POSSIBLE
SOLUTIONS
TO
THE
GRADUATE
HOUSING
SHORTAGE
AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
by
Andrew Montelli
B.S., Worcester Polytechnic Institute
(1982)
SUBMITTED IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS OF THE
DEGREE OF
MASTER OF SCIENCE
IN REAL ESTATE DEVELOPMENT
at the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
October 1986
oc
Andrew Montelli
The author hereby grants to M.I.T. permission to reproduce
and to distribute copies of this thesis documnt in whole or
in part.
Signature of Author__
Department of Urban Studies and Planning
7~ ctober 1, 1986
Certified by
Lawrence S. Bacow
Associate Professor of Law and Enviromental Policy
Department of Urban Studies and Planning
Accepted by
James McKellar
Chairman
Interdepartmental Degree Program in Real Estate Development
POSSIBLE SOLUTIONS TO THE GRADUATE HOUSING SHORTAGE
AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
by
ANDREW MONTELLI
Submitted to the Department of Urban Studies and Planning
on October 1, 1986, in partial fulfillment of the
requirements for the Degree of Master of Science in
Real Estate Development at the
Massachusetts Institute of Technology
ABSTRACT
an examination of the current graduate
This study is
student housing shortage at MIT.
In the past four years,
three studies have found that approximately 50% of the
graduate student population would prefer to live on-campus.
However, there is room for only 26% of the graduate student
population in the existing dormitory system.
the
Graduate students face a difficult situation:
alternative to on-campus accomodations, housing in the local
Local
rental market, is expensive and in short supply.
In
rents have more than doubled in the last four years.
addition, a vacancy rate of around 1% means there is very
little housing available.
On-campus graduate housing,
an
has
become
located,
priced and well
reasonably
increasingly attractive option to graduate students who
cannot afford housing in the local market.
This study begins with an overview of the local market.
Currently,
The political climate in Cambridge is examined.
the local goverment and also several. organized community
in
MIT
are opposed to further expansion by
groups
Therefore, an on-campus site is proposed as
Cambridgeport.
the most suitable candidate for development.
A financial proforma analysis indicates the project will
The amount of this
loose money for the first few years.
shortfall is then calculated. Having determined the size of
the yearly gap between income and expenses, the study
The advantages,
proposed nine options for reducing it.
disadvantages, and :easibility of each option are discussed.
Lastly, a specific strategy for closing the gap and thereby
developing graduate housing at minimum cost to MIT is
k-coposed.
POSSIBLE SOLUTIONS TO THE GRADUATE HOUSING SHORTAGE
AT THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
ABSTRACT
2
..............................................
OVERVIEW
CHAPTER ONE:
5
............................
5
...........................
A.
Introduction
B.
The Political
C.
Resources Available to MIT
D.
Rent Policies
E.
Approach and Organization
8
Problem ..................
9
.............
10
.........................
12
.............
DESCRIPTION OF SITE AND THE PROPOSED
CHAPTER TWO:
DEVELOPMENT ...................... 15
A.
Location .............................. 15
B.
Parking . ............................... 17
C.
Unit Mix and Unit Size ................ 18
D.
Unit Design and Amenities .............. 25
CHAPTER THREE:
Pro Forma Analysis .............. 27
A.
Introduction .......................... 27
B.
Construction Costs .................... 28
C.
Operating Costs
D.
1.
Capital Fund Reserve ........... 34
2.
Adjusted Operating Expenses
....
36
Financing Costs ....................... 40
E.
Soft Costs
1.
Soft Cost Budget ............
...
44
2.
Construction Period Interest
Charges ...................
...
45
Interest on the Unspent Bond
Proceeds ..................
*..46
3.
F.
Land ....................... ...........
47
G.
Pro Formra .................. ...........
48
RESULTS .............. ...........
50
A.
Introduction ............... ...........
50
B.
Options
CHAPTER FOUR:
C.
1.
Reduce the Number of Structured
Parking Spaces ............... 51
2.
Build Extra Spaces and Lease
Them ......................... 52
3.
Lower the Interest Rate on the
Mortgage ...................... 54
4.
Add Equity, Either From the
Endowment, or Through Donor
Contributions ................ 56
5.
Reduce Construction Costs ...... 57
6.
Build a Smaller Building ....... 58
7.
Increase the Policy Rent From
90% of Market Value to a
Higher Rate .................. 59
8.
Reduce Operating Expenses ...... 61
9.
Assume Rent Inflation .......... 62
Conclusions ........................... 64
APPENDIX 1:
FINANCIAL CALCULATIONS ............ 68
APPENDIX 2:
CANADIAN HOME MORTGAGE CORPORATION
APARTMENT FLOORPLANS
.............
73
Overview
Chapter I)
A)
Introduction
MIT
first
recognized
the
importance
sufficient graduate housing in 1958,
the
of
providing
when the Committee
on
Future of the Graduate School set a goal of housing 50%
of the graduate student population on-campus.
declared
essential
that
if
The Committee
an adequate stock of on-campus
MIT
were to "maintain
the
housing
quality
was
of
our
graduate school, and continue to attract the best students."
However,
this
28 years later,
goal.
accommodates
The
just
the Institute has not yet reached
graduate
housing
26% of the registered
system
currently
graduate
student
population.
The
never
over
need
for additional graduate student
been greater.
the
housing
has
The MIT Housing Office reported
that
seven-year period from 1979-1985 just 24% of
graduate
students
actually
accommodated.
who applied for on-campus
the 1986-87 academic year.
the
housing
The situation has worsened
were
during
Of the 890 names originally
this
year's graduate housing waiting list,
were
able to obtain housing on campus.
only 150
Compared with
on
(17%)
the
housing situation at other universities, the shortage at MIT
seems
especially severe.
When the 1982 Report on Graduate
Student Housing surveyed graduate housing at
5
MIT,
Harvard,
and Princeton, it ranked MIT
the percentage of its graduate student
in
last
Chicago,
Columbia,
Stanford,
population
housed on campus.
recent
Three
student
graduate
studies
housing at MIT.
the
The 1982
for
demand
cited
Report
would
found 49% of the graduate student body
above
prefer
Sixty-three percent of the respondees to
to live on campus.
a
have confirmed
1986 MIT Department of Urban Studies and Planning Housing
Survey
indicated
additional
they would
units were built.
rent
on-campus
housing,
And a 1986 Graduate
if
Student
(GSC) survey reported 46.1% of the 1,600 respondees
Council
wanted to live on-campus.
The severity of the housing crunch is underscored by
GSC survey.
As The Tech reported on May 5,
1986,
the
8.8% of
the respondees would not have chosen to attend MIT for their
graduate
studies
if they had known of the difficulty
would face in locating graduate housing.
the
Extrapolated over
entire MIT graduate student population of
response
coming
suggests
5,000,
this
that approximately 440
students
regret
to MIT because of the insufficient
housing.
Since
MIT
is in competition with other leading
the
best
address
they
graduate
the
housing
students,
problem
universities
it will ultimately
if it
is
to
have
for
to
maintain
its
well-publicized Boston-area real estate boom of
the
leadership.
The
oast
five
years has only exacerbated
the
situation.
The
price of the average home has increased 64% in the past
two
Demand for On-Campus Graduate Student Housing
Table 1:
--------------------------------------------------
---Year
# of Applicants for
Graduate Student Housing
# of Beds
Available
---------------------------------------------------
----
1979
910
185
20%
1980
980
205
21%
1981
968
227
23%
1982
865
243
28%
1983
792
213
27%
1984
763
236
31%
1985
921
190
21%
AVERAGE
6,199
1,499
24%
years
from $95,000 to $156,000.
one-bedroom
apartment in Cambridge,
for $1,000 per month.
average
Massachusetts,
In addition to being expensive,
vacancy rate in the Boston area is only 1%.
housing cost and low vacancy rate,
students
rents
rents
the
The apartment
rental stock is in very short supply.
graduate
the
and the average two-bedroom unit
for $740 per month,
local
Currently,
Given this high
it is very difficult for
affordable
to
find
the
Institute is to
off-campus
alleviate
this
accommodations.
If
problem, its only
alternative is to provide more affordable
housing on campus.
The Political Problems
B)
additional
dating
between MIT and its
events
relations
antagonize
MIT would face
Cambridge neighbors.
graduate
in the Cambridgeport district immediately
adjacent
difficult
if it chose to
an
build
especially
housing
political
of
A long string
years has served to
30
back
build
to
where
graduate housing are very limited for
well as geographic reasons.
as
of
choices
MIT's
Unfortunately,
time
to the northwest side of campus.
Although the Institute
owns much property in this area,
most of this land is zoned
for
industrial
use,
residential
use
it.
rezoning
Such
residents,
who
and
would have
to
be
rezoned
before graduate housing could be built
have
would
be
opposed
successfully
by
for
on
Cambridgeport
delayed for
years
the
redevelopment of the two-million-square-foot Simplex project
that MIT is co-developing with Forest City Rental Properties
of Cleveland.
of
MIT
Simplex
near
This project is located only two blocks north
on Massachusetts Avenue.
site,
Like proposals
any plan to build graduate housing
for
on
the
land
MIT would be opposed on the grounds that it represents
further expansion by MIT into the surrounding neighborhoods,
which are themselves experiencing the scarcity and high cost
of housing.
If the Institute planned to convert any existing buildings
in Cambridgeport to residential use,
it would also have
to
go through the rezoning process.
In this case, too, it is
probable that MIT's plans would be opposed.
out
rules
off-campus
This likelihood
conversion and rehabilitation
as
a
means of providing housing.
MIT will find itself in a vulnerable position if it has
to seek rezoning for any parcels of off-campus land it
in
Cambridge.
The
Institute's best and most
owns
expedient
campus.
The
first benefit of an on-campus site is that MIT already
owns
choice
the
is
land.
already
to build graduate housing on
Second,
the
the
two possible on-campus sites
zoned for residential use.
Since rezoning is
are
not
required development can proceed much faster.
In addition,
a
to
new
building on the campus is less
opposition
likely
generate
from MIT's residential neighbors than one on the
fringe of campus.
By using an on-campus site, the Institute
can minimize both political risks and development time.
C)
The Resources Available to MIT
The
housing.
should
Institute is in a good position to develop
graduate
It already has several important resources, which
simplify
the
development
process.
Institute has available on-campus land.
First,
the
Second, unlike the
the Institute is assured of
private apartment developer,
Given the
of tenants.
supply
among
graduate students for on-campus hcusing,
doubt
new
housing would
filled
be
because of its nonprofit status,
three
percentage
Thus
MIT
could
Third,
immediately.
in 1986, means two to
rates).
points below commercial interest
process
development
the
enter
the
over
advantages
substantial
there is no
MIT can borrow at interest
(which,
rates below the market rate,
demand
demonstrated
large
a
with
residential
private
developer.
