Economic Development Authority - Elizabeth Showalter, Community Development Specialist
Title
Title
Indicating Support for the Use of $780,000 in Pooled Housing Tax Increment Financing (TIF) for the Restwood Road Apartments
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Executive Summary
The developer is requesting an allocation of $780,000 in pooled housing Tax Increment Financing (TIF), structured as a deferred cash-flow loan, to support the construction of a 60-unit low and moderate income apartment building.
Background
MWF Properties is proposing construction of a 60-unit affordable apartment building at 3795 Restwood Road.
Affordability
The proposed project is primarily to serve households at 50-60% of Area Median Income (AMI) with 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 AMI with 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 those currently available in the Blaine rental market. It 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. It also 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
Due to the reduced rents, the project is unable to be financed without government funds. The developer is applying for an allocation of Low-Income Housing Tax Credits (LIHTC) to cover 65% of the project cost, and will obtain a traditional mortgage for 25% of the project cost. The developer is applying for $600,000 in HOME funds from Anoka County to fill a portion of the gap.
The project has a $780,000 shortfall between sources of funds and construction costs after accounting for all other funding sources. 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 (10 years). It would then 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 comprises 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 LIHTC 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.
The developer is planning to apply for LIHTC through the Minnesota Housing Finance Agency (MHFA) in July. As part of the that application, a resolution indicating the City supports allocating the requested $780,000 in pooled housing TIF is required. If the developer’s financing request from MHFA is granted, then more specific terms and a development agreement would be prepared by staff for EDA approval.
Strategic Plan Relationship
The proposed project meets the maintain current growth goal by assisting in the development of a parcel that would be difficult to develop without government financial assistance.
Board/Commission Review
No board or commission review is required for this item. If the project moves forward, the Planning Commission would make a recommendation on the land use approvals for the project.
Financial Impact
The funds requested are restricted funds, meaning they can only be used for projects meeting strict statutory requirements. This project meets those requirements. The use of these funds does not impact any unrestricted fund balances. The requested financing is structured as a loan that would be repaid over years 10-30, so the City would be able to reuse the funds to support other projects meeting the statutory requirements as the funds are repaid.
Public Outreach/Input
No public outreach has occurred. If the project moves forward, a neighborhood meeting and public hearing will be required.
Staff Recommendation
By motion, approve the resolution.
Attachment List
Location Map
Concept Site Plan
Developer Narrative
Project Examples
Historic TIF Contributions
Body
WHEREAS; the City of Blaine has received a request to provide pooled housing tax increment financing assistance for the Restwood Road Apartments to be constructed in the City; and
WHEREAS; the proposed project would provide affordable housing, which is a goal in the City’s 2040 Comprehensive Plan; and
WHEREAS; the City of Blaine is currently holding over $1.1 million in pooled housing TIF funds from previously completed projects which must be spent on housing projects as defined in Minnesota Statute 469.174 Sub 11.
NOW THEREFORE, BE IT RESOLVED, that the Blaine Economic Development Authority supports using $780,000 in pooled Housing TIF funds as a deferred cash flow loan, with payments deferred until after any deferred developer fee has been repaid, to reimburse certain costs incurred in connection with the construction of the Restwood Road Apartments consisting of approximately 60 units of multifamily affordable rental housing.
PASSED by the Blaine Economic Development Authority this 6th day of June, 2022.