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Housing Analysis

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Housing Analysis

    ZIMMERMAN/VOLK ASSOCIATES, INC.

    17 East Main Street

    Clinton, New Jersey 08809

    908-735-6336 • 908-735-4751 facsimile

    Research & Strategic Analysis

    PRE-CHARRETTE MEMORANDUM

     DATE: June 12, 2000

     PROPERTY: 450-Acre Study Area

    City of Hercules

    Contra Costa County, California

    Tables 1 through 8 summarize the depth and breadth of the potential market position

    for new residential construction within the City of Hercules, Contra Costa County,

    California. The Appendix Tables detail the migration and target market data covering

    the appropriate draw area(s) for the City.

    CONCLUSIONS AND RECOMMENDATIONS

    This study identifies the market potential for new residential construction, to be

    leased or sold within the 450-acre Study Area, straddling Interstate 80 in the

    City of Hercules, Contra Costa County, California.

    The depth and breadth of the potential market have been determined using

    Zimmerman/Volk Associates’ proprietary target market methodology. In contrast

    to classical supply/demand analysiswhich is based on supply-side dynamics and

    baseline demographic projectionstarget market analysis establishes the

    optimum market position derived from the housing preferences and lifestyle

    characteristics of households in the draw area within the framework of the local

    housing market context.

    The target market methodology is particularly effective in defining housing

    potential because it encompasses not only basic demographic characteristics, such

    as income qualification and age, but also less-frequently analyzed attributes such

    as mobility rates, lifestyle patterns and compatibility issues.

PRE-CHARRETTE MEMORANDUM Page 2

    June 12, 2000

    The extent and characteristics of the potential market for new housing units in the Study Area were therefore determined through detailed analysis of households currently living within the appropriate draw areas. These draw areas

    were derived through migration and mobility analyses, incorporating information obtained from real estate brokers, sales persons, local officials and other knowledgeable sources, and from Zimmerman/Volk Associates’ field investigation.

    • • •

    A significant market exists for new residential construction within traditional neighborhood developments to be located in the Hercules Study Area; the optimum market position is outlined below. The optimum market position has been based on market conditions as of the end of the first quarter of this year (as outlined in the market information provided by Anthony Hurt & Associates). Because of the recent extreme volatility of the Bay Area residential marketplace, the optimum market position should be regarded as a moving target, and periodically re-evaluated. The proposed range of new housing units, constructed within traditional neighborhoods, will increase the residential options for households currently living in Hercules as well as for those moving from elsewhere within the Bay Area.

    The proposed rent and price levels place the recommended residential units within the current leasing and purchasing capabilities of target market households and establish an optimum initial market position for residential development within the Hercules Study Area. Anecdotal data and analysis of new traditional neighborhood developments nationally suggest that, once a neighborhood is established, appreciation of remaining dwelling unitsmanifest

    as either rising values or escalating absorption of those unitsshould occur at a

    higher rate than in typical projects or subdivisions outside the city. The optimum market position for the Study Area has been developed based on a variety of factors, including but not limited to:

     The plan to develop individual sites according to traditional

    neighborhood principles;

     ZIMMERMAN/VOLK ASSOCIATES, INC.

PRE-CHARRETTE MEMORANDUM Page 3

    June 12, 2000

     The attractive topography and view potential of the Study Area; the

    proximity to the San Pablo Bay, the North Shore Business Park, City

    Hall; the direct access to Interstate 80 and the John Muir Freeway

    (Route 4); and the potentially advantageous physical location of the

    City within Contra Costa County and the Bay Area;

     The proposals to construct significant associated commercial/office

    space and amenities within the Study Area;

     The new unit purchase and rental propensities of draw area households;

    and

     The residential context in the Northern Bay Area.

    Draw area household analysis has established that, in the year 2000, more than 3,600 households have the potential to purchase or rent a range of new market-rate housing units within the City of Hercules. (See METHODOLOGY below and

    Table 1.)

