Minvilla Manor » Funding

Minvilla is an exceptionally complex project because it is an affordable housing project that utilizes two different kinds of tax credit financing as well as ten other funding sources. There’s a complete funding sources breakdown posted after this discussion.

About funding sources

Almost all of the funding for Minvilla comes from sources other than our local tax base. Here’s a rough breakdown. Some of it is designated specifically for the development of affordable housing. If we don’t spend it to build affordable housing here, it’ll get spent in some other community for the same purpose.

Three potential sources of funding actually originate in our community.
- First is the developer’s contribution of the developer’s fee to the project should that contribution become necessary.
- Secondly, Minvilla has been awarded a PILOT by the City of Knoxville.
  - Minvilla has paid a $4,000 PILOT application fee.
  - The fee paid on closing is the PILOT closing fee. That fee will be $35,000, to be paid when the lease is executed with the IDB.
  - City and County property taxes will be abated at the current assessment which, according to online records, is $1808 & $1888.32, respectively, for a total of $3696.32.
    - However, the number discussed during the PILOT application process was $3402. We assume that that must be the 2007 assessment.
- Thirdly, VMC will carry some permanent debt on the project.
Approximately $3.6M comes from private investors, some or all of whom might be outside the community. Those investors will purchase the equity generated by low-income and historic tax credits.
The rest is Federal dollars that pass through local government.

About development cost

To our knowledge, there’s only been one significant cost increase in this project, and it was an increase over a preliminary estimate made in the absence of an actual contractor’s estimate.
- First, it is common for developers to perform a sensitivity analysis/feasibility study of a potential development by plugging in a general estimate of rehab cost based upon prior experience with similar structures. Such estimates in the case of an historic rehab lack clarity on what the historic folks will actually require to qualify the structure for historic tax credits. In the case of Minvilla, this is what drove this preliminary estimate.
- Preliminary estimate: When the former developer’s earliest cost estimates for Minvilla went public, they were lower than they are now (total project cost of $4,500,000; hard costs $3,000,000). The former developer’s estimate was a ballpark made in the absence of construction drawings and a contractor’s real estimate.
- Cost increase: We now have much better information (completed construction documents and a firm estimate from the contractor. Project cost is much higher than the preliminary (approximately $6,200,000 with developer contribution; $7,000,000 if the developer retains developer’s fee) one to which people indexed their expectations, but it is also realistic. It is also high because it is an old building that is being rehabilitated into apartments, AND it is high because it’s a historic structure that must be rehabbed in ways that are not the most cost-effective. New construction will always be less expensive that a project like this one.
A point of clarification: We think there are people in the community who mistakenly believe that there was a recent “cost increase” from $6.2M to $7M. That’s inaccurate. The former figure is the total project cost with the developer’s fee being donated to the project; the latter fee is total project cost with the developer retaining his fee.