This Los Angeles apartment building has a design similar to the mixed-use apartment building with first-floor retail and public use space proposed to be built in the 1500 block of North Blackstone Avenue in south Fresno. Contributed by Integrated Community Development.

The City of Fresno will invest $500,000 and provide a $600,000 loan to help get off the ground a project to build an 88-unit, low-income apartment building in the city’s south end.

But most of the City Council members who voted to approve the money said they did so grudgingly, believing the project’s $38.3 million cost is too high.

The city’s investment is needed in order to qualify for programs that help fund low-income and energy-efficient housing, said Jake Lingo, senior vice president of Integrated Community Development, the Woodland Hills-based company developing the proposed apartments that would sit atop first-floor office and retail spaces directly off the 1500 block of North Blackstone Avenue south of McKinley Avenue.

Among the planned tenants in the commercial space are a medical and dental clinic, along with a planned city senior center.

But many of the council members balked at the cost, which would come out to more than $400,000 per apartment.

‘What a waste’

“My first inclination was to say, ‘My, God, what a waste of government money. Can we do it more efficiently?’ But you’ve got to think counter intuitively. It’s a complex deal,” Fresno Mayor Lee Brand told council members prior to the Dec. 7 vote.

He said a big part of what’s elevating the price of the apartments are the requirements that come with using state dollars, including having to pay construction workers at prevailing wage levels — higher than what they would make on private-sector projects — and the “zero net” energy requirement that the apartments be solar powered, so the electricity generated there is as much or more than what the tenants would use, he said.

“This is the hand we’re dealt,” said Brand, who urged the council to approve the proposal rather than let the state money go to other cities.

Both council members Steve Brandau and Garry Bredefeld shared Brand’s concerns about the cost, noting the requirements elevating those costs are systemic problems in Sacramento programs to build more affordable housing, and they didn’t want Fresno to be part of those problems.

“I support affordable housing. I have voted for affordable housing in the past, but we’re asking to suspend our financial logic and rationality and due diligence with this project,” Bredefeld said.

Funding mix

In a breakdown provided by Lingo, the two largest portions of funding will be a $12.5 million “soft loan” from California’s Affordable Housing Sustainable Communities Program, funded by cap-and-trade program payments by corporations. Soft loans are financial products with favorable terms to the borrower, such as below-market-rate interest or long repayment periods.

The next big chunk, $12.3 million, would come from tax credit equity from the federal Low-Income Housing Tax Credit that allows developers to sell tax credits to businesses — reducing their tax rates — and using the proceeds to build low-income housing.

Other funding includes a $3.1 million standard loan and a $1.7 million soft loan from the California Housing Finance Agency; a $1.8 million grant from the San Joaquin Valley Air Pollution Control District because the apartment will have a reduced carbon footprint thanks to its energy upgrades and a $2.2 million loan from the successor agency to the former Fresno Redevelopment Agency. using money earmarked for low- and moderate-income housing.

Part of the agreement involves the city of Fresno providing an initial loan of $600,000 that would be paid back in four years through the successor agency loan, along with the city’s $500,000 investment, an agreement to waive $329,000 in impact fees and a promise to provide $475,000 in infrastructure work — building sidewalks, curbs, connecting sewage lines, etc. — Lingo said.

He said his company and his partner in the proposed development, the nonprofit Corporation for Better Housing, also have agreed to defer $3 million of their developer fees to invest into the project.

Even though most of this money isn’t coming from city coffers, “That’s taxpayer money, and I don’t know why we want to overlook any other tax money just because it isn’t General Fund or city funds,” Bredefeld said.

Councilman Oliver Baines noted that many on the council find California’s high-speed rail project and the recent boost in the state’s gas tax to pay for road improvements unpalatable, but that isn’t stopping them from accepting millions of dollars from those projects to improve Fresno’s infrastructure.

“If we’re going to send the money back every time, that’s OK. Let’s make sure we’re consistent.”

Singling out project ‘unfair’

But singling out the Blackstone apartments and criticizing their costs may be unfair, said Preston Prince, president of the Fresno Housing Authority.

He noted that prevailing wage laws can add $75,000 per unit to the cost of an affordable-housing apartment building compared to a private-sector project.

“I think that it’s totally appropriate, and I’m a strong supporter of the unions to make sure we’re paying a living wage as part of our construction,” he said. “We just have to look at the impact of state prevailing wage. Maybe there’s some other way to assure appropriate wage are being paid.”

As for the complaint by some on the council over the high cost of having to install solar panels at the proposed apartments, Price said such systems pay for themselves in about seven years, “so why wouldn’t there be a public investment in solar?”

In addition, from 2015 to 2016, local apartment construction prices went up 20 percent, and they went up another 20 percent in 2017, so comparing the current estimated cost with costs for low-income housing projects done a few years ago doesn’t work, he said.

“I think they are not doing it justice for the complexity of what’s happening,” Prince said of the council members arguments about the costs. “The costs are high, but they are also part of public policy that makes sense.”

He added that the city’s infrastructure improvements around the planned apartment site would add about $30,000 per unit to the projected project cost, and constructing the first floor space further elevates the per-unit cost.

In addition, Fresno’s goal to grow through infill rather than expanding the city limits just costs more, as property in already-developed areas tends to cost more than green space, Prince explained.

Demand is great

So all of that combined makes for a very expensive development, noting that right now Fresno alone needs 35,000 new affordable housing units, and his agency has been involved in building just 2,400 over the past decade. The last one — the 55-unit Paseo 55 apartments with retail space on the bottom floor — opened last week in Reedley.

Price said the cost there came out to nearly $300,000 per unit, but the financing was different than what will be sought for the Blackstone apartments, so paying the state prevailing wage requirement for construction wasn’t required.

Baines said Fresno’s relatively small investment in the Blackstone project should generate bigger returns for the city, including about 400 jobs involved in the development and construction and an estimated $15 million in direct, local purchases of building supplies.

Brand added that the project would enhance a blighted portion of Blackstone and help the 350 to 400 people who would live in the apartments.

“This project is expected to have a profound, positive impact on our community for years to come. The under employed and our working poor will benefit” and could leverage $30 million-plus of state and federal funds into Fresno, said Councilwoman Esmeralda Soria, who has been ushering the project forward for the past two years.

“This is probably one of the best leverage deals I have voted on in my time on the council,” she said.

Clinic in the mix

She added that Clinica Sierra Vista (CSV) is in discussions to operate a new health center and dental office on the first floor.

CSV, which operates clinics across Fresno largely geared to serving low-income patients, also is in talks to partner with Fresno City College — less than a block north of the site — to allow nursing and dental hygienist students to do field work at the new clinic.

But none of this is a done deal yet.

Though the City Council voted 5-7 to approve its portion of the funding, with Brandau and Bredefeld casting the no votes, Fresno’s financial commitment depends on the developers getting the other funding.

“From a financing perspective, without this we would not have been competitive at the state” to get further funding, Lingo said.

“So from here we go to the state. At that point, it’s — I won’t say it’s a done deal — but you can put your financing together and you can go forward with construction.”

And if the project goes forward, Brand noted that the city would be eligible for $2-$5 million in sustainable transportation impact funds that it can use to upgrade or build walking trails, bike lanes and street lighting within a one-mile radius of the apartment complex.

For his part, Bredefeld seemed resigned prior to the vote that it wouldn’t go his way and urged Lingo to do a good job on the apartments.

“I’m very happy for Blackstone and McKinley. I’m happy for the extra goodies that will come to the city of Fresno, like streetlights and sidewalks. I’m pleased that’s part of the equation,” he said, “But when it comes to helping the people of California, this model will not succeed.”