Town Council Work Session on Employer-Employee Housing

Assumptions

Purchase Price

Unit Size

Firs Mortgage Amount

First Mortgage interest Rate

First Mortgage Terms

PMI

Closing Costs/Prepaids

Points

Assistance

Assistance Loan (from land & employer)

10-15% MCC Grant

Employer Developed

$133,000

3 Bedrooms

100%

7%

30 Years (Fixed)

or 7 years (adjustable)

or 5 years (adjustable)

0%

3% of Mortgage Amount

9%

$100,000 (total)

$927-$1,391

For-Sale Housing Pro Forma (continued)

Annual Housing Costs (3

bedroom $133,000 Unit)

First Mortgage Debt Service

(@ 7%)

Property Taxes

Insurance

PMI

Condominium Fees

Assistance Loan

MCC Grant (10%; 1^st year)

Income Required (@ 33.3%)

Average House to Income    

Ratio

Closing Costs

Down Payment

Closing Costs/Prepaids

Points

Assistance Loan Only

$10,618

$2,346

$350

$0

$500

($4,000)

($)____       

Total $9,814

$29,471

 

4.5 to 1

$0

$3,990

$0____

Total $3,990

Plus 10% MCC Grant

$10,618

$2,346

$350

$0

$500

($4,000)

($927)__

 Total $8,887

$26,688

5.0 to 1

$0

$3,990

$0_____

Total $3,990

Council Member Evans asked what “Off Balance Sheet” meant.  Mr. Curzan responded that that was a very important aspect of how most universities would look at their financing.  He said if it were on their balance sheet they would have to show. For example, Mr. Curzan said, if they were borrowing $100 million, they would show $100 million of debt on their balance sheet, which was then looked at by the Credit Agency.  He said if this was done through the Town through a revenue bond financing, not necessarily on the Town’s books, it could then be taken off the University’s books, which was a tremendous benefit to the University.

Council Member Evans asked what a “bar site” was, was it an ABC site.  Mr. Curzan said it was.

Council Member Evans said there were some day care centers in the downtown, and asked if Mr. Curzan was suggesting additional ones in the downtown.  Mr. Curzan said the University suggested a day care center.

Council Member Bateman asked if there would be a cap on the appreciation when the owners were ready to sell their units.  Mr. Curzan replied that there was because the land was taken out of the equation, and the unit would appreciate somewhat similar to the equivalent of the Consumer Price Index (CPI), which would probably go up about 3% a year, and over 10 years the profit would be about 32%.

Council Member Foy asked if the showing on the Assistance Loan of $9,800 was for a year.  Mr. Curzan said that money would go up each year as the Assistance Loan went down.

Council Member Foy asked what the monthly payment would be for the second year.  Mr. Curzan said about $900.  Council Member Foy asked what the total Assistance Loan would be over a period of five years.  Mr. Curzan said the Non-Profit Organization set up by the Town would be earning interest on the money each year, and the lump sum would start at about $10,000-$11,000 for the maximum, and would wind up paying out between $13,000 to $14,000.

Mr. Curzan continued by reviewing the options:

·        Table 1, page 36 of the memorandum, All Private Development Occupancy, Required Revenues for new construction of Office Space, with a Total required annual rent of roughly $30 per rentable square feet, which would occur if the Town was doing speculative office space.  

·        Table 2, page 37, Publicly Development and Occupied—No Parking, Required Revenues for New Construction of Office Space, assuming it was done only for the University, the Town, with 100% of the Taxes would need a required annual rent of $19,61,W/O County Taxes—$18.16 annual rent per rentable square feet.

Mayor Waldorf asked for a clarification of the tax situation.  Mr. Curzan said, assuming the building would be owned by the Town, it would be exempt from Town and County taxes.

Council Member Ward said, after conversations with the other towns and the County, he would be reluctant to keep taxes from coming to the County.  Mr. Curzan said he was suggesting that the building would be free of any taxes, but the Council could decide to share some of the proceeds coming back from the building.

Council Member Foy asked Mr. Curzan to review the Funding Requirements in Table 1 and Table 2, and asked why there was an Equity portion on Table 1 but there was none on Table 2.  Mr. Curzan responded that Table 1 was funded commercially, and the Town would not be participating in any of the development costs. He said that on Table 2 there were no equity dollars, which the Town would be putting in, and any dollars coming back to the Town would be the Town’s to do with as it chose.  He explained the difference between the debts.

Mr. Curzan continued his presentation:

·        Table 3, page 38, Publicly Development and Occupied—No Fit Out $, Required Revenues for New Construction of Office Space, was left for the University to do the interior finishing, which totals required annual rent of $17.63 per rentable square feet. There might be parts, which could be leased out for commercial use, which would bring in money for the Town. 

