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SR-407-002-02-03 (4)~a~- ~ ATTACHMENT C Constraints Analysis and Nexus Study; Update Hnuci,TON, Raeinrovrrz & AiscHUiEx, Txc. Policy, Finunciul ec A4anagemettt Coresultanr, MEMORANDUM FOR: Robert Moncrief, Housing Manager MEMORA.NDUM FROM: aul J. Silvern SUBJECT: Implications of Changed Market Circumstances for the Affordable Housing Fee for New Condominium Projects DATE: March 1, 2000 This mernorandum analyzes the implications of recent changes in local real estate market conditions for the nexus calculations underlying the City of Santa Monica's ("City") Affordable Housing Fee' for new condominium projects, and the degree to which the fee operates as a "constraint" on new housing development within the meaning of Cali.ornia Housing Element law. The analysis in this memo builds on HR&A's prior work on these subjects over the past four years. Z In a separate memorandum dated December 7, 1999, we analyzed whether 30 new condominium projects submitted to the City for land use entitlements between March 1, 1998 and April 30, 1999, immediately prior to enactment of a moratorium on new multi-family developments,3 differ in any significant ways from condominium projects proposed in past years, and documented the motivations of project applicants to submit their projects for approvals. Among other things, we found, based on interviews with nearly al~ of the applicants or their representatives, that changes in market conditions - i.e., the perceived ability to sell new ' Santa Monica Municipal Codc ("SMMC") Chapter 9.56, commencing with § 9.56.010, which establishes the program and the fee opUon (§ 9.56.070), and ResoluUon No. 9295 (CC5), which set the initial fees as of July 21, 1998. ~ Hanulton, Rabinovitz & Alschuler, Inc., The Ne~ us Between New Market Rate ,'Ilultr-Family Deve[oprrients in the City ofSanta Alonica and the Need forAffordable Housing, July 7, 1998 (hereinaf[er, "Nexus Study"); Memorandum from HR&A to Robert Moncrief, Santa Monica Housing Manager, regarding recommendaUons for re~zsing the City's inclusionary housing prograzn, dated April 6, 1998; and a series of 10 technical memoranda and reports included as a technical appendix to the City's 1998-2003 Iiousing Element (lpdate, (hereinafter, "Housing Element Update"). ' On May 25, 1499, the City Council adopted Interim Emergency Ordinance 1944, which established a 45-day moratorium on development applications in the City's multi-family zoning districts, to cnable tlie Ciry to assess the impacts of new development and other related housing issues. The moratorium was suhsequenHy extended for nine additional months. ,~~o Soc~-x Bc:~nr DxrvF. ~r,~re ~-,, Los A:.c eces; Cni.~EOavi~ 9oczj . TF~_: ;ia8zc.,44q • Fn~.- i~.$zaC778 N~w YoR~; Los A~~E~.es Implicalions of Changed Market Circumstances fnr the Cnndnminium Affnrdahle Nrn~.cinn Fee condominiums for a higher price - was the primary reason for submitting the project applications, not changes in City regulations, including the new Affordable Housing Fee. We also found that while the new project applicants were projecting higher sales prices than in past years, they were also paying more for land and construction costs. The analysis in this memo provides further detail about these particular findings, and their implications for the amount of the Affordable Housing Fee, and the relationship between the fee and thresholds of project financial feasibility. Following a summary of findings and conclusions, the analysis is presented in four principal sections, as follows: Overview of Market ChcrnAes. This section briefly summarizes the dramatic recovery of the Los Angeles County and City real estate markets since 1996, f 11~. r~l ~ .,f f ll;nn ~,aL,ac llnrina thr> raraecinn nf thn r arlv 1 QQ(lc .........,.^.b 3......... j ° ....... ... ........Fj .~,.....~ ..... ..b ..... ........,.,...,. .,_ ..... .,.. .~ . ~ ~ .,.,. Orily early evidence of the strength of the recovery was evident at the time the a:iaiysis ior ihe ~nordabie riousing ree was oeing pr~; ~-ed during tne nrsi :.,.~i oi 1998. Information on changes in condominium sales prices, as well as changes affecting development costs are presented. Project Feasibility Implications. Following another round of interviews with developers, architects and other real estate development professionals, and review of secondary data, we re-ran four financial feasibility models for new condominium projects that we had constructed for prior work on these subjects. These include prototypical one- and three-lot projects, each under two ]and cost assumptions to reflect average high and average low costs in the City. This section reports the results of those model runs, and the effects that the incremental addition of an Affordable Housing Fee has on gene:ally accepted measures of project feasibility, which we have defined as the tipping point for the "constraint" analysis. Afforclable Housing Fee Implrcations. The last section provides a re-estimation of the Affordable Housine Fee annlicable to new condominiums under the Affordab(e Housing Production Program, based on the changes in market circumstances, and ~L.,. .. ,. I......,..J ,.,.I....1,.~:,_.. ., ..1, ,J,...,.1,.,..,,,] F .. +L,.. ,. ..1 C ~. i.iSiiiy uic iici:u~-~aacu ~an.uiauvii a~~iva~~~ ucvciv~cu ivi ~uc viisiiiai icc caiculation. This calculation also reflects the effect that changed market circumstances have on the C;ity's costs to produce atYordable housing. '1'lus last section also discusses an alternative fee calculation method, based on the sale price of new condominiums, rather than the floor area of the project, which may better trark r.hanaae in tha markat `-»_-_ _"_.--a_., "' "'_ "-»-'__.. A number of Appendices include supporting data used in the analysis. HAMILTON, RABINOVZTZ & ALSCHULER, INC. P3g~ 2 Implications of Changed Market Circumstances for the Condominium Affordable Housing l~ee This memo does not address market conditions or fee implications for new apartment projects. This is because there are very different dynamics at work in the City's housing market that limit developer interest in building new apartment construction. Chief among these is fixll implementation of the Costa-Hawkins Rental Housing Act,° on January 1,1999, which for the first time in 20 years, lifts restrictions on the rent that can be charged for e~sting apartments when tenants voluntarily vacate a unit. The ability to obtain significantly higher rents in e~sting units has the effect of dampening interest in new apartment construction. As a result, the relative increase in new development application activity in the City during late 1998 and 1999, which contributed to the City Council's decision to enact the development moratorium, was almost exclusively for new condominium projects, and not apartment projects. 4 Cali£ Civil Codc §1954.50. HAMILTON, RABIt<OVITZ & ALSCHULER, INC. Page 3 Implications of Changed Market Circumstances for the Condominium Affordable Housing Fee I. SUMMARY OF FINDINGS AND CONCLUSIONS Chan~ed Market Conditions Sales Prices for Newly Constructed Condominiums Have Increased Significantly During the Past Two Years. The increases range from a low of 13 percent on the south side of the City to a high of 4b percent in the Mid-City area. North of Wilshire, where the highest average prices are found, the increase was 33 percent. Competition to Purchase New Apartment Buildings and a General Improvement in the Real Estate Market Have Significantly Increased Land Costs for Multi- I'amily Development. Estimates derived from closed sales of condominium projects built since 1990 indicate that land value~ have increased over 20 percent since 199'7. An Inct-ease in the General T~olume of Construction Activity, and Recent Changes in Building Codes, Have Caused an Increase in Condominium Project CorFStruction Costs. Hard construction costs are up about 15 percent over the last two years. lmplications for Condominium Project Feasibility The New Balance Between Higher Sales Prices ann'Higher Costs Rettder,r New, Small Condominium Prajects in Higher-Cost Areas of the City Feasible, But 7~iey Remain Infeasible for Large Projects and Projects in Lower-Cost Areas. Using the rate of return and gross margin thresholds employed in previous analyses, only one prototype appears to be "feasible." Not surprisingly, this is the prototype that predominates among the 30 new condominium projects submitted to the City during late 1998 and early 1999. Feasible New Condominium Project.s Can Now Support a Higher Affordable Housing Fee Without Acting as a"Constraint. " Using the ana(ysis approach employed for the Housing Element Update, and related work, we estimate that prototypical condominium projects charging priees that render the project "feasible," can sustain a fee in a range up to $16, depending on the prototype and the feasibility threshold used.. For the one prototype that is feasible today (five- units in a higher-cost area), the supportable range is up to $12 per square foot. Implications for the Amount of the Affordable Housing Fee A Recalculation Using the 1998 Nexus Study Approach Results in an Affordable Housing Fee of ~11.01 Per Square Foot for New Condominium.r. As before, this represents a simple average between values that define a range of typical HAMILTON, RARINOV7TZ & AI,SCHIJI.ER, INC. P~ige 4 Implicadons of Changed Market Circumstances for the Condominium Aff'ordable Housing Fee circumstances. The revised fee generally falls within the upper limit of the range that would avoid imposing a"constraint" on new condominium development. The new fee is S4 percent higher than the original fee estimate prepared in 1998. The increase is due to higher household income needed to afford more costly units, and the greater need for housing affordable to workers whose labor demand is implied by household spending. The increase also reflects a 20 percent increase in the City's subsidy cost to produce a unit of affordable housing, which is due primarily to the same higher land and construction costs that af~'ect market rate development. Considering the Trolatility of the Condominium DevelopmentMarket, the City May Want to Consider Replacing the Per-Square Foot Fee Formula With a Formula Based on a Percentage of the Initial Sale Price of New Condotniniums. The re-calculated fees translate to about 3.5 percent of the gross sale proceeds of a five-unit condominium project. Using a fee based on :; Ye:~ent of the sale prices in new condominium projects might be a more market-sensitive fee calculation approach. The City of Palo Alto has used a similar approach for over two decades. Inasmuch as price determines household spending :~.bor demand and the associated demand for affordable housing, the Neaus Study logic would be preserved under this approach. This approach would also capture the variation in new condominium projects that occurs even within a single area of the City (e.g., Ocean Avenue vs. interior streets, all north of Wilshire Boulevard), more sensitively than the floor area-based fee. It would present, however, additional administrative complications, because the fee would have to be collected through escrows of each initial unit sale. Hn!~[[,~ron, R~+t~woviTZ & Ai.sc[3u-.Ex, INC. Page 5 Implications of Changed Marker Circumstances for the Condominium Affordable Housin,~ Fee II. CHANGES IN REAL ESTATE MARKET CONDITIONS SINCE 1997 In the analysis prepared for the Ne~s Study, which relied on market and other data through 1997, we noted that there were eady signs that the local real estate market was beginning to emerge from the depths of the recent recession. The recession lasted longer (1990-94) and took a heavier toll (-555,000 jobs) in Southern California than in any other region of the state, and Los Angeles County bore the brunt of the decline. As in other market downturns, home prices in high-cost submarkets, like Santa Monica and the Westside in general, tend to fall further, in relative terms, but also to recover faster once conditions improve. Once it started, the pace of recovery was ~ery fast. Bidding wars over limited supplies of units, held low by the lack of new construction during the recession, became the norm, and prices began to escalate significantly. At the same time, however, other changes in the market had the effect of ratcheting up the cost of new multi-family construction, particularly in Santa Monica. These included upward pressure on multi-family land prices as buyers competed for existing apartment buildings, with their newly decontrolled rents in the wake of full implementation of tile Costa-Hawkins Rental Housing Act. In addition, a general increase in the volume of new construction, and a resulting shortage of construction labor, coupled with potentially costly changes in building code requirements, had the ef£ect of increasing average construction costs for new multi-family Nrojects. A. Changes in Condominium Prices The economic recession during the early 1990s hit Southern California particularly hard. Between 1990 and 1994, the region lost about 555,000 jobs. Nearly all ofthe regional jobs decline (-500,000) occurred in Los Angeles County. The job tosses were concentrated in the aircraft, space and defense sectors (-120,OO~jobs), but there were also significant job declines in construction (-68,000) and related manufacturing sectors (-30,000 jobs) as construction investment plummeted (75% decline in building pernuts, 1989-1993). Real consumer spending dropped by 15 percent between 1990 and 1993, resulting in a loss of about 100,000 retail sector jobs. Corporate restructuring in the financial sector, and a number of natural and social disasters also hurt the regional economy. Record levels of foreign trade and business activity in the motion picture and television production industries, tourism and light manufacturing (e.g., apparel) sectors, where the region has a particular market niche, fueled a rapid recovery that began in 1995. The region as a whole has now recouped all of the recession period job losses. Los Angeles County, however, did not begin to recover until 1996, and is still about 90,000 jobs shy of its 1990 peak employment level The County's real estate market was affected by these trends in several ways. New building construction dropped to about $9 billion in 1993, from a peak in 1989 of about $26 billion, when it accounted for eight percent of the region's total economic output, and well below the 20-year average of about $16 billion. Similariy, residential building permits sank to about 29,000, from a 1989 peak of about 116,~00. Job-related income pressures and fears caused home buyers to withdraw from the market, and also fueled a dramatic rise in foreclosures, all of which HAMIL"I'ON, RARIN0~7TZ & ALSCFiULER, Irrc. Page 6 Implications of Changed Market Circumstances for the Condominium Affordable Housing Fee contributed to a decline in home prices. An excess supply of apartments resulting from a construction surge in the late 1980s, in response to strong demand and attempts to beat a critical change in federal tax law that applied to apartment investors, resulted in unusually high vacancy rates, which pushed average rents lower and/or held rent increases to low levels.. • Pigure 1 shows the pattern of declining and then recovering residential building permit activity in Los Angeles County and in Santa Monica during the 1990s. In Santa Monica, the recovery is particularly evident in the multi-family sector (apartments and condominiums), though the data are skewed upward for 1998 by the ]arge Arboretum apartment project. Even with a general economic recovery under way during the latter half of the decade, new residential construction activity remains well below historic production levels. This constraint on supply, in the face of job gains and the increasing demand for housing that goes with it, has put upward pressure on prices. The most acute example of this situation in the state is in Silicon Valley and other parts of the San Francisco Bay area, where thr '~ooming information technology industry has attracted thousands of new jobs, and pushed median home prices over $400,000. Similar problems are occumng in many other markets benefitting from strong economic recovery. The lack of new housing construction looms as one of the most serious threats to the state's future economic competitiveness, because prospective workers, including many earning above-average wages, are finding it increasingly dif~icult to find housing they can afford within reasonable home-to-work commuting proximity.5 These general trends are also evident on the Westside. Figure 2, on the second following page, shows that in both relative (top chart) and absolute (bottom chart) terms, home prices on the Westside6 sank quickly as the recession wore on, languished at the bottom between 1994 and 1996, then accelerated upward, beginning in 1997. The increases in 1998 and 1999 were at a double-digit pace. ' See generally, Center for the Continuing Study of the Califomia Economy, California Economic Growth, 2000 Edition, Chapter 6(Key Issues Facing California). ° The analysis is based on re-appraisals of a represenlative group of existing single-family homes every six months. The Westside sample group includes rivo hornes in Beverly Hills, three in Santa Monica (two located south of Pico, one north of Wilshire), five in Los Angeles (west of Fairfax and north of Washington Blvd.), three in West Los Angeles and once each in Brenhvood and Cuh~er City. HAMILTON, RABINOVITZ & ALSCHULER, INC. P3gC 7 Implicatzons of Changed Market Circumstances {.~r tlao ('nn~nvninioim A{fnrrlnhln F~Tmicivro Fon .i.,, ......_ ......................y.r...».,.....,_~.....,...~'.' Figure 1 Residential Construction in Los Angeles County and Santa Monica, 1990-1999 Residentiai Units With Permits Issued in Los Angeles County,1990-1998 ,~ issoo .- 'E 16,500 - a 13500 $ 10,500 ~ 7,500 --~-~,,,~ ~ 4,500 ~ ~ 9,500 I rri ~ i i i I ~9.2~ ~A9 ~.99 ~A3a ~`9`2. ~98 T'fl$ ~99 ~9n T9~ ~0 ~Sinole-FamiN~Multi-Famil Residential Units With Permits Issued in the City of Santa Monica, 1990-1998 i,ooa - N '€ aoo a 600 r ~ aao - ~ zao .