HomeMy WebLinkAboutJim Cefalia (PA2003-201)CITY OF NEWPORT BEACH
PLANNING COMMISSION STAFF REPORT
Agenda Item: 2
December 4, 2003
TO: PLANNING COMMISSION
FROM: James W. Campbell, Senior Planner
(949) 644 -3210, jcampbell @city.newport- beach.ca.us
SUBJECT: Coastal Residential Development Permit No. 2003 -002
206 E. Balboa Boulevard
APPLICANT: Jim Cefalia, Newport Beach
The applicant proposes to demolish a nonconforming 6 -unit apartment building located
at 206 E. Balboa Boulevard and plans to construct three single family residences. The
site is comprised of 3 lots that are zoned R -2, so the development of three single family
homes or three duplexes is possible. The demolition of more than 3 units within a single
building requires the approval of a Coastal Residential Development Permit pursuant to
Chapter 20.86 of the Zoning Code.
Approve Coastal Residential Development Permit No. 2003 -002 subject to the findings
and conditions of approval contained within the attached resolution (Exhibit No. 1).
DISCUSSION
Government Code Section 65590 regulates the demolition or conversion of affordable
housing within the Coastal Zone. When affordable units are proposed to be eliminated
through demolition or conversion, the units are required to be replaced at a one - for -one
basis if feasible. Several exemptions are provided for; however, the project does not
qualify as it is not a conversion to a non - residential, coastal dependent use, it is not a
demolition of a declared public nuisance, and it is not the reconstruction of a
nonconforming building damaged by natural disaster.
Information collected from the tenants indicates that 4 units are occupied by low or
moderate income households based upon 2003 income limits published by the State
Department Housing and Community Development.
CDRP No. 2003 -002
December 4, 2003
Page 2
Since the City does not have an established affordable housing in -lieu fee program, the
City conducted a financial feasibility study to determine whether or not it is feasible to
include the 4 replacement units within the proposed project. The study was prepared
under the direction of the City by Keyser Marston Associates who the City selected as a
qualified consultant. The financial feasibility study is attached as Exhibit No. 2.
Since 4 affordable units cannot be included in a 3 unit development project that the
applicant plans to construct, the study evaluated financial aspects of a theoretical 6 unit
development. The project site is comprised of 3 lots zoned R -2 and a 6 unit project (with
4 affordable units) would is consistent with the General Plan and Zoning. The financial
analysis concludes that the applicant's cost to develop 4 moderate income units and 2
market rate units (6 total) would exceed sales revenues by an estimated $865,000.
Therefore, it is concluded that it is financially infeasible to require the applicant to
replace the 4 lost affordable units within the development. With a finding of infeasibility,
the demolition can be authorized and the applicant is not required to replace the lost
affordable units.
Due to a reduction in affordable housing as a direct result of the project, staff has
negotiated the payment of an in -lieu fee. The applicant has consented to the payment of
$13,500 for each affordable unit demolished, $54,000 total. This amount is the
approximate per unit cost to the City for the Bayview Landing senior affordable housing
project. If this fee is collected, it will be added to the City's affordable housing fund that
presently has a balance of approximately $2.5 million. This fund is used by the City to
increase the supply of affordable housing within the City. Using the fund to subsidize
this project was not considered cost effective due to the size of the project and the high
revenue gap of $865,000.
Environmental Review
The project qualifies for a categorical exemption per Section 15301(1)(2) of the
California Environmental Quality Act implementing guidelines which exempts the
demolition of up to 6 units within small residential structures within an urbanized area
where no significant environmental resources are present, or are known to exist on the
development site. Staff believes that the project qualifies since the project site is devoid
of environmental resources.
Public Notice
Notice of this hearing was published in the Daily Pilot, mailed to property owners within
300 feet of the property and posted at the site a minimum of 10 days in advance of the
hearing consistent with the Municipal Code. Additionally, the item appeared upon the
agenda for this meeting, which was posted at City Hall and on the city website.
