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HomeMy WebLinkAbout2010-44 - Affordable Housing In-Lieu FeeRESOLUTION NO. 2010-44 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH SETTING THE AMOUNT OF THE AFFORDABLE HOUSING IN -LIEU FEE PURSUANT TO SECTION 19.54.050(D) OF THE NEWPORT BEACH MUNICIPAL CODE WHEREAS, in July of 2006, the City Council adopted an update to the City of Newport Beach's ( "City ") General Plan, which includes a Housing Element that addresses issues, goals, and policies related to ensuring an adequate supply of housing opportunities for all residents; and WHEREAS, with the intent of achieving the City's Regional Housing Needs Assessment construction goals and encouraging the housing development industry to respond to the housing needs of the community and the demand for affordable housing, the 2006 Housing Element Update (Housing Program 2.2.1) incorporates the City's longstanding inclusionary housing policy; and WHEREAS, Housing Program 2.2.1 is a statement of the City's inclusionary housing policy and requires the preparation of an Affordable Housing Implementation Plan, or the payment of an in -lieu fee, when the construction of new units is proposed; and WHEREAS, Chapter 19.54 of the Newport Beach Municipal Code implements Housing Program 2.2.1 and establishes an affordable housing requirement requiring that 15- percent of the total number of dwelling units required in conjunction with residential subdivisions be affordable to very low -, low- or moderate - income households; and WHEREAS, to increase the flexibility in the means of fulfilling inclusionary housing requirements, Chapter 19.54 provides the option of paying a fee in lieu of providing the affordable units within residential subdivision projects; and WHEREAS, in an effort to provide an equitable in -lieu fee option to residential developers, the City retained the services of Economic Planning Systems, Inc. (EPS), in 2004 to analyze and provide recommendations on the fees a residential developer should have to pay in lieu of providing affordable housing units; and WHEREAS, the City retained the services of Keyser Marston Associates (KMA) in 2009 to update the EPS in -lieu fee recommendations and to prepare selected analyses of the financial burden associated with income and affordability restrictions that may be imposed under the requirements of Chapter 19.54 (Exhibit A); and WHEREAS, such financial analyses indicated the inclusionary housing requirements can be fulfilled without creating an unreasonable constraint on residential development; and WHEREAS, the KMA in -lieu fee analysis is based on the assumption that the City will provide developers with the option to fulfill the inclusionary requirements with either ownership or rental units; and WHEREAS, the analysis further indicates that the provision of affordable rental units generates a substantially smaller financial burden than the provision of affordable ownership units, and, accordingly, the in -lieu fee analysis is based on a rental housing scenario; and WHEREAS, KMA projected the financial burden imposed on a typical new residential subdivision by the inclusionary requirements into an equivalent per unit in- lieu fee; and WHEREAS, the results of the in -lieu fee analysis indicate that the financial burden incurred providing low- income rental units pursuant to the provisions of Chapter 19.54 translates to an in -lieu fee of $18,500 per market rate ownership unit; and WHEREAS, the City Council has reviewed the financial analyses and methodology used to establish the in -lieu housing fee, and determines the in -lieu fee to be appropriate; and WHEREAS, the proposed action is not defined as a project under the California Environmental Quality Act (CEQA) because it involves general policy and procedure making activities not associated with a project or a physical change in the environment (Section 15378 of the CEQA Guidelines); and WHEREAS, notice of this hearing was made by posting the Council Agenda on the City's official notice bulletin board and posting the agenda and report on the City's Website. Notice of the time and place of the hearing, including the address where the information could be reviewed, was also posted on the City's official notice bulletin board, and mailed to the Building Industry Association of Southern California, Orange County Chapter per their written request not less than 14 days prior to the hearing. In addition, an e-mail notification of this meeting was sent to all interested parties on the