Council continues discussions for StudioOne Townhomes funding
The Red Oak City Council is still considering funding options for the StudioOne Townhomes project, up on Ratliff Road.
At the regular council meeting May 15, Ryan Funk, who is co-founder of StudioOne Townhomes, shared details about the project with the council. Funk said the company decided to get into multi-family housing development three years ago in Nebraska City. Following the success of the Nebraska City project, Funk reached out to pther communities, one of them being Red Oak.
The initial phase will include the building of 33 townhomes, and all told the project will be about a $7 million investment. The homes would be listed for market rate.
“The current market rate in Nebraska City is about $1,300 per month for a townhome. When we do it again, it will probably be closer to $1,500. We’re looking to eventually build 19 more homes in Nebraska City,” commented Funk.
After repeated conversations with city leaders, Funk said they were at the point where they needed to look at different financing options.
“Funding options could be TIF, grant money, tax abatement, or infrastructure help. Those are the things we’re trying to explore with the city currently. It’s a good product with solid surface countertops, stainless steel appliances, and presents really well. We believe it will fit into the great development that Marty and Larry Barnett have already done there and add a product to the City of Red Oak that is not currently available,” advised Funk. “Six or seven houses went up for sale in Nebraska City because people were able to move into the new townhomes. The homes also attracted a number of young professionals as residents. Seven of them moved to Nebraska City solely for the homes.”
The State of Iowa offers a rural workforce housing tax credit that allows Funk’s company to apply for up to a $1 million tax credit to do market-rate workforce housing. Funk said that’s where the city’s involvement is crucial.
“To even qualify for the tax credit, Red Oak has to commit to at least $1 million in help, be it tax abatement, tax increment financing, or infrastructure help. We’re trying to start the process, going and we’re excited to be a part of Red Oak. Everyone has been receptive wherever we’ve gone. We have to apply for the tax credit in the middle of June, or we lose the whole year, and can’t submit an application until June 2024,” Funk stated.
Funk estimated the roadway grading and preparations would be around $1 million to $1.2 million. Funk said they attempted to use local contractors whenever possible, but sometimes the length of the projects was too much for some local contractors. Funk estimated 30% of the Nebraska City project was done by local contractors.
The council then met with Chip Schultz, the managing director of public finance at Northland Securities of Des Moines. Schultz had spoken at the May 1 meeting and advised that the council had two potential funding options to assist in the project, one was a TIF rebate where the contractor would put in the instrastructure. The second option, for which Schultz said he did not have details finalized yet, was for the city to fund the infrastructure project, which made the option more feasible.
“The city has bond issue debt that falls off in 2023-24 and 2024-25 and drops down the amount quite a bit on the city’s existing general obligation debt, and allow the city to fund the infrastructure,” Schultz said.
Schultz did have a review of the city using TIF funding. Schultz felt that both options were not ideal from the city’s perspective, as both required a rebate of 100% of the new valuation back to the developer, and both assumed the developer funded the infrastructure.
“On a financial level, they don’t give the developer the cost recovery that they’re looking for to make it a viable project. They don’t work on even the most generous TIF rebate approach,” Schultz said.
With a typical Iowa market rate residential TIF rebate, the funding generated would be around $706,000 to the developer over the conventional 11-year time period, which Schultz said the developer’s feedback was that it wasn’t financially viable. The second option was a TIF rebate term extension to 16 years, with the approval of the Red Oak School District, Montgomery County Board of Supervisors, and Southwestern Community College. That total was around $1,053,000. Schultz felt that wasn’t enough either.
“Based on the feedback, I think they’re more financially interested in the project if the city is willing to fund the infrastructure up front. With general obligation debt dropping down to $660,000 at the end of 2025, there’s room there to layer in new debt while having a lower debt service levy to citizens of the city. I know we can get there by taking that approach, but I also know it needs to be laid out and proven to the council and the citizens,” Schultz said.
Schultz was still working on the financial figures for the second approach, and said he could have the final numbers available for a special city council meeting scheduled for May 30.
The deadline to apply for the State of Iowa offers a rural workforce housing tax credit for 2023 was June 9. Funk said he was hopeful they could meet that deadline, but committed to applying in 2024 if the deadline could not be met. Discussions will continue at the May 30 special meeting.