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Stephens team had eventually settled on constructing a multifamily rental property, rather than a condominium. The reasons were complicated, but in the end, home sales prices were already softening, and there were quite a few units in the development pipeline which were expected to come onto the market before their own project could be completed. Offering units for rent seemed to make more sense.

It was now Catherines job to help shepherd the project through the permitting process. Full construction documents were still being drawn up, but the team had been able to assemble 80% plans for the city to review. The first question from the permitting office was about their plans to include any affordable units. Charlestons inclusionary zoning program requires all developments with more than 10 units to designate either a minimum of 15% of all units for residents who earn 60% AMI (Area median income) or less, or 20% of all units for residents who earn 80% AMI or less. Alternatively, developers can make a one-time payment of 25% AMI per unit to a fund which helps finance affordable housing developments throughout the city. Catherine asked you to help her think through some of the financial implications of each option, and prepare recommendations to present to the whole team later in the week.

1. The first option for inclusionary housing would require your team to offer at least 15% of its units to households earning less than 60% AMI. Affordable housing regulations state that a household which lives in an affordable unit cannot be asked to pay more than 30% of its income on housing costs. In 2021, 100% AMI for the Charleston metro area was approximately $65,700.
   1. What is the maximum monthly rent that a family earning 60% AMI can pay for their unit to be considered affordable?
   2. Assuming that exit cap rates follow a linear scale between 4% for a fully market-rate building, and 5% for a fully affordable building, what sort of exit cap rate could Stephens team expect if 15% of their units were affordable?
   3. Using the chart given in the associated spreadsheet, calculate the NOI and anticipated sale price of the property if the team decides to fulfill the inclusionary zoning requirement by taking this first option.
2. The second option to meet the inclusionary zoning requirement is for the team to designate at least 20% of their units for households earning up to 80% AMI.
   1. What is the maximum monthly rent that a family earning 80% AMI can pay for their unit to be considered affordable?
   2. Assuming that exit cap rates follow a linear scale between 4% for a fully market-rate building, and 5% for a fully affordable building, what sort of exit cap rate could Stephens team expect if 20% of their units were affordable?
   3. With the assumptions given in the associated spreadsheet, calculate the NOI and anticipated sale price of the property if the team decides to fulfill the inclusionary zoning requirement by taking this option.

Question 31005 AMI for the Charleston metro area is approximately 565,700 . Consider the impact of choosing Option 1. \begin{tabular}{l|l|l|} \hline Maximim "Afordable" Rent at 60% AMI & \\ 3.b. Estimated ExitCap Rate for Optian 1 & \\ \hline \end{tabular} Question 4 Consider the impact of choosing Option 2. \begin{tabular}{l|l|l|} \hline 4.a. & Maximim "Afordable" Rent at 80\% Alul & \\ 4.b. Estimated Exit Cap Rate for Option 2 & \\ \hline \end{tabular} Question 31005 AMI for the Charleston metro area is approximately 565,700 . Consider the impact of choosing Option 1. \begin{tabular}{l|l|l|} \hline Maximim "Afordable" Rent at 60% AMI & \\ 3.b. Estimated ExitCap Rate for Optian 1 & \\ \hline \end{tabular} Question 4 Consider the impact of choosing Option 2. \begin{tabular}{l|l|l|} \hline 4.a. & Maximim "Afordable" Rent at 80\% Alul & \\ 4.b. Estimated Exit Cap Rate for Option 2 & \\ \hline \end{tabular}

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