HomeMy WebLinkAboutAttachment 11 - Otay Ranch Town Center Fiscal Impact Analysis
HR&A Advisors Inc. | DRAFT Otay Ranch Town Center Fiscal Impacts Analysis | 1
Otay Ranch Town Center
Fiscal Impact Analysis
Prepared by: HR&A Advisors
DRAFT July 2023
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Executive Summary
Brookfield Properties has retained HR&A Advisors Inc. (“HR&A”) to estimate the net annual fiscal impacts of
the proposed Freeway Commercial mixed-use amendment (‘Project”) on the City of Chula Vista’s General
Fund. The net fiscal impact of the Project was prepared using the City of Chula Vista’s existing fiscal impact
model, “CV FIA-20 Year Model 2022-07-31 – FY22-23 Update FINAL”, (“City Fiscal Impact Model”). This report
provides the results and supporting calculation details of the net fiscal impacts of the Project.
Key Findings
HR&A used the City Fiscal Impact Model, detailed in Appendix A, to evaluate the cost and revenue
projections in two scenarios across a multi-year period. The Base Scenario analyzes the fiscal impacts of the
current entitlement of retail square footage less existing uses that could be absorbed onsite. The Proposed
Scenario analyzes the fiscal impacts of the proposed entitlements, which includes the addition of proposed
residential units, and the balance of remaining retail square footage.
Currently, there is 670,000 square feet of existing retail space on the greater FC-1 Site and a total
entitlement of 960,000 square feet. In the Base Scenario, there are no residential units entitled and there is
290,000 square feet of remaining retail square footage entitled. Based on a retail demand analysis
conducted by HR&A as part of the Market and Commercial Lands Analysis Report, only 167,000 square feet
of retail square footage could be absorbed over 20 years at the site (see Figure 5). For the Base Scenario,
this analysis evaluated the net fiscal impacts of 167,000 square feet of retail.
The entitlement for the Proposed Scenario includes 840 residential units and a reduction in retail square
footage to 816,000 square feet. It is assumed that the remaining 146,000 square feet of entitled retail would
be absorbed over 20 years.
The difference between the annual net fiscal impacts of the Base and Proposed Scenarios is the total annual
net fiscal impact of the Project (Figure 1). Year 5 is the first year the retail square footage could be absorbed
in the Base and Proposed Scenarios. The Project has a positive annual net fiscal impact across the 20-year
period, with an annual net fiscal impact of $137,628 in Year 20, which is when the Proposed Scenario would
be fully built out.
Figure 1: Net Fiscal Impact of Freeway Commercial Amendment - Select Annual Results
Fiscal Impacts Year 5 Year 10 Year 15 Year 20
Base Scenario Annual Fiscal Impacts $27,119 $125,426 $124,858 $169,872
Proposed Scenario Annual Fiscal Impacts $261,336 $292,486 $298,415 $307,500
Net Annual Fiscal Impact
(Delta of Base and Proposed) $234,217 $167,062 $173,557 $137,628
Source: HR&A, City of Chula Vista
Introduction
The Otay Ranch Town Center is a 670,000 square foot, 86-acre regional lifestyle center. The retail center is
located on the FC-1 Site, part of the Freeway Commercial Sectional Planning Area (“SPA”), in the eastern
portion of the City of Chula Vista (“City”) (Figure 2). The Town Center is adjacent to California State Route 125
at the intersection of Birch Road and Eastlake Parkway, and is centrally located within the larger, master
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planned Otay Ranch General Plan area which has added substantial new housing and commercial
development over the last several years.
Figure 2: Otay Ranch Town Center Local Context
Source: Esri, HR&A
Existing Entitlements and Proposed Amendment
Currently, the FC-1 Site is entitled for 960,000 square feet of retail uses. The proposed land use amendment
would include up to 840 residential units and 816,000 square feet of retail uses (Figure 3). This analysis
evaluates the net fiscal impacts of the remaining FC-1 Site entitlement, which does not include existing retail
on the Site, (Base Scenario) relative to the proposed amendment (Proposed Scenario). The analysis is
focused on the 16.40 acre Study Area shown in Figure 2.
Figure 3: Existing Land Use Entitlements and Entitlements under the Proposed Amendment
Source: Brookfield Properties
Base Scenario Proposed Scenario
Total
Entitlement
Remaining Entitlement
(Total less Existing)
Total
Entitlement
Remaining Entitlement
(Total less Existing)
Rental Housing Units 0 Units 0 Units 840 Units 840 Units
Commercial Retail 960,000 SF 290,000 SF 816,000 SF 146,000 SF
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Projected Absorption Schedule
HR&A developed a 20-year absorption schedule for the Base and Proposed Scenarios based on the
residential and retail demand analysis conducted by HR&A in December 2022 as part of the Otay Ranch
Town Center Market and Commercial Lands Analysis (“Market and Commercial Lands Analysis").
