August 17, 2012 Final Report TRANSFER OF DEVELOPMENT RIGHTS PROGRAM MARKET STUDY FOR THE CITY OF TACOMA

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1 August 17, 2012 Final Report TRANSFER OF DEVELOPMENT RIGHTS PROGRAM MARKET STUDY FOR THE CITY OF TACOMA JANUARY 20, 2011

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3 August 17, 2012 Final Report TRANSFER OF DEVELOPMENT RIGHTS PROGRAM MARKET STUDY FOR THE CITY OF TACOMA 3 MacArthur Place, Suite 1100 Santa Ana CA (f) In Association With: Community Attributes Foster Pepper PLLC Planning and Implementation Strategies

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5 TABLE OF CONTENTS EXECUTIVE SUMMARY... 1 A. Sending Areas... 2 B. Receiving Areas... 7 C. Exchange Rates... 9 D. TDR Absorption Capacity E. TDR Program Implementation I INTRODUCTION II COUNTY-BASED TDR SENDING SITES ANALYSIS A. County Sending Sites B. Support for Interjurisdictional Transfers III IN-CITY SENDING SITES ANALYSIS A. Conservation Funding B. Contextual Analysis C. TDR Supply Estimate and Values D. Habitat Corridor Sending Area Conclusions IV HISTORIC IN-CITY SENDING SITES ANALYSIS A. Historic Preservation TDR Programs B. Historic Preservation Policies and Programs in Tacoma C. Possible Historic Preservation Sending Areas in Tacoma D. Financial Incentives for Preservation E. Sending Sites Analysis F. In-City Historic Sending Sites Conclusion V RECEIVING AREA MARKET ANALYSIS A. Existing Demand B. Potential Demand C. Pro forma Receiving Areas Findings VI TDR EXCHANGE RATES A. Receiving-Area TDR Value Summary B. Sending-Area TDR Value Summary C. Exchange Rates i

6 TABLE OF CONTENTS VII TDR ABSORPTION CAPACITY A. Current TDR Regulations B. TDR Capacity VIII IMPLEMENTATION RECOMMENDATIONS APPENDICES (Included in a Separate Document) Appendix A: Senate Bill 5253: TDR for TIF Analysis Appendix B: Receiving Area Economic Analysis Appendix C: Sending Areas Economic Analysis Appendix D: Preliminary Exchange Rates Analysis Appendix E: Code Recommendations Appendix F: Draft Interlocal Agreement Appendix G: Pierce County Interlocal Agreement ii

7 TABLE OF CONTENTS Figures Figure ES-1 Potential Sending and Receiving Areas... 5 Figure 1 Prime Sending Areas in Pierce County* Figure 2 Prime Sending Areas in King County Watershed Figure 3 TDR for TIF Diagram Figure 4 Tacoma Private (Taxable) Habitat Corridors Used to Estimate TDR Supply Figure 5 Percentage of TDRs by Zoning District Figure 6 Average Land Value per TDR in Habitat Corridors Figure 7 Unbuilt Floor Area Summary on Historic Sites in Non-Residential Zones Figure 8 Unbuilt Development Rights Summary on Historic Sites in Residential Zones Figure 9 Historic Map Figure 10 TDR Receiving Areas... 98

8 TABLE OF CONTENTS Tables Table ES-1 Summary of Potential TDR Supply... 3 Table ES-2 Example of the Number of TDRs Purchased for 20,000 Square Feet of Bonus Floor Area Table 1 Average Assessor Value per Unbuilt Floor Area Increment of Historic Sites in Tacoma Mixed- Use Centers and Downtown Table 2 Receiving Area Summary Table Table 3 Case Study 1 Zoning Summary Table 4 Case Study 1 Residual Land Value ($ per SF) Table 5 Case Study 2 Zoning Summary Table 6 Case Study 2 Residual Land Value ($ per SF of Land) Table 7 Case Study 3 Zoning Summary Table 8 Case Study 3 Residual Land Value ($ per SF of Land) Table 9 Case Study 4 Zoning Summary Table 10 Case Study 4 Residual Land Value ($ per SF of Land) Table 11 Bonus Floor Area Values Comparison Table 12 Detailed In-City Sending Sites Values Table 13 Broad In-City Sending Sites Values Table 14 Example of the Number of TDRs Purchased for 20,000 Square Feet of Bonus Floor Area Table 15 Summary of Allowed Base Heights and Bonus Heights in Receiving Area Zones Table 16 Draft Amendment to TMC 13.06A.060.C (development standards Table (Underscore identifies proposed additions. Strikethrough identifies proposed text deletions) Table 17 Undeveloped Square Footage Allowed with TDRs under Zones in Receiving Areas Table 18 Summary of Potential TDR Supply iv

9 EXECUTIVE SUMMARY This study assesses whether a Transfer of Development Rights (TDR) program for Tacoma can assist in achieving regional conservation priorities while, at the same time, providing local benefits in encouraging new development in some areas and conserving resources elsewhere in the City. The study was funded by the State Department of Commerce and the federal Environmental Protection Agency to help implement the largest regional TDR program in the nation, which is being undertaken jointly: by the State of Washington; the Puget Sound Regional Council; and, King, Snohomish, and Pierce Counties with the cooperation of cities in the region. One tool to involve receiving-area cities in a regional TDR marketplace, such as Tacoma, is innovative new State TDR legislation, SB The intent of the legislation is to empower cities in three Central Puget Sound Counties (three counties) to finance new infrastructure improvements with tax increment financing (TIF) to stimulate infill development if they participate in the regional TDR program. Additionally, local jurisdictions can craft TDR programs with the traditional role of resource conservation. This market analysis of areas targeted for conservation, or TDR sending areas, and areas planned for growth, or TDR receiving areas, generated estimated TDR prices and values. Exchange rates and demand analyses were used to present a detailed framework for a proposed TDR program in Tacoma. It must be noted, however, that in order to comply with the 1991 State Growth Management Act and more recent regional planning mandates, the City has already significantly increased densities and heights in Downtown Tacoma. These previous moves make it more difficult for the City to significantly increase densities further as part of the TDR program. In recent years, though, the City has begun to modify this approach by requiring developers to provide community benefits in return for increased density. For instance, when it increased the densities and height in commercial mixed use centers outside the Downtown Core in 2010, the City 1

10 EXECUTIVE SUMMARY did require amenity payments (such as TDR) in order to maximize permitted height. This study seeks to build on that foundation by refining the City s current approach to TDR and recommending approaches whereby TDR transactions occur in exchange for higher density, heights, and other benefits to developers. A. Sending Areas Possible TDR sending areas of particular interest to Tacoma are shown in the maps in Figure ES-1. These include resource lands designated by King and Pierce County TDR programs and in-city Habitat Corridors and historic buildings. Table ES1 below shows that the number of potential TDRs is approximately 16,000, and while the TDR values will vary according to individual owner, the average total value is estimated to be $312.2 million. About half of the total quantity and value of sending area supply consists of TDRs in the Downtown Core. This general estimate of sending-area TDR value will be used for comparison to the receiving-area TDR values. 1. County-Based Sending Areas The three county-based sending areas must be included in the City of Tacoma s TDR program in order to qualify for the TIF for TDR legislation in SB In order for Tacoma to qualify for Tax Increment Financing (TIF), the City must adopt a TDR program and a Local Infrastructure Project Area with receiving areas sufficient to absorb at least 369 county-based TDRs in new development projects. This amount is 20 percent of Tacoma s total three-county allocation. Within the first decade of the TIF district, TDRs must be utilized to extend the program. The City can select county lands from which to accept these TDRs. 2

11 EXECUTIVE SUMMARY The specific sending areas evaluated included Agricultural and Forest resource lands in Pierce County; the city s Green River Watershed and Vashon Island in King County; Habitat Corridors under private ownership in Tacoma; and, historic buildings in Tacoma. Given the array of possible sending areas, adoption of all could create an oversupply of the local TDR market, so the City will need to prioritize sending areas in a way that balances regional and local interests while meeting the receiving-area TIF targets. Table ES-1 SUMMARY OF POTENTIAL TDR SUPPLY Type of Sending Area TDR Number Estimate Average Cost per TDR Total Conservation Cost Three-County TDRs 1,843 $23.6 million King County 514 $20,000 $10.3 million Pierce County 1,329 $10,000 $13.3million In-City Habitat Corridors* 2,873 $30,000 $86.2 million Historic Sites in Downtown Core* Historic Sites outside Downtown Core* 9,667 $18,000 $174.0 million 1,579 $18,000 $28.4 million Total 15,962 $312.2 million * In-City Habitat and Historic Site TDRs are calculated based on floor area increments designed for the transfer ratios. TDR sending areas in the upper Green River Watershed in King County and Agricultural Resource Land in the Puyallup River Valley have a logical nexus with Tacoma. Tacoma s drinking water comes from the Green River Watershed and the city receives much fresh food from the Puyallup Valley. In the Watershed, 514 TDRs are currently for sale, and there is potential for an additional 233 TDRs to be sold over the short term. These forest TDRs are generally valued at $20,000 each. 3

12 EXECUTIVE SUMMARY There are over 5,000 TDRs in Pierce County including 2,614 commercial agriculture TDRs in the Puyallup Valley and other areas. The Puyallup Valley is highly developable and often located adjacent to urban growth areas. Accordingly, TDRs from farmland near cities have higher values than remote forest land and were recently appraised at between $3,800 and $24,000 per TDR, and the average value was $10,000. 4

13 EXECUTIVE SUMMARY Figure ES-1 Potential Sending and Receiving Areas (Map shows more Pierce County TDRs than are listed in Table ES-1) 5

14 EXECUTIVE SUMMARY 6

15 EXECUTIVE SUMMARY 2. In-City Sending Areas Within Tacoma s designated Habitat Corridors there are rights to build 11.1 million square feet of floor area valued at $5 per square foot and 1,023 residential units valued at $30,000 each. For residential zones in Habitat Corridors one TDR should be allocated for each forgone dwelling unit allowed by the property s current zoning. For nonresidential or multi-family zones one TDR should be allocated for each 6,000 square feet of potential. The calculation above should take into account the actual number of dwelling units or square feet of floor area buildable on the sending area under its current zoning restrictions and all other applicable land use and environmental controls (e.g. applicable setback or wetland regulations). On historic sites within Tacoma, there are rights to build 8.3 million net square feet of floor area. Their value is estimated to be $30 per square foot of air right in the Downtown Core and $15 per square foot outside of the Core. For Designated Landmark sending areas, our analysis concluded that one TDR should be allocated as follows: Designated Tacoma landmarks DCC-Downtown and DCC-City Hall: One TDR per 600 square feet of foregone of unused potential floor area allowed by the property s current zoning. Designated Tacoma Landmarks not within DCC-Downtown and DCC-City Hall: One TDR shall be allocated per 1,200 square feet of foregone unused potential floor area allowed by the property s current zoning. B. Receiving Areas There is sufficient capacity over the medium term under existing zoning (with minor modifications described in Section E) in Downtown and in the Mixed Use Centers outside Downtown to purchase 85 percent of the TDR supply shown in Table ES-1. However, the market analysis of the Mixed Use Centers outside Downtown and Downtown shown in Figure ES-1 concluded that under present market conditions bonus floor area on major development projects is unlikely to be financially feasible. 7

16 EXECUTIVE SUMMARY More favorable market conditions, such as a 15-percent increase in the average market rents for surface-parked projects and a 38-percent increase in market rents for projects with structure parking, would support large-scale development and catalyze TDR demand. Developers will use the Mixed Use Center Bonus Palette and the Downtown Design standards and Special Features menu when the time is right. In the meantime, some bonus menu items should be replaced with TDR. In the Mixed Use Centers outside of Downtown a developer can pay 0.5-percent of building value to the open space fund for bonus density. In the Downtown a developer can build an off-site park, community garden, or conserve open space with a value equivalent to at least 1 percent of construction costs. Since the TDR program will conserve in-city open space, these bonus menu items should be replaced with equivalent values for TDRs. In the absence of better market conditions, we evaluated the 0.5-percent of building value metric as a receiving-area TDR value. As summarized in Table E-S 1 above, the estimated total cost for the sending area TDRs totals $312.2 million. Comparatively, at 0.5-percent of building value, the receiving areas could pay up to $512.9 million for an estimated million square feet of bonus floor area in the Mixed Use Centers including the Downtown Core. This amount is equal to $3.84per square foot of bonus floor area and is based on building values, including bonus density generally up to the maximum height allowed under zoning. Under these conditions the receiving areas would be able to purchase approximately 13,500sending TDRs over the medium term; however, near-term projects are unlikely to build to maximum density. In addition to zoning buildout, a surface parking scenario was also modeled to illustrate TDR potential. Under this scenario, far fewer parcels would build to heights that require bonus density. Only the largest parcels can include a mix of surface parking and some bonus height, resulting in about 2.0 million 8

17 EXECUTIVE SUMMARY square feet of bonus floor area. Using the 0.5-percent of building value metric, $11.0 million could be generated for bonus floor area. To start the TDR program, we recommend basing the exchange rates on a receiving area value of $2.00 per square foot of bonus floor area. This value will support rather than hinder projects including bonus density and will not require a steep increase in rents to occur in order to be financially feasible. With this value, the Downtown and in the Mixed Use Centers outside Downtown could generate $266.9 million in revenue and purchase 85 percent of the TDR supply over the medium term if they include bonus density generally up to the maximum height allowed under zoning. With surface parking, the Downtown Core and in the Mixed Use Centers outside the Downtown Core could generate enough revenue for 550 King County TDRs or 1,100 Pierce County TDRs, which would in turn be enough for Tacoma to finance new infrastructure improvements with TIF. C. Exchange Rates Exchange rates are TDR market mechanisms that define the relationship between sending and receiving areas. Even though the actual sale prices for TDRs are determined through a negotiated transaction between willing sellers and buyers, the amount of bonus floor area allowed by purchasing TDRs is set by the TDR program. For Tacoma, the exchange rates presented below are designed to encourage market-based transactions between the four types of sending areas and bonus floor area permitted in the Mixed Use Centers outside Downtown and Downtown. These exchange rates place the four types of sending areas on an equal footing. For sending areas situated in unincorporated Pierce County: one TDR allows 5,000 square feet of bonus floor area. For sending areas situated in unincorporated King County: one TDR allows 10,000 square feet of bonus floor area. 9

18 EXECUTIVE SUMMARY For Tacoma Habitat sending areas: one TDR allows 15,000 square feet of bonus floor area. For Tacoma Landmarks sending area: one TDR allows 9,000 square feet of bonus floor area. Exchange rates are based on market values, in this case allowing a certain amount of bonus floor area in exchange for the purchase of TDRs, but also include a policy decision to charge $2.00 per square foot of bonus floor area to incentivize transfers For example, Table ES 2 shows the number of TDRs that would need to be purchased for 20,000 square feet of bonus floor area on a large project. The cost for the bonus at $2 per square foot would be $40,000, so this amount would need to spend on TDRs. Since there are multiple sending areas, in order to issue an occupancy permit for the project, the permitting department can, for example, ask the developer to submit 4.0 Pierce County TDRs (20,000 bonus square feet/5,000 bonus square feet per TDR=4 TDRs), or 2.0 King County TDRs (20,000 bonus square feet/10,000 bonus square feet per TDR=2 TDRs), or 1.3 in-city habitat TDRs (20,000 bonus square feet/15,000 bonus square feet per TDR=1.3 TDRs), or 2.2 in-city historic TDRs (20,000 bonus square feet/9,000 bonus square feet per TDR=2.2 TDRs. A developer could mix different types of sending area TDRs as well. When purchasing TDRs, developers can negotiate for the price with the seller. Finally, some TDR programs include a cash in lieu fee option that allows the developer to simply pay the $40,000 to get a building permit and avoid the opportunity cost of having to acquire TDRs. Although the Mixed Use Center Bonus Palette is based on height bonuses, and the Downtown Design Standards and Special Features menu is based on floor area ratios (FAR), TDRs should be measured based on square footage. This is due to the fact that square footage is a more precise way for the City to track the amount of bonus allowed on a building and this precision will help the TDR program include TDRs from different sending areas for equal benefit. 10

