AI-generated transcript of City Council Committee of the Whole 08-04-26

[Zac Bears]: Medford City Council Committee of the Whole meeting August 4th, 2026 is called to order. We're just waiting one second for technology to catch up with us. All right. Mr. Clerk, please call the roll.

[Rich Eliseo]: Councilor Callahan. Councilor Leming? Present. Councilor Mullane? Present. Councilor Scalpelli? Present. Councilor Tseng? Present. Vice President Lazzaro? Present. And President Bears?

[Zac Bears]: Present, seven present, none absent. The meeting is called to order. Action and discussion on items 26-134 offered by President Bears's resolution to receive a presentation on the Affordable Housing Linkage Nexus Study report. Be it resolved by the Medford City Council that we invite the Office of Planning, Development and Sustainability to present the draft findings of the Affordable Housing Linkage Nexus Study report. We have Catherine Buckingham, City's Housing Planner here, and I will turn the floor over to her.

[Katherine Buckingham]: Okay, welcome. Yes, I'm Catherine Buckingham, housing planner. I just want to introduce, we have the report on the affordable housing linkage nexus study. Here with us today we have Carl Seidman from Carl F. Seidman Consulting Services. He has been the one undertaking this economic analysis. And the goal is to establish the rational nexus between non-residential development and the need for affordable housing. And I think without further ado, I'll turn it over to him and he can walk you through the presentation. He's prepared to explain what we have in the draft report.

