CC Resolution 13199 - Adopting An Affordable Housing Nexus Study RESOLUTION NO. 13199
BEING A RESOLUTION OF THE CITY OF CAMPBELL ADOPTING AN
AFFORDABLE HOUSING NEXUS STUDY. FILE NO. PLN-2023-85.
After notification and public hearing, as specified by law and after presentation by the
Community Development Director, proponents and opponents, the hearing was closed.
The City Council finds as follows in consideration of the adoption of an Affordable Housing
Nexus Study (File No. PLN-2023-85):
WHEREAS, on April 18, 2023, the City Council adopted a Housing Element for the 2023-
2031 planning period that identified programs to modify the City's Inclusionary Housing
Ordinance (Program H-1 a) and establish a Commercial Linkage Fee (Program H-2b) as
follows:
Program H-la: Inclusionary Housing Ordinance Implementation: Amend the Inclusionary
Housing Ordinance to offer developers a menu of options for achieving affordability, adjusting the
percentage of units required to be affordable depending on the degree of affordability achieved
(i.e., moderate-, low-, very low-, and extremely low income). These amendments could also
include:
• Initiating a nexus study to reevaluate increasing the affordable housing in-lieu fee.
• Updating the inclusionary ordinance to require for-sale projects to provide the same
allocation of units available to lower-income and very low-income units that is required for
rental projects."
• Modifying the In-Lieu Fee threshold to apply only to developments of 5-9 units. Housing
developments of 10 or more units would not be allowed to substitute affordable units with
in-lieu fees.
Program H-lb: Commercial Linkage Fee: Establish an affordable housing impact fee that will
apply to nonresidential development to provide an additional local source of revenue to support
production of affordable housing.
WHEREAS, Program H-la (Inclusionary Housing Ordinance Implementation) and Program
H-1 b (Commercial Linkage Fee) call for consideration of changes to the City's housing in-lieu
fee and support the establishment of a housing impact fee to nonresidential development
(hereinafter "commercial linkage fee").
WHEREAS, Government Code Section 66016.5 requires the City to adopt an impact fee
nexus study before the adoption of an associated development fee.
WHEREAS, on September 5. 2023, the City Council authorized the execution of a contract
with BAE Urban Economics for the preparation of an Affordable Housing Nexus Study serving
to analyze the relationship and nexus between new market rate housing and non-residential
development projects and a demand for affordable housing consistent with the requirements
of Housing Element Programs H-la and H-lb.
WHEREAS, on July 15, 2024, BAE Urban Economics completed the Affordable Housing
Nexus Study.
WHEREAS, the Affordable Housing Nexus Study describes the projects on which fees are to
be imposed, the reasonable relationship between the impact fees and the various types of
City Council Resolution No. 13199
PLN-2023-85— Adopting an Affordable Housing Nexus Study Page 2 of 2
new development, and sets forth a methodology for determining the relationship
between new development and the needed public facilities and the estimated cost
of those improvements.
WHEREAS, the Affordable Housing Nexus Study calculates the maximum
justifiable impact fees that can be charged on new development, and therefore,
the City Council may adopt Development Impact Fees at, or below, the maximum
justifiable amount identified within the Affordable Housing Nexus Study.
WHEREAS, the Affordable Housing Nexus Study has been prepared in
compliance with the requirements of the California Mitigation Fee Act (California
Government Code sections 66000 et. seq.), which sets forth procedural
requirements for establishing and collecting development impact fees.
WHEREAS, the City duly provided a 30-day notice of the public hearing and sent
a mailed notice to any interested party who had filed a written request for a mailed
notice of a public hearing on new or increased fees as required by state law.
WHEREAS, the City has complied with the notice and hearing requirements of state law.
WHEREAS, pursuant to Section 15378(b)(4) of the California Environmental
Quality Act (CEQA) Guidelines, the adoption of the Affordable Housing Nexus
Study supporting updates to the City's fees is not a project subject to CEQA in
that it is a government fiscal activity which does not involve any commitment to
any specific project which may result in a significant impact on the environment.
WHEREAS, in consideration of the adoption of the Affordable Housing Nexus
Study, the City Council provided due consideration of all evidence presented and
provided in the entire administrative record.
WHEREAS, this Resolution shall become effective upon adoption.
THEREFORE, BE IT RESOLVED that the City Council adopts a Resolution
adopting the Affordable Housing Nexus Study as set forth in Exhibit A.
PASSED AND ADOPTED this 20th day of August, 2024, by the following roll call
vote:
AYES: Councilmembers: Bybee, Furtado, Scozzola, Landry
NOES: Councilmembers: Lopez
ABSENT: Councilmembers: None
ABSTAIN: Councilmembers: None
APPROVE
SW
Susan M. Landry, Mayor
ATTEST: ( ( , � �/1
An rea Sanders, City Clerk
bae
FINAL DRAFT Affordable Housing Nexus Study
Prepared for the City of Campbell
July 15, 2024
Table of Contents
1. INTRODUCTION 1
Commercial Linkage Fee Analysis 2
Residential Feasibility and In-Lieu Fee Analysis 2
Current Inclusionary Housing Requirements and In-Lieu Fee 3
Affordability of Market-Rate Housing 4
Input from Developers 6
AB 602 Requirements 10
AB 1505 Requirements 11
2. COMMERICAL LINKAGE FEE ANALYSIS 13
Commercial Linkage Fee Nexus Analysis 13
Commercial Linkage Fee Financial Feasibility Analysis 24
Non-Residential Fee Benchmark Analysis 28
Summary of Findings from Commercial Linkage Fee Analysis 35
3. RESIDENTIAL FINANCIAL FEASIBILITY ANALYSIS 36
Residential Development Trends in Campbell 36
Campbell Residential Development Standards 36
Prototypes 37
Methodology for Financial Feasibility Analysis 38
Rental Inclusionary Financial Feasibility Findings 39
For-Sale Residential Financial Feasibility Findings 40
Summary of Findings 42
4. INCLUSIONARY HOUSING IN-LIEU FEE ANALYSIS 44
Inclusionary Unit Construction Cost Approach 45
Point of Indifference Approach 47
Residential Fee Benchmark Analysis 48
Summary of Findings from Inclusionary In-Lieu Fee Analysis 54
5. KEY FINDINGS&POLICY OPTIONS 55
Affordable Housing Need 55
Commercial Linkage Fee Policy Options 55
Inclusionary Housing In-Lieu Fee Findings and Policy Options 58
APPENDIX A:AB 602 ANALYSIS 62
Commercial Linkage Fee AB 602 Analysis 62
APPENDIX B: NON-RESIDENTIAL PRO FORMAS 67
APPENDIX C: RESIDENTIAL PRO FORMAS 73
APPENDIX D: OVERVIEW OF IMPLAN 89
List of Tables
Table 1: Inclusionary Housing Affordability Terms in Nearby Jurisdictions 4
Table 2: Household Income Limits by Household Size,Santa Clara County,2023 5
Table 3:Affordability of Market-Rate Multifamily Rental Units, Campbell, 2023 6
Table 4: Employment Densities by Land Use 15
Table 5: Distribution of Worker Households by Income 16
Table 6: Worker Households by Income Level by Land Use 18
Table 7:Affordable Housing Financing Gaps,Campbell, 2023 21
Table 8: Maximum Legal Commercial Linkage Fees,Campbell 23
Table 9: Summary of Financial Pro Forma Analysis, Current Conditions(No Commercial
Linkage Fee) 27
Table 10: Possible Commercial Linkage Fees as a Percent of Total Development Cost 28
Table 11:Commercial Linkage Fees in Other Jurisdictions(per net new square foot) 32
Table 12:Summary of Residential Prototype Development Programs 37
Table 13:Summary of Residential Development Feasibility 43
Table 14:Construction Cost In-Lieu Fee Amount by Prototype 46
Table 15: Point of Indifference In-Lieu Fee Amount by Prototype 48
Table 16: Inclusionary Housing In-Lieu Fees in Nearby Jurisdictions 51
Table 17:Summary of Findings from In-Lieu Fee Analysis 54
List of Figures
Figure 1: Non-Residential Impact Fees in Campbell and Comparison Jurisdictions 34
Figure 2: Residential Impact Fees in Campbell and Comparison Jurisdictions 53
1. INTRODUCTION
This study provides analysis to assist the City of Campbell in considering the adoption of
commercial linkage fees and changes to the City's inclusionary housing in-lieu fees. The City
of Campbell is situated in one of the highest-cost regions in the country, where market-rate
housing is often unaffordable for lower-income and moderate-income households. The City
has sought to address these challenges through a variety of programs and actions, including a
long-standing inclusionary housing ordinance that requires that some units in most new
market-rate residential developments be made affordable to lower-income or moderate-
income households. The City's inclusionary housing ordinance allows developers of some
projects to choose to pay an in-lieu fee instead of providing inclusionary units,with revenues
from the in-lieu fee directed to support affordable housing programs. As part of the City's
efforts to address affordable housing needs,the City is now considering the adoption of
commercial linkage fees that would apply to new non-residential development projects in the
City,with revenues from commercial linkage fees providing funding to support affordable
housing programs.
The City of Campbell's 2023-2031 Housing Element Update includes programs related to the
adoption of commercial linkage fees, updates to the City's inclusionary housing ordinance,and
updates to the City's inclusionary housing in-lieu fees. These programs include:
Program H-la: Inclusionary Housing Ordinance Implementation:Amend the
Inclusionary Housing Ordinance to offer developers a menu of options for achieving
affordability,adjusting the percentage of units required to be affordable depending on
the degree of affordability achieved (i.e., moderate-, low-,very low-,and extremely low-
income).
These amendments could also include:
• Initiating a nexus study to reevaluate increasing the affordable housing in-lieu
fee.
• Updating the inclusionary ordinance to require for-sale projects to provide the
same allocation of units available to lower-income and very low-income units
that is required for rental projects.
• Modifying the In-Lieu Fee threshold to apply only to developments of 5-9 units.
Housing developments of 10 or more units would not be allowed to substitute
affordable units with in-lieu fees.
Program H-lb: Commercial Linkage Fee: Establish an affordable housing impact fee
that will apply to nonresidential development to provide an additional local source of
revenue to support production of affordable housing.
DRAFT Campbell Affordable Housing Nexus Study I Introduction 1
The analysis presented in this report supports the City's implementation of these Housing
Element programs.
Commercial Linkage Fee Analysis
One of the purposes of this report is to provide the analysis needed to inform the City's
consideration of the adoption of commercial linkage fees. Commercial linkage fees are
considered to be development impact fees that are subject to the requirements of the
California Mitigation Fee Act. Local governments have the authority to implement
development impact fees for the purpose of mitigating all or some of the costs associated with
addressing the impacts of new development. Under the California Mitigation Fee Act
(Government Code Section 66000 et seq.), before adopting an impact fee, local governments
must adopt a nexus study that demonstrates a reasonable relationship between the impacts
of new development,the facilities needed to address those impacts, and the fees that the
jurisdiction intends to charge.
One purpose of this study is to address this requirement by quantifying the estimated
relationship between new non-residential development in Campbell,the need for workforce
housing, and the public cost to construct housing that is affordable to lower-income workers.
The basis for the commercial nexus analysis is that new non-residential development
generates new employment and brings new worker households to the area. A portion of these
workers will have wages and household incomes that are not high enough to enable them to
afford market-rate housing in Campbell,and as a result new commercial development is
associated with a need for additional affordable housing. The nexus analysis identifies the
fees that the City of Campbell would need to charge to generate the funds necessary to
support the construction of affordable units for these workers.
Nexus studies for this type of fee often find that the fee rates that are supported by the nexus
analysis are relatively high, and that charging the full nexus-based fee amount would likely
render most or all new non-residential development infeasible. This is because the nexus
analysis estimates the revenue that would need to be collected to address the impacts that
new development has on worker housing needs,which does not bear any direct relationship to
the financial feasibility of new development projects. To address this,this study also includes
a financial feasibility analysis to evaluate the impact that new fees could have on the
feasibility of new non-residential development. While the nexus analysis identifies the
maximum amount that Campbell could charge based on the relationship between new non-
residential development and the need for affordable housing funds,the City can adopt lower
fee rates based on financial feasibility considerations or other factors.
Residential Feasibility and In-Lieu Fee Analysis
Unlike commercial linkage fee programs, which focus on the establishment of fees,
inclusionary housing programs focus on the production of affordable housing units.As an
alternative to providing housing units, Inclusionary Housing Programs offer an "in-lieu fee"
DRAFT Campbell Affordable Housing Nexus Study I Introduction 2
which is not subject to the same"nexus" standard as commercial linkage fees as developers
retain the option of providing affordable housing units instead of paying the in-lieu fee. By
State law, a local requirement to provide affordable housing units is also not subject to a
nexus standard, provided the that the required inclusionary housing percentage does not
exceed 15 percent of the conforming units providedl.
This study offers two alternative methods for determining a reasonable residential in-lieu fee in
Campbell, as well as recommendations for implementing an updated in-lieu fee. In addition,
this study includes a residential financial feasibility analysis to evaluate the feasibility of
various types of residential development in Campbell. The residential financial feasibility
analysis can help to inform the consideration of potential changes to the inclusionary
ordinance. In addition,the financial feasibility analysis informs recommendations related to
updating the City's inclusionary housing in-lieu fees.
Current Inclusionary Housing Requirements and In-Lieu Fee
Campbell's inclusionary housing ordinance requires that new residential developments with
ten or more units provide 15 percent of the units as affordable inclusionary units. For rental
developments, 40 percent of the inclusionary units(i.e.,six percent of the units in the project),
must be affordable to very low-income households,with the remainder affordable to lower-
income households. For for-sale developments, 40 percent of the inclusionary units (i.e., six
percent of the units in the project), must be affordable to lower-income households, with the
remainder affordable to moderate-income households. For example, a 100-unit rental
development would be required to provide a total of 15 affordable inclusionary units,six of
which are affordable to very low-income households and nine of which are affordable to lower-
income households. A 100-unit for-sale development would be required to provide a total of
15 affordable inclusionary units,six of which are affordable to lower-income households and
nine of which are affordable to moderate-income households.
Projects with a density of six dwelling units per acre or less have the option to pay an in-lieu
fee rather than providing the inclusionary units. The current in-lieu fee is $21.50 per square
foot for rental developments and $34.50 per square foot for for-sale developments. For
example, a ten unit,for sale single family development with an average home size of 2,000 sq.
ft., built at a density of six dwelling units per acre or less, would have the option to pay an in-
lieu fee totaling$276,000 (10 units x .15%= 2 units; 2 units x 2,000 sq.ft. per unit x 34.50
per square foot).
Campbell's inclusionary ordinance requires a 55-year affordability term for rental
developments and a 45-year affordability term for for-sale developments. As shown in Table 1,
1 https://www.hcd.ca.gov/community-development/housing-element/housing-element-
memos/docs/ab 1505 final.pdf
DRAFT Campbell Affordable Housing Nexus Study I Introduction 3
these affordability terms are comparable to the terms required by some nearby jurisdictions,
but shorter than the required affordability terms in others. For example,Sunnyvale requires a
55-year affordability term for rental inclusionary units and a 30-year affordability term for for-
sale inclusionary units, while Cupertino and San Jose require a 99-year affordability term for
both rental and for-sale inclusionary units. Los Gatos and Mountain View require that
inclusionary units remain affordable in perpetuity.
Table 1: Inclusionary Housing Affordability Terms in Nearby Jurisdictions
Term of Affordability(Years)
Rental Units For Sale Units
Campbell(a) 55 45
Cupertino 99 99
Los Gatos(b) In Perpetuity In Perpetuity
Mountain View In Perpetuity In Perpetuity
San Jose(c) 99 99
Santa Clara(d) 55 20
Sunnyvale 55 30
(a)Affordability term for for-sale units renews at change of each title for the duration of the affordability term.
(b)Los Gatos has an ADU Incentive Program that provides financing for ADU construction in exchange for making the ADU
affordable. In the case of affordable ADUs financed through the ADU incentive program,the affordability term is 30 years.
(c)Affordable housing developments request a term of affordability of less than 99 years and no less than 55 years.
(d)For-sale units must be re-sold to a qualifying buyer if sold within 5 years;City loan is forgiven in this instance. If resold
within years 6-20,the seller may sell to any buyer but is required to pay off City loan and at sale and City receives a share
of the increased equity.
Source:BAE,2024.
Affordability of Market-Rate Housing
Table 3 below shows the average market-rate rent in Campbell as of the third quarter of 2023
as well as the maximum affordable monthly rent for households of various sizes and income
levels. The U.S. Department of Housing and Urban Development(HUD)and the California
Department of Housing and Community Development(HCD) characterize households as
"extremely low-income," "very low-income," "low-income," "moderate-income," or"above-
moderate income" based on percentages of the Area Median Income(AMI). These income
categories are defined below.
• Extremely Low-Income: Up to 30 percent of AMI
• Very Low-Income: 31 percent to 50 percent of AMI
• Low-Income:51 percent to 80 percent of AMI
• Moderate-Income:81 percent to 120 percent of AMI
• Above-Moderate Income: More than 120 percent of AMI
The household incomes that correspond to each income level varies by household size,as
shown in Table 2.
DRAFT Campbell Affordable Housing Nexus Study I Introduction 4
Table 2: Household Income Limits by Household Size, Santa Clara County, 2023
Number of Persons in Household
Income Level 1 2 3 4 5 6 7 8
Acutely Low $19,050 $21,750 $24,500 $27,200 $29,400 $31,550 $33,750 $35,900
Extremely Low $37,450 $42,800 $48,150 $53,500 $57,800 $62,100 $66,350 $70,650
Very Low Income $62,450 $71,400 $80,300 $89,200 $96,350 $103,500 $110,650 $117,750
Low Income $96,000 $109,700 $123,400 $137,100 $148,100 $159,050 $170,050 $181,000
Median Income $126,900 $145,050 $163,150 $181,300 $195,800 $210,300 $224,800 $239,300
Moderate Income $152,300 $174,050 $195,800 $217,550 $234,950 $252,350 $269,750 $287,150
Sources:California Department of Housing and Community Development,2023;BAE,2024.
In accordance with guidelines established by HUD, housing costs are generally considered to
be affordable if a household's housing costs are equal to no more than 30 percent of their
household income. For lower-income households, having housing costs above this threshold
often signifies that a household is at risk of losing their housing and may struggle to afford
housing costs while also paying for food,transportation, health care, and other basic needs.
The analysis shown in Table 3 indicates that market-rate rents in Campbell exceed the
affordability threshold for extremely low-and very low-income households, as well as for most
low-income households. It should be noted that the incomes shown in the table are at the top
of the income range for each group. Therefore, while Table 3 indicates that some one-and
two-person households with incomes equal to 80 percent of AMI can afford market-rate rents,
most lower-income households have incomes that fall somewhere below 80 percent of AMI.
As a result, market-rate rents exceed the affordability threshold for all but a small portion of
lower-income households.
This analysis indicates that many new workers in Campbell with moderate or above moderate
household incomes will generally be able to afford market-rate rental units in the City, while
workers with lower household incomes will generally not be able to afford market-rate housing
in Campbell. While some market-rate units in Campbell have rents that fall below the
averages shown in Table 3, data from Costar indicate that the multifamily rental vacancy rate
in Campbell is approximately three percent. This suggests that new housing will need to be
built to accommodate an increase in worker housing demand regardless of the level of
affordability needed. The market-rate rents shown in Table 3 are based on all market-rate
units in Campbell, regardless of property age, and therefore are lower than the rents that
would be charged at a newer development. As a result, new market-rate units are unlikely to
provide housing that is affordable for worker households with extremely low,very low, and low
incomes,and these households will need rent-restricted affordable housing in order to be able
to afford to live locally.
Based on the calculations shown in Table 3,the nexus analysis provided in this study
evaluates the extent to which new development generates a need for housing for extremely
low-income,very low-income,and low-income households. As displayed below,the amounts
DRAFT Campbell Affordable Housing Nexus Study I Introduction 5
below market rates are reflected in negative values shown in red parentheses or positive
values shown in green. The nexus analysis does not focus on the housing need for moderate
or above-moderate income households because households at these income levels are more
likely to be able to afford market-rate housing.
Table 3: Affordability of Market-Rate Multifamily Rental Units, Campbell, 2023
Household(Unit)Size
1 Person 2 Person 3 Person 4 Person
(Studio) (1 Bedroom) (2 Bedrooms) (3 Bedrooms) Affordable?
Average Market-Rate Rent(a) $2,063 $2,542 $3,025 $3,818
Utility Costs(b) $168 $179 $217 $253
Maximum Affordable Monthly Rent
Extremely Low Income(up to 30%AMI)
Household Income(c) $37,450 $42,800 $48,150 $53,500
Max.Affordable Monthly Rent(d) $768 $891 $987 $1,085
Amount Above(Below)Market Rate Rent ($1,295) ($1,651) ($2,038) ($2,734) No
Very Low Income(31-50%AMI)
Household Income(c) $62,450 $71,400 $80,300 $89,200
Max.Affordable Monthly Rent(d) $1,393 $1,606 $1,791 $1,977
Amount Above(Below)Market Rate Rent ($670) ($936) (51,235) ($1,841) No
Low Income(51-80%AMI)
Household Income(c) $96,000 $109,700 $123,400 $137,100
Max.Affordable Monthly Rent(d) $2,232 $2,564 $2,868 $3,175
Amount Above(Below)Market Rate Rent $169 $21 ($157) ($644) No
Median Income(81-100%AMI)
Household Income(c) $126,900 $145,050 $163,150 $181,300
Max.Affordable Monthly Rent(d) $3,005 $3,447 $3,862 $4,280
Amount Above(Below)Market Rate Rent $942 $905 $837 $462 Yes
Moderate Income(101-120%AMI)
Household Income(c) $152,300 $174,050 $195,800 $217,550
Max.Affordable Monthly Rent(d) $3,640 $4,172 $4,678 $5,186
Amount Above(Below)Market Rate Rent $1,577 $1,630 $1,653 $1,368 Yes
Notes:
(a)The average asking multifamily rent by number of bedrooms in the City of Campbell at the end of the third quarter of
2023,as reported by CoStar.
(b)Housing Authority of Santa Clara County 2023 allowances for tenant-furnished utilities and other services for a
multifamily unit that uses electricity for cooking,heating,and water heating,as well as electricity for lights and appliances.
Figure assumes the tenant is charged for water and sewer services. The allowance is based on the number of bedrooms in
the unit and a household is assumed to have one bedroom fewer than the number of people in the household.
(c)California Department of Housing and Community Development 2023 income limits for Santa Clara County.
(d)Assumes 30 percent of income spent on rent and utilities.
Sources:CoStar,2023;California Department of Housing and Community Development,2023;HUD OMB 2577-0169,
2022;Housing Authority of Santa Clara County,2023;BAE,2023.
Input from Developers
The process for preparing this nexus study report included obtaining input from residential and
non-residential developers through a series of one-on-one interviews,two developer focus
group sessions, and an online developer survey. The developer interviews focused on
collecting input on detailed assumptions for the financial feasibility analysis and also included
DRAFT Campbell Affordable Housing Nexus Study I Introduction 6
some general discussion of the impact that changes in the in-lieu fees and adoption of
commercial linkage fees might have on development feasibility in Campbell.
The developer focus group sessions focused on more general discussion of development
feasibility and the potential impacts of a new commercial linkage fee and changes to the
inclusionary housing in-lieu fee. Attendees were also asked to provide input on ways that the
City might implement any changes in a manner that would minimize any potential negative
impacts on feasibility. More than 56 individuals were invited to participate in the focus
groups,approximately six attended the meeting on commercial linkage fees, and
approximately 17 attended the meeting on inclusionary housing in-lieu fees.
The following subsections summarize the input received during this process.
Input Related to Fees on Both Non-Residential and Residential Development
• Input on assumptions for financial feasibility analysis. Survey respondents and
participants in one-on-one interviews provided information on detailed assumptions for
the financial feasibility analysis, including but not limited to information on hard
construction costs, soft costs, land costs, rents, sale prices, and capitalization rates in
Campbell.
• Transparency and predictability of requirements. Many participants highlighted the
need for transparency and predictability in the requirements that apply to new
development projects, both for residential and non-residential development.
Participants that provided input on commercial linkage fees expressed a need for a
clear, concise, easy to understand fee structure. Similarly, participants that provided
input on inclusionary requirements and in-lieu fees emphasized a need to know the
requirements before purchasing land and starting to plan a project. Both residential
and non-residential developers indicated that development fees and inclusionary
requirements affect the price that developers will offer for a development site. As a
result, developers seek to understand the requirements that apply to a particular
property before purchasing the land,and changes to those requirements after the land
is purchased can impact the financial feasibility of the project. Participants also
requested that Campbell designate a member of City staff to be knowledgeable in all
fees that apply to development projects and act as a point of contact for developers
seeking information on the fees that would apply to a proposed development project.
• Applicability to mixed-use projects. One developer that participated in the process
commented that mixed-use projects with residential and nonresidential uses should
not be required to provide affordable units in the residential component of the project
and pay a commercial linkage fee for the nonresidential component of the project,
particularly when the non-residential component of the project provides City tax
revenues, such as in the case of a hotel that generates transient occupancy tax.
DRAFT Campbell Affordable Housing Nexus Study I Introduction 7
Input Related to Fees on Non-Residential Development
• Financial feasibility challenges for non-residential development. Participants cited
significant financial feasibility challenges for non-residential development in Campbell
and expressed concern that commercial linkage fees would add to these challenges.
