Agenda Packet 1-29-20 Work Session

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January 29, 2020, Work Session – Item 2 The idea of using the building as a business incubator arose from the community during the Urban Renewal Plan Amendment process. In 2018, staff hired an economic consulting firm to research the market feasibility and operation of a business incubator, accelerator, and/or innovation space. The study showed that successful projects in similarly sized cities were supported by well-funded economic development funds and depended on millions of dollars of public and/or private benefactor grants and donations for both the construction and operations phases, making the project financially difficult to pursue in Eugene. Given the property’s strategic location across from the LTD Eugene Station and the identified need through the Housing Tools and Strategies process and Envision Eugene for a range of affordable housing options and more compact urban development in the core of downtown, the site is ideally suited for redevelopment as housing. With supporting language in both the Urban Renewal Plan and the CDBG fund regulations, a mixed-income housing development project is being considered for the site. The use of CDBG funds requires that a minimum of 51 percent of the units serve populations making 80 percent of the area median income (AMI) and below (Table A). The current target for the project is a mix of income-qualified units and market-rate units, where 51 percent of the units are income qualified for households at 80 percent of AMI, and 49 percent of the units are market-rate. Table A: 2019 Eugene/Springfield HUD Income based on Household Size (Effective June 24, 2019) % AMI 1 Person 2 Persons 3 Persons 4 Persons 50% $22,750 $26,600 $39,250 $32,450 80% $36,350 $41,550 $46,750 $51,900 100% $45,500 $52,000 $58,500 $64,900 Mixed-Income Project The approach under consideration would be piloting a mixed-income residential development. By adding new, more affordable options, housing mobility is encouraged, which can relieve pressure on the stock of lowest income housing options that have the highest demand in our community. Additionally, the project provides a more affordable option for rent-burdened residents paying more than 30 percent of their income on housing, allowing them to reduce costs, save money, and work towards greater financial stability and the potential of home ownership. An investment of this type is not likely to be financially feasible without subsidy. Staff’s due diligence has included a financial evaluation that modeled the site’s potential costs and revenues from acquisition through construction and leasing. The pro forma model utilized current data for market-rate and qualifying HUD rents in Eugene and construction costs from local multi-story residential projects. The financial modeling demonstrated that a mixed income project would likely have a financial gap. This gap exists in a mixed-income project like this because: 1. A mixed-income product doesn’t allow for maximization of rents. Rents are limited for over half of the units to be affordable for people making 80 percent AMI. 2. Traditional tools available to support affordable housing, such as HOME funds, Low Income Housing Tax Credit program, SDC exemptions, etc. require rents affordable to households at 60 percent AMI and below. These resources would not be available for a project targeting households at 80 percent of AMI.