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HomeMy WebLinkAboutAgenda Statement 1985/12/10 Item 7 CITY COUNCIL AGENDA STATEMENT Item 7 Meeting Date 12/10/85 ITEM TITLE: Resolution / ? g'Approving an increase in the fair market value of land for the purpose of establishing the in-lieu parking fee SUBMITTED BY: Community Development Direct(: ( 5ths Vote: Yes No X ) REVIEWED BY: Executive Directs IF Adopted in 1980, the in-lieu parking fee formula has not been increased to reflect current land prices. This report evaluates the impact of an increase of the in-lieu fee on development within the Downtown Parking District and recommends an increase in the fee. RECOMMENDATION: That the City Council adopt the resolution to increase the fair market value of land to $16 per square foot for the purpose of computing the in lieu parking fee. It is further recommended that staff be authorized to review land prices annually and adjust the land value figure accordingly. BOARDS/COMMISSIONS RECOMMENDATION: At their November 21 meeting, the Redevelopment Agency approved a resolution to authorize the City Council to increase the in-lieu parking fee formula to reflect current land values and that the formula be adjusted annually to reflect changes in land values. Similarly, the Town Centre Project Area Committee, on November 7, recommended an increase in the formula with an annual review/adjustment to land values. DISCUSSION: The purpose of the in-lieu parking fee is to promote higher intensity development in the downtown area in conjunction with raising revenue for public parking facilities. Developers are not required to provide on-site parking and therefore can increase the leaseable square footage of their project. However, instead of providing on-site parking, developers are required to pay a fee based upon 25% of the cost of land required to provide the required number of parking spaces. For the purpose of this formula, land cost has been computed at $10 per square foot since the inception of the in-lieu parking fee in 1980. However, over the years land values have increased from $10 per square foot to $16-$18 in 1985. The formula has not been adjusted to reflect the 60-80% appreciation in land values. The attached report analyzes the effects of increasing the in-lieu fee upon the developer. Summarizing the findings of the report, increasing the fee to reflect current land values will increase downtown rents by only $.02 per month per square foot (for a 4800 square foot office building) which would still be approximately $.11 er month per square foot less than rents charged r____! C,Cy Cor.rtCiI ^f ._,1 VL..t1- C 1:1 Jr71is : it /2 // - 7,___? Page 2, Item 7 Meeting Date 12/1U55 for a similar project outside the parking district. Besides maintaining the incentive to develop within downtown, City revenues would increase by 60% to support the acquisition and construction of off-street parking facilities. As stated in City Ordinance 19.62.040, the in-lieu parking fee is "based upon an amount equal to twenty-five percent of the fair market value of that portion of the property which would have been required to be developed for parking purposes." At their November 21 meeting, the Redevelopment Agency approved a resolution to authorize the City Council to increase the fair market value of land from $10 per square foot to $16 per square foot for the purpose of computing the in lieu parking fee, and that this figure be adjusted annually to reflect changes in land values. In addition, both the Town Centre Project Area Committee and staff are in concurrence to increase the fee and adjust the formula annually. FISCAL IMPACT: Adjusting the fair market value of land to $16 per square foot would increase in-lieu parking fee revenues by approximately 60% to support the acquisition and construction of off-street parking facilities. Attachment WPC 1929H 8 r - r DEVELOPMENT PRO FORMA ANALYSIS Table A Table B Inside Parking District Inside Parking District Table C Current Fee Without Fee Outside Parking District 6,000 s.f. @ $16 $ 96,000 6,000 s.f. @ $16 $ 96,000 6,000 s.f. @ $12 $72,000 80% lot coverage 40% lot coverage 40 lot coverage 4,800 s.f. 2,400 s.f. 2,400 s.f. Const. cost @ $50 $240,000 Const. cost @ $50 $120.000 Const. cost @ $50 $120,000 s.f. (hard & soft) s.f. (hard & soft) s.f. (hard & soft) 3arking fee $ 14,000 Parking const. $ 14,000 Parking const. $ 14,000 16spx350x 8spx350x $5 8spx350x $5 $10 x .25 'roperty taxes $ 3,360 Property taxes $ 2,300 Property taxes $ 2,060 1% assessed value /taint. & utilities $ 500 Maint. & utilities $ 500 Maint. & utilities $ 500 'fine Arts $ 2,400 Fine Arts $ 1 ,340 1% const. cost "OTAL $356,260 $234,140 $208,560 :ost to Developer :ost/space $ 875 Cost/space $ 1 ,750 Cost/space $ 1 ,750 'financing '0% equity $ 71 ,252 20% equity $ 46,828 20% equity $ 41 ,712 10% debt @ 12% $285,008 80% debt @ 12% $187,312 80% debt @ 12% $166,848 20 yrs. 20 yrs. 20 yrs. nnual debt $ 38,156 Annual debt $ 25,077 Annual debt $ 22,337 service service service ents .66/mo/s.f. $.87/mo/s.f. $.77/mo/s.f. 15% DSC $.76/mo/s.f. 115% DSC $1 .00/mo/s.f. 115% DSC $.89/mo/s.f. PC 