Workforce Housing

Housing Density Answers from the Past

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This is an interesting video with examples of multifamily housing on small lots (3 Flats) as seen in Chicago, Boston and San Francisco. It discusses some of the benefits as well as some of the drawbacks to this type of construction. It also briefly discusses some of the zoning barriers that were put in place to prevent this kind of construction.

It’s interesting that both Culver and Plymouth are looking into how to increase housing density right now, but are facing some pushback on the zoning changes that would be necessary to make this viable. Both communities seem to have active CAVE societies. I’m pretty sure every community has it’s own chapter. Years ago Erik Freeman and I proclaimed Culver’s unofficial motto to be, “Change is Bad; Even if it is Change for the Better”. Cast that as counterpoint to the underlying drumbeat for affordable housing.

Along with the basic zoning barriers, there are are other social and regulatory barriers that would increase challenges. Three story apartment construction would likely force the installation of fire sprinklers. Accessibility might need to be addressed due to the “walk-up” configuration with half a flight or more of stairs. Fire resistant construction between buildings would conflict with escape window requirements for bedrooms. All of these things would make the units safer and universally accessible, but would also drive up the cost. Meanwhile the three examples discussed are still in use in their respective cities; sometimes revered due to their place in the city’s history.

Greater density, even with the cost-increasing challenges listed above, does reduce costs of infrastructure, another big factor in housing affordability. Fewer linear feet of infrastructure is needed per dwelling unit. When this is done for infill properties, it makes better use of infrastructure, including roads, water lines and sewer lines. The one caveat to that is it may well increase impervious surface, further taxing storm water systems, though that is not a given. (They don’t have to be built cheek to jowl as was done historically, particularly in an infill situation.)

Reinventing the wheel can result in some improvements, but also can create some difficulties that were solved in the past. Looking back on what worked, may be part of our solution to the housing shortage problem as we move forward.

Cost of doing business

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The Pointe has been all over the news and social media lately due to the City of Plymouth deeming the property unsafe to occupy. This has forced the charitable community to jump to action to help the residents of the 16 units there. On top of the general low income housing shortage in Marshall County, there is the issue that this property was renting at the very low rate of $400 per month. To the best of my knowledge, this is not a subsidized housing site.

As has been described to me, the facility is a former nursing home, so the “units” are small rooms with half baths, i.e. a sink and toilet. They are set up with common (shared) men’s and women’s showers and a community kitchen. There has been some deferred maintenance that includes roof leaks leading to other damage. Pictures from the Pilot News indicate that there is some mold/mildew, but the level and danger from that would have to be professionally assessed.

The landlord is taking it on the chin for this. Again, I know none of the background, reasons for deferred maintenance, etc. But I do think the $400/month is an unworkable business model. So if all the work that is projected to be needed there is done, there’s no way it supports itself at that rental rate. Here are some numbers to start the conversation:

  • The property was purchased by the current owner for $126,000 in 2006 per county records.
    • The county lists the square footage of the property at 9,840sf. That’s roughly $13/sf which is dirt cheap. Assuming it had to be financed, most commercial loans require 20% down ($25,200), can only be financed for 20yrs (unlike a home with a 30 year mortgage) and with an interest lock of only 5 years, i.e. it has to be refinanced every five years. Lets assume a 5% loan rate (low right now, high a few years back), that gives you a monthly payment of $665/month or $7,980/yr.
    • The county lists the yearly taxes for this property at: $5,634
  • There was a past roof repair estimate of $85,000. Apparently there has been deterioration since then and we all know what inflation has done. For discussion, lets round that up to $100,000.
  • Someone shared an estimate of $10,000 for a mold assessment.
  • A low estimate for mold remediation would be $100,000, which assumes $5k per unit plus common areas.
  • Mold remediation will require tearing into walls, ceilings, etc. From looking at the pictures, there is a lot of repair and remediation needed without that. Let’s put $160,000 towards the units and $40,000 for the common areas. (probably low.)
  • For discussion, let’s put $60,000 towards clean-up and updates to the exterior.
  • This will require building permits and since it’s commercial, so architectural plans to go to State. Architect fee: $25,000
  • Permit fees and such: $5,000
  • Minimum of 8 months to get it done, so no rent during that period.

So lets total that up as if someone were to buy this this and puts it back the way it should. That comes to $626,000. I think this is probably a cheap number, but it’s a starting point for this discussion.

First pass: 20% down = $125,200 The remaining $580,800 financed per the above at 5% = $45,996 in loan payments, against fully rented 16 units x $400/month x 12 months = $76,800. Seems like a decent return of $30,804, but remember, right now, plunking that $626,000 into a government bond funds would pay in excess of 5%, or a yearly return of $31,300 with no risk.