D)
Rent Policies
MIT
has
different
two
graduate students can afford,
housing.
is
regarding
how
much
and should expect, to pay for
These rent policies govern the maximum amount MIT
currently
housing.
policies
Any
graduate
willing to charge for its on-campus
housing
which is built on
will
be
Report
on
campus
priced according to one of these two rent policies.
first
The
Graduate
rent policy derives from the 1982
Student Housing.
This report suggested that on-
campus rents be raised and set at a maximum of 90% of market
rents.
rents
This recommendation was intended to bring on-campus
closer
to
those in the
marketplace,
and
also
to
the funds available for building future
increase
In
housing.
subsidize
this policy continued to
effect,
graduate
graduate students who live on campus by purposefully setting
their rent at a level 10% below what the market would charge
for
does
University,
Harvard
not
graduate
students by reducing their
graduate
housing
prices
Harvard
the
is,
that
value;
rent for a two-bedroom unit in its graduate housing
average
system
at 100% of market
rent.
its
subsidize
to
choose
neighbor,
MIT's
contrast,
In
housing.
comparable
a
the same as the average rent for
is
two-bedroom
apartment in the surrounding Cambridge rental market.
second
MIT's
sample
budget
Allowance (TLA),
by
Each year,
this office
issues
is
known
and is set using the U.S.
average
living
for
plan
the
as
MIT's
Total
a
their
Living
Bureau of Labor
expense
figures
for
The Financial Aid Office also sets a housing budget
Boston.
for
budget
current
Statistics'
established
help graduate students
to
This
expenses.
was
policy
Office.
Aid
Financial
rent
graduate
students.
the TLA,
sources:
This budget is
set
using
three
information from the MIT Housing Office,
and a survey of what students report they spent for housing.
Housing
living
consumes the largest chunk of a student's
allowance.
Financial
For
the
1986-87
academic
total
year,
the
Aid Office sample budget suggested $528 per month
for housing for single graduate students, and $621 per month
for married graduate students.
According to a conversation
with Ms. Dorothy Bowe of the Financial Aid Office in August,
1986,
these figures are thought to be realistic,
11
based
on
her
they
survey of what graduate students report
office's
spend for nousing.
Approach and Organization
E)
examines
thesis
This
building
for
options
MIT's
rent
additional graduate housing that meets the Institute's
criteria.
To
graduate housing,
School
new
calculate the feasibility of developing
the 2.0 acre on-campus site of the
Sloan
parking lot was chosen as the best possible location
for the development of new housing.
site-specific,
the
Although the study
key issues involved in building a high-
rise housing tower are nearly the same for all possible
campus
sites.
is
Factors such as hard costs,
on-
soft costs, and
length of construction change very little from site to site.
Financing
costs and operating expenses for the Sloan School
site would be very similar to those for the Briggs
Athletic
the
analysis
Field
conducted
MIT
for
site,
sites
identify
in
as
example.
Therefore,
this study can be applied to other
well.
The
purpose of this
those parameters that will affect the
any on-campus qraduate housing development.
potential
is
to
success
of
study
financial
The
lose
called
"the
shortfall gap,"
loss,
This
the first few years.
for
money
analysis indicates the project will
is calculated by subtracting what is
called
rent" from the project's projected
income.
the
"breakeven
The
"breakeven rent" is the sum of operating
debt service,
"breakeven
assuming 100% debt financing.
rent"
Comparing this
MIT's
by
the rental income dictated
to
value,
of renting graduate housing at 90% of market
policy
and
expenses
year
reveals that expenses would exceed income in the first
by $205,214, or $1.77 per square foot of the building.
the
determined
Having
between
for
options
the study proposes nine
and expenses,
income
gap
size of the yearly
The advantages, disadvantages, and feasibility
reducing it.
of each option are discussed.
Lastly,
a specific strategy
closing the gap and thereby developing graduate housing
for
at minimum cost tc MIT is proposed.
The following chapter,
School site and the site's handicap,
space.
parking
structured
parking
This
parking
must
describes the Sloan
Chapter II,
as
its necessary role
be built as a
that
means
requirement
of
part
new
any
development there. A floorplan for each type of housing unit
in
the
mix.
building is proposed,
as well as a suggested
Chapter III is the pro forma financial analysis of the
The
(construction
costs,
financing
costs,
and
operating
land cost),
expenses,
The final chapter,
13
costs.
soft
are estimated based
discussions with a number of professionals.
is determined.
development
five component costs of the
development.
gap
unit
The
on
shortfall
Chapter IV,
lists
MIT's
nine options for reducing this gap,
and
proposes
strategy for limiting the Institute's equity investment.
a
Description of Site and Proposed Development
Chapter II)
Location
A)
only
are
There
two sites on the MIT campus
are
which
These
suitanle for high-rise graduate housing development.
are Briggs Field on the western edge of the campus,
and the
Sloan School parking lot on the eastern side of the
campus.
Of
these two,
the Sloan School parking lot is judged to be
This site, adjacent to
more suitable for graduate housing.
tower
housing
high-rise
high-rise
recognized as an ideal candidate
been
has
towers,
of MIT's married student
one
Eastgate,
since 1967.
It
was
housing
for
a
originally
planned as the location for the second Eastgate tower, which
was never built.
Sloan
The
Construction
at
principal
field
is the Institute's major
well
Briggs
outdoor
as being its largest piece of
space,
as
space.
It is heavily used by MIT varsity teams,
outdoor
life
Field.
recreational
green
open
intramural
part
of
fields would be felt by all those who participate
in
leagues,
these
advantages.
there would cause far less disruption to
than would the loss of a portion of
MIT
This
School site has three
students,
and
sports at MIT,
next to the field.
staff.
The loss of any
as well as those who live and
work
The growth of East Cambridge is
The
revitalized.
area
This
site.
School
Sloan
is
has brought people back into the area.
becoming
quickly
recent commercial and hotel
the
of
another advantag.
development
New restaurants and
shops have been built to serve this population.
The Coop (a
small department and bookstore now housed in the MIT Student
Center) will be moving to Kendall Square in April, 1987, and
there
is a large retail district in the
area.
Alternatively,
retail
nearby
students
issue
the
services.
adjacent
Lechmere
Briggs Field site has almost
Three recent polls
of
no
graduate
suggest that proximity to shopping is an important
The East Campus site
when choosing housing.
has
a
clear advantage in this regard.
the Sloan School site provides excellent access
Finally,
to
from
By
The site is only three
blocks
the Kendall Square MBTA subway station and bus
stops.
public
transportation.
contrast,
there
Briggs Field site.
is no subway or bus service
near
the
Since many graduate students do not own
a car and depend on public transportation,
access to public
transportation is an important consideration.
16
Parking
B)
Continuing to provide enough on-site parking is likely to
be
acre
2.0
there are approximately 200 parking spaces on the
A new housing project would have to provide this many
site.
tenants.
According to Gary Hack,
Department of Urban Studies and Planning,
could
easily
handle
high-rise tower.
site
this
in
100 residential units per acre
be built on this site,
tower
how much parking space
would
Since
have to be built as part of the overall development?
zoning
Cambridge
requires
the
Institute
parking spaces per residential unit,
would
have
have to be built.
to
include
likelihood,
the
a
that a 200-unit
then,
Assuming,
of
former chairman
MIT's
could
its
spaces in addition to the necessary spaces for
parking
own
1986,
As of September
Sloan School site.
the
developing
in
encounter
would
largest problem the Institute
the
Therefore,
a total of 300
to
provide
.5
100 new parking spaces
the development would
parking
In
spaces.
only way this amount of parking
could
all
be
included on the site is through structured parking, that is,
through the construction of a parking garage.
At a cost of
approximately $8,000 per space, structured parking would add
$2.4 million to construction costs.
It
would not be feasible to continue using the site
parking
Thus
during the estimated 18-month construction
development
of this site would require
17
for
period.
provision
of
The
garage.
to
need
the
period
parking during the construction
substitute
the
by
displaced
in
be to temporarily lease an equal number of spaces
would
Kendall
space,
it
spaces
for 18 months.
would
cost the Institute $450,000 to
of construction.
construction
At a cost of $125 per
Square.
nearby
cost
cars
200
and inexpensive solution to
reasonable
provide
the
until completion of the parking
construction
most
for
parking
temporary
loan,
and
month
per
rent
200
MIT should consider this expense
a
The cost should be included in
the
of
the
amortized
over the
life
project.
Unit Mix and Size
C)
The
which
Sloan School site
allows
dormitories
is
zoned as "Industrial
to be built on
Rezoning for housing would not be required.
Ratio
(FAR) for this site is 3.0.
it
space
B"
as-of-right.
The Floor Area
Given an area
of
2.0
acres, the site can accommodate a building of 261,360 square
feet.
The existing graduate housing stock at MIT is composed of
several different housing types.
Eastgate and Westgate, the
in
suites.
with
varying
students
graduate
single
accommodates
Hall
Tang
contain apartments.
housing towers,
married-student
Ashdown House and Green Hall are dormitories.
These
The suite concept at Tang has been
of success.
degrees
met
types have
housing
different
a
Much of the blame can be attributed to the lottery
failure.
assigning single graduate students to
for
system
students
who
randomly
assigned
to a suite,
they
people
usually
occupants
are
Little
to
"squirrel
tend
are
for their part,
more
They are not well
housing for undergraduates.
appropriate
are
beforehand.
students
Dormitories,
away."
themselves
know
at Tang;
occurs
socializing
whose other
not
do
lottery
the
in
a place
win
Graduate
housing.
suited to graduate students.
Conversations
students,
to
be
the ideal
they
indicated
Harvard
form
of
housing
for
Apartments are
graduate students in the foreseeable future.
flexible;
graduate
recently designed student
administrators at MIT and
seem
apartments
MIT
the summer of 1986 with
two architects who had
and
housing,
in
can be used by single graduate students one
year, married students the next, and even junior faculty the
next.
study,
Students can cook,
apartments.
They provide the
sleep,
and socialize in
greatest sense of
home,
of
privacy, and independence.
If
an apartment is the best form of housing for graduate
students,
smallest
student's
then
the objective becomes one of
possible
comfort.
unit
jeopardizing
without
it
While
19
building
is
important
the
a
graduate
to
minimize
against
balanced
be
must
savings
costs,
construction
liveability.
examined.
were
of possible apartment designs
number
A
most economically designed units were found in The
The
sample
efficient
studio apartment,
bedroom
unit.
two-bedroom
duplex
Storage,
but well designed.
apartments
are small,
inadequate
in small units,
book
a single level
a one-bedroom unit,
a
The four
included in this
apartments
and
unit,
1982.
in
Corporation (CHMC)
Mortgage
Home
Canadian
published by the
and Design of Space in the Home,
Even the
is generous.
one of which is a
apartment has three large closets,
Use
very
werea
twoThese
often
studio
walk-
All four apartments have desk space for each student.
in.
