development, and the remainder is the land residual. The decision to pursue the project depends on
whether the developer can acquire the land at a favorable price.
Within the model RKG created a land value override where the model user can input their own land
value assumption. This allows the user to test financial feasibility based on the different land costs,
since they may vary significantly based on development size and underlying zoning.
Development Revenues
RKG collected rental rate data for relatively new luxury developments which included efficiency
(studio), one-bedroom, two-bedroom, and three-bedroom apartments. The market rental rates were
used as a baseline for the analysis and compared to information obtained from developers. Generally,
new units rent for between $2.24 and $3.38 per square foot depending on the unit type. Within the
model the rents can be modified by the user. For more information about rental rates, see Appendix
1.
O09) (tee tebatnal eta
INC WSIO NARY ZONING ANALYSIS
10
Affordable Rents (Utilities Included
Unit 40% 50% 60% 65% 70% 80% 100% 110% 120% 140% Market
Type AMI AMI AMI AMI AMI AMI AMI AMI AMI AMI Rate
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
