Loading...
HomeMy WebLinkAboutStaff Report 155-10TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DATE: MARCH 8, 2010 REPORT TYPE: CONSENT ITEM DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT CMR: 155:10 SUBJECT: Adoption of a Resolution Committing $2.5 Million In-Lieu Fees from SummerHill Homes to Tree House Apartments, L.P. for the Development of the 35-Unit Affordable Housing Tree House Apartments Project at 488 W. Charleston Road EXECUTIVE SUMMARY The recommended action will enable Tree House Apartments, L.P. to fill an existing funding gap for the development of a 35-unit 100% affordable housing project for extremely-low and very­ low income households at 488 West Charleston Road, proposed by the Palo Alto Housing Corporation. In addition, approval of the recommended action will allow Tree House Apartments, L.P. to submit a more competitive application for the Low Income Housing Tax Credit Allocation. A City commitment of this additional funding is a critical component of Tree House Apartments, L.P.' s March 2010 application for tax credit allocation. The additional funds will make the City's total contribution to the project in the amount of $5,338,577. No monies from the General Fund will be committed, only funds that are restricted to housing will be used. The federal low-income housing tax credit program is a principal source of federal funding for the construction and rehabilitation of affordable rental homes created as part of the Tax Reform Act of 1986 to encourage the development of rental housing for low income households. States allocate the tax credits to developers according to the criteria specified in the states' qualified allocation plans. Developers, either for-profit or nonprofit, then work with syndicators to sell the credits to investors generating the equity necessary to complete their projects. Some states, like California, also have similar tax credit programs. CMR: 155:10 Page 1 of5 RECOMMENDATION Staff recommends that the City Council: 1. Adopt a resolution committing $2.5 million of in-lieu fees from SummerHill Homes to Tree House Apartments, L.P. for the development of a 35.:.unit 100% affordable housing project; 2. Direct staff to include an appropriation of $2.5 million in Residential Housing In-Lieu Funds for the Tree House Project, to be provided in the form of a loan for housing construction expenses; 3. Authorize the City Manager or designee to prepare and execute documents approved by the City Attorney that are required to demonstrate the City's commitment of funding for the Tree House project in support of the developer's application for tax credit allocation. BACKGROUND On October 14,2008, the City and Summerhill Redwood Gate LLC entered into an agreement for the provision of seven (7) Below Market Rate (BMR) units for their housing project at 4249 El Camino Real. The project involved the demolition of the Elks Lodge facility and the construction of forty-five (45) new homes, including ten (10) attached duet units and thirty-five (35) single-family homes to be built behind a new Elks Lodge facility. The project was subject to a fifteen percent (15%) BMR requirement. The owner agreed to sell seven (7) of the forty-five (45) units under the rules and procedures of the BMR program. On December 9, 2009, Council approved an amendment to the Agreement between SummerHill Redwood Gate LLC and the City of Palo Alto allowing the payment of fees in-lieu of providing seven (7) Below-Market Rate (BMR) dwelling units. The amendment allows SummerHill to satisfy the project's BMR requirements by making cash payment to the City's Housing Development Fund in an amount equal to seven and one-half percent (7.5%) of the greater of the actual sales price or fair market value for each unit sold. City staff estimates $4,387,500 in total revenues will be generated from in-lieu fees based on an estimated average per unit sales price of $1.3 million for the Redwood Gate market rate homes and an in-lieu fee rate of7.5% applicable to all 45 units. One of the primary reasons for amending the existing BMR Agreement is to generate revenues to provide additional funding to two recently approved affordable housing rental projects, Eden Housing's 50-unit family housing project at 801 Alma and Palo Alto Housing Corporation's (PAHC) 35-unit Single Room Occupancy (SRO) project at 488 Charleston Road. Both projects target very-low and extremely-low income households and each needs at least $2.5 million in additional funding to be more competitive in obtaining tax credit allocations. In June 2009, Tree House Apartments, L.P. submitted an application to the California Tax Credit Allocation Committee for low income housing tax credits. The application received a perfect score, but lost to another project by a narrow margin in the tiebreaker category, which measured the percentage of public funding and overall leveraging. Included in the application was the City's