JOINT MEETING OF THE COUNCIL OF THE CITY OF NOVI
AND THE NOVI BUILDING AUTHORITY
MONDAY, JULY 26, 1999 AT 7:30 P.M.
Mayor McLallen called the meeting to order at 6:35 p.m.
CITY COUNCIL: Mayor McLallen, Mayor ProTem Crawford, Council Members DeRoche (absent/excused), Kramer, Lorenzo (absent-arrives 6:40 p.m.), Mutch, Schmid
BUILDING Chairman Czekaj, Members Sturing, Gibson, Saven
ALSO PRESENT: Edward Kriewall, City Manager
Craig Klaver, Assistant City Manager
Kerreen Conley, Director of Developmental Services
Kathy Crawford, Special Recreation Coordinator
Daniel Davis, Director of Parks & Recreation Dept
Dennis Neiman, Miller, Canfield, Paddock & Stone
Robert Bendzinski, Bendzinski & Co.
Kathy Smith-Roy, Controller
Donald Saven, Director of the Building Department
Allan Tuomaala, Siegal/Tuomaala Associates
Dennis Watson, Assistant City Attorney
AUDIENCE PARTICIPATION: NONE
(Councilmember Lorenzo arrives 6:40 p.m.)
PURPOSE OF SPECIAL MEETING: Novi Senior Citizens’ Housing Project
MATTERS FOR DISCUSSION:
Allan Tuomaala, architect and planner, was present and explained that the project consists of 175 units in total. There are 10 buildings on the site. The central building is a three-story structure, which contains 115 of the 175 units. The remaining units are in the one story configuration, which are nine buildings and contains 60 ranch units. In the central building there are six different types of units; three types of one bedrooms and three types of two bedrooms. The one bedrooms range from 558 to 622 square feet. The two bedrooms range from 775 to 904 square feet in the central building. The central building also contains amenities and support spaces for the entire complex. There is also a one-story addition to the central building, which contains 5,000 square feet. There is a large community room with kitchen and other support spaces for senior activities. The ranch units are two bedrooms with two baths, containing 952 square feet.
Mr. Tuomaala went on to say that there is parking in accordance with the ordinance. Each ranch has one carport assigned to the unit. In the large building, one-third of the units will have carports. The site contains a small interior park area, illuminated and landscaped appropriately and on the corner there is an area designated for a neighborhood park.
Member Schmid asked Mr. Tuomaala for the cost per square foot of the project. Mr. Tuomaala replied that he has not equated the project on a square foot basis but will have the figures for Council before the end of the meeting.
Robert Bendzinski proceeded to explain the estimate of costs. He indicated that they have taken the construction costs and added to it the current fixtures, architect and interior design fees, bond costs, 24 months of capitalized interest at 5 ½% to be used to pay two years of principal and interest. They have tried to cover the construction period of 18 months, plus six months if there is a delay. They deducted $475,000 investment income. They calculated the City will be able to invest $12,755,000.00 of the bond proceeds for nine months, at an interest rate of 5%. That is how they arrived at the bond issue for $15,300,000.00, payable in 25 years. The bonds will be dated September 1, 1999, with the first interest payment due April 1, 2000. The interest payments due through September 1, 2001 will be payable from the capitalized interest. The principal payment on the bonds will not be due until the year 2002 at which time the units should be fully occupied. At this time, they have calculated a 6% interest rate on the bonds. A sale date for the bonds has been projected for August 12, 1999 and would anticipate the interest rates to be approximately 5¼ or 5½%.
Mr. Bendzinski went on to say that they have taken the seven different units that are available and calculated a 94.85% occupancy rate. They have determined what rent would be necessary to meet the debt service obligations on the bonds. They have not calculated any operation of maintenance expenses associated with the project into the numbers presented. The rents range from $415 to $850 per month, without the operation of maintenance expenses. They have not projected any carport rental revenue in their figures. There are sufficient monies to meet the principal and interest payments on the bonds assuming 95% occupancy is achieved and charge the rents indicated in his report.
Mr. Gibson reported that he figured out what the profit and loss statement would look like next year. The only difference is that the amount needed for debt of the first unit is $415.00 and he added $190.00 per month, per unit, for operations of maintenance cost. The total rent for the first unit would be $605.00 per month. If fully occupied, the rent revenue would be $1,671,000 and the net operating revenues would be approximately $1,500,000. He removed operations of maintenance cost of $190.00 per month, per unit, for 175 units, or $399,000. The balance from the operation that would be available to meet the debt service requirement would be $1,200,000.
Member Crawford asked what was the justification for the $190.00 maintenance across the board no matter what size unit is rented. Mr. Czekaj replied that figure can change as they move into the process in terms of establishing rent. Mr. Sturing explained what really happens is they take the total operating cost of the project and divide it by the number of units.
