By Starrla Cray
WRIGHT COUNTY, MN When housing developments go bad, things can get a little messy, and a Dec. 10 seminar put on by the Wright County Economic Development Partnership addressed some of the issues that are occurring in Wright County.
At the Montrose Community Center, speakers Greg Hayes, Tina Lannes, and Mike Couri gave advice about what cities in Wright County can and should be doing with unfinished developments.
“A lot of these projects are not going to move for three, four, five, six years, depending on the housing market, and how overbuilt your city is,” said Couri, a partner with the St. Michael law firm of Couri, MacArthur & Ruppe.
“Housing drives commercial business activity,” Hayes, of Greg Allen Companies in Delano, said. “It’s a ripple effect.”
The decline in the housing market has created unprecedented issues for many Wright County cities, Couri said.
“There is no guidebook,” he said. “We make it up as we go. We’ve just never been in this situation before.”
Unfinished and bankrupt developments are now the norm in Wright County, and cities are working to limit their losses and prepare for the future.
In Cokato, the number of home sales decreased by a third this fall, compared to fall 2008, Hayes said.
Delano had an even bigger drop in sales, at a nearly 50 percent decrease from August through October 2008, compared to 2009.
Montrose was a “bright spot” in Wright County, Hayes said, with the number of home sales staying steady, and median home sales prices increasing by $550, based on 26 sales.
Home prices have dropped in many cities, however. In Howard Lake, sales prices have depreciated nearly 28 percent in the past five years, according to Trulia.com.
In Waverly, the median home sales price for September to November 2009 decreased $29,128, compared to the same period one year ago. This number is based on 11 home sales.
In the midwest, existing single-family homes priced above $1 million saw a 22 percent drop in sales this year, Hayes noted.
“We’re not seeing higher-priced properties selling,” Hayes said.
When developers purchase lots, cities need to work in partnership with them, Couri said.
“Our interest is to get those lots moving again,” he said.
Lots might need to be split apart in order to sell, Hayes said.
“Eighty-thousand-dollar lots aren’t going to sell in velocity,” he said.
Cities need to be careful which banks they select for loans, Couri added.
“Watch those banks carefully,” he said. “That letter of credit is only as good as the bank you take it from. You’re putting taxpayers at risk, and you don’t want to do that.”
Housing associations also need to be established.
“Eventually, what you’re seeing is private streets that need to be plowed,” Couri said, adding that if a city decides to plow them, it can be seen as “acceptance” of the responsibility in court.
“Guess what? It’s now your street,” he said. “From a cost standpoint, it’s a ticking time bomb.”
Instead, cities should meet with homeowners to help them establish an association.
“The city can’t establish it, but the city can guide them and bring those neighbors together,” he said. “In terms of making your headaches go away, that’s one of your biggest bangs for your buck.”
An audience member asked Lannes, the finance director for the City of Albertville, if her city has had pressure to reduce developer fees in order to encourage new developers to take over unfinished projects.
“The city’s philosophy is, development pays for itself, and we’ve stuck to that,” Lannes answered. “We have deferred assessments to help the developer. That’s the farthest my council has gone.”
Lannes stressed the importance of making sure all housing-associated fees are collected.
“When I first got to Albertville, there were more than $1 million in developer bills that weren’t billed to developers,” she said. “Some of those were seven years old. That really hurts your cash flow.”
Cities also need to be prepared to shut off utilities if they aren’t being paid, Lannes said, giving the example of a model home in Albertville with a $19,000 water bill.
“We finally got that collected,” she said.
As for unfinished development repairs and maintenance, now is the time to evaluate what needs to be done immediately, and what can wait, Couri said.
“It looks like we’re going to have two to three years of bankruptcies and foreclosures to deal with,” Hayes said. “Sure, we’re going through a lot of pain in the adjustments, but if we work smarter, we may be able to get a bigger piece of the pie.”