The city discussed entering a memorandum of agreement with Urban Community Developers, who are asking for $7 million in internal revenue bonds, known as IRBs, for a project within the 1000 block of Ann Street between West 10th and West 11th Streets near Sweet Tooth Candies. The proposed project is for 11 new single-family homes and a rehab of an existing one.
The city commission heard a first reading of the item at its Feb. 26 meeting and held a symbolic vote of three to two for the project. Newport Commissioners Ken Rechtin and Beth Fennell voted no. An official vote will be held during the second reading.
The bond term would be the standard 30-year term or will provide a pilot payment for each home with a $7 per $1,000 PVA value, with a pilot payment to start for each home upon completion and occupancy. That payment will continue for 30 years.
The PVA appraises and assesses properties using the fair market value price. According to the Campbell County PVA website, fair market value is the price a property will bring in a voluntary sale between a willing seller and a willing buyer.
An IRB is a common financing mechanism typically for large development projects. They are attractive to developers because they offer a lower interest rate and a long-term, fixed-rate financing package.
Should the Newport Commission approve the IRB for the project, the Newport School Board would also need to approve it.
Urban Community Developers is a nonprofit based in Covington. It describes itself as an “organization dedicated to revitalizing Northern Kentucky’s urban core neighborhoods using new home ownership as the catalyst for positive neighborhood change.”
“As a not-for-profit corporation, Urban Community Developers intends to borrow only the amounts needed for development of these vacant lots, without any return to investors,” Vice President Urban Community Developers, Luke Woerner said. “With the goal of keeping home prices as low as possible. In addition to that, securing a reduction in the ad valorem property tax through the issuance of industrial revenue bonds hierarchies will further keep down the cost to the homeowner and serve as an inducement for the sales of the finished home.”
Woerner said the design of these houses would be unique because they would be flexible for many potential buyers. He said he imagines that the target audience would be anywhere from a young couple looking to start a family or empty nesters who would like to be near the Monmouth Street Business District and don’t want to take care of a large property.
The price point is $495,000 for the new houses, and the target for the existing homes is $325,000.
According to Woerner, the base package of the homes is a two-bed, two-bath with a full-height basement. The basement would not be excavated to full depth to allow for an egress window, and the front foundation wall would allow for a code-compliant bedroom and rough-in plumbing in the basement for another bathroom. The second floor of the homes would include a flex or bonus room that could also be another bedroom. Woerner said the homes would have the potential to be a four-bed, three-bath home, but the base package is two beds and two baths.
Each home would also have a tandem parking pad for two off-street parking spaces.
“I appreciate hearing about the quality of properties that you propose,” Newport Commissioner Julie Smith-Morrow said. “I also am very much aware that these are vacant lots right now. In a city like ours, I really don’t like seeing vacant lots.”
The current value of these properties in total is $375,282. The estimated PVA value will be $5,770,000 after completion, according to Woerner.
The city would own the real estate during the bond term, and the homeowners would have a leasehold interest for the 30-year bond term.
“They will have what’s called a springing executory interest that results in fee title ownership after the bonds are paid off,” Woerner said. “So, after 30 years, the ownership of the real estate will automatically transfer to the current owner of or leaseholder of the house.”
As a state-certified appraiser, Fennell said appraising homes with a leasehold is difficult.
“A leasehold—in order to appraise those adequately, you have to compare that to another leasehold, and I think that’s going to be a hurdle for you,” she said.
Rechtin questioned why the company needed help from the city through the IRB.
Woerner said there is a gap of about $48,000 per house that they cannot get from their lenders, and as a small nonprofit, they don’t have the cash on hand.
“We are financing the construction of these homes,” Woerner said. “So, we’re capped by underwriting how much money we can loan from two different sources. We’re actually going to have two different loans on this project to diversify the risk to the lenders. But they’re capping us at that $495,000 sale price. So that limits the amount of financing we can get from the banks to do this project.
He said the cost to build each home is estimated at $543,000.
“I don’t hear the quantified benefit to you as a developer,” Rechtin said.
Rechtin asked Newport City Manager Tom Fromme why the project was so important that the city should support the effort by issuing tax exemptions.
Fromme said it is very expensive in the urban area for the cost of acquisition. He said from a private sector point of view, it would not pencil out.
“In my estimation, and that’s why I brought it forward to the board, I don’t think it will ever be developed,” Fromme said. “I don’t think anyone with private money is going to come in and develop that. With just the acquisition cost and the infrastructure cost. I don’t see it without the incentive.”
Newport Mayor Tom Guidugli Jr. reminded everyone that this would be the first step of multiple.
“From a process standpoint, I think it’s good for people to refresh that this is the first step of multiple steps,” he said. “This is not saying this project is passing. It’s entering an agreement to fulfill and complete the process of negotiation. And there will be other points along in the discussion.”
Should everything be approved, Woerner said the building process would hopefully begin between April and June and would be done in phases of two to three houses at a time, excavating and prepping for foundations but following closely together with a couple of weeks between phases.
“We’ve got a great local contractor lined up to do the job,” Woerner said. “We’re here. We’re available. We’re going to do everything we can to avoid there being too much of an impact on the existing residents.”
