HomeMy WebLinkAbout2010-44 - Affordable Housing In-Lieu FeeRESOLUTION NO. 2010-44
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
NEWPORT BEACH SETTING THE AMOUNT OF THE
AFFORDABLE HOUSING IN -LIEU FEE PURSUANT TO
SECTION 19.54.050(D) OF THE NEWPORT BEACH
MUNICIPAL CODE
WHEREAS, in July of 2006, the City Council adopted an update to the City of
Newport Beach's ( "City ") General Plan, which includes a Housing Element that
addresses issues, goals, and policies related to ensuring an adequate supply of housing
opportunities for all residents; and
WHEREAS, with the intent of achieving the City's Regional Housing Needs
Assessment construction goals and encouraging the housing development industry to
respond to the housing needs of the community and the demand for affordable housing,
the 2006 Housing Element Update (Housing Program 2.2.1) incorporates the City's
longstanding inclusionary housing policy; and
WHEREAS, Housing Program 2.2.1 is a statement of the City's inclusionary
housing policy and requires the preparation of an Affordable Housing Implementation
Plan, or the payment of an in -lieu fee, when the construction of new units is proposed; and
WHEREAS, Chapter 19.54 of the Newport Beach Municipal Code implements
Housing Program 2.2.1 and establishes an affordable housing requirement requiring
that 15- percent of the total number of dwelling units required in conjunction with
residential subdivisions be affordable to very low -, low- or moderate - income
households; and
WHEREAS, to increase the flexibility in the means of fulfilling inclusionary
housing requirements, Chapter 19.54 provides the option of paying a fee in lieu of
providing the affordable units within residential subdivision projects; and
WHEREAS, in an effort to provide an equitable in -lieu fee option to residential
developers, the City retained the services of Economic Planning Systems, Inc. (EPS), in
2004 to analyze and provide recommendations on the fees a residential developer
should have to pay in lieu of providing affordable housing units; and
WHEREAS, the City retained the services of Keyser Marston Associates (KMA)
in 2009 to update the EPS in -lieu fee recommendations and to prepare selected
analyses of the financial burden associated with income and affordability restrictions
that may be imposed under the requirements of Chapter 19.54 (Exhibit A); and
WHEREAS, such financial analyses indicated the inclusionary housing
requirements can be fulfilled without creating an unreasonable constraint on residential
development; and
WHEREAS, the KMA in -lieu fee analysis is based on the assumption that the
City will provide developers with the option to fulfill the inclusionary requirements with
either ownership or rental units; and
WHEREAS, the analysis further indicates that the provision of affordable rental
units generates a substantially smaller financial burden than the provision of affordable
ownership units, and, accordingly, the in -lieu fee analysis is based on a rental housing
scenario; and
WHEREAS, KMA projected the financial burden imposed on a typical new
residential subdivision by the inclusionary requirements into an equivalent per unit in-
lieu fee; and
WHEREAS, the results of the in -lieu fee analysis indicate that the financial
burden incurred providing low- income rental units pursuant to the provisions of Chapter
19.54 translates to an in -lieu fee of $18,500 per market rate ownership unit; and
WHEREAS, the City Council has reviewed the financial analyses and
methodology used to establish the in -lieu housing fee, and determines the in -lieu fee to
be appropriate; and
WHEREAS, the proposed action is not defined as a project under the California
Environmental Quality Act (CEQA) because it involves general policy and procedure
making activities not associated with a project or a physical change in the environment
(Section 15378 of the CEQA Guidelines); and
WHEREAS, notice of this hearing was made by posting the Council Agenda on
the City's official notice bulletin board and posting the agenda and report on the City's
Website. Notice of the time and place of the hearing, including the address where the
information could be reviewed, was also posted on the City's official notice bulletin
board, and mailed to the Building Industry Association of Southern California, Orange
County Chapter per their written request not less than 14 days prior to the hearing. In
addition, an e-mail notification of this meeting was sent to all interested parties on the
City's Housing Interest List.
NOW THEREFORE, the City Council of the City of Newport Beach, California,
hereby resolves as follows:
SECTION 1: The in -lieu housing fee pursuant to Section 19.54.050 (D) of the
Newport Beach Municipal Code is set at Eighteen Thousand Five Hundred Dollars
($18,500).
SECTION 2: The in -lieu housing fee shall be increased automatically, based
upon the annual percentage change in the new home prices in Orange County (from
December to December) as published in Real Estate Research Council report in order
to ensure that the fees keep pace with inflation and the cost to construct affordable
housing.
