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HomeMy WebLinkAbout08-25-2014 PLANNING AND COMMUNITY DEVELOPMENT COMMITTEE AGENDA PACKETcqv or Au.BuRN WASH € NGTON Planning and Community Development August 25, 2014 - 5:00 PM Annex Conference Room 2 AGENDA I. CALL TO ORDER A. Roll Call B. Announcements 1. Presentation - Police Patroll Efforts Update (Pierson) Assistant Police Chief Bill Pierson will update the Committee on results of enhanced police patrol efforts in the Auburn downtown area. C. Agenda Modifications 11. CONSENT AGENDA A. Minutes - July 28, 2014* (Tate) 111. ACTION A. Ordinance No. 6525* (Chamberlain /Heid) An Ordinance of the City Council of the City of Auburn, Washington, amending Sections 1.04.060, 5.10.060, 5.10.040, 9.22.010, 18.02.020 and 18.07.010 of the Auburn City Code, relating to enforcement of State regulations regarding production, processing and /or retail outlet and sales of marijuana, and terminating the moratorium implemented pursuant to Resolution No. 4992, passed on September 16, 2013. IV. DISCUSSION ITEMS A. Amendment to the Downtown Urban Center Design Standards and Auburn Junction Design Guidelines* (Chamberlain) Proposed amendment to the Downtown Urban Center Design Standards and Auburn Junction Design Guidelines related to the designation of pedestrian streets. B. "Investing in Place" Discussion (Tate /Snyder) Discussion of "Investing in Place" focusing on old and new amenities, beautification, and design to support short -term and long -term economic development efforts. C. Director's Report (Tate) D. PCDC Status Matrix* (Tate) V. ADJOURNMENT Page 1 of 143 Agendas and minutes are available to the public at the City Clerk's Office, on the City website (http: / /www.auburnwa.gov), and via e -mail. Complete agenda packets are available for review at the City Clerk's Office. *Denotes attachments included in the agenda packet. Page 2 of 143 C=ITY or AUBURN \VASH E NGTo AGENDA BILL APPROVAL FORM Agenda Subject: Date: Minutes - July 28, 2014 August 20, 2014 Department: Attachments: Budget Impact: Community Development & Juiy28, 2014 Draft Minutes $0 Public Works Administrative Recommendation: Planning and Community Development Committee to approve the July 28, 2014 minutes as written. Background Summary: Reviewed by Council Committees: Councilmember: Holman Meeting Date: August 25, 2014 Staff: Tate Item Number: CA.A CA.A AUBURN * MORE THAN YOU IMAGINED Page 3 of 143 WASH 1 NGTONi Planning and Community Development July 28, 2014 - 5:00 PM Annex Conference Room 2 MINUTES I. CALL TO ORDER Chair Holman called the meeting to order at 5:00 p.m. in Annex Conference Room 2 located on the 2nd floor of One Main Professional Plaza, One East Main Street, Auburn, Washington. A. Roll Call Chair John Holman, Vice -Chair Largo Wales and Member Yolanda Trout were present. Also present were Mayor Nancy Backus, Director of Community Development and Public Works Kevin Snyder, Assistant Director of Community Development Services Jeff Tate, Assistant Director of Engineering Services /City Engineer Ingrid Gaub, and Community Development Secretary Tina Kriss. Members of the audience present: Robert Whale of the Auburn Reporter B. Announcements 1. Presentation Status Update of Resolution No. 5003 Remedial Action Grant Agreement with the State Department of Ecology* (Snyder) Director Snyder briefed the Committee on the next steps and anticipated schedule for implementation of Resolution No. 5003, the Remedial Action Grant Agreement with the Department of Ecology. The Committee and staff discussed consultant services between the City of Auburn and Maul Foster & Alongi, Inc. for project administration of the grant. Staff explained that the next steps are to go forward to full City Council to ask that Council grant permission for the Mayor to enter into a Consultant Agreement with Maul Foster & Alongi for project administration services. The Committee was supportive of the request to go to full Council and determined they would take action on this item. Director Snyder stated that staff will bring this item before the Public Works Committee at their August 4, 2014 meeting for discussion before moving forward to full Council. Page 1 of 5 CA.A Page 4 of 143 Vice -Chair Wales moved and Member Trout seconded to recommend City Council grant permission to enter into a Consultant Agreement with Maul Foster & Alongi, Inc., in the sum of $175,000.00, for consultant services. Motion carried unanimously. 3 -0 C. Agenda Modifications There are two agenda modifications transmitted to the agenda: I. B. ANNOUNCEMENTS: Presentation - Status Update of Resolution No. 5003 - Remedial Action Grant Agreement with the State Department of Ecology* (Snyder) Staff to brief and present the anticipated schedule and next steps for implementation of Resolution No. 5003; a Remedial Action Grant Agreement with the Department of Ecology. III. ACTION: B. Ordinance No. 6526* (Chamberlain) An Ordinance of the City of Auburn, Washington, amending section 19.04.070 of the Auburn City Council Code relating to traffic impact fee exemptions. II. CONSENT AGENDA A. Minutes - July 14, 2014 (Tate) Vice -Chair Wales moved and Member Trout seconded to approve the July 14, 2014 Planning and Community Development Committee minutes as written. Motion carried unanimously. 3 -0 111. ACTION A. Ordinance No. 6521 (Tate) Assistant Director Tate presented Ordinance No. 6521, an Ordinance of the City Council of the City of Auburn, Washington, amending Section 20.08.070 relating to term of telecommunications franchise leases. Staff provided a review of the Ordinance amending Section 20.08.070, to provide the City with authority to negotiate a longer term telecommunication franchise leases, 5, 10, 15 year or longer. After discussion, the Committee expressed Page 2 of 5 CA.A Page 5 of 143 support of Ordinance No. 6521. Vice -Chair Wales moved and Member Trout seconded to recommend City Council adopt Ordinance No. 6521. Motion carried unanimously. 3 -0 B. Ordinance No. 6526 Assistant Director Tate provided background information on Ordinance No. 6526. Ordinance No. 6526 would provide an extension of the traffic impact fee exemptions for the Downtown Catalyst Area to December 31, 2016. After discussion of Ordinance No. 6526, the Committee determined they were supportive of the Ordinance. The Committee and staff discussed the location of the exemptions and the benefits of providing the incentive to developers. The Committee was in support of Ordinance No. 6526. Vice -Chair Wales moved and Member Trout seconded to recommend City Council adopt Ordinance No. 6526. Motion carried unanimously. 3 -0 IV. DISCUSSION ITEMS A. Short Plat Threshold Discussion (Tate) Continue to discuss modifying the City's short plat threshold to align with State Law. Assistant Director Tate reviewed the cost and regulations regarding subdivision and short subdivisions and the code changes that would increase the short plat threshold from 4 lots to 9 lots. After reviewing the regulations and standards that are linked to the terms plat and short plat, staff has identified one section, Section 10.01.5 of the Engineering Design Standards regarding private access roads on tracts or easements, that will need a minor change. Staff reported that the next steps would be to take any draft amendments of the Engineering Design Standards before the Public Works Committee and if approved, staff will prepare code amendments to Title 17 to go before the City Planning Commission for a public hearing, deliberation, and recommendation. The committee was supportive of moving forward to increase the short plat thresholds. B. Code Enforcement Abatement Action (Tate) Assistant Director Tate reported that the Auburn City Code Enforcement division have been working with several property Page 3 of 5 CA.A Page 6 of 143 owners of record to obtain voluntary compliance for code violations. Staff has taken progressive code enforcement action, in accordance with Chapter 1.25 (Civil Penalties for Violations) and other Titles and Chapters of the Auburn City Code. The Committee and staff reviewed the properties and photos of the violations. Due to the condition of these properties, which presents a threat to the pubic health, safety, and welfare of the residents and surrounding properties staff is asking for abatement action by the City of Auburn. The passage of the Resolution would authorize the Mayor or designee to engage in substantive abatement action. The Committee and staff discussed the budget for the City's abatement actions and staff explained there currently are no funds set aside or allocated specifically for abatement action. The Committee concurred in support of staff moving forward to request abatement action by going forward with a resolution. C. Director's Report (Tate) Assistant Director Tate reported that next Wednesday, August 6, 2014 the Planning Commission will hold a public hearing and discussion on two recreational marijuana, 1 -502 ordinances. Staff will also be returning to the Planning Commission for further discussion on proposed regulations regarding Communal Residence. Staff provided an update to the Committee on the 2011 to 2014 permit activity and construction valuations. Staff emphasized that to date in 2014 there were 33 new non - residential issued permits with a valuation of $27,465,33.00. These do not include non - residential permits still being processed. The Committee and staff discussed the comparisons. D. PCDC Status Matrix (Tate) The Committee reviewed the matrix and had no changes or additions. V. ADJOURNMENT There being no further business to come before the Planning and Community Development Committee, the meeting was adjourned at 6:02 p.m. Approved this day of ,2014. CA.A Page 4 of 5 Page 7 of 143 John Holman - Chair Tina Kriss - Community Development Secretary CA.A Page 5 of 5 Page 8 of 143 AUBURN iiy of vASH1Nu Agenda Subject: Ordinance No. 6525 Department: Community Development & Public Works AGENDA BILL APPROVAL FORM Attachments: Ordinance No. 6525 Option 2 Ordinance No. 6525 Option 1 PC Findings Option 2 M emo from the Legal Department Preliminary! -502 Zoning Map Administrative Recommendation: Date: August 20, 2014 Budget Impact: $0 Planning and Community Development Committee to recommend that City Council adopt Ordinance No. 6525. Background Summary: A majority of the Planning Commission voted (5 -1) on August 6, 2014 to recommend to the City Council and Ordinance that would allow for City enforcement of State marijuana regulations without the City being the licensing or approving agency. This proposal would amend Auburn City Code sections 1.04.060, 5.10.040, 9.22.010, 18.02.020, and 18.07.010 to enforce State regulations regarding production, processing and /or retail outlets and sales of marijuana, and terminating the moratorium pursuant to Resolution No. 4992 (File No. ZOA14- 0003). On November 6, 2012, the people of the State of Washington voted to pass State Initiative 502 (1 -502) allowing the State to license and regulate recreational marijuana production, distribution, and possession for persons over 21. On September 16, 2013, the City Council passed its Resolution No. 4992 imposing an initial one -year moratorium on the acceptance or processing of applications for business licenses and other licenses, permits, and approvals for marijuana /cannabis related businesses or uses. This moratorium was established to act as a stop -gap measure in order to 1) provide the City with an opportunity to study the issues concerning the siting of such State licensed related businesses and prepare appropriate revisions to the City's codes and regulations, and 2) to protect the health, safety, and general welfare of the citizens of Auburn my ameliorating negative impacts of marijuana related businesses /uses. ACT.B AUBURN * MORE THAN YOU IMAGINED Page 9 of 143 As part of the Work Plan as established in Section 5B of the moratorium, Planning and Legal staff have engaged in a collaborative research and analysis effort and prepared Options for Planning Commission to consider. Those Options were to construct amendments to the City Code that would either, 1) prohibit all marijuana related businesses /uses in the City; 2) ensure compliance with State regulations whereby City would be the enforcing entity but not the permitting or licensing agent for marijuana related uses; or 3) City place additional regulations on top of the State regulations making the City both the enforcing entity as well as a permitting and licensing agent for marijuana related uses. The Planning Commission reviewed the issue over several meetings and held a public hearing on August 6, 2014 to review and make a final recommendation to move forward to City Council. By a 5 -1 vote, the Commission voted to recommend Option 2 as written to Council for approval. The amendments were also presented to the Municipal Services Committee on 8 -25 -14 for discussion. In considering its possible recommendation(s) to the City Council, the Planning Commission reviewed alternatives including the option they recommended. At its August 6th public hearing and meeting, the materials that were presented to the Planning Commission included: two alternative findings of fact (Options 1 and 2), two alternative Ordinances (Options 1 and 2), a memo from the City Attorney, and other materials. Although the Planning Commission recommended Option 2 to the City Council, Option 1 is being included as reference during the Committee's discussion. Reviewed by Council Committees: Municipal Services, Planning And Community Development Other: Legal, Planning Commission Councilmember: Holman Staff: Chamberlain /Heid Meeting Date: August 25, 2014 Item Number: ACT.B ACT.B AUBURN * MORE THAN YOU IMAGINED Page 10 of 143 ENFORCEMENT OF STATE MARIJUANA REGULATIONS RECOMMENDED BY PLANNING COMMISSION ORDINANCE NO. 6 5 2 5 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF AUBURN, WASHINGTON, AMENDING SECTIONS 1.04.060, 5.10.040, 9.22.010, 18.02.020 AND 18.07.010 OF THE AUBURN CITY CODE, RELATING TO ENFORCEMENT OF STATE REGULATIONS REGARDING PRODUCTION, PROCESSING AND /OR RETAIL OUTLETS AND SALES OF MARIJUANA, AND TERMINATING THE MORATORIUM IMPLEMENTED PURSUANT TO RESOLUTION NO. 4992, PASSED ON SEPTEMBER 16, 2013 WHEREAS, the City of Auburn has in its City Code a provision that precludes enactment of City ordinances that are in conflict with state or federal law, as follows: 1.04.060 Conflict of ordinances with state or federal law. All ordinances and city code provisions, and regulations therein, shall not be in conflict with all other regulations and /or requirements of state and federal law, insofar as not permitting or allowing any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any such provisions that cannot be implemented or enforced because of provisions of state or federal law, or that cannot be reconciled with any state or federal law, shall be deemed to be in conflict therewith. Any provisions of city ordinances or of the city code deemed by the city council to be in conflict with state or federal law shall be null and void. This provision does not allow any action, use or conduct which is in violation of any local, state or federal laws, regulations, codes and /or ordinances. Any action, use or conduct which is not permitted or allowed is prohibited; and WHEREAS, on November 6, 2012, the voters of the State of Washington approved Initiative Measure No. 502 ( "Initiative 502 "), now codified within Chapters 69.50, 46.04, 46.20, 46.21 and 46.61 of the Revised Code of Washington (RCW), which Initiative (a) decriminalized possession and use of certain amounts of marijuana and marijuana paraphernalia; (b) amended state laws pertaining to driving under the influence of intoxicants to include driving under the influence of marijuana; and (c) authorized promulgation of regulations and issuance of licenses by the Washington State Liquor Control Board ( "WSLCB ") for the production, processing and retailing of marijuana; and ACT.B Page 11 of 143 Whereas, the Attorney General of Washington issued an opinion, AGO 2014 No. 2, concluding that under Washington law there is a strong presumption against finding that state law preempts local ordinances, and although Initiative 502 established a licensing and regulatory system for marijuana producers, processors and retailers in Washington state, it includes no clear indication that it was intended to preempt local authority to regulate such businesses, and the Attorney General, therefore, concluded that Initiative 502 left in place the normal powers of local government to regulate within their jurisdictions; and the Attorney General also concluded that local governments have broad authority to regulate within their local jurisdictions and nothing in the initiative limits that authority with respect to licensed marijuana businesses; and WHEREAS, the United States Congress passed the Comprehensive Drug Abuse Prevention and Control Act of 1970 [Pub.L. No. 91 -513, 84 Stat. 1236], creating a comprehensive drug enforcement regime called the Controlled Substances Act, codified as 21 USC § 801 -971; and WHEREAS, under the Controlled Substances Act, Congress established five "schedules" of controlled substances whereby controlled substances are placed in specific schedules based upon their potential for abuse, their accepted medical use in treatment, and the physical and psychological consequences of abuse of the substance [See 21 USC § 812(b)]; and WHEREAS, marijuana is currently listed as a "Schedule I" controlled substance in 21 USC § 812(c), Schedule I(c)(10); and WHEREAS, for a substance to be designated a Schedule I controlled substance under the Controlled Substances Act, it must be found that the substance: (1) has a high potential for abuse, (2) has no currently accepted medical use in treatment in the United States; and (3) that there is a lack of accepted safety for use of the substance under medical supervision [See 21 USC § 812(b)(1)]; and WHEREAS, the Controlled Substances Act sets forth procedures by which the schedules may be modified [See 21 USC § 811(a)]; and Ordinance No. 6525 August 19, 2014 ACl 9e2of11 Page 12 of 143 WHEREAS, under the Controlled Substances Act, it is unlawful to knowingly or intentionally "manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance," except as otherwise provided in the statute [21 U.S.C.§ 841(a)(1)]; and WHEREAS, possession of a controlled substance, except as authorized under the Controlled Substances Act, is also unlawful; and WHEREAS, the United States Supreme Court held in Gonzales v. Raich, 545 U.S. 1, 125 S.Ct. 2195, 162 L.Ed. 2d 1 (2005), that Congress was within its rights and powers under the Commerce Clause to regulate marijuana as a Schedule I controlled substance pursuant to the Controlled Substances Act, and that, under the Supremacy Clause of the U.S. Constitution, the federal Controlled Substances Act will prevail over any conflicting state law; and WHEREAS, Paragraph 11 of Section 314 -55 -020 of the Washington Administrative Code (WAC), promulgated by the WSCLB under the authority of Initiative 502, describes the license permit process and includes the following limitation: (11) The issuance or approval of a license shall not be construed as a license for, or an approval of, any violations of local rules or ordinances including, but not limited to: Building and fire codes, zoning ordinances, and business licensing requirements; and WHEREAS, pursuant to Article 11, § 11 of the Constitution of the State of Washington, the general police powers granted to cities empower and authorize the City of Auburn to adopt land use controls to provide for the regulation of land uses within the city and to provide that such uses shall be consistent with applicable law; and WHEREAS, the City Council finds and determines that documented secondary effects associated with analogous medical marijuana dispensaries in other cities and counties include murders, robberies, burglaries, drug dealing, sales to minors, loitering, heavy foot and vehicle traffic, increased noise, odors, health hazards such as proliferation of molds [See, "White Paper on Marijuana Dispensaries," issued by the Ordinance No. 6525 August 19, 2014 ACl 9e3of11 Page 13 of 143 California Police Chiefs Association's Task Force on Marijuana Dispensaries on April 22, 2009, ( "CAPCA White Paper "); City of Riverside v. Inland Empire Patients Health and Welfare Center, 56 Ca1.4th 729, 756, 300 P.3d 494 (2013)], however, the City Council finds that the State licensing and regulatory scheme, if enforced by the City and the State, may adequately mitigate these secondary effects; and WHEREAS, the Planning Commission of the City of Auburn has held and conducted various public meetings and authorized a public workshop to address marijuana production, processing and retailing, as defined in Initiative 502 and its implementing regulations, and has held an open public hearing on the 6th day of August, 2014, all pursuant to required notice and applicable procedures of the City of Auburn, and has adopted findings of fact and conclusions of law in support of its recommendation for adoption of the above - described amendments, which Findings of Fact and Conclusions of Law are of record and incorporated herein by this reference; and Whereas, illustrative of an area of concern is the fact that in relationship to the Washington state legislatures passage of Engrossed Second Substitute Senate Bill 5073, then Governor Christine Gregoire vetoed portions of the bill that would have legalized use of marijuana for medical purposes out of concern that the vetoed portions of the bill would authorize state employees to issue licenses for marijuana related activities and would thus open public employees to federal prosecution as the United States attorneys have made it clear that state law would not provide an automatic safe harbor from federal prosecution, and because of her concern that no state employee should be required to violate federal criminal law in order to fulfill the duties under state law [See Governor Gregoire's letter of April 29, 2011 to the Washington state legislature /Senate]; and WHEREAS, because a majority of the voters of the City of Auburn voted in support of Initiative 502, expressing support for legalization /decriminalization of marijuana activities, the City Council of the City of Auburn faces a dilemma of potentially having to choose between supporting a citizen - approved state law that Ordinance No. 6525 August 19, 2014 ACgge 4 of 11 Page 14 of 143 legalize /decriminalize marijuana related activities or supporting the federal law under which marijuana is illegal; and WHEREAS, the dilemma would be exacerbated if the City of Auburn were to be the governmental entity responsible for the licensing and permitting of those marijuana related activities that are illegal under federal law; and WHEREAS, the City Council finds that the state law and the accompanying regulations promulgated by the WSLCB essentially, adequately address the issues and impacts that would be involved by licensing and permitting activities if handled by the City, so that the City of Auburn could restrict its activity in connection with such businesses to enforcing and ensuring compliance with state law without the City having to be the licensing and permitting agency; and WHEREAS, the City Council has considered the recommendation of the Planning Commission, the record herein, and all evidence and testimony presented; and WHEREAS, the City Council finds and determines that approval of such amendments is in the best interests of the City of Auburn. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AUBURN, WASHINGTON, DO ORDAIN as follows Section 1. Recitals Adopted. The City Council hereby adopts the recital clauses contained in this Ordinance as Findings of Fact or Conclusions, as may be appropriate given the context of each recital. Section 2. Amendment To City Code. That Section 1.04.060 of the Auburn City Code be, and the same hereby is, amended to read as follows: 1.04.060 Conflict of ordinances with state or federal law. Ordinance No. 6525 August 19, 2014 ACl 9e5of11 Page 15 of 143 A. All ordinances and city code provisions, and regulations therein, shall not be in conflict with all other regulations and /or requirements of state and federal law, insofar as not permitting or allowing any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any such provisions that cannot be implemented or enforced because of provisions of state or federal law, or that cannot be reconciled with any state or federal law, shall be deemed to be in conflict therewith. Any provisions of city ordinances or of the city code deemed by the city council to be in conflict with state or federal law shall be null and void. This The provisions of this Section €1-Gesdo not allow any action, use or conduct which is in violation of any local, state or federal laws, regulations, codes and /or ordinances, and the city is not authorized to permit, or license such action, use or conduct. B. Any action, use or conduct which is not permitted or allowed is prohibited. It is provided, however, that the provisions of this Subsection B do not apply to any person or persons who has /have a valid, lawful license issued by the State of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products and is acting in full conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. In such instances, the State of Washington, not the city, is the permitting and licensing entity. It is provided, however, that this provision does not preclude the city from taking enforcement action in instances where conduct or activity that is licensed or permitted under Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC occurs within the City of Auburn but is not in compliance with or violates the requirements of such state licensing or permitting. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6416 § 3, 2012.) Section 3. Amendment To City Code. That Section 5.10.040 of the Auburn City Code be, and the same hereby is, amended to read as follows: 5.10.040 General business license required - Exception. A. Any person desiring to establish or conduct any business enterprise or undertaking as defined in ACC 5.10.020 within the corporate limits of the city, shall first apply to the business license clerk, as designated by the mayor, for a license to conduct such business and obtain such license as approved by the city. The application shall be upon a form furnished by the business license clerk on which the applicant shall state the business name, address, and telephone number; the nature of the business activity or activities in which the applicant desires to engage; the place where the business will be conducted; the number of employees, and the name of the contact person along with an address and telephone number, and the business identification number issued by the state of Ordinance No. 6525 August 19, 2014 ACrgge 6 of 11 Page 16 of 143 Washington; and the IRS letter testifying to nonprofit status or the copy of the application to the IRS. B. It is unlawful for any person to operate or physically conduct any business within the city without having first obtained a general business license for the current business year or portion thereof. The applicant for a business license required under this title shall be over the age of 18 years. If any person required to pay a license fee, by the terms and provisions of this chapter, for any period fails or refuses to do so, they shall not be granted a license for the current period until such delinquent license fee, together with penalties, has been paid in full. C. Specific businesses identified in Chapters 3.80, 3.84, 3.88, 5.20, 5.30, 5.84 ACC or elsewhere in this title or other titles of the Auburn City Code will be required to obtain an individual business license as otherwise indicated. D. Any business within the city jurisdiction on any project requiring a permit must have a business license. E. Exception to city business licensing requirement. A business license is not required by the city of any person or persons who has /have a valid, lawful license issued by the state of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products in conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. (Ord. 5897 § 3, 2005; Ord. 5814 § 2, 2004; Ord. 5754 § 1, 2003; Ord. 4012 § 2, 1984.) Section 4. Amendment To City Code. That Section 9.22.010 of the Auburn City Code be, and the same hereby is, amended to read as follows: 9.22.010 Marijuana prohibited. A. Except as authorized under United States Code (USC) Title 21: Controlled Substances Ac by thc Rcviscd Codc of Washington, it is unlawful for any person or persons to grow, manufacture, process, deliver, grow, or posscss sell marijuana. B. Except as authorized by the Revised Code of Washington, it is unlawful for any person to possess marijuana. C. "Marijuana: also known as "marihuana" means all parts of the plant of thc gcnus cannabis Cannabis sativa L., whether growing or not; the seeds thereof; the resins extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the such plant, its seeds or resin, and includes all marijuana concentrates, useable marijuana, and marijuana- infused products. Such term does not include the mature stalks of the such plant, fiber produced from the such stalks, oil or cake made from the seeds of thc such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the such mature stalks (except the resins extracted Ordinance No. 6525 August 19, 2014 ACl 9e 7 of 11 Page 17 of 143 therefrom), fiber, oil, or cake, or the sterilized seed of the such plant which is incapable of germination. D. It is unlawful for any person or persons who has /have a license issued by the state of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products to fail to comply with or violate any of the requirements of the state of Washington related to such license issued by the state of Washington, including, but not limited to the requirements of Sections 69.50.325 — 369 RCW, and Sections 314- 55 -515 — 535 WAC. