Martin Kidston/Missoula Current

Rising interest rates, construction costs and a lack of city infrastructure led a Missoula housing developer on Thursday to seek an increase in financing assistance to keep a 39-unit housing project viable.

But the request was denied by the Missoula Redevelopment Agency's board of commissioners based upon standing practice that frowns upon a recalculation of assistance after an award already has been approved.

“Everyone in this room is sympathetic to the situation you're in,” said board member Tasha Jones. “But if we were to open the floodgates in this manner, then literally every project that inevitably experienced some sort of delay, unexpected costs or escalation in the market, we'd be creating a very significant problem for us on an ongoing basis.”

Otis LLC is looking to develop a 39-unit apartment building on the corner of Scott and Otis streets. The project was intended to provide housing deemed affordable with a target hitting 68% of the area median income.

Project manager Adam Hertz said it's a well-designed and needed project but was now on the verge of becoming nonviable due to escalating costs and unexpected delays in permitting.

“It's really challenging to hold those rents and make this project viable with such drastic increases in construction costs, in addition to an interest-rate environment that hasn't been friendly to us. This project is on the verge of viability.”

Last August, MRA approved Otis LLC's request for funding in the amount of $315,000 to aid in the construction of public infrastructure, including water and sewer extensions, sidewalks and other necessities.

But on Thursday, the developer sought an additional $275,000 to cover rising market costs. Transportation costs for the project have increased 30%, PVC needed for plumbing is hard to obtain, and contractors are busy elsewhere in the city and hard to get bids from, according to Kody Swartz of Woith Engineering.

He added that the lift station that serves the area doesn't have the capacity to support the Otis apartment project. That wasn't known until the permitting process began, and it would add another $45,000 to the project.

“I think it was an oversight by city engineering due to the capacity caused by the Vallagio, which is a great project and a project I support, but not a project we want to pay upgrades for,” Hertz said. “That's a big elephant in the entire area and all of the projects going on in the area.”

The Vallagio will provide 200 housing units on Scott Street. Other developers said it has pushed the area's lift station to capacity so that it can't support other projects.
The Vallagio will provide 200 housing units on Scott Street. Other developers said it has pushed the area's lift station to capacity so that it can't support other projects.

The Scott Street district is growing rapidly and includes the Vallagio development, which will bring 200 affordable housing units to the market. Other projects are also taking place and a city, in partnership with Ravara LLC, is planning a development that would bring hundreds of more housing units to the area.

Add it all up and Otis LLC said the infrastructure in the area can't support the growth and could deter private investment and additional housing opportunities if not addressed.

“Last August when we came before the board, our total development cost was a little under $5.2 million. It's a little over $7.2 million now,” Hertz said. “The cost of everything has gone up.”

MRA said it sympathized with the developer and illustrated the challenges of building housing, let alone affordable housing in Missoula. Still, it couldn't grant a second financing request, the board concluded.

The agency said it was “very diligent in encouraging applicants to have their numbers firm before they come to the board and ask for funding.”

“It gives us the ability to budget, the ability to plan and look at people that come in and make sure their projects are well-planned and timely so that when we do set aside money for a project, we're reasonably assured that the project will come in as close as possible,” said board member Karl Englund. “It's too big of a can of worms.”