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INC WSIO NARY ZONING ANALYSIS 2 2

25-UNIT MULTIFAMILY (PODIUM) RENTAL DEVELOPMENT

The impact of requiring podium parking on small rental housing developments is substantial. The
Current Market/Baseline Scenario yields 11.70% IRR assuming a $50,000 land value per unit. The net
present value difference to the surface parking assumption is nearly $340,000 due to the much higher
costs of podium parking instead of surface spaces. As a result, the land value per unit would need to
be $19,587 per unit to meet the proposed return threshold.

Because the inclusionary policy is the same for this and the previous program, the relative financial
impact of the inclusionary zoning policy for the podium programs is like the surface parking program.
The Inclusionary Policy Scenario yields a 14.28% IRR and a -$117,178 NPV.

However, the bonus density needed to return the inclusionary zoning scenario to the proposed market
return threshold differs to the surface parking scenario. The higher costs of parking additional units
reduce the financial benefit of each new market rate unit. As a result, a podium parked scenario would
require a 2:1 bonus density to make the IZ scenario return to the proposed market return threshold.
Under this scenario, adding four market rate units would be required to achieve the expected financial
return of 15%.

50-UNIT TOWNHOUSE OWNERSHIP DEVELOPMENT

City staff wanted a larger single family attached program modeled in addition to a smaller detached
program. For this program, RKG Associates modeled a 50-unit townhouse-style development. Based
on the market assumption of a $38,338 per unit land cost, a 50-unit townhouse development yields a
52.17% IRR, with a NPV of almost $1.4 million. Based on current market performance metrics, this
development program could support land prices approximately $30,000 higher than current averages
($68,596) and still yield a 20% IRR (Table 11).

Because this program has 50 units, it triggers the second level of inclusionary requirement (15%). As
a result, the development program would need 7.5 income-controlled units priced to be affordable to
a household earning 80% of AMI. As noted earlier, the RKG Associates model apportions any
fractional units to a payment into the City’s housing trust equaling the market value differential
between a market rate unit and the income-controlled unit. Thus, the Inclusionary Policy Scenario
includes seven income-controlled units and a cash payment of $48,880 (50% of the value differential
of $97,760). The impact of the inclusionary zoning policy is substantial, with an expected IRR of 6.13%
and a NPV of -$1,218.294. The value differential between market rate ownership and income-
controlled ownership is greater than rental housing.

As aresult, the Inclusionary/Bonus Density Scenario indicates a bonus density program would require
a 2.5:1 ratio to income-controlled units to make the inclusionary scenario meet the modeled return
expectation threshold. The project would require an additional 19 market rate units to account for the
seven units priced to households earning 80% of AMI.

INC WSIO NARY ZONING ANALYSIS 2 3

Table 10. 25-Unit Multifamily (Podium) Rental Development

No _Inclusionary

Inclusionary 80%

Inclusionary 80%
AMI W/ Adjusted
Land Value and

Adjusted Land | AMI W/ Adjusted | Bonus Market

No Inclusionary Value Land Value Units
Location Downtown Downtown Downtown Downtown

25-Unit 25-Unit 25-Unit 25-Unit
Unit Style Multifamily Multifamily Multifamily Multifamily
Unit Type Rental Rental Rental Rental
Construction Type MF - Podium MF - Podium MF - Podium MF - Podium
Construction Cost $215 $215 $215 $215
Number of Units 25 25 25 29
Market Rate Units 25 25 23 27
Affordable Units Oo Oo 2 2
Parking Aboveground Aboveground Aboveground Aboveground
Special Permit No No No No
Inclusionary % 0% 0% 10% 10%
Inclusionary Treatment No Inclusionary No Inclusionary Proposed Proposed
Inclusionary Units 0 O 2 2
Payment in Lieu so so $18,219 $18,219
AMI Split oO oO 80% 80%
IRR 11.70% 15.03% 14.28% 15.03%
NPV ($577,986) $4,155 ($117,178) $6,263
All costs $7,068,716 $6,308,391 $6,308,391 $7,090,351
Land cost $1,250,000 $489,675 $489,675 $489,675
Land cost per unit $50,000 $19,587 $19,587 $17,118
Average cost per unit (inclusive of
land) $282,749 $252,336 $252,336 $247,859
Hard cost construction (exclusive of
land) $232,749 $232,749 $232,749 $230,741
Return on Cost (ROC) 6.64% 7.44% 7.28% 7.46%

