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A Special Meeting of the Board of Aldermen was held Thursday, October 7, 2021, at 6:11 p.m. in the Aldermanic
Chamber and via Zoom teleconference which meeting link can be found on the agenda and on the City’s website
calendar.

President Lori Wilshire presided; City Clerk Susan Lovering recorded.

Prayer was offered by City Clerk Susan Lovering; Alderman Skip Cleaver led in the Pledge to the Flag.

Let’s start the meeting by taking a roll call attendance. If you are participating via Zoom, please state your presence,

reason for not attending the meeting in person, and whether there is anyone in the room with you during this meeting,
which is required under the Right-To-Know Law.

The roll call was taken with 9 members of the Board of Aldermen present: Alderman Michael B. O’Brien, Sr.,
Alderwoman Shoshanna Kelly (via Zoom), Alderman Richard A. Dowd, Alderman June M. Caron, Alderman Ernest
Jette, Alderman Jan Schmidt, Alderman Skip Cleaver (via Zoom), Alderman Linda Harriott-Gathright, Alderman
Wilshire.

Alderman Patricia Klee, Alderman Benjamin Clemons, Alderwoman Elizabeth Lu, Alderman Thomas Lopez, Alderman
David C. Tencza, and Alderman Brandon Laws were recorded absent.

President Wilshire
Because we don’t have a quorum, we’re going to have to cancel tonight’s meeting. This is the second meeting this week
where we don’t have quorum. People come out with people on Zoom that were expecting to help with presentations. We
have city staff here but unfortunately we have no quorum so I’m going to have to adjourn the meeting. Would the Clerk call
the roll on adjournment please?
COMMUNICATIONS
From: Lori Wilshire, Board of Aldermen President
Re: Calling a Special Board of Aldermen meeting on Thursday, October 7, 2021 at 6:00 p.m. relative

to an Inclusionary Ordinance Work Session

Without objection, President Wilshire accepted the communication and placed it on file.

DISCUSSION

Inclusionary Ordinance Work Session

President Wilshire to recognize Sarah Marchant, Community Development Director, and Kyle Talente, President
of RKG Associates.

ADJOURNMENT

MOTION BY ALDERMAN O’BRIEN THAT THE OCTOBER 7, 2021, SPECIAL MEETING OF THE BOARD OF
ALDERMEN BE ADJOURNED, BY ROLL CALL

A viva voce roll call was taken to adjourn the Special Board of Aldermen meeting which resulted as follows:
Yea: Alderman O’Brien, Alderman Dowd, Alderwoman Kelly, Alderman Caron, Alderman Jette,
Alderman Schmidt, Alderman Cleaver, Alderman Harriott-Gathright,
Alderman Wilshire 9
Nay: 0
MOTION CARRIED

The meeting was declared adjourned at 6:14 p.m. due to a lack of a quorum.

Attest: Susan Lovering, City Clerk

SPECIAL BOARD OF ALDERMEN

OCTOBER 7, 2021
6:00 p.m. Aldermanic Chamber and via Zoom

Join Zoom Meeting: https://us02web.zoom.us/j/8749 1676180? pwd=eGV Cb0tvZEY 5WXdQM3pSTOR YWHEvQT09
Meeting ID: 874 9167 6180 Passcode: 426842

Join by telephone: 1-929-205-6099
Meeting ID: 874 9167 6180 Passcode: 426842

lf for some reason you cannot connect to Zoom, please contact us at (603) 589-3329 and they will
help you with connectivity. The public may also view the meeting via Channel 16.

PRESIDENT LORI WILSHIRE CALLS ASSEMBLY TO ORDER
PRAYER OFFERED BY CITY CLERK SUSAN LOVERING
PLEDGE TO THE FLAG LED BY ALDERMAN SKIP CLEAVER
ROLL CALL

COMMUNICATIONS

From: Lori Wilshire, Board of Aldermen President
Re: Calling a Special Board of Aldermen meeting on Thursday, October 7, 2021 at 6:00 p.m. relative to
an Inclusionary Ordinance Work Session

DISCUSSION

Inclusionary Ordinance Work Session

ADJOURNMENT

LE

Board of Aldermen

City of Nashua
229 Main Street Lori Wilshire
Nashua, NH 03061-2019 President, Board of Aldermen

(603) 589-3030

October 1, 2021

Susan K. Lovering, City Clerk

City of Nashua

229 Main Street

Nashua, New Hampshire 03061-2019

Dear Ms. Lovering:

Please be advised | am hereby calling a Special Meeting of the Board of Aldermen relative to an
Inclusionary Ordinance work session on Thursday, October 7, 2021, at 6:00 p.m. in the Aldermanic
Chamber.

