ACOMA MALL SUBAREA PLAN - Tacoma Mall projectAn assessment of development feasibility for two development prototypes in the Tacoma Mall Subarea. Page 8. IV. Conclusions and Findings

October 2016

TACOMA MALL SUBAREA PLANMultifamily and Mixed Use Development Feasibility Analysis -Technical Report

Presented by Community Attributes to the City of Tacoma

Community Attributes tells data rich stories about communitiesthat are important to decision-makers.

Principal: Chris Mefford

Project Manager: Mark Goodman

Lead Analyst: Kristina Gallant

Community Attributes Inc.1411 Fourth Ave, Suite 1401

Seattle, Washington 98101www.communityattributes.com

I. IntroductionDetails on the project purpose and methodology.Page 1

II. Comparable Development ProjectsIdentification of comparable multifamily and mixed use projects in the region.

Page 2

III. Development Feasibility AnalysisAn assessment of development feasibility for two development prototypes in the Tacoma Mall Subarea.Page 8

IV. Conclusions and FindingsA review of project findings as well as a summary of interviews conducted with local real estate professionals.Page 25

iTacoma Mall Subarea Plan Real Estate Analysis | October 2016

1Tacoma Mall Subarea Plan Real Estate Analysis | October 2016

I. IntroductionBackground. The Tacoma Mall area is a designated Regional Growth Center and planned location of the highest concentrations of housing and employment in the region. In order to ensure that the plan is grounded in real estate market realities, CAI has been tasked with analyzing development feasibility for two representative/prototypical developments within the subarea boundary. The development feasibility assessment for the Tacoma Mall Subarea Plan consists of the following tasks.

• Comparable Projects Review (Comps Analysis)

• Development Feasibility Scenarios

• Real Estate Developer Interviews

Purpose. The analysis will inform questions on current and future development patterns in the area:

• Feasibility of mixed use and multifamily development in the high intensity areas of the Tacoma Mall (i.e. Mall District and 38th).

• Ability to achieve mixed use product in prominent location with significant ground floor retail

• What rents are currently being achieved and what rents are needed for high quality mixed use developments?

• What would it take to bring developers to this area and build the types of products envisioned?

Methodology. The real estate analysis is based on a review of current market conditions in the Tacoma region and an assessment of potential development prototypes within the Tacoma Mall Subarea. The prototypes area based on realistic site sizes and configurations that align with the goals and vision for the Tacoma Mall Subarea. Feasibility is tested through Residual Land Value analysis, which is detailed in the Assessment of Development Feasibility section of the report. The assessment provides a planning level review of development economics in the Tacoma Mall Subarea and also include sensitivity analysis to illustrate the impact of rents and construction costs on development. Lastly, the analysis is informed by interviews with several real estate professionals with varying perspectives on development and the role of the City in the Tacoma Mall Subarea.

Data. The analysis relies on the following data sources:

• CoStar

• Dupree and Scott

• Pierce County Assessor

• Rider Levett Bucknall Construction Costs Survey

• RS Means Construction Cost Estimates

STUDY LIMITATIONS AND PURPOSEThe analysis is not an appraised valuation. Community Attributes is not a licensed appraiser and this analysis is not intended to be used as a valuation of property in the Tacoma Mall Subarea. The analysis is an attempt to inform the project team of the financial and economic considerations important to understand when working with a development team in creating the type of development the City desires in the Subarea. The analysis provides a blend of a planning and development perspectives to portray development opportunities for purposes of sound planning. Additionally, the analysis seeks to ground the planning effort in the realities of market conditions and development economics, while striving to identify opportunities consistent with the City’s vision for the study area.


II. Development CompsFive comparable developments are provided to inform the feasibility assessment and provide perspectives and context for City of Tacoma policy makers. The comparable projects provide context for potential real estate developments in the Tacoma Mall Subarea. The projects selected include a range of locations across the Puget Sound region and also include varying building programs and amenities.

Multifamily Comp 1 Green Leaf Pacifica, Tacoma

Multifamily Comp 2 The Vintage at Tacoma

Multifamily Comp 3 Apex, Tacoma

Mixed Use Comp 1 Thornton Place, Seattle

Mixed Use Comp 2 Trek Apartments, Auburn


Multifamily Comp 1

Key Development Attributes and Amenities• Most recent multifamily development in Tacoma Mall Area• One of the few projects in the Tacoma Mall area representing a 5 over 2

construction type (podium construction)• The development illustrates the type of density called for in the Tacoma Mall

Subarea Plan• Amenities: Outdoor pool, clubhouse, fitness room, media room, library, business

center, “resident retreat”.

