Teamwork in Traverse City
State agency, local nonprofit help developer do well while doing good
July 8, 2006 | By Carolyn Kelly
Great Lakes Bulletin News Service
Sparked by brownfield and affordable housing funds, a local advocacy group and a housing developer found a way to sell eight townhouses in this Traverse City neighborhood at about half the market rate.
TRAVERSE CITY—Sometimes a little caffeine goes a long way. Three years ago, three men sat down together for a cup of coffee and stood up with a plan to integrate attractive, affordable housing into one of Traverse City’s most desirable, new, downtown neighborhoods.
Tim Burden, a local developer, would sell eight townhouses to HomeStretch, a nonprofit housing provider, at a discount. Bill Merry, the executive director of HomeStretch, would obtain grants and low-interest loans, find the right buyers—working families making about $30,000 to $40,000 a year and who cannot afford the going rate for quality housing in this city—and guide everyone through the paperwork. Steve Latham, of the Michigan State Housing Development Authority, agreed that his state agency would provide a grant of $875,000 to help fund the project.
This three-way partnership has proved to be enormously successful. The townhouses are sold, the neighbors all seem to like each other, and eight more households have found conveniently located, quality housing at an affordable price in one of Traverse City’s most attractive and exciting neighborhoods, Midtown.
It’s no coincidence that this successful project involved a private developer, a nonprofit organization, and a state agency. In fact, making a profit while mixing attractive, workforce-appropriate housing into a fairly affluent neighborhood requires innovation and team work that draws on an unusual blend of skills, experience, expertise, and resources, according to Tom Kern, vice president of affordable housing at Red management, Tim Burden’s company.
“The way for a developer to build affordable housing and still stay in business is to do it as a collaborative effort with the nonprofit and public sectors,” Mr. Kern said.
An Earlybird Discount
The advantages of collaboration were clear from the very beginning of the project, when HomeStretch used the MSHDA grant as a down payment on the eight Midtown units before construction began. Because HomeStretch made such an early commitment—and could provide the money up front—Red Management was able to pay down its bank debt earlier and save significantly on interest payments while demonstrating to other, skeptical developers the demand for more affordable, higher density, urban living.
But the grant also helped HomeStretch: Red Management passed along some of its interest savings to the organization, giving it a discount of $20,000 per unit on the original asking price—enough to significantly reduce the price of the homes while allowing the company to still make a modest profit.
“We gave up about $160,000,” said Mr. Burden, “but we could almost treat it like investor capital because HomeStretch came in and took the heat off from the bank and helped us prove that there was a demand for this kind of density, these kinds of units, and this kind of neighborhood.”
Mr. Burden and Mr. Merry added that reserving the land for the affordable homes so early in the project—before new buildings and bidding wars drove up both land and home costs—stretched the dollars even further.
Red Management also tried to build as efficiently as possible, saving costs at every opportunity. The company designs homes so that siding can be installed in large, efficient panels and employs its own framing crew to reduce “fix it later” costs. The firm is also working to increase its volume of new housing in order to achieve better economies of scale.
“We have to build very efficiently,” said Mr. Burden. “We’re trying to save everywhere we can, and we’re trying to get help wherever we can.”
Careful Coordination a Key
That help, whether it comes from private donors, businesses, nonprofits, or government agencies, is essential if a developer wants to knock $100,000 off the price of a house without going out of business. But counting nails only goes so far when land, infrastructure, and construction costs are high. So Red Management and HomeStretch looked closely at the unique things each could do to cut the townhouses’ final prices and get the project done quickly.
HomeStretch, which has cultivated relationships with National City Bank, Fifth Third Bank, and the Federal Home Loan Bank of Indianapolis since 1998, was able to steer affordable-home buyers towards low-interest mortgages and grants to help with down payments and closing costs—two major factors in making homes more affordable and accessible to working families.
The organization also recruited and screened families for the affordable homes. To qualify, they had to make less than 80 percent of the area median income for the county and have credit and employment histories that would enable them to handle a mortgage without getting in over their heads financially. Such assistance is a boon to developers, who rarely have the time, expertise, or experience to find the right buyers for their affordable homes.
But the major help HomeStretch’s provided was its ability to land a MSHDA grant to help it buy, and then resell to qualified families, the affordable townhouses. In fact, that is one of the biggest advantages of private-nonprofit partnerships: It is essential to tap into private foundations and public monies to make affordable housing both possible and profitable, but only nonprofits can compete for such funding.
Red Management, on the other hand, was qualified to apply for two programs that are designed specifically for private developers—state brownfield redevelopment grants and tax-increment financing. Both programs help pay the costs of cleaning up old, contaminated brownfield sites—the former via direct payments from the state; the latter, known as TIF, by dedicating the increased tax revenues, which the project generates from pushing up property values, to the cleanup costs.