SECTION 3: This Resolution passed and approved at a regular meeting of the
City Council of the City of Newport Beach held on the 27th day of April, 2010.
ATTES
Leilani Brown, City Clerk
MAYOE����7L
Keith Curry
EXHIBIT A
Keyser Marston Associates
Analysis of Inclusionary Housing Options
KEYSER MARSTON ASSOCIATES
ADVISORS IN PUBLIC /PRIVATE REAL ESl "ATE DEVELOPMEN "r
MEMORANDUM
"It, 1O1 °'N
To: Sharon Wood, Assistant City Manager
REALESIATE
City of Newport Beach
REDEVELOPMENT
APFOROARL¢ HOUSING
ECONOMIC DCVGLor.rNT
From: Kathleen Head
San I I:n.NU.<o
A. JERRY KEYSER
TImomYC KELLY
Date: September 17, 2009
KAIE EARLE PUNK
DERRIE M- KERN
RoRER1 I. wt monE
Subject: Analysis of Inclusionary Housing Options
REED 7. KAIMM IARA
I'll A.(IELES
At your request, Keyser Marston Associates, Inc. (KMA) prepared selected financial
KAEE JAMESA ei ABI,
analyses pertaining to the City of Newport Beach (City) Inclusionary Housing Program.
Y p 9 tY p ( Y) rY 9 9
LAMES A. RnI;E
PAUL C. ANDERSON
These analyses can be described as follows:
GREGORY D. Soo-1 loo
KEVIN E. ENGSTROM
JULIE L. RO,MEY
1. The inclusionary housing requirements are proposed to be imposed on new
DENISE BICKERSTAFF
ownership residential development. Market rate rental projects are not proposed
1.11N DRII11
to be subject to the Inclusionary Housing Program requirements.
GERALD M. TIIIMRLL
PAUL C. MARRA
2. The proposed Program will allow the income and affordability requirements to be
fulfilled in any of the following ways:
a. On -site development of units within the proposed market rate ownership
residential development; or
b. Development of income restricted rental units; or
C. Payment of a fee to the City in lieu of developing any income restricted
housing units.
3. KMA tested the financial impacts associated with income and affordability
restrictions that may be imposed under the Inclusionary Housing Program.
Based on that analysis, KMA identified an Inclusionary Housing Program
structure that does not create an onerous burden on residential development.
The recommended structure is intended to comply with the State of California
(State) Housing Element requirement that the program should not create an
unreasonable constraint on residential development.
500 SOUTH GRANDAVENUE, SUITE 1480 D LOS ANGELES, CA LIFORNIA90071 D PHONE: 2136228095 > FAX: 2136225204
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W W W.KEYSERMARSTON.COM 16091.0011012
To: Sharon Wood, City of Newport Beach September 17, 2009
Subject: Analysis of Inclusionary Housing Options Page 2
BACKGROUND STATEMENT
The City has applied an inclusionary housing requirement on a case -by -case basis for
new residential development for more than 20 years. This requirement is currently being
formalized into an ordinance that will impose specific restrictions on future new
ownership residential development. As part of the process, the City engaged Economic
& Planning Systems, Inc. to prepare an "Inclusionary Housing In -Lieu Fee Study" (EPS
Study). This study was completed in October 2008.
KMA was recently engaged by the City to test the financial impacts associated with the
proposed requirements. The ultimate objective of the KMA analysis is to create
Inclusionary Housing Program terms that fulfill the City's affordable housing objectives
without eliminating the developer's economically beneficial use of the property.
KMA tested the following baseline inclusionary housing obligations:
1. Threshold requirement: 15% of the units in market rate ownership residential
development are subject to income and affordability restrictions.
2. Household Income Restrictions:
a. If ownership units are provided to fulfill the obligation, the restricted units
must be allocated to moderate income households.
b. If rental units are provided to fulfill the obligation, the restricted units must
be rented to low income households.
KMA prepared pro forma analyses of prototypical product types to estimate the financial
impact created by imposing the identified inclusionary housing requirements. The
analyses compare baseline market rate project pro formas to pro formas for projects that
meet the inclusionary standards. These comparisons are used to quantify the financial
impacts created by the requirements being tested.
KMA also reviewed the characteristics of inclusionary housing ordinances currently in
place throughout California. The purpose of this survey is to provide further assistance
in determining whether the requirements being considered by the City fall within the
range of other existing ordinances.
