MEETING DATE:
June 14, 2016
RESOLUTION NO. SHA 2016-019 - APPROVAL OF A COMMITMENT LETTER TO NATIONAL CORE (DEVELOPER) FOR A POTENTIAL REFINANCE AND REHABILITATION OF THE VILLA SERENA AFFORDABLE HOUSING DEVELOPMENT
Recommendation
Recommendation
ADOPT a resolution of the City Council acting solely in its capacity as the Successor Housing Agency (SHA) to the San Marcos Redevelopment Agency authorizing the City Manager to sign a commitment letter.
Body
Board or Commission Action
Resolution No. RDA 97-282 dated August 12, 1997
Resolution No. 97-4925 dated October 14, 1997
Resolution No. RDA 97-283 dated October 14, 1997
Resolution No. RDA 97-284 dated October 14, 1997
Resolution No. SHA 2014-0091 dated September 9, 2014
Resolution No. SHA 2014-011 dated December 9, 2014
Relevant Council Strategic Theme
Planning for the future
Relevant Department Goal
Facilitate Affordable Housing Production
Introduction
The existing Villa Serena affordable housing community is an ageing 132-unit apartment complex that was acquired, rehabilitated and converted to affordable housing by the Developer in the late 1990s time frame. The community is now at the point in the life cycle of the buildings, which were built in the 1970s, where either a more substantial rehabilitation or a complete reconstruction will be necessary in the foreseeable future. In either case, financing assistance from the City will be required. The preferred option is for the Developer to completely demolish the current buildings and build a brand new affordable housing development on the site using 9% low income housing tax credits as the baseline funding source.
This approach remains the preferred and primary approach to the renovation of Villa Serena. It was conceptually approved by the City Council acting in its capacity as SHA when an Exclusive Negotiating Agreement and predevelopment loan was approved on September 9, 2014. However, in the event that the primary approach is unsuccessful due to the inability of the project to secure 9% tax credits and the inability of the SHA to commit sufficient funding to make the project competitive in the financially austere post-RDA era, it is prudent to plan for a viable alternative, or “Plan B”.
Discussion
Plan B is to secure financing for refurbishment via refinancing the project with a combination of 4% low income housing tax credits from the California Tax Credit Allocation Committee (CTCAC); tax exempt bonds allocated by the California Debt Limit Allocation Committee (CDLAC) and a residual receipts loan roll-over from the SHA. In regard to the bond funding component, the Developer intends to apply via a third party. The California Municipal Finance Authority (CMFA) is the most likely candidate at this time. Significantly, this bond funding strategy will not encumber the City with any “conduit debt” liabilities. In regard to the SHA loan roll-over, as of April 30, 2016 the loan to Villa Serena totals $7,713,291; principal is $5,717,212 and accrued interest is $2,006,079.
The net effect of these Plan B actions by the Developer will be to refurbish Villa Serena to a more substantial degree than before. The original 55-year deed restrictions will be reset to a new 55-year increment. This assists the SHA in maintaining the inventory of deed restricted affordable housing units into the future and to continue to provide safe, decent and affordable housing for our residents.
In regard to the application at CDLAC for bond funding, the Developer is asking the City for two things. First, a commitment letter in support of the refinancing is requested as an integral part of the CDLAC application process. This letter is important to the competitiveness of the application. However, it is non-binding in nature and does not formally or legally obligate the City to any funding support or to any specific course of action in the future. Second, the Developer is requesting that the City Council approve the commitment letter process no later than midnight, June 14, 2016.
In the case of the CDLAC application, timing is a critical factor due to recent decisions at the Federal level by Housing and Urban Development (HUD) and at the State level by CDLAC. Because of evolving CDLAC guidelines, the application is being made on June 14th because this is the last day that applications will be accepted under the old guidelines. HUD has recently promulgated new guidelines that have removed the Richmar neighborhood north of the railroad from the list of “difficult to develop areas” (DDA’s). The DDA designator ensures that the tax credit allocation automatically receives an additional 30% to the baseline allocation. This is commonly known as “the 30% boost”. The 30% boost is a significant factor in the Developer’s orchestration of a successful project refinancing strategy, especially in the financially constrained post-RDA era. The Developer is applying on June 14th in order to preserve for two additional years the ability to secure the 30% boost for Villa Serena.
At this time, the City Council is being asked to approve the following in regard to the alternative Plan B:
1. The attached Resolution, and
2. Authorize the City Manager to sign the attached Commitment Letter
Fiscal Impact
None. The Developer is not requesting any new or additional funding beyond the roll-over of current accrued debt. Also, the CDLAC application process is preliminary and non-binding in nature. It does not obligate the City to any funding support.
Attachment(s)
1. SHA Resolution No. SHA 2016 - XXX
2. GIS exhibit
3. Commitment Letter draft
Prepared by: Harry Williams, Housing Programs Manager
Submitted by: Karl Schwarm, Director, Housing & Neighborhood Services Division
Approved by: Jack Griffin, City Manager