CITY OF PORT HURON, MICHIGAN EXECUTIVE SUMMARY OF THE TARGET MARKET ANALYSIS STUDY CONDUCTED BY ZIMMERMAN/VOLK ASSOCIATES, INC.

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1 CITY OF PORT HURON, MICHIGAN EXECUTIVE SUMMARY OF THE TARGET MARKET ANALYSIS STUDY CONDUCTED BY ZIMMERMAN/VOLK ASSOCIATES, INC. 2007

2 EXECUTIVE SUMMARY TARGET MARKET ANALYSIS PURPOSE: The purpose of this study is to identify the depth and breadth of the market for market-rate housing units created through both adaptive re-use of non-residential buildings as well as through new construction opportunities that are leased or sold and located within the Downtown Study Area of Port Huron. The area for the purpose of the study includes the Central Business District bounded by Glenwood Avenue to the north, the St. Clair River to the east, Court Street to the south and 7th Street and the Black River to the west, as well as the adjacent neighborhoods south of the downtown. A given in the overall housing strategy is that retaining existing households is just as important as attracting new households and that the success of one should not be at the expense of the other. The strengthening of urban residential neighborhoods when skillfully implemented is not a zero-sum exercise. The right housing opportunities within the downtown - appropriate tenure, unit type, and location - should provide attractive alternatives, not only for those households that would otherwise move out of the City, but also for those urban households moving to the Port Huron area. The target market methodology is effective in defining a realistic potential for urban development and redevelopment. The extent of the potential market for new market-rate housing units in the Downtown Study Area were identified using Zimmerman/Volk Associates' proprietary target market methodology. In contrast to conventional supply/demand analysis which are based on supply-side dynamics and baseline demographic projections, target market analysis determines the depth and breadth of the potential market obtained from housing preferences and socio-economic characteristics of households in the defined 'draw area.' It takes into account mobility rates and lifestyle trends in urban areas. Using target market methodology, Zimmerman-Volk Associates determined:

3 WHERE potential renters and buyers for new market-rate housing are likely to move from (the draw area) WHO currently lives in the draw area and what they are like (target market) HOW MANY have potential to move to the study areas if appropriate housing units were made available (depth and breadth of the market) WHAT their housing type preferences are (rental, owner-occupied, multifamily, single-family) WHAT their alternatives are (new developments in surrounding areas) WHAT they are willing to pay for housing HOW quickly they will rent or purchase the new units (absorption forecasts) General Market Potential American households, more than any other nation, have been extremely mobile. In 2006, an average 18% of American households moved from one dwelling to another (varies by region). A higher percentage is true for renters, younger age households, and within urban areas. Analysis of St. Clair County mobility patterns from the latest data IRS data available (2004) shows that annual in-migration fell from 3,270 households in 2000 to 2,960 households in More than 45% of the County's in-migration is from Macomb County. Approximately another 20% from Oakland, Wayne, and Sanilac Counties. The potential market for new and existing housing units located within the City and the Study Area includes households already living in the City as well as those households likely to move into the City, as extrapolated from St. Clair County migration trends. The draw areas are: Executive Summary Page 3 of 12 Target Market Analysis

4 Local Primary Regional National households currently living within the City - 12% move within the City each year households currently living in the balance of St. Clair County households with potential to move into the City from Sanilac, Oakland, Macomb, and Wayne Counties households with potential to move to City from all other United States counties. Between 1,000-2,000 households move into St. Clair County from elsewhere in the United States each year. Market Potential for Downtown Study Area In 2006, Port Huron had just under 15,000 housing units. Median housing value Citywide was estimated at $109,400, approximately 32% lower than the national median of $161,600. Some of this may be attributed to the fact that more than 62% of the City's housing units were built before The City is the center of a relatively slow-growth region. New residential construction outside of the City has drawn the majority of buyers from the existing population rather than newly created households from outside the area. Port Huron's median income was $34,400 in 2006, which is 30% lower than the national median income of $48,800. After discounting for those segments of the City's potential market that have preferences for suburban or rural living, the distribution of the draw area for new and existing units is: City of Port Huron (primary draw area) 32.6% Balance - St. Clair County (local draw) 18.9% Sanilac, Oakland, Macomb, and Wayne Counties (regional draw) 32.6% Balance of U.S. (national draw) 15.9% Total 100% Source: Zimmerman/Volk Associates, Inc Executive Summary Page 4 of 12 Target Market Analysis

