City Moves Forward with $25M Grant for South Salina Residential Development

Jennifer Lamer -
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A special City Commission meeting was held on Monday, April 3. Commissioners had a discussion on the Salina Housing Proposal, and later gave authorization to enter into development agreement negotiations.

BACKGROUND

Pursuant to the Salina Market Rate Apartments Request for Proposals and the prior direction provided by the City Commission, four respondents were scheduled to make presentations to the City Commission on Wednesday, March 29 starting at 8:30 am and extending to 5:30 pm. Following the presentations and City Commission deliberation, direction was provided to staff to compile comparative information to assist the City Commission in continuing its deliberations in a special meeting scheduled for 1:30 pm on the following Monday, April 3.

It was noted that it was likely that staff would be preparing the requested information for the City Commission over the weekend leading up to Monday and would be providing and presenting the requested information at the special meeting on April 3.

FISCAL NOTE:

As previously discussed at length, this RFP process relates to entering in to an agreement with a developer to construction 500 market rate apartment units and the provision of $25M of incentives secured from the State of Kansas, $1M of City funds dedicated for this particular purpose, possible $1M of County funds if the project is located in an eligible Low to Moderate Income census tract as well as the use of Industrial Revenue Bond financing to afford the project property tax and sales tax exemption.

COMMISSION ACTION OR RECOMMENDED ACTION:

These deliberations are intended to result in the City Commission authorizing staff to commence development agreement negotiations with an identified developer with further involvement by the City Commission related to negotiation of the provisions of the development agreement and ultimately formal action by the City Commission authorizing execution of a development agreement, if those negotiations are successful.

Introduction

The $25M was from a state housing grant that the City accepted in 2022. RFP's were put out to over 25 developers, and a special meeting was held for City Commissioners to decide which developer to work with. 13 proposals were returned, and that was narrowed down to 4:

  • 635 Holdings: Magnolia & I-135, Mulberry & 3rd, Ohio & Schilling
  • Salina Destination Development: Magnolia & I-135
  • Perry Reid Properties: Magnolia & I-135
  • Flaherty & Collins Properties Presentation: Ohio

The City of Salina, a city of 46,700 in central Kansas, invites proposals for qualified developers interested in executing a major apartment development in the City. Salina’s successful economic development program has attracted major new industries and expansions of existing industries that are expected to generate approximately 2,000 new full-time jobs during the next five years. This comes in the face of a well-documented shortage of modern multifamily housing in the City. To assist with the development of such housing, the City has secured a $25 million grant from the State of Kansas Department of Commerce that will be used to incentivize the development of high quality housing for both existing residents and the expected workforce expansion. In addition to the State grant, the County and City are making available an additional $2 million in grant funding. The City intends to grant these funds to developers in order to incentivize the development of 500 or more apartment units.

It is the City’s intention to enter into a partnership with one or more private developers to build new market-rate apartments. The City desires that a developer (or group of developers) construct a minimum of 500 rental units on one or more development sites. The City will accept development proposals from developers who propose a project of at least 150 rental units. If such a proposal were accepted it would necessitate the City engaging other developers who would then construct additional projects to reach the City’s desired goal of at least 500 new rental units. The City seeks market rate apartments with a mix of studio, one, two and three bedroom units. The mix of unit types will be proposed by the developer and will be subject to final negotiation between the City and the developer and will be based on the developer’s recommendation about the type of development that would be most likely to succeed in the Salina market. The units may be spread over multiple sites but the City desires that the units be constructed as efficiently as possible to both lower costs and accelerate the delivery of the multifamily units and accelerate the development process.

Respondents to this RFP should have the demonstrated experience and resources to undertake and complete the project. Each proposal needs to identify one or more locations for the proposed development. Ownership of the land is not a requirement for responding to this RFP. In the event that a proposer does not actually own their proposed development site, such proposer must describe in detail how they will finalize property control in the event that the City accepts their proposal. Respondents are free to include property owners in their development team.

The purpose of this RFP is to identify one or more developers with the interest, resources, and experience to develop apartments in the City. The preferred developer would be required to enter into a development agreement with the City consistent with the parameters and goals for the development described within this RFP. The development agreement will be the agreement between the City and the developer to implement a mutually agreeable development plan.

The City is not seeking to have any form of partnership role in the ownership of the site or the project. The selected developer will be subject to all applicable rules, regulations, and procedures attendant on the development of any property within the City.

The City is not interested in engaging a broker, agent or consultant who proposes to workwith the City or act as a real estate or development advisor to the City.

Respondents may include partnerships, firms, for-profit and nonprofit corporations, joint ventures, and other entities with a record of completing quality developments in urban or suburban settings. Subject to final negotiation, it would be the City’s plan to grant the state funds, as well as other local funds in order to make the development financially feasible and to lower rental rates. The development and the commitment of the City grant funds will be subject to negotiation between the City and the developer and will be part of the development agreement between the developer and the City.

The selected developer will be responsible for all aspects of their project, including obtaining all necessary entitlements and permits, design, construction, financing, marketing, and management pertinent to their projects.

Market Analysis

The City of Salina has commissioned the Live Salina housing market analysis, completed in 2016 and updated in 2021 by RDG Planning & Design of Omaha, Nebraska. The study included a detailed examination of housing markets in Salina in the face of expectations of major employment expansions and a limited supply and very low vacancy rate in existing projects. The study identified a demand for 678 multifamily units during the next five years and a projected need for up to 416 additional units after this initial period. This study, along with other evidence and employment projections, resulted in the State grant to address this critical economic development need. A complete version of the Live Salina Study is available here.