[SPEAKER_00]: Great. Thank you, Catherine, and to the chair and members of the council. I'm pleased to be here and present the overview of the analysis we did. So let me share my screen and put the slide deck up here. Great. So let me just say, there's quite a bit of data and information somehow. My slides are not advancing here. Let me unmute. Looks like it's working. Yeah. Great. Okay. Sorry. So first I just want to mention I know there's a lot of data in this presentation and a lot of technical analysis. So if at any point you have questions or you need further clarification or explanation, you know, feel free to interrupt me and I'll stop and explain anything you have. So the purpose of this study is to establish a rational nexus between non-residential development in Medford and the need for affordable housing. And then also determine what is a proportional leakage fee to mitigate the impact of that development. And then lastly, to recommend appropriate fee levels for the city to implement a housing leakage fee if it chooses to do so. So the analysis we did sort of had four components. One was to forecast 10 years of development that would be subject to the linkage fee and the tenant industries and employment. That's really the foundation for the rational nexus. It's that development and employment growth that's going to generate demand for affordable housing. So based on that projection, we then estimated the impact of these new jobs on the demand for affordable housing. The next step was to calculate the funding gap to build that housing to meet demand and from that funding gap, what would be a minimum and alternative linkage fees that the city could implement. And then lastly, before making recommendations, I analyzed the impact of different fee options on Medford's economic competitiveness because the city wants to, you know, be cognizant of not establishing a fee so large that it might deter future development in the city. So the foundation for this, sorry about that, the foundation for this was market conditions in the city and the region. So this is a very high level overview of sort of the market conditions that informed our thinking about future development. First, in terms of the office market, as I think everyone's aware, the impact of the pandemic has really changed demand for office space with the growth of hybrid work and remote work. So there's been declining demand for office space and there's currently now over 45 million square feet, almost 24% of office space in the region is vacant and available for lease. And net absorption was slightly positive in 2025, but that's following very steep negative absorption, which is sort of the vacating of office space of millions of square feet in the last few years. The lab market is even in worse shape. There was a lot of overbuilding of lab space, you know, when demand was very high after the pandemic. So currently there's 34% of available lab space, almost 20 million square feet. And that's an increase of over 405 million just in 2025. So there's still speculative lab buildings that are still coming online and not being occupied. And this supply, you know, is sufficient to meet demand for 8 to 10 years if we even reach the peak absorption we hit from 2019 to 2023. So it's a very tough lab market and you probably are aware of that too for some of the lab projects that were proposed in Medford and have been canceled. The industrial market is healthier. The availability rate is a little over 12%. There's been positive net absorption in sort of the inner, the urban market, which Medford is part of. And one of the areas where we're seeing increased demand is for small flex R&D space to serve the growing advanced high-tech manufacturing firms in the region. And that's reflected, you'll see in a minute, on some of the projects that have been proposed in Medford. So the other thing we looked at in projecting future development is what is the current pipeline of projects in the city. And this lists those five projects that represent a little over 314,000 square feet of space. You know, two of them, two retail projects are already under construction. The two industrial projects, you know, both of which are serving some of that R&D market that I talked about, have been approved and are likely to go into development over the next 10 years. And lastly, there's a, 16,000 square feet of retail and restaurant space that's been proposed as part of the transom development on the city-owned lots in Medford Square. So the other part of our analysis was actually speaking to real estate developers active in Medford and real estate brokers to get their perspective and better understand their plans. So, you know, this slide kind of summarizes what we learned from that, which reinforced what the market data has told us, you know, very tough market for office space and lab space and developers. don't plan to nor do they expect to see new office or lab development over the next five to ten years. And they also noted the cost of construction and interest rates making projects harder to pencil out. The positive side for Medford is there's a very strong retail market, a lot of tenant demand for retail space in the city, and developers generally felt the strongest development opportunities were in mixed-use residential development and in hotel projects. And they also noted, as I said, this demand for industrial space for high-tech manufacturing. You know, the advantages they pointed out for Medford are its location, the ease of the commute. It has higher population density and higher income than some of the surrounding suburbs that, you know, fits into the real estate market demand. And the weaknesses developers cited were the limited available sites, site conditions that might require a lot of investment to get them ready for development, and site owners who aren't always supportive of development or interested in development. So based on this market analysis, the interviews, and the current pipeline, we've forecast a little over 409,000 square feet of new development. And that really has two pieces to it. One is the existing pipeline I just mentioned of 314,000 square feet. And then we're projecting two additional projects. One is a 75,000 square foot new hotel, and that reflects a hotel developer that's developed in Medford, you know, expecting to build another hotel in the city. The likelihood that there'll be another significant mixed-use project that will bring another 20,000 square feet of ground floor retail space, and we're projecting about 12,000 of that would be for restaurants and 8,000 of that. would be for retail stores. So this table kind of breaks down that development by different uses, which then we translated into specific industries and employment, which is the next slide. So here we provided more detail of the likely industries to occupy that development. Some of these industries were directly tied to the use, like a hotel and a grocery store and auto dealer. For the industrial projects, we sort of relied on the developer's expectations of what type of industries would occupy that space. you know, they indicated a mix, not just of manufacturing firms, but of some e-commerce firms, some contractors. And then for the retail space, we assume some mix of personal service businesses, medical offices, which reflects the type of uses we're seeing in a lot of ground floor development in the city. So overall, this resulted in a projection of 640 seven new jobs from that, you know, 400,000 square feet of new development. And we relied on, you know, data on the typical number of square feet per employee for various uses, as well as information from some of the developers as to what they expected to be the employment level. So our next step with these 647 jobs was to estimate how much demand for affordable housing would would be generated by that new development and