Thank you.
Sincerely,
Lori Wilshire
President

cc: Mayor Jim Donchess
Steven A. Bolton, Corporation Counsel
Sarah Marchant, Community Development Director

A regular meeting of the Board of Aldermen was held Tuesday, September 28, 2021, at 7:33 p.m. in the aldermanic
chamber and via Zoom teleconference which meeting link can be found on the agenda and on the City’s website
calendar.

President Lori Wilshire presided; City Clerk Susan Lovering recorded.

Prayer was offered by City Clerk Susan Lovering; Alderman-at-Large Brandon Michael Laws led in the Pledge to the Flag.
Let’s start the meeting by taking a roll call attendance. If you are participating via Zoom, please state your presence, reason

for not attending the meeting in person, and whether there is anyone in the room with you during this meeting, which is
required under the Right-To-Know Law.

The roll call was taken with 12 members of the Board of Aldermen present: Alderman Michael B. O’Brien, Sr.,
Alderwoman Shoshanna Kelly (via Zoom), Alderman Richard A. Dowd, Alderman June M. Caron, Alderman Thomas
Lopez, Alderman David C. Tencza, Alderwoman Elizabeth Lu, Alderman Ernest Jette, Alderman Brandon Michael Laws
(via Zoom), Alderman Skip Cleaver (via Zoom), Alderman Linda Harriott-Gathright, Alderman Wilshire.

Alderman Patricia Klee, Alderman Benjamin Clemons, and Alderman Jan Schmidt were recorded absent.

Mayor James W. Donchess, Corporation Counsel Steve Bolton, were also in attendance.

REMARKS BY THE MAYOR

Mayor Donchess

Yes, Madam President. Thank you very much. Well, first, | had a few things. First, | wanted to give you a brief update on
the COVID-19 situation. We are still in a state of substantial transmission. Using of course the usual two measurements,
the first being the positivity rate or the percent of people who test positive on any one day. That does fluctuate a bit. It is
most recently at 5.9% and it has been going up and down a little bit between high fours and about 6% over the last month
or more. Also, the other measurement is the number of new infections per 100,000 people. That is now at 326 and up a
bit. Of course we are 90,000 people so that means we're seeing about 20 new cases or 21 new cases a day over the last
14 days. Public Health Bobbie Bagley continue to watch this situation very carefully and we will update you if there are
any significant changes.

There is one | call it alarming development. Hopefully it gets resolved at the State level. The State has been offered the
opportunity to receive $27 million of vaccine related money to pay for staff and other possibly vaccines and other costs
that are associated with bringing the vaccine vaccination rate up. The acceptance of that grant was tabled at the last
meeting of the governing council which was unfortunate and they are meeting tomorrow and hopefully they will take it off
the table and accept the grant. In order to actually accept and expend the money not only does the Governor's Council
have to approve the acceptance but the so-called Fiscal Committee needs to vote to expand the money. At the Fiscal
Committee, the vote was seven to three to table the matter and they are meeting, | think, later this week early next week.
Hopefully they may decide to take that up and actually pass it. The vote on the Governor's Council was four to one to
table on the Fiscal Committee was seven to three. So one of our State Senators Cindy Rosenwald does serve on the
Fiscal Committee and hopefully those votes can be reversed so that the money can be distributed and we can increase
vaccine rates both here in Nashua and across the State.

Madam President, there was another item | wanted to mention which is our 21 163. According to this Resolution, the
amount of $4 million of the surplus revenue would be allocated/dedicated to reducing the tax rate or buying the tax rate
down. This is something we typically do every year out of excess revenue and assuming you pass that, that will help us
keep the tax rate, the increase down to hopefully a manageable level. Somewhere in the two and a half or a little bit
higher range.

