Stephen's team had eventually settled on constructing a multifamily rental property, rather than a condominium. The reasons were complicated, but in the end, home sales prices were already softening, and there were quite a few units in the development pipeline which were expected to come onto the market before their own project could be completed. Offering units for rent seemed to make more sense. It was now Catherine's job to help shepherd the project through the permitting process. Full construction documents were still being drawn up, but the team had been able to assemble " 80% plans" for the city to review. The first question from the permitting office was about their plans to include any "affordable" units. Charleston's inclusionary zoning program requires all developments with more than 10 units to designate either a minimum of 15% of all units for residents who earn 60% AMI (Area median income) or less, or 20% of all units for residents who earn 80% AMI or less. Alternatively, developers can make a one-time payment of 25% AMI per unit to a fund which helps finance affordable housing developments throughout the city. Catherine asked you to help her think through some of the financial implications of each option, and prepare recommendations to present to the whole team later in the week. Questions Use the following questions to help you consider how the team should comply with Atlanta's inclusionary zoning requirements for affordable housing. Feel free to go beyond these questions, though, and consider other points as well. 1. Assembling construction documents has helped the team come to a better estimate of the total expected development costs for the project, in the amount of $16.0 million. a. Use the assumptions given in the associated spreadsheet to calculate the NOI of the building if the average rent for all units is $2,800 per month. b. Given your answer to 1.a., what is the "going-in" capitalization rate of those development costs for Stephen's team if their company retains ownership of the building? c. As owners of the building, do they want the "going-in" cap rate to be as high as possible, or as low as possible? Why? I Stephen's team had eventually settled on constructing a multifamily rental property, rather than a condominium. The reasons were complicated, but in the end, home sales prices were already softening, and there were quite a few units in the development pipeline which were expected to come onto the market before their own project could be completed. Offering units for rent seemed to make more sense. It was now Catherine's job to help shepherd the project through the permitting process. Full construction documents were still being drawn up, but the team had been able to assemble " 80% plans" for the city to review. The first question from the permitting office was about their plans to include any "affordable" units. Charleston's inclusionary zoning program requires all developments with more than 10 units to designate either a minimum of 15% of all units for residents who earn 60% AMI (Area median income) or less, or 20% of all units for residents who earn 80% AMI or less. Alternatively, developers can make a one-time payment of 25% AMI per unit to a fund which helps finance affordable housing developments throughout the city. Catherine asked you to help her think through some of the financial implications of each option, and prepare recommendations to present to the whole team later in the week. Questions Use the following questions to help you consider how the team should comply with Atlanta's inclusionary zoning requirements for affordable housing. Feel free to go beyond these questions, though, and consider other points as well. 1. Assembling construction documents has helped the team come to a better estimate of the total expected development costs for the project, in the amount of $16.0 million. a. Use the assumptions given in the associated spreadsheet to calculate the NOI of the building if the average rent for all units is $2,800 per month. b. Given your answer to 1.a., what is the "going-in" capitalization rate of those development costs for Stephen's team if their company retains ownership of the building? c. As owners of the building, do they want the "going-in" cap rate to be as high as possible, or as low as possible? Why