CITY OF SUNNYVALE
NON- RESIDENTIAL HOUSING MITIGATION FEE
NEXUS STUDY
CITY COUNCIL
January 24,
2023
bae urban economics
HOUSING MITIGATION FEE BACKGROUND
Non-Residential Housing Mitigation Fee (HMF)
Fee charged on new office, R&D, industrial, retail, &
lodging developments
HMF revenues support development of affordable
housing
Awarded over $76 million since 2012
Leveraged over $490 million
Developed over 900 affordable units
CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023 2
HOUSING MITIGATION FEE BACKGROUND
2021 City Council Study Issue
Current HMF Rates
Office/R&D and Industrial (first 25,000 SF): $9.80/SF
Office/R&D and Industrial (all remaining SF): $19.50/SF Retail and Lodging: $9.80/SF
CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023 3
HMF STUDY COMPONENTS
Nexus analysis
Sets maximum legal fee amount
Based on impacts created by new development
Usually results in high max legal fee
City can set fee to be lower than max legal fee
Feasibility analysis
Evaluates potential impacts on development feasibility Often used to set rates lower than max legal fee
4CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
NEXUS ANALYSIS METHODOLOGY
Based on the estimated impact of new development
New non-residential development brings new workers
Some workers’ incomes will be too low to afford
market-rate housing
Public subsidy is needed to finance construction of
affordable housing for these workers
Analysis estimates subsidy required to address this
affordable housing need
5CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
1. Define Land
Uses
2. Estimate New
Employment and
New Worker
Households
By land use
3. Identify Industry
Sectors by Land Use
Expected industries in
each land use
4. Estimate Income
Distribution for
Worker Households
By land use and its group
of industry sectors
5. Estimate New
Worker Affordable
Housing Need
Distribution of worker HH
incomes applied to
number of worker HHs
6. Calculate
Financing Gap per
Affordable Unit
Gap between cost to build
affordable rental unit &
HH’s ability to pay
7. Calculate Maximum
Justifiable Fee
By land use per square foot of building
6CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
NEXUS ANALYSIS METHODOLOGY
NEXUS ANALYSIS FINDINGS
Maximum Legal Fee Rates
City can adopt fees that are lower than the max legal fee Office/R&D $104/Sq. Ft.
Retail/Restaurant $190/Sq. Ft.
Hotel $58/Sq. Ft.
Light Industrial/Warehouse $35/Sq. Ft.
7CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
FINANCIAL FEASIBILITY ANALYSIS
Three components:
1. Reviewed fee rates in nearby cities
2. Prepared financial pro formas for non-residential uses Based on developer interviews & BAE experience
with recent projects
3. Evaluated potential fees as percentage of total
development cost (TDC)
8CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
FEE RATES IN NEARBY CITIES
Sunnyvale Nearby Cities
Office
Industrial
R&D
$9.80
to
$19.50
$3.16
to
$68.50
Retail $9.80
$0
to
$23.11
Hotel $9.80
$1.65
to
$23.11
9CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023 See Page 22 of Nexus Study for full fee comparison
4-Story
Office
8-Story
Office Retail Hotel Industrial
TDC
(excludes land)
$900
/SF
$1,025
/SF
$660
/SF
$546,000
/room
$588
/SF
Current Fee
(per SF) $19.50 $19.50 $9.80 $9.80 $19.50
Current Fee
(% of TDC) 2.2% 1.9% 1.5% 1.0% 3.4%
Feasible to
Increase? Yes Yes No No No
10 FINANCIAL FEASIBILITY FINDINGS
CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
STUDY RECOMMENDATIONS
Retail, Hotel, and Industrial Uses: No Change
Significant financial feasibility challenges now
Fee rates are at upper end of range in nearby cities
Office/R&D: Consider increase
$11/SF for first 25,000 SF (~1% of TDC excl. land)
$22/SF for all remaining SF (~2% of TDC excl. land)
Marginal effect on overall feasibility
Fee rates well within the range in nearby cities
11CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023 Housing and Human Services Commission
Nexus Study: Alternative 1
Approve the Non-Residential HMF Nexus Study
Fee Schedule: Alternative 4 – Modified Fee Schedule
Increase fee for Office/R&D
$15/SF for first 10,000 SF
$30/SF for all remaining SF
No change to Retail, Hotel, and Industrial Uses
12 COMMISSION RECOMMENDATIONS
CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023 Planning Commission
Nexus Study: Alternative 1
Approve the Non-Residential HMF Nexus Study
Fee Schedule: Alternative 3
Increase fee for Office/R&D
$11/SF for first 25,000 SF
$22/SF for all remaining SF
No change to Retail, Hotel, and Industrial Uses
13 COMMISSION RECOMMENDATIONS
CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023 Nexus Study: Alternative 1
Approve the Non-Residential HMF Nexus Study
Fee Schedule: Alternative 3
Increase fee for Office/R&D
$11/SF for first 25,000 SF
$22/SF for all remaining SF
No change to Retail, Hotel, and Industrial Uses
14 STAFF RECOMMENDATIONS
CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
NEXT STEPS
Per State law, fees must take effect no sooner
than 60 days after Council adoption (i.e., March
25, 2023)
15CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023
QUESTIONS
16CITY OF SUNNYVALE – NON-RESIDENTIAL HOUSING MITIGATION FEE – JANUARY 2023