Temecula City Council
October 14, 2025

MAR, 16.2006 2:06PM KEYSER MARSTON SF -No. 1819 P. l
9INTRODUCTION
I. Objective
The City of Temecula requested that Keyser Marston Associates, inc, (KMA) prepare a -market assessment to evaluate near- to mid-term market opportunities for new business and �- development wlthln the Old Town Temecula Specific Plan ara4:.

2. Methodology.

In preparing this assessment, KMA has undertaken the following -key work tasks. . (a) Discussions with the major stakeholders Involved In Old Tcwdand tha-City of Temecula regarding existing conditions and potential opportunities. (b) Review of local and regional dernographlc trends.
(c) Analysis of retail sales pattems relative to the expenditure.-polefttiaal' the sureouriding trade area.
(d) Evaluation of existing and proposed competitive market supply for retail; office, hotel, and residential uses. +
(e) Estimation of retail space demand potential for Old Town.- (f) Identificatlon of key opportunities in terms of appropriate uase and.tenafnt types, In addition, KMA engaged a survey research subconsultafit; CIG Ftesearci, ;ihc ; to undertake, two surveys: (1) a shopper intercept survey of Old -Town patrons; and'(2) a telephone survey of local residents. Both surveys focused on residents' and visitors' perceptions of Old Town and its opportunities for Improvement.

ON Town Temecula MsrketAssessment
Keyser Marston Associates, Inc.

MS1nd1
....Fine!/dune 8, 1996
pggg 10

MAR.16.2006- 2:06PM KEYSER MARSTON SF
A
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�fl. 1$14 P. 1

3. Report Organization
This report has been organized as follows:
• Following this Introduction, Section C provides an overvlew Of.tlie; al'd.ibvyri district:. -- a • In Section D, KMA reviews the major opportunities and. oonlktraeits.affeatirig the deveioprrient potential of Old Town.
v
• Section E summarizes the key Issues raised by stakeholders afid community members. • Section != presents an evaluation of demographic trends. -for fWe lacak:trade,a=ea. . • In Sections G through J, KMA evaluates market conditions #or rets{i/ 'rotikuiaritt, entertainment, office, hotel, and residential land uses; raspec kely, - - ` KMA's conclusions and recommendations are presented:ln:Sectiwn X • Assumptions and limiting conditions to this assessment are detailed In .section L.

V
Old Town Temecula MarketAssessmeni
KeyserMardonAssoela1w, Inc,
BMWrWh
FbI411 June 8, 1998
page 11

MAR. 16. 2006 2:07PM . KEYSER MARrSTON SF
"J0. 181.9. P. ' 13
v •
C. OLD TOWN .OVERVIEVY _
't. Background
Located In the heart of Temecula, Old Town is the cultural and historic foeus of the community.

It contains over 20 historic structures and has become a regioriehlocadon for --.antiques " shoppers.

The site of Old Town Temecula originated in the laBos with the:artival of the railroad and the moving of the post office to -the present town's tocatiori, however, the ares_has e'much earlier beginning dating back to the original village settled by the Shoshone4n Indians around 900 A.D. along the banks of the Temecula River. The arrival of the railroad' ln' 1882 mariied'a boom -period In the City's history- Granite quarries became productive in thdlate 7880s-and lasted until 1915. Thousands of tons of cut granite were shtpped•from. Temecula'to form the Vorrt -- steps of the Riverside County courthouse, curbstones on MarketAStrest :i i-Francisco, cemetery monuments, and hitching posts. Some of these curbq are.$tiltpresetiit in Tertiecula in front of the Squire (originally the Machado Store and later the Long 8lriancftalponj; around file corner from the Bank, as well as in front of the Temecula' -Hotel: The largest:pie�e (15 tons) is -- -in Sam Hicks Monument Park, on which are inscribed the names of the notable visitors to the Temecula Valley.

The tum-of the -century era brought prosperity to Temecula end the town.Urew steadily. Some of the town's more notable buildings were constructed duting't.h` pe:times: the first school in 1890; Temecula Mercantile (Burnham store) in 9902; First I�iational Baalc 1i . 9'12; and,the' Palomar Hotel in 1928, to mention a few.
-91 Today, Old Town Is but'a part, albeit an important part, of the•-larger-Temecula--carn - ty.

New development surrounds the historic town site and rnany.of its historic structures have been tom down or moved. Still, others remain as a reminder of Ternoeula!s past a_nd 'serve'as an inspiration for future development in Old Town and elsewhere. _ Old Town Temecula Market Assessment
Keyser Mutton Assoclates, Inc, "Finallkne'a, MO
9"61ndh psge f2

MAR;16,2006 2:07PM KEYSER MARSTON SF
NO. 16.19 P. 14

2. Old Town Specific Plan
The Old Town Temecula Specific Plan was officially adopted in Februaxy 1.9 . aitd further refined approximately two years later (January 1996). The Old Town Tott6i:ula Specific Plan area Is bounded by Rancho California Road to the north. Pir'st.Sireet tcr-the:south, and tree Interstate 15 (1-15) freeway to the east. The multi farhily r6side6tiaf cammunitji along Pujol Street occupies the westem portion of the Specific Plan _area.• -According to, -City planners, tine area consists of approximately 90 acres, excluding public th&Wway. The drsi t is: split into • east and west sectors by Murrieta Creek, which runs north-satM parallel to Front and Pujol streets. Approximately 56 acres is located east of the creek and.34 acres west of the creek The Specific Plan provides the rnaster plan for the Old Town district" enci�-R-legally.esiabllshes the zoning and design parameters for propertles within ten-sul; b;tri€1e,-as f9flow.5:
• Highway Tourist Commercial (HTC)
• Old Town Civic (OTC)
• Tourist Retail Core (TRC)
• Community Commercial (CC)
• Community Commercial/Tourist Support (COTS)
• Tourist Serving Residential (TSR)
Medium Density Residential (MDR)
• High Density Residential (HDR)
0 • Open Space (OS)
• Mid West Zone (WWZ),
As stipulated In the Specific Plan, the primary objective for ih�dis#riot, a~; ar whdle, Is to create ....a dynamic Old Town commercial and residential core, in order to provide a viable, economic setting for local tourist commercial uses and residential uses." � Currently, -elements of .physical and economic blight are evident throughout the district. 'ManX buildings are In deteriorating and/or obsolete condition.

Old Town Tameoula MarketAssessment KeyserFinal /Ju»e 8, 1998 Marston Associates, lrta
VN51ndh `Page 13
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MAR, 16.2006 2,07PM KEYSER MARSTON SF
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`y The City proposes to undertake a $3 million streetscape impmVeTent program beginning in mid-1998. The proposed improvements will be built along Front Street frari Flrstlo Sixth Street, and along Main, Street from Murrieta. Creek to Mereedes..Street "I'mprevemerits include new medians, street trees, sidewalks, monumentation, gateways, and special: paving. treatment at key nodes.

In them id-1 990s, the Redevelopment Agency of the City of Temecula entered into a development agreement with The Zev Buffman Group C[Ll3G) fcr deve apmei�t f a large-scale ontertalnment project immediately west of Old Town withln-the WestsJde Specific Plan area.

The project, known as the Old Town Entertainment Project (GTEP),•was propo's. ed to contain a multitude of visitor -oriented uses that would be complementary to'the historic character and existing mix of businesses within Old Town proper; Project components included: a hotel, -- playhouse theatres, an opera house, an arena, virtual -reality venues, eating and drinking establishments, and a recording studio. in early 1998, TZBG anniouncettits=intentiari to pursue. an alternative, comparable development proposal, dubbed RogersDA16CU,S,AL, in- Munleta.

3. Business Activity
There are over 120'active retail businesses in the Old ToiWn aroa.-MA shown, in'Table C-1, the largest category of retail businesses consists of Specialty stores (47a),-follevved by -Other Retail Outlets (19%), and Eating and Drinking establishments (1-5%).--.In.terms of -retail sales activity, Eating and Drinkind establishments provide the area's�strongest economic engine, representing 55% of taxable sales. The next strongest sales volumes are generated by Specialty stores (17%) and Home Improvement stores '(14%).

White Southern C8140mia as a whole experienced a seven recession in tfre_EadV to m1d-1990s,, the Temecula Valley dembnstrated strong economic growth,du0114 this period.• Old Town, on the other hand, has experienced a decline in business activity tn-re'cent years, As shown in Table C-2, sales tax revenues In Old Town have dropped 4% since 1996; white the balance of the City experienced an increase of 12%' . Additionally, assessed valuation for Old Town propertles has declined significantly, about 11% from 1993.to 4997. (Sep;Table C-3.) Old Town Temecula Market Assessment
Keyser Marston Associates, Inc, �rr�l /June $, 1998
aaasiner,

y MAR,16,2006 2:08RM KEYSER MARSTON SF
"I0, 1B19 V 16

4. Development Capacity
The core of Old Town - centered around Front and Main Streets -- encompasses three of the sub -districts defined, In the Specific Plan. the Tourist Retdll Core. (TRC); Community Commerclairrourist Support (CCTS), and Tourist Serving Residential 4TSR4:.Table C-4. summarizes the land area, existing uses, and development capacitji.for these three sub - districts. The TRC and COTS districts taken together con-taln about ge 000. square feet (SF) of gross building area (GSA) on 15.54 acres of land. This eaosting deve.lopmeizt r.6prdserft a' Floor Area Ratio TAR) Intensity of about 0.43, The balanc e•of'these lwa dl�tdcW-,contains about 16.44 acres of existing'vacant land or land occupied by single-family housjng.', If this Property were developed at a comparable densiity, FARs of s' aye 0:40 to 0,45, then about 286,000 to 322,000 SF of additional building area could be -added'- approximately double the -� existing uses. I . ' . -
The adjoining-TSR district currently contains 31 single-family homes on 5.42 nacres: If these properties were redeveloped at a future date, an additional 95',000 to 1g6,00D SF OBA could be added to the Old Town core,
In sum, if all three. sub -districts were built out at a density comparab7e-to:e)osting uses' the Old Town core would contain approximately 668,000 to 716,000 SF of building area. This amount of development represents approximately 230% to 2506/Lof the -existing oommerclal development within these sub -districts.

S. Comparable Districts
KMA surveyed a range of "comparable' districts in the Western United State; inciudirig Old Town San Diego, Solvang, and two towns In Colorado. The .objeotive-of1his suFvey vva$ to :
understand the key factors that have contributed to the success of othet visitor -oriented; special districts. KMA identified communities or districts with an existing. tourism base,. pedestrian - oriented retail, and a special historical or architectural feature. .

Old Town Temecula MarketAssessment
Keyser Marston Associates, Inc.
.o
!Afhal/June's,, -1998
- . + Psge 15-
9eo61adh

MAR.16.2006 2:08PM KEYSER MARSTON SF
NO. 181-9 P. 17
As shown In Table C-S, the six surveyed districts vary widely -in character and. setting. f
N However, several key factors appear to be constant. These,are.-eutlined,_bQjgw; -cornp 'r sons — with Old Town Temecula are also noted.
-- All of -the d/stNds are distinguished by some element 6fhilst66 archifeoture and/or landmark building(s) or monument(s). Although Old Town Temecula, has"a number of -- historically Important buildings, no specific monuments or landmarks are "showcased" for the passerby or tourist.
• Almost all of the districts have formed a Business Improvement D1960t (81D) ' str+dng or
merchants association. Old Town merchants do not have a fermal organization. • All of the districts promote numerous special events each, Year. `hise tiiie,{ar Old down_ Several of the surveyed districts stage special events -much ruere fraquenjLy'. e
• All of the districts offer two or more free public parking lots. -_The. City of Temecula- Is ,., proceeding with development plans for a second public -lot' . • All of the distrlcts include one or. more anchor enteftafrnma�f9rctrlfur'a! faculties, such'as museums and/or theatres. Old Town offers neither.
• two of the districts emphasize their waterfront location; two°otftie districts etriphasize their rallroad history. Although Munieta Creek passes through Old Town; It is-nbitheir improved nor Integrated -with the built environment
Old Town Temecula MarketAssessment
Keyser Marston Associates, Inc. -FinalIjune•8, l998
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TABLE C 2
SALES TAX REVENUES, OLD TOWN AREA,1995 - 7-
OLD TOWN 7EMECULA MARKET ASSESSMENT `

CITY OF TEMECULA
Previous
Period
rfaral Year W—T—Own Y&Dhange
1995 $156,102
`-' 1996 $165,611 6.10%
1997 $149,967 -9.50%
Total Change
1995.1997 ($6,135) -3.93%
Source; City of Temecula
Prepared by; Keyser Marston Associates, Inc.

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Period
$6,397,06-.;
-ep1609637
-4.3%
$763,574

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�. OPPORiIlNITiEs ANr1 CONS 'RAiNTS
This section summarizes Old Town's key strengths and weaknesses with•respeCi to attracting new businesses and development,

1. Major Opportunitles
• Unlqua historic environment Temecula's history dates- back to the S.hnab6ne' Ifidi'. qn
inhabitants as well as some of. California's original Spanish settler$,. Tho f€rs major sigri of European settlement occurred In 1858, with the inaugural trip of he Butterfield Overland Stage Line, which brought new settlers for Temecula, fin .1882-the Sante.FE Railway built a rail line through the Temecula Vafley and Old Town becafine.thEfocal'pnint-1br-the-ensuing ~~ growth. Over the years the original western architecture has'stand the test of tlrrie and provides the area with a link to the heritage and historyof Temecula, ,6 ne of the € oni -- historic structures located within Old Town include: the Welty Hotet, (1 g82), the Tamocula Mercantile (1891), and the First National Bank of Tem�uula 1.1914).:OId.To�vn`s historic western legacy is well-preserved and distinguishes the -area from .other bi0nheppfng districts in Southern California_
This historic fabric offers a platform for Inereased.civfc and 'PubilaaotiYitids for local residents. New arts and cultural venues and the planned Civ1C Center projOict.coyid also be designed to take advantage of the historic elernents of Old Town. 0 • Concentration of -antiques stores, Old Town is equipped-with:ai varieiji gf`uaique and intriguing antique and collectible retail outlets. The arda.provides ire€cess-0f50 -an#iclues dealers, attracting shoppers interested in a one-stop'-shopping-des-g ja-fletif6rantique, craft, and collectible items. Old Town's Concentration of antiques_stdres may prowde a foundation to attract other related retailers to the district, .

Old Town Temecula MftketAssessment
Keyser MerWonAssoarates, Inc,
9BUIrldh
- . --';�IAalt.lurie�8„ •7998

MR 16, 2006 2:1GPM KEYSER MARSTON SF
. ''0, iBi9 P, 25
• Proximity- to the wlnerles. Located in an inland valley amidst rolling hills, Temecula: enjoys a special climate and topography. Taking advantage of these-ab'iets;: the.Temecuiai Valley wine country has developed a reputation for producing'-wines.thataornR-.of the P
best in the world. The heart of Old Town, Front and Main: streets; Is. -less, 1Fhdia fiv;mlles west of the wine country. According to the Temecula�alleX!lintnerg'.hss©ciatiort, between 100,000 and 150,000 people visit the Temecula Wined e* s.each,year. The proximity of this major visitor destination has the potential to generate -Sol-ofl bet nefits for Old TTwn.

Growing, affluent trade area. Temecula's economic vitality continues; to grow, with the City's main economic engines corriprlsing the housing, manufact4dn�; ansportation,°and distribution sectors. Some of the area's larger employers include Guidarit Qorporatlon, Amscan Incorporated, and International Rectifier. The area`s strorag-edo j&g;owth has contributed to above -national -average salaries for the. a"a's Ropuiabe..ta 1997,' mean household income for the Old Town primary trade area -was over $68,00'0. At the same time. Temecula continues to offer affordable housing;. -over-50% flf single-famliy home sales in the area are in the range of $100,000 to $150,000. As a -result of relatively'higher Incomes, combined with relatively affordable housing, more discxetioriaryonle rerrialns in the pockets of trade area residents,
• Natural settfng. Old Town 'is located within a strlkfnglybeautiful natural si tfng;-the Temecula Valley. The.strongest views from within Old Tcawh,are� anjoyed`frorn the shoreline of the Murrieta Creek, which runs north -south west OfFront Street:, `Although the creek is dry during much of the year, it remains a significant natural. asset, providing open_ space and a viewshed toward the mountains from the heart of Ord TowT.

National resurgence Ofstreet retail, Although national and regional retailers have shown a Preference for traditional malls and shopping centers, "stree#': Cetail has resurfaced In -the late 1990s as a highly popular venue. The essence of sheet retail is captured by specialty retail, eating and drinking, and entertainment establisht.nanistar eil#rb"#edJn a walkable district with a unique ambiance. In view of its historic charac er, pedesWa sicale, and fast- growing trade area, Old Town is Weil -positioned to°capture this resurgent retailing trend.

Many California cities and redevelopment agencies are working to create this tyWe of reredistrict Old lawn Temecula MarkatAssessment
KayserMarstion Assacfatos, 1,,,
R281 /June .8, 1998
. Pegg 24
aeostnnn

MAH.16,2006 2:11PM KEYSER MARSTON SF
u0:1a19-- P. 26-
In their downtown areas. Key examples currently underray'utherii'Cayfim[a include:
the Brea Civic Center area, the Vista Village Creekwalk project- and -8aritee Trolley Square.

Existing successful districts Include: Cedros Street in Soiana.SeaA Fourth gtreet in Berkeley, and 23'd Street In Portland, Oregon.
■ Temecula's role as a submg/onal rota# center, Temecula': retalle'rs and"Kopping centers draw substantial retail spending from beyond City boundaries. In fact, Teriiesula "imports^ retail sales In almost every major retell category. Ternecula's role as a shopping destination should he reinforced with the opening of The Promenade -regional- mall. --- 2. Major Constraints
Lack of anchor uses. Like other street retail districts, Old Town:is chall'erid bar its [ark =of anchor stores or other major tenants. Old Town does-trot- appeal-.ta tradifionaF anc'hor•=
tenants primarily due to the area's fraetionallzed land parceliztioir and "o#f the beaten path" location. Lacking this draw, the district currently attracts shoppers based- on. its unique character. "critical mass" of antiques stores, dining and entertainment opportunitles, and special event programming. -
■ Lack of direct freeway access. Old Town is located halfway between -two freeway exlts.- w Traffic congestion on Rancho California Road, in particulaf;.slowsaccess to Old Town'. • Lack of freeway visib►7 ty. Despite Its direct proximity t6 the .14151re6weiy .O(d Toviiri Is net particularly. vislble to the freeway. Approximately 27 million. inotod'ats-on!'196 pass'01d a Town each year. However, there is no signage or,monumentatlon indidaft bid Town's location, and the district's buildings are not prominently vlslblefrom the freeway. `the City is currently taking steps to add freeway exposure by means of available billboard rental.

Old Town Temecuis Market Assessrnent
KeyserMerston Associates, Inc
WQMndh
Fine!/June 8, 1998.

MAN.16,2006 2:11PM KEYSER MARSTON SF
N0, 1819 P. 27
Limited close -in residential population, Old Town hat -not wttneseiti y of0r eoV residential growth that has taken place within Terneculit over- fie past decade; New housing development has been concentrated on the al undant land -supply east of the 1-15.

Old Town -includes a small single-family area along Mercedes street acid a, concentration of primarily multi -Family housing along Pujol Street. However,.these,ar$as ale relatively small and somewhat deprassed; they do not provide much support for retail and service . businesses within Old Town.
• Llmifed land supply. As a result of its settlement over a .century ag�.flirr:Towr�`tiaday fs characterized by numerous small parcels and multiple.0v 4jh[ps;; Although there is a sizeable quantity of vacant and underutilized land, the ownership and-paccehatlon patterns Present challenges to private investors who might attempt to assemble larger development sites.

Lack of uniformffy. The historic character of Old Town, combined with its rnix of smaii, family -owned businesses, create several challenges; Old Towla rrifthafft do -rat maintain uniform hours of operation, Entrances to building are not.aivvajyswell-ma edvr.we!lArl so as to indicate that a business Is Indeed open. Sldewalks are not,uriifgrri�;=7n $Or 'a blocks, the street right-of-way and sidewalk appear seamles_:-Altl otrgh parking is avaiiable, customers often perceive that there Is an insufficient (or inconvenient) supply. Locations of parking resources available to shoppers in the Old Tmn cope.are notwell identified, Oki Town Temecula Market Assessment
Keyser WSW AssoclateS, Inc.
. FinalxJune 8, 1998-
` page 26_
9eOMA

MAR, 16. 2006- 2:11PM
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KEYSER MARSTON SF
• M 1819 P. 28":

E. KEY STAKEHOLDER ISSUES
1, Sfakeholder interviews
A key component of KMA's market assessment involved lderitificgd0n_ of:majc r.'I"ssues by persons who have a stake in the Old Town area and its revitalization. -KMA fhe.11#ated.&_Series of meetings with property owners, business owners, and community -representatives on March 3, 1998. Participants were eager to provide Input to the market assessment and offered numerous suggestions, ranging from the renaming of Front -S1tr6dt#aattradung-mare tour buses -to the area. In an attempt to capture the essence of stakeholders' Co' M'n-ients; KMA has summarized the following principal areas of discussion:
-- (a) Need for better lighting, streetscape, and parking. Stakeholders expresssd �cdnceyns that Old Town has Inadequate lighting, a deteriorating and unattractlVe"Straetsdape, and Insufficient, well -located parking. City officials pointed out f ube-ews' -atreetscape Improvement program for Front and Main Streets will significantly irbProve the appearance of the district arad enhanoe'the.perception that Old Town is-dea*n-; We, a'd attractive.

Merchants were also concerned that parking supply is being developed at the northern and southern ends of the district, while most commercial activity is cdncentrated in the•tourist core around Front and Main streets.
(b) Need for diversification of businesses and land uses, Many,stakehnldersdiscussed Old Town's limited mix of businesses and insufficient drawf❑r repeat vitatiat}:: hurber of - people felt that the area has too many antiques stores and-not'enough other shopping opportunities. At the same time, the concentration of antiques stores gives -the area a unique Identity and provides a good cornerstone for future eVartslon:
(c) Need for enhancred visJblllty and signage. A significant amount of discussion focused on the lack of freeway signage ,denoting Old Town's existence and.Acces sib. ilily. .City officials
indicated that certification of at least one building within Old Town as- a,hikWdcstructur.6 under State guidelines would qualify the district for Gal`Trbns signage Old Town Temecula MarkefAssessrnent
-Keyser Marston Associates, Inc,
Fln01/June 8, 1998

ia0dindh

MAR..1612006 2:12PM KEYSER MARGTON SF
NO, A 8:19 P, 29
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(d) Need for a moreunified effort and district idea dty. Some -stakeholders felt 91at-Old Town lacked a "marketable" identity other than as a concentration.of:antiques stores, Suggestions were made that Old Town could be marketed -as a cultural.and entertainment district. in addition, it was pointed out that there has been a -tack at urlisdn among Old 'Town merchants in organizing and marketing the district.

2. CIC Research, Inc. _Resident and Shopper Surveys
CIC Research, inc. conducted two surveys In Temecula during -Marchand Aol.1998: (1)•face- to-face interviews with Old Town shoppers; and (2) telephone in -to M. "aWs with. -local residents.