City's Housing Interest List. NOW THEREFORE, the City Council of the City of Newport Beach, California, hereby resolves as follows: SECTION 1: The in -lieu housing fee pursuant to Section 19.54.050 (D) of the Newport Beach Municipal Code is set at Eighteen Thousand Five Hundred Dollars ($18,500). SECTION 2: The in -lieu housing fee shall be increased automatically, based upon the annual percentage change in the new home prices in Orange County (from December to December) as published in Real Estate Research Council report in order to ensure that the fees keep pace with inflation and the cost to construct affordable housing. SECTION 3: This Resolution passed and approved at a regular meeting of the City Council of the City of Newport Beach held on the 27th day of April, 2010. ATTES Leilani Brown, City Clerk MAYOE����7L Keith Curry EXHIBIT A Keyser Marston Associates Analysis of Inclusionary Housing Options KEYSER MARSTON ASSOCIATES ADVISORS IN PUBLIC /PRIVATE REAL ESl "ATE DEVELOPMEN "r MEMORANDUM "It, 1O1 °'N To: Sharon Wood, Assistant City Manager REALESIATE City of Newport Beach REDEVELOPMENT APFOROARL¢ HOUSING ECONOMIC DCVGLor.rNT From: Kathleen Head San I I:n.NU.<o A. JERRY KEYSER TImomYC KELLY Date: September 17, 2009 KAIE EARLE PUNK DERRIE M- KERN RoRER1 I. wt monE Subject: Analysis of Inclusionary Housing Options REED 7. KAIMM IARA I'll A.(IELES At your request, Keyser Marston Associates, Inc. (KMA) prepared selected financial KAEE JAMESA ei ABI, analyses pertaining to the City of Newport Beach (City) Inclusionary Housing Program. Y p 9 tY p ( Y) rY 9 9 LAMES A. RnI;E PAUL C. ANDERSON These analyses can be described as follows: GREGORY D. Soo-1 loo KEVIN E. ENGSTROM JULIE L. RO,MEY 1. The inclusionary housing requirements are proposed to be imposed on new DENISE BICKERSTAFF ownership residential development. Market rate rental projects are not proposed 1.11N DRII11 to be subject to the Inclusionary Housing Program requirements. GERALD M. TIIIMRLL PAUL C. MARRA 2. The proposed Program will allow the income and affordability requirements to be fulfilled in any of the following ways: a. On -site development of units within the proposed market rate ownership residential development; or b. Development of income restricted rental units; or C. Payment of a fee to the City in lieu of developing any income restricted housing units. 3. KMA tested the financial impacts associated with income and affordability restrictions that may be imposed under the Inclusionary Housing Program. Based on that analysis, KMA identified an Inclusionary Housing Program structure that does not create an onerous burden on residential development. The recommended structure is intended to comply with the State of California (State) Housing Element requirement that the program should not create an unreasonable constraint on residential development. 500 SOUTH GRANDAVENUE, SUITE 1480 D LOS ANGELES, CA LIFORNIA90071 D PHONE: 2136228095 > FAX: 2136225204 0905025_2.doc; N B: KH H: NYM:gbd W W W.KEYSERMARSTON.COM 16091.0011012 To: Sharon Wood, City of Newport Beach September 17, 2009 Subject: Analysis of Inclusionary Housing Options Page 2 BACKGROUND STATEMENT The City has applied an inclusionary housing requirement on a case -by -case basis for new residential development for more than 20 years. This requirement is currently being formalized into an ordinance that will impose specific restrictions on future new ownership residential development. As part of the process, the City engaged Economic & Planning Systems, Inc. to prepare an "Inclusionary Housing In -Lieu Fee Study" (EPS Study). This study was completed in October 2008. KMA was recently engaged by the City to test the financial impacts associated with the proposed requirements. The ultimate objective of the KMA analysis is to create Inclusionary Housing Program terms that fulfill the City's affordable housing objectives without eliminating the developer's economically beneficial use of the property. KMA tested the following baseline inclusionary housing obligations: 1. Threshold requirement: 15% of the units in market rate ownership residential development are subject to income and affordability restrictions. 