Table 2: Size of Proposed Units
-----------------------------------------------------
---
per
area
Gross
Type
Unit
student
feet)
square
(in
-------------------------------------------
444
Studio
**
571
1
bedroom
2
BR
flat
424
**
2
BR
duplex
465
**
Assumes
these
units
two
house
20
single
graduate
students
in
should be noted that The Use and Design of Space
It
For
the Home
measures these apartments by their net size.
purposes
of comparison with the existing MIT housing stock,
figures
these
an
conservative
a figure considered
efficiency factor of 75%,
using
sizes
gross
to
converted
were
It is these
by the architects interviewed for this study.
converted figures which appear in Table One.
As previously mentioned,
housing
graduate
MIT
in
fluctuations
is
a key requirement of any future
the composition of
accommodate
To
flexibility.
student
graduate
the
population, units should be able to serve as single graduate
housing one year,
student
the
The studio apartments designed by the CHMC are ideal
next.
for
and married student housing
graduate students,
single
students
married
due
but are not well suited
to their
small
bedroom
One
size.
to
apartments can be used by either single or married students.
Two
bedroom
units can be used to house either
single
two
students, or a married couple with child.
The
unit
important
mix
consideration.
is
housing
for new graduate student
mix
By optimizing the unit
an
the
Institute can house the most students using the least amount
of
As
space.
Table 2 shows,
CHMC uses the
the
the one bedroom
most
space
apartment
per
graduate
designed
by
student,
and is therefore the least efficient type of unit.
Accordingly,
majority
efficient
Weighing
of
one-bedroom
units
user
units
The
built.
of space,
should not
studio
as are both
represent
apartment
two-bedroom
is
an
units.
the advantages of each unit against the amount
21
the
of
space they require,
the following unit mix for new graduate
housing is suggested:
Table 3:
Suggested Unit Mix
-----------------------------------------------Percent of
Total Housing
Type of unit
Studio
40%
1 bedroom
30%
2 bedroom
30%
This is a very flexible unit mix.
Sixty percent of these
units could house either single or married students.
To
calculate the size of the building to be constructed,
is assumed that half of the two-bedroom units
it
would
be
used by married graduate students with children, and half by
single graduate students sharing a unit.
two
serving MIT graduate students,
In terms
of
a two-bedroom unit used by a
married student is only half as efficient as one used by two
single graduate students.
In a 200-unit high rise tower, this mix would result in a
facility that could accommodate 230 students,
the
since some of
two-bedroom apartments would house two single
graduate
This building would use an average of 507 gross
students.
square feet to house each graduate student.
In
against
the MIT administration has argued
the past,
providing new housing in the form of apartments because this
housing
supposedly
graduate student.
However,
type
of
existing
MIT
house
average,
each
student,
Tang,
or
the
amount
undergraduate
441 gross square
requires
Ashdown,
student dormitories,
in
The
student.
on
require.
much space per
the CHMC apartment plans used
stock
housing
per
apportioned
system,
too
estimates in this study differ little
space
for
required
88% of what the
and Green,
CHMC
the single
the
from
of
space
dormitory
feet
to
apartments
graduate
require an average of 429 gross square
feet to house each student, or 85% of what the Canadian
Table 4:
Unit Breakdown
Percent of
Total Housing
Space/Student
studio
40.0%
444 square feet
1 BR
30.0%
571 square feet
2 BR flat (single)
7.5%
424 sqyare feet
2 BR flat (married)
7.5%
848 square feet
2 BR duplex (single)
7.5%
465 square feet
2 BR duplex (married)
7.5%
930 square feet
Type of Unit
Eastgate and Westgate require 848 and 826 gross
units use.
house a
to
respectively,
feet,
square
married
student.
the
figures are 168% and 164% of the amount of space
These
CHMC units use.
space
the
as
dormitories,
married
the tenant,
and
graduate
less space than
the
existing
The benefits gained by
building
much
or
the ability to house either married
namely
students,
single
use
graduate housing.
apartments,
undergraduate
less desirable
and
of
amount
Canadian units use nearly the same
the
Thus
for
and a more desirable form of housing
far outweigh the small cost premium of building
slightly larger units.
Depending on its housing goal,
to modify this proposed unit
is
goal
to
house married
the Institute might
mix.
graduate
If MIT decides its main
it
students,
provide a larger percentage of one-bedroom units,
studio
apartments.
If
wish
the Institute's main
should
and fewer
goal
is
to
provide housing for single graduate students, the percentage
of
one-bedroom units should be decreased since this unit is
the least efficient, and the percentage of studio apartments
increased.
Unit Design and Amenities
D)
Due to the nature of its users,
and
designed
housing.
students are more transient tenants than
ordinary
other
kinds
of
and
tear
comparable
than
housing
graduate
designed
Although sturdier
of concrete block rather than wallboard.
they will pay
might be more expensive initially,
in
be
For example, walls should be built
stand up to much abuse.
themselves
to
Materials should be chosen that can
functional and sturdy.
materials
apartments.
residential
needs to be
more
far
result is that their apartments receive
Therefore,
for
well.
They do not maintain their apartments very
end
wear
more
necessarily
residential
tenants.
The
built differently (but not
than
expensively)
Graduate
graduate housing must be
the long run
by
reducing
maintenance
expenses.
graduate housing can be designed with
On the other hand,
fewer
market.
Students
certainly
do
much
require
recent
rental
amenities than housing intended for the local
years
do
not
many
expect
amenities,
and
features
that
not want to be bothered
with
upkeep or maintenance.
Several
suggest
studies
and proximity
that safety,
to
in
the
campus and public transportation, are much more important to
graduate
Simple
students
than the level
of
amenities
provided.
and sturdy housing can certainly be designed to fill
these requirements economically.
25
However,
should
MIT
MIT
As
mind.
keep one caveat in
prices its housing closer to fair market value, students may
begin to expect additional value for their money in the form
If MIT decided to provide one amenity in its
of amenities.
interviewed
students
the consensus among 30 graduate
graduate housing,
informally
in
1986 for this
study
that
was
furniture would be the most useful one.
Institute should also ensure that "simple and sturdy
The
not
housing"
does
design.
Students
accommodations
boring
translate into
a right
have
from
an
to
Institute
expect
whose
Architecture is among the best in the world.
economic
and
uninspired
well-designed
School
of
There is also
reason for demanding high quality design.
If the
local Cambridge housing market ever slackens, MIT might find
itself competing with the local off-campus rental market
fill
its housing.
In this case,
help to increase occupancy.
26
to
an attractive design may
Pro Forma Analysis
Chapter III:
A)
Introduction
housing
motivation in developing graduate student
MIT's
priced
to provide its students with safe and reasonably
is
As a nonprofit educational institution, the
accommodations.
is
Institute
needed
to
rent,
reasonable
concerned with
minimizing
equity
its
MIT would like to borrow 100% of the
Ideally,
investment.
funds
also
the
build
project,
charge
students
all
generate enough income to cover
and
a
operating expenses and debt.
breakeven
The purpose of this chapter is to estimate the
for
Two,
based
comparable
sections.
Chapter
the graduate housing project proposed in
rent
upon estimated 1986-87 operating expenses
The
properties.
In
part
five categories:
the
one,
development are examined.
chapter is divided
component
from
into
two
of
the
costs
These costs are broken down into
construction costs,
expenses,
operating
financing costs, soft costs and land cost.
The
as
se'cond section of this chapter analyzes the
ongoing entity.
an
assuming
the
this
The breakeven rent
is
project
calculated
the Institute's equity contribution is limited
value of the land.
The debt service needed to
100% mortgage is computed,
27
to
cover
and added to the operating
This "breakeven"
expenses to determine the breakeven rent.
(tte
rent is then compared with the Institute's rent policy
market value)
of
90%
student
graduate
what
breakeven rent.
tenants would be
The next chapter,
between
shortfall
to determine the
of
maximum
of which is to bring on-campus rents to a
goal
charged
Chapter Four,
and
the
examines
strategies for reducing this shortfall.
Construction Costs
B)
Interviews with Mr.
local
1984,
the
architects who have recently designed student housing
the
were
Allen Ross and Mr. Roy Vicklund, two
basis for estimating
construction
In
costs.
Mr. Allen Ross of Earl Flansburgh Associates designed
new dormitory that was completed in
Worcester Polytechnic Institute.
This
August,
1985,
five-story,
at
95,000
square foot building won a 1986 Export Award from the Boston
Society of Architects.
45
suites.
The building houses 229 students in
Each suite includes two or three
living room and a bathroom.
bedrooms,
a
Meals are prepared in a central
dining hall.
The
second
architect,
Mr.
Roy
Vicklund
of
Sasaki
dormitory.
newest
College's
Boston
building was completed in July,
100
be composed of
will
building
The
1986, and contractor's bids
in
similar
study.
this
respects to the housing proposed in
key
some
this
The design for
This project will be
now being reviewed.
are
be
will
principal architect for what
the
is
Associates,
Each
apartments.
apartment contains two double bedrooms, a combination living
room/dining
room,
general
the
been desigred so they could be rented to
have
units
These
a kitchen and a bathroom.
public, in case enrollment drops.
about
housing project built in Cambridge would be
graduate
$75 per foot,
This
1986.
excluding parking,
sufficient
is
price
if bids were solicited in
build
to
with simple interior finishes.
apartments
the
high-rise
a
agree that hard costs for
architects
Both
exterior
of
unfurnished
allow
It would
the building to be sheathed in
brick
or
precast concrete panels, party walls to be built of concrete
block,
arid precast concrete planks to serve as the
materials would be painted and used as
These
system.
ceiling
interior finish.
the
As the cost breakdown below provided by
for
the
mechanical system, the electrical system, and sitework.
The
Roy
Vicklund
mechanical
where
shows,
28%
of the budget is
used
system is the only one of these three categories
costs might be reduced.
By using a cheaper
heating
system or less expensive elevators, one or two percent might
be cut from this item.
reduced,
maintenance
However, as the mechanical budget is
expenses
can be
expected
to
rise.
While cheaper initially, these mechanical systems are likely
29
to require more repair and be more expensive ultimately.
