Workforce housing: What’s being done now? Developers plan residential projects at The Shops, Havasu Heights

Havasu Heights

Master planned communities have become more prevalent in Lake Havasu City in recent years, and a group of locals hopes to use the economies of scale that come along with a larger development, in conjunction with reduced land costs, to offer single family homes at an affordable price.

APX West is a relatively new development company, but all three of its founders grew up in Havasu and say they want to be part of the solution to local workforce housing issues. Real estate agent Dustin Runyon said the company has been able to partner with another longtime local resident with landholdings on a project that they hope will do just that.

The development, which will be called DL Ranch, would be located near Havasu Heights about 10 miles north of the Lake Havasu City limits near State Route 95.

“We tried to make it work in the city, because obviously people would like to be closer to the amenities that are in town, but we couldn’t find a partnership or a piece of land that would make sense financially for that,” said APX West engineer Britt Wolf. “So rather than waiting and hoping someone would come up with a solution for that, we saw the best thing to do was to go further away. It seems like this property by Havasu Heights has the most potential to be affordable and meet the needs of the city.”

Andrew Oxley, who is in charge of construction at APX West, said the reduced cost of land outside of the city limits is perhaps the single biggest cost saving measure they have to allow for affordable construction.

“The price of the raw land is a huge part of it,” Oxley said.

Runyon said moving outside of town to find cheaper land is a tried and true technique to lowering costs.

“In any other city the saying is that you drive until you can afford it,” he said. “If you look at downtown Phoenix it is pretty expensive, but as you get to the outskirts of say Buckeye and Litchfield (Park) the homes become more affordable because land is more affordable. That is kind of what we have in Havasu Heights.”

Wolf said the project is still in its early stages. He said the developers are working on conceptual designs of what the neighborhoods will look like, and working out what infrastructure costs will be incurred by the development.

Plans for the development are still subject to change as they work through the financial aspects.

But for now, the goal is to create a development with about 600 to 1,000 new single family homes at full buildout, in addition to some commercial lots and shared open spaces.

Runyon said the project will be completed in multiple phases, but the first phase is expected to include about 189 acres – roughly half of the developments total landholdings. The developers estimated that the project could take about a decade before it is completed, but Runyon said the goal is to move as quickly as possible to bring housing to the market and Oxley said the plan is to bring groups of about 100 homes to the market at a time.

“Until we get a better idea of the number of lots and infrastructure costs I don’t think we can accurately give lot prices, but the goal is that it will be affordable to the average income that exists in Lake Havasu,” Wolf said. “We are trying to put an emphasis on parks and outdoor space as well. So there will be a lot of land dedicated to that as well.”

In addition to building on cheaper land, the developers said they plan on taking advantage of economies of scale to keep home prices as low as possible.

Oxley said typically developments in Havasu sell off the lot and the buyer then works with a builder to get ready for construction. But the plan for DL Ranch is for the developer to contract with builders, which would work on several houses at a time. The house would then hit the market near the end of construction or after construction is already complete.

Wolf said the hope is that the development can save some money on labor costs by eliminating the need for contractors to waste time driving from location to location.

“If they know that they are all going to be in this area they can devote all of their resources to that and move from one house to the other,” Wolf said. “If you are framing houses up you can just keep going down the line. That is also an economy of scale that keeps it affordable.”

While land costs are cheaper outside the city, development in unincorporated areas does come with some tradeoffs. Britt said another aspect APX West is working on for DL Ranch is how to serve the future residential water and sewer needs of the development.

“We have to build our own water treatment – so drilling wells, treating that water, and the sewer collected off of these homes has to be processed as well,” Wolf said. “So that is a pretty big hurdle to overcome, both in terms of permitting and in terms of financial requirements.”

But economies of scale come into play there to, and Wolf said the scale of the development is the only reason that it could be feasible to build that infrastructure.

“It would be very expensive to put in all that infrastructure for 10 homes, but when you do it for 1,000 it makes sense,” Wolf said. “That is the only way you would be able to do that. So economies of scale are a big part of why this can be affordable. You have to have a big master plan to be able to do something like that and keep it affordable.”

If everything goes according to plan, residents could start seeing plans for the development showing up in public hearings soon.

“In the next three months we are going to be dealing with zoning and a plat,” Oxley said. “We also have to set up an improvement district [for water and sewer].”

Oxley said APX West is already working with the county to get the project off the ground.

“The county is looking for solutions for this as well,” Wolf said. “They are aware that the investment needs to be made in Lake Havasu, Kingman and elsewhere. So they are on board with helping and we are going to keep going up the chain and see if we can get funding at the state or federal level to continue to develop these.”

Since DL Ranch would be built well outside of city limits the development will be worked out with Mohave County staff and approved by the Board of Supervisors, but Runyon said Lake Havasu City officials have been supportive of the project and willing to help out in any way that they can.

The Shops at Lake Havasu

Plans to bring apartments to The Shops at Lake Havasu are still in the early stages, but if they pencil out it could provide lots of housing for Havasu residents at an affordable rate.

Wendy Weiss is the Senior Vice President of Financing and Incentives with St. Louis, Missouri-based Community Health Development Partners, which is helping to put together the business plan for the potential complex. She said the development would be located at the southeast corner of The Shops at Lake Havasu, near the highway in a little-used portion of the parking lot.

“Right now we are hoping for 150 units of [rental] housing and 100% of it would be priced for workforce – so people who are earning around the median income,” Weiss said.

Weiss said the first floor would be entirely commercial, and would be leased out to private businesses with a goal of attracting a mix of services like child care or a fitness center for the residential tenants above, as well as businesses that could serve the greater Havasu community, like a restaurant.

The lot would have to be rezoned in order to allow residential housing at The Shops, but Weiss said they have had conversations with the city and are hopeful that a rezone request would be approved by the City Council. Weiss said the only other hurdle left is to obtain financing – but that is a high hurdle.

“It does not pencil out at the rental rates that we are hoping to lease the units,” Weiss said. “The whole purpose of the project is to provide workforce housing, so it is not like we are going to build it and if we can’t figure it out we will make market rate units – that isn’t the purpose. So right now we are trying to scan some of the public financing options that are out there to help make the numbers work. Construction costs are just too high for it to pencil out on its own.”

Weiss said, as planned, the commercial space on the first floor would provide some income for the building, but the residential leases would make up the majority of its revenue. But as presently planned that revenue would not be enough to pay the financing bills.

“To finance a project you would generally assume between 5% and 10% equity down from the owner and the rest of it would be financed,” Weiss said. “But even if you put 20% of owner equity down the revenue is not going to cover the bank financing to build it. So there is that gap that needs to be plugged – it is really about being able to cover your debt service.”

That’s where the Community Development Health Partners come in.

Weiss said her organization is lending their expertise in identifying public financing options for this project.

“We are going to be looking at any of the new government programs that are out there to support housing,” she said. “We have also worked extensively with new market tax credits, which is appropriate for a mixed use project like this with housing and retail. Those are some of the things we are looking at.

Lake Havasu City doesn’t have a lot of the economic development financing tools that some other areas do, so it is a little bit more challenging. We have talked to some of the housing folks within the state of Arizona and the hope is that they take some of the recovery act dollars and turn them into housing program financing, but I’m not so sure that that is going to happen.”

Weiss said she doesn’t expect the new market tax credit program will be enough to cover the financing gap for this project on its own, so they are looking to find another funding source or a combination of sources to make up the rest.

“I do think we are going to have to kind of hunt and peck for other things that will help make it work,” Weiss said.