.. I P M M Marshall arkway: arshall, innesota Addressing continuing labor shortages, the Southwest D General escription Minnesota Housing Partnership joined with Schwan's Marshall is located in rural southwest Minnesota, about Food Company (SWMHP), the major employer in the 30 miles from the South Dakota state line and 150 miles town of Marshal,l Minnesota, to develop affordable from Minneapolis. With a population of 12,735, it is the housing for company employees to encourage the re- largest city within a 100-mile radius. In the 1920s, food. tention of workers. The unique partnership included a processing industries began to grow in importance, and significant financial contribution from Schwan's. today are the leading economic activity there. Schwan's Food Company, the largest brand of frozen food in the P FACTS MARSHALLARKWAY United States, is headquartered in Marshall. With 2,500 Use: nehundredwenty Land O t unitsof mixed- employees in Marshall, Schwan's is the largest single single-family income, o housing n40 acres. employer in the city. Schwan's and all other major em- Marshall arkwayonsists 82 Affordabillty: P c of ployers in Marshall reported labor shortages and prob- lots,threeduplex single-family lots,18 moderate- lems recruiting and retaining necessary employees. u a incomemultifamily nits,and30 multifamily nd As part of their effort to create an area plan for the city, unitsranging mixed-income o from30 percent f the Marshall Area Plan (MAP) committee was charged median statewide to income marketrate.Home- with developing goals relating to the future economic vi. w byincome. ownership asnot restricted Thevarious tality and livability of the city. Through its analysis, the wereavailable fundingmechanisms onlyto house- MAP committee identified the lack of affordable hous- certainincome holdsmeeting Theper- thresholds. ing as a key barrier to sustainable economic develop- m products manent ortgage income hadvarying ment in Marshall. A subsequent study of housing needs from80 to 115percent f the requirements o confirmed the shortage of residential options. The stud- median statewide G income. apandentry-cost ies found that the average sales price of housing units in- w below percent assistance ereincome-restricted 80 creased from $59,600 to $105,200 between 1990 and of thestatewidemedian R h is income. ental ousing 1999. This represents an increase of 8 percent per year, at a alsoavailable market ndaffordablerates. significantly outpacing inflation and gains in income. FUNDING/PROGRAMS The local workforce was being priced out of the market; Taxincrement Funding: USDA financing, Rural 41 percent of Marshall's population earned less than 502DirectLoanprogram, Redevelopment USDA "t. $43,S20,which is 80 percent of the statewide median in- D ParticipationoanProgram, Rural evelopment L come in 2000. Because of the region's rural nature, the USDA Loan Guaranteed Programandsingle-family profit margins of market-rate housing are very slim, r b mortgage mortgageevenue ondpermanent leaving little room to price homes below market rate products. Zero-interest closing costloansand and make them affordable to low-income workers. I ~ grants, ndmarket-rate a firstmortgageloans. . '" i With the adoption of the MAP in 2000, the city real- i Programs: homebuyer employer Major education. a support nd ized that it had an affordable housing problem that I was affecting its ability to compete economically. I , Southwest Developer: H Minnesota ousing Partnership. Architects: Cermak hodes R ArchitectsSt.Paul, ( I andJames Minnesota), McKellin Nelson III, ( Minnesota). ArchitectStillwater, ! 62 Development Process infrastructure improvements. The cost for individual The Marshall Economic Development Agency (MEDA) lots was only $3,200. Construction costs were reduced began examining strategies for developing housing that through a Schwan's construction loan. Schwan's Food would be affordable for families earning 50 to 80 per- Company built four homes using out-of-pocket funds. cent of the statewide median income. MEDA engaged SWMHP to help develop an action plan. Planning and Design The site plan for the project, now called Marshall Park- Planning for the project began in 2000, when MEDA and way, called for 78 single-family units, three duplex lots, SWMHP began evaluating potential sites. They settled on and two multifamily buildings, one with 18 units and a 40-acre site located just northwest of Marshall's down- the other with 30. Homes and duplexes are built in a va- town. The land was purchased with funds derived from a riety of styles that include ranch, neocolonial, and split- tax increment financing (TIF) bond issue. The construc- level. Some homes have front porches. The site plan was tion plan was to build in two phases, with sales from the designed to integrate into the surrounding neighbor- first phase helping to fund the second. SWMHP was ex- hood, with the goal of stimulating more adjacent