Iowa City staff outline loan-backed Orchard Court LIHTC plan; council gives direction to continue negotiations

City Manager Jeff Fruin told the Iowa City Council in a work session on April 21 that staff recommends using Riverfront Crossings fee-in-lieu dollars in a public–private partnership with Annex Group to build an Orchard Court apartment project that would deliver rent-capped units more quickly than land acquisition alone.

Fruin said the project’s estimated total cost is about $57,000,000 and that staff is proposing a $5,100,000 city loan secured by the property at a 1% interest rate. Under the structure described, the city would receive about $51,000 a year in interest and a projected balloon payment in year 16 of roughly $6,100,000; staff said the loan proceeds could be recycled into future affordable-housing work. "Annex has committed to accepting vouchers," Fruin said, and staff noted the federal LIHTC (4%) award and a roughly $650,000 loan from the Housing Trust Fund of Johnson County that carries a 30-year affordability requirement.

On unit mix and affordability, Fruin said Annex proposes 183 units (one-, two- and three-bedroom), removing 24 existing market-rate units on the site; of the new units, 15 would be at 50% AMI, 153 at 60% AMI and 15 at 70% AMI, yielding 168 units at 60% AMI or lower. He said LIHTC rules and the trust-fund loan make 30 years of affordability the likely outcome, although LIHTC projects can have pathways to different ownership decisions after year 15.

Councilors questioned whether LIHTC rents and local voucher payment standards would align. One councilor warned that if voucher payment standards are below allowable LIHTC rents, some households with vouchers might not be able to occupy capped units. Fruin acknowledged that voucher payment standards can diverge from rent caps and said landlords would not be legally required to accept a voucher if the voucher’s payment standard is lower than the rent cap; he recommended staff seek Annex’s tenant-selection and voucher-accommodation plans and bring details back.

Several councilors asked about risk: Fruin said the city would not be first in line if Annex defaulted and that Baker Tilly reviewed Annex’s pro forma and helped staff test assumptions; staff characterized nonrepayment risk as present but manageable. Fruin also told councilors the RFC fund balance is roughly $5.8 million (fees collected, excluding interest) and that staff’s pro‑forma work estimates significant public benefit when combining loan repayments, property taxes and rent differentials.

A councilor raised tenant-relocation concerns after reviewing existing leases for the 24 on-site market-rate units, reporting some leases include short-notice clauses; Fruin said staff will ask Annex for a relocation plan and explore whether the city should supplement any relocation assistance if Annex’s plan is insufficient.

Councilors also discussed protections tied to the city’s first right of refusal if Annex later decides to sell; Fruin said the city attorney could draft stronger fair-pricing triggers and other protective language in future agreements.

Fruin asked for council guidance to proceed; he said staff is not asking for a formal vote tonight but would return with formal loan and development agreements for council approval. A majority of councilors expressed support for staff continuing negotiations and for staff to draft the documents needed for a future formal action. Staff proposed and councilors tentatively agreed to bring reserve-policy and financing options back for public discussion at an upcoming May meeting to inform any budget or reserve changes.

Next steps: staff will request Annex’s formal relocation and voucher plans, work with the city attorney on agreement language (including right-of-first-refusal terms), and bring draft loan/development agreements and reserve-policy options to the council for formal consideration in the coming months; no formal vote was taken at the April 21 work session.