Participants noted that office vacancy rates remain high, and rents remain low as the
office market continues to adjust to remote and hybrid work patterns following the
COVID-19 pandemic. Developers noted that Campbell tends to have higher office
vacancy rates and lower office rents than many nearby jurisdictions such as Cupertino
and Mountain View. Meanwhile, construction costs and financing costs are
comparable throughout the region and have increased substantially. Industrial
developers cited similar challenges. Some developers noted that office building
owners in Campbell are investors, whereas other cities have a large number of owner-
occupants such as Apple and Google. One developer stated that Palo Alto will be first
city in the area to experience development activity when office development activity
resumes in the region,followed by cities such as Redwood City, Mountain View, and
Sunnyvale, with developer interest in Campbell occurring relatively late in the market
cycle. This developer noted that Campbell did not experience significant demand for
new office development even during the strong office development environment that
Santa Clara County experienced prior to the COVID-19 pandemic.
• Timing of commercial linkage fee collection. Some developers expressed a preference
for having the option to pay commercial linkage fees later in the process than is typical
for impact fees. For example, some focus group participants expressed a preference
for a fee that would be collected when a building is sold rather than prior to project
completion. Other participants stated that deferring fees to the issuance of certificate
of occupancy would help with financial feasibility. Participants noted that fees that
must be paid early in the development process (e.g., at building permit issuance) must
be financed,adding expensive financing costs to the project.
• Phase-in process. One developer recommended phasing in any new commercial
linkage fees by applying no fee to projects occurring in the near term until a set
citywide square footage cap is met,then applying any new fees at a rate of half of the
full rate until a second set citywide square footage cap is met,then applying the full
fee rate. The intent of this strategy would be to encourage nonresidential development
in Campbell in the near term as some developers may be incentivized to proceed
before the fee comes into effect. In addition,the intent of this strategy would be to
time the phase-in of the fee based on the strength of the market in Campbell, with the
strength of the market being measured by the volume of citywide nonresidential
construction activity.
• Alternatives for generating revenue for affordable housing. Some participants
recommended alternatives to a commercial linkage fee to generate revenue for
DRAFT Campbell Affordable Housing Nexus Study I Introduction 8
affordable housing,such as using a portion of the City's transient occupancy tax
revenues or instituting a transfer tax on the sale of all property.
Input Related to Fees on Residential Development
• Financial feasibility of residential development. Some participants noted financial
feasibility challenges for residential development in Campbell,though participants also
indicated a continued interest in pursuing residential development projects in
Campbell. Some developers cited inclusionary requirements as a factor that has a
negative impact on feasibility. One developer recommended that the City reduce
inclusionary requirements either permanently or temporarily to encourage
development. One developer commented on the challenges associated with acquiring
properties from long-term owners that have existing income-generating tenants and a
low carrying cost for their property due to low property taxes. These property owners
are often reluctant to take on the risk of a redevelopment project or to accept a one-
time payout from a property sale, rather than continuing to collect revenue from these
properties in their current condition. Other factors cited as challenges included design
standards and CEQA requirements. High construction costs and interest rates were
also cited as major factors that are negatively impacting the financial feasibility of
residential development. High interest rates have not only made development more
expensive but have also provided more profitable returns from a range of investment
types, making it more difficult to attract investors to real estate development projects
with lower rates of return.
• In-lieu fee option for residential projects. Some participants expressed support for
increasing the availability of the in-lieu fee option for residential projects, which is
currently available only for projects with a density of six dwelling units per acre or less
in Campbell,to allow the use of an in-lieu fee for projects at higher densities. Some
participants noted that the option to pay an in-lieu fee could be subject to City Council
approval. Participants also requested that the City provide an option to pay an in-lieu
fee to satisfy the requirements for some units and provide the remainder of the units
on site. For example, a developer might have the option to pay an in-lieu fee for the
requirement to provide low-income units but would provide very low-income units in
the project to be eligible for the State Density Bonus. Affordable housing developers
that participated in the process noted that in-lieu fees can provide an important source
of funding for affordable housing developments. Funding generated by these fees
helps to fill critical gaps and makes projects more competitive for state and federal
funds, many of which prioritize projects that receive local funding support.
• Flexibility in meeting inclusionary requirements. In addition to the flexibility to pay an
in-lieu fee,developers highlighted the benefits of flexibility in meeting the inclusionary
requirements more generally and allowing developers to propose creative solutions.
For example,one developer cited the example of a project with a mix of rental and for-
DRAFT Campbell Affordable Housing Nexus Study I Introduction 9
sale units that provided all affordable units as rental units rather than providing both
rental units and for-sale units as affordable units.
• Project size threshold for inclusionary ordinance. In general, participants opposed
reducing the size threshold for the City's inclusionary requirements below the current
threshold of ten units, and some recommended that the City consider increasing the
size threshold. Participants stated that reducing the size threshold would have a
negative impact on financial feasibility for infill projects and smaller projects that
provide middle-income housing.
• Fee calculation methodology. Developers commented that the City method of
calculating fees results in a significantly lower fee compared to other communities and
should drop its current method of calculating fees (which multiplies the fee against the
assumed size of the unit"not provided") in favor of that used by other jurisdictions
(which multiplies the fee based on total livable area developed in the project),
including the City of Mountain View.
AB 602 Requirements
The provisions of Assembly Bill 602 (AB 602, 2021 Legislative Cycle)came into effect in
January 2022,enacting new requirements for impact fees and impact fee nexus studies.
While some provisions of the legislation apply only to impact fees that apply to residential
development,other provisions apply to impact fees charged on both residential and non-
residential development. Key provisions of AB 602 include:
• Level of Service. AB 602 requires that impact fee nexus studies "identify the existing
level of service for each public facility, identify the proposed new level of service, and
include an explanation of why the new level of service is appropriate." (See
Government Code Section 66016.5(a)(2).)
• Prior Nexus Study Assumptions and Fees Collected. Pursuant to AB 602, Government
Code Section 66016.5(a)(4) provides that"if a nexus study supports the increase of
an existing fee,the local agency shall review the assumptions of the nexus study
supporting the original fee and evaluate the amount of fees collected under the
original fee."
• Capital Improvement Plan. Under AB 602,Government Code Section 66016.5(6)
states that"large jurisdictions shall adopt a capital improvement plan as a part of the
nexus study." For the purposes of this provision, Campbell is classified as a large
jurisdiction.2
• Residential Fees Proportional to Square Footage. AB 602 stipulates that"if[a nexus]
study is adopted after July 1, 2022, [it must] either calculate a fee levied or imposed
2 AB 602 uses the definition of a"large jurisdiction"that is contained in Section 53559.1 of the California Health
and Safety Code. This section defines a large jurisdiction as a county with a population of 250,000 or more as of
January 1,2019 or any city within that county.
DRAFT Campbell Affordable Housing Nexus Study I Introduction 10
on a housing development project proportionately to the square footage of the
proposed units,or make specified findings explaining why square footage is not an
appropriate metric to calculate the fees."
• 30-Day Noticing. Under AB 602, "All studies shall be adopted at a public hearing with
at least 30 days' notice, and the local agency shall notify any member of the public
that requests notice of intent to begin an impact fee nexus study of the date of the
hearing."
• Updates Every Eight Years. AB 602 stipulates that nexus studies"shall be updated at
least every eight years,from the period beginning on January 1, 2022."
Appendix A provides an analysis of AB 602 compliance for the commercial linkage fee and
inclusionary in-lieu fees that are evaluated in this report.
AB 1505 Requirements
California State Assembly Bill 1505 (AB 1505),which was signed into law as part of the State's
2017 housing legislation package, provides cities with the authority to adopt inclusionary
ordinances for rental developments. Inclusionary ordinances for for-sale developments were
already permissible under State law prior to the adoption of AB 1505. One of the key
provisions of the legislation requires that local jurisdictions with inclusionary ordinances
provide developers with at least one alternative for complying with the ordinance,such as an
in-lieu fee payment, land dedication, or off-site construction of affordable units.
AB 1505 provides the State Department of Housing and Community Development(HCD)with
the authority to review inclusionary ordinances in some circumstances by requesting that a
local jurisdiction submit an economic feasibility study. A review by HCD would be limited to
inclusionary requirements on rental developments and would not apply to inclusionary
requirements on for-sale developments. A feasibility study would potentially be required only
in cases where all of the following apply:
• The ordinance requires more than 15 percent of units to be affordable to households
with incomes equal to 80 percent of the AMI or less.
o Applicability to Campbell:The City of Campbell's existing inclusionary ordinance
does not require more than 15 percent of units to be affordable to households
with incomes equal to 80 percent of the AMI or less and is thus not subject to
HCD review per AB 1505.
• Either: 1)the jurisdiction did not meet at least 75 percent of its above-moderate
income Regional Housing Needs Allocation (RHNA)over at least a five-year period, or
2)the jurisdiction failed to submit its annual Housing Element report for at least two
consecutive years.
o Applicability to Campbell:The City of Campbell did meet at least 75 percent of
its above-moderate income RHNA over the last eight-year period (RHNA 5)and
has submitted its annual Housing Element report yearly.
DRAFT Campbell Affordable Housing Nexus Study I Introduction Il
• Less than ten years have passed since the adoption or amendment of the ordinance.
o Applicability to Campbell:The City of Campbell's ordinance has been updated
in the past ten years.
Campbell's ordinance does not meet any of the above criteria and thus would not trigger a
review by HCD. Nonetheless, regardless of the specific provisions of AB 1505, HCD could
consider the financial feasibility of the City's inclusionary ordinance as part of its review of
future City of Campbell Housing Element Updates to assess whether the requirements
constitute an undue constraint on housing production.
DRAFT Campbell Affordable Housing Nexus Study I Introduction 12
2. COMMERICAL LINKAGE FEE ANALYSIS
This chapter provides an analysis of commercial linkage fees in the City of Campbell.
The first portion of this chapter consists of the nexus analysis,which identifies the relationship
between the construction of new commercial space,the need for affordable housing, and the
need for City funds to construct affordable housing. The nexus analysis establishes the
maximum amount that the City can charge based on the need created by new development.
Local jurisdictions often charge less than the maximum amount due to financial feasibility
considerations or various policy objectives.
The second portion of the chapter provides a financial feasibility analysis to evaluate how
commercial linkage fees might impact the feasibility of new commercial development in
Campbell. This portion of the analysis is intended to inform policy decisions regarding the
implementation of commercial linkage fees, including setting fee rates.
Recommendations supported by the analysis provided in this chapter are addressed in a
separate chapter of this report,along with recommendations supported by the analysis of
inclusionary housing in-lieu fees.
Commercial Linkage Fee Nexus Analysis
The nexus portion of the commercial linkage fee analysis identifies the relationship, or
"nexus", between the construction of new non-residential projects and the need for affordable
housing funds. The commercial linkage fee nexus analysis is based on the premise that new
commercial land uses generate new employment for workers that will have a range of
household incomes. Due to high housing costs in Campbell, new workers with extremely low,
very low, or low household incomes will be unable to afford most market-rate housing in the
City without incurring substantial cost burdens. The resulting impact from new non-residential
development is an increase in workers in Campbell that face a lack of affordable housing
options. The commercial linkage fee mitigates these impacts by generating revenue to
support the construction of housing affordable to the new lower-income worker households.
The process for estimating the relationship between new non-residential development and the
fee revenue necessary to address the resulting affordable housing need consists of the
following steps:
Step 1: Identify land uses and employment densities. This step consists of identifying the
land uses that will be evaluated in the nexus analysis as well as the typical
employment density(i.e.,square feet per worker)for each use type.
DRAFT Campbell Affordable Housing Nexus Study i Commercial Linkage Fee Analysis 13
Step 2: Estimate worker households by income level for each land use type. For each
land use,the estimated number of worker households at each income level is a
function of:
• The employment density for that land use(as identified in Step 1);
• The typical income distribution among workers employed in the land use
(estimated as part of Step 2); and
• The typical number of workers per household among workers at each income
level (estimated as part of Step 2).
This step yields an estimate of the number of lower-income worker households
(i.e.,those with household incomes equal to 80 percent of AMI or less)that each
land use generates. This number constitutes the estimated affordable housing
need associated with each land use type.
Step 3: Calculate the affordable housing financing gap. The financing gap is the amount
of public subsidy needed to finance an affordable housing unit.
Step 4: Calculate the maximum nexus-based fee. The maximum nexus-based fee is equal
to the number of lower-income worker households from Step 2 multiplied by the
affordable housing financing gap from Step 3.
Each of these steps is discussed in more detail in the following sections.
Step 1:Land Uses and Employment Densities
This analysis evaluates the following four land uses:
• Office
• Retail/Restaurant
• Hotel
• Industrial
For each land use,this study estimated the average employment density, expressed in terms
of square feet of built space per worker. The process for the Nexus Study included a review of
several studies to estimate average employment densities for each land use type, including
Environmental Impact Reports for projects in the region, other commercial linkage fee nexus
studies,and US Energy Information Administration Commercial Buildings Energy Consumption
Survey data. Actual employment density can vary depending on the specific occupants in a
given use. Therefore,this study uses employment densities that may be slightly higher than is
typical for some uses to avoid overestimating the impacts of new development and to provide
a conservative estimate of the maximum fee rate.
For example,the office employment density shown in the table likely provides a particularly
conservative estimate of the number of workers in most new office developments. This study
assumes an office density of 300 square feet per worker,though many offices have
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 14
transitioned to employment densities of 200 square feet per worker or less over the past
decade. Moreover, in many cases more recent increases in hybrid work arrangements have
led to increased employment densities within offices that are occupied. This is because
employers with hybrid workers are less likely to have individual offices, desks,or workstations
for workers who do not report to the office every day, and to increase the use of shared
workspaces, leading to a decrease in office square footage per worker.3 While the number of
people occupying an office space on any given day may shift with higher and lower densities
depending on the day,the total number of workers that report to an office location, and
therefore must live within the area, may be higher for a hybrid work environment compared to
an environment in which all workers report to the office every day. Due to shared workspaces
for hybrid workers, as well as the lack of a need to rent or purchase office space for workers
that work entirely remotely, many employers have been able to decrease their office footprint,
with a higher employment density within the occupied space. While these trends have
generally led to increased office vacancies,these vacancies would not be expected to impact
new office developments that are constructed in the future because developers will only
pursue new development once they have confidence that new space will be leased up,or in a
build-to-suit scenario in which a future tenant is already identified. As a result, new office
space that is built in Campbell will likely be occupied at a higher employment density than is
estimated in this analysis. To the extent that this analysis underestimates employment
densities,this study provides a conservative estimate of the impact of new non-residential
development and of the maximum fee that the City could charge based on the relationship
between new development and the need for affordable housing.
As shown below,this nexus analysis assumes an employment density of 300 square feet per
employee for office uses, 500 square feet per employee for retail and restaurant uses, 1,500
square feet per employee for hotel uses,and 750 square feet per employee for industrial
uses.
Table 4: Employment Densities by Land Use
Retail/
Office Restaurant Hotel Industrial
Average Sq.Ft./Employee 300 500 1,500 750
Employees per 1,000 SF 3.33 2.00 0.67 1.33
Source:BAE,2022.
3 See https://www.bisnow.com/national/news/office/office-occupiers-plan-to-shrink-footprints-even-attendance-
mandates-rise-
121624?utm_source=outbound_pu b_7&utm_ca m pa ign=outbound_issue_72236&utm_content=outbou nd_link_7
&utm_medium=email.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 15
Step 2:Worker Households by Income Level
Worker occupations,salaries, and associated household incomes tend to vary between
industries,and therefore this analysis identifies the industry sectors that might occupy each of
the four land uses as a first step in identifying affordable housing need among worker
households.
Researchers in economics typically categorize business establishments based on the North
American Industry Classification System (NAICS), which provides numerical codes by industry
sector. NAICS codes group all industries into 20 major industry categories, each identified
with a two-digit code. Within each two-digit NAICS sector, more detailed sub-categories of
industries are identified by three-digit NAICS codes, which are themselves comprised of more
detailed subcategories of industries, up to the six-digit NAICS code level, with more digits
associated with more detailed subcategories. For example, NAICS sector 72,Accommodation
and Food Services, is comprised of NAICS code sectors 721 (Accommodation)and 722 (Food
Services and Drinking Places). NAICS codes 721 and 722 are comprised of more detailed
industries, identified by NAICS codes with four to six digits,depending on the level of specificity
of the subcategories.
BAE developed a list of representative industries using NAICS-based Census industry
categories likely to occupy each of the four commercial land uses. The U.S. Census Bureau
uses this classification system as a basis for their system for classifying workers by industry for
the American Community Survey(ACS). Each worker surveyed is categorized by a scheme
which roughly corresponds to NAICS four-digit level data. Published ACS data roll the detailed
categories up into several major industry categories, but a more detailed data set,the Public
Use Microdata Sample(PUMS), allows analysis at a more fine-grained level. BAE queried the
PUMS data set for Santa Clara County to identify the distribution of worker households by HCD
income category, using the household incomes and household size for workers in the
industries identified for each of the four commercial land uses.Table 5 below presents the
distribution of worker households by HCD income level.
Table 5: Distribution of Worker Households by Income
Estimated Household Income as a Percent of AMI
Extremely Above
Land Use Low Very Low Low Median Moderate Moderate Total
Office 2.1% 3.1% 5.0% 7.1% 7.6% 75.1% 100.0%
Retail/Restaurant 10.7% 14.4% 17.3% 13.7% 9.6% 34.4% 100.0%
Hotel 10.9% 17.8% 23.4% 13.3% 11.4% 23.3% 100.0%
Industrial 3.2% 6.5% 9.5% 10.0% 9.6% 61.1% 100.0%
Notes:
Based on a cross tabulation of Public Use Microdata Samples(PUMS)from the 2017-2021 American Community Survey.
These incomes were compared to household income limits published by the State of CA Department of Housing and
Community Development(HCD)to determine the percentage of households falling into each income category. The
analysis controlled for household size,to address the varying HCD income limits for each household size.
Sources:Census,American Community Survey Public-Use Microdata Sample(PUMS)2017-2021;HCD;BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 16
The percentages in the household income distributions were then applied to the total workers
per 1,000 square feet shown above in Table 4 to estimate the number of jobs per 1,000
square feet in each income category. The analysis translates the number of jobs into
households by dividing the number of jobs by the average number of workers per worker
household for each income category, using PUMS data to identify the average number of
workers per worker household by household income level. As shown below in Table 6,office
space generates an estimated 1.81 worker households per 1,000 square feet, including 0.21
lower-income(i.e., extremely low-income, very low-income,and low-income)worker
households. Retail space generates an estimated 1.16 worker households per 1,000 square
feet, including 0.54 lower-income worker households. Hotels generate an estimated 0.39
worker households per 1,000 square feet, including 0.22 lower-income worker households.
Industrial space generates an estimated 0.73 worker households per 1,000 square feet,
including 0.16 lower-income worker households.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 17
Table 6: Worker Households by Income Level by Land Use
Estimated Household Income as a Percent of AMI(a)
Extremely Very Above
Land Use Low Low Low Median Moderate Moderate Total
Office
Proportion of Total Jobs(b) 2.1% 3.1% 5.0% 7.1% 7.6% 75.1% 100.0%
Estimated Jobs per 1,000 SF(c) 0.07 0.10 0.17 0.24 0.25 2.50 3.33
Worker Households per 1,000 SF(d) 0.05 0.07 0.09 0.13 0.14 1.32 1.81
Retail/Restaurant
Proportion of Total Jobs(b) 10.7% 14.4% 17.3% 13.7% 9.6% 34.4% 100.0%
Estimated Jobs per 1,000 SF(c) 0.21 0.29 0.35 0.27 0.19 0.69 2.00
Worker Households per 1,000 SF(d) 0.16 0.18 0.20 0.15 0.11 0.36 1.16
Hotel
Proportion of Total Jobs(b) 10.9% 17.8% 23.4% 13.3% 11.4% 23.3% 100.0%
Estimated Jobs per 1,000 SF(c) 0.07 0.12 0.16 0.09 0.08 0.16 0.67
Worker Households per 1,000 SF(d) 0.05 0.08 0.09 0.05 0.04 0.08 0.39
Industrial
Proportion of Total Jobs(b) 3.2% 6.5% 9.5% 10.0% 9.6% 61.1% 100.0%
Estimated Jobs per 1,000 SF(c) 0.04 0.09 0.13 0.13 0.13 0.81 1.33
Worker Households per 1,000 SF(d) 0.03 0.05 0.07 0.07 0.07 0.43 0.73
Average#of Workers per Household(e) 1.34 1.57 1.78 1.83 1.83 1.89
Notes:
(a)Based on income limits published by HCD.
(b)Based on a cross tabulation of Public Use Microdata Samples(PUMS)from the 2017-2021 American Community
Survey.These incomes were compared to household income limits published by HCD to determine the percentage of
households falling into each income category. The analysis controlled for household size,to address the varying income
limits for each household size. Figures for each land use are based on a combination of NAICS sectors deemed likely to be
found in each land use.
(c)Total number of jobs per 1,000 SF of each land use as shown in Table 5,multiplied by the proportion of jobs in each
income category.
(d)Estimated number of jobs multiplied by the average number of workers per household in each income category.
(e)Average number of workers per worker household by income category calculated based on American Community
Survey PUMS Analysis,2017-2021.
Sources:American Community Survey,2017-2021 Public Use Microdata Sample;CA Dept.of Housing and Community
Development(HCD); BAE,2023.
Step 3:Financing Gap
The next step in the nexus analysis is to calculate the cost to house the extremely low-, very
low-, and low-income households calculated in Step 3 by determining the per unit "financing
gap"for an affordable unit. The nexus analysis defines the financing gap for an affordable unit
as the difference between the cost to develop an affordable unit and the amount of
permanent financing available to support the development of the unit.
Affordable Unit Development Cost. To estimate the average construction cost for an
affordable unit, BAE reviewed cost estimates provided in applications for tax credit funding
that were submitted in 2022 and 2023 for proposed affordable housing developments in
Santa Clara County. Cost information from applications submitted in 2022 was inflated to
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 18
2023 estimates based on the RS Means Historical Cost Index. Based on the information from
these applications, BAE estimated that the average cost to construct an affordable housing
unit in Campbell is approximately$720,000, as shown in Table 7 below.
Permanent Financing. To calculate the financing gap for an affordable unit,the nexus analysis
assumes that an affordable housing developer is able to secure four percent LIHTC equity
financing as well as a permanent loan based on the net operating income(N01)from each
unit.
This analysis assumes four percent LIHTC equity financing because this funding source is
more readily available than nine percent LIHTC financing,for which there is considerable
competition. However, it should be noted that four percent LIHTC financing is nonetheless
limited and is unlikely to be available at the levels that would be necessary to construct all
affordable units needed to address housing needs generated by new non-residential
developments. In addition, inclusion of four percent tax credits as a funding source shifts
some of the cost of providing affordable housing onto the public sector because the tax credits
reduce the tax credit investors'tax liability. Including four percent LIHTC financing as a source
of funding in the nexus model reduces the net affordability gap show in Table 7, and therefore
serves as a conservative assumption in estimating the cost associated with mitigating the
housing needs generated by new non-residential development. As shown in Table 7,four
percent LIHTC equity would provide an estimated $296,549 per affordable unit, based on an
average cost of approximately$720,000 per unit and standard current four percent tax credit
pricing assumptions.
The financing gap calculation does not include financing from other public funding sources
because other sources are limited and typically require a heavily competitive application
process. These sources are not sufficient to fully address affordable housing needs that arise
due to the impacts of future non-residential development projects in Campbell.
Table 7 also shows the estimated permanent loan amount per unit, based on the NOI from
each unit(i.e., gross income net of vacancy and expenses)and typical financing terms. The
rental rates used in this analysis are the 2023 rent limits for a two-bedroom unit for
households at each income level, as set by the Tax Credit Allocation Committee(TCAC)for
LIHTC projects, net of an estimated utility allowance. The use of the two-bedroom rent limit
provides a conservative assumption because units in affordable housing developments tend
to have a large share of studio and one-bedroom units, which have lower rental rates. Using
the higher two-bedroom rental rate results in more assumed rental income from the affordable
units, which results in a lower financing gap and a lower maximum fee amount. The vacancy,
miscellaneous income, and operating expense assumptions shown in Table 7 are also based
on information provided in 2022 and 2023 applications for LIHTC funding for projects in Santa
Clara County. Based on the NOI for units at each affordability level and standard financing
assumptions,the supportable loan amount ranges from $38,099 per unit for units serving
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 19
extremely low-income households to$384,970 per unit for units serving low-income
households.
Net Financing Gap. The financing gap per affordable unit is equal to the total development
cost less the tax credit equity and supportable loan amount. As shown,the financing gap per
affordable unit ranges from $91,493 for low-income units to $384,970 for extremely low-
income units. The financing gap has an inverse relationship to the income levels that each
unit serves because units with higher income targeting generate more NOI and can therefore
support higher debt service payments on a loan. The financing gap figures shown in Table 7
represent the amount of permanent financing subsidy that the City of Campbell would need to
provide to support the development of units at each income level,assuming that the City's
funds are leveraged with four percent tax credits and a permanent loan.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 20
Table 7: Affordable Housing Financing Gaps, Campbell, 2023
Income Group
Extremely Low Very Low Low
Household Income Limit(a) $48,150 $80,300 $123,400
Maximum Affordable Monthly Contract Rent per Unit(b) $987 $1,790 $2,995
Annual Gross Rent per Unit $11,844 $21,480 $35,940
Less 5%Vacancy ($592) ($1,074) ($1,797)
Miscellaneous Income per Unit(Annual)(c) $153 $153 $153
Less 5%Vacancy ($8) ($8) ($8)
Total Annual Revenue per Unit $11,397 $20,551 $34,288
Less Annual Operating Expenses per Unit(c) $8,425 $8,425 $8,425
Annual Net Operating Income per Unit $2,972 $12,126 $25,863
Annual Supportable Debt Service per Unit(d) $2,584 $10,544 $22,490
Total Development Costs per Affordable Unit(e) $719,619 $719,619 $719,619
Less:Permanent Loan Amount(f) ($38,099) ($155,461) ($331,577)
Less:Tax Credit Financing(4%LIHTC)(g) ($296,549) ($296,549) ($296,5491
Financing Gap per Affordable Unit(h) $384,970 $267,608 $91,493
Assumptions
Financing Terms
Debt Coverage Ratio 1.15
Interest Rate 5.46%
Amortization of Loan 30
Tax Credit Assumptions
Tax Credit Price $0.890
Eligible Basis% 89.1%
DDA Boost(i) 130%
Tax Credit Term(years) 10
4%Tax Credit Percentage 4.00%
Equity Partner Share 99.99%
Notes:
(a)Based on a 3-person household,CA Department of Housing&Community Development,2023.
