Tax Abatement Feasibility Study · LEX-LAZ request the building permit fees be waived. G+Y recommends the permit fees be reduced by at least 80% of the Town’s share of the permit

1137 Main StreetEast Hartford, CT 06108Tel: (860) 841-3271Fax: (877) 741-7210gomanyork.com

Prepared for the Town of West Hartford, Connecticut

June 2020

Tax Abatement Feasibility Study:“One Park” Development

Southwest corner of Park Road and Prospect Avenue | West Hartford CT

Table of Contents

Executive Summary 2

Assignment and Project Overview 6

Review of Developer Proposal 10

Economic Impact Analysis 14

Fiscal Impact Analysis 20

APPENDIX: Supplemental Pro forma Financial Workbooks 28

Tax Abatement Feasibility Study: Proposed "One Park" Development 1

Executive Summary

Goman+York, on behalf of the Town of West Hartford, reviewed a proposal and request for a real property tax abatement (in accordance with Sec. 12-65b C.G.S. and hereafter referred to as tax abatement) by LEX-LAZ West Hartford, LLC (the “Developer”) submitted to the Town in connection with its proposed purchase and redevelopment of certain portions of the property currently known as 27 Park Road and 14 Ringgold Street, West Hartford, Connecticut (the "Property” or ”One Park”). The Developer has requested a tax abatement and we have evaluated the costs and benefits to the Town of providing one.

Additionally, Goman+York conducted its own, independent financial modeling analysis of the proposed development, informed by industry standard metrics and our own proprietary research. The general approach of our methodology is to make conservative assumptions, given the high-risk nature of real estate development and market uncertainty.

Simply stated, this development is uniquely attractive on several fronts, relative to recently approved multi-family projects in West Hartford. First, it preserves the historic chapel, a landmark fixture of the existing convent. While this reduces the amount of rentable building area to about 66% (normally we expect over 80% rentable for a multi-family development), it redefines the chapel as a differentiating amenity for the future residents of One Park.

Second, the project consists predominantly of studios and one-bedroom apartments (78% of total units). This is in contrasts to recently approved developments in West Hartford, over the past 5-6 years. The unit mix in favor of single household renters speaks to the project’s greater affordability, as does the 10% of units reserved for renters with incomes of 80% of Area Median Income (AMI). Lexington Property Management will manage all units at One Park and will report to the West Hartford Housing Authority who will function as the administrator of the Affordability Plan for the income restricted units. This will ensure compliance with the Affordability Plan

requirements. Last, the development, with its prominent chapel, beautiful green space, and modern addition will define the gateway to West Hartford, and positively impact the neighborhood-in-transition between it and the West End of the City of Hartford.

However, a tax abatement would be instrumental in achieving the project, as proposed. Public incentives such as tax abatements make it feasible to achieve the returns required to attract the needed equity capital; otherwise, the project may not get built. Typically, desired Returns on Investment (ROI) for this type of development range 12-18%.

The improved rates of return resulting from the tax abatement would make the proposed development more attractive to investors and more likely to be successful.


Executive SummaryConclusions and Recommendations

Building Permit Fee Waiver:LEX-LAZ request the building permit fees be waived. G+Y recommends the permit fees be reduced by at least 80% of the Town’s share of the permit fee.Return on Investment – Without Recommended Tax Abatement• 7.5% project IRR and 12.2% equity IRR (LEX-LAZ assumptions)

• 7.0% project IRR and 10.8% equity IRR (Goman+York assumptions)Return on Investment – With Recommended Tax Abatement• 8.3% project IRR and 14.0% IRR on Equity (LEX-LAZ assumptions)• 7.8% project IRR and 12.6% IRR on Equity (Goman+York assumptions)

Comparing Tax Abatement Proposals

Years 1 – 3 4 5 6 7 8 9 10 11

LEX-LAZ 100% 90% 80% 70% 60% 50% 40% 30% 0

Goman+York

100% 80% 70% 50% 50% 50% 50% 50% 0

Executive SummaryMunicipal Fiscal Impact of Tax Abatement

Net Fiscal Impact

As shown in the graph, with the recommended tax abatement, One Park will be fiscally negative in years one through four and positive in years five through 10. In year 11, after the tax abatement expires, One Park is net positive by approximately $1,111,700.

It is important to note, the fiscal impact in years one and two is a negative impact “on paper”. Most likely, this loss will be absorbed into existing government services with no realized, actual fiscal impact.


($400,000)

($200,000)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Net Fiscal Impact

Executive SummaryEconomic Impact


$1,463,790

$3,415,215

Annual Consumer Spending by New Residents

Within West Hartford

Outside West Hartford

20

126

New Jobs (FTE)

Permanent Construction

Total FTE jobs created directly from development:

126New, permanent, FTE jobs created on-site and in surrounding area:

~20

Positive Economic

Impact

Assignment & Project Overview

Goman+York was engaged to provide a preliminary analysis to determine the costs and benefits to the Town of West Hartford related to the potential provision of a real property tax abatement for a proposed development known as ”One Park”. Our analysis includes:

1. A review of the development cost pro forma and any related information, as provided by the Town of West Hartford,

2. A review of the pro forma Operating Statement for the completed project, as provided by the developer, Lexington Partners LLC, or the Town of West Hartford. In the absence of pro forma operating information, G+Y will provide our best estimate of Net Operating Income for purposes of project valuation,

3. Creating a valuation analysis of the completed project, based upon the available information,

4. Estimating the costs to the Town of providing a tax abatement,

5. Estimating the net increase in property taxes that the Town can reasonably expect to receive from the new development,

6. Estimating the anticipated impact on the assessed value of properties surrounding the new development and the resultant increase in property taxes.

