ECONOMIC STUDY AND PRO FORMA ANALYSIS MARCH 2015

LOMBARD STREETECONOMIC STUDY AND PRO FORMA ANALYSISMARCH 2015

AECOM

Lombard Street Development Feasibility Study i

March 2015

AECOM

ii Lombard Street Development Feasibility Study

March 2015

TABLE OF CONTENTS

1. INTRODUCTION .............................................................................................................................. 1

2. KEY FEASIBILITY FINDINGS ........................................................................................................ 4

3. SITE SCENARIOS ........................................................................................................................... 5 DEVELOPMENT SCENARIO FACTORS ........................................................................................................... 5

Sites ...................................................................................................................................................... 5

Land Uses ............................................................................................................................................. 7

Building Heights .................................................................................................................................... 7

Parking Ratios ...................................................................................................................................... 7

Rental vs. Ownership ............................................................................................................................ 8

DEVELOPMENT SCENARIOS ........................................................................................................................ 8

4. DEVELOPMENT ASSUMPTIONS ................................................................................................ 19

5. FEASIBILITY ANALYSIS .............................................................................................................. 23 PARKING-RELATED DEVELOPMENT BONUSES............................................................................................ 26

6. DEVELOPER STRATEGIES FOR INCREASING FEASIBILITY ................................................ 28

7. CONCLUSION ............................................................................................................................... 29

APPENDIX A – FIRST AECOM DELIVERABLE ....................................................................................... 30

APPENDIX B – PRO FORMA TECHNICAL ANALYSIS ........................................................................... 50

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Lombard Street Development Feasibility Study iii

March 2015

LIST OF TABLES

Table 1. Development Scenarios Summary .......................................................................................................... 3

Table 2. Development Scenarios Summary ........................................................................................................ 10

Table 3. Basic Building Assumptions .................................................................................................................. 19

Table 4. Hard Cost Assumptions ........................................................................................................................ 20

Table 5. Soft Cost Assumptions .......................................................................................................................... 20

Table 6. Developer Threshold Assumptions ....................................................................................................... 21

Table 7. Operating Costs Assumptions ............................................................................................................... 21

Table 8. Revenue Assumptions .......................................................................................................................... 22

Table 9. Feasibility Analysis Summary ............................................................................................................... 25

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iv Lombard Street Development Feasibility Study

March 2015

LIST OF FIGURES

Figure 1. Site Locations, 2505 Lombard Street and the Hotel del Sol Parking Lot ............................................... 3

Figure 2. Site Locations, Lombard Street, San Francisco ..................................................................................... 6

Figure 3. Scenario 1a (Mixed Use Residential with Retail at 2505 Lombard Street) .......................................... 12

Figure 4. Scenario 1b (Hotel/Motel at 2505 Lombard Street) ............................................................................. 13

Figure 5. Scenario 2a Hotel del Sol Parking Lot Mixed-Use Residential, 1.0 Parking Ratio ............................... 14

Figure 6. Scenario 2b Hotel del Sol Parking Lot Mixed-Use Residential, 0.5 Parking Ratio ............................... 15

Figure 7. Scenario 2c Hotel del Sol Parking Lot Mixed-Use Residential, No Parking Required ......................... 16

Figure 8. Scenario 2d Hotel/Motel at Hotel del Sol Parking Lot .......................................................................... 17

Figure 9. Comparison of Return to Landowner per Square Foot of Land by Scenario ....................................... 26

Figure 10. Pro Forma, Scenario 1a: 2505 Lombard Street Mixed-Use Residential ............................................ 51

Figure 11. Pro Forma, Scenario 1b: 2505 Lombard Street Hotel Use ................................................................ 52

Figure 12. Pro Forma, Scenario 2a: Hotel del Sol Parking Lot Mixed-Use Residential, 1.0 Parking Ratio ......... 53

Figure 13. Pro Forma, Scenario 2b: Hotel del Sol Parking Lot Mixed-Use Residential, 0.5 Parking Ratio ......... 54

Figure 14. Pro Forma, Scenario 2c: Hotel del Sol Parking Lot Mixed-Use Residential, No parking required ..... 55

Figure 15. Pro Forma, Scenario 2d: Hotel del Sol Parking Lot Hotel Use ........……………………………………56

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Lombard Street Development Feasibility Study 1

March 2015

1. Introduction

In late 2014, AECOM began work on a study of the Lombard Street corridor (between Van Ness Avenue and

Divisadero Street) to help guide planning and policy efforts within the district. This project is conducted as part

of the City of San Francisco Office of Economic and Workforce Development (OEWD) Invest in Neighborhoods

(IIN) initiative.

As part of this work, AECOM produced a report (Appendix A) summarizing the historic development along

Lombard Street, the existing real estate market conditions, and the state of the motel industry.

The key findings of the report are that:

1. The City is investing in Lombard Street through several public works projects, such as the Lombard

Street repavement1, the WalkFirst initiative

2, and the Lombard Street IIN effort

3. These public projects

will provide momentum for streetscape improvements and district development.

2. Development of under-utilized parcels would help invigorate the district, improve the streetscape, and

maintain the health of the housing and motel sectors through reinvestment.

3. Residential remains the highest and best use on Lombard with strong rents and low vacancy rates.

a. The robust market conditions for residential has increased redevelopment interest with a

number of units planned for construction in and around the Lombard Corridor.

4. New hotel development has a lower margin of profit compared to residential. However small scale

additions could provide increased value on existing assets as larger properties can take advantage of

economies of scale and maximize land value.

a. The lodging market conditions for the City overall are very healthy with recent occupancy at

83% and average daily rates (ADR) at $188.4 Occupancy rates and ADRs in the Lombard

area have been increasing since 2009. In 2013, occupancy reached 79.5% and ADR reached

$124. Occupancy has been above 75% since 2011.

1 As part of the Caltrans Capital Preventative Maintenance Program, Lombard Street will be repaved in two segments. The first

section will be a part of the Van Ness Bus Rapid Transit project. The second half will be the remaining portion from Van Ness to Lyon Street. Construction is anticipated to begin in fall of 2017. 2 Walk First is an initiative that aims to improve pedestrian safety by investing in projects that reduce pedestrian-vehicle collisions.

Lombard Street was identified as a high-priority location. 3 The Invest in Neighborhoods effort along Lombard Street is intended to analyze baseline conditions along the corridor in order to

provide guidance for planning and policy efforts 4 Per HVS report. “In Focus: San Francisco Hotel Market – Best of the West, May 2014”. Study area includes San Francisco and

San Mateo.

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2 Lombard Street Development Feasibility Study

March 2015

b. There is an opportunity for reinvestment or expansion of hotel or motel rooms considering the

strong average annual occupancy above 75% for over three years and growing ADR. The two

market factors provide evidence for additional investment.5

c. However, should the motel/hotel market soften from its current robust condition, the lack of

major capital investment in the limited service motels on Lombard would be at risk of

depreciation with more affordable accommodation provided through third party on-line

providers (e.g. AirBNB).

5. New development is difficult to justify financially if replacement parking is required.

The purpose of this pro forma analysis is to build on the findings of this report and answer the following

questions:

1. What is the economic value of redeveloping opportunity sites along Lombard Street? Is it feasible?

2. Is there an economic incentive for existing landowners to redevelop their parcels?

3. What potential changes to zoning and development standards would further facilitate investment along

the Lombard corridor?

4. What is the economic value of adding additional units to hotels/motels under current zoning

conditions?

AECOM uses a static land residual analysis methodology which evaluates the feasibility of a project at

stabilized occupancy. This point-in-time evaluation considers the remaining value, if any, after accounting for

land value, development costs, and developer profits. The residual land value (reported on a per square foot

basis) is equal to the profit a landowner would garner if s/he retained ownership of the land. The development

feasibility analysis methodology builds an understanding of the relationship between location, planning

parameters, building configuration, and feasibility.

In order to test development feasibility within the corridor, OEWD identified two sites along Lombard Street,

which are potential “opportunity sites” because both sites have additional capacity within the existing allowed

zoning. Under the existing zoning, the NC-3 designation restricts the height of development to 40 feet, which

typically allows for up to 3-story buildings of type V wood–frame, low-rise construction. In both scenarios,

building heights are 35 feet, assuming a 15-foot ground floor and two 10-foot above-ground floors. For each

site, two development scenarios were explored: a mixed use scenario, with ground-floor retail and between 8

and 16 rental residential units; and a motel scenario, with small lobby incorporating a desk and breakfast nook

and between 13 and 18 hotel rooms over three floors. The scenarios explore the potential intensification of

development within the corridor to further invigorate Lombard. As part of the evaluation, AECOM considered

lower parking configurations that would further maximize leasable space. Note that analysis recognizes the

intensification of the parcels would require, under current zoning, conditional approval for a lower parking

standard currently allowed under Section 303 of the San Francisco Planning Code with Planning Commission

approval. Note that the 40 foot height limit results in a three story mixed-use development with two stories of

residential and one story of ground retail. Development would benefit considerably if the allowed height were

5 Generally, ADR growing above the rate of inflation combined with average occupancy above 75% demonstrate demand for

additional hotel/motel supply in the given market area. San Francisco’s accommodation market has experienced both and therefore indicates additional market opportunity for hotel/motel rooms.

