Aspen’s housing credit program signaling some weaknesses

The creation of a marketplace for affordable housing eight years ago has resulted in new homes for roughly 70 locals.

It’s called the Certificate of Affordable Housing Credits Program and was the brainchild of longtime local Peter Fornell. He convinced city officials in 2010 to create the program, which allows a developer to build affordable housing and get a credit for each unit that comes on line. That credit can then be sold to another developer who uses it to fulfill employee mitigation requirements on a separate project.

That mitigation money has historically sat in the city’s coffers for years before any housing comes online.

As the main participant in the program, Fornell has built three affordable-housing complexes and is planning on another at 404 Park Circle.

“The housing comes before the mitigation does so this is far superior for the community,” he said.

So far, Fornell has generated 62 credits and sold 58 of them to other developers who needed to offset their projects. Rather than paying the city its cash-in-lieu fees or build their own affordable housing on site, they pay Fornell. That was the case for Mark Hunt, a prominent landlord downtown, who bought seven credits for the redevelopment of the old Gap building on Galena Street and has more in his back pocket in anticipation of future projects, Fornell said.

“I usually charge $330,000,” he said of the certificate price, which is close to what the average cash-in-lieu calculation made by the city is. But that number does fluctuate, Fornell added.

Aspen City Council on Monday considered many issues related to the program, one of which was whether the municipal government should be privy to the sales prices for a certificate. Right now, the city has no data and no mechanism to require a seller to disclose the information.

The majority of council agreed that there needs to be transparency within a government-sanctioned program and it is in the best interest of the public to know what is happening in the market.

Fornell and Chris Bendon, a land-use planner who represents clients who are interested in the market, told council it’s proprietary information and would harm negotiations between the buyer and seller.

Their arguments weren’t enough to convince council.

“We have set up a market and they are better when they are transparent,” said Councilman Adam Frisch, adding that it also spurs competition. “More transparency makes the market bigger.”

Prior to the meeting, Fornell said he sells an average of 10 certificates a year, generating between $2.5 and $3 million annually. All told, he’s sold over $19 million in credits.

But the profit margin is slim, because Fornell and his partners have all of the upfront costs of buying land and building the complexes. He eventually sells the units but based on income categories, those prices are typically set low.

What’s really limiting Fornell’s financial model, he said, is the city not raising the cash-in-lieu fees on developers. Until recently, the fees hadn’t been increased in three years. Meanwhile, real estate prices and construction costs have.

“It’s arbitrarily low,” he said. “It’s a limiting factor for me.”

Aspen City Council updated the numbers in March and increased them by 7 percent. Council also asked staff to complete a more thorough analysis of the cash-in-lieu fees for 2019.

In the past, Fornell has asked elected officials to increase the fees so creating affordable housing in the private sector is economically viable.

He said if those fees aren’t increased, he will get out of the business after the Park Circle project.

“This is not a money maker,” he said. “Circumstances as they are, I doubt I will enter this arena after this project.”

On Monday night, some council members struggled to understand the nuances of the program, or give direction on issues that have emerged as it has matured since 2010.

“I know this is incredibly complicated,” said Jessica Garrow, the city’s Community Development director.

For more than three hours, council discussed at length questions related to buy-down units when existing free-market, multi-family housing complexes are converted into credits; lending and rental requirements; rental unit sales prices; bonding when credits are no longer available in the marketplace and governance over the program.

But council muscled through the issues and gave direction on numerous issues for Garrow’s department to work on. She will come back later this year or in 2019 with more specific policy recommendations.

“The complexity of this program is daunting,” Mayor Steve Skadron said. “Attempting to understand the ramifications (of council’s decisions) is impossible.”