[BoulderCouncilHotline] Community Benefit questions from Council member Mark Wallach

[Guiler, Karl]

Dear Members of the City Council,

Council member Mark Wallach had provided some questions to consider for tonight's study session on Community Benefit. We have worked with our economic consultant to provide some answers that we hope will help with the discussion.

Best,

Karl

Karl Guiler, AICP
Senior Planner/Code Amendment Specialist
[City of Boulder Planning+Sustainability]
O: #303-441-4236
guilerk at bouldercolorado.gov<mailto:guilerk at bouldercolorado.gov>

Department of Planning & Development Services
1739 Broadway, 3rd Floor, Boulder CO  80306-0791
Bouldercolorado.gov<http://www.bouldercolorado.gov/>



1)      What is the impetus for this program when community outreach indicates that 74% of respondents do not wish to see it go forward? And if it does go forward the bulk of the requested criteria for a program of this type are enhanced setbacks, limitations on upper floor use and special protections for important view corridors. Are any of those criteria being built into the program? In light of these responses, what is the argument for expanding Appendix J beyond the current area, which can now at least be treated as an experiment to see how the proposed policies will work?


The Be Heard Boulder questionnaire results indicate over 60% of respondents are not supportive of additional community benefit requirements for buildings over the height limit. Over 70% expressed that the restrictions of the Appendix J map should not be lifted. Staff interprets this response as members of the community that prefer to not see any buildings over the height limit (typically three stories) whether or not there are community benefit associated with the projects. Some votes against the program may also reflect concerns about adding new restrictions on development at a time when the economy is impacted. With respect to the Appendix J map, staff will prepare a more detailed zoning district analysis for council at a later date that will inform whether additional areas should be added to Appendix J or not. Such areas may be areas that are already anticipated for more intense development and where impact to any important view corridors would be minimal.


  1.  I am a bit confused about the distinction between small businesses, arts organizations and human services organizations. Are they not all being treated similarly, or will the latter two categories be receiving more substantial discounts from market rents? If not, will landlords be receiving a special bonus for providing affordable commercial space to an arts group or human services provider? Is there a distinction in how we will treat non-profits vs. for-profit small businesses? If none of these are the case, why the separate categories for what should simply be potential users of affordable commercial space?


Staff's recommendation on this will be informed by the advice of the economic consultant. That said, staff has expressed to the consultant that we anticipate that the best way forward would be to treat these three uses the same in terms of the amount required and what the lease rates would be. This would allow a more straightforward implementation of the program. Staff has leaned towards listing non-profits as qualifying uses, but after talking with the city's Department of Human Services, they have indicated that there are some for-profit uses that should be part of the list. This will need to be better defined as we move forward.


  1.  As we do not return cash in lieu payments after 15 or 20 years, or let affordable housing return to market rate housing after a fixed period of time, what is the rationale for even considering having affordable commercial space return to market rate?


As other jurisdictions have required community benefit uses for a set period of time (e.g., 20 years), we felt that the question about duration should be raised. Based on the raised concern and in the efforts of making these community benefits at least equivalent to permanently affordable housing, staff is recommending that the community benefit uses be required in perpetuity, so they are comparable with permanently affordable housing benefit.

4) If I correctly remember the covenant at 30 Pearl (and my memory may be untrustworthy here), there were provisions that if the developer could not obtain an affordable commercial tenant within a specified period of time he could lease to a market rate tenant. If my recollection is correct, do we contemplate a similar structure, and, if so, would this not be defeating the purpose of the program?

Your recollection is correct. The deed restriction for 30Pearl does allow for the option of offering space at market rate if no tenant eligible for below-market rent could be found. The deed restriction provides an analog of how it could work with the Community Benefit program, but need not be exactly how it is implemented. Allowing this level of flexibility is a policy level question. Staff has not recommended it since in the case of the Community Benefit program, there would be other options beyond just below market rate rent commercial, including space for arts and cultural uses or social services that could fill a space. This also raises the point about penalty fees. Staff is recommending that penalty fees apply to owners where tenants have not re-filled a space after a specified amount of time. One thing that was discussed in Planning Board was the option for a property owner to have the ability to pay a lump sum in lieu fee if they could not fill the space.

5) Two critical questions: i) What is the contemplated discount to market rents that will be required to be considered affordable commercial space? ii) How will market rents be calculated? Will high-end office space, the most expensive space in Boulder,  be a component of the calculation of market rents, thereby driving up the base rent figure? As a hypothetical: if market rate is defined as $50 per square foot due to the inclusion of high-end offices, a discount of 25% would leave an "affordable" commercial space rent of $37.50, which is hardly affordable for most of the users contemplated by this program.


Keyser Marston Associates (economic consultant): The specific approach has not been determined at this time but a suggestion would be to consider a broader market average by type of commercial space rather than make a building-specific determination, perhaps somewhat analogous to the inclusionary housing policy, where there are published affordable rents and prices by unit size and type.