The next item | did want to mention Madam President was an item of very good news. It was announced yesterday that
an anonymous donor has given or is going to give $1 million for the Performing Arts Center and the naming rights. So this
is an anonymous gift. So we will never really know where it came from but with it comes the naming rights and | want to
thank not only the fundraising committee who worked very hard on this, but particularly Phil Scontsas who has been
working with the potential large donors and there are others as well and, you Know, is very persuasive in working in a very
sensitive matter with a family that wants to make such a large gift on an anonymous basis. So Philip’s efforts were really
instrumental in making this happen. So | want to thank him and just say that, you know, he's been doing a great job along
with the fundraising committee. Now the total number of dollars of non-city money is up to about $5.2 million. The
fundraising is not over. For example, the naming rights for the auditorium still are outstanding and there are other large

Board of Aldermen 09-28-2021 Page 2

giving opportunities and of course, smaller giving opportunities that the fundraising committee will continue to pursue. But
| think that $1 million anonymous gift Madam President is good for the Performing Arts Center, good for the city, and, you
know, | think it's a very favorable development for our community. And that's all | have Madam President.

President Wilshire

Thank you. Response to remarks by the Mayor. Anyone on this side?

RESPONSE TO REMARKS OF THE MAYOR

Alderman Jette

Thank you, Madam President. Mayor that is good news about the Performing Arts Center. I'm rather intrigued about

someone wishing to remain anonymous that would pay $1 million dollars for the naming rights. Does that mean the
Performing Arts Center won't have a name?

Mayor Donchess

Well | think they will come - you know we don't know what they're gonna suggest but they still have the right to suggest
and really, excuse me, you know provide the name but I'm sure given their very generous and pro arts pro community
nature | mean, by definition with a gift that size they will come up with a, you know, a tasteful name that we will appreciate
it.
Alderman Jette
Thank you.
Alderman Lopez
| just want to put it out there we could call it the “Anonymous Performing Arts Center”. If it happened, it was my idea.
RECOGNITION PERIOD — None
PRESENTATION

° Inclusionary Zoning Financial Feasibility Study by RKG Associates
President Wilshire
Tonight we have a presentation by Sarah Marchant, Community Development Director, and Kyle Talente of RKG
Associates. They're going to give us a presentation on inclusionary zoning financial feasibility study that was done by
RKG. So I'm going to recognize Director Marchant.
Sarah Marchant, Community Development Division Director
Good evening. Thank you. | am actually going to turn it mostly over to Kyle Talente of RKG who has helped us with this
project and | would also like to recognize Director Cummings, and Planning Manager Matt Sullivan, and Carrie Schena
the Urban Programs Manager who have been critical to this process of developing this study on the financial feasibility of
inclusionary zoning. | will be happy to answer questions as well.
President Wilshire
Thank you.

Kyle Talente, President of RKG Associates

Well thank you Sarah. Is everyone able to hear me okay?

Board of Aldermen 09-28-2021 Page 3

President Wilshire
Yes.
Kyle Talente, President of RKG Associates

Oh, | love technology when it works. | want to thank you all for the opportunity to make this presentation today. | am
sharing my screen. Are you able to see the presentation on your screens at this point?

President Wilshire
We are.
Kyle Talente, President of RKG Associates

Excellent. My name is Kyle Talente. | am the President of RKG Associates. | have been working with Sarah and Tim and
their staff 1) pulling together this analysis for the city as we get into it. The genesis of this is RKG and my partner Eric
Halvorsen worked with the city already in doing a housing market analysis, identifying housing needs and challenges, and
we're going to walk through a little bit of that in just a moment to refresh everybody's memory. Though I'm sure everyone
remembers that study intimately. One of the recommendations that came out of that was to relook at the city's existing
inclusionary zoning policy and identify ways so that it can be more effective for the community. Our recommendation was
to perform an analysis, a financial feasibility analysis of a potential inclusionary zoning policy that promotes the
development of price diversity and housing diversity, but does it so within market and financial realities. We'll talk just a
moment about what that means.

