A major affordable housing project on an important corner in the Ballpark neighborhood has big plans for a daycare/early childhood education center at the northeast corner of 1300 S and 300 W–just steps from Wal-mart, the Lowe’s parking lot, and the Ballpark TRAX station.
So big are the plans that the original proposal for the childcare space has increased to 9,000 square feet, risen to two floors, and will take up the entirety of the 200-unit Liberty Crossing’s 300 West frontage.
It will also cost $2.65 million to build out for the tenant, Utah County-based A-Z Building Blocks, and serve up to 160 children.
At this week’s Redevelopment Agency Board meeting, leaders added $1.6 million to the $4.5 loan approved earlier in the year to local developer Cowboy Partners.
The developer will construct the daycare facility on the ground floor of their LIHTC project, providing 200 new 2-, 3- and 4-bedroom homes, all of which will offer lease rates between 30% and 80% of the area’s median income.
Policy innovation at City Hall
For decades, the construction of income-targeted “affordable housing” has been important to Salt Lake City leaders given the city’s active redevelopment efforts. Funds largely come from the state-mandated 10% of redeveloped profits reinvested into affordable housing.
Given recent bad news from school district enrollment and US Community Survey numbers, City Hall is also keen to address the decrease in families with school-age children from the city–likely caused by sharply rising housing costs.
Despite the declining numbers of school-age children seeking public school enrollment in the city, it’s also painfully clear that for the parents of pre-school kids, the childcare shortage is acute.
A 2020 report from the state’s Department of Workforce Services finds that only 35% of the state’s pre-school needs are being met.
Parents have reported to BSL that a year’s waiting list for decent childcare is normal and costs that hammer the family’s budget are typical.
This spring during the state’s legislative session, local nonprofits Neighborhood House and Voices for Utah Children released a letter to the Utah Legislature that stated that 67% of Utahns live in a “childcare desert” and the “U.S. Department of Health and Human Services suggests that a family should pay no more than 7% of its household income for childcare services.”
“In more than half of Utah’s 29 counties,” the nonprofits found, “families are burdened with paying between 15% and 20% of their annual income for infant/toddler care at licensed childcare facilities.”
A push to prioritize larger, family-sized units (3BR+) when providing construction funding has for years been important to city policymakers, with limited success given the market’s fondness for studio- and 1BR apartments.
In addition, a motivation to help provide childcare for city residents has recently risen in urgency on both sides of the third floor, confirmed in both policy discussions and to BSL by sources at City Hall.
Those public contributions may come in various forms–from loans contributing to construction financing (like the current RDA efforts), to direct grants for the costs of daycare operations.
RDA Executive Director Danny Walz told the Board on Tuesday that a variety of funding sources at City Hall exist for daycare financing, including the Economic Development office, the RDA, and other housing funds aimed at affordability.
Two floors of daycare, thanks to public subsidies
Originally proposed for just under 5000 sf, the new childcare facility will encompass almost 8000 sf and the ability to enroll 160 pre-school children.
The operator, for-profit A-Z Building Blocks, has been in business since 2004 and currently operates 5 other locations.
It will enjoy a below-market lease rate ($20/sf instead of $32/sf) and not having to pay for the $2.65 million in construction costs for the buildout of their space that is cited in staff documents.
Originally, the developer had planned to pay for the tenant improvements, but with the scope of the daycare expanding and the borrower’s rope fully extended with their primary construction lender, public assistance was needed, RDA staff told the Board.
RDA Board Chair Alejandro Puy (D2) expressed his preference for affordable child care, to “make sure that some of the people getting care there will be families from the neighborhood.”
Staff responded that: the developer’s LIHTC tax credit is able to pay for the retail space only if it serves the residents of the building. “So they will be prioritizing children who live in this building for the childcare slots,” RDA Project Manager Austin Taylor said.
Terms of loan
The RDA had to bend its rules for both commercial loans and loans from its Housing Development fund to accommodate the request.
Developers have been offered the $1.6 million in tenant improvement construction funds at its low rate of 2% on a 40-year repayment schedule, structured to come out of the building’s cash flow.
Besides the federal tax credits rules to serve building residents, the RDA has inserted terms into the loan agreement that punishes the borrower with a steep interest rate rise and a balloon payment call at 20 years – in the case the retail space is not leased to a childcare provider.
During its presentation, RDA staff told the Board that developer Cowboy Partners’ first construction loan is maxed out with its primary lenders. The developers have waived their usual fee, listed in the budget at over $10 million, in order to make the project pencil.
Staff also noted that typical equity capital isn’t usually attracted to a project with such low financial return, and that public assistance was thus warranted.
“This [new loan] is the only way this project could afford more debt,” stated RDA staff.
Subsidizing market failure
There seemed to be little indigestion amongst the City Council to subsidizing daycare, given its scarcity.
Council Member Darin Mano, whose District 5 includes the new facility, expressed enthusiasm during the briefing that “Hopefully this will be a road map, at least one way we can get more childcare throughout the city.”
In this case, the RDA is paying a little over half of the cost for the purpose-built tenant improvements for childcare so that the landlord can afford to subsidize the lease for the tenant at below market rate.
Council Member Mano told BSL: “If we want to scale it and get to the goal of more daycare for parents of all income levels, we need programs.”
“For example, a specific grant for daycares that can help with operations. Or loans with interest below market rate or longer length of term.”
“Like we’re doing with this loan,” Mano said, “we can help with building space and/or for operations. I think I’m in favor of both.” he told us.
At the end of the Board’s discussion, RDA Executive Director Danny Walz reiterated to the City Council, “This is not necessarily the only way to do this.”
Suggesting that multiple options exist for funding more daycare in the city, Walz noted, “This is a proposal that came to us in a way that we as the RDA could provide daycare in this project using the tools we have and the financing we have right now.”
Mano, summarizing his reaction to the dizzying transformation of this previously light-industrial ghetto of the city, told his colleagues:
“If you would have asked me 10 years ago that the 300 W corridor would turn over to residential, and to a family-supporting residential neighborhood as quickly as it has, I don’t think I would have imagined that.”
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