Property Name Green Leaf PacificaProperty Type Multifamily

Location Tacoma

Site Size (Acres) 2.97

Zoning UCX

Year Built 2013

Construction Type Wood Frame - Class B

Site Acquisition Cost $1,940,000 (2007)

Building Sq Ft 230,861

FAR 1.78

Stories 6

Parking Type Garage / Surface

Parking Spaces 116 / 89

ResidentialUnits 177

DU/Acre 59.6

Average Rents $1.41

Estimated Vacancy 7.3%

CommercialCurrent Tenants N/A

Square Footage 0

Lease Rates N/A

Estimated Vacancy N/A

S Pine

St

Tacoma Mall

Source: CoStar, 2016; King County Assessor, 2016; Community Attributes Inc. 2016


Multifamily Comp 2 Property Name Vintage at TacomaProperty Type MultifamilyLocation TacomaSite Size (Acres) 3.79Zoning RCXYear Built 2012Construction Type Wood Frame - Class ABuilding Sq Ft 206,414FAR 1.25Stories 4Parking Type SurfaceParking Spaces ~132

ResidentialUnits 231DU/Acre 60.9Average Rents $1.30Estimated Vacancy 3.5%

CommercialCurrent Tenants N/ASquare Footage 0Lease Rates N/AEstimated Vacancy N/A

Key Development Attributes and Amenities• The project represents a four story wood frame development with surface parking• It is a senior housing development geared towards people 55 or older with

affordable housing units incorporated • The development illustrates a unique and specialized product type that houses a

sizable and growing demographic in the region• Amenities: fitness room, beauty salon, movie theater, common room w/kitchen

and lounge, store, gardening area, computer room.

S Law

rence

St

S 40th St



Multifamily Comp 3 Property Name ApexProperty Type MultifamilyLocation TacomaSite Size (Acres) 2.60Zoning UCXYear Built 2006Construction Type Reinforced Concrete - Class B

Site Acquisition Cost $350,000 (2001)

Building Sq Ft 363,643FAR 3.21Stories 7Parking Type Garage (313)/Surface (20)Parking Spaces 333

ResidentialUnits 203DU/Acre 78.1Average Rents $1.60Estimated Vacancy 4.4%

CommercialCurrent Tenants N/ASquare Footage 0Lease Rates N/AEstimated Vacancy N/A

S 42nd St

Key Development Attributes and Amenities• Representative of a high density

multifamily development with quality amenity space

• Only major apartment project built near the mall prior to the recession

• A relatively large project with high occupancy rates

• Amenities: Outdoor pool, hot tub, sauna, movie theater, fitness center, 3 lounges w/kitchens, dog park, business center.



Mixed Use Comp 1 Property Name Thornton PlaceProperty Type Mixed UseLocation SeattleSite Size (Acres) 7.15Zoning NC3-125Year Built 2009Construction Type Wood Frame - Class ABuilding Sq Ft 275,000FAR 1.4Stories 6Parking Type Garage (850)/Surface(15)Parking Spaces 865

ResidentialUnits 387DU/Acre 64.5Average Rents $2.46Estimated Vacancy Unknown

Commercial

Current TenantsMovie theater, restaurant, retail

Square Footage 39,364Lease Rates UnknownEstimated Vacancy Unknown

Key Development Attributes and Amenities• Located within the Northgate Regional

Growth Center• Represents a mall-adjacent mixed use

development that incorporates a major retail component

• Retail includes a 14 screen theatre and ground level retail spaces

• Facilities include a shared parking area and bus station

• Development included the daylighting of Thornton Creek and the creation of a public park/amenity

• Includes both market rate and affordable units

• Amenities: Fitness center, lounge, conference room, guest rooms, walking paths and plazas.

N 103rd St

5 thAve

Northgate Mall



Mixed Use Comp 2 Property Name Trek ApartmentsProperty Type Mixed UseLocation Auburn, WASite Size (Acres) .72Zoning DUC (downtown urban center)Year Built 2015Construction Type Wood FrameSite Acquisition Cost $1,425,000Building Sq Ft 120,000FAR 3.8Stories 5

Parking Type Structured

Parking Spaces 19,728 sf (80 to 100 parking stalls)

ResidentialUnits 126DU/Acre 175Average Rents $1.97Estimated Vacancy Unknown

Commercial

Current TenantsMovie theater, restaurant, retail

Square Footage 4,480Lease Rates UnknownEstimated Vacancy Unknown

Key Development Attributes• Located in a suburban market with mass transit connections (Sound Transit

Sounder Station)• Built at a high density (over 100 units per acre) on a relatively small infill site• Rents may represent a benchmark for similar development in the Tacoma Mall

area• Incorporates both structured parking and a small amount of retail• Amenities: Courtyard w/fireplace, bike parking.

E Main St

Downtown Auburn

S Division St


CAI has been tasked with analyzing development feasibility for two representative/prototypical developments within the subarea boundary. The first step of this process involves preparing pro forma for two development prototypes that are representative of development envisioned for the future of the Tacoma Mall subarea. These pro forma are static models intended to provide a snapshot view of the projects’ economic viability when fully operational. The inputs to these models are informed by analysis of comparable properties, as previously described.

