Des Moines forgives affordable housing developer's nearly $800K tab
Des Moines last week forgave more than $793K of accrued interest associated with loans made to an affordable housing developer in 2004.
Why it matters: It could set a precedent that may eat into upcoming budgets and limit future affordable housing development, former DSM Councilperson Christine Hensley told Axios.
State of play: Greg McClenahan of EverGreen Real Estate Development Corp "was under the impression" nearly two decades ago that the loan for assisted living facility The Rose would be forgiven, according to information provided to the City Council.
- But there was no written agreement and nothing in city files suggesting DSM would forgive the accrued and future interest, the city's Neighborhood Services director Chris Johansen told us.
Details: Federal tax credits subsidized the construction of the Rose, a 52-unit senior housing facility at 1330 19th St.
- The loans were taken out through a separate federal housing program. But to qualify for both, the loans were required to carry federally set interest rates.
- Because of interest, the outstanding repayable amount of the original loans grew to more than $1.5 million, leading to The Rose's request for relief.
What they're saying: The case was "especially unique" because the loans were based on compounding interest, basically doubling the amount owed, Johansen told Axios.
- It's a situation staff hasn't seen in other developments. DSM currently doesn't charge interest on similar loans, according to Johansen.
- The loans were headed for default if the city had not acted, and that would have left uncertainty for The Rose's future, McClanahan said.
What's ahead: Now, the developer will have to cover annual payments of $1,500 on the original loan, beginning Jan. 1, with a balloon payment due in 2036, according to terms of the new agreement.
💬 Thought bubble: The city got pushed into a corner. DSM could lose affordable housing if the loans weren't restructured, Johansen articulated in a memo to the City Council.
- But, questions about the long-term consequences of the decision deserve further review.
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