(b)Maximum affordable rents for 2-bedroom units per TCAC rent limits,net of 2-bedroom utility costs as shown in Table 3.
(c)Data from funding applications for recent affordable housing projects in Santa Clara County.
(d)Net Operating Income divided by Debt Coverage Ratio.
(e)Based on financing terms assumptions.
(f)The financing gap calculations that are shown in this table incorporate credit financing to offset a portion of the cost of
constructing an affordable unit,which reduces the estimated financing gaps. However,it should be noted that projects must
compete for tax credit financing,with a limited amount of funding available from tax credit financing in each round. It is
unlikely that enough tax credits would be available to fully address affordable housing needs in Campbell or in the broader
region,and therefore full mitigation of housing needs would likely require affordable housing developments to be
constructed without tax credit financing. Therefore,the financing gaps shown in this table likely represent an underestimate
of the funding that would be needed to address the full need.
(g)Total Development Costs less Loan Amount and tax credit financing.
(h)Average of development costs shown in low-income housing tax credit applications submitted in 2022 and 2023 for
projects in Santa Clara County.
(i)A portion of Campbell is designated as a difficult to develop area(DDA),meaning that projects in that portion of the City
would receive a tax credit boost. This analysis applies the DDA boost to the tax credit assumptions to provide a
conservative analysis,as projects built in Campbell that are outside of a DDA would not receive a DDA boost and would
have a larger financing gap.
Sources:California Tax Credit Allocation Committee,2022 and 2023;California Department of Housing and Community
Development,2023;Novogradac,2023;BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 21
Step 4:Maximum Nexus-Based Fee
The final step in calculating the nexus-based fee is to apply the financing gap per affordable
unit for each income level to the total housing need by income level for each of the non-
residential uses. This is the maximum justifiable fee amount because it is directly derived
from the nexus analysis described above (i.e., new commercial development generating new
jobs combined into new worker households distributed by income band, and the cost to
provide new affordable rental housing units to these same households). Because these fee
rates are derived from the nexus analysis, these fee rates represent the maximum amount
that the City of Campbell could charge based on the relationship between new non-residential
development and the need for affordable housing funds. The City can choose to charge fees
that are lower than this amount based on financial feasibility considerations or other factors.
The following section of this chapter evaluates commercial linkage fees in Campbell from a
financial feasibility perspective.
As shown in Table 8 below,the nexus-based fees are as follows:
• Office: $47 per square foot
• Retail/Restaurant: $128 per square foot
• Hotel: $49 per square foot
• Light Industrial: $34 per square foot
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 22
Table 8: Maximum Legal Commercial Linkage Fees, Campbell
Affordable Housing Financing Maximum Fee Maximum
Income Level Need Per 1,000 SF(a) Gap(b) Per 1,000 SF(c) Fee Per SF(d)
Office
Extremely Low Income(up to 30%AMI 0.05 $384,970 $20,533 $20.53
Very Low Income(31-50%AMI) 0.07 $267,608 $17,774 $17.77
Low Income(51-80%AMI) 0.09 $91,493 $8,546 $8.55
Total 0.21 $46,853 $46.85
Retail/Restaurant
Extremely Low Income(up to 30%AMI 0.16 $384,970 $61,460 $61.46
Very Low Income(31-50%AMI) 0.18 $267,608 $49,141 $49.14
Low Income(51-80%AMI) 0.20 $91,493 $17,858 $17.86
Total 0.54 $128,459 $128.46
Hotel
Extremely Low Income(up to 30%AMI 0.05 $384,970 $20,876 $20.88
Very Low Income(31-50%AMI) 0.08 $267,608 $20,232 $20.23
Low Income(51-80%AMI) 0.09 $91,493 $8,021 $8.02
Total 0.22 $49,129 $49.13
Industrial
Extremely Low Income(up to 30%AMI 0.03 $384,970 $12,480 $12.48
Very Low Income(31-50%AMI) 0.05 $267,608 $14,677 $14.68
Low Income(51-80%AMI) 0.07 $91,493 $6,558 $6.56
Total 0.16 $33,715 $33.72
Note:
(a)See Table 6.
(b)See Table 7.
(c)Equal to the affordable housing need per 1,000 SF at each income level multiplied by the financing gap at the
corresponding income level.
(d)Equal to the maximum possible nexus-based fee per 1,000 SF divided by 1,000.
Source:BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 23
Commercial Linkage Fee Financial Feasibility Analysis
This section evaluates the financial feasibility of Commercial Linkage Fees in Campbell. The
nexus analysis provided in the previous section of this chapter identifies maximum justifiable
fee rates based on the relationship between the impact that new development creates and the
fees necessary to address that impact. However,jurisdictions that adopt these fees typically
charge fee rates that are lower than the maximum amount identified in the nexus analysis to
account for financial feasibility considerations.
To test the financial feasibility of commercial linkage fees in Campbell, BAE prepared static pro
forma financial feasibility models to evaluate the economics of developing office, retail, hotel,
and industrial uses in Campbell. The purpose of the financial feasibility analysis is to
determine the feasibility of new non-residential development projects under current market
conditions and identify commercial linkage fee rates that could potentially be applied to new
non-residential development while minimizing any impacts on development feasibility.
Non-Residential Development Trends in Campbell
Since 2010,the inventory of non-residential space in the City of Campbell has remained fairly
stagnant,despite significant expansion of these uses elsewhere in Santa Clara County. In
terms of new development in Campbell, Costar data indicate that the city's most recent major
office development was in 2017, with the delivery of a 200,000 square foot project. Although
there has been limited new office space delivered since this project,there is an office project
currently under construction in the city, amounting to roughly 166,000 square feet of new
office space. In terms of new retail space, Campbell's most recent retail development was
12,000 square feet, delivered in 2022, with a limited amount of new retail delivered in years
prior. New industrial development has also been limited in Campbell, with just one recent
project delivered in 2023 amounting to 7,000 square feet. Lastly,the city's most recent new
hotel development was in 2010, when a 162-room hotel (the Marriot Residences Inn) was
delivered.
Prototype Projects
The financial pro forma analysis evaluated four non-residential prototypes, which are
summarized in Table 9 below. These prototypes include an office prototype, a retail prototype,
a hotel prototype,and a light industrial prototype. The prototypes are based on the City's land
use regulations, as well as recent projects that have been constructed or are currently in the
development pipeline in Campbell. These prototypes were also informed by feedback from
developers during the non-residential developer focus group meeting and one-on-one
meetings with local stakeholders as well as in the developer surveys.
Methodology
The methodology used for this study involved preparation of static pro forma financial
feasibility models for each of the prototypes described above. The static pro forma models
represent a form of financial feasibility analysis that developers often use at a conceptual level
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 24
of planning for a development project, as an initial test of financial feasibility for a
development concept,to screen for viability. BAE developed the various modeling inputs and
assumptions needed for the financial feasibility analysis based on interviews with non-
residential developers that are active in the Campbell area, responses to the developer survey,
data from industry publications and databases, and other research.
Residual Land Value. The pro-forma models are structured to calculate the residual land value
associated with each prototype. The residual land value for a non-residential project is equal
to the value of the completed project, net of total development costs. To estimate the value of
the completed project(net of developer profit),the feasibility models divide the Net Operating
Income(N01)from the project(i.e., annual income from the project net of operating expenses)
by the Yield-on-Cost(YOC)developers are seeking in order to consider a project feasible. The
required YOC is a function of the prevailing capitalization rate in the city, plus a spread for new
development to capture a margin for developer profit. The residual land value for the non-
residential projects can be summarized as follows:
Project Value Net of Developer Profit(i.e., NOI/ required YOC) - Total Development Costs
Residual Land Value
The residual land value approximates the maximum amount that a developer should be willing
to pay for a given site, based on the value of the project that the developer would build on that
site. In general, a development pro forma that shows a residual land value that is
approximately equivalent to the typical sale price for land indicates a financially feasible
project. A residual land value that is lower than the typical sale price for land typically
indicates that there are financial feasibility challenges associated with constructing the
project.
Residual Land Value Thresholds. Based on information provided during the developer
interviews and a review of recent land transactions,this analysis assumes that land costs for
the various non-residential developments range from $2 million to $6 million per acre. These
land costs are dependent on the allowable uses on each site, as well as the overall market
demand for each development typology. With a relatively flexible zoning code and ability to re-
zone properties in the City,the value of land for each use can vary based on the site
conditions, location, and expected entitlement process. However,the data indicate that land
sold for future office and hotel uses tend to sell for modestly higher sale prices than land sold
for industrial and retail uses, although all uses have examples of varying land transaction
prices within the range listed above.
Financial Pro Forma Analysis Findings
Table 9 below shows a summary of the findings from the financial feasibility analysis. The full
non-residential pro forma models are provided in Appendix B.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 25
Office Development Feasibility. As shown in Table 9,the analysis found that office
development feasibility is challenging under current market conditions. The main drivers of
feasibility challenges are construction cost increases, high office vacancy rates, and
uncertainty in the future demand for office space in Campbell. With increasing construction
costs, rental rates and investor value expectations must adjust in order for projects to be
considered feasible. Since the COVID-19 pandemic, office vacancy rates have increased
significantly, leading to uncertainty in the office market from both developers and investors.
During this time, rents have generally remained unchanged, indicating that rents have not kept
pace with construction cost increases. Similarly, with increased interest rates and uncertainty
from investors, return requirements have increased, leading to a higher required threshold to
yield a feasible project. These factors combine to drive the current challenges in market
feasibility for new office development in Campbell.
Retail Development Feasibility. Similar to office development,the retail development
prototype is currently infeasible under existing market conditions. This is similarly driven by
increasing construction costs and uncertainty around future demand for standalone retail
space, both in Campbell and nationally. Unlike the office prototype,the retail prototype does
yield a positive residual land value,though this value is not sufficient to acquire a site at the
required land purchase price noted above, leading to project infeasibility.
Industrial Development Feasibility. While the industrial development prototype has the lowest
cost per square foot, due to the single-story structure,typical rents for new industrial space are
slightly below the rents needed support investment in new industrial development under
current conditions. Similar to the retail prototype,the industrial development prototype does
yield a positive residual land value, indicating the value of the project is greater than the cost
of the vertical construction. However,the resulting residual land value of roughly$280,000
per acre is well below the prevailing cost for industrial land in Campbell, indicating challenges
to development feasibility.
Hotel Development Feasibility. Similar to the other non-residential prototypes, hotel
development feasibility is challenging under the current construction cost and hotel demand
market. While costs are relatively modest, due to the use of the cost-efficient wood-framed
construction that this analysis assumes for the hotel prototype,the average daily room rental
rates for hotels in Campbell are insufficient to generate the annual revenue needed to attract
new developers and investors.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 26
Table 9: Summary of Financial Pro Forma Analysis, Current Conditions (No Commercial Linkage Fee)
Office Retail Industrial Hotel
3-story building with structured Freestanding one-story retail building Single story light manufacturing 4-story,130 room hotel development
parking garage on 3.0 acres with surface parking on 0.5-acre site
building with surface parking on 1.0 with mostly surface parking on 2.5
acres acres
Lot Size(acres) 3.0 acres 0.5 acre 1.0 acres 2.5 acres
Gross Building Area 115,000 gsf 10,000 gsf 15,000 gsf 71,500 gsf
Number of Stories 3 1 1 5
Floor Area Ratio 0.88 0.46 0.34 0.66
Parking Ratio 4.44 spaces/1,000 sf 4.10 spaces/1,000 sf 2.87 spaces/1,000 sf 1.54 spaces/room
Hard Construction Costs $65,802,100 total $3,652,100 total $5,350,700 total $32,728,000 total
$572 per sq.ft. $365 per sq.ft. $357 per sq.ft. $251,754 per room
Total Development Costs $85,458,911 total $4,744,001 total $6,951,186 total $42,507,499 total
(excluding land&profit) $743 per sq.ft. $474 per sq.ft. $463 per sq.ft. $326,981 per room
Project Value to Investor $70,056,563 total $5,062,500 total $7,234,615 total $36,462,689 total
$609 per sq.ft. $506 per sq.ft. $482 per sq.ft. $222,333 per room
Residual Land Value ($15,402,348)total $318,499 total $283,429 total ($6,044,810)total
($5,134,116) per acre $636,999 per acre $283,429 per acre ($2,417,924) per acre
Required Land Purchase
Price $3.0-$6.0 Million per Acre $2.0-$5.0 Million per Acre $2.0-$4.0 Million per Acre $3.0-$6.0 Million per Acre
Feasibility Gap/Surplus
(Residual Land Value-Required ($8.1)-($11.1)Million per Acre ($1.4)-($4.4)Million per Acre ($1.7)-($3.7)Million per Acre ($5.4)-($8.4)Million per Acre
Land Purchase Price)
Feasible? No No No No
Source:BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 27
Fee as Share of Development Costs
One method for assessing the impact that commercial linkage fees would have on new non-
residential development involves evaluating potential fees as a proportion of total
development costs. The concept underlying this approach is that fees are unlikely to have a
major impact on development feasibility if the fee rate is set to be equal to a relatively low
share of total development costs.
Table 10 shows various fee rate scenarios that demonstrate the commercial linkage fee rates
that would be equal to one,two,three, and four percent of the total development costs for
each prototype, not including land or developer profit, with total development costs based on
the financial pro forma analysis provided above. As shown,fees that are equal to one to four
percent of total development costs would be equal to approximately$7 to$30 per square foot
for the office prototype, $5 to $19 per square foot for the retail prototype, $5 to $19 per
square foot for the industrial prototype, and $6 to $24 per square foot for the hotel prototype.
All of these fee rates are lower than the maximum justifiable fee for each used that is
identified in the commercial linkage fee nexus analysis presented above (see Table 8),
meaning that adoption of fees at the rates shown in Table 10 would be consistent with the
findings from the nexus analysis.
Table 10: Possible Commercial Linkage Fees as a Percent of Total Development
Cost
Office Retail Industrial Hotel
TCD/Sq.Ft.(not including land)(a) $743 $474 $463 $595
Fee Rate Scenario
Fee Rate=1%of Total Development Costs $7.43 $4.74 $4.63 $5.95
Fee Rate=2%of Total Development Costs $14.86 $9.49 $9.27 $11.89
Fee Rate=3%of Total Development Costs $22.29 $14.23 $13.90 $17.84
Fee Rate=4%of Total Development Costs $29.72 $18.98 $18.54 $23.78
Notes:
(a)Based on the financial pro formas shown in Appendix B. Does not include land or developer profit.
Sources:BAE,2023.
Non-Residential Fee Benchmark Analysis
An evaluation of the fees that are assessed by neighboring jurisdictions can help to evaluate
the impact that commercial linkage fees might have on financial feasibility in Campbell.4 To
the extent that cities with comparable market conditions assess fees and continue to attract
new non-residential development, this could serve as an indication that Campbell could
potentially assess similar fees without making non-residential development infeasible.
4 There are various terms that jurisdictions use to refer to commercial linkage fees,including"housing mitigation
fees"and"affordable housing fees". For the purpose of this report,all fees in other jurisdictions are referred to as
commercial linkage fees regardless of the specific terminology used in each jurisdiction.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 28
Conversely, if Campbell were to adopt fees that are significantly higher than the fees charged
in nearby jurisdictions,this could affect developers'willingness to pursue projects in Campbell
if developers are able to find attractive development opportunities in nearby cities with lower
fees. However, it should be noted that developers consider many factors when deciding where
to pursue development opportunities, with the local market being a major factor, and City fees
may have only a limited impact on the overall decision-making process.
The following subsections provide information on 1) Commercial linkage fees charged in
nearby jurisdictions; and 2)Total impact fees charged on non-residential uses in nearby
jurisdictions.
Commercial Linkage Fees in Nearby Jurisdictions
Table 11 below shows commercial linkage fees that apply in several nearby jurisdictions. The
table also shows the average rental rates for office, retail, and industrial uses in each
jurisdiction as well as average hotel room rates in each jurisdiction. This market information is
shown to provide high-level contextual information regarding variations in the market between
the jurisdictions in the table, and how the market in Campbell compares to the market in each
of the comparison jurisdictions. It should be noted that the average rental rates shown are for
all properties of each type in each jurisdiction, according to data from Costar, and are
therefore lower than the rental rates that would be typical of most new development in each
jurisdiction.
Office Fees in Other Jurisdictions. For office uses,the fee rates assessed by the jurisdictions
shown in Table 11 range from $0 to $34 per square foot, with Cupertino at the top of this
range. Cities with no fees include those with no commercial linkage fees on any uses, which
are Los Gatos, Monte Sereno, and Saratoga. In addition, San Jose does not charge a
commercial linkage fee on office developments measuring less than 50,000 square feet and
has no fee for any office in the South and East San Jose Growth Areas. For larger projects in
areas of the San Jose where office uses are subject to housing mitigation fees,the fee rate
varies based on total project square footage and location, up to$17 per square foot. The City
of San Jose applies a 20 percent discount if fees are paid in full prior to Building Permit
issuance, with the full fee rate applied if paid at the scheduling of the Final Building
Inspection. Mountain View,Santa Clara, and Sunnyvale all charge lower fees for the first
10,000 to 25,000 square feet of office development, with the threshold for the lower fee rate
varying by city.
As shown in the table, office rents in Campbell fall approximately in the middle of the range
among the comparison jurisdictions,with an average rental rate of$4.13 per square foot per
month, lower than in Cupertino, Mountain View, and Sunnyvale but higher than in San Jose
and Santa Clara. The two comparison jurisdictions that have average office rents that are the
most similar to those in Campbell are San Jose and Sunnyvale. As noted above, commercial
linkage fees in San Jose vary based on project characteristics, up to a maximum of$17 per
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 29
square foot. In Sunnyvale,the commercial linkage fee is equal to $23 per square foot,though
the fee is charged at half of this rate for the first 25,000 square feet of a project.
Retail Fees in Other Jurisdictions. The jurisdictions in Table 11 tend to assess lower
commercial linkage fee rates on retail uses than on office uses. Among the jurisdictions
shown in the table,commercial linkage fees range from $0 in San Jose (regardless of location
and project size),as well as in cities with no commercial linkage fee program,to $20.50 per
square foot in Sunnyvale. Similar to the office fees described above,some cities have
different fee rates depending on project size. For example, Mountain View applies a lower fee
rate to the first 25,000 square feet of a retail project and Santa Clara does not apply a fee to
retail developments measuring less than 5,000 square feet.
Campbell has the highest retail rents of all of the jurisdictions shown in the table, with an
average rental rate of$3.34 per square foot per month. The two comparison jurisdictions that
have average retail rents that are the most similar to those in Campbell are Cupertino and
Sunnyvale, which assess commercial linkage fees on retail uses at a rate of approximately
$14 and $21 per square foot per month, respectively.
Hotel Fees in Other Jurisdictions. Among the jurisdictions in Table 11 with a commercial
linkage fee program,the commercial linkage fee rates that apply to hotel uses range from
$3.50 per square foot in Mountain View (lower fees apply to the first 25,000 square feet)to
$20.50 per square foot in Sunnyvale. Among the jurisdictions with a commercial linkage fee
program,commercial linkage fees for hotels are lower than commercial linkage fees for office
and equal to or higher than commercial linkage fees for retail uses.
Table 11 shows that hotel income per room in Campbell is slightly higher than in cities at the
low end the range among the comparison jurisdictions. For hotel uses,Table 11 provides the
Revenue per Available Room, or RevPAR,for each jurisdiction shown. RevPAR is a metric used
to evaluate hotel performance and is equal to the average nightly rental rate per room
multiplied by the hotel occupancy rate. As shown, as of October 2023 the 12-month RevPAR
in Campbell was$109, lower than in Cupertino and Mountain View and slightly higher than in
San Jose, Santa Clara, and Sunnyvale. The table does not show a relationship between cities
with a low RevPAR and those with low fees for hotel uses. For example, Mountain View has
the highest RevPAR of all of the cities shown ($139)and the lowest fee for hotel uses ($3.49
per square foot). Meanwhile, Sunnyvale is among the cities with the lowest RevPAR measures
($101) and has the highest fee rate ($20.50 per square foot).
Industrial Fees in Other Jurisdictions. The jurisdictions in Table 11 show wide variation in the
commercial linkage fee rates for industrial uses, ranging from $3.49 per square foot in San
Jose to$33.76 per square foot in Cupertino. Some cities, including Cupertino, Mountain View,
and Sunnyvale, charge the same fee for industrial uses as for office uses. Other cities,
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 30
including San Jose and Santa Clara,charge a substantially lower fee for industrial uses as
compared to the fee for office uses.
As shown in the table, industrial rents in Campbell fall approximately in the middle of the range
among the comparison jurisdictions,with an average rental rate of$2.02 per square foot per
month, lower than in Mountain View and Sunnyvale but higher than in San Jose and Santa
Clara.5 The two comparison jurisdictions that have average retail rents that are the most
similar to those in Campbell are Santa Clara and Sunnyvale, which assess commercial linkage
fees on retail uses at a rate of approximately$14 and $23 per square foot per month,
respectively.
5 Costar did not have data on industrial rental rates in Cupertino as of the writing of this report.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 31
Table 11: Commercial Linkage Fees in Other Jurisdictions (per net new square foot)
Campbell N/A $4.13
San Jose(c)(d) $17.44 $3.96
Sunnyvale(f) $23.00 $4.62
Santa Clara(e) $28.79 $2.87
Mountain View(b) $33.00 $5.15
Cupertino $33.76 $4.76
Retail Current Fee Rate Avg.Monthly Rent/SF(g)
Campbell N/A $3.34
San Jose(c) $0.00 $2.83
Mountain View(h) $3.50 $3.02
Santa Clara(i) $7.20 $3.01
Cupertino $14.24 $3.09
Sunnyvale $20.50 $3.12
Hotel Current Fee Rate RevPAR(j)
Campbell N/A $109
Mountain View(h) $3.50 $139
San Jose(c)(k) $5.81 $101
Santa Clara $7.20 $104
Cupertino $16.88 $120
Sunnyvale $20.50 $101
Industrial Current Fee Rate Avg.Monthly Rent/SF(g)
Campbell N/A $2.02
San Jose(c)(I) $3.49 $1.37
Santa Clara(e) $14.39 $1.61
Sunnyvale(f) $23.00 $2.28
Mountain View(b) $33.00 $2.53
Cupertino $33.76 N/A
Notes:
The Cities of Los Gatos,Monte Sereno,and Saratoga do not currently have commercial linkage fee programs. The City of
Los Gatos plans to adopt commercial linkage fees by December 2024.
(a)Average office rents shown reflect average gross direct rents in each city as of the fourth quarter of 2023,according to
data from Costar.
(b)Lower fee applies to first 10,000 SF.
(c)20%discount applies if paid prior to Building Permit issuance; 100%of fee rate applies if paid at Scheduling of Final
Building Inspection.
(d)Fee shown applies to developments>_100,000 sq.ft in the Downtown and nearby area;lower fees/no fees apply to
smaller projects and in other areas. No fee for any office development in the South and East San Jose Growth Areas.
(e)Fee charged at Yz rate for first 20,000 SF.
(f)Fee charged at'/:rate for first 25,000 SF.
(g)Average retail and industrial rents shown reflect average NNN direct rents in each city as of the fourth quarter of 2023,
according to data from Costar.
(h)Lower fee applies to first 25,000 SF.
(i)No fee applies to retail developments<5,000 SF.
(j)RevPAR is a metric used to evaluate hotel performance using the average revenue per room and is equal to the average
nightly rental rate per room multiplied by the hotel occupancy rate. Figures shown reflect the RevPAR over the past 12
months as of October 2023.
(k)Fee does not apply to common area.
(I)No fee applies to industrial developments<100,000 sq.ft.or in the Edenvale&Monterey Corridor area.
Sources:Costar,2023;BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 32
Total Impact Fees for Non-Residential Uses in Nearby Jurisdictions
Figure 1 provides estimates of the total impact fees that would apply to each of the non-
residential prototypes that are evaluated above. This analysis provides insight on how
adopting commercial linkage fees in Campbell might affect the cost of impact fees in Campbell
overall in relation to the cost of impact fees in neighboring jurisdictions. For example, if non-
residential impact fees in Campbell were already comparable to non-residential impact fees in
neighboring jurisdictions,adding commercial linkage fees could bring Campbell's total impact
fee stack to a level that would exceed what is typical in nearby jurisdictions.
As shown, Campbell's impact fees are at the low end of the range for each use. Monte Sereno
and Saratoga, both of which have very limited opportunities for non-residential development,
have impact fees that are comparable to the fee rates in Campbell,while fees in Los Gatos are
slightly higher than in Campbell. San Jose has higher impact fees for the office and hotel
prototypes than Campbell but would assess no fees on the retail or industrial prototypes. The
other cities shown, including Cupertino, Mountain View, Santa Clara,and Sunnyvale, would all
charge significantly higher impact fees than Campbell for each of the nonresidential
prototypes. This indicates that Campbell could assess commercial linkage fees on non-
residential uses while keeping the total cost of non-residential impact fees in the City lower
than or equivalent to the total cost of non-residential impact fees that apply in many other
nearby jurisdictions.
