MEETING DATE:
June 14, 2016
RESOLUTION NO. SHA 2016-020 - APPROVAL OF A COMMITMENT LETTER TO NATIONAL CORE FOR A REFINANCE AND REHABILITATION OF THE PASEO DEL ORO 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 2000-320 dated June 13, 2000
Resolution No. RDA 2000-322 dated July 11, 2000
Relevant Council Strategic Theme
Planning for the Future
Relevant Department Goal
Facilitate Affordable Housing Production
Introduction
Paseo del Oro is one of the earlier new-construction affordable housing communities built in the City. It has the distinction of being the first mixed-use, mixed-income affordable housing development, not only in the City, but in the nation. Built by National CORE (Developer), Paseo del Oro is a 120-unit family apartment complex with both an integral and a stand-alone commercial component located at 432 W. Mission Road in the Richmar neighborhood. There are 96 units with deed restrictions. Project funding was authorized by the RDA in 2000. The development opened in 2002.
Discussion
Paseo del Oro is entering its “Year 15 event” during which the tax credit investor formally withdraws from the project. At this time, affordable housing projects are evaluated by the Developer for continued economic viability out to Year 55. Some Developers may choose to sell a poorly performing property to another affordable housing entity, while those with a long-term approach choose to retain ownership. National CORE has opted for retention and refurbishment.
In order to secure financing for refurbishment and to buy out the tax credit investor, the developer plans to refinance 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 the residential component totals $3,616,552; principal is $2,931,040 and accrued interest is $685,512.
The net effect of these actions by the Developer will be to refurbish the residential component of Paseo del Oro. The original 55-year deed restrictions will be reset to a new 55-year increment. In addition, the Developer intends to modify and upgrade sustainability features to bring the development up to more energy efficiency and water conservation standards and to provide a modest funding mechanism for the integral commercial spaces within the residential component. 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 Paseo del Oro.
At this time, the City Council is being asked to approve:
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