BRATTLEBORO — If all goes as planned, downtown Brattleboro will have a new co-working space at 47 Flat St. by the fall of 2022.
“We really want to create a space where people can work remotely, bring their city jobs here and have a good place to work that is high-quality, peaceful, productive and right in the downtown,” said Skye Morse, investment director of M&S Development.
The building, most recently known as the Sanel Building but historically known as the DeWitt Grocery Warehouse, will have a co-working space with seven offices on the ground floor, and 19 apartments — studios and one- and two-bedroom units — on the upper floors.
“This building and development model is kind of a pilot project to establish a new model for funding affordable housing that includes different types of housing tax credits,” said Morse. “And we are tapping into a number of other funding sources that have not traditionally been used for housing. We hope to bring a new approach to housing creation in the state.”
According to Morse, this project will utilize a new qualification structure recently created by Housing and Urban Development, but which has not yet been used in Vermont. This structure will see half the units set at rents affordable to those making 40 percent of area median income, and half set at 80 percent, for an average of 60 percent. This allows the project to serve some families in the “missing middle,” which has been widely discussed in Vermont as a segment of the population that is particularly underserved from a housing perspective.
To be considered a tenant of one of the new housing units, applicants will have to make between 40 and 80 percent of the area median income in Windham County. That means the affordable studio units will be reserved for individuals making $22,000 to $44,000 a year, said Morse, and two-bedroom units will be available to families making up to approximately $56,000.
“We hope that we will have all family types in the building,” he said, especially people who work downtown. “Allowing people to live where they work negates the necessity for a car, which is often the largest personal expense after housing.”
For Brattleboro Savings & Loan, which is a limited partner during the development phase, that means some of its own employees could be living there when the build-out is complete next fall.
“Even though we think we pay a good wage, it’s expensive to rent a decent quality housing in Brattleboro,” said Tom Martyn, chief operating officer and chief financial officer. BS&L has a starting wage of $15 an hour.
Dan Yates, president of BS&L, said the bank has invested “a significant amount of money” in the development phase of the project.
Once M&S has secured its “funding stack,” he said, BS&L will purchase some of the low-income tax credits that are part of the funding.
Morse said they hope to close on the property this fall and start construction shortly thereafter.
The building has been vacant for several decades, mainly used for storage by the current owner, BQ Realty and Peter Johnson, who also owns Emerson’s Furniture on Elliot Street.
FUNDING STACKAccording to documents submitted to the Select Board last year, the purchase price for the building is $371,000.
“The owner has been extremely patient and generous with us,” Morse said. “It has taken a long time to put this deal together.”
While M&S will be the owner of the housing units, a new nonprofit, Community Development Support Inc., will own the co-working space on the first floor. That portion of the renovation is estimated to cost $1.6 million.
The Northern Border Regional Commission awarded CDS a grant of $350,000 to pay for the co-work space proposed for the building.
According to its website, the NBRC “is a federal-state partnership for economic and community development in northern Maine, New Hampshire, Vermont, and New York. Each year, the NBRC provides federal funds for critical economic and community development projects throughout the northeast. These investments lead to new jobs being created and leverages substantial private sector investments.”
CDS also received a $493,000 Community Development Block Grant.
In addition, the town of Brattleboro set aside $150,000 from its revolving loan fund, a 30-year, 1 percent note.
“Every little bit helps,” said Morse.
The funding stack also includes construction and bridge debt from the Vermont Housing Finance Agency, permanent debt from VHFA and the Vermont Housing Investment Fund at $2.1 million; an award of Vermont Downtown and Village Center tax credits; and various rebates, incentives, and co-investments from organizations such as Efficiency Vermont, Green Mountain Power, and the Windham Regional Commission.
Morse said the developers will also have a mortgage on the property from the Vermont Housing Finance Agency.
“Aside from the debt, the largest sources of funding are the low-income housing tax credits,” said Morse. “The second largest is federal historic tax credits.”
Those tax credits total about $3.8 million.
Yates said BS&L will purchase some of the tax credits, handing cash over to M&S, “as we have done numerous times in the past to support projects with the Windham Windsor Housing Trust.”
“It can be attractive for banks or for larger investors to participate in any of these types of projects because the tax credits offset federal and state taxes,” said Martyn.
In Vermont, banks pay a franchise tax, not an income tax, and a portion of the tax credits will be used to reduce its obligations to Vermont, he said.
“It is extremely hard to make it pay to renovate buildings to acceptable living standards,” said Yates. “Somehow Bob [Stevens] and Skye and M&S Development have figured out a way for private developers to make this work.”
“Brattleboro Savings & Loan has been a huge supporter of this project from the start,” said Morse. “They helped to finance the development process, which includes hiring an engineer and architect and executing across a whole range of development activities.”
