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Financial Feasibility Analysis

PREVIOUS FINDINGS

GROWTH

The City is expected to continue to grow its
population and employment base. Today’s
housing stock will not accommodate this growth.
How and where does the City want to grow
should be a key consideration in the upcoming
Master Plan.

AFFORDABILITY

Housing prices (sales and rents) are outpacing
what most Nashua residents can afford. This
means households having to pay more than they
should to live in the City. How does Nashua
preserve its existing affordable housing stock
while encouraging more to be built city-wide?

MINIMIZE DISPLACEMENT

Housing prices and incomes are rising rapidly in Nashua
creating immense pressure on the lowest income
households to keep up or move out. The displacement of
those households may result in less racial and economic
diversity in some neighborhoods and push those
households further from the jobs and services they
depend on. Increasing price diversity in more locations
across the City would provide more housing choice for the
City’s most vulnerable residents.

ASSOCIATES INC

DOWNTOWN

Downtown Nashua offers tremendous
opportunity to add more housing, but also the
greatest threats for impacting lower-income
residents. The City must employ strategies that
improve the quality of the housing stock and
encourage a mix of new market rate and
affordable housing to improve quality life for all
residents in the Downtown area. Additional
households in Downtown will also provide more
spending power which will benefit local
businesses too.

LEVERAGING RESOURCES

The City will need additional resources to
address the housing opportunities and challenges
ahead. Seeking partners who can help with
housing issues will add knowledge, capacity, and
funding resources to match the City’s current
efforts. The City should capitalize on strategic
partnerships with non-profits, housing agencies,
banks, and employers.

Financial Feasibility Analysis

PREVIOUS FINDINGS

ISSUE or OPPORTUNITY AREA

RECOMMENDATIONS SURES OF
© ACCOMMODATING RESOURCES OF DOWNTOWN
FUTURE GROWTH HOMEOWNERS NASHUA
AND RENTERS
PLANNING FOR SUCCESS
Utilize Master Plan, Land Use Policy, and Zoning to Address Housing m1 m1 m1
Choice, Affordability, and Location
Continue to Integrate Accessory Dwelling Units x x -
Leverage Public Land for Housing x x -
Educate the Public on the Need for and Benefits of Housing x - -
ALIGNING POLICIES AND HOUSING OUTCOMES
Create an Affordable Housing Trust x Xx -
Update Inclusionary Zoning Regulations x x Xx
Phase in Rental Registry and Inspection Process - - Xx
INVEST IN NEW AND EXPANDED HOUSING PROGRAMS
Expand Rental and Owner Rehab Programs - Xx x
Reintroduce First Time Homebuyer Program Xx Xx x
EXPANDING PARNTERSHIPS
Leveraging Capital from Housing Partners x x x
Continue the Partnership with the Housing Authority x x -
Right of First Refusal Policy - x -
Working with Employers to Identify Opportunities to Partner on m1 m1 m1
Employer Assisted Housing

ASSOCIATES INC

Financial Feasibility Analysis
PREVIOUS FINDINGS

UPDATE INCLUSIONARY ZONING REGULATIONS

Issues/Opportunities Addressed: C)
Timeframe for Action: Short Term

Inclusionary Zoning (IZ) is a policy used to create
affordable housing by requiring developers to include a
specific percentage set aside of below-market units as
part of a market-rate rental or ownership development.
The IZ policy effectively leverages private market
investment to create new affordable units with very
little (if any) public subsidy. IZ is also an effective way
of integrating affordable units across a community to
provide opportunities for housing choices in
neighborhoods where lower-income households may
not have otherwise been able to afford. Resource-rich
areas/neighborhoods may have access to better
schools, healthcare options, transportation choices, and
open spaces. Diversifying the locations of affordable
housing may offer new opportunities to households who
previously had limited choice.

Inclusionary zoning policies are typically classified as
one of two types: mandatory or voluntary. In
mandatory policies, affordable units must be included
in all proposed developments that fit within the
parameters of the policy. Voluntary policies rely on
negotiations and offsets which function as incentives to
encourage developers to provide affordable units.

Nashua Housing Study - 66

The City of Nashua has an IZ policy already in
place within the City’s Zoning Ordinance, Section
190-48. The current IZ policy is only applicable to
residential development in the Downtown Zoning
District or a parcel that abuts the Downtown
District and is in a residential zoning district. Table
48-1 outlines the affordable housing set-aside
required by development type and location. Those
percentage set asides range from 3% to 20%. The
City has also included incentives such as a density
bonus offset, expedited permitting, and allowing
certain development types to be as of right. It is
worth noting that the City’s IZ policy has never
been used.

