HomeMy WebLinkAboutStaff Report 213-05Holding Costs: (Property taxes, HOA dues, utilities through December 2005):
Title and escrow fees for the resale transaction:
City's outside counsel legal fees:
Sub-Total Costs to Resell: estimated renovation, holding & legal costs:
Total Estimated City Outlay of Funds for the Greenhouse Unit:
$4,000
$4,300
$16,500
$54,800
$214,550
Funds Needed for the BMR Emergency Fund: The BMR Emergency Fund currently has an available
balance of$163,600. As shown below, total funding of$430,500 needs to be available to cover the
cash outlays for the two BMR units from their acquisition through their resale about the end of2005.
Total Estimated Outlay for both BMR Units:
Contingency for Unforeseen Costs
Total Fup.ds That Need to Be Available
. Funds Currently Available in the BMR Emergency Fund
Amount Needed to be Transferred with the BAO
$420,500
$10,000
$430,500
$163,600
$266~
Proposed Resale Prices for Each BMR Unit: Staff is recommending, based on past practice, that the
two units should be resold for a combined sum that will cover the City's direct expenditures in
preserving the,units as BMR housing and that the sales proceeds should be returned to the BMR
Fund. The proposed resale prices are well within the current affordable housing price guidelines for
the BMR program. Thus, other than the costs of the staff time involved, there will be no net cost to
the City in preserving the two units.
The current price range for newly constructed three-bedroom BMR units, for households at the lower
end of moderate income, is from $224,500 to $392,900, depending on household size. By taking
title to a BMR unit, the City can set a resale price that is sufficient to re-coup its expenditures and
also appropriate for program goals. Thiswas done in the two previous situations in which the City
acquired BMR units. The resale price in these situations is not controlled by the deed restriction
formula; the units only need to be resold at prices within the overall BMR program's price
guidelines.
Rosewalk is a newer complex and its market units command good prices; the average market sales
price in 2004 of three units identical in type and size to the BMR unit was $785,000. While both
BMR units are three bedroom, two-bath units, the Rosewalk unit is much larger, at 1,800 square feet,
than the one at the Greenhouses, and is 15 years newer. However, the Rosewalk complex, while
very attractive, has little common open space and no recreation facilities. The current deed-
restricted formula price of the Rosewalk unit is $142,000. The City's expected total outlay for this
unit is almost $206,000. However, staff proposes to shift some of the costs (about $35,000) from the
Greenhouses unit and to also add any other unforeseen costs for either unit to the Rosewalk unit's
resale price and to set its resale price at $250,000. Overall, staffbelieves the Rosewalk unit will be
better able to bear a higher price and still remain appealing and marketable as a BMR unit. At
$250,000, its BMR price will be at a similar percentage to its market value (32 percent) as the
Greenhouses unit. A further advantage to pricing the two units in different ranges of affordability is
that a different income range of households will be eligible to buy each one. This will help with the
marketing effort and will avoid having the same families competing for what is perceived as the
better of the two units.
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Under its deed restriction appreciation formula, the Greenhouse unit would be priced for resale at
about $125,000, as is without renovation. Staff proposes to set its resale price at $180,000, with an
expected $35,000 of its costs shifted to the Rosewalk unit. Even though the estimated $180,000
resale price is much higher than any other BMRs have sold for in that development, it will still only
be a third of the unit's open market value. Staffbelieves that this townhouse with its 1,200 square
feet of living area, three bedrooms and a large garage, together with the project's location and
amenities will still be appealing to family buyers. The City Manager will review and approve the
final price for each of the two BMR units.
Resale Risks: There are some uncertainties and risks with the City acquiring, renovating and
reselling BMR units. In both of these cases, the costs incurred by the City, including paying off
former owners' debts such as unpaid taxes, back HOA dues, or mortgage principal, together with the
outside counsel's legal fees, holding costs and renovation work pushes the resale prices needed to
recoup the City's costs well over the resale value for other BMR units in each project. There is a risk
that the pool of potential buyers in the correct income bracket will be low and that additional
outreach will extend the time to fi1?-d qualified and interested buyers. The holding time is a factor in
the total outlay of funds. Staff has budgeted for holding costs through December 2005 for both units
and has also included a $10,000 contingency. Once the first unit is resold, the sales proceeds would
provide a source of funds to cover any additional costs with the second unit.
P AHC' s Management of Renovation and Resale: Staff proposes to enter into a separate contract with
PAHC for its services to manage and supervise the renovation of the two units and to carry out the
tasks normally handled by the BMR owner during resale. These tasks are not included in P AHC' s
normal BMR program administration contract's scope of services. PAHC's property management
staff has specific skills in the renovation of housing including inspecting and writing up the work,
evaluating contractor bids and overseeing construction work. City housing and real property staff
does not have these skills, or the time available. Staff estimates that up to 80 hours ofPAHC' s time
will be required for each property. The contract will reimburse P AHC for its time at its current
hourly billing rates not to exceed the $10,000 maximum for both units.
RESOURCE IMPACT
Based on past experience, $165,000 was budgeted in the BMR Fund for FY 2004-05; this amount
was considered sufficient to handle one BMR unit acquisition. However, resolutions of both the
Greenhouse and Rosewalk legal cases are occurring sirrmltaneously, generating the need for
$266,900 in additional funds and budget authority at this time. Staff recommends that the sales
proceeds for both units (estimated at up to $430,000) remain on deposit in the BMR Emergency
Fund to be immediately available for any future needs related to the preservation ofBMR ownership
units. However, leaving the funds in the BMR Emergency Fund means that those monies will not be
available for future affordable housing development projects.
The BAO (Attachment A) requests an additional appropriation of $266,900 into the Emergency
BMR Fund from a transfer from the Residential Housing Fund. No future General Fund ongoing
costs are anticipated as a result of this BAO. The Residential Fund has a current available balance of
approximately $1,013,000 (net of notes receivable and encumbered funds); this $266,900 transfer
will reduce the available fund balance to $746,100. Attachment B summarizes the BAOs approved
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