Estimated Increase in Property Values Report Gowanus Rezoning Proposal October 30, 2019 DAVID PAUL ROSEN & ASSOCIATES D EVELOPMENT, FINANCE AND POLICY ADVISORS Estimated Increase in Property Values Report PREPARED FOR: Fifth Avenue Committee Pratt Center for Community Development PREPARED BY: David Paul Rosen & Associates 3527 Mt. Diablo Blvd, #361 Lafayette, CA 94549 510-451-2552 [email protected] www.draconsultants.com 3941 Hendrix Street Irvine, CA 92614 949-559-5650 [email protected] www.draconsultants.com Gowanus Rezoning Proposal October 30, 2019 Table of Contents Executive Summary ...................................................... 1 Background and Purpose of the Value Capture Study ......... 1 Methodology ............................................................ 5 Summary of Findings .................................................. 6 Estimated Existing Property Values ................................ 11 Existing and Proposed Zoning and Land Use in the Study Area ..................................................................... 12 Analysis of Existing Property Values ............................ 17 Prototype Economic Analysis ........................................ 25 MIH Assumptions ..................................................... 26 Residual Land Value Analysis Methodology .................... 30 Development Prototypes ........................................... 31 Economic Assumptions ............................................. 32 Estimated Increase in Property Values ............................ 36 Gowanus Rezoning Proposal October 30, 2019 List of Tables Table 1 Proposed Zoning Changes ................................................................6 Table 2 Summary of Residential Development Prototype Analysis ...............7 Table 3 Estimated Increase in Property Values Per SF Site Area, Selected Zoning Designations ..........................................................8 Table 4 Estimated Value Uplift, 2013 Property Value and Post- Zoning Value for Gowanus Rezoning Proposal ................................9 Table 5 Estimated Value Uplift, 2013 Property Value and Post- Zoning Value for Gowanus Rezoning Proposal ..............................10 Table 6 Existing Zoning...............................................................................13 Table 7 Existing Residential Units by Year Built ..........................................16 Table 8 Summary of Property Sales by Zoning After Adjustments, 2006-2018 .....................................................................................18 Table 9 Estimated 2018 Total Property Values (798 Parcels) ......................21 Table 10 Estimated 2013 Total Property Values (798 Parcels) ......................23 Table 11 Estimated Increase in Property Values, 2013 to 2018 ....................24 Table 12 Inclusionary Set-Aside and Targeting Options ................................27 Table 13 Summary of Residual Land Value Analysis Results, Low Cap Rate ...............................................................................................28 Table 14 Summary of Residual Land Value Analysis Results, High Cap Rate ...............................................................................................29 Table 15 Summary of Residential Development Prototypes ..........................32 Table 16 Key Development and Operating Cost Assumptions ......................33 Table 17 Market Rents at Selected Recently Developed Rental Properties, Gowanus and Vicinity ..................................................34 Table 18 Market Rent Assumptions for Prototype Developments .................34 Gowanus Rezoning Proposal October 30, 2019 Table 19 Affordable Net Rents by Percent of AMI and Unit Bedroom Count .............................................................................................35 Table 20 Proposed Zoning Changes ..............................................................37 Table 21 Projected Property Values Under Rezoning Under “Low” and “High” Cap Rates ....................................................................38 Table 22 Projected Property Values Under Rezoning Factoring in Costs of Environmental Remediation for Canal Sites Under “Low” and “High” Cap Rates .........................................................39 Table 23 Estimated Property Values in 2013 and 2018 .................................40 Table 24 Estimated Change in Property Values from 2013 and 2018, Low Cap Rate .................................................................................41 Table 25 Estimated Change in Property Values from 2013 and 2018, High Cap Rate ................................................................................42 Table 26 Summary of Estimated Change in Property Values from 