An
additional
budget
construction
contractors
Table
cost
is
interviewed
5:
which
be
must
parking.
structured
estimated
in
included
The
the
two
that structured parking
Construction budget
Student Housing*:
for
Boston
College
-----------------------------------------------------Cost per
Percent
square foot
of budget
Construction item
---------------------------------------------------------
---
Mechanical
11.0%
$8.25
Electrical
9.0%
$6.75
Sitework
8.0%
$6.00
Structural
25.5%
$19.13
Concrete
10.5%
$7.88
Contractor's overhead and profit
8.0%
$6.00
Wood and plastics
6.0%
$4.50
Moisture/thermal
4.9%
$3.68
Doors and windows
6.0%
$4.50
Accessories
.4%
$.30
Miscellaneous
.9%
$.68
Interior finishes
* Source:
10.0%
$7.50
Roy Vicklund, Sasaki Associates, Watertown, MA.
would
cost about $8,000 per space,
would
be
parking
structured
provided,
Since 300
per space.
$1,200
while
must
be
million,
or
spaces
would add $2.4
slightly over $20 per square foot,
parking
surface
to the base construction
costs of $75 per square foot.
It is unlikely anything could be cut from the
structural
or concrete costs. Contractor's overhead and profit might be
willing
by a few percentage points if a contractor
lowered
to make a lower profit could be found.
The next five items in the budget represent just 18.1% of
the total budget.
or four percent through use
three
by
reduced
This portion of the total budget might be
However,
any such
are likely to be offset by higher future
operating
or less insulation.
doors and windows,
savings
cheaper
of
expenses.
Interior finishes,
the last category,
10% of the construction budget.
to
the
jeopardize
building,
there
item instead.
however.
total
basic
account for only
Since it is important
not
of
the
structure
and
systems
might be a temptation to cut costs on this
Slashing this item will not accomplish
Finishes
represent
much,
such a small percentage
costs that even a drastic reduction would not have
of
a
large effect upon overall costs.
In sum,
construction
if the Institute's concern is to cut its initial
costs,
it might be able to trim the
$75
per
square foot base construction figure by a total of 7%-8%, or
$5 to $6 per square foot.
However, these cuts would be made
31
at the expense of the quality,
The
systems.
efficiency, and longevity of
result would be
net
increased
maintenance
costs.
best way to substantially reduce project costs is to
The
build
less space.
cut.
Currently,
space
socialize.
This category includes study
While
able to study and entertain within them instead.
an entry foyer
space for the children of graduate students),
and day-care
60% could be dropped,
to
can
If the apartments are large enough, students may
some common space is mandatory (for example,
up
the
of
10%
accounts for
and lounges where large groups
meeting rooms,
rooms,
be
common
building's size.
proposed
thing
Common space might be the first
saving the
Institute
6%
of
construction costs, or $4.50 per square foot.
If additional savings were required,
to rethink its choice of housing form.
less desirable than apartments,
- 425 square feet per student,
reductions
could
MIT would be forced
Although suites are
they can be built using 400
Further
or 20% less space.
be achieved by constructing
with common bathrooms and kitchen facilities.
a
dormitory
The dormitory
form
of housing would give each graduate student 325 square
feet
of
space,
or
35% less than the
apartment
form
of
housing.
The
result
union
Institute's choice of general contractor might
in some savings.
labor,
Since MIT is not obliged
to
it might cut costs by 5% by lettirng an
shop contractor build the project,
also
use
open
reducing project costs to
$71.25 per square foot.
design of the parking garage and building foundation
The
represents
in
result
Sloan
School site.
grade
with
the
If the parking garage is
housing located above it,
a
parking
construction
water level.
garage
is
located
simple
methods would have to be used to
pile
However, if
expensive
grade,
below
the
above
built
foundation can be used without a cost premium.
the
The
at
by the high ground water table
caused
could
which
increases.
cost
significant construction
is
problem
problem
potential construction
a
control
the
They could add $10-$15 per square foot to the
base construction costs.
additional
If
provide
more
money is available,
MIT might decide
If so,
than bare housing.
the
three
useful amenities MIT could include in all units are
living
and
conditioning.
room
furniture,
Furniture
would
a
dishwasher,
about
cost
graduate student, or $4 per square foot.
be
included
foot.
for $500-$600 per unit,
most
bedroom
and
air
$2,000
per
Dishwashers could
approximately $1
Air conditioning for the entire building would
about $750,000 or $6.40 per square foot.
to
per
cost
Operating Costs
C)
operating expenses for the new graduate housing will
The
the
be estimated based upon the current operating costs for
most comparable buildings on campus, Eastgate and Westgate.
Capital Fund Reserve
1)
Fund
Capital
The
of accumulating capital for future
means
the
housing
graduate
housing
next year's rent level for its entire graduate
it
stock,
expenses.
rent
actual
On average,
MIT's graduate housing system is
for
rent
calculates the breakeven rent which must be
also
to cover its
charged
MIT
charges
its
graduate
these
two
figures,
between
difference
a
when the MIT Housing Office sets
Each year,
construction.
as
Reserve was established by MIT
considered MIT's operating profit,
the breakeven
less
than
The
students.
which
is put into the
the
can
be
Capital
Fund Reserve (CFR).
The
MIT Housing Office considers the CFR an
expense, similar to the fuel bill.
which
must
be
paid regularly,
It is treated as an item
hence a
portion
graduate student's rent is funnelled into the CFR.
1986-87
academic
year,
operating
of
each
For the
the Housing Office estimates
each
student
graduate
system
the housing
in
will
figure
this
1987-88,
By
fund.
in a total payment of $593,300 to this
resulting
$475,
pay
per
is expected to increase to $675
all.
graduate student, or $842,100 in
By 1988, nearly $3.4 million will have accumulated in the
the
Already,
Fund.
single
for
of Green Hall to a 45-bed dormitory
conversion
million
$1.6
has paid for the
fund
women graduate students. Currently, a study is being done to
the
determine
House
Ashdown
basement
30
house
to
estimates indicate this
Preliminary
students.
graduate
renovation
the
of
feasibility of renovating a portion
would cost
$1.8 million, the balance of the CFR.
The Green and Ashdown renovations will have been paid for
by 1988.
At that time,
totalling
$842,100
graduate housing.
graduate
yearly,
will be available to fund
new
there will be an extra
230
In addition,
students contributing an average of $675 apiece to
will have $997,350 available each year.
(8.5% interest, 30 year term),
the
In total,
the CFR once the proposed housing is built.
CFR
Reserve,
entire Capital Fund
the
terms
At 1986
this sum will support a $10.7
million mortgage.
The CFR could, as originally conceived, be applied toward
construction of the proposed project.
these
funds
flow,
and
would be to decrease the early
lessen
CFR
However,
the
estimate
below.
the time for the project
income
Instead,
has
this
using
The effect of
not been
negative
to
breakeven.
included
study estimates
cash
in
the
what
the
breakeven rent will be on a totally self-sustaining basis.
35
Adjusted Operating Expense
2)
For
$2,541,400 for operating expenses at both Eastgate
budgeted
and
to
taxes,
janitorial
as
square
figure.
the
rata
These
allotment.
foot.
However,
equipment
administrative
the
of
debt service and the
as
well
share
Fund
Capital
expenses convert to
this is not an
estate
real
utilities,
services,
pro
a
maintenance,
voluntary
are
budget
this
the City of Cambridge in lieu of
payments
expenses,
in
Included
Westgate.
Reserve
has
Office
the Housing
the 1986-87 academic year,
per
$7.33
accurate
entirely
While the Housing Office considers debt service and
Reserve to be
Fund
Capital
legitimate
costs
subtracted
from
of operation.
the
operating
are
not
items
are
they
expenses,
If these two
actual
budget,
expense
$5.00
expenses for Eastgate and Westgate drop to
operating
per square foot.
graduate
It is likely the operating expenses for the new
housing
will
even
less than $5.00
to the Housing Office,
According
managed
be
without
staff
a
per
can
the new building
increase.
foot.
square
Since
be
same
the
administrative budget would be spread over a larger base
of
graduate students, expenses would be reduced on a per square
foot basis.
1967,
Also,
Westgate and Eastgate (built in 1963 and
respectively),
mechanical
systens
are
getting
old.
Some
of
their
are requiring extensive maintenance
as
Elevator
life.
useful
the end of their
approach
they
maintenance, for example, has become a very large expense in
These costly repairs would not occur in
the past few years.
a new building.
these buildings were designed
In addition,
not
when the price of oil was low and energy efficiency was
a concern to architects,
than
energy
more
much
engineers,
a
modern
They consume
or MIT.
Overall,
building.
10%
about
expenses for a new building should be
operating
than the adjusted Eastgate/Westgate operating expenses
less
operating
This assumption means
of $5.00 per square foot.
expenses for the new graduate housing would be approximately
$4.50 per square foot.
Operating
private
the
expenses for similar residential buildings
are very close
market
a national
Building Owners and Managers Association (BOMA),
group
trade
property
actual
on
current operating
publishes
annually
managers,
figures for Boston.
expense
operating
based
for
are
These figures
incurred
expenses
by
the
For
and property managers in the Boston area.
owners
The
costs.
MIT's
to
in
"high-rise, elevator" housing category, BOMA estimates total
expenses to be $4.05 per square foot,
operating
MIT's adjusted expenses.
a
includes
not.
For
differently.
Whereas
BOMA
MIT
does
category for recreational amc'nities,
this reason,
of
It should be noted that BOMA and
categorize their expenses
MIT
or 90%
not all expense
categories
match
precisely.
A
comparison
reveals
two
of
areas
MIT's and
where MIT's
37
BOMA's
married
operating
graduate
expenses
student
BOMA
Breakdown and Comparison of MIT and
Operating Expenses
6:
Table
------------------------------------------------------
----
MIT/
Eastgate,
BOMA
BOMA
Westgate
Item
--------------------------------------------
fee
Management
administration
Other
Security
maintenance
repairs
Maintenance
Painting/decorating
taxes
estate
Real
Insurance
amenities
Recreational
payroll
Other
$.44
73%
$.16
$.43
37%
Reserves
$.08
----
$.07
$.79
$.39
203%
$.26
$.17
153%
$.68
$.80
85%
$.02
$.08
25%
----
$.06
----
$.40
$.36
111%
----
$.67
----
number
could
be
reduced
38
$5.00
per
by
square
foot
square
This
----
----
$4.05
TOTAL
**
144%
$1.17
services)
building
Grounds
$.32
$1.69
fuel,
(utilities,
Supplies
Foot:
Square
per
Cost
10%
in
new
construction
**
per
foot
operating costs are significantly higher (more than
housing
$.10 per foot) than the local market averages.
which includes
MIT's supplies budget,
fuel,
utilities,
and building services is $.52 per square foot, or 44% higher
the
than
significantly
on
repairs.
square
foot,
the
than
more
spends
The second area where MIT
BOMA figures.
industry
maintenance
is
category costs MIT
$.79
per
while the industry average is $.39,
or
103%
this
average,
less than MIT's figure.
of
Several conclusions can be drawn from this comparison
operating
Eastgate and Westgate are energy
First,
Single glazed windows, a lack of insulation, and the
hogs.
low
costs.
importance attac!
buildings
when
I to energy conservation
these
energy
were designed all contribute to excessive
costs.
