[BoulderCouncilHotline] Re: Questions on hill hotel for tonight

[Morzel, Lisa]

Dear Joel

Thank you for responding to my questions late Tuesday. I appreciate your answering what you were able to do. Would you please forward these to the appropriate person in the Nichols group so they could provide the needed answers to the unanswered questions?

Thank you.

Lisa

Lisa Morzel
Member, Boulder City Council
303-815-6723 c
303-938-8520 h


On Jan 22, 2019, at 5:38 PM, Wagner, Joel <WagnerJ at bouldercolorado.gov<mailto:WagnerJ at bouldercolorado.gov>> wrote:

Dear Council Member Morzel,

Thank you for your questions regarding the memo for tonight’s study session on the revised Hill hotel proposal. Below are brief responses to each question, some of which will receive a more complete response as part of the presentation this evening. Please note that many of the questions will be addressed through negotiation of a JDA if council expresses support for moving forward with the project by selling the Pleasant Street lot to the Nichols Partnership.


  1.  Regarding the PIF, planned investment fees, please explain in more detail how this would apply to the entire Hill retail or would this only apply to the 10,000+ square feet of retail proposed for the hotel

The Public Improvement Fee proposed by the developer would only apply to the redeveloped property, not the entire Hill Commercial District.

2.  How was the feasibility gap of $6 million determined?  Was this determined by the developer or was there an independent third-party financial analyses completed?  How is the funding gap being defined?

The funding gap was developed by the developer and is based on applying a capitalization rate<https://www.investopedia.com/terms/c/capitalizationrate.asp> to the projects’ stabilized annual net operating income to determine the maximum feasible construction cost.

3. What are the metrics determined in the return on investment for the hotel? How does this relate to the funding gap? Were different metrics used with regard to a funding gap number that has determined the return on investment?

Representatives from the development team will be in attendance tonight, and can address this question. However, if council directs staff to proceed with the project by selling the Pleasant Street lot to the Nichols Partnership, staff will begin negotiations for the specific city investment in the project and return with all of the details prior to council’s consideration of a revised Joint Development Agreement.


4. How does the project perform separate from the estimated return on investment or subsidy from the city or UHGID?

Representatives from the development team will be in attendance tonight, and can address this question. However, if council directs staff to proceed with the project by selling the Pleasant Street lot to the Nichols Partnership, staff will begin negotiations for the specific city investment in the project and return with all of the details prior to council’s consideration of a revised Joint Development Agreement.


5. What is the unleveraged ( no city subsidy) internal rate of return on this project?
Representatives from the development team will be in attendance tonight, and can address this question. However, if council directs staff to proceed with the project by selling the Pleasant Street lot to the Nichols Partnership, staff will begin negotiations for the specific city investment in the project and return with all of the details prior to council’s consideration of a revised Joint Development Agreement.

6. What discount rate applies here and how will this change over time?

Representatives from the development team will be in attendance tonight, and can address this question. However, if council directs staff to proceed with the project by selling the Pleasant Street lot to the Nichols Partnership, staff will begin negotiations for the specific city investment in the project and return with all of the details prior to council’s consideration of a revised Joint Development Agreement.

7. What is the estimated total project cost and how does that compare to the stabilized net operating income or NOI?  What is the estimated % yield on cost?

As described in the Nichols Partnership memo in Attachment B, the estimated total project cost is $66 million. Typically, the Capitalization Rate reflects the one year yield on cost at stabilization. Representatives from the development team will be in attendance tonight, and can provide further information.

8. How long once a hotel potentially is approved, when will the hotel be fully operational ?

Staff is estimating that the redevelopment will take 18 to 24 months.

9. What methodology was used to estimate that the completed project will generate $1.7 million more tax revenue annually to the city of bolder then is generated by current uses on the site?

The $1.7 million is the developer’s estimate and representatives from the development team can discuss their assumptions. However, staff’s assumptions in the table in tonight’s presentation are generally more conservative, and we estimate the range (at stabilization) to be between $700,000 and $1,100,000.

10. Regarding payment to UHGID in event of an early sale, why did we start the 5-year timeline with a certificate of occupancy rather than from the point in time when a potential partnership is finalized? How was the five-year timeline determined?

Representatives from the development team will be in attendance tonight, and can address the logic behind their proposal. Details will be negotiated if council directs staff to proceed with the revised proposal.

11.  What type of financial and planning analysis has been done for the highest and best use of this site?  Could council have access to a quick high-level pro forma on the rates one would get from a hotel use vs multi family housing ?

Since the city does not have site control for the entire site, has not performed this analysis. If directed by council, staff can prepare a high-level pro forma for a multi-family development on the Pleasant Street parcel.

12. Has there been an analysis on the residual land value of our parking lots both on Pleasant and on 14th?  Has there been such an analysis done on this site planned for the hotel?

The calculation of residual values depends on the projected end use and estimated future revenues, expense and risk. As such, residual land value on the Pleasant Street and 14th Street lots would be based on the redevelopment concept for the sites if the city were to redevelop the sites itself. Representatives from the development team will be in attendance tonight, and can address whether they have performed this method of analysis for the hotel project.
We look forward to further discussion tonight.

Kind Regards,

Joel Wagner
Tax and Special Projects Manager
<image002.png>
O: 303-441-3871
C: 303-449-9326
wagnerj at bouldercolorado.gov<mailto:wagnerj at bouldercolorado.gov>

Finance Department
1136 Alpine Ave | Boulder, CO 80304
Bouldercolorado.gov<http://www.bouldercolorado.gov/>


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________________________________
From: Morzel, Lisa
Sent: Tuesday, January 22, 2019 3:06 PM
To: Council; HOTLINE
Subject: Questions on hill hotel for tonight

I have a few additional questions regarding our memo on the hill hotel for our study session tonight:

1. Regarding the PIF, planned investment fees, please explain in more detail how this would apply to the entire Hill retail or would this only apply to the 10,000+ square feet of retail proposed for the hotel

2.  How was the feasibility gap of $6 million determined?  Was this determined by the developer or was there an independent third-party financial analyses completed?  How is the funding gap being defined?

3. What are the metrics determined in the return on investment for the hotel? How does this relate to the funding gap? Were different metrics used with regard to a funding gap number that has determined the return on investment?

4. How does the project perform separate from the estimated return on investment or subsidy from the city or UHGID?

5. What is the unleveraged ( no city subsidy) internal rate of return on this project?

6. What discount rate applies here and how will this change over time?

7. What is the estimated total project cost and how does that compare to the stabilized net operating income or NOI?  What is the estimated % yield on cost?

8. How long once a hotel potentially is approved, when will the hotel be fully operational ?

9.  What methodology was used to estimate that the completed project will generate $1.7 million more tax revenue annually to the city of bolder then is generated by current uses on the site?

10. Regarding payment to UHGID in event of an early sale, why did we start the 5-year timeline with a certificate of occupancy rather than from the point in time when a potential partnership is finalized? How was the five-year timeline determined?

11.  What type of financial and planning analysis has been done for the highest and best use of this site?  Could council have access to a quick high-level pro forma on the rates one would get from a hotel use vs multi family housing ?

12. Has there been an analysis on the residual land value of our parking lots both on Pleasant and on 14th?  Has there been such an analysis done on this site planned for the hotel?

Thanks.

Lisa

Lisa Morzel
Boulder City Council Member

303-815-6723 c
303-938-8520 h

"The ultimate measure of a woman is not where she stands in moments of comfort and convenience, but where she stands at times of challenge and controversy."
Martin Luther King, Jr.
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