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Cabot estate: summary of alternative development schemes online

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CABOT ESTATE

SUMMARY OF ALTERNATIVE DEVELOPMENT SCHEMES

BOSTON REDEVELOPMENT AUTHORITY



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BACKGROUND
Site accommodation studies have been undertaken by the BRA design staff to
test the visual impact of various alternatives of development upon the Cabot
Estate. Basically, these alternatives are variations of two design schemes:
low-rise frame and elevator town house condominiums and medium high-rise
elevator rentals. In order to assist in evaluating the feasibility of these
design alternatives, it was suggested that a financial feasibility analysis be '
undertaken.

THE PROBLEM
A financial feasibility analysis for the Cabot Estate must be undertaken in
three stages. First, one has to determine what rents will result from each
alternative given certain assumptions with respect to unit size, construction
cost, financing, profit, etc. Second, one has to establish the average rent per
unit which one assumes to be marketable. And finally, one must compare the pro-
jected rents to that figure which one assumes to be marketable. A project, then,
is assumed to be financially feasible if the rents are within a reasonable (5%)
range of marketability.

The preceeding steps have been follov/ed. The conclusions are summarized
below:

CONCLUSIONS
I. THE IMPACT OF A CHANGE IN DENSITY ON RENTS OR SALES PRICES
A. Elevator Rental Alternatives

Given the assumptions upon which this analysis is based, (1,000 square
feet per unit, $25 per square foot for development cost, $1,200,000 for land,
10% before tax return on equity, 75% mortgage for 30 years at 9% interest)
one finds THAT THERE IS NO SIGNIFICANT DIFFERENCE IN AVERAGE MONTHLY RENTS
AT A DENSITY OF 350, 650, 750 AND 1,000 UNITS (SEE TABLE 1).



B. Town House Condominium Alternatives

GIVEN THE VARIABLE ASSUMPTIONS UPON WHICH THE TOWN HOUSE ANALYSIS
IS BASED ($22 per square foot development cost, 2,000 square feet per
unit for the 150 unit alternative, and $25 per square foot for develop-
ment cost, 1,500 square feet per unit for the 350 unit alternative),
and the rule of thumb that the sales price of condominiums are 100 times
the monthly rent, ONE FINDS THAT THE 350 TOWN HOUSE UNIT ALTERNATIVE
WOULD SELL FOR $17,500 LESS THAN THE 150 UNIT ALTERNATIVE; $61,400 VS.
$78,900. (See Table 2)
II. THE IMPACT OF A CHANGE IN DENSITY ON PROFIT

All the alternatives analyzed assume a before tax return on equity of
10%.

A. Elevator Rental Alternatives

Assuming a double-declining balance method of depreciation, THE AFTER
TAX RETURN ON EQUITY IS ALMOST THE SAME AT A DENSITY OF 350 UNITS (13.2%)
AS IT IS AT A DENSITY OF 1,000 UNITS (13.8%). (SEE TABLE 3)

B. Town House Condominiums

1. Without more knowledge concerning the sales of condominiums, one
cannot establish what advantages in return, if any, would accrue by
increasing the density from 150 to 350 units.

2. The sales prices of $61,400 and $78,900 assume a 10% return on
equity before Federal taxes.

III. MARKETABILITY

A. Elevator Rental Alternatives

The market consultants to Pat Franchi , Minot, DeBlois and Maddison,
projected in their report. Land Utilization and Marketability Analysis
p. 32, that the average rent for a unit would be $390 per month (in 1971
prices). '



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On the basis of this information one can assume (given a 5% margin)
that the DENSITIES OF 650, 750, AND 1,000 UNITS WOULD BE MARKETABLE (SEE
TABLE 4). THE RENTS AT A DENSITY OF 350 DWELLING UNITS, ON THE OTHER HAND,
ARE JUST OUTSIDE THE 1971, 5% MARGIN RANGE.
B. Town House Condominium Alternatives

1. A rule of thumb exists which says that condominiums sell at 100
times their projected rent. Given this principle, the town house
unit alternatives would sell at $78,900 for 150 units and $61,400 for
the 350 unit alternatives,

2. The average price of luxury condominium units in the Greater
Boston area is $55,000.

3. The average price of condominium units in locations similar to
the Cabot Estate (Fairgreen Place and Fuller Brook Park) is $72,000.

4. There are no market studies in existence which indicate the
demand, i.e., sales price and number of units, for condominium develop-
ments in the Jamaica Plain - boston area.

5. The study, Land Utilization and Marketability Analysis , by Mi not,
DeBlois and Maddison indicated on page 17 that there is a demand in
Boston for 1,000 single-family units a year. Sales of new single
family homes in Jamaica Plain have been about $40,000 per house.

6. BOTH TOWN HOUSE ALTERNATIVES WOULD HAVE TO SELL ABOVE THE AVERAGE
PRICE OF EXISTING CONDOMINIUM UNITS IN THE GREATER BOSTON AREA AND
THE SALES PRICE OF NEWLY CONSTRUCTED SINGLE FAMILY HOMES IN JAMAICA
PLAIN.

7. THE 350 UNIT TOWN HOUSE ALTERNATIVE COULD SELL WITHIN THE RANGE
OF CONDOMINIUM PROJECTS AT FULLER BROOK AND FAIRGREEN PLACE. THE
150 UNIT ALTERNATIVE WOULD HAVE TO BE REDUCED FROM AN AVERAGE UNIT
SIZE OF 2,000 SQUARE FEET TO 1,500 SQUARE FEET IN ORDER TO SELL
WITHIN THIS SAME RANGE (SEE TABLE 5).