Both groups were surveyed regarding their perceptions of Did town; -Its atrorigths and weaknesses, and opportunities for improvement, CIC Research's co_m_plete.Yeport is. available under separate cover. The key findings are summarized below, (a) Intercept Survey
• Approximately half of all respondents surveyed on a faoe4oc fece.b" Tawri _ Temecula were visitors from outside Riverside County.. Tile remaining h4i`were, Riverside County residents.
• Surveyed respondents who reside within Riverside Courity•Fi6ve:lived an average of 7.9 years in the area and reside an average of 12.3 miles from theOldi'awn area. • The majority of all respondents own their. home..
• Respondents have an average of a people In their household. - - • The median age of respondents is 50.4 years.
■ The median annual household income is $62,500,
• One in four visitors from outside Riverside County were staying ovemightin the Temecula Valley area.
■ • The mGJ0 ty of visitors staying overnight were staying in the City Qf `Fem. acu]a, Old Town Temecula Market Assessment ~' .Final /.trine "8, 9998 KeyserMarsbn Assodates, Inc. - aaoa1ndn

MAN. 16, 2006 2:12PM XEYSER MARSTON SF
• NO.1.819 P, 30
w Overnight visitors stayed mostly in a hotel or motel. • Almost half of the visitors from outside Riverside. County rep-lled thaf.©!d To%yrt was their main reason for visiting Temecula.
v
• For visitors,from outside Riverside County, initial awafeness:o_ f. old Town. -was primarlly via friends or relatives.
• Visitors from outside Riverside County tended to locate. the Town- area with much ease. • For all survey respondents, a small proportion have visited file Old TdWri• arcs frequently in the year prlorto the survey, causing the mean to be hlgh­ at- 7.4 tunes:--'HgWdvec,lahe _ median is calculated at 4.0 times, indicating that ha#f of ait respondents h1av­ visited the L area four times or less in the year prior to the survey. • Respondents are visiting the area mainly for browsin s " 9/ h*6iO4,,M9htsee1ng;'orthe
Farmer's Market, and plan to or have visited an-avemgeof 7:5 businesses on the day of the survey,
• Stores visited or planned to visit -are predominantly antigrie shops ftlowdd •b_ y specialty/crafVglft stores and eating and drinking plac". = - Respondents have spent or plan to spend an average :of-W.887on.their. current visit to the area.
• More than half of all respondents like the western/old/ruraws#ario aspect Of, Old Town
area. -
r v
• Old Town was rated very high (I.e., in a positive light) as a Og cb to shop for antiques; crafts, and gills.
• Approximately four in tan respondents have ever attended a' -special event:iri die Old Town
area. Special events suggested by respondents include a we'stem time (L jgsfern Oays' , "Pioneer Days"), live music/entertainment/theater, and -street fairs/festivals.

Old Town Temecu/a Market Assessmwt
Keyser Marston Assoclatw, Inc, Flrral /tune �tag$
eeos�nms - �i3g� �9 . •.

MAR.16.2006 2:12PM

KEYSER MARSTON SF
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• While more than one in four respondents would not like.to see ar�y s#©res added to the arts, the most frequently mentioned stores include spedaity shops.and.speclalty . food/restaurants.
• Given the choice of art galleries, live entertainment, or`v►cprWgwti�aiis~asta increasing their visits to Old Town, respondents tended to favdr working artisans; followed by live entertainment.
• The most frequently mentioned Southern Cali%mla deadiatfons for -fun one=da shopping Y s Ppin9
trips include North County Fair, San Diego Old Town, Elsinore O_utl'et°1Jtores,•and San Diego Seaport 1/liiage.
(b) Telephone Survey
• Respondents surveyed via the telephone have lived ah'average.ofelght years 'rn the area, compared with 7.9 years for Intercepted respondents.
-- Distance from home. to the Old Town area Is calculated -at 7:5 miles for respondentd (who live In Riverside County) surveyed via the telephone as compared to 12:3miles for Intercepted respondents.
4 • Three percent of respondents have a member of their household who worts hi ;Old Tawn,. as compared with one percent among responddnts surti eyed. on.s f e�ta&�a bads. • The overall majority of respondents surveyed via the telephone,-as.well'as'.otr-a face-to-face basis, own their home.
• The median age of respondents surveyed via the telephone is calculated of 43.4 dears as compared with 50.4 years for intercepted respondents.

J
• The median annual household income for telephone reepohder�ts _ls $6'f;84�, as compared to $62,500 for Intercepted .respondents.
°
Old Town Temecula WketAssessment
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eeos�nan page 30

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• Respondents surveyed via the telephone have visitedthe-Old Town area an average of 26 times in the year prior'to the survey, and a. median of 8 times, Thus,,simtilar to rosuRs from the Intercept survey, a small proportion of respondents have vlsfted the area-freQuentiy, 4 causing the mean to be high. -but half of all respondents have visited the area eight times or less in the year prior to the survey. (Median @ 4 timesfor the_ jnterce0t-'j0"y.j • Respondents who have visited the Old Town area to the year i Y prior to. ttia` nvey 4ave. .
visited a mean of 2.9 times In the prior 30 days. Mora than. .one 1r< tbree Qf these respondents have not visited. the area in the prior 30 days, • Approximately six in ten respondents visit the antiques, .craft -,and 9 ShbpS;N}ier' they visit Old Town. Respondents have visited these shops an av' erage of 9-5 tirries and a rhedien of 4 times in the past year.

One In ten respondents have not visited the Old Town area in" the year pdof to the'surveji, `r Businesses these respondents are aware of in the Old'Town .area inclu�[ _antigads_sFrop�s, restaurants, specialty shops, and ofilees/hotels.

The major reasons given for not frequenting the Old Town area wete- primarily that there was "nothing of interest," that it was "too far out of the•way,":end - iat they "don't go out much."
Respondents who have not previously visited the Old .Town area were -asked for suggestions to encourage them to visit the area. Results indicate'a,deslrq for nice. restaurants/more variety, increased advertising, and iroprov9d' , jrafric:#1oW._. _ Types of stores or attractions respondents would like to sea added wetae:moy specialty` shops and eating/drinking places. Specialty shops was•alsv mentioned,m6st#t•equently by Intercepted respondents.

Old Town Temecula Msrkef Assessment
Kayser Menton Assoclefes, Inc. RMIyJune 8, 1998
S$Nlndn Page 31

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• LlkeHhood of visiting the area if more art galleries, live entertalnrneri, 0T.,yv_grki_ng artisans were added was ascertained. Results were consistent for respgndgn' is who"have not, as well as those who have, visited the Old Town area in the year prior to the -survey. Live d
entertainment followed by working artisans, were the most popular additions. In comparison, Intercepted respondents tended to favor working artisans, falloWed by live entertainment. Hawever, both groups of respondents gave_artgallertes-the lowest rating of the three possibilities.
— On a five-polnt scale with one equal to `poor" and five equal -to "exapprox'imatefy three in four respondents rated Old Town a four or five on the scale wltti.especYto being a place to shop for antiques; crafts, and gifts. This Is also true,for-respondent interviewed on a face-to-face basis In the Old Town area.

Slightly more than one in four respondents visit the a;t galleries when. they go to Old Town.

Other places where art galleries are visited include Laguna -Beach, Los Angeles,. and San Diego.
" • Most respondents visit the eating and drinking places when theygo #o,Old `town. • Respondents have eaten In Old Town an average of 11,4 times anda median o_ f 5 times in the year prior to the survey.
• One In four respondents use the services available in Old Town such as repair shops, banks,- etc.
y • One in three respondents frequent the Old Town Farmer's -Market: In the past year, these respondents have visited the Farmer's Market an average of 6.8 times. and a. median of, 3 w times.

Of seven items read to respondents with respect to the Old -Town -area;-r+asporuaents surveyed via the telephone gave the most positive response fior:: - "Friendliness and helpfulness of Old Town merchar.Its.w_ - 'Ease of access between stores."
1 J
Old Town Temecula Market Assessment Fine!/Jvae 6, 1898
Keyser Marston Assodla�tes, Inc. page 32
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MAR.16,2006 2:13PM KEYSER MARSTON SF
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+ The Old Town area is liked best because it is western/oldAiiMllhlstor€c es vetil as for atmosphere/ambiance. This result is consistent vWth that�obtained .from- intercepted . itsrespondents. _ • More than three in four respondents have ever taken Qut14.6yvn yjsitor$ to the Old Tawn area. Placers visited with Out -of --town guests include antiques ,.-Aoree+,.eat�fldrfnking. places,- and specialty/cra-ft/gift stores. ,
• Slightly more than half of all respondents have ever•aitended a -special event in -the 01d Town area. Special events suggested for the area lncludellve:musicJentartainment/th�ater, .., car evenis, a western theme, and street fairs/festivals,' These:fesuits Wre slM!!ar to those suggested in the telephone survey.
-- Almost six in ten respondents have ever Taken out-o
f tEiwn•rdsitvrs to visi#focal wineries. Of
those who have not taken out-of-town visitors to local wlnstieg . appm ihat0y ona in. three
have ever visited the local wineries themselves.
• Those who have visited local wineries have done so ail average:at 3:7.iimes-in the Y..ear prior to the survey.
ord Tawn Temecula MarkvtASsessment
Keyser Marston A &sedates, Inc. Finer1 June 8, 1998
veosjnm, Page 23

MAR.16.2006 2:14PM KEYSER MARPTON SE
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F. DEMOGRAPHIC TRENDS
I. Regional overview
Since the mid-1980s, the Inland Empire has remained one ofthe fa 1test-grovAng -areas In the
state, and possibly the natlon. In'terms of population, housing.,Arid empl4ymept growth.. inland Empire communities offer an affordable, centrally located alternative for 6u5lnesSes and residents alike.

The City of Temecula has experienced tremendous population, growth - the #t $veh years...:

The City grew from 27,099 In 1990 to an estimated 43,100191997; r V'ilich'-equates to 4 6.41°/o annual growth rate.

Temecula Is centrally located with respect to Riverside Country and San Diego County.' Its Proximity to Interstates 15 and 215, and State Route 79, affords_iteasyaiscessibilltyto- surrounding motropolltan areas.

2.. Trade Area Demographics
KMA defined the primarylrade area for Old Town to encomnpass appfoxlfnately a ten -mile _ radius of the district. This trade area, shown in Exhibit F-t,_-Includes'seven Census Tracts,. inclusive of the cities of Temecula and Murdeta and surroyndirig.00MMunitles, his fairly large trade area was selected for several reasons. First, the existing develapmentpattern within the Temecula Valley is relatively dispersed and residents are accustomed to driving longer distances for shopping and services than their more urban -counterparts, Secondly, most�of the key competing retail locations " lining the 1-15 and 1215 free.ways.lrr Terriscula meta fall within this trade area boundary. Finally, as much as 40% of'Old Towty , exlsking.p4jr:onage I".
is estimated to originate from within this trade'area. (per CIC Researci,�jnG,uiv�ys}. .

Old Town Temecula MarketAssessment
Keyser Mersfon Assoclates, Irrc.
"051ndh
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MAR, 16, 2006 2:14PM KEYSER MARPr4N SF NO-1 a 19 P.- H
As shown in Table F-1, the primary trade area had an estimated 1997 population Of. about 124,600 people, This represents an annual rate of increase'overthe 1990'popuiatlon figure of

6.9%: The trade area is forecast to continue to grow at a.4.2% annual rate through 2002, bringing the total population to approximately 152,900 residents. .

Current per capita income for the primary trade area is estirhatexi at.vr,0, *ad 1s p�tijeeted to' Increase 3.4%annually, raising per capita income to apprOXiM. ately $2-6;6,OQ "'�00 : dean household income In the trade"area was approximately $58,00o 1q•1997; Thls.fiijyre is corroborated by the CIC Research telephone survey: median household Income among telephone respondents was approximately $62,000. -
The current. estimated aggregate household Income of the primary trade area is'neady $2.2 billion: The combination of population and income growth,withlh ;the trade area are anticipated to boost this figure to $3.1 billion by 2002 - an increase of apprc»drnatey 5(lio .over fide years .(ay portion of which Is attributable to Inflation). : • .

The trade area population Is skewed toward young fam1116s.with, children.- The -estimated 1997 median age for the primary trade area rests at a relatively youngr34.9.years. old. Nearly two - fifths (37.5%) of the trade area population is 24 years old or less; another"one-thfrd-(32,9%) are aged 25 to 44 years old. Just 10.9% of the trade area popuilation is 65 dears bld-or'older; This. age distribution is relatively comparable to Southem California as a whole.

Old Town 7emecu/a Market Assessmen!
Keyser Marston Associates, Inc.

VWGInan
Flrin0june 6, 1998

.MAR, 16. 2006 2;14PM KEYSER MARSTON SF M0: 1819' F,, 37 1 MAR, 16, 2006 2:16PM KEYSER MARSTON SF NO.1819 P. 38
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MAR, 16. 2006 2: 16PM KEYSER MAR,STON SF _ NQ; 16i9 P. 39 G. RETAIL MARKET CONDITIONS

1. Overview of supply Factors
Retail development in the inland Empire has generally kept,pace-with thaarea's residential - deveiopment. Thousands of new single-family homes havebeen-devsloped.t�oughout Rancho California, Temecula, and Murrieta. At the same ti[rte; '10 broaranga:Qf:gional; promotional, and community retail space has either beeri'developed or. is currently bung planned. Table 0-1 Inventories the major shopping centeFs in Temecula and- Murrleta. (See . also location map In Exhibit G-1.) As shown.in the table,Ahe-trade--a" is well -served with respect to convenience (grocery and drug stores), -general merchandise,.rorne _ improvement retailers. (Refer to Table G-2 for an explanation of the retail categories used irr this report.) There Is a limited inventory of specialty, apparel(; artd' home furnJshings and - appliance stores .(generally grouped' as "comparison goods"4-: This def)6�`loin ilkeloe reduced by the planned construction of the approximately 975,000-Sf_ ,Pronierrade=Mal1_an 'adJi cent 400,000-SF power center.

2. Retail Expenditure Patterns
For the past seven years, the City of Temecula has maintained -a stead} grdWth In retell,sales.

This can be attributed both to the area's rapid population growth and the•City's accesslbfi[ty`to I- 18, enabling Temecula retailers to attract out-of-town shoppera;• .

KMA evaluated retail sales per capita and retail sales per: eaplta as�a:per ehi 9f per capita: - income for Temecula and neighboring jurisdictions. Tables 0_S6iroug[7••G-8 profile the categories of eating and drinking, specialty goods, gerieral.-MeO. ahalse goods, other comparison goods, convenience goods, and home improyeitjelat,' espectivefy. This evaluation was used 1A constructing the import/export analysis shown in•Takile'G-9.• KM,A;used estimates of population and income, combined with typical spending. ratios, to estimate retafrexpenditure potential -for the City of Temecula. As shown in the table, -KMA estimates the C1.ty's total potential for the six categories to be $262 million, compared .to,$4P_q million In.'actual sales (1996 figures). In other words, the City "Imports" approximately. $°167 mHlfon In retail -sales annually, - -
Old rown Temecula Market Assessment
Keyser Marston Assoclates, inc.

Final -%June a, 7996-

9BOb1gdh

MAR,16,2006 2:16PM KEYSER MARSTON SF
N0, 181 Q P. 40
The strongest import occurs in the categories of Generaf Merchandise ithd Specialty Goods, Y followed by Convenience Goods and Eating and Drinking.- The City has several large General Merchandise retailers, Including Costco, Mervyns, Big Klatt,.and"iarget:

The City exports sales in two categories: Other Comparlsort-Goods, and •Home fmp'r6Vement.

Other Comparison Goods Includes apparel, shoes, hometur4shln9% and household appliances. The City's existing representation of retallers:withinihdse categories Is fairly weak, resulting In the outflow of residents' expenditures to other shgpping areas; - iv-mpletion of the planned Promenade regional mail will respond to a portion df the urn at'gierj fend flit OtFier Comparison Goods,

3. Recall Space Demand
Tables G-10 through G-15 present •(1) KMA's forecast of total retail spate demand for the Primary trade area for the next ten years; and (2) KMA's estimat�flf poieptlal-retail spare capture for the Old Town district. +
KMA estimates that the primary trade area Wil experience:ari increase lit derraarrd for retail space of about 1.0 million SF over the next five years and an additional. 1.3 million SF over the following five years. Therefore, during the period 1998-2008, •t1•ie trade area will.experience a total increase In retail space demand of approximately 2.3 million SF, as shown below (SF):

Cate —go
99 - 003
2 3-200s
Ten Year Total
Eating and Drinking
170,000
223,000
- 393,000
Specialty Goods
200,000
; 2601.000••_
450 000
General Merchandise
240,000
311,060 '
551.000
_ Other Comparison Goods
s
120,000

15.64000
-
276,000
• Convenience Goods
130,000
1321-000
162,000
_ Home Improvement
180,000
22 0 0.. _,
406,000
Total
1,040,000
1;30,t)Op
2,34$,000
Old Town TemeWfa Market Assessment
Keyser Marston Associates, Inc,
Finatijune $ igss
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MAR. 16, 2006 2., PPM KEYSER MARSTON SF NO.-A819 P..41
in addition, the planned Promenade Mail can be expected to draw shoppeM,f M:beyond the Old Town primary trade area. For Old Town; this represents botiT aftoo tiltir — to:c pture spin-off benefits from the mall's new patronage — and a 6hallehge•-- to'offer yet k restaurant, and entertainment uses that complement the mall's tenant mix, rather than c0m.1pete directly. -- 4. Retail Space Capture
As the next step, KMA estimated how much of the total retail space demand -for the primary trade area could likely be captured In Old Town. This estirnetiarrcensldere6the range and - diversity of competing shopping locations within, and adjacent 0, 'thb tradd.area lip view�ofthis competition, KMA has used relatively conservative captures rates -for each cat�ggly of.tetall uses, ranging fr❑rn 2_5% jgj_Aj%_of anticipated retail space demand: Additiotrally, I<MA considered the City's and Redevelopment Agency's commitment to the revitafization of Old Town, Including 8ttractlon of new businesses.

On this basis, KMA estimates that Old Town could capture beiweerr 95,000 and 15$,000. SF of new retail space over the next ten years. This projection can ba broken.out be.follows:
1998-2003 (SF)
New Space Supported by Local Trade Area, 1998-2003 28,000= 46,660 Additlonal Demand beyond Trade Area at 67% 1998 2003 19,000 31.000 Subtotal, Local- and Visitor -Supported Demand, 1998-2003 47,000 77,000
(Less) Amount Accommodated by Usting Space 12 D00 19 000 Total Estimated Old Town Retail Capture, 199$ 2003 35,000 58.000 2003-2008 (SFt
New Space Supported by l m;W Trade Area, 2003-2008 36,0100 : 60;000 Additional Demand beyond Trade Area ELM, 96, 2003-2008 24,OQ aoa Subtotal, Local- and Visitor -Supported Demand, 2003-2008 0,00Q •1,0.0;000 Ten -Year Total (SF)
Total Demand, 1998 2003 351000 58,Q00
Total Demand, 2003-2008 60;000 100.000
Ten -Year Total 95,000 158,000.
,Old Town Temecula MarketAssesameni Find!/June ,198$
Keyser Marston Assoclates, Inc.
aeas�nan

MAR.16.2006 2.17PM KEYSER MARSTON SF
The "low" scenario reflects a modest level of tenant recruitmenfiactivlty on the part of the City -- and Old Town stakeholders. The "high" estimate assumes a successful, dggressive recruitment effort. Key assumptions incorporated in this demand projecRon Include•the following:- * Old Town is likely to capture only a small share (5,0% to 7.$1/6) of #ride area expenditures -- for Eating and Drinking and Specialty Goods, and an even smaller share.{0— 'o to 5A%) With respect to General Merchandise and Other Comparison C3a6ds: -1{MAR iias � - conservatively assumed that Old Town will capture nanebf.6e anticipated demand for Convenience Goods and Home Improvement retell space.
• Old Town will continue to enjoy patronage from'residents well beyond the trade'area. The CIC Research survey concluded that nearly two -fifths (38.19A) of Cild Town:patrons are primary trade area residents, with the balance originating from beyond'the-trade area. (Refer to Table G=11). In KMA's view, this apprwdm' ate--40'% r60' ,mix o'f` localsluiMtors is likely to change over the next decade. The Temecula Valley -will contlriue_to de_velop.at a faster rate than Southern California as a whole. For this reason, -KMA has 45-s"U e'd an eventual mix of 60% locals 140% visitors. Based on this. additional temand`ftom beyond the trade area, KMA has Increased the estimate of Old Town's retall"spaee capture by 67%. • Existing retailers In'Old Town ,are generating below-average.seles.produe ivity relative to competitive retail locations and industry standards. KMA has assumed that -a' portion of the near -term demand, estimated at 25% of 1998-2003 retail �eapture potential, will be -absorbed through Increased productivity In existing space. On this basis, KMA'has reduced the five year retail space capture estimate by 25%.

5. Entertainment
KMA also considered the potential for expanded entertainment uses In:OId Town.- The Temecula entertainment market, is generally focused on family--oriented-dlVersiorls. " Key entertainment and recreation features are reviewed below.

Old Town Temecula MarketAsamment j Flnelt-June 8, 199$• KeyserMarston Associates, Inc. Pege 41 .

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The trade area is amply served with movie theatres. As shown in Tahle'G-1,16ere are 20 existing screens In Temecula and' a new, state-of-the-art ' NIO'k cinema In Mun!6W. In - addition, Forest City Development plans 14 movie screens at ihd Pr ii'e' nadO regional mall. • The Promenade will also feature a complex of recreational avid en#ei^t�iRrn�iveniies; Including possibly a large-sicale Ice rink facility.
• TemecuWs skating park offers year-round activities for children end young a'dlults. • Public events such as the Old Town Rod Run, Sulnmer-Nights, Old, -Town. 8pooktacular,' and Wine Festivals are also planned with family entertainment In* -mind.

At the same time, the trade area offers a somewhat Ilmlted-range of ermtertaln�ent:'venues, particularly In terms of arts and cultural activities. KIVIA interviewed iepresentatities of arts and.:
cultural groups in Temecula, including Randy Holland, owner ofthe Temecula Art Gallery In Old Town and President'of th.e Arts Council of the Temecula Malley,-.. Agc0rding to Mr, Holland, there Is strong demand for new entertainment venues to seine local residents. 'For'r example, his Temecula Art Gallery occasionally stages country, blues,. -chamber, arjd:salo.abousiic perfdrmances. 'These shows typically sell out well In advance -of each . performance,. Indicating a strong demand for such entertainment. . .

KMA also surveyed representatives of two local live theatre groups regarding=thy potential tor.. local performing arts theatre. These organizations, the trhrhstien.YoutN Theatre, (C-Y!) avid The Temecula Valley Playhouse (TTVP), cited the lack of any community performing arts facilities.

Each organization -is briefly profiled below;
Old Town Temecula Market Assessment HnallJune B, 1998
KeyserMarston Assoclafes, lnc_ Page 42
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-Y (a) Christian Youth Theatre. The CYT is a non-profit, ypu6E oriented; theatre`or._ganization: It operates a September through May season and genettlly performs rn. uslcal productions. �- Currently, productions are held In the 200-seat Murrieta Towri Hall.. The-CYT also utilizes_ other off -site locations for rehearsals. CYT reports that rribst showq are sold - out; about 6,000 tickets are sold per season.
�- (b) The Temecula Valley Playhouse. TTVP is a local non-pmtiWrarnalPeF1ia g, ar#s ' company. The current theatre used by the Playhouse-seats-neerry�16D chid 0-aciui jly a converted warehouse that, until recently;- had no permanenf sbating.' Tha,niohthiy rant paid • for use of the warehouse is approximately $2.000. The T-emeCula: Redev-etopment Agency. �- provides approximately $12,000 per year In grants to th&-P*' h6' use, while the' Arts Councti of the Temecula Valley reportedly provides $24,000 annusily Iry grant moriey:: During a typical year, the Playhouse will stage six productions, each.show runhing- three weeks, (12 performances), Performances have been well -attended., Mitli'oocupapcy estimated at 135% .� to 90%. Local supporters of TTVP and local art patrahs.'have held the Temecula Redevelopment Agency regarding construction of a. comitnur� eatne facility 1�:

Old Town. The proposed theatre building would be roughly S,g04 SP In alas; with 300 stadium -style seats, and incorporate an Old West iherde. Project costs are estimated between $800;000 to $1,00o;000 ($133-3167/SF).
y s �
Old Town Temecula Market Assessment Fftrfal/June 6, 1996 .r KeyserMarston Associates, Inc. Page 43
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TABLI5 G-1 r f
SURVEY OF MAJOR RETAIL CENTERS / ANCHOR S'!•EQ. g

OLD TOWN TEMECULA MARKET ASSESSMENT

CITY OF TEMECULA
Tomgrula
Tower Plaza
27480 Ynez Road
Rancho California Town ,Center
27450 Rancho Cafifomia Road
Palomar Village
30600 Rancho California Road
Y Winchester Square
27475 Jefferson Avenue
Palm Plaza Center
26400 Ynez Road
Costco (Pricelcostoo)
40435 Winchester Road
Proposed
The Promenade - Mall
East of Ynez Road, south of Winchester,
west of Margarita Road.

The Promenade - Power Center
rdefa
~ The Movie Experience 17
41090 California Oaks Road
.. Murietta Spring Plaza
25274 Madison Avenue
Murrieta Town Center
40485 Murrieta Hot Springs Road
Home Depot
25100 Madison Street
Source: Keyser Marston A=Klates, [no.

Prepared by; Keyser Marston Assoclatas, Inr_
Filename: almydoesNallerinTarnecula;4128198;Qa
Anchor Tonatrittili.