The Assignment


One Park | West Hartford CT

David CorreiaData Scientist

Mike GomanCRX, CLS, CSM

Principal

Valeri IvanovSenior Business

Analyst

Professional Team

Don PolandPhD, AICP

Managing Director, Urban Planning

Michael PowellAnalyst


Development ProposalSource: Lexington Partners LLC; Amenta | Emma Architects; CR3, LLP; Langan CT, Inc.

Key Facts• 22-acre property• Five stories proposed

development• 230,098 SF new construction (199

units)• 111,221 SF renovated (96 units)• 30,950 SF of parking space• Preservation of the historic

structure, especially the chapel.

Unit Mix• 48% (141 units) studio units,• 29% (86 units) one-bedroom

units,• 9% (28 units) one-bedroom + den

units,• 11% (32 units) two-bedroom

units,• 1% (4 units) “Empty Nester” two-

bedroom + den units,• 1% (4 units) three-bedroom units.• 10% of units will be 'affordable'

(at 80% AMI).


Conceptual Renderings of the Completed RedevelopmentSource: Lexington Partners LLC; Amenta | Emma Architects; CR3, LLP; Langan CT, Inc.

Review of Developer Proposal

Why is Public Participation Necessary?


Real estate developments must achieve high returns to be attractive to investors• Typical desired Return on Investment

(ROI) = 12 – 18%• Public incentives such as tax

abatements are often necessary to achieve the returns required to attract the required equity capital; otherwise, the project may not get built

The higher return on Investment:• Reflects the risks of real estate

development vs. alternative investments• Is a common issue in older urban

markets, smaller cities, particularly in the Northeast

• Required returns vary by the conditions of the market:• growth and affluence• urban vs. suburban


Review of Developer ProposalPro forma Development Costs

In analyzing the necessity of a tax abatement for the proposed One Park project, Goman+York examined the expected valuation and projected returns.

The developer’s proposal included development costs and projected operating incomes. Goman+York produced two prospective financial pro forma models; one approximating the numbers provided by the developer and another utilizing Goman+York’s total cost expectations. Each model includes a detailed development cost structure and a 10-year operating timeline.

Upon research, the developer’s hard construction costs were deemed reasonable and were used for costs in both models. However, given the age of the existing building and its historic nature, soft costs were considered aggressive and increased in Goman+York’s model. Overall, the costs of the two models are similar.

Developer Costs Total Per Sq. Ft.Land & Site Costs $6,725,543 $21.93Hard Construction Costs $49,269,106 $160.65Soft Costs $3,251,147 $10.60Financing & Leasing Costs $3,860,538 $12.59Developer Fees $2,250,000 $7.34

Total Development Cost $65,356,602 $213.11

Goman+York Costs Total Per Sq. Ft. Diff. vs Dev.Land & Site Costs $6,725,543 $21.93 -Hard Construction Costs $49,269,106 $160.65 -Soft Costs $3,882,808 $12.66 +19.4%Financing & Leasing Costs $3,898,861 $12.71 +1.0%Developer Fees $2,250,000 $7.34 -

Total Development Cost $66,026,318 $215.29 +1.1%


Review of Developer ProposalPro forma Operating Statement

Assumptions Without a Tax AbatementGoman+York compared the residential rents provided by the developer against rates for the market. Considering the prevalence of studios and 1 bedrooms, the developer provided average rent of $2.66 per square foot a month was deemed reasonable.

Without the tax abatement, the stabilized operating statement shows an overall Net Operating Income (NOI) of approximately $3.9 million. This provides a current day valuation of approximately $67.3 million, roughly equivalent to the overall cost of the project.

Calculating the Need for a Tax AbatementWhen examining the project over a longer 10-year holding period with the proposed tax abatements, we observe: • 8.3% project IRR and 14.0% IRR on Equity (developer

assumptions)• 7.8% project IRR and 12.6% IRR on Equity (Goman+York

assumptions)

Typically we expect projects to require a return on equity of at least 12% to be built, with investors typically seeking returns of up-to 18%

Proposed Tax Abatement StructureGiven the size of the project and expected infrastructure expenses, Goman+York applied a tax abatement structure of:• 100%: Years 1-3• 80%: Year 4• 70%: Year 5• 50%: Year 6-10• 0%: Year 11

Income: Rental

Residential: Market Rate $/Sq. Ft. 33.9 6,685,034

Residential: Affordable $ 488,846

Other Income $/unit 106 31,270

Income: Total Rental 7,205,150

Residential Vacancy/Bad Debt Loss % 5% (334,252)Gross Rental Income 6,870,899

Operating Expenses:Residential - Oper. Ex % 27% 1,804,959

Residential - Taxes $ 1,191,968 Commercial - Oper. Exp. $/sf 3.00 -

Commercial - Property Taxes $/sf 8.00 -Gross Operating Expenses 2,996,927

Net Operating Income (NOI) 3,873,971

Stabilized Valuation Cap. Rate 5.75% 67,373,417

Debt Service - Permanent Loan (3,072,341)

Net Cash Flow - Annual 801,631

Economic Impact Analysis

Assumptions - Construction and Permanent Jobs Impact:

To estimate construction jobs created (and/or sustained) by residential development (construction) we use two Methods. First, we use estimates (a multiplier) derived from the National Association of Homebuilders (2015) study on the local economic impact of multi-family housing development. Second, we use a multiplier of 6.2 labor hours per $1,000 of total construction cost (total project cost less the soft costs).

