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Paynesville Press - July 27, 2005

EDAP reduces proposal to single four-plex

By Melissa Andrie

Responding to concerns raised by local property owners, the Economic Development Authority of Paynesville (EDAP) decided last week to limit its proposal to build townhomes in the Wilglo Acres Addition. The board, which was considering 16 rental units, has approved four units in one four-plex, subject to a reassessment of costs and cash flow by its consulting firm.

By a 5-1 vote, the board lessened the risk of the proposed project by directing F & L Management & Development, Inc., the firm that approached the board about building rental units, to create a building plan with only four units. This will allow the board to "really get our feet wet and learn," said chairman Pat Flanders, adding, "If this doesn't work, it's a lesson learned, and we did it on a scale that we can live with."

Tom Serie, president of the firm, said at the Tuesday, July 19, meeting that no cost has yet been determined for this proposal, because the reassessment will involve redesigning the driveway of the four-plex. (Building costs for the 16-unit proposal were set at nearly $1.86 million.) The design of the units, including the number of bedrooms and garage stalls, will also be subject to reanalysis.

The new proposal will be brought before the EDAP board at its next regular meeting, on Tuesday, Aug. 16. At that time, the board will review the proposal and likely approve the project, sending its decision to the city council. Board member Jeff Bertram, also a city council member, called the pending approval a "glorified recommendation" because the project cannot be done without permission from the city council, which must approve the revenue bonds to be used as financing. With bonding costs, the 16-unit proposal would have cost $1.975 million.

Due to a perceived lack of rental housing for those transitioning to Paynesville, specifically entry-level professionals, EDAP expressed interest in the project. Having such housing available could help the growth of industry in Paynesville by providing housing for workers, according to board members. This project, though not subsidized, does utilize bonds which private owners do not have access to, which could help keep rent down. "Until you give the private sector a lot of incentives," this type of housing will not be made available in Paynesville, said Serie.

Bob Swanberg of the Stearns County Housing and Redevelopment Authority (HRA) shared his experience with the board at last week's meeting. The HRA has four three-bedroom units, two of which have been vacant for nearly a year, and said, "This is an extremely difficult time for the multi-unit family rental market." (These units have 400 to 500 fewer square feet of space than comparable units in the proposal and are two-story units whereas those built by EDAP would be one-level.)

This information was surprising, said Flanders, because a formal survey of rental properties had found a low vacancy rate with a need for three-bedroom rental housing.

A concern that not all units would be quickly leased, partially due to the discussion with Swanberg, led the board to its decision. Reports on the success of other units built by Serie's company were questioned, with board members and Matt Dickhausen - speaking on behalf of local rental property owners (himself, his wife Danielle, Reed Quarfot, and Lew Storkamp) - expressing concern that other communities with these units do not have as many private units available as Paynesville does.

An additional concern is the projected rent ($850 per month for a three-bedroom, two-car-garage unit; $775 per month for a two-bedroom, two-car garage unit; and $675 for a two-bedroom, one-car garage unit), which is higher than any others that have been done by Serie's firm. Swanberg said that with those rental prices he would not feel as though the Stearns County HRA was competing with the EDAP units (it charges $695 per month for the three-bedroom, two-car garage units), adding that he did not believe the board would "get any takers" to sign a lease.

Board members regretted not knowing the plans of Ferche Development, LLC, for 230 acres which was annexed to the city. The development may include some townhouses, though it is not known whether they will be for rent or for sale.

The board is still interested in this type of project, as shown by its decision to enact the scaled-back proposal, but city administrator Steve Helget summed up the discussion over the number of units by asking the board members, "Where's your comfort level? Mine is not at 16."

Voting in favor of the proposal were board members Jeff Bertram, Todd Burlingame, Pat Flanders, Press publisher Peter Jacobson, and Jean Soine. Don Pietsche voted against it, saying that he opposed "subsidizing a project that puts the private sector at a disadvantage."

Other rental property owners, as well as board members, voiced philosophical concerns at the meeting, questioning whether a government entity should enter what has been a private market. Though the project is expected to cash flow (to pay off the revenue bonds through the rent collected), the fact that EDAP can use bonds not available to the private sector gives it an unfair advantage, said Dickhausen. This difference, as well as the lower real estate taxes that would be paid by EDAP, mean that a private owner doing this project would charge $287.50 more per unit per month, according to estimates by F & L Management & Development, Inc.

Though some of the local property owners at the meeting felt that a developer should have been chosen through a competitive process, Flanders said he felt comfortable with the reputation and fees charged by F & L Management and Development, Inc., saying he was "fairly impressed with the numbers per square foot."

The firm has built 1,000 of these units, including 72 in Meeker County, according to Serie. Though the city would have to sign an operations and maintenance deficit agreement, guaranteeing coverage of the project's cost and maintenance, never has the firm worked with any group that needed to request a loan from the city.

Serie recommended building at least two four-plexes because the "economy of scale" would lower building costs and allow for lower rental prices. Board members, however, thought the change in rent was minimal when the extra risk of building more units was factored in. Regardless of the what type of project the board decides upon, Serie's firm will pay all costs until every unit is leased out.

Also stressed by Serie was that Paynesville has a market of "affluent elderly leaving town," because they want to sell their homes in order to downsize and simplify their estates. He believes that Paynesville is losing population because upscale, one-level apartments are not available. Board members responded by saying that the goal of EDAP with this project has been to provide housing for younger professionals.

Due to this interest, the board began looking seriously into providing this type of housing this year, a number of years after it had been approached with a similar offer and decided to wait and see if the private sector provided it first. This had not occurred, so discussions were begun with F & L Management and Development, Inc. and the city council added housing and redeveloping authority to the board's powers. Many of the concerns raised at the meeting last week were discussed at a public hearing earlier this month.

A concern brought to the city council, though not brought up at last week's meeting, was that EDAP should focus on job development. A letter sent to the board by S.D. Thompson, owner of Mill Street Apartments, also questioned the wisdom of building apartments rather than focusing on jobs and industry, which has been the traditional role of EDAP in the community.

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