Luckily, the city opted to extend our contract so that we can perform this analysis for the city. So like | mentioned, very
briefly, just to kind of go through the previous study. I'm not going to try and bore you with that presentation all over again.
Kind of hitting the highlights. The city is growing and it's growing both from a population perspective but also from a
diversity in housing demand and housing typology. One of the biggest things we learned was that one in two person
households were a large predominance of the growth that has been going on within the city of Nashua but it's also
diversity in terms of incomes. A lot of the new households that are moving into the community are more affluent
compared to the existing incomes within the City of Nashua. All this translates into an effect on your existing housing
market. Development hasn't really kept pace with that demand so it has driven higher costs both from the ownership side
and the rental side. It's also driving new interest in housing development. What we learned through that study, though,
was the housing development has been really concentrated in, you Know, income controlled housing through federal and
State subsidy programs and then market rate housing and not much being done in what's called that missing middle or
the middle income groups.

This is just a slide showing the effect of homeownership and the impacts the changes that have been going on. | would
just call very quickly the attention to the substantial amount of demand for housing of higher income households as
opposed to the supply. | just point that out to say this is one of the things that is driving price points of new housing
construction is if I'm a developer and | see that there's unmet demand for half million dollar homes and there's unmet
demand for $200,000 homes, I'm going to build towards the higher value homes because it's going to be able to create
greater returns.

Similarly in rental when we looked at it from that perspective had consistent trends that are going on within the city. So
many of the new developments that have occurred have been market rate focused towards those highest income earners
but also some developments that have been done successfully using as | mentioned federal housing programs and not
much kind of in that that middle range. So while there is some supply, not much of that new construction, not much of the
new supply being built is really hitting into that middle of the market.

So the previous study really kind of summarized in a manner of saying, look we have growth that is going on, our current
housing stock can't accommodate it, so as a result, affordability is being effective. Creating new housing across a
continuum of price points and housing types will help serve not just new folks coming into Nashua but also folks that are
already here so they could be able to stay and find how price appropriate housing that particularly in the downtown area,
the opportunity, and the potential, and the desire, frankly, to see a greater diversity of housing pricing is there, and then
how do we then leverage those resources that we have as a city both the financial resources and our regulatory
resources.

The study came up with several recommendations on how the city can pursue that. Obviously, the one that we're talking
about here tonight is updating the inclusionary zoning regulations. For those maybe not as familiar with the terminology at

Board of Aldermen 09-28-2021 Page 4

its basic form, inclusionary zoning requires certain new developments that meet defined criteria as defined by the city -
and we'll talk a little bit about some of the recommendations we have for that in a moment to include a certain percentage
of housing to be priced below market rate. So many communities they do it by the size of development and they say okay
if you're going to build a new residential development of let's say just for the sake of this conversation, 100 units, then a
certain percentage of those have to be priced at a below market level commensurate with an income grouping that we are
trying to better serve. The benefits that they provide creates affordability without substantial public investment because
it's done through regulatory means. It integrates affordable housing units into market rate projects so you are able to
generate price and typology diversity and encourages below market development in areas where development most
wants to go, which often times are areas that are best served with things like transportation options, healthcare options,
retail services, access to jobs, access to public amenities like parks and recreation assets.

And so that being said, the city has an existing inclusionary zoning policy but it hasn't been very effective in being used.
So our recommendation was go back and look at that policy and do a financial feasibility analysis to try and understand
how we can create a program that meets the desired outcome, which is creating a greater continuum of housing pricing
within Nashua throughout the city, but does so in a manner that mitigates the potential financial impact that could stop
development. That's really the crux of what we tried to accomplish through the study is to try and understand how can we
help the city craft an inclusionary zoning policy that meets the desire to create better diversity and housing but does so in
a manner that minimizes the impact on the investment that has been going on within the city so that it doesn't become a
financial barrier.