19 EXECUTIVE SUMMARY Furthermore, if a policy directive prioritizes one sending area over the others, the exchange rates can easily be adjusted to favor TDRs from that sending area. TABLE ES-2 EXAMPLE OF THE NUMBER OF TDRS PURCHASED FOR 20,000 SQUARE FEET OF BONUS FLOOR AREA Receiving Area Bonus Square Footage TDRs Purchased 20,000 sq. ft. 4.0 Pierce County TDRs, or 20,000 sq. ft. 2.0 King County TDRs, or 20,000 sq. ft. 1.3 In-City Habitat TDRs, or 20,000 sq. ft. 2.2 In-City Historic TDRs, or 20,000 sq. ft. 2.0 Pierce County TDRs, and Pay $20,000 Cash In Lieu 20,000 sq. ft. Pay $40,000 Cash In Lieu D. TDR Absorption Capacity As discussed above, if the Downtown and the Mixed Use Centers outside the Downtown build to maximum heights, 13,500 sending-area TDRs can be absorbed over the medium term. Further, if projects include mostly surface parking enough sending-area TDRs can be absorbed to qualify for TIF. Minor modifications to the municipal code and inherent flexibility in the TDR program will be required to stimulate TDR demand. For example the City should consider the following options: A TDR option needs to be added to the Downtown Development Design Standards and Special Features development bonus menu. The City should combine Mixed Use Center Bonus palette and Downtown Development Design Standards and Special Features menu items for open space and historic preservation into one menu item solely 11

20 EXECUTIVE SUMMARY for TDRs, since the TDR program can be designed to address these preservation needs. The City should move convert some pieces of, or the entire, Mixed Use Center Bonus palette Downtown Development Design Standards and Special Feature menu items into mandatory design standards (if appropriate) and thereby create more TDR capacity. The TDR value and exchange rates for receiving-area projects should be based on $2.00 per square foot of floor area bonus to show the program is feasible, and then the value should be adjusted to between 0.5 and 1 percent of building value as the program matures. If additional density bonuses are allowed, either as increased height or FAR in districts with bonus options, or in other districts without a bonus option now, TDR should be the only option to achieve that density. E. TDR Program Implementation The City of Tacoma should implement the proposed TDR program. The market analysis determined that a TDR program could function over the medium term without significant zoning modifications. A flexible TDR program can be started while laying a foundation for when the market improves that will enable Tacoma to be a major TDR market participant. We recommend a free market that allows private TDR transactions as well as transactions through the county banks. Under this system, Tacoma s TDR program will be designed to accept TDR certificates from approved Countybased sending sites from private intermediaries, including landowners, developers, and brokers, as well as from the County banks; and also from private parties who hold TDRs for in-city sending areas. This low-cost administration option allows the TDR program to begin with minimal expense and constraints while allowing the greatest flexibility. The TDR program can be modified to be more selective of the types of TDR transactions permitted after it is successful and initial transfers occur. 12

21 EXECUTIVE SUMMARY The following actions should be undertaken to implement the TDR program. 1. Step 1 Adopt a TDR Ordinance The City should add TDR administrative provisions to the City Code in September this year and adopt interlocal agreement(s) and/or resolution(s). The City will also need to adopt a work program that takes the City through the public process of considering the development regulation changes proposed in this report. The draft enabling TDR legislation provided in Appendix E is intended to be used to establish a new administrative chapter in the Tacoma Municipal Code (TMC) that allows the City to adopt and adjust the TDR program by resolution. Chapter TMC should be amended to more specifically reference the TDR program, but the transfer ratios and TDR values should not be included in the zoning code. This approach allows the City to streamline any necessary amendments to the administrative TDR provisions (in Title 1 TMC), while maintaining appropriate procedural review for any amendments associated with TDR-related bonus height or density (in Title 13 TMC). Appendix F contains a draft resolution for an interlocal agreement to transfer TDRs between the City and Counties. Appendix G contains a draft interlocal agreement to transfer TDRs between the City and Pierce County. Step 2: Establish an Administrative Mechanism in the Planning Department Administratively, the TDR program should be administered by the Planning Division just as any other land-use regulation is administered. These responsibilities include allocating TDR Certificates for in-city sending sites and conditioning approval of receiving-area projects that exceed the base density on acquisition of TDR Certificates or payment of a cash in-lieu fee. 13

22 EXECUTIVE SUMMARY Step 3: Establish an Information Clearinghouse An information clearinghouse is a vital component of a successful TDR market. Both regulators and market players need ready access to information. The information clearinghouse should host three online information portals: a Transaction Log, a Sales Report, and an Interested Parties List. Step 4: Set the Cash In-Lieu Fee Next, the City should set the cash in-lieu fee. The cash in-lieu fee should be set equal to the receiving area value for bonus floor area used in the exchange rates. This would be $2.00 per square foot of bonus floor area until some transfers occur. It can be adjusted to between 0.5 and 1 percent of building value when new development projects routinely request bonus floor area with the TDR menu item option. The in-lieu fund could be funneled into a TDR bank for strategic TDR acquisition.. Step 5: Designate the Easement Holder Before transactions begin, the City must designate an entity to hold the easements that will be laid down on sending-area properties whose owners have sold their TDR Certificates. For County sending-area TDRs this entity is most commonly the Counties themselves but can also be a trusted local land conservation group such as Forterra. For the in-city sending-area TDRs, the Planning Division or Metro Parks could hold open space conservation easements. Historic Conservation easements require more management and should be held by a different entity such as the Washington Trust for Historic Preservation or Historic Tacoma. If the easement holder is an entity other than the City, all parties involved should reach early agreement regarding the conditions contained in the easements. Step 6: Outreach to Landowners and Other Private Market Players In order for the TDR market to be successful, it must be well-marketed to and well-understood by sending-area landowners, receiving-area developers, and others in the private real estate market who might play a role in transactions. The City should seek to take aggressive steps to reach out to 14

23 EXECUTIVE SUMMARY these landowners and other players, or else charge the TDR Bank or the Easement Holder with this responsibility. Step 7: Issue TDR Certificates to Sending-Area Landowners As land use regulator, the City must be responsible for issuance of TDR certificates to in-city sending-area landowners. This can be a complicated part of the process, but if procedures are followed correctly, it provides a solid foundation for a functional TDR marketplace. Step 8: Monitor Market Operations and Approve Projects with TDR At this point, the market should be left to function. Once in-city sendingarea landowners have TDR Certificates and an interjurisdictional agreement is approved to accept county TDRs, developers in Mixed Use Centers outside Downtown and Downtown can begin to purchase TDR Certificates from them to get bonus floor area. Receiving-area developers will choose whether to buy TDR Certificates from a TDR bank or from sending-area landowners or, alternatively, pay the cash in-lieu fee. 15

24 EXECUTIVE SUMMARY 16

25 I INTRODUCTION Tacoma is becoming a national model of sustainability because of its vision and its livable and walkable communities. The adoption of a transfer of development rights (TDR) program is one way the city can further implement its sustainability goals. A TDR program also provides a new tool to help the City achieve other goals, including funding the City s open space acquisition and historical preservation priorities, as well as advancing regional conservation priorities. Adoption of a TDR program would connect the City to the emerging regional program. 1 Growth will be redirected from rural areas and targeted to cities seeking revitalization of underperforming downtowns and other mixed use centers. This landmark regional TDR program will support a freeflowing regional market for TDRs comparable in scale only to the nation s largest regional TDR program for the New Jersey Pinelands. This TDR study for the City of Tacoma was undertaken through three steps: First, detailed modeling of development potential in designated Mixed-use Centers was conducted to inform the question of the extent of the demand for TDRs in areas targeted to accommodate growth in Tacoma. Second, evaluation of three general categories of sending areas in-city open space, in-city historic resources, and county-based sending sites was done to provide TDR supply and cost estimates. Finally, TDR demand and supply were tied together in a proposed program framework with market-based exchange rates and administrative mechanisms designed to interface with the regional TDR system and blend with Tacoma s local planning goals. 1 King, Pierce, and Snohomish Counties; the Washington Department of Commerce; the U.S. Environmental Protection Agency; the Puget Sound Regional Council; Forterra (a non-profit land conservancy); and numerous cities who agree to designate TDR receiving areas. 17

26 INTRODUCTION In adopting a TDR program, the City of Tacoma will need to address the following key issues: 1. Balancing City and Regional Goals The City of Tacoma would like to identify receiving areas within the city and potentially arrange for transfers from both in-city and unincorporated sending areas, thereby protecting areas identified in the City s Open Space Habitat and Recreation Plan, historic resources, and other areas of importance to the City, potentially including farmland (such as the Puyallup Valley farmland) and forestland (such as the Green River watershed). Creating a successful program with numerous sending areas all with somewhat different goals demands careful attention to program design. The program will have to be constructed so that it will encourage in-city transfers while also working seamlessly with the Pierce and King County programs in a regional context. 2. Specific Issues Associated with Possible Historic Preservation Sending Areas The program could include a wide variety of sending areas, including historic preservation areas inside the City. This will raise several important issues for Tacoma in creating the program. For example, the City will have to determine its goals in using TDRs for historic preservation. Does the City want to focus on transferring development rights out of existing historic districts? Or (if the City deems these districts are already sufficiently protected by regulation) would the city prefer to focus on rehabilitation of individual historic buildings Downtown or in the mixed-use receiving areas? In addition, historic preservation requires a somewhat different type of analysis than open space. For example, the market and economic analysis for buildings eligible for historic designation will take into account financial incentives and issues specific to historic or potentially historic structures, such as the restrictions placed on the building after they transfer the TDR credits. 18

27 INTRODUCTION 3. Market Feasibility As a market-based system, the TDR program must provide receiving-area developers with sufficient financial motivation to participate. Under today s economic conditions, new projects are unlikely to be built to the maximum heights allowed This could change as market conditions improve and the TDR program evolves. An underlying challenge for TDRs is that developers in the Downtown and the Mixed Use Centers outside Downtown are already permitted to pursue higher densities for free or through lower-cost alternatives than TDRs. 4. Calibrating TDR with the City s Incentive Zoning Tacoma has an incentive zoning ordinance with a developer bonus menu that allows developers to obtain increased density and height in exchange for providing amenities. It is possible that this program could compete with the TDR program; after all, at lower than maximum heights they are alternative paths to more density. The TDR program must be calibrated with the incentive zoning program through the incentive zoning menus in the Mixed Use Center and Downtown development standards. Additional methods to encourage TDR demand may also need to be used such as non-density commodities. 19

28 INTRODUCTION 20

29 II COUNTY-BASED TDR SENDING SITES ANALYSIS Resource lands under Pierce, Snohomish, and King County s jurisdiction are potential sending areas for the Tacoma TDR program. This chapter provides a summary of how Tacoma s TDR program can target county-based TDRs and their likely values focusing on Pierce County and City watershed lands in King County. This chapter also provides a summary of which County incentives are available to help Tacoma implement a TDR program that transfers TDRs from Pierce and King County sending areas. A. County Sending Sites There is a strong rationale for prioritizing sending sites from both Pierce and King Counties in the Tacoma TDR program, as described below. Pierce County s working landscapes in the Puyallup River Valley and outlying timber lands generate goods, jobs and revenue for Tacoma. The upper Green River Valley in King County is Tacoma s water source. An interjurisdictional watershed-based approach to a TDR program could further protect Tacoma s water supply by transferring unused development rights away from this area in King County. Tacoma Public Utilities, the City s water utility manager, has expressed interest in investigating this opportunity. Vashon Island in King County, one of the largest islands in the Puget Sound, should also be considered as a possible sending area. Due to the fact that the island has no bridges connecting it to the mainland, it has retained its rural character and is relatively isolated. The southern portion of the island is located less than 2.5 miles from Tacoma, and King County would like to coordinate preservation efforts with Tacoma to preserve the island s character using TDRs. The primary goal of a TDR program is conservation of sending sites. This is done through a conservation easement, which costs less than an outright land purchase. a. Sending-Area Criteria The Pierce County TDR program is focusing on ways to conserve the most at-risk sending areas and Agricultural Resource lands from the Puyallup River Valley. This highly productive land, labeled in Figure 1, sends goods to local farmers markets as well as to international distributors. Under the County 21

30 COUNTY-BASED TDR SENDING SITES ANALYSIS program, some of the sites within this area would get bonus TDR credits because they include habitat along watersheds and are located near growth boundaries. For the purposes of a TDR program that transfers TDRs from Pierce County to Tacoma, the Pierce County TDR program sending sites criteria were distilled into four categories: 1. Land designated in the Pierce County Comprehensive Plan as Agricultural Resource Land or Rural Sensitive Resource. Agricultural Resource Land in the Alderton-McMillan and Mid-County Community Plan areas are a high priority. 2. Land designated in the Pierce County Comprehensive Plan as Forest Lands. 3. Land located in the Alderton-McMillan or Mid-County Community Plan areas zoned as rural residential zone (Rural Separator, Rural 10, Reserve 5, Rural 20, Rural 40, Rural Farm, or Rural Sensitive Resource), and meeting the definition in RCW of open space land and used for agricultural operations. 4. Land identified as habitat for federal listed endangered or threatened species in a written determination by the Washington State Department of Fish and Wildlife, or United States Fish and Wildlife Services, or a federally recognized tribe, that the sending site is appropriate for preservation or acquisition. Tacoma is not required to use exactly the same sending areas as those designated in the Pierce County program. But it is required to receive County-designated TDRs to be authorized for TIF. b. TDR Supply and Value There are an estimated 2,614 TDRs on commercial agriculture land and 2,757 TDRs on forest lands in the Pierce County program, as shown in Figure 1 below. Tacoma should specify a subset of sending sites to prioritize in its 22

31 COUNTY-BASED TDR SENDING SITES ANALYSIS Figure 1 Prime Sending Areas in Pierce County Source: Pierce County. TDR program for example, all agricultural lands in the Puyallup River Valley or portions of habitat contiguous with city limits. The County could then calculate the specific number of TDRs within a specified area or criteria and the City could adjust its transfer ratios to award priority status. The Pierce County TDR program was initiated in 2009 with two purchases of TDRs in Puyallup and 24 in Nisqually. The appraisal values were between $25,000 and $70,000 each. These TDRs are listed as for sale on the County s TDR Exchange website. 2 Today s values were appraised to be between $3,800 and $24,000 per TDR, and the average value was $10, accessed on October 12,

32 COUNTY-BASED TDR SENDING SITES ANALYSIS 2. King County Sending Sites a. Sending-Area Criteria Figure 1 shows the two sending areas that King County has identified for possible priority inclusion in the Tacoma TDR program. The upper Green River watershed provides the majority Tacoma s drinking water supply. Southern Vashon Island is an element of Tacoma s scenic vistas of Commencement Bay and the Puget Sound. b. TDR Supply and Value There are 747 TDRs on 63,000 acres under private timber company ownership within the upper Green River Watershed. King County estimates these TDRs are valued at approximately $20,000 each. 3 To date, no marketbased TDR transactions have occurred in the watershed. There are 514 TDRs available for sale from Plum Creek Timber Company from 45,500 acres that were protected in 2009 through King County s TDR program as shown on the map in Figure 2. Another 233 TDRs (17,280 acres) could be allocated then sold by Hancock Timber Co. and ORM Timber Company these sending areas are identified in the Map in Figure 2 below. Approximately 16,000 acres of the watershed are currently under ownership of Tacoma Public Utilities. These lands cannot be allocated TDRs by King County according to the provisions of the King County TDR program. There are about 100 TDRs from the shorelines of Southern Vashon Island that are valued at approximately $40,000 each. 4 In April 2011, King County purchased 21 TDRs on a 101-acre easement on Vashon Island for about $1,000, The County is asking $44,000 for each TDR. 3 The median sales price for Rural TDRs sold in King County is $17,500 and the average is $21, sustainable-building/transfer-development-rights/market-info/recentsalesdata.aspx; TDR Market Summary Data table, accessed on December 14, Darren Greve, King County TDR Program Manager, TDR project kickoff meeting, June 9, accessed on October 12,

