Exhibit A

 

REPORT AND RECOMMENDATION TO CITY COUNCIL

 

Application of Gateway Arbors, LLC and Irving Street Properties, LLC for a 10-Year Property Tax Exemption for New Transit Supportive Residential Development (Chapter 3.103)

 

Background:

On November 21, 2003, Gordon Jones applied for a property tax abatement for a new condominium development known as Phase II of Gateway Arbors Condominiums in the Gateway Regional Town Center Urban Renewal District. The application was made on behalf of Gateway Arbors, LLC and Irving Street Properties, LLC, who are owners of two adjacent sites that will be combined for the Project. According to Chapter 3.103 of the City Code, the Portland Development Commission shall review the application and make a recommendation on the request to the City Council.

 

The property tax abatement, if approved by the City, exempts the value of the project’s residential improvements from taxation for a period of ten years. During this period, the individual owners continue to be liable for property taxes on the value of the land through their membership in the condominium owners’ association.

 

This is second phase of the Gateway Arbors project, which received a TOD tax abatement in 2001 for a 22 unit for sale project.

 

Project Description:

Phase II of the Gateway Arbors condominiums project (the project) will provide 48 for sale units with 24 affordable one bedroom units and 24 two bedroom units, 35 surface parking spaces and nine covered parking spaces. These components will be housed in two three - story buildings on a 33,450 square foot site zoned RHd.

 

Phase II of Gateway Arbors will provide affordable housing with prices that potential home purchasers in the 35% to 54% median family income (“MFI”) income range can afford. The 48 one and two bedroom units have prices from $72,950 to $124,950 depending upon unit location. This is a major benefit because the low prices combined with low interest rates make the project attractive to families that have traditionally been limited to rentals only. In addition, the Project will not require any direct PDC financing. The project is currently under construction, and it is scheduled for completion May of 2004.

 

If the abatement is approved, all 48 units will be affordable to first time homebuyers who earn 60% or less of median family income.

 

Public Benefits:

The Project meets many of the City’s housing goals as specified in the City of Portland Comprehensive Plan:

 

•  The Project will develop a key parcel along 99th Avenue in the Gateway business District, which is called for in Section 4.1(E): “Encourage the efficient use of infrastructure by focusing well designed new and redeveloped housing on vacant, infill, or under-developed land;”

•  The Project will be located two blocks from light rail and within two blocks of bus stops served by five separate bus lines, which is called for in Section 4.3 (A): “Place new residential developments at locations that increase potential ridership on the regional transit system and support the Central City as the region’s employment and cultural center;”

•  The Project will provide ground floor retail fronting NE 99th Avenue, which is called for in Section 4.3 (B): “Establish development patterns that combine residential with other compatible uses in mixed-use areas such as Central City, Gateway Regional Center, Station Communities, Town Centers, Main Streets, and Corridors;” and

•  The Project will provide housing density near transit, which is called for in Section 4.3 (C); “Encourage the development of housing at transit-supportive densities near transit streets, especially where parks or schools are present, to ensure that the benefits of the public’s investment in those facilities are available to as many households as possible.”

 

The Project meets many of the goals and objectives of the proposed Gateway Regional Center Urban Renewal Plan:

•  The Project will redevelop a key site near several light rail stations, which is called for in Goal 4 (C) Support Compact Development – Station Area Focus;

•  The Project will provide ground floor retail fronting NE 99th Avenue, which is called for in Goal 5 (B), Support A Mixture of Land Uses – Within the District; and

•  The Project will include pedestrian and transit amenities, which is called for in Goal 7 (C), Establish a Pedestrian Orientation – Amenities.

 

Although a PDC staff design review is not required by the City Code, PDC’s staff has reviewed the proposed design and discussed them with the Planning Commission, which completed a Type II review of the Project. Both PDC and the Planning Commission were favorably impressed with the layout, architectural features, density, and efforts to minimize the impact on the neighborhood. This is the type of project that PDC should encourage.

