Studio Unit (Single-Occupancy)

x Private-occupancy studio with kitchen and bathroom facilities x 12-month lease term

x $650 - $700 / month / person

Exhibit 4.9 below breaks down the total demand by class and unit type. B&D calculated an overall capture rate of approximately 5% for the academic year 2012/2013 (projected opening year).

Exhibit 4.7: Unit B Layout

Exhibit 4.8: Unit C Layout

Exhibit 4.9: Demand Projections

APARTMENT COMPLEX

This confirms the anecdotal information B&D gathered in student focus groups: juniors, seniors and graduate students are interested in apartment-style living on campus. The 5% capture rate translates into demand for slightly over 300 beds. The four- and the two-bedroom units are equally popular, while the model demonstrates significantly lower interest in the studios, likely due to the tested rental rates.

Financial Analysis

B&D’s model projects financial performance of a newly-constructed apartment complex consisting of 301 beds (87 units – 64 four-bedroom units and 23 two-bedroom units, including one manager’s apartment). In addition, 4,000 square feet of retail space is included in the program. The model analyzes capital costs, projected revenues, operating expenses (both personnel and non-personnel), and the general economic performance of the development demonstrated in the debt coverage ratio.

B&D assumed that the proposed project will be financed through a public-private partnership in an off-balance sheet transaction. The annual debt service is based on the overall project cost, including hard, soft, and financing costs. B&D assumed that the project will be 100% debt financed, using tax-exempt bonds. The debt term is 30 years. The required year-two debt coverage ratio is 1.20X. In addition, to improve the economics of the project, B&D developed an escalated debt service schedule with flat annual debt service payments starting in year seven of operations at approximately $1.11 million per year. The following capital costs are included in the budget (details are included in Appendix E):

Hard costs:

x Enclosed building and site costs (including surface parking): $9.5 million x Fixtures, Furniture & Equipment: $500,000

x Inflation allowance to the mid-point of construction: $1.3 million (at 5% annually)

Soft costs:

x Debt service reserve fund: $1.14 million x Capitalized interest fund: $1.54 million

In addition, reinvestment proceeds (interest earned on construction fund) in the amount of

$306,000 were subtracted from the project cost.

APARTMENT COMPLEX

Brailsford & Dunlavey

The bond amount is estimated to be approximately $16.9M, or $56,000 per bed.

Operating Revenues

Revenues come primarily from room rentals. B&D assumed that the lease term for all units will be 12 months. In addition, the model assumes 95% occupancy in years one and beyond. Retail revenue is projected at $12 per square foot (triple net). All revenues are inflated at three percent (3%) annually.

Operating Expenses (Personnel)

B&D developed a preliminary professional staff schedule for the proposed project. The positions shown include an apartment manager, custodians, and maintenance staff. The benefits rate is assumed to be 25% of salaries. All personnel expenses are inflated at three percent (3%) annually.

Operating Expenses (Non-Personnel)

B&D estimated the non-personnel costs based on its experience with similar projects and housing operating expenses at SDSU. The following expense categories are included:

x Service contracts x Utilities

x Materials and supplies x Marketing

x Miscellaneous (Including Insurance)

All non-personnel expenses are inflated at three percent (3%) annually.

In addition to the above costs, B&D assumed that the project would transfer $175 per bed annually to its renewal & replacement (R&R) account. Furthermore, a property management fee of 5% of gross revenues is included in the pro forma.

Project Timeline

For the purposes of the model, B&D assumed occupancy of the project in the fall of 2012.

Rental Rate Structure

Using the above assumptions, the following rental rate structure would be required to generate the desired 1.20X debt coverage ratio by year two. (Monthly rates below are shown in 2012 dollars):

x $535 ($490 in 2009 dollars) per person for a four-person, four-bedroom (single-occupancy) apartment, with utilities included

x $642 ($588 in 2009 dollars) per person for a two-person, two-bedroom (single-occupancy) apartment, with utilities included

APARTMENT COMPLEX

The program (residential unit mix and size of retail) in the model is based on the results of the demand analysis. Upon refinement of certain capital and operating assumptions, B&D was able to establish rental rates, as shown above, lower than originally projected and tested in the survey.

With the proposed rental rate structure, the project will “stand alone” financially and will not require additional subsidies.

Conclusions and Recommendations

B&D’s analysis suggests that juniors, seniors, and graduate students at SDSU are interested in living on campus in apartment-style units. Furthermore, it appears that students included in the target market for the tested housing program would be willing to pay a modest premium, as compared to the off-campus rates, to live in the Northwest Quad. Based on the outcome of demand modeling, B&D suggests a development of an apartment complex consisting of approximately 300 beds in two- and four-bedroom units. In order to make the future units more affordable, the unit mix should include a large percentage of the four-bedroom units and a smaller number of two-bedroom units. In addition, to take advantage of the synergy between retail services and housing, any retail component proposed for the Project should be adjacent to the future residential developments. The recommended development would also provide benefit to the Brookings community by attracting students to an on-campus facility and, therefore, increasing availability of off-campus rental housing to non-student residents.

APARTMENT COMPLEX

Brailsford & Dunlavey

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Introduction

B&D conducted analysis to determine demand for additional retail space on the northwest quadrant. The analysis consisted of review of an existing retail study for the City of Brookings, demographic analysis, and demand/supply reconciliation of the on-campus retail space.

