City in negotiations with Washington project

Rachael Keating/Clinton HeraldA proposition is on the table to work with Washington LLC to open the development agreement for an additional $150,000 over 10 years based on occupancy rates.

CLINTON — The city of Clinton, in order to keep a project on a positive trajectory, is questioning its own stake in the Washington LLC development.

In 2015, Chris Ales of Washington LLC purchased Washington Middle School in hopes of turning it into low- to moderate-income apartments at the facility. The building at 751 Second Ave. South sold for $5,000. Ales envisioned an $11 million bottom line, with $68,000 in city grants and a $472,000, 15-year tax rebate from Clinton. In March, Ales requested the council increase its funding to the project; the city is now in negotiations.

A proposition is on the table to work with Washington LLC to open the development agreement for an additional $150,000 over 10 years based on occupancy rates.

However, some members of the Clinton City Council are skeptical. After the passage of the Tax Cuts and Jobs Act, Ales is $500,000 short of starting the project. In a report at the March 13 council meeting, Ales said he had $500,000 from private equity, 20 percent from conventional financing and $68,000 from the city, and half the total funds from federal grants. With the new gap, he told the council his group would add an additional $200,000.

"I like this project and I want this project to go forward... My concern is, we as a city literally have more invested in this than I think the investor has invested based on what he portrayed to us last time he was here," Council member Cody Seeley said.

Rather than putting more toward private development of low-to-moderate income housing, the city could turn to the declining housing stock. Recently, Clinton was chosen as the first city in Iowa to be a part of a federal housing project. The U.S. Department of Housing and Urban Development Community Development Block Grant requires local funding (by various definitions).

The council recently agreed to move forward with negotiations with Ales, though seeking more than occupancy incentives to the city. Ales stated an additional $200,000 would be added from the LLC, but $500,000 is the only number the city has seen in private equity.

It is unclear, through conversations between Mayor Mark Vulich and Ales, if Washington LLC would seek other funds if the city denies the $150,000 request.

"I would hate to see the project not happen because we didn't move the last piece of the puzzle in place," said Council member Paul Gassman, who fears a elongated sting from a wrong decision.

However, another hurdle is the standard the city might set if it agrees to additional tax rebates. City Administrator Matt Brooke said he isn't so sure that would be the right standard to set for development agreements.

"Why does this come down to the fourth quarter, 2-minute buzzer where it's all the city's fault the project doesn't occur when there is $11 million on the table?" Brooke said.

Council member Sean Connell would like to see "more skin in the game" from Ales if the city would decide to move forward with additional tax rebates.

"I think the key to this is that we have occupant levels that — we're talking 80 or 90 percent occupancy — in order to get the payment," Vulich said. "So it isn't just built and just sits there empty and we still pay them anyway for an empty building, because it never got finished."

As for the Community Development Block Grant, it's a big win for the city. Administered by the Iowa Economic Development Authority, CDBG would fund housing rehabilitation up to $65,000 with a $10,000 loan to families for purchase of the home.

The city of Clinton has a running list of home demolitions that it feels could work for possible rehab through the project. It's a revolving venture that could potentially never end. At first, the city looks to start out with two homes, "rocking it," according to Brooke, and moving forward with the pilot project. Funds slated for demolitions could be moved, as well as LMI monies, to keep it going.

A home fitting a family of four would go for $55,200 or less, a family of two $44,200 and a one-person dwelling $36,650.

The city is currently identifying homes with the East Central Development Corp.

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