Awaiting Report Item Number O 2015 # 15-32, regarding a report on the economic analysis for Central Square

EXECUTIVE SUMMARY

W-ZHA, LLC was retained by the City of Cambridge to evaluate how proposed zoning changes in Central Square may impact private development feasibility. In essence, the proposed zoning changes encourage the provision of workforce-affordable family housing by offering developers an increase in a site's floor area ratio. For purposes of this analysis, workforce-affordable family housing is defined as a 3 bedroom unit affordable to households with an annual income that is 80 percent of the areawide median income.

This translates into a family with an annual income of about $75,500.1 A 40,000 square foot site was assumed for this analysis. The zoning changes were tested on three development scenarios: a residential project; a mixed-use project incorporating residential, retail and office uses; and a mixed-use project incorporating residential, retail and laboratory space.

W-ZHA worked with City staff and interviewed local developers to ascertain reasonable development cost and operating assumptions for residential, office and laboratory land uses. The analysis indicates that the workforce-affordable family housing provisions challenge private development feasibility for a purely residential project and a mixed-use office, residential and retail project. The increase in density does not offset the cost of incorporating three-bedroom apartments at discounted rates.

The developer does not achieve a reasonable yield on their investment. Under a mixed-use scenario with lab space, the developer can achieve an adequate yield on investment with the workforce-affordable housing units. This is because the lab use generates sufficient investment return to subsidize the residential component. In practice, the lab use would pick up more of its fair share of the land value, thereby making the residential project financially more attractive.

1 These provisions targeting affordable family housing are in addition to the City's current affordable housing policy which targets households earning at a maximum 60 percent of the areawide median income. - 2-

W-zHA, LIc

INTRODUCTION W-ZHA was retained by the City of Cambridge to evaluate how proposed zoning changes in Central Square may impact private development feasibility. W-ZHA performed a yield analysis to determine whether a project would generate sufficient net operating income to justify the cost and risk of developing the project. A 40,000 square foot site was assumed for this analysis.

The zoning changes were tested on three development scenarios: a residential project; a mixed-use project incorporating residential, retail and office uses; and a mixed-use project incorporating residential, retail and laboratory space. W-ZHA worked with City staff and interviewed local developers to ascertain reasonable development cost and operating assumptions for residential, office and laboratory land uses.

RESIDENTIAL LAND USE

Development Program: Existing Zoning and Proposed Zoning

The proposed zoning allows for more height and a lower minimum parking requirement. To realize the maximum intensity of use provided by the proposed zoning, a project must incorporate dwellings units affordable to middle-income households. The middle income units were assumed to be three bedroom with an average size of 1,300 net square feet per unit. 4.0

Assumption: Stories Built