Feasibility is assessed by residual land value, which is calculated by subtracting construction costs (not including land acquisition) from the project’s total value. This metric gives an indication of how much a developer would be willing to pay for a site, per square foot. Sensitivities for rent levels and construction costs are shown in separate tables, and show the estimated minimum conditions necessary to make these projects viable. A more detailed breakdown of the residual land value methodology is provided later in the report.

Key Assumptions for Modeling:

The following is important to note regarding the feasibility assessment conducted for the study.

• Each pro forma is based on realistic sites within the subarea.• Specific space programs are informed by 3D modeling using site

dimensions representative of the subarea. • Models use development intensities as outlined in draft subarea plan.• Variation in construction costs, which could reflect additional impact or

other permit fees, are addressed in residual land value sensitivity analysis.

• Rent scenarios are also included in this analysis. • It is assumed that heights and densities are permitted outright, based on

draft subarea plan.• Parking will be provided in structured underground garages to the

greatest extent possible, based on the goals of the draft subarea plan.


III. Development Feasibility Analysis


Development Prototype 1 – Mixed UseDevelopment Prototype 1: Mixed Use Multifamily with Retail

Building Type Multifamily with commercial (5 over 2)Commercial component Retail store front with anchor tenant (grocery store for

example)Parking Underground and surface parkingHeight/size Larger site (2 or more acres)

75' height limit (120' allowed)Representative Location Along S 38th St near Tacoma Mall

Background and ContextThe mixed use development typology is meant to represent a larger scale development with a major retail component. Thornton Place, located adjacent to Northgate Mall in Seattle, is a good example of the size and scale of development this project would represent. The prototype reflects regulatory conditions designated for the area along S 38th near the mall where there may be opportunity for larger scale developments anchored by larger retail components such as a grocery store.

• Mixed Use Urban land use designation (UCX)• Representative of a higher intensity along S 38th St• Larger site likely requiring parcel assembly

Exhibit 1. Mixed Use Massing ModelsSource: Community Attributes Inc., 2016.


Development Prototype 1 - Mixed Use

Exhibit 1. Mixed Use Massing ModelSource: Community Attributes Inc., 2016.


Development Prototype 2 - MultifamilyDevelopment Prototype 2: Single Use Multifamily

Building Type Multifamily (wood frame over concrete basement)Commercial component NoneParking Underground/SurfaceHeight/size Small to midsize site (less than 2 acres)

45’Representative Location Lincoln Heights Area (Madison District)

Background and ContextThe multifamily development prototype represents higher density residential developments in non-commercial portions of the Tacoma Mall Subarea. The development typology may represent similar size and scale as found in the multifamily comps 1 and 2. No retail or commercial space is provided and parking is assumed to be underground with a portion built as surface to maximize the site and illustrate the costs associated with such development.

• Urban residential land use designation (URX) tested at a 45’ height limit• Representative of wood frame construction over a underground/basement

garage• Representative of a transitional multifamily project called for in multiple

locations with the subarea plan• Mid size site (less than 2 acres)

Source: Community Attributes Inc., 2016.

Exhibit 2. Multifamily Massing Models


Development Prototype 2 - Multifamily


Exhibit 2. Multifamily Massing Model

13

Development Prototypes ScaleBelow is a comparison of the two development prototypes to illustrate relative size and scale.

Tacoma Mall Subarea Plan Real Estate Analysis | October 2016


Exhibit 3. Multifamily Massing Model Comparison

14

Varying Lot CoverageLot coverage ratios (LCR) can have a significant effect on building form when the Floor Area Ratio (FAR) is held constant. The image below shows how development form on a typical Tacoma Mall Subarea site can vary at the same FAR with different lot coverage ratios. In the image, FAR for all three buildings is 2, but lot coverage ranges from 100% to 25%.

Tacoma Mall Subarea Plan Real Estate Analysis | October 2016


Exhibit 4. Lot Coverage Ratio (LCR) Comparison, 2.0 FAR

100% LCR

50% LCR

25% LCR


Market Analysis and InputsExhibit 5. Housing Units by Type, Tacoma Mall Subarea Study Area, 2015

Exhibits 5 and 6 illustrate the current housing mix in the Tacoma Mall Subarea. The largest category of housing is low rise multifamily, largely representing garden style apartment developments found in the Madison District of the Subarea.

Exhibit 6. Housing Units by Type Summary Table, Tacoma Mall Subarea, 2015

Source: Pierce County Assessor Data, 2015

Source: Pierce County Assessor Data, 2015


Market Analysis and InputsExhibit 7. Multifamily Housing Unit Vacancy Rates, Study Area

Exhibit 8. Multifamily Housing Unit Vacancy Rates, Comparable Areas

Exhibits 7 and 8 illustrate recent trends in the multifamily housing market in the Tacoma Mall Subarea and other comparable geographies. The area has historically experienced relatively higher vacancy rates than those found regionally or citywide.