PRO FORMA ANALYSIS ORGANIZATION
A summary of the analysis is presented in Table 1. The supporting pro forma analyses
are organized as follows:
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16091.001/012
To: Sharon Wood, City of Newport Beach
Subject: Analysis of Inclusionary Housing Options
Appendix A: Affordable Housing Cost Calculations
Appendix B: Ownership: Baseline Market Rate Project
Appendix C: Ownership: Moderate Income Inclusionary
Appendix D: Rental: Baseline Market Rate Project
Appendix E: Rental: Low Income Inclusionary
ANALYSIS ASSUMPTIONS
Ownership Assumptions
September 17, 2009
Page 3
KMA reviewed ownership residential projects that have recently been submitted to the
City's Planning Department to identify the product type to use as the baseline market
rate project scenario. Based on the available information, KMA created a prototype
project with the following characteristics:
1. The development site is set at two acres.
2. The prototype project includes 32 units, which represents a density of 16 -units
per acre.
3. The average unit size is set at approximately 2,100 square feet.
The pro forma analyses are based on the following assumptions:
1. The construction costs, excluding land acquisition costs, are estimated at $1.2
million per unit.
2. The average sales price for the market rate units is projected at $1.8 million per
unit.
3. Based on the affordable housing cost calculation methodology defined in the
City's Housing Element, the 2009 affordable purchase price for a three - bedroom
unit is approximately $360,000 (See Appendix A -Table 1).
4. The threshold developer profit is set at 15% of the project's construction costs.
Rental Assumptions
The rental prototype being tested in the KMA financial analysis is based on a survey of
apartment complexes in Newport Beach. The key components of the prototype project
are:
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To: Sharon Wood, City of Newport Beach September 17, 2009
Subject: Analysis of Inclusionary Housing Options Page 4
1. The development site is set at two acres.
2. The prototype project includes 36 units, a density of 18 -units per acre.
3. The project includes the following unit mix:
a. 40% one - bedroom units;
b. 40% two- bedroom units; and
C. 20% three - bedroom units.
The following assumptions are used in the rental scenarios:
i
2.
3.
Cl
The construction cost estimates are based on the assumptions applied in the
EPS Study. The construction costs, excluding land acquisition, are estimated at
$154,000 per unit.
Projected Market Rents
a. One - bedroom unit: $2,100 per month;
b. Two - bedroom unit: $2,700 per month; and
C. Three - bedroom unit: $3,000 per month.
Affordable Rent Inclusionary Housing Units
a. The affordable rents are based on the calculation methodology identified
in the City's Housing Element.
b. The 2009 low income rents are:
i. One - bedroom unit: $1,441 per month;
ii. Two - bedroom unit: $1,802 per month; and
iii. Three - bedroom unit: $2,065 per month.
The threshold stabilized return on total investment for the rental housing projects
is set at 6.6 %. This return rate is approximately equal to the rate applied in the
EPS Study.
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To: Sharon Wood, City of Newport Beach September 17, 2009
Subject: Analysis of Inclusionary Housing Options Page 5
FINANCIAL CONSTRAINTS ANALYSIS
Ownership: Moderate Income Inclusionary
The primary financial impact created by imposing affordable housing requirements on
ownership units is the difference between the achievable market rate prices and the
allowable prices for the income restricted units. However, there are also some minor
differences in cost categories that are driven by the revenues generated by an
ownership project. The pro forma analyses in Appendices B and C illustrate the
estimated impact created by providing the inclusionary units within a market rate project.
The pro forma analyses results indicate that the requirement to set aside 15% of the
units for moderate income households acts to reduce the supportable land value in the
near term by 50% (Appendix C — Table 3). A land value reduction in this range can be
considered an onerous burden that will act as a constraint to residential development.
Rental: Low Income Inclusionary
To mitigate the financial burden, the proposed Inclusionary Housing Program provides
the option for developers to fulfill the requirements by constructing affordable rental
units. This section of the analysis evaluates the financial impact associated with
providing the required inclusionary units in rental projects.
The financial impact associated with imposing income and affordability restrictions on
apartment development is largely related to the decrease in supportable investment
created by the reduction in the achievable rents. However, the revenue reduction is
offset to some degree by the fact that the property taxes for the income restricted project
will be lower than the property taxes for a market rate project. The pro forma analyses in
Appendices D and E illustrate the impact created by providing low income rental units.
The results of the comparative pro forma analysis indicate that the proposed inclusionary
requirements act to decrease the supportable land value by 10% (Appendix E) This
value decrease falls well within the typical range for an inclusionary housing ordinance.
