Downtown Area Plan Development Feasibility Study NU Council VI July 9, 2008 February 22, 2004
Overview of Presentation 1. Introduction of Project Team 2. Purpose of Study 3. Presentation of Building Heights Tested Questions on Building Heights 4. Presentation of Methodology Questions about Methodology 5. Findings Apartments Condominiums Regulatory Requirements Questions about Findings
Strategic Economics Strategic Economics is a consulting and research firm specializing in urban and regional economics and planning. 14-person Berkeley-based firm National reputation TOD and urban economics Public-sector clients with policy-oriented research Relevant projects: Isla Vista Redevelopment Study Washington State Ferries Financial Analysis Colma BART Development Feasibility Study Staten Island TOD Feasibility Analysis St. Paul Central Corridor Development Feasibility Study Downtown Ann Arbor Development Strategies Project Downtown Berkeley Association Retail Market Study El Cerrito BART Development Feasibility Study San Mateo County Infill Study SMART Real Estate Advisory Services Livermore Transfer of Development Rights Study
Hixson & Associates Development and Project Management Consultants Clients include: real estate developers, investors, corporations, non-profits, educational institutions and lenders Provide comprehensive responsibility for project delivery Assist in transactions and in coordinating entitlements Manage & monitor design and construction activities Licensed architect
Purpose of this Study: Analyze key building types and provide information about their financial feasibility and development potential.
Building Types NU Council VI February 22, 2004
Building Heights Tested - Apartments 17 17 16 16 15 15 14 14 13 13 12 12 11 11 High-rise Life/Safety Type III Construction 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 b1 b1 b2 b2 b3 b3 b4 b4 Story Underground Parking 55 75 85 100 120 140 180 5-Story 7-Story 7-Story 9-Story 11-Story 13-Story 17-Story 40 Units 50 Units 50 Units 56 Units 68 Units 80 Units 104 Units
Building Heights Tested - Condominiums 17 17 16 16 15 15 14 14 13 13 12 12 11 11 High-rise Life/Safety 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 b1 b1 b2 b2 b3 b3 b4 b4 Stories Underground Parking Units FAR 55' 75' 85" 100' 55 120' 140' 180' Seventeen Five story Seven story Seven story Nine story Eleven story Thirteen story story 5-Story 40 7-Story 50 7-Story 50 9-Story 56 11-Story 68 13-Story 80 17-Story 104 4.0 4.9 4.9 5.6 6.5 7.5 9.5 40 Units 75 50 Units 85 50 Units 100 56 Units 120 68 Units 140 80 Units 180 104 Units
Questions From Commissioners
Study Methodology NU Council VI February 22, 2004
Starting Point for Analysis: Prototypical 13,000 square foot lot Corner lot DAPAC-recommended FARs DAPAC-recommended Lot Coverage Considered Apartments and Condos separately
Method for Determining Feasibility Land Residual Analysis What is a land residual analysis? Estimated value of the land given the income that could be generated from development A basic measure of financial feasibility and the amount of value that could be generated by development What is a land residual analysis?
Why Did We Use This Method? Prices for properties in Downtown Berkeley are highly variable and range from $80 - $200 a square foot Downtown buildings conditions vary, which impacts sales prices Many Downtown property owners are unsure if development would be more profitable than current revenues from rents Avoids the pitfall of assuming an incorrect land value What is a land residual analysis?
Key Assumptions about Developer Profit Assumed a profit of 15% of costs This number was vetted with multiple developers and is a common rule-of-thumb Determined to be the profit margin that is likely to attract developers to Berkeley
Financial Analysis Process Step 1: Step 2: Collect Data on: Construction Costs Land Costs Sales Prices Rents Current Revenue Current Costs Land Residual Value
Financial Analysis Process Step 3: Compare Land Residual value with current land costs Step 4: Sensitivity Testing uses a range of assumptions about possible future conditions to understand impact on feasibility Study historic trends in costs & revenues Make projections based on a range of growth rates using past trends
Questions From Commissioners
Findings NU Council VI February 22, 2004
Apartment Analysis
Apartments are Most Feasible at the 55-foot Height Now and in the Future 17 17 16 16 15 15 14 14 13 13 12 12 11 11 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 b1 b1 b2 b2 b3 b3 b4 b4 Story Underground Parking 55 75 85 100 120 140 180 5-Story 7-Story 7-Story 9-Story 11-Story 13-Story 17-Story
Apartments at the 75-foot height could become feasible if the stars align 17 17 16 16 15 15 14 14 13 13 12 12 11 11 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 b1 b1 b2 b2 b3 b3 b4 55 75 85 100 120 140 180 b4 Story Underground Parking 5-Story 7-Story 7-Story 9-Story 11-Story 13-Story 17-Story
Apartment Key Findings Apartments are most feasible now, and in the future, at the 55-foot level Apartments at the 75-foot level could become feasible if stars align Apartment buildings taller than seven stories are unlikely to become feasible because Berkeley is not a luxury rental market Regulatory requirements are not a considerable factor influencing apartment feasibility
Condominium Analysis
