The Gazette covers City Hall, now a flood-damaged icon on May's Island in the Cedar River

Victorious arrival of federal tax credits hasn’t brought new affordable replacement housing; economy, neighbors’ distaste, iffy sites may factor in

In City Hall on March 22, 2009 at 12:01 pm

Last fall the City Council and state policymakers billed the arrival in Iowa of a significant new commitment of federal affordable-housing tax credits as a victory for disaster relief.

To date, more than nine months after Cedar Rapids’ 2008 flood disaster, no part of the new pot of tax credits has done anything to bring more affordable housing to Cedar Rapids to replace affordable housing lost to the flood.

Last week in an interview with Iowa Finance Authority officials, though, they assured that tax-credit projects will be forthcoming despite a downturn in the national economy.

Projects are “taking a little longer,” Dave Vaske, IFA’s tax-credit manager, said last week.

But Vaske pointed out that in the best of economic climates it typically can take nine months between the IFA’s award of tax credits for a developer’s project and the actual start of construction.

In recent months, the city’s Replacement Housing Task Force has recommended and Cedar Rapids City Council has voted to provide City Hall financial incentives to five different developers — all out-of-towners experienced in the regulation-heavy tax-credit program — and their tax-credit-financed proposals.

The one of the five projects most likely to get moving in the foreseeable future is the renovation of The Roosevelt, the former downtown hotel-turned apartment complex that is now flood-damaged and empty. Sherman Associates Inc. of Minneapolis said recently that work could begin as soon as April.

In December, the IFA awarded $598,525 to Sherman Associates to acquire and renovate The Roosevelt, and the IFA also awarded $725,464 in tax credits to MetroPlains LLC, St. Paul, Minn., for the construction of Cedar View Apartments, a proposed 45-unit senior-living complex at 1100 O Ave. NW. Cedar View, though, has run into neighborhood opposition and some questions from the City Planning Commission.

In a third project, Sherman Associates has withdrawn plans to build apartments and town houses on a 6-acre site that the city’s Ellis Golf Course formerly used as a practice chipping area. Neighborhood opposition was too organized and strong.

The developers of two other projects — Des Moines developer Jack Hatch’s plans for 96 apartments in the Oak Hill Neighborhood, and the plans of EverGreen Real Estate Development Corp., Prior Lake, Minn., for 90 town homes off Williams Boulevard SW — have yet to obtain approval from the Iowa Finance Authority for tax credits. Hatch’s plans, though, are not expected to see neighborhood opposition, and the EverGreen plan has won backing from the City Planning Commission despite neighbor opposition.

The IFA’s award of tax credits is just a step, and the IFA’s Vaske noted last week that the developer has a tougher job now to put together the entire financing package for a development because the market for tax credits is not what it had been just a couple years ago.

In recent years, he noted, it had been possible for a developer to find the purchaser of tax credits to provide 90 percent of the value of the tax credits to a project in return for the full value of the credits being applied to the investor’s tax liability over 10 years.

Now, the developer may get just 70 percent of the value of the tax credit to apply to a project.

As a result, the developer has to work harder to find other money to make the financing of a project work, the IFA’s Vaske said.

Nonetheless, the core of the financing of these proposed affordable-housing projects comes from the federal government’s tax-credit program. The idea is that the investor contributes money upfront and quality affordable housing gets built in exchange for forgiving the investor some of his tax liability. By getting the investor’s money upfront, the developer can build with limited debt and so can keep rents so they meet federal income guidelines. Arguably, too, developer can build better-quality buildings.

The IFA’s Vaske said the state agency is “hearing some optimism out there” despite the fact that pricing for the tax credits has dropped in the current economic climate.

Both local banks and local corporate investors are expressing interest in some of these tax-credit projects, he said.

The IFA, Vaske added, also is paying particular attention to the recent and sprawling federal stimulus bill to see if there is money in it that can be applied to tax-credit projects to help fill some financing gaps.

“We’ll see if it’s a way to help those projects come about,” he said.

At the end of the day, developers off these projects will often face a wrestling match with neighbors because the name of the tax credits is “low-income housing tax credits.”

In an assortment of public meetings over the last several months, each of the developers proposing projects in Cedar Rapids has argued that their tenants are people with jobs. In fact, a new term has surfaced here in the last year — “work force housing.”

At a recent City Planning Commission meeting, a local Realtor noted those who live in 90 percent of the metro area’s apartments can meet income guidelines for the new apartment projects being proposed. One opposing neighbor, though, noted that she really didn’t want those people living nearby.

At the same time, proposed developments can be badly placed and unfair to existing neighbors and the wider community. Not every opposition emanating from neighbors ranks as a NIMBY — Not in My Back Yard.

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  1. has anyone ever looked into George Sherman’s relationship with Jim Prossler ? I’ve heard they are long time friends… I’m sure that’s not why he got several million in tax credits for the Roosevelt. it is interesting that they gave it to a Minneapolis developer over a local one. so much for the buy here campaign.

  2. lobosolo,
    Thanks for paying attention to the blog. Sherman is in the process of buying The Roosevelt to renovate it with federal tax-credit help and some local City Hall incentives. I don’t remember any other developer expressing any interest in purchasing the property from the current owner, who is in Waterloo. Sherman first showed up in Cedar Rapids in late 2007 and early 2008 as the City Council was trying to pick a “preferred developer” who would be willing to work with the council to bring housing downtown. The council picked Sherman over several applicants. Then the flood set all of those plans aside. Sherman has successful projects in several Midwestern cities, including Des Moines. He has additional building plans in Des Moines. — Rick Smith

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