Final CO issued last month: Developer and county pleased with result
[ By Mark Reaman ]
As discussions continue over several potential affordable housing projects in the valley, we thought it would be interesting to circle back around and see how the last big housing project, Paintbrush in Gunnison, is working.
Developer Gary Gates worked with the county to build 76 deed-restricted units (and a manager’s unit) near the Gunnison Recreation Center on land owned by the county. The units ranged from one-bedroom units to stand-alone houses and Gates said last week that the project is completely full. While Gates said that “the exact number of tenants are not tracked in keeping with Federal Housing best practices, we estimate there are 130-140 folks that reside there.”
While the first residents moved in more than a year ago in the summer of 2021, the final stamp of approval was issued in November of 2022. “We have been at 100% occupied for the last three months,” Gates said. “We got the final certificate of occupancy about a month ago and I recently moved my construction loan into a permanent loan. Despite COVID, rising interest rates, inflation, closure of Gunnison County for a while, labor shortages, supply chain disruptions and a local appliance distributor who took our advance funds and left town, we delivered on time.”
Gates said the entire project is rented to locally employed individuals that make between 60% or more of Average Median Income (AMI). “The project performs at market rents at those income levels,” he said. “All leases are on a one-year lease and there are no short-term rentals.”
While Gates owns the units, all the Paintbrush units are deed restricted so he must fill units with tenants who are employed in the county and don’t come in above certain income limits. Depending on the size of the unit and the income restrictions, rents in Paintbrush range from a low point of $831 per month to $2,000 for the rental of one of the stand-alone houses.
Residents work at both ends of the valley and he said the feedback on Paintbrush has been positive. “Prospective and current residents are often pleasantly surprised by the quality for an affordable unit,” he said. “Our luxury plank tile seems to be a hit.”
Walking around the development one afternoon last week, several residents said they enjoyed the neighborhood and were pleased with what has been provided.
Gunnison County manager Matthew Birnie concurs. The county has a so-called “master lease” for five of the units and Birnie said the county employees living there “have provided largely positive feedback.”
“The county units have been used in a variety of ways including long-term housing and a place for new recruits to land in the Valley while they seek other options. Having a place for people to move into when relocating to the County has been crucial in our recruitment efforts, especially at the executive level,” Birnie explained. “I don’t believe we would have been able to make some critical hires without having this housing available. For example, our new Human Resources director moved there and then was able to find a house to buy after about six months. Marlene’s (Crosby) replacement moved into one of the three-bedroom apartments with his family of six and dogs. It has been a good transitional option for him, and he is looking for a bigger place that will be a better fit for the size of his family as his young kids grow. Our new chief financial officer lives in one of the small stand-alone units and he has indicated that he will likely stay there long-term.”
Gates owns more than 9,800 rentals in the Houston, Texas area and said he prefers to stay clear of government subsidies so he can do what he wants in the fastest time possible. “The county and the city of Gunnison were excellent to work with. Other than the land at a reduced cost, we never asked for any reduction of fees, grants, subsidies or other concessions,” he explained. “This allowed us to be in full control once the permits to begin were issued. It’s why I never wanted taxpayers’ funds. Those things always come with strings, and you have people involved who don’t understand that time and regulations are costly.”
Gates said Paintbrush met all the conditions for using local labor and supplies during the construction of the project. “It was harder on the labor side because most local labor didn’t have the employees to handle a project our size,” he said. “Additionally, they could make two to three times more money on custom homes and really didn’t want our business.”
Birnie said from the county’s perspective, Paintbrush has been a success. “We are pleased with how the project was delivered, especially given the challenges with supply chains and construction material and labor costs increasing rapidly during that time frame,” he said. “The county did not put any additional money into the project once the agreement was signed. The developer, Gatesco, took on all the construction costs and risk.
“We are pleased with the deal structure, the development, and the overall results,” concluded Birnie. “I went by to check on progress on the stand-alone units late this summer and was struck by how activated and energetic the neighborhood was with kids and dogs playing and neighbors visiting in yards and on the sidewalks. It has much more of a community feel than some large lot subdivisions.”
With Paintbrush now completed, Gates said he could see a fit for him when it comes to the next big affordable housing projects in the valley.
“I believe we met what was expected of us and hope to be seen as a reliable partner on future opportunities,” Gates said. “In the future, if the area wants to maximize speed and minimize costs, they will have to be more realistic in what it takes to make a project financially viable. Lenders are becoming scarce and only the most successful operators will be able to secure necessary financing. I believe taxpayers will not be as willing to fund non-financially viable projects. They are getting hit by inflation and rising interest rates and will be more discerning. While I don’t wish tough times, this era of virtually ‘free money’ has made what I had to offer less attractive. With the days of easy money now over, expectations need to be adjusted. I excel in the tough times and am here to help.”
In that vein, Gates admits he has his eye on the potential Whetstone Housing project being proposed for just south of Crested Butte. But he is already concerned with what he expects could be some unnecessary mandates tied to the project, especially in terms of currently popular climate mitigation measures.
“I hope to submit a proposal once the RFP is issued. However, I am concerned that the RFP may contain guidelines that are financially burdensome and would require taxpayer subsidy to implement,” he said. “An owner who pays the utilities, as I do at Paintbrush, has the most compelling interest in reducing utility costs. During the construction of Paintbrush, we had an engineering firm analyze the capital costs and potential savings of geothermal heating compared to electric heaters. The long-term savings were marginal, and the capital costs were astronomical on a per unit basis. We opted for electrical heaters.
“When this analysis was conducted in 2019, we were in a low interest rate environment,” Gates continued. “Since then, interest rates have nearly doubled. As a result, interest costs related to constructing geothermal would be nearly double since geothermal would be financed as part of the overall project, further reducing feasibility. This would make it challenging to obtain bank financing for the overall project. As temperatures continue to rise, the need for heating will decline. Thus, the expected, long-term savings from geothermal would likely be less than estimated if based upon the climate of today.”
But when it comes to Paintbrush, Gates admits there were some challenges, but they have been worth it. “I am happy to be able to help provide an opportunity for lower income, working people to have a place to live in this community. I am pleased with the way the project turned out and I think it is an example of what can be done here.”