HomeMy WebLinkAboutA024 - Council Action Form dated November 28, 2000 ITEM # 1 l Q 4, t>
DATE 11/28/00
COUNCIL ACTION FORM
SUBJECT: RESOLUTION APPROVING THE URBAN REVITALIZATION PLAN FOR
SOMERSET AND FIRST PASSAGE OF AN ORDINANCE ESTABLISHING THE URBAN
REVITALIZATION AREA.
ACTION FORM SUMMARY: The City Council is being asked to approve the Urban
Revitalization Plan that staff was directed to prepare for the Somerset area.
Staff is recommending approval.
BACKGROUND:
On October 10, 2000 the City Council directed staff to prepare an Urban Revitalization Plan
and to set a date of public hearing for November 28, 2000 to establish an Urban
Revitalization Area.
City staff has prepared an Urban Revitalization Plan for the Somerset area. The following
items are included in the Urban Revitalization Plan:
The area includes 229 properties with the total current valuation of land at
$4,108,500 and improvements of $11,085,200.
The total current assessed valuation of land and buildings on the properties is:
$15,193,700.
It is expected that the value added will exceed the 5% increase required in actual
value on the vacant properties to be eligible for the tax abatement.
The owners of the properties in the district are listed in the attached Urban
Revitalization Plan.
The zoning is Village Residential.
There are no enhancements to City services needed because of this project.
The project consists of 3-year, 100% tax abatement for buildings constructed for
residential occupancy or as an establishment for retail sale of goods and or services
from January 1, 2001 until February 2, 2004 with the following conditions:
1. Not less than ten single-family detached or attached housing units shall either
be under construction or complete and offered for sale at all times.
2. With respect to the aforesaid housing units, special financing terms shall be
offered to persons purchasing such units for their own occupancy, in the form
of interest write downs or cash bonuses equaling, at a minimum, $3,000 up
to $6,500 depending on the mortgage amount.
3. Purchasers of lots from the Developers will be eligible to receive house plans
that have been approved to meet the architectural guidelines in Somerset.
These plans will be provided to the lot purchaser free of charge.
4. Developers, with respect to newly constructed and never occupied homes for
sale in the Somerset subdivisions grant an additional $1,000 bonus (per sale)
to the selling real estate agent that sells such a property in the Somerset
Subdivisions.
5. Informational meetings are held for all real estate agents in the City of Ames
to explain the village concept and to showcase the completed inventory
available for sale in the Somerset Subdivisions.
6. The Developers will work continuously from January 1, 2001 to February 2,
2004 with a marketing firm that specializes in neo-traditional developments
to implement a marketing strategy in accordance with the suggestions of that
firm.
7. Civic groups are allowed to use the Somerset clubhouse free of charge on a
one-time basis.
8. The Developers are continuing to develop the entire Somerset project as
shown by the City approved preliminary plat of Somerset as a village in
accordance with the zoning change agreement adopted for the Somerset
subdivisions.
9. The selling of new homes constructed in the Somerset Subdivision is, at all
times while this plan is in effect, open to all real estate agents of the local real
estate market, provided that the agents follow all the rules and procedures for
Somerset.
There will be no displacement of any persons and thus no relocation benefits
provided.
On September 26, 2000 the City Council asked the Somerset Developers to provide
information on the vacancy rate, the ability of the developers being able to receive
comparable rental income for the quality of housing provided, and, how long a house is on
the market in Somerset versus other areas of the City. The information provided by the
developer is attached for your review.
ALTERNATIVES:
1. The City Council can approve the attached Urban Revitalization Plan for a portion
2
of the Somerset Subdivision subject to the nine conditions.
2. The City Council can decide not to approve the Urban Revitalization Plan for a
portion of the Somerset Subdivision.
3. The City Council can approve a revised Urban Revitalization Plan for a portion of
the Somerset Subdivision that offers tax abatement only for all single-family units.
This option would be subject to the nine conditions.
4. The City Council can approve a revised Urban Revitalization Plan for a portion of
the Somerset Subdivision that offers tax abatement only for all multi-family units.
This option would be subject to the nine conditions.
5. The City Council can approve a revised Urban Revitalization Plan for a portion of
the Somerset Subdivision that offers tax abatement only for all commercial units.
This option would be subject to the nine conditions.
6. City Council can direct staff to work with the developer to revise the Urban
Revitalization Plan in accordance with alternatives set forth by the City Council.
