New Meridian apartments come with tax breaks for investors, high rents for tenants
One of the Treasure Valley’s largest apartment building owners and a leading developer have teamed up to build a 240-unit complex in Meridian that will provide federal tax breaks to investors.
Yet low-income workers meant to benefit from projects spurred by the tax break are unlikely to benefit directly from the apartments, which will garner high-end rents.
Kennedy Wilson Holdings, which owns the Whitewater Park Apartments and Cottonwoods Apartments in Boise, and developer Roundhouse expect to break ground next month on the Dovetail apartments.
The development, located at 2255 E. Fairview Ave., would take an estimated two years to build. It would consist of 10 three-story buildings and will include a swimming pool, clubhouse and fitness room.
The complex would have 80 one-bedroom apartments, 110 two-bedroom units and 50 three-bedroom apartments. There would be 462 parking spaces, with 248 of those covered. There would also be 20 bicycle parking stalls.
Rents are expected to be $1,600 to $1,900 per month, Roundhouse CEO Casey Lynch said by email. They would be similar to rents charged at the nearby Jasper Apartments, a 240-unit complex at 1018 N. Webb Way, south of the Dovetail site. Kennedy Wilson Holdings and Roundhouse also own that complex.
Apartment complex investors receive tax break
The $60 million Dovetail site is within the Meridian Opportunity Zone, one of 28 areas throughout Idaho and 8,700 nationwide designated as economically distressed. New investments in those areas can qualify for tax benefits through a federal program initiated in late 2017.
“It will take advantage of the opportunity zone program, although that was not essential to the project’s viability,” Lynch said.
Opportunity zones were meant to encourage investors to bring money to poor neighborhoods and create new housing, jobs and businesses.
A 2019 analysis by the New York Times found that the law “fueled a wave of developments financed by and built for the wealthiest Americans.”
Estimated rents at the Dovetail are significantly higher than current apartment rates in Boise. Median rents in Boise in July were $1,101 for a one-bedroom apartment and $1,307 for a two-bedroom, according to a July 29 report from Apartment List, a listing service.
The lower-income retail and hospitality workers the city is trying to retain within the opportunity zone are already priced out of the housing market, as the median prices in June for homes in the zone ranged from $452,500 to $527,250.
If investors sink money into an opportunity zone project and leave it in for at least five years, 10% of the deferred gain in value is excluded from capital gains taxes. If the investment is held for seven years, the exclusion rises to 15%. After 10 years, 100% is excluded.
Projects meant to help low-income workers afford rent
“The intent of the program was to encourage high-wealth individuals and others to reinvest capital gains into projects in the opportunity zones,” Jerry Miller, an economic development specialist with the Idaho Department of Commerce, said by phone.
The state received 59 opportunity zone requests from across the state and awarded designations to 28 of them, the limit under federal law. The requests were vetted by the Governor’s Economic Advisory Council, with then-Gov. Butch Otter making the final determination.
Twenty of Idaho’s opportunity zones are in rural areas such as Wilder, Parma, Payette, Mountain Home and Valley County. Eight others are in urban areas, including Boise, Meridian and Nampa.
It’s unclear how many projects have used opportunity fund investments, Miller said.
“Opportunity funds are not required to report, disclose or share their information other than the form they fill out and submit to the Internal Revenue Service,” he said. “What we know about existing projects here in Idaho is based on information that’s been volunteered to us from the developers that are doing the project.”
That was the case for the Dovetail development. Kennedy Wilson issued a news release that mentioned opportunity zone funding.
The Meridian zone is bordered by South Meridian Road on the west, East Fairview Avenue on the north, South Cloverdale Road on the east and Interstate 84 on the south. It takes in 5 square miles. The median age for residents is 34.4.
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Tract includes some of Meridian’s poorest workers
Each opportunity zone is contained within one census tract. The Meridian tract had a population of 7,630 in 2019.
The median household income — half is higher and half is lower — is $55,000. That’s 77% of the city’s median income of $71,389, according to the Census Bureau. Per capita income is $29,983, below $33,328 citywide.
“This area has the second-highest collection of low-to-moderate-income residents in the city as well having some of the oldest housing stock in the county,” Christopher Pope, Meridian’s then-community development administrator, wrote in the application. “Opportunity funds would allow for new investments and incentives to continue to mitigate the negative aspects of development in the area while improving housing, employment, consumer, and other opportunities in an area that residents, businesses, and officials locally and regionally want to see thriving.”
The poverty level of the tract was 18.6% in 2019, the most recent year for which Census figures are available. That’s an increase from 11.6% since the application was submitted in 2018, and it is more than double the 8.6% poverty rate for the city of 102,000.
“This census tract is also home to the downtown core of Meridian that is a large focus of economic investment and development for the city and other local and regional partners,” Pope wrote. “This area receives a lot of business and other investment interest, but we have run into some issues in maintaining that interest and realizing long-term, successful business growth in the area.”
Besides easy freeway access, the zone has industrial rail service from Union Pacific and is near a number of health employers: Blue Cross of Idaho, St. Luke’s Medical Center in Meridian, the Idaho College of Osteopathic Medicine, the Idaho Urologic Institute and Idaho State University’s Meridian campus.
The area is marketed to attract other health science and technology companies, signaling a need for a specialized and highly skilled workforce, according to an Idaho Department of Commerce brochure describing the opportunity zone.
Second housing project also in Meridian opportunity zone
Galena Equity Partners, a Boise real estate investment and development firm that is not involved in the Dovetail project, has an opportunity zone housing project in downtown Meridian. Union 93, formerly known as Meridian Station, is expected to break ground later this year.
It will provide 360 studios and one- and two-bedroom apartments at 632 N. Main St. It is targeted for workforce housing and will also have market rate apartments. The $77 million project will also include retail and office space.
Galena has 10 opportunity zone projects in the Pacific Northwest, mostly in Washington State. A second Idaho project, Onesixty Main in Twin Falls, is under construction. The six-story building will have 44 apartments, 14,000 square feet of commercial space and 9,500 square feet of office space.
Dan Fullmer, Galena’s chief investment officer, said Union 93 would not have been possible without the opportunity zone.
“Opportunity zone money is intended to come into blighted or early stage areas where typical investors want a lot more security than in an area that has already been beautified,” Fullmer said by phone.
Kennedy Wilson says it’s the largest owner of multifamily properties in the Boise area, with about 2,500 units. The Beverly Hills, California, company entered the Boise market in 2012 and two years later bought the Whitewater Park Apartments along the Boise Greenbelt in the West End.
It later bought the Cottonwoods Apartments in Southeast Boise, the Edgewater Apartments near State Street and Collister Drive, the River Pointe Apartments west of Glenwood Street in Garden City, and the Rosewood Apartments near the Boise Towne Square mall.
Kennedy Wilson and Roundhouse recently completed a 277-unit apartment complex in Eagle, The Clara. It’s located at 225 S. Linder Road, just south of State Street.
This story was originally published August 3, 2021 at 4:00 AM.
