Updated Slide Deck for SCW Combining District Briefing — original pdf

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South Central Waterfront Combining District & Density Bonus Program South Central Waterfront Advisory Board August 19, 2024 South Central Waterfront Vision Framework Plan Adopted June 6, 2016 City Council Resolution 20220915-090 Create a code for South Central Waterfront that: • Maximizes the number of affordable housing units within and nearby the district • Maximizes infrastructure investments • Ensures enhanced environmental standards and protections • Maximizes other community benefits • Supports the Project Connect transit investment Helps create a connected, pedestrian-oriented, mixed use district where thousands more Austinites can live, work, and play. 2 Approach Since Council Resolution  The South Central Waterfront (SCW) regulations will be implemented by: – Council adoption of an optional set of regulations and bonus program through the creation of a Combining District and a Density Bonus Program (summer 2024). – City-initiated rezoning of non-PDA, PUD, and Planned Development Agreement properties in the district (fall 2024).  First reevaluation within 1-2 years. 3 Combining District Density Bonus General Provisions (Policies, procedures, and who can participate) Land Use Standards (Permitted and conditional land uses) Development Standards (What can be built and where) Design Standards (How it will look) Definitions Procedures/Requirements “Gate Keeper” Requirements – – – Affordable Housing Environmental Protection Improved Streetscape and Built Environment In-Lieu Fees and Dedications On-Site Community Benefits Eligible for Bonus Area 4 4 Subdistricts and FAR Council approval is required to exceed FAR maximums and heights Density Distribution Areas (DDAs) • An applicant shall split sites into areas no larger than 90,000 sq. ft. • FAR maximums apply to each DDA separately. • Internal circulation routes are required along DDA divisions. Proposed Project Connect Rail Alignment 5 Bonus Program Structure (For Additional FAR Beyond Base) Gate Keeper Requirements Onsite Affordable Housing (Fee for Non-Residential) Enhanced Environmental Protections Improved Streetscape & Built Environment First Then (To Reach Up to FAR / Height Subdistrict Maximums) 65-85% In-Lieu Fees & Dedications* Affordable Housing (extra on-site affordable units credited; Affordable Housing Investment Area) Parks (dedications credited; boundary as defined by typical Parks fees) Infrastructure and Community Impact Benefit (supports SCW directly) 15-35% On-Site Community Benefits* Transit-Supportive Infrastructure Parkland Buildout Public Art Private Common Open Space Alternative Community Benefits Not Described * These percentages are revised since the last time staff presented on the draft code. Further clarification will be provided in Sept 12 posting and in “Key Adjustments Sept 12 Draft Code” slide. 6 Consultative Support on SCW Economic Analysis / Tools  EPS – Audit / Improve Density Bonus Calculator – Estimate value of In-Kind Community Benefits  Hayat Brown – Density Bonus viability analysis (current & improved economy): Feb. 2024 – Updated Density Bonus viability analysis (current & improved economy): – Comparison of current staff proposed program and development May 2024 community feedback 7 SOUTH CENTRAL WATERFRONT DENSITY BONUS CALIBRATION City Council Work Session July 16, 2024 Economic & Planning Systems, Inc. The Economics of Land Use 1330 Broadway, Suite 450  Oakland, CA 94612 510 841 9190  www.epsys.com EPS SCOPE #1: AUDIT/IMPROVE CALCULATOR MODEL  Ensure calculations reflect intended policy outcomes per Planning staff – Level 1 vs. Level 2 incentives and requirements by desired density level – Affordable units vs. cash payments vs. in-kind benefits  Make the model as “user-friendly” as possible for developers and stakeholders – Draft explanations and instructions – Indicate places for user inputs – Clearly show calculation formulae Project Inputs Site and Current Entitlement Characteristics Results - Community Benefit Requirements for Desired Density Gross Site Area (SF) 35,470 Desired Building Characteristics (Total with Bonus) Desired