Fiscal Note
[enter Fiscal Note here]
Title
Report of the Ad Hoc Team for the Waiver Infeasibility re: Recommendations re: Policy Parameters Analytical Tool for the IZ Waiver Process.
Body
TO: Members of the Plan Commission
FROM: Hickory Hurie, on behalf of the ad hoc Team for the Waiver Infeasibility (Konkel, Brasser, Gromacki, Hoffman, Marx)
SUBJECT: Recommendations re: Policy Parameters Analytical Tool for the IZ Waiver Process
DATE: September 20, 2004 draft for Konkel, Gromacki, Marx, and Murphy review
Background:
The Policies document, adopted by the Plan Commission and the Common Council to help implement the IZ ordinance, outlined the need to develop an analytical tool to help staff and the Plan Commission to determine a waiver of the on-site IZ unit requirements.
Purpose:
If the developer can demonstrate that the addition of the IZ units makes the IZ units financially infeasibility within the development, then the developer may provide the units off-site, arrange for a third party to provide the IZ units, or make a payment in lieu of units to the IZ special Reserve Fund. Or the Plan Commission could reduce the number of required units to a point where a smaller IZ portion of the project becomes financially feasible.
Underlying Principles:
A small team of City staff led by a Plan Commissioner reviewed the proposals of two different auditor firms experienced in housing finance, and hired Tim Sherry of Suby Van Haden to develop a model to help analyze requests for waivers. The Team determined that the City needed two models to help analyze proposals: one for rental properties/developments and a second for owner/for sale properties and developments.
The Team envisioned a model whereby a developer could provide certain data regarding a proposed project into a pro-forma spreadsheet, which could then provide a conclusion that a proposed development would be financially feasible (or not). A developer would input data on the project without any IZ units, and would then run the model with a second set of assumptions involving solely the addition of the IZ units. If the project (without the IZ unit) were financially feasible but the second run of the application with the IZ units (and City incentives) showed that the proposal did not reach a set of benchmark measures (such as internal rate of return on investment), the Commission could reasonably conclude that the project with the IZ units were not feasible, and permit a waiver of some sort, using the choices outlined above.
Process to develop the Tools:
Suby staff developed models for a rental project and for a for-sale project based upon their previous work with Section 42 Low-income Housing Tax Credit analysis work. Tim Sherry and other members of the city team met with a wide range of representative developers to review the issues, test the model, and obtain feedback on the proposed benchmarks. By and large, the general developer reaction was positive, since the model provided a data-basis for the waiver process.
The attached sheets outline the various benchmark measures, one for the For-sale model, and one for the Rental model suggested by the team and Suby Van Haden, with input from private developers.
Recommended Plan Commission:
The Ad Hoc Team recommends Plan Commission discussion and adoption of the attached policy parameters to be used as a basis for Plan Commission reviews of requests for waiver.
For-Sale Parameters for Determining Financial Infeasibility For IZ -
FINAL AD HOC TEAM RECOMMENDATION TO PLAN COMMISSION
The Ad Hoc Team recommends that the Plan Commission use these assumptions or ranges of assumptions to determine whether a proposed housing project meets the threshold for consideration for a waiver. If a developer requests a waiver and the proposed development uses assumptions beyond or outside of these ranges, the Ad Hoc Team suggests that the Plan Commission reject the waiver request.
Issue: Range
Financing - Interest Rate Prime plus .5
Project Costs - LandHard costsSoft costsContractor ProfitContractor OverheadContractor General RequirementsParking Development Fee
$5/sq ft suburban$50 - 55 downtown vacant$90-125 downtown improved with building5% new, 8% rehab of AIA contract5% new/rehab of soft costs6% of AIA contract costs less profit/overhead/gr2% of AIA contract costs less profit/overhead/gr4% of AIA contract costs less profit/overhead/gr$1,000/stall surface$15,000/stall for 1st level underground$20,000/stall for 2nd level underground$27,000/stall for 3rd or more levels underground8% of total project costs not including development fee and reserves
Inflation index factor on sales 5 year average economic change factor from DOR website for market rate unitsAverage 5 yr AMI increase for IZ units
Inflation index factor on costs 5 year average economic change factor from DOR websiteAverage 5 yr AMI increase for IZ units Range of market rate initial selling prices MLS or Assessors comps for market rateIZ units use calculation of AMI Cost of Sale/transaction costs 6.5% Internal Rate of Return 15 - 30
Ratio of sales to inventory Submit similar comps for similar projects or city decides Gross profit assumption Note: I do not have notes from the Team's discussion of this: any suggestions, or did we reject the concept?