APA Planning Academy October 22, 2013 Multi-Family Risk Tolerance John Campanella.

APA Planning Academy

October 22, 2013

Multi-Family Risk Tolerance

John Campanella

Overview

o Site availability and cost

o Allowable multi-family residences

o Parking requirements

o Absorption – rental lease-up / sales rate

o Financial feasibility

Site Availability and Cost

o Existing UseResidential, commercial, vacant

o NeighborhoodMulti-family, commercial, historic resources

o OwnershipPrivate owner, professional company

LOWER LAND COST PER RESIDENCE EQUALS LOWER MONTHLY RENTS

Land Cost Per Residence Land Cost Land Cost at Various Residences Per Acre

Location (Examples) Per Sf Per Acre 20 40 60

Comm'l / Manufacturing (C-M) $75 $3,267,000 $163,350 $81,675 $54,450

Multi-Family Residential $100 $4,356,000 $217,800 $108,900 $72,600

Office / Retail (C-2) $150 $6,534,000 $326,700 $163,350 $108,900

Monthly Rent Example (Two Bedroom Unit)Land Cost Land Cost at Various Residences Per Acre

Location (Examples) Per Sf Per Acre 20 40 60

Comm'l / Manufacturing (C-M) $75 $3,267,000 3,308$ 2,627$ 2,400$

Multi-Family Residential $100 $4,356,000 3,761$ 2,854$ 2,551$

Office / Retail (C-2) $150 $6,534,000 4,669$ 3,308$ 2,854$

Allowable Multi-family Residences

o Zoningo Residences allowedo Number of stories allowedo Height, set-backs, open spaceo Size of site / ability to merge sites

TOTAL COST SAVING - THREE VERSUS TWO RESIDENTIAL STORIES

Add: Two Residential Stories Third Residential Story Three Residential Stories

ROOF

ROOF Living $550,000

Living $650,000 Living $200,000 Living $500,000

Living $650,000 Living $450,000

Parking Parking

LAND LAND

Total $1,300,000 $200,000 $1,500,000

Per Residence $650,000 $200,000 $500,000

Percent 100% 31% 77%

Third Level Added - Cost is for incremental living space (floor and walls) and parking.

Third Level Added - Allows for price differentiation due to desirability of top residential story.

ASSEMBLING UNDERUTILIZED SITES INCREASING NET SF TO DEVELOPLOWERING COST PER RESIDENCE

Three Separate Three Assembled6,000 SF 18,000 SF

Underutilized Versus Underutilized Sites Sites

50' 50' 50' 150'

10' 30' 10' 10' 30' 10' 10' 30' 10' 10' 130' 10'

10'

120' 100'

10'

Gross SF 6,000 6,000 6,000 Gross SF 18,000

Net SF 3,000 3,000 3,000 Net SF 13,000

50% 50% 50% 72%

Parking Requirements

o AUD areas – minimum 1 car per residenceApplicant can request more

o 1 car per residence lowers cost per unitReduces structure size, bulk and scale

Reduces structure costAllows for more residences in same structureAllows for more open space

Absorption – Rental Lease-up / Sales Rate

o Rentals – lease up period (net expense) Realistic time – rents / number of residencesConstruction loan funds prior to mortgage

o Sales – escrow closings per monthWhat “market bears” --- in a limited time frame

50% multi-family pre-sales for FNMA approval Developer guarantees to repay in 18 to 24 months

o Lenders validate up-front or will not finance

Financial Feasibility – Residences Per Acre

o Sales – up to 36 residences / acre

o Rentals – up to 63 / acre

o Employer sponsored sales – up to 63 / acre

o Cooperatives – up to 63 / acre

o At lower density – likely luxury unitsUnless owner develops or invest significant equity

.99 Acre SiteExisting Variable

Density Proposed Employer Difference

Project C – Cota 26 u/a 62 u/a

Actual Units 26 56 30

Sales Price $573 K $372 K ($201 K)

Monthly Payment $3,913 $2,651 ($1,262)

Down Payment 10% 10% 10%

Income Needed $134 K $91 K ($43 K)