Second, as mentioned earlier, the high maintenance
expenses
result
from
old
systems
mechanical
that
need
constant repair.
Elevators and the heating plant will need
major renovation,
if not replacement,
high
repair
budget
maintenance standard.
is
also indicative
On average,
in better
graduate
housing
managers
keep their
soon.
shape
of
However, this
higher
MIT's
the Institute keeps its
than
private
property
Overall,
operating
expenses for BOMA and MIT are not very far apart.
Since the
BOMA
rental
units.
figure represents an average of many properties in the
Boston area, it is likely that operating expenses in some of
these
privately
managed buildings are greater
adjusted expense figure of $4.50 per square foot.
than
MIT's
Thus
it
appears that the Housing Office is doing an efficient job of
managing the graduate housing stock.
Financing Costs
D)
to
Due
MIT
its status as a nonprofit institution,
can
exempt
borrow
money at below market rates by issuing a tax
bond.
These bonds have been one of the traditional methods
by
which
To
aid
institutions
nonprofit
in
bonds,
issuing
called
1968 created an agency
of
Massachusetts
Acts
Massachusetts
Health and Educational Facilities
or
HEFA.
The
purpose
of the Authority
be
undertaken
institutions."
which
financing and refinancing of projects to
in
Any
relation
to
programs
nonprofit institution in
dividends
bonds
are
are attractive investments
exempt from income taxes.
Since
are willing to settle for a lower return.
40
such
the
state
agency.
because
who purchase these bonds do not pay taxes on the
they
for
this
wishes to issue a bond must go through
These
education,
and nonprofit cultural institutions in
nonprofit hospitals,
construction,
The
"provide
to
is
the
Authority,
assistance for nonprofit institutions for higher
the
capital.
raise
institutions of higher education
their
investors
dividends,
This means
the interest rate of the note can be commensurately reduced,
thereby
decreasing
billion
worth
interest rate of these bonds would save
estimated the lower
the
institutions
Globe
Boston
The
alone.
Massachusetts
in
institutions
nonprofit
by
issued
were
these bonds
of
$1.1
1985,
In
expenses.
borrowing
of
total
a
interest
in
billion
$1.4
payments over the bonds' 30 year lives.
HEFA
acts
institution
and
nonprofit
as an intermediary between the
the
agency
The
markets.
financial
determines whether the bonds will be sold publicly or placed
the
also tests an institution's ability to repay
It
privately.
and rates the bonds.
debt,
amount
institution is important in determining the type and
of
which
collateral
the
universities,
school's
In
will be required.
case
of
of
the
endowment which is set aside in a special account.
on the size and stability of the
Depending
coverage ratio between 105% -
MIT
$84,500,000
has
issued
through
collateralized
a
institution,
a
120% is applied to the bond to
determine the amount of collateral required.
years,
the
is typically a part
collateral
the
The credit rating of
total
HEFA.
Each
of
of
In the past 16
five
these
bonds
worth
was
bonds
with a portion of the Institute's endowment.
The terms of the hypothetical bond used in this analysis,
(8.5% interest rate and a 30-year term),
discussion
with William Groth,
were chosen
after
Deputy Director of HEFA
in
August 1986. Groth assumed any bond issued today would carry
a 7.5% - 8.5% interest rate and have a 30-year term.
A new type of tax exempt bond, called a demand note, has
nationwide in the last two
popular
become
These
years.
However, investors who buy them
notes carry a 30-year term.
In return
can get their money back with a seven-day notice.
for this liquidity, investors accept a lower rate of return,
risk of having to pay the bond within 7
the
from
institutions.
interest
However,
the
variable
rate
are
rate on these bonds
notes
by
financial
various
the remarketing agents' 1.5% fee,
Including
is
approximately
5.5%.
They
are
disadvantage.
one
have
so
instruments,
yearly
therefore
sold
and
bought
continually
by
days
whose job is to ensure the bonds
remarketing agents,
the
insulated
Institutions are totally
4%.
around
currently
the
interest
(and
rate
the
payment) is likely to fluctuate over
life of the obligation.
If an institution is willing to bet
that interest rates will remain stable in the
this
future,
device is an excellent method of financing construction.
The
In
1985,
the
This
sum
equals
for
1984 to December,
worth
agency issued a total of $2.3 billion
previous 14 years.
for
ever
two years have been the busiest
the 18-month period from June,
HEFA.
bonds.
past
the total amount issued
According to William Groth,
the
this heavy borrowing was the uncertainty which
in
of
the
reason
existed
regarding the effect the proposed tax law would have on taxexempt
securities.
Any
Massachusetts
educational
institution that had a project on the drawing board tried to
finance it during this 18-month period.
These
institutions had good reason to be
42
concerned.
While the tax bill proposed by the Senate kept the tax break
for
nonprofit institutions,
amount of tax exempt bonds
dollar
the
the House version limited
issue.
each state could
which has one of the greatest concentrations
Massachusetts,
of nonprofit educational and health care institutions in the
year,
a
million
However,
was
$140
been restri.cted to issuing only
a 700% decrease from the
high
1985.
of
on August 21, 1986, Groth indicated the bill which
recently
higher
the
by
approved
Committee
Conference
bill,
have
would
nation,
Senate
was more favorable.
and
Joint
House
Under
new
the
education institutions and hospitals will
exempt from the state-wide cap.
But,
be
each institution and
hospital would be limited to issuing a total of $150 million
worth
of
Harvard,
bonds.
This would have an immediate effect
Boston College, and Boston University.
on
MIT would
still be $65.5 million under this cap.
Still,
which
have
the
lower individual and corporate
rates
tax
been proposed make tax exempt instruments
attractive investments than they were in the past.
less
The new
tax proposal has practically frozen the sale of these bonds.
In the past six months,
only one bond, for $25 million, has
been placed through HEFA.
changes
has
The result of the potential tax
been to increase the interest rate
for
these
instruments. A HEFA bond is now within 1.5 to 2.5 percentage
points of commercial lending rates.
43
Soft Costs
E)
Soft Cost Budget
1)
estimated
there would be a number
the building (hard costs),
for
costs
addition to the actual construction
In
of
expenses (soft costs) incurred during the development
other
period.
costs
These
include
fees,
professional
permit
A complete list of the estimated
expenses, and commissions.
soft costs for this development is shown below in Table 3.
Generally,
construction
this
soft
costs
range
-
from 25%
costs (the sum of soft and
33%
hard
total
of
costs).
In
the soft costs are 26% of total
proposed development,
development costs.
Most
soft
costs are easy to estimate.
Other items, such as legal fees
before construction begins.
insurance,
largest,
and
are similar from project to
perhaps
most
volatile,
construction financing expense.
rapidly
soft
project.
cost
is
The
the
Delays in construction can
push this figure beyond the budgeted
this reason,
items,
are negotiated and agreed upon
such as the architect's fee,
and
Certain
amount.
For
it is wise to include a contingency reserve in
the soft cost budget.
44
Soft Costs
Table 7:
Amount
Expense
------------------------------------------------
Consultants
$40,000
Architect/engineer fee
5% of hard costs
Legal and accounting
$150,000
Permits
$50,000
Insurance
$50,000
Commissions
$20,000
Contingency
3% of hard costs
Construction financing
$1,771,516
2)
Construction Period Interest Charges
a
Unlike
private development,
later
and
financing,
a
loan to pay the bills during the
construction
period
which uses
a
replaces
nonprofit
that
loan
institutional
temporary
ccnstruction
with
project
permanent
uses
the
proceeds of the bond sale to directly fund the construction.
There is no subsequent permanent loan.
Once the bond has been sold, the proceeds are turned over
45
to
institution
the
which can
then
construction.
begin
Since interest payments are due immediately,
borrowers will
estimate the interest expense during the construction
often
period,
and include this expense in the bond sale.
housing project is
graduate
build.
The
expected to take 18
The MIT
to
months
interest on the $12,799,565 construction loan,
at 8.5%, will be $1,771,516.
Interest on the Unspent Bond Proceeds
3)
A good rule of thumb for estimating construction interest
will
expense is to assume that 50% of the construction loan
be
outstanding.
turned
Since 100% of the bond proceeds would
over to MIT before construction began,
proceeds,
or
$6.4
million,
should
be
of
the
available
for
50%
investment during the 18- month construction period.
can
earn 7% on this money over the 18 months,
be
the
If MIT
unspent
balance of the construction loan should generate $671,977 of
income.
MIT can either include this amount as income in
pro forma, or reduce the bond issue by an equal amount.
the
F)
Land
Institute
needs to weigh how much value it should impute to
the
land it already owns.
its
fair
market
It
value
MIT can either assign the
and include
this
as
treat the value of the land as an equity
makes
a
land
of
cost
or it can "contribute" the land to the project
development,
and
the
project,
In calculating the breakeven rent for this
contribution.
little sense to include the market value
of
the
land as a hard cost of development to be financed along with
other
hard
costs.
To
do
so implies that
the
land
is
currently generating a return to the Institute equal to
cost
of
the debt necessary to finance an
"purchase."
would
be
associated
market
land
Since the current use for the site--parking-preserved,
there
is no
with developing the
value
project's
equivalent
the
to
costs
site.
the land would
and
would
real
opportunity
Hence,
immediately
distort
the
cost
imputing
inflate
breakeven
a
the
rent
analysis.
In effect, by carrying the land at 0 cost,
the land will
represent MIT's equity contribution to the project.
financial analysis,
In the
it is assumed MIT has invested no other
equity in the development.
Pro Forma
G)
purpose of this financial analysis is
The
to
The breakeven
the breakeven rent for the proposed building.
rent is the rent level MIT would,
to
students
ideally,
charge graduate
$4.50 per square foot,
will
money.
ensure that the building does not lose
in this
It is equal to the sum of operating expenses,
financing.
determine
case
and debt service, assuming 100% debt
Once the breakeven rent has been calculated, it
be compared to the maximum rent the Institute would be
willing to charge for new graduate housing, given MIT's rent
policy.
If
the breakeven rent exceeds the
"policy"
rent,
there will be a cash shortfall that MIT must cover.
This
analysis
is
a static view of
the
project.
spreadsheet
included in the appendix models
the
performance
in the first year of occupancy
only.
assumptions underpin this analysis.
assumed
that
the
entirely
with
debt.
