MISSION, S.D. When developer Tom Costello began building townhomes on the Rosebud Indian Reservation in Mission, S.D., he was astounded at the pent-up demand.

Mission, home of the Rosebud Sioux Tribe, has a population of barely more than 900, according to Census figures. The nearest city with a population of more than 50,000, Rapid City, is 185 miles away.

But after Costello produced two phases of townhomes there—the 44-unit Sunrise I complex built in 1993 and the 24-unit Sunrise II complex built three years later—he still had hundreds of names on a waiting list.

“I thought it was amazing, so I asked my manager to start calling people to see if my waiting list was any good,” said Costello, owner of development/property management firm Costello Realty, based in Sioux Falls, S.D.

After doing credit reports and background checks on about half of the waiting list, his manager called back and said there were 300 families that could move in the first of the month.

How could there be such high demand in a sparsely populated area? Turns out the Census figures were wildly unreliable, especially since the bureau was trying to count a local population suspicious of the U.S. government. “There are so many more people on the reservation than we realized,” Costello said. “The Census data really isn’t accurate.”

Costello drew up plans for a third phase of 50 units in 1997, but when funding and local support were hard to come by, he shelved the plans. Meanwhile, that waiting list continued to grow, reaching 2,500 families by 2005, convincing the developer to dig in his heels and expand his plans to build 100 additional units of housing on the reservation.

Funding challenge

Although about a third of the city’s residents are below the poverty line, and the pent-up demand was immense, funding was hard to come by. “The whole project revolved around the issue of rental assistance—without it you can’t build,” said Costello. “That was our biggest stumbling point.”

Costello applied for financing and rental assistance with the U.S. Department of Agriculture’s Rural Development Sec. 515 program, and after receiving a $1 million loan he was told the agency could only provide rental assistance for 25 units.

The developer convened a meeting with representatives from the offices of South Dakota’s U.S. senators, as well as Rural Development, hoping to get more federal assistance. There was nothing more they could do, he was told. The Sec. 515 program has been severely gutted in recent years—in 1994, the program funded 11,542 rental units, but that figure dropped to 486 by 2006.

So Costello turned to the state’s Rural Development office, hoping against hope, and the local office delivered. The agency was able to cover the other 75 percent of units by some creative mixing and matching, allocating rental assistance from other projects that had vacancies, or that had their loans paid off.

Construction of the 10-building, 100- unit Sunrise III Townhomes began in November 2005. The last unit was completed in August.

Sixty of the units are two-bedroom, and the remaining 40 are three-bedroom units. The gross rents are $585 for the two-bedroom units and $775 for the three-bedroom units. All of the units target those earning up to 40 percent of the area media income, but 90 percent of the 100 families that moved into the townhomes have no income at all, Costello said.

The bulk of the financing for the $10.3 million development, nearly $7.2 million, came from 9 percent low-income housing tax credits, purchased by Citibank Community Development. Because Mission is in a Difficult Development Area, Sunrise III was eligible to receive 30 percent more federal tax credits than would otherwise be available. Citibank also provided a $2.1 million permanent loan, and Wells Fargo provided a $4.8 million construction loan.

Trade school

As a condition of development, Costello agreed to employ every available enrolled member of the tribe through the reservation’s employment office. In all, 85 percent of the workforce was Native American. But the workforce was unskilled at high-volume construction, and more accustomed to building one house at a time.

So the contractor, Jon Larsen of Elk Point, S.D.-based Developers and Associates, educated the local workforce on the fly with a makeshift trade school. The building site was the classroom, and Larsen and his foremen were the teachers. About 65 young Native Americans went through the crash course, which taught a production-line approach to construction phases like framing and shingling.

For Larsen, who has built hundreds of units in South Dakota reservations over a 40-year career, the approach was unique. “Usually, a contractor brings in his own crew and then adds whatever the employment agency of the tribe requires,” Larsen said. “But rather than doing it that way, we built the crew from within. We just tried to mold that talent into whatever crews were necessary.”

While employment opportunities are scarce—local figures peg the unemployment rate of Mission at a staggering 70 percent—the hope was that these newfound skills could be used to stem the tide of unemployment. “They get a little more confidence when they do a big job like this,” said Larsen of the workers. “It gives them something to fall back on.”

The impromptu trade school indeed was a win-win. “It gave the contractor a better work force and also now that we’ve left the community, I think we’ve left a lot of skills behind,” said Costello.

Moving in

Homes were populated as quickly as Costello could finish them. “Every time we turned a building over, it was full the next day,” Costello said. “And our waiting list just kept growing.” Currently, that list stands at 6,200.

At one point, eight families were just about to move in to a just-completed building, but after an inspection, Costello realized the units needed more work. He told the development’s manager, Donna Peterson, that he would pay for motel rooms for the families while the finishing touches were done.

But the families, still leery of outsiders, wanted some reassurance that this was just a temporary setback. “Can we just let them put something in the unit, just a lamp or a box or some dishes?” Peterson asked. “They just want to do something so they know that it’s theirs. My people have had so many disappointments, I don’t want them to think they’re going to lose their housing.”

Peterson, who started a neighborhood watch program for all the Sunrise developments five years ago, also runs holiday parties for the complex’s 335 children, even soliciting local businesses for donations to buy each child a Christmas present. “At least we know they will have one gift to open at Christmas,” she said.

And thanks to the patience and persistence of the Costello Realty, they can open that present in their own home.