33 COUNTY-BASED TDR SENDING SITES ANALYSIS Figure 2 Prime Sending Areas in King County Watershed *Source: King County. B. Support for Interjurisdictional Transfers Counties and the State provide five methods to capitalize Tacoma s TDR program. 1. TIF for TDR Recently, the State Legislature enacted Senate Bill 5253 (Chapter 318, Laws of 2011), authorizing cities to finance infrastructure improvements with tax increment financing (TIF) in TDR receiving areas. The revenues derived from TIF include the City s own regular property tax levy and the regular levy of the County. The revenues do not include a State contribution or a sales tax component. 25

34 COUNTY-BASED TDR SENDING SITES ANALYSIS To be eligible for TIF, the City must adhere to numerous eligibility requirements. As an initial matter, the City must accept a certain number (defined as between 20 percent and 100 percent of the City s allocated share ) of TDRs from farm or forest lands in the King, Pierce, or Snohomish County TDR programs. A city is authorized to use TIF for 10 years once it certifies that it has accepted 25 percent of the number of development rights it agrees to accept. Although the legislation does not define the term accept we interpret it contextually to mean adoption of a Local Infrastructure Project Area that is zoned with capacity to absorb 20 percent of the allocated share. The allocation for Tacoma is 1,843, meaning a 20 percent of the share would be 369 TDRs. 6 Appendix A describes this interpretation in more detail. After the TIF district is initiated, the City s authorization may be extended for up to a total of 25 years, provided that certain TDR thresholds are achieved. If the TIF is initiated in 2012, the City of Tacoma would need to either approve projects with, or directly purchase, 92 TDRs from county territory over the next 9½-year period to extend the TIF authorization period. 7 Under TIF, the receiving area jurisdiction is entitled to 75 percent of property value appreciation in designated receiving areas during the 10- to 25- year TIF period. This tax base may potentially be capitalized into bonds that are sold to finance the infrastructure improvements. Theoretically, the TIFfunded infrastructure improvements will encourage new development, increase property values, and generate additional demand for TDRs. The subsequent increases in property taxes may be used to pay off the bond debt. This program is illustrated in Figure 3 below. 6 Puget Sound Regional Council, Regional Allocation of Transferable Development Rights per Revised Code of Washington Chapter TDR Allocation, March 22, The TDR absorption targets to extend the TIF targets are 25 percent for the first 9½ years, 50 percent at 14½ years, and 75 percent at 19½ years and 100 percent by termination after 24½ years. 26

35 COUNTY-BASED TDR SENDING SITES ANALYSIS Figure 3 TDR for TIF Diagram of county s 27

36 COUNTY-BASED TDR SENDING SITES ANALYSIS The TIF-TDR legislation is complicated, and this section only provides a brief overview. The Foster Pepper memorandum contained in Appendix A reviews the Senate Bill and provides a detailed analysis of the new financing tool. 2. County Amenity Funding According to the respective TDR ordinances, Tacoma can accept TDRs from Pierce and King Counties in exchange for amenity funding for public transportation amenities, open space, parks, and trails. The impacts from additional density in receiving areas are a chief obstacle in TDR programs, and amenity funding is intended to mitigate the impacts of additional density. King County has used the Conservation Futures tax as the source for TDR amenity finding. King County may provide Tacoma with conservation futures-based amenity funding, provided that the County's actions are consistent with relevant law. Specifically, the conservation generated through Tacoma s TDR program must occur in King County and the amenity funding must be consistent with King County s codified amenity funding. 8 In addition, before releasing the funds, Tacoma s TDR program may need to achieve certain amounts of conservation in King County. 9 Tacoma can also accept TDRs from Pierce County in exchange for amenity funding. Section 18.G of the Pierce County TDR Ordinance outlines options for cities to receive amenity funding as an incentive to receive county-based TDRs in exchange for public transportation amenities, open space, parks, and trails. There is no amenity funding set aside for TDRs at this time, but the status could change as the program becomes more active. 8 The relevant state law is located in Chapter RCW. The relevant County provisions are located in Chapter 21A.37 and Chapter of the King County Municipal Code. 9 After Bellevue adopted an interlocal agreement with the County in 2009, King County provided $750,000 in Initial Amenity Funds for parks, open space and stream amenities intended to mitigate the impacts associated with transferred densities. Before Tacoma adopts an interlocal agreement with King County, it may be possible to get an initial amenity fund appropriation. 28

37 COUNTY-BASED TDR SENDING SITES ANALYSIS 3. Pierce County Conservation Futures Program This incentive is provided through Pierce County. The Pierce County Conservation Futures Program establishes funds for the protection of threatened areas of open space, timber lands, wetlands, habitat areas, and agricultural and farm lands within the boundaries of Pierce County. The program has allocated funds for in-city purchases of open space that are derived from a State-authorized County property tax. Property taxes of 6¼ cents per $1,000 of assessed value are collected and budgeted by the Pierce County Council. Since 1993, the fund has helped finance over $12.7 million to purchase 210 acres in the City of Tacoma and Metro Parks. Today, Tacoma has two application submissions pending for acquisition of the South 52 nd and Mullen Conservation Area, which includes habitat corridor and is assessed at about $500,000 in value. The program awards funding for open space acquisitions based on a competitive application process. In exchange for an interlocal agreement with Pierce County, additional selection criteria points could be added for sites that have an in-city open space TDR sending site designation. 4. Bank-to-Bank Transactions The Pierce and King County TDR Banks are active market players and can set the price for TDRs. The Pierce County Ordinance 18G A, states: The (TDR) Committee may adjust such price (for TDR Credits) sold based on consideration of such factors as the committee believes relevant, including the prevailing market rates for development rights and the effect such density credit prices may have on the development rights market. The King County Municipal Code Chapter 21A states The sale of development right by the TDR bank shall be at a price that equals or exceeds the fair market value of the development rights. The fair market value is the amount the County paid for the rights and can be modified based on market conditions. If Tacoma elects to set up a TDR bank with similar provisions, it could work 29

38 COUNTY-BASED TDR SENDING SITES ANALYSIS with the county banks to transfer TDR credits from outlying areas and set the sale prices. If the City chooses to allow TDR transfers from the counties only through its TDR bank, then the price of TDR credits could be adjusted to match in-city TDR values. This would simplify the market and help the TDR banks manage the TDR market. 5. Revenue-Sharing Agreements Revenue-sharing agreements would allow the City of Tacoma to receive some of the proceeds when TDRs from the counties are sold within the City. Revenue-sharing agreements can be negotiated between a TDR bank and large sending-area landowners. King County has a revenue-sharing agreement with the City of Sammamish that provides 25 percent of TDR sale revenues to the City. 30

39 III IN-CITY SENDING SITES ANALYSIS The City of Tacoma has a long history of acquiring open space for conservation purposes. Thanks to funding resources including the City Open Space Fund (since 1972) and the Pierce County Conservation Futures program (since 1991), the City s Open Space Inventory currently includes approximately 380 acres (with hundreds of additional acres in Metro Parks and other agencies ownership). However, substantial portions of Tacoma s most valuable open space remains unprotected. Additional funding through TDRs would greatly increase the chances of conserving Tacoma s most valuable open space ahead of development pressure. A TDR program would be a valuable tool to help the City preserve in-city open space and habitat areas. Such a program would target privately owned land within City-designated Habitat Corridors. In 2008 Tacoma designated its most valuable and connected natural areas as Habitat Corridors and set the goal of conserving their most valuable lands by the year Although progress has been steady, Tacoma is under-performing in terms of achieving that goal. Within the Habitat Corridors, roughly 1,370 acres remain in private ownership. These areas are generally shown in Figure 4. Between 2002 and 2012, the City acquired about 110 acres, averaging around 10 acres per year. In order to conserve the remaining acreage by the year 2028, the pace would need to average closer to 70 acres per year. Habitat Corridor conservation would protect sensitive habitat, shorelines, wetlands, gulches and steep slopes. It could also help the City create new non-motorized transportation linkages between the North End and the Ruston Way waterfront, and other areas of the city. TDR is a tool used to implement a plan for conservation. It is not a plan in and of itself. This chapter summarizes existing open space policies, programs and funding opportunities. It includes contextual analysis that describes opportunities and challenges associated with integrating existing conservation programs with TDRs, and concludes with an economic analysis of the City s potential open space sending sites. 31

40 C I T Y O F T A C O M A I N - C I T Y O P E N S P A C E T D R S E N D I N G S I T E S BEVERLYAVE 45THAVE 57THAVE ALEXANDERAVE JACKSONAVE 6THAVE TACOMAAVE I705HWY SR509HWY UNIONAVE I5HWY AINSWORTHAVE SHERIDANAVE YAKIMAAVE THOMPSONAVE FAWCETTAVE PACIFICAVE SR7HWY PORTLANDAVE MARSHALLAVE MASONAVE PUGET SOUNDAVE CLEMENTAVE AINSWORTHAVE WILEYAVE MCKINLEYAVE I5 City Boundary TDR Sending Sites Habitat Corridors Miles Source: City of Tacoma F I G U R E 4 I N - C I T Y O P E N S P A C E T D R S E N D I N G S I T E S

41 IN-CITY SENDING SITES ANALYSIS 1. Comprehensive Plan Open Space Habitat and Recreation Plan The Open Space Habitat and Recreation Plan (OSHRP) is a Comprehensive Plan element that describes an integrated open space habitat and recreation system made up of different types of open space. Policies are divided into sections that address the following: Recreation Lands and Facilities, Multi- Purpose Trails, Urban Parks in Downtown and Mixed-use Centers, Green Infrastructure, Community Gardens, Waterfront Open Spaces and Shoreline Access, Habitat Areas and Habitat Corridors, and Critical Areas Preservation. The Plan calls for consideration to be given to development of alternative TDR program to meet these policy objectives. 2. Strategic Action Program The Strategic Action Program (SAP) is the implementing document for the Open Space Habitat and Recreation Plan. It provides a detailed work program and acquisition ranking tool for the City of Tacoma s Open Space Program and other collaborating agencies and partners. The SAP identifies tasks and agencies or partners to lead the implementation of each task. Establishment of a TDR program was called for in the SAP as a means of providing alternative funding for the acquisition and potential management and maintenance of open space. In addition, a number of the SAP s conservation strategies are consistent with establishing a TDR program for open space areas; particularly the following: TDR programs work best when they can be layered with other conservation programs. Target open space properties. Utilize available funds to acquire targeted open space properties. Employ the evaluation tool below to determine how appropriate each property is for potential acquisition. Clarify and consolidate public ownership within Habitat Corridors. Work with each agency listed below to assess future plans for publicly owned lands that are not currently classified as open space but are within Habitat Corridors. Partner with non-profits to conserve threatened key properties. Work with the Cascade Land Conservancy, the Trust for Public Lands, 33

42 IN-CITY SENDING SITES ANALYSIS and other organizations to remove critical properties from the market that are under imminent threat of development. Encourage private land owners to voluntarily conserve their land. Use the Open Space Current Use Assessment Program as the City s primary tool to encourage voluntary conservation. Specific tasks described in the SAP that are particularly supportive of the establishment of a TDR program for open space protection include: Proactively seek to acquire full or partial ownership of valuable habitat areas, utilizing the acquisition ranking tool to assess potential acquisitions. Develop process and program for permanent protection of publiclyowned habitat areas. Identify and implement regulatory and/or incentive approaches to providing greater protection for Habitat Corridors. A. Conservation Funding A number of programs exist or are under consideration that could provide funding for a TDR program. This section describes existing open space conservation funding and programs and evaluates whether they can enhance a TDR program. 1. Open Space Current Use Assessments Currently the primary tool to encourage the conservation of privately owned lands in the City is through Open Space Current Use Assessments. This conservation tool establishes a process that results in the valuation of open space properties at their current use value rather than the highest and best use permitted under current zoning. This incentivizes landowners to keep open space, farm/agricultural land, timber land, and historic sites undeveloped by reducing property taxes for the landowner. Both the City and the County review applications for this voluntary program. 34

43 IN-CITY SENDING SITES ANALYSIS 2. Pierce County Conservation Futures Program This program is described above. Conservation Futures funds cannot be used to start a TDR bank for the City of Tacoma because the County negotiates directly with selected site landowners for fee simple purchase. However, it may be possible to package Conservation Futures Program funding with County TDR amenity funding as described below. 3. TDR Amenity Funding from Pierce and/or King County Tacoma can accept TDRs from Pierce County and King County in exchange for amenity funding for in-city open space conservation. Section 18.G of the Pierce County Municipal Code outlines options for cities to receive amenity funding as an incentive to receive county-based TDRs in exchange for public transportation amenities, open space, parks, and trails. Section 21A of the King County Municipal Code states that the TDR bank can provide amenity funding for, creation of parks/open space, streetscapes and other improvements that facilitate increased density inside the city. 4. Open Space Fund Currently, the City s Open Space Fund is supported by surplus sales of Cityowned rights-of-way. The fund generated an average of $210,000 per year (during ) for open space acquisition, restoration, and management of open space lands. The fund s charter could be modified to include TDR transactions or it could be used to target strategic properties for fee simple acquisitions. However, this amount has decreased dramatically over recent years, as shown below: revenue averaged $279,000/year, 2009 revenue $29,000, 2010 revenue less than $15,000, projected revenue $35,000/year. Approximately $50,000 has been earmarked for a 10-percent match in the applications submitted for the Conservation Futures Program discussed above (South 52 nd and Mullen Conservation Area). 35

44 IN-CITY SENDING SITES ANALYSIS 5. Wetland/Stream In-Lieu Fund The City s Wetland/Stream In-Lieu Fund was established to provide income for wetland and stream enhancement projects. However, this fund is no longer active as the Critical Areas Preservation Ordinance (CAPO) does not currently authorize collection of such funds. However, the possibility for reinstating the in-lieu fund exists as new provisions in the current CAPO update are intended to potentially test wetland and stream in-lieu sites. Such a fund has the potential to augment the City s TDR and open space programs in the future. 6. Amenity Bonus Palette Contribution to the Open Space Fund is among multiple options on the City s Amenity Bonus Palette for development projects in certain Mixed Use Centers. Developers have the option to provide a donation of 0.5 percent of the building value to the Open Space Fund in exchange for a height bonus for a development project. This zoning update was adopted in Currently, the open space option on the Amenity Bonus Palette represents a lower-cost alternative for developers seeking higher densities. With tweaking, this option could be used to fund a TDR program or be replaced with the TDR option. 7. Shoreline Mitigation Program The establishment of a shoreline mitigation program to allow for off-site mitigation of development impacts to shoreline riparian areas is currently under consideration. The program would use off-site shoreline mitigation or a fee in-lieu for the protection of shoreline habitat. 8. Washington State Recreation and Conservation Office The State s Recreation and Conservation Office Washington Wildlife and Recreation Program (WWRP) is a potential funding source for acquisition of open space for the City. Funds are available to acquire, develop, restore or enhance critical habitat, natural areas, and riparian areas. The program requires a 50 percent match from the local agency which may include linkages 36

