777 SOUTH FIGUEROA STREET, SUITE 2555 LOS ANGELES, CALIFORNIA 90017 PHONE 213.622.8095 2402001.POM.TRB
WWW.KEYSERMARSTON.COM 10700.016.008
ADVISORS IN:
Real Estate
Affordable Housing
Economic Development
BERKELEY
Debbie M. Kern
David Doezema
LOS ANGELES
Kathleen H. Head
Kevin E. Engstrom
Julie L. Romey
Tim R. Bretz
S
AN DIEGO
Paul C. Marra
Linnie A. Gavino
EMERITUS
A. Jerry Keyser
Timothy C. Kelly
MEMORANDUM
At your request, Keyser Marston Associates, Inc. (KMA) reviewed two proposals submitted in response to the Request for Qualifications (RFQ) for the Downtown Development Opportunity Site (Site) issued by the City of Pomona (City). The Site is currently owned by the City.
The purpose of the KMA review is summarized as follows:
1. To evaluate the financial characteristics of the proposals; and
2. To identify potential issues for the City to consider in the selection process.
DEVELOPER PROPOSALS
The following development teams submitted proposals in response to the RFQ:
1. Arteco Partners / Village Partners / National CORE (Arteco)
2. The Michaels Organization (Michaels)
To: Kirk Pelser, Economic Development Director
City of Pomona
From: Tim Bretz
Date: February 1, 2024
Subject: Downtown Development Opportunity Site RFQ – Proposal Evaluation
Attachment No. 2
Kirk Pelser, City of Pomona February 1, 2024
RFQ Proposal Evaluation Page 2
2402001.POM.TRB
10700.016.008
ARTECO PROPOSAL
Proposed Scope of Development
Members of the Arteco development team currently own a parcel adjacent to the Site. Arteco proposes to utilize both the Site as well as the Arteco-owned parcel to develop a 351-unit mixed-use project.
The project’s unit mix consists of 268 market rate units and 83 affordable units (inclusive of one manager’s unit). Three hundred (300) units will be developed on the Site and 51 units will be developed on the Arteco-owned parcel. The project includes 15,000 square feet of retail space and 12,000 square feet of community space / art galleries – including a coworking center.
The project must be constructed in one phase since the market rate component and affordable component share a parking structure.
Financial Feasibility of Arteco Proposal
The most recent market rate po forma was provided by Arteco on November 16, 2022. In that pro forma, the return on cost for the market rate component was estimated at 5.35%, which was below Arteco’s stated threshold return of 6.0%. Given the rise in interest rates and construction costs between November 2022 and today, it seems unlikely that the return on cost would have increased. However, on December 21, 2023, Arteco stated that the proposed project (both affordable and market rate components) is financially feasible, and the two components would be constructed concurrently.
MICHAELS PROPOSAL
Proposed Scope of Development
The proposed project includes 347 units that will be developed solely on the City-owned Site.
The unit mix includes 260 market rate units and 87 affordable units. The affordable units would be restricted to senior citizen households. The project also includes approximately 4,000 square feet of retail space.
Michaels requires that the project be constructed in two distinct phases – the market rate component and the affordable component.
Kirk Pelser, City of Pomona February 1, 2024
RFQ Proposal Evaluation Page 3
2402001.POM.TRB
10700.016.008
Financial Feasibility of Michaels Proposal
The return on cost for the market rate component is estimated at 4.80%, which is below Michaels’s stated threshold return of 6.5%. On December 27, 2023, Michaels confirmed that the market rate component is not currently feasible.
Michaels proposes to construct the affordable component first, with the market rate component to follow when feasible.
ISSUES FOR CONSIDERATION
The following summarizes the primary issues for consideration regarding the two proposals:
1. Arteco’s proposed project must be constructed as one phase. Based on the information provided by Arteco, the return on cost for the market rate component does not meet the threshold return requirement identified in their proposal. However, in December 2023, Arteco stated that the market rate component was financially feasible. In addition, the funding sources proposed to finance the affordable component are extremely competitive. As such, it may take multiple funding rounds to secure the public funding sources necessary to construct the affordable component.
2. In December 2023, Michaels confirmed that the market rate component of their proposal is not currently feasible. As such, Michaels is proposing to construct the affordable component first, with the market rate component to follow when feasible.
However, to comply with the Surplus Land Act (SLA), the City declared the Site as “exempt surplus” under the Government Code Section 54221(f)(1)(F)(ii) exemption category, which requires that at least 300 units must be developed on the Site, with at least 25% of those units restricted to low income households. Thus, if only the affordable component is developed, the project would not comply with the SLA exemption utilized by the City.