Vons, The Movie-5varience (10 Screens)
Albertsons, Tai get; Mgww i 00tIo i�tirarcle
Theaters (10 Sctce6L Peioo, iV.pr�f]rrlg ;
Lucky, Longs Drugs, Wheroouse Records
Stater Brothers,lFraze Paint,.Wnston Tires
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Michael's
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Navy. First phaise _ 975,000-square feet. . .

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Supply, Pio'N' Save.

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1220 P. 20/49

A OFFICE MARKET CONDITIONS

1. Overview
According to local real estate brokers, there Is an inventory of japproxi Makt§fy3.6d.Q SF of
existing office space in Temecula. This figure enoornpasies-a.. "B AOta -of, 14 6 nd
buildings. ranging In size from about 20,000 to 80,000 SF. (S,06 Table-H-1.) iem' eoula's office
inventory Is dMded. between carnpus-'style buildings In the -business parks on thewestside of the freeway and, selected low- to mid -rise office buildings located primarily on.the . e . ast side., The City's two largest multi -tenant office buildings are lodatW.aid . ro' s jhe Jr6ewayfrom 018
Town off the Rancho California Road exit: Town Center. (83,WO SF)aifd Tower Plaza: (72,000 SF).

There is a significant�ljT-6r*of0Id' , Tt . )w�. ..
concentration of employment west of -the fteewio._a
Buildings in this area house'a variety of users
ranging frorrt,ofrt.mio..Ilght.industnal, City Hall is
also located In this area. The typical product within this area.1s. 9.slngli-st6ry', concrete tilt -up building. A number crf these buildings are owner-occupid.d.

Local brokers estimate a current vacancy within the Temecula Office market of 6bout 92,000 SF, indicating a 17% vacancy rate. This range represe
nts At) of 4% from ofie
year prior. Neariy one-third of the current vacancy is attdbutablis"to. a single building; Jefferson - Plaza. This building has reportedly suffered from monager,.riejif,'Ortd-'tiFl;'�rid't'a*[- p:kb ems, Office rents in Temecula currently range from -about $0.*� 80 10 $1 .30.-per- SF" 'pet. -month, typically
on a Modified Gross (MG) basis. These low rents, combined VOW the high vacancy ' vacancy factor, tend
to Indicate that speculative now office development would be uW6981ble in -the neap term.

Brokers confirm that large spaces are difficult to lease due. -to the lack of 'corporate offil ce-
tenants in the area, The strongest demand Is generated by'�mWl firms. -JY-pjC.Wjy businesses in finance, insurance, and real estate (the "FIRE" sector), law ilrrns, Qind.medicaf_ , * , - __dndjdental__
offices.

Old Town Temecula Market Assesamen't
Keyser Marston Associates, 0c. June 81 f998
-Page 59

MAR, 16. 2006 2:23PM KEYSER MARSTON SF 1.820 P. 2149
'-' 2. Old Town
There is relatively little office space in Old Town. The iargestoffic;e building is the Chaparral Center. This mixed -use building, at 28466 Front Street, contains*ree itortes. with A. Wx of office, service,'arid retail uses. Typical tenants include beauty Saions,.Wlnsurate agent, and a construction firm, among others. Rents range from $0.50 to $0:80 per -SF one full Service -- Gross. (FS(?) basis.
-- In addition, there are several office buildings located on lower Fmk-ptreet t uthi bilb' I f To, wn within the Southside'Specifle Plan area, Although these l uildirtigs are. reiktivefysinall;'they tend to be functional with good freeway access and vlslbllity.

Old Town remecula Market Assessment
Keys#rMarston Assoclates, Inc.
98051ndh
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1. HOTEL MARKET CONDITIONS

1. Overview
1 8 2 0 P: 24/49
The City of Temecula is home to several major hotels/motels ranging In quality arid-amenitie& from higher -end to budget. As shown in Table I-1, the C1ty..c0-13 ins 629 Motel/motel.rooms 1n eight separate properties. Temecula Creek Inn and Embassy 5lit�s L anr;:fUer�dca hr�tefs with room rates in excess of $.100. These two properties repre0nt-2ppixiM2J6[y.,Q-Nrd of - ~ the City's hotel room inventory. In addition; the Embassy. 9ulk-Whjo0A i ed:directly _ across the freeway from Old Town, Is currently constructing 40:additional room:- Most of the remaining properties offer "motel -style" acconV-doda116n5-1h the -$a0 to $70 range.

Two of these are located on Front Street in, or close to, OId-T�nin- thd:Btrtter�elcl Inn i39 rooms) and Downtown Irins/Ramada Inn (70 rooms).

Hotel occupancies In Temecula have rebounded substantially from the lows of the early 1�90s.

Weekend demand, In particular, is reportedly strong fortheTM re;aftrdt le,p.rQperCds: in . addition, after years of flat revenues, room rates appear to bo rtsing_slightiy.

2. Survey of Hotel Managers
In an effort to better understand occupancy factors and -sources -of hoteFfborr► demand, iEiviA surveyed property managers. Three properties responded; their feedback is summarized r
below:
(a) Temecula Creek Inn: The Temecula Creek Inn Is an 84�rvotr-hotel.buifin"87�1.; It feafurs . a championship golf coursa as one of its major attdbu{ss; The• t otel-also offers 6 600 SF of meeting space. The manager reports that the malbrity of the 1nh's.vls1tcrs are in Temecula for leisure -(Le:, golf). The majority of guests come from- Loe.Angeles, Orange., acid San Diego counfies. in 1997, the occupancy rate was esdmrn ttedit 74% and Ahd year to -date figure Is roughly 76%. The inn's year-to-date average •daily rate 4's approximately $121.

Old Town Temecula MarWtAssessment
Keyser Marston.Assoalates, Inc. Fnall'Jurre,e .1898
"Mindh Fege S9

MAR.16,2006 2.24PM KEYSER MARPTON SF 0:1820 P. 25/49
-J (b) Embassy Sulfes. The Embassy Suites currently has I so- rgo as} but -will expand to 176 rooms by summer 1998. The hotel offers about 3,200 SO -of meeting'ipar,b': In-1947, the average daily rate was $101 and the year t"ate averagedilly rate4a-r+*—d'to be7. approximately $105, The 1997 occupancy rate hovered around 0�t6.w—h- 9e:ttia-year to -date Is somewhat higher at 72%. The hotel reports that room rates•s'Qem-to ba trending upwards and. that the market is growing. Guests of the hotel come.from-allover the United -States.

Surveys conducted by management show that Temecula; for. Most.guesis, is destination, rather than a stop on a journey to some other location. As a_reason for Asiting.tht City, -- 50% indicate leisure, 40% business, and 10% other.
(c) Motel 6., Motel 6 offers 135 guestrooms. In 1997, the average daily_rate was �34 and the current average daily rate is approximately $35. Manageme)t reports tfic;19M7 ooatparicy= rate as 57%, while currently It is at 60%. The managoi xr part�lhat Lgeei &busihess at the motel is very strong, usually reaching full occupancy..Much bf this activity is attributed to special weekend events such as horse shows/rodem. hci". bs[loioh festivais at wineries, antique auto club events, tractor pulls, etc. Weekday business4$ reported•to consist mainly of individuals traveling through Temecula Qrwho are afationed there for temporary work assignments. The weekdays are usu4y'ligbt from.'a standpoint.of daily -- room rentals.

3. Bed & Breakfast Inns
Many districts comparable to Old Town offer another form of ovemight •accommodation — the small bed & breakfast (13 & B) inn. Typically, these inns are located in older buildings -or historic mansions, Rooms tend to be smaller, while amenities and services tend to tie more limited.

Yet such facilities often command higher room rates and occUpam-y than -their more modern - counterparts. B & 13 inns tend to cater to the affluent, educated.;=arid well -traveled individual.

Across the nation, bed & breakfast inns are often located lrj small,rural_vlllages,'.sortic ar - . recreational destinations, and historically Important sites.ests•far`#nns lrsted' itr dose W proximity (walking distance) to amenities and attractions: the Md orlty-af sucFt inns fend to be relatively small in size with approximately eight to 15 rooms, APm)dma eely,15% of all inns In the U.S. are on nafional, state, and/or local historic registers, - Old Town Temecula Market Assessment Final /June 8, 7998 -Keyser Marston Associates, Inc.' Page 64
98 99051" E,

MAR,16,2006 2:25PM KEYSER MARSTON SF
NO.1820 P. 26/49
• KMA Is aware of one existing bed &• breakfast inn in Temecula, the iornirV*$e -- Breakfast. This facIIity is located In the wine country, about rive';toles-f rn Ord-Town.-1-he Loma Vista offers six guestrooms ranging In price from $100:-to-Af5o oar ftfgtic - - Old Town Temecula MarketAssessment
KeyserMarston Associates, Inc.
980.47ndh
Firia1%dune'8,1598

MAR.16,2006 2:25PM KEYSER MARSTON SF
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J. RESIDENTIAL MARKET CONDITIONS

1. Housing Supply Overview
TheCityof Temecula is 'a rapidly growing suburban residential n' munit: Temeaaia-has continued to add housing and population throughout the 199ds,_even while much -of Southern California experienced a prolonged recession and real estate -downturn, The-City's.housing' stock Increased nearly 46% between 1990 and 1997, with. nearfrall of this increase: taking the form of single-family'detached homes. (See Table J-1.) `1n 10 .7. "City's-hQtislhg stock consisted of 77% single-family, 21 % multi famlly, and 2% rnobfle'horrje. -- Temecula has provided a steady supply of relatively affordable for-salehousipd tb.serve employment centers In San Diego, Orange, and Los Ahgefes--.ceut;tio% Table J-2_summarizes 1997 single-family home safes for the City of Temecula. California Market Dat* Cooperative tracked 332 home sales In 1997. The average price was approximately $166,00.Of the median price was approximately $135,000. Nearly 52% of homes •sold.were priced between- $1104,000 and $150,000,
Relative to neighboring counties, Riverside County's apartment tints erg' arimopg ttio Towesfi n- Southem California. Most of Temecula's apartment propkrties.'have been'&e eloped since the late 1980s. As shown in Table J-3, KMA surveyed 13 apartment propeifies10taling 3,120-units.

Approximate average rents are $515 for a one-bedroom,-$625 fora two -bedroom, and $695 for a three -bedroom. The current vacancy factor is relatively -low, estimatedAt 3°!a.

2. Housing Demand Overview
KMA estimates that the number of households in the'primarytrade sroa v 1111ncreaie-bj+ nearly:. 9,000 between 1997 and 2002. Table J-4 presents a distri"butlon•of JhLma'fuhire:lious6hbids by-' household income and housing affordability, summarized -as follgWS:_ Old Town Temecula Market Assessment
Keyser Marston Associates, Inc.
ae0510h
FinaWune 9, 4998
loge..67 ,

MAR. 16. 2006 2:25PM KMER MARPTQN SF "0, 1-620� , P, .19%49 Nearly 1,500 new households In the trade area (16% of %fiatfve-year..dernand) ater expected to earn less than $20,000 annually. These households:wIll be Ilmlted to . apartments renting at $500 and less or homes priced at $$8:000 and less: lh effect, these households are more likely to rent than own.
• Nearly 1,700 new households (19% of demand) are plrojei#e.to--earA:tae aia $20;000 and -- $35,000. These households can afford rents of $500 to'$875,"orhornes prieed-between $88,000 and '$155,000.
• The balance of housing demand for the trade area during ;1997-20d2 Ps expected to originate from households earning $35,000 and more; Mils fnarket segment composes about 5,700-households, or 65% of the demand. The e-hou§eholds-cam of i)rd-ren s of $875 and up, and home prices of $155,000 and up. ThIs-Iht3orne bracket is'-riore.likely to own than rent.

The anticipated Income distribution of new households In the trade .ared'suggest5 a continued - preference for traditional single-family detached homes.

3. Noosing Development Capacity
There'is significant capacity for expansion of residential uses in the Old''owr :area: City'staff estimates the following potential Increases In housing supply ' • Old Town, east of the creek Undetermined; capacity -Will -vary dapending,orl:product type and density.

Pujol Street Corridor, wrest of the creek: Potential to develop an additlonei•Soo. units, Including the portion of the corridor withinAhe Southside Specific=Plan area.

Old Town Temecula Market Assessment Final/,tune B, 199s Keyser Marston Associates, Inc Page 6e
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MAR. 16. 2006 2:26PM KEYSER MAV70N SF - '"'0, 1�2(# R, 30/49 v-
Westsfde Specific Plan, west of Pulol Street At-prese nk thfs�54.a j!Wa9 rea west ai �• Old Town is designated for a mix of destin' ation entertai;Tma #; retail, ,rec o ; add Figtel uses, -it is unclear at this time whether the property -owner Intent s"'td' ttiese development plans. Assuming that the current land usg plan �iamended;-apphokirnately 2,000 housing: units could be developed In this area:
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Old Town Temecula MarketAssessmenf
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SINGLE-FAMILY HOME SALES BY CATEGORY, CITY. OP TEMECWLA►i 1997 (i)

OLD TOWN TEMECULA MARKET ASSESNIENT

CITY OF TEMECULA
Number of % of
Pri a,C ory Home Sales --
Under$100;000 27. - 8:'t3°la`
$10%000 - $124,999 8 -.� ���, 1%
$125,000 - $149,099 82 .: , : 24.70%
$150,000 - $174,999
51 $175,000 - $199,999
29 8.75%
$200,000,- $226,000
10 _ �• 3,Do%_
Above $225,000
44 : x� . - •35°k�
Total
332.
100.00%
Pale Price
ric 1SF
Average
Median
$135,1a00
$80
Minimum
$73,000
:- ' ., $24
Maximum
$4721500
$233
v
(1) From January 1997 to January 1998.
.� Source: Califomia Market Data Cooperative, Multiple Listing Service Prepared by: Keyser Marston Associates, Inc
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K. CONCLUSIONS AND RECOMMENDATIONS
` 1. District Identity
The objective of thi;; market assessment has been to Identify -th& market-gpportunities, that will offer the greatest possibilities for expanded economic activity rr Old T6w-h. litl ,th$ caursb of this assessment, KMA considered three -distinct, but potentially overlapptng, "posititihirig' strategies, or district identities, for the Old Town area. Each of these I&oritUned below. (a) Nefghborhood/Community Serving Disfrict Neighborhood, :grid parnmurii +servTr g u5as
tYpIcally.include day-to-day shopping and services such as ro' dr4 , dry bleanlrr ,etc.

Y Y Pp S 89 9
A neighborhood or community center usually draws s#toPipars*rorn a,tW&:ta-tree-mile- radius and multiple shopping trips per week are common. 41 (b) specialty/Entertainment District This type of district offsrs,shopping. services, and entertainment that are not readily available in conventionei slopping cerifers..Hidhfights may include an attractive ambiance, a. unique mix of stores;aAd reStauraft,.or a series of special events. Specialty/entertainment districts typically draw: custorn�e�g.frarr: tsar .� trade area thah convenience retail uses. At the same. tirne;-cus6p 6m re, � 1Ke1y to visit
specially/entertainment districts less frequently than neIgWrlmur�Ii si�oppFng districts. -
(c) Tourist District- A tourist -oriented district has a regional and super:re - (5 draw beyond the local trade area. -Examples Include La Jolla or Solvang. -These, dlstricts tj picany offer a range of specialty, shopping and eating and drinking estabiishmentsIn combinkloh-wlth important recreational or cultural resources.. It is eornmvf fot activ``riyiri; these districts to- district
on weekends and during the summer season,
At present, Old Town serves a dual purpose, offering a canoiriatlen of specialty entertainment uses for the local trade area and serving a larger tourism marfcet.. •Old Town does not serve as a-neighborhood/community retail/servioe centerftrEsevera(-.reasons.

Temecula's existing supermarket and drugstore -anchored shopplhg center=are convehlently located with respect to the City's population base. On the other hantt there is limlfied.

J
Old Town Temecula Market Assessment Final/June 8, 1998
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MAR. 16, 2006 2:27PM KEYSER MARPTON 8F�.G.6/49
ressidential population in/around the Old Town area to patuirslze:cornrenlence'shappIng and services. Absent a significant increase in residential uses, the neighborho6d1c6mmunity district — scenario is unrealistic for Old Town. For this reason, KMA strongly ra : ''.. entts fhat.tha City prloritize*the Introduction of new residential development In -the Old Town, Sotithside, and �- Westslde Specific Plans, Once a critical mass of population has peen �chfevecf, ft may.be feasible to attract a specialty grocery store such as Henry'%_'Wild_patsi.,risto-f, arr'hs,'cirfi'rpder Joe's.

According to the CIC Research survey. the .current mix of. patrons..in Old Town it approximately 40%. locals / 60% visitors. Most visitors originate from ottier:patt of Southern Oaliforc►ia areas that are not anticipated to grow as rapidly as the immediate Tamecula.trade area, In order for Old Town to thrive, 'KMA believes that It will need t6 strengthen As.appeal to. the local trade area. KMA recommends that the City and Old Town s*eholders target a minimum threshold of 60% local / 40% visitor patronage for the district: -The local irads�rea"w>ll continue" to experience strong growth, affording Old Town the opportunity tooapfur&-afire, of the " consumer expenditures of new residents. At the same tittle, .the -m1X of raataiirdstaurai�t, grid . entertainment uses In Old Town should represent a refreshing alierr atiive, to the'`r' o* re conventional uses planned for The Promenade Mall.

KMA recommends that the City and Old Town stakeholderwaeeli.tc pi dst' ron Oid'Towri as Temecula's "downtown." This strategy would -confer a special.status on Old Towh In the -eyes of community residents and promote Citywide "ownership" ofTenlecula,..;Qu�ing the 1990s,_ many suburban communities in California have devoted extensiue.resouroes 1o_ reYitaH4gg., or reinstating, a strong commercial and entertainment hub at their_dawntp-wn cots:., 41d Town could be -developed as Temecula's downtown, providing ;!,specFal destiriatiorrfo>• "lifestyle" shopping and services, eating and drinking, entertainment,. and'specialevents, Old Town Temecula Market Assessment
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KMA understands that the City's present City Hall will need- to.be re'placidbr TaXpafided within a ten-year timeframe. KMA recommends that the City consider-Wi ng,e-niiW A yklalf'wfthirr Qld --' Town. Such a move could offer several benefits: (1) It would rainforce;4ld Towii`s tiffs as Temecula's downtown; (2) It would draw employees and -visitors t6 Old Tawriorr a regular basis; and (3) A new City Hall building, and associated publicr plaza or other -amenities, could create a significant-archltectural statement and become a promlrieri# newtandmarkin Old �- Town.

2. Retail Market Opportunities
-KMA estimates that the Old Town district could capture betwee60511000-and 48,000-SF a new. retail and restaurant uses over the next five years (1998=2003). � During the faRooiv,ng five years (2003-2008), KMA estimates that Old Town could capture between.60.000 and 1-d0,000 SF of additional retail space, for a total.ten-year capture ranging from.06,000 to-15.8,000 SF. in KMNs view, the higher end of the range will only be achlevalxle vOth-aggressive intervention on the part of the Temecula Redevelopment Agency.

Most new retail uses are -likely to be Eating and Drinking eslisFirnents: aid Spebialty'Stnres, - followed by General Merchandise and Other Gornparison Goods.stores.. KM -A liar �antlfied three specific categories of potential retailing opportunities for Old -Town:
(a) Eating and Drinking Establishments; As a central focus of the Old Town revitalization strategy, KMA recommends the expansion of the area's rdbt:d restaurants and bars as a full-scale restaurant row. In the absence of large retail stores, a "crit)cal mass" of restaurants can provide an anchor for the district. Old Town. provides one o€the few "nightlife" environments In southern Riverside County. -:Them is ample opportunity to`. expand, and diversify, the existing mix of restaurants and bars and-`riarke't:the area's unique environment, One strategy to accomplish this is to crdate--drowx f rusl ants -long -a _ pedestrian promenade on the eastern bank of the Murrieta Creel{; - see &6Usslen below.):

KMA estimates that the district could capture between 14.0003 *ind 2i,000�SP-vf new Eating and Drinking establishments over the next five years (inclusive -of visi#or-supported demand). These figures potentially represent between fouc'06d'e'l4ht new. restaurants V
Old Town Temecula MarlretAssessment
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Final/June 8, 1999

MAR, 1b, N06 2:28PM KEYSER MARRTON SF
and/or bars. Appropriate establishments. might iriclude.terj��s'such asth� ioilowiag (examples only):

Ethnic restaurants, such as Asian cuisine or a Sariish'tapas bey:::
• A health or vegetarian restaurant
• Dinner restaurants with live entertainment .. -
• A coffee shop with- performance space (poetry, music; etc.) Old Spaghetti Factory y
• Chevy's
• Corvette's Diner
• Red Lobster
• Ground Round
• Ponderosa Steak House
• Outback Steakhouse -
• B & B Bar-B-Que Connection
• Love's Wood Pit BBQ
• Micro -breweries
• Sports bars "
• Westem-style saloons
(b) Specialty Stones. Even as The Promenade Mali Increw the Tangp.and.diversity 4f shopping available to trade area residents, Old Town j as the opportunity tb offer a unique . ,:� :,. _
array of Specially Stores. In particular, KMA recommeitds-bnraspG'm;_ (I}sporf�itig, goods and apparel, and (2) outdoor recreation equiptneM, sup"ly�,:a"p del; These - stores respond to the youthfulness of trade area residents; as weU_as the b auft], natural ' setting of the Temecula Valley and surrounding motintalb" aaci desert. `.Examples include hiking and camping gear, Western -oriented apparel and sear; athfetic-sup�ly and shoes, and theme bookstores. Possible tenants might include Golf•Mirt id vehtufie:'16, Caf stores,
Eastern Mountain Sports, or equestrianANestem gear.and.supplystores.

Old Town Temecula Market Assessment
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MAR: 16, 2006 2, 28PM KEYSER MARSTON SF 1820 P,
(c) Home Furnishings and Design: The existing concentraffOr of alltlques stores In Old Town provides a strong foundation to add a range of other household fumishl.ng and decorating establishments. The trade area will continue to add thousarida-df new hod-yeoHiners each year. Old Town could provide a.special shopping experience far residents seeking to accessorize their new homes. Examples might include:. -nsw fdrnitime stores, lighting:s' nd
�- lamp stores, wall art and mirrors, home accessories, patio and: gaideh#urr� ra}'4h- specialty hardware stores. This retail rnlx has worked verjRausftly:adthe dasfrits, such as Fourth Street In Berkeley and Cedros Street fn Solana 0eaeh; (d) "WesVe"Retailers (Long -Term): As a long-term goal;MA recorhMends that recruitment efforts target such upscale specialty retailers as: Smith •$ H' awken; Restoration Hardware, RE[, Pottery Bam, Z Gallerfe, or Urban Outfitters, to name a few -examples; A comparable mix of retailers exists on Fourth Street in Berkeley as_welt as2V Street in Portland, Oregon. These tenants are not likely to be feasible in' -the h9st-term, untif certain conditions have been met: (1) other national credit tenants have-,been-introduce(2)'a strong -- restaurant row has been established; and (3) a growing.restderitlal 2se_,)s pnd'drWiay % re - immediate area.
y e

3. Office Market Opportunities
in KMA's view, there are relatively limited opportunities for office development w'rthiri"Old Town.

This finding is attributable to the constraints imposed by the area's lfmfted access and visibility, small parcel sizes, and building design limitations. Tenants saeldng*office space in Old Town are likely to be fairly small (say, less than 1,000 SF) businesses in- finance, insurance, -real estate, or law.

Notwithstanding these constraints, KMA recognizes the I.mportarce-of office uses to the creation of a vibrant, mixed -use community in Old Town. _Location of the Temecula Civic Center within Old Town would reinforce. the dstrlcfs role as,temecula's dovurltowri and. enhance the desirability of Old Town as an office location foradchltects, engineers, and other development industry tenants. In addition, office uses genera#e.daytirrie population — both a ••
Old Town Temecula Market Assessment F�nallJur�ta 8, X598 KeyserMerston Associates, Inc. -
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MAR. 16. 2006 2:29PM KEYSER MARSTON SF'eip, 180 P. 40749 employees and visitors — who are also likely to patronize Old Town sfiops•and restauranta wring the week.

KMA recommends that the City and Old Town stakeholders encourage dove(�krlonf of of de uses on upper floors of new or rehabilitated buildings. One-strateg; ls._tq d�v upper flours as adaptable, "hybrid" space or `live/work" modules: - These`suksL.t td-jHera toe'Wliz4d as either office or residential. Such unique spaces, particularly in renovated buildings, maybe appealing to small "boutique" professional firms. _

4. Ho#el Market Opportunities
KmNs market assessment Indicates that the Old Town hotel/mate" f inarlE�t fs Lei o .,from
the downturn of the early 1990s. At the same time, XMA finds-severaFnotewoitk�y roids inr the local hotel market: -
• There are essentially no mid -priced accommodations In tlwcity-, priced say between $70 and $120.
• There are no high -end hotels or bed & breakfast inns within walking dlstance of Old Town.

