SIOUX FALLS, SD (KELO) – A partnership between a state program, a developer and the City of Watertown has resulted in a workforce housing project that otherwise likely would not have been completed, said a state official.
The first of three workforce housing apartments opened in Watertown this week. The second and third are scheduled to open in 2023. The Alliance Management Group inaugurated the site earlier this year. The development is called The Plains and its located northwest corner of Highway 81 and northeast 16th Avenue.
The total estimated 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 has been approved for a GOED loan of up to $12.8 million. More specifically, it is a revolving loan for economic development and initiative. (REDI).
REDI loans typically provide up to 45% of the total project cost, Ebeling said. The base rate on loans is 2%.
The REDI loan is well suited to the Watertown project for several reasons, Ebeling said.
When you factor in location and higher rents, smaller communities like Watertown are at a disadvantage.
“Communities like Watertown have a hard time attracting large developments like this because: 1) the big developers are comfortable in their own bigger markets like Fargo and Sioux Falls, 2) these big markets usually have higher rents, 3) construction costs are generally the same in either market,” Ebeling said in an email response to questions from KELOLAND News.
“Taken together, development in small communities produces a lower return on investment for the developer, which makes small community developments less attractive,” Ebeling said in the email.
Low-interest REDI loans lower financing costs and help provide a needed return on investment, she said. This makes developers more willing to invest in smaller markets such as Watertown.
The City of Watertown approved a district tax increment financing (TIF) for the apartment development on Feb. 16, 2021, according to council meeting minutes. A TIF creates a grant that can help pay for the infrastructure and site works of a housing project. The increment is the difference between the amount of
the property tax revenue before the creation of the TIF district and the tax revenue generated after the completion of the project.
Each new building will include 72 units as well as a clubhouse. Ebeling said the design includes one-, two-, and three-bedroom apartments.
Ebeling said REDI loans can be amortized for up to 25 years with a lump sum payment due no later than 10 years from the date the loan was issued. Details of any loan term are confidential, she said.