Developers may package FM housing projects

CITY DEVELOPMENT(S)

I understand there is a desire to move forward expeditiously with the James Block building and that’s going to be the challenge. I’m just going to get right to the point.”

Chris Ales, Iowa developer

FORT MADISON – The saga of the James Block building in Fort Madison continues, but at a pace a bit slower than city officials were hoping for.
At Tuesday’s Fort Madison City Council meeting, two area developers David Barker, of Barker Financial Group, and Chris Ales, a developer out of the Quad Cities, updated the council on options for the building.
Ales said the development model for the James Block building isn’t optimal using historical tax credits because the building is actually small for the historical tax credit template the developers typically use.
Ales is a certified public accountant by trade but has made a name for himself by saving older historical buildings and finding a reuse for them. Barker said he’s worked with Ales on projects before.
“I’ve been talking with Mayor Mohrfeld about the James Block building for a while and that’s been a more difficult project. But fortunately, I’ve worked with Chris before on other projects and he’s more the expert on this,” Barker said.
Ales said for the past 20 years he’s used his tax accounting experience to leverage different various tax credit programs to develop affordable housing.
The three he uses regularly are the Brownfield tax credits, the Affordable Housing tax credits, and historic tax credits through the Iowa Finance Authority. He said sometimes those can be layered together to create a viable project, but the Block building is not large enough in scope.
The IFA has 9% credit and 4% credit programs. The 9% program is competitive with other projects around the state and requires a 30-year commitment to affordable housing status on the development. The 4% program is a 15-year commitment.
He also said he’s been talking with Fort Madison Community School District officials about the potential of the Richardson and Lincoln Elementary buildings when those are vacated next school year. Ales said he wasn’t interested in the properties if the district was going to ask for Requests for Proposals on the building usages through a public format.
But he said either with the school buildings in the proposed development or without, the project will not be a quick one.
“I understand there is a desire to move forward expeditiously with the James Block building and that’s going to be the challenge. I’m just going to get right to the point,” Ales said.
“We have looked at some financial models trying to structure the transaction as a 4% affordable tax program, which is noncompetitive, open cycle. We could move forward quickly. It’s just too small of a building.”
He said you just can’t find economies of scale to make the project work both from development and operational perspectives.
Adding the schools would allow him to create what is called a scattered site proposal. But he said when adding the units from the schools with the James Block building could work, but it would be a very thin deal.
“I like to use the phrase sustainable. If we develop something, we want it to be sustainable for the life of the program. That’s a 30-year program. So, you want to make sure you have the money on the development side and the operations side to make it sustainable for that full 30 years,” Ales said.
He said it will be a challenge to even do the 4% program with the schools involved.
“It could work if you twisted David and my arms, and the city helped a little bit, we might get there, but it’s the old adage of trying to put a square peg in a round hole,” he said.
He said the optimal answer is the 9% program with the James Block building and the schools. He also said he’s looking at another project which would be an adaptive reuse of a section of the former prison.
“We’re working our way through the Department of Corrections. I’m not ready to make any announcements that we are ready to sign a purchase agreement with the Department of Corrections, but we are working in that direction,” Ales said.
He said the James Block building would work on its own as a 9% project. He said if the schools and the prison deals came to fruition, it would be a better project, but the Block building could  work on its own under very specific circumstances.
Barker said the Block building has nothing left in developer fees and it’s a money-losing building after financing costs. But he said combining it with other buildings, there’s no fee for the development, but there is a small profit margin.
However, he said the 9% credits would make the deal worth doing.
Ales said he is working closely with Southeast Iowa Regional Planning Commission, and its Executive Director Mike Norris. He said SEIRPC is committed to the project financially and even potentially as a co-developer.
Ales said IFA issues a Qualified Application Plan in June and those are scored for the 9% tax credits. He said the nice thing about the size of the Block building’s size is that sometimes those smaller projects can slip in after the larger high scoring projects get funding and catch some of the “crumbs” that would be enough to work for the Fort Madison project.
“They chip away at the highest scoring project and they get to the end and they don’t have enough to fund the high scoring projects and you can slide in with a little project that doesn’t score high. I’ve had a couple funded that way,” Ales said.
That application would be submitted in April 2025 and the awards come in the summer between July and September. Then there are four months of financing, permitting, and closing so the project closes in December with construction being able to start in the New Year.
The city would need to keep site control through February of 2026 and would probably have to commit to Tax Increment Finance district for the project.
Mohrfeld said it’s not the pace the city originally hoped for, but he wants the city to keep working with the developers, SEIRPC, and city staff.