• Calculation: construction cost multiplied by labor hours of 6.2 hours per $1,000 construction cost and divided by 2,000 hours (average full-time hours worked per year) equals the total number of construction jobs created and/or sustained. For example, if the construction costs are estimated at $10,000,000 x 6.2 (labor hour multiplier) = $62,000,000 / 1,000 (per $1,000 construction cost) = 62,000 hours / 2,000 (full-time employment hours) = 31 jobs.

We then evaluate the results of both methods and estimate what we believe to be a reasonable estimate of construction jobs based on the two methods and our experience.

To estimate permanent jobs created (and/or sustained) by residential development we also derived multipliers from the National Association of Homebuilders (2015) study on the local economic impact of multi-family housing development. We compare these findings to our calculations of local consumer spending in the community by the residents and estimate the permanent jobs.

Assumptions - Consumer Spending and Local Area Impact:

• Household Income: Renter Median Household Income for West Hartford (Source: US Census) adjusted by Goman+York for the housing product and price point. Our adjusted gross household income (AGHI) is $74,000. We use this conservative estimate rather than the actual median gross household income (MGHI) of $99,000 because renter households tend to be less affluent than homeowners. Additionally, our assumptions do not explicitly account for 10% of the units (29) being restricted as affordable and only available to households with incomes below 80% of median area incomes. The eligible affordable households are implicitly accounted for in our $74,000 AGHI since it is less than the 80% AMI ($79,800) income required to qualify for the affordable units.

• Disposable Income (Spending Power): We calculate disposable income based on a 25.5% average, effective income tax rate (12.8% federal income, 4.9% CT income, 7.7% FICA). Therefore, a renter household making $74,000 a year would have $55,130 in discretionary spending (minus 25.5% of tax rate). We assume 30% disposable income for a total of $16,539 per household.

• Disposable Income – Local Share Spending: Using the 30% of household disposable income, we allocate 30% ($4,962) of disposable household income for local (in West Hartford) spending.

Economic Impact AnalysisMethodology


Economic ImpactThe aim of our economic impact assessment is to provide the Town of West Hartford with a reasonable and conservative estimate of the economic impact of the One Park development. To accomplish this, we utilize economic development research studies and industry sources to develop multipliers that allow us to estimate job creation, consumer spending, and impacts on surrounding property values.Construction JobsTo calculate the construction jobs created by the construction of the 295 proposed residential apartment units, we start by using the findings of a study by the National Association of Home Builders (2012) that found the construction of 100 multi-family units creates 165 construction jobs (or 1.65 jobs per unit). Multiplied by 1.65 jobs per unit, the 295 proposed residential units, the findings of the NAHB study would estimate 486 construction jobs created. However, the NAHB study utilizes an approach that includes all the jobs in the commodity chain of the building materials and transportation of materials to the site, in addition to the on-site construction jobs. Therefore, and next, we compare the construction jobs estimated by the NAHB findings to the labor hour and construction cost multipliers and provide an estimate based on our experience.

Per the developers pro forma, the hard costs are $40,737,118. The calculation, total hard construction costs of $40,737,118 x 6.2 (labor hour multiplier) = $252,570,131 / $1,000 (per $1,000 of construction cost) = 252,570 hours / 2,000 (1-year full-time employment hours) = 126 full-time equivalent (FTE) construction jobs to be created and/or sustained during the construction period of the residential apartments. Compared to the NAHB estimate of 486 FTE construction jobs—which we believe to be unreasonably high—the 126 FTE construction jobs, based on labor hours and construction costs is a more reasonable estimate of the construction jobs to be created

(and/or sustained) as a result of the 295 residential units. Being conservative in our work, we project that 126 FTE construction jobs will be created (and/or sustained). Permanent JobsTo calculate the permanent jobs created for the 295 residential apartment, we would not expect more than three direct full-time on-site jobs. However, the NAHB (2015) study found that 100 newly constructed apartments create and sustain approximately 50 jobs in year two (and beyond). These jobs would include facilities management and maintenance (e.g. landscaping, HAVC service, etc.) and the spillover of consumer spending into surrounding businesses from the new residents—that consumer spending creating (and/or sustaining) jobs in the community.Once again, we believe the NAHB findings to be very high. For example, the 50 jobs per 100 units equals 147 jobs created by the 295 units. Therefore, based on our experience and the calculations on consumer spending in the community (see below), we conservatively estimate in year two and beyond, approximately 20 jobs will be created (and/or sustained) from the 295 residential units on-site and in the surrounding area. Most notable in our conservative estimate is the high percentage of studio and one-bedroom units that effectively result in small household size, lower household income, less disposable income, and less local spending power.

Total JobsBased on the estimates above, we conclude that the One Park development will likely result in approximately 126 construction jobs and 20 permanent jobs will be created and/or sustained on-site and in the surrounding area.

Economic Impact AnalysisMultipliers & Calculations



Economic Impact AnalysisJob Creation Estimates

20

126

New Jobs (FTE)

Permanent Construction

Total FTE jobs created directly from development:

126New, permanent, FTE jobs created on-site and in surrounding area:

~20

Positive Economic

Impact

Consumer Spending by Residents

To estimate the consumer spending impact of new housing, we utilize the assumptions on household income, disposable income (spending power), and disposable income (local share spending) present on our previously described methodology (page 15). Based on these assumptions, we estimate that each renter household will make approximately $16,539 in discretionary spending (30% of adjusted gross household income). That totals to $4,879,005 in discretionary spending for the 295 households in a single year.

