxury or value consumers. Regional examples of luxury lifestyle centers include Santana Row and the Stanford Shopping Center. At struggling retail centers, mall managers go to great lengths to sustain high occupancy rates and may discount lease rates in order to avoid losing anchor tenants. When this tactic is no longer effective, malls are often pushed to close or renovate and reposition in the market, often adding a mix of new uses. Despite the well-publicized retail store closures, some retail businesses with unique market positioning and customer service offerings continue to outcompete and expand. Successful, growing retailers often are seeking to locate in high-barrier-to-entry markets with strong consumer demographics, such as in Cupertino. Examples of new development, including Sunnyvale Town Center and Santa Clara Square, indicate potential for mixed-use development with a retail component. There has been limited retail development in Cupertino over the last decade. The Main Street project, the City’s most significant retail addition in recent years, comprises about 130,000 square feet of retail space. While the project is near full occupancy, at least one restaurant has closed, an indication of the challenges face new retail and restaurant uses. Currently, there is an additional 14,500 square feet of retail space in the City’s development pipeline. These figures are dwarfed by the 1.2 million square feet of retail within Vallco. Accordingly, while full-fledged reuse of Vallco as a shopping center appears highly unlikely, significant opportunities for retail likely exist along with growth in the City and additional mixed-use development in the Vallco Special Area. 4. Although the City historically has supported single-family and lower density multifamily developments, the recent construction of the Apple Campus II and ongoing economic expansion in Silicon Valley have intensified demand for housing. With an insufficient supply of available residential inventory and resulting price escalation, housing affordability challenges in Silicon Valley continue to amplify. While residential permitting data reveal a historical bias toward single-family housing development in Cupertino, both County and City data reveal a significant rise in multifamily permitting since 2009, indicating a shift towards more compact and affordable housing options. Despite this new housing, residential development in Cupertino has lagged relative to the economic expansion. Clearly, the strong demand for housing in the South Bay and desirable Vallco location suggest great potential for housing at the Site, with demand across the full spectrum of affordability. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 4 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Over the last eleven years, the City has issued 870 residential unit permits, accounting for just over 1 percent of the County total. Of these units, the City has delivered 200 units in multifamily projects, with another 135 units aimed to be completed in early 2018. With limited supply growth, multifamily lease rates are relatively strong in Cupertino. With new multifamily housing generating rents approaching $4.00 per square foot per month, the market likely can support denser housing formats, although new multifamily projects in the City have been limited to five stories. 5. While the City of Cupertino has permitted few office developments in recent years, robust local regional economic performance suggests significantly greater development potential. Strong regional economic indicators and associated market demand for office space in core Silicon Valley locations have spurred significant new office development in Silicon Valley. However, Cupertino has purposely limited new office development in recent years, with the notable exception of the recently opened 2.8-million-square foot Apple Campus II. Due to growth control measures in Cupertino (i.e., General Plan Amendments required for new office development), market performance does not fully reveal the potential for new development. Today, the City has no office projects in the pipeline, office vacancy is only 2 percent, and lease rates are above the County average. In Santa Clara County overall, over the past decade office stock grew by 23 million square feet, and meanwhile vacancy rates fell from 2009 highs of 17 percent to current rates of roughly 10 percent (February 2018). Even after seven consecutive years of positive net absorption, investor demand remains strong for office space that is well-designed and strategically located. Despite mounting concerns about oversupply (roughly 22 million square feet of office is in the pipeline countywide 2) the Vallco location on I-280 and proximity to Apple’s global headquarters suggest significant potential for office development at the Site. 6. Along with the growing Silicon Valley economy, demand for lodging in Cupertino also will grow to meet the needs of business travelers. Cupertino’s hotel market has seen markedly high occupancy rates and strong room rates in recent years. The City’s hotels primarily cater to business travelers, with weekday occupancy rates regularly reaching 90 percent and demand remaining fairly consistent year-round. Hotel demand may be satisfied in the near term, given the 2013 opening of the Aloft Hotel, the 2017 opening of the Residence Inn, the Hyatt House currently under construction, and two additional proposed hotels in the City. However, there likely will be additional opportunities for well-positioned hotels to satisfy future visitor needs over the longer term. 2 Includes projects currently Proposed and Under Construction in Santa Clara County, as reported by CoStar Group. Economic & Planning Systems, Inc. 5 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx 2. SOCIOECONOMIC CONTEXT Cupertino is a city of roughly 60,000 residents located in Santa Clara County, directly west of San Jose, at the insersection of Highway 85 and Interstate 280. The City is at the core of Silicon Valley, with numerous technology companies located in the vicinity. Cupertino has become well- known as the headquarters location of Apple, Inc., the City’s largest employer. Apple has had a growing presence in Cupertino, particularly owing to the Apple’s multibillion dollar headquarters, Apple Campus II, completed in 2017. In addition to its importance to the Silicon Valley economy, Cupertino has a good reputation as a residential location, largely due to its high-performing schools and well-cared for residential communities. Furthermore, DeAnza Community College is one of the City’s largest public sector employers, as well as one of the largest community colleges in the United States, attracting local and international students. Source: ArcGIS Online; Economic & Planning Systems, Inc. Population Over the last decade, the City has seen modest population growth averaging just 0.6 percent per year, which is well below that of neighboring jurisdictions. While the City experienced growth of roughly 1 percent average annual growth in the period from 2007 to 2012, there was a significant slowdown from 2012 to 2017. During this period, Cupertino had average annual growth of just 0.07 percent, as compared to the average for the County’s cities of 1.1 percent. In Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 6 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx fact, Cupertino experienced the lowest growth rate of all Santa Clara cities over the last five years (2012 to 2017). Table 1 presents population trends in Santa Clara County from 2007 through 2017. Employment Cupertino has evolved with the rise of Silicon Valley and the influx of businesses. With regard to the composition of employment, the City’s economy continues to be fueled by science and technology-related businesses. In addition to being home to Apple headquarters, Cupertino is the corporate headquarters of CRC Health, DURECT, Mirapath, Seagate Technology, and others. As of 2015, the City was home to approximately 40,000 jobs and a relatively healthy jobs-to- working residents ratio of 1.59, as seen in Table 2. Employment in Cupertino increased 46.3 percent from 2006 to 2015, as shown in Figure 2. While the City does not have a CalTrain stop, it does have easy freeway access, allowing for regional commuting. Cupertino is well-integrated into the regional economy with 93 percent of the City’s employees commuting from outside the City. Table 3 presents commuting trends for Cupertino. The dominant industry in Santa Clara County is Manufacturing, followed Professional, Scientific, and Technical Services, with jobs in those sectors accounting for 15.9 percent and 14.5 percent of total jobs, respectively. The County’s other dominant industries include Health Care and Social Assistance, Information, and Accommodations and Food Services, as seen in Figure 3 and Table 4. Over the last decade, the County has seen relatively modest job growth, which is largely attributable to the significant loss of jobs resulting from the 2008 recession. From 2006 to 2011, Santa Clara County saw a loss in the total number of jobs, while the next five-year period, from 2011 to 2016, saw a 3 percent increase in total jobs, as detailed in Table 4. Source: ArcGIS Online; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 7P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Table 1 Santa Clara County Historical Population Growth TrendsChange Annual Growth RateChange AnnualGrowth RateChangeAnnual Growth RateCupertino 55,61158,714 58,917 3,103 1.1% 203 0.1% 3,306 0.6%Campbell 38,38240,050 42,726 1,668 0.9% 2,676 1.3% 4,344 1.1%Gilroy 47,04750,695 55,936 3,648 1.5% 5,241 2.0% 8,889 1.7%Los Altos 27,83129,696 31,402 1,865 1.3% 1,706 1.1% 3,571 1.2%Los Altos Hills 7,7728,127 8,634 355 0.9% 507 1.2% 862 1.1%Los Gatos 28,17730,142 31,314 1,965 1.4% 1,172 0.8% 3,137 1.1%Milpitas 62,68467,613 75,410 4,929 1.5% 7,797 2.2% 12,726 1.9%Monte Sereno 3,3143,383 3,501 69 0.4% 118 0.7% 187 0.6%Morgan Hill 36,46739,426 44,145 2,959 1.6% 4,719 2.3% 7,678 1.9%Mountain View 71,41075,188 79,278 3,778 1.0% 4,090 1.1% 7,868 1.1%Palo Alto61,38565,882 68,691 4,497 1.4% 2,809 0.8% 7,306 1.1%San Jose 913,310980,347 1,046,079 67,037 1.4% 65,732 1.3% 132,769 1.4%Santa Clara 111,507119,399 123,983 7,892 1.4% 4,584 0.8% 12,476 1.1%Saratoga 29,72730,247 30,569 520 0.3% 322 0.2% 842 0.3%Sunnyvale 134,232143,006 149,831 8,774 1.3% 6,825 0.9% 15,599 1.1%Balance Of County 96,21086,581 87,764 -9,629 -2.1% 1,183 0.3% -8,446 -0.9%Incorporated1,628,8561,741,9151,850,416113,0591.4%108,5011.2%221,5601.3%County Total1,725,0661,828,496 1,938,180 103,430 1.2% 109,684 1.2% 213,114 1.2%Source: California Department of Finance; Economic & Planning Systems, Inc.Place / ItemChange 2007-2012 Change 2012-2017 Change 2007-2017201720122007 Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 8 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Table 2 Santa Clara County Jobs-to-Working Residents Ratios County / City Jobs Employed Residents Jobs : Employed Resident Cupertino 41,934 26,486 1.58 Campbell 28,261 20,967 1.35 Gilroy 16,780 23,067 0.73 Los Altos 11,393 13,004 0.88 Los Altos Hills 2,032 3,325 0.61 Los Gatos 17,791 13,694 1.30 Milpitas 47,538 36,012 1.32 Monte Sereno 365 1,718 0.21 Morgan Hill 14,467 19,495 0.74 Mountain View 73,205 40,948 1.79 Palo Alto 111,968 30,223 3.70 San Jose 411,008 474,260 0.87 Santa Clara 111,954 61,257 1.83 Saratoga 7,529 12,979 0.58 Sunnyvale 90,730 73,514 1.23 Balance of County 19,913 36,468 0.55 Santa Clara County 1,006,868 887,417 1.13 Source: LEHD OnTheMap 2015; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 9 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 2 Cupertino Employment Trend Source: LEHD OnTheMap 2015; Economic &Planning Systems, Inc. Table 3 Cupertino Commute Patterns 25,000 27,000 29,000 31,000 33,000 35,000 37,000 39,000 41,000 2006200720082009201020112012201320142015Employment Place Number Share Place Number Share San Jose 4,902 19.6% San Jose 10,960 27.5% Cupertino 2,698 10.8% Sunnyvale 3,340 8.4% Sunnyvale 2,419 9.7% San Francisco 2,720 6.8% Santa Clara 2,329 9.3% Cupertino 2,698 6.8% Palo Alto 1,982 7.9% Santa Clara 2,398 6.0% Mountain View 1,525 6.1% Mountain View 1,247 3.1% San Francisco 1,081 4.3% Fremont 1,016 2.5% Fremont 778 3.1% Campbell 771 1.9% Milpitas 572 2.3% Palo Alto 649 1.6% Menlo Park 558 2.2% Milpitas 601 1.5% All Other Locations 6,198 24.8%All Other Locations 13,449 33.7% Total 25,042 100% Total 39,849 100% Source: LEHD OnTheMap 2015; Economic & Planning Systems, Inc. Employment Destinations for Cupertino Residents Commute Origins for Cupertino Employees Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 10P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 3 Employment Sector Trends in Santa Clara County 020,00040,00060,00080,000100,000120,000140,000160,000180,0002006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016ManufacturingRetail TradeFinancial ActivitiesFinance and InsuranceProfessional, Scientific and Technical ServicesAdministrative and Support and Waste ServicesEducational ServicesHealth Care and Social AssistanceLeisure and HospitalitySource: California Economic Development Department; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 11P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Table 4 Santa Clara County Employment Trends by Industry ChangeAnnual Growth RateChangeAnnualGrowth RateChangeAnnualGrowth RateConstruction 45,500 30,400 47,700 -15,100 -7.7% 17,300 9.4% 2,200 0.5%Manufacturing 159,500 154,500 162,300 -5,000 -0.6% 7,800 1.0% 2,800 0.2%Wholesale Trade 37,800 33,500 37,500 -4,300 -2.4% 4,000 2.3% -300 -0.1%Retail Trade 82,100 78,200 83,600 -3,900 -1.0% 5,400 1.3% 1,500 0.2%Transportation, Warehousing and Utilities 12,700 11,900 14,700 -800-1.3% 2,800 4.3% 2,000 1.5%Financial Activities 36,600 32,000 35,300 -4,600 -2.7% 3,300 2.0% -1,300-0.4%Finance and Insurance 21,500 19,000 21,500 -2,500 -2.4% 2,500 2.5% 0 0.0%Real Estate and Rental and Leasing 15,100 13,000 13,800 -2,100 -3.0%800 1.2% -1,300 -0.9%Professional, Scientific and Technical Services 107,600 108,900 147,300 1,300 0.2% 38,400 6.2% 39,700 3.2%Management of Companies and Enterprises 10,000 8,800 13,000 -1,200 -2.5% 4,200 8.1% 3,000 2.7%Administrative and Support and Waste Services 52,100 47,700 63,200-4,400 -1.7% 15,500 5.8% 11,100 2.0%Educational Services 31,300 37,000 46,000 5,700 3.4% 9,000 4.5% 14,700 3.9%Health Care and Social Assistance 78,800 91,000 114,900 12,200 2.9% 23,900 4.8% 36,100 3.8%Leisure and Hospitality 76,500 77,000 97,500 500 0.1% 20,500 4.8% 21,0002.5%Other Services 25,300 24,200 27,000 -1,100 -0.9% 2,800 2.2% 1,700 0.7%Government 94,50093,30093,000-1,200-0.3%-300-0.1%-1,500-0.2%Total, All Industries 886,900 860,400 1,018,300 -26,500 -0.6% 157,9003.4% 131,400 1.4%Source: California Department of Finance; Economic & Planning Systems, Inc.2006-2011 2011-2016 2006-2016Industry201620112006 Economic & Planning Systems, Inc. 12 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx 3. RETAIL REAL ESTATE MARKET CONDITIONS The Silicon Valley region’s strong economic climate has positioned Cupertino as a highly attractive location for development for most land uses. Although the potential for retail development is more limited, largely due to national shopping trends, when excluding vacancies at Vallco the City’s retail real estate market appears healthy. Lease rates per square foot in the City are also significantly higher than that of the County’s, an indication of the desirability of the location. However, due to the Site’s location between various established regional retail centers, retail will likely need to be a component of a larger mixed-use development. In the last decade, the City has seen limited retail development deliveries with the exception of the Main Street project. Market Trends Cupertino has seen minor fluctuations in retail inventory over the last decade, aside from the 2016 delivery of Main Street Cupertino. The Main Street development, built by Sand Hill Property Company, consists of over 130,000 square feet of retail space across over a dozen buildings in an open-air, walkable, town center environment located adjacent to the Vallco Site. Retail at Main Street is nearly fully leased, with its opening marking a downturn in vacancy rates caused by the closing of Vallco’s anchors. The City’s retail lease rates have been on the rise since 2013 and currently stand at an average of $50 per square foot per year, well above the County average at above $30 per square foot, as seen in Figure 4. The high vacancy rates in 2015 and 2016 (see Figure 5) are largely attributable to the closing of Sears, Macy’s and J.C. Penney, with smaller Vallco Mall retailers following subsequently. When removing the effect of Vallco vacancy, the vacancy rate in the City is close to 2 percent. Santa Clara County has seen strong retail performance over the last decade, building approximately 6.7 million square feet with vacancy rates hovering around 5 percent and new inventory being consistently absorbed, as detailed in Figure 6. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 13 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 4 Average Retail Rental Rate per Square Foot in Cupertino and Santa Clara County Source: CoStar Group; Economic & Planning Systems Figure 5 Retail Market Performance in Cupertino Source: CoStar Group; Economic & Planning Systems $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 2006200720082009201020112012201320142015201620172018 YTDCupertino Santa Clara County 0% 5% 10% 15% 20% 25% 30% 35% -600,000 -500,000 -400,000 -300,000 -200,000 -100,000 0 100,000 200,000 200620072008200920102011201220132014201520162017Inventory Change Net Absorption SF Total Vacancy Vacancy RateSquare Feet Rent/Sq.Ft. (NNN) Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 14 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 6 Retail Market Performance in Santa Clara County Source: CoStar Group; Economic & Planning Systems Even with the closing of Vallco anchors and high retail vacancy, Cupertino’s taxable sales experienced just a modest dip of 1 percent in the period from 2014 to 2016, as seen in Figure 7. This dip is negligible when considering that the City experienced over 100 percent increase in taxable sales over the last decade. The City’s taxable sales, however, include business-to- business sales and have benefitted tremendously from Apple’s success. 0% 1% 2% 3% 4% 5% 6% 7% -1,000,000 -500,000 0 500,000 1,000,000 1,500,000 2,000,000 2006200720082009201020112012201320142015201620172018 YTDInventory Change Net Absorption SF Total VacancySquare FeetVacancy Rate Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 15 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 7 Taxable Retail Sales in Cupertino Source: CA Board of Equalization; Economic & Planning Systems As is the case for retail throughout the country, the nature of new retail offerings has evolved from the traditional indoor mall and strip mall formats. In Silicon Valley alone, there are a number of recently renovated retail centers, including Westfield Valley Fair located in San Jose and the Stanford Shopping Center located in Palo Alto (see case study detail below), that have set the bar high for lifestyle shopping centers that have high profile retailers, amenities, and extensive restaurant offerings that are key traits of this new retail format. That isn’t to say that there isn’t successful retail being delivered outside modern formats. However, most other retail is stand-alone and site-specific, or catering to the value-oriented or convenience market. Pipeline Projects There is nearly 1.25 million square feet of retail currently under construction countywide with another 1.03 million proposed, as seen in Table 5. As for Cupertino, data from CoStar Group indicate that one retail project is currently in the pipeline, located west of Highway 85 on Stevens Creek Boulevard. While project tenanting has not yet been disclosed, it will consist of roughly 14,500 square feet of rentable retail space. In addition, a proposal for redevelopment of the Oaks Shopping Center might bring upwards of 50,000 square feet in retail space. $0 $500,000,000 $1,000,000,000 $1,500,000,000 $2,000,000,000 $2,500,000,000 $3,000,000,000 20062007200820092010201120122013201420152016 Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 16 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Table 5 Santa Clara County Pipeline Retail Development3 Retail Conclusion Adjusting for effects of Vallco on Citywide retail real estate performance metrics, it is evident that Cupertino’s retail market is performing well with low vacancy and healthy rental rates. However, the changing nature of retail must be accounted for when considering possible retail reuse of the Vallco Site. Research and observed trends suggest that retail-dominant centers must either fit into one of two extremes, luxury or value, with the middle market struggling to compete with online retailers. Retail reuse of the Site would require unique positioning that complements rather than competes with regional and local retailers or positions retail in a mixed-use development that may fulfill local demand while providing convenience to other on-site uses. 3 As of March 8, 2018, CoStar Group reports retail pipeline development that includes phase I of Related Santa Clara (a 240-acre mixed use development). The total proposed retail square footage in the project is 1.1 million square feet at buildout. Property Type Total Sq. Ft. Proposed General Retail 344,060 Community Center 314,898 Neighborhood Center 133,258 Power Center 198,500 Strip Center 42,601 Sub-Total 1,033,317 Under Construction General Retail 367,797 Community Center 155,080 Lifestyle Center 216,855 Neighborhood Center 275,055 Power Center 214,091 Strip Center 19,360 Sub-Total 1,248,238 Total New Retail in Pipeline 2,281,555 Source: CoStar Group; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 17 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Project Profiles Westfield Valley Fair Westfield Valley Fair is a super-regional mall located in the Winchester area of San Jose. The upscale, indoor, shopping mall is anchored by Nordstrom and Macy’s. Since the Mall was first constructed, it has undergone numerous renovations and remodels. The most recent renovation is a $1.1 billion ongoing project that will expand the Center’s footprint by roughly 650,000 square feet and add an outdoor dining area, a Bloomingdales department store, a luxury cinema, and other features to enhance the walkability and lifestyle orientation of the Center.4 The Mall is host to numerous retailers, restaurants, and service providers, while also providing additional services such as valet parking, phone charging stations, and family play areas. 4 Silicon Valley Business Journal, 6/30/2017 Location 2855WinchesterBoulevard YearBuilt 1987(renovatedin2002) Jurisdiction CityofSanJose RentableBuildingArea 1,415,765SquareFeet YearBuilt 1987(renovatedin2002) Anchors Nordstrom,Macy's Vacancy 0% Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 18 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Stanford Shopping Center The Stanford Shopping Center is an open-air super-regional mall located near downtown Palo Alto on the campus of Stanford University. The upscale center is anchored by Bloomingdales, Macy’s, Neiman Marcus, and Nordstrom. The Mall recently underwent a two-year renovation that added 45 new stores along with place-making improvements such as floral planters and public fireplaces. The Center is home to numerous luxury retailers as well as alternative retail, including exercise studios, pop-up shops and varied dining options. The Center is owned and operated by Simon Property Group, an internationally recognized owner of high-end shopping and entertainment centers. Location 500Ͳ680StanfordShoppingCenter YearBuilt 1972 Jurisdiction CityofPaloAlto RentableBuildingArea 928,607SquareFeet Vacancy 0% Parking 1,910Surface,600Covered Anchors Bloomingdales,Macy's,NeimanMarcus,Nordstrom Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 19 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Main Street Cupertino Main Street Cupertino is mixed-use development located near Interstate 280, adjacent to the Vallco Site. This development includes a town square, public park and open spaces, restaurant and retail offerings, 120 residential units, a 180-room hotel, and office spaces. The development marks the first phase of Sand Hill’s plans to develop the area into a mixed-use entertainment and retail district. Location19419StevensCreekBoulevard YearBuilt 2016 Jurisdiction CityofCupertino Uses Retail,Office,Residential,Hotel RetailSq.Ft. 133,000 OfficeSq.Ft.160,000 ApartmentUnits 120(UnderConstruction) Stories 1Ͳstoryretail,4Ͳ5storiesforotheruses RetailVacancy 3% RetailParkingSpaces 350 Anchors Target Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 20 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Santana Row Santana Row is located adjacent to Westfield Valley Fair in San Jose’s Winchester neighborhood. This mixed-use development includes 680,000 square feet of ground floor retail, 622 residential units, 214 hotel rooms, and 65,000 square feet of office. Santana Row also includes an entertainment component with a six-screen movie theater. There are plans to grow the site by adding an additional 1,182 residential units, 404 hotel rooms, and 700,000 square feet of office (284,000 square feet of office currently is under construction). Location 377SantanaRow,SanJose,CA YearBuilt2002(PhaseI)ͲPresent Uses Residential,Retail,Dining,Entertainment,Hotel, PublicSpace StoriesAboveGround 4 RetailSq.Ft. 680,000(55,640planned) ResidentialUnits 622(1,182planned) TypeofUnits Lofts,Townhomes,Villas,Flats HotelRooms 220(404planned) OfficeSq.Ft. 65,000existing,284,000underconstruction(zoning approvedforanadditional226,000) ParkingSpaces 4,182 FAR 0.7 Anchors BestBuy,Crate&Barrel ThisdevelopmentincludesaasixͲscreenmovietheater,multipleparksandpublicopen spaces,andpedestrianamenitiesdevelopmenton18Ͳblockswithparkingobscuredfromsite. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 21 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Santa Clara Square Santa Clara Square, a mixed-use planned development located adjacent to Highway 101 in the City of Santa Clara, was delivered in 2016. The site’s 120,000 square foot retail component provides amenities for the 1.7 million square feet of office space and 2,000 residential units. The development is a horizontally mixed-use format with connectivity via pedestrian walkways. All offerings are highly amenitized with office spaces featuring floor-to-ceiling glass and indoor- outdoor working spaces and apartment communities featuring resort-style pools, spas and gyms as well as integrated social and co-working spaces. Location 2082ElCaminoReal,SantaClara,CA YearBuilt2016 Uses Office,Dining,Retail,Residential StoriesAboveGround Office(6/8),Retail(1),Apartment(4) RetailSq.Ft. 120,000 ResidentialUnits 2,000 TypeofUnits Apartments OfficeSq.Ft. 1.7million ParkingSpaces Office(3,600) Anchors WholeFoods(50,000sf) Economic & Planning Systems, Inc. 22 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx 4. OFFICE REAL ESTATE MARKET CONDITIONS Cupertino and the County have experienced very strong office performance as indicated by low vacancy rates. Even as the County delivered over 20 million square feet of office space in the last ten years, vacancy has decreased, indicating strong and lasting demand for office products. Despite speculation that the office market is overbuilt, trends suggest that the market has potential to grow. Roughly 22 million square feet of office space is currently in the County’s development pipeline. Market Trends Cupertino has seen minimal development of office properties over the last decade, which has resulted in consistently low vacancy rates of just 2 percent since 2015, as seen in Figure 8. Apple Campus II, completed in 2017, added 2.8 million square feet to Cupertino’s office inventory, accounting for over 30 percent of 2017 office development deliveries in Santa Clara County. Countywide, over 23 million square feet of office space has been delivered in the last decade, 36 percent of which was delivered since 2016 (see Figure 9). While the County’s office stock grew by 23 million square feet, vacancy rates fell from 2009 highs of 17 percent to current rates of roughly 10 percent. These data indicate high demand for office space throughout the region. In 2016, lease rates reached over $45 per square foot in Cupertino, slightly above the County’s average of about $42 per square foot, as seen in Figure 10. Despite some speculation that the strong Silicon Valley office market is overbuilt, given the significant new inventory and nature of economic cycles, recently observed trends and continued building suggests market confidence. A primary concern is the mismatch between housing growth and job growth, with costly and undersupplied housing posing a threat to the continued expansion of high-tech sectors in the South Bay. However, net office absorption increased last year relative to the previous year, even while the Silicon Valley market ended its seventh consecutive year of positive net absorption.5 Investor demand continues to remain strong for office product that is well-designed, strategically located, and has a long-term tenant in place. Real estate professionals do expect office rents to flatten in 2018 as a result of the significant increase in supply, especially with the delivery of developer-led speculative space.6 5 Why Silicon Valley Isn’t headed for a recession any time soon, Economist Predicts, Janice Bitters, Silicon Valley Business Journal, 2/14/2018 6 Cushman and Wakefield, Silicon Valley Office Q4 2017 Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 23 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 8 Office Lease Rates in Cupertino and Santa Clara County Source: CoStar Group; Economic & Planning Systems $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 1997199819992000200120022003200420052006200720082009201020112012201320142015201620172018 YTDCupertino Santa Clara CountyRent/Sq.Ft.(Annual, FullService) Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 24 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 9 Office Market Performance in Cupertino Source: CoStar Group; Economic & Planning Systems Figure 10 Office Market Performance in Santa Clara County Source: CoStar Group; Economic & Planning Systems 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% -1,000,000 -500,000 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 199719981999200020012002200320042005200620072008200920102011201220132014201520162017Inventory Change Net Absorption SF Total VacancySquareFeetVacancyRate0% 5% 10% 15% 20% 25% -2,000,000 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 1997199819992000200120022003200420052006200720082009201020112012201320142015201620172018 YTDInventory Change Net Absorption SF Total VacancySquareFeetVacancyRate Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 25 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Pipeline Projects There continues to be significant office projects in the pipeline for Santa Clara County. Roughly 5.6 million square feet of office space is currently under construction in Santa Clara County with another 16.7 million square feet proposed, as detailed further in Table 6. Cupertino, however, has no major office projects currently planned or under development. Table 6 Santa Clara County Pipeline Office Development Office Conclusion Cupertino has added very little new office inventory in the last decade, which is surprising when considering that office inventory in Santa Clara County grew by 23 million square feet over the same period. Given the strong business climate in the Silicon Valley and the strong observed market conditions for office real estate in Cupertino and the greater region, the Vallco Site is well positioned for office development. The Site is especially attractive given its convenient freeway access and central location in Silicon Valley. Building Address / Item Building Park / Name City Rentable Building Area Proposed Largest Building Parks 1100 Campus Way North First Campus San Jose 1,824,500 2890 N 1st St The Station on North First San Jose 1,756,200 N Shoreline Blvd Google Mountain View 1,600,000 Coleman Ave Coleman Highline San Jose 1,178,459 Wright Ave NASA Ames Research Center Moffett Field 1,100,000 Other Office Developments N/A 9,296,145 Total Office Sq.Ft. Proposed 16,755,304 Under Construction Largest Building Parks 1190 Discovery Way Moffett Towers II Sunnyvale 1,752,652 222 N Wolfe Rd Central & Wolfe Sunnyvale 777,170 1152 Bordeaux Dr Moffett Place Sunnyvale 630,544 900 Santana Row Santana Row San Jose 545,840 N 1st St Midpoint@238 San Jose 415,000 Other Office Developments N/A 1,487,907 Total Office Sq.Ft. Under Construction 5,609,113 Total Office Sq.Ft. in Pipeline 22,364,417 Sources: CoStar Group; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 26 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Project Profiles Sutter Health Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 27 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Apple (Building A) Location 5409StevensCreekBlvd,SantaClara YearBuilt2014 Uses ClassAOffice StoriesAboveGround 6 BuildingSq.Ft. 187,500 LandAcreage 2.54 ParkingFormat 640Subterranean,19Surface ParkingSpaces 659 ParkingRatioper1,000Sq.Ft. 3.30 AverageLeaseRates(perSq.Ft.) OwnerOccupied OccupancyRate 100% Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 28 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Main Street Cupertino Economic & Planning Systems, Inc. 29 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx 5. RESIDENTIAL REAL ESTATE MARKET CONDITIONS While Cupertino has seen little multifamily development over the last decade, rental rates and performance metrics suggest a healthy market. The 2014 delivery of Nineteen800 and the development of the Lofts at Main Street reveal potential for mixed-use residential development. Additionally, the statewide housing crisis has magnified effects on Silicon Valley’s housing market due to the influx of jobs and investment without a commensurate increase in housing supply, leading to lengthy commutes and a constrained talent supply for local businesses. Most of the region’s new multifamily housing supply caters to the upscale market. Real estate professionals predict that multifamily demand will remain strong as the region remains under-supplied and job growth remains positive.7 Residential Permitting The issuance of single-family residential building permits in the City of Cupertino has been relatively steady over the last decade, with annual permits for units in single-family structures ranging from 20 to 80 permits per year. While historically Cupertino has not delivered many multifamily units, there was an uptick in 2013 that marked the first multifamily building permitting in five years, as seen in Figure 11. Cupertino appears to be building relatively less residential units than its neighbors. In Santa Clara County, residential building permits increased sharply after the 2008 recession, with multifamily building permits increasing by nearly 90 percent over 2009 lows, as seen in Figure 12. Over ten years, the total building permits issued in Cupertino (roughly 870) account for just over 1 percent of the County total. Cupertino has issued 66 percent single-family permits, as compared to the County’s 28 percent. Figure 13 illustrates building permit trends in selected Cities proximate to Cupertino. Despite the relatively low level of housing production in Cupertino, it is likely that these data reveal City policy and planning for housing, more so than market demand. 7 Will 2018 Be another Good Year for Multifamily, Julie Littman, Bisnow Bay Area, 1/3/2018 Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 30 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 11 Residential Building Permits in Cupertino Source: State of the Cities Data System Building Permits Database (HUD USER); Economic & Planning Systems, Inc. Figure 12 Residential Building Permits in Santa Clara County Source: State of the Cities Data System Building Permits Database (HUD USER); Economic & Planning Systems, Inc. 0 20 40 60 80 100 120 140 20062007200820092010201120122013201420152016Permits for Units in Single Family Structures Permits for Units in Multifamily StructuresNumber ofBuildingPermitsIssuedPerYear0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 20062007200820092010201120122013201420152016Permits for Units in Single Family Structures Permits for Units in Multifamily StructuresNumber of Building Permits Issued Per Year Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 31 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 13 Total Residential Building Permits in Selected Jurisdictions Source: State of the Cities Data System Building Permits Database (HUD USER); Economic & Planning Systems, Inc. Market Trends Multifamily Rental Product Delivery of new inventory has been modest and residential demand has put upward pressure on rental rates, with average monthly rent per square foot currently at $3.08, an increase of roughly 40 percent since recessionary lows of 2009, as shown in Figure 14. New product rents for roughly $3.50 to $3.80 per square foot. Rental rates in Cupertino have remained roughly 10 percent above the Santa Clara County average, although, the County has seen much greater development over the same period. While Cupertino added just 204 rental units since 2008, Santa Clara County has delivered about 27,600 units while exhibiting relatively consistent vacancy rates hovering around 5 percent, as seen in Figures 15 and 16. 0 100 200 300 400 500 600 700 800 900 1,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Cupertino Campbell Mountain View Palo Alto SunnyvaleNumber of Building Permits Issued Per Year Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 32 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 14 Average Multifamily Rental Rate per Square Foot in Cupertino and Santa Clara County Source: CoStar Group; Economic & Planning Systems, Inc. Figure 15 Multifamily Market Performance in Cupertino Source: CoStar Group; Economic & Planning Systems, Inc. $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 2000200120022003200420052006200720082009201020112012201320142015201620172018 YTDCupertino Santa Clara CountyRent / Sq.Ft.0% 1% 2% 3% 4% 5% 6% 7% 8% -200 -150 -100 -50 0 50 100 150 200 250 200020012002200320042005200620072008200920102011201220132014201520162017Inventory Change Net Absorption Units VacancySquare FeetVacancy Rate Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 33 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 16 Multifamily Market Performance in Santa Clara County Source: CoStar Group; Economic & Planning Systems, Inc. Multifamily For-Sale Market Cupertino has a number of condominium developments, including within mixed-use projects and in traditional residential communities. Condominium units have an average valuation of nearly $1.2 million as of 2017, which marks a 120 percent increase since 2012, as seen in Figure 17. The existing condominium units in the City are all relatively low-density, with no projects identified over four stories. 0% 1% 2% 3% 4% 5% 6% 7% 8% -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 1997199819992000200120022003200420052006200720082009201020112012201320142015Inventory Change Net Absorption Units VacancySquareFeetVacancyRate Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 34 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 17 Value of Condominium (For-Sale) Units in Cupertino Source: Zillow Data; Economic & Planning Systems, Inc. Pipeline Projects Cupertino has two multifamily projects under construction and another two proposed, while Santa Clara County has 9,900 units under construction and another 17,700 units proposed, as seen in Table 7. The residential portion of Main Street Cupertino, which is currently under construction, will add roughly 120 units. Additionally, a multifamily development located at 10121 N Foothill Blvd is nearing completion, which will add another 15 units to the City’s housing stock. Two projects proposed for Cupertino, the Hamptons and Marina Plaza, are part of larger mixed-use developments and could potentially add a cumulative 1,130 units by 2020, if approved and constructed. $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 2000Ͳ012000Ͳ082001Ͳ032001Ͳ102002Ͳ052002Ͳ122003Ͳ072004Ͳ022004Ͳ092005Ͳ042005Ͳ112006Ͳ062007Ͳ012007Ͳ082008Ͳ032008Ͳ102009Ͳ052009Ͳ122010Ͳ072011Ͳ022011Ͳ092012Ͳ042012Ͳ112013Ͳ062014Ͳ012014Ͳ082015Ͳ032015Ͳ102016Ͳ052016Ͳ122017Ͳ07 Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 35 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Table 7 Santa Clara County Pipeline Multifamily Development Residential Conclusion While Cupertino has historically offered primarily low-density housing product, the recent completion of Apple Campus II and the ongoing economic activity in Silicon Valley have intensified the need for housing at a local and regional scale. In the last decade, Cupertino has added just 200 units in multifamily rental projects, even while experiencing high rental rates and consistently low vacancy. Observed multifamily performance trends in the City and County suggest that the Vallco Site could successfully accommodate residential uses and support denser housing formats than are currently offered in the City. Building Status # of Projects # Of Units Rentable Building Area Campbell Under Construction 2 135 115,400 Cupertino Proposed 2 1,130 1,047,800 Under Construction 2 135 120,504 Gilroy Under Construction 2 100 245,000 Milpitas Proposed 3 1,633 1,529,200 Under Construction 4 1,815 1,989,390 Morgan Hill Proposed 1 61 70,000 Under Construction 13 228 672,113 Mountain View Proposed 9 2,715 3,048,330 Under Construction 6 1,651 1,624,981 Palo Alto Proposed 2 64 91,600 San Jose Proposed 35 8,519 7,819,019 Under Construction 16 3,128 2,908,889 Santa Clara Proposed 9 2,434 2,206,801 Under Construction 2 2,476 1,894,000 Sunnyvale Proposed 6 1,152 1,557,211 Under Construction 3 198 406,310 TOTAL Proposed 67 17,708 17,369,961 TOTAL Under Construction 50 9,866 9,976,587 TOTAL Pipeline 117 27,574 27,346,548 Source: CoStar Group; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 36 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Project Profiles Nineteen800 Location 19800VallcoPkwy,Cupertino YearBuilt2014 Uses 47,228squarefeetofgroundfloorretail/ residentialabove StoriesAboveGround 6 BuildingSq.Ft. n/a LandAcreage n/a Units 204 AverageUnitSize(Sq.Ft.) 1,356 ParkingFormat surface/subterranean ParkingSpaces* 896 ParkingRatioperUnit 4.39 AverageLeaseRates(perSq.Ft.) $3.59 OccupancyRate 96.1% SalePrice/Date n/a *Includesparkingforcommercialuses Amenitiesavailabletoresidentsincludeatheater,aconferenceroom,ayogaroom, gameroom,fitnessroom,sharedkitchen&diningfacilitiesaswellasanoutdoor playground,firepit,dogͲwashingarea,andmultiplebarbeques. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 37 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Main Street Cupertino Lofts Location 19550VallcoPkway,Cupertino YearBuilt2018 Uses 10,000sq.ft.ofretail/residential StoriesAboveGround 4 BuildingSq.Ft. 100,000 LandAcreage 1.60 Units 120 AverageUnitSize(Sq.Ft.) 1,031 ParkingFormat 2levelsofsubterranean TheprojectisorganizedaroundacentralcourtyardwhichincludesaBBQareaand outdoormovietheater. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 38 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Sunnyvale Loft House Apartments Location 150STaaffeSt,Sunnyvale YearBuilt2014 Uses 6,891sq.ft.ofgroundfloorretail/ residentialabove StoriesAboveGround 5 BuildingSq.Ft. 146,000 LandAcreage 1.59 Units 133 AverageUnitSize(Sq.Ft.) 924 ParkingFormat 2levelsofsubterraneanparking ParkingSpaces 235 ParkingRatioperUnit 1.77 AverageLeaseRates(perSq.Ft.) $4.18 OccupancyRate 94% SalePrice/Date $104,000,000/June17,2017 Thepropertyincludesasundeckwithapoolsidebar,socialLoungewithfiresideretreat, complimentaryWiͲFi,businesscenter,modernfitnesscenter,carchargingstation,pubͲ stylebilliardsroom,residentbikestorage,andoutdoorgrill/diningarea. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 39 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Oakwood Location 881EElCaminoReal,MountainView YearBuilt2015 Uses residential StoriesAboveGround 4 BuildingSq.Ft. 130,000 LandAcreage 2.31 Units 149 AverageUnitSize(Sq.Ft.) 868 ParkingFormat Subterranean ParkingSpaces 153 ParkingRatioperUnit 1.03 AverageLeaseRates(perSq.Ft.) n/a OccupancyRate n/a SalePrice/Date $110,000,000/December9,2015 Thispropertyincludesabusinesscenter,fitnesscenter,conferenceroom,centralcourt yard,pool/jacuzzi,petplayarea,andbikestorage. Economic & Planning Systems, Inc. 40 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx 6. HOTEL MARKET CONDITIONS Over the last couple years, Silicon Valley has experienced strong demand for visitor accommodations, generated primarily by the strong and growing regional economy. As of 2017, Silicon Valley8 had a hotel inventory of roughly 46,800 rooms across 420 properties.9 The market experienced year-over-year RevPAR (revenue per available room) growth in the period from 2010 to 2016, with just minor slow-downs in occupancy and daily room rates over those years, mostly attributable to new supply. 10 As of early 2017, Silicon Valley hotel occupancy stood at 78 percent with average daily rates at roughly $203 and RevPAR at $158.11 With demand for accommodations in this market primarily driven by business travel, many operators reported being fully booked on Tuesdays and Wednesdays with average annual occupancy rates at over 91 percent on Tuesdays and Wednesdays.12 Furthermore, hotel demand appears fairly consistent year-round, February to October, with some declines over the Holiday months. The City of Cupertino has six existing hotels, as depicted in Figure 18, with one hotel currently under construction and located on the Project Site. These six hotels supply the City with roughly 970 rooms and range in scale from Upscale to Upper Upscale, as defined by Smith Travel Research, seen in Table 8. Furthermore, the City’s existing hotels have experienced remarkable performance over the last year with average occupancy rates over 80 percent and room rates averaging $223 per night, as seen in Table 9. These data suggest that the City could absorb more demand, though there are two hotels in the City’s development pipeline. In the long-run, the addition of more accommodation options likely will be supported by the local and regional market at the Vallco Site. Hotel Conclusion Cupertino’s hotel market has seen markedly high occupancy rates and strong room rates in recent years. The City’s hotels primarily cater to business travelers and demand remains fairly consistent year-round. There are likely additional opportunities for well-positioned hotels to satisfy future visitor needs over the longer term. 8 Silicon Valley defined here as southern portion of San Francisco Bay, including San Mateo County, Santa Clara County and portions of Alameda County. 9 HVS Market Pulse: Silicon Valley 10 HVS Market Pulse: Silicon Valley 11 Development demand has Silicon Valley hotels trending, Bryan Wroten, Hotel News Now, 4/6/2017 12 Smith Travel Research average for Silicon Valley Hotels in 2017, excluding economy and midscale offerings. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 41 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Figure 18 Cupertino Hotels Table 8 Hotel Inventory in Cupertino Hotel Address Chain Scale1 Rooms Existing Cupertino Inn (Cupertino Hotel) 10889 N. De Anza Blvd. Upper Upscale 128 Hilton Garden Inn 10741 N. Wolfe Rd. Upscale 164 Marriott Courtyard 10605 N. Wolfe Rd. Upscale 149 Juniper Hotel by Curio 10050 S. De Anza Blvd. Upper Upscale 224 Aloft Cupertuno Hotel 10165 N. De Anza Blvd. Upscale 123 Residence Inn by Marriott 19429 Stevens Creek Blvd. Upscale 180 Total 968 Under Construction Hyatt House 10380 Perimeter Road (Vallco Park) Upscale 148 Total, All Hotels 1,116 1STR Categorization Source: Westport Cupertino Hotel Proposal, 2017; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 42 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Table 9 Cupertino Hotel Performance (2017) Hotel Chain Scale1 Occupancy Estimate2 Avg. Rate Estimate2 Meeting Space (SF)2 Existing Cupertino Inn (Cupertino Hotel) Upper Upscale 81% $200 1,720 Hilton Garden Inn Upscale 83% $210 1,650 Marriott Courtyard Upscale 82% $215 1,248 Juniper Hotel by Curio Upper Upscale 80% $260 4,897 Aloft Cupertuno Hotel Upscale 80%$230 1,101 Residence Inn by Marriott Upscale - - 4,138 Total/Average 81% $223 2,459 1STR Categorization Source: Westport Cupertino Hotel Proposal, 2017; Economic & Planning Systems, Inc. 2Market Study and Product Recommendation, Proposed Westport Cupertino Hotel, Hospitality Link International, Inc; Economic & Planning Systems, Inc. Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 43 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Project Profiles Residence Inn The Residence Inn, opened in October 2017, is located within the Main Street Cupertino development. This new extended stay hotel includes 180 guest rooms featuring kitchenettes with limited cooking equipment, an on-site fitness center, and over 4,000 square feet of meeting space. The hotel offers studio, one-bedroom, and two-bedroom suites that are designed for extended stays of five-nights or more.13 This hotel is primarily marketed towards employees relocating to the area for a limited time or seeking interim accommodations as they find more permanent housing, and thus, is uniquely positioned amongst the other Cupertino hotel offerings. 13 Residence Inn Hotel Opened in Cupertino, Travel Daily News, October 27, 2017 Location 19429StevensCreekBlvd,Cupertino,CA95014 YearBuilt2017 NumberofRooms 180 HotelType/Class ExtendedStay Amenities kitchenettes,fitnesscenter,meetingspace Vallco Special Area Real Estate Market Assessment Report 05/14/18 Economic & Planning Systems, Inc. 44 P:\171000s\171128_VallcoSP\Deliverables\Market\171128 VSA PMA REPORT.docx Aloft Cupertino Aloft Cupertino, a 123-room hotel, was well-received upon opening in 2013 due to its unique technology-focused positioning. The hotel features robotic butlers that act as a guest concierge, delivering extra towels to guestrooms or assisting hotel employees with tasks in the back of house. Additionally, the hotel offers amenities like apple-TVs in every room, keyless door entry, 1,100 square feet of meeting space, an on-site gym, live-music at their branded W XYZ bar and an on-site café. The hotel has seen consistently strong performance metrics with estimated occupancy of roughly 80 percent and average daily room rates of about $230 in 2016.14 14 Market Study and Product Recommendation, Proposed Westport Cupertino Hotel, Hospitality Link International, Inc; Economic & Planning Systems, Inc. Location 10165NDeAnzaBlvd,Cupertino,CA95014 YearBuilt2013 NumberofRooms 123 HotelType/Class Upscale Amenities ocus,meetingspcae,fitnesscener,restaurantandbar AverageOccupancy 80% AverageRoomRate 230 EXHIBIT & 9DOOFR3URSHUW\2ZQHU//& 3DJH -XQH BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB 7R9DOOFR3URSHUW\2ZQHU//& $WWQ 5HHG0RXOGV0DQDJLQJ'LUHFWRU )URP 7KH&RQFRUG*URXS 'DWH-XQHVW 5H $QDO\VLVRI&RVW5HGXFWLRQV$VVRFLDWHGZLWK5HGXFHG5HWDLOLQ9DOOFR7RZQ&HQWHU3URMHFW BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB 9DOOFR3URSHUW\2ZQHU//& ³932´ LVSXUVXLQJWKHUHGHYHORSPHQWRIWKH9DOOFR6KRSSLQJ&HQWHULQ&XSHUWLQR &DOLIRUQLD WKH³6LWH´ DQGRQ0DUFKWKRIWKLV\HDUVXEPLWWHGDPL[HGXVHSURMHFWNQRZQDV³9DOOFR7RZQ&HQWHU´ $VSDUWRIWKDWDSSOLFDWLRQ932KDVUHTXHVWHGD³FRQFHVVLRQ´XQGHUWKH6WDWH'HQVLW\%RQXV/DZWRDOORZWKHSURMHFW WRLQFOXGHVTXDUHIHHWRIUHWDLOUDWKHUWKDQWKHQRUPDOO\UHTXLUHGDPRXQWRIVTXDUHIHHW,QRUGHUWR TXDOLI\XQGHUWKHODZDFRQFHVVLRQPXVWUHVXOWLQLGHQWLILDEOHDQGDFWXDOFRVWUHGXFWLRQV7KHSXUSRVHVRIWKLVUHSRUW LVWRGRFXPHQWWKHFRVWUHGXFWLRQVWKDWZLOOEHDFKLHYHGE\EXLOGLQJVTXDUHIHHWRIUHWDLOLQVWHDGRI VTXDUHIHHW2XUDQDO\VLVZDVIRFXVHGRQ  ,GHQWLI\LQJWKHLGHDOPDUNHWGULYHQVFDOHRIUHWDLOGHYHORSPHQWRQWKHVLWHDQG  &RPSDULQJNH\PHWULFVUHJDUGLQJFRVWVIHDVLELOLW\DQGPDUNHWULVNVRSSRUWXQLWLHVRIWKHVTXDUH IHHWRIUHWDLOLQFOXGHGLQWKH9DOOFR7RZQ&HQWHUSODQYHUVXVWKHVTXDUHIHHWRIUHWDLOVSHFLILHG LQWKH*HQHUDO3ODQIRUWKH6LWH 7KHIROORZLQJPHPRUDQGXPDQGWHFKQLFDODSSHQGL[H[KLELWVDWWDFKHGRXWOLQH7KH&RQFRUG*URXS¶V ³7&*´ ILQGLQJV DQGFRQFOXVLRQV 0DUNHW)HDVLELOLW\$QDO\VLV'HSWKRI'HPDQGDQGWKH&KDQJLQJ1DWXUHRI5HWDLO x Market Areas:)RUDOOUHWDLOSURGXFWWKH5HWDLO7UDGH$UHD 57$ UHSUHVHQWVWKHJHRJUDSKLFVRXUFHRI FRPSHWLWLYHVXSSO\)RUWKHVXEMHFWSURSHUW\WKH57$LVGHILQHGDV]LSFRGHVHIIHFWLYHO\FRYHULQJWKH&LW\ RI&XSHUWLQRSDUWVRI6XQQ\YDOHDQGSDUWVRI6DQWD&ODUD:KLOHPDUNHWDFWLYLW\LQWKH3ULPDU\0DUNHW$UHD ³30$´ HVSHFLDOO\DWNH\UHWDLOFHQWHUVVXFKDV:HVWILHOG¶V9DOOH\)DLUDQG6WDQIRUG6KRSSLQJ&HQWHUZLOO LQIOXHQFHUHWDLOGHPDQGDWWKH6LWHIXWXUHSRWHQWLDOUHWDLOWHQDQWVDWWKH6LWHFDQH[SHFWWRFRPSHWHGLUHFWO\ ZLWKRWKHUUHWDLOSURGXFWZLWKLQWKH57$(See map of the RTA and PMA below and in Exhibits 1 and 2) 9DOOFR3URSHUW\2ZQHU//& 3DJH -XQH x Retail Market Performance7KH57$LVFXUUHQWO\KRPHWRSHRSOH00VTXDUHIHHWRIUHWDLOVSDFH DQGPRUHWKDQ%LOOLRQRIDQQXDOUHWDLOVDOHV o :LWKRQJRLQJVWURQJMREJURZWKLQWKHUHJLRQWKH57$LVH[SHFWHGWRDGGPRUHWKDQSHRSOH HDFK\HDUWKURXJK o $VDKLJKDIIOXHQFHDUHDSUR[LPDWHWRWKHFLWLHVRI6DQ)UDQFLVFRDQG6DQ-RVHDQGWKHLUG\QDPLF UHWDLORIIHULQJVWKH57$FXUUHQWO\VHHVOHDNDJHRIUHWDLOH[SHQGLWXUHV$OWKRXJK%RIUHWDLO VSHQGLQJLVGRQHE\KRXVHKROGVZLWKLQWKH57$RQO\%LVVSHQWLQWKHDUHD7KHODUJHVWOHDNDJH FRPHVIURPODUJHIRUPDWELJER[RUHFRPPHUFHVDOHVFDWHJRULHVWKDWKDYHEHHQFRQFHQWUDWHGDQG SXVKHGRXWRIWKH57$JLYHQWKHUHRUJDQL]DWLRQRIFRQVXPHUEHKDYLRUVDQGSUHIHUHQFHVRYHUWKH SDVWVHYHUDOGHFDGHV o 7KH57$KDVVHHQnetDEVRUSWLRQRIRQO\VTXDUHIHHWRYHUWKHSDVW\HDUDQGnegative net DEVRUSWLRQ IRU VHYHQ RXW RI WKH SDVW WHQ \HDUV DJDLQ D V\PSWRP RI UHWDLO UHRUJDQL]DWLRQ FRQVROLGDWLRQDQGHFRPPHUFHLPSDFWLQJWKHODQGVFDSH o $WFXUUHQWYDFDQFLHVLQWKH57$VLWDWVLJQLILFDQWO\KLJKHUWKDQWKHDFURVVWKH30$ DVDZKROH o 5HWDLOUHQWVKDYHJURZQVORZO\RYHUWKHSDVWGHFDGHKLWWLQJLQFUHDVHVRISHU\HDU o 6HH([KLELWV IRUPRUHGHWDLO x Changing Nature of Retail(FRPPHUFHKDVFUHDWHGVHLVPLFVKLIWLQWKHUHWDLOLQGXVWU\.