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To: Sharon Wood, City of Newport Beach
Subject: Analysis of Inclusionary Housing Options
Development Constraints Conclusions
September 17, 2009
Page 6
The results of the ownership residential analysis indicate that the identified inclusionary
housing requirements impose an onerous burden on developers. However, the option
for developers to fulfill the requirements by providing affordable rental units mitigates the
detriment sufficiently to eliminate the constraint to residential development. Thus, it can
be concluded that the inclusionary housing requirements do not create an unreasonable
constraint on ownership residential development.
ORDINANCE COMPARISON
The financial analyses undertaken by KMA indicate that the inclusionary housing
requirements can be fulfilled without creating an unreasonable constraint on residential
development. To crosscheck this finding, KMA surveyed over 100 jurisdictions in
California that currently impose inclusionary housing requirements. The results of this
survey indicate that the identified requirements fall within the norm of the standards
imposed by inclusionary housing programs being implemented throughout the state.
The courts have held that affordable housing is a "public benefit ", and that locally
imposed inclusionary housing ordinances are a legitimate means of providing this public
benefit. The courts have further found that the requirements cannot deprive an owner of
"all economically beneficial use" of the property. However, to date, no definition of all
economically beneficial use has been provided. For reference purposes, it should be
noted that inclusionary housing programs recently adopted in several California locations
have been projected to generate land value reductions in the 30% range.
As discussed previously in this analysis, the inclusionary housing obligations being
tested are projected to create a financial detriment that is significantly less than a 30%
decrease to the supportable land value. As such, it can be concluded that the proposed
inclusionary housing requirements do not create an unreasonable constraint on
residential development.
SUPPORTABLE IN -LIEU FEE
To increase the Program's flexibility, the inclusionary housing obligations can be fulfilled
through the payment of an in -lieu fee. To establish a recommended in -lieu fee amount,
KMA translated the financial impact generated by the inclusionary requirements into a
per unit fee. Since it has been determined that the identified inclusionary housing
requirements are supportable, this methodology implicitly results in a reasonable in -lieu
fee.
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To: Sharon Wood, City of Newport Beach September 17, 2009
Subject: Analysis of Inclusionary Housing Options Page 7
The KMA analysis is based on the assumption that the City will provide developers with
the option to fulfill the inclusionary requirements with either ownership or rental units.
The analysis further indicates that the provision of affordable rental units generates a
substantially smaller financial impact than the provision of affordable ownership units.
Thus, the in -lieu fee analysis is based on a rental housing scenario.
The following methodology was used to establish the recommended in -lieu fee amount:
1. As shown on Appendix E — Table 3, the financial impact is estimated at $591,000
for the 36 -unit prototype apartment project being evaluated.
2. The inclusionary housing obligation is applicable to market rate ownership
housing development. As such, the in -lieu fee analysis is based on the
inclusionary requirement for the 32 -unit prototype ownership that was tested
previously in this analysis:
a. The 32 -unit ownership project generates a requirement for five income
restricted units.
b. When the $591,000 gap is divided by the five affordable units, the
supportable in -lieu fee equals approximately $118,200 per affordable unit.
3. The affordability gap can also be divided by the total number of market rate
ownership units to arrive at a supportable in -lieu fee per market rate unit. Based
on the results of the KMA analysis, the supportable in -lieu fee is equal to $18,500
per market rate ownership unit ($591,000 / 32 units).
CONCLUSIONS
Based on the results of the financial analysis, KMA reached the following conclusions:
1. The Inclusionary Housing Program structure evaluated by KMA does not deprive
an owner of "all economically beneficial use" of the property, nor does it create
an unreasonable constraint on residential development as defined by State
Housing Element requirements.
2. The inclusionary option selected by developers will vary depending on the actual
scope of development being proposed. However, the financial analysis
demonstrates that there is a strong financial incentive for developers to select the
in -lieu fee option. Nonetheless, it is possible that some developers may find it
preferable to fulfill the inclusionary housing requirements by constructing
affordable rental units.
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TABLE 1
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
I. IOWNERSHIP - SITE 87.120 SF I
MARKET RATE
Affordable Housing Cost N.A
Land Cost' $167 /SF
Supportable Land Value
% (Decrease) /Increase in Land Value
Number of Units
Density (Units /Acre)
Affordable Housing
Affordable Housing Cost
MARKET RATE
SCENARIO
36
18.0
None
N.A.