MANAGER'S RECOMMENDED ACTION:
In accordance with The City Council's directive on October 10, 2000, staff has prepared
the attached Urban Revitalization Plan that provides for a three year, 100% tax abatement
for new buildings constructed for residential and retail uses in a portion of the Somerset
Subdivision.
At the September 26, 2000 meeting when this issue was first introduced, the developers
of Somerset stressed that they had reached a critical point in development of the City's first
village. They emphasized that there was an over abundance of attached single family and
multi-family apartment units as compared to unattached single-family units. As a result,
they stated it would be more difficult to market the remaining unattached single-family units
that are planned adjacent to the apartments and attached homes. In addition, the
developers stressed that there were extra costs associated with the development of a
village as compared to a traditional suburban/residential subdivision. For these reasons
they feared further delays would jeopardize the momentum gained during the initial years
of this development. They urged that a tax abatement incentive be approved to stimulate
increased market interest and thereby expedite the completion, and the ultimate success,
of this new development concept.
At this same meeting the City Council requested that the developers of Somerset provide
information substantiating the fact that the market has responded slower to the village
housing opportunities than other more traditional subdivisions in the City. The Council was
seeking information regarding comparative vacancy rates, comparative rental rates, and
comparative times that homes remain unsold. The information provided by the developers
regarding this request is attached. Assuming that the City Council remains satisfied
3
with the arguments provided by the developers, the next step is to adopt Alternative
#1 and approve the attached Urban Revitalization Plan for a portion of the Somerset
Subdivision. The continuation of this three year, 100% tax abatement incentive is
predicated on the following nine conditions:
1. Not less than ten single-family detached or attached housing units shall either be
under construction or complete and offered for sale at all times.
2. With respect to the aforesaid housing units, special financing terms shall be offered
to persons purchasing such units for their own occupancy, in the form of interest
write downs or cash bonuses equaling, at a minimum, $3,000 up to $6,500
depending on the mortgage amount.
3. Purchasers of lots from the Developers will be eligible to receive house plans that
have been approved to meet the architectural guidelines in Somerset. These plans
will be provided to the lot purchaser free of charge.
4. Developers, with respect to newly constructed and never occupied homes for sale
in the Somerset subdivisions grant an additional $1,000 bonus (per sale) to the
selling real estate agent that sells such a property in the Somerset Subdivisions.
5. Informational meetings are held for all real estate agents in the City of Ames to
explain the village concept and to showcase the completed inventory available for
sale in the Somerset Subdivisions.
6. The Developers will work continuously from January 1, 2001 to February 2, 2004
with a marketing firm that specializes in neo-traditional developments to implement
a marketing strategy in accordance with the suggestions of that firm.
7. Civic groups are allowed to use the Somerset clubhouse free of charge on a one-
time basis.
8. The Developers are continuing to develop the entire Somerset project as shown
by the City approved preliminary plat of Somerset as a village in accordance with
the zoning change agreement adopted for the Somerset subdivisions.
9. The selling of new homes constructed in the Somerset Subdivision is, at all times
while this plan is in effect, open to all real estate agents of the local real estate
market, provided that the agents follow all the rules and procedures for Somerset.
COUNCIL ACTION:
4
SSOCIATES _
REACTORS CITY 611 "Ell io NA
105 South 16th Street
Ames,Iowa 50010-8009
(515)233-4450•FAX(515)232-5521
email:hunzikerRE@aol.com
November 22, 2000
Dear Mayor and City Council members,
The developers of Somerset are supplying the following information for the Somerset
URA. The developers believe that it is important that all of the areas receive the
abatement.
This started out as a cooperative effort between the developers and the City Of Ames.
The developers are pledging over 1 million dollars in incentives to make the village
concept work. The city needs to play a role in the success of this project as well.
Granting the abatement along with the developers incentives will give Somerset the shot
in the arm that it needs. Together we make this project a huge success. If the council is
not interested in helping Somerset succeed then the developers will have to explore the
option of converting the balance of Somerset to a conventional subdivision.
The developers have agreed to the stipulations as set out in the council action form back
in October. We hope the council will approve the request for tax abatement.
Si cerely,
Chuck Winkleblack
Broker Associate
Somerset Village/Garden Apartments
The village/garden apartments must all belong to the Village/Garden Apartment
Association. Belonging to the associations costs the owner$35 per month to belong to
the overall association and the Village/Garden Apartment Association. Approximately
$15 of the $35 goes to pay lawn care and snow removal for the apartments. $20 of the
$35 goes to pay the ongoing maintenance for the subdivision and the maintenance of the
clubhouse. The initial cash flow analysis for the apartments assumed that the additional
costs for construction and the amenities would create value and be able to be passed on to
the tenants.