2013 to 2018 and to New Zoning, Per Square Foot and Total Study Area (387 Parcels) ................................................................43 Appendix A Table A-1 Summary of Property Sales by Zoning, 2006 to 2018 Table A-2 Residual Land Value Analysis Summary, Low Cap Rate Table A-3 Residual Land Value Analysis Summary, High Cap Rate Table A-4 Development Prototypes Table A-5 Development Cost Assumptions and Budgets Table A-6 Market Rent and Operating Cost Assumptions Table A-7 Utility Allowances Table A-8 Affordable Rent Calculations by Income Level Table A-9 Affordable Units by Prototype and Income Level Table A-10 Market-Rate Units by Prototype Gowanus Rezoning Proposal October 30, 2019 Table A-11 Affordable Unit Square Feet by Prototype and Income Level Table A-12 Market-Rate Unit Square Feet by Prototype Table A-13 Rental Housing Income from Inclusionary Units Table A-14 Total Rental Housing Income by Inclusionary Alternative Table A-15 Apartment NOI by Inclusionary Alternative Table A-16 Residual Land Value Analysis, Low Cap Rate Table A-17 Residual Land Value Analysis, High Cap Rate List of Maps Map 1 Gowanus Rezoning Framework............................................................3 Map 2 Gowanus Rezoning Proposal ................................................................4 Map 3 Existing Zoning...................................................................................14 Map 4 Existing Land Use ...............................................................................15 Map 5 Sales Price Per Square Foot ................................................................19 Gowanus Rezoning Proposal October 30, 2019 Executive Summary This report estimates the future increase in property values in the Gowanus Rezoning Proposal Study Area associated with development under the draft Zoning Proposal for Gowanus. DRA estimated historical and current property values for 798 parcels in the Study Area based on analysis of historical land sales by existing zoning category. DRA then used residual land value analysis applied to several residential prototypes representing proposed rezoning categories to estimate potential future land values if 387 sites in the Study Area are developed to their full potential under the Zoning Proposal. Finally, DRA used the results of the prototype analysis to estimate the potential total increase in Study Area property values if all of the properties in certain zoning designations are redeveloped under the new zoning. DRA estimated the total market value of the 387 properties in the three zoning designations considered most likely to experience redevelopment. These parcels’ estimated value developed under rezoning using a cap rate of 4.5%, considered the most representative of the current market, is $1.0B to $1.7B (35% to 75%) higher than estimated 2018 property values, and $1.7B to $2.3B (75% to 145%) higher than estimated 2013 property values. Using a higher cap rate of 5.0%, the change in property values from 2018 to the new zoning ranges from a reduction of $0.2B to an increase of $0.5B (a percentage change from -6% to 21%). Estimated property values under rezoning at the 5.0% cap rate are $0.5B to $1B (22% to 69%) higher than estimated 2013 property values. Factoring in estimated environmental remediation costs for the canal-front sites reduces the property value uplift by approximately $0.1B under each scenario. Background and Purpose of the Value Capture Study The New York City (NYC) Department of City Planning (DCP) released its draft Proposal for the rezoning of the Gowanus neighborhood in Brooklyn (“Study Area”) in June, 2018. The Proposal included DCP’s proposed rezoning boundaries, where industrial land will be converted to allow residential development, what densities DCP contemplates, and envisioned capital investments by the City. In January 2019, DCP released the draft Gowanus Zoning Proposal, part of a package of City initiatives to achieve multiple goals outlined in the Gowanus Proposal to support mixed-use growth Gowanus Rezoning Proposal October 30, 2019 Estimated Increase in Property Values Final Report 1 with affordable housing, maintain and grow Gowanus’ commercial and industrial businesses, and to activate ground floors and create new public spaces. Map 1 provides an overview of DCP’s land use framework released in June 2018.1 Map 2 shows DCPs rezoning proposal from the draft scope of work. As a member of a project team led by the Pratt Center for Community Development (Pratt Center) and that also includes Fifth Avenue Committee (FAC), David Paul Rosen & Associates (DRA) prepared a land value capture analysis of the draft Zoning Proposal. The purpose of the study is to quantify the economic value of the changes in land use and