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Marion County Initial Findings and Recommendations-Courthouse Square Project August 8, 1996 - Page 3 Salem Transit District's participation in the project brings additional resources and support that benefit the overall development. To the extent that its participation would not be available in the future, a significant opportunity would be lost. There is no basis for this analysis to estimate the financial implications of maintaining the status quo, other than to project continued rent increases based on both capital and operating cost increases. As noted earlier, it wi!I not require large increases in annual rental costs to exceed the projected cost of the Project,-- if the County is able to lock in $1.20 for 25 years. If the County is to proceed, we strongly recommend ongoing assessment as the Project and costs are refined. In its most basic form, the project/decision model should focus on County, retail and parking costs remaining within budget, the Transit District's costs remaining within confirmed grants and the speculative office/County future growth space meeting stipulated pre-leased minimums. Staff has continually emphasized the importance of achieving a rental rate of $1.20 per square foot. Our analysis confirms that the economics become harder to justify above that rate. In fact, if the rate were $1.40 per square foot, rents under the "no-build scenario would have to increase at 6.1% to make the Project comparable in long term net present value cost. Earlier we suggested that there may be ways to mitigate the contingent liability to the General Fund caused by the financing of the County's portion. Recognizing that there may be further tax limitation measures instituted in the future, we recommend exploration and resolution of those alternatives as part of the risk management process. Reliance on the General Fund to backstop the full amount of the County's cost will be a challenge and will likely be reflected in a higher cost of capital than otherwise would be the case. It is our recommendation that the Commission authorize staff to begin negotiation of a Development Agreement with the Transit District and the Developer with the stipulation that the County's cost be controlled to keep initial rents within the $1.20 per square foot goal (expressed as an initial annual occupancy cost). As the process continues to refine the Project and related costs, the actual cost to the County may change, but only in response to enhanced County project returns or efficiencies. The development/risk management process should provide both continuing review of the affordability issue and the authority to respond to significant developments. We have relied on Mr. Berrey's "Project Analysis & Feasibility Report" as a starting point for our review and believe his porrrayal is fair given the current stage of development of the Project Much remains to be done in terms of refining the components of the projec~ Inclusion of office space that would initially be speculative, but in the long run will provide the County growth space should be based on high levels of pre-lease commitments. The parking element of the Project represents a large cost element without corresponding revenues and should be minimized, to the extent possible. ~t is our understanding that additional information on that aspect will be available within days.