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Council has mixed feelings on House of Ludington

ESCANABA — The proposed redevelopment of the historic House of Ludington into senior housing was a major topic of discussion at Thursday’s Escanaba City Council meeting, but the council had mixed feelings about whether or not to grant some of the requests made by the project’s developers.

It is anticipated transforming the historic restaurant and hotel constructed in 1865 into a 38-unit apartment complex for seniors will cost around $8 million. To help offset some of that cost, Home Renewal Systems, the developer for the project, is seeking affordable housing tax credits in addition to historical tax credits. However, the process to get affordable housing tax credits is highly competitive.

“We know this is not the first attempt to win this type of tax credit award for this property,” said Rick Ballard, of Home Renewal Systems of Farmington Hills.

Since 2015, the Michigan State Housing Development Authority (MSHDA) has denied tax credits for converting the property into senior housing four times under two different developers. Ballard is optimistic Home Renewal Systems will be able to do what the other developers couldn’t.

“There have been changes in the state scoring system called the Qualifying Application Plan, which we are hoping will help us to compete successfully for tax credits. We don’t know, it’s highly competitive, but we are going to give it our best effort to try and attract these tax credits,” he said.

Under the federal regulations and MSHDA requirements for this type of senior housing, the residents would be limited to individuals over age 55 or households where the head was over age 55 and no other family members were under age 50. The Tax Cuts and Jobs Act passed by congress last year upped the income for eligible seniors to $32,880 or $37,600 for couples, making the housing development available to both low- and medium-income residents.

However, the council was concerned about whether or not the property would stay senior-specific in the long term.

“We have a housing project in town that was built as senior, it was sold as senior, it was senior for many years, and it’s not really much senior anymore,” said Council Member Peggy Schumann.

Ballard said it was unlikely the property would stop being senior-only within his lifetime.

“We are bound by federal regulations and by MSHDA requirements, to maintaining that senior restriction for as long as the affordability requirements are in place, which would be a minimum of 15 years and up to 45 years,” he said.

While technically the property could open up to non-seniors after 15 years — shifting from an affordability model to basing rent on open market values — it was unlikely because of the way MSHDA required a series of 15-year commitments and the fact investors are counting on access to the tax credits they have bought into. He expects the project to remain senior housing for the full 45 years.

“This is not a HUD program; this is an IRS program. This is all written by the Treasury. The IRS will come thundering after our investors asking for their tax credits back — for their millions of dollars in tax credits back — and we would then receive negative points in future competition for tax credits,” said Ballard.

“We don’t dare not follow those rules or we’ll never get another investor, and we’ll never get another tax credits project,” he added.

However, even with the tax credits, there is little wiggle-room in the budget for the program, which does base rent on income. One-bedroom apartments will cost between $300 and $700 a month and two-bedroom units will cost between $350 and $800 per month.

To get the tax credits, MSHDA requires a payment in lieu of taxes agreement established by city ordinance. A first reading of the proposed ordinance was held Thursday, which would require the new apartment complex to pay the city 4 percent of the annual rents actually collected by the housing project during each operating year.

Council members raised concerns over the 4 percent payment, which is not expected to be anywhere near what the city needs to cover expenses. Council Member Ralph Blasier initially moved to have the ordinance’s first reading be postponed until City Manager Patrick Jordan could return from vacation to comment on the size of the payment. His motion failed because Jordan will be back in time for the ordinance’s second reading and possible adoption, and because postponing the reading would prevent Home Renewal Systems from submitting their application for tax credits to MSHDA by the April 1 deadline.

The second reading of the ordinance for the payment in lieu of taxes will take place at the March 21 council meeting.

It was noted during the meeting that certain concessions have already been made to make the project easier on the city’s budget. Garbage removal will be handled by the complex itself, and the building will only have one electric and one water meter. Residents will be metered inside the building and charged by the complex for their portion of the total utility usage.

For the municipal services the complex does require, the city will be paid $2,000 in the first year and receive an annual increase of 3 percent. Only Council Member Ralph Blasier voted against the municipal service agreement.

In other business, the council approved two zoning ordinance amendments aimed at cleaning up zoning language, set a public hearing for March 21 for an obsolete property rehabilitation exemption (OPRA) for 1601 Ludington St., approved a bid for electric pole replacement, heard an update on the upcoming developer showcase for the old jail site, and discussed potholes.

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