Land Cost 2 $68 /SF
Supportable Land Value
/o (Decrease) /Increase in Land Value
OWNERSHIP:
[MODERATE INCOME
INCLUSIONARY
32
16.0
5 Units - 15 % Moderate
Income
Housing Element
Standards
$167 /SF
$84 /SF
-50%
RENTAL: LOW INCOME
INCLUSIONARY
36
18.0
5 Low Income Units 3
Housing Element
Standards
$68 IS F
$61 /SF
-10%
III. ISupportable In -Lieu Fee/ Market Rate Unit 4 $18,500 /Unit
The land cost is based on the residual land value supported by the market rate scenario.
3 The land cost is set at $69/ SF based on the EPS Inclusionary Housing Study, 10/7/2008.
3 Based on the number of inclusionary units required by the ownership residential project.
4 The in -lieu fee is based on the affordability gap associated with fulfilling the obligation with rental units. See
APPENDIX E.
Prepared by: Keyser Marston Associates, Inc.
File name: NB InG_9_17_09.x1s; Summary
SCENARIO
Number of Units
32
Density (Units /Acre)
16.0
Affordable Housing
None
Requirements
Affordable Housing Cost N.A
Land Cost' $167 /SF
Supportable Land Value
% (Decrease) /Increase in Land Value
Number of Units
Density (Units /Acre)
Affordable Housing
Affordable Housing Cost
MARKET RATE
SCENARIO
36
18.0
None
N.A.
Land Cost 2 $68 /SF
Supportable Land Value
/o (Decrease) /Increase in Land Value
OWNERSHIP:
[MODERATE INCOME
INCLUSIONARY
32
16.0
5 Units - 15 % Moderate
Income
Housing Element
Standards
$167 /SF
$84 /SF
-50%
RENTAL: LOW INCOME
INCLUSIONARY
36
18.0
5 Low Income Units 3
Housing Element
Standards
$68 IS F
$61 /SF
-10%
III. ISupportable In -Lieu Fee/ Market Rate Unit 4 $18,500 /Unit
The land cost is based on the residual land value supported by the market rate scenario.
3 The land cost is set at $69/ SF based on the EPS Inclusionary Housing Study, 10/7/2008.
3 Based on the number of inclusionary units required by the ownership residential project.
4 The in -lieu fee is based on the affordability gap associated with fulfilling the obligation with rental units. See
APPENDIX E.
Prepared by: Keyser Marston Associates, Inc.
File name: NB InG_9_17_09.x1s; Summary
APPENDIX A
AFFORDABLE HOUSING COST CALCULATIONS
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xls; Afford Cost
APPENDIX A - TABLE 1
AFFORDABLE HOUSING COST CALCULATIONS
OWNERSHIP UNITS
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
I. Income Assumptions
Income Level
Number of Bedrooms
Benchmark Household Size
Household Income for Calculation Purposes '
II. Affordable Housing Price Calculation
Household Income
Multiplier 2
Total Affordable Housing Price
Moderate
Three - Bedrooms
Six Person
$119,850
$119,850
3.0
$359,600
Based on the 2009 area median income published by the California Housing & Community Development
Department. The household size is set at the number of bedrooms in the unit multiplied times two.