Economic Comparison

.99 Acre Site Employer/Co-op Apartments

Project C – Cota 62 u/a 62 u/a

Actual Units 56 56

Cost $305 K $242 K

Monthly Payment $1,847 - $2,513 $1,400 - $2,300

Down Payment 10% N/A

Income $63K - $86K $48K - $79K

Economic Comparison

Prior Program Average Unit Density Average Unit DensityVariable Density for Sale Employer for Sale Apartments

15 - 27 dua 37 - 63 dua 37 - 63 dua26 Units - Project C 56 Units - Project C 56 Units - Project C

797 Average SF 797 Average SF 797 Average SFSales Price Per Unit Sales Price Per Unit Cost Per Unit

600,000$

575,000$ 573,000$ ($719 per SF)

550,000$

525,000$ Profits

500,000$ Cost of Equity

475,000$

450,000$

425,000$

400,000$

375,000$ 372,000$ ($467 per sf)

350,000$ Building / Other Profits

325,000$ Cost of Equity

300,000$

275,000$

250,000$ 242,000$

225,000$ Building / Other

200,000$

175,000$ Building / Other

150,000$

125,000$ Improved Land

100,000$

75,000$ Improved Land Improved Land

50,000$

25,000$

0

Financial Feasibility – Residence Mix

o Rentals – considerations60% of residences in Santa Barbara are rentals55% of rentals are one-bedroomsAverage number of bedrooms is 1.50

o Sales – considerations10% of owned residences are one-bedroom

Average number of bedrooms is 2.50

o What product do workers want and can afford?

RESIDENCES - 1 BEDROOM AND 2 BEDROOM COMPARISONREDUCING RENTAL COST PER WORKER

1 Bedroom Add 2nd 2 BedroomFeatures Bedroom Features

1 bedroom I bedroom 2 bedrooms

1 bath 1 bath 2 baths

1 parking 0 1 parking

1 kitchen 0 1 kitchen

1 living / dining 0 1 living / dining

1 patio 0 1 patio

Interior Size 750 sf 250 sf 1,000 sf

Monthly Rent $1,600 $2,400

Likely Workers One Two

Per Worker $1,600 $1,200

Financial Feasibility – Property Priority

o Santa Barbara is a built-out cityUnderutilized properties are the opportunity

o The owners may not want to sellCash flow with no debt, avoid development risk

o Commercial Properties – great opportunityBut are expensive (cap rate) / other uses

Financial Feasibility – Mixed Use

o AUD allows retention of the commercial SF

Can be rebuilt onsite or sold to others

o Residential has lower parking requirements

o Residential more valuable on upper floors

o Commercial more valuable on ground floor

o But compatibility issues – usage and size

Financial Feasibility – Horizontal Mixed Use

o Redevelop a block / zone of scale

o Housing, work space, retail, other commercial

o Centralize parking in multi-levels for all uses

o A “village” –La Entrada horizontal model?

o Creatives stay in Santa Barbara / spend $$$ locally

Discussion – Horizontal Mixed Use

o Does this help the production of housing?

o Does this help economic development?

o Are there other benefits?

o Are there similar examples elsewhere?

C

D

E

Cota Street SiteCM Zone

Project C – Cota RentalDesign TeamDetty Peikert Bob KupiecDavid BlackCass Ensberg Bonnie SangsterJaime Palencia Project Statistics0.99 Acres56 Units1,500 s.f. Commercial59 Surface & Tuck-under Parking 31% Open Space/Landscaping

LessonsCovered Parking makes Room for Open Space

56 Units per Acre

Project C - Rental

Elevations/perspectives

$371,702 per unit or $1300-$2100 rent per month

A

B

Milpas Site

Project B1 – Milpas RentalDesign TeamKeith Rivera Ellen Bildsten Susanne Tejada John Moyer

Project Statistics1.54 Acres79 Units10,500 s.f. Commercial79 Surface & tuck-under Res. Spaces21 Surface & Tuck-under Comm. Spaces20% Open Space/Landscaping

Lessons3-4 stories = 20% on grade open space2-3 stories = 0% on grade open space

51 Units per Acre

Project B1 – Milpas Rental

$366,400 per unit or $1200-$1950 rent per month

Hotel Santa Barbara