Density Transfer Fee (Calculation Guidelines)

Staff recommends a fee of $3000 per single-family dwelling unit. The fee for duplex and other multi-family structures should be about half that to reflect the lower land value per unit. These guidelines provide two methods for arriving at the fee. The fee is based on a policy of requiring new development to pay for transferring density from the surrounding area into Berthoud and on the value provided to private property when Berthoud upzones said property.

Value Generated by Residential Upzoning

Upzoning from FA1 (Larimer County) to R1 (Berthoud) roughly increases the value of land fourfold. For example, $40,000 for 7,000 sq.ft. lots in Town ($5.7 per sq.ft.) versus $140,000 for 100,000 sq.ft. lots in County ($1.4 per sq.ft.). Land prices in the area support this conclusion. For example, the Berthoud Commons property in Town appraised at $22,000 per acre, while the Rasmussen property south of Lonetree Reservoir in the County sold for $4,700 per acre. The fourfold value increase excludes the value created by subdivision approval since zoning supports the rights for subdivisions.

Comparison to Traditional TDU Program Method

Since the fee is meant to replace a traditional transfer of development units program, it is rational to base the fee on a low-end cost of a unit from the theoretical sending area. The low-end cost unit would be located where development is least profitable and is assumed to be $3000 per acre. To convert this dollar value to a units, the smallest and thus cheapest lot size allowed by Larimer County FA-1 zoning is 2.29 acres is used. Since the last few development units on a property are the most expensive, a diminution value of 40% is used to reflect the cost of purchasing only a few of the development units on a property. A 6% administrative fee is added for the Town to process collection and distribution of the monies. This creates the formula below:

$3,000 per acre x 2.29 acres per unit x 40% value removed by purchasing only a few of the development units x 6% administrative fee = $2,913

The fourfold value increase associated with receiving Town zoning as calculated above offsets the cost to developers for transferring development units to the Town from more expensive lots in the County. This can be shown in the following formula, which uses the above estimated costs of a lot in Town versus in the County:

4 x ($40,000/unit^Town)/($140,000/unit^County) = approximately 1

For the average multi-family structure, it is assumed that the land cost per unit would be about half that of a single-family. Plugging this land value into the formula, similarly cuts the fee in half.

The Goal Method

Another approach to calculating the fee is to set a goal for how much land should be preserved in the County for each unit created in Town. Since the Town is creating at least a fourfold property value increase, it is reasonable to set a goal for each dwelling unit created by an upzone in Berthoud to reimburse the Town for preservation of a fourfold equivalent area in the County. Assuming an average Town density of 4 units per acre, this equates to preserving an acre of land for each upzoning of an additional single-family dwelling unit.

In this formula, a range is provided for the cost of land. These prices reflect a more reasonable estimate than just the low-end cost. In fact, land prices in areas likely to be targeted for development unit purchases may be higher than the range provided. The higher land price areas were left out because the fee is meant to replace a traditional transfer of development units program, whereby a developer in a receiving area would seek out the lowest cost development units to purchase.

This formula is based on an area^Town to area^County transfer rather than the unit^Town to unit^County transfer basis in the previous method. To achieve this a 70% diminution in value for removal of all the development rights is used. The formula is as follows:

$3,000 to $5,000 per acre for land x 70% value removed by purchasing all the development units x 6% administrative fee

= $2,226 to $3,710 per acre

Conclusion

The values used in all the calculations are based on the best available sales data and assumptions regarding the price of purchasing development units off a property. Since definitive values on all properties where development may take place are impossible, it is reasonable to use $3,000 for a single-family unit and $1,500 for each multi-family unit.