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CROSSWHITE PROPERTY
REAL ESTATE CO U N SELIN G • APPRAISAL
ADVISORS
.
FINANCIAL REVIEW PROPOSED CHAPTER 40B RENTAL DEVELOPMENT THE RESIDENCES AT WEST UNION ASHLAND, MA
As of July 21, 2016 Prepared for Philip C. Jack, Chair Ashland Zoning Board of Appeals 101 Main Street Ashland, MA 01721 Prepared by John C. Bowman, III, CRE, FRICS
Our File No. 1603
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CROSSWHITE PROPERTY
REAL ESTATE CO U N SELIN G • APPRAISAL
ADVISORS
July 21, 2016 Philip C. Jack, Chair Ashland Zoning Board of Appeals 101 Main Street Ashland, MA 01721 Re: Comprehensive Permit G.L. c.40B The Residences at West Union 133 West Union Street Ashland, MA 01721 Dear Attorney Jack: I understand the purpose of this financial review is to help assess whether the proposed conditions of the comprehensive permit reducing the proposed development from 132 units to 118 units, 113 units or 99 units respectively are likely to be upheld on appeal to the Housing Appeals Committee (HAC), or whether they will be found to make the project uneconomic. Background I understand that on May 16, 2014 MassHousing issued a Project Eligibility Letter to the West Union Realty Trust of Southborough for a project of 140 rental units in four buildings (two three-story buildings and two four-story buildings) with 261 on-site parking spaces. The 7.67 acre site is located at 133 West Union Street on the northwesterly side of Route 135.A condition of the Project Eligibility Letter is that 25% percent of the units will be designated for low or moderate income residents. Typically the issuance of a Project Eligibility Letter by MassHousing indicates a presumption of financial feasibility, that is, that the project would be economic. Financial review by the ZBA of the applicant's development pro forma, under the Stuborn Housing Appeals Committee decision, is intended to be limited. As preconditions to financial review, the ZBA must have proposed conditions to mitigate the project impact, and the applicant must have had the opportunity to modify its proposal to address the issues. If the applicant does not agree to some or all of the proposed permit conditions because, in the applicant's opinion, they would render the project uneconomic, the ZBA may ask the applicant to submit its development pro forma for financial review. The purpose of the financial review is to determine whether a project would be uneconomic if the conditions proposed by the ZBA were adopted. A project would be considered to be uneconomic if the conditions imposed by the ZBA make it impossible for a developer to proceed and still realize a reasonable return in building or operating the project. A reasonable return is as defined periodically by the Massachusetts Department of Housing and Community Development (DHCD).
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
2
Subsequent to the issuance of the Project Eligibility Letter for a 140 unit development, the developer filed an application on June 25, 2014 with the Ashland ZBA for a Chapter 40B comprehensive permit allowing the development of a 132 unit project comprised of two four-story buildings with 230 on-site parking spaces. At the request of the ZBA, the developer then submitted financial projections for three alternate projects of 118 units, 113 units, and 99 units respectively. My understanding is that the Board is seeking a considered opinion as to whether issuance of a Chapter 40B Comprehensive Permit with conditions imposed that would decrease the total number of units in the Project from 132 units would likely be overturned by the Housing Appeals Committee as being uneconomic,wi t ht her e s ul tt hatt hede ve l ope r ’ sor i g i nalpr opos alf ora132uni tpr oj e ctwoul dbes us t ai ne d. Scope of Work In conducting this review I have reviewed the financial projections provided by the subsidizing agency Masshousing, and by the applicant, West Union Realty Trust. The appropriate scope of financial review of a proposed Chapter 40B development at the ZBA level was determined by the Housing Appeals Committee in their Stuborn Ltd. Partnership v. Barnstable Board of Appeals case. The financial review is to be limited to an analysis of the projected costs, revenues and profitability for the development understanding at this early stage that such estimates are preliminary based on yet-to-be finalized plans and construction documents. In my review I have referred to the approaches to determining profitability under Chapter 40B detailed in the Massachusetts Housing Partnership issued Local 40B Review and Decision Guidelines of November 2005. I also consulted Chapter 40B regulations CMR 56.02 for definitions of reasonable return, and the 2013 HAC ruling in Limine on the Woburn case regarding the standard for measuring reasonable rate of return. My financial review has also included industry standards of reasonable rates of return as evidenced by nationally published surveys of investor participants in the development and purchase of multifamily rental apartments. In my analysis of the economic feasibility of a 118 unit, 113 unit or 99 unit development scenario for The Residences at West Union project proposed for 133 West Union Street in Ashland I have analyzed five pro formas. The first two track the development proposal from the initial 140 unit MassHousing application through to the 132 unit project proposed to the Ashland ZBA by the West Union Realty Trust under Chapter 40B. The last three pro formas reflect the development scenarios of 118 units, 113 units, and 99 units respectively, and project the return on the project after imposition of mitigating conditions proposed by the ZBA to the issuance of a Comprehensive Permit. The review of the pro formas was conducted in accordance with all statutes and regulations and guidelines applicable to Chapter 40B developments. The following documents were reviewed:
CROSSWHITE
PROPERTY
ADVISORS
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
3
Project Eligibility Letter (PEL) from Masshousing dated 5/16/2014 for 140 units in four buildings (two 3 story buildings, two 4 story buildings, 261 parking spaces) including the 2/24/2014 pro forma on which it was based. Original ZBA Proposal for 132 units in two buildings (Bldg. A and B at 4 stories, 230 parking spaces) dated 6/25/2014. Alternate Proposal A for 118 units in two buildings (Bldg. A at 3 stories, Bldg. B at 4 stories, 230 parking spaces) dated 6/14/2016. Alternate Proposal B for 113 units in two buildings (Bldg. A at 4 stories, Bldg. B at 3 stories, 230 parking spaces) dated 6/16/2016. Alternate Proposal C for 99 units in two buildings (Bldg. A and B at 3 stories, 198 parking spaces) dated 6/20/2016. This analysis (and most other analysis prepared for the HAC) assumes a project that is entitled, that is, a permitted project. The risk premium associated with the uncertainly of development permitting is not included in these calculations. The analysis is a snapshot of the developed project as completed for the projected Total Development Cost, and upon achieving stabilized occupancy of the property. In my financial analysis of the various alternatives I first consider whether, in making financial projections for a project of a lesser scale, the developer has reasonably extrapolated development costs, revenues and expenses from what was considered financially feasible in the Project Eligibility Letter. In my first level of review I tested the five pro formas for consistency, and identified financial ratios commonly used in the feasibility analysis of rental apartment development (Table 1). I reviewed the direction and magnitude of changes in the cost components projected by the developer to result from changes in the scale of the project, including identifying fixed costs that are unchanged by the unit count, and variable costs that would be changed by a change in unit count. I also considered the appropriateness of certain cost and revenue assumptions on a per dwelling unit (Table 2) and per square foot of gross building area basis (Table 3). In Table 1 I have summarized the financial information provided by the applicant for The Residences at West Union under five different scenarios: the 140 unit scenario of the Project Eligibility Letter, the 132 unit project presented to the ZBA under Chapter 40B, the Alternate A proposal of 118 units, the Alternate B proposal of 113 units, and the Alternate C proposal of 99 units. In the two far right columns I paid a particular attention to the direction and magnitude of change between the 132 unit as proposed and the 99 unit Alternate C. So for example while the number of units declined by 25% (Line 2), the total development cost only declined by 15% (Line 38). The operating income, the operating expense, and the net operating income (Line 60) all declined by 25%. Because some costs are fixed such as land acquisition and overall site costs, and others are variable depending on the scale of development, decreasing the number of units by 25% does not result in a pro rata decrease in total development cost.
CROSSWHITE
PROPERTY
ADVISORS
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
4
In Table 2 I have expressed all of the line item financial data of Table 1 on a per dwelling unit basis. So while the number of dwelling units decreased by 25% (Line 2) the acquisition cost per unit increased by 33% (Line 25) and the total development cost per unit increased by 13% (Line 38). Cash flow per unit (Line 62) decreased by 29%. In Table 3 I have expressed all of the line item financial data of Table 1 on a per gross square foot of building basis. So while the number of dwelling units decreased by 25% (Line 2) the acquisition cost per gross square foot increased by 33% (Line 25) and the total development cost per gross square foot increased by 13% (Line 38). Cash flow per gross square foot (line 62) decreased by 29%. While I have not done an actual cost estimate, for projection purposes, the direction and magnitude of the change in cost on a dollar amount basis, or a per dwelling unit basis, or a per gross square foot basis seems reasonable though the magnitude may be debated upon a more detailed review of line item cost assumptions. Acquisition Cost Idi dnotl ookbe hi ndt hede ve l ope r ’ s$725, 000acqui s i t i onpr i ce( Tabl e1Li ne25)whi chwoul d equal about $5,492 per unit for 132 units, or $7,323 (33% more) for 99 unit project (Table 2 Line 25). The subsidizing agency MassHousing obtained an independent appraisal of "as is" land value of $700,000. It is myunde r s t andi ngt hati nade t e r mi nat i onofwhe t he rapr oj e cti sune conomi c,t he“ asi s ”l andval ue ,pl us carrying cost to the current time, must be used in the determination of Total Development Cost. For the purpose of this analysis, acquisition is a fixed cost so a reduction in the number of units results in an increase in the per-unit acquisition cost. Hard Cost Direct construction (hard) cost under the West Union Realty Trust estimate for a 99 unit development was about $179,000 per unit which represented an 11% increase over the per unit cost of $160,000 under the 132 unit ZBA application (Table 2 Line 28). Soft Cost General development (soft) cost under the West Union Realty Trust estimate for a 99 unit development was about $28,200 per unit which represented an 26% increase over the per unit cost of $22,400 under the 132 unit ZBA application (Table 2 Line 29). Certain soft costs are fixed, that is they do not vary with the number of units, so a disproportionate increase in cost per unit is to be expected. Total Development Cost Total development cost (TDC) per unit under the West Union Realty Trust estimate for a 99 unit development was about $223,600 per unit which represented an 13% increase over the per unit cost of $197,300 under the 132 unit ZBA application (Table 2 Line 38).
CROSSWHITE
PROPERTY
ADVISORS
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
5
Source and Use of Funds Total equity under the West Union Realty Trust estimate for a 99 unit development was about $55,900 per unit which represented an 13% increase over the per unit cost of $49,300 under the 132 unit ZBA application (Table 2 Line 17). Total debt under the West Union Realty Trust estimate for a 99 unit development was about $167,700 per unit which represented an 13% increase over the per unit cost of $147,900 under the 132 unit ZBA application (Table 2 Line 19). The ratio of debt to total development cost was unchanged across the five scenarios at 75% (Table 1 Line 21). Revenue and Expense Potential Gross Income (PGI) under the West Union Realty Trust estimate for a 99 unit development was about $20,900 per unit which was unchanged over the per unit income under the 132 unit ZBA application (Table 2 Line 45). Similarly, operating expense under the West Union Realty Trust estimate for a 99 unit development was about $6,168 per unit which was unchanged over the per unit expense under the 132 unit ZBA application (Table 2 Line 57). Net operating income (NOI) under the West Union Realty Trust estimate for a 99 unit development was about $13,500 per unit which was unchanged over the per unit expense under the 132 unit ZBA application (Table 2 Line 60). Debt service under the West Union Realty Trust estimate for a 99 unit development was about $10,400 per unit which represented an 13% increase over the per unit cost of $9,200 under the 132 unit ZBA application (Table 2 Line 61). Cash flow under the West Union Realty Trust estimate for a 99 unit development was about $3,100 per unit which represented an 29% decrease from the per unit cash flow of $4,300 under the 132 unit ZBA application (Table 2 Line 62).