Developers must apply for tax credits through the Vermont Housing Finance Agency, which is chartered as a private non-profit agency to finance and promote affordable housing opportunities for low- and moderate-income Vermonters.
“The credit has grown to be the single largest source of money to create affordable rental housing,” said Maura Collins, the executive director of the VHFA.
Since the 1960s, when the Department of Housing and Urban Development developed high-rise “projects,” affordable housing has “evolved,” said Collins, bringing in private capital and investment and to let states guide the programs.
In the late 1970s, the Community Reinvestment Act was created, to encourage banks and other financial institutions to get involved in investing in affordable housing in their communities, said Collins.
In 1986, the low-income housing tax credit program was created, with both a 9 percent and 4 percent option.
“The 9 percent tax credit was initially used to translate into providing enough equity to cover 70 percent of costs,” said Collins. “The 4 percent tax credit, which M&S is using, doesn’t cover as much as the up-front development costs, about 30 percent.”
Vermont receives a limited amount of 9 percent tax credits, and they are always used. Collins said the process is highly competitive and often times projects are put on hold because there are not enough available.
“We set the eligibility bar really high,” said Collins.
However, she noted, 4 percent tax credits are “virtually unlimited” in Vermont, though they are usually used to rehab existing rental housing, not to build new or to renovate an old warehouse and turn it into apartments, she said.
“We would love to see more developers get creative about using them,” said Collins, who admitted developers like M&S Development have to work harder to find other funding sources to make up the difference.
“But we are in an interesting time,” she said, “with [COVID-19] stimulus money being directed toward housing.”
M&S has applied for stimulus dollars through the Vermont Housing and Conservation Board to help cover increased costs due to material price increases and labor shortages, as well as to the Vermont Agency of Commerce and Community Development and the Department of Environmental Conservation for funding to remediate existing environmental contamination at the site, but those awards won’t be made until later this month, said Collins.
Collins said she expects more developers to apply for the 4 percent tax credits as American Rescue Plan Act and infrastructure money comes available.
“Developers have to work really hard to pull together the different sources of money and make sure they all work well together,” she said.
M&S also applied for, and received, nine project-based Section 8 vouchers that are good for 20 years, said Kathleen Berk, the executive director of the Vermont State Housing Authority.
“This is a huge investment in rental assistance over the long term,” she said.
The mission of the VSHA is to provide housing to low income families in Vermont and to administer federally funded rental assistance programs.
The nine vouchers are targeted at families that have an area median income of 50 percent or lower, said Berk.
“Each family will pay 30 percent of their income toward rent, with VSHA subsidizing the balance,” she said.
Berk said these vouchers are similar to the 55 vouchers VHSA provides for residents at the Brattleboro Housing Partnership’s Red Clover Commons on Fairground Road.
When the Sanel Building project was first presented to the Brattleboro Development Review Board in August 2020, it was estimated to cost about $7 million. But due to increases related to the COVID-19 pandemic, the estimate has risen to more than $10 million, said Morse.
Nonetheless, M&S and Community Development Support Inc. believe they will have the funding they need to make it happen.
M&S Development was formed in 2014 as an outgrowth of the effort to rebuild the Brooks House after it was almost destroyed by fire on April 17, 2011. Since then, M&S has been a development partner in a number of local projects, including the proposed Brattleboro Museum & Art Center expansion, and expansions to the GS Precision, and Chroma Technology manufacturing facilities. In total, M&S has completed over $110 million in economic development projects in the last seven years.
M&S is also the development consultant on the Putnam Block project, controlled by the Bennington Redevelopment Group.
As part of the financing, the Bennington Redevelopment Group received investments of $25,000 from private individuals with a target 10-year investment term.
“We are applying a similar model to Flat Street as that employed on Putnam Block where we are looking to bring in private investor capital from local individuals in order to reduce our need for scarce public funds,” said Morse.
In August 2020, explaining to the Brattleboro Select Board the project, Morse noted 25 percent of the housing units will be set aside for the elderly and 15 percent dedicated to “the formerly homeless.”
Brattleboro’s vacancy rate is at a historical low of 1.6 percent.
“They are setting rents so that some of the folks living there can earn far less than that, only 20 percent of AMI, and they have a couple of units they will charge rents at 80 percent,” said Collins.
“This revitalization is part of the reinvigoration of Flat Street,” said Morse. “In order to have a vibrant community, you have to have people living downtown. We hope this is going to bring a boost of energy to this part of downtown.”
Yates said for BS&L, investing in projects like this is not just about reducing the bank’s tax liability.
“It’s also about this is where we live,” said Yates. “What are we doing to make this a better place?”
“Small towns in America are either dying on the vine or slowly thriving,” said Martyn. “I do believe we are in the latter category.”