Mayor McLallen asked if the total operating cost includes utilities, such as gas and electric, as part of their rent, with the exception of telephone and cable. Mr. Sturing replied that the operating cost includes all of the utilities that are not paid by the tenants. The tenants will pay their individual heat, electric and telephone bills over and above their rent. Mr. Tuomaala indicated that all the appliances are electric but the building is heated by gas. The heat is supplied through gas and the cooling is electric. Each apartment has their own combination heating and cooling unit.
Mr. Sturing said in determining the annual operating expenses, they took the operating expenses that are customary in the industry for these types of facilities. There are various reports that come out that are used by operators and lenders in determining the average expense. The unique thing about the building in terms of operating expenses is that there will be no property taxes.
Mayor McLallen asked how they arrived at the design of 34 carports. Mr. Tuomaala replied the chances are less that the people living in the central building will actually own a car. All the parking spaces have been designed in size. In case there is a greater need, carports can be added in the future. It was felt this is a reasonable number of spaces to provide for a building of this nature.
Mr. Klaver said that he would like to acknowledge the contribution made by Kathy Crawford’s prior planning committee and the Senior Implementation Committee. They did a lot of work by going out and looking at about 12 different senior housing projects, spoke with the managers and counted the number of carports. That information was provided to Mr. Tuomaala and the Building Authority.
Mayor McLallen asked if each unit will have their own laundry unit or have a shared facility. Mr. Czekaj replied that the building itself will have a centralized laundry area on each floor. They will provide the space and rough hook-ups and would propose to the Management Company that washers and dryers be brought into the building. The Building Authority would get a portion of the profits but would not have the headache of the maintenance and replacement. They will be coin operated washers and dryers. There will be three washers and dryers on each floor. The ranch units will have stack washers and dryers in each unit. The ranches are self-contained.
Member Lorenzo feels hauling laundry back and forth may be inconvenient for some seniors and asked if this set-up is typical with other types of buildings? Mr. Klaver replied that they found when they went out to visit different senior facility that the laundry area turns out to be a gathering point for a social activity. Seniors will set-up a card table in the laundry room, sit, and talk over coffee. Mr. Tuomaala said that adjacent to the laundry room there are various activity spaces so seniors can wash their clothes and step into the room across the hall for a social activity.
Mr. Tuomaala said that he has a reply to member Schmid’s question asked earlier in the meeting concerning the cost per square foot of the project. The gross cost is $77.11 per square foot of building construction. The cost of the units themselves, extracting the site improvement cost and $5,000 per community facility, comes to $62.00 per square foot against the units themselves.
Member Kramer asked if there is anything Council should do to improve the efficiency of this operation in order to provide a financially sound facility. Mr. Neiman replied that if Mr. Kramer is referring to the parceling out of a third party to operate the facility, the answer is yes, but within very strict Federal guidelines. There is a procedure that limits the involvement of outside third parties while still maintaining tax exemption of the debt.
Member Lorenzo said that she has reviewed the survey and information previously solicited from the seniors using the Novi Civic Center programs. It appears that the City will be charging the same rent per month as other apartment complexes and she is wondering why the City is even doing this project if the market is already charging $600 per month. Why should people come to the City’s apartment complex rather than other complexes and how can the City do it better than the other apartments? Is the City getting into competition with other developments and businesses in town? Kathy Crawford replied that the survey she conducted gave a good cross-section of seniors and what they are currently paying. The average cost of seniors living in apartments is $711.00 and usually includes maintenance cost, but did not have any services on site. She feels even though the City complex will be close to market rent, there is not something else out there like this project. By providing resources on site, such as a mini-market, with a comfortable safe setting and transportation provided, there will be an impact on people’s finances. People coming from mobile homes will not have to pay the huge amount of money for insurance, which will be a substantial saving. There will also be a savings because the actual rent portion will be a fixed amount for a long period. She feels very good about this project. She spoke with many seniors and they understand the costs and the rent of the project.
Member Lorenzo said that she would like to see the City promote this project to make sure all the senior citizens know exactly what the rental rates will be and see if there is any feedback before the City commits all resources. She would like to see the City use the cable channel; the Novi News and all communications available to get this information out to the seniors to make sure they still support the project. She wants people to be fully aware of the costs. The original and alternate design costs previously submitted to Council showed a one bedroom unit with activity area was going to rent for $371.00, plus $150.00 for operating expenses or $338.00 with $150.00 operating expenses. There is a big difference between $488.00 and $605.00. She is concerned going into this because since the last time Council met, the costs have increased considerably.