Recognizing that our lives and consumer spending habits stretch across municipal borders, we conservatively assume and estimate that only 30% of household discretionary spending will be spent in the local community (within West Hartford). Therefore, we estimate and anticipate that local discretionary spending will be approximately $4,962 per household, totaling approximately $1,463,790 in consumer spending per year at local businesses.*


Economic Impact AnalysisDisposable Income & Consumer Spending

* Our estimates for local consumer spending multi-family residential apartments are more conservative than those of the National Association of Home Builders. A 2015 study by NAHB found that the consumer spending impact on local business was $623,200 per 100 multi-family units. That translates to $1,869,415 in consumer spending at local businesses for the proposed 295 residential apartments. Our estimates of $1,463,790 is approximately 22% less than the NAHB findings.

$1,463,790

$3,415,215

Consumer Spending by New Residents

Within West Hartford

Outside West Hartford

Economic Impact AnalysisImpact on Proximate (Area) Property Values


Estimating Property Value Impact to Proximate Properties

Qualitatively, market experts recognize that investment (maintenance and improvement) in one property benefits other proximate properties. Market experts also recognize the inverse, disinvestment (deferred maintenance and deteriorating property conditions) in one property negatively impacts other proximate properties. This dynamic effect of investment—especially, the negative effect of disinvestment—is well documented in distressed neighborhoods and communities suffering from socio-economic decline.

West Hartford and the Park Road area do not suffer from blight and abandonment. However, standards of property maintenance decline to the east of the One Park property. In addition, the Park Road area, while improving greatly over the past decade in terms of new business investment and vibrancy, has not experience any large—multi-million dollar—investments in decades. Therefore, with confidence, we can state that the One Park development is a huge investment in this neighborhood. More important, the scale of the development and the high-quality modern design will project a positive image to the market and send a strong signal of investor confidence. This large investment, and market signal of confidence will have strong and positive impact on proximate properties and the neighborhood.

Quantitatively, it would be a stretch to put a dollar value on the probable positive impact that the One Park development will have on neighboring and proximate properties. In addition, since commercial real estate is commonly valued through the income approach—an analysis of the properties net operating income as a means of measuring the potential of the property to produce income—quantifying increases in real property value from One Park becomes an even greater challenge.

However, qualitatively (as discussed above), the positive impact of the One Park development are real and meaningful. This is a highly visible historic property with ornamental lawns/green space, on a busy intersection, and in a gateway location to West Hartford and the Park Road neighborhood. The high-quality design and the attention to detail project and reaffirm the West Hartford image and brand. In addition, the 295 household will add vibrancy and spending power to the neighborhood and local businesses, creating new value that will in time further contribute to grand list and taxable value of area properties.

Fiscal Impact Analysis

Estimating the cost to the Town of providing a tax abatementThe aim of this municipal fiscal impact analysis is to estimate the tax revenues and costs of education and general government services (expenditures) to determine the net fiscal impact to the Town of West Hartford from the proposed development and requested tax abatement for One Park development. To accomplish this, Goman+York employed the following approach:• reviewed the Town of West Hartford 2019-2020 adopted budget,

including the Board of Education budget,• calculated the estimated tax revenue to be generated by the

proposed development,• made several assumptions to best allocate the estimated

expenditures related to general government services, and,• performed a detail analysis of the projected school district

enrollments resulting from the proposed multi-family residential housing units.

The findings are presented in tables on the following pages.

School District Enrollment Projection

To project and estimate the school district enrollments from the proposed multi-family residential housing units, we utilized the Rutgers “Residential Demographic Multipliers - Connecticut” (2006). The Multipliers have been found by Rutgers to be associated with statistically significant results and we have continually compared, tested, and verified the Multipliers against our own research and findings.

It is important to explain that Goman+York has performed dozens of municipal fiscal impact statements for residential developments (including school enrollments) for both developers and municipal agencies and our findings in this analysis are consistent with our experience and research.

A recent study we conducted for the Town of Ellington analyzed school enrollments from existing multi-family developments and found that multi-family housing generated only 0.16 enrollments per unit. Another recent study commissioned by the South Windsor Board of Education analyzed newly constructed multi-family housing and found the same, approximately 0.16 school enrollments per unit. In addition, the South Windsor study also analyzed the percent of students in newly constructed multi-family housing that were new to the school district. The findings, over two consecutive years, revealed that only 21% to 29% of enrollments were new to the district. This is important to understand for our approach and calculations as to costs associated with enrollments. We will conservatively estimate new to the district enrollments at 50% of total enrollments.The One Park Development includes a total of 295 proposed multi-family rental units. Using the information provided to us by the developer (Lexington Partners, LLC), we use the following mix of unit types by number of bedrooms:• 48% (141 units) studio units,

• 29% (86 units) one-bedroom units, • 9% (28 units) one-bedroom + den units, • 11% (32 units) two-bedroom units,

• 1% (4 units) “Empty Nester” two-bedroom + den units,

• 1% (4 units) three-bedroom units, The following table provides the calculations and projections for new school district enrollments based on the assumed unit mix and the Rutgers Multipliers.

Fiscal Impact AnalysisApproach and Assumptions


Fiscal Impact AnalysisAdditional School Enrollment Projections

Housing Units and School Enrollment ProjectionsUnits Mix Units Multiplier (1) PSAC (2) N-T-D ratio (3) N-T-D-E Enrollment (6)

Studios (48%) 141 0.04 5.64 50% 2.73 3One-Bedroom (29%) 86 0.04 3.44 50% 1.72 2One-Bedroom + Den (9%) 28 0.15 4.20 50% 2.10 3Two-Bedroom (11%) 32 0.25 8.00 50% 4.00 4Two-Bedroom + Den ”Empty Nester” (1%) 4 0.59 2.36 50% 1.18 2Three-Bedroom (1%) 4 1.07 2.36 50% 1.18 2

Totals 295 [0.122] (5) 26 50% (4) 12.91 16Notes:1) Multipliers: Derived from the Rutgers University, Center for Urban Policy Research “Residential Demographic Multipliers – Connecticut.”2) PSAC - Public School Age Children. It is another way of saying enrollments.3) N-T-D (New-To-District): represents the percent of student enrollments who are projected to be new to the West Hartford School

District—most enrollments from new residential development are associated with students already enrolled in the District. 4) The 50% New-To-District estimate is a conservatively high estimate. Normally it is 20-30%.5) West Hartford has 25,876 housing units and 9,502 pupils enrolled in the school district. That equals 0.367 enrollments per housing unit.