~ ~~ ~ o 7~ 7g9~ 7gy~ 7g93 Tgy~ ~,q,~ l~q,~ 7g9) 7gy~ 7.9y~ `S "tS' I K*~ ~-~Single-Family --~-Nuld-Family I ' Value of New Multi-Family Buiiding and ' Aiterations 8 Additions Permits Issued in the City of Santa Monica, 1990-199B 'oo w. I °o $70,OOO.D I v $60,OOOD ~ ~ ~ $50,000.0 ^ ~--'~ I I E sa0,oo0.o r~ P d p S20,OOO.D '` I 3 $10,OOO.D '~~ I > $O.D ~-~-~-,-~~~ ~ ~ ~ ~ I > > v > > > v~y, > > > 9B0 ~i ~? ~i3 9`9~t '~'9S 'PS` 9`9> 9`9A B'99 =~~•~0 -~New MWti-Family ~-Nlerations & Additions Source: Construction Industry Research Board (from local building department data) HAMIL'PON, RAB[NO~~ITZ R. ALSCHLJLER, INC. PBge 8 Impdicadons of Changed Market Circumstances for the Condominium A,ffordable Housing Fee Figure 2 Housing Price Trends in Los Angeles County and the Westside Indeac of Market Prices for a Sample of Existing Homes, LA County and the Westside, 1990-1999 i oo.o so.o ~ "~ ~ ---- - o m,~ °~.,., u so.o "~- - o "~.., ~ ~. ~ 70.0 - - _ a ¢ so_o _ so.o 79'90 79A7 79`q? 7`'~9i? 7gA9 7yA6 7`~9G 7,~9) /y`oe ~g`9A ~~~µ0 ~»~LACounty-~-Westside Average Home Prices in a Sample of Existing Homes, LA County and the Westside, 1990-1999 $i,aoo,ooo $800,000 $600,000 $400,000 $zao,oao $o ~'99p ~'9'97 ~`q9? ~`99~ ~99r ~AAS ~AAS ~A9, ~99`d '~~ --~-• LACounty-~Westside - ....,,~,.. .,.~.~ ...,,.~... ._„~... ._,..~i ... ._..~.. .,,.~.. ....~-.. ~,.. Source: Real Estate Research Council of Southern California, Real Estate and Construc6on Report, 3rtl Quarter, 1999 Analysis of sales in new condominium projects constructed in the R2 District since 1990, the subset of condominium sales that is used for fee-related feasibility modeling, confirms the upward trend in prices since the middle of the decade, and a rapid acceleration in just the past two years. Table 1 shows that, citywide, current median prices are between 13 percent and 46 percent HAMII.TON, RABINOVITZ & AI.SCHIII,F.R, INC. P3gC 9 Implications of Changed Market Circumstances for the Condominium Affordable Housing Fee higher than in 1997. The acceleration has been particularly evident in the Mi-City area (+46%) and noRh of Wilshire Boulevard (+33%). Table 1 Median Sale Price Per Square Foot Trends in Condominium Projects Built Since 1990 in the R2 District, City of Santa Monica, 1997-1999 1999 City Area 1997 1998 Overall Lower Half North of Wilshire $253.10 $265.40 $335.35 $313.10 Mid-City-Downtown $146.64 $207.16 $213.49 $192.72 South of Pico $238.10 $254.72 $268.66 $243.65 Source: L.A. County Assessor data compiled by Fist American Real ~.~a ie Solutions; HR&A B. Changes in Multi-Family Development Costs Interviews with developers of 30 recent condominium applications indicated that both land costs and hard construction costs have also been increasing significantly in the past few years. The following subsections explore these issues, using various third part data sources. Land Prices On January 1, 1999, the Cost-Hawkins Rental Housing Act went into full effect, after two years of interim implementation. With this state-mandated change in Santa Monica's rent control law, apartments can be re-rented at full market value when a tenant voluntarily vacates a unit. Inasmuch as apartment building values are a direct function of rental income, the inerease in total rent made possible through this change had an immediate effect on the value of apartment buildings. HR&A's analysis of 30 recent condominium applications showed that the built-out character of Santa Monica means that new condominium development projects are increasingly being proposed on sites that have apartments. Condominium developers are therefore competing with a new supply of apartment buyers attracted to the City because of more attractive cash flows after Costa-Hawkins. Data from the County Assessor's office on closed apartment building sale transactions confirm the upward price spiral. As shown in Table 2, the median value of land has increased over 30 percent in all areas of the City since 1997, in the R2 District where most new condominium projects are constnzcted. HnNil~~ro[v, RnBmov[TZ & ALSC13[1i Fx, INC. Pagc 10 Implications of Changed Market Circurrtstances fnr fho ~'nndnminivm Affnrdnhle Nnt~.einA Fee Tahle 2 Median Land Values Derived From Apartment Building Sales' in the R2 District, City of Santa Monica, 1997-1999 City Area 1997 1998 1999 Overall Lower Half North of Wilshire $75.25 $90.66 98.64 92.51 Mid-City/Downtown $48.13 61.34 74.85 58.48 SOUT~ OTYICO ~SU.`~J5 b%.ll 'lJ.OU 00.3`~J 1 Closed sales. arant deeds oniv. excludina obvious hiah and low outlier values. Land values imputed from assessed value of land, where total assessed value is within 10% of recent sale price. Includes duplexes, triplexes, quadraplexes and 5+ unit buildings. Source: L.A. County Assessor data compiled by First American Real Estate Solutions; uoan Hard Construction Costs Interviews with architects and other professionals involved in the 30 new condominium projects submitted to the City in 1998 and 1999, suggest that average construction costs for new condominiums have increased about 15 percent over the past two years, due to a combination of competition for high-quality contractors and subcontractors in a very active construction market, and faster than average escalation in costs for materials and fixtures required for condominiums in Santa Monica's price ranges. Recent changes in construction practices and building code requirements were also cited. These observations about an upward drift in construction costs are supported by related data for bas~c low-nse apartment construction (not including subterranean parking), as shown in Figure 3. Condominium construction costs are generally higher per square foot than apartment construction, particularly in a high-amenity market and when subterranean parking is included, as ic alwavc the cacP in Canta Mnnica ... .....»~.. __~_ __.,_ .__ ..._....~ .........,_. HAna~[.TON, Rantr~o~~TZ & Aisc~t~n.ex, Irrc. Page 11 Implications of Changed Market Circumstances for the Condominiurn Affordable HousinQ Fee Figure 3 Apartment Construction Cost Trends $46.00 o $44.00 0 ~ ar $az.oa ~ N $ao.oo ', ~, - I o ~38.00 j____ __ _- _ ---- I .-~ i ~7 .cou.v~ I ~34.00 ~ I I 1990 1991~1992'199311994'1995 1996 1997r1998 1999 I Souree~ Real Estate Research Council. oo. cit. 1 ' ' - ... . ...~ Among the other factors causing costs to increase are changes to the structural requirements in the ] 998 Uniform Building Code, including increased th~ickness of exterior wood frame walls, requirements for more expensive fasteners, new reyuirements for geology reports and involvement by engineers, and further structural reinforcement when homes are planned within I S miles of an active earthquake fault. Other Development Costs Interviews conducted by HR&A also suggest an upward trend in professional development costs, including the fees of architects, engineers and other technical experts whose services are required for new condominium development. Liability insurance costs and considerations related to rampant construction defect litigation, though it does not often apply to small condorruruum pro~ects, also increases pro~ect costs. On the other hand, City permit fees (excluding the Affordable Housing Fee) have declined cinne nnr lact analvcic Tnrlivirjual nermit fPec rnntinne tn increace annnallv at ahnnt the rate nf ..°--- _.__ ~_... »----~~_... _--~----_...»- r-----_. _--" -„--_...»_ _.. .---^».._ »_°___--~ _. _..~_. ..~_ _»._ ~_ inflation, but the Environmental Management and Pubiic Works Department has changed its poiicy aboui wnai ii cnarges ior puuiic improvements wnen new muiii-iamiiy projecis are constructed. The cost for curb, gutter, sidewalk and alley improvements is now estimated to cost about five percent of hard construction cost, rather than the 10 percent assumed n previous analvses.' Calculation of the current fees anplicable to each of four prototwical condominium projects is included in Appendix A. ~ Source: Joan Akins, Euvironmental Management & Public Works Dept. HAMILTON, RABINOViTZ & ALSCHtiLBR, INC. Pagc 12 Implications nf Changed Market Circumstances fnr ftio ('nndnminrvm ,4f{hrdnh7o F7naicivio Fao .i.., ..._ ~-..... ..................i.r, _._...._ __...-..."-r, - -- III. IMPLICATIONS FOR CONDOMINNM PROJECT FEASIBII.ITY In order to begin our assessment of the relative effects of rising condominium prices, on the one hand, and rising development costs on the other, on the Affordable Housing Fee, we re- ran four condominium financial feasibility simulation models that had been used in HR&A's prior work for the Housing Element Update and the Nea1-s Study, using updated income and development cost values. This section provides a summary of the models, the differences in the analysis variables since they were last reported in 1998, the results of the new runs, and the degree to which dollar increments of fee might "constrain" project feasibility. A. The Financial Feasibilitv Simulation Models T~,e ,.,..,,~,,.,,:~:,,,,, ,.,.,,~oi~ ~.,,a,.ao ., o_i,,. ~..o_,~,,;+ „ ;o..+ r+t,o .,,,,~+ «.,.,;,.~t ,. ~o~ "„~ ~ i ~ia, vviauviauauuai, ii.vu~.io ...v.uuv a. v..v-. ~...%.....~ N: ~....~ <<,,., ...w~ ..yY..,c.. .,c. ..~ r..... u. three-lot, 16-unit project, each of which is then run with an average lugh and average low land cost, Yor a total uf Your models. All simulations are based on develop_ _nt in the 1Cl J~istric~, where most new projects have been proposed. Tha cim>>latinm m~~lelc e.ctimate the ~levelnnment r.nsts inr.nme frnm sale nfunits ra~e nf ---_ "---'^'^"~'- -'------ --°----'- ---- --' ---r------ -----~ -------- ----- ---- - ----~ ----- -- return and other indicators that an experienced and well-informed property owner or developer, or their lender, would consider in evaluating whether a project is "feasible." As we have cautioned throughout or work on this subject, it should be remembered that real estate markets are very dynamic and operate in response to a number of variables that interact in complex ways. No model can perfectly predict future conditions, nor can it account for all possible circumstances. It represents a best approximation. Like all such analyses, the results aclueved fcom HIt&A's model deperid on a number of assumptions about the physical development of each project, construction-related costs, financing costs, project income and project feasibility, all of which are explicitly noted in the model runs included as Appendix B. HR&A has made every effort to use reasonable assumptions, based on the firm's natinnal real estate c~nsultine exnerience and familiaritv with the Santa Monica market. - - -, - - Table 3 compares some of the more significant of these assumptions for each of the three times iL_" f'__"L"1"i" .v.,.]~1,. L.._... L,,.,._ ... ._ .J._._:._.` ~L.. ~ ~ C .__ _......_.. LIIGJG 1G"clSWlllLy IINUGIJ IIAVG UGCL lUll LLUllll~' LILG ~J[LWL lUUl yGd.1J. HAMILTON, RABLNOtnTZ & ALSCIRII,F,R, INC. Page 13 Implications of Changed Market Circumstances for the Condominium Affordable Housing Fee Table 3 Comparison of Assumptions Used in Modeling Condominium Project Feasibility in Santa Monica, 1996-2000 Housing Nexus Study Condominium PARAMETER Element Update (1997-98) Fee Update Memo (1995-96) (2000) Physical Factors Lot Size (SF) 7,500-22,000 7,500-22,000 7,500-22,000 Zoning Districts R2 R2 R2 Number of Units Per Project 5-16 5-16 5-16 Units Mix Ail 2-BR/2-Bath All 2-BR/2-Bath All 2-BR/2-Bath Average Unit Size (SF) 1,313-1,339 1,424-1,519 1,440-1,530 Total Gross Floor Area {SF) 7,595 7,595 7,650 pevelopment Costs Land Cost (Per SF; low & high avgs } $40-75 $40-$75 $59-$99 Construction Costs (per SF) $68-~82 $71-$85 $84-$102 Soft Costs (incl. financing costs) Varies Varies Varies Developer Fee 5-7% 5-7% 7% Total Dev. CosUUrtit $250.9K-$304.9K $256.1-$368.4K $339.7K-$438.2K (incl. land and financing) Financing Terms Construction Loan Rate 10.5°~ 9.5°k 9.0°~ Construction Loan Points 1.5°~ 1.5~0 1.5% Construction Loan Term 30 years 30 years 30 years Max. Loan-to-Value Ratio 75°h 75% 75% Income Low Avg. Condo Price $180,765 $227,840 $327,000 Low Avg. Condo Price (Per SF) $135 $160 $218 High Avg. Condo Price $267,800 $356,965 $502,500 High Avg. Condo Price (Per SF) $200 $235 $335 Other Costs Annual Inflation 3°~ 3% 33'0 HOA Fees {per uniUyr.) $2,500-3,000 $2,500~3,000 $2,500-$3,000 Source: HR&A It is also important to note that the feasibility model assumes a particular approach to condominium development, which is typical in Santa Monica, but not unique. The approach reflected in the model assumes that a developer buys a site from another party in an arms-length transaction. The developer secures the right to purchase the site at a fixed price once all City entitlements to develop are in hand (i.e., up to and including a building permit), through payment of a monthly sum (i.e., option-to-buy payment) beginning with project conceptua(ization and HAI~IILTON, RABINO\~[TZ & ALSCHULER, INC. Page 14 Implications of Changed Market Circumstances for the Condominium Affordable Housing Fee continuing until the City issues a building pernvt. Only at that point in time is the land purchased.g The model also assumes that the developer obtains conventional financing for the project. This means that the amount of the construction loan (and hence, the amount of equity required) is a function of 75 percent of the value of the completed project. The model does not account for outside equity investors, nor the preferred return on their investment that they are usually due. Any other approach to the development of a site - e.g., by a property owner directly who has a low cost basis in the land, or use of below-market rate financing - could lead to different results about project development costs, income and feasibility than those reported here. "Feasibility" is defined in terms of two thresholds commonly used in the condominium project development industry: (a) return on equiry; and (b) gross margin.9 These are the same feasibility concepts used in prior HR&A analyses. "Return on equity" is the total, cumulative return over the entire time period of project development and unit sales. It is calculated as the profit from unit sales (i.e., gross sales less brokerage commissions, closing costs and other sales costs) divided by cash equity, which in most cases is equal to the valu:. oi ine land purchased for the project. In our experience, most condominium developers would need to be reasonably confident of receiving a return on equity at least in the 36-46 percent range in order to proceed with a project. "Gross margin" is an alternative threshold calculated as profit (i.e., gross sales revenue less the costs of sales) minus development costs divided by gross sale proceeds. In our experience, most developers expect to eam a gross margin of at least 15-20 percent in order to proceed with a project. As we have consistently noted in preparing these analyses, there are always instances in which a developer would expect to achieve higher returns,`° or might accept less than these thresholds and still proceed with the project. But, consistent with the "reasonable person" standard developed for the Housing Element Update constraints analyses, we believe these are the thresholds that, if not reached, would deter most reasonably well-informed and experienced developers from proceeding with a project. " In our interviews with developers, we heard that the intense competition for sites with existing apaivnent units has resulted in some developers having to buy sites in advance of receiving City approvals. This inereases the level of risk for the developer, and can also change the timing of the equity pay-in needed to put the project together (e.g., interim loan to acquire the site paid offby the construction loan at a later date). For analy1ic purposes, our analysis condnues to assume that the developer's equity wntribution is equal to the price paid for the ]and plus any development costs that cannot be funded by the construcuon loan. y Rate of rcturn on dcvclopmcnt cost, which uses a different percentage tlucsliold, is also used in some cases. but more often for apartment development, in our e~cperience. L0 Recen[ intcrviews with somc of the individuals involved in 30 recent condomiiuum project applications indicated an investrnent goal of 100% return on cquity, especially considering recenl prospects for earning annual returus in excess of 20°1~ through much less risky equiry investment altematives. HAMIt.TON, RARINOVITZ b~ AI,SCHLJLER, IVC. Page 1~ Implications of Changed Market Circumstances for the Condominium Ajfordable Housin~ Fee B. Feasibility Results Table 4 summarizes the results of the financial feasibility model runs with updated development costs and sales prices. It shows that the only case that is feasible, using the return on equity threshold, is a one-lot project in a higher cost area (i.e., higher median sales prices and land costs), where the per-unit sale price exceeds the per-unit development cost. The other three prototypes produce negative returns. The sale prices for the one-lot project in lower-cost areas, and both cases for three-lot projects, are not high enough to overcome the costs of development. Table 4 Comparison of Financial Returns for Four Prototypical Condominium Prajects in the R2 District, City of Santa Monica, 2000 Smaller Projects' Larger Projects2 Indicator Threshold Lower-Cost' Higher- Lower-Cost Higher-Cost CosY' Return on Equity 40-50% -35°~ 46% -75°h -35% Gross Margin 15-20% -11°k 20°~ -10% -24% Total Development Cost Per Unit (incl. land) NA $339,694 $421,050 $367,048 $436,231 ' "Smaller' project = one-lot project (5 units) 2"Larger" project = three-lot project (16 units) 3"Lower-cost" area assumptions include $297,000-$315,OU0 condo price and $59/sf land cost. °"Higher-cosY' area assumptions include $407,520-$512,550 condo price and $99/sf land cost. Source HR&A As shown in Table 5, prices would have to rise another 13-35 percent, holding everything else constant, for the small prototype in a low-cost area, and the two large prototypes to be feasible. Table 5 PerSquare Foot Condominium Sale Prices Required for "Feasible" Condominium Scenaeios in the R2 District, City of Santa Monica, 2000 Increase Pleeded Prototype Actuai To Be Feasible Amount Percent Small Higher-Price Areas $335 $335 $D 0.0°~ Lower-Price Areas $218 $256 +$38 +17.4% Large Higher-Price Areas $335 $380 +$45 +13.4% Lower-Price Areas $218 $294 +$76 +34.9% Source: HRBA HnMi[_TON, Ras~o~~TZ & At,sc[ttrL~a, Irrc. Page 1G Implications of Changed Market Circumstances for the Condominium A/~'ordable Housing Fee Appendix B contains the output from each of the four simulation model runs that show the "feasible" prototypes with no Affordable Housing Fee. C. Affordable Housing Fee as a Potential Constraint on New Develapment When preparing a Housing Element, State law requires local jurisdictions to assess, among a number of factors, any constraints imposed by local government on the maintenance, improvement or development of housing of all kinds.11 In formulating a five-year housing strategy, jurisdictions are required to, among other things, consider removing any such constraints. lz In 1996, we prepared analyses of whether various City programs and policies might be a "constraint" on new development.13 ~ur analysis used the following uLfinition: A program will constitute an actual governmental constraint on new housing production within the meaning of Government Code § 65583(a)(4) if the program, either individually or in combination with other govemmental programs, has a significant adverse impact on the City's ability to meet its fair share of the regional need for additional housing determined in accordance with [the Southern California Association of Government's regional housing need allocation process]. Operationally, we interpreted this definition to mean that a City program, procedure or requirement is, or could be, a"constraint" if, as a result of procedures and/or substantive requirements, it adds a scale of extra cost or time that significantly and adversely affects the financial feasibility of new housing projects. We observed that housing development projects and housing developers are not all equal, and therefore it is not possible to establish a bright-line threshold for a"significant adverse impact" that will apply in every case. Property owners and developers have varying degrees of experience, resources, ability to raise capital, skills and tolerances for navigating through the local " fin analysis of potential and actual governmental constraints upon the maintenance, improvement or dcvclopment of housing for all income levels, including land use controls, building codes and their enforcement, site improvements, fees, and other exactions required of developers, and local processing and pernut procedures. (Gov't Code § 65583(a)(4)) See also, State Department of Housing and Cotnmunity Development, "Housing Element Queslions and Answers," June, 1988, at pp. 10-12. 