2. Household Income Restrictions: a. If ownership units are provided to fulfill the obligation, the restricted units must be allocated to moderate income households. b. If rental units are provided to fulfill the obligation, the restricted units must be rented to low income households. KMA prepared pro forma analyses of prototypical product types to estimate the financial impact created by imposing the identified inclusionary housing requirements. The analyses compare baseline market rate project pro formas to pro formas for projects that meet the inclusionary standards. These comparisons are used to quantify the financial impacts created by the requirements being tested. KMA also reviewed the characteristics of inclusionary housing ordinances currently in place throughout California. The purpose of this survey is to provide further assistance in determining whether the requirements being considered by the City fall within the range of other existing ordinances. PRO FORMA ANALYSIS ORGANIZATION A summary of the analysis is presented in Table 1. The supporting pro forma analyses are organized as follows: 0905025_2.doc; NB: KHH: NYM:gbd 16091.001/012 To: Sharon Wood, City of Newport Beach Subject: Analysis of Inclusionary Housing Options Appendix A: Affordable Housing Cost Calculations Appendix B: Ownership: Baseline Market Rate Project Appendix C: Ownership: Moderate Income Inclusionary Appendix D: Rental: Baseline Market Rate Project Appendix E: Rental: Low Income Inclusionary ANALYSIS ASSUMPTIONS Ownership Assumptions September 17, 2009 Page 3 KMA reviewed ownership residential projects that have recently been submitted to the City's Planning Department to identify the product type to use as the baseline market rate project scenario. Based on the available information, KMA created a prototype project with the following characteristics: 1. The development site is set at two acres. 2. The prototype project includes 32 units, which represents a density of 16 -units per acre. 3. The average unit size is set at approximately 2,100 square feet. The pro forma analyses are based on the following assumptions: 1. The construction costs, excluding land acquisition costs, are estimated at $1.2 million per unit. 2. The average sales price for the market rate units is projected at $1.8 million per unit. 3. Based on the affordable housing cost calculation methodology defined in the City's Housing Element, the 2009 affordable purchase price for a three - bedroom unit is approximately $360,000 (See Appendix A -Table 1). 4. The threshold developer profit is set at 15% of the project's construction costs. Rental Assumptions The rental prototype being tested in the KMA financial analysis is based on a survey of apartment complexes in Newport Beach. The key components of the prototype project are: 0905025_2.doc; NB:KHH: NYM:gbd 16091.001/012 To: Sharon Wood, City of Newport Beach September 17, 2009 Subject: Analysis of Inclusionary Housing Options Page 4 1. The development site is set at two acres. 2. The prototype project includes 36 units, a density of 18 -units per acre. 3. The project includes the following unit mix: a. 40% one - bedroom units; b. 40% two- bedroom units; and C. 20% three - bedroom units. The following assumptions are used in the rental scenarios: i 2. 3. Cl The construction cost estimates are based on the assumptions applied in the EPS Study. The construction costs, excluding land acquisition, are estimated at $154,000 per unit. Projected Market Rents a. One - bedroom unit: $2,100 per month; b. Two - bedroom unit: $2,700 per month; and C. Three - bedroom unit: $3,000 per month. Affordable Rent Inclusionary Housing Units a. The affordable rents are based on the calculation methodology identified in the City's Housing Element. b. The 2009 low income rents are: i. One - bedroom unit: $1,441 per month; ii. Two - bedroom unit: $1,802 per month; and iii. Three - bedroom unit: $2,065 per month. The threshold stabilized return on total investment for the rental housing projects is set at 6.6 %. This return rate is approximately equal to the rate applied in the EPS Study. 0905025_2.doc;N B:KH H:NYM:gbd 16091.001/012 To: Sharon Wood, City of Newport Beach September 17, 2009 Subject: Analysis of Inclusionary Housing Options Page 5 FINANCIAL CONSTRAINTS ANALYSIS Ownership: Moderate Income Inclusionary The primary financial impact created by imposing affordable housing requirements on ownership units is the difference between the achievable market rate prices and the allowable prices for the income restricted units. However, there are also some minor differences in cost categories that are driven by the revenues generated by an ownership project. The pro forma analyses in Appendices B and C illustrate the estimated impact created by providing the inclusionary units within a market rate project. The pro forma analyses results indicate that