Item 27 - Appeal Application Nos. 2020-03 and 2020-04 - Central Pointe Mixed-Use Development

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2. Assessment Appropriateness of Methodology In the preamble, the Report states as its goal to "identify the highest and best use of the project under current MEMU zoning and demonstrate financial viability of the development." Identification of highest and best use typically involves comparison of multiple potential land uses using proforma analysis to estimate potential project returns or residual land value. Determination of financial viability may also rely on proforma analysis to estimate Net Operating Income (NOI) and development costs. While the Report features multiple exhibits that demonstrate key inputs and parameters that could be incorporated into proforma analysis, no such additional analysis is conducted to test for highest best use and financial viability. Multi -Family Market Analysis The Multi -Family Residential (MFR) market analysis clearly demonstrates potential achievable rents for the units proposed in the project. The Report's assumptions and data are consistent with previous analysis conducted by AECOM of the residential market, and the Report's conclusions are supported by the analysis. The rents, absorption rates, vacancies, and unit mixes presented in the comparative analysis are broadly representative of the competitive market area. While the proposed rents represent the upper range for the market areas examined, they may be justifiable by the desirable location and the quality of proposed amenities. The Project unit mix, which emphasizes 1-BR units (51 percent) and 2-BR units (39 percent), appears to be optimized to take advantage of market area trends, which indicate that smaller units command higher rents (on a square -foot -basis) and achieve lower vacancy rates than 3-BR units. Retail Market Analysis The City is particularly interested in the potential for the Project to include retail space to support the mixed -use nature of the MEMU land use designation. The proposed Project currently contains 15,200 square feet of retail space, and the Report justifies this quantity through arguments regarding Project location, general retail market trends, and comparison with other established mixed -use projects. AECOM has supplemented this analysis with retail leakage/surplus analysis and a retail demand model and concurs that under normal market conditions,15,200 square feet is supportable. However, as the long-term market impact of COVID-19 on retail performance is not known, caution regarding retail expansion is warranted. The Report features a comparison with three existing mixed -use projects in Orange County that highlight the potential difficulty the Project may face attracting and retaining retail tenants. Two of these comparison projects, which have a similar walkability score as the Project, show vacancy rates of 70 percent and 56 percent. However, such rates are not typical for retail in Orange County, as indicated by Figure 1, which shows retail vacancies fluctuating between 2.5 percent and 6.5 percent between 2006 and 2020 in Orange County and within the 3-Mile Radius surrounding the Project. While the comparison projects illustrate the potential difficulties of sustaining retail tenants in mixed -use projects, the general retail market in Orange County has remained stable in the recent past.