•
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 33
Figure 1: Non-Residential Impact Fees in Campbell and Comparison Jurisdictions
$90.00
$80.00
$70.00
$60.00
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
I .11 No no m MI IMO mow lekre
Campbell Cupertino(a) Los Gatos Monte Sereno Mountain View(b) San Jose Santa Clara Saratoga Sunnyvale(c)
■Office ■Retail MI Industrial 'Hotel
Notes:
(a)Industrial fees do not include Transportation Impact Fees,which are calculated for industrial uses based on PM trips.
(b)Fees for office and hotel include North Bayshore Precise Plan Development Fees. These fees would not apply to developments outside of this Precise Plan Area. However,
other fees apply to projects in other Precise Plan Areas.
Fees do not include Water Capacity Fees,which are calculated for non-residential uses based on number of water meters and meter size.
(c)Fee estimates for office include Moffett Park Specific Plan Fees. Fee estimates for retail and hotel include El Camino Real Specific Plan Fees.
Source:BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 34
Summary of Findings from Commercial Linkage Fee Analysis
The analysis presented above evaluates commercial linkage fees in Campbell based on a
nexus analysis, an analysis of the financial feasibility of the non-residential development,fee
rates based on a share of total development costs,and fees charged in other jurisdictions.
The nexus analysis identifies the following maximum justifiable fee rates:
• Office: $47 per square foot
• Retail/Restaurant: $128 per square foot
• Hotel: $49 per square foot
• Light Industrial: $34 per square foot
The financial feasibility analysis finds that all of the non-residential prototypes that were
evaluated in this analysis face financial feasibility challenges in the current market due
primarily to high construction costs and interest rates, low rents relative to the cost of
construction,and continuing market uncertainty due to the changes in work patterns following
the COVID-19 pandemic.
The analysis presented above includes calculations showing potential commercial linkage fee
rates in Campbell if the City were to base fee rates on a percent of estimated total
development costs. Fees that are equal to one to four percent of total development costs
would be approximately equal to the following fee rates, all of which are consistent with the
maximum fee rates established by the nexus analysis:
• Office: $7-$30 per square foot
• Retail/Restaurant: $5-$19 per square foot
• Hotel: $6-$24 per square foot
• Light Industrial: $5-$19 per square foot
For office uses,fees toward the low end of the range shown above would be lower than the
fees that are charged in nearby jurisdictions, with the exception of some areas of San Jose.
Fees toward the top end of this range would be toward the high end of the range among
nearby jurisdictions. Similarly,for retail, hotel,and industrial uses,fees toward the low end of
the ranges shown above would be toward the lower end of the range of fees that are charged
in nearby jurisdictions,while fees toward the top end of these ranges would be toward the high
end of the range among nearby jurisdictions.
DRAFT Campbell Affordable Housing Nexus Study I Commercial Linkage Fee Analysis 35
3. RESIDENTIAL FINANCIAL FEASIBILITY
ANALYSIS
This chapter provides a financial feasibility analysis to evaluate the financial feasibility of
residential development in Campbell, including an evaluation of the financial feasibility of the
City's inclusionary housing requirements. This analysis evaluates the financial feasibility of
five residential development prototypes ranging from single-family homes to high-density
multifamily development, described in more detail below. The findings from the financial
feasibility analysis are intended to inform the City of Campbell in considering potential
revisions to the inclusionary housing ordinance and the in-lieu fee. The in-lieu fee is evaluated
in the following chapter of this report.
Residential Development Trends in Campbell
According to the California Department of Finance,the City's overall housing inventory
expanded by roughly 1,500 units between 2010 and 2023,for a nine percent increase over
that time period. Single-family detached units accounted for the largest number of new units
(720 new units),followed by multifamily developments with five or more units(506 new units),
and townhome developments(290 new units). In terms of multifamily developments, CoStar
data indicates that the most recent rental project delivered in Campbell was built in 2018,
including nearly 120 units. The City's 2021 Annual Housing Element Progress Report(APR)
shows that three multifamily rental projects were issued certificates of occupancy in 2018,
with 14, 112, and 16 units, respectively. The APR does not show any additional multifamily
rental projects that were issued certificates of occupancy in subsequent years,though building
permits have been issued for some multifamily rental projects in more recent years.
Based on a review of projects currently in the pipeline, either approved or seeking
entitlements,the City has a select number of residential developments that were used to
inform the residential prototypes. These pipeline projects range from lower-density single-
family units,at roughly eight dwelling units per acre,to a condominium development with 36
dwelling units to the acre. The City's pipeline also includes two different developments that
are proposing to include both rental apartments and for-sale townhomes, achieving a blended
20 to 35 dwelling units to the acre. As currently proposed,the higher-density projects in the
pipeline are at or below five stories of construction, meaning that these projects are within the
height limit for wood-frame construction and do not require more expensive construction
methods that are necessary for buildings with more stories.
Campbell Residential Development Standards
The City recently updated the General Plan to adjust the allowable densities and adopted
objective standards which provides for greater certainty in the design and development of new
residential development. With the updates,the highest-density residential land use
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 36
designation allows between 57 and 75 dwelling units per gross acre. This density range
allows for more dense projects, likely into six-or seven-story developments that include
ground-floor concrete podiums to achieve higher densities. Several other land use
designations allow for projects to reach up to 25 dwelling units per gross acre(or higher),
which is sufficient to accommodate dense townhomes developments. The prototypes that are
evaluated in this chapter are consistent with the new land use designations that have been
adopted by the City.
Prototypes
The financial feasibility analysis evaluates five residential prototypes, consisting of two rental
prototypes and three for-sale housing prototypes at various densities.The prototypes that were
evaluated in this analysis are described in more below and summarized in Table 12.
Table 12: Summary of Residential Prototype Development Programs
Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5
Low-Density High-Density For-Sale For-Sale Single-Family
MFR Rental Mixed-Use Condo Tow nhomes Subdivision
Site Size(acres) 2.0 2.0 1.0 1.0 0.5
Total Units 59 132 53 22 6
Affordable Units 9 20 8 4 0
Average Unit Size(net sq.ft.) 839 840 1,200 1,800 2,600
Parking Spaces 89 132 53 44 12
Sources: City of Campbell;BAE,2023.
Prototype 1: Lower-Density Multifamily Rental. Prototype 1 is a lower-density multifamily rental
development on a two-acre site accommodating 59 total residential units, with a density of
roughly 30 du/acre. The prototype evaluated abides by the City's current inclusionary housing
ordinance by including nine units affordable to a mix of very low-income and low-income
households, which is equal to 15 percent of the total units. Parking for Prototype 1 would be
provided in a surface parking lot, including 89 parking spaces, or 1.5 spaces per unit.
Prototype 2: Higher-Density Multifamily Rental. Prototype 2 is a multifamily rental
development on a two-acre site with an assumed density of 66 du/acre,yielding a total of 132
units. The prototype includes 20 units affordable to very low-income and low-income
households, which is equal to 15 percent of the total housing units. Parking for Prototype 2
would be provided in a first-floor parking podium. This prototype includes parking at a ratio of
one space per unit.
Prototype 3: Condominium. Prototype 3 is a condominium development on a one-acre site
with a density of 53 dwelling units per acre. The prototype evaluated in this analysis assumes
the developer aligns with the City's existing inclusionary housing ordinance, providing four
units affordable to low-income households,or 7.5 percent of the total units, as well as four
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 37
units affordable to moderate-income households,or another 7.5 percent of the total units.
Parking for Prototype 3 would be provided in a first-floor parking podium, at a ratio of one
space per unit.
Prototype 4:Townhomes. Prototype 4 is a townhome development on a one-acre site with an
assumed base land use designation allowing for 22 dwelling units per acre. The prototype
evaluated in this analysis includes two units affordable to low-income households, which is
equal to nine percent of the 22 total units,as well as two units affordable to moderate-income
households,aligning with the City's existing inclusionary requirements. Parking for Prototype 4
would be provided in individual garages in each unit. Parking would be provided at a ratio of
2.0 spaces per unit.
Prototype 5:Single-Family Subdivision. Prototype 5 is a single-family subdivision on a 0.5-acre
parcel with six total single-family units,for a density of 12 du/acre. Due to the structure of the
City's existing affordable housing ordinance, which only requires projects with ten or more
units to include affordable housing units,this project does not include any housing units
affordable to low-or moderate-income households. Parking for Prototype 5 is provided in
individual garages in each unit, at a ratio of 2.0 spaces per unit.
Methodology for Financial Feasibility Analysis
The methodology used for this study involved preparation of static pro-forma financial
feasibility models for each of the five prototypes described above. The static pro-forma
models represent a form of financial feasibility analysis that developers often use at a
conceptual level of planning for a development project,as an initial test of financial feasibility
for a development concept to screen for viability. The detailed pro-formas that BAE prepared
for this analysis are provided in Appendix C.
The pro-forma models are structured to calculate the residual land value associated with each
prototype. The residual land value for a residential rental project is equal to the value of the
completed project, net of total development costs. To estimate the value of the completed
project(net of developer profit),the feasibility models divide the Net Operating Income(NO1)
from the project(i.e., annual income from the project net of operating expenses) by the Yield-
on-Cost(YOC)developers are seeking in order to consider a project feasible. The required YOC
is a function of the prevailing capitalization rate in the City, plus a spread for new development
to capture a margin for developer profit. The residual land value for a residential rental project
can be summarized as follows:
Project Value Net of Developer Profit(i.e., NOI/ required YOC) - Total Development Costs
Residual Land Value
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 38
The residual land value for a for-sale project is equal to the net sale proceeds from the project
(i.e.,total revenue from sales after subtracting marketing costs) net of total development costs
including developer profit:
Net Sale Proceeds(total revenues less marketing costs) -Total Development Costs
Residual Land Value
The residual land value approximates the maximum amount that a developer should be willing
to pay for a given site, based on the value of the project that the developer would build on that
site. In general, a development pro-forma that shows a residual land value that is
approximately equivalent to the typical sale price for land indicates a financially feasible
project. If a developer is able to acquire land for a price that is lower than the residual land
value associated with his or her project,the difference between the residual land value and
the actual sale price essentially represents additional project profit. A project that generates a
residual land value that is lower than typical site acquisition costs is generally not financially
feasible and would be unlikely to be built.
Rental Inclusionary Financial Feasibility Findings
The following section summarizes the financial feasibility of the two rental housing prototypes.
This includes the estimated development cost of the project,as well as the project value upon
completion, resulting in a residual land value. The residual land value is compared to
prevailing land costs in the City of Campbell to determine the financial feasibility of the
prototype. A summary of the financial feasibility findings is included below in Table 13.
Prototype 1: Lower-Density Multifamily Rental. The financial feasibility analysis indicates that
the lower-density multifamily rental prototype faces development feasibility challenges in the
current market. In total,the estimated total cost of the 59-unit project amounts to nearly
$27.7 million,or nearly$470,000 per unit,excluding the cost of land acquisition. Hard costs
for vertical construction account for the largest development cost, at nearly$18.6 million,
followed by soft costs ($2.9 million),site preparation ($1.7 million), construction financing
costs($1.6 million), and City impact fees($1.3 million). The remaining costs are associated
with developer fees and surface parking costs.
To estimate the value of the property to investors,this project is estimated to generate roughly
$1.3 million annually in net operating income. Based on a required yield on cost of 5.5
percent,the project value net of development profit is equal to roughly$24.4 million. Based
on the comparison between project value to investors and the estimated development cost
excluding land,the feasibility models indicate a negative residual land value, indicating the
project is unable to support a land acquisition cost and is therefore infeasible under current
market conditions.
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 39
It should be noted that this prototype also faces feasibility challenges even with no
inclusionary housing requirement. In a scenario in which all units in the prototype are market-
rate units,this prototype still yields a negative residual land value. This finding indicates that
changes to the City's inclusionary requirements would not make this prototype financially
feasible.
Prototype 2: Higher-Density Multifamily Rental. Similar to the lower-density multifamily rental
prototype,the higher-density prototype faces financial feasibility challenges in the current
market. The 132-unit higher-density multifamily rental prototype,situated on a two-acre
parcel, is estimated to have a total development cost of$77.5 million, or$587,000 per unit,
excluding the cost of land acquisition. The per-unit cost for this prototype is higher than the
per-unit cost for the lower-density multifamily rental prototype due to the inclusion of podium
parking,which significantly increases the cost per parking space. Similar to the lower-density
prototype,vertical hard construction costs account for the largest development cost,followed
by soft costs. Due to the provision of podium parking, however,the parking costs account for
the third most significant cost, at roughly$7.2 million. The remaining costs are associated
with construction financing, City impact fees, developer fees, and site preparation costs.
Based on an annual net operating income of$3.4 million,the project value net of
development profit is equal to roughly$61.9 million. Based on the comparison between
project value to investors and the estimated development cost excluding land,the feasibility
models indicate a negative residual land value, indicating development feasibility challenges
under existing market conditions.
Similar to the prior prototype,this prototype still faces feasibility challenges even without the
inclusionary housing requirement.
For-Sale Residential Financial Feasibility Findings
The following section summarizes the feasibility of the three for-sale housing prototypes.
Similar to the above approach,this section summarizes the total development cost, and
compares this to the total sales proceeds of the units to calculate the residual land value. To
determine feasibility,the residual land value is then compared to prevailing land costs for
these development typologies in the City of Campbell. A summary of the financial feasibility
findings is included below in Table 13.
Prototype 3: Condominium. The pro-forma analysis indicates that the condominium prototype
is infeasible, due to lower sale proceeds relative to the cost of building the prototype. The
estimated project cost of the condominium prototype is approximately$45.6 million,or nearly
$860,000 per unit, excluding the cost of land acquisition or developer profit. The higher
development cost relative to the rental prototypes is driven by high hard costs due to higher-
end finishes and more expensive construction materials in a typical condominium
development,as well as the provision of larger condominium units compared to rental units.
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 40
Similar to the other prototypes, vertical hard construction costs account for the largest share
of development costs,followed by parking costs and soft costs.
As noted in prior sections,the feasibility of for-sale condominium prototypes is determined
through the comparison between the revenue from one-time sales of the condominium units
and the cost of delivering the units. Based on the expected sale prices,this 53-unit
development generates roughly$51.8 million in gross sales proceeds. After accounting for
marketing costs,the net sales proceeds amount to approximately$49.2 million,or a blended
average of roughly$929,000 per unit.
Assuming condominium developers require a one-time 18-percent profit margin in order to
attract equity investors,the residual land value of the higher-density condominium prototype is
negative, indicating the prototype does not support a land acquisition and is therefore
considered infeasible. Similar to the rental prototypes,the market-rate component of the
condominium prototype is not feasible even without the affordable component.
Prototype 4:Townhomes. The pro-forma analysis indicates that the townhome prototype is
financially feasible in the current market. In total,the 22-unit townhome development on one
acre is estimated to cost roughly$15.6 million, or$710,000 per unit, excluding land
acquisition costs and developer profit. While these units are somewhat larger than the
condominium units,the development typology affords a more efficient cost of construction,
leading to reduced costs on a per-square-foot basis. Still, vertical hard construction costs
account for the largest share of development costs,followed by soft costs and site preparation
costs.
This analysis uses an estimated average sale price of approximately$1.5 million per unit for
this prototype, resulting in a total of$31.0 million in net sales revenue from the project. This
total accounts fora lower sale price among the inclusionary units in the project. After allowing
an 18-percent developer profit threshold,the development has an estimated residual land
value of approximately$11.6 million. Based on comparable land sales,this residual land
value is sufficient to acquire land suited for townhome developments, indicating the prototype
is feasible and may even be able to support a slightly higher percentage of required
inclusionary housing units.
Prototype 5:Single-Family Subdivision. The pro-forma analysis indicates that the single-family
prototype is financially feasible in the current market. In total,the six-unit single-family
subdivision on 0.5 acres is estimated to have a total development cost of roughly $5.7 million,
or$950,000 per unit, excluding land acquisition costs and developer profit. Similar to the
townhome prototype,the single-family development includes larger units than the high-density
condominium prototype but has a lower cost of construction on a per-square-foot basis.
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 41
Based on data on recent home sales in Campbell as reported by Redfin, as well as on input
provided by developers,this analysis uses an estimated average sale price of approximately
$2.6 million per unit, resulting in a total of$14.8 million in net sales revenue from the project.
The City's inclusionary ordinance would not apply to a project of this size,and therefore this
analysis assumes that all units in this development would be market-rate units. After allowing
an 18-percent developer profit threshold,the development has an estimated residual land
value of approximately$7.4 million, or $14.8 million per acre. Based on comparable land
sales,this residual land value is higher than the typical price required to acquire land suited
for single-family developments in Campbell, indicating the prototype is feasible and may even
be able to support an inclusionary housing requirement.
Summary of Findings
As outlined above,the feasibility of higher-density housing prototypes in the City of Campbell is
currently challenging due to construction cost increases and other external market factors.
However, lower-density prototypes including townhomes and detached single-family units are
currently feasible, driven by the cheaper cost of construction for these development typologies
and high sale prices. For the projects that are currently infeasible, even eliminating the city's
inclusionary housing requirement is insufficient to render projects feasible, highlighting the
external factors that are driving the current infeasibility. Based on the current inclusionary
housing ordinance and in-lieu fee payment option,the single-family prototype is not subject to
the inclusionary housing ordinance,as it provides less than ten units. However,this prototype
generates the highest residual land value, due to the high sale prices.
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 42
Table 13: Summary of Residential Development Feasibility
Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5
Low-Density MFR High-Density MFR For-Sale For-Sale Single-
Rental Rental For-Sale Condo Tow nhomes Family Subdivision
Development Program
Site Size(acres) 2.0 2.0 1.0 1.0 0.5
Total Units 59 132 53 22 6
Affordable Units 9 20 8 4 0
Average Unit Size(net sq.ft.) 839 840 1,200 1,800 2,600
Parking Spaces 89 132 53 44 12
," ie Trig Land and Developer Profit
Total Development Cost(TDC)
Excl.Land&Profit $27,688,560 $77,456,595 $45,571,665 $15,597,150 $5,694,932
TDC per Unit $469,298 $586,792 $859,843 $708,961 $949,155
TDC per Gross Building SF $466 $561 $597 $394 $365
Required Value Threshold(Rental) $24,394,015 $61,937,400 n.a. n.a. n.a.
Net Sales Revenue(for-sale) n.a. n.a. $49,245,872 $30,958,857 $14,820,000
Residual Land Value ($3,294,546) ($15,519,195) ($5,608,693) $11,609,220 $7,379,980
Residual Land Value per Acre ($1,647,273) ($7,759,597) ($5,608,693) $11,609,220 $14,759,960
Required Land Purchase Price
per Acre $3.0-$6.0 Million $4.0-$8.0 Million $4.0-$8.0 Million $2.5-$8.0 Million $6.0-$10.0 Million
Feasibility Gap/Surplus
per Acre ($4.6)-($7.6)Million ($11.8)-($15.8)Million ($9.6)-($13.6)Million $3.6-$9.1 Million $4.8-$8.8 Million
Feasible under current No No No Yes Yes
conditions?
Source:BAE,2023
DRAFT Campbell Affordable Housing Nexus Study I Residential Financial Feasibility Analysis 43
4. INCLUSIONARY HOUSING IN-LIEU FEE
ANALYSIS
This chapter analyzes potential changes to the City's inclusionary housing in-lieu fees. In-lieu
fees are a common option that cities offer as an alternative to providing inclusionary units
within a project,though cities differ in terms of the extent to which the in-lieu fee option is
available for all projects or only in specific circumstances. In addition, cities differ in terms of
the extent to which in-lieu fees are set at levels that are likely to incentivize developers to pay
the fee or to provide inclusionary units on site. In general, a relatively high in-lieu fee tends to
create an incentive for developers to provide inclusionary units on site, because the cost of the
fee exceeds the cost to provide the inclusionary units. Conversely, a low in-lieu fee tends to
create an incentive for developers to pay the fee rather than provide inclusionary units.
As discussed in the introduction to this report, Campbell currently allows developments with a
density of six dwelling units per acre or less to pay an in-lieu fee rather than provide affordable
units within the development. For projects providing rental units,the in-lieu fee is equal to
$21.50 per project square foot. For projects providing owner-occupied units,the in-lieu fee is
equal to $34.50 per project SF. Based on the current ordinance, only projects with ten or
more units are subject to the inclusionary housing ordinance. Due to the density limits for
projects that are eligible for the in-lieu fee option and the size threshold for the inclusionary
ordinance,the City has only seen a limited number of projects that are subject to the
inclusionary housing ordinance and fall within the density range for projects that are eligible to
pay the in-lieu fee.
This chapter includes technical analysis for calculating the in-lieu fee as well as a benchmark
analysis that evaluates in-lieu fees and total residential impact fees in comparison
jurisdictions. Recommendations for implementation supported by the analysis provided in this
chapter are addressed in the Policy Options section of this report,along with
recommendations supported by the analysis of commercial linkage fees.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 44
Inclusionary Unit Construction Cost Approach
Many cities base their inclusionary in-lieu fees on the cost to construct an affordable unit,
often through a formula that applies on a project-by-project basis that is tied to the cost of
construction. To inform the City's consideration of an inclusionary in-lieu fee,this subsection
provides an analysis of the cost to construct inclusionary units in each of the five residential
prototypes analyzed in this report.
For inclusionary rental units,this analysis estimates the cost to construct an inclusionary unit
based on the per-unit construction costs shown in the pro-formas for the rental developments.
The analysis then subtracts the amount of debt service that an affordable unit can support
from the total construction cost to estimate the construction cost net of supportable debt.
This approach recognizes that an affordable unit generates rental income to offset the cost of
constructing the unit, albeit at a lower rate than needed to cover construction costs.
For inclusionary ownership units,this analysis estimates the cost to construct an inclusionary
unit based on the per-unit construction costs shown in the pro-formas for the ownership
developments. The analysis then subtracts the restricted sale price from the total
construction cost to estimate the construction cost net of sales proceeds. Like the approach
used for the rental units,this approach recognizes that an inclusionary unit generates revenue
from the sale of the unit to offset the cost of constructing the unit,though this revenue is not
sufficient to cover construction costs.
For all of the development prototypes,this analysis included the required developer profit and
the land acquisition. Land costs were estimated at the midpoint of the ranges for each
prototype as shown in Table 13.
As shown in Table 14 Table 1below, based on the construction cost approach calculations,the
in-lieu fee amount based on the construction cost approach ranges from $107 to $115 per
net residential square foot for the rental prototypes. The lower-density rental prototype yields
the lower in-lieu fee amount, due to a lower per-unit development cost for that prototype.
Using the construction cost approach,the in-lieu fee for the for-sale units is equal to $96 per
net square foot for the condominium prototypes, $70 per net square foot for the townhouse
prototype, and $83 per net square foot for the single-family prototype.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 45
Table 14: Construction Cost In-Lieu Fee Amount by Prototype
Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5
Low- High- For-Sale
Density Density For-Sale For-Sale Single-Family
MFR Rental MFR Rental Condo Townhome Subdivision
Development Program
Site Size(acres) 2.0 2.0 1.0 1.0 0.5
Total Units 59 132 53 22 6
Affordable Units 9 20 8 4 0
Total Net Project SF 49,500 110,900 63,600 39,600 15,600
Estimated Land Cost(per unit) $152,542 $90,909 $113,208 $238,636 $666,667
Construction Cost Approach
Total Development Cost Per Unit,Incl.Land $646,336 $703,737 $1,148,199 $1,118,165 $1,906,670
Rental Prototypes
Average Monthly Rent per Affordable Unit(a) $1,738 $1,793 n.a. n.a. n.a.
Monthly Net Operating Income per Affordable Unit $401 $454 n.a. n.a. n.a.
Supportable Debt per Affordable Unit $58,174 $65,787 n.a. n.a. n.a.
For-Sale Prototypes
Avg.Net Sales Revenue per Affordable Unit(b) n.a. n.a. $384,484 $429,464 $476,313
Development Cost minus Sale Price per Aff.Unit n.a. n.a. $763,715 $688,701 $1,430,357
In-Lieu Fee Per Affordable Unit $588,162 $637,951 $763,715 $688,701 $1,430,357
Constructoin Cost In-Lieu Fee Amount
Total In-Lieu Fee Amount $5,293,459 $12,759,012 $6,109,723 $2,754,805 $1,287,321
Fee per Net Residential Sq.Ft. (c) $107 $115 $96 $70 $83
Source:BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 46
Point of Indifference Approach
One factor to consider when setting an in-lieu fee is the "point of indifference", or the fee
amount that is generally equivalent to the cost of providing inclusionary units in a project.
Fees that are set higher than this amount will generally incentivize developers to provide
affordable units instead of paying the in-lieu fee because providing the units will be more cost-
effective. Conversely,fees that are set lower than this amount will generally incentivize
developers to pay the in-lieu fee instead of providing the affordable units. The following
section summarizes the methodology for setting this fee amount, as well as the potential fee
amount for each of the prototypes.
Methodology
The cost of an in-lieu fee and the cost to provide inclusionary units on site are not directly
comparable, because an in-lieu fee affects total development costs, whereas providing
inclusionary units on site affects either the project's operating income and the resulting project
value (for rental developments) or sale proceeds (for ownership developments). In other
words, payment of an in-lieu fee affects the cost side of the residual land value calculation,
while providing inclusionary units on site affects the project value or sale proceeds side of the
residual land value calculation.
This analysis evaluated the point of indifference by determining the in-lieu fee rate for each
prototype that would result in the same feasibility results as providing inclusionary units. The
analysis involved creating an alternate version of the pro-forma for each prototype. The pro-
formas that were used for this portion of the analysis differed from the pro-formas that were
used to test the feasibility of the inclusionary requirements in that the alternate versions do
not have any affordable inclusionary units and instead include an in-lieu fee as part of the total
development cost. To identify the point of indifference in-lieu fee for each prototype,the
analysis determined the fee that would result in the same residual land value as in the
inclusionary scenario. For example, as shown in Table 13 above, with the inclusionary units
Prototype 4 results in a residual land value of$11.6 million. To identify the point of
indifference fee rate for Prototype 4,an alternate version of the Prototype 4 pro-forma was
created with no inclusionary units. An in-lieu fee was then added to the development costs for
in this alternate version of the pro-forma, with that fee rate set such that the residual land
value associated with the project would be $11.6 million, or equal to the residual land value in
the inclusionary scenario for the same prototype.