$FFRUGLQJWRWKH &HQVXV%XUHDXDQGWKH86'HSDUWPHQWRI&RPPHUFHWKHVKDUHRIDOOUHWDLOVSHQGLQJFRQGXFWHGRQOLQHKDV JURZQIURPLQWRWKLV\HDUZLWKIXUWKHUJURZWKWRSURMHFWHGWKURXJK,QUHDO WHUPVWKLVUHSUHVHQWVDFXPXODWLYHdropRIUHWDLOVSDFHGHPDQGHGE\WKHPDUNHWSODFHDVVDOHV DQGUHVXOWLQJ LQYHQWRULHVIXOILOOPHQWHWF PRYHLQFUHDVLQJO\RQOLQH o Despite a growing population, the impact of this further ecommerce growth will mean a negative demand of 390,000 square feet of retail through 2023. See Exhibit 4 for more detail. o (FRPPHUFHFRQVROLGDWLRQDQGHURGLQJGHPDQGIRUWUDGLWLRQDOPDOOVVKRSSLQJFHQWHUVDQGNH\ WHQDQWVKDYHLPSDFWHGDZLGHYDULHW\RIUHWDLOVSHQGLQJFDWHJRULHV7KHUHVXOWLVDVPDOOOLVWRI protected UHWDLO VSHQGLQJ FODVVHVFDWHJRULHV WKDW RIIHU H[SHULHQWLDO LPPHGLDWH RU HQWHUWDLQPHQW RSSRUWXQLWLHVVXLWDEOHIRULQFOXVLRQLQDVWFHQWXU\UHWDLOSURMHFWPRVWQRWDEO\)RRGDQG%HYHUDJH +HDOWK3HUVRQDO&DUH:HOOQHVV)LWQHVV,QWHUHVWLQJO\WKHVH±DQGUHODWHG±FDWHJRULHVPDNHXS RIDOOUHWDLOVSHQGLQJLQWKHUHJLRQThese categories constitute the Site’s true target retail tenant types and shall be referred to in this report as “Key Categories”; project sizing decisions should ultimately be made based on the extent of demand from the Key Categories. x Developer Reactions, Mixed Use Communities and Real World Examples:$VWKHEXLOWHQYLURQPHQWDGMXVWV WRWKHQHZUHWDLOUHDOLW\GHYHORSHUVDUHUHDFWLQJWRVWD\DKHDGRIWKHWUHQGVDQGEXLOGIRUWKHQHZZRUOG 7KHUHDUHFOHDUH[DPSOHVLQWKH6)%D\$UHDDORQH o 1RWIDUIURPWKH6LWHDODUJHGHYHORSHULVSXUVXLQJWKHGHYHORSPHQWRIDODUJHPL[HGXVHPDVWHU SODQQHGFRPPXQLW\ 2ULJLQDOO\FRQWHPSODWLQJ00VTXDUHIHHWRIUHWDLODQFKRUHGE\KLJKHQG GHSDUWPHQWVWRUHVDPRQJVWVLJQLILFDQWRIILFHKRWHODQGUHVLGHQWLDOVSDFHWKHGHYHORSHULVFXUUHQWO\ UHZRUNLQJWKHUHWDLOSODQWRIRFXVRQ)RRGDQG%HYHUDJH(QWHUWDLQPHQW8VHVDQGUHGXFLQJWKH RYHUDOOUHWDLOIRRWSULQWE\DVPXFKDV o 0DFHULFKKDVUHFHQWO\H[LWHGWKH-9$JUHHPHQWRQ&DQGOHVWLFN3RLQWUHGHYHORSPHQW2ULJLQDOO\ SODQQHGIRUVTXDUHIHHWRIODUJHIRUPDWUHWDLOLQD-9EHWZHHQ)LYHSRLQWDQG0DFHULFKWKH PDOOGHYHORSPHQWZLOOQRORQJHUPRYHIRUZDUGGXHWRFRQFHUQVDERXWWKHPDFURHFRQRPLFUHWDLO HQYLURQPHQW o 6HH([KLELWIRUPRUHGHWDLO x Retail Demand Forecast:7&*KDVFRQGXFWHGDGHPDQGRSSRUWXQLW\DQDO\VLVIRUQHZUHWDLOLQWKH57$RYHU WKHQH[W\HDUVDUHDVRQDEOHWLPHIUDPHIRUWKHEXLOGRXWRIRIWKHUHWDLOFRPSRQHQWRIWKH9DOOFR 7RZQ&HQWHUSURMHFW'HPDQGLVPDGHXSRIWZRFRPSRQHQWSDUWV o ³&ODZEDFN´RIUHWDLOVSHQGLQJFDWHJRULHVFXUUHQWO\OHDNLQJWRRWKHUMXULVGLFWLRQVJLYHQODFNRI FRQWHPSRUDU\SURGXFWNH\WHQDQWVRUKRXUHQYLURQPHQWV ƒ7KLVDQDO\VLV\LHOGVDFXPXODWLYHGHPDQGIRUVTXDUHIHHWRYHUWKHQH[WILYH\HDUV RIZKLFKVTXDUHIHHWLVLQWKH.H\&DWHJRULHV ƒ6HH([KLELW3DJH o 'HPDQGUHVXOWLQJIURPQHZKRXVHKROGDQGSRSXODWLRQJURZWK1HZSHRSOHEULQJQHZVSHQGLQJ DQGGHPDQGIRUQHZUHWDLOVSDFH 9DOOFR3URSHUW\2ZQHU//& 3DJH -XQH ƒ7KLVDQDO\VLV\LHOGVDFXPXODWLYHGHPDQGIRUVTXDUHIHHWRIUHWDLOWKURXJK DQGVTXDUHIHHWLQWKH.H\&DWHJRULHV ƒ6HH([KLELW3DJH o All told, TCG forecasts the total demand throughout the entire RTA for the next 5 years to be 629,000 square feet of all retail types and 411,000 square feet in Key Categories. x Retail Demand Capture:*LYHQWKHQDUURZLQJRIOLNHO\WHQDQWW\SHVDQGWKHVXUJHLQRQOLQHVSHQGLQJRQWKH WHQDQWVLGHFRPSHWLWLRQLVDQGZLOOFRQWLQXHWREHILHUFHIRUVDOHVLQWKH.H\&DWHJRULHV)XUWKHUPRUHRQWKH ODQGORUGVLGHWKH6LWHZLOOEHFRPSHWLQJZLWKRWKHUUHWDLOGHYHORSPHQWVLQWKH57$IRUWKLVWRWDOUHWDLODQG .H\&DWHJRU\IRUHFDVWHGGHPDQG*LYHQDOORIWKLV±DQGWKHUHDOSLSHOLQHWKDWZLOOFRPSHWHIRUFXVWRPHUV DFURVVWKHUHJLRQXVLQJVLPLODUFRQFHSWVDQGDQFKRUV±it is unreasonable to assume the subject property could capture 95-100% of the 629,000 square feet net new demand in the RTA for each of the next 5 years. x Recommended Retail Footprint: TCG believes it is appropriate to assume the Site will capture between 60% and 65% of the total retail demand in the RTA over the next 5 years. Given the above factors, TCG believes the Site can absorb ±400,000 square feet of retail (approximately 63% total forecasted retail demand) during its development period and recommends no more than 400,000 square feet as the project’s retail footprint. &RVW5HGXFWLRQVTIWYVVTIW x ,QVLPSOHWHUPVEXLOGLQJOHVVUHWDLOVSDFHLQWKHSURMHFWZRXOGVLJQLILFDQWO\UHGXFHWKHSURMHFW¶VRYHUDOOFRVWV &RQVWUXFWLRQFRVWVIRUUHWDLOFRPSRQHQWVZLWKLQGHQVHPL[HGXVHUHVLGHQWLDORIILFHRYHUUHWDLOSURMHFWVZLWK SDUNLQJFXUUHQWO\UHDFKXSZDUGVRISHUVTXDUHIRRWexcluding land DVUHFHQWO\DWWHVWHGWRE\WKH&LW\ RI&XSHUWLQR¶VHFRQRPLFFRQVXOWDQW(FRQRPLF 3ODQQLQJ6\VWHPV,QF  o Using a conservative $770 per gross square foot cost, a reduction of 200,000 square feet of retail would generate a primary cost reduction of $154,000,000. x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o )XQGDERYHPDUNHWFDVKFRQWULEXWLRQVWRZDUGDWHQDQW¶VLPSURYHPHQWRIWKHVSDFH o 'HOLYHUUHWDLOVSDFHVLQ³WXUQNH\´FRQGLWLRQUHOLHYLQJWKHWHQDQWIURPKDYLQJWRSD\IRUVXFK LPSURYHPHQWVZKLFKDUHW\SLFDOO\WHQDQWFRVWV o 3D\H[WUDRUGLQDULO\ODUJHOHDVLQJFRPPLVVLRQVWREURNHUVZKRSURFXUHUHWDLOWHQDQWV o 'LVFRXQWWKHSURMHFW¶VUHQWDOUDWHVEHQHDWKW\SLFDOPDUNHWUDWHVLQRUGHUWRDWWUDFWWHQDQWV Both options (1) and (2) to contend with the surplus 200,000 square feet of retail would result in (i) extraordinarily high “carry” costs and operating losses and (ii) extraordinarily high lease transaction and construction costs. Assuming the typical soft cost per square foot of the retail component in a typical mixed-use project is approximately $150, TCG estimates the soft costs for the incremental 200,000 square feet of surplus retail would be at least double the typical cost, or $300 per square foot, and that such incremental costs would be 100% unrecoverable, which is to say they will not be recovered nor will they generate any return on investment, a pure loss. As such, the 400,000 square feet retail project will result in an incremental cost reduction of approximately $60,000,000 in soft costs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111:(O&DPLQR5HDO:(O&DPLQR5HDO 6XQQ\YDOH   V *HQHUDO5HWDLO 6WULS&HQWHU )UHHVWDQGLQJ      111 6DUDWRJD$YH 6DUDWRJD$YH 6DQ-RVH   V *HQHUDO5HWDLO 6WULS&HQWHU )UHHVWDQGLQJ      1117RWDOV      1116RXUFH&R6WDU57$&RPSV&RPSV7KH&RQFRUG*URXS EXHIBIT ' Vallco Property Owner, LLC Page 1 August 2019 19446.00 _____________________________________________________________________________ Memorandum To:Vallco Property Owner, LLC From:The Concord Group Date:August 19, 2019 Re:Feasibility Impact of a Revised General Plan Scenario for the Vallco Redevelopment in Cupertino, California ___________________________________________________________________________________________ Vallco Property Owner, LLC (“VPO”) is pursuing the redevelopment of the site of the Vallco Fashion Mall (the "Vallco Site"), a 51-acre site located in Cupertino, California. The City of Cupertino (“City”) is currently entertaining a General Plan amendment that will effectively downzone the Vallco Site. VPO has retained The Concord Group (“TCG”) to assesses the financial feasibility of the proposed amended General Plan Scenario. The review described herein evaluates the feasibility of a program from a report issued by Hausrath Economics Group (“HEG”) using TCG’s more recently collected data and assumptions. It also evaluates two other scenarios in which VPO develops the full 51-acre Vallco site instead of the smaller 13.1 acre site evaluated in the HEG study. The following represent our key preliminary conclusions: Scenarios and Evaluation Methods In the following report, TCG evaluated the three scenarios shown below. The first scenario is the program described in the HEG report. TCG conducted its own evaluation of this program using three different methods. 1. The first replaces HEG’s assumed revenue from BMR condominiums (taken from an earlier report by Economic and Planning Systems (“EPS”) with TCG’s own calculated revenue. TCG’s methodology is detailed in the attached report; it calculates the affordable price for median and moderate income households using methods outlined in City policy and Program Comparison HEG Program VPO Scenario 1 VPO Scenario 2 Apartment Market Rate 0 0 0 BMR Apartment 0 0 0 Condominium Market Rate 390 1,512 390 BMR Condo 69 267 69 Traditional Office 000 Reta il Traditional 25,000 480,000 480,000 Entertainment 120,000 120,000 Hotel 000 Vallco Property Owner, LLC Page 2 August 2019 19446.00 used by Hello Housing, the organization that administers Cupertino’s BMR Purchase Program. 2. The second replaces HEG’s assumed building construction costs with TCG’s assumed costs. TCG’s assumptions average the cost estimates provided by three third-part developers currently building condominium units in the South Bay. 3. The third method uses both TCG’s BMR revenue assumptions and construction cost assumptions. All three of the above evaluation methods use the horizontal site costs described in the HEG report. The latter two scenarios are evaluated using TCG BMR revenue assumptions and construction cost assumptions, as well as horizontal site cost estimates that reflect the development of 51 acres in place of 13.1 acres. Overall Conclusions and Impact Tables Using the assumptions from the 2018 EPS report, Hausrath concluded that the project had a positive residual of about $1MM. TCG’s evaluation found a negative residual under every scenario. TCG’s determination of affordable purchase price for BMR units was a little over half the value of EPS’ estimate. This led to a negative residual value for the product type as opposed to a positive one and rendered the project underwater by $22MM. TCG’s cost estimates, derived from those of third-party developers, were also much higher than EPS assumptions leading to a negative project residual of $112MM. Together these assumption corrections led to a decidedly infeasible project, with a total negative residual of $135 MM. TCG also evaluated two scenarios where VPO developed the full 51-acre site. Even if VPO were to build a smaller program, several of the possible options for site placement would make it necessary for the developer to demolish and prepare much larger portions of the Vallco site. Assuming that they incurred horizontal costs for the entire 51-acre site, built out all of the entitled 600,000 SF of retail, and the entitled 459 condominium units, the project would be underwater by $271 MM. HEG Program VPO Program HEG Evaluation BMR Revenue Change Construction Cost Change BMR and Cost Change Scenario 1 Scenario 2 Land Use Program Value Program Resulting Value Program Resulting Value Program Resulting Value Program Resulting Value Program Resulting Value Apartment Market Rate 0 $00$00$00$00$00$0 BMR Apartment0 $00$00$00$00$00$0 Condominium Market Rate 390 $139,165,260 390 $139,147,978 390 $40,535,076 390 $40,535,076 1512 $157,151,371 390 $40,535,076 BMR Condo 69 $8,140,896 69 ($15,467,422)69 ($6,480,115)69 ($29,905,451)267 ($115,721,094)69 ($29,905,451) Traditional Office 0 $00$00$00$00$00$0 Reta il 25,000 $550,000 25,000 $553,599 25,000 $553,599 25,000 $553,599 600,000 ($33,197,505)600,000 ($33,197,505) Traditional 25,000 $550,000 25,000 $553,599 25,000 $553,599 25,000 $553,599 480,000 $10,608,580 480,000 $10,608,580 Entertainment 0 $0 0 $0 0 $0 0 $0 120,000 ($43,806,085)120,000 ($43,806,085) Hotel 0 $00$00$00$00$00$0 Residual Value Before Site Costs/Fee Credits $147,856,156 $124,234,155 $34,608,560 $11,183,224 $8,232,772 ($22,567,880) Site Costs/ Fee Credits ($53,613,952) ($53,613,952) ($53,613,952) ($53,613,952) ($125,071,293) ($125,071,293) VPO's Approximate Land Cost Basis ($93,184,000) ($93,184,000) ($93,184,000) ($93,184,000) ($124,262,259) ($124,262,259) Estimated Project Residual: $1,058,204 ($22,563,797) ($112,189,392) ($135,614,728) ($241,100,780) ($271,901,432) Feasibility Analysis for the Vallco Mall Redevelopment in Cupertino, California Report Prepared for Vallco Property Owner August 2019 Newport Beach San Francisco New York Atlanta 369 San Miguel Dr, #265 251 Kearny St, 6th Floor 641 Lexington Ave, #1400 1170 Peachtree ST NE, #1200 Newport Beach, CA 92660 San Francisco, CA 94108 New York, NY 10022 Atlanta, GA 30309 (949) 717-6450 (415) 397-5490 (212) 535-2225 (404) 879-5000 Vallco Property Owner August 2019 Cupertino, CA 19446.00 EXECUTIVE SUMMARY 1.Summary of Scenario Feasibility A.Scenario 1: Hausrath Program Corrected for BMR Revenue B.Scenario 2: Hausrath Program Corrected for Vertical Costs C.Scenario 3: Hausrath Program Corrected for Both BMR Revenue and Vertical Costs D.Scenario 4: 51-Acre Lot Program – Large Scale Residential E.Scenario 5: 51-Acre Lot Program – Small Scale Residential 2.Land Residual Model A.For-Sale Residential i.Market Rate ii.Below Market Rate B.Retail i.Traditional ii.Entertainment 3.Below Market Rate Condominium Affordable Prices 4.Construction Cost Evaluation and Comparison TECHNICAL APPENDIX A.Regional Location B.Demographic Summary C.For-Sale Residential 1.Current Inventory i.Performance ii.Location 2.Product Positioning D.Retail 1.Retail Market Performance 2.Current Inventory i.Available ii.Executed iii.Location 3.Product Positioning 3 Executive Summary4 EXHIBIT 1AEPS/HAUSRATH INPUTS CORRECTED FOR BMR REVENUE ONLYVALLCO MALL REDEVELOPMENTAUGUST 2019Residential UsesNon-Residential UsesApartmentCondominiumOfficeRetailHotelTotalProject FactorsMarket RateBMRMarket RateBMRTraditionalEntertainmentDwelling Units0 0 390 69N/AN/AN/A0Gross Square Feet 0 0 487,423 86,2500 25,000 0 0Structured Parking Stalls 0 0 780 138 0 100 0 0Market Value----$422,498,058$33,325,439-- $$22,224,063----$478,047,559Value/ Gross SF -- -- $867 $386 -- $889 -- --Value per Unit -----$1,083,328 $482,977 N/AN/A----Development BudgetSoft Cost -----($54,012,938) ($8,957,340)--($3,936,397)----($66,906,675)Hard Cost -----($169,979,220) ($30,076,949)--($13,653,264)----($213,709,433)Other Costs and ROI -----($59,357,922) ($9,758,572)--($4,080,802)----($73,197,296)Total Cost----($283,350,080)($48,792,861)--($21,670,463)----($353,813,404)Total Cost/ Gross SF -----($581) ($566)--($867)------Total Cost per Unit -- --($726,539) ($707,143)--N/A-- -- --Residual Value(Before Site Costs) -----$139,147,978.46($15,467,422)--$553,599----$124,234,155Land Value/ Gross SF -- -- $285($179)--$22 -- -- --Land Value per Unit -- -- $356,790($224,166)--N/A-- -- --Impact Fee Credits (Including Avoided Contingency and ROI)None AssumedSite CostsDemolition($4,600,000)Basic Site Work($6,600,000)Open Space Improvements$0Parkland In-Lieu Fee($21,060,000)Right-of-Way and Backbone Infrastructure($12,900,000)Additional Off-Site Improvements/Mitigation$0Subtotal($45,160,000)Site Development Financing Cost6% Financing Cost($2,709,600)Developer Return on Site Costs12% ROI($5,744,352)Total Site Costs Including ROI($53,613,952)VPO's Approximate Land Cost Basis($93,184,000)Estimated Project Residual($22,563,797)19446.00 Residuals and Conclusions - Verticals: Scen 1 BMR ONLYTHE CONCORD GROUP5 EXHIBIT 1BEPS/HAUSRATH INPUTS CORRECTED FOR CONSTRUCTION COSTS ONLYVALLCO MALL REDEVELOPMENTAUGUST 2019Residential UsesNon-Residential UsesApartmentCondominiumOfficeRetailHotelTotalProject FactorsMarket RateBMRMarket RateBMRTraditionalEntertainmentDwelling Units0039069N/AN/AN/A0Gross Square Feet 0 0 487,500 86,2500 25,000 0 0Structured Parking Stalls 0 0 780 138 0 100 0 0Market Value----$422,565,000$56,750,775-- $$22,224,063----$501,539,838Value/ Gross SF -- -- $867 $658 -- $889 -- --Value per Unit -----$1,083,500 $822,475 N/AN/A----Development BudgetSoft Cost -----($68,733,423) ($11,560,919)--($3,937,056)----($84,231,398)Hard Cost -----($236,890,516) ($41,911,399)--($13,653,474)----($292,455,388)Other Costs and ROI -----($76,405,985) ($9,758,572)--($4,081,003)----($90,245,560)Total Cost----($382,029,924)($63,230,890)--($21,671,532)----($466,932,346)Total Cost/ Gross SF -----($784) ($733)--($867)------Total Cost per Unit -- --($979,564) ($916,390)--N/A-- -- --Residual Value(Before Site Costs) -----$40,535,075.92($6,480,115)--$553,599----$34,608,560Land Value/ Gross SF -- -- $83($75)--$22 -- -- --Land Value per Unit -- -- $103,936($93,915)--N/A-- -- --Impact Fee Credits (Including Avoided Contingency and ROI)None AssumedSite CostsDemolition($4,600,000)Basic Site Work($6,600,000)Open Space Improvements$0Parkland In-Lieu Fee($21,060,000)Right-of-Way and Backbone Infrastructure($12,900,000)Additional Off-Site Improvements/Mitigation$0Subtotal($45,160,000)Site Development Financing Cost6% Financing Cost($2,709,600)Developer Return on Site Costs12% ROI($5,744,352)Total Site Costs Including ROI($53,613,952)VPO's Approximate Land Cost Basis($93,184,000)Estimated Project Residual($112,189,392)19446.00 Residuals and Conclusions - Verticals: Scen 2 COSTS ONLYTHE CONCORD GROUP6 EXHIBIT 1CEPS/HAUSRATH INPUTS CORRECTED FOR BOTH BMR REVENUE & CONSTRUCTION COSTSVALLCO MALL REDEVELOPMENTAUGUST 2019Residential UsesNon-Residential UsesApartmentCondominiumOfficeRetailHotelTotalProject FactorsMarket RateBMRMarket RateBMRTraditionalEntertainmentDwelling Units0039069N/AN/AN/A0Gross Square Feet 0 0 487,500 86,2500 25,000 0 0Structured Parking Stalls 0 0 780 138 0 100 0 0Market Value----$422,565,000$33,325,439-- $$22,224,063----$478,114,501Value/ Gross SF -- -- $867 $386 -- $889 -- --Value per Unit -----$1,083,500 $482,977 N/AN/A----Development BudgetSoft Cost -----($68,733,423) ($11,560,919)--($3,937,056)----($84,231,398)Hard Cost -----($236,890,516) ($41,911,399)--($13,653,474)----($292,455,388)Other Costs and ROI -----($76,405,985) ($9,758,572)--($4,081,003)----($90,245,560)Total Cost----($382,029,924)($63,230,890)--($21,671,532)----($466,932,346)Total Cost/ Gross SF -----($784) ($733)--($867)------Total Cost per Unit -- --($979,564) ($916,390)--N/A-- -- --Residual Value(Before Site Costs) -----$40,535,075.92($29,905,451)--$553,599----$11,183,224Land Value/ Gross SF -- -- $83($347)--$22 -- -- --Land Value per Unit -- -- $103,936($433,412)--N/A-- -- --Impact Fee Credits (Including Avoided Contingency and ROI)None AssumedSite CostsDemolition($4,600,000)Basic Site Work($6,600,000)Open Space Improvements$0Parkland In-Lieu Fee($21,060,000)Right-of-Way and Backbone Infrastructure($12,900,000)Additional Off-Site Improvements/Mitigation$0Subtotal($45,160,000)Site Development Financing Cost6% Financing Cost($2,709,600)Developer Return on Site Costs12% ROI($5,744,352)Total Site Costs Including ROI($53,613,952)VPO's Approximate Land Cost Basis($93,184,000)Estimated Project Residual($135,614,728)19446.00 Residuals and Conclusions - Verticals: Scen 3 BMR & CostsTHE CONCORD GROUP7 EXHIBIT 1DLARGE SCALE RESIDENTIAL PLAN ON FULL 51 ACRESVALLCO MALL REDEVELOPMENTAUGUST 2019Residential UsesNon-Residential UsesApartmentCondominiumOfficeRetailHotelTotalProject FactorsMarket RateBMRMarket RateBMRTraditionalEntertainmentDwelling Units0 0 1,512 267N/AN/AN/A0Gross Square Feet 0 0 1,890,000 333,7500 480,000 120,000 0Structured Parking Stalls 0 0 3024 534 0 1920 480 0Market Value----$1,638,252,000$128,954,958-- $$426,702,000$53,337,750--$2,247,246,708Value/ Gross SF -- -- $867 $386 -- $889 $444 --Value per Unit -----$1,083,500 $482,977 N/AN/AN/A--Development BudgetSoft Cost -----($266,474,196) ($44,735,729)--($75,591,471) (15,840,157)--($402,641,553)Hard Cost -----($918,406,307) ($162,178,892)--($262,146,695) (63,010,358)--($1,405,742,252)Other Costs and ROI -----($296,220,126) ($37,761,432)--($78,355,254) (18,293,320)--($430,630,131)Total Cost----($1,481,100,629)($244,676,052)--($416,093,420)(97,143,835)--($2,239,013,936)Total Cost/ Gross SF -----($784) ($733)--($867) (810)----Total Cost per Unit -- --($979,564) ($916,390)--N/AN/A-- --Residual Value(Before Site Costs) -----$157,151,371.26($115,721,094)--$10,608,580($43,806,085)--$8,232,772Land Value/ Gross SF -- -- $83($347)--$22($365)-- --Land Value per Unit -- -- $103,936($433,412)--N/AN/A-- --Impact Fee Credits (Including Avoided Contingency and ROI)None AssumedSite CostsDemolition 1,200,000 SF $15/SF($18,000,000)Basic Site Work51 Acres $498,235/Acre($25,410,000)Open Space Improvements 6.0 Acres (Public Access) $500,000/Acre None AssumedParkland In-Lieu Fee 2.2 2.2 Acres (Fee Basis) $10,000,000/Acre($21,656,100)Right-of-Way and Backbone Infrastructure($50,000,000)Additional Off-Site Improvements/Mitigation$0Subtotal($115,066,100)Site Development Financing Cost6% Financing Cost($3,206,793)Developer Return on Site Costs12% ROI($6,798,400)Total Site Costs Including ROI($125,071,293)VPO's Approximate Land Cost Basis($124,262,259)Estimated Project Residual($241,100,780)19446.00 Residuals and Conclusions - Verticals: Scen 4 LargeTHE CONCORD GROUP8 EXHIBIT 1ESMALL SCALE RESIDENTIAL PLAN ON FULL 51 ACRESVALLCO MALL REDEVELOPMENTAUGUST 2019Residential UsesNon-Residential UsesApartmentCondominiumOfficeRetailHotelTotalProject FactorsMarket RateBMRMarket RateBMRTraditionalEntertainmentDwelling Units0 0 390 69N/AN/AN/A0Gross Square Feet 0 0 487,500 86,2500 480,000 120,000 0Structured Parking Stalls 0 0 780 138 0 1920 480 0Market Value----$422,565,000$33,325,439-- $$426,702,000$53,337,750--$935,930,189Value/ Gross SF -- -- $867 $386 -- $889 $444 --Value per Unit -----$1,083,500 $482,977 N/AN/AN/A--Development BudgetSoft Cost -----($68,733,423) ($11,560,919)--($75,591,471) (15,840,157)--($171,725,971)Hard Cost -----($236,890,516) ($41,911,399)--($262,146,695) (63,010,358)--($603,958,967)Other Costs and ROI -----($76,405,985) ($9,758,572)--($78,355,254) (18,293,320)--($182,813,131)Total Cost----($382,029,924)($63,230,890)--($416,093,420)(97,143,835)--($958,498,069)Total Cost/ Gross SF -----($784) ($733)--($867) (810)----Total Cost per Unit -- --($979,564) ($916,390)--N/AN/A-- --Residual Value(Before Site Costs) -----$40,535,075.92($29,905,451)--$10,608,580($43,806,085)--($22,567,880)Land Value/ Gross SF -- -- $83($347)--$22($365)-- --Land Value per Unit -- -- $103,936($433,412)--N/AN/A-- --Impact Fee Credits (Including Avoided Contingency and ROI)None AssumedSite CostsDemolition 1,200,000 SF $15/SF($18,000,000)Basic Site Work51 Acres $498,235/Acre($25,410,000)Open Space Improvements 6.0 Acres (Public Access) $500,000/Acre None AssumedParkland In-Lieu Fee 2.2 2.2 Acres (Fee Basis) $10,000,000/Acre($21,656,100)Right-of-Way and Backbone Infrastructure($50,000,000)Additional Off-Site Improvements/Mitigation$0Subtotal($115,066,100)Site Development Financing Cost6% Financing Cost($3,206,793)Developer Return on Site Costs12% ROI($6,798,400)Total Site Costs Including ROI($125,071,293)VPO's Approximate Land Cost Basis($124,262,259)Estimated Project Residual($271,901,432)19446.00 Residuals and Conclusions - Verticals: Scen 5 SmallTHE CONCORD GROUP9 EXHIBIT 2Ai MARKET RATE RESIDENTIAL CONDOMINIUMS - LAND RESIDUAL VALLCO MALL REDEVELOPMENT AUGUST 2019 EPS Evaluation TCG Evaluation - Cost Change Only TCG Source Development Program Assumptions Dwelling Units 11 Gross Building Area (Square Feet)1,250 per unit 1,250 1,250 per unit 1,250 Net Building Area (Square Feet)80%GBA 1,000 80%GBA 1,000 Structured Parking Spaces 2.0 spaces per unit 2.0 2.0 spaces per unit 2.0 Cupertino Planning Dept Building Value Condominium Sale Value $1,100 Market Value/ SF $1,099,826 $1,100 Market Value/ SF $1,100,000 Appendix C2 Other Value Additions $0 Market Value/ Unit $0 $0 Market Value/ Unit $0 Building Value $1,099,826 $1,100,000 Disposition Cost 1.5%of Building Value -$16,497 1.5%of Building Value -$16,500 Net Value $1,083,328 $1,083,500 Project Costs Construction Costs Building Direct Costs $256 cost/SF (GBA) $320,137 $387 cost/SF (GBA) $483,125 Structured Parking Direct Cost $46,958 per Space $93,915 $46,958 per Space $93,916 PLA Cost Premium 5% of Total Const. Cost $21,792 5% of Total Const. Cost $30,371 Total Construction Cost $435,844 $607,412 Soft Costs Architecture and Engineering 4% of Construction Cost $17,434 4% of Construction Cost $24,296 Other Professional Services 2% of Construction Cost $8,717 2% of Construction Cost $12,148 Permits and Fees $42,609 per Dwelling Unit $42,609 $42,609 per Dwelling Unit $42,609 Taxes and Insurance 3% of Construction Cost $13,075 3% of Construction Cost $18,222 Financing 6% of Construction Cost $26,151 6% of Construction Cost $36,445 Marketing/Leasing 3% of Construction Cost $13,075 3% of Construction Cost $18,222 Developer Fee 4% of Construction Cost $17,434 4% of Construction Cost $24,296 Total Soft Costs $138,495 $176,240 Other Costs Development Contingency 10% of Hard and Soft Costs $57,434 10% of Hard and Soft Costs $78,365 Developer ROI 15% of Development Costs $94,766 15% of Development Costs $117,548 Total Other Costs $152,200 $195,913 Total Project Costs $726,539 $979,564 Residual Land Value Residual Land Value $356,790 $103,936 Per Dwelling Unit $356,790 $103,936 Per Square Foot (GBA)$285.48 $83.15 19446.00 Residuals and Conclusions: MR Condo THE CONCORD GROUP 10 EXHIBIT 2AiiBELOW MARKET RATE RESIDENTIAL CONDOMINIUMS - LAND RESIDUALVALLCO MALL REDEVELOPMENTAUGUST 2019EPS EvaluationTCG Evaluation - Cost Change OnlyTCG Evaluation - BMR Price Change OnlyTCG Evaluation - Cost & BMR Price ChangeTCG SourceDevelopment Program AssumptionsDwelling Units11 11Gross Building Area (Square Feet)1,250per unit 1,2501,250per unit 1,2501,250per unit 1,2501,250per unit 1,250Net Building Area (Square Feet)80%GBA 1,00080%GBA 1,00080%GBA 1,00080%GBA 1,000Structured Parking Spaces2.0spaces per unit 2.02.0spaces per unit 2.02.0spaces per unit 2.02.0spaces per unit 2.0 Cupertino Planning DeptBuilding ValueCondominium Sale Value$835Market Value/ SF $835,000$835Market Value/ SF $835,000$490Market Value/ SF $490,332$490Market Value/ SF $490,332 Per City policy, Exhibit 3Other Value Additions $0 Market Value/ Unit $0 $0 Market Value/ Unit $0 $0 Market Value/ Unit $0 $0 Market Value/ Unit $0Building Value $835,000 $835,000 $490,332 $490,332Disposition Cost1.5%of Building Value -$12,5251.5%of Building Value -$12,5251.5%of Building Value -$7,3551.5%of Building Value -$7,355Net Value$822,475$822,475$482,977$482,977Project CostsConstruction CostsBuilding Direct Costs$256cost/SF (GBA) $320,187$387cost/SF (GBA) $483,125$256cost/SF (GBA) $320,187$387cost/SF (GBA) $483,125Structured Parking Direct Cost$46,957per Space $93,915$46,958per Space $93,916$46,958per Space $93,916$46,958per Space $93,916PLA Cost Premium 5% of Total Const. Cost $21,795 5% of Total Const. Cost $30,371 5% of Total Const. Cost $21,795 5% of Total Const. Cost $30,371Total Construction Cost$435,897 $607,412$435,898$607,412Soft CostsArchitecture and Engineering 4% of Construction Cost $17,436 4% of Construction Cost $24,296 4% of Construction Cost $17,436 4% of Construction Cost $24,296Other Professional Services 2% of Construction Cost $8,718 2% of Construction Cost $12,148 2% of Construction Cost $8,718 2% of Construction Cost $12,148Permits and Fees $33,919 per Dwelling Unit $33,919 $33,919 per Dwelling Unit $33,919 $33,919 per Dwelling Unit $33,919 $33,919 per Dwelling Unit $33,919Taxes and Insurance 3% of Construction Cost $13,077 3% of Construction Cost $18,222 3% of Construction Cost $13,077 3% of Construction Cost $18,222Financing 6% of Construction Cost $26,154 6% of Construction Cost $36,445 6% of Construction Cost $26,154 6% of Construction Cost $36,445Marketing/Leasing 1% of Construction Cost $4,359 3% of Construction Cost $18,222 3% of Construction Cost $13,077 3% of Construction Cost $18,222Developer Fee 4% of Construction Cost $17,436 4% of Construction Cost $24,296 4% of Construction Cost $17,436 4% of Construction Cost $24,296Total Soft Costs$121,098$167,550$129,817 $167,550Other CostsDevelopment Contingency 10% of Hard and Soft Costs $55,699 10% of Hard and Soft Costs $56,571 10% of Hard and Soft Costs $56,571 10% of Hard and Soft Costs $56,571Developer ROI 15% of Development Costs $91,904 15% of Development Costs $84,857 15% of Development Costs $84,857 15% of Development Costs $84,857Total Other Costs$147,604$141,429$141,429$141,429Total Project Costs $$704,599$916,390$707,143$916,390Residual Land ValueResidual Land Value$117,876-$93,915-$224,166-$433,412Per Dwelling Unit$117,876-$93,915-$224,166-$433,412Per Square Foot (GBA)$94.30-$75.13-$179.33-$346.7319446.00 Residuals and Conclusions - Verticals: BMR