·        Table 4, page 39, Publicly Development and Occupied—With Parking & Fit Out, Required Revenues for New Construction of Office Space, with everything added back in would total $20.43 rentable square feet for required annual rent.

Mr. Horton asked Mr. Curzan to explain his analysis that this would be very attractive to the University.  Mr. Curzan said he had had meetings with the Chancellor and the Director of Finance at the University a few weeks ago and they had said they were extremely attracted to looking at the proposition.

Council Member Ward asked what Mr. Curzan might have heard from the Hospital Administration. Mr. Curzan said they had not learned very much, and would be meeting tomorrow morning with the Chancellor’s Cabinet, adding that the Director of the Hospitals would also be present.

Mr. Curzan continued:

Next Steps

·        Whole hearted commitment from University

·        Matched by Town of Chapel Hill

·        Matched by Hospitals

·        Seed money commitment, from University, Town and Hospitals, totalling $100,00 (reimbursed out of financing)

·        Bring in financing partner

·        FannieMae

·        Bank of America

·        CitiBank

Mr. Curzan displayed slides of projects his company had completed.  He indicated that many of the houses at the University of California-Irvine, were taken by faculty, who remained in the housing, leaving no space for staff.

Council Member Bateman asked if that had become a problem.  Mr. Curzan said it was and it was one of the issues about to be dealt with by the University of California. He said what he was proposing was that every University had to make the call as to who it wanted to have the housing units.

Council Member Bateman asked if the proposal for Chapel Hill, the University, and the Hospitals addressed the problem of whether Town employees would have a chance at the housing units, if they were all taken up by the faculty.  Mr. Horton said that could be addressed by policy decisions that the governing entities would make.

Mayor Waldorf added that the non-profit corporation would have to write fairly detailed rules about eligibility, percentages, proportions, and ranges.  Mr. Curzan said that was correct, and if all three entities had equal proportions, they would have 33% going into the units, and each entity would have to decide as to how it wanted to apportion the units.

Council Member Ward said he wanted this subject discussed between the three entities and Mr. Curzan so that all entities knew who the houses were being built for.

Mayor Waldorf said that these priorities would all need to be sorted out.  Mr. Curzan said the University’s top priority was housing for recruiting young faculty; the Hospital’s high priority was recruiting young nurses.

Council Member Strom said one thing becoming clear in the Report was there really was not a lot of demand for office space downtown, and there might be too much office space at the present time in the whole area.  He said the Report ran counter to what the Town envisioned in its Comprehensive Plan for Lot #5.  Council Member Strom said he would not be able to endorse the scenarios for office space and housing at this time.  Mr. Curzan said the commercial users they were referring to were small office spaces for lawyers, accountants or the like, and he did not think the Town was in the business for this type of user.  He said there was no developer in the whole area that was interested in putting office space in Chapel Hill.  Mr. Curzan said businesses were moving out of the downtown to the outer areas.  He stated that the problem with looking at the downtown was the very limited amount of space that was available. Mr. Curzan said it was his opinion that the office space should be in the downtown and the housing further down Franklin Street.  He said the Town had to consider a quantity of office space in the downtown, which would be occupied by good big tenants.

Council Member Strom said he was trying to grapple with policy implications that the Council had not yet had a chance to consider.  He said the Report was comprehensive and on task.  Council Member Strom said that comments during petition time had indicated that citizens felt that Lot #5 was an asset for some of the Town’s goals, and the Council still had not decided what they were.  Mr. Curzan said that even if the Town had a speculative developer develop Lot #5 into office space, the Town would earn $15 per foot of floor area, which is what space in the downtown was worth at present, but his company built the payment into the options and the entity of the Town owned the space, so the Town would make more money and not pay a developer.

Council Member Strom said his point was that there were public policies that could not be filtered through economic terms, but were a matter of public good to be served by Lot #5.  He said he would like to hear more from his colleagues and the citizens as to the social side of the issue.

Council Member Bateman asked how many square feet were at the Building 440.  Mr. Curzan said there were about 50,000 square feet in Building 440, and office space could be put onto Lot #5.

Council Member Bateman asked what he meant when he said that the Town wanted more office space.  Mr. Curzan said that the Town had long believed that Lot #5 would be best used for office space.

Council Member Strom said that was at a time when the Town thought there was a tremendous amount of demand for office space.

Council Member Bateman asked if the housing component was contingent on office space. Mr. Curzan said it was not and the Council could say that it wanted to build housing space on Lot #5. He said there was a lot to be absorbed in the Report and his company had tried to give it its best effort for the best interest of the Town.