12 Address ai~d wliere appropriate and Icgally possible, remove governmental constraints to the maintenance, improvement or development of housing. (Calif. Gov't Code § 65583(c)(3)) 13 City of San1a Monica, 1998-2003 Housrng Element G'pdate, Technical Appendix, 1997. HAMIL"fON, R9BINOVI'TZ & ALSCHULEI2, 1NC. PBge 17 Implications of Changed Market Circumstances for the Condominium Affordable Housing Fee land use approval process, and degrees of motivation to seek an alternative use of their properties. The minimum acceptable financial returns that property owners and developers expect from a residential project in order to proceed with a new construction project, or to continue owning or managing an e~sting building, also vary. Further, the minimum acceptable retum will vary by project size, location, and product type (e.g., condominiums versus apartments). This constraint threshold can be said to have been crossed for new residential construction when the direct cost of complying with a City program, regulation or procedure is so expensive, in time and/or cash outlay, that the resulting increase in development cost makes the new development project financially infeasible. Indicators of having crossed the line include costs which translate into a significant reduction in land value (to the extent that development costs are reflected in the price of land); costs which imply unusually high equity contributions; costs which cause the cash-on-cash return or internal rate of return from the development project to fall below returns achievable from other risk-adjusted uses of capital; and procedures or requirements that make a project u~linarketable. All these charges are relative to the no: ~.n the competitive . development market, such that a reasonably well-informed and experienced property owner ar developer with an average project would elect not to pursue the project. These costs include those associated with the process involved in the City program or requirement, and its subs~aative requirements. To the extent that property owners or developers in a position to utilize the City program or procedure would elect not do so because the costs of a City program or requirement make an otherwise feasible project infeasible, it can be fairly concluded that little new housing development would be produced, and therefore that the City's ability to meet its obligation to produce a fair share of regional housing need would be significantly and adversely affected. A City program, policy or procedure that leads to this outcome woulu, in our opinion, constitut~ an actual local governmental "constraint" To test the financial feasibility implications of alternative fee levels on typical projects in the R2 District under these circumstances, we assumed that condominium purchase prices reach the point at which typical projects are feasible, holding all other things constant, and then added one dollar increments of potential Affordable Housing fee to the "feasible" one-lot and three-lot RZ prototypes. Table 5 shows the results for the four condominium project prototypes using the return on equity feasibility threshold. Table 6 shows the results using the gross margin feasibility threshold. The highlighted values shown in Tables 5 and 6 indicate the fee amounts that could be charged without causing the fee to constitute a"governmental constraint," within the meaning of State housing element law, using the definition developed for the Housing Element Update. These results indicate that there are different tolerances for an Affordable Housing Fee, depending ~n the area of the City (e.g., "higher-cost/value" areas north of Wilshire and in Ocean Park vs. atl other areas of the City). More specifically, the fee could range from $6 to $10 per syuare foot for condominiums without crossing the definition of a"constraint," using the return on equity HAM[L"1'OI~, RABINOVI'fI & ALSCHULER, INC. P3ge 1 R Implications of Changed Market Circumstances for !he Condominium Aff'ordable Housing Fee threshold. Switching to the gross margin feasibility threshold implies a maximum range of $10- $16 per square foot, depending on the prototype. These bands of value are broader than the $4- $8 range identified in the work underlying the current fee, due to changes in prices and costs discussed above.14 It should be recalled, however, that only the one-lot, higher-cost area prototype is feasible under current market conditions. The band of m~imum "feasible" fee values for this prototype is between $10 and $12 per square foot. 'a To account for variation in what defines "leasible" in the real cstate industry, "constrainP' is defined in ternts of a range of investment return values. For the retum on equity lhreshold, the range is up to 10 percentage points below the 4fi% return, which we conclude is `feasible" today for the one-lot, higher cost area prototype (i.e., an acceplable range of 36-46%). For the gross mazgin threshold, which uses a different calculation formula, the range is five percentage points below the "feasible" project (i.e. an acceptable range of 15-20%). H~'~MILTON, RABINOVPP'L & ALSCHIJLER, INC. P1gG 19 Implications of Changed Market Circumstances for the Candominium Affordable Housin~ Fee Table 5 Impacts of an Afforda6le Housing Fee, in One Dotlar Increments, On "Feasihle" Prototypical Condominium Projects in the R2 District in the City af Santa Monica, Under High and Low Land Costs and Sales Prices Using the RETURN ON EO.UITY Feasibility Threshold Fee Amount 1-Lot Projects in the R2 District 3-Lot Projects in the R2 District Per GSF Return3 Refurn Return Return SO (Base Case) 45.7°h 46.3°/a 45.8°~ 45J% S1 43.9 45.2~ 43.9°~ 44,7% S2 42.1 44.2 42.4 43.8 S3 40.3 43.1 40.8 42.8 S4 38.5 42.0 39.2 41.9 S5 36.7 41.0 ~?.8 40.9 ;~;Q ~~:;~ 39.9 ~~';{} 40.0 _.. .. S7 33,1 38.8 .,,... ... 34.5 39.0 S8 31.3 37.8 32.9 38.1 S9 29.6 3&.7 31.3 37.i ~1.Q 27.8 ;~~.~-; 29.7 .~~`'~«~ $~ ~ 25.9 34.5 28.1 35.3 $12 24.1 33.5 26.5 34.3 S13 22•3 32.5 24.9 33.3 514 20.5 31.3 23.3 32.4 g15 18.8 30.3 21.8 31.5 S 16 17.0 29.2 20.2 30.5 g17 15.2 28.1 18.6 29.6 S18 13.4 27.1 17.0 28.6 g~g 11.6 26.0 15.4 27.7 S20 9.8 24.9 13.8 26.8 ' S59/sf land cost; $256-&294/sf purchase price. ~$99/sf land cost; 5335-5380/sf purchase price. 3 Return on equity. 4 Percent change in residual land value. Source: HR&A39.9 HAMILTON, RAIIINOVITZ R ALSCHULER, INC. P3g0 20 Implications of Changed Market Circumstances far the Condominium Aff'ardable Housin,~ Fee Table 6 Impacts of an AfFordable Housing Fee, in One Doilar Increments, On "Feasible" Prototypical Condominium Projects in the R2 District in the City of Santa Monica, Under High and Low Land Costs and S~es Prices Using the GROSS MARGIN Feasi6ility Threshold Fee Amount 1-Lot Projects in the R2 District 3-Lot Projects in the R2 District Per GSF Lower-Cost' Higher-CostZ Lower-Cost Higher-Cost Return3 Return Return Return SO fBase Case) 20.1 °k 19.9°~ 19.9% 19,9% $1 19.5% 19.5% 19.4% 19.6 S2 19.0 19.0 19.0 19.3 S3 18.4 18.6 18.6 18.9 S4 17.8 18.1 18.2 18.6 S5 17.3 17J 17.8 18.3 S6 16.7 17.2 17.2 18.0 S7 16.2 16.8 17.0 17.6 S8 15.6 16.4 16.6 17.3 S9 15.1 15.9 16.2 17.0 ~ ~~ ~(,~;:~ _ _.. .. .. 1 5.5 15.8 16.7 S71 14.1 15.1 15.4 16.3 S12 13.5 7~.~ 1~Y;:~ 16.0 S13 13.0 14.2 14.6 15.7 ~14 12.5 13.8 74.3 15.4 S15 12.0 73.4 73.9 15.1 $ ~:~ 17 .5 13.0 13.5 '1~G<.~ $j~ 11.0 12.6 13.1 14.5 $18 10.5 12.2 72.8 14.2 $~g 10.0 17.8 12.4 13.9 g20 9.6 11.4 12.0 13.6 ' S59/sf land cost; 5256-5294/sf current market purchase price. 2 S99/sf land cost; 5335-S380/sf current market purchase price. ' Gross margin. ° Percent change in residual land value. Source: HR&A HAMR.TON, RABINOVIT"L & ALSCHi 7~ER, TNC. PBge 21 Implications of Changed Market Circumstances for the Corzdominium Af(ordable Nousing Fee . N. IMPLICATIONS FOR TH~ NEXUS-BASED AMOUNT OF THE AFFORDABLE HOUSING FEE This section presents a recalculation of the Affordable Housing Fee for new condominium projects, using the approach contained in the Ne~s Study. It also discusses a structural change in the condominium fee, which might be considered to address the kind of market volatility experienced during the two years since the fee was initially calculated. This involves using a fee based on the percent of the initial sales prices, rather than a fee per square foot. A. The Nexus Study Fee Calculation Approach Estimating the marginal affordable housing demand caused by new market rate multi- family developments in Santa Monica, and a development fee that relates to this impact, was determined through a four-part analysis in the Ne~s Study, which is summarized below. The analytic approach was selected after review and consideration of the r~~fessional Gterature, tne few examples of related analyses that have been conducted to date in other jurisdictions, and suggestions by City Council members and City Commissioners. The approach is based on estimating the expenditures for goods and services made by households in new multi-family projects, estimating the labor demand implied by those expenditures, the portion of that labor that represents low-income households that need housing, the costs of that housing at the City's average rate of project subsidy, and the conversion of the resulting housing cost to a fee per square foot of new market-rate multi-family development. More specifically, the calculation steps for the condominium fee are: Estimate Per-Project Household Income and Spending. The first step is ta estimate the household income for all of the households in a typical new five-unit condominium project in the RZ District, the most typical case. Household income is derived from the purchase price needed for a feasible condominium development project, making various assumptions about the percent of household income devoted to mortgage payment and other housing costs. Household income estimates are averaged between the sales prices needed for a feasible one-lot project and three-lot project, then multiplied by five units in the typical project. The resulting total project household income is then multiplied by a factor (75.5%) to remove spending for savings, taxes and consumer interest. The remainder represents household consumption expenditures. Estimate the Employment Impacts of Per-Project Household Spending. The second step in the analysis involves deriving the employment impacts of the household consumption. This is accomplished using the IIvII'LAN input-output model ofthe Los Angeles County economy. Input-output models trace the economic effects, including employment, that result from a change in a regional economy, such as the consumption expenditures by househoids in new market rate HAMILTON, RARINOVTTZ &. Ai,SCHLZER, INC. PagC22 Implications of Changed Market Circumstances r«t~~ r~„~a,,.«;~;,,,,, e~ ~,~„t,~o za,,,,~;h„ z~o ,.,, . .,,,... »~..~., . ,~~ . multi-family housing in Santa Monica. It produces estimates of direct employment (i.e., at the restaurant or retail store where a purchase is made), indirect employment (i.e., in the industries suppling materials to the restaurant or retail store} and induced employment (i.e., due to consumption spending by direct and indirect employees). The model generates employment patterns that correspond specifically to the spending characteristics of upper-income households, like those who occupy typical new market rate multi-family developments in the City. Previous analysis indicated that consumption expenditures by upper-income households in typical new market-rate multi-family developments in Santa Monica generate between 3.74 and 5.54 total workers, primarily in the retail trade and services sectors of the economv. T.'nfiw.ivfn a~.,, r~,,,,x,,,. ~-~~,,,,._~ ~„x,~_u,..,~„a.,,1,a~ A.,l..t.,.7t., ~z.~ ~,,,,,~,,,~,..,~Ht ,;.,.,.,.u~~ ~,.~ .,u,,.~~, ~ ~,~..-~,..,.,,.« ..,,~.,".~..,..~ .«.ud~µ ~., .,.~ .~„t,z y,,.~..~ Impacts of Per-Yroject Household Spending. Not all of these workers are low- ittcome, and only some of these are members oT houseL_=1s that meet the dei~,ation of a"low-income" household - i. e., earning up to 60 percent of the Los Angele,s County median income, or about $25,000 per year for a two-person household. T)erivinn thP cnhcet nf hnncehnldc meeting thece criteria is accmm~lished uciu~ the _ """'a ""' _~___' __ ___~_ '___~ r a ___' Public Use Microdata Sample (I'iJMS) for Los Angeles County, a specialized scientific sample of 1990 census data. The PL]MS data a11ow for cross-tabulations of household income by the industry in which the household members work. This made it possible to estimates the number of "low-income" workers generated by the consumption spending associated with new market rate multi-family projects in Santa Monica. For the sum of the affected industries, about 17 percent of all workers fit the "]ow-income" definition, or between about two-thirds (0.63) and one (0.93) low-income worker per new market rate multi-family development. The PUMS data are also used to estimate the number of low-income households associated with these low-income workers. F,stimate an Afforc~ahle HousinQFee to Offset the Affordable HousingDemand of Per-Project Household Spending. The final step in the Ne~s Study calculation ._i_..... ._...,.:_,_,:_~ .~.,. ..ac _a..i..,,. ~.....,.:_~ a,.._.,._a a,.~:..,.a G,.... .w,. ~iivi:c~~ iii'vuivc~ ~iw~uYiyiu~ uic aiwiuavic u~u~ui~ uc~i~aiiu uciivcu uvui ~iic preceding steps by the City's average cost to produce a unit of affordable housing, and converting that cost into a dollar amount per square toot of new condominium project, whose household spending produces the initial demand for low-income labor. The City's cost is based on the gap between the cost of building a unit of hnncina that rentc at a nrine affnrrlahlP tn a Irnr~_inrnme hnncehnl~l (at Fi(l~/ y thP ............n _...... . _...., __ .... r•'-- »-'.,. __.,__ ... » _.. .. "•-.."'- ".....,-•-.._.. `»_ ..., , .. ,_ ..... Los Angeles County median), and the portion of that cost that can be financed with low-income household rent payments. The City "subsidy gap" in 1998 was about $155,000 per unit. Multiplying this subsidy gap amount by the number of affordable housing units needed to meet the low-income labor demand associated with consumption spending by households in new market rate multi-family H,'1MIL'CON, RABINOVCI'Z &~',LSCHULEft, 1NC. PdgO 23 Implications of Changed Market Circurnstances for the Condominium AfJordable Housing Fee developments yields the fee amount that could reasonably be charged to the developer to offset the City's costs. The key components of the calculation that produced the initial fee for condominiums is shown in Table 7. Table 7 Derivation of a Oevelopment Fee to Offset the Affordable Housing Demand Caused by Total Household Consumption Expenditures In New Condominium Developments, City of Santa Monica Prototype Per-Prototype Units of Totai Fee Amount Hhld. Income Low-Income Fee Per Gross Housing Amount' Square Foot 2 Demand Condo -- Lower-Cost Area $387,681 0.31 $47,525 $6.26 Condo - Higher-Cost Area $496,260 0.39 $6D,835 $8.01 Average Fee for Condominiums $7.13 ' Housing Demand x$154,916 per unit (City's average subsidy gap). 2 Total Fee Amount divided by 7,595 gross square feet per typical market rate multi-family development. Source: HR&A B. Affordable Housing Fee Recalculation The variety of changes in the City's real estate market described above have impacts for nearly every one of the calculations used in the Ne~s Study approach for deriving the fee. These changes are described below. Higher Household Incomes. The combination of higher purchase prices needed for a"feasible" condominium project and higher mortgage rates (8.125% today versus 7.0% in the last analysis) mean that the income of each household in a typical five-unit condominium project must be higher than it was in 1 y98, when the fee was last estimated. As a result, the sum of the project's consumption expenditures is also higher today. The table on the following page presents a re- calculation of these values. It shows that for the lower-cost area prototype, the total per-project consumption expenditures total $398,569, a 36 percent increase over the amount estimated in July 1998. The total for the higher-cost case is $506,492, or 35% more than the prior estimate. HAM[LTOt~', RACiINUVI'fZ R[ AI,SCHLJI.ER, INC. Page 24 Estimates of Average Annual Per+lousehold and Per-ProJeet Ineomes In Four Prototypiwl New Market Rate Condominium Developments in the City of Santa Moniw Assumpfions: 1. 5-unit projects, typical of development in the R2 District 2. 