Fornell closes on Park Ave. property for $4.M
December 12, 2014
The city's lone participant in its housing certificate program has closed on a fourth property he plans to flip, a Park Avenue apartment complex purchased for $4.1 million Dec. 3.
Developer Peter Fornell said the deal with Bald Mountain Development, which acquired the property in 2013 for $3.7 million, consists of a combination of housing certificates and cash. Bald Mountain plans to use the certificates to satisfy affordable-housing mitigation requirements for its South Aspen Street townhome project, One Aspen.
Established in 2010, the certificate program is meant to encourage the construction of affordable-housing inventory that immediately offsets development impacts. The credits are distributed to developers who build beyond housing requirements. The developers can then sell the credits to others looking to mitigate their own projects.
Fornell and investors have built 27 affordable-housing units across three respective sites on Main Street, Hyman Avenue and at the Aspen Business Center, and he plans to build between 20 and 25 more at 404 Park Ave. All of Fornell's current units are either Category 2 or Category 3, and the plan is to continue building at entry level in Aspen.
"It's proven to be where the demand is," Fornell said Thursday.
Earlier this year, Fornell built 11 units at 518 W. Main St. consisting of eight two-bedroom units, a three-bedroom unit, a one-bedroom unit and a studio. With Fornell handpicking the buyer for one unit, the other 10 garnered about 240 applicants, he said.
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Community Development Director Chris Bendon said Thursday that the use of certificates as cash is an unexpected but welcomed practice, one that speaks to the credibility of the program. Since the program began, he's seen a trend where developers are opting for certificates over cash-in-lieu payments, a practice that has been criticized for not producing adequate funding for housing development. By purchasing certificates, applicants also avoid the Aspen City Council, which reviews all cash-in-lieu requests that mitigate for more than one full-time-employee equivalent.
"We're thrilled with the program," Bendon said.
In September, the state recognized the success of the certificate program with an American Planning Association award, and Bendon said Basalt and Glenwood Springs are both looking at similar arrangements.
Fornell hopes to see other developers participate in the city's certificate program, but he said it requires a lot of risk up front. Using 518 W. Main St. as an example, he said he and investors spent about $2 million on the lot and $4 million on construction. The sum total of sales for all units was about $1.5 million. In order to make up the rest and see a profit, Fornell and investors have to sell off certificates, which go for between $180,000 and $330,000, depending on the size and category of the unit.
"You take a pretty dramatic loss to create these things and take a pretty substantial amount of risk under the notion that certificates will subsequently be sold to developers who will need them," Fornell said. "To date, they have."
At 518 Main St., Fornell has sold 14 certificates.
Bendon said his guess is that there is demand for more certificates to enter the market. However, if there are a lot of certificates out there, holders might be sitting on them for a while.
"If you need your money back right away to move onto the next project, that could be an issue," Bendon said. "There's enough activity in the market that I wouldn't think that we're saturated."