The methodology for estimating the point of indifference fee rate for the single-family
prototype involved creating two alternate versions of the single-family prototype pro forma.
One alternate version evaluated a prototype that is similar to the single-family prototype
discussed elsewhere in this report, but with seven units rather than six and a commensurate
increase in the site size, with one of the seven units as an inclusionary unit(i.e., approximately
15 percent of a seven-unit project). The second alternate version evaluated the same seven-
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 47
unit single-family prototype with an in-lieu fee rather than an inclusionary unit,following the
same methodology that was used for the other prototypes as described above.
The resulting in-lieu fee rates for each prototype approximate the"point of indifference," or the
inclusionary in-lieu fee payment that would have approximately the same cost impacts as
providing affordable units within the project. In other words, if all else were equal, a
residential rental project that pays the "point of indifference"fee rates shown in Table 15
would generally support the same residual land value as a project that provides the affordable
units on site.
Findings
As shown below in,the rental prototypes yield a "point of indifference" in-lieu fee amount
between $55.50 and $63.50 per net residential square foot. The for-sale prototypes yield a
"point of indifference" in-lieu fee amount of$61.50 per net residential square foot for
condominium prototypes, $92.00 per net residential square foot for townhomes,and $90.50
per net residential square foot for single-family homes.
Table 15: Point of Indifference In-Lieu Fee Amount by Prototype
Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5
Low- High- For-Sale
Density Density For-Sale For-Sale Single-Family
MFR Rental MFR Rental Condo Townhome Subdivision
Point of Indifference
In-Lieu Fee Amount(a) $2,747,250 $7,042,150 $3,911,400 $3,643,200 $1,647,100
Existing Fee per SF $21.50 $21.50 $34.50 $34.50 $34.50
Additional Fee per SF $34.00 $42.00 $27.00 $57.50 $56.00
Total Fee per SF $55.50 $63.50 $61.50 $92.00 $90.50
Note:
(a)Based on proformas shown in Appendix C.
Source:BAE,2024.
The"point of indifference"fee rates identified in this analysis are sensitive to the relationship
between the market-rate rent and the affordable rent for rental projects and the market-rate
sale price and the affordable sale price for ownership projects, as well as other assumptions
used in the financial modeling. Consequently,the fee rate that represents the point of
indifference will vary between projects and over time based on variations in the difference
between market-rate and affordable rents and sale prices. Nonetheless,the analysis
presented in this subsection provides general insight on the in-lieu fees levels that are
comparable in cost to providing inclusionary units in a project.
Residential Fee Benchmark Analysis
The following subsections provide information on 1) Inclusionary housing in-lieu fees charged
in nearby jurisdictions; and 2)Total impact fees charged on residential uses in nearby
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 48
jurisdictions. The fee information provided in this section may inform Campbell's process for
identifying an in-lieu fee. To the extent that cities with comparable market conditions assess
fees and continue to attract new residential development,this could serve as an indication
that Campbell could potentially assess similar fees without making residential development
infeasible. Conversely, if Campbell were to adopt fees that are significantly higher than the
fees charged in nearby jurisdictions,this could affect developers' willingness to pursue
projects in Campbell if developers are able to find attractive development opportunities in
nearby cities with lower fees.
However, inclusionary housing in-lieu fees have little or no effect on the financial feasibility of
residential development projects in jurisdictions where use of the in-lieu fee is generally
restricted to specific types of projects,and therefore the information provided below should be
considered within a broader policy context. As discussed in more detail below, many
jurisdictions place restrictions on developers' ability to satisfy inclusionary requirements
through payment of an in-lieu fee. These restrictions may include requiring City Council
approval to pay an in-lieu fee, allowing in-lieu fees only for the purpose of meeting a
requirement for a fractional unit, and allowing in-lieu fees only for small projects. In cases
where the use of an in-lieu fee is restricted, most projects may be required to provide
inclusionary units rather than pay the fee, making the specific in-lieu fee rate irrelevant to the
financial feasibility of most projects. Similarly,the cost of an in-lieu fee is often not included in
the total fees that apply to a residential development project because projects often provide
inclusionary units rather than pay an inclusionary in-lieu fee.
Inclusionary In-Lieu Fees in Nearby Jurisdictions
Table 16 below shows the inclusionary housing in-lieu fees that apply in several nearby
jurisdictions. The table also shows the median home sale prices in each jurisdiction as well as
the average rental rates for multifamily rental units in each jurisdiction. This market
information is shown to provide high-level contextual information regarding variations in the
market between the jurisdictions in the table, and how the market in each jurisdiction shown
compares to the market in Campbell. It should be noted that the median sale prices and
average rental rates shown are for all properties of each type in each jurisdiction, according to
data from Costar and Redfin, and are therefore lower than the rental rates and sale prices that
would be typical of most new development in each jurisdiction.
As shown,almost all of the jurisdictions shown in Table 16 have restrictions on developers'
ability to satisfy inclusionary requirements through payment of an in-lieu fee. These
restrictions include requiring City Council approval to pay an in-lieu fee, allowing in-lieu fees
only for the purpose of meeting a requirement for a fractional unit, and allowing in-lieu fees
only for small projects. The exception is San Jose,which allows developers to choose whether
to pay an in-lieu fee, provide inclusionary units, or pursue an alternative method of
compliance.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 49
Among the jurisdictions shown in Table 16 that have established in-lieu fee rates, in-lieu fees
for for-sale developments generally range from $21 per square foot(Cupertino,for some
development types)to $144 per square foot(Mountain View,for rowhouses or townhomes).6
Campbell's current in-lieu fee rate for for-sale developments is higher than the current in-lieu
fee rates in Cupertino and San Jose and lower than the in-lieu fee rates in Mountain View.
Campbell is unique among the jurisdictions shown in that Campbell has a single in-lieu fee
rate for all for-sale development rather than a fee that varies by for-sale development type.
Among the jurisdictions shown in Table 16 that have established in-lieu fee rates, in-lieu fees
for rental developments generally range from approximately$22 per square foot(San Jose, in
moderate market areas)to $111 per square foot(Mountain View).? Campbell's current fee
rate is toward the low end of this range, at$21.50 per square foot.
Rather than set fee rates,some jurisdictions set fees as a percent of building permit valuation
(Los Gatos)or sale price(Sunnyvale,for for-sale developments). Some jurisdictions use a
formula based on the difference between the affordable sale price and the market-rate sale
price (Santa Clara,for for-sale projects).
While fee rates in nearby jurisdictions often provide insight on the fee rates that are financially
feasible, in the case of an in-lieu fee the fee rates shown in Table 16 do not necessarily reflect
financially feasible fee rates. As noted above, most of the jurisdictions shown place
restrictions on developers' ability to pay an in-lieu fee and prefer that developers provide
affordable inclusionary units. As a result,these jurisdictions may charge relatively high fee
rates that would not be feasible for most projects in order to incentivize developers to provide
inclusionary units rather than pay the fee. These cities may continue to experience residential
development activity,with new development providing affordable units rather than paying an
in-lieu fee, provided that the inclusionary requirements themselves are financially feasible.
Methodology for calculating fees: Jurisdictions in California generally determine the in-lieu by
multiplying the fee by total net new livable square feet in a project. Alternatively,some
jurisdictions may elect to calculate the fee by only the net new livable square feet of the
affordable units that would have been included on site (the City of Campbell historically has
followed this approach). The former method is recommended as it results in higher fees to
support affordable housing production.
6 San Jose has a lower fee rate of$14.54 per square foot for for-sale developments with 10-19 units that are built
at 90 percent or more of the allowable density.
7 San Jose and Sunnyvale have lower in-lieu fees for some specific project types.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 50
Table 16: Inclusionary Housing In-Lieu Fees in Nearby Jurisdictions
Median Home Project Size Threshold
For-Sale Units Fee Rate Sale Price(a)for Inclusionary Req's
Fee Based on Affordable Unit Square Footage
Campbell(b) $34.50 per SF $1,750,000 10 or more units
Cupertino(c) $3,015,000 N/A;requirements apply to
Detached Single-Family $21.36 per SF all project sizes
Small Lot Single-Family or Townhome $23.49 per SF
Multifamily Attached Townhome,Apartment,Condo $28.48 per SF
Fee Based on Total Project Square Footage
Mountain View(e) $1,830,500 N/A;requirements apply to
Single-Family Detached and Condominiums $63 per SF all project sizes
Rowhomes and Townhomes $144 per SF
San Jose(e) $1,350,000 10 or more units
Developments with 20+units $29.07 per SF
Developments with 10-19 units at<90%allowable density $29.07 per SF
Developments with 10-19 units at>90%allowable density $14.54 per SF
Fee Based on Construction Cost or Sale Price
Santa Clara(g) Difference b/t the market value and $1,505,000 N/A;requirements apply to
the affordable sale price,multiplied all project sizes
by the fractional amount due
Los Gatos(d) 6%of building permit valuation $2,382,875 5 or more units
Sunnyvale(h) 7%of contract sales price $1,703,000 7 or more units
of all units in project
Avg.Rent Project Size Threshold
RentalFee Rate Rent per SF(I)for Inclusionary Req's
Fee Based on Affordable Unit Square Footage
Campbell(b) $21.50 per SF $3.18 10 or more units
Cupertino(c) $3.74 N/A;requirements apply to
Up to 35 du/acre $28.48 per SF all project sizes
Over 35 du/acre $35.60 per SF
Fee Based on Total Proiect Square Footage
Mountain View(e) $111 per SF $3.92 N/A;req's apply at all sizes
San Jose(f) $3.01 10 or more units
Strong Market Areas
Developments with 20+units $49.99 per SF
Developments with 10-19 units at<90%allowable density $49.99 per SF
Developments with 10-19 units at>90%allowable density $25.00 per SF
Moderate Market Areas
Developments with 20+units $21.74 per SF
Developments with 10-19 units at<90%allowable density $21.74 per SF
Developments with 10-19 units at>90%allowable density $10.87 per SF
Qualifiying High Rises in Downtown Planned Growth Area $0
Santa Clara(g) $28.79 per SF $3.40 N/A;req's apply at all sizes
Sunnyvale(h) $3.47 3 or more units
Projects with 3-6 units $15.00 per SF
Projects with 7+units $30.00 per SF
Fee Based on Construction Cost
Los Gatos(d) 6%of building permit valuation $3.17 5 or more units
Notes:
(a)Median home sale prices shown are the median home sale price in October 2023,according to data from Redfin.
DRAFT Campbell Affordable Housing Nexus Study j Inclusionary Housing In-Lieu Fee Analysis 51
(b)In-lieu fees can be paid for projects with a density of six dwelling units per acre or less.
(c)In-lieu fees can only be used to satisfy the inclusionary requirement for projects with fewer than 7 units or for fractional
units in projects with more than 7 units if the fractional unit is less than 0.5. If the fractional unit is equal to 0.5-0.99 of a
unit,the BMR unit requirement is rounded up and the project must provide one additional BMR unit. Projects with less than
7 units may provide one unit or pay the fee. All other alternatives to providing on-site inclusionary units are subject to City
Council approval.
(d)Inclusionary program applies to projects that include five or more residential units;Fee option is available only in limited
cases and at the Town's discretion.
(e)Fees are charged per net new livable SF. In-lieu fees can be paid for fractional units in projects with less than 7 units.
In projects with 7+units,in-lieu fees can be paid for a fractional unit that is equal to less than 0.5 of a unit. An in-lieu fee
payment to satisfy the entire inclusionary requirement requires City County approval. Applicant must demonstrate that in-
lieu fee payment will further the City's housing goals to a greater extent than providing units on site. Fees must be greater
than the value of providing the units on site and higher than the in-lieu fees for fractional units that are cited above.
(f)All projects may choose to pay the in-lieu fee rather than construct units. Additionally,projects can choose a mixed
compliance option to provide a portion of units on-site and pay an adjusted in-lieu fee. The adjusted in-lieu fee rate varies
depending on the number and affordability of the units provided. In-lieu fees provided above are for a development
providing no inclusionary units on-site. Fee exemption for qualifying high-rises is set to expire.
(g)Fees apply only to projects with fewer than 10 units or to satisfy the requirement for a fractional unit in projects with 10
units or more. All residential developments with 10 or more units are required to construct affordable units onsite. Projects
with fewer than ten units may either provide one affordable unit or pay an in-lieu fee. Construction of one single-family
home or duplex on a lot of record is exempt.
(h)Inclusionary requirements apply to for-sale projects with 7 or more units or rental projects with 3 or more units. City
Council approval required for in-lieu fee option for projects with 7+units.
(i)Average multifamily rent shown reflects the average monthly asking rent per square foot among multifamily properties in
each jurisdiction as of the third quarter of 2023,according to data from Costar.
Sources:City of Campbell;City of Cupertino;City of Los Gatos;City of Mountain View;City of San Jose;City of Santa
Clara;City of Sunnyvale;BAE;2023.
Total Impact Fees on Residential Uses in Nearby Jurisdictions
Figure 2 provides estimates of the total impact fees that would apply to each of the five
residential prototypes that are evaluated in this report in Cambell as well as in neighboring
jurisdictions. This analysis provides insight on how Campbell compares to neighboring
jurisdictions in terms of the total impact fees that apply to new residential development.
As shown, Campbell's impact fees are toward the middle of the range for each prototype. Los
Gatos, Monte Sereno,and San Jose would generally assess lower impact fees than Campbell
for each of the prototypes, while impact fees in Saratoga would be comparable to Campbell's
impact fees. The other cities shown, including Cupertino, Mountain View,Santa Clara, and
Sunnyvale, would all charge higher impact fees than Campbell for each of the residential
prototypes. It should be noted that the fee estimates shown in Figure 2 do not include
inclusionary housing in-lieu fees because most of the jurisdictions shown require that most
projects provide inclusionary units rather than pay in-lieu fees. The information provided in
Figure 2 indicates that Campbell is generally in line with neighboring jurisdictions in terms of
the impact fees that apply to new residential development projects, with significantly lower
residential impact fees than many nearby jurisdictions.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 52
Figure 2: Residential Impact Fees in Campbell and Comparison Jurisdictions
40
$120,000 $9,000,000
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$100,000
$7,000,000
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6.4
Campbell Cupertino Los Gatos(a) Monte Sereno Mountain View San Jose Santa Clara Saratoga Sunnyvale(b)
•High-Density MFR •Low-Density MFR ■Condominium Townhouse •Single-Family ♦Median Home Sale Price
Notes:
Fee calculations include park fees for Campbell,Cupertino,Mountain View,San Jose,Santa Clara,Saratoga,and Sunnyvale. These fees would be reduced to the extent that
projects provide park space in accordance with each jurisdiction's requirements. Fee calculations do not include inclusionary housing in-lieu fees because most of the jurisdictions
shown require that most projects provide inclusionary units rather than pay in-lieu fees.
(a)Fees do not include Traffic Impact Mitigation Fee,which are calculated based on new average daily trips generated
(b)Fee estimates do not include any Specific Plan Area fees. Some Specific Plan Areas have fees that would result in higher total fees than shown.
Source:BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 53
Summary of Findings from Inclusionary In-Lieu Fee Analysis
The analysis presented above evaluates potential inclusionary housing in-lieu fees in Campbell
based on: 1)the cost to construct an inclusionary unit; and 2)the "point of indifference" in-lieu
fee rate. Table 17 summarizes the findings from the construction cost approach and the point
of indifference approach.
Table 17: Summary of Findings from In-Lieu Fee Analysis
Prototype 1 Prototype 2 Prototype 3 Prototype 4 Prototype 5
Low- High- For-Sale
Density Density For-Sale For-Sale Single-Family
MFR Rental MFR Rental Condo Townhome Subdivision
Construction Cost Approach(per SF) $106.94 $115.05 $96.06 $69.57 $82.52
Point of Indifference Approach(per SF) $55.50 $63.50 $61.50 $92.00 $90.50
Source:BAE,2024.
If City decision-makers generally prefer that developers provide inclusionary units rather than
pay an in-lieu fee,the City should either place limits on the circumstances under which
developers may satisfy inclusionary requirements through the payment of an in-lieu fee or
adopt fee rates that are higher than the fee rates established through the point of indifference
approach. Restrictions on the circumstances under which developers can pay the in-lieu fees
could include allowing a fee payment for small projects or for requirements resulting in
fractional units, but not allowing a fee payment to meet the entire inclusionary requirement for
larger projects. Campbell could also require discretionary approvals for the use of an in-lieu
fee in most circumstances.
DRAFT Campbell Affordable Housing Nexus Study I Inclusionary Housing In-Lieu Fee Analysis 54
5. KEY FINDINGS & POLICY OPTIONS
This chapter presents key findings and policy options based on the analysis presented in the
preceding chapters of this report. These policy options and recommendations include the
potential adoption of a commercial linkage fee and adjustments to the inclusionary housing in-
lieu fee.
Affordable Housing Need
The potential implementation of a commercial linkage fees and adjustment to the inclusionary
housing in-lieu fee are being considered in the context of significant affordable housing needs
as demonstrated both by US Census Analyze the proportion of lower-income households
relative to all households within the jurisdiction, using the latest data from the United States
Department of Housing and Urban Development's (HUD) Comprehensive Housing Affordability
Strategy(CHAS) database. According to this data, 28 percent of Campbell holds earn less
than 50 percent of Median Family Income (MFI), with an additional 11 percent earning
between 51 and 80 percent of MFI.
Additionally,for the 6th Housing Element Update Cycle(2023-2031),the City of Campbell has
a Regional Housing Needs Allocation (RHNA) obligation totaling 2,977 units, including 1,186
units for lower-income households, or approximately 40 percent of the total. The
recommended inclusionary housing set aside of 15 percent, as described further, is
significantly lower than the need as documented both by HUD and the City's RHNA allocation.
The AB 602 Analysis included in Appendix A below further explores the appropriateness and
proportionality of the proposed commercial linkage fees and adjustment to the inclusionary
housing in-lieu fees.
Commercial Linkage Fee Policy Options
The analysis presented in this report supports the following options related to the potential
adoption of commercial linkage fees in Campbell in furtherance of Housing Element Program
H-lb:
Program H-lb: Commercial Linkage Fee: Establish an affordable housing impact fee
that will apply to nonresidential development to provide an additional local source of
revenue to support production of affordable housing.
Commercial Linkage Fee Policy Option 1:Do not adopt commercial linkage fees.
City decision-makers may wish to refrain from adopting any commercial linkage fees at this
time. This option is based on the non-residential financial feasibility analysis that was
presented in this report, which found that office, retail, hotel,and industrial development faces
financial feasibility challenges in the current market.
DRAFT Campbell Affordable Housing Nexus Study I Policy Options 55
Commercial Linkage Fee Policy Option 2:Charge a fixed amount for all non-residential uses.
To simplify fee collection and make the City's fee schedule easy to understand, Campbell
could adopt a single commercial linkage fee rate that would apply to all non-residential uses.
If the City pursues this approach, BAE recommends a fee that would be consistent with a fee
rate that represents a low percentage of total development costs for all uses to which the
commercial linkage fee would apply. For example, if the City adopts commercial linkage fees
for office, retail, hotel,and light industrial uses,the recommended fee rate would be $9 per
square foot or less, which is equal to two percent of estimated total development costs (not
including land or developer profit)for retail and light industrial uses.
Commercial Linkage Fee Policy Option 3:Adopt a Tiered Commercial Linkage Fees Based on
Building Type.
Policy option 3 involves adopting commercial linkage fees with lower fees for specific uses
based on various policy goals. If the City pursues this option,fees for some uses could be set
at up to two percent of total development costs according to Policy Option 2,while fees for
other uses would be set at lower rates, per the following maximum fee rates:
• Office: up to $15 per square foot
• Retail/Restaurant: up to$9 per square foot
• Hotel: up to $12 per square foot
• Light Industrial: up to $9 per square foot
Implementation Consideration:Timing of Fee Payment
• Allow fees to be paid after building permit issuance. Some of the developers that
participated in the stakeholder focus groups highlighted the financial burden
associated with paying commercial linkage fees at building permit issuance due to the
high cost of financing for up-front development costs. While many jurisdictions require
payment of all impact fees at building permit issuance, some allow fees to be paid at
later stages in the development process, such prior to issuance of a certificate of
occupancy.
Implementation Consideration:Exemptions and Discounts
• Discount or exempt certain land uses and project sizes. Some jurisdictions with
commercial linkage fees choose not to charge fees or to charge low fees on specific
non-residential uses and project sizes. For example, some jurisdictions take this
approach with hotel and/or retail uses,often because these uses generate other
revenues for the City(i.e.,transient occupancy tax or sales and use tax),and as a
result jurisdictions choose to incentivize these uses. It should be noted that transient
occupancy tax and sales and use tax revenues accrue to a jurisdiction's General Fund
and therefore are not reserved for affordable housing.
• Provide an exemption for the non-residential component of vertical mixed-use projects.
Some jurisdictions provide commercial linkage fee exemptions for the commercial
DRAFT Campbell Affordable Housing Nexus Study I Policy Options 56
component of mixed-use projects,such as ground floor retail space in a residential
building. For example,the City of Santa Clara provides an exemption for"Commercial
square footage within a mixed-use development where the commercial space is
integrated into a single building that also includes residential development at a density
of thirty(30) dwelling units per acre or greater and where the commercial square
footage does not exceed twenty thousand (20,000)square feet." Jurisdictions may
adopt these types of exemptions to incentivize the provision of ground-floor retail
space in residential projects. In some cases,these exemptions are adopted because
local codes require ground-floor commercial space in some areas, and an exemption
may reflect that the jurisdiction is electing not to charge a fee on space that
developers are required to build, and which is often not profitable.
Implementation Consideration:Phasing
For projects that do not meet the exemption criteria,options for phasing in a fee include:
• No phase-in process.This option would consist of applying the full adopted fee rate to
all non-exempt projects following adoption.
• Phase in based on time. For example, Campbell could charge no fee for one-year after
adoption.
Note: Housing development projects submitting preliminary applications under SB 330
(Housing Crisis Act of 2019) will generally not be subject to any in-lieu fee, even for the
commercial component of a mixed-use project, provided that they submit their application
prior to the effective date of the new fees.
Implementation Consideration:Fee Calculation Methodology
Jurisdictions will typically adopt fee calculation methodologies that factor in existing
commercial space in cases where a new development is replacing an existing use. For
example, in the hypothetical case of a 300,000 square foot commercial development
replacing an existing 100,000 square foot development,the fee would be based on the net
square footage of 200,000 square feet. The following potential implementing language and
formula reflects accepted practices in comparable California jurisdictions:
The housing impact fee for nonresidential development projects shall be charged on a per-
square-foot basis for all net new usable commercial floor area, including all additions where
floor area is increased, with a specific per-square-foot amount set for each nonresidential land
use category and amount of floor area. The amount of the fee shall be computed as follows:
Fee = (sq. ft. of new land use *relevant commercial linkage fee fee)-(sq. ft. of existing land
use * relevant commercial linkage fee).
"Useable Commercial Area"means the total horizontal floor area in square feet of all stories
of all non-residential building areas measured to the inside surface of exterior walls as well as
any covered non-residential area outside of the building envelope that is covered or partially
DRAFT Campbell Affordable Housing Nexus Study I Policy Options 5'
covered by structures, beams, slats, or projections when viewed from above. This area
specifically includes hallways, lobbies, elevators, stairwells,and mechanical rooms. This
definition specifically excludes parking areas(including covered parking areas), areas shared
with residential use in a mixed-use development, as well as areas covered by cornices, eaves,
sills, and canopies cumulatively measuring less than 30-inches in depth as measured to the
outside surface of exterior walls, as well as ground level paving, pools, spas and decks,
landscape features,and light wells.
Inclusionary Housing In-Lieu Fee Findings and Policy Options
As new market rate units are added to the Campbell market,the wage earners living in these
units spend money for goods and services in the local economy which in turn creates demand
for lower-wage retail and service sector jobs.The policy basis for establishing an inclusionary
housing requirements and in-lieu fee is in part based on the need for Campbell to generate
resources to serve the housing needs of lower-wage worker households related directly to new
market-rate development.
The analysis presented in this report supports various policy options related to inclusionary
housing in-lieu fees in Campbell in furtherance of Housing Element Program H-la:
Program H-la: Inclusionary Housing Ordinance Implementation:Amend the
Inclusionary Housing Ordinance to offer developers a menu of options for achieving
affordability, adjusting the percentage of units required to be affordable depending on
the degree of affordability achieved (i.e., moderate-, low-,very low-,and extremely low-
income).
This section also provides implementation considerations for the phasing and method of
calculation fees that should be considered after selecting a preferred initial option.
Inclusionary Housing Policy Option 1: Retain Existing Fees
This policy option would entail no change in the base fees charged in-lieu of providing on-site
units (i.e., 10-units; For-Sale: $34.50; For-Rent: $21.50). This approach would also maintain
the City's existing method of calculating fees, and result in significantly less revenue than all
other jurisdictions included in the benchmarking analysis.
Inclusionary Housing In-Lieu Fee Policy Option 2:Increase in-lieu fees up to the point of
indifference fee rate of$60 with a threshold of five(5)units.