CROSSWHITE
PROPERTY
ADVISORS
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
6
Table 1 THE RESIDENCES AT WEST UNION - TABLE 1 Pro Forma Comparison
MassHous. PEL 5/16/2014
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Project Description Number of Units Gross Square Footage Residential Residential Garages Total Gross Square Footage Net Rentable Square Footage Parking Spaces Outdoor Enclosed Total No. of Parking Spaces Parking Ratio - Spaces Per Unit
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
ZBA 132 Units 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Chg 132 to 99 Amt % Chg Chg
(33) -25%
140
132
118
113
99
194,854 11,648 206,502 170,871
169,670 4,000 173,670 138,672
150,700 4,000 154,700 123,615
144,106 4,000 148,106 118,381
126,345 4,000 130,345 104,284
(43,325) 0 (43,325) (34,388)
-26% -0% -25% -25%
210 36 246 1.8
212 18 230 1.7
214 16 230 1.9
215 15 230 2.0
185 13 198 2.0
(27) (5) (32) 0
-13% -28% -14% 15%
Sources of Funds Developer's Cash Equity Developer's Fee/OH, Contributed Total Equity Ratio of Developer's Fee Contib. to Developer's Fee Total Permanent Debt MHP Fund Loan Rate - 30 Year Term Ratio of Loan to TDC Ratio of Developer's Cash Equity to TDC Total Permanent Sources
$6,149,000 726,000 6,875,000 100.00% 20,625,000 4.70% 75% 22% 27,500,000
$6,237,701 272,000 6,509,701 100.00% 19,529,101 4.70% 75% 24% 26,038,802
$5,926,911 258,000 6,184,911 100.00% 18,554,734 4.70% 75% 24% 24,739,645
$5,734,242 253,000 5,987,242 100.00% 17,961,725 4.70% 75% 24% 23,948,967
$5,295,861 239,000 5,534,861 100.00% 16,604,583 4.70% 75% 24% 22,139,444
(2,924,518) -15%
Uses of Funds Acquisition Subtotal Direct Construction Construction Contingency Subtotal Direct Construction - Hard Cost Subtotal General Development - Soft Cost Subtotal: Acquis, Const, & Gen Dev. Ratio of Soft Cost to Hard Cost
4,200,000 19,129,000 500,000 19,629,000 2,945,000 26,774,000 15.0%
725,000 20,171,880 968,250 21,140,130 2,960,496 24,825,626 14.0%
725,000 19,126,491 918,072 20,044,563 2,870,687 23,640,250 14.3%
725,000 18,434,692 884,865 19,319,557 2,845,668 22,890,225 14.7%
725,000 16,865,246 809,532 17,674,778 2,794,750 21,194,528 15.8%
0 (3,306,634) (158,718) (3,465,352) (165,746) (3,631,098) 0
Capital Reserves Developer Overhead Developer Fee Subtotal Developer OH and Fee Developer OH and Fee as % of TDC Total Development Cost (TDC) TDC Net of Cap. Reser. & Dev Fee contrib. (TDC Net)
0 0 726,000 726,000 2.64% 27,500,000 26,774,000
941,176 0 272,000 272,000 1.04% 26,038,802 24,825,626
841,395 0 258,000 258,000 1.04% 24,739,645 23,640,250
805,742 0 253,000 253,000 1.06% 23,948,967 22,890,225
705,916 0 239,000 239,000 1.08% 22,139,444 21,194,528
Operating Income Rental Income - Unrestricted Units Rental Income - Restricted Units Other Income Potential Gross Income (PGI) Less Vacancy Effective Gross Income (EGI) Effective Vacancy % (Vacancy / PGI
2,168,208 533,076 243,000 2,944,284 (188,838) 2,755,446 6.4%
2,057,328 519,360 181,800 2,758,488 (159,594) 2,598,894 5.8%
1,828,344 471,360 162,220 2,461,924 (142,125) 2,319,799 5.8%
1,767,360 441,012 154,650 2,363,022 (136,945) 2,226,077 5.8%
1,538,376 393,012 135,150 2,066,538 (119,476) 1,947,062 5.8%
Operating Expense Management Fee Administrative Maintenance Utilities Replacement Reserve Taxes, Insurance Total Expenses Operating Expense Ratio - % of EGI
0 0 0 0 0 0 862,058 31.3%
0 0 0 0 0 0 812,856 31.3%
0 0 0 0 0 0 726,644 31.3%
0 0 0 0 0 0 695,854 31.3%
0 0 0 0 0 0 609,642 31.3%
0 0% 0 0% 0 0% 0 0% 0 0% 0 0% (203,214) -25%
1,893,388 (1,283,629) 609,759 1.48 0.06224 4.700% 14.52 10.89
1,786,038 (1,215,424) 570,614 1.47 0.06224 4.700% 14.58 10.93
1,593,155 (1,154,782) 438,373 1.38 0.06224 4.700% 15.53 11.65
1,530,223 (1,117,876) 412,347 1.37 0.06224 4.700% 15.65 11.74
1,337,420 (1,033,412) 304,008 1.29 0.06224 4.700% 16.55 12.42
(448,618) -25% 182,012 -15% (266,606) -47%
Net Operating Income (NOI) Debt Service Cash Flow Debt Service Coverage Ratio Debt Service Constant Rate - 30 Year Term Net Income Multiplier (NIM) - TDC divided by NOI Net Income Multiplier (NIM) Debt - Loan divided by NOI
CROSSWHITE
PROPERTY
ADVISORS
(941,840) -15% (33,000) -12% (974,840) -15%
(3,899,358) -15%
-0% -16% -16% -16% -6% -15% 13%
(235,260) -25% 0 (33,000) -12% (33,000) -12% (3,899,358) -15% (3,631,098) -15%
(518,952) (126,348) (46,650) (691,950) 40,118 (651,832) (0)
-25% -24% -26% -25% -25% -25% -0%
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Table 2 THE RESIDENCES AT WEST UNION - TABLE 2 Pro Forma Comparison Per Dwelling Unit
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Project Description Number of Units Gross Square Footage Residential Residential Garages Total Gross Square Footage Net Rentable Square Footage Parking Spaces Outdoor Enclosed Total No. of Parking Spaces Parking Ratio - Spaces Per Unit
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
MassHous. PEL 5/16/2014
ZBA Ch. 40B 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Chg 132 to 99 Amt % Chg Chg
140
132
118
113
99
(33) -25%
1,392 83 1,475 1,221 0 2 0 2 0.0
1,285 30 1,316 1,051 0 2 0 2 0.0
1,277 34 1,311 1,048 0 2 0 2 0.0
1,275 35 1,311 1,048 0 2 0 2 0.0
1,276 40 1,317 1,053 0 2 0 2 0.0
(9) -1% 10 33% 1 0% 3 0%
Sources of Funds Developer's Cash Equity Developer's Fee/OH, Contributed Total Equity Ratio of Developer's Fee Contib. to Developer's Fee Total Permanent Debt MHP Fund Loan Rate - 30 Year Term Ratio of Loan to TDC Ratio of Developer's Cash Equity to TDC Total Permanent Sources
$43,921 5,186 49,107 0.71% 147,321 0.03% 1% 0% 196,429
$47,255 2,061 49,316 0.76% 147,948 0.04% 1% 0% 197,264
$50,228 2,186 52,415 0.85% 157,244 0.04% 1% 0% 209,658
$50,746 2,239 52,984 0.88% 158,953 0.04% 1% 0% 211,938
$53,494 2,414 55,908 1.01% 167,723 0.05% 1% 0% 223,631
6,238 354 6,592
13% 17% 13%
19,775
13%
26,367
13%
Uses of Funds Acquisition Subtotal Direct Construction Construction Contingency Subtotal Direct Construction - Hard Cost Subtotal General Development - Soft Cost Subtotal: Acquis, Const, & Gen Dev. Ratio of Soft Cost to Hard Cost
30,000 136,636 3,571 140,207 21,036 191,243 0.1%
5,492 152,817 7,335 160,153 22,428 188,073 0.1%
6,144 162,089 7,780 169,869 24,328 200,341 0.1%
6,416 163,139 7,831 170,970 25,183 202,568 0.1%
7,323 170,356 8,177 178,533 28,230 214,086 0.2%
1,831 17,539 842 18,381 5,802 26,013 0
33% 11% 11% 11% 26% 14% 51%
Capital Reserves Developer Overhead Developer Fee Subtotal Developer OH and Fee Developer OH and Fee as % of TDC Total Development Cost (TDC) TDC Net of Cap. Reser. & Dev Fee contrib. (TDC Net)
0 0 5,186 5,186 0.02% 196,429 191,243
7,130 0 2,061 2,061 0.01% 197,264 188,073
7,130 0 2,186 2,186 0.01% 209,658 200,341
7,130 0 2,239 2,239 0.01% 211,938 202,568
7,130 0 2,414 2,414 0.01% 223,631 214,086
0 0 354 354
17% 17%
26,367 26,013
13% 14%
Operating Income Rental Income - Unrestricted Units Rental Income - Restricted Units Other Income Potential Gross Income (PGI) Less Vacancy Effective Gross Income (EGI) Effective Vacancy % (Vacancy / PGI
15,487 3,808 1,736 21,031 (1,349) 19,682 0.0%
15,586 3,935 1,377 20,898 (1,209) 19,689 0.0%
15,494 3,995 1,375 20,864 (1,204) 19,659 0.0%
15,640 3,903 1,369 20,912 (1,212) 19,700 0.1%
15,539 3,970 1,365 20,874 (1,207) 19,667 0.1%
(47) 35 (12) (24) 2 (21) 0
-0% 1% -1% -0% -0% -0% 33%
Operating Expense Management Fee Administrative Maintenance Utilities Replacement Reserve Taxes, Insurance Total Expenses Operating Expense Ratio - % of EGI
0 0 0 0 0 0 6,158 0.2%
0 0 0 0 0 0 6,158 0.2%
0 0 0 0 0 0 6,158 0.3%
0 0 0 0 0 0 6,158 0.3%
0 0 0 0 0 0 6,158 0.3%
0 0 0 0 0 0 0
0% 0% 0% 0% 0% 0% 0%
13,524 (9,169) 4,355 0.01 0.00044 0.034% 0.10 0.08
13,531 (9,208) 4,323 0.01 0.00047 0.036% 0.11 0.08
13,501 (9,786) 3,715 0.01 0.00053 0.040% 0.13 0.10
13,542 (9,893) 3,649 0.01 0.00055 0.042% 0.14 0.10
13,509 (10,439) 3,071 0.01 0.00063 0.047% 0.17 0.13
Net Operating Income (NOI) Debt Service Cash Flow Debt Service Coverage Ratio Debt Service Constant Rate - 30 Year Term Net Income Multiplier (NIM) - TDC divided by NOI Net Income Multiplier (NIM) Debt - Loan divided by NOI
CROSSWHITE
PROPERTY
ADVISORS
0 (0) 0 0
16% -4% 15% 53%
0%
(21) -0% (1,231) 13% (1,252) -29%
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
8
Table 3 THE RESIDENCES AT WEST UNION - TABLE 3 Pro Forma Comparison Per Gross Square Foot
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Project Description Number of Units Gross Square Footage Residential Residential Garages Total Gross Square Footage Net Rentable Square Footage Parking Spaces Outdoor Enclosed Total No. of Parking Spaces Parking Ratio - Spaces Per Unit
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
Uses of Funds Acquisition Subtotal Direct Construction Construction Contingency Subtotal Direct Construction - Hard Cost Subtotal General Development - Soft Cost Subtotal: Acquis, Const, & Gen Dev. Ratio of Soft Cost to Hard Cost
MassHous. PEL 5/16/2014
ZBA Ch. 40B 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Chg 132 to 99 Amt % Chg Chg
(33) -25%
140
132
118
113
99
194,854 11,648 206,502 170,871
169,670 4,000 173,670 138,672
150,700 4,000 154,700 123,615
144,106 4,000 148,106 118,381
126,345 4,000 130,345 104,284
(43,325) 0 (43,325) (34,388)
-26% -0% -25% -25%
210 36 246 1.8
212 18 230 1.7
214 16 230 1.9
215 15 230 2.0
185 13 198 2.0
(27) (5) (32) 0
-13% -28% -14% 15%
$30 4 33 0.00% 100 0.00% 0% 0% 133
$36 2 37 0.00% 112 0.00% 0% 0% 150
$38 2 40 0.00% 120 0.00% 0% 0% 160
$39 2 40 0.00% 121 0.00% 0% 0% 162
$41 2 42 0.00% 127 0.00% 0% 0% 170
$5 0 5
13% 17% 13%
15
13%
20
13%
20 93 2 95 14 130 0.0%
4 116 6 122 17 143 0.0%
5 124 6 130 19 153 0.0%
5 124 6 130 19 155 0.0%
6 129 6 136 21 163 0.0%
1 13 1 14 4 20 0
33% 11% 11% 11% 26% 14% 50%
0 0 4 4 0.00% 133 130
5 0 2 2 0.00% 150 143
5 0 2 2 0.00% 160 153
5 0 2 2 0.00% 162 155
5 0 2 2 0.00% 170 163
Operating Income Rental Income - Unrestricted Units Rental Income - Restricted Units Other Income Potential Gross Income (PGI) Less Vacancy Effective Gross Income (EGI) Effective Vacancy % (Vacancy / PGI
10 3 1 14 (1) 13 0.0%
12 3 1 16 (1) 15 0.0%
12 3 1 16 (1) 15 0.0%
12 3 1 16 (1) 15 0.0%
Operating Expense Management Fee Administrative Maintenance Utilities Replacement Reserve Taxes, Insurance Total Expenses Operating Expense Ratio - % of EGI
0.00 0.00 0.00 0.00 0.00 0.00 4.17 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 4.68 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 4.70 0.0%
Sources of Funds Developer's Cash Equity Developer's Fee/OH, Contributed Total Equity Ratio of Developer's Fee Contib. to Developer's Fee Total Permanent Debt MHP Fund Loan Rate - 30 Year Term Ratio of Loan to TDC Ratio of Developer's Cash Equity to TDC Total Permanent Sources
Capital Reserves Developer Overhead Developer Fee Subtotal Developer OH and Fee Developer OH and Fee as % of TDC Total Development Cost (TDC) TDC Net of Cap. Reser. & Dev Fee contrib. (TDC Net)
Net Operating Income (NOI) Debt Service Cash Flow Debt Service Coverage Ratio Debt Service Constant Rate - 30 Year Term Net Income Multiplier (NIM) - TDC divided by NOI Net Income Multiplier (NIM) Debt - Loan divided by NOI
CROSSWHITE
PROPERTY
ADVISORS
9 (6) 3 0.00 0.00000 0.000% 0.00 0.00
10 (7) 3 0.00 0.00000 0.000% 0.00 0.00
10 (7) 3 0.00 0.00000 0.000% 0.00 0.00
(0) -0% 0 0 17% 0 17% 20 20
13% 14%
12 3 1 16 (1) 15 0.0%
(0) 0 (0) (0) 0 (0) 0
-0% 1% -1% -0% -0% -0% 33%
0.00 0.00 0.00 0.00 0.00 0.00 4.70 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 4.68 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 (0.00)
0% 0% 0% 0% 0% 0% 0%
10 (8) 3 0.00 0.00000 0.000% 0.00 0.00
10 (8) 2 0.00 0.00000 0.000% 0.00 0.00
(0) -0% (1) 13% (1) -29%
