MN Housing board update: Discussion around Fort Snelling project continues, 2019 QAP approved

At its July meeting, the board of Minnesota Housing Finance Agency discussed the conversion of historic Fort Snelling buildings into affordable housing, grant awards to the new Landlord Risk Mitigation program, and the allocation of bonding resources for Catholic Charities’ Dorothy Day center. The board also gave final approval of the 2019 tax credit Qualified Allocation Plan (QAP).

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In her opening remarks, Commissioner Mary Tingerthal announced that this would be the last board meeting in the Agency’s current building. The next board meeting will be held August 31 at the offices of Northwest Area Foundation, and then meetings will resume permanently in the former Macy’s store in September. Prior to the move, Tingerthal added, staff will be consumed with its review of the 55 multifamily and 30+ single family proposals submitted through the consolidated RFP (which will come before the board at its October meeting).

John Patterson, Director of Planning, Research and Evaluation, introduced the Agency’s summer interns and stated that this year’s two research projects concern the homebuying patterns of millennials and households of color, and the developer fee schedules comparing Minnesota to other states.

Fort Snelling Upper Post

For the second time, the board heard comments about the proposed development of the historic Fort Snelling Upper Post property into affordable housing. For this development, developer Dominium requested that Minnesota Housing allocate $58 million in tax exempt bonds in order to leverage federal 4% tax credits. In March, the Agency board heard presentations on this proposal and at a special board meeting in April, discussed with staff the conduit bond requirements under the Agency’s debt management policy.

The Upper Post discussion commenced with statements by several supporters of the proposal. Myron Frans, Commissioner of Minnesota Office of Management and Budget (MMB), said that he was there on behalf of Governor Dayton, who had earlier provided a letter of endorsement of the bond allocation.

Representing Dominium, Mark Moorhouse and Owen Metz covered several details of the proposal. Through the project, 26 historic buildings would be preserved and converted into transit-accessible, affordable housing for families, with a preference for veterans. They acknowledged that the cost would be high, but said, on a per square foot basis, they would be very similar to CommonBond’s Fort Snelling permanent supportive housing project for veterans, for which the Agency provided Housing Infrastructure Bonds. They encouraged board members to visit the historic site.

Other speakers included Erin Hanafin Berg, policy director for Preservation Alliance of Minnesota, who said that she had been on the task force to save the Fort Snelling properties, and, looking at similar properties elsewhere across the country, she concluded that the adaptive reuse proposal from Dominium was the only opportunity for preservation. Next, the DNR regional director said that the Dominium proposal was the best seen in more than 20 years, and that the state, through his department, was committing $250,000 per year to stabilize the property. This expenditure was required because the state committed to preserving the Upper Post buildings when it received them, as surplus property, from the federal government.

Board members were not convinced that Minnesota Housing should fulfill the request. Chair John DeCramer said that he struggled with the issue. Noting that the project came in at three times the cost predicted under the Agency’s predictive cost model, he asked whether all the buildings really needed to be preserved.

Board member Rebecca Otto said that she and her husband ran a business preserving older properties, and acknowledged that many people feel strongly about the project. She said, however, that because so much of the Agency’s bonding authority would be used with this single development, the question of geographic equity needed to be addressed. She added that state government was asked to take a heavy lift, and that she wanted evidence that project proponents had done everything they could to secure federal resources.

Board member Damaris Hollingsworth, added that she, too, struggled with this proposal and speculated about how many hundreds of families would not receive mortgages should the bonding be allocated as requested. Board member Stephanie Klinzing, noting her background as a historian, said that she could not fault the Agency just for looking at whether this proposal made sense exclusively on its housing merits. She said that the Agency’s role is to take resources from various sources and use them to serve the housing needs of the people of the state. Board member Craig Klausing agreed; he said that as a board member he wears his housing hat, and the project must make sense as housing. Director Joe Johnson said that he would be disappointed should the historic buildings be lost, yet it was hard to commit that level of resources for the project.

Dominium principal Paul Sween made a closing comment, stating that, in fact, the bulk of public resources preserving these properties was coming from the federal government. He added that the loss of resources to the Agency was not $58 million, but only $1 million. He suggested that this was the amount of interest revenue the Agency would lose if it were to replace the $58 million of tax-exempt debt with taxable debt for use in the Agency’s single-family mortgage program. In the current market, taxable debt would bear an interest rate only 0.3% higher than tax-exempt, said Sween. Commissioner Tingerthal ended the discussion saying that the Upper Post proposal would come back to the board for a decision at the board’s August 31 meeting.

Landlord Risk Mitigation program

After the lengthy Fort Snelling discussion, the board turned to several business items before it. The board accepted the staff recommendation to fund three of six proposals for the new Landlord Risk Mitigation program. A total of $400,000 was awarded to St. Louis and Carver counties, and to Lutheran Social Services to serve the Brainerd area. The program provides funds for outreach staff to establish relationships with landlords and encourage participation in the program, and for a loss guarantee fund should the tenant cause property damage or not pay rent. In their evaluation of this demonstration program, staff would determine whether landlords take on tenants with risk factors (like criminal history) and the number of people with such risk factors that are getting housing.

Dorothy Day project

The board accepted a staff recommendation that $13 million in Housing Infrastructure Bonds go to the St. Paul Dorothy Day project under the early award initiative that the board approved in May of this year. This was an advance allocation of funds that otherwise would be available through the Consolidated RFP and awarded in October. The board agreed to this type of award for projects that needed an early construction start in order to avoid losing other committed financial resources. Board members were assured that this proposal would have scored highly had the proposal awaited the competitive award; that is, no other project would lose funds because of the early award. In answer to a board member question, Commissioner Tingerthal said that very durable, and more expensive materials would be used with Dorothy Day, however the per-unit cost was still within the range allowed under the predictive cost policy.

2019 tax credit Qualified Allocation Plan

In its final action, the board gave final approval to the 2019 tax credit Qualified Allocation Plan (QAP). Staff reviewed modifications to the existing QAP being proposed for 2019, and identified what was being changed in the current recommendation compared to earlier drafts. Staff said, in response to comments, that the final draft would not reduce the large family points for 4% credit proposals. Further, the increase in points for extra-long affordability commitments (i.e., for 35 or 40 years) would be consistent between the 4% and 9% tax credit criteria. Also in response to comments, the 2019 QAP would not have the 7-year time limit on local plans for the award of points, as some commenters deemed the time limit to be arbitrary. Rather, staff will focus on whether a local plan is actively being implemented (not dormant on a shelf). Another area of comments concerned points for rent assistance. Here, staff agreed to providing points for properties with only 5% of units with rent assistance; and to address issues raised by investors, added a relief clause should rental assistance no longer be available for a given property.

Staff said that several other QAP comments showed merit but that there was not time to bring them into the 2019 plan. These will be worked on over the coming year. For instance, staff will investigate the recommendation that the Agency provide incentives for reducing the amount of tax credits requested for a property. They also will consider whether older appraisals should be accepted in markets showing little change. Recognizing the tension between cost containment and sustainability requirements, Commissioner Tingerthal said that the Agency would continue to “work arduously” to strike the right balance between the two.

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