employment. And we're projecting 31 new residential units would be necessary for people at low and moderate income levels. And this was based on a survey we did of employees to ask them whether they moved to Medford as a result of their job here or whether they looked for housing and didn't move because of the cost. And that indicated we had a little less than 10% of employees who were likely to move or demand housing in Medford. And then we also applied the occupations and earnings from the jobs, you know, we forecasted in different industries to figure out whether these, you know, workers and their households would be low or moderate income. So that's how we ended up with those 31. The 18 low income units we're assuming will all be rental housing, and the 13 moderate income units we're assuming will all be ownership housing. And that sort of reflects the city's policy of trying to promote affordable ownership as well as rental housing. So the next step was figuring out what subsidy would be needed, what we call the financing gap that would be needed to build these 30 million units of affordable housing. And then what we call the maximum warranted linkage fee. So that represents the total subsidy needed to build the affordable housing divided by the projected square feet of new residential development. And the subsidy was calculated a little differently for rental housing versus ownership housing. For rental housing, we took the total development costs, or TDC, to develop those housing units. And then we subtracted the amount that could be financed based on the occupants paying 30% of their rental. of their income towards rent and then making an adjustment for vacancy and operating costs. And the resulting, you know, funding could potentially provide some financing. For ownership subsidy, it was the total development cost minus the proceeds from the sale of the unit. And we based the sales price on the buyers providing 30% of their income for principal, interest, taxes, and insurance, and providing a 4% down payment, which is what a number of affordable housing projects or programs are based on. So some of the key assumptions we had to figure out, what will it cost to build an affordable housing unit in Medford? And the figure we came up with is just shy of $595,000. And this was based on, you know, primarily data we got from developers who have recently built in the city. So we've assumed acquisition at 75% a unit, $75,000 per unit, construction costs at $350 per square foot, and then the soft cost contingency at 35% of construction costs. So to calculate the subsidy for the affordable rental units, we took those 18 units, multiplied them by the development cost per unit to get a total development cost of $10.7 million. The gross income of those tenants based on the estimated income they would have was 254,000, we subtracted a 3% vacancy, and then we subtracted these estimated operating costs, which were 17,600 per unit. That was data based on the Mass Housing Partnerships portfolio. And as a result of that, there was really no net operating income available to finance any of those costs. You can see there's a negative 70,420 operating income. The full development costs would have to be subsidized for these rental units to be built, and they'd probably need some additional rental income subsidy, perhaps from Section 8 vouchers, to be feasible. So the funding gap for the rental housing is $10.7 million. For the ownership units, once again, we took those 13 units, multiplied them by the development costs per unit, to get total development cost of $7.7 million. The sales proceeds was able to provide $4.2 million, so we have a funding gap for the ownership units of $3.5 million. So to calculate the total subsidy and the warranted linkage fee, we added together both of those subsidy amounts, 10.7 and 3.5, to get to $14.2 million. That's the subsidy you need to build the 31 units. We divided that by the 409,100 square feet of expected development. So we get the maximum subsidy of $34.75. So that's what you would meet the sort of proportionality test under the law for establishing a fee. You could go as high as that, and you'd fall within the legal parameters. But in reality, Many affordable housing projects get funding from federal sources, low income housing, tax credit, state programs, so usually the local share doesn't have to cover the full funding gap or subsidy needed. And this data just shows some of that information from projects in the Boston area over the last decade or so, maybe a little longer, that we've collected from studies we've done and from Mass Housing Partnership. And you can see there's a lot of variation here. but they're all considerably less than 100%. The MassOwning Partnership portfolio between 8 and 10% of local funding. Cambridge seems to have the largest share at 39% for rental units and 57% for some ownership units done in the late 2000s. So this is a factor to take into consideration when setting the fee. So the last sort of part of our analysis was how the potential fee would potentially impact development economics and Medford's competitiveness. And there isn't, you know, a one certain pathway in which Introducing a new fee will impact development economics. There are sort of three possibilities. And some of these possibilities might vary based on the particular site, the particular developer, market conditions over time. But the first possibility is the new fee leads developers to pay less for land. And therefore, the person who really will bear the brunt of the fee will be the current landowner. Rents will stay the same. Total development costs will stay the same. Just land values will go down. And that's kind of what a classical economist would tell you will happen in the marketplace over time. But that might not happen in every project. The developer may already have acquired the land. It may take time for the development and land market to adjust. So another possibility is that the developers pass on the full cost of the new fee to tenants through increased rent. And this could happen in a market where there's strong demand for real estate and limited supply, such as happened in the early 2000s with the lab market. Companies would pretty much pay anything to get space because there was such short supply. But the impact of increased rents is that Medford's rent would go up, and it might be less competitive with surrounding communities. It might get way less tenants. So that's another, that's an avenue we looked at. And lastly, developers aren't able to pass on that fee to tenants because of market conditions, and they have to absorb that fee themselves. And therefore, the development cost will increase, they'll get the same rent, and their returns and their investment will go down. And the same thing will happen for the equity investors in the project. They'll have to put more equity in. They'll get the same return because rents are the same, but their return on capital will be less. So we did some scenario analysis to look at those potential impacts. But first, we sort of compared Medford's rents for office and lab, I mean, for retail and office projects to other communities. And if you look at the table on the left, Medford's asking rents typically are higher than your surrounding communities other than Somerville. That's indicative of Medford's desirability as a location for office and retail tenants. So if a fee was passed on to tenants, it would increase your rent differential somewhat with surrounding communities, although your rents are much lower than Somerville. So you'll still be very competitive with Somerville, even if you would adopt the full $35 fee. But as you can see on the table to the right, you know, a fee of $5 or $10, you know, has a very modest impact on rents advertised over a 10-year lease. It would increase it by, you know, 1 to 2%. And that's unlikely if a