Buxton Report

In 2006, the City of Brookings engaged Buxton to evaluate the City’s potential to attract new retailers and restaurants. The study, Retail Site Assessment, found that “Brookings serves as a regional draw for retail activity that appeals to a wide variety of retailers and restaurants.” Buxton proposed a new retail development adjacent to Interstate 29. The Buxton report identified several hundred retailers that correspond with the “buying habits and demographics within the site’s retail trade area.” With input from the City Council, this list was pared down to 20 retail stores and restaurants for which marketing packages would be prepared. The Buxton report and the demographic analysis, addressed below, provided a broad context for B&D’s demand/supply reconciliation of the on-campus retail space at SDSU.

Demographic Analysis

Brookings, home to more than 18,500 residents, according to the 2000 US Census, is the county seat of Brookings County and the fifth largest city in South Dakota.

Exhibit 5.1: Map of 15-, 20-, and 30-Minute Drive Time Market Areas

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Brailsford & Dunlavey

While common market analyses rely on federal market area definitions, the definition of the Brookings Micropolitan Area does not adequately represent the market for the product types being considered in this study. A micropolitan area is defined by the United States’ Office of Management and Budget as an area that has at least one urban core of 10,000 or more residents and includes the county or counties containing that urban core. To fully account for the commuter traffic, the market area in this analysis is broken down into driving radii. Survey results of faculty/staff and students indicated that nearly 90% of both groups travel up to 30 minutes to get to campus. Thus, the study area data is defined by driving time radii of 15 minutes, 20 minutes and 30 minutes (Exhibit 5.1). The 30-minute drive time market area has nearly twice the population of Brookings proper.

Based on 2008 population estimates, the defined market area includes more than 30,500 people.

Nearly 80% of the market area population is located within 15 minutes driving time of the University, while the majority of the remainder of the market area population is located between the 20- and 30-minute driving areas. Population growth estimates for the five-year period from 2008 to 2013 average 1.6% for the entire study area (Exhibit 5.2).

The most immediate driving time area includes 9,505 households, 80% of the total market area households. The 30-minute radius area contains most of the remaining 20% of households, which is consistent with communities anchored by universities. The estimated household growth rate is slightly lower than that of overall population, but is consistent across each of the market areas at 1.3%.

Demand/Supply Reconciliation

Community (Non-Student) Demand

In order to quantify the retail demand for the SDSU campus, B&D purchased an ESRI (Environmental Systems Research Institute) report that provided retail spending within 15-, 20-, and 30-minute drive time radii from the SDSU campus. This information was filtered to include spending on those categories relevant to the market for potential on-campus retail development.

The analysis of the retail market for the community relied upon the projected population change (assuming that the existing demand is already satisfied elsewhere) and expected sales activity within the study area to define the square footage demand. Between 2008 and 2013, the population is projected to grow by 500 people, and each new person will create a demand for retail space. On average, each person within the market will spend nearly $24,500 including investments, vehicles, mortgages, food, recreation, etc. Because certain establishments are not

Exhibit 5.2: Market Area Population and Growth Data

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appropriate for the study area and because certain services are already provided, the average per-person spending figure was reduced to $4,709. A home improvement store or car dealership, for example, would be considered inappropriate uses for the Project and those spending categories were not included. The $4,709 figure, generally, includes food, personal care products, and limited household supplies.

In 2013, the 500 new people within a 30-minute drive time will generate approximately $2.4M per year in new spending. Assuming average sales of $350 per square foot for sustainable retail businesses, the new spending will create a demand for over 6,700 square feet of retail space that may be provided either in the community or, possibly, on the Project site (Exhibit 5.3).

While the non-university population may generate some demand for on-campus retail, the primary market consists of SDSU students. SDSU has a projected enrollment of 13,600 by 2013, an increase of 13% relative to the fall 2009 student population. Based on SDSU’s estimates for the cost of attending the University, students spend $3,322 per year on retail items/services. The student survey data suggests that, of the total amount of annual expenditures, only 10% is spent on campus. Assuming that more attractive retail outlets will be available in the future, B&D projects that the number could double to 20%. With average sales of $350 per square foot, the student spending on campus will generate a demand for nearly 26,000 square feet of retail space (Exhibit 5.4).

Based on the above calculations, a total of approximately 32,500 square feet of retail could be supported on campus – a sum of demand resulting from community and student spending.

Exhibit 5.3: Community Market Retail Demand

Exhibit 5.4: Student Market Retail Demand

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Brailsford & Dunlavey B&D included the following retail outlets in its supply calculations:

x Food Service at the Student Union, x Convenience Store at Larson Cafeteria, x Food Service at the NFA building, x Juice Bar at the Library,

x Meat Lab Store, x Dairy Bar, and x Bookstore.

The total supply of retail space at the above locations on campus is approximately 33,500 square feet.

The reconciliation of supply (33,500 square feet) and demand (32,500 square feet) results in a small surplus of 1,000 square feet, which suggests a relative balance and no need to add more retail space in the near future.

Conclusions

While the analysis above suggests that no more retail space on campus is needed, given that more students will reside in the Northwest Quad, B&D suggests providing retail to primarily serve residents in the proposed new apartment complex and Berg/Bailey, as well as some additional drop-in customers on that side of campus. B&D included 4,000 square feet in the housing program and the pro forma calculations. The most popular outlets, based on the survey results, would be: a grocery store, a fitness center, a coffee house/café, and a convenience store (Exhibit 5.5). With respect to location, the new retail space should be directly adjacent to the contemplated apartment complex.

Exhibit 5.5: Preferred Retail Selections