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Project Development Costs • Hard Costs include costs to grade and prepare the site (estimated at $10 per GBA), and costs to construct the buildings themselves. With respect to construction costs, per EPS there are a number of trusted cost estimation references; those surveyed included construction costs of between $100 and $250 per square foot, for storage facilities, including adjustments for the Bay Area region. The selected rate, $175 per square foot, is in the middle of the range. • Soft Costs reflect aspects such as architecture and engineering, costs of city fees and permits, and marketing. Staff was advised on appropriate, industry-standard rates by EPS, based on their knowledge of similar projects and facilities. Permits and fees were estimated based on actual project costs. • Other Project Costs include contingency (for construction cost over-runs), and an allowance for developer rate of return. This latter value is calculated separately from the Residual Land Value, to factor in the required rate of return to motivate project investors given development risks, including market risk associated with project lease up after construction is complete. Residual Land Value As noted, the Residual Land Value reflects the contribution of the project to site valuation. The added land value is calculated as the remaining value of the additional project square footage, once development costs have been deducted from the expected value based on revenues. Split of Residual Land Value The staff report suggests the City should seek to recoup 50 percent of the estimated Residual Land Value. This factor was identified based on two cities’ existing programs (Culver City and Menlo Park), suggested for reference by EPS. The consultant did note that some cities do request a larger share (greater than 50 percent); however, doing so may result in a project where the marginal value of the FAR increase is reduced to the extent that it does not become worthwhile to the developer to invest in the project. As noted, the 50 percent split is suggested as a way to allow for a balance between an apportionment that returns additional value to the City, to offset the impacts of allowing for additional FAR, and providing sufficient incentive to the developer to pursue the project. Attachment: Residual Land Value Calculation DocuSign Envelope ID: E4D0AD6B-3F79-48DA-8B5E-017EB2A6132F