HomeMy WebLinkAboutAgenda Packet - CC - 2018.11.14City of Burlingame
Meeting Agenda - Final
City Council
BURLINGAME CITY HALL
501 PRIMROSE ROAD
BURLINGAME, CA 94010
Wednesday, November 14, 2018 6:30 PM Council Chambers
Special Meeting
Residential Impact Fee Study Session
Note: Public comment is permitted on all action items as noted on the agenda below and in the
non-agenda public comment provided for in item 4.
Speakers are asked to fill out a "requestto speak" card located on the table by the door and
hand itto staff, although the provision of a name, address or other identrfying information is
optional. Speakers are limited to three minutes each; the Mayor may adjustthe time limit in
light of the number of anticipated speakers.
All votes are unanimous unless separately noted for the record.
1. CALL TO ORDER - 6:30 p.m. - CouncilChambers
2. PLEDGE OF ALLEGIANCE TO THE FLAG
3. ROLLCALL
4. PUBLIC COMMENTS, NON.AGENDA
Members of the public may speak about any item not on the agenda. Members of the public wishing to
suggesf an item for a future Council agenda may do so during this public comment period. The Ralph M .
Brown Act (fhe Sfate local agency open meeting law) prohibits the City Council from acting on any matter
that is not on the agenda.
5. STAFF REPORTS AND COMMUNICATIONS (Public Comment)
a. Discussion of Residential lmpact Fees
Attachments:Staff Reoort
Memorandum - Seifel Consultino
Julv 2. 2018 Citv Council Meetinq Minutes
July 2. 2018 Presentation Slides
6. ADJOURNMENT
City of Burlingame Page 1 Printed on 11/9/2018
City Council Meeting Agenda . Final November 14,2018
City ot Budingane Page 2 Printecl on 118/2018
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before the meeting and at the meeting. Visit the City's website at wvwv.burlingame.org. Agendas and
minutes are available at this site.
NEXT Clry COUNCIL MEETING - Next regular City Council Meeting
Monday, November 19, 2018
VIEW REGULAR COUNCIL MEETING ONLINE AT www.burlingame.org/video
Any witings or documents provided to a majoity of the City Council regarding any item on this agenda
will be made available for public inspection at the Water Office counter at City Ha at 501 Primrose
Road during normal buslness f,ours.
STAFF REPORT AGENDA NO: 5a
MEETING DATE: November 14,2018
To:Honorable Mayor and City Gouncil
Date: November 8, 2018
From: Kevin Gardiner, Community Development Director - (650) 558-7253
Subject: Discussion of Residentia! lmpact Fees
RECOMMENDATION
Staff recommends that the City Council review the memorandum "Financial Analysis of Proposed
Affordable Housing Program, City of Burlingame" prepared for consideration of establishing
residential housing impact fees.
BACKGROUND
Affordable housing impact fees are used to support and build new homes for lower-income
residents. The fees can be charged to developers of new residential projects, and used for land
purchase, construction costs, or site rehabilitation related to providing workforce housing.
Jurisdictions may tailor the fees so they meet local needs. The fees can be adjusted for a wide
variety of reasons, so long as they are not arbitrary or capricious, and so long as the fees for all
projects remain below the legal maximum.
As part of the San Mateo County "21 Elements" multi-jurisdictional effort, a Residential lmpact
Fee Nexus Study was prepared for the City of Burlingame, together with a Commercial Linkage
Fee Nexus Study. These studies describe and quantify how the development of homes, offices,
and commercial space creates a need for housing, particularly for very low-, low- and moderate-
income residents. The maximum impact fees that can be legally charged were calculated by
estimating the number of new worker households associated with new development. A final
analysis was then completed that considered factors like local conditions and the fees of
neighboring jurisdictions to determine a potential range of impact fees. These studies enable the
City Council to consider the adoption of commercial linkage and/or residential impact fees that
would be used to provide affordable housing.
On June 19, 2017, the City Council adopted an ordinance establishing commercial linkage fees
for new commercial development in Burlingame. The adopted fees are $7.00 per square foot for
new retail development, $12.00 per square foot for new hotel development, $'18.00 per square
foot for office projects of 50,000 square feet or less, and $25.00 per square foot for office greater
than 50,000 square feet. For developers who utilize prevailing wages or area standard wages, the
fees are $5.00 per square foot for new retail development, $10.00 per square foot for new hotel
development, $15.00 per square foot for office of 50,000 square feet or less, and $20.00 per
1
Residential lmpact Fees November 14, 2018
square foot for office greater than 50,000 square feet. Over time, these fees will provide a
dedicated source of funding for programs supporting workforce housing in Burlingame.
On February 12,2018 the City Council considered the establishment of residential impact fees
that would apply to new residential development in Burlingame. The City Council directed staff to
further study potential fee levels and structures, consider an on-site "in-lieu" option for providing
affordable units within development projects, and obtain input from housing developers and other
stakeholders.
Following direction from the City Council, staff engaged Seifel Consulting lnc. to prepare an
analysis on options for residential impact fees. A key focus of the Seifel Consulting work program
was to develop recommendations related to the potential adoption of new fees on residential
development and the best strategies to incentivize the on-site provision of affordable housing
within new development as part of the City's housing program. At the July 2, 2018 City Council
meeting, Seifel Consulting presented initial findings for review and comment (meeting minutes
and presentation slides attached).
DISCUSSION
Seifel Consulting has subsequently prepared a memorandum reflecting findings of the analysis
and input from the City Council. The memorandum (attached) summarizes the material
presented at the July 2nd City Council meeting. While the memo is oriented towards strategies to
incentivize the onsite provision of affordable housing within new development (as opposed to
collecting fees), staff notes that this reflects a policy direction that has not been specifically
adopted by the City Council. For purposes of focusing the analysis, staff requested that Seifel
Consulting identify thresholds where providing on-site affordable units within new developments
would be as cost-effective (or more cost-effective) as paying a residential impact fee.
The report does not advocate the merits of providing on-site affordable units compared to
collecting fees. There are trade-offs with each approach, and given the choice, developers may
make different choices based on their own circumstances. The analysis in the report provides
guidance for incentivizing the provision of on-site units, should that be the policy direction
adopted by the City Council, but also provides guidance on the feasibility of various fee levels on
different types of development should the Council pursue an approach that prioritizes collection of
fees for a housing fund.
FISGAL IMPACT
Previous analyses (provided in the staff report prepared for the February 12, 2018 City Council
meeting) have estimated residential impact fees ranging lrom $7,225,000 to $19,125,000 within
the next five years, based on the current development applications under review. The level of
fees collected will vary depending on fee level structure adopted, and the potential provision of an
on-site option in lieu of payment of fees.
2
Residential lmpact Fees November 14, 2018
Exhibits
. "Financial Analysis of Proposed Affordable Housing Program, City of Burlingame" - Seifel
Consulting
. July 2,2018 City Council Meeting Minutes
. July 2,2018 Presentation Slides
3
Financial Analysis of Proposed Affordable Housing Program
Gity of Burlingame
For many years, new housing development in the Bay Area has not kept pace with the growing demand
for housing. This is particularly true of San Mateo County, where strong economic growth has intensified
housing demand, leading to rapid increases in home prices and rents. As a result, many local residents and
workers are not able to afford housing in the County and the City of Burlingame.
The local jurisdictions within San Mateo County commissioned a coordinated set of residential nexus
studies to help mitigate the impacts that new residential development has on the provision of affordable
housing. Strategic Economics andYemazza Wolfe Associates prepared the City of Burlingame
Residential Impact Fee Nexus Study in 2015 (Nexus Study) as part of this countywide effort.
The Nexus Study evaluated development revenues (rents and sales prices), development costs and
potential housing impact fees for the three most typical types of development in the City of Burlingame-
single family attached, condominiums and apartments. The Nexus Study also performed a financial
feasibility analysis of these three housing prototypes in order to develop recommendations regarding the
feasible range of fees per square foot of residential development that the City could consider adopting.
In general, the recommended fee levels in the Nexus Study for Burlingame range from $25 to $50 per
square foot, while the maximum justified fee amounts according to the Nexus Study for Burlingame range
from $50 to $85 per square foot, as shown below in Figure I-1 from the Nexus Study.
Figure l-l . Recommended Housing lmpact Fees by Residential Prototype
Prototype
Maximum Justified
Fee per Unit
Marimum
Justified
Fee per SF
Recommended Fee
Per Unit
Recommended
Fee per SF
Single-Family Attached
Condorninium
Apartments
$98.541
$91,598
$85.25s
$52
$56
$85
$76,000 - $95.000
$41,2s0 - $82.500
$25,000 - s50.000
$40 - $50
$25 - $so
s25 - $50
Sources, Vemazza Wolfe Associates, lnc. & Strategic Economics,2015
The City of Burlingame asked Seifel Consulting Inc. (Seifel) to prepare an updated financial analysis to
help the City evaluate the potential adoption of new impact fees on residential development and the best
strategies to incentivize the onsite provision of affordable housing within new development as part of the
City's affordable housi ng program.
This report summarizes the findings from Seifel's financial analysis, which was initially presented to the
City Council in July 2018. This report is organized into the following sections, which are accompanied by
tables and charts as further described below:
Summary of Findings
Infill Development Challenges and Opportunities .......
Current Development Conditions in the City of Burlingame
2
J
7
A,
B.
C.
D.
E.
F.
G.
Financial Analysis of Housing Fee Alternatives
Financial Analysis of Onsite Affordable Housing Provision
Financial Feasibility of Onsite Affordable Housing Provision
t2
t7
24
Conclusion ..27
A. Summary of Findings
This report presents the key financial considerations associated with achieving new residential
development in the City of Burlingame and an updated development feasibility analysis to help the City
evaluate how to incentivize the onsite provision of affordable housing within new development as part of
its affordable housing program, which is proposed to include the adoption of housing fees on new
residential development. The report concludes with potential policies that the City may want to consider
implementing in order to encourage the provision of onsite affordable housing.
As rents and prices have continued to increase, the difference between the cost of housing and what many
households can afford to pay for housing has increased, leading to a widening "affordabilify gap" for new
housing. In order for new development to be financially feasible when including onsite affordable
housing units, the cost of providing new affordable housing must be able to be factored into the total costs
of developing housing while still leaving sufficient developer margin or return to allow development to
go forward.
Developing infill housing development in Bay Area cities like Burlingame is typically challenging and
risky to undertake given the uncertainties of the development process, and is costly due to the broad range
of development cost factors discussed in this report. For example, land prices and construction costs
(including parking) have risen rapidly in recent years, significantly affecting development feasibility for
new housing, particularly for multifamily apartments where apartment rents have not been increasing as
fast as construction costs.
Depending on the total development costs associated with new apartments, rental units may not yield
sufficient returns to attract capital (creating a development feasibility gap). Higher density altematives,
however, are more feasible when land values are significantly less on a per unit basis, providing greater
opportunities for developers to pay for public requirements such as affordable housing. Onsite affordable
housing requirements that are focused on moderate income households (earning between 80% and 120%
of Areawide Median Income) are more financially feasible and best correlate to citywide housing fee
levels ranging from $15 to $25 per square foot on residential development. (This range of fee levels was
tested in this financial analysis based on guidance from City staff, and takes into account housing fee
levels in surrounding cities.)
Housing prices in the Bay Area have been increasing rapidly, and most buyers need significant cash or
o'trade-up" value in homes to afford new units, making it much more difficult for first-time homebuyers to
purchase a new home. Constructing for-sale housing units is typically more financially feasible in
Burlingame as compared to constructing apartments given the high prices for new homes. However, the
affordability gap for new homes is significant, particularly for large single family attached units
(townhomes). The financial analysis indicates that housing fees at $25lSF can be supported by new
ownership development, and onsite affordable housing requirements focused on households between
ll}oh and 135% AMI are financially feasible, assuming reasonable land and construction costs.