Conditioned SF Desired Above-Grade Parking SF 522,000 344,431 Percent of Conditioned Building area Residential Percent of Conditioned Building area Hotel Percent of Conditioned Building area Office Percent of Conditioned Building area Retail 93% 0% 6% 1% 24.43 Gross Project FAR 0.99 Total Parking FAR Excluded 23.44 Project FAR $1,260,731 Housing Fee $1,260,731 Parks Fee from Bonus $1,260,731 Infrastructure Fee $3,782,193 Total Fees to be Paid in Cash 4 Estimated Number of Affordable Units Total Number of Housing Units Expected 485 217,494 Bonus SF from On-Site Community Benefits Required Economic & Planning Systems EPS PPT Presentation | 9 EPS SCOPE #2: ESTIMATE VALUE OF IN-KIND BENEFITS  Affordable housing at 60% of Median Family Income – Calculated as difference in capitalized values of affordable units vs. market-rate units Market Rate Rent/ Unit/Mo.1 60% MFI Affordable Rent/ Unit/Mo.2 Diff. per Month Diff. per Year Loss in Capitalized Value per Unit3 a b c = a - b f = e * 12 = f / 0.0475 Unit Type Formula Studio $1,785 $1,227 $558 $6,696 $140,968 1-Bedroom $2,098 $1,314 $784 $9,408 $198,063 2-Bedroom $2,946 $1,578 $1,368 $16,416 $345,600 3-Bedroom $6,383 $1,822 $4,561 $54,732 $1,152,253 [1] CoStar Group data for average 2024 Year-To-Date (as of February 2024) market effective rents for apartments built since 2010 or currently under construction in the CoStar Multifamily Submarkets directly south of Lady Bird Lake (Bouldin Creek, Soco, Travis Heights, and Zilker). [2] Maximum Austin 2023 rents by number of bedrooms for 60% Area Median Family Income. [3] Based on Capitalization Rate of 4.75% per IRR Viewpoint 2023 data for Downtown Austin Class A Urban Multifamily. Economic & Planning Systems Source: Integra Realty Resources; CoStar; TDHCA; Economic & Planning Systems. EPS PPT Presentation | 10 EPS SCOPE #2: ESTIMATE VALUE OF IN-KIND BENEFITS  Open space accessible to public but built/maintained by private party – Calculated as cost of park development and impact of maintenance costs on project value Item Formula Amount per Acre Amount per Square Foot Park Development Cost1 $4,705,959 $108 Open Space Maintenance Cost2 $56,428 $1.30 Capitalization Rate3 4.75% 4.75% a b c Loss in Capitalized Value d = b / c $1,187,955 Total Loss in Value = a + d $5,893,915 $27 $135 [1] Based on 2016 per-acre cost for Republic Square Park, inflated to 2024 $ using the average of ENR's Construction Cost Index and Bulding Cost Index for Dallas. [2] Annual maintenance cost estimate (provided June 2022) for plaza/streetscapes per City of Austin Parks and Recreation Department. Inflated to 2024 $ in same manner as described in Footnote 1. [3] Based on Capitalization Rate of 4.75% per IRR Viewpoint 2023 data for Downtown Austin Class A Urban Multifamily. Source: Engineering News Record; City of Austin Parks and Recreation Department; Integra Realty Resources Viewpoint 2023; Economic & Planning Systems Economic & Planning Systems EPS PPT Presentation | 11 EPS SCOPE #2: ESTIMATE VALUE OF IN-KIND BENEFITS  Discounted commercial space for Childcare/Adultcare No Rent Half Rent Live Music Venue Affordable Childcare Cultural Use Item various desired tenant types – Calculated as difference between market-rate commercial rents and “affordable” rents for: Market Rate Rent/SqFt1 Discounted Rent/SqFt2 Amount of Discount/SqFt Discounts/SqFt by Year • Childcare • Adult Care • Cultural uses • • Grocery store Live music venues – These are currently not incentivized in draft density bonus plan due to uncertainty regarding enforcement $38.50 $0.00 $38.50 $38.50 $39.66 $40.84 $42.07 $43.33 $44.63 $45.97 $47.35 $48.77 $50.23 - - - - - - - - - - $38.50 $19.25 $19.25 $19.25 $19.83 $20.42 $21.03 $21.67 $22.32 $22.99 $23.68 $24.39 $25.12 - - - - - - - - - - $38.50 $0.00 $38.50 $38.50 $39.66 $40.84 $42.07 $43.33 $44.63 $45.97 $47.35 $48.77 $50.23 $51.74 $53.29 $54.89 $56.54 $58.23 $59.98 $61.78 $63.63 $65.54 $67.51 $38.50 $16.50 $22.00 $22.00 $22.66 $23.34 $24.04 $24.76 $25.50 $26.27 $27.06 $27.87 $28.71 - - - - - - - - - - Grocery $38.50 $28.00 $10.50 $10.50 $10.82 $11.14 $11.47 $11.82 $12.17 $12.54 $12.91 $13.30 $13.70 - - - - - - - - - - $38.50 $33.43 $5.07 $5.07 $5.22 $5.38 $5.54 $5.71 $5.88 $6.05 $6.24 $6.42 $6.62 - - - - - - - - - - Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Cumulative Discount/SqFt $441.36 $220.68 $1,034.51 $252.21 $58.12 $120.37 NPV of Cumulative Discount/SqFt3 $332.54 $166.27 $600.45 $190.02 $43.79 $90.69 [1] Average annual market NNN (Triple Net) rent from CoStar Group data for Retail developments built since 2010 in Downtown Austin CBD (data retrieved January 2024). [2] Discounted rents reflect CoStar Group data for Austin leases that represent similar uses to those contemplated for each category. [3] Estimated using rent difference per year, assuming 3% annual inflation and a 5.25% discount rate. Source: CoStar Group; Economic & Planning Systems. EPS PPT Presentation | 12 Economic & Planning Systems Translating Analysis to Bonus Structure Community Benefit Notes Bonus Rate* Private Common Open Space Public Parkland Buildout Transit Supportive Infrastructure Buildout Public Art Alternative Community Benefits Not Described Plazas, squares, greenspace, etc. 15 bonus SF per 1 SF Adding amenities and improvements to public parkland, such as landscaping and playground equipment 11 bonus SF per $100 Bus stations, bikeshares, etc. 11 bonus SF per $100 Permanent installations as approved by the Arts Commission and Art in Public Places Panel 11 bonus SF per $100 Community benefits as approved by City Council Will vary * Values divided by $9 (non-residential density bonus fee rate), aligned with Downtown non-residential density bonus fee rate for properties with CBD zoning. 13 SCW Bonus Calibration Hayat Brown 14 Background The City of Austin Planning Department is working to craft a density bonus program to encourage developers to provide community benefits in exchange for entitlement incentives within the South-Central Waterfront (“SCW”) planning area. The City sought third party review of the current Excel-based tool and underlying assumptions. Specifically, the City sought to understand:  Are the methodology and mechanics of the SCW density bonus scenario tool functional and easy to use?  Is this density bonus program sufficiently calibrated to motivate a developer to choose this program over a PUD process?  How does the Developer Proposed density bonus program compare to the current concept? DRAFT 15 Floor Area Ratio (FAR)  Floor Area Ratio (FAR) is a zoning and urban planning concept used to regulate building density and size. It's calculated by dividing the total floor area of a building by the total area of the lot on which it's built.  FAR = Total Floor Area of Building / Total Lot Area  For example, if a building has 10,000 square feet of floor space on a 5,000 square foot lot, the FAR would be 2:1.  A higher FAR allows for taller or larger buildings relative to the lot size, while a lower FAR results in smaller buildings or more open space. DRAFT 16 Floor Area Ratio (FAR) Example of 1.0 FAR DRAFT 17 Staff Proposed Density Bonus Program – May 2024  Prioritizes on-site affordable housing while providing a range of benefits  Includes above grade parking in FAR calculation  Uses a two-level methodology  For FAR up to 3:1, projects must provide on-site affordable housing and pay a fee- in-lieu for any commercial or for-sale residential component of the project that exceeds base zoning.  For FAR above 3:1, projects must provide community benefits based on a fee structure that reflects similar fee levels under the Downtown Density Bonus and Rainey Street District Density Bonus programs.  Developers are required to provides these benefits in the form of a fee-in-lieu and as “in-kind” contributions on-site. DRAFT 18 2. Stress Test Density Bonus Model DRAFT Development Scenarios Site Size GSF Multifamily (GSF) Small Scale Large Scale By-Right (CS-1-V-NP) Density Bonus Program By-Right (CS-1-V-NP) Density Bonus Program 1.5 Acres 4 Acres 191,233 127,100 524,825 348,150 509,872 338,850 Retail (GSF) 3,630 10,000 9,680 Parking (spaces)** 60,503 (173) 166,675 (476) 161,342 (461) 433,657 (1239) FAR*** (Parking Included) 2.0* 2.0* FAR*** (Parking Excluded) *Does not include parking area ** Above grade parking spots are 350 SF/Space 8.0 5.3 19 1,373,957 910,300 (2 buildings) 30,000 7.9 5.2 Staff Proposed – May 2024 Bonus Fee in Lieu-$5 (Residential)/$9 (Non-residential) / 5% of 3:1 FAR On-site Affordable Housing 2. Stress Test Density Bonus Model DRAFT  By-right projects do not meet any of the 3 performance metric thresholds.  