Council scrutinizes funding request for housing project
A developer who wants to build 60 units of low-cost rental housing near Hope Valley Farms is seeking $193,506 in city subsidies for the project, drawing a lot of questions from City Council members as they return from their summer break.
The request would benefit the Vermillion development, which has been in the works since at least 2013. Its developer, Jim Yamin, figures the project will cost $7.9 million.
Yamin is seeking city funding because Vermillion’s first-mortgage lender, the Community Investment Corp. of the Carolinas, came through with only $2.2 million instead of the $2.4 million he’d been counting on.
Because of that, “we found ourselves in a deeper hole” even after the N.C. Housing Finance Agency provided more low-income housing tax credits than project’s original pro-forma assumed, Yamin told the council.
The city money would come from the “penny for housing” tax reserve the council set up in fiscal 2012-13 to help finance projects like the ongoing Rolling Hills/Southside redevelopment.
Council members didn’t object Thursday to the Community Development Department continuing to work on the application, but they did signal some reservations.
The strongest came from Councilwoman Diane Catotti, who noted that Yamin’s tax-credit request to the N.C. Housing Finance Agency had beaten out and delayed the county-backed Whitted Junior High School redevelopment.
“Your project bumped that project,” Catotti told Yamin, adding that she believes the council will eventually be asked to raise its planned $500,000 contribution to the Whitted redevelopment in part because of the delay.
The Whitted project includes 80 units of housing earmarked for low-income elderly residents.
Yamin made it clear he didn’t think the Whitted factor is one the council should consider.
When it comes to housing tax credits – which account for $3.9 million of Vermillion’s financing – “I don’t set the rules,” he told Catotti. “I don’t apologize for having scored better. I would hope we wouldn’t be penalized for that.”
Other council members, Mayor Bill Bell and Councilman Steve Schewel mostly, grilled Yamin on the question of the “developer fee” that is coming out of the project budget to pay him and his partners and cover their upfront expenses.
The fee is a common feature of nonprofit development financing. Yamin and his fellow developers originally hoped to receive $720,000, but as of last August had decided to chop $54,030 from that to make the balance sheet work.
That was before the state and private-sector financing fell into place, and before contractors began telling the developers they’d likely underestimated the cost of grading and other site-preparation work.
Once those things were taken into account, the developers were thinking they’d have to give up $343,506 rather than the original $54,030.
The city’s grant, in addition to making up the shortfall in the first mortgage, would also enable the developers to limit their fee give-back to $150,000.
Bell wanted Community Development staffers to take another look at Yamin’s math, as he couldn’t see from a spreadsheet prepared for the council how the developer was arriving at his bottom-line number.
He and Catotti also urged them to check Yamin’s latest site-development estimates, in hopes of reducing the prospective city grant.
The city money in legal terms would be a loan. But City Manager Tom Bonfield and Community Development Assistant Director Larry Jarvis acknowledged that while some interest payments might come back, the city is unlikely to ever recover its principal.
Typically in low-cost housing projects, city loans end “up getting rolled back into the project because there’s not enough maintenance and repair money [budgeted] to keep the project fully viable” over its planned 20-year useful life, Bonfield said.
Schewel said he’s inclined to support Yamin’s application because Vermillion is relatively inexpensive, as such projects go for the city, and because it will cater to renters who make less than 60 percent of the area’s median income.
Yamin said the income limit translates into “households earning between $18,120 and $38,880 a year, adjusted for family size.”