45 IN-CITY SENDING SITES ANALYSIS to a TDR bank. Anticipated funding is approximately $36.5 million biennially statewide. 9. Stormwater Fees These fees can be used to support programs that enhance storm water functions and water quality. Conservation of TDR sending sites could fit into this category. B. Contextual Analysis The following section addresses key opportunities and challenges regarding how existing open space programs can work with a TDR program to conserve open space and Habitat Corridors. Tacoma will need to consider how existing programs strengthen or constrain a TDR program. A TDR program in Tacoma could target in-city sending sites in two ways: 1. County Amenity Funding. Tacoma can accept TDRs from Pierce and/or King Counties in exchange for public transportation amenities, open space, parks, and trails. Under this scenario the TDR program would be designed to purchase sending-area TDRs from a county and receive amenity funding for habitat corridor easements in return. 2. In-City TDRs. Tacoma can design a system for in-city transfers that shifts TDRs from the Habitat Corridors directly into receiving areas. Landowners would be allowed to sell their development rights in exchange for conservation easements. Opportunities: Consistency with other programs. A TDR program would be consistent with and assist in implementing regional growth policies and programs. Many of these are set at the State level, including the Washington State Growth Management Act (GMA) which encourages TDR as a growth management tool. A number of counties in the Puget Sound area, including King and Pierce Counties, have adopted separate 37

46 IN-CITY SENDING SITES ANALYSIS TDR programs and a new state law (ESSB 5253) combines regional TDRs with tax increment financing to fund urban infrastructure. High level of support for continued protection of open space. As evidenced by community input received through the development of the City Comprehensive Plan and successful land conservation programs in the Tacoma area, there is a very high level of public support for the protection of open space in the City, as well as for the continued acquisition, management, and maintenance of existing public open space. Incentive for permanent conservation of privately held open space. Whereas the protection of some parcels of privately held open space has temporarily been achieved through Current Use Assessments, the establishment of a TDR program targeting easements on open space and Habitat Corridors would provide another alternative that makes conservation more attractive to landowners. Net versus gross development potential. The City s open space lands and Habitat Corridors have limited development potential due to site constraints present on a majority of the land (steep slopes, wetlands, sensitive habitat, and shorelines). These constraints severely reduce the development potential from the maximum allowable under current zoning (gross development potential) to the amount of development that would be allowed after sensitive and unbuildable area is excluded from the site plan (net development potential). TDRs should be allocated based on net development potential. Compatibility with County funding. The Conservation Futures Program and both Pierce County and King County TDR Amenity Funding provide opportunities to use the County resources to target specific in-city sending sites in Tacoma. The City could perhaps rely on the counties to conduct the TDR transactions, thus reducing Tacoma s administrative TDR costs. However, the City would have less control over the TDR program. Compatibility with other City funding. While limited, the majority of existing and potential funding sources would appear compatible with a TDR program, in that they fund the acquisition of critical habitat and 38

47 IN-CITY SENDING SITES ANALYSIS other natural areas in the sending areas. The Open Space Fund and, possibly, the Wetland Fund in particular have the potential to work in concert with a TDR Bank to purchase easements. Maintenance of active open space. While a TDR program is usually developed for the acquisition of land or development rights, the City s Open Space Program has identified the need to target management and restoration of open space lands. The TDR program could include the establishment of an in-lieu fund that directs some revenue toward maintenance of parks and trails. This is an incentive that can be used to improve amenities near receiving areas and generate neighborhood support for TDRs. Challenges: Identifying the appropriate use of fee simple acquisition versus conservation easements. Funding for open space can be used to purchase the land (fee simple), or to purchase a conservation easement limiting further development on the site. The Pierce County TDR program is designed for both types of transactions. If a TDR bank is designed for Tacoma, it can be designed to utilize the Open Space Fund, other funding programs, and TDRs. Conservation easements should be executed on sites with existing residential units, working landscapes, or sensitive habitat. Fee simple transactions would be best suited for public access, trail easements, and undeveloped properties. Realistic assessment of development potential. Property owners in sending areas will be more likely to participate in the program if the financial gain offsets the desire to develop under existing regulations. Identifying a realistic value for the unrealized development potential of open space and Habitat Corridors can prove challenging given the myriad development constraints and the inability to complete a site-bysite assessment at a programmatic level. The analysis that follows is based on an assessment of a sampling of open space properties in the city, and uses a conservative approach to estimating the development potential of different site types. 39

48 IN-CITY SENDING SITES ANALYSIS Compatibility with other programs. The Amenity Bonus Palette may work against the program by reducing developer funding available for TDRs. Even though there is a TDR option, other Bonus Palette options could cost the developer less and/or directly increase the value of the project. Administration and staffing. Due to the added costs and time needed to administer a TDR program, an increase in staffing would be required if the City elects to administer the TDR program. The final recommendations will outline an administrative framework for the program. C. TDR Supply Estimate and Values The sites illustrated in Figure 4, which represent the target Habitat Corridor sending sites for the proposed TDR program, were evaluated using Geographic Information Systems (GIS) software to estimate TDR supply and values based on County Assessor data. Supply, value, and coverage are three factors discussed below that were identified to affect the exchange rates and administrative choices facing the City. The analysis is described in greater detail in the Appendix C. 1. TDR Supply There is a supply of 2,873 TDRs on 1,370 acres of Habitat Corridors under private ownership. Residential TDR supply was estimated based on the maximum number unbuilt dwelling units that would be allowed under zoning, and was factored for site constraints to calculate the net TDR supply estimate above. Non-residential TDR supply was estimated based on the maximum amount of unbuilt floor area that would be allowed under zoning, and was factored for site constraints to calculate the net floor area. The total net floor area was divided by 6,000 increments for purposes of comparison to residential TDRs above. Additionally, most TDR programs do not transfer non-residential development potential on a per-square-foot basis, but rather floor area increments. 40

49 IN-CITY SENDING SITES ANALYSIS More specifically there are: 520,000 square feet of unbuilt floor area, or 97 TDRs on 29 acres of commercial-zoned parcels, 6.3 million square feet of unbuilt floor area, or 1,050 TDRs on 213 acres of industrial-zoned parcels, 1,023 TDRs on 621 acres of residential-zoned parcels, 1.2 million square feet of unbuilt floor area, or 200 TDRs on 260 acres of shoreline-zoned parcels, 255,000 square feet of unbuilt floor area, or 40 TDRs on 3.4 acres of mixed-use/downtown area parcels, 1.7 million square feet of unbuilt floor area, or 280 TDRs on 173 acres that are on parcels that overlap residential and shoreline zones, and 1.1 million square feet of unbuilt floor area, or 180 TDRs on 71 acres that are on parcels that overlap residential and commercial or industrial zones. Figure 5 summarizes the percentage of TDRs in sites by zone. Together industrial sites and residential zoning account for 70 percent of the TDR supply (32 percent residential and 38 percent industrial). Mixed-use districts, commercial zones, shoreline zones, and parcels that have two zones on them make up the remaining 30 percent of the TDR supply. 2. TDR Value The underlying assessor values for sites with potential TDRs were evaluated to provide a basis to estimate the price of these TDRs. Sending-area landowners have various motivations to sell TDRs, but from a market perspective a developer would conduct the equivalent of a residual land value analysis to estimate the value of the site for a project. Our analysis uses the assessor values to estimate the market value of the land, and then representative prototype projects are modeled on these sites to estimate the residual land values. 41

50 IN-CITY SENDING SITES ANALYSIS Figure 5 Percentage of TDRs by Zoning District Mixed-Use and Downtown 2% Shoreline 8% Dual-zoned Habitat Sites 17% Commercial 3% Industrial 38% Residential 32% The assessor value analysis methodology is described in the Appendix. It found a range of values for TDRs for different zones: Sending area TDR values represent the value of a forgone development right. Sending TDR values are matched with the receiving area using exchange rates. TDRs on the industrial and low-density R1 residential zones have the lowest TDR values, ranging between $6,000 and $24,000. According to assessor data, the average land value is $1.32 per square foot. A case study based on residual land value analysis determined the opportunity cost TDR value for M1-zoned parcels was $4.22 per square foot of land. TDRs on parcels that overlap more than one zoning district are mostly low-density residential and therefore they also have low average TDR values ranging between $7,000 and $34,000, According to assessor data, the average land value is between $0.82 and $2.52 per square foot. TDRs on commercial and mixed-use/downtown parcels have mid-range TDR values of between $27,000 and $50,000. According to assessor data, the average land value is between $2.44 and $12.73 per square foot. 42

51 IN-CITY SENDING SITES ANALYSIS TDRs on the shoreline and high-density residential zones (R2, R3, R4L) have the highest TDR values of between $75,000 and $195,000. According to assessor data, the average land value is between $3.69 and $4.94 per square foot. A case study based on residual land value analysis determined the opportunity cost TDR value for R2-zoned parcels was $5.22 per square foot of land. The TDR values are summarized in Figure 6 below. 3. TDR Parcel Coverage Unlike many other types of TDR programs in which the sending sites are parcels, most of the area in Tacoma s sending-area open space and Habitat Corridors does not conform to parcels. This means that landowners will have more options for their land they can conserve some of the land and forgo some development potential by selling TDRs, while retaining the development potential on the rest of the site that is not situated in a Habitat Corridor. The amount of TDR sending-area covering parcels is not as important as supply and value, but it is important to note that some landowners will be able to get revenue for conserving small areas on their land. The TDR program should not target conservation easements on whole parcels that only have small amounts of habitat on them. This analysis found that there are some very large industrial and S10 shoreline-zoned parcels with small portions overlapped by Habitat Corridors. The average amount of habitat corridor covering industrial parcels ranges from 28 to 50 percent. Only 11 percent of the S10 shoreline-zoned parcels were covered by Habitat Corridors. These landowners may be more likely to agree to sell some TDRs while retaining the most of development potential on their land. 43

52 IN-CITY SENDING SITES ANALYSIS Figure 6 Average Land Value per TDR in Habitat Corridors Value in $ C2 T M1 M2 PMI R1 R2 R3 R4L S10 S12 S6 CCX WR R/S R/C R/I Commercial Industrial Residential Shoreline Mixed-Use Overlapping Zones and Downtown Zoning The non-industrial and non-s10 shoreline-zoned parcels had more than 50 percent overlap with Habitat Corridors, with most between 70 and 90 percent. The decision for landowners on these sites to participate in the TDR program could have greater implications for their land because TDRs would significantly reduce their development potential and land value. D. Habitat Corridor Sending Area Conclusions Based on the information described above it is recommended that the City consider the three following approaches to include a TDR program with other open space preservation programs: 44

53 IN-CITY SENDING SITES ANALYSIS 1. If the City elects to administer the TDR program, it should create a unified open space acquisition program to bundle numerous sources of funding, including TDR proceeds, to strategically target easements or fee simple acquisition of open space. This approach would require a comprehensive approach to management and planning, but would ensure greater coordination among different programs having a shared goal. This could include creation of a TDR bank or a TDR in-lieu fee. 2. If the City elects to administer the TDR program, it should undertake voluntary issuance of TDR certificates to in-city sending sites that can be privately sold to developers in Tacoma. 3. If the City elects not to administer the TDR program, it should target incity sending sites through the Conservation Futures Program, the Open Space fund, and stormwater revenues. The City should also identify TDR receiving areas that will transfer TDRs from County lands in exchange for amenity funding that can be used to conserve in-city sending sites,. In addition, the economic analysis points to strategies for targeting three categories of TDRs as part of a TDR program: TDRs valued under $25,000. These include industrial and R1-zoned TDRs with low values. These sites present the most efficient path to conservation because of their low cost. Additionally, on the industrial sites, a landowner would usually be able to retain the right to develop some of the site because on average less than 50 percent of each site has habitat coverage that would need a conservation easement. Targeting TDRs in these zones would result in approximately 1,350 TDRs in industrial sites, or approximately 42 percent of the total supply. TDRs valued between $25,000 and $50,000. These include commercial zones C2 and T; R2 residential; mixed-use and Downtown zones; and dual-zoned parcels. Targeting TDRs in these zones would result in the purchase of 1,572 TDRs, or about half of the total supply. TDRs valued above $50,000. The high-density residential R3 and R4, and R4L zones and the shoreline zones have high value TDRs. This 45

54 IN-CITY SENDING SITES ANALYSIS grouping constitutes only 274 TDRs, or 8 percent of the total TDR supply. The S6 shoreline zone was the highest, with TDR values well over $100,000. Since these TDRs are the most expensive and have smallest quantity, they would be unlikely to sell on an open market and therefore should be targeted strategically by a TDR bank. In conclusion, 92 percent of sending-area TDRs can be expected to have a value of less than $50,000. These TDRs would be suitable to sell in an open TDR market or targeted by a TDR bank. The remaining 8 percent, those in shoreline, and high-density residential zones, are the most expensive TDRs and could better serve as rights-of-way easements for trails and access rather than conservation of developable area. A proactive administrative entity, such as a TDR bank with discretionary capacity to direct funds to more than conservation easements can negotiate for the best way to strategically target these sites for conservation, possibly in a manner that produces rights-of-way easements or fee-simple purchases of public access points. 46

55 IV HISTORIC IN-CITY SENDING SITES ANALYSIS This chapter presents the analysis of potential historic preservation sending sites in the City of Tacoma. It includes a discussion of how historic preservation programs are integrated in other TDR programs in the country, as well as a summary of existing historic preservation programs in place in Tacoma. These discussions provide the context for analysis of the supply of potential sending-area TDRs on historic sites and their values. Tacoma is a city rich in historic resources. It has 1,300 locally designated historic properties, including those within six historic districts and 161 individually designated city landmarks. 10 The majority of these are commercial and institutional, with some residential sites. The current economic climate has resulted in many vacant or underutilized historic buildings in Tacoma. In particular, a number of historic buildings have retail uses occupying the ground floor, while upper floors remain vacant or underutilized. In order to demolish an historic building, owners must demonstrate that there is economic hardship and no feasible alternative, so ground floor uses provide some protection for these buildings. Recently, there has been some increased development pressure in the Downtown and other sensitive neighborhoods. Numerous historic sites are built below the density allowed under current zoning, and flexible height limits increase the potential for new development. In this case, the City s incentive zoning program has actually placed historic resources at some risk. For this reason, a goal of the TDR program is to preserve historic structures, particularly in the Downtown Core and the Brewery District. A TDR program can be used as a tool for historic preservation to either (1) provide funds to purchase a conservation easement from the landowner of the historic building that will remove future development potential by transferring unused floor area from the site, or (2) providing revenue for rehabilitation that is generated through development bonuses on other 10 Historic buildings are at least 50 years ago and Landmarks must meet age and integrity threshold requirements, and be designated by the City Council. 47

56 HISTORIC IN-CITY SENDING SITES ANALYSIS buildings. This chapter focuses on how conservation easements could be put in place to permanently protect the historic buildings. A. Historic Preservation TDR Programs A number of TDR programs have focused on the preservation of historic resources. Historic sites are a good potential candidate for sending sites as part of a TDR program, where unused development rights can be retired and directed toward areas where new or more intense development is desired. Several programs addressing historic preservation are described below: The first TDR program was used to preserve an historic building in Today the concept has evolved to protect natural resource, working landscapes, and other preservation goals. 1. New York City The New York City Landmark Preservation Law adopted in 1968, incorporated the nation s first TDR program. It allows locally designated landmark owners to sell unused floor area allowed under zoning to adjacent properties. As of 2003, 12 landmarks had been preserved, including 448,000 square feet approved from Grand Central Station as of The South Street Seaport Historic District is another example that gave financial institutions development rights for writing off delinquent loans on buildings in the preservation area. This allowed owners of historic properties to restore the landmarks and create a tourist destination. As of 2010, almost 1.2 million square feet of floor area had been transferred under the South Street Seaport program. The City also has a Theater District TDR program, specifically aimed at rehabilitating Broadway Theaters. 2. The City of San Francisco In 1985, the Downtown Plan designated 253 historic local landmarks, making it difficult to alter or destroy them. Under this TDR program, owners can deed-restrict their properties and transfer the difference between the maximum FAR allowed by zoning and the actual built FAR. Developers are motivated to buy development rights in order to exceed reduced density limits imposed by the 1985 Plan. TDRs from the retail and office, as well as some from the general commercial and support districts can be used in the South of Market Extended Preservation District, a special development 48

