The term ‘pro forma’…. is most often used to describe a practice or document that is provided as a courtesy or satisfies minimum requirements, conforms to a norm or doctrine, tends to be performed perfunctorily or is considered a formality…
— from Wikipedia
As mentioned in Part One of this editorial series, Pagosa Springs Mayor Shari Pierce posed a question to four Town staff members at the November 1 Town Council meeting, asking if they had questions about the ‘pro forma’ presentation delivered by Garrett Scharton, a vice president with Dallas-based student housing developer Servitas.
Mayor Pierce:
“I want to ask the Town staff — April, James, Andrea, Clay — do you all have any questions?”
Town Manager Andrea Phillips responded. “I don’t have questions. I have concerns.” She laughed. “Not really questions, right now…”
We didn’t have a chance to hear Ms. Phillips’ concerns during the meeting. So I reached out to her earlier this week, asking if she could provide a copy of the pro forma spreadsheet… and perhaps, tell us what her concerns are, at this point.
She responded by sending the spreadsheet Mr. Scharton had shared with the Town Council on November 1. She wrote:
Here is the [spreadsheet] they showed in the meeting. Note that it will change quite a bit over the coming months as we change various assumptions. This is a moving target and none of this is set in stone.
My concerns are related to building a project of this size in the current market (historically high interest rates, drastically increased construction costs, etc.). The Town is seeking significant grants to assist with the cost of the project. Council will need to make a determination over the coming months as to what rental rates they want to hit and therefore, what, if any, additional subsidies need to be provided. They asked Servitas to come back with new scenarios in the proforma at a future Council meeting that show different vacancy rate assumptions, assumptions for revenue that do and do not include different grants, and updated interest rate scenarios. We may need to reduce the project costs as well through some value engineering, cutting some units, etc. in addition to seeking additional revenue.
The project has grown by 34 units from the original 64 and we now are in a much different market environment.
Our financial consultant, SB Clark, which we hired independent of the Servitas team, was also present at the meeting and has the same concerns about the project in this current market.
Let’s consider, in some detail, Ms. Phillips’ comment about “what rental rates [the Council members] want to hit…”
During the pro forma presentation by Mr. Scharton, we saw the following estimated rental rates for some of the proposed units. Servitas is proposing four “programs” to hit four different income levels: 60%-80% AMI (Area Median Income); 80%-100% AMI; 100%-120% AMI; and 120%-150% AMI. The current proposal suggests about the same number of units, and the same variety of units, at each income level.
These are the lowest suggested rents shown in the pro forma we saw on November 1, representing the “60%-80%” and the “80%-100%” programs. Three of the 26 proposed units in the “60%-80%” program would be studio apartments (no bedroom) sized at about 400 square feet, renting for $1,151 per month (including utilities?). The other apartments shown, range from $1,315 to $1,850.
As mentioned, these are the ‘cheapest’ programs. The other two Servitas programs show much higher rents, even for the 400-square-foot studio apartments — up to $2,160 for a studio apartment, and up to $2,775 for a two bedroom apartment.
Supposedly, these taxpayer-subsidized prices are meant to accommodate “workers”.
But let’s consider the cheapest apartment: a studio (zero bedroom) aimed at an income level of 60%-80% AMI… and priced at $1,151 a month, which Vice President Scharton described as “a screamin’ deal in Pagosa Springs.”
According to the Colorado Housing and Finance Administration (CHFA), a person paying $1,151 a month for housing should be earning $23 per hour, or about $920 a week.
According to the U.S. Bureau of Labor statistics, the average weekly wage in Archuleta County is about $845. Which would indicate that half of our workers in Archuleta County earn less than $845 per week.
Further indicating that, according to CHFA and BLS, more than half of our workers don’t earn enough to rent the very cheapest, zero-bedroom apartment proposed by Servitas.
The rental programs at the higher income levels?
As we see above, even a married couple — each earning Archuleta County’s average wage — would not qualify, under CHFA guidelines, for a one-bedroom Servitas apartment priced at the 100%-120% AMI level.
We might well have concerns about this taxpayer-subsidized housing proposal.
Mayor Shari Pierce put it this way:
“So, you said these are a screaming deal for Pagosa Springs — but living here and knowing our families here, I think there’s still going to be people who can’t afford these rents. And I think that’s where it’s up to the Town, to further subsidize the project.
“So, just putting that out there.”
I currently sit on the board of the non-profit Pagosa Housing Partners, the organization that wrote the Town’s official housing plan in 2019. Our organization also submitted a response to the Town’s October 2021 ‘Request for Proposals’ (RFP) which sought developers willing to build workforce housing on vacant Town-owned parcels.
Our plan was very different from what Servitas brought forward. We wanted to ‘start small’, with an 8-unit development — totally funded by PHP, without any risk to the Town government or the taxpayers, and with no need for additional subsidies. We estimated the rent for a one-bedroom apartment at about $820 per month, including utilities. This would make a one-bedroom affordable (according to CHFA guidelines) for a single person earning about $33,000 a year, or about $16 per hour.
Rent for our two-bedroom apartment was estimated at $1,200 a month. Here’s what each of the two proposed four-plexes would have looked like, based upon a similar project constructed in Salida, Colorado:
The modular units would have been purchased from the same Pueblo, Colorado company that Habitat Archuleta is now using for their housing projects.
But the Town housing subcommittee, after careful consideration, picked Dallas-based student housing company Servitas instead.
64 units! Or maybe even 98 units! From an experienced company.
This choice will not be risk-free, however. And it will apparently cost the taxpayers a great deal of money.
Which reminds me of a moment in the Disney movie Pinnochio, when Jiminy Cricket — believing he was Pinnochio’s ‘conscience’ — lost his temper over the puppet’s refusal to listen to reason.
“Look at you! Smoking! Playing pool! Okay, that settles it… you buttered your bread! Now sleep in it!”