[Note: At its work session on November 6, 2018, Iowa City’s City Council had a lengthy discussion about possible height bonuses for the project proposed for 12 Court Street in Iowa City. I wrote a memo to the Council concerning the outcome of that discussion. That memo, which is public information, appears below. A related post on this Storytelling and Cities site can be found at: https://persuasivestorytelling.wordpress.com/wp-admin/post.php?post=985&action=edit%5D
On November 6, we discussed possible height bonuses for “Pentacrest Gardens” at 12 Court St. Danielle Sitzman provided us with an overview of the Riverfront Crossings District Master Plan; the Form Based Code; the development process and possible height bonuses; and how the Plan, the FBC, and possible height bonuses apply to the 12 Court St. site. I want to thank Danielle for making such an excellent presentation.
Although no official votes were taken, a majority (4) of us informally indicated a willingness to permit the developer to receive the maximum height bonus permitted in the South Downtown Sub-District: 7 stories for each of the buildings (presumably four) at the site. And we instructed the staff to inform the 12 Court Street development team to prepare a draft height bonus proposal for Council to discuss at an upcoming work session.
In principle, I think the 8 stories permitted pursuant to the upzoning we approved a few weeks ago are appropriate in scale and sufficient in density. However, as I said during our November 6 meeting and as I indicated during our earlier discussions about rezoning the site, I also think there are good reasons to authorize bonuses resulting in an average maximum building height of 11-12 stories.
Although I think some bonuses are warranted, I strongly believe that permitting the maximum permissible bonus is a serious mistake; it would result in a project that is excessive in scale and unnecessarily risky for both the developer and the city. In my judgment, the development needs to be scaled down and stretched out over time.
First, with maximum bonuses, the project will far exceed what the Master Plan – which was developed with extensive public participation and support – anticipated for the site. That Plan envisioned four buildings, which would be 4-7 stories in height plus a possible height bonus. However, the developer envisions – and the Council has tentatively authorized – a complex consisting of four 15-story structures. Such a complex would be far out of scale with virtually all the other buildings in and near downtown and would, therefore, radically alter the character and identity of the city. The resulting transformation would be irreversible; the buildings would last for decades to come, whether they succeed or fail. Moreover, construction of this project might also divert investment away from other parts of the Riverfront Crossings District and thereby undermine our ambitions for that area.
Second, we have already approved a massive upzoning, which permits the owner to (at least) quintuple the number of beds on the site from 200 to (at least) roughly 1,000. We did so by rezoning the site, which authorized the developer to build several structures up to 8 stories in height and the staff to increase that by two bonus stories subject to review by the Design Review Committee.
The 12 Court Street site is a very good location for student-oriented housing, but, if it accommodates 1,000 or more students, we should carefully consider the project’s potential effects on the off-campus student housing market. In my judgment, it would be unwise to enable one developer to control too large a share of off-campus student housing. It would also be unwise to permit the supply of off-campus student housing to increase so much and so quickly that it undermines the viability of apartment complexes that currently serve the student market.
Third, there is no need to overreach: upzoning coupled with modest bonuses would still yield very large increases in the tax base and property tax revenues. Increasing the tax base is not one of the elements listed in the FBC as warranting height bonuses, but it clearly has been a relevant factor in the Council’s decision making. By rezoning the property, we already enabled the owner to, by right, increase the number of beds and property tax revenue on the site roughly 5-fold. If we authorized height bonuses resulting in an average height of 12 stories as advocated in my June 28 memo, we would be enabling the City’s property tax revenues to increase by ~$1.28 million per year.
Fourth, an increase in site-specific property tax revenues might be substantially offset by decreases elsewhere. In other words, we need to think about the net change in property tax revenues rather than base our decision entirely on gross property revenue generated by development on this site. On this point, I ask you to consider three factors:
- Rental housing vacancy rates have been increasing significantly. As part of an unrelated rezoning, we received a market assessment which reported that rental vacancy rates had increased to 4.4% in 2017 and was expected to increase to 7% by 2019 as a result of imminent completion of several new multifamily development projects. (It is not clear to me whether the 7% projection included 12 Court Street’s 2,000 beds.)