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March 2015

45 feet as it would result in three stories of residential instead of the two that are possible within the existing 40

foot height limits. If the allowable height were 45 feet, this would permit 15 feet of viable retail on the ground

floor and three stories of residential (approximately ten feet per floor), resulting in an entire additional floor of

residential units. An increase of 5 feet in allowed height would likely have marginal additional impacts on

surrounding properties compared to a 40 foot-building (e.g., view impacts and shadowing), yet would result

significant improvement in development feasibility.

A summary of the two sites and the various scenarios analyzed is presented in Figure 1 and Table 1 below.

Figure 1. Site Locations, 2505 Lombard Street and the Hotel del Sol Parking Lot

Source: AECOM

Table 1. Development Scenarios Summary

Scenario Site Development Type Parking

1a 2505 Lombard Street

Mixed Use (Residential + Retail) 1.0 per unit

1b Hotel/Motel 0.8 per key

2a

Hotel del Sol parking lot

Mixed Use (Residential + Retail) 1.0 per unit

2b Mixed Use (Residential + Retail) 0.5 per unit*

2c Mixed Use (Residential + Retail) 0.0 per unit*

2d Hotel/Motel 0.8 per key

* Parking ratio reduction would require approval from San Francisco Planning Commission

Source: AECOM

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2. Key Feasibility Findings

The key findings of the development feasibility analysis include:

Mixed-Use Scenarios: Residential Rental with Street-Level Retail

o The robust housing market results in all scenarios generating positive land residual values,

even with the height constraints placed on Lombard.

o Lower parking requirements increase overall value to the Landowner.

o Allowing an increase of 5 feet to the 40 foot building code would increase development

feasibility as it would allow for four stories of development while maintaining viable ground

floor retail.

Economy Hotel Scenarios

o Both scenarios provide positive profits to the Landowner

o These profit estimations are conservative because they do not assume any economies of

scale of adding to an existing motel property. In other words, the full operations and

maintenance costs are assumed on the incremental increase in motel rooms rather than

discounting for potential staffing and management savings.

o Recent 2013 occupancy along Lombard Street corridor is strong at 79.5% and room rates

have been increasing, demonstrating an opportunity for expansion and reinvestment. Motel

managers strive to balance average daily room rate and occupancy levels to maximize

revenue. One hundred percent occupancy is not necessarily desirable if it requires a decrease

in room rates. Furthermore, given the daily room turnover and weekly and seasonal

fluctuations, 100 percent occupancy is also not feasible.6 Typically, sustained occupancy at or

near 75% combined with increasing average daily room rates indicates that adding inventory

or reinvesting will result in increased revenue (through higher occupancy and/or higher

average daily rate) instead of lower revenue (through lower overall occupancy and/or lower

average daily rate). Replacement parking ultimately downgrades the profitability of

development on the urban infill sites.

6 Nationally, the average hotel occupancy rate is at a 13 year high at 64% yet this is well below San Francisco’s occupancy rate at

nearly 80%. U.S. Hotel Occupancy Rates (2000 – 2014), Statistica.com, accessed on January, 2015. San Francisco’s hotel occupancy lags only behind Honolulu and Manhattan in average occupancy according to HVS San Francisco, a hospitality advisory firm.

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3. Site Scenarios

In coordination with the City, AECOM has developed two general site scenarios for evaluation: mixed use

residential rental with ground floor retail and economy hotel7. Both scenarios are evaluated at two sites along

Lombard Street. The specifications of the development scenarios vary by site, but are, in essence, similar

developments, in order to confirm feasibility findings for development scenarios on Lombard Street.

DEVELOPMENT SCENARIO FACTORS

It is important to note that the proposed development scenarios are hypothetical. Any future development

would be expected to follow current zoning and development standards, or design guidelines, which are subject

to change.

Five development factors were considered in across scenarios:

1. Sites – two sites were used

2. Land uses –mixed-use land use and hotel/motel land use

3. Building height – low-rise developments were evaluated, abiding by the 40-foot height restriction of the

existing zoning

4. Parking ratios – parking ratios were applied to residential buildings and hotel buildings, as per the San

Francisco Planning Code and alternate parking ratios were tested on one site and one land use

5. Rental vs. ownership – all residential and retail units were considered as rental properties

SITES

As part of the study, the City identified two specific site locations within the Lombard Street corridor. The sites

were chosen as under-utilized or “opportunity” sites8. One of the sites currently hosts a parking lot and is

otherwise empty, representing a realistic development opportunity. The other site is the Alpha Inn and Suites

located on the corner of Lombard and Divisadero Street. This corner lot has an L-shaped, two-story structure

with a pool in the center. Parking currently serving this building is on the eastern side of the structure. The

building with tuck-under parking located at 2525 Lombard Street is part of the Alpha Inn and Suites, but was

excluded from the hypothetical development scenarios. Although there are a total of 28 rooms in the Alpha Inn

and Suites, only 12 rooms are located in the two-story building considered as part of the development

7 An economy hotel is generally defined as basic room accommodations with limited services (e.g. no room service, no gym

facilities, no conference space, and no concierge service). Continental breakfast may be included. 8 Profit is defined as value generated above the revenue to pay for the building investment. This is often referred to as residual

value.

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scenarios.9 The motel’s prominent location at this intersection and generally odd configuration makes for

another potential redevelopment opportunity. The two sites are:

1. 2505 Lombard Street (assuming a complete redevelopment)

2. Hotel del Sol parking lot (assuming no replacement parking constructed)

Figure 2. Site Locations, Lombard Street, San Francisco

All Sites, Lombard Street, San Francisco

2505 Lombard Street Hotel del Sol Parking Lot

Source: AECOM

9 Number of rooms obtained from the front desk of Alpha Inn and Suites.

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March 2015

LAND USES

On the two sites, two uses will be considered:

1. Mixed use – Retail / Rental Residential

2. Economy Hotel use10

The Lombard Street corridor has seen little housing development over the last several decades. On average,

most structures on Lombard Street are over 70 years old. According to the San Francisco County Assessor’s

parcel record, only six buildings in the study area were constructed after the year 2000. New residential

construction, with ground-floor retail would refresh the corridor building stock and provide a newer option for

renters. It would generate additional retail spending power as more residents and visitors increase demand for

goods and services.

The motel industry along Lombard Street is healthy. Hotels and motels here provide many low-cost hotel

options for the City. In fact, approximately 20% of the city’s small hotels (i.e. 99 rooms or less) are located in

the Lombard Street study area, despite only accounting for 13% of hotels citywide. Occupancy rates are high

and hotel and motel revenues in the study area have increased by approximately 6% annually over the last

seven years. However, like the housing stock, little reinvestment has occurred in the last several decades, with

most of the hotel facades and buildings being 1950’s and 1960’s era style and construction. Renovations,

upgrades, and a potential increase in the total number of rooms would refresh the corridor, while still affording

lower-cost rooms for tourists.11

Traditional limited service motels are at risk to more significant competition from

visitor serving housing being offered through third party web sites like AirBNB. In other words, being the low

cost option for accommodation in San Francisco is no longer exclusive to the budget motels.

BUILDING HEIGHTS

Additionally, under the existing zoning, only low-rise buildings are considered. The NC-3 designation restricts

the height of development to 40 feet, which typically allows for up to 3-story buildings of type V wood–frame,

low-rise construction. In both scenarios, building heights are 35 feet, assuming a 15-foot ground floor and two

10-foot above-ground floors. Note that if building heights were increased by 5 feet, development could achieve

three stories above retail (i.e. four stories) resulting in significantly higher feasibility. Marketable ground floor

retail space requires higher floor to ceiling heights (i.e. 15 feet) than residential (i.e. 10 feet). As such, a

marginal change of 5 feet to the height would enable developers to achieve viable ground floor retail space

while accommodating three stories of residential or motel space on top.

PARKING RATIOS

Under the San Francisco Planning Code, Section 714.92 (Planning Code), for each residential unit, one

parking space must be provided. For retail uses, street parking is assumed to serve customers and no new

parking must be provided. Therefore, parking ratios for mixed use scenarios assumes a 1:1 parking ratio for

residential space, and no parking for retail space.

10 An economy hotel is generally defined as basic room accommodations with limited services (e.g. no room service, no gym

facilities, no conference space, and no concierge service). Continental breakfast may be included. 11

Although tourist hotels are currently only conditionally permitted on Lombard Street, intensification of existing hotels and motels is possible with approval from the San Francisco Planning Commission.

