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New Development
Multi Family The housing study noted that Albert Lea has not seen a general occupancy market rate apartment built in over 25 years. Interviews indicated that demand exists for a newer, contemporary market rate building. The overall demand for the next ten years for general occupancy market rate units is 55 to 75 units. The Maxfield Study notes that there is an immediate demand for 25 to 40 units based on pent-up demand for these units. It also suggests that it will be important to first develop a senior independent market rate project so that the general occupancy units are not predominately occupied by seniors.
It is not uncommon for communities to have pent up demand for these types of units due to the difference between costs of development and the prevailing rents in rural areas. There are three main options that communities have utilized to meet this demand.
The first option is to find a developer that is willing to develop a newer, more contemporary market rate building that would be free of any income restrictions and include amenities similar to newer properties in Albert Lea such as Lofts at Lea Center. This would include amenities such as underground parking/garages, central air, dishwasher, microwave, walk in closets, disposals, etc. The recommended rents for these units ranges from $500 to $550 for one-bedroom units up to $725 to $775 for two bedroom plus den units. This option will be the most difficult as these rents may not support development costs with no assistance, and hence why these units have not been developed for some time in the City.
A second option is to find a developer that is interested in developing the units but may need some assistance through such tools as tax increment financing. This option however does place some income restrictions on the project but not to the extent that a tax credit or more heavily subsidized project would. Current state statute would result in only a portion of units being income restricted (20% at 50% median income or 40% at 60% median income). Abatement is another tool that is experiencing increased popularity in housing projects.
A final option some communities have undertaken is the development of rental housing through tax exempt bonding. This provides two major benefits including lower financing costs through tax-exempt borrowing and exemption from real estate taxes through payment in lieu of taxes (PILOT). The project must be owned and managed by a local unit of government, typically through a housing and redevelopment authority or economic development authority. Cities will often provide enhancements to make the project attractive to bond buyers including things such as land contributions, cash equity contributions, debt service reserve funds, etc. The authority to issue bonds for housing is for persons of moderate income with the ability of the HRA or EDA to define what moderate income for the community is. This is typically between 80% and 110% of area median income for most communities.
The study also makes a recommendation for the development of 20 to 35 rental units that are targeted for low and very low income households that would include deep subsidies or rents based on 30% of household income.
Finally, included in the recommendations is the planned development of Pickerel Park #2, a 24 unit tax credit development that is currently seeking financing for the project. The project was awarded SCDP funding in March 2006 and will be seeking tax credits in July 2006. The project would begin construction in 2007 with lease up in late 2007/early 2008. The project will be similar to Phase I with 12 two-bedroom units and 12 three-bedroom units.
Single Family The Maxfield Study estimates a demand for 250 to 270 new single family homes in Albert Lea between 2005 and 2015, which is approximately 25 homes per year. It is also suggested that communities maintain a 3 to 5 year lot supply. Based on the current supply of lots, lots coming online during the next year, and those that are in the preliminary planning stages the study found that these lots should accommodate the demand for move-up and executive homes over the next 5 to 10 years. The shortage of lots will be for modestly priced homes. Most of the lots were priced for single family homes over $275,000 and twinhomes over $250,000. Average lot prices including assessments at active subdivisions ranged from approximately $30,000 to $95,000 with an average around $40,000.
The housing study recommends a public/private partnership to create 50 to 55 new units targeted to first-time buyers seeking moderately priced homes priced between $150,000 and $175,000. There are currently no existing subdivisions to accommodate the needs for entry level homes in this range. A variety of experienced nonprofit developers exist to assist the City of Albert Lea and HRA in the creation of these entry level homes including the Southwest Minnesota Housing Partnership, Three Rivers Community Action, Inc, and Semcac. Key elements of a subdivision that will reach the price points and intended buyers include:
Nonprofit agencies such as Three Rivers Community Action, Inc and the Southwest Minnesota Housing Partnership also have a limited amount of funds available through scattered site programs which can assist in completing a small number of newly constructed homes.
