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HomeMy WebLinkAbout2001-09-24 City Council (6)City of Palo Alto City Manager’s Report TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: PLANNING AND COMMUNITY ENVIRONMENT DATE:SEPTEMBER 24, 2001 CMR: 366:01 SUBJECT:RESOLUTION OF INTENTION TO ASSIGN CITY’S OPTION TO ACQUIRE THE SITE FOR THE SOUTH OF FOREST AFFORDABLE HOUSING PROJECT TO PALO ALTO HOUSING CORPORATION AND PROGRESS REPORT REPORT IN BRIEF In July 2000, the City obtained an option to acquire a 1.23-acre site in the South of Forest Area (SOFA) for development of affordable rental housing. On June 11, 2001, the City Council selected the Palo Alto Housing Corporation as the developer of the site after a competitive Request for Proposal process. PAHC is currently proceeding with architectural plans for a 53-unit family-oriented rental apartment complex on the property. A preliminary architectural review submittal will be made in early October. If the proposed fmancing is approved by early next summer, construction would begin by the late summer of 2002 and occupancy would occur by the end of 2003. PAHC is seeking housing subsidies, loans and grants so that the units’ rents will be affordable to very low-income households. Most housing finance programs require, or give a strong preference to, developers that have legal control of the land for their project. To assist in its fmancing efforts, PAHC has requested that the City adopt a resolution clearly stating the City’s intention to assign, or transfer, its ~ontrol of the site option to PAHC at the appropriate time in the development process. CMR:366:01 Page 1 of 5 RECOMMENDATION Staff recommends that the City Council: 1.Approve the attached resolution declaring the intention of Council to assign its option to acquire the 1.23 acre site for the South of Forest Avenue (SOFA) affordable housing project to the Palo Alto Housing Corporation (PAHC) or its designee, at the appropriate time to secure the necessary financing and subsidies to develop the housing; and 2.Authorize the City Manager to negotiate the terms and provisions of the site assignment agreement and the City’s loan to the project for Council review and action. BACKGROUND Pursuant to the April 2000 development agreement between the City of Palo Alto and Palo Alto Medical Foundation (PAMF), the City obtained a three-year option to acquire a 1.23- acre site on the block bounded by Channing Avenue, Ramona, Homer and Bryant Streets in the South of Forest Area. About 0.60 acres of the site is to be dedicated and the remaining 0.63 acres is being purchased. Due to the long-term nature of the option, the City agreed to pay the full price (approximately $3 million) of the 0.63 acres at closing. On July 19, 2000, escrow closed on the sale of all PAMF’s former properties and SummerHill Homes, Inc. acquired legal title to the affordable housing site, subject to the City’s option and the other provisions of the development agreement. The three-year term of the City’s option expires in July 2003. On June 11, 2001, Council approved the selection of PAHC as developer of the SOFA housing site based on the recommendation of an evaluation committee after a competitive Request for Proposal process. Over the last three months, PAHC has proceeded expeditiously with the housing project. The development has been named Oak Court Apartments and will include 53-units of family-oriented rental units over underground parking. PAHC has assembled its project team including Michael Pyatok, a noted architect of affordable housing. Two meetings were held with neighbors and community representatives to discuss site design issues. Attendees at these community meetings expressed support for the proposed development and offered a number of suggestions regarding the placement and orientation of the buildings, facade treatment, location of the historic house and other matters. At the second community meeting, the architect presented modifications of his initial site layout which were well received. A study session was held on August 30th with the Architectural Review Board / Historic Resources Board for SOFA projects and a second study session and site tour is scheduled for September 25t~. Progress has also been made in assembling fmancing and in obtaining outside grants and subsidies to construct the project. CMR:366:01 Page 2 of 5 DISCUSSION As proposed in its RFP submittal, PAHC’s financing package includes the following principal permanent funding sources: ¯Investor equity from an allocation of the competitive nine percent tax credits under the Low Income Housing Tax Credit Program; ¯A bank mortgage; ¯An Affordable Housing