5 This translates into 950 younger singles, couples, empty nesters and retirees, and families with children with financial capability to rent or purchase market-rate dwelling units within the City limits. Excluding single-family units, housing preferences of 660 households currently living in the defined draw areas are potential renters/buyers of new market-rate units (new construction and/or adapative re-use) within the Downtown Study Area. The market potential numbers indicate the depth of the potential market for new and existing housing units within the area, not housing need, and not projections of households change. These are households that are likely to move within or into the study area if expanded housing options were made available and other economic factors were in place. Annual Potential Market for New Housing Units Market-Rate Higher-Density Housing Units HOUSING TYPE NUMBER OF HOUSEHOLDS PERCENT OF TOTAL Rental Multi-Family (lofts/apartments, leaseholder) % For-Sale Multi-Family (lofts/apartments, condo/co-op ownership) % For Sale Single-Family Attached (townhouses/live-work, fee-simple, condominium ownership) % For-Sale Single-Family Detached (houses, fee-simple ownership) % Source: Zimmerman/Volk Associates, Inc Total % Executive Summary Page 5 of 12 Target Market Analysis

6 Who Is The Potential Market? The market for urban housing, particularly with downtown areas, is being fueled by the convergence of the two largest generates in the nation's history -- the 79 million Baby Boomers (born from 1946 to 1964) and the 77 million Millennials (born from ). The potential market for new market-rate housing units in the study area can be characterized by general household types as follows: Downtown Residential Mix by Household Type HOUSEHOLD TYPE PERCENT OF TOTAL RENTAL MULTI-FAM FOR-SALE MULTI-FAM FOR-SALE SF ATTACH. FOR-SALE SF DETACH. Empty-Nesters & Retirees 35% 26% 41% 27% 47% Traditional & Non- Traditional Families 26% 21% 12% 27% 47% Younger Singles & Couples 39% 53% 47% 46% 6% Total 100% 100% 100% 100% 100% Source: Zimmerman/Volk Associates, Inc., 2007 How Fast Will Units Lease or Sell? Zimmerman/Volk Associations has determined that an annual capture of between 15 and 25 percent of the potential market, depending on housing type, is achievable. Absorption scenarios are based upon assumption that a normal economic environment will prevail in a relatively steady state during the development of the property. Executive Summary Page 6 of 12 Target Market Analysis

7 Annual Capture of Market Potential Market-Rate Higher-Density Housing Units HOUSING TYPE NUMBER OF HOUSEHOLDS CAPTURE RATE NUMBER OF NEW UNITS Rental Multi-Family (lofts/apartments, leaseholder) % 48 For-Sale Multi-Family (lofts/apartments, condo/co-op ownership) % 43 For Sale Single-Family Attached (townhouses/live-work, fee-simple, condominium ownership) % 23 For-Sale Single-Family Detached (houses, fee-simple ownership) % 23 Total SOURCE: Zimmerman/Volk Associates, Inc The annual market capture of 137 newly created market-rate dwelling units would require a capture rate of 20.7% of the 660 households (identified through target market analysis, that have the potential to rent or purchase new market-rate housing within the study area). Based on the migration and mobility analysis, and the creation of appropriate new housing units, up to one-third of the annual market potential of 137, or 45 units per year, could be from households moving in from outside Port Huron. Executive Summary Page 7 of 12 Target Market Analysis

8 RENTAL DISTRIBUTION The market-rate rent range covers leases by households with incomes ranging between $30,000 and $75,000+. The distribution by rent range of the 48 new rental units that could be absorbed each year is as follows: Loft/Apartment Distribution by Rent Range MONTHLY RENT RANGE UNITS PER YEAR PERCENTAGE $500 - $ % $750 - $1, % $1,000 - $1, % $1,250 and up % Total: % Source: Zimmerman/Volk Associates, Inc FOR SALE DISTRIBUTION Lofts: The market-rate price range covers purchases by households with annual incomes ranging between $30,000 and $150,000+. The distribution by price range of the 43 market-rate for sale lofts/apartments that could be absorbed each year is as follows: Executive Summary Page 8 of 12 Target Market Analysis