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The Planning Code presents a lower parking ratio for hotel uses, at 0.8 parking spaces per room. The hotel

scenario assumes this 0.8 parking ratio.

Given the parcel sizes and the height restrictions, the burden of developing on-site parking limits the

development potential. Usable residential, retail or hotel room space must be curtailed to provide the zoned

parking spaces. Nonetheless, parking spaces represent significant income for developers in San Francisco,

where parking is limited.

Alternate parking ratios were considered for one site, the Hotel Del Sol parking lot, and one land use, Mixed-

Use. Additional ratios evaluated were 0.5 parking spaces per residential unit and no parking per residential unit.

RENTAL VS. OWNERSHIP

While much of the current condominium development in San Francisco is being constructed as for-sale units12

,

residential development scenarios in this study are considered as rental properties. There are a number of

rental residential projects currently under construction in the City offered at high rents, including those in

Central Market, South of Market, and Mission Bay. Average rents for new rental housing citywide is

approximately $5 per square foot.13

Thus, there is more than sufficient precedent to justify new rental

residential development within the Lombard study area.

The aim of this feasibility study is to explore owner redevelopment and landholder re-investment. As such, the

development scenarios assume existing ownership will continue via rental units providing ongoing revenue to

the property owner.

DEVELOPMENT SCENARIOS

Table 2 summarizes the six development scenarios identified for review. The following figures present

conceptual designs and layouts for each of the six proposed scenario variations on the two opportunity sites.

The building designs adhere to existing planning codes and restrictions for hotel and motel development,

however, the scenarios assume that the intensification of hotel uses would be approved by the Planning

Commission as intensification of a hotel requires a conditional use permit. Although the zoning code requires a

1:1 parking ratio for residential uses, there is a provision in Article 7 of the Planning Code that allows the

Planning Commission to reduce off-street parking ratios in NC districts.14

To reduce parking ratios such as

12 For example the ‘Linea’ residential development located at 1690 South Market in San Francisco. This new development houses

150 for sale condominium units. Another development at 1800 Van Ness Avenue in San Francisco called ‘The Marlow’ was recently completed. This condo development will also offer units for sale. 13

RealFacts Apartment Market Research, 3rd Quarter, 2014. Average rent per square foot of projects completed since 2010.

14 The off-street parking requirements for dwelling units in NC Districts, as described in Article 7 of this Code, may be reduced by

the Planning Commission pursuant to the procedures for conditional use authorization set forth in Section 303 of this Code. In acting

upon any application for a reduction of requirements, the Planning Commission shall consider the criteria set forth below in lieu of

the criteria set forth in Section 303(c), and may grant the reduction if it finds that:

(1) The reduction in the parking requirement is justified by the reasonably anticipated auto usage by residents of and visitors to the

project;

(2) The reduction in the parking requirement will not be detrimental to the health, safety, convenience, or general welfare of persons

residing or working in the vicinity;

(3) The project is consistent with the existing character and pattern of development in the area; and

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March 2015

proposed in the development scenarios, a conditional use permit would be required from the Planning

Commission.

AECOM focused the retail on Lombard Street rather than wrap the entire building in retail frontage. This is in

response to the Lombard Street improvement goals, to create more curbside vibrancy on Lombard Street and

to improve the Lombard Street business mix. Note the development assumes no replacement parking at Hotel

Del Sol as new development there would eliminate an existing parking lot that services the hotel.

It is also important to note that the proposed development scenarios are hypothetical. Any future development

would be expected to follow current zoning and development standards, or design guidelines, which are subject

to change.

(4) The project is consistent with the description and intent of the neighborhood commercial district in which it is located.

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March 2015

Table 2. Development Scenarios Summary

Scenario Site Development Type

Total Site Area (Sq. Ft.)

Base Building Height

(Ft.)

Total Uses (GFA) Total

Residential Units/Keys

Residential or Hotel Parking

Ratio

Total Parking Spaces

Retail (Sq. Ft.)

Residential (Sq. Ft)

Hotel (Sq. Ft.)

1a 2505 Lombard

Street

Mixed Use (Residential + Retail) 6,471 35 2,450 9,950 0 8 1.0 8

1b Hotel/Motel* 6,471 35 0 0 6,615 18 0.8 15

2a

Hotel del Sol Parking Lot

Mixed Use (Residential + Retail) 6,944 35 1,475 10,190 0 12 1.0 12

2b Mixed Use (Residential + Retail)** 6,944 35 1,475 12,134 0 14 0.5 7

2c Mixed Use (Residential + Retail)** 6,944 35 1,475 13,926 0 16 0.0 0

2d Hotel/Motel* 6,944 35 0 0 5,625 13 0.8 11

*Increasing unit counts on existing hotels and motels would require approval from San Francisco Planning Commission **Parking ratio reduction would require approval from the San Francisco Planning Commission

Source: City of San Francisco, AECOM

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Figure 3. Scenario 1a (Mixed Use Residential with Retail at 2505 Lombard Street)

Source: AECOM

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Figure 4. Scenario 1b (Hotel/Motel at 2505 Lombard Street)

Source: AECOM

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Figure 5. Scenario 2a (Mixed Use Residential with Retail at Hotel del Sol Parking Lot)

Source: AECOM

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Figure 6. Scenario 2b (Mixed Use Residential with Retail and Hotel del Sol Parking Lot)

Source: AECOM

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Figure 7. Scenario 2c (Mixed Use Residential with Retail at Hotel del Sol Parking Lot)

Source: AECOM

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Figure 8. Scenario 2d (Hotel/Motel at Hotel del Sol Parking Lot)

Source: AECOM

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4. Development Assumptions

This section presents the relevant real estate market assessment and development assumptions that were

used in this study. The following assumptions were developed based on detailed interviews with developers

active in San Francisco; external data sources; and input from internal AECOM architecture and costing groups

on typical planning, architecture, construction cost, and economic parameters. The following tables summarize

the proposed development assumptions.

Many assumptions, such as floor heights, efficiency ratios, property tax assumptions, and architecture and

engineering costs are based on typical industry standards. Meanwhile, other inputs such as soft costs and

revenue assumptions are adjusted to reflect San Francisco’s market conditions.

Table 3. Basic Building Assumptions

Number Unit Sources

Ground Floor Height 15.0 Feet AECOM; Developer Interviews

Average Residential Floor Height 10.0 Feet AECOM; Developer Interviews

Average Residential Unit Size (Net) 850* Square Feet AECOM; Developer Interviews

Average Hotel Room Size (Net) 400* Square Feet AECOM

Average Parking Space Size 350 Square Feet AECOM; Developer Interviews

Efficiency Ratios

Retail 90% Net as % of Gross AECOM; Developer Interviews

Hotel 90% Net as % of Gross AECOM; Developer Interviews

Residential 85% Net as % of Gross AECOM; Developer Interviews

Parking Ratios

Retail On-Street

AECOM; Developer Interviews

Hotel 0.8 / Key AECOM; City

Residential ** 1 / Residential Unit AECOM; Developer Interviews, City

Sources: Individual sources indicated in table

* Actual square footage of units depends on site configuration and zoning requirements

** Alternate scenarios were tested, including 0.5 per unit and 0.0 per unit.

On the development side, key feasibility factors include building and parking construction costs. Parking alone

can run upwards of $50,000 per space, depending on the type of construction or parking system.

Developers and our internal building costing group also acknowledge that there is a wide range of construction

costs. For example, for a low-rise residential building, hard costs range from a low of approximately $180 per

building square foot to as high as $380 per square foot or higher. There are numerous reasons for the

variability, including the complexity and construct-ability of the site, whether it includes prevailing wage, the

quality of finishes envisioned, and contractor competitiveness. For the purposes of this study, values have

been assumed that are generally accepted average values, applicable to San Francisco.

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Table 4. Hard Cost Assumptions

Number Unit Sources

Site Preparation Costs

Land Cost $0.00 /Square Foot Assumed owner-developer

Demolition Cost $10.00 /Square Foot AECOM

Site Work Cost $15.00 /Square Foot AECOM

Construction Costs from Development Scenarios

AECOM, Developer Interviews

LEED Adjustment Factor 3%

Retail (Ground Floor) $180* /Square Foot

Residential (Low-Rise) - Rental $210 /Square Foot

Hotel $235 /Square Foot

Hotel FF&E (Furniture, Fixtures & Equipment) 15% Of Hard Costs

Parking Costs

Parking - Surface $2,000 /Space

Parking – Tuck-Under $20,000 /Space

Parking - Underground $40,000 /Space


* This is shell and core only. Tenant Improvements are dependent upon lease negotiations.