The process that we used, obviously, we needed to collect locally specific data. We need to understand rent rates. We
need to understand construction costs, need to understand return expectations of your investment community that is
making investments in Nashua. We had to understand the financial markets so that we could model accurately how
projects were done. We built a pro forma to try and understand how a project moves through the city, what its potential
return is as a market rate development, and then we tested a series of different inclusionary zoning ideas to see how they
would impact that development. We provide some recommendations which we'll go through in just a moment, and then
obviously, we'll create a document for the city to review and to distribute as our recommended strategy for the city to
move forward.

It's important to understand the approach that we took here. Regulatory policies control the development process devoid
of market and financial feasibility. We can make any rule that we want irrespective of how it affects the market and a lot of
times communities do that. Unfortunately, one of the potential side effects is if the requirement is so onerous that it stalls
or stops development altogether because you create an environment where development can't occur because that policy
is so financially onerous. So some policies go too far like we just mentioned and they make it very, very hard to for the
private sector to do business. Some don't go far enough, meaning they don't really meet the expectations of the
community in terms of what they're trying to accomplish. While it doesn't really affect development in terms of activity, it
doesn't also deliver what we're trying to accomplish through the policy.

What we're trying to do, you Know, using the Goldilocks and the Three Bears analogy is we're trying to find that just right
balance intended to create the benefits for the city through understanding the market and financial costs. You know that
analysis is both quantitative and qualitative. Obviously, we need to do the numerical analysis which we did to give
recommendations but there is also an understanding of the dynamic of things like where that development is located, the
type of development that we're talking about - is it rental, or is it owner? Is it small scale or is it large scale? And so we
wanted to take a look at a number of those different options so that we can try and help create a dynamic policy that
doesn't just say, here's how you should do it but it says in this type of market, for these types of units, at this type of scale,
the policy can look like this and it and it can change and be crafted in a manner that mitigates potential impacts across a
wide variety of locations and a wide variety of development programs.

The term that we like to use here at RKG is “the creation of a revenue neutral policy’. Really what that means is we try to
help communities craft policies that either don't create any financial hardship for developments or can mitigate it through
other types of benefits that are created such as bonus density, or payment in lieu, or off-site development so that we can
look at different options that can minimize that impact so that it doesn't disrupt the marketplace.

This slide is just showing you the different types of scenarios that we modeled for this process. Like | mentioned, we
wanted to look at a number of different factors so we looked at both ownership and rental. We looked at single family
development, townhome development on the ownership side. We looked at multiple locations. The Amherst Exit 1 area,
we looked at downtown individually and we looked at what we're calling suburban areas which is more of the northern
portion of the city. We took into account how development is occurring in those areas. So we looked at whether it needs
to be surface parking or podium parking because that has an effect on the financial feasibility of a project. Then we
looked at a various number of scales of projects ranging from as small as 10 all the way up to 200 to try and understand
how these recommendations could have a potential impact on all of these scenarios.

Board of Aldermen 09-28-2021 Page 5

Before we get into the results of that, | just wanted to give you a quick hopefully five minute primer on how this works,
right. So the inputs to a financial model, there's really what we call three buckets - there's the revenues that are created,
which on a for sale project easily enough is the purchase price of those homes; on a rental project is the rent that is
generated through the monthly rents for the units. If they charge for parking, the parking rents that are created, if they
have vending machines, that that sort of thing that creates the cash inside. Then there's expenses which is the
construction costs, its land acquisition, it's for a rental project it is the operation like maintenance, property taxes. On the
ownership side is the cost of marketing and the cost of the sale. All those needs to be considered and then finally, the
financials, right. It’s the equity requirements that that lenders and banks, for example, require the developer to put into a
deal. It's the debt financing whether it be bridge loans, or permanent financing if it's a rental project that have interest
rates and payback periods that create an impact on the cash flow project, which ultimately determines its financial
feasibility, and then particularly on rental side, there's capitalization rates which ultimately is used to understand what is
the value of the asset at the end, which is for rental project which is the multifamily development is what is the value of
that asset based on its cash flow? Capitalization rate, it's just a technical jargon of saying the market values the cash flow
that that investment is creating and then it says we're willing to pay you this much money for that based on the risk that we
are taking by buying it. That's a very quick run through the inputs that go into these models.