Table 15 shows the in-lieu fee rates that represent the "point of indifference"for each
prototype, or the point at which the cost of the fee would be approximately equivalent to the
cost of providing inclusionary units in a project. These fees are approximately$60 per net
square foot for rental developments and range from approximately$60 per net square foot to
$90 per net square foot for for-sale developments,depending on the development type. In this
DRAFT Campbell Affordable Housing Nexus Study I Policy Options 58
policy option,the City would adopt a single in-lieu fee of$60 for all unit types to be applied as
follows:
• Threshold:would apply inclusionary ordinance requirements(i.e., 15%affordability)to
all projects of five (5) or more units
• Provide option to pay fees for any fractional requirement not resulting in a whole unit
o Exception: Projects between 5-6 units may pay in-lieu fee instead of providing
units
Note:This option deviates from the possible amendments contemplated by Policy H-la, as it
would require projects of seven (7)or more units to provide an affordable housing unit,when
the fractional requirement exceeds 0.5 of a unit.As a result,this policy option would result in
the production of more affordable housing units,fewer fees,than initially contemplated by
Policy H-la of the Housing Element.
Inclusionary Housing In-Lieu Fee Policy Option 3:Same as Policy Option 2 but with a threshold
of seven (5-6) units
Table 15 shows the in-lieu fee rates that represent the "point of indifference"for each
prototype, or the point at which the cost of the fee would be approximately equivalent to the
cost of providing inclusionary units in a project. These fees are approximately$60 per net
square foot for rental developments and range from approximately$60 per net square foot to
$90 per net square foot for for-sale developments,depending on the development type. In this
policy option,the City would adopt a single in-lieu fee of$60 for all unit types to be applied as
follows:
• Threshold:Would apply to all project of seven (7)or more units
• Provide option to pay fees for any fractional requirement not resulting in a whole
unit
Note:This option also deviates from the possible amendments contemplated by Policy H-la,
as it would exempt projects under 7 units from paying fees or providing units.As a result,this
policy option would result in the generation of less fees than initially contemplated by Policy H-
la of the Housing Element.
Implementation Considerations: Phasing
The options for phasing in the in-lieu fee rate are similar to those described under the
commercial linkage fees.As deemed appropriate,the in-lieu fees could be phased in over time
as follows:
• No phase-in process.This option would consist of applying the full adopted fee rate to
all non-exempt projects following adoption.
DRAFT Campbell Affordable Housing Nexus Study I Policy Options 59
• Phase in based on time (staff preferred). For example, Campbell could charge no fee
for one year after adoption.
Implementation Considerations:Fractional Units
Under options 2 and 3,the City would provide the option for developers to pay a fee to address
requirements for fractional units. Campbell's current inclusionary housing ordinance requires
that developers round up to the nearest whole unit when there is a requirement for a fractional
inclusionary unit of 0.5 or greater and allow the developer to round down to the nearest whole
unit when there is a requirement for a fractional inclusionary unit less than 0.5. The City could
allow payment of an in-lieu fee to satisfy the requirement for any fractional unit(i.e., up to .99
of a unit requirement)or just for fractional unit requirements when less than 0.5. The
application of the in-lieu fee to fractional unit requirements could be implemented regardless
of whether the City reduces the project size threshold for inclusionary requirements as
described under Inclusionary Housing In-Lieu Fee Policy Options 2 or 3.
This study support two options for addressing"fractional" units,as follows:
• Option 1: Retain the existing 15 percent inclusionary requirement as adopted, in which
fractions less than .5 round down,fractions .5 and over round up to a full unit.
• Option 2: Modify the 15 percent inclusionary requirement such the following options
apply when there is a fractional obligation:
o Provide a unit to satisfy any fractional obligation (i.e.,0.1);or
o Pay a fee to satisfy any fractional obligation when one of the following
conditions apply:
• Any fractional obligation for projects with 5 or 6 units
• The fractional obligation is less than .5 for projects 7 units and over
The benefits of applying the in-lieu fee to fractional units include generating some fee revenue
from fractional units,though the magnitude of the revenue is likely to be small. In addition,
charging an in-lieu fee for fractional units would reduce the magnitude of the difference in
requirements for less than 0.5 units and requirements for 0.5 units or more. Reducing this
gap in requirements may reduce the extent to which developers seek to keep projects smaller
to avoid a requirement for an entire new inclusionary unit.
The specific formula for determining the in-lieu fee for fractional units would be as follows:
Total Fee= ($60 per square foot) * (Fractional unit/Total inclusionary units required) *
(Livable Area)
"Livable area" means the total square footage of the interior of all dwelling units within a
residential development that a tenant can occupy and use as measured from the interior face
of the exterior walls.This area specifically includes all living spaces, kitchens and bathrooms,
and usable closet and storage spaces within a dwelling unit.This definition specifically
DRAFT Campbell Affordable Housing Nexus Study I Policy Options 60
excludes common areas such as hallways,elevators,stairwells, mailrooms, multi-use rooms,
indoor pool rooms, mechanical rooms, lobbies, parking areas, areas of Accessory Dwelling
Units (ADUs) and Junior Accessory Dwelling Units (JADUs), and areas shared with a non-
residential use in a mixed-use development.
Implementation Considerations:Affordability Term
The City currently has a 55-year affordability term for rental units and a 45-year term for for-
sale units.To have a more standardized approach,the City should consider establishing a 55-
year affordability term for both rental and for-sale units, in-line with best practices from other
jurisdictions.
Implementation Considerations:Construction Cost Index
As the City implements a new policy,the fees will periodically need to be updated to keep pace
with rising construction costs.This can be accomplished using one of two primary construction
costs indices, as follows:
• California Department of General Services (DGS) Construction Cost Index CCCI:
https://www.dgs.ca.gov/RESD/Resources/Page-Content/Rea I-Estate-Services-
Division-Resources-List-Folder/DGS-California-Construction-Cost-Index-CCCI
• Engineering News Record ("ENR") Construction Cost Index for the San Francisco area
published by McGraw Hill on January 1 of every year,or its successor publication
Implementation Considerations: Financial Feasibility of Fee Option for Smaller(six-and nine-
unit)Townhome Developments
Stakeholder feedback obtained during this study process included some concerns from
townhome developers about the potential impact of a new $60 per square foot in—lieu fee on
smaller scale (six or nine unit)townhome developments. Leveraging the same financial
feasibility models described in depth above and in Appendix C below, BAE adjusted the project
size, land area and fee assumptions to model both six-unit and nine-unit projects. In each
case,the imposition of a $60 fee does not present a constraint on feasibility with each
prototype achieving an 18% profit as percent of total development costs and a positive land
residual in excess of prevailing land prices in the market area.
DRAFT Campbell Affordable Housing Nexus Study I Policy Options 61
APPENDIX A: AB 602 ANALYSIS
Assembly Bill 602 (AB 602, 2021)enacted new requirements for impact fees and impact fee
nexus studies. This appendix provides an analysis of commercial linkage fees in relation to AB
602 requirements. Relevant provisions of AB 602 include:
1. Level of Service. AB 602 requires that impact fee nexus studies"identify the existing
level of service for each public facility, identify the proposed new level of service,and
include an explanation of why the new level of service is appropriate." (See
Government Code Section 66016.5(a)(2).)
2. Prior Nexus Study Assumptions and Fees Collected. Pursuant to AB 602, Government
Code Section 66016.5(a)(4) provides that "if a nexus study supports the increase of
an existing fee,the local agency shall review the assumptions of the nexus study
supporting the original fee and evaluate the amount of fees collected under the
original fee."
3. Capital Improvement Plan. Under AB 602, Government Code Section 66016.5(6)
states that"large jurisdictions shall adopt a capital improvement plan as a part of the
nexus study." For the purposes of this provision, Campbell is classified as a large
jurisdiction.8
Commercial Linkage Fee AB 602 Analysis
This section provides discussion and analysis related to the commercial linkage fee analysis to
comply with the provisions of AB 602 as described above. The subsections below are
numbered to correspond to the four provisions described above.
1. Level of Service
A commercial linkage would generate the funding necessary to finance the construction of new
publicly-assisted affordable housing units to serve new workers in Campbell as the City's
employment base grows. Therefore, in the context of the commercial linkage fee,the level of
service can be defined in terms of the number of publicly-assisted affordable housing units in
Campbell per worker employed in Campbell.
Existing Level of Service. According to the City of Campbell's 2023-2031 Housing Element,
there are 617 publicly-assisted affordable housing units in Campbell. This total consists of
units that received public funding in exchange for providing affordable housing with a deed
restriction of maintain units as affordable for a set time period. In addition to these units,the
Housing Element identifies three deed-restricted affordable housing units that were created
8 AB 602 uses the definition of a"large jurisdiction"that is contained in Section 53559.1 of the California Health
and Safety Code. This section defines a large jurisdiction as a county with a population of 250,000 or more as of
January 1,2019 or any city within that county.
DRAFT Campbell Affordable Housing Nexus Study I Appendix A:AB 602 Analysis 62
through the City's inclusionary housing program. These units did not receive public funding
and therefore are not factored into this analysis. According to US Census American
Community Survey(ACS)data collected between 2018 and 2022,there are an estimated
24,377 people that work in Campbell. Based on these figures,there are currently
approximately 0.025 publicly-assisted affordable housing units per worker in Campbell, as
shown in Table A-1 below.
Proposed New Level of Service. Table A-1 shows an analysis of the level of service that would
be supported by commercial linkage fees, assuming fee rates equal to two percent of total
development costs as shown in Table 10(fees shown in Table A-1 are rounded to the nearest
dollar). As shown,commercial linkage fee rates at that level would support the construction of
an estimated 0.020 units of publicly-assisted affordable housing per new worker in office
space, 0.019 units of publicly-assisted affordable housing per new worker in retail space,
0.060 units of publicly-assisted affordable housing per new worker in hotel space,and 0.042
units of publicly-assisted affordable housing per new worker in industrial space.
Table A-1: Level of Service Analysis, Commercial Linkage Fee
Existing Level of Service
Workers in Campbell(a) 24,377
Publicly-Supported Affordable Housing Units 617
Publicly-Supported Affordable Housing Units per Worker 0.025
Retail/
Proposed New Level of Service Office Restaurant Hotel Industrial
Fee Necessary to Address Full Housing Need $46.85 $128.46 $49.13 $33.72
Possible Fee Rate $15.00 $9.00 $9.00 $12.00
%of Full Need Mitigated by Possible Fee Rate 32% 7% 18% 36%
Estimated Number of Workers per 1,000 SF(b) 3.33 2.00 0.67 1.33
Affordable Housing Need per 1,000 SF(c) 0.21 0.54 0.22 0.16
Affordable Housing Need per 1,000 SF Mitigated by Possible Fee Rate(d) 0.07 0.04 0.04 0.06
Affordable Housing Units Funded per Worker(e) 0.020 0.019 0.060 0.042
Notes:
(a)Based on ACS data collected between 2018 and 2022.
(b)See Table 4.
(c)See Table 6.
(d)Equal to the affordable housing need per 1,000 SF multiplied by the percentage of the full need mitigated by the fee rate
shown.
(e)Equal to the affordable housing need per 1,000 SF mitigated by the fee rate shown divided by the estimated number of
workers per 1,000 SF.
Sources:US Census American Community Survey,2018-2022;City of Campbell Housing Element Update,2023;BAE,
2023.
Appropriateness of New Level of Service. Table A-1 above indicates that commercial linkage
fees for some uses could support a higher level of service than currently exists in Campbell,
depending on whether the Campbell City Council adopts commercial linkage fees and, if so,
what the adopted fee rates are. While the current level of service is 0.025 publicly-assisted
affordable housing unit per worker,the hotel and industrial fees shown in Table A-1 would
DRAFT Campbell Affordable Housing Nexus Study I Appendix A:AB 602 Analysis 63
support larger numbers of publicly-assisted affordable housing units per worker. A higher level
of service would be appropriate in part because the current level of service is insufficient to
provide enough affordable housing for Campbell's workforce. There is a persistent shortage of
available affordable housing units throughout the region, and affordable housing
developments consistently have long waiting lists for any available units.
The existing shortage of affordable units is also apparent in the number of households that are
overpaying for housing in Campbell.9 As discussed in Campbells 2023-2031 Housing
Element, approximately 85 percent of extremely low-income households, 71 percent of very
low-income households, and 59 percent of low-income households are overpaying for housing.
These data indicate a significant gap in the number of lower-income households living in
Campbell and the availability of affordable housing.
Commercial linkage fees will not address these existing deficiencies in the affordable housing
inventory. However, supporting a higher level of service through commercial linkage fees
could help to prevent new non-residential development in Campbell from continuing to
replicate the same gaps in affordable housing delivery that exist under the current level of
service. Even at a higher level of service,the City is unlikely to charge commercial linkage fees
that would fully mitigate the need for affordable housing that new non-residential development
is anticipated to create. As a result, some gaps in affordable housing delivery would remain
unless mitigated through other means.
Furthermore,the higher level of service is appropriate based on the City of Campbell's
Regional Housing Needs Allocation (RHNA). The RHNA is the number of housing units that the
City is required to plan to accommodate during each eight-year Housing Element cycle. Prior
to the start of each Housing Element cycle,the State determines the total RHNA for each
region in California. Each region then goes through a process to distribute the RHNA among
each of the cities and counties in the region. Under California law, each city and county in
California is required to prepare a Housing Element every eight years and must demonstrate
through the Housing Element that the jurisdiction has the ability to accommodate its RHNA
during the eight-year Housing Element period. The RHNA for each city and county includes an
allocation of units that will be affordable to low-income and moderate-income households,and
the Housing Element must demonstrate that the jurisdiction has the ability to accommodate
units at each affordability level.
For the 6th Housing Element Update Cycle(2023-2031),the City of Campbell has a RHNA
obligation totaling 2,977 units, including 1,186 units for lower-income households. This a
significant increase from the 5th Housing Element Update Cycle (2015-2023),when the City's
RHNA obligation totaled 933 units, including 391 units for lower-income households.
9 A household is typically considered to be overpaying for housing if it spends more than 30 percent of its gross
income on housing-related expenses,such as rent,utilities,or mortgage payments.
DRAFT Campbell Affordable Housing Nexus Study I Appendix A:AB 602 Analysis 64
Campbell's 2023-2031 Housing Element reports that the City permitted 15 housing units that
are affordable to lower-income households during the 5th Housing Element cycle. This
suggests that Campbell will need to issue building permits for significantly more affordable
housing units during the 6th Housing Element Cycle to address the City's RHNA. While a
commercial linkage fee would not be intended to fully address the City's RHNA and would not
be sufficient to do so,these figures demonstrate a need for the City of Campbell to enhance
the level of service provided by the City's affordable housing inventory relative to existing
conditions.
2. Prior Nexus Study Assumptions and Fees Collected
The City of Campbell does not have an existing commercial linkage fee, and therefore this
nexus study does not relate to the increase of an existing fee. As a result,the provisions of AB
602 that relate to reviewing the assumptions of a prior nexus study and evaluating the amount
of fees collected under the original fee do not apply to the commercial linkage fee analysis.
3. Capital Improvement Plan
Under AB 602, Government Code Section 66016.5(6) states that"large jurisdictions shall
adopt a capital improvement plan as a part of the nexus study." For the purposes of this
provision, Campbell is classified as a large jurisdiction. Government Code Section 66002
further states that"any local agency which levies a fee subject to [the California Mitigation Fee
Act] may adopt a capital improvement plan,which shall indicate the approximate location,
size,time of availability, and estimates of cost for all facilities or improvements to be financed
with the fees."
Ajurisdiction's capital improvement plan identifies infrastructure improvements and public
facilities projects that the jurisdiction intends to implement,though some portions of the
capital improvement plan may be unfunded and would be implemented only if funding
becomes available in the future. Affordable housing developments are not typically included in
a jurisdiction's capital improvement plan, in part because local jurisdictions do not typically
have a direct role in constructing affordable housing. Instead, local jurisdictions with access to
affordable housing funds typically provide these funds to affordable housing developers or
operators. These affordable housing developers or operators then use the funds to construct
new affordable housing units, acquire existing housing units for the purpose of creating or
maintaining affordable housing,or rehabilitate existing affordable units.
Although affordable housing developments are not included in a formal capital improvement
plan, the City of Campbell's 2023-2031 Housing Element Update provides a plan to
accommodate the City's RHNA. This plan includes an identification of sites where all 1,186
lower-income units in the City's RHNA could be built over the eight-year Housing Element
period. These units would be located within Campbell City limits, and will likely generally
correspond to the approved, under construction, and pipeline projects identified in the
Housing Element, as well as projects that could be constructed on the opportunity sites that
DRAFT Campbell Affordable Housing Nexus Study I Appendix A:AB 602 Analysis 65
the Housing Element identifies. Projects with affordable units will vary in size based on the
specific opportunities for affordable housing development that could occur during the planning
period and may range from ten units to over 100 units (or from five units to over 100 units
under possible policy options).
Information provided in recent applications for tax credit financing for new affordable housing
developments in Santa Clara County indicates that the cost to build a publicly-assisted
affordable housing unit currently averages an estimated $720,000 per unit. Funds from
commercial linkage fees would help to finance a portion of the cost to construct these units
but are not anticipated to be sufficient to fund the construction of all of the lower-income units
in the City's RHNA. The total cost that will be financed through the fees will depend on the
amount of revenue generated by commercial linkage fees during the Housing Element cycle.
In addition to commercial linkage fees, construction of these units will be financed by other
public and private funding sources, including but not limited to low-income housing tax credits.
A portion of the RHNA will also be met through other City housing programs, including the
City's inclusionary ordinance.
DRAFT Campbell Affordable Housing Nexus Study I Appendix A:AB 602 Analysis 66
APPENDIX B: NON-RESIDENTIAL PRO FORMAS
This appendix provides the detailed pro formas for non-residential uses that were used for the
commercial linkage fee analysis provided in this report. This appendix also includes a
description of the key assumptions used in the non-residential pro formas.
Key Assumptions
Hard Costs: Hard costs are the costs associated with the physical construction of a building,
including all construction materials and labor. The hard cost assumptions are primarily based
on information provided by developers that were interviewed for this study. The study also
relies on published sources and BAE's experience with recent projects in the Bay Area to cross-
check the information provided by developers and to fill gaps in the information that
developers were able to provide.
Soft Costs: This analysis assumes that soft costs are equal to 20 percent of hard costs. This
soft cost estimate includes engineering, architecture, and CEQA costs, as well as City cost-
recovery fees for planning, permitting,and entitlements, but does not include financing costs
or impact fees. Financing costs and impact fees were calculated separately and included in
total development costs as separate line items.
Financing Costs: This analysis assumes a 6.5 percent interest rate on construction loans and
loan fees equal to 1.0 percent of the loan amount. These assumptions are consistent with
information provided by developers interviewed for this study as well as BAE's experience with
recent projects in the region.
Impact Fees: BAE calculated impact fees for each prototype based on the City's impact fee
schedule, which includes storm drain impact fees and roadway maintenance impact fees.
Commercial Rental Rates: For the office, retail,and industrial prototypes,this analysis uses
rental rates that are based on information provided by developers during the developer
interviews and cross-checked against data from Costar.
Hotel Operating Revenues and Expenses. This analysis uses data from Costar to estimate
hotel room rates and occupancy rates. The hotel market continues to be impacted by the
COVID-19 pandemic, with lower room rates and occupancy rates than in 2019, but has
demonstrated a significant recovery from the most severe impacts of the pandemic. This
analysis uses the 2019 average occupancy and room rates for hotel properties in Campbell on
the basis that developers would likely need to anticipate a return to pre-pandemic conditions
in order to pursue future hotel development.
DRAFT Campbell Affordable Housing Nexus Study I Appendix B:Non-Residential Pro Formas 67
Capitalization Rate and Yield on Cost: The capitalization rate(or cap rate) is defined as the net
operating income that a property generates divided by the estimated sale price of a stabilized
building. To support new development, investors require a spread between the capitalization
rate and the project's Yield on Cost, calculated as the project's net operating income divided
by the total development costs. To inform the current cap rates and required yield on cost
metrics to support new development,this analysis uses information from developer interviews,
Costar,and the CBRE United States Cap Rate Survey for the first half of 2023 to estimate cap
rates for each of the prototypes.
DRAFT Campbell Affordable Housing Nexus Study I Appendix B:Non-Residential Pro Formas 68
Table B-1: Financial Pro Forma—Office Prototype
Develo•ment Pro ram Assum•tions Development Cost Anal sis
Site Hard Costs
Site area(acres) 3.0 Site work $2,613,600
Site area(sq.ft.) 130,680 Hard construction costs $34,500,000
TI allow ance costs $10,925,000
Structure Parking-surface $1,163,500
Building Size-Gross SF 115,000 Parking-structured $16,600,000
Common Area SF 5,750 Parking-underground $0
Net Rentable SF 109,250 Total Hard Costs $65,802,100
Common Area as a%of Gross 5% Hard Costs per Built Sq. Ft. $572
Parking (spaces) 511 Soft Costs
Surface 179 Soft costs $13,160,420
Structured 332 Impact fees $260,630
Underground 0 Commercial Linkage Fee $0
Developer Fee $2,632,084
Develo•ment Cost & Income Assum•tions Total Soft Costs $16,053,134
Hard Costs Construction Financing Costs
Site Work,per site SF $20 Construction Period Interest $3,112,545
Construction hard costs,per SF $300 Loan Fees $491,131
Tenant improvements,per rentable SF $100 Total Financing Costs $3,603,677
Parking-surface,per space $6,500
Parking-structured,per space $50,000 Total Development Costs
Parking-underground,per space $90,000 excl.Land Value $85,458,911
Cost per built sq.ft. $743
Soft Costs
Soft Costs as a%of Hard Costs 20% Feasibilit Anal sis
Developer Fee as%of Hard Costs 4%
Projected Income
Impact Fees&Extractions Gross Annual Revenue $6,227,250
Impact Fees(per SF) $2.27 Less Vacancy ($622,725)
Net Operating Income (NOI) $5,604,525
Operating Revenues & Expenses
Rental Rate(per SF per month, NNN) $4.75 Project Value to Investor $70,056,563
Vacancy rate 10% Less Development Costs ($85,458,911)
Residual Land Value ($15,402,348)
Construction Financing Residual Land Value/Acre ($5,134,116)
Loan to cost ratio 60%
Interest rate 6.5%
Loan fees (points) 1%
Loan period(months) 18
Draw down factor 65%
Capitalization Rate 7.00%
Developer Profit Spread 1.00%
Required Yield on Cost 8.00%
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix B:Non-Residential Pro Formas 69
Table B-2: Financial Pro Forma— Retail Prototype
Development Program Assumptions Development Cost Analysis
Site Hard Costs
Site area(acres) 0.5 Site work $435,600
Site area(sq.ft.) 21,780 Hard construction costs $2,300,000
TI allow ance costs $650,000
Structure Parking-surface $266,500
Building Size-Gross SF 10,000 Parking-structured $0
Parking-underground $0
Parking (spaces) 41 Total Hard Costs $3,652,100
Surface 41 Hard Costs per Built Sq. Ft. $365
Structured 0
Underground 0 Soft Costs
Soft costs $730,420
Develo.ment Cost & Income Assum.tions Impact fees $15,349
Commercial Linkage Fee $0
Hard Costs Developer Fee $146,084
Site Work,per site SF $20 Total Soft Costs $891,853
Construction hard costs, per SF $230
Tenant improvements,per rentable SF $65 Construction Financing Costs
Parking-surface,per space $6,500 Construction Period Interest $172,784
Parking-structured,per space $50,000 Loan Fees $27,264
Parking-underground,per space $90,000 Total Financing Costs $200,048
Soft Costs Total Development Costs
Soft Costs as a%of Hard Costs 20% excl. Land Value $4,744,001
Developer Fee as%of Hard Costs 4% Cost per built sq.ft. $474
Developer Profit as%of Total Project Costs 0%
Feasibilit Anal sis
Impact Fees &Extractions
Misc.Impact Fees,not including CLF(per SF) $1.53 Projected Income
Gross Annual Revenue $450,000
Operating Revenues&Expenses Less Vacancy ($45,000)
Rental Rate(per SF per month,NNN) $3.75 Net Operating Income(NOI) $405,000
Vacancy rate 10%
Project Value to Investor $5,062,500
Construction Financing Less Development Costs ($4,744,001)
Loan to cost ratio 60% Residual Land Value $318,499
Interest rate 7% Residual Land Value/Acre $636,999
Loan fees (points) 1%
Loan period(months) 18
Draw down factor 65%
Capitalization Rate 6.50%
Developer Profit Spread 1.50%
Required Yield on Cost 8.00%
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix B:Non-Residential Pro Formas 70
Table B-4: Financial Pro Forma—Industrial Prototype
Development Program Assumptions Development Cost Analysis
Site Hard Costs
Site area(acres) 1.0 Site work $871,200
Site area(sq.ft.) 43,560 Hard construction costs $4,200,000
Parking-surface $279,500
Structure Parking-structured $0
Building Size-Gross SF 15,000 Parking-underground $0
Total Hard Costs $5,350,700
Parking (spaces) 43 Hard Costs per Built Sq.Ft. $357
Surface 43
Structured 0 Soft Costs
Underground 0 Soft costs $1,070,140
Impact fees $23,197
Development Cost & Income Assum.tions Commercial Linkage Fee $0
Developer Fee $214,028
Hard Costs Total Soft Costs $1,307,365
Site Work,per site SF $20
Construction hard costs, per SF $280 Construction Financing Costs
Tenant improvements,per rentable SF $0 Construction Period Interest $253,173
Parking-surface,per space $6,500 Loan Fees $39,948
Parking-structured,per space $50,000 Total Financing Costs $293,121
Parking-underground,per space $90,000
Total Development Costs
Soft Costs excl. Land Value $6,951,186
Soft Costs as a%of Hard Costs 20% Cost per built sq.ft. $463
Developer Fee as%of Hard Costs 4%
Feasibilit Anal sis
Impact Fees & Extractions
Misc.Impact Fees,not including CLF(per SF) $1.55 Projected Income
Gross Annual Revenue $495,000
Operating Revenues&Expenses Less Vacancy ($24,750)
Rental Rate(per SF per month, NNN) $2.75 Net Operating Income(NOI) $470,250
Vacancy rate 5%
Project Value to Investor $7,234,615
Construction Financing Less Development Costs ($6,951,186)
Loan to cost ratio 60% Residual Land Value $283,429
Interest rate 7% Residual Land Value/Acre $283,429
Loan fees (points) 1%
Loan period(months) 18
Draw down factor 65%
Capitalization Rate 5.00%
Developer Profit Spread 1.50%
Required Yield on Cost 6.50%
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix B:Non-Residential Pro Formas 71
Table B-5: Financial Pro Forma— Hotel Prototype
Development Program Assumptions Development Cost Analysis
Site Hard Costs
Site area(acres) 2.5 Site work $2,178,000
Site area(sq.ft.) 108,900 Hard construction costs $26,000,000
FF&E $3,250,000
Structure Parking-surface $1,300,000
Building Size-Gross SF 71,500 Parking-structured $0
Number of Hotel Rooms 130 Parking-underground $0
Total Hard Costs $32,728,000
Parking (spaces) 200 Hard Costs per Room $251,754
Surface 200
Structured 0 Soft Costs
Underground 0 Soft costs $6,545,600
Impact fees $132,301
Development Cost & Income Assumptions Commercial Linkage Fee $0
Developer Fee $1,309,120
Hard Costs Total Soft Costs $7,987,021
Site Work,per site SF $20
Construction hard costs, per room $200,000 Construction Financing Costs
FF&E,per room $25,000 Construction Period Interest $1,548,189
Parking-surface,per space $6,500 Loan Fees $244,290
Parking-structured,per space $50,000 Total Financing Costs $1,792,479
Parking-underground,per space $90,000
Total Development Costs
Soft Costs excl. Land Value $42,507,499
Soft Costs as a%of Hard Costs 20% Cost per room $326,981
Developer Fee as%of Hard Costs 4% Cost per built sq.ft. $595
Developer Profit as%of Total Project Costs 0%
Feasibilit Analysis
Impact Fees &Extractions
Misc.Impact Fees,not including CLF(per SF) $1.85 Projected Income
Gross Revenue $9,376,120
Operating Revenues&Expenses Less Expenses ($6,094,478)
Room Revenue(per occupied room night) $215 Net Operating Income(NOI) $3,281,642
Other Revenue(per occupied room night) $32
Expenses(as a%of operating revenue) 65% Project Value to Investor $36,462,689
Occupancy Rate 80% Less Development Costs ($42,507,499)
Residual Land Value ($6,044,810)
Construction Financing Residual Land Value/Acre ($2,417,924)
Loan to cost ratio 60%
Interest rate 7%
Loan fees (points) 1%
Loan period(months) 18
Draw down factor 65%
Capitalization Rate 8.00%
Developer Profit Spread 1.00%
Required Yield on Cost 9.00%
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix B:Non-Residential Pro Formas 72
APPENDIX C: RESIDENTIAL PRO FORMAS
This appendix provides the detailed pro formas for residential developments that were used
for the inclusionary feasibility and inclusionary in-lieu analysis provided in this report. This
appendix also includes a description of the key assumptions used in the residential pro
formas.
