Tampa-based InVictus Development must reduce costs across the board for its "Parramore Oaks" affordable housing project in downtown Orlando, delaying its closing on public land and Phase 1 groundbreaking by an estimated five months.
InVictus emerged from a competitive bid process in early 2016 as the chosen developer for 6.34 city-owned acres in Parramore, with plans for 211 units of mixed-income residential across two phases.
The land is located on the northwest, southwest and southeast corners of Parramore Avenue and Conley Street, just a few blocks south of Orlando City Soccer Club's new stadium.
Building designs for Parramore Oaks were approved in October by Orlando's Appearance Review Board. At the time, a lead executive with InVictus said the company should close by this month on the Phase 1 land, with construction plan design the next step.
The developer is under contract to pay more than $319,000 for the Phase 1 property (roughly 4.3 acres), and about $155,000 for the Phase 2 property (2.04 acres) in staggered transactions over two years.
But now, InVictus has hit pause on Phase 1 of its land acquisition and construction to undergo value engineering and reduce costs, president Paula Rhodes told GrowthSpotter on Wednesday.
Recent bid responses by subcontractors were higher than anticipated, forecasting a 14 percent increase in total cost for Phase 1, which InVictus originally estimated at $23.7 million.
Higher bids have been driven by everything from increased tariffs on imported lumber, the proliferation of market rate apartment projects in the region and other factors driving demand for labor and materials, Rhodes said.
"We're now spending significant time value engineering the project to bring the cost down. That has delayed the start date. I'm now anticipating being able to close (on the Phase 1 land) and starting site work in June," she said.
InVictus and its project team of Royal American Construction, Forum Architecture & Interior Design and GLE Engineering can find savings opportunity in areas like reducing the width of hallways slightly, the number of stairwells and elevators, and reevaluating any square footage that is not leasable.
Inside the apartments and townhomes, typical value engineering looks at lowering the cost of materials used, and whether non-essentials like a kitchen island or half bath are necessary.
"One way or another, we'll figure out how to get this done," Rhodes said.
Orlando's City Council will consider new amendments on Feb. 26 to the Parramore Oaks development agreement between InVictus, the city and Community Redevelopment Agency, and to the sale agreement for the land.
In December 2016, the CRA entered into sale and development agreements with InVictus for the Parramore Oaks project, on property owned by the city and CRA.
InVictus was awarded a favorable 9 percent Low Income Housing Tax Credits (LIHTCs) loan of $21.3 million in June 2017 through the Florida Housing Finance Corp. (FHFC) for Phase 1 of the project, which is the first 120 units.
SunTrust Community Capital will purchase the tax credits that will produce the equity to pay for the bulk of the development cost, Rhodes said. SunTrust Bank will make a private construction loan, and Pillar Financial will provide permanent financing.
But for the Phase 2 purchase and sale agreement, InVictus is working toward financing that phase and applied to the FHFC for 9 percent LIHTCs in late 2017. Because LIFT Orlando received the city's Local Government Preference award for that round of LIHTC financing, InVictus no longer stands much chance of winning it.
InVictus will therefore apply for the 9 percent LIHTC financing in an upcoming 2018 round of applications, due March 8. In order for its application to be competitive, a funding commitment of $491,400 from the city government is required.
So next week's second amendment to the development agreement removes a $75,000 grant formerly approved by the CRA should InVictus have been approved for Phase 2 in 2017, and replaces it with a $491,400 grant if InVictus obtains the financing this year.
InVictus' original development agreement with the city required it to begin Phase 1 construction within six months of closing on its construction financing, and finish Phase 1 within 18 months of the groundbreaking. The developer must follow similar completion dates after closing on the Phase 2 property.
The project was stalled a number of months in early 2017 when several competing bidders for those LIHTCs filed legal challenges over the FHFC selection of Parramore Oaks.