Item 26 - Public Hearing Regarding Bristol Project

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SECTION V ta www.FinanceDTA.com RESIDENTIAL PROJECTS PROPOSED IN THE SPECIFIC PLAN will act as a centerpiece to the parks and Greenlink trails. The public art will include interactive exhibits, such as some exhibits that children may climb on and others that adults may use such as chess tables. It also anticipated that walls would be adorned with art in accordance with local history and lifestyle. F Cap Rates The importance of the market cap rate should be noted. A cap rate is calculated by dividing a property's Net Operating Income ("NOI") by its Net Asset Value ("NAV"). The cap rate is an assessment of the yield of a property over 1 year. Alternatively, if you know a building's NOI, you may divide this by an assumed cap rate to approximate the building's NAV. We have provided a simple definition above. Oftentimes, in the real world, complications arise, such as whether net operating expenses should be modified based on capital reserves or other adjustments. For simplicity in determining NAV of the multifamily units, DTA has reduced net revenue by an estimate of operating expenses and capital reserves to determine NOI. NOI is then divided by the cap rate to establish the NAV. A cap rate is a derived estimate. Often, an investor will study recent sales to determine what investors have paid for similar buildings. The developer or investor will review the expenses for a building and value it according to what others have recently paid for similar buildings. By dividing NOI by the consensus cap rate derived from comparable sales, the investor is able to approximate the value of the building. Cap rates are generally correlated to 10-year Federal government or agency bonds ("Government Bonds"). Currently, Government Bond coupon rates are at about 4%, with the investor assuming there will be absolutely no risk of loss of principal during the term of the Government Bonds. In general, investors are currently allocating investment capital to these riskless investments instead of to IPP. In order for real estate developers to attract capital from investors, they usually accept lower prices (resulting in higher cap rates). The difference between these two investment instruments is referred to as a spread. Sometimes this spread between Class A IPP and the Government Bond rate may be as much as 300 basis points since investors are competing with the government agencies to attract capital to real estate, a riskier investment. Prior to recent the Federal Reserve Bank's actions, 10-year Government Bonds yielded about 2.0%, while the cap rate for Class A multifamily properties in the City was 4%, a spread of 200 basis points. Now that the bond market has priced the 10-year Government Bonds at 4% on a pari passu basis, a developer often has to offer an additional spread to attract investment to IPP. One of the selling points that investors stress to attract capital to the IPP market is to emphasize that although today's cap rate may be 4.0%, potential future increases in rents should yield higher returns than Government Bonds. Increasing rental income provides investors incentives because they usually lead to increased NOI and, with stable cap rates, an increase in NAV. Conversely, bonds offer a fixed annual payment and return on invested capital. Therefore, there is the opportunity for IPP to not only generate increasing annual cash flows, but for the resulting increased NAV to generate a larger return on invested capital. Related Bristol at 3600 South Bristol Street Draft Market Study Report September 2023 Exhibit 10 01