Key Assumptions
BAE developed the various modeling inputs and assumptions needed for the financial
feasibility analysis based on interviews with residential developers who are active in the local
area, data from industry publications and databases, experience with recent development
projects in the local area,and other research. Developers vary somewhat in the categorization
of various project costs, and therefore may show different cost figures for individual cost items
even for projects with similar overall development costs. Any variation in the specific cost
items described below would not affect the findings of this analysis provided that the total
development costs for the prototype projects are consistent with total development costs for
similar projects.
Hard Costs: Hard costs are the costs associated with the physical construction of a
building, including all construction materials and labor. This analysis uses a hard cost
assumption of$375 per leasable square foot of residential space for the lower-density
multifamily rental prototype, $425 per leasable square foot of residential space for the
high-density multifamily rental prototype, $475 per leasable square foot of residential
space for the condominium prototype, $275 per square foot of residential space for the
townhome prototype,and $250 per square foot of residential space for the single-family
prototype.
Parking Costs: BAE included parking as a separate cost item in order to estimate the
specific cost of building parking in these projects. Based on stakeholder interviews, BAE
estimates the cost of a podium parking space at$55,000 per space. For prototypes
including surface parking, BAE assumes a cost of$5,000 per surface parking space.
Soft Costs: This analysis assumes that soft costs are equal to between 12.5 and 17
percent of hard costs. This soft cost estimate includes engineering, architecture,
financing,and CEQA costs, as well as City cost-recovery fees for planning, permitting, and
entitlements, but does not include impact fees. Impact fees are included as a separate
line item, discussed below.
Impact Fees: BAE calculated impact fees for each prototype based on the City's impact
fee schedule, including park in-lieu fees,storm drain area fees,and roadway maintenance
fees.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas
Market-Rate Residential Rents: This analysis assumes that rental rates for market-rate
units for the lower-density apartments will average approximately$4.30 per net residential
square foot, with some variation in rent per square foot based on unit size. Assuming
slightly higher rents for the high-density prototype, BAE estimates rents are equal to $4.55
per square foot, with some variation between units. These assumption is based on
information provided by developers that were interviewed as part of this study as well as
data from Costar on current multifamily rental rates in the Campbell area.
Affordable Residential Rents: The affordable rental rates used in this analysis are based
on income limits for households at each income level, as published by HCD, assuming an
affordable rent equal to 30 of the total household income. The HCD rent limits were
adjusted based on an estimated utility allowance to ensure that the combined cost of rent
and utilities was no higher than the rent limit.
Market-Rate Residential Sale Prices: This analysis assumes that sale prices for market-
rate units will average approximately$900 per net residential square foot for
condominiums, $950 per residential square foot for townhomes, and $1,000 per square
foot for single-family homes. This assumption is based on information provided by
developers that were interviewed as part of this study as well as data from Redfin on sale
prices among recently-sold condominiums and townhouses in Campbell.
Affordable Residential Sale Prices: The affordable sale prices used in this analysis are
based on the published City of Campbell below-market rate sale prices.
Residential Rental Operating Expenses: This analysis uses an estimate of$15,000 per
unit per year for all residential rental units.
Developer Fee: To cover staff overhead and other internal project costs, developers
include a one-time developer fee, which is estimated as a percentage of both hard and
soft costs. Based on interviews,the fee typically amounts to roughly four percent of hard
and soft costs.
Yield on Cost(rental prototypes): In order to meet developer and investor return
thresholds, BAE assumes the project must reach a 5.5 percent Yield on Cost(YOC). This is
roughly 75 basis points above the current capitalization rate. While this is a relatively
small spread between the capitalization rate and the YOC, developers noted a willingness
to proceed with projects yielding a 5.5 percent YOC due to the perceived strength of the
Santa Clara County rental market.
Developer Profit Margin (for sale prototypes): This metric divides total developer profit by
total development cost, to judge overall project feasibility. It can be considered as a
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 7-1
simple profit margin, irrespective of how a project is financed between debt and equity.
Real estate development has higher risk inherent to many other types of investment
activity, such as corporate bonds, so developers tend to seek higher profit threshold on
real estate projects than these other investment options as a requirement for deciding
whether to pursue a project. This study assumes an 18 percent profit threshold for the for-
sale prototypes.
Residual Land Value Threshold: This analysis uses a land cost of approximately$3 million
to $10 million per acre to assess the financial feasibility of each of the prototypes. The
land costs vary by prototype in the City,with the single-family prototypes paying the highest
in land costs due to the high sale prices of new single-family units. The land costs for the
other prototypes tend to fall within the lower end of the range identified. This is generally
consistent with input from the development community, however developers did note that
site conditions and location greatly influence the site costs.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 75
Table C-1: Low-Density Multifamily Rental Prototype Pro Forma, Inclusionary Scenario
Development Pro rain Assam)tions Development Cost Anal sis
Site Size-acres/square feet 2.00 Construction Mixed-Income Development
Total Units 59 Site Prep Costs(per site.sq.ft) $20 Affordable Market Rate Total Project
Affordable(%-count) 15% Hard Cost per net residential sf $375
Market Rate(%-count) 85% Parking cost per space,Surface $5,000 Site Preparation $244,640 $1,497,760 $1,742,400
Leasable sq.ft. 49,500 Soft Costs(%of hard costs) 15%
Total Project sq.ft 59,400 Impact Fees(per unit)(a) $22,821 Vertical Construction
Total Parking Spaces 89 Inclusionary Housing In-Lieu Fee(per SF) $21.50 Hard Cost $2,606,250 $15,956,250 $18,562,500
Parking spaces per du 1.5 Developer Fee(%of hard and soft) 4% Parking Cost $70,000 $375,000 $445,000
Soft Costs $401,438 $2,449,688 $2,851,125
Base Density Units Impact Fees $205,388 $1,141,045 $1,346,433
Units byAMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $0 $0 $0
Unit Mix Sa.Ft. bU% bU% 60% MR Units Monthly Rent by AMI Level Subtotal $3,283,076 $19,921,983 $23,205,058
Studio 600 1 1 0 4 6 Unit Type 50% 60% 80% MR
1-BR 750 2 3 0 27 32 Studio $1,419 $1,714 $2,304 $2,940 Construction Financing
2-BR 1,000 1 1 0 16 18 1-BR $1,514 $1,830 $2,462 $3,300 Const.Loan Fees $22,930 $139,228 $162,158
3-BR 1 300 0 0 0 3 3 2-BR $1,806 $2,185 $2,944 $4,000 Const.Loan Interest $223,569 $1,357,476 $1,581,045
All Units 4 5 0 50 59 3-BR $2,079 $2,517 $3,394 $4,940
Developer Fee $141,109 $856,790 $997,898
Summary Affordable Market-Rate Total Operating Costs
Number of Units(#-%) 9 15% 50 85% 59 Annual op.cost-per Affordable du $15,000 Total Dev.Cost(excl.Land) $3,915,323 $23,773,237 $27,688,560
Avg.Affordability(%AMI) 56% n.a. Annual op.cost-per Market Rate du $15,000 Per Unit $435,036 $475,465 $469,298
Leasable Sq.Ft. 6,950 42,550 49,500 Vacancy Rate,Residential 5.0% Per Net SF $563 $559 $559
Total Sq.Ft. 8,340 51,060 59,400 Market Rate Cap Rate 4.75% Per Gross SF $469 $466 $466
Parking Spaces 14 75 89 Required Yield-on-Cost 5.50%
Fees1t1l.1y Analysis
Financing
Construction-Period Mixed-Income Development
MR Loan-to-Cost 65% Affordable Market Rate Total Project
Loan Fees 1% Proiect Income
Drawdown Factor 65% Gross Scheduled Rents $187,704 $2,156,160 $2,343,864
Interest rate 7.50% Less Vacancy ($9,385) ($107,808) ($117,193)
Loan Term(months) 24 Less Operating Expenses ($135,000) ($750.000) ($885.000)
Net Operating Income $43,319 $1,298,352 $1,341,671
Feasibility
Total Development Costs(ex.Land) $3,915,323 $23,773,237 $27,688,560
Per Unit(ex.Land) $435,036 $475,465 $469,298
Required Yield on Cost 5.50% 5.50% 5.50%
Project Value Net of Dev.Profit $787,615 $23,606,400 $24,394,015
Residual Land Value ($3,127,709) ($166,837) (53,294,546)
RLV per unit ($347,523) ($3,337) ($55,840)
RLVperAcre ($1,563,854) ($83,418) ($1,647,273)
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formes 76
Table C-2: High-Density Mixed-Use Rental Prototype Pro Forma, Inclusionary Scenario
Deveto uncut Prot ram Assam than'. laa Development Cost Anal sis
Site Size-acres/square feet 2.00 Construction Mixed-Income Development
Total Units 132 Site Prep Costs(per site.sq.ft) $20 Affordable Market Rate Total Project
Affordable(%-count) 15% Hard Cost per net sf $425
Market Rate(%-count) 85% Parking cost per space,Podium $55,000 Site Preparation $245,309 $1,497,091 $1,742,400
Leasable sq.ft. 110,900 Soft Costs(%of hard costs) 15%
Total Project sq.ft 138,080 Impact Fees(per unit)(a) $23,114 Vertical Construction
Total Parking Spaces 132 Inclusionary Housing In-Lieu Fee(per SF) $21.50 Hard Cost $6,885,000 $42,372,500 $49,257,500
Parking spaces per du 1.0 Developer Fee(%of hard and soft) 4% Parking Cost $1,100,000 $6,160,000 $7,260,000
Soft Costs $1,197,750 $7,279,875 $8,477,625
Base Density Units Impact Fees $462,280 $2,588,770 $3,051,050
Units by AMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $0 $0 $0
Unit Mix Sq.Ft. 50 r WY., 80% MR Units Monthly Rent by AMI Level Subtotal $9,645,030 $58,401,145 $68,046,175
Studio 600 1 1 0 11 13 Unit Type 50% 60% 80% MR
1-BR 750 5 7 0 60 72 Studio $1,419 $1,714 $2,304 $3,090 Construction Financing
2-BR 1,000 2 4 0 34 40 1-BR $1,514 $1,830 $2,462 $3,488 Const.Loan Fees $64,287 $389,339 $453,626
3-BR 1 300 0 0 0 7 7 2-BR $1,806 $2,185 $2,944 $4,250 Const.Loan Interest $626,800 $3,796,051 $4,422,851
All Units 8 12 0 112 132 3-BR $2,079 $2,517 $3,394 $5,200
Developer Fee $395,614 $2,395,929 $2,791,543
Summary Affordable Market-Rate Total Commercial Rent(NNN) $2.50
Number of Units(#-%) 20 15% 112 85% 132 Total Dev.Cost(excl.Land) $10,977,040 $66,479,555 $77,456,595
Avg.Affordability(%AMI) 56% n.a. Operating Costs Per Unit $548,852 $593,567 $586,792
Leasable Sq.Ft. 16,200 94,700 110,900 Annual op.cost-per Affordable du $15,000 Per Net SF $678 $702 $698
Total Sq.Ft. 19,440 113,640 133,080 Annual op.cost-per Market Rate du $15,000 Per Gross SF $565 $585 $561
Parking Spaces 20 112 132 Vacancy Rate,Residential 5.0%
Market Rate Cap Rate 4.75% Foas:nihty Analysis
Ground Floor Commercial Space 5,000 Required Yield-on-Cost 5.50%
Mixed-Income Development
Financing Affordable Market Rate Total Project
Construction-Period Protect Income
MR Loan-to-Cost 65% Gross Scheduled Rents $430,380 $5,239,680 $5,670,060
Loan Fees 1% Less Vacancy ($21,519) ($261,984) ($283,503)
Drawdown Factor 65% Less Operating Expenses ($300,000) j$1,680,000). ($1,980,000)
Interest rate 7.50% Net Operating Income $108,861 $3,297,696 $3,406,557
Loan Term(months) 24
Feasibility
Total Development Costs(ex.Land) $10,977,040 $66,479,555 $77,456,595
Per Unit(ex.Land) $548,852 $593,567 $586,792
Required Yield on Cost 5.50% 5.50% 5.50%
Project Value Net of Dev.Profit $1,979,291 $59,958,109 $61,937,400
Residual Land Value ($8,997,749) ($6,521,445) ($15,519,195)
RLV per unit ($449,887) ($58,227) ($117,570)
RLV per Acre ($4.498,875) ($3,260,723) (57,759,597)
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 77
Table C-3: For-Sale Condominium Prototype Pro Forma, Inclusionary Scenario
Dovelo vnent Proc rain Assumptions EIRCE=121111111111111 Development Cost Analysis
Site Size-acres I square feet 1.00 Construction Mixed-Income Development
Total Units 53 Site Prep Costs(per site.sq.ft) $20 Affordable Market Rate Total Project
Affordable(%-count) 15% Hard Cost per net residential sf $475
Market Rate(%-count) 85% Parking cost per space,Podium $55,000 Site Preparation $131,502 $739,698 $871,200
Leasable sq.ft. 63,600 Soft Costs(%of hard costs) 17.5%
Total Project sq.ft 76,320 Impact Fees(per unit)(a) $23,908 Vertical Construction
Total Parking Spaces 53 Inclusionary Housing In-Lieu Fee(per SF) $34.50 Hard Cost $4,560,000 $25,650,000 $30,210,000
Parking spaces per du 1.00 Developer Fee(%of hard and soft) 4% Parking Cost $440,000 $2,475,000 $2,915,000
Soft Costs $875,000 $4,921,875 $5,796,875
Base Density Units Sale Revenu t Impact Fees $191,261 $1,075,842 $1,267,103
AMI-Level All Sale Price by AMI Level Inclusionary In-Lieu Fee $0 $0 $0
Unit Mix Sn,Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR Subtotal $6,066,261 $34,122,717 $40,188,978
2-BR 1,200 0 4 4 45 53 2-BR $188,601 $297,056 $512,384 $1,080,000
Construction Financing
Marketing Costs 5.00% Const.Loan Fees $40,285 $226,606 $266,891
Summary Affordable Market-Rate Total Const.Loan Interest $392,783 $2,209,406 $2,602,189
Number of Units(#-%) 8 15% 45 85% 53 Financing
Avg.Affordability(%AMI) 90% n.a. Construction-Period Developer Fee $247,911 $1,394,497 $1,642,407
Leasable Sq.Ft. 9,600 54,000 63,600 MR Loan-to-Cost 65%
Total Sq.Ft 11,520 64,800 76,320 Loan Fees 1% Total Development Cost $6,878,742 $38,692,923 $45,571,665
Parking Spaces 8 45 53 Drawdown Factor 65% Per Unit $859,843 $859,843 $859,843
Interest rate 7.50% Per Net SF $717 $717 $717
Loan Term(months) 24 Per Gross SF $597 $597 $597
F,-r.ibaht Anal s,,
Mixed-Income Development
Affordable Market Rate Total Project
Protect Income
Gross Sale Revenue $3,237,760 $48,600,000 $51,837,760
Less Marketing Costs ($161,8881 ($2,430.000) ($2,591,888)
Net Sales Revenue $3,075,872 $46,170,000 $49,245,872
Total Development Costs(ex.Land) $6,878,742 $38,692,923 $45,571,665
Per Unit(ex.Land) $859,843 $859,843 $859,843
Developer Profit Margin(%of Total Cost) 18% 18% 18%
Developer Profit Threshold $1,401,192 $7,881,707 $9,282,900
Residual Land Value ($5,204,062) ($404,630) ($5,608,693)
RLV per unit ($650,508) ($8,992) ($105,824)
RLV per Acre ($5,204,062) ($404,630) ($5,608,693)
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 78
Table C-4: For-Sale Townhome Prototype Pro Forma, Inclusionary Scenario
Development Program Assumptions EMIEEIEEMIIIIIIIIIIIIIIIIMIIIIIII Development Cost Analysts
Site Size(acres) 1.00 Construction Mixed-Income Development
Total Units 22 Site Prep Costs(per site.sq.ft) $25 Affordable Market Rate Total Project
Affordable(%-count) 18% Hard Cost per gross residential sf $275
Market Rate(%-count) 82% Soft Costs(%of hard costs) 13% Site Preparation $198,000 $891,000 $1,089,000
Leasable sq.ft. 39,600 Impact Fees(per unit)(a) $32,401
Total Project sq.ft 39,600 Inclusionary Housing In-Lieu Fee(per SF) $34.50 Vertical Construction
Total Parking Spaces 44 Developer Fee(%of hard and soft) 4% Hard Cost $1,980,000 $8,910,000 $10,890,000
Parking spaces per du 2.00 Soft Costs $247,500 $1,113,750 $1,361,250
Impact Fees $129,603 $583,215 $712,819
Base Density Units Sale Revenu8 Inclusionary Housing In-Lieu Fee $0 $0 $0
AMI-Level All Sale Price by AMI Level Subtotal $2,357,103 $10,606,965 $12,964,069
Unit Mix Sq.Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR
3-BR 1,800 0 2 2 18 22 3-BR $212,778 $330,841 $573,294 $1,710,000
Construction Financing
Marketing Costs 5.00% Const.Loan Fees $16,608 $74,737 $91.345
Summary Affordable Market-Rate Total Const.Loan Interest $161,930 $728,684 $890,613
Number of Units(#-%) 4 18% 18 82% 22 Financing
Avg.Affordability(%AMI) 90% n.a. Construction-Period Developer Fee $102,204 $459,919 $562,123
Leasable Sq.Ft 7,200 32,400 39,600 MR Loan-to-Cost 65.
