MEETING DATE:
July 9, 2019
RESOLUTION NO. SHA 2019-037 - APPROVAL OF A ROLL-OVER FUNDING PACKAGE, REPLACEMENT HOUSING PLAN AND DEVELOPMENT AND LOAN AGREEMENT WITH NATIONAL CORE FOR THE REDEVELOPED VILLA SERENA II AFFORDABLE HOUSING COMMUNITY
Recommendation
Recommendation
ADOPT a resolution approving roll-over of the legacy loan extended to the original Villa Serena project, Development and Loan Agreement, and a Replacement Housing Plan for Villa Serena II.
Body
Board or Commission Action
Resolution No. SHA 2014-009 dated Sept 9, 2014 authorizing predevelopment loan and ENA
Resolution No. SHA 2014-011 dated Dec 9, 2014 authorizing SHSA
Resolution No. SHA 2016-019 dated Jun 14, 2016 authorizing CDLAC approval letter
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” to distinguish it from the aging 136-unit Villa Serena affordable housing development on the same site, has been in the predevelopment phase since September 2014. The owner of the legacy project is National CORE. National CORE intends to redevelop the site with the new Villa Serena II project which received entitlements in February 2017. Villa Serena II will provide 148 residential units, a community room and leasing office to replace the current 136 units, for a net gain of 12 units along with a more diverse bedroom mix throughout the new development. Villa Serena II also offers significantly improved sustainability and efficiency over its predecessor. The Successor Housing Agency (SHA) is being asked to roll-over the existing Redevelopment Agency (RDA) loan made to the legacy Villa Serena project in 1998. Because the entire legacy Villa Serena affordable housing project will be demolished, the SHA is also being asked to approve the Replacement Housing Plan required by Community Redevelopment Law.
Discussion
In February 2014, the City Council approved entitlements for the entire Villa Serena II project. For funding reasons, it will be built in two separate phases, similar to some other affordable housing developments in the city such as Westlake Village and Promenade at Creekside. Phase 1, on the west side of the project site, will consist of 85 new residential apartments. Phase 2, on the east side of the site, will consist of 63 new apartments, bringing the total to 148 at the completion of Phase 2. After receiving project entitlements, the developer began assembling components of the Phase 1project funding from various public sources. That initial process is complete. In order to continue to apply for additional funding at the State level, either Multifamily Housing Program (MHP) or low-income housing tax credits, the project requires a formal funding commitment from the SHA.
In order to fund Villa Serena II as a whole, the developer is asking the SHA for a loan roll-over from the old project to the new. The original Project loan authorized by the RDA for Villa Serena in 1997 was $5,884,000. As of May 31, 2019, the loan balance is $7,444,229; $5,717,212 principle outstanding and $1,727,017 accrued interest. The predevelopment loan previously authorized by the SHA on September 9, 2014, is $777,953. Combining the original Project loan roll-over of $7,444,229 with the predevelopment loan authorization of $777,953 brings the total SHA funding package to $8,222,182 for the project as a whole.
The developer’s intent is to use most of the legacy roll-over money and most of the predevelopment loan to fund Phase 1. Other sources of funding for Phase 1 already secured from the County of San Diego by the developer are a loan for $5,504,285 from the County Innovative Housing Trust Fund and eight (8) total units authorized for Mental Health Services Act (MHSA) funding. The assembly of multiple funding sources from the County, along with the SHA’s loan roll-over form the legacy Villa Serena, plus the SHA predevelopment loan, should be sufficient to allow the developer to apply for competitive MHP funding administered at the State level by Housing and Community Development (HCD). If the application is successful, and the MHP award granted in the amount applied for, no further Phase 1 funding from the SHA should be required. If unsuccessful, the developer intends to re-apply for MHP funding. If still unsuccessful for MHP funding, the developer will apply for competitive 9% low-income housing tax credits via the Tax Credit Allocation Committee (TCAC). This alternate approach will require additional gap funding from the SHA. Or, if the MHP award is successful, but the amount awarded by HCD is a lesser amount than that requested, then additional gap funding may be required from the SHA.
In regard to the disbursement of the $5,884,000 RDA funding component previously authorized, it was disbursed to the legacy Villa Serena project in 1997. A roll-over of the existing loan balance, including accrued interest, is being requested. In regard to the $777,953 Predevelopment Loan previously authorized by the SHA in September 2014, most have already been drawn and the remaining balance to be disbursed remains on account in the SHA for this purpose. Therefore, no additional SHA out-of-pocket funding is being requested at this time. However, additional funding will be required from the SHA at a later time in order to fund Villa Serena II (Phase 2). Additional funding may also be required for Phase 1 if the current MHP funding approach is ultimately unsuccessful. Any additional requests for funding will be brought forward to the City Council for authorization as applicable.
The original RDA loan of $5,884,000 is structured as a “residual receipts” loan. Therefore, annual payments on this loan are made from any residuals that may be left over from the project’s annual operating budget. Because this is a “soft” loan without a defined payment schedule, the annual payments will vary, depending on the residual balance in the annual operating budget for any given year. In projects with relatively deep affordability, it is not unusual to receive minimal residual receipts payments. Usually, the residual receipts payments in any given year will serve to partially reduce the accrued interest, but will not normally be sufficiently large to reduce principal. In the case of this loan, the accrued interest is approximately $1.7 million as of May 31, 2019. Our standard procedure in these cases is to restructure the roll-over to encompass principal plus accrued interest as the new loan going forward. In this case, the new loan will be for approximately $7.5 million. The deed restrictions are reset for 55 years. The residual receipts loan is due and payable at that time.
In summary, the City Council in its capacity as the SHA is being asked at the present time to approve the roll-over of the current Villa Serena loan balance and the inclusion of the predevelopment loan in an amount totaling up to $8,222,182 in order to fund Villa Serena II (Phase 1) as described in the Development and Loan Agreement.
Section 33413.5 of the Health and Safety Code requires that the agency adopt by resolution a Replacement Housing Plan for any units that would be destroyed or removed from the low- and moderate-income housing market. In this case, 136 deed restricted apartments in the old Villa Serena Apartments are slated for demolition and replacement on-site by the 148 new units in the project. The demolition and removal of these units is temporary and will be only for several years (i.e., the time required for demolishing the existing structures and building the new development). Therefore, the City Council as the SHA is also being asked to approve the Replacement Housing Plan at this time.
Environmental Review
N/A
Fiscal Impact
There is no fiscal impact to the City as this is a roll-over of an existing loan balance only.
Attachment(s)
1. SHA Resolution No. 2019 - XXXX,
2. GIS Exhibit depicting the project site
3. Development and Loan Agreement
4. Replacement Housing Plan
Prepared by: Harry Williams, Housing Programs Manager
Reviewed by: Beth Herzog, Administrative Services Manager, Development Services
Reviewed by: Dahvia Lynch, Director, Development Services Department
Approved by: Jack Griffin, City Manager