West Hartford has 24,470 occupied housing units and 0.388 enrollments per household.6) Based on the total New-To-District enrollments rounded up (equal to 61.5% NTD), the 16 NTD pupils are the projected enrollments from

the development.



Fiscal Impact AnalysisEnrollment Projections and Education Expenditures

Education Expenditures

To calculate the costs of the projected enrollments, we start with the West Hartford Board of Education budget for 2019-2020. The total BOE budget is $168,800,689 and the 2019-2020 school district enrollments were 9,502 as of October 1, 2019.

To estimate cost of enrollments resulting from the proposed multi-family residential units, we make four calculations aimed at estimating the actual cost of new per-pupil enrollments.

The table provides a summary of these four calculations and detailed notes to explain the specifics of the calculations. The New-to-District Allocated Expenditures totals will be used for the fiscal impact analysis on the following pages.

BOE Expenditures Cost/Pupil PSAC PSAC Cost N-T-D-E N-T-D-E Cost“One Park” DevelopmentTotal Expenditures $17,764 26 $461864 16 $284,224Local-Share Expenditures $15,506 26 $403,156 16 $248,096Allocated Expenditures $9,304 26 $241,904 16 $148,864

Notes:

• Total Expenditures: The BOE budget divided by the total enrollment. The 2019-2020 budget is $168,800,689 divided by 9,502 enrollments (October 1, 2019) is $17,764/pupil.

• Local-Share Expenditure: The per pupil expenditure is less the non-local tax revenues (federal, state, and other revenue sources). A total of 12.7% or $21,457,152 of the BOE budget is funded by other revenue sources. Therefore, local property taxes fund only $147,343,537 of the BOE budget, reducing the local share per pupil expenditure to $15,506.

• Allocated Expenditures: This is based on a general analysis of the BOE budget that isolated approximately 40% of the budget that is unlikely to be impacted by changes in enrollment. For example, district office expenditures, school administrative offices, utilities, building operations and maintenance, prorated staffing, etc. are not impacted by changes in enrollments. Therefore, the Local-Share Expenditure is reduced by 40% to provide the Allocated Expenditure. This approach is conservative compared to approaches that allocate new resources and staffing per new pupil. It is important to note, BOE enrollments have declined by 767 pupils since a 2010/11 high of 10,269.

• N-T-D-E (New-To-District Enrollments): This represents the portion or percent of student enrollments anticipated to be new to the West Harford School District. Our research and other studies show that student enrollments generated by newly constructed multi-family housing units are not all new-to-district enrollments. In fact, most enrollments from newly constructed multi-family housing units are existing enrolled students who have relocated within the district. To account for the New-To-District enrollments, we conservatively estimate that 50% of enrollments will be New-To-District. The 16 enrollments represent 61.5% NTDE due to rounding up.

Expenditures – General Government ServicesGeneral government services, for the purposes of this analysis, are all local government functions (I.e. police, fire, town hall office, public works, etc.), excluding education. Therefore, the expenditures for general government services are based on the Town of West Hartford 2019-2020 budget, less education. The total West Hartford budget for 2019-2020 was $296,493,566 of which $168,800,689 (57%) was for education. Less the education budget, Town Services were $110,359,574 and Capital Financing was $17,333,303 for a General Government Services total of $127,692,877.Since the education budget and expenditures were already addressed above, we utilize the $127,692,877 as the starting point for general government services, and then we seek to isolate those portions of the budget that can be attributed to residential uses to calculate the tax value of services to be utilized by the proposed development. In doing so, we recognize the following:Commercial and industrial properties accounted for approximately 14% of the total Grand List. It is generally agreed that commercial and industrial land uses are fiscal positives regarding municipal tax revenue and expenditures. For example, a 2012 study published by the American Farmland Trust and Connecticut Conference of Municipalities showed that commercial and industrial land uses require, on average, only $0.27 in community services for every $1.00 generated in tax revenue. Therefore, commercial and industrial properties cover more than their proportionate share of town services and subsidize the residential tax burden by providing a net positive $0.73 cents on the dollar.

As a result of this, we can account for and deduct 14% of the West Hartford’s general government budget that is funded by commercial and industrial property tax revenues—the recognition that commercial properties cover their costs and subsidize the budget on a net basis.

With the education expenditures (57% of the budget) already

accounted for and combined with the commercial and industrial properties (14% of the budget), 71% of the total municipal budget expenditures can be allocated, leaving 29% ($85,983,134) of West Hartford’s budget to be allocated exclusively to the residential share of general government services/expenditures.

Last, we account for the 4.7% ($6,082,727) of West Hartford’s budget (less education) that is funded by non-tax revenue and deducted that amount from the residential property tax burden. This means $79,900,407 (or 62.6%) of general government services are funded by residential tax revenues.The result, for the proposed development, we allocate $289,649 (24.3%) of the $1,191,968 in residential real property tax revenues from the proposed development to fund the cost of general government servicesRevenues – Personal Property Taxes (Motor Vehicles)Personal property taxes for motor vehicles are estimated based on 354 vehicles (1.2 per unit) with an assessed value of $9,645 per vehicle or a total assessed value of $3,414,330. Based on the mill rate of 41.80, the estimated motor vehicle tax revenue per year is approximately $142,719.