Rental Housing Absorption
The rental housing absorption schedule is based on an apartment demand analysis conducted as part of
the Market and Commercial Lands Analysis. The analysis found that there is demand for approximately
1,000 rental housing units in Chula Vista per year. HR&A assumes the FC-1 Site would capture 30 percent of
rental housing demand in the City, and can therefore support 300 units per year. This assumption is based
on the annual apartment deliveries in Otay Ranch and Chula Vista. According to Costar, approximately 640
apartments have been delivered annually in the City over the last 5 years, with approximately 600 of those
deliveries in Otay Ranch. Furthermore, approximately 30 percent were in the immediate vicinity of the Site,
which is the basis for the project site’s capture rate.
The analysis assumes that development would not start for 3 years, beginning with 300 units in Year 3 and
Year 4, followed by 240 units in Year 5.
Figure 4: Rental Housing Absorption Assumptions
Demand for Rental Housing Units, Chula Vista 1,000 Units
FC-1 Site Capture Rate 30%
Annual Absorption of Multifamily Units 300 Units
Source: HR&A Residential Demand Analysis as part of the Market and Commercial Land Analysis Report, 2023.
Retail Absorption
The retail absorption schedule is based on a retail demand analysis conducted as part of the Market and
Commercial Lands Analysis. The demand analysis projected the potential demand for different retail
categories across 28 years in the City of Chula Vista and for the FC-1 Site by estimating (1) current spending,
less current retail sales in the City and (2) spending by projected new residents across the next 20 years.
Based on this analysis, it is estimated that the total retail supportable at the site is 198,900 square feet over
the next 28 years; approximately 85,290 square feet of that total is supportable today, with the balance of
approximately 114,000 spread across the next 28 years, or approximately 4,100 square feet per year (Figure
5) While the current entitlement allows for an additional 290,000 square feet of retail square footage, it is
assumed that the site would not be able to absorb that square footage over 20 years. HR&A assumed that
retail would not be built on the site until Year 5 and Year 6, with the remaining retail square footage
absorbed, in average building sizes of at least 40,000 SF, in Year 10 and Year 20.
Based on the retail demand analysis, the maximum buildout for the Base Scenario would take more than 20
years to be fully built out, whereas the Proposed Scenario, which has a smaller retail component, is
supportable within 20 years (Figure 6). The retail demand identifies maximum supportable retail at 167,000
SF across 20 years.
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Figure 5: Calculation of Projected Retail Absorption
Onsite Retail Demand from Chula Vista (2022-2050) 160,800 square feet
Onsite Retail Demand from Secondary Market (2022-2050) 38,100 square feet
Total Retail Supportable Onsite based on Demand Model 198,900 square feet
Estimated Phasing
Immediate Absorption based on support from Current Unmet
Demand 85,000 square feet
Remaining Retail Demand over 28 Years 114,000 square feet
Annual Retail Absorption (114,000 sf/ 28 years) 4,100 square feet
Assumed Retail Absorption over Project Buildout (20 years) 82,000 square feet
Cumulative Absorption (Immediate + 20 Year Buildout) Based
on Demand 167,000 square feet
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Figure 6 : Projected Absorption Schedule
Year 1 2 3 4 5 6 7 8 9 10
Base Scenario
Rental Units Delivered 0 0 0 0 0 0 0 0 0 0
Rental Units (Cumulative) 0 0 0 0 0 0 0 0 0 0
Retail SF Delivered 0 0 0 0 40,000 45,000 0 0 0 41,000
Retail SF (Cumulative) 0 0 0 0 40,000 85,000 85,000 85,000 85,000 126,000
Proposed Scenario
Rental Units Delivered 0 0 300 300 240 0 0 0 0 0
Rental Units (Cumulative) 0 0 300 600 840 840 840 840 840 840
Retail SF Delivered 0 0 0 0 40,000 45,000 0 0 0 41,000
Retail SF (Cumulative) 0 0 0 0 40,000 85,000 85,000 85,000 85,000 126,000
Year 11 12 13 14 15 16 17 18 19 20
Base Scenario
Rental Units Delivered 0 0 0 0 0 0 0 0 0 0
Rental Units (Cumulative) 0 0 0 0 0 0 0 0 0 0
Retail SF Delivered 0 0 0 0 0 0 0 0 0 41,000
Retail SF (Cumulative) 126,000 126,000 126,000 126,000 126,000 126,000 126,000 126,000 126,000 167,000
Proposed Scenario
Rental Units Delivered 0 0 0 0 0 0 0 0 0 0
Rental Units (Cumulative) 840 840 840 840 840 840 840 840 840 840
Retail SF Delivered 0 0 0 0 0 0 0 0 0 20,000
Retail SF (Cumulative) 126,000 126,000 126,000 126,000 126,000 126,000 126,000 126,000 126,000 146,000
Source: HR&A, Brookfield Properties
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Methodology
This analysis uses the City Fiscal Impact Model to evaluate the net fiscal impacts to the City from the
Proposed Scenario. To calculate the net fiscal impact of the Project, HR&A developed a set of inputs to the
model and compared the net fiscal impacts of the Proposed Scenario to the net fiscal impacts of the Base
Scenario. For this analysis, HR&A only analyzed fiscal impacts of the remaining entitlement, i.e. the amount
of entitled space that has not yet been developed, on the 16.40 acre Study Area.