the requirement to set aside 15% of the units for moderate income households acts to reduce the supportable land value in the near term by 50% (Appendix C — Table 3). A land value reduction in this range can be considered an onerous burden that will act as a constraint to residential development. Rental: Low Income Inclusionary To mitigate the financial burden, the proposed Inclusionary Housing Program provides the option for developers to fulfill the requirements by constructing affordable rental units. This section of the analysis evaluates the financial impact associated with providing the required inclusionary units in rental projects. The financial impact associated with imposing income and affordability restrictions on apartment development is largely related to the decrease in supportable investment created by the reduction in the achievable rents. However, the revenue reduction is offset to some degree by the fact that the property taxes for the income restricted project will be lower than the property taxes for a market rate project. The pro forma analyses in Appendices D and E illustrate the impact created by providing low income rental units. The results of the comparative pro forma analysis indicate that the proposed inclusionary requirements act to decrease the supportable land value by 10% (Appendix E) This value decrease falls well within the typical range for an inclusionary housing ordinance. 0905025_2.doc; NB: KHH: NYM:gbd 16091.001/012 To: Sharon Wood, City of Newport Beach Subject: Analysis of Inclusionary Housing Options Development Constraints Conclusions September 17, 2009 Page 6 The results of the ownership residential analysis indicate that the identified inclusionary housing requirements impose an onerous burden on developers. However, the option for developers to fulfill the requirements by providing affordable rental units mitigates the detriment sufficiently to eliminate the constraint to residential development. Thus, it can be concluded that the inclusionary housing requirements do not create an unreasonable constraint on ownership residential development. ORDINANCE COMPARISON The financial analyses undertaken by KMA indicate that the inclusionary housing requirements can be fulfilled without creating an unreasonable constraint on residential development. To crosscheck this finding, KMA surveyed over 100 jurisdictions in California that currently impose inclusionary housing requirements. The results of this survey indicate that the identified requirements fall within the norm of the standards imposed by inclusionary housing programs being implemented throughout the state. The courts have held that affordable housing is a "public benefit ", and that locally imposed inclusionary housing ordinances are a legitimate means of providing this public benefit. The courts have further found that the requirements cannot deprive an owner of "all economically beneficial use" of the property. However, to date, no definition of all economically beneficial use has been provided. For reference purposes, it should be noted that inclusionary housing programs recently adopted in several California locations have been projected to generate land value reductions in the 30% range. As discussed previously in this analysis, the inclusionary housing obligations being tested are projected to create a financial detriment that is significantly less than a 30% decrease to the supportable land value. As such, it can be concluded that the proposed inclusionary housing requirements do not create an unreasonable constraint on residential development. SUPPORTABLE IN -LIEU FEE To increase the Program's flexibility, the inclusionary housing obligations can be fulfilled through the payment of an in -lieu fee. To establish a recommended in -lieu fee amount, KMA translated the financial impact generated by the inclusionary requirements into a per unit fee. Since it has been determined that the identified inclusionary housing requirements are supportable, this methodology implicitly results in a reasonable in -lieu fee. 0905025_2.doc; NB: KHH: NYM:gbd 16091.001/012 To: Sharon Wood, City of Newport Beach September 17, 2009 Subject: Analysis of Inclusionary Housing Options Page 7 The KMA analysis is based on the assumption that the City will provide developers with the option to fulfill the inclusionary requirements with either ownership or rental units. The analysis further indicates that the provision of affordable rental units generates a substantially smaller financial impact than the provision of affordable ownership units. Thus, the in -lieu fee analysis is based on a rental housing scenario. The following methodology was used to establish the recommended in -lieu fee amount: 1. As shown on Appendix E — Table 3, the financial impact is estimated at $591,000 for the 36 -unit prototype apartment project being evaluated. 