Zoning Bylaw Working Group - Dec 4th, 2019

Eric and Ryan from RKG associates present their initial findings from the industrial zone market analysis.

(Eric) Many communities in and around the I495 belt have been looking at their industrial districts and trying to figure out how they should evolve. For this portion of the work, RKG performed a market and fiscal impact analysis of Arlington's five industrial zones. Later stages of the project will involve additional market analysis, land use studies, and build-out scenarios. Harman (a sub-consultant) will assist with zoning recommendations, test fits, 3-D rendering, and massing studies.

RKG began their study by reviewing numerous town plans. The Master Plan's economic development chapter provided the driving force for our work. It projects 300--900 new jobs between 2015 and 2020. The town has a fair amount of retail leakage. The master plan recommends mixed use in the business districts and dimensional and density changes to the industrial districts. It also anticipates collaborative work spaces and innovation spaces.

The arts and cultural plan is more applicable to parcels that abut the I districts. There are environmental considerations for the Mill Brook district and the Arlington heights action plan (which proposes rezoning part of an industrial district as planned unit development).

91 of Arlington's 12,632 parcels are zoned industrial (0.7%).

43 of Arlington's 3,509 acres are zoned industrial (1.2%)

566,952 of the 48,662,105 taxable developed square feet are in the industrial districts (1.2%).

The Park Ave district (Golds Gym/Arlington Lumber) contains 8.3 acres, with a land/value ratio (L/V ratio) of 0.73. Land value ratio is the value of the land divided by the total assessed value -- the percentage of property value attributed to land. The high L/V ratio indicates potential pressure for redevelopment (because the buildings are worth comparatively little).

The Forest Street district contains the Mirak dealership and nearby buildings. The L/V ratio is 0.74. It has some newer buildings and a more diverse land use composition.

The Dudley Street district contains a mix of businesses and residential properties. There are 13.78 acres with an L/V ratio of 0.64. The lower L/V ratio is likely due to residential parcels in the district.

The Mill Street area has two property owners and an L/V ratio of 0.09. The L/V ratio is low because many units are condominiums and our assessor doesn't assign land values to condominiums. This district contains 2.6 acres. 22 Mill street is owned by Highrock church, and may become non-taxable real estate in the future.

Finally, the Mystic Ave district contains 2.7 acres with an L/V ratio of 0.58. Here, the lower L/V ratio is due to larger, newer buildings. It's also home to Arlington's single biotech business.

(Ryan) Ryan presents a number of demographic trends. Arlington is a growing community. Per US Census Bureau ACS data, we've had 4.7% population growth over the last five years, for a total population of around 45,000. 84% of residents are non-Hispanic white, but the community is becoming more racially diverse. We've experienced growth in the 70+ and under-20 age brackets. There's been no growth in the 35--64 age bracket. We're aging more quickly than some of our neighboring communities.

Arlington experienced 18% growth in median household income during the last five years (this also comes from ACS data).

Arlington has about 45,000 residents and 11,000 jobs (including part-time and "gig economy" work). There are 24,300 working residents. 25% of them work in Boston, 16% work in Cambridge, 4% in Waltham, 3% in Burlington, and 44% in other towns. Only 7% of Arlington's working residents work in Arlington. Put another way, 93% of Arlington's working residents commute out of town for work.

Arlington has experienced job growth. The town had 9,954 jobs in 2009 and 11,354 in 2018. The biggest employers are restaurants, public schools, healthcare, government, grocery stores, and residential care facilities.

The top sectors in the industrial zones are ambulatory health care, building equipment contractors, auto dealers, home services, computer system design, and residential construction.

Who's hiring in Arlington? Uber has had the most job postings, followed by Quest Diagnostics, Whole Foods, Arlington Public Schools, Shipt, Sunrise Senior Living, and CVS. Occupations that are hiring include childcare, drivers, registered nurses, customer service representatives, and personal care.

Many industrial district parcels are owner-occupied. New owners face higher capital costs than people who bought several years ago. Parking requirements are a challenge for I district businesses. Proximity to residential districts is a challenge for traditional industrial businesses. Some business owners started their businesses in Arlington because they live here. There's not much commercial real estate to choose from.

10% of people employed by Arlington businesses live in Arlington. 90% commute from out of town.

There are 69 properties in Arlington's industrial districts. 24 of these are auto repair facilities and 22 are storage/warehousing. The average structure is assessed at $46/square foot. The average land value is $2.5 million/acre.

Arlington's average home value increased from $438k to $744k between 2008 and 2019. Most of the increase is attributable to higher land values. Our median rent is $2,494/month.

Retail and office spaces in Arlington rent for $19--31/square foot/year, depending on location. There are not a lot of active listings.

Arlington has very few commercial for-sale listings. There were three in 2014, six in 2015, four in 2016 and none during 2017--2019. Our commercial vacancy rate is frequently below 2%. When it exceeds 2%, it's typically due to retail vacancies.

If Arlington had commercial space available, what sectors might come in during the next ten years? Probably scientific research, colleges, management and consulting, restaurants, and computer systems design.

