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Missoula City Council enthusiastically backs $54M tax exempt housing project

Vallagio apartments
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MISSOULA — The Missoula City Council on Monday swooned over an affordable housing project planned for the north side of Missoula before it goes to the state seeking tax-exempt status.

The $54 million project is funded by a combination of grants, public tax dollars, private funding and other sources. The city has contributed more than $2 million to make the project possible.

“It’ll be a huge addition to the north side, and there will be a lot of impact from it,” said council member Gwen Jones. “We do have a huge need in Missoula, and our housing prices continue to go up. Our income has gone up some – our median average wages – but not to the point of keeping pace with our housing prices.”

The project received approval from the Board of Adjustments last month and sweeping support from council members along the way. The Vallagio will provide 200 units of permanently affordable housing at a cost of $54 million.

That breaks down to around $270,000 per unit. The projects could win tax-exempt status and be permanently affordable for nearly 50 years. The debt financing adds up to around $63 million, including the construction loan and permanent financing.

Councilmember Heidi West, an ardent advocate of subsidized housing, praised the project, saying the city needs more affordable housing at whatever cost. She also is pushing for a general obligation bond to seed the city’s new affordable housing trust fund.

“I know what a challenge it is for folks to find units that are affordable that could accommodate, maybe multiple children, maybe single moms or whatever kind of arrangement,” she said. “The cost of bringing housing to the market is huge.”

The costs are high indeed, something the development team and other housing advocates have noted over the past few months.

Project backers have described the financing as challenging. It involves a wide array of sources, including 4% low-income housing tax credits, $1.2 million in state HOME funds and $1 million in city HOME funds.

It also includes $1.3 million in tax increment financing and $3.9 million through a deferred developer fee, according to project developers.

“The total development budget for this project is hovering right around $54 million,” said Keenan Whitt with BlueLine Development. “We’ve done everything to mitigate a really complicated site to have a design that fits the budget and fits the need.”

If tax-exempt status is granted, the project is set for groundbreaking in the spring of 2021 and would take 20 months to complete.

Monday night’s hearing came with no vote but only to muster public comment on whether the project meets a public benefit or community need.

“Demonstration of a public benefit is a necessary component that allows a project to qualify for tax-exempt status as permanently affordable housing,” said Eran Pehan, director of the city’s Office of Housing and Community Development. “The city has provided significant support to this development to date through the allocation of federal entitlement funds and tax increment financing, upwards of $2 million total.”

The Vallagio is just one of several permanently affordable and subsidized projects moving forward in Missoula that will once completed, offer nearly 500 units.

The Trinity project, planned off Mullan Road and West Broadway, includes public land once allocated for a jail expansion. Missoula County commissioners donated the roughly 4 acres to the housing project last year. That decision was controversial.

“Between the Vallagio and Trinity, we’re making amazing strides at reaching our five-year goal of rental housing in our community,” said Jones.