But lets do a second pass the way a developer would look at this:

  • Rent: 16 units x $400 each x 12 months = $76,800
  • 7% vacancy and bad debt = ($5,376)
  • 7% management fee = ($5,000)
  • Property Taxes = ($5,634)
  • Administration and leasing = ($3,000)
  • Maintenance Payroll – tax, benefits, etc. = ($9,000)
  • Maintenance Contracts & Supplies = ($5,000)
  • Utilities (All included) = ($12,000)
  • Insurance = ($13,000)
  • Misc = ($1,500)
  • Debt Service = (45,996)

Now we’re at a loss of $28,706 despite some of those numbers being generously on the low side. Not including the time value of money, i.e. the $125,200 down payment would earn $6,350/yr at 5%. So looking at the first three numbers in the above list, it would take a rent increase of $173/unit to get to break even. Most banks won’t finance a break even project and most developers want to make some money and have some cushion for unforeseen things. And nowhere in there was any maintenance reserve savings for when the roof needs replaced again or whatever unforeseen problem comes up.

Granted, this is an extremely simplified analysis. It doesn’t take into account the benefits of depreciation, since those are only a benefit when there is profit. Likewise it doesn’t take into account any taxes on the theoretical income. It also doesn’t take into account any escalators for inflation. There would be a large spreadsheet that a commercial developer would run this through to make their analysis.

Minimum Rent to make this begin to work would need to be $700/month, when existing tenants say they are struggling with the current $400/month. Reality is more like $800 – $900 to get to comparable rates in Plymouth that make economic sense to cover the myriad of additional things that will come up in the renovation and the probably greater management, vacancy and bad debt costs that are likely. The significant age of the building warrants a large maintenance reserve.

But lets take a step back and do really, really rough math (because I don’t know their expenses) on existing conditions assuming with the initial investment of $126,000. Assume 20% down leaves $100,800 financed. Using the 5% interest rate number in the previous scenario, that’s $665/month = $7,980 per year.

  • Rent: 16 units x $400 each x 12 months = $76,800
  • 7% vacancy and bad debt = ($5,376)
  • 7% management fee = ($5,000)
  • Property Taxes = ($5,634)
  • Administration and leasing = ($3,000)
  • Maintenance Payroll – tax, benefits, etc. = ($9,000)
  • Maintenance Contracts & Supplies = ($5,000)
  • Utilities (All included) = ($12,000)
  • Insurance = ($13,000)
  • Misc = ($1,500)
  • Debt Service = ($7,980)

This would give us a profit of $14,944/yr. There may be other expenses I haven’t put a number to and conversely there are those that would suggest the maintenance line items should be zeroed out, since maintenance has been less than needed. In any case, this is not a gold mine as it exists today.

This is the real life example of what I’ve said for years… I would rather have a leaky roof over my head than no roof at all. Some of these residents have been living that situation, but the City has (rightly) cited safety concerns that removed their leaky roof.

the $626,000 number is a low number for the renovation, but it’s an impossible number to duplicate that building. $626,000/9,840sf = $64/sf. New construction on a facility such as this would be in excess of $200/sf. It is also questionable that a new facility such as this would meet current zoning standards, though a variance might make it possible. Then there is the issue of where to put it. Even if built on the same site, rezoning would be required along with the variance. That would prompt the same NIMBY protests that Garden Court ran into with the two sites they considered for their project. Theoretically, Garden Court’s GC Horizons project should have been less objectionable as fully functioning apartments.

Plymouth as a community has some hard decisions to make regarding housing. Complaints are rampant about facilities like The Pointe, but solutions are few. As seen with The Pointe, just shutting down the problem facility without a viable alternative creates a different crisis. As seen with Garden Court’s GC Horizons project, those that step up with a solution are often disparaged. Mayor Listenberger is making efforts, but is getting a lot of pushback. It’s tough when there’s a cry to “Do Something!“, but it’s accompanied by a chorus of “But Not That!“… no matter what “that” is…

Some things never change… That’s just part of the cost of doing business…

An Odd Juxtaposition this Week

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Riverside Commons – Plymouth Ribbon Cutting in the Pilot News, Friday, May 24, 2024

On Thursday we had the Ribbon Cutting for Riverside Commons Apartments in Plymouth and LaPaz Commons Apartments in LaPaz. This project resulted from Marshall County Crossroads‘ Stellar Designation. Matthew Celmer spoke on behalf of the Crossroads committee. Gary Neidig spoke on behalf of One Marshall County, the new reiteration of Crossroads. Mayor Listenberger spoke on behalf of the City of Plymouth. Alan Rakowski, Director of Real Estate Acquisition, for IHCDA spoke as well. It was also nice to see Don Ecker there representing the Plymouth Common Council, Lynn Gorski, Clerk Treasurer, representing the Plymouth Clerks’ office and Ralph Booker representing the Plymouth Plan Commission. All of them praised the new development and the what it would do for the City of Plymouth. (Marty Oosterbaan was there as a former Crossroads’ leader. He was also responsible for a lot of help in pulling the Ribbon Cutting together.) Thanks also to Easterday Construction Co., Inc. Project Superintendent, Bob Cooper, and Office Manager, Julie Heise for their help throughout the project and at the Ribbon Cutting.