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. E. Violation of the provisions of this Section shall constitute a misdemeanor, punishable by imprisonment in jail for a maximum term fixed by the court of not more than ninety days, or by a fine in an amount fixed by the court of not more than one thousand dollars, or by both such imprisonment and fine. (Ord. 6300 § 1, 2010; Ord. 5682 § 1, 2002.) Section 5. Amendment To City Code. That Section 18.02.020 of the Auburn City Code be, and the same hereby is, amended to read as follows: 18.02.020 Authority to adopt code. A. The City of Auburn comprehensive zoning ordinance is adopted by City of Auburn ordinance, pursuant to Article XI, Section 11 of the Washington State Constitution, the State Growth Management Act, RCW Title 35A, Optional Municipal Code, and Chapter 36.70B RCW. In accordance with ACC 1.04.060.; R4 B. notwithstanding Notwithstanding any provisions otherwise, this title does not permit or allow any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any action, use or conduct which is prohibited by state or federal law is prohibited hereby. It is provided, however, that the provisions of this Subsection B do not apply to any person or persons who has /have a valid, lawful license issued by the State of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products and is acting in full conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. In such instances, the State of Washington, not the city, is the permitting and licensing entity. It is provided, however, that this provision does not preclude the city from taking enforcement action in instances where conduct or activity that is licensed or permitted under Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC occurs within the City of Auburn but is not in compliance with or violates the requirements of such state licensing or permitting. For the purposes of this Section only, the provisions of Sections Ordinance No. 6525 August 19, 2014 ACl 9e8of11 Page 18 of 143 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6416 § 4, 2012; Ord. 6245 § 2, 2009.) Section 6. Amendment To City Code. That Section 18.07.010 of the Auburn City Code be, and the same hereby is, amended to read as follows: 18.07.010 Intent. A. General. This section describes the intent for each of the city's residential zones. These intent statements may be used to guide the interpretation of the regulations associated with each zone. B. (RC) Residential Conservancy Zone — One Dwelling Unit per Four Acres. The RC residential conservancy zone is intended primarily to provide for low- intensity single - family residential uses with characteristics of an agricultural environment; provided, that the agricultural uses are secondary to the single - family uses. These areas allow for a lifestyle similar to that of rural areas that includes allowance of farm animals and streets without sidewalks. This zone is intended to protect areas with significant environmental constraints or values from impacts typically associated with urban levels of development while allowing low- intensity development designed to minimize impacts on the natural environmental features designated for conservation. Public improvements required within the R -C zone will be less than is normally required for the higher intensity residential zones within the city. This zone shall only be applied in areas designated as residential conservancy on the comprehensive plan. This zone shall allow one dwelling unit per four acres minimum lot area. C. R -1 Residential Zone — One Dwelling Unit per Acre. The intent of the R -1 residential zone is to provide areas for estate -type residential development on large lots. This zone would normally be located in the areas particularly suited for such development. Appropriate development standards required of other urban areas shall be required to serve this zone. D. R -5 Residential Zone — Five Dwelling Units per Acre. The R -5 single - family residential zones are intended to create a living environment of optimum standards for single - family dwellings. It is further intended to achieve development densities of four to five dwelling units per net acre. This zone will provide for the development of single - family detached dwellings and for such accessory uses as are related, incidental and not detrimental to the single - family residential environment. E. R -7 Residential Zone — Seven Dwelling Units per Acre. The R -7 single - family residential zones are intended to create a living environment of optimum standards for single - family dwellings. It is further intended to achieve development densities of five to seven dwelling units per net Ordinance No. 6525 August 19, 2014 ACl 9e9of11 Page 19 of 143 acre. This zone will provide for the development of single - family detached dwellings and for such accessory uses as are related, incidental and not detrimental to the residential environment. F. R -10 Residential Zone — 10 Dwelling Units per Acre. The R -10 residential zones are intended to permit some increase in population density in those areas to which this classification applies by permitting single - family dwellings and duplexes on a minimum size lot while at the same time, by means of the standards and requirements set forth in this chapter, maintaining a desirable family living environment by establishing minimum lot areas, yards and open spaces. A related consideration is to provide a transition between single - family areas and other intensive designations or activities which reduce the suitability for single - family uses. G. R -16 Residential Zone — 16 Dwelling Units per Acre. The R -16 zone is intended to provide for medium density multiple - family residential development as designated in the comprehensive plan, and is further intended as a residential zone of single, duplex and multiple - family residences, except as specifically provided elsewhere in this chapter. H. R -20 Residential Zone — 20 Dwelling Units per Acre. The R -20 zone is intended to provide for multiple - family residential development and is further intended as a residential zone primarily of multiple - family residences, except as specifically provided elsewhere in this chapter. A related consideration is to make it possible to more efficiently and economically design and install all physical public service facilities in terms of size and capacity to adequately and permanently meet needs resulting from a defined intensity of land use. Except as specifically provided in the city code, no business or commercial use shall be allowed in a residential district of the city that does not have a city of Auburn business license. (Ord. 6245 § 5, 2009.) Section 7. Termination of Moratorium. The Moratorium implemented pursuant to City of Auburn Resolution No. 4992, passed on September 16, 2013, shall terminate upon the date this Ordinance becomes effective in accordance with the provisions of Section 9 below. Section 8. Implementation. The Mayor is hereby authorized to implement such administrative procedures as may be necessary to carry out the directions of this legislation. Ordinance No. 6525 August 19, 2014 AOl ge 10 of 11 Page 20 of 143 Section 9. Severability. The provisions of this ordinance are declared to be separate and severable. The invalidity of any clause, sentence, paragraph, subdivision, section or portion of this ordinance, or the invalidity of the application thereof to any person or circumstance shall not affect the validity of the remainder of this ordinance, or the validity of its application to other persons or circumstances. Section 10. Effective Date. This Ordinance shall take effect and be in force five days from and after its passage, approval and publication as provided by law. INTRODUCED: PASSED: APPROVED: NANCY BACKUS, MAYOR ATTEST: Danielle E. Daskam, City Clerk APPROVED AS TO FORM: Daniel B. Heid, City Attorney PUBLISHED: Ordinance No. 6525 August 19, 2014 AOl ge 11 of 11 Page 21 of 143 PROHIBITION OF MARIJUANA ORDINANCE NO. 6 5 2 5 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF AUBURN, WASHINGTON, AMENDING SECTION 9.22.010 OF THE AUBURN CITY CODE, PROHIBITING PRODUCTION, PROCESSING AND /OR RETAIL OUTLETS AND SALES OF MARIJUANA IN ALL ZONES OF THE CITY, AND TERMINATING THE MORATORIUM IMPLEMENTED PURSUANT TO RESOLUTION NO. 4992, PASSED ON SEPTEMBER 16, 2013 WHEREAS, the City of Auburn has in its City Code a provision that precludes enactment of City ordinances that are in conflict with state or federal law, as follows: 1.04.060 Conflict of ordinances with state or federal law. All ordinances and city code provisions, and regulations therein, shall not be in conflict with all other regulations and /or requirements of state and federal law, insofar as not permitting or allowing any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any such provisions that cannot be implemented or enforced because of provisions of state or federal law, or that cannot be reconciled with any state or federal law, shall be deemed to be in conflict therewith. Any provisions of city ordinances or of the city code deemed by the city council to be in conflict with state or federal law shall be null and void. This provision does not allow any action, use or conduct which is in violation of any local, state or federal laws, regulations, codes and /or ordinances. Any action, use or conduct which is not permitted or allowed is prohibited; and WHEREAS, on November 6, 2012, the voters of the State of Washington approved Initiative Measure No. 502 ( "Initiative 502 "), now codified within Chapters 69.50, 46.04, 46.20, 46.21 and 46.61 of the Revised Code of Washington (RCW), which Initiative (a) decriminalized possession and use of certain amounts of marijuana and marijuana paraphernalia; (b) amended state laws pertaining to driving under the influence of intoxicants to include driving under the influence of marijuana; and (c) authorized promulgation of regulations and issuance of licenses by the Washington State Liquor Control Board ( "WSLCB ") for the production, processing and retailing of marijuana; and ACT.B Page 22 of 143 WHEREAS, the United States Congress passed the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub.L. No. 91 -513, 84 Stat. 1236, creating a comprehensive drug enforcement regime called the Controlled Substances Act, codified as 21 USC § 801 -971; and WHEREAS, under the Controlled Substances Act, Congress established five "schedules" of controlled substances whereby controlled substances are placed in specific schedules based upon their potential for abuse, their accepted medical use in treatment, and the physical and psychological consequences of abuse of the substance [See 21 USC § 812(b)]; and WHEREAS, marijuana is currently listed as a "Schedule 1" controlled substance in 21 USC § 812(c), Schedule 1(c)(10); and WHEREAS, for a substance to be designated a Schedule I controlled substance under the Controlled Substances Act, it must be found that the substance: (1) has a high potential for abuse, (2) has no currently accepted medical use in treatment in the United States; and (3) that there is a lack of accepted safety for use of the substance under medical supervision [See 21 USC § 812(b)(1)]; and WHEREAS, the Controlled Substances Act sets forth procedures by which the schedules may be modified [See 21 USC § 811(a)]; and WHEREAS, under the Controlled Substances Act, it is unlawful to knowingly or intentionally "manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance," except as otherwise provided in the statute [21 USC § 841(a)(1)]; and WHEREAS, possession of a controlled substance, except as authorized under the Controlled Substances Act, is also unlawful; and WHEREAS, the United States Supreme Court held in Gonzales v. Raich, 545 U.S. 1, 125 S.Ct. 2195, 162 L.Ed. 2d 1 (2005), that Congress was within its rights and powers under the Commerce Clause to regulate marijuana as a Schedule I controlled Ordinance No. 6525 August 19, 2014 Page 2of7 ACT.B Page 23 of 143 substance pursuant to the Controlled Substances Act, and that, under the Supremacy Clause of the U.S. Constitution, the federal Controlled Substances Act will prevail over any conflicting state law; and WHEREAS, Paragraph 11 of Section 314 -55 -020 of the Washington Administrative Code (WAC), promulgated by the WSCLB under the authority of Initiative 502, describes the license permit process and includes the following limitation: (11) The issuance or approval of a license shall not be construed as a license for, or an approval of, any violations of local rules or ordinances including, but not limited to: Building and fire codes, zoning ordinances, and business licensing requirements; and WHEREAS, pursuant to Article 11, § 11 of the Constitution of the State of Washington, the general police powers granted to cities, the City of Auburn is empowered and authorized to adopt land use controls to provide for the regulation of land uses within the City, which regulations are not to be in conflict with general laws.; and WHEREAS, one of the primary purposes of the Growth Management Act is to empower cities planning under the Act to develop and adopt land use controls reflecting the local needs of the community, and as provided in RCW 36.70A.010: IT is in the public interest that citizens, communities, local governments, and the private sector cooperate and coordinate with one another in comprehensive land use planning;" and WHEREAS, the City Council finds and determines that Initiative 502 does not preempt the City of Auburn from exercising and administering its constitutional and statutory land use regulatory authority to either allow and regulate land uses within the corporate limits of the City, or to prohibit and ban such uses; and WHEREAS, the City Council finds and determines that the prohibition of marijuana production, processing and retailing as defined by Initiative 502 and Ordinance No. 6525 August 19, 2014 Page 3of7 ACT.B Page 24 of 143 regulations promulgated thereunder is consistent with federal law and not in conflict therewith; and WHEREAS, the City Council finds and determines that documented secondary effects associated with analogous medical marijuana dispensaries in other cities and counties include murders, robberies, burglaries, drug dealing, sales to minors, loitering, heavy foot and vehicle traffic, increased noise, odors, health hazards such as proliferation of molds [See, "White Paper on Marijuana Dispensaries," issued by the California Police Chiefs Association's Task Force on Marijuana Dispensaries on April 22, 2009, ( "CAPCA White Paper "); City of Riverside v. Inland Empire Patients Health and Welfare Center, 56 Cal. 4th 729, 756, 300 P.3d 494 (2013)]; and WHEREAS, the City Council finds and determines that the prohibition of marijuana production, processing and retail uses within the City of Auburn is the only effective means to protect residential districts, recreational facilities, families and children within the City of Auburn; and WHEREAS, the City Council of the City of Auburn finds and determines that Section 9.22.010 of the Auburn City Code should be amended to prohibit marijuana production, processing and retailing, as defined in Initiative 502 and its implementing regulations, within the City of Auburn; and WHEREAS, the City Council finds and determines that the prohibition of marijuana production, processing and retailing is subject to the authority and general police power of the City to develop specific and appropriate land use controls regarding such uses, and the City Council reserves its powers and authority to appropriately amend, modify and revise such prohibition to implement such land use controls in accordance with applicable law; and WHEREAS, the City Council finds and determines that such amendments authorized herein are not intended to regulate the individual use of marijuana as authorized by Initiative 502 ; and Ordinance No. 6525 August 19, 2014 Page 4of7 ACT.B Page 25 of 143 WHEREAS, the Planning Commission of the City of Auburn has held and conducted various public meetings and authorized a public workshop to address marijuana production, processing and retailing, as defined in Initiative 502 and its implementing regulations, and has held an open public hearing on the day of , 2014, all pursuant to required notice and applicable procedures of the City of Auburn, and has adopted findings of fact and conclusions of law in support of its recommendation for adoption of the above - described amendments, which Findings of Fact and Conclusions of Law are of record and incorporated herein by this reference; and WHEREAS, the City Council has considered the recommendation of the Planning Commission, the record herein, and all evidence and testimony presented; and WHEREAS, the City Council finds and determines that approval of such amendments is in the best interests of residents of the City of Auburn and will promote the general health, safety and welfare. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AUBURN, WASHINGTON, DO ORDAIN as follows Section 1. Recitals Adopted. The City Council hereby adopts the recital clauses contained in this Ordinance as Findings of Fact or Conclusions, as may be appropriate given the context of each recital. Section 2. Amendment To City Code. That Section 9.22.010 of the Auburn City Code be, and the same hereby is, amended to read as follows: 9.22.010 Marijuana prohibited. A. Except as authorized under United States Code (USC) Title 21: Controlled Substances Ac, it is unlawful for any person or persons to grow, manufacture, process, deliver, or sell marijuana. Ordinance No. 6525 August 19, 2014 Page 5of7 ACT.B Page 26 of 143 B. Except as authorized by the Revised Code of Washington, it is unlawful for any person to possess marijuana. C. "Marijuana," also known as "marihuana" means all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resins extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin, and includes all marijuana concentrates, useable marijuana, and marijuana- infused products. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination. D. Violation of the provisions of this Section shall constitute a misdemeanor, punishable by imprisonment in jail for a maximum term fixed by the court of not more than ninety days, or by a fine in an amount fixed by the court of not more than one thousand dollars, or by both such imprisonment and fine. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6300 § 1, 2010; Ord. 5682 § 1, 2002.) Section 3. Termination of Moratorium. The Moratorium implemented pursuant to City of Auburn Resolution No. 4992, passed on September 16, 2013, shall terminate upon the date this Ordinance becomes effective in accordance with the provisions of Section 6 below. Section 4. Implementation. The Mayor is hereby authorized to implement such administrative procedures as may be necessary to carry out the directions of this legislation. Section 5. Severability. The provisions of this ordinance are declared to be separate and severable. The invalidity of any clause, sentence, paragraph, subdivision, section or portion of this ordinance, or the invalidity of the application thereof to any person or circumstance shall not affect the validity of the remainder of this ordinance, or the validity of its application to other persons or circumstances. Ordinance No. 6525 August 19, 2014 Page 6of7 ACT.B Page 27 of 143 Section 6. Effective Date. This Ordinance shall take effect and be in force five days from and after its passage, approval and publication as provided by law. ATTEST: Danielle E. Daskam, City Clerk APPROVED AS TO FORM: Daniel B. Heid, City Attorney PUBLISHED: Ordinance No. 6525 August 19, 2014 Page 7of7 INTRODUCED: PASSED: APPROVED: NANCY BACKUS, MAYOR ACT.B Page 28 of 143 PROPOSED PLANNING COMMISSION FINDINGS AND CONCLUSIONS AND RECOMMENDATION — Option 2 — Enforcement of State Marijuana Regulations Only [Ordinance No. 6525] 1. The Planning Commission of the City of Auburn has held and conducted various public meetings and authorized a public workshop to address marijuana production, processing and retailing, as defined in Initiative 502 and its implementing regulations, and has held an open public hearing on the 6th day of August, 2014. 2. The City of Auburn has in its City Code a provision that precludes enactment of City ordinances that are in conflict with state or federal law, as follows: 1.04.060 Conflict of ordinances with state or federal law. All ordinances and city code provisions, and regulations therein, shall not be in conflict with all other regulations and /or requirements of state and federal law, insofar as not permitting or allowing any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any such provisions that cannot be implemented or enforced because of provisions of state or federal law, or that cannot be reconciled with any state or federal law, shall be deemed to be in conflict therewith. Any provisions of city ordinances or of the city code deemed by the city council to be in conflict with state or federal law shall be null and void. This provision does not allow any action, use or conduct which is in violation of any local, state or federal laws, regulations, codes and /or ordinances. Any action, use or conduct which is not permitted or allowed is prohibited; and 3. On November 6, 2012, the voters of the State of Washington approved Initiative Measure No. 502 ( "Initiative 502 "), now codified within Chapters 69.50, 46.04, 46.20, 46.21 and 46.61 of the Revised Code of Washington (RCW), which Initiative (a) decriminalized possession and use of certain amounts of marijuana and marijuana paraphernalia; (b) amended state laws pertaining to driving under the influence of intoxicants to include driving under the influence of marijuana; and (c) authorized promulgation of regulations and issuance of licenses by the Washington State Liquor Control Board ( "WSLCB ") for the production, processing and retailing of marijuana; and 4. The United States Congress passed the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub.L. No. 91 -513, 84 Stat. 1236, creating a comprehensive drug enforcement regime called the Controlled Substances Act, codified Planning Commission Findings July 24, 2014 AOl ge 1 of 9 Page 29 of 143 as 21 USC § 801 -971, whereby controlled substances are placed in specific schedules based upon their potential for abuse, their accepted medical use in treatment, and the physical and psychological consequences of abuse of the substance; and 4. Under the Controlled Substances Act, marijuana is listed as a "Schedule I" controlled substance in 21 USC § 812(c), Schedule I(c)(10); and 5. Under the Controlled Substances Act, it is unlawful to possess a controlled substance, except as authorized under the Controlled Substances Act, and it is also unlawful to knowingly or intentionally "manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance," except as otherwise provided in the [federal] statute; and 6. Under the Controlled Substances Act, in order for a substance to be designated a Schedule I controlled substance under the Controlled Substances Act, it must be found that the substance: (1) has a high potential for abuse, (2) has no currently accepted medical use in treatment in the United States; and (3) that there is a lack of accepted safety for use of the substance under medical supervision; and 7. In Gonzales v. Raich, 545 U.S. 1, 125 S.Ct. 2195, 162 L.Ed. 2d 1 (2005), the United States Supreme Court held that Congress was within its rights and powers under the Commerce Clause to regulate marijuana as a Schedule I controlled substance pursuant to the Controlled Substances Act, and that, under the Supremacy Clause of the U.S. Constitution, the federal Controlled Substances Act will prevail over any conflicting state law; and 8. Paragraph 11 of Section 314 -55 -020 of the Washington Administrative Code (WAC), promulgated by the WSCLB under the authority of Initiative 502, describes the license permit process and includes the following limitation: (11) The issuance or approval of a license shall not be construed as a license for, or an approval of, any violations of local rules or ordinances including, but not limited to: Building and fire codes, zoning ordinances, and business licensing requirements; and Planning Commission Findings July 24, 2014 ACgge 2 of 9 Page 30 of 143 9. Article 11, § 11 of the Constitution of the State of Washington, the general police powers granted to cities, empowers and authorizes the City of Auburn to adopt regulations, land use and otherwise, that are not to be in conflict with general laws; and 10. One of the primary purposes of the Growth Management Act is to empower cities planning under the Act to develop and adopt land use controls reflecting the local needs of the community, and as provided in RCW 36.70A.010: "[i]t is in the public interest that citizens, communities, local governments, and the private sector cooperate and coordinate with one another in comprehensive land use planning;" and 11. The Attorney General of the State of Washington and the City Attorney for the City of Auburn have concluded that Initiative 502 does not preempt the City of Auburn from exercising and administering its constitutional and statutory land use regulatory authority to either allow and regulate land uses within the corporate limits of the City, or to prohibit and ban such uses; and 12. City regulations licensing and permitting marijuana production, processing and retailing as defined by Initiative 502 and regulations promulgated thereunder is not consistent with federal law and is in conflict therewith; and 13. Documented secondary effects associated with analogous medical marijuana dispensaries in other cities and counties include murders, robberies, burglaries, drug dealing, sales to minors, loitering, heavy foot and vehicle traffic, increased noise, odors, health hazards such as proliferation of molds; and 14. Consistent with the concerns the City could face if it were the agency involved in licensing and permitting marijuana production, processing and retailing as defined by Initiative 502 and regulations promulgated thereunder, when the Washington state legislatures passed Engrossed Second Substitute Senate Bill 5073, then Governor Christine Gregoire vetoed portions of the bill that would have legalized use of marijuana for medical purposes out of concern that the vetoed portions of the bill would authorize state employees to issue licenses for marijuana related activities and would thus open public employees to federal prosecution as the United States attorneys have made it clear that state law would not provide an automatic safe harbor from federal Planning Commission Findings July 24, 2014 ACgge 3 of 9 Page 31 of 143 prosecution, and because of her concern that no state employee should be required to violate federal criminal law in order to fulfill the duties under state law; and 15. Because a majority of the voters of the City of Auburn voted in support of Initiative 502, expressing support for legalization /decriminalization of marijuana activities, the City of Auburn faces a dilemma of potentially having to choose between supporting a citizen - approved state law that legalize /decriminalize marijuana related activities or supporting the federal law under which marijuana is illegal; and 16. That dilemma would be exacerbated if the City of Auburn were to be the governmental entity responsible for the licensing and permitting of those marijuana related activities that are illegal under federal law; and 17. However, these concerns would be mitigated if the state of Washington were the licensing and permitting agency, and if the state law and the accompanying regulations promulgated by the WSLCB were fully enforced, thereby addressing the issues and impacts that would be involved by licensing and permitting activities, with the City of Auburn restricting its activity in connection with marijuana businesses to enforcing and ensuring compliance with state law, without the City having to be the licensing and permitting agency; and 18. Sections 1.04.060, 5.10.040, 9.22.010, and 18.02.020 of the Auburn City Code should be amended, as set forth below, to address marijuana production, processing and retailing, within the City of Auburn: 1.04.060 Conflict of ordinances with state or federal law. A. All ordinances and city code provisions, and regulations therein, shall not be in conflict with all other regulations and /or requirements of state and federal law, insofar as not permitting or allowing any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any such provisions that cannot be implemented or enforced because of provisions of state or federal law, or that cannot be reconciled with any state or federal law, shall be deemed to be in conflict therewith. Any provisions of city ordinances or of the city code deemed by the city council to be in conflict with state or federal law shall be null and void. This The provisions of this Section does do not allow any action, use or conduct which is in violation of any local, state or federal laws, regulations, codes and /or ordinances, and the city is not authorized to permit, or license such action, use or conduct. Planning Commission Findings July 24, 2014 ACgge 4 of 9 Page 32 of 143 B. Any action, use or conduct which is not permitted or allowed is prohibited. It is provided, however, that the provisions of this Subsection B do not apply to any person or persons who has /have a valid, lawful license issued by the State of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products and is acting in full conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. In such instances, the State of Washington, not the city, is the permitting and licensing entity. It is provided, however, that this provision does not preclude the city from taking enforcement action in instances where conduct or activity that is licensed or permitted under Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC occurs within the City of Auburn but is not in compliance with or violates the requirements of such state licensing or permitting. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6416 § 3, 2012.) 5.10.040 General business license required - Exception. A. Any person desiring to establish or conduct any business enterprise or undertaking as defined in ACC 5.10.020 within the corporate limits of the city, shall first apply to the business license clerk, as designated by the mayor, for a license to conduct such business and obtain such license as approved by the city. The application shall be upon a form furnished by the business license clerk on which the applicant shall state the business name, address, and telephone number; the nature of the business activity or activities in which the applicant desires to engage; the place where the business will be conducted; the number of employees, and the name of the contact person along with an address and telephone number, and the business identification number issued by the state of Washington; and the IRS letter testifying to nonprofit status or the copy of the application to the IRS. B. It is unlawful for any person to operate or physically conduct any business within the city without having first obtained a general business license for the current business year or portion thereof. The applicant for a business license required under this title shall be over the age of 18 years. If any person required to pay a license fee, by the terms and provisions of this chapter, for any period fails or refuses to do so, they shall not be granted a license for the current period until such delinquent license fee, together with penalties, has been paid in full. C. Specific businesses identified in Chapters 3.80, 3.84, 3.88, 5.20, 5.30, 5.84 ACC or elsewhere in this title or other titles of the Auburn City Code will be required to obtain an individual business license as otherwise indicated. D. Any business within the city jurisdiction on any project requiring a permit must have a business license. E. Exception to city business licensing requirement. A business license is not required by the city of any person or persons who has /have a valid, lawful license issued by the state of Washington to produce, process or sell marijuana, Planning Commission Findings July 24, 2014 ACgge 5 of 9 Page 33 of 143 marijuana concentrates, usable marijuana and /or marijuana- infused products in conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 - 369 RCW, and Sections 314 -55 -005 - 540 WAC. (Ord. 5897 § 3, 2005; Ord. 5814 § 2, 2004; Ord. 5754 § 1, 2003; Ord. 4012 § 2, 1984.) 9.22.010 Marijuana prohibited. A. Except as authorized under United States Code (USC) Title 21: Controlled Substances Ac by the Revised Code of Washington, it is unlawful for any person or persons to grow, manufacture, process, deliver, grow, or posscss sell marijuana. B. Except as authorized by the Revised Code of Washington, it is unlawful for any person to possess marijuana. C. "Marijuana: also known as "marihuana" means all parts of the plant of the gcnus cannabis Cannabis sativa L., whether growing or not; the seeds thereof; the resins extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the-such plant, its seeds or resin, and includes all marijuana concentrates, useable marijuana, and marijuana- infused products. Such term does not include the mature stalks of the such plant, fiber produced from the such stalks, oil or cake made from the seeds of the such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the such mature stalks (except the resins extracted therefrom), fiber, oil, or cake, or the sterilized seed of the-such plant which is incapable of germination. D. It is unlawful for any person or persons who has /have a license issued by the state of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products to fail to comply with or violate any of the requirements of the state of Washington related to such license issued by the state of Washington, including, but not limited to the requirements of Sections 69.50.325 - 369 RCW, and Sections 314- 55 -515 - 535 WAC. For the purposes of this Section only, the provisions of Sections 69.50.325 - 369 RCW, and Sections 314 -55 -515 - 535 WAC are hereby adopted by reference and Incorporated herein. E. Violation of the provisions of this Section shall constitute a misdemeanor, punishable by imprisonment in jail for a maximum term fixed by the court of not more than ninety days, or by a fine in an amount fixed by the court of not more than one thousand dollars, or by both such imprisonment and fine. (Ord. 6300 § 1, 2010; Ord. 5682 § 1, 2002.) 18.02.020 Authority to adopt code. A. The City of Auburn comprehensive zoning ordinance is adopted by City of Auburn ordinance, pursuant to Article XI, Section 11 of the Washington State Constitution, the State Growth Management Act, RCW Title 35A, Optional Municipal Code, and Chapter 36.70B RCW. In accordance with ACC 1.04.060_.; R4 Planning Commission Findings July 24, 2014 AOI 9e6of9 Page 34 of 143 B. notwithstanding Notwithstanding any provisions otherwise, this title does not permit or allow any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any action, use or conduct which is prohibited by state or federal law is prohibited hereby. It is provided, however, that the provisions of this Subsection B do not apply to any person or persons who has /have a valid, lawful license issued by the State of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products and is acting in full conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. In such instances, the State of Washington, not the city, is the permitting and licensing entity. It is provided, however, that this provision does not preclude the city from taking enforcement action in instances where conduct or activity that is licensed or permitted under Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC occurs within the City of Auburn but is not in compliance with or violates the requirements of such state licensing or permitting. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6416 § 4, 2012; Ord. 6245 § 2, 2009.) 