To determine the market rate rents that would be used as a benchmark for setting affordable rents, we would suggest selecting a widely recognized and regularly updated data source such as Costar (a national database of commercial properties) or the quarterly reports of a commercial brokerage firm such as Unique Properties, Inc. to determine market rents by type of space.



With respect to the second question, the consultant analysis will start with a review of what small businesses, arts organizations, and community service providers are likely able to afford. This will help the City determine whether a discount from market rents of greater than 25% may be necessary and appropriate to achieve the goals of the program.



As indicated, the question of an appropriate discount factor is also intertwined with the question of what data source will be used to determine market rate rents. If a citywide average market rate rent is used, this average would include a blend of older space as well as premium newly built space. For office, the current average asking rent for all office space in Boulder is $30.71 PSF, according to the Q2 2020 Office Market Report published by Unique Properties, Inc. So, were this data source selected as the basis for determining affordable commercial rents, and assuming a 25% discount for the moment, that results in an "affordable" rent of $23/SF, as another hypothetical example.


6) The issue of the eligibility of national chains is difficult. While we do not want to exclude businesses owned by women or people of color, do we really want to give height bonuses for a Burger King or another Walgreen's? Is this consistent with what most people would consider to be community benefit? Please discuss.

Community Vitality has recommended that we not restrict national chains as to not preclude minority or women owned businesses. Furthermore, there are legal limitations to the city's power to adopt regulatory standards that may have a discriminatory effect on out of state businesses. These considerations have informed the staff recommendation.

7) What will be the relationship between the amount of discounted rent for the affordable commercial space, versus the additional rent generated by one or two floors of valuable top floor and penthouse space? What will be the correlation between what we receive and the extra benefit the developer receives? I would argue that the rent relief received should be at least 50% of the additional rent generated, but I think there should be some guiding principle here, whatever the number.

Keyser Marston Associates (economic consultant): The balance we are trying to solve for is the value created for the developer by the bonus versus the cost of the community benefits the developer will be required to provide.  Of course, rents are one key component in determining the value created for the developer, but the cost of constructing the space will also need to be a part of the equation.  As mentioned in the prior response, one other key benchmark that will need to be considered in the design of the program is the cost / benefit for the developer of utilizing the existing affordable housing community benefit option.

8) Would it not make sense to exclude arts groups and perhaps human services groups from the 3,000 square foot limitation? A performing art facility needs a bit of room. Has this been considered?

Staff is not proposing the 3,000 square foot restriction to apply to art space or human service space. It is proposed for the below market rate rent commercial option in efforts to encourage more smaller and potentially local business that would find the space more conducive to their needs.

9) Will outdoor arts facilities be in addition to, or a component of the open space the developer is required to provide? If the latter, we are granting a valuable height bonus for open space that would be provided anyway. In addition, I find it difficult to believe that we are getting good value by exchanging up to two floors of additional residential space for an open-air sculpture park. It is not that they are not desirable or beneficial, it is a question of whether the benefit is commensurate with what we are giving away in additional height and revenue.  Please discuss.

The focus of spaces for arts and cultural uses has been on leasable space and not necessarily outdoor space where art installations would be located. Staff's inclusion of outdoor spaces was more that such spaces would be incidental to indoor leasable space.

10) In order to incentivize the provision of on-site affordable commercial space and/or affordable housing, do we not need to take another look at cash in lieu, to put this option on an equal footing with this proposed program, and to ensure that it is not the automatic default option?

Yes, our economic consultant is looking at how the three new community benefit uses would relate to the already adopted permanently affordable housing option. This may result in a recalibration of the in-lieu fee as it relates to all of the four options. Another consideration is whether all in lieu fees should be allotted to the city's inclusionary housing fund or whether special buckets for affordable commercial, space for arts and cultural uses and social services should be created as part of this program.

11) There was not too much discussion of purely commercial buildings other than to suggest that linkage fees could be increased to compensate for additional height. Housing, both market and affordable, is a demonstrated need in Boulder. What is the rationale for applying this program to commercial structures, and what is the contemplated increase in the linkage fees if we were to do so?

There is already an in-lieu fee allowable for Phase 1. This was included since rental units would necessitate the in-lieu fee (i.e., rent control is not legally permitted) and also to enable commercial square footage as part of a project. What the code states for the linkage fee is that the regular adopted commercial linkage fee would apply to any square footage below the height limit. Floor area above the height limit or above a floor area maximum would be considered "bonus floor area" and the commercial linkage for the bonus floor area would be the commercial linkage fee X 0.43%.

12) On the theory that, despite the desirability of affordable commercial space, affordable housing remains the top priority in Boulder, is there any way to weight the program so that on site affordable housing is the most likely choice, not the least?

Keyser Marston Associates (economic consultant): Yes, it is certainly possible to structure the affordable commercial space option in a manner that makes it somewhat more costly to the developer than providing affordable housing. The consultant's proposed scope contemplates using the affordable housing option as a key benchmark against which each of the other proposed community benefits options would be compared financially, to assist in structuring the program in a manner that provides the desired incentives.

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