This analysis finds that the City of Burlingame may want to consider providing an onsite housing
development altemative to the payment of housing fees that is primarily focused on addressing the
housing needs of households earning between 80% and l35o/o Areawide Median Income and that requires
the provision of 10 percent of total units as affordable housing units. For apartments, the provision of
onsite housing is best accomplished with projects that provide a higher range of densities and have
parking requirements similar to what is allowed in State Density Bonus Law for mixed income
developments. For single family attached units, allowing affordable housing units to be a smaller size
than what is typically built in single family attached developments significantly enhances the ability of
developers to provide onsite housing units at affordable sales prices while maintaining development
feasibility.
Seifel
coilsutTtx0 I{c.
Page 2
B. lnfill Development Challenges and Opportunities
As described by the Urban Land Institute, the infill development process is complex and challenging but
provides significant opportunities to create vibrant mixed-use neighborhoods.' As demand for urban
living continues to increase, developers are increasingly undertaking new housing development that
replaces or intensifies existing uses, often as part of mixed-use developments with housing above ground-
floor retail or other commercial uses.
In order to develop new infill housing, developers must prepare a proposed residential development
program, undertake a series of technical analyses, refine the development program based on input from a
broad variety of stakeholders, and secure government approvals prior to starting construction. This pre-
development period is typically the most risky phase of development, and developers typically need to
raise private investor capital (equity) to fund pre-development costs.
Given the high risks associated with new development not occurring or not occurring as planned,
developers must be able to generate sufficient returns or profit to attract private equity commensurate
with these risks. Private equity must also be raised during the construction and the sales or lease-up
period, as private lenders typically require a 35%o to 40oh equity contribution for infill housing projects.
Throughout the predevelopment process, and most importantly prior to initiating construction, a
developer must be able to demonstrate to its private capital sources (private investors and lenders) that
there is sufficient developer margin (return) to take into account potential risks and to repay capital at
specified levels of return. In most capital structures, the priority of capital repayment is as follows:
1) construction and permanent lenders, 2) private investors who typically receive a preferred return and a
share of profits that are generated by the development and 3) the developer.2
Figure B-l below illustrates the development feasibility framework for new development, which shows
the typical costs ofdevelopment, the supportable project costs based on a target return, and the projected
developer margin (or return) after taking into account all development costs.
Figure B-1
Development Feasibility Framework Per Residential Unit
$7oo'ooo Proiectvalue
$600,000
Supportable
Prcject Costs
$500,000
$100,000
$300,000 Prcject
$200,000
$100,000
I https://urbanland.uli.org/development-business/making-infill-work-floridas-urban-cores/
2 The developer is often allowed to receive a reimbursement for developer project management and overhead costs to manage the
development process out ofthe construction loan proceeds.
Costs
I Developer llaqin
e Govemmcnt Fees
r Other Soft Costs
r Construction Financing
e Parting Construction
r Hard Construction Cost
- oemolition and Site
lmprovments
r Land
$0
Develop€r Margin
Page 3
I
Seifel
c0rsurn{6 fic.
Figure B-2 illustrates the typical development costs associated with infill development, which include the
direct costs of new development (demolition costs, site improvement, parking, and building hard
construction) and the indirect costs of new development (also known as soft costs, which include
government fees, architecture and engineering, construction financing, and other soft costs).
Figure B-2
Typical Development Costs for lnfill Development
Demolition and
Site
Government
Conslruction
Financing
Building construction costs are the most significant cost component to developing housing. Residential
building costs increase based on the type of construction, with wood-frame development (referred to as
"Type V" construction) being the least expensive, and concrete/steel, fire-resistive development (referred
to as "Type I" construction) being the most expensive on a per square foot basis. Most of the new
residential development in Burlingame is Type V wood-frame construction built over a concrete podium
slab with parking below, or underground parking.
Parking costs are a major contributor to residential construction costs as the costs of constructing a
parking space within a building can range from $40,000 to $70,000 per space depending on the location
of the parking and the site conditions, as shown in Figure B-3. (For example, the cost of building
underground parking is higher in locations that require significant environmental remediation and/or have
high water tables.) Requiring substantial amounts of ground floor retail space and associated parking also
significantly increases costs.
Figure B-3
Typical Parking Construction Cost Per Space
$80.000
$60,000
$40,000
$20,000
Sudae Wth B€|il Gmde Bdil GEde Mehani€l Lrff
Studue, 'l Level StruduE,2+ Parking (Podium)
Lswls
$o
Caryorl
Above Grade Partially Belfl
Podium Structure GBde Structurc
Page 4
Land
other Soft Costs
Parking Construction
Conslruction
'*'l
Cost
Seifel
c0tsutTrIG tIc.
Residential construction costs have increased significantly since 2015 due to rapid increases in material
costs (including lumber, concrete and steel) and robust demand for construction labor and subcontractors.
Some construction experts report that construction costs on the Peninsula have annually increased
between l0o/o and 15olo over the past two to three years.
Land costs are also a major contributor to development costs, and they vary widely for infill development.
Land costs are determined by the marketplace based on the price at which property owners are willing to
sell their property and what developers can afford to pay for land after taking into account all non-land
related development costs including a sufficient allowance for developer margin or return. This "residual"
value of land for future residential uses (often referred to as "residual land value") must exceed the
property's value given its current use. Figure B-4 below illustrates how developers typically calculate
residual land value to determine how much they can afford to pay for property acquisition.
Figure B-4
Residual Land Value Per Residential Unit
$700,000
Value
$600,000 r Developer Margin
Government Fees
r Other Soft Costs
. Construction Financing
. Parking Construction
Hard Construction Cost
Demolition and Site
lmprovements
r Land
$500,000
$400,000
Project
$300,000 (except
$200,000
$100,000
Since most infill sites in Burlingame that might be developed as housing have existing buildings
generating rental income, the developer must typically pay an amount that is significantly higher than the
existing property value based on this rental income to incentivize the owner to sell. Some property owners
require developers to purchase property outright, while others are willing to allow developers to pay for
the opportunity to develop property in the future by entering into an option to purchase property.
Typically, land purchase options provide for a certain period of time during which a developer can
undertake pre-development activities, and option payments typically increase over time, particularly if
performance milestones are not met. At some point, most property owners require developers to purchase
property outright or let the option expire if the pre-development process extends for a long time.
In summary, developing residential infill development is costly in cities like Burlingame and others on
the Peninsula due to the following cost factors:
. Expensive property acquisition costs, particularly in areas of high demand such as Burlingame.
. Significant environmental mitigation and remediation costs.
Costs
land)
$0
Developer Margin
Seifel
c0xsut'llx6 txc.
Page 5
I
Residual Land Value
. Public infrastructure and facility upgrades to accommodate new development.
. Complex governmental approval process that can take a long time to complete and can result in
significant modifications to the development program and architectural design from what is
originally proposed.
. Public fees for municipal costs related to land use planning, application processing, permits and
public infrastructure/facilities (development impact fees).
. Higher cost ofcapital and investor return thresholds as projects take longer and often have unique
project components that are more difficult to underwrite.
. Expensive construction costs due to the inclusion of structured parking (particularly underground
parking) and the vertical integration of multiple uses with different design and construction
requirements.
These development costs have rapidly increased in the Bay Area since 2015, making it much more
difficult for residential infill development to be financially feasible than what was analyzed and reported
in the Nexus Study.
Based on discussions with real estate professionals, infill development in the Bay Area is likely going to
continue to be challenging to undertake for the following reasons:
Despite the fact that the United States has experienced a very long economic expansion since the
last recession, the Federal Reserve continues to think that the United States is still in a period of
moderate economic expansion.3
Interest rates have been at historic lows but are anticipated to continue to increase over time as
evidenced by the recent interest rate increases by the Federal Reserve.
Capitalization rates, which are used to measure property values, tend to increase over time as
interest rates increase. As cap rates increase, underwriters typically lower their expectation of
future property values.a
Construction costs are anticipated to continue to increase given the high demand for construction,
particularly given the rebuilding activity after the recent fires in California.
Housing supply in the Bay Area is not keeping pace with demand. For example, in high
employment growth, Bayside areas like San Mateo and Santa Clara counties, only one housing
unit was built for every l5 jobs created between 2011 to 2015, according to the Metropolitan
Transportation Commission. s
Due to high housing demand, the housing affordability gap has widened for many households in
the Bay Area.
Apartment rent growth has flattened on the Peninsula, in part due to the housing affordability
crisis, as many households cannot afford to pay higher market rate apartment rents.
While moderate economic expansion is projected in the near term, an economic recession will
likely emerge sometime in the next few years based on historical experience, which will
significantly affect future housing development conditions.
3 https://www.federalreserve.gov/newsevents/speech/powell20l80406a.htm
a A capitalization rate is equal to the ratio ofa property's net operating income to its purchase price or value. Low cap rates mean
that properties are perceived by the market place to have a high value in relationship to their income producing potential.
5 https://www.planbayarea.org/sites/default/files/san_francisco_cma-board-presentation.pdf
a
a
a
a
a
a
a
W Page 6
C. Current Development Conditions in the City of Burlingame
As described earlier, the Nexus Study evaluated development conditions in the City of Burlingame for the
purpose of developing housing fee recommendations. The first step in the financial analysis was to review
the Nexus Study in order to understand the core development assumptions and methodologies used in the
Nexus Shrdy for the three most typical types of development in the City of Burlingame-apartments,
condominiums and single family attached units (townhomes).
City staff provided a variety of information and input regarding recent residential development in
Burlingame for each of these residential types, including residential densities and development programs.
Seifel also collaborated with The Concord Group to assemble residential market data for Burlingame and
surrounding cities for the three housing types. Seifel interviewed developers undertaking projects in
Burlingame and nearby cities in order to gather recent data regarding local development conditions,
residential unit sizes, residential revenues, development costs and land prices.
In consultation with City staff, Seifel has evaluated the same three housing types and parcel sizes as
previously analyzed in the Nexus Study, but the development characteristics for each prototype have been
modified to reflect recent development experience in the City of Burlingame as follows:
. Multifamily apartments on a 3-acre site- three apartment scenarios have been analyzed at
densities of 50, 70 and 120 dwelling units per acre (dua)
. Condominiums on a .5-acre site- one condominium (condo) scenario at 50 dua
. Single family attached (SFA) homes on a 1.7-acre site- one SFA scenario at 18 dua
Table C-1 below summarizes the key characteristics of each residential prototype.
Table C-1
Summary of Development Characteristics for Residential Prototypes
Apartments
Single Family
Attached
Condominiums (ForSale)Buildine Characteristics dua)
Apartments
(50 dua)
Apartments
(120 dua)
Building Type
Total Residential Units
Residential Net Square Feet (NSF)
Average Unit Size (NSF)
Parking Type
E{ficiency Factor "
Residential Gross Square Footage (GSF)
FloorArea Ratio (FAR) b
Land Area (SF)
Land Area (Acres)
Wood-Frame
150
127,500
850
Podium
70%
182,r43
1.4
130,680
3.00
Wood-Frame
2r0
174,300
830
Podium
70%
249,000
1.9
I 30,680
3.00
70
Wood-Frame
360
288,000
800
Podium
70%
4lL,429
3.1
130,680
3.00
120
Wood-Frame
25
25,000
1,000
Underground
80%
31,250
1.4
2l,780
0.s0
50
Wood-Frame
31
46,500
1,500
Tuck-Under
85%
54,706
0.7
74,052
1.70
Units Acre
(a) Ratio ofresidential net square footage to residential gross square footage
(b) Floor area ratio (FAR) measures density by dividing residential gross building area by total site area
Source: The Concord Group, Seifel Consulting Inc.
Page 7
Seifel
c0xsiJLTr{6 ltrc.