CondoTHE CONCORD GROUP11 EXHIBIT 2Bi RETAIL - LAND RESIDUAL VALLCO MALL REDEVELOPMENT AUGUST 2019 EPS Evaluation Development Program Assumptions Gross Building Area (Square Feet)1 Rentable Area (Square Feet)100%GBA 1 Structured Parking Spaces 0 Building Value Gross Potential Rent $5.00 per SF/Month (NNN) $60 Losses to Vacancy 5%of GPR -$3 Collection Losses 0%of GPR $0 Losses to Concessions 0%of GPR $0 Other Value Additions $0 Market Value/ Unit $0 Gross Office Revenue $57 Operating Expenses 5.0%of Gross Revenue -$3 Net Operating Income - Office $54 Net Operating Income - Parking $0.00 per Space/Month $0 Net Operating Income $54 Building Value 6.00%Capitalization Rate $903 Disposition Cost 1.5%of Building Value -$14 Net Value $889 Project Costs Construction Costs Building Direct Costs $311 cost/SF (GBA) $311 Tenant Improvement $20 cost/SF (GBA) $20 Structured Parking Direct Cost $46,958 per Space $188 PLA Cost Premium 5% of Total Const. Cost $27 Total Construction Cost $546 Soft Costs Architecture and Engineering 3% of Construction Cost $16 Other Professional Services 1% of Construction Cost $5 Permits and Fees $53 per Square Foot (GBA) $53 Taxes and Insurance 2% of Construction Cost $11 Financing 6% of Construction Cost $33 Marketing/Leasing 3% of of 10-Year Lease Value $17 Developer Fee 4% of Construction Cost $22 Total Soft Costs $157 Other Costs Development Contingency 10% of Hard and Soft Costs $70 Developer ROI 12% of Development Costs $93 Total Other Costs $163 Total Project Costs $867 Residual Land Value Residual Land Value $22 Per Square Foot (GBA)$22.14 19446.00 Residuals and Conclusions - Verticals: Retail THE CONCORD GROUP 12 EXHIBIT 2Bii ENTERTAINMENT RETAIL - LAND RESIDUAL VALLCO MALL REDEVELOPMENT AUGUST 2019 EPS Evaluation Development Program Assumptions Gross Building Area (Square Feet)1 Rentable Area (Square Feet)100%GBA 1 Structured Parking Spaces 0 Building Value Gross Potential Rent $2.50 per SF/Month (NNN) $30 Losses to Vacancy 5%of GPR -$2 Collection Losses 0%of GPR $0 Losses to Concessions 0%of GPR $0 Other Value Additions $0 Market Value/ Unit $0 Gross Office Revenue $29 Operating Expenses 5.0%of Gross Revenue -$1 Net Operating Income - Office $27 Net Operating Income - Parking $0.00 per Space/Month $0 Net Operating Income $27 Building Value 6.00%Capitalization Rate $451 Disposition Cost 1.5%of Building Value -$7 Net Value $444 Project Costs Construction Costs Building Direct Costs $311 cost/SF (GBA) $311 Tenant Improvement $0 cost/SF (GBA) $0 Structured Parking Direct Cost $46,958 per Space $188 PLA Cost Premium 5% of Total Const. Cost $26 Total Construction Cost $525 Soft Costs Architecture and Engineering 3% of Construction Cost $16 Other Professional Services 1% of Construction Cost $5 Permits and Fees $39 per Square Foot (GBA) $39 Taxes and Insurance 2% of Construction Cost $11 Financing 6% of Construction Cost $32 Marketing/Leasing 3% of of 10-Year Lease Value $9 Developer Fee 4% of Construction Cost $21 Total Soft Costs $132 Other Costs Development Contingency 10% of Hard and Soft Costs $66 Developer ROI 12% of Development Costs $87 Total Other Costs $152 Total Project Costs $810 Residual Land Value Residual Land Value -$365 Per Square Foot (GBA)-$365.05 19446.00 Residuals and Conclusions - Verticals: Ent Retail-EPS THE CONCORD GROUP 13 EXHIBIT 3BELOW MARKET RATE CONDOMINIUM AFFORDABLE HOME PRICE TABLECUPERTINO, CALIFORNIAAUGUST 2019EPSHausrathStrategic Economics (Existing Policy)The Concord Group9/11/2018Based on EPS7/16/20198/15/2019Affordability Target Unknown/BlendedUnknown/Blended Median (90%) Moderate (110%) Median (90%) Moderate (110%)Affordability Mix (1) 53% 47% 53% 47%2 Bed 3 Bed 2 Bed 3 Bed 1 Bed 2 Bed 3 Bed 1 Bed 2 Bed 3 BedAssumed Average Unit Size (GSF) 1,250 1,250 1,688 2,000 1,688 2,000 813 1,275 1,663 813 1,275 1,663Assumed Average Unit Size (NSF) 1,000 1,000 1,350 1,600 1,350 1,600650 1,020 1,330650 1,020 1,330Unit Mix27% 27% 23% 23% 18% 18% 18% 16% 16% 16%Overall Average Net Unit Size1,4751,000Household Size (2)234234Santa Clara County Median Income$105,100 $118,250 $131,400 $105,100 $118,250 $150,000% of Median Income Target90% 90% 90% 110% 100% 100%Qualifying Income$94,590 $106,425 $118,260 $115,610 $118,250 $150,000Max % of Income Spent on All Housing Costs (3)30% 30% 30% 35% 35% 35%Funds Available for Mortgage (Assuming No Other Costs)$28,377 $31,928 $35,478 $40,464 $41,388 $52,500Utility Allowance (4)$2,052 $2,436 $3,228 $2,052 $2,436 $3,228Property Tax (5)$4,131 $5,072 $5,562 $6,658 $6,754 $8,590Homeowner's Insurance (6)$984 $984 $984 $984 $984 $984Mortgage Insurance (7)$1,818 $2,008 $2,203 $2,637 $2,675 $3,402Net Funds Available for Mortgage$19,393 $21,428 $23,501 $28,132 $28,538 $36,29610 Year Trailing Interest Rate4.2% 4.2% 4.2% 4.2% 4.2% 4.2%Loan Amount Supported$330,468 $365,149 $400,482 $479,404 $486,320 $618,514Down Payment10% 10% 10% 10% 10% 10%Average BMR Condo Price Per Unit Type$367,187 $405,721 $444,980 $532,671 $540,356 $687,238Price per Net Rentable Square Feet$565 $398 $335 $819 $530 $517Overall Average BMR Condo Price $835,000 $835,000 $375,431$490,332Price per Net Rentable Square Feet $835 $835 $278$490(1) Under existing policy, 7% of units required to be affordable to median incomes, and 8% required to be affordable to moderate incomes.(2) City of Cupertino BMR Housing Mitigation Program Procedural Manual; Section 2.3.5 Initial Maximum Sales Prices and Rents of BMR Units A.1(3) City of Cupertino BMR Housing Mitigation Program Procedural Manual; Section 2.3.5 Initial Maximum Sales Prices and Rents of BMR Units A.3(4) Santa Clara County Housing Authority, 2019 Utility Allowances Schedule.(5) Property tax of 1.125%.(6) Hello Housing(7) 0.55% of Loan Amount; Hello Housing19446.00 Residuals and Conclusions - Verticals: BMR Calc and ComparisonTHE CONCORD GROUP14 EXHIBIT 4CONSTRUCTION COST EVALUATION AND COMPARISONCUPERTINO, CALIFORNIAAUGUST 2019EPSHausrathStrategic EconomicsThe Concord Group9/11/2018Based on EPS7/16/20198/15/2019Residential Construction Costs (1) Type VType III Mod Truebeck Devcon South Bay ConstructionCondo Apartments Low High Low High Low HighBuilding Direct Costs (per GSF) 256 256 275 300Structured Parking (per Space) 46,958 46,958 30,000 30,000PLA Cost Premium 5% 5%ConsensusTotal Construction Costs (per GSF) (2) $349 $349 $323 $348 $420 $477 $500 $540 $455 $525 $486(1) TCG construction cost estimates provided by named developers; see attached letters.(2) Total Construction Costs do not include site costs.19446.00 Residuals and Conclusions - Verticals: Hard CostsTHE CONCORD GROUP15 Technical Appendix 16 APPENDIX AREGIONAL LOCATION AND SUBMARKET DELINEATIONSANTA CLARA COUNTY, CALIFORNIAAUGUST 2019The red outlined area is the Competitive Market Area, ("CMA"), the source of competitive rental , for-sale, hotel, and office supply. This area is defined by zip codes and consists of all or most of Sunnyvale, Santa Clara, Cupertino, Saratoga, Los Gatos, Campbell, and South San Jose.The blueoutlined area represents thePrimary Market Area ("PMA"), the geographical limit for prospective renters and owners in the CMA. This area is defined by zip code and stretches from Palo Alto down through the southern edge of Los Gatos.CMAPMASee Page 2 for a detailed view The mmulti-coloredregions represent the various submarkets of the PMA.Subject Site19446.00 RegLoc: RegLocSCTHE CONCORD GROUP17 APPENDIX AREGIONAL LOCATION AND SUBMARKET DELINEATIONSANTA CLARA COUNTY, CALIFORNIAAUGUST 2019CMASubject SiteThe mmulti-coloredregions represent the various Palo AltoMountain View/Los AltosCupertinoSanta ClaraCentral San JoseMilpitas/ North San JoseEast San JoseCampbell/ SouthSan JoseSaratoga/ LosGatosSunnyvale19446.00 RegLoc: SCZoomTHE CONCORD GROUP18 APPENDIX AREGIONAL LOCATION AND SUBMARKET DELINEATIONRETAIL TRADE AREAAUGUST 2019The red area represents the Retail Trade Area, ("RTA"), the geographic source of competitive retail supply. RTA1 Mile Radius19446.00 Reg Loc - Retail: Retail ZoomTHE CONCORD GROUP19 APPENDIX BDEMOGRAPHIC SUMMARYPRIMARY MARKET AREAAUGUST 2019GeographyCupertinoSunnyvaleSanta ClaraCampbell/ South San JoseSaratoga/ Los GatosCMAEast San JoseCentral San JoseMilpitas/ North San JosePalo AltoMountain View/ Los AltosPMAGeneral InformationPopulation ('18) 66,278 158,631 129,986 407,766 112,223 874,884 399,443 158,644 184,177 120,358 127,543 1,865,049Households ('18) 22,626 59,162 47,028 145,947 40,631 315,394 101,719 58,443 58,103 42,077 51,250 626,986% PMA3.6% 9.4% 7.5% 23.3% 6.5% 50.3% 16.2% 9.3% 9.3% 6.7% 8.2% 100.0%Ann. Growth (#, '18-'23) 811 3,351 2,585 4,762 1,164 12,673 3,074 4,425 5,631 1,304 3,372 30,479% PMA2.7% 11.0% 8.5% 15.6% 3.8% 41.6% 10.1% 14.5% 18.5% 4.3% 11.1% 100.0%Over $100K HH Growth 390 1,268 998 2,694 529 5,879 1,679 1,235 1,483 638 1,040 11,954Under $100K HH Growth 421 2,083 1,587 2,068 635 6,794 1,395 3,190 4,148 666 2,332 18,525Ann. Growth (%, '18-'23) 3.4% 5.1% 5.0% 3.1% 2.7% 3.7% 2.9% 6.6% 8.2% 2.9% 5.9% 4.4%Household Size ('18) 2.93 2.68 2.76 2.79 2.76 2.77 3.93 2.71 3.17 2.86 2.49 2.97Employed Population ('18) 31,280 84,329 68,533 215,140 53,674 452,956 186,132 84,054 94,853 59,218 68,898 946,111% PMA3.3% 8.9% 7.2% 22.7% 5.7% 47.9% 19.7% 8.9% 10.0% 6.3% 7.3% 100.0%% White Collar1.2% 2.5% 2.7% 3.0% 1.4% 2.5% 5.7% 4.8% 2.9% 1.9% 1.7% 3.3%Household Breakdown ('18)1 Person 16% 23% 23% 22% 18% 21% 12% 28% 13% 27% 26% 20%2 Person 22% 23% 22% 23% 29% 24% 17% 17% 18% 22% 24% 21%3+ Person 62% 54% 55% 55% 52% 55% 72% 55% 70% 51% 50% 58%Age Breakdown - Population ('18)Median Age (Pop.) 41.0 37.5 35.5 38.9 48.1 39.2 34.7 34.0 37.6 35.2 40.4 37.4Under 18 25% 23% 22% 23% 22% 23% 26% 20% 22% 22% 21% 23%18-24 7% 7% 10% 8% 7% 8% 9% 12% 8% 14% 7% 9%25-34 10% 15% 18% 13% 7% 13% 15% 19% 16% 14% 14% 15%35-44 15% 16% 16% 14% 10% 14% 14% 15% 16% 11% 14% 14%45-54 16% 14% 12% 15% 17% 15% 13% 12% 14% 12% 14% 14%55-64 13% 11% 11% 13% 17% 13% 11% 10% 12% 11% 13% 12%65-74 8% 7% 7% 8% 12% 8% 7% 6% 8% 8% 9% 8%75+ 6%6%5%6%9%6%5%4%5%7%8%6%Income/Wealth Breakdown - Households ('18)Median Income $140,772 $109,169 $102,591 $102,098 $164,835 $110,772 $82,347 $67,961 $112,508 $117,460 $126,243 $103,994Average Income $182,947 $143,939 $129,941 $133,439 $226,888 $150,477 $110,484 $99,219 $141,466 $181,509 $182,999 $143,117% PMA127.8% 100.6% 90.8% 93.2% 158.5% 105.1% 77.2% 69.3% 98.8% 126.8% 127.9% 100.0%Under $50K15% 19% 23% 22% 12% 20% 30% 38% 19% 25% 20% 23%$50-$75K9% 12% 13% 14% 8% 12% 15% 15% 11% 10% 11% 13%$75-$100K10% 14% 12% 13% 8% 12% 12% 12% 12% 9% 9% 12%$100-$150K19% 21% 21% 20% 17% 20% 19% 15% 23% 13% 17% 19%$150-$200K15% 13% 12% 13% 14% 13% 10% 9% 15% 10% 12% 12%$200K+ 32% 21% 18% 19% 41% 23% 14% 11% 20% 32% 31% 21%Rental Housing ('18)% Rent40% 53% 55% 40% 21% 42% 37% 66% 44% 48% 46% 45%Renter Households 9,095 31,487 26,026 58,674 8,368 133,650 37,373 38,518 25,717 20,300 23,562 279,120% PMA3.3% 11.3% 9.3% 21.0% 3.0% 47.9% 13.4% 13.8% 9.2% 7.3% 8.4% 100.0%Annual New Renters 326 1,783 1,431 1,914 240 5,370 1,129 2,916 2,492 629 1,550 13,569% Renter HHs Rent SFD ('18) 21.8% 14.4% 14.8% 21.6% 41.5% 19.7% 36.7% 14.6% 19.4% 25.8% 13.6% 21.4%% Renter HHs Rent 1-4 Unit Att. ('18) 30.6% 22.8% 20.9% 26.5% 23.3% 24.6% 26.8% 22.3% 20.0% 14.2% 20.0% 23.1%% Renter HHs Rent 4-50 Unit Att. ('18) 25.2% 38.8% 40.5% 33.9% 21.6% 35.1% 20.4% 35.9% 18.1% 36.2% 45.7% 32.6%% Renter HHs Rent 50+ Unit Att. ('18) 22.2% 22.0% 23.6% 17.7% 12.6% 19.9% 14.2% 26.3% 40.7% 22.9% 20.0% 22.0%For-Sale Housing ('18)% Own 60% 47% 45% 60% 79% 58% 63% 34% 56% 52% 54% 55%Owner HHs 13,531 27,675 21,002 87,273 32,263 181,744 64,346 19,925 32,386 21,777 27,688 347,866% of PMA3.9% 8.0% 6.0% 25.1% 9.3% 52.2% 18.5% 5.7% 9.3% 6.3% 8.0% 100.0%Annual New Owners ('18-'23) 485 1,568 1,154 2,848 924 7,303 1,945 1,509 3,139 675 1,822 16,910% Own SFD 77.3% 69.5% 74.1% 80.4% 88.9% 79.4% 77.4% 68.1% 68.4% 84.3% 73.8% 77.2%% Own 1-4 Unit Attached 16.6% 13.8% 16.7% 12.5% 9.7% 13.0% 14.3% 11.7% 20.4% 6.5% 14.4% 13.5%% Own 5-49 Unit Attached 2.1% 3.0% 4.9% 2.5% 0.7% 2.5% 1.8% 4.4% 2.9% 4.8% 5.2% 2.8%% Own 50+ Unit Attached 4.0% 0.9% 4.0% 1.0% 0.3% 1.4% 0.5% 10.8% 1.6% 3.4% 2.8% 2.0%76%31%64%28%70%28%69%30%68%29%65%24%64%29%64%28%80%27%54%27%70%30%47%28%70%28%19446.00 DemosDemand: DemosTHE CONCORD GROUP20 APPENDIX C1iCURRENT INVENTORYPRIMARY MARKET AREAAUGUST 2019July 2019ProductBase PriceProject NameAddressCityBuilderTypeTotalRem.AbsorptionHome Size$PSFSan JosePlatinum II at Communications Hill Casselino Drive San Jose KB Home SFD 31 4 0.9 2,628 $1,619,000 $616The Capitol 641 North Capitol Avenue San Jose Pulte TH 188 159 4.5 1,541 $890,323 $578Lexington At Avenue One 5951 Sunstone Dr #302 San Jose LennarCondo/TH190 125 4.1 1,411 $792,780 $562SP78 127 W Julian Street San Jose Trumark Homes TH 78 40 3.1 1,514 $825,056 $545Promenade II at Communications Hill Communications Hill Blvd & Hillsdale Ave San Jose KB Home SFD 32 20 -- 2,165 $1,160,000 $536Catalyst at Communications Hill Communications Hill Blvd & Mullinix Way San Jose KB Home TH 98 88 -- 1,913 $1,016,667 $532Metro II at Communications Hill Manuel Street & Casellino Drive San Jose KB Home TH 94 -- -- 1,873 $957,400 $511Cottlestone 3810 Dove Hill Road San Jose Lafferty SFD 17 14 0.2 3,373 $1,702,000 $505The Residences at UrbanOak 6825 Chroma Court San Jose Pulte SFD 60 49 1.7 2,347 $1,084,990 $462The Rows at UrbanOak 6825 Chroma Court San Jose Pulte TH 97 92 0.8 1,873 $849,990 $454Asana 2675 Interlude Street San Jose DeNova Homes TH 250 206 4.2 3,149 $1,336,000 $424Overall Total/Weighted Average:11 Projects1,1357972.82,117$1,032,888$488Mountain ViewRadius Townhomes 320 Circuit WayMountain ViewPulte TH 113 4 3.7 1,597 1,618,323 $1,013Palmero Homes 326 Cherokee LoopMountain ViewClassic CommunitiesTH 33 1 -- 1,694 1,702,667 $1,0056Sixty 660 Tyrella AvenueMountain ViewTaylor Morrison Condo 37 16 1.6 1,466 1,465,667 $1,000Estancia 2290 Mora PlaceMountain ViewLennar TH/SFD 73 5 4.7 1,776 1,709,880 $963Overall Total/Weighted Average:4 Projects256263.21,555$1,545,232$994Santa ClaraDowntown Gateway 1048 Monroe St. Santa ClaraSiliconSage HomesTH 44 7 1.5 1,544 1,347,683 $873Nuevo - Terraces 3505 Kifer Rd. Santa ClaraSummerhill HomesTH 176 155 4.9 1,762 1,433,000 $813Nuevo - E-Town 3505 Kifer Rd. Santa ClaraSummerhill HomesTH 114 98 3.7 2,034 1,598,333 $786Overall Total/Weighted Average:3 Projects3342604.01,859$1,493,021$803SunnyvaleNova at the Vale 915 Cotati Terrace Sunnyvale Taylor Morrison TH 136 12 7.8 1,563 $1,367,857 $875Classics at Lawrence Station 1122 Aster Ave SunnyvaleClassic CommunitiesTH 34 5 1.3 1,771 $1,521,250$859The Vale 812 Galt Terrace SunnyvaleLand Sea HomesTH 314 45 11.8 1,926 1,455,327 $756Overall Total/Weighted Average:3 Projects484629.91,843$1,443,713$783Grand Total/Weighted Average:21 Projects2,2091,1454.62,031$1,171,252$577Units19446.00 FS RecComps: Cleaned Inv- July19The Concord Group21 APPENDIX C1iiLOCATION OF NEW HOME COMMUNITIESSOUTH BAY; SAN FRANCISCO BAY AREA, CALIFORNIAAUGUST 2019Color Coded by $/SFPurple= Below $500Blue= $500 - $550Green= $550 - $700Yellow= $700 - $850Orange= $850 - $900Red= Above $90019446.00 FS RecComps: CompMapthe concord group22 APPENDIX C2PRODUCT PROGRAM POSITIONING - ALL NEW HOME PRODUCTPRIMARY MARKET AREAAUGUST 2019$500,000$700,000$900,000$1,100,000$1,300,000$1,500,000$1,700,000$1,900,000$2,100,000600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000Price ($)Home Size (SF)Asana - THCatalyst at Communications Hill - THClassics at Lawrence Station - THCottlestone - SFDDowntown Gateway - THEstancia - TH/SFDLexington At Avenue One - Condo/THMetro II at Communications Hill - THNuevo - Terraces - THPlatinum II at Communications Hill - SFDPromenade II at Communications Hill - SFDThe Capitol - THThe Residences at UrbanOak - SFDThe Rows at UrbanOak - THThe Vale - THNova at the Vale - THRadius Townhomes - TH6Sixty - CondoPalmero Homes - THNuevo - E-Town - THSP78 - THEPS Assumed PriceSan Jose TrendlineSunnyvaleTrendlineMountainView TrendlineSanta ClaraTrendlineColor Coded bySubmarketYellow/Orange= Central San JosePurple= Santa ClaraGreen= SunnyvaleBrown= Mountain View19446.00 Positioning NG: PSPage 1 of 1the concord group23 APPENDIX D1 RETAIL MARKET PERFORMANCE PRIMARY MARKET AREA AUGUST 2019 Primary Market Area Geography 1-Mile Retail Trade Area PMA General Information Population ('17) 24,058 223,280 1,855,647 Households ('17) 8,468 80,765 634,221 % PMA 1.3% 12.7% 100.0% Ann. Growth (#, '17-'22) 99 745 6,556 % PMA 1.5% 11.4% 100.0% Over $100K HH Growth 150 1,264 10,189 Under $100K HH Growth (51) (518) (3,633) Ann. Growth (%, '17-'22) 1.1% 0.9% 1.0% Household Size ('17) 2.84 2.76 2.93 Consumer Spending Patterns ('17) Consumer Expenditures ($000) $662,491 $6,025,190 $42,440,532 Per Capita $27,537 $26,985 $22,871 Retail Sales ($000) $494,451 $4,019,980 $54,221,288 Per Occupied Square Foot $517 $377 $786 Spending Inflow/ (Leakage)($168,041) ($2,005,210)$11,780,756 Retail Market Performance (2018) Rentable Building Area (SF) 2,104,901 12,172,957 72,082,254 Annual Deliveries (SF) Five-Year Average 32,689 58,384 587,743 Ten-Year Average 18,814 37,519 496,645 Annual Net Absorption (SF) Five-Year Average (192,093) (159,938)398,829 Ten-Year Average (97,092) (124,198)81,054 Vacancy Rate 54.5% 12.5% 4.3% Vacant Stock (SF) 1,147,633 1,523,654 3,067,884 Asking Rent (NNN) $49.10 $36.18 $35.28 Rent Growth Five-Year Average 6.2% 2.8% 4.3% Ten-Year Average 1.9% 2.1% 1.2% Source: Claritas; US Census; CoStar 'HPRV6XEPDUNHW THE CONCORD GROUP 24 APPENDIX D2iCURRENT RETAIL INVENTORY - AVAILABLE LISTINGSRETAIL MARKET AREAAUGUST 2019Available RMA ListingsYearTypicalAreaRentable Building Area (RBA)Ann. Lease RateBuilding NameAddressCityBuiltElev.TypeFloorLeasedTotalAvail.% LeaseRentDateTypeRetail Market Area20520-20540 Stevens Creek Blvd 20520-20540 Stevens CreeCupertino 1959 1s Standalone 17,555 -- 17,555 6,765 61.5% $60.02 -- NNNLoree Center 19050-19088 Stevens CreeCupertino 1951 1s Standalone 20,000 -- 20,000 0 100.0% $52.20 -- NNN10562-10624 S De Anza Blvd 10562-10624 S De Anza BlCupertino 1975 1s Standalone 27,778 -- 27,778 0 100.0% $51.00 -- NNN10215-10225 S De Anza Blvd 10215-10225 S De Anza BlCupertino 1960 1s Standalone 11,180 -- 11,180 2,220 80.1% $48.00 -- NNN21739-21749 Stevens Creek Blvd 21739-21749 Stevens CreeCupertino 1949 1s Standalone 5,288 -- 5,288 600 88.7% $47.40 -- NNNSt. Joseph's Retail 20325-20387 Stevens CreeCupertino 1987 1s -- 20,222 -- 20,222 0 100.0% $46.80 -- NNNHomestead Square 20580-20680 Homestead RCupertino 1976 1s Standalone 167,019 -- 167,019 0 100.0% $45.90 -- NNN*1375 S De Anza Blvd 1375 S De Anza Blvd Cupertino 1985 1s Standalone 6,222 -- 6,222 6,222 0.0% $42.00 -- NNN19625-19805 Stevens Creek Blvd 19625-19805 Stevens CreeCupertino 1978 1s Standalone 53,489 -- 53,489 2,299 95.7% $42.00 -- NNN20149 Stevens Creek Blvd 20149 Stevens Creek Blvd Cupertino 1957 1s Standalone 9,600 -- 9,600 6,000 37.5% $40.50 -- NNN*10650 Bubb Rd 10650 Bubb Rd Cupertino 1980 1s Standalone 2,400 -- 2,400 0 100.0% $39.96 -- NNN*ABN Plaza 19929-19989 Stevens CreeCupertino 2003 2s In-line 5,322 -- 10,643 2,638 75.2% $34.08 -- NNN*1189 S De Anza Blvd 1189 S De Anza Blvd San Jose 1951 1s Standalone 2,844 -- 2,844 0 100.0% $48.00 -- NNN1071-1091 S De Anza Blvd 1071-1091 S De Anza Blvd San Jose 1978 1s Standalone 26,433 -- 26,433 10,000 62.2% $42.00 -- NNNClarendon Plaza 1072 S De Anza Blvd San Jose 1989 2s In-line 19,834 -- 39,668 4,608 88.4% $42.00 -- NNN1510 S De Anza Blvd 1510 S De Anza Blvd San Jose 1974 1s Standalone 7,000 -- 7,000 7,000 0.0% $42.00 -- NNN5124-5144 Stevens Creek Blvd 5124-5144 Stevens Creek BSan Jose 1995 1s Standalone 24,729 -- 24,729 6,102 75.3% $42.00 -- NNNSafeway/ Cost Plus World Market/ Total Win5146-5170 Stevens Creek BSan Jose 1973 1s Standalone 158,392 -- 158,392 9,811 93.8% $42.00 -- NNNPark Lane Plaza 5152-5278 Moorpark Ave San Jose 1968 1s Standalone 70,000 -- 70,000 1,208 98.3% $36.00 -- NNN5205 Prospect Rd 5205 Prospect Rd San Jose 1960 1s Standalone 74,218 -- 74,218 18,114 75.6% $36.00 -- NNN1080 Saratoga Ave 1080 Saratoga Ave San Jose 1966 1s Standalone 17,380 -- 17,380 1,178 93.2% $31.80 -- NNN1547-1551 Saratoga Ave 1547-1551 Saratoga Ave San Jose 1962 1s Standalone 6,770 -- 6,770 630 90.7% $30.47 -- NNN*982 S De Anza Blvd 982 S De Anza Blvd San Jose 1964 2s Standalone 1,410 -- 10,048 1,410 86.0% $19.98 -- NNN*2801-2807 El Camino Real 2801-2807 El Camino Real Santa Clara 2005 1s Standalone 3,926 -- 3,926 0 100.0% $54.00 -- NNN5241-5245 Stevens Creek Blvd 5241-5245 Stevens Creek BSanta Clara 1995 1s Standalone 20,122 -- 20,122 0 100.0% $44.40 -- NNN3530-3560 Homestead Rd 3530-3560 Homestead Rd Santa Clara 1974 1s Standalone 7,000 -- 7,000 1,610 77.0% $42.00 -- NNN4343 Stevens Creek Blvd 4343 Stevens Creek Blvd Santa Clara 1966 1s -- 18,905 -- 18,905 0 100.0% $33.10 -- NNN*3510 Homestead Rd 3510 Homestead Rd Santa Clara 1974 1s Standalone 89,750 -- 89,750 33,350 62.8% $30.00 -- NNNKiely Plaza 1052-1092 Kiely Blvd Santa Clara 1974 1s Standalone 23,766 -- 23,766 846 96.4% $29.40 -- NNN3220-3232 El Camino Real 3220-3232 El Camino Real Santa Clara 1951 1s Standalone 6,319 -- 6,319 1,600 74.7% $25.38 -- NNN*3330 El Camino Real 3330 El Camino Real Santa Clara 1975 2s Standalone 4,811 -- 9,623 409 95.7% $24.30 -- NNN*2570 El Camino Real 2570 El Camino Real Santa Clara 1964 1s Standalone 5,992 -- 5,992 0 100.0% $22.14 -- NNN*3203-3207 Cabrillo Ave 3203-3207 Cabrillo Ave Santa Clara 1989 2s In-line 3,164 -- 6,327 1,312 79.3% $18.90 -- NNN*Moonlite Shopping Center 2610-2790 El Camino Real Santa Clara 1960 1s Standalone 169,375 -- 169,375 10,525 93.8% $12.00 -- NNN151-161 E El Camino Real 151-161 E El Camino Real Sunnyvale 1979 1s Standalone 10,615 -- 10,615 3,000 71.7% $47.40 -- NNN510 E El Camino Real 510 E El Camino Real Sunnyvale 1979 1s Standalone 12,606 -- 12,606 0 100.0% $45.00 -- NNN913-919 W El Camino Real 913-919 W El Camino RealSunnyvale 1991 1s Standalone 5,211 -- 5,211 1,384 73.4% $42.00 -- NNN1265 W El Camino Real 1265 W El Camino Real Sunnyvale 1967 1s Standalone 6,020 -- 6,020 5,400 10.3% $42.00 -- NNNWestmoor Village 1211-1291 S Mary Ave Sunnyvale 1961 1s In-line 60,909 -- 60,909 2,520 95.9% $42.00 -- NNN1111 W El Camino Real 1111 W El Camino Real Sunnyvale 1984 2s Standalone 13,122 -- 26,243 0 100.0% $36.13 -- NNN984-994 W El Camino Real 984-994 W El Camino RealSunnyvale -- 1s Standalone 13,339 -- 13,339 4,056 69.6% $36.00 -- NNN130 E El Camino Real 130 E El Camino Real Sunnyvale 1964 1s Standalone 37,203 -- 37,203 0 100.0% $30.00 -- NNN631-693 Grape Ave 631-693 Grape Ave Sunnyvale 1965 1s Standalone 10,044 -- 10,044 936 90.7% $28.80 -- NNN751-799 E El Camino Real 751-799 E El Camino Real Sunnyvale 1993 2s Standalone 172,613 -- 172,613 4,812 97.2% $28.58 -- NNN*Available RMA Listings Totals:46 Properties197332,9521,504,786158,56589.5%$35.41NNN19446.00 Retail Comps: InvAvailThe Concord Group25 APPENDIX D2iiCURRENT RETAIL INVENTORY - EXECUTED LEASESRETAIL MARKET AREAAUGUST 2019Executed RMA LeasesYearTypicalAreaRentable Building Area (RBA)Ann. Lease RateBuilding NameAddressCityBuiltElev.TypeFloorLeasedTotalAvail.% LeaseRentDateTypeRetail Market Area - Retail Leases20735 Stevens Creek Blvd 20735 Stevens Creek Blvd Cupertino 1991 1s 3 Star Retail 13,205 1,200 13,205 0 100.0% $57.00 3/28/2019 NNN*20672-20676 Homestead Rd 20672-20676 Homestead RCupertino 1989 1s 3 Star Retail 7,097 2,041 7,097 0 100.0% $57.00 1/24/2019 NNN*20030-20080 Stevens Creek Blvd 20030-20080 Stevens CreeCupertino 2015 1s 3 Star Retail 7,045 1,271 7,045 0 100.0% $54.00 2/14/2019 NNN*19369 Stevens Creek Blvd 19369 Stevens Creek Blvd Cupertino 2016 1s 3 Star Freestanding 9,502 2,217 9,502 0 100.0% $52.00 10/11/2018 NNN19625-19805 Stevens Creek Blvd 19625-19805 Stevens CreeCupertino 1978 1s 3 Star Freestanding 53,489 1,600 53,489 2,299 95.7% $51.00 10/29/2018 NNN*20803 Stevens Creek Blvd 20803 Stevens Creek Blvd Cupertino 2015 1s 3 Star Retail 7,000 2,809 7,000 0 100.0% $51.00 10/9/2018 NNN*20269-20289 Stevens Creek Blvd 20269-20289 Stevens CreeCupertino 1980 1s 2 Star Freestanding 9,706 1,294 9,706 0 100.0% $47.40 10/15/2018 NNN*1131-1173 S De Anza Blvd 1131-1173 S De Anza Blvd San Jose 1965 2s 3 Star Freestanding 20,383 1,600 31,412 0 100.0% $54.00 11/16/2018 NNN*1191-1205 S De Anza Blvd 1191-1205 S De Anza Blvd San Jose 2017 2s 3 Star Freestanding 13,000 1,560 13,000 2,117 83.7% $48.00 6/18/2019 NNN*5152-5278 Moorpark Ave 5152-5278 Moorpark Ave San Jose 1968 1s 3 Star Freestanding 70,000 2,011 70,000 1,208 98.3% $34.20 8/6/2018 NNN*6130-6186 Bollinger Rd 6130-6186 Bollinger Rd San Jose 1969 1s 3 Star Freestanding 106,000 23,672 106,000 0 100.0% $30.00 7/5/2019 NNN*3070-3080 El Camino Real 3070-3080 El Camino Real Santa Clara 2006 1s 3 Star Freestanding 8,894 1,592 8,894 0 100.0% $54.00 3/1/2019 NNN*3070-3080 El Camino Real 3070-3080 El Camino Real Santa Clara 2006 1s 3 Star Freestanding 8,894 1,100 8,894 0 100.0% $42.00 5/3/2019 NNN*777 Lawrence Expy 777 Lawrence Expy Santa Clara 1961 1s 3 Star Freestanding 19,920 6,010 19,920 0 100.0% $42.00 2/13/2019 NNN*4611 Stevens Creek Blvd 4611 Stevens Creek Blvd Santa Clara 1973 1s 3 Star Freestanding 3,750 3,750 3,750 0 100.0% $36.00 10/10/2018 NNN*3460-3488 El Camino Real 3460-3488 El Camino Real Santa Clara 1992 1s 3 Star Freestanding 41,287 1,777 41,287 0 100.0% $34.20 10/18/2018 NNN*3148 El Camino Real 3148 El Camino Real Santa Clara 1988 2s 3 Star Office 7,600 992 15,200 1,475 90.3% $33.00 6/17/2019 NNN*3330 El Camino Real 3330 El Camino Real Santa Clara 1975 2s 2 Star Retail 4,811 600 9,623 409 95.7% $30.00 4/11/2019 NNN*2610-2790 El Camino Real 2610-2790 El Camino Real Santa Clara 1960 1s 4 Star Freestanding 169,375 18,144 169,375 10,525 93.8% $24.00 8/17/2018 NNN*2610-2790 El Camino Real 2610-2790 El Camino Real Santa Clara 1960 1s 4 Star Freestanding 169,375 17,542 169,375 10,525 93.8% $24.00 8/17/2018 NNN*2610-2790 El Camino Real 2610-2790 El Camino Real Santa Clara 1960 1s 4 Star Freestanding 169,375 10,000 169,375 10,525 93.8% $12.36 2/1/2019 NNN*751-799 E El Camino Real 751-799 E El Camino Real Sunnyvale 1993 2s 4 Star Retail 172,613 1,320 172,613 4,812 97.2% $51.00 8/27/2018 NNN*751-799 E El Camino Real 751-799 E El Camino Real Sunnyvale 1993 2s 4 Star Retail 172,613 2,306 172,613 4,812 97.2% $51.00 8/27/2018 NNN*798-820 E El Camino Real 798-820 E El Camino Real Sunnyvale 2008 1s 3 Star Retail 5,720 1,800 5,720 0 100.0% $42.00 6/1/2019 NNN*510 E El Camino Real 510 E El Camino Real Sunnyvale 1979 1s 3 Star Retail 12,606 2,591 12,606 0 100.0% $41.40 4/29/2019 NNN*510 E El Camino Real 510 E El Camino Real Sunnyvale 1979 1s 3 Star Retail 12,606 4,732 12,606 0 100.0% $41.40 11/27/2018 NNN*440-474 E El Camino Real 440-474 E El Camino Real Sunnyvale 1987 1s 3 Star Retail 32,000 956 32,000 0 100.0% $37.80 10/15/2018 NNN*984-994 W El Camino Real 984-994 W El Camino RealSunnyvale -- 1s 2 Star Retail 13,339 2,093 13,339 4,056 69.6% $36.00 3/28/2019 NNN*751-799 E El Camino Real 751-799 E El Camino Real Sunnyvale 1993 2s 4 Star Retail 172,613 922 172,613 4,812 97.2% $29.48 1/10/2019 NNN*Executed RMA Leases Totals:29 Properties191852,201119,5021,537,25957,57596.3%$32.71NNNRetail Market Area - Entertainment Retail Leases22350-22382 Homestead Rd 22350-22382 Homestead RCupertino 1962 1s 2 Star Freestanding 7,257 1,076 7,257 0 100.0% $32.52 8/23/2018 NNN*639-643 S Bernardo Ave 639-643 S Bernardo Ave Sunnyvale 1958 1s 3 Star Freestanding 34,544 1,420 34,544 0 100.0% $33.02 12/6/2018 NNNExecuted Entertainment RMA Leases Totals:2 