4 Pratoypes, based on proloypes par financial feasibility madals -Lower-Cost Area, t Lot LowervCost Area, 3 Lols HighervCost Area, 1 Lot Higher-Cosl Area, 3 Lots 3. Condo Owners' Cost (moAgage, property tax, insurance and Hameowners Association dues) = 35% x Household Inwme 4. Case totals based on simple average oi 1- and 31at prototypes by cost erea. Case #1 Lower-Cost Area (average of on~lot aiM thre~lot prototypesJ 1-Lot 3Lots Averaga Avg. Unit Size (GS~ 1,530 1,440 1,485 Purchase Price/GSF $ 256 $ 294 $ 275 Purchase Price $ 391,680 $ 423,360 $ d07,520 Mortgage % 80.00% 80.00% Mortgage Interest Rate 8.125% 8.125% Mortgage PmIJMo. $2,327 82.515 Pmp. Tex Rete 1.05% 1.05% Homeowner's Deduct. $ 7,000 $ 7,000 Property Tax/Yr. $ 4,039 $ 4,372 Property TaxlMo. $ 337 $ 384 Property Insurance/Mo. $ 100 $ 100 HOA DuesMb. $ 208 $ 206 Total Housing Cosis/Mo. $ 2,971 $ 3,187 Total Housing CosislYr. $ 35,658 $ 38,2A9 Housing Cosis/Hhld Income 35.00% 35.00% Annual Household Income $ 101,880 $ 109,282 $ 105,581 # UnitslProjed 5 Pmject Hhld. Income $ 527,905 x 75.5%= $ 396,569 Case #2 Higher-CostA2a (average o(one-!ot and thre~lot prototypesJ 1-Lot 3-Lats Average Avg. Unit Size (GS~ 1,530 1,440 1,485 Purchase Price/GSF $ 335 $ 380 $ 358 Pumhase Price $ 512,550 $ 547,200 $ 529,875 Mortgage % 80.00% 80.00% Mortgage Interes~ Rate 8.125% 8.125% Mortgage Pmt./Mo. $3,045 $3,250 Pmp. Tax Rate 1.05~ 1.05% HomeownersDeduct. $ 7,000 $ 7,000 Properiy TaslYr. $ 5,308 $ 5,672 Property Taz/Mo. $ 442 $ 473 ~ Praperty Insurence/Mo. $ 100 $ 100 HOA DueslMo. $ 208 $ 208 Total Housing Costs/Mo. $ 3,795 $ 4,031 Tolai Housing Costs/Yr. $ 45,543 $ 48,376 Housing Costs/Hhld Income 35.OD% 35.Q0'Y Annual Household Income $ 130,122 $ 138,278 $ 134,170 # Unils/Projecl 5 Praject Hhld. incame $ 670,850 x 75.5%= $ 506,492 HemiMan, RaCinovitz 8 Alscl~uler, Inc. s~MoN-xv~hi.d. ~~~c.xls Page 25 anrzaoa Implications of Changed Market Circumstances for the Condominium Af~'ordable Housing Fee Higher Labor Demand from Higher Consumption Expenditures. Higher spending Levels increase the amount of labor demand directly and indirectly associated with those experiditures. Re-running the revised per-project household consumption expenditures through the IIvII'LAN model results in a total demand for 5.6 jobs associated with the lower-cost area prototype, or about 30% more jobs than in the original Nexus Study estimate. About 7.1 jobs are associated with household spending for the higher-cost area prototype, an increase of 29% from the original estimate. The details of the new IlvIPLAN model runs are shown in Appendix C. Higher Demand for Units Affordable to Low-Income Worker Households. Though the factors used to convert total consumption-related labor demand into households that qualify for affordable housing remain unchanged from the last analysis, because they are derived from the 1990 Census, the calculation factors are applied to a larger number of total workers, as noted above. Therefore, the household spending in the two prototypes produce ar. c siimate of demand for 0.4 to 0.5 units of housing affordable to a low-income worker household, at 60 percent of the median Los Angeles County income. This result is also about 29-3o percent higher than in the original Ne~s Study estimate. Higher City Subsidy Gap. The same development cost factors affecting market rate housing also affect the cost of developing affordable housing, and the amount the City contributes to each project to fill the funding gap, which is referred to as the "subsidy gap." As shown in the revised calcutations contained in Appendix D, the cost of the City's subsidy gap has increased to $186,208 per unit, from $154,916 (+20%) when the gap per unit was estimated in 1998. The difference is due primarily to higher land and construction costs, offset to some degree by reductions in some of the previous assumptions (e.g., reduction in construction management to $25,000, from $50,000).ls As shown in the summary calculation table on the following page, the result of the above changes, when applied to the floor area of a typicai five unit condominium development project, is a ma~mum justified average fee of $11.01 per square foot of new condominium development. This fee is about 54 percent higher than the fee estimated in 1998. It falls, however, within the general range of fees that could be imposed without creating a"constraint" on new development within the meaning of State Housing Element law. " The modifications to the subsidy gap estimate reflect comments from Housing Division staff. Final responsibiliry for the resulting ~ew estimate rests, however, with HRcYcA. HAMILTON, IL'.BINOVITZ R. ALSCINLER, INC. PagE 26 DERIVATION OF YEAR 200~ MAXIMUM JUSTIFIABLE DEVELOPMENT FEE FOR THE AFFORDABLE HOUSING DEMAND GENERATED BY PROTOTYPICAL MARKET RATE C~NDOMINIUM DEVELOPMENTS IN THE CITY OF SANTA MONICA Prototype #1 Calculation Factor CondolLower Cost Prototype #2 CondolHigher Cost AVERAGE ~.:: ,.<.: .. ...~ ,...._...,_,.....,. ,::x.. %:s:x>~.:::.z<~>:>.~.^>::u~.: z:x;t;:::y...,; >:w:f : :<:xre,:. :.a>::~~; :i~:3>i~;:~.... ,::::i~;:..~,: ~te3su:`~..~F.. <:~:'r~.,.. ..._: .:::..:.: :...:::....::.:.N.a :.:., i, ..... ..., ~a>:: :..:.: •;..., < :m ac,::.,..~....~:,e:>.w,u.`;:ir~s;?.r<::.::'s::~...._.;.r.z:.:"r.:.::~!;:;e:?:'r.,::~;::a:vr;•.,.;::3,r:i?:>~::~;:r~,....?~:.x::::~: t'~~ ' ":::ri''~`i?:~. ,;~.:. «t ..'~~.; : ~~:.~.~i ~'3: ::::~:fi:~:;:; w::~:: '.a'.~' ~.. . . "4, kk. e~3s::a .~:•:.•,::a~~.:t.a:rea:<H, .. ~:::..:x,,::::sz.>::::~:tz:::..~>:~~::>:::~::>:;~~..,::~:~c:>.:xc:::>:>:xs<».::>a:zK:>:,,;c>x:x:tcs>::,~a~<;::~x=.x~,~`.~.a~.::r..?a:..x.~:. ~. ~w.~,.w:<~s.: 5•Unit Market~Rate Multi-Family Project Profile (irom HR&A "Cons6ainP Models; 9990 Census) Monthly RenUPurchase Price $407,520 $529,875 Rent or Ownership CostlHousehold Income 35.00°k 35.00% Household Income $105,581 $134,170 $119,876 Household Income x 5 Units $527,905 $670,850 $599,378 Adjustment for Taxes, Consumer Interest & Savings (/romU.S. BweauotEconomicAnalysis) Housahold Consumption Expenditures7Househald Income 75.50°.6 75.50% Household Consum~tion Expendftures Per Pro'ect 'p .:::.. ' w: : :'.,>uwR.t './.' t'u!..:. tk?Y t: ': ..S :;HtN:..;; ?: %y4uf~::):R .:.w2•' :II~ ' 'd:.Ri'f '&: k :F ` w` .Qk °CN Y• C 'L ' " ~ ~ $398,568 $506,492 $452,530 ,. .. .... Y,~+.:..y .,.:r7` ~i2. ...r.:t.:~~ :y.: :i;.Y.3' :i':"t ':h S; ~ ` . . . .e r : a i.: . . . . x . . . . : : e : : : : . ; ....: ..,... ~., . n: ..~< .:.. ~.: ;iro: ~ .. . . ..... :.>..: a~. ' ~ ,,.. .:;:,..~. ::<;: ::::~.~. ~:::~:zx: ., .r . ..:.. .r:..»...~: ,~z:: •~ .: ~'i8~` '.Y.. . . . . . .. , . ....uv.'''~..~w'..a..a.:. z~.~k:.~z~::r..a..7' ~i>`.~"~~:::#a~~.. :..«~a.~...~..,s.;:..u.~":~:.... ~.:::2~':<::~s:....,,,~v~~~<:<%w....~,M . • .. : . : . ,.~:> ;~: r~ . fiuti .t,. :..:: , <~ .u.w'sifiz$i~~.... ~....~'cf..`s..ti'~i.€£:.~~*~3...;' m y . . . . .. . . ..... . .. . .... . . Totai Worker Demand Per 5-Unit ProjecPs Adjusted Household Consumption Expenditures (Irom lMPtAN Modei) Direct 3.50300 4.45150 Indirect 0.78740 1.0~60 Induced 1.3320D 1.68270 Total 5.62240 7.14480 6.38360 ~ :,,,. ..............v.....:.».:..v:.:.v,.v::.v...y:.,,......Y.,.::,.,..:..::...: ;»..,..a,,,~..: ~.::.,....::,..~~: .. ,.:.~.,,~.,,.,.~ ,.... ~.Pt:::y r.}..v~ .~p.. ~.,...:;,,..y.t,:... ~..>:~:.......::«:..«...:. ...........:.~ ....~..::.. . } t; 4jjf;4::i};.::~:::ti;..~ :: F . ~. ....~.~ ...:.~. .,.. ........:~,:. :...: ~,.:.:..... ,~}yt ,1. ...~. ~~~ r~~ ,.~.;~ ,.~,~:.: .:.,,v..::: ..~<,~:,:::.#::::>i:s'r~',:j~::;;,'-'~';:w::~,~.~~, ;.;~. ~; ..Li.u,l,.S.$'i: .r.q:7~'n "`~e:4:"~.}uv \~.:~...:. ~k:'.~... t:::ti:a. }\ . ;:E:'3.` 2" .:...:.vk E ~ s.. .2.~.,'~'.k\..w\ .xi`*Yi` s+. ,........ M ...,x.:^s'S "d.. .'2i:.m b '{ _..:,~.?.:, .~^.~..."~'~',.~if~... :5~£.~~ .k~... ..~~.~i ~.~.~'~,+~,• ~.. Number of Low-Incame Worker Househnlds (6om PUMS Oata 139Q Census) Peroent af Workers in Consumption Industries in Households at 60% x Median 16.74% 1674% Numberof Low-Ina Consumption Industry Workers in Households 0.94119 7.19804 1.08861 Number of Workers Per Low-Income Household With Workers 2.36300 2.36300 Number of Low-Income Worker Households Due to Consumption Demand 0.39830 0.50615 0.45223 :::., ..:.:...:..:.. ......«::>:;:;~;.:;:>::..::.::<::«.;~:<;<::~.:::.:.::u:.<.z:<.:,,:.:::.:.~;,;..y:.c ::....::.::::~.:;;::::~::.:::.,,..:..~:.::;:::...~•o:•u«::,ru.:•.::.:.:~:::::....,;.......... ~~ ;.:^..,.<.:..... r..;: . .. ..,!.~ , , k..... ..«;~:x,o. ; y, :::.. ...,o.._.~>.,r,:~~, .:,...».. on..,... ,.: .:::::: ~:.:,......se ..... ........ ...h ~/ q~,,~ ,~^ v, . . . .. , xi;.::p~\. /....:..; ;.:p~;. 2k::e....«:.;;t{:...~\.:v,'l{.~:.:, Y::ti ~.';:fk~`:';:tC; >...:, ...;~':{,~ ::. .~k :':i+~~:C' ~ 1 t: '~{:N:\'.'+~n9'~.:d`;.fi.%.:.~['..9.:::~£,>.'~..\~.s~,.4.,D;s~+.Cbn\fy'::2hC....Ed>..,>S.,.M',.Y:~.:ta".x~.+,hn ~'r%tr:uu`f~.:..:.4s:.T':.k.fb."tc,..2k..\:sRS, :0n^~.{k..y...,'.,~`nA`"m.'.w~..'~::.~t~::.. '~~k.• ~~'. ~'.. D :iA't£:» .: ...............................~\........:?t ~.:`~ `+~. ~'."::95<:+~?~. `~F" ~'' .::.::::... n..........::._....:...3i .......>f....a..v.w..;'~~.r::;~» x .. . .....................:::..................... ~,~.....:...~........... .....................,.................. Justifiabie Development Fee (hom NRBA Subsidy Gap Estimafes antl °COnstrainf° Motlel) ~ Gross Square Feet (GSF~ Per SUnk Project $~,650 $7,650 Low-Ina City Subsidy Gap/Rental Unit {~ 60% x median snd no Tax Credits} $186,208 $188,2U8 Just~able Development Fee S~bsidy Gap x# Low-Inc. Worker Households of Demand $74,167 $94,250 $84,2d8 Fee Per GSF $9.70 $12.32 $11.~1 Average by Product Type $11.01 :;; !tr 7 t„t ~`Ct~ ~ k U G. R'<"G. ta .. Y+ t"<a\Yk .9.. k.. G f..t~4 7~ 5 }.:zc., 2xt, x+`fc`.\.'^vw`;> R w~,'~.ro,~i~`..~t.~~a.~"~,.~4173f... .... .. ~...~. 'a~. :..Y.E< 'a ~.\`.:k4r.1n~',':.:J..~YL`.S}^.rci:.dtk.k..a~ dS,k..\:.a`.:E ,Y1\'2.~,xti..<'w„Sm \`1.b.\ :,.:b Xa.O . .. . .. .... ......, . .. Comparison With 1897 Fees July 1997 Fees $626 $8.~1 $7.14 Increase Amount Percent $3.44 $4.31 $3.87 54.9°.6 53.8°.G 54.3% Hemittan, RaElncntt 8 Plschuler, itrc. SaMoNedne~calc.rls Page 1 3/iR000 Implications of Changed Market Circumstances for the Condominium Affordable HousinR Fee C. An Alternative At~'ordable Housing Fee Basis for New Condominiums The volatility of the real estate market that gave rise to this analysis, and the changes it implies for the amount of the City's fee suggests that a fee formulation that is more sensitive to market changes may be worth pursuing, particularly for condominiums, which account for most of the new multi-family development that is causally related to demand for affordable housing. The per-square foot formula, though it is easy to administer, must be recalculated in detail periodically to account for changes market circumstances. None of the generally used inflation fa.ctors, or real estate market indexes are sufficiently sensitive to account for changes in the Santa Monica submarket. The Consumer Price Index ("CPI"), for example, is based primarily on a market basket of consumer goods whose price behavior is not related to the housing market. Even the housing cost components of the CPI may not be useful, because they are analyzed at the scale of Los Angeles County, whose general housing market does not move in the same rhythm as the Santa Monica submarket. One alternative that could be considered for condominiums is to convert the fee per sq..are foot to a percentage of unit sale prices. A percent of sale price approach that has been used in Palo Alto for about 25 years. That city's affordable housing program uses a sliding sca3e f~~ equal to 3.25 percent to 5.0 percent of each unit's sale price, for projects of less than 10 units. For larger projects, a 5.0 percent fee applies. Appendix E includes general information about Palo Altds program. In Santa Monica's case, when the revised fees of $9.70-$12.32 per square foot, or $74,167-$94,250 for typica) five-unit projects, is compared with total gross sales from each "feasible" five-unit prototype, the fee is equal to about 3.5 percent ofgross sales (i.e., before deductions for cost of sales). Setting the fee in this ~vay would allow the amount of the fee proceeds to float in direct proportion to the price of the project's units, no matter how far up or down the condominium market moves. Inasmuch as price determines household spending, labor demand and the associated demand for affordable housing, the Nexus Study logic would be preserved under this approach. This approach would also better capture the variation in new condominium projects that occurs even within a single area of the City (e.g., ~cean Avenue vs. interiar streets, all north of Wilshire Boulevard), more sensitively than the floor area-based fee. This approach is, however, more complicated to administer and could produce a longer period of time befare fee proceeds are collected by the City. Under the Palo Alto approach, the fee condition is placed on each condominium tract map. Fees are collected through escrow on the initial sale of each unit. Fees on units that are completed and rented, rather than sold, are required on the basis of the most expensive unit sold. It is a(so possible that the developer could be required to post a bond for the fees at the time of building permit issuance, with the amount of the bond equal to the percentage fee applied to an estimate of goss unit sales. [f this alternative approach is of interest to City staff and/or the City Council, we can assist you in developing the administrative procedures to implement it. HA641LTON, RABINOVITZ, c~, f~L.SCIlI.II.ER, INC. PHgO 28 Implicadons of Changed Market Crrcumstances for the Condnminium Affordable Housing Fee APPENDIX A City af Sa~t:: ~~Ionica Development and Permit Fees for Four Prototypical Condomi~ium Projects HAMILTON, RABINOVITZ & Ai.SCHlII~ER, INC. PLANNING AND OEVELOPMENT PEES FOR PROTDTYPICAL MARKET RATE CONOOMINIiIM PRQIECTS~ CITV OF SANATA MONICA, 7889 ~owencosrnaeqs SF tlnkz Mea Gos S Gatt ~~nRS 1,350 5 6,]50 5~0.00 54]2.S~C LaR TetalAbove 180 1530 5 900 5 ]850 595.00 5915~D 45M,000 BelvwGmtle 9,3]5 $6000 13 0 Tolai tos!/SF 58~9 006 83.9~ SF ~mtx Noa GosUSF CoM :.~nMS 1,350 B t0,8D0 510A0 ;T58,000 Y,350 8 t0,8D0 570U0 SJ58,000 I,aR(lopflao7 180 8 1440 $95.00 a~0 ivmiPbove i6 23040 51,582qQ0 9elowGmde 19,500 $6000 980000 TotalCesvsf . ~ fP 342400 5107A7 16GXER.COMAREA6 SF llnks Nea GasVSF Cost Unds 7,350 5 8,]SU 57500 f5~6,350 loft TdelAbova 18~ 1530 5 80U 6 'IBSU §3'/.50 $33]50 554U,000 RelawCaatle J,315 yt0.00 ;73a,QgQ TotelCOSfISF 38]5 WO J88.% SF UMm tvea CaaUSF Goat Unds i,950 8 t0,B0U S75.OU 5910,W0 UnR~ 1,x0 8 10,800 S]5.00 4810,000 LoR(tapfloor) 180 8 1db~ 5~].50 S6C.000 TpalALeva 18 2] WU Si eT4,000 BelewGmde f9,500 i40.00 [j@q,QQQ TolalCO8tl8F 52466000 St00.51 A ~IX 68UMPTION9 Gmss HRB.A FpvtrnaM 5¢o-Cost 5'ue %aorMen MMvkN SARortle6le Totel Tdnl TWeI ComWCtlon Scenario% orCoMa ScenMn (s.f) (a~.) PeaLN~la UnlYS unih BaEroams FWI9mhs Cosi 1yq Cando f~LOw ].500 ],BSD 5 ~ - 5 10 10 5838,W0 14A Ca~o 1-IABh ],500 1,850 5 0 5 10 10 56]S,WO 15~A Co~ao 3~Lax 12,500 Z3,0-0D 16 U 18 92 32 S2,%2,600 iGA Corwo SNigh 22,600 29,040 18 0 18 32 32 S2,d84,0~~ nseurncrioNe LM Gmas . HR&A Ap~anmerrt WquY~fMwR FborWae iMMrot MARm4sble Taid ToW Ta1a1 Gonstructlon ScenenoM orCOMo Inclusi z(. s.L RelethYh UnMa VnKC Betlrcoms Fu98eNS Coct ~ 11A Co~Mo 1-Low 'l,600 7,860 5 0 5 10 10 f838,W0 , 14A ~ Gondo 1-HigF 1,500 ~850 S 0 5 10 10 5~5,0~0 1SA Contlo 3low 22,500 23,060 i6 0 18 32 32 'j2,%;da0 , 1&A Gentle 3HgM1 22,500 23,040 18 0 16 32 S2 52,456,W0 PLANNINOAOJ~TEDFCC6 CIIP Admb. DevabpmeM NegeMe TaMnWe Amh7 Flnal ~aetl Parmd Fyprovd ReNewPartnft Deelxetlon Mp ReNew Map ResMNOn TOTAL 52,892 SO SO SO 5900 ~ SSB~ SBBT SO 56,920 52,932 SO 50 S~ 53W 5]S] F88T 50 54,290 ~2.892 SO SO f3,693 5900 ;880 5~~ SO f8,062 52.832 f0 50 S~.¢3~ 53U0 5880 f88T f0 i8,b12 Nqez on PlenN no-relYaE Fan Acsumotlens BmaEOnGIemMB&COmmurtyDwalopmrkOpthe~chatlWa. FaesMmWUplepamtbbslaatlissem ehemingbodyma<huqeAtlw MvdtlWe Appications (es Imth~ NsnrvcottCa~a R~.94J F..: e.n.ryg ..~ur..~ ww cnena. ti ur cv~ n a~uh i. O%Sde Sa.neCep. WMwMWr WabrDemub Fketine PWI.Prcp. PbCO B65PIan ERWVM E&PVYM fl&S Fln~ept. Im ovammt Fe~s Fam M tllw~ f~st PmN[ RmCMCk CN~d CMI Ch~elu BI .Peimk Rwlew TOTK 5~1,BSp fl.<% f12,1B0 32,860 511,116 S1,tdB f619 51.881 5~18 55,478 52,555 5440 ST8,98P $33,]50 f7,d35 f12,160 f2,850 311,115 51,2AB y819 51,7&1 SW8 53,418 fi,88T 5448 578,985 5111.1]~ S2J.]02 3~1.d85 RB,120 511,fi6 52.144 5819 51.160 . S],4]t $3,678 38.]BS fd4B f213.282 122iW 523,192 3~i~85 59,120 j11,115 SZ.1M K19 54.421 58p71 59.478 S8.B01 SF4B f219.629 Notaz on CoimWCtiomaledE FeesASeunwGOns + m~aaeawevim+pwm.~coewan.mw~c~»w.~a.w.uc~Mwa.~e~~•••~~r~+owh.~maecwi.)~nasa.wos~(~,.~. eppii<MJa). Eati~bd M 5%x Bui~np PumilveFx, pw Em4onmsni 6 MCMC Wab A4nsgeM1wM Dspt. 2 IncWM 51p87,5aii cqw~ Is~, p~r EGPWM Cap4, Utl~NS OMSIOn. ] IneWtlaa51.240e5606eyriblbW#wMarrtroqrb~(9M'mWrws~vn~E~pN+S3,tO5buJ~pkrxhnpYbnsysbmwebrmsta~(1-12'metaressunaEj,perWlltlazON. < IrcrcLd~a =]x i90 p~IbmArixiuib, pw NsoWtlon 8188 (CCH). 5 511.116budr-riylor ~ d'tn W cpnedM, pa WOles pAidon. 6 IxWdes ronFal M stre+t hwMps im e LumpMrnd nlM~d xx~a ara, far arhUtln cmatrix.tlan P+~4 Po~ E&Ph`M Opl Po~ schatlW. Asaann 1Px 50' w~ la 5 moitln Ia1M zmAv dfe:17 ~]5'r~ebrtl~a Impx sX~, eM cunrth~e par E6PWM ~spl. ~ 0sssdmqosspmj+ttlbarwa.58191apmjccba16,0~ita(,puMrnlnydCOmnadyU~vabpm~MOqX. B Stii~g scd~ /~~ Mnd m bW hvd eanf WNm eaat fwt~e bulWhp, per BW~p d SAey Dep! 9 Px E6PWM DpG H~ un~CW. t0 Pn E4PWM Dapc (as schetlWS. . 11 Stl~I~scYSlesbesatlonNWlwtlcvnabuutlencest/aNaWiFdnppxBN6flng6S~M1bOapt Fua Menese pMOdkellywNh etloptlan of tle ircEUM/ortn Bid6np Ceda antl cMnyea vhwbG W C~Yy wEmue~ m rosahdm. ABSIlMPT10N6 OTHER CM PEEB tM HaEbble 1 2 3 NR&A ApaebncR WtlhhYNwW Sia FlowPnv AMmFet NAAaNWIe TNd Tatal iobl Ganstuetian CoMo RserevYOn 3 eM1Cai ScenenoY xCendo Inclusl sf, a.f. RrAaUnih tqq~RS UMh Be&owna FW18Ma Cort Tu~ UmtTe~ Gea TOTAI 1&A Condo 1-LOw 1,6U0 1,850 6 0 5 10 1G 5838.00~ §6,0~0 51,W0 5/4.785 530,785 ~0.A Condo i~Migh ],SpO 7,BSU 5 D 5 10 10 f676,000 55,000 51,W~ 514,705 520,785 1SA ConEO }LOw 22,500 23,040 16 0 16 32 32 53.342.600 318,000 53,200 546,48T S89,B8T te~A Cenda 1Hyn 22,500 23,dto 1e o 1e 32 3R 52,~Si,000 SY8,000 59,200 t4,a8'! 589,BM Nates on ONarCMV Fws Asaumolbns i 51.UpOpnunAancondosaYg,pxMUNCipMCOW,Onme~t~ahudswi~y. 2$200 per ini (pvbnx~it eM caMOSI. Pw MuYCptl GaG, en muk~tnb uitih anN. 9 5193 par goza c.l., o(htlbW~ Iber wa p~r SM1NLIBD end C~9L 6oJtCOAS. aae~d.t~. udb.. a.ymq fmm tlw achoW M. Fee Neroese av~ryMU yaeis 6nW on tl~~Mnpa In ~ eambuNan caN irMU4 p~rdn 9dbPboeatlon BavC. A6811MPTIONB 911MM0.RY OF CRV DEVlLOPMCNT~LATm COlTS lIX Groaa ToW WrSF MR&4 hperhneM WM1NJfMaiR 5'~ze iloorAfea iMMM A'~ARO~Ceble Tqd Totd TaW GomtlucEOn Glenmg ConaOUCEan OUre~CRy TMAL TpTALLEfB TeWPer i ablASX afCames SeormiaB aeCondo Inclus s.f. s.l. RMUmis UnRS Udk Betlropne FWIBetl~s Cps1 Fees Faes Fwe OFr$ITlB UM Ganatr.Cep 01 .An~ 13A CoMO i-Low 7,500 7,860 6 0 6 t0 t~ 5888,000 54,320 578,380 SFO,]86 5~01,~et 586,6t1 5/9,809 10.8% 58.08 14A 1-~4gh ],SOO >,850 0 5 ~0 10 58)6,C00 SJ,288 STB,MS M0,1B5 d103,d16 298,886 513,93~ 10.1% 40.11 1SA C ntlo SLaw 22,5~~ ~3,6C0 18 0 18 32 32 $2,36i.d00 Se,p4I y213,282 569,881 S28A.8~1 518T.861 5/0.