Tampa-based InVictus Development is asking for another $500,000 in incentives from the city of Orlando for its "Parramore Oaks" affordable housing project in downtown, and has reduced costs and contractor fees across the board to control an inflated budget.
Orlando's City Council will consider the request at its May 29 meeting. Staff are recommending approval of a second amendment to the Phase 1 land purchase agreement with InVictus, and a third amendment to the Development Agreement.
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 2017 by the city's Appearance Review Board, and at that time the developer anticipated closing on the Phase 1 land by February.
But InVictus hit pause in February on that acquisition ($319,000 for 4.3 acres) to undergo value engineering and reduce costs, with its land purchase delayed until mid-July.
Since then, InVictus has taken steps to redesign and reduce construction costs, negotiating down its general contractor fee by $525,000, increasing its conventional permanent loan by $1.425 million, deferring payment of approximately $950,000 for its developer fee, and negotiating a 17 percent discount in its property management fee.
InVictus was awarded a favorable 9 percent Low Income Housing Tax Credits (LIHTCs) loan of $20.78 million in June 2017 through the Florida Housing Finance Corp. (FHFC) for Phase 1 of the project (the first 120 units). They recently applied in March for LIHTC financing for Phase 2.
The city and CRA agreed in the initial Development Agreement to provide up to $648,000 as an affordable housing incentive for Phase 1 of the project.
Now InVictus is asking, in a third amendment to that DA, for another $500,000 in incentives to help cover part of the funding gap created by a sharp increase in construction costs, decrease in equity pricing, and rising interest rates since its initial approval of LIHTC financing.
Total CRA funding for Phase 1 would now total $1.148 million ($9,567 per unit), which is consistent with InVictus' initial RFP submittal.
A myriad of factors have affected the project budget and necessitated the request, president Paula Rhodes told GrowthSpotter.
One of the worst wildfire and hurricane seasons in recent U.S. history last year has driven up costs for building supplies. New apartment construction is hot, further driving demand for labor, she added.
"Tariffs on Canadian lumber have caused price hikes of 20 to 40 percent. Then on the other side, the tax reform act lowered the corporate tax rate significantly, which reduces demand for tax credits and reduces the pricing," Rhodes said.
"And it's not just actual tariff actions like on lumber, but the volatility that comes from discussions of imposing other tariffs like those on steel. The market then anticipates tariff impact with a price rise."
InVictus' perm-loan, a Freddie Mac product to be sourced through Pillar Financial, will now be roughly $4.5 million, up from an anticipated $3.075 million when the developer first applied for tax credits in December 2016.
Still on pace for a mid-July closing for its Phase 1 land, Rhodes and partner Rick Cavalieri anticipate having their construction permit by then and would break ground on the Parramore site within two weeks.
Their current estimated development cost for the 120 units in Phase 1 is $26.5 million, up from $23.7 million in late 2016.
The latest engineering savings came from removing an elevator from one of the buildings, changing air-conditioned hallways in the larger building to open-air, reducing square footage by eliminating some storage closets, eliminating tuck-under parking, and moving some units from a three-story building over to a four-story, which freed up design of the buildings.
On the townhomes in Phase 1, redesign included eliminating garages so now each two-story unit has open-air parking behind. The original 19 townhomes across three buildings was reduced to 16 across two, with those three units shifted over to multifamily.
SunTrust Community Capital will purchase the LIHTCs that will produce the equity to pay for the bulk of the development cost. InVictus' project team includes Royal American Construction, Forum Architecture & Interior Design and GLE Engineering.