resi- pecting a six-year time frame to build out both phases, dential development. The streets were laid out in a grid but the whole site was built and occupied in only three pattern that created six blocks. One long block on the years. Phase I, which consisted of 42 single-family lots east side of Marshall Parkway would transition into the and 18 rental townhomes, was sold out by January 2003. Rnancing and Programs The Southwest Minnesota Housing Partnership was Concerned about employee founded in 1992 by four community-based organizations recruitment and retention, concerned with population loss and the stabilization of Schwan's Food Company finan- cially assisted the develop- the region's economic base in order to stay vital. SWMHP ment of affordable homes at serves its original 14-county service area. It has devel- Marshall Parkway. oped, rehabilitated, or financed 4,079 units to date, bring- ing an investment of over $150 million to the region. SWMHP has formed a staff of 11 professionals with ex- All single-family detached homes-the affordable as perience in planning, construction, finance, and asset well as the market-rate ones- management. The partnership continually works to ex- have a two-car garage. pand and improve its services and now offers planning, construction management, program administration, project fiscal management, lending, grant writing, mar- keting, education, and mortgage counseling. The market-rate single-family homes in the community are In order to make Marshall Parkway affordable for lower- slightly larger, and have more income residents, SWMHP had to employ a number of expensive finishes and more exterior detail. different affordable financing strategies. These strategies - can be divided into four different types: reduction of land costs, reduction of construction costs, first mort- gage products, and special mortgage products. Land ac- quisition costs were reduced using tax increment financ- ing. TIF funds were used to purchase the land and make Case Successful Studies: Parkway63 DeveJopments-Marshall ..... ,... ~ --~- ~-- "'~,..,.,.,...- -~-'."- o~. -.. ~~. - existing neighborhood. The multifamily dwellings Marshall Parkway. In general, purchasers must earn less would occupy the north side of the development. The than 80 percent of the statewide median income. remaining land would be divided into five blocks de- SWMHP maximizes the affordability of homes through signed around a park that would also function as a the aggressive use of first mortgage products. SWMHP stormwater retention area. These blocks each contain used three different first mortgage programs at Marshall between six and 16 single-family and duplex units. Parkway: the Community Activity Set Aside program The site plan works largely within Marshall's existing (CASA), the HUD Rural Redevelopment 502 Direct zoning, which is a standard suburban-style code. Lot Participation Loan Program, and the Guaranteed Loan sizes in the development are 60 feet wide by 125 feet Program. Regardless of which program is used, the process deep with 25-foot setbacks. Each home has a two-car starts with homebuyer education and mortgage counsel- garage, and all multifamily units have designated off- ing for qualified buyers. street parking. Streetscape enhancements include side- CASA,a program run by the MinnesotaHousing Finance walks and trees planted throughout the development. Agency,is funded through the saleof tax-exempt single- The affordable units in the development differ slightly familymortgage revenue bonds. The program is an from the market-rate units in two ways: they have income-restricted product for first-time homebuyers slightly smaller square footage, and they have less ex- that range from one-half to one point below conven- pensive finishing and exterior details. tional financing. a Affordability ndManagementlMarketing Funded by the U.S. Department of Housing and Urban MEDRs investment in the project leveraged additional Development (HUD), the Rural Redevelopment 502 local money including funds from the Greater Minnesota Direct Loan Program is a low-interest product designed to help low-income rural residents acquire housing. The Housing Fund (GMHF), the Minnesota Housing Fi- product has interest rates pegged to income, with the nance Agency, and Schwan's Food Company. These funds went toward constructing homes and providing down- lowest rate being 1 percent, over a 33-year loan term. payment and other financial assistance to homebuyers. SWMHP offered two special mortgage products to po- All but ten of the single-family units constructed at tential Marshall Parkway homebuyers: an affordable Marshall Parkway are considered affordable. The afford- gap loan and an entry cost assistance loan. If they wish ability of these units is largely guaranteed by a number to access the gap and entry cost assistance loans, all po- of financing products available to potential homebuyers. tential borrowers are required to take homebuyer edu- These products come from a variety of agencies includ- cation classes, work with mortgage and budget coun- ing federal, state, and nonprofit organizations. SWMHP's selors, and use 28 percent of their gross income for role is to steer potential homebuyers to the financing housing costs. Housing costs are defined as the amount product that best fits their needs. The variety of financ- of income that can be used to make principal, interest, ing products has helped guarantee a mix of incomes at insurance, and tax escrow payments. Since the gap loan Twomultifamily buildings were constructed, including 48 units of affordable and market-rate rental units. 