{81 7.3X 57.18 13A Condo 3Hgh 22,5~~ ]3,660 18 0 18 32 32 $],656,000 SB,OC] S]iS,529 5g3,861 im1.238 318 698 510,59C 8.8% S192 w.van eneown~eg armrc u,re xe SNAOno#1G}4oez.tlz ~I namnnm. qetlr~wi¢ 6 PKUw~.F.c. L12000 Implications of Changed Market Circumstances for the Condominium Affordable Housin~ Fee APPENDIX B Feasibility Model Results for Four Prototypical Cond. ~:,;i~m Projects ^ One-Lot, Lower-Cost Area ^ One-Lot, Higher-Cost Area ^ Three Lots, Lower-Cost Area ^ Three Lots, Aigher-Cost Area HAMIL'fOh, RA131NOVITZ cY[ ALSCHULEK, 1NC. Hamilton, Rabinovitr R Aischuler, inc. City of Santa Monica Run 1: 01i21/2000 Impact of Proposad Revlslons of R2 Standards on Housing Development Coodominlum: wlthout Incluslonary Housing Requlrement, Small I.ot, Lower•Priced Area 3UMMARY - SCENARIO 13-A Sfi~Ut~~S~A~#7t~~ ,~~?titsff.~{..~~..,',;. ...,.;'..,. . ,... :.:~,_----.. ~~~'fi:~~~:~~R~?a'~t-~~~~•~~~~~~~~~3~~_~% Per GSF Total Percent Bldg Total Percent GSF Bldg PSF SOURCES Sales Revenue - Condominiums Land Equity Cssh Equity Total Sources: USES Ailocated Land Cost Demoiltion Pre-development Sludies/Malysis Architecture and Engineering Plan ChklBldg Permits/City FeesiAssess In-Lieu Fee Off-Site Requirements ConsUBuild-OuVSite Improv + Retention Testing and Inspections Conatruction Performance Bond Real Estate Taxes thru Lease-uplSales Consiruction insurance Survey and Title Insurance legal, Consulting, Acctng, Admin. Marketing and Adverlising Construction Contlngency Construction Management Consfruction Loan Fee Consfruction Interest Permanent loan Fee Sales Perfod Operating F.~enses Total Uses: Total Cost per Unit: Total Cost per Unit not inGuding Land: $1,$78,Q49 112.4°l0 $245.50 453,563 27.1°k 59.29 _~80,831) -39.6% _ _ ~i6.38} $1.670,780 t00A°~ $218.d0 $453,563 10,000 10,OOD 65,8Q9 89,514 0 31,950 639,005 7,500 9,585 3,370 22,950 70,OQQ 30,000 10,300 33,789 66,424 2Q,071 172,88d 0 4.271 $1,670,780 2~.1 °lo 0.6°10 0.6% 3.9% 4.2% O.Q% 1.9°~ 36.2% 0.4°h 0.6°l0 0.2°!0 1.4% 0.6% 1.8°fo 0.6% 2.0% 4.0°k 1.2% 10.3% 0.0°~ 0.3°Io 100.0°k $59.29 $1.31 $1.31 $8.58 $9.Q9 $0,00 $4.18 $83.53 $0.98 $1.25 $0.44 $3.~D $ i .31 $3.92 $1.35 $4.42 $8.68 $2.82 $22.60 $0.00 $0.58 $218.44 $334,156 $243,444 ~3~1.~~ ~GEtVficd~R~.,~, . . Amount Funding Date - Construction Loan Nov 1999 Interest Rate 9.5% Amortization Term 17 Maiths Mavlmum ~oan to Value (Ptojected) Ratio 75°k ProJecied Value of Condominiums $2,041,358 Cash {Profit) on Cash (Equity) Return Gross Potential IncomelSales Revenue Gross Potentiel Rental Ircome $~ 0.0% 7,65~ 0.00 Gross Potentiel Salea R~ue 2,041,358 100.0% 7,85~ 286.84 Less vacancyJbad debtlcWlection ~oss ~ 0.0% 7,650 0.00 Effective Grass fncomeiSales Revenue ~2,041,358 100°~ 7,650 266.84 Less OperatinglSales E~nses Apartment Expenses 0 0.0% 7,650 0.00 Sal~ Expenses (163,309j -8.0% 7,65~ (21.35) Totai OperatingtSales F~anses ($163,309) -8.0°h 7,650 (27.35) Net Op. Income/Net Sales Revenue $1,878,049 92.0% 7,650 245.50 Debt Service - Apartments 0 ~.0% 7,650 0.00 Net Op. Cash FlowlNet Sales Revenue $1,878,049 82.0% 7,650 245.50 Less Developmeni Goats {1,670,7_80~ -81.8% 7,650 ~2t8.40) Profit(Loss) $207,269 tU.2% 7,65D 27.09 P}~1~.`$1~~,..~`i~tQ1y~1~."~~X~~t~ f#~i',:~3~k"'~~.__~' _______; .~ _r_____«:~__~ ____~__~_ Amount Lot Sizs (SF) 7,500 Economlc Area (lower- Priced or Higher-Priced) Lower Tota) Allowable Units 5 Number of Markei Rate Units 5 Number of Affordable Units 0 Type of Units 2bdJ2ba Size of Market °.aie Units (SF} 1,530 Size of Affordabie Uniis (°') 850 Builtling EffiGency Factor i~5) 1 DD°k Gross Building Area {SF} 7,650 Required Parking Spaces {1 Ievel below grade} 10 ~t~f1~.~~G.C~tC~'~'~'~~l~~l~l~ti ~~ ' ~ W ` ., ~ Amount GSF Bidg _ PSF Net Sales Revenue $1,878.049 $245.50 $250.41 Less Oevelopment Costs (NIC Land) ~,217,218~ _ (159.11~ _~182.30~ invesiment Vaiue $880,831 $88.38 $88.11 Less Developer Profit Q 50~ of Equity a5.7°h Residual Land Value 1998 $ Residual Land Valu~ (226.781) ---(29.64~ _530.241 $434,050 $56.74 $57.87 $409.134 $53.48 $54.55 Page 1 Hamllton, Rabinovitz & Nschuler, inc Cily of Santa Monica Run 1: 0 1 /2 1 12 000 Impact of Proposed Revlaions to R2 Stendarda on Housing Development Condominium: without Incluslonary Houaing RequiremeM, Small Lot, Lower-Prked Area CAPITAL CASH FLOW - SCENARI0IJ-A TOTAL 1998 200D 20Q1 2002 2003 2004 2005 2008 2007 2008 2009 2010 2011 Sources of Funtls Construcfion Loan Drews PermanentLoan Funding Gross IncomelSales Revenue Less Sales Cosls Less Op. E~/HOmeownerAssoc. Fees Total Sources of Funds Uses ofFunds Allocated Land Cost Derttolition Pre-Davelopment SWdieslMalysis Arch & Engineering Costs Plan ChcklBldg PrmtslCity Fees/Assess In-Lleu Fee Off-Site Requirements ConeUBuild-OuUOn-Sitelmprovements Retenlion (c~ 10°k TesGng and Inspections ConsWCtion Performance Bond Real Estate Taxes Dudng ConsWction CansVucUonlnsurance Survey and Title Insurance Legal, Consultlng, Acctng, Admin. Marketlng and Advertising ConsWctlon Contlngency Project Management PermanentLoan Fee ConstrucUon Loan Repayment Total Uses of Funds Net Projecl Cash Flow (Equity) Cumulatlve Cash Flow ConsVuctian Loan Balances Draws Loan Fees (r~ 1.5% Accrued Interest (~ 9.5°~ Less Repaymants Ending Balance 1,338,067 680,521 862,490 15,055 0 0 D 0 0 0 0 0 0 0 0 0 D 0 0 0 0 0 0 0 0 D 0 0 2,041,358 0 1,210,291 831,067 0 D 0 0 0 0 0 0 0 0 (163,308) 0 (96,823) (66,485) 0 0 0 0 0 0 0 0 0 0 _~,z~~} ___ o ~3,sas) ~sssJ o 0 0 0 0 0 0 0 0 0 3,211,845 660,521 1,772,312 779,012 0 0 0 0 0 0 0 0 0 0 453,563 453,563 0 0 0 0 0 0 0 0 0 0 0 0 10,000 10,000 0 0 D 0 0 0 0 0 0 0 0 0 10,000 10,000 0 D D 0 0 0 0 D 0 0 0 D 65,809 59,D48 6,587 0 0 0 0 D 0 0 0 0 0 ~ 69,514 69,514 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 D 31,950 0 31,950 0 0 0 0 0 0 0 0 0 D 0 575,104 121,801 447,303 0 0 0 0 0 0 0 D 0 0 0 63,900 0 63,900 0 0 0 0 0 D 0 0 0 0 0 7,500 1,667 5,833 0 0 0 0 0 0 0 0 0 D 0 9,585 9,585 0 0 0 0 0 0 0 0 0 0 0 0 3,370 738 2,833 0 0 0 0 0 0 0 0 0 0 0 22,950 22,95D 0 0 0 0 0 0 0 0 0 0 0 0 ~o,ooo ~o,oao 0 0 0 0 0 0 0 0 o a o 0 30,000 13,333 13,333 3,333 0 0 0 0 0 0 0 0 0 0 10,300 0 10,300 0 0 0 0 0 0 0 0 0 0 0 33,789 0 33,789 0 0 0 0 0 0 0 0 0 0 0 68,424 7,815 48,888 11,722 D 0 0 0 0 D 0 0 0 0 0 Q 0 0 0 0 0 0 0 0 0 0 0 0 1,531,018 0 1,109,822 421,196 0 0 0 0 0 0 0 0 0 0 3,004,577 798,013 1,772,312 436,252 0 0 0 0 0 0 D 0 0 0 2D7,269 (135,491) (O) 342,760 0 0 C 0 0 0 0 0 0 D (135,491) (135,491) 207,269 0 0 0 0 0 0 0 0 0 0 1,338,087 660,521 682,490 15,055 0 0 0 0 0 0 0 0 0 0 20,071 20,071 0 D 0 0 0 0 0 0 0 0 0 0 172,680 62,~50 94,218 15,913 0 0 0 0 0 0 Q 0 0 0 1,531,018 _ 0_ 0 1,531 p18 _ 0__ 0_ 0 0 0 0 0 0 0 0 (O} 743,342 756,708 (1,500,050) 0 0 0 0 0 0 0 0 0 0 Pape 2 Hamilton, Rabinovitz & Alschuler, Inc. City of Santa Monica Run 1: 01l21l2000 ASSUMPTIONS, PART 1 - SCENARI013-A ~~ _ .,_, __. Amount Lot Size (s~ _.. 7,500 Alley Area C~nted (s~ 500 Site Area Includin9 Alley Portion (sf} 8,~00 Zoning R2 Ma»mum Site ArealUnit (sftunit) 1,500 Ma~dmum Base UNts/5ite (rounded} 5 25°1a Denaity Bonus (rountledy 0 Totai Nlowable Units 5 l~At+'fS'; .:.... ....... .._._.. ~....... ..... . . . . . . . . . . . . . Amounf Number of Market Rate Apartments NA Number of Affordable Apartments NA Number of Lrnv Income NA Number of Maderate Income NA Number of Market Rate Contlominiums 5 Number of AffordaWe Condominiums 0 Num6er of Low Income 0 Number of Moderate Income 0 Type af Units 2bd/2ba Economic Area (Lower- or Higher-Priced) Lower S¢e of Market Rate Units (s~ 1,530 Size of AHada6le Units (sf} 85~ Building Efficiency Factar (°lo) 700°~ Gross Building Area (s~ 7,650 ,t~.. .Q .~~..~.:: i:. Required Parking at 2 Spaces Per l.~nit - Market Rate Required Parking at 1.5 Spaces P:;r Unit - Affordable Required Guest Parking at 1 Spac~ Per 10 Units {rounded) Totai Parki~ Spacea Required (1 level below grede) Start Pre-Development {mWyr) Pre-Development Period (montha) Start Construction ConstrucUOn Period (months) End Construciion Start Lease.UplSales Period Months to 100% lease-Up Months to 100% Sales Lease-UplSeli-Out Completion 1999 $ 1999 $PSF 1995 $ Free Rent Reni Saies Price Sales Price _ months Apartmen4 Rent (per month) NA Market Rate NA Aftordahle Low Income NA Afiordable Mod. income (Lower of Market or Mod. Rent) NA Condominium Sales Prices (psfl Market Rate Affordable Low Income (Not Applicabie) Affordable Moderate Income (NOt Applicable) $256.Q0 $391,680 $SO.Q2 $B8,016 (Per Ordinance ig15 Program Guldelines, 1998) $152.12 $129,306 (Per Ordinance 1615 Prograrn Guldelines, 1998) ~1~~'=~~~.'~~~t.~~f;~5, ' Amount Apartment Bad DebVCollecGon Luss Raie NA Apartment Leasing Commissions NA Operating Ex~enses, Including Reserves (per unit per year) NA Homeowner Association Fees (per u~it per year) $2,500 Page 2 Hamilton, Rabinov"rfz & Alschuler, Inc. City of Santa Monica Run 1: D1/21/2000 ASSUMPTIONS, PART 2- SCENARIO 13-A ~ • ~ ,.~~u.. '', ~::..:.~. Arriount Land Cost - Lower Priced Areas ($P5F) $59 Land Cost - Higher Priced Areas {$PSF} NA ~~i-5~~~:t:*~/M~T `~, V7) F/,'."'fi~}{a{~' . ~,.,..0....... }:~.~ . ....~ ,..~. .. . ... .'._..~ t ....... .......~~... i. .... . fi)... J... <. No. of 1199 $ Start Start Quarters 8udget Quarter Year to Spread demoiition _ 10,00~ -- 4 1999 1 Pre-Developmem Studies/Analysis 10,00~ 1 1999 4 Architectural & Engineering (10% Hard Costs) 65,809 1 1999 7 Pian ChecklBidg PermitslCity FeestAssess 69,514 4 1989 1 Off-Site Requiremertts 31,950 3 2000 1 In-Lieu Fee 0 4 1989 1 Const/Build-OutlOn-Site Improv {$84PSF Bidg) 639,005 4 1999 4 Testing and Inspections 7,5~ 4 1999 4 Construction Performance Bond (1.5°k const) 9,585 4 1989 1 Real Estate Taxes During Construction 3,370 4 1999 4 Construction Ir~surance ($4PSFIYR) 22,950 4 /999 1 Surveyl("hle Insurance (Land Take-Down (c~ Start of Const) 10,000 4 1999 1 Legal, Consufting, Acctng, Admin. 30,000 1 1999 9 Marketing and Advertising 90,000 6 2000 3 Gonstruction Contingency (5% Const} 32,804 4 1999 3 Project Mgmt (7.0% Costs NIC Land/Financing & Taxes) 66,424 4 1998 B ~~t~i~lfi~t#~1~t~'~'~k~ t ~~~k~l~`;l? ~ ~~ , ,, ;~ . ~ , x'>, zV ~~ Amourrt Amour~t Canstruction Loan Funding - Apts (% of Perm. Loan Amt) NA Condominium Value Construction Loan Funding - Condos (% of Projected Value) 75% Value Based on Sates Prices $2,041,358 Construction Loan Fees (°!o) 1.5% Value Based on Construc~ian Costs $1,87U,780 Construction Loan Irrierest Rate (%} 9.5°/a Construction Loan Amourit (75% LN - Sales Price) $1,531,018 Annual Irrflation Rate - Rerrts, Costs, Expenses 3.0°l0 Total Value af Gondominiums $2,041,358 Annual Inflation Rate - Properiy Ta~s 2.0°10 Conda Sales 7ransacdon Costs 8.0% Cash on Cash Return Threshold 50°fo Developer Co~rtrtbut(on of Equily (°to} 100.O~o Profit ftom Sale ko Developer (°h} 100.O~o Max. Acceptable Residual Lar~ Value Reducbon 15.0% Page 2 Hamilton, Rabinovitz & Alschuier, Inc. City of Santa Monica Run 1: 01/21/2000 Impact of Proposed Revialons to RZ Stantlards on Housing Devalopment Condominium: without ~ncluslonary Housing Requlrement, Smali Lot, Higher-Priced Area SUMMARY - SCENARIO 14-A ~_~Ai~R ~a~f3F'~tii~1t~'4 , ~~ ~k ; ; ,,. ' .; __~t__L__ __~ _ ~ • '~! ~~~~P~~~A~ikt3~''~ ~ .~ __.~__ _ __ ~t ~ . ~'~ l , ~?~.~{~;~~ ~~5~ _ ~~ ~~--_ PerGSF Totai Percent Bldg _ - - - _ _ _ Total Percent GSF BkJg PSF SOURCES Gross Potential Incane/Sales Revenue _ _..-- -- ---- __ ___ Sales Revenue - Condominiums $2,457,803 1187% $327 26 G~oss Potentlal Rental Income $0 O.D% 7,650 0.00 Land Equiry 761,063 362% 99.49 Gross PoteMial Seles Revenue 2,671,308 100.0°~ 7,650 349.19 Cash Equity (1,113,414) _52:9°,6 (145.54) Less vacancyfbad debUcAllactian Iasa 0 0.096 7,650 0.00 Totai Sources: $2,105,252 100.0% $275.20 Effective Gross IncomelSales Revenue $2,67t,3Q8 100% 7,650 349.19 ~ USES j Allocated ~and Cost 'i DemoliUOn ', Pre-development SiudieslAnalysis Architeciure and Engineering Pian GhkiBidg PermifstCify Fees/Assess In•Lieu Fee Off-Site Requirements ConsUBuild-OuUSite Improv + Retention Testing and Inspections Construction PerformanCe 8ond ', Reai Estate Taxes thru Lease-uplSales i Gonstruction Insurance Survey and Title Insurance Legal, Consulting, Acctrg, Admin. Marketing end AdverGsing Constructiai Contingency Conslruction Management Conslruction Loan Fee Consiructirn interesl ' Permanent loan Fee ; Sales Period Operating Expenses Total Uses: $761,063 ~ o,oaa 14,000 69,286 69.685 0 33,750 675,036 7,500 10,126 5,655 22,95~ 10,Qp0 30,00~ 10,3~~ 35,672 69,5~6 26,0~8 243,81 ~ ~ 5,125 $2,105,262 Totai Cost per Unit: $421,05D Total Cost per Unil not ineluding Land: $268,838 36.236 0.5% Q.5% 3.3% 3.3°~ Q.~°! 1.6°!0 32.1 % 0.4°,6 0.5°~ 0.3% 1.1°!0 0.5% 1.4% 0.5% 1.7% 3.3°~ 1.2°h 11.69b 0.0°fo 0,2 % t00.Q°~, $99.49 a.o~~ 0.0°k 0.0°~ 0.0"k 0.0°k 4.0°k 0.0°k 0.0% R.0% 0.0% 0.~% 0.0% 0.0% ~.0% 0.0°l0 Q.~% ~.0% ~.0°!0 0.096 D.D% $275.20 Less OperatinglSales Expenses Rpartment F~ensea Sai~ Fxpenses Total OperatinglSalas E~anses Net Op. Income/Nei Saies Revenue Debt Service - Apartments Net Op. Cesh Flow/Net Saies Revenue Less Development Gosts Profit (Loss} 0 0.0% ' 7,85D 0.00 (213,705) _ _ -8,0% 7,650 {27.94j ($213,705) -8.0% 7,550 (27.94) $2,457,603 92.0% 7,850 321.26 ___ - _ - 0 -,---0_0°10 ?,650 0.00 $2,457,803 92.096 7,650 321.26 {2,105,252} -78.8°h 7.650 (275.20) $352,351 13.2% 7,650 46.06 Y~4,~~1,"4,lvTWnW,!7q!T ,T,Y~lir;'~~.~`WlS;~F~~'}~I1TY~ 'Ml4~t ...Y . . . ..'.....' : . '~'. '~ Arriount Lot Size (SF) 7,500 Economic Area (Lower- Pdced or Hlgher-Priced) Higher Total AIIOwa~e Units 5 Number of Market Rate Units 5 Number of Affordeble Unfts 4 Type of Units 2bd/2ba Size of Market Rate Unita I°F) 1,530 Size of Affordable Units (5; 850 6uilding Efficiency Factor (°n) 100°~ Gross Building Area {SF) 7,850 Required Parking Spaces (1 ievel below grade} 10 „ „ ,„ 1~ f.. ~ ~.,.. <..r.. x .. z, . ...ti....~...K...~.....h;~ .,.~.....ti_ -,_;:~~ ,, „ ~:. ~~.~.:,:.: .~ _ Amount GSF Bldg PSP Net Sales Revenue _ $2,457,803 5321.26 --- _ $327.68 Less Develapment Coats(NIC Lend} i1,344,190~ 1( 75.71) (179.23} InvestmentValue $7,113,414 $145.54 $148.48 ~'iW,~..,~"~+E6#'t~~,1(vt1~rl~Rl~ ~._--_~__~_._ _......_ .__ ._..~.u.~._____ ~ Amount Funding Date - Construction loan Nov 1999 Interest Rate 9.5% Amortization Term 17 Manths Ma~dmum Laan to Vaiue (ProJected} Raiio 75% Projecfed Value of CondomiNums $2,671,308 Cash (Profit) on Cash (Equiiyj Retum Less Developer Profit (~ 50% of Equity 46.3°~ Residual Land Yalue 1999 $ Residual ~and Value (380,531) ~49.~ ~5~ $732,882 $95.80 $97.72 $890,812 $90.30 $92.17 Page 1 Hamilton, Rabinovitz 8 Alschuler, Inc. City of Santa FAOnira Run 1: 01/21/2000 Impact of Proposed Revisions to R2 Standarda on Housing Development Contlominium: without Inclusionary Housing Requiremant, Smell Lat, Highar•Prieed Area CAPITAL CASH FLOW - SCENARIO 14-A TOTAL __ 1899 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Sources of Funds ConsVucGon Loan Draws 1,733,863 1,018,938 699,325 15,599 0 0 0 0 0 0 0 0 0 0 Permanent Loan Funding 0 0 0 0 0 0 0 0 0 D 0 0 0 0 Gross InwmelSales Revenue 2,671,3~8 0 1,583,780 1,087,529 0 0 0 0 0 0 0 D 0 0 Less Sales Costs (213,7D5) 0 (128,702) (87,002) 0 0 0 0 0 0 0 0 0 0 LessOp.ExplHOmernvnerAssoc.Fees (5,12~ _ 0_~75~_ 750 _ 0 0 0 0 0 0 0 0 0 0 TotaiSourcesofFunds 4,168,341 1,018,938 2,152,027 1,015,375 0 0 0 0 0 0 0 0 0 0 Uses of Funds Allocated Land Cost Demolition Pra-Development SNdieslAnalysis Arch 8~ Engineering Costs Plan ChcklBidg Prmis/City Fees/qssess In-Lieu Fee Off-Site Requirements ConstlBuild-OutlOn-Site Improvemenis Retenlion ~ 70°/ TesUng and Inspectlons Constructla~ Performance Bond Real Estate Taxes During ConsWCtion ConstrucUon Insurance Survey and Title Insurance Legai, Consulting, AccNg, Admin. Markefinp and Advertising ConstrucGon Contingency Project Management PermanentLoan Fee Construcllon Loan Repayment Total Uses of funds Net Project Cash Flow (Equity) Cumulative Cash Flow ConsUUdion Loan Balances Draws Loan Fees @ 1.5 % Accrued Interesi ~ 8.5% Less Repayments E~ding 8alance 761,063 761,063 0 0 0 0 0 0 0 10,000 10,OOD 0 0 0 0 0 D ~ 10,OOD 10,OOD 0 0 0 0 0 0 D 89,288 62,340 6,927 a 0 0 0 D D 69,685 69,685 0 0 0 0 0 0 0 D 0 0 0 0 D 0 0 0 33,750 0 33,750 0 0 D 0 0 0 607,532 135,007 472,525 0 D D 0 0 0 67,504 0 67,504 0 0 0 0 0 0 7,500 1,667 5,833 0 0 D 0 0 0 10,126 10,126 0 D 0 0 0 0 0 5,655 1,238 4,418 0 0 0 0 0 0 22,950 22,950 D D 0 0 0 0 0 10,000 10,000 0 D 0 0 0 0 0 30,000 13,333 13,333 3,333 0 0 0 0 0 10,300 0 10,30D 0 0 0 0 0 0 35,672 0 35,672 0 0 0 0 0 0 69,506 8,177 49,083 12,286 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2,D03,481 0 1,452,702 550,779 0 0 0 0 D 3,833,990 1,115,584 2,152,027 588,378 0 0 0 0 0 352,351 (98,848) 0 448,997 0 0 0 D 0 (88,646) (96,646) 352,351 0 0 0 D 0 1,733,863 1,016,938 699,325 15,599 0 0 0 0 D 28,008 26,008 0 0 0 0 0 0 0 243,610 96,799 130,017 16,794 0 D 0 0 0 2,003,481 0 0 2,003,481 D D 0 0 0 0 1,141,745 829,342 (1,971,086J 0 0 D 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 D 0 0 0 0 0 0 0 D 0 0 0 0 0 D 0 0 0 0 0 0 0 0 0 0 0 0 0 D 0 D 0 0 D 0 D 0 0 0 D D 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 D 0 0 0 0 0 0 0 0 0 0 0 0 0 __ 0 0 0_ _ _0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 D 0 D 0 0 0 0 0 0 Page 2 Hamitton, Rabinovitz & Alschuier, Inc. Cify oi Santa Monica t2un 1: a1l21/2000 ASSUMPTIONS, PART 1• SCENAWO 14•A ~~3!~t<3'P .u..4. .... ' Amaini ~ot Size (sf~ 7,500 Ailey Area Counted (s~ 500 Site Area Including Alley Portion (sf} 8,000 Zoning R2 Ma~dmum Site Area/Unii (sflunit} 1,500 Me~dmum Base Units/Siie (rounded) 5 25°k Density Bonus (rounded) 0 Tatal Ailavable Unfts 5 ~.fPl~fS' ~ ...._. ,_._.~. ~ .... ~ AtflOUflf Number of Market Rate Apartments NA Number of AffordeWe Apartments NA Number of Lar+ Income NR Num6er oi Moderaie Income NA Number af Market Rate Candaminiums 5 Number of AHOrdaWe Condominiums 0 Num6er of Low Income 0 Number of Moderate income 0 Type of Units 2bdJ2ba Economic Area (LOwer- or Higher-Prir.ed) Higher Size of Market Rate Units (sf} 1,530 Size of Affordable Units {sfl 850 Building Eificiency Factor (%) 100% Gross Building Area (st~ 7,850 ft~ Requlred Parking at 2 Spaces Per Unit - M6rket Rate Requlred Parking at 1.5 Spacea Per Unit - Afforda6le Required Guest Parking at 1 Spacc+ Per 10 Units (rounded} Total Parking Spaces Required (1 I~vel below grede} ~:.9~'H.~~4~e~.. ~ ~.2~b....~?k.~...} ...~.. ~ < Start Pre-Development (molyr) Pre-Development Period (ma»ths) Siart Consiruction Construction Period (moniha) End Conatruction Start Lease-UpJSaies Period Months to 100% Lease-Up Montbs to 100% Sales Lease-Up/Seil-Out Canpletlon tk~E3(~~4: ,_..