tenant, you know, thinks Medford's the best location, that increase in the rents unlikely, you know, to cause them to go to another community. So the next part of the analysis was the impact of the fee on developer and equity returns. And we looked at two hypothetical real estate projects. One is a 20,000 square foot retail project, and we looked at this under two development cost scenarios because we got different estimates for what it would cost to build these projects. So we did a low cost scenario at $450 a square feet and a higher cost one at $600. And then we did a hypothetical 75,000 square foot, 150 room high quality hotel with development costs at $300. thousand dollars per room. So for the developer's return, what we did was look at what the developer's return on cost would be without a fee. And the developer's return on cost is the standard that a lot of developers use when making the decision about whether to proceed with the project. and are calculated by dividing their net rental income over the development cost. And typically in Boston Bay, a lot of projects, certainly office lab projects, are looking for a return on cost. 7% to 8% is fairly typical. So the fee increase would increase the development cost, but not the income, and therefore, they're going to reduce the developer's return on cost. And our goal was to try and keep the impact close to 25 basis points, a basis point is a hundredth of a percentage point. So the return, we're hoping the return impact is less than a quarter of a percent. So the developer is still going to be very close to their objective. their goal in terms of return on cost and the project wouldn't be deemed infeasible. For investor, we're assuming here under the investor return scenario that the investor funds the entire fee, which seems plausible because if the rental income isn't increasing, they can't borrow more money. So if they have to come up with more money to pay the fee, they're going to likely go to their equity investors. So the equity investors are increasing their investment amount. They're getting the same income. So their return on investment is going to go down. So we worked at a scenario where they initial return without the fee would be 12% or 15% and then what the impact would be of adding the fee. And our standard here was to try and have an impact of less than 50 to 75 basis points to keep the equity investor once again close to their target return and likely to proceed with an investment. So this table summarizes the results for the two retail projects. And, you know, the second column from the left shows, you know, what the cost would be with no fee. And then you can see the increase in the fee for options of $5, $10, $20, and the 34.75 maximum fee. And then, you know, what the change in the developer return on cost is and the equity investor return is, you know, for those different fee increments. And, you know, in both of these scenarios, there's really a modest impact. on developers' return on cost. If the fee is 10% or less, you're well below the 25 basis point threshold here. And for the developer, for the equity investors, you know, once you get to a $10 fee, you're getting over that sort of threshold. So this seems to indicate that keeping the fee somewhat below $10 would be needed to reduce the risk that you might chill equity investments. And then this table shows the similar results for the hotel development. And once again, the impact on developer's term returns is quite modest, even up to a $20 fee. But once you get to a $10 fee, you're potentially at the risk of undermining the investor's ability to undertake the project. So our conclusion from this analysis is you probably want a fee that's somewhere between maybe five and nine, five or $8 to minimize its impact on development and investment. So the other issue we took into consideration, we thought it's important to be aware of is what the link affordable housing and job linkage fees are in other communities in the Boston area. In this table, you can see Boston, Cambridge, Somerville established these fees some time ago. They've had them for quite a while. But more recently, we've seen Everett, Lexington, and Watertown add these fees as well. And the amount of the fee varies quite a bit. Cambridge has the highest fee at almost $38. You know, Semerville and Boston have fees that are, when you combine the housing and jobs fees, they're between $20 and $30. And then, you know, Lexington and Watertown are in this $9 to $12 range. And then Everett has the smallest fee, which ranges from $2 to $4, depending on the size of the project. Project size thresholds vary somewhat from $15,000 in Everett and Somerville up to 50,000 in Boston. And, you know, communities also have varied somewhat as to whether or not they exempt some portion of the space from the fee. So just to conclude, what are my recommendations for the city as it goes forward? We recommend you set a fee level between $5 and $8 per square foot. And you set the project size threshold at $10,000. And that's lower than other surrounding communities. consistent with what your existing policy is in terms of other linkage fees you have for infrastructure and public services. So it seems to make sense to have this fee also consistent with that. And sort of because your threshold is kind of lower than other communities, we recommend you have a lower rate for projects between 10 and 30,000 square feet. Smaller projects tend to have tighter budgets. And given that and the thresholds in other communities, we think that would be a good policy. And then we also think it's wise to offer developers other options to satisfy this requirement. They could pay cash, but if they're willing to do something that has an equal value or greater value than the cash, but takes another form that helps the city develop affordable housing, you know, that option should be in the ordinance. let the Affordable Housing Trust kind of review it and judge that. So an example of that might be if a developer has a large site and they want to donate some land to the city that could be used for affordable housing, that might be an alternative to paying the cash fee. Or if it's a developer of a mixed-use project and they want to increase the number of affordable units beyond, you know, what's required under your inclusionary zoning ordinance, you know, that might be another option. And the benefit here is the developer has more flexibility and the city might get something that will actually allow it to build affordable housing units more quickly than collecting the cash, letting that cash accumulate until it's large enough to subsidize a project. In terms of payment options, we suggest either having full payment at the sit-in occupancy date, that's similar to what Cambridge does, or allow two payments with half at the sit-in occupancy date and half one year later. The advantage to that is it lessens the financial burden on developers because at least the second fee they're not paying until they've generated some income from the project. We also recommend that you adjust the housing linkage fee annually based either on the CPI or the RS means construction cost index since development costs are going to increase over time, construction costs are going to increase over time. collect the fee and it takes a few years of fees before you're dispersing it for a project, you've gained some increased over time. And then lastly, to sort of review and reset the rate every five years based on changed market conditions. You know, right now the market conditions are not very favorable but if, you know, ten years from now, five, ten years from now, things get better, the economics might be different. You might, it might be, wise for the city to adjust the fee. So thank you. It's been a long presentation. You've been a patient audience and happy to answer any questions you may have.