Average Revenue and Development Costs per Unit $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 Average Revenue per Unit Average Development Cost per Units $200,000 $100,000 $0 55' 75' 85' 100' 120' 140' 180'
Condominiums 55-, 75- and 180-feet are likely to be viable in the next market cycle 17 17 16 16 15 15 14 14 13 13 12 12 11 11 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 b1 b1 b2 b2 b3 b3 b4 b4 Stories Underground Parking Units FAR 55' 75' 85" 100' 55 75 85 100 120' 140' 180' 120 140 180 Seventeen Five story Seven story Seven story Nine story Eleven story Thirteen story story 5-Story 40 7-Story 50 7-Story 50 9-Story 56 11-Story 68 13-Story 80 17-Story 104 4.0 4.9 4.9 5.6 6.5 7.5 9.5
Condominiums 140-feet could become feasible in 10-15 years 17 17 16 16 15 15 14 14 13 13 12 12 11 11 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 b1 b1 b2 b2 b3 b3 b4 b4 Stories Underground Parking Units FAR 55' 75' 85" 100' 55 75 85 100 120' 140' 180' 120 140 180 Seventeen Five story Seven story Seven story Nine story Eleven story Thirteen story story 5-Story 40 7-Story 50 7-Story 50 9-Story 56 11-Story 68 13-Story 80 17-Story 104 4.0 4.9 4.9 5.6 6.5 7.5 9.5
Condominium Key Findings Tall buildings are more likely to be feasible as condominiums than apartments Regulatory requirements for these projects have significant implications for feasibility
Findings Regarding Regulatory Requirements (Condos)
Regulatory Requirements Considered City of Berkeley Inclusionary Housing Requirements (existing) Green Building Construction (proposed) State Density Bonus program (existing) FARs proposed by DAPAC (proposed) Lot Coverages proposed by DAPAC (proposed)
Calculation of Inclusionary Housing Fees $1,200,000 $1,000,000 $800,000 $600,000 Sales Price In-Lieu Fee $400,000 $200,000 $-
Inclusionary Housing Fees & Green Building Feasibility in the Current Market 50% Reduction of Current In-Lieu Fee and No Green Building Feasibility Entire In-Lieu Fee and No Green Building Entire In-Lieu Fee and Green Bilding 55' 75' 85' 100' 120' 140' 180' Building Height
Inclusionary Housing Fees & Green Building Projected Feasibility in 7-year (Conservative) 50% Reduction of Current In-Lieu Fee and No Green Building Feasibility Entire In-Lieu Fee and No Green Building Entire In-Lieu Fee and Green Bilding 55' 75' 85' 100' 120' 140' 180' Building Height
Inclusionary Housing Fees & Green Building Projected Feasibility in 7-year (Optimistic) 50% Reduction of Current In-Lieu Fee and No Green Building Feasibility Entire In-Lieu Fee and No Green Building Entire In-Lieu Fee and Green Bilding 55' 75' 85' 100' 120' 140' 180' Building Height
State Density Bonus For Condominium and Apartment projects, the State Density Bonus program allows developers to build in excess of height limits when they provide set levels of affordable housing in a development. Overall: for the building heights tested, it doesn t benefit developers to take advantage of the State Density Bonus. Apartments: the State Density Bonus could have the potential to improve the feasibility of 75-foot buildings. Condominiums: the State Density Bonus on its own fails to improve the financial feasibility of any of the buildings tested.
Floor Area Ratios (FAR) DAPAC-recommended FARs make 140- and 180-foot buildings infeasible to build by limiting gross square footage possible Building Height DAPAC Recommended FAR FAR Used in this Analysis 55' 4.0 4.0 75' 4.9 4.9 85' 4.9 4.9 100' 5.6 5.6 120' 6.5 6.5 140' 6.5 7.5 180' 6.5 9.5
Lot Coverages DAPAC s recommendation for maximum lot coverage requirements are: Heights 55 feet: 100 percent maximum Heights 65 feet: 90 percent maximum with in-lieu fee option for small lots & historic preservation; Heights 66 to 100 feet: 90 percent maximum with no in-lieu fee option; Heights 101 feet and above: 80 percent maximum with no in-lieu fee option;
Lot Coverages Findings The lot coverage requirements necessitate the use of a street-facing setback or a mid-block courtyard. Open space at the perimeter can help meet this requirement but it is unlikely to achieve a satisfying building configuration with the 20 percent setback considering the needs of the developer and good urban design practice. For taller condominium projects, only street-facing setbacks provide the efficient parking arrangement needed for project feasibility (which has urban design implications).
Questions From Commissioners
Lot Coverages Front Setback Parking Residential Open Space core/lobby core Retail Residential Street Street No Setback First Floor Residential Floor (applied to 55' building)
Lot Coverages Parking Residential Open Space core/lobby core Retail Residential Setback Setback Street Street 10% Setback First Floor Residential Floor (applied to 65' - 100' buildings)
Lot Coverages Parking Residential Open Space core/lobby core Retail Residential Setback Setback Street Street 20% Setback First Floor Residential Floor (applied to 101' - 180' buildings)
Lot Coverages Setback Options 10% Setback 20% Setback Residential open space Residential open space Setback - 13' Setback - 26' Front Setback 9,200 Front Setback 8,600
Lot Coverages Residential open space Residential open space Setback - 6' Setback - 12' Two Side Setback 9,200 Two Side Setback 8,500
Lot Coverages Setback Residential open space Mid-block Setback not applicable Mid-block Setback 8,400