American Express bids $2 million premium on tax credits for affordable apartments here
Still, Housing Authority loses out on management contract
March 11, 2016
Steamboat Springs — Members of the board of the Yampa Valley Housing Authority learned this week that, after financial instruments leading to the construction of the 48-unit The Reserve at Steamboat income-restricted affordable apartment project on the city's west side close next month, the authority will not be the manager of the project, as had been expected.
Instead, YVHA Executive Director Jason Peasley said during a March 10 board meeting, Enterprise Community Investment Inc., (a syndicator working on behalf of American Express, the ultimate purchaser of federal tax credits needed to fund development of the apartments), has indicated it will require that a Denver company, Ross Management, assume that role.
"That is a departure from expectations," Peasley said. "It is a bit unfortunate, because I think we were looking forward to that opportunity. To get the management fees would have meant a little bit more revenue," for the authority, but, "for Enterprise to put $13 million into this deal, they require a management company with a longer track record," in projects based on the financial model that would be the foundation for The Reserve.
Peasley said the change means YVHA will miss out on about $25,000 in anticipated annual revenue for managing the property on behalf of the equity investor, Overland Property Group, an apartment building developer. On the plus side, American Express, through Enterprise, bid at a premium on the tax credits that were being counted on to yield $11 million for construction of the apartments. Now, they'll bring in $13 million, creating more room in the construction budget and potentially allowing upgraded building materials, Peasley said.
That means the combined $400,000 Routt County and the city of Steamboat Springs agreed to contribute to the project will have leveraged $2 million more than expected.
Although the annual $25,000 management fee will be missed, YVHA is still due a $150,000 developer fee.
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Peasley added he has received assurances YVHA will retain the ability to lease planned office space in the apartment complex for 15 years, for $1 a year.
The multi-faceted deal is scheduled to close April 14., and enterprise wants a management entity with a track record in meeting the requirements of the federal tax code.
"We don't meet their requirements for experience in managing tax credit-funded projects (as regards) tax code compliance," Peasley told the board. "What that means is that Ross Management will be contracted to mange and maintain the apartments."
Ross is a Denver-based management group with a depth of experience with affordable housing regulations, according to its website.
In response to a question from the board, attorney Ward Van Scoyk, who represents the authority with his colleague, Bob Weiss, at Weiss and Van Scoyk, LLP, confirmed the affordability of the apartments is still assured.
"There is a ceiling for rents established by the Colorado Housing Finance Authority locked in at CHFA rents (based on household incomes of 30, 40, 50 and 60 percent of the local median) for 30 years," Van Scoyk said.
YVHA board member Catherine Carson asked, "Why didn't Overland know this?"
Van Scoyk responded that, while the letter of intent the authority executed with Overland last year says Overland desires YVHA be the manager, it was ultimately subject to the approval of the investor.
"Enterprise and the banks know how to do this. They are very professional," Van Scoyk said. "I think they'll be able to get this done."
At the same time, he said, the documents he and Weiss have been able to review thus far regarding the equity agreement, construction loans and permanent loan (BBVA Compass Bank is the lender), have been preliminary drafts. City Councilwoman Kathi Meyer, past chairwoman of the housing authority and still an ex-officio member, observed that: "We are going to be expected to operate on their calendar."
In anticipation of a tight closing window, the board has moved its next meeting up to April 7.
Peasley stressed that, in his view, the management fees don’t change the importance of getting the 48 affordable apartments built with the help of the $13 million in tax credits awarded by CHFA last year.
"This is still a very good deal for the community and for the authority," he said. "We get 48 units of housing for the community, and we get out of a $2 million disaster (the indebtedness on YVHA's original purchase of the land where the Reserves will be built). "I hope we don't lose sight of the big picture. I want to make sure everyone here is comfortable with executing on a variety of documents that are going to close this deal and make it a reality."