North Commons Supplemental Information.docNorth Commons Supplemental Information – November 6 2019
Playgrounds: We were asked what the cost of the proposed playground is at Village Hill. Our contractor / estimator has estimated this cost at $97,000.
Developer Fee: We heard concern about the size of the developer fee, but did not have time to explain the important and varied functions this money serves.
Typically total earnings for an affordable housing developer are broken into two categories: the Developer Overhead is usually about 50% of earnings and Developer Fee is the balance.
In the budget presented to the CPC, these fees were simplified and collapsed into one budget line. Developer Overhead pays for staff time, organizational over-head and other miscellaneous
costs during the typical 3-6 year period it takes to plan and implement an affordable housing project.
Investors will only allow the Developer to draw the 50% Developer Fee after project completion, lease up, and 6 months of successful operations. The Fee back-stops any cost over-runs
in construction that exceed contingency or cost over-runs in soft costs. Often the Developer contributes a portion of the Fee to support the project (which is then known as a Deferred
Developer Fee). The Fee represents potential earnings that are at risk for the Developer.
In order to attract investors, the Developer must offer numerous financial guarantees not only during the construction period, but throughout the operating period. For example, the
Developer may be asked to maintain net worth of at least 25% of the total project cost (in the case of North Commons about $5,000,000) and liquidity of 5% of total project cost, or,
in the case of North Commons, $1,000,000 in cash reserves. Fees earned from past projects are saved in order to allow a Developer to meet these kinds of significant guarantee requirements.
The units at North Commons will be restricted as affordable for 99 years. During this time, the building and grounds must be maintained using a revenue stream based upon below-market
rents. Developers create reserves within their larger portfolio to be able to operate affordable housing over extended periods of time. The Developer Fee helps create reserves for
long-term asset management.
The Community Builders is a 501c3 mission-driven non-profit organization and our mission is to build and sustain communities where all people thrive. We are only able to accomplish this
work through revenue sources, such as developer fee, which is regulated by both federal and state calculations that are designed to support and promote affordable housing.
35 Village Hill Road, North Commons, and the CPC Requests: We wanted to clarify again our recent history with requests to the CPC, as it relates to the two separate Village Hill projects.
In 2018, we requested and received two separate awards from the CPC in the total amount of $200,000. The decision was made, together with the City, to allocate both of those awards
only to the 35 Village Hill Road project, which as of this week has broken ground. The request under consideration by the CPC right now is just for the North Commons project, and will
be TCB’s only request to the CPC for North Commons.
We think that there may have been confusion that our current request for $250,000 related to cost overruns for this project, however our costs have been fairly level since the last time
we were in front of the CPC in February of this year. The substantial change is that the prior awards were all directed to the other project, therefore leaving a gap in North Commons.