Using the City Fiscal Impact Model, HR&A evaluated the City tax revenues and service costs associated with
the Base and Proposed Scenario, across a multi-year period. Updated capitalized value, land assessed value,
sales per square feet, and absorption estimates were used to identify project revenues, including property
taxes, VLF-In Lieu fees, sales taxes, and licenses and permits, using the model. The City Fiscal Impact Model
was also used to estimate fiscal expenditures generated by residential and retail components of the Project.
HR&A used the key assumptions of the City Fiscal Impact Model, but a few adjustments were necessary,
including the use of capitalized value and adjustments to sales taxes, based on the conceptual nature of the
land use program and the mixed-use nature of the Proposed Scenario.
Capitalized Value and Property Taxes
HR&A used a capitalized value approach to calculate the value of new rental housing units and retail
buildings. Capitalized value of the projects, less the assessed land value, is used as a proxy for constructed
assessed value. These values were used to estimate property taxes and MVLF in-lieu fees.
Residential and Retail Capitalized Value
The capitalized value for the retail and residential portions of the project is calculated based on the potential
new development in the Base and Proposed Scenarios (Figure 7 and Figure 8). Key assumptions for this
analysis include potential rents, average square feet per unit, occupancy rates, operating expenses, and a
capitalization rate. These values were gathered using CoStar from recent comparable properties in Otay
Ranch such as Avalyn at Millenia (1774 Metro Avenue), The Club at Enclave (1629 Santa Venetia Street), and
Rivue (1902 Millenia Avenue)1.
Figure 7: Capitalized Value - Base Scenario
Base Scenario (Retail)
Gross SF 167,000
Monthly Rent/SF $2.00
Annual Rent per SF $24.00
Occupancy 95%
Effective Gross income $3,807,600
Less: OpEx ($190,380)
NOI $3,617,220
Cap Rate 6.00%
Capitalized Value $60,287,000
Source: HR&A, CoStar
1 See the December 2022 Otay Ranch Town Center Market and Commercial Lands Analysis for more
information on each comparable property.
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Figure 8: Capitalized Value - Proposed Scenario
Source: HR&A, CoStar
Current Assessed Value of Proposed Project
The current assessed land value for the entire FC-1 Site is approximately $41,341,000 based on the 2022
assessed value as prepared by the San Diego County Assessor’s Office and Recorder/County Clerk’s Office.
The Study Area’s land value is estimated based on the proportion it makes up of the FC-1 Site. Comprising
approximately 19.1 percent of the entire site, the Study’s Area’s estimated land value is approximately
$7,894,000.
Sales and Use Tax
Sales and use tax inputs include the anticipated gross leasable area, occupancy rate, and sales per square
foot. The annual sales and use taxes to the City are calculated based on the sales per square foot of the
occupiable leasable area and the total sales and use tax per capita. The estimated sales per square foot for
the occupiable leasable area is based on the performance of the Otay Ranch Town Center prior to the
COVID-19 pandemic 2.
Onsite Sales Tax Adjustment
In the City Fiscal Impact Model, sales and use tax is calculated per capita as well as per square foot for the
retail portion, without accounting for on-site spending by the new households at the new retail buildings.
HR&A adjusted the model to only account for offsite resident spending.
HR&A used market rents to estimate a conservative average household income 3. HR&A used a series of
assumptions for the percentage of household spending that is taxable and consumer spending that were
used in a previous version of the City of Chula Vista’s fiscal model. This previous model estimated how much
spending occurred by type of center. Using these assumptions, HR&A conservatively removed the full
regional spending estimate of 10 percent for these onsite residents.