1. Development Revenues
Revenues from new residential development are generated from the following sources:
. Rental revenues, which are generated by the monthly rental of apartments, and the associated
market value of an apartment unit, based on this rental income.6
. Sale of residential units, either from the sale of single family attached homes or condominiums.
The Concord Group (TCG) assembled residential market data for the three housing product types for the
City of Burlingame and surrounding cities in the northern part of San Mateo County as of May 2018.
TCG gathered residential market data on apartments and for-sale communities in these areas to inform
their analysis. Table C-2 below summarizes the anticipated revenues to be generated by the residential
prototypes based on the residential market analysis prepared by TCG, which has been adjusted to reflect
the typical unit mix being developed in Burlingame. (The supporting market data and analysis prepared
by TCG is included in Appendix 1.)
Table C-2
Summary of Residential Revenues for Residential Proto$pes
Protowpe
Residential
Net Square
Feet (NSF)
Unit Sales
Price/
Monthy
Rent
Apartments (50 dua)
Type V Wood Frame
50 units per acre
Podium
Apartments (70 dua)
Type V Wood Frame
70 units per acre
Podium
Apartments (120 dua)
Type V Wood Frame
I 20 units per acre
Podium
Condominiums
Type Y Wood Frame
50 units per acre
Underground
Average
Total
Average
Total
Average
Total
Average
Total
850
t27,500
830
174,300
288,000
1,000
25,000
1,500
46,500
$3,734
$3,651
$3,s69
$939,000
800
$ 1,632,000
Source: The Concord Group, Seifel Consulting Inc.
6 The value ofan apartment unit is based on standard appraisal valuation technique using capitalized net operating income (net
operating income divided by an assumed cap rate for apartments).
Single Family Attached (For Sale)
Type VWood Frame Average
18 units per acre Total
Tuck-Under
Page 8
c0xsutnrG rffc.
Seifel
a. Apartment Rents and Values
Monthly market rents for new apartments in Burlingame are anticipated to range between $2,300 for
studios to about $4,600 for three-bedroom units. Based on a typical mix of units, average market rents for
an apartment building with a typical 800-850 square feet average unit size are estimated to range from
approximately $3,600 to $3,700 per month.
The potential value of an apartment unit is estimated by capitalizing the annual net operating income
using a 4.25% capitalization rate (cap rate) for residential apartments and deducting sales-related
expenses in order to project net apartment revenues for the financial analysis. Net operating income (NOI)
is equal to project revenues less a 5 percent vacancy allowance less operating expenses (including
property taxes). As described earlier, current cap rates are at historically low levels, and this low, 4.25o/o
cap rate reflects the robust market conditions for housing on the Peninsula. Sales expenses are assumed at
3% ofvalue and include sales/brokerage fees, title/recording fees and other sales related expenses.
b. Condominium and Single Family Attached Sales Prices
Sales prices for condominiums and single family attached units vary based on location, unit size, building
amenities, and whether or not units have a view premium, among other factors. Sales prices for each
housing prototype are based on anticipated sales value per net square foot (NSF) for a typical new
development of comparable height, target market and unit size in developments located in or near
Burlingame.
As the average size of units, design features and amenities typically differ between condominium and
single family attached developments, the projected market pricing takes this into account. Condominium
market sales prices typically range from $900 to $1,0004ISF, and the average price for condominium
units has been assumed to be about $939,000. Single family attached units are typically higher priced,
ranging from $1,000 to $l,l00A{SF, and the average price for these units is projected to be about
$ 1.63 million. (These sales prices are assumed to include the cost of parking.)
2. Development Costs
Development cost assumptions were developed based on a review of the prior Nexus Study assumptions
and interviews with real estate professionals who are actively developing residential projects in the
Peninsula. Development costs vary from project to project but generally consist of three major cost
categories: land, direct costs to improve and construct buildings (also known as hard costs) and indirect
costs that are required to prepare for development (also known as soft costs).
a. Land Costs
As described earlier, most residential infill sites in Burlingame have existing buildings that generate rental
income. Given this, developers must typically purchase property at prices that are significantly higher
than the existing property value based on this rental income to incentivize the owner to sell while
maintaining development feasibility.
Property values in the City of Burlingame (and the Peninsula) vary widely depending on the existing use
of the property and the future use of the property. Based on a review of market data compiled by TCG
and interviews with developers, land values are assumed to range from $200 to $260 per square foot of
land, or about $8.7 million to $ I 1.3 million per acre. However, land costs may be much higher than this
level, particularly when a developer is purchasing a commercial property that achieves high retail and
office rents such as in downtown Burlingame.
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Page 9
For residential development, developers evaluate how much they can afford to pay for land based on the
supportable residual land value per unit under alternative development programs assuming the ultimate
value of the development is sufficient to support development costs and achieve sufficient developer
margin or return thresholds to attract private capital. Developments that can achieve higher numbers of
dwelling units per acre (du/ac) can spread the cost of land over a greater number of housing units, which
typically improves development feasibility.
b. Direct Costs (Hard Costs)
Direct costs include all of the hard construction costs that are associated with new development.
. Demolition and site improvement costs include all of the costs that are required to ready the site
for development, including the demolition of existing structures, completion of the environmental
remediation work and the provision of public and private pathways and landscaped areas of the
project.
. Building hard construction costs include the construction costs related to residential, parking and
any ground floor retail uses.
Residential hard construction costs are based on wood-frame construction over podium or below-grade
parking. All of the hard construction costs include costs related to general conditions plus general
contractor (GC) overhead, profit, insurance and other GC costs. No additional hard cost contingency
factor was assumed in this analysis.
c. Indirect Costs (Soft Costs)
Indirect costs include all of the soft costs that are associated with new development. These include
government fees for planning, permitting and development impact fees, construction financing and other
soft costs, such as professional services (architectural design, engineering, environmental studies, market
analysis, legal, marketing, etcetera).
City staff provided estimates of the potential government fees that would need to be paid for each
prototype to cover fees charged by the City, local School Districts and other public agencies. Developers
use construction loans to finance a large share of the development costs during construction.
The construction financing assumptions take into account today's low-interest rate environment for
construction loans and relatively conservative equity requirements. Other soft costs are based on
representative percentages of hard construction costs based on a review of pro formas, interviews with
real estate professionals and the prior Nexus Study.
Table C-3 below summarizes the projected development costs associated with each residential prototype
based on these assumptions.
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Table C-3
Summary of Development Cost Assumptions for Residential Prototypes
Apartments Apartments Apartments
Single Family
Attached
Development Costs (50 dua) (70 dua) (120 dua) Condominiums (For Sale)
Direct Costs'
Buliding and Site Improvement Costs
Indirect Costs b
Permits & Fees (Excl. Housing) "
Other Soft Costs
Financing Costs
Loan to Cost Ratio (LTC)
Loan Interest Rate
Construction/ Absorption Period
Outstanding Balance (Utilization Rate)
Loan Fees
per Unit
per Unit
o/o of Direct Costs
7o of Dev't Costs
in months
o/o of Dev't Costs
o/o of Loan Amount
s382,000 s357,000 $347,000 $438,000 s675.000
s I 8,500
t6%
6s%
5.0%
27
60v,
l.sYo
$ I 8,500
t5%
$18,500
t5%
65%
5.0%
35
60%
1.5%
$26,700
2oyo
6s%
5.0%
22
60%
1.5%
$27,800
20%
65%
5.0%
29
600/o
1.5%
65%
5.0%
20
60%
1.5%
Notc: Dcvelopment costs are bascd on review ofsimilar project pro formas in thc Bay Area and interviews with developers, construction expcrts, othcr
real estatc professionals, and City staff.
(a) Dircct costs includc sitc work, building construction, and parking costs of$60,000 per space for underground parking and $45,000 per space for
podium parking.
(b) Other soft costs include architechrral and engineering fees (typically ranging from 5% for larger projects to 7olo ofdirect costs for smallcr projccts),
taxes, insurance, legal & accounting. developer projcct management and overhead, sales and marketing and other consultant services.
Thc higher allowaace ofindirect costs for ownership housing is attributable to higher cost ofsales, marketing and insurance costs. These costs depend
on the size, complcxity and time frame ofthe project, and these perccntagc estimatcs assume a strcamlined dcsign and approval process.
(c) Permits & fees werc calculated by the City bascd on reccnt experience with similar projects and exclude proposed housing fccs.
Source: Dcvelopment pro forma data on comparablc projects, interuiews with real estate professionals, City ofBurlingame, Seifel Consulting, Inc,
3. Developer Return Metrics
Developers, lenders and investors evaluate and measure retums in several ways. Based on input from real
estate developers, equity investors and lenders, development retums are based on two key measures
typically used by the real estate community: Developer Margin (or Return) and Yield on Cost.
a. Developer Margin or Return
Developer margin or return is equal to the difference between net potential revenues and total
development costs (before consideration of developer return or profit). As described earlier, a developer
will not proceed to build a project unless the project generates sufficient developer margin or retum to
warrant the risk and to attract the private capital investment needed to undertake the project.
Developers and investors use different target retum on cost (ROC) thresholds depending on the level of
complexity of the project, construction types, construction schedule, sales/rental absorption timeline,
potential equity sources including the use of tax credits. Projects with longer timelines have higher risk
and as a result require a higher retum on cost.
The lowest retum threshold for mixed income apartments is based on the allowable developer fee (or
return) according to the relevant tax credit regulations used by the California Tax Credit Allocation
Committee to implement Federal and State tax credit laws. These regulations allow a maximum developer
fee for new construction 4Yo Low Income Housing Tax Credit projects that is equal to l5% of the
project's unadjusted eligible basis, which is approximately l4o/o of total development costs. (The
unadjusted eligible basis excludes land acquisition costs and a portion ofother project costs.)
Market rate return (ROC) to attract private capital investment for market rate developments typically
range from l5Yo to 25o/o on total development cost depending on the complexity, size and time frame for
development, as well as whether the development is an apartment development, a for-sale condominium
or a single family attached development.
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b. Yield on Cost (also known as Return on Cost for Apartments)
The most important feasibility return metric for apartment developments is called Return on Cost or Yield
on Cost (YOC). YOC is measured based on Net Operating Income (NOI) divided by development costs.
(NOI is equal to project revenues less vacancy allowance less operating expenses.) Another important
feasibiliry metric is the calculation of supportable project costs, which is calculated by dividing NOI by
the YOC. If supportable project costs exceed total development costs (before consideration of developer
retum/profit), then the project is financially feasible.
While institutional investors and pension funds have rypically underwritten projects to a YOC of between
5 .SYo to 6Yo in the Bay Area, recent trends indicate that some capital sources have accepted lower rates of
return betwe en 5Yo to 5.25o/o for residential development in high demand areas along the Peninsula. Based
on these recent trends, the target YOC for apartments is assumed at 5.25o/o for this analysis, which means
that apartment developments that achieve a 5.25Yo YOC are assumed to be financially feasible, while
those below this threshold may not be able to attract the necessary capital to move forward, particularly if
the YOC is well below a 5.0% YOC. YOC thresholds are expected to increase in the future as interest
rates, cap rates and the cost ofcapital increases.
D. Financial Analysis of Housing Fee Alternatives
As described earlier, the City of Burlingame and all of the local jurisdictions within San Mateo County
commissioned a coordinated set of residential nexus studies to help mitigate the impacts of new
residential development on the provision of affordable housing. The City of Burlingame's Nexus Study
recommended a range of housing fee levels from $25 to $50 per square foot, while the maximum justified
fee amounts according to the Nexus Study ranged from $50 to $85 per square foot.
Other cities in San Mateo County have already adopted housing fees that are significantly lower than the
maximum justified nexus amounts. Based on a recent survey of other jurisdictions in San Mateo County
summarized by City staff, adopted housing fees ranged from $15 to $34 per square foot, with median fee
levels at $21 per square foot, as shown below in Table D-1.
