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Developers say costs are prohibitive

John Stroud Post Independent
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A bare concrete foundation surrounded by weed-laden mounds of dirt and rocks sits in an otherwise vacant lot next to a half-empty row of new townhouses on Carbondale’s Main Street – a monument of sorts to the new economic reality.

After gaining approvals from the town of Carbondale three years ago before the downturn in the housing market, the developers of the Mountain Sage Townhomes built the first 14 of the 26 approved units.

They hit the market just as the bottom fell out, and sat empty for nearly a year until a couple of units finally sold late last year. A decision to make some units available for rentals also helped keep the bank happy.



But construction on the remaining 12 units – including four deed-restricted affordable housing units that were mandated to be part of the overall mix – is in a state of uncertain limbo.

A soft real estate market and tighter lending rules is mostly to blame. But another complicating factor has to do with the amount of public costs, in the form of affordable housing, park and open space requirements, design standards and off-site infrastructure improvements, that have become extra burdensome for developers, especially in a tough economy.



Mountain Sage is just one example of the many stalled real estate development projects in the valley that earned approvals from local governments before the economy tanked.

Construction was halted at the Ironbridge housing subdivision between Glenwood Springs and Carbondale when its parent company went into bankruptcy. Construction never did start at the bankrupt Roaring Fork Lodge in Glenwood, or the Cattle Creek development near Carbondale, which fell into foreclosure at the end of 2009.

And the housing component at the Glenwood Meadows development has yet to break ground, despite the relative success of the commercial portion of that project.

The situation has also provided a new landscape for the development review process, as proponents of new projects such as Carbondale’s Overlook, Thompson Park and the Village at Crystal River negotiate a delicate game of taking care of public needs while trying to ensure there’s at least some profit margin.

“There simply needs to be a fair profit for any undertaking,” said Robert Macgregor of the Glenwood Meadows LLC. “Nobody is going to proceed without that profit. And when it comes to public costs, we either pass that cost along, or we don’t develop.

“These exactions sound good on paper, but it’s a challenge,” he said. “At the end of the day, we need to be able to balance the books and proceed with development. And there’s a misperception that there’s some great, hidden pot of money in the equation. The deal is, the more that’s asked of developers, the more we need to charge for the end product.”

Mountain Sage developers Ken Williams and David Mork, both longtime locals who’ve done numerous other projects in town, did get a reprieve in November of last year when Carbondale Trustees agreed to suspend payment on a more than $486,000 letter of credit for an extra year. The money is intended to pay for a range of public improvements, such as sidewalks and parkland dedication fees.

But the housing mitigation requirement is another matter.

Originally, Mountain Sage was required to build four income-restricted units, one each targeted at home buyers earning 80 percent, 100 percent, 120 percent and 150 percent of the Area Median Income (AMI).

In addition, partly as a way to achieve greater density, the developers voluntarily offered to put a resident-owner occupied (RO) requirement on three units. They also established a 1 percent Real Estate Transfer Assessment (RETA) on the sales of the 19 free market units to go into a town affordable housing mitigation fund.

Given the new economic realities, the developer offered a revised proposal last month. Instead of four AMI units at the higher income levels ranging in price from $236,917 to $451,378 (2009 prices), they proposed to build two deed-restricted units at 65 percent AMI, at a maximum 2009 price of $191,693.

The single RO unit that has already sold in phase one would be the only such unit under the new proposal. And the 1 percent RETA would remain but would include four additional free market units.

It was a plan Carbondale town staff supported.

“Higher priced AMI units do not seem to provide the desired program benefits,” Carbondale Housing Planner Kay Philip wrote in her recommendation at the time. “Sixty-five percent AMI housing, plus dedicated funding for housing [through the RETA] seem more aligned with the goals of the housing program.”

The revised plan was also more in line with what the town had been negotiating with the developers of the Overlook project, she noted.

But some Carbondale trustees balked, concerned at losing two AMI units, and also concerned that the 65 percent AMI units could be as small as 400 square feet.

“Essentially, what was proposed was what staff, and what we thought the trustees, would agree to based on what they did with the Overlook project,” Mountain Sage’s Williams said in a recent follow-up interview. “It makes no sense, because the town’s own guidelines allow for units in the 65 percent AMI category as small as 400 square feet.