Table 11. 50-Unit Townhome Ownership Development

INC WSIO NARY ZONING ANALYSIS 2 4

Inclusionary 80%

Inclusionary AMI W/ Adjusted
No Inclusionary | 80% AMI W/ | Land Value and
Adjusted Land | Adjusted Land | Bonus Market
No Inclusionary | Value Value Units
Location Suburban Suburban Suburban Suburban
Unit Style Townhomes Townhomes Townhomes Townhomes
Unit Type Owner Owner Owner Owner
Construction Type Fee Simple Fee Simple Fee Simple Fee Simple
Construction Cost $165 $165 $165 $165
Number of Units 50 50 50 69
Market Rate Units 50 50 43 62
Affordable Units oO oO 7 7
Parking Surface Surface Surface Surface
Special Permit No No No No
Inclusionary % 0% 0% 15% 15%
Inclusionary Treatment No Inclusionary | No Inclusionary Proposed Proposed
Inclusionary Units oO oO 7 7
Payment in Lieu so so $48,880 $48,880
AMI Split 0 O 80% 80%
IRR 52.17% 20.00% -6.13% 19.10%
NPV $1,382,541 $118 ($1,218,294) ($55,247)
All costs $20,026,402 $21,539,314 $21,539,314 $28,354,949
Land cost $1,916,898 $3,429,810 $3,429,810 $3,429,810
Land cost per unit $38,338 $68,596 $68,596 $49,707
Average cost per unit (inclusive of land) $400,528 $430,786 $430,786 $410,941
Hard cost construction (exclusive of land) | $362,190 $362,190 $362,190 $361,234
Return on Cost (ROC) 17.93% 9.65% 3.13% 9.62%

INC WSIO NARY ZONING ANALYSIS 2 5

125-UNIT MULTIFAMILY (STICK) RENTAL DEVELOPMENT

The next four scenarios focus on larger multifamily rental developments. The first program includes
125 units of multifamily rental housing developed in the Amherst/Exit 1 area. For this program, RKG
Associates assumed that all parking will be surface space. The Current Market/Baseline Scenario
resulted in in IRR of 16.85% based on the current market average of $21,299 per unit land costs. This
performance level is above the modeled minimum threshold of 15%, but well below the current
market expectations of 20%+ returns. This is consistent with current practices, which developers seek
incentives from the City (i.e., additional density and/or financial inducements0 to increase return
levels. Based on the modeled 15% IRR return threshold, land costs could be as high as $36,944 per
unit (Table 12).

The Inclusionary Policy Scenario would require the program to commit 20% of all units to be priced
affordably to households earning 80% of AMI. As a result, IRR is reduced by over 100 basis points
(13.91%) and create a negative impact on the value of the program exceeding $870,000. The
Inclusionary/Bonus Density Scenario reveals that this program would require a 1.5:1 bonus density
ratio (35 additional market rate units to accommodate the 25 income-controlled units) to return the
program to the tested minimum return threshold.

125-UNIT MULTIFAMILY (PODIUM) RENTAL DEVELOPMENT

This program assumes the 125-unit rental development is in the Downtown area and requires podium
parking instead of surface parking. The higher cost of the parking has a negative impact on all
scenarios. The Current Market/Baseline Scenario yields an IRR of 14.71%, more than 210 basis points
below the surface parked scenario. As a result, the current market pricing of $21,299 per unit for land
does not meet the modeled minimum return threshold. In this scenario, land values would need to
be $18,625 to meet the minimum return threshold of 15% (Table 13).

