Vail makes financing decisions for $24.4M Residences at Main Vail project
The town also shares details of a new agreement that would make it the sole owner, operator and financial undertaker of the deed-restricted project
At Tuesday’s Vail Town Council meeting, the town moved ahead in the process of developing its new 100% deed-restricted apartment building known as the Residences at Main Vail.
While the official development agreement and financing options have yet to be finalized for the project to be built on a parcel formerly known as lot 3 at Middle Creek, the town provided direction Tuesday that will keep the project on track for completion in November 2022.
The Residences at Main Vail project has been through quite the journey to get this far. Approved by the town’s Planning and Environmental Commission in May, the project now awaits its final Design Review Board approval (expected in early July) as well as a finalized agreement between the town and Triumph Development.
Once completed, the building will contain 72 deed-restricted units that will house more than 200 Vail residents, according to Vail Housing Director George Ruther. The project is scheduled to start construction on Sept. 1.
“This is a very complex project that we’ve been going through for months and months now,” said council member Kim Langmaid. “I feel like this is a great path forward for us that will set up town in terms of its economic, social and environmental sustainability into the future.”
A new agreement
During previous stages of the project, the town of Vail had contemplated a development agreement with Triumph Development that gave the firm ownership over improvements, responsibility for financing construction and control over the rental operations. In this agreement, the town would maintain ownership of the land only.
However, during the course of the review process, the town pivoted to a new agreement and approach that gives the town ownership of the land and the new apartments, with Triumph hired as a fee-based developer for the property.
“As we were going through negotiations and the in-depth cost analysis, we realized that there was an opportunity for the town to make this town-owned, operated and funded,” said Kathleen Halloran, director of finance for the town of Vail.
According to Ruther, the benefits of this pivot, for the town, are multifaceted:
- This would give the town greater influence and control over the apartment’s management and operations.
- It allows the town to take advantage of record-low interest rates in public sector financing.
- The project will generate annual revenues greater than the annual debt service over the life of the project, which could also leave funds for additional future housing and community needs.
- It achieves multiple housing and development objectives for the town, at a greater benefit to the community.
It is for these reasons that the town has crafted the new agreement with Triumph, which gives the town ownership of the land and its improvements. In addition to outlining the physical and logistical parameters of the project, the agreement would include, but is not limited to, the following:
- In retaining total fee title ownership, the town will utilize tax-exempt municipal bonds to finance the entirety of the project itself, currently estimated at $24.4 million.
- The town will fund all development costs prior to closing on bond financing, which is expected to close in October.
- The town will own the building and improvements constructed on the site.
- The town will retain the development and project management services of Triumph as a fee-based developer and project manager, paying Triumph a 6% developer fee based on total development cost.
- It will also retain Triumph as a property manager upon the project’s completion, paying Triumph a fee of 4% based on the project’s total revenue. The official management agreement for this will be fully determined at a later date.
- The town will pay Triumph a $3.5 million opportunity fee payment, which, as currently presented, would be paid in two installments. The first, worth $1.5 million, to be paid upon issuance of a building permit, and the second, worth $2 million, would be paid upon issuance of the final certificate of occupancy for the project.
On Tuesday, town staff was given the go-ahead to move forward in finalizing this agreement with Triumph, giving the town total ownership over the project. This was with the unanimous support of the council members. The Town Council will consider a final proposed development agreement during a public hearing at the July 6 Town Council meeting.
Because the new agreement gives all the financial responsibility for the project to the town, several financing options were discussed at Tuesday’s meeting.
The Town Council was presented with a number of financing options to fund the $24.4 million estimate. These options were based on four different debt-payment terms: 20-, 25-, 30- and 40-year. As the term increases, the interest rate, total interest owed and estimated profit would increase slightly while the debt service would decrease.
According to Halloran, the bond underwriter that was consulted for the project expressed that, since there have been no 40-year terms crafted since 1993 in Colorado, there would be resistance to these terms. Instead, the 40-year would likely be crafted with a 30-year term and an additional 10-year term, which would be subject to the interest rates 30 years in the future.
Council member Travis Coggin, who had initially requested the 40-year term, was in favor of the longer term to “hedge against any future uncertainty.” This however, would only be supported should the town find a fixed 40-year term and not a split term, as presented by the underwriter.
“My goal is to make sure there’s a project out there that I never have to worry about paying for any capital expenses, any downturns that may happen in the markets with rents,” Coggin said. “I’m looking at this from wanting to minimize that risk to the town and the town’s operating balance sheet and preserving sales tax dollars for all of the other things that we’re worried about every two weeks.”
Coggin’s perspective was backed by council members Jenn Bruno, Langmaid and Mayor Dave Chapin. Council members Kevin Foley and Brian Stockmar expressed their preference to a shorter term.
“I have long tended toward arguing for shorter terms in almost every debt situation, because it does tend to reduce the aggregate cost,” Stockmar said.
Ultimately, the majority of council members seemed to agree on the 30-year term. This stipulated — for Bruno, Coggin, Landmaid and Chapin — that the potential of a fixed 40-year agreement be fully evaluated, while settling on a minimum of 30 years if not possible. Foley and Stockmar noted their preference for a 25-year term but said they could both settle on a 30-year term if that was the majority opinion.
Other financial considerations discussed by the council included the appropriation of funds for both the $3.5 million opportunity payment and the $1.2 million first debt service payment — both of which will need to be appropriated because they will be due “prior to having enough rental income” from the property, according to Halloran.
Council unanimously agreed that the $3.5 million will be taken from the housing fund, supplemented, if needed, by the capital projects fund. According to Halloran, this will be finalized during the second reading of the supplemental budget at the July 7 Town Council meeting. At that meeting, the town will also have its first reading of an ordinance approving the debt payments on the property.
For the $1.2 million first debt service payment, council also unanimously agreed on a promissory note for the payment. This was something completed for the Timber Ridge apartments that would allow the $1.2 million to be repaid as interest-only until there were reserves available from the project to make the full payment.
Reporter Ali Longwell can be reached at firstname.lastname@example.org.