57 HISTORIC IN-CITY SENDING SITES ANALYSIS district of the City. This is one of the most successful TDR programs for historic preservation in the country. By 2009, 116 historic properties had been certified for participation and 3 million square feet of potential floor area had been claimed by receiving site developments. 3. Pittsburgh, PA This program preserves City-designated historic structures and non-profit performing arts facilities in part of downtown Pittsburgh. The amount of floor area available for transfer from a landmark and/or theater is the difference between the existing floor area of the structure and the maximum floor area attainable under the site s zoning. The transfer ratio is one-to-one, meaning one additional square foot of floor area can be built at a receiving site for each square foot of potential floor transferred from a sending site. This program resulted in the preservation and conversion of an old movie theater into Pittsburgh s Benedum Performing Arts Center. 4. Denver, CO This program allows the transfer of 4 square feet of bonus floor area on a receiving site for each square foot of floor area rehabilitated in a locally designated historic structure. The TDR program was originally implemented to incentivize property owners to volunteer buildings for landmark designation. The program was amended over time to allow for the transfer of unused development rights from designated landmarks between specific downtown districts. This program resulted in the preservation of three downtown landmarks. 5. Seattle, WA In 1985, Seattle launched its first TDR program to help implement a new downtown plan. Now it has TDR programs for historic preservation, affordable housing, open space, major performing arts theaters and landmark theaters that incorporate affordable housing. These programs have various requirements and procedures including one in which increments of bonus floor area are reserved for different incentives such as affordable housing, historic preservation and on-site amenities. The historic preservation program has stringent requirements including a provision in which the 49

58 HISTORIC IN-CITY SENDING SITES ANALYSIS landmark s TDRs must be sold and the proceeds deposited in an escrow account reserved for rehabilitating the landmark before building permits can be issued for the receiving site project. Even though no transfers have occurred under the historic landmark provisions, other Seattle TDR programs have resulted in the preservation of 10 historic buildings including two landmark theaters that incorporate affordable housing. B. Historic Preservation Policies and Programs in Tacoma In order to provide more context, below is a list and description of historic preservation policies and programs in the City of Tacoma. 1. Comprehensive Plan Historic Preservation Plan The City of Tacoma Comprehensive Plan was amended in June 2011 to include the Historic Preservation Plan, which defines the City s preservation goals, policies, and actions for preservation and neighborhood conservation. The main goal of the plan is the preservation and active use of cultural resources to enhance the city s quality of life, economic vibrancy, and environmental sustainability. The plan calls for use of TDR as a conservation tool for historic preservation Landmarks and Historic Special Review Districts Code The Municipal Code s Landmarks and Historic Special Review Districts section is the City s primary tool for historic resource protection. The section outlines the City s goals and duties related to historic preservation, and provides specific criteria and procedures for addressing landmark or district designation. 3. Tacoma Register of Historic Places The Tacoma Register of Historic Places contains over 1,300 City Landmarks and properties within Historic Districts and Conservation Districts. There are 161 individually listed landmarks, which were built between 1870s and 11 Chapter A 50

59 HISTORIC IN-CITY SENDING SITES ANALYSIS The City s Landmarks Preservation Commission must approve changes to the exterior of these properties. The Commission is a councilappointed, volunteer body. It reviews and approves applications for changes to registered Landmarks and buildings within local historic districts, reviews nominations and provides advice to the City Council regarding the designation of new Landmarks. 4. Washington State Heritage Register and National Register of Historic Places The Washington State Department of Archaeology and Historic Preservation maintains the Washington Heritage Register. To be listed on the State Register, sites must be nominated and approved by the Governor's Advisory Council on Historic Preservation. In Tacoma, there are 81 properties on the State Register, and 77 of these are on the National Register. C. Possible Historic Preservation Sending Areas in Tacoma Potential TDR sending areas that would conserve historic resources include Historic Districts, Conservation Districts, the Brewery District, Mixed-Use Centers, and the Hospital Areas. 1. Historic Districts Historic Districts are areas of the City that have been determined to possess special character, uniform architectural styles, and that convey the environment of past eras. Within designated Historic Districts, no building, structure, or improvement visible from a public right of way or place can be located, constructed, reconstructed, altered, repaired, or demolished, unless it is approved by the Landmarks Preservation Commission. Landmarks or structures within Historic Districts are protected by the City s preservation ordinances. There are six historic districts located in Tacoma, including three that are listed on the local Tacoma Register of Historic Places (TR), four that are 51

60 HISTORIC IN-CITY SENDING SITES ANALYSIS listed on the National Register of Historic Places (NR), and four that are listed on the Washington Heritage Register (WR). Wedge Neighborhood Historic District (TR) North Slope Historic District (TR, WR, NR) Old City Hall Historic District (TR, WR, NR) Union Depot/Warehouse Historic District (TR, WR, NR) Stadium/Seminary Historic District (NR) Salmon Beach Historic District (WR) Of these districts, the Old City Hall District is Tacoma s most iconic and supports a large number of historic structures as well as a number of supporting background buildings; this District is a priority target for preservation. It is anticipated that the area will experience some development pressure due to the desirability of the area, and the large number of buildings (e.g., three stories or less) that could be redeveloped at a higher density. Generally, while current economic conditions are not creating significant development pressure on these historic districts, it is expected that pressure to redevelop historic sites will occur in the downtown District as well as the residential historic district, the North Slope District. This could create future demand for TDRs from historic sites. 2. Conservation Districts Conservation Districts are districts designed to protect areas for their historic value, as well as to address a wider range of goals, such as economic development, affordable housing, neighborhood livability, and/or protection of nearby historic resources. The use of Conservation Districts helps ensure that development is compatible with the character of historic resources within or adjacent to the District. In addition, the application of a Conservation District may help to buffer or support the protection of sensitive resources. Locally designated Historic Landmarks within a Conservation District are subject to additional preservation design guidelines. The application of the Conservation District helps protect areas that may contain or be located near historic resources, but do not necessarily meet all 52

61 HISTORIC IN-CITY SENDING SITES ANALYSIS the requirements of a historic district. However, because Conservation Districts are subject to a less rigorous design review process, historic structures within them can more easily be demolished. A recent update to the Preservation Plan and Code included, among other things, changes that clarified the process for designation of landmarks within Conservation Districts. Tacoma has one locally Designated Conservation District, the Union Station Conservation District. This area is largely in ownership of the University, and could potentially risk losing historic structures in an economic upswing. 3. Other Key Potential Sending Areas a. The Brewery District The Brewery District is an area of the City with a number of historic structures. Located in the southern part of Downtown and south of the University of Washington Tacoma campus, the area has been the subject of a number of revitalization studies, as well as being a focus area in the South Downtown Subarea Plan. This area has received much attention in terms of preservation of historic structures, given its proximity to the Downtown Core and the University, and the interest in the redevelopment of former brewery sites and other industrial buildings into housing. The area s zoning allows for 100-foot building heights, and building heights currently range between one and three stories. For these reasons, and because of strong public support for preservation of the buildings in the District, the Brewery District should be considered as a key potential sending site for a TDR program. b. Mixed-Use Centers Like the downtown, but on a smaller scale, the City s Mixed-Use Centers have flexible height standards that make historic sites susceptible to redevelopment pressure. The Mixed-Use Centers contain historic buildings that are listed on historic registers or otherwise recognized as historic resources. For example, the Blue Mouse theatre is located in the Proctor Mixed Use Center and is used by churches and other non-profits. 53

62 HISTORIC IN-CITY SENDING SITES ANALYSIS Previous planning efforts have fallen short of a consensus for a historic preservation overlay district in the Mixed-Used Centers, and for this reason, it may be difficult to adopt a TDR overlay as part of a TDR program. The centers are designated as TDR receiving areas, but not TDR sending areas. The zoning ordinance update could identify the individual historic sites as TDR sending areas. In these cases, sending and receiving sites may be located in the same neighborhood or even on the same block. c. Medical Mile Area There has been a recent desire to establish a residential historic district near the hospitals in the Hilltop area, due to the number of historic buildings in the area. The area s proximity to jobs, downtown, existing established neighborhoods, and views of Commencement Bay makes it a likely area for increased development in the future. D. Financial Incentives for Preservation The following is a summary of the current programs that provide incentives for preservation of historic properties in Tacoma, and a brief whether the each program would complement or compete with a TDR program 1. Special Tax Valuation This City program allows property owners who complete a substantial rehabilitation within a period of two years to benefit from reduced property taxes for a period of ten years. The program has been a successful tool for rehabilitation of historic properties for the City. Since 1986, $160 million in investment has been approved for historic properties in Tacoma as a result of this program. Qualified expenses associated with a project that meet the requirements listed below are subtracted from the property assessment each year for 10 years. Property taxes are still paid on the balance. The "special valuation" of historic properties offsets the potential increase in taxes caused by building 54

63 HISTORIC IN-CITY SENDING SITES ANALYSIS improvements. Key requirements for a rehabilitation to qualify for the program include: Expenses must be reasonably associated with the historic rehabilitation and must occur within a building's original envelope 12 The property must be on the City s Register of Historic Places. The costs of rehabilitation costs must equal at least 25 percent of the building s assessed value prior to renovation. "Rehabilitation Expenditures" that generally qualify include the costs associated with design, materials and construction necessary to bring a building to a state of modern convenience, but do not include costs associated with acquisition of the property or for work to expand the building's size. The rehabilitation must meet the Secretary of Interior's Standards for Rehabilitation of Historic Buildings, and cannot adversely affect the building's character-defining elements. While the rehabilitation of a building cannot be for the conversion into a condominium, the program can be used in the conversion of warehouses and other industrial spaces to apartments, lofts, and office. Because this program helps incentivize property-owners to protect and rehabilitate historic properties, it would complement a TDR program targeting historic preservation. 2. Federal Historic Rehabilitation Tax Credit Program The Historic Rehabilitation Tax Credit Program (HRTC) is a federal income tax credit that can be used to cover costs associated with rehabilitation of historic buildings. The program, which provides a one-time federal tax credit of 10 percent, is administered by the National Park Service and the IRS for buildings constructed prior to It is coordinated by the Washington State Department of Archaeology and Historic Preservation. Basic requirements include:

64 HISTORIC IN-CITY SENDING SITES ANALYSIS The property must be a building and listed on the National Register of Historic Places. Rehabilitation activities must meet the Secretary of the Interior's Standards for the Rehabilitation of Historic Properties, and the design must be approved by the National Park Service. The property must be an income-producing property, and therefore cannot be an applicant's primary residence. This program would complement a TDR program targeting historic preservation. 3. Pierce County and City of Tacoma Current Use Assessment This program, which is similar to the Special Tax Valuation Program described above, allows the County to assess land at a lower value based on current use rather than potential uses or market value. The program is primarily used to promote preservation of unimproved natural, agricultural, and open space land, but may be expanded to include properties with designated historic resources. While a potential tool for historic preservation, the Current Use Assessment program has not been used to promote historic preservation in the City due to lack of clarity regarding whether the assessment applies to buildings or sites, the size of qualifying sites, and whether the program can indeed be used for historic preservation. King and Clark counties have Current Use Assessment programs in place for historic preservation. There is potential for this program to be modified and integrated into a TDR program. Should the role of the program in protecting historic resources be clarified, this type of Current Use Assessment could be a useful tool in helping to identify and assess sending sites. 4. City of Tacoma Tax Incentive for Multi-Family Housing Tacoma offers a local tax exemption for the creation of multi-family housing in specially designated areas. Although this incentive is not specific to historic preservation, it may be used to assist with the rehabilitation and re- 56

65 HISTORIC IN-CITY SENDING SITES ANALYSIS use of historic buildings as multi-family housing in a designated Mixed-Use Center. While the program has only been used a few times in Mixed-Use Centers, the program would complement a TDR program targeting historic preservation. It is also important to note that the program must be applied carefully such that it is clear which portions of a project are considered for tax exemption for historic preservation, versus an exemption for multi-family housing. 5. City of Tacoma Zoning Incentives New development located in Downtown Tacoma or within a designated Mixed-Use Center may be eligible for zoning incentives under the Height Bonus Palette in the Mixed Use Center Code that promote preservation of historic resources in exchange for additional height. 13 Height bonuses of up to 10 feet are offered for the following actions, subject to approval of the Historic Preservation Officer and/or the Landmarks Preservation Commission: Rehabilitation of a City Landmark adjacent to the project that receives a 10-foot height bonus. Designation of any historic building on the Tacoma Register of Historic Places that is located in the same Mixed-Use center as the project that receives a 10-foot height bonus. Retention and incorporation of an existing facade that is 50 or more years in age on the project that receives a 10-foot height bonus. New construction exceeding the height of the original faced must be setback from the original façade. These incentive zoning options are consistent with the City s goal of historic preservation. However, as currently constituted they would compete with the TDR Bonus Palette option that allows a 10 foot height bonus for use of TDRs. If the cost to rehabilitate or designate a Landmark, or incorporate a historical façade is less than TDRs, and these amenities improve the 13 Chapter of the Tacoma Municipal Code, exhibit A 57

66 HISTORIC IN-CITY SENDING SITES ANALYSIS neighborhood, then a developer would almost certainly opt for these and not purchase TDRs. In addition, the height allowed through these incentives, which allows buildings up to 400 feet in the Downtown Commercial Core, increases the speculative value of the land with historic sites. This zoning increases redevelopment pressure on historic sites and the TDR program would provide landowners with a way of capturing this additional value. The City should explore methods that could integrate the TDR program with historic conservation and preservation efforts to: (1) use TDRs to permanently conserve historic sites so that they are not under redevelopment pressure; and (2) use the Height Bonus Palette to rehabilitate these historic sites. Ideally, the TDR program and the incentive zoning program should work together to provide developers with a menu of complementary options. E. Sending Sites Analysis 1. TDR Supply Estimate In theory, the amount of compensation for historic preservation should equal the value of the amount of potential development allowed under zoning, minus the value of the amount of existing development. This difference in development potential could be measured in residential units, floor area (FAR), or height. In high-rise towers, the unbuilt floor-area potential is frequently referred to as air rights. Just as residential development rights can be transferred in exchange for a density bonus, air rights can be bought and transferred to other sites in exchange for bonus density. This section evaluates the values and unbuilt quantities of residential development rights and floor-area on historic sites in Tacoma. A Geographic Information Systems (GIS) analysis identified 1,417 parcels inside designated City, state, or national historic areas with buildings older than 50 years. The methodology for this analysis is explained in Appendix C. There was approximately a total of 8.3 million square feet of unbuilt floor 58 In urb high d TDRs or the buildin buildin they c

67 HISTORIC IN-CITY SENDING SITES ANALYSIS area on historic parcels in non-residential districts. This total is summarized by zone district in Figure 7 below. Figure 8 summarizes the 396 unused dwelling unit development rights on historic parcels in residential neighborhoods. Figure 7 Unbuilt Floor Area Summary on Historic Sites in Non- Residential Zones Figure 8 Unbuilt Development Rights Summary on Historic Sites in Residential Zones 7,000,000 6,000,000 Unbuilt Sq Ft 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Commerical MU Center Dow ntow n Shoreline Industrial Zone Categories The highest concentration of historic sites is in Downtown Tacoma and the Stadium and North Slope Neighborhoods. The map in Figure 9 highlights these areas and they are described below in further detail. HMR-SRD, 22 R3, 254 R2,