2 Based on the methodology defined in the City's Housing Element.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.x1s; Afford Cost
APPENDIX A - TABLE 2
i
AFFORDABLE HOUSING COST CALCULATIONS
RENTAL UNITS
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
I. Income Level
Low
II. One - Bedroom Units
Benchmark Household Size
Two Person
Household Income for Calculation Purposes '
$59,500
% of Income Allotted to Housing Costs
30%
Annual Income Available for Housing Costs
$17,850
Monthly Income Available for Housing Costs
$1,488
Less: Utilities Allowance
47
Total Affordable Rent
$1,441
III. Two- Bedroom Units
Benchmark Household Size
Four Person
Household Income for Calculation Purposes '
$74,400
% of Income Allotted to Housing Costs
30%
Annual Income Available for Housing Costs
$22,320
Monthly Income Available for Housing Costs
$1,860
Less: Utilities Allowance
58
Total Affordable Rent
$1,802
IV. Three - Bedroom Units
Benchmark Household Size
Six Person
Household Income for Calculation Purposes '
$86,300
% of Income Allotted to Housing Costs
30%
Annual Income Available for Housing Costs
$25,890
Monthly Income Available for Housing Costs
$2,158
Less: Utilities Allowance
93
Total Affordable Rent
$2,065
Based on the 2009 household incomes published by the California Housing & Community Development
Department. The household size is set at the number of bedrooms in the unit multiplied times two.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xls; Afford Cost
APPENDIX B
OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE)
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_i7 09.xls; Own Base
APPENDIX B - TABLE 1
ESTIMATED CONSTRUCTION COSTS
OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH. CALIFORNIA
I. Direct Costs
Site Work Costs
87,120 Sf Land Area
$40.00
/Sf Land Area
$3,485,000
Building Costs'
67,952 /Sf GBA
$285
/Sf GBA
19,366,000
Total Direct Costs
$22,851,000
II. Indirect Costs
General Indirect Costs 2
13% Direct Costs
$2,971,000
Permits & Fees
32 Units
$20,000
/Unit
640,000
Insurance
32 Units
$15,000
/Unit
480,000
Developer Fee
3% Sales Revenues
1,769,000
Total Indirect Costs
$5,860,000
III. Financing /Closing Costs
Interest During Construction /Absorption a $5,885,000
Loan Origination Fees ° $35,380,000 Loan Amount 2.5 Points 885,000
Closing & Sales; & Warranties a 3,108,000
Total Financing /Closing Costs $9,878,000
IV. ITotal Construction Costs 32 Units $1,206,000 /Unit $38,589,000
' Average unit size equal to 2,124 square feet. GBA includes a 0% allowance for non - fivable area.
2
Includes architecture, engineering & consulting; taxes, legal & accounting; marketing; and soft cost contingency.
a Construction and absorption period interest set at a 10.2% blended return on debt and equity. Carrying costs are based on an 18
month development period. Absorption rate is set at 4 units/month.
Based on a 60% loan to value ratio.
s Based on 5% of sales revenues plus $5,000 /unit for warranties costs.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Ind _9_17_09.x1s; Own Base
APPENDIX B - TABLE 2
PROJECTED SALES REVENUES
OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
MARKET RATE SCENARIO'
I. ITotal Sales Revenues 32 Units @ $1,842,700 /Unit $58,966,000
1 Sales price at $868 /sf of net livable area.
Prepared by: Keyser Marston Associates, Inc.
File name: NB InG_9_17_09.xls; Own—Base
APPENDIX B - TABLE 3
RESIDUAL LAND VALUE ANALYSIS
OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH. CALIFORNIA
1. Total Sales Revenues See APPENDIX B - TABLE 2
II. Project Costs
$58,966,000
Total Construction Costs See APPENDIX B - TABLE 1 $38,589,000
Threshold Developer Profit 15% of Total Construction Costs 5,788,000
Total Project Casts $44,377,000
III. I Residual Land Value 87,120 Sf Land Area $167 /Sf Land Area $14,589,000
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xl$; Own_Base
APPENDIX C
OWNERSHIP: IMODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE)
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xls; Own Inc
APPENDIX C - TABLE 1
ESTIMATED CONSTRUCTION COSTS
OWNERSHIP: IMODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
1. Direct Costs
Site Work Costs
87,120
Sf Land Area
$40.00
/Sf Land Area
$3,485,000
Building Costs'
67,952
/Sf GBA
$285
/Sf GBA
19,366,000
Total Direct Costs
$22,851,000
II. Indirect Costs
General Indirect Costs 2
13%
Direct Costs
$2,971,000
Permits & Fees
32
Units
$20,000
/Unit
640,000
Insurance
32
Units
$15,000
/Unit
480,000
Developer Fee 3
1,769,000
Total Indirect Costs
III. Financing /Closing Costs
Interest During Construction /Absorption 4
Loan Origination Fees 5 $35,380,000 Loan Amount
Closing & Sales; & Warranties 5
Total Financing /Closing Costs
$6,073,000
2.5 Points 885,000
2,738,000
$5,860,000
$9,696,000
IV. ITotal Construction Costs 32 Units $1,200,000 /Unit $38,407,000
1 Average unit size equal to 2,124 square feet. GBA includes a 0% allowance for non - livable area.
2
Includes architecture, engineering & consulting; taxes, legal & accounting; marketing; and soft cost contingency.
3 See APPENDIX B - TABLE 2 - The Developer Fee is set equal to the amount calculated in the market rate scenario.
Construction and absorption period interest set at a 10.2% blended return on debt and equity. Carrying costs are based on an 18
month development period. Absorption rate is set at 4 unitstmonth.