To date the general public has not seen the additional value in the Village concept. I have
enclosed a number of comparisons for you to review. I think that it shows that price and
location are more important than bricks and garden walls are to the renters of Ames.
When rent and cash flow projections were done on the apartment buildings a few
assumptions were made by the builders and developers.
1) The buildings would be some of the nicest looking in town.
2) The buildings would have a number of amenities not offered many other
places in town.
3) Given the amenities and the construction methods used a higher price per
square foot would be able to be charged.
I polled most of the apartment building owners in Somerset, when initial cash flow
projections were made for the buildings they were set up to achieve the same rate of
return as other new apartment projects in town. The builders and developers all realized
heading into the projects that some additional cost would be incurred. However, all
thought that they would be able to charge more for the apartments they would be
offering.
After exposing a number of buildings to the public the conclusions were the same.
Rental rates were too high. Once the rents were dropped back to levels reflecting the rest
of the market the vacancy rate went from 33%to 3%. New buildings typically rent at a
quicker pace than existing rental units, everyone wants to live in a brand new place. This
was not the case in Somerset. Rental rates could be achieved at the same level as other
new construction in similar locations and of similar size but not any more. The rental
market was not willing to pay for the additional costs of the village concept. The owners
were faced with choosing between a vacancy rate of 30 plus percent and not getting a
return on their capital already invested. With a vacancy of thirty plus percent the owners
would have to put in several thousand dollars annually to keep the buildings from
becoming insolvent. The other option was to lower rents to achieve an acceptable
vacancy rate. By lowering rents the owners new they would not get a return on their
investment but hopefully would not have to subsidize their investment. It was an easy
decision to make.
f
An informal pole of the current tenants reflected the following information.
1) Only a very small percentage of the tenants moved to Somerset because
they knew anything about the Village concept.
2) Most moved into an apartment at Somerset because they thought it was a
good location and the buildings were brand new.
3) Several of the tenants had looked at the units earlier in the year and came
back when they saw that the price had been reduced.
4) An even smaller percentage said that the design criteria had any effect on
them moving to Somerset.
5) Some did say that the extra amenities did make a difference when they
made their final decision on where to live.
When purchasing a village or garden apt lot in Somerset the purchasers were required to
pay $1000 per apartment for the construction of the clubhouse and swimming pool.
The construction costs for buildings in Somerset range from 8 to 10%higher than other
projects of similar size. In 1999, I built a 12 unit building at 3314 Polaris Drive. The
building has 13,000 sq. ft. My construction cost for the building(less the land) was
$630,500. That equates to $48.50 per sq. ft. I also built two 8 plexes in Somerset in
1999. The buildings are 7032 sq. ft. each and they cost $396,400 and $413,500
respectively to build. That equates to $56.37 and $58.80 per sq. ft.
Another builder Mark Hanson of Hanson Homes built two 14 unit apartment building at
the Northern Lights Development. One was built in 1999 and one was built in 2000. The
buildings were 14,500 sq. ft each and were,built for$725,000 each. That equals $50 per
sq. ft.
Bob Shirk from HCS Construction has built eight 8 plexes and one 12 plex in Somerset.
The buildings range in size from 6150 to 11,800 sq. ft. The buildings ranged in cost from
$60 per sq. ft. to $65 per sq. ft.
Some of the reasons for the higher cost are: front facades and porches, the windows and
required trim pieces around the windows. Trim pieces under the soffiit and facia and on
the corners of the buildings. The garages are required to have costly roof designs to
minimize the scale, also the garages must have windows and brick on the facades that
face the street. Garden walls are required to screen the parking lots.
Hunziker& Associates has had multi family buildings in Somerset for sale since
December of 1999. To date none have sold. In the rest of the Ames market during the
same time period nine multi family buildings have either closed or are off market
pending.
Vacancy at Somerset is now at about 3% according to the information that was provided
to us by the landlords. The problem is that the apartments are renting for$40 to $60 per
apartment less than they were projected to.
The abatement will offset the additional costs associated with building at Somerset. If
the village concept is to succeed the design criteria must be maintained. Certain elements
in the design guidelines help meld the apartments and the single family dwellings units
together. The abatement is approximately equivalent to the increased costs for
construction. If the developers are forced to go away from the design criteria or worse
yet the ground sits undeveloped for a number of years then Somerset will suffer.
