Loading...
HomeMy WebLinkAbout2001-08-06 City Council (14)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE:AUGUST 6, 2001 CMR:339:01 SUBJECT:STATUSREPORT ON REQUEST BY THE BELOW MARKET RATE (BMR) HOMEOWNERS AT THE PALO ALTO REDWOODS FOR ASSISTANCE WITH A SPECIAL ASSESSMENT This is an informational report and no Council action is required. BACKGROUND At the April 2, 2001 City Council meeting, some representatives of the Below Market Rate (BMR) homeowners at the Palo Alto Redwoods Condominium complex requested City assistance in addressing a substantial special assessment anticipated to be levied against all homeowners in the complex. The Homeowner’s Association of the ll7-unit Redwoods complex located at 4250 E1 Camino Real has identified a major capital improvement project involving the repair or replacement of the exterior wooden stairways and walkway structures that will require an unusually large one-time special assessment. Although costs have not been finalized, estimates range from $25,000 to $60,000 per unit, depending on the extent of the repairs. There are twelve one-bedroom BMR units at the Redwoods. Property maintenance and repair is the responsibility of the homeowner, including homeowners in the City’s BMR program. However, due to the unusual magnitude of the anticipated assessment and the re-sale restrictions associated with the BMR program, staff was directed by the City Council to identify potential strategies that may provide financial relief for the current BMR owners while continuing to protect the City’s stock of BMR housing. An ad-hoc committee consisting of Council members Lanie Wheeler and Judy Kleinberg, Palo Alto Housing Corporation Executive Director Marlene Prendergast and City Planning staff has been meeting over the past few months to review and analyze some potential strategies. CMR:339:01 Page 1 of 4 DISCUSSION Survey of BMR Homeowners In order to understand the extent of the financial hardship the assessment would cause the BMR homeowners and what type of assistance might be helpful to them, staff determined that a financial survey of BMR owners at the Redwoods was necessary. Although BMR owners must be income-certified to initially qualify to purchase a unit in the program, there are no ongoing income requirements or restrictions. Income and/or financial situations may change for better or worse over time. The BMR owners were advised that although completion of the survey was not mandatory, it was a requirement if they anticipated requesting any City financial assistance for the assessment. Staff distributed a detailed financial survey in July 2001. To date, nine of the twelve BMR owners have returned a completed survey. The survey results have been tabulated; however, none of the financial information provided by the homeowners has been verified. Based on a preliminary analysis of the surveys, approximately six of the BMR owners would be eligible to participate in a loan program using the draft loan criteria described in Attachment A. The basic housing cost for a typical BMR owner at the Redwoods is currently about $750 per month (including mortgage, taxes, utilities, insurance and homeowners association dues). The cost of an additional loan at three percent interest for 10 years would be approximately $240 to $580 per month depending on whether the loan amount was $25,000 or $60,000. Strategies Considered Some of the possible options available to the City to assist the BMR owners at the Redwoods included: 1.Adjustment of the deed restrictions to raise the appreciation to a level that would allow for additional debt to finance the assessment City loan for the assessment secured by a 2nd Deed of Trust on the unit. Funding could be made available from the Residential Housing In-Lieu Fund. Seek State HELP Program funding to provide low-interest or deferred loans to low- income BMR homeowners. Funds would be used to pay the assessment and would be secured against the property. Option 1 -- Adjustment of Deed Restrictions: The BMR program restricts the re-sale values of BMR units in order to keep the prices affordable over time. The original purchase price of the BMR units at the Redwoods was approximately $60,000, and the CMR:339:01 Page 2 of 4 current average re-sale value is approximately $73,500. Unfortunately, this limited appreciation does not allow the typical BMR owner sufficient equity to obtain conventional long-term financing for an assessment of the magnitude anticipated for the Redwoods. If the City takes no action, and a BMR owner is unable to pay the special assessment, the owner would be able to resell his or her unit for the current BMR value and realize a limited