Table 5. Soft Cost Assumptions

Number Unit Sources

Architecture & Engineering

Residential, Retail, Hotel 7.5% of Hard Costs RS Means

Financing Costs

Construction Loan 70% Loan to Cost Developer Interviews, Commercial Real Estate Lender Interviews

Interest Rate 5.50% of Cost Developer Interviews, Commercial Real Estate Lender Interviews

Construction Term 12 Months AECOM

Loan Points 0.5%

Developer Interviews, Commercial Real Estate Lender Interviews

Drawdown Factor 50%


Other

Property Taxes (including BID) 1.25% of Total Costs Alameda County Property Tax register

Building/Permitting/Impact Fees

Retail and Office 10% of Total Costs AECOM, Developer Interviews

Residential $150,000-

170,000 /Unit* AECOM, Developer Interviews

Hotel 10% Of Total Costs AECOM

Overhead/Other 3% of Total Costs AECOM

Contingency 5% of Total Costs AECOM


* Inclusionary housing fees for 2 bedroom units (Scenario 1) are higher than for 1 bedroom units (Scenario 2).

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Table 6. Developer Threshold Assumptions

Number Unit Sources

Retail Profit Requirements 10% of Total Costs AECOM

Rental Profit Requirements 8% of Total Costs AECOM

Hotel Profit Requirements 12% of Total Costs AECOM


Operating costs and revenue assumptions were similarly developed based on local market research. Vacancy

rates for building uses are based on current values, trends over the past 5 to ten years, and structural vacancy

assumptions. Note that the pro forma assumes no economies of scale that could be achieved by adding on to

an existing motel operation. Rather, the pro forma assigns a flat percentage of the gross revenue to arrive at its

net revenue calculation. This is conservative as it is likely that motel operations would achieve increased

economies of scale with operations and management in the process of incrementally increasing the size of

their motel.

Table 7. Operating Costs Assumptions

Number Unit Sources

Retail/Office Broker Fees 5% of Lease AECOM

Operating Expenses

Retail $0.10 /Gross Sq. Ft. AECOM; Developer Interviews

Hotel 47.5%* of Gross Rental Revenue

AECOM; STR

Rental Residential 30% of Gross Rental Revenue


Vacancy Rates (Stabilized)

Retail 5.0% of Net Sq. Ft. AECOM

Residential 5.0% of Net Sq. Ft. AECOM

Occupancy Rates (Stabilized)

Hotel 75% AECOM


*Based off of gross operating profit of limited-service hotels of 49.9%, per Smith Travel Research (STR) report, HOST Program

Highlights 2013. Limited-service hotels achieve higher profit margin compared to full-service hotels.

Revenue assumptions are based on rates for similar developments in San Francisco, adjusted slightly upwards

to reflect the premium that new developments can charge in a market. The average residential rate of $4.50

per square foot translates to an average rent for 1 bedrooms of $3,825 per month, and an average rent across

all units of $4,066 per month. Note that this is also a conservative revenue estimate as $4.50 per square foot is

lower than the citywide average of approximately $5.00 per square foot for projects completed within the last

four years. In this feasibility study, parking revenue is estimated to add an additional $0.31 per square foot to

the monthly rental revenue, resulting in a total average rental rate of $4.71 per square foot for residential

buildings with parking.

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The lodging market in the Lombard Street corridor has been performing strongly in the past few years. Average

daily rates and occupancies have increased since 2009. In 2013, average occupancy reached 79.5% and ADR

$124.15

The hotel market in San Francisco in 2013 achieved 83% occupancy and an ADR of $188.16

Sustained

occupancy at or near 75% indicates an opportunity for reinvestment or new hotel inventory. The average room

rate in the hotel scenario is assumed at a 20% premium compared to current room rates along the Lombard

Street corridor.

Table 8 displays the relevant revenue assumptions utilized in the model. The first two sections indicate the rent

and room rate achievable for this project as well as parking revenue. Next, the capitalization rates for each type

of project are presented. The capitalization rate is a standard real estate metric used to evaluate the value of

the project based off of a stabilized revenue source. In general, a lower capitalization rate indicates a less risky

asset. Currently, residential assets are seen as the most stable investment asset. Finally, residential absorption

indicates the rate at which new rental units are absorbed onto the market. For example, if a 120-unit building

were to be built, it is estimated it would take 12 months for all units to become rented.

Table 8. Revenue Assumptions

Number Unit Sources

Lease and Rental Rates - Average

Average Retail Lease Rate $42.00 /SF/mo./NNN AECOM (CoStar)

Average Rent Per Sq. Ft. of Living Area $4.50 /SF/Mo. AECOM (September 2014)

Average Room Rate for Hotel/Motel Room $150.00 /Rm/Night AECOM; STR Report

Parking Revenue - Average

Residential $250 /Space/mo. AECOM

Hotel $225 /Space/mo. AECOM

Capitalization Rates

Retail 6.5% Cap Rate AECOM, Developer Interviews

Hotel 8.0% Cap Rate AECOM

Residential 4.5% Cap Rate AECOM, Developer Interviews

Residential Absorption Period 120 Units/Year AECOM


15 Smith Travel Research.

16 Per HVS report. “In Focus: San Francisco Hotel Market – Best of the West, May 2014”

AECOM


March 2015

5. Feasibility Analysis

The following section reviews the detailed findings of the feasibility analysis and addresses the topics identified

in the introduction.

The results of all pro forma analyses are provided in Appendix B.

The two sites evaluated are both less than 0.2 acres in area. Given the small site sizes and the constraints of

current zoning, the evaluated scenarios reflect general, possible development options for the parcels. As such,

the findings presented in this report reflect general potential. More detailed and innovative design, and/or

applications for zoning changes or parking waivers would allow for more elaborate –and potentially more

profitable- development options. Nonetheless, this feasibility analysis provides an initial, high-level look at the

development feasibility of opportunity parcels along Lombard Street.

As shown in Table 9, land returns after accounting for development cost and developer profit range from a high

of approximately $572 per lot square foot for new residential development to a low of $56 per lot square foot for

intensification of motel uses at Hotel Del Sol. The wide variance of two variables is due to:

Unit size and count

o Unit count changes in the amount of parking supplied, which limits the availability for leasable

space.

o Unit size impacts the amount of inclusionary housing fee required per unit

Changes in use where residential commands significantly higher net revenue per square foot over

motels.

A 5 foot increase in the allowed zoning height to 45 feet would result in greater economic incentive for

reinvestment along the Lombard Corridor

Parking requirements

o The fewer required parking spots, the higher the overall return to the developer,

Regardless, both show considerable value to the property owner should s/he want to initiate development on

their property.

Furthermore, overall profits after accounting for development costs and developer profit are positive. The range

of returns based off of capitalized income varies from $389,000 to $3.75 million. These values translate to the

value of the land during a potential redevelopment. It is the theoretical land value a developer would pay for the

land under a given land use.

AECOM


March 2015

For illustrative purposes, the current combined assessed land and structure value at 2505 Lombard Street is

approximately $2.5M.17

Under the mixed-use scenario, the capitalized value could be approximately $9.8M and

under the motel scenario, the overall property and land value could be approximately $3.8M.

17 Per http://propertymap.sfplanning.org/, the value is $1,253,781.00 for the land and $1,253,781.00 for the structure.

http://propertymap.sfplanning.org/


March 2015

Table 9. Feasibility Analysis Summary

Scenario Site Development

Type Parking Ratio

Total Development

Costs

Total Capitalized

Revenue

Return to Landowner

18

Return to Landowner per Square

Foot of Land

Return to Landowner/Unit

1a 2505 Lombard Street

Mixed-Use 1.0 per unit $5,582,000 $9,841,000 $3,701,000 $572 $463,000

1b Motel 0.8 per key $2,868,000 $3,843,000 $631,000 $98 $35,000

2a

Hotel del Sol Parking Lot

Mixed-Use 1.0 per unit $5,898,000 $9,752,000 $3,265,000 $470 $272,000

2b Mixed-Use 0.5 per unit $6,713,000 $10,969,000 $3,585,000 $516 $256,000

2c Mixed-Use 0.0 per unit $7,432,000 $11,931,000 $3,756,000 $541 $235,000

2d Motel 0.8 per key $2,135,000 $2,781,000 $390,000 $56 $30,000

Source: AECOM

18 This amount excludes amount paid to developer.


March 2015

Figure 9. Comparison of Return to Landowner per Square Foot of Land by Scenario

Source: AECOM

PARKING-RELATED DEVELOPMENT BONUSES

The City currently has modest parking requirements for new residential, retail, and hotel development.

Residential multi-family developments require one parking space per unit, while hotel developments require

one parking space per 1.25 units. Retail developments have no parking requirements.

This study noted in the production of development scenarios that parking requirements on these small parcels

constrained potential development more than height requirements. For example, in the mixed-use residential

scenario at the Hotel del Sol parking lot site, four additional residential rental units could be built within the

height requirement given a requirement of no parking (difference between scenario 2a – 12 units – and 2c – 16

units). This adds an additional $491,000 in returns to the landowner.19

While an underground parking scenario

was not evaluated, the costs to construct underground parking can be cost-prohibitive with costs over $50,000

per space, especially for smaller sites. As such, assuming underground parking to accommodate additional

development is not a recommended option.