Institute
MIT
would
contributes no
development with the exception of the land.
service coverage ratio is assumed to be 1.0.
liable
for
property,
the loan,
project's
Several
Most important,
finance
the
equity
Also,
The
it is
project
to
the debt
Since MIT
the debt is secured not only by
but also by the Institute's endowment.
the
is
the
This bond
is nearly a risk-free investment.
If MIT sets the rent for the proposed building at 90%
of
will
Institute
beds
Cambridge,
the
realize a total rental income from the
230
$1,598,616 per year,
of
in
rent for a comparable unit
market
the
However,
annually.
total
or $13.80
expenses for the 115,859 square
foot building would be $1,803,830 per year,
rent of $15.57 per square foot.
breakeven
"breakeven
between
rent"
foot
square
per
resulting in
a
difference
The
mean
and "policy rent" would
a
yearly shortfall of $205,214 or $1.77 per square foot.
total
to
the amount MIT would have to contribute annually
This is
meet operating expenses and debt service obligations.
This shortfall can be converted from an annual expense to
a
expenses
operating
the
annual
of $521,365 from the building's
yearly
equity contribution.
one-time
Subtracting
Assuming
service.
similar
the
debt
for
of $1,598,616 leaves $1,077,251 available
income
financial instrument is a bond
Since actual
project can support a mortgage of $11,675,035.
costs would be $13,899,104 (including construction
for the estimated 18-month building period),
this
term),
terms (8.5% interest rate and 30-year
of
interest
there would be
a shortfall of $2,224,069 between the amount of the mortgage
and
this
the cost of building the housing.
amount
of equity at the start,
If MIT
it would
contributed
ensure
the
project continued to break even yearly.
MIT's
possible,
goal
is
to close the shortfall gap
as
much
thereby reducing its equity contribution.
as
In the
next chapter, options for reducing this gap are studied, and
several strategies to reduce MIT's costs are proposed.
49
Chapter IV:
A)
Results
Introduction
analysis
previous
The
the
that
revealed
effect
of
financing the proposed housing entirely with debt was to set
the breakeven rent level 13% above MIT's policy rent levels.
rent
the
Since
needed to support
this
leveraged
highly
project exceeds the amount MIT will charge graduate students
there is a gap which must be closed.
These
reviewed.
of
structured
lease
2) build extra parking spaces and
3) obtain a lower interest rate on the mortgage,
them,
add
1) reduce the number
are:
spaces,
parking
are
nine options for reducing the gap
this chapter,
In
building,
market
8)
value,
rent inflation.
7)
donor
or through
6) build a
5) reduce construction costs,
contributions,
smaller
from the endowment,
either
equity,
from
increase policy rent
4)
reduce operating expenses,
9)
90%
of
assume
The advantages and risks of each option are
discussed, and the amount by which each option can close the
gap
is
calculated.
of
incapable
themselves.
closing
Several
the
of
entire
these
strategies
are
gap
by
$1,803,830
Others become risky or impractical if they are
used alone to eliminate the deficit.
The chapter concludes
with a discussion of how a number of these options
combined
project.
might be
to produce a practical strategy for financing
the
B)
Options
1)
Reduce the Number of Structured Parking Spaces
The cost of structured parking drives this
some
respects,
considering
itself,
makes
it is
this
structured
building
project
spaces,
alone.
projects:
project.
In
surprising the project cannot support
the land is carried at
0
so
need
for
300
more than are needed
for
the
or
This
expensive
200
project is
is
the
actually
cost.
two
What
separate
a 230-bed graduate housing tower with 100 parking
and a 200-space garage which produces no income and
spaces,
is totally subsidized by the graduate housing.
At $8,000 per space,
add
these 300 structured parking spaces
million to construction costs.
$2.4
If MIT can
find
other land on campus suitable for surface parking, then much
of this cost can be eliminated,
obtain the land for $0.
parking
surface
$2,040,000
major
structured
of
can
At a cost of $1,200, each space of
$6,800.
The
total
reduce the shortfall gap
will
benefit
saves
assuming the Institute
this option is the
parking garage.
by
saving
92%.
elimination
of
The
of
the
This reduces construction costs
without compromising the quality, design, or type of housing
built.
51
Clearly,
this
option is not feasible.
on it, not to mention used it for parking.
discussion
without
housing
Nonetheless, the
build
illustrates that MIT can
money,
losing
of
MIT would have already built
land were available on campus,
above
If this type
the
build
cannot
but
graduate
additional structured parking which must be included on
the
site without losing money.
goal
The
the
minimize
designing
the
of
amount
structured
parking
be
needed.
to
By
a building with as small a footprint as possible,
be able to maximize
night
architects
surface parking.
the
amount
of
If the building is configured so that half
100 surface parking spaces might
be
the structured parking requirement
by
the site is left open,
included,
should
the design for this project
of
reducing
100 spaces, thus saving MIT $680,000.
2)
Build Extra Spaces and Lease Them
MIT
the
could approach the problem of providing parking from
opposite
structured
Rather
direction.
parking,
than
eliminating
all
MIT could build extra spaces and lease
these to firms in the Kendall Square area.
The
city's
zoning
code
52
would
allow
this
additional
261,360 square feet to be built.
115,859
only
uses
The proposed housing tower
feet
square
graduate
230
house
to
The remaining 145,501 square feet can be used for
students.
At 300 square feet per
parking without exceeding the FAR.
total
a
space,
of
The site's FAR of 3.0 permits a building
construction.
the
Subtracting
parking
built.
be
can
spaces
this
for
300 spaces required by the city
the
to
would be available for lease
spaces
185
project,
485
of
general public.
for
space
can be leased for $125 per month,
there
is
eliminate MIT's shortfall.
option,
$760
per
each
year,
space.
this additional parking could
This amount would not
produce $132,240 per year in revenue.
this
or $1,500 a
of
potential annual profit
a
Assuming a 6% vacancy factor,
totally
Since
each space is about $740 per year.
costs
carrying
the
With a construction cost of $8,000 apiece,
To close the gap using
the Institute would have to build
286
extra
spaces, thus exceeding the FAR on the site.
Closing
parking
is
the revenue gap through provision of
not
a
MIT is
serious option.
business of operating parking garages.
have
additional
not
in
The Institute would
to find and pay an independent operator to manage
garage.
Also,
HEFA
financing
the
probably
available to support a for-profit garage.
would
not
the
be
Lastly, there is
no guarantee MIT could actually fill the garage with
paying
customers.
Nonetheless,
the
above
analysis indicates the cost
of
only
maintaining the Institute's current policy of charging
$7
scarce resource, and if MIT charged a
(as
parking
on-campus
for
parking is
Clearly,
per year for parking stickers.
Harvard
a
market clearing price
the
does),
revenue
shortfall could be reduced considerably.
Lower Interest Rate on the Mortgage
3)
interest
An
8.5% was used
debt
and therefore the
service,
Groth,
Deputy Director of HEFA in August,
to Mr.
Groth,
a bond issued in August,
rate of 7.5% - 8.5%.
breakeven
Mr.
William
According
1986.
1986 would carry a
7.5%,
the
reducing the
gap
If the bond was issued at
rent would drop to $1,687,580,
rent.
breakeven
figure was chosen after discussions with
This
financial
the
in
This is a very conservative figure which acts to
analysis.
inflate
of
rate
from $205,214 to $38,964.
Currently,
the bond market is very volatile.
The effect
of the new tax law on tax exempt financing is not yet clear,
so
in
it is difficult to predict what financing costs will
the
future.
and
reputation,
endowment
is
However,
its
the
excellent
over $1 billion),
school's
be
international
creditworthiness
might combine to
(the
convince
well-
less
8.5% return from a less established and
an
to
opposed
as
investors to settle for a 7.5% return from MIT,
endowed institution.
debt service would
the interest rate drops to 6.69%,
If
income
to the point where the breakeven rent equalled
drop
However,
from the project, and the gap would be eliminated.
is well below the current bond
rate
this
market,
and
is
unlikely.
used
MIT
If
construction
a
costs,
note
demand
to
the gap could be
fund
part
the
of
eliminated.
totally
Interest on these instruments is currently about 5.5%.
If a
at 7.5% is combined with this lower
rate
bond
traditional
note in some certain ratio,
demand
will drop to 6.69%.
rate
the effective
In this case,
interest
will
the project
cover its expenses without requiring additional equity.
By
issuing a regular HEFA bond for $8,250,000
rate drops to 6.69%,
interest
7.5%,
the effective
adding a $5,649,104 demand note at 5.5%,
and
at
and the project
will
break
even.
The greatest risk associated with this option is that the
note
demand
is a variable rate instrument that tracks
prime lending rate.
will
If interest rates rise, the demand note
become more expensive.
purchasing
an
rate,
maximum
the
interest
The Institute might
rate cap
which
would
consider
limit
thereby reducing the school's interest
the
rate
risk.
The
advantage of a demand note is that if interest rates
decrease,
the rate on the note will follow.
55
Also, if rents
rise due to inflation, the increase might be enough to cover
increased debt costs from rising interest rates.
4)
Add Equity, Either From the Endowment, or Through Donor
Contributions
The
simplest
contribute $1,803,830,
to
the
desirable
be
way for MIT to close the gap would
project.
this might also be
method since it results in the
pocket cost to MIT.
of its endowment
or $7,843 per bed,
However,
to
the
greatest
least
out-of-
This should probably be one of the last
methods considered.
A better method would be to find a donor,
alumnus,
who
most likely an
could contribute the equity for the
project.
In return, the building would be named after that person.
donation of this size is plausible;
chair in 1986 costs $1.5 million.
A
endowing a departmental
Reduce Construction Costs
5)
noted in
As
the proposed tower does
unnecessary amenities or frills which
many
have
Chapter Three,
eliminated to reduce costs.
could
not
be
At best, the Institute might be
able to trim 7% - 8% off the $75 per square foot hard costs.
The
initial
the
balance
savings of $5 to $6 per square foot might
increased
maintenance
and
repair
not
expenses
resulting from cheaper equipment and materials.
If
entire $1.8 million gap was closed
the
construction
costs,
hard
$59.43 per square foot.
proposed
housing
by
reducing
costs would have to drop 21%
It is impossible to construct
for this price.
In fact,
it
would
to
the
be
nearly impossible to build any type of institutional housing
for this amount.
Reducing
construction costs might be a useful option
conjunction with other methods.
it
in
If it is used in this way,
is recommended only $2 or $3 per square foot be trimmed.
