ZBA Hearing - June 1, 2022

Hi, this is Tanya.

He only has authority for audio.

There you go.

Oh, okay.

So, Dave, the issue's not on your end.

Okay.

I'm happy to go to video if the board wants it, you know, whatever's best.

I'll leave it up to the chairman and Tanya.

Mr. Turner, why do you want to do that?

I've just asked the witnesses testifying just to be able to see if he's looking at any documents, if there's anyone in the room with him.

Just to testify a witness, I'd just like to be able to see him.

Okay, okay.

Tanya, could you put him on the screen?

He's being promoted to panelist now.

I don't object to it.

i can't see if it happened though because i'm sharing my screen are you there is he now visible

you have to give it one second okay

okay mr henderson just hit your video button

and we're there. Thank you.

Can I go ahead?

Go ahead.

Dave, can you see the summary on your screen?

I can, sir.

Okay. Let's go through as efficiently as you can, but don't rush.

but can you explain how you analyzed the feasibility of developing this project for

either nine units or less? And you can start with your paragraphs on the screen right there.

Absolutely. If I can, first, I'd like to say thank you to the board. It's not lost on me that

there's hundreds of these cases going through the ZBA every week and our case going through

four years ago. I certainly appreciate the board taking time here to evaluate more data.

So, look, none of the data here is really a secret sauce. I'll run through it. I cited all my references. These were pulled from online news sources, you know, from various, all sides, and then government agencies.

Probably the most prescient data point is number one. So, it's important to note that we're local. Like, I've lived in this community. I've had four generations of my family in the same zip code living here.

I grew up two blocks down the street. And so these are local construction companies that are providing these estimates that have done work in this area for decades.

And so the first is a there was one there's one estimate that was already submitted from Mr.

Dan Pellicciotti. And then I got two more that was deemed like, hey, we need more data.

So I got two more estimates, one from a local and Philadelphia contractor who works in this community.

and then one of those. Sorry to interrupt you, Dave. You forwarded those to me and those are

included in our packet, Mr. Chairman. Go ahead, Dave. Thank you. Yes, sir. And so that's all this

is, is an estimate per square foot. And then I start taking sub data points. Hey, what is what's

driving this cost? Where are we seeing this from? Inflation recorded eight and a half percent last

quarter. This past quarter was not was not necessarily captured yet. It'll be published

any day or week now. The housing market is cooling off. Fed Reserve raising interest rates,

driving interest rates to be nearly double what they were four years ago, the first time that we

were in front of the ZBA. And that's helping to decrease demand for housing. Supply chain

volatility and raw material costs are still at all time highs. What they were four years ago is

certainly not what they are now. The holding cost for capital. So if you're going to go out and get

a construction loan, if you're super fast and you think you can knock out the job, if you're done,

start to finish in 12 months um or 15 months and so i put the holding cost in there that's

or 15 months. And so I put the holding cost in there. That's a very conservative estimate. I

a very conservative estimate

didn't choose a high number. And then the base cost to clear the land and get it usable and to

eliminate the unique and unusual circumstances surrounding the substandard soil that's there.

And, you know, and Richie and members of the board, that's it in a nutshell. I tried to,

you know, this isn't secret data. It's all publicly available.

And why don't you just explain to the board what you did with those three construction. Let me

just go back to those construction estimates you took the median or the most conservative of those

is that right explain that to the board yeah that's so that's correct so uh instead of using

240 dollars per square foot we used 220 dollars per square foot um i you know and just simply

broke it out into a price per square foot per house and added that the little you can scroll

down a little bit richie i mean all and then all we did was price for square foot per home plus

capital holding costs plus price to clear the land. I, you know, it's, it's just basic math,

I guess. And let's quickly, we'll get in a little bit more detail in a minute, but explain

where you got the price point, the sale price estimate of 462 and how it will increase.

And this was based on conditions when you were first at the board, correct?

Yes. Yeah. If you're looking, you're at number two there. So if you're looking at the price

per square foot being $462,000 to build the homes and inflation last quarter was eight

and a half percent, I put there, it's likely to increase to $500,000 in the current market.