Program (AHP) grant; ¯Proceeds from the sale of a single family house now owned by PAHC; ¯A loan from the Housing Trust of Santa Clara County (Housing Trust); and ¯A loan from the City of Palo Alto. PAHC has selected lenders for both the construction loan (Wells Fargo Bank) and the long- term, permanent loan (Cal Fed). The new Sobrato Family Housing Fund has awarded PAHC a $132,500 two-year predevelopment loan. This loan gives PAHC funds to pay for design, financing application fees and other early costs; the loan must be repaid from permanent funding sources within two years. PAHC has submitted its application for a $400,000 permanent gap loan from the Housing Trust. The Housing Trust will announce its decisions on the first application round by October 22; the prospects appear favorable for PAHC’s application. PAHC is now preparing an application for the AHP grant that is due by October 1 st. AHP is an affordable housing subsidy program funded and controlled by the Federal Home Loan Bank Board (FHLBB). Loans, which convert to grants over a ten-year period, are awarded on a competitive basis to developers of housing for the homeless, special needs housing or very low-income family housing. PAHC’s application will be for $265,000 in AHP funds. However, the AHP program is very competitive and applications are scored on specific criteria using a point system. Due to the high level of competition, it is critical that PAHC be able to maximize the point score of its grant application. One important point category is the developer’s control of the housing site. PAHC needs to clearly demonstrate that it has effective control of the site in its grant application or it will lose points in this key area, which might result in loss of the grant. PAHC and its financial consultants are concerned that the combination of documents regarding site title, the City’s option and the selection of PAHC as developer will not meet the FHLBB’s standards for site control. The purpose of the attached resolution is to expressly state the Council’s intention to assign, or transfer in some manner, the City’s site option to PAHC at the appropriate time in the project’s development. The State agency that allocates the low income housing tax credits has not yet published its funding schedule for 2002. However, the usual schedule is to hold two rounds of competition each calendar year, with applications for the first round due in February. The tax credit program now requires that the developer hold legal site control when its CMR:366:01 Page 3 of 5 application is submitted. Also, a commitment (probably in the form of a Budget Amendment Ordinance) of the City’s subsidy loan for part of the project’s development costs will be required for the tax credit application submittal. Staff will rettma to Council about a month prior to the tax credit application deadline for action on the legal documents to transfer the control of the site to PAHC and to provide the City’s loan. These documents will specify various contingencies PAHC must meet before the close of escrow on the transfer of title to the site and the closing of the City’s loan. RESOURCE IMPACT Adoption of the attached resolution will assist PAHC in its efforts to secure housing subsidies from non-City sources tO construct the development. The more funds PAHC raises from other sources, the lower will be the City’s funding. The project’s financial analysis is still very preliminary until the architectural design and site layout has been approved and other sources of financial subsidies determined. However, for general budgeting purposes, the City should expect that the project would require between $1 million and $2.5 million in City housing subsidy loans in addition to the land contribution. POLICY IMPLICATIONS Adoption of the attached resolution is consistent with the Comprehensive Plan goal of providing a supply of affordable and market-rate housing (Goal H-l) and Council’s selection of PAHC as the developer of the SOFA housing site. The action does not represent a change in City policy. TIMELINE PAHC intends to submit an application for the housing tax credit program in the first round of 2002 (expected to be in February), provided that the City has approved all discretionary planning approvals. If PAHC is successful in the 2002 tax credit competition, then construction could start in the summer of 2002, with occupancy by the end of 2003. However, because success in the tax credit competition cannot be predicted, an alternative financing strategy was prepared using the noncompetitive four percent housing tax credit program and a tax-exempt bond mortgage. In the worst case, a change in