Properties196020,9012,49641,8010100.0%$32.80NNN19446.00 Retail Comps: InvExecThe Concord Group26 EXHIBIT D2iiiCOMPARABLE RETAIL LOCATIONSRETAIL MARKET AREAAUGUST 2019Note: Values in parentheses represent year built and NNN lease terms PSF.Color-Codedby FSG Lease:Red= Above $45.00Yellow = $45.00 - $40.00Green= $40.00 - $35.00Blue= $35.00 - $30.00Purple= Below $30.00Subject Site19446.00 Retail Comps: Retail MapPage 1 of 2The Concord Group27 EXHIBIT D2iiiCOMPARABLE RETAIL LOCATIONS - ZOOMRETAIL MARKET AREAAUGUST 2019Note: Values in parentheses represent year built and NNN lease terms PSF.Subject SiteColor-Codedby FSG Lease:Red= Above $45.00Yellow = $45.00 - $40.00Green= $40.00 - $35.00Blue= $35.00 - $30.00Purple= Below $30.0019446.00 Retail Comps: Retail MapPage 2 of 2The Concord Group28 APPENDIX D3 PROGRAM RECOMMENDATIONS & POSTIONING - RETAIL RETAIL MARKET AREA AUGUST 2019 Product Monthly Annual Assumed Positioning - Traditional Retail $5.00 $60.00 /NNN Assumed Positioning - Entertainment Retail $2.50 $30.00 /NNN $10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 Assumed Positioning - Traditional Retail TCG Recs - Entertainment Retail 20520-20540 Stevens Creek Blvd Loree Center 10562-10624 S De Anza Blvd 10215-10225 S De Anza Blvd 21739-21749 Stevens Creek Blvd St. Joseph's Retail Homestead Square 1375 S De Anza Blvd 19625-19805 Stevens Creek Blvd 20149 Stevens Creek Blvd 10650 Bubb Rd ABN Plaza 1189 S De Anza Blvd 1071-1091 S De Anza Blvd Clarendon Plaza 1510 S De Anza Blvd 5124-5144 Stevens Creek Blvd Safeway/ Cost Plus World Market/ Total Wine Park Lane Plaza 5205 Prospect Rd 1080 Saratoga Ave 1547-1551 Saratoga Ave 982 S De Anza Blvd 2801-2807 El Camino Real 5241-5245 Stevens Creek Blvd 3530-3560 Homestead Rd 4343 Stevens Creek Blvd 3510 Homestead Rd Kiely Plaza 3220-3232 El Camino Real 3330 El Camino Real 2570 El Camino Real 3203-3207 Cabrillo Ave Moonlite Shopping Center 151-161 E El Camino Real 510 E El Camino Real 913-919 W El Camino Real 1265 W El Camino Real Westmoor Village 1111 W El Camino Real 984-994 W El Camino Real 130 E El Camino Real 631-693 Grape Ave 751-799 E El Camino Real 20735 Stevens Creek Blvd 20672-20676 Homestead Rd 20030-20080 Stevens Creek Blvd 19369 Stevens Creek Blvd 19625-19805 Stevens Creek Blvd 20803 Stevens Creek Blvd 20269-20289 Stevens Creek Blvd 1131-1173 S De Anza Blvd 1191-1205 S De Anza Blvd 5152-5278 Moorpark Ave 6130-6186 Bollinger Rd 3070-3080 El Camino Real 3070-3080 El Camino Real 777 Lawrence Expy 4611 Stevens Creek Blvd 3460-3488 El Camino Real 3148 El Camino Real 3330 El Camino Real 2610-2790 El Camino Real 2610-2790 El Camino Real 2610-2790 El Camino Real 751-799 E El Camino Real 751-799 E El Camino Real 798-820 E El Camino Real 510 E El Camino Real 510 E El Camino Real 440-474 E El Camino Real 984-994 W El Camino Real 751-799 E El Camino Real 639-643 S Bernardo Ave 22350-22382 Homestead Rd Annual Lease Rate (NNN) AVAILABLE LEASES Cupertino EXECUTED LEASES Entertainment Retail Cupertino San Jose Santa Clara Sunnyvale San Jose Santa Clara Sunnyvale 19446.00 Retail Comps: Retail Positioning The Concord Group 1 Cyrah Caburian From:Lisa Warren <la-warren@att.net> Sent:Monday, August 19, 2019 1:48 PM To:City Council Cc:City Attorney's Office; Deborah L. Feng; Benjamin Fu Subject:Comments for August 20, 2019 City Council meeting Attachments:Feb 4 2015 GPA Workshop Summary attachment to May 19,2015 CC staff report.pdf; Peak Democracy Survey Off Forum Responses Summary 43 pages attachment to May 19, 2015 CC staff report.pdf; White Paper on Development Management attachment from May 19,2015 City Council mtg - Communtiy Benefits etc.pdf; Staff Report May 19, 2015 - Item 7 City Council mtg GPA.pdf Mayor, Vice Mayor and Council Members, I will need to leave before the end of tomorrow night's council meeting and can't know how far into the agenda you will when it is time for me to go. I am, therefore, sending this email to summarize at least a bit of what I tried to convey at the Planning Commission's June 26, 2019 meeting. I am asking that you respect the passionate community input that was given nearly 5 years ago after November and December City Council meetings were held,and controversial decisions were made. Much has happened in the time since then and, as we all understand, an 'awakening' of sorts occurred in the Cupertino community that I have lived in for nearly 33 years. Given the nearly five year mark, some history has been 'lost' or 'ignored', and community burnout has occurred at some level. Over that same time period, there has been a very significant -and growing- influence from NON Cupertino residents/constituents and Lobbyists that continues to grow and have increased funding from 'developer groups'. BUT there are true answers as to what residents have an appetite for. I don't want that lost while current decisions are being contemplated. Please refer to the documents that I have attached here. They are from 2015. The city 'reluctantly' (my word) engaged residents and asked for their vision of the community. Please respect that, now that some form of 'correction' is being considered. Review the 'answers' in the summaries attached. This is especially important considering all of the 'turnover' in staff and elsewhere. There is further information and documentation that I have not included here, but can provide at another time if requested. Please pay very close attention to any 'map' changes being considered. Years have gone by where the city has had problematic inconsistencies with GP and related maps. This issue has created multiple problems and has been thought by some to be 'intentional'. Not good. 2 Note regarding Planning Commission report on some of the agenda items --- Actions taken on Aug 13th by 3 members of Planning Commission (Fung, Saxena, Takahashi) during discussion of approval of minutes from their July 30, 2019 meeting are considered by many to be very unorthodox and questionable. Regardless of the timing of your CC meeting, it would have been very wise, and appropriate to postpone to a future PC meeting where all four commissioners who were part of the July 30 discussion were present to discuss and vote. Vice Chair Saxena suggested a postponement but that was ignored. Thank you. Lisa Warren Excerpt from Staff report on Item 7 (GPA) May 19, 2015 City Council Agenda RECOMMENDED ACTION Recommend that the City Council conduct a public hearing and take the following actions: 1. Adopt Resolution No. 15-042 adopting the Final 2014-2022 Housing Element (GPA2013- 02); 2. Make no further amendments to the General Plan (Community Vision 2040) adopted on December 4, 2014 (GPA-2013-01); and 3. Adopt Resolution No. 15-043, a policy establishing a process to review General Plan amendments February 4, 2015 | Cupertino Community HallCOMMUNITY-WIDE WORKSHOP #4 SUMMARY Workshop Overview Workshop OverviewOn December 4, 2014, the City Council formally adopted an amended General Plan known as Community Vision 2040. The City Council; however, did not approve increases to development allocations (other than Housing Element sites and office allocations for Vallco), increases to existing building heights or the proposed Community Benefits Program. Workshop OverviewThe City then hosted a community-wide workshop on February 4, 2015, to continue the discussion on these important topics.Over 100 people attended the workshop and provided extensive feedback, which is summarized on the following pages. Introduction and PresentationThe workshop began with a welcome from Mayor Rod Sinks, followed by introductions and an overview presentation given by project consultants Eileen Goodwinand Chris Beynon. (Note: The workshop video and presentation are available at: www.cupertinogpa.org) Workshop OverviewThe workshop was intended to include an interactive polling exercise to solicit community input; however, due to technical issues the survey was not able to be conducted live during the workshop. (Note: Following the workshop City staff and the consultants developed an online version of the survey that was available between 2/13/15 and 3/3/15 at www.cupertinogpa.org) Following the presentation, community members were divided into groups and asked to discuss and provide comments on two key policy topics:Breakout Group Discussions1. What building height maximums are most appropriate within eachNode and Gateway?2. Do you think the proposedCommunity Benefits Program is a good policy strategy? If so, what types of benefits would be acceptable or needed? Groups were provided large maps to mark up with ideas and thoughts, as well as a handout with prototypical buildings and heights. City staff facilitators were available to record comments. Breakout Group Discussions Each group provided a wealth of ideas, input and perspectives that are summarized on the following pages. The first section provides a general summary of major ideas gathered under each question.This is followed by specific input and comments from each of the 13 groups.Breakout Group Discussions Overall Community Input Overall Community InputWhen asked what height maximum is most appropriate in the Stelling Gateway, the groups answered as follows:ƒLess than 45 feet: one groupƒ45 feet: seven groupsƒ60 feet: four groupsƒ75 feet: one group Overall Community InputWhen asked what height maximum is most appropriate in the North De Anza Gateway, the groups answered as follows:ƒ45 feet: five groupsƒ60 feet: five groupsƒ75 feet: one groupƒ90 feet: two groupsƒ145 feet: no groups Overall Community InputWhen asked what height maximum is most appropriate in the North De Anza Special Area, the groups answered as follows:ƒ45 feet: six groupsƒ45 feet (west side) and 60 feet (east side): one groupƒ60 feet: one groupƒ75 feet: two groupsƒ90 feet: three groups Overall Community InputWhen asked what height maximum is most appropriate in the North Vallco Gateway, the groups answered as follows:ƒ45 feet: six groupsƒ60 feet: five groupsƒ75 feet: no groupsƒ90 feet: one groupƒ145 feet: no groupsƒNo answer: one group Overall Community InputWhen asked what height maximum is most appropriate in the City Center Node, the groups answered as follows:ƒ45 feet: five groupsƒ60 feet: three groupsƒ75 feet: one groupƒ90 feet: two groupsƒ110 feet: no groupsƒNo answer: two groups Overall Community InputWhen asked what height maximum is most appropriate in the North Crossroads Node, the groups answered as follows:ƒ45 feet: six groupsƒ60 feet: three groupsƒ60 of 75 feet: one groupƒ75 feet: two groupsƒ90 feet: one groupƒ110 feet: no groups Overall Community InputWhen asked what height maximum is most appropriate in the Oaks Gateway, the groups answered as follows:ƒ45 feet: three groupsƒ45 or 90 feet: one groupƒ60 feet: seven groupsƒ75 feet: one groupƒ90 feet: one group Overall Community InputWhen asked whether or not they supported the concept of a Community Benefits Program, the groups answered as follows: ƒFive groups supporteda Community Benefits ProgramƒThree groups were dividedon whether or not to support a Community Benefits ProgramƒFive groups did not supporta Community Benefits Program Individual Group Input Group #1 Group #1 Building HeightsInput by area:ƒStelling Gateway: 45 feetƒNorth De Anza Gateway: 45 feetƒNorth De Anza Special Area: 45 feetƒNorth Vallco Gateway: 60 feetƒCity Center Node: 45 feetƒNorth Crossroads Node: 45 feetƒOaks Gateway: 45 feet Group #1 Building Heights (continued)Other comments:ƒSet backs are an important consideration that need to be factored in along with building heightƒThe City should respect the carrying capacity of CupertinoƒThe community should review requests for exceptions to height standards on a case-by-case basis ƒThis group was not supportive of the proposed Community Benefits ProgramƒIf a Community Benefits Program was established and the group was required to identify acceptable benefits, then the group would recommend street improvementsGroup #1Community Benefits Program Group #2 Group #2Building HeightsInput by area:ƒStelling Gateway: 45 feetƒNorth De Anza Gateway: 60 feetƒNorth De Anza Special Area: 90 feetƒNorth Vallco Gateway: 45 feetƒCity Center Node: 60 feetƒNorth Crossroads Node: 75 feetƒOaks Gateway: 60 feet Group #2Building Heights (continued)Other comments:ƒThe City needs to consider traffic pressures associated with mixed-use housing Group #2Community BenefitsƒThe majority of the group supported the Community Benefits Program ƒAcceptable Community Benefits components could include:– Bike facilities, particularly around the Apple Campus–Parks– Parking Group #3 Group #3 Building HeightsInput by areaƒStelling Gateway: 45 feetƒNorth De Anza Gateway: 45 feetƒNorth De Anza Special Area: 45 feetƒNorth Vallco Gateway: 60 feetƒCity Center Node: 45 feetƒNorth Crossroads Node: 45 feetƒOaks Gateway: 45 feet Other comments:ƒNo changes to existing zoning (height standards)ƒSetbacks are an important considerationƒThe City needs to respect the carrying capacity of CupertinoƒThe community should review requests for exceptions to height standards on a case-by-case basisƒWith additional height comes more density and more traffic Building Heights (continued)Group #3 ƒThe group was not supportive of the Community Benefits ProgramƒDesire to solicit community input on a case-by-case basis ƒShare examples of successful community benefit programs in other citiesƒCommunity Benefits are a switch and bait as far as the idea vs. implementationƒHistorically, Community Benefits Programs have not been transparent processes – the community was not included in the discussion of how the benefits were allocatedGroup #3 Community Benefits ƒThe group identified acceptable benefits as listed below; however, in the end agreed they did not want any community benefits:– Parks: build large, dynamic parks with limited paths/pavement– Library enhancementsGroup #3 Community Benefits (continued) Group #4 Group #4Building HeightsInput by area:ƒStelling Gateway: 45 feetƒNorth De Anza Gateway: 60 feetƒNorth De Anza Special Area: 90 feetƒNorth Vallco Gateway: 45 feetƒCity Center Node: 60 feetƒNorth Crossroads Node: 60-75 feetƒOaks Gateway: 60 feet Group #4Building Heights (continued)Other comments:ƒKeep all heights same as existingƒLower height maximums at the Oaks Shopping Center and near residential propertiesƒHigh-rise development needs access points along freewaysƒNorth De Anza Special Area should be split into East and West ƒThe group was supportive of a Community Benefits Program on a case-by-case basis ƒAcceptable Community Benefits components could include: – Public easements throughout new projects– Maintaining existing mature trees and planting more new trees– Providing enhanced bike and pedestrian pathways and bridges– Exercise equipment for seniors in parks– Promoting alternative modes of transportation– Providing more public parks, recreation centers, and health clubs– Requiring developers to work with schools to provide benefits to the student body– Additional fire and Sheriff stations– Increased parking suppliesGroup #4Community Benefits Group #5 Input by area:ƒStelling Gateway: 75 feetƒNorth De Anza Gateway: 45 feetƒNorth De Anza Special Area: 45 feetƒNorth Vallco Gateway: 45 feetƒCity Center Node: 60 feetƒNorth Crossroad Node: 45 feetƒOaks Gateway: 60 feetGroup #5Building Heights Other comments:ƒConcerns regarding increased traffic and the loss of Cupertino’s suburban character ƒDo not allow developers to influence how Cupertino isplannedGroup #5Building Heights (continued) ƒThe group was divided on supporting the Community Benefits ProgramƒAcceptable Community Benefits components could include:– Street beautification as a priority –Parking– Bike Lanes– Accessibility– SchoolsGroup #5Community Benefits Group #6 Input by area:ƒStelling Gateway: 45 feetƒNorth De Anza Gateway: 60 feetƒNorth De Anza Special Area: 45 feetƒNorth Vallco Gateway: 45 feetƒCity Center Node: 45 feetƒNorth Crossroads: 60 feetƒOaks Gateway: 60 feetGroup #6 Building Heights Other comments:ƒConsidered traffic pressures associated with mixed-use housingƒHalf the table wanted to allow for increased heights along De Anza Boulevard, the other half did not want to increase heightsGroup #6 Building Heights (continued) ƒThe group was divided on supporting the Community Benefits ProgramGroup #6 Community Benefits Group #7 Group #7Building HeightsInput by area: ƒStelling Gateway: 45-60 feet ƒNorth De Anza Gateway: 45 feet (max out building heights when a hotel)ƒNorth De Anza Special Area: 45 feet (high rise office with some commercial/restaurant areas on the first floor. Group felt this was the most appropriate area for dense office)ƒNorth Vallco Gateway: 45 feetƒCity Center Node: 90 feetƒNorth Crossroads Node: 45 feetƒOaks Gateway: 60 feet Group #7Building Heights (continued) Other comments:ƒConcern over comprising character of neighborhoods with increased height and sizeƒYounger participants wanted something supportive of De Anza College and studentsƒNorth De Anza Special Area was identified as the most appropriate area for dense office development Group #7Building Heights (continued) Other comments:ƒRecommendations included focused high-rise with a small footprintƒProvide space for mass transitƒMixed-use throughout CupertinoƒConcerns regarding increased housing density and increased traffic ƒThe majority of the group was supportive of the Community Benefits ProgramƒThe group suggested the entire developer payment be made up front, and that a recurring payment may not work for developers that end up selling the development ƒIf a community benefit is considered, the group desires the developer to pay the City directly and allow the City to manage the funds Group #7 Community Benefits ƒBenefits should be spread around the City, not necessarily in the project area with the exception of transportation improvements which should be closer to the projectƒAcceptable Community Benefits components could include:– Open space– Walkable areas, including sidewalks and pedestrian infrastructure (benches, trash receptacles, landscaping)– Transportation Improvements, including mass transit and bike lanes– Senior Housing– Affordable HousingCommunity Benefits (continued)Group #7 Group #8 Group #8 Building HeightsInput by area:ƒStelling Gateway: 45 feetƒNorth De Anza Gateway: 60 feetƒNorth De Anza Special Area: 90 feetƒNorth Vallco Gateway: 60 feetƒCity Center Node: 45 feetƒNorth Crossroads Node: 60 feetƒOaks Gateway: 60 feet Group #8 Building Heights (continued)Other comments:ƒConcerns about increased volume of traffic and school overcrowdingƒConcern over maintaining Cupertino charm if allowing highdensity ƒThe group was not supportive of the Community Benefits ProgramGroup #8 Community Benefits Group #9 Group #9 Building HeightsInput by area: ƒStelling Gateway: Less than 45 feetƒNorth De Anza Gateway: 90 feetƒNorth De Anza Special Area: 60 feet– East side of De Anza: 60 feet– West side of De Anza: 45 feetƒNorth Vallco Gateway: 45 feetƒCity Center Node: 90 feetƒNorth Crossroads Node: 45 feetƒOaks Gateway: Split between 45 feet and 90 feet Group #9Building HeightsOther comments:ƒRecommend lower height standard for Stelling Gatewaybecause it is near high schoolƒConcern that taller buildings will bring more traffic ƒThe group was divided on supporting the Community Benefits ProgramGroup #9 Community Benefits Group #10 Group #10 Building HeightsInput by area:ƒStelling Gateway: 60 feetƒNorth De Anza Gateway: 90 feetƒNorth De Anza Special Area: 75 feetƒNorth Vallco Gateway: 90 feetƒCity Center Node: n/aƒNorth Crossroads Node: 60 feetƒOaks Gateway: 90 feet ƒA majority of the group did not support the Community Benefits Program ƒAcceptable Community Benefits components could include:– Helping schools accommodate more students and maintain a good student/teacher ratio– Expanding alternative modes of travel to help mitigate traffic congestion– Enhancing parks with additional amenities – Mitigating noise from traffic and construction– Adding parking– Enhancing bicycle facilities and infrastructure – Allocating more money for banquet hall improvementsGroup #10 Community Benefits Group #11 Group #11 Building HeightsInput by area: ƒStelling Gateway: 45 feetƒNorth De Anza Gateway: 45 feet ƒNorth De Anza Special Area: 45 feetƒNorth Vallco Gateway: 60 feetƒCity Center Node: 45 feetƒNorth Crossroads Node: 45 feetƒOaks Gateway: 45 feet Group #11 Building Heights (continued)Other comments:ƒThere is a strong connection between height requirements and setbacks – setbacks are more important than heightƒDense housing will increase the parking problemƒKeep large amounts of housing from being built ƒThe group was supportive of Community Benefits Program if benefits fall within “the norm”ƒThe group requested examples of what other cities have done with community benefits (lessons learning and results) and that the City provide a legal framework that guides the developer through the community benefits programƒAcceptable Community Benefits components could include:–Schools– Parks – TransitGroup #11 Community Benefits Group #12 Group #12 Building HeightsInput by area:ƒStelling Gateway: 60ƒNorth De Anza Gateway: 60 feetƒNorth De Anza Special Area: 60 feetƒNorth Vallco Gateway: n/aƒCity Center Node: n/aƒNorth Crossroads Node: 90 feetƒOaks Gateway: 60 feet Group #12 Building Heights (continued)Other CommentsƒMed/high rise concentrated near Apple II campus ƒThe majority of the group did not support the Community Benefits Program; however, the two business owners in the group would accept Community Benefits ProgramGroup #12 Community Benefits Group #13 Group #13Building HeightsInput by area:ƒStelling Gateway: 60 feetƒNorth De Anza Gateway: 75 feetƒNorth De Anza Special Area: 75 feetƒNorth Vallco Gateway: 60 feetƒCity Center Node: 75 feetƒNorth Crossroads Node: 75 feetƒOaks Gateway: 75 feet Group #13Building HeightsOther CommentsƒMed/high rise concentrated near Apple II campus ƒThe majority of the group supported the Community Benefits ProgramƒAcceptable Community Benefits components could include:–Parks– Recreation–Pools– Road Maintenance– ParkingGroup #13Community Benefits Next Steps Next StepsCommunity input from this workshop and input from the online survey will be presented to the City Council in Spring 2015. Visit the Project WebsiteStay informed! The City has developed a website that will be the community’s portal for all project-related information, including recent news, upcoming events, schedule, maps and documents. Please visit the website at:www.cupertinogpa.org Peak Democracy Recommendations for Interpreting Cupertino Town Hall Survey Results for the Community Benefits Program – Off Forum Responses Prepared for the City of Cupertino Introduction Participation in Cupertino Town Hall is a voluntary public comment process. As with any self-selecting, non-scientific survey process, (e.g., city council meetings, informal communications with decision makers, etc.), the responses are not necessarily representative of the entire Cupertino population. We recommend that these responses be considered along with public input expressed in all available channels for participation. This report summarizes the results for the 429 Off Forum responses from Part A of the survey in figure 1 below, and the 182 Off Forum responses from Park B of the survey in figure 2. "On Forum" versus "Off Forum": Registered versus Not Registered There were 382 "On Forum" responses and 429 "Off Forum" responses in Part A: Building Heights within Nodes and Gateways portion of the survey and 300 "On Forum" responses and 182 "Off Forum" responses in Part B: Community Benefits Program and Building Planes portion of the survey. In order to maximize the quality of participation, we encourage participants to register with their full name and address. Registration enables us to identify the neighborhoods from which the responses originate, verify that authors do not post multiple responses, and contact the author in case of any problem. Responses from those who complete their registration are called "On Forum" and are displayed to the general public. The On Forum responses are summarized in the report titled “Peak Democracy Recommendations for Interpreting Cupertino Town Hall Survey Results – On Forum Responses.” In order to broaden participation opportunities, we do accept responses from participants without registering. Responses from users who do not complete their registration are called "Off Forum" because we are not able to identify the geographical location of these responses and/or verify multiple posts from one user. Occasionally responses that do not comply with our published civility guidelines are also moved to the Off Forum category. The “Off Forum” responses should be considered as a separate channel of feedback, much like feedback via anonymous emails and letters to government staff and elected officials. Information for both On Forum and Off Forum responses are provided separately for consideration, but it is important to keep in mind that the Off Forum responses are similar to an informal online survey: They are more likely to contain responses from participants outside Cupertino and/or a participant who posts multiple responses. Compliance with Guidelines for Civility Peak Democracy monitors responses for compliance to our published Guidelines for Civility [http://peakdemocracy.com/portals/213/db_message/statement_standards]. In both Parts A and B of the survey (Building Heights within Gateways and Nodes, and Community Benefits Program and Building Planes), we discovered 13 responses from one user who registered under 13 different email addresses. We discovered another 3 responses from another user who registered under one name and 3 different email addresses. Those responses are not consistent with our Guidelines for Civility. We move responses that do not comply with our Guidelines for Civility to the Off Forum page, and invite the authors to bring their responses into compliance. In these two cases, the responses were moved Off Forum, and the authors were invited to update their responses. Neither author has responded to our invitation; their responses remain Off Forum. Figure 1: Part A – Community Benefits Program and Building Planes 429 Off Forum responses ‘Other’ responses: 1. concern 2. Concern for Cupertino future 3. Concern for Cupertino future 4. frequent shopper at cupertino 5. I want to buy a house in Cupertino 6. concern for cupertino future 7. I want to buy a house in Cupertino 8. concern for Cupertino's future 9. concern for Cupertino's future, lived here for 12 years and our children plan to move back in the near future. 10. concern for Cupertino future 11. graduate of Cupertino HS - plan to move back someday 12. I do a lots of shopping in Cupertino, and drive there often, and care about the city 13. neighbor interested in cupertino project 14. Concern for Cupertino 15. i am interested in architecture of buildings 16. I care about Cupertino developments 17. Concerning Cupertino 18. I am someone familiar with the flaws in these types of sureys 19. cupertino neighbor city west san jose 20. My child goes to school in Cupertino 21. worked for decades in Cupertino prior to HP leaving town. 22. Further development of our city should not be done unless the traffic problem is solved. We must protect our present standard of living. Higher buildings will require more housing 23. I shop/bike in Cupertino. 