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SECTION V <br />ta <br />www.FinanceDTA.com <br />RESIDENTIAL PROJECTS PROPOSED IN <br />THE SPECIFIC PLAN <br />If an IPP investor achieves an annual compound rent increase of 3.0% for 10 years, the compound annual <br />rental income should increase by 35%. When this is divided by the cap rate, the building's value could <br />increase by the same amount. If a property could obtain a 5.0% increase over 10 years, the property value <br />could increase by more than 60% and, during the course of 30 years, could increase the property value <br />close to 140%, almost 1%2 times its current value. <br />Figure 7: Market Effective Rent per Unit by Bedroom <br />$4,000 <br />$3,500 <br />In the past 10 years, despite COVID-19, rental <br />increases in the City have been quite significant, as <br />shown in Figure 7. Compound rental rates have <br />increased by about 4.5% during this period. <br />$3,000 1 Higher rental demand in stable locations generally <br />$2,500 achieves lower cap rates, while transitional or <br />$2,000 outlying neighborhoods usually have higher cap rates <br />due to higher employment volatility and fluctuating <br />$1,500 demand. These outlying areas often generate higher <br />$1,000 I"'W4"'W4"'FEW"'W'I"'I"'I "I"'I"'lu"I"'! tenant turnover, leasing costs, and other factors that <br />14 16 18 20 22 24 26 <br />■ studio ■ 1 Bed ■ 2Beds 3Beds impact operating cash flows. Santa Ana is in a stable <br />market with low vacancies, which should allow investors to raise rents during the life of their investment. <br />It is also important to note that the 2-Mile Zone's <br />market area cap rate for completed multifamily sales <br />is about 4.0%, as shown in Figure 8. It is also <br />significant to stress that forecasted cap rates are not <br />projected to increase above 4.0% in the foreseeable <br />future. That said, while cap rates for multifamily <br />projects in California and across the United States <br />have been increasing as a result of generally higher <br />10-year Government Bond interest rates, the impact <br />has not been severely experienced in the City's 2-Mile <br />Zone. <br />Related Bristol at 3600 South Bristol Street <br />Draft Market Study Report <br />Exhibit 10 <br />Figure 8: Market Cap Rate <br />5.0 % <br />4.8 % <br />4.6% <br />4.4 % <br />4.2 <br />4.0 % <br />3.8 % <br />3.6% <br />3.4% <br />3.2% 1 1 1 1 1 1 1 1 1 <br />14 16 18 20 <br />Forecast <br />1 22 11 1241 1261 1 <br />September 2023 <br />10 <br />