Agenda

INC WUSIO NARY ZO NING ANALYSIS 9

These assumptions further impact potential revenue levels as well as overall construction
costs.

INC WUSIO NARY ZO NING ANALYSIS 8

Table 1. Modeled Scenarios

Unit Size and Type Suburban Exit 1 Downtown
10-unit Single Family Xx

25-unit Multifamily (Stick/Podium) X X

50-unit Townhouse Xx

125-unit Multifamily (Stick/Podium) X X

200-unit Multifamily (Stick/Podium) X X

Source: City of Nashua and RKG Associates Inc., 2021

The eight development scenarios include:

* 10-unit single family ownership development in the Suburban subarea

= Construction and development data include the costs of land, the costs to develop the
structures, and the basic assumptions of types of units, size of units, and unit amenities.

«= Revenue and expenditure data includes prevailing rent rates (both market rate and income
controlled), prevailing sales prices, and operation costs for rental housing. Operation cost data
points include direct operations (i.e., maintenance, marketing) and indirect costs (ie., real
estate taxes).

The RKG Associates model focuses on Internal Rate of Return (IRR) calculations to determine financial
feasibility. This measure is a standard approach to understanding the potential performance of a real
estate investment as it accounts for the construction, operation, and eventual sale of a real estate
investment. Real estate development is a risk-based venture that requires an investor to guarantee a
sum of money in exchange for the potential revenue and value created by that investment. Developers

developer by only making them provide the market value equivalent to the policy formula while also
creating a new revenue source for a housing trust. Updating the market value differential formula
on a regular basis (typically every 1-2 years) ensures fairness to both the developer and the city.

Current policies make an inclusionary zoning policy challenging. The most immediate challenge to
implementing an inclusionary zoning policy is the City’s current practices of maximizing density
and/or providing financial incentives for pure market-rate projects. The impact of this practice has
been two-fold. First, market return expectations (reported

to be above 20% IRR) are substantially higher than other,

similar-risk marketplaces in New England and throughout Given the analysis indicated

EXECUTIVE SUMMARY

Scope of Work

200-UNIT MULTIFAMILY (STICK) RENTAL DEVELOPMENT. ..........c..essscsseesseeseseeesseetseeeseceeees 28

200-UNIT MULTIFAMILY (PODIUM) RENTAL DEVELOPMENT ..........ccssssssssssssssesssseesesesseees 28
POTENTIAL HOUSING TRUST FUNDING STRATEGIES... ccc ssscsssssessessseessesssessssesssseseeseees 31
APPENDIX 1 occ ccesssstsssssssesssssessssesessseesssessssessessssssssessssessssesssessssesesseseesssessssessseesecsssessssessseesesessssesseeesens 33

CONTENTS

City of Nashua
Inclusionary Zoning:

Financial Feasibility Analysis

September 1, 2021

PREPARED FOR:

City of Nashua
Community Development Division
229 Main Street, Nashua, NH 03060

PREPARED BY:

RKG Associates, Inc.