Mayor McLallen asked how many seniors are on the list waiting for information to be mailed to them and how current has information been mailed to them? Kathy Crawford replied there are 660 people on the list who have expressed an interest in receiving information. There has not been any information sent to the seniors on the list. The vast majority of seniors needing services are individuals who are age 55 and over living in a mobile home park because they cannot live in a mobile home community in Novi without having transportation. The people living in mobile homes are paying an average cost of $744 per month, including maintenance, plus very high utilities and insurance costs, as well as transportation costs. Most own their mobile home but are paying extra for everything. Seniors are paying over $900 per month to live in a mobile home. This will be a money saving project for the seniors.
Mr. Neiman said that as soon as the Council approves the sale of the bonds, it is their intention to sell the bonds as quickly as possible. The only step left would be for Council to approve the contract. The official statements has been reviewed and ready to be printed in anticipation of the August 12, 1999 date. They would anticipate going to the market on August 12th, with a Notice of Sale going in the paper this week. If Council wishes them to wait they will, however, he would rather wait and reschedule the sale of the bonds in September than do it in August and cancel.
Member Lorenzo said that she needs more time to find out that the targeted market is fully aware of this project and still willing to give a commitment. She is looking to serve the senior citizens that need this type of housing in the City of Novi and she has always been a supporter of affordable housing for seniors, however, she does not want to get into the real estate business.
Mr. Bendzinski said they have done several of these senior housing projects and 99% of the projects were out what the market was at that and not less than market. This is a new project and seniors will gravitate towards clean and new. They believe there are two components to their costs: 1) debt, ranging from $415 to $850 and 2) the O&M cost of $190 currently projected. Over a period of time, the debt portion should not have to increase because the debt is fixed. The bond and interest rates are fixed on the date of sale and are paid for the duration of the bond issue. They know if they reach 95% occupancy, and charge the rates of $415 to $850, they will meet the debt service obligation. If there is 5% inflation per year, the private developers will raise their rent 5% from $605 to $1,040. The City will raise their operation and maintenance expenses 5% to cover the increase in their costs. In three to five years is where the City will have a distinct advantage over the market. The advantage will not occur on day one, but over time, there will be a larger advantage.
Mr. Neiman said it may be two years before some of the seniors can move into the project because their circumstances may have changed. Based on the experiences he has seen, the surveys, at any point in time prior to occupancy, are interesting but not affirmative because they are not ready to be given a finished product in the near future and the seniors are not ready to commit.
Mr. Czekaj said that comments, made previously by the representative from Singh Development, indicated from a market standpoint, the City was not competing with them but rather coming in under the market. In addition, they rely, not exclusively but in a large part, over the course of the last two years, on Kathy Crawford and her group who has the pulse of the senior community in hand much better than any of Building Authority members. They have been very sensitive to the comments raised by Member Lorenzo. They have always asked what is the affordable, what is the market and will they be serving the people that cannot afford anything else. They have a good comfort level that the information has been consistent, whether or it is accurate they are not sure, but they feel they have the pulse and the interests of that target market segment that everyone is striving to serve the community. When this issue was put to the Management Company, they have been able to extract a lot of information from them. The 95% vacancy rate was argued and the management company felt that was a good figure based on the demand for senior housing and their view whether the market being to service the people that can afford the rent.
Member Schmid has concerns that items such as this come to Council and a few minutes later it needs to be passed. He feels the Council should have met longer on this matter. He is concerned when the Building Authority states they have relied on other people for information, and assumes they have checked on the information to make sure this is a viable project. Council just went through the ice arena matter and he has concerns because this is a very expensive project. He would like to hear that the Building Authority say they are confident this project will succeed and hit the target market. He has no doubt that the units will rent; however, he has a concern with the ranches that will rent around $1,200 per month because there are two bedroom apartments in Novi for less money. He asked what will happen if there is a fire and the buildings are out of service for twelve months. Mr. Neiman replied that the City can purchase business interruption insurance. Mr. Schmid asked if that has been discussed and thought about purchasing. Mr. Klaver replied that has been discussed and the budget includes expense.
Mr. Czekaj indicated that they have a construction completion date of 18 months and for purposes of repayment on the bonds, they have an interest reserve of 24 months. They have allowed a cushion of 6 months.
Mr. Neiman agrees with Mr. Schmid and they would recommend the best Management Company they can find to be employed to operate the facility in an efficient and effective manner. The project is well done and a beautiful facility
There being no further business before the City Council, the meeting was adjourned at 7:30 p.m.
Kathleen S. McLallen, Mayor Tonni L. Bartholomew, City Clerk
Mary Ann Cabadas
Date Approved: August 9, 1999