City of San Leandro
Development Feasibility Review
February 2026
2301 Rosecrans Avenue, Suite 4140El Segundo, CA 90266TEL: 424-297-1076 | www.kosmont.com KOSMONT REALTY |2
OUTLINE Background Development Feasibility Measuring Returns Market Conditions Review of Specific Projects Proposed in City Findings KOSMONT REALTY |3
DEVELOPMENT FEASIBILITY Developers typically elect to pursue a real estate development to generate a profit Projects can generate profit when development value exceeds development cost Typically rely on investors (equity) and lenders (debt) to fund most of development cost Investors and lenders will only fund projects that they expect to be successful and pay back their investment with interest / provide a return on investment If a development is not projected to generate a substantial enough profit, the developer will not be able to secure the funds necessary to construct it Generally, when interest rates go up, borrowing costs go up, and required investment returns go up
KOSMONT REALTY |4
MEASURING RETURNS – THE CAPITALIZATION RATE & RETURN ON COST A capitalization rate or “cap” rate is a common method of evaluating value of a development based on the revenue it generates
The cap rate is a rate of return (%) that an investor receives for their investment Cap Rate = Cash Return / Value
Value = Cash Return / Market Cap Rate
New / ground up developments often evaluate feasibility based on a return on cost (“ROC”) relative to value of a development at a given cap rate The return portion of ROC is how much profit a development yields as a percent of costs
As an example, a development that is valued at $110 million (based on the cap rate) and costs $100 million to deliver would yield a 10% return on cost KOSMONT REALTY |5
CAP RATE BY SEGMENT VS. 10 YEAR T-BILL (EAST BAY MARKET) Source: Kosmont, CoStar 2025
KOSMONT REALTY |6
IMPACT OF CHANGES IN INTEREST RATES & CAP RATES
Purchasing Power - $1,000 Per Month, 30 Yr Loan Capitalized Value - $1,000 Per Month in Net Income An increase in the Cap rate from 4% to
5% reduces value from $300,000 to
$240,000 without any change in income
KOSMONT REALTY |7
IMPACTS OF MARKET CONDITIONS TO VALUATION Increases in rent increase cash return = increased value Increases in vacancy reduce cash return = reduced value Increases in interest rates reduce cash return = reduced value Increases in cap rates reduce value, decreases in cap rates increase value The value of a property with $1 MM in net income at a 4% cap = $25 MM The same property at a 5% cap = $20 MM, a loss of $5 MM in value with no change in income
Increases in cap rates in the last few years have made many ground up projects financially infeasible
KOSMONT REALTY |8
MARKET CONDITIONS - COSTAR MULTI-FAMILY SUBMARKETSProximate Markets Evaluated in Clusters San Leandro / San Lorenzo versus: East Oakland Hayward / Castro Valley / Union City Fremont / Newark Emeryville Downtown Oakland Alameda Walnut Creek / San Ramon Berkley Dublin / Pleasonton / Livermore Limited 4 & 5 Star (Quality) product in
San Leandro makes it challenging to
accurately compare rents
Other markets seeing downward rent
pressure as new inventory added and
absorbed
San Leandro projected to have slightly
higher vacancy rates for 4 & 5 Star product than most peers
KOSMONT REALTY |9
GENERAL MARKET CONDITIONS Ground up multi-family development has been constrained by shifts in capital markets over the last few years
Absent increases in rents and/or decreases in vacancy, property values decrease as capitalization rates increase
Increases in interest rates over the last few years have driven increases in capitalization rates and resulted in decreases in values for new (and existing) product Some general concerns in market about construction cost inflation and uncertainty Capital markets / lenders and investors remain on a conservative footing / hesitant to lend for ground-up development
Projects that do achieve financing often required to have lower loan to value ratios, higher debt service coverage ratios, etc.
KOSMONT REALTY | 10
REVIEW OF SAMPLE PROJECTS PROPOSED IN CITY KR asked to review fundamentals for select projects that are entitled, but have yet to be developed:
1. Maximus Project – 915 Antonio Street /
899 Alvarado St
2. Town Hall Square – 1199 E. 14th Street 3. 1388 Bancroft Ave Projects represent slightly different
development approaches
Projects have slightly different
opportunities and constraints
KOSMONT REALTY | 11
SUMMARY OF SAMPLE PROJECTS
Project Maximus Town Hall Square 1388 Bancroft Ave
Land Area 5.74 Acres 1.20 Acrea 1.27 Acres
Building Stories
5 7
3 Gross Building Area 932,000 SF 280,000 SF 56,500 SF
Units 687 180 42
Avg SF / Unit & Efficiency 731 SF / 54% 944 SF / 61% 961 SF / 71% DU / Acre 120 120 33
Parking Stalls 892 Subterranean 236 Subterranean 55 Surface Parking Stalls / DU 1.3 1.3 1.3
Expected to be financially
feasible
Expect to require
moderate improvement in
market fundamentals,
Centro Callun stabilization
Expect to require
substantial improvement in
market fundamentals
Feasibility
KOSMONT REALTY | 12
FINDINGS The City is an attractive market for future development The market for new quality product in the City has yet to be fully proven out Newly completed Centro Callan may be a bellwether for future development in the near term City requirements of new development can have an impact on financial feasibility for projects that are on the bubble
Inclusionary housing, impact fees, development standards, etc. Even seemingly small changes in broad market conditions can have a big impact on financial feasibility Market fundamentals have been difficult for the last few years; the City could see some of the more feasible projects built out if broad market conditions improve Developing a ground up project is a difficult and risky proposition, especially in unproven markets; if the City desires to see new development it can help by working as a partner in facilitating projects KOSMONT REALTY | 13
Thank You!