Total Sq.Ft 7,200 32,400 39,600 Loan Fees 1% Total Development Cost $2,835,845 $12,761,304 $15,597,150
Parking Spaces 8 36 44 Drawdown Factor 65% Per Unit $708,961 $708,961 $708,961
Interest rate 7.50% Per Net SF $394 $394 $394
Loan Term(months) 24 Per Gross SF $394 $394 $394
i-c.,'.u:,[It• Arl,,p
Mixed-Income Development
Affordable Market Rate Total Project
Project Income
Gross Sale Revenue $1,808,270 $30,780,000 $32,588,270
Less Marketing Costs ($90.414) j$1,539,000) j$1,629,414)
Net Sales Revenue $1,717,857 $29,241,000 $30,958,857
Total Development Costs(ex.Land) $2,835,845 $12,761,304 $15,597,150
Per Unit(ex.Land) $708,961 $708,961 $708,961
Developer Profit Margin(%of Total Cost) 18% 18% 18%
Developer Profit Threshold $682,270 $3,070,217 $3,752,487
Residual Land Value ($1,800,259) $13,409,479 $11,609,220
RLV per unit ($450,065) $744,971 $527,692
RLV per Acre ($1,80 ,259) $13,409,479 $11,609,220
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formes 79
Table C-5: For-Sale Single-Family Subdivision Prototype Pro Forma, Inclusionary Scenario
Development Program Assumptions Cost Assumptions Develo.ment Cost Anal sis
Site Size(acres) 0.50 Construction Project Total
Total Units 6 Site Prep Costs(per site.sq.ft) $25
Affordable(%-count) 0% Hard Cost per gross residential sf $250 Site Preparation $544,500
Market Rate(%-count) 100% Soft Costs(%of hard costs) 13%
Leasable sq.ft. 15,600 Impact Fees(per unit)(a) $33,191 Vertical Construction
Total Project sq.ft 15,600 Inclusionary Housing In-Lieu Fee(per SF) $0.00 Hard Cost $3,900,000
Total Parking Spaces 12 Developer Fee(%of hard and soft) 4% Soft Costs $487,500
Parking spaces perdu 2.00 Impact Fees $199,147
Inclusionary Housing In-Lieu Fee $0
Base Density Units Sale Revenue Subtotal $4,586,647
AMI-Level All Sale Price by AMI Level
Unit Mix So.Ft. 50% 70% 110% MR Units Unit Type ON 70% 110% MR Const.Loan Fees $33,352
3-BR 2,600 0 0 0 6 6 3-BR $212,778 $330,841 $573,294 $2,600,000 Developer Fee $205,246
Total Development Cost $5,694,932
Marketing Costs 5.00% Per Unit $949,155
Summary Affordable Market-Rate Total Per Net SF $365
Number of Units(#-%) 0 0% 6 100% 6 Financing Per Gross SF $365
Avg.Affordability(%AMI) n.a. n.a. Construction-Period
Leasable Sq.Ft. 0 15,600 15,600 MR Loan-to-Cost 65% Feasibilit Anal sis
Total Sq.Ft. 0 15,600 15,600 Loan Fees 1%
Parking Spaces 0 12 12 Drawdown Factor 65% Project Total
Interest rate 7.50% Project Income
Loan Term(months) 24 Gross Sale Revenue $15,600,000
Less Marketing Costs j$780,000)
Net Sales Revenue $14,820,000
Total Development Costs(ex.Land) $5,694,932
Per Unit(ex.Land) $949,155
Developer Profit Margin(%of Total Cost) 18%
Developer Profit Threshold $1,745,088
Residual Land Value $7,379,980
RLV per unit $1,229,997
RLV per Acre $14,759,960
Sources: BAE,2023.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 80
Table C-6: For-Sale Single-Family Subdivision Prototype Pro Forma, Seven-Unit Inclusionary Scenario
Develo ument Pro(ram Assam clinics Develo meat Cost Anal sly
Site Size(acres) 0.58 Construction Affordable Market Rate Project Total
Total Units 7 Site Prep Costs(per site.sq.ft) $25
Affordable(%-count) 14% Hard Cost per gross residential sf $250 Site Preparation $90,750 $544,500 $635,250
Market Rate(%-count) 86% Soft Costs(%of hard costs) 13%
Leasable sq.ft. 18,200 Impact Fees(per unit)(a) $33,191 Vertical Construction
Total Project sq.ft 18,200 Inclusionary Housing In-Lieu Fee(per SF) $0.00 Hard Cost $650,000 $3,900,000 $4,550,000
Total Parking Spaces 14 Developer Fee(%of hard and soft) 4% Soft Costs $81,250 $487,500 $568,750
Parking spaces per du 2.00 Impact Fees $33,191 $199,147 $232,339
Inclusionary Housing In-Lieu Fee $0 $0 $0
Base Density Units Sale Revenue Subtotal $764,441 $4,586,647 $5,351,089
AMI-Level All Sale Price by AMI Level
Unit Mix So.Ft. 50% 70% 110% MR Units Unit Type 1 70% 110% MR Const.Loan Fees $5,559 $33,352 $38,911
3-BR 2,600 0 1.0 0.0 6 7 3-BR $212,778 $330,841 $573,294 $2,600,000 Developer Fee $34,208 $205,246 $239,454
Total Development Cost $949,155 $5,694,932 $6,644,088
Marketing Costs 5.00% Per Unit $949,155 $949,155 $949,155
Summary Affordable Market-Rate Total Per Net SF $365 $365 $365
Number of Units(#-%) 1 14% 6 86% 7 Financing Per Gross SF $365 $365 $365
Avg.Affordability(%AMI) 70% n.a. Construction-Period
Leasable Sq.Ft 2,600 15,600 18,200 MR Loan-to-Cost 65% I c.rs1b 1ity Analysis
Total Sq.Ft 2,600 15,600 18,200 Loan Fees 1
Parking Spaces 2 12 14 Drawdown Factor 65% Affordable Market Rate Project Total
Interest rate 7.50% Protect Income
Loan Term(months) 24 Gross Sale Revenue $330,841 $15,600,000 $15,930,841
Less Marketing Costs J$16.542) J$780,0001 J$796,5421
Net Sales Revenue $314,299 $14,820,000 $15,134,299
Total Development Costs(ex.Land) $949,155 $5,694,932 $6,644,088
Per Unit(ex.Land) $949,155 $949,155 $949,155
Developer Profit Margin(%of Total Cost) 18% 18% 18%
Developer Profit Threshold $290,848 $1,745,088 $2,035,936
Residual Land Value ($925,704) $7,379,980 $6,454,276
RLV per unit ($925,704) $1,229,997 $922,039
RLV per Acre ($11,108,453) $14,759,960 $11,064,472
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study 1 Appendix C:Residential Pro Formas 81
Table C-7: Low-Density Multifamily Rental Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario
Development Program Assum.tions Cost Assumptions Development Cost Analysis
Site Size-acres I square feet 2.0 2.00 Construction
Total Units 59 Site Prep Costs(per site.sq.ft) $20 Total Project
Affordable(%-count) 0% Hard Cost per net residential sf $375
Market Rate(%-count) 100% Parking cost per space,Surface $5,000 Site Preparation $1,742,400
Leasable sq.ft. 49,500 Soft Costs(%of hard costs) 15%
Total Project sq.ft 59,400 Impact Fees(per unit)(a) $22,821 Vertical Construction
Total Parking Spaces 89 Inclusionary Housing In-Lieu Fee(per SF) $55.50 Hard Cost $18,562,500
Parking spaces per du 1.5 Developer Fee(%of hard and soft) 4% Parking Cost $445,000
Soft Costs $2,851,125
Base Density Units Impact Fees $1,346,433
Units by AMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $2,747,250
Unit Mix Sq.Ft. 50% 60% 80% 100% MR Units Monthly Rent by AMI Level Subtotal $25,952,308
Studio 600 6 6 Unit Type 50% 60% 80% MR
1-BR 750 32 32 Studio $1,419 $1,714 $2,304 $2,940 Construction Financing
2-BR 1,000 18 18 1-BR $1,514 $1,830 $2,462 $3,300 Const.Loan Fees $180,016
3-BR 1 300 3 3 2-BR $1,806 $2,185 $2,944 $4,000 Const.Loan Interest $1,755,152
All Units 0 0 0 59 59 3-BR $2,079 $2,517 $3,394 $4,940
Developer Fee $1,107,788
Summary Affordable Market-Rate Total Operating Costs
Number of Units(#-%) 0 0% 59 100% 59 Annual op.cost-per Affordable du $15,000 Total Dev.Cost(excl.Land) $30,737,664
Avg.Affordability(%AMI) n.a. n.a. Annual op.cost-per Market Rate du $15,000 Per Unit $520,977
Leasable Sq.Ft. 0 49,500 49,500 Vacancy Rate,Residential 5.0% Per Net SF $621
Total Sq.Ft. 0 59,400 59,400 Market Rate Cap Rate 4.75% Per Gross SF $517
Parking Spaces 0 89 89 Required Yield-on-Cost 5.50%
Feasibilit Anal sis
Financing
Construction-Period
MR Loan-to-Cost 65% Total Project
Loan Fees 1% Project Income
Drawdown Factor 65% Gross Scheduled Rents $2,520,720
Interest rate 7.50% Less Vacancy ($126,036)
Loan Term(months) 24 Less Operating Expenses ($885,000)
Net Operating Income $1,509,684
Feasibility
Total Development Costs(ex.Land) $30,737,664
Per Unit(ex.Land) $520,977
Required Yield on Cost 5.50%
Project Value Net of Dev.Profit $27,448,800
Residual Land Value ($3,288,864)
RLV per unit ($55,743)
RLV per Acre ($1,644,432)
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 82
Table C-8: High-Density Mixed-Use Rental Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario
Develo,meat Pro ram Assum lions Cost Assum.tions Development Cost Anal sis
Site Size-acres/square feet 2.0 2.00 Construction
Total Units 132 Site Prep Costs(per site.sq.ft) $20 Total Project
Affordable(%-count) 0% Hard Cost per net sf $425
Market Rate(%-count) 100% Parking cost per space,Podium $55,000 Site Preparation $1,742,400
Leasable sq.ft. 110,900 Soft Costs(%of hard costs) 15%
Total Project sq.ft 133,080 Impact Fees(per unit)(a) $23,114 Vertical Construction
Total Parking Spaces 132 Inclusionary Housing In-Lieu Fee(per SF) $63.51 Hard Cost $49,257,500
Parking spaces per du 1.0 Developer Fee(%of hard and soft) 4% Parking Cost $7,260,000
Soft Costs $8,477,625
Base Density Units Impact Fees $3,051,050
Units by AMI Level All Rental Revenue Inclusionary Housing In-Lieu Fee $7,042,150
Unit Mix So.Ft. 50% 60% 80% 100% MR Units Monthly Rent by AMI Level Subtotal $75,088,325
Studio 600 13 13 Unit Type 5 MR
1-BR 750 72 72 Studio $1,419 $1,714 $2,304 $3,090 Construction Financing
2-BR 1,000 40 40 1-BR $1,514 $1,830 $2,462 $3,488 Const.Loan Fees $499,400
3-BR 1 300 7 7 2-BR $1,806 $2,185 $2,944 $4,250 Const.Loan Interest $4,869,147
All Units 0 0 0 132 132 3-BR $2,079 $2,517 $3,394 $5,200
Developer Fee $3,073,229
Summary Affordable Market-Rate Total Commercial Rent(NNN) $2.50
Number of Units(#-%) 0 0% 132 100% 132 Total Dev.Cost(excl.Land) $85,272,501
Avg.Affordability(%AM!) n.a. n.a. Operating Costs Per Unit $646,004
Leasable Sq.Ft. 0 110,900 110,900 Annual op.cost-per Affordable du $15,000 Per Net SF $769
Total Sq.Ft. 0 133,080 133,080 Annual op.cost-per Market Rate du $15,000 Per Gross SF $641
Parking Spaces 0 132 132 Vacancy Rate,Residential 5.0%
Market Rate Cap Rate 4.75% Feasibility Analysis
Ground Floor Commercial Space 5,000 Required Yield-on-Cost 5.50%
Financing Total Project
Construction-Period Prolect Income
MR Loan-to-Cost 65% Gross Scheduled Rents $6,122,040
Loan Fees 1% Less Vacancy ($306,102)
Drawdown Factor 65% Less Operating Expenses ($1.980.000)
1008.182 Interest rate 7.50% Net Operating Income $3,835,938
Loan Term(months) 24
Feasibility
Total Development Costs(ex.Land) $85,272,501
Per Unit(ex.Land) $646,004
Required Yield on Cost 5.50%
Project Value Net of Dev.Profit $69,744,327
Residual Land Value ($15,528,174)
RLV per unit ($117,638)
RLV per Acre ($7,764,087)
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 83
Table C-9: For-Sale Condominium Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario
Development Program Assumptions Cost Assumptions Develo.ment Cost Anal sis
Site Size-acres/square feet ID) Construction
Total Units 53 Site Prep Costs(per site.sq.ft) $20 Total Project
Affordable(%-count) 0% Hard Cost per net residential sf $475
Market Rate(%-count) 100% Parking cost per space,Podium $55,000 Site Preparation $871,200
Leasable sq.ft. 63,600 Soft Costs(%of hard costs) 17.5%
Total Project sq.ft 76,320 Impact Fees(per unit)(a) $23,908 Vertical Construction
Total Parking Spaces 53 Inclusionary Housing In-Lieu Fee(per SF) $61.50 Hard Cost $30,210,000
Parking spaces per du 1.00 Developer Fee(%of hard and soft) 4% Parking Cost $2,915,000
Soft Costs $5,796,875
Base Density Units Sale Revenu= Impact Fees $1,267,103
AMI-Level All Sale Price by AMI Level Inclusionary In-Lieu Fee $3,911,400
Unit Mix Sa.Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR Subtotal $44,100,378
2-BR 1,200 53 53 2-BR $188,601 $297,056 $512,384 $1,080,000
Construction Financing
Marketing Costs 5.00% Const.Loan Fees $292,315
Summary Affordable Market-Rate Total Const.Loan Interest $2,850,074
Number of Units(#-%) 0 0% 53 100% 53 Financing
Avg.Affordability(%AMI) n.a. n.a. Construction-Period Developer Fee $1,798,863
Leasable Sq.Ft. 0 63,600 63,600 MR Loan-to-Cost 65%
Total Sq.Ft. 0 76,320 76,320 Loan Fees 1% Total Development Cost $49,912,830
Parking Spaces 0 53 53 Drawdown Factor 65% Per Unit $941,752
Interest rate 7.50% Per Net SF $785
Loan Term(months) 24 Per Gross SF $654
Feasibilit Anal sis
Total Project
Proiect Income
Gross Sale Revenue $57,240,000
Less Marketing Costs ($2,862,000)
Net Sales Revenue $54,378,000
Total Development Costs(ex.Land) $49,912,830
Per Unit(ex.Land) $941,752
Developer Profit Margin(%of Total Cost) 18%
Developer Profit Threshold $10,064,309
Residual Land Value ($5,599,139)
RLV per unit ($105,644)
RLV per Acre ($5,599,139)
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 84
Table C-10: For-Sale Townhome Prototype Pro Forma, Point of Indifference In-Lieu Fee Scenario
Development Program Assumptions Cost Assumptions Develo meet Cost Anal sis
Site Size(acres) 1.00 Construction
Total Units 22 Site Prep Costs(per site.sq.ft) $25 Total Project
Affordable(%-count) 0% Hard Cost per gross residential sf $275
Market Rate(%-count) 100% Soft Costs(%of hard costs) 13% Site Preparation $1,089,000
Leasable sq.ft. 39,600 Impact Fees(per unit)(a) $32,401
Total Project sq.ft 39,600 Inclusionary Housing In-Lieu Fee(per SF) $92.00 Vertical Construction
Total Parking Spaces 44 Developer Fee(%of hard and soft) 4% Hard Cost $10,890,000
Parking spaces per du 2.00 Soft Costs $1,361,250
Impact Fees $712,819
Base Density Units Sale Revenue Inclusionary Housing In-Lieu Fee $3,643,200
AMI-Level All Sale Price by AMI Level Subtotal $16,607,269
Unit Mix Sq.Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR
3-BR 1,800 22 22 3-BR $212,778 $330,841 $573,294 $1,710,000
Construction Financing
Marketing Costs 5.00% Const.Loan Fees $115,026
Summary Affordable Market-Rate Total Const.Loan Interest $1,121,501
Number of Units(#-%) 0 0% 22 100% 22 Financing
Avg.Affordability(%AMI) n.a. n.a. Construction-Period Developer Fee $707,851
Leasable Sq.Ft. 0 39,600 39,600 MR Loan-to-Cost 65%
Total Sq.Ft. 0 39,600 39,600 Loan Fees 1% Total Development Cost $19,640,646
Parking Spaces 0 44 44 Drawdown Factor 65% Per Unit $892,757
Interest rate 7.50% Per Net SF $496
Loan Term(months) 24 Per Gross SF $496
Feasihilit Anal sis
Total Project
Project Income
Gross Sale Revenue $37,620,000
Less Marketing Costs ($1,881,000)
Net Sales Revenue $35,739,000
Total Development Costs(ex.Land) $19,640,646
Per Unit(ex.Land) $892,757
Developer Profit Margin(%of Total Cost) 18%
Developer Profit Threshold $4,480,316
Residual Land Value $11,618,037
RLV per unit $528,093
RLV per Acre $11,618,037
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 85
Table C-11: For-Sale Single-Family Subdivision Prototype Pro Forma, Seven-Unit Point of Indifference In-Lieu Fee
Scenario
Development Program Assumptions Cost Assumptions Develo•ment Cost Anal sis
Site Size(acres) 0.50 Construction
Total Units 6 Site Prep Costs(per site.sq.ft) $25 Total Project
Affordable(%-count) 0% Hard Cost per gross residential sf $250
Market Rate(%-count) 100% Soft Costs(%of hard costs) 13% Site Preparation $544,500
Leasable sq.ft. 15,600 Impact Fees(per unit)(a) $33,191
Total Project sq.ft 15,600 Inclusionary Housing In-Lieu Fee(per SF) $98.50 Vertical Construction
Total Parking Spaces 12 Developer Fee(%of hard and soft) 4% Hard Cost $3,900,000
Parking spaces per du 2.00 Soft Costs $487,500
Impact Fees $199,147
Base Density Units Sale Revenue Inclusionary Housing In-Lieu Fee $1,536,600
AMI-Level All Sale Price by AMI Level Subtotal $6,123,247
Unit Mix Sa.Ft• 50% 70% 110% MR Units Unit Type 50% 70% 110% MR
3-BR 2,600 0 0 0 6 6 3-BR $212,778 $330,841 $573,294 $2,600,000
Construction Financing
Marketing Costs 5.00% Const.Loan Fees $43,340
Summary Affordable Market-Rate Total Const.Loan Interest $422,568
Number of Units(#-%) 0 0% 6 100% 6 Financinq
Avg.Affordability(%AMI n.a. n.a. Construction-Period Developer Fee $266,710
Leasable Sq.Ft. 0 15,600 15,600 MR Loan-to-Cost 65%
Total Sq.Ft. 0 15,600 15,600 Loan Fees 1% Total Development Cost $7,400,366
Parking Spaces 0 12 12 Drawdown Factor 65% Per Unit $1,233,394
Interest rate 7.50% Per Net SF $474
Loan Term(months) 24 Per Gross SF $474
Feasibili Anal sis
Total Project
Project Income
Gross Sale Revenue $15,600,000
Less Marketing Costs ($780,0001
Net Sales Revenue $14,820,000
Total Development Costs(ex.Land) $7,400,366
Per Unit(ex.Land) $1,233,394
Developer Profit Margin(%of Total Cost) 18%
Developer Profit Threshold $2,052,066
Residual Land Value $5,367,568
RLV per unit $894,595
RLV per Acre $10,735,136
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 86
Table C-12: For-Sale Townhome Prototype Pro Forma, Six-Unit Project, $60 per Sq. Ft. Fee Scenario
Development Program Assumptions Cost Assumptions Develo•ment Cost Anal sis
Site Size(acres) 0.27 Construction Project Total
Total Units 6 Site Prep Costs(per site.sq.ft) $25
Affordable(%-count) 0% Hard Cost per gross residential sf $275 Site Preparation $297,000
Market Rate(%-count) 100% Soft Costs(%of hard costs) 13%
Leasable sq.ft. 10,800 Impact Fees(per unit)(a) $32,401 Vertical Construction
Total Project sq.ft 10,800 Inclusionary Housing In-Lieu Fee(per SF) $60.00 Hard Cost $2,970,000
Total Parking Spaces 12 Developer Fee(%of hard and soft) 4% Soft Costs $371,250
Parking spaces per du 2.00 Impact Fees $194,405
Inclusionary Housing In-Lieu Fee $648,000
Base Density Units Sale Revenue Subtotal $4,183,655
AMI-Level All Sale Price by AMI Level
Unit Mix So,Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR
3-BR 1,800 0 0 0 6 6 3-BR $212,778 $330,841 $573,294 $1,710,000
Const.Loan Fees $29,124
Marketing Costs 5.00% Const.Loan Interest $283,962
Summary Affordable Market-Rate Total
Number of Units(#-%) 0 0% 6 100% 6 Financing Developer Fee $179,226
Avg.Affordability(%AMI) n.a. n.a. Construction-Period
Leasable Sq.Ft. 0 10,800 10,800 MR Loan-to-Cost 65% Total Development Cost $4,972,967
Total Sq.Ft. 0 10,800 10,800 Loan Fees 1% Per Unit $828,828
Parking Spaces 0 12 12 Drawdown Factor 65% Per Net SF $460
Interest rate 7.50% Per Gross SF $460
Loan Term(months) 24
Feasibili Anal sis
Project Total
Project Income
Gross Sale Revenue $10,260,000
Less Marketing Costs ($513,000)
Net Sales Revenue $9,747,000
Total Development Costs(ex.Land) $4,972,967
Per Unit(ex.Land) $828,828
Developer Profit Margin(%of Total Cost) 18%
Developer Profit Threshold $1,152,861
Residual Land Value $3,621,172
RLV per unit $603,529
RLV per Acre $13,277,629
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 87
Table C-13: For-Sale Townhome Prototype Pro Forma, Nine-Unit Project, $60 per Sq. Ft. Fee Scenario
Development Program Assumptions Cost Assumptions Development Cost Anal sis
Site Size(acresi i, Construction Project Total
Total Units 9 Site Prep Costs(per site.sq.ft) $25
Affordable(%-count) 0% Hard Cost per gross residential sf $275 Site Preparation $445,500
Market Rate(%-count) 100% Soft Costs(%of hard costs) 13%
Leasable sq.ft. 16,200 Impact Fees(per unit)(a) $32,401 Vertical Construction
Total Project sq.ft 16,200 Inclusionary Housing In-Lieu Fee(per SF) $60.00 Hard Cost $4,455,000
Total Parking Spaces 18 Developer Fee(%of hard and soft) 4% Soft Costs $556,875
Parking spaces perdu 2.00 Impact Fees $291,608
Inclusionary Housing In-Lieu Fee $972,000
Base Density Units Sale Revenue Subtotal $6,275,483
AMI-Level All Sale Price by AMI Level
Unit Mix Sq.Ft. 50% 70% 110% MR Units Unit Type 50% 70% 110% MR
3-BR 1,800 0 0 0 9 9 3-BR $212,778 $330,841 $573,294 $1,710,000
Const.Loan Fees $43,686
Marketing Costs 5.00% Const.Loan Interest $425,942
Summary Affordable Market-Rate Total
Number of Units(#-%) 0 0% 9 100% 9 Financing Developer Fee $268,839
Avg.Affordability(%AMI) n.a. n.a. Construction-Period
Leasable Sq.Ft. 0 16,200 16,200 MR Loan-to-Cost 65% Total Development Cost $7,459,451
Total Sq.Ft. 0 16,200 16,200 Loan Fees 1% Per Unit $828,828
Parking Spaces 0 18 18 Drawdown Factor 65% Per Net SF $460
Interest rate 7.50% Per Gross SF $460
Loan Term(months) 24
Feasibility Anal sis
Project Total
Project Income
Gross Sale Revenue $15,390,000
Less Marketing Costs ($769,500)
Net Sales Revenue $14,620,500
Total Development Costs(ex.Land) $7,459,451
Per Unit(ex.Land) $828,828
Developer Profit Margin(%of Total Cost) 18%
Developer Profit Threshold $1,729,292
Residual Land Value $5,431,757
RLV per unit $603,529
RLV per Acre $13,277,629
Source: BAE,2024.
DRAFT Campbell Affordable Housing Nexus Study I Appendix C:Residential Pro Formas 88
APPENDIX D: OVERVIEW OF IMPLAN
This appendix provides additional clarification of the workings of the IMPLAN input-output model. It
provides a step-by-step account of how IMPLAN estimates economic impacts. This section begins
with an overview of the data that IMPLAN uses internally and moves forward through the process of
how the model estimates the impacts of new commercial and housing projects.
What is IMPLAN?
IMPLAN is an input-output model that estimates the total economic implications of new economic
activity within a specified geography. The model uses national industry data and county-level
economic data to generate a series of multipliers, which in turn estimate the total economic
implications of economic activity.
At the heart of the model is a national input-output dollar flow table called the Social Accounting
Matrix(SAM). Unlike other static input-output models, which just measure the purchasing
relationships between industry and household sectors, SAM also measures the economic
relationships between government, industry, and household sectors, allowing IMPLAN to model
transfer payments such as unemployment insurance. Thus,for the specified region,the input-output
table accounts for all the dollar flows between the different sectors within the economy.
National Industry Data. The model uses national production functions for 546 sectors to determine
how an industry spends its operating receipts to produce its commodities. The model also uses a
national matrix to determine the byproductsl0 that each industry generates. To analyze the impacts
of household spending,the model treats households as an "industry"to determining their
expenditure patterns. IMPLAN couples the national production functions with a variety of county-
level economic data to determine the impacts for our example.
County-Level Economic Data. In order to estimate the county-level impacts, IMPLAN combines
national industry production functions with county-level economic data. IMPLAN collects data from a
variety of economic data sources to generate average output, employment,and productivity for each
of the industries in a given county. It also collects data on average prices for all of the goods sold in
the local economy. In this analysis, IMPLAN uses economic data for Santa Clara County. IMPLAN
gathers data on the types and amount of output that each industry generates within the County. In
addition,the IMPLAN model uses county-level data on the prices of goods and household
expenditures to determine the consumption functions of regional households and local government,
taking into account the availability of each commodity within the specified geography.
10 The byproducts refer to any secondary commodities that the industry creates.
DRAFT Campbell Affordable Housing Nexus Study I Appendix E:Demonstration of Lack of Overlap Between Fees 89
Multipliers. IMPLAN combines these data to generate a series of SAM-type multipliers for the local
economy. The multiplier measures the amount of total economic activity that results from an
industry(or household)spending an additional dollar in the local economy. Based on these
multipliers, IMPLAN generates a series of tables to show the economic event's direct, indirect, and
induced impacts to gross receipts,or output,within each of the model's 546 sectors. These outputs
have been described above, and also are described here:
• Direct Impacts. Direct impacts refer to the dollar value of economic activity available to
circulate through the economy and the jobs associated with that economic activity. In the
case of new residential development,the direct impacts are equal to the new households'
discretionary spending. The direct impacts do not include household savings and payments
to federal,state,and local taxes, as these payments do not circulate through the economy.
It should be noted that impacts from retail expenditures differ significantly between the total
economic value of retail and the amount available to circulate through the local economy.
The nature of retail expenditures accounts for this difference. The model assumes that only
the retail markup impacts the local economy, particularly for industries heavily populated
with national firms such as gas stations and grocery stores. Since local stores buy goods
from wholesalers and manufacturers outside of the area,and corporate profits also leave the
local economy, only the retail markup will be available for distribution within the local
economy. To the extent that retailers' headquarters are located within the county or region,
the model allocates their portions of the impacts to the local economy.
• Indirect Impacts. The indirect impacts refer to the impact of local industries buying goods
and services from other local industries, and to the jobs supported by those purchases. The
cycle of spending works its way backward through the supply chain until all money leaks from
the local economy, either through imports or by payments to income and taxes. For capital
projects this would include payments for construction inputs such as wood, steel, office
supplies, and any other non-labor payments that a construction firm would purchase in the
building process.
• Induced Impacts. The induced impacts refer to the dollar and employment impacts of
household spending by the employees generated by the direct and indirect impacts. In other
words, induced impacts result from the household spending of employees of business
establishments that the new households patronize (direct) and their suppliers(indirect). The
model accounts for local commute patterns in the geography. For example, if 20 percent of
construction workers who work in the region live outside of the region,the model will allocate
80 percent of labor's disposable income into the model to generate induced impact
estimates. The model excludes payments to federal and state taxes and savings based on
the geography's average local tax and savings rates. Thus,only the disposable incomes from
local workers are included in the model.
DRAFT Campbell Affordable Housing Nexus Study I Appendix E:Demonstration of Lack of Overlap Between Fees 90
Specifying the "Event"and Running the Model
Once the model is built for the specified geographies, it is time to specify the "event"that the model
will analyze and run the model.
Specifying the "Event." The "event" refers to the total economic value of industry output that the
analyst is considering. For example, in the case of the ongoing economic impacts of a new
institutional development such as a school,the "event" would be the operations of a school,
including the resulting new jobs and the worker compensation.
Running the Model. Once the event is specified, IMPLAN runs the event through the model to
generate the results. By default, IMPLAN applies the local data on average output per worker and
compensation per worker to determine the direct impacts. The model then applies the value of the
event to the national production functions and runs a number of iterations of this value through the
production functions for the local economy to determine the indirect and induced impacts. For each
iteration, the model removes expenditures to government, savings,and for goods bought outside of
the local economy so that the results only include those dollars that impact the local economy.
Summarizing the Impacts
Once the model is run, IMPLAN generates a series of output tables to show the direct, indirect, and
induced impacts within each of the model's 546 sectors. IMPLAN generates these tables for three
types of impacts: employment, output, and value added. The IMPLAN analysis of this study is
focused on the employment impacts.
• Employment shows the number of employees needed to support the economic activity in the
local economy. It should be noted that for annual impacts of ongoing operations,the
employment figure shown represents the amount of employment needed to support that
activity fora year. Furthermore, IMPLAN reports the number of jobs based on average output
per employee for a given industry within the geography. This is not necessarily the same as
the number of full-time positions.
• Output refers to the total economic value of the project in the local economy.
• Value Added shows the total income that the event generates in the local economy. This
income includes:
o Employee Compensation -total payroll costs, including benefits
o Proprietary Income - payments received by self-employed individuals as income
o Other Property Type Income - payments for rents, royalties,and dividends
o Indirect Business Taxes - excise taxes, property taxes,fees,and sales taxes paid by
businesses. These taxes occur during the normal operation of businesses, but do
not include taxes on profits or income.
DRAFT Campbell Affordable Housing Nexus Study I Appendix E:Demonstration of Lack of Overlap Between Fees 91