68 HISTORIC IN-CITY SENDING SITES ANALYSIS d. Downtown Historic Areas The Downtown Commercial Core (DCC) zone with heights allowed up to 400 feet has 5.8 million square feet of unbuilt floor area, or 9,667 TDRs, assuming each TDR equals 600 square-foot increments of floor area in the DCC zone for reasons described in the Value Analysis below. The Old City Hall District is labeled on Figure 9. This area has 725,000 square-feet of unbuilt floor area, or 1,208 TDRs. Zoned DCC, this district includes sites such as includes the Pantages Theatre and the Tacoma Savings and Loan building. The Union Station Conservation District has 1.1 million square feet of unbuilt floor area, or 1,917 TDRs, located on WR-zoned parcels, which allows heights up to 100 feet. Outside of the Downtown we recommend allocating one TDR for every 1,200 square feet of floor area for reasons described in the Value Analysis below. The Puget Sound Brewery Site is located in the WR zone. The small parcels sizes and amount of existing development resulted in only 35,000 square feet of unbuilt floor area, or 29 TDRs. Wright Park is zoned for R3 residential development. This 29-acre site contains the highest number of residential TDRs at 254. If the City is certain this site will not redeveloped in the future it could be rezoned to a designation that does not allow medium-density residual uses. If there is a chance this site could be redeveloped, but the City would like to see it conserved, then the development potential could be transferred off of this site for a conservation easement. We did not include these TDRs in the analysis. 60

69 C I T Y O F T A C O M A H I S T O R I C S I T E S T D R A N A L Y S I S Historic Districts and Sites Residential Neighborhoods in North Slope and Stadium Districts Pre-1962 Historic Buildings Mixed Use Centers Downtown Martin Luther King Stadium Wright Park Old City Hall District Union Station Conservation District Puget Sound Brewing Company Miles Source: City of Tacoma F I G U R E 9 H I S T O R I C S I T E S C O N S T R U C T E D P R I O R T O

70 HISTORIC IN-CITY SENDING SITES ANALYSIS e. Stadium District and North Slope Neighborhood This area consists of mostly low-density residential districts with historic single-family units on lots that are too small to add units. There are also some mixed-use commercial areas. The historic-zoned sites HMR-SRD are built-out and only retain 22 unused residential development rights. The R2 zone has 85 residential development rights. There is 760,000 square feet of unbuilt floor area, or 127 TDRs, in RCX, NCX and URX Mixed-Use center zones. 2. Value Analysis The methodology used to model residual land value of air rights is consistent with the methodology for residential development potential. The fee-simple potential revenue is estimated assuming the maximum amount of density allowed under zoning was developed and then the hard and soft costs are subtracted. However the unique nature of high-rise buildings require including additional costs such as: 14 Functional Inutility The leasable space lost through additional design and construction requirements such as additional ventilation systems, elevator shaft, and structural supports. Additional Construction Costs The extra costs associated with additional architectural and engineering fees and for deeper structured parking excavation. Longer Construction Period The extra time required to plan and construct a high-rise requires more interest to be serviced on the loan. Assessor land value can be used to generally estimate the value of unused development potential. However, free market transfers of air rights are only in demand in strong real estate markets with a short supply of developable space. New York City has historically been the strongest market for trading 14 HUD.gov housing handbooks Valuation Analysis for Project Mortgage Insurance (4465.1), Chapter 4, accessed October 2,

71 HISTORIC IN-CITY SENDING SITES ANALYSIS air rights and although the values vary between sites, one broker estimated the air rights are generally worth 60 percent of the land value of the site. 15 For the underlying zoning on notable historic sites shown in Figure 9, Table 1 below lists the average assessor land values per square foot and the average factored value per square-foot of unbuilt floor area, assuming it is worth 60 percent of the assessor value. TABLE 1 AVERAGE ASSESSOR VALUE PER UNBUILT FLOOR AREA INCREMENT OF HISTORIC SITES IN TACOMA MIXED-USE CENTERS AND DOWNTOWN Zones/Areas of Historic Significance Average Assessor Land Value (SqFt) Estimated Unbuilt Floor Area a Factored Value of Unbuilt Floor Area b Total Cost to Conserve Each Area of Interest c DCC-Downtown $ million $35.57 $181 million DCC-City Hall $ ,000 $35.04 $21.4 million WR, DMV, and DCC-Union $ million $18.18 $20.0 million Station District WR-Puget Sound Brewery Site $ ,000 $11.13 $390,000 RCX, NCX, and URX zones in Stadium/North Slope $ ,000 $14.90 $11.3 million a See appendix for buildout methodology. a Assumes 60 percent of average assessor land value per square foot is equal to the value of one square-foot of unbuilt floor area. a Estimated square footage of unbuilt floor area times the factored value per square foot of unbuilt floor area accessed October 2,

72 HISTORIC IN-CITY SENDING SITES ANALYSIS Economic proforma analysis estimated the residual land value of historic sites and determined the opportunity cost per square foot to conserve an historic building ranged between $19.00 and $ These values generally fall within the mid-range of the Factored Values of Unbuilt Floor Area in the table above. Under the current real estate market conditions in Tacoma there is little demand for high-rise development. But the City has received informal requests for bonus density in a few mixed-use centers that have not adopted the bonus palette, such as in the Knob Hill area. This potential receiving area is located adjacent to the Puget Sound Brewery site. With only 35,000 square feet of unbuilt floor area, the Brewery Site would be a small sending area that could be conserved with a minimal number of transactions. F. In-City Historic Sending Sites Conclusion Based on our review of the City s programs and the analysis completed of the City s existing resources, our recommendations for achieving historic preservation through a TDR program include the following: Establishment of two non-residential historic sending area districts for air rights transfers that will increase transfer options and simplify the TDR program. One sending area should transfer unbuilt floor area from the DCC zone at a value of $30 per square foot. The other sending area should include the Brewery District, the Union Station District, and mixed use zones in the Stadium and North Slope districts. Unbuilt floor area could be transferred for $15 per square foot. A two-pronged approach for historic preservation in the Downtown and mixed-use centers that preserves historic sites with TDR conservation easements and prohibits TDR bonus potential on sites that have historic structures A program that works together with a tax incentive program, which would employ a current use tax assessment for historic buildings that are secured under a TDR conservation easement. 64

73 HISTORIC IN-CITY SENDING SITES ANALYSIS A TDR program targeting historic preservation in Tacoma should be crafted to target the broad range of historic resources in the City. The recommended prioritization for the City s Landmarks and Districts are as follows: Puget Sound Brewery Site. The small number of TDRs and geographical nexus to the potential Knobb Hill TDR receiving area makes the two areas well suited for a TDR pilot program that exemplifies how TDRs can be used for historic conservation. Landmarks. Historic landmarks registered by the City should be targeted sending areas by a TDR program. It is possible to prioritize landmarks which are also on both the State Heritage Register and National Registers. Currently, there are 73 properties listed on all three Registers. Historic Districts and the Union Station Conservation District. Historic Districts should be designated as TDR sending areas. Strategies that prioritize Districts listed on more than one register should be explored because three of the City s Districts, the North Slope Historic District, the Old City Hall Historic District, and the Union Station/Warehouse Historic District are on the Tacoma Register, State Register, and National Register. 65

74 HISTORIC IN-CITY SENDING SITES ANALYSIS 66

75 V RECEIVING AREA MARKET ANALYSIS Tacoma s Mixed Use Centers including Downtown were evaluated as potential receiving areas. The value of additional density was estimated and the number of TDRs that would be allowed under zoning was calculated. TDR values mirror real estate market demand. The development market is currently weak in Tacoma and most other areas; however, a TDR program is long-term commitment. One of the nation s most successful TDR programs in Montgomery County, Maryland, evolved over a 30 year period. A. Existing Demand Developer interviews described a generally underperforming and oversupplied real estate market in Tacoma and in the Downtown area in particular. There is weak demand for new medical office in the Martin Luther King District. Prior to the market downturn, there was developer demand for additional height for multi-family projects in the Nob Hill area located south of Downtown, in the 38 th and Pacific Mixed Use Center. A handful of existing and planned institutional resources spur optimism that pockets of new development will catalyze. Areas adjacent to the University of Washington Tacoma Campus are being revitalized. The LeMay Car Museum is now open in the Dome District. While these areas would be the most likely to receive TDRs initially, TDR programs can require decades to evolve and that is why Tacoma s TDR program should be implemented to include the largest receiving areas possible. B. Potential Demand An analysis of prototype redevelopment potential of specific receiving area sites using Residual Land Value (RLV) analysis was conducted to estimate TDR values. The analysis examines four sites in receiving areas in the Downtown, MLK, and Stadium Mixed-Use Centers (MUCs) and determined that more favorable market conditions, such as a 25 to 50 percent increase in A residual land value analysis is a spreadsheet used by developers to add project costs and revenues. If there is net profit remaining, it can, in theory, be used to purchase TDRs. 67

76 RECEIVING AREA MARKET ANALYSIS multi-family, mixed-use and commercial project revenues, would support development in receiving area sites. Surface parking developments are generally more feasible when built at a lower densities and heights; developments under six stories show more redevelopment potential due to diminishing construction costs per square foot. However these types of projects rarely reach the density that would TDR option was added to the FAR bonuses allowed under the Downtown Design Standards. C. Pro forma Receiving Areas Findings The receiving area analysis selected four sites to model case study building types representative of the projects likely to be built in the Mixed Use Center receiving areas. Table 2 below summarizes the case studies. The analysis included sensitivity tests with variations height, rent, and parking construction types. Permitted zoning bonuses are explored in order to identify the most developable scenarios for each location. In addition, sites were chosen with limited improvements and low assessed improvement values. Each receiving area is evaluated in detail, below. 1. Case Study 1: Mixed-Use Building in MLK This hypothetical mixed-use project would be built on an assemblage of two parcels located on South 11th Street and South Yakima Avenue. Combined, the two parcels create a 12,989 square foot property. Details about the site are as follows, with a zoning summary in Table 3 below: The two parcels currently serve as surface parking with limited improvement values. The property is a corner lot with street frontage on both South 11th Street and Yakima Ave. 68

77 RECEIVING AREA MARKET ANALYSIS This site is located near Bates Technical College, Tacoma General Hospital and a mix of existing residential buildings. It is also within a short distance of downtown, Wright Park and the Tacoma Link Light Rail Line. The location is zoned Neighborhood Commercial Mixed-Use District MLK (NCXMLK) on a designated core pedestrian street (11th Street). The site is zoned for a mixed-use building and has a minimum density of twelve dwelling units. The maximum height of the property is 45 feet, with two height bonuses allowing construction up to 65 feet and 85 feet. 69

78 RECEIVING AREA MARKET ANALYSIS TABLE 2 RECEIVING AREA SUMMARY TABLE Type Parcels Current Use Agg. Lot Size (SF) Zoning Imp. Value Assessed Value Case Study S 11 th Street, MLK MUC Mixed Use Bldg. 2 Parking Lot 12,989 NCX $5,000 $374,800 Case Study S 17 th Street, MLK MUC Medical Office Bldg. 5 Parking Lot 80,220 HMX $75,100 $1,680,400 Case Study N G St., STD MUC Mixed Use Bldg. 1 Automobile Sales Lot 29,227 NCX $25,900 $804,200 Cast Study S C St., Downtown MUC Multi-Family Bldg. 3 Vacant 28,439 R-4 $- $559,000 TABLE 3 Zoning CASE STUDY 1 ZONING SUMMARY NCXMLK Designated Pedestrian Street Core South 11 th St. Base Height 45 Height Bonus 1 65 Height Bonus 2 95 Minimum Density 12 DU Source: City of Tacoma Municipal Code,

79 RECEIVING AREA MARKET ANALYSIS Under the base market rents none of the permitted bonus scenarios were developable. Table 4 shows that even with higher bonus heights, base rent scenarios do not result in greater RLVs. In fact, construction costs increase dramatically for taller structures resulting in substantially lower RLV. With a 25-percent increase in base rent, the project was feasible under both surface and structured parking configurations. Height scenarios that allow greater than five stories for surface parking are listed as not applicable, as they represent unrealistic development opportunities. The most feasible scenario for this site and building type was a 65-foot-high building with structured parking. Construction costs were assumed to decline on a per square foot basis for multi-family buildings as tall as six stories. Even with a decline in development costs, a premium over current market rates would be required to be feasible. 71

80 RECEIVING AREA MARKET ANALYSIS TABLE 4 CASE STUDY 1 RESIDUAL LAND VALUE ($ PER SF) Rent/SF/Month Low Height 30 Feet Base Height 45 Feet Bonus Height 65 Feet Bonus Height 85 Feet Surface Parking Base $18.00 $ $ N/A N/A 25% $22.50 $19.99 $32.60 N/A N/A 50% $27.00 $76.38 $ N/A N/A Structured Parking Base $18.00 $ $ $ $ % $22.50 $ $12.28 $48.86 $ % $27.00 $62.19 $ $ $ Structured Parking Base $18.00 $ $ $ $ % $22.50 $ $ $-2.05 $ % $27.00 $73.09 $ $ $ Source: Community Attributes, Inc., TABLE 5 Zoning CASE STUDY 2 ZONING SUMMARY HMXMLK Designated Pedestrian Street Martin Luther King Way Base Height 150 Height Bonus 1 NA Source: City of Tacoma Municipal Code,

81 RECEIVING AREA MARKET ANALYSIS 2. Case Study 2: Medical Office in MLK This receiving site assumes a medical office would be built on an assemblage of five parcels located adjacent to the St. Joseph Medical Center, at 101 S 17th St. The five parcels would combine to form an 80,220 square foot site. Details about the property are as follows, with a zoning summary in Table 5 below: The five parcels currently serve as surface parking with limited improvement values. A community center and a mix of residential building types are located adjacent to the property. The location is zoned Hospital Medical Mixed-Use District MLK (HMXMLK) with a permitted height of 150 feet. No building setbacks are required at this location. Unlike the two mixed used receiving areas, no height bonuses are permitted at this site. The results in Table 6 reveal that redevelopment potential for 101 S 17 th Street is limited at all rents. The only feasible scenario for the site would include surface parking and be built to an overall height of 40 feet, assuming a 50- percent increase in rent. 3. Case Study 3: Mixed-Use Building in Stadium District This receiving area is a single parcel located on North G Street and North 1st Street in the heart of the Stadium mixed-use center. Details about the property are as follows, with summary Table 7 below: The site currently serves as a surface lot for a local automobile dealership. The lot size is 29,227 square feet. The lot is adjacent to a variety of commercial and multi-family residential uses. This includes a Thriftway grocery store, three older apartment buildings, additional automobile dealership facilities and a mix of commercial uses on Tacoma Ave two blocks to the north. 73

82 RECEIVING AREA MARKET ANALYSIS TABLE 6 CASE STUDY 2 RESIDUAL LAND VALUE ($ PER SF OF LAND) Rent/SF/Month Low Height 40 Feet Mid Height 100 Feet Maximum Height 150 Feet Surface Parking Base $28.00 $(28.10) N/A N/A 25% $35.00 $(7.53) N/A N/A 50% $42.00 $2.75 N/A N/A Structured Parking Base $28.00 $(170.35) $(330.27) $(633.64) 25% $35.00 $(129.47) $(238.83) $(504.55) 50% $42.00 $(109.03) $(193.11) $(440.01) Structured Parking Base $28.00 $(394.97) $(806.74) $(1,348.91) 25% $35.00 $(327.52) $(655.87) $(1,135.91) 50% $42.00 $(293.80) $(580.43) $(1,029.41) Source: Community Attributes, Inc., TABLE 7 Zoning CASE STUDY 3 ZONING SUMMARY NCXSTD Core Pedestrian Street North 1 st Street Base Height 65 Height Bonus 1 75 Height Bonus 2 85 Minimum Density 27 DU Source: City of Tacoma Municipal Code,

