Workforce housing in tourism towns: who has made this work?

Question

I am a Kansas City based operator spending time on land near Branson, Missouri, and the more I look, the more one gap stands out.

Branson hosts around ten million visitors a year. The development money follows them: attractions, luxury product, second homes, short term rentals. What does not get built is housing for the people who work there. Servers, housekeepers, techs, retail staff. Employers openly say housing is a staffing problem now, and local leaders say the same in public.

I am not pitching anything. I am trying to learn the shape of this before I get serious about any specific ground:

1. Has anyone here built or funded workforce housing in a tourism driven market? What product type worked, rentals, for sale, mixed?

2. Did the city or county actually show up as a partner, or was the support just talk?

3. What killed deals that looked obvious on paper?

Appreciate any real experience, good or bad.

David Heyburn · Answer

Appreciate both of these. The financing breakdown is exactly what I was missing. The gap between what workforce rents support and what new construction costs is the whole puzzle, and I had not thought hard enough about the seasonality haircut.

Noah, the conversion angle is new for me. I came into this thinking ground up, but buying a tired motel or older apartments and converting them makes sense when the purchase price per unit beats new construction by that much. The two step financing, with real occupancy history before the permanent loan, is a cleaner story for a lender too.

Question back for both of you: on the employer master lease, what length are you actually seeing lenders require before they give it real weight in a seasonal market? Is five years the floor, or will they work with shorter if the employer is strong?

Noah Wright · Answer

Learning this before you tie up any ground is the right order, because one route that often gets skipped is not building new at all. In tourism towns, some of the workforce units that actually get done are older motels or tired apartment buildings bought and converted, since the purchase price often comes in well under what new construction costs per unit.

The financing on those usually runs in two steps. Short term bridge or rehab money buys and fixes the building, then a long term loan replaces it once there's real occupancy history. The lenders I shop put far more weight on rents a building has collected than on rents a plan projects, so that track record is what opens up the permanent loan.

Are you set on ground up, or open to existing buildings too?

Rickey Shneyder · Answer

David, I look at these mostly from the financing side, so I'll take your question 3 first, since that's where most of these die.

The deal that looks obvious on paper usually dies on rent vs. cost. If the people you want to house can afford roughly $900 to $1,100 a month, and new construction only pencils at rents well above that, the difference has to come from somewhere: cheap or donated land, tax credits, tax abatement, waived fees, or an employer. A construction loan sized on the rents your tenants can actually pay is often a lot smaller than the plan assumes. Run debt service coverage at real workforce rents before you get attached to any piece of ground.

Seasonality is the second issue. Lenders will haircut income if occupancy swings with the tourist season, and they get nervous if units could drift into nightly rental. Expect them to want deed restrictions or a lease structure that keeps it long-term.

Pieces people use to fill the gap:

- LIHTC through MHDC. 9% credits are competitive; 4% credits with bonds work at larger scale. Check whether the 60% AMI limits for Taney/Stone County actually line up with your target tenants.

- HUD 221(d)(4) for construction-to-perm on larger multifamily. Slow, but high leverage and nonrecourse.

- Local help: TIF, Chapter 353 abatement, city land contributed or ground-leased, waived impact and tap fees.

- Employer master leases. This is what can make a lender comfortable in a seasonal market, but they'll underwrite the employer's credit and the lease term. A one-year lease from a seasonal attraction counts for little; five-plus years from a solid employer counts for a lot.

- USDA Section 538 guaranteed rental housing, if the site qualifies as rural.

On your question 2: "support" from a city that isn't a dollar amount, a fee waiver, or an abatement written into a development agreement usually isn't support yet. Ask what they'll put in writing.

On product type: standard garden-style apartments or townhome rentals generally finance more easily than dorm-style seasonal housing, because a lender can see an exit if the employer relationship goes away.

The other quiet killers around Branson are site costs (water/sewer extensions, rock, slope) and construction pricing moving between your budget and your close. Before you tie up ground, have a local community bank or construction lender tell you how they'd size a loan on your projected rents. That tells you how big your gap really is.

Gary Nelson · Answer

@David Heyburn I'd want to connect you with a few key people here in Branson., i.e. a couple of developers since the 1990's that are still active in both nightly rental and residential product. In regards to our city administration, the new alderman board is now stacked with rockstars, they're actually making real progress to give this attention. I know several folks who are close to these matters, and advocates for improvement. If you think this can help, just send me a message and I will make some introductions!

Workforce housing in tourism towns: who has made this work?

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