The opportunity to preserve a 96-unit apartment complex as affordable housing came by word of mouth, and while the bidding was stiff, the Missoula Housing Authority prevailed in its purchase, preventing the property from converting to market-rate housing.
The deal, which closed last month and was announced this week, is good news for tenants of the Wildflower Apartments, according to Lori Davidson, the Missoula Housing Authority’s executive director.
“If a private person had purchased these and raised the rents to market level, I don’t know what would have happened to the current tenants,” said Davidson. “It was a risk for them. Losing 96 units of affordable housing in Missoula would have been a huge loss for our community.”
The Wildflower Apartments, located at 1250 34th St. on the south side of Missoula, were constructed in 1993 as part of the low-income housing tax credit program. That tax credit was set to expire in 2023, placing the apartments at risk of converting to market-rate prices.
Davidson said a provision in state law, known as qualified contracts, also could have given a private buyer the right to convert the units sooner than the 2023 expiration date. The competitive bidding process saw a number of private buyers.
“It was such an important project to preserve that we put in a bid,” Davidson said. “They were accepting bids from both market-rate developers and nonprofits. We knew it was going to be incredibly competitive, so we bid the asking price.”
While the asking price was not disclosed, Davidson said the Missoula Housing Authority bought the units from an out-of-state company. The deal was completed using a bridge loan from First Interstate Bank.
Davidson said the structure of the long-term loan has not yet been determined, though closing the deal represents a community win. The bidding package had promoted the property toward market-rate buyers.
“We heard about it through word of mouth and were able to get a marketing package from the broker,” Davidson said. “We explored the financials we could get and determined it would be a great purchase for the housing authority. If we had not been the successful bidder, it would have been purchased by someone in the private market.”
The market-rate prices for multi-plex apartments in Missoula has climbed in recent years. In 2016, according to the Missoula Organization of Realtors, studios averaged around $550 while one-bedrooms fetched roughly $650. Two-bedroom units rented for $750 while three-bedrooms list at roughly $900.
Rent for duplexes trend much higher.
But the Wildflower Apartments are available to those earning 60 percent or less of the area’s median income. That amounts to roughly $27,700 for an individual and $39,500 for a family of four. The Wildflower units rent for 15 to 20 percent less than the market rate.
“We know that housing preservation is key, not just continuing to add new housing, but making sure we have an adequate housing supply for people who are making the lowest income in our community,” said Eran Pehan, who heads the city’s Office of Housing and Economic Development. “These compare with the units Homeword was able to preserve at Creekside, and it will have an enormous impact on the affordable housing stock we’ll have for the next few years.”
In August, Homeword closed its purchase on Creekside Apartments, located on East Broadway, in a similar effort to keep the units as affordable housing. That property, like the Wildflower Apartments, was constructed in the 1990s using tax-exempt bonds and housing credits.
The Creekside purchase cost roughly $12 million, though it equates to just $85,000 per unit. Davidson said it costs less to preserve existing housing as affordable than to build new housing.
“It’s so hard to build new affordable units now because the financial methods are so competitive and limited,” Davidson said. “To lose a project of this size that offers three-bedroom apartments would have been a huge loss for our community.”
Three-bedroom units are rare at affordable housing prices, Davidson said, adding that the vacancy rate for affordable units of all sizes in Missoula stands at zero. The purchase increases the Missoula Housing Authority’s inventory to 750 units, though a recent study found a need for more than 1,000 additional units.
“There’s 1,200 families that qualify for this housing that aren’t being served,” Davidson said. “We all know how important affordable housing is, and we’re struggling to increase the number of units we have available to people.”
Missoula’s low median income and tight residential market have left many households paying more than 30 percent of their income on housing, according to a Community Health Assessment released last month.
The city’s housing affordability, or lack of it, has been central to several recent economic presentations, with economists warning that the cost of housing compared to the average income could serve as an economic anchor moving forward.
Pehan said the city’s new housing task force is exploring ways to address affordability. Keeping existing units from converting to market-rate prices will be key to the equation, especially given the cost of new construction, she added.
“We know it costs pennies on the dollar to preserve what we already have as opposed to building new,” Pehan said. “Key in any affordable housing policy will be to provide as many tools as possible to our partners like the Missoula Housing Authority to keep these affordable units in the market and keep them available to families who need them.”