83 RECEIVING AREA MARKET ANALYSIS The location is zoned Neighborhood Commercial Mixed-Use District Stadium (NCXSTD) and is located on a designated core pedestrian Street (North 1st Street). The property is permitted to be built to 65 feet in height with two height bonuses of 75 feet and 85 feet. This mixed-use project was modeled on a site located at 102 North G St. Table 8 below shows that the project would be feasible with at least 25 percent higher rents and up to 65 feet in height (six stories). The optimal redevelopment scenario for this site is using structured parking at 65 feet, assuming a 50-percent rent increase. TABLE 8 CASE STUDY 3 RESIDUAL LAND VALUE ($ PER SF OF LAND) Rent/SF/Month Low Height 30 Feet Base Height 65 Feet Bonus Height 75 Feet Bonus Height 85 Feet Surface Parking Base $18.00 $(12.54) N/A N/A N/A 25% $22.50 $44.03 N/A N/A N/A 50% $27.00 $ N/A N/A N/A Structured Parking Base $18.00 $(66.83) $(120.32) $(330.67) $(377.59) 25% $22.50 $16.84 $59.02 $(142.73) $(161.22) 50% $27.00 $ $ $45.22 $55.15 Structured Parking Base $18.00 $(119.71) $(218.75) $(490.47) $(559.11) 25% $22.50 $(9.51) $10.04 $(251.27) $(284.55) 50% $27.00 $ $ $(12.07) $(9.98) Source: Community Attributes, Inc.,

84 RECEIVING AREA MARKET ANALYSIS 4. Case Study 4: Mixed-Use Building in Nob Hill This hypothetical multi-family project would assemble three parcels located in Nob Hill. Combined, the three parcels create a 28,439-square-foot property. The site is located within close proximity to downtown Tacoma. Details about the property are as follows, with summary in Table 9 below: The three parcels are currently vacant according to county assessor data. The three parcels form a corner lot bordered by South 28 th Street and South C Street. In addition, the neighborhood is bounded by South Tacoma Way, I-5, and I-705. The property is adjacent to single-family and multi-family residential uses to the south and west and a mix of commercial and light industrial uses to the north and east. The location is zoned R-4. The site is zoned for detached and attached single-family housing as well as multi-family housing. The maximum permitted height of the property is 50 feet. No height bonuses are permitted. The hypothetical multi-family project would be feasible at all height scenarios with rent increases at least above 25 percent of market rates. Because maximum heights do not exceed five stories, all height scenarios can be built with surface parking. Table 10 below reveals that the most feasible scenario for a multi-family project in Nob Hill is a multi-family development 50 feet in height with structured parking, assuming a 50-percent increase in current rents. 76

85 RECEIVING AREA MARKET ANALYSIS TABLE 9 CASE STUDY 4 ZONING SUMMARY Zoning R-4 Uses Single or Multi-Family Res. Parking Requirement (per unit) Single-Family Detached 2 Two-Family Dwelling 2 Townhouse Dwelling 1 Permitted Height (ft) 50 Minimum Lot Area Single-Family Dwellings 5,000 Two-Family Dwellings 6,000 Three-Family Dwellings 6,000 Multiple-Family Dwellings 6,000 Townhouse Dwellings 1,000 Setbacks (SF) Front 15 Side 5 Rear 25 Yard Requirement 10% Source: City of Tacoma Municipal Code,

86 RECEIVING AREA MARKET ANALYSIS TABLE 10 CASE STUDY 4 RESIDUAL LAND VALUE ($ PER SF OF LAND) Rent/SF/Month Low Height 40 Feet Mid Height 100 Feet Maximum Height 150 Feet Surface Parking Base $18.00 $(20.99) $(15.80) $(14.75) 25% $22.50 $18.47 $35.29 $ % $27.00 $57.94 $86.38 $ Structured Parking Base $18.00 $(39.93) $(47.56) $(73.44) 25% $22.50 $6.75 $22.45 $ % $27.00 $53.42 $92.46 $ Structured Parking Base $18.00 $(57.19) $(81.42) $(129.88) 25% $22.50 $0.57 $5.22 $ % $27.00 $58.33 $91.87 $ Source: Community Attributes, Inc.,

87 VI TDR EXCHANGE RATES The Tacoma City Council requested that staff provide the Council with options to enact a TDR program informed by a comprehensive economic analysis. This chapter provides the City of Tacoma with that economic analysis by establishing draft exchange rates for the potential sending and receiving areas identified by the City. The exchange rates establish the market relationship between the sending and receiving areas. Exchange rates must be carefully calibrated to encourage TDR market transfers because development rights have disparate values based upon their physical location (e.g. farmland, forest land, in-city habitat areas, and in-city historic sites). Exchange rates define the market relationship between sending and receiving areas but they do not set TDR prices. TDR prices are determined through a willing-seller / willing-buyer transaction. The draft exchange rates included in this chapter attempt to price TDRs competitively with the other development incentives identified in the Mixed Use Center Height Bonus Palette and the Downtown Design Standards and Special Features. 16 However, the exchange rate mechanism enables the Council to control land use planning levers (assuming the City manages the TDR program). For example, the Council may modify the draft exchange rate so that the cost of TDR is lower than the other items included in the Bonus Palette. This decision would, in turn, reduce the cost of development, although it would also potentially reduce the amount of conservation achieved through the TDR program. Ultimately, the exchange rate is a policy decision for the Council. Exchange rates level the playing field in a TDR market place. They treat all sending and receiving areas equally, unless prioritized by policy decisions. Additionally, using the draft exchange rates, the City may estimate the amount of TDRs that each receiving area may absorb, thereby informing the City s TDR program development with the program s potential for sendingarea conservation. The Council may then use this information to determine which sending sites it wishes to include in the City s TDR program. 16 TMC E.2.b.7 and 8. 79

88 EXCHANGE RATES This chapter begins by providing an analysis of receiving-area TDR values, followed by an analysis of sending-area TDR values. Based upon this data, this chapter concludes by providing draft exchange rates for the City s TDR program. A. Receiving-Area TDR Value Summary The value of a TDR in the receiving area depends on how much additional profit a developer can make with the bonus development allowed with TDR. The Mixed Use Centers outside Downtown have a placeholder for TDRs in the Tacoma Municipal Code, but the Municipal Code does not specify the amount of TDRs required for the height bonus. This placeholder is one of many features in the Bonus Palette. Depending on the desired height bonus, a developer can choose from 17 height-bonus options in Tier 1, and from two height-bonus options in Tier 2. Some of the bonus features are site-specific, such as an improvement to a transit stop that must be located within 500 feet of the project. Others are general, such as a contribution to the open space fund of a 0.5 percent equivalent of the value of the building. Compared to a TDR purchase or an open space fund contribution, bonus features that improve the neighborhood also benefit the project and therefore are more likely to be selected by a developer, provided that the cost to the developer is similar for either Bonus Palette option. Similarly, a developer is most likely to select a bonus feature that provides the most bonus height at the lowest cost. TDR would likely be an attractive bonus feature if TDR is the lowest cost bonus feature. In contrast, developers would select other bonus features if the TDR cost exceeded the cost of other bonus features. The bonus feature that requires a 0.5 percent-equivalent of building value contribution to the open space fund is a reasonable baseline to evaluate exchange rates that are comparable to the other features in the Bonus Palette. 17 The Downtown Development Standards Special Features allows a 17 Another option is to use the economic surplus values identified in the residual and value market analysis to establish exchange rates. This Memorandum uses the 0.5-percent of building value approach for exchange rates because it matches the other bonus pallet options and is lower cost than the economic surplus values. 80

89 EXCHANGE RATES bonus for the equivalent of 1 percent of construction costs for open space, which could be replaced with a TDR option. Table 11 below compares data from the receiving-area case studies, the 0.5 percent of building value metric is compared to the resulting economic surplus values from a 25 to 50 percent increases in rents on the case study projects with structured parking. The economic surplus is the amount of profit above a standard profit margin that the project would accrue that could be spent of TDRs. 1. Detailed Proforma Analysis of Receiving-Area TDR Values The difference in building value and economic surplus shown in Table 11 below reveals that the bonus features associated with 0.5 percent of building value are about one-quarter to one-fifth the value of economic surplus at 25 percent rent increase. Accordingly, developers may be able to use the bonus menu before there is a 25 percent rent increase. Therefore, this chapter uses the 0.5 percent-equivalent of building value metric to evaluate the TDR exchange rates, rather than using the economic surplus values. The multi-family project in the R-4 zone evaluated for economic surplus is not regulated by the Bonus Palette. Table 11 reveals that the economic surplus is nine-times higher than the 0.5 percent-building-value equivalent. Modeling this structure parked apartment prototype resulted in 24 additional units, allowing an increase from a 30-foot building height (3 stories) to 50-foot building height (5 stories), or 12 units per additional floor. If a development bonus increment is setup by 10-foot height bonuses as it is in the Bonus Palette, then a developer would be willing to pay $66,251 based on the 0.5 percent-building value metric or $292,794 based on the economic surplus method. Respectively, this equals $5,520 per unit or $24,400 per bonus unit for TDRs. 2. Broad Parcel Analysis of Receiving-Area TDR Values All 4,900 parcels were evaluated in the receiving areas for redevelopment feasibility. Based on the 0.5 percent-equivalent of building value, in theory, up to $512.9 million could be paid for an estimated million square feet of 81

90 EXCHANGE RATES TABLE 11 BONUS FLOOR AREA VALUES COMPARISON Prototype Mixed Use in NCX Zone Bonus Floor Area 0.5% Building Value 0.5% Building Value/SF Economic Surplus w/+25-50% Rent Economic Surplus w/+25-50% Rent/SF 23,445 a $118,990 b $5.08 $475,195 $20.27 Office in HMX Zone 266,730 c $2,017,175 d $7.56 Not Feasible Not Feasible Mixed Use in NCX 79,132 e $284,806 f $3.60 $1,232,748 $15.58 Zone Multi-Family in 37,504 $66,251 g $1.77 $585,587 $15.61 R-4 Zone a 45-foot base height to 65-foot bonus height. b $59,495 = 0.5 percent of building value, would need to be used 2 times to get 20-foot height bonus. c 100-foot base height to 150-foot bonus height. d $403,435 = 0.5 percent of building value, would need to be used 5 times to get 50-foot height bonus. e 65-foot base height to 85-foot bonus height. f $142,403 = 0.05 percent of building value, would need to be used 2 times to get 20-foot height bonus. g $66,250 = 0.05 percent of building value at 50-foot height, but the bonus palette does not apply to R-4 zones. bonus floor area in the Downtown and Mixed Use Centers outside Downtown. This amount is equal to $5.81 per square foot of bonus floor area ($982 million/169 million=$5.81) and is based on building values including bonus density generally up to the maximum height allowed under zoning. However, near-term projects are unlikely to build to maximum density. In addition to zoning buildout, a surface parking scenario was also modeled to illustrate TDR potential. Far fewer parcels would build to heights that require bonus density. Only the largest parcels can include a mix of surface parking and some bonus height, resulting in about 2.0 million square feet of 82

91 EXCHANGE RATES bonus floor area. Using the 0.5-percent of building value metric, $11.0 million could be generated for bonus floor area. 3. Recommended Receiving-Area TDR Value Table 11 showed that the detailed proforma analysis of receiving area TDR values estimated a range of values between $1.77 and $5.08 per square foot of bonus floor area (the Office in HMX zone is excluded because it was not financially feasible). To start the TDR program, we recommend basing the exchange rates on a receiving area value of $2.00 per square foot of bonus floor area. This value will support rather than hinder projects including bonus density and will not require a steep increase in rents to be financially feasible. After some TDR transactions occur, the TDR program can be adjusted based to estimate the number of TDRs required of bonus floor area based on between 0.5 and 1.0 percent of building value. In contrast to the Mixed Use Centers, Nob Hill and districts in South Downtown such as the Dome District, Brewery District, University of Washington Tacoma, and Hillside District are not regulated by the Bonus Palette and the City may be rezoning these areas. We recommend valuing bonus floor area for TDRs at $2.00 per square foot in these areas as well. B. Sending-Area TDR Value Summary The City is contemplating three general TDR sending areas, including: (1) county-based sending areas, (2) in-city Habitat Corridors, and (3) in-city historic sites. This section summarizes county TDR values, and for in-city sending sites compares detailed proforma analysis of TDR values and broad Assessor value analysis of TDR values to recommend TDR values to use for exchange rates The TDR value cost is equivalent to purchasing a perpetual conservation easement that restricts future development from the sending areas. The value of a TDR in the sending area varies by landowner and land use. Often the most at-risk areas for development have the highest TDR values. 83

92 EXCHANGE RATES 1. County-Based TDRs King County has encouraged the City to prioritize rural lands on Vashon Island and forest land in the Green River watershed. King County has recently conducted TDR transfers in each of these areas and estimates the price of TDRs are $40,000 each on Vashon and $20,000 each in the watershed. Pierce County has encouraged the City to prioritize farm land in the Puyallup Valley. Pierce County is also interested in conserving forest land surrounding Mt. Rainier and habitat areas situated in Pierce County. The Pierce County program is relatively new and recent appraisals of sending sites estimated the TDR values are between $3,800 and $24,000 per TDR. The average value was $10, In-City TDRs In-city sending sites include historic sites and Habitat Corridors. In similar fashion to the receiving area analysis, a detailed proforma analysis and a broad parcels analysis was conducted for in-city sending areas. The market analysis conducted residual land value analysis to estimate the value per developable square foot of floor area of sending area development prototypes. This opportunity cost is derived from the residual land value and is assumed to be the amount a developer would need to be compensated for a conservation easement restricting additional development on the parcel in perpetuity. a. Detailed Proforma Analysis of In-City Sending Area TDR Values Table 12 below shows the resulting opportunity cost values per square foot of developable floor area. For comparison, the economic analysis assumed rent increases in these sending areas were equal to the rents required for new development in the receiving areas. This inflated opportunity cost is unnecessary for the exchange rate; therefore, the economic surplus values presented in the market analysis are reduced in the column on the right side of Table 12 by the respective market analysis rent increases in order to estimate current values. It is also unrealistic to assume that R-4-zone habitat would cost seven times less than R-2 habitat, and the following sections 84

93 EXCHANGE RATES assume the habitat value of all residential zones is equal to the adjusted R-2 zone amount in Table 12 of $2.61. TABLE 12 DETAILED IN-CITY SENDING SITES VALUES Prototype Opportunity Cost Value per SF of Land (With Rent Increases) Percent Adjustment Factor for Opportunity Cost Value for Rent Increase Adjusted Opportunity Cost Value per SF Historic Site 1 in DCC Zone $ % $14.55 Historic Site 2 in DCC Zone $ % $19.12 Habitat Corridor in R2 Zone $ % $2.61 Habitat Corridor in R4 Zone $ % $0.38 Habitat Corridor in M Zone $ % $4.22 b. Broad Parcel Analysis of In-City Sending Area TDR Values Through an analysis of Assessor parcel information for the historic sites in Chapter 4, we estimate the value of unbuilt floor area, or air rights to equal about 60 percent of the land value of the site. This resulted in historic site TDR values estimated to be $35 per square foot in the Downtown DCC zone and $15 per square foot on historic sites located outside of the Downtown DCC zone. Through an analysis of Assessor parcel information for the Habitat Corridors in Chapter 3, we estimate 92 percent of Habitat Corridor TDRs can be expected to have a value of less than $50,000. Since 6,000 square feet was used as a placeholder for TDRs, the maximum value equals $8.30 per square foot. This analysis was based on the maximum zoning potential on developable 85