Using these assumptions, the City would generate approximately $177 per household annually in sales tax
revenue from new residents. Excluding all regional shopping center spending (which would include
spending at Otay Ranch Town Center) the offsite sales tax revenue is estimated at approximately $160 per
household (Figure 9).
2 Otay Ranch Town Center performance was provided by the City of Chula Vista.
3 An average unit size of 1,050 square feet was used to calculate market rents.
Proposed Scenario (Residential) Proposed Scenario (Retail)
Number of Units 840 Gross SF 146,000
Monthly Rent/SF $3.00 Monthly Rent/SF $2.00
Annual Rent per SF $36.00 Annual Rent per SF $24.00
Occupancy 95% Occupancy 95%
Effective Gross income $30,164,400 Effective Gross income $3,328,800
Less: OpEx ($10,557,540) Less: OpEx ($166,440)
NOI $19,606,860 NOI $3,162,360
Cap Rate 4.00% Cap Rate 6.00%
Capitalized Value $491,171,500 Capitalized Value $52,706,000
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Figure 9: Estimated Household Spending
Estimated Household Spending Onsite
Estimated Household Income $94,500
Expenditures 73%
Percent Taxable 32%
Capture in City of Chula Vista 80%
Total Taxable Income $17,660
Estimated Sales to City of Chula Vista 1%
Estimated Annual Sales Tax Revenue to City per Household $177
Estimated Allocation of Sales to Regional Shopping Center (Onsite) 10%
Estimated Annual Sales Tax Revenue to City per Household (Adjusted) $160
Source: HR&A, CoStar, Previous City of Chula Vista Fiscal Model
Fiscal Impacts
The following section describes the estimated fiscal impacts of the Base Scenario and Proposed Scenario
(Figure 10). Results are reported for a 20-year period.
The annual net fiscal impact associated with the Project over the 20-year period is summarized in Figure 11.
The Project is expected to generate a net fiscal revenue to the City of Chula Vista beginning in Year 3, when
the apartments begin to be absorbed. In Year 20, the Project is expected to have a net fiscal impact of
$138,000.
Project revenues over the 20-year period are detailed in Figures 1A and 1B in the Appendix. Annual
projected revenues associated with the Project increase each year over the 20-year period. The largest
increase occurs between Years 4 and 5 ($622,329) when the rest of the residential units are absorbed. The
largest sources of revenues throughout the 20-year period are from property taxes and VLF in-lieu fees.
Project expenditures over the five-year period are also detailed in Figures 1A and 1B. Annual projected
expenditures associated with the Project increase each over the 20-year period. The largest increase occurs
between Years 4 and 5 ($526,330) when the rest of the units are absorbed. The largest sources of
expenditures throughout the 20-year period are from Police and Fire Services.
Figure 9: Net Fiscal Impacts Over 20 Years – Base and Proposed Scenario (Thousands of Dollars)
Year 1 2 3 4 5 6 7 8 9 10
Base Scenario
General Fund Revenues $0 $0 $0 $0 $139 $322 $329 $336 $342 $527
General Fund Expenditures $0 $0 $0 $0 ($112) ($244) ($250) ($257) ($264) ($402)
Net Revenues/ Shortfall $0 $0 $0 $0 $27 $78 $78 $78 $78 $125
Proposed Scenario
General Fund Revenues $0 $0 $523 $1,081 $1,703 $1,911 $1,943 $1,975 $2,008 $2,219
General Fund Expenditures $0 $0 ($443) ($916) ($1,442) ($1,622) ($1,658) ($1,699) ($1,737) ($1,927)
Net Revenues/ Shortfall $0 $0 $79 $165 $261 $290 $285 $276 $270 $292
Net Fiscal Impacts $0 $0 $79 $165 $234 $211 $206 $198 $192 $167
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Year 11 12 13 14 15 16 17 18 19 20
Base Scenario
General Fund Revenues $538 $548 $559 $571 $582 $594 $606 $618 $630 $860
General Fund Expenditures ($412) ($423) ($434) ($445) ($457) ($469) ($482) ($494) ($507) ($690)
Net Revenues/ Shortfall $126 $125 $125 $125 $125 $124 $124 $124 $123 $170
Proposed Scenario
General Fund Revenues $2,267 $2,315 $2,364 $2,414 $2,466 $2,518 $2,572 $2,627 $2,683 $2,846
General Fund Expenditures ($1,972) ($2,019) ($2,067) ($2,117) ($2,167) ($2,220) ($2,273) ($2,328) ($2,385) ($2,539)
Net Revenues/ Shortfall $295 $296 $297 $298 $298 $299 $299 $299 $299 $307
Net Fiscal Impacts $169 $170 $172 $173 $174 $174 $175 $175 $176 $138
Source: HR&A, City of Chula Vista