Sedona City Manager Karen Osburn said she couldn’t remember the last time she was so excited to present an item before the Sedona City Council.
That same excitement was expressed by several council members during their meeting Tuesday, July 13.
The item before them was something new for the city and, if it goes as planned, is expected to help address the ever-increasing housing crisis while opening the door for future developments similar to this one.
By a unanimous vote, council approved a resolution authorizing the city to enter into a development agreement with Sunset Lofts LLC for the development of a multi-family workforce apartment complex at 220 Sunset Drive. The city’s financial obligation will not exceed $4.2 million over two years.
Osburn said that several locations within the city were considered for this project but that the Sunset location proved to be best.
It’s close to 89A as well as a grocery store and pharmacy as well as other office complexes.
“Everything around it, every adjacent parcel, is either high-density, multi-family or commercial,” she said. “We don’t have sites like this in Sedona that are this well suited to where apartments are really a compatible use.”
The city is teaming up with developer Keith Holben on this project. He owns Piñon Lofts in West Sedona, developed a 100-plus unit complex in the Village of Oak Creek several years ago and currently has other projects in the works in both Sedona and Cottonwood.
“Keith is not doing this project because it’s lucrative — the margins are very small,” Osburn said. “But, I truly believe that he has a heart for this community and for our challenges with workforce housing. He really wanted to come in and do a project that was going to serve those needs and really be a true community benefit.”
A city report states that the city’s 2020 Affordable Housing Action Plan recommended a five-year effort to address affordable housing, which included deed-restricted housing,
In exchange for a city contribution not to exceed $4.2 million, the project will include a minimum of 46 housing units made up of 20 one-bedroom units with a minimum 600 square feet and 26 two-bedroom units with a minimum of 900 square feet.
All are deed-restricted to limit rents and utilities to 30% of gross income for wage earners making 80%, 90%, and 100% of area median incomes, so, all 46 units will be deemed affordable for the area’s workforce. In all, the project is expected to cost $13.3 million.
The term of the development agreement is 50 years and the rent controls are required to be in place for the entirety of that time, which is consistent with the useful life of the project. Those income-qualifying tenants must work a minimum of 30 hours a week within the city’s limits. And, the complex cannot be converted into condominiums, and their use as short-term vacation rentals will be prohibited.
The up-to-$4.2 million city contribution will be made in the form of a loan to the developer and will be secured by a deed of trust and promissory note, which will be repaid over the term of the development agreement. Development impact and sewer capacity fees will be pre-paid by the city as part of the loan and the developer will reimburse the city upon payback of the loan.
Osburn said through the terms of the development agreement, the city will share in net revenue on the project with affordability and local workforce requirements ensured by a 50-year Land Use Restriction Agreement.
“The first 5% off the top will go to the owner for management fees and then the city will receive 1% of the outstanding loan balance annually,” she said, adding that anything after that will be split between the city and developer. “We can take those proceeds and start to reinvest them into the Affordable Housing Fund so that we can pursue additional units.”
Following the meeting, City Attorney Kurt Christianson was asked why an agreement like this would not have to go through a bidding process with other contractors.
“Public bidding is not required to enter into a development agreement like this because the affordable workforce housing project is not a public improvement nor is it on public property,” he said. “Also, per the agreement, the developer is required to follow all federal, state and local laws.”
Of that $4.2 million, approximately $2.3 million will be spent in the current fiscal year and the remaining $1.9 million next year. It is expected to take approximately 12 to 14 months to secure U.S. Department of Housing and Urban Development financing for the project by the developer. Once HUD financing is secured and development review is complete, the construction will commence, likely in fall of 2022. Construction is estimated to take 14 months.
The property is already zoned for multi-family development.
The project will go through a normal development review process with staff, outside review agencies, and the Sedona Planning & Zoning Commission.
“This is a unicorn — an ideal project and 100% affordable for 50 years,” Councilwoman Jessica Williamson said. “There is a $96,000-per-unit subsidy that is required to do that. Creating affordable housing to serve the population of our workforce is enormously expensive.”
