Aspen City Council agreed on Tuesday night to provide $9 million in interim construction financing for a trio of employee housing projects that will get paid off with tax credits after the units are finished and occupied.
In doing so, the city could realize about $400,000 in construction loan interest and origination fees on the public-private housing whose development costs were projected at around $26 million, according to Chris Everson, the city’s affordable housing project manager.
The city is partnering with Aspen Housing Partners, a limited liability company, and the Aspen Pitkin County Housing Authority on developing 45 housing units in three locations — on Castle Creek Road, Park Circle and Main Street — that are anticipated to receive their building permits this fall.
Aspen Housing Partners, which was awarded a contract following a request for proposal process, was represented at Tuesday’s Aspen City Council work session by Jason Bradshaw of Colony Partners, who has been working with Everson and assistant city manager Barry Crook on development and negotiations. The group is backed by capital from Stratford Capital, which is a Virginia-based company, according to Everson.
City monies for the construction loan would come from the 150 Housing Development Fund, which has adequate fund balance for this construction lending purpose, Everson said during Tuesday’s meeting.
A similar funding mechanism was used recently for upgrades to Aspen Country Inn housing.
“I’d certainly support saving the $400,000 by doing this,” said Councilwoman Ann Mullins.
Elected officials were less enthusiastic about cost escalations since the housing projects’ early budgets; Everson shared that about 95 percent of the figures used for the development are projections rather than hard numbers.
Two project updates — a change in the allocation of tax credits that were awarded to the Castle Creek project rather than all three housing projects, thus impacting lending scenarios, and the loss of some grant monies — were not greeted well by the council.
Everson explained that if 45 units were taken as one project rather than separately, the median income level would have made the Main Street and Park Circle projects ineligible for state credits. He also explained that the partners decided to forego a federal grant that would have required adjustments to construction labor costs.
Councilman Adam Frisch argued that those factors should have been known from day one and that he didn’t appreciate these kinds of surprises to the budget.
On the plus side of the ledger, Everson pointed out modifications were made to the projected city contribution, which has a $17 million ceiling. He noted that what earlier was a $16 to $16.6 million range was now in the $15.2 to $16.1 million range. But that scenario could trigger a different level of compensation for the developer.
Both Mayor Steve Skadron and Frisch asked if the city’s interests were being adequately protected in this public-private partnership.
“You’ve been a sound partner to this point,” Skadron said to Bradshaw. “Can I rest assured the interests the private partner brings are 100 percent aligned with our goals?”
His comments followed Frisch’s questioning about developer’s fees and whether a fixed rate or percentage was preferable.
Everson said the city maintains its right to terminate the agreement and that it is “healthy to think we have alternatives.”
Subsidy is $270k per FTE
The land parcels for the affordable rental housing on Castle Creek Road, Main Street and Park Circle were acquired for about $13 million in total. Operating revenues from the 45 future low-income rental units will help pay down the first mortgage loans.
The subsidy per full time employee is approximately $270,000, according to the memo. The average income category is listed at 1.9, with 1 being the lowest that is offered through the housing authority.
Building permit applications have been submitted and may be anticipated for all three sites by mid-October. At that time, the construction fund monies would be needed, according to a staff memo.
Council on Tuesday agreed that it would review a supplementary budget to use additional funds for the construction loan.
Everson’s memo indicated there would be strict oversight on the process.
“The proposed construction lending does introduce additional risk for the city, so each construction draw will need to be approved by staff based upon site inspections and third-party completion reports each month as the process moves forward. This includes the city’s ability to verify quality assurance during the process and control the flow of cash to be commensurate with construction completion put in place each month,” it stated.
Crook said the $9 million would be paid back within six months of occupancy. Final language on the loan agreement is expected at a future meeting.