24. I own a home in the CUSD near the Cupertino/Santa Clara/San Jose border. ‘Other’ responses: 1. local Chinese radio : sound of hope FM 96.1 2. friend 3. Courier 4. March Cupertno Scene 5. from radio 6. My wife 7. Chamber of Commerce 8. Cupertino scene 9. WeChat 10. nextdoor 11. Nextdoor 12. library post 13. notice left on door 14. City staff 15. From Nextdoor.com post 16. group mediate 17. nextdoor 18. Nextdoor Group 19. NextDoor (So. Monta Vista) 20. social network 21. www.nextdoor.org 22. Nextdoor.com 23. Next Door 24. email group 25. nextdoor 26. NextDoor app 27. parent email group 28. Nextdoor.com 29. Nextdoor 30. Facebook 31. NextDoor Neighbor email 32. Nextdoor 33. Next Door Monta Vista 34. Nextdoor 35. NextDoor Monte Vista 36. all of above ‘Other’ responses: 1. Most of them are unacceptable 2. I want lower heights 3. the height restrictions may be marginally relaxed in only the 100% existing commercial areas if out makes economic sense. 4. The height restrictions may be relaxed if economically necessary in only the existing purely commercial areas. 5. No area should be taller than 1 story. 6. Keep existing heights 7. Near vallco or the apple headquarters is ok with me. By city hall would be acceptable but there I would prefer lower heights than by Vallco 8. what is defined as acceptable heights, it must be safe construction away from people and local traffic 9. Increased from what? Its not clear which heights you are starting from 10. In areas that would not significantly increase traffic congestion 11. All of the above aside from near parks not currently zoned for multi-level and western Cupertino that's zoned residentially. 12. only where a specific project has already been approved 13. There's no way to select more than one. Impossible to select all that apply. 14. Cupertino is already too high. You can't see the hills anymore. 15. Heights affect the skyline, back from the road will be nice and no more than 3 stories. Keep apartments away from single story housing 16. Depends on the area around the proposed building. Can't make blanket statements about freeways and office parks. 17. I'd select "Near freeways", "Near office parks", and "Near public transportation" ‘Other’ responses: 1. I want lower heights 2. I want lower heights 3. 45 feet is unacceptable height. It should not be taller than 2 stories. 4. Prefer to keep existing heights 5. 2 stories 6. Option C 7. 75 8. Lower heights 9. too close to the road 10. current 1-story height 11. Even 45 feet height building blocks out the beautiful mountain view around us. 12. No more than 45 feet AND increase setbacks as well as a building plane that requires anything above 30 foot height to be 'stepped'. There should be NO buildings that go 'straight up'. A 1:1 Building plane is unacceptable for almost anything. 13. Up to 8 stories if attractively designed with acceptable daylight plane. 14. No increased height 15. REDUCE HEIGHT! This is not good for Cupertino! 16. No more than 3 stories 17. No limit 18. Option A: up to 45 feet with 35 foot minimum setback from face of curb or from property line. 19. 45 feet, if the ground floor is retail 20. The height should be integrated and match well with the surrounding buildings. The buildings of this area are mainly one story high. The height of the Stelling Gateway should be one story , not more than 2 story. 21. Why not tear the existing old strip mall and build there. Don't support large structures abutting Stelling. ‘Other’ responses: 1. No high building 2. I want lower heights. 3. I want lower heights 4. Use existing zoning 5. 45 feet is too high. It should not be taller than 2 storeis. 6. Keep existing height 7. 2 stories 8. 75 9. as long as they step back so they don't loom, I'm fine with the higher buildings 10. No increased height 11. as long as it's a hotel, fine. 12. REDUCE HEIGHT BELOW 45feet! 13. 60 feet 14. No limit 15. Option A: up to 45 feet with 35 foot minimum setback from face of curb or from property line. 16. 45 feet, if the ground floor is retail 17. If building a hotel, it is ok with option A (up to 45 feet). If building a residential or residential/commercial mixed area, it should be below 2 stories. ‘Other’ responses: 1. No high building 2. I want lower heights. 3. I want lower height 4. Keep existing height 5. There should be NO CHANGES that increase height or decrease set back from what is currently allowed. There should be a variety of set backs when considering development of properties adjacent to each other 6. up to 8 stories with good design, mixed use, and acceptable daylight plane. 7. no increased height 8. REDUCE HEIGHT BELOW 45 feet!!! 9. This area is too big for one height limit. It needs to be split into multiple areas. 10. No limit 11. 45' west of DeAnza / 60' east of DeAnza 12. If building an office building, option A is OK with me. If residential or residential mixed, no more than 2 stories please. 13. Keep in mind the residential area to the east of DeAnza and to the west of Bandley ‘Other’ responses: 1. Less than 45 ft 2. I want lower heights. 3. I want lower height 4. Keep existing height 5. 2 stories ONLY! 6. lower heights 7. 2-3 STORIES 8. 60 feet should remain the maximum. Given that trees are removed by city and developers, I would reccomendactually reduce the 60 feet to 50 feet. Anything over 30 feet needs to be set back more 9. Prefer 45 feet max 10. no increased height 11. 45 feet 12. as long as it's a hotel 13. 45 feet 14. 45 feet 15. No limit 16. I would consider going lower. I think 45 feet is the right height here. 17. No more than 2 stories high 18. up to 45 feet with 35 foot minimum setback from face of curb or from property line. 19. 45 feet, if the ground floor is retail 20. 45 feet 21. If building hotel, the height up to 4 stories is OK with me. If building residential or mixed, please do not build more than 2 stories. 22. 45 feet 23. 45 ft 24. 45 feet ‘Other’ responses: 1. I want lower heights. 2. I want lower height 3. keep existing height 4. no building allowed as the parking for that area is insufficient. 5. 2-3 STORIES 6. 60 feet with acceptable setbacks, not right against Stevens Creek Blvd 7. Increase setbacks... no less than 35 feet from development side of sidewalk NOT CURB. 45 feet max height 8. Up to 12 stories with appropriate design, mixed use, and 1st floor retail 9. no increased height 10. No limit 11. No more than 2 stories high 12. 45 feet, if the ground floor is retail 13. None, this corner is already overdeveloped and ugly. The existing park at least allows some relief and some green area. ‘Other’ responses: 1. no high building 2. I want lower heights. 3. I want lower height 4. keep existing height 5. According to kind of business, corporate office 6. 1-2 story only 7. 2-3 STORIES 8. Too late, the monstosity is being built already. 9. Up to 12 stories with mixed use residential/retail and a good daylight plane 10. no increased height 11. no residential here. 12. REDUCE HEIGHT BELOW 45 feet!!! 13. No limit 14. No more than 2 stories high 15. 35' if ground floor is retail ‘Other’ responses: 1. I want lower heights. 2. Lower height please 3. No where should be taller than 20 feet. 4. keep existing height 5. Just build retail maximum two stories 40 ft high.No residential building 6. 2-3 STORIES 7. Leave height and architecture the same. 8. No change to current requirements 9. Up to 10 stories with senior housing and student-oriented 1st floor retail 10. no increased height 11. I think this location can handle heights higher than 6 stories 12. 1 story 13. REDUCE HEIGHT BELOW 45 feet!!! 14. No limit 15. Under no circumstances should the heights be over 45 feet here. 16. 45 feet, if the ground floor is retail Text responses: 1. Setback should be 1.5 feet from curb for 1.0 feet for height for arterial roadways 2. Don't build high density office/retail/housing without infrastructure in place - we already suffered traffic jams and accidents in these parts of the city without seeing any improvement plans in sight while planning department and commission just kept building more buildings and putting more cars in the street, more students in the overcrowded schools. You have to build the foundation (traffic routes, schools, parks,...) before you can expand and grow. We don't need blindly and senseless over-building just for the sake of making more profits for the builders and developers. 3. RE: North De Anza/Infinite Loop, please keep new buildings on the east side of De Anza close to the street, so they do not overlook single family homeowners' back yards and bedroom/bathroom windows on Larry Way. Please plant large trees to preserve existing homeowners' privacy in all new developments. Thank you. 4. The City really need to rethink its haphazard and fragmented approach to the "revisioning" and redevelopment of the City of Cupertino. Now is the time to envision and plan the Cupertino of the future. For example, the city is planning to redo City Hall. Has anyone considered moving the location - the current site, in my opion is not optimal. Why not move it to the Crossroads and build a beautiful municipal center - larger than the current needs? Rent out the extra space? 5. Maintain existing height limits to preserve views of surrounding hills. do not wish to live in a concrete jungle of high rise building 6. Please plant trees and have frontage as well as appropriate parking, two parking places per living space 7. 1-The higher you go the more parking is required, the higher the density, the greater impact on traffic and surrounding neighborhoods. Lights at night from taller buildings disperse across a wide area. 2-North Vallco Gateway is so heavily impacted now and it will be worse in the future. How can you consider going higher? 3-North De Anza Special Area-This is a HUGE area you've marked out! The Apple building at 60 ft. looms over the homes behind it. Trees aren't tall enough to mitigate this. At night, the lights from their buildings are so bright that it makes it even worse. Traffic at Mariani and De Anza Blvd. is terrible at rush hour. Apple employees park in the neighborhood on Merritt Drive and Vista Drive to avoid the traffic. 4-City Center-The parking lot that is the main reason you're looking at this area is where employees from the adjacent buildings park AND where retail clients from the Boulanger, etc. park because there never was adequate parking for them. Where are all these people going to park if the lot is developed? PLEASE do not give away street lanes for parking! 5-North Crossroads-Another huge area! Require that whatever development that occurs there that they have adequate parking PLUS an extra percentage say 15% and that the parking be solely on their land. No more using street lanes (Vallco Parkway) and existing street parking (Saich Way, Biltmore Apts) as part of their calculations. The street behind Target should not be used as part of ANYBODY's calculation to meet their parking quotas! 6-Building setbacks should be large on BOTH sides of a corner. The new building by Panera is TOO close to the street on Saich Way. You want to encourage people to walk and feel relaxed but the sidewalk between the building and the street is too confining. Wider sidewalks in pedestrian areas with building setbacks from ALL streets (not just one side). 7. Building planes-the higher the building, the more the building floors have to be set back. 8. Sidewalks-On major streets like Stevens Creek, De Anza, Wolfe/Miller, Homestead, the sidewalks should be buffered from the street by landscape strip to protect the pedestrians from traffic, no exceptions! The wider the street, the farther from the street the sidewalk should be. It protects them from truck mirrors, bicycles, splashing water (if it ever rains), kids riding their bikes on the sidewalk and falling. It also makes it a more inviting walk to retail establishments. 9. Go down - encourage developers to go down, not up. 10. Trees - encourage developers to plant large trees, like the Ash trees that are along Stevens Creek and Wolfe. They hide the buildings, provide shade in the summer and they help absorb noise and pollution. When the wind blows the rustle helps cover up some traffic noise. 8. When a site is zoned with a retail element, the max height is allowed only if the ground floor is retail. 9. Cupertino is no longer the small town some longtime residents cling to. Once the Apple Circle Building was allowed to be built, the entire ambiance of the City had to change from small town to small city. It is inevitable, and this city needs more quality full-service hotels, and universal shops in which to purchase clothing, shoes, and kitchen-wares, etc. As well as good restaurants. 10. I think that the minimum setback from curbs, property lines and side streets would maintain the suburban feel and character of the City of Cupertino best. It allows for plantings and walkways and promotes pedestrian and bicycle use for getting around. Uniform limits to building heights at 45 feet will also foster a friendlier, suburban character to the City. Environmental factors such as water use required for higher density residential and commercial uses have to be considered in limiting during this time of continuing, probably permanent drought. 11. The traffic study stated that the amount of traffic would increase, there would be more noise, etc. Adverse effect on surrounding areas More planning re: traffic before any kind of construction. 12. The City Center height exceptions allowed by the City Council for the construction of the Cypress Hotel et. al. have horribly marred the residential persona and beauty of our city. No amount of hotel tax revenue or contractor concessions should ever compel the City Council to approve such a Los Angelesk-type development. 13. I think that the public did not know or did not understand up until now what the building heights were/are around the city. It is very important that one does not rush into changing building heights in the city, especially now all at one time. This General Plan Amendment seems to be rushing the changes in building heights all over the city in a piece meal, helterskelter manner. And what for? I mean. Why are we doing this? And now with the Vallco situation clouding and complicating everything? I don't think it is appropriate to move forward with any zoning changes in the city. There is too much at stake. 14. I don't support increased heights if possible. The skyline of Cupertino keeps changing & the cozy feel is getting lost. 15. We need to be able to see the sun! 16. Greater heights than currently in the plan will only increase population density and therefore traffic. Without a sound traffic improvement plan, employment and residential densities should not be increased! 17. Increased density is necessary to meet the continuing growing demand for housing and services in the Bay Area. It's better to meet that demand with increases to building height and require similar increases in open space and public transportation. 18. The look and feel of the building is very important to me. I might be open to higher heights if done right. I'd also want to know that the streets could support additional traffic. I chose a lower height for North Stelling Node because Homestead is only two lanes there. I would accept higher heights if traffic could be mitigated. 19. Keep building heights low, and make sure there is adequate parking provided for all usage of the building. Large buildings near the road are visually unappealing. The new construction next to Target, with little/no parking provided, should not have been permitted. There wasn't enough parking there before, and now there will be even more people vying for the nonexistent parking. And you need to limit the number of driveways in/out of these complexes. The situation in front of The Oaks is awful, with people turning into narrow ramps and nearly stopping in the road while others are trying to get on 85. 20. Buildings above 2 stories should not be allowed to be monolithic but have some design aspects to soften the look. 21. This survey puts the cart before the horse; max. office sq. ft should be decided first. It is not just a question of aesthetics but what you put in the buildings and its impact on traffic, schools, etc. 22. Cupertino is getting very crowded and it would good that the city consider reducing/limit the number of new condos/apartments buildings. Even on weekends, the streets in Cupertino is like the rush hour during the weekdays. New offices or shops will be better to serve the increase people coming to live in Cupertino. 23. In the past, height limits set in Cupertino, have helped to establish a sense of "village" and urban community that welcomes families first. Let's not lose what we hold most dear. Safe streets, neighborhoods where people live long enough to get acquainted with each other. Breathing space. 24. Our schools are already overcrowded and where do you plan on getting the water for all the new people in the city? Traffic will become a nightmare since we cannot expand any of the roads AND the new Apple Campus will show you that rather quickly with them on the surface streets to gain access. 25. It would be nice to vote setbacks along with heights. Otherwise citizens are likely to feel hoodwinked with the final result. 26. When height increases, would the density (# residential houses/acre or footage per acre) also increase? What is the height limit of other cities of comparable size? For none of the node/gateway, I want to see an increase in height for the entire area. An exception for one single building might be tolerable, provided an environment study shows the area is not already stretched to its limit in traffic, school, air quality and other resources. 27. Do not turn Cupertino into Condo Town like Sunnyvale. Real Estate value WILL go down; the already crowded public schools will be even more crowded, and affluent people WILL move out to more quiet towns. Overall, you will have a tax revenue loss instead of gain. Please heed the voice of the residents, and not the greedy developers. Otherwise you will lose your vote. 28. Prefer to limit heights in all nodes and gateways. Note that map shows North De Anza gateway on west side of De Anza Blvd, while description says east side? 29. Your pictures are not to scale. 130-foot building should be at least twice as tall as 60-foot building, but it is not. 30. The squared design shown on the examples are ugly. Hope you will contract with some creative designers. Building design plays as much, if not more, a role in the look and feel of a city as the general height of the buildings. I don't want to live in a "squared box" city. 31. Think limits should be close to heights of existing structures, but with the possibility of an additional story or two. Would not like to see a sudden increase in height limits within any Nodes or Gateways. 32. Please build the office , other than resident suite. If need to build resident house, please do NOT build rental resident suites. 33. Not about heights, but I like a grid arrangement. With a grid of buildings, people can gaze off into views. So much of Cupertino has short runs of streets with ends blocked off with buildings. We have beautiful hills around us, they should be showcased to all. The new developments have buildings plunked to block long dreamy views. 34. REDUCE HEIGHT BELOW 45 feet!!! 35. City forgot one more area which is De Anza south bound pass highway 85. These area is close to highway and should be a good place to develop. 36. I am against any increase in building heights. Cupertino has experienced overgrowth in the past decade, which has negatively impact quality of life of residents. 37. I think Cupertino is over developed and over crowded. We shall stop building. 38. Given the proximity to DeAnza College and visibility from the freeway, this site should support a higher density than the options listed above. Based on other nodes in the survey, this site could support up to 95 feet. 39. The taller buildings in Cupertino are visually overwhelming to the eye and detract from the type of comfortable, accessible community that we've all appreciated for years. The condos on the SE corner of Stevens Creek near DeAnza look like someone dropped a load of building blocks into a once-comfortable community. 40. I would like to see the city development spread out in the city instead of concentrating in one area. City council needs to consider the impact to our school systems. Most of the new residents move here for the schools. It is irresponsible to think that only a few units will have school-age kids. We are already seeing 15%- 20% increase with only the existing housing. Adding more units will only increase the burden of our schools. Please coordinate with School Districts on future residential plans before approving any housing projects. 41. If you can have 2,000,000 sf office at Valco there is no reason there should not be at least if not more than 2,000,000 sf office in the North De Anza special area. The access to the freeway means there will be less impact to the rest of the City 42. Companies like Apple and Seagate are very important to Cupertino. The city remains, however, a place for single family homes. We are not a large central city, and traffic along Stevens Creek between Lawrence and Stelling is bad as it is. As a 16-year resident of Cupertino I see no reason for these expansions, especially the building of apartments. This will bring in even more people, create more traffic and noise, and risk ruining the residential family feel. With more businesses and apartment buildings (so even more people), we risk crime rates going up as well. If the developers want to take suggestions from cities like NYC or London, why not improve the style in which they build? (Not all buildings need to be brown or grey!) Instead of demolishing Vallco and adding more apartments and shops, why not create a beautiful park, adding more green and nature to the city? I think that the current residents would approve and appreciate something like that much more than the expansion and overpopulation of Cupertino. 43. It's great Cupertino is expanding, however, we don't have the appropriate infrastructure in place to support the growth. The lights are terrible at Stern and Stevens creek and the timing is off. What are we doing about the exit at Stevens Creek/Lawrence. The traffic for that exit is now at all hours of the day and is only going to get worse. Why can't we go straight on Tantau crossing at Stevens Creek? Are we creating any improvements in public transportation or alternative modes of transportation? Is Apple willing to support like Google has done with MTV and the Community Shuttle program? 44. No increase height should be made until the infrastructure such as road condition and school has the capacity to support the increase population due to the proposed increased height of the commercial buildings. 45. we do need to think we have enough parking space for those new buildings. Meanwhile, we also need to resolve traffic issue. Recent traffic seems very worse in rushing hours during the weekday. We do need plan for more parking space and traffic improvement prior to our NEW building projects. 46. Cupertino is where my family lives. We need a cozy town to live, not a metropolitan for commuters. I insist 45ft or even lower as the height limit, so that the commercial buildings won't affect the residents' privacy. In addition to height, cozy town requires wide green curb along main streets, so setback of 15ft is not acceptable. 47. Generally, it is not possible to consider increasing the building height limits without any other context, such as what is the expecting plan for the land use, what is the setback expected, what is the slope of the building. The building heights increase inevitably going to increase the density of the land use, it is not just a question of how the building looks. Without proper assessment of the environmental impact on traffic, school and public services, it is improper to just talking about building heights alone. This is why I don't support any building height change at this point. 48. Simply prefer less density in the city. We already struggle with traffic and given limited resources it seems foolish to over build for the sake of financial gain. Please control growth within the city so "property tax" paying folks can maintain an acceptable standard of living as opposed to numerous folks crammed into limited space. Parks are critically important as well. Thank you.... 49. Height is fine; it allows for more adjacent plazas and parks. Human-scale first floor commercial - especially restaurant and retail - can bring the critical mass we need for a mature downtown. I'm partial to parabolic-type daylight planes - and trees on balconies like Milan's "vertical forest". 50. A survey on building height alone could be misleading to the public. In addition to the building and land look, information such as how many businesses and residences will be increased as a result of the building height increase should be studied and provided to the public before proposing any building height changes. 51. Yes. There really should be NO CHANGE to what is currently in place. My comments have allowed for some exceptions, but only when setbacks are increased. There should be requirements added that make it impossible to build these tall structures without having to increase set back at a prescribed height. There MUST be a variety of roof designs. 52. Some height increases might be acceptable if appropriate balances with setbacks from the street with landscaping/parks that encourage open space 53. Additional height limits usually means more congestion on the roads, more water, energy, etc resources used. The cost of these resources is always passed to all of the residents of the community with the developers and businesses paying less than their share. I haven't seen any mention of these costs in the plan. Am I missing them? 54. High density housing causes traffic. The North Vallco area is the best for high density and near freeways. 55. These questions are important. More important is the traffic plan: more and safe bicycle and pedestrian choices, along with mass/public transportation that eliminates traffic jams and is convenient to use. In other words, it's putting the cart before the horse to build more reasons for there to be cars on the roads before we've built the road, walk and bike-ways to PREVENT the increase in traffic. 56. The Oaks should blend in with De Anza height wise, but not take away from it's beauty. The city center node is way too tall --- an abomination. I moan when I look at it. 57. The lower the better. We are not a skyscraper city. Probably too late to mention at this point. 58. I cannot see the final resulting architecture, I suppose it is best to see aesthetic preference and let the experts decide on the safety of the building infrastructure, and easy access for emergency personnel, link to city emergency communication and response readiness in case of emergency. Please encourage also more to join CERT. 59. The building heights should not be increased without throughout study on the environmental impact by the increased population density , which will bring more problems on traffic and schools. I don't agree any building height addition. 