Is it too expensive to build affordable apartments in Tacoma now? This builder says it is

A Tacoma apartment project that was approved in May for a 12-year tax break in exchange for a percentage of rent-restricted units has switched to an all market-rate development with only an 8-year break.

The move, which passed on a voice vote, was not universally approved at Tuesday’s City Council meeting. Council member Sarah Rumbaugh voted against it.

Cornus House LLC, representing Great Expectations of Seattle, has plans to build an 8-story, 199-unit building at 2502 Pacific Ave. The developers requested switching their earlier approved 12-year multifamily property tax exemption to the 8-year MFTE version.

The 12-year MFTE requires 20 percent of units be set aside as “affordable” at 70 percent Pierce County AMI for 12 years, though this project’s 12-year program came under the city’s previous 80 percent AMI qualification.

Projects filed from March 14 onward take the 70 percent model that council approved late last year.

The 8-year MFTE does not have any affordability requirements.

The city’s Community and Economic Development action memo accompanying the council agenda noted, “Unfortunately, based on what is happening in the debt markets (and) the quickly raising construction costs, to make this project financially feasible, (the developers) have had to revert to an all market-rate project.”

It added that the project “will be in a position to begin construction as early as November, should this resolution pass.”

The project as it stands now would include the following units/projected rent rates, according to the memo:

▪ 92 studios, 257 square feet, $1,550.

▪ 94 one-bedroom/one bath, 358 square feet, $2,000.

▪ 13 two-bedroom/one bath, 546 square feet, $2,300.

The site will include 1,776 square feet of retail space and six parking spaces, being developed as transit-oriented development.

Under the previous proposal, 40 units would have been set aside as lower cost, with those projected rents ranging from $1,425 to $1,832, including utilities.

Ben Maritz, founder of Great Expectations, told The News Tribune in a phone interview Wednesday his company is in the business of developing affordable workforce housing, and his projects typically use the 12-year MFTE.

“I’m sure you’ve seen that interest rates are going up at a very precipitous rate,” he said. “And as interest rates go up, debt payments go up, and the banks require a certain ratio of debt payment to forecasted income ... the debt service coverage ratio. Whenever those interest rates go up, we just have to have more income to show,” he said.

He added, “We really had no choice. If we hadn’t gotten that, we would not have been able to build this product at that financing package. And we would have had to put (the project) on hold until the economic cycle turns,” he said.

The project’s budget, he said, had risen from $35 million from initial plans two years ago to $54 million today.

“At this particular time, where it’s very challenging to build things, we have to do whatever it takes just to deliver the housing,” he added.

Cornus House is the first development to gain preliminary approval in Pierce County’s C-PACER program, which stands for Commercial Property Assessed Clean Energy + Resiliency.

The program, approved by Pierce County Council in March, “allows owners and developers of eligible properties in Pierce County to obtain long-term financing, at a lower interest rate, for qualifying energy generation, efficiency, water conservation or resiliency projects,” according to a county news release announcing the program’s launch in August.

“More efficient, clean buildings will help the county meet greenhouse gas reduction goals as called for in the Sustainability 2030 Plan,” the release noted.

According to C-PACER’s website, projects can be financed through an agreement between the property owner and a registered C-PACER lender. Pierce County Sustainable Resources division oversees approval of applications.

In Cornus House’s case, “The project qualifies based on energy efficiency improvements and seismic resiliency improvements,” according to Erin Babbo, communications manager for the county’s Planning & Public Works.

Babbo, responding via email, added that the project “has been approved conditionally, pending receipt of additional documents at closing.”

It’s happened before

At Tuesday’s council meeting, several residents who spoke during public comment objected to the amended MFTE request, and council member Rumbaugh questioned whether such a switch would set a precedent.

“How often does it happen that somebody can come back in and change what they originally said they were going to do to what we are doing now, which is sort of setting for me a kind of precedent, right?” She added she was “a little uncomfortable” over the action.

Such a switch did occur in 2019.

Council members had to vote twice at that time to eventually pass a 12-to-8 year MFTE switch for an apartment project next to the downtown library. The project had stalled over funding trouble, and the switch was deemed necessary for the site to qualify for a new construction loan.

Adding to council members’ angst at that time, the apartments were part of a development agreement with the city involving public land, initially promoted as a project that would bring affordable units.

After getting new developers on board, that site is now home to the Hailey, 1210 Tacoma Ave. S. Rents range from $1,584 for a 462-square-foot studio to $2,555 for a 1,010-square-foot two bedroom, one bath unit, according to listings posted for available units this week on its website.

Such tax break action also has gone the other way, with projects switching from 8-to-12-year MFTEs, noted Debbie Bingham, project manager with the city’s Economic Development Services Department.

In January, Ethos Development received approval from council for its MFTE to switch from an 8-year to 12-year version for its 160-unit project at 1402 Tacoma Ave. S., the former site of Go Philly Cheesesteaks & Wings. That site will include 32 rent-restricted units.

“There have been a couple that have gone actually from 8 to 12 years,” Bingham told the council on Tuesday. “I’ll be bringing one forward in about a month, that’s ... changing that way.”

Maritz also has plans for a second Tacoma development, across from Cornus House, to bring hundreds of units, with development launching in a couple of years.

“I would love for that one to be all affordable,” he said. “If we can figure out how to get public funding and be competitive with the state tax credit program, we would love to make it all affordable.”

Other action

A second, albeit much smaller MFTE project was approved at Tuesday’s council meeting.

GPNW Investments Inc. is set to develop eight units, along with eight parking stalls, at 2533 Tacoma Ave. S.

Under its 12-year MFTE, it plans two rent-restricted units, two-bedroom/two bath, 1,060 square feet, with expected rent at $1,602 including utility allowance; and six market-rate two-bedroom/two bath, also 1,060 square feet, with expected rent at $1,800.