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Sherman and Associates Inc. ran into another roadblock to its Metro Lofts development last Wednesday, when the tax-credit syndicator it had tapped to purchase low-income housing tax credits (LIHTCs) awarded the project backed out of the deal.

Since its conception in 2005, the Metro Lofts project has had its share of setbacks and in 2006 altered its original plan to construct 70 to 80 condominium units north of Vine Street between Second and Third streets downtown. City records indicate that the plan was stopped when it “became economically infeasible due to escalating construction costs.”

On Feb. 2, Jackie Nickolaus, Sherman’s vice president of development, said her company was preparing to break ground on an alternative proposal for the four-story downtown housing project: the construction of 111 mixed-income apartments, including 80 low-income units and 31 market-rate units.

“The most reasonable alternative was to pursue a mixed-income apartment project as the way to contribute needed housing to the downtown market and utilize a key infill development site,” said a Jan. 25 council communication submitted by Matt Anderson, Des Moines’ economic development director.

But now, after about five years of waiting, watching, planning and structuring, Sherman may have to delay its $20 million housing development at 255 Vine St.

Though other sources of financing have been locked down, as the Business Record reported last week – including Enterprise Zone tax credits, tax-increment financing and an unsubsidized guaranteed loan from the U.S. Department of Housing and Urban Development – this most recent development could postpone the developer’s anticipated start date of March 1.

But Sherman remains committed to the project and is exploring other avenues.

“By next week, we will have better direction, but it’s going to take us a few days to sort out the options,” Nickolaus said on Feb. 4, adding that it’s too soon to say how the construction schedule will be affected.

WNC & Associates Inc., the Irvine, Calif.-based tax-credit syndicator which was expected to pick up the LIHTCs, didn’t immediately return a phone call requesting comment.

On Jan. 25, the Des Moines City Council approved a revised development agreement for Metro Lofts, paving the way for the Minneapolis-based developer to move forward on the 60 percent affordable and 40 percent market-rate apartment complex.

A revised Urban Renewal Development Agreement and Conceptual Development Plan, which outlines the developer’s proposal and spells out a revised disbursement schedule for the remaining $1 million of a $1.5 million Economic Development Grant originally awarded the project, was also approved on Jan. 25.

The initial disbursement of $500,000 was used toward the purchase of the parcel at Second and Vine Streets, for which Metro Lofts LLC paid $660,000 in May 2005.

The City Council in 2006 approved an application to the Iowa Finance Authority for the allocation of LIHTC dollars to develop the mix of 60 percent affordable and 40 percent market-rate apartments.

In 2008, the IFA awarded $1,183,009 in LIHTCs to the project, followed by a supplemental allocation of $671,497 in 2009.

But a lack of investors, who in a tough economy have less need to offset taxable income through the purchase of tax credits, continues to present a challenge to developers of affordable housing hoping to take advantage of such funding as an equity source.

To comply with the rules governing the allocation of the tax credits, Sherman must complete its Metro Lofts project no later than Dec. 31, 2010.

“That’s why the early start is so important to us,” Nickolaus said.