March 30, 2018

Rare Zero-Rent Apartments, Artistic Influence Key to Development in Fargo, N.D.

Photo by Dave Olson/The Forum
Article by Brad Stanhope, Senior Editor, NOVOGRADAC & COMPANY LLP
This article first appeared in the January 2018 issue of the Novogradac Journal of Tax Credits.
© Novogradac & Company LLP 2018 – All Rights Reserved

Art and seven zero-rent apartments are a winning combination for Fargo, N.D.

The Edge Artist Flats will be built near downtown Fargo by The Commonwealth Companies. The 42-apartment complex will include community art space, as well as the seven rent-free homes for formerly homeless residents.

“This is a huge opportunity,” said Erin Anderson, vice president of development for the Midwest region for The Commonwealth Companies. “There’s a lot of growth in downtown Fargo. It’s the happening place to be in North Dakota.”

By 2019, downtown Fargo will open its first new construction, non-age-restricted affordable housing development in more than a decade.

Coming to Fargo

Anderson began discussions in 2016 about building in Fargo by reaching out to her former colleagues at MetroPlains Management, a leading affordable housing management company.

“They connected me with Kilbourne Group [founded by Doug Burgum before he became North Dakota’s governor], which is developing a lot of neat things in Fargo that have transformed the area,” said Anderson. “They’re culture creators, trying to increase the arts, music, shopping, everything. They own a lot of property in downtown Fargo.

“We met with the Kilbourne Group and they were interested in working with us and selling us the property,” Anderson said. “They were also instrumental in helping us through the local government approvals, including rezoning. We are inspired by what Kilbourne Group has done in Fargo and very pleased with how supportive they have been in the process to get this project under way.”

The need in downtown Fargo is significant. Anderson said some of the naturally occurring affordable housing in town has been displaced by the renovation of properties. But Kilbourne Group wanted an affordable housing component.

“Kilbourne Group has a long history and interest in developing and supporting housing for all people,” said Jason Haugen, senior project manager at Kilbourne Group. “Our mission is to develop infill development and show a respect for the past. We want everybody to live downtown–market-rate housing, workforce housing, senior housing, affordable housing, everything. We want everyone to enjoy a walkable city.”

Fargo leadership desired the same thing.

“The city desperately wanted affordable housing in downtown– there hasn’t been any built in 15 years,” said Jamie Hager, regional manager for MetroPlains Management. “Everybody says ‘let’s do affordable housing,’ but getting officials to buy in and get away from affordable housing stereotype of projects in the 1980s is hard.”

Adrienne Olson, communications manager for Kilbourne Group, echoed those thoughts. “Our city leaders have been advocating for affordable housing to grow with the rest of downtown,” Olson said. “As downtown Fargo’s century-old buildings reach a point where re-investment is needed to keep them safe and viable, creating affordable housing requires a more deliberate approach.”

For Fargo, it’s the combination of much-needed affordable housing and a connection to the art world.

“I’ve been engrained in the artist community in Fargo Moorhead [Minn., a few miles east] for a long time,” said Hager. “You see a lot of people pushed out of downtown as rents go up … and new properties offer rent that can reach the $1,500 price point.”

Zero-Rent Apartments

Seven apartments in The Edge Artist Flats will be zero-rent spaces for formerly homeless individuals and families. Residents will sign a one-year lease and pay no rent until they have a job, at which time rates will largely parallel Section 8 housing and require a percentage of income go to rent. Funding from the state’s portion of the Housing Trust Fund help make this possible.

“This is all pretty new to North Dakota,” Anderson said. “Last year [the state] started their first project using this model.”

Hager agreed.

“It’s very rare,” Hager said. “From a financial standpoint, that’s why you have to have the tax credits and local city officials approving a reduction in property taxes. Without them, it wouldn’t work. I don’t know of a homeless program anywhere else that starts at zero rent. The majority of homeless units we manage have a rent structure based on their adjusted income.”

Anderson said Commonwealth worked with the Fargo Moorhead Homeless Coalition on providing services. “We also are working with support service provider Southeastern North Dakota Community Action Agency,” said Anderson.

“Fargo has a homeless problem, like in every city,” Hager said. “This offers the opportunity to work with a service provider and really have structure in place. We have a net when you fall. There haven’t been homeless units [in downtown Fargo].”

Amenities, Apartments

The goal is to complete civil engineering in January, put the construction contract out for bid in March and begin construction in May, with a 12-month construction period.

Commonwealth hopes the property will appeal to artists, although it will be open to all.

“At this point, it’s really a general-occupancy facility, with marketing toward artists,” Anderson said. “There’s no requirement for artists, it’s just an added community amenity. But we are trying to integrate the arts community, which is why we have arts community space. We met with local arts leaders to see what is needed and got some interesting viewpoints.”

The integration of arts is part of what the Kilbourne Group is doing throughout Fargo. “Kilbourne Group values and supports the local arts,” Olson said. “We know that artists and culture creators make downtown what it is.”

There will be nine one-, 24 two- and nine three-bedroom apartments. Amenities include the art studio, office, artist gallery space, an outdoor playground, exercise room, tenant storage and community rooms.

“I like that it’s bringing a combination of art with permanent supportive housing to downtown Fargo,” Anderson said. “That’s groundbreaking. It’s a unique opportunity in Fargo and it’s just on the city’s downtown edge, which is why I love the name we chose for it. It won’t be without challenges, but it’s typical of what urban-infill projects bring.”

Hager likes the presence of larger apartments. “The options for three-bedroom apartments are unusual,” Hager said. “There are a lot of people who want to live downtown, but can’t. A lot of families want to, but there aren’t big enough apartments. Three bedroom apartments in downtown Fargo are $1,500, and we’re looking at about $850, which is a huge difference.”

And, the location is perfect. “We’re literally two blocks from downtown,” Anderson said. “It’s on the edge of downtown and very close to everything. It’s a short walk to the core of downtown.”

Financing

The property received a $7.4 million LIHTC allocation from the North Dakota Housing Finance Agency, as well as $1.4 million from the agency’s share of the National Housing Trust Fund. At press time, The Commonwealth Companies was waiting for tax reform legislation before finalizing the investor in the LIHTCs.

A payment in lieu of taxes (PILOT) agreement with the city provided nearly $740,000 for the development and another piece of support came from the Greater Fargo-Moorhead Economic Development Corp., which provided a small loan to leverage the flex-pace program. That’s a state program through the Bank of North Dakota which buys down the interest rate by up to 5 percent, but requires a community buy-in of at least 30 percent of the buy-down.

Reaction

In Fargo, plans for The Edge Artist Flats have been well received. “[Reaction has] been very positive,” Anderson said. “The neighborhood where the development is located is not primarily single-family and there’s a lot of commercial and some multifamily development, so it wasn’t a tough sell because we’re not increasing the intensity of use.”

Anderson said the city council and planning commission were both very supportive.

“I don’t think we had any opposition,” Haugen said. “There’s a sophistication here about housing and I didn’t hear any negative connotations.”

Haugen said the Kilbourne Group is pleased to have found a partner to grow affordable housing alongside the rest of its development.

“We’re grateful to Commonwealth for the time, energy and expertise they are investing into downtown Fargo,” Haugen said. “Our goal in working with Commonwealth is to ensure anyone who wants a walkable neighborhood has the option to live in downtown Fargo.”