Ultimately, what we're trying to do to proxy is that “go no go decision” that an investor is going to make to decide whether
or not they're going to build a project. We use a dynamic analysis called “internal rate of return”, which measures the
investment efficiency of a deal whether it's you're building single family homes or townhomes and sell them, or you're
building a multifamily project to rent an operate. We're trying to understand how that asset is going to perform over the
series of time that you as the investor are going to hold on to it.

It allows us to measure these investments against other types of investments because in the real estate investment world
is all about opportunity cost. All that really means is if | can make, and just for the sake of the course of this conversation,
if | can make 5% investing in a savings bond, or a CD, or a treasury bond with very, very little risk, I'm not going to do a
real estate deal which carries substantially more risk without getting a much higher rate of return. So then the
conversation is okay well what is the return | can live with? Well the typical market as we've done these analysis
throughout New England is generally around a 12% rate of return for rental housing and a 20% rate of return or 20 to 25%
rate of return for sale housing. One point | do want to bring to your attention, and we'll talk a little bit more about
importance later, is through our research we learned return expectations in Nashua are much higher than that. While that
is not necessarily a good or bad thing on its surface, it creates a lot of challenges when you're trying to create an
inclusionary zoning policy that requires a low market price points or rental rates and still make the deal desirable or
interesting to the development community.

And so then the question becomes, okay, let's say we can't create a revenue neutral policy, what happens then? What is
the effect? Well, you know, it depends upon how far off we are. The initial reaction is the developer offered a lower value
for the land that they're purchasing to build the development on. In a real estate development generally the cost of the
land is really the only true variable - construction cost, the cost of bricks, the cost of plywood. If any of you have been
following the cost of those through the course of the pandemic that we've been dealing with, you know that those are have
gone up exponentially through this process because of supply chain issues. But they're fixed. You can't charge people
more in the market than they're willing to pay for the marketplace. So you really can't say well, we're just going to charge
double what the rest of the market is charging because there may not be a market for that. And so the land is really
where that value is created. So they'll offer less for the land. If they can't find someone willing to buy their land, they'll go
somewhere else. They'll decide to develop in another community that maybe is not requiring that or they'll sit on the
money for a while and say, well, we can't do the deal now maybe we'll wait a few years for the market to catch up to the
regulatory requirement or and in very unlikely cases, to be frank, they'll bite the bullet and do the development. You know,
like | said, opportunity costs are what they are which is if | can get a 15 or 20% return in Manchester and | can only get a
10% return in Nashua, then I'll just go make my investments in Manchester until the market recovers. So all of this is just
to try and lay the groundwork of understanding how we came to where we are and the recommendations we come to at
the end.

So very quickly, you know, this is what | always want to make sure that everybody's on the same page in terms of
understanding what is affordability because that term is used so much. | just want to make sure that we are all clear.
Affordability is relative. It is relative to your income and it is not absolute. If you make $50,000 a year, there is an amount
of house you can buy or an amount of an apartment you can rent on a monthly basis, which is less than someone who
makes $100,000 a year, which is less than someone who makes $200,000 a year. The US Housing and Urban
Development Department of Housing and Urban Development or HUD defines an affordability threshold at 30% of your
gross income. Spending more than that, they define as being cost burden. And so when we talk about “affordable
housing”, we talk about these different area median income thresholds. As you can see on the screen right now, that vary
by income level, and by even how many persons are in your household, it's truly trying to understand how do we create

Board of Aldermen 09-28-2021 Page 6

housing that's affordable to a certain size household at a certain income level that doesn't make them spend more than
30% of their gross income on housing and select utilities.

The next slide just shows you what those incomes translate into and on top of it is the maximum affordable rent with those
specific utilities included. So just for the sake of this conversation, a one bedroom unit at 100% or at the area median
income, which for a four person household is $109,600 just so you understand how high it is right now, translates into rent
of $2,072 a month. So just to give you an understanding of what that means. Similarly, you can also calculate through
using those market assumptions we talked about to calculate what the maximum purchase price for a home would be
based on what AMI and the size of your household. So all this translates. What you will see at the end column, I'll just
point out, is what the market rate thresholds are compared to what those affordability is. Just to call out from the
ownership side, you know, the average market rate one bedroom unit for sale we learn is about $300,000, which is
somewhere in the 130% of AMI range. So if you earn the area median income, you can't afford based on HUD’s cost
burdening to buy a new construction market rate in it and that is consistent across - now all unit sizes. You can see here,
this one in particular, for a three plus bedrooms, units, how expensive it is and then how that relates to even earning the
area median income. So | just wanted to make sure that everybody understood when | use these terms, you have a
sense of relativity.