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Analysis of the Rate of Return on Investment The question of whether a project is economic or not following a condition that reduces the number of units does not turn on the scale of the project, but rather the rate of return for the project at an alternate scale of development. I analyzed the projected returns on total cost (ROTC) on the five pro formas as shown in Table 4. ROTC (Line 75) is calculated as net operating income (NOI) at stabilized occupancy divided by total development cost (TDC). This is sometimes referred to as the capitalization rate or the overall rate (OAR). I have also measured the return on total cost as net operating income divided by Total Development Cost net of developer's fee contributed as equity and Reserves for debt service (Line 76). This TDC net metric is useful because the data on market rate development transactions usually does not include such a substantial developers fee as a cost, nor does it include capital reserve as a cost. As calculated using TDC net, the ROTC is usually higher than the ROTC recognized for Chapter 40B projects. In Table 4 - Rate of Return Analysis I have reviewed the return on total cost (ROTC) which is the primary metric by which the Housing Appeals Committee (HAC) determines whether a project subject to conditions is economic or uneconomic. Return on total cost is calculated as the net operating income (NOI) divided by the total development cost (TDC), and is generally referred to as the overall rate (OAR) among commercial real estate participants. For the purpose of determining the ROTC of a project, it is the "as-is" (pre-40B) land value which is included in total development cost. In this case, that is $700,000 as determined by MassHousing appraisal, plus some recognition of time value for a total of $725,000. I have used this land acquisition value in my analysis, as has the applicant in their analysis. At Line 75 on Table 4 I have calculated the ROTC under the original 140 unit Project Eligibility Letter as 6.89%, the ROTC for the project as originally submitted to the ZBA at 132 units as 6.86%, and the Alternate C project of 99 units at 6.04%. I believe my calculations of ROTC mirror those of the applicant. The 2005 MHP Guidelines suggest a minimum return on total cost (ROTC) calculated as the 10 year Treasury rate plus 2.5%. The Treasury rate changes from time to time (Line 88) and has declined since the Project Eligibility Letter was issued in May of 2014. The minimum economic return on total cost under the MHP guidelines at the time of the Project Eligibility Letter would be calculated as the 10 year treasury yield of 2.52% plus 2.5% for a total of 5.02% (Line 99). Thus at the time of the Project Eligibility Letter, the minimum MHP Guideline return on total cost of 5.02% was less than the calculated return of 6.89% (Line 75), so the project was determined to be feasible, and presumably economic. Similarly, when the applicant proposed the 132 unit project the minimum return on total cost of 5.07% (Line 99) was less than the calculated return of 6.86% (Line 75) so the project would have been considered economic. Under the Alternate C 99 unit project the minimum return on total cost under the 2005 MHP Guidelines would be calculated as the 10 year treasury yield of 1.67% plus 2.5% for a total minimum return on total cost of 4.17% (Line 99). Both the applicant and I calculated the return on total cost of the Alternate. C 99 unit proposal as 6.04% (Line 75), greater than the minimum MHP Guideline return on total cost of 4.17%, so the Alternate C 99 unit proposal could be considered economic under the MHP Guideline standard.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Aside from the MHP Guideline, there is a market rate of return calculated from investor surveys such as the Price Waterhouse Cooper's Investor Survey. This return, which changes over time, is the overall rate (OAR), calculated the same as the return on total cost (ROTC) under the MHP Guideline (net operating income divided by total development cost). At the time of the May 2014 Project Eligibility Letter the average Mid Atlantic apartment market capitalization rate (OAR) was 5.46% (Line 97 which represents a 2.94% spread to the 10 year treasury rate at that time of 2.52% (Line 88). Thus the average market overall capitalization rate (OAR) at the time of the Project Eligibility Letter and at the submission of the 132 unit project was less than the calculated rate I found under either the 140 or the 132 unit proposal (6.89% and 6.86% respectively), and also less then the 6.04% ROTC calculated for the 99 unit C proposal. Under each of the three alternatives, the calculated return on total cost (ROTC) found at Line 75 was higher than the respective MHP Guideline rate (Line 99), and higher than the average market rate of return (Line 97). The indicated returns from the five pro formas are shown in the following Table 4. Table 4 THE RESIDENCES AT WEST UNION - TABLE 4 Rate of Return Analysis PEL 5/16/2014 68 73 74 75 76 77 86 87 88 89 90 91 92 93 94 95 96 97 98 99
ZBA 132 Units 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Calculated Proposed Return Return on Total Cost (ROTC) NOI divided by TDC NOI divided by TDC Net
6.89% 7.07%
6.86% 7.19%
6.44% 6.74%
6.39% 6.69%
6.04% 6.31%
2.52%
2.57%
1.62%
1.57%
1.67%
ROTC spread to 10 Year Treasury Yield NOI divided by TDC less 10 Year Treasury Yield NOI divided by TDC Net less 10 Year Treasury Yield
4.37% 4.55%
4.29% 4.62%
4.82% 5.12%
4.82% 5.12%
4.37% 4.64%
PWC Real Estate Investor Survey ROTC PWC ROTC (OAR) Ave. Mid-Atlantic Apt. Market PWC ROTC Spread to 10 Year Treasury Yield MHP Guidelines - 10 Year Treasury plus 2.5%
5.46% 2.94% 5.02%
5.46% 2.89% 5.07%
5.23% 3.61% 4.12%
5.23% 3.66% 4.07%
5.23% 3.56% 4.17%
Comparative Yields 10 Year Treasury Yield Return on Total Cost (ROTC)
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Is it Economic? Three Tests As noted earlier, the question of whether a project is economic or not following a condition that reduces the number of units does not turn on the scale of the project, but rather the rate of return for the project at an alternate scale of development. I have considered three tests of whether the rate of return would be considered economic upon appeal to the HAC. Lookback Test - implied ROTC at issuance of the Project Eligibility Letter. 2005 MHP Guideline Test Market Rate Test of feasibility The Lookback Test - Chapter 40B 760 CMR 56.02 In this instance, the applicable portion of 760 CMR 56.02 is paragraph (d): "[F]or the purpose of determining whether the Project is Uneconomic, when one or more conditions imposed by the Board decrease the total number of units in a Project, if those conditions do not address a valid health, safety, environmental, design, open space or other Global Concern, then the amount is calculated prior to the imposition of such conditions s hal lbet hemi ni mum…" I believe the calculations prior to the imposition refers to the projections relied upon by MassHousing in the issuance of their Project Eligibility Letter on 5/16/2014. Wi t hr e s pe ctt ot hei nt e r pr e t at i onofami ni mum de ve l ope r ’ sf e eormi ni mum r at eofr e t ur n referenced in 760 CMR 56.02, my plain reading of the text is that it refers to the amount of a rate, not a dollar nominal amount. Paragraph "d" refers to paragraph "c" in establishing the minimum set forth, and paragraph "c" refers to paragraph "b" which in paragraph "b1" refers to a rate (10% of the TDC) and in paragraph "b2" refers to a reasonable rate. Perhaps the regulation could have been more artfully worded. I interpret it to establish the floor on the return on total cost ROTC, again, as the rate calculated in the PEL. Even if interpreted as a ratio established at the time of the Project Eligibility Letter, I find the standard to be troubling from a standpoint of the market context. Market rates of return are time sensitive. A competitive and desirable fate of return for apartment development in one year may not be considered so in another year owing to changes in the capital markets, and the relative desirability of the investment in the apartment sector compared with say investment in the office or retail sector. The minimum rate of return, ROTC of 6.89%, that I have assumed would be referenced in a “l ook back”t e s tofe conomi cf e as i bi l i t yof the 99 unit development is actually based on the projections West Union Realty Trust reported for the 140 unit development referenced by the Project Eligibility Letter issue in May of 2014. West Union Realty Trust reported projected net operating income (NOI) of $1,893,388 and total development cost (TDC) of $27,500,000 the mathematical ratio of which is a 6.89% rate of return which is greater than the projected 6.04% return of the Alternate C 99 unit development.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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The MHP 2005 Guideline Test Likely in response to concerns about the “ lookback”concept of the 760 CMR 56.02(d) HAC issued their Ruling In Limine of September 20, 2013. The HAC ruling is divided into two parts. The first is entitled The Standard for Measuring Reasonable Rate of Return (my italics). The second section is entitled Date for Measuring Reasonable Rate of Return. It seems clear the HAC will be reviewing the rates of return, not the nominal dollars of the developer fee. In section 2 the HAC memo quotes "Proof concerning the economics of a proposed development can be complicated. At the most basic level, it involves not fixed quantities, but rather projections of use future costs and revenues." With respect to the concept of reviewing the proposed development as new, de novo, I note the rulings reads "We will apply our traditional "time of hearing" benchmark, that is, the date upon which the Pre-Hearing Order is issued an evidentiary portion of the hearing begins." One might conclude that the effective date of projections and profit allocations should be the date of the Pre-Hearing Order. Finally, I note that the 2013 Ruling in Limine affirms the 2005 MHP Guidelines as the methodology of determining whether a project is economic. There is nothing in the new regulatory definition that indicates that the ROTC methodology should be abandoned, and therefore I expect the parties to apply that approach-- as described in the MHP Guidelines-- in analyzing the facts of this case. They are not prohibited from supplementing their analysis with an ROE analysis, but they should be forewarned that there is likely to be given less weight by the Committee." Page 5 The 2005 MHP Guidelines recognized that rates of return are generally associated with the cost of capital, and specifically with the benchmark return represented by the yield rate of a 10 year treasury bill. The 2005 MHP Guidelines standard for ROTC is 2.5% over the 10 year treasury rate. By the 2005 MHP Guidelines, the minimum economic rate of return would be calculated as the current 10 year treasury rate +2.5%. The minimum economic rate of return as of June of 2016 would be calculated as 4.17% (1.67% 10 Yr. Treasury +2.5%) which is less than the 6.04% return projected for the Alternate C 99 unit development.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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The Market Rate Test of Economic Feasibility I believe a de novo hearing at the HAC on a 99 unit development scenario would consider economic feasibility as defined below by the Appraisal Institute:
I think the key distinction here is that profitability should be analyzed in terms of the criteria of a specific market, in this case the market comprised of participants in the development and acquisition of multifamily rental housing. The anticipated returns on investment in multifamily housing (going-in capitalization rate OAR) differ by investment type (residential versus office), by market location (Boston versus Atlanta) and by date (say 2Q2014 versus 2Q2016) and thus are not static, but time sensitive. Changes in investor expectation are tracked by various national investor surveys published quarterly including the Price Waterhouse Coopers PcW Real Estate Investor Survey. Back in May of 2014 when the Project Eligibility Letter was issued the industry standard average ROTC for multifamily apartments in the Mid Atlantic market, as surveyed by PriceWaterhouseCoopers for the second quarter of 2014 was 5.23% (Appendix 1). The same survey indicated the average ROTC for multifamily apartments in the Mid Atlantic market for the second quater of 2016 was 5.46% (Appendix 2). By the market test of economic feasibility an economic rate of return would be the 5.23% market rate average as of June of 2016 which is less than the 6.04% return projected for the Alternate C 99 unit development.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Why West Union Realty Trust Might Decide to Proceed with a Permitted 99 Unit Development My experience with the relevant statute and regulations is that, when the ZBA makes conditions reducing the number of units, the developer is generally still anticipating at least the rate of return implied in the project that received the Project Eligibility Letter. So I consider how far the financial forecast of rate of return on the lesser scaled project is from the rate of return implied in the Project Eligibility Letter, or from that anticipated by the developer for the scale of project they are willing to undertake, which in this case was 132 units. I also consider whether it is reasonable to expect any prudent developer would proceed with the lesser scaled project given the rate of return likely to result from the smaller project in comparison with an applicable industry standard market rate of return. West Union Realty Trust controls a 7.67 acre site on Route 135 just south of Interstate 90, and just east of Interstate 495. The Town of Ashland might well permit the development of 99 apartments on the site. Once completed the net operating income could be about 6.04% of total development costs meaning the developer will own the development at a capitalization rate of 6.04% when the average capitalization rate (return on total costs) of Mid Atlantic apartments is 5.23%. This means the property value would likely exceed its projected $22,139,444 replacement cost (total development cost) as soon as stabilized occupancy is achieved. This enhanced value of $25,572,084 results from dividing the 99 unit projected net operating income of $1,337,420 by the .0523 average market capitalization rate (return on total costs) of Mid Atlantic apartments. Massachusetts presents many barriers to entry to developers seeking development permits, even if they have been successful in controlling a developable site. Demographic analysis forecasts a bulge of echo boomers who will be looking to rent, and it looks like rents might continue to go up for a bit. The economy hasn't had the recovery that was hoped for, so real estate capital is chasing apartments rather than office or retail. It appears that apartment capitalization rates could drop even lower, indicating that apartment fundamentals have yet to peak. Average overall capitalization rates in the mid Atlantic regional private markets have trended downward since the Project Eligibility Letter was issued in May of 2014 from 5.49% to 5.23% currently, in conjunction with the full recovery occurring in the multifamily sector. This decline of 26 basis points in the mid-Atlantic market is a reflection of strong fundamentals in the apartment property sector. Fairly intense competition for assets in a relatively low-cost debt environment continues to hold capitalization rates down and drive the pace of apartment transactions. So I think the fundamental economics of apartment development today would support a decision by the applicant to proceed with a permitted 99 unit development at 133 West Union Street.