MEETING DATE:
DECEMBER 9, 2014
SUBJECT:
Title
RESOLUTION NO. SHA 2014-010 AND CITY COUNCIL RESOLUTION NO. 2014-8011 - APPROVAL OF DEVELOPMENT AND LOAN AGREEMENT, MODIFICATION TO OWNER PARTICIPATION AGREEMENT, FUNDING AND PROPERTY TRANSFER FOR AN AFFORDABLE HOUSING DEVELOPMENT IN THE RICHMAR NEIGHBORHOOD TO BE BUILT BY ORANGE HOUSING DEVELOPMENT CORPORATION AND C & C DEVELOPMENT CO. LLC
Body
Recommendation
Recommendation
ADOPT Successor Housing Agency (SHA) resolution approving the Development and Loan Agreement (DLA), project loan and City Council resolution approving the property transfer for an affordable housing development proposed by Orange Housing Development Corporation (OHDC) and C & C Development Co., LLC (the Developer) in the Richmar neighborhood.
Body
Board or Commission Action
Planning Commission approval on April 28, 2014
City Council project approval on May 27, 2014
Relevant Council Strategic Theme
Planning for the Future
Relevant Department Goal
Facilitate Affordable Housing Production
Introduction
One of the City's long term projects is the completion of the revitalization of the Richmar neighborhood, including the area between Mission Road and Richmar Avenue. To that end, the former Redevelopment Agency (RDA) Board of Directors approved on January 27, 2009 an Exclusive Negotiating Agreement with the Developer and authorized a predevelopment loan of $173,000 for a project in the vicinity of the ageing El Dorado Apartments, which is owned and operated by the Developer. On five subsequent occasions since 2009, the former RDA Board of Directors or the City Council in its capacity as SHA followed up by approving acquisition loans to the Developer totaling $9,537,238 from the Low/Mod Housing Increment fund for property assembly. The last land purchase was concluded in 2013, completing the acquisition of privately held property by the Developer.
This project, known as El Dorado II, like other affordable housing developments in San Marcos (Residences at Creekside and Eastgate), became temporarily stalled in the turbulence and uncertainty engendered by the State government's dissolution of the RDA. Despite the unforeseen challenges, the Developer persistently kept the project moving forward to the point where a request for a project loan and subsequent application for 9% low income housing tax credits is now feasible.
The El Dorado II project will be built on the eleven parcels owned by the Developer; one parcel currently owned by Orange Housing Development Corporation and an additional two parcels currently owned by the City (see attached map). A transfer of two pieces of real property from the City to the Developer is an integral part of the process and will complete the property assembly for the project. The more significant property is the City-owned 12-unit affordable housing apartment complex at 303-305 Richmar Avenue (APN 220-100-59). This property is appraised at $1,810,000. The second property is a City-owned remnant alley parcel behind the ageing 17-unit affordable housing apartment complex at 317-331 Richmar Avenue. The alley parcel has no APN. It is appraised at $160,000. The combined value of both City-owned properties is $1,970,000.
Discussion
The new El Dorado will be a mixed-use, multi-family, new construction affordable housing community consisting of 120 residential units, approximately 7,000 square feet of ground level commercial space and a community center on 3.8 acres. The development will be bifurcated into two separate phases.
The 3.8 acre development will consist of an assemblage of multiple properties. The following parcels have been assembled since 2009 and are currently owned by the Developer in its capacity as C & C Development: APN 220-100-63, APN 220-100-64, APN 220-100-66, APN 220-100-67, APN 220-100-29, APN 220-100-14, APN 220-100-12, APN 220-100-56, APN 220-100-10, APN 220-100-09, APN 220-100-08. The old El Dorado Apartments, APN 220-100-62, is owned by OHDC, an affiliate of the Developer and will be incorporated into the new project. Two additional contiguous properties are currently owned by the City and will be added to the project in accordance with the terms of the DLA. They are: APN 220-100-59 and a remnant alley parcel with no APN.
The Developer's overall budget to complete the entire development is currently estimated to be $48.2 million and reflects the infrastructure requirements levied on the project including a Vallecitos Water District sewer upgrade triggered by the increased density associated with the project.