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Condominiums
Per SF
Apartments
Per SF
Date Fee
AdoptedJurisdictionTownhomes
Per SF
Atherton None
2017Belmont$20.00 $20.00 $20.00
2016$15.00 $15.00 $15.00Colma
$18.00 $22.00 $25.00 2014Daly City
$23.00 $s3.71 2014East Palo Attor $23.00
Foster City None2
Menlo Park None2
None2Pacifica
None3Portola Valley
2015$25.00 $20.00 $20.00Redwood Citya
$25.00 $25.00 2016San Bruno $25.00
$20.59 $21.00 2010San Carloss $20.59
San Mateo City None2
$12.50 $10.00 2016San Mateo County6 $12.50
South San Francisco None2
$12.50 $10.00LOWEST$12.50
$21.21$1e.89 $19.76AVERAGE
$20.30 $20.30 $20.50MEDIAN
$25.00 $25.00 $33.71HIGHEST
Townhome and condo fee increases to $44.00/sf for projects with structured pa
increases to $44.72lsf for projects outside Ravenswood Business District.
2 No Housing lmpact Fee adopted, but lnclusionary Housing requires Below Market Rate units in new
developments. Some municipalities allow on-site Below Market Rate units to be satisfied with in-lieu fees
' Has inclusionary fee triggered by subdivisions.
a Fee applies to projects with between 5 and 19 units. Projects with 20 units or greater are required to
provide lnclusionary units rather than fees. Projects with 4 or fewer units are not subject to fees or
inclusionary requirements.
Sliding scale: fees vary based on number of units, up to $42.20/sf for largest projects. Also assesses fee
$5.00/sf for first 2,500 sf, $12.50 per each square foot over 2,500 sf. Only applies to projects with 4 or
rking. Apartment fee
r units; projects with 5 units or more are subject to the lnclusi Housing Ordinance rather than
single family additions.
Table D-l
Summary of Housing Fee Levels of Other San Mateo Coun$ Jurisdictions
While housing fees could potentially be charged at higher levels in the City of Burlingame than other
cities, this financial analysis evaluated alternative housing fee levels at $15, $20 and $25 per square foot
(SF), reflective of the typical fee level ranges of other jurisdictions in San Mateo County.T
7 This analysis assumes that housing fees would be calculated on a residential net square foot basis, which is typical fee
framework, though some cities do calculate fees on a gross square foot basis.
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1. Financial Analysis of Apartments at Varying Housing Fee Levels
The first step in the financial analysis was to analyze the potential financial impact from the adoption of
housing fees ranging from $15 to $25lSF on apartments, as apartments have the potential to produce the
greatest number of new housing units in Burlingame. Figure D-1 shows the effect on development
feasibility of three potential housing levels on three apartment prototypes representing the range of
densities currently being developed or proposed in Burlingame.
The housing fee is shown as a red bar in Figure D- 1, and the light blue bar represents all of the other
development costs (except the housing fee). The green bar shows the calculated developer margin or
retum, which represents the difference between the project value and total development costs.
The feasibility gap is displayed as a checkerboard, which indicates that the development value is not high
enough to provide sufficient developer margin/return. Only the apartment development at l20ldta
remains financially feasible with these proposed fee levels (does not have a significant feasibility gap).
Figure D-l
Apartment Development Feasibili$ at Alternative Housing Fee Levels
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$o
r Feasibility
Gap
r Developer
Margin/
Return
I Housing Fee
0ther
Development
Costs
50 dua 70 dua 120 dua
Housing Fee
@ $25/SF
50 dua 70 dua 120 dua
Housing Fee
@ $zosr
50 dua 70 dua'120 dua
Housing Fee
@ $1s/sF
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Seifel
The financial analysis also analyzes each housing fee scenario using the most common retum metric for
apartments of YOC (assumed at 5.25%). As shown in Figure D-2, the financial analysis indicates that
apartments developed at 120 dua-with lower average land costs per unit-are financially feasible at
housing fees of $15/SF and $20lSF while slightly below the feasibility threshold at $25lSF. However,
apartment developments at densities of 50 dua and 70 dua not financially feasible under any of the
proposed fee levels based on the development cost assumptions assumed for this analysis, which include
relatively high land costs per unit.
Figure D-2
Financial Feasibility of Apartments at Alternative Housing Fee Levels
6.0%
5.5%
5.0%
4,SYo
4.0Yo
50 dua 70 dua 120 dua 50 dua 70 dua 120 dua 50 dua 70 dua 120 dua
rMHousing Fee at 925/SF
Housing Fee at $1S/SF
' Housing Fee at $20/SF
elarget Return orYeld on Cost
2. Financial Analysis of Condominium and Single Family Attached at Varying
Housing Fee Levels
A similar financial analysis was done for the two for-sale housing prototypes: condominium and single
family attached.
Figure D-3 shows the effect on development feasibility of three potential housing fee levels on a
condominium unit, while Figure D-4 shows the effect on development feasibility on a single family
attached unit. As these graphs illustrate, new condominium and single family attached housing is feasible
at all ofthe proposed fee levels of$15/SF, $20lSF and $25lSF.
Page 15
Seifel
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Figure D-3
Condominium Development Feasibility at Alternative Housing Fee Levels
$1,800,000
$1,600,000
$,l,400,000
$r,200,000
$1,000,000
$800,000
$600,000
$400,000
s200,000
lo
$'t,800,000
s1,600,000
$'t,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
fl Feasibility Gap
r Developer
Margin/Return
I Housing Fee
Other
Development
Costs
Figure D-4
Single Family Aftached Development Feasibili$ at Alternative Housing Fee Levels
Housing Fee
at $25/SF
Housing Fee at
$25/SF
Housing Fee
at $20/SF
Housing Fee
at $20/SF
Housing Fee
at $1 s/sF
Housing Fee
at $1s/SF
H Feasibility Gap
r oeveloper
Margin/Return
r Housing Fee
Other
Development
Gosts
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E. Financial Analysis of Onsite Affordable Housing Provision
The next step in the financial analysis is to understand the potential financial trade-offs to a developer
from including affordable housing units within new market rate development versus paying a housing fee.
As one of the City's key housing goals is to incentivize the onsite provision of affordable housing within
new development rather than collect housing fees, this section evaluates the potential financial effects of
providing affordable housing onsite to households at various income levels. An affordability gap analysis
is used to measure the difference or gap between what households at different income levels can afford to
pay for housing and the cost ofrenting or purchasing housing, which is then factored into project costs.
1. Household lncome levels
The California Department of Housing and Community Development (HCD) publishes areawide median
income (AMI) levels calculated annually by the US Department of Housing and Urban Development
(HUD) for various household income thresholds and different household sizes in San Mateo County:
. Very Low Income (also referred to as VLI) means a household whose income is 50% or below
AMI, adjusted for household size.
. Low Income household (also referred to as LI) means a household whose income is above 50%
up to 80% AMI. In recent years, HUD has adjusted the LI limits in high-housing cost areas in a
way that exceeds these percentages in San Mateo, San Francisco and Marin counties.s
. Moderate Income household (also referred to as MOD) means a household whose income is
above 80% up to 120% AMI.
. Above Moderate Income (also referred to as Above MOD) means a household whose income is
above l20Yo AMI. This analysis focuses on Above MOD households up to 150% AMI.
Figure E-1 below shows the various household income levels that correspond to different housing types
by bedroom size and household size. For example, a one-person, very low income household at or below
50% AMI that occupies a studio (0 Bedroom) unit has a household income threshold of $51,350.
Table E-l
2018 Household lncome Levels Corresponding to Housing Types by Bedroom Size
San Mateo CountY
Hosehold Income Level Bedroom Size (Persons per Household)
lncome Category
Percent
of Areawide
Median lncome
0 Bedroom
(1)
1 Bedroom
(21
2 Bedroom
(3)
3 Bedroom
(4)
4 Bedroom
(s)
Very Low
Low
Low
Low
Moderate (Median)
Moderate
Moderate
Above Moderate
Above Moderate
s0%
60%
70%
80%
100%
110%
t20%
13s%
ts0%
$5 1,3s0
$61 ,6s0
s7 1,950
$82,200
$82,900
$91,200
$99,450
s 1 I 1,900
s 124,350
$58,650
$70,400
s82,200
s93,950
s94,700
$104,200
$ r 13,700
s I 27,850
$142,0s0
$66,000
s79,250
$92,500
$ 10s,700
$ 106,550
$ l 17,250
$ 127,900
s143,850
$ 1 59,850
$73,300
$88,000
$ 102,700
$ r 17,400
$ l l 8,400
$ 130,250
$142,100
$ 159,850
s 177,600
s79,200
$95,050
$ I 10,950
$ 1 26,800
s 1 27,850
$ 140,650
$ 153,450
s 172,600
$ 191,800
Source: Califomia Department of Housing and Community Development, HUD
8 https://www.mercurynews.com /2018106125/the-eye-popping-definition-of-what-is-low-income-in-the-bay-area-increases-again/
Page l7
Seifel
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2. Affordability Gap for Apartment Developments
Utilizing the San Mateo County data on household income levels, Seifel analyzed the housing
affordability gaps between market rate and below market rate (BMR) apartments that are considered
affordable to households at specific AMI levels according to State standards. The analysis was conducted
for all of the housing prototypes, but focuses first on the affordability gap for apartments.
Figure E-l below shows the market rate rent and affordable rent at various target AMI levels for a typical
apartment unit, which averages between one to two bedrooms in size based on recent developments.e
As it illustrates, market rents are about $3,700 for the lower density apartment prototypes while a typical
very low income household at 50%o AMI (at a typical household size of 2 to 3 persons) can only afford to
pay about $ 1,500 per month in rent (net of a standard utility allowance). This translates to an affordability
gap of about 52,200 per month, which is the difference between projected market rents and what a very
low income household can afford based on a standard of 30% of income toward housing costs.
Likewise, a moderate income household at l00Yo AMI can afford to pay about $2,400 per month in rent,
resulting in an affordability gap of about $1,300 per month in rent. Households would need to earn about
155% of AMI to be able to afford projected market rents.ro
Figure E-1
Projected Monthly Rent for Typical New Apartment in Burlingame and RentalAffordabili$ Gap
Market Rate
't10%AMt
100%AMl
80% AMI
60%AMr
s0%AMr
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000
rAffordable Housing Cost Rental Affordability Gap r Market Rate Housing Rent
Seifel performed a similar set of calculations to measure the difference or affordabiliry gap between the
value of an apartment unit assuming market rate rents and the value assuming BMR rents affordable to
households at specific AMI levels. Typical vacancy and operating expense assumptions are used to
calculate net operating income (NOI) at altemative rent levels, and the resulting NOI is divided by the
e The affordability gap is calculated based on the weighted average distribution ofunits and corresponding household sizes for
both apartment and for-sale prototypes.
t0 Th. Stut" affordability standard for rental housing is based on 30%o of income toward housing for the following household
income levels: very low income at 50% AMI, low income at 60% AMI and moderate income at I l0% AMI. The affordability
standard of 30% of income for rental housing is used for all AMI levels in this analysis.
Page 18
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Seifel
4.25% cap rate to project values at each target AMI level. Figure E-2 below shows the affordability gap
based on apartment values at different household income levels, indicating a difference in value of about
$400,000 between the value for a market rate apartment and the value if the apartment were rented at
BMR rents affordable to a very low income household.
Figure E-2
Value of a New Apartment in Burlingame and Affordability Gap in Value
Market Rate
110%AMt
100%AMt
80% AMt
60% AMI
50'/o AMI
$o $100,000 $200,000 $300,000 $400,000 $500,000 i600,000 $700,000
! Value at Restricted Rent Affordability Gap r Market Rate Apartment Value
Utilizing the San Mateo County data on household income levels, Seifel also analyzed the housing
affordability gaps between market rate and below market rate sales prices for condominium and single
family attached units that would be affordable at specific AMI levels.