As with office uses, space constraints In Old Town make it:unlikely that a larg•scale;full- service hotel with banquet facilities could be developed within-the,district:- Mdeeovat; even if such an establishment could be physically accommodated, Old _11OWnls lirnitedjr;aewap'tcces_s and visibility act as further constraints.

The Old Town environment Is well -suited for developfnent Ofseyeral moderate to upscaGe bed and breakfast inns or small lodges, e.g., ranging from five to 30 rooms.:.Key apportUnities' would Involve adaptive reuse of one of the area's historic hotels or,older buildings. 1' •
-in addition, KMA recommends that the City pyrsue mid-sizbd, limited -se or a.4$rided�tay, apartment -style hotels (say, 75 to 100 rooms and 5,004 to 10000.8E ef_me0th-4,^jPaNj 4n nearby locations outside of Old Town. .

Old Town Temecula Market Assessment FlnaUdune 8, 199a
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• . s fir:-•••; i
`- 5. Residential Market Opportunities
f The Continued presence of a strong and integral housing..compoherit Has-been ' i ey success ingredient for many older street retail districts. Significant e-4ansion-of residential_ uses within - Old Town and vicinity will likewise be an important component of the area's revltallaation, as new residents will provide an -important patronage base, for spec-alty retailers; convenience shopping and services, and restaurants in Old Town.
-- Key challenges affecting new housing development in the aida [ticluae tMe 4ng fabtors:
• For the most part, Temecula households prefer -single-fanlIV etached housing. -- • Prices for detached homes In Temecula are relatively aff 'rdable,*tF.iby decreasing demand for alternative for -sale product such as condo&1n' h1S. townhomes, or rAw homes.

At present, Old Town offers little in the way of convenlenoe 93hopping•and _services:
• Conventional apartments in large rental communities east bf. &' S' r way:offer'standard Y amenities at relatively affordable rents.

As noted above, the Old Town district and surrounding,areadould accomfno2iate more, than '2,500 new housing units. KMA has identified the following-specilic opporivhities for new .r residential uses in Old Town:
(a) Development of new senor aparbnents, possibly near tho'serifvrae_rj&r,.. -ibis type of housing will potentially enjoy the strongest demand• witproper: C][d` Town offers a safe and convenient walking errvironmeht.witlt a limlted arm- y.of "shopping and services. There are no seniors -only rental communities In Temecula. KMAxecommen ds that the Redevelopment Agency consider sponsoring development of up to tfl€} to'2_00 affordable and/or market -rate senior apartments.

Old Town Ten7ACUla MarkefAssesameni
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MA.R. 16. 2006 2:29PM KEYSER MARSTnN SF _ ca-l'62-0 P. 42/49 (b) Adeptive re -use of older structures as loft apartments: -• i`0"'s ur"•arcf ife tub end-, f ° historic ambiance present an opportunity to create rentaf lofts• On, upper flob#s-cf Qlde, r•- • buildings. As noted, traditional apartments in Temecula iepresent stCgngf cotItlt�in; therefore, this product would have to offer a unique livfrig erivlErrimerit tsj a,slect small �- group -of tenants.
(c) In -fill development of mulfJ-family housing along-Pulol Suet (west of the• Ok), --This .area offers the opportunity to develop mixed -income (affordabtelmarketrat6)- apartments. if a:
large enough site can be assembled, it may also be pdssiple to develop a snail community of affordable for -sale townhomes or row homes for first --time buyers:
(d) Housing uses within the Westside Specific Plan. A major-portion:6hhls-16F-pere7hllfside -- property could be developed as a medium -density r,edideii7d; I urrimtinity. This type of development could capture a portion of Temecula's strong hpttsing'grrowth, while simultaneously offering views of Old Town and the surrounding valley atiid moantains.

Development of up to 2,000 housing units within the Westside Specific'Plein Haiu_ld`provide strong benefits to Old Town retail and restaurant uses.

6. Other Development Concepts
In addition to the market opportunities outlined above, KMA-hasIdentifred•a range of other development and marketing concepts that are likely to strrengthen the economic vitality of Old Town. These doncepts are discussed below. It should be noted that.KMA has .not tested the market or financial feasibility of these concepts.
(a) Arts and Cultural Uses. KMA believes that, Old Town needs: an -expanded mix of'arts, and
cultural uses if the district Is to be successful in maintalttlng its eurtvr shed ofloc•tracfe area expenditures as well as regional tourism spending: K W a reaearch.! rn cbt"rable districts generally Indicated that such districts tend to Include one•trr•rhora`cf-jhe.fdiloWfn (1) historic architecture; (2) landmark buildings) or mdrium'enXs); aridlor:(3)-;ntettainrinen# or cultural facilities such as museums and theatres. Moreover* there Is aY present; a limited range of arts and entertainment -venues within the local trade area, TFte=Cify has commissioned a cultural arts study to assess demand for new.- cultural. ar#s uses .and Old Town Temecula Mer*atAssessment R 1/June 6, 199d
Keyser Marston Associates, lrrc. Paye Bi

:MAR, 16, 2006 2:30PM KEYSER MARSTON SF .--Es, 43 0
-- facilities. KMA recommends that the City consider sIUn'q such. uses within Old Town in order to enhance the dlstdcfs draw and leverage the City's invesl'mint-to date. An optimal mix of uses would Include: the. addition of a playhouse theatre;- on a. more museums or galleries;
and working artisans' craft shops. Museums and galleries could focus .on Western or Naive American themes. There may exist an opportunity to,Altrocta satelfrte facillty of an existing museum, such as the Autry Museum of Western Neritkge IwC3rEffith7F'tx6:" i=orexarrrpie,-the-- - Museum of Contemporary Art/San Diego is located on an flcei�fbW— Cd :JoBa grad operates a second, smaller facility in downtown San Diego. (b) Enhancement of Mtirrrefa Creek The location of Mun'fete--Creek within OId:Towrt presents r
-� a unique asset.- Many comparable districts have exploited their=ieiatsrfrohts oi'; in some cases, artificially created a waterfront environment. The 0ty.of Vista:is currently -working with a developer to create a "creekwalk" development of entertainment; retail; restaurants, and pedestrian promenades along a flood control channal.:Wurrista Creek offers a -natural - setting that could be developed with landscaping and -a t'heanderingwallkpy, both as a recreational trall and a pedestrian promenade. KMA reWMmerrds old • Town stakeholders explore design options to accomplish th4f6Ilowing: (i beautify the creek bed and shoreline; (2) enhance pedestrian access -along the creek'shbreline; and (3) orient restaurant, retail, and entertainment uses -toward the -creek. (c) Cooperafion with Wineries: In KMA's view, Old Town's proximity to file Temecula wine country Is one of its strongest assets. The steady annual volume of visitors to the Wineries represents a relatively untapped market niche for Old Town. ` be Cityc,and Uld Town = stakeholders should consider structuring a cooperative_rnarkodng. �rrengerpenf�with the vintners so that the two sectors can maximize the- synergistic impacts of their respec lve tourist draws, In addition, KMA recommends that addittbnef representotlohs, of the wine country be incorporated within Old Town. At present, the area contains one winery outlet/glft shop (Old Town Wine Tasting), Possible expafnsl6n. of this:pfesenee might include: (1) an Information klosk for the wine country; and/or an'ou#I.et° store. showcasing all the wineries and offering.thelr products for -sale under one roof.

Old Town Temecula Market Assessment
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—' 7.. Other Strategic Recommendations
(a) Establishment of a Business -improvement District
(H[n): IfMA reovfnnns[4i�-bat,0, ld Town
stakeholders consider formation of either a business- brprbpqrty-based 13usikess • improvement District (BID). In recent years, there had -been a growing national trend among commercial districts to form Business -based Busing lrripmverndnt Districts (BBIDs). The trend Is true for major urban downtowns, alder strip coMMOrcial corridors, and neighborhood districts, Historically, BiDs have involved assessments-dn business -owners through business license fees to raise funds that can, then be.u§ed for marketing", promotion, security, special events, streetscape.improveme %, parkdinoe-,1 n.— .t r r-cnsts: iri 1994, California passed legislation (AB 3754 Caldera) faprcvoe.forissa,ssm '* an - property owners. Since then, several Property -based. Business Irriproverrment Disfrl (PSIDs) have been adopted in the State.

BBIDs1PBIDs provide a mechanism whereby downtown and -suburban cbmmerciafareas can provide amenities usually associated with retail centers and of(Jmparks:.coordinated management of publicity and public relations; better security and: a sense of safety; organized/cer>itralixed parking; and a clean, well-maintalned=enviroarrient. BIDs also allow businesses and -- '' - property owners to advocate for their Intbrasts:witF_ a -united -voice.- B1Qs can also conduct research, establish mid- and long-term goals, and•-ptarrfpr di&trict.wldr' _.:.. activities.

Most BIDs start out with a focus on either promotional, seoririt�, or maintenance activities, and eventually expand to larger efforts. -Increasingly, BlE)s-are,adtively'pursuirig tenant recruitment strategies to strengthen their districts. KMA is working wlth.5everal cttles,and BIDs on efforts to recruit new businesses and structurepu- bllciprivate hnancial.transac ons.

The goal of a tenant recruitment strategy Is to attract desired users tQtargeted locaEbo .

Successful programs have targeted major anchors With track record: for' ears;.loyal customer base, and the ability to draw other tenants in addition, to _Oustamers._ Old Town Temecula Market Assessment
Keyser Marston Associates, inc.

Final/June 8, 19J8

R oftdh

MAR. 16. 2006 2:31PM KEYSER MARSTON SF µfl, 1$ 4 P:. 5/44 '- BBIDs/PBlDs can be an important funding source for n4aded r-vifiaif�,a�pn activitlea"and- Improvements. It is also appealing to property and businesi owners because the. funds -� raised are controlled by the private sector rather than the city. Over time, this mechanism .allows a business communityloommerclal district to tat.eharga:of its i�rm.a#fa and. decrease its reliance on uncertain, public financial support: =TM+~ fity sl�ooF ct'isjd��- . providing the seed capital to Implement an Old.Town-5lD.:aeweif119 a=sniEjil operating subsidy for the first year of operation.
(b) Creation of Uniform Shopping Environment. KMA reicomrrier ds thaftlie City -and Old Town stakeholders work to standardize operating hours grid parkir►g arrarigeFnents for .Old o
Town shops and restaurants. This would create a less .uncertain environment for the typical suburban shopper. The•cur-ent relatively short, and Inconsistent,4tor0.-liours_present a particular problem In attracting local residents, many of whom pommwte'to.►om-outs{de Temecula. Several key steps toward this goal would lrticlude::(1 j fdrrz6ifi�1jff-4 -Bilk, installafion of the City's proposed streetscape lmprovemeitW;'{3j mansion of pulc parking resources; and (4) enhanced wayFnding.sfgnage.
(c) Enhancement of Freeway Vsfbil . There are several approaches to eribancing Old Town's visibility from the freeway. These include;
Certification of a historic structure within the district, .which would -ensure Cal'T — . signage on the freeway.
• Development of a landmark building or monument:thaYwoold be'vlslble from the freeway. Examples Include anew City Hail or a historic feature such as.a-water tower. • Renaming of Front Street as, say, Old Town Avenu%:and Inco_ rpdratibn-of appropriate, signage at the current Highway 79 South off -ramp.

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, MAR. 16.2006 2; 31 PM KEYSER MARSTON .SF
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(d) Promotion of Special Events: KVIA recommends that thatu"%U cal(mchi 6t-- : clal events in Old Town be expanded. Research into comparabi
a distried indicated fklat'special events
are a regular and Important marketing tool. Possible additional events could Include; -- a California Gold Rush In Murrieta Creek, I.e.,. panning for "gold" fi,-fhe•creek:bed. �— Wine and cheese receptions tied to musical performances or art_egbits. • Free outdoor theatre performances. -
Arts and craft fairs featuring working artisans, period costumes, and stagecoach and horseback rides.
• Sunday picnics along Murrieta Creek featuring performances -by -local musicians. (e) Recra tment Strategies: In the course.of this market assessor®rtt,.ICrtAI (ia idptitiffet1°a �. range of new development and types of businoss that -are ftiybottfta.be� uc sst`�'I tr' Old Town and to contribute to the economic revitalization and;pxparisib rditi*415Mot-:.T-hesc uses include both market -driven uses and arts and uukural arrfWtles: KWA recommends that the City and Old Town stakeholders prioritize these development opportunities and consider the following potential strategies for implemeritatiorvi _ _. • The -Redevelopment Agency can solicit developers fdr-adeptive-re=use of -"historic' buildings as restaurants, shops, housing, o0lce space or.be.d �'breakfast'inns.

The Redevelopment Agency can directly solicit end users, our i as-W4'0raritsQr hotel operators.
,� • The City and/or Redevelopment Agency can provide parlial;financlal sponsorship for development of arts and cultural facilities.

Old Toft TemeculaWarket Assessment
Keyser Marston Associates, Inc. Pafle
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MAR; 16. 2006 2 31PM KEYSER MARSTON SF � +j.$2 .`. P,: _ /49 ..-_
The City and/or Redevelopment Agency can csontinua•toiMriest irr ptibllo. DUProvements in the area..For example, the City will undertake coristruotlorn of apt extensive Y streetscape Improvement program along Front and Main streets, '.To some extent, this significant beadficetion of the area will act as a eatatyif. 'Perm, real, es'iate a d business -development. As a next step, the CJWAgenoy oiay wjrt r:to up:.an improvement program for Murdeta Creek and Its
Y
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w
..r
Old Town Temecula Market Assessment
Keyser MarstonAssoclat®s, Inc.
96037M�
Pindl /June 8, 1998

..MAR.' 16. 2006 2:31PM KEYSER MARSTON SF NO, 1820 . P, 48/49 L. LIMMNGCONDITIONS

1. Information provided by such local sources as governmental- agencies, fww_hclat Ir>s#itutions, -- realtors, buyers, sellers, and others'was considered In fight of ft&sburce,.and Ehecked by secondary means. However, no respon' sfbllityIs assumed.for possibte.r�tlsinformation.

2. Neither the local'nor national economy will experience a.majar ret�simi,Y.1 . A fp - inn �nfvreseen
change occurs --•.. : • • •.. - •; . _ -. • -
in the economy, the concluslons contained: h6miin ray nip- g&bead;

3. All numerical references should be assumed to be "more or less" and.accurate to a degree consistent with their use for purposes of socioeconomic-mmilysfs alid fiFeca _ .

4. Any estimates of demographic or economic variables are based off the b6st available data �. sources but are not intended to be predictions of the future. 'Rattier, they should. be vfewed as an Indicator of future conditions given available data. No Warranty 6r.rep"rdiphtati6fl is made that any of these estimates or projections will actually matedaflZe., .. - ; b. The findings are based on economic rather than political bo iderations.' Therafard, they should neither be construed as a representation nor opinion-that.govetnment approvals far L development can be secured. r .
s

6. Market feasibility is not equivalent to financial feasibility; apart from Whetherthere Js'a.demfand for various retail uses, other factors are of crucial importaneo'in-determjrijrlg feasibility-,.. Thgse M factors Include the•cost of acquiring sites, relocation burdens; tr c �t.eFr;.. ' at on of toxlcs (if any), and mitigation measures that would be requWed tltroragh'lj•i a� l process.

7. The development opportunities defined herein as being warranted during the near -term will be. achieved within a reasonable period of time. This precludes maJ'or changes lh the conditions W assumed In this study.

Old Town Temecula Markef Assessment�,klne,a 199$
Keyser Marston Assoelafes, Inc.
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8. The analysis, opinions, recommendations and conclusions .flFthis repw--arb:our iinfbrnied judgment based on market and economlc conditions as ofthe-date of this repot. Due to the volatillty of market conditions and complex dynamics inm*ily the 0conotnic situation's and conditions of the building and development industry, cote sions acid i:g�n&tttaertio*is - contained within this report should not be relied upon aisole1�04- regarding current and future development and planning.
r•
w.r
O
Old Town Temecula Market Assessment
Keyser Mersion A.&wdafas, Inc.
�- swain&
P1navJune 8, 1998

O':
■■
' ) i
Old Town Market Opportunities Update
Temecula, CA

Old Town Market Opportunities Update
Temecula, California
Prepared for:

City of Temecula
July 2015
Prepared by:

Keyser Marston Associates, Inc.
555 West Beech St., Suite 460
San Diego, California 92101
500 South Grand Avenue, Suite 1480
Los Angeles, California 90071
Golden Gateway Commons
160 Pacific Avenue, Suite 204
San Francisco, California 94111

TABLE OF CONTENTS
Executive Summary — Findings and Recommendations............................................................................... 1 I. Introduction........................................................................................................................................... 6 II. Existing Conditions................................................................................................................................. 8 III. Overview of Progress Since 1998......................................................................................................... 15 IV. Market Demand Potential.................................................................................................................... 21 V. Survey of Comparable Districts............................................................................................................ 30 VI. Recommended Opportunities and Strategies...................................................................................... 40 VII. Limiting Conditions.

APPENDICES
Appendix A: Market Conditions by Land Use
Appendix B: Hotel Feasibility Analysis
Appendix C: Estimate of Absorption Potential
Appendix D: Comparable Districts / Case Studies
55 Executive Summary
Objective
In 1998, KMA prepared an assessment of market potential for retail/restaurant, office, hotel, and residential uses in Old Town Temecula. The 1998 study identified potential catalyst developments and recommended a series of implementation strategies. The City requested that KMA update the 1998 study with a focus on: progress accomplished to date; market potential for additional development; and recommended implementation approaches to further improve Old Town.

Overview of Progress since 1998
KMA reviewed the progress achieved to date for each of the opportunities identified in the 1998 KMA study. Notable accomplishments include reinforcing the district's identity as Temecula's "downtown"; development of new cultural uses; installation of major public improvements; completion of the Civic Center and Town Square Park. Additionally, significant office space has been developed in Old Town, establishing the district as a desirable business address. Old Town is also widely recognized as a dining and entertainment district. However, no "critical mass" of retail shopping has been created, and no market - rate residential has been developed in the core of Old Town (east of the creek). Importantly, Old Town has not attracted development of a major new hotel. Finally, KMA notes that business and property owners in Old Town have not formed a Business Improvement District.

Market Demand Forecasts by Land Use Type
KMA prepared long-term absorption forecasts for each major land use in Old Town. As shown in Table 1 below, KMA projects that Old Town can support the following ranges of development over the next 20 years: 240,000-420,000 SF of office, 180,000-320,000 SF of retail, 500-1,000 hotel rooms, and 1,400-2,800 housing units. On an average annual basis, these projections equate to: 12,000-21,000 SF of office, 9,000- 16,000 SF of retail, 25-50 hotel rooms, and 70-140 housing units per year. 01 City of Temecula — Old Town Market Opportunities Update Keyser Marston Associates, Inc.
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ProjectedTable 1:

Old Town
Projected Old Town
20-Year Absorption
Low
High
Office
240,000 SF
420,000 SF
Retail/Restaurant
180,000 SF
320,000 SF
Hotel
500 rooms
1,000 rooms
Residential
1,400 units
2,800 units
(1) Source: Land Use Economic Opportunity Study, KMA, June 2015.

Summary of Best Practices from Comparable Districts
KMA surveyed five comparable mixed -use village districts throughout California and identified best practices to include the following key approaches.

1. Encourage the formation of a property and/or business owner group to support coordinated marketing efforts and special events

2. Establish a parking in -lieu fee program to enhance the feasibility of small in -fill development projects and develop a funding resource for new parking facilities

3. Form partnerships with business and non-profit organizations to promote Old Town

4. Incorporate signage and gateway monumentation that accentuate the district's theme(s) and/or history

5. Promote the creation of inviting, clean, and safe public spaces

6. Enhance the outdoor experience with lighting, seating, shade trees/shade structures, outdoor dining and music, etc.

7. Permit live outdoor music at select restaurants and bars City of Temecula — Old Town Market Opportunities Update 2 15094ndh
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8. Engage local homeowners associations to inform existing and future residents of planned events, especially events with outdoor music
Recommended Opportunities and Strategies
Branding Old Town
The best near -term opportunity for enhancing the Old Town business environment is to develop a "foodie district" brand. Given the concentration of restaurants in Old Town today, and the proximity to the wine country, KMA believes there is a strong opportunity to establish Old Town as a "foodie district". "Foodie districts" are defined as a district emphasizing a variety of food services and other products provided by local vendors. They typically offer a variety of farm -to -table restaurants; shops and markets offering fresh produce, cheese, and meats; cooking supplies and equipment; and culinary programs. Old Town not only has the potential to pair its culinary offerings with the wines of the Temecula Valley, but also with the local agricultural industry in general. An essential feature of a "foodie district" is a market hall, essentially a year-round, under roof food court, farmers market, and culinary institute all rolled into one. Examples of public markets/market halls include: Anaheim Packing House (Anaheim, CA), Oxbow Market (Napa, CA), and Granville Island Public Market (Vancouver, BC). The burgeoning micro -brewery industry in Temecula also fits with this theme.

New Private Development Potential
• Town Square Marketplace: The key opportunity for a signature private development is the Town Square Marketplace site, the City -owned, one -acre property enveloping the Town Square park. The City is currently in negotiations with a private developer for a potential mixed -use development on the site. This site is the missing link to establish Main Street as the important heart of Old Town. • Boutique Hotel: Existing overnight accommodations in Old Town are extremely limited in number, selection, and amenities. Development of one or more new hotels at the Midscale or Upscale level could have a transformational impact on Old Town. The City should identify and evaluate opportunities to incentivize development of a boutique hotel in the core of Old Town. • Market -Rate Housing: The City has been successful in stimulating development of affordable multi- family/mixed-use developments within the core of Old Town. KMA recommends that the City encourage additional market -rate housing in Old Town, including rental apartments, lofts, and ownership housing opportunities. City initiatives should emphasize residential developments with walkable environments; easy access to retail services, and amenities; and connections to parks, trails, and public facilities.

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vements to the Public Realm
• Murrieta Creek Regional Trail: The Town Square park is the signature public improvement in Old Town.

Once the Town Square Marketplace is developed and occupied, the park will be more consistently activated and utilized. However, in KMA's view, completion of the Murrieta Creek Regional Trail would have a transformational impact on Old Town, enhancing both the natural and commercial environments by creating a visual and functional connection between Murrieta Creek and Old Town. • Gateways and Streetscape: The north and south gateways to Old Town are marked by arches spanning the streets. However, the travel routes from the freeway to the arches are less attractive and inviting.

KMA recommends that the City and Old Town Temecula Association pursue efforts to incorporate signage and monumentation that accentuate Old Town's themes. Additionally, there are limited public spaces for sitting, resting, gathering, drinking coffee, eating ice cream, etc. The City and Old Town stakeholders should explore opportunities to create parklets and plazuelas, as well as additional street furniture (tables and chairs).
• Comprehensive Parking Strategy: The City should undertake an updated parking study for Old Town to project long-term parking needs and identify and evaluate a range of solutions. The study should address specific details regarding parking spaces, location, configuration, and management. Moreover, the City and Old Town stakeholders should consider potential implementation steps such as requirements on commercial developers, establishing time limits and/or meters for on -street parking, and evaluating the potential for a parking in -lieu fee program. The KMA survey of comparable mixed - use districts found that all districts required both commercial and residential development to provide on -site parking, and/or pay a parking in -lieu fee. Given the anticipated long-term parking needs in Old Town, the parking study should provide guidance as to whether the City should amend the parking requirements in the Old Town Specific Plan.
• Parking at North End: The updated parking study should identify potential locations for new public parking resources. In KMA's view, the southern end of Old Town is currently well served with both the surface parking lot behind the Stampede and the Civic Center garage. In the longer term, however, the City may want to explore the potential for an additional parking facility toward the north end of Old Town, including potential sites north of the arch.
• South Side Mixed -Use Development: The southern entrance to Old Town is particularly unattractive today, with a mix of commercial, industrial, and vacant land uses stretching approximately one -mile from the Highway 79 South freeway exit to the Vt Street arch. The City should explore mixed -use zoning for this corridor, which has several large vacant properties fronting Murrieta Creek.