So what are some of the findings that we ran into? | mentioned this one already and I'll just say it briefly again is the
missing middle housing. New construction that has gone on particularly on the rental side has been concentrated in
market rate only developments which has been targeting at and above 100% of Al, or fully subsidized projects through
State and federal subsidy programs, which are targeting folks at the 50 and 60% of AMI are below. Those incomes kind
of in between those ranges aren't really being served because from the market rate side, they're not price competitive. So
developers can't make as much money building those types of units and there is no public dollars available to cover the
gap between what the market rate value is and what the value is priced at 60, 70, 80, or 90% of AMI. So that's an
important finding because our recommendation, and we'll talk about this in a moment, is to target your inclusionary zoning
policy towards that 80% of AMI threshold, which puts you square in the middle of that unmet marketplace.

The next one is location impact feasibility. Not all housing markets within Nashua are uniform in terms of price points, in
terms of cost of construction. The easiest one to point out is doing larger scale developments downtown requires podium
parking or structured parking, which is substantially more expensive to build than a surface parking space. That has
effect on affordability and that has effect on the ability to create new below market housing because that cost doesn't
change but the revenue goes down. So whatever inclusionary zoning policy you choose to use, it needs to be tailored to
the different idiosyncrasies within your marketplace, whether it be housing typology, location, scale.

Probably one of the most important ones that we came across that is almost tangential to this study is the challenge of
policy enforcement. Right now the city is allowing maximum development densities and providing financial incentives for
strictly market rate projects. We don't take a position on whether that's a good idea or a bad idea but it does have an
impact on the ability to then try and implement a compulsory inclusionary zoning policy that requires below market rate
rents because a lot of the ways communities augment or supplement | should say, the financial impact of having lower
revenues on those inclusionary units is through allowing bonus densities and providing financial incentives. So if you're
already giving those to developments without having to require inclusionary zoning, you've taken away some of the tools
you have, frankly, to make that policy not be financially negative on development. And frankly, it also has created those
unrealistic return expectations that | talked about and | say unrealistic purely from a regional context of what return
expectations were reported to RKG within Nashua as opposed to other areas throughout New England, including the
Boston marketplace. So that is a key finding because one of the things we believe the city is going to need to do to make
an effective inclusionary zoning policy that doesn't stifle development is to kind of bring those regulatory norms back into
play and saying we are willing to give you a maximum density but it's going to be part of this other program. It's not just
going to be given to you so that you can make the maximum return on the deal.

And then finally just wrapping it all up into a nice big blue bow here, the dynamic IZ policy is possible and we learned
through our study that it doesn't and frankly shouldn't be a one size fits all strategy. We're going to talk about that in just a
moment. So some of the strategies that we talked about, | mentioned already the targeting the missing middle and
current development trends. We talked about where market rate is landing. We talked about the federal and State
subsidized programs for development and we think that if you target an 80% of AMI income threshold and you see the
range of what that means is we can help you create an IZ policy that meets that “missing middle” but also then creates
very minimal financial impact to the developments because while 80% is below market rate, it is not so below market rate
that it cannot be accommodated for through things like bonus density through things like financial inducement from the
city and then we'll talk about a couple of ways that that can happen.

We also recommend the city consider varying inclusionary percentage based on the size of development. The reality is
the more units that are being included in development, the less of a financial hardship one new inclusionary zoning

Board of Aldermen 09-28-2021 Page 7

creates. And so based on our analysis, and you can see here in our slide, our recommendation would be anything under
10 units, you don't require inclusionary because the impact would be financially substantial. Between 10 and 25, you
target 10% inclusionary 26 to 115, and then over 120% inclusionary. Now, the reality here is there are multiple ways to do
that and hopefully we'll continue this conversation after this presentation with ways that we could do that.

