During every special permit process in Newton (and other municipalities) comes a time when the project’s developer seeks to hammer out an agreement with (in our case) the city council that will earn them the needed 2/3rd votes to move forward.
Typically, this includes negotiating various community gives backs or and project alterations.
Giveback requests might include mitigation funds for road, sidewalks or traffic mitigation; community space; or other infrastructure enhancements.
Alterations might include the project’s size, layout, design or mix of uses.
And the requests for changes or community givebacks come from all directions:
- Neighborhood opponents — who worry that a project will overwhelm their neighborhood — will call to make a project smaller, less tall, or with a different mix of commercial vs. residential makeup, etc.
- Others — including housing advocates and environmentalists — may ask for the opposite, seeking more affordable units, or a or a greater commitment to sustainability, and so on.
- Still others might hope to eek out funds or a place for various special interests: an artist space, dog park, bike paths, walking trails, public art, subsidized retail, etc.
Nearly every one of these changes – from shrinking a project to increasing affordability — impacts the developer’s bottom line and whether or not lenders will agree to finance it.
But generally, we the public have no idea what that bottom line is.
Which is what makes an overlooked aspect of the recent Riverside visioning project so interesting.
As part of the Riverside process, Civic Moxie, the consulting firm hired by the city, brought in independent experts to run ten scenarios for developing the site (as well as Normandy’s never built project for the site from 2013) evaluating the expected land costs, hard costs and potential revenue for each project.
Then separately, developer Robert Korf of Mark Development (whose special permit application for Riverside Station will be heard for the first time at a joint Land Use/Zoning and Planning Committee meeting on June 4) opened his books to Civic Moxie and the firm conducted an independent evaluation of his proposed project.
You find a summary of the findings in the Riverside Vision Plan final report, starting on page 78 and especially the graphs on pages 81-84.
Or if you have ten minutes, you can watch it all explained quite clearly in this video:
I really hope you’ll watch the video because it does a better job explaining this than I can. But basically, here’s what we now know:
After factoring in overall construction/land costs and returns at 10 different levels of density, Civic Moxie concluded that revenue for the 2013 never-built Normandy project would fall far short of the industry standard of 7-9 percent return on costs.
Civic Moxie then went on to conclude that in order to crack the minimal industry standard of seven percent, a project in today’s market would need 1.6 million square feet of development with many more residential units and square feet of office space than what Mark Development is proposing.
So how rich would Robert Korf get from Riverside Station?
The answer is, as proposed, this project appears to be on the low end of where most developers and lenders would be willing to invest (remember the project includes building a direct exit off off Recreation Road/I-95 onto the site, a lease with the MBTA and building parking for T riders).
Any downward economic trend could lessen the value as would making the kinds of concessions that stakeholders on all sides might hope for.
So now we know.
So when we’re talking about RoC %, is that profit or revenue? When I saw this at the presentation I had a slightly.. different take on those numbers. The 2013 as-proposed SP has a RoC of 5.3% based on 580k sqft while their option 10 had a RoC of 7% based on 1.6m sqft. So.. that’s nearly triple the size for a RoC increase of 1.7%? CivicMoxie made it sound like the RoC difference was night and day but what I’m seeing is a gigantic increase in size for a relatively small increase in RoC %? It’s not like option 16 is increasing the RoC from 5.3 to 10% or 5.3 to 15% even though it’s triple the size, am I missing something?
Patrick: I think you’re missing two things.
1. The original I-95/Riverside deal never included financing or a plan to build the T parking garage.
2. The new plan includes direct access off Recreation Road, a big difference given the concerns about traffic on Grove Street that dominated the discussion last time.
I’m pretty on-board with most of rightsize’s arguments around needham street, but I’m not sure why anyone has qualms with Riverside. Riverside is directly connected to an MBTA hub and the highway, and has a good chunk of land to work with. Criticizing Riverside diminishes their legitimacy when accurately criticizing the development of an 8-story building on Needham St.