“We thought that would be a good entry level product for someone,” he said. “Now they’re saying, ‘We’re not only going to set the price, we’re going to set the size.’ How do we operate under a regime like that?”

Trustees had asked that the developer continue to work with town staff and come back with another plan.

“Quite frankly, we haven’t been inclined to respond,” said Williams, who has offered other solutions in the past, such as a price cap approach and fee credits, to help jump-start stalled housing projects.

“Everybody ought to be living in the same world … today’s reality, versus living in yesterday’s reality,” he said.

Glenwood Meadows’ Macgregor agreed that the affordable housing requirements on the books today don’t necessarily reflect the reality of the current market.

“Even at the height of the bull market, I couldn’t get residential done on my piece of property,” Macgregor said. “Now, in the depths of the recession, it’s even harder. We need a more realistic approach.”

Although the Meadows project is now looking to obtain tax credits to build affordable rental housing, if that doesn’t work, it may have to look at abiding by the city of Glenwood Springs’ affordable housing requirements relating to for-purchase units.

The problem is that the various affordable housing codes throughout the valley, as well-intentioned as they are, are having the negative effect of eliminating a middle-income housing market, Macgregor concludes.

“The existing [Glenwood] code is challenging, to say the least, and now the city is working on revising that code,” he said.

As it stands, 15 percent of any new housing development is required to be deed-restricted AMI units. The new requirement being considered is 25 percent. Two years ago, Carbondale also increased its so-called “inclusionary housing” requirement from 15 percent to 20 percent.

“It’s a direct tax on the other owners,” is Macgregor’s take on it.

He explains that, at 15 percent, every six free-market home buyers is paying for one AMI category unit. At 25 percent, that rate of subsidy increases to every three home buyers paying for an AMI unit, Macgregor said.

“What it does is it prompts developers to sell more expensive homes, not less,” he said. “And, as we’ve seen in Aspen, it drives a huge gulch between the rich and the poor. There’s a danger of crushing the middle sector.”

A suggested “commercial linkage,” where developers of commercial projects would have to provide a percentage of employee housing, is also worrisome, Macgregor said.

“Again, the concept sounds great, and the thinking behind it is you get something for nothing,” he said. “That’s just not true. All you do is assure that the discussion [of new commercial development] doesn’t even begin.”

It’s a dilemma that rings a familiar sound for John Foulkrod, a member of the Carbondale Board of Trustees who is also one of the partners in the proposed Overlook Neighborhood planned unit development.

The proposed mixed-use project calls for up to 170 houses, 45,000 square feet of commercial space and a possible 50-room hotel. It had been in the planning review process for more than a year when Foulkrod and his partners decided last fall to take a “time out” to discuss some internal business matters before proceeding.

One concern has been the various public exactions that are being asked of the developers, not just related to affordable housing, but in general, extending to such things as off-site infrastructure improvements, and new energy efficiency design standards.

“Some people think that the people who do a development make a huge profit,” Foulkrod said in an earlier interview with the Post Independent. “There’s no way of knowing going into something like this what the market is going to be. It’s a huge gamble.

“When all is said and done, if you’re making 20 percent [profit], that’s good,” he said. “So, if you clear $100,000 per [housing] unit, that’s gold. If it’s $30,000 per unit, that’s too risky.”

The process itself to get a project approved is lengthy and costly, without any guarantees that a project will even be approved, he also noted.

“I’m all for the give and take between the town and a developer to create a good project. That’s fine,” Foulkrod said. “But when it becomes how much you can get from a developer to make sure he goes belly up, that’s not a good thing.”

Williams noted that the public costs of a development can also vary widely from one project to another.

For Mountain Sage, that public cost was nearly $83,000 per unit, he said, including everything from affordable housing subsidies to park dedication fees. Another project he completed in 2006, the three-unit Main Court Townhomes, cost just $5,917 per unit.

Concerns about the costs of the development review process, and the public costs of development once it is approved, have prompted the town of Carbondale to take a closer look at its requirements. It also set up a housing advisory committee to review the town’s affordable housing requirements, of which Williams was a member.

To date, however, no action has been taken to make any revisions.

jstroud@postindependent.com


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