TRAVERSE CITY — Sixteen apartments inside a building on Traverse City’s Eighth Street will get a tax break in exchange for staying below market-rate.
City commissioners on Monday unanimously agreed to grant a payment-in-lieu-of-taxes deal to Nest Community Partners. The nonprofit will lease the apartments from the Commongrounds Cooperative in a bid to keep them affordable, Nest Community Partners Director Kate Redman said.
Commmongrounds Cooperative, which manages the building of the same name near where Boardman Avenue meets Eighth Street, was losing about $250,000 a year, Redman said. She explained after the meeting that pandemic-era price hikes in construction led to the development taking on more debt than it originally planned.
The affordable housing part of the project was never going to pay for itself, Redman said.
“We thought we could subsidize it through ongoing fundraising, but the gap ended up being higher than anticipated due to the construction cost,” she said.
Transferring the apartments to the nonprofit should restructure their finances to correct for this, Redman said. It also opens up the apartments to financing the cooperative couldn’t access, including a U.S. Department of Agriculture loan and a Michigan State Housing Development Authority grant Nest Community Partners already obtained.
Under the 35-year agreement, the nonprofit will pay 4% of rents minus the cost of certain utilities, documents show. City Assessor Amy Robbins said she estimated the city would miss out on about $26,000 per year in property taxes, or roughly $911,000 over the life of the agreement.
City Commissioner Ken Funk asked about how much tax revenues the city would forfeit through the PILOT. And Pro Tem Laura Ness said she agreed the tax breaks, as useful as they are in addressing the housing shortage in the area, do impact municipal finances.
“That being said, I believe this project demonstrates the type of public benefit that merits our approval,” she said. “PILOT projects should never become automatic, every proposal really needs to be judged on its merits.”
Commissioner Heather Shaw said she thought the project was a great solution for the cooperative’s financial situation, as well as the kind of project that keeps Traverse City’s economy from becoming a seasonal, tourist-heavy “monoculture.”
“I think the more people, the more working people that we have downtown, the more the downtown reflects what the rest of the city looks like, which is diversity of ages and family structures, and wages and jobs and interests,” she said.
Rents for the apartments will be priced for tenants earning 60% to 80% of area median income, with two of the units priced for tenants earning up to 100%, according to documents submitted to the city.
Monthly rents will range from $945 to $1,550 for the eight studio apartments, $1,112 to $1,950 for the four one-bedrooms, $1,594 to $1,780 for the three two-bedrooms and $2,462 for the single four-bedroom unit, according to a memo from Robbins.
The PILOT won’t include a handful of apartments rented out at market rate or short-term rented to help subsidize the lower-priced units, Redman said.
The Grand Traverse County Brownfield Redevelopment Authority approved $1 million for the building’s construction, in part to deal with site remediation and also to build underground public parking, Redman said. The authority is recouping that money through a tax increment finance plan, which will take longer with the PILOT affecting part of the property’s tax bill.
“If there’s less property taxes paid on the property, then the brownfield reimbursement just lasts longer because they’re still getting taxes refunded, but it doesn’t change the amount brownfield receives long-term,” she said.