A cut of $5 or $6 per square foot would produce an
product.
inferior
Build a Smaller Building
6)
If
rent
MIT is not able to close the gap between the breakeven
it
techniques,
may
quality,
building's
the
considered
after
is
this
While
it
might
choice
This
by
costs
construction
a
and thereby
better option than reducing construction costs,
decreasing
other
the
of
any
change in housing form.
a
necessitate
choose to cut
efficient building.
more
a
building
income using
project's
the
and
be
only
should
produce
all other options have failed to
results.
With its proposed rent structure, the project can support
a
foot,
square
per
built
a 97,316 square-foot building
this mortgage.
within
$119.97
If total costs remain
mortgage of $11,675,035.
If the number of
be
could
beds
were
still constant, the space per graduate student would have to
drop 16% to 423 square feet per student to break even.
First,
per square foot.
instead
the Institute could build
the suggested mix of
of
studio
bedroom units, and two-bedroom units.
space,
beds
are two options for increasing the number of
There
are
they
apartments.
apartment
not
as
suites
apartments,
one-
While suites use less
pleasant a form
housing
of
as
MIT's second, and best, choice is to retain the
form
efficient units.
bedroom units.
of housing,
but build fewer
of
the
less
This second choice means eliminating oneThe new Boston College dormitory, which will
be
two-bedroom
of
exclusively
composed
an
uses
units,
If MIT chose
average of 378 gross square feet per student.
to plan 378 gross square feet per student, it could keep the
a
within the space limit imposed by building
well
project
97,316 square foot project.
If either of these approaches is used,
or
students
housing
is
unlikely
graduate
married
for
among single graduate students is great enough
for
accommodated.
While
the
to fill this project, providing housing for part
graduate
the
it
demand
be
could
them alone
of
units)
two-bedroom
(building suites,
population,
at the
expense
of
married
would be a disadvantage to be weighed against the
students,
advantage of having more graduate housing.
Policy Rent from 90% of Market Value
Increase
7)
to
a
Higher Rate
By
market value,
who
students
rents
are
in
their
of
MIT is selectively subsidizing those students
live
would
90%
rents for the new project at
setting
in the
new
dormitory.
other graduate housing even more
only 70% of market value,
subsidizes
MIT
their
since
on average.
changed its policy and began to charge 100% of market
If
MIT
value
the new housing,
for
it would
as Harvard University does,
move closer to eliminating the rental gap.
to $1,776,240.
$1,598,616
income
from
While this amount is less
than
market value would increase
comparable
their
building's yearly expenses of $1,803,830,
the
amount
maximum
To break even,
market value.
The
it
the
is
building.
of rent MIT can realize from the
MIT would have to set rents at 102% of their
This is not an acceptable option.
in
Institute's alternative is to tax other students
the graduate housing system to cover the shortfall for
single
of
100%
for the new graduate housing to
rents
Raising
building.
Capital
Fund
this
the
This could be accomplished by using
currently generates $593,000 annually,
Fund
The
Reserve to finance the shortfall.
more than enough
to
cover the annual shortfall of $205,214.
While
this
the
has merit,
it is a
solution
flow)
the symptom (the annual negative cash
addresses
not
option
problem (the $1.8 million
method of closing the gap,
preferable.
deficit).
A
which
but
one-time
such as a donor contribution, is
8)
Reduce Operating Expenses
operating expenses for this building comprise 29% of
The
the
breakeven rent.
By reducing these
the
expenditures,
breakeven rent will decrease proportionately.
the
bring
To
annual
$205,214
shortfall
the
$0,
to
by
estimated operating expenses of $4.50 would have to drop
$1.77 per square foot,
This would leave the Housing
or 39%.
Office with $2.73 per square foot for operating expenses.
MIT
its
could not maintain the proposed project according to
standard
present
amount.
Since
high-rise
the
residential
BOMA,
of building
it
is
unlikely
to
management
firms could operate the building for
square foot.
foot
square
property
private
according
for
figure
average operating expense
buildings is $4.05 per
this
with
maintenance
$2.77
per
In addition, MIT's ordinary operating expense
budget for graduate housing would already be reduced by 10%,
from $5.00 to $4.50 per square foot, because of new and more
efficient
mechanical
questionable
category.
whether
systems
much
in
the
It
building.
more can be trimmed
from
is
this
Assume Rent Inflation
9)
shortfall
inflation in rent will help to reduce the
Any
gap.
The first is the
The breakeven rent has two components.
operating
expense budget.
inflate,
rents
is
it
operating
probable
increase by the same percentage.
As
costs.
These are variable
will
expenses
However, debt service, the
This
second component of breakeven rent, will not increase.
is
cost
fixed
a
the project).
finance
Since only 29%
to
of
a 10%
rent
will cause the breakeven rent to increase by
only
rent is sensitive to inflation,
breakeven
increase
used
increase,
No matter how high rents
the carrying cost will remain constant.
the
not
(assumIng a demand note is
2.9%.
On the other hand, the entire target rent is variable. If
there
were
increase
a 10% rent inflation,
the
by
full amount.
target
the
If this
would
rent
hypothetical
10%
increase occurred, the breakeven rent would rise from $15.57
to $16.02 per square foot,
while the target rent would jump
from $13.80 to $15.18 per square foot.
from
$1.77
to
$.84 per square
foot.
The gap would shrink
illustrates the relationship between inflation
and deficit.
to breakeven,
very
costs,
powerful.
the
If
8
below
rate,
years
Table
The effect of rent inflation is
MIT takes no other actions
to
reduce
gap will naturally take care of itself assuming
some inflation.
per year,
If rents increase at the modest rate of 3%
Once
the deficit will disappear after six years.
these deficits have been covered,
the project will begin to
generate positive cash flow.
By
discounting
individual cash
these
flows
back
and
calculating their net present value (NPV), MIT can determine
how
much
to
initially
deficits.
set aside
to
meet
these
future
A discount rate of 8.5%, the Institute's cost of
borrowing money, is used.
Table 8: Rent Inflation
Rent
Inflation
Years to
Breakeven
Net Present Value of
Negative Cash Flow
2%
9
$844,224
3%
6
$637,711
4%
5
$524,994
5%
4
$452,387
6%
3
$395,561
7%
3
$366,134
8%
3
$336,525
9%
3
$306,733
10%
2
$294,120
11%
2
$284,261
the
Assuming a long-term rent inflation rate of 3%,
project,
will accrue enough interest to cover
it
of
the
the
six
sets this amount aside at the start
Institute
the
If
value of the six yearly deficits is $637,711.
present
net
years of negative cash flow.
Conclusions
C)
intent
The
of
such
was
to
operating
costs,
the
investigate
The
housing.
including
a development,
construction
program,
paper
this
options for building graduate
Institutes's
components
of
design
the
expenses,
and
financing costs were studied with a view toward reducing the
final cost of the project.
number of things have become
A
clear.
First,
if
the
displaced parking is accommodated via structured parking and
is
to
project
be
supported by the graduate
will
not break even.
housing
Without the
income,
the
of
the
drain
parking garage, the project would produce positive cash flow
in
the
second
year.
Second,
MIT's easiest
option
closing the $1.8 million initial gap is to contribute
either
as equity at the start of the project,
for
cash,
or by adding
expenses.
cash yearly until the project begins to cover its
majority of the options analyzed in this chapter for
The
While the alternative of
reducing costs are not practical.
the
reducing
thereby increasing density,
and
feet,
it would
makes economic sense,
As
suites rather than apartments.
building
require
square
building's size to 97,316
Tang
Hall demonstrates, this is an unpopular housing arrangement.
bedroom
apartments
tenants
building's
the unit mix
from
single
to
- dropping
density
choice for increasing
other
The
- would
onethe
limit
The
students.
graduate
Institute cannot afford to turn its back on married graduate
who
students,
comprise
19%
of
the
student
graduate
population.
Financing
varying
of
housing with a combination
and a lower interest demand note is a
bond
By
graduate
viable
option.
instrument,
the amount of each financial
HEFA
debt
service can be reduced to the point where the project covers
itself.
MIT should be mindful of the interest rate risk in
this option,
however.
Since the demand note has a variable
financing costs will increase if inter!st rates rise.
rate,
effect of the new tax law on the economy is
The
interest
higher
rates are a
possibility.
uncertain;
The
potential
this
volatility of interest rates reduces the attraction of
option for lowering debt.
Assuming rents increase over time, the gap will naturally
take
care
will
close
yearly
of itself.
Even a modest rent inflation of
the gap in six years.
If MIT
contributions in the HEFA bond,
65
it
financed
would
3%
these
entirely
Of course,
eliminate its out-of-pocket cash contributions.
service slightly,
debt
increase
breakeven
the
and raise
to
be
would
funds
additional
borrowing
of
effect
the
rent.
First,
three-pronged strategy.
be
footprint,
surface
minimize the cost of parking.
fit on the site,
be
can
can
costs
building.
campaign
a
begin
should
inflation
of
value
structured
of
to
$1,803,830.
is assumed,
Secondly,
a
identify
Once
a
to
Institute
the
for
donor
modest
to
be
the
entire
the
rate
of
present
only a sum equal to the net
yearly deficits would have
the
for
construction
parking
gift amount might be less than
The
shortfall
cash
available
If 100 surface parking spaces
$680,000.
be cut by
building's
the
minimizes
would be the best method
as possible,
parking
a
the cost of parking should
as much of the site
leaves
and
which
design
A
reduced.
of
merit
this analysis suggest the
of
results
The
donated.
Third, if efforts to find a donor fail, the Institute should
prepared
be
to
cover
the
building's
yearly
operating
deficits until rents increase enough to match expenses.
Prior to the new tax bill, several other strategies would
have been available to the Institute.
are
of no use to a nonprofit institution,
Wealthy
equity
in return for these losses.
these
Tax
reform
options more difficult to implement,
less attractive financially.
66
been
could have
alumni might have been persuaded to
sold.
makes
The tax losses, which
invest
certainly
and
far
Although
this analysis has focused on the
School
Sloan
site, another site for a housing project is available on the
side of campus.
western
The key disadvantage of the Sloan
School site, the necessity of including expensive structured
parking,
But
might be less of a problem at a Briggs Field site.
out land for housing from Briggs
carving
cost MIT in
other ways.
Field
would
While the loss to MIT in building
on the Briggs Field site would not be financial, it would be
an aesthetic and recreational loss.
large
parcel
students
of open green
living
space
This field is the last
on
campus.
Athletes,
and
in the West Campus dormitories,
the
rest
of the MIT community would be affected by the loss
of
part
of
cannot
be
this valuable space.
While this
cost
translated into dollars, it makes the Sloan School site seem
preferable
as
a site for the new graduate student
MIT urgently needs.
