City acquiring several historic structures in downtown - funding ideas?

[Suburb Repairman]

My city is apparently going to begin discussions with a downtown property owner that owns several key buildings in our small, 10-block downtown. This includes two of the most historic structures. This property owner has been an ongoing problem as far as lack of property maintenance, etc., so this is a great opportunity. We're talking about 4 buildings with about 25,000 square feet, ranging from 1 to 3 stories in height. The buildings over 1 story have 2nd and 3rd floor residential. Also, this deal could include one empty lot. This discussion is likely the result of our recent code enforcement efforts, which has made her more willing to discuss selling the properties. The buildings are not in especially good condition and will need extensive work. We're going to get an appraisal to determine exactly what we're talking about for cost.

I know that this presents an incredible opportunity for a local government to take a more active role in downtown vitality. This property owner has been very resistent to selling in the past. The City doesn't have just a ton of money laying around for this, so a straight acquisition would likely involve bonds.

This is a small town (about 8,000 pop) in a first-ring suburb outside of a major metro. It is experiencing a lot of growth both residentially & commercially. The downtown storefronts are currently about 85% occupied, though some of the busiesses are not ideal (don't keep regular hours, low rent, etc.).

I've got a few ideas, but I'd like to hear from others. So if presented with this deal, what would you do? What kind of deal would you try to structure? How would you approach restoring these buildings? Would you hold onto them as a city and lease them out, partner with a private developer to restore & transfer ownership, use them for start-ups?

[Hink]

Our community is very active in purchasing land and structures if necessary to further out goals. We have found ways to finance bonds through TIFs that help to pay back the bonds.

Personally, if you can make the number work, I would keep the properties and lease out the spaces. This gives the city control of their assets and allows private developers to update as they see fit.

[wahday]

As someone who works in affordable housing, I see the opportunity to create “workforce housing” above retail in the downtown core that could be a real asset to your population. But being as small as you are, I don’t know if being in this downtown is beneficial to lower income residents (ie. closer to job base) or if affordable housing is even a priority for the municipality. Nonetheless, the properties could present an opportunity to create something like deed-restricted residences (which would be permanently affordable) or rental properties while also garnering some income from the retail space leases. Or, you could bank the properties and try and entice a non-profit (or non-profit-private developer partnership through your state’s Mortgage Finance Authority’s Low Income Housing Tax Credit program) to purchase, rehab and manage the properties.

For clarity, “workforce Housing” typically refers to people earning 80 percent or below of Area Median Income. Many working people fall into this category, including teachers, firefighters, police officers and plenty of City workers. As homeownership units, it can also contribute to neighborhood stability as these folks (who are usually required to be first-time homebuyers) are typically more engaged in neighborhood issues than renters. Affordable rental properties that use state and/or federal monies typically serve folks at an even lower income level (60 percent AMI or lower). These are folks in need of housing but whose incomes are too much below the 80 percent threshold to qualify for mortgages.

[DetroitPlanner]

I agree with Wahday but you have not expressed whether this residential space is currently inhabitated or what shape it is in. This project seems very interesting. A few years ago, our Economic Development Corp did something very similar with the Book Cadillac Hotel and is in the middle of buying properties behind it from landlords in order to create one district.

I would suggest contacting the Detroit Economic Growth Corp.

[Cardinal]

I structured a similar deal some time ago. We used a combination of funds from the economic development organization (which had about $2.5 million in cash on hand) and CDBG funds. The CDBG funds were used partially for acquisition and partially to renovate the upper level apartments. Commercial and residential rents were earmarked to cover ongoing maintenance costs and to replenish the economic development funds that were applied to the project.

In this case the transaction was at arms length from the city, as the agency operated semi-autonomously. You might want to consider a similar approach (setting up a non-profit development group) to avoid the criticisms o "the city being a developer" or "competing with the private sector".