Council approves Eagle Market loan modifications; agrees to fewer affordable units

The day after City Council approved a request from the developers of the troubled Eagle Market Place project to modify the terms of some city agreements with the project, construction continues. Photo by Virginia Daffron.

At its Nov. 11 meeting, City Council approved a request to alter terms of the city’s support for a troubled mixed-use development on Eagle and Market Streets in the historic center of Asheville’s African-American business and cultural community.

Many years in the making, the Eagle Market Place project most recently ran into difficulties last October, when the concrete slab poured to support the structure’s second floor developed a significant crack. Construction halted while inspectors, engineers, consultants, contractors and lawyers tried to sort out who was at fault for the problem and how it could be fixed. Another question: who would provide the money needed to move forward?

According to attorney Wyatt Stevens, who represents Mountain Housing Opportunities (MHO), a nonprofit developer of affordable housing and the major development partner on the project, significant demolition was the first order of business when construction resumed in October.

Now that the project general contractor, Weavercooke Construction, has completed demolition of the first and second floor concrete slabs and a number of support columns, and the design team has engineered a new construction approach, the project is seeking $4 million in additional financing to reach completion. Though MHO will continue to work to recover damages through arbitration, Stevens said, the outcome of those efforts is uncertain.

MHO therefore asked council to modify agreements between the project and the city to enable the developer to secure an additional $3 million construction loan from a lending institution.

Requested modifications include changes in the number of affordable vs. workplace housing units, disbursement of a $2.9 million loan at 50% construction completion, alterations to the schedule of disbursement for $218,000 in committed Section 108 loans and a reduction in the interest rate of a loan from the Affordable Housing Trust Fund from 2% to 0%, effective immediately.

To provide sufficient cash flow for making payments on the new construction loan amount, MHO asked council to agree to make 24 to 30 of the 62 residential units into workforce housing for households earning up to 120% of the area average median income. When the city initially agreed to commit $5 million to the project, said Mayor Esther Manheimer, a key condition was that all 62 units be designated affordable.

Stevens and Scott Dedman, executive director of MHO, pointed out that the proposed modifications would require no further direct funding commitments from the city.

Community members Rich Lee and Jocelyn Reese lobbied council to seek a solution preserving all 62 units as affordable housing. Manheimer asked Dedman what it would take to accomplish that objective; Dedman responded that $3 million in additional funding would be necessary.

Manheimer observed that city investments at that level generally produce a much larger number of affordable units.

Councilwoman Gwen Wisler expanded on Manheimer’s remarks, explaining that, at the time the project was initially approved, the cost per affordable unit was around $83,000. Compared to the $20,000 the city typically spends per affordable unit, the cost was very high. Under the proposed modifications, she continued, the city would end up investing between $135,000 to $170,000 in each affordable unit, or about seven to ten times the city’s typical investment.

The final per-unit cost, in addition to concerns about the risk involved in distributing funds before the project is complete, Wisler said, led her to oppose the modification request.

Councilman Gordon Smith reached a different conclusion, pointing out that the goals of the project went beyond housing. “This was funded as a transformational project,” Smith said, “and it includes goals for adding 8,000 square feet of street-level retail space, historic preservation and community benefits. I’m glad to see that this thing is going forward at all. 20 years from now, we will look back and applaud the courage of a decision tonight to move forward.”

When it came time to vote, six council members voted in favor of the project, while Wisler voted against.

Additional decisions

On a request to approve conditional zoning for a self-storage facility at 852 Hendersonville Road, council voted 5-2 to deny the rezoning, with Vice Mayor Marc Hunt and Councilman Jan Davis opposed.

On a resolution to authorize the city manager to sign a memorandum of understanding with the Economic Development Coalition of Asheville Buncombe County, council voted 6-1 in favor, with Councilman Cecil Bothwell opposed. The resolution was a technical requirement for city manager Gary Jackson to disburse funds, as the previously-budgeted amount of $100,000 exceeded Jackson’s authority.

