Community And Economic Development Committee Discusses Rising Costs To Developers, Votes On Grant Application And Development Agreement Amendment Aimed At Helping Two Housing Developments Deal With Rising Costs

The Community and Economic Development Committee met 09/28/2022. They took up a couple action items related to housing developments within the city and the increased cost of labor, materials, and inflation.

The first item was a request to authorize the submittal of a Community Development Investment (CDI) grant application for $250,000 to Wisconsin Economic Development Corporation (WEDC) on behalf of Urbane 115 LLC for the Merge housing development being built on the corner of Washings and Oneida Street near the library.

Community and Economic Development Director Karen Harkness said this was for the 56-unit Merge development on the corner of Washington and Oneida across from the transit center. Merge and the city wanted to apply for a $250,000 community development investment grant from the Wisconsin Economic Development Corporation. This money would go to Appleton which would allocate it to the developer to help cover their costs for the project. Director Harkness said that right now construction, labor, and supply chain costs were changing constantly. “They’re going upward not downward.” The result of that was that between the time when the development agreement was approved for Merge to when bidding took place and the project started, construction costs had increased. “I have a feeling this is going to be a common theme that we hear about pretty often.”

Alderperson Maiyoua Thao (District 7) asked if $250,000 was the maximum that a project could apply for. Director Harkness confirmed that was the case.

Alderperson Kristin Alfheim (District 11) confirmed with Director Harkness that the funds were coming from the Wisconsin Economic Development Corporation and then asked if there was concern that this type of request was going to become more frequent. If it was becoming common that costs were going up “Is this something that we’re gonna be able to fix?”

Director Harkness aid that “I think we’re going to be hearing from developers that the costs have escalated and increased. From the time they design, they bid, they get WHEDA tax credits or they get everything in line to be able to start to bid, there’s such a long timeline between all of those processes that what we’re seeing happen is labor and supply are going up. So, the community can only apply for a CDI grant once a year, so you won’t be seeing a request for CDI grants except for once a year and that’s only as long as the funding lasts with WEDC.”

Alderperson Alfheim said that everyone was in the situation of costs going up. Usually, the answer to that was to wait for costs to come down. She was not wanting to get into a bailout situation all the time. She also wondered if there was any harm to the city if projects were delayed a bit, or was it in the best interest of the city to help those projects along?

Director Harkness responded, “I don’t have a crystal ball and I’m not a futurist but if you’re asking my professional opinion, I don’t see the costs going down significantly for probably the next two years.” The Fed had already indicated two more interest rate increases by the end of the year, and she had recently listened to a podcast in which the commentators said they didn’t think interest rates were going to decline until 2024. She didn’t know what was going to happen, and there was so much uncertainty that it was difficult to even try to predict.

There were no further comments or questions and the committee voted 3-0 to approve the request.

The committee then moved on to the request to approve the First Amendment to the Development Agreement with MF Housing Partners, LLC for redevelopment located on N. Oneida Street, E. Harris Street, and N. Appleton Street in Tax Increment Financing District No. 11

Director Harkness said that there was a common theme here. This project was something the city had been talking to the developers about for around 2 ½ years. The project was funded through WHEDA tax credits and would be an affordable housing project. The developers had been able to increase the number of units from 43 to 48.

Project costs had gone up for them just as they had for Merge’s project. This was in part because of the timeline of the project. The WHEDA tax credit application had been due in December of 2021 but the award had not been released until May of 2022. Now it was September. The world had changed quite a bit between December of 2021 and September of 2022. Interest rates had gone up, interest rates had increased, and labor issues continued to plague the economy. As a result, the city had a request to look at the tax increment being created.

They had been able to adjust the increments based on the increase in the number of units. The overall cost to develop the project was stated at $13.4 million and the completed assessed value was estimated to be $3.9 million. They had increased the interest rate to 5.75%.

Staff was asking for the amendment to the development agreement to be approved based on the new incremental value and the increased number of units.

Alderperson Nate Wolff (District 12) said he was happy to hear they were getting additional units on top of what they were already expecting. He thought that was some good in what mostly seemed like dire information that evening.

Alderperson Alfheim expressed excitement about the project and thanked staff for being creative in helping figure out how to move the project forward.

There was no further discussion and the committee voted 3-0 to approve the amendment to the development agreement.

View full meeting details and video here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=987721&GUID=4DE5982D-4610-4DAD-914B-E4A043A44333