2. The inclusionary housing obligation is applicable to market rate ownership housing development. As such, the in -lieu fee analysis is based on the inclusionary requirement for the 32 -unit prototype ownership that was tested previously in this analysis: a. The 32 -unit ownership project generates a requirement for five income restricted units. b. When the $591,000 gap is divided by the five affordable units, the supportable in -lieu fee equals approximately $118,200 per affordable unit. 3. The affordability gap can also be divided by the total number of market rate ownership units to arrive at a supportable in -lieu fee per market rate unit. Based on the results of the KMA analysis, the supportable in -lieu fee is equal to $18,500 per market rate ownership unit ($591,000 / 32 units). CONCLUSIONS Based on the results of the financial analysis, KMA reached the following conclusions: 1. The Inclusionary Housing Program structure evaluated by KMA does not deprive an owner of "all economically beneficial use" of the property, nor does it create an unreasonable constraint on residential development as defined by State Housing Element requirements. 2. The inclusionary option selected by developers will vary depending on the actual scope of development being proposed. However, the financial analysis demonstrates that there is a strong financial incentive for developers to select the in -lieu fee option. Nonetheless, it is possible that some developers may find it preferable to fulfill the inclusionary housing requirements by constructing affordable rental units. 0905025_2.doc;N B: KH H: NYM:gbd 16091.001/012 TABLE 1 AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA I. IOWNERSHIP - SITE 87.120 SF I MARKET RATE Affordable Housing Cost N.A Land Cost' $167 /SF Supportable Land Value % (Decrease) /Increase in Land Value Number of Units Density (Units /Acre) Affordable Housing Affordable Housing Cost MARKET RATE SCENARIO 36 18.0 None N.A. Land Cost 2 $68 /SF Supportable Land Value /o (Decrease) /Increase in Land Value OWNERSHIP: [MODERATE INCOME INCLUSIONARY 32 16.0 5 Units - 15 % Moderate Income Housing Element Standards $167 /SF $84 /SF -50% RENTAL: LOW INCOME INCLUSIONARY 36 18.0 5 Low Income Units 3 Housing Element Standards $68 IS F $61 /SF -10% III. ISupportable In -Lieu Fee/ Market Rate Unit 4 $18,500 /Unit The land cost is based on the residual land value supported by the market rate scenario. 3 The land cost is set at $69/ SF based on the EPS Inclusionary Housing Study, 10/7/2008. 3 Based on the number of inclusionary units required by the ownership residential project. 4 The in -lieu fee is based on the affordability gap associated with fulfilling the obligation with rental units. See APPENDIX E. Prepared by: Keyser Marston Associates, Inc. File name: NB InG_9_17_09.x1s; Summary SCENARIO Number of Units 32 Density (Units /Acre) 16.0 Affordable Housing None Requirements Affordable Housing Cost N.A Land Cost' $167 /SF Supportable Land Value % (Decrease) /Increase in Land Value Number of Units Density (Units /Acre) Affordable Housing Affordable Housing Cost MARKET RATE SCENARIO 36 18.0 None N.A. Land Cost 2 $68 /SF Supportable Land Value /o (Decrease) /Increase in Land Value OWNERSHIP: [MODERATE INCOME INCLUSIONARY 32 16.0 5 Units - 15 % Moderate Income Housing Element Standards $167 /SF $84 /SF -50% RENTAL: LOW INCOME INCLUSIONARY 36 18.0 5 Low Income Units 3 Housing Element Standards $68 IS F $61 /SF -10% III. ISupportable In -Lieu Fee/ Market Rate Unit 4 $18,500 /Unit The land cost is based on the residual land value supported by the market rate scenario. 3 The land cost is set at $69/ SF based on the EPS Inclusionary Housing Study, 10/7/2008. 3 Based on the number of inclusionary units required by the ownership residential project. 