19 Developer returns have already been deducted from profit.


March 2015

It is important to note that interviews conducted with developers during this project indicate that a no-parking

scenario is unlikely to be explored for the residential mixed-use scenario, as it does not reflect market

conditions and competitive development strategies.


March 2015

6. Developer Strategies for Increasing Feasibility

The pro forma findings described above assume typical development inputs and average revenue assumptions

for new product, be it residential, retail, or office. Developers are often challenged with project feasibility in the

planning stage and use a number of strategies to improve the viability of a potential project. These include:

1. Change the unit mix to increase the number of smaller units, which generally command higher rents

per square foot. Studio and one-bedroom apartments have traditionally commanded higher rents per

square foot than two- and three-bedroom apartments.

2. Increase building efficiency and limit non-leasable area by reducing building circulation and

assigning a share of non-leasable area to the tenant (i.e. traditionally only considered in commercial

developments).

3. Reduce the parking to the extent feasible, recognizing that each tuck-under parking space can cost

more than $20,000. Note that market constraints may limit the amount of parking a developer can

reduce.

4. Reconfigure parking design to lift parking which – in certain cases – allows developers to

accommodate parking at one level versus multiple levels that require additional circulation and

associated costs.

5. Partner with the developer rather than require an upfront payment. This reduces the developer’s

upfront costs and associated risks.

In most cases, developers are considering all of the above options - and more - in each project not only to

maximize profitability, but also to justify the development to potential investors. Furthermore, projects can also

have an equal if not greater chance of higher development costs than modeled due to landowner land value

expectations, site configuration constraints, additional infrastructure needs, site clean-up requirements,

entitlement constraints, increased financing requirements, escalating construction costs, and a number of other

factors that can ultimately undermine the economic feasibility of a project.


March 2015

7. Conclusion

This analysis indicates that under current market conditions, mixed- use development or re-development

scenarios create strong returns to the landowner. These include scenarios 1a, 2a, 2b, and 2c.

All four scenarios of mixed-use residential with retail along Lombard Street provide a positive return to

the landowner.

A decrease in parking in the mixed-use residential with retail provides higher returns to the landowner.

Overall profits to the Landowner in this case range between $3.3M and $3.8M, with profit per square

foot of land variable depending on lot size.

This analysis indicates that under current market conditions, development of a limited-service hotel would also

provide positive returns to the landowner. This includes scenarios 1b and 2d.

Both scenarios provide positive return in the range of $390,000 to $630,000.

Redevelopment would lead to higher achievable room rate than the current hotel stock.

Along the Lombard corridor, average room rates and occupancy has been increasing since 2009.

Occupancy in 2013 in the area was 79.5%. Sustained occupancy at or near 75% provides an

opportunity for reinvestment or increase in hotel room inventory.


March 2015

Appendix A – Lombard Street Economic Study

LOMBARD STREETECONOMIC STUDY

I N V E S T I N N E I G H B O R H O O D S2

LOMBARD STREET: BACKGROUND INFORMATION

Historical ContextUntil the late 19th century, Lombard Street between Van Ness and Divisadero was predominantly a residential area of San Francisco. Old photographs and records reveal that lots were not only configured with homes, but also gardens, open space, poultry sheds, and other livestock uses. For example, the Sanborn Fire Insurance Map to the left shows a block along Lombard at Franklin and Gough. The Sanborn maps of San Francisco were drawn in 1899 and 1900.

The conversion of Lombard Street from a local, residential road into a boulevard was first considered in January of 1896 after several property owners on the street were interested in a roadway connection along Lombard, from Van Ness to the Presidio. In order to construct a wide boulevard, six feet would need to be removed from the sidewalks, providing an extra 12 feet for the roadway.

At the same time, the Board of Supervisors received communication from Brigadier General Forsyth of the Department of California that a sum of money had been endowed by the National Government in 1889 to be dedicated to construct a roadway between military posts at Fort Mason and the Presidio. The Board of Supervisors agreed that Lombard Street was the most suitable route for this roadway. As a condition of the endowment, the City of San Francisco agreed to maintain the roadway condition. Further recommendations for reducing the size of sidewalks were made as well as the removal of curbs and cesspools.

Even in months following the decision to widen Lombard Street, further support emerged from residents and business owners to reduce the width of the sidewalks and pave the wider roadway. A newspaper article dated February 10th, 1896 states that the sidewalks in this residential part of town are nearly twice as wide as they should be for optimal usefulness of the street. Property owners along Lombard Street “cheerfully agreed” to reduce the sidewalk size and convert the street into a paved boulevard in hopes that a wider roadway would increase the carrying capacity and the frequency of travel along the street.

Although the street widening occurred in the pre-car era, Lombard Street was already being primed to become an arterial corridor of San Francisco. The paved and widened boulevard, as well as the facilitated connection to the Presidio made Lombard Street a well-traveled thoroughfare.

This Sanborn Map file diagrams a block at the intersection of Lombard and Gough. This lot was the location of Western Nursery, but other henhouses and yards are evident in the streetscape. The Sanborn maps of San Francisco were drawn from 1899 to 1900.

http://www.sfgenealogy.com/sf/sanborn/sm265.pdf

The San Francisco Call, Thursday, February 13, 1896.

3L O M B A R D S T R E E T

In the aftermath of the 1906 earthquake, all of the rubble and brick from the destroyed buildings in downtown San Francisco was dumped into the marshlands at the Marina to the north of Lombard Street. This refuse formed an initial unstable foundation for future development.

In 1915, the Panama-Pacific International Exposition was hosted in San Francisco to celebrate the completion of the Panama Canal. The event took place in the area known today as the Marina District. Although San Francisco was significantly damaged after the 1906 earthquake, the Panama-Pacific International Exposition was an ambitious endeavor that helped to showcase the progress that had been made since the disaster. Preparation for the event also created an incentive to improve the marshlands that had become an earthquake dumping ground. The event attracted thousands of visitors that used Lombard Street as the main access point. Although most of the buildings constructed for the Exposition were torn down after the event, the Palace of Fine Arts remains today and serves as a defining landmark for the area and San Francisco.

The improved land that remained in the Marina area after the Exposition created appealing development possibilities- both commercial and residential- on the newly founded waterfront property. In the decades that followed the Exposition, apartment buildings and other homes were built on the blocks surrounding Lombard and Chestnut Street. Residential development spurred the desire for more commercial development which resulted in increased services on Chestnut Street, including the iconic Marina Theatre that opened in 1928.

This photograph from the UC Berkeley Bancroft Library shows the Panama-Pacific International Exposition at nighttime, 1915.

Source: University of California Calisphere

Panama-Pacific Exposition, 1915. Source: University of California Calisphere

The Palace of Fine Arts in 1919. Source: Library of Congress


Historical Context continued

Source: SF Examiner, May 25, 2012.

By the early 1930’s, construction of the Golden Gate Bridge was underway. By 1937, the bridge was completed and Lombard Street had become an official Golden Gate approach. Programs under President Roosevelt’s “New Deal” economic recovery efforts funded the construction and improvement of Lombard Street as a new Golden Gate approach road that would connect Lombard Street/Highway 101 through the Presidio to the bridge. Lombard Street now served as a major arterial roadway that connected the City of San Francisco to Marin and Sonoma Counties across the bridge. Lombard Street not only became an essential roadway connection, but it was also the access point to the Golden Gate Bridge, a highly popular tourist attraction.

The growing prevalence and popularity of the automobile in the 1940’s and later gave rise to the introduction of the ‘motorist hotel’ or motel. The typical design of a motel catered to automobile travelers and tourists. Motels were generally u-shaped and formed around a central parking courtyard. The first motel to open on Lombard Street was the Marina Motel in 1939, quickly followed by many other motels throughout the 1950’s and 60’s. Both sides of Lombard Street became dominated by motels that catered to tourists looking for easy access to drive across the Golden Gate Bridge.

Other auto-oriented businesses followed the development of motels on Lombard Street. The current streetscape along Lombard includes gas stations and drive-through restaurants. The legacy of the hotel era has remained in the form of many motels in the original 1950’s and 60’s style in the original configuration. Today, Lombard Street is designated officially as U.S. Route 101. It is also designated as a Principal Arterial by the San Francisco Planning Department and a Congestion Management Program route by the San Francisco County Transportation Authority.

