The Sedona City Council took a few minutes during its Tuesday, Aug. 8 meeting to set up a potential takeover of the Sunset Lofts workforce housing project next spring.

The city of Sedona entered into a development agreement with the project developer, the MK Company of Scottsdale, on July 13, 2021, which required that the project be constructed within 24 months of the date of the agreement. At the time, the parties estimated that obtaining U.S. Department of Housing and Urban Development federal funding for the development would take 12 to 14 months and construction would take an additional 14 months, for an outside completion date of November 2023.

The development agreement expired in July 2023 without ground having been broken, giving the city the right to foreclose on the property at 90 days’ notice. Instead, the city renewed the development agreement for a shorter term with additional conditions.

“When they came forward with a request to extend out the time period for construction, we had a few asks on our end as well,” City Attorney Kurt Christianson told the council. “The original agreement allowed the city to foreclose on the deed of trust, which is an option right now for the city to go through that process. In lieu of foreclosure, we are changing that so that if the project does not start construction by April 1, 2024, the developer will automatically agree to sign title to the property to the city so we don’t have to go through that process.”

“The second change is the construction period originally was going to be 14 months,” Christianson continued. “We’re past that period, so this would extend that out to about 17 months from the April 1 deadline. So they’ll have until Sept. 1, 2025, to complete the project; otherwise the city, again, can foreclose on the property and take over wherever the construction would be at that point.”

To facilitate either of those scenarios, Christianson added a new section to the development agreement that will “give ownership of all the construction documents, the architectural drawings, everything, or at least a license to use the architectural drawings, to the city in the event of a default or any type of expiration or termination of the development agreement. That way the city could use those approvals and plans in any way that we could to help see this project completed if for some reason the developer, Sunset Lofts, is unable to do so.”

Sunset Lofts now has less than eight months remaining to begin construction before the property automatically reverts to the city. The developer is still attempting to secure HUD financing and building permits. Construction may also depend on the city’s willingness to increase its financial contribution to the project by roughly 50%, which City Manager Karen Osburn said will not be determined for another two to three months, pushing the project’s earliest possible start date to October or November.

Two members of the council had cosmetic concerns about the project.

“When we approved the project way back when, I remember the materials that had come before us, and particularly I remember Karen expressing that she really liked the roof design, the gabled roof,” Vice Mayor Holli Ploog said. “I really liked it also. And we just eliminated it. My question is why? It was cost-related?”

“Effectively it came down to more cost control,” developer M. Keith Holben said. “Rough math is, we’ve got our bids in, we are about 38% more expensive from that time era [2020] to now. So we’ve looked to do some redesign, which was the roof, to try to help shave costs wherever we can.”

“I have a flat roof at my house. It’s very costly to maintain,” Ploog said. “So it’s cheaper up front, more expensive as the years go on. So that’s my question. What was the difference in the cost that made you decide to redesign the roof?”

“There were two issues when we looked at the roof redesign,” Holben said. “One was cost. I can’t give you an exact cost savings at the moment, because the flat roof element is being re-costed. That would probably be data I could have in the future should the council be interested in that … Secondly, we’re able to save money on the HVAC system.”

Based on the latest estimates from city staff, the per-unit cost for Sunset Lofts is likely to be around $317,000 for units averaging 750 square feet in size, or just short of $422 per square foot.

Neighbor David O’Donnell previously pointed out in a letter to the Planning and Zoning Commission that the developer’s decision to use non-standard nine-foot ceilings might add an additional 18% to the cost of the project.

“I know there’s been a reduction in the amount of covered parking, and I think that there might be some concern among the community about that,” Councilwoman Kathy Kinsella suggested. “I can’t even get in my car when it’s not under shade. My steering wheel is literally untouchable. So I’m worried about that having an effect on the quality of life for the residents. As your partners in this, we want to make sure that there’s a project that has a great quality of life.”

Holben pointed out that the reduction in shaded parking has been eliminated due to a request from HUD.

“Any willingness to increase that?” Kinsella pursued.

“I think that we will have an opportunity, probably within the next 60 to 90 days, to probably be back before you again and talking about some of these more specifics, the pro forma, the cost implications, the financing costs, and really getting to a place where we’re going to make a go-no go decision on the project,” Osburn interjected. “So let’s just hold off those additional discussions until that time.”

Council approved the new agreement unanimously.