CDRP No. 2003 -002
December 4, 2003
Page 3
Alternatives
The Planning Commission has limited options with this project. The Commission can
change the suggested in -lieu fee or not require it at all. Since it is not feasible to replace
the affordable units lost, requiring the applicant to do so will effectively kill the project
unless an alternate funding source is found. As noted previously, staff does not believe
financial assistance by the City is advisable. Denial of the applicant's request to
demolish the units will not ensure the preservation of the 4 affordable units since the
City is not in a position to mandate their preservation.
Prepared by:
Co
James Campbell, 8enior Olanner
EXHIBITS
1. Draft resolution for project approval.
2. Financial feasibility study.
Submitted by:
Patricia L. Temple, Prannifib Director
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Ai
Exhibit No. 1
Draft resolution for
project approval
I
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RESOLUTION NO.
A RESOLUTION OF THE PLANNING COMMISSION OF THE CITY OF
NEWPORT BEACH APPROVING COASTAL RESIDENTIAL
DEVELOPMENT PERMIT NO. 2003 -002 FOR PROPERTY LOCATED
AT 206 E. BALBOA BOULEVARD (PA2003 -201).
THE PLANNING COMMISSION OF THE CITY OF NEWPORT BEACH HEREBY FINDS,
RESOLVES AND ORDERS AS FOLLOWS:
Section 1. An application was filed by Jim Cefalia, with respect to property located at
206 E. Balboa Boulevard, and legally described as Lots 4, 5 & 6, Block 4 of the Newport Bay
Tract, requesting approval of Coastal Residential Development Permit No. 2003 -002 to
authorize the demolition of a 6 -unit apartment building within the Coastal Zone containing 4
units occupied by low or moderate income households.
Section 2. A public hearing was held on December 4, 2003, in the City Hall Council
Chambers, 3300 Newport Boulevard, Newport Beach, California. A notice of the time, place
and purpose of the aforesaid meeting was given. Evidence, both written and oral, was
presented to and considered by the Planning Commission at this meeting.
Section 3. The Planning Commission finds the following:
Government Code Section 65590 requires the replacement of dwelling units when
demolished if they are occupied by low or moderate income households and located within
the Coastal Zone.
2. Information supplied by the applicant indicates that 4 of the 6 units located at the subject
property are occupied by low or moderate income households.
3. A financial feasibility study was conducted by Keyser Marston & Associates to determine
whether or not it is financially feasible to replace the 4 affordable units proposed to be
demolished. The feasibility study concludes that it is financially infeasible to require 4
replacement affordable units at the subject property.
4. Due to the reduction in affordable units within the City with the demolition proposed, the
applicant should mitigate that loss through the payment of an in -lieu fee to the City, which
can be used to increase the affordable housing supply within the City.
5. An in -lieu fee of $13,500 per affordable unit ($54,000 total) has been proposed by the City
and the applicant has agreed to the payment.
Section 4. Based on the aforementioned findings, the Planning Commission approves
Coastal Residential Development Permit No. 2003 -002 subject to the payment of an in -lieu fee
to the City of Newport Beach in the amount of Fifty -Four Thousand Dollars ($64,000).
I
Planning Commission Resolution No.
Page 2 of 2
Section 5. This action shall become final and effective fourteen days after the
adoption of this Resolution unless within such time an appeal is filed with the City Clerk or this
action is called for review by the City Council in accordance with the provisions of Title 20,
Planning and Zoning, of the Newport Beach Municipal Code.
PASSED, APPROVED AND ADOPTED THIS 4th DAY OF DECEMBER, 2003.
BY:
Earl McDaniel, Chairman
FEW
Michael Toerge, Secretary
AYES:
NOES:
16
Exhibit No. 2
Financial feasibility study
E
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K E Y S E R M A R S T O N A S S O C I A T E S I N C.
ADVISORS IN:
500 SOUTH GRAND AVENUE, SUITE 1490
LOS ANGELES, CALIFORNIA 90071 BY
REAL ESTATE
RECEIVED
PHONE: 213/622 -9095 T
REDEVELOPMENT
APPONDAOLB HOUSING
FAX: 213/622 -5204 pL,p,NNING InlAR cArH
AIC�IIr?