Source: blogs.kqed.org

The Marina Motel (constructed in 1940) shows a typical auto-court motel configuration Source: The Marina Motel


LOMBARD STREET: PARCEL ANALYSIS

INVENTORY

Total Number of Parcels 236

Residential Space 547 units

Office Space 90,600 square feet

Retail Space 570,000 square feet

Average age of building Stock* 70 years

Buildings Constructed after 2000 6 properties

New Residential Construction Projects (5-year average)

0 units

New Commercial Construction Projects (5-year average)

860 square feet**

Building Age Range 1895-2009

Vacant Lots 5 lots (29,000 square feet)

Source: 2013 Secured Assessment Poll, CoStar, AECOM*Analysis is based on data for 231 parcels; age of structure data was missing for 5 parcels**5-year average new construction and renovation of office space is 0 square feet. 5-year average of retail space is 204 square feet.

General Building Stock

Key Findings:

•Verylittleconstructionorrenovationistakingplaceinthebuildingstock

•Existingcommercialstockisaging,withoutmuchupgradeorreinvestment

•Moststructuresareover65yearsold(only6propertieswereconstructedafter2000)

•5lotsarevacant

•Limitedofficesupplyinthestudyarea

•AvailableofficespaceisprimarilyClassC,withsomeClassB.NoClassAofficespaceisavailable


COMMERCIAL REAL ESTATE STATISTICS

LOMBARD CORRIDOR (5-YR. AVERAGE)

CITYWIDE AVERAGE (5-YR. AVERAGE)

RetailVacancyRate 4.00% 2.70%

LeaseRateforcommercialproperty($persquarefoot)

$35.56 $33.66

Pricepersquarefoot* $577 $396

SalesVolume(millions)* $4.9 -

*Includes only retail properties; lease rates were withheld for all office properties, except for one office property with a rental rate of $29.40 per square footSource: CoStar

Lombard Street StorefrontsTOTAL STOREFRONTS % VACANT

192 12%

Motel 29

Restaurant,FullService 25

PersonalService 19

BusinessorProfessionalService 17

MedicalService 13

OtherRetail 8

Fitness/Gym 6

ParkingGarage 6

AnimalHospital/Kennel 5

Bar 5

FastFood/LimitedRestaurant 5

GasStation/ServiceStation 5

Other 5

AutoRepair 4

MassageEstablishment 4

Bank/FinancialService 3

Café 3

ElectronicsRetail 3

TradeShop(withRetailComponent) 3

GroceryStore/SmallMarket 1

VacantStorefronts 23

Source: November 2012 parcel inventory within Commercial District Area (see boundary map on page 6 of Neighborhood Profile) conducted by Planning Department/OEWD.

COMMERCIAL DISTRICT AREA STOREFRONTS

Source: Lombard Street Neighborhood Profile

Commercial Real Estate

Key Findings:

•Commercialrealestateisstable,withlowretailvacancyandleaseratesthatareslightlyhigherthantheaverageCityrates.Nonetheless,salestaxrevenuesinthecorridorhavebeendeclininginrealterms

•Turnoverforcommercialpropertyislow(i.e.lowsalesvolume).Approximatelyhalfofthepropertiesinthecorridorhavenotbeensoldinthelast30years

Sales Tax (2nd Quarter, Fiscal Year)$100,000

$80,000

$40,000

$60,000

$20,000

$0 20072006 2008 2009 2010 2011 2012$7

2,86

3

$70,

391

$81,

186

$70,

632

$71,

014

$68,

933

$72,

297

2013 2014

$79,

059

$76,

649

LOMBARD STREET STUDY AREA

Source: OEWD


HOUSING ASSESSMENT

LOMBARD CORRIDOR (5-YR. AVERAGE)

CITYWIDE AVERAGE (5-YR. AVERAGE)

ResidentialVacancyRate 2.7% 3.9%

AskingRatefora1-bedroomapartment $1,930 $1,980

MedianGrossRent* $1,700 $1,500

Proportionofrent-controlledunits** 93% 85%

RentersWhoEnteredUnitSince2000 83% 76%

MedianYearRenterMovedIntoUnit 2005 2004

*Median rent includes those units under the Rent Stabilization Act which are lower than asking rents for available units. In other words, a new entrant to the area would pay significantly more than median gross rent and more in line with the “asking rate” listed above** Units within buildings constructed prior to 1980 are assumed to be under rent controlSource: CoStar, US Census

Residential Real Estate

Key Findings:

•ResidentialmarketreflectsoveralleconomichealthofCity’smarketwithverylowvacancy

•AskingrentsareonpartheCityoverall

•WhileagreaterpercentageofunitsaresubjecttorentcontrolthantheCityoverall,medianrentspaidbyresidentsarehigher,reflectingthelargershareofnewarrivalstothecorridorcomparedtotheCityoverall


LOMBARD STREET: HOTEL TRENDS

HOTEL STATISTICS

MEASURE DESCRIPTION 2008-2014 (YTD) AVERAGE

AVERAGE ANNUAL CHANGE

CITY-WIDE COMPARISON

OccupancyRoomssolddividedbyroomsavailable.Occupancyisalwaysdisplayedasapercentageofroomsoccupied

76% 0.4% 79%

ADR Roomrevenuedividedbyroomssold,displayedastheaveragerentalrateforasingleroom $103.26 4.7% $173.76

RevPar Roomrevenuedividedbyroomsavailable $78.75 5.6% $137.70

Supply Thenumberofroomstimesthenumberofdaysintheperiod 220,252 0.0% -

Demand Thenumberofroomssold(excludescomplimentaryrooms) 167,956 0.3% -

Revenue Totalroomrevenuegeneratedfromthesaleorrentalofrooms $17,343,857 5.6% -

Notes: Based on trend analysis of 14 hotels with a total of 602 roomsSource: STR

Key Findings:

•Hotel/motelindustryalongLombardcorridorishealthyandrobust

•Occupancyishigh(76%)andconsistent(lessthan1%annualchangeoverthelast7years)

•Hotelrevenues(bothtotalrevenueandrevPAR)haveincreasedbyapproximately6%annuallyoverthelast7years

•Despiterelativehealth,noadditionalinventoryhasbeenaddedinthearea

•Hotelsarepredominantlyeconomyclass,withlowerper-roompricepointsthantheCityaverage

•Hotelsareolder,two-tofour-storybuildings,typicallyabout50yearsold

•Theoldestwasbuiltin1913,thenewestin1989

•Hotelsalesrevenueinthecorridorisover$17millioneachyear(basedonasampleof14hotels)

•Touristdollarsarenotlikelycapturedinthestudyarea

•Muchofthenon-hotelcommercialspaceisresident-serving(e.g.medicalservices,pet-relatedservicesandretail,gyms,etc.)


HISTORICAL TRENDS

YEAR OCCUPANCY ADR ($) REVPAR ($) SUPPLY (DAYS)

DEMAND (ROOMS) REVENUE ($)

2008 78.7 101.19 79.61 220,460 173,442 17,550,450

2009 70.9 87.96 62.36 220,460 156,291 13,747,861

2010 72.2 88.81 64.08 220,368 159,004 14,121,448

2011 78.0 101.90 79.48 220,095 171,679 17,493,502

2012 78.3 112.47 88.10 220,095 172,394 19,389,940

2013 79.5 124.39 98.89 220,034 174,927 21,759,941

Average 76.3 103.26 78.75 220,252 167,956 17,343,857

INVENTORY

•29hotelsalongthestudycorridor

• Refertodetailedinventoryonpage11forfulllistofhotels/motels


LOMBARD STREET: HOTEL TRENDS Key Findings:

•Thehotels/motelsontheLombardStreetstudycorridormakeup13%ofthehotels/motelsinSanFranciscoasawhole

•93%ofthehotels/motelsonLombardStreetaredefinedassmall,meaningthattheyhave0-99rooms.Thereareonly2largehotels/motelsinthestudyarea

•Betweenthe29hotels/motelslocatedinthestudyarea,thereare1,312totalrooms

LOMBARD STREET HOTEL/MOTEL COMPARISON

CITY OF SAN FRANCISCO

LOMBARD STREET STUDY AREA

LOMBARD STREET STUDY AREA --------------------------------

SAN FRANCISCO

Hotels and Motels (H&M) 224 29 13%Large H&M 90 2 2%

Small H&M 134 27 20%

Rooms in Large H&M 27,723 267 1%

Rooms in Small H&M 6,350 1,045 16%

Total Rooms 34,073 1,312 4%

Note: Large hotels are defined as having 100 or more rooms. Small hotels are defined as having 0-99 rooms. Source: STR


