CHERRY STREET "AFFORDABLE" HOUSING TO COST MORE THAN $2 MILLION

$401 per square foot......$167,196 per bedroom......$250,794 per apartment......and counting......

The City of Port Townsend is financing some of the most expensive residential construction in Jefferson County in the name of “affordable” housing.  Costs have grown far above early estimates and now a hidden subsidy has pushed the projected price of the Cherry Street project over $2 million.  

The mid-Twentieth Century building was purchased in Victoria, B.C., barged across the Strait of Juan de Fuca, hauled through a city that had stopped traffic and taken down utility lines, and settled on stacks of wood on May 10, 2017.  This is what it looks like more than a year later.  It remains unoccupied and without a foundation.

Here are some views inside:

Cherry Street living area (from Homeward Bound FB page)

Cherry Street kitchen (from Homeward Bound FB page)

Cherry Street bedroom (from Homeward Bound FB page)

Four new one-bedroom apartments are to be added under the building, in addition to the four two-bedroom units already there.

The cost of the project has grown dramatically.

The first reported total cost was $475,00.  That was April 2017.

In September 2017, David Timmons, PT's City Manager, said the total cost of the project would be $672,689.  That included a $250,000 loan to Homeward Bound Community Land Trust, a then defunct non-profit that would own and operate the building.  Timmons did not include the land in the estimated project cost.  The 1.36 acre parcel of City-owned land was sold to Homeward Bound for only $1.  Records reviewed at the Development Department Services reveal the land had been appraised at $600,000.

Timmons and the City resisted including the cost of the land in the project cost, even though Michelle Sandoval, a city councilor and prominent realtor, has described that land as "valuable."  The Port Townsend Leader initially also excluded the value of the land in its reporting on the project's cost.  The Jefferson County GOP, in a complaint to the city regarding the delay in giving the building a foundation and the unstable appearance of the wood stack supports, was the first entity to insist that the value of the donated land be included in the project's overall cost.  (The author of this article was part of that effort).  Subsequent to the GOP's complaint, The Leader began including the cost of the land in its reporting.

Homeward Bound couldn't do anything without getting organized.  They were well-meaning people but were in disarray.  They had never undertaken anything of this scale and they needed help.  The City gave them $30,000 to get going.

Port Townsend grant to Homeward Bound

Fast forward:  May 7, 2018, it is a business meeting of the Port Townsend City Council. (The video of the relevant portion of the meeting can be watched here).  Homeward Bound cannot get a loan to finish the project unless the City acts as guarantor.  To be in a safer position, the City decides to borrow what is needed itself, issue a bond to get it done, then issue a line of credit to Homeward Bound to be repaid over 40 years out of rental income from the project.  The line of credit also replaces the initial loan to Homeward that had already been extended until the end of 2018 because the group had no assets or income with which to pay its debt.  See Agenda Bill AB19-053.

It is a good deal for Homeward Bound.  They have no skin in the game.  If they default or fail to operate the project as affordable housing, they only have to give the property back to the city  (the "reverter" agreement).  Nobody is personally responsible.  Better yet, Homeward Bound need not make any payments for the first two years.

The costs to be covered by the City's line of credit to Homeward Bound have now ballooned to $834,000, which includes a $130,000 contingency.  That is only the principal amount of the bond.(The City has not conducted its own cost projection and is relying exclusively on numbers provided by Homeward Bound).

Remember, there are other costs that must be added in.  The Leader finally tried getting the math right, concluding that total cost of the project could reach $1.6 million when all costs--such as acquisition, transportation, construction, land and financing--are included.  That came to $200,000 per unit, or $133,333 per bedroom.

But there's more: Almost another half million dollars from taxpayers will pour into these eight apartments.  

About That Hidden Subsidy

At the May 7, 2018 Port Townsend City Council business meeting, City Manager Timmons revealed that the loan between the City and Homeward Bound needed a “subsidy to make the numbers work.”  In other words, after the building was finished and fully leased, it would not generate sufficient income for Homeward Bound to cover its debt.  Over the course of the meeting Mr. Timmons explained that there was a $400,000 subsidy, a form of free financing or debt forgiveness, folded into the agreement.  He also called this “an indirect grant.”  

Later in the meeting, he said the subsidy came to $413,000.  But according to the Agenda Bill which provided the statement of the project financing, the subsidy would actually be $451,115.

The vote to issue and sell the bond and make the loan to Homeward Bound was 5-1, with only councilman Robert Gray voting "nay."  Councilwoman Michelle Sandoval was absent.

The total cost of the bond approved by City Council, as documented on the bond repayment schedule, comes to $1,367,355.  That is the amount the city is obligated to repay.  Add in the value of the land ($600,000)  and the organization grant ($30,000).  The City has also donated free water line work, but we have not seen that reduced to a dollar figure and thus cannot include that expenditure in this tally at this time. 

Based on what we know for sure:

The tab for the eight apartments is projected to reach $2,006,355.

---$2,006,355---

Looked at another way, that is $250,794 per apartment.

That is $167,196 per bedroom.

Estimating the Cherry Street project at 5,000 square feet (as reported by the Leader), the cost for the “affordable” Cherry Street project is $401 per square foot.

$401per square foot makes the Cherry Street project one of the priciest residential structures in the area.  It puts these apartments for low and very low income renters in the luxury housing category.  A search of Zillow and Redfin listings for Port Townsend found only two properties that came with a higher cost per square foot than the Cherry Street "affordable housing" project.  Both those homes--they could be called mansions--are less than twenty years old and located on bluffs directly over water that offer million dollar views.

Apartment Hunting

  Not far from Cherry Street an apartment complex with 12 3-bedroom apartments (36 bedrooms) is for sale for the asking price of $1.5 million.  It is approximately forty years newer than the Cherry Street building.

In November 2017, City Manager Timmons said the Cherry Street project could have its foundation finished in four months.  Seven months later, no work has begun.

NEXT MONDAY:  Why It Matters