I think those are accounted for in the Urban Focus analysis though, from the appendix of the vision document:
“Scenario 1 is a reflection of the BH Normandy program that was approved in 2013. In this scenario the cost of the Indigo Hotel site has been reduced as the original development proposal was designed to use only a portion of the site for highway access. All other scenarios include the full cost of the Indigo Hotel site as outlined in Part II of this analysis.”
The highway access infrastructure and MBTA garage are called out as individual items in Part II so the only difference should be the reduced cost of the Indigo hotel if I’m interpreting that correctly. What I’m trying to figure out is whether the 7% RoC is the minimum to make a profit or is it just the expected level of profit that they’re looking for and how that compares to the original. ie – would the original proposal with a 5.3% RoC be a literal loss for Mark Development or would it be a profit but below what the market thinks they should be making. I think most people looking at the slides are going to interpret them as all profitable scenarios just varying in the percentage of profit, and that’s a really important distinction.
@Jim – The concerns around Riverside are around the significantly increased scale and potential impacts to the neighboring villages. There was a special permit granted in 2013 for a 580k sqft development at Riverside after a significant amount of review that had general support from the community. Fast forward to this year and this proposal comes up seemingly out of the blue to almost triple the size of what was originally approved. The message we’re getting is the developer has no interest in entertaining any major changes and also for some reason there’s a sense of urgency to get this reviewed and approved in the fall.
Riverside as it stands now only has direct access from Grove St, which is a smaller road and already has traffic issues. The proposal does add direct access from I95 but that also has it’s own traffic issues. The site itself sits right on the MBTA station but it’s also a location where most people are going to own a car. I don’t see the area with our current infrastructure as one where people are realistically going to be able to go carless.
We also have existing traffic issues in both Auburndale and Lower Falls. Comm Ave/Lexington in particular (Auburndale) is a complete mess every evening and my understanding is that’s not really something that’s fixable. So we have concerns around what 650+ new units are going to do to an already sub-optimal situation. The traffic study from Mark Development claims no impact to traffic but I find it hard to believe that with all those new units no one is going to want to travel up to Waltham or through Comm Ave to other areas of Newton.
So basically the perception is this is being rushed through without the same level of analysis that was done on the 2013 SP. We went through a sub optimal vision process while at the same time we’re hearing that the developer isn’t interested in making any changes so people are questioning whether this was just a dog and pony show. It also doesn’t help that the new SP request was submitted before the vision process was even completed, which reinforces the thought that the vision process was just for show.
It doesn’t seem fair to say this is being rushed. There hasn’t been a single land use or zoning committee meeting yet.
Rushed in the sense that there seems to be a sense or urgency to have this voted on this year. So the SP request was submitted in April, there have been no formal meetings yet but the idea to have everything completed and ready to take to vote in the fall? At least that’s what I have been hearing, pretty sure that also came up as one of the reasons why the vision process had to be done so quickly.
What do you think is the right amount of time?
Why shouldn’t half a year be enough time for a community to weigh in and the council to ask tough questions, make a decision one way or another and then move onto other city business.
Do you think folks who don’t like it now or who do like it now would change their mind if it was an eight month process? A sixteen month process? Sixteen years?
Complaints that it’s too quick a just a stalling exercise for those who prefer the site remain a permanent broken parking lot.
Review the plan, debate the plan and then vote it up or down.
As proposed this would effectively be creating a new village in terms of density between LF, Auburndale and Waban. It’s not something to be taken lightly given all the potential impacts to the surrounding neighborhoods. I don’t know if there’s a “right” amount of time, maybe you’re right and after the initial set of meetings there’s enough clarity to decide one way or another. It just seems like there was a particular urgency to get this voted before zoning redesign (back when redesign was also slated for a fall vote) and I see many concerns that need to be clarified. This is also a both a rezoning request and a special permit request, it’s not exactly like they’re just looking to build a larger than allowed house.
