NoCo Real Estate Summit: Developers describe metro districts as ‘essential tool’

Just days after the Fort Collins city council imposed a six-month moratorium on new metropolitan districts within the city, a panel of developers and home builders at the virtual Northern Colorado Real Estate Summit argued in favor of the quasi-governmental entities.

Fort Collins imposed the moratorium Tuesday as it considers new ways to regulate metro districts, which are special taxing districts used to build infrastructure such as roads, water, sewer systems and parks for developments. Such districts also can be used to maintain infrastructure for existing projects.

Metro districts can sell bonds to finance projects, with those bonds repaid by property taxes from within the district.

Opponents have expressed concern that some metro districts can become too heavily burdened by debt, leaving tax burdens on property owners within their boundaries.

But panelists at the Real Estate Summit unanimously supported the tool.

“This is a tool that makes projects possible,” said Landon Hoover, president of Hartford Homes and a panelist for the Metro Districts & the Cost of Development discussion. “This provides an alternative financing tool, another revenue stream that can make a project actually work, or allow them to enhance that project with additional amenities.”

Hoover was joined by Megan Turner, director of development for United Properties; David Crowder, vice president of community development and general manager of Centerra for McWhinney; and Jeff Ayres, director of business development for Dohn Construction Co. The session was moderated by Jake Hallauer, president and principal with Affinity Partners.

Hoover said that, just as a mortgage can finance purchase of a home for a prospective homebuyer, metro districts can spread out the cost of infrastructure over a period of years, thereby lowering the cost of a home upfront.

“If we didn’t have metro districts, lot costs generally would be, from a residential perspective, $40,000 to $60,000 more upfront,” he said. “Instead of increasing the pricing of lots and houses, we’re able to have districts collect property taxes over time and really offset that so it becomes a small monthly payment or annual payment in lieu of the larger upfront payment.”

He said that metro districts also can replace some functions of homeowner associations, providing additional oversight, accountability and regulation.

Crowder said the 3,000-acre Centerra project at Interstate 25 and U.S. Highway 34 lacked any infrastructure in the beginning but now includes thousands of residents, a regional hospital and companies that employ 8,000 workers.

“When it began, Centerra was an infrastructure vacuum,” he said, adding that a metro district was key to providing needed infrastructure, as well as community benefits such as the Chapungu Sculpture Park.

Hoover said that metro districts enable developers to enhance projects, such as creating natural-habitat buffers in certain areas, avoiding pushing development into every corner of a project. They also enable developers to offer affordable housing, a key objective of most municipalities, he said.

“I think for development of scale at the standard we desire, they’re absolutely a necessary tool,” he said. “If that tool is removed, municipalities would have to consider the standard that they want to achieve. In my opinion, they’re very necessary.”

Crowder said that it’s incumbent on the development industry to ensure that metro districts offer full transparency, with prospective homeowners and commercial property owners made fully aware of tax assessments. Metro-district meetings and records are public, he noted.

“They need to be very, very transparent, and people need to know about them before making a purchase, he said.

“The industry needs to do everything it can to protect this tool and to be as transparent as possible,” he added.

Hoover said abuses by a couple of the state’s more than 2,000 metro districts damage the industry.

“I think us in the industry have as much angst and frustration and maybe anger at those districts as the consumer does because we see this as such a fundamental tool to our industry being successful,” he said. “And those districts put that at jeopardy. This is something that we want to protect. We don’t want the ability to abuse these tools available.”

Whereas projects decades ago might have been built using other funding sources, economic, taxation and regulatory factors have made metro districts essential for new developments, Hoover said.

Water costs are at least five times more expensive than they were in the early 2000s, he said.

“You can’t buy that over time, and so it just increases the amount of capital that you have to bring to a project, and very dramatically,” he said.

Additionally, traditional lenders such as banks have tightened their lending standards since the Great Recession, making projects more difficult to finance as they historically were done.

Crowder said Colorado’s TABOR amendment, which restricts governments’ ability to tax, spend and borrow money means that infrastructure that formerly might have been financed by the state, counties or municipalities must now be funded through other mechanisms.

“These metro districts are a great tool for that purpose,” he said.

Turner, whose company has developed two buildings in the 2534 development in Johnstown, with three more buildings planned, said projects on such a scale are fully dependent on the cash resources that metro districts provide.

“It really allows these developments to move forward, and the quality of development to be there, and the quality of maintenance as well.” she said. “These projects would not really be feasible without it.”

Panelists also addressed the impact of the COVID-19 pandemic on the construction sector.

Ayres said the average long-term residential building cost inflation is 4.2%, with nonresidential reaching as high as 8% and residential as high as 10%. Long-term cost inflation is about double the consumer price index, he said.

“We all know construction costs have gone up a ton,” he said.

He said the construction sector lost more than one million jobs nationwide since March, with Colorado losing 13,000 jobs. He said F.W. Dodge projects that residential building starts will drop 12% in 2020.

He said that production of construction materials has dropped by 20%, which creates more demand for those materials that are produced.

Additionally, loss of productivity has added costs due to COVID.

“COVID is actually going to drive construction costs up,” he said, noting that Dohn’s worksites include extra wash stations, masks, thermometers, check-ins, as well as limiting the number of workers onsite.

“All of that increases the cost,” he said.