94 EXCHANGE RATES land. The assessor values are lower, possibly due to the fact that the value is distributed across developable and undevelopable areas and because there is not demand to build to the maximum heights allowed in many of the study areas. Table 13 below summarizes the TDR values and Assessor values by zone for the Habitat Corridors. TABLE 13 BROAD IN-CITY SENDING SITES VALUES Prototype Estimate TDR Value (Sq. Ft.) Assessor Value (Sq. Ft.) Historic Sites in DCC Zone $35.00 * $60.00* Historic Sites outside DCC Zone $15.00* $20.00* Habitat Corridor in Commercial and Downtown Zones Habitat Corridor in High Density Residential and Shoreline Zones Habitat Corridor in M Zone and Low Density Residential Zones *These numbers were rounded to $5 increments. $5.40 $10.00 $2.44 $12.73 $15.00 $39.00 $3.69 $4.94 $1.20 $4.80 $1.32 c. Recommended In-City Sending-Area TDR Values Table 12 showed that the detailed proforma analysis of in-city historic sites TDR values estimated a range of values between $15 and $20 per square foot of unbuilt floor area. The broad parcel analysis of in-city historic sites TDR values estimated values at $15 per square foot on sites located outside the Downtown and $35 per square foot on sites inside the Downtown. To start the TDR program, we recommend basing the exchange rates on in-city historic sites TDR values of $15 per square foot on sites located outside the Downtown and $30 per square foot on sites inside the Downtown. Table 12 also showed that the detailed proforma analysis of in-city Habitat Corridors TDR values estimated a range of values between $0.38 and $4.22 per square foot of habitat land. The broad parcel analysis of in-city Habitat 86

95 EXCHANGE RATES Corridors TDR values estimated values at $1.20 and $39.00 per square foot and assessor values between $1.32 and $12.73 per square foot. To start the TDR program, we recommend basing the exchange rates on in-city Habitat Corridor TDR values of $5 per square foot. C. Exchange Rates This section provides draft TDR exchange rates. Before providing the draft exchange rates, however, it is illustrative to explain why the draft exchange rates are based upon square feet, rather than bonus height. Although the Mixed Use Center Bonus Palette is based on height bonuses, and the Downtown Design Standards and Special Features menu is based on FAR, TDRs should be measured based on square footage. This is due to the fact that square footage is a more precise way for the City to track the amount of bonus allowed on a building and this precision will help the TDR program include TDRs from different sending areas for equal benefit. Furthermore, if a policy directive prioritizes one sending area over the others, the exchange rates can easily be adjusted to favor TDRs from that sending area. The logical placeholder for TDRs in the Mixed Use Center Bonus Palette and the Downtown Design Standards and Special Features menu is the option to provide between 0.5 and 1 percent of building value for TDR purchases. This amount would be approximately $3.84 per square foot of bonus floor area. We recommend $2.00 per square foot of bonus floor area to incentivize transfers. In practice, a proposed project will plan to include a certain amount of bonus floor area. In exchange for the permit to build the project with the bonus, and based on $2.00 per square foot, the permitting department will require a certain number of TDRs before approving the project. Sending-area TDR values are expected to range from a few dollars per square foot for in-city sending sites to thousands of dollars for county-based TDRs. 87

96 EXCHANGE RATES The exchange rates perform three important tasks: Exchange rates equalize the amount of bonus square footage allowed on the receiving-site building regardless of the differences in sending-site TDR values. For example a 10,000-square-foot bonus with revenue to pay $2 per bonus square foot could either buy 4,000 square feet of Habitat Corridor conservation easements worth $5 per square foot (a 2.5:1 rate) or 1 county-based forest TDRs that are worth $20,000 each (a 1:1 rate). Exchange rates can inform the decision process about which TDRs are purchased. For example, to get a 100,000-square-foot bonus, purchasing 10 county forest TDRs for $20,000 each would be more efficient than piecing together small TDR purchases. Exchange rates can help with TDR demand because the TDR program can be designed to allow negotiation for TDR prices and a savvy buyer could be able to get the TDRs for lower than the $2.00persquarefoot value that the exchange rate is based on. The developer should be allowed to negotiate a lower price with for TDRs with the seller. To align this finding with the City s height-based Bonus Palette, the City should authorize all projects using TDR to receive the height bonus authorized in the Bonus Palette and enforce submittal of the proper number of TDRs based on the exchange rates for specific types of sending area TDR. The project permitting authority would not need to know how much the developer paid for the TDRs. For Tacoma, the exchange rates presented below are designed to encourage market-based transactions between the four types of sending areas and bonus floor area permitted in the Mixed Use Centers outside Downtown and Downtown. 88

97 EXCHANGE RATES For sending areas situated in unincorporated Pierce County: one TDR allows 5,000 square feet of bonus floor area. For sending areas situated in unincorporated King County: one TDR allows 10,000 square feet of bonus floor area. For Tacoma Habitat sending areas: one TDR allows 15,000 square feet of bonus floor area. For Tacoma Landmarks sending area: one TDR allows 9,000 square feet of bonus floor area. Exchange rates should be updated every few years to keep pace with the real estate market. For in-city sending areas one TDR should be allocated as follows: Designated Tacoma landmarks DCC-Downtown and DCC-City Hall: one TDR per 600 square feet of foregone of unused potential floor area allowed by the property s current zoning. Designated Tacoma Landmarks not within DCC-Downtown and DCC- City Hall: one TDR shall be allocated per 1,200 square feet of foregone unused potential floor area allowed by the property s current zoning. For residential zones in Habitat Corridor and Historic sites one TDR should be allocated for each forgone dwelling unit allowed by the property s current zoning. For nonresidential or multi-family zones one TDR should be allocated for each 6,000 square feet of potential. The calculation above shall take into account the actual number of dwelling units or square feet of floor area buildable on the sending area under its current zoning restrictions and all other applicable land use and environmental controls (e.g. applicable setback or wetland regulations). For example, Table 14 shows that if a large project is including 20,000 square feet of bonus floor area and chooses TDR from the bonus menu. At $2.00 per square foot the cost for the bonus would be $40,000. Since there are multiple sending areas, in order to issue an occupancy permit for the project, the permitting department could ask the developer to submit either: 89

98 EXCHANGE RATES 4 Pierce County TDRs (20,000 bonus square feet/5,000 bonus square feet per TDR=4 TDRs), or 2 King County TDRs (20,000 bonus square feet/10,000 bonus square feet per TDR=2 TDRs), or 1.3 in-city Habitat Corridor TDRs (20,000 bonus square feet/15,000 bonus square feet per TDR=1.3 TDRs), or 2.2 in-city historic TDRs (20,000 bonus square feet/9,000 bonus square feet per TDR=2.2 TDRs. A developer would then seek the required number of TDRs, from whatever source chosen, and negotiate for the price with the seller. Finally, some TDR programs include a cash in lieu fee option that allows the developer to simply pay the $40,000 to get a building permit and avoid the opportunity cost of having to acquire TDRs. TABLE 14 EXAMPLE OF THE NUMBER OF TDRS PURCHASED FOR 20,000 SQUARE FEET OF BONUS FLOOR AREA Receiving Area Bonus Square Footage TDRs Purchased 20,000 sq. ft. 4.0 Pierce County TDRs, or 20,000 sq. ft. 2.0 King County TDRs, or 20,000 sq. ft. 1.3 In-City Habitat TDRs, or 20,000 sq. ft. 2.2 In-City Historic TDRs, or 20,000 sq. ft In-City Habitat TDRs and 1 Pierce County TDR, or 20,000 sq. ft. Pay $40,000 Cash In Lieu, or 20,000 sq. ft. 2.0 Pierce County TDRs, and Pay $20,000 Cash In Lieu. 90

99 VII TDR ABSORPTION CAPACITY The absorption capacity, or the number of TDRs that can be included in receiving-area projects, will vary according to a number of factors. As a voluntary development option, TDRs will only be used by developers attracted to the benefits of the TDR program and how it is integrated in the zoning regulations and the project approval process. The current TDR framework in Tacoma s Municipal Code consists of placeholders for use in Mixed Use Center districts. This study is tasked with clarification of how TDR can be used in the Mixed Use Centers and analysis of potential revisions to the code that will increase TDR demand. A. Current TDR Regulations According to the mixed-use center code, TDRs can be used in Community Commercial Mixed-Use (CCX), Neighborhood Commercial Mixed-Use (NCX), Residential Commercial Mixed-Use (RCX), Urban Center Mixed-Use (UCX), and Urban Center Mixed-Use Tacoma Dome (UCX-TD) zones. 19 As shown in Table 15 below, TDR compliance is the only method available to get height bonuses on commercial and mixed-use projects with less than 25 percent residential space in CCX, and UCX/UCX-TD zones. TDRs are allowed in the NCX, and RCX zones, but will compete with other options on the Bonus Palette such as energy efficiency and historic rehabilitation. Height bonuses and TDRs are not permitted in Commercial Industrial Mixed-Use (CIX), Hospital Medical Mixed-Use (HMX), Neighborhood Residential Mixed-Use (NRX), or Urban Residential Mixed-Use (URX) zones. 19 Municipal Code E.7-8 Building Envelope Standards, Height Bonus Palette Level 1 and 2 accessed December 14,

100 TDR ABSORPTION CAPACITY Within the Downtown Core development regulations, floor-to-area ratio (FAR) bonuses are permitted for Design Standards such as architectural enhancements and pedestrian amenities and for Special Features such as art and parks. TDRs are currently not included either as a Design Standard or a Special Feature. 92

101 TDR ABSORPTION CAPACITY TABLE 15 SUMMARY OF ALLOWED BASE HEIGHTS AND BONUS HEIGHTS IN RECEIVING AREA ZONES Zone Regulatory Context Mixed Use Center Receiving Areas Height (Feet) CCX CIX Base Zoning 60 TDRs or 25% res. 75 Base Zoning 75 Palette-Level 1 90 Palette-Level HMX Base Zoning 150 No Bonus Allowed 150 Base Zoning 65 NCX Palette-Level 1 75 Palette-Level 2 85 NRX Base Zoning 35 No Bonus Allowed 35 Base Zoning 75 RCX Palette-Level 1 90 Palette-Level UCX UCX-TD Base Zoning 75 TDRs or 25% res. 120 Base Zoning 75 TDRs or 25% res. 120 Base Zoning 45 URX No Bonus Allowed 45 Source: Mixed Use Center Code 93

102 TDR ABSORPTION CAPACITY B. Recommended Code Changes for TDR This report recommends minor changes to clarify and expand the role for TDRs in the mixed-use center code and the Downtown development standards. Appendix E describes the proposed changes in further detail. These changes will increase the number of TDRs that can be absorbed by receiving areas, while retaining current height limits. 1. Recommended Amendment to the Mixed-Use Center Code A TDR feasibility study for the City of Tacoma completed in 2008 recommended linking TDR to height bonuses in the Mixed Use Centers. 20 Amendments to the Mixed Use Center code in 2009 integrated most of the recommendations and they are included in Table 15 above; however, TDR should be included as a development incentive in the UCX-TD District through the following changes to Section E.1 (building envelope standards), footnote 2: (Underscore identifies proposed text additions. Strikethrough identifies proposed text deletions) In UCX-TD Districts, for all properties lying south of a line running parallel to the center line of the alley between East 26 th Street and East 27 th Street starting at the western boundary of the UCX-TD District and running east to the center line of East E Street, then north to the center line of East 26 th Street, then east to the eastern boundary of the UCX-TD District, height is 120 feet, if at least 4 of the design elements found in Section 13.06A.080 (excluding section 13.06A.080(8)) are incorporated into the project, height can be increased to 225 feet, through use of transfer of development rights consistent with the City s transfer of development right procedures located in Chapter 1.37 TMC.if at least 4 of the design elements are incorporated and 2 of the special features found in Section 13.06A.090 (excluding Section 13.06A.090(7)) are included. 20 Transfer of Development Rights: Program Analysis for the City of Tacoma, prepared by the Cascade Land Conservancy (Forterra),

103 TDR ABSORPTION CAPACITY 2. Recommended Amendment to the Downtown Development Standards Table 16 below shows the maximum FARs allowed Downtown As of Right with base zoning, with Design Standards, and with Special Features. Compared to the heights allowed, the FAR limits tend to cap the maximum densities. This point is especially relevant in the DCC, which allows FAR up to 12 prototypically, a 140-foot high structure in a zone that allows structures up to 400 feet in height. The table shows how the Downtown Development Standards Section 13.06A.060 should be amended to permit TDRs on projects that exceed the FAR limits, up to the maximum height allowed. Along with the amendment to the Development Standards Table described above, sites with existing buildings greater than 50 years in age should not be eligible TDR receiving sites. This is because historic buildings downtown will be TDR sending sites. A Regional TDR Market Study completed in 2008 for the Department of Commerce recommended including TDR as an option in the Downtown development standards and shifting other standards to maximize TDR demand. 21 This report recommends consolidating the Special Features with the Design Standards, and using TDRs to obtain heights greater than allowed with the Design Standards FAR, as shown in Table 16 below: 21 Market Analysis for Regional Transfer of Development Rights in the Central Puget Sound, Prepared by The Planning Center DC&E,

104 TDR ABSORPTION CAPACITY TABLE 16 DRAFT AMENDMENT TO TMC 13.06A.060.C (DEVELOPMENT STANDARDS TABLE (UNDERSCORE IDENTIFIES PROPOSED ADDITIONS. STRIKETHROUGH IDENTIFIES PROPOSED TEXT DELETIONS) Maximum Allowable Floor Area Ratio (FAR) Districts As of Right With Design With Special Height Standards and Features Limits Special Features with TDR* Non- Res Non- Res Non- Res Res Res Res DCC DMU DR WR * TDRs are not permitted to be used for height on sites with buildings older than 50 years of age in these zones. C. TDR Capacity Since TDR is optional, all rights are never transferred, but some TDR programs are designed with enough capacity to transfer all TDRs. A redevelopable lands analysis evaluated 4,889 receiving-area parcels to estimate the financial feasibility of new projects and the net amount of redevelopment that can occur. These receiving areas are shown in Figure 10 below. Two scenarios were studied in detail: projects with surface parking that can reasonably be expected to be built in the short-term, and projects with structured parking that can be expected to be built in the long-term. The results were translated into unbuilt square footage under existing zoning summarized in Table 16 below. The Bonus Total row in Table 17 reveals that there is between 1.2 and 2.1 million square feet of net TDR potential when projects include surface parking. When there is structured parking, the square footage of TDR potential jumps up to million square feet because height bonus 96

105 TDR ABSORPTION CAPACITY thresholds are exceeded much more frequently. 22 The table also reveals the following observations pertaining to TDR capacity in the receiving areas: With surface-parked projects, the bonus total for Downtown is marginally higher than the amount for the Mixed Use Centers outside Downtown Downtown has more capacity to demand TDRs with surface-parked projects due to larger parcel sizes. With structured parking, the bonus total for the Mixed Use Centers outside Downtown is about 2 times the bonus total for the Downtown (Approximately 88 million square feet in the Mixed Use Centers, outside Downtown compared to 45 million square feet Downtown). This is because there is more aggregate redevelopment potential in the Mixed- Use Centers than in the Downtown, but structured parking is necessary to maximize building heights. If all other factors were equal, the Mixed Use Centers outside Downtown could absorb more TDRs in the long term. The Mixed Use Center bonuses, intended specifically for non-residential projects to use TDRs in the CCX, UCX/UCX-TD zones, will not be used until projects are built to heights that require structured parking. Only the Mixed-Use Center NCX zone has parcel sizes that can accommodate surface parking and use the Bonus Palette. 22 Bonus floor area in the DCC was measured based on 225-foot building heights. There would be additional TDR capacity if new development exceeds 225- foot heights, up to the 400-foot heights permitted in this zone. 97

106 TDR ABSORPTION CAPACITY FIGURE 10 TDR RECEIVING AREAS 98

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