Figure E-3 on the next page shows the market sales price and affordable price at various target AMI
levels for a typical condominium unit, which averages about two bedrooms in size based on recent
developments. As it illustrates, market prices for new condominiums are projected to be about $939,000
while a moderate income household at l00Yo AMI (at a typical household size of about 3 persons) can
only afford to pay about $360,000, which translates to an affordability gap of about $580,000, which is
the difference between projected market sales price and what a moderate income household at 100% AMI
can afford based on a standard of 30Yo of income toward housing costs.rr
Figure E-4 on the next page likewise shows the market sales price and affordable price at various target
AMI levels for a typical single family attached unit, which also averages about two bedrooms in size
based on recent developments. As it illustrates, market prices for new single family attached units are
projected to be about $1.63 million while a moderate income household at l00o/o AMI (at a typical
household size ofabout 3 persons) can only afford to pay about $360,000, which translates to an
affordability gap of about $1.27 million.12
t' Th. Stut. affordability standard for ownership housing for a moderate income household is based on 35%o of income toward
housing for households at ll0o/o AMI, and this 35% of income standard is applied to all AMI levels at I l0% AMI and above
for ownership housing. The 30% of income standard is applied to all AMI levels below 1 10% AMI for ownership housing in
this analysis.
r2 Ibid.
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lr
Figure E-3
Affordability Gap for Condominium Unit in Burlingame at Various AMI Levels
Market Rate
150% AMt
135% AMr
120% AMt
't00% AMt
80% AMt
Market Rate
't50% AMt
13s% AMt
120% AMt
100% AMI
80% AMr
$200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000
r Affordable Housing Cost Affotdabili$ Gap r Market Rate Condominium Value
Figure E-4
Affordability Gap for Single Family Attached Unit in Burlingame at Various AMI Levels
$0
$0 $200,000 $400,000 $600,000 $800,000
I Affordable Housing Cost Affordability Gap
$1,000,000 $'r,200,000 $1,400,000 $1,600,000 $1,800,000
r Market Rate Single Family Attached Value
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3. Financial Etfect of Alternative Onsite Apartment Requirements
Based on discussions with City staff, Seifel evaluated the financial effect of altemative affordable housing
policy options on development feasibility for apartments by comparing how much it would cost to
provide varying percentages of affordable housing units at different target household AMI levels. Given
the significant affordability gaps for apartments, Seifel performed sensitivity analysis related to the
following onsite affordable housing compliance options for apartments:
. Percentage ofaffordable units to be provided onsite- l0o/o and l5oh
. Target household income levels- Very low income (50% AMI), low income (60% and80%
AMI) and moderate income (100% and I l0% AMI)
As one of the key City policy objectives is to incentivize the provision of onsite affordable housing
instead of the payment of housing fees, this analysis calculates the potential cost to the developer of
providing housing onsite on a per residential net square foot basis for a typical apartment. For example,
one scenario analyzed the potential cost to a developer of providing a mixed income apartment
development with 15% of units rented at BMR rents that are affordable to very low income households at
50% AMI, which translates to a cost of about $75/ir{SF in contrast to a cost of about $45AISF for
moderate income households at l00Yo AMI. Figure E-5 illustrates the potential financial effect of
providing affordable apartments at altemative onsite requirements within these compliance options.
Figure E-5
Affordability Gap at Alternative 0nsite Affordable Housing Requirements on Apartments
Moderate lncome (110% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
Low lncome (60% AMI)
Very Low lncome (50% AMI)
Moderate lncome (110% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
Low lncome (60% AMI)
Very Low lncome (50% AMI)-l--+
$O /NSF $25 /NSF $50 /NSF
ry 10% Affordable * 15% Affordable
$75 /NSF $1O() /NSF
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4. Financia! Etfect of Alternative Onsite Ownership Requirements
Figure E-6 similarly illustrates the potential financial effect of providing onsite affordable housing within
condominium developments given alternative onsite requirements. Given the significant affordability
gaps for both of the for-sale housing prototypes, Seifel performed sensitivity analysis on the following
onsite affordable housing compliance options for condominiums and single family attached units:
. Percentage ofaffordable units to be provided onsite- l0o/o and l5oh
. Target household income levels-Low income (80% AMD, moderate income (100% and 120%
AMI) and above moderate income (135% and 150% AMI)
As an example, one scenario analyzed the potential cost to a developer of providing a mixed income
condo development with 15% of units sold at prices that are affordable to moderate income households at
100% AMI, which translates to a cost of about $854{SF in contrast to a cost of about $30/}{SF for units
priced to be affordable at 150% AMI, which is closest to the proposed housing fee level of $254{SF.
Figure E-G
Affordability Gap at Alternative Onsite Affordable Housing Requirements on Condominium Units
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
$O /NSF $25 /NSF $50 /NSF
r 10% Affordable * 15% Affordable
$75 /NSF $100 /NSF
Figure E-7a similarly illustrates the potential financial effect of providing onsite affordable housing
within single family attached developments given alternative onsite requirements. Given the significant
affordability gaps for single family attached units, an altemative scenario was tested that assumed smaller
onsite affordable units (1,200 NSF versus the typical average size of 1,500 NSF), which substantially
lowered the potential cost to a developer of providing a mixed income single family development.
As shown in Figure E-7b, even when smaller units are assumed, the cost of providing 15% of units at
prices that are affordable to moderate income households at l00o/o AMI translated to a cost of about
$l3OAISF while the cost of providing units to above moderate income households at l50o/o AMI was
about $9OAISF.
Seifel
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Figure E-7a
Affordability Gap at Alternative Onsite Affordable Housing Requirements
on Single Family Aftached Units (1,500 NSF/Unit)
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMl)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
Moderate lncome (150% AMI)
Moderate lncome (135% AM|
Moderate lncome (120% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMI)
Figure E-7b
Atfordability Gap at Alternative Onsite Affordable Housing Requirements
on Smaller Single Family Attached Units (1,200 NSF/Unit)
$0 /NSF $50 /NSF $100 /NSF $1s0 /NSF
r 10%Affordable - 15%Affordable
$200 /NSF
$0 /NSF $50 /NSF $100 /NSF $150 /NSF $200 /NSF
r 10%Affordable * 15%Affordable
Page 23
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F. Financial Feasibility of Onsite Affordable Housing Provision
The next step in the financial analysis is to understand how the inclusion of affordable housing units
within new market rate development will likely affect development feasibility of housing in Burlingame,
as one of the City's key housing goals is to incentivize the onsite provision of affordable housing within
new development rather than through the payment of housing fees. Given the significant cost of providing
affordable units onsite, this section focuses on testing onsite requirements at l|oh of total housing units.
Apartment prototypes are tested based on three potential onsite housing compliance scenarios:
. Scenario l- l0% of units at 100% AMI
. Scenario 2- l0% at 110% AMI
. Scenario 3- 5% at80o/o AMI and 5o/o at ll0% AMI
Ownership prototypes are tested based on three alternative onsite housing compliance scenarios:
. Scenario l- l0% at 110% AMI
. Scenario 2-7% of units at llDYo AMI and 3% at 135% AMI
. Scenario 3- 5% of units at ll}Yo AMI and 5o/o at l35oh AMI
1. Feasibility of Alternative Onsite Apartment Requirements
As Figure F-1a indicates, development feasibility is improved by allowing developers to provide units
onsite that are affordable to moderate income households and by requiring an onsite housing requirement
of 10% instead of l5o/o as additional rental income would be generated. However, only the highest density
scenario at 120 dua is feasible under any ofthe scenarios that are tested.
Figure F-la
Apartment Development Feasibility Under Alternative Onsite Affordable Housing Requirements
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$'100,000
$0
tt Feasibility
Gap
r Developer
Margin/Return
r Housing Fee
0ther
Development
Costs
50 dua 70 dua 120 dua
Scenario 1
(10% @100%AMr)
50 dua 70 dua 120 dua
Scenario 2
(10% @1r0% AMr)
50 dua 70 dua '120 dua
Scenario 3
(5% @80% AMr &
5% @r10% AMr)
c0xsut 116 rxc.
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Seifel
Figure F-1b shows development feasibility based on the most common return metric for apartments of
YOC (assum ed at 5 .25Yo). The feasibility analysis indicates that apartments developed at I 20 du/acre are
financially feasible under all affordability scenarios, as shown in Figure E-7. However, apartment
developments at densities of50 du/acre and 70 du/acre are not financially feasible under any ofthe
affordability scenarios based on the development cost assumptions assumed for this analysis.
Figure F-lb
Apartment Feasibility Based on YOC Under Alternative Onsite Affordable Housing Requirements
0.06
0.055
0.05
0.045
0.04
50 dua 70 dua 120 dua 50 dua 70 dua 120 dua 50 dua 70 dua 120 dua
Scenario 1 (10% @100% AMI) *,uu Scenario 2 (10% @110% AMI)
Y $6sn3vie 3 (5% @80% AMI & 5% @110% AMI)
-Target
Return or Yield on Cost
2. Feasibility of Alternative Onsite Ownership Requirements
Figures F-2 and F-3 similarly illustrate how development feasibility improves by allowing developers to
provide units onsite that are affordable to moderate income and above moderate income households at
135% AMI. As these figures illustrate, condominium developments will likely be feasible with a 10%
onsite affordable housing requirement that is focused on moderate income households with an option to
provide housing that is affordable to above moderate income households under a high development cost
scenario. In contrast, single family attached housing does have a feasibility gap under the three potential
onsite housing scenarios, but this gap would be significantly reduced if affordable housing units could be
provided at smaller unit sizes, such as 1,200 square feet as tested earlier.
Seifel
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It-
I
Figure F-2
Condominium Feasibility Under Alternative Onsite Housing Requirements
Figure F-3
Single Family Attached Feasibility Under Alternative Onsite Housing Requirements
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$,l,000,000
i800,000
$600,000
$400,000
$200,000
to
$1,800,000
11,600,000
$1,400,000
$1,200,000
$'1,000,000
$800,000
$600,000
$400,000
$200,000
$0
Scenario A
(r0% @fi0%AMD
Scenario B
(7% @110%AMr
& 3% @13s% AMl}
Scenario C
(s% @110% AMr
& s% @135% AM0
E Feasibility Gap
I Developer
Margin/Return
* Other
Development
Costs
E Feasibility cap
r Developer
Margin/Return
Other
Development
Costs
Scenario A
(10% @r10% AMD
Scenario B
(7% @1ro% AMr
& 3% @r35% AMr)
Scenario C
(s% @1r0% AMr
& s% @13s% AMD
Seifel
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coxsutlllc rxc.
G. Conclusion
As development costs have increased over the past few years, developers are finding it increasingly
difficult to develop new housing in the City of Burlingame, and the City must carefully consider how best
to implement its affordable housing programs in order to continually encourage new residential
development to occur.
As rents and prices have continued to increase, the difference between the cost of housing and what many
households can afford to pay for housing has increased, leading to a widening "affordability gap" for new
housing. In order for new development to be financially feasible when including onsite affordable
housing units, the cost of providing new affordable housing must be able to be factored into the total costs
of developing housing while still leaving sufficient developer margin or retum to allow development to
go forward. Given the complexities of finding qualified households and assuring continued affordability
ofonsite affordable housing units, developers typically prefer to pay a housing fee rather than build
housing units onsite unless the cost of providing units onsite is less than paying the fee.
1. Key Findings from Apartment Analysis
. Apartment rents are not increasing as fast as construction costs, making it more difficult for
apartments to be financially feasible.
. Depending on total development costs associated with new apartments, rental units may not yield
sufficient retums to attract capital (creating a development feasibility gap).