Total Revenues – Real and Personal Property Taxes

Based on our development proforma calculations above, Goman+York projects the development will generate approximately $1,191,968 in new real property tax revenue per year and $142,719 in personal property tax revenue (motor vehicle) for a total of $1,334,687 in new tax revenue—this is before the tax abatement.

Fiscal Impact AnalysisExpenditures for Government Services


Fiscal Impact AnalysisProposed Tax Abatement Structure

Net Fiscal Impact – Findings & Conclusion

As shown in the table and graph, One Park with the assumed tax abatement will be fiscally negative in years one through four and positive in years five through 10. In year 11, after the tax abatement expires, One Park is net positive by approximately $1,111,700.

It is important to note, the fiscal impact in years one and two is a negative impact “on paper”. Most likely, this loss will be absorbed into existing government services with no realized, actual fiscal impact.


($400,000)

($200,000)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11

Net Fiscal Impact

Detailed Fiscal Impact Analysis of Proposed 10-year Tax AbatementRevenue Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11+

% Tax Abatement 100 100 100 80 70 50 50 50 50 50 0Residential $0 $0 $0 $245,545 $379,368 $651,248 $670,785 $690,909 $711,636 $732,985 $1,509,949 Personal Property $0 $ $75,418 $155,362 $160,023 $164,823 $169,768 $174,861 $180,107 $185,510 $191,075

Total $0 $0 $75,418 $400,907 $539,391 $816,071 $840,553 $865,770 $891,743 $918,495 $1,701,025

Expenditures Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11+Residential Gov. Serv. $72,412 $74,584 $153,645 $316,507 $326,003 $335,783 $345,856 $356,232 $366,919 $377,926 $389,264 Residential BOE $0 $0 $78,965 $162,668 $167,548 $172,574 $177,751 $183,084 $188,576 $194,234 $200,061

Total $72,412 $74,584 $232,610 $479,175 $493,550 $508,357 $523,607 $539,316 $555,495 $572,160 $589,325

Net Fiscal Impact ($72,412) ($74,584) ($157,191) ($78,268) $45,840 $307,714 $316,946 $326,454 $336,248 $346,335 $1,111,700

Understanding Building Permit Fees

Fees are charged by government to recoup the reasonable cost of providing the government services directly related to the activity upon which the fee is levied. In the case of building permits, the fees are collected to recoup the actual cost associated with providing the administration and documentation necessary for a building permit. For example, building permit fees can be used to recover staffing costs associated with processing the permit application, reviewing the plans, and conducting on-site inspections for compliance with codes and the proposed plans. It is not uncommon for building permit fees for large construction projects to be tens of thousands and even hundreds of thousands of dollars. Therefore, such fees can be a substantial cost to the developer.

Our experience, as past government officials and developers, has taught us that the structure of building permit fees often underestimates actual cost to the municipality for smaller development projects and overestimates them for larger projects. For example, per the West Hartford Building Permit Fee schedule, a $5,000 deck on a residential property would pay a $100 permit fee, while a newly constructed $5,000,000 building would pay $85,015. Both permitting fees are similar in their percent of total construction cost but the actual cost to the municipality may be quite different. The $100 fee for the deck suggests two or three hours of staff time for plan review and inspection, while $85,015 permitting fee for the new building suggests 1,500 to 2,000 hours of staff time for plan review and inspections—equivalent to years worth of time for a full-time employee (assuming 2,000 total productive hours per year for a full-time equivalent employee). For a visual representation of the relationship in this example, see the graphic on this page.

For the developer, building permit fees are like other soft cost—they

are simply part of the cost of doing business—and are part of the total cost of the project. However, unlike property taxes that are paid yearly and after construction is completed, building permit fees are paid before construction commences. Therefore, while property taxes impact the operating expenses of the completed development, permitting fee impact the up-front costs of the development and become part of the capital stack (debt and equity investment structure).

Fiscal Impact Analysis


Evaluating the Abatement of Building Permit Fees

2.0% 0.2%1.7%

87.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Permit Fee - % of ProjectConstruction Cost

Permit Fee - % of ImpliedAnnual Municipal Staff Time

Example: Permit Fees relative to Total Construction Cost and

Implied Government Services Cost

Residential deck Large new building

One Park – Building Permit Fees

The total hard construction costs for the One Park development are $40,737,188. However, not all hard costs are applicable to building permit fee that typically address code compliance related costs. Therefore, we reduce code compliance cost to 75% of hard cost to estimate the building permit fees for a total of $30,552,891. Based on the West Hartford Building Permit Fee Schedule, we estimate a permit fee of $523,921 (town share = $516,031 and state share = $7,890).

One Park – Building Permit Fee Waiver Request

The question we are asked to answer in this study, is whether the Town of West Hartford should waive the building permit fee for the One Park development? From a public policy perspective, we support government’s ability to recoup reasonable fee for specific services provided and recognize that building permit fees are part of the cost of doing business for developers. That said, we conclude that the building permit fees required exceed the what are likely to be the actual cost to government in terms of the service provided for the administration of the building permit (i.e. plan review and inspections). We also conclude that a waiver or reduction of the building permit fees, along with the tax abatement, will improve the financial viability and increase the likelihood that the One Park development will be constructed.

Therefore, it is our opinion that at a minimum the building permit fees be reduced by 80% of the total Town share permit fee. This will greatly benefit project viability, while ensuring that the costs of government services for administration of the permitting process are covered by fees paid. A total waiver of the building permit fees, as requested, would further improve project viability.


