Timing is Everything for Lumberyard Cost
The price tag on the city’s contemplated Lumberyard affordable housing development will largely depend on how fast the city builds it.
During a work session Monday, Chris Everson, who is the city’s project manager for affordable housing development, and Pete Strecker, the finance director, presented six scenarios detailing how the city could fund the Lumberyard project. The cost was consistently lower for scenarios with shorter construction timelines.
Everson attributed this relationship to rising annual costs, according to a memo detailing the scenarios, which assume an average annual growth from 4% to 6% in construction costs.
The Lumberyard project would add three buildings and 277 deed-restricted units to Aspen’s affordable housing stock, as well as 435 onsite parking spaces. Buildings 1 and 2 are anticipated to hold rental units, and Building 3 may be rentals but is anticipated to offer ownership units to tenants who qualify under the guidelines set by the Aspen-Pitkin County Housing Authority. The city-owned Lumberyard development site is 11.3 acres and located next to the Airport Business Center.
The cheapest way to complete the project would be to build it all in one phase, immediately. Strecker, however, said the city wouldn’t have the resources to pay for that. Instead, an implementation plan presented to the council showed the project being completed in four phases. The funding scenarios showed these phases lasting from 14 to 26 years into the future.
If the city were able to build the entire project in one phase now, Everson said the project would likely cost about $325 million. If the low tax revenue, high construction costs and no debt issuance cause the construction process to last 26 years, scenarios show the project costing around $754 million.
Everson’s “baseline,” or average, scenarios saw the project costing between $450 and $520 million, depending on whether the city issues debt to complete the project. The numbers do not represent firm boundaries on the project’s potential cost, but rather they show potentialities under different conditions, said Everson.
Councilmembers and staff discussed tax revenues, construction cost increases, debt issuance and the potential for outside funding sources as critical factors in how fast the project can be built. Aside from making the project cheaper, Everson noted in an interview that a faster construction timeline also allows the community to benefit from those housing units sooner.
“I am not worried about whether the community can pay for it. It’s just that the community needs to make some choices … how fast does this community want this done, and what are they willing to give up to make that happen?” said City Manager Sara Ott.
To speed up the project, the council could decide to dig deeper into its housing funds each year. But that would leave less money for non-Lumberyard affordable housing developments while the project is completed.
Funding scenarios assumed the city would set aside an existing $20 million for non-Lumberyard affordable housing expenses and add 15% of its “150 Fund” revenues to every year going forward.
Everson said he believes the city can get by without leaving so much money aside for non-Lumberyard housing projects.
“There are scenarios where we can accelerate [the building process] to a degree, and still leave you with 36 or 30 million (dollars), plus the 20 million in 2023,” Everson said.
Council can also decide how much, if any, debt the city should assume in order to speed up the construction process. Everson said city staff have examined a debt structure in which the city would issue $70 million in general obligation bonds, to be paid back over 30 years, along with individual mortgages on each building in the development. The city would pay the bond with $4 million each year from its 150 Fund, and the mortgages would be repaid using income from rent payments at each of the Lumberyard’s buildings.
The city’s ability to repay the bond would depend largely on tax revenues from its real estate transfer tax (RETT), sales tax and new short-term rental tax. Ott said that between these three revenue streams, and considering the other funds available to the city that could be used for debt repayment in a pinch, she is confident the city can take on this kind of debt.
“I am not worried about whether the community can pay for it. It’s just that the community needs to make some choices … how fast does this community want this done, and what are they willing to give up to make that happen?” said City Manager Sara Ott.
To speed up the project, the council could decide to dig deeper into its housing funds each year. But that would leave less money for non-Lumberyard affordable housing developments while the project is completed.
Funding scenarios assumed the city would set aside an existing $20 million for non-Lumberyard affordable housing expenses and add 15% of its “150 Fund” revenues to every year going forward.
Everson said he believes the city can get by without leaving so much money aside for non-Lumberyard housing projects.
“There are scenarios where we can accelerate [the building process] to a degree, and still leave you with 36 or 30 million (dollars), plus the 20 million in 2023,” Everson said.
Council can also decide how much, if any, debt the city should assume in order to speed up the construction process. Everson said city staff have examined a debt structure in which the city would issue $70 million in general obligation bonds, to be paid back over 30 years, along with individual mortgages on each building in the development. The city would pay the bond with $4 million each year from its 150 Fund, and the mortgages would be repaid using income from rent payments at each of the Lumberyard’s buildings.
The city’s ability to repay the bond would depend largely on tax revenues from its real estate transfer tax (RETT), sales tax and new short-term rental tax. Ott said that between these three revenue streams, and considering the other funds available to the city that could be used for debt repayment in a pinch, she is confident the city can take on this kind of debt.
“This is a pretty conservative approach,” Ott said.
Funding scenarios assumed that the RETT would continue to rise every year by an average of 4% to 6%, and the sales tax from 3% to 5%. With the exception of the short-term rental tax, which the city only began collecting two months ago, these rates reflect the long-term historical growth trends in revenue from each tax.
City Council will also have to consider whether to pursue outside funding for the project. Ott said that all the scenarios presented on Monday excluded any potential contributions from the state, the federal government, or community partners.
Councilmembers noted that state and federal housing grants can be conditioned on the income levels of housing project residents. If the city pursues those grants, it could have to change the proportions of low-, medium-, and high-income units in the buildings. Everson noted that the state has developed new funding sources for middle-income housing, which he said is particularly helpful for Aspen.
Mayor Torre noted that this is a great opportunity to also seek partners in the community who may want to help the city with this project.
“We are looking for community partners. … We would love to deliver this project as early as possible, and we welcome any inquiries from anyone in our community,” Torre said.
Councilman Sam Rose also noted that the city will need to hold some kind of vote in order to extend the RETT long enough to repay debt. The RETT is set to expire at the end of 2039.
Councilman Bill Guth said he generally supports the project in theory, but that he’s concerned about affordability. Guth questioned whether the project was enticing enough to private partners.
“I really just don’t understand where the return is, where the cherries are, for this development partner. … So to me that really means there’s probably not a public-private partnership opportunity there, and we end up back in the developer seat as the city and I’m not comfortable with that,” Guth said.
The city currently intends to execute the project as a public-private partnership in which the city will build the infrastructure necessary to service the Lumberyard, and will then partner with a private developer that will build the actual structures and operate them for some period into the future.
Everson responded saying the management fee, which the city would pay to its private partner, will be a draw for that partner. The management fee is currently imagined to be 10% of annual construction costs. Ott also mentioned the appeal of being involved with one of the largest and most historic deed-restricted housing developments in the state.
Torre responded to Guth’s comments, saying he is personally confident that the city can afford the project.
“This project is not the road to ruin for Aspen by any means,” Torre said.
Austin Corona | Aspen Daily News I August 15, 2023