BROADWAY

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FILBERT ST

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GREENWICH ST

BEACH ST

ALHAMBRA

OC

TAV

IA ST

MACARTHUR AVE

FRANCISCO ST

PACIFIC AVE

PIXLEY ST

NORTH POINT ST

SCO

TT ST

AVILA

ST M

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RC

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LOMBARD ST

VAN

NESS AVE

RICHARDSON AVE

BR

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5

6

7

9

10

11

12

1617

18

1920

21

22

23

2425

2627

28

29

8

13

14

15

1

Zoning

ZONING COLOR KEY

Commercial

Public

Residential

HotelLocations

Neighborhood Zoning

NC-3 MODERATE SCALE COMMERCIAL

LOMBARD STREET: HOTEL LOCATIONS

24

25

26

27

23

16

17

18

19

20

21

22

Comfort Inn by the Bay San Francisco (1972) 138 rooms

Travelodge San Francisco by the Bay (1968) 70 rooms

Lombard Motor Inn (1971) 48 rooms

Francisco Bay Inn (1954) 39 rooms

Redwood Inn (1977) 33 rooms

Buena Vista Motor Inn (1989) 50 rooms

Town House Motel (1954) 23 rooms

Marina Inn (1924) 40 rooms

Star Motel (1960) 52 rooms

Seaside Inn (1946) 20 rooms

Coventry Motor Inn (1984) 69 rooms

Howard Johnson San Francisco Marina District (1980) 37 rooms

Joie De Vivre Hotel del Sol (1956) 57 rooms

Lombard Plaza Motel (1955) 29 rooms

Chelsea Motor Inn (1982) 60 rooms

Cow Hollow Motor Inn (1988) 129 rooms

Travelodge San Francisco Golden Gate (1954) 29 rooms

Surf Motel (1959) 35 rooms

America’s Best Value Inn San Francisco Golden Gate (1954) 39 rooms

Days Inn San Francisco Lombard (1956) 22 rooms

Presidio Inn and Suites (1959) 24 rooms

Super 8 San Francisco Fisherman’s Wharf (1953) 32 rooms

Alpha Inn and Suites (1960) 28 rooms

Bridge Motel (1913) 40 rooms

Marina Motel (1940) 38 rooms

La Luna Inn (1957) 61 rooms

Country Hearth Inn San Francisco (1955) 23 rooms

Travelodge San Francisco @ Presidio (1955) 27 rooms

Knights Inn San Francisco near the Presidio 20 rooms

1

10

9

8

7

6

5

4

3

2

11

12

13

14

Adapted from Lombard Street Neighborhood Profile

15

28

29


EXISTING PUBLIC WORKS PROJECTS

LOMBARD STREET REPAVEMENT

AgenciesInvolved Summary

• Caltrans

LombardStreetwillberepavedaspartofaCaltransCapitalPreventiveMaintenanceProgram.Therepavementwillupgradecurbrampsandreplacepavementtoimprovethequalityandextendthelifeoftheroadway.Therepavementissettooccurintwosegments;segmentonewillbefromMissiontoLombardStreetaspartoftheVanNessBRTproject;thesecondsegmentwillbefromVanNesstoLyonStreet.ConstructionisanticipatedtobegininFallof2018.

WALK FIRST


• SanFranciscoMunicipalTransitAuthority(SFMTA)

• SFPlanningDepartment

• DepartmentofPublicHealth

• DepartmentofPublicWorks

• Controller’sOffice

WalkFirstisaSanFranciscoinitiativedevelopedinSanFranciscothataimstoimprovepedestriansafetybyidentifyingandinvestinginpedestrianprojectsandprograms.Theidentifiedprogramsareintendedtoimplementengineeringmeasurestoreducepedestrian-vehiclecollisions.170high-prioritylocationstoimprovepedestriansafetyhavebeenidentified,oneofwhichisLombardStreet.

PRESIDIO PARKWAY PROJECT


• Caltrans

• SFCTA

• FederalHighwayAdministration(SFWA)

• GoldenLinkPartners

ThePresidioParkwayProjectwillreplaceDoyleDrive,theeasternapproachtoRoute101andtheGoldenGateBridge.TheprojectareaextendsfromBroderickStreetontheeasternsidetotheGoldenGateTollPlazatothewest.Theupgradestotheroadwayincludeseismicandtrafficsafetyimprovementstothebridgeapproach.Inadditiontosafetyimprovements,thePresidioParkwaywillalsocreatearegionalgatewaybetweentheGoldenGateBridgeandSanFrancisco.ThePresidioParkwaywillbethecontinuation,viaRichardsonAvenue,ofRoute101totheGoldenGateBridgefromLombardStreet.

VAN NESS AVENUE BUS RAPID TRANSIT


• SanFranciscoCountyTransportationAuthority(SFCTA)

TheVanNessBusRapidTransit(BRT)ProjectisproposedtoextendtwomilesalongVanNessAvenuefromMissionStreettoLombardStreet.Thisprojectwouldcreatetwodedicatedtransitlanes-onesouthboundandonenorthbound.Shouldallapprovalsgothrough,constructioncouldbegininlate2015.

See page 16 for Public Works Projects locations

LOMBARD STREET: PUBLIC INVESTMENTKey Findings:

•TheCityisinvestinginLombardStreetthroughpublicworksprojectsonandnearLombardStreet

•LombardStreetrepavement,inadditiontoimprovingtheroadway,couldcatalyzecomplementarystreetscapeimprovementsorbeautification

•MajortransportationprojectsnearbywillaffectLombardStreetandprovidemoremomentumtodevelop,upgrade,andimproveLombardStreet


LOMBARD STREET: PIPELINE DEVELOPMENT PROJECTSKey Findings:

•MultiplesignificantdevelopmentprojectsareplannedalongtheLombardStreetcorridor

•Mostproposeddevelopmentsaremixed-use,withcommercialgroundfloorsandupperresidentialfloors

•Manyprojectsincludetheconversionofparkinglotsandlow-densitycommercialbuildings

NOTABLE DEVELOPMENT PROJECTS

2419, 2421, 2435 LOMBARD STREET

ProjectDescription

• 4-storycondominiumbuildingwithgroundfloorcommercialand11residentialunits

• Projecttobebuilton3parcels

3151-3155 SCOTT STREET

ProjectDescription

• Conversionofavacanttouristhotel(EdwardIIInn)to25affordablegrouphousingunits

• ProjectproposedbyCommunityHousingPartnership

• Wouldservetransitional-ageyouthfromages18-24

2353 LOMBARD STREET

ProjectDescription

• A21-unit,4-storymixed-usebuildingwillreplacetheexistingsinglestoryrestaurantbuilding

• Residentialovergroundfloorcommercialspaceandresidentparking

2601 VAN NESS AVENUE

ProjectDescription

• Projectproposestodemolishvacantautomobileservicestationandconstruct6-storymixed-usebuilding

• Groundfloorcommercialspaces,business/professionalservicesonsecondfloor.Theremainingfloors

willberesidentialunits

See page 16 for Notable Development Project locations

Proposed development at 2353 Lombard StreetSource: San Francisco Planning

Proposed development at 2419 Lombard StreetSource: KB Design and Consulting


GO

UG

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BROADWAY

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RICHARDSON AVE

STEINER

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VALLEJO ST

CHESTNUT ST

LOMBARD ST

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KLIN

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BAY ST

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ST

GREEN ST

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FILBERT ST

GREENWICH ST

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ALHAMBRAT

CERVANTES BLVD

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TAV

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AVILA

ST

JEFFERSON ST

FRANCISCO ST

BEACH ST

MOULTON ST

PIXLEY ST

NORTH POINT ST

MA

LLOR

CA

WA

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SCO

TT ST

GO

UG

H ST

BROADWAY

BR

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K S

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RICHARDSON AVE

STEINER

ST

VALLEJO ST

CHESTNUT ST

LOMBARD ST

FRAN

KLIN

ST

VAN

NESS AVE

WEB

STER

ST

BAY ST

DIV

ISAD

ERO

ST

GREEN ST

BAK

ER ST

LAG

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A S

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UNION ST

BU

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PIER

CE ST

FILBERT ST

GREENWICH ST

LYO

N S

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ALHAMBRAT

CERVANTES BLVD

OC

TAV

IA ST

AVILA

ST

JEFFERSON ST

FRANCISCO ST

BEACH ST

MOULTON ST

PIXLEY ST

NORTH POINT ST

MA

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CA

WA

Y

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SCO

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1 2 3

4

LOMBARD STREET: PUBLIC INVESTMENT

LOMBARD STREET: PIPELINE DEVELOPMENT PROJECTS

PROJECT COLOR KEY

LombardStreetRepavement

WalkFirst

PresidioParkwayProject

VanNessAvenueBusRapidTransit

PROJECT LOCATION KEY

2419,2421,2435LombardStreet

3151-3155ScottStreet

2353LombardStreet

2601VanNessAvenue4

3

2

1


• Realestateandretailmarketconditionsarerelativelyhealthyalongthecorridor.However, tourist dollars from hotel/motel guests are likely not captured in the study corridor, given that much of the corridor’s commercial business serves residents, not visitors.Thestreetenvironmentisnotconducivetowalking,exploringand/orpass-byspending.NeighboringcorridorssuchasChestnutStreetoffermoreattractivedestinations.Additionalinvestmentinstreetscapeimprovements,coupledwithtourist-servingcommerce,mighthelpretaintourismdollarsinthecorridor.StreetenhancementsonLombardcouldimproveconnectivityoftheretailenvironment,whichdoesnotcurrentlyworkasacohesivedistrict.