The impact of the model inclusionary zoning policy has a similar impact for this scenario as the
previous scenario, reducing IRR by approximately 100 basis points. However, the Inclusionary/Bonus
Density Scenario reveals that the higher cost of parking in Downtown would require a much higher
bonus density ratio to offset the income-controlled unit requirement. With podium parking the bonus
density would need to have a 2.5:1 ratio to return the Inclusionary Policy Scenario to the minimum
return threshold of 15% IRR.

INC WSIO NARY ZONING ANALYSIS 2 6

Table 12. 125-Unit Multifamily (Stick) Rental Development

No = Inclusionary

Inclusionary 80%

Inclusionary 80%
AMI W/ Adjusted
Land Value and

Adjusted Land | AMI W/ Adjusted | Bonus Market

No Inclusionary Value Land Value Units
Location Amherst/Exit 1 Amherst/Exit 1 Amherst/Exit 1 Amherst/Exit 1

125-Unit 125-Unit 125-Unit 125-Unit
Unit Style Multifamily Multifamily Multifamily Multifamily
Unit Type Rental Rental Rental Rental
Construction Type MF - Stick Only MF - Stick Only MF - Stick Only MF - Stick Only
Construction Cost $185 $185 $185 $185
Number of Units 125 125 125 160
Market Rate Units 125 125 101 136
Affordable Units oO oO 24 24
Parking Surface Surface Surface Surface
Special Permit No No No No
Inclusionary % 0% 0% 20% 20%
Inclusionary Treatment No Inclusionary No Inclusionary Proposed Proposed
Inclusionary Units oO oO 24 24
Payment in Lieu $0 $0 $36,438 $36,438
AMI Split 0 oO 80% 80%
IRR 16.85% 14.94% 13.91% 15.01%
NPV $1,448,804 ($48,481) ($876,656) $14,989
All costs $29,442,087 $31,397,668 $31,397,668 $38,914,180
Land cost $2,662,418 $4,617,998 $4,617,998 $4,617,998
Land cost per unit $21,299 $36,944 $36,944 $28,823
Average cost per unit (inclusive of
land) $235,537 $251,181 $251,181 $242,879
Hard cost construction (exclusive of
land) $214,237 $214,237 $214,237 $214,056
Return on Cost (ROC) 7.91% 7.41% 7.17% 7.44%

INC WSIO NARY ZONING ANALYSIS 2 7

Table 13. 125-Unit Multifamily (Podium) Rental Development

No = Inclusionary

Inclusionary 80%

Inclusionary 80%
AMI W/ Adjusted
Land Value and

Adjusted Land | AMI W/ Adjusted | Bonus Market

No Inclusionary Value Land Value Units
Location Downtown Downtown Downtown Downtown

125-Unit 125-Unit 125-Unit 125-Unit
Unit Style Multifamily Multifamily Multifamily Multifamily
Unit Type Rental Rental Rental Rental
Construction Type MF - Podium MF - Podium MF - Podium MF - Podium
Construction Cost $215 $215 $215 $215
Number of Units 125 125 125 189
Market Rate Units 125 125 101 165
Affordable Units oO oO 24 24
Parking Aboveground Aboveground Aboveground Aboveground
Special Permit No No No No
Inclusionary % 0% 0% 20% 20%
Inclusionary Treatment No Inclusionary No Inclusionary Proposed Proposed
Inclusionary Units oO oO 24 24
Payment in Lieu $0 $0 $36,438 $36,438
AMI Split 0 oO 80% 80%
IRR 14.71% 15.02% 13.99% 15.07%
NPV ($239,602) $16,370 ($811,805) $78,589
All costs $31,647,288 $31,312,967 $31,312,967 $46,076,832
Land cost $2,662,418 $2,328,097 $2,328,097 $2,328,097
Land cost per unit $21,299 $18,625 $18,625 $12,320
Average cost per unit (inclusive of
land) $253,178 $250,504 $250,504 $243,841
Hard cost construction (exclusive of
land) $231,879 $231,879 $231,879 $231,520
Return on Cost (ROC) 7.36% 7.43% 7.19% 7.45%