. Higher density apartment developments are more financially feasible when land values can be
spread among a greater number of units, providing greater opporfirnities for developers to pay for
public requirements such as affordable housing.
. The financial analysis indicates that housing fees at higher fee levels (between $20-$25lSF)
should be focused on higher density rental developments of 100 dwelling units per acre or more.
. Onsite affordable housing requirements of 10% of total units focused on moderate income
households (between 80% and 120% AMD are more financially feasible and best correlate to
housing fee levels between $15 and $25lSF.
2. Key Findings from Analysis of Condominium and Single Family Attached Units
. Housing prices have been increasing rapidly, and most buyers need significant cash or "trade-up"
value in homes to afford new units, making it much more difficult for first-time homebuyers to
purchase a new home.
. For-sale developments are more financially feasible than apartments given high price points, but
the housing affordability gap is much greater, particularly for large units.
. The financial analysis indicates that housing fees at $25lSF can be supported by new ownership
development in Burlingame.
. Allowing affordable housing units to be a smaller size, particularly for single family attached
units, enhances financial feasibility and thus encourages the provision ofhousing onsite.
. Onsite affordable housing requirements of loo/o of total units focused on households between
110% and 135% AMI are financially feasible for ownership housing assuming reasonable
development costs.
Page 27
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c0tsutTn6 [{c
3. Policy Considerations to Encourage Onsite Affordable Housing
Based on the financial analysis shown in this report, input from real estate professionals active in
San Mateo County and best practices from other cities, the City may want to consider the following
policies to encourage the provision of onsite affordable housing in Burlingame, as these policies will
enhance financial feasibility for new housing development:
' Develop a more predictable and streamlined process for land use approval and design review in
order to reduce the time and risk associated with infill development.
. Allow more housing units to be built, along with incentives and concessions similar to what is
allowed under State Density Bonus Law, when developers provide onsite affordable housing.
. Allow smaller sized units to be dedicated as affordable housing (especially for ownership,
single family attached units) so long as they meet the minimum size standards of the California
Tax Credit Allocation Committee and are not below a certain threshold requirement established
by the City (such as cannot be smaller thar 7 |Yo to 7 5%o of the average square footage for a
similar unit type).tl
. While the bedroom mix of the affordable units should be proportionate to the bedroom mix of
market rate units, potentially allow a different unit mix if it furthers other City goals.
. Encourage the dispersion of affordable housing units throughout new development but allow
developments with higher heights to evenly distribute units throughout the first five floors
(or 600/o of all floors), which will allow upper floors to be rented or sold at higher prices.
. Allow reductions in citywide parking standards for residential and retail (with respect to parking
stall size and parking ratios), especially near transit and public parking.
. Limit the total cost of City imposed permit, processing and development impact fees to levels that
are close to current levels and provide developers with certainty regarding how much these fees
will increase annually until building permits are pulled. (For example, link future increases in fee
amounts after initial development application to published inflationary indices.)
In conclusion, this analysis indicates that the City of Burlingame can achieve its housing goal to
encourage the onsite provision of housing to address the City's affordable housing needs by carefully
crafting its housing fee program to incentivize the provision of housing onsite through the establishment
of varying fee levels for apartment and ownership housing, and by implementing some or all of the
housing policy options discussed above.
l3 As of July 2018, the minimum unit sizes for the California Tax Credit Allocation Committee are: 450 square feet for a one-
bedroom, 700 square feet for a two-bedroom and 900 square feet for a three-bedroom unit, although access requirements for
persons with disabilities may lead to slightly larger unit size requirements.
Page 28
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b. DISCUSSION OF RESIDENTIAL IMPACT FEES
CDD Gardiner stated that on February 12,2018, the City Council held a study session to consider the
establishment of residential impact fees. He explained that the City Council directed staff to further study
potential fee levels and structures, consider an onsite "in-lieu" option for providing affordable units within
development projects, and obtain input from housing developers and stakeholders.
CDD Gardiner stated that staff has engaged Seifel Consulting to prepare an analysis for residential impact
fees. He noted that the consultants weren't asked to determine from a policy standpoint whether fees or
onsite units is preferable.
Libby Seifel began by reviewing the pre-development phase of a project. She stated that this is the riskiest
phase as capital is most expensive at this point and requires significant return to attract investment. She
explained that the more risks a project takes on, the more potential returns may increase. She noted that the
Bay Area is notorious for the amount of risk that is inserted in projects. She discussed the term "developer
margins," which refers to the necessity of building in a margin for risk, so that if everything goes well, that
entire margin is profit.
Next, Ms. Seifel reviewed the development cost factors of a project. She stated that hard construction costs
and parking construction represent more than 50% of the total development cost. She noted that land cost is
also a large factor, especially in a high market area like Burlingame. She reviewed the rising cost of parking
in developments. She stated that parking spaces are often more than S60,000 for a below-grade space and
approximately $40,000 for an at-grade space.
Ms. Seifel reviewed land acquisition costs, which are based on existing use and future development use. She
explained that developers determine how much they can pay for land by undertaking a "residual land value"
analysis. Under this process, the developer estimates the value or revenue anticipated for the completed
project, totals up the costs of the project and their developer margin, and the remainder is the budget or
residual value of the land. She stated that property values in Burlingame range from $ I 50 to $400 per land
square foot. She noted that this creates a value per land acreage of between $6.8 million and $15.6 million.
Ms. Seifel reviewed real estate trends that affect housing development and affordability. She stated that
interest and cap rates are at historic lows, which means that prices are higher. Construction costs are still
increasing and projected to intensify with the Sonoma County rebuilding effort. Housing supply has not kept
pace with demand, while apartment rent growth has flattened due in part to the housing affordability crisis.
She also noted that the affordability gap has widened for many households and that the current economic
cycle could end soon. She displayed a graph that showed the significant increase in home prices in
Burlingame from March 2008 to March 2018. She stated that single family homes are now valued at more
than $2 million. She also displayed a graph that showed the stabilization of apartment rent.
Mayor Brownrigg asked if the apartment rent stabilizing graph was for all of San Mateo County. Ms. Seifel
replied in the affirmative.
Burlingame City Council
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July 2, 2018
Vice Mayor Colson asked if apartment rent was stabilizing because the demand is decreasing or the supply is
increasing. Ms. Seifel stated that she believes that the rent is stabilizing because people are doubling or
tripling up in apartments.
Ms. Seifel stated that the 2015 Housing Nexus Study discussed three prototypes: single family attached
homes, condominiums, and apartments. She stated that in the 2015 Housing Nexus Study, the average unit
size was much larger than what is currently being built; the total affordability gap was measured across the
whole development and was much less than the current gap; and construction costs were not accurately
reflected. The study also reviewed housing impact fees in neighboring communities with an average of $20
to $25 fee per square foot.
Ms. Seifel stated that in May 2018, the Concord Group did a market assessment and focused primarily on the
area extending from Daly City to San Carlos. She explained that the Concord Group found that studio
apartments cost more per square foot than three-bedroom apartments. She noted that this trend resulted in
individuals doubling or tripling up in order to have cheaper rent.
Ms. Seifel explained that Seifel Consulting, in collaboration with staff, looked at the three prototypes from
the 2015 Nexus Study for Burlingame. She noted that they updated the tl,pical unit size, density, and parcel
size to reflect current conditions in Burlingame. She stated that they reviewed three prototypical
development types: multifamily apartments on a three-acre site with a density range of 50 to 120 dwelling
units per acre, condominiums on aY, acre site with at least 50 dwelling units per acre, and single family
attached homes on a I .7 acre site with 18 dwelling units per acre.
Ms. Seifel reviewed the findings for each prototype. She began with apartments and reviewed typical
apartment characteristics :
l. Unit size was 850 net square feet
2. Market rate rent per month was about $3,750
3. Parking ratio was 1.45 spaces per unit
Ms. Seifel explained that they then looked at the affordability gap per unit. She stated that if the market rate
for rent was $3,750, they determined what the affordability gap was by reviewing what an individual at
110% AMI could pay,l00o/o AMI, and so on. The graph showed that the gap for I l0% AMI was a little
over $1,000. She stated that this information is translated into apartment values by taking the net operating
income divided by the cap rate. She displayed this information on a bar chart that showed that the value gap
gets significant as AMI decreases.
Mayor Brownrigg asked if the Burlingame Apartment Value bar chart displayed the door cost of each unit.
Ms. Seifel replied in the affirmative and explained that it is the door cost with developer margin.
Ms. Seifel reviewed the consultants' f,rndings on apartment affordability gap at alternative on-site
requirements. She explained that the purpose of this was to figure out if the City is going to have a
residential impact fee, how can the fee be set or structured to incentivize on-site affordable housing in lieu of
paying the fee. She gave the example of a 100-unit development where l5o/o, or 15 units, are affordable for
those at 110% AMI. The affordability gap for the 110% AMI is spread across all of the units to create a fee
Burlingame City Council
Approved Minutes
10
July 2,2018
instead of the cost it would take to provide that unit. She stated that this would create a $20-$40 housing
linkage fee per square foot for moderate income levels.
Mayor Brownrigg asked if the City aims for 10% affordable, and you give developers the choice of paying a
fee that is less than $30 per square foot, they are going to pay the fee. Ms. Seifel replied in the affirmative.
Councilmember Beach asked Ms. Seifel to discuss what would happen if the City wants to get into deeper
levels of affordability such as the 50% AMI range. Ms. Seifel stated that it is much harder because of the
costs. She stated that the fee would be close to $70 a square foot.
Vice Mayor Colson discussed the length of time that a developer would have to keep a unit affordable
instead of paying the fee. Ms. Seifel stated generally covenants run 55 years for rental and 45 years for
ownership. She noted that some communities are moving to permanent restrictions.
Vice Mayor Colson asked if the residential impact fees apply only to new construction, or do they also apply
to renovations. Ms. Seifel replied that typically they only apply to new construction. Therefore, after the 55
year covenant runs on an affordable unit and the developer needs to renovate, they wouldn't be hit with a
second round of residential impact fees.
Ms. Seifel stated that the consultants next reviewed the return on cost. She explained that the return on cost is
determined by net operating income over development cost. The threshold ranges from 5-7%o retum on cost.
She stated that they assumed a threshold of 5.25% return on cost and assumed that land values were a little
bit more expensive if you had a higher density but lower cost per door.
Ms. Seifel reviewed the key findings from the apartment analysis.
1. Apartment rents currently are not increasing as fast as construction costs.
2. Land purchase and construction costs (including parking) signif,rcantly affect development feasibility
3. Depending on these costs factors, apartment projects do not yield sufficient returns to attract capital
(feasibility gap)
4. Higher density alternatives are more feasible when per unit land values are less than lower density
projects
5. Onsite affordable housing requirements focused on moderate income households are more feasible
and best correlate to housing fee levels between $15 and $25 per square foot.
Next Ms. Seifel reviewed their findings for condominiums and stated their typical characteristics:
1. Sales price is approximately $940,000
2. Parking ratio is 2 spaces per unit
3. Affordability gap ranges from 150% AMI to 80% AMI
4. If the City had a l5%o affordability requirement, the impact fee would be more than $15 to $20 dollars
per square foot.
Ms. Seifel reviewed single family attached characteristics:
1. Sales price is approximately $ I .63 million
2. 2 parking spaces
She explained that the affordability gap for single family attached is significant.
11
Burlingame City Council
Approved Minutes
July 2, 201 8
Ms. Seifel reviewed the key findings from the for-sale analysis
1. Housing prices have been increasing rapidly, but most buyers need significant cash or "trade-up"
value in homes to afford new units.
2. For sale developments are more financially feasible than apartments given high price points.
3. The for sale housing affordability gap is significant, particularly for large units, and ranges between
$20 and $180 square feet for prototypes studied.
4. Onsite affordable housing requirements focused on households betrveen 110% and 135% AMI are
financially feasible, assuming reasonable land and construction costs.
