Plan to switch downtown apartment project to market rate fails on one council member’s vote

The city’s eight-year tax break for apartment developers received pushback Tuesday in a high-profile project that has sat dormant for months as developers shored up financing.

In action at Tuesday’s Tacoma City Council meeting, the stalled mixed-use Hailey apartment development next to the downtown public library fell short of getting a jumpstart in its financing through two measures. One measure called for amending terms of the development agreement and the second one would have allowed the project to switch from the city’s 12-year multifamily property tax exemption to the eight-year plan.

The eight-year version is more commonly used by developers in the area and does not require a percentage of units to be listed as affordable. It also has come under increasing criticism at council meetings amid calls for more affordable housing.

Council member Chris Beale cast the deciding no votes in Tuesday’s meeting.

In an emailed statement to The News Tribune on Wednesday, Beale said: “The eight-year tool remains a valuable tool for the development of housing in general, which contributes to affordability by expanding supply at multiple price points in a housing market currently overburdened by demand.

“I believe, however, that the bar should be set higher for future projects being developed on City-owned properties that consider affordable housing. The City remains committed to addressing the issue of affordable housing, and work to implement our Affordable Housing Action Strategy is ongoing. This includes analyzing our policies around the development of affordable units.”

The site of the new apartments is on a former city-owned lot next to the downtown public library.

Vietnamese company HQC USA LLC bought the site for $750,000 from the city in July 2017. Less than a year later, construction on the project stalled over financing.

The two measures came just one week after another multifamily housing development near 72nd Street and Pacific Avenue received a 12-year exemption that included affordable units ranging from $1,046 to $1,342, utilities included, and nearly a month after two other downtown apartment projects were approved, both at market rate with the eight-year tax relief.

As of Wednesday, it was unclear what next steps would be taken to get the Hailey apartment project back on track ahead of the next council agenda to be posted later this week.

Tuesday’s action would have been the third time the city had adjusted terms of its deal with the Hailey project’s developers.

After asking multiple questions, including what other options had been pursued and what previous amendments had brought to the project, Beale expressed his concerns over the plans.

“I think we have a duty and an obligation to make sure that we hold up the principles we talk about when we talk about affordable housing, particularly land that is going to be developed that was public at one point,” he said before the vote.

In a presentation to the council, Economic Development Services project manager Debbie Bingham explained the project’s past hurdles to get financing, which had involved two prior amendments to the agreement and costs for environmental cleanup at the site, another complicated part of the deal.

In the second amendment to the agreement, the city had assumed half the cost of the site’s environmental cleanup which involved underground storage tanks. The third amendment, according to Bingham on Tuesday, addressed a “damage for delays” in bringing the project to completion, assigning a 15-month grace period to meet their new construction deadline, and also removing the city from paying any amount in the environmental cleanup.

The third amended agreement considered Tuesday would have brought the company back into compliance, with a letter showing proof of financing, which Bingham said the city had received; raising the number of units to 186, submitting permit revisions, and then restarting construction in September, with completion targeted for Dec. 31, 2020.

The original source of funding was to come from all equity from Vietnam but “due to the complexity of international financing,” Bingham said at Tuesday’s presentation, the developer had to switch to a construction loan to finish the project.

Last year, Elly Walkowiak, assistant director with the City’s Economic Development Department, told The News Tribune that HQC’s parent company had a prior commitment to finish a project in Vietnam.

Over time, the project cost had escalated from an early estimate of $35 million to now an estimated $50 million, according to Tuesday’s presentation.

As a result of increased project costs from the construction delay, the company’s lender “is requesting the change from the 12- to the eight-year exemption to make the financing on the project work,” Bingham said in her presentation Tuesday.

Bingham noted that the 12-year exemption had not been a part of the original plan when the developer purchased the site, and that the developer later chose to go that route.

Bingham also stated in the presentation that other projects in the area of the Hailey that are under construction or in the permit process have used the eight-year exemption, and that the studio rates would not be much higher than the 80 percent AMI they would use under the 12-year formula.

In 2017, The News Tribune reported that under the 12-year plan for affordable units, a three-member family earning $53,650 a year or less and living in a two-bedroom apartment would have paid $1,341 a month, according to information from the city.

But that was two years ago.

The new, market-rate rents in the project were listed Tuesday as follows:

13 studios, 450-500 square feet: $1,200-$1,400.

143 one-bedroom/bath, 490-1,150 square feet: $1,500-$1,700.

14 two-bedroom, one-bath, 950 square feet: $2,200.

16 two-bedroom, two-bath, 1,090 square feet: $2,400.

The mixed-use project includes 174 parking stalls for residents, 40 stalls for the library to use and 1,000 square feet of commercial space.

The city’s eight-year property tax break has come under increasing criticism at council meetings when projects receiving it come up for approval, and that quickly became a sticking point for Beale.

“I know we’re getting a return on it with parking for the library,” Beale said at Tuesday’ meeting after Bingham’s presentation, ”but to me we’re losing out on a pretty big commitment in terms of the affordable units, and it just gives me a lot of pause ... considering it’s a third amendment, and now it’s sort of an erosion of the original agreement and the original thought ... I appreciate what they’re doing to offset that by adding more units.”

Council member Lillian Hunter noted that the developers hadn’t just sat on the property. “They’ve already done some significant construction on that property already, is that accurate?” Bingham confirmed that HQC USA, had already invested between $8 million and $10 million and the underground parking work had been done.

In the end, both measures failed by voice vote, with Beale voting no both times. Five votes were needed to approve each measure. Council members Robert Thoms, Ryan Mello and Deputy Mayor Conor McCarthy were not in attendance. Council member Anders Ibsen abstained from both measures.