The Need For Apartments

Since 2016 Salina has been successful in becoming the chosen expansion location for several economic development prospects. Saline County and the City of Salina have supported these expansions through revenue bond financings totaling over $600 million. According to the Salina Chamber of Commerce, Salina is now projecting over 2,000 new jobs in the next 5 years; with well over half of those new jobs anticipated within the next one to two years. Due to the anticipation of growth and business expansions, the City worked again with RDG Planning and Design Group to update the 2015 Live Salina Housing Assessment and Strategic Plan in 2021 and again in 2022. The City wanted the updated plan to objectively assess the housing development challenges and costs with the anticipation that developers would seek financial assistance or incentives to build market-rate housing. Results of the 2022 study show a need for nearly 2,400, units by 2030 with a recognition that this number is not static and will increase as additional economic development occurs.

Development Goals

The City’s goals for this project include:

  • Developing high quality apartments of sufficient quantity to meet short-term housing needs and complement recruitment efforts by industries that need to fill positions in Salina
  • Provide rents that are supportable in the Salina market and affordable to the target market, specifically new employees to serve the expansion needs of industries located in the City
  • Add new assets that will continue to serve Salina’s housing needs into the future
  • Develop sites within the City which will add value to surrounding neighborhoods

Infrastructure and Public Improvements

The City hopes to minimize infrastructure costs in order to maximize quality and affordability of new housing. The grant funding from the City may be used for infrastructure development on new sites if necessary. Supporting infrastructure is an eligible use of the State grant funds. Improvements may include:

  • Local access streets
  • Pedestrian and bicycle facilities, including trail connections
  • Parking
  • Street improvements and streetscape enhancements on intersecting public corridors
  • Storm and sanitary sewers and other utilities

Any project proposed in response to this RFP will not receive Kansas special assessment funding or Rural Housing Incentive District funding. Proposals are expected to be independent stand-alone developments without the need for the creation of benefit districts or contingent involvement of additional or adjoining properties.

Beginning in 2021 through today, City staff has continually engaged with interested developers for various housing projects across product types and price points in accordance with the recommendations of the Live Salina Housing Assessment and Strategic Plan. Most notably, The Drever Partner Group, began working with Salina in June of 2021, meeting with major employers, the City and County Commissions, and other community stakeholders before any State or federal funding became available. The City did not reach any agreement with the Drever Partner Group.

INCENTIVES AVAILABLE

Opportunity Zones

Part of the City of Salina is located within a Federal Opportunity Zone and developers may take advantage of the tax benefits associated with Opportunity Zones.

State Funds Available For The Project

The State Legislature allocated $25,000,000 in funds to the City of Salina in August of 2022. On November 14, 2022, the Kansas Department of Commerce advised that a full RFP process was required for the identification of a developer to partner with the City for the apartment project. The State authorizing legislation may be found in HB 2510 and SB 267.

State funds will be granted to one or more developers by the City and may be used by the developer to defray the cost of development in order to lower the rent levels and make the apartments more financially feasible for the developer and more affordable for renters. The use of the grant funds is flexible and will be negotiated between the City and selected developers. Neither the City nor the State will receive an ownership or other financial interest in the project in return for these funds.

It is the City’s intention to grant the full $25 million as part of this RFP process. The full amount of the grant will be available for the targeted 500 apartment units that the City is seeking. Proposals for a development of at least 150 units will be accepted by the City. In the case of a proposal of less than 500 units, the proposer should assume that a negotiated amount of the incentives would be available with the City considering and balancing the combined benefits, costs and merits of multiple proposals.

City Funds Available For The Project

The City has provided a separate $1,000,000 allocation for Residential Infrastructure Development.

City funds will be granted to one or more developers by the City and may be used by the developer to defray the cost of development in order to lower the rent levels and make the apartments more financially feasible for the developer. The use of the grant funds is flexible and will be negotiated between the City and the selected developer. The City will not receive an ownership or other financial interest in the project in return for these funds.

County Funds Available For Project

Saline County has dedicated $1,000,000 of American Rescue Plan funds to be allocated for the development of quality housing within a Qualified Census Tract. A Qualified Census Tract (QCT) is any census tract (or equivalent geographic area defined by the Census Bureau) in which at least 50% of households have an income less than 60% of the Area Median Gross Income (AMGI). Census tracts 1.01, 2, and 3 in Salina have been designated as QCTs.

The use of the County grant funds is flexible and will be negotiated between the City and the selected developer and approved by the County. The funds will be administered and disbursed by the City in accordance with the development agreement.

Industrial Revenue Bonds (IRB) Available For The Project

IRBs exempt the new property taxes created by the development for a period of up to ten years and can include all associated project costs, including vertical construction. The project is also exempt from sales and use taxes on labor and material during the construction period. An IRB can use either or both property and sales tax exemption. The use of this incentive will be negotiated between the City and the selected developer.

After hours of presentation and Commission deliberation, there was a vote of 3-2 in favor of Salina Destination Development, and their development project at Magnolia & I-135 by Menards. Commissioner Davis and Commissioner Longbine voted nay.