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BOSTON REDEVELOPMENT AUTHORITY

planning department



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LENA PARK STUDY - FIflAHCIAL ANALYSIS



Lena Park Study - Financial Analysis
August 21, 1970



Boston Redevelopment Authority r^ r""-^
Planning Department ^Q O ©,



DORCHESTER District Planning Program



■ TABLE OF CONTENTS

Introduction p. 1

Analysis and Findings p. 3

Appendix p, 5

Notes p. 10



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INTRODUCTION

The Lena Park Housing Development Corporation has undertaken
a development project on the Lena Park site in Dorchester. The
proposal includes:

1. Construction of a 14-story tower containing 100 units,
which has already begun with Federal assistance under
Section 221d(3) ;

2. Purchase of the YMHA Hecht House and use of the building
as a neighborhood center - a project for which the City
of Boston, on behalf of the Corporation, applied for
and recently a HUD 703 Neighborhood Facilities Grant;

3. Residential development of the remainder of the Lena
Park site.

This report will examine the economic feasibility of Stage 3,

the Corporation's residential development of the remainder of

t

the site. The Corporation's current ^thinking calls for 200-225
units of housing, aimed at existing rental demand by both elderly
and large families with low and moderate incomes. The following
housing mix has been generated, solely for purposes of this analysis,
as consistent with the Corporation's intentions:

40 efficiency @ 700 sq. ft. " 28,000 sq. ft.

40 1 BR @ 900 sq. ft. ' 36,000 sq. ft.

20 2 BR d) 1100 sq. ft. 22,000 sq. ft.

75 3 BR @ 1225 sq. ft. 92,000 sq. ft.



45 4 BR @ 1350 sq. ft. 61,000 sg. ft.

220 units Apartment Area 239,000 sq. ft.

Plus 10% Common Area 24,000 sq. ft.

Total Area 263,000 sq. ft.

This report will consider the Lena Park Housing Development
Corporation as a 121A Urban Redevelopment Corporation for purposes
of tax abatement and land acquisition. Further rent reductions
will be considered through the use of Section 236 Interest
Reduction Payments, which can be used for either a rental or
cooperative project. Finally, the developer will be considered
as both a non-profit and a limited dividend corporation, in order
to examine the different effects on housing rents.



- 3 -



ANALYSIS AND FINDINGS

The Lena Park Housing, Development Corporation faces the task of
land acquisition as the first step towards further residential development
of the Lena Park site. After the Hacht House sale, ccxnbined Jewish
philanthropies still own over three acres of the site, and there are
approximately 35 small parcels, with over 20 owners, along Lome Street.
Voluntary assembly be sale, pooling, or leasing owners unlikely under these
circumstances; declaring the corporation or Urban Redevelopment Corporation
vinder Chapter 121A will expedite assembly and also help to gurantee a favorable
tax rate .

The Lena Park Housing Development Corporation proposes to use the site
for low and moderate-income housing. This report considers the effect on
rents of Section 236 interest reduction payments by the Federal government —
the most effective rent-reducing program which is currently funded. At a
total cost of less than $27,000 per unit, the proposed housing qualifies for
Section 236 funding (See Appendix, SectioA 1 A ).

Under non-profit sponsorship, rents must cover debt service and operating
expenses; the FHA also requires a replacement reserve for the prject. Given
there requirements, a non-profit sponsor would set monthly rents from $215 for
an effciency to $Ul5 for a l+-bedroom apartment (See Appendix, Section 2 A).
However, with Section 236 interest reduction payments to the mortgages. The
mortgage-sponsor can change minimum monthly rents ranging from $115 for an
efficiency to $225 for a four-bedroom.

The FHA permits a 6^ after-tax return on Equity for limited dividend
corporations. Changing only slightly higher monthly rents, $122 for an
efficiency to $235 for a four-bedroom, a limited-dividend corporation earns a
5.5'/o return by FHA calculations. However, due to the Federal tax laws, the



actual annual after-tax cash return of the project vjould be 19-21% of
Equity (See Appendix, Section Three).

In conclusion, housing units on the Lena Park site, under either a
non-profit of limited dividend sponsor could adequately serve the needs
of $5>500-$10jOOO income families, depending upon unit size. For instance,
a family with ajinual income of $8,500 would spend 25"^ of income on this
study's projected 2-bedroom apartment, with monthly rent of $l80. The
sponsor can ra&ke arrangements with the BHA under either leasing as rent
supplement programs to provide a portion of the units at even lower rents,
for hovLseholds which qualify for public housing.



