Rural Minnesota Welcomes Shiny New Townhouse Development

Novogradac Journal of Tax Credits
Published 02/01/2015
By Brad Stanhope

When the 24-unit Heritage Townhomes opened last fall in Cambridge, Minn., there were smiles all around, and no wonder: It was the culmination of more than a decade’s work by nearly everyone involved and brought a state-of-the-art affordable housing complex to a town in desperate need of it. Heritage Townhomes is different. “In the world of tax credits, everyone wants shiny new transactions in the suburbs,” said Darrick Metz, senior vice president of originations at WNC, which provided $2.9 million in low-income housing tax credit (LIHTC) equity to fund the development. “This was classified as rural-and from a size perspective, it was smaller than a lot of folks are interested in. What I was excited about was that it was 100 percent rental assistance from [the U.S. Department of Agriculture’s] Rural Development program. It was a big win and a credit to the people who put it together.” One of the biggest boosters was Cambridge Mayor Maryls Palmer, who championed the development over the course of a decade and worked with several partners to make it happen. USDA Rural Development financing also played a key role, ultimately providing rental assistance to all residents. “It’s unique in the sense that it’s one of the few projects that are 100 percent rental assistance,” said Rob McCready, co-president of MetroPlains, LLC, the developer of Heritage Townhomes.

Heritage Townhomes and Cambridge The development consists of six buildings, all single-story garden style or two-story townhouse units. One-, two-, and three-bedroom units are spread among the buildings and all apartments have an attached garage and driveway. The property also includes a community gazebo and children’s playground. Cambridge, a town of about 8,000 residents, is at the junction of state highways 65 and 95, about 45 miles north of Minneapolis. There was a significant demand for affordable housing-a 2010 study showed a dramatic need for such residences-and Shirley Jensen, a USDA Rural Development area specialist, said her department really like Heritage Townhomes to help fill that need. “It’s a beautiful, 24-unit development in Cambridge and it is townhomes, which is nice,” she said. “But [most importantly,] it provides updated homes for 24 families who would otherwise not have this kind of affordability.” The Heritage Greens neighborhood, in which the Heritage Townhomes is located, is a mixed-use community, with a community park, office sites, single-family homes and five planned multifamily housing sites, of which Heritage Townhomes is the third. “It’s very family-friendly,” Jensen said. “We’re glad to be able to be part of providing help to lower-income households in our community.” WNC, which has properties in 70 Minnesota markets, considers Heritage Townhomes significant because of its location, according to Metz.” It’s important to look at the people in the county and the growing area,” Metz said. “You’ve got a growing county on the fringe of a metro area that has a lot of pride in what it can accomplish.” In addition to its commuter population, Cambridge is the home of more than 60 percent of the jobs in Isanti County, so providing local employees with a home was also important. Rural Area Attractive, Challenging WNC was interested in Cambridge because when it was funded in 1971, it “cut its teeth on rural deals,” said Metz. There isn’t a lot of new construction in rural communities and Cambridge had to endure years of waiting before finally closing the transaction and getting the townhouses built. “This took the city, Rural Development and the developer to sit down and noodle this out,” Metz said. Part of that was due to the design. “Your normal rural building is a walk-up, two- to three-stories,” Metz said. “These have attached garages. You’ve got to give credit to the city and Rural Development for working through this.” The biggest challenge was patience.

The city started looking into affordable housing around the year 2000 and even when things “fell into place,” it took nearly five years for everything to be completed. “We had a huge need for low- to moderate-income housing,” said Palmer. “What [affordable housing] we had was old and in disrepair. It was almost a mandate from the people to fix the problem. But we didn’t have funding and didn’t know where to start.” Ultimately, the city got help from MetroPlains, LLC and, as Palmer said, “everything seemed to fall together. It took 15 years, but it fell together.” Financing A key element was the land. One of the state’s regional treatment centers, which are state-run facilities for people with developmental disabilities, was in Cambridge for about 70 years, but was shut down. The city managed to purchase 88 acres-paying for the land by selling parts of it-turned it into the area in which Heritage Townhomes is located. The development received the LIHTC equity from WNC and combined it with a $1.2 million construction loan and $309,000 soft loan from Greater Minnesota Housing Fund. The mortgage is a $1 million Section 515 loan from USDA Rural Development. Infrastructure changes were paid for largely by a $350,000 grant from the Blandin Foundation. The icy also rezoned the area to allow for smaller lot-sizes. One of the significant factors in the development finally coming together was its funding from the Rural Development’s Section 515 program, which provides loans for affordable multifamily rental housing at a 1 percent interest rate. Although the program was popular a few decades ago, years of budget cuts have limited it to the point that many developers and cities are unfamiliar with it. “From a financing standpoint, there is a lack of industry knowledge of the 515 program,” McCready said. “IT was really active until about five to 10 years ago, but it’s now difficult to find attorneys and syndicators who are familiar with it.

WNC has a strong background in Rural Development programs and they understand how they work. MetroPlains LLC Co-President Vern Hanson said another hurdle was the cost of building. He praised contractor Lumber One for playing a key role in keeping prices reasonable. Another factor was the challenge of blending the demands of Rural Development with Minnesota Housing requirements that four units be set aside for formerly homeless residents. McCready and Hanson said they got a pleasant surprise at the grand opening in October, when there was a huge turnout from Rural p. “They showed up and you could tell there were very excited about it,” Hanson said. “It may be the last new 515 project in Minnesota. There were taking it back to the office and sharing the positive news.” Popular with residents Heritage Townhomes had a waiting list before construction complete, which was no surprise to those involved. “The demand has far outstripped the supply,” Hanson said. In the months since opening, it’s been a big hit. “One of the best testaments is when you walk into a unit and see how much respect and how people maintain it,” Hanson said. “You really can measure success that way.” He got no disagreement from Palmer. “You can absolutely tell how much pride people have in their homes,” the mayor said. “and the homes are distinctive looking. People spend a lot of time on their porches and in the back (where alleys expanded the area.) There is a community of its own within the [greater] community.” Stan Gustafson, the economic development director for Cambridge, put it simply. “Heritage Townhomes provides housing for people who can’t afford market-rate housing,” he said. “And they’re fantastic homes-they’ve got all the amenities you’d want in a house.”