Rental developments face increased scrutiny

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By Paul Snyder

Developers riding a market shift toward rental properties are crashing into communities wary of projects that lack on-site owners.

“It’s the natural cycle,” said Chris Laurent, vice president of operations for residential developer MSP Real Estate Inc.’s Monona office. “You’re seeing more developers who did condos looking to multifamily rental projects, and more attention is going to be on those developments.”

David Bornstein’s project is under that microscope in Shorewood Hills, a village near Madison. The principal of Warrenville, Ill.-based Andover Hill Investments wants to build a six-story, 69-unit apartment to replace the Pyare Square office building. The project, which would be partially financed with affordable-housing tax credits, includes a second phase with construction of a four-story, senior-living apartment building.

Village and neighborhood plans call for more housing options and a focus on high-density developments on infill sites, Bornstein said, yet his proposal has sparked a village debate over the types of people who live in affordable housing.

“I think there are a lot of misperceptions,” he said. “There are police officers, firefighters and people that just may not be making the kind of money others do.

“Just because someone lives in an apartment, it doesn’t mean they don’t have a vested interest in the community.”

Mark Sundquist, village president, said some people are concerned about tenants in Bornstein’s project. But Plan Commission members, Sundquist said, are focusing on money, particularly because the developer will request tax incremental financing to help pay for the demolition of the Pyare Square building.

TIF districts let municipalities borrow money to subsidize developments and pay for utility and street work that serves projects. Communities then use new taxes generated by the projects to pay off the debt.

It is too early to nail down cost estimates, Bornstein said, but the TIF money likely would account for less than 4 percent of the total project costs.

Timing could determine the project’s fate. Sundquist said the village might not make a decision until March. The end of March is the deadline for Bornstein to apply to the state for the affordable-housing tax credits.

If those do not come through, he said, Andover Hill will not pursue the project.

There’s a challenge almost every time developers pitch projects using affordable-housing tax credits, said Gary Gorman, president and CEO of Oregon-based Gorman & Co. Inc.

“What’s happening in Shorewood Hills is a classic case of what often happens,” he said. “People say, ‘We want to help lower-income individuals live in these areas, but just somewhere else.’”

But Gorman, whose company deals mostly with affordable-housing projects, said it should not deter developers from pursuing rental projects. Rather, he said, they should be doing more upfront work.

“It’s interesting that developer is from Illinois,” Gorman said. “You don’t see local developers trying to pitch that kind of project in Shorewood Hills because they know they’ll figure out a way to knock it down.”

If communities can afford to be more selective, Laurent said, developers have to try harder.

“It’s easy from this standpoint to say, ‘Woe is me,’” he said. “But the biggest part of my job, really, is to be an educator.”