More developers turn to WHEDA tax credits

Bear Development LLC needs $1.2 million in housing tax credits to pay for its planned Uptown Gardens development in Kenosha. (Rendering courtesy of Bear Development)

By Sean Ryan

In the past 25 years, Stephen Mills has built 1,800 condos and apartments without using housing tax credits.

But this year, with plans for two projects in Kenosha, the principal of Bear Development LLC, said he cannot build anything without them.

“I believe that today, in order to build certain multifamily communities, apartments, etc.,” Mills said, “it’s the only game in town.”

Bear Development, Kenosha, sent in two of the 84 applications for affordable housing tax credits from the Wisconsin Housing and Economic Development Authority. The state every year awards WHEDA tax credits to affordable housing developers who sell the credits to investors in order to raise construction money. The credits require developers to rent apartments and senior and assisted-living facilities to people with lower-than-average incomes.

Applications for 2010 credits amounted to just less than $88 million. The authority has $43.5 million in tax credits to award this year.

Demand is heavier for the credits this year than before, mainly because a number of out-of-state developers applied for Wisconsin tax credits, said Jerome Sullivan, senior vice president of the Great Lakes Capital Fund, which works with developers and investors who buy the credits. Although tax credits may be the only opportunity for some projects, companies that have not done tax credit projects will find it hard to compete against experienced developers, he said.

“Obviously, it is a little bit harder for a developer to get funded just from a state standpoint,” Sullivan said. “It will be interesting to see if some of the new developers will be able to get credit or not, because one of the factors is how much experience you have.”

Demand for tax credits in Wisconsin has always exceeded the supply, said Cal Schultz, president of Keystone Development LLC, Oshkosh, which applied for credits for three projects in Oconto, Oshkosh and Milwaukee. This year, the credits are attractive for two reasons, he said. First, the credits offer an alternative to traditional construction loans, he said.

The second reason, Schultz said, is “We found markets within the income ranges of the tax credit programs where there was demand for housing.”

The authority on June 18 will announce which projects will receive credits.

Bear Development requested $1.2 million in tax credits to buy land in the former Uptown Brass factory property and build 70 apartments to be rented for between $600 and $1,000 per month. The credits are essential to the project, dubbed Uptown Gardens, Mills said. The money generated through rent would not cover payments on traditional construction loans from banks, he said.

Although banks are still rejecting many applications for construction loans, they have an incentive to buy tax credits, said Zohrab Khaligian, Kenosha community development specialist. Federal law requires banks to invest money in their surrounding communities, especially in low-income communities. Money spent on tax credits helps banks meet that quota, he said, so developers pursue them as a way to get projects off the ground.

“Developers are at a point where they need to build,” he said, “and if they’re not building, they’re laying off, they’re getting smaller, and they don’t want to disappear.”

Mills said his development and construction-management companies have a big enough cash reserve to survive the slow market, but both have downsized. Mills is also president of Kenosha-based Construction Management Associates Inc., which would build his tax-credit projects. At its peak, the company had 16 employees, he said, but now it is down to three.

“Right now,” Mills said, “we’d like to stay in business. We’d like to keep our subs and our construction side together.”