The State allows towns rezoning land that can be used towards HCA compliance to require developers to set aside 10% affordable units. In order to request a higher than 10% affordable quota, towns have to submit a feasibility study to the State. As per the guidelines, the analysis must demonstrate that a reasonable variety of multi-family housing types can be feasibly developed at the proposed affordability levels, taking into account the densities allowed as of right in the district, the dimensional requirements applicable within the district, and the minimum number of parking spaces required. Lincoln hired a third-party to conduct such a study, requesting 15% affordable units, but the State denied our request.
Could the denial have been a surprise to the authors of the study?
The answer is a resounding no. The feasibility analysis included a series of scenarios with deeply negative rates of return (as low as -37%). Anyone who had taken a look at the report ahead of its submission would have known that the State would not grant Lincoln the requested 15%.
Was denial the only possible outcome?
The answer I believe is also a resounding no. The analysis conception was deeply flawed. A more reasonable set of scenarios would have probably yielded at least 15% affordable units, perhaps even 20%.
Why did Lincoln submit a report that would certainly be denied?
We enter into the realm of speculation here, but there are only two reasonable explanations: lack of oversight, or satisfaction with the results.
Supporting the lack of oversight explanation, there are several instances in which the HCAWG and the Director of Planning have failed to properly oversee the work of consultants. Gross mistakes were made in the model submission to the State prepared by Utile, as well as in the maps presented to the public in which some parcels were not properly represented in the maps used for public discussion. We also know that the economic analysis referenced in the HCAWG’s site, which was prepared by a consultant for Civico at the time it was requesting approval for Oriole Landing, includes unsourced educational costs that severely understate their true value. If proper numbers had been used, the study would have indicated that the development yielded negative fiscal results for the Town.
Supporting the explanation that the denial was a satisfactory result for the overseeing parties involved is the fact that throughout this process it has been clear that the RLF is trying to maximize the price of the sale for the Mall, and several members of the HCAWG have been publicly explicit in their support for meeting Civico’s wishes. Loosening affordability requirements would obviously increase the profits for Civico and therefore the price of the sale. Let us remember that certain Planning Board members presented a by-law draft last week that allowed the developer to pay fees in lieu of building affordable units.
What are the flawed assumptions exactly?
The study runs some internal rates of return (IRR) for a variety of multi-family housing types. The scenarios are divided into for sale developments, and rental developments. The scenarios are also divided by the type of development; there are townhome scenarios and garden style scenarios. Finally scenarios vary by size: 24 units, 45 units, and 120 units.
All of the townhome scenarios deliver rates of return that are commensurate with developers’ expectations. The four garden style developments are however deeply problematic. Their IRRs are -37% and -32% for the for sale developments and 2% and -1% for the rentals. Garden style and townhome developments are modeled as costing a similar amount, but townhomes have a unit market price that is approximately 50% higher! Simply, why are the consultants modeling garden style developments when townhomes are so superior economically? No rational developer would ever develop a garden-style development assuming this set of assumptions is remotely accurate. It is important to note that the math for garden style developments would also not work at 0% affordability.
Why are the for sale garden style condos so unattractive?
The assumptions used by the consultant are highly flawed. First, the set of comps seems quite biased. Why are we taking Cold Brooks in Sudbury as basically the only comp to determine price per unit? If we are taking a comp from a westerly neighbor (Sudbury), why not also take an easterly neighbor (Lexington)? Since prices per square foot for the comps in Lexington, per the consultants admission, are 40% higher than those for Sudbury the result, had we taken an average of the two, which would have been more appropriate, would have changed dramatically.
More importantly, Cold Brooks is a new development. It is completely absurd to expect Pulte Homes, the developer of Cold Brooks and a publicly traded company, to start a development expecting negative 30% returns. Clearly the cost per unit used by our consultant is dramatically wrong.
