Thursday, January 18, 2007

P is for Profit (For You, But Not Me)

The City’s Landmark-Van Dorn small area plan, which has been moving on a roughly parallel track with the Braddock Road Metro plan, has churned up a doozy of a study.

On the surface it’s a consultant’s analysis of affordable housing opportunities that redevelopment might offer in the West End.

But what’s really intriguing is that for the first time we have been permitted a glimpse into the hidden world of developer profit.

The respected firm Economic Research Associates (ERA) was hired to analyze the feasibility of rezoning areas at Landmark-Van Dorn to “allow increased density in the planning area to encourage mixed use development with privately financed mixed-income housing” (ERA Presentation, p. 3). Their study was presented to Planning Commission at a work session on January 4.

ERA staff interviewed select developers and property owners and built a model to determine how much density could be added to sites to achieve different levels of profit. Every variable was thrown into the model, from construction costs to land prices to marketing and architectural services. ERA also calculated maximum mortgage payments for individuals at 60, 80 and 100% of Alexandria’s median income (i.e., those who might qualify for affordable housing).

The first eye-popper was that developers expected a minimum profit of 20%. Name any publicly traded company with margins like that.

The second jolt followed when ERA detailed the different levels of profit developers could attain with existing zoning and 100% market units, or at a higher FAR with 15% affordable units and 85% market units.

With all market rate units at 1.25 FAR in areas zoned RCX, developer profits were estimated at 33% for low-rise townhouses and 21 to 28% for low-rise condos. The range for condos was due to different methods for building parking (surface, structured, or underground).

That’s sweet. But if FAR was raised to 2.00, developer profits soared to 44% for townhouses and 25 to 35% for condos.

What if the City demands 15% affordable housing in exchange for higher FAR?

At existing FAR of 1.25, townhouse profit in zoning area RCX was lower with affordable housing but still nearly 24%, rising to 32% when FAR was bumped up to 2.0.

Profit on low-rise condos was projected at 21.5% with existing FAR of 1.25, but climbed from 22.8 to 28.7% if FAR were to be raised to 2.0.

The analysis concluded that redevelopment was unlikely in the short-term at Landmark not only due to current market conditions but because “current income stream [is] profitable and sufficient for long-term hold” (ERA Presentation, p. 4).

So these area studies are not really about a vision of neighborhood but about developer profit and how the City can help maximize that profit.

But nowhere in the ERA study was there any calculation of the cost of adding quality of life elements that small area plans typically gush about (improved streets, refurbished sidewalks, better lighting, and new parks.) Nor did ERA calculate the costs of mitigating the effect of more traffic, increased demand for parking, and pollution.

The City is using elusive quality of life benefits to sell us the Braddock Road Metro plan. Why don't they figure in the calculations here or at Landmark and why aren't the impacts included in the equation?

In fact, what are the numbers for Braddock Road developers? Why don't we merit a study like this?