Downtown micro-apartments seek tax break from Salem City Council to tamp rent

The former site of McMahan’s Furniture & Appliances, where Koz Development is proposing a complex of micro-apartments. (Troy Brynelson/Salem Reporter)

Salem’s elected leaders on Monday will face two decisions that could impact the city’s stock of affordable apartments.

First, acting as the Urban Renewal Agency, councilors will consider selling two lots on Fisher Road Northeast to Salem Housing Authority to build more affordable housing.

Then, Salem City Council will decide whether to give potentially hundreds of thousands of dollars’ worth of tax breaks to a new complex of micro-apartments in downtown, which developers say would keep rent costs lower for tenants.

“We look for ways to keep our costs down, both during operations and construction, so we can pass some of the savings down to residents via rent reduction,” said Cathy Reines, CEO of Koz Development.

Called the Nishioka Building — named after the property’s owners — the complex is proposed at the corner of State and Commercial streets downtown.

Snohomish, Wash.-based Koz Development plans to build the apartments with nearly 150 units, most of which would be smaller than the average units in Salem and in the downtown core.

According to its application, the property would offer 122 units at 270 square feet, charging $850 a month. The average studio in Salem costs $953, according to SMI Commercial Real Estate, and $1,050 in downtown

“They’re proposing to do something that as far as I know has never been done in Salem,” said Gabe Johansen, principal broker at SMI Commercial Real Estate.

Reines said in an email that the rents aren’t finalized.

“Predicting rents 18 – 20 months from now is really difficult but I can tell you that we are estimated average rents in the building will range from $850 to $1,400. Rents include all utilities, secured high speed wi-fi and furnishings,” she wrote. “We will of course assess the actual rents as we get closer to opening the building.”

Reines said Koz is aiming to break ground in late spring.

City documents show the tax break could save Koz $40,000 in its first year and last for 10 years. City staff recommended giving the break. Kristin Retherford, director of Urban Development, said the building would help the city’s rental market and downtown businesses.

The building addresses “the needs for new housing in general in the community, and the benefit to our businesses downtown by having more residents downtown supporting those businesses,” she said.

Those taxes would have been paid into the downtown urban renewal area. The city’s general fund, which pays for services like police and firefighters, would not be impacted.

The tax exemption is designed to foster multifamily housing construction. Councilors on Monday will weigh whether the project fits city code and offers enough “public benefit” like affordability, being LEED certified and more.

Reines and Vice President Josh Scott said they can’t be certain who will live in the new apartments, but based on their past projects in Seattle, Portland and Everett, Wash., their typical tenant is 26 and looking to save money.

“Really what we’re shooting for is individuals who want to live minimally and want to take advantage of the savings and utilize those dollars to pay off student loans, save money, to travel, have experiences,” said Scott.

Ages at their past projects range from 18 years old to 62. They told Salem Reporter that they chose the space in part due to its proximity to Willamette University, the downtown district and medical offices.

The project is also offering less parking, another savings Reines said they are passing down to future tenants.

“If they have a car, their choice is to pay for parking, find a spot within any of the local parking garages or leave their car behind,” she said. “It’s not uncommon in our buildings (for tenants) to bring a car and then quickly turn around and sell their car because they find that with car-sharing and other modes of transportation that the costs are outweighed by the advantages of not having one.”

The city of Salem has approved just six properties for multifamily tax exemptions since 1976, according to city documents.

Redwood Crossings

The Urban Renewal Agency’s potential sale to the housing authority involves two contiguous lots and a partially constructed apartment for $530,000.

The housing authority hopes to start renovating the apartment this summer, turning it into “Redwood Crossings,” offering between 30 and 40 rooms. Documents filed ahead of the meeting say the pre-existing building is “80% complete.”

The documents say the city housing authority would run Redwood Crossings to target people who struggle to afford it. It will also connect residents with social services.

Salem bought the property last October for $1.57 million, most of which came from the urban renewal fund for the North Gateway area. About $55,000 came from Salem Housing Authority.

The Housing Authority will buy the property back using $425,000 from a federal grant and another $106,250 of its own funds, according to city documents.

Retherford told Salem Reporter that her department recommends selling the lots to the housing authority at a discount because Redwood Crossings because it would help meet the city’s goals of offering more affordable housing.

Have a tip? Contact reporter Troy Brynelson at 503-575-9930, [email protected] or @TroyWB.