Workshop Item - Elizabeth Showalter, Community Development Specialist
Title
Title
Establishing Housing Improvement Area for Parkshire Woods
end
Background
The Parkshire Woods Townhome Association reached out to city staff inquiring about the possibility of establishing a Housing Improvement Area (HIA) to finance necessary improvements to common elements. This report outlines what HIAs are and the specific request from Parkshire Woods.
Housing Improvement Areas in General
HIAs are a mechanism established through Minnesota statutes that allows cities to essentially loan money to a Homeowner’s Association (HOA) with the loan paid back with property taxes, similar to special assessments. HOAs have limited ability to borrow from conventional sources due to lack of meaningful collateral. HIAs are a common tool to facilitate improvements to common elements, most often private roads, utilities, siding, roofing, and similar infrastructure. While the City of Blaine has not previously received a request for establishing an HIA, communities with large numbers of older townhome associations frequently establish HIAs. As housing in Blaine ages, the City is likely to receive more requests for establishing HIAs.
By state statute to create an HIA, a petition must be received from 50% of the property owners. The City may require a higher petition threshold. The City Council holds a public hearing and passes an ordinance. If 45% of residents object, the HIA is not established.
The funds for the requested improvements can either be provided from funds the City has on hand or through the issuance of bonds. The payments from homeowners then either pays the city back (with interest), or pays back the bonds.
All costs associated with establishing an HIA are borne by the applicant. This includes preparation of application information, an application fee (likely $5,000-$10,000) to cover city costs, an escrow to cover additional costs, and bond fees (if applicable). The applicant must also have a third-party review of their finances and develop a reserve plan to ensure that the HOA has sufficient funds going forward to care for HOA infrastructure without needing to establish another HIA in the future.
Prior to establishing an HIA, the City would need to adopt an HIA policy outlining the requirements, process, and criteria for establishing HIAs. A copy of the HIA policy approved by the City of Bloomington is attached for reference.
Parkshire Woods Request
Parkshire Woods is a 26-unit townhome association located at the northwest corner of 109th and Ulysses Street, built in the mid-1990s.
The Parkshire Woods HOA is requesting an HIA to finance necessary repairs due to water intrusion into flat roof garages. The garages have decks on top of the flat roofs. The repair consists of removing and replacing rotten sheathing and framing and installing vapor barrier and rubber roof. The HOA will continue to work with an engineer to identify necessary improvements to the structures to prevent future damage, which will likely include gutters and attic ventilation to prevent ice dams.
The cost for structural repairs and roof replacement was quoted at $84,000 per unit, which is a worst-case estimate based on the maximum amount of rot. Eleven of the 26 units were inspected as part of the study completed by the HOA and all 11 units had damage and varying amounts of rot. Applying the worst-case cost to all 26 units results in a total cost of $2.2 million. Gutters, ventilation, and other improvements would be at an additional cost yet to be quoted. Due to the high cost of the project, the City or the EDA would need to bond for the cost of the improvements with the bonds paid back through the fees assessed to the property owners. The annual special assessment payment would be at least $6,000 per property if a 20-year bond was issued.
The HOA currently has $31,000 in reserves and has an insured value of $6.2 million, making private financing unlikely. As part of an HIA application, the applicant would need to demonstrate that they are not able to obtain financing through a bank or other private financial institution.
Staff Recommendation
Discuss the request and provide direction:
1. Should the City adopt an HIA policy in general?
2. Should the City supports the specific request from Parkshire Woods?
Attachment List
Power Point Slides
Bloomington HIA Policy