• Therearesomecurrenteffortsbeingimplementedthatwillofferstreetenhancementsandincreasedconnectivity.OneoftheseeffortsistheWalkFirstCapitalImprovementPlan.WalkFirstisintendedtoreducepedestrianinjuriesandfatalitiesthroughsafetyprogramsandstreetupgrades.LombardStreet,andtheentirestudyareainparticularisslatedtoberepavedinthefallof2018asajointeffortbyCaltransandotherCityagencies.Nonetheless,thedesignationofLombardStreetasahighwayandthehightrafficvolumeposescontinualchallengesforthecorridorasapedestrian-friendly,tourist-friendlywalkingzone.

• ApparenthealthoftherealestateandhotelindustryinthestudyareaarelikelyareflectionofthestrongoverallSanFranciscorealestatemarketandthestrongoverallSanFranciscohotelindustry.If the San Francisco housing and motel markets falter, the study area will suffer.Littleinvestmentisbeingmadeintheexistingproperties.Hotelsareoldanddated,andmostbuildingsareover65yearsold.Nonewcommercialconstructionishelpingtorefreshthearea.IftheSanFranciscohousingorhospitalityindustrybecomeslesssaturated,thisareawillbecomeundesirable,especiallygivenlowcost,higherqualityhoteloptions(e.g.theOakland-Berkeley-Hayward,orSanMateo-RedwoodCitymarkets).HotelsalongtheLombardStreetcorridorarealsopotentiallyunderminedbycompanieslikeAirbnbthatofferaffordableaccommodationinotherpartsofSanFrancisco.Reinvestmentintermsofconstruction,upgradesorrenovationstothecommercial,andspecificallythemotelbuildingstock,wouldhelpsafeguardtheeconomichealthofthecorridor.

• Lowresidentialvacancyratessuggestademandforadditionalhousing.Multi-familydevelopmentwithground-floorretailwouldlikelyseelowretailvacancyandhealthyresidentialpricing.

LOMBARD STREET: PRELIMINARY OBSERVATIONS/RECOMMENDATIONS



March 2015

Appendix B – Pro Forma Technical Analysis


March 2015

Figure 10. Pro Forma, Scenario 1a: 2505 Lombard Street Mixed-Use Residential

Development Program Pro Forma Analysis - Development Costs

Number Unit Land Costs

Site Size 6,471 Square Feet Land Costs $0

Amount of Area to be Demolished 6,788 Square Feet Hard Costs

Base Building Height 35 Feet Demolition Costs $67,880

Building Type Mixed-Use Use Site Work Cost $25,065

Construction Term 12 Months Parking Costs $160,000

Building Footprint 4,800 Square Feet Base Construction Costs

Retail Construction Costs $504,700

Retail Residential Construction Costs $2,531,982

Gross Retail Area 2,722 Square Feet Total Base Construction Costs $3,036,682

Net Leasable Retail Area 2,450 Square Feet Hard Costs Sub Total $3,289,627

Soft Costs

Residential Architecture and Engineering

Gross Residential Area 11,706 Square Feet Base Building $227,751

Net Residential Unit Space 9,950 Square Feet Total Architecture and Engineering $227,751

Total Units 8 Units

Residential Absorption Period 1 Months Building/Permitting/Impact Fees $1,458,540

Property Taxes $62,199

Parking Construction Loan $105,066

Total Parking Area 2,800 Square Feet Construction Loan Points $18,001

Average Parking Space 350 Square Feet Overhead/Other $154,836

Total Parking Spaces 8 Spaces Contingency $265,801

Surface Parking - Spaces Total Soft Costs $2,292,193

Tuck-Under Parking 8

Underground Parking - Spaces Total Development Cost $5,581,820

Parking Use Distribution

Retail On Street Spaces Pro Forma Analysis - Development Revenue

Residential 8 Spaces Retail

Annual Leasing Revenue $102,900

Less Vacancy ($5,145)

Less Operating Expenses ($3,267)

Less Broker Fees ($5,145)

Retail Revenue Sub Total $89,343

Residential

Annual Rental Revenue $549,240


Less Operations and Maintenance Expenses ($164,772)

Residential Rental Revenue Sub Total $357,006

Parking

Annual Residential Parking Rental Revenue $24,000

Parking Revenue Sub Total $24,000

Net Annual Revenue $470,349

Capitalized Value $9,841,313

Pro Forma Analysis - Net Revenue


Total Development Cost ($5,581,820)

Net Revenue $4,259,492

Capitalized Value / Development Cost 176%

Developer Profit (Rounded to 100s) $558,200

Land Residual Value (Rounded to 100s) $3,701,300


March 2015

Figure 11. Pro Forma, Scenario 1b: 2505 Lombard Street Hotel Use




Amount of Area to be Demolished 6,788 Square Feet Hard Costs

Base Building Height 35 Feet Demolition Costs $67,880

Building Type Hotel Use Site Work Cost $46,290


Building Footprint 3,385 Square Feet Base Construction Costs $1,779,068

Hotel FF&E (Fixtures, Furniture & Equipment) $259,088

Hotel Hard Costs Sub Total $2,308,325

Gross Hotel Area 7,350 Square Feet Soft Costs

Net Hotel Area 6,615 Square Feet Architecture and Engineering $19,432

Number of Hotel Rooms 18 Keys Total Architecture and Engineering $19,432

Average Room Size 400 Square Feet

Building/Permitting/Impact Fees $232,776

Parking Property Taxes $32,007

Total Parking Area 5,250 Square Feet Construction Loan $49,906

Average Parking Space 350 Square Feet Construction Loan Points $9,249

Total Parking Spaces 15 Spaces Overhead/Other $79,551

Surface Parking 8 Spaces Contingency $136,562

Tuck-Under Parking 7 Total Soft Costs $559,482

Underground Parking - Spaces

Total Development Cost $2,867,807

Pro Forma Analysis - Development Revenue

Hotel

Annual Hotel Revenue $985,500



Hotel Revenue Sub Total $271,013

Parking

Annual Hotel Parking Revenue $40,500








Net Revenue $975,474



Land Residual Value (Rounded to 100s) $631,400


March 2015

Figure 12. Pro Forma, Scenario 2a: Hotel del Sol Parking Lot Mixed-Use Residential, 1.0 Parking Ratio




Amount of Area to be Demolished - Square Feet Hard Costs

Base Building Height 35 Feet Demolition Costs $0








Soft Costs




Total Units 12 Units


















Residential





Parking













March 2015

Figure 13. Pro Forma, Scenario 2b: Hotel del Sol Parking Lot Mixed-Use Residential, 0.5 Parking Ratio













Soft Costs






















Residential





Parking













March 2015

Figure 14. Pro Forma, Scenario 2c: Hotel del Sol Parking Lot Mixed-Use Residential, No Parking Required







Construction Term 12 Months Parking Costs $0






Soft Costs








Total Parking Area - Square Feet Construction Loan Points $23,967


Total Parking Spaces - Spaces Contingency $353,892


Tuck-Under Parking -




Residential - Spaces Retail






Residential





Parking

Annual Residential Parking Rental Revenue $0

Parking Revenue Sub Total $0











March 2015






Building Type Hotel Use Site Work Cost $60,885


Building Footprint 2,885 Square Feet Base Construction Costs $1,512,813

Hotel FF&E (Fixtures, Furniture & Equipment) $220,313

Hotel Hard Costs Sub Total $1,888,010

Gross Hotel Area 6,250 Square Feet Soft Costs

Net Hotel Area 5,625 Square Feet Architecture and Engineering $16,523

Number of Hotel Rooms 13 Rooms Total Architecture and Engineering $16,523

Average Room Size 400 Square Feet

Building/Permitting/Impact Fees $1,652

Parking Property Taxes $23,827

Total Parking Area 3,850 Square Feet Construction Loan $37,153

Average Parking Space 350 Square Feet Construction Loan Points $6,885

Total Parking Spaces 11 Spaces Overhead/Other $59,222

Surface Parking 7 Spaces Contingency $101,664

Tuck-Under Parking 4 Total Soft Costs $246,926

Underground Parking - Spaces


Pro Forma Analysis - Development Revenue

Hotel

Annual Hotel Revenue $711,750



Hotel Revenue Sub Total $195,731

Parking

Annual Hotel Parking Revenue $29,700








Net Revenue $645,830



Land Residual Value (Rounded to 100s) $389,600

Figure 15. Pro Forma, Scenario 2d: Hotel del Sol parking lot Hotel Use

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ECONOMIC STUDY AND PRO FORMA ANALYSIS MARCH 2015

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