Traverse City commissioners unanimously approved a payment-in-lieu-of-taxes (PILOT) agreement Monday to support Goodwill Northern Michigan’s plans to convert East Bay Flats – an affordable housing development on Munson Avenue – into 100 percent permanent supportive housing for individuals experiencing homelessness.

Goodwill closed on purchasing East Bay Flats – a former hotel converted into apartments – shortly before Monday’s commission meeting, executive director and CEO Dan Buron told commissioners. The development currently serves tenants earning 80 percent or below of the area median income (AMI), according to Interim City Manager Nate Geinzer. Goodwill’s goal is to dedicate 100 percent of units for permanent supportive housing, defined as individuals earning 60 percent or below of AMI who are homeless, have a disability, or are fleeing domestic violence.

According to a memo from Geinzer, 25 units will serve the community’s “chronically homeless population,” while another 29 units will serve mid-acuity individuals – which “essentially means non-chronic or those in a transitional/temporary homeless situation,” he wrote. Ten units will be dedicated for at-risk youth experiencing homelessness. Housing choice vouchers will be accepted and used to cover rent in many units. Buron explained that rental rates will be determined based on a percentage of a tenant’s income – if a tenant has no income, they don’t pay any rent out of pocket, he said.

A memo from Goodwill notes that it costs $15,000 in public services (hospital, police, and other services) on average to keep someone experiencing homelessness unhoused. East Bay Flats will keep nearly three dozen “community members off the street and housed,” saving almost $500,000 in public dollars annually, the organization estimated. Goodwill is purchasing the property from TCWFH LLC, the current majority voting owner of the property. The Traverse City Housing Commission is a silent partner in the project and wishes to remain so, according to the memo. Buron said Goodwill was concerned another buyer or developer would not have shared the organization’s commitment to keeping East Bay Flats affordable for the community. “We really saw this as an important project and a project that was mission-aligned for us,” Buron said.

A PILOT agreement allows developers to pay a percentage of rental income to the city in lieu of traditional taxes to offset costs associated with developing affordable or low-income housing and charging below-market rental rates. Traverse City recently adopted a new policy for approving PILOT agreements after a change in state law loosened restrictions on PILOTs, giving communities more flexibility to approve them. A 10 percent PILOT is already in place at East Bay Flats, but Goodwill asked for a lower PILOT – four percent, to remain in place for at least 15 years – to be able to accommodate tenants with lower incomes and have a more competitive application when seeking low income housing tax credits (LIHTC) from the state of Michigan.

Goodwill Director of Housing & Homeless Services Nora Dunlop said in a memo that no current tenants of East Bay Flats will be asked to leave, with all leases honored. “As units become available, people experiencing homelessness with a rental subsidy, such as an active housing choice voucher or Rapid ReHousing placement, would be housed at the property,” she wrote. “Due to the payment limits inherent with these subsidies and thus the reduction in rental income, a lower PILOT rate would make the sustainability of ending people’s homelessness experience more viable.” Buron reiterated Monday that no existing tenants of East Bay Flats will be displaced. “No one is going to be without any housing,” he said.

Assuming Goodwill is successful in its LIHTC application, the organization can begin making upgrades to East Bay Flats in late 2024 or early 2025, according to Geinzer’s memo. An estimated six months of renovations will include exterior improvements, new HVAC units, new windows, energy efficiency upgrades, security cameras, an improved point of entry, the conversation of several units to ADA-accessible apartments, and the addition of community meeting space for tenants to receive support services from Goodwill and other partner organizations.

Ashley Halladay-Schmandt, director of the Northwest Michigan Coalition to End Homelessness, told commissioners her organization has developed an “ambitious” five-year plan to end chronic homelessness, defined as individuals who are homeless for a year or longer and have a diagnosed disability. That would require getting approximately 75 individuals into permanent supportive housing by 2028. Halladay-Schmandt praised Goodwill for its plans at East Bay Flats, saying the project would represent “significant” progress toward meeting the five-year goal.