MISSOULA — What was billed as an affordable downtown housing project hit a roadblock on Tuesday when the Missoula Redevelopment Agency's board of commissioners failed to approve the terms of an agreement with the developer.
Planned by MC Real Estate, the Front Street project would include 26 apartment units with all rents modeled at or below 120% of the area median income (AMI). Of those, the city wants 13 units restricted to roughly 85% of the AMI and has proposed a penalty for future increases.
If approved, the agreement would be the first for-rent workforce housing project in Missoula to receive infrastructure subsidies under a new state law. But on Tuesday the city's agreement, as proposed, was on the verge of failing.
“Income averaging was allowed at the federal level, but no investors would do it because it's too complicated,” said Mayor Andrea Davis. “I appreciate that we're trying to figure out how we meet the original intent of what this (agreement) was trying to fund, and still allowing for there to be an ability to not compromise the project.”
MC Real Estate, comprised of local developers Matt Sullivan and Caroline McCauley, is seeking to meet the state's new definition of workforce housing, which targets incomes ranging from 60% to 140% of the AMI.
But while the project's proposed income range falls within the “spirit” of the law, MRA board members disagreed on a number of contingencies written into the proposed agreement.
Among them, the city wants to set the average targeted income at 85% AMI. It also looks to require the developer to pay penalties down the road if they need to raise rent at any point over the next 30 years to cover rising costs, from higher insurance rates to property taxes.
“It's an awkward tool but it's the best thing we've come up with,” said MRA Director Ellen Buchanan. “We've worked through complicated development agreements before. The rental part of this is tough because you have to look out 30 years.”
Housing hard to pencil at affordable rates
Like many projects planned across the city, the Front Street project is facing economic headwinds ranging from high interest rates to rising construction costs. Without a public subsidy in exchange for some form of affordability, the project and others like it won't pencil.
But with the concessions sought by the city on Tuesday in terms of rents, the targeted AMI, limiting the return on investment and periodic reporting requirements, MC Real Estate expressed second thoughts on whether it would partner with the city on the affordable downtown housing project.
“The reality is, we've been working this project for three years. We're really starting to question whether we want to continue,” Sullivan told the MRA board. “The return here is so little. The people who are doing these deals aren't going to be us. They're going to be people who are well-backed, as we've seen from these larger projects.”
When the Front Street project was first proposed three years ago, construction costs were estimated at $4.4 million and interest rates hovered at around 4.5%. Now, the project is estimated at $6.9 million and interest rates are above 7%.
MC Real Estate said delays, red tape and other hurdles now threaten to kill the project. Among other things, the city required approval under its new design excellence standards. Permitting also has been an issue, said McCauley.
“Everyone knows the problem with development is red tape. We've gone through delay after delay after delay,” she said. “We as individuals, not as the policy makers, are feeling tired and frustrated by some of that process. We've had many hoops to get through to get to today.”
While MC Real Estate expressed frustration on Tuesday, it also said it's facing a number of deadlines, amplifying MRA's lack of approval. Among other things, the project's current bids are good for only so long and the loan is only guaranteed for three more days, Sullivan said.
The developers have brought $1.9 million to the table, have secured a $3.4 million loan and are asking MRA for $1.3 million.
MRA said it would discuss the issue and approach the developer with a fully baked policy. Whether they'll still be interest in the city's terms remains uncertain based on the outcome of Tuesday's meeting.
“No one is saying the bottom line is fixed,” said MRA board member Carl England. “This is a brand-new program and the first rental program. We maybe should have done this without you, but having you here is important. We haven't seen anything from anyone else and there are questions we have to answer.”