 

Finally, the Project will provide the following additional public benefits, as required by City Code Section 3.103.040:

 

Initial Sales. The Project shall receive the property tax exemption only for those for sale units which are available at an initial purchase price which does not exceed 95 percent of the median purchase price for a condominium unit in Multnomah County as established by the U.S. Department of Housing and Urban Development for the purpose of determining FHA loan qualifications. The units must be sold to a household earning no more than 100 per cent of the area median income for a family of four as established by the U.S. Department of Housing and Urban Development, or its successor agency, during the year of sale in order to retain its property tax exempt status.

 

The index cited by City Code currently stands at $189,905. 95 percent of this amount is $180,410. The schedule of proposed sales prices of the Project is shown below, with all sales prices well within the Code requirements. Although the average per sq. ft. price of the condominium is $150.02, their small size allows the sale price with the TOD abatement to be affordable to homebuyers between 35% – 54% MFI ($23,030 to $35,530). At the time of purchase, the income test described above would be applied to the purchasers of the individual units, who would qualify (or not) for the abatement based on their household income:

 

Building 3 (Without Parking)

 

Units  Bedrooms    Price    sq.ft  .  per sq.ft.  %MFI

 

4  1 Bedroom     $72,950  524    $139.22  35%

4  1 Bedroom     $73,950  524    $141.13  35%

4  1 Bedroom     $75,950  524    $144.94  36%

4  2 Bedroom    $111,950  767    $145.96  49%

4  2 Bedroom    $113,950  783    $145.53  50%

4  2 Bedroom    $115,950  785-806  $145.75  51%

 

Building 2 (With Parking)

 

Units  Bedrooms    Price    sq.ft.    per sq.ft.  %MFI

 

4  1 Bedroom     $79,950  524    $152.58  37%

4  1 Bedroom     $82,950  524    $158.30  38%

4  1 Bedroom     $84,950  524    $162.12  39%

4  2 Bedroom    $117,950  767    $153.78  51%

4  2 Bedroom    $119,950  783    $153.19  52%

4  2 Bedroom    $124,950  785-806  $158.33  54%

 

Subsequent sales. Units in the Project must be owner occupied during the term of the exemption. Should any unit become available for sale during the term of the exemption, it must be sold to a household earning no more than 100 per cent of the area median income for a family of four as established by the U.S. Department of Housing and Urban Development, or its successor agency, during the year of sale in order to retain its tax exempt status.

 

At the time of any subsequent sale of a unit in the Project, the sales price and income tests described above would be applied to the purchasers of the unit, who would qualify (or not) for the remainder of the abatement term based on the sales price of the unit and the purchaser’s household income.

 

Rental units. Although the Project has been designed and market as for sale units, the developer anticipates that if units remain unsold, as much as 50% of the Project may be rented out at any given time. If units in the Project are made available for rent, the developer has agreed that those units will be available for rent to households at or below 60% MFI. These units would therefore qualify for the abatement based on affordability, as described in City Code Section 3.103.040 (B); “All rental projects containing more than 15 units applying for the exemption under the terms of this Chapter must include within the project and for the term of the exemption at least 20 percent of the units for rent at rates which are affordable to households earning 60 percent or less of the area median income.” If a rental unit is sold at any time during the abatement period, the sales price and income tests described above would be applied to determine the unit’s continued eligibility for the abatement.

 

The Project will provide ground floor commercial space with two live/work units facing 99th Avenue, publicly accessible landscaped plaza areas with extensive use of trees and shrubs, and benches that assist pedestrians along NE 99th Avenue. This meets the second level test the city code requirement for a selection of options listed in Section 3.103.040 (E).

 

Financial Evaluation:

As a for-sale project, City Code Chapter 3.103.020 specifies that the project

 

shall receive the property tax exemption only for those for-sale units which are available at an initial purchase price which does not exceed 95 percent of the median purchase price for a condominium unit in Multnomah County as established by the U.S. Department of Housing and Urban Development for the purpose of determining FHA loan qualification.

 

The index cited by City Code currently stands at $189,905. 95 percent of this amount is $180,410. Although the average per square foot price of the condominiums is $139-$158, their small size allows the sales prices to be affordable. The schedule of proposed sales prices for the project listed above are all well within the index.