    Potential Market for New Housing Units

    Study Area

    City of Hercules, Contra Costa County, California

     Households with potential to move within/to Contra Costa County: 47,470 100.0%

     Potential market for new housing units in the City of Hercules: 3,610 7.6% The optimum residential mix is, therefore, the distribution of the range of housing types according to the new unit purchase and rental propensities of those 3,600 draw area households (see also Table 1):

     ZIMMERMAN/VOLK ASSOCIATES, INC.

PRE-CHARRETTE MEMORANDUM Page 4

    June 12, 2000

    Optimum Residential Mix

    Study Area

    City of Hercules, Contra Costa County, California

     NUMBER OF PERCENT

     HOUSING TYPE HOUSEHOLDS OF TOTAL

     Multi-family for-rent 950 26.3%

     Multi-family for-sale 360 10.0%

     Single-family attached for-sale 350 9.7%

     Low-range single-family detached 550 15.2%

     Mid-range single-family detached 790 21.9%

     High-range single-family detached 610 16.9%

     Total 3,610 100.0%

    The residential mix for traditional neighborhoods typically includes the full range

    of housing types, as follows:

     Multi-family for-rent (apartments over retail/commercial/office

    space or in loft, courtyard or mansion buildings);

     Multi-family for-sale (condominium-ownership lofts or flats in loft,

    courtyard or mansion buildings);

     Single-family attached for-sale (townhouses and duplexes, including

    live-work);

     Low-range houses single-family detached (bungalow courts and

    village houses);

     Mid-range houses single-family detached (walking court and

    neighborhood houses); and

     High-range houses single-family detached (close houses and

    mansions).

    The household composition of the potential market reflects the following percentages (see also Tables 2 through 8):

     ZIMMERMAN/VOLK ASSOCIATES, INC.

PRE-CHARRETTE MEMORANDUM Page 5

    June 12, 2000

    Potential Market For New Housing Units

    By Household Type

    Study Area

    City of Hercules, Contra Costa County, California

     HOUSEHOLD TYPE PERCENT

     Empty-nesters and retirees 31%

     Families 41%

     Younger Singles & Couples 28%

     Total 100%

    A mix of younger singles and couples (Fast-Track Professionals, Suburban

    Strivers, and The VIPs, among otherswell-to-do professionals and dot-com

    entrepreneurs from Oakland, San Francisco and the southern Bay Area) and newly-arrived families (primarily Unibox Transferees) comprise the primary

    market for higher density residential development in Hercules: rental apartments, which are currently in short supply in the city; for-sale apartments; and townhouses.

    The potential purchasers of detached houses are among the most affluent households in the country, including empty nestersNouveau Money and

    Affluent Empty Nestersand older families: Cosmopolitan Families, Full-Nest

    Suburbanites, and Landed Gentry.

    • • •

    Based on the characteristics of the target households, the residential context, the plan to develop the individual sites using traditional neighborhood principles, and the associated commercial/office space and amenities proposed to be built, the optimum market position for new development within the Study Area is as follows (see also Table 9):

     ZIMMERMAN/VOLK ASSOCIATES, INC.

    PRE-CHARRETTE MEMORANDUM Page 6 June 12, 2000

    PRELIMINARY OPTIMUM MARKET POSITION

    Hercules Study Area

    City of Hercules, Contra Costa County, California

     Average Net Approx. Base

     Density/ Housing Base Rent/ Unit Size Rent/Price Percent Lot Size Type Price Range Range Per Sq. Ft. MULTI-FAMILY FOR-RENT

