Workshop Item - Elizabeth Showalter, Community Development Specialist
Title
Title
MWF Apartment Proposal for 3795 Restwood Road
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Background
MWF Properties is proposing construction of a 60-unit affordable apartment building at 3795 Restwood Road. The 4.3-acre parcel is adjacent to two manufactured home parks, commercial uses in the City of Lexington, and two nonconforming single-family homes. The project details are still being refined, so some details may change as the project progresses.
Land Use Change
The proposed project requires a land use change from Medium Density Residential (MDR) to High Density Residential (HDR). Over the past three years the property has been on the market, all inquiries staff has received have been for apartments or self-storage uses, neither of which are allowed under the current MDR designation. The shape and size of the site, at 4.3 acres, would likely only allow for construction of 25-35 townhomes, which may not cover the costs of extending utilities and building the road.
The City Council has approved land use changes for five multifamily housing projects in the last two years. These include:
1. Planned Industrial/Planned Commercial to HDR for Groveland Village
2. Planned Industrial/Planned Commercial to HDR2 for Arris Apartments
3. Planned Industrial/Planned Commercial to HDR2 for Lexi Apartments
4. Median Density Residential to HDR for Applewood Point
Affordability
The proposed project is primarily units to serve households at 50-60% of Area Median Income (annual earnings of $40,000-80,000). Households at this level may include:
1. A family of four with one adult working as a medical assistant and one as a cook
2. A family of two with one adult working as a bookkeeper
3. A family of three with one adult working as a custodian and one adult working as a bank teller
4. A single individual working as a machine operator
Eleven units are proposed at 30% of Area Median Income (annual earnings of $20,000-$40,000). Households at this level may include:
1. A single individual working as a hotel front desk worker
2. A family of three with two adults each working 30 hours a week in retail
3. A family of two with one adult working as a hairstylist
Blaine currently has 20 apartment developments, which can be categorized into:
• 5 developments with income restrictions and reduced set rents (2 are restricted to seniors) with most units affordable at 60% AMI
• 2 developments with rents tied to income (one is restricted to seniors)
• 4 new construction apartments with rents ranging from 80-100% AMI
• 9 older apartment buildings
o 2 restricted to seniors and have rents at 50-60% AMI
o 2 have been recently remodeled and have rents generally at 60% AMI
o 5 have rents around 50% of AMI
The proposed project provides units better suited to larger families than are currently available in the Blaine rental market and provides units specifically for households that qualify as high priority homeless or people with disabilities and associated supports designed for those special populations. Additionally, since rents and tenant incomes are monitored by the federal government the proposed project provides protection for tenants against increased rents and ensures the units will be occupied by people at the target income levels, rather than households at higher income levels who could afford to live elsewhere.
The developer has provided additional information in the attached memo about the various levels of affordability as well as tenant screening and management.
City Financial Support
The project has a $780,000 shortfall between sources of funds and construction costs. The developer initially requested the City provide those funds as a forgivable loan from the City’s pooled housing TIF fund. The developer is willing to receive those funds as a deferred loan that would be repaid from available cash flow. To meet the Minnesota Housing Finance Agency standards, the City loan utilizing pooled housing TIF would be deferred with no payments until the deferred developer fee is paid off (ten years) and then would be paid back with a set portion of available cash flow each year, with full repayment at the end of the loan term of 30 years. This will allow the funds to be recycled for other projects meeting statutory pooled housing TIF requirements in the future.
Previous allocations of housing TIF (pooled and from new districts) are outlined in the attached chart. All funds were provided as grants or fully forgivable loans. The full amount of requested funds (not accounting for an LHIA grant) comprise 4% of the total project cost, which is similar to the 3-4% of project cost that have been provided in other requests for pooled housing TIF. The Blaine Town Square Senior Apartments and Crestview Senior Living were financed through new housing TIF districts and had a larger per unit contribution and percentage of project cost than any of the requests for pooled housing TIF.
The $1.1 million in the pooled housing TIF account could be used for other projects, including potential future rental projects in other areas of the city and owner occupied housing (in both cases statutory income limits would apply). Pooled housing TIF was utilized in addition to general EDA and Met Council funds for environmental remediation to finance the construction of eight Habitat for Humanity homes in Woodland Village.
Pooled housing TIF funds are uniquely situated to maximize the federal funds attracted through the Low Income Housing Tax Credit program, which is only available for renter occupied homes. By utilizing the limited pooled funds for rental housing, the City maximizes the outside investment in affordable housing in Blaine. If the Council desires to utilize pooled housing TIF funds for owner occupied housing, the per unit contribution is likely to be substantially higher than for rental housing receiving an allocation of federal tax credits. If the Council is interested in supporting construction of affordable ownership housing, staff can identify financing sources that are best suited to that housing product.
If the City Council does not support providing the $780,000 in pooled housing TIF as a loan, the developer can request funds from the Local Housing Incentives Account (LHIA), a Metropolitan Council grant program that the City has elected to participate in. LHIA requires a local match, so approximately $100,000 in pooled TIF would need to be provided as a deferred loan, for the project to be eligible. Unfortunately, the LHIA grant would not be considered committed funds, and this financing structure would greatly reduce the competitiveness of the project for the federal funds that account for two thirds of the total project cost. If the federal funds are not awarded to the project, there is no way for the project costs to be covered from other sources.
Staff Recommendation
Discuss and provide feedback on the following questions:
1. Does the Council support the required comprehensive plan amendment from Medium Density Residential to High Density Residential to allow for the construction of an apartment building on the property?
2. Does the Council support providing $780,000 in pooled housing TIF as a 30 year deferred loan?
a. If not, does the Council support providing $780,000 in pooled housing TIF as a cash flow loan?
b. If not, does the Council support providing $150,000 in pooled housing TIF and authorizing an application for the Local Housing Incentives Account program?
Attachment List
1. Location Map
2. Concept Plan
3. Developer Narrative
4. Developer Follow-Up Memo
5. Previous TIF Projects