4 The in -lieu fee is based on the affordability gap associated with fulfilling the obligation with rental units. See APPENDIX E. Prepared by: Keyser Marston Associates, Inc. File name: NB InG_9_17_09.x1s; Summary APPENDIX A AFFORDABLE HOUSING COST CALCULATIONS Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xls; Afford Cost APPENDIX A - TABLE 1 AFFORDABLE HOUSING COST CALCULATIONS OWNERSHIP UNITS INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA I. Income Assumptions Income Level Number of Bedrooms Benchmark Household Size Household Income for Calculation Purposes ' II. Affordable Housing Price Calculation Household Income Multiplier 2 Total Affordable Housing Price Moderate Three - Bedrooms Six Person $119,850 $119,850 3.0 $359,600 Based on the 2009 area median income published by the California Housing & Community Development Department. The household size is set at the number of bedrooms in the unit multiplied times two. 2 Based on the methodology defined in the City's Housing Element. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.x1s; Afford Cost APPENDIX A - TABLE 2 i AFFORDABLE HOUSING COST CALCULATIONS RENTAL UNITS INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA I. Income Level Low II. One - Bedroom Units Benchmark Household Size Two Person Household Income for Calculation Purposes ' $59,500 % of Income Allotted to Housing Costs 30% Annual Income Available for Housing Costs $17,850 Monthly Income Available for Housing Costs $1,488 Less: Utilities Allowance 47 Total Affordable Rent $1,441 III. Two- Bedroom Units Benchmark Household Size Four Person Household Income for Calculation Purposes ' $74,400 % of Income Allotted to Housing Costs 30% Annual Income Available for Housing Costs $22,320 Monthly Income Available for Housing Costs $1,860 Less: Utilities Allowance 58 Total Affordable Rent $1,802 IV. Three - Bedroom Units Benchmark Household Size Six Person Household Income for Calculation Purposes ' $86,300 % of Income Allotted to Housing Costs 30% Annual Income Available for Housing Costs $25,890 Monthly Income Available for Housing Costs $2,158 Less: Utilities Allowance 93 Total Affordable Rent $2,065 Based on the 2009 household incomes published by the California Housing & Community Development Department. The household size is set at the number of bedrooms in the unit multiplied times two. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xls; Afford Cost APPENDIX B OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE) Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_i7 09.xls; Own Base APPENDIX B - TABLE 1 ESTIMATED CONSTRUCTION COSTS OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH. CALIFORNIA I. Direct Costs Site Work Costs 87,120 Sf Land Area $40.00 /Sf Land Area $3,485,000 Building Costs' 67,952 /Sf GBA $285 /Sf GBA 19,366,000 Total Direct Costs $22,851,000 II. Indirect Costs General Indirect Costs 2 13% Direct Costs $2,971,000 Permits & Fees 32 Units $20,000 /Unit 640,000 Insurance 32 Units $15,000 /Unit 480,000 Developer Fee 3% Sales Revenues 1,769,000 Total Indirect Costs $5,860,000 III. Financing /Closing Costs Interest During Construction /Absorption a $5,885,000 Loan Origination Fees ° $35,380,000 Loan Amount 2.5 Points 885,000 Closing & Sales; & Warranties a 3,108,000 Total Financing /Closing Costs $9,878,000 IV. ITotal Construction Costs 32 Units $1,206,000 /Unit $38,589,000 ' Average unit size equal to 2,124 square feet. GBA includes a 0% allowance for non - fivable area. 2 Includes architecture, engineering & consulting; taxes, legal & accounting; marketing; and soft cost contingency. a Construction and absorption period interest set at a 10.2% blended return on debt and equity. Carrying costs are based on an 18 month development period. Absorption rate is set at 4 units/month. Based on a 60% loan to value ratio. s Based on 5% of sales revenues plus $5,000 /unit for warranties costs. Prepared by: Keyser Marston Associates, Inc. File name: NB Ind _9_17_09.x1s; Own Base APPENDIX B - TABLE 2 PROJECTED SALES REVENUES OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA MARKET RATE SCENARIO' I. ITotal Sales Revenues 32 Units @ $1,842,700 /Unit $58,966,000 1 Sales price at $868 /sf of net livable area. Prepared by: Keyser Marston Associates, Inc. File name: NB InG_9_17_09.xls; Own—Base APPENDIX B - TABLE 3 RESIDUAL LAND VALUE ANALYSIS OWNERSHIP: BASELINE - MARKET RATE PROJECT: 32 UNITS (16 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH. CALIFORNIA 1. Total Sales Revenues See APPENDIX B - TABLE 2 II. Project Costs $58,966,000 Total Construction Costs See APPENDIX B - TABLE 1 $38,589,000 Threshold Developer Profit 15% of Total Construction Costs 5,788,000 Total Project Casts $44,377,000 III. I Residual Land Value 87,120 Sf Land Area $167 /Sf Land Area $14,589,000 Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xl$; Own_Base APPENDIX C OWNERSHIP: IMODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE) Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xls; Own