     26.3% n/a Accessory Apartments/ $400 to 250 to $1.47 to

     Apartments Over Commercial $1,100 750 $1.60

     35 to 50 du Hard Lofts $800 to 500 to $1.27 to

     {Live-work} $1,900 1,500 $1.60

     35 to 50 du Courtyard Apartments $1,000 to 550 to $1.50 to

     Studio, 1BR, 2BR $1,500 1,000 $1.82

     7,200 sf Mansion Apartments $1,300 to 500 to $1.68 to

     {72x100} 1BR, 2BR, 3BR $2,100 1,250 $2.00 MULTI-FAMILY FOR-SALE

     10.0% 35 to 50 du Hard Lofts $90,000 to 500 to $150 to

     {Live-work} $225,000 1,500 $180

     35 to 50 du Courtyard Apartments $160,000 to 850 to $177 to

     1BR, 2BR $195,000 1,100 $188

     7,200 sf Mansion Apartments $200,000 to 1,000 to $196 to

     {72x100} 2BR, 3BR $275,000 1,400 $200 SINGLE-FAMILY ATTACHED FOR-SALE

     9.7% 1,260 sf Flex Townhouses $235,000 to 1,200 to $185 to

     {18x80} {Live-work; 400 sf work} $315,000 1,700 $196

     2,160 sf Townhouses $240,000 to 1,200 to $188 to

     {24x90} $300,000 1,600 $200

    LOW-RANGE SINGLE-FAMILY DETACHED FOR-SALE

     15.2% 14 du Bungalow $285,000 to 1,400 to $191 to

     Court $325,000 1,700 $204

     3,600 sf Village Houses $335,000 to 1,600 to $197 to

     {36x100} $375,000 1,900 $209

     continued on following page . . .

     ZIMMERMAN/VOLK ASSOCIATES, INC.

PRE-CHARRETTE MEMORANDUM Page 7

    June 12, 2000

. . . continued from preceding page

     Average Net Approx. Base

     Density/ Housing Base Rent/ Unit Size Rent/Price

    Percent Lot Size Type Price Range Range Per Sq. Ft.

    MID-RANGE SINGLE-FAMILY DETACHED FOR-SALE

     21.9% 10 du Walking Court $390,000 to 1,900 to $196 to

     Houses $450,000 2,300 $205

     4,800 sf Neighborhood $410,000 to 2,000 to $198 to

     {48x100} Houses $475,000 2,400 $205

    HIGH-RANGE SINGLE-FAMILY DETACHED FOR-SALE

     16.9% 8.5 du Close Houses $490,000 to 2,300 to $206 to

     $535,000 2,600 $213

     6,000 sf Mansions $525,000 to 2,400 to $213 to

     {60x100} $595,000 2,800 $219

    NOTE: The proposed rents and prices are in June 2000 dollars at base levels, exclusive of

    location, construction type, premiums, options and upgrades. As noted above, due to the

    volatility of the Bay Area housing market, these rents and prices should be reviewed

    periodically.

    Absorption paces have been forecast as annualized averages. For example, although the annualized average absorption of rental apartments is forecast at 240 units per year, it is highly likely that, due to pent-up demand, more of these units, at the recommended rents and sizes, could be absorbed in the first year of marketing. However, it is also possible that, because of phasing and/or construction staging issues, none of these units would be available for another year or so. Therefore, absorption forecasts have been annualized over the projected absorption period for each housing type, from initial marketing to build-out of the last unit. Forecasts of absorption of new housing units within the Hercules Study Area has also been based on market conditions at the end of the first quarter of this year (as outlined in the market information provided by Anthony Hurt & Associates), and is as follows (see again Table 9):

     ZIMMERMAN/VOLK ASSOCIATES, INC.

PRE-CHARRETTE MEMORANDUM Page 8

    June 12, 2000

    ANNUALIZED AVERAGE ABSORPTION

    Hercules Study Area

    City of Hercules, Contra Costa County, California

    Multi-family for-rent 240 net of turnover

    Multi-family for-sale 48

    Single-family attached 48

    Low-range single-family detached 70

    Mid-range single-family detached 70

    High-range single-family detached 60

    At the annualized annual absorption of 536 units, new residential development would require a capture rate of 14.8 percent of the 3,610 households, identified through target market analysis, that have the potential to rent or purchase new housing units in the City of Hercules in the year 2000a rate that is well within

    the target market methodology’s parameters of feasibility.