Fiscal Impact AnalysisEvaluating the Abatement of Building Permit Fees

APPENDIX:Supplemental Pro forma Financial Workbooks


Development CostsGoman+York numbers. With tax abatement.Costs Units Unit Desc. $/Unit Cost to Complete ($) Comments

Land Costs:Purchase Price 11.3 acre 5,000,000

Site Costs:Survey & Topo 7,500

Environmental Reports 20,000 Environmental Remediation 180,000

Geo-Tech Reports 22,500 Site Cleanup/Demolition 11.3 acre 100,000 847,500

Utility and Infrastructure Improvements 491,175 Site Cost: Contingency % 0.10 156,868

Sub-Total: Land/Site 6,725,543

Construction:New Construction 195,462 $/sq.ft. 165 32,298,708 Existing Building Renovations 111,221 $/sq.ft. 117 13,041,050 Permits/fees % 0.02 0Signage 10,000 Parking - Garage Ground Floor 34,638 $/space 7500 540,000 Parking lots 129,150 $/sq. ft. 6 774,900 Parking lot - lighting 129,150 $/sq. ft. 2 258,300 Constr. Cost: Contingency 0.05 % 0.05 2,346,148 Sub-Total: Construction 49,269,106

Soft Costs:Architectural 3.0% % 3% 1,478,073 Engineering - Building & Site 3.0% % 3% 1,529,839 Engineering - Traffic 15,000 budgetLegal 450,000 budgetProperty Taxes - Constr. Period - budgetConsultants 100,000 Insurance 125,000 budgetContingency: Soft Costs 5% % 0.05 184,896 Sub-Total: Soft Costs 3,882,808

Leasing CostsLease Commissions: Residential 295 $/unit 1,459 430,466 Marketing 500,000 Lease Allowances: OfficeSub-Total: Leasing Costs 930,466

Financing:Interest - Constr. Period 6% % 827,055 Interest Reserve 1,794,702 Reserve until StabilizedOperations Reserve - Reserve for oper. LossesConstruction Loan: Fees 0.75% % 346,638 Permanent Loan: Fees 1.0% %Sub-Total: Financing 2,968,395

Development Fees 0.041603 % 0.0416 2,250,000

Total: Development Costs $ 66,026,318 Total: Development Costs - P.S.F. $ 215.29


Stabilized Operating Cash FlowGoman+York numbers. With tax abatement.

Income: Rental

Residential: Market Rate $/Sq. Ft. 33.9 6,685,034 Average rent of $2.66/SF/Month, 90% market rate. 3% increase






Residential - Taxes $ 1,191,968 Without Tax Abatement

Commercial - Oper. Exp. $/sf 3.00 - Assumes NNN leases

Commercial - Property Taxes $/sf 8.00 - Assumes NNN leasesGross Operating Expenses 2,996,927


Stabilized Valuation Cap. Rate 6.00% 64,566,191 Debt Service - Permanent Loan (2,944,327)


Return on Invested Equity 5.28%


Valuation & Permanent FinancingGoman+York numbers. With tax abatement.

Valuation & Permanent Financing MatrixShaded cells indicate projected outcome Capitalization Rates

5.50 6.00 6.50Market Value

Stabilized NOI - w/-10% Variance $ 3,486,574 63,392,260 58,109,572 53,639,605

Stabilized NOI - As Projected $ 3,873,971 70,435,845 64,566,191 59,599,561

Stabilized NOI - w/+10% Variance $ 4,261,369 77,479,429 71,022,810 65,559,517

Permanent Financingbased upon "Stabilized NOI - As Projected" Loan Amounts

Loan To Value 70% 44,374,582 40,676,700 37,547,723

75% 52,826,883 48,424,643 44,699,671

80% 61,983,543 56,818,248 52,447,613

Debt ServiceAssumes: 30 yr.. term, 6.0% int. rate, LTV as shown

Debt Service - Monthly MonthlyLoan to Value 70% ($224,839) ($206,103) ($190,249)

75% ($267,666) ($245,361) ($226,487)80% ($314,062) ($287,890) ($265,744)

Debt Service - Annual AnnuallyLoan to Value 0.7 (2,698,074) (2,473,234) (2,282,986)

0.75 (3,211,993) (2,944,327) (2,717,840)0.8 (3,768,738) (3,454,677) (3,188,932)


Development CostsGoman+York numbers. No tax abatement.Costs Units Unit Desc. $/Unit Cost to Comments

Complete ($)Land Costs:

Purchase Price 11.3 acre 5,000,000 Site Costs:

Survey & Topo 7,500 Environmental Reports 20,000

Environmental Remediation 180,000 Geo-Tech Reports 22,500

Site Cleanup/Demolition 11.3 acre 100,000 847,500 Utility and Infrastructure Improvements 491,175

Site Cost: Contingency % 0.10 156,868 Sub-Total: Land/Site 6,725,543

Construction:New Construction 195,462 $/sq.ft. 165 32,298,708 Existing Building Renovations 111,221 $/sq.ft. 117 13,041,050 Permits/fees % 0.02 666,838.1687Signage 10,000 Parking - Garage Ground Floor 34,638 $/space 7500 540,000 Parking lots 129,150 $/sq. ft. 6 774,900 Parking lot - lighting 129,150 $/sq. ft. 2 258,300 Constr. Cost: Contingency 0.05 % 0.05 2,379,490 Sub-Total: Construction 49,969,286

Soft Costs:Architectural 3.0% % 3% 1,499,079 Engineering - Building & Site 3.0% % 3% 1,550,845 Engineering - Traffic 15,000 budgetLegal 450,000 budgetProperty Taxes - Constr. Period 770,989 budgetConsultants 100,000 Insurance 125,000 budgetContingency: Soft Costs 5% % 0.05 225,546 Sub-Total: Soft Costs 4,736,458






Stabilized Operating Cash FlowGoman+York numbers. No tax abatement.

