City of Aspen looking to spend $10 million to preserve rent-controlled apartments
The city of Aspen is considering spending $10 million to guarantee that the 148 apartments at Centennial condominiums are rent controlled in perpetuity.
Aspen City Council is being asked Tuesday to approve a purchase contract that buys the current deed restrictions on the privately owned units.
Currently, the deed restrictions controlling how much the owner, Centennial Aspen II Limited Partnership, can charge for rent expires at the end of the 21st year after the death of the last member of the Pitkin Board of County Commissioners who approved the development, which is 72-year-old Old Snowmass resident Michael Kinsley.
That was a deal struck by Pitkin County commissioners in 1984 as part of the conditions of building the complex, according to Sam Brown, general partner of the limited partnership.
Once the deed restrictions expire, the landowner can charge free-market rent or redevelop the property with far fewer affordable units on it.
Brown recently has solicited offers from prospective buyers to purchase the apartment complexes, and the city might want to secure the deed restrictions prior to that occurring, according to Chris Everson, the city’s affordable housing project manager.
Brown has received offers, although the city does not know who the prospective buyer is, Everson said.
Brown couldn’t be reached Friday for comment.
City Manager Sara Ott said Friday it’s incumbent on the municipal government to pursue the possibility of retaining a significant portion of the affordable housing inventory.
“Sam’s units were put up for auction so we have to pay attention to that,” she said, adding it’s a complicated deal. “It’s very difficult to price deed-restricted units.”
Everson wrote in a memo to council that staff estimates the current replacement cost of the units to be around $85 million in today’s dollars, but it’s difficult to estimate the value of extending the deed restrictions in perpetuity.
“Although it could be 40-plus years until the current deed restrictions expire, over time continued escalation of the replacement cost for these facilities is certain,” he wrote. “Also, as time moves forward the value of the expiration of the current deed restrictions to the owner of the facilities will tend to increase, which will likely cause the cost of extending the deed restrictions in perpetuity to increase over time.”
In an interview on Friday, Everson said it could be as much as a $400 million replacement value.
There are between 300 and 350 people who live in the units, which are a mix of studios, and one-, two- and three-bedrooms.
“There’s no good time to invest this money, and it’s very easy to second guess this investment, but as time goes on, it’s going to get more expensive,” Everson said. “It buys a lot of time when you think about the long-term viability of the (housing) program.”
Council members have previously discussed the potential deal in executive session.
City Attorney Jim True said the past deed restrictions and the associated documents are complicated.
If council approves the purchase agreement with Brown on Tuesday, there is a 30-day due diligence period to ensure that future deed restrictions and the management and maintenance of the apartments are in the city’s best interest, True and Everson noted.
“It’s not final, final, final when council approves this on (the consent calendar),” Everson said.
He and other city staff have been in talks with Brown for years on whether the city would buy the property outright. Eight or nine years ago, Brown had an asking price of $60 million. More recently, he offered the city $50 million but Everson said the city valued it around $30 million and declined the offer.
The price of the deed restrictions was negotiated, as well. Everson said the city started at $6 million, and Brown had a higher amount than the proposed $10 million.
The money would come from the city’s 150 Fund, which is funded by a real estate transfer tax that brings in approximately $7 million annually.
The 150 Fund balance is currently at roughly $24 million, according to Everson.
If council does pay Brown $10 million, as well as buy the Aspen Mini Storage property at the Aspen Business Center for $11 million for another affordable housing development, the city might have to issue debt to continue projects that are in process.
However, Everson said the shortfall might not be that significant and other options could be available.
If debt service does need to be issued, Everson said he would recommend general obligation bonds, which require voter approval.
“It’s important for us to be transparent with the program and it helps to reaffirm the importance of it with a public vote,” he said.