Monday, December 4, 2023

Citing rising interest, Starway developers ask for $1.25M more from city, county

Developers for Starway Village, a 278-unit affordable housing complex on Carolina Beach Road, are asking the city and county for more gap financing to offset rising interest costs. (Courtesy photo)

[Update: New Hanover County Commissioners and Wilmington City Council both agreed to provide additional financing to Starway Village at meetings on Oct. 2 and Oct. 3, respectively.]

NEW HANOVER COUNTY — An affordable housing complex that had already received $14 million in local, state and federal funding is asking for more.

READ MORE: Starway Village to be financed with WHA bonds, breaks ground in September

Developers for Starway Village, a 278-unit development on Carolina Beach Road, recently reached out to New Hanover County and the City of Wilmington with a plea for a combined $1.25 million in gap financing, citing negative impacts from rising interest rates.

The roughly $59-million project received approval in fall 2021 for $1.9 million from the county and $3.5 million from the city. Both government entities utilized American Rescue Plan Act funds after the U.S. Treasury changed guidelines for using the federal money. In July 2022, the department determined ARPA funds may be used for long-term loans to support gap financing in affordable housing; money still must be expended by the end of 2026. 

The Starway project was also awarded a $9 million grant — which the city was the applicant on — from the North Carolina Office of Recovery and Resilience last November.

The $37-million needed for construction is being financed through tax-exempt bonds, issued by the Wilmington Housing Authority. City council signed off on using the bonds — to be sold in two phases to cover two residential buildings — in July.

“The developers of Starway Village are facing an additional gap in financing brought about primarily by rising lending interest rates,” New Hanover County’s intergovernmental affairs manager Tim Buckland sent in an email to county commissioners last week. “The developer is now requesting an additional $500,000 from the county and $750,000 from the city of Wilmington to close this gap.”

According to the letter, forwarded to county manager Chris Coudriet from developers Brad Queener and Ted Heilbron of Bradley Housing Developers and Kelley Development Company, $4 million more is needed for the project. The two wrote its permanent (meaning long term) and construction interest loans have increased by about 100 basis points over the last three months, resulting in $3.5 million more in lower permanent loan proceeds and $500,000 in extra construction loan interest.

“We are committed to building Starway Village regardless of how difficult the development environment has become,” the letter states.

It also indicates the developers plan to forgo development fees to help bridge the gap.

“They’re willing to reduce their own profits to almost nothing, showing they want to make this a reality,” commissioner Dane Scalise told Port City Daily.

Buckland told commissioners staff recommend using $500,000 in interest earnings from ARPA funds to assist Starway. The county has $667,965 left of the federal money.

Commissioner Jonathan Barfield is a proponent of assisting the developers to ensure the project comes to fruition. He said the board has already made a commitment to see it through.

“I think we’ve come far enough down the road, we need to stick with this one and help them get over the hurdle, so to speak,” he told Port City Daily, citing the rising costs in construction and labor.

Scalise agreed and told PCD, while he still plans to do a deep dive into the information, he’s inclined to support the request.

“I think this sort of collaborative project between city and county is a good one,” Scalise said. “Affordable housing is an important item that needs to be addressed.”

Deputy city manager Thom Moton reached out to city council Sept. 13 with the developer’s request. He told council he recommended Heilbron apply for a New Hanover Community Endowment grant; though since his business is not a nonprofit, it would not be eligible for an award unless it passed through a governmental entity.

Of the city’s $3.5 million allocation two years ago, roughly $2.8 million went toward the developers’ purchase of the 15.6 acres at 2346 Carolina Beach Road for $4.4 million. The remaining $743,680 is still available to be used toward construction, city finance director Jennifer Maready wrote in an email to Moton Sept. 13.

She also said the city did not have any additional unallocated ARPA funds to provide to the project.

Budget and research director Laura Mortell wrote in an email the city has $7.1 million available in gap financing, with $3 million identified for possible projects in the pipeline.

“Sufficient funds are available from the gap financing program you created,” Moton wrote to council Sept. 14.

In the city’s fiscal years 2022 and 2023 budgets, fund balance was allocated to affordable housing gap financing opportunities. Over the two years, $5 million was budgeted from unassigned fund balance and in fiscal years 2023 and 2024, $3,156,879 was budgeted specifically for gap financing.

Last fiscal year the council also voted to dedicate 1 cent of the property tax rate to affordable housing efforts, now an ongoing initiative, totaling $4.4 million including the current fiscal year.

In the letter to county commissioners, Queener and Heilbron note  challenges affordable housing developments are facing are not unique to New Hanover County. They pointed to Wake County and the Town of Garner committing an additional $1.5 million earlier this month to save their 176-unit project in Garner.

“Interest rates are now at 20-year highs and are stifling development — particularly for affordable housing projects like ours where rents are capped,” the letter stated. “Without this type of public private partnership, Starway Village wouldn’t be possible.”

All units within Starway Village will be subsidized to accommodate people earning 60% of the average median income and below, or roughly $30,000. Rent is anticipated to start at $750 for a one-bedroom.

“There is a tremendous need for housing affordability for so many in our community,” Barfield said. “This project will help ease the burden for so many.”

By applying for 4% low-income housing tax credits from the North Carolina Housing Finance Agency, the developers are targeting teachers, emergency responders, healthcare workers, and others as tenants.

The tax credits help keep rent affordable compared to issuing traditional debt for the project.

The complex will consist of eight buildings with 34 one-bedroom units, 154 two-bedroom units and 90 three-bedrooms, along with 568 parking spaces.

In November 2022, the project was anticipated to break ground in May; Heilbron told city council in July he anticipated a September groundbreaking. Construction is estimated to take about 20 months, with the goal to welcome residents in early 2025.

The county commissioners will vote on the funding Oct. 2 and city council will vote Oct. 3.

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