    In the context of the target market methodology, and for a development area of the proposed size and scale, a capture rate of 25 percent of the potential marketor more than 900 households in the year 2000is achievable.

    The annualized average absorption paces require specific capture rates of those households that, in the year 2000, represent the potential market for each housing type, as follows:

    REQUIRED CAPTURE RATES

    Based on Annualized Average Absorption

    Hercules Study Area

    City of Hercules, Contra Costa County, California

     Annual Annual Required

     Housing Market Average Capture

     Type Potential (HHs) Absorption (Units) Rate

    Multi-family for-rent 950 240 25.2%

    Multi-family for-sale 360 48 13.3

    Single-family attached 350 48 13.7

    Low-range single-family detached 550 70 12.7

    Mid-range single-family detached 790 70 8.9

    High-range single-family detached 610 20 9.8

    These housing type-specific capture rates are within the parameters required for feasible development. There is a high degree of confidence in a capture rate of 25

     ZIMMERMAN/VOLK ASSOCIATES, INC.

PRE-CHARRETTE MEMORANDUM Page 9

    June 12, 2000

    to 30 percent for rental apartments, and a capture rate of 15 to 20 percent for each of the for-sale housing types. The target market capture rates of the potential purchaser or renter pool are a unique and highly-refined measure of feasibility. Target market capture rates are not equivalent toand should not be

    confused withpenetration rates or traffic conversion rates.

    The target market capture rate is derived by dividing the annual

    forecast absorption by the number of households that have the

    potential to move to the site in a given year.

    The penetration rate is derived by dividing the total number of

    dwelling units planned for a property by the total number of draw

    area households, sometimes qualified by income.

    The traffic conversion rate is derived by dividing the total

    number of buyers or renters by the total number of prospects that

    have visited a site.

    Because the prospective market for a property is more precisely defined using target market methodology, a substantially smaller number of households are qualified; as a result, target market capture rates are higher than the more grossly-derived penetration rates. The resulting higher capture rates remain within the range of feasibility.

    BUILDING AND UNIT TYPES

    Building and unit types commonly used within traditional neighborhoods are described below. Other appropriate building types, not referenced in this study, are described in The Lexicon of the New Urbanism, Section J: Building Type

    (Duany Plater-Zyberk & Co., Miami, 1999.)

    MULTI-FAMILY

     Loft Apartment Building: A new-construction building type inspired by

    adaptive re-use of 19th century warehouse and manufacturing buildings.

    The building is usually elevator-served with double-loaded corridors. Unit

     ZIMMERMAN/VOLK ASSOCIATES, INC.

PRE-CHARRETTE MEMORANDUM Page 10

    June 12, 2000

    interiors typically have high ceilings and commercial windows and can be minimally finished, limited to architectural elements such as columns and fin walls, or unfinished, with no interior partitions except those for bathrooms.

    The building’s loft apartments can be leased, as in a conventional income

    property, or sold to individual buyers, under condominium or cooperative ownership, in which the owner pays a monthly maintenance fee in addition to the purchase price.

    Loft apartment buildings may require some regulatory relief to allow unfinished or minimally-finished interiors.

    (Loft apartments can also be incorporated into multifamily buildings along with conventionally-finished apartment units.)

     Courtyard Apartment Building: A pedestrian-oriented equivalent to

    conventional garden apartment buildings and of similar densities. A courtyard building is three to four stories, U-shaped, with parking integral to the building or in an open lot to the rear. The courtyard apartment building should have a relatively shallow setback from the street. The building’s apartments can be leased, as in a conventional income property, or sold to individual buyers, under condominium or cooperative ownership, in which the owner pays a monthly maintenance fee in addition to the purchase price.

    Courtyard apartment buildings sometimes require zoning relief or variance to permit shallow front yard setbacks.

     Mansion Apartment Building: A small-scale apartment building with a

    street façade resembling a large detached house. (See ―Mansion Building‖

    below.)

    SINGLE-FAMILY ATTACHED

     ZIMMERMAN/VOLK ASSOCIATES, INC.

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