Inc APPENDIX C - TABLE 1 ESTIMATED CONSTRUCTION COSTS OWNERSHIP: IMODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA 1. Direct Costs Site Work Costs 87,120 Sf Land Area $40.00 /Sf Land Area $3,485,000 Building Costs' 67,952 /Sf GBA $285 /Sf GBA 19,366,000 Total Direct Costs $22,851,000 II. Indirect Costs General Indirect Costs 2 13% Direct Costs $2,971,000 Permits & Fees 32 Units $20,000 /Unit 640,000 Insurance 32 Units $15,000 /Unit 480,000 Developer Fee 3 1,769,000 Total Indirect Costs III. Financing /Closing Costs Interest During Construction /Absorption 4 Loan Origination Fees 5 $35,380,000 Loan Amount Closing & Sales; & Warranties 5 Total Financing /Closing Costs $6,073,000 2.5 Points 885,000 2,738,000 $5,860,000 $9,696,000 IV. ITotal Construction Costs 32 Units $1,200,000 /Unit $38,407,000 1 Average unit size equal to 2,124 square feet. GBA includes a 0% allowance for non - livable area. 2 Includes architecture, engineering & consulting; taxes, legal & accounting; marketing; and soft cost contingency. 3 See APPENDIX B - TABLE 2 - The Developer Fee is set equal to the amount calculated in the market rate scenario. Construction and absorption period interest set at a 10.2% blended return on debt and equity. Carrying costs are based on an 18 month development period. Absorption rate is set at 4 unitstmonth. 5 Based on a 60% loan to value ratio. s Based on 5% of sales revenues plus $5,000 /unit for warranties costs. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xls; Own_lnc APPENDIX C - TABLE 2 PROJECTED SALES REVENUES OWNERSHIP: [MODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH CALIFORNIA I. Market Rate Units 1 27 Units @ $1,842,700 /Unit $49,752,900 II. Moderate Income Units - 3 Bd 2 5 Units @ $359,600 /Unit 1,798,000 III. ITotal Sales Revenues $51,550,900 1 Sales price at $868/sf of net livable area for Three - Bedrooms and $0 /sf of net livable area for Five - Bedrooms. 2 See APPENDIX A - TABLE 1 for the affordable housing cost calculations. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xis; Own—Inc i APPENDIX C - TABLE 3 LAND VALUE IMPACT ANALYSIS OWNERSHIP: IMODERATE INCOME INCLUSIONARY: 32 UNITS (16 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH. CALIFORNIA I. Total Sales Revenues 11. Project Costs Total Construction Costs Land Cost 1 Threshold Profit 2 Total Project Costs 111. Affordability Gap IV. Effective Land Value Land Cost Affordability Gap Effective Land Value % Land Value Decrease V. Supportable In -Lieu Fee Total Fee Fee/ Affordable Unit Fee/ Market Rate Unit See APPENDIX C - TABLE 2 See APPENDIX C - TABLE 1 See APPENDIX B - TABLE 3 See APPENDIX B - TABLE 3 87,120 Sf Land Area $84 /Sf Land Area 38,407,000 14,589,000 5,788,000 $51,550,900 $58,784,000 ($7,233,000) $14,589,000 (7,233,000) $7,356,000 -50% 1 Land Cost is based on the Residual Land Value generated by the market rate scenario in APPENDIX B. 2 Threshold Profit is based on the amount of profit generated by the market rate scenario in APPENDIX B. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xis; Own Inc $7,233,000 $1,446,600 /Unit $267,900 /Unit APPENDIX D RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE) Prepared by: Keyser Marston Associates, Inc. File name: NB Ind _9_17_09.xis; Apl_Base APPENDIX D - TABLE 1 ESTIMATED CONSTRUCTION COSTS RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA II. Direct Costs t One - Bedroom 14 Units $88,450 /Unit $1,238,000 Two - Bedrooms 14 Units $128,100 /Unit 1,793,000 Three - Bedrooms 8 Units $152,500 /Unit 1,220,000 Total Direct Costs $4,251,000 111. Indirect & Financing Costs 30% Direct Costs $1,275,000 V. ITotal Construction Costs 36 Units $153,500 /Unit $57526,000 Direct Costs are based on Economic & Planning Systems' Construction Costs from "Inclusionary Housing In -Lieu Fee Study ", dated October 7, 2008. Prepared by: Keyser Marston Associates, Inc. File name: NB InG_9_17_09.z1s; Apt_Base APPENDIX D - TABLE 2 STABILIZED NET OPERATING INCOME RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA I. Rent Income 1 One - Bedroom 14 Units @ $2,100 /Month $352,800 Two - Bedrooms 14 Units @ $2,700 /Month 453,600 Three - Bedrooms 8 Units @ $3,000 /Month 288,000 Gross Income $1,094,400 Vacancy & Collection Allowance 5% Gross Income (54,700) Effective Gross Income $1,039,700 II. Operating Expenses General Operating Expenses 36 Units @ $4,200 /Unit $151,200 Property Taxes 2 36 Units @ $3,680 /Unit 132,500 Total Operating Expenses 36 Units @ ($7,880) /Unit ($283,700) III. INet Operating Income $756,000 1 Market rent = $2.83 /sf for One - Bedroom; $2.53/sf for Two - Bedrooms; and $2.44/sf for Three - Bedrooms. 