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Summary of Finding I have considered two scenarios under which the HAC might view a proposed 99 unit project. Scenario 1 assumes a hearing at the HAC on a proposed Alternate C 99 unit development in which a determination is made by the HAC that the condition imposed by the Board decreasing the total number of units in the project does not address a valid health, safety, environmental, design, open space or other Local Concern, and that the minimum rate of return as set forth in 780 CMR 56.02(d) is determined by a “l ookback”t ot hepr oj e ct e dr e t ur nsoft heor i g i nal140 unit project referenced in the Project Eligibility Letter. Scenario 2 assumes a hearing at the HAC on a proposed Alternate C 99 unit development in which a determination is made by the HAC pursuant to the rationale described in September 20, 2013 Ruling In Limine referencing both the 2005 MHP Guidelines and the 2012 changes to the regulations in 780 CMR 56.02. The perspective is of a de novo hearing in which the HAC recognizes the context provided by industry standard rates of return for the purpose of determining whether the project is uneconomic. Under each of these two scenarios I have applied the applicable standard for the purpose of determining whether the project is uneconomic to my findings of the likely return on total cost (ROTC) for the Alternate C 99 unit project. It is my opinion that under the Scenario 1 “l ookbac k”t ot hepr oj e ct e dr e t ur nsoft he140uni t project referenced in the Project Eligibility Letter issued in May of 2014, the 99 unit project could be found to be uneconomic, but that under a Scenario 2 de novo hearing the HAC would find the 99 unit project to be economic. These findings are summarized in the following Table 5. Table 5 Summary of Finding Scenario 1 - "Lookback" Scenario 2 - Market based 99 Unit HAC Hearing 99 Unit HAC Hearing No Local Concern Per 760 CMR 56.02 (d) As de novo Per Ruling In Limine 9/20/13
Measure of Return Return on Total Cost (ROTC)
Benchmark
MHP Guideline: 10 Yr. Treas. + 2.5%
6.89% Projected Rate of Return at PEL or 6.86% at 132 Unit Application
5.23% Average Market Rate of Return (OAR)
5.02% (10 Yr. Treas. of 2.52% + 2.5%)
4.17% (10 Yr. Treas. of 1.67% + 2.5%)
6.04%
6.04%
Uneconomic
Economic
Current Projected for 99 Units Finding
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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This contradictory result may evidence a disconnect between policy and practice. In fact, the HAC might recognize several arguments against employing the Scenario 1 “l ookba ck”test: The rate of return on total development costs (ROTC) implied in the Project Eligibility Letter was determined over two years ago in May of 2014. The 140 unit project described in the Project Eligibility Letter was not the 132 unit project submitted to the ZBA in June of 2014. Since the application for the 132 unit project submitted to the ZBA in June of 2014 market conditions have changed, including a decline in the 10 year Treasury rate, and a decline in the average market rate of return for multifamily housing. I believe the intent of the 2013 HAC Ruling In Limine was to recognize that, in practice, a lesser return than a developer may have originally proposed for the Project Eligibility Letter can still be an economic and reasonable return in the current marketplace. Under each of the three alternatives, the calculated return on total cost (ROTC) found at Line 75 was higher than the respective MHP Guideline rate (Line 99), and higher than the average market rate of return (Line 97). So assuming the development cost and operating expense projections of the applicant are reasonable, all three Alternative proposals A, B, and C, could be found to be economic upon appeal to the HAC. Giving greater weight then to Scenario 2, I believe the HAC would find that a 99 unit development of the Residences at West Union at 133 West Union Street could offer a reasonable return on total cost, and would be found to be economic.
Respectfully submitted,
John C. Bowman, III, CRE, FRICS MA Cert. General Appraiser No. 4676
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Certification I certify that, to the best of my knowledge and belief: -
-
-
The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions, conclusions, and recommendations. I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest with respect to the parties involved. I have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. I have no bias with respect to any property that is the subject of this report or to the parties involved with this assignment. My engagement in this assignment was not contingent upon developing or reporting predetermined results. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal consulting assignment. My analyses, opinions, and conclusions were developed, and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice. I have made a personal inspection of the property that is the subject of this report. No one provided significant real property appraisal or appraisal consulting assistance to the person signing this certification. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. As of the date of this report, have completed the continuing education program for Designated Members of the Appraisal Institute. As of the date of this report, I have completed the Standards and Ethics Education Requirements for Candidates of the Appraisal Institute.
John C. Bowman, III, CRE, FRICS MA Cert. General Appraiser No. 4676
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Statement of Qualifications John C. Bowman, III, CRE, FRICS received an A.B. cum laude from Dartmouth College with a major in Architecture and a minor in Urban Studies. He received a Master in City Planning from the Harvard University Graduate School of Design. Mr. Bowman is a Certified General Real Estate Appraiser in the Commonwealth of Massachusetts. He has completed all Appraisal Institute course work, experience review, and the Comprehensive Examination required as a Candidate for Designation by the Appraisal Institute. Mr. Bowman has held construction supervisor's licenses from both the Commonwealth of Massachusetts and the City of Boston as well as the professional designation Counselor of Real Estate (CRE). He has been elected a Fellow of the (UK) Royal Institution of Chartered Surveyors (FRICS), and is an elected member of Lambda Alpha International, the Honorary Society for the Advancement of Land Economics. As a municipal permitting official Mr. Bowman represented the Greater Boston Real Estate Board for 15 years (1986 through 2001) as their designated alternate member of the Boston Zoning Board of Appeal (ZBA). During his tenure on the ZBA he heard and voted on over 4,000 appeals for zoning variances required for every use from affordable multifamily housing to convention center development. Mr. Bowman also represented the Greater Boston Real Estate Board for 10 years as their designated member of the Boston Landmarks Commission (BLC) for which he served as Chairman from 1996 through 2003. The BLC has permit review authority over the alteration, expansion or demolition of National Register properties and many other architecturally or historically significant structures and sites in downtown Boston. The Massachusetts Housing Partnership Fund (MHP) has designated Mr. Bowman as a multifamily housing development consultant qualified under their grant program to provide technical assistance to local Zoning Boards of Appeal in their review of Chapter 40B comprehensive permit applications for the development of market rate and affordable housing. In this capacity Mr. Bowman has assisted the Zoning Boards of Appeal in a number of municipalities in the Commonwealth. MassHousing, the Massachusetts Housing Finance Agency, has qualified Mr. Bowman to perform all real estate appraisal functions of the Agency. Mr. Bowman has also performed numerous appraisal assignments for the Boston Redevelopment Authority and other municipalities, as well as private owners. He has also been retained as an expert appraisal witness by the Internal Revenue Service. As an expert appraisal witness Mr. Bowman has been qualified in the United States Tax Court, Suffolk Superior Court, Norfolk Superior Court, Dukes Superior Court, Worcester Land Court, and the Commonwealth of Massachusetts Housing Appeals Committee. Mr. Bowman has been a General Partner of real estate developments in which he directed the acquisition, permitting, financing, design, construction, marketing, and management of over 44 multifamily buildings. He is currently a General Partner of three partnerships operating multifamily housing in 21 buildings, and is the developer of a single family residential subdivision in Chapel Hill, North Carolina. Mr. Bowman's real estate practice involves investment analysis, market analysis, development feasibility and valuation, with particular emphasis on partial interests including conservation and preservation easements, subdivision development, multifamily housing development, high-end residential development, and nursing homes.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
Appendix 1 PriceWaterhouseCoopers Apartment Rate of Return OAR Second Quarter 2014
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
Appendix 2 PriceWaterhouseCoopers Apartment Rate of Return OAR Second Quarter 2016
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REAL ESTATE CO U N SELIN G • APPRAISAL
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FINANCIAL REVIEW PROPOSED CHAPTER 40B RENTAL DEVELOPMENT THE RESIDENCES AT WEST UNION ASHLAND, MA
As of July 21, 2016 Prepared for Philip C. Jack, Chair Ashland Zoning Board of Appeals 101 Main Street Ashland, MA 01721 Prepared by John C. Bowman, III, CRE, FRICS
Our File No. 1603
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July 21, 2016 Philip C. Jack, Chair Ashland Zoning Board of Appeals 101 Main Street Ashland, MA 01721 Re: Comprehensive Permit G.L. c.40B The Residences at West Union 133 West Union Street Ashland, MA 01721 Dear Attorney Jack: I understand the purpose of this financial review is to help assess whether the proposed conditions of the comprehensive permit reducing the proposed development from 132 units to 118 units, 113 units or 99 units respectively are likely to be upheld on appeal to the Housing Appeals Committee (HAC), or whether they will be found to make the project uneconomic. Background I understand that on May 16, 2014 MassHousing issued a Project Eligibility Letter to the West Union Realty Trust of Southborough for a project of 140 rental units in four buildings (two three-story buildings and two four-story buildings) with 261 on-site parking spaces. The 7.67 acre site is located at 133 West Union Street on the northwesterly side of Route 135.A condition of the Project Eligibility Letter is that 25% percent of the units will be designated for low or moderate income residents. Typically the issuance of a Project Eligibility Letter by MassHousing indicates a presumption of financial feasibility, that is, that the project would be economic. Financial review by the ZBA of the applicant's development pro forma, under the Stuborn Housing Appeals Committee decision, is intended to be limited. As preconditions to financial review, the ZBA must have proposed conditions to mitigate the project impact, and the applicant must have had the opportunity to modify its proposal to address the issues. If the applicant does not agree to some or all of the proposed permit conditions because, in the applicant's opinion, they would render the project uneconomic, the ZBA may ask the applicant to submit its development pro forma for financial review. The purpose of the financial review is to determine whether a project would be uneconomic if the conditions proposed by the ZBA were adopted. A project would be considered to be uneconomic if the conditions imposed by the ZBA make it impossible for a developer to proceed and still realize a reasonable return in building or operating the project. A reasonable return is as defined periodically by the Massachusetts Department of Housing and Community Development (DHCD).