- Increased vacancy rates might result in property devaluations and hence decreases in property tax revenue from other rental housing complexes. Shortly before we rezoned the property, I had a lengthy discussion with the owner of several apartment complexes. He expressed considerable concern about the recent and projected increase in rental housing vacancy rates and drew my attention to negative effects this is likely to have on the assessed value of his properties and others like his. These concerns were also expressed to us in a letter we received from Larry Svoboda, the owner of Campus View Apartments. Svoboda claimed the number of incoming U of I students is declining, the number of vacant apartments is growing by leaps and bounds, vacancies will rise to critical levels, “rate wars” for survival will start, the big companies will take their profits and run, building values will decline, and some owners will simply walk away from their buildings.
- The 15-story scenario might be very risky for the developer. An August 14 Bloomberg News article titled, “How long will student housing be big business?”, Noah Buhayar, Kristi Westgard, and Gillian Tan basically argued that investors in big new student-oriented housing projects face many risks. If investors in such projects face many risks, then so too would Iowa City.
Fifth, key risks for the developer and for the city are the possibility of (1) declining enrollments at the University and/or (2) a U of I policy decision to require 2nd year students to live on campus. University officials have told us the U of I does not intend to increase enrollment and that the current enrollment of 32,000 is generally felt to be the right size for the University. They also reminded us they are currently studying options to require first and second year students to live on campus, based on institutional objectives of student retention and success. If pursued, this policy shift would undoubtedly impact local apartment capacities and rents. Beginning in 2019, the University will conduct a small program that tests this live-on requirement within one of their existing residence halls. Moreover, after we rezoned the property, the University reported that its enrollment had dropped by about 550 students this year as compared with last and that its Mayflower Residence Hall was only about 60% occupied.
Sixth, the upzoning we already approved will, when coupled with modest height bonuses, substantially increase the supply of affordable housing. City Code requires residential and mixed-use developments in the Riverfront Crossings District to include affordable housing, and no bonus is required to provide a further incentive. If one assumes an overall height bonus equivalent to an average height of 12 stories, the developer would have to contribute roughly 80 affordable units (160 beds) either on site or by paying a fee-in-lieu contribution. According to [City Manager] Geoff [Fruin]’s June 28 memo, the equivalent fee-in-lieu contribution would be $6,469,600 (as compared with $8,087,000 for the 15-story scenario). On this point, I agree with [Council member] Mazahir [Salih] that most of the affordable housing requirement should be met through a fee-in-lieu contribution.
In brief, there are non-trivial uncertainties and risks associated with building new large-scale student housing on this site. In light of those risks and uncertainties, I strongly believe we should scale down the project and ensure that it is phased in over time rather than built quickly as a complex consisting of four 15-story buildings.
Such a scaled-down project would be more consistent with the Riverfront Crossings District’s Master Plan, would provide high quality off-campus student housing close to the University, would yield very large increases in net property tax revenue to the city, would generate over $6 million for our Affordable Housing Fund, and would achieve high quality urban design that enhances the quality and character of the neighborhood.
 See the Council’s November 8, 2018, information packet, which is available at: https://iowacity.novusagenda.com/AgendaPublic/MeetingsResponsive.aspx
 See my June 28, 2018, memo to the Council (attached). These bonuses would be based on: (1) dedication of the Capitol Street right-of-way to the City, (2) a transfer of density from the Tate Arms historic landmark site, and (3) assurance that the management and interior design of the building would help students mature safely and thrive academically. For details about the U of I’s design requirements for its newest residence halls, see the June 2 email from David Kieff to Geoff and me.
 In his July 31 memo to us, Geoff reported: “The combined owners of the proposed development have interest in and management of well over 1000 units and 3000 bedrooms in the Iowa City area. They manage an extremely large share of apartments in Iowa City with the majority of them rented to college students”. By adding 2,000 beds from this proposed development, the developer’s family would own at least roughly 25% of off-campus student housing.
 In his June 28 memo to us, Geoff reported, “Based on conversations with the City Assessor and using an estimated unit count of 1000 [i.e., ~2000 beds], we estimate the tax generation to be around $3.9 million for all taxing districts. Of the $3.9 million approximately $1.6 million would be generated for the City of Iowa City annually. The 2016 total taxes for the property were $250,921.”