[Zac Bears]: Thank you, Carl. If we could just stop the screen sharing for a minute. We might have to start it again, but this is a technical presentation and I appreciate the detail. Just wanted to first kind of set the stage a little bit. We're having this conversation because the city council made an effort to have the state pass a home rule petition that allowed us to do the affordable housing linkage fees, correct?

[SPEAKER_00]: My understanding is you already have that authority under the home rule petition that gave you authority to establish your existing linkage fees?

[Zac Bears]: And then, so sorry, the home rule was about being able to change it based on the index instead of the, yes, okay, great. And the city has had this authority for decades but has not used it.

[SPEAKER_00]: Correct.

[Zac Bears]: All right. Just a couple more clarifying questions, and I know we have questions from councilors. I just want to make sure I got it right. Under the study, we would be legally permitted to do something up to that 34, was that 34.75? Correct. All right. And most of the reasons that the recommendation is to do something lower is about kind of competitiveness and impact of the cost on developers and investors.

[SPEAKER_00]: Correct.

[Zac Bears]: Okay, great. With that, I will go to Councilor Leming.

[Matt Leming]: Yes, thank you very much. I'm particularly excited about this presentation and the results of this study. So I'd like to thank you, Mr. Seidman, as well as Ms. Buckingham for both your work on this. This has really been a long time coming. I remember last term when we when I was editing drafts to add a fifth linkage bucket to our current ordinance so that we can put money into the Affordable Housing Trust that we had to do this study and I'm very excited to have heard the results of the presentation. I just have a couple of clarifying clarifying questions that I that I hope you can that I hope you can answer. One of them is just, you know, it's a very, very simple one, mostly for any folks watching. So the current linkage fees that we have charge For instance, for any commercial development, for water, sewers, roads, parks, police, and fire, at most, I believe, about $1,700 per 1,000 square feet of gross floor area, or $1.70 per square foot of development. And that was adopted in 1990, and we've hardly updated it since then. So that's why it's particularly low. And your recommendation is at the very least, we should be charging $5 per square foot of any new development for the affordable housing bucket. Is that correct? Is that a correct summary?

[SPEAKER_00]: All right, that's my recommendation, yes.

[Matt Leming]: Okay, okay. Thank you. Thank you. That's what I thought. I just wanted to be sure that I had because I think that's important to recognize how little we're charging and how little we've been charging for the past 30 plus years with our linkage program. You're the first person who's really come in and done an economic analysis of this and you're recommending at the very least that we charge that we charge three times as much money for affordable housing as we're charging right now for any of the other programs. And so I think it's important for the audience to recognize over the past few decades how much money we've essentially been leaving on the table. So thank you for that. The other question, which is slightly more technical, the current linkage program has different charges for hotel office commercial and industrial developments. Would your recommendation be that we sort of moderate the affordable housing buckets based on what the kind of development is? Or should we just have like a flat fee?

[SPEAKER_00]: Yeah, I mean, my recommendation is to have one flat fee. I think that it's simpler administratively. It allows developers to know what their fee is going to pay. independent of how the programming might change over time. And some mixed-use projects, you know, that are being proposed, you know, are kind of complicated because they have, you know, they're looking at multiple types of tenants. You might have retailers and manufacturing and offices in one building. that gets very complicated, how do you come up with that fee? So I think it's simplest to have one fee that's sort of consistent with the policies in other communities in the Boston area. And that hasn't seemed to pose a problem for any of them. So I think that's the easiest path to follow.

[Matt Leming]: Okay, thank you. Thank you very much. And last question, and this is a little bit more subjective, but with the $5 to $8 per square foot recommendation, how much leeway would you say that we sort of have there? Like, it sounds like $5, you know, that's the absolute baseline you said we could go up. Like, legally, we go up to, like, 35 dollars, but that that could put a chill on the market. So it sounds like if we were just to take, like, the 8 dollar recommendation, that would still not really have, like, too much of a chilling effect on development chances regardless. I just want to understand the range between 5 and 8 if you could talk about that.

[SPEAKER_00]: That's my judgment based on development economics right now that it could go up to $8 and I think you'd be unlikely to make what would otherwise be a feasible project infeasible.

[Matt Leming]: Okay, those are the questions I had. I will just say that, once again, I'm very excited about the work done on this, very proud of the Office of Planning, Development and Sustainability, as well as your firm for carrying this out. I believe, if I'm not incorrect, that the next steps for this would be, you know, were the council to vote to accept the recommendations, we would take the paper that was last referred to the admin finance committee to add a fifth linkage bucket, pass that for a third reading with the recommendations from this study in there, and then they would, and then And then we would then be able to charge those to any new developments after that date. That was mainly a comment for my colleagues. I believe that's procedurally where we'll go from there, but that's all that I have. Thank you very much for your time, sir.

[Zac Bears]: Thank you, Councilor Scarpelli and then Councilor Tseng.

[George Scarpelli]: Thank you, Mr. President. And thank you for your presentation. It is a lot. So I think that it's a lot to take in, but I think that what I'm really focusing on is making sure that we can move forward with this option and support our affordable housing trust, but at the same time, and using the linkage, but at the same time, we're seeing neighboring communities at work in some of them. And we saw the impact of the lack of new growth for very different reasons. And I just, as we move forward with our new growth and we're seeing some movement, I just want to make sure that our council really works together to make sure we find that number. I, you know, the number that you set forth between five and eight, it's kind of scary if someone wants to go to the full $34. I think that that would scare a lot of our possible development away. So I think that this council and further discussions. I think I appreciate the understanding of the levels and also understanding where are the communities have failed or have stalled because of the added fees and the added regulations toward new growth. So I just wanted to share that with my councilors. I want to find that balance that we all work together to make sure we move something forward, but at the same time really understand where we are when it comes to not going too high out of fear of losing new growth and then find that balance we're bringing in enough to support our trust. So thank you.