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Subsequent to the issuance of the Project Eligibility Letter for a 140 unit development, the developer filed an application on June 25, 2014 with the Ashland ZBA for a Chapter 40B comprehensive permit allowing the development of a 132 unit project comprised of two four-story buildings with 230 on-site parking spaces. At the request of the ZBA, the developer then submitted financial projections for three alternate projects of 118 units, 113 units, and 99 units respectively. My understanding is that the Board is seeking a considered opinion as to whether issuance of a Chapter 40B Comprehensive Permit with conditions imposed that would decrease the total number of units in the Project from 132 units would likely be overturned by the Housing Appeals Committee as being uneconomic,wi t ht her e s ul tt hatt hede ve l ope r ’ sor i g i nalpr opos alf ora132uni tpr oj e ctwoul dbes us t ai ne d. Scope of Work In conducting this review I have reviewed the financial projections provided by the subsidizing agency Masshousing, and by the applicant, West Union Realty Trust. The appropriate scope of financial review of a proposed Chapter 40B development at the ZBA level was determined by the Housing Appeals Committee in their Stuborn Ltd. Partnership v. Barnstable Board of Appeals case. The financial review is to be limited to an analysis of the projected costs, revenues and profitability for the development understanding at this early stage that such estimates are preliminary based on yet-to-be finalized plans and construction documents. In my review I have referred to the approaches to determining profitability under Chapter 40B detailed in the Massachusetts Housing Partnership issued Local 40B Review and Decision Guidelines of November 2005. I also consulted Chapter 40B regulations CMR 56.02 for definitions of reasonable return, and the 2013 HAC ruling in Limine on the Woburn case regarding the standard for measuring reasonable rate of return. My financial review has also included industry standards of reasonable rates of return as evidenced by nationally published surveys of investor participants in the development and purchase of multifamily rental apartments. In my analysis of the economic feasibility of a 118 unit, 113 unit or 99 unit development scenario for The Residences at West Union project proposed for 133 West Union Street in Ashland I have analyzed five pro formas. The first two track the development proposal from the initial 140 unit MassHousing application through to the 132 unit project proposed to the Ashland ZBA by the West Union Realty Trust under Chapter 40B. The last three pro formas reflect the development scenarios of 118 units, 113 units, and 99 units respectively, and project the return on the project after imposition of mitigating conditions proposed by the ZBA to the issuance of a Comprehensive Permit. The review of the pro formas was conducted in accordance with all statutes and regulations and guidelines applicable to Chapter 40B developments. The following documents were reviewed:
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Project Eligibility Letter (PEL) from Masshousing dated 5/16/2014 for 140 units in four buildings (two 3 story buildings, two 4 story buildings, 261 parking spaces) including the 2/24/2014 pro forma on which it was based. Original ZBA Proposal for 132 units in two buildings (Bldg. A and B at 4 stories, 230 parking spaces) dated 6/25/2014. Alternate Proposal A for 118 units in two buildings (Bldg. A at 3 stories, Bldg. B at 4 stories, 230 parking spaces) dated 6/14/2016. Alternate Proposal B for 113 units in two buildings (Bldg. A at 4 stories, Bldg. B at 3 stories, 230 parking spaces) dated 6/16/2016. Alternate Proposal C for 99 units in two buildings (Bldg. A and B at 3 stories, 198 parking spaces) dated 6/20/2016. This analysis (and most other analysis prepared for the HAC) assumes a project that is entitled, that is, a permitted project. The risk premium associated with the uncertainly of development permitting is not included in these calculations. The analysis is a snapshot of the developed project as completed for the projected Total Development Cost, and upon achieving stabilized occupancy of the property. In my financial analysis of the various alternatives I first consider whether, in making financial projections for a project of a lesser scale, the developer has reasonably extrapolated development costs, revenues and expenses from what was considered financially feasible in the Project Eligibility Letter. In my first level of review I tested the five pro formas for consistency, and identified financial ratios commonly used in the feasibility analysis of rental apartment development (Table 1). I reviewed the direction and magnitude of changes in the cost components projected by the developer to result from changes in the scale of the project, including identifying fixed costs that are unchanged by the unit count, and variable costs that would be changed by a change in unit count. I also considered the appropriateness of certain cost and revenue assumptions on a per dwelling unit (Table 2) and per square foot of gross building area basis (Table 3). In Table 1 I have summarized the financial information provided by the applicant for The Residences at West Union under five different scenarios: the 140 unit scenario of the Project Eligibility Letter, the 132 unit project presented to the ZBA under Chapter 40B, the Alternate A proposal of 118 units, the Alternate B proposal of 113 units, and the Alternate C proposal of 99 units. In the two far right columns I paid a particular attention to the direction and magnitude of change between the 132 unit as proposed and the 99 unit Alternate C. So for example while the number of units declined by 25% (Line 2), the total development cost only declined by 15% (Line 38). The operating income, the operating expense, and the net operating income (Line 60) all declined by 25%. Because some costs are fixed such as land acquisition and overall site costs, and others are variable depending on the scale of development, decreasing the number of units by 25% does not result in a pro rata decrease in total development cost.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
4
In Table 2 I have expressed all of the line item financial data of Table 1 on a per dwelling unit basis. So while the number of dwelling units decreased by 25% (Line 2) the acquisition cost per unit increased by 33% (Line 25) and the total development cost per unit increased by 13% (Line 38). Cash flow per unit (Line 62) decreased by 29%. In Table 3 I have expressed all of the line item financial data of Table 1 on a per gross square foot of building basis. So while the number of dwelling units decreased by 25% (Line 2) the acquisition cost per gross square foot increased by 33% (Line 25) and the total development cost per gross square foot increased by 13% (Line 38). Cash flow per gross square foot (line 62) decreased by 29%. While I have not done an actual cost estimate, for projection purposes, the direction and magnitude of the change in cost on a dollar amount basis, or a per dwelling unit basis, or a per gross square foot basis seems reasonable though the magnitude may be debated upon a more detailed review of line item cost assumptions. Acquisition Cost Idi dnotl ookbe hi ndt hede ve l ope r ’ s$725, 000acqui s i t i onpr i ce( Tabl e1Li ne25)whi chwoul d equal about $5,492 per unit for 132 units, or $7,323 (33% more) for 99 unit project (Table 2 Line 25). The subsidizing agency MassHousing obtained an independent appraisal of "as is" land value of $700,000. It is myunde r s t andi ngt hati nade t e r mi nat i onofwhe t he rapr oj e cti sune conomi c,t he“ asi s ”l andval ue ,pl us carrying cost to the current time, must be used in the determination of Total Development Cost. For the purpose of this analysis, acquisition is a fixed cost so a reduction in the number of units results in an increase in the per-unit acquisition cost. Hard Cost Direct construction (hard) cost under the West Union Realty Trust estimate for a 99 unit development was about $179,000 per unit which represented an 11% increase over the per unit cost of $160,000 under the 132 unit ZBA application (Table 2 Line 28). Soft Cost General development (soft) cost under the West Union Realty Trust estimate for a 99 unit development was about $28,200 per unit which represented an 26% increase over the per unit cost of $22,400 under the 132 unit ZBA application (Table 2 Line 29). Certain soft costs are fixed, that is they do not vary with the number of units, so a disproportionate increase in cost per unit is to be expected. Total Development Cost Total development cost (TDC) per unit under the West Union Realty Trust estimate for a 99 unit development was about $223,600 per unit which represented an 13% increase over the per unit cost of $197,300 under the 132 unit ZBA application (Table 2 Line 38).
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Source and Use of Funds Total equity under the West Union Realty Trust estimate for a 99 unit development was about $55,900 per unit which represented an 13% increase over the per unit cost of $49,300 under the 132 unit ZBA application (Table 2 Line 17). Total debt under the West Union Realty Trust estimate for a 99 unit development was about $167,700 per unit which represented an 13% increase over the per unit cost of $147,900 under the 132 unit ZBA application (Table 2 Line 19). The ratio of debt to total development cost was unchanged across the five scenarios at 75% (Table 1 Line 21). Revenue and Expense Potential Gross Income (PGI) under the West Union Realty Trust estimate for a 99 unit development was about $20,900 per unit which was unchanged over the per unit income under the 132 unit ZBA application (Table 2 Line 45). Similarly, operating expense under the West Union Realty Trust estimate for a 99 unit development was about $6,168 per unit which was unchanged over the per unit expense under the 132 unit ZBA application (Table 2 Line 57). Net operating income (NOI) under the West Union Realty Trust estimate for a 99 unit development was about $13,500 per unit which was unchanged over the per unit expense under the 132 unit ZBA application (Table 2 Line 60). Debt service under the West Union Realty Trust estimate for a 99 unit development was about $10,400 per unit which represented an 13% increase over the per unit cost of $9,200 under the 132 unit ZBA application (Table 2 Line 61). Cash flow under the West Union Realty Trust estimate for a 99 unit development was about $3,100 per unit which represented an 29% decrease from the per unit cash flow of $4,300 under the 132 unit ZBA application (Table 2 Line 62).