IV. TAXES

A. Elevator Rental Alternatives

Assuming City taxes will be based upon 27% of gross revenue, THE RETURN
TO THE CITY WOULD RANGE BETWEEN $455,000 FOR 350 UNITS AND $1,200,000 FOR
1,000 UNITS. (SEE TABLE 6)

B. Town House Condominium Alternatives

1. The analysis of town houses has treated a condominium development
as a rental project in order to compute taxes and sales prices (see
Methodology).

2. IF ONE ASSUMES A TAX OF 27% OF GROSS INCOME, THEN 150 TOWN HOUSES
(AT 2,000 SQUARE FEET PER UNIT) WOULD GENERATE $364,000 IN TAXES, IN
CONTRAST TO $622,000 IN TAXES FOR 350 UNITS (AT 1,500 SQUARE FEET PER
UNIT) (See Table 6) • ■

3. THE TAXES ESTIMATED TO BE GENERATED BY 350 CONDOMINIUM UNITS -
$662,000 - ARE ABOUT 80% AS GREAT AS THE TAXES ($810,000) WHICH
WOULD BE GENERATED BY 650 APARTMENT UNITS.

V. THE IMPACT ON RENTS WHEN THE COSTS ASSUMED FOR VARIOUS FACTORS ARE CHANGED
A. The Impact of a Change in Land Costs Upon Rent

IF ONE ASSUMES A LAND COST OF $1,200,000, A 25% INCREASE OR DECREASE
IN THIS PRICE WILL HAVE A MEASURABLE IMPACT ON RENTS ONLY AT THE LOWEST
DENSITIES OF DEVELOPMENT, I.E., 150 AND 350 UNITS. IN ADDITION, THE COST
OF LAND IS NOT AS SIGNIFICANT A FACTOR IN CONDOMINIUM DEVELOPMENTS AS IT
IS IN RENTAL PROJECTS.

1. With the elevator apartment alternatives, for example, a 25%
shift in land costs at a density of 350 units results in a $10
difference in monthly rents in contrast to a difference of $4 a
month rent at a density of 1,000 units. (See Table 7)

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2. If one assumes that the town house condominiums will sell at
100 times the monthly rental, one sees that a 25% decrease in land
costs would result in a sale price shift for 150 units of from
$78,900 to $76,900. Given the price of luxury housing, it would be
difficult to prove that a $2,000 change in sales price had a dramatic
impact on the marketability of the unit. (See Table 8)

B. The Impact of a Change in Unit Size on Sales Price of 150 Unit Condominium
Alternative

The impact of a change in unit size on rents is shown on Table 9. If the

average unit is decreased from 2,000 to 1,500 square feet, the sales price

will decrease by approximately $18,000. IN OTHER WORDS, A 1/3 INCREASE IN

UNIT SIZE IN THIS CASE RESULTS IN A 28% DECREASE IN SALES PRICE.

C. The Impact of a Change in Development Costs on Rents

The impact of a change in development costs is shown on Table 9. IF
DEVELOPMENT COSTS IN THIS EXAMPLE ARE INCREASED BY 14%, FROM $22 A SQUARE
FOOT TO $25 A SQUARE FOOT, RENTS INCREASE BY 9%.

METHODOLOGY

I. Process

The following process was followed to establish rents and, in turn, condominium
prices.

A. Development cost for housing based on calculations of development
cost per square foot and land cost was determined.

B. Yearly mortgage cost for above development budget was established.



C. Yearly operating costs, vacancy allowance, taxes and profit were
added to yearly mortgage costs.

D. Above sum was divided by total number of units to determine cost
per unit per year.

E. Yearly unit cost was divided by 12 to establish monthly unit cost.

F. This cost is the monthly rent. It represents that sum of money
needed per unit per month to pay for mortgage costs, vacancy, operating
expenses, taxes and profit.

G. The price for condominiums is assumed to be 100 times monthly rent.
This procedure is highly generalized and should be recognized as only a
rule of thumb estimate of sales price.

II. Assumptions Constant for Analysis of All Alternatives

A. Land cost = $1 ,200,000

B. Operating cost = $.75/sq. ft. /year

C. Vacancy factor = 5% of gross income

D. City taxes = 27% of gross income

E. Return on equity before Federal taxes = 10%

F. Mortgage terms = 75% first mortgage at 9% interest for 30 years

G. Equity = 25% of development costs
III. Variable Assumptions

A. Elevator rental (350, 650, 750 units)

1. size of units = 1,000 square feet

2. development cost = $25/sq. ft.

B. Elevator condominium (350 units)

1. size of unit = 1,500 square feet

C. Town house condominium (150 units)

1. size of unit = 2,000 square feet

2. development cost = $22/sq. ft.









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.B. HLLLO FROM TSC



READY

GET-LARRY

300 LET N=.033

380 DATA 1174250,1165860,1156680.11/16650,1135670.12-123670

390 DATA 1 1 10530, 1096170, 10S0460, 1063270,8941/1. 97P0a, 106977

/lOO DATA 117012.127989.139995,1531^7.167/192.163203.200389

RUN

LARRY



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/UNITS
7650

»PKG SPACES REQUIRED 1072.5 '

SQ/U.MIT

71000

LAND COST 1.20000E+06

CONST COST 1.62500E+07

DEV COST 1.7/1500E + 07

1ST KTG A^'T l.30e75E*07

EQUITY /1.36250E+06

AV INTEREST 1.12532E+06

AV AMOHT 138340.

AV DEt3T SER l.a6366E + 06

OPERATING EX A87 500.

PROFIT

?.!

TAXES. VACANCY 969026.

GROSS INCOr


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