Near-Northwest-Neighborhood-Plan-Final-Appendices-2019

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88 Proforma Assumptions The following shares are the assumptions used when developing the proformas for the Near Northwest Neighborhood Plan process and this document. Model Types For Sale Models One Plex – 1200 sf Townhome – 1050 SF (built 4 together @ 1050 SF each) Owner Occupied with Rental Unit Models Single Family Home + Accessory Dwelling Unit – 1200 SF + 600 SF Duplex, Stacked – 1600 SF (2 units @ 800 SF each) For Rent Models Duplex, Stacked – 1600 SF (2 units @ 800 SF each) Fourplex – 3200 SF (4 units @ 800 SF each) Cottage Court – 6 individual units @ 710 SF each Base Assumptions Building Code All buildings use the International Residential Code (IRC), except the quadplex which uses the Internation- al Building Code (IBC). The major difference between the codes is that IBC buildings are generally fire sprin- kled. Fair Housing Fair Housing requirements apply to the buildings that are more than 3 units on one legal parcel, which includes the Fourplex and the Cottage Court (6 units). https://www.huduser.gov/portal/publications/PDF/ FAIRHOUSING/fairfull.pdf Construction Costs Per square foot of conditioned space: $125 per square foot $130 per square foot for the Fourplex to account for additional costs of sprinklers Connection Fees and Utility Hookup Costs $12,468 - The Connection Fees + Installation La- bor Costs for 6” Sanitary and 1” Water Lateral in one trench, with surface repair. This is a per building price for all the models 1-4 units in size. These mains are split off inside a structure and that cost is built into the overall construction budget. For the fourplex with a sprinkler system, it assumed only one water tap in the street is required and the sprinkler system would be fed first inside the building before servicing the domestic water line to ensure proper flow. $20,028 – For 6 cottage model - The Connection Fees + Installation Labor Costs for 6” Sanitary and 1” Water Lateral in one trench, with surface repair. Due to the additional underground piping to each building from the main connection box to the lot, the price is slight- ly higher. Additional engineering would be necessary to understand if the water pipe size from the common box to the street should be slightly larger, but that additional cost potential is relatively low as the labor is much more costly than the material. Operating Expenses 15% for Owner Occupied with Rental Unit 25% for For Rent Models Land Acquisition A vacant lot with no existing available utility hook- ups was uniformly priced at $500 per lot. All utilities would need to be brought from the right of way to the lot to construct a building. Construction Loan Terms For all the models with rental units and higher con- struction down payments, the cost of construction financing was set at 5% interest with a 25 year amorti- zation. Typically payments are interest only during the draw down period until occupancy. The For Sale models were set at 6.5% interest based on the typically lower down payment and higher risk underwriting. Those construction loans are typically immediately transferred to a permanent loan at the conclusion of construction, while rental products may have a lag period between while all units are rented and stabilized, during which interest and principal are paid. Permanent Loans There are two typical types of loans that are used to secure permanent financing. A 30 year mortgage can be used to secure a 1-4 unit building with a 30 year repayment term. Loan terms will vary based on the down payment provided, typically ranging from 3.5%- 20% for owner occupied structures (the owner occu- pying one of the units). For an owner who is acting as a landlord and renting all the units, the typical down payment required by banks is 25%. Cost of Investor Capital Threshold for expected returns on capital (cash flow/ refinance only, no project sale) are approximately set at 8-10%. This is at the low end of market rate returns which could easily demand 15% or higher. Key Proforma Outputs Total Project Costs – Total of all upfront costs to con- struct and finance project. Debt Service Coverage Ratio - A concern of Banks: Ratio of how much revenue a project brings in com- pared to the loan payment to the bank. In general, banks like projects which revenues exceed expenses by 25% or more. Return on Project Cost – A concern of Operating Part- ner/Developer: Ratio of the revenue produced divid- ed by the cost needed to develop the building. It is primarily a measurement of the risk of a project. If the projected cash flow divided by the upfront cost is too low versus the expected exit, then the project is not a great investment. Cash on Cash Return – A concern of Capital Partner/ Investor: Calculated by taking the annual Cash Flow after Debt Service (DSCR) divided by Equity (down payment). If the DSCR is too low, one way to fix the problem is to increase the cash down payment. How- ever, doing so will lower the Cash on Cash return as it effectively means the project is taking more cash to achieve the same outcome, thus lowering this ratio expressed as percentage. The investor is often the pri- mary source of the down payment, so it is of interest to make the most efficient use of that resource. Value Per Acre – A concern of Local Government: Calculated by dividing the assessed Property Value by Acreage. This is used as a measure of tax base pro- ductivity, where there is a fixed cost of infrastructure and services required to make lots livable and a city vibrant. If too little value is spread out over too much land, it can create a structural deficit whereas the tax derived from land is insufficient to maintain the infra- structure and perhaps also cover other critical safety and administrative functions. Building Model Chart Model Name Occupancy Type Building Code Permanent Loan Type Single Family - 1200 (1du)For Sale IRC 30 yr mortgage, 10% downpayment Townhomes (4du)For Sale IRC 30 yr mortgage, 10% downpayment Makerplex For Sale IRC (with use exceptions) 30 yr mortgage, 10% downpayment, If house; Commercial loan otherwise Duplex-stacked - 800 (2du) Owner Occupied with Rental Unit IRC 30 yr mortgage, 10% downpayment Single Family + ADU - 1200+600 (2du) Owner Occupied with Rental Unit IRC 30 yr mortgage, 10% downpayment Duplex-stacked - 800 (2du)For Rent IRC 30 yr mortgage, 25% downpayment Fourplex - 800 (4du)For Rent IBC (Sprinkled)30 yr mortgage, 25% downpayment Cottage Court - 710 (6du)For Rent IRC Commercial Loan, 7 yr term, 25 yr amort Building type assumptions