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Table 1 THE RESIDENCES AT WEST UNION - TABLE 1 Pro Forma Comparison
MassHous. PEL 5/16/2014
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Project Description Number of Units Gross Square Footage Residential Residential Garages Total Gross Square Footage Net Rentable Square Footage Parking Spaces Outdoor Enclosed Total No. of Parking Spaces Parking Ratio - Spaces Per Unit
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
ZBA 132 Units 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Chg 132 to 99 Amt % Chg Chg
(33) -25%
140
132
118
113
99
194,854 11,648 206,502 170,871
169,670 4,000 173,670 138,672
150,700 4,000 154,700 123,615
144,106 4,000 148,106 118,381
126,345 4,000 130,345 104,284
(43,325) 0 (43,325) (34,388)
-26% -0% -25% -25%
210 36 246 1.8
212 18 230 1.7
214 16 230 1.9
215 15 230 2.0
185 13 198 2.0
(27) (5) (32) 0
-13% -28% -14% 15%
Sources of Funds Developer's Cash Equity Developer's Fee/OH, Contributed Total Equity Ratio of Developer's Fee Contib. to Developer's Fee Total Permanent Debt MHP Fund Loan Rate - 30 Year Term Ratio of Loan to TDC Ratio of Developer's Cash Equity to TDC Total Permanent Sources
$6,149,000 726,000 6,875,000 100.00% 20,625,000 4.70% 75% 22% 27,500,000
$6,237,701 272,000 6,509,701 100.00% 19,529,101 4.70% 75% 24% 26,038,802
$5,926,911 258,000 6,184,911 100.00% 18,554,734 4.70% 75% 24% 24,739,645
$5,734,242 253,000 5,987,242 100.00% 17,961,725 4.70% 75% 24% 23,948,967
$5,295,861 239,000 5,534,861 100.00% 16,604,583 4.70% 75% 24% 22,139,444
(2,924,518) -15%
Uses of Funds Acquisition Subtotal Direct Construction Construction Contingency Subtotal Direct Construction - Hard Cost Subtotal General Development - Soft Cost Subtotal: Acquis, Const, & Gen Dev. Ratio of Soft Cost to Hard Cost
4,200,000 19,129,000 500,000 19,629,000 2,945,000 26,774,000 15.0%
725,000 20,171,880 968,250 21,140,130 2,960,496 24,825,626 14.0%
725,000 19,126,491 918,072 20,044,563 2,870,687 23,640,250 14.3%
725,000 18,434,692 884,865 19,319,557 2,845,668 22,890,225 14.7%
725,000 16,865,246 809,532 17,674,778 2,794,750 21,194,528 15.8%
0 (3,306,634) (158,718) (3,465,352) (165,746) (3,631,098) 0
Capital Reserves Developer Overhead Developer Fee Subtotal Developer OH and Fee Developer OH and Fee as % of TDC Total Development Cost (TDC) TDC Net of Cap. Reser. & Dev Fee contrib. (TDC Net)
0 0 726,000 726,000 2.64% 27,500,000 26,774,000
941,176 0 272,000 272,000 1.04% 26,038,802 24,825,626
841,395 0 258,000 258,000 1.04% 24,739,645 23,640,250
805,742 0 253,000 253,000 1.06% 23,948,967 22,890,225
705,916 0 239,000 239,000 1.08% 22,139,444 21,194,528
Operating Income Rental Income - Unrestricted Units Rental Income - Restricted Units Other Income Potential Gross Income (PGI) Less Vacancy Effective Gross Income (EGI) Effective Vacancy % (Vacancy / PGI
2,168,208 533,076 243,000 2,944,284 (188,838) 2,755,446 6.4%
2,057,328 519,360 181,800 2,758,488 (159,594) 2,598,894 5.8%
1,828,344 471,360 162,220 2,461,924 (142,125) 2,319,799 5.8%
1,767,360 441,012 154,650 2,363,022 (136,945) 2,226,077 5.8%
1,538,376 393,012 135,150 2,066,538 (119,476) 1,947,062 5.8%
Operating Expense Management Fee Administrative Maintenance Utilities Replacement Reserve Taxes, Insurance Total Expenses Operating Expense Ratio - % of EGI
0 0 0 0 0 0 862,058 31.3%
0 0 0 0 0 0 812,856 31.3%
0 0 0 0 0 0 726,644 31.3%
0 0 0 0 0 0 695,854 31.3%
0 0 0 0 0 0 609,642 31.3%
0 0% 0 0% 0 0% 0 0% 0 0% 0 0% (203,214) -25%
1,893,388 (1,283,629) 609,759 1.48 0.06224 4.700% 14.52 10.89
1,786,038 (1,215,424) 570,614 1.47 0.06224 4.700% 14.58 10.93
1,593,155 (1,154,782) 438,373 1.38 0.06224 4.700% 15.53 11.65
1,530,223 (1,117,876) 412,347 1.37 0.06224 4.700% 15.65 11.74
1,337,420 (1,033,412) 304,008 1.29 0.06224 4.700% 16.55 12.42
(448,618) -25% 182,012 -15% (266,606) -47%
Net Operating Income (NOI) Debt Service Cash Flow Debt Service Coverage Ratio Debt Service Constant Rate - 30 Year Term Net Income Multiplier (NIM) - TDC divided by NOI Net Income Multiplier (NIM) Debt - Loan divided by NOI
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(941,840) -15% (33,000) -12% (974,840) -15%
(3,899,358) -15%
-0% -16% -16% -16% -6% -15% 13%
(235,260) -25% 0 (33,000) -12% (33,000) -12% (3,899,358) -15% (3,631,098) -15%
(518,952) (126,348) (46,650) (691,950) 40,118 (651,832) (0)
-25% -24% -26% -25% -25% -25% -0%
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
7
Table 2 THE RESIDENCES AT WEST UNION - TABLE 2 Pro Forma Comparison Per Dwelling Unit
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Project Description Number of Units Gross Square Footage Residential Residential Garages Total Gross Square Footage Net Rentable Square Footage Parking Spaces Outdoor Enclosed Total No. of Parking Spaces Parking Ratio - Spaces Per Unit
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
MassHous. PEL 5/16/2014
ZBA Ch. 40B 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Chg 132 to 99 Amt % Chg Chg
140
132
118
113
99
(33) -25%
1,392 83 1,475 1,221 0 2 0 2 0.0
1,285 30 1,316 1,051 0 2 0 2 0.0
1,277 34 1,311 1,048 0 2 0 2 0.0
1,275 35 1,311 1,048 0 2 0 2 0.0
1,276 40 1,317 1,053 0 2 0 2 0.0
(9) -1% 10 33% 1 0% 3 0%
Sources of Funds Developer's Cash Equity Developer's Fee/OH, Contributed Total Equity Ratio of Developer's Fee Contib. to Developer's Fee Total Permanent Debt MHP Fund Loan Rate - 30 Year Term Ratio of Loan to TDC Ratio of Developer's Cash Equity to TDC Total Permanent Sources
$43,921 5,186 49,107 0.71% 147,321 0.03% 1% 0% 196,429
$47,255 2,061 49,316 0.76% 147,948 0.04% 1% 0% 197,264
$50,228 2,186 52,415 0.85% 157,244 0.04% 1% 0% 209,658
$50,746 2,239 52,984 0.88% 158,953 0.04% 1% 0% 211,938
$53,494 2,414 55,908 1.01% 167,723 0.05% 1% 0% 223,631
6,238 354 6,592
13% 17% 13%
19,775
13%
26,367
13%
Uses of Funds Acquisition Subtotal Direct Construction Construction Contingency Subtotal Direct Construction - Hard Cost Subtotal General Development - Soft Cost Subtotal: Acquis, Const, & Gen Dev. Ratio of Soft Cost to Hard Cost
30,000 136,636 3,571 140,207 21,036 191,243 0.1%
5,492 152,817 7,335 160,153 22,428 188,073 0.1%
6,144 162,089 7,780 169,869 24,328 200,341 0.1%
6,416 163,139 7,831 170,970 25,183 202,568 0.1%
7,323 170,356 8,177 178,533 28,230 214,086 0.2%
1,831 17,539 842 18,381 5,802 26,013 0
33% 11% 11% 11% 26% 14% 51%
Capital Reserves Developer Overhead Developer Fee Subtotal Developer OH and Fee Developer OH and Fee as % of TDC Total Development Cost (TDC) TDC Net of Cap. Reser. & Dev Fee contrib. (TDC Net)
0 0 5,186 5,186 0.02% 196,429 191,243
7,130 0 2,061 2,061 0.01% 197,264 188,073
7,130 0 2,186 2,186 0.01% 209,658 200,341
7,130 0 2,239 2,239 0.01% 211,938 202,568
7,130 0 2,414 2,414 0.01% 223,631 214,086
0 0 354 354
17% 17%
26,367 26,013
13% 14%
Operating Income Rental Income - Unrestricted Units Rental Income - Restricted Units Other Income Potential Gross Income (PGI) Less Vacancy Effective Gross Income (EGI) Effective Vacancy % (Vacancy / PGI
15,487 3,808 1,736 21,031 (1,349) 19,682 0.0%
15,586 3,935 1,377 20,898 (1,209) 19,689 0.0%
15,494 3,995 1,375 20,864 (1,204) 19,659 0.0%
15,640 3,903 1,369 20,912 (1,212) 19,700 0.1%
15,539 3,970 1,365 20,874 (1,207) 19,667 0.1%
(47) 35 (12) (24) 2 (21) 0
-0% 1% -1% -0% -0% -0% 33%
Operating Expense Management Fee Administrative Maintenance Utilities Replacement Reserve Taxes, Insurance Total Expenses Operating Expense Ratio - % of EGI
0 0 0 0 0 0 6,158 0.2%
0 0 0 0 0 0 6,158 0.2%
0 0 0 0 0 0 6,158 0.3%
0 0 0 0 0 0 6,158 0.3%
0 0 0 0 0 0 6,158 0.3%
0 0 0 0 0 0 0
0% 0% 0% 0% 0% 0% 0%
13,524 (9,169) 4,355 0.01 0.00044 0.034% 0.10 0.08
13,531 (9,208) 4,323 0.01 0.00047 0.036% 0.11 0.08
13,501 (9,786) 3,715 0.01 0.00053 0.040% 0.13 0.10
13,542 (9,893) 3,649 0.01 0.00055 0.042% 0.14 0.10
13,509 (10,439) 3,071 0.01 0.00063 0.047% 0.17 0.13
Net Operating Income (NOI) Debt Service Cash Flow Debt Service Coverage Ratio Debt Service Constant Rate - 30 Year Term Net Income Multiplier (NIM) - TDC divided by NOI Net Income Multiplier (NIM) Debt - Loan divided by NOI
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0 (0) 0 0
16% -4% 15% 53%
0%
(21) -0% (1,231) 13% (1,252) -29%
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Table 3 THE RESIDENCES AT WEST UNION - TABLE 3 Pro Forma Comparison Per Gross Square Foot
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Project Description Number of Units Gross Square Footage Residential Residential Garages Total Gross Square Footage Net Rentable Square Footage Parking Spaces Outdoor Enclosed Total No. of Parking Spaces Parking Ratio - Spaces Per Unit
24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
Uses of Funds Acquisition Subtotal Direct Construction Construction Contingency Subtotal Direct Construction - Hard Cost Subtotal General Development - Soft Cost Subtotal: Acquis, Const, & Gen Dev. Ratio of Soft Cost to Hard Cost
MassHous. PEL 5/16/2014
ZBA Ch. 40B 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Chg 132 to 99 Amt % Chg Chg
(33) -25%
140
132
118
113
99
194,854 11,648 206,502 170,871
169,670 4,000 173,670 138,672
150,700 4,000 154,700 123,615
144,106 4,000 148,106 118,381
126,345 4,000 130,345 104,284
(43,325) 0 (43,325) (34,388)
-26% -0% -25% -25%
210 36 246 1.8
212 18 230 1.7
214 16 230 1.9
215 15 230 2.0
185 13 198 2.0
(27) (5) (32) 0
-13% -28% -14% 15%
$30 4 33 0.00% 100 0.00% 0% 0% 133
$36 2 37 0.00% 112 0.00% 0% 0% 150
$38 2 40 0.00% 120 0.00% 0% 0% 160
$39 2 40 0.00% 121 0.00% 0% 0% 162
$41 2 42 0.00% 127 0.00% 0% 0% 170
$5 0 5
13% 17% 13%
15
13%
20
13%
20 93 2 95 14 130 0.0%
4 116 6 122 17 143 0.0%
5 124 6 130 19 153 0.0%
5 124 6 130 19 155 0.0%
6 129 6 136 21 163 0.0%
1 13 1 14 4 20 0
33% 11% 11% 11% 26% 14% 50%
0 0 4 4 0.00% 133 130
5 0 2 2 0.00% 150 143
5 0 2 2 0.00% 160 153
5 0 2 2 0.00% 162 155
5 0 2 2 0.00% 170 163
Operating Income Rental Income - Unrestricted Units Rental Income - Restricted Units Other Income Potential Gross Income (PGI) Less Vacancy Effective Gross Income (EGI) Effective Vacancy % (Vacancy / PGI
10 3 1 14 (1) 13 0.0%
12 3 1 16 (1) 15 0.0%
12 3 1 16 (1) 15 0.0%
12 3 1 16 (1) 15 0.0%
Operating Expense Management Fee Administrative Maintenance Utilities Replacement Reserve Taxes, Insurance Total Expenses Operating Expense Ratio - % of EGI
0.00 0.00 0.00 0.00 0.00 0.00 4.17 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 4.68 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 4.70 0.0%
Sources of Funds Developer's Cash Equity Developer's Fee/OH, Contributed Total Equity Ratio of Developer's Fee Contib. to Developer's Fee Total Permanent Debt MHP Fund Loan Rate - 30 Year Term Ratio of Loan to TDC Ratio of Developer's Cash Equity to TDC Total Permanent Sources
Capital Reserves Developer Overhead Developer Fee Subtotal Developer OH and Fee Developer OH and Fee as % of TDC Total Development Cost (TDC) TDC Net of Cap. Reser. & Dev Fee contrib. (TDC Net)
Net Operating Income (NOI) Debt Service Cash Flow Debt Service Coverage Ratio Debt Service Constant Rate - 30 Year Term Net Income Multiplier (NIM) - TDC divided by NOI Net Income Multiplier (NIM) Debt - Loan divided by NOI
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9 (6) 3 0.00 0.00000 0.000% 0.00 0.00
10 (7) 3 0.00 0.00000 0.000% 0.00 0.00
10 (7) 3 0.00 0.00000 0.000% 0.00 0.00
(0) -0% 0 0 17% 0 17% 20 20
13% 14%
12 3 1 16 (1) 15 0.0%
(0) 0 (0) (0) 0 (0) 0
-0% 1% -1% -0% -0% -0% 33%
0.00 0.00 0.00 0.00 0.00 0.00 4.70 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 4.68 0.0%
0.00 0.00 0.00 0.00 0.00 0.00 (0.00)
0% 0% 0% 0% 0% 0% 0%
10 (8) 3 0.00 0.00000 0.000% 0.00 0.00
10 (8) 2 0.00 0.00000 0.000% 0.00 0.00
(0) -0% (1) 13% (1) -29%
Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
9