60. This is a poorly written survey which is biased toward massive development. The city council should disregard this survey and start over. 61. I'm not sure the infrastructure around Cupertino is able to support more Offices / Residents, e.g. the 85 / 280 freeway entrances / exists are already like parking lot during peak hours. Does the city have plans to improve that? Please keep building heights as is for now. 62. As buildings get higher, the set back requires should increase unless the street is very wide. 63. Building tall buildings will only increase traffic in an already congested area. This is a primarily residential suburban township not San Jose downtown 64. no 65. This should not have expanded from replenishing the office allocation to pleasing what individual property owners want to rezoning large general areas within the city....This is an illegal move to deal with multiple general plan amendments in one move instead of dealing with them individually and only four per year... 66. I'd like to hear convincing detailed plan on how to compensate for the increased cost to the current residents before increasing height limits 67. You asked about height, but not about density or traffic impact. Traffic and increase in traffic is a critical issue for the city. 68. Any and all proposed high density projects should be put on hold until the effect of the Apple expansion has been fully demonstrated. To do otherwise would be putting developer money ahead of public safety and quality of living. 69. do not increase heights of any areas in cupertino. We don't need more clutter and density STOP the growth 70. All buildings should be no more than 3 stories high, because higher just increases the density , traffic problems, school over crowding etc. Way too much building is being done now why are you ruining this what used to be a beautiful community, there is nothing green left, all parking lots and buildings, no wonder we have 'earth warming" . 71. Please allow adequate parking for these buildings. Many existing buildings do not have enough parking and/or small parking spaces with small access lanes. It is acceptable to build a parking garage rather than causing parking tie-ups and accidents due to parking lot congestion. 72. I would like the majority of the city to have lower heights except for vallco / Apple area and right by city hall. 73. You are destroying the views of the hills in many areas of Cupertino. I did not move to Cupertino to live in a congested city with no views of the surrounding hills. These tall structures give the impression that you are in a canyon like many large cities taking away the beauty of Cupertino so that more people can be jammed in here. Consider the traffic impact and the quality of life before you make these decisions. 74. Lower than the 45 feet heights anywhere near single family homes. Heights not to exceed existing heights of surrounding buildings. 75. If there are single family house in the area, the height of buildings should not be higher the 45 feet. 76. I think that raising the height limits on buildings in Cupertino is a bad idea. When I moved to Cupertino many years ago, I could see the mountain on both sides of the valley. Now the view is obscured in many places. Cupertino is now turning into just another city. Traffic has become terrible on Stevens Creek and Stelling road. Do you plan on widening both of these roads to accommodate the increase in traffic that these taller buildings will cause? Cupertino just does not have the infrastructure to handle the increase in population. You are ruining what was once a wonderful place to live. This city cannot handle more people living here. Do we need the tax revenue? I thought the city was fine financially. DO NOT RAISE THE HEIGHT LIMITS! 77. I think that raising the height limits on buildings in Cupertino is a bad idea. When I moved to Cupertino many years ago, I could see the mountain on both sides of the valley. Now the view is obscured in many places. Cupertino is now turning into just another city. Traffic has become terrible on Stevens Creek and Stelling road. Do you plan on widening both of these roads to accommodate the increase in traffic that these taller buildings will cause? Cupertino just does not have the infrastructure to handle the increase in population. You are ruining what was once a wonderful place to live. This city cannot handle more people living here. Do we need the tax revenue? I thought the city was fine financially. DO NOT RAISE THE HEIGHT LIMITS! 78. I think that raising the height limits on buildings in Cupertino is a bad idea. When I moved to Cupertino many years ago, I could see the mountain on both sides of the valley. Now the view is obscured in many places. Cupertino is now turning into just another city. Traffic has become terrible on Stevens Creek and Stelling road. Do you plan on widening both of these roads to accommodate the increase in traffic that these taller buildings will cause? Cupertino just does not have the infrastructure to handle the increase in population. You are ruining what was once a wonderful place to live. This city cannot handle more people living here. Do we need the tax revenue? I thought the city was fine financially. DO NOT RAISE THE HEIGHT LIMITS! 79. This city is WAY overbuilt in heights. It feels like we are being swallowed up by the buildings. 80. Nil 81. No 82. No 83. No 84. The higher the buildings the greater the density. The city roads are already choked at rush hour. There is no need to increase the density of people. 85. Before any increasing of max height, Cupertino City should announce evaluation of traffic impact and countermeasure. So does the environment. 86. The City cannot take any more traffic or residents 87. We have lived in Cupertino for forty years and the council consistanly gives exceptions to developers. It is time to stop this overcrowding and start doing what's best for the residents. 88. This survey is terrible...Trash it and start over... 89. Cupertino is over build. It was ask for 800 units but we volunteer 1400 units. No more, no more. 90. I supported to build Apple new campus in Cupertino since it will benefit the city. But I do not want Cupertino to become San Francisco. After Apple finish the new campus, Cupertino will face some new issues to solve. I do not think it is a good idea to build a lot of tall buildings for now. 91. Use current zoning laws 92. Buildings at Stevens Creek & DeAnza Blvd are too high -- they obscure the previously wonderful view Cupertino had of the foothills. I am all for limiting the heights of all buildings within Cupertino because of that fiasco. 93. none 94. Make sure there is a safe in, out & parking for delivery trucks. 95. No 96. no 97. I have been a Cupertino resident for 29 years and sad to see where we are heading. We are way over-built, schools are over-crowded, and all these rezoning and thousands of proposed residential units is going to negatively impact our city, please stop and think. 98. I want lower heights. 99. Please donot bring high buildings. Figure 2: Part B – Community Benefits Program and Building Planes 182 Off Forum responses ‘Other’ responses: 1. Cupertino HS grad - plan to move back to Cupertino 2. I question the validity of these surveys 3. represent a developer/property owner in the City 4. I worked for decades in Cupertino, before HP consolidated. Text responses: 1. Best option is not to start high building plan 2. Stop building more. 3. Why aren't the nodes and gateway locations part of this portion of the survey???? 4. No 5. No 6. The council should stop granting exceptions to the general plan... 7. The city and our schools are getting overcrowded already. Also we are exceeding our level of support given by nature, such as rainfall. Any planned expansion is foolish. 8. You mislead us when the photo example of 1.5 to 1 shows 50 foot setback and your having us vote on only a 35 foot setback!!! 9. I VERY MUCH PREFER the 1.5:1 HOWEVER, I must state that there should be NOTHING less than 1.5:1 building plane. In some cases it should be more than 1.5. 10. One of the reasons we like to visit forests of majestic old-growth giants is that all the trees have a parabolic-type building plane; it's also why the world loves the Eiffel Tower. Combined with "vertical forest" (Google it) type balconies, we could be THE world leader in beautiful green design. 11. Too many tall buildings along the major streets. The traffic is way to crowded. 12. In general, more set back is preferred 13. The city needs breathe, people walking/biking/driving on the major streets need breathe. The more the setback the better, and the more the buildings lean away from the streets, the better. 14. In higher densities/FARs building planes would not be appropriate 15. Over developed in Cuperino. Shall stop building. 16. Buildings should be pulled closer to the streets; 50 FT setbacks don't enhance pedestrian use and reflect a more auto intensive city. Visually I prefer minimally building plane and more modern, urban architectural forms. 17. Stop building and become less corporate and greedy. 18. Please be aware that most long-term Cupertino residents do not wish to have more Oriental businesses, investors or residents flooding our city and building hideous constructions that are gaudy, unattractive and cater only to a specific clientele. Large street signs in their unreadable and hideous tongue should be removed immediately. More "massage parlors" or other front businesses for prostitution should not be allowed to open, and there should be no more construction contracts awarded to unscrupulous Asiatic companies and their shoddy and disruptive building practices and questionable financial tactics. 19. The choice of pictures above may mislead some survey takers. You might double check before the survey ends. 20. Sand Hill has done an awful job with tiny setbacks in Sunnyvale Town Center (all concrete with a few scraggly trees) and what Sand Hill built a that site is really unattractive and sterile looking. I don't want to see that in Cupertino. I don't trust Sand Hill to built according to permitted and approved plans, after what happened with Main Street and Rose Bowl senior housing. ‘Other’ responses: 1. I do not want a communty benefit program. It is really a developer benefit program..These do not work in other cities and our own retail benefit program has been constantly abused to the benefit of the developers. 2. Community Benefits program should not exist. It is not managed well, or enforced. Developers take advantage of the 'concept'. Cupertino has enabled that by not truly including the Community in related decisions. 3. A community theater. 4. All these should be specified in GPA as ordinance, not as bargain point for the developer 5. Dog Park 6. I dont think you should be using community benefits as a lever on developers, we need good public infrastructure, streets and freeways. Establish impact fees for that. The schools have ample funds, do not give schools money for bloated salaries & pensions 7. Planning to ignore building guidelines is a very poor planning starting point. 8. Making sure that Cupertino schools get a share of the money from developers. Developers build more schools as they did in the Agnews area in Santa Clara. 9. Traffic mitigation enhancements and alternatives need to be developed to reduce parents driving their children to school. 10. Providing space and incentive to some very nice restaurants like Palo Alto Text responses: 1. As a resident, I like community benefits. But I don't think it can be a trade in for high building plan. If there's no high density building, that's the best option. 2. we need build more schools to keep the quality of the schools and make the student / teacher ratio down to 20~25 students per student ratio 3. Keep our existing zoning laws, no more community benefit program as they are not beneficial to our residents. 4. No more high dense community! 5. No community benefit program! No exceptions to our current zoning laws 6. NO COMMUNITY BENEFITS PROGRAM....PERIOD!!! 7. This is so biased toward having community benefits. I am forced to answer all of the questions otherwise you have already selected my answers...See question 7... 8. No community benefit program! No exceptions to our current zoning laws! 9. The city should address needs of the entire community including immigrant population. 10. No 11. No 12. No exceptions to current zoning laws. No community benefit program. 13. no 14. Developers should be REQUIRED to pay an in-lieu because the City has the most visibility as to where the money is needed 15. I am concerned that the program won't address the concern of over-crowding in schools and increased traffic congestion which are bigger concerns for many of us. 16. This is an ill conceived and grossly under researched program being proposed. This part of the survey is massively biased and slanted in favor of a community benefit program..Scrap this survey and start over.... 17. With all the new building permits, we need to insure that traffic, schools, police, and fire are all enhanced. 18. No, developers need to construct the amenity agreed upon. Too easy just to pay and get out of. Can't rely on City to follow thru or even construct using the same amount of money. 19. If community bus is provided, I hope to see a reduction of bike lanes as it gets dangerous to have bike lanes in heavy traffic areas. Also, please provide additional info to help explain "citywide traffic management". Thank you for the opportunity to provide our input on this important project. 20. This is a terrible survey slanted toward forcing the person to accept a community benefit program. The council should not accept the results of this survey. 21. This whole program sounds like it was put together by the developers to allow them get their way on all projects. I resent the fact that big money is trying to rule our community. 22. The City has not required substantial enough Community Benefits from developers in the past. Any "Benefits" have not addressed what is MOST important to us, nor have they addressed the issues that the developments CAUSE by their developments. That is why I am primarily opposed to the Community Benefits program. I think we need NOT give the developers the additional heights. They taller heights don't fit well into our community. And I think it is up to the city and county to address our traffic issues (which is my biggest concern) WITHOUT the developers "help". I don't see that there is much the developers CAN and would CONTINUE to do about anyway. 23. Community Benefits seems like a perfect opportunity for builders and council members to collude to thwart community members wishes and the general plan in order to over build in the areas concerned. There needs to be a reassessment of "parcel" designation for any high density housing projects so that schools are properly supported with the influx of new residences, and developers can't just load us up with new students and run away after a symbolic one time payment 24. The practice of Community Benefits should be stopped. In-Lieu fees so often get used for inappropriate things. Things that don't help ease the pain of the exception granted. Too vague, and not reflective of what Community wants. 'Back Door Politics" Why is it that residential property owners must follow strict guidelines, while 'developers' make 'deals' ? Deals that don't get handled correctly, at that. Who do our city council members represent ? 25. Aren't all the items described in Q7-Q10 already part of city's basic responsibilities? A community benefit program should go above and beyond those basic things; it should increase our quality of life, not just maintain our current quality of life. 26. 1) We need to publicize the "community benefits" developers already pay. 2) We need to make sure that in-lieu fees are accompanied by a "maintenance of effort" clause to ensure that such fees aren't used to substitute for already-budgeted funds. In-lieu fees give the City flexibility, but low income housing often gets short shrift - that's why tall residential buildings in certain downtown areas should be required to have a percentage of their units be low-income. 27. Community Benefits program has been proven to be DEVELOPER BENEFITS program. GPA should be rules and guidelines to be respected and followed, not something for sale. It is city's job and responsibility to enhance city's infrastructure and fund these projects through proper venue. Expecting developer to do the right thing is naive and irresponsible to residents! 28. The so-called "community benefits" program allows buildings to exceed the zoned maximum height in exchange for "something that will benefit the community". Increased building heights affect residents' quality of life in several ways: - Increased enrollment in a fixed number of school campuses, - Increased traffic and decreased air quality, - Increased consumption of natural resources like water - Increased strain on city services like sheriff and Parks and Recreation services - Decreased views of sky, trees and hills as the main roads becomes "concrete canyons" with walls of tall buildings. 29. The community benefits program is far from mature. It is too flexible to council and developers, yet the residents don't even know whether the height they are sacrificing is worth the extra money from the benefits. Not to mention residents don't have control if the money is spent for the community that is sacrificing or for other facilities. Too vague, to risky to approve at this stage. Cupertino city is not starving for money to build our community. Let's hold this program unless city is bankrupt. 30. City should manage the traffic condition before allowing retailers in the neighborhood, and should have more funding for school such as more classrooms before allowing developer to build the high density condos. The existing infrastructure can only support the current population and traffic. 31. City should require developer to contribute a proportional amount of money, land area, community involvement from their project. We can't just let them to build high density building without improving on city resident's quality of life. We need more parks, roads than high density community. 32. Companies like Apple and Seagate are very important to Cupertino. The city remains, however, a place for single family homes. We are not a large central city, and traffic along Stevens Creek between Lawrence and Stelling is bad as it is. As a 16-year resident of Cupertino I see no reason for these propsed expansions, especially the building of apartments. This will bring in even more people, create more traffic and noise, and risk ruining the residential family feel. With more businesses and apartment buildings, we risk the level of crime going up as well. If the developers want to take suggestions from cities like NYC or London (in terms of expansion), why not improve the style in which they build? (Not all buildings need to be brown or grey!) Instead of demolishing Vallco and adding more apartments and shops, why not create a beautiful park, adding more green and nature to the city? I think that the current residents would approve and appreciate something like that much more than the expansion and overpopulation of Cupertino. 33. In answer to Q12 yes there should be impact fees for public infrastructure and some public amenities but it should not go to schools just so they can burn it up in bloated administrative salaries, pensions and mis use of funds. Yes schools are needed and necessary but they have to be financially responsible and trim their costs. The schools have their funding sources, stay out of social engineering. Cities have a charter to do the basics, build and maintain the basic public infrastructure, streets and utilities, provide for public safety and public health. Do the basics well and the rest will follow. 34. When asking for Community Benefits from developers, there should be a clause regarding failing to meet the requirements. We've seen these Community Benefits removed after the project was approved. 35. Only one answer to each question is accepted, though we are asked about more than one benefit; ex. "what transportation amenities are the most needed", so we are forced to choose one, none, or all???? 36. Cupertino is over developed. Community shall convince city councils to stop building. 37. make parking permit signs more visible at library where u stationed code enforcement on 2-18 to collect 63.00 per person on a busy library day. I consider that despicable without an initial warning. This city has become a not so great place to live unless you are a Realtor or developer in which case you probably don't live in Cupertino. This city has become a for- profit business park. No place for humans. 38. This seems a complicated issue. On one hand, developers should be benefiting the community with their buildings, and if they are constructing something which is objectionable or difficult in terms of permits or zoning laws etc., they should be penalised, and it would be a good idea for that penalty to go towards the development of the city and its infrastructure to benefit everyone. On the other hand, development companies should not just be able to "pay a fee" to skirt regulations, giving a token amount to the city in exchange for the possibly permanent inconvenience or change to those impacted by their projects. I do not believe it is a good idea to place trust in the city council to choose what to do with funds from developers, rather than commit the developers to develop a specific amenity to the community (which is what I think should be done). Creating a "fund" has the possibility for mismanagement and redirection of the in-iieu fees into unpopular projects, like those which benefit and promote only select groups of the Cupertino population (like an Oriental Community Center or some other project directed to benefit a plague of subhumans who have settled upon the city). I worry that developers will pay this in-iieu fee, and the money will go directly to constructing something that benefits only a recent influx of objectionable, unpopular and unwelcome people who have created their own linguistically and culturally segregated community. 39. Need more elementary school and middle school in cupertino. 40. Q5 to Q12 are confused to me. I do not support community benefit in exchange to developer's increase of building high. 41. If implemented we need to have tracking and transparency of these funds over time 42. Community benefits so far have not been used for the area where the bldgs are going up. East side has all the growth and we are not seeing green space or benefits - the green space is disappearing - even in our parks. Wilson has gated fields for baseball and soccer fields used by contractors - public cannot use. Portal park has a new baseball field - therefore we lost green space where kids can run around. We are gaining more housing and losing open space. Developers are just paying fees and do not have to include public space to enjoy. I guess their buy in goes to other side of the city. We DESERVE green space on the East Side and we DESERVE places to buy in quality retail or entertainment. Yet, develpers get what they want in housing and we are losing our retail and losing space to just enjoy green space. We did not move to Cupertino for high rise buildings and no place to go. We have plenty of places to eat, but no place to shop . We DESERVE a mall to buy things and we can use entertainment for kids. Keep ice rink, movies, bowling, and add things like laser tag, places for kids to run and play or have a party. We have citizens who can afford to buy within the city - so give us things to purchase. Why is so much retail outside our city - maybe it is Cupertino's process - please fix it. We want retail establishments to come to OUR city - not go outside because we are too expensive or city makes it too hard to open here. Listen to your active citizens who do come to meetings, workshops, get involved. Right now it feels like we are invited for the process because city has to include us in process. But we are obviously not listened to, because developers always get their way. 43. I do not think granting exclusions which reduce local quality of life by increasing density is a justifiable trade-off. I can live in SF or NYC if I want. Cupertino has an appealing park-like feel. I am confident that increasing density especially building height will feel oppressive. 44. Crooks! 45. library branches sports field, for example, very hard to find tennis courts, and none badminton courts. Compare with sunnyvale recreation center, it has a big indoor field and also theater. The cupertino sports center is too crowded, if you can spread out the facility throughout the city that will help a lot. 46. Developers should not pay the city, at least no it the city is going to spend the money recklessly on a new City Hall. We don't need a new City Hall or any other city building in Cupertino. We need more schools. And we need to have apartment dwellers and owners to have as much skin in the game of schooling the additional kids as tax paying home owners. 47. Really? Do you actually believe that taking money in exchange for skyscrapers will benefit Cupertino? Let's be careful and use good judgement. We can very easily lose what makes this community a great place to live. It seems like there is never enough money sometimes but the reality is we can live with-in our budget by using our ingenuity. 48. This survey is very biased as you list the advantages of a community benefits program but not the disadvantages -- you are in effect directing the responses of those who have not followed the issue closely. I have NOT chosen any default priorities -- why can't I select NO and still complete the survey? 49. The top concern is regarding school overcrowding. You can add simple community benefits but so far nothing is really targeting school overcrowding. How can we maintain our top schools if more portable classrooms are added while decreasing the open spaces in our schools. 50. In-lieu fees only create opportunities for politics to be played and any government body is always open to controversy when spending funds. It is also much more efficient for corporations to manage projects rather than government. 51. Cupertino lacks enough nice things to attract people to visit Cupertino. Let's get that together so that more funds are brought in. 52. No additional taxes, no fees to make Cupertino less affordable. Any fees will be passed onto the customers and partially find their way into the pockets of the already overpaid elected public employees and elected officials. 53. The General Plan is the blueprint of how Cupertino residents want the City Council to regulate and approve construction. What good is the General Plan if the City Council grants exceptions? What in the world did. Cupertino get in exchange for height exceptions granted for the Cypress Hotel and adjacent behemoth structures on that property? NOTHING should be accepted in exchange for such a blight on our city. Height and setback limitations are the pillars of the General Plan. Residents do not want Cupertino to turn into a San Jose. 54. I prefer that the developer not have any exceptions to our building code. 55. The City of Cupertino needs more parks and bigger parks; it needs criquet fields and trees and more green spaces. But these amenities should not be traded for increases to building height and density included in the master plan. THe master plan is supposed to be established to maintain the character and identify the standards of the city. 56. Developers should not be allowed to increase heights above 45 Ft. This is detrimental to residents living in Cupertino and will NOT benefit our community. We can use parks, recreation and public space, but not at the expense of higher heights. 