~..~.~_ _,~+~. ;,... . _ .... .~....... ... _. ' .:.._t.. ......_.} _i r 1999 $ 1999 $PSF 1989 $ Free,Rent Rent 3ales Price _Sales Price {months) Apartment Rent jper month} NA Market Rate NA AffordaMe Low Income NA Affordabie Mad. Income (~ower of Market or Mod. Renq NA Condominium Sales Prices (ps~ Markat Rate Aftordabie Low Incame Affordabie Moderate Income $335.00 $512,550 $80.13 $68,108 (Per Ordinance 1615 Program Guidelines, 1998) $152.12 $129,306 {Per Ordinance 1615 Program Gufdeifnss, 1998) ~~A~~F~~c#?~•~~~#'~5... . Amount Apartment Bad Debt/Goiiection loss Rete NA Apartment Leasing Commissions NA Operating E~enses, Inclutling Reserves (per unii per year} NA Homeowner Associapon Fees (per unit per year) ~3,000 Page 2 Hamitton, Rabinovitz & Alschuler, Inc. City of Santa Monica Run 1: 01121/2400 ASSUMPTIONS, PART 2- SCENARIO 14-A ~..~t~`„ ~ > .. .~.r t...~ v n a r.. _1tr A1T10Utif Land Cost - Lower Priced Areas {$PSFj $99 Land Cost - Higher Priced Areas ($PSF) Np :~~~. . ~ ~+~Mt~<fi~~~~~_,IYritT~i+~~~ . . ~ . . :~. . ~~~. . r .: . . : . : : t. , h. ~, ~ . . ; . y ... ~F ~r ' .icr, "..,.'_""'u .::';.5.... .` ~.....s. No. of 1198 $ Start Sta~t Quarters 8udget - - Quarter Year to S~read . amo ~t on 1 U,000 - 4 1999 1 Pre-Devebpment StudlealAnatysis 10,000 1 1898 4 Archilectural & Engineering (10% Hard Gosts) 69,266 1 1999 7 Plan ChecklBldg PermitstCity Fees/Assess 69,685 4 1999 1 Off-Site Requirements 33,750 3 2000 1 In-Lieu Fee 0 4 1999 1 ConsUBuild-Out/0n-Site lmprov ($88PSF Bidg} 675,036 4 1999 4 Testing and Inspectians 7,500 4 1899 4 Construction Performance Bond (1.5% const) 10,126 4 1999 1 Reai Estate Ta~s During Construdion 5,655 4 1999 ~! Constructbn Insurance ($4PSFiYRj 22,850 4 1999 1 SurveylT'dle Insurence (~and Take-Down ~ Start of Const) 10,000 4 1999 1 Legal, Consuftir~g, Acctng, Admin. 30,000 1 1999 9 Marketing and Advertising 10,000 6 2000 3 Construction CoMingency (5°!o Const) 34,633 4 1999 3 Project Mgmt (7.0°la Costs NIC LandJFinancing & Taxes) 69,506 4 1999 B k~~t~11~ F~~~, ' ,~A_h~,iy'~~~` t~' ~ . ~ , U Amourit Amour~t Construction Loan Funding - Apts (% of Perm. Loan Amt) NA Corxlominium Value Construction Loan Funding - Condos (°! af Projected Value) 75% Value 8ased on Sales P~ices $2,671,308 Construction Loan Fees {°lo) 1.5% Value Based on Gonstruction Coats $2,105,252 Construction ~oan Interest Rate (%) 9.5% Construction Loan Amount (75% LN - Sales Price) $2,003,481 Annual Inflation Rata - Rerrta, Costs, E~qrerr,ses 3.0°l0 7otal Value of Condominiums $2,671,308 Annual Inflation Rate - Properly Taxes 2.0% Condo Sales Transadion Costs 8.0°k Cash on Cash Retum Threshold 50% Deveioper Comribution of Equity (~o} 10Q.0% Profrt from Sale to ~eveloper (%j 100A°lo Max Acceptabie Resklual Land Value Reduction 15.0°l0 Page 2 Hamilton, Rabinovitz 8 Alschuler, Ina City of Santa Monica Run 1: 01/21@00~ Base Case for Mitigation Fee Sensitivity Teat on 3-Lot R2 Diatrict Condominium: without Incluslonary Housing Raqulrement, Large Lot, Lower-Priced Area SUMMARY - SCENARIO 15-A $L!#~1~~P~~~~4~F:~,~~~~q~2~Y-----=--- „,:'.. ,'. .~,._~____ ~~~~~~~~~~.~~`~~'~~~~; ~.~'~~~'~ ~1~~`~~~'~~~~~~~~__~ Per GSF Totai Percent Bldg Total Percent ___ GSF Bldg _ PSF SOURCES Gross Potential IncomelSales Revenue Sales Revenue - Condominiums $8,648,568 11~.4% $288.57 Gross Potential Renial Income $0 0.0% 23,040 0.00 Land Equity 1,367,325 22.7 % 59.35 Gross Potential Seles Revenue 7,228,705 100.0% F3,040 313.66 Cash Equity ~1,993,08~ _33.1% ~86_51~ Less vacancy/bad debUcdlection loss 0 0.0% 23,040 0.00 Total Sources: $6,022,807 100.0% $281.41 Effective Gross IncomelSales Revenue $7,228,705 100% 23,040 313.66 USES Less OperatinglSales F~enses Allocated Land Cost $7,367,325 22.7°!0 $59.35 Apartment Expenses 0 O.Q% 23,040 0.00 Demolition 20,600 0.3% $0.89 Sales E~enses (578,136j -8.0% 23,040 (25.09) Pre-development StudieslMalysis 15,Q00 0.2% $0.85 Total Operating/Sales F~enses ($578,136) -8.04b 23,040 (25.~9) Architecture and Engineering 190,809 3.2°k $828 Plan ChklBldg Permits/City Fees/Assess 787,851 2.8% $729 Net Op. IncomelNei Sales Revenue $6,648,588 92.0% 23,040 288.57 Off-Site Requirements 241,275 4.0% $10.47 in-Lieu Fee 0 0.0% $0.00 ConsUBuild-OuUSite Improv+ Retentian 2,412,751 40.1% $104.72 pebt Service - Apartments 0 0.0% 23,040 0.00 Testing and Inspections 7,~25 0.1~0 $0.34 Net Op. Cash FIow/Net Saies Revenue ____ ~6,648,568 __ 92.0°~ 23,040 288.57 Conslruction Pertormance Bontl 35,137 0.8°k $1.53 Raai Esiate Tar~es thru lease-uplSales 13,58B 0.2°k $0.59 Less Development Costs {6,022,80~} _-83_3°~ 23,040 _(261.41] Gonstruction Insurance 71,194 1.2°~ $3.09 Profit (Loss) 625,761 8.7°k 23,040 27.16 Survey and Titie Insurance 15,450 0.3% $0.67 Legal, Consulting, Acctag, Admin. 30,000 0.5°~ $L30 f~t~}, ~~NQt~~~~~t;#~QTt '.3`<#~~&~~ . ;;:.. ..Y:~ ______.._~.~ .. .:A. . ..<.'_ Markeiing and Advertising 41,218 0.4°k $0.92 _ AmouM Construction CorHingency 126,518 2.1°!0 $5.49 Lot Size (SP) 22.500 Construction Management 157,463 2.6°~ $6.83 Economic Area {Lower- Priced or Higher-Pr~ced) ~~e~ Construction Loan Fee 64,673 1.1°!0 $2.81 Total Allowable Unlts 16 ConsWction Inierest 1,043,615 17.33`0 $45.30 Number of Market Rate Units 16 Permanent ~oan Fee 0 0.0% $0.00 Number of Affardeble Units ~ Sales Period Operating F~penses 20,417 0.3°~ $0.89 Type of Untts 2bd/2ba Total Uses: $6,022,807 100.0% $F61.41 Size of Market Rate Units (SF) 1,440 Size of Affordable Unita (SF) 850 Total Cost per Unit: $376,425 Building Efficiency Factor {%} 100% Total Cost per Unit not including Land: ffi290.968 Gross 8uilding Area (SF) 23,~40 Required Parking Spaces (1 level below grade} 38 fi~tt+~l~fh(45 ~N~Ic~Ft~~i' <:< ,. :?; ~~ Amount ~1J~i~k~t~'~!`~+'~^^`~d.~~ .r • >.,,,,:. ~:•w;.,;:;::..;: , . z...~;~.~~ Funding Date - Construction Loan Mar 2000 Amouni GSF FJldg PSF Inter~t Rate 9.5°!o Net Sales Rev~ue $6,848,588 $288.5T $285.49 Amortizatipn Term 24 Months Less Developmeni Costs (NIC Land} ~655,482) (2oz.o61 ___j206.911 Mazmum Loan 14 Vaiue (Projected} Ratio 75% investment Vaiue 51,993,086 594.91 $88.58 Projected Value of Condominiums $7,228,705 Less Developer ProBt @ 50% of Equity _ __ (883,863Z ~29.87t _ {30.39j Cash (Profit) on Cash (Equiry) Return 45.8°f Residual ~and Value $1,309,424 $56.83 58.20 1999 $ Residual Land Value $1.198,308 $52.01 $53.26 Page 1 ~ Hamilton, Rabinovik & Nschuler, Inc. City of Santa Monica Run 1: 01/2 V2~00 i Base Case for Mitigetion Fee Sensitivity Test on ~-Lot R2 Diatrict Condominlum: without Inclusionary Housing Requirament, Small Lot, Lowar-Priced Area ~ CAPITAL CASH FLOW - SCENARIO 15-A ': TOTAL 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Sources of Funds ConsWCtion Loan Draws 4,311,540 902,898 2,305,377 1,086,642 16,623 0 0 D 0 0 0 0 0 0 ' Permanent Loan Funding 0 D 0 0 0 0 0 0 0 D 0 0 0 D ~ Gross IncomelSales Revenue 7,226,705 0 D 5,938,854 1,387,651 0 0 0 0 0 0 0 0 0 LessSalesCasts (578,136) 0 0 (467,1D8) (111,028) 0 0 0 0 0 0 0 0 0 ; LessOp.E~IHomeownerAssoc.Fees (20,4172 0--__0_ __~19,7~ ---~8~-- ---0 -- --0 0 0- - --U - Q- - ~--- ------Q- --- q- ~ Total Sources of Funds 10,839,692 902,698 2,305,377 6,438,597 1,283,020 0 D 0 0 0 0 0 0 0 Uses of Funds ~ Allocated Land Cost 1,367,325 1,367,325 0 0 0 0 0 0 0 0 0 0 0 ~ Demolition 20,600 0 20,600 0 0 0 0 0 0 0 0 0 0 0 Pre-DevelopmentStutlieslMalysis 15,OD0 12,857 2,143 D 0 0 0 0 0 0 0 0 0 D Arch & Engineering Costs 190,809 95,405 90,63a 4,770 0 0 0 0 0 0 0 0 a D Plan Chck/Bldg PrmtslCity Fees/Assess 167,851 0 167,851 0 0 0 0 0 0 0 0 0 0 D Off-Site Requirements 247,275 D 0 241,275 0 0 0 0 0 0 0 0 0 0 In-Lieu Fee 0 0 0 0 0 0 0 0 0 0 0 0 0 D ConsUBufld-OuUOn-Sile Improvements 2,171,476 0 1,808,563 361,913 0 0 0 D 0 0 0 0 0 0 RetenUon (~ 10% 241,275 0 0 241,275 0 0 0 0 0 0 0 0 a D Testlng and Inspections 7,725 0 6,438 1,288 0 0 0 D 0 0 0 0 0 D ConstruCtion Perfamance Bond 35,137 0 35,137 0 0 0 0 D 0 D 0 0 0 D Real Eetate Texes During ConstrucUon 13,588 0 11,284 2,302 0 0 0 D 0 0 0 0 0 0 , ConsWCllon Insurence 71,194 0 71,184 0 D 0 0 D 0 0 0 0 0 0 ', Survey an0 Title Insurance 15,450 D 15,450 0 0 0 0 0 0 0 0 0 0 0 ' Legal, Consulting, Acctng, Admin. 30,000 9,474 9,474 9,474 1,579 0 0 0 0 0 0 0 0 D i Marketlng and Advedising 21,218 0 0 19,096 2,122 0 0 0 0 D 0 0 0 0 ~ ConsWclion Contlngency 126,518 0 0 126,518 0 0 0 D 0 D 0 0 0 0 ~ Project Management 157,463 0 85,610 78,732 13,122 0 0 0 0 D 0 0 0 D i PermanentLOan Fee 0 0 0 0 D 0 0 0 0 D 0 0 0 0 ~ Construclion Loan Repayment 5,420,029 0 _ __ __0 _ 5,351,954 68,074 _ ___0 _ _ ___ 0 0_ _ 0 _ _ _0 0__ __ _0 _ _ _ 0 D ~ Total Uses of Funds 10,313,931 1,485,060 2,3D5,377 6,438,597 84,897 0 0 D D D 0 0 0 0 i Net ProjectCash Flow (Equity) 825,781 (582.362) 0 D 1,208,123 0 0 D D 0 0 0 0 0 i Cumulalive Cash Flow (582,3fi2) (5B2,362) (582,362) 0 0 0 0 0 0 0 =as~~ 0 _____ 0 __=== D ___=_ i ConslructlonLoan Balances =_____ _____ _____ _____ _____ _____ _____ ___ __ :=z=~ m.asa Draws 4,311,54D 902,698 2,305,377 1,086,642 16,823 0 0 0 D D 0 0 0 0 ! Loan Fees (a~ 9.5% 64,673 84,873 0 0 0 0 0 0 D D 0 0 0 0 ~ Accrued Inlerest (c~ 9.5% 1,043,815 85,756 195,262 356,383 406,414 0 0 D 0 0 0 0 0 0 I Less Repayments 5,420,029 0 0 ~ 5,420,029 0 0 0 D 0 0 0 0 D ~ Entling Balance 0 1,053,128 2,500,639 1,443,025 (4,998,792) 0 0 0 D 0 0 0 0 D Page 2 Hamilton, Rabinovitz & Alschuler, inc. City of Santa Monica Run 1: Ot12112D40 AS3UMPTiON3, pART 1 - SCENARI016-A ~~~; Bass Case for Mitigatfon Fee Sensitivlty Teat on 3-Lot R2 Dlstrict Condominlum: without Inclusionary Huusing Requlremant, Large Lot, Lower-Prtced Area Amount Lot Size (st~ 22,500 Ailey Area Counted (s~ 15Q0 Site Area Including Alley Portion (sfl 24,000 Zoning R2 Ma~dmum Site NeaJUnii (sf/unit} 1,500 Ma~6mum Base Units/Siie (rounded) 16 25~ Densiry Bonus (rounded} 0 Totel Nlowable Units 18 Amount Number of Market Rate.4partmenis NA Number of Affordable Apartmenis NA Number of Low Income NA Number of Moderate Incame NA Number of Market Rate Condaniniums t6 Number of AffordaWe Condominiums 0 Number oP Low Incame 0 Number of Moderate Incame 0 Type of Units 2bdl2ba Economic Area (Lower- or Higher-Priced) Lower Size of Merket Rate Units js~ 7,440 Size of Affordakle Unita (s~ 850 Buiiding Efficiency Factor (°k) 100% Gross BWlding Area (sfj 23,040 ih~3C~`K . ;f?~[ Amaant Required Parking at 2 Spaces Per Unif - Markat Rate 32 ReqWred Parking at 1.5 Spaces Per Unit - Aifardable 0 Required Guest Parking et 1 Space Per 5 Units (rounded) 8 Total Parkin9 Spaces Required (1 level below grade) 38 :~~..~ ~.~. . . . .~ . . . .... . , , . ... ....... ......:1..''y~ir~r: ....~ ..~ ..... ~. ..._. r..... . . ~ . . Amount Start Pre-Developmeni {motyr) 111199 Pre-Development Period {monthsj 14 Start Gonstruction 311100 Constructbn Periad (months) 12 End Cons7uctfon 2t28/01 Siart Lease-UplSales Period 3/1t01 Months to 100% Lease-Up NA Months l0100°r6 Sales 12 Leesc UplSell•Out Completion 2/28102 1999 $ 1999 $P3F 1995 $ Free Reni Rent Sales Price Sales Price _(months Apartment Renl (per month) NA Market Rate NA Affadable Low Income NA Afforda6le Mod. Income (Lower of Market or Mod. Retit) NA Condominium Saies Prices (ps~ Market Rate Affordable Low Income Affordable Moderate Income ~`i~~'~'~~~l~tFis~~C~~' .~.,.,. s..~...,_ Amount Apartment Bad DebtiCollectipn Loss Rate NA Apartment Leasing Commisslons NA Operating E~enses, Including Reserves (per unit per year) NA Homeowner Associatlon Fees (per unil per year) $2,500 $294.00 $423,360 $80.13 $88,108 (Per Ordinance 1615 Program Guidelines, 1993) $152.12 $129,306 (Per Ordinance 1615 Program Guidelines, 1993) Page 3 Hamitton, Rabinovitz & Alschuler, Inc. City of Santa Monica Run 1: 01J21/2000 Base Case for Mitigation Fee Sensitivity Test on 3-Lot R2 Distrlct Condominium: without Inciusionary Housing Requirement, Small Lot, (.ower-Priced Area ASSUMPTIONSLPART 2 - SCENARIO 15-A _ ~..... _.....`.~ ,.... ~__ .. Amount Land Cost - Lower Priced Areas ($PSF) ~$59 Land Cost - Higher Priced Areas {$P5F} NA _, f :~.>.~. ~f rrx~.~., o.. ? . ~,~dw±'YX!A~~fi~~~~`FT~U,~KS .~ ? ~ ~ ~;. ..._..~_v.._.. _...,_...., _. _. _. , t . _ _ . No. of 1i99 $ Start Start Quarters Budqet Quarter Year to Spread Demolition 20,000 1 2000 1 Pre-Development StudieslRnalysis 15,000 1 1998 5 Architectural & Engineering (8°lo Hard Costs) 190,8Q9 1 1999 8 Plan Check/Bkig PermitslCity FeesiAssess 167,851 2 2000 1 dff-Site RequiremeMs 117,120 1 2001 1 IrrLieu Fee 0 2 2000 1 ConsbBuild-QWOn-Site Improv ($102 P5F Bldg) 2,342,477 7 2000 4 Testing and Inspections 7,500 1 200Q 4 Construction Performance Bond (1.5% const) 35.137 1 2000 1 Real Estate Taxes During Construction 13,586 1 2000 5 Construdion (nsurance ($4PSF/YR} 69,120 1 2000 1 Survey/Tdle Insurance (~and Take-Down f~ Start of Const) 15,000 1 200Q 1 Legai, Consufting, Acctng, Arimin. 30,0~0 1 2004 13 Marketing and Advertising 20,000 6 2000 3 Construction Contingency (5% Const) 119,256 2 2001 3 Project Mgmt {5.D% Gosts NIC Land/Financing & Ta~sj 157,463 1 2000 4 c~'~74.'l~tfi~ ~~~l,~~_~~..,_~..,., ......,_...i..._..~ 5 ~'S~_.~.'L..`7 ~ '..._,a..~.... ' ~ ~ : ' ~; ... ~ ,3 .~~,~...:..,.::i.i Rmount Amourrt Construction Loan Funding - Apts (°10 of Perm. Loan Amt) J NA CondomiNUm ValuE Gonstruction Loan Funding - Condos (°!o of Projected Value) 75°fo Value Based on Seles PriCes $7,226,705 Construction Loan Fees (°!o) 1.5% Vaiue Based on Constructfon Costs $6,022,807 Consiruction Loan Interest Rate (%) 9.5% ConsVuction Loan AmouM {75°fo lN - 5ales Price) $5,420,029 Annual Ir~flation Rate - Rer~ts, Coats, Exper~sses 3.0°k Totai Value of Condominiums $7,226,705 Annual inflation Rete - PropeRy Taxes 2.0% Condo Sales Transaction Cosis 8.0% Gash on Cash Retum Threshold 50°h Developer Comributf~ ~n of Equlry (%) 100.0% Profik hom Sale to D~vebper (%) 10~.0°k Max Acc~ptable Residual Land Vaiue Reduction 15.0°h Page 4 Hamilton, Rabinovitr & Alschuler, Inc. City of Santa Monica Run 1: 01121/2000 Base Caae for Mitigation Fse Sensitivity Test an 3•Lot R2 District Condnminlum: without Incluaionary Housing Requlrement, Large L.ot, Hlgher-Prlced Area SUMMARY - SCENARIO 16-A ~F~~ ~t~t4~~ivS A~'~~;~d_.__~,{~ ~~.~ ~~, _,_4 Per GSF Total Percent Bld~ SOURCES Saies Revenue - Condominiums $8,593,388 113.9% $372.98 Land Equity 2294,325 30.4°! 99.58 Cash Equity _~3,342,934~ -44.3°!_ (145.09~ Total Sources: $7,544,779 100.0°~ $327.46 USES Allocated Land Cost $2,294,325 3Q.4% $98.58 Demolition 20,600 0.3°k $0,89 Pre-davelopment Studies/Malysis 15,000 0.2 % $0.65 Architecture a~d Engineering 199,864 2.6°h $8.67 Plan ChklBidg Permits/City Fees/Assess 168,530 22% $7.31 Off-Site Requirements 252,781 3.4% $10.97 In-Lieu Fee 0 4.0% $0.00 ConsU6uild-OUVSite Improv+ Retention 2,527,610 33.510 $i09.71 Testing and Inspectlons 7,725 0.1% $0.34 Construction Performance Bond 36,810 0.5% 51.60 Real Estate Ta~res thru ~ease-upJSales 22,796 0.3% $0.99 Construction Insurance 71,194 0.9°h $3.09 Survey and TIQe insurance 15,450 D2% $0.67 Legal, Consulting, Acctng, Admin. 30,000 0.4% $1.30 Marketing and Advertising 21,218 ~.3°~ $0.92 ConstructlonContingency 132,522 1.8h $5.75 Constructiwr Management 164,171 2.2% 57.13 Cons[ruction Loan Fee 81,967 1.1% $3.56 Construdion IMerest 1,457,715 19.3% ~.i337 Permanent Loan Fee 0 ~.0% $0.06 Sales Period Operating E~enaes 24,500 0.3% $1.08 Total Uses: $7,544,779 100.OYo $327,46 Total Cost per Unit: $471,549 Total Cost per Unit not including Land: $328,153 ~~~~hEC3.~;t~ilt~t~ ~. . _...__ __..__ ~ Am ount Funding Date - Construction Loan Mar 2000 Interest Rate 9.5°,6 Amortization Term 24 Months Ma~6mum Loan to Value (ProJected) Ratio 75% Projected Value of Condominiums $9,340,639 Cash (Profiq on Cash (Equity) Retum 45.74'0 ~~t~,~.~~5~~'~i~~~7;`~?,?~~lT~.~~i~13~~~~~~~?'~~..; Total - .--- ___._Percent _ GSF Bldg _ __ PSF Gross Potentiel Income7:;ales Revenue Gross Patential Rental fncome $0 0.0% 23,040 0.00 Grass Potential Sales Revenue 9,340,639 100.0% 23,U40 405.41 Less vacancy/bad deWlcdlection loss ____ 0 0.0% 23,040 O.Op _---. Effective Gross IncomelSales Revenue $9.340,839 100% 23,04~ a05.a1 Less Operaiing/Sales F~q,enses Apartment E~enses Q 0.0% 23,04Q 0.00 Sales F~enses (747,251) -8.0% 23,040 (32.43) TMalOperffiingiSalesE~enses ($747,257) -8.0% 23,04~ (32.43) Net Op. IncomelNet Sale~, Revenue $8,593,388 92.0°e6 23,040 372.88 Debt Service - Apertments ____ ___ 0. 0.0% _-- 23,040_ - __ 0.00 Net Op. Cash FlowlNet Sales Revenue $8,593,388 92.0% 23,040 372.98 Less Development Cosis (7.544,~79} -80.896 23,040 (327.46) Proffl {Loss) 1,048,809 112% 23,040 45.51 ~:~~~ ' -,... ,.. . . .. .. ~;'~'~ ~''~~I~r"~` ~"~ ....__.__..'- `_- --___~_~. ~- ....::~~~: Amounl Lot Size (SF) 22,500 Economic Area (Lower- Priced or Higher-Priced) ~ower Total Nlowable Uni-s 16 Number of Market Rate Units 1~ Number of Affordable Units ~ Type of Units 2bdt2ba Size ot Market Rate Uniis (SF} 1,440 Size of Affwdable Urrits (SF) 850 Building Efficiency Fador (%} 900% Grosa 8uiltling Area (SF) 23.04~ ReqWred Parking Spaces (1 Ievel below grade) 38 ~~~.~.*~~s'~.lik+.~s"~~~~ .~: ..,~.:.;:~. ~ ..;,..i:~.. , ~ ~ ; Amount G3F Bldg PSF Net Sales Revenue $8,593,388 5372.98 $381.93 Less Develapment Coats (NIC Land) ~6,250 454 ~27•88) _5233.35~ Investment Value 53,342,834 3145.09 $148.57 Less Developer Profit (~ 50%, of Equiry Residual Land Velue 1999 $ Resldual Land Value Page 1 ~1,147.163~ _. _ _ (49.79~ - _... ~50.99~ $2,195,7~2 $95.30 97.59 $2,Q09.442 $87.22 $@9.39 Hamilion, Rabinovitz & Alschuler, Inc. City of Santa Monica Run t: D1'!21/2000 IBeae C~ase for Mrtigation Pae Sensitlvlty Test 3-Lot R2 DlstAct Condomi nium: without In~clusionary Houaing R aquirement, S mall Lof, Highar-Priceii Area CAPITAL CASH FLOW - SCENARIO'I6-A T61'AL 1999 2000 2001 20D2 2003 I2004 2005 2008 2007 2008 2009 2Ci10 2011 Sources ot Funds ConsUudion Loan Draws 5,465,777 1,901,788 2,408,619 1,137,988 17,382 0 0 0 0 0 0 0 0 0 PermaneM Loan Funding D 0 0 0 0 0 0 0 0 0 0 0 0 0 Gross IncomelSales Revenue 9,340,83B 0 0 7,54fi,818 1,793,821 0 0 0 0 0 0 0 0 0 Less Sales Casts (747,251) 0 0 (603,745) (143,506) 0 0 0 0 0 0 0 0 0 LessOp.E~IHomeownerAssx.Fe~:s __~4,50D] --- 0----~- ---(23,750) (~5~--- ----~_ _ _ ~- --__~ - ~ _ _ _ ~ ---~__ -_ _~ ___-~-- -- ~ TotalSourcesofFunds 14,034,865 1,901,788 2,408,619 8,057,311 1,666,947 0 0 0 0 0 0 0 0 Q Uses of Funds Allocated Land Cost 2,294,325 2,294,325 0 0 0 0 0 0 0 0 0 0 0 0 ~emolition 20,600 0 20,600 D 0 0 0 0 0 0 0 0 0 0 Pre-Developmenl Studies/Malysis 15,000 12,857 2,143 0 0 0 0 0 0 0 0 0 0 0 Arch & Engineering Costs 199,864 99,832 94,935 4,997 D 0 0 0 0 0 0 ~ 0 0 Plan ChcklBldg PrmtslCity FeesJAssess 168,530 0 168,530 0 0 0 0 0 0 0 D 0 0 0 Off-Site Requirements 252,761 0 0 252,761 0 0 0 0 0 0 0 0 0 0 In•Lieu Fee 0 0 0 D 0 0 0 D 0 0 0 D 0 0 Const/Build-Ouf/On-Sitelmprovement& 2,274,849 0 1,895,708 379,142 D 0 0 0 D 0 D 0 0 0 RetenUon (c~ 10% 252,781 0 0 252,761 D 0 0 0 D 0 0 0 0 0 TesUng and tnspections 7,725 0 8,438 1,288 0 0 0 0 0 0 0 0 0 o Constructlon PerTarmance 6ond 36,810 0 36,810 D 0 0 0 D 0 0 0 D 0 Q Real Eetete Taxes Dunng Constructl~on 22,798 0 18,934 3,862 0 0 0 0 0 0 0 0 0 0 ConsWCtlon lnsurance 71,194 0 71,194 0 0 0 0 0 0 0 0 0 0 0 Survey and Title Insurance 15,450 0 15,450 D 0 0 0 0 0 0 0 0 0 0 Legal, Consulting, Acctng, Admin. 