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Marketing and Promotion Strategies
Potential for a Business Improvement District: KMA recommends the formation of a Business Improvement District (BID) in Old Town Temecula. A BID works to unify business and property owners within a particular district to work towards the common goal of economic revitalization. This is often done through marketing and event programs, civic beautification projects, commercial tenant recruitment, and parking and transportation improvements. BIDS have been an instrumental tool in creating sustainable economic development in the most successful business districts examined by KMA.
• Co -Marketing with Wineries/Pechanga: The unique, big draws in the Temecula Valley are the wineries, Pechanga Resort and Casino, and Old Town. Old Town has the potential to increase its capture of visitors and spending in Temecula Valley by co-marketing/branding Old Town as a "foodie district" and an extension of the existing wineries. Old Town should complement existing promotional efforts of the wineries by showcasing the farm -to -table culinary arts, allowing visitors and residents to experience the organic nature of Temecula Valley. The City has seen a recent surge in micro -breweries, including venues in/near Old Town. These businesses can also form an important part of a "foodie district" branding of Old Town.

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I

I. INTRODUCTION
A. Objective
In accordance with our contract dated July 1, 2014, Keyser Marston Associates, Inc. (KMA) has prepared a Market Opportunities Update for Old Town Temecula.

As background, in 1998, KMA prepared an assessment of market conditions for Old Town Temecula. The 1998 study assessed market potential for retail/restaurant, office, hotel, and residential uses in Old Town; identified potential catalyst developments; and recommended a series of implementation strategies.

Subsequently, in 2007, the City initiated a strategic visioning process that led to adoption of a new Specific Plan for Old Town in 2010. In support of that effort, KMA evaluated supportable development potential within Old Town for each major land use category. In recent years, Old Town has experienced a tremendous transformation, including the introduction of many new civic, cultural, commercial, and residential buildings.

The City identified the following objectives for the Old Town Market Opportunities Update (Update):

1. Evaluate the progress accomplished to date

2. Assess market potential for additional development

3. Recommend implementation approaches to further improve Old Town B. Methodology
In completing this Update, KMA undertook the following work tasks:

1. Reviewed existing conditions in Old Town

2. Conducted interviews with key stakeholders

3. Reviewed existing marketing, programs, and other activities currently in effect in Old Town

4. Assessed key accomplishments in Old Town since 1998 to identify opportunities and challenges

5. Evaluated market conditions and projected absorption potential by land use type

6. Surveyed comparable districts to identify best practices Note that the Update does not include an updated visitor and resident survey, as undertaken by CIC Research, Inc. for the 1998 report.

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C. Report Organization
This report is organized as follows:
• Section II reviews existing conditions in Old Town.
• Section III presents an overview of progress accomplished since 1998. • Section IV details the KMA assessment of market demand potential for each land use. • Section V presents the KMA survey of comparable districts. • Finally, Section VI presents the KMA recommendations of opportunities and strategies.

This Update is subject to the limiting conditions in Section VII. Our detailed technical analyses are presented in a series of appendices.

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II. EXISTING CONDITIONS
A. Demographic Profile
Table II-1 below provides an overview of demographic trends for Old Town as compared with 3-, 5-, and 10-mile trade rings centered around the intersection of Old Town Front Street and Main Street. As shown in the table, Old Town contained fewer than 2,000 residents in 2014. The average household income of $54,344 was significantly lower than the corresponding figures for the 3-, 5- and 10-mile rings, which increase from $72,854 to $82,791. However, per capita income in Old Town is only slightly lower than the surrounding trade rings, averaging $21,275 as compared to a range of $24,175 to $25,297.

Table 11-1: Demographic
Overview, Old Town
and Surrounding
Trade Rings, 2014
Old Town (1)
3-Mile Ring (2)
5-Mile Ring (2)
10-Mile Ring (2)
Population
1,977
54,573
147,696
308,933
Households
774
18,109
45,544
94,397
Average Household
$54,344
$72,854
$80,232
$82,791
Income
Per Capita Income
$21,275
$24,175
$24,741
$25,297
Aggregate Personal
$42.1 Million
$1.3 Billion
$3.65 Billion
$7.82 Billion
Income
(1) Area bounded by 1-15 to the east, Rancho California Road to the north, and the City boundary to the south and west.
(2) Assumes a trade ring around the intersection of Old Town Front Street and Main Street.

B. Land Use Mix
City staff estimates that Old Town currently contains 619,347 SF of non-residential development and 608 residential units.

Table II-2 below summarizes existing land use mix and remaining development capacity for Old Town. As shown in the table, build -out of the Old Town Specific Plan would generate additional development comprising 809,000 SF of office space, 485,000 SF of retail space, 540 hotel rooms, and 1,800 housing units.

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11-2: Existing Land Use
DevelopmentTable
Mix and Remaining
.. Old Town
Land Use Type
Existing
Remaining
Land Use Mix (1)
Development Capacity (2)(3)
Office
619,347 SF
809,000 SF
Retail
included above
485,000 SF
Hotel
included above
540 rooms
Residential
608 units
1,800 units
(1) Source: Old Town Specific Plan Amendment Draft Environmental Impact Report, February 2010, adjusted to reflect development of the Truax Building, Portola Terrace Apartments, and Front Street Plaza. (2) Reflects anticipated remaining incremental development in Old Town. (3) Land use allocation to office, residential, and retail land uses reflect KMA assumption.

C. Proposed Public Improvements
This section reviews recently completed and pending public improvements in Old Town.

Town Square Park - Completed in 2009, Town Square Park has become a vital asset in activating the Civic Center complex by hosting numerous City and community events. Town Square Park is used by the City for a wide range of functions, including a free pops show by the Inland Valley Symphony Orchestra, an outdoor movie theater, and ice rink during the winter. The four vacant parcels surrounding Town Square Park will eventually be transformed into the Town Square Marketplace, representing the final piece to be developed in the Civic Center complex. In January 2015, the City entered into an Exclusive Negotiating Agreement (ENA) with Truax Development to negotiate the terms of a Disposition and Development Agreement for development of the Town Square Marketplace project. Initial concepts include various commercial and retail components, including specialty shops and restaurants, all within a pedestrian -friendly environment that complements and links the Civic Center, Town Square Park, and Old Town Temecula.
• Murrieta Creek Regional Trail Plan - The Murrieta Creek Regional Trail Plan is a joint effort between the cities of Temecula, Murrieta, Wildomar, and Lake Elsinore in partnership with the Sierra Club to develop an approximately 14-mile long multi -use trail along the Murrieta Creek corridor extending from Old Town Temecula to Lake Elsinore. The Murrieta Creek Regional Trail is a long-term project funded by the Riverside County Flood Control District and the U.S. Army Corps of Engineers, and will feature scenic walking paths for residents and visitors to walk, jog, and ride bikes. As noted in the Old Town Specific Plan, the goal of the City is to create a visual and functional connection between Murrieta Creek and Old Town by orienting buildings, courtyards, and balconies to face the creek, constructing trails and bike paths to promote activity along the creek, and implementing form -based City of Temecula — Old Town Market Opportunities Update 15094ndh
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guidelines for new buildings in relation to building placement along the creek. Prior to its completion, there are plans to develop an interim trail connecting the four cities. Specific timing for completion of the Old Town segment is not known at this time.

D. Special Events
The City, Old Town Temecula Association, and non-profit groups sponsor numerous special events in Old Town throughout the year. Table II-3 provides a list of the major special events and their estimated attendance. As shown in the table, these events include music, movie, and art festivals, special exhibits, and holiday-themed celebrations. The largest events draw between 12,000 and 60,000 visitors to Old Town. Additionally, a weekly farmers market is held at 6th and Old Town Front Streets every Saturday. All events combined attract nearly 345,000 visitors annually.

Table 11-3: Overview
of Special Events, Old Town
Event
Description
Duration
Attendance
Date
Old Town Temecula
Open-air Certified Farmers'
Weekly
175,000
Throughout
Farmer's Market
Market at 6th and Old Town
Year
Front Streets; farmers sell

79.1H
agricultural products grown
iA
themselves
Temecula Rod Run
Classic vehicle car show.
2 days
60,000
March
«® �__
Includes "Friday Night Cruise"
+j��}� RM
on Friday and "Show and Shine"
on Saturday
Bluegrass Festival
Bluegrass Music Festival
2 days
8,500
March
I i
I
Reality Rally
3-Hour "Amazing Race" fund
1 day
1,500
April
--�---
raising event to benefit
Michelle's
WTemecula
-based
Place Breast Cancer Resource
Center
Taste of Temecula
Menu selections from area
1 day
5,000
April
restaurants, wineries, micro-
IM
breweries, and specialty shops
21 >
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Table 11-3: Overview of
Special Events, •
.

Event
Description
Duration
Attendance
Date
Western Days
Western themed exhibits,
2 days
1,000
May
music, and demonstrations and
an International Chili Society
�_ ,. _ •
(ISC) sanctioned chili cook -off
Memorial Day
Procession / Memorial service
1 day
500
May
fAemariaIt
Temecula Art Festival/
Street painting art festival
3 days
12,000
June
Street Painting
featuring over 140 artists
painting giant murals
Pops Under the Stars
Performances by the Inland
1 day
2,000
June
Valley Symphony on the steps of
-4INLAND VALLEY
yMphony
the Civic Center
41h of July Parade
Parade running arch to arch
1 day
6,000
July
451�F J� ly E •lereyen ro:

Hot Summer Nights
Live band performances; family
8 weeks
1,600
July & August
entertainment
Saturday Night Movie
Classic movies in the park
4 weeks
1,200
August
Classics
MOVIE
Off Road Nights
Off road motorsports expo and
1 day
4,000
August
vehicle showcase
t 14 DIRT una LLruurAL
21 >
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11 Table 11-3: Overview of Special
Events, Old Town (Cont'd.)
Event
Description
Duration
Attendance
Date
TV International Film &
Film and music festival. Film
5 days
4,500
September
Music Festival
component features movie
F- `
screenings, networking parties,
industry marketplace, industry

TEMEC'IJLA
likka
panels and workshops, and
awards gala
Health & Community
Health fair featuring over 100
1 day
3,500
September
Resource Fair
health related agencies free
Health
. y apgrirci• 3'oii
health screenings, and
entertainment
Salute to Heroes Fair
Appreciation Fair for military,
1 day
1,500
September
veterans, law enforcement, fire,
EMTs, and teachers. Features
live entertainment, car shows,

HONORING
and carnival -type food
Quilt Show
Display and sale of quilts
1 day
2,000
October
err r�n oo&.,
QuiliA�YShow
throughout Old Town
Temecula Valley Century
Charity bike ride to benefit Bike 365
2 days
2,500
October
TEMKITN1LLEY
Greek Festival
Live Greek music, authentic Greek
2 days
1,500
October
food, dancing & folk dance
'
imbft
performances
Veterans Day Event
Musical tribute to veterans
1 day
1,500
November

HONORING
featuring the Inland Valley
OUR
Symphony
Pu'eska Mountain Day
Celebration commemorating the
1 day
400
November
preservation of the Pu'eska
•_, A
Mountain and the culture of the
X
;+
Pechanga Band of Luiseno Indians
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12 Table 11-3: Overview of Special
Events, Old Town (Cont'd.)
Event
Description
Duration
Attendance
Date
Winterfest
Display of twinkling lights
9 days
1,500
November /
T A
throughout Old Town, carolers,
December
.�
family -oriented entertainment
Santa's Electronic Light
Holiday parade through Old Town
1 day
28,000
December
Parade
featuring floats, school marching
bands, and holiday music
Temecula On Ice
Outdoor holiday ice skating rink
25 days
15,000 skaters
December
•r
Pennypickle's Winter
Holiday music, snow, activities, and
1 day
2,000
December
Wonderland
twinkling lights at Pennypickle's
OAF
'
Workshop - Children Museum
New Year's Eve Grapedrop
Annual countdown celebration to
1 day
2,000
December
midnight
Total Attendance
344,200
Over the past 15 years, the City has retained Melody's Ad Works, Inc. to promote and market Old Town's special events in an effort to draw residents and visitors into Old Town. Melody's Ad Works, Inc. plans, produces, supervises, and promotes many of special events noted in Table II-3, including Hot Summer Nights, the Quilt Show, Winter Fest, New Year's Eve, the Bluegrass Festival, Western Days, and the Street Painting Festival. Marketing campaigns include media advertisements, direct marketing with flyers, e- marketing through social media, and website support.
21 >
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13 E. Live Music
Currently, only three venues in Old Town are allowed to host live outdoor music. The City no longer permits restaurants/venues to play live outdoor music except for these three grandfathered venues. Other venues in Old Town are allowed to host live music indoors; however, many local businesses indicate that allowing an increased number of outdoor music venues in Old Town would create a more enjoyable atmosphere that could potentially attract more patrons.

F. Proposed Specific Plans
Significant residential, commercial, and mixed -use development is planned for two proposed Specific Plans adjacent to Old Town. The City is processing a Specific Plan for the 560-acre Uptown Jefferson area north of Old Town, and Ambient Communities is processing a Specific Plan for the 270-acre Altair community west of Old Town. The Uptown Jefferson Specific Plan calls for creation of a walkable urban environment with mixed residential, employment, and retail uses. The Altair development is directly contiguous to, and within walking distance of, Old Town. As shown in Table II-4 below, build -out of these districts will bring thousands of new households, office workers, and retail/entertainment patrons west of Interstate 15.

DevelopmentTable 11-4: Total
Land Use Type
..

Altair
Uptown Jefferson
Office
0 SF
876,076 SF
Industrial
0 SF
0 SF
Hotel
0 rooms
895 rooms
Residential
1,750 units
3,726 units
Retail
7,000 SF
342,903 SF
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14 III. OVERVIEW OF PROGRESS SINCE 1998
Table III-1 below lists the key opportunities identified in the 1998 KMA study. For each opportunity, KMA has evaluated the progress in Old Town to date using the rankings "accomplished", "partially complete", and "unfulfilled". As shown in the table, notable accomplishments include reinforcing the district's identity as Temecula's "downtown"; development of new cultural uses; installation of major public improvements; completion of the Civic Center and Town Square Park. Additionally, significant office space has been developed in Old Town, establishing the district as a desirable business address. Old Town is also widely recognized as a dining and entertainment district. However, no "critical mass" of retail shopping has been created, and no market -rate residential has been developed in the core of Old Town (east of the creek).

Importantly, Old Town has not attracted development of a major new hotel. Finally, KMA notes that business and property owners in Old Town have not formed a Business Improvement District.

Opportunities/RecommendationsTable 111-1: Current Status of Accomplished Partially Unfulfilled Comments
Complete
1 District Identity
A
Position Old Town as
Civic Center and Town
Temecula's
Square anchor district
"downtown"
• Numerous special events
✓
hosted throughout the
year
• Old Town established as
dining and entertainment
destination
B
Site public projects such
• Civic Center, parking
as the proposed new
garage, and Town Square
Civic Center within Old
completed
Town
_ /
0 Old Town Temecula
Community Theatre and
Pennypickle's Workshop —
Children's Museum
completed
C
Link public gathering
• Town Square Park in front
places to a Civic Center
✓
of Civic Center is complete
project
Town Square Marketplace
development fronting
park still pending
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Opportunities/RecommendationsTable 111-1: Current Status of Accomplished
Partially
Unfulfilled
Comments
Complete
p
Invest in public
Significant investment in
improvements
Old Town Front Street and
Main Street streetscape
improvements; the
rehabilitation of Sam Hicks
Monument Park; and bike
lanes, sharrows, and fix -it
V/
stations throughout Old
Town
• Many side streets lack
curb, gutter, and
sidewalks
• Murrieta Creek Regional
Trail Plan not yet initiated
2 Retail/Restaurant
A
Establish a "restaurant
• Old Town offers critical
row"
✓
mass of dining and
entertainment options
g
Create a theme for
• Limited retail store
specialty stores, in
options in Old Town
particular sporting
_ /
Y
No critical mass or theme
goods/ apparel and
has been established
outdoor recreation
supply
C
Add other household
/
furnishing and decor
V/
stores
p
Attract upscale
/
"lifestyle" retailers
✓
(long-term target)
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16 Table 111-1: Current Status of Opportunities/Recommendations Accomplished Partially Unfulfilled Comments
Complete
3 Office Space
A
Enhance the desirability
Private entrepreneurs
of Old Town as an office
have developed landmark
location
office buildings
Evidence of growing
Y
appeal beyond local
office users, i.e., regional
businesses choosing Old
Town locations
g
Encourage the
No "urban residential" to
development of
date other than mixed -
"hybrid" live/work
income developments
sponsored by City/former
space
Redevelopment Agency
4 Hotel
A
Adapt and re -use
The Welty Hotel was
historic buildings for
purchased in 2014, with
hotel use
plans for the historic
building to be used for
weddings and special
events
• No significant new hotel
✓
rooms inventory added in
Old Town (only 24
rooms); and 579 rooms
added in Jefferson
Corridor since 1998
• Plans for a 54-room hotel
on Moreno Road were
recently approved by the
City
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Opportunities/RecommendationsTable 111-1: Current Status of Accomplished Partially
Unfulfilled
Comments
Complete
g
Pursue the
• No significant new rooms
development of limited-
inventory in Old Town,
service or extended-
i.e., just 24 rooms added
stay hotels in nearby
since 1998
locations outside of Old
Plans for a 54-room hotel
Town
on Moreno Road were
recently approved by the
City
• Several new limited -
service hotels developed
in Jefferson Corridor
since 1998 —totaling 579
new rooms
5 Residential
A
Develop new senior
No senior housing
apartments
completed other than 65-
unit Riverbank Village
Apartments on Pujol
Street in 2004
g
Adapt and re -use older
No adaptive re -use
structures as lofts
projects
• No "urban residential" to
date other than mixed -
income developments
sponsored by City/former
Redevelopment Agency
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Opportunities/RecommendationsTable 111-1: Current Status of Accomplished Partially
Complete
Unfulfilled
Comments
C
Develop in -fill multi-
• 65-unit Riverbank Village
family along Pujol Street
senior housing completed
/
v
2004
• 274-unit The Vineyards at
Old Town private
development completed
2009 (on Pujol Street
outside Old Town)
• 44-unit Portola Terrace
affordable development
completed 2013
• 140-unit Shearwater
Creek private
development approved
(on Pujol Street outside
Old Town)
D
Develop medium- and
• Altair development
high -density housing
✓
containing approximately
within the Westside
1,750 units in planning
Specific Plan
and entitlement stage
6 Other Development Concepts
A
Expand arts and cultural
• Old Town Temecula
uses
Community Theatre and
Pennypickle's Workshop
— Children's Museum
completed
g
Enhance Murrieta Creek
✓
• Murrieta Creek Regional
Trail Plan pending
C
Structure a cooperative
Limited presence of
marketing arrangement
wineries in Old Town
with the wineries
• Old Town is emerging as
✓
a destination for wine
tasters seeking a more
intimate approach from
the larger wineries in
Temecula Valley
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Accomplished
Partially
Unfulfilled
Comments
Complete
77 Other Recommendations
A
Form a business- or
Old Town is served by Old
property -based
Town Temecula
Business Improvement
Association, a voluntary
District
land- and business -owner
organization that
promotes and protects
historic Old Town
through representation,
community relationships,
and promotional
programs.
• Limited interest by the
business community to
form a BID to serve Old
Town
B
Establish a uniform
New parking garage at
shopping environment
Civic Center with
with uniform operating
✓
directional signage
hours, standardized
parking arrangements,
and way finding signage
C
Enhance Old Town's
• Visibility enhanced due to
visibility from the
renaming of Front Street
freeway
/
✓
and new freeway signage
• Prominence of Civic
Center and Truax Building
heighten visibility of
district from freeway
p
Use recruitment
• Developer negotiations
strategies to attract
underway for Town
new development,
Square Marketplace
business, and arts and
_
Former Redevelopment
culture uses
Agency sponsored mixed -
use apartment buildings
with retail, restaurant,
and office uses
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IV. MARKET DEMAND POTENTIAL
A. Market Overview by Land Use Type
This section evaluates current market conditions for commercial and residential uses in Old Town. Table IV-1 below summarizes the key assets and constraints affecting development potential for each land use type. The detailed KMA assessment of market conditions is presented in Appendix A.

Table IV-1: Key Assets and Constraints
by Land Use Type
Key Assets
Key Constraints
Office
• Excellent freeway access
• Old Town remains a small
• Proximity to diverse range
employment center
of housing choices
• Current overall vacancy rate
throughout Temecula Valley
in Old Town is high at 16%
• Prestigious location for
• Difficult to compete with
office address, as evidenced
suburban office
by high office rents
development, e.g., low-rise,
• Truax Building features Class
surface -parked buildings
A office space targeted to
• Lack of parking to serve
high -profile tenants
future office tenants
• Access to amenities for
workers, e.g., dining and
entertainment
• Proximity to Civic Center
desirable
01 >
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21 Table IV-1: Key Assets and Constraints by Land Use Type (Cont'd.) Key Assets
Key Constraints
Retail/Restaurant
• Strong local and regional
• Insufficient residential
draw, e.g., both residents
population to support
and visitors
grocery, drug, basic services
• Unique mix of civic, arts and
• Lack of critical mass of retail
culture, shopping, and
stores in any one category,
dining and entertainment
e.g., apparel, sporting goods,
uses in a historic, walkable
furnishings, design, lifestyle,
setting
etc.
• Special events and festivals
• Some entertainment uses
attract nearly 245,000
may be incompatible with
attendees/year
fine dining and/or residential
• Plentiful parking supply at
uses
Civic Center
• City may not be able/willing
to sponsor special events in
the long term
• Perceived parking shortage
at northern end of Old Town
Hotel
• Broad range of dining and
• No new hotel development
entertainment choices
in Old Town
• Temecula dominates the
• Feasibility challenges to build
Southwest Riverside hotel
either boutique or full -
market, with rising
service hotels in urban
occupancy and room rates
context
• Proximity to wine country a
significant draw, particularly
on weekends
• Weekday hotel occupancy in
Temecula Valley rising in
recent years, indicating
growing business demand
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22 Key Constraints
Table IV-1: Key Assets and Constraints
by Land Use Type (Cont'd.)
Key Assets
Residential
• High median income in
• Extremely limited housing
Temecula relative to County
west of 1-15 freeway today;
and Inland North San Diego
virtually no market -rate
• Altair development will add
housing core of Old Town
approximately 1,750 units
• Relatively affordable
within walking distance of
homeownership options
Old Town
throughout City, e.g., single-
• Increasing desirability
family and townhomes
among empty nesters and
• Feasibility challenges for
millennials for housing in
urban housing products
walkable, amenitized mixed-
• No grocery or drug stores
use districts
west of I-15 freeway
• Success of The Vineyards at
Potential incompatibility with
Old Town Apartments
entertainment uses (noise,
(adjacent to Old Town)
traffic, parking)
• Proposed development of
140 condominium and
townhomes at Shearwater
Creek (directly south of The
Vineyards)
More detailed discussion of market conditions for office, retail/restaurant, hotel, and residential land uses is presented in Tables A-1 through A-4.

B. Retail/Restaurant Market Performance
Over the last 10 years, Old Town has experienced growth in retail and restaurant activity significantly higher than the City as a whole. As shown in Table IV-2 below, total sales tax revenues in Old Town during this period grew at an average annual rate of 6.3%. For the same period, the Citywide growth rate was just

2.0% per year. Although Old Town represents a very small segment of Citywide retail sales tax revenues, it has nearly doubled in 10 years. Refer to Table A-5 for the detailed revenue analysis by year and sub -area of the City.

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Table IV-2: Sales Tax Revenues, Old Town vs. City,
FY 2003 Sales Tax
2003-2013
FY 2013 Sales Tax
Average
Annual Increase
Old Town
$168,000
$310,000

6.3%
City of Temecula
$11,690,000
$14,181,000

2.0%
Source: HdL Companies
There are approximately 218 businesses in Old Town. As shown in Table IV-3 below, these include a broad range of establishments, with Eating and Drinking Places accounting for more than half of the total taxable sales volume. As of second quarter 2014, there were 21 Eating and Drinking Places in Old Town with an annual taxable sales revenue of $184,675, representing 55% of the total. However, the largest number of businesses is found in the Other Retail Stores category, representing 103 of the 218 businesses. Refer to Table A-6 for detailed breakout of taxable sales by business type from 2012 to 2014.