5 Based on a 60% loan to value ratio.
s Based on 5% of sales revenues plus $5,000 /unit for warranties costs.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xls; Own_lnc
APPENDIX C - TABLE 2
PROJECTED SALES REVENUES
OWNERSHIP: [MODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH CALIFORNIA
I. Market Rate Units 1 27 Units @ $1,842,700 /Unit $49,752,900
II. Moderate Income Units - 3 Bd 2 5 Units @ $359,600 /Unit 1,798,000
III. ITotal Sales Revenues $51,550,900
1 Sales price at $868/sf of net livable area for Three - Bedrooms and $0 /sf of net livable area for Five - Bedrooms.
2 See APPENDIX A - TABLE 1 for the affordable housing cost calculations.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xis; Own—Inc
i
APPENDIX C - TABLE 3
LAND VALUE IMPACT ANALYSIS
OWNERSHIP: IMODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH. CALIFORNIA
I. Total Sales Revenues
11. Project Costs
Total Construction Costs
Land Cost 1
Threshold Profit 2
Total Project Costs
111. Affordability Gap
IV. Effective Land Value
Land Cost
Affordability Gap
Effective Land Value
% Land Value Decrease
V. Supportable In -Lieu Fee
Total Fee
Fee/ Affordable Unit
Fee/ Market Rate Unit
See APPENDIX C - TABLE 2
See APPENDIX C - TABLE 1
See APPENDIX B - TABLE 3
See APPENDIX B - TABLE 3
87,120 Sf Land Area $84 /Sf Land Area
38,407,000
14,589,000
5,788,000
$51,550,900
$58,784,000
($7,233,000)
$14,589,000
(7,233,000)
$7,356,000
-50%
1 Land Cost is based on the Residual Land Value generated by the market rate scenario in APPENDIX B.
2 Threshold Profit is based on the amount of profit generated by the market rate scenario in APPENDIX B.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xis; Own Inc
$7,233,000
$1,446,600 /Unit
$267,900 /Unit
APPENDIX D
RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE)
Prepared by: Keyser Marston Associates, Inc.
File name: NB Ind _9_17_09.xis; Apl_Base
APPENDIX D - TABLE 1
ESTIMATED CONSTRUCTION COSTS
RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
II. Direct Costs t
One - Bedroom
14 Units
$88,450 /Unit
$1,238,000
Two - Bedrooms
14 Units
$128,100 /Unit
1,793,000
Three - Bedrooms
8 Units
$152,500 /Unit
1,220,000
Total Direct Costs
$4,251,000
111. Indirect & Financing Costs
30% Direct Costs
$1,275,000
V. ITotal Construction Costs 36 Units $153,500 /Unit $57526,000
Direct Costs are based on Economic & Planning Systems' Construction Costs from "Inclusionary Housing In -Lieu Fee Study ", dated
October 7, 2008.
Prepared by: Keyser Marston Associates, Inc.
File name: NB InG_9_17_09.z1s; Apt_Base
APPENDIX D - TABLE 2
STABILIZED NET OPERATING INCOME
RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
I. Rent Income 1
One - Bedroom
14
Units @
$2,100
/Month
$352,800
Two - Bedrooms
14
Units @
$2,700
/Month
453,600
Three - Bedrooms
8
Units @
$3,000
/Month
288,000
Gross Income
$1,094,400
Vacancy & Collection Allowance
5%
Gross Income
(54,700)
Effective Gross Income
$1,039,700
II. Operating Expenses
General Operating Expenses
36
Units @
$4,200
/Unit
$151,200
Property Taxes 2
36
Units @
$3,680
/Unit
132,500
Total Operating Expenses
36
Units @
($7,880)
/Unit
($283,700)
III. INet Operating Income $756,000
1 Market rent = $2.83 /sf for One - Bedroom; $2.53/sf for Two - Bedrooms; and $2.44/sf for Three - Bedrooms.
2 Based on the project value at a 6.0% capitalization rate and a 1.05% tax rate.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Ind 9_17_09.x1s; Apt_Base
APPENDIX D - TABLE 3
RESIDUAL LAND VALUE ANALYSIS
STABILIZED NET OPERATING INCOME
RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
I. Warranted Private Investment
Net Operating Income
Threshold Return on Total Investment'
Total Warranted Investment
11. Total Construction Cost
See APPENDIX D - TABLE 2
See APPENDIX D - TABLE 1
$756,000
6.6%
$11,455,000
$5,526,000
III. IResidual Land Value 87,120 Sf Land Area $68 /Sf Land Area $5,9291000
1 Threshold Return on Total Investment is based on a 6.0% capitalization rate and 20% profit as a percentage of construction costs.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xls; Apt_Base
APPENDIX E
RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE)
Prepared by: Keyser Marston Associates, Inc.