INC WSIO NARY ZONING ANALYSIS 2 8

200-UNIT MULTIFAMILY (STICK) RENTAL DEVELOPMENT

RKG Associates also modeled a larger, 200-unit multifamily rental development program to
understand if larger projects had different financial performance measures. The analysis revealed that
200-unit programs performed similarly to the 125-unit programs. Under the surface parking
assumption, the Current Market/Baseline Scenario yielded an IRR that is above the proposed 15%
minimum return threshold but still well below the current market expectations of 20+% (17.63%).
Incorporating the model inclusionary zoning policy (20% of units committed to affordability) reduces
the Target Return Scenario return by approximately 100 basis points to 13.95% IRR (Table 14). A
bonus density ratio of 1:1 provides sufficient additional market rate units to offset the financial impact
of the model inclusionary zoning policy, ultimately requiring 42 additional market rate units to
compensate for the 40 income-controlled units priced at 80% of AMI.

200-UNIT MULTIFAMILY (PODIUM) RENTAL DEVELOPMENT

The cost of podium parking in the Downtown area has similar impacts on a 200-unit project as it does
on a 125-unit project. The Current Market/Baseline Scenario yields a 15.42% IRR, approximately 220
basis points below the surface parking scenario. The model inclusionary zoning policy negatively
impacts the financial performance of the project, requiring a 2.5:1 bonus density ratio to have the
Inclusionary/Bonus Density Scenario meet the target return threshold of 15% IRR.

INC WSIO NARY ZONING ANALYSIS 2 9

Table 14. 200-Unit Multifamily (Stick) Rental Development

No _ Inclusionary

Inclusionary 80%

Inclusionary 80%
AMI W/ Adjusted
Land Value and

Adjusted Land | AMI W/ Adjusted | Bonus Market

No Inclusionary Value Land Value Units
Location Amherst/Exit 1 Amherst/Exit 1 Amherst/Exit 1 Amherst/Exit 1

200-Unit 200-Unit 200-Unit 200-Unit
Unit Style Multifamily Multifamily Multifamily Multifamily
Unit Type Rental Rental Rental Rental
Construction Type MF - Stick Only MF - Stick Only MF - Stick Only MF - Stick Only
Construction Cost $185 $185 $185 $185
Number of Units 200 200 200 242
Market Rate Units 200 200 160 202
Affordable Units oO oO 40 40
Parking Surface Surface Surface Surface
Special Permit No No No No
Inclusionary % 0% 0% 20% 20%
Inclusionary Treatment No Inclusionary No Inclusionary Proposed Proposed
Inclusionary Units oO oO 40 40
Payment in Lieu so so so so
AMI Split 0 0 80% 80%
IRR 17.63% 15.01% 13.95% 14.92%
NPV $3,242,153 $8,236 ($1,343,770) ($114,769)
All costs $45,806,535 $50,030,300 $50,030,300 $58,884,825
Land cost $3,000,000 $7,223,765 $7,223,765 $7,223,765
Land cost per unit $15,000 $36,119 $36,119 $29,899
Average cost per unit (inclusive of
land) $229,033 $250,151 $250,151 $243,723
Hard cost construction (exclusive of
land) $214,033 $214,033 $214,033 $213,824
Return on Cost (ROC) 8.12% 7.43% 7.17% 7.41%