ECONOMIC DEVELOPMENT
WWW.KEYSERMARSTON.COM CITY (1C
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vd 1 2003
PM
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LOS ANGELES
MEMORANq�* 11011i11� I i I 3141B18
1
Calvin E. Hollis, I1
Kathleen H. Head
James A. Rabe
Paul C. Anderson
Gregory D. Soo -Hoo
SAN DIEGO
To: James Campbell, Senior Planner
Gerald M. Trimble
Paul C. Marra
City of Newport Beach
SAN FRANCISCO
A. Jerry Keyser
From: Kathleen Head
Timothy C. Kelly
Julie Romey
Kate Earle Funk
Debbie M. Kern
Robert J. Wetmore
Dater November 7, 2003
Subject: 206 E. Balboa Boulevard - Financial Feasibility Study
At your request, Keyser Marston Associates, Inc. (KMA) evaluated the impact of the Coastal
Commission replacement housing obligations on the development proposed at 206 E. Balboa
Boulevard (Site). Jim Cefalia (Developer) is proposing to demolish the six apartment units
currently located on the Site, and then to construct three single - family homes in their place. It
has been determined that four of the units are occupied by low or moderate income households,
which triggers Government Code Section 65590 (Section 65590) replacement housing
requirements. The purpose of the KMA analysis is to evaluate the financial feasibility of
imposing the replacement housing obligation on the proposed project.
BACKGROUND STATEMENT
Section 65590 requires that any time units occupied by low or moderate income households are
demolished to allow for new development, the existing units must be replaced on -site.
However, municipalities have the option to he
this obligation in the following instances:
1. The jurisdiction determines that it is financially infeasible to include the replacement units
in the proposed development; or
2. If the municipality has an established in -lieu fee program, the developer can pay a fee
rather than providing the replacement housing units on -site. No financial feasibility
evaluation is required.
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To: James Campbell, City of Newport Beach November 7, 2003
Subject: 206 E. Balboa Boulevard - Financial Feasibility Study I Page 2
The City of Newport Beach (City) does not currently have an established in -lieu fee program. It
is therefore necessary to perform a financial feasibility evaluation for the project. If it is
ultimately determined that it is not financially feasible to develop the replacement units on -site,
the City has the right, but not the obligation, to impose an in -lieu fee on the proposed
development.
METHODOLOGY
The Developer is currently proposing to build three market rate single - family homes on the Site,
which has been deemed the highest and best use of the Site from a financial perspective.'
Since the proposed development is not large enough to fulfill the four -unit Section 65590
replacement housing obligation on -site, even if it is assumed that it would be financially feasible,
It is necessary to consider an alternative development scope when evaluating the replacement
housing issue.
The zoning in place on the Site allows for the development of up to six units, which would
physically accommodate the four -unit replacement housing obligation. To determine whether it
is financially feasible to fulfill the replacement housing obligation on -site, it is necessary to
prepare a pro forma analysis for a six -unit development in which two units are sold at
unrestricted market rate prices and four units are subject to income and affordability restrictions
(On -Site Replacement Alternative).
KMA prepared a financial feasibility assessment for a six -unit townhome project, which is
presented in Table 1. The KMA financial feasibility evaluation includes the following
components:
An order of magnitude estimate of the cost to develop six townhome units.
2. A sales revenue projection based on:
a. The sales prices achievable for two market rate units; and
b. The allowable sales price for four moderate income units based on the
affordability standards imposed by California Health and Safety Code Section
50052.5 (Section 50052.5).
3. The profit or loss generated by the development being analyzed.
' An appraisal prepared by Michael J. Francis, MAI on July 16, 2003 (Appraisal) concluded that the
proposed project represents the highest and best use of the Site.