 

 

City Code Chapter 3.103.020 further specifies that

 

The unit must be sold to a household earning no more than 100 percent of the area median income for a family of four as established by the U.S. Department of Housing and Urban Development, or its successor agency, during the year of sale in order to retain its tax exempt status.

 

At the time of purchase, the income test described above would be applied to the purchasers of the individual units, who would qualify (or not) for the abatement based on their household income. The Project will provide ownership opportunities to homebuyers between 35% - 54% MFI, bringing ownership within the reach of households which could not otherwise afford to buy a home. This kind of ownership affordability would typically require significant direct public investment in order to be financially feasible. The current return with the proposed selling prices is 7.8% (well below the 10% threshold applied for the TOD Program), if the Project is sold out in the first year. It is .094%, if it is sold out in two years, and -2.94% if it takes three years. The selling price necessary to exceed the 10% return in three years exceeds the market. Thus, the tax abatement should be approved. The return depends upon the selling price of the condos. A shorter abatement period would lower the selling price and the applicant’s return would be reduced further below the 10% threshold. Thus, based upon the financial analysis, the ten year tax abatement is required to approach the economic feasibility for the project.

 

Without the TOD abatement, the Project affordability would range between 40% - 62% MFI. Project affordability could still meet the programmed affordability levels, but many may loose opportunity to ownership. The abatement clearly will allow the developer to offer greater affordability and home ownership opportunities to a wider segment of the market.

 

The estimated maximum ten-year exempted tax revenue totals $705,532, for all jurisdictions (assuming a three percent increase in assessed value and a $22 per $1,000 rate for all units.)

 

Recommendation:

Staff recommends that City Council approve the limited property tax exemption for Phase II of Gateway Arbors Condominiums project subject to the following conditions:

 

1.  Purchasers of individual units will qualify for the tax abatement based on two criteria:

 

A.  The purchase price may not exceed 95% of the median purchase price for a condominium unit in Multnomah County as established by the U.S. Department of Housing and Urban Development for the purpose of determining FHA loan qualification. This index currently stands at $189,905. 95 percent of this amount is $180,410.

B.  The unit must be sold to a household earning no more than 100 percent if the area median income for a family of four as established by the U.S. Department of Housing and Urban Development, or its successor agency, during the year of the sale in order to retain tax exempt status. This index currently stands at $67,900.

 

2.  Should any unit become available for resale during the term of the exemption, it must be sold to a household earning no more than 100 percent of the area median income for a family of four as established by the U.S. Department of Housing and Urban Development, or its successor agency, during the year of sale in order to retain its tax exempt status. If the buyers of the unit meet this qualification, the unit would remain eligible for the remainder of the abatement term.

 

3.  No more than 50% of the residential units in the Project (24 units) may be rented at any given time, either as a result of investors purchasing units as rentals, or unsold units which are rented by the developer. Rental units in the Project will qualify for the tax abatement if those units are made available to households at or below 60% MFI. Presently, 60% MFI for a household of four is $67,900 resulting in a rent cap of $1,697.50 per month, including utilities ($67,900/ 12 x .3 = $1,697.50). Should the owners determine that this arrangement is not economically feasible, they may forego the property tax exemption after conferring with staff the Portland Development Commission. The owners may retain the option of selling the unit and re-establishing the ten year property tax exemption for the number of years remaining in the initial ten year exemption period within five years from the date of the issuance of occupancy permits and upon a demonstration of compliance with the provisions of Condition Number 1 noted above.

 

4.  Should any of the units which have initially sold to owner-occupants, thereby qualifying under the terms of Section 3.103.040 (c) of the City Code, convert to renter occupancy during the ten years term of the tax exemption, those units shall lose their tax exemption status.

 

5.  The Project shall comply with all applicable standards of Titles, 17, 24, 32, 33, and 34 of the City Code, as well as all conditions of approval of any land use and design reviews.

 

6.   These and any other public benefits including transit oriented features, shall be provided in accordance with agreements reached or conditions imposed by the relevant review bodies and agencies, including but not limited to the Planning Bureau, PDC, and Design Review Commission, as appropriate.