MEETING DATE:
FEBRUARY 14, 2017
SUBJECT:
Title
RESOLUTION NO. SHA 2017-024 - REQUEST FOR APPROVAL OF AN INCREASE TO THE PROJECT LOAN FOR THE EL DORADO II PROJECT
Body
Recommendation
Recommendation
ADOPT a resolution as the Successor Housing Agency (SHA) approving a $2,600,000 project loan increase.
Body
Board or Commission Action
January 27, 2009 - RDA Board approval of Exclusive Negotiation Agreement and predevelopment loan March 24, 2009 - RDA Board approval of property acquisition loan for 320-330/340/350 W. Mission Rd.
June 23, 2009 - RDA Board approval of property acquisition loan for 343 Richmar Ave.
October 13, 2009 - RDA Board approval of property acquisition loan for 363 Richmar Ave.
May 11, 2010 - RDA Board approval of property acquisition loan for 304 W. Mission Rd.
February 28, 2012 - City as SHA approval of property acquisition loan for 312-318 W. Mission Rd.
April 28, 2014 - Planning Commission approval of project on April 28, 2014
May 27, 2014 - City Council approval of project
December 9, 2014 - City Council as Successor Housing Agency (SHA) approval of Development and Loan Agreement (DLA) and project loan
December 9, 2014 - City Council approval of City property transfers necessary for the Project
March 8, 2016 - City Council as SHA approval of initial joint Affordable Housing and Sustainable Communities (AHSC) application
June 14, 2016 - City Council as SHA approval of full application for the AHSC program funding
Relevant Council Strategic Theme
Planning for the Future
Relevant Department Goal
Facilitate Affordable Housing Production
Introduction
On December 9, 2014 the City Council approved the DLA, funding package and property transfers for the El Dorado II development to be built in two phases. In the uncertainty of the financially constrained immediate post-RDA era, the funding package was sized only large enough to make the project’s application relatively competitive, but not sufficiently large so as to ensure victory at the outset. The Developer began applying for 9% low income housing tax credits for Phase I in March 2015 and all subsequent application rounds thereafter. The project, while competitive, has been unable to secure funding. In October 2016, the Developer received bad news from the Tax Credit Allocation Committee (TCAC). Due to recent changes in TCAC scoring rules, $800,000 of the project’s SHA funding heretofore allowable for competitive basis was going to be disallowed. This funding increment was authorized by the Council as SHA in December 2014 for offsite improvements required by the Vallecitos Water District (VWD) in order to build the development. This opened an immediate $800,000 competitive gap relative to competing projects. Several weeks later, the value of the tax credits dropped as a result of the national election and in anticipation of future corporate tax reform. This opened an additional funding gap for the Project. This request for supplemental funding is to partially compensate for the unexpected funding gap that has recently emerged so that El Dorado II can be competitive in the next TCAC application round on March 1, 2017.
Discussion
Following the recent election in November, the market reacted by devaluing the pricing of low income housing tax credits. The drop created an immediate funding gap of approximately $2,000,000, in addition to the $800,000 competitive gap created by TCAC.
In order to reestablish Project competitiveness in the TCAC arena, respond to a volatile tax credit market, and react to changing TCAC rules and to improve the overall competitiveness of the Project for next round on March 1, 2017, the Developer has proposed the following:
(1) Alter the phasing by building the Project in one initial phase of 99 units; deferring the construction of the second phase of 21 units to a more opportune time in the future, thereby saving approximately $2.2 million in construction and construction-related costs. This will compensate for the post-election tax credit pricing gap. It should be noted that the Developer does plan to build the underground infrastructure for the 21-unit building, thereby facilitating its future construction in the second phase.
(2) Requesting an additional $2,600,000 loan from the SHA. Of this amount, approximately $800,000 is to replace the competitive advantage associated with the $800,000 “lost” due to TCAC rules changes. The remaining amount, approximately $1,800,000, will serve to cover the large post-election tax credit gap and to enhance the relative competitiveness of the project for the next TCAC round, thus increasing the probability of success in securing the coveted 9% low income housing tax credits.
Taken together, these funding measures will restore financial viability and enable the project to move forward into the next TCAC round on a more competitive basis.
The additional $2,600,000 will come exclusively from the SHA from three identifiable sources. An increment of $1,000,000 will come from deposits currently on account in SHA Fund 250. A second increment of $500,000 will come from the 2015 SERAF reimbursement. This assumes the Council is also authorizing at this same meeting an additional $800,000 from the same 2015 SERAF reimbursement for Promenade at Creekside II. The 2015 SERAF reimbursement can accommodate both the $800,000 and the $500,000 increments totaling $1,300,000. A third increment of $1,100,000 will come from the 2016 SERAF reimbursement of $2,500,000 scheduled to be received in June 2017. Of the total $2,500,000 amount in this SERAF reimbursement, no money has yet been authorized by the Council.
In summary, the additional $2,600,000 requested for El Dorado II will be coming from three discrete SHA sources as follows:
Deposits on account in SHA Fund 250 $1,000,000
2015 SERAF reimbursement on account $500,000
2016 SERAF reimbursement in June 2017 $1,100,000
Total $2,600,000
Should the Developer be successful in securing the tax credits during the March 1, 2017 round, the $2,600,000 million will not need to be wired to the project until close of finance in November 2017. Therefore, the timing sequence works because the next SERAF reimbursement is to be received in June 2017, months prior the project’s close of finance.
Fiscal Impact
This is an additional out-of-pocket SHA expense of $2,600,000. Of this, all but $1,100,000 is already on deposit. The remaining $1,100,000 will be in the next SERAF reimbursement of $2,500,000 million scheduled for June 2017. There are sufficient SHA funds for both this funding increase of $2,600,000 for El Dorado II and a concurrent increase of $800,000 to Promenade at Creekside II.
Attachment(s)
1. Resolution SHA No. 2017 - XXX
2. Exhibit depicting the project site plan
Prepared by: Harry Williams, Housing Programs Manager
Submitted by: Karl Schwarm, Director, Housing & Neighborhood Services Division
Approved by: Jack Griffin, City Manager