SIOUX FALLS, S.D. (KELO) — A partnership between a state program, a developer and the city of Watertown resulted in a workforce housing project that otherwise would likely not have been completed, a state official said.
The first of three workforce housing apartments opened in Watertown this week. The second and third are expected to open in 2023. The Alliance Management Group broke ground on the site earlier this year. The development is called The Plains and its located northwest corner of Highway 81 and 16th Avenue Northeast.
The estimated total cost of the project is $28.4 million, said Sarah Ebeling of the South Dakota Governor’s Office of Economic Development (GOED). The Plains Apartments LLC was approved for a GOED loan of up to $12.8 million. Specifically, it’s a Revolving Economic Development and Initiative loan. (REDI).
REDI loans generally provide up to 45% of the total project cost, Ebeling said. The base rate on the loans are 2%.
The REDI loan is well suited to the Watertown project for multiple reasons, Ebeling said.
When location and higher rent values are considered, smaller communities such as Watertown are at a disadvantage.
“Communities like Watertown struggle to attract large housing developments like this because: 1) large developers are comfortable in their own larger markets like Fargo and Sioux Falls, 2) those large markets generally have higher rent values, 3) construction costs are generally the same in either market,” Ebeling said in an email response to KELOLAND News questions.
“Taken together, development in smaller communities produces a lower return on investment for the developer making smaller community developments less appealing,” Ebeling said in the email.
The low interest REDI loans reduce financing costs and help provide a needed return on investment, she said. That makes developers more willing to invest in small markets such as Watertown.
The city of Watertown approved a tax increment finance (TIF) district for the apartment development on Feb. 16, 2021, according to council meeting minutes. A TIF creates a subsidy that can help pay for infrastructure and site work on a housing project. The increment is the difference between the amount of
the property tax revenue before the TIF district is created and the tax revenue generated after the project is completed.
Each new building will consist of 72 units along with a clubhouse. Ebeling said the design includes one, two and three bedroom apartments.
Ebeling said REDI loans may be amortized for up to 25 years with a balloon payment due no later than 10 years from when the loan was originated. The details of any loan term are confidential, she said.