Given that the current IZ policy is only applicable
to development in the Downtown zoning district, it
limits the geographic distribution of new
affordable units and does little to spread housing
choice to other areas of Nashua. A
recommendation the City should consider is
revising the current IZ policy to apply to city-wide
to any residential or mixed-use development that
exceeds a certain number of units (e.g. any
development containing 10 or more units). This
would help ensure new residential development in
other parts of the City are also contributing to
easing the affordable housing shortages over time.

ASSOCIATES INC

A key first step to updating the City’s IZ policy is to
conduct a financial feasibility analysis of the current
policy and scenario test any changes the City wishes to
make. Conducting a feasibility analysis will allow the
City to understand what changes could be supported by
market-rate residential development and which changes
may slow the pace of development. The financial
modeling exercise can help in the crafting of new IZ
language and should include the following
considerations:

* What size development should IZ be applied to?

¢ Where should IZ be applied in the City?

* What percentage of units should be set aside?

¢ Should the policy cover both ownership and rental
projects?

¢ Should the City have a payment in-lieu option to
collect money for the Affordable Housing Trust?

* What income levels should the units target?

* Should there be a tiered system for affordable units
where fewer but more deeply affordable units are
required versus more units at a higher income level?

* What incentives or offsets should the City offer?

Concurrently, the City could work with the entity
conducting the feasibility analysis to craft an updated IZ
policy that responds to the feasibility findings. This can
help ensure changes to the IZ policy will not discourage
private investment thereby reducing affordable housing
production.

Financial Feasibility Analysis
PROCESS

FINANCIAL FEASIBILITY PROCESS

The process undertaken was collaborative and included engaging City staff, local and regional housing developers,
local debt and equity investors, and other real estate professionals to understand the market dynamics and
performance indicators unique to Nashua. RKG utilized information gained from market research and interviews to
construct an adaptable financial model. The model enables the City to test prototypical developments to understand
the financial implications of creating an inclusionary ordinance.

DATA COLLECTION

Construction Costs
Operation Costs
Price Points

Return
Expectations

Debt and Equity

Scenario Identification
Model Development
Cash on Cash Return
Internal Rate of Return

Analysis Findings Draft Report
Strategy Identification Review

Best Practices Final Report
Analysis

ASSOCIATES INC

Financial Feasibility Analysis
PROCESS

UNDERSTANDING THE APPROACH

¢ Regulatory policies control development process
devoid of market and financial feasibility

¢ Policies can go

¢ “Too far” meaning their requirements will make
projects non-competitive, effectively eliminating
development

« “Not far enough” meaning they do not deliver the
intended purpose due to lax requirements

¢ “Just right” balance intended benefits with
market/financial opportunity cost

¢ Process to determine “just right” is both
quantitative AND qualitative
* Analyses like this one can relate policy with
market/financial performance impacts
* However, balance is relative to perspective (i.e., City
versus development community)

¢ Focus of the recommendation to create a “revenue

neutral” IZ policy
¢ Balance IZ requirements with market return
expectations

Creating an Effective Policy - Considerations

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ASSOCIATES INC

Financial Feasibility Analysis
ANALYSIS

SCENARIOS

¢ The financial feasibility analysis
was performed for several
scenarios to ensure a
recommended IZ policy

accounted for:
¢ Housing tenure (ownership and
rental)
* Location
* Scale of development

¢ The results of the various
scenarios will lead to specific
recommendations on how the city
should approach a new IZ policy

Scenario

2a

2b

4a

4b

5a

5b

Ownership

Rental

Rental

Ownership

Rental

Rental

Rental

Rental

Unit Type

Single
Family

Multifamily

Multifamily

Townhome

Multifamily

Multifamily

Multifamily

Multifamily

Location

Suburban

Amherst/
Exit 1

Downtown

Suburban

Amherst/
Exit 1

Downtown

Amherst/
Exit 1

Downtown

Modeled Scenarios

SFU ay sd

100%
Surface

100%
Surface

Podium

100%
Surface

100%
Surface

Podium

100%
Surface

Podium

NTT oysy med |
Uae)

10

25

25

50

125

125

200

200

80%

80%

80%

80%

80%

80%

80%

80%

Inclusionary

Percentage

10%

10%

10%

15%

20%

20%

20%

20%

ASSOCIATES INC

City of Nashua

Purchasing Department
Administrative Services Division (603) 589-3330
229 Main Street - Nashua, NH 03060 Fax (603) 594-3233

May 24, 2022
Memo #22-288

TO: Mayor Donchess
Finance Committee

SUBJECT: Pavement Markings Program Change Order #2 in the amount of $162,000 funded from
accounts 54275 Signing & Striping Services

Please see attached communications from Jon lbara, Superintendent of the Street Department, dated May
25, 2022 for project specific details related to this purchase. Below please find a summary of the purchase
approval request:

Item: Pavement markings change order to extend the current contract and include
additional quantities such as bike routes and lane striping to the current contract.