appreciation. The unit would in turn be resold to another buyer on the BMR waiting list at the restricted BMR program value (approximately $73,500) plus the cost of the assessment. The Palo Alto Housing Corporation believes there are qualified buyers on the waiting list that would want to purchase under the BMR program at that price. Although adjusting the .deed restrictions could provide the equity needed to obtain a market rate loan, the survey results indicate that few of the BMR owners have the financial resources to qualify for such a loan or to substantially increase their housing expenses. Option 2 -- City Loan: This option could involve a significant expenditure of scarce housing dollars over an extended period of time. Option 3 -- State HELP Program Funding: The goal of the State HELP program is to provide affordable housing opportunities through partnerships with local government entities, consistent with their affordable housing priorities. Funds are awarded on a competitive basis with the next round of funding applications available on August 1, 2001 and due about September 15, 2001. Staff plans to complete an application for the HELP funds, and return to Council in early September with a resolution authorizing the application. Some of the possible criteria that the City may consider in structuring the loan program are attached. If the City’s application is successful, HELP program funds would be loaned to the City as an unsecured loan for up to 10 years at three percent simple interest per annum. The City would not be required to provide property or other resources as collateral. The maximum loan amount is $2,000,000, but it is expected that the City would apply for around $500,000. The funds could then be loaned to the low-income BMR owners at a favorable three percent interest rate, with a possible 10-year deferment on payment. Additional funds would be available in the program for BMR owners in other complexes with similar assessments. The Committee supports the third option as a primary strategy. However, it is possible that a combination of the three options might best meet the needs of all the BMR owners at the Redwoods. CMR:339:01 Page 3 of 4 RESOURCE IlVIPACT The CHFA "HELP" loan program would require that the City subsidize the administration of the loan program. In addition, there would be costs to initially set-up the program, and also for on-going program administration and loan collection. POLICY IMPLICATIONS The preservation of the City’s affordable housing stock is a primary goal of the Comprehensive Plan. Due to the age of the BMR housing stock, it is likely that there will be assessments in other projects that may create similar problems for other BMR owners. Actions taken to assist the BMR owners at the Redwoods may set a precedent for future requests for assistance. TIMELINE Staff will return in early September with an application for HELP program funds that will include a detailed description of the proposed loan program and a request for a Council Resolution authorizing the application to CHFA for the HELP Program. ATTACHMENT A: Draft Loan Criteria for BMR Special Assessments PREPARED BY: SUZANANE BAYLEY CDBG Coordinator DEPARTMENT HEAD REVIEW:G.~V~-- ~A~ ~RD~_~~.I~..~ Director of Planning and Community Environment CITY MANAGER APPROVAL: EMILY ~RRISON Assistant City Manager Palo Alto Housing Corporation Palo Alto Redwoods BMR Homeowners Human Relations Commission CMR:339:01 Page 4 of 4 ATTACHMENT A BELOW MARKET RATE (BMR) PROGRAM DRAFT LOAN CRITERIA FOR LARGE, SPECIAL ASSESSMENTS: The special assessment levied by the Homeowners Associations for a major capital improvement is a significant portion (__%) of the BMR market value 2.The BMR sub-committee of the Palo Alto Housing Corporation’s Board recommends participation in the loan program 3.The BMR unit has not been encumbered in excess of 95% of the BMR market value (as determined by PAHC) Conventional second mortgages or other .market rate financial instruments are not a viable option to address the assessment because of limited BMR appreciation 5.The City has secured an award of funding from an outside agency or has sufficient resources to provide loan funds and administer a loan program 6. The City loan will be secured against the property 7.The BMR Homeowner is in compliance with BMR policies and deed restrictions 8.Loans will be available to low and moderate income homeowners, with priority, if funds are limited, as follows: A) incomes less than 50% of median B) incomes less than 80% of median, and C) incomes up to 100% of median 9. Other criteria that may be considered A) Credit history B) Percentage of income used to pay housing costs