Plans for the 36-unit, low-income senior apartment houses Newberry Management proposed to build on the site of the former Perry Junior High School on Willis Avenue fell through last week when the developer failed to secure a portion of low-income housing tax credits (LIHTC) from the Iowa Finance Authority (IFA).
"It was a highly competitive field of applicants this year," said Frank Levy, president of Newberry Management, "and our Perry project did not score well."
Newberry presented the project in November to the Perry City Council, which approved the plan, including giving Newberry the land to build on, after a public hearing.
Newbury was successful in some of its efforts in this round, garnering more than $400,000 in LIHTCs to renovate 42 senior housing units in De Witt, Iowa, but t was turned away in its applications for projects in Perry and Newton.
Financing development projects using LIHTCs works like this: In an effort to increase the supply of decent, affordable housing around the country, the US Department of Housing and Urban Development (HUD) annually allocates to the states, via the Internal Revenue Service, a certain dollar amount of LIHTCs. The allocation is based on a state’s population.
These pools of tax credits are in turn allocated by the states to various low-income housing projects. In Iowa, the IFA rates the applications and parcels out the tax credits, and developers like Newberry compete for the tax credits.
Iowa’s 2014 allocation amounted to $7.3 million, a slight increase over 2013 but a big drop from the $27 million made available in both 2009 and 2010 as a result of disaster relief following the 2008 storms.
Once the ten-year credits are awarded, a developer then sells them to private investors—usually through a middleman, known as a syndicator—using the money from the sale to pay for the apartment construction.
To be eligible for the IFA credits, a project must involve residential rental property, either apartments, single-family houses, duplexes, townhouses or condominiums. The project can be for a new construction or refurbishing an existing building.
In addition, either 20 percent or more of the units must be reserved for people whose income is 50 percent or less than the area’s median gross income, or 40 percent percent or more of the units must be for people whose income is 60 percent or less than the area’s median gross income. In both cases the rent must be controlled or restricted.
There are four set-aside provisions in the IFA’s Qualified Allocation Plan, the scoring system it uses to judge applications. Ten percent of the tax credits is set aside for non-profit projects, and 15 percent is held for projects either preserving existing buildings, serving senior citizens or adding to the stock of rural housing.
Newberry’s Perry project did not qualify for three of the set-asides. It is a for-profit venture and was planning to build a new structure instead of preserving an old one. The project also did not qualify as a contribution to rural housing because Perry is within the Des Moines metropolitan statistical area and so is considered urban, not rural.
The project only qualified for the 15 percent senior citizen set-aside.
According to Levy, the Perry plan was particularly weak in the size of the local contribution coming from the City of Perry.
"The key area, the number one area for points to be awarded is in the category of local contribution to the effort," he said, "where the amount coming from the local contributor is worth five points for each one percent of the total project cost."
Most of the projects receiving LIHTC’s this year are in Enterprise Zones, Levy said, an economic classification used by the Iowa Economic Development Authority for areas deemed to be distressed, impoverished and underdeveloped.
Enterprise Zones are determined by a city or county’s median income. There are no Enterprise Zones in Dallas County, and the county itself is not an Enterprise Zone. The prosperous southeastern sections of Dallas County tend to skew the calculation and make Perry, for instance, appear wealthier than it is.
Levy said the local contributions from Enterprise Zone projects can be as high as three or four percent of the projects total cost, which means 15 or 20 points on the IFA application for LIHTCs.
Although the Perry project did not receive IFA funding this year, Levy is not throwing in the towel yet.
"We have some good ideas for improving the application the next time around," he said. "We’ll be working with the city on ways to increase our chances."
Perry City Administrator Butch Niebuhr said the city will continue to work with Newberry on the proposed apartments.
"No central Iowa projects got funded this year," Niebuhr noted. He also said the city is committed to keep the area on Willis Avenue residential.
"When the city worked with the school to take over this property, the agreement said that we’d get the it back on the city’s tax rolls. Proposals have been made for commercial development of the block, but the neighbors want it to stay residential, and that’s our plan."
For Levy, the game is far from over:
"There are plenty more ways to skin the cat," he said.