Council Member Evans said that four years ago there was interest in building office space in the downtown, and there were developers just this past year from Charlotte who expressed an interest in building office space downtown.  She said the issue was often tied to the issue of parking.  Council Member Evans said she was concerned that the Town would lose business from the downtown that would move to the fringes of Town, because of the problems with parking. Mr. Curzan said the problem was that the Town only had a certain amount of land in the downtown, and that committing Lot #5 to parking would be a waste of very valuable land, so he had proposed that it be committed to office, retail, and parking, and that they be built at the same time.  He said if the parking was built first it would make it more difficult for the office site to be built, which could then extend into another year, during which time the issue of parking would have to be dealt with.

Council Member Evans said the Council had seen office, retail, and parking being built at the same time in Charlotte, and the only reason the offices were being rented was that parking would be available.  Mr. Curzan said the Town could do the same thing in Chapel Hill, but not as many stories would be allowed as in Charlotte.

Council Member Evans said that parking must be considered up front in the development of downtown.

Mayor Waldorf said that adding another parking deck to the downtown had been considered before by previous Councils, and the decision was that the Town could not afford another parking deck unless it was combined with other development.

Council Member Ward asked if Lot #2 could be considered instead of Lot #5 for the development of office, retail, and parking.  He said that Lot #5 was a great asset and probably should be considered later.  Mr. Curzan said it could be readily done, and the only reason for picking Lot #5 was that it was larger and had more space.   He said Lot #2 would do just as well.

Council Member Ward asked where the employment status versus the eligibility played into the housing.  He asked what Mr. Curzan considered would be allowed for greenspace, since the space was limited.  Mr. Curzan said there was not too much available for greenspace, only small areas and a few trees.  He said that employees had been the focus, with the three entities each determining those it would like to house.

Council Member Ward asked what would happen if people changed jobs.  Mr. Curzan said that most universities make a clear determination at the beginning, if there is a job change then the occupant must leave the housing, except for retirees who usually can remain.  He said some universities were even reconsidering the policy for retirees.  Mr. Curzan said he had not had any experience with how the towns handled this situation, because Chapel Hill was one of first to consider this type of housing.

Council Member Foy said the two main commercial streets, and the parking deck on Rosemary Street killed the space, and asked what Mr. Curzan’s concept was for Lot #5. Mr. Curzan said there had not been an architect involved with the options yet, but there were many options to be considered as to how the Town wanted to incorporate its parking—below ground, above ground in a tower, around housing, and so forth.  He said the Town would have to work out all of the considerations.

Council Member Foy asked if it would make sense to intensify parking at Lot #2 in order to retain the open space in Lot #5.  Mr. Curzan said even if the space usage in Lot #2 were intensified, there would not be space for residential.

Mr. Horton asked if the space in Lot #2 could be intensified—double the retail space, double the parking, double the office—thereby intentionally increasing the intensity there, in order to reduce the intensity of development in Lot #5, to achieve the same balance in uses, revenues, and the like.  Mr. Curzan said the major problem was that no matter how much Lot #2 and Lot #5 were intensified, there would not be any residential building.  He said substituting Lot #2 for Lot #5 would work, adding that the financing would work just as well for each lot.

Mayor pro tem Pavão suggested returning to the idea of what had been discussed a few years ago when the Town considered the idea of moving the McDade House to Lot #5, surrounded by green space, parking and retail.  He suggested looking at the six designs that already existed for Lot #5.

Council Member Strom said he agreed with Mayor pro tem Pavão, that it would be good to look at designs that included open space, as had been seen as important in the Comprehensive Plan. He said that everyone was assuming that if public space was included in the design then the financing would fall apart, but he felt there were ways to have the intensity of office, retail, parking and, also, to have successful public spaces.  He felt it would be good to have interesting approaches on either lots.

Mayor pro tem Pavão said he felt the financial structure was important and if the Town was going to achieve the housing, and retain the three partners, then there would have to be trade-offs.  He said that the results of the charette done several years ago seemed to get close to retaining greenspace without sacrificing the workable spaces needed to make the project work. He said one of the problems was that the Council was not seeing a design, but only numbers and figures. Mr. Curzan agreed, but said what was important was the fact that reserving 35-40 square feet of the land for above-ground parking would leave only about 35,000 square feet remaining for office and retail space, and about 10-12,000 square feet left for green space.  He said the problem was that the Town had wonderful sites, but had a surplus of uses to take into account.

Council Member Evans said that since the charette was done, a Downtown Small Area Plan had been completed and had become part of the Comprehensive Plan, and gave strong guidelines as to what kind of development might occur.  She asked if the University was interested in office space on Town land, and leasing it from the Town.  Mr. Curzan said they were, and what concerned him was that by building housing on the available lots (not Lot #2), it would create a demand for retail, and there was not much land left to address the problems of retail, office and parking.  He said they had tried to look at trade-offs, and were prepared to design the lots in any way the Council wished, but it had to be looked at in terms of what the Council wanted to find for the space.

