A rendering of the condominium project proposed at 104 Grant St. in Portland.  Courtesy of Ryan Senatore Architecture

A Portland developer is seeking a nearly $2.8 million tax break from the city in exchange for building small housing units aimed at workers priced out of the city’s hot real estate market.

If approved, it would be the city’s first tax break for a project promising workforce home ownership units, as well as the city’s first income-restricted housing project not to rely on a state subsidy in the form of a low-income housing tax credit, according to the city’s housing director.

The developer says it’s a model that could be replicated elsewhere to encourage the construction of owner-occupied housing that’s affordable to middle-income earners – a segment of the market that Portland and other urban communities are struggling to supply.

The four-story condominium building is planned for 104 Grant St. in Parkside, a residential neighborhood sandwiched between Deering Oaks and the West End. It would include 22 one-bedroom units and one two-bedroom unit ranging in size from 497 square feet to 760 square feet with prices of $200,000 to $355,000.

Watson Renewal Grant LCC, a partnership between Renewal Housing Associates and Port Property Management owner Tom Watson, is asking the city for a 30-year tax break to help finance the construction of the $6.5 million project. The city would keep 25 percent of the tax revenue, while reimbursing 75 percent to the developer – a tax break of $2.8 million over the life of the 30-year agreement.

The tax increment financing agreement would allow the developer to set aside 12 units that could be sold for less than $250,000 – a threshold city officials consider affordable to families making 20 percent more than the area median income, which is currently $65,100 a year for an individual and $74,400 for a two-person household. Most of those 12 units would be about 600 square feet in size, the equivalent of a 20-by-30-foot space.

“This is the first affordable housing TIF project that’s not associated with a low-income tax credit project,” said Portland’s housing director, Mary Davis. “It’s also the first affordable housing TIF project associated with home ownership housing as opposed to rental housing.”

Renewal Housing’s Todd Alexander told councilors Wednesday when presenting the tax break request that the proposal represents a new approach to meeting the city’s goal of creating more housing that’s affordable to middle-income earners.

To highlight the relative affordability of each unit, Alexander said the average sales price of 265 condos sold on the peninsula last year was $444,000, and the current average listing price for condos on the peninsula is $745,000.

“The average sales price on this project is going to be below $300,000,” Alexander said. 

Alexander said Thursday that the so-called workforce units would remain affordably priced for certain periods through deed restrictions. He said two units would be be price-restricted for 30 years and six units would remain below-market for 10 years. Four additional units supported by a MaineHousing grant would be price-restricted for nine years.

Detail of the floor plan of residences at 104 Grant St. in Portland, showing two condos on the right, each over 600 square feet. The larger condo on the left is roughly 750 square feet. Rendering courtesy of Ryan Senatore Architecture

Floor plans show one 497-square-foot studio and 22 one-bedroom units ranging from 615 to 756 square feet, with galley kitchens and small dining and living areas. The one two-bedroom unit has 750 square feet.

The relatively small units – a small ranch-style house typically has 1,000 to 1,500 square feet – reflect a national trend driven by a lack of housing for workers.

Portland is one of many cities around the country facing housing shortages and historically high prices as most people are looking to live and work in urban areas, and as construction costs rise. New construction is often aimed at higher-income buyers, while some developers rely on public subsidies to build for low-income families. That leaves few options for workers or families in the middle.

To meet this need, many urban housing developers have begun building even smaller housing units than those proposed in Parskide. Those so-called micro-housing units generally have between 280 and 450 square feet of space.

The Parkside proposal was briefly presented Wednesday during a joint meeting of the City Council’s Economic Development and Housing committees.

City Councilor Jill Duson, who leads the Housing Committee, said on Thursday she is eager to learn more about the project and hear input from the council’s Finance Committee, which typically reviews and provides guidance to city staff negotiating these types of financing requests.

Duson said a “creative affordable housing TIF” could become another tool for the city to encourage workforce housing, along with its other longstanding programs.

“The mechanism they’re proposing, I think, is going to move us forward leaps and bounds to the next project, to where we’re talking about financing and leveraging for family-style workforce housing,” Duson said.

The project, dubbed The Goodwin, stems from Watson’s purchase of a piece of city-owned land in Bayside.

In 2017, Watson won a competitive bid to purchase a city-owned parcel at 82 Hanover St. in that neighborhood. As part of his purchase and sale agreement, Watson agreed to redevelop the Grant Street parcel into housing, though no promises of affordability were made.

The proposal drew both support and criticism during a brief public comment period Wednesday.

Bayside resident George Rheault suggested that Watson gained an unfair advantage over other bidders for the Bayside land by not disclosing that he would come back and ask for a subsidy for his housing project.

“I do not recall – and please correct me if I missed it – that this would only happen with a deep subsidy for the city,” Rheault said. “He was offering you basically political cover, now years later he’s saying he needs a handout. That to me says a lot about this entire process.”

But Dana Totman, president and CEO of the nonprofit housing provider Avesta Housing, which did not win a bid to redevelop a different city property in Bayside, spoke in strong support of the request. Totman said that he recently attended a national conference where nonprofit housing providers were struggling to figure out ways to create affordable home ownership opportunities for middle-income families.

“There’s very little being done in the country,” Totman said. “It’s really, really hard to take the cost of construction and bring that down to something that’s affordable. I think the TIF is clearly needed to make this possible.”

Alexander said the financing agreement would not only benefit the development but the city as a whole, because home ownership units would result in more taxable value for the city than apartments.

He estimated than an apartment project would produce $1.65 million in property taxes over 30 years, while the condo project would produce $2.1 million in financial benefits for the city over the same period, even with the tax break request by the developer.

“The city actually makes more money by supporting this project with an affordable housing TIF than it would receive if Tom goes and builds 23 units of market-rate (rental) housing. That’s a fact,” Alexander told councilors. “It’s a great model. There’s something here that could be replicated.”

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