Table IV-3: Mix of Businesses/Taxable Sales by Type, Old Town, Number of Businesses
FY 2014
Taxable Sales
Percent of Total
Eating and Drinking Places
21 $184,675
55%
Other Retail Stores
103
$92,711
28%
Apparel Stores
28 $20,238
6%
Business, Service, and Repair
23 $12,097
4%
Furniture and Appliances
18 $10,563
3%
Food Stores
9 $7,193
2%
Manufacturers & Wholesalers
16 $6,438
2%
Total, Old Town
218
$333,915
100%
Source: HdL Companies
KMA reviewed comparable land sales in Old Town and adjacent areas for the period 2007 to present. The results are summarized in Table IV-4 below; the detailed survey is presented in Table A-7. KMA identified nine comparable sales in the core of Old Town; these ranged in size from 0.17 to 0.77 acres. Sales prices City of Temecula — Old Town Market Opportunities Update 24 15094ndh
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ranged from $24 to $101 per SF. The median sales price was $62 per SF. It is important to note that the KMA survey spanned an extensive time period, from the peak of the mid-2000s market through the prolonged economic downturn. Given that there are few vacant development sites in the core of Old Town, it is not surprising that there is very limited sales activity; the sites that are sold are small in -fill parcels and values per SF are high relative to other areas of Temecula.

ComparableTable IV-4: Old Town, 2007
Site Size
Sale Price/SF Land
Low

0.17 acres
$24/SF
High

0.77 acres
$101/SF
Median

0.27 acres
$62/SF
Average

0.34 acres
$57/SF
(1) Excludes Shearwater Creek and Altair sites, located outside Specific Plan boundary.

C. Hotel Market Performance
Appendix B presents the KMA in-depth review of market conditions for hotel use in Old Town. Table B-1 profiles current hotel/motel inventory for the Temecula Valley. Table B-2 details hotel room supply and occupancy from 2000 to present. Table IV-5 below summarizes current hotel room inventory in the Temecula Valley. As shown in the table, hotel rooms are concentrated in the Jefferson Corridor, at the Pechanga Resort and Casino, and in Old Town. Additionally, Pechanga has announced plans for a 548-room expansion, which will also include a two-story luxury spa and fitness center; additional meeting, ballroom, and special event space; a resort -style pool complex; and two new restaurants. In total, the 20 hotels in the Temecula Valley contain approximately 100,000 SF of meeting space, with the largest concentrations located at South Coast Winery Resort and Pechanga.

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25 Table IV-S, Hotel Inventory, Temecula
Valley
Number of Hotels
Number of Rooms
Meeting Space
Old Town (1)
5 278
450 SF
Jefferson Corridor
8 726
5,224 SF
Balance of City
2 306
11,800 SF
Total, City of Temecula
15 1,310
17,474 SF
Unincorporated (2)
4 682
83,175 SF
City of Murrieta
1 65
350 SF
Total, Temecula Valley
20 2,057
100,999 SF
(1) Includes Ramada Inn, located on Old Town Front Street south of Old Town. (2) Includes wine country and Pechanga Resort and Casino.

Table IV-6 below illustrates the trends in hotel room supply and demand in the Temecula Valley for the period 2000 to 2013. As shown in the table, hotel rooms have been added at a very high annual growth rate of 7.9%. More importantly, hotel room demand has supported this new construction, as evidenced by an almost identical average annual increase in occupied rooms of 7.8%. Obviously, the period 2000 to 2013 saw significant down cycles following 9/11 and the 2007 recession. However, the overall trend for the Temecula Valley hotel market, inclusive of these downturns, is quite strong.

Table IV-6: Hotel Room
Supply,000
2000
2013
Average Annual
Increase
Total Hotel Rooms
763 rooms
2,047 rooms

7.9%
Occupancy

69.6%

69.1%

7.8% (1)
(1) Reflects average annual change in total occupied rooms.

KMA also prepared an analysis of the financial feasibility of a prototype, three- to four -star boutique hotel in Old Town. The KMA pro forma analysis for a conceptual hotel development is presented in Tables B-3 through B-6. Due to the high construction costs of urban in -fill development, accompanied by the high cost of structured parking, KMA finds that development of a boutique hotel in the near term will likely require a public financial incentive. As shown in Appendix B, KMA formulated a project description containing 125 City of Temecula — Old Town Market Opportunities Update 26 15094ndh
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rooms in an eight -story building on a one -acre development site. Based on review of costs for recent comparable projects, KMA estimates total development costs to be approximately $312,000 per room.

Assuming an Average Daily Rate (ADR) of $160 and a stabilized occupancy of 72%, KMA estimates the value of the completed hotel to be approximately $237,000 per room. A comparison of development cost ($312,000/room) and value upon completion ($237,000/room), with allowances for cost of sale and developer profit, yields an estimated financing deficit of $105,000 per room. These preliminary pro forma findings are not intended to represent the experience of any specific development proposal, but rather illustrate an order -of -magnitude measure of the feasibility challenges for higher -end hotel development in Old Town.

D. Market Demand Forecasts by Land Use Type
Appendix C presents the KMA long-term absorption forecasts for each major land use in Old Town. The forecasts are based on Citywide absorption projections that KMA prepared for the Land Use Economic Opportunity Study (May 2015). As presented in Tables C-2 through C-5, for each land use type, KMA formulated assumptions of capture potential within Old Town. The KMA projections of Old Town absorption potential are summarized in Table IV-7 below. As shown in the table, KMA estimates that Old Town can support the following ranges of development over the next 20 years: 240,000-420,000 SF of office, 180,000-320,000 SF of retail, 500-1,000 hotel rooms, and 1,400-2,800 housing units.

Table IV-7: Old Town
Absorption Potential as Percent
Projected Citywide
20-Year Absorption (1)
of Citywide Demand
Estimated Capture Projected Old Town
Rate for Old Town 20-Year Absorption
Low
High
Low
High
Low
High
Office
1,600,000 SF
2,114,000 SF
15%
20%
240,000 SF
420,000 SF
Retail/Restaurant
1,208,000 SF
1,638,000 SF
15%
20%
180,000 SF
320,000 SF
Hotel
2,020 rooms
2,940 rooms
25%
35%
500 rooms
1,000 rooms
Residential
9,800 units
13,700 units
15%
20%
1,400 units
2,800 units
(1) Source: Land Use Economic Opportunity Study, KMA, June 2015.

Table IV-8 below illustrates Old Town absorption potential on an average annual basis. As shown, Old Town is projected to absorb: 12,000-21,000 SF of office, 9,000-16,000 SF of retail, 25-50 hotel rooms, and 70-140 housing units per year.

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Table IV-8: Projected
Land Use Type
Annual Absorption by Land Use, Old Town
Projected Average Annual Absorption
Low
High
Midpoint
Office
12,000 SF
21,000 SF
16,500 SF
Retail
9,000 SF
16,000 SF
12,500 SF
Hotel
25 rooms
50 rooms
38 Rooms
Residential
70 units
140 units
105 units
Table IV-9 below compares the KMA projection of absorption potential for each land use type in Old Town with the remaining development capacity under the Specific Plan. As shown in the table, KMA projects that hotel and residential uses in Old Town will be built out by Year 20, but that the District will still have remaining capacity for office and retail development. Specifically, KMA finds the following land use inventory conditions at Year 20:
• There will be significant remaining capacity for office and retail development, i.e., 479,000 SF of office space and 235,000 SF of retail space. At the projected absorption rates, these remaining capacities at Year 20 would require decades to absorb.
• Hotel land use demand over the 20-year planning horizon is projected to significantly exceed the current remaining development capacity, i.e., hotel land use is anticipated to build out well before Year

20. • Residential land use absorption is projected to slightly exceed current remaining development capacity, i.e., residential land use is anticipated to build out shortly before Year 20.

This comparison of development capacity vs. projected absorption suggests that the City should accommodate additional hotel and residential development within Old Town over the longer term.

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28 Table IV-9: Comparison of Projected
Absorption vs. Development Capacity, Old Town
Remaining
Average Annual Projected 20-Year
Land Use Development
Absorption Total Absorption Oversupply rsupplyJ
Type Capacity (1)(2)
Midpoint Midpoint at Year20 (3)
Office
809,000 SF
16,500 SF
330,000 SF
479,000 SF
Retail
485,000 SF
12,500 SF
250,000 SF
235,000 SF
Hotel
540 rooms

37.5 Rooms
750 rooms
(210) rooms
Residential
1,800 units
105 units
2,100 units
(300) units
(1) Reflects anticipated remaining incremental development in Old Town. Source: Old Town Specific Plan Draft Environmental Impact Report, February 2010, adjusted to reflect development of the Truax Building, Portola Terrace Apartments, and Front Street Plaza.
(2) Land use allocation to office, residential, and retail land uses reflect KMA assumption. (3) Reflects the difference between remaining development capacity and the KMA projected 20-year absorption potential.

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29 V. SURVEY OF COMPARABLE DISTRICTS
A. Overview of KMA Survey
This section presents the KMA survey of other mixed -use village districts for comparison purposes with Old Town. The overall objective of this exercise was to identify best practices in successful comparable districts. KMA selected five districts, including two in San Diego County and three in Northern California, based on similarities in land use mix, scale, arts and cultural uses, and/or proximity to a wine country environment. For each district, KMA prepared a basic profile, including types of land uses, key economic generators, special events, marketing and promotion activities, parking and transportation, and other key features. Additionally, KMA interviewed key participants in each business district and/or corresponding city staff to comprehensively understand key issues and challenges.

Exhibits V-1 through V-5 present the KMA overviews of mixed -use village districts in Little Italy (San Diego), Carlsbad, Chico, Windsor, and Petaluma. Refer to Appendix D for detailed profiles of each comparable district surveyed.

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30 Exhibit V-1: Little Italy (San Diego), 2014 Snapshot 3-Mile Area
Population Households
168,953 79,696
Average HH Income
$70,675
Per Capita Income
$33,338
Aggregate Personal Income
$5.6 Billion
Little Italy Association:

Annual Budget: $1,942,000
I T4
z
5-Mile Area
Population Households
` 461,845 180,482
Average HH Income
$66,404
Per Capita Income
$25,950
Aggregate Personal Income
��$ 12.0 Billion
C
0-Mile Area
opulation Households
,172,751 440,718
Average HH Income
$69,479
Per Capita Income
$ 26,110
Aggregate Personal Income
$30.6 Billion
Key Attributes:
• Restaurants, cafes, boutiques, hotels, residential,
office, and public plazas
• Weekly farmer's market (5 blocks, 200+ booths,
10,000 visitors, $500,000/year revenue)
• Annual Special Events: Little Italy FESTA, ArtWalk,
Taste of Little Italy
• Adjacent to historic County Administration Center
(new park and parking garage); served by County
Center/Little Italy trolley station
• Clean & Safe and marketing programs funded by
Little Italy Association (BID); BID hires PR firm for
marketing/events
• Developers required to create a public space when
building new development, including public art,
historic signage, and aesthetic landscaping
• 45% of revenue from parking meters, lots, etc. go to
the improvement of parking /parklets
• Live outdoor music allowed during large and small
events
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Exhibit V-2: Carlsbad Village, 2014 Snapshot
3-Mile Area
Population Households
62,335 25,469
Average HH Income
$72,300
Per Capita Income
$29,541
Aggregate Personal Income

51.8 Billion
Carlsbad Village Association:

Annual Budget: not available
5-Mile Area
Population Households
150,172 57,964
Average HH Income
$74,037
Per Capita Income
$28,577
Aggregate Personal Income
$4.3 Billion
Key Attributes:
10-Mile Area
Population Households
507,587 177,764
Average HH Income
$80,633
Per Capita Income
$28,239
Aggregate Personal Income
514.3 Billion
• Restaurants, coffee shops and cafes, boutique
retail, specialty shops, and hotels/time-shares
• City formed partnership with Carlsbad Village
Association to conduct marketing and events
• Adjacent to beach
• Served by Coaster station
• New Village Arts performing arts theatre
• Weekly farmers market, large street fairs,
village music festival
• Enhanced outdoor experience with
streetlights, benches, and outdoor dining
• On -street parking and six public parking lots,
unmetered and free
• City has taken a strong position to
underground railroad tracks in order to
increase street connectivity
��I'
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32 Table V-3: Downtown Chico, 2014 Snapshot
3-Mile Area
Population Households
81,715 32,960
Average HH Income
$53,702
Per Capita Income
$21,661
Aggregate Personal Income
$1.8 Billion
Downtown Chico Business
Association:

Annual Budget: less than $400,000
5-Mile Area
Population Households
101,379 40,777
Average HH Income
$57,741
Per Capita Income
$23,225
Aggregate Personal Income
$2.4 Billion
Key Attributes:
10-Mile Area
Population Households
113,641 45,195
Average HH Income
$59,556
Per Capita Income
$23,685
Aggregate Personal Income
$2.7 Billion
Diverse mix of restaurants, local retail, hotels, and
churches/religious institutions
• Thursday Night Market (Farmers Market)
Formed Downtown Chico Business Association
(DCBA) in 1975 as a BID as a marketing and
advocacy organization for Downtown Chico
DCBA funded by membership assessments,
Transient Occupancy Tax, Special Events, and
Contracted Services
• Works closely with the adjacent CSU Chico to host
and promote events
More than 2,000 parking spaces in six different
parking lots
Primarily self -funded, dependent on sponsorships
• BID assessment too low for large-scale marketing
efforts
Z I >
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Exhibit V-4: Old Downtown Windsor, 2014 Snapshot
3-Mile Area
Population Households
30,569 10,310
Average HH Income
$96,027
Per Capita Income
$32,387
Aggregate Personal Income
S1.0 Billion
Old Downtown Windsor
Merchants Association:

Annual Budget: $165,000
5-Mile Area
Population Households
43,140 15,307
Average HH Income
$91,269
Per Capita Income
$32,384
Aggregate Personal Income

51.4 Billion
Key Attributes:
10-Mile Area
Population Households
208,004 78,498
Average HH Income
$80,088
Per Capita Income
$30,224
Aggregate Personal Income
$6.3 Billion
• Boutique apparel, specialty retail, variety of
restaurants, wine tasting rooms, and salon/spa
studios
• Raven Theater, community performing arts
theater for amateur and professional stage
productions
• Large open space area for events
• Near to Sonoma wineries (31 miles; 50 minutes)
• Many family -oriented events
• City and private donations fund large events
• Former BID dissolved
• Marketing handled by Chamber of Commerce
��I'
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34 Exhibit V-5: Downtown Petaluma, 2014 Snapshot
3-Mile Area
5-Mile Area
Population Households
Population Households
64,070 24,055
69,920 26,445
Average HH Income
Average HH Income
$94,624
$94,557
Per Capita Income
Per Capita Income
$35,526
$35,763
Aggregate Personal Income
Aggregate Personal Income
$2.3 Billion
$2.5 Billion
Downtown Petaluma BID:

Annual Budget: $65,000
Key Attributes:
r
Mile Area
ulation Households
,957 66,397
Average HH Income
$85,695
Per Capita Income
$32,898
Aggregate Personal Income
$5.7 Billion
Q
• Art galleries, antique shops, small boutiques,
restaurants, and health/wellness businesses
• Performance venues: Aqus Cafe (live music
and poetry performances), Petaluma Arts
Center (exhibits, art classes, concerts), Cinnabar
Theatre (performing arts), Clear Heart Gallery
(performing arts), Lagunitas Brewing Company
(live music), Mystic Theatre and Music Hall (live
music), and Zodiacs (live music)
• Annual Petaluma Music Festival, Petaluma Arts
& Garden Festival
• Near to Sonoma wineries (14 miles; 30 minutes)
• Events, signage, beautification funded by BID
21 >
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B. Key Features, Issues, and Challenges
The success of each village district can be attributed to a variety of similar factors present in each district including: land use mix, transit -oriented development, activation of public spaces, marketing and events, and multiple public and private organizations that manage and promote overall economic growth.

Each district's land use predominantly consists of commercial mixed uses at the core and low -density residential/office mixed uses in the surrounding area. Mixed -use designations are intended to house community -serving retail in order to attract the business of local residents and employees. Retail uses are a key factor in the economic development of mixed -use village districts. A majority of the districts are anchored by large regional -serving grocery store tenants. Regional -serving tenants attract patrons from outside the community into the district, further stimulating local economic activity.

Success in each district is also driven by the provision of adequate transportation and parking. The surveyed districts are generally transit -oriented with close proximity to local- and regional -serving transit centers. Several of the districts provide direct access to trolley, shuttle, and bus services for residents, employees, and visitors. Some of the districts provide free on -street parking at specified hours of the day, while others use metered parking to regulate the flow of cars in and out of the district. All of the districts have public lots in close proximity to their commercial core. Districts seeking to maximize parking are considering the conversion of parallel parking to angled parking to increase the supply of on -street parking.

All of the comparable districts surveyed by KMA require new development — both commercial and residential —to provide its own parking or pay an in -lieu fee.

Maintaining and enhancing interactive public spaces also contributes to the success of the comparable districts examined. Activated public spaces encourage pedestrian activity that increases the flow of customers into local businesses.

Successful marketing and events efforts are crucial to each district's ability to have a regional draw. These efforts are usually managed by organizations such as Business Improvement Districts (BIDS) and merchants associations with support from local government and economic development organizations. The most successful types of events include festivals, street fairs, farmers markets, and live music concerts. These events are one of the largest revenue sources for a majority of the districts. Revenues collected by these organizations are often used to fund street beautification efforts, district marketing, and local security.

Survey participants from the various districts reported several challenges associated with maintaining land use compatibility and quality of life in the long term. The most typical challenges that each district has faced include: providing adequate parking, the turnover of retail establishments, cooperation among businesses, and the collection of business assessment fees.

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C. Land Use Compatibility
Within each village district, KMA found a similar mix of land uses. These districts are often planned for the highest and best use of land. As these districts are compact, land is scarce and multi -story mixed -use is appropriate. Mixed -use commercial and residential uses are often at the core of each district; framing the commercial core are lower density residential and office uses. The mix of residential with retail/restaurant uses is often met with challenges because of the potential land use conflicts with nightlife and entertainment uses, including live music and events. Despite these challenges, mixed -use village districts have appeal as residential environments precisely because of the opportunities to live, work, and play in a 24/7 district. Marketing of residential units in "urban village" environments should emphasize to potential residents the potential for such conflicts, including noise and parking and traffic disruptions.

D. Parking Requirements
An adequate parking supply is one of the key features that contributes to the success of the comparable districts surveyed by KMA. The increased density of mixed -use village districts creates a high demand for parking in the area. At the same time, there are often opportunities for shared parking, as the demand generated by different uses peaks at different times. According to the Old Town Temecula Parking Management Plan prepared by Fehr & Peers in February 2010, it is anticipated that Old Town will reach its threshold of 85% occupancy of parking spaces in 7-10 years if no new parking facilities are built. As such, Old Town should plan for this anticipated growth.

All of the comparable districts surveyed by KMA require new development — both commercial and residential — to provide for its own parking requirements based on specified minimum ratios. This is a marked contrast with Old Town, where commercial developments are not required to provide any parking, and public parking inventory, both on- and off-street, is available for free. For developments unable to provide the required parking on -site, some of the surveyed districts allow payment of an in -lieu fee toward the creation of public parking resources. Table V-1 below provides a summary of the retail and residential parking requirements from each comparable district. As a comparative note, within the San Diego region, the cities of Del Mar and La Mesa have provisions for parking in -lieu fees within their village cores.

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Table V-1: Comparable
Village District
Parking Ratio
In -Lieu Fee
Little Italy
•
Retail:

1.5 Space / 1,000 SF
Under consideration
e
Residential:
1 Space / Dwelling Unit
Old Downtown
•
Retail:
1 Space / 200 SF
Council must approve
Windsor
•
Residential:
1 Space / Dwelling Unit
Downtown
•
Retail:
1 Space / 500 SF
Fee of $20,000 / Space
Petaluma
•
Residential:
1 Space / Dwelling Unit
Carlsbad Village
•
Retail:
1 Space / 300 SF
Fees based on estimated cost
•
Residential:
1 Space / Dwelling Unit
of providing additional parking
Downtown Chico
•
Retail:
1 Space / 250 SF
Fee of $16,000 / Space
•
Residential:
1 Space / Dwelling Unit
E. Summary of Best Practices
KMA prepared the following summary of best practices from the surveyed comparable districts. The City and Old Town stakeholders should evaluate, and consider implementing, these approaches.

1. Encourage the formation of a property and/or business owner group to support coordinated marketing efforts and special events

2. Develop a long-term parking strategy to address the anticipated increased need for parking, including potential solutions such as requiring commercial uses to provide on -site parking, establishing an in -lieu fee program, developing additional public parking resources, and setting time limits and/or charging for on -street parking

3. Form partnerships with organizations to promote Old Town, i.e., Visit Temecula Valley, Chamber of Commerce, Temecula Valley Winegrowers Association, etc.

4. Incorporate signage and gateway monumentation that accentuate the district's theme(s) and/or history

5. Promote the creation of inviting, clean, and safe public spaces, including the Murrieta Creek Trail and Town Square
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6. Enhance the outdoor experience with lighting, seating, shade trees/shade structures, outdoor dining and music, etc.

7. Permit live outdoor music at select restaurants and bars

8. Engage local homeowners associations to inform existing and future residents of planned events, especially events with outdoor music
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39 VI. RECOMMENDED OPPORTUNITIES AND STRATEGIES
This section presents the KMA recommendations regarding development opportunities, public improvements, and implementation strategies. Our recommendations are presented in four sub -sections, as follows: (1) branding Old Town; (2) new private development potential; (3) improvements to the public realm; and (4) marketing and promotion strategies.

A. Branding Old Town
Exhibit VI-1 presents the KMA strategies for branding Old Town. In KMA's view, the best near -term opportunity for enhancing the Old Town business environment and visitor experience is to develop and market a "foodie district" brand. Old Town currently has numerous eating, drinking, and entertainment establishments, including casual food, sit-down restaurants, coffee shops, bars, dance clubs, and music venues. However, overall the district is not currently recognized as an important dining destination. Given the concentration of restaurants in Old Town today, and the proximity to the wine country, KMA believes there is a strong opportunity to establish Old Town as a "foodie district". Exhibit VI-1 also presents secondary branding concepts for Old Town, including: health and wellness; arts, culture, and entertainment; and arts and crafts. All of these concepts — as well as the City's burgeoning micro -brewery sector -- are compatible with the "foodie district" brand.

Exhibit VI-2 presents an overview of "foodie districts" and landmark food destinations. "Foodie districts" are defined as a district emphasizing a variety of food services and other products provided by local vendors. They typically offer a variety of farm -to -table restaurants; shops and markets offering fresh produce, cheeses, and meats; cooking supplies and equipment; and culinary programs. Old Town not only has the potential to pair its culinary offerings with the wines of the Temecula Valley, but also with the local agricultural industry in general. A successful "foodie district" in Old Town could potentially draw day visitors from up to one hour away and overnight visitors from Southern California as a whole.

Developing a "foodie district" in Old Town requires more than a critical mass of farm -to -table and fine dining restaurants. An essential feature of a "foodie district" is a market hall, essentially a year-round, under roof food court, farmers market, and culinary institute all rolled into one. Exhibit VI-3 presents graphic examples of "foodie districts" and public markets/market halls. These include: Anaheim Packing District, Anaheim, California; Grand Central Market, Los Angeles, California; and Granville Island Public Market, Vancouver, British Columbia.

Detailed descriptions of two market halls are presented in Exhibit VI-4 (Oxbow Market in Napa) and Exhibit VI-5 (Torvehallerne Market in Copenhagen, Denmark).

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Exhibit VI-1: Branding Old Town
Strategy
Features
A
Brand Old Town as a
,..
• Wine boutiques and tasting
"Foodie District"
1 • Farm -to -table restaurants
i
• Culinary school and kitchenware
;j
stores
• Market hall
• "Night market" street fair/food
festival
g
Expand "Foodie District"
• Health oriented/vegetarian
to Health and Wellness
restaurants
Concepts
• Fitness centers and spas
1v1,K-
• Bike shop and recreation supply
_ r
• Urban farm plots as interim use
C
Expand Concentration of
• Art galleries and studios
Arts, Culture and
• Performance venues
Entertainment
• Vintage/retro shopping
Design stores
• Coffee shops
• Live/work lofts
Build Reputation for Arts
• Artisan and craft workshops and
and Crafts
retail outlets
• Types of shops: candles,
furniture, art works, clothing,
jewelry, bakeries, coffee, cheese,
specialty food
• Education and training
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Exhibit VI-2: "Foodie District" Fact Sheet
Callaway Vineyard & Winery, Temecula, CA
Anaheim Packing District, Anaheim, CA
San Francisco Ferry Building, San Francisco, CA
Eataly, New York, NY
"Foodie District" — District emphasizing a variety of food services and other products produced by local vendors.