1777H However, the development pro forma analysis reveals that developers benefit from the in-lieu fee. A hypothetical office building was used to analyze the affects of this one-time fee. Table A shows the cost of an office building inside the parking district on a 6,000 square foot parcel with the current fee and Table B shows the cost of development without the fee. Because the parking fee ordinance allows for an increase in density, the developer can charge monthly rents that are approximately $.25 per month per square foot less than a project that requires on-site parking. Furthermore, the cost/parking space to the developer for providing parking is reduced by one-half with the in-lieu fee. In addition, when comparing Table A with the same project outside the parking district (Table C) the analysis indicates that rents inside the parking district (with the current fee) are still $.13 per month per square foot less than rents charged outside the district. Therefore, the in-lieu parking fee should not be eliminated because it generates income to the City and makes development downtown attractive because developers can increase the density of their project and spread the total cost of development over a greater amount of square feet. Question 2(a) - Should the Formula be Adjusted? The in-lieu fee is designed to benefit both the developer and City by decreasing development costs (thereby stimulating downtown development) and generating revenue for developing off-street public parking facilities. However, while land and construction costs for parking have risen, the in-lieu fee formula has not been adjusted to reflect those increases. The temporary public parking lot at 263 Landis Avenue illustrates the disparity between the total cost of providing parking and the amount required from the developer. Temporary Lot (Actual Costs 18 Parking Spaces) Land @ $16/sq. ft. $100,000 Escrow 800 Relocation 4,800 Materials 944 Handicapped Spaces 91 Demolition 1 ,980 Total Cost $108,615 Developer Contribution (under formula) $ 15,750 City Subsidy $ 92,865 In this example, the developer is required to pay only $15,750 under the present formula or 14.5% of the total cost. The City pays the other 85.5%. DEVELOPMENT PRO FORMA ANALYSIS Alternative 1 Alternative 2 Alternative 3 Land Value $16/s.f. Land Value $16/s.f. Land Value $16/s.f. Recommended Developer Share 1/3 Developer Share 1/2 6,000 s.f. @ $16 $ 96,000 6,000 s.f. @ $16 $ 96,000 6,000 s.f. @ $16 $ 96,000 80% lot coverage 80% lot coverage 80% lot coverage 4,800 s.f. 4,800 s.f. 4,800 s.f. :onst. cost @ $50 $240,000 Const. cost @ $50 $240,000 Const. cost @ $50 $240,000 (hard & soft) 'arking fee $ 22,400 Parking fee $ 29,568 Parking fee $ 44,800 16spx350x 16spx350x 16spx350x .25 .33 .50 'roperty taxes $ 3,360 Property taxes $ 3,360 Property taxes $ 3,360 +taint. & utilities $ 500 Maint. & utilities $ 500 Maint. & utilities $ 500 rine arts $ 2,400 Fine arts $ 2,400 Fine arts $ 2,400 TOTAL $364,660 $371 ,828 $387,060 :ost to Developer :ost/space $1 ,400 Cost/space $1 ,848 Cost/space $2,800 'financing '.0% equity $ 72,932 20% equity $ 74,366 20% equity $ 77,412 30% debt @ 12% $291 ,728 80% debt @ 12% $297,462 80% debt @ 12% $309,648 20 yrs 20 yrs 20 yrs ■nnual debt serv. $ 39,056 Annual debt serv. $ 39,824 Annual debt serv. $ 41 ,455 .ent .68/mo/s.f. $.69/mo/s.f. $.71/mo/s.f. 15% DSC $.78/mo/s.f. 115% DSC $.79/mo/s.f. 115% DSC $.82/mo/s.f. PC 1779H Question 2(b) - By How Much Should Formula Be Adjusted? Three alternatives have been developed to reduce the gap between the developer's costs and the City's subsidy while still maintaining the incentive to build downtown. A hypothetical office building of 4,800 leaseable square feet was used to analyze the effects of the three alternatives. The alternatives are: 1. Raise the fair market land value in formula to $16/sq. ft. 2. Raise land value to $16/sq. ft. land developer contribution to 1/3. 3. Raise land value to $16/sq. ft. and developer contribution to 1/2. Alternative 1 Alternative 1 involves only adjusting the in-lieu parking fee formula to reflect current land values. As Alternative 1-Table 1 indicates, the City will receive an additional $8,400 in revenue. To absorb the $8,400 the developer will only have to raise rents by $.02/month/sq. ft. Even with the adjustment to the formula, rents within the parking district will remain approximately $.09/month/sq. ft. less than comparable buildings outside the district, thus maintaining downtown's attractiveness to new development. Finally, under this alternative, the developer will be required to pay a greater portion of the parking construction cost ($1 ,400/space) as compared to the present formula $875/space. Alternative 2 Alternative 2 involves not only adjusting the formula to reflect current land values, but also requires the developer to pay 1/3 of the total cost of providing parking. Alternative 2-Table 2 reveals that this requirement would more than double the revenue now received by the City under the present formula. In this example, the developer would have to raise rents by $.03/month/sq. ft. to compensate for the additional $15,568 in parking fees. However, although the impact is negligible over the term of a 20-year loan, the developer must contribute an additional $3,114 up front as an equity contribution. Finally, this cost may not be recovered when the building is sold and may reduce downtown's attractiveness relative to areas outside the district. Alternative 3 The last alternative is the same as Alternative 2 except that it requires the developer to share 1/2 of the total cost, not 1/3. Similar to Alternative 2, the developer would be required to make a greater equity contribution to the project. Finally, the additional $30,800 in parking fees required, under this example may not be recovered when the project is sold and may even prevent the sale of the property. APPENDIX A Assumptions for Hypothetical Office Building Inside Downtown Parking District Lot size 6000 square feet Lot Coverage 80%* 4800 sq. ft. building - 16 parking spaces required Land Value $16/sq. ft.** Construction Cost $50/sq. ft.** Parking Construction Materials $5/sq. ft.*** Maintenance and Utilities $500** Project Financing: 20% Equity, 80% Debt @ 12% 20 yr. Debt Service Coverage 115% Outside Downtown Parking District Lot Size 6000 square feet Lot Coverage 40%* 2400 sq. ft. building - 8 parking spaces required Land Value $12/sq. ft.** Construction Cost $50/sq. ft.** Parking Construction Materials $5/sq. ft.*** Maintenance and Utilities $500** Project Financing: 20% Equity 80% Debt @ 12% 20 yr. Debt Service Coverage 115% * Provided by City Planning Department ** Provided by Local Real Estate Broker *** Provided by City Engineering Department WPC 1775H CONCLUSION To retain downtown' s attractiveness to developers, the in-lieu fee must be kept low. However, the City need not pay 85.5% of the cost. The fair market land value figure ($10 per square foot) adopted in 1980 is outdated and should be increased to $16 to reflect current market conditions. The development pro forma analysis has shown the relative impact of increasing the in-lieu parking fee on office rents both within and outside the parking district. Raising the in-lieu fee would slightly raise rents downtown but would substantially increase City revenues and still maintain the incentive to develop downtown. Therefore, the new in-lieu parking fee formula should be the following: number of required spaces x 350 sq. ft. x $16 sq. ft. x 25%. WPC 1775H • Ste' - '.. 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'it.E. • • ..., STREET -� �. ......_ . . < I '" ., l - + , IR •! --�i y.. .. ...__ rsA+cR ' • i iHL1� At r �_ FrA .. ' 1 .HALSEY l S_TRCET - - -_ _ I ■ ~ I J REPORT ON MODIFICATION OF THE IN-LIEU PARKING FEE BACKGROUND The purpose of the in-lieu parking fee is to attract development downtown in conjunction with raising revenue for public parking facilities. Applicable only to development within the Downtown Parking District (see map), the fee provides an incentive for new development. Specifically, developers are not required to provide on-site parking and therefore can increase the leaseable square footage of their project. However, in-lieu of providing on-site parking, developers are required to pay a fee which is based upon a formula (number of required spaces by 350 sq. ft. by the fair market value of land times 25%) and whose revenues are to be used to provide public parking facilities downtown. Since the inception of the in-lieu parking fee in 1980, land values have increased from $10 per square foot, to $16-18 in 1985. However, the in-lieu parking fee formula has not been adjusted to reflect the 60-80% appreciation in land values. The purpose of this report is to determine the affect of the in-lieu fee and determine whether the in-lieu fee should be increased to reflect current land values and if so by what amount. RECOMMENDATION It is recommended that the in-lieu parking fee formula be adjusted to reflect current downtown land values. Specifically, the land value variable should be increased from $10 per square foot to $16 per square foot. Downtown rents would only have to be increased by $.02 per month per square foot (for a 4800 square foot office building) to support the fee increase which would still be approximately $.11 per month per square foot less than rents charged for a similar project outside the parking district. Besides maintaining the incentive to develop within downtown, City revenues would increase by 60% to support the acquisition and construction of off-street parking facilities. DISCUSSION The following analysis responds to two questions. They are: 1. What is the affect of the in-lieu parking fee on downtown development? (Should it remain or be eliminated?) 2. (a) If the in-lieu fee should remain, then should the formula be adjusted to reflect current land values? (b) If yes, by how much? Assumptions for the analysis are provided in Appendix A. Question 1 - Impact of In-Lieu Fee on Development Opponents of the in-lieu fee argue that the downtown fee should be eliminated because it is an additional cost that the developer must absorb. The fee detracts, not attracts, development and therefore should be eliminated.