Value: Change Order #2: $162,000

To Date: Approved (6/11/20): $248,570 (Finance Memo 20-113)
Change Order #1 (4/7/21): $162,000 (Finance Memo 21-100)
Total to Date: $410,570

Vendor: K5 Corporation (formerly Hi-Way Safety)

Department: 161 Streets
Source Fund: 54275 Signing & Striping Services

Ordinance: Pursuant to § 5-84 Special purchase procedures. A/ (7) Purchases under extensions
of contracts when no price increase exceeds 10% per year.

The Board of Public Works (5/25/22 BPW meeting), Division of Public Works: Streets, and the Purchasing
Department respectfully request your approval of this contract.

Regards,
Kelly Parkinson

Purchasing Manager

Ce: J Ibara
C O'Connor

Financial Feasibility Analysis
ANALYSIS

INPUTS

Any real estate financial model relies upon three
key elements: [1] revenues, [2] expenditures, and
[3] financials

Revenues consist of income derived by the real

estate investment
¢ Rental income/house sales
¢ Parking fees
* Property reversion (for rental projects)

Expenditures
¢ Land acquisition
¢ Construction (i.e., bricks)

¢ Rental properties
* Operation (i.e., maintenance)
¢ Property taxes

Financials
¢ Equity requirements
¢ Debt financing

* Bridge loans
¢ Permanent financing

* Capitalization rates

ASSOCIATES INC

Financial Feasibility Analysis
ANALYSIS

GO / NO GO DECISIONS

¢ Internal rate of return
¢ Measure of investment efficiency
¢ The annual rate of investment value escalation
¢ Similar to a savings account interest rate

¢ How does it work?
* Measure against other investment types
¢ Reflects opportunity cost for risk-reward analysis

¢ What can I “live with?”

¢ “Typical” Market

¢ Rental Housing = 12% IRR

* For Sale Housing = 20% IRR
¢ Nashua Market (Reported)

* Rental Housing= 20%+ IRR

* For Sale Housing = 30%+ IRR

¢ What happens when I cannot reach my goal?

¢ Offer less for land Most Likely
¢ Go somewhere else y
¢ Sit on my money

¢ Bite the bullet Least Likely

ASSOCIATES INC

Financial Feasibility Analysis
AFFORDABILITY

ASSOCIATES INC

FY 2020 Income Limits Summary - Nashua, NH

Household Size

a... ee
WHAT IS AFFORDABILITY? ~~ [a-rerson | 2-Person | 3-Person | a-Person | 5-Person | 6-Person |

30% of AMI $23,050 $26,350 $29,650 $32,900 $35,550 $38,200

¢ Housing affordability is a term of relativity,
not absolute 40% of AMI $30,720 $35,080 $39,480 $43,840 $47,360 $50,880

¢ HUD defines affordability as spending 30%

’ . 50% of AMI $38,400 $43,850 $49,350 $54,800 $59,200 $63,600
or less of gross income on housing and select
utilities 60% of AMI $46,080 $52,620 $59,220 $65,760 $71,040 $76,320
¢ Ahousehold’s income (and size) affects what
meets this threshold 65% of AMI $49,920 $57,005 $64,155 $71,240 $76,960 $82,680
70% of AMI $53,760 $61,390 $69,090 $76,720 $82,880 $89,040

¢ The income ranges typically used for HUD
housing programs (i.e., HOME funds) are 80% of AMI $55,950 $63,950 $71,950 $79,900 $86,300 $92,700
based on a regional income analysis

~ ; 100% of AMI $76,800 $87,700 $98,700 $109,600 $118,400 $127,200

¢ Within Nashua, it is defined by the greater
Nashua- Hillsborough market 110% of AMI $84,480 $96,470 $108,570 $120,560 $130,240 $139,920
120% of AMI $92,160 $105,240 $118,440 $131,520 $142,080 $152,640

140% of AMI $107,520 $122,780 $138,180 $153,440 $165,760 $178,080