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To: James Campbell, City of Newport Beach November 7, 2003
Subject: 206 E. Balboa Boulevard - Financial Feasibility Study Page 3
ANALYSIS
Project Description
The Site includes 7,200 square feet of land area, and its major characteristics can be described
as follows:
1. The Site is comprised of three legal lots;
2. Each lot is 30 feet wide and 80 feet deep;
3. Each lot is.zoned R -2, which allows for the development of a single - family home or a
duplex without discretionary review by the City;
4. The maximum gross floor area for each lot is 3,360 square feet;
5. The maximum building height is 24 feet; and
6. Two parking spaces are required per unit.
Based on these requirements, the scope of the On -Site Replacement Alternative is based on
the following assumptions:
1. Six attached units in three two -story duplexes;
2. The units includes the following:
a. 1,300 square feet of gross living area (GLA);
b. Three bedroom and two- and -a -half bathrooms; and
C. A 350 square foot attached tandem configured garage.
Financial Analysis
KMA estimated the developer profit generated by the On -Site Replacement Alternative based
on the following assumptions:
Total Development Costs
KMA estimated the development costs for the On -Site Replacement Alternative using the
following information sources:
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To: James Campbell, City of Newport Beach November 7, 2003
Subject: 206 E. Balboa Boulevard - Financial Feasibility Study Page 4
The Appraisal submitted by the Developer;
2. Cost estimates submitted by the Developer; and
3. KMA's experience with multi - family development projects recently undertaken in the
Orange County market area.
The development costs have been estimated based on the following assumptions:
The Site acquisition costs total $1.8 million, or $250 per square foot of land area. The
Appraisal concluded that the acquisition costs represent the current fair market value of
the Site.
2. KMA estimated the direct construction costs as follows:
a. The on -site improvement costs are estimated at $12 per square foot of land area;
and
b. The shell costs are estimated at $103 per square foot of gross building area
(GBA).2
3. The indirect costs and financing costs are based on the following assumptions:
a. The Developer estimated the public permits and fees costs at $31,100 per unit.
The City staff should verify the accuracy of this estimate.
b. KMA estimates that the balance of the indirect and financing costs will equal 40%
of the direct costs.
As can be seen in Table 1, the development costs are estimated at $3.53 million. This equates
to $588,300 per unit for the six -unit project.
Total Sales Revenues
Market Rate Units
KMA attempted to locate recent home sales comparables for attached units to assist in
projecting the achievable market rate prices for the 1,300 square foot attached homes.
However, KMA found that the majority of the new development in the immediate vicinity of the
Site has been focused on significantly larger units, and we were only able to identify one
2 The Appraisal estimated the building and garage costs at $93.28 per square foot of GBA. A 10%
premium is added to reflect the cost to build attached units.
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To: James Campbell, City of Newport Beach November 7, 2003
Subject: 206 E. Balboa Boulevard - Financial Feasibility Study Page 5
comparable condominium sale in the 1,000 to 1,500 square foot range. This unit is located at
600 E. Ocean Front, which is approximately'/ mile south of the Site. The unit was built in 1971,
it includes 1,310 sgware.feet of GLA, and it sold for $680,000, or $519 per square foot of GLA.
Given the lack of truly comparable home sales to be used as value indicators, it was necessary
for KMA to broaden the search to include recent detached single - family home development.
The Appraisal identified 10 recent sales for homes ranging from 1,860 to 3,145 square feet of
GLA, and sales prices ranging from $606 to $763 per square foot of GLA, with an average of
$658 per square foot of GLA.
It is clear that detached homes will achieve a premium over the sales prices that can be
achieved for attached homes. However, for the purposes of this analysis, KMA assumed that
the maximum price that could be achieved for the 1,300 square foot attached units would be
$658 per square foot of GLA, or approximately $855,000. Thus, the total sales revenue for the
two market rate units is projected at $1.71 million.
Moderate Income
Section 50052.5 defines the methodology that must be employed to calculate the restricted
sales price for units being sold to moderate income households. The benchmark standards
identified in Section 50052.5 can be described as follows:
The income available for all housing related expenses is calculated as follows:
a. The household size used for affordable housing costs calculation purposes is
always set at one more person than the number of bedrooms in the unit. For
instance, the household size for a three - bedroom unit is set at four persons.
b. The household income is set based on data published by the State of California
Housing and Community Development Department (HCD). The applicable
percentage for price setting purposes is 110% of the Orange County median
income (Median). Based on the 2003 Median and a four - person household, the
applicable household income is set at $72,160.
