Carbonate Street Project planned diagram from page 104 of the July 11, 2023 Trustee meeting packet.
Carbonate Street Phase 1 was back on the agenda for the August 8 Buena Vista Board of Trustees meeting. The Board unanimously approved a Tri-Party (also referred to as a Take-Out) agreement for the project with the Colorado Clean Energy Fund, Carbonate Street Apartments, LLC, and Fading West Building Systems, LLC.
Carbonate Street Rental Apartment project location in Buena Vista. Image courtesy Fading West
The Board also discussed a unique tax issue caused by the original intention of gifting the grant to Fading West. To avoid needing to pay an $800,000 upfront tax, the idea is that funds will be loaned to Fading West instead, requiring eventual payback to the town.
Special Projects Manager Joseph Teipel explained that the take-out agreement is meant to help make sure Fading West meets underwriting criteria to bring money for the project and pay for materials to reserve the apartment’s spot on the production line.
Fading West is working to secure a bridge loan to unlock funds on a faster timeline than the town is able to secure from the Department of Local Affairs (DOLA) grant funding. The lender requested the agreement, so, if things fall apart, the town would pay them directly.
There was some concern with the Town’s liability with such an agreement, and some confusion between the two topics on the table for discussion.
Teipel described the two issues as a “spider’s web” of topics. “The bridge loan is a standalone agreement for how to get the factory dollars today, or tomorrow, essentially, to get the materials,” explained Teipel. “The second topic is how are we thinking the town’s liability is covered, but also a future revenue stream for housing purposes.”
Teipel described the Carbonate Street project as a novel endeavor for the Town, but also for Fading West. As the grant rewards and deed restrictions were finalized, they uncovered the issue of a federal income tax liability in the amount of $800,000.
Fading West hopes to avoid the tax liability, which has negative cost implications for the project. The town and Fading West’s counsel along with the Chaffee Housing Authority (CHA) worked together on a creative solution.
Deploying the funds as a loan instead of a gift would allow the project to avoid the income tax liability. The town would also receive the benefit of using the money now and then receiving it back in the future as the loan is repaid.
The total grant award was three million dollars, separated into two grants, requiring two different loan agreements. Those agreements would need to be reviewed by Fading West and eventually return to the Board for approval.
Town Treasurer Phillip Puckett joined in to explain that it would be up to DOLA how far they could go with the idea. Puckett indicated that according to their attorney, there were currently no red flags, but they would need to make sure they were not violating anything with regard to the grant.
Town Attorney Kathryn Sellars explained that they would ensure the town was protected. “Whether it turns out to be a grant or loan, we just want to make sure you’re protected and that they’re blessed by DOLA because we don’t want them to be upset about anything that happens,” said Sellars.
Mayor Libby Fay said that she would want an assurance that the money would be paid back even in the event of Fading West choosing to sell the project. Representatives for Fading West were present at the meeting. They explained that it comes down to math. If the town makes the agreement too much of a burden, the company would rather just pay the taxes now.
The primary concern for everyone involved is maintaining affordability. The three million dollars were initially intended to make the project more affordable and drive down costs for the workforce housing it will provide. Whether the taxes are paid now or loans are repaid later, there is a cost to the project, which could potentially limit affordability.
“We may be back at the table to work with the town to minimize impact on affordability,” said Fading West. “We want to keep it as affordable as we can.”
The full Board packet including more information on this and other topics discussed during the Trustee meeting is available online here.
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