Analysis of the Rate of Return on Investment The question of whether a project is economic or not following a condition that reduces the number of units does not turn on the scale of the project, but rather the rate of return for the project at an alternate scale of development. I analyzed the projected returns on total cost (ROTC) on the five pro formas as shown in Table 4. ROTC (Line 75) is calculated as net operating income (NOI) at stabilized occupancy divided by total development cost (TDC). This is sometimes referred to as the capitalization rate or the overall rate (OAR). I have also measured the return on total cost as net operating income divided by Total Development Cost net of developer's fee contributed as equity and Reserves for debt service (Line 76). This TDC net metric is useful because the data on market rate development transactions usually does not include such a substantial developers fee as a cost, nor does it include capital reserve as a cost. As calculated using TDC net, the ROTC is usually higher than the ROTC recognized for Chapter 40B projects. In Table 4 - Rate of Return Analysis I have reviewed the return on total cost (ROTC) which is the primary metric by which the Housing Appeals Committee (HAC) determines whether a project subject to conditions is economic or uneconomic. Return on total cost is calculated as the net operating income (NOI) divided by the total development cost (TDC), and is generally referred to as the overall rate (OAR) among commercial real estate participants. For the purpose of determining the ROTC of a project, it is the "as-is" (pre-40B) land value which is included in total development cost. In this case, that is $700,000 as determined by MassHousing appraisal, plus some recognition of time value for a total of $725,000. I have used this land acquisition value in my analysis, as has the applicant in their analysis. At Line 75 on Table 4 I have calculated the ROTC under the original 140 unit Project Eligibility Letter as 6.89%, the ROTC for the project as originally submitted to the ZBA at 132 units as 6.86%, and the Alternate C project of 99 units at 6.04%. I believe my calculations of ROTC mirror those of the applicant. The 2005 MHP Guidelines suggest a minimum return on total cost (ROTC) calculated as the 10 year Treasury rate plus 2.5%. The Treasury rate changes from time to time (Line 88) and has declined since the Project Eligibility Letter was issued in May of 2014. The minimum economic return on total cost under the MHP guidelines at the time of the Project Eligibility Letter would be calculated as the 10 year treasury yield of 2.52% plus 2.5% for a total of 5.02% (Line 99). Thus at the time of the Project Eligibility Letter, the minimum MHP Guideline return on total cost of 5.02% was less than the calculated return of 6.89% (Line 75), so the project was determined to be feasible, and presumably economic. Similarly, when the applicant proposed the 132 unit project the minimum return on total cost of 5.07% (Line 99) was less than the calculated return of 6.86% (Line 75) so the project would have been considered economic. Under the Alternate C 99 unit project the minimum return on total cost under the 2005 MHP Guidelines would be calculated as the 10 year treasury yield of 1.67% plus 2.5% for a total minimum return on total cost of 4.17% (Line 99). Both the applicant and I calculated the return on total cost of the Alternate. C 99 unit proposal as 6.04% (Line 75), greater than the minimum MHP Guideline return on total cost of 4.17%, so the Alternate C 99 unit proposal could be considered economic under the MHP Guideline standard.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Aside from the MHP Guideline, there is a market rate of return calculated from investor surveys such as the Price Waterhouse Cooper's Investor Survey. This return, which changes over time, is the overall rate (OAR), calculated the same as the return on total cost (ROTC) under the MHP Guideline (net operating income divided by total development cost). At the time of the May 2014 Project Eligibility Letter the average Mid Atlantic apartment market capitalization rate (OAR) was 5.46% (Line 97 which represents a 2.94% spread to the 10 year treasury rate at that time of 2.52% (Line 88). Thus the average market overall capitalization rate (OAR) at the time of the Project Eligibility Letter and at the submission of the 132 unit project was less than the calculated rate I found under either the 140 or the 132 unit proposal (6.89% and 6.86% respectively), and also less then the 6.04% ROTC calculated for the 99 unit C proposal. Under each of the three alternatives, the calculated return on total cost (ROTC) found at Line 75 was higher than the respective MHP Guideline rate (Line 99), and higher than the average market rate of return (Line 97). The indicated returns from the five pro formas are shown in the following Table 4. Table 4 THE RESIDENCES AT WEST UNION - TABLE 4 Rate of Return Analysis PEL 5/16/2014 68 73 74 75 76 77 86 87 88 89 90 91 92 93 94 95 96 97 98 99
ZBA 132 Units 06/25/2014
Alt. "A" 118 Units 06/14/2016
Alt. "B" 113 Units 06/16/2016
Alt. "C" 99 Units 06/20/2016
Calculated Proposed Return Return on Total Cost (ROTC) NOI divided by TDC NOI divided by TDC Net
6.89% 7.07%
6.86% 7.19%
6.44% 6.74%
6.39% 6.69%
6.04% 6.31%
2.52%
2.57%
1.62%
1.57%
1.67%
ROTC spread to 10 Year Treasury Yield NOI divided by TDC less 10 Year Treasury Yield NOI divided by TDC Net less 10 Year Treasury Yield
4.37% 4.55%
4.29% 4.62%
4.82% 5.12%
4.82% 5.12%
4.37% 4.64%
PWC Real Estate Investor Survey ROTC PWC ROTC (OAR) Ave. Mid-Atlantic Apt. Market PWC ROTC Spread to 10 Year Treasury Yield MHP Guidelines - 10 Year Treasury plus 2.5%
5.46% 2.94% 5.02%
5.46% 2.89% 5.07%
5.23% 3.61% 4.12%
5.23% 3.66% 4.07%
5.23% 3.56% 4.17%
Comparative Yields 10 Year Treasury Yield Return on Total Cost (ROTC)
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Is it Economic? Three Tests As noted earlier, the question of whether a project is economic or not following a condition that reduces the number of units does not turn on the scale of the project, but rather the rate of return for the project at an alternate scale of development. I have considered three tests of whether the rate of return would be considered economic upon appeal to the HAC. Lookback Test - implied ROTC at issuance of the Project Eligibility Letter. 2005 MHP Guideline Test Market Rate Test of feasibility The Lookback Test - Chapter 40B 760 CMR 56.02 In this instance, the applicable portion of 760 CMR 56.02 is paragraph (d): "[F]or the purpose of determining whether the Project is Uneconomic, when one or more conditions imposed by the Board decrease the total number of units in a Project, if those conditions do not address a valid health, safety, environmental, design, open space or other Global Concern, then the amount is calculated prior to the imposition of such conditions s hal lbet hemi ni mum…" I believe the calculations prior to the imposition refers to the projections relied upon by MassHousing in the issuance of their Project Eligibility Letter on 5/16/2014. Wi t hr e s pe ctt ot hei nt e r pr e t at i onofami ni mum de ve l ope r ’ sf e eormi ni mum r at eofr e t ur n referenced in 760 CMR 56.02, my plain reading of the text is that it refers to the amount of a rate, not a dollar nominal amount. Paragraph "d" refers to paragraph "c" in establishing the minimum set forth, and paragraph "c" refers to paragraph "b" which in paragraph "b1" refers to a rate (10% of the TDC) and in paragraph "b2" refers to a reasonable rate. Perhaps the regulation could have been more artfully worded. I interpret it to establish the floor on the return on total cost ROTC, again, as the rate calculated in the PEL. Even if interpreted as a ratio established at the time of the Project Eligibility Letter, I find the standard to be troubling from a standpoint of the market context. Market rates of return are time sensitive. A competitive and desirable fate of return for apartment development in one year may not be considered so in another year owing to changes in the capital markets, and the relative desirability of the investment in the apartment sector compared with say investment in the office or retail sector. The minimum rate of return, ROTC of 6.89%, that I have assumed would be referenced in a “l ook back”t e s tofe conomi cf e as i bi l i t yof the 99 unit development is actually based on the projections West Union Realty Trust reported for the 140 unit development referenced by the Project Eligibility Letter issue in May of 2014. West Union Realty Trust reported projected net operating income (NOI) of $1,893,388 and total development cost (TDC) of $27,500,000 the mathematical ratio of which is a 6.89% rate of return which is greater than the projected 6.04% return of the Alternate C 99 unit development.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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The MHP 2005 Guideline Test Likely in response to concerns about the “ lookback”concept of the 760 CMR 56.02(d) HAC issued their Ruling In Limine of September 20, 2013. The HAC ruling is divided into two parts. The first is entitled The Standard for Measuring Reasonable Rate of Return (my italics). The second section is entitled Date for Measuring Reasonable Rate of Return. It seems clear the HAC will be reviewing the rates of return, not the nominal dollars of the developer fee. In section 2 the HAC memo quotes "Proof concerning the economics of a proposed development can be complicated. At the most basic level, it involves not fixed quantities, but rather projections of use future costs and revenues." With respect to the concept of reviewing the proposed development as new, de novo, I note the rulings reads "We will apply our traditional "time of hearing" benchmark, that is, the date upon which the Pre-Hearing Order is issued an evidentiary portion of the hearing begins." One might conclude that the effective date of projections and profit allocations should be the date of the Pre-Hearing Order. Finally, I note that the 2013 Ruling in Limine affirms the 2005 MHP Guidelines as the methodology of determining whether a project is economic. There is nothing in the new regulatory definition that indicates that the ROTC methodology should be abandoned, and therefore I expect the parties to apply that approach-- as described in the MHP Guidelines-- in analyzing the facts of this case. They are not prohibited from supplementing their analysis with an ROE analysis, but they should be forewarned that there is likely to be given less weight by the Committee." Page 5 The 2005 MHP Guidelines recognized that rates of return are generally associated with the cost of capital, and specifically with the benchmark return represented by the yield rate of a 10 year treasury bill. The 2005 MHP Guidelines standard for ROTC is 2.5% over the 10 year treasury rate. By the 2005 MHP Guidelines, the minimum economic rate of return would be calculated as the current 10 year treasury rate +2.5%. The minimum economic rate of return as of June of 2016 would be calculated as 4.17% (1.67% 10 Yr. Treasury +2.5%) which is less than the 6.04% return projected for the Alternate C 99 unit development.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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The Market Rate Test of Economic Feasibility I believe a de novo hearing at the HAC on a 99 unit development scenario would consider economic feasibility as defined below by the Appraisal Institute:
