HomeMy WebLinkAboutStaff Report 8363
City of Palo Alto (ID # 8363)
City Council Staff Report
Report Type: Consent Calendar Meeting Date: 9/11/2017
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Summary Title: Sheridan Apartments Affordability Reserve Account
Withdrawal
Title: Approval for Palo Alto Housing Corporation to Withdraw Funds from
the Sheridan Apartments Affordability Reserve Account for the Costs
Associated with the Purchase of the Property from the Sheridan Partnership
From: City Manager
Lead Department: Planning and Community Environment
Recommendation
Staff recommends that Council approve a withdrawal by Palo Alto Housing Corporation (PAHC)
in the amount of $280,418.75 from the Sheridan Apartments Affordability Reserve Account to
reimburse PAHC for the costs of the purchase of the a limited partner’s portion of the property
located at 360 Sheridan Avenue.
Background
The Sheridan Apartments is an existing 57-unit affordable housing project that serves income-
eligible seniors. The project, located at 360 Sheridan Avenue, is owned and operated by an
affiliate of the Palo Alto Housing Corporation (PAHC), a non-profit housing provider and long-
time partner of the City’s, as part of limited partnership with Transamerica Life Insurance
Company. PAHC recently initiated a transfer of the limited partner’s interest in the Sheridan
Apartments to another PAHC affiliate for the amount of $250,000.
The City and PAHC entered into a Loan Agreement (Attachment A) in the amount of $2,450,000
on December 8, 1998 to fund the acquisition of the Sheridan Apartments by PAHC for their use
and operation as rental housing for low-income and very-low income households.1
One of the provisions of both the loan agreement and the promissory note is that PAHC was to
1 Low income households are those earning 51-80% of the area median income or around $59K-$85K for a family
of four; very-low income households are those earning less than that.
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establish an Affordability Reserve Account (ARA) to protect against the reduction or
termination of affordability housing funds through the federal Section 8 assistance program.
Section 5.3 of the loan agreement specifies that funds from the ARA may also be used to assist
in the costs of the purchase of the property from the Partnership by PAHC or by PAHC Sheridan
Apartments subject to City Council action and approval.
Discussion
In December 2016, PAHC entered into an Agreement for Assignment of Limited Partner Interest
(Attachment B). A PAHC affiliate, PAHC Apartments Inc., acquired the interests of the Limited
Partner (Transamerica Life Insurance Company, which was a successor to Stonebridge Life
Insurance Company) for the purchase price of $250,000. To achieve this transfer, PAHC incurred
$25,231.25 in legal fees and $5,187.50 for financial consulting fees for a total cost of
$280,418.75. The ARA has a current balance of $2,601,781 and will have a balance of
$2,321,362.25 if the reimbursement is approved. With the remaining balance, the project will
have significant remaining funds in the case that there is a reduction or termination of
affordability housing funds through the federal Section 8 assistance program.
The purpose of the transfer of limited partner interest was to preserve the affordability of the
housing units and to prevent a for-profit entity from acquiring an interest in the project.
Because of the short time frame to complete the transfer, PAHC provided the funds upfront in
order to ensure the continued affordability of the project. Staff requests that Council approve
the reimbursement from the ARA. The recommended action recognizes the mutual interests of
the City and PAHC to maintain the property as an affordable housing project.
Policy Implications
The actions recommended in this report implement the City’s Housing Element policies and
programs supporting the development of low income housing, including:
1. H1.2 Policy – Support efforts to preserve multifamily housing units in existing
neighborhoods; and
2. H3.1.4 Program – Preserve affordable housing stock by monitoring compliance, providing
tenant education, and seeking other sources of funds for affordable housing developments
at risk of market rate conversions. The City will continue to renew existing funding sources
supporting rehabilitation and maintenance activities.
Resource Impact
With the requested action, the Sheridan Apartments ARA will have a remaining balance of
$2,321,362.25. With the remaining balance, the project will still have significant funds in the
case that there is a reduction or termination of affordability housing funds through the federal
Section 8 assistance program. PAHC currently holds and maintains the ARA and there are no
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City funds involved. This action will have no impact on the City’s General Fund.
Environmental Review
The project is Categorically Exempt from the California Environmental Quality Act ( CEQA)
pursuant to CEQA Guidelines 15061(b)(3) because it can be seen with certainty that there will
be no significant effect on the environment. There are no plans for rehabilitating or
redeveloping the site. Any future proposal to reuse the site for another purpose or to redevelop
the site would need to be reviewed pursuant to CEQA prior to any City decision to provide
funding or approvals.
Attachments:
Attachment A: Sheridan Apartments Loan Agreement (PDF)
Attachment B: Agreement for Assignment (PDF)