The COST
This section lays out the financial model for building affordable housing for mixed-income populations. We are offering fourplex and condominium units for populations who are making between 60% to 120% Area Median Income (AMI) in Seattle. Out of a total of 56 units, 17 units (30.36%) will be priced at the below-market rate for 60% to 80% AMI residents, 17 units (30.36%) will be priced at a below-market rate for 80% to 120% AMI residents, and 22 units (39.28%) will be priced at the market rate for 120% and above AMI residents. For example, three-bedroom Condo units will be priced around $ 317,000, $ 473,000, and $ 660,000 for 60% to 80% AMI, 80% to 120% AMI, and above 120% AMI respectively.
The estimate for the total construction cost for 56 units is $32,050,000, and the estimate for the total revenue is $25,042,000 with an additional annual leasing revenue of $550,000. The capital gap* or public and private investment required will be $7,008,000 (Construction cost - Revenue = $32,050,000 - $25,042,000).
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*not accounting for land aquisition
Capital Gap
The capital gap is $7,008,000 (Construction cost - Revenue = $32,050,000 - $25,042,000) for our affordable housing proposal. The first image below shows the breakdown between total revenue and total costs. The table below illustrates the capital gap by unit type-- fourplexes and condo.
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Capital Gap (Gain) examples
Illustrated below are a few examples that details the capital gap or gain from building one unit under the Fourplex and Condominium model.
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For the Fourplex project in Seattle, the image above highlights a scenario of a 2-bedroom, 1,000 sq.ft unit at an affordability type of 70% AMI. The $231,000 capital gap can be found by subtracting the cost of construction of one unit from the purchase price of the unit. The purchase price is adjusted based on the household size and AMI level. Since the unit is sold at below market value at a 70% AMI level, the sale of the unit will not sufficiently cover the cost of construction, resulting in a capital gap. The capital gap shown is the investment needed to fund this project.
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Next, this image explains the capital gain that will occur as a result of completing our Condominium project in Seattle. The capital gain of $12,000 can be found by subtracting the cost of construction of one unit from the purchase price of the unit. The purchase price is adjusted based on the household size and AMI level. Although the unit is not being sold at market value, the selling price of the unit exceeds the cost of construction, resulting in a capital gain. As there is a capital gain, outside funds would not be necessary for this one-bedroom unit.
Total Construction Cost
The estimate for the total construction cost for 56 units is $32,050,000. This does not take into consideration land acquisition and foreseeable infrastructure costs. However, this includes a 5% contingency cost to account for unanticipated costs that may arise during a project. In our model, many assumptions were made in estimating the total construction cost for both the fourplex and condominium model.
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Fourplex: One of the first assumptions was estimating the cost per square foot. Using RLB Intelligence Construction Cost Indicator, it provides an estimate of $215 cost per square foot for Seattle residential multi-family housing units. To be conservative, we applied a 40% increase to the $215 cost/sq.ft which equals approximately $300 cost/sq.ft on the low end; then, we created a cost range by increments of $50 (i.e. 300, 350, 400, 450, 500). This allowed us to calculate the hard costs-- electrical, plumbing, HVAC, drywall, labor, and overhead. For soft costs, it would be 25% of hard costs; this metric is an industry standard. Soft costs included project team fee, permits, insurance, blueprints, legal fees, and interests. In our model, we did not account for land and infrastructure cost due to its variability. However, we did account for an additional 1,000 square feet of a shared amenity area for the residents at the same $300-$500 cost/sq.ft range. Our projects account for the construction of two fourplexes. Each fourplex has two 1000 sq. ft units and two 2000 sq. ft units, creating a total of eight units (four-1000 sq.ft and four-2000 sq.ft). Our model used two fourplexes because it allowed us to fully reflect the thre affordability types: 70% AMI, 100% AMI, and Market Rates (See Exhibit A). In the end, the average subtotal cost of construction for the two fourplexes (8 units) resulted in $6.8 million.
Condominiums: Similarly, using ProEst, we identified the cost per square foot to build a condominium in Seattle. The national average cost per square foot stands at $125 and again, we applied a 40% increase to reflect Seattle’s housing market. In $50 increments, this produced a range of $175 to $375 cost per square foot. Additionally, we used the Building Journal Cost Indicator tool to estimate the cost per square feet to construct a 66,000 sq.ft condominium. It stated $92.22/sq.ft as the national average; This serves as a “gut check” to ensure that we are not underpricing costs. Soft costs remained at 25% of hard costs and land and infrastructure costs remained at $0 due to its variability across the Greater Seattle Metropolitan Area. Other development costs were added such as the cost of constructing a parking garage, first floor leasing units, shared amenity areas, and circulation costs.The average subtotal cost of construction for the one condo (48 units) resulted in $23.925 million.
Total Revenue
The estimate for the total revenue is $25,042,000, which includes an additional annual leasing revenue of $550,000. We calculated below market rate sales price for populations who make between 60% to 120% AMI based on how much a household can afford paying a mortgage without exceeding 30% of their monthly income (See Exhibit B). We incorporated estimates of local property tax rates, homeowners association dues, and homeowners insurance rates to calculate an affordable monthly payment. We took the middle points of two different AMI groups into our calculation (70% AMI for populations who are making between 60% to 80% AMI and 100% for populations who are making between 80% to 120% AMI). The graph below shows the sales price for different AMI groups:
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Out of a total of 56 units, 17 units (30.36%) will be priced at a below-market rate for 60% to 80% AMI, 17 units (30.36%) will be priced at a below-market rate for 80% to 120% AMI, and 22 units (39.28%) will be priced at the market rate for above 120% AMI (See Exhibit C).
On top of sales revenue, there is an estimated annual leasing revenue of $550,000 for the first-floor retail area of 10,000 sq.ft and an underground parking garage area of 10,000 sq. ft. The annual rental price is estimated to be $27.5/ sq.ft in Seattle. The total revenue consists of sales of 34 units at a below-market rate, 22 units at market rate, retail and underground parking garage annual leasing revenue.