Adding bonus density and on-site affordable housing results in a marginally feasible project. Small Scale Development Large Scale Development Cap Rate = 5% 20 Improved Economy Sensitivity Description  Real estate markets across the country are struggling today, given high interest rates, construction costs, and operating costs.  The Improved Economy Sensitivity analysis is intended to simulate an alternative, a more favorable real estate market, as the density bonus program should not be built only on a current economic snapshot in time.  While the adjusted assumptions may not align directly with future economic conditions, they represent general reductions in costs and improved revenue generation typically seen in more favorable markets, but which could ultimately take many forms. 2. Stress Test Density Bonus Model DRAFT Key Metrics Three key assumptions were altered in this sensitivity analysis:  Capitalization rate decreased by 25bp to 4.75% 50bp to 5.0%  Permanent interest rate is reduced by  Operating costs grow at 2% annually (reduced from 3%) 21 Staff Proposed – May 2024 - Improved Economy Bonus Fee in Lieu-$5 (Residential)/$9 (Non-residential) / 5% of 3:1 FAR On-site Affordable Housing 2. Stress Test Density Bonus Model DRAFT  The by-right projects do not meet any of the 3 performance metric thresholds.  Under improved market conditions, projects utilizing the density bonus can fund public benefits and remain viable. Small Scale Development Large Scale Development Cap Rate = 4.75% 22 April 9, 2024, PC* Recommendations PC Amendment / Recommendation Staff PC Amendment / Recommendation Staff Response Not recommended Modify fee-in-lieu distribution SCWAB is advisory body for future projects No action required Amend FAR calculation for structured parking Not recommended Modify internal circulation routes encouraging walking, biking, and being outdoors Included with changes Modify Subdistrict and FAR map Included Include adapted rental multifamily redevelopment requirement Included Modify SCW DBP to be Part 1 of Downtown DBP Not recommended 1 2 3 4 5 6 7 Require extended bridge option for Project Connect within SCW Response Not included Create Parking and Transportation Management District Not included Adjust planning documents (like ASMP) to include critical mobility infrastructure elements Not included Create buy-down provision for SCW Underway Prioritize preservation and homelessness initiatives for housing fees gained in SCW Included Permit 30% of housing fee-in-lieu for on-site condos Not recommended 8 9 10 11 12 13 * September 12 Council back-up will identify all PC recommendations and staff’s associated recommendation / rationale 23 Downtown vs SCW Parcels Figures are shown at same scale Downtown South Central Waterfront South Central Waterfront With example DDAs 24 Staff Recommends Against Replacing SCW DBP with Downtown DBP (PC Recommendation #7) SCW Needs & Council Priorities Downtown Density Bonus Program South Central Waterfront Density Bonus Program Accommodates lot size and irregular shapes of SCW Requires onsite affordable housing Requires onsite parks / open space Provides support for in-district parks and infrastructure / community impact benefits Designed for downtown block structure and infrastructure Optional, however rarely selected over fee-in-lieu None required; Bonus for on-site plaza Off-site open space fee; no infrastructure/ community impact fee Density distribution areas create pedestrian-friendly environment 5% onsite required for first 3:1 FAR (rental) 5% required; Bonus for park buildout Parks and infrastructure/ community impact benefits fee supports district 25 Summary of Key Developer Feedback Developer Feedback A Do not count parking in FAR. Staff Response Not recommended. B D E F On-site affordable housing requirement begins at 2:1 FAR instead of at 0:1 FAR. (5% between 2:1 and 5:1 FAR) Staff open to Council adjustment. C No fees or other community benefits until 5:1 FAR. Not recommended. No