More recently, vacancy rates have trended sharply downward and reflect local and regional trends, indicating higher demand for rental units.

More specifically, the area around the Tacoma Mall has recently been in the range of a 3% vacancy rate for multifamily, indicating a shortage in the supply of multifamily housing.

Sources: CoStar, 2015.


Market Analysis and InputsExhibits 9 and 10 illustrate recent trends in the retail market in the Tacoma Mall Subarea and other comparable geographies. The area has historically experienced lower vacancy rates than those found locally in Tacoma or Pierce county.

Since 2014, vacancy rates have climbed in the area and are more closely aligned with rates found throughout the City.

Although retail vacancy rates have risen, the long term strength of vacancy combined with the abundant presence of major retailers indicates that the area is an attractive place for future retail development.

Exhibit 9. Retail Vacancy Rates, Study Area

Exhibit 10. Retail Vacancy Rates, Comparable Areas

Sources: CoStar, 2015.


1. Pro Forma Net Operating Income Assumptions

Gross Rent Roll• Residential rents – Dupre + Scott• Residential parking rents – Dupre + Scott• Commercial rents - CoStar

Less V/C Loss• Assuming 5% residential, 10% commercial

Less Operating Expenses

• Initial assumption 30-35% of gross income

Equals Annual NOI

Project Value based on Annual NOI• Cap rates – CoStar

– Highly sensitive input: Adjusting for sensitivity analysis

Less Hard Costs• Construction Costs– Rider Levett Buchnall, RS Means• TI allowance (where applicable)• Parking

Less Soft Costs• Soft costs: Roughly 32.5% of hard costs

• WSST, A/E, Developer’s Fee, Permits, Legal, Other Consultants, Utilities, Leasing Fees, Contingency

Equals Residual Land Value

+

--=

2. Pro Forma Residual Land Value Assumptions

+-

-

=

In this analysis, Residual Land Value is used to assess the feasibility of development projects. This metric indicates the maximum amount a developer may be willing and able to pay for land, given a project’s value and costs. When Residual Land Value rises above the going market rate for land acquisition (which is highly variable based on market conditions, location and physical qualities), the project has decreased risk. A simplified breakdown of the key components of a basic real estate pro forma used for estimating Residual Land Value is provided below. Key project assumptions are provided on the following page (Exhibit 11)

Calculating Residual Land Value

Residential Rents

Source: Dupre and Scott, 2016

Commercial Rents: Tacoma Mall Subarea, newer retail buildings$20.35/sf/year (based on quoted rates in the Tacoma Mall Subarea)Source: CoStar, 2016

Operating Expenses: 20% of gross income (assumes multifamily tax exemption)

Land Acquisition: Total assessed value.

Construction Cost Inputs

Source: RLB Quarterly Construction Cost Report, April 2016


Market Analysis and Inputs

Current Market: Built Since 2010 Downtown Tacoma: Built Since 2010 Mixed Use: New Construction

Rent/NRSF/month $1.39 $2.05 $2.40

Garage Parking/Space/Month $106

Parking

Surface Structured

$2,275/space $38,938/space

Building Hard Costs Building Soft Costs

$168/GSF 25% of hard costs

Exhibit 11. Construction Cost and Market Inputs, Tacoma Mall Subarea, 2016


Space Program

Mixed Use Multifamily Single Use Multifamily

Site Size 83,916 48,744

Site Size (acres) 2.2 1.1

Open Space 10% 20%

Height Limit 75 45

FAR 3.2 2.0

Underground Parking Spaces 258 75

Surface Parking Spaces 58 45

Stories 7 4

GSF 270,652 97,487

NSF - Residential 178,774 77,990

NSF - Commercial 40,662 n/a

Avg Residential Unit Size 650 650

Total Units 275 120

DU/Acre 122 107

Example Project Thornton Place Vintage at Tacoma/Auburn mixed use for scale

The following represents the primary space inputs for each development prototype, derived from an analysis of each site and market conditions.

Exhibit 12. Development Space Program

Sources: Community Attributes Inc., 2016.


Development Prototype 1 –Mixed UseRepresents the detailed pro forma for the mixed use development prototype at current market conditions. Variations in inputs are explored in the subsequent sensitivity analysis.