[Justin Tseng]: Thank you, I really appreciate Councilor Scarpelli's comments on this. Balance is key. And it's important that we have new growth, that we bring more housing and development into this community. Not only for the folks who can't afford housing now, but also for the taxpayers who are funding city services, face the impact of Prop 2.5 over and over again. At the same time, it's really important that developers coming into Medford pay their fair share for the impact that they're having on this community, for their employees who need housing in this community, for the impact on roads and public services as well. And we have to be fair there as well to those who already live in this city. I really appreciate this report. It's very helpful seeing the breakdown step by step of how you've gotten to this number. Like Councilor Leming said, it's rare that we get such a detailed economic analysis, and it's very helpful to see it. I just have some questions about the kind of the basis for the $5 to $8 per square foot recommendation. I think as was alluded to tonight, the recommended fee is only, I guess, 10 to 27% of the range of maximum warranted fees. This study presents two incidence assumptions. First, the kind of rent passed through the tenants. Then you have the kind of absorption by developer investor returns. So I guess we have some kind of assumptions moving at the same time. Which of the mechanisms, I guess, or what blend of them drove the recommended range of $5 to $8 per square foot? Because I noticed that investor return impacts are markedly larger than developer return impacts at the same fee level. So I'm wondering how we calibrate.

[SPEAKER_00]: Yeah, no, that's a good question. I think I base that sort of $5 to $8 range on sort of the potential impact on investors. Because I think, you know, And I should say, different projects are financed differently, and different developers have different ways of raising their capital. So this is kind of based on a developer that would typically primarily rely on debt financing, but might get 30 to 40% of their financing from an equity investor that has these type of return objectives, which reflect the current market. If interest rates go down in two or three years, then these return thresholds go down too, and the impact might be less. So it is kind of reflecting the current economic environment and the current market environment. But it's sort of pretty much based on that impact on investors.

[Justin Tseng]: I see. So currently, like as the market as is for the types of developments that we A, are seeing come to Medford and B, potentially coming to Medford where there's most potential right now in the market, most of that's finance. Right.

[SPEAKER_00]: That way. And that's one of the reasons I typically recommend to communities to go back and look again every five years, because economic conditions change. And if interest rates are lower in five years, if something shifts in the economy such that there's more demand for office space or lab space or industrial space or something like that, and there's a shortage of supplies. Tenants are willing to pay more. You know, the economics should change, and a fee of $10 or $12, you know, might be viable. Got it.

[Justin Tseng]: So for that, we're mostly looking at supply and demand, interest rates, that kind of stuff.

[SPEAKER_00]: Yeah.

[Justin Tseng]: Got it. And then I had a question about the income mix and tenure split sourcing. So I'm curious what income thresholds define the kind of low income and moderate income categories. Is that based on Middlesex County, Medford? Is that?

[SPEAKER_00]: Yeah. It's based on the Boston area median income put out by HUD. Actually, I anticipated this question, so hold on. So, you know, it's based on HUD's FY25 area income limits for the Boston, Cambridge, Quincy metro area. And typically the low income households are 50% or less of area median income. And so for one person household, that's $57,900. And that goes up to $82,700 for a four person household. And moderate income is 50 to 80% of area median income. And that is $92,650 for a single-person household, up to $132,300 for a four-person household. And then the model also assumes that all low-income demand is met by rental and all moderate income demand is met by ownership.

[Justin Tseng]: Is that based on evidence about likely tenure choice?

[SPEAKER_00]: That's really based on city policy. So when we have the estimated demand for affordable housing, we typically will ask the city we're working with, well, what assumptions should we make about how many of these units you're hoping to build as rental income or or ownership income and so the preference to do all of the moderate income units as ownership was really what the city staff said kind of was reflecting, you know, city policy.

[Justin Tseng]: And could you explain to the council if we change those assumptions what other

[SPEAKER_00]: Yeah, I mean, as you can see, the funding subsidy that's needed, well, you know, is higher for the rental income than the ownership income. Now, that partly reflects the different income levels of the occupants. But I think it also reflects the high operating costs for affordable housing, rental housing. So since basically almost all of the income is going to cover operating costs, you need to more heavily subsidize the rental units. Now, the other factor is there's more federal and state sources available. to cover that funding gap for rental housing. You know, there aren't as many sources available for ownership housing. So the city typically would have to put more of its own money into affordable ownership housing. Thank you.

[Zac Bears]: Thank you, Councilor Tseng. Any further questions from members of the council? Seeing none, it does seem like the, at least as relates to Cambridge. they are financing with their higher fee a much higher share of their projects with local funds. And one of the issues that we have is we've been able to do affordable housing linkage fees since the 90s, and we haven't. So we don't have funds for our affordable housing trust. We don't have the infrastructure built up. And I do agree with my colleagues that there needs to be some sort of balance in, you know, maybe not going up to 3475 right away, but we're also behind the eight ball and the clock is ticking here. And, you know, by and large we, I'm not really super confident about federal and state funding sources to supplement and subsidize other parts of the construction that would be needed. So, I guess in general, do you see a relationship between, a higher linkage fee and more revenue coming in, and then a higher share of the projects in those cities being funded with the local funds?