INC WSIO NARY ZONING ANALYSIS 3 0

Table 15. 200-Unit Multifamily (Stick) Rental Development

No _ Inclusionary

Inclusionary 80%

Inclusionary 80%
AMI W/ Adjusted
Land Value and

Adjusted Land | AMI W/ Adjusted | Bonus Market

No Inclusionary Value Land Value Units
Location Downtown Downtown Downtown Downtown

200-Unit 200-Unit 200-Unit 200-Unit
Unit Style Multifamily Multifamily Multifamily Multifamily
Unit Type Rental Rental Rental Rental
Construction Type MF - Podium MF - Podium MF - Podium MF - Podium
Construction Cost $215 $215 $215 $215
Number of Units 200 200 200 297
Market Rate Units 200 200 160 257
Affordable Units oO oO 40 40
Parking Aboveground Aboveground Aboveground Aboveground
Special Permit No No No No
Inclusionary % 0% 0% 20% 20%
Inclusionary Treatment No Inclusionary No Inclusionary Proposed Proposed
Inclusionary Units oO oO 40 40
Payment in Lieu so so so so
AMI Split 0 0 80% 80%
IRR 15.42% 14.99% 13.93% 15.05%
NPV $542,652 ($16,919) ($1,368,926) $97,653
All costs $49,332,308 $50,063,155 $50,063,155 $72,424,393
Land cost $3,000,000 $3,730,847 $3,730,847 $3,730,847
Land cost per unit $15,000 $18,654 $18,654 $12,577
Average cost per unit (inclusive of
land) $246,662 $250,316 $250,316 $244,149
Hard cost construction (exclusive of
land) $231,662 $231,662 $231,662 $231,572
Return on Cost (ROC) 7.54% 7.43% 7.16% 7.44%

POTENTIAL HOUSING TRUST FUNDING STRATEGIES

The proposed payment in lieu of partial inclusionary units detailed earlier in the report can create

some revenue for the City’s housing trust. However, the value differential between market rate and

80% of AMI is not substantial and the number of developments each year likely will be limited. To

this point, RKG Associates was asked to identify some other best practices for creating revenue

sources—particularly consistent revenue sources—for the city to consider. Some potential
recommendations around funding a housing trust fund include:

Transfer tax on property sales — The City of Nashua could levy a surcharge on the sale of
property, levied on the seller, the buyer, or both parties. The surcharge could be a fixed
percentage and allow the city to collect funds when a property changes ownership. The tax
could provide a dependable source of revenue for the affordable housing trust fund. One
caveat with a transfer tax is that they work well in healthy real estate markets with consistent
turnover and sales. In less-healthy housing markets, declining home sales and prices reduce
real estate transfer tax revenues, which consequently reduces funding for the affordable
housing trust fund.

Dedicated millage rate on real property — The current real estate property tax in the City of
Nashua is $20.61 per $1,000 in assessed value. The City of Nashua could add an additional
$.01 as a dedicated tax to fund the Affordable Housing Trust Fund. This penny property tax
would be collected annually and provide a consistent stream of income for the affordable
housing trust. Additionally, the tax would be equitable in the everyone in the city would be
contributing towards ensuring that there is an adequate supply of affordable housing.

Linkage/Impact fees — Linkage/Impact fees attempt to link the production of market-rate real
estate to the production of affordable housing. Under this type of program, the City could
charge developers a fee for each square foot of new market-rate construction and use the funds
to pay for affordable housing. The city could direct the funds specifically toward the
Affordable Housing Trust Fund. The money collected in the trust fund could then be used to
support existing subsidized units, or to build new units across the city.

Development review process fee — For proposed developments which require changes to
zoning or a variance, the city should institute a development review fee. Given that many
developers of market rate units can build beyond established zoning guidelines the city should
institute a fee which is applied to development beyond established maximum densities. The
fee can be assessed on either a per square foot or per unit basis. The money collected from the
fee can be earmarked for the Affordable Housing Trust Fund and can be used to build or
subsidize affordable housing in the City of Nashua.