30,000 9,474 9.474 9,474 1,579 0 0 0 0 0 0 0 0 0 MarketlnpandAdvertlsing 27,218 0 0 19,096 2,122 0 0 0 D 0 0 0 0 0 ConstrucUon Contlngency 132,522 0 0 132,522 0 0 0 0 0 0 0 0 0 0 ProjectManagement 164,171 0 68,405 82,086 13,861 0 0 0 0 0 0 0 0 0 Permanenl Loan Fee 0 0 0 ~ 0 0 0 0 0 0 0 0 0 0 ConsVuctlon Loan Repayment 7,005,479 0 0 6,919,323 86,156 0 0 0 D 0 0 0 D ~~ TotalUsesofFunds 12,986,058 2,416,588 2,408,819 8,057,3t1 103,538 0 0 0 0 0 0 0 D Oi Net Projecl Cash Flow (Equity) 1,048,609 (514,BD0) 0 D 1,563,409 0 0 0 0 0 0 0 0 Oi Cumulafive Cash Flow (514,800) I;514,800) (514,800) 0 0 0 0 0 0 0 0 D 0~ Construction Loan Balances .__ _____ =~==e .oa., ,oa~.. oe..= v,eaa ~..._ -»_~ ~se:a vo..o a.~.aa =___._ Draws 5,465,777 1,901,788 2,408,619 1,137,988 17,382 0 0 D 0 0 0 0 D Oi Loan F2ES C(,~ 1.5% 81,987 81,987 0 0 0 0 0 0 0 0 0 0 0 Ci Accrued Interest ~ 9.5°/ 1,457,715 180,670 295,079 463,543 518,423 0 0 D 0 0 0 0 0 Oi Less Repayments 7,005,479 0 0 0 7,005,478 0 0 0 0 0 0 0 0 Oi Ending Balance 0 2,164,445 2„703,696 1,601,531 (6,469,874) 0 0 D 0 0 0 0 D Oi Pape 2 Hamilton, Rabinovitz & Alschul~, Inc. City of Santa Monica 8asa Case for Mitlgation Fee Senaltlvity Test on 3-LOt R2 District Condominlum: without Inclusianary Housing Requirament, larss Lot, Migher-Prlced proa ASSUMPTIONS, PART 1 - SCENARI01B•A .. . . . .. . ,..:. ,:.. :...:. z......~_. ~..~ . ~ .._._,__ ~F, . :+, .,.., . u . ..... . ,.. ,_.: ~;A~~~. ~ ..,. ~... _.:: Rmount Amamt Lot Size (sf} 22,500 Requlred Padcing at 2 SQaces Per UNt - Market Rate 32 Alley Area Counted (sfl 1500 ReqWred Parking at 1.5 Spaces Per Unft - Af(oWaWe 0 Site Area InGuding Alley Portion (s~ 24,000 Req~ired Guest Parking et 1 Spece Per 5 Units (roundec~ 6 Zoning R2 Total Perking Speces Requfred (1 level below grade) 38 Mabmum Site fuealUnit (ef/unit) 1,5~0 Ma~timum Base UnitslSite (rainded) 16 25°k Densiiy Bonus (rounded) 0 7otal Ailowabie Units 16 ~~{~:; ~. ~.~....,..W .....~,_..,. Art70U11f Number of Markei Rate ApaRments NA IJumber of Affordable Apartmenis NA Number of Low Income NA Number of Malerete Income NA Number of Market Rate Candominiums 76 Number of Affordable Condominiums 0 Number of Low Income 0 Number of Moderate Income ~ Type of Unifs 2bdi2ba Economic Area (Lower- or Higher-Priced) Higher Size of Market Rate Units (s~ 1,440 Size of Affardable Units (sf~ 850 Bullding Efficiency Factor (°,6) 1~p°k Gross Bufiding Area (s~ 23,0a0 .~.,.,...r. . , ....... ........,.v ti.v.... ~..,.,.,... u.:a,._. ..,F'' , Amount Start Pre-Development (mWyr) 117199 Pre-Deve~opment Period {months} 14 Start Construcifon 311i00 ConstrucNon Period (months) 12 End CarisWCtion 2128t01 Start Lease-Up/Saies Period 3/1J01 Months to 1 ~0~ Leasa-Up NA Months to 100°,6 Saies 12 Lease-UplSell-Out Completion 2/28/02 {~~~.. .:~3.: ~ .~ ....~. ._ ...... ~..4.»~.~ ~ , a ^'ar. _: ,ul:<a.^?.'~a;1, .~i . ~ ~ ;.,: _ . .a...~ ~.~~:?:~'i ~ 1999 $ 1999 $PSF 1999 $ Free Rent Rent Sales Price Selea Price months Apartment Rent (per month) NA Market Rate NA Affordable Low Income NA Affordable Mod. Income (Lower of Market or Mod. Rent) NA Condominium Sales Prices {pstj Market Rete Afforda6le Low Income Affordable Moderate income $380.D0 $547,200 $90.13 $68,1~8 {Per Ordinance 1815 Program Guidelines, 1993) $152.12 $129,306 (Per Ordinance 1615 Pragram Guldelines, 1993) ~'jr'_~~'.~~~-,-~1. ~G~`~ili~'.~.ptl~ `r : Amount Apartment Bad DebtlCollection Loss Rate NA Apartment i.easing Ganmissians NA Operadng F~cpenses, Including Reserves (per unit per year) NA Homeowner Association Fees (per unH per year) $3,000 Run 1: 01/21t2000 Page 3 Hamilton, Rabinoviiz & Alschuier, Inc, City of Santa Monica Run 1: 01t21t2000 Base Case for MlUgation Fee Sensitivity Test oa 3-Lot R2 Dlatrict Condominium: wfthout Inclusionary Housing Requlrement, Smali Lot, Hlgher-PMced Area ASSUMPTIONS~PART 2 - SCENARIO 1&-A 4'~?I_._.:.+_ .... . J t: .w ~].........~+........+.._..+..~i.u.r~.s ................. Amount Land Cost - Higher Priced Areas (~PSF} $99 Land Gost - lower Priced Areas ($PSF) NA ~~.Y~~~RTt~F~!!.d'+~~..~,~J,k!t't~4q{+lV~ ~~;o , ..:~.~- ~::~ :. -~.~ ,. ~:.........'....a, r.. '{r .~. ~~Y~ No. of 1/99 ~ Start Start Quarters Bud~et _ Quarter Year to Spread Demolition 20,000 1 2000 1 Pre-Development Studies/Analysis 15,000 1 1999 S Rrchitectural & Engineering {8% Hard Costs) 199,864 1 1999 9 Plan Check/Bldg Permits/City FeesiAssess 168,530 2 2000 1 Off-Site Requirements 122,700 1 2001 1 In-Lieu Fee 0 2 2000 1 ConstlBuild-Out/dn-Site Improv {$107 PSF Bldg) 2,453,990 1 2000 4 Testirrg and Inspections 7,500 1 20~0 4 Construction Performance 6ond (1.5°!o const) 36,810 1 2000 1 Real Estate Taxes During Constructbn 22,796 1 2000 5 Construction Insurance ($4P9F/YR) 69,12d 1 2000 1 Surveytl"rtle I~urance (Land Take-Down (a~ Start of Const) 15,000 1 2W0 1 Legal, Consutting, Acctng, Arimin. 30,000 1 1998 13 Marketing and Rdvertising 20,000 6 2000 3 Construction ConGngency (5°lo Const) 124,815 2 2001 3 Project Mgmt (5.~% Costs NIC Land/Financing & Taxes) 164,171 1 2000 4 ~'~~R+tl~~~~'I'++nZ.A' , ~ ~Fi4Y,~ifF~¢~ik•~'+I~~~~ E~= . ,,~~+._.y, , r,~;ayy•+~LY ,,.. Y Amount Amowrt Construction Laan Funding - Apts (°/a of Perm. Loan Amt) NA Condominium Value Construction Loan Funding - Co~dos (% of Projacted Value) 75% Vaiue Based on Sales Prices $9,340,639 Construction Loan Fees (°lo) 1.5°1a Vaiue Based on Construction Gosts $7,544,779 Construction Loan Interest Rate (°/a) 9.5°la Construction I.oan Amount (75°k LTV - Sales Price) $7,005,479 Annual InFlation Rate - Rents, Costs, Expenses 3.0°h Total Value of Condominiums $9,340,639 Annual Inflatian Rate - Properly Ta~s 2.0°h Condo Sales Transaction Costs 8.0°h Cash on Cash Retum Threshold 50% Developer Contributbn of Equlry (°!o) 100.0% Prafit from Sale to Devebper (%) 100.0°h Max. Acceptable Residual Land Val~ Reduction 15.4°l0 Page 4 Implications of Changed Market Circumstances for the Condominium Affordable Housing Fee APPENDIX C IlVIPLAN Model Results for Labor Dem..a.d Associated With Per-Project Household Spending in New Condominium Project HAMILTON, RASINOVITZ c~ ALSCINLGR, INC. ESTIMATE OF TOTAL EMPLOYMENT ASSOCIATED WITH HOUSEHOLD CONSl1MPTION EXPENDITURES NEW 5-liiV1T CONDOMINIUM PROJECT, LOWER-COST AREA, CITY OF SANTA MONICA, 20~a IMPLAN Sectar Induatry DIrecY IndlrecY Induced" Total* Perce~rt Cumulatlve Percent 454 Eating 6 Drinking 0.40a6 0.0157 0.1422 0.6365 11.36% . 11.36% 455 MiscellaneousRe[ail 03095 0.0046 ~ 0.1025 0.4156 7.39°h 18]5% 490 Doc[orsand~en6sts 02178 0.0000 0.~669 0.2867 5.10% 23.65% 492 Hospitals 0_1834 0.~~07 0.~764 D2598 4.62% 28.47°/< 447 WholasaleTrade 0.1232 0.0495 OD577 02299 4.09% 32.56% 45~ Foad Slores ~.1743 O.OD25 0_D566 02294 4.08% 36.64% 496 Colleges-Universi[ies-Schools 0.1545 O.OD09 O.D372 o.iB25 325b 39.88% 488 AmusementaodRecreaNOnServices-N.E.C. D.12fi5 O.OD~7 0.0328 D.7593 2.83% ~ 4272% 451 AutomoNve~ealersBServiceStaHons 0.1142 ODD1~ O.D380 D.1539 274k 45.4696 449 GeneralMerchandiseStores 0_1071 O.~D16 ~ 0.0356 D.iq43 2.57% 4802% 495 Elementary and Secondary Schools 0.0949 O.OOOD 0.0161 0.1110 1.97% SD.00% 525 Oomestic Services 0.0834 O.OD00 OA239 D.1072 1.91 k 51.90% 474 PersonnelSUpplyServices 0.0056 0-0752 0.0257 o.iasa 1.89°k 53.8~% 452 Apparel8Accessory5tores 0.0772 O.OD12 OA256 D.1040 iB5% 5565% 453 FumiNre & Home Fumishings Stores 0.0719 OA~17 0.0239 D 0969 1.72% 5737% 504 Labor antl Civic Organizations 0.0757 O.ODOt o.ozoz D.0959 1 77 % 59.08% 493 Other Medical and Hea1N Services 0.0657 O.OD54 0.0247 ~.0952 1 69 k 60.77% 500 Social Services- N.E.C. ~.0663 OAD01 0.0172 ~.OB36 1 A9% 62.26°h 466 Beauty and 0arber Shops o.0511 ~.0117 OD203 0.0830 1 A8% 6374% 457 Cradi[F~qencies 0.0305 D.0324. 0.0191 D082~ 1.46~ 65.19% 463 Hotels and Lodging Places 0.0452 0.0161 0.0147 DA759 1.35°k 66.54% 464 Laundry- Cleaning and Shoe Repair 0.0446 DA154 0.0158 D.OI59 1.35% 6Z89% 462 Real Estate 0.0129 0.0387 0.0236 D.0754 1.34% 69.24% 459 Insurance Carriers 0.0554 0.0045 0.0149 ~.0748 1.33% 70.57% 456 Banking 0.0383 0.0113 O.OtP: 0.0697 L24% 7181% 4i9 Automoblle k~HSir and Services 0.0982 0.0~50 0.015a ~.0686 122h 73.02% 5~1 ResidmtialCare 0.0470 00000 0.0122 ~.05P~2 1.05% 74.08% 494 ~egal5ervices 0.0242 0.0176 0.0156 ~.0573 1.02°k 75.10% 470 Other 8usiness Services 0.0040 0.0351 0.012D 0.0511 0.91 % 76.01 % 435 MotcrFreightTransportandWarehousing 0.0210 00178 0.0116 ,~.0503 0.89% 76.90% 56 ~+Aaiatenance and Repair Other Facilities 0.0000 0.0377 0.0113 ~.0489 0.87% TI.77% 460 !nsurance Pyents and Brokers 0.0000 0.0374 0.0~93 '~.0468 0.83% 78.60% 507 Accoun[ing-Audi[ing and Bookkeeping 0.0014 0.0330 0.0106 0.0450 0.80% 79.40% 448 Building Ma[erials 8 Gardening 0.0331 0.0405 0.0110 0.049fi 0.79% 8020% 489 Membership Sports and Recreation Clubs 0.0333 0.0022 0.0086 0.0491 0.70% 80.98h 5U2 OtherNonproftOrganizations 00344 0.0006 0.0091 0.0440 ~ 0.78% 81.77% 499 Child Day Care Services OA352 0.0000 0.0066 OA43B OJB% 8"e.54% SOfi Mana9emenlandConsuHingServices O.~D00 0.0321 0.01~5 0.042fi 076°!0 83.30% 497 O[her Educa[ionai Services OA272 0.0044 0.0a84 0.0400 0.71 % 84D1 % 475 ComputerandDataProcessingSerolces ~ 0.~~10 00271 0A087 OA368 0.65°/, 84.67/0 472 Services Ta Buildia9s ~ - O.OD77 0.0194 0.0088 0 D358 OBA% B5 30 % 46B MiscellaneousPersonal5ervices 0.0256 0.0003 0.0069 OD328 0.53% 85.89% 441 Communications- Except Radio and TV 0.0140 OA091 0,0085 OD316 0.56% d6A5% 55 MaintenanceaoARepair-Residential 00000 00236 0.0064 0.0300 ~.53% A69R% A91 Nursing and Protective Care 0 0001 ODOOD ~D28A OA289 0.51 % 87.SD% 512 Othsr Slate and Local Gov[ Enterprises 0.0183 09D33 ~.0072 0.0288 0.51% e8D1 % 476 ~e[ective and Protective 5ervices 0.0148 0.0077 OD058 0.0283 050% d8.51% 437 AirTransportatlon 0.0193 09035 00051 0.0279 Ob0% 89.01% AllOthers _02915 0.1802 a.1464 Q6181 14.99% 100.a~% 3.5090 0.7874 1.3320 5.6224 100.00% Hamilron. Rabinovilz 6 Alschuler, Inc SaMcVex2/IM~"'LAN.xIs `low-cost~ Page 1 2128l2000 ES7IMATE OF 70TAL EMPLOYMENT ASSOCIATED WITH HOUSEHOLD CONSUMPTION EXPENDITURES, NtllV 5-UNI I(:UNUVIVIIIVIUIVI F'fiUJtL I, lil(il-ItF(-C:U51 AFttA, CITY OF SANTA MONICA, 2000 IMPLAN Sector Industry Direct Indirect Induced ToNal Percent Cumulative Percent 454 Eating&Dnnking ~.6107 O.DZ00 ~.1B07 0.8114 11.36% 11.36% , 455 MiscellaneousRetail 0.3921 O.D058 0.1302 0.5282 7.39% 18.75% 490 ~octorsantl0entists ~.2768 ~.~000 0.0875 0.3643 5.10! 23.BSY 492 Hospitals ~.2330 0.0001 DA971 0.3302 4.62% 28.47% 447 Wholesaleirade 0_1565 0.~629 DA726 02921 4.09% 32.56% 450 Faad Stores 02164 ~.0032 0.0719 02916 4.08 % 36.64% 496 Colleges-Universities-Schaols 0.1913 O.D011 0.0396 02320 325% 39.86% 488 Amusement and Recreation Services- N.EQ 0.7607 0.0002 0.0416 02025 2.83~ 4272% 451 Automotive Dealers 8 Service SYations 0.1452 0.0022 0.0482 0.1956 2.74% 45.46% 449 GeneralMerchandiseSYOres 0.7361 O.D020 0,0452 0.1833 257% 48A2% 495 Elementary and Secondary Schools 0.1206 O.D000 0.0205 0.1411 1.97 % 50.00% 525 Domes[icServices 0.1060 0.0000 0.0303 0.1363 1.91% 51.90~ 474 Personnel Supply Services 0.0071 0.0955 0.0327 0.1353 1.89% 53.80% 452 Apparel & Accessory Slores esn r~~~„m~.o a u...,,o c~~.,,~~~~.~..,.~ cr„~o~ 0.0961 n no~e 0.0015 n nn~n OD326 m m~e 0.1321 1.85% 55.65% 5D4 La6or and Civic Organizafions v 0.0961 O.ODO~ OA257 0.1219 171Y 59.0890 493 Other Medical and Health Services 0.0835 0.0069 0.0306 D,121D 1.69% 60.77% 5uu SociaiServices-iJ.EG. u.uo43 u.uuui u.u2io u.iu"o2 i.45% b216% 466 Beaury and Barber Shops 0.0650 0.0148 0.0257 0.7055 1.48% 6374q 457 Credd Agencies 0. WH7 0.0412 0.0243 0.1043 1.46% 65.19q 463 Hotels and Lodging Places 0.0574 0.0204 10187 0,0965 1.35% 66.54% 464 Laundry- Cleaning and Shoe Repair 0.0567 0.0196 0.0201 0.0964 1.35% fi7 89% 462 Real Estate 0.0163 0.0492 0.0303 0.0958 1.34% fi924% 459 Insurance Carriers u.0703 0.0057 0.0190 0.0950 1.33% 70.9% 456 Banking 0.0499 0 0144 0.0243 0.0886 124% 71.81 % e~a n~ ~mm~hnP aa~a~, a,,,~ sP~,~~P~ .._ ..__...__.._.._~_.._..---...--- n nF~ ~ ---- n nnaa -~--~ n mas ---- n nan ----- ~»w ..__._ » n~o~_ ..,..._.. 501 Residential Care 0.0598 0.0000 0.0155 0.0752 7.~5% 74 OB h 494 Legal Services 0.0307 0.0223 0.0196 0.0728 t A2 % 75 10 % uFner nusiness aervices . . . i5< .ua5v u.5i7o 7o.ui io 435 MotorFreightTransportandWarehousing 0.0266 OA226 0.~147 ~_Ofi39 D.85% 7690% 56 Mamtenance and Repair Other Facililies 0.0000 0.0479 0.0143 0.0622 ~.87% 77 77 % 460 Insurance Agents antl 8rokers 0.0000 0.0476 0.0119 0.0594 D.B3% 78.6o % 5W Accounting- Auditing antl Bookkeeping D.0018 0.0420 0.0135 ~ 0.0572 0.80% 79A0 % 44b Building Materials & Gardening OA421 OD006 0.014D D.0567 DJ9% 80 20 % 489 Membership Sports and Recreation Cl~bs 0.0423 OA026 0.0109 0.0560 OJB% 8~ 98°,6 502 OtherNonprofi[Organizations 0.0437 0.0008 0.0115 0.0560 OJA% 8177°,6 499 Child Day Care Services 0 0448 0.000~ OA109 O.D556 0J8 % 82 54 % 508 Managemen[ and Consuiting Services 0.0000 0.0407 0.0133 0.0541 0.76 %~ 8330 % 497 Other Educational Services O.D345 0.0056 D.0106 0.0508 071 % F54.01 % 475 Computer and Oata Processing Services 0.0013 0.0344 D.O~ ~0 0.0467 0.65 % 84.67% 4?2 ServicesToBuildings 0.0097 0.0246 0.01'I1 OA455 0.64% 85.30% 456 MiscellaneousPersonalServices 00325 I70004 O.OD87 0.0416 O58% 85.89% 441 Communications-E~cceprRadioandN 0.0178 DA1~6 ~.0108 OD40~ 0.56% 86.45% 55 Maintenance and Repair- Residential 0.0000 0.0300 0.0081 0 0381 0 53 % 86.98 h 491 Nursing and Protective Care 0.0001 O.OD00 0.0367 0.0367 05~ % 07.50% 512 Othzr Scate and Local Govt Enterpnses OA233 D.OD42 0.0092 OA366 0.51 % 88.01 % 476 Detective and Protedive Services 0.0188 O.OD98 0.0073 0.0359 0.50% 88.51 % n~~ o~, n~n~,,,,nan..~ n mas n nnaa n nna5 n nzse n Fnoc - AllOthzrs 0.3704 0.229~ 0.1860 0J855 '10.99% 10000% 4.q~IJ I.UVUO "I.O7Ll' '!."1496 IW.UVh Hamil(on. Rabinowtr & Alschuler Inc SafdoNex2\;MPLAN.xIs [hlghcostl 'a43c 1 2/28I2000 Implicadons ofChanged Market Circumstances for the Condominium Aff'ardable Housin,~ Fee APPENDIX D Recalculation of Santa Monica's "Affordability Gap" Per Unit of New Affordable Housing Development HAMIL"CON, RARINOV'IT7 & ALSCHIlLGR, INC. GAPITAL SUBSI~Y REQUIRED TO DEVEL4P AN AFFOftDABLE RENTAL UNIT UNDERALTERNATNE AFFORDABILINTHRESHOLDS,LANDCOSTSANDUNITSIZE3, CRY OP SANTA MONICA, 2000 RenWl Project, R? D~nsi ry, 6dY X MFI &BR/7-BA 3-BR2-6A Linei# CalculationFactors LowCOSt HiphCost LowCOSt Hiahrost Units 7B 18 12 12 NEW CONSTRUCTION APPROACH ~ ~A Caunry Median Famity Insome (4person Hhitl.) 5 51,3W 3 51,300 S 51,300 S 51.300 2 PetcentofMetllanFamilylncome 6D% 6096 80% 60% 3 Maximum Household Inwme Thrcsholtl (4-pers.) $ 3D,780 $ 3~,780 $ 30J80 $ 30,780 4 Affortleble Monthly Hcusing Cost $ 770 S 770 $ 770 $ 770 5 No. of BRS Atljustment Factor 0.95 0.95 1.085 1 A85 Less: HUOUtilliyAlbwance $ - S - $ - $ - Mazimum Allowable Rent per City $ 73~ S 731 S 835 8 8% F3 TCAC Allowable Rent NA NA NA NA 9 Maximum Allowable Rent per TCAC NA NA NA NA 10 Less: Non-ProfiYS Base Monthly Operating Costs $ (25~) 5 (250j $ (250j 8 (250) ?1 Les5: Prop81'ty Tax $ (1d} 5 (1~ $ I19J $ (23) 12 Less: ReplacementReserve $ (1~ S {t7) $ (i~ $ (17} '13 Less: Non-PfoflTS VacanCy/Ba0 Oebt AiloWafice $ (22j 5 (22) $ (Z5J $ (25) 14 Net Operatlng Income (NOI) Per Unft $ a28~ S a25 $ 524 S 5a0 15 OebtCOVerageftatio 1.10 1.10 1.10 t.~b 18 Maximum Momthly Mortgage Payment $ 389 9 386 $ 477 $ d73 ':7 Supportable Mortgage $50,830 550,260 582,006 551,513 1B Less: TotalDevelopmentCOSt S 213J28 S 252,400 $ 279,702 S 333,108 19 Less: LIHTC Equiry 5 - 5 - S - g - 20 Less: Other Publtc 5ubsidy or Equiry $ - 3 - S - S - 27 Required Capital Subsidy ~ $ 162.498 $ F02,140 S 217,696 $ 27~ 593 22 SIMPLEAVERAGESU8510YPERUNIT S 213,482 23 WEIGHTED AVERAGE SUBSIDY PER UNIT 5 788 208 Per U,S. Dept of Housing and Urban Development iHUD) BO%= "IoW' income per Pmp R Line 1 x Line 2 (3a% x Line 3)i12 rnnnths Adjustment te comxrt 4person household to number of bedrooms7unit, per City Ciry does not indude tha HUO aliowance foe tenanUpaid utilties; allowance assumetl for LIHTC tleals only ~ine A x Line 5; 80% x MFI only Pnr Stata s 7~ Cretlit Allocation Committee Line 8+ Lfne 8; 50% x MFI only Assumes 33,OOOfuniUyr. per HRBA Per New Development Cos[ Assumptions spreadsheet, 60% z MFI pay difect assessment5 only Assumes 82~0/uniVya. per Gity stsff 3% x Une 7 or ~ine 8, as applicable; per HR&A Line 7 or Line 9-(Line 10 + Line 1'1 * Line 12 + Line i3) Per draft City underwritin9 guidelines end HR&A Line 14/Line 15 Assumes 39-yr. term, &5% iate and monihly payments = Line 16 Per New Development Cost AssumR~ons spreadsheet 60%x MFI pualities, butvrould not ba pursued by Me Ciiy None likely at any levei of affo~dabiiity. Line 18 -(~ina 17 + ~ine 19 + Lino 20) Simple ave2ga ot all four scenarios wiMin each aflordabiliry category ~ Weighted average assuming: (a) 3, 2-8R units for every 3-BR unit {bj 2 low-cost 2-BR for every high-cast 2-BR; {c ) no high~cost 3BR units wmikon, nanu~xz a as~wk~, im. SaMalncVNOXtgap].~JS Page 1 Lt12000 GAPITAI SlIB51~Y AEQUIRE~ TQ ~EVELOP AN AFFORO0.8LE RENTAL l1NIT IINDER ALTERNATNE AFPORDABILRY THftESMOLDS, LANO C03T9 AND UNR SRE3, CITY OF SANTA MONIGA 2000 NEW CONSTRUCTION DEVEI.OPMENT COSTS The DevelopmeM Scenarla Oewtoyar Noh proftl, leM-exempt comm~nilybased dwebpme~ oryeniielion Site 2-~ds (16,0~0 sf stte in cluding ebyeree~, R2 dansiy with 50%Omsity 6on~a, flet site wtthnc inuwel rontllfiore 6uiitl7rg tA,000 sf totel: 2 Stofles UNis Ot~M i 6 2-8Rli-BA 5850 s~ w 12 3BR28.4 (1 ,OBU sl) epeMrcMs PBrkirxJ ~.5 speCeS pd Wt D~s guesl p0lqllg; 00 on one SuGtertamm~ kvel City Pcmits ~ PsLNNStretlve Appim~el entl AR8 e~prowi; (ro other dscra(ionery epo~o vals Ciry Faes 6ce mpl fram schod leas end reaeBNOn unN teu 28R/LBaN 9% 8% 16 ~Ig4rle 16 ENpl61a Devebpmant Cost Categorles UrYt Cost TMaI Cast PervUnk Basls IInN Cost Tatal Cosl Px-UnM Bacla LeM Pu~cha5e ' LarM 559Aendsf S 885,000 S 55.3~3 S - 598MtMSf S 1.485,Q00 S 92,813 5 - Pwcheseeppieisel AlloWBnCe S 1,000 S 63 S - AA6WBM6 § 1,040 § 63 5 - Titleinsurence 51/§1.000 5 BB5 $ 55 S - S1/yipUO S 1,A85 § 93 S - Eccrowtass 51.50/59000 $ 1,328 S 83 S -~ S'1.50/St.000 S 2.228 S 139 S - Mlsc. Costs E~.59r57,000 S 2,213 $ 138 $ - 52.50751,000 5 3,713 S 2~2 S - Sibtotal $ 890,425 5 55,652 5 - S i,d93,4?5 S 93,339 5 - CatMruc{i0n oemogtion elbwence $ 10,OOa 5 G25 S ~ tb,68~ eYmvence S ~dA~ 8 625 S 7o,0aa 6uiltlinpCOSts . y'97NICg.sf $ ~,358,000 & 84,875 S 1,358,000 S97AIdg.s! ff ~358,aW S 86,875 S 1,358,W0 Subtar. Pafldnq 513,500hpa[e $ 324,000 S 20,25d S 324,OW F13,500lspece S 324,Q00 S 20,250 S 924,000 OP(-slielrtproremaMS 6%zherdcosts S 81,860 S 5,a93 5 81,dB0 6%xlurdcosts S 81,480 S 5,093 S 81,490 Cantirigency 5%zherdco~s S 67,900 $ 4,244 S 67,909 5%xM'dcosts E b7.800 S 4244 S 67,900 Subtotei S ~,841,3B0 S 115,086 S 1,841,380 ; 1,841,380 S it5,086 S 7,841,380 Prole55icn81 Fees Nc~iteclureVEn~neenng 7%xsubt.hardcos(s 128,896.60 $ 8A56 5 128,897 T%xs~M.herdcosls 128,&96.fi0 S 8,056 S 128,897 LeittlSCep<AfGh. Alirnmnce S 2,000 § 125 § 2,000 Alowa~e S 2,000 S t25 S 2,000 CMI/Swrey Moxance S 19,000 $ 825 S 70,000 Alowe~ae S 10,~00 5 625 S 1U,000 Soils En~neer Wlowence E i,000 S 313 5 i.000 AMxa~e ; 5,000 S 373 E 5,000 DepLtylit5pedor Nlowence $ 72,00~ $ 750 § t2,000 AMmnce S 12,000 S 750 S 12,000 EmiramxMel Pifese I Nlowance $ 2,S4P $ t5B S 2.SW AAOwant9 S 2,5W 5 '156 $ 2,500 LegelFaes Allowance S i7,500 $ 7,Q9A S 4,3t4 Alowerce 5 17,500 S 1,094 S A,S75 AceouMinglAUdit Nipwance S 5,000 5 3t3 S 2,5(q AJOwenea & 5,000 b 313 $ 2,500 Ca115tIUCtlonManegement AlloWanCe 8 25,00~ S 1563 § 25,OW NON9ntt S 3+.