[SPEAKER_00]: I don't think that's always the case. Yeah. You know, Boston, for example, you know, has had a lot of success. I mean, they do generate a lot of linkage-free revenue, but they also are able to get a lot of state funding for projects as well. So it's hard to say. And it's also influenced by, you know, by, you know, there are a lot of affordable housing developers in Boston. And there are a lot of developers with a lot of experience getting low-income housing tax credits and packaging state subsidies and stuff like that. So I think that also, you know, plays a role as well. In Cambridge, Because I'm working on a study in Cambridge right now, but the linkage fee has been a very significant source of revenue over the last 10 years or so. Because Cambridge has had a huge development boom. But the city also has a lot of money from the Community Preservation Act that they're putting into the Affordable Housing Trust. And they're also appropriating money every year. I don't have the data right off the top of my head, but maybe two-thirds of the funding that's going into the trust, and they have a few other smaller sources going in. So two-thirds or three-quarters of the Cambridge funding going into the trust isn't coming from linkage. So even though they have gotten a lot of linkage, they have put a lot of other funding into their trust.

[Zac Bears]: Got it. So the relationship isn't quite, yeah, I mean, we don't have a lot of other funding to put into our trust. So I think that's one of the issues here. And I think that brings me kind of to my other big question, which Councilor Tseng was touching on a little bit. But what are the assumptions underlying the presumption of non-viability? Like what is making, what are we assuming in the analysis is going to make a project not viable? Because when I'm looking at the figures, I'm seeing, you know, that, you know, a 1 to 2% reduction in investor return on equity, you know, between a $10 fee and a $20 fee.

[SPEAKER_00]: Yeah, no, you raise a good point. And it's, you know, the assumption I'm making is that there's a sort of investment threshold that developers have. And if the fee increases to such a point that they don't meet their investment threshold, that they don't get close to their investment threshold, they won't undertake a project. So, but, you know, different developers might have more or less, you know, flexibility in whether they undertake a project. So, you know, some developers will develop a project and hold it for their own benefit over time. Some developers build a project, get it occupied and meeting their investment target, and they sell it off to investors. So the developers who are going to sell it off to investors, they're much more cognizant of that return because they have to achieve that return that the pension fund or other investors are going to require to purchase that property. So they tend to be a little more rigid. If I'm a developer that's buying the property and I'm going to hold it myself, well, maybe I'll take a lower return now because I actually think Medford's going to do a lot better in the next 10 years and my rent will increase over time. So, you know, it's not a hard and fast rule. Different developers are going to approach it differently, have more flexibility. And as I said earlier, different developers fund their projects differently, and that could also affect it too. So, you know, this is a hypothetical scenario. It doesn't reflect, you know, every possibility. So, yeah, you know, it's certainly possible that a higher fee, there are developers who a higher fee would still make projects viable for them, you know?

[Zac Bears]: Yeah, and I guess I'm just wondering, Why a, you know, are there specific projects in your analysis that you think a $12 or a $16 fee would make not viable, that an $8 fee wouldn't? Because it just feels like we're, you know, we're talking about millions of dollars for the Affordable Housing Trust, kind of on this, and, you know, again, I'm not, I didn't do the analysis, but they seem, I'll let you characterize it. Are they conservative assumptions?

[SPEAKER_00]: Yeah, I'd say they're somewhat conservative assumptions, yes. And you know, there isn't a hard or fast rule. You have to make some assumptions and come up with some scenario for the purpose of doing the analysis. And I could have worked at a lot more scenarios, but then you just end up with so many different scenarios. And which ones do you ultimately want to base your decisions on? But yeah, it's not a hard and fast rule. And the other factor is different developers might be able to adjust their costs in other ways to compensate. They might be able to negotiate a lower construction cost. Maybe the contractor really needs work, and they'll take a small profit and save some money on the contractor. Or they have in-house legal counsel, and they don't pay as much for lawyers. So you have a lot of components in a development budget. And the developer might be able to offset an increased fee through some of those other costs. And also, as I mentioned, if they haven't acquired the land yet, they'll take that fee into account. And they'll pay less for the land. So the landowner will ultimately have to take a reduction in what they would generate for the land sale. the impact makes the land, you know, the fee makes the land, you know, less valuable. So, you know, it's all of those things. That's why I sort of said up front, there are these different possible pathways through which a fee might influence the economy and, you know, there isn't a lot of circumstances determine which one might have it. So I think, you know, the $5 to $8 recommendation is sort of a conservative recommendation on my part to sort of minimize the potential to impact some projects. But I can't say that, you know, a $12 fee, you know, would be disastrous and you'd see development not happen, you know, with a $12 or $15 fee. I don't think that's true.