67
housing
APPENDIX A:
FINANCIAL CALCULATIONS
SAS IS
F OF
ANAL Y 5 1 S
Estimated
Start
Date:
1,196
DateofProjection:October
Project
Name:
High
RiseHousing
Estimated
Completion
Date:
(CTIME):
Construction
Time
School
parking
lot
Sloan
Location:
30 year amortization
bondat8.5%,
KEFA
Financing:
September1, 1986
August
1,1989
Ismonths
NetUnitSize
SITESPECIFICS:
Description:
UnitMix: (square
feet):
of Units (TU):
Targeted Number
Building Efficiency (EFF):
Parcel Size (PS):
(FAR):
AreaRatio
Floor
(PR):
(spaces/unit)
Ratio
Parking
200 units
85.0%
87,120square
feet
PHASE:
DEVELOPHENT
40.0%
15.0%
15.0%
7.5%
7.5%
7.5%
355
457
7.5%
744
studios
1 bed(single)
I bed(sarried)
2 bedflat
(single)
2 bedflat
(married)
2 bedduplex
(single)
2 bedduplex
(married)
457
678
678
744
PNASE:
OPERATING
HARDCOSTS:
$75.00 /GrossSF
& Site(I5)
Building
(STP) $8,000 /PerSpace
Parking
Structured
Parking
Substitute
(SUB): 1475,000
Const.
During
SOFTCOSTS:
Consultants
(CON)
(AE)
Architecture/Engineering
(LEG)
Legal and Accounting
Permits
(PE)
Insurance (INS)
Comissions(COn)
$40,000
5.0%
$150,000
550,000
(per square foot):
EXPENSES
OPERATING
anagmeent
Fee
Other
Administration
Supplies
aintenance Repairs
Painting/Decorating
RealEstate laxes
Insurance
Other Payroll
Reserves
$0.29
$0.14
51.52
$0.71
$0.23
$0.61
50.02
$0.36
$0.61
550,000
$20,000
Total Operating Expense:
Op.Exp. Reduction Factor (OERF)
HEFAtond:
Const.Startup Factor (CSF):
Interest Rate(CI):
Term(CT):
Balance Out (041):
Average
Reinvesteent Interest Rate(RIR):
AS A PERCENTAGE
MIT
RENTS
OF ARRE1
RENTS:
single
grad. students (SPOM):
(nPOM):
students
grad.
married
Contingency
(CON1):
CONVENTION:
EndofYear
SURMARY:
Actual
I of
Units to be Built (AU):
Actual I of Beds to be Built (BED):
TotalGrossSquareFeet(TGSF):
0.5
200
230
90.0%
90.0%
ASSUMED
MARKET
RENT:
Studio
(S)
OneBedroom
(ONE)
(TN0)
TwoBedroom
115,859
TARGET
RENT(90%
ofassumed
market
rent):
Bldg.
SizeAllowed
by Zoning
(SAl):
I Parking
SpacesRequired
by Zoning
I ParkingSpacesto be Replaced
261,360
100
200
Studio
One
Bedroom
mi
TaoBedroo mi
1'
APPENDIX A:
IUIL D I N
SIZE
Unit
Nix:
studios
I bed(single)
I bed(married)
2 bedflat(single)
2 bedflat(married)
2 bedduplex
(single)
(married)
2 bedduplex
ANALYSIS
Bldg.
SizeAlloed byZoning
(SAZ):
I Pkg.
Spaces
Reqd.
by Zoning
(P9Z):
Targeted
Number
ofUnits:
Number
ofUnits
Built
(AU):
Actual
Efficiency:
Building
Type
ofUnit:
I ofEach
Unit:
I ofBedsin
EachUnit:
Unit
Size:
Net
7.5%
7.5%
7.5%
7.5%
261,360
300
Gross
Unit
Size(851
eff.):
gross
square
feet
feet
square
gross
square
feet
gross
gross
square
feet
gross
square
feet
feet
gross
square
feet
square
gross
feet
netsquare
netsquare
feet
netsquare
feet
netsquare
feet
netsquare
feet
netsquare
feet
netsquare
feet
40.0%
15.0%
15.0%
Actual
t ofunitbuilt
:
FINANCIAL CALCULATIONS
200
Actual Number
of BedsBuilt (AU):
NetSF (Rentable) 98,480
Total
NetSF/Unit
492
Average
428
Average
NetSF/Bed
----------------
Gross
SF (TGSF)
Total
Gross
SF/Unit
Average
Gross
SF/Bed
Average
CB1 SS IEVEIIE ANAL YSIS
------------------------------------------------------------------------------------------------------------------------
Comparable
NITRents As
of Cambridge
Market a Percestage
of
Unit
Nix EachUnit fents
Narket bets
Nmber
TYPE
OFUNIT
studios
I bed (single)
I bed(arried)
2 bedflat(single)
2 bedflat(married)
2 bedduplex(single)
2 bedduplex(married)
115.859
579
504
40.0%
$552.00
15.0%
15.0%
7.5%
$737.00
$737.00
7.5%
7.5%
7.5%
$994.00
$994.00
$994.00
$994.00
90.0%
90.0%
90.01
90.0%
90.0%
90.0%
90.0%
MITDorm
BentPer
Month
$497
$663
$663
$595
$695
$895
$895
BentPer
Unit Per
Year
Total Bent
PerUnitType
$5,962
$416,928
$7,960
5238,788
$7,960
$238,788
$161,028
5161,028
$10,735
$10,735
110,735
510,735
Total
Income
fromProposed
Dormitory:
$161,028
5161,028
$1,598,616per year
$13.80 per grossSf per year
APPENDIX A:
FINANCIAL CALCULATIONS
T 0 T AL
per gross SF
Hard Costs:
Mechanical
Electrical
Sitework
Structural
Concrete
Contractors Over & Prof
Woods/ Plastics
Moisture/Thermal
Doors and Windows
Accessories
Miscellaneous
Finishes
Structured Parking
Substitute Parking
During Const.
Total Soft Costs:
Total Estimated Costs:
$955,835
$782,047
$695,153
$2,212,904
$906,016
$695,153
$521,365
$421,726
$521,365
$34,758
$74,150
$868,941
$75.00
$20.71
$4.10
Total Hard Costs
Soft Costs:
Consultants
Arch/Engineering
Legal and Accounting
Persits
Insurance
Comissions
Contingency
C 0 S TS
total construction cost:
$8.25
$6.75
$6.00
$19.10
$7.82
$6.00
$4.50
$3.64
$4.50
$0.30
$0.64
$7.50
Total Building
E S T I MA T E D
$8,689,412
$2,400,000
$475,000
$99.81
$0.35
$4.99
$1.29
$0.43
$0.43
$0.17
$2.99
$11,564,412
$40,000
$578,221
$150,000
$50,000
$50,000
$20,000
$346,932
$10.66
$1,235,153
$110.48
112,799,565
FINANCIAL CALCULATIONS
§PPJENDIX A:
MOR7C
AGE SCHE DUL E
50.0---------------- ------ --- --- ------ --- --- ------- --- --- ------ -------------------------
Instrument:
Aeount Financed
Interest Rate:
Term:
fonthly
Nortgage
Payment:
50.0%
Average
Const.
Loan
8a1.Outstanding:
Reinvestment
Interest
Rate:
HEFABond
$12,799,565
8.5%
30
7.0%
Interest
Income
from
Unspent
Const.
Loan
Balance:
1671,977
898,418
9
Nonth
Activity
Loan
Balance:
Atortization:
Const.
Const.
Const.
Const.
Const.
Ccnst.
Const.
Const.
Const.
10
Const.
11
Coast.
12
Coast.
12,719,506 12,711.165
12,799,565 12,791,811 12,784,002 12,776,138 12,768,218 12,760,242 12,752,209 12,744,120 12,735,973 12.727.768
8,380
8,147
8,321
8,263
8,089
8,204
7,976
8,033
7,920
7,864
7,809
7,754
Debt Service
Interest:
90,664
37,332
Const.
fromUnspent
Interest
Balance:
Loan
13
90,609
37,3,22
14
Const. Const.
90,553
37,332
15
90,498
37,332
16
90,442
37,332
17
Const. Const. Const.
90,385
37,332
90,320
37,332
18
Const.
12,660.006
12,702,805 12,694,365 12,685,866 12,677,307 12,68,687
8,380
8,439
8,499
8,559
8,620
90,038
89,978
89,918
89,858
89,983
37,332
37,332 37,332
37,332
Amortization:
Total
Interest:
Construction
Period
Total
37,332
$147,939
$1,623,57E
Payments:$1,771,516
Construction
Period
Wortgage
Total
37,332
8,681
89,737
90,271
37,332
90,213
37,332
90,155
90,097
90,038
37,332
37,332
37,332
APPENDIX A:
B R E AK E V E N
FINANCIAL CALCULATIONS
R EN T
ANALYSIS
total
per gross SF
$110.48
$12,799,565
Construction Period Interest:
$15.29
$1,771,516
Interest from Unspent Construction
Loan Balance:
($5.80)
($671,977)
$119.97
$13,899,104
Total Construction Costs:
Total Amount Financed:
$1,282,465
$11.07
Carrying Cost @-8.5%, 30 years
Operating Expenses:
Management Fee
Other Administration
Supplies
Maintenance Repairs
Painting/Decorating
Real Estate Taxes
Insurance
Other Payroll
Reserves
Total Operating Expense:
Breakeven Rent:
$33,367
$16,684
$176,221
$82,376
$27,111
$70,906
$2,085
$41,709
$70,906
$0.29
$0.14
$1.52
$0.71
$0.23
$0.61
$0.02
$0.36
$0.61
$4.50
$521,365
$15.57
$1,803,830
APPENDIX B:
CANADIAN HOME MORTGAGE CORPORATION APARTMENT SIZES
1person apartment
Net floor area 355 square feet (32.98 m')
Net floor area per person 355 square feet (32.98 n')
1 bedroom, 2 person apartment
Net floor area 457 square feet (42.46 m 2)
Net floor area per person 228 square feet (21.18 n')
APPENDIX B:
CANADIAN HOME MORTGAGE CORPORATION APARTMENT SIZES
2 bedroom, 3 person apartment
Net floor area 678 square feet (62.99 m2)
Net floor area per person 226 square feet (21.00 n)
I.
3 7' - 0
-V
APPENDIX B:
CANADIAN HOME MORTGAGE CORPORATION APARTMENT SIZES
2 bedroom, 4 person,
2 storey, back-to-back house
Net floor area 744 square feet (69.12 m')
Net floor area per person 186 square feet (17.28 m')
I
Main access
Basement
Section
APPENDIX B:
CANADIAN HONE MORTGAGE CORPORATION APARTMENT SIZES
Second floor
25' - 0"
First floor