on-site affordable housing requirement, instead opt for an affordable housing Fee-in-Lieu. Not recommended. Use developer economic analysis assumptions instead of City consultants’ assumptions to design and calibrate program. Differing goals, staff remains confident in analysis, and does not recommend a change. Change on-site affordable housing gatekeeper requirement to be a consistent cost per square foot. (i.e., constant % of affordable units across the entire development bonus). Analysis / recalibration required; triggers changes to draft code. Program Redesign 26 Current Draft - Above-ground parking included in FAR. - On-site affordable housing requirement begins at 0:1 FAR once opted into bonus program. - Non-residential fee begins at 0:1 FAR; Residential fee begins at 3:1 FAR. A B C Developer Proposal - Parking not counted in FAR. - On-site affordable housing requirement begins at 2:1 FAR instead of at 0:1 FAR. - No fees or other community benefits until 5:1 FAR. ● Significant funding for affordable housing, parks, infrastructure and other community benefits ● Substantial on-site community benefits ● Significantly less funding from fees-in-lieu (5-10% of staff proposal for 8:1 FAR development) ● Significantly fewer on-site community benefits (5-10% of staff proposal for 8:1 FAR development) ● Disincentivizes above-grade parking ● Does not disincentivize above-grade parking ● Marginal economic feasibility ● More economically feasible for development ● Fewer on-site affordable units ● More on-site affordable units* *Due to parking not included in FAR (higher residential proportion) 2. Stress Test Density Bonus Model DRAFT Comparison of Community Benefit Results  The developer proposed program significantly reduces the required Fee in Lieu.  The fee in lieu is driven by a reduction in overall project FAR associated with the removal of parking from the FAR calculation.  The developer proposed program moderately increases the required number of on-site affordable housing units. FAR.  The increase is driven by a larger portion of units associated with each unit of *Large Scale 28 2. Stress Test Density Bonus Model DRAFT Staff Proposed – May 2024 + Developer Proposal Bonus Fee in Lieu-$5 (Residential)/$9 (Non-residential) / 5% of 3:1 FAR On-site Affordable Housing Small Scale Development  Developer proposal return metrics are moderately higher than the staff- proposed program.  The higher returns are mainly driven by reduced fees and other community benefits. Scenario By Right Density Bonus  Developer Proposal Threshold Fee Aff. Units Return on Cost Equity Multiple 5.3% 6.0% 6.1% Cap Rate + 1% 1.33 1.73 1.76 2.00  Large Scale Development Scenario By Right Density Bonus  Developer Proposal Threshold Fee Aff. Units Return on Cost Equity Multiple 5.4% 5.9% 6.0% Cap Rate + 1% 1.36 1.69 1.72 2.00  LIRR 7.8% 16.2% 16.7% 15.0% LIRR 8.4% 15.4% 15.9% 15.0% 29 DRAFT Staff Proposed – May 2024 + Developer Proposal (Improved Economy) Bonus Fee in Lieu-$5 (Residential)/$9 (Non-residential) / 5% of 3:1 FAR On-site Affordable Housing 2. Stress Test Density Bonus Model  Developer proposal return metrics are moderately higher than the staff- proposed program.  The higher returns are mainly driven by reduced fees and other community benefits. Small Scale Development Scenario By Right Density Bonus  Developer Proposal Fee Aff. Units Return on Cost Equity Multiple 5.3% 6.2% 6.2% Cap Rate + 1% 1.46 1.98 2.01 2.00  Threshold Large Scale Development Scenario By Right Density Bonus  Developer Proposal Threshold Fee Aff. Units Return on Cost Equity Multiple 5.3% 6.1% 6.1% Cap Rate + 1% 1.50 1.93 1.96 2.00  LIRR 10.3% 20.5% 21.0% 15.0% LIRR 11.2% 19.8% 20.2% 15.0% 30 D Affordable Units On-Site Fee-In-Lieu for Affordable Housing ● Economic diversity ● Concentration of lower-income households ● Stable affordable housing requirement Challenging to update fee rates to match housing costs ● Immediate impact ● Delayed impact ● Immediate access to SCW amenities for tenants Access to amenities is tied to location of eventual use of affordable housing funds ● Requires complex management ● Requires available real estate / units ● ● ● Higher long-term cost for development ● Predictable cost for developers ● Stand alone asset ● Can be leveraged with other funds Assumption Differences from Development Community (Improved Economy) E Hayat Brown Assumptions Office Res (Rental) Res (Sale) Hotel Retail Developer-Proposed Assumptions Retail Res (Sale) Res (Rental) Hotel Office Yield & Return Thresholds for Capitalization: Yield & Return Thresholds for Capitalization: Yield on Cost Exit Cap Rate 6.10% 4.75% Cost Assumptions: Loan Interest Capitalized Financing Assumptions: Borrowing Rate Loan-to-Cost (LTC) Ratio 5.0% 60.0% 9.00% 6.25 – 6.50% 9.25% 8.50% 7.00% 4.75 – 5.25% 6.75% 6.75% Yield on Cost Exit Cap Rate Cost Assumptions: Loan Interest Capitalized Financing Assumptions: Borrowing Rate Loan-to-Cost (LTC) Ratio 5.0% 60.0% 8.0% 7.0% 8.5% 8.5% 7.0% 55.0% 60.0% 63.0% 63.0% 65.0% 32 $27.52/sf $27.52/sf $23/sf $36/sf $50/sf $50/sf Varies Current Draft Gatekeeper of 5% onsite affordable housing required for up to 3:1 FAR. F Alternate Developer Ask No onsite affordable housing gatekeeper. Lower percentage (~1 to 2%) of onsite affordable housing required for all development over 2:1 FAR. ● Lower-density developments have higher ● Program costs* per bonus SF are overall program costs* per SF (program advantageous to higher density) ● Amount of onsite affordable housing dependent on site size and residential proportion independent of FAR (program is density neutral) ● Amount of onsite affordable housing dependent on total units over 2:1 FAR (requirement based on unit count for all bonus density, not a standard density threshhold [3:1]) ● Higher barrier to entry for lower density ● Lower barrier to entry for lower density development (larger sites have lower density) development ● Program structure calibrated by ● Program structure requires new analysis, consultants and vetted by multiple B&Cs calibration, and vetting *”Program costs” include the combined value of fees, affordable housing, and other community benefits. Key Adjustments in September 12 Draft Code Public Comment (Feb 20 - Mar 20, 2024) Planning Commission (Apr 9, 2024) Boundaries expanded & height limits established in all but one Subdistrict Added multimodal internal circulation route option Support affordable housing preservation and homelessness initiatives through fees-in-lieu Added affordable creative space community benefit Affordable Housing Investment Area adjusted to ensure proximity to transit Further adjusted FAR map to: • Reduce complexity, • Facilitate development along light rail, and • Lower density as the district extends west Bird and bat friendly design criteria added Require public access easements Modified internal circulation routes to “encourage walking, biking, and being outdoors” 34 Key Adjustments in September 12 Draft Code Staff Continued Analysis (May 30 – June 30) Decoupled Parking added based on Vision Plan and community interest Transit supportive infrastructure clarified to align with ETOD code adopted on May 30 Commercial on-site community benefits transitioned to fee-in-lieu. On-site community benefit bonus range requirement reduced, and range expanded (now 15-35% on-site maximum) Non-residential redevelopment requirements added to align with ETOD code adopted on May 30 Bat and bird friendly design adjusted based on Audubon feedback of best non-cost-prohibitive options 35 Future Considerations (within 6 months - 2 years)  Explore all financial tools to achieve the vision.  Re-evaluate fees once citywide density bonus analysis is complete. (citywide).  Explore the addition of Transfer of Development Rights  For certain non-residential community benefits, re-examine density bonus if compliance options have been determined by staff. 36 Timeline & Engagement b e F r a M r p A - y a M g u A p e S Outreach to 80+ Stakeholder Groups Public Comment Period Feb. 20 – Mar. 20 E n g a g e m e n t 2/28 3/18 3/20 4/17 4/20 5/6+8 Boards & Commissions Feb. - April Feedback Integration (Analyze feedback) Mar – Jun PC & Council Review / Adoption April - Aug Today Public Comment Stats 489 Survey Participants 3 Public Meetings during public comment period 12+ presentations to Boards and Commissions 37 Thank You www.SpeakUpAustin.org/SouthCentralWaterfront