Show Low hears feasibility study for workforce housing; council raises procurement and risk questions

Jim Hammond of the White Mountain Advisory Group presented the results of a workforce housing feasibility study to the Show Low City Council, outlining market demand, financing scenarios and next steps. Hammond said the study used a market analysis by Concord Group, engineering by Ironside Engineering, a financial analysis by the Pinion Group and underwriting by Sustainability Partners.

Hammond told the council the consultants found high local demand and constrained supply. He said the market study estimates a need of roughly 940 workforce units for households “between the 60 and 120% of area median income,” and that expanding the model to 150% AMI would add “another 20 units.” He also cited an average annual rental growth of about 9% over the last five years.

The study compared three financing approaches: private equity, municipal bonds and a model offered by Sustainability Partners. Hammond summarized the findings: private equity would require substantial up-front equity and did not produce returns attractive to private investors; municipal bonds produced a different cost profile and placed development risk on the city; and Sustainability Partners’ model produced the highest return-on-cost in the study while assuming development risk off the city’s balance sheet. Hammond said, “this project just does not support a private market, private equity investor.”

Hammond gave several numerical illustrations cited in the study: an overall development cost through the Sustainability Partners model of about $44,000,000; a projected remaining debt near $43,000,000 at year 10 under the illustrated amortization schedule; and a modeled asset value to the city at year 10 in the multimillion-dollar range under the Sustainability Partners scenario. He also said Sustainability Partners would absorb initial years of negative cash flow under its stated model.

Council members pressed for details on procurement and risk. Councilman Clark asked whether Sustainability Partners was a sole-source option and whether the city had pursued an RFP. Clark said he was “very hesitant with this project,” citing concern that if the city exercised a termination clause and had to assume the project it would pick up a large debt burden. Clark also asked why private investors would not participate if the project produced an equity value in year 10; Hammond replied private investors avoid the entrepreneurial risk of a constrained-revenue product even if a stabilized asset is attractive later.

Hammond said the team has already engaged regional partners: the local hospital signaled interest in subleasing some units; the school district said it could not guarantee units but identified 25–30 people looking for housing; and town officials in Pinetop expressed interest in participation. Hammond said the team plans a community outreach and preleasing program and that staff will present a development services agreement and project approval to the council at a future meeting.

No ordinance, contract or motion was approved at the meeting. Council questions focused on procurement method, the practical meaning of “no development risk” under the Sustainability Partners model and what would happen if the partnership dissolved early. Hammond and staff said there are legal issues to resolve in the contract and that Sustainability Partners would assume initial development risk under the model described. Staff indicated they would return with a contract and additional documentation for council consideration at a subsequent meeting.

The council did not vote on the project at the meeting; staff will bring a development services agreement and project approval back to the council for formal action.