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Atlanta May Change New Inclusionary Zoning Rules To Involve Townhouses, Condos

A fledgling effort to boost the number of affordable apartments around the Atlanta BeltLine and Westside district may be a case study in unintended consequences.

Those consequences have city officials looking to expand its inclusionary zoning policy to include for-sale housing along the 22-mile pedestrian path that has become Atlanta's version of Central Park.

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Atlanta City Councilman Andre Dickens

“We're not tweaking the existing [inclusionary zoning]. We are adding to IZ,” Atlanta City Councilman Andre Dickens said. “We are trying to determine whether we add for-sale to the mix.”

Since the adoption of the IZ in January, developers have shifted gears from for-rent projects to more for-sale developments, predominantly with townhouses, which are exempt from the affordability standard under the ordinance.

In its current iteration, the IZ requires developers building at least 10 units along a half-mile radius of either the BeltLine or the Westside Overlay Districts to reserve 15% of their units for households earning 80% or less of the area's median income, or 10% of units for those making 60% or below that AMI. As of 2016, the AMI for Metro Atlanta was $62,613 a year.

With escalating land costs around the BeltLine, paired with stubbornly high construction costs, making those requirements work from a budgetary standpoint for developers could be difficult, if not impossible in some cases. That has led to a decline in developers looking to build for-rent housing in the IZ, SixtyWest Funds Managing Director Oz Friedmann said.

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Cherry Bekaert partner Wes Hudson, SixtyWest Funds Managing Director Oz Friedmann, Hunt Real Estate Capital Director James Kelly and Atlanta BeltLine Director of Planning & Community Engagement Beth McMillan

“Has the inclusionary zoning helped in [the affordability] regard? I think the evidence has shown otherwise,” Friedmann said. “From our perspective, we are acknowledging that underwriting deals and making deals work, it's certainly been made more difficult because of that inclusionary zoning.”

SixtyWest is facing this with its proposed Echo mixed-use project situated at the corner of Northside Drive and Donald Lee Hollowell Parkway in Midtown's burgeoning Westside area. The developer plans for 125K SF of retail, 325K SF of office, a 125-room hotel and 40 townhouses.

SixtyWest also plans for 600 apartment units, 20% of which will be set aside for lower-income renters. Friedmann said the mix of uses is helping to buffer against the cost hikes from the IZ requirement.

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Atlanta BeltLine Director of Planning & Community Engagement Beth McMillan at Bisnow's 2018 Atlanta State of the Market

Atlanta BeltLine Director of Planning & Community Engagement Beth McMillan has also said she has seen the effect, calling the IZ a “double-edged sword” during her talk among a panel of BeltLine experts at Bisnow's State of the Market event earlier this month.

McMillan said because the IZ is not a citywide requirement, some developers are going just outside the area to build apartments. In an interview with Bisnow after the event, McMillan said the city and its organizations may want to consider ways to mitigate development costs associated with the IZ demands as a way to encourage development in the districts.

“Inclusionary zoning is part of a toolbox that Atlanta should be using to increase the amount of affordable housing in the city,” she said. “I just think that there are other tools that should be considered as well.”

Friedmann said he would like to see more help from organizations such as Invest Atlanta or even the Westside Future Fund, incentives that can help pencil out apartment developments with a minimum floor of affordability.

The current ordinance does provide some trade-offs for developers, including scrapping any minimum parking requirements for residential projects and prioritizing their permit application process.

Discussions for any potential changes to the IZ are very early, and probably will not be addressed head-on until next year, Dickens said. He pointed out that a group of developers were part of the negotiations to draft the current IZ, including Novare Group, Selig Enterprises, TriBridge Residential and H.J. Russell & Co. as well as the Atlanta Apartment Association and the Council for Quality Growth.

“It took three years to come up with the rental component [of IZ], it'll take at least a year” to address a possible expansion, he said.

Atlanta Mayor Keisha Lance Bottoms told the Atlanta Business Chronicle recently that she was open to the possibility “that it can be tweaked, if it's not working the way it should.” But she added that the “overall concerns addressed by inclusionary zoning continue. It's about affordability.”

Dickens said he has heard of few grumblings about the IZ among developers, and dismisses its effect on new apartments. Instead, he suspects the slowdown in permits for new projects with a for-rent component may have more to do with a natural slowdown in apartments as the market digests a glut of new supply.

“The reason why you're seeing that trend is because of the oversaturation of apartments, and you've got to see that die down,” he said. “I have seen a few developers jump a few hundred feet outside the IZ. Now, I don't know if that's because of the IZ or because the West Midtown market is so hot.”