57. There should be a minimum monetary equivalence specified. For example, 15% of the total development cost set aside for in-lieu fee. 58. I don't understand how all of the growth plans affect our schools. 59. I do not support community benefits if they will increase heights of any new buildings. 1 DEVELOPMENT MANAGEMENT OVERVIEW Like many communities throughout the State, Cupertino is concerned about balancing the benefits of economic development with the effects of rapid growth. The impacts of such growth can overwhelm the City’s ability to accommodate it and affect the quality of life in the community. The City Council directed staff to evaluate ways to balance these issues, including a potential implementation of a community benefits program for development projects. The purpose of this overview is to address the steps that have been taken to review various methods to address growth, quality of life, and to provide a summary of the reviewed approaches, as well as their benefits and constraints. History of Process x General Plan On December 4, 2014, Cupertino’s City Council adopted an amended General Plan titled Community Vision 2040. The amended plan reflects community input, regulatory changes, best practices, and the desire to achieve community-building, sustainability, economic, and fiscal objectives. The City Council continued the considerations related to development heights, development allocations, and the potential for a Community Benefits Program until 2015. x Community Benefits In early 2015, the City engaged Economic & Planning Systems (EPS) to provide information regarding the advantages and disadvantages based on a variety of existing Community Benefit Incentive Zoning (CBIZ) programs in California and to assist with discussions regarding a potential program in Cupertino. x Additional Programs Analyzed During this research on CBIZ programs, various alternative options to address growth and quality of life were considered, including growth allocations programs and regulation through General Plan land use designations and zoning. Assessment of Community Concerns The main areas of concern regarding development in the City that have been addressed throughout this process revolve around the following: x Impacts on schools and lack of school resources, such as facilities, land and funding; x Impacts on and lack of public facilities and utilities, such as libraries, a community center and utility systems; x Impacts on and lack of public open space, parks and trails; and 2 x Impacts on transportation network, including inadequacy of city-wide bicycle, pedestrian, transit improvements and facilities. Community Benefit Incentive Zoning California cities have a long history of exacting community benefits through a variety of mechanisms, including fees, conditions of approval, and development agreements. More recently, Community Benefit Incentive Zoning (CBIZ) programs have offered an alternative approach. CBIZ programs are structured around an exchange in which municipalities offer optional increases in development potential in return for public assets (or funds) desired by the community. The incentive must be above what normally would be allowed and the public benefit must be beyond what otherwise would be required. Because these programs are optional, development outcomes vary based on the degree of participation in the plan. That is, some developments may not take advantage of the incentive while others do. The optional nature of the program creates increased uncertainty regarding the final urban form that ultimately will be achieved. The magnitude of the community benefit sought must be equal to or less than the value of the incentive offered. In order for community benefits to be achieved, the public sector must create value through the provision of an incentive (commonly increased development density). CBIZ programs are founded on the concept of “value capture.” CBIZ programs must be carefully tailored to be attractive to project proponents and simultaneously achieve quality of life goals of the community. Program design and development should evaluate the range of potential development outcomes, including the built form and magnitude of expected community benefits, to ensure that the exchange of development rights for community benefits is desirable. The Concept of Value Capture Cities and government agencies create value with investments in public facilities and services (e.g., transit, sewer upgrades) as well as through changes to the zoning code that increase the value of land. Typically, when the public sector creates value in these ways, landowners enjoy a financial gain in the form of higher land value, realized when they sell or develop their land. This increase in land value is an unearned financial benefit that accrues to the private sector, though it is generated (and commonly paid for) by tax-payer funded public entities. The term “value capture” reflects the situation in which the public sector reclaims some of the “unearned” value created for the private sector by public sector activities. The State of California’s Affordable Housing Density Bonus Law is an example of a value capture program. Under this law, developers are granted additional density allocations in return for the development of affordable housing units. If the public sector seeks to extract more value than is created, it is unlikely that project proponents will use the program. Since the value of development incentives varies with market conditions, development incentives may be very valuable in a strong market but of lesser or no value in a weak market. Therefore, CBIZ programs respond to market conditions or anticipate that the program will not be used during periods of market weakness. CBIZ requires a healthy real estate market with sufficient market value to support the incentives. For example, in order for a CBIZ program that seeks to capture value from an upzoning to be successful, there must be market demand to support the higher-density, higher-cost real estate 3 products that are made available through the zoning change. Currently, Cupertino has strong residential and commercial real estate markets and is a viable candidate for CBIZ in this regard. CBIZ Program Basics Literature on the topic of CBIZ programs establishes two primary types of programs, including “negotiation-based” and “plan-based” programs. Negotiated community benefits may occur in the context of a Development Agreement or not. Plan-based programs are “formulaic” (the term used here) and typically are implemented in a “ministerial” fashion, without discretion. Negotiation-Based CBIZ Program Under a negotiated approach, the development incentive and associated community benefits package are jointly agreed upon between the municipality and the project proponent. That is, the CBIZ does not define fixed relationships between incentives and required community benefits. Negotiated programs are relatively costly to administer, perceived by the community as opaque processes and may be viewed as risky by the development community. However, these programs offer the flexibility to increase or reduce community benefit requirements to reflect changing market conditions. The primary advantage of negotiation-based programs is that the potential for the community benefits requirement may be crafted to reflect the economics of the proposed project and the current real estate market, while the disadvantage is the negotiation process is commonly highly labor intensive and, therefore, may not be practical for smaller projects. Formulaic (Plan-Based) CBIZ Program Under a formulaic (plan-based) approach, specific development incentives are made available in return for the provision of commensurate pre-defined community benefits. The principal advantages of a formulaic approach are the reduction of project risk, for both the development community and the municipality, through program certainty and lower program costs. The key disadvantages are that the program cannot respond to unique project challenges or fast- changing market conditions. Case Studies EPS studied CBIZ programs in San Diego, Emeryville, Santa Monica, and Berkeley. The table below offers a high-level overview of these programs. The following section details the program in Santa Monica, which seeks to incorporate elements of the formulaic and negotiated approaches to CBIZ. 4 Overview of Case Study Programs City of Santa Monica As part of the City of Santa Monica’s most recent General Plan Update, a community outreach process explored the question “what makes a livable city?”. Responses led urban planners to land use standards that could maintain the City’s unique attributes, improve neighborhood livability, and provide affordable housing. Santa Monica’s Land Use and Circulation Element (LUCE) update, adopted in 2010, reflects a six-year community input process and provides for community benefits though a unique “tiered” approach. With the LUCE in place, the City has begun implementation steps, including the preparation of an updated Zoning Ordinance. The Santa Monica Community Benefits Program was adopted as part of the LUCE in 2010. The Plan establishes a three-tier system in which a base tier of development (Tier I) is allowed as of right and approval is “ministerial” (non-discretionary) while higher “bonus” levels of development require the provision of community benefits and approval is discretionary. Per the LUCE, in most of the commercial areas, the maximum base height for a project without community benefits is 32 feet (typically 2 stories). Development above this Tier I level requires community benefits. The LUCE calls for projects seeking development above the base level to be sorted into two tiers (Tier II and Tier III). Tier II projects must provide community benefits that will be considered through a discretionary permit or Development Agreement (DA) process. Tier III projects require additional community benefits to be negotiated in a DA. Santa Monica’s five priority categories of Community Benefits include: 1. Trip reduction and traffic management; 2. Affordable and workforce housing; CBIZ Design City of San Diego City of Emeryville City of Santa Monica City of Berkeley Basic Method Formulaic Formulaic Formulaic & Negotiated Negotiated Determination of Community Benefit Predetermined exchanges and charges Point system for project elements Formulaic program under development; Negotiated incentives by Development Agreement Negotiated by Zoning Adjustments Board Key Incentive Type FAR Bonus Height, FAR, and DU/Acre FAR Bonus Height 5 3. Community physical improvements (e.g., streets, open space, neighborhood retail); 4. Social/cultural facilities; and 5. Historic preservation. Santa Monica has not fully implemented the LUCE. Today, projects that seek to develop at levels above the base entitlement must pursue a DA with the City. City staff is seeking to fully implement the Community Benefits Program with the updated City Zoning Ordinance, which is currently under development. The revised Zoning Ordinance will detail the community benefit requirements that allow additional density for Tier II projects. While the Planning Commission had considered a points system for Tier II projects, Santa Monica anticipated that this approach would be challenging to implement and has not been adopted. The City also explored the potential to charge certain impact fees and require affordable housing from Tier II projects. These requirements likely would have taken advantage of nexus studies that justify maximum fee levels. As community benefits may constitute an exaction under California Law, the City seeks to demonstrate a proportional relationship between the community benefit payment and the impact of the project.1 Alternatively, Tier II projects could have had the option provide on- site amenities that satisfy Tier II requirements. Currently, Santa Monica relies heavily on the use of DA to negotiate optimal community benefits. While the DA process is highly flexible and allows for a diverse range of potential benefits, these agreements commonly are time consuming and thus expensive to implement. Despite this, the market potential for development in Santa Monica is exceptionally strong and as of 2012, 24 DAs had been approved or were pending since the adoption of the LUCE in 2010. While developer interest in pursuing projects above base zoning in exchange for community benefits is strong, the City is seeking to curtail the number of projects that come through a DA process due to the burden on City staff. Benefits and Constraints CBIZ programs allow additional development, whether in the form of height or floor area ratio, and do not regulate the pace or ability to develop. Therefore, while they may address the impacts of a proposed project and the provision of community benefits to address those impacts, CBIZ programs allow such development through the implementation of zoning ordinances. Basically, in exchange for addressing the areas of community concern noted, the City would be allowing increased height or other development above the base zoning. Formulaic CBIZ programs provide clear guidelines for applicants in terms of the additional development they can achieve. However, such programs provide very little discretion since the additional bonuses are structured in the zoning ordinance. Negotiated programs, on the other hand, can be very difficult to administer and they do not provide the certainty to developers that is inherent in a formulaic program. 1 See Planning Commission Report: Zoning Ordinance Update: Implementing Tier 2 Community Benefits, April 3, 2013. 6 Growth Management Programs Growth management is a tool that has been used by California cities for over 40 years. Growth management systems regulate the amount of development that can take place in any given period of time. For example, growth management systems may include a population or housing cap or a commercial square footage cap. Some programs operate as a “competition,” whereby developers seek to obtain development allocations through an application process conducted on a set basis, typically once or twice a year. Generally, applicants will be required to obtain growth allocations in order to proceed with development. The City of Morgan Hill has adopted such an approach, which is described in more detail below and is currently being implemented. A number of other California cities have adopted competitive growth allocation programs, which were later eliminated or suspended. The City of Brentwood implemented a competitive growth management program for residential projects, the RGMP, for a number of years during its greatest periods of growth. The RGMP was suspended in 2011 due to the recession. In 2005, the City of Ventura eliminated its development cap and competitive process as established by its Residential Growth Management Program. Further, some cities limit growth, but do not require a competition for allocation. For example, the City of Livermore has set a cap on residential units every three years, with numbers ranging from 140 to 700 units. The City of Petaluma, the first city in California to adopt a residential growth management system in the early 1970s, also has a maximum allotment of units, but no competitive process. While the City of Cupertino currently sets city-wide development allocations over its General Plan horizon, it does not currently have a competitive or metering process in place. Case Study - City of Morgan Hill The City of Morgan Hill’s Residential Development Control System (RDCS) issues allotments to developers who wish to build residential units in the City through a competition process. The City has used this system since 1977 prior to the implementation of the Regional Housing Needs Allocation (RHNA) process by Housing Element Law. The impetus of the RDCS was to address the impacts of intense growth at a time when the infrastructure was not prepared to absorb the growth. The population growth in the City impacted the ability of the City to provide sewage treatment, water and other necessary municipal services. The RDCS was initially adopted by ballot measure and has been modified over the years to meet the City’s needs and address exemptions. The competition is based on an evaluation system that utilizes a series of standards and criteria set forth in the Morgan Hill Municipal Code. Morgan Hill’s General Plan describes the RDCS in the following way, with allowances for small development projects:2 This system shall provide for awards of development allotments based on the number of points scored for all development proposals biennial competition, or outside of a competition but based on requiring projects to achieve a minimum point score . . . . The point scale used shall take into 2 Morgan Hill’s General Plan, http://www.morganhill.ca.gov/DocumentCenter/Home/View/1148 7 account the impact of the proposed development on the following public facilities and services: water supply system, sanitary sewer and treatment plant, drainage and runoff, fire and police protection, traffic and other municipal services. Proposed developments shall be awarded points for provision of schools, and related facilities, open space, orderly and contiguous development, public facilities, parks and trails, low-income and moderate income housing and housing for the elderly, and diversity of housing types; and for quality of architectural design and site design. Small residential developments provide special benefits to the City by encouraging local developers, providing design variety, and promoting utilization of smaller lots. These developments do not impose as high a burden on municipal services as do larger projects, because their demands are incremental and they tend to be infill developments. Such small developments may be unable to compete with larger developments in terms of the levels of amenities provided. In order to treat small developments in a manner reflecting their benefits to the community, the Residential Development Control System shall be designed to provide for small development through appropriate means selected by the City Council, such as a separate small project competition and a more streamlined and less costly process. The process takes places on an annual or biannual basis and developers who wish to build housing units are required to compete for the ability to obtain a development allocation. The process begins by dividing projects into various categories for the competition, such as “small” projects, multi-family housing and open market. Each year, Morgan Hill determines the number of units available in each category and then evaluates projects according to a set of objective standards and criteria in 14 separate categories. Morgan Hill’s Municipal Code provides the specifics of the city’s point system and specific guidelines for how to earn points in various categories, such as schools, open space, public facilities, parks and livable communities. Generally, projects with the highest number of points receive a building allocation. Thereafter, the project applicant applies for the land use entitlements required to proceed with the proposed project. All projects that receive RDCS allotments must enter into a Development Agreement. Traditionally, Morgan Hill received more requests for allotments than the required allocations. However, more recently, most projects were able to receive allocations. In addition to the time required to process requests for allocations, Morgan Hill must also continue to monitor the projects to ensure compliance with the RDCS program. While it appears that the RDCS has served Morgan Hill well, the administration has been time intensive and has required a significant amount of staff time. Morgan Hill is currently in the midst of its Morgan Hill 2035 project and is considering how to streamline and improve the system “to be more efficient, effective, and sustainable while maintaining its most important benefits: a population cap, pace of development; high quality development; and contribution toward community amenities.”3 3 See City Council Staff Report, Morgan Hill 2035: RDCS Update, April 1, 2015. 8 Benefits and Constraints Growth allocation programs with a competitive process provide benefits to the public and ensure a good pace of development. However, they are administratively burdensome as they require a great deal of staff time to implement. Further, if proposed development is less than the annual allocation, there is no ability to review the various applications to consider the potential benefits of high quality development or community amenities. A complicated growth allocation system can also discourage developers that are not familiar with the system or City processes. Where growth allocation programs set a cap on the number of residential units, they must be consistent with a city’s Housing Element and may also draw more scrutiny if they are challenged in court. Lastly, once the criteria and standards in the program are established, it may be difficult to encourage flexibility and to respond to changing market conditions or City desires or trends. The fact that a number of cities have either eliminated or suspended previously adopted growth allocation programs and that Morgan Hill is looking at other approaches is indicative of the inherent difficulties in implementing such a program. Land Use Regulation Growth and development have traditionally been regulated through land use designations and zoning. Cities implement and control growth and development through their General Plans, Specific Plans and zoning and can address impacts of development through development impact fees and city regulations, such as enhanced design review regulations. Cities also enter into negotiated Development Agreements with developers, which allow for developers to obtain vested rights and for the City to negotiate desired community amenities to address the impacts of development. Although not located in the United States, the City of Vancouver, British Columbia, Canada, has adopted a community benefits program that combines the city’s ability to rezone development sites with community benefits. In Vancouver, developers are required to provide Community Amenity Contributions, or CACs, when the City Council grants development rights through rezoning. CACs are in-kind or cash contributions that are used to fund community centers, libraries, parks and other community spaces. Such a program, however, would not be workable under California law. In California, State Planning and Zoning Law allows the local legislative bodies the authority to establish their own procedures for the processing of amendments to its General Plan. General Law cities, such as Cupertino, are limited to four (4) General Plan Amendments each year; however, cities may dictate the method used to process/evaluate any amendments. In addition to reviewing projects for General Plan consistency and quality of life goals, cities can also implement additional nexus fees (such as community facilities fees, transportation impact fees, utility impact fees, etc.) and additional design review guidelines to address the impacts of development. 9 Conclusion The following is a summary of pros and cons of the models based on the review of the various Community Benefit Incentive Zoning (CBIZ) and Growth Allocation models: 1. Requiring community benefits (or in-lieu payments for community benefits) as an absolute condition of development, may constitute an exaction under California law, and thus the City may need to demonstrate a proportional relationship between the community benefit payment and the impact of the project. 2. Formulaic zoning incentive programs (e.g., City of San Diego Downtown Community Plan) provide very little discretion since the development incentives and community benefits are predetermined and codified by zoning. 3. Discretionary zoning incentive programs (e.g., City of Berkeley Downtown Area Plan) require protracted negotiation and discussion before the City can determine that a project applicants offer of “substantial community benefits” warrants granting of a bonus in height or floor area ratio. Also, the lack of specific criteria can lead to lack of transparency, difficulty in administering the program and lack of consistency between projects. A discretionary CBIZ program also would require updates to the City’s zoning code. 4. Metering residential development annually (e.g., Morgan Hill, Brentwood, Livermore, etc.) would require changes to the Housing Element and is not advisable given the May 31, 2015 deadline for its adoption. The City would also need to ensure that any metering program would still allow its housing obligations to be met. Even if the process is implemented only for non-residential development, the program provides much less flexibility and is cumbersome to administer since it involves detailed criteria, scoring, a specific checklist of community benefits and deadlines for processing and building of development. 5. A metering approach can create a competitive process where projects can showcase community benefits in order to be considered for processing. Morgan Hill is a good example of this process. A newer example is the City of Mountain View, where proposals for a limited amount of development are being reviewed along with a community benefit approach in the North Bayshore area. 6. Growth allocation metering programs require an additional amount of planned growth in the General Plan (e.g. Brentwood and Morgan Hill.) However, these programs can work well in years in which there are projects competing for development since the quality of site plans and community benefits is high. In years where there are fewer projects competing for an allocation that is built-into the zoning or General Plan, quality of the development and/or community amenities may not be of the same quality as in competitive years. 7. A process that provides procedures for General Plan amendments can provide the most flexibility since development assumptions are not already built in and cities have more discretion about amending General Plans, except with respect to legal requirements for Housing Elements. 10 In considering its options to address growth, manage development and respond to the community concerns, Cupertino should consider implementing a program that achieves the following: x Ability to achieve goals of General Plan x Ease of implementation x Desire for flexibility versus specific requirements (as in a General Plan or zoning) x Ensure a diverse and vital economic base x Ensure the City can meet its housing obligations x Ability to achieve orderly development of the City through a managed process. 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