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HomeMy WebLinkAboutStaff Report 14281 City of Palo Alto (ID # 14281) City Council Staff Report Report Type: Consent Calendar Meeting Date: 5/23/2022 City of Palo Alto Page 1 Summary Title: 525 E. Charleston Funding Commitment Title: Authorize the City Manager to Commit Two Million Dollars ($2,000,000) from the City's Affordable Housing Funds for the Affordable Housing Project at 525 E. Charleston Avenue. From: City Manager Lead Department: Planning and Development Services Recommendation Staff recommends that City Council take the following actions to authorize and commit funding for a future loan to Eden Housing for the development of an affordable housing project located at 525 E. Charleston Road: 1. Approve a commitment of $2,000,000 from City Housing funds. 2. Designate the 525 E. Charleston Road project as an identified qualifying and a pre- approved Local Housing Trust Fund (LHTF) project, and 3. If the City is awarded a 2022 LHTF program grant in August 2022, increase the total commitment to $3,000,000 by using $1,500,000 of City Residential Housing Fund to 525 E. Charleston to use