18.07.010 Intent. A. General. This section describes the intent for each of the city's residential zones. These intent statements may be used to guide the interpretation of the regulations associated with each zone. B. (RC) Residential Conservancy Zone — One Dwelling Unit per Four Acres. The RC residential conservancy zone is intended primarily to provide for low- intensity single - family residential uses with characteristics of an agricultural environment; provided, that the agricultural uses are secondary to the single - family uses. These areas allow for a lifestyle similar to that of rural areas that includes allowance of farm animals and streets without sidewalks. This zone is intended to protect areas with significant environmental constraints or values from impacts typically associated with urban levels of development while allowing low- intensity development designed to minimize impacts on the natural environmental features designated for conservation. Public improvements required within the R -C zone will be less than is normally required for the higher intensity residential zones within the city. This zone shall only be applied in areas designated as residential conservancy on the comprehensive plan. This zone shall allow one dwelling unit per four acres minimum lot area. C. R -1 Residential Zone — One Dwelling Unit per Acre. The intent of the R -1 residential zone is to provide areas for estate -type residential development on large lots. This zone would normally be located in the areas particularly suited for such development. Appropriate development standards required of other urban areas shall be required to serve this zone. Planning Commission Findings July 24, 2014 ACgge 7 of 9 Page 35 of 143 D. R -5 Residential Zone — Five Dwelling Units per Acre. The R -5 single - family residential zones are intended to create a living environment of optimum standards for single - family dwellings. It is further intended to achieve development densities of four to five dwelling units per net acre. This zone will provide for the development of single - family detached dwellings and for such accessory uses as are related, incidental and not detrimental to the single - family residential environment. E. R -7 Residential Zone — Seven Dwelling Units per Acre. The R -7 single - family residential zones are intended to create a living environment of optimum standards for single - family dwellings. It is further intended to achieve development densities of five to seven dwelling units per net acre. This zone will provide for the development of single - family detached dwellings and for such accessory uses as are related, incidental and not detrimental to the residential environment. F. R -10 Residential Zone — 10 Dwelling Units per Acre. The R -10 residential zones are intended to permit some increase in population density in those areas to which this classification applies by permitting single - family dwellings and duplexes on a minimum size lot while at the same time, by means of the standards and requirements set forth in this chapter, maintaining a desirable family living environment by establishing minimum lot areas, yards and open spaces. A related consideration is to provide a transition between single - family areas and other intensive designations or activities which reduce the suitability for single - family uses. G. R -16 Residential Zone — 16 Dwelling Units per Acre. The R -16 zone is intended to provide for medium density multiple - family residential development as designated in the comprehensive plan, and is further intended as a residential zone of single, duplex and multiple - family residences, except as specifically provided elsewhere in this chapter. H. R -20 Residential Zone — 20 Dwelling Units per Acre. The R -20 zone is intended to provide for multiple - family residential development and is further intended as a residential zone primarily of multiple - family residences, except as specifically provided elsewhere in this chapter. A related consideration is to make it possible to more efficiently and economically design and install all physical public service facilities in terms of size and capacity to adequately and permanently meet needs resulting from a defined intensity of land use. Except as specifically provided in the city code, no business or commercial use shall be allowed in a residential district of the city that does not have a city of Auburn business license. (Ord. 6245 § 5, 2009.) and 19. Such amendment is in the best interests of residents of the City of Auburn and will promote the general health, safety and welfare. Planning Commission Findings July 24, 2014 ACrgge 8 of 9 Page 36 of 143 20. The Moratorium implemented pursuant to City of Auburn Resolution No. 4992, passed on September 16, 2013, and extended by Resolution No. , passed on , 2014, should terminate upon the date this Ordinance amending the above code sections is effective. Planning Commission Findings July 24, 2014 ACgge 9 of 9 Page 37 of 143 CITY OF * WASHINGTON MEMORANDUM TO: Judi Roland, Chair, Planning Commission Ron Copple, Vice - Chair, Planning Commission Planning Commission Members CC: Nancy Backus, Mayor Jeff Tate, Assistant Director, Community Development Services Elizabeth Chamberlain, AICP, Planning Services Manager David L. Jones, AICP, Senior Planner FROM: Daniel B. Heid, City Attorney DATE: August 1, 2014 RE: Marijuana — Public Hearing — Record Documents A. Introduction. On the 6th day of August, 2014, the Auburn Planning Commission is scheduled to conduct a public hearing to consider amendments to the Auburn City Code (ACC). Two draft proposals have been prepared - Option 1, a prohibition of State licensed marijuana uses (amending ACC 9.22.010) and Option 2, a proposal that would not have the City as the permitting agency of any marijuana activities but would put the City in the position of enforcing [prosecuting violations of] State licensed marijuana requirements (amending ACC 1.04.060, 5.10.040, 9.22.010, 18.02.020 and 18.07.010). B. Procedural Background. On September 16, 2013, the City Council passed its Resolution No. 4992 imposing an initial one -year moratorium on the acceptance of applications for, and issuance of licenses and permits for marijuana related activities, including, marijuana production, processing and retailing within the City of Auburn C. Proposed Amendment to Auburn City Code. In response to the direction of the City Council, staff, working with the Planning Commission, prepared two alternate proposed ordinances, as follows:, as follows: Option 1, involving the Prohibition of Marijuana within the City, proposing to amend Section 9.22.010, as follows: Page 1 ACT.B Page 38 of 143 9.22.010 Marijuana prohibited. A. Except as authorized under United States Code (USC) Title 21: Controlled Substances Ac by the Revised Code of Washington, it is unlawful for any person or persons to grow, manufacture, process, deliver, grow, or possess sell marijuana. B. Except as authorized by the Revised Code of Washington, it is unlawful for any person to possess marijuana. C. "Marijuana," also known as "marihuana" means all parts of the plant owe genus cannabis Cannabis sativa L., whether growing or not; the seeds thereof; the resins extracted from any part of the plant; and every compound, manufacture, salt, derivative, mixture, or preparation of the such plant, its seeds or resin, and includes all marijuana concentrates, useable marijuana, and marijuana- infused products. Such term does not include the mature stalks of he -such plant, fiber produced from t#e -such stalks, oil or cake made from the seeds of the such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the such mature stalks (except the resins extracted therefrom), fiber, oil, or cake, or the sterilized seed of The -such plant which is incapable of germination. D. Violation of the provisions of this Section shall constitute a misdemeanor, punishable by imprisonment in jail for a maximum term fixed by the court of not more than ninety days, or by a fine in an amount fixed by the court of not more than one thousand dollars, or by both such imprisonment and fine. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55- 515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6300 § 1, 2010; Ord. 5682 § 1, 2002.) Option 2, authorizing the City to take enforcement action to assure that there is compliance with the state regulations involving Initiative 502, whereby the City would be an enforcing entity but not the permitting or licensing agent for marijuana related business. This Option proposes to amend Sections 1.04.060, 5.10.040, 9.22.010, 18.02.020 and 18.07.010 [Intent of Residential Zone] of the Auburn City Code, as follows: 1.04.060 Conflict of ordinances with state or federal law. A. All ordinances and city code provisions, and regulations therein, shall not be in conflict with all other regulations and /or requirements of state and federal law, insofar as not permitting or allowing any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any such provisions that cannot be implemented or enforced because of provisions of state or federal law, or that cannot be reconciled with any state or federal law, shall be deemed to be in conflict therewith. Any provisions of city ordinances or of the city code deemed by the city council to be in conflict with state or federal law shall be null and void. This The provisions of this Section does do not allow any action, use or conduct which is in violation of any local, state or federal laws, regulations, codes and /or ordinances, and the city is not authorized to permit, or license such action, use or conduct. B. Any action, use or conduct which is not permitted or allowed is prohibited. It is provided, however, that the provisions of this Subsection B do not apply to any person or persons who has /have a valid, lawful license issued by the State of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products and is acting in full conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. In such instances, the Page 2 ACT.B Page 39 of 143 State of Washington, not the city, is the permitting and licensing entity. It is provided, however, that this provision does not preclude the city from taking enforcement action in instances where conduct or activity that is licensed or permitted under Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC occurs within the City of Auburn but is not in compliance with or violates the requirements of such state licensing or permitting. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6416 § 3, 2012.) 5.10.040 General business license required - Exception. A. Any person desiring to establish or conduct any business enterprise or undertaking as defined in ACC 5.10.020 within the corporate limits of the city, shall first apply to the business license clerk, as designated by the mayor, for a license to conduct such business and obtain such license as approved by the city. The application shall be upon a form furnished by the business license clerk on which the applicant shall state the business name, address, and telephone number; the nature of the business activity or activities in which the applicant desires to engage; the place where the business will be conducted; the number of employees, and the name of the contact person along with an address and telephone number, and the business identification number issued by the state of Washington; and the IRS letter testifying to nonprofit status or the copy of the application to the IRS. B. It is unlawful for any person to operate or physically conduct any business within the city without having first obtained a general business license for the current business year or portion thereof. The applicant for a business license required under this title shall be over the age of 18 years. If any person required to pay a license fee, by the terms and provisions of this chapter, for any period fails or refuses to do so, they shall not be granted a license for the current period until such delinquent license fee, together with penalties, has been paid in full. C. Specific businesses identified in Chapters 3.80, 3.84, 3.88, 5.20, 5.30, 5.84 ACC or elsewhere in this title or other titles of the Auburn City Code will be required to obtain an individual business license as otherwise indicated. D. Any business within the city jurisdiction on any project requiring a permit must have a business license. E. Exception to city business licensing requirement. A business license is not required by the city of any person or persons who has /have a valid, lawful license issued by the state of Washington to produce, process or sell marijuana, marijuana concentrates, usable marijuana and /or marijuana- infused products in conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. (Ord. 5897 § 3, 2005; Ord. 5814 § 2, 2004; Ord. 5754 § 1, 2003; Ord. 4012 § 2, 1984.) 9.22.010 Marijuana prohibited. A. Except as authorized under United States Code (USC) Title 21: Controlled Substances Ac by the Revised Code of Washington, it is unlawful for any person or persons to grow, manufacture, process, deliver, grow, or possess sell marijuana. B. Except as authorized by the Revised Code of Washington, it is unlawful for any person to possess marijuana. C. "Marijuana," also known as "marihuana" means all parts of the plant ewe genus cannabis Cannabis sativa L., whether growing or not; the seeds thereof; the resins extracted from any part of the plant; and every compound, manufacture, salt, Page 3 ACT.B Page 40 of 143 derivative, mixture, or preparation of the such plant, its seeds or resin, and includes all mariivana concentrates, useable mariivana, and mariivana-infused products. Such term does not include the mature stalks of the such plant, fiber produced from the such stalks, oil or cake made from the seeds of the such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of the -such mature stalks (except the resins extracted therefrom), fiber, oil, or cake, or the sterilized seed of the -such plant which is incapable of germination. D. It is unlawful for any person or persons who has /have a license issued by the state of Washington to produce, process or sell mariivana, mariivana concentrates, usable mariivana and /or mariivana-infused products to fail to comply with or violate any of the requirements of the state of Washington related to such license issued by the state of Washington, including, but not limited to the requirements of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. E. Violation of the provisions of this Section shall constitute a misdemeanor, punishable by imprisonment in fail for a maximum term fixed by the court of not more than ninety days, or by a fine in an amount fixed by the court of not more than one thousand dollars, or by both such imprisonment and fine. (Ord. 6300 § 1, 2010; Ord. 5682 § 1, 2002.) 18.02.020 Authority to adopt code. A. The City of Auburn comprehensive zoning ordinance is adopted by City of Auburn ordinance, pursuant to Article XI, Section 11 of the Washington State Constitution, the State Growth Management Act, RCW Title 35A, Optional Municipal Code, and Chapter 36.70B RCW. In accordance with ACC 1.04.060„ and B. notwithstanding Notwithstanding any provisions otherwise, this title does not permit or allow any action, use or conduct which is in violation of or prohibited by any state or federal laws, regulations or codes. Any action, use or conduct which is prohibited by state or federal law is prohibited hereby. It is provided, however, that the provisions of this Subsection B do not apply to any person or persons who has /have a valid, lawful license issued by the State of Washington to produce, process or sell mariivana, mariivana concentrates, usable mariivana and /or mariivana-infused products and is acting in full conformity with the requirements of the state of Washington related to such license pursuant to Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC. In such instances, the State of Washington, not the city, is the permitting and licensing entity. It is provided, however, that this provision does not preclude the city from taking enforcement action in instances where conduct or activity that is licensed or permitted under Sections 69.50.301 — 369 RCW, and Sections 314 -55 -005 — 540 WAC occurs within the City of Auburn but is not in compliance with or violates the requirements of such state licensing or permitting. For the purposes of this Section only, the provisions of Sections 69.50.325 — 369 RCW, and Sections 314 -55 -515 — 535 WAC are hereby adopted by reference and Incorporated herein. (Ord. 6416 § 4, 2012; Ord. 6245 § 2, 2009.) 18.07.010 Intent. A. General. This section describes the intent for each of the city's residential zones. These intent statements may be used to guide the interpretation of the regulations associated with each zone. Page 4 ACT.B Page 41 of 143 B. (RC) Residential Conservancy Zone — One Dwelling Unit per Four Acres. The RC residential conservancy zone is intended primarily to provide for low- intensity single - family residential uses with characteristics of an agricultural environment; provided, that the agricultural uses are secondary to the single - family uses. These areas allow for a lifestyle similar to that of rural areas that includes allowance of farm animals and streets without sidewalks. This zone is intended to protect areas with significant environmental constraints or values from impacts typically associated with urban levels of development while allowing low- intensity development designed to minimize impacts on the natural environmental features designated for conservation. Public improvements required within the R -C zone will be less than is normally required for the higher intensity residential zones within the city. This zone shall only be applied in areas designated as residential conservancy on the comprehensive plan. This zone shall allow one dwelling unit per four acres minimum lot area. C. R -1 Residential Zone — One Dwelling Unit per Acre. The intent of the R -1 residential zone is to provide areas for estate -type residential development on large lots. This zone would normally be located in the areas particularly suited for such development. Appropriate development standards required of other urban areas shall be required to serve this zone. D. R -5 Residential Zone — Five Dwelling Units per Acre. The R -5 single - family residential zones are intended to create a living environment of optimum standards for single - family dwellings. It is further intended to achieve development densities of four to five dwelling units per net acre. This zone will provide for the development of single - family detached dwellings and for such accessory uses as are related, incidental and not detrimental to the single - family residential environment. E. R -7 Residential Zone — Seven Dwelling Units per Acre. The R -7 single - family residential zones are intended to create a living environment of optimum standards for single - family dwellings. It is further intended to achieve development densities of five to seven dwelling units per net acre. This zone will provide for the development of single - family detached dwellings and for such accessory uses as are related, incidental and not detrimental to the residential environment. F. R -10 Residential Zone — 10 Dwelling Units per Acre. The R -10 residential zones are intended to permit some increase in population density in those areas to which this classification applies by permitting single - family dwellings and duplexes on a minimum size lot while at the same time, by means of the standards and requirements set forth in this chapter, maintaining a desirable family living environment by establishing minimum lot areas, yards and open spaces. A related consideration is to provide a transition between single - family areas and other intensive designations or activities which reduce the suitability for single - family uses. G. R -16 Residential Zone — 16 Dwelling Units per Acre. The R -16 zone is intended to provide for medium density multiple - family residential Page 5 ACT.B Page 42 of 143 development as designated in the comprehensive plan, and is further intended as a residential zone of single, duplex and multiple - family residences, except as specifically provided elsewhere in this chapter. H. R -20 Residential Zone — 20 Dwelling Units per Acre. The R -20 zone is intended to provide for multiple - family residential development and is further intended as a residential zone primarily of multiple - family residences, except as specifically provided elsewhere in this chapter. A related consideration is to make it possible to more efficiently and economically design and install all physical public service facilities in terms of size and capacity to adequately and permanently meet needs resulting from a defined intensity of land use. Except as specifically provided in the city code, no business or commercial use shall be allowed in a residential district of the city that does not have a city of Auburn business license. (Ord. 6245 § 5, 2009.)1 Initially, three alternatives were identified, with the third alternative - Option 3 - being one involving the city of Auburn actually becoming the licensing and permitting agency, rather than just relying upon state regulations. In this instance, the city of Auburn would likely depart from the state regulations in some fashion or another, perhaps making the regulations more stringent or identifying more particularly zoning limitations. However, as noted below, there are disadvantages with the City being the licensing and permitting agency. D. Reasons for Options. The option of the City becoming the permitting agency was discarded by the planning commission and not recommended by city staff because it included liability exposures stemming from the fact that marijuana is (still) illegal under federal law, and even though state law may decriminalize marijuana related activities, city involvement in permitting or licensing marijuana related businesses could pose jeopardy for those city employees who would, in essence, be violating federal law. The two options avoided city licensing and permitting activities of marijuana businesses, with Option 1 providing for a prohibition of marijuana activities within the city, though that does not mean that the city would be enforcing possession of marijuana consistent with what used to be the case prior to the passage of Initiative 502; and Option 2 allowing the city to take enforcement action to assure compliance with the state regulations for marijuana related businesses, though, still, keeping the city out of the actual permitting and licensing role. The rationale can be summarized as follows: NOTE: The inclusion of ACC Section 18.07.010 among the code sections being amended is to address the issue of placement of marijuana related businesses in residential zones, something that is not precluded or prohibited by state regulations. By prohibiting any business (except as specifically provided) from being located in a residential zone that does not have a City of Auburn business license, marijuana businesses would be precluded from being located in residential zones as they would not have a city of Auburn business license. Again, this is because neither the initiative nor the RCW or WAC provisions preclude placement of marijuana related businesses in residential zones. Ironically, the initiative and the state regulations do expressly prohibit locating a marijuana business in a residence (and occupied residence), but that is the only prohibition related to residential properties. Page 6 ACT.B Page 43 of 143 (1) Marijuana remains illegal under federal law. The memorandum issued by the U.S. Attorney General's office on August 29, 2013 did not change the law, but only announced the decision of the U.S. Attorney's Office to exercise prosecutorial discretion with regard to enforcement of the federal law within the States of Colorado and Washington. The U.S. Attorney" Office reserved the power to prosecute in any instance where it felt the efforts of the states fell short of "robust regulation," where a threat exists for the illegal distribution to minors, or where a threat of interstate distribution of marijuana was encountered. (2) The City of Auburn has been granted constitutional authority to enact legislation regulating land uses within its jurisdiction so long as such local legislation is consistent with [not in conflict with] the general laws (Constitution Article 11, Section 11). Essentially, notwithstanding voter approval of initiative 502, action by the city in developing and promulgating regulations relating to marijuana related businesses would have the city taking action in conflict with the general laws, in this case federal law. (3) Some have argued that city do not have the right to take action inconsistent with state law, even voter approved initiative state law, however, the law dictates when state law preempts local action, and that does not apply in this instance. Nothing in Initiative Measure No. 502 ( "Initiative 502 ") decriminalizing possession, use and delivery of specified amounts of marijuana and authorizing the Washington State Liquor Control Board (WSLCB) to develop and implement regulations for the licensing of marijuana production, processing and retailing expressly or impliedly preempts the City of Auburn, or any city in the state, from exercising its land use regulatory authority, including the ban of marijuana production, processing and retailing within city limits. This is not only consistent with the language of the initiative, but it is the conclusion reached by the state attorney general in AGO 2014 No. 2. (4) The prohibition of marijuana production, processing and retailing within the City of Auburn does not contravene the purposes of Initiative 502, and does not alter the provisions of Initiative 502 that authorize the WSLCB to designate the maximum number of marijuana retail outlets in each county. If a local ban is enacted by the City of Auburn, the number of retail outlets allocated by the WSLCB to the City of Auburn become "at large" retail locations. At large retail outlets can be located in the unincorporated county or any other city not allocated a number of retail outlets, all in accordance with the provisions of Initiative 502. (5) While Initiative 502 contains restrictions prohibiting location of marijuana production, processing and retail outlets within 1,000 feet of public schools, public parks, public libraries and other protected uses, it does not contain restrictions prohibiting location of marijuana licensed facilities within residential districts, community recreational trails, or private parks, facilities and areas that serve the public. (6) Studies reporting secondary effects associated with analogous medical marijuana dispensaries in other cities and counties include reports of murders, robberies, burglaries, drug dealing, sales to minors, loitering, heavy foot and vehicle traffic, increased noise, odors, health hazards such as proliferation of molds; See, "White Paper on Marijuana Dispensaries," California Police Chiefs Association's Task Force on Marijuana Dispensaries (April 22, 2009) was issued ( "CAPCA White Paper "); City of Riverside v. Inland Empire Patients Health and Welfare Center, 56 Ca1.4th 729, 756, 300 P.3d 494 (2013). Page 7 ACT.B Page 44 of 143 (7) Initiative 502 does not require that any city allow the location of any marijuana production, processing or retailing facility within its jurisdiction. Regulations adopted by the WSLCB implementing Initiative 502 specifically state that any license issued by the WSLCB does not constitute approval of the location of the licensed facility within any city. Such uses are subject to the land use regulations of the city. (8) If the City of Auburn opted not to actually prohibit marijuana businesses within the city, it could rely upon the state regulations to address the concerns it has, and could, actually, preserved for itself the authority to enforce those regulations without it being the permitting and licensing agency. As an illustration, this is not that much different than the fact that local police officers and city prosecutors can prosecute violators who drive without a license even though the city does not issue driver's licenses. The state regulations do impose restrictions on marijuana businesses, including setbacks from certain sensitive uses, requirements of security and signage, among others. So long as the city can live with those restrictions, the city does not need to be the licensing and permitting agency, and that keeps the city out of the dilemma of fighting its employees essentially violating federal law in support of businesses licensed under the authority of state law. E. Referenced Documents. The following documents, many of which have been previously provided to the Planning Commission, or have been referenced in the materials or are the basis of opinions and positions taken in connection with and in preparation of the draft proposals for Options 1 and 2 [descriptions of which are provided for ease of reference]: (1) Initiative Measure No. 502. [This is the voter approved initiative that such to decriminalize /legalize certain marijuana activities, providing for licensing and permitting under a state law scheme for producers, processors and retailers of marijuana. This initiative did not relate to medical marijuana, but to marijuana generally or as is often referred to, recreationally.] (2) Sections 69.50.301 - 369 RCW. [These statutory provisions are the codification of Initiative Measure No. 502.] (3) Chapter 314 -55 WAC, regulations adopted by the Washington State Liquor Control Board implementing Initiative 502. [Consistent with the language of Initiative Measure No. 502, the Washington State Liquor Control Board was charged with developing regulations for the marijuana activities - production, processing and retailing - to be licensed and permitted in accordance with the initiative. These WAC provisions were the product of the Liquor Control Board's regulatory efforts.] (4) City of Auburn Resolution No. 4992, enacting initial moratorium. [This Resolution was the initial resolution imposing a moratorium on marijuana related activities within the city of Auburn, initially for one year with a work plan, which moratorium is consistent with the authorization available to cities under RCW 35A.63.220.] (5) Memorandum dated August 29, 2013 from U.S. Department of Justice, Office of the Deputy Attorney General, regarding marijuana enforcement in states of Colorado and Washington. [This memorandum identifies the proposition that even though the federal Page 8 ACT.B Page 45 of 143 government is willing to hold off on prosecution of marijuana violations related to marijuana activities licensed and permitted under state law, marijuana is still illegal under federal law and the federal government does not give up its right to pursue prosecution of marijuana cases as it deems fit.] (6) Washington State Attorney General Opinion AGO 2014 No. 2. [This AGO gives the opinion of the state Attorney General that cities do have the authority to determine whether or not to permit marijuana activities within their jurisdictions notwithstanding state law - per the initiative - that makes marijuana activities legal.] (7) "White Paper on Marijuana Dispensaries," submitted by California Police Chiefs Association Task Force on Marijuana Dispensaries (April 22, 2009).