One of them is you scale it up. So it ramps up, you know, over a period of time so you don't create a single shot for the
marketplace and we think there's way that that could be done. But in terms of what the ultimate goal of an inclusionary
zoning policy, we believe this is something that is both consistent with the desires of the city to create that price diversity
but also financially feasible as we help the market kind of adjust to those changes.

Create separate thresholds for downtown. | mentioned earlier that different parts of the city have different idiosyncrasies
and frankly in this one, one of the biggest challenges is the structure podium parking. The cost to do that on a per space
basis is so much greater than a surface lot and because land is at such a premium and desire to do kind of, you know,
pedestrian level development, you have no choice but to do some form of structure to podium parking. And so our
recommendation especially since a number of the projects that are being done through subsidy programs are generally in
around downtown, is potentially consider a lower percentage threshold within the downtown area. It takes some of the
pressure off of that development because of the higher cost of development and you already also are seeing a price
controlled housing being built in downtown and frankly if you remember from the previous study, there's also a high
concentration already there. So one of the goals is to try and diversify the location of this continue pricing. Since there is
already some in downtown and it has challenges to potentially lower percentage requirement would be reasonable.

| mentioned the issue of bonus density. The use of that can mitigate the financial feasibility. When we did our analysis, a
one to one ratio seemed to mitigate the financial impact of inclusionary zoning units. So if it was 100 unit development
and you said alright we're going to require 20% inclusionary, which means 20 of those 100 units would need to be
affordable, a financial feasibility analysis showed that by allowing you to do 120 units where 20% were affordable and the
whole 100 where market rate, mitigated the impact of those 20 income controls or a below market units price to 80% of
AMI. That worked outside of downtown. Because of the structured parking issue, it was actually about two and a half
units to one. So using my 100 unit example and let’s say you had to do 10 units of affordable using you know a lower
percentage rate, then you would you need to allow them to do 125 units or two and a half times more than that 10 units
that would be affordable and that would create what we defined as that revenue neutral impact. So the bonus density is a
very strong opportunity for the city to be able to mitigate the impact of an inclusionary policy while basically minimizing the
finance.

And then finally, one of the recommendations we have moving forward is what's called “a payment in lieu of’ in certain
circumstances. Really easily what a payment in lieu of is in doing our analysis, we were able to calculate the value
difference between market rate and various particular income thresholds that we were trying to target. In this graphic over
here, you can see, you know, the value difference between a market rate unit and a unit price for a household earning
80% of AMI was for a multifamily unit was about $36,000. At 70% of AMI, it's like $62,000. That's 60%. You could see
the more subsidy you're trying to give or the lower income you're trying to target, the greater the differential between what
a market rate unit is worth to an investor and what those income control units are worth.

And so we feel in certain circumstances allowing them to pay this value difference rather than build the unit would be
valuable to the city for a couple of reasons. Number one is by using these calculations, you may end up with a partial
unit. So the example | give here is a 75 unit development with a 10% IZ requirement, would require you to build 7.5 units.
Well you can't build a half a unit and so our recommendation is rather than forcing to build eight units and “round up’,
allow them to pay the market value differential of that half a unit and 80% of AMI would be about half of this $36,000. So
it minimizes the financial impact by only making the build the full number of units and then having them contribute to your
Housing Trust Fund that differential.

The next benefit it creates is it creates a revenue stream for your trust fund. And so it's a way to get some monies instead
of building those partial units, it's able to create some revenue for the trust fund that could be used to invest in other
housing projects, either, you Know, if one project you take the money for the half unit and they build seven, you can then
provide that $18,000 to the next project and then they build eight and they're not financially impacted. So it allows you to
reinvest that money into other housing programs and not necessarily a new construction housing, it could be used for a
variety of things but it creates a revenue source.

The final thing that the payment in lieu does in very special mitigating situations, you can allow development to just
provide the cash value of that differential rather than building the units on site. This could be because an example that
other communities use is the development is in an area that is not well situated near transportation options. So providing
housing at a lower price point would be challenging for those households to be able to get to medical services, jobs, retail