Income: Rental








Commercial - Oper. Exp. $/sf 3.00 - Assumes NNN leases







Valuation & Permanent FinancingGoman+York numbers. No tax abatement.







Loan To Value 70% 44,374,582 40,676,700 37,547,723

75% 52,826,883 48,424,643 44,699,671

80% 61,983,543 56,818,248 52,447,613

Debt ServiceAssumes: 30 yr. term, 6.0% int. rate, LTV as shown


75% ($267,666) ($245,361) ($226,487)80% ($314,062) ($287,890) ($265,744)

Debt Service - Annual AnnuallyLoan to Value 70% (2,698,074) (2,473,234) (2,282,986)

75% (3,211,993) (2,944,327) (2,717,840)80% (3,768,738) (3,454,677) (3,188,932)


Development CostsDeveloper numbers including Tax Abatement

Costs Units Unit Desc. $/Unit Cost to CommentsComplete ($)

Land Costs:Purchase Price 11.3 acre 5,000,000

Site Costs:Survey & Topo 7,500

Environmental Reports 20,000 Environmental Remediation 180,000

Geo-Tech Reports 22,500 Site Cleanup/Demolition 11.3 acre 100,000 847,500

Utility and Infrastructure Improvements 491,175 Site Cost: Contingency % 0.10 156,868

Sub-Total: Land/Site 6,725,543

Construction:New Construction 195,462 $/sq.ft. 165 32,298,708 Existing Building Renovations 111,221 $/sq.ft. 117 13,041,050 Permits/fees % 0.02 -Signage 10,000 Parking - Garage Ground Floor 34,638 $/space 7500 540,000 Parking lots 129,150 $/sq. ft. 6 774,900 Parking lot - lighting 129,150 $/sq. ft. 2 258,300 Constr. Cost: Contingency 0.05 % 0.05 2,346,148 Sub-Total: Construction 49,269,106

Soft Costs:Architectural 2.4% % 2% 1,182,459 Engineering - Building & Site 2.4% % 2% 1,223,872 Engineering - Traffic 15,000 budgetLegal 450,000 budgetProperty Taxes - Constr. Period - budgetConsultants 100,000 Insurance 125,000 budgetContingency: Soft Costs 5% % 0.05 154,817 Sub-Total: Soft Costs 3,251,147






Stabilized Operating Cash FlowDeveloper numbers including Tax Abatement

Income: Rental


Residential: Affordable $ 488,846 Other Income $/unit 106 31,270





Commercial - Oper. Exp. $/sf 3.00 -Assumes NNN leases







Valuation & Permanent FinancingDeveloper numbers including Tax Abatement







Loan To Value 70% 44,374,582 42,445,252 40,676,700

75% 52,826,883 50,530,062 48,424,643

80% 61,983,543 59,288,607 56,818,248



75% ($267,666) ($256,028) ($245,361)80% ($314,062) ($300,407) ($287,890)


75% (3,211,993) (3,072,341) (2,944,327)80% (3,768,738) (3,604,880) (3,454,677)


Development CostsDeveloper numbers. No tax abatement.Costs Units Unit Desc. $/Unit Cost to Comments

Complete ($)Land Costs:

Purchase Price 11.3 acre 5,000,000 Site Costs:

Survey & Topo 7,500 Environmental Reports 20,000

Environmental Remediation 180,000 Geo-Tech Reports 22,500

Site Cleanup/Demolition 11.3 acre 100,000 847,500 Utility and Infrastructure Improvements 491,175

Site Cost: Contingency % 0.10 156,868 Sub-Total: Land/Site 6,725,543

Construction:New Construction 195,462 $/sq.ft. 165 32,298,708 Existing Building Renovations 111,221 $/sq.ft. 117 13,041,050 Permits/fees % 0.02 666,838 Signage 10,000 Parking - Garage Ground Floor 34,638 $/space 7500 540,000 Parking lots 129,150 $/sq. ft. 6 774,900 Parking lot - lighting 129,150 $/sq. ft. 2 258,300 Constr. Cost: Contingency 0.05 % 0.05 2,379,490 Sub-Total: Construction 49,969,286

Soft Costs:Architectural 2.4% % 2% 1,199,263 Engineering - Building & Site 2.4% % 2% 1,240,676 Engineering - Traffic 15,000 budgetLegal 450,000 budgetProperty Taxes - Constr. Period 770,989 budgetConsultants 100,000 Insurance 125,000 budgetContingency: Soft Costs 5% % 0.05 195,046 Sub-Total: Soft Costs 4,095,974






Stabilized Operating Cash FlowDeveloper numbers. No tax abatement.

Income: Rental







Residential - Taxes $ 1,191,968 Without Tax AbatementGross Operating Expenses 2,996,927






Valuation & Permanent FinancingDeveloper numbers. No tax abatement.







Loan To Value 70% 44,374,582 42,445,252 40,676,700

75% 52,826,883 50,530,062 48,424,643

80% 61,983,543 59,288,607 56,818,248



75% ($267,666) ($256,028) ($245,361)80% ($314,062) ($300,407) ($287,890)


75% (3,211,993) (3,072,341) (2,944,327)80% (3,768,738) (3,604,880) (3,454,677)

Thank You! 1137 Main Street Tel: (860) 841-3271

East Hartford CT 06108 Fax: (877) 741-7210 http://gomanyork.com

Documents

Tax Abatement Feasibility Study · LEX-LAZ request the building permit fees be waived. G+Y recommends the permit fees be reduced by at least 80% of the Town’s share of the permit