64 WorkforceHousing:InnovativeStrategies and Best Practices is based on the "gap" between the maximum loan a LessonsLearned buyer can access and the cost of the house, the amount . Employer-assisted housing is feasible in smaller towns. of the loan has varied from several hundred dollars to In fact, it is probably a better fit in smaller towns, where maximum amount allowed of $25,000. The GMHF also the relationship among firms, local government, and the offers a 0 percent gap loan, which is due when the community is stronger than in larger metropolitan areas, mortgage is paid off or refinanced, or the home is sold. where those connections are less tractable. There also The entry cost a~sistance loan is a 0 percent deferred is a potentially greater need for companies to playa role loan offered by the SWMHP. It comes due when the in providing affordable housing in smaller markets be- first mortgage is paid off or refinanced, the home is cause fewer inexpensive housing options generally are sold, or it ceases to be owner occupied. The loan available there. amount is determined by closing costs excluding "pre- . TIF bonds, used to purchase the 40 acres upon which paid" amounts. Prep aids are the first year's real estate Marshall Parkway was built, helped reduce the cost of taxes and insurance premium that is required by the land acquisition, which was passed on to homebuyers. lender at closing. The entry cost assistance loan pro- vides two-thirds of the needed closing costs. Closing . Shortly after Marshall officials decided to address costs for homes at Marshall Parkway have averaged affordable housing in the community, they realized that $2,700 per home, with the entry cost assistance loan they did not have the institutional capacity to develop a paying an average of $1,800 per home. The borrower successful housing strategy on their own. By partnering must supply $900 (one-third), plus the required pre- with SWMHP, they aligned themselves with an organi- payments on taxes and insurance. zation that could provide the technical expertise the community needed to succeed. The success of Marshall Parkway has prompted SWMHP, the city, and Schwan's to embark on the development of . The involvement of a major employer was critical to Marshall Parkway II. All the stakeholders wanted to im- the process. For years, Schwan's had been giving back to prove the master plan and individual building architec- the Marshall community through a number of projects ture in Marshall Parkway II. They have partnered with and programs. This resulted in a strong foundation for the Building Better Neighborhoods Program to achieve cooperation between the city and Schwan's. Working this goal. The mission of the Building Better Neighbor- together to build affordable housing for the communi- hoods Program is to foster the creation of safe, decent, ty's workforce was an important goal for both parties. and affordable housing within cohesive, well-planned, Besides contributing financial support for the project, and economically balanced neighborhoods. The pro- Schwan's involvement added credibility and helped le- gram helps communities like Marshall that are new to gitimize the concept of affordable housing development developing affordable housing to address issues of pre- within the community. serving community character and appeal through good . SWMHP's experience in Marshall and throughout planning, site design, and building design. rural southwest Minnesota has convinced the partner- In a small town, word of mouth is the best marketing ship that homebuyer education is very important. Many strategy. Several sources provided the initial spark to gen- people in rural areas feel they could never afford to buy . erate local discussion about Marshall Parkway. Schwan's their own home. Showing people the path to home- helped pique interest by sending out information about ownership not only improves lives, but also can be a the project in employees' paychecks. By holding an open powerful marketing tool. house, SWMHP gave the community a chance to see the product available in Marshall Parkway. The Marshall In- dependent newspaper was vocal in its support of Mar- shall Parkway throughout its development. Studies: Case Developments-Marshall Successful Par1lway 65 ..