File name: NB Ind_9_17_09.xls; Apt_LOw
APPENDIX E - TABLE 1
ESTIMATED CONSTRUCTION COSTS
RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
1. Direct Costs'
One - Bedroom 14 Units
Two- Bedrooms 14 Units
Three - Bedrooms 8 Units
Total Direct Costs
II. Indirect & Financing Costs 30% Direct Costs
$88,450 /Unit $1,238,000
$128,100 /Unit 1,793,000
$152,500 /Unit 1,220,000
$4,251,000
$1,275,000
III. ITotal Construction Costs 36 Units $153,500 /Unit $5,526,000
Construction Costs are based on Economic & Planning Systems' "Inclusionary Housing In -Lieu Fee Study ", dated October 7, 2008.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09As: Apt_Low
APPENDIX E - TABLE 2
STABILIZED NET OPERATING INCOME
RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
1. Rent Income
Market Rent'
One - Bedroom
12
Units @
$2,100
/Month
$302,400
Two - Bedrooms
12
Units @
$2,700
/Month
388,800
Three - Bedrooms
7
Units @
$3,000
/Month
252,000
Low Income 2
One - Bedroom
2
Units @
$1,441
/Month
$34,600
Two - Bedrooms
2
Units @
$1,802
/Month
43,200
Three - Bedrooms
1
Unit @
$2,065
/Month
24,800
Gross Income
$1,045,800
Vacancy & Collection Allowance
5%
Gross Income
(52,300)
Effective Gross Income
$993,500
II. Operating Expenses
General Operating Expenses
36
Units @
$4,200
/Unit
$151,200
Property Taxes 3
36
Units @
$3,480
/Unit
125,300
Total Operating Expenses
36
Units @
($7,680)
/Unit
($276,500)
III. Net Operating Income $717,000
Market rent = $2.83 /sf for One- Bedroom; $2.53 /sf for Two-Bedrooms; and $2.44/sf for Three - Bedrooms.
s See APPENDIX A - TABLE 2 for the affordable housing cost calculations.
s Based on the project value at a 6.0% capitalization rate and a 1.1 % tax rate.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.x1s; Apt Low
APPENDIX E - TABLE 3
LAND VALUE IMPACT ANALYSIS
RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE)
AFFORDABLE HOUSING CASE STUDIES
INCLUSIONARY HOUSING ANALYSIS
NEWPORT BEACH, CALIFORNIA
1. Warranted Private Investment
Net Operating Income
Threshold Return on Total Investment'
Total Warranted Investment
II. Total Construction Cost
111. Residual Land Value
IV. Effective Land Value
Land Cost From Mkt Scenario
Supportable Land Value
Decrease in Land Value
% Land Value Decrease
See APPENDIX E - TABLE 2
See APPENDIX E - TABLE 1
$717,000
6.60%
See APPENDIX D - TABLE 3 $5,929,000
87,120 Sf Land Area $61 /Sf Land Area $5,338,000
V. Supportable In -Lieu Fee
Total Fee
Fee/ Affordable Unit
Fee/ Market Rate Unit in the Market Rate Ownership Project 2
$10,864,000
$5,526,000
$5,338,000
$591,000
$118,200 /Unit
$18,500 /Unit
$591,000
10%
1 Threshold Return on Total Investment is based on a 6.0% capitalization rate and 20% profit as a percentage of construction costs.
2 The Market Rate Ownership Project includes 32 units.
Prepared by: Keyser Marston Associates, Inc.
File name: NB Incl_9_17_09.xls: Apt Low
STATE OF CALIFORNIA }
COUNTY OF ORANGE
CITY OF NEWPORT BEACH }
I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby
certify that the whole number of members of the City Council is seven; that the foregoing resolution,
being Resolution No. 2010 -44 was duly and regularly introduced before and adopted by the City
Council of said City at a regular meeting of said Council, duly and regularly held on the 27th day of
April, 2010, and that the same was so passed and adopted by the following vote, to wit:
Ayes: Selich, Rosansky, Henn, Gardner, Mayor Curry
Noes: None
Absent: Webb, Daigle
Abstain: None
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
official seal of said City this 28th day of April, 2010.
� r l
V
City Clerk
Newport Beach, California
(Seal)