The Developer will apply to the California Tax Credit Allocation Committee (CTCAC) for 9% low income housing tax credits for Phase I of the project as soon as feasible and as coordinated with City staff. In order to allow the Developer to be able to apply, the City Council and the City Council in its capacity the SHA is being asked to authorize up to $12,394,018 as a total funding assistance package.
The total funding package for the entire El Dorado II development can be organized into two major components; the City funding component and the former RDA/SHA funding component.
The City funding component consists of $1,970,000 in two parts:
$1,810,000 representing the appraised value of the City-owned affordable housing apartment complex at 303-305 Richmar Avenue (APN 220-100-59) to be deeded to the project. This is a sunk cost.
$160,000 representing the appraised value of the City-owned alley parcel (no APN) to be deeded to the project. This is a sunk cost.
The former RDA/SHA funding component consists of $10,424,018 in four parts:
$172,361 as the total drawn on the initial predevelopment loan. This is a sunk cost.
$9,364,238 as the total of the various property acquisition loans. This is a sunk cost.
$87,419 as the total interest accrual on the predevelopment loan and the various property acquisition loans.
$800,000 as an additional loan to pay for Phase I development costs. This is the only out-of-pocket expense.
In the aggregate, the funding package required from both the City and the SHA totals $12,394,018. The City property loans are on property already encumbered with affordable housing deed restrictions. The SHA loans are originally sourced from the RDA Affordable Housing Tax Increment Fund which must be used only to support affordable housing. The only exception is the relatively small value of the remnant alley parcel.
The only additional "out-of-pocket" financial assistance being requested from the City or the SHA is for the $800,000 for the VWD sewer upgrade.
At the present time, there is an unfunded gap in the Phase II proforma estimated at approximately $800,000. This sum, currently unsourced, will come from future developer initiatives to secure the funding. The potential sources of the gap funding include, but are not limited to, Mental Health Services Act (MHSA) funding, Transit Oriented Development (TOD) funding and Proposition 41 (veterans) funding. The developer has requested that the DLA and total funding package be approved at this time in order to facilitate the application for the additional funding required.
The City aspects of the loan package are addressed in the attached copy of the DLA. The SHA aspects of the loan package are addressed in the attached copy of the Seventh Amendment to Owner Participation Agreement (Increased Agency Loan Amount). Taken together, they form the core of the regulatory agreement for the El Dorado II project.
As a part of the RDA dissolution process on August 1, 2012, the City as SHA duly submitted its Housing Assets List to the State of California Department of Finance (DOF) for "City of San Marcos as Successor Housing Agency". The applicable real property assets associated with this project and owned by the Developer via loans made by the RDA were identified in the Housing Assets List and approved by DOF on August 29, 2013.
The total cost of El Dorado II is presently estimated to be $48.2 million. The total funding assistance package of $12,394,018 from the City and the City as SHA constitutes approximately 26% of the total and, therefore, does not exceed 50% of the total cost; therefore, Health and Safety Code Section 33334.3(j) is not triggered. Section 33334.3(j) is invoked if SHA and/or Successor Agency funding more than 50% of the entire project cost and requires that the agency finds that the use of the funds is necessary because both the developer and the agency have made a good faith attempt to obtain commercial or private means of financing at the same level of affordability and quantity.
The City Council approved the entitlements for the new El Dorado II project on May 27, 2014. This request for DLA, project loan and property transfer approval complements and completes the Council's action of last May.
Fiscal Impact
Fiscal impact is up to an additional $800,000 "out-of-pocket" from SHA Housing Fund #250 for Phase I development costs. The current balance SHA Fund #250 allows for this. This expense is estimated to be a one-time expense unique to this project. All other aspects of this funding package represent sunk costs.
Attachment(s)
1. Resolution No. SHA 2014-010
2. Resolution No. 2014-8011
3. Development and Loan Agreement
4. GIS exhibit depicting the property to be conveyed to the developer
5. Seventh Amendment to Owner Participation Agreement (Increased Agency Loan Amount)
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