Certainly could go back to normal over time too. Data is never perfect and data without

context is useless. All right. So here's your overall summary here in the numbers that you

came up with. And let me look at where you highlighted. You highlighted here result,

the project loses money even if nine homes are built. Let's explain that to the board,

what you mean by that. So one of the GCs outside of Philadelphia said, look, you'll break even,

you're just going to lose a little bit of money. The other GC said you're going to lose money if

you build the nine homes and they recommend a different course of action. Um, that's,

that's the, so explain to the board why, why are we bothering with this? I think, well,

I mean, you know, it's, it's been four years. We're not in any rush. I'm a member of this

community. Uh, I want to do something that makes sense and is appropriate. Um, but it's okay to

be patient and it's okay to, you know, to see if the market stabilizes the factors that I list

above there and the factors that i cite in my references uh those could stabilize over time

you know i i don't know but then but the the loss on the nine homes would be when with your most

conservative estimates right if things break out better you will be able to turn a profit with the

ninth home right absolutely correct yes all right excuse me council excuse me counselor yeah if you

eliminate the basement would that not help with the price can you um answer that dave you still

excavate right yeah you'd still so you still have the issue of an excavation but the issue

but the issue of excavation is not as serious you could use slab on grade you're correct sir

you could do you could do slab on grade you'd still have to do helical piers there'd be a

question of will the inventory move if there's not a basement you know most new home buyers are

looking for basements these are families typically buying these homes and they don't having kids um

but uh but your points your point's correct sir and so i would also add that we um we are

proposing a uh single car garage and we are not asked we did not ask for height variances

on the original case. So if we were to forego a basement, there would be significantly less

buildable area and probably a significantly less sale price. Is that right, Mr. Henderson?

Yeah, that's correct. And it's important to note too, we did make several modifications

in the first meetings we had with the RCO Ridge Park Civic. We made several modifications to the

home to at their request. And yeah, I you know, for the basement, a mechanical room was brought

into question of is it safer to have the mechanical room downstairs if you're planning on having a

family and kids, and that was certainly raised. Excuse me, councilor, if the site

is causing such a difficult problem, why do you stick with the site?

so why bother at all you mean yes well i think he answered that the answer is clearly

Well, I think he answered that. The answer is clearly that that means the property does have a hardship and that we'll win this case easily if that is, in fact, true.

that that means the property

If the hardship is so extreme that it's almost impossible to pull off a development, and clearly the developer is entitled to the original variance that this board, and that, in fact, you and the other members of the board voted for in 2018.

There was no dispute as to how challenging and how unique and how difficult this property was to develop.

This was something that was uncontested.

So if it's that impossible, then clearly we have an extreme hardship, which justifies the greatest relief possible.

That's the question that we're asking, that is, is it almost impossible?

And clearly the site suffers from an extreme hardship that allows the variance.

or counsel your approach your architectural and engineering approach is not correct to solve the

issues of the site well you know look you're gonna i'm just gonna suggest mr holliman that

that we consult with your attorney on that that is an issue that has already been decided in favor

of the applicant with the commonwealth court the actual hardship posed by the site was never in

doubt the commonwealth court agreed and actually made commentary in its initial opinion that you

were absolutely correct in finding that this property suffered from an extreme hardship.

The only issue was the number of units to overcome that. If in fact the property is so difficult to

develop that you must have the ninth unit, then that proves the case. And that's why we're here.

We can all go home and these guys can try to develop. So I don't know how we're going to

revisit an issue that's not before the board and start talking about whether there isn't a hardship.

There clearly is. That's already been decided. Mr. DeMarco, where are you going next? I think we understand his numbers.

Go ahead, Mr. Henderson. Explain that first chart there and your sale prices, how you came to those numbers.

So 6907 is adjacent. So it's, I think, two houses down from our proposed development.

uh that's a comparable that's a comparable sale that that dates to the time when we were first at

the zoning board right uh correct correct that's next door i just uh next door or two doors down

it's it's a very insane block yeah correct uh and so we uh and you could two blocks down the street

uh there's i think 40 homes that were you know that were uh built in the 2010s at some point

and developed. So all we did was we took the closest home that's of similar size and scope,

and we took the 2018 out price and just used inflation to show what it could sell for now.

That's really it. And then I cited the references there on what that home could sell for.

And tell the board where you got these numbers and how you came to a sale price of 516. And

And is that a conservative estimate? Is it an aggressive estimate? Tell the board what you feel about that.

Yeah, in any in any market, it's certainly possible. Like the market we're experiencing now, there's a lot of demand and not a lot of inventory on the market.

So a home that home could sell for more than five hundred and sixteen thousand or if or if the Fed keeps raising interest rates and mortgage rates, maybe the demand goes away.

You know, it's there's a million variables to go into selling a home or maybe there's some sort of structural problem with the home and it's not found until there's a home inspection.

Maybe it sells for less than five hundred sixteen thousand. You know, everyone, everyone in this audience here is a homeowner, I'm sure.

So why did you arrive at five sixteen number? Is it an aggressive number? Is it the median? How did you get there?

Yeah, it's just it's just taking the exact sale price and adding inflation to it from twenty eighteen to twenty twenty two.

I would say that's a conservative. It's a conservative outsell number.

It should be a very comfortable number that it could sell for. Absolutely.

