At Monday's City Commission meeting, Commissioners considered authorizing a 100% sales tax exemption on construction materials for Phase II of Lee Lofts.
At the February 26th, 2018 City Commission meeting, the City Commission approved two requests from the developers of the Lee Building Phase I located at 254 North Santa Fe Avenue. The first request was for a Resolution of Support for their application for Low Income Housing Tax Credits from the Kansas Housing Resources Corporation. The second request was for the City of Salina to contribute $500,000 of gap financing to help make their project financially feasible and competitive in the KHRC application process via a forgivable loan. The Phase 1 project has been completed and 53 units were constructed and have been leased. At least 1/3 of the 53 units in this Phase 1 were to be market based and the remainder were income qualified and eligible for Low Income Housing Tax Credits from the Kansas Housing Resources Corporation. The final composition of the units in Phase 1 are as listed below:
0 - Efficiency Units
44 -1 Bedroom Units
5 - 2 Bedroom Units
4 - 3 Bedroom Units
Representatives of Overland Property Group (OPG) Lee Lofts Partners II, LLC contacted City of Salina staff concerning a Phase II implementation of the Lee Lofts project. The company is proposing an additional 50 units that would be constructed in Phase II with the following breakdown in the units:
0 - Efficiency Units
40 -1 Bedroom Units
8 - 2 Bedroom Units
2 - 3 Bedroom Units
An additional 9,000 square feet will be available as commercial space on the property's first floor. This area will be remodeled and left as a "white box" space suitable for commercial rental including restaurant space, retail space, or office space of various uses. This retail space may be utilized by 1 or more retail vendors.
The company's request for the use of Industrial Revenue Bonds is for a sales tax exemption for the project, not for property tax abatement. Working with Bond Attorney Sarah Steele with Gilmore Bell, she outlined the difference between this project request and the recent projects requesting abatement plus property tax abatement. Property tax abatement is handled within the Neighborhood Revitalization Program that is explained later in this document. Due to the differences in this project, no public hearing is required.
Construction is planned to start in April 2023, with completion estimated to be in July of 2024 and property available for rent in 3rd Quarter of 2024. All 50 apartments in Phase II will be income qualified and eligible for Low Income Housing Tax Credits from the Kansas Housing Resources Corporation.
There remains at the Lee Building location room for an additional approximately 30 units at a future date for a potential Phase 3. It is currently anticipated that these units will be market based. However, the determination on whether to proceed with Phase 3 will be made in the future; as will the structure for the financing of development of Phase 3.
SCEDO BOARD ACTION:
Austin Kack of the OPG Lee Lofts met with Executive Director Mitch Robinson on March 2 concerning the company's interest in developing Phase II of their project using Industrial Revenue Bonds to obtain sales tax abatement for the project. On March 15th, Mr. Kack and Mr. Robinson held a zoom call concerning the project and reviewed a power point presentation providing an overview of the project.
On Thursday, March 16th, Mr. Kack of OPG Lee Lofts Partners II, LLC made a presentation to the monthly Board of Directors meeting of the Salina Community Economic Development Organization (SCEDO) concerning the company's interest in obtaining approval for Industrial Revenue Bonds (IRB) which would provide abatement for sales tax related to the construction materials used for the project. The company estimates total construction costs of Phase 2 to be approximately $12,556,737. Based on recent construction estimates, total sales tax for the project is approximately $660,000 which would be abated if the IRB is approved by the City of Salina.
Currently, Mr. Kack has seen a strong interest in additional units at the location. There currently is a waiting list for interested parties for units that come online due to Phase 2. There is currently no business contracted for utilization of the retail space. However, Mr. Kack indicated that they have had preliminary discussions with a number of potential renters for the retail space. The IRB for sales tax would only apply to the purchase of construction materials, and furniture/fixtures/and equipment (FF&E) for Phase 2. Sales tax would be collected for a retailer in the retail space if appropriate.
The construction will be financed via a two-tranche term loan from Bennington State Bank. An equity investment from two partners, Redstone Equity and Commerce Bank will be utilized as well. A local non-profit CHOO, Charitable Housing Development Company of Central Kansas, will also provide a loan to support the development. A key item discussed was that the Phase II project would have the same team as the original Phase I project; Overland Property Group (OPG); JGR Architects, and MCP Build Inc.
On a motion by Daran Neuschafer and second by Tom Dill, the SCEDO Board of Directors voted to recommend to the City of Salina City Commission that Overland Property Group be granted a 100% abatement on sales tax related to the construction materials, and furniture/fixtures/and equipment (FF&E) for the Lee Lofts Phase 2 project. Aye: (7), Nay: (0).
FISCAL NOTE/ NRA STATUS:
The fiscal impact of authorizing Industrial Revenue Bonds for this project is for sales tax exemption on the construction materials for this new phase to the project. Current estimates are that $660,000.00 in sales tax would be abated on construction materials if this IRB were approved by the City Commission.
The motion was approved 5-0.