commitment to provide an acquisition loan in the amount of$2,838,577 from the CMR: 155:10 Page 2 of5 Residential Housing Fund and Community Development Block Grant (CDBG) funds for the development of the project. This month, P AHC will submit a new application for the Low Income Housing Tax Credit Allocation reflecting the City's committed additional funding from the in-lieu fee payments. DISCUSSION Tree House Project Description On April 3, 2009, Council approved a Planned Community (PC) zone application for the development of the 35-unit affordable housing project. The project site, located between Alma Street and El Camino Real on West Charleston Road, is approximately 0.7 acres and contains a single-family home that was previously occupied by Recording for the Blind and Dyslexic. PAHC proposes to construct 35 new affordable housing units consisting of33 studios and two one-bedroom units, which will be affordable to extremely-low and very-low income households earning between 20% and 50% of the area median income. PAHC estimates the overall development cost for the 35-unit Tree House project to be approximately $12.9 million, and plans to assemble a financing package to fund the project as shown below. Permanent Sources of Funds for Development • Low Income Housing Tax Credits $ 5,582,432 • City of Palo Alto (Acquisition) $ 2,838,577 • City of Palo Alto In-Lieu Fees (Construction) $ 2,500,000 • County of Santa Clara -Stanford Affordable Housing Fund $ 960,000 • County CDBG $ 400,000 • County of Santa Clara -Housing Trust Fund $ 350,000 • Fee Waivers $ 308,403 • General Partner Equity $ 100 TOTAL PROJECT FUNDING $ 12,939,512 Total Funding per Unit (35 units) 369,700 Funding Commitment Upon adoption of the resolution, the requested $2.5 million would be earmarked to the Tree House project; the funds will not actually be loaned to Tree House Apartments, L.P. until other development funding has been obtained and construction is scheduled to commence. The total $5,338,577 funding for the project ($2,500,000 in new housing funds plus the previously approved $2,838,557 in CDBG and housing funds) will then be combined into one permanent, long-term City loan, secured by appropriate legal documents against the entire property. The permanent loan will have similar terms as the existing City loan, which is evidenced by a Note and Deed of Trust secured by the property. The Note will bear simple interest at 3% per annum, and payments will be made from residual receipts over and above the project's operating CMR: 155:10 Page 3 of5 expenses and will be divided among other funding agencies based on the City's proportionate share of its funding to total development costs. No interest will accrue and no payments will be required until after the project is constructed and occupied. Due to the deep affordability of the rents, it is not expected that residual receipts will pay the annual interest in full. In return for less annual interest payments, the proposed project will be affordable to extremely low and very low income households, and the affordability restrictions will be in place for a minimum of 55 years after the issuance of a certificate of occupancy. The loan terms are typical to this type of development and similar to other affordable housing properties and developments funded with City funds. Some of the City's standard loan terms described here may need to be modified to meet the requirements of other lenders or funding programs for construction or permanent sources of funds. Rents and Occupancy of the Apartments In order to succeed in the competition for the State's Multifamily Housing Program (MHP) funding and tax credit allocation, P AHC needs to emphasize housing for extremely low-income and very-low income households. The project's proposed rent categories and income limits are shown below; actual rents may change somewhat by the time the project is constructed and ready for occupancy due to changes in the County median income. T H ree ouse H pOt D OUSln~ rO.1ec-Of eSCrIp' Ion 0 fP ropose dU °t nl san d R t 1St t en a ruc ure Rent As A Percent of Median Studios I-Bedroom Total Units Income Extremely Low Income (20% of AMI) 5 units at $371 ° 5 14% Extremely Low Income (30% of AMI) 7 units at $557 1 unit at $597 8 23% Very Low Income (40% of AMI) 5 units at $743 ° 5 14% Very Low Income (50% of AMI) 16 units at $928 ° 16 46% Manager's Unit ° 1 unit (rent free) 1 3% Total Units 33 2 35 100% Notes: AMI means the Area Median Income for Santa Clara County, which equals $105,500 for a household of four persons as published on April 3, 2009. RESOURCE IMPACT The Residential Fund has a current available balance of approximately $2.1 million, of which $982,014 came from SummerHill's payment of in-lieu fees on ten (10) Redwood Gate homes sold. As mentioned earlier, City staff estimates $4,387,500 in total revenues will be generated from SummerHill in-lieu fees based on an estimated