~~ 5 1,563 5 25,000 SuMIXeI S Zo7,e4t & ~2.994 S 792,272 E 20T,897 S 72,984 S 192,272 ane~ cirypertN(senalees SLSf 5 28,000 $ 1750 $ 28,000 S~+ 5 28,aa0 5 t,750 S 28.9Q0 MeMNi~endLeeseup fUloarance S 40~ S 25 S - Plowanca S 400 S 25 S - Leeso-~pRaserve None:walUngtlsts S S S S - E S b Subtotal $ 28,400 $ 1,775 S 28,000 S 28,A00 S t,775 S 28,000 ReveloperFee 9%xherd*softsother S 186,991 S i1.687 i86.991 9%xhercHUft+Mher S 186,891 S 11,887 708,89~ Finencing Costs CCn6INttlOnL08nFee 'I.0°hXbBnemalN $ 29,900 $ 1,813 5 ~9.000 1.0°hxl0enemoleN a aaooo 5 2,000 S 32,000 Pemienent Loen Fee 1.9°h xben emourt S 29,40~ $ 1,813 5 - 1.0°bx b~ emowt S 32,400 S 2,99U S ~ - Comtrucilon periatl iMmest 5~%x rate z ben $ 123,250 S 7,103 ff 133,250 SOM x rele x ben S 138,000 $ 8,500 $ 136,000 ReelEstaleTexesi5l*%xMFI) 1.1%x(hertlsosl+fendl S 29,990 5 1.874 S 28.980 1.14bxmeMmsMbM) S 36,590 S 2,287 S 38,590 RealEUteleTaXas(50%xMFI) 0.1%x(haMCOZIHen~ 8 - § - O.t%x(IieMCOSt+IeIM) E 3 - Ireurenca SBOONnI[ S 12,800 E 800 5 12.800 EBOOMN 5 12,B00 S 800 S 12,800 CorbtNCGOnBonC 1%uhardcosts S 18,414 $ 1,15t S 18p'14 1%xhettlcosts S 18,bt4 S 7,151 S 18,414 Benk MaNlanrg Nlrnvence $ 8,000 $ 500 $ 8,000 Alowerce S b,000 S 500 b 8,000 Apprelsal tUlvxence fi A,500 5 281 S 4,500 AMOwBfke fi 4.500 S 28~ S 9,500 SuMotel $ 254,954 $ 15,535 S 225,954 5 280,304 5 17,519 S 248,304 TOTAL S 7.d1q0A6 S 213,t28 $ 2,47b,586 S 4,078,3% S 252.400 S 2,b98,%B HmMXOn RebineN28 Natladr, inc. Pages 2~l ]Iii(3CDG DavalopmeM Cast Categnries Lend Purchese Lentl Purchese apDreital Tnie ~~wren~e Escrow fees Mise Costs Subtctel COIISINd1011 pemoGtlon BuIICin9 Cas~s 9uMer. Pailtlng OtfaiteimprovemeMs CoMingerwy SubtWel Protesrslonai Fees ArclutectureUEnglneerinq ~emscapa nrcn. aNUS~rcvey Solls Englnee Oapuly inspectar Envl~ofllneMal Pheu I Lag91 FeeS Accoviting/AUdi1 Construction Menepamerd S~&totel aner Clty permtts entl fxs MehetinA end Leeso-up Leaseup Reserve s~o~aai Developer Fee Finendng Costs ConsWNOn laan Fce Permerront Lven Fee ConS~NCtlan petiod irRereSt Rael ES191e Texes (51 t°h x MFp Reel Es~als Tazes (50%x MFI) Inwrence CmrinMlon Battl BeNC Monito~ing Appreisel Subtael TOTAL CAPITAL SUe310Y RE4UIRE0 TO DEVELOP AN AFFORDABLE RENTAL IINiT UNUER ALTERY ~ ryyE AFFORDABILITY THREBH~L~S, LANU COSTS ANO I1NR SIZES. CRY ~F SANTA MONICA, 2000 NEW CONSTRUCTION DEVELOPMENT COSTS The 6evelapmeM Scenario Dausbpe; Norvpro(R, tex-eXempl commwity-6ased tlcrelapmerk orgenlzetlon SrYe 2-Lats ('I6,00~ sf Ate Inch~tlln9 ~~Y efeej, R2 dm~515 ty Ynth 50%demily bOMis, fle( Ska wiH1 no WMiw BWltlirtg 14,000 sf Idel; 2 flaies Unifs ERher 16 2-BR/1-8A(850 s~ w 12 3-8RI2-6A (Y,OBO aq flpetlmeMs Perkfrg 7.5 speces per Ia1M pNis yUe6t pelltlng; ell on one 81Utu1HroBn Ieve1 City Permils AdmiNStreNVe Approvei end ARB e~rouel: no dMr dscrefionary e~rovals City Fesa Ezempt from sGwd fees end aaeadon uNt tex b8Ri2284 72 EtlgWlo 12 Ellplble UrYt Cnsf Tofal Gost PervUrdt Basis Urdt Cost TNaI Cost PervllnX Bazls $59Aand sf S 885,~00 5 7J,750 S - &99Aerul sf S ~,485,000 S 123,750 5 - PJbwante S 1,OUP S B3 S - AAOWMte S 1,W0 S 83 S - 51/51,000 $ BB5 S 74 S - S1R1,000 S 1.483 S ~2d ¢ - 51.50/~1,000 $ 1,328 § 111 S - 6~.501§1,OOQ 5 T,278 S 186 S - S2S0lS1.000 S 2.213 S ~84 S - 52bOrY1.000 S 3,717 S 104 S - $ 890,i25 5 ?{,z02 S - S 1,493,825 S 12i,<52 S - euowance g t0A00 5 833 S 10,OPD Nlmnnx L h8,460 S 8S3 5 tO,DOd S971tidg.sf S 1,358,U00 5 113,16T 8 1,358,OQ0 597b1~.sf S 1,958,000 S 113,167 S 1,358,OW $13,SOQhpece $ 243,OOQ S 2A,250 S 243,000 513,SOChpece E 249,00~ S 211,250 8 261,OOQ 10%zheftlCOSYS $ 735,800 8 ti3t7 8 135,80~ 10%xl~ltlCOSts S 175,800 S 17.]17 S 135,800 5%:hertlcosts 5 67,900 S 5,658 S 67,900 5%zharEwsts S 67,900 S 5,658 S 67,900 S 1,814.700 3 151,'a25 S 1,814,7Q~ S 1,810,7Q0 S 157,225 S 1,819,700 T%x subt. herd tosts S 127.02g S 10,586 S 127,029 7%x subi. hefd tosts S 127,029 S 10,588 S 137.029 nnowa~=o s z,aoo 5 isr s z,ooo aiow~u a z.ooo 5 ~a~ s s,uaa Allowence S 10,000 5 833 $ 10,00~ Nlowance E 1~,000 S 833 S 1~,000 Uiawenee a 5,U00 S 4~7 5 5,000 Pllowenea E 5,000 S 4t7 S 5,W0 Aliawence $ i2,000 5 1,000 S i2,000 PLDWBnCe S 12,000 $ 7,000 S 12,~0 FUbwance $ 2,504 S 248 S 2,50P PAOwenes F 2,59Q & 298 S 2,500 Allmvance S i7,5W 8 1,458 5 4,375 Mowena S 17,SQ0 S i,458 S 4,375 Mowence $ 5,000 5 417 S 2.500 Ma~ence S 5,000 S 417 5 2,500 AIIGwence $ 25.Q00 S 2,083 S 25,00~ Mawenee ¢ 25,000 & 2,OB3 ¢ 25,000 ; 296,U29 S 17,~69 S 140,404 $ 206,028 b 17,164 S 180,404 $2/sf $ 28,000 $ 2,533 3 28,000 $7/sf § 28,00~ $ 2333 ¢ 2B,UW ,4moWente S 400 5 33 $ - P.llowanx S -000 S 33 S - None: weiling lists S S S None: weMirg li~s E S S $ 28,400 S 2,387 3 28,000 5 28,400 S 2,367 S 28,000 9%zharC+soft+other $ 784,4Y1 S 15,368 184,422 9%xh~ I~soft~olhet S 184,422 S 15,368 784,422 1,0%xroanemewd S 26,090 E 2,167 S 26,000 1.~%xbenertwuM E 31,W0 S 2,583 5 3~,000 ~.0%xlo~nemaud $ 26,OW S 2,767 5 - 1.D45zbenermia! S 31,W0 S 2,383 S 50%xrefexben 110,SW $ 9,20& S 110,SQ0 50%xretexben S 191,750 S 10,878 S ~31,T50 '1.1%X(heNCOSNIend) $ 2H,897 5 2,475 S 2B,697 i.t%xOmMCOStiIBi~ S 38,287 & 3,OZ5 $ 39,287 0.1%xt~erCCOSS+IenG) S F 9.7%z(ImItlCO6N1811OJ S S SBOOAadI $ 9,BOQ 3 B00 S 9.W0 SBOOMiI E 9,600 S 800 § 9,600 ieexnarecovs $ 18,14] 5 1512 $ 18,14] 1%xharECOSis 5 18,14T S 1,512 S 18,747 Akowanca S B,Q00 S 5s7 S 8,000 Mowenw S 8,000 S 667 S 8,0~ Allowenu $ 4,500 5 375 S 4,500 PLowanee fi 4,500 5 375 8 a,50a S 232,4+t4 5 19,370 5 206,44A $ 270,294 y 22,524 S 238,284 4 9,95ff,419 5 279,702 $ 2,423,9F 3 ],997,269 S 73I,106 f 2,436,819 HmtlXm ReEImN2lNxtlx6rt, Inc. SaMaNeK[WeYlGapbz Feges2-3 ]/iR600 CAPITAL 911BSI~V REQUIRED TO OEVELOP AN AFFORJABIE RENTAL UNR ~NDER AITERNATNE AFFORDABILITY THRESHOLDS, LAND COSTS ANU UNtT SIZES, CITY OF SANTA MONICA zaOU ei condYions DeVebpmeM Cost CMegmies Notes Lentl Purchese Lentl BaSad on HRBA 8n8Yy51s o( epertmBM Sele51ten58tHOM Pwchese apprelsel Per tlreil Clry untlermlUng wi~lines; low end Tltb inSUrence Per tlreil City untlrnMtlng g~tldelines; lovr end Eserow /ees Par drefl Ciry undervrtltln9 9u~dellnes; Iwi and MISC. Cests HR&A S~Sdel CorsWdion OBmolNOn Par NRBA BWldng Cons Per dreR Ciry urMmMGng guiEelines; low and 3uMtt. Pe~idrg Per draft C'Ry umletwndng 9uideliMa; midreiga QH-siteimprovemeMS PerHRBA Coillingeluy ParCily tlreH untlervmtlng gulCeli~ws; low entl , SUbtotel Prolessianei Fees MclitectureVEgirroenng PerCityGreftunde~wntlnB~iGeli~s;bwentl lBndBCepe NCh. Pet Ctty Qeft Un081Ynitlnp pIIE0011es; bw er~C Ch'iVSwey Per Clty treR untlervrtltlnp WItle1111es; Hph entl Sdis Ergimar Per Ctty ~aft uiMerwndng p~idelims; midrenga Deputy Nspectar Pet Cily IXeft undeMtitlng (A1108111165; rttlbrefpo Environmental Phese l Per CIry Nnft unECnxltlnO W~tldines; ligh end ~egal Fees Per Ciry tlreft underwriting ~+idelines; bw e~ Accoaitirg(AU~t PerCltyEreflurdernAiinggulCNines;laxe~ Conatnwtion Menagemeitt Per City Greft untlerwntlnp pultlalines; Iryh md 96totel Olher Gttypemil%entllees PerHRBA Merketing and Leese~~p Per City tlrett undenMtlng gultlelinea; N9h md leeso-up Rasena Per HRBA Slbtatal oeveioper Fea per Clry tlraft un~krvrtiting gultlelines; Ngh entl Finentin0 Costs CwisVUCtion Loan Fee Assunes ben = 70o b z Totel OevabpmerR Cosl PxmenerdloenFee Assunesban=104%%TutelOevslepmeniCO% Cmisductlon (MifoC Ir~terest Assunes 8.5%ben rete; loen = 70096 x Totel DevebpmeM Cost ReelESteieTe%es(51+%xMFp 100%xmetlianaorwtqueiNfort~a~emption Real Eslele Tazes i304G x MFp 50%& 60%x metllen quaAy far eftempiion o1 peneml levy but not dircct essess. i~s~rance ~ Per Ciry tlreft uMerwAting guidelir~es; bw rnE ConStNttivn Bontl Per HRBA BenkMOnitoring PuCltydrefturMmwitlngpuiEelirrer,Nghend Apqelsel Pm City deaft mWervrcidng ~idellnes; Iwr end Su6totel TOTAL n.mean rsanina.w s asmw.r. nc. saMaNe2We#capks Peg~sDa ]/iR000 Implications of Changed Market Circumstances £nr rlnn ('nv~~lnminivm 4fFnrdnhlo Hmicino Fee ~,., .,.., ~ ......................~,.,. _._...-- --..°°-•-~ - -- nDD~NyuY i C;ity ot t'alo Alto's lfelow 1ViarKet ~caLe Yr~bram HAMILTOr, R?.BINOVITZ & A7.SCHt.JI.EK, INC. JAR-l~-00 WED 10~40 AM ADVANCED.PLA~KING ~ ~ ~ebntaty 8, 1996 n;,~;~ T~Cti~Srn~ices ~S Tia~upo~b~n FAX ~0. 650 322 0952 P. 2 Ci~tyof l~alo ~lto Depiartmen r o~.Plann i-ig ar,d Communily rrulrotzrrtent ~ ~ -. ~ - , k .r-~ ~3 G:' c,i : t~ ~: M : `~ ~ 6tiF ~ a C ~ ~ •- r_ ri~ . ~:~' FF$ i 3 ~~t!F C3assic Coxnmunities, Tnc. ATT'N: Scott Ward l OG8 ~ast Meadow Circle / Palo Alto, CA 94303 ~~~ S"' f' ~~Tyyc.P,o ~~r - f~ ~~. ~ Subject: Below Mazket Rate (BMR) Agreement for 321 Byron Street, Palo e~it0 Dcar Mr. Ward: This letter sum~azizes the agreement reached between you and Planning Divisio~ staff regarding satisfaction of the provisions of the City of ~'alo Alto Relow Market Rate (BMR) Program. The requirements £or a BMR compo~~ent are contained in Program 13 of the Housing Element of the City of Palo Alto Comprehensive Plan. This letter relates to the proposed 6-unit single-famity housing project at the current addresses of 309 & 321 Byron Street, 308 Middlefield and 654 & 666 Everett Street ("tb.e project"). This agreement is predicated on you, as ihe deve~oper, subdividing the parcel, constructing the housing units on the six lots and selling the tots as developed parcels. If any other arrangement is utilized, such as sel(ing the lots individually for development by others, a new BMR agreeme~t wi11 have to be approved by the City o£Pafo Alto prior to any sales. As discusse~l, you have agreed to pxovide a 4.0 percen,t in-lieu payment based on the actual saies value of each of the lots plus improvements (units) in tl~e pr4ject. Payment will be made ta the City of Palo AIto upon the fi~rst sale of each unit in the project. Proof of sales prices must be submitted to the City of Palo Alto at the time of sale. 1he in-lieu fee requireirnec~t for any unit that is not 25pHamiltonAvenue P.O.BwcZ0250 PaloAIro.G49y3CYj 415.329.2404 A15.329.2240 Fax ~~ ~~ 1AK-19-00 WED 10~4D A~ ADVAhCE~,PLA~~IKG FAX N0. 65C 322 D952 Mr. Scott Ward Pebruary 8, 1996 ~'age 2 sald and beco~l~;es occupied on a rental or ~ease bases shall be based upon tlic sales price of the uiost expensive unit sold. Payment shall be dtie ~t timc of occupailcy of the unit(s) not so1d. P. 3 The ter~iis of this agreement shall be incorporated into the Subdivision fl;greement at the time the subdivision is appzoved by the Plattning Conitnission and tlie City Councit in a foczzt an.d instrument satis£actory to thc City Attori~.ey's offtce. Thank you for yoar coope~ration during the planning process on t~~is project. Please sign this letter where shown be~ow and return to me, indicating that we have reached agreenne~t xegarding ~our $MR contribution. Sincerely, ~~s.~~~~~~ KENNETI~ R. SCHREIBER Director of pla~ming and Community Environment i agree to provide a Below Market rate component to the project at 321 13yroa~ Street as described in this ~etter dated ~'ebruaxy 8, 1996. , C ~ '~~ / ~ Scott Ward ~ Date cc: Marlene Prendergast, Palo A1to Housing Corporation Debra Cauble, Assistant City Attorney - Jin~ Giltiland, Manager Plannin,g projects Jayx~.i Allsep, Contract Plan~ner Nancy ~,ytle, ~hief Planning ~fficial JAK-'i9-'~0 WED 10~41 AM ADVAKCED,P?AN~IING FAX N0, 050 322 0952 P. 5 (i~ d ~ l~'~D l~}'~'~ ~ ~7~-/l?9 y _ NOUSIiVG CQ~ISERVA7lON Conser~•ation and hiau~tennnce o£Pslo'Alto's Exiatu~g l~oaau~ Stoclt'nnil Re3identinl Neigl~borhoads. ' ' ; ~ ..:. . ..r. _~:.. . . - .. _. ., ....._~_tii.._...... _~_.a.._~. ' . . . .. . . . ~,.. ~. ~ .r ~~~~,, ~ ~~5~~~ ~~~ l~ ~'ouce !~-s: • . D~intnl:+ the nun~bcr of nndtifanuly rcntal 1~ouainR unib in Palo Alto al ~io Icaa th~u ita carrw~t Icvel ~.hilc supQOp~'v~~ aftorts io inateaee Ihe rentnl supply. PancR~.rr 11-15: Continiie implementntion ojtFe Condo~~u~uicm Convereion Urdin~nce, Peene ~~r ff-16: B'heru n proposed subd~cision or cnndomini~~n~ icotdd euuae a Ioas of rentnf - l~ouser~g, ~rRnt approcnt on[y if at Itase tiuo of ihe folloieing lJ~rct tir~t~m• Ytnncea esio~: ~ • The project ~cil! procIuce ai leaet n I00 percent incr¢nae in ehe r4umber oj ~~ni~: et~rrently arr tlee aera nnd ui~! eomply :rith tlis Cii~•S $eio~u hlarket Itare (B31R) progran~ (describ¢d in Progrn~a N-20); andlor - Tho +c~~niber ojre~tnt t~nita to be pro~i~fad on che iire u o~ lenst eqi~al ~o Ihe nem~6er oferistingrental«nita; nnd/or a No less chan 2Q Aercenc of iho unirs tcil__~.otr ~cirh iha Cirys Ub1R Pro- gra„e. Pxnr.tcu! Tl-X0: Contintie tn~rlansentqtton of the Cit'•'a `•Belo~c I~Iar~et Rnte" (IISIR) J~~rl~~:7onnry f)ot~sing Pragrc~m rhot req«ires nt leart ten percerct of o[I hous- ]n8 niiits buil! infor-aate projeut ojth~e~ ianits or more ~~~~ rental projecea of fiee ~~nica or mor¢ to be prouided nt baloiv n~ar6•at roles to cery 1o~c-~ !o«-, anct modernte-income 7~o~asehafds. - ~ ~~ ' ~ ~/~ ~~.v°~.'.."' ~7~ l aol ~~n~ ~{-~p ~G~i ~ ~r~~ HOUSfNG ~1V~RS1T1' JATI-i9-~0 WE- 10:42 AM ADVA~CED,PLP.N~~NG rAX N0. 65G 322 0952 p, 6 Gr~ o~ ~./o ~-h~ ~/'o~rd~ ff - ~~ ~xcex•~it frotn 1.998-2p10 Compreliensive Pla~i R~: Bh1~ Yro~,x•aix~ Tlic 1'nlo Alto Bcio.v 11Inrket Rate (`~$bI~") Progea~xi Dcrelopen uf for-sale hous~ng projccts with three or more uni~s or rental projccts of Gve ot more unila. mqst comply ~.ith P;da Aho; fl~1lR requiremcn~a, For en appGcation to be detemtine<I complete. the deceloper must n~'ee to one ora comhinaiion oi lhe Follotiving idternatires: T~ orS~lc Units: Fur ~acli ten units ~levcloped, not less than one of tlie units rnusi be provided as a B~]R unit. The [i\1R units must bc compnr.~bla to other unit< in thc drvelopmeat. The inilial sales priee Eor the 8~1R units sllU~l[i bC COt13~3(CRl 1Y11I1 5~'I1Jt ri IlOUSFIlOI[I ~~~aking SQ ~0 100 peccent of the Saota Clare Ca~nt}' mediau incame can afFord in housing ecprnaea, such xs murtgug~ p.~ym~»~, iaxcs, ii~.iurance and nssncia~ion dnes_ Furlher, ~he priee should be su~ficient io cuver lhe dc+'tloE~cr~ r•stimaicd c~irecl co~t3~n~ciion and Ei.~unciag casl of the uni1, exelusive o( land, markcting, o[f-site ienpravemcttls, and profit. ltun-si~a 13}!R unitsnrc not fcasible, Ihc second prio~ity is foroEE-site units. In such cases, one ~\IR unit must bc pro+ic~cd Eur each ni ue units deeelap~-d, or cncen~ l~nd suilable far efFordable hous~ng must bc prow~ded to Ihe City. OET-Srte unita mac be iec~. ~r rel*.:~hi[iiatcd csiatins unit3 ar.d ~nwi be pre-npproved by lhe City. Thc third priurity is a cash [~a)menl in-licu of E~~uviding l3\1R uniis_ Thc in•lieu pny,nent is equul l0 5 percenl of Ihcgreaternf the eclua! sales price or (air mnrkrt value o! e;icl~ unii sold and musi 6e puid to tltie City's Housing Decelopmee~t Fund at the Ume of Eirst aale or trnn3Fer of tltic unil_ 1~cu1n! ~nit~: rU 1ca3t 10 percc~~ nE die units in a rent~d projecl must be procided as BdIR units lo hou3eholds earnina bet~~ecn ~D und 8Q pcrcent nf tl~e Cou~~~y median income. The rents arc initially eslebli3l~ed 6ased on 1[UQ 5cetion 8{or i~; succassor pn~rum) Fuir M~rkct Reni and may be adjusted nnnually b~sed on one-third of the Consuener Yrice InJex or other comparable Eonnula , ~reed tn h~• thc C~~>_ Ahcrna~ives include payment hy d7e de~eiaPer ofan annunl in-tieu ioe ta the Ct(j's I-ousin~ Develop- men! F'unil be~sed on thc diffarencc bet+reen Ihe initial Set•tion S Fair Dlarket Rent a~~d ~he market rale rcnls oC t6e imits. or n ane-iinie fee 6cisrd on 5 percent of Ihe sppraised `t~lue oI lhe Tenlal porlioa o(the pro}ect. Siecs I.arger Tlian I~e.'c Acres: I'~vju~~u nn ej~~g I:~rger 16an Fice acres in size, excepi in the DS Disl~iet, ~.i~l provide a 1:3 pcrcent B11R com~onecd. Subdi: i3ion oE Voc:+i~~ T,at~d ~o I~e Sold \Vi~hout Dcti'elupinenl: \:ichnl I.i~tid Ih:il 'vs subd+vided into three or more lots and sold .~ithout construC~~on o[ houaing iimsl provide buildablc parccl(s) equ~.•alent to 10 perecnt of the de~•elopmenl ta tlie Cily or the Cily's deaignee. The Iand is to be used For tl~e purp~e of Jc~•elopin~ af(arduble hous~rio units.l'he Cily may sell the properly. N•i~h ~he fimd~ placed iri the City's }fousin~ Dcvelop- mr.iu Fund for fuhire hoiuino derclopment. A comparable in-]ieu fec may be Ag~ced to b7 the City and dte develoF~cr ba~ed on ~ perccne of the grealer oI the acroal sates price or Cair maticel vo~ue oF Ihe improved lo~s ~rilh houses. 1~rncliounl U[ut3: For projecls of ien oc more uizi~s. ~n en-l~eu pa?'mestt to the Ciey's Housing Derelopinant Fund ma}' be mac~e !or the Fr~tetion o~ unila o~cr multiplcs o[ ter~ for i;hich an ach~al B1(R uni~ is nol procided. Thc in-lieu Eee percentagc r~te xiN br. dte sante as tliat ur~lii~aril}' reyuirccl Cor ihe praject, usually 5 percent. For-sales or rental projec~s ot Icss than lcn onils, the B~![4 requ~reineu~ rn~y 6e satisGed hy the Fayrnent o[ e~ in-lieu (ct on each Of the unils using a sliding scale brginning at 3:Z~ pi.ri~ent Eor three Eur-sale un<<~ and 3.7~ percen~ for G~•e rental units, and increasino by Q.2~ percent Eor each ncfditional unit lo S Esercciu for ien or morc- Tfie in-~ieu fee percentage rate s~-i(~ he appliecl to the greater of tlie actUal sules priee or {uir tD:1J~('I V:7IlIL' OI ~~~~ ~1111Li_ ~Cl~e fcc oia [or-sele projects ~; ill be paid upon ~he sale o[ eaeh unil ip the project ese~uding on}~ 1~~IIZ units For realn! projecls, the fee shall be p;fid prior lo occup~ney. F,quivnlcut AlterunGo•ce: Tlic B~IR program objective is ~o obtain nctual housing uniis or buildable parcels u•idiin cach decelopment raiher thein off-site units ~~r i~rlicu paymr.nls. }Io~seti•er, the City may consider ec~uivalent altematiti•es tu nny of the nbov~ provisions. , ...--- .~ ._ ___ ( ,! ~ !1 ~ ~~ ~'~.?