Key Attributes:
• Vibrant and communal gathering spaces
• Farm -to -table principles, supporting local growers
• Local wine and craft beer
• Market hall atmosphere with a variety of vendors
and products
• Incorporation of culinary education to promote and
support the local artisan food community
• Inviting architectural features and reconstitution of uses
Examples of Economic Revitalization:
• Anaheim Packing District, 2014
• Santa Ana's 4th Street Market, 2014
• San Francisco Ferry Building, 2003
• Los Angeles Grand Central Market, rehabilitated
1990
Dean & Deluca, Napa Valley, CA
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42 qw,� - --"4"
s.- --TME
s

Exhibit VI-4: Profile of Oxbow Market, Napa, CA
'1G1-(BOW

PUBLIC MARKET
/Z
��I'
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Market Hall Features:
• Diverse tenant mixture of local food
vendors, artisan cafes, and an
organic produce outlet for local
farms.
• Local gathering place for great food
and wine in downtown Napa and
throughout Napa Valley.
• 40,000 square foot marketplace,
including an outdoor deck and
seating along the Napa River.
• Artisans and patrons supportive of
sustainable agriculture and local
harvest.
• Improves the local food culture
through education, community
outreach, and support of local
businesses and farms.

Oft
W.
yf
44 Exhibit VI-5: Profile of Torvehallerne Market in Copenhagen, Denmark Market Hall Features:
• Over 60 vendors with a variety of
products from fresh fish to gourmet
chocolates.
• Known as a "new culinary hot spot" in
Copenhagen.
• Includes organic produce.
• Includes small restaurant tenants.
• Inviting outdoor spaces.
• Simple architecture to frame
produce/food.

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B. New Private Development Potential
Exhibit VI-6 presents the KMA recommendations for private development opportunities in Old Town. The principal KMA recommendations relate to: completing Town Square Marketplace to activate the park; pursuing development of a boutique hotel; and encouraging new residential development. • Town Square Marketplace: The key opportunity for a signature private development is the Town Square Marketplace site, the City -owned, one -acre property enveloping the Town Square Park. The City is currently in negotiations with a private developer for a potential mixed -use development on the site. This site is strategically located in front of the Civic Center and close to the Civic Center parking garage. Development of the site will activate and enhance Town Square Park, and effectively bring Old Town Front Street and Mercedes Street closer together. It is the missing link to establish Main Street as the important heart of Old Town.
• Boutique Hotel: Existing overnight accommodations in Old Town are extremely limited in number, selection, and amenities. Development of one or more new hotels at the Midscale or Upscale level could have a transformational impact on Old Town. Not only would such hotels draw overnight visitors to the district, but they have the potential to become magnets as eating and drinking destinations.

Additionally, by their presence in Old Town, such hotels — particularly if they belong to a chain — provide the extra benefit of marketing the district through their advertising and reservation systems.

KMA recommends that the City identify and evaluate opportunities to incentivize development of a boutique hotel in the core of Old Town. Key steps may include discussions with property owners and/or hotel chains; feasibility testing to determine whether/what level of financial assistance may be required; and consideration of possible incentives
• Market -Rate Housing: The City, through its former Redevelopment Agency, has been successful in stimulating development of multi-family/mixed-use developments within the core of Old Town.

However, to date all of these housing units have been restricted as affordable rentals. Similarly, the City sponsored several affordable housing developments (three rental and one for -sale) along Pujol Street. No market -rate housing has been developed in Old Town since the 1998 KMA study. The Vineyards at Old Town Apartments was developed just outside of Old Town in 2009, demonstrating that high -end market -rate rentals are feasible in the area. When combined with the proposed Shearwater Creek and Altair, these three developments will total over 2,000 market -rate housing units adjacent to Old Town. KMA recommends that the City encourage additional market -rate housing in Old Town, including rental apartments, lofts, and ownership housing opportunities. City initiatives should emphasize residential developments with walkable environments; easy access to retail services, and amenities; and connections to parks, trails, and public facilities. It will be particularly important for the City and Old Town stakeholders to conduct outreach to real estate developer groups such as the City of Temecula — Old Town Market Opportunities Update 46 15094ndh
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Urban Land Institute (ULI) and the Building Industry Association (BIA). Finally, an essential issue to be addressed with developers and future residents is the potential for land use conflicts with entertainment uses in the core of Old Town.
21 >
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47 Exhibit VI-6: New Private Development Potential
Strategy
A
Complete Town Square
Marketplace
. -'-r; '
e
- . tures
• Potential location for market hall
• Key to invigorating Town Square
B
Pursue the development
• Study the feasiblity of developing
of a boutique hotel
a boutique hotel in/near Old
Town
• Evaluate financial assistance
r
structures
• Issue NOFA
C
Encourage development
• Working roundtable with in -fill
of new market -rate
developers
housing'
• Prepare development prototypes
and financial feasibility
illustrations
• Outreach and marketing efforts,
e.g., Urban Land Institute (ULI)
and Building Industry Association
(BIA)
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48 C. Improvements to the Public Realm
Exhibit VI-7 presents the KMA recommendations for improvements to the public realm in Old Town. The principal KMA recommendations relate to: completing Town Square Marketplace to activate the park; completing the Murrieta Creek Trail; upgrading gateways and streetscape improvements; planning for future parking at the north end of Old Town; and planning for compatible mixed -use development along Old Town Front Street south of 1" Street.
• Murrieta Creek Regional Trail: The Town Square Park is the signature public improvement in Old Town.

Once the Town Square Marketplace is developed and occupied, the park will be more consistently activated and utilized. However, in KMA's view, completion of the Murrieta Creek Regional Trail would have a transformational impact on Old Town, enhancing both the natural and commercial environments by creating a visual and functional connection between Murrieta Creek and Old Town.

When complete, it is anticipated that the trail will attract numerous visitors and residents to Old Town, resulting in expanded commercial activity.
• Gateways and streetscape: The north and south gateways to Old Town are marked by arches spanning the streets. However, the travel routes from the freeway (Highway 79 South and Rancho California Road exits) to the arches are less attractive and inviting. KMA recommends that the City and Old Town Temecula Association pursue efforts to incorporate signage and monumentation that accentuates Old Town's themes and enhance the outdoor experience with improved lighting and seating. Additionally, within Old Town, there are limited public spaces for sitting, resting, gathering, drinking coffee, eating ice cream, etc. The City and Old Town stakeholders should explore opportunities to create parklets and plazuelas, as well as additional street furniture (tables and chairs). A recent example of a temporary park is the QuartYard in Downtown San Diego's East Village. Constructed on a 25,000-SF lot, the QuartYard features a coffee shop, dog park, coffee kiosk, takeout restaurant, beer garden, and music venue.
• Parking at North End: As Old Town builds out, the availability of shared public parking will diminish.

The southern end of Old Town is currently well served with both the surface parking lot behind the Stampede and the Civic Center garage. In the longer term, however, the City may want to explore the potential for an additional parking facility toward the north end of Old Town, including potential sites north of the arch. Specific details regarding parking spaces, location, configuration, and management would need to be addressed through a comprehensive parking study. For example, prior to significant investment in new public parking facilities, the City should develop a long-term parking strategy that considers a range of solutions, including requirements on commercial developers, establishing time limits and/or meters for on -street parking, and evaluating the potential for a parking in -lieu fee program.

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• South Side Mixed -Use Development: The southern entrance to Old Town is particularly unattractive today, with a mix of commercial, industrial, and vacant land uses stretching approximately one -mile from the Highway 79 South freeway exit to the 1" Street arch. In addition to presenting a poor image for Old Town, the current condition of South Front Street represents an underutilization of land. The City should explore mixed -use zoning for this corridor, which has several large vacant properties fronting Murrieta Creek. Given the large parcel sizes available, there may be an opportunity to site one or more new hotels in this corridor in close proximity to Old Town.

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50 Exhibit VI-7: Improvements to the Public Realm
Strategy
- . tures
A
Invest in Murrieta Creek
• Signature public improvement
Regional Trail Plan
1 ,..
• Enhanced pedestrian circulation
improvements
��.j•
• Encourage bike access and
related amenities
B
Upgrade gateways and
• Path of travel from freeway to
streetscape
1 north and south arches
improvements
• New western gateway from
Y
Altair
ti16
Western Bypass will reduce rush
hour congestion
Incorporate plazuelas, fountains,
and street furniture in public
right-of-way (ROW)
Prepare South Side
,% I� ' ` '
• Encourage compatible mixed -use
Specific Plan.
development
• Expand Murrieta Creek Regional
Trail
• Potential for hotels
p
Provide additional
Balance southern end parking
parking on the north end
supply
of Old Town
• Potentially north of arch
• As part of comprehensive
parking strategy for Old Town
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51 D. Marketing and Promotion Strategies
As discussed in Section VI -A, the KMA key marketing recommendation for Old Town is to brand the district as a "foodie district". Exhibit VI-8 presents additional KMA recommendations for marketing and promotion strategies for Old Town. These relate to: formation of a Business Improvement District (BID); and co - marketing with the wineries and Pechanga.
• Potential for a Business Improvement District: KMA recommends the formation of a Business Improvement District (BID) in Old Town Temecula. A BID works to unify business and property owners within a particular district to work towards the common goal of economic revitalization. This is often done through marketing and event programs, civic beautification projects, commercial tenant recruitment, and parking and transportation improvements. Marketing and event programs are a key factor in the regional draw of districts. Events such as weekly farmers markets and large street festivals are some of the largest revenue generators for business districts. BIDS allow their members to allocate revenue generated within the district to provide the area with a wide range of services including: marketing campaigns, improvements to the public realm, private security, and street cleaning. BIDS have been an instrumental tool in creating sustainable economic development in the most successful business districts examined by KMA.

The formation of a successful BID within Old Town Temecula will require a feasibility study which should include proposed BID boundaries, projected revenue assessments, and outreach to potential stakeholders. Exhibit VI-9 provides a fact sheet on BIDS. • Co -Marketing with Wineries/Pechanga: The unique, big draws in the Temecula Valley are the wineries, Pechanga Resort and Casino, and Old Town. Old Town can enhance its regional success through co - marketing efforts with these organizations. There is a high demand for visitor lodging in Temecula Valley with over 34,000 visitors using hotel services each month. A majority of these visitors are staying at either the wineries or Pechanga. The annual economic impact of these visitors is over $557 million annually. Old Town has the potential to increase its capture of visitors and spending in the Temecula Valley by co-marketing/branding Old Town as a "foodie district" and an extension of the existing wineries. An example of a co -marketing strategy would be to create marketing materials (i.e., maps and brochures) that jointly showcase the wineries, Pechanga, and Old Town and describe the goods and services offered by each location. Large-scale events can also bring great success to Old Town and the region through co -marketing efforts with other organizations such as the Old Town Temecula Association, Temecula Valley Convention and Visitors Bureau, Temecula Valley Winegrowers Association, and the Temecula Valley Chamber of Commerce. Old Town should complement existing promotional efforts of the wineries by emphasizing farm -to -table culinary arts, allowing visitors and residents to experience the organic nature of the Temecula Valley.

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Exhibit VI-8: Marketing and Promotion Strategies
Strategy Features
A Establish a Business °Y rt_ . - • Initiate outreach and feasibility Improvement District f studies
' • Showcase successes in other
districts
*� - • BID can lead "clean and safe"
programs; marketing and
promotion activiites
• Phased shift of special events to
private sector
6 Co-market/co-brand Old Use "Foodie District" and market Town with wineries and hall to attract winery and
Pechanga r ; Pechanga visitors
I
i
i'
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53 Exhibit VI-9: Business Improvement District (BID) Fact Sheet What is a BID?
• A legal mechanism for property owners and businesses in a defined geographic area to jointly plan and put in place a sustainable funding source that can pay for a set of services to improve their area
• The City collects assessments from businesses within the district, and then distributes that money to the BID; the BID uses these funds to run private services that serve only businesses within the district
• Property based and Business Improvement Districts (PBIDs) have assessments collected from the property owners, instead of the businesses, by the County How is a BID formed?
• In California, there are two laws that authorize the formation of a BID:
o The Parking and Business Improvement Area Law of 1989 o Property and Business Improvement District Law of 1994 • Both laws enable a City, County, or Joint Powers Authority to establish a BID and levy annual assessments on businesses/property owners within its boundaries • To form a BBID or PBID:
o The City or County proposes a new district by adopting a resolution of intention ■ At this step, the types of improvements and activities to be financed are specified o Public notice is then be provided and a public hearing must be held o If not protested by a majority of businesses, the BBID/PBID is established and an advisory board is established
o Under the Property and Business Improvement District Law of 1994, it is required that individual notices be mailed to all business owners that would be affected, in addition to public notices published in local newspapers What services can BIDS provide?
• Public space maintenance (sidewalk litter removal, graffiti removal) • Public safety (security officers)
• Hospitality (visitor assistance)
• Business development (business attraction, small business assistance) • Marketing and promotions (special events, district advertising and promotions) • Capital improvements (streetlights, custom trash receptacles, directional signs) • Landscaping (planting trees and flowers)
• Community service (fundraising, charitable events, services for youth and the homeless) • Leverage other funding sources
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VII. LIMITING CONDITIONS

1. The analysis contained in this document is based, in part, on data from secondary sources such as state and local government, planning agencies, real estate brokers, and other third parties. While KMA believes that these sources are reliable, we cannot guarantee their accuracy.

2. The analysis assumes that neither the local nor national economy will experience a major recession. If an unforeseen change occurs in the economy, the conclusions contained herein may no longer be valid.

3. The findings are based on economic rather than political considerations. Therefore, they should be construed neither as a representation nor opinion that government approvals for development can be secured.

4. Development opportunities are assumed to be achievable during the specified time frame. A change in development schedule requires that the conclusions contained herein be reviewed for validity.

5. The analysis, opinions, recommendations and conclusions of this document are KMA's informed judgment based on market and economic conditions as of the date of this report. Due to the volatility of market conditions and complex dynamics influencing the economic conditions of the building and development industry, conclusions and recommended actions contained herein should not be relied upon as sole input for final business decisions regarding current and future development and planning.

6. Any estimates of development costs, capitalization rates, income and/or expense projections are based on the best available project -specific data as well as the experiences of similar projects. They are not intended to be projections of the future for the specific project. No warranty or representation is made that any of the estimates or projections will actually materialize.

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55 APPENDIX A

MARKET CONDITIONS BY LAND USE

OLD TOWN MARKET OPPORTUNITIES UPDATE
14kwLolatlk IX4liIwe1

TABLE A-1

OFFICE MARKET OVERVIEW

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Location(s)
•
Recently built office space is primarily located in the northern half of Old Town
Inventory
•
In Old Town, there is approximately 269,000 SF of office space Description
•
Recently built buildings with office space: Penny Dome (2004), Chaparral Expansion — expansion of existing Chaparral Building (2004), Burke Building (2007), Penfold I & 11, Dalton Buildings (Fifth Street and Third Street), Truax Building (2014)
Overall Market
•
Overall office vacancy in Old Town is around 16% (CoStar) Conditions
•
Average office rental rate in Old Town is $2.62/SF (FSG) (CoStar) Market Strengths
•
Walkable downtown environment is attractive to employees for shopping, dining, and entertainment/nightlife
Challenges
•
Attracting tenants that want Class A office space could be difficult due to lack of options
•
Suburban office development (surface -parked) is easy to develop at much lower cost
•
Jefferson Corridor will be better suited to large floorplate office campuses
Market Outlook
•
Future growth in residential units in Old Town will provide workforce for office tenants
Key Opportunities
•
Truax Building provides Class A office building that can attract high -profile tenants
Page A-1

TABLE A-2

RETAIL MARKET OVERVIEW

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Location(s)
• Primarily lined along both sides of Old Town Front Street and Main Street • Some multi -story buildings have restaurants on upper floors Inventory
• There is approximately 419,000 SF of retail space in Old Town (Costar) Description
• Growing number of bars/wine bars
• Most retail stores are small, non -chain businesses
• Recently built buildings with retail space: Baily's Restaurant (2004), Chaparral Expansion — expansion of existing Chaparral Building (2004), Penfold I & 11, Dalton Buildings (Fifth Street and Third Street), Truax Building (2014)
Overall Market
• Overall retail vacancy in Old Town is around 6% (CoStar) Conditions
• Average retail rental rate is $1.52/SF (NNN) (CoStar) Market Strengths
• Unique destination in Southwestern Riverside area that provides variety of entertainment/nightlife options
• Walkable district creates good shopping environment for patrons Challenges
• Lack of critical mass of retail stores of any specific type e Lack of grocery, drug, and other shopping/services
• Live outdoor music is limited to three existing permittees due to noise complaints from nearby residents
• Potential displacement of small shops as demand increases and rents rise Market Outlook
• Entertainment/nightlife is expected to remain a strong driver of economic activity
Key Opportunities
• Potential for branding district around food and wine/health and wellness themes
Page A-2

TABLE A-3

HOTEL MARKET OVERVIEW

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Location(s)
•
5 hotels within Old Town area with 278 rooms
•
8 hotels in Jefferson Corridor with 726 rooms
•
Pechanga Resort and Casino, located approximately 4 miles from Old Town, has over 500 rooms, with a planned expansion of over 500 more in spa/resort format
Inventory
•
Only 2 hotels in Old Town between arches: Palomar Inn & Description
Rodeway Inn
•
2 hotels north of Old Town (within Old Town Specific Plan area):

Rancho California Inn & Motel 6
•
1 hotel south of Old Town: Ramada Temecula Old Town
Overall Market
•
Average hotel occupancy in Temecula/Murrieta in 2013 was Conditions

69.1%
•
The Average Daily Rate (ADR) in 2013 was $99.41
•
Occupied room nights have increased at an average annual rate of 7.8% since 2000
Market Strengths
•
Very popular visitor destination for dining, entertainment, and special events
Challenges
•
Difficult fitting hotel with accompanying parking in Old Town's urban context
•
Current room rates do not support high development costs •
Limited weekday draws
Market Outlook
•
Temecula's weekday hotel occupancy improving over last few years
Key Opportunities
•
Capture business and visitor demand with boutique and/or full - service hotel and with banquet/meeting space
Page A-3

TABLE A-4

RESIDENTIAL MARKET OVERVIEW

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Location(s)
•
Some single-family homes east of Mercedes Street (north of City Hall)
•
Mixed -use Dalton Buildings (Fifth Street and Third Street) •
Multi -family apartments along Pujol Street
Inventory
•
Income -restricted units in four (4) Dalton buildings
Description
•
The Vineyards (built in 2009) on Pujol Street are the only recent private development without public assistance in Old Town area Overall Market
•
The Vineyards average monthly rent is $1,585, or $1.40/SF, and Conditions
has a vacancy of 7% (RealFacts)
Market Strengths
•
High average income in Temecula
•
Old Town's walkable environment provides nearby retail and amenities for residents
Challenges
•
Lack of grocery, drug, and other shopping/services
•
Potential incompatibility with entertainment uses
•
Current rents/prices do not support high cost of urban housing products with structured parking
Market Outlook
•
Growing demand from empty nesters (ownership) and millennials (rental)
Key Opportunities
•
Altair development will add around 1,750 units on west side of the creek, within walking distance of Old Town
•
Market -rate apartments, for -sale townhomes and condominiums, live/work units
Page A-4

TABLE A-5
SALES TAX REVENUES BY BUSINESS CATEGORY, OLD TOWN TEMECULA, FY 2012 - FY 2014

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
($000's)
Average Annual
FY 2012-13
Change
Fiscal Year
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
% of Total
FY 2003-FY 2013
I. Geographic Area
Promenade Area Retail
$3,762
$4,287
$4,857
$5,128
$4,888
$4,445
$3,840
$3,882
$4,109
$4,329
$4,448

31.4%

1.7%
Temecula Promenade Mall
$2,163
$2,549
$2,848
$2,964
$2,918
$2,668
$2,336
$2,542
$2,825
$3,031
$3,080

21.7%:

3.6%
Motor City Parkway Area
$2,219
$2,622
$3,024
$3,218
$3,164
$2,713
$1,900
$1,463
$1,626
$1,847
$2,369

16.7%

0.7%
Plaza - Town Center Area
$1,743
$1,952
$2,061
$2,189
$2,280
$2,077
$1,863
$1,611
$1,695
$2,026
$2,260

15.9%:

2.6%
Industrial Centers
$901
$1,001
$1,104
$1,074
$1,171
$980
$844
$846
$1,043
$723
$794

5.6%

1.3%
Palm Plaza
$656
$611
$590
$625
$638
$570
$463
$354
$368
$407
$476

3.4%:
-3.1%
Vail Ranch
$76
$181
$166
$198
$194
$296
$282
$265
$293
$316
$327

2.3%

15.6%
r-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------f-------------------F-- ------------------i
;Old Town Temecula

L------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- $168
$192
$212
$256
$238
$219
$203
$224
$252
$306
$310

2.2%:
---------------------

6.3%:
------------------=
Bel Vilaggio
$2
$30
$89
$99
$164
$160
$132
$142
$132
$115
$118

0.8%

16.2%
Total
$11,690
$13,426
$14,951
$15,750
$15,655
$14,129
$11,864
$11,329
$12,342
$13,098
$14,181
100_0%

2.0%
Percent Change
-

14.8%

11.4%

5.3%
-0.6%
-9.7%
-16.0%
-4.5%

8.9%

6.1%

8.3%
Source: HdL Companies
Prepared by: Keyser Marston Associates, Inc. Page A-5
Filename: Temecula -Sales Tax -Old Town\5/13/2015;lag

TABLE A-6
SALES TAX REVENUES BY BUSINESS CATEGORY, OLD TOWN TEMECULA, FY 2012 - FY 2014

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Number of
Businesses (1)
FY 2011-12
FY 2012-13
FY 2013-14
'
I
---------------
FY 2013-14
% of Total
I
Average Annual
Change
FY 2012-FY 2014
Eating and Drinking Places
21 $168,038
$171,827
$184,675
55%

4.8%
Other Retail Stores
103
$79,454
$82,366
$92,711
28%
8 0%
Apparel Stores
28 $17,630
$18,394
$20,238
6%

7.1%
Business, Service, and Repair
23 $10,615
$11,931
$12,097
4%

6.8%
Furniture and Appliances
18 $12,838
$11,133
$10,563
3%
-9.3%
Food Stores
9 $2,848
$3,149
$7,193
2%

58.9%
Manufacturers & Wholesalers
16 $8,691
$6,148
$6,438
I
2%
-13.9%
Total
218
$300,114
$304,948
$333,915
`-----------------
100%�

5.5%
Percent Change

1.6%

9.5%
-
(1) As of second quarter 2014.

Source: HdL Companies
Prepared by: Keyser Marston Associates, Inc.

Filename is\Temecula_Sales Tax —Old Town;5/13/2015;lag Page A-6

TABLE A-7
LAND SALES COMPARABLES, JANUARY 2007 TO PRESENT (1)

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Sale Date Address city Sale Price Acres SF Property Description 10/27/14
42061 Main Street
Temecula
$750,000

0.17 $101
Old Town Pots N Things - 1031 Exchange
01/23/15
28588 Old Town Front Street
Temecula
$650,000

0.19 $77
Commercial land
12/30/11
28588 Old Town Front Street
Temecula
$650,000

0.19 $77
Office with street -level retail site
03/04/14
41926 5th Street
Temecula
$1,300,000

0.48 $62
Previously developed site
03/04/09
Second Street
Temecula
$700,000

0.26 $62
Commercial land
04/05/07
Third & River Street
Temecula
$922,500

0.42 $50
Commercial land
07/10/14
42045 Third Street
Temecula
$420,000

0.27 $36
Commercial land
11/27/13
42045 Third Street
Temecula
$330,000

0.27 $28
Commercial land
01/16/14
41841 Moreno Road
Temecula
$795,000

0.77 $24
Commercial land
Minimum $330,000

0.17 $24
Maximum $1,300,000

0.77 $101
Median $700,000

0.27 $62
Average $724,167

0.34 $57
(1) Reflects transactions for land within Old Town Specific Plan area.

Source: CoStar Group, Inc.

Prepared by: Keyser Marston Associates, Inc.