average per unit sales price of $1.3 million for the market rate homes and an in-lieu fee rate of7.5% applicable to all 45 units. Thus, after funding the Tree House Project, about $3 million will still be available from the Residential Fund for future housing development activities. POLICY IMPLICATIONS The actions recommended in this report implement the City's adopted Housing Element policies and programs supporting the development of very low and extremely low income housing. CMR: 155:10 Page 4 of5 These 35 units will be counted towards the City's housing production goals for the 2007 to 2014 Housing Element period. This project will also provide 12 of the 35 units to households below 35% of the Area Median Income (AMI), considered Extremely Low Income, which will help the City address State requirements for meeting housing needs of this population. ENVIRONMENTAL REVIEW On April 3, 2009, Council approved the Mitigated Negative Declaration and Environmental Assessment for the development of the 35-unit Tree House project in accordance with the California Environmental Quality Act (CEQA) and National Environmental Policy Act (NEPA). PREPARED BY: DEPARTMENT HEAD REVIEW: ~W~"".J~'M-t\ CURTIS WILLIAMS, Director Planning and Community Environment CITY MANAGER APPROVAL: ATTACHMENT A: Resolution of the Council of the City of Palo Alto Committing $2.5 Million In-Lieu Fees from SummerHill Homes to Tree House Apartments, L.P., for the Development of the 35-Unit Affordable Housing Tree House Apartments Project at 488 W. Charleston Road COURTESY COPIES Palo Alto Housing Corporation CMR: 155:10 Page 5 of5 ATTACHMENT A i Not Yet Approved Resolution No. --- Resolution of the Council of the City of Palo Alto Committing $2.5 Million In-Lieu Fees from SummerHill Homes to Tree House Apartments, L.P., for the Development of the 35-Unit Affordable Housing Tree House Apartments Project at 488 W. Charleston Road WHEREAS, On March 16,2009, the City Council approved a loan agreement with Tree House Apartments, L.P. to provide an acquisition loan in the amount of $2,838,577 from the Residential Housing Fund and Community Development Block Grant (CDBG) funds for the development of the proj ect; and WHEREAS, On April 3, 2009, Council approved a Planned Community (PC) zone application for the development of the 35-unit affordable housing project at 488 West Charleston Road; and WHEREAS, On December 9,2009, Council approved an amendment to the Agreement between SummerHill Redwood Gate LLC and the City of Palo Alto allowing the payment of approximately $4.3 million fees in-lieu of providing seven (7) Below-Market Rate (BMR) dwelling units; and WHEREAS, Tree House Apartments, L.P.'s project will provide affordable rental units to be made available to extremely low income households at or below 35% Area Medina Income ("AMI") and very low income households at or below 50% AMI, with one unrestricted manager's units; and WHEREAS, Tree House Apartments, L.P. must have commitments of all local government funding, including funding from the City of Palo Alto, to have a competitive tax credit allocation application and such funding commitment can be documented by an approved resolution; and WHEREAS, the City has determined that an additional loan amount of $2.5 million for housing unit construction costs is needed to make the project feasible and that the City funds shall be provided in the form of a loan with a promissory note at 3 % interest deferred for 55 years and secured by a Deed of Trust, and payments will be made from residual receipts over and above the project's operating expenses and will be divided among other funding agencies based on the City'S proportionate share of its funding to total development costs.; and WHEREAS, $2.5 million will be available in the Residential Housing In-Lieu Fund from the payment of in-lieu fees from SummerHill Redwood Gate Project; and 1 100302 syn 0120428 Not Yet Approved WHEREAS, the appropriation of funds committed from the Residential Housing In-Lieu Fund is for one-time cost and no future funding costs are anticipated; and WHEREAS, the City Council authorization is needed to amend the 2010-11 budget as hereinafter set forth. NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows: SECTION 1. The sum of $2.5 million is hereby appropriated to non-salary expense in the Residential Housing In-Lieu Fund to be committed to the Tree House project as a loan for the affordable housing project. No transfer shall occur except per execution of loan agreements prepared in a form approved by the City Attorney. SECTION 2. A note receivable of $2.5 million will be established on behalf of the Tree House project, upon execution of the aforesaid loan agreements. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk APPROVED AS TO FORM: Assistant City Attorney 100216 syn 0120428 Mayor APPROVED: City Manager Director of Planning and Community Services Director of Administrative Services