On March 7 of this year, my proposal to address workforce housing was voted 6-0 in favor of proceeding with a plan directly working with the Lee County School District. Our proposal is as follows:
We have identified two sites owned by the School District. The School District hires Allan Development Group as lead developer to construct a Class-A apartment complex on surplus land owned by the School District and located in a high quality submarket of Fort Myers and Cape Coral. Currently, the land is not considered in the School District's forseeable future plans, which they consider "surplus property."
The School Board owns and operates through a third party management firm the new development. Funding mechanisms can include Certificates of Participation and/or General Obligation bonds by way of a non-profit entity.
For a performance-based fee, Allan Development Group, with School Board approval, will assemble a team, design, value engineer, and be involved in day to day construction management of the new development.
Our most recent financial model and construction cost estimates indicate that the apartment complex, at a 93% occupancy rate and a 4.0% bond interest rate will have a Net Operating Income of over $650,000 on a 380-unit apartment complex on one of their 20-acre disposable sites in Fort Myers. The pro forma suggests rental rates at nearly a 20% discount from current market rates, and is a rate that allows a single mom on a $45,000 salary to afford a 2 bed / 2 bath apartment for under $975 per month. At this rate, the tenant's housing costs would be 26% of their gross salary, under the 30% threshold defined by HUD as the maximum.
The NOI includes all operating costs as well as a reserve budget starting on Day 1, which typical new construction don't begin budgeting reserves until Year 3-5.
Using a non-profit entity, a portion, around $150,000 of the $650,000 should be invested in an interest-bearing account as an emergency fund. The remaining $500,000 should be applied to an interest-bearing fund. After 5 years, this fund can be used as a vehicle to increase teacher salaries. Something important to understand is that the School District cannot take a bond out to increase teacher pay, however they can use bonds for construction projects, and by developing a solution to teacher retention by way of housing, the revenues of the property can be applied to whatever they want, such as teacher pay.
The tenants who live in the complex will be surrounded by like-minded people, which a study by the School District has indicated this to be a top interest among teachers. Tenants have a maximum of 5 years should they choose to stay. They must attend quarterly group meetings focused on home ownership education. The goal is to educate them with a system that allows them to save and become capable of responsible home ownership. The excess cash fund generated by revenues from the community may be used for grants as these tenants move out and purchase a home.
This solution does not rely on subsidies or any form of government assistance. This proposal offers a fiscally conservative, comprehensive plan that utilizes the property's revenue as a source for future assistance.
Pretty much everything I mentioned above except the school district would sell or lease their land to me, or any developer they partner with. If purchased, the land would need to be paid using a 20-25 year amortized payment schedule. During that time, the school district can take an equity stake in the revenues generated and apply those revenues to the same fund as mentioned above in an effort to build a vehicle to supplement teacher pay in the future.
Not only does this proposal offer a responsible plan, none of the dollars to develop and maintain come from Lee County taxpayers. In addition, this will have a significant impact on teacher retention. Currently, the School District is losing approximately $25 million PER YEAR that taxpayers fund because they cannot retain teachers.
Our model that was created with the assistance of the School District estimates that after the second year of the apartment operation, it will save the school district $12 million. After the 4th year of operating, the $25 million cost to taxpayers will completely vanish. Not only will this result in future pressure to reduce impact fees for the school portion (the most expensive part), but it will have an infinite impact to improving our schools.
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