For the record I would much prefer the site not remain a giant parking lot. A development at Riverside would help make the argument for additional investments to the GL and along with Washington St could be a compelling case for the Indigo line. My concern is whether the current scale is going to be at the cost of the surrounding neighborhoods being overwhelmed by traffic in the situation that we don’t get any additional improvements to the MBTA lines. I don’t mind the additional density as long as all the impacts are called out and mitigated and we have the infrastructure to handle it.
Pat Butera always gets the discussion focused and back to basics. I don’t have to agree with everything he writes, but I usually do. He’s a tremendous asset to these discussions.
The focus should not be on how much Korf is going to make but on ‘how much’ is he going to give back.
If we wants special permit, he needs to give something in return. The givebacks should not be things that make his properties (ie allow higher rents) more desirable but are ‘real givebacks’. What is he going to give back to the community which doesn’t benefit him directly.
BTW, affordable housing units don’t come out of his pocket, he simply jacks up the rent on market based units to make up the difference (throw in a few granite tops to justify the higher rents)
Examples:
– free llifetime lease on a school or community building
– lobby the indigo line for us. Make it a contingency
– donote x% of the rental profits in perpetuity to pay for social services (mental health, drugs)
– sponsor annual community events
– offer to install free electric car charging stations in every property he builds
If he wants a special permit, he needs to provide real givebacks that benefit residents who WONT be living in this properties. A shuttle bus is not going to cut it
@Bugek:
Did you not watch the video/read the report?
Or did you watch/read it and not understand it?
Or did you watch/read it but choose to ignore what it says because it doesn’t fit your narrative?
Despite all the hard work put into it, the 2013 plan was not financially viable. It did not provide money to replace parking at the MBTA lot.
The Mark Development plan, on the other hand, has the scale necessary to pay for a parking garage and for traffic mitigation measures to lessen the impact on Grove Street.
Newton needs to increase the supply of rental housing in the community and to expand the commercial tax base. The Mark Development plan will advance both goals. At Riverside, the alternative is not a smaller project but the continuation of the status quo – a vast, ugly parking lot.
The financial part of the visioning plan appalls me. Since when should government policy be based on the developers bottom line.
Simon,
If a developer does not require a special permit then its no ones business. 100% agree.
Once they ask for a special permit, I believe we have a right to know and also take as much time as the City wants to evaluate…
eg if the special permit allows the developer to make an extra $100M in profits and the only giveback is $50k and extra burden on schools then the City would be foolish to agree
Greg, I’d guess most people who saw the presentation/slides are going to interpret RoC as profit, so what they see is 5.3% profit on the 2013 SP vs 7% profit on UrbanFocus’s scenario 10. On the face of it that’s not a compelling argument that the development as proposed is the bare minimum to break even without any concessions. I’m also guessing it’s not quite that simple in terms of RoC vs profit but that detail isn’t expanded on in the vision plan.
When I see the term “market expectations” around the 7% RoC I’m reading that as an optimal amount of profit, not a break even point. I can appreciate that as a business Mark Development/Normandy is looking to hit market expectations but at the same time they knew what they were getting into in terms of the SP when they bought into this and purchased the additional Indigo property. They’re also not a small mom and pop operation, they know exactly what they’re doing and and I’m skeptical that they would have bought in if the as proposed development is truly break even.
Let’s take out the 2013 approved development out of the equation, as you point out there’s additional property in play along with the infrastructure so it’s not a true apples to apples comparison. Scenario 6 seems to be where the RoC gains start to get smaller at around 6% and that clocks in at 600k sqft residential / 500k sqft, roughly double the original SP but also a good amount less than what’s proposed. That’s below market expectation but would also allow for a reduction on the 18 and 14 story buildings which seems to be a giant red line for the community.
That they need a special permit for this means they may have to settle for less than their optimal return just like the community will need to settle for more than we may want to see compared to the 2013 SP. It’s a give and take on -both- sides, so when we see the message that they can’t make any concessions because they won’t make a profit there has to be a really compelling case to back that up. Having to settle for less than expected profit is a very different discussion than not being able to make any profit or a loss.