The apartments also play a major role in the single family sales. Prospective buyers are
very skeptical about being next to apartments. It is imperative that the apartments
maintain the design standards or it will have an adverse effect on single family sales
Chuck Winkleblack
Broker Associate
Hunziker&Associates
APARTMENT OCCUPANCY IN SOMERSET
Address # occupied Date
2523 Aspen(8 plex) 2 units Nov. 1999
2523 Aspen 3 units Dec. 1999
2523 Aspen 3 units Jan. 2000
2523 Aspen 6 units Feb.& March 2000
2523 Aspen 7 units April 2000
2523 Aspen 6 units May & June 2000
2523 Aspen 8 units July-Nov. 2000
2604 Aspen(8 plex) 1 unit March 2000
2604 Aspen 3 units April & May 2000
2604 Aspen 5 units June& July 2000
2604 Aspen 8 units Aug.-Nov. 2000
2612 Aspen(8 plex) 8 units Aug.-Nov. 2000
2609 Aspen (8 plex) 3 units June 2000
2609 Aspen 8 units July—Nov. 2000
2618 Aspen(8 plex) 6 units July 2000
2618 Aspen 8 units Aug.-Nov. 2000
2816 Stange (8 plex) 1 unit May 2000
2816 Stange 3 units June 2000
2816 Stange 6 units July 2000
2816 Stange 8 units Aug.-Nov.2000
2610 Stange (12 plex) 9 units Sept. 2000
2610 Stange 10 units Oct. 2000
2610 Stange 12 units Nov. 2000
2804 Stange (8 plex) 2 units June 2000
2804 Stange 5 units July 2000
2804 Stange 8 units Aug.-Nov. 2000
2810 Stange (8 plex) 2 units July 2000
2810 Stange 8 units Aug.-Nov. 2000
** In March of 2000 a decision was made to reduce rent by $50.00 per unit
•, ' I
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215 Sinclair— Western Hills 3427 Polaris — Northern Lights
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• 227 Raphael - Western Hills 3314 Orion — Northern Lights
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1215 Florida — Wyndham Heights 1215 Florida— Wyndham Heights
Efficiencies rent comparisons
Address sq. ft. Net Rent Rent/sq. ft.
4815 Hutchinson 410 $435 $1.06
4901 Todd Drive 410 $435 $1.06
215 Sinclair 490 $510 $0.96
163 Hyland 410 $460 $1.12
2804 Stange 452 $475 $1.05 Somerset
2810 Stange 481 $475 $1.01 Spmerset
One bedroom rent comparisons
123 Sheldon 689 $610 $0.88
4915 Todd Drive 624 $515 $0.83
2300 Mortenson 576 $510 $0.89
135 Dotson 573 $485 $0.85
227 Raphael 564 $535 $0.95
215 Sinclair 620 $570 $0.92
2523 Aspen 708 $580 $0.82 Somerset
2610 Stange 570 $665 $0.86 Somerset
Two bedroom comparisons
2523 Aspen 841 $690 $0.82 Somerset
123 Sheldon 841 $750 $0.92
240 Raphael 800 $700 $0.87
1215 Florida 880 $730 $0.83
3427 Polaris 780 $720 $0.92
2610 Stange 928 $690 $0.74 Somerset
Aspen and Stange 8 Plexes
Income:
Gross rents $ 57,420
Vacancies (3%) $ (1,722)
Laundry income $ 1,400
Gross adjusted income $57,098
Operating expenses
Real Estate Taxes (491,500 x 29 mills) $ 14,253
Electric and water $ 2,100
Gas $ 2,050
Insurance $ 975
Garbage $ 1,038
Repairs and maintenance $ 1,600
Association dues $ 3,272
Management fees $ 3,900
Cleaning and painting $ 1,300
Total operating expenses $ 30,488
Net operating income $ 26,610
Capitalization rate-- 5.4%
$26,610 divided by $491,500
Developer Information Provided
Single Family Lot Sales 1998-2000
1998 1999 2000 Total
Bloomington Heights 31 29 29 89
Hillside/Bentwood 35 43 38 116
Northridge 51 30 26 107
Somerset 26 10 13 49
Somerset Subdivision � Somerset Subdivision
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,Somerset Subdivision Boundary
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Not Included In Somerset Urban Revite Area
3 Map Reference Number (See Attachment)
Prepared by the Department of Planning and Housing 200 0 200 Feet
Map prepared: 11212000