Council voted unanimously for the following board and commission appointments:

  • Reappointed Robin Cape and Edward Hay to a second term to the Alcohol Board of Control
  • Appointed Leslie Klingner to the Historic Resources Commission
  • Extended deadline for adding a representative from Smoky Mountain Behavioral Health to the Homeless Initiative Advisory Commission
  • Appointed Rich Lee to the Multimodal Transportation Commission

Councilman Smith asked that council revisit a decision taken when the downtown master plan was approved. The action in question was an increase in the size of downtown building projects requiring council approval. Currently, only projects over 175,000 square feet must come before council. City manager Jackson agreed to present a staff analysis and report on the policy at the Dec. 8 meeting of council. Council also will discuss the matter at its upcoming retreat.

Next meeting

The next meeting of city council will be on Nov. 17 at 5 p.m. in the council chamber on the second floor of City Hall. It promises to be a busy session, with public hearings for two potentially contentious topics on the agenda: an amendment to zoning ordinances for utility substations and proposed changes to city regulations on Homestays, a type of permitted short-term rental within a resident’s primary dwelling.

 

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About Virginia Daffron
Managing editor, lover of mountains, native of WNC. Follow me @virginiadaffron

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3 thoughts on “Council approves Eagle Market loan modifications; agrees to fewer affordable units

  1. Nathan Jones

    I fully support lower rents and affordable apts. But the issue here is that MHO has wealthy investors in this real estate project, called CAHEC.com. They are a $6 Billion syndicate group of investors based in Raleigh. They have a legal ownership role and a massive emergency reserve of funds to easily cover a $4 million overrun, but they will only do so if forced. But if pushed by an experienced negotiator (which ain’t our city council, city staff, Mayor or MHO), they would do so. That is because these investors cannot legally let the building go unfinished beyond key deadlines set by the IRS, because these investors already took the federal tax credits’ and filed them last year and the year before with their tax returns. CAHEC wants to hold MHO to the guarantee of a 16% to 22% total return on their investment and they feel any bailouts they give the MHO project will cut into that 16% to 22% profit.
    Here’s the story. Millionaire investors are always in every low income tax credit rental apts project in America, by design and by agreement, ever since President Reagan created the LIHTC program in 1987 with a role for the IRS and oversight by HUD. MHO signed documents guaranteeing these investors a rate of return probably totaling the range mentioned of 16% to 22% if you also add in routine tax breaks for real estate passive losses. Just Google CAHEC and other sites for public details about how they pool low-income tax credits, their ownership interest in real estate like MHO’s, and money from millionaire investors into one big investment fund, which is what they did with MHO’s project. Then again, city staff should have researched this by now rather than relying on what MHO tells them. In Real cities like LA & NYC, their staff skip the middleman (MHO) when it comes to negotiating and go straight to the investors…but they’re smart cities in that they make nonprofit borrowers like MHO sign documents when they ask for city subsidies and loans. These documents grant the Real cities the right to negotiate directly with the investors. CAHEC knows Real cities like NYC and LA and real cities will call their bluffs until they cave and shell out the $ millions needed to finish sites like MHO’s project.
    And then there’s lil ole Asheville. Sigh. They never learn from the Real cities.
    Oh well, council caved quick & fast, but didn’t completely give away the bank, the biggest expense to taxpayers comes in reducing the interest rate to MHO from 2% to zero percent.
    But had CAHEC been pushed, they would’ve put in more equity, saving the real estate from having to raise rents to cover loan and interest payments on the millions in loans that MHO says they will pursue. This is what CAHEC prefers because it preserves the 16% to 22% return they guaranteed to the investors.

    I guess CAHEC told MHO to go to the city before coming to them. And MHO followed their marching orders obediently. And Asheville failed to ask the right questions. Except for Gwen, kudos for Gwen for speaking up.

    • Lulz

      LOL, no need to worry about saving money when raising taxes is always the go to as needed lulz. Do you hear anyone but “right wing kooks” raise a stink when taxes go up? And the non-profits here are entrenched with government LOL. So much so that if someone dug deep enough, would probably find so many abuses and cronyism to the point of being illegal lulz. It’s a safe bet that many on council and those behind the scenes in all the committees and various boards have no ethics, and have probably skirted around the law more than once when dealing with their friends and connections in the non-profits LOL.

  2. ApePeeD

    The housing project here has been a disaster from the start. Scrap it, destroy the whole project, turn it into a playground… give up.

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