I think the key distinction here is that profitability should be analyzed in terms of the criteria of a specific market, in this case the market comprised of participants in the development and acquisition of multifamily rental housing. The anticipated returns on investment in multifamily housing (going-in capitalization rate OAR) differ by investment type (residential versus office), by market location (Boston versus Atlanta) and by date (say 2Q2014 versus 2Q2016) and thus are not static, but time sensitive. Changes in investor expectation are tracked by various national investor surveys published quarterly including the Price Waterhouse Coopers PcW Real Estate Investor Survey. Back in May of 2014 when the Project Eligibility Letter was issued the industry standard average ROTC for multifamily apartments in the Mid Atlantic market, as surveyed by PriceWaterhouseCoopers for the second quarter of 2014 was 5.23% (Appendix 1). The same survey indicated the average ROTC for multifamily apartments in the Mid Atlantic market for the second quater of 2016 was 5.46% (Appendix 2). By the market test of economic feasibility an economic rate of return would be the 5.23% market rate average as of June of 2016 which is less than the 6.04% return projected for the Alternate C 99 unit development.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Why West Union Realty Trust Might Decide to Proceed with a Permitted 99 Unit Development My experience with the relevant statute and regulations is that, when the ZBA makes conditions reducing the number of units, the developer is generally still anticipating at least the rate of return implied in the project that received the Project Eligibility Letter. So I consider how far the financial forecast of rate of return on the lesser scaled project is from the rate of return implied in the Project Eligibility Letter, or from that anticipated by the developer for the scale of project they are willing to undertake, which in this case was 132 units. I also consider whether it is reasonable to expect any prudent developer would proceed with the lesser scaled project given the rate of return likely to result from the smaller project in comparison with an applicable industry standard market rate of return. West Union Realty Trust controls a 7.67 acre site on Route 135 just south of Interstate 90, and just east of Interstate 495. The Town of Ashland might well permit the development of 99 apartments on the site. Once completed the net operating income could be about 6.04% of total development costs meaning the developer will own the development at a capitalization rate of 6.04% when the average capitalization rate (return on total costs) of Mid Atlantic apartments is 5.23%. This means the property value would likely exceed its projected $22,139,444 replacement cost (total development cost) as soon as stabilized occupancy is achieved. This enhanced value of $25,572,084 results from dividing the 99 unit projected net operating income of $1,337,420 by the .0523 average market capitalization rate (return on total costs) of Mid Atlantic apartments. Massachusetts presents many barriers to entry to developers seeking development permits, even if they have been successful in controlling a developable site. Demographic analysis forecasts a bulge of echo boomers who will be looking to rent, and it looks like rents might continue to go up for a bit. The economy hasn't had the recovery that was hoped for, so real estate capital is chasing apartments rather than office or retail. It appears that apartment capitalization rates could drop even lower, indicating that apartment fundamentals have yet to peak. Average overall capitalization rates in the mid Atlantic regional private markets have trended downward since the Project Eligibility Letter was issued in May of 2014 from 5.49% to 5.23% currently, in conjunction with the full recovery occurring in the multifamily sector. This decline of 26 basis points in the mid-Atlantic market is a reflection of strong fundamentals in the apartment property sector. Fairly intense competition for assets in a relatively low-cost debt environment continues to hold capitalization rates down and drive the pace of apartment transactions. So I think the fundamental economics of apartment development today would support a decision by the applicant to proceed with a permitted 99 unit development at 133 West Union Street.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Summary of Finding I have considered two scenarios under which the HAC might view a proposed 99 unit project. Scenario 1 assumes a hearing at the HAC on a proposed Alternate C 99 unit development in which a determination is made by the HAC that the condition imposed by the Board decreasing the total number of units in the project does not address a valid health, safety, environmental, design, open space or other Local Concern, and that the minimum rate of return as set forth in 780 CMR 56.02(d) is determined by a “l ookback”t ot hepr oj e ct e dr e t ur nsoft heor i g i nal140 unit project referenced in the Project Eligibility Letter. Scenario 2 assumes a hearing at the HAC on a proposed Alternate C 99 unit development in which a determination is made by the HAC pursuant to the rationale described in September 20, 2013 Ruling In Limine referencing both the 2005 MHP Guidelines and the 2012 changes to the regulations in 780 CMR 56.02. The perspective is of a de novo hearing in which the HAC recognizes the context provided by industry standard rates of return for the purpose of determining whether the project is uneconomic. Under each of these two scenarios I have applied the applicable standard for the purpose of determining whether the project is uneconomic to my findings of the likely return on total cost (ROTC) for the Alternate C 99 unit project. It is my opinion that under the Scenario 1 “l ookbac k”t ot hepr oj e ct e dr e t ur nsoft he140uni t project referenced in the Project Eligibility Letter issued in May of 2014, the 99 unit project could be found to be uneconomic, but that under a Scenario 2 de novo hearing the HAC would find the 99 unit project to be economic. These findings are summarized in the following Table 5. Table 5 Summary of Finding Scenario 1 - "Lookback" Scenario 2 - Market based 99 Unit HAC Hearing 99 Unit HAC Hearing No Local Concern Per 760 CMR 56.02 (d) As de novo Per Ruling In Limine 9/20/13
Measure of Return Return on Total Cost (ROTC)
Benchmark
MHP Guideline: 10 Yr. Treas. + 2.5%
6.89% Projected Rate of Return at PEL or 6.86% at 132 Unit Application
5.23% Average Market Rate of Return (OAR)
5.02% (10 Yr. Treas. of 2.52% + 2.5%)
4.17% (10 Yr. Treas. of 1.67% + 2.5%)
6.04%
6.04%
Uneconomic
Economic
Current Projected for 99 Units Finding
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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This contradictory result may evidence a disconnect between policy and practice. In fact, the HAC might recognize several arguments against employing the Scenario 1 “l ookba ck”test: The rate of return on total development costs (ROTC) implied in the Project Eligibility Letter was determined over two years ago in May of 2014. The 140 unit project described in the Project Eligibility Letter was not the 132 unit project submitted to the ZBA in June of 2014. Since the application for the 132 unit project submitted to the ZBA in June of 2014 market conditions have changed, including a decline in the 10 year Treasury rate, and a decline in the average market rate of return for multifamily housing. I believe the intent of the 2013 HAC Ruling In Limine was to recognize that, in practice, a lesser return than a developer may have originally proposed for the Project Eligibility Letter can still be an economic and reasonable return in the current marketplace. Under each of the three alternatives, the calculated return on total cost (ROTC) found at Line 75 was higher than the respective MHP Guideline rate (Line 99), and higher than the average market rate of return (Line 97). So assuming the development cost and operating expense projections of the applicant are reasonable, all three Alternative proposals A, B, and C, could be found to be economic upon appeal to the HAC. Giving greater weight then to Scenario 2, I believe the HAC would find that a 99 unit development of the Residences at West Union at 133 West Union Street could offer a reasonable return on total cost, and would be found to be economic.
Respectfully submitted,
John C. Bowman, III, CRE, FRICS MA Cert. General Appraiser No. 4676
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Certification I certify that, to the best of my knowledge and belief: -
-
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The statements of fact contained in this report are true and correct. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, and unbiased professional analyses, opinions, conclusions, and recommendations. I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest with respect to the parties involved. I have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment. I have no bias with respect to any property that is the subject of this report or to the parties involved with this assignment. My engagement in this assignment was not contingent upon developing or reporting predetermined results. My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal consulting assignment. My analyses, opinions, and conclusions were developed, and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice. I have made a personal inspection of the property that is the subject of this report. No one provided significant real property appraisal or appraisal consulting assistance to the person signing this certification. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. As of the date of this report, have completed the continuing education program for Designated Members of the Appraisal Institute. As of the date of this report, I have completed the Standards and Ethics Education Requirements for Candidates of the Appraisal Institute.
John C. Bowman, III, CRE, FRICS MA Cert. General Appraiser No. 4676
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
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Statement of Qualifications John C. Bowman, III, CRE, FRICS received an A.B. cum laude from Dartmouth College with a major in Architecture and a minor in Urban Studies. He received a Master in City Planning from the Harvard University Graduate School of Design. Mr. Bowman is a Certified General Real Estate Appraiser in the Commonwealth of Massachusetts. He has completed all Appraisal Institute course work, experience review, and the Comprehensive Examination required as a Candidate for Designation by the Appraisal Institute. Mr. Bowman has held construction supervisor's licenses from both the Commonwealth of Massachusetts and the City of Boston as well as the professional designation Counselor of Real Estate (CRE). He has been elected a Fellow of the (UK) Royal Institution of Chartered Surveyors (FRICS), and is an elected member of Lambda Alpha International, the Honorary Society for the Advancement of Land Economics. As a municipal permitting official Mr. Bowman represented the Greater Boston Real Estate Board for 15 years (1986 through 2001) as their designated alternate member of the Boston Zoning Board of Appeal (ZBA). During his tenure on the ZBA he heard and voted on over 4,000 appeals for zoning variances required for every use from affordable multifamily housing to convention center development. Mr. Bowman also represented the Greater Boston Real Estate Board for 10 years as their designated member of the Boston Landmarks Commission (BLC) for which he served as Chairman from 1996 through 2003. The BLC has permit review authority over the alteration, expansion or demolition of National Register properties and many other architecturally or historically significant structures and sites in downtown Boston. The Massachusetts Housing Partnership Fund (MHP) has designated Mr. Bowman as a multifamily housing development consultant qualified under their grant program to provide technical assistance to local Zoning Boards of Appeal in their review of Chapter 40B comprehensive permit applications for the development of market rate and affordable housing. In this capacity Mr. Bowman has assisted the Zoning Boards of Appeal in a number of municipalities in the Commonwealth. MassHousing, the Massachusetts Housing Finance Agency, has qualified Mr. Bowman to perform all real estate appraisal functions of the Agency. Mr. Bowman has also performed numerous appraisal assignments for the Boston Redevelopment Authority and other municipalities, as well as private owners. He has also been retained as an expert appraisal witness by the Internal Revenue Service. As an expert appraisal witness Mr. Bowman has been qualified in the United States Tax Court, Suffolk Superior Court, Norfolk Superior Court, Dukes Superior Court, Worcester Land Court, and the Commonwealth of Massachusetts Housing Appeals Committee. Mr. Bowman has been a General Partner of real estate developments in which he directed the acquisition, permitting, financing, design, construction, marketing, and management of over 44 multifamily buildings. He is currently a General Partner of three partnerships operating multifamily housing in 21 buildings, and is the developer of a single family residential subdivision in Chapel Hill, North Carolina. Mr. Bowman's real estate practice involves investment analysis, market analysis, development feasibility and valuation, with particular emphasis on partial interests including conservation and preservation easements, subdivision development, multifamily housing development, high-end residential development, and nursing homes.
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
Appendix 1 PriceWaterhouseCoopers Apartment Rate of Return OAR Second Quarter 2014
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Financial Review of The Residences at West Union, 133 West Union Street, Ashland, MA
Appendix 2 PriceWaterhouseCoopers Apartment Rate of Return OAR Second Quarter 2016
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