Without those grants and tax incentives, which made it financially feasible to transform a ruined landscape into a vibrant neighborhood, Midtown—and the affordable homes there—probably would not have been built.
Such grants and tax incentives, whether from MSHDA or Michigan’s Department of Environmental Quality, give developers an incentive to clean up contamination, house working families, and build more diverse and economically successful communities. They are just two of a host of things that local, state, and federal governments can do to trim housing costs and encourage the development of more affordably priced homes.
‘Yes’ in My Backyard
Many developers find that community opposition to a project often means long and costly delays, rejected projects, and even lawsuits. Many housing advocates know that the words “affordable housing” often set off explosions of “NIMBY-ism” among neighbors who worry that such projects will lower their property values and increase crime rates. That is why Mr. Burden, Mr. Merry, and Mr. Kern agreed that gaining the community’s support for a mixed-income neighborhood in downtown Traverse City was essential to Midtown’s success.
The first challenge they faced was overcoming stereotypes about affordable housing and the people who need it. Red Management adopted the term “workforce-appropriate housing” to emphasize that the people who would live in Midtown’s affordable homes have fulltime jobs and provide services essential to the economy. They pointed out that the folks they were marketing the townhouses to included teachers, administrative assistants, and parents, who serve the community and would make good neighbors.
In fact, many Midtown residents are now quick to say that they value the diversity of their community. Middle-aged residents and retirees are glad to have a few kids on the block, and residents say they appreciate the diverse professions, interests, and talents of the people who live there.
“Every time you make a move you enlarge your circle of friends,” observed Greg Piaskowski, who moved from the countryside outside of Cedar to Midtown two years ago. “What I notice is that, because the housing type varies, there’s a lot of variation of people, which has given me some folks in my life from diverse backgrounds.”
Red Management’s decision to invest in attractive designs was also essential to generating community support. From the street, the affordable and market-rate homes are indistinguishable. The inside of each townhouse, regardless of price, is designed to be attractive, functional, and customized for the family that lives there. Good design ensures that the affordable townhouses are, and will remain, assets rather than eyesores, and that the buildings will contribute to, rather than detract from, the neighborhood’s property values.
Doing Well by Doing Good
At bottom, developing affordable housing stems from a larger vision of what a community should be. It should be possible, Mr. Burden thinks, for a teacher to live next door to a doctor, across the street from a dental hygienist, around the corner from an auto mechanic, and a block over from an investment banker. Retired couples should be able to live on a street with young children.
If these folks are going to be neighbors, however, developers need to provide a wide range of housing choices—and prices—within the same neighborhood. That’s because teachers earn less than doctors, single-income families often earn less than dual-income families, and younger people starting their careers and paying off student loans usually have less money than better-established baby boomers.
The Traverse City region’s business community, including Rotary Charities of Traverse City, the Traverse City Area Chamber of Commerce, and various economic development corporations in the region, agree that affordable housing is not only a wise social investment, but also an smart economic investment. Offering workforce-appropriate housing means attracting and retaining Michigan’s highly educated young people, building a skilled workforce and adding to the pool of entrepreneurial talent. Affordable housing also attracts year-round residents, who will continue to shop at the local businesses through the winter, keeping the local, Up North economy healthy.
And school officials would add that affordable housing for families with children means keeping school enrollments up, which is essential to securing the funding schools need to remain open, rather than closing as young families move to the much more affordable countryside.
Mr. Burden knows that the need for affordable housing, and especially affordable housing within easy reach of jobs and shopping, is huge. According to the 2003 Housing Needs Assessment, the five-county Grand Traverse region will soon need an additional 6,500 units of affordable housing to accommodate the region’s growing population. Another study found that, by 2010, as many as 44,000 families in the five-county region around Traverse City will be earning no more than 80 percent of the media income—an earnings level that many housing advocates say will mark them as needing some sort of assistance finding quality housing that they can afford.
That is why Mr. Burden and Mr. Merry are already discussing plans for a mixed-income development around Traverse City’s old train station, within walking distance from downtown. They would like to build about 75 units there, selling approximately 18 of them at an affordable price for working families. They hope to persuade the city, which owns the land, to invest in young families, year-round workers and shoppers, and affordable housing by donating or discounting the land under the affordable homes.
Carolyn Kelly is the Michigan Land Use Institute’s associate editor. Reach her at firstname.lastname@example.org. This article is part of a special series about affordable housing sponsored by Rotary Charities of Traverse City, which founded HomeStretch in 1997.