Exhibit 13. Mixed Use Pro Forma, Tacoma Mall Subarea Plan, 2016


Space ProgramGSF NSF Units

Site 83,916

Building 270,652 216,522 Residential 178,774 275Commercial 40,662 Garage Parking 258Surface Parking 58

Operating Pro FormaAmount Unit Rent Subtotal Total Total/GSF

Gross Rent RollResidential 178,774 NSF/yr at $28.80 $5,148,691Commercial 40,662 NSF/yr at $20.35 $827,472Parking 258 Spaces at $1,272 $328,434

6,304,597$ $23.29Less V/C Loss

Residential 5% at $5,148,691 ($257,435)Commercial 10% at $827,472 ($82,747)Parking 25% at $328,434 ($82,109)

($422,290) ($1.56)Less Operating Expenses

Residential 20% of gross income 6,304,597$ ($1,260,919)*Assumes MFTE property tax exemption representing 5% of gross income ($1,260,919) ($4.66)

Net Operating Income $4,621,387 $17.08

Value at 5.5% 84,025,227$ $310.45

Cost Pro FormaHard Costs Amount Cost Subtotal Total Total/GSF

ConstructionShell and Core 270,652 GSF at ($168) ($45,334,210)TI Allowance 40,662 NSF at ($10) ($406,620)Structure Parking 258 spaces at ($38,938) ($10,053,782)Surface Parking 58 spaces at ($2,275) ($130,858)

($55,925,470) ($206.63)Soft Costs 20% of hard costs at ($55,925,470) ($11,185,094)

Contingency 5% of soft costs at ($11,185,094) ($559,254.70)($11,744,349) ($43.39)

Total Project Costs Before Land ($67,669,819) ($250.03)

Residual Land Value Total/Land sfRate of ReturnRequired ROI 10%

RLV Total $8,716,751 $104

Current Site Assessed Value Allow $3,609,900 $3,609,900 $43.02


Development Prototype 1 – Mixed UseThe following tests sensitivities in rents and total development costs on residual land value per gross square foot for a mixed use development. Total market development costs reflect region wide averages for all costs related to development. The outputs represent the residual land values for these

conditions, which can be used to assess the economic viability of development. These values indicate the maximum amount a developer would be able to spend on land acquisition. Higher values are indicative of better economic feasibility.

Exhibit 14. Mixed Use RLV Outputs, Tacoma Mall Subarea Plan, 2016


Current Market: Built Since 2010

Downtown Tacoma: Built Since 2010

New Construction Mixed Use: New Construction

Sensitivity Cost/SqFt Rent/Unit/Month 935 $1,148 $1,513Rent/SqFt/Month $1.39 $2.05 $2.40

-10% ($225) ($136) $74 $185-5% ($238) ($176) $33 $144Modeled ($250) ($216) ($7) $104+5% ($263) ($257) ($47) $64+10% ($275) ($297) ($88) $23

Construction Costs


Development Prototype 2 –MultifamilyRepresents the detailed pro forma for the multifamily development prototype. Variations in inputs are explored in the subsequent sensitivity analysis.

Exhibit 15. Multifamily Pro Forma, Tacoma Mall Subarea Plan, 2016


Space ProgramGSF NSF Units

Site 48,744

Building 97,487 Residential 77,990 120Garage Parking 75Surface Parking 45

Operating Pro FormaAmount Unit Rent/Cost Subtotal Total Total/GSF

Gross Rent RollResidential 77,990 NSF/yr at $28.80 $2,246,107Parking 75 Spaces at $1,272 $95,388

2,341,494$ $24.02Less V/C Loss

Residential 5% at $2,246,107 ($112,305)Parking 25% at $95,388 ($23,847)

($136,152) ($1.40)Less Operating Expenses

Residential 20% of gross income 2,341,494$ ($468,299)*Assumes MFTE property tax exemption representing 5% of gross income ($468,299) ($4.80)

Net Operating Income $1,737,043 $17.82

Value at 5.5% 31,582,606$ $323.97

Cost Pro FormaHard Costs

ConstructionShell and Core 97,487 GSF at ($168) ($16,329,119)Structure Parking 75 spaces at ($38,938) ($2,919,932)Surface Parking 45 spaces at ($2,275) ($102,362)

($19,351,413) ($198.50)Soft Costs 20% of hard costs ($19,351,413) ($3,870,283)

Contingency 5% of soft costs ($3,870,283) ($193,514.13)($4,063,797) ($41.69)

Total Project Costs Before Land ($23,415,209) ($240.19)

Residual Land Value Total/Land SFRate of ReturnRequired ROI 10%

RLV Total $5,296,251 $108.66

Current Site Assessed Value Allow $869,100 $869,100 $17.83


Development Prototype 2 – MultifamilyThe following tests sensitivities in rents and total development costs on residual land value per gross square foot for a multifamily development. Total market development costs reflect region wide averages for all costs related to development. The outputs represent the residual land values for these conditions, which can be

used to assess the economic viability of development. These values indicate the maximum amount a developer would be able to spend on land acquisition. Higher values are indicative of better economic feasibility.