2 Based on the project value at a 6.0% capitalization rate and a 1.05% tax rate. Prepared by: Keyser Marston Associates, Inc. File name: NB Ind 9_17_09.x1s; Apt_Base APPENDIX D - TABLE 3 RESIDUAL LAND VALUE ANALYSIS STABILIZED NET OPERATING INCOME RENTAL: BASELINE - MARKET RATE PROJECT: 36 APARTMENT UNITS (18 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS I. Warranted Private Investment Net Operating Income Threshold Return on Total Investment' Total Warranted Investment 11. Total Construction Cost See APPENDIX D - TABLE 2 See APPENDIX D - TABLE 1 $756,000 6.6% $11,455,000 $5,526,000 III. IResidual Land Value 87,120 Sf Land Area $68 /Sf Land Area $5,9291000 1 Threshold Return on Total Investment is based on a 6.0% capitalization rate and 20% profit as a percentage of construction costs. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xls; Apt_Base APPENDIX E RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE) Prepared by: Keyser Marston Associates, Inc. File name: NB Ind_9_17_09.xls; Apt_LOw APPENDIX E - TABLE 1 ESTIMATED CONSTRUCTION COSTS RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA 1. Direct Costs' One - Bedroom 14 Units Two- Bedrooms 14 Units Three - Bedrooms 8 Units Total Direct Costs II. Indirect & Financing Costs 30% Direct Costs $88,450 /Unit $1,238,000 $128,100 /Unit 1,793,000 $152,500 /Unit 1,220,000 $4,251,000 $1,275,000 III. ITotal Construction Costs 36 Units $153,500 /Unit $5,526,000 Construction Costs are based on Economic & Planning Systems' "Inclusionary Housing In -Lieu Fee Study ", dated October 7, 2008. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09As: Apt_Low APPENDIX E - TABLE 2 STABILIZED NET OPERATING INCOME RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA 1. Rent Income Market Rent' One - Bedroom 12 Units @ $2,100 /Month $302,400 Two - Bedrooms 12 Units @ $2,700 /Month 388,800 Three - Bedrooms 7 Units @ $3,000 /Month 252,000 Low Income 2 One - Bedroom 2 Units @ $1,441 /Month $34,600 Two - Bedrooms 2 Units @ $1,802 /Month 43,200 Three - Bedrooms 1 Unit @ $2,065 /Month 24,800 Gross Income $1,045,800 Vacancy & Collection Allowance 5% Gross Income (52,300) Effective Gross Income $993,500 II. Operating Expenses General Operating Expenses 36 Units @ $4,200 /Unit $151,200 Property Taxes 3 36 Units @ $3,480 /Unit 125,300 Total Operating Expenses 36 Units @ ($7,680) /Unit ($276,500) III. Net Operating Income $717,000 Market rent = $2.83 /sf for One- Bedroom; $2.53 /sf for Two-Bedrooms; and $2.44/sf for Three - Bedrooms. s See APPENDIX A - TABLE 2 for the affordable housing cost calculations. s Based on the project value at a 6.0% capitalization rate and a 1.1 % tax rate. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.x1s; Apt Low APPENDIX E - TABLE 3 LAND VALUE IMPACT ANALYSIS RENTAL: LOW INCOME INCLUSIONARY : 36 APARTMENT UNITS (18 UNITS /ACRE) AFFORDABLE HOUSING CASE STUDIES INCLUSIONARY HOUSING ANALYSIS NEWPORT BEACH, CALIFORNIA 1. Warranted Private Investment Net Operating Income Threshold Return on Total Investment' Total Warranted Investment II. Total Construction Cost 111. Residual Land Value IV. Effective Land Value Land Cost From Mkt Scenario Supportable Land Value Decrease in Land Value % Land Value Decrease See APPENDIX E - TABLE 2 See APPENDIX E - TABLE 1 $717,000 6.60% See APPENDIX D - TABLE 3 $5,929,000 87,120 Sf Land Area $61 /Sf Land Area $5,338,000 V. Supportable In -Lieu Fee Total Fee Fee/ Affordable Unit Fee/ Market Rate Unit in the Market Rate Ownership Project 2 $10,864,000 $5,526,000 $5,338,000 $591,000 $118,200 /Unit $18,500 /Unit $591,000 10% 1 Threshold Return on Total Investment is based on a 6.0% capitalization rate and 20% profit as a percentage of construction costs. 2 The Market Rate Ownership Project includes 32 units. Prepared by: Keyser Marston Associates, Inc. File name: NB Incl_9_17_09.xls: Apt Low STATE OF CALIFORNIA } COUNTY OF ORANGE CITY OF NEWPORT BEACH } I, Leilani I. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution No. 2010 -44 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, duly and regularly held on the 27th day of April, 2010, and that the same was so passed and adopted by the following vote, to wit: Ayes: Selich, Rosansky, Henn, Gardner, Mayor Curry Noes: None Absent: Webb, Daigle Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 28th day of April, 2010. � r l V City Clerk Newport Beach, California (Seal)