MEETING DATE:
SEPTEMBER 9, 2014
SUBJECT:
Title
RESOLUTION NO. SHA 2014-009 - AN EXCLUSIVE NEGOTIATING AGREEMENT AND PREDEVELOPMENT LOAN WITH NATIONAL CORE FOR A REDEVELOPED AFFORDABLE HOUSING COMMUNITY IN THE RICHMAR NEIGHBORHOOD
Body
Recommendation
Recommendation
That the City Council in its capacity as the Successor Housing Agency adopt the attached resolution approving the Exclusive Negotiating Agreement (ENA) and predevelopment loan with National CORE (the Developer) for a redeveloped affordable housing community in the Richmar neighborhood
Body
Board or Commission Action
N/A
Relevant Council Strategic Theme
Good Governance
Relevant Department Goal
City of San Marcos 2013-2021 Housing Element; Implementing Program 2 "Facilitate Affordable Housing Construction"
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 and least expensive option for the City 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 layered funding source.
The new development will be located on the same site as Villa Serena; specifically, on both the northwest and the northeast corners of the intersection of Richmar Avenue and Marcos Street. This somewhat unusual configuration came about when the developer acquired two separate market-rate apartment complexes, the Lido Apartments and the Imperial Apartments, and brought them under common management in the late 1990s.
Discussion
The redeveloped Villa Serena is envisioned as a multi-family, new construction affordable housing community consisting of between 136 and 145 residential units to be built in two phases. It will be built to LEED Silver minimum; offer improved options for families of different sizes via a more efficient mix of 1-, 2- and 3- bedroom units; and offer both a community center and social programs provided by National CORE's sister non-profit, Hope Through Housing. Under the preliminary plan, the total number of units may increase from 136 in ten buildings to up to 145 in four buildings with rationalized and updated exterior amenities. Additionally, the 55-year deed restrictions will renew with the new development.
The developer intends to apply for the highly competitive 9% low income housing tax credits from the California Tax Credit Allocation Committee (TCAC) as early as is reasonably possible and as coordinated with the City. Because of TCAC application considerations and the paucity of affordable housing financing available to the City in the post-RDA era, the new development is planned to be built in two separate phases, although the developer could build it in one phase if additional funding becomes available. We are currently anticipating a Phase I application as early as 2016 although it may be a year or two later depending upon multiple factors in the market, including how other City-sponsored projects in the 9% tax credit application queue fare in the intense competition.
The current Villa Serena is owned by the Villa Serena Apartments Limited Partnership and operated by National CORE. Its acquisition, rehabilitation and conversion to affordable housing in the late 1990's was assisted with a $5,884,000 financing loan from the RDA. The developer also used 4% low income housing tax credits secured from TCAC. The 15-year period during which the tax credit investor is involved has expired, and the investor is in the process of exiting. Villa Serena currently owes the City as SHA approximately $7,808,049 with accrued interest on the balance of the original RDA loan.
The developer and City staff commenced deliberate discussions in March 2013 about the future of Villa Serena and possible options for rehabilitation or reconstruction. Based on these preliminary discussions and the extremely constrained funding options available in the post-RDA era, the developer would like to proceed with demolition and redevelopment in two phases. This will accomodate the constrained funding options available to the City, better serve the current Villa Serena residents, reduce relocation costs and effectively address the issue of ageing structures. Additionally, a redeveloped Villa Serena will offer more efficient site design, improved sustainability, and updated exterior amenities.
In order to move the new Villa Serena project forward to the detailed design and application for City entitlement phase, the SHA is being asked to approve an ENA and predevelopment loan of up to $777,953. This is, of course, dependent on the developer and the City subsequently agreeing on the financing terms and development of the project.
The predevelopment loan of up to $777,953 will be sourced from funds to be provided by the developer to the SHA in accordance with the terms of the ENA for the specific purpose of funding the predevelopment loan via a separate account. Specifically, the developer will provide funding from three different sources internal to the current Villa Serena project:
(a) $250,027 from the cash operating reserve account
(b) $288,000 from monthly cash flow estimated to be $12,000 per month for two years
(c) $239,926 from estimated residual receipts projections
Because these funds are coming from an active affordable project and are to be used for a specific future affordable housing project, they will be placed in a separate account and treated as SHA low and moderate income housing funds. No predevelopment loan draws will be disbursed to the developer until the monies are previously deposited on account with the City. In this manner and over the course of several years, the predevelopment loan will have no negative cash flow impact on the SHA.
Fiscal Impact
There is no direct fiscal impact to the City as SHA for the Predevelopment Loan in an amount not to exceed $777,953 because the loan is cash flow neutral.
Attachment(s)
1. Resolution No. SHA 2014-009
2. Exclusive Negotiating Agreement
3. Exhibit identifying the project site
Prepared by: Harry Williams, Housing Programs Manager
Submitted by: Karl Schwarm, Director, Housing & Neighborhood Services Division
Reviewed by: Lydia Romero, Deputy City Manager
Approved by: Jack Griffin, City Manager