Exhibit 16. Multifamily RLV Outputs, Tacoma Mall Subarea Plan, 2016


Current Market: Built Since 2010

Downtown Tacoma: Built Since 2010

Downtown Tacoma: New Construction

Sensitivity Cost/SqFt Rent/Unit/Month $935/month $1,148/month $1,513/monthRent/SqFt/Month $1.39 $2.05 $2.40

-10% ($216) ($84) $73 $157-5% ($228) ($108) $49 $133Market ($240) ($132) $25 $109+5% ($252) ($156) $1 $85+10% ($264) ($180) ($23) $61

Construction Costs

The following section offers key findings and conclusions resulting from the development feasibility analysis as well as interviews conducted with local real estate professionals. The findings are focused on key factors for the City to consider as the subarea planning process moves forward and infrastructure investment, zoning incentives and other efforts are considered.

> Findings from developer interviews

> Findings from pro forma analysis


IV. Conclusions and Findings


Real Estate PerspectivesAbout the Interviews

CAI was tasked with reaching out to local real estate development professionals to conduct interviews with a focus on discussing the following:

> Current real estate market conditions in Tacoma and the Tacoma Mall area> Potential public actions to catalyze development including infrastructure

investment and development incentives> What challenges and opportunities exist for real estate development in the

Tacoma Mall Subarea> What would it take to bring these developers or type of development to this

area?

CAI interviewed three real estate professionals active in the Tacoma region. The conversations are documented in the following section. The information provided represents an overall summary of the key topics and recommendations that each professional offered and are organized by overall themes relevant to the Subarea planning effort.

> Land Use and Real Estate Market

> Challenges

> Opportunities

> Most Important Issue for the Neighborhood

> Infrastructure Investment

> Incentives and Zoning

The interviewees represent a range of real estate backgrounds and perspectives:

Point Ruston - Sales, Leasing and MarketingOffered perspectives on the local real estate market and the ability to market both multifamily and retail space in a large scale development project.

Tarragon Development - Retail and Mixed Use DevelopmentFocused on suburban scale development in the Pierce County market and development feasibility specifically in the City of Tacoma

Neil Walter Company – Local Real Estate Development and Commercial BrokerageCommercial broker and real estate developer with development interests within the City and nearby suburbs. Actively involved in multifamily development in the City of Tacoma.


Real Estate Perspectives> Land Use and the Real Estate Market

The current land use pattern and real estate market conditions were discussed with each interviewee, including an assessment of what land uses might work in the Tacoma Mall Subarea:

Potential Uses• A true mix of uses including a strong office presence is appropriate for the

area• Multifamily: suburban type construction works now because of lower costs• Retail is successful there and has come back from the downturn• Single use multifamily works well now but the area needs more parks and

open space and entertainment options to encourage new forms of development

Rents and Unit Mix• Higher rents are required for higher quality projects• Point Ruston, Thea’s Landing and The Henry are examples of top rent projects

in the Tacoma area- These projects and areas are achieving higher rents than you can get

in Tacoma Mall- This is the challenge for Tacoma Mall in the short and long run

• Rents: $2.30 or $2.40 per square foot rents are currently needed to justify construction of higher density (5 over 1) multifamily/mixed use buildings, which is being achieved in a desirable neighborhood like Proctor

• Desirable unit types include studious and 2bd/2bath – larger units are harder to rent

• Currently there are attributes in the Tacoma Mall that challenge development:

- Many of people in that area work at the Mall and can only afford lower rents

- Many people live in co-tenant situations (roommates) which can lead to higher turnover and operating costs

• The mix of renters is an important consideration for developers. For example, at Thea’s Landing the mix consists of:- 20% military officers - Empty nesters: seeing an increase in empty nesters (30% of the

residents)- Other 50% is workforce dependent

Regional Employment• Jobs and associated wages in Tacoma are challenging - there are larger

regional economic issues at play – wages in Tacoma are low and there are limited people making enough to support rent needed for higher density and more expensive construction

• Employment is the biggest issue impacting apartment development in Tacoma• Need to make $65k or more just to pay for a higher market price apartment• Development feasibility often comes down to demographics and ability to

achieve high rents• The City of Tacoma Economic Development Department should continue to

focus on recruiting more major employers to the City which would help support more investor interest


Real Estate Perspectives> Challenges

Interviewees were asked to describe the greatest challenges facing the Tacoma Mall Subarea and the Tacoma real estate market:

Existing Demographics• Market conditions and current demographics and generally challenging to

real estate development in the area• Joint Base Lewis McChord ( JBLM) is a major driver of the demographics there

and there is a lot of competition for those people- Wages may not align with rents needed for high density - The possibility of drawbacks at JBLM is a real concern

• Demographics in Tacoma Mall area are challenging in recruiting restaurants and other new/updated uses