Ms. Seifel stated that from a policy perspective, one of the potential strategies to help developers succeed is
to use density bonuses. Under State law, a density bonus allows local governments to provide additional
density or housing units in exchange for the provision of affordable housing onsite. This includes special
provisions for land dedication and senior housing. She stated that the State's density bonus law doesn't work
very well for anything other than very-low income housing. She explained that this is because the law says
you can get the maximum state density bonus if you have I 1 % of units at very low income (50% AMI). But
to obtain the bonus building low income units, the developer has to dedicate 20Yo of the project to low
income; for moderate income, the developer has to dedicate 40%. She explained that Burlingame would
need to create its own density bonus program customized for the City's market. She explained that in
Burlingame they found that a density bonus with reduced parking requirements would assist in incentivizing
developers. She stated that this could be done by reducing parking from 1.4 spaces per unit to .7 spaces per
unit.
Ms. Seifel reviewed strategies to encourage onsite affordable housing:
l. Allow more housing units to be built when imposing on-site affordable housing
a. Density bonus and height modification
b. Incentives and concessions
c. Allow smaller affordable unit sizes, especially for ownership
d. Smaller parking space dimensions
e. Signif,rcant parking reductions for residential and retail, especially near transit and public parking
2. Streamline development approval
3. Limit City imposed development impact fees.
Ms. Seifel discussed parking requirements. She stated that communities are moving towards decreasing
parking requirements when developments are near transit and public parking. Additionally, she stated that
the State's density bonus law allows for parking at .5 space per bedroom. She stated that for affordable
units, it can be .5 spaces per unit (no matter the number of bedrooms).
Mayor Brownrigg opened the item up for public comment.
Burlingame residents Eileen Easterbrook and Jan Stokley discussed the impact of housing prices on those
with disabilities. They asked that the City consider policies for low income housing.
Burlingame resident Mario Mttzzi discussed his concems with the cost of impact fees.
Burlingame City Council
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July 2,2018
Housing Leadership Council representative Daniel Valverde thanked the City Council for having this
conservation and asked that the City move forward with residential impact fees.
Mayor Brownrigg closed public comments.
Mayor Brownrigg and City Manager Goldman discussed holding a study session on a separate night to
further discuss the residential impact fees.
Mayor Brownrigg asked that his colleagues voice questions or items that they would like the staff to address
in a future staff report.
Councilmember Keighran asked staff to research tiered fee systems.
Vice Mayor Colson stated that she was interested in the conversation around the low and very-low income
units. She stated that these units might need support services as they would belong to those transitioning
from homelessness or senior citizens. She stated that it would be good to get more information about what
types of support services these units would need.
Councilmember Ortiz stated that the City needs to come up with a way to encourage new construction and
create affordable housing.
Councilmember Beach discussed amending the parking requirements in order to incentivize affordable
housing. She asked whether her colleagues favored collecting the residential impact fee or having
developers build on-site housing. She stated that she would like more information on tipping the scale
towards one method or the other.
Councilmember Beach asked for more information on how often the fees need to be reviewed once
established.
Vice Mayor Colson explained that she believed the only feasible way to get low and very-low income
housing in Burlingame is to utilize City land.
Mayor Brownrigg stated that what is indisputable is that the City needs to ensure that people of limited
means have access to communities like Burlingame. He stated that he believes the City should assist in both
preserving existing units and building new units.
Mayor Brownrigg thanked SAMCAR for their recent letter stating that they believe that Measure T doesn't
prohibit the City from creating inclusionary housing requirements provided that there is an inJieu option for
the developers.
Councilmember Beach discussed the importance of partnerships with HEART and other nonprofits to create
affordable developments.
Burlingame City Council
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l3
July 2, 2018
Developi ng lVlore Affordable Housi ng
in Burlingame
Presentation to Burlingame Gity Council
July 2,2018
Presentation Outline
1. Overview of lnfill Development Process
2. Development Feasibility and Residual Land Value
3. Key Real Estate Trends Affecting Housing
Development and Affordabi I ity
4. lnitial Findings from FinancialAnalysis
a. Apartment
b. Condominium
c. Single-Family Attached
5 Potential Strategies to Encourage Onsite Affordable
Housing
1
:5 t
r.I E !I
ts
ssitpJ
Special Thanks to Data Sources
. lnterviews with Developers and Construction Firms
. Market research by The Concord Group
. City of Burlingame 2015-2023 Housing Element
. Draft Residential Impact Fee Nexus Study, 2015
. Burlingame Multifamily Residential References
. ULI Publications, including
Finance for RealEsfafe
Developmenf, Long, 2011
. Numerous other data sources
As pre-development is most risky phase,
capital is most expensive and requires
significant returns to attract investment.
As risks increase, project returns must be higher to attract investment.
3
I
Project Risk I Project Returns
Development Feasibility Framework
Per Residential Unit
$700,000 ProjectValue
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
o Design
o Labor
o fvlaterials
Parking
o Numberofspaces
o Construction type
o Stackers
Public fees
Soft CostsProfit tfil'jfl''ff'
Land (Residual Land Value)
What contributes to Development Costs?
Hard Construction Costs
Supportable
Project Costs
Project
Demolition and Site
lmprovements
s/ Land
Costs
$o
Developer Demolition and
Site
a
a
a
a
a
Hard
Construction
5
Developer Margin
I
I Developer Margin
Governmenl Fees
e Other Soft Costs
- Construction Financing
- Parking Construction
Hard Construction Cost
4
LandGovernment
Other Soft Costs
Parking
Construction
Residential Hard Construction Cost
(by Construction Type)
2 to 5 stories Wood Frame (Type V )20-70
4 to 6 stories Type V over Podium 60-100
5 to 7 stories
8+ stories
Type V or Type lll over
Podium Parking or
Below Grade Parking
Type lOver Below
Grade Parking
1 00-1 30
1 30+
Typical Parking Construction Cost Per Space
Number of Stories Construction Type Typical Density Range
(Du/Acre)
$80,000
$60,000
$40,000
$20,000
$0
Surface With
Carport
Above Grade Partially Below Below Grade
Podium Structure Grade Structure Skucture, 1 Level
Below Grade
Structure,2+
Levels
Mechanical Lift
Parking (Podium)
o
n
7
Land Acquisition Costs
Eased on Existing Use and Future Development Value
Determination of Land Value
. Sales Price (Willing Buyer and Willing Seller)
. Negotiated Purchase Based on Appraised Value
- lncome Approach &- Cost Approach
- Sales Comparables
. Residual Land Value Analysis
Based on New Development Potential
8
shoutq wt
for lan
Preliminary Analysis of Existing Property Values
Around Burlingame
Residual Land Value (RLV) Analysis
Per Residential Unit
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
Value
Project
r Developer Margin
Government Fees
u Other Soft Costs
- Construction Financing
- Parking Construction
Hard Construction Cost
lmprovements
r Land
Costs
(except
land)
I
$0 I
FloorArea Ratio 0.4 0.5 0.6
Existing Building Square Feet
Annual Net Operating lncome
AnnualNOl Per SF
Cap rate
17,000
$ 408,000
$24
6Yo
22,000
$ 660,000
$30
6%
26,000
$ 936,ooo
$36
6Yo
Value Per Land Acreage (Millions)$ 6,800,000 $11,000,000 $15,600,000
Value Per Land SF $ 156 $ 2s3 $ 358
Developer Margin
Residual Land Value
10
11
Key Real Estate Trends
Affecting Housing
Development and
Affordability
Summary of Key Trends
. lnterest rates and cap rates at historic lows
. Construction
. Housing su
. Affordability gap
by
F0(
ludcr Lowq
'l,cc?
t'
. Current eco
-
I
13
Significant lncrease in Home Prices
Ten-Year Snapshot of Median Home Sales Prices in Burlingame
March 2008 to tt/arch 2018
.$S$
*od"
Apartment Rents Stabilizing
Trends in Asking Rents for San [\4ateo IMSA
$t_5@
$.0m
E rr soo
; $2.@o
t sr.:oo
! s,.*o
$500 -100..
tlD 2000 2001 2001 2001 :004 2oa5 2006 2001 2003 2@9 2010 20I 20t2 20lt 2ol1 20t5 2016 2ot1 2at3 2ot9 2020 202t 2022
:AskingRenr + AskngRnrchlnge
Arking Rent & Asking ReD( Chmge
5
o--u
tr--o
E--C
Fr I !
Source: The Concord Group
sz,ooo ood
i
$5oo,ooq
Source: Zillow.com/Research fl 14
tc.r--rt*;l
Initial Findings from
Burlingame Affordable
Housing Financial
Analysis
Rich lennant
tn6lt ?,
Urc $t,hitalds
hgslerical &ta
I
lVlaximum Housing lmpact Fee by Prototype
2015 Housing Nexus Study
ORtr,r$"Lf
Prototype Single-Family Attached Condominiums Apartments
Total Number of Units
Average Unit Size
Total Affordability Gap
Maximum Fee per Unit
Maximum Fee per SF
20
1,900
$1 ,970,813
$98,541
$52
20
1,650
$1,831,960
$91,598
$56
200
1,000
$17,050,536
$85,253
$85
Sources: Ve'nazza Wolfe Associates, lnc. & Strategic Economics, 2015.
17
bea\
aulgsis
16
Housing lmpact Fees in Neighboring Communities
2015 Housing Nexus Study
Cupertino
Daly City
East Palo Alto
Mountain View
San Carlos
San Jose
SUBMARKET DELINEATION
PRIMARY MARKET AREA
MAY 20IE
Citv
Single-Family
Attached Condominiums Aoartments
$zs
$25
$23
$ts
$24-$44
$tz
$16.50
$23-$44
$zo
$zz
N/A
N/A
$21-$42
$18
$23
N/A
N/A
$21-$42
SunnWale N/A N/A $17
Sources: Baird + Driskell;Yernazza Wolfe Associates, lnc. & Strategic Economics,2015.
18
Sm Francisco p
Daly City / Colma
South Str
San Bruno
Millbrae
Burlinganre / Hillsborough
San Mateo / Foster City
Sar Carlos
Source: The Concord Group 10
COMPARABLE APARTIIIENT NTAP
KEY I,IARXET AREA
MAY:OI8
RENTAL PRODUCT RGMM MNIOMG
KEY MARKET ANEA
mY 20lt
gUs44s4E$I
kit=S40andAbrr
- 13 &,- t4.(n
- s3 {)- tl 80
-$(n-1340
l: i, -t3llrad&low
Cohr-Codd bv Ncidborhmd:
' . = Souff San Francis@
= Dlt Cxv/ Co:nE
Se Bffio/Mllbn./Bulinsm
NET RENTS
NX
z!
x xo
ox
tr
34.5rXr o
+o
os4.ri*r
XOx
1:il x
13.J00 #
o@xoI
s3,0u)C
ooxo
$2.i([r
A
$2.000
tl.5(x)mlm50&D 7m EM I,5m 1,0
!
o
+
+a
+I +
,
x X !r0+
x!x
l.
+
oXCoo 5 AOxt
+
l,tm l.2m l,3m t,4m
Bffip.
hly O.tr' tur
x
I,m
Urit Sh
oxa
+3a oo
Nol.: figd in pr.&s.r dsb rrd bdt d @cpey rl ril of TCG .n.t ad&ln
Source: The Concord Group
20
f$vei DrI! Cllt
t
Source: The Concord Group
(2012.9./.)
I
e8,6%)
United
\
91.2./.1
(2m?.96.S'/o)
$5.rIn
sin Br utro/ Millhrar/
o
. $u6 ClF Sdoo A|ffi.nb (2m7. 97'dI tuili.&lUs(lq7Ill.rydo NodF*AFffirb(I92 2@7, ryr)o rrr6Dd) CD (1e74 lq$.9I,+sodrrrilPdub
21
NEW FOR SALE COMMUNITIES MAP
XEY MARKET AREA
MAY 20I8
l. r \ =18fr'ard&lo\!