Filename is \Temecula_Old Town Market Opportunities Study_Land Comps;5/7/2015;ibl Page A-7

APPENDIX B

HOTEL FEASIBILITY ANALYSIS

OLD TOWN MARKET OPPORTUNITIES UPDATE
14kwLolatlk IX4liIwe1

TABLE B-1
INVENTORY OF EXISTING HOTELS/MOTELS, TEMECULA/MURRIETA, 2014 (1)

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Participate
Rack
Meeting
Year
in STR Trend
Hotel
Sub -Area
Class
Stars
Rooms
Rate
Space (SF)
Built
Report?
Rancho California Inn
Old Town
Upscale Class
* *
24 $69
0 2013
Yes (2)
Motel 6
Old Town
Economy Class
* *
135
$86
0 1988
Yes
Rodeway Inn
Old Town
Economy Class
39 $90
0 1983
Yes
Palomar Inn Hotel
Old Town
--
10 $65
n/a
1927
No
Ramada Inn
South of Old Town
Midscale Class
* *
70 106
450
1989
Yes
Subtotal - Old Town
278
$83
450
SpringHill Suites Temecula Valley Wine Country
Jefferson
Upscale Class
* * *
134
$229
2,490
2009
Yes
La Quinta Inns & Suites
Jefferson
Midscale Class
* *Y2
56 $139
630
2008
Yes
Fairfield Inn & Suites
Jefferson
Upper Midscale Class
* *%
94 $159
200
2007
Yes
Hampton Inn & Suites
Jefferson
Upper Midscale Class
* *Y2
98 $199
1,064
2004
Yes
Extended Stay America
Jefferson
Economy Class
* *%
107
$126
0 2002
Yes
Holiday Inn Express
Jefferson
Upper Midscale Class
* *Y2
90 $142
540
1999
Yes
Quality Inn Wine Country
Jefferson
Midscale Class
**%
73 $169
300
1989
Yes
Best Western Country Inn
Jefferson
Midscale Class
* *Y2
74 150
0 1987
Yes
Subtotal - Jefferson
726
$164
5,224
Embassy Suites
Balance of City
Upper Midscale Class
* * *
176
$134
3,500
1990
Yes
Temecula Creek Inn
Balance of City
Upper Midscale Class
***%
130
$186
8,300
1969
Yes
Pechanga Resort and Casino
Unincorporated
Upper Midscale Class
****
522
$269
32,256
2002
Yes (2)
South Coast Winery Resort
Unincorporated
Luxury Class
* * * *
76 $299
37,800
2004
Yes (2)
Ponte Vineyard Inn
Unincorporated
Luxury Class
* * * *
60 $352
9,819
2012
Yes (2)
Inn at Churon Winery
Unincorporated
Luxury Class
* * * *
24 $295
3,300
2001
Yes (2)
Comfort Inn & Suites Near Temecula Wine Country
Murrieta
Upper Midscale Class
* *
65 $149
350
2003
Yes
Total/Average
2,057
$176
100,999
(1) Excludes bed and breakfast inns.
(2) Reflects model data for hotel in same class.

Source: Smith Travel Research, Temecula Valley Convention and Visitors Bureau, AAA, Internet research
Prepared by: Keyser Marston Associates, Inc.

Page B-1
Filename: Temecula —Old Town Market Opportunities Study_Hotel Inventory\5/13/2015;ibl

TABLE B-2
HOTEL ROOM SUPPLY AND DEMAND, 2000 to 2013

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Participating
Number of
Hotels (1)
9 10
12 13
15 15
15 16
17 18
18 18
18 19
Number
of Rooms
763
787
1,465
1,530
1,705
1,705
1,705
1,799
1,855
1,989
1,989
1,988
2,023
2,047
Room Night Supply
Percent
Total Increase
Room Night Demand
Percent
Total Increase
Room Occupancy
Percent
Total Increase
278,495
-
193,953
-

69.6%
-
279,959

0.5%
206,928

6.7%

73.9%

6.1%
433,455

54.8%
300,869

45.4%

69.4%
-6.1%
542,655

25.2%
359,930

19.6%

66.3%
-4.4%
594,024

9.5%
423,164

17.6%

71.2%

7.4%
622,325

4.8%
466,865

10.3%

75.0%

5.3%
622,325

0.0%
449,655
-3.7%

72.3%
-3.7%
651,089

4.6%
468,623

4.2%

72.0%
-0.4%
673,771

3.5%
416,619
-11.1%

61.8%
-14.1%
693,423

2.9%
390,703
-6.2%

56.3%
-8.9%
725,985

4.7%
427,016

9.3%

58.8%

4.4%
725,832

0.0%
461,315

8.0%

63.6%

8.1%
732,151

0.9%
485,510

5.2%

66.3%

4.3%
744,995

1.8%
514,799

6.0%

69.1%

4.2%
Overage Annual Increase, 2000-2007 12.9% 13.4%
Overage Annual Increase, 2008-2013 2.0% 4.3%
Overage Annual Increase, 2000-2013 7.9% 7.8%
(1) See Table B-1 for list of participating hotels.

Source: Smith Travel Research
Prepared by: Keyser Marston Associates, Inc.

Filename: Temecula -Sales Tax -Old Town; 5/13/2015;lag
Page B-2

BOUTIQUE HOTEL PRO FORMA
TABLE B-3

PROJECT DESCRIPTION - BOUTIQUE HOTEL

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
I. Product Type
II. Site Area
III. Project Description
Number of Stories
Number of Rooms
Average Room Size (Gross)
IV. Gross Building Area
Hotel Rooms (including circulation)
Meeting Space
Bar/Cafe
Total Gross Building Area (GBA)
FAR
V. Parking
Hotel Room Spaces 125 Spaces
Meeting Spaces 33 Spaces
Total Parking Spaces 158 Spaces
Type Podium
Boutique Hotel

1.0 Acres
8 Stories
125 Rooms
750 SF
93,750 SF
10,000 SF
2,500 SF
106,250 SF

1.0 Space/Room

1.0 Space/300 SF of Meeting Space
Prepared by: Keyser Marston Associates, Inc.

Filename: is\Temecula_Old Town Market Opportunities Study_Hotel Pro Forma;6/3/2015;ibl Page B-3

BOUTIQUE HOTEL PRO FORMA
TABLE B-4

ESTIMATED DEVELOPMENT COSTS - BOUTIQUE HOTEL

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Totals
Per Room
Comments
I. Direct Costs
Off -Site Improvements
$218,000
$1,700
$5 Per SF Site Area
On -Site Improvements
$871,000
$7,000
$20 Per SF Site Area
Parking
$3,950,000
$31,600
$25,000 Per Space
Shell Construction
$18,594,000
$148,800
$175 Per SF GBA
FF&E
$3,125,000
$25,000
Allowance
Amenities
$500,000
$4,000
Allowance
Contingency
$1,363,000
$10,900

5.0% of Directs
Total Direct Costs
$28,621,000
$229,000
$269 Per SF GBA
II. Indirect Costs
Architecture & Engineering
$1,431,000
$11,400

5.0% of Directs
Permits & Fees
$1,063,000
$8,500
$10 Per SF GBA
Legal & Accounting
$286,000
$2,300

1.0% of Directs
Taxes & Insurance
$286,000
$2,300

1.0% of Directs
Developer Fee
$1,145,000
$9,200

4.0% of Directs
Marketing/Pre-Opening Expenses
$938,000
$7,500
$7,500 Per Room
Contingency
$154,000
$1,200

3.0% of Indirects
Total Indirect Costs
$5,303,000
$42,400

18.5% of Directs
III. Financing Costs
$2,862,000
$22,900

10.0% of Directs
IV. Total Development Costs - Excl. Land $36,786,000 $294,300 $346 Per SF GBA V. Acquisition Costs
$2,178,000 $17,400 $50 Per SF Site Area
VI. Grand Total Development Costs $38,964,000 $312,000 $367 Per SF GBA Prepared by: Keyser Marston Associates, Inc.

Filename: is\TemecuIa_Old Town Market Opportunities Study_Hotel Pro Forma;6/3/2015;ibl Page B-4

BOUTIQUE HOTEL PRO FORMA
TABLE B-5

STABILIZED NET OPERATING INCOME - BOUTIQUE HOTEL

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
I. Revenue
Room Revenue
Total Rooms
Food & Beverage
Parking Revenue
Other Revenue
Total Revenue
II. Expenses
Rooms Expense
Food & Beverage Expense
Parking Expense
Other
Subtotal Departmental Expenses
(Less) Overhead Expenses
(Less) Fixed Charges
Total Expenses
III. Net Operating Income
Rooms ADR Occupancy Total
125 Rooms $160 72.0% $5,256,000

50.0% of Room Revenue $2,628,000
158 Spaces $125 /Space/Month $237,000

10.0% of Room Revenue $525,600
$8,646,600

25.0% of Room Revenue
($1,314,000)

60.0% of Food & Beverage
($1,576,800)

75.0% of Parking Revenue
($177,750)

75.0% of Other Revenue
394 200
($3,462,750)

25.0% of Gross Revenue
($2,161,700)

7.5% of Gross Revenue
648 500

72.5% of Gross Revenue ($6,273,000)

27.5% of Gross Revenue $2,374,000
Prepared by: Keyser Marston Associates, Inc.

Filename: is\Temecula_Old Town Market Opportunities Study_Hotel Pro Forma; 6/3/2015;ib1 Page B-5

BOUTIQUE HOTEL PRO FORMA
TABLE B-6

STABILIZED NET OPERATING INCOME - BOUTIQUE HOTEL

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
I. Capitalized Value Upon Completion
Stabilized Net Operating Income
Capitalization Rate @
Capitalized Value Upon Completion
(Less) Cost of Sale
(Less) Developer Profit
II. Net Sales Proceeds
III. (Less) Total Development Costs
$237,000 /Room

3.0% of Value

10.0% of Value
$2,374,000

8.0 $29,675,000
($890,000)
($2,968,000)
$25,817,000
($38,964,000)
IV. Financing Surplus / (Deficit) ($13,147,000)
Per Room ($105,000)
Prepared by: Keyser Marston Associates, Inc.

Filename: is\Temecula_Old Town Market Opportunities Study_Hotel Pro Forma; 6/3/2015;ib1 Page B-6

APPENDIX C

ESTIMATE OF ABSORPTION POTENTIAL

OLD TOWN MARKET OPPORTUNITIES UPDATE
14kwLolatlk IX4liIwe1

OLD TOWN
TABLE C-1
REMAINING DEVELOPMENT CAPACITY, OLD TOWN VS. CITYWIDE

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Remaining Development Capacity
City of Temecula (1)(3)
Old Town (2)(3)
% of City
I. Office
4,108,000 SF
809,000 SF
20%
II. Retail
4,428,000 SF
485,000 SF
11%
III. Hotel
1,940 Rooms
540 Rooms
28%
IV. Residential
11,926 Units
1,800 Units
15%
(1) Reflects anticipated incremental development within vacant properties inventory, Altair Specific Plan, Uptown Jefferson Specific Plan, and Old Town Specific Plan.
(2) Reflects anticipated incremental development since implementation of the updated Specific Plan. Source: Old Town Specific Plan Amendment Draft Environmental Impact Report, February 2010, adjusted to reflect development of the Truax Building, Portola Terrace Apartments, and Front Street Plaza.
(3) Land use allocation to office, hotel, residential, and retail land uses reflect KMA assumption.

Prepared by: Keyser Marston Associates, Inc.

Filename is\Temecula_Land Use Demand_Old Town;5/13/2015;lag Page C-1

OLD TOWN
TABLE C-2

OFFICE SPACE PROJECTION

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Estimated Office Demand
I. Office Space Needed Citywide through 2024
Average Annual Space Demand
Low High
801,000 SF I 1,057,000 SF
80,100 SF 105,700 SF
1 II. Office Space Needed Citywide through 2034 1,600,000 SF 1 2,114,000 SF III. Old Town Capture @
15% 1 20%
IV. Old Town 20-Year Total Absorption Potential 240,000 SF 420,000 SF Average Annual Space Demand 12,000 SF 1 21,000 SF
Prepared by: Keyser Marston Associates, Inc.

Filename is\Temecula_Land Use Demand —Old Town_v2;6/4/2015;lag Page C-2

OLD TOWN
TABLE C-3

RETAIL SPACE DEMAND PROJECTION

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Total Incremental Population, 2014 - 2024 (1) 71,001
Per Capita Income, 2014 $25,131
Total Incremental Income, 2014 - 2024 $1,784,334,000
Sales
Income Assumed Capture Rate Productivity
Allocation (2) in City Estimated Spending Per SF
I. Trade Area Growth Generated Demand Low High Low High Retail Space Demand
Low High
Shopper Goods (GAFO) (3) 16% 30% 40%
$85,648,000
$114,197,000
$350
245,000 SF
326,000 SF
Convenience Goods 12% 15% 20%
$32,118,000
$42,824,000
$450
71,000 SF
95,000 SF
Heavy Commercial Goods 15% 25% 35%
$66,913,000
$93,678,000
$400
167,000 SF
234,000 SF
Total Retail Goods/Services from New Residents Captured in Temecula $184,679,000
$250,699,000
Increased Demand
483,000 SF
655,000 SF
Average Annual Space Demand
for Retail Space (4)
II. Demand from Beyond Trade Area

25.0% of Locally Supported
Demand (5)
121,000 SF
164,000 SF
III. Total Local and Visitor Supported Demand through 2024 604,000 SF
819,000 SF
Average Annual Supported Demand
60,400 SF
81,900 SF
IV. Retail Space Needed Citywide through 2034
1,208,000 SF
1,6387000 FSF
V. Old Town Capture @
15%
20%
VI. 20-Year Total Absorption Potential
180,000 SF
320,000 SF
Average Annual Space Demand
9,000 SF
16,000 SF
(1) Assumes population growth of 10-mile trade area at 2.0% per year between 2014 and 2024. (2) Estimated allocation of income to retail spending.
(3) Includes apparel, general merchandise, pharmacies and drug stores, home furnishings/appliances, miscellaneous store retailers, and non -store retailers. (4) Does not reflect impact of a potential increase in sales capture by existing retail outlets. (5) Assumes that visitors from beyond trade area will provide 25% of additional demand.

Prepared by: Keyser Marston Associates, Inc.

Filename: Temecula —Land Use Demand_Old Town_v2\6/4/2015; lag Page C-3

TABLE C-4

HOTEL ROOM DEMAND PROJECTION

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
Low
Estimated Hotel Room Demand
High
I. Temecula Valley Undersupply of Hotel Rooms through 2024 1,689
Rooms
2,096
Rooms
II. Temecula Capture of Undersupply of Hotel Rooms @
60%
70%
III. Total Hotel Room Demand, City of Temecula through 2024 1,013
Rooms
1,467
Rooms
Average Annual Room Demand
101
Rooms
147
Rooms
IV. Total Hotel Room Demand, City of Temecula through 2034 2,020
Rooms
2,940
Rooms
V• Old Town Capture @ 25% 35%
VI. 20-Year Total Absorption Potential 500 Rooms 1,000 Rooms Average Annual Room Demand (rounded) 25 Rooms 50 Rooms
Prepared by: Keyser Marston Associates, Inc.

Filename: Temecula —Land Use Demand —Old Town_v2;6/4/2015;lag

OLD TOWN
Page C-4

191tate14T1101
TABLE C-5

ESTIMATE OF RESIDENTIAL UNIT DEMAND PROJECTION

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
I. County of Riverside Projected Annual Growth, 2014 - 2035 19,580 Units/Year Estimated Residential Demand
Low High
II. Temecula Capture of County of Riverside Annual Growth 2.5% I 3.5% III. Temecula Annual Growth, 2014 - 2035 490 Units/Year 1 685 Units/Year IV. Total Temecula Growth, 2014-2035 9,800 Units 1 13,700 Units IV. Old Town Capture @ 15% 1 20%
V. 20-Year Total Absorption Potential 1,400 Units 2,800 Units Average Annual Residential Demand 70 Units 1 140 Units
Prepared by: Keyser Marston Associates, Inc.

Filename: Temecula —Land Use Demand —Old Town_v2;6/4/2015;lag Page C-5

APPENDIX D

COMPARABLE DISTRICTS / CASE STUDIES

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA

TABLE D-1

PROFILES OF COMPARABLE DISTRICTS

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
District
Little Italy, San Diego
Carlsbad Village
Downtown Chico
Old Downtown Windsor
Downtown Petaluma
ir, lie
FEW
I. Unique Qualities
In Downtown San Diego (urban
• Very close to beach
• Very close to CSU Chico
Close to wine country
Been used as backdrop in a lot of
environment)
Near Lake Sonoma
movies & TV shows
• Close to waterfront
Nearby Safari West (over 400 exotic
Nearby Petaluma Village Premium
animals)
Outlets
II. Land Use Mix
Restaurants
• Diverse types of restaurants, including
• Mix of diverse restaurants (some
• Boutique apparel and specialty retail
Art galleries and antique shops
• Coffee shops/cafes
chains and boutiques
chains), mostly local retail, and services
• Unique local restaurants of various
Small boutique businesses with few
• Lounges/pubs
• Coffee shops/cafes
• Various cafes, art galleries/ studios, and
cuisines and few chains
chains
• Art galleries & supplies
• Boutique retail and specialty shops
event venues
• Handful of wine tasting rooms
Restaurants range from pubs to sit-
Clothing/apparel stores
• Art galleries and studios
• Bars and lounges
• Multiple salon/spa studios
down to unique sweet shops
• Boutique and branded hotels
• Village Faire Shopping Center
• 5 hotels, mostly chain/brand names
• Windsor Raven Theater
Multiple performance venues and
• Condos/apartments
• Several churches/religious organizations
• Windsor Town Green
exhibits
• Public plazas/plazuelas
and public institutions
• Lodging near Windsor Town Green
Various recreational tours/ activities
• Health/wellness businesses
III. Special Events
Weekly farmers market
• Weekly farmers market
• Weekly Thursday night Market
• Weekly farmers market
Annual Petaluma Music Festival
• Annual ArtWalk
• Friday Night Live
• Friday Night Concert series
• Weekly live public music and kid's
Petaluma Art & Garden Festival
• Summer film festival
• Flicks at the Fountain
• Annual Taste of Chico and Slice of Chico
movies during the summer
Annual Butter & Egg Days Parade &
• Taste of Little Italy
• Art in the Village
events
• Art walks
Festival
• Live public concerts
• Village Table Wine Dinners
Seasonal Antique Fairs
• Carlsbad Village Faire
IV. Near Wine Country
No
No
Yes
Yes, near Sonoma
Yes, near Sonoma
V. Parking
• Street parking (metered/paid and
• On -street parking and 6 free public
More than 2,000 parking spaces in
• Multiple public parking areas
----
public)
parking lots
Downtown Business District
• Six different parking lots
VI. Plaza/Streetscape Design
• Main street commercial corridor with
• Walkable village corridor
Some public art and murals
• Walkable downtown streets around
Variety of architectural types ranging
entry signage
City Plaza
public Windsor Town Green that has
from Victorian and turn of the century
• Cafes with open/outdoor seating
fountain, children's play area, native
farms to present day urban setting
• Public seating/benches
trees, and historical time -line walk
• Italian/European street decor
VII. Transportation
Nearby San Diego trolley
Carlsbad Village Coaster train station
Bike valet parking service during
• Located near Highway 101
• New bus line
• Tours via trolley car
Over 200 bike racks
Thursday Night Market
Prepared by: Keyser Marston Associates, Inc. Page D-1
Filename: is Temecula_Comparble Districts Old Town\5/13/2015;lag

TABLE D-1

PROFILES OF COMPARABLE DISTRICTS

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
District
Little Italy, San Diego
Carlsbad Village
Downtown Chico
Old Downtown Windsor
Downtown Petaluma
•rai7wA^ � -
-
Vill. Best Practices
Established a business group (BID) for
Increase foot traffic
A strong marketing campaign
City partnership with Chamber of
An effective marketing system that
marketing/ events and property owners
Attract investment
Foot traffic generation
Commerce, Downtown Merchants
represents those paying BID fees
group (MAD) to promote the livable
City partnership with Carlsbad Village
Working directly with CSU Chico to
Association, Homeowners Association
aspect
Association (CVA)
promote and host events
Open space area for special events
• Established a safe district
Establish a business group (CVA) to do
Cleanliness
Proper directional signage
• Created and promoting interactive
marketing and events.

Safety
Marketing with Chamber of
public spaces
Having a well -planned district
Commerce
• Worked with property owners and
Restaurants carry the district-- offer a
homeowners associations
variety of food
IX. Key Accomplishments
Clean & safe environment
Revitalization of the Carlsbad Village
Thursday Night Market-- attracts
Numerous Awards: Downtown
Great marketing strategy to bring in
• Creation and use of public spaces
Association, seeking to create a BID
hundreds and thousands of people
Specific Plan (APA), Sierra Club Award,
crowds
• Events drawing up to 120,000 visitors to
Enhanced outdoor experience with
Summer in the Park
Growing Smarter Together Award,
the district
streetlights, benches, and outdoor
Christmas Preview
Governor's Environmental Award
• Farmers Market large revenue stream
dining
Halloween Treat
Program.
(half a million dollars) drawing 10,000
Increased street connectivity
Reconstitution of uses (i.e. church
people every week
into a theater).
• Historic preservation
Family -oriented events, large
demographic of children due to low
crime rate and affordability
X. Funding Sources for
Business Improvement District fees
City programs
Majority self -funded, dependent on
Town Manager, Parks & Recreation
• Business Improvement District
Marketing / Special Events
Parking fees specifically for parking
Urban Place Marketing Consultants
sponsorships
Department partially fund large events
• Previously received funds from
district
Carlsbad Village Association
Small amount comes from BID
Private donations (Wal Mart, Local
redevelopment
Native American Tribe [Lytton
Rancheria of CA) fund large events
• Professionals who contract with the
City sponsor events
XI. Outdoor Music
Positive impact on the community
Outdoor music events are viewed as a
Outdoor music is a big draw to the
Outdoor music is a big draw to the
• Outdoor events are seen as positive to
• Noise complaints go to Little Italy
positive, they attract visitors from
district
district (5,000- 15,000 people)
the district
Association
outside the community
No noise complaints because residents
Not many noise complaints because
• Larger outdoor music events are held
• Neighbors for the most part understand
More noise complaints from train, trash
do not live close to the downtown
Homeowners Association notifies
in the fairgrounds
that they live in an urban environment
trucks, and bars than music festivals
potential buyers beforehand
where outdoor music may occur a few
times a year.

Prepared by: Keyser Marston Associates, Inc. Page D-2
Filename: is Temecula_Comparble Districts Old Town\5/13/2015;lag

TABLE D-1

PROFILES OF COMPARABLE DISTRICTS

OLD TOWN MARKET OPPORTUNITIES UPDATE

CITY OF TEMECULA
District
Little Italy, San Diego
Carlsbad Village
Downtown Chico
Old Downtown Windsor
Downtown Petaluma
-
_
..
y
J
XII. Challenges
Chronic homelessness
• Parking
BID fee assessment is too low for large-
Turnover of retail uses, need anchors
Collecting fees for the BID
• Parking
• Perception that the village is suburban
scale marketing efforts
Unwanted commercial uses (i.e.

Loss of previous (redevelopment)
• Dealing with government bureaucracy
as opposed to urban
Difficult to sustain the business model in
cigarette bars)
sponsorship
place for marketing/ events budget--
Buildings not ADA Accessible
BID fees must be high enough to fund
have to rely on sponsors every year
Location of Downtown is away from
staff and marketing efforts
• Businesses upset/getting blocked by
main road
Getting members to agree on a
vendors during some events
Parking
marketing strategy
• Parking
Signage needed for public/private
property
• No longer has a BID because a
majority of businesses felt like they
were not represented in the marketing
programs offered
• High turnover rate at Chamber of
Commerce
• Downtown Merchants Association is
voluntary
XIII. District Organizations
• Little Italy Association, maintains the
• Carlsbad Village Association
• Downtown Chico Business Association
• Old Downtown Windsor Merchants
Petaluma Downtown Association
BID and MAD
Association
Downtown Business Improvement
(BID was dissolved in 2009)
District
• Chamber of Commerce
Petaluma Visitors Center
Prepared by: Keyser Marston Associates, Inc. Page D-3
Filename: is Temecula_Comparble Districts Old Town\5/13/2015;lag

REQUESTS TO SPEAK

"t"','e�c� REQUEST TO SPEAK
to,',-
,► CITY OF TEMECULA
1989 -
Date: I°I l y 2 S-
Public Comment: Non-Agenda Item: Agenda Item:

Item Description or Item No. C4I1A gAcv_ 4 Request to Speak forms for Public Comments or items listed on the Consent Calendar may be submitted to the City Clerk prior to the City Council commencing the Public Comment period. For all Public Hearing or Council Business items on the Agenda, a Request to Speak form may be submitted to the City Clerk prior to the City Council addressing that item. Once the speaker is called to speak, please come forward to the podium and state your name for the record.

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