C. The affordable housing costs are calculated based on 35% of the defined gross
household income.
2. The ongoing housing related expenses are estimated as follows:
a. KMA estimated insurance and maintenance expenses at $2,200 per year for
three - bedroom units.
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To: James Campbell, City of Newport Beach November 7, 2003
Subject: 206 E. Balboa Boulevard - Financial Feasibility Study Page 6
b. Utility expenses are estimated at $1,656 per year for three - bedroom units, based
on the allowances published by the Orange County Housing Authority.
.t
C. An allowance for private mortgage insurance (PMI) is provided at 0.50% of the
loan amount.
d. Property taxes are calculated at 1.1 % of the estimated affordable sales price for
the units.
3. The following assumptions were applied to determine the maximum affordable sales
price:
a. The interest rate for the first trust deed mortgage is estimated at 6.75%, and the
amortization period is set at 30 years. The resulting mortgage constant is 7.78 %.
b. The homebuyer down payment is set at 5% of the restricted sales price of the
unit.
Based on the preceding assumptions, the affordable purchase price for a moderate income
household purchasing a three- bedroom unit equals $238,600. The resulting total sales revenue
for the four income restricted units totals approximately $954,000.
Total Sales Revenues
The projected sales revenues for the market rate units total $1.71 million and the sales
revenues for the moderate income units are estimated at $954,000. The total sales revenues
for the six -unit project total $2.66 million.
Developer Profif!(Loss)
KMA estimated the total development costs at $3.53 million and the sales revenues at $2.66
million. Thus, the development costs exceed the projected sales revenues by $865,000.
SUMMARY AND CONCLUSIONS
The KMA analysis indicates that the development costs for the On -Site Replacement Alternative
exceed the revenues that could be anticipated to be received from the project. It is therefore,
the KMA conclusion that it would be financially infeasible for a developer to undertake such a
project. As such, the Developer should not be required to fulfill the Section 65590 obligation on-
site. The City, however, does have the option to impose an in -lieu fee on the proposed three -
unit project, if it so chooses.
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TABLE 1
FEASIBILITY ANALYSIS
206 E. BALBOA BOULEVARD
NEWPORT BEACH, CALIFORNIA
Protect Description
$856,400
Land Area (Sf)
7,200
# of Units (
6
Density (Units /Acre)
36
Product Type
Duplexes
Gross Buildina Area (Sf /Unit)
$1,800,000
Gross Living Area (GLA)
1,300
Tandem Garage Space
350
Total Gross Building Area /Unit
1,650
Unit Mix (3- Bedroom Units)
Market Rate Units 2
Moderate Income Units 4
II. Average Market Rate Price
$856,400
Per Square Foot GLA
$658
III. Moderate Income Price
$238,600
Financial Analysis
1. Estimated Development Costs
Land Costs 2
$1,800,000
Direct Costs'
1,102,000
Permits & Fees"
187,000
Indirect/Financing Costs s
441.000
Total Development Costs
$3,530,000
Per Unit
$588,300
II. Estimated Safes Revenues
Market Rate Units $1,711,000
Moderate Income Units 854.000
Total Sales Revenues $2,665,000
III. Developer Proft((Loss) Calculation
Total Sales Revenues $2,665,000
(Less) Total Development Costs (3.530.000)
W. I Developer Profit! Loss $865 000
' Calculated based on California Health and Safety Code Section 50052.5 standards.
t Based on the July 16, 2003 appraisal prepared by Michael Francis, MAI (Appraisal).
3 Based on the Appraisal estimates for single - family home construction,, plus a 10% premium for attached
housing construction.
Based on Developer's estimate of $31,100 /unit.
s Assumes the indirect and financing costs total 40% of the direct costs.
0
Prepared by: Keyser Marston Associates, Inc.
Filename: Feasibility Analysis; jlr; 1117/2003