= tam' 31.ffi)
R, I-$l.(XndAb\r
Color-Coded br PSF
FOR SALE PRODUCT POSITIONING
BUINGAME. CA
MAY20It
t@ sF t$0 sF lmsF 25msF SmsF
*Merdo$ WaL a victort al Ba) lllcadows
A Tbe Srn Frrnci.co Shlpyrrd - Engcl o Lrsl Six Mouth Coodo rnd Tosnhome Resal€s
a TCG Single Fimily A(rchcd Arcrrgt Pricitrg +TCC Condomitrium Brse Prlclng
- $,600,0002
$2.t00.000 o
s2.400,000
s2,000.000
o$1.200.000
AA
sE00,000
()
s400.000
oo o
$0
oa
oa
osF 500sr
@ Walnut Phce
O The Srn Frrhclsco Shlp)rrd- Palisrdes
+TCG Sincle FahilyAttrchEd Basc Priclng
Source: The Concord Group
r
t:ng(l
.HirM@gh
.Sn
I
City
;,
Source: The Concord,$rpup
23
Three Typical Development Types Studied
Same three basic prototypes as 2015 Nexus Study with updates to typical
unit size, density and parcel size to reflect current conditions
1) Ivlultifamily apartments on a 3-acre site (density range of 50-120 du/acre)
2) Condominiums on a .S-acre site (at 50 du/acre)
3) Single family attached homes on a 1.7-acre site (at 18 du/acre)
Typical Apartment Characteristics
for Financial Pro Forma
Parcel Size 3 acres
150 (210 to 360 units
at alternative densities)Total Units
Market Rate 85% to 100%
Percent Below Market Rate 10% to 15% on-site
Tvpical Averaqe Unit Size 850 NSF
Market Rate Rent /Month About $3750
Parkinq Ratio 1.45 spaces/unil
Parkinq About 220 spaces
Residential Net Square Feet 127,500 NSF
Retail None assume
24
Project Characteristics
25
Burlingame Apartment lVarket Rents
Affordability Gap Per Unit
Market Rate
(50 dua)
't10%AMt
100% AMt
80% AMt
60% AMt
50% AMt
Market Rate
(50 dua)
110%AMt
100% AMr
80% AMI
60% AMt
$0 $500 $1,000 $1,500
r Rental Affordability Gap
$2,000 $2,500 $3,000
Affordable Housing Cost
$3,500 $4,000
26
Burl ingame Apartment Val ues
Affordability Gap Per Unit
$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000
50% AMt
rAffordabilityGap Value 27
_l I I
I
Apartment Affordability Gap at Alternative On-Site
Requirements
(Per Residential Square Foot)
Moderate lncome (110% AMD
Moderate lncome (100% AMI)
Low lncome (80%AMD
Low lncome (60%AMl)
Very Low lncome (50% AMI)
Moderate lncome (110%
Moderate lncome (100% AMI)
Low lncome (80%AMl)
Low lncome (60%
Very Low lncome (50%
Burlingame Apartment Return
or Yield on Cost Analysis
6.0%
s.5%
5.0%
4.5%
4.0Yo
I
I
$O /NSF $2O INSF $40 /NSF
,u 10% Affordable * 15% Affordable
$60 /NSF $80 /NSF
28
50 dua 70 dua 120 dua
MHousing Fee at 925/SF
Housing Fee at $15/SF
50 dua 70 dua 120 dua
Housing Fee at $20/SF
clarget Return orYield on Cost
Burlingame Apartment Development Feasibility Analysis
On-Site lnclusionary Housing
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
ffi;r*ffim
W
I
ffi
ry
ffi
H*Hfl
ffir
^.M ffi
50 dua 70 dua 120 dua
Scenario I
(10% @100% AMl)
50 dua 70 dua 120 dua
Housing Fee
@ $25/SF
50dua 70dua120dua
Scenario 2
(10% @110% AirD
50 dua 70 dua 120 dua
Scenario 3
(5% @80% AMr & s% @110% AMD
F Feasibility cap
. Developer Margin/Return
r Housing Fee
Government Fees
e Other Soft Costs
'* Construction Financing
- Parking Construction
Hard Construction Cost
Demolition and Site
lmprovements
w Land
30
tt Feasibility Gap
. Developer Margin/Return
r Housing Fee
Government Fees
u Other Soft Costs
.. Construction Financing
.- Parking Construction
Hard Construction Cost
Demolition and Site
lmprovements
m Land
31
I
I
$0
Burlingame Apartment Development Feasibility Analysis
Housing Fee
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$1 00,000
ffiffi
ffiHr ffiHl*ffim *ffim
ef,rs #is
I
ffigtM
88&&8
$0
50 dua 70 dua 120 dua
Housing Fee
@ $20sF
50 dua 70 dua 120 dua
Housing Fee
@ $1s/SF
I
lt[..1
EYl
I
Key Findings from Apartment Analysis
. Apartment rents are not currently increasing as fast as
construction costs
. Land purchase and construction costs (including
pa rki n g ) si g n ificantly affect development feasibility
. Depending on these cost factors, apartment projects do
not yield sufficient returns to attract capital (feasibility gap)
. Higher density alternatives are more feasible when per
unit land values are less than lower density projects
. Onsite affordable housing requirements focused on
moderate income households are more feasible and best
correlate to housing fee levels between $15 and $25/SF
Typical Condominium Characteristics
for Financial Pro Forma
JZ
T
Project Characteristics
Parcel Size 0.5 acres
Total Units 25 (50 du/acre)
Market Rate 85% to 100%
Percent Below Market Rate 10% to 15% on-site
Typical Averaqe Unit Size lOOO NSF
Average Sales Price About $940,000
Parkinq Ratio 2 spaces/unit
Parking 50 spaces underground
Residential Net Square Feet 25,000 NSF
Retail None assumed
33
\
\
I
\t
I
Burlingame Condominium Prices
Affordability Gap Per Unit
Market Rate
150% AMt
135% AMt
120% AMt
100% AMt
80% AMt
$0
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMI)
Moderate lncome (100% AMl)
Low lncome (80% AMI)
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120%AMl) Hrrrymm
Moderate Income(100%AMD ry
Lowlncome(80%AMD ry
$o /NsF $20 /NSF $40 /NSF $60 /NSF
r 10% Affordable * 15% Affordable
$100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $r,000,000
rAffordability Gap Affordable Housing Cost
34
Condominium Affordability Gap at Alternative On-Site
Requirements
(Per Residential Square Foot)
$80 /NSF $100 /NSF
m
Single Family Attached Characteristics
for Financial Pro Forma
Burlingame Single Family Attached Prices
Affordability Gap Per Unit
Market Rate
150% AMt
13s% AMt
120% AMI
100% AMI
36
$400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000
. Affordability Gap Atfordable Housing Cost
Project Characteristics
Parcel Size 1.7 acres
Total Units 31 (18 du/acre)
Market Rate 85% to 100%
Percent Below Market Rate 10% to 15% on-site
Typical Average Unit Size 15OO NSF
Averaqe Sales Price About $1.63 million
Parkinq Ratio 2 spaces/unil
Parking 62 Spaces, On-qrade Garage
Residential Net Square Feet 46,500 SF
Retail None assumed
80% AMt
$0 $200,000
37
tt iil
I
Single Family Attached Affordability Gap
at Alternative On-Site Requirements
(Per Residentia! Square Foot)
Moderate lncome (,l50% AMD
Moderate lncome (135% AMD
Moderate lncome (120%
Moderate lncome (100%
Low lncome (80%
Moderate lncome (150%
Moderate lncome (135%
Moderate lncome (120%
Moderate lncome (100%
Low lncome (80%
Single Family Attached Affordability Gap for 1 ,200-5F
Unit at Alternative On-Site Requirements
(Per Residential Square Foot)
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMI)
Moderate lncome (100% AMI)
Low lncome (80% AMD
Moderate lncome (150% AMI)
Moderate lncome (135% AMI)
Moderate lncome (120% AMI)
Moderate lncome (100% AMI)
Low lncome (80%AMD
$0 /NSF $40 /NSF $80 /NSF $120 /NSF $160 /NSF $200 /NSF
- 10% Affordable 15% Affordable 30
TF
I
$O /NSF $40 /NSF $80 /NSF
*10%Affordable 15%Affordable
$120 /NSF
ao
Key Findings from For-Sale Analysis
. Housing prices have been increasing rapidly, but
most buyers need significant cash or "trade-up"
value in homes to afford new units
. For-sale developments are more financially feasible
than apartments given high price points
. For-sale housing affordability gap is significant,
particularly for large units, and ranges between $20
and $180/SF for prototypes studied
. Onsite affordable housing requirements focused on
households between 110Y0 and 135% AMI are
financially feasible, assuming reasonable land and
construction costs
Potential
Strategies to
Encourage
0nsite
Affordable
Housing
I
" Yes, you are a developer and yes, you're agile but that
doesn't necessarily make you an agile developer. '
40
che-
\I
n
\
l.
T
California State Density Bonus Law
(Government Code 6591 5-6591 B)
. Local governments provide
additional density or
housing units in exchan
for provision of a
housing onsite
lncludes speciala
for land dedication a
senior housing
ult{AT ts A 0El{slTY B0t{us?
MAI OEVETOPIIEIIT POIIUNAL
Atfordeble A$ordilblo
Unlh UfliB
Esnus litioH
Hei$ht Linlit
0&{stTY g0ltus - ll,lllllL EilvEL0PE
42
43
140
120
100
80
60
40
20
Eose Zoning ol 700 Units
{ Market Rate
Bonus Units
(Market Rate)
rAffordable Units
Low lncome ModerateUnits lncome Units
Very Low
lncome Units
35% Maximum State Density Bonus
lncentives, Concessions, Bonus
RESiI]ENTIAL 7$TORTES
7C6STORES
65'
-
_l H L--
44
P0CItt,M
'rP$o
COURTYARD
\@.Af,
45
Effect of Density Bonus on Residual Land Value
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$'100,000
$o
Apartment
w/ Density Bonus
Apaftment
w/ Density Bonus
and Reduced Parking
r Developer Margin/
Return
Government Fees
a Other Soft Costs
* Construction
Financing
* Parking Construction
Hard Construction
Cost
Demolition and Site
lmprovements
rt Residual Land Value
Apartment
4D
Strategies to Encourage Onsite Affordable Housing
. Allow more housing units to be built when imposing
on-site affordable housing
- Density bonus and height modifications
- lncentives and concessions
- Allow smaller affordable unit sizes, especially for ownership
- Smaller parking space dimensions
- Significant parking reductions for residential and retail,
especially near transit and public parking
. Streamlined development approval
. Limiting City imposed development impact
t ;-W
-
Evolvlng Parking Requirements
Housing
Affordable
housing
Retail
Minimum-
About'l space/
BR
Varies
3 - 7 spaces
per 1,000 SF
Minimum
Maximum-
1 space/unit
Allow no parking
Maximum-
1 space/unit
Allow no parking
2 spaces
per '1,000 SF
Maximum
Maximum-.5 to
.75 space/unit
Allow no parking
Unbundle parking
0 to .5 space/unit
Allow no parking
Unbundle parking
No parking required
if near transit or
public parking
Traffic congestion
is caused
by vehicles,
not by people
in themse/yes.
Jane Jacobs
Elizabeth (Libby) Seifel
Seifel Consulting lnc.
libbv@seifel.com
.5 space/bedroom
.5 space/unit
(special needs @
.3 spaces/unit)
NIA
48
49
CA State
Density
Bonus Law
(Transit Area)
Historical
Practice
Smart
lnfill
Metro/
Downtown
W
IRAllI
[tF0