Since Mark Development paid CivicMoxie to lead the visioning plan, the question needs to be asked whether some sort of deal was made that said the only viable option was the one that they proposed. “You get what you pay for” kind of thing.
I agree with those who argue that something could be built at Riverside just not on such a massive scale. The transport/traffic/environmental/ community issues are real.
Lisa asks an important quesiton. Let’s examine it carefully:
1. First, let’s get the terminology right. It’s more appropriate to say that the city hired Civic Moxie and Mark Development reimbursed the city. This is a common practice. The city hires independent experts to do peer reviews of traffic studies, environmental impacts, designs, etc. as a standard practice and project applicants (developers) pick up the bill. Imagine the outcry if taxpayers were asked to foot the bill for every study.
2. This kind of work is what companies like Civic Moxie do. Imagine the damage it would do to their reputation — and in turn business model — if it turned out that they cut secret deals with the businesses they were hired to evaluate. They wouldn’t be in business long.
3. Still it’s understandable if some folks don’t trust Civic Moxie, since they’ve probably never heard of them and aren’t familiar with their track record and are new to this process But anyone who might challenge the integrity of process, is really challenging Mayor Fuller’s integrity because it was her administration that hired Civic Moxie and directed them on what to study.
Now perhaps it’s true that Mark Development cut a “deal” with Mayor Fuller and that Mayor Fuller then asked Civic Moxie to cook the results. But it’s a serious accusation and ought to be backed up with facts, not just tossed out there by folks who are disappointed that the results don’t comport with their narrative.
@Bugek
I was commenting on the Vision Plan aspect. A vision plan should not consider property speculators. They might be in the game, but it’s at their own peril.
@Simon and Bugek: One of the common complaints about Riverside is that it’s too big and one of the common complaints about developers in general is that they milk huge profits out of these projects. I commend Mayor Fuller and her team for instructing Civic Moxie to explore both of these questions as part of this process.
I feel badly for the Planning & Development Board, of which I was a member in 2013. I have no doubt the zoning at Riverside should be changed to allow for some sort of development (this is one of the few places where density belongs in Newton.
Frankly, I would urge the Council to vote on that change now, so the P&D Board doesn’t have to sit through 10 meetings for matters that have nothing to do with them (special permit).
To the commenter saying that 7% is “optimal.”
No. 7% is the bare minimum a construction project should allow for. My college estimating classes used 10% as the overall rate to “break even” and 20% for “turn a profit?”
Why?
Because construction is risky as anything. You come in with cost overruns within your contingency, or only 5% over you go home and pop the cork on some champagne.
Some jobs you are going to loose millions, or tens of millions. Projects go to court all the time. Developers and contract managers/general contractors go bankrupt.
Imagine the developer provides a soils characterization to the construction manager that says the soil is clean, but only surveyed to a depth of 6’ due to a layer of compacted gravel. Turns out the gravel is hot, and now can’t be worked the normal way, and tipping rates are up because it’s hazmat. Meanwhile, while the construction manager is fighting to do nothing without a change order and extra $, the developer is accruing interest on their existing expenses though a construction loan at about 30% APR). It has the potential to end badly for everyone, with a half-excavated hole being sold to the highest bidder.
Not awesome.
So when you say 7% profit, minimum, that’s enough to get you through this job (if it doesn’t tank) and cover your losses on one that does thank.
If construction was a safe investment, construction loans would be less usurious. At 5.3 percent I’m afraid of the development failing before it can be completed or public benefits being scaled back to balance the budget.
[Note, while I work for MBTA, these are my personal opinions. All percentages cited are from memory from an engineering economy class I took ca 2002. Examples are fictional, and are not intended to portray any construction project(s) I’ve been exposed to, past or present]
Anne – Thanks for the detailed explanation, that’s quite helpful in establishing some context around the data being presented.