An effort is currently underway which targets Community Activity Set-Aside (CASA) funds to existing housing in a target area of Albert Lea as illustrated in Attachment 3. The program is targeted to households under 80% of Freeborn County median income based on family size with a maximum purchase price of $120,000. Benefits of the CASA program are that households receive a reduced interest rate and have access to down payment/closing cost assistance as well as mortgage payment assistance if needed. The program is offered through Wells Fargo Home Mortgage. The major changes to the program are related to the HAF monthly assistance which has decreased and an increase in the term of the mortgage. Interest has been extremely strong for this effort. Three loans have been closed to date with two more pending. All of the loans have taken advantage of the program features such as the down payment/closing cost assistance and monthly mortgage payment assistance. These households also utilized additional down payment assistance which was available through the American Dream Down Payment Initiative which has now been suspended.
The program has been successfully implemented in Albert Lea and these efforts should continue. The only negative aspect noted was that the funds were not available citywide. CASA is a program whereby there has to be a focused or geographically targeted initiative. The target areas could be moved in future applications to help meet a broader geographic focus. The map section identifies the current CASA target area as well as future needs for the CASA program.
The CASA program is currently undergoing some program changes and all current initiatives which includes Albert Lea have been extended to June 1, 2006. To participate in the CASA program beyond June 1, 2006 current CASA initiatives are required to re-apply under the new program guidelines by April 14, 2006.
Senior The housing study identified two developments in Albert Lea that currently contain assisted living units. Thornecrest currently has 12 assisted living units and Oak Park contains 39 assisted living units. The vacancy rate among these two properties is 11.8%. The City has two planned assisted living developments that will be coming online in 2006 and 2007. Good Samaritan will be adding 24 assisted living units in 2006. Accessible Space is a pending 24 unit assisted living development that is currently seeking funding. Based on existing developments and these two pending projects, most of the demand for senior housing with supportive services will be met over the next several years.
The study identified one pending independent senior housing development. The Village Cooperative is a 50 unit senior facility for active older adults. This is an owner occupied option using a cooperative model. The project is expected to be completed by Summer 2006 and pre-solds have been very successful with 37 of the 50 units already sold. Even with these 50 units coming online, the housing study recommends the development of a 55 to 65 unit adult/few services rental project that is targeted towards active seniors. It is recommended that this is developed prior to a general occupancy market rate unit to avoid filling those units with seniors resulting in the continued problem of limited units available for younger households.
In Fill Development As documented in the 2002 Housing Study by Partners in Housing as well as the 2006 Maxfield Study, approximately 3% of the units were described as being deteriorated which equates to 235 units. The deteriorated homes are often functionally and physically obsolete. These units would make good candidates for a program targeted to purchase and demolish smaller single family homes that are beyond repair and not candidates for rehabilitation. Communities have created redevelopment programs that assist in these costs through various mechanisms. This is often done as the costs for acquisition and demolition of older homes can be as or more costly than bare lot costs in a community, making the redevelopment more expensive than homes in new subdivisions.
Communities and nonprofit groups have utilized funding through the Minnesota Housing Finance Agency’s Community Revitalization Fund (CRV) to construct new entry level homes utilizing infill lots. Sites for redevelopment are often identified through the following manner:
§ Lot Size: is the lot size sufficient to accommodate new construction based on current setbacks. § Location: are there any concerns with the location of the lot that may affect marketability, appraised value of the home, or ability to access certain affordable mortgage products or other resources. Example, location to railroad tracks. § Price: are acquisition costs and demolition costs reasonable or are other funds available to assist with these costs to maintain affordability.
Some communities have created programs which encourage private, public, and nonprofit developers to invest in redevelopment efforts in communities. With these programs the community provides some financial assistance typically with demolition costs provided there is a redevelopment plan. These programs typically set standards for a minimum increase in assessed valuation as a result of the redevelopment. Another part of the program could include the City conducting the acquisition and demolition activities and then offering it for redevelopment through a Request for Proposal process. |