[Zac Bears]: All right, I appreciate that. And my last question, and then we can move to the next meeting, and I see the room getting full. We will get to everything. In terms of the review, is there, you know, I know you mentioned a five-year review. Does that look like going through this entire analysis again every five years, or some sort of slimmed-down version of it?

[SPEAKER_00]: I mean, that's typically what other communities have done, is undertake a new nexus study that has a similar scope, yeah, every five years.

[Zac Bears]: Got it. And is there, like, a threshold of some economic indicators that you think it might be useful for us to use, maybe to say, maybe we should review this? Like, let's say that the Fed rates under 2.5% in 18 months. Should we maybe look at this sooner than that and raise the fee, or?

[SPEAKER_00]: Well, I wouldn't just do it based on interest rates. I would also see what's going on in the economy. If the office vacancy rate and lab vacancy rates decline a lot, you start to see, you know, like if, you know, all of a sudden every AI company starts to move into Boston region and starts looking for office space and all of a sudden the vacancies go down and there's a huge rush to build, you know, more office space to accommodate them, you know. Obviously things are different and you might want to, you know, reconsider what your fees are. Yeah. All right.

[Zac Bears]: Great. I appreciate it. Do we have any further questions from members of the council? Catherine, anything you want to add before we wrap up?

[Katherine Buckingham]: Yeah, I'll just follow up to say that if Councilors have additional questions for me that I can share with Carl Seidman, please feel free to reach out. I can share the full report again if you want to take another look now that I think it's really helpful to have the context before like looking through the full report. So I'll share that with all of you, follow up with questions and from there I can provide any additional feedback you have and Carl can figure out if that, you know, we need to make edits to the report, et cetera, and then we will share the final report once we've integrated any feedback.

[Zac Bears]: Great. I think, you know, other Councilors are welcome to provide additional feedback. My feedback is, you know, I think As one person, I would be inclined to maybe push the envelope a little bit above $8, and I don't know if that's going to impact the reporter if we could talk about maybe some of the assumptions that were made in getting to that $5 to $8 range and potentially, you know, I think it's helpful to hear the context, right, of like there are significant number of assumptions here and, you know, $30 is probably a significantly impactful fee but, you know, something maybe $10 or $12 might not be. And I say that not just, I think there's a context of what our needs are for bringing in affordable housing revenue that's important and seeing what other communities are doing on these fees, you know. If we were at 10 or 12, we'd be closer to Watertown, you know, we'd be above Lexington and Everett certainly but like significantly below Somerville and Cambridge. So it just seems to me that including some of those factors and at least noting that it might not be horribly bad if we were a little bit above that $8 figure would be helpful from my perspective. Is there any public comment on the draft affordable housing nexus study? There's one on Zoom. Anyone in the room want to talk about this? Okay. Give me one second. I will go to Zoom. Just taking a second here. Mr. Castagnetti, you have the floor name and neighborhood for the record, and you'll have three minutes.

[Andrew Castagnetti]: Thank you, Councilor Bearsley. Andrew Castagnetti, East Method Mass. I have one simple quick question for the two speakers, and that is if they build these 1,000 square foot rental units, what would be the rent for them versus what is the going rent today. Thank you.

[Zac Bears]: Thank you. Catherine, could you just talk a little bit about what these units would be in terms of AMI and kind of what the rents are like for those?

[Katherine Buckingham]: Yeah. So I believe these would all be at 80% AMI or below.

[SPEAKER_00]: Well, the rental units would be 50% AMI or below. Oh, right. Yeah.

[Katherine Buckingham]: OK. Yeah. So I don't know if you want to add.

[SPEAKER_00]: Yeah. don't have the figure off the top of my head, but essentially the rent is set at 30% of the household income. So just assuming the household income, I have to do the arithmetic in my head, is $50,000 of household income, then the rent would be 30% of that, which is $15,000 divided by 12, so $12.50 or so a month, and that is probably, you know, half or less of what the market rent is right now.

[Zac Bears]: And that would be at like 50% AMI rental units.

[SPEAKER_00]: Right, right.

[Zac Bears]: Okay. Great. All right. Seeing no further public comment and no further questions from members of the council, is there a motion on the floor? Is there anything else you'd like to add before we wrap up? Is there a motion? Vice President Lazzaro.

[Katherine Buckingham]: Motion to adjourn.

[Zac Bears]: Motion to adjourn by Vice President Lazzaro, seconded by? Seconded by Councilor Tseng. Mr. Clerk, please call the roll.

[Rich Eliseo]: Councilor Kelly? Yes. Councilor Leming? Yes. Councilor Malay? Yes. Councilor Scalfelli? Yes. Councilor Tseng? Yes. Vice President Lazzaro?

[Zac Bears]: Yes, 7 in the affirmative, 9 in the negative. The motion passes. Committee of the whole meeting is adjourned and we'll be starting our regular meeting in about five minutes. Thank you.