Council Member Evans asked if the bond issue money, part of which was intended to retrofit Building 440, could be transferred for use elsewhere, and was this discussed with the University. Mr. Curzan said the issue was raised, and the response was that the funds could possibly be used.

Council Member Evans asked if there were plans to retain the park at Building 440, if residential building was there, and could there be parking underneath the park.  Mr. Curzan said it could be done with stacked units, but he did not see that as being the desire of the people in this community.

Council Member Bateman asked what the status of commitment was with the other entities for the use of Lot #5.  Mayor Waldorf explained the discussions among the entities.  She said the idea of developing some kind of employer/employee housing came up in 1999, was discussed as part of the Comprehensive Plan process and supported by the Comprehensive Plan.  Mayor Waldorf said, on the basis of that, the Council authorized Council Member Wiggins and her to be part of a work group to sit down with representatives of the University and the Hospitals to begin to flesh it out.  She said that Mr. Curzan was hired by the work group, and was paid equally by all three entities.  Mayor Waldorf said the group worked for several months trying to raise issues and answer questions, and report to the Council periodically. She said the group went into a period of no further movement, because of the University’s need to recruit a new Chancellor, and once Chancellor Moeser arrived, Mr. Curzan made a presentation to him, and again to Vice Chancellor for Finance and Administration Nancy Suttenfield when she arrived at the University. Mayor Waldorf said that Chancellor seemed very interested and enthusiastic and there will be another presentation tomorrow to the Chancellor’s Cabinet, and the work group will be present. She said the status of the Report was that Phase 2 of the study was complete.  Mayor Waldorf suggested that the Report be referred to the staff for further analysis and the Council needed to think about what policy issues should be addressed, and where the Hospitals and the University stood on the issues.

Council Member Strom asked if the needs of the Town needed to be discussed within the Town/Gown Committee, or if it should be discussed outside of that as an issue of the Town.  He said that there were significant benefits to all of the partners and the conversation should be freestanding, where equitable partners doing this transaction together should not have it bogged down. Mr. Curzan said that no conversations with the University had ever raised other issues, except dealing with the downtown.  He said that the basis for his hiring was to think through what could be done by three entities of good will and good spirit working together to rebuild the downtown.  Mr. Curzan said he was now trying to work through the logistics to make this happen.

Council Member Evans said, after the discussions by Mr. Curzan with the University and the Hospital, it would be a good time for everyone concerned to get together for further discussion.

Council Member Bateman said she was uncomfortable with how the Report would be presented to the University and Hospital about the building of office space.  She said she would prefer that it would say that the non-profit entity would build office space that will replace the current office space that the University has at Building 440, and the rest could be built into housing and some commercial. Mr. Curzan said his intent was to say that the Town could build on some additional space without taking on an inordinate amount of risk, because most of the space would be leased by a very strong candidate.

Council Member Bateman said she would like the additional amount not to be office space, given how it would be risky, and she wanted to see it as housing, which she knew was needed. 

Mayor Waldorf asked if the maximum amount of housing would be reached by devoting the whole of Building 440 to housing.  Mr. Curzan said the best way to build office space was to know that a long-term user such as the University and the Hospital would be guaranteed.

Council Member Foy asked if there was an estimate of how many residences could be built in the downtown, in the two Building 440 sites, parking lots and existing buildings.  Mr. Curzan said that could be answered only by hiring a land planner and a housing architect skilled in doing that, with very clear directions, and working with that person to give three or four different design concepts to be brought back to the Council.  He said it mattered once the requirement was below 50-60 units, but did not matter above that.  Mr. Curzan said when they looked at Lot #5 or Building 440, either one would sustain 50-70 units.

Council Member Evans asked if that would leave room for retail space on the first floor of Building 440, and mentioned the need to have a flow of foot traffic along the Franklin Street front of retail sites.  Mr. Curzan said there was not a continuous flow anymore, and it would be very difficult to have it from Lot #5 to 440.

Council Member Evans asked Mr. Curzan to bring back a report from his meetings with the University and the Hospital.  Mayor Waldorf said she would also report back.

Council Member Ward asked that this issue be separated out from the other Town/Gown discussions based on central campus Master Plan issues, and to have the issue raised at the meeting with the entities tomorrow.

Mayor Waldorf said that would make sense as long as the discussions were moving along.

Mayor pro tem Pavão added that this issue had been discussed long before the Town/Gown Committee was established.  He said he saw it as a separate issue.

COUNCIL MEMBER WARD MOVED, SECONDED BY COUNCIL MEMBER FOY, TO REFER THIS DISCUSSION TO THE STAFF FOR REVIEW AND TO REQUEST INFORMATION FROM THE MEETINGS BETWEEN THE ENTITIES.  THE MOTION WAS ADOPTED UNANIMOUSLY (7-0).

The meeting was adjourned at 5:46 p.m.