What's Next?

When seeking to build a project, developers must also take into consideration their return on investment for a project on a particular site in comparison to another location. The return on investment or ROI is made up of the overall cost of construction and projected long-term management expenses compared to the expected cashflow of the property. If the expected cashflow does not provide an appropriate ROI, then the development will not move forward without a subsidy to reduce costs or higher rental rates to increase cashflow.

The goal of these chosen development partners is to see a positive return on their investment while keeping rents at an attainable level. This is achieved by collaborating with community leaders to identify financial incentives to create a win-win outcome for their residential projects as well as the community.

The primary tools utilized for development are tax abatement and the application of Tax Increment Financing (TIF). Tax abatement freezes the site’s assessed value before construction, which reduces the developers ongoing property tax expense. On the other hand, TIF provides a tax rebate allocating future property taxes collected on the property to repay the developer for incurring the expense of building out the infrastructure. Both incentives typically run up to 10 years, but could go beyond this period with special permission from the various taxing authorities – primarily the city, county, and school districts.

The use of these tools is typically seen as mutually exclusive. For that reason, a developer must choose which one best suits their financial model. The use of each of these financial subsidies are explored in both proposals.

Another potential funding resource to support these proposed housing projects is the Iowa Economic Development Authority’s Workforce Housing Tax Credit Program. A builder could receive up to $30,000 per new or renovate housing unit, plus a refund of state sales tax for supplies and services. There are no income restrictions for the homebuyers, however, the program stipulates the cost of construction – land and improvements - cannot exceed $266,320 per single family unit and $218,022 per multi-unit. The program is offered as a competitive application process with an annual set aside amount of $17.5 million for projects in rural communities and a maximum award of $1.0 million per project.

Potential Development Proformas

• Twinhome Multifamily Community

• Historic Restoration Multifamily

• North End Infill Development