APPENDIX

* /'



- 5 -



Section One - Cost Estimates and Assumptions
a. Capital Costs

Land Acquisition $ 455,000

Site Preparation (1) $ 230,000

Construction Cost (2) 4,603,000

Architect's Fees (3) 230,000

Building Permits (4) 14,000

Legal Fees (5) 72,000

Interest on Construction Loan (6) 258,000
Total Improvement Cost $5,407,000

Total Project Cost $5,862,000



b. Annual Operating Expenses (7) $ 197,000/year



- 6 -



SECTION TWO — RENTS UNDER NON-PROFIT PROFIT

A. "Market" Rents
Assumptions

— 8|^, UO-year mortgage for 100^ of investment

— Property Tax Payment at 1% of Revenue

— Project cost of $5,862,000

— 0.% Annual Depreciation required "by HUD as replacement
reserve .

Estimates

— Operating Expenses $197,000

— Depreciation 29,000

— Debt Services 520,000

— Monthly Rent Schedule

Efficiertcy , _ $ 215

1 BR . . • . $ 280

2 BR $ 335

3 BR $ 375
U BR $ U15

B. Rents with Section 236 Interest Reduction Payments
Assumptions

- 1%, UO-year mortgage for 100^ of investment

— Property Tax Payment of 15% of Revenue

— Project cost of $5,862,000

— 0.5% Annual Depreciation



Estimates






— Operating Expenses




$197,000


— Depreciation




$ 29,000


— Debt Service




$176,000


— Monthly Rent Schedule






Efficiency


$115




1 BR


$150




2 BR


$180




3 BR


$200




h BR


$225





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- -



SECTION THREE — RENT, INCOME, AND CASH FLOW

Estimates Under Limited Dividend Sponsor
Illustrative Example ;

Estimates with Section 236 Interest Reduction Payments
Assumptions

— Project cost $5,1+82,000
- Operating Cost $ 197,000

— 1^, UO-year mortgage for 90fo of investment

— Payment of 1% of Revenue in lieu of City Property Tax

— 2g«^ Annual Depreciation, taken at 200^

— Rent Schedule derived in Section Two (b), reduced by 25°^



Efficiency


$122


1 BR


$158


2 BR


$190


3 BR


$215


h BR '


$235


Estimates




YEAR 1




Gross Income





Operating Expenses and Property Tax
Payment :

Debt Service

— Interest Payment

- Mortgage Amortization
Depreciation
Taxable Income
After Tax Cash

After Tax Cash as Percentage of Equity



$1+98,000

$272,000

$158,000

52,000

106,000

270,000

95,000
150,000

21i



- 9-



YEAR 1^

Gross Income: $1+98,000

Operating Expenses and Property Tax

Payment : 272 , 000

Debt Service: 138,000

— Interest Payment: 36,000

— Mortgage Amortization: 122,000
Depreciation: 270,000
Taxable Income: - 79,000
After Tax Cash: 108,000

After Tax Cash as Percentage of Equity: 19-5^



FHA Calculations
Gross Income:
Property Tax Payment:
Operating Expenses: v
Depreciation (0.5'^):
Debt Service:

Before Tax Profit:
Federal Tax:
After Tax Profit:
Return on Equity:



$^98,000

- 75,000
-197,000

- 29,000

-138,000
59,000

- 28,000
31,000

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NOTES



(1) Itemized Site Preparation

—Relocation $ 50,000

—Demolition 90,000

(31 triple deckers @ 64,100 cubic feetA>uilding
@ 4.5 cents/cubic foot = $90,000)



— Utilities

— Storm and Sanitary Sewer $20,000

— Water 20,000

- Roads 50,000



90,000



— Total Site Preparation ^ 230 000

(2) Total Building Area = 263,000 square feet

© $17,500/sq. ft. $4,603,000

(3) Architect's fees are calculated at 5% of construction cost.

(4) Cost of building permits is calculated at $5 per $1,000 for

first $1,000,000 cost; and $2.50 per $1,000 for next $4,000,000 cost

(5) Legal Fees are calculated at 1.5% of project cost.

(6) Interest is estimated at 5% of project cost.

(7) Annual operating expenses are estimated at $0,75/square foot.
263,000 sq. ft. @ $0.75/sq. ft. = $197,000.



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Online LibraryBoston Redevelopment AuthorityLena park study - financial analysis → online text (page 1 of 1)