Excuse me, Mr. Chairman. Is this board qualified to understand these numbers

that the developer is presenting? Yeah, I think the developer is going to

have numbers. I would assume that the opposing group will have numbers. And I think what we

have to do is we have to come to what we think is is where we want to be and we're not going to vote

today we know that and we're going to take a couple weeks to look at this and then we'll come

we'll get back to it thank you mr chairman i mean that is uh you know that is why we we didn't

expect the remand because it's very hard uh to do this uh to do this i mean the commonwealth court

unfortunately has told us that we need to do it i prefer not to get into numbers like this you know

I prefer not to get into numbers like this, you know, but unfortunately we were remanded from the Commonwealth Court and most of us who practice in this area are always scratching our head with, you know, with that, but here, here we are.

But unfortunately, we were remand.

So anyway, where are we going next, Mr.

We'll try to do as best we can.

Yeah.

So go ahead, Mr. Henderson, and let's explain these costs that you laid out in your summary.

Go ahead and explain what those numbers are for the board.

Yeah, so I think the board can read all of this and everybody else that's in the committee here. These are just the actual costs that we've gone through and the costs that we will need to go through to be able to build on the land. We just expanded upon already existing testimony.

So these are the baseline costs even before you start to dig a shovel, right?

That's correct.

Okay. Let's go to the main event here. So you did two breakdowns, right? You did, because we weren't sure whether the Commonwealth Court wanted conditions back when the board first heard the case or now, you did two analyses, right?

correct so 2022 breakout and 2019 breakout no secret sauces in there we just used inflationary

numbers from published by the government to show what that project construction cost would be then

and what it is now correct and you also did I'm going to scroll down to 2019 you also analyzed

the cost of bringing the project to bear if you assumed the project would have gone forward from

the original ZBA case, right? That's correct, sir. And if I can, I think the important thing

to highlight for the board here is you see in the 2019 breakout, we used $273,780. That's the

2019 estimate cost per home using a local construction company registered and licensed

in Philadelphia using Philadelphia labor. Folks that have been doing this for decades, they know

what they're doing that's a very conservative number from 2019 the board is the board understands

excuse me excuse me sir is that union wages or prevailing wages that would be using union wages

sir thank you yes sir go ahead dave uh and that that's really it and that's a very conservative

number since 2019 obviously the whole market uh has been thrown into flux supply chain volatility

There's issues with importing raw material, issues with labor being booked out for a year.

I know the board is aware of that, but I just used a very conservative number to show,

even with the soil problems and the unique and unusual circumstances there,

when you get to the ninth home, that's when the project is worthwhile. That's all.

So in other words, from these analyses that you did, the project turns a profit with the sale of the ninth home?

Yes, sir.

for each analysis. And that's because of the amount of money you must spend

to bring the project to bear. Correct. Correct. Okay. So what if, what would happen if you were

to develop an eight homes and not nine or seven homes and not nine? You lose money on the project.

And since 2019 conditions have even worsened as far as construction, right? Absolutely. And we've,

we've spent a lot more money on maintaining the site. We cut down 11 trees. We eliminated a lot

of bamboo that was on the property. We maintained the property. We knocked down a home. We've been

good stewards in that sense and tried to make sure that it's a, you know, a place that's, you

know, maintained. So we've not, we've been patient. We haven't stopped anything on the, on the project.

And you spoke to, to prepare these numbers, you spoke to the following people, right? You're a

realtor, right? Two realtors, yes. Two realtors you spoke with. I haven't done it here, sir.

I think at this stage, I hear your point. He said he spoke to two realtors. I'm going to allow that

right now. Okay. And did you speak with a capital investment advisor? Yes. You'll need a construction

loan and the resultant interest that comes along with that in order to bring this project to bear,

right? Correct, sir. And those are additional costs involved with that, right? That's right.

And you also spoke to three GCs, right? Correct. And you took the least conservative of the GC

numbers as far as construction costs, right? Absolutely correct. Okay. And if you were to

not get permission today to develop nine homes on this property, are you going to be able to

develop this property? It's a question of how much hemorrhaging. I mean, that's really what's at stake.

it's a it's a question of how much hemorrhaging i mean that's that's really what's at stake here

i mean you're already operating at a loss right because you have the holding costs

correct a significant loss okay that's all i have mr chairman

does posing counsel have any issues questions about the numbers i i do your honor sure um mr

mr henderson hey mr johnner thank you for your concise presentation i know everyone's looking

forward to getting through this in a rather quick manner um try not to believe your things too much

but first of all you prepared exhibit six the updated summary date of may 26 2002 right

if it's uh can you share your screen sir so i can see what you're looking at stuff to reference

things with all the documents he's talking about this document oh i did yes yes okay