the project’s financing structure could result in a year’s delay in the start of construction due to the probable timing of the application cycles of the different housing financing programs. ENVIRONMENTAL REVIEW Adoption of this resolution is not subject to the California Environmental Quality Act (CEQA). ATTACHMENTS A. Resolution of the Council of the City of Palo Alto Declaring the Intent of the Council To Assign the City’s Option To Acquire the South of Forest Avenue (SOFA) Affordable Housing Site To the Palo Alto Housing Corporation CMR:366:01 Page 4 of 5 PREPARED BY: Catherine Siegel, Housing (~rd’mator REVIEWED BY: LISA GROTE Chief Planning Official CITY MANAGER APPROVAL:~---~. EMILY HARRISON Assistant City Manager cc:Palo Alto Housing Corporation CMR:366:01 Page 5 of 5 ATTACHMENT "A" RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO DECLARING THE INTENT OF THE COUNCIL TO ASSIGN THE CITY’S OPTION TO ACQUIRE THE SOUTH OF FOREST AVENUE (SOFA) AFFORDABLE HOUSING SITE TO THE PALO ALTO HOUSING CORPORATION WHEREAS, on April I0, 2000, the City Council adopted the SOFA Coordinated Area Plan (SOFA CAP), which designated an approximately 1.23 acre site (the "1.23 acre site") located on the north side of Channing Avenue between Bryant and Ramona Streets for affordable rental housing under the SOFA CAP’s Multifamily (AMF) zoning and development guidelines; and WHEREAS, on April I0, 2000, the City entered into a Development Agreement with the Palo Alto Medical Foundation for Health Care, Research and Education (PAMF), under which the City obtained an option to acquire from PAMF or its successors the entire 1.23 acre site, 0.60 acres by dedication from the owner and 0.63 acres by purchase at an agreed market value, to be exercised on or before July 19, 2003; and WHEREAS, on July 19, 2000, the City paid $2,904,826 into escrow, which is the total and final cost for the option on the 1.23 acre site, but has not yet exercised the option; and WHEREAS, also on July 19, 2000, title to all PAMF owned properties designated for residential development under the SOFA CAP and Development Agreement, including the 1.23 acre site, transferred to the residential developer, SummerHill Homes, subject to the City’s option to acquire the 1.23 acre site, and other provisions of the Development Agreement; and WHEREAS, on February 15, 2001, the City issued a request for proposals (RFP) seeking an experienced team capable of designing, .financing, building and operating an affordable rental housing project for very low and low income families on the 1.23 acre site; and WHEREAS, on June II, 2001, Council selected the Palo Alto Housing Corporation ("PAHC") as the developer of the 1.23 acre site after an evaluation of its proposal and two other competitive developer proposals; and WHEREAS, subsequent to the Council’s selection of PAHC as developer, PAHC has proceeded in an expeditious manner to design and seek financing for the proposed housing as described in its proposal; and 010919 ¢1 0032487 1 WHEREAS, it is the intention of this Council to assign the City’s option to acquire the 1.23 acre site to PAHC for the purpose of developing, constructing and operating a renta! residential facility fo9 very low and low income families; and WHEREAS, to assist PAHC in its financing applications, a clear statement of the City’s intent to assign or transfer its control of the option to the 1.23 acre site at the appropriate time as determined by Council during the development process is necessary, and the Council desires to evidence that intent through the adoption of this resolution. NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION I. The Council hereby declares its intention to assign the City’s option to acquire the 1.23 acre site to PAHC for the purpose of developing, constructing and operating a rental residential facility for very low and low income families. SECTION 2. The Council hereby directs staff to continue to negotiate with PAHC for a Disposition and Development Agreement, by which the City’s option to acquire the 1.23 acre site can be assigned to PAMF to further the objectives of the Development Agreement and the SOFA CAP. // // // // // // // // // // // // 010919 cl 0032487 2 SECTION 3. An Environmental Impact Report (EIR) for this project, as part of the SOFA CAP and Development Agreement, was certified as adequate by the City Council on March 27, 2000, by adoption of resolution No. 7950. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: City Clerk APPROVED AS TO FORM: Mayor APPROVED: Senior Asst. City Attorney City Manager Director of Planning & Community Services Director of Administrative Services 010919 cl 0032487 3