Middlesex county will need an estimated 21M square feet of new commercial space over the next ten years. If Arlington met 1% of this demand, we'd have to provide approximately 200,000 square feet of commercial space. (As a point of comparison, Cambridge Crossing will provide around 2M square feet of office and R&D space when the site is developed.)

Tetragenetics is Arlington's first biotech firm. The company's upper management already lived here. Locating in Arlington allowed them to afford a larger space than would have been possible in Cambridge. Biotech uses have been allowed by special permit since 2012. Tetragenetics has a 30,000 square foot facility on Mystic street, near the public safety building. Arlington has a bronze bio-ready rating (which is the lowest rating). If the town wanted to attract more biotech firms, it might work to improve this rating.

Key takeaways of this study:

• Arlington has a small job base, and these jobs tend to pay lower wages.
• Jobs in the Industrial districts are diverse, and pay more than average town employers.
• The housing market is putting pressure on the industrial zones.
• Firms in legacy sectors are struggling to justify the high rents in Arlington.
• Commercial rents in Arlington are less expensive than Cambridge, but recruitment may still be a challenge.

Jenny Raitt asks RKG about the growth trajectory of the largest growth sectors. Eric believes that most of the growth will lie in service-based industries. There's limited availability of land inside route 128. Service industries might stay and grow. Commercial rent in Cambridge is rather high, on the order of $80/square foot/year.

David Watson believes the long-term employment prospects in the transportation industry are uncertain, due to autonomous vehicle development.

Ali Carter believes that supply chain/distribution centers could be a growth opportunity. Eric cites cold storage as one sector where local businesses are being bought and agglomerated.

(Ryan) Ryan presents a fiscal impact analysis. The fiscal impact analysis is designed to model how land use decisions affect town financials. These analyses are based on a number of assumptions and tend to be more art than science, due to the number of unknowns involved. The main assumptions are

• We're only looking at incremental impacts: the cost of adding one square foot of housing vs the cost of adding one square foot of commercial space.
• We're only considering local finances. The study doesn't consider funding sources from outside the town (e.g., state or federal funds).
• The analysis attempts to exclude one-time effects in the town budget.

For the analysis, RKG asked two questions. First, for each line item in the budget, how much of it is driven by residential uses and how much is driven by commercial uses? Second, how would incremental development impact each revenue and expense line item?

Of Arlington's tax revenue, 95% comes from residential, 4% comes from commercial, and 1% comes from other taxable sources.

Some budget items are strictly commercial or strictly residential. Others are residential-heavy. Residential-heavy items include school employee healthcare and pensions. The most influential items are property tax income and public school spending.

How much educational expenses do different types of housing require? The marginal cost of adding students to Arlington's public schools is $7,297 student (this is the local cost to Arlington).

Single-family homes account for 0.41 students/unit in Arlington public schools. Multi-family homes account for 0.20 students/unit. Multi-family homes can be broken further broken down into condominiums and apartments. Apartments have an average household size of 1.89 residents/household and contribute 0.19 students/unit. Condominiums have an average household size of 2.27 and contribute 0.23 students/unit.

Newer apartment buildings tend to put a smaller number of students/unit into public schools. Brigham Square Apartments has 116 units and 30 students in Arlington public schools -- 0.22 students/unit. Arlington 360 (the former Symmes hospital site) has approximately 10 students in Arlington public schools.

Next, RKG looked at the value of new construction. Arlington has 7998 single-family homes, 103 of which were built in or after 2013. The 103 new units have an average assessed value of $1,114,000 while older single-family homes have an average assessed value of$752,000. That gives a new construction premium of 48%.

Arlington has 3,726 condominiums with 91 built in or after 2013. The average cost of a new condominium is $838,000 while the average cost of older units is $465,000. That's a new construction premium of 80%. Finally, apartments built in or after 2013 have an assessed value of $408 square/foot while pre-2013 apartments have an assessed value of $181 square foot. That's a new construction premium of 125%.

Average number of residents per unit: 2.85/unit for single-family, 2.27/unit for condominiums, and 1.89/unit for apartments.

The marginal revenue per unit (based on value of units constructed since 2013) minus the marginal expenditure per unit (partially based on the number of students per housing type) nets out positive for all three housing types, single-family homes, condominiums, and apartments.

These marginal calculations are based on operational expenditures; they don't include a capital expense component.

Ralph Wilmer asks RKG if they tried to break down service costs for different age groups. The RKG folks felt that this was a good point, but it's not part of the current analysis.

On the commercial side, net marginal costs (revenue minus expenditures) are almost always positive.

In terms of increasing Arlington's industrial tax base, the challenge will lie in coming up with new ways to use a limited amount of space.

RKG expects to have additional market analysis and fit studies ready in the January--February time frame. Zoning discussion will come later (proposed zoning changes to the industrial districts will not come before town meeting until late Fall 2020).

RKG's slide presentation is available here: https://www.arlingtonma.gov/home/showdocument?id=48476