The juxtaposition occurred later that day when a letter began circulating around Plymouth, on Facebook, and in other venues, condemning the Mayor and others such as myself involved with the proposed GC Horizons project – a project very similar to Riverside Commons. That was followed by a negative Letter to the Editor in the Pilot News. It was odd, being praised for doing something good for the community at the Ribbon Cutting and then later the same day, being attacked on Facebook for wanting to do more of the same.

Serenity Place – Picture from Darren Demis

Riverside Commons and the proposed GC Horizons are both IHCDA RHTC (Rental Housing Tax Credit) projects. The only difference is that GC Horizons will include 8 PSH (Permanent Supportive Housing) units similar to those at Serenity Place – 8 of the 34 total units. The “GC” in GC Horizons stands for Garden Court. Garden Count has been a respected not-for-profit entity providing affordable housing to the community for decades. They were also denigrated for attempting to do more good in the community.

While I know it’s unwise to feed the trolls by attempting to rebut their falsehoods online, I thought it worthwhile to present some of the facts here:

  • Garden Court is a true not-for-profit (NFP). Their board is totally volunteers and they recruit board members from all of the communities that have Garden Court facilities in them. The board members receive no compensation for their participation. Maybe it’s not their official mission statement, but from my association with them, there mission is to provide clean, safe housing for underserved populations in Plymouth and the surrounding area. (They haven’t even invested in a website! More about them pops up from our website than anywhere else.)
  • Garden Court is the best landlord/property owner with which we have worked. Because they are a NFP, their bottom line is to cover expenses. They have no employees or shareholders to compensate. That lets them put all the money to work for the best facility possible.
  • Garden Court requires their management team to vet applicants and residents. They do no allow applicants that fail their strict criteria to become residents. Their facilities are well maintained and I have experienced a sense of pride and ownership in their residents.
  • Garden Court was invited to the IHDCA Housing Institute for several reasons: One being their past work in Plymouth with Serenity Place and another being IHCDA’s recognition of the need in Plymouth. This opportunity was designated for Plymouth, not for other Marshall County communities.
  • Serenity Place experienced some issues in the first six months of operation that resulted in police calls. Once an equilibrium was established and some of the trouble makers were removed, those police calls tapered off. There was a learning curve for both new residents and management. This has not been a continuing problem.
  • GC Horizons will receive tax credit funding through IHCDA, but it is not a tax exempt project. Sales tax is required on the construction. Property taxes will be assessed and collected on the property at some point.
  • GC Horizons will not draw its tenants from outside Marshall County. The list of deserving and qualified applicants in Plymouth and Marshall County will be the pool from which they draw. There is a long list…
  • GC Horizons would love to move some of the north side motel residents into their facilities! The ones that meet the application standards and are looking to improve their situation… It’s unfortunate that there are bad apples in the motels, but there are also good people deserving a chance at better living conditions and the hope of getting on their feet and changing their lot in life.
  • GC Horizons has no ability or desire to circumvent laws, restraining orders or other legal devices that protect schools from past offenders.
  • GC Horizons is not a Mayor Listenberger project. The community team that began this journey at the IHCDA institute was formed a couple of years ago. The former City Attorney was part of that team because the previous administration recognized the community need. Mayor Listenberger’s support is a continuation of that recognition of need.

There were other specious Facebook comments that were just mean spirited and unworthy of responses. Few of them suggested alternate solutions, though at least one’s solution advocated violence and destruction of property. The negativity is hard to shake off. That said, one thing stood out from the Riverside Commons Ribbon Cutting on Thursday… We had a two story townhouse unit open after the ribbon cutting for guests to tour. Everyone was complimentary. As I was walking out with a couple of guests, there were two women sitting and talking on a neighboring porch. One of the women asked if we liked the unit? She then asked if we would like to see one of the flats, since she lived in a flat. I smiled and thanked her, saying I was familiar since I was part of the construction team. She smiled broadly and proceeded to tell me how happy she was with her new apartment, how she had made new friends there and how there was a sense of community. She ended it saying thank you for making the apartments available to her. She is one of the reasons for doing this and her heartfelt, unsolicited gratitude helps as some of the negativity comes my way.