MEETING DATE:
July 25, 2023
SUBJECT:
Title
RESOLUTION NO. SHA 2023-047 - AUTHORIZING MODIFIED PROJECT GAP LOAN FINANCING WITH NATIONAL CORE AND THE PREPARATION OF AN UPDATED LOAN AGREEMENT FOR THE VILLA SERENA II PHASE 2 AFFORDABLE HOUSING COMMUNITY
Body
Recommendation
Recommendation
ADOPT resolution approving modified project gap loan financing with National CORE and the preparation of a draft updated loan agreement for the Villa Serena II Phase 2 affordable housing development to document the same, which updated agreement would be brought back to the City Council in its capacity as the Successor Housing Agency for its consideration and action at a future date.
Body
Board or Commission Action
Resolution No. SHA 2014-009 dated Sept 9, 2014 authorizing predevelopment loan and ENA (Phase I)
Resolution No. SHA 2014-011 dated Dec 9, 2014 authorizing SHSA (Phase I)
Resolution No. SHA 2016-019 dated Jun 14, 2016 authorizing CDLAC approval letter (Phase I)
Resolution No. SHA 2019-037 dated Sept 9, 2019 authorizing rollover loan and RHP (Phase I)
Resolution No. SHA 2020-039 dated Feb 25, 2020 authorizing project loan and DLA (Phase I)
Resolution No. SHA 2021-8867 dated March 23, 2021 authorizing additional VWD project loan (Phase I)
Resolution No. SHA 2022-8995 dated March 22, 2022 authorizing RHP and modified loan
Relevant Council Strategic Theme
Planning for the Future
Relevant Department Goal
Facilitate Affordable Housing Production
Executive Summary
This affordable housing development, known as Villa Serena II is the redevelopment of the former 136-unit Villa Serena affordable housing development on the same site. Villa Serena 2 began with predevelopment in 2014. The project is a two-phase development; Villa Serena II Phase 1 (85 units) was completed in March 2023. The affordable housing developer, National CORE intends to develop Phase 2 (63 units) by the end of 2025. The project will have a net gain of 12 units with a denser room count throughout the development. Villa Serena 2 Phases I & II will also provide a significantly improved, sustainable and more efficient development over the former property.
In July 2019, Successor Housing Agency resolution 2019-037 authorized the rollover of the existing Redevelopment Agency (RDA) loan made to the legacy Villa Serena project in 1998. In February 2020, Successor Housing Agency resolution 2020-039 authorized gap financing to Villa Serena II Phase 1 for $5,250,000. In addition, in March 2021, Successor Housing Agency resolution 2021-8867 authorized an additional loan of $1,600,000 to cover required utility improvements mandated by Vallecitos Water District. In March 2022, Successor Housing Agency resolution 2022-8995 authorized the approval of the updated Replacement Housing Plan and additional gap funding, bringing the total Successor Housing Agency funding to $5,300,000.
The Successor Housing Agency is now being asked to approve an additional gap of $1,944,393 in funding due to an increase in labor, materials, and equipment increases associated with construction costs. National CORE identified cost savings from Villa Serena 2 Phase 1 totaling $1,254,712, which they are requesting to apply to Phase 2 of the project in addition to $689,691 to their existing loan of $5.3 million. With the new request, if approved, the new total loan for Villa Serena 2 Phase II would be $7,244,393. The total amount of funds committed to the project from the Successor Housing Agency is $10,547,657. The below chart outlines the City of San Marcos funding proposed for the project. If approved by the City Council acting in its capacity as the Successor Housing Agency, Staff proposes to bring an updated loan agreement before the City Council for its consideration and action at a future date.
Discussion
The developer, National CORE is preparing to submit an application for 9% tax credits to the State of California in the second Tax Credit Allocation Committee (TCAC) round in August 2023. The award process is highly competitive and because most projects competing for the 9% tax credits receive the maximum point score, the tiebreaker calculation generally decides the outcomes for TCAC funding. The supplemental funding requested from the Successor Housing Agency will support a higher tiebreaker score for the project.
To proceed with a more competitive score, the developer has requested $1,944,393 in additional gap funding. National CORE will update the 3% annual interest 55-year loan agreement with the Successor Housing Agency to include and additional $1,944,393 and return unspent funds from Phase 1 of the Villa Serena Project totaling $1,254,712 to the Successor Housing Agency to add to financing for Phase 2. A formal request and revised project proforma has been evaluated by a third party financial analysis firm to confirm the requested amount aligns within the average standard for affordable development projects and is reasonable.
The third party financial analysis identified that the City has committed a higher than average threshold of funding among San Diego County cities for development, but did note that it was within reason as the cost of developing affordable housing is extremely high. The request for additional funding and the project Proforma is included as an attachment for further review.
Additionally, the developer has received county funding to support the project including a No Place Like Home Grant, HOME funding and ARPA funds, totaling $6,659,000. The total project cost is $50,043,000, and the per unit cost is $705,122. The completed project will provide 63 new units of affordable housing ranging from 30% AMI to 60% AMI. Rents will range from $727 for a one-bedroom unit at 30% AMI to $2,082 for a three-bedroom unit at 60% AMI.
In summary, the City Council operating as the Successor Housing Agency has the authority to increase the loan to National CORE by $1,944,393 by collecting unused Villa Serena II Phase 1 funds and reallocating them to the Villa Serena II Phase 2 loan to strengthen the project to compete for 9% low income housing tax credits in August 2023. If approved, an updated loan agreement would be brought before the City Council in its capacity as the Successor Housing Agency for its consideration and action.
Environmental Review
All requirements of CEQA have been met, in that Mitigated Negative Declaration (ND 16-002) has been previously adopted for the proposed project and all potential impacts related to cultural resources, geology/soils, hazards and hazardous materials, hydrology and water quality, land use and planning, public services, and transportation/traffic will be mitigated to a level less than significant.
Fiscal Impact
If approved, the total fiscal impact would be $7,244,393 paid from San Marcos Successor Housing Agency Fund (Fund 250). Upon City Council approval operating as the Successor Housing Agency, $7,244,393 will be budgeted in the FY 23-24 and FY 24-25 budgets as necessary.
Attachment(s)
1. Villa Serena II Phase 2 Request for additional funding
2. Villa Serena II Phase 2 Project Proforma
3. SHA Resolution No. 2023- XXX
Prepared by: Sylvia Solis Daniels, Housing and Neighborhood Services Manager
Submitted by: Sylvia Solis Daniels, Housing and Neighborhood Services Manager
Reviewed by: Tess Sangster, Community & Economic Development Director
Approved by: Isaac Etchamendy, Acting City Manager