UPDATE: The Covington City Commission voted to issue the IRBs as part of the consent agenda at the legislative meeting on April 22, 2025.–LINK nky editorial, April 23, 2025
CORRECTION: The original version of this story contained inaccuracies as to the structure of IRBs for this project. The relevant lines have been corrected. We apologize for any confusion this may have caused.–LINK nky editorial, April 18, 2025
The Covington City Commission will vote next week to approve the issuance of up to $8 million in industrial revenue bonds, or IRBs, to help finance an Orleans Development apartment rehab project in the city’s Westside neighborhood.
The project aims to convert an old warehouse building into 39 apartment units.
On Tuesday, the commission put the financing proposal on the consent agenda for next week’s meeting, meaning it will likely pass.
Dubbed the Steelyard Apartments in reference to the building’s most recent use as a metal scrapyard, the property is located at 1564 Banklick St. near the intersection of West 16th and Russell streets. In December, the developer successfully secured a recommendation for a zoning change from the Kenton County Planning Commission, which voted to finalize the change in January.
“What we’re really excited about is the projected rents that fall under the demographic of workforce housing,” said Assistant Economic Development Director John Sadosky at Tuesday’s meeting “So, that’s your teachers, police officers, warehouse workers, food and bev[erage], airport employees fall under that demographic.”
The developer has touted the apartments’ projected rent levels as a primary selling point throughout the zoning process. Documents submitted to the commission prior to Tuesday’s meeting state, “The proposed unit mix will be 28 one-bedroom apartments with an average rent of $1,233/mo; 10 two-bedroom apartments with an average rent of $1,475/mo; and one studio apartment with an average rent of $1,200/mo. The site will be serviced by a 52-space surface parking lot.”
Industrial revenue bonds are a common municipal financing measure that developers use to gain tax exemptions and cities use to fill vacant lots or rehab derelict buildings.
When the city, or another taxing entity like a school or a county, agrees to issue an IRB, it serves as a kind of conduit of capital financing for a project. The developer will seek financing from a underwriting institution, such as a bank, as a means of injecting capital into the project. The city then takes on an owning interest in the property, at least on paper, so the developer can use the city’s credit score as a way of obtaining private investment. In exchange, the city grants the developer a tax incentive, the details of which vary depending on the deal.
Instead of paying taxes, the developer often agrees to issue a payment in lieu of taxes, or PILOT, to ensure the city still makes money on the property while reducing the developer’s early investment expenditures. Developers and cities like IRBs because the developers defray their investment costs, and cities get to make money on a property or lot that might otherwise sit unused, thus generating no tax revenue; lower revenue from a PILOT is better than no revenue at all.
The financing debt itself is held by the developer, meaning the city isn’t on the hook for paying back the debt. Usually, when an IRB period ends, the incentives disappear and the legal ownership of the property reverts back to the developer. If a project fails or the developer goes out of business, the property can be sold to settle the debt.
The PILOT agreement discussed on Tuesday would, Sadosky argued, also soften the rents for the apartments by defraying costs for the developer. PILOTS tend to gradually increase over a period of time, in this case, 20 years, before finally reverting to paying full property tax.
Orleans Development is seeking various financing options to bankroll the rehab, including a bridge loan from the Catalytic Fund of Northern Kentucky, a nonprofit that offers financing for investment projects unattractive to conventional financing, such as historic buildings and affordable housing.
The Catalytic Fund confirmed with LINK nky that it would offer a loan of $950,000 for the project. According to city documents, the total estimated cost of the project is $7,301,500.
“With these proposed rents, the developers submitted an application for financial assistance because currently rents do not generate enough income to support the required debt service ratios needed to obtain financing,” Sadosky said.
Commissioner Shannon Smith asked if any other developers, besides Orleans, had expressed interest in the property. Sadosky said they had not. Commissioner Tim Acri asked where the steelyard would move to, and Sadosky said they would be moving their operations to a new facility next to the new Rumpke transfer station.
Given the developer’s financing difficulties, Mayor Ron Washington asked, “What happens if we don’t give the IRBs?”
“The project won’t happen,” Sadosky said. “It just won’t pencil out. It really comes down to securing financing. For the neighborhood, I think the rents are appropriate. With the cost of actually building right now, coupled with the higher interest rates, it’s just not a friendly environment right now to be building something with these rents here, so close to downtown Covington.”
Rental households must spend 30% or more of their income on rent (not including utilities, insurance and other housing expenses) in order to be considered rent-burdened. A single tenant living in the complex making $51,760 or less would be rent-burdened if they were paying the complex’s average rent (across all unit sizes) of $1,294 a month.
About 45% of all Covington renters are rent-burdened, according to the American Community Survey. The median household income in Covington was $53,770 as of 2022.
UPDATE: The original version of this article contained a chart showing the PILOT schedule for the IRBs. Even though the chart had been published prior to Tuesday’s meeting, it contained errors, the city later informed LINK nky. Therefore, we have removed it.–LINK nky editorial, April 17, 2025