[Even though this white paper actually deals with medical marijuana - not an issue in connection with Initiative 502, this white paper does identify societal concerns regarding the use of marijuana.] (8) Letter of April 29, 2011, from Governor Christine Gregoire to the Washington State Senate regarding partial veto of Engrossed Second Substitute Senate Bill 5073. [This letter explains the concern that Gov. Gregoire had, prompting her to veto portions of the medical marijuana legislation approved by the legislature because she did not want to expose state employees to possible prosecution for violation of federal law, since marijuana is still illegal under federal law.] (9) Gonzales v. Raich, 545 U.S. 1, 125 S.Ct. 2195, 162 LEd. 2d 1 (2005). [This case is a United States Supreme Court case that upheld the authority of the federal government to regulate marijuana as an illegal substance.] (10) City of Riverside v. Inland Empire Patients Health and Welfare Center, 56 Cal. 4th 729, 756, 300 P.3d 494 (2013). [This case, White Paper on Marijuana Dispensaries, identifies societal concerns regarding the use of marijuana.] (11) Controlled Substances Act (part) - 21 USC § 812. [This is the federal law that provides that marijuana is illegal, and, further, finds that it has a potential for abuse, has no current accepted medical use in treatment in the United States, and that there is a lack of accepted safety for use of it under medical supervision.] (12) Cannabis Action Coalition v. City of Kent, 322 P.3d 1246 (2014). [This is a recent State Court of Appeals case in which the Court held that (1) amendments to the Medical Use of Cannabis Act did not legalize medical marijuana or collective gardens; (2) the Governor's veto message was the sole source of relevant legislative history to be considered in interpreting the amendments that were enacted following her sectional veto; (3) cities were authorized to enact zoning requirements to regulate or exclude collective gardens; and (4) Kent's ordinance did not conflict with state law.] If any of the commissioners wish to have copies or review any of these documents, please let us know and the documents will be provided for access will be arranged. Page 9 ACT.B Page 46 of 143 Note: As an aside, it should be recognized that even though it provided for significant tax revenue to be collected (25% each) from producers, processors and retailers, Initiative 502 did not provide any tax revenue to local governments, cities and counties, those entities that will be responsible for contending with the problems of marijuana abuse either in the business setting or in the potential for increased traffic impacts /impaired drivers. F. Attachments The following documents are attached hereto. (1) (Proposed Draft) Findings of Fact, Conclusions of Law and Recommendation to City Council - Option 1: Prohibition of State Licensed Marijuana Uses. These are subject to the Planning Commission's review and revision. (2) (Proposed Draft) Findings of Fact, Conclusions of Law and Recommendation to City Council — Option 2: Allowing for City Enforcement of State Licensed Marijuana Requirements but without the City being the Permitting agency for Marijuana Uses. These are subject to the Planning Commission's review and revision. (3) (Proposed) Ordinance No. 6525, amending ACC 9.22.010 prohibiting marijuana production, processing and retailing — Option 1. (4) (Proposed) Ordinance No. 6525, amending ACC 1.04.060, 5.10.040, 9.22.010, 18.02.020, and 18.07.010 allowing the City to enforce compliance with state licensing of marijuana activities (production, processing and retailing) but without the City being the permitting agency — Option 2. (5) Affidavit of Publication for Notice of Public Hearing, and Notice of Public Hearing Posted on the City of Auburn Website (6) Preliminary 1 -502 Zoning Map Page 10 ACT.B Page 47 of 143 Potential State Licensed Locations for Cannabis Uses 1AUB WASHINGTON (After 1,000 foot Buffer Requirement) S 272ND Sr - S� S 277TH Sr -ref , " SE 272ND ST SE 272ND 55 SE 274TH ST 1 r"3 �w €+6o4snsT Dal Num ~• 'in Milli • 1111 EN •• EMAIN -ST a M p -ST_S \--)L2 18 KING COUNTY %4A- 10ND�p SE • ELLINGSON RD SW SWWART RD SW 8TH ST E a 8 WITH ST E 6TH ST E rN STE P IERCE COU NTY 12TH ST E -r, City of Auburn C1 Light Commercial District ACT.B C3 Heavy Commercial District Mi Light Industrial District CN Neighborhood Shopping District + M2 Heavy Industrial District Page 48 of 143 Printed On: 3/20/2014 Map IP: 4313 Information shown 6 for general reference purposes only and does not necessarily represent exact geographic or cartographic data as mapped. The City of Auburn makes no warranty as to its accuracy. AuBuRN ITY CAF � \VASHENG`Or, AGENDA BILL APPROVAL FORM DI.A Agenda Subject: Date: Amendment to the Downtown Urban Center Design August 20, 2014 Standards and Auburn Junction Design Guidelines Department: Community Development & Public Works Attachments: M emorandum Attachment A Attachment B Attachment C Attachment D Administrative Recommendation: For discussion. Background Summary: See the attached memorandum. Reviewed by Council Committees: Councilmember: Holman Budget Impact: $0 Staff: Chamberlain Meeting Date: August 25, 2014 Item Number: DI.A AUBURN * MORE THAN YOU IMAGINED Page 49 of 143 CITY OF AUBURN * WASHINGTON MEMORANDUM TO: Councilmember John Holman, Chair, Planning and Community Development Committee Councilmember Largo Wales, Vice Chair, Planning and Community Development Committee Councilmember Yolanda Trout, Planning and Community Development Committee CC: Jeff Tate, Assistant Director, Community Development Services FROM: Elizabeth Chamberlain, AICP, Planning and Design Services Manager DATE: August 19, 2014 RE: Proposed Amendment to the Downtown Urban Center (DUC) Design Standards and Auburn Junction Design Guidelines Background The Downtown Urban Center Design Standards were originally adopted by the City Council February 2007. As part of that adoption, the City Council granted authority to the Planning and Community Development Committee for any future amendments. Since the original adoption, the design standards have been amended to address changing needs within Downtown Auburn such as: • Responding to market conditions in 2010, changing the designation of certain streets from Pedestrian I to Pedestrian II streets maintain a Pedestrian I Street designation for Main Street and Division Street • Adding definitions to the standards • Developing the Auburn Junction Design Standards in September 2008 • Modifying and clarifying the sign requirements In 2011, the City worked with Gardner Economics to produce an economic analysis of the 4 block downtown catalyst area to see where Auburn fit in the market place and what would be a realistic development proposal. This report was completed in September 2011. The report concluded that Auburn is still a developing market for mixed -use and that a modest apartment project would be a likely scenario, not speculative development or commercial development. Auburn's downtown commercial market would be saturated if more leasable space was added. Proposed Amendment Staff is bringing forward amendments to the DUC Design Standards and the Auburn Junction Design Guidelines to modify the pedestrian street designations as follows: DI.A Page 11 Page 50 of 143 • DUC Design Standards — change Division Street from a Pedestrian I Street to a Pedestrian 11 Street which will allow flexibility on what can be developed within the ground floor and with the statement that while commercial may not be on the ground floor, the space must be activated and engage with the pedestrian realm. How that ultimately is accomplished will be through conversations between the City and an applicant. • Auburn Junction Design Guidelines — change the core downtown streets to be in line with the DUC Design Standards so the two documents are consistent. In 2010 when the first change to the pedestrian street designations took place, staff was of the mind set that the City should not be in a position of dictating what the market should be in Downtown Auburn. Let the design standards guide what a project looks like and the amenities but the strict use requirements for the ground floor were too restrictive and would lead to vacant store fronts and an over saturation of commercial /retail space. Now we are in 2014 and staff still has the same mind set for Downtown Auburn. Focus on Main Street as the key commercial corridor and if the other downtown streets and particularly Division Street are commercially viable, then the market will develop. Auburn wants a strong downtown core but at the same time if the market is not ready for a downtown space to be retail we should not force it and ultimately end up with vacant store fronts. Recommendation At the August 25, 2014 Committee meeting, staff will review the proposed amendments. Staff recommends that the Committee move forward with amending the two design standard documents as proposed by staff. If the Committee is comfortable moving this amendment to an action item, staff requests this. Attachments Attachment A: Proposed change to DUC Design Standards Attachment B: Proposed change to Auburn Junction Design Guidelines Attachment C: Proposed change to Pedestrian Street standard Attachment D: Gardner Economics' Report, September 2011 DI.A Page 51 of 143 Page 1 2 Attachment A Current DUC Design Standards Pedestrian Street Designations t r I Pedestrian! Street Pedestrian!! Street Page 52 of 143 Attachment A Proposed Amendment to DUC Design Standards Pedestrian Street Designations Proposed Change Area Pedestrian! Street Page 53 of 143 Pedestrian!! Street Current Auburn Junction Design Guidelines Pedestrian Street Designations Page 54 of 143 Pedestrian 11 Street Pedestrian 1 Street Attachment B Attachment B Proposed Amendment to Auburn Junction Design Guidelines Pedestrian Street Designations Pedestrian 1 Street Pedestrian 11 Street 1 Page 55 of 143 Attachment C ADDfTIONAL GUIDELINES FOR DEVELOPMENT SITES ADJACENT TO PEDESTRIAN STREETS Building D si ;,t 1. LAND USE Intent: ensure a rich, uninterrupted mixture of lively activities aimed at people on foot A. Along Pedestrian I Streets, ground floor uses that face the sidewalk shall be retail, restaurant or personal service uses. B. Along Pedestrian II Streets, ground floor office and residential uses are also acceptable when facing the sidewalk. The ground floor must be activated and engage with the pedestrian realm. 2. PROXIMITY TO SIDEWALK Intent: reinforce an active pedestrian experience along Pedestrian Streets A. Buildings along Pedestrian Streets shall be set immediately at the back of the sidewalk, with the exception of providing open space for public use such as plazas, courtyards and seating areas. B. Water run -off from canopies /awnings should be controlled by gutter or other means. Proposed change for both DUC Design Standards and Auburn Junction Design Guidelines DI.A Page 56 of 143 fludner _ conomics MARKET ANALYSIS RELATIVE TO A DEVELOPMENT SITE LOCATED IN DOWNTOWN AUBURN, WASHINGTON STATE Prepared for: THE CITY OF AUBURN September 30, 2011 DI.A 524 SECOND AVENUE, SUITE 500 SEATTLE, WA 98104 TEL: 206 - 442 -9200 Page 57 of 143 TABLE OF CONTENTS I. PURPOSE ................................................................................... ............................... 3 II. KEY FINDINGS. 000000000000000 . ............... . ....... ................................................................... 4 III. EXECUTIVE SUMMARY ................................................................. ............................... 6 IV. ECONOMICS OF DEVELOPMENT 10 V. ECONOMIC SUMMARY 14 VI. REGIONAL POPULATION, INCOME & EMPLOYMENT TRENDS 20 VII. RETAIL MARKET TRENDS 36 VIII. OFFICE MARKET TRENDS 45 IX. RENTAL APARTMENT MARKET TRENDS 54 X. CONDOMINIUM MARKET TRENDS 59 XI. PUBLIC OUTREACH 62 XII. FINANCIAL CHARACTERISTICS OF DEVELOPMENT /REDEVELOPMENT 64 XIII. DEVELOPMENT /REDEVELOPMENT ACTION PLAN.... ............................... 69 XIV. COMPARATIVE ANALYSIS TO OTHER PUGET SOUND CITIES 76 XV. CONCLUSIONS & RECOMMENDATIONS 78 XVI. GENERAL LIMITING CONDITIONS...... ........... . ................... 79 XVII. COPYRIGHT INFORMATION 80 CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 58 of 143 PAGE 2 I. PURPOSE 62673.2 The City of Auburn has retained GARDNER ECONOMICS to prepare a market analysis and absorption study relating to a site' that is located in the heart of downtown Auburn. Key components of the study include the following: Review of Economic Trends in the Puget Sound Region; Analysis of Development Economics; Identification of Market Potential; and Preparation of a Predictive Development Model. The City will use the results of the study to evaluate the viability of the private sector to develop this key site. In addition, it will provide a benchmark to identify current and anticipated feasibility at the proposed project, monitor progress, evaluate specific project forms, and implement strategies and target investment. This report summarizes the general findings and conclusions of the analysis that was undertaken. 'The "site ", or "subject site" as it will be referred to throughout this analysis refers to a 4 -block area of downtown Auburn as shown on the following page. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 3 Page 59 of 143 II. KEY FINDINGS 62673.2 GARDNER ECONOMICS conducted an independent analysis of the downtown Auburn market area with an emphasis on the subject blocks that are bounded by A Street Southeast, A Street Southwest, Main Street West and First Street Southeast. The following statements represent key findings from that assessment. The findings of our report demonstrate a number of challenges to successful implementation of any substantive mixed use development2 at the subject site. Realizing the City's objectives for the site requires a clear assessment of the challenges, and then identification of active steps to overcome these obstacles to the extent possible — any major project proposed will be a bold one. It is clear that successful development of the parcels will need to involve public sector participation to be successful. In summary, GARDNER ECONOMICS believes that the vision can ultimately be realized, but public intervention and City participation will be needed to achieve the vision. LOCATION MAP w wIN ST C MAN ST • 701570025 7055700050 7015700.7 a 7015700005 78IS70c0T5 M75700280 701570W2s� 7615700 is ZND575w a 2 Mixed use refers to a master planned development that can include residential (both apartment and condominium) uses, office and retail. CITY OF AUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 4 Page 60 of 143 62673.2 A fundamental challenge to implementing any development plan is inducing private- sector development activity consistent with established goals and objectives for the area. Zoning at the site is currently ahead of the market, and should prove viable within a reasonable planning horizon. That said, the traditional development forms associated with a traditional urban mixed -use project are not seen as being viable under current market conditions. GARDNER ECONOMICS believes that developers interested in the site should be required to design their developments to achieve targeted densities over time, while still allowing for a viable project under current market conditions. Public sector actions, including those by the City, can have a substantive effect on the nature and magnitude of development in downtown and, specifically, at the subject site. The magnitude and character of future development activity in the area as a whole, and specifically at the site, is a function of a wide range of variables, a number of which are policy sensitive. Public investments in infrastructure and community serving facilities currently competed, as well as others that are yet to be completed, will not change the physical configuration as well as effective function of developable parcels, but rather enhance them — something for which the City should be congratulated. A range of other policy mechanisms are available that can change anticipated development patterns at the site as well. The financial viability of the targeted development forms at the site represents the most significant impediment to achieving the desired development patterns. Addressing the viability gap must be a primary consideration in any strategy to realize more urban development forms at the location over the short term. Any strategy to encourage desired development forms must consider the ability of all parties to pay, including the developers, property owners and existing tenants. There is little point in encouraging developments that do not make economic sense for involved parties. Due to limited public resources, public investment should be targeted to achieve the greatest return on investment. There are a number of direct and indirect ways in which viability can be addressed. In general, policies to impact development in the study area can be organized into two categories: incentive - based approaches and regulatory approaches. The incentive -based approaches are typically voluntary and offer various "carrots" to developers to encourage them to develop the targeted project. Regulatory approaches are not voluntary. The City can require that developers meet development objectives through mandated policies. It should be understood, however, that requiring development forms that are not financially viable should not be expected to generate these development types without market intervention. To conclude, although we believe that a mixed use development that looks to combine commercial as well as residential uses is not viable in today's market, we would contend that a phased development that is initiated by a relatively modest apartment project can be financially viable. It will require the City to reach into its "tool box" in order to assist market rate developers who may be attracted to the subject blocks. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 5 Page 61 of 143 III. EXECUTIVE SUMMARY 62673.2 The City of Auburn commissioned this market analysis and absorption study to increase its understanding of the magnitude and character of development activity that can be expected to occur at the subject site. This analysis addresses market factors impacting development and provides a detailed assessment of the underlying economics of prospective development. We consider this understanding to be critical to an accurate projection of development activity in the future, as shifting market factors support alternative development forms over time. In order to facilitate the above statement, this study gauges current market conditions and recent trends, as well as evaluating projected market condition, and translates that information into expectations with respect to any new development activity that is likely to occur at the site. The economic landscape and real estate market are dynamic within the metropolitan area, and will be expected to shift substantively over time. As a result, this report should be viewed as a benchmark, which will need to be updated as markets shift. Review of Previous Reports The City of Auburn has completed a number of studies to -date that relate to downtown and the site itself. The following is a summary of documents relevant to this report that has been reviewed by GARDNER ECONOMICS. Auburn Downtown Plan/Final EIS, May 2001 — This plan outlines the vision for the downtown sub -area, outlining the framework for the plan, policies and strategic policies. While the plan offers clear guidance of the City's vision for the area, it does not include an evaluation of the development economics underlying the proposed concept. Auburn Junction Development Guidelines, September 3, 2008 — These guidelines acted as an overlay district to the existing Downtown Auburn Center Design Guidelines and apply to the four block area that represents the subject site. Draft Request for Expressions of Interest, 2011 — As of the writing of this report, this document is still being reviewed /revised and we are unable, therefore, to comment upon it. We are, however very interested in the responses that may be obtained from interested parties. To -date, work completed in support of development at the site has focused on physical infrastructure and urban design, and has not addressed the financial viability of the presumed development types. Gardner Economics did revisit the report that was prepared for The Stratford Company' by Gardner Economics; however, the market has shifted dramatically since that report was published and the findings are now erroneous. As such it was deemed appropriate to readdress the subject site. A major issue that needs to be reconciled is the assumed level of development activity at the subject 3 Market Analysis for a Proposed Mixed -Use Development Located In Auburn, Washington State (November 13, 2006) CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 6 Page 62 of 143 62673.2 site relative to the overall market depth in King /Pierce Counties. Even if necessary development forms are viable, the sub - market will need to substantively increase its share of regional growth to realize the assumed development levels. Our analysis uses Puget Sound Regional Council (P.S.R.C.) and DemographicsNowr. forecasts as a baseline. These forecasts assume growth largely consistent with recent trends. Realizing mixed -use development at the site will require a major shift in historical trends, as well as a shift in the competitive position of Auburn within King County. This study addresses ways in which the City can actively intervene to assist in the successful development of the site. General Market Trends From a demographic perspective, we note that the Auburn has grown at a very rapid rate since 1990 (68 percent). However, a great majority of this increase was a function of annexation that occurred in 2008 that added over 16,000 new residents. If we were to exclude this unique addition, we note that the growth rate slowed but still an impressive 31 percent. Over the past 10 years, the City has added almost 10,000 housing units (of all types) and household growth has slightly exceeded that figure. In the more specific geography'', we note that population and housing growth has not matched that of the City, or the greater metropolitan area. We are not surprised by this as it is currently not a primary residential destination. The Seattle metropolitan area has suffered along with the rest of the country relative to what is now being referred to as the "Great Recession': The financial meltdown that started in 2008 led to a substantial slowing in the economy with many development projects languishing. That said, we have seen signs of a modest rebound with positive employment growth and, in as much as we are still substantially below our peak employment levels, the direction is positive. Additionally, and of specific interest to the proposed development program, financial institutions are now looking to fund new developments (although the product types being considered are limited, these are positive signs). Recent employment growth, however, has yet to provide strong demand for office space, as well as any large increases in residential activity. The retail market has remained at reasonable levels, although weakening buying power has negated the feasibility of new development. The following is a brief summary of market conditions and trends at the metropolitan area level: Residential Uses Condominiums were a major player in the previous development cycle, with a substantial number of new units added in both urban and suburban markets. While it enjoyed a great run up until the financial meltdown, the market turned dour and we do not expect to see much, if any, new construction in the upcoming development cycle, or until prices lower enough to dispose of existing inventory. Additionally, with little in the way of downward pressure on materials and labor, values have yet to exceed replacement cost and, until this is the case, we will see little to no activity 4 FAZ Area 3130 An F.A.Z. refers to a Forecast Area Zone (More details of this will be found on page 27.) CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 7 Page 63 of 143 in this arena. 62673.2 Rental apartments are seen as having outstanding upside potential, with market fundamentals and investor interest strong. This is a function of declining home ownership rates and substantial new demand on the horizon. Of all land uses considered in this document, GARRDNER ECONOMICS believes that apartments to be the only feasible development form in the Puget Sound at the present time. Commercial Uses The office market got off to an exceptional start in 2011 with increasing activity across multiple sub - markets. Total vacancy dropped by 30 basis points across the region specifically in the Northend, Eastside and downtown Seattle sub - markets. In aggregate, the Puget Sound market absorbed nearly 425,000 square feet in the first quarter of 2011; however, although more leasing velocity has occurred, total asking rates have fallen slightly. Landlords across the region remain aggressive to attract new tenants. The retail market has been adequate for appropriately configured spaces in good locations. Leasing activity in the Puget Sound retail market continues to gain traction, with even proven trade corridors in tertiary areas approaching stabilization. The first quarter of 2011 marked the fourth consecutive period of positive net absorption in Seattle - Tacoma area, with the recovery in operations broadening rapidly. Within the broader metropolitan area, the Southend market has proven to be a popular housing alternative to the more expensive markets to the north. Improvements in mass transit infrastructure, in concert with land availability, led to a similar run up in demand and values through the boom years. Needless to say, this has reversed and values of residential real estate are still in decline. Market fundamentals in the Southend's other major real estate sectors largely mirror those in the metropolitan area as a whole. Within the study areas, we see the following as representing current market conditions: The office market has a stabilized occupancy rate overall. Achievable office rent levels of $20 to $22 per square foot full service for Class A space are achievable in the City, but the market depth for this type of product in Auburn is extremely limited. The Auburn market has remained surprisingly strong with vacancy rates, although jumping in mid -2009, remaining at around 6 percent. This may allow for rents to remain above the $20 per square foot level and possibly escalate in real terms. An increase in achievable rent levels will be necessary to support significant levels of new construction as construction costs have increased substantially over the last several years. The major issue is that, with a substantial amount of space available in the larger markets of Renton Tukwila, and Federal Way, we question what would drive tenants to Auburn for other than a build to suit development (which will likely be medically oriented). Auburn has not seen many urban condominium projects completed. Based on available 5 Considered to be the City of Auburn. 6 The cost of construction relates to the cost of capital as well as the level of equity participation. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 8 Page 64 of 143 62673.2 comparables, we would expect that stacked flat condominiums could achieve pricing in the $180 to $200 per square foot range. This assumes smaller unit sizes to attract a target buyer who is seeking lower price points. At these prices, vertical development is not feasible. Achievable pricing for rental apartments in the area is estimated at between $1.40 to $1.60 per square foot in current dollars, with strong escalation potential over the next few years. There is little in the way of new projects planned and this development form represents the best potential at this time. The potential for retail space will be closely correlated with office and residential development at the subject site. We do not see that this development form will garner interest until development of the other land uses are well underway. At that time smaller spaces could lease for between $12 to $14 triple net. The market trends outlined and discussed in this report reflect a point in time assessment, and it should be noted that the market for alternative product types can shift significantly over time. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 9 Page 65 of 143 W. ECONOMICS OF DEVELOPMENT 62673.2 Development activity is inherently difficult to predict, as it reflects the interaction of a complex range of variables. These include owner disposition, market conditions and current lessees (if any exist). The key challenge from a market perspective to achieving the higher density development forms envisioned for the site is the need for higher rent levels necessary to support the associated higher development costs. The primary reason for a lack of higher density development in downtown Auburn is the lack of financial feasibility under current achievable pricing levels. While zoning the area to allow for higher density development is positive, zoning that is ahead of the market will not solve the fundamental problem of financial viability. Successful urban areas have been able to translate an amenitized urban experience into pricing premiums that are necessary to support higher density development. We have found that tenants in suburban locations are willing to pay rents at approximately 20% above newer product in the immediate market to live in an urban setting, particularly ones with good transit access. The "urban" model is very new to this area, and untested. It is GARDNER ECONOMICS' opinion that there is considerable demand for this style of development with both older households who are looking to downsize, and younger singles looking for first -time ownership or rental housing. It is also GARDNER ECONOMICS' opinion that a majority of prospective residents at the site will be older and looking to take advantage of the proximity to health services, as well as to reside in smaller units relative to their existing abodes. This does not, however, preclude a younger demographic from residing within the development. That said, in order to attract these renters /buyers there must be a value proposition that will attract them to Auburn and not the more densely populated cities to the North and South. While our analysis supports a contention that the ability of the area to support higher densities is limited, it should be noted that these limitations reflect current market conditions. Over a longer planning horizon, shifts in usage patterns and land values may substantively alter the development environment. If achievable rent levels increase substantively within the metropolitan area and Auburn, many of the higher density development forms would become more viable. In other words, the high - density product may in fact be in demand today by consumers, but today's rent levels do not yet support large high - density products. In some locations, we have seen some efforts to allow for smaller development that does not preclude development at higher densities at a later time. This is an important consideration, as development under current market conditions is not expected to yield targeted densities but can limit redevelopment opportunities. Shadow platting is an approach being used by some jurisdictions. This process requires developers to design their developments to achieve targeted densities over time, while still allowing for a viable project under current market conditions. This is a likely scenario for the site. An inherent problem in urban redevelopment is that the development of an urban amenity base is necessary to achieve a pricing premium associated with an urban setting. Support for commercial services within an urban environment is primarily derived from local housing and employment CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 10 Page 66 of 143 62673.2 concentrations. This `captive audience' of potential customers increases the attractiveness of the available space at the development, while the commercial tenants provide services that increase the value of the local office and residential space. The end result of this circular dependency is that densities tend to increase over time, as higher densities support better amenities', which support higher pricing and subsequently higher density development forms. A problem with the aforementioned market dynamic is that it often leads to an underutilization of properties, with key parcels developed at relatively low densities. Catalyst developments are a common approach used by jurisdictions to kick -start this virtuous cycle of investment. These types of projects identify key development opportunity sites, and the public intervenes in the market to assure a quality development consistent with public objectives. It is likely that this will be the case at the subject site. We are, naturally, cognizant of the existing amenities that Downtown Auburn offers with its full service Safeway grocery store, Regional Medical Center, Performing Arts Center, theater and proximity to light rail all close at hand. These are certainly positive attributes, but are currently insufficient to encourage additional urban mixed use development at this time. The reason for this is not that the location itself is inappropriate; rather the fact that organic demand is presently insufficient for successful development at the subject site. Redevelopment Strategy A fundamental challenge to implementing development at the site is inducing private- sector development activity consistent with established goals and objectives for the area. As currently planned, the study site is expected to realize development densities significantly higher than currently viable in the area. While these densities may prove viable over the planning period, there will likely be market intervention required to direct development activity. Market intervention is to shift the highest and best use equation for the development community, not to provide subsidy. Addressing the viability gap must be a primary consideration in any strategy to realize more urbanized development forms at the site. There are a number of direct and indirect ways in which viability can be addressed and the City should be congratulated on its efforts to date to implement many of these. Direct methods include project specific actions, such as property tax abatements and public ownership of parking. Indirect methods include public parking programs and directed public improvements. Another category of actions that should be initiated in the short -term is marketing related. The City needs to package and disseminate information regarding development potential, opportunities and tools available to property owners and the development community. We consider the cost effectiveness of these types of actions to be relatively good. We understand that the City has already reached out to the development community at some level and that this study itself will be used as an additional tool in pursuit of these goals. Within this context, "better amenities" refers to the availability of a range of services that increases convenience and enhances the experience of persons living or working in an area. These would include restaurants, specialty grocers, coffee shops, dry cleaners, etc. Gardner Economics has reviewed quantitative studies of the marginal value of a range of amenities, which can have a substantive impact on achievable residential pricing CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 11 Page 67 of 143 62673.2 The table below presents a summary of what we consider to be priority actions necessary to increase the potential to spur desired development goals at the site. PRIORITYACTION THAT NEED TO BE CONSIDERED BY THE CITY General Issues /Action Description Comments Hi _h Prioritv Project Feasibility 1. Additional Property Tax Abatements; The level of subsidy related to the degree to 2. Enhanced Public Parking Programs; which a publically mandated development 3. Allow Phased Development; programme varies from the market solution. 4. Land Assembly; and 5. Additional Off -Site Improvements. Medium Prioritv Marketing 1. Development Advocate; The City's posture needs to continue to be 2. Improved Contact with Downtown proactive with respect to the development Business Owners & Property Developers; community. and 3. Collateral Materials (brochures, etc.) As outlined, these steps can be largely categorized as pertaining either to enhancing project feasibility or more actively marketing the planned development. Needless to say, we are aware that the City has partially implemented several of these; specifically residential property tax abatements, land assembly (the proposed site) as well as significant off -site improvement projects. Additionally, completion of an Environmental Impact Statement also reduces potential developers' pre - entitlement risk. The city should be congratulated on their efforts to date. Viable development forms, including or excluding public participation, need to be identified and effectively marketed to property owners and the development community. It should be said at this juncture that, no matter how much emphasis the City puts on encouraging development to come to the center of Auburn, the decision to build will be market driven. The real estate market in existence today is a far cry from that of 2000's. GARDNER ECONOMICS believes that all reasonable efforts be made to encourage the development community to but that expectations should be tempered by market realities that are outside of the jurisdictions' control. Summary Our report presents demographic data often derived from the Puget Sound Regional Council (PSRC) and DemographicsNowm, a national data provider. It is important to understand when using these sources that a fundamental underlying assumption in their modeling is a continuation of current and recent trends. The City of Auburn should not be constrained by these forecasts in their planning efforts. The relatively modest expectations outlined in the P.S.R.C. forecasts are valuable to recognize as a baseline assumption, representative of a baseline case with little market intervention. This baseline will be influenced through policy and projects undertaken to implement the City's predefined goals. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 12 Page 68 of 143 62673.2 The nature of future development activity at the site is a function of a wide range of variables, a number of which are policy sensitive. In other words, actions taken by the City of Auburn can have a substantive and predictable effect on the nature and magnitude of development activity. Public investment in infrastructure has already changed the physical configuration as well as effective function of the developable parcels. In GARDNER ECONOMICS' opinion, this is a very positive move. A range of other policy mechanisms are available that can change anticipated development patterns in the area as well and these will be discussed later on in this report. The findings of our report present a number of challenges to successful development at the site itself. Realizing the City's hopes for development at the site requires a clear assessment of the challenges, and then identification of active steps to overcome these obstacles to the extent possible. Any substantive mixed use development will be a bold move, and implementation measures will need to be equally bold if it is to be successful. In summary, the vision can be realized, but it will take public intervention and City participation. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 13 Page 69 of 143 V. ECONOMIC SUMMARY ECONOMIC OVERVIEW 62673.2 The information in the following section summarizes the baseline economic trends and conditions on a national, regional, and local level which will affect the direction and intensity of development opportunities at the site over the foreseeable future. Macroeconomic Conditions Based on growth in national production as measured by quarterly Gross Domestic Product (GDP)8 the economy of the United States has emerged from a prolonged recession and has entered a modest expansionary period. The first quarter of 2011 posted 1.8% growth, the seventh consecutive fiscal quarters where National production growth has increased. A summary of GDP growth rates over the last several years is summarized in Figure 1.01 FIGURE 1.01: QUARTERLY CHANGES IN U.S. GROSS NATIONAL PRODUCT 6% 4% 2% 0% -2% -4% -696 -8% RATE OF GDP GROWTH BY QUARTER ,a; ilir N ,, . n N — ° o n o 00 '•R ri v� o co o n N n n u — u es 1, Ct3 C13 e 0 ■ ON I 06 II 06 III 06IV 06 I 07 II 07 III 07IV 07 I 08 II 08 III 08IV8 I 09 II 09 III 09IV 09 I 10 II 10 III 10IV 10 I 11 QUARTER Source: Bureau of Economic Analysis 8 Gross Domestic Product is officially defined as the combined economic production activity occurring within U.S. borders, typically on a three -month quarterly basis. Production activity can be due to domestic or foreign firms so long as the activity occurred within the continental U.S CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 14 Page 70 of 143 62673.2 The labor market is a principal indicator of economic activity, and in turn, potential demand for commercial and residential space. With housing, retail services, and office space all potential components of any development at the site, the extent of economic activity as gauged by labor market indicators represents long -term potential for the site to capture additional market share. FIGURE 1.02: NATIONAL EMPLOYMENT LEVEL & RETRACTIONARY PERIODS 1980 -2011 140 130 120 110 100 90 2000 -2001 Recession — 2.7M Jobs 2008 -2010 Recession — 8.8M 1990 -1991 Recession — 1.6M Jobs Early 80's Recession — 2.8M Jobs 80 - CO C CO C CO C CO N CO m CO C CO C CO C CO ^ CO C CO C °rn C C C C C C C C C C 0 0 0 0 0 0 0 0 0 0 0 ° '�-1 010101CT10101010101010101010101010101010101M00 0 0 0 0 0 0 0 0 0 00 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 c-1 ,-I N N N N N N N N N N N N N Source: Bureau of Labor Statistics The above chart demonstrates the long term moves in employment. The most recent recession has been particularly severe and we are still over 7 million jobs below the prior employment peak. As can be seen in the chart on the following page, recessions are taking longer to recover from. The traditional "V" shaped recession is a thing of the past and we are now faced with the emergence from a very deep "U" shape. Although the author believes that we will not fall back into a double -dip recession where we lose additional jobs, it is clear that our recovery will be tepid and that it will be several years before we return to our pre- recession employment peak. [Figure 1.03] CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 15 Page 71 of 143 FIGURE 1.03: PEAK TO TROUGH EMPLOYMENT IN THE PAST 5 RECESSIONS WITH FORECASTED GROWTH 62673.2 Percent Cumulative Job Loss Relatfiveto Peak Employment Month 1.0% 0.5% 0.0% - 0.5% - 1.0% - 1.54'0 - 2.04'0 - 2.54'0 -3.0% -3.5% -4.0% - 4.54'0 -5.0% -5.5% - 6.04'0 - 6.54'0 - 7.04'0 1974 (July) -1981 (August) 1990 (June) -2001 (February) -2008 (January) 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 Number of Months After Peak Employment Source: Bureau of Labor Statistics with Gardner Economics' forecast While both payroll and civilian employment is still well off peak levels, the U.S. job market has performed modestly better than commonly reported in terms of civilian employment, which includes agricultural jobs and the self - employed, sole proprietors and independent contractors. Figure 1.04 provides a comparison of payroll employment to civilian employment over the past 30 years. CITY OFAUBURN PAGE 16 MARKET ANALYSIS e ABSORPTIONSTUDY DI.A Page 72 of 143 FIGURE 1.04: U.S. CIVILIAN & PAYROLL EMPLOYMENT 1980 - CURRENT 62673.2 0 0 0 c o o 150 140 130 120 110 100 90 80 — Employment Payroll Employment �Civilian T Self Employed © --i oo oo c-, c-, N oo c-, m oo c-, NI' oo c-, V■ oo c-, Vr oo c-, r- oo c-, CO G1 oo 0o c-, c-, 0 c, c-, -- c, c-, N c, c-, m c, c-, .1' V■ Vr r- CO c, c-, c-, c-, c-, c-, c-, c-, c-, c-, G1 c-, c-, 0 0 0 N -- 0 0 N N 0 0 N m 0 0 N .1' 0 0 N V■ 0 0 N Vr 0 0 N r- 0 0 N CO 0 0 N G1 0 0 N 0 -- 0 N —1 -- 0 N Source: Bureau of Labor Statistics CITY OFAUBURN PAGE 17 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 73 of 143 ICI' Iflfl+R 62673.2 National Housing Market As it was central to the recent recession, the housing market has become one of the most - watched economic variables. As exemplified in Figure 1.05, the precipitous decline in sales since mid -2007 appears to have abated but there is no short term upward pressure on construction as the market is still flooded with distressed houses for sale that are detracting from structural demand for housing units: • New Housing Starts — New construction declined month -to -month between March and April, as well as from levels during the first quarter of 2010. New Home Sales — New home sales remain stagnant but sharp reductions in new home starts show further declines in units for sale. • Existing Home Sales — The National Association of Realtors reported that the market is still suffering with the sale of existing homes falling in April to an annual rate of 5.09 million units. About 37 percent of the market consisted of distressed sales that are still weighing on the market. • Inventories - The National Association of Realtors also reports that inventories have increased nationwide to an average of 9.2 months' worth of supply, above the 20 -year average of 7 months' supply. Inventories are still high and are likely to remain that way until distressed units clear the market. FIGURE 1.05: NEW HOUSING SALES UNITED STATES SA (Q106 THROUGH Q111) 0 0 0 c 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 I II III IV I II III IV I II III IV I II III IV I II III IV I 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 Source: National Association of Realtors Caution remains the order of the day, both from larger homebuilders and from the Federal Reserve. Economic strength in the face of higher fuel prices had the Federal Reserve considering changing its bias towards rate escalation, but rate hikes are not likely to be seen. GARDNER ECONOMICS fully expects the Federal Reserve to adjust short -term rates in response to inflation and economic activity CITY OFAUBURN PAGE 18 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 74 of 143 but not in the near future. 62673.2 GARDNER ECONOMICS remains positive about the direction of the U.S. economy; however, there are still substantial headwinds relative to US debt that need to be addressed if we are to commence a prolonged period of expansion. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 19 Page 75 of 143 VI. REGIONAL POPULATION, INCOME & EMPLOYMENT TRENDS 62673.2 The broadly recognized King County region is analyzed in this section. The practice of evaluating trends at the "regional" or county level is beneficial as broad market conditions and policy decisions will undoubtedly impact long -term conditions in Auburn. Additionally, county level data series are readily available through both State and Federal agencies. Population & Households • Over the ten -year period ending in 2010, the King County population has increased by 0.9% annually from 1,737,034 to 1,892,999, a gain of 155,965 or 9 %. Over the same interval, area households also swelled to over 788,300 or 2.40 persons per household. [Figure 1.061 • The initial downward trend in population growth is a function of underestimates between censuses. Growth is still positive and we have every expectation that this will continue through the next several years as businesses start to rehire again. • Household growth has reflected the natural population growth and, even though the past recession, has been positive although we have seen an increasing number of multifamily residences (apartments) and expect that this trend will continue until builder inventory dissipates. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 20 Page 76 of 143 I2,000,000 1,950,000 1,900,000 - 1,850,000 - 1 1 FIGURE 1.06: POPULATION & HOUSEHOLD TRENDS KING COUNTY, WASHINGTON 62673.2 1,800,000 - 1,750,000 - 1,700,000 - 1,650,000 - 1,600,000 1,550,000 1,500,000 Ppulaon Annual ch an& O rn rn rn rn rn f, v 7, 0 0 ON ON 0 0 ti ti N N 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 '- '- '- '- '- N 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% HOUSEHOLD GROWTH 850,000 800,000 750,000 700,000 650,000 600,000 rn OWi rn O °0 O ° 0 0 ° rn rn rn rn rn rn rn rn rn rn 0 0 0 0 0 0 0 0 0 0 0 Source: State of Washington CITY OF AUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 77 of 143 PAGE 21 62673.2 • Forecasts published by the P.S.RC. suggest robust population growth will continue well into the foreseeable future in King County [Figure 1.07]. By the year 2040 the county is expected to reach 2.4 million people, a gain of 27% over current levels. Households, however, are projected to grow at a far more accelerated pace with 40% growth. This discrepancy is largely the result of an exhibited trend of falling household sizes in the region. By 2040, King County households are expected to average only 2.17 persons per household down from 2.40 in 2010. FIGURE 1.07: PROJECTED POPULATION & HOUSEHOLD GROWTH KING COUNTY, WASHINGTON 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 1980 1990 2000 2010 2020 2030 2040 1- •HH —Pop Source: Puget Sound Regional Council CITY OFAUBURN PAGE 22 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 78 of 143 Employment & Wage Trends 62673.2 The recession was hard in King County with over 118,000 jobs lost from the peak employment in June of 2008 to the trough in January of 2010. That said, a recovery appears to be underway and we have regained almost 52,000 of the jobs that were shed. [Figure 1.08] Unemployment has fallen from a high of 9.3% to its most recent level of 7.9 %. FIGURE 1.08: YEAR - OVER -YEAR EMPLOYMENT GROWTH KING COUNTY, WASHINGTON 60,000 40,000 20,000 H u4 20,0 w - 40,000 - 60,000 - 80,000 - 100,000 �' ��� � '5' IMMII, �� �ti ��� ��ti �� ti �� ��ti �fi �' Source: BLS The twelve month interval ending in May of 2011 has been a period of robust economic expansion in King County, with the addition of over 29,5009 new jobs reflecting a 2.6% rate of growth. The majority of new positions (roughly 56% of growth) can be attributed to the recovery in the Professional & Business Services sector. The Education & Health Services sector grew by 21 percent, Retail Trade by 15.3 percent and Leisure & Hospitality by 10.5 percent. Although we are seeing a tightening in the local job market in King County, wage impacts have yet to be felt. Median wages in King County are now back to where they were in 2006. [Figure 1.09] 9 Total Non -Farm Employment CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 23 Page 79 of 143 FIGURE 1.09: MEDIAN WAGE TRENDS (1999 THROUGH 2010) 62673.2 Source: Washington State Office of Financial Management Unsurprisingly, King County's wage rates are above those of Pierce County as well as the State. Wage levels in the County have grown at a faster rate than the State as a whole in the last few years; however, the past recession has hit all areas and we have seen declines since 2007. We expect that we will see wage growth but it will be at a far slower pace than seen through the boom years. This could be problematic as, if we see inflation start to kick in, it will function to reduce consumers' buying power. Across industry classifications the information sector overwhelmingly averages the highest wages in King County ($187,486 in 2010). Other high wage sectors include Finance & Real Estate ($78,812), Manufacturing ($75,680), and Wholesale Trade ($73,072). Any downtown markets ability to capture an increasing share of future employment from these targeted sectors will greatly impact wage levels. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 24 Page 80 of 143 $75 MEDIAN HOUSEHOLD INCOME BY COUNTY $70 ■King $65 -*-Pierce WA • $60 $55 i � Mir vp Q z $50 ■� X 0 $45 x H $40 $35 $30 $25 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ■King 53.2 54.6 55.9 56.8 57.7 62.3 62.0 67.7 69.3 68.4 67.5 66.4 Pierce 45.2 45.0 47.6 48.2 49.8 52.0 53.6 52.5 57.5 56.7 55.4 55.3 45.8 48.5 50.3 50.8 51.8 54.7 55.1 57.7 57.0 57.0 56.3 55.4 -A-WA Source: Washington State Office of Financial Management Unsurprisingly, King County's wage rates are above those of Pierce County as well as the State. Wage levels in the County have grown at a faster rate than the State as a whole in the last few years; however, the past recession has hit all areas and we have seen declines since 2007. We expect that we will see wage growth but it will be at a far slower pace than seen through the boom years. This could be problematic as, if we see inflation start to kick in, it will function to reduce consumers' buying power. Across industry classifications the information sector overwhelmingly averages the highest wages in King County ($187,486 in 2010). Other high wage sectors include Finance & Real Estate ($78,812), Manufacturing ($75,680), and Wholesale Trade ($73,072). Any downtown markets ability to capture an increasing share of future employment from these targeted sectors will greatly impact wage levels. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 24 Page 80 of 143 King County Employment Forecast 62673.2 Figure 1.10 highlights short -term employment forecasts published by the Washington State Employment Department (2009 base -year) which have been updated to 2011 levels by GARDNER ECONOMICS. Over the next ten years, King County's employment is expected to grow at a pace of 1.3% annually while adding over 146,400 new jobs. FIGURE 1.10 FORECASTED EMPLOYMENT GROWTH KING COUNTY, WASHINGTON 1,500,000 - 1,450,000 1,400,000 - 1,350,000 1,300,000 1,250,000 1,200,000 1 1111111 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: State of Washington According to the Washington State Employment Department forecasts, new job growth in King County is expected to fall heavily on the Technology, Professional & Business Services, and Healthcare sectors. In addition to the State formulated short -term forecasts above, GARDNER ECONOMICS evaluated alternate long -term employment forecasts produced by the Puget Sound Regional Council through the year 2040. This forecast can be expected to better reflect the political, technical, and economic conditions affecting long -term employment growth in the region. The drawback of the forecast is that it precludes much detail relative to N.A.I.C.S classification. This condition limits the level of detail reported across the regions high growth service industries. The estimates, presented in Figure 1.11 indicate over 1.83M non -farm workers will be employed in King County by 2040. This growth represents a 40% increase over the PSRC's 2010 employment estimate. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 81 of 143 PAGE 25 FIGURE 1.11: KING COUNTY EMPLOYMENT PROJECTIONS 62673.2 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 A 1980 1990 2000 2010 2020 2030 2040 Source: Puget Sound Regional Council When placed alongside forecasts for the other Central Puget Sound counties, we note that King County is scheduled to grow employees at a slower rate than Pierce, Snohomish or Kitsap. That said, the absolute number of jobs that will be gained represents 60 percent of total growth. CITY OFAUBURN PAGE 26 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 82 of 143 A Trends 62673.2 Figure 1.12 highlights the geographic area primarily evaluated in this section of our analysis. To obtain a detailed and locally informed evaluation of "local" economic conditions, this evaluation region is strictly delineated by broad Forecast Area Zones (FAZ) districts as defined by the Puget Sound Regional Council (PSRC) and represented by a series of census tracts. We choose to utilize this region as opposed to the jurisdictional boundaries of the City of Auburn primarily on the basis of data availability. The use of FAZ's in this case yields an area larger than the City of Auburn itself. The P.S.R.C. produces regular localized long -term forecasts of population, households, and employment in the Puget Sound region. The defined region in Figure 1.12 will subsequently be referred to as the "Auburn Market Area"' in this analysis. FIGURE 1.12 AUBURN MARKET AREA Source: Puget Sound Regional Council FAZ 3130 (red) contains the subject site while the green area shows the Auburn market that was considered. CITY OFAUBURN PAGE 27 MARKET ANALYSIS e ABSORPTIONSTUDY DI.A Page 83 of 143 FAZ 3415 FAZ 3390 FAZ 3705 FAZ FAZ 3600 FAZ 3414 FAZ 3046 FAZ 3505 FAZ 3427 FAZ 3320 FAZ 3045 FAZ 3426 FAZ11111 3130 FAZ 3.310 FAZ 3020 ir FAZ 3125 FA..4/ "ph 13110 FAZ 3010 FAZ 1 3120 f -414 FAZ FAZ 3200 FAZ 200 FAZ 900 FAZ 076 FAZ 3o FAZ 005 Source: Puget Sound Regional Council FAZ 3130 (red) contains the subject site while the green area shows the Auburn market that was considered. CITY OFAUBURN PAGE 27 MARKET ANALYSIS e ABSORPTIONSTUDY DI.A Page 83 of 143 Puget Sound Regional Council Forecast Methodology 62673.2 P.S.R.C. prepares forecasts using a two -part "top- down" approach. Prior to developing forecasts for individual FAZ's, a regional forecast was prepared using a variation of the Puget Sound Economic Forecaster (PSEF) econometric model. The PSEF model produces estimates of population, households, and employment for King, Kitsap, Pierce, and Snohomish counties as a whole. P.SR.C. then employs a different set of models, DRAM (Disaggregate Residential Allocation Model) and EMPAL (Employment Allocation Model), to arrive at future year forecasts for individual FAZ's. After the modeling is completed, draft results are released for review at the monthly Regional Technical Forum meetings. Planners from cities and counties in the region are given the opportunity to extensively review and comment on the results prior to the finalization and release of the forecasts, particularly in terms of developing adjustments that better reflect major development activity and local comprehensive plan designations. Population & Households When we look at the Auburn Market Area (as defined on the previous page), population growth was measured at 46 percent between 1990 and 2010 and forecasted growth was calculated at the same rate, or almost 90,000 people. Within the delineated Auburn Market Area, population has increased at a greater pace relative to county level growth. Since 2000 the area has added 28,478 individual and 11,365 households while averaging 1.9% annual growth. However, this exhibited growth should be considered impressive given that the county growth rate was noticeably less. [Figure 1.131" Household growth data indicated forecasted annual growth of 2.0% with housing units within the Auburn Market Area reaching 116,375 by 2040. The effect of smaller household sizes is expected to be less apparent in Auburn area with the average household falling from 2.67 to 2.43 persons per household over the evaluation period. The reduction in household size is consistent with marginal demand for a higher density residential product mix on the margin. " This was primarily due to annexation that happened in 2007 CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 28 Page 84 of 143 FIGURE 1.13: PROJECTED POPULATION & HOUSEHOLD GROWTH AUBURN MARKET AREA, WASHINGTON 62673.2 300,000 250,000 200,000 150,000 100,000 50,000 0 — *—HH t Pop 1 1980 1990 2000 2010 2020 2030 2040 Source: PSRC CITY OFAUBURN PAGE 29 MARKET ANALYSIS &ABSORPTIONSTUDY DI.A Page 85 of 143 Employment & Wages 62673.2 Between 2000 and 2010, the Auburn Market Area added 3,646 jobs while growing by a relatively measured 0.4% annual rate. [Figure 1.14] Over the 30 -year projection period, the PSRC estimates long -term employment growth to average 1.7% annually. Over this interval, an estimated 36,647 new positions are expected to be created in the Auburn Market Area. FIGURE 1.14: LONG -TERM EMPLOYMENT FORECASTS AUBURN MARKET AREA 120,000 100,000 80,000 60,000 40,000 20,000 ua 1980 1990 2000 2010 2020 2030 2040 Source: PSRC CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 30 Page 86 of 143 62673.2 When we consider the specific FAZ that contains the subject site, we note that it will house a majority of the new jobs, but not new residential population. As demonstrated below, the sub -area is expected to add 4,338 new positions between 2010 and 2040 representing an annual growth rate of 0.9 percent [Figure 1.151. FIGURE 1.15: LONG -TERM EMPLOYMENT FORECASTS FAZ 3130 35,000 30,000 25,000 20,000 15,000 10,000 5,000 A 1980 1990 2000 2010 2020 2030 2040 Source: PSRC CITY OFAUBURN PAGE 31 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 87 of 143 62673.2 The following section looks at a tighter timeline and utilizes data acquired from DemographicsNowrt. It is useful to compare and contrast this to the P.S.R.C. data, but it also provides more granular information that was of interest to the author. We would note at this juncture that the geography utilized in this section looks at the whole of the City. Population /Household Growth Between 2000 and 2010, the City of Auburn saw its population increase by approximately 5.6 percent annually, or 2,992 persons per year. During this period, the number of households increased at a modestly higher rate of 5.8 percent annually, suggesting that household size dropped between the two periods to about 2.45 persons per house. Over the next five years, through 2015, these growth rates are expected to decline. Population is expected to increase at an annual rate of 3.4 percent, while household growth is expected to expand at an annualized rate of 3.7 percent. Between 2010 and 2015 the City is projected to increase by approximately 12,799 people. Figure 1.16 below highlights the area's population trends. FIGURE 1.16: GENERAL DEMOGRAPHICS — CITY OF AUBURN, WASHINGTON Annual Annual 2000 2010 Growth Rate 2015 Growth Rate (Census) (Est.) 00 -10 (Proj.) 10 -15 Population Households Male Female 40,888 16,330 70,810 5.6% 28,635 5.8% 83,609 3.4% 34,397 3.7% 20,292 35,445 5.7% 42,123 3.5% 20,596 Household Size 2.50 35,365 5.6% 41,486 3.2% 2.45 2.43 SOURCE: Demographics Now Income In Auburn, median household incomes in 2010 dollars exhibit an annual increase of approximately 3.2 percent from 2000 to 2010 and a slightly less significant annual increase of 1.3 percent expected through 2015 to $57,558. Figure 1.17 below shows Auburn's projected income trends. CITY OFAUBURN PAGE 32 MARKET ANALYSIS e ABSORPTIONSTUDY DI.A Page 88 of 143 FIGURE 1.17: INCOME: AUBURN, WASHINGTON 62673.2 2000 (Census) 2010 (Est.) Annual Growth Rate 00 -10 Annual 2015 Growth Rate (Proj.) 10 -15 Per Capita ($) Average HH ($) Median HH ($) $19,359 $48,474 $39,426 $25,866 $61,826 $53,853 2.9% 2.5% 3.2% $32,427 $77,699 $57,558 4.6% 4.7% 1.3% SOURCE: Demographics Now Interestingly, the highest increase in population by income category comes from households earning between $100,000 and $125,000 per year. The projected increase in households within this income range is around 456 by 2015. This is important as this socioeconomic group will ultimately make up potential home buyers for the subject development. Projected net change in household growth in Auburn through 2015 is projected at 5,762 households. Figure 1.18 shows the distribution of households by income through 2015. FIGURE 1.18: DISTRIBUTION OF HOUSEHOLDS BY ANNUAL INCOME 2010 -2015 25% 20% 15% 10% 5% 0% •20 10 0 20 15 L I - - 111- 1 z 1 $ 0 - $19,999 $ 20 000 - $ 40,000 - $ 60 000 - $ 75 000 - $100 000 - $125 000 - $150 000 + $39.999 $59,999 $74.999 $99,999 $124,999 $149,999 SOURCE: Demographics Now CITY OFAUBURN PAGE 33 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 89 of 143 Building Permit Activity 62673.2 Moderating population growth coupled with instability in home prices in King County has dramatically slowed residential construction activity [Figure 1.19]. In year -to -date 2011, residential permitting was up by 47% over 2010 and 760% when considering multifamily permitting. FIGURE 1.19: RESIDENTIAL PERMIT ACTIVITY KING COUNTY, WASHINGTON (THROUGH Q2 2011) 2005 2006 2007 2008 2009 2010 2011 YTD Jurisdiction Single Multi Single Multi Single Multi Single Multi Single Multi Single Multi Single Multi Algona 15 0 13 0 16 0 12 0 19 0 0 0 0 0 Auburn 288 376 138 250 234 89 121 58 114 44 184 19 134 164 Beaux Arts Village 0 0 0 0 2 0 1 0 1 0 0 0 0 0 Bellevue 171 367 238 805 165 998 113 1,369 63 159 75 129 26 66 Black Diamond 3 0 9 0 33 0 6 0 4 0 1 0 0 0 Bothell 138 45 322 0 203 5 92 6 64 6 124 0 55 5 Burien 38 99 106 0 38 124 66 23 16 0 17 0 23 0 Carnation 0 0 0 0 0 0 1 0 0 0 0 0 0 0 Clyde Hill 12 0 17 0 19 0 9 0 1 0 6 0 4 0 Covington 97 0 30 0 81 120 54 0 19 0 44 0 21 0 Des Moines 83 0 30 0 23 3 34 0 12 0 5 0 4 0 Duvall 51 0 36 2 30 0 30 0 17 0 18 0 38 0 Enumclaw 10 12 26 6 28 0 9 0 11 0 25 0 3 2 Federal Way 278 0 192 0 128 112 35 70 21 0 47 4 26 0 Hunts Point 2 0 2 0 3 0 3 0 1 0 2 0 1 0 Issaquah 486 178 324 337 165 332 71 114 53 6 84 405 73 5 Kenmore 147 0 190 2 78 2 52 2 62 0 80 0 15 0 Kent 266 320 325 0 254 2 154 3 186 0 206 4 120 0 King Co. Unincorp 1,889 512 1,572 195 1,355 433 713 0 434 214 521 42 231 2 Kirkland 227 23 236 160 221 141 127 191 42 69 74 75 37 21 Lake Forest Park 13 0 16 0 5 0 0 0 3 0 6 0 2 0 Medina 16 0 20 0 21 0 10 0 4 0 4 0 3 0 Mercer Island 66 159 57 112 57 195 33 3 13 0 20 124 10 0 Newcastle 113 0 79 0 62 24 14 0 1 0 12 0 10 14 Normandy Park 13 0 2 0 38 0 13 0 3 0 0 0 3 0 North Bend 6 0 2 0 2 0 0 0 1 0 10 0 9 0 Pacific 47 0 58 0 44 0 30 12 2 0 4 0 3 0 Redmond 323 24 206 87 237 135 140 916 94 27 98 57 46 37 Renton 518 371 439 258 362 957 200 248 255 71 238 82 103 0 Seatac 45 32 68 85 45 197 12 168 3 35 7 28 2 21 Seattle 533 3,185 482 6,149 775 5,939 595 4,256 216 562 241 2,456 159 1,392 Shoreline 55 0 108 8 68 0 28 0 12 0 6 0 5 0 Skykomish 0 0 0 0 0 0 0 0 1 0 0 0 0 0 Snoqualmie 267 0 330 0 329 0 119 0 87 0 86 0 64 0 Tukwila 40 0 47 0 45 0 16 0 6 0 7 0 3 0 Woodinville 71 0 44 0 40 444 5 13 0 0 0 0 0 0 Yarrow Point 4 0 7 0 14 0 10 0 5 0 1 0 0 0 ICING COUNTY TOTALS: 7,047 5,715 5,771 8,456 5,220 10,252 2,928 7,452 1,846 1,193 2,253 3,425 1,233 1,729 SOURCE: Census Bureau From 2000 to 2007, single- family homes became an increasingly popular housing choice among King County residents. The region's relative supply of vacant residential land coupled with a close proximity to growing employment concentrations created ideal buying opportunity for King County CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 34 Page 90 of 143 residents. 62673.2 Through June of 2011 residential permit activity in King County was on pace to very modestly exceed 2010; however, multifamily permitting looks to be falling short of last year's major gains — this is a function of exuberance in permitting for apartment projects. Overall, we would suggest that the market continues to moderate while builders dispose of existing inventories and distressed land transactions negate the need for further growth in permitting activity. We are interested to note that the pace of multifamily permits has never really seen increases and that the permits that have been applied for appear to be almost wholly driven by apartment development. The robust building activity that occurred in King County up until the recession was not mirrored in the City of Auburn (as defined here as the jurisdictional city limits). There was an anomalous year (2004) when single family permit activity rose dramatically from an average of 211 units to exceed 40012. From that time onward, activity declined and, in 2010, Auburn captured just 3.6% of all residential construction in the County. This reflects the City's built -out nature, with new development opportunities largely limited to redevelopment. 12 We believe that this was due to permitting one condominium project that ultimately failed. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 35 Page 91 of 143 Absorption t Vacancy n u L_1 VII. RETAIL MARKET TRENDS Retail Market Conditions 62673.2 Our analysis of retail market trends will consists of two subsections. First, as a result of Auburn's relative proximity and regional access to the greater Seattle area, the economic health of the regional retail market at large will be useful in explaining current and projected market trends. Thus, an evaluation of regional market conditions is in order. Secondly, an assessment of market trends at the sub - regional level, specifically in this instance the Southend sub - region, will provide a more localized appraisal of market trends near the subject site. Seattle Metro Area Retail Trends The Seattle metro area's retail market shed 86,472 square feet in the fourth quarter of 2010. Current total market vacancy decreased to reasonable total rate of 8.33% and 7.78 percent direct vacancy. Speculative retail vacancy is now estimated at 4.245 million square feet. [Figure 1.20] FIGURE 1.20 RETAIL MARKET TRENDS & CONDITIONS SEATTLE METROPOLITAN AREA NET ABSORPTION & VACANCY RATE TRENDS 1,500, 000 1,000,000 E• W 500,000 0 - 500,000 -1,000,000 CA CA en en to n N. N. 00 00 c'N c'N 0 0 d d d d d d d d d d d d d d d ddd PERIOD - 2 %> - 1% 0% SOURCE: CBRE & Gardner Economics • Downtown Seattle: The submarket saw little activity with 2,174 square feet vacated during the quarter and annual absorption measured at - 14,681 square feet. Total vacancy is now measured at 6.64% with direct vacancy rates at 6.64 percent. • Eastside: The submarket shed 57,937 square feet of space during the fourth quarter of 2010 and total vacancy now stands at 7.61%. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 36 Page 92 of 143 62673.2 • Northend: The submarket shed 36,349 square feet of space and vacancy now stands at 6.83% for all space. • Southend: The Southend was the positive note for the fourth quarter, recording 9,561 square feet of positive net absorption. That said, the area demonstrates the highest vacancy rate with 11.13 percent of all space available. Additionally, there were 207,000 square feet of new space added to the market which suggests that vacancy rates will remain high for some time. With residential demand and development having slowed to a snail's pace, and placed in concert with anemic wage growth, the retail market has lost a bit of steam. GARDNER ECONOMICS now expects the region to add just 28,000 square feet of new product in 2011. We project vacancy rates to decrease in all submarkets, over the next two -year period. Overall vacancy is predicted to decrease from 8.3% to 5.0 %. To the extent that tightening conditions, and potentially significantly escalating lease rates, drive new, unanticipated development, the vacancy rate expressed below is on the optimistic side. [Figure 1.211 FIGURE 1.21: FORECASTED RETAIL MARKET CONDITIONS SEATTLE METROPOLITAN AREA Subregion Submarket I/ 4th • uarter 2010 Speculative Vacancy New Su 1 1Q11- Inventory Rate 4Q11 1012- Forecasted Demand Projected 1Q11- 1Q12- Vacan Rate 4Q12 4Q11 4012 4Q11 4Q12 Downtown Seattle 1,346,854 6.6% 0 0 33,010 56,397 4.2% 0.0% Eastside 11,836,306 7.6% 0 0 117,940 243,619 6.6% 4.6% Northend 13,378,442 6.6% 28,575 0 130,760 312,975 5.8% 3.5% Southend 13,583,794 11.1% 0 0 168,320 361,722 9.9% 7.2% Tacoma 10,806,693 7.7% 0 0 84,290 181,895 6.9% 5.2% Metropolitan Area Total 50,952,089 8.3% 25,575 0 534,320 1,156,608 7.3% 5.0% Sub - regional /Submarket Trends The Southend sub - region has long been a strong player in the regional retail market. Anchored by the super - regional center Southcenter and the Auburn Supermall, vacancy in the Southend has remained well below 5% for much of the last decade. However, rampant construction through 2008 in concert with the recession has driven up vacancy rates to an historic high of 11.13 percent; its highest level in recent memory. Quoted lease rates in the sub - region are off their cyclical lows and are now estimated at $20.48 as a direct asking rent and $20.24 overall. With no new deliveries scheduled in the near future, we anticipate that rental rates have stabilized and may improve modestly. That said, with over 1.5M square feet available, it remains a tenants market and, if landlords' desires to fill space, they will have to be very competitive in terms of asking rental rates. CITY OFAUBURN PAGE 37 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 93 of 143 62673.2 CB Richard Ellis' fourth quarter 2010 retail report shows an overall vacancy rate of 10.88% in the Auburn /Kent area, and an overall rate of 8.35% for the region. The survey shows that the vacancy rate in retail space tends to remain within a fairly narrow range, and is impacted by changing retailing forms as well as buying power and new construction. The retail market is Darwinian, with new formats displacing outdated formats on a regular basis. This inherent dynamism provides for regular retail opportunities, even in markets with negligible growth. As King County recommences its expansion, retail interest and sales growth should start to improve. FIGURE 1.22 RETAIL MARKET TRENDS & CONDITIONS SOUTHEND SUB- REGION NET ABSORPTION & VACANCY RATE TRENDS 500,000 400,000 300,000 200,000 W w 100,000 0 - • 100,000 -200,000 -300,000 -400,000 ■Absorption —0—Vacancy N eft � N c c L1 PT t N � N � N � � N � N � QUARTER 12% - 10% 8% W 4% - 2% 0% Source: CBRE & Gardner Economics As the Southend has proven itself as a growth market, added market pressure is far more likely to be the result of rising inventories that are currently in the planning process but not yet proceeding. Clearly, the potential for the addition of over 1M square feet in new supply throughout the metropolitan area will have an impact on vacancy rates should development proceed. FIGURE 1.23: SHORT -TERM MARKET FORECAST SOUTHEND SUB - REGION PRO ECTIONS 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 Inventory (000s) 13,583.8 13,583.8 13,583.8 13,583.8 13,583.8 13,583.8 13,583.8 13,583.8 13,583.8 New Supply (000s) 0 0 0 0 0 0 0 0 Net Absorption (000s) 42.1 42.1 42.1 42.1 90.4 90.4 90.4 90.4 Occupied Space (000s) 12,071.8 12,113.9 12,156.0 12,198.1 12,240.2 12,330.6 12,421.0 12,511.5 12,601.9 Vacancy Rate - Period End 11.13% 10.82% 10.51% 10.20% 9.89% 9.23% 8.56% 7.89% 7.23% Source: Gardner Economics CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 38 Page 94 of 143 Commercial Retail Demand 62673.2 This section provides forecasts relating to the demand for commercial retail space in the City of Auburn. The estimated demand should be interpreted as potential demand resulting primarily from household growth. The forecast uses a demographically driven, no- income growth methodology. This model estimated expenditures by maintaining constant real household income levels and only adjusting for household growth. This methodology is rather conservative, since it does not allow for likely increases in the real income of residents in the area. Consumer expenditures, and in turn, demand, was projected for the City. This analysis utilizes household projection scenarios highlighted in Section VI. To best represent a varied range of potential development forms, forecasts were conducted for three trade areas comprising a one, three, and seven mile radius around the subject site. These trade areas are geographically presented below [Figure 1.24] FIGURE 1.24: DELINEATION OF COMMERCIAL RETAIL TRADE AREAS j Hnpaq Garde..::: -- Flamrx� paper Sdre Pa y Nage Sit Hemmer Stare Pad Source: Gardner Economics CITY OFAUBURN PAGE 39 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 95 of 143 Expenditure Category Estimated Average Household Expenditures 2010 2015 Average % Average % Estimated Expenditure Growth (2010 -2015) Total Total % Growth Growth Apparel Boy's Footwear Girl's Infant's Men's Women's Services and Accessories Jewelry Watches Household Furnishings and Equipment Floor Coverings Furniture Household Textiles Housewares and Small Appliances Major Appliances Personal Care Products Reading Tobacco Education Books and Supplies Entertainment Recreational Equipment and Supplies Video and Audio Equipment Food and Beverage Alcoholic Beverages Food At Home Food Away From Home Health Care Supplies and Equipment Other Retail Expenditures $2,571 $125 $416 $172 $116 $490 $853 $399 $160 $30 $2,368 $80 $644 $168 $1,204 $273 $183 $176 $357 $177 $2,239 $1,190 $1,048 $8,287 $623 $4,332 $3,332 $910 $5,566 11.3% 0.5% 1.8% 0.8% 0.5% 2.1% 3.7% 1.7% 0.7% 0.1% 10.4% 0.3% 2.8% 0.7% 5.3% 1.2% 0.8% 0.8% 1.6% 0.8% 9.8% 5.2% 4.6% 36.3% 2.7% 19.0% 14.6% 4.0% 24.4% $2,871 $141 $461 $193 $129 $546 $950 $451 $180 $33 $2,655 $90 $723 $188 $1,351 $304 $203 $196 $391 $201 $2,487 $1,323 $1,165 $9,208 $697 $4,791 $3,720 $1,005 $6,220 11.3% 0.6% 1.8% 0.8% 0.5% 2.1% 3.7% 1.8% 0.7% 0.1% 10.4% 0.4% 2.8% 0.7% 5.3% 1.2% 0.8% 0.8% 1.5% 0.8% 9.8% 5.2% 4.6% 36.2% 2.7% 18.8% 14.6% 4.0% 24.5% $301 $16 $45 $21 $14 $56 $97 $51 $21 $4 $287 $11 $79 $20 $146 $31 $21 $20 $33 $25 $249 $132 $117 $921 $73 $460 $388 $94 $654 11.7% 12.4% 10.8% 12.5% 11.9% 11.5% 11.4% 12.8% 12.9% 12.9% 12.1% 13.4% 12.3% 11.8% 12.2% 11.4% 11.4% 11.5% 9.3% 13.9% 11.1% 11.1% 11.1% 11.1% 11.8% 10.6% 11.6% 10.4% 11.8% Total Average Retail Expenditures $22,833 $25,438 $2,605 11.4% Consumer Expenditures Forecast (2010 -2015) 62673.2 Results presented in Figure 1.25 represent the summation of consumer spending inside the primary trade area by the trade area population. FIGURE 1.25: PROJECTION OF HOUSEHOLD RETAIL SALES THREE -MILE TRADE AREA Source: DemographicsNow & Gardner Economics CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 40 Page 96 of 143 62673.2 Under the calculated growth scenario, the trade area is expected to see retail expenditures increase by 11.4 percent over the next 5 -year period. Regardless of the growth scenario, the largest component of growth will be in the demand for Educational Books & Supplies, followed by Household Furnishings, Other Retail Expenditures, and Apparel. [Figure 1.261 This model does not incorporate inflation, assuming that income growth and the general rate of inflation will be roughly equivalent over the duration of the forecast period. Retail Space Projections: 2010 -2015 Forecasted expenditures for the designated trade area have been used to estimate the amount of supportable retail space through 2015 utilizing average retail expenditure per- square -foot statistics from the Urban Land Institute publication Dollars & Cents. Results of this analysis are outlined in Figure 1.26. FIGURE 1.26 PROJECTED TRADE AREA RETAIL SPACE DEMAND Estimates Household Retail Expenditures Total Demand for Retail Space Estimated Expenditure 2010 2015 2010 2015 Total Market Category Average Total Average Total Total Total Change Net Demand* Apparel $2,571 $68,414,039 $2,818 $77,946,533 410,640 467,856 57,217 57,217 Household Furnishings and Equipment $2,368 $63,014,528 $2,603 $72,024,527 304,994 348,603 43,609 43,609 Personal Care Products $183 $4,860,598 $200 $5,524,305 19,288 21,922 2,634 2,634 Reading $176 $4,686,815 $193 $5,330,993 45,066 51,260 6,194 6,194 Tobacco $357 $9,509,623 $385 $10,640,577 22,428 25,096 2,667 2,667 Education Books and Supplies $177 $4,701,453 $197 $5,444,832 26,472 30,658 4,186 4,186 Entertainment $2,239 $59,575,063 $2,443 $67,579,165 325,868 369,649 43,781 43,781 Food and Beverage $8,287 $220,544,858 $9,043 $250,180,533 736,968 836,154 99,186 99,186 Alcoholic Beverages $623 $16,586,286 $684 $18,910,742 57,115 65,120 8,004 8,004 FoodAtHome $4,332 $115,274,742 $4,709 $130,271,260 367,585 415,406 47,821 47,821 Food Away From Home $3,332 $88,683,831 $3,651 $100,998,531 312,267 355,629 43,362 43,362 Health Care Supplies and Equipment $910 $24,230,604 $988 $27333,836 80,769 91,113 10,344 10,344 Other Retail Expenditures $5,566 $148,118,910 $6,103 $168,833,464 1,234,324 1,406,946 172,621 172,621 Summary $22,833 $607,656,492 $24,972 $690,838,764 3,206,817 3,649,256 442,440 442,440 * Does NOT take into consideration retail leakage outside of the designated area Results indicate that the trade area could support approximately 442,000 square feet of space by 2015. If we consider the delineated market area, we would suggest that any new space through this development cycle will likely be suburban in nature and, when placed in concert with over 400,000 square feet of existing space available in the market area, retail will not be a primary driver at the subject site in the near -term. The Subject Site The market that encompasses the site itself has a number of advantages as a retail location. The demographics within a three mile ring of downtown are quite good, although the population within one mile is rather weak as it is primarily a commercial location. The retail market is highly dynamic, with new retail concepts and formats quickly replacing outdated forms. Over time, we would expect CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 41 Page 97 of 143 62673.2 that retail projects will reformat and reposition, increasing their general attractiveness as well as improving their competitive position vis -a -vis alternative locations. Increasing the local residential population, and subsequently buying power, would be supportive of retailers more consistent with pedestrian and neighborhood orientation. These types of retailers serve a local area, rather than an entire region, which leads to a higher proportion of convenience- type retailing than of discretionary or comparison shopping. Inclusion of retail uses at the site provides a level of amenity to local businesses and residents that can be translated into greater achievable pricing in terms of lease rates and sales prices. The increase in pricing allows for more intensive development, supporting even greater levels of urban amenity. This "virtuous cycle" is what drives many successful urban commercial concentrations. As such, demand for retail space will only come after residential development has commenced at the site. At the present time, should any new space come to market, rental rates would be in the region of $12 to $15 per square foot. This makes any new development unviable but, as is often the case, limited retail can act as a loss leader to encourage other development forms. Some of the financial benefits of mixed -use development emanate from the close proximity of a variety of uses with different peak demand times, increasing the hours that facilities are generating income. The development needs to balance night and day activities so that everything on the site does not shut down at the end of the workday. With a "24/7" vitality as an ideal goal, bringing together users who will use facilities at different times of the day or days of the week increases the potential revenue tenants can generate. While office workers might dominate the weekday luncheon crowd at restaurants, residents could form the majority of the dinner and weekend trade. At the low end of the spectrum there is very little or no synergy in a mixed use development consisting of few residential units, a single small -scale retail store and a small -scale office structure located adjacent to each other on a single site. However, as the number of residential units increases, a synergistic effect can benefit the retail store. Then, if the most desired tenant mix in the retail space is achieved, it can benefit the residential units by generating higher rents. A successful mixed -use project must be compatible with its neighbors and integrated into the community to maximize its economic effect. Strong linkages among onsite and off -site land users are important. Off -site residential growth leads to an increased demand for onsite commercial activity such as retail stores, restaurants and personal service establishments. The on -site users such as restaurants need to serve potential customers (residential users and office space users) living or working in close proximity to the project. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 42 Page 98 of 143 Benefits of Residential Development to the Retail Market 62673.2 During the 1990's, many communities began to focus attention on proximate residential development as a tool to support retail districts. Demographic trends are helping spur growth and interest in urban density housing. The increase in empty nesters from the baby boomer generation and young professionals are the two key populations leading this trend. The other emerging population trend driving the urban housing market is young professionals in their 20's and 30's who have yet to start families. This group — often consumers of amenities such as coffeehouses and nightclubs — are frequently in the market for low - maintenance, urban housing convenient to work and amenities. 13 Increases in full -time residents have many implications. The ability to conveniently access shopping and services is a key attraction for many residents, which imply benefits to retail sales for local merchants. This becomes a "captured" market, in that local retailers will have a sustainable advantage in attracting these consumers. This section of our report addresses the marginal impact on retail demand associated with residential development. In addition to additional retail sales and the multiplier effect of those sales, this report evaluates other potential impacts of new local housing, including: 1. Creating vital urban environments; 2. Increasing the hours of activity; 3. Decreased demand on road systems; and 4. Creating demand for other urban amenities such as museums, theaters, etc. The main source of quantifiable benefits is additional retail demand in the local area. Key areas of support include the following: Food; The main categories of food expenditures are (1) food at home, (2) food away from home, and (3) food prepared by consumer on out of town trips. Apparel and services; Health care; Entertainment; Entertainment is broken into the following categories (1) fees and admissions, (2) television, radios, and sound equipment, (3) pets, toys, and playground equipment, and (4) other entertainment expenditures. Personal care products and services; and 13 Life at the Center: The Rise of Downtown Housing, Rebecca Sohmer and Robert E. Lang, Housing Facts and Findings, Spring 1999, Vol 1. Issue 1, Fannie Mae Foundation. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 43 Page 99 of 143 Reading. This category includes books and magazines. 62673.2 In addition to the direct retail benefits of consumer expenditures by households living in close proximity, development at the site could engender multiplier effects. The benefit to downtown retailers are not the only consequence associated with residential development in the area. Other related effects that would be anticipated include: 1. Rising property values and associated rise in assessed valuation and REET revenues; 2. More efficient utilization of infrastructure; 3. Increased marketability of downtown as a destination location; and 4. Greater levels of downtown activity over an extended time period, supporting stronger retail and greater public safety. Housing development downtown, and specifically at the site, fits into a broader community development framework and can achieve multiple objectives and create multiple benefits. Residential development increases the duration of activity in the district, supporting longer business hours and a more vital environment. More activity in the district can also create the perception of a safer environment. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 44 Page 100 of 143 VIII. OFFICE MARKET TRENDS Office Market Conditions 62673.2 While trade areas are less meaningful in office analysis than in retail analysis, individual projects do compete within localized areas for demand, and serve local as well as regional needs. Our analysis of speculative office market conditions in Auburn utilized the broadly recognized Southend sub - market. Due to the potential scale of development at the subject site, proximity of the area to major transportation corridors, and cohesiveness of the region will serve to expand the competitiveness of Auburn's office market on a regional scale, our analysis also assesses market conditions in the broader metro area and more specifically, the Southend sub - region. Seattle Metro Area Office Trends • The recession had a profound impact on the metropolitan areas office market. Following a 2 year period which saw vacancy move from 10.89% in the second quarter of 2008 to 20.35% just eight quarters later, the Seattle metropolitan area office market has started to exhibit positive absorption in the last three quarters on the way to what is hoped will be a continued recovery. Direct vacancy has fallen steadily to 16.92 percent while overall vacancy is measured at 18.80 percent. • Downtown Seattle: The submarket leased up a net positive 534,682 square feet in the first quarter. New supply on the market remains slim and that was enough to push vacancy rates down slightly to 16.64% for direct vacancy and 18.08% total at the same time, direct rents nudged upward from $29.62 to $29.88. • Eastside: 133,956 square feet of space were absorbed during the quarter that led to a modest decline in vacancy rates from 17.82% to 17.22 %. Rents for class A space reduced modestly suggesting that tenants are still in the driving seat. As a result, Eastside rents contracted from $28.06 to %28.02 per square foot. • Northend: The submarket leased 11,500 square feet during the quarter, but vacancy rates are still elevated with direct vacancy measured at 20.26% and total vacancy at 20.91%. Northend rents rose modestly to $24.83 from $24.46 • Southend: The Southend market did not fare well last quarter with just over 200,000 square feet returned to the market. In all, there is over 2.26M square feet of space available Direct vacancy rates increased to 20.29% from 17.95% in the fourth quarter of last year. Rents in the Southend rose by $0.30 to $21.48 • Tacoma: The submarket gave back about 20,000 square feet to the market. Vacancy rates are estimated at 20.29% and further contraction was seen in Class A asking rents that dropped from $24.01 to $23.97. • Vacancy rate are above the structural rate at which rent growth would presumably keep pace CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 45 Page 101 of 143 62673.2 with inflation. Rents remain well below pre- recession levels and it will take several years for them to fully recover as the demand for space is tied to a still sluggish job market. GARDNER ECONOMICS projects a very slow return to a tightening in the regional office market with limited new deliveries until vacancy rates drop fairly dramatically and rents show substantial increases to offset construction costs that will be occurred. GARDNER ECONOMICS has calculated the addition of roughly 1.2 million square feet to the regional market over the next 3 -year period, which is substantially in excess of demand. As such, we see little predevelopment activity and do not expect that new supply figures will increase in quite some time. [Figure 1.27] FIGURE 1.27: OFFICE MARKET TRENDS & CONDITIONS SEATTLE METROPOLITAN AREA 1,500,000 1,000,000 500,000 0 - 500,000 - 1,000,000 - 1,500,000 - 2,000,000 ■Absorption —N—Vacancy n N m N m N m .. P1' QUARTER o 20% 18% 16% 14% 12%E 10% U 8% 6% 4% 2% 0% We do note, however, that most sub - markets are still some time from serious lease rate appreciation. As there continues to be substantial available space in most suburban submarkets, we hold fast in our prediction that lease rate appreciation to be modest, particularly with the potential substitutability of industrial business park space for many high - growth industries that will subtract from traditional office space demand. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 46 Page 102 of 143 Sub - regional /Sub - market Trends 62673.2 Relative to other Seattle office market sub - regions, the Southend market is a relatively small component of the overall market, representing only about 12% of total space. With vacancy rates estimated at 23.01 %, the sub - region is faring a little worse than the regional average of 18.8 %. FIGURE 1.28 OFFICE MARKET TRENDS & CONDITIONS SOUTHEND SUB- REGION 400,000 25% - 300,000 200,000 W /00,000 d - 100,000 -200,000 -20% W - IS% ∎Absorption --m—Vacancy �� � i I ' u u I 10% � - - 5% 0% - 300,000 g n n n n 8 8 8 8 c, c, c, c, 0 0 0 0 .. - d d d - d d d - d d d - d d d - d .-i N M .-i N M N M .-i N M .-i QUARTER Source: CBRE & Gardner Economics • The first quarter of 2011 demonstrated further contraction in leasing activity in the Southend market with the greater area14 returning 200,000 square feet back to the market. Almost all of the space returned came in the Sea -Tac market where there was a negative net absorption of 209,000 square feet. • There was some positive absorption in the area with Tukwila absorbing 14,000 square feet, and Federal Way improving by 35,000 square feet. Auburn did not gain, or lose, tenants in the first quarter. • On a sub - market basis, the highest vacancy rates were found in the Sea -Tac market (42.37 %), this was followed by Federal Way (36.66 %), Kent (31.24 %) and Tukwila and Renton both in the 13% range. The market was considerably better in the Auburn market where vacancy rates were measured at 6.02 %. • Overall lease rates in the sub - region ranged from $20.07 to $23.61 per square foot for Class A space. The highest lease rates were achieved in desirable employment areas such as Sea- 14 The Southend market is broken down into the following component markets: Sea -Tac, Tukwila, Renton, Kent, Auburn and Federal Way CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 47 Page 103 of 143 62673.2 Tac. However, suburban markets also fared well with projects in Renton and Kent. The Auburn sub - market is currently asking $20.25. [Figure 1.29] FIGURE 1.29: QUOTED RENT LEVELS BY CLASS & SUB- MARKET SOUTHEND SUB - REGION BY SUBMARKET QUOTED RENT RANGES AND SPACE AVAILABILITY Asking Rents Total Rents Southend $21.89 $21.48 Sea -Tac $23.61 $23.62 Tukwila $20.07 $19.88 Renton $22.89 $22.54 Kent $21.17 $20.96 Auburn $20.25 $20.25 Federal Way $20.80 $20.36 BY SUBMARKET Sea -Tac Tukwila Renton Kent Auburn Available Space 377,567 306,874 408,405 382,331 17388 Sea -Tar Tukwila Renton Kent Auburn Federal Way $ 8 1 $20 $22 $24 0 400,000 800,000 Source: CBRE & Gardner Economics • With stubbornly high vacancy rates and no expectations for any significant rental growth in the Southend market in the foreseeable future, it is not surprising to see that there is very little in the way of development activity. Over the next two years, the Southend sub - region is not expecting significant additions to its inventory. • Through this short range period, in as much as we anticipate some ramping up in employment, we do not expect to see much in the way of business expansion in the short - term. As such, in as much as we do anticipate economic growth, vacancy rate reductions will be slow. More specifically, our estimates suggest vacancy in the Southend to decline to 19.5% by the first quarter of 2013 and 17.8% during the same period in 2014. • With roughly 9.8 million square feet of space, the Southend submarket has little in the way of new construction activity. There is currently just 57,800 square feet under construction (all of it in the Tukwila market). Additionally, we are aware of plans for the development of 1.14M square feet of space but, again, this space is concentrated in the Renton submarket (1.02M square feet) and some additional planning for space in the Federal Way submarket (83,000 square feet.) CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 48 Page 104 of 143 FIGURE 1.30 OFFICE MARKET TRENDS AND CONDITIONS AUBURN SUB- MARKET 62673.2 60,000 40,000 20,000 W 0 -20,000 d - 40,000 - 60,000 -80,000 ■Absorption —0—Vacancy N. t, '8'8 00 00 00 00 0, 0, 0, 0, d d d d d d d d d d d d d Nt . N M Nt . N M Nt . N M Nt QUARTER 0 0 0 O - d d d d d 25% 20% 15 %9 0% Gross Rental Rate $21.00 - $20.50 $20.00 $19.50 $19.00 $18.50 - $18.00 t, t, t\ t\ 00 00 00 00 0, 0, 0, 0, 0 0 0 0 . d d d d d d d d d d d d dddddd Nt - N M Nt - N M Nt �--� N M Nt ,--■ N M Nt ,--■ QUARTER Source: CBRE & Gardner Economics CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 49 Page 105 of 143 62673.2 • As the charts on the previous page demonstrates, there have been no significant deliveries in the area since early 2008 and, as of the writing of this report, there are no plans for the development of any new space. Auburn Professional Plaza represents one of the most recent additions to the market and is occupied, in part, by the City and KeyBank. The current available space (15,000 square feet) has remained unoccupied for some time, telling us that the market has little current desire for additional space. Another notable addition to the market is the Auburn Regional Medical Plaza. The 41,000 square foot space is currently offering 6,505 square feet of medical office space with an asking rent of $28.50 NNN's Both projects were constructed in 2009 and delivered in 2010. • Over the past several years we note that the vacancy rate has been less influenced by the development of new space, but rather we see exaggerated moves when space is returned to the market. On the few occasions that sizable space in leased, it also functions to dramatically reduce vacancy rates. The most recent example of this was when 36,000 square feet was absorbed in the second quarter of 2008. This dropped the vacancy rate from 13.82% to 1.27 %. Speculative Office Demand The demand for office space is a direct function of employment growth in industrial sectors that utilize office space of various quality or class. In today's market there is a greater diversity of general office product types or classes depending upon the sector using the space. GARDNER ECONOMICS, therefore, forecasts demand for office space by specific industrial employment growth. Our analysis begins with an estimation of future demand at the county level. We further project future employment in the Auburn Market Area by calculating demand based upon a 15- minute drive time from the subject site and assuming a local capture of King County growth over the projection period as indicated by the U.S. Census Bureau and the Puget Sound Regional Council. Employment Growth Forecast (2010 -2015) GARDNER ECONOMICS forecast employment growth by industry for a 15- minute drive time from the site through 2015 based on current local data available from state and regional agencies. These figures are then run through our own proprietary modeling system that starts at the county level and then refines them to a local level" [Figure 1.311 15 Source: Officespace.com 16 Note: These forecasts will differ from macro employment forecasts as they segregate office using employees from non- office using employees. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 50 Page 106 of 143 FIGURE 1.31: FORECASTED EMPLOYMENT BY EMPLOYMENT SECTOR KING COUNTY & LOCAL MARKET AREA Kin County Forecast Employment Sector Thousands of People (000s) 2010 2011 2012 2013 2014 2015 Construction / Mining 58.2 50.9 46.2 42M 387 36M Manufacturing 103A 100.2 993 99.2 99.9 10L3 Wholesale Trade 59.9 58.8 58.9 593 60.2 61.4 Retail Trade 106.5 104.5 104.4 105M 106.5 108.6 Transportation and Utilities 43.9 43.0 42.9 43.1 43.6 44.5 Information 79.9 82.2 85.5 89M 92.8 96.9 Financial Activities 697 67.4 66A 66M 66.2 66.9 Professional and Business Services 177M 1723 17L5 1717 173.5 1763 Educational and Health Services 137.9 144M 150.9 158.4 166.3 174.6 Leisure and Hospitality 1083 108M 109.4 111.4 114.2 117.5 Other Services 42.2 42.9 44.2 45.6 47.3 49.1 Government 167.0 170.8 176.2 182A 189.4 197.2 Total 1,153.6 1,145.1 1,155.8 1,173.0 1,198.5 1,230.1 Rate -5.2% -0.7% 0.9% 1.5% 2.2% 2.6% Auburn Office Market Area: 15- Minute Drive Time Forecast Thousands of People (000s) Employment Sector 2010 2011 2012 2013 2014 2015 Construction / Mining 0.6 0.6 0.5 0.5 0.4 0.4 Manufacturing 1.1 L0 1.0 1.0 1.0 1.0 Wholesale Trade 0.6 0.6 0.6 0.6 0.6 0.6 Retail Trade 0.9 0.9 0.9 0.9 0.9 0.9 Transportation and Utilities 0.1 OA 0.1 0.1 0.1 0.1 Information 0.2 0.2 0.2 0.2 0.2 0.2 Financial Activities 0.2 0.2 0.2 0.2 0.2 0.2 Professional and Business Services 0.4 0.4 0.4 0.4 0.4 0.4 Educational and Health Services 1.5 L6 17 L8 L8 L9 Leisure and Hospitality 0.6 0.6 0.6 0.6 0.6 0.6 Other Services 0.4 0.5 0.5 0.5 0.5 0.5 Government 0.3 03 03 03 03 03 Total 7.0 6.9 7.0 7.1 7.2 7.4 Rate -5.7% -1.1% 0.7% 1.2% 2.0% 2.5% Source: Gardner Economics Forecasted Office -Space Utilizing Employment (2010 -2015) 62673.2 Sector employment growth is converted into growth in office employment based on typical percentages of jobs, or capture factors, by sector that will be located in office development. Results indicate an estimated 375 office jobs can be expected over the next five years in the Auburn Market Area. Office employment can be expected to be driven by the Education & Health Services sector in coming years. [Figure 1.32] CITY OFAUBURN PAGE 51 MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 107 of 143 FIGURE 1.32 FORECAST OF OFFICE -SPACE UTILIZING EMPLOYMENT BY INDUSTRY AUBURN MARKET AREA Metropolitan Area Forecast 62673.2 Employment Sector Forecasted New Demand for Office Space by Sector 2010 2011 2012 2013 2014 2015 Construction / Mining (162,170) (72,692) (46,978) (42,294) (33,154) (27,111) Manufacturing (1,255,000) (508,168) (276,823) (219,654) (128,952) (65,834) Wholesale Trade (1,137,500) (350,819) (69,563) 20,846 142,863 230,995 Retail Trade (997,500) (270,131) (5,050) 88,784 207,479 292,519 Transportation and Utilities (715,000) (197,413) (15,977) 54,596 138,618 200,042 Information (562,500) 274,170 582,590 691,369 827,437 924,899 Financial Activities (1,143,750) (1,437) 424,868 574,685 764,345 900,821 Professional and Business Services (3,861,000) (1,167,355) (277,752) (37,930) 322,355 572,446 Educational and Health Services (2,079,000) 225,575 1,023,098 1,260,155 1,595,510 1,829,221 Leisure and Hospitality (43,750) 510,186 729,677 826,076 934,203 1,014,251 Other Services (1,039,500) 92,791 507,062 660,403 848,891 985,829 Government 33,750 511,609 741,092 859,924 981,565 1,074,534 Total (12,962,920) (953,684) 3,316,244 4,736,960 6,601,161 7,932,611 15- Miniute Drive Time Area Forecast Forecasted New Demand for Office Space by Sector Employment Sector 2010 2011 2012 2013 2014 2015 Construction / Mining (1,814) (813) (525) (473) (371) (303) Manufacturing (4,582) (1,501) (441) (90) 376 717 Wholesale Trade (3,588) (957) 54 362 790 1,091 Retail Trade (5,444) (1,486) (89) 449 1,095 1,563 Transportation and Utilities (462) (131) (17) 29 82 121 Information 41 950 1,307 1,418 1,569 1,672 Financial Activities (3,972) (1,504) (611) (275) 135 439 Professional and Business Services (6,890) (1,893) (292) 80 698 1,115 Educational and Health Services 8,392 11,117 12,642 13,568 14,462 15,146 Leisure and Hospitality (2,422) (125) 669 951 1,306 1,562 Other Services (611) 1,517 2,493 2,905 3,380 3,728 Government 119 753 1,063 1,232 1,400 1,530 Total (21,233) 5,926 16,252 20,155 24,921 28,381 Source: Gardner Economics Forecasted Office -Space Demand (2010 -2020) Employment density ratios, the average space in square feet necessary per office job, were utilized to calculate total office space demand given projected employment growth. Ratios and densities utilized are from the Urban Land Institute. Results indicate an anticipated five year need of roughly 95,000 square feet of office space contingent on the realized growth pattern over the next five year period, growing to 180,000 square feet by 2020 [Figure 1.33] CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 52 Page 108 of 143 FIGURE 1.33: FORECASTED OFFICE SPACE NEED AUBURN MARKET AREA 62673.2 Employment Sector Capture S.F./ Net New Jobs Net New Demand Factor Employee 2010 -2015 2010 -2015 2015 -2020 Construction / Mining 4% 250 -248 -2,484 (680) Manufacturing 20% 250 -19 -939 7,385 Wholesale Trade 35% 250 15 1,340 8,843 Retail Trade 35% 250 17 1,531 13,035 Transportation and Utilities 25% 275 1 84 1,045 Information 75% 250 37 6,915 9,533 Financial Activities 75% 250 -10 -1,816 5,536 Professional and Business Services 60% 275 -2 -292 10,529 Educational and Health Services 60% 275 406 66,935 82,765 Leisure and Hospitality 35% 250 50 4,363 10,687 Other Services 70% 275 73 14,022 22,377 Government 50% 225 53 5,977 9,000 Total 374 95,635 180,056 Source: Gardner Economics The projected demand for office space is a direct function of assumed employment growth by sector. This information was derived from outside data sources relative to historic trends and by GARDNER ECONOMICS for the forecasts. While useful as a baseline assumption, the City shouldn't necessarily assume these forecasts as a given. Development at the site represents a substantial effort by the City to shift its competitive position within the County, which would be expected to substantively alter employment characteristics in the area. Over the next two to three years, GARDNER ECONOMICS does not believe that any speculative office development will occur. CITY OFAUBURN PAGE 53 MARKET ANALYSIS e ABSORPTIONSTUDY DI.A Page 109 of 143 IX. RENTAL APARTMENT MARKET TRENDS 62673.2 Rental Apartment Market Conditions As with other components of our analysis, our evaluation of the rental apartment market in Auburn will begin with a broad assessment of regional market trends and conditions which we expect to continue impacting the local rental market into the foreseeable future. Seattle Metro Areal' Rental Trends The regional rental apartment market saw considerable new supply in 2009 and 2010. That said, current market conditions have improved dramatically and appear poised for continued strength over the next few years. While occupancy levels remain at about the assumed structural level of 95% in the major markets, fundamentals remain positive and we would suggest that apartments represent the most bullish asset class at the present time. Declining vacancy levels and increases in replacement cost will continue to drive rents in the area, which are projected to grow by roughly 5% annually over the next two years. FIGURE 1.34 RENTAL APARTMENT MARKET CONDITIONS SEATTLE METRO AREA 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2000 2001 2002 2003 NEW RENTAL SUPPLY - VACANCY RATE -RENT ESCALATION 2004 2005 2006 2007 2008 2009 2010 2011 10% 8% 6% 4% 2% 0% -2% -4 10 -Year Average Annual Supply 3.606 10 -Year Average Annual Absorption 204 10 -Year Average Annual Rental Increase: 2.9% 10 -Year Average Annual Vacancy Rate: 5.7% Source: Gardner Economics & Dupre & Scott " The Metropolitan Area is defined as King, Snohomish & Pierce counties. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 54 Page 110 of 143 62673.2 GARDNER ECONOMICS currently expects 2,129 new units to enter the Seattle metro market over the coming twelve months, a modest 1% increase in total regional inventory. By comparison, absorption over the next twelve months is projected at 5,700 units region wide as households find rental opportunities increasingly attractive with declining homeownership rates in concert with still depressed home appreciation. Occupancy is expected to rise to over 95% metro area -wide. New supply over the next year is concentrated in the South Seattle (611 units), Southeast (449) and Eastside (393). Net absorption in each of these broad markets is expected to exceed new introductions based on current pipeline of new inventory. If there are concerns, it is that there are a considerable number of units currently in the permitting process for delivery in 2012 and 2013. This increase in proposed development is a function of the availability of capital for apartment development as it represents the only viable development type today. It is quite possible that the market will get saturated if all of these proposed projects come online. That said, the focus of almost all new supply appears to be concentrated in the urban sub markets of Seattle. King County Rental Trends The rental apartment market in King County has been improving steadily since the second half of 2009, with occupancy rates rising above a stabilized rate of 95 %. FIGURE 1.35: RENTAL APARTMENT MARKET CONDITIONS KING COUNTY, WASHINGTON 6,000 10% 5,000 4,000 3,000 2,000 1,000 -1,000 -2,000 -3,000 4,000 8% 6 4% – i I – — 1 – 2% -2% 4% -_ – 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 ■ NEW RENTAL SUPPLY ■VACANCY RATE —RENT ESCALATION 10 -Year Average Annual Supply 1,119 10 -Year Average Annual Absorption 69 10 -Year Average Annual Rental Increase: 3.0% 10 -Year Average Annual Vacancy Rate: 5.6% Source: Gardner Economics & Dupre & Scott CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 55 Page 111 of 143 62673.2 Continuing our commentary on potential oversupply, there is a considerable amount of new units scheduled for market entry in 2012 and 2013. Data gathered suggests that future supply could add 2,236 new units in 2012 and a remarkable 8,355 units in 2013. To put this in context, the market added an average of 2,567 new units annually between 2000 and 2010. That said, a vast majority of these new units will be delivered in downtown Seattle and not the outlying cities. The Southeast King County Market Turning our attentions now to the South Sound market, we note that development activity has not matched that of the county as a whole in any area other than Renton. As the chart below demonstrates, there are just 421 new units scheduled for delivery in 2011 and we are unaware of any projected in the Auburn market. FIGURE 1.36: SUPPLY CONDITIONS SOUTHEAST KING COUNTY, WASHINGTON18 Year Built Forecast MarketArea 1996< 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Southeast AUBURN 4,431 166 0 124 274 105 362 430 0 0 0 0 0 0 5,994 DES MOINES 5,470 0 0 0 0 0 24 0 0 0 0 0 0 0 5,717 ENUMCIAW 373 0 0 0 0 0 0 0 0 0 0 0 0 0 373 FEDERAL WAY 8,710 0 0 0 0 0 0 0 0 0 0 0 0 0 8,746 KENT 11,669 0 82 76 200 177 0 0 0 0 0 168 24 0 12,396 RENTON 7,946 182 391 361 0 0 0 96 376 0 440 260 397 0 12,233 Subtotal 38,599 348 473 561 474 282 386 526 376 0 440 428 421 0 45,459 Source: Gardner Economics & Dupre & Scott Aggregated, the southeast market currently comprises just over 40,000 units and new supply is scheduled to add just 0.98% to existing stock in 2011 and 0.06% in 2013 with almost all of the new supply coming in the Renton area. FIGURE 1.37: SUPPLY CONDITIONS SOUTHEAST KING COUNTY, WASHINGTON Market Area Southeast AUBURN DES MOINES ENUMCIAW FEDERAL WAY KENT RENTON Subtotal 2000 2001 2002 Year Built Forecast 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 4,587 4,587 4,687 4,937 5,042 5,042 5,042 4,862 4,838 4,920 4,872 4,872 4,872 5,087 5,087 5,087 5,087 5,087 4,678 4,297 4,211 4,211 4,211 4,211 4,211 4,211 333 333 333 333 333 333 333 333 333 333 333 333 333 8,647 8,611 8,377 8,271 8,137 7,862 7,792 7,792 7,792 7,792 7,792 7,792 7,792 11,529 11,611 11,687 11,887 12,064 11,797 11,688 11,646 11,646 11,646 11,814 11,814 11,838 9,810 10,029 10,324 10,324 10,218 10,153 10,249 10,625 10,625 11,065 11,325 11,722 11,722 39,993 40,258 40,495 40,839 40,881 39,865 39,401 39,469 39,445 39,967 40,347 40,744 40,768 Source: Gardner Economics & Dupre & Scott It is apparent, from consideration of the above figures, that the market in the south Sound is lagging and that the more ex -urban sub - markets are not seeing the activity of the more densely populated markets to the north. 18 Auburn, by definition of Dupre & Scott comprises just the King County section of the City. CITY OFAUBURN PAGE 56 MARKET ANALYSIS e ABSORPTIONSTUDY DI.A Page 112 of 143 62673.2 As Figure 1.38 below shows, vacancy rates stabilized in boom years of 2006 through early 2008, elevated thereafter, and are still higher than those required to spur development activity. Auburn, however, has stabilized at below a vacancy rate of 5 percent. FIGURE 1.38: SUPPLY CONDITIONS SOUTHEAST KING COUNTY, WASHINGTON Vacaary Rate 5 Year 1Q-05 3Q-05 1Q-06 3Q-06 1Q-07 3Q-07 1Q-08 3Q-08 1Q-09 3Q-09 1Q10 3Q10 1Q-11 Average Southeast AUBURN 6.80% 6.30% 6.10% 5.70% 3.90% 3.50% 4.10% 5.60% 7.10% 8.50% 7.30% 4.83% 5.7% DES MOINES 90% 7.60% 6.70% 4.90% 5.70% 5.60% 5.80% 7.70% 7.60% 7.70% 730% 5.97% 6.6% ENUMCLAW 4.60% 5.00% 330% 3.70% 4.1O% 4.1O% 5.00% 4.60% 12.70% 8.50% 6.15% 5.6% FEDERAL WAY .30% 6.80% 5.50% 4.40% 5.60% 4.90% 4.90% 7.20% 8.40% 7.80% 7.70% 6.39% 6.3% KENT 7.20% 5.40% 5.90% 5.00% 4.10% 4.40% 4.60% 6.30% 7.70% 7.00% 6.70% 4.57% 5.7% RENTON 7.10% 6.80% 5.80% 5.20% 5.50% 4.80% 5.40% 6.10% 8.00% 8.30% 7.80% 4.77% 6.2% Southeast Total 7.40% 6.40% 5.90% 5.00% 4.9= 4.60% 5.00% 6.50% 7.80% 7.80% 7.30% 6.50% 6.2% Source: Gardner Economics & Dupre & Scott Looking at the market from a rental rate growth standpoint, we note that Auburn has not seen the growth in rent that has been seen in other cities. This is primarily due to the lack of newer stock that commands higher rents. We were aware of the Lakeland East Apartment development but exclude this as it is rent restricted. FIGURE 1.39: SUPPLY CONDITIONS SOUTHEAST KING COUNTY, WASHINGTON Average Rent Increase 5 Year 1Q-05 3Q-05 1Q-06 3Q-06 1Q-07 3Q-07 1Q-08 3Q-08 1Q -09 3Q -09 1Q -10 3Q-10 1Q-11 Average Southeast AUBURN -0.4% 2.1% -03% 3.6% r -O.1% 5.9% 1.2% 4.4% 1.5% =Mir -2.1% 0.6% 0.8% 1.2% DES MOINES L2% 0.1% 0.3% 3.5% 3.9% 5.8% 3.1% 5.2% 6% -2.4% -3.5% 0.6 3.1% 1.4% ENUMCLAW 0.6% 13% -0.5% 3.4% 33% 3.3% 5.2% 4.4% -2.9% -0.7% -11.1% 0.5% 1.3% FEDERAL WAY -0.1% -1.1% 2.2% 2.3% 3.4% 33% L9% 2.8% 0.5% -1.2% 09% 0.8% 1.4% KENT L5% -0.5% 2.1% 2.5% 2.7% 4.6% 4.4% 4.7% 0.0% -27% -23% IIIM 2.3% 1.5% RENTON 1.6% 4.7% -0.5% 2.3% 4.5% 4.8% 3.4% 4.7% -1.O% -23% -32% -0.4% 3.1% 1.4% Southeast Total Ell% 1.O% 2.9% 3.0% 4.6% 3.7% 4.4% 1.8% 1.4% Source: Gardner Economics & Dupre & Scott Rents in the Southeast market are lower than more urban markets and this is likely precluding new development activity. As Figure 1.40 below suggests, rents for newer product are above the $1,000 threshold and, with vacancy rates below 3 percent for newer product, we would suggest that apartment development may be a viable option at the subject site. That said, the scale of any new project should be relatively modest (i.e. 80 to 100 units). We believe that incremental, or phased development, at the site is appropriate and is indicative of the cautious nature of real estate development going forward. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 57 Page 113 of 143 FIGURE 1.40: SUPPLY CONDITIONS SOUTHEAST KING COUNTY, WASHINGTON 62673.2 '08 Average Rent/1Q11 - '10 '00 - '07 All Years Average Vacancy '08 - '10 '00 - '07 All Years Southeast -- $1,043 $845 -- 2.99% 4.83% Auburn Des Moines -- -- $799 -- - 5.97% Enumclaw -- -- $837 - - 6.15% Federal Way -- -- $837 - - 6.39% Kent -- $1,046 $862 - 5.79% 4.57% Renton -- $1,278 $983 - 5.26% 4.77% Overall /Average -- $1,122 $861 -- 4.68% 5.45% Source: Gardner Economics & Dupre & Scott As stated previously, from a demand perspective, the market could certainly accept the addition of a new project. The table below suggests that demand, although not buoyant, will be positive going forward and we would opine that renters will likely choose to move from existing accommodations into a new development if one was brought to market. FIGURE 1.41: SUPPLY CONDITIONS SOUTHEAST KING COUNTY, WASHINGTON Auburn 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Vacancy 308 297 287 242 195 183 172 185 199 235 271 307 345 381 416 389 Vacancy Rate 6.1% 5.9% 5.7% 4.8% 3.9% 3.7% 3.5% 3.8% 4.1% 4.9% 5.6% 6.4% 7.1% 7.8% 8.5% 7.9% Net Absorption -212 10 10 45 47 12 11 -13 -14 -36 -36 -36 -38 -36 -36 28 Additional Inventory 0 0 0 0 -45 -45 -45 -45 -6 -6 -6 -6 21 21 21 21 Total Inventory 5,042 5,042 5,042 5,042 4,997 4,952 4,907 4,862 4,856 4,850 4,844 4,838 4,859 4,879 4,900 4,920 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 Vacancy 358 321 283 262 254 245 237 229 221 213 205 197 189 182 174 167 Vacancy Rate 7.3% 6.6% 5.8% 5.4% 4.8% 5.0% 4.9% 4.7% 4.5% 4.4% 4.2% 4.0% 3.9% 3.7% 3.6% 3.4% Net Absorption 30 38 37 9 9 8 8 8 8 8 8 8 8 8 8 8 Additional Inventory -12 -12 -12 -12 0 0 0 0 0 0 0 0 0 0 0 0 Total Inventory 4,908 4,896 4,884 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 Source: Gardner Economics & Dupre & Scott CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 58 Page 114 of 143 X. CONDOMINIUM MARKET TRENDS Seattle Metro Area Ownership Residential Trends 62673.2 The Seattle metropolitan area recorded a total of 6,113 home sales, both new and resale, during the first quarter of 2011. Total sales were down 4.6 percent over the previous quarter and down by 3.3% over the same period in 2010. Year - over -year, the greatest declines came in single family product where overall transaction volume was off by 3.5 percent over the first quarter of 2010, but the greatest quarterly declines came in attached, condominium product where sales were off by 9.4 percent from the fourth quarter of 2010. In as much as we have seen declines in velocities, new attached product in the whole of King County has enjoyed price appreciation over the past year, escalating by almost 20% in the twelve months ending in March of 2011. It should be emphasized that these numbers are an average price versus a median price, which can be substantially impacted by a relative few sales prices on either end of the pricing spectrum. Historic New Construction Multifamily Residential Sales One of the goals of this study was to consider the potential to develop multifamily ownership housing units at the site. As such, we reviewed data on sales activity for new construction multi- family units in the Auburn area which demonstrates that there has been little in the way of attached product delivered in the last several years. FIGURE 1.42: CLOSED CONDOMINIUM SALES AUBURN MARKET Sales V.Inmc Trends 35 Saks V.>amc Itatc of Changc .................. Qtr Nc.r Itcaalc New Rcsak 30 15 - — - 100/1 J 11 20m - ■Rr MN 1Q06 4 29 -70% -44% 2006 7 65 -13% 23% 3Q06 6 72 -30% 13% 4Q06 1 62 -69% 27% 1007 6 45 100% 55% 2Q07 4 40 -43% -30% 3Q07 4 SO -SO% -31% 4007 6 40 700% -35% 1000 2 30 -75% -33% 2000 3 33 -25% -1695 3006 S 23 25% -54% 41206 3 21 -63% -4646 1009 4 10 100% -67% 2Q09 10 13 233% -61% 3009 4 17 -20% -26% 4Q09 0 17 - -- -19% 1Q10 0 10 --- 6045 2010 4 13 -6046 046 3010 2 13 -SO46 -2446 4010 3 7 -- -5946 1Q11 0 7 -- -61% 41309 10 3130/1 _ 11310 5 0 ri 4Qm 11309 m® 3009 X10 31310 IMO 11311 SOURCE: Northwest Multiple Listing Service CITY OF AUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 59 Page 115 of 143 From a pricing perspective, limited new inventory has led to frenetic pricing. FIGURE 1.43: PRICING FOR CONDOMINIUM SALES AUBURN MARKET 62673.2 AVERAGE SALES PRICE/NEW CONSTRUCTION $4m mo t350,000 $300,000 Y A $151,000 $100,000 $54000 $o ,Ir J I IN" nil yr 1 111 1 ! 1Q 05 2Q -05 3Q -05 4Q -05 1Q -06 2Q -06 3Q -06 4Q -06 1Q -07 2Q -07 3Q -07 4Q-07 1Q-09 2Q-09 3Q-09 4Q-09 1Q-09 2Q-09 3Q-09 4Q-09 1Q -10 2Q -10 3Q-10 4Q-10 1Q-11 SOURCE: Northwest Multiple Listing Service As the chart below shows, there has been little in the way of new activity for condominium product in the Auburn market area. The majority of development in recent years has either been for townhome product or low -rise conversions from apartment stock. FIGURE 1.44: CONDOMINIUM DEVELOPMENT AUBURN MARKET Property Name # of # of Original Original Original Current # of Units Units Low Unit High Unit Avg. Unit Low Avg. High Avg. Original Low. Price High Avg. Price Phase of Date Units Sold Remain o/ Sold Size Size Size Price Price Avg. Price Per Sq. Ft Price Per Per Sq. Ft Sales Delivered 122 Condo (Conversion) 20 20 100% 300 540 420 83,000 145,950 $114,475 $257 $281 $269 Sold Out 2007 951 26th Place NE 8 0 8 0% Not et N/A Selling Arbors (Conversion) 14 14 0 100% 888 950 919 159,950 183,500 $171,725 $171 $193 $182 Sold Out 2006 Auburn Crossing 16 16 0 100% 1495 1545 1,520 265,000 300,000 $282,500 $177 $194 $186 Sold Out 2006 Lea Hill Condo (Conversion) 132 132 0 100% 1182 1814 1,498 149,900 245,990 $197,945 $119 $208 $164 Sold Out 2007 Monterey Park Townhomes 65 4 61 6% 1080 1530 1,305 163,900 199,900 $181,900 $123 $166 $145 CS 2011 K Tatum Lane 8 8 0 100% 963 1464 1,214 192,000 276,000 $234,000 $178 $216 $197 Sold Out 2007 Trail Run Townhomes 115 87 28 76% 1251 1539 1,395 159,990 201,825 $180,908 $127 $193 $160 Currently 2008 Selling Totals 378 281 97 1 1,318 $184,768 $164 -- SOURCE: Northwest Multiple Listing Service CITY OF AUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 60 Page 116 of 143 Current Multifamily Residential Inventory 62673.2 Consideration was paid to townhome and condominium inventory available in the marketplace. Throughout the market as a whole, we see very little in the way of high -or even mid -rise development. There are currently around 20 multifamily units available and these are either townhome or investment units. Proposed Condominium Inventory Review of City data to identify any potential additions to the market produced a small list. There are currently just 10 units in the planning process. The table below highlights the details of this project. FIGURE 1.45: PLANNED & PROPOSED ATTACHED DEVELOPMENTS Property Name # of Units Address Building Type Ant. Delivery Cameo (13th & E. Pine) 10 8002 24th Street NE Low -Rise 2012 Totals/Wei: ted Ave . s 10 SOURCE: Gardner Economics Our analysis of stacked condominium projects an average price at the subject property of between $335 and $360 per square foot in 2011 dollars is needed to justify development. As the urban amenity profile improves in downtown Auburn area, we would expect achievable pricing to rise commensurately. That said, we do not believe that these are achievable figures in the current marketplace and, therefore, the viability of a condominium project is highly suspect at this time. In as much as we believe that the current market precludes development of stacked for -sale product, that is not to say that further consideration of such a product type should not be undertaken once the first phases of the development have been completed successfully. CITY OFAUBURN PAGE 61 MARKET ANALYSIS e ABSORPTIONSTUDY DI.A Page 117 of 143 XI. PUBLIC OUTREACH Real Estate Community Outreach 62673.2 During the preparation of this study, Gardner Economics reached out to the real estate community as well as other interested parties in order to gauge their opinions as to the viability of the development. The purpose of this meeting was to discuss with industry professionals, as well as local property owners, issues related to redevelopment at the site.19 The following is a brief summary of comments received. In general, the consensus opinion was that the downtown is heavily influenced by the medical field and that was not likely to change in the near -term. Parties did cite the ongoing infrastructure improvements as positive and making downtown a better place to be. Looking at the commercial market, respondents stated that when they think of Auburn, they thought about the industrial base. The overall commercial market is oversaturated with existing product and some wondered that, with over 18 million square feet available, why would any company choose to locate in a secondary market such as Auburn. The local market is very small in comparison to the other Southend cities of Sea -Tac, Tukwila, Renton, Kent and Federal Way and it does not offer any geographic advantages. Finally, when you take into consideration "upside down" projects that are likely to be returned to the lenders, the market in the Southend is likely to stay soft for some years. When we focused on the residential market, respondents suggested that there is not enough of an urban amenity base to support the rent levels associated with higher density urban residential development. The area is currently marketed as a straight suburban location, with no premium associated with downtown. The required residential rents would need to be close to $1.85 per foot to justify rental mid -rise construction and that is higher than the current market, therefore negating the potential for new development at this time relative to the condominium market, sales prices would need to exceed $250,000 to $300,000 for mid -rise condo and that this is also unfeasible at the present time. That said, there was a belief that there will be future demand for condominiums and apartments, but the majority of buyers /renters will be older retirees who currently live in the area. This is interesting as it suggests to the author that single family values need to stabile and, increase, to allow buyers to "move down" price wise. This is an important consideration as development of for sale units will be competing with single family homes in the area, as well as attached product in Lakeland. Turning our attentions to the retail market, respondents informed us that there was no demand at all from "In- linei20 retail and that prevailing demographics would be tough for any large scale retailer to be successful. 19 We contacted a City provided list of interested parties but found there to be little response. What comments we received were not constructive and have not been included in this narrative. 20 "In- line" relates to strip product. i.e. a row of retailers occupying relatively small spaces. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 62 Page 118 of 143 62673.2 From a competitive perspective, the market area would be competing with Kent Station and Lakeland Town Center /Village; and that this will be very hard to do. Achievable rents would likely not exceed $12 to $14 triple net which does not make sense from a pro -forma basis as the cost to develop is higher than the income stream that it generates. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 63 Page 119 of 143 XII. FINANCIAL CHARACTERISTICS OF DEVELOPMENT /REDEVELOPMENT 62673.2 Realizing any vision for the site will be driven by the real estate development market. This section outlines issues related to anticipating development activity. Overview of Development Process The private sector development process is a largely rational and, therefore, largely predictable response to market and regulatory conditions. Developers serve as the primary drivers of the development process, typically initiating land development. The developer makes a living through managing risk, evaluating the probable financial return on a project in light of assumed risk. Developers cannot be expected to initiate a development in which the risk -to- return ratio is not compelling. Both lenders and equity contributors will also evaluate any development opportunity proposed by a developer using similar criteria. The "market" is the customer or end -user in the development process, and will largely dictate to the developer what is marketable and what will be paid for the end product (either through purchase price or lease rate). Governmental agencies typically define the legal and bureaucratic process under which entitlements are granted (or purchased), and can influence the marketplace by incentives or restrictions. Development typically occurs when the development of an allowed use yields an adequate return to attract a developer and equity source. The final development form will typically represent what is viewed as the "highest and best use" of the property from a development perspective, which reflects the development type and timing yielding the greatest risk adjusted return to the developer. The assessment of these risks and returns typically requires substantial analysis by the developer, equity source and lenders. Financial feasibility Private sector development activity reflects the management of perceived risks and returns. Anticipated return rates are typically generated using pro forma financial analyses, which forecast costs and revenues associated with specific developments. Developers use a broad range of approaches in preparing their financial analyses, with a number of financial return measures commonly used to evaluate the viability of projects. Financial feasibility represents the most reliable predictor of developer activity, but by no means a perfect one. As a result, financial viability is the principal focus of our analysis, which includes the use of prototypical pro forma analysis applied to specific examples to evaluate financial feasibility of certain densities and land uses under a range of market conditions. We focused on office development and mid -rise housing as our examination of the retail market suggests that development of this use will be as part of a larger mixed -use building and it will be supportive of other uses. The following sections describe the most commonly cited situations in which financial feasibility determines both use as well as development form. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 64 Page 120 of 143 Parking 62673.2 The cost of structured parking is the most significant limitation cited with respect to achieving higher densities. The cost of this type of parking usually substantially exceeds what can be justified on a financial basis by any associated revenue gain in most locations. Development in the Auburn area has primarily utilized surface parking, with a few exceptions. The cost of structured parking ranges from approximately $25,000 per space for above - ground structures to over $35,000 for subterranean spaces. These costs can be recovered in areas in which substantial parking fees can be collected, such as downtown Seattle, but cannot be justified (without subsidy) in most situations elsewhere in the metropolitan area. Return on Risk Urban and redevelopment projects are perceived to have a greater level of risk, necessitating a higher level of return for some developers. Particular problems cited included difficulty in construction (staging, conflict with existing uses) and relatively high soft costs associated with complex projects with limited scale. In addition, developers cited interaction with jurisdictional planning efforts as sometimes representing an additional layer of entitlement risk and bureaucracy. There are developers willing to accept lower initial rates of return for urban projects, on the anticipation that barriers to entry in these areas will allow for better long -term returns. The primary impact of a relatively high perceived level of risk is the resulting impact on acceptable rate of return. Increasing the return threshold can dramatically impact development activity. Risk is also a particular concern when dealing with redevelopment, where construction cost estimates and timing are less predictable. Redevelopment is discussed in more detail later in this chapter. Scale The scale of most infill and redevelopment opportunities is limited, while the complexity is substantially higher. This increases soft costs relative to the overall level of investment, decreasing yield. Soft costs include the following basic categories: • Architectural and Engineering • Developer Fee • Construction Interest • Legal • Market Analysis • Bank Fees /Appraisal • Permits & Fees • Pre - Development Costs • Community Outreach CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 65 Page 121 of 143 Timing 62673.2 While our analysis supports a contention that the ability of the subject site to support higher densities is limited, it should be noted that these limitations reflect current market conditions. Over a longer planning horizon, shifts in usage patterns and land values may substantively alter the development environment. If achievable rent levels increase substantively within the metropolitan area and Auburn, many of the higher density development forms would become more viable. In other words, the high- density product may in fact be in demand today by consumers, but today's rent levels do not support high- density products. There have been some efforts to allow for current development that does not preclude development at higher densities at a later time. This is an important consideration, as development under current market conditions is not expected to yield targeted densities but can limit redevelopment opportunities. Shadow platting is an approach being used by some jurisdictions. This process requires developers to design their developments to achieve targeted densities over time, while still allowing for a viable project under current market conditions. Redevelopment One of the key variables to track in determining the viability of redevelopment is residual land value, or the value of land under alternative development programs. The following are conditions under which redevelopment is likely. • The land value for the proposed development is greater than the sum of the land value and improvements under the current use; • The return associated with improving a property yields rent premiums capable of amortizing the associated costs; or • Depreciation of the improvements on a property has reached a point to which the improvement has no effective value. The factors impacting the viability and /or probability of redevelopment in a specific area are numerous, making it difficult to generate a reliable delineation of sites for redevelopment. Key factors include: • Owner disposition. This factor includes a broad range of variables, including the property owner's level of capitalization, investment objectives, risk sensitivity, availability and terms of credit, perception of return, etc. • Regulatory environment — The ability to successfully complete an improvement also relies upon the local regulatory environment, including building and zoning code applications. One of the most prevalent errors made in encouraging more intensive development in an area is to require densities and development forms that are not viable. This precludes any unsubsidized CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 66 Page 122 of 143 62673.2 development in the area. To the extent that development does not occur, densities and land values will not increase to the threshold necessary to trigger the desired development forms. As outlined previously, the desired higher - density development requires an increase in achievable rent levels and land values to be viable. Urban development forms represent an organic and iterative development process, in which development activity increases densities and demand, triggering redevelopment and higher densities over time. There are two primary regulatory risks that have the potential to work against achieving the desired development pattern: 1. Regulatory mandates on density and form which require development types that are not currently viable without subsidy; and 2. Regulatory restrictions that force a development to configure in a manner that precludes redevelopment at higher densities when viable. The first of these risks is likely to leave the area undeveloped and bypassed as an area in which development activity is concentrated. As a result, land values and activity levels will not move towards the levels required to achieve the desired development forms. The second risk would lock in lower density development forms, even if market conditions justify higher density development later in the planning horizon. Competitive Issues The financial discussion identified substantive increases in achievable rental rates as a key factor necessary to increase achievable densities at the site. Achievable rent levels for real estate products are driven primarily by basic supply and demand factors. A significant impediment to the area realizing substantive changes in rent levels is competition from other areas, often neighboring suburban business districts. Another competition related problem for the Urban Centers is the loss of traditional office space demand to industrially zoned land. Office development tends to be an outright allowed use in most industrial zoning designations, and returns a substantially higher land value. As a result, business parks that can support office space development have largely converted to office parks, offering a substantial amount of Class A office space. Similar issues impact the residential market. While there is less benefit of agglomeration for housing, only highly desirable housing markets can support the values necessary to allow for high - density residential development, particularly ownership. Only a limited percentage of households are considered likely consumers of urban density housing products, and the pool can become quickly diluted. To achieve the relatively high prices necessary to support densities seen in close -in Seattle and Bellevue neighborhoods requires a package of urban amenities that is not easily duplicated elsewhere in Auburn or many areas of the metropolitan region. As such, any development form at the subject site will not be as dense as the substantially larger markets that are primarily located to the North. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 67 Page 123 of 143 Summary The following are the key findings of our analysis in this chapter. 62673.2 • Market and policy issues combine to limit higher - density development in areas such as Auburn and specifically the subject site. Market issues include most prominently the issue of financial feasibility. High rental or lease rates to support these values are needed to make such development, and the structured parking that it requires, financially feasible. • The primary reason for a lack of higher density development in downtown Auburn is the lack of financial feasibility. There is little evidence to support the conclusion that the high densities envisioned at the development are profitable under current market conditions. • Achievable lease rates or sale prices are good indicators of when density becomes profitable. • Zoning is still ahead of the market and the City should be congratulated on its efforts to date. • The fact that zoning is ahead of the market is not a condemnation of previous planning efforts. Planning is looking ahead to encourage the development to be something it is not quite yet ready to be. It is not a fact if achieving lower than planned densities that is the major issue; rather that the development will develop slowly and in somewhat prolonged phases that is expected. Where the public and private sectors can conflict, however, is when the public sector requires, either directly or indirectly, minimum density that the private sector cannot profitably build. In that case, development slows in the short and medium run as land is held. • We would contend that, although a broad spectrum development is not feasible from a financial perspective at the present time, a well - executed, smaller scale (80 — 100 unit) apartment project would likely be well received by the marketplace and is viable. Such a project will act as a catalyst for development that will occur over a longer timeframe. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 68 Page 124 of 143 XIII. DEVELOPMENT /REDEVELOPMENT ACTION PLAN 62673.2 A fundamental challenge to implementing a successful planned development at the site is inducing private- sector development activity consistent with established goals and objectives for the area. Any vision must be financially viable, and the current market is the primary short -term obstacle to achieving more urban development forms necessary to realize maximum utilization at the site. As previously stated within this document we believe that, in the current environment, the only viable development form for the site at this time is a limited scale, 80 to 100 unit apartment project. While densities above this level may prove viable in the future, there will likely be market intervention required to direct development activity. The following sections address this problem, as well as strategies and potential solutions. A. PRIORITIES, TOOLS AND STEPS TIMING Priorities The financial viability of any development forms in the study area represents the most significant impediment to achieving the desired development form. Addressing the viability gap must be a primary consideration in any strategy to realize a finished product at the subject site. There are a number of direct and indirect ways in which viability can be addressed. Direct methods include project specific actions, such as property tax abatements and public ownership of parking. Indirect methods include public parking programs, directed public improvements and marketing. Another category of actions that should be initiated in the short -term is marketing related. The City needs to package and disseminate information regarding development potential, opportunities and tools available to the development community. We consider the cost /benefit effectiveness of these types of actions to be relatively good. The following table presents a summary of what we consider to be priority actions necessary to increase the potential to spur desired development goals at the development site. We are aware that the City has already made substantive efforts, and has had several successes in implementing many of these recommendations. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 69 Page 125 of 143 62673.2 As stated previously, we compliment the city in their efforts to date to spur development with the implementation, either fully or partially, of some of the recommendations shown below. A valid question, therefore, is why these efforts have not resulted in development proceeding. Our recommendations are an enhancement to existing tools that the City has in place. General Issues /Action Description Comments Hi ;h Priority Project Feasibility 1. Additional Property Tax Abatements; The level of subsidy related to the degree to 2. Enhanced Public Parking Programs; which a publically mandated development 3. Allow Phased Development; programme varies from the market solution. 4. Land Assembly; and 5. Additional Off -Site Improvements. Medium Priority Marketing 1. Development Advocate; The City's posture needs to continue to be 2. Improved Contact with Downtown proactive with respect to the development Business Owners & Property Developers; community. and 3. Collateral Materials (brochures, etc.) Framework for evaluating tools In general, policies to impact development at the subject site can be organized into two categories: incentive -based approaches and regulatory approaches. The incentive -based approaches are typically voluntary and offer various `carrots' to developers to encourage them to develop targeted project. Regulatory approaches are not voluntary. The City can require that developers meet development objectives through mandated policies. It should be noted that requiring development forms that are not financially viable should not be expected to generate these development types without market intervention. Alternative tools can be evaluated using the following three criteria: 1. Effectiveness. How great an effect is the policy likely to have on increasing density? 2. Cost. What will it take to implement the policy? 3. Equity. Who is likely to pay that cost? CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 70 Page 126 of 143 62673.2 The following table summarizes the different policy tools government can use to make it easier for developers to do what elected officials, and the citizens they represent, want. We are cognizant that some of these have already been implemented either in their entirety or in part. The table is organized from the least direct to the most direct incentives. The first two allow the targeted development to occur. The next three provide guidance or information that facilitates development. The next three provide financial incentives through regulatory relief —not a direct transfer of funds, but a means of allowing a developer to keep more of its financial resources. The final two provide more direct assistance to developers. INCENTIVE BASED APPROACHES Policy Mechanism; Comments Effect on Density Cost Increased permitted density; Density bonus; and Development rights transfer. Allows densities at higher level than previously allowed. These types of approaches only work if density limits are below what the market determines in the highest and best use. This is not the case at Auburn Junction. Small: requires change to zoning code. Mixed -Use zoning. Allows flexibility to mix uses. This policy can be either an incentive ("allow ") or a regulation ( "require ") Weak: May or may not increase density. Small: requires change to zoning code. Regulatory relief: fee reduction. Wide range: reduces SDCs, building fees, exactions, etc. Strong: direct effect on the cost of development. Moderate to high: loss in revenue to local government. Regulatory relief: design standards Wide range: allows narrower streets, less parking, smaller setbacks, less landscaping. Strong: increases density directly and can decrease developer costs by increasing revenue - generating space. Small: requires change to zoning code. Land assembly. Acquisition, by voluntary negotiation, of contiguous parcels to create large developable tracts. Strong: increases marketability of downtown for development community. Moderate Property Tax Abatements Ten year property tax abatement for qualified residential and mixed - use development. Increased net operating income or achievable sales prices, enhancing return and allowing for higher density. Modest; Short term loss in property taxes can be offset by long term gain in value. Low Income Housing Tax Credits Tax credit program administered by OHCS . Can improve the viability of rental housing projects. Low: federally funded CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 71 Page 127 of 143 Action Steps 62673.2 A large number of potential action items have been identified in the course of this analysis. This section outlines a suggested course of action, which we feel is consistent with improving the potential for realizing the targeted development types at the site. The order and timing of actions relates to both the expected importance of these actions, as well as to the relative difficulty in completing individual steps. General Issue /Action Timeline Comments Project Feasibility Public Parking Program Mid Term The cost of structured parking remains the primary obstacle to achieving targeted densities in suburban business districts. A program to provide structured public parking within the area would be expected to increase the likelihood of achieving higher- density housing, but would require a considerable public commitment. Public Infrastructure Mitigations Ongoing City funding for public infrastructure to address level of service mitigations. Site and Market Analysis Short -Term/ Ongoing A significant amount of market analysis has been generated by this report. Current information should be maintained, with the City offering ongoing assistance for interested parties seeking more site specific information. Catalyst Developments Short -Term The City should identify additional potential catalyst development sites (in addition to the subject site), evaluate development potential on these sites, and determine a marketable development program for outreach to the development community. Entitlement Process Short Term The City can streamline entitlements, particularly for projects in the regional center meeting public objectives. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 128 of 143 PAGE 72 62673.2 General Issue /Action Timeline Comments Marketing Develop Collateral Materials Short Term The City should develop materials for distribution providing information about the project. Packages can be tailored to developer, property owner and business owner needs. In addition, an updated web site should be established tracking planning efforts, development trends and news in the regional center. Development Advocate Short Term/ Ongoing The City should assign an advocate for downtown development in the regional center. This position should coordinate efforts, including planning and outreach. Ideally this position will bridge the offices of economic development and planning. Developer Solicitation Short -Term/ Ongoing The City should make a regular effort to market opportunities in the regional center to the development community. This not only keeps the development community aware of any opportunities, but demonstrates commitment by the jurisdiction to facilitating new development. Matchmaking Short -Term/ Ongoing The City should actively help match willing property owners and developers. This reduces the effort required, increasing the likelihood of new development. The City should continue development of a database /mailing list of interested developers as well as property owners in the area. Branding of Center Short -Term/ Ongoing Downtown competes within a broader context, and should establish a brand with a positive market, marketable image. If successful, this can enhance general desirability and more importantly from a viability standpoint, increase achievable lease rates. Branding of the district should clarify boundaries, as well as include joint marketing. Consistent signage, lighting, street treatments and other aspects of the physical environment should be coordinated to reinforce the brand, creating an identifiable sense of place. This will be an ongoing task. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A Page 129 of 143 PAGE 73 B. FINANCIAL IMPLICATIONS OF POTENTIAL ACTIONS 62673.2 A number of potential actions have been identified to encourage higher density development forms at the site. This section addresses the tangible general implications of these actions to the viability of a development. First of all, it is important to recognize that the primary obstacle to achieving more urban densities at the subject site over the short -term is related to financial feasibility. The higher construction costs associated with higher density development forms cannot be justified under achievable rent levels in most suburban locations. This is particularly true for structured parking, which has only limited income potential in a suburban location. The following is a brief summary of the implications of potential actions on the general viability of projects. Allowing Dense Development The impact on viability of allowing density is relatively limited in an area in which higher densities are not viable. As stated previously, we believe that the subject site will ultimately yield development of product that is of a higher density than its surroundings; however, we do not believe that the Auburn market is ready for high -rise product. Reduce Planning and Information Costs The reduction of planning and information costs improves viability in a number of ways. Increased certainty regarding what will be approved and abbreviated approval timelines lowers the level of uncertainty associated with entitlement, which lowers holding costs and may lower the required return parameters. This can have a substantial financial impact on the development, as well as lowering the required yield to induce new development. Readily available and current information relative to business relocations into the area, demographics, planning applications and proposed infrastructure improvements all lower predevelopment costs. More importantly, it can broaden interest in the area by lowering the "learning costs" associated with understanding the local market. Direct Grants /Parking Subsidy These types of actions have a direct impact on the bottom line by delivering a large impact, but at a large cost. The present value of grants is fairly straightforward to calculate, as is removing the cost of structured parking from a project. Low interest loans do provide a number of benefits. First of all, they typically reduce the equity requirement for the project (equity carries a relatively high percentage of development cost). This is a function of can be through a better debt coverage ratio associated with lower -cost funds, and /or a lower equity requirement per the terms of the debt. This type of debt is not typically available in the market, as it is not adequately secured by real property. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 74 Page 130 of 143 Split Rate Property Tax /Tax Abatement 62673.2 Measures to reduce ongoing property taxes have a significant impact on viability. Tax abatement programs are the most commonly used of these types of measures, typically with a term of ten years on qualifying projects. GARDNER ECONOMICS has calculated that a ten -year tax abatement has a discounted value roughly equal to between 11% and 12% of assessed value. For an income property such as a rental apartment project, this value is realized directly by the developer. For a condominium unit, the abatement goes to the purchaser, and the developer needs to realize a pricing premium on the unit consistent with the value of the abatement. The City has such a program in place and, where possible, it should be marketed to a greater extend. Low Income Housing Tax Credits HUD, through the State of Washington, provides tax credits for affordable housing projects. These credits significantly improve the viability of many rental projects, despite limits on rents that can be charged. Again, GARDNER ECONOMICS calculates that the present value of a 4% tax credit can be equal to a quarter of qualified cost. While qualifying projects typically must demonstrate a rent advantage relative to what is achievable in the market of 15 %, the program still provides for a net boost in viability. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 75 Page 131 of 143 XIV. COMPARATIVE ANALYSIS TO OTHER PUGET SOUND CITIES 62673.2 Within this section, we will discuss briefly how other cities have looked at similar issues to that of the City of Auburn. BOTHELL LANDING The city has chosen Vulcan Real Estate to develop a City Center Campus comprising up to 100,000 square feet of public and private development. It is their intent to continue offering parcels totaling 25 -acres from now until 2013.) City initiatives to entice developers into committing to the area include: • Road realignments - expansion of existing roadways, creation of a Multiway Boulevard, and enhancements /extension to Main Street; • Plans to add a small community park and increase the size for the Park at Bothell Landing by 3 acres; • The City has committed over $150M in public infrastructure improvements. • An area -wide Environmental Impact Statement (EIS) to prepare downtown for development. As such, developers will not be required to execute separate environmental studies (if the project is in compliance with the Downtown Revitalization Plan Clearly, downtown residential development is being encouraged; however, this will be a slow process considering the current lending environment. As the City puts infrastructure in place, there are several plans in pre- development; however, the only ones that appear to be proceeding are a 250 -unit public /private development of mixed income apartments for seniors - developed by the Senior Housing Assistance Group (SHAG). KENT CITY CENTER The City of Kent foreclosed and now owns the unfinished parking garage at Fourth Avenue and West Smith Street in downtown Kent. Originally slated to be a 355 -stall parking garage with condominiums and retail space, work on the project stopped in May 2007 when the lender, Centurion Financial, cancelled its construction loan to the Bellevue Developer, Plan B Development. The project is being marketed to developers but no developer has been chosen. FEDERAL WAY CITY CENTER The City has placed an RFQ for development of the former AMC Theater sites. Inducements for developers include the following: CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI.A PAGE 76 Page 132 of 143 62673.2 • Multifamily Property Tax Exemption - The City of Federal Way offers the opportunity for an eight- or twelve -year, limited property tax exemption for projects in the City Center that include at least four units of housing. This provision exempts the residential improvement value only, leaving the land value and the value of any other improvement component (commercial or other uses) available for taxation. The exemption runs for eight years for fully market -rate housing, while up to twelve years of exemption are available for projects that include at least 20% affordable housing. • EB -5 Foreign Investor Program - The Federal Way City Center has been designated a "regional center" for purposes of EB -5 Visa foreign investment, pursuant to federal regulations. • City Center Planned EIS - The city of Federal Way conducted an area -wide EIS for the majority of the City Center, pursuant to the "Planned Action" provisions of SEPA. This Environmental Impact Statement (EIS) covers 10+ years' worth of development in the commercial, residential, lodging, office, and institutional sectors. The EIS also identifies mitigation measures, primarily for transportation- related impacts. As a result of this effort, the City Council adopted a Planned Action Ordinance that allows projects in the Planned Action area to proceed through land use and building permitting without conducting independent environmental review. A project development simply needs to determine a project's likely PM peak -hour vehicle trip generation, for which the mitigation measures are comprised of an impact fee, equaling $X/PM peak -hour vehicle trip. Site - specific circulation studies may also be required to determine the best vehicle access points and any potential site - specific mitigation measures. RENTON CITY CENTER The City's efforts to revitalize its downtown are recognized through the public and private projects that have been taking shape within the urban core. These efforts were launched in 1996 when the City relocated existing downtown car dealerships to the new Automall. The City acquired the land as a catalyst for new residential, retail, transit and open spaces as part of the revitalization. Actions by the City included, but are not limited to, the following: • Built the City Center Parking Garage, a $9 million City -owned facility adjacent to the transit center. The seven - story, 562 -space garage provides parking for shoppers, commuters, employees and other downtown visitors; • Planning & Development - The City offers free preliminary project review upon written request. From the time the City receives a completed application, simple land use applications are completed in six to eight weeks; new commercial construction permit processing time typically takes eight to twelve weeks. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 77 Page 133 of 143 XV. CONCLUSIONS & RECOMMENDATIONS 62673.2 The real estate markets in the Puget Sound regions have started their recovery from one of the worst recessions that this country has ever seen. The so called "Great Recession" was, for the large part, attributable to inflation in the real estate markets and it is the real estate market that has suffered more than any other sector. Recovery from such a shock has been anemic so far and, although the future looks bright, the recovery will be a slow one. Markets tend to improve from the center out and, as such, new development in secondary ex -urban markets such as Auburn, will not happen immediately. Development at the subject site will be phased and it is unlikely that any developer will "bite -off' a large portion at any one time. Success breeds success and through successful implementation of these recommendations, we believe that development will, ultimately, occur. We anticipate that a first phase of development will comprise a relatively modest apartment project. This project will act as a catalyst for additional development. The City should reach out to apartment developers who may, or may not, be aware of the opportunity that is present. This should be both directly to development firms as well as the brokerage community. The outreach should comprise a comprehensive package of benefits that can act to direct their attention toward Auburn and away from other Southend markets. Development of speculative commercial space is not expected soon, and possibly not in this development cycle. That is not to say that a build to suit development might not occur, but this is not likely at the present time. To conclude, we believe that the City is making considerable efforts to entice developers. Market timing appears to be the major obstacle but this will change and the City's efforts both present and anticipated, should not cease. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 78 Page 134 of 143 XVI. GENERAL LIMITING CONDITIONS 62673.2 This report has been prepared to answer specific questions, based on background information and assumptions provided by you, concerning a specific development or project. Use of this report should therefore be limited to the purpose you identified, as recited in the Executive Summary. You are warned NOT to rely on this report, or the data contained therein, to analyze other developments or projects not identified in the Executive Summary, as the specific factual contexts and assumptions may differ. The information on which this report's analysis and conclusions are based have been gathered from third party sources which Gardner Economics, LLC. believes to be reliable. However, because of the possibility of human or mechanical errors by our sources, Gardner Economics LLC. does not guarantee the accuracy, adequacy, or completeness of any information obtained from third parties. 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Under no circumstances will Gardner Economics, LLC. be liable for any direct, indirect, general, special or consequential damages related to or arising from use of this report. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 79 Page 135 of 143 XVII. COPYRIGHT INFORMATION 62673.2 All written materials contained in this report, including data tables, graphs etc. are subject to copyright(s), which are the sole property of Gardner Economics, LLC. You shall acquire no rights in or to any such materials, whatsoever. This report is provided pursuant to a non - exclusive license for you to use said copyrighted materials subject to the terms of this license, and subject to such other guidelines and limitations as may be imposed by Gardner Economics, LLC. from time to time. By accepting and using this report, you agree not to reproduce or duplicate these materials (except as permitted herein), and not to distribute this report or its contents to any third party. 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You agree to execute such documents as requested by Gardner Economics, LLC. to effect an assignment to Gardner Economics, LLC. of any rights that you might acquire in such original work. The sale of Gardner Economics' copyrighted material is strictly forbidden. It is a violation of this agreement to loan, rent, lease, borrow, or transfer the use of such copyrighted materials to any other entity or parties, except as specifically permitted herein. CITY OFAUBURN MARKET ANALYSIS &ABSORPTION STUDY DI .A PAGE 80 Page 136 of 143 C=ITY or AUBURN \VASHENG`O AGENDA BILL APPROVAL FORM DI.0 Agenda Subject: Date: "Investing in Place" Discussion August 20, 2014 Department: Attachments: Budget Impact: Community Development & No Attachments Available $0 Public Works Administrative Recommendation: For discussion only. Background Summary: See the attached memorandum. Reviewed by Council Committees: Councilmember: Holman Staff: Tate /Snyder Meeting Date: August 25, 2014 Item Number: DI.0 AUBURN * MORE THAN YOU IMAGINED Page 137 of 143 AuBuRN ITY CAF � \VASH E NGTo AGENDA BILL APPROVAL FORM DI.E Agenda Subject: PCDC Status Matrix Department: Community Development & Public Works Attachments: PCDC Matrix Administrative Recommendation: For discussion only Background Summary: Reviewed by Council Committees: Councilmember: Holman Meeting Date: August 25, 2014 Date: August 20, 2014 Budget Impact: $0 Staff: Tate Item Number: DI.E AUBURN * MORE THAN YOU IMAGINED Page 138 of 143 PCDC Work Plan Matrix — August 25, 2014 LAND USE CODES /POLICIES Comments marijuana to full Council for approval. Staff will go before the PCDC at their 8/25/14 meeting to review the Planning Commission recommendations. Staff to develop a work plan as part of the overall comprehensive plan updates. Staff will provide a plat and short plat training session during the June 23rd PCDC meeting. After PCDC reviewed the code amendments at their July 28th meeting they concurred that they would like to move them forward, Public Works staff will move the Engineering Design Standards updates to PWC before staff takes the proposed amendments to Planning Commission. Staff will be moving forward with a proposed code amendment related to floor area ratio within the Downtown Urban Center (DUC) zone to the Planning Commission at their September meeting. Staff will formulate a strategy action plan and bring back to Committee as part of the overall comprehensive plan update. Code concepts and ideas to be developed based on Council retreat direction and linked to the overall comprehensive plan update. Funding options and ideas to construct and install the remaining 6 pedestrian kiosks downtown. Staff is moving forward with the project ideas presented at the 3 -7 -14 PCDC meeting and will look for other funding opportunities with the City Council for the upcoming 2015 -2016 two year budget cycle. PARKS, ARTS & RECREATION Discussion of the Auburn Avenue Theater. Staff /Council Lead c/) a) c o Chamberlain a) o as I— Chamberlain Chamberlain Chamberlain Chamberlain Faber Next on PCD HUCyUSI LO N p m September E N E N 0 CO I- krenuer Topic /Issue Code Amendments • Marijuana /Cannabis • Healthcare District Overlay • Short Plat Threshold • FAR (Floor Area Ratio) with DUC zone Historic Preservation Strategies Strategy Areas for Population /Business /Employment Pedestrian Kiosks Theater Lease 0 o o o o Page 139 of 143 a) O E N L u) c O a) a) a) c m. — a) c c O a) z ,r r G) o N z a) W c/)— N a Q Comments Next on PCD COMMUNITY SERVICES DIVISION PCDC requested an update at a future meeting; briefing to be scheduled. Updates provided as needed or requested. 0 H O 0 0 m 1- Building Community Human Services Center O O LO L • O O LO L 0 -c N • E E = O `) E E a o •N U U CB as >+ a) - D o O a0 O BOARDS, COMMISSIONS & HEARING EXAMINER O U 0 U d • o Q (NI c .O O � L o_ c � a) N cB L L Q O as -o 7 5 O E • -c o N E ;� E > o O ca Q as a) cn s •� LO M Cr) O 0 N N - L c a) 0 0 U 0 U d 0 N a) as o_ co O (NI as a) 7 0 o_ a) a) E E O 0 U a) LO E 7 2 a) 1- O (NI LO a) L) Q O a) c a) L U N .N a) a) E E O U N a) U a) as E 7 2 a) 1- N O 01 9- a) LO as 4 7 co N C 15 a) O N CB L � Q O 0a 0 a -O 0 a) cn - c • • o) CO a) a) L c E as W O) I— co • co a)N- M cV a) O N a) E a) Q a) OD M 0 0 N E E O U c 4 as d O O (NI i L a) a)U a) c 2(1) c _ Lo O) a) a) .a) a) E a) .� E .O E O U c a) a) Annual update occurred on 5 -28 -13 with PCDC. Annual update occurred 10 -28 -13 with PCDC. X 0 Chamberlain Thordarson E a) O N N 0 E a) O N N 0 E a) Q a) E a) Q a) Summer 2014 Arts Commission Human Services Committee Hearing Examiner Parks & Recreation Board Planning Commission Transportation, Transit, and Trails Urban Tree Board 6) O O N M Page 140 of 143 Comments COMPREHENSIVE PLAN /CAPITAL FACILITIES PLANNING (Long Range Planning) Major update of the comprehensive plan for the next 20 years +; Community visioning meetings were held the week of March 11 -13 and March 18 -20 with grocery store intercept events held April 7 -9. Report back to the community of the vision themes was held May 21St. The draft report was Update to the three utility comprehensive plans as the City updates its comprehensive plan. Joint PCDC and PWC meeting held on June 2nd to review the draft policies for the three utility comprehensive plans. Comprehensive Transportation Plan Update in concert with the comprehensive plan update project. complete, staff is working through updating the various elements of the ................. L........:. ... ...I..... A...1:..:.....1.. .. ........I,:..... .J ....A ... ,..:I.. L.I.. I..1.. C..II rl /1A A Resolution No. 5075, the 2015 -2020 Transportation Improvement Program (TIP) was approved on 6 -16 -14 by City Council. Update annually as needed as part of the comprehensive plan update process. City Council adopted Ordinance No. 6489, the 2013 Comprehensive Plan Amendments at the 12 -2 -13 City Council meeting. Staff /Council Lead Chamberlain Chamberlain Public Works L as LL L.IIai1IU IIaui L as LL Finance Next on PCD co I— cm C 0 cm C 0 C 0 a a C 0 LW C 0 Topic /Issue Major Comprehensive Plan Update • Visioning for the major update • Water, Sewer, Storm Scope: Update to the Water, Sewer, and Storm Comprehensive Plans in concert with the Comprehensive Plan Update project. • Transportation Planning Scope: Long -term planning for the interrelationship between land use and transportation infrastructure. Comprehensive Plan Transportation Improvement Program (TIP) Scope: 6 -year TIP that is updated annually identifying transportation related capital projects Capital Facilities Plan Scope: 6 -year capital facilities plan for the City's public facilities /utilities cc) M Page 141 of 143 Comments Committee discussion on impact fees and calculations. UPDATES AND BRIEFINGS An Economic Development update was provided to the Committee on 4- 14 -14, future briefings will be provided as needed. Staff to stay in touch with Planning Dept. and keep coordination & communication open with Tribe. The City met with the Muckleshoot Tribe on 11- 19 -13. The Auburn Downtown Association provided an update at the 04 -14 -14 meeting and will return in the spring of 2015 for their annual update. City tracking potential station stops expansion study by Amtrak. Public Works staff provided an update at the Committee's 3 -25 -13 meeting, the WSDOT station stop expansion feasibility study is expected to be complete in June, 2013. Council passed Resolution No. 4949 supporting an Amtrak stop in Auburn. LGCC to provide a briefing as needed. Stream and wetland restoration activities are ongoing. CRS: Staff is evaluating the 2013 changes to the CRS program requirements and developing policy options for the Committee to consider for City's future approach to CRS participation. FEMA on -site audit of the City's CRS Program is scheduled for November 6, 2014. NFIP -ESA: City has received notice that FEMA's model floodplain ordinance has been revised and new City regulations must be adopted and submitted to FEMA. Staff is preparing amendments to the City's regulations to meet this requirement. Staff /Council Lead Tate/ Chamberlain Mayor a) Ls I— Chamberlain Mayor Backus Wagner Andersen c a) L a) c Q Next on PCD 0 CO I— 0 LWL r 0 LWL r Spring 2015 0 CO r 0 CO Spring 2015 0 CO r Topic /Issue Fee discussions Economic Development Updates Muckleshoot Tribe The ADA Amtrak Les Gove Community Campus Auburn Environmental Park Floodplain programs — NFIP and CRS N N N N co N N co Page 142 of 143 Comments On 4 -14 -2014 staff provided an update of City environmental restoration projects planned and in progress for 2014, and will return in the Spring of 2015 for an update. CP1016: Fenster Phase 2 Levee Setback - Revised preliminary design has been approved by the Washington State Salmon Recovery Funding Board (SRFB). Project proceeding to final design and construction. CP0746: Mill Creek Wetland 5K Restoration - Staff is working with Army Corps to complete 95 %- design and prepare draft Project Partnership Agreement (PPA) for Committee review. On April 7, 2014, the City was notified that it has been selected to receive an additional $532,000 in state floodplain management grant funds for this project. CP1315: City Wetland Mitigation — Design and construction of compensatory wetland mitigation in the Auburn Environmental Park is ongoing. Resolution No. 5031, the Comprehensive Downtown Parking Management Plan was adopted by City Council on 2 -3 -14. The parking permit program will be blended into the CDPMP. Staff will provide monthly briefings on the development and implementation of parking management strategies. Ordinance No. 6477 was adopted by City council on 9 -3 -13. Staff provided an update at the 6/09/14 meeting. The City Council passed a one -year moratorium on 6 -16 -14 to look at the regulations that were adopted back in September. Now that the new regulations have been implements for about nine months, the City is evaluating whether additional code modifications are needed. Staff Staff /Council Lead (V a) -a Q Chamberlain/ Yao C CV L E H _C 0 Next on PCD cI-0 L Q (n N September 0M W 1- Topic /Issue C O :C O L C 0 T/5' N� N Cil y-+ Ec,, C y--. 0 U L _ CV i Q C ^L W LL Downtown Parking Management Plan Communal Residences N a) N a) N Page 143 of 143