9 Loft/Apartment Distribution by Price Range PRICE RANGE UNITS PER YEAR PERCENTAGE $50,000 - $100, % $100,000 - $150, % $150,000 - $200, % $200,000 - $250, % $250,000 - $300, % $300,000 and up 4 9.3% Total: Source: Zimmerman/Volk Associates, Inc % Townhouse-Live/Work: Live/work units for sale by price range of the 23 market-rate units that could be absorbed each year are as follows: Townhouse/Live-Work Distribution by Rent Range PRICE RANGE UNITS PER YEAR PERCENTAGE $100,000 - $150, % $150,000 - $200, % $200,000 - $250, % $250,000 - $300, % $300,000 and up % Total: % Source: Zimmerman/Volk Associates, Inc Executive Summary Page 9 of 12 Target Market Analysis

10 Urban Detached Houses: Urban detached homes for sale by price range of the 23 market-rate houses that could be absorbed each year is as follows: Urban Detached Distribution by Price Range PRICE RANGE UNITS PER YEAR PERCENTAGE $150,000 - $200, % $200,000 - $250, % $250,000 - $300, % $300,000 and up Total: Source: Zimmerman/Volk Associates, Inc % % Neighborhood Housing Strategies: An effective strategy to attract the target market households should include: - Preservation of existing housing through restoration, repositioning and/or adaptive re-uses. - New construction or adaptive re-use for mixed-use residential developments. - Establishment of neighborhood guidelines to assure compatibility of scale, design, and type of housing. In order to achieve maximum positive impact of downtown housing, three elements are important -- location, design, and marketing. A number of sites throughout downtown have been identified as opportunities for residential or mixed-use developments: Executive Summary Page 10 of 12 Target Market Analysis

11 1. Olde Town - Community Renaissance Area: Continue with objective to diversity neighborhood regarding incomes and households types by: - Rehabilitation and repositioning of rental units with higher values. Anticipated that 10 to 20 units could be absorbed each year. - Conversions of rentals to condominium units depending on location and architectural quality. Anticipated six to eight units each year. - Reversions to single-family owner-occupied - renovate and revert multi-unit rentals to single-family dwellings. Anticipated up to five each year could be renovated and sold. 2. Lofts along Huron Avenue and Military Street: Strongly encouraged to continue until all vacant space is utilized with a variety of hard and soft lots and square footage range. Continue with NEZ and Historic District for tax credit incentives. Marketing and promotion are important factors. 3. Bridge North (vacant lot and YMCA): Retail/condominium development mix. Seven + stories. 4. City owned property on River Street: Has "exceptional" location on Black River and would compliment Dockside and Cross Pointe - retain a public promenade along the river - tied into marina activity. 5. Quay Street West: The site could tie the Black River to the downtown's main twoblock shopping area and compliment loft development, three to four stories, units. 6. Desmond Landing Area: Its location next to St. Clair River, being adjacent to downtown, and percentage of available land, makes it an excellent location to add housing units for middle and upper-end of the optimum market. 7. City Parking Lots: Quay Street East and McMorran could conceivably follow the successful development of Quay Street West and downtown lofts with a Executive Summary Page 11 of 12 Target Market Analysis

12 comparable mix of multi-family rental and/or for sale units, if Quay Street West had been successful in establishing the optimum rents and sales outlined in the optimum market position. 8. City-Owned Southside Land - Cleveland School Area: Although the City owns significant land in this area, this location is the most problematic from the market perspective. Among its disadvantages are its distance from downtown, its proximity to industrial use, and its distance from the riverfront. Current conditions mean that the rents and prices for new dwelling units would be considerably below those outlined in the optimum market position, therefore requiring other significant subsidies. However, if all other development projects are successful, this area would acquire greater value as a development location. Another factor that could have a significant bearing on the development prospects of this area is the amount, value, and type of development that occurs within the Acheson riverfront and surrounding neighborhoods. Executive Summary Page 12 of 12 Target Market Analysis