Costs of Development• Land owner’s perception of land value is often unrealistic – which is a Tacoma

wide issue• The rising cost of construction costs and expenses (property taxes) is a major

challenge and outpacing revenue and rent growth• The cost of construction is not cheaper in Tacoma, if anything it’s more

because of the focus in Seattle and the number of sub-contractors in Seattle (another interviewee suggested the opposite and that the total cost per unit is actually more expensive in Seattle)- In reality there’s only so much a City can do to reduce development

costs

• Parcel assemblage (if required) with private land owners as well as varying valuations of property across multiple land owners can be a big hurdle for developers to overcome

Location within Tacoma and the Region• Location is a challenge – the Tacoma Mall neighborhood is not an attractive

location when compared to other neighborhoods- There is a need to create additional amenities and attractions

• South 38th Street is very busy, heavily trafficked and tough to walk around –this kind of infrastructure is a major challenge

• Other good neighborhoods in Tacoma are competing for a limited number of residents

• The lack of City-owned land may limit future public investment opportunities: - It’s hard to deal with private land owners – City owned land can be a

real catalyst for development (development in Bothell was cited as an example)

• Difficult to get investors interested in Tacoma – more interest in Seattle – this is a hurdle

• Job creation in Tacoma is not as strong as it is in Seattle


Real Estate Perspectives> Opportunities

Interviewees were asked to describe opportunities that may exist in the Tacoma Mall Subarea:

Access and the Mall• Access to the freeway is an advantage and provides future opportunity for

development• Access to JBLM, which is a major employer, provides a draw for housing in the

area• The Mall can be a major amenity for certain demographics, especially if it is

connected to the surrounding neighborhood

Alternative to Seattle• The high costs of Seattle are driving investment and people to Tacoma

because it’s more affordable- For example, office space is substantially cheaper than it is in Seattle

• The City should look at focusing on office development in that area – existing sites might be conducive to larger footprint buildings which are desirable to many users- More jobs would boost retail sales and would drive housing demand

Redevelopment• Existing uses like the post office facility are not conducive to a desirable

neighborhood- Look at redevelopment of these types of uses (like replacement of

distribution facilities)- This type of redevelopment could serve as a driver to change in the

neighborhood- People will be looking for land opportunities like this as the region

grows and prices rise in other areas• The mall property could be a major catalyst for change especially with a

major owner like the Simon corporation that has experience redeveloping malls throughout the country

• There is an opportunity to develop infill on existing mall parking lots with an orientation towards streets and sidewalks


Real Estate Perspectives> Most Important Issue for the Neighborhood (in terms of

real estate development)

Interviewees were asked to describe the most important issues or topics related to the Tacoma Mall Subarea and the associated planning effort currently underway:

The Mall• The Tacoma Mall is the driver and catalyst for the area• What is the plan for the mall?

- Get it connected to the local and regional transportation network- Look at repositioning of South Center and North Gate as examples- South Center is evolving away from just being a shopping center and

is now also seen as a destination with theatres, restaurants and entertainment uses

Current Redevelopment Pattern• Price points are currently supporting suburban projects which are

proliferating in City- These lower density projects are taking up important acreage in the

City- The projects are often lower quality and will inhibit development of

higher density housing in the near and long term• A larger scale development on a larger property is needed to create critical

mass and provide a transformative development- this is dependent on parcel assemblage and land opportunities

• Key Question: Does the City own any of the land in the area?

Transit and Walkability• Transit access is critical for future development• Pedestrian focused neighborhoods are attracting development in the City and

region• For example, Point Ruston and other mixed use developments are focused on

getting residents and shoppers walking (and out of their cars)(see Infrastructure Investment Section)

Neighborhood Improvements• The Local Improvement District (LID) tool and City of Tacoma team that

administers it is a good resource – the City should leverage this tool for the area- For example, implement streetscape and atmosphere/amenity

improvements• Look at Thornton Place in Seattle (adjacent to Northgate Mall) as a model for

mall adjacent redevelopment- The Thornton Place project accompanied creation of a park, library

and movie theatre- These attractions are what kicked the project off

• The City should focus on improvements that make the area more of a neighborhood


Real Estate Perspectives> Infrastructure Investment

Interviewees were asked to describe the types of infrastructure investments that the City should focus on implementing in the Tacoma Mall Subarea:

Transportation Access and Walkability• Create public amenities there that encourage walkability• The Mall is not walkable and is a huge hindrance to the attractiveness and

walkability of the area• Transit access is critical to future development

- Create connections to downtown Tacoma and other amenities and don’t just focus on commuters

• In the long term, connecting to regional light rail system is crucial• For example, light rail is leading to the transformation of the Northgate Mall

area in Seattle- New projects are averaging $3.00/sf with studio’s getting over

$4.00/sf- Light rail has been the impetus for change there and is a powerful

tool- Northgate is an example of a true transit hub that incentivized people

to come in early and invest in the neighborhood• Access to transit is something that could impact the amount of parking

needed and is important to consider

Public Open Space • There is a lack of cultural investment in the area compared to other Tacoma

neighborhoods• The City needs to identify that one public amenity that could drive people to

visit and stay in the area• Consider investing in a high quality open/green space that is lacking in that

area- This type of space is necessary for any future high density housing in

the area- Make sure it is interconnected with the rest of the neighborhood and

other amenities- A connected destination park that also connects to the mall would be

attractive to developers• Alternatively, consider developing a town square as well as creation of pocket

neighborhood parks• Also consider implementing a pedestrian biking trail around the mall with

connections to the rest of neighborhood• There is a direct tie to walkability and amenities and higher rents and for sale

values


Real Estate Perspectives> Incentives and Zoning

Interviewees were asked to provide input on current zoning and development incentives in the City and more specifically, in the Tacoma Mall Subarea:

Zoning and Permitting• Zoning requirements don’t seem to be a hindrance in the Tacoma Mall area• The City should improve design standards in the neighborhood to more

closely match the urban fabric of the City• Multifamily buildings – consider eliminating any retail requirements as the

area is already saturated with retail space• Expediting permitting processes for the neighborhood could help, but not it’s

not imperative for future development feasibility

Workforce Housing• Workforce housing incentives are most important to focus on – they need to

add value and make economic sense and be easy to administer• Multifamily Tax Exemption (MFTE) periods aren’t long enough to create real

value for developers- They often don’t help improve the long term value of project- The MFTE exemption as designed may actually be encouraging

development of lower cost suburban style development because there is no threshold for utilization – the City should consider a higher threshold for participation

Parking• Parking always becomes the critical factor in real estate development• Key Question: Is the City planning on changing parking requirements for the mall?• Parking, and more specifically the development of structured parking, is a

huge component of redevelopment feasibility for the mall and the Simon Company (owners)

• Allowing parking above grade could help development feasibility and may help encourage development in the area sooner


Findings

Development FeasibilityThe following findings relate to development feasibility in the Tacoma Mall Subarea.

Multifamily Development: - Residual land values for this product type support better development feasibility

compared to the mixed use product type, under the assumptions of this analysis.- With slightly lower total project costs and rents at the level typical of Downtown

Tacoma’s newer developments, residual land values are positive, indicating potential for development feasibility.

- Currently, projects proposed or underway in the Subarea are being built with surface parking at a lower density than zoning allows, allowing for lower cost construction and rents than what was modeled for this analysis.

- The two most recent high density multifamily developments in the Tacoma Mall Subarea (2006 & 2013) indicate there is interest in developing this product type in the area and their relative success indicates interest in this type of produce from residents.

Mixed Use Development: - The lack of existing mixed use developments may indicate that there are

perceived barriers to entry in the neighborhood, as indicated by the real estate interviews.

- To attract an anchor retail tenant in the Tacoma Mall Subarea, surface parking may improve development feasibility.

- Site assembly may be required for larger mixed use developments in areas along South 38th St.

- Plan block sizes indicate larger sites, which would allow for greater flexibility in development in terms of incorporation of open space and surface parking.

- Generally, lower density multifamily projects need to achieve substantially lower rents to justify the cost of construction (below $2.00/sf), which they currently do, while higher density multifamily and mixed use projects like the ones modeled must achieve higher rents (above $2.00/sf).

- To support projects of the scale envisioned for portions of the Subarea, higher rents are needed to support the cost of construction. For example, rents found at Proctor Station are exemplary of the level required in Tacoma to satisfy development feasibility for larger mixed use projects. While current typical rents in the Tacoma Mall Subarea are below this level, there are developments and neighborhoods in and around Tacoma with market rents at this level.

- A key driver of development feasibility is employment growth and associated wage rates within the City and region, as indicated by the real estate interviews.

The following section represents overall findings related to development feasibility and implementation within the Tacoma Mall Subarea.

Implementation

The following findings relate to implementation considerations for the City of Tacoma as it moves forward with the Subarea Plan.

- A common theme amongst interviewees was the need for public amenities and open space in the Tacoma Mall Area. Such investments would provide a greater sense of place and confidence in the ability to achieve higher rents in the neighborhood.

- Serving as a major transportation hub is key to attracting future development interest. Efforts should focus on connections to regional and local employment centers and amenities.

- Provisions for high capacity transit (BRT or LRT) as well as Sounder Train access from South Tacoma Way in the long term should be prioritized (connecting to the NW District of the neighborhood).

- The Tacoma Mall is both a major asset for the area in terms of drawing customers and serving as a major amenity, but future redevelopment of the neighborhood is tied to the success and future investment in the mall and its connection to the rest of the neighborhood.

- It’s important that the planned street network results in walkable streets and development sites with increased visibility and access (as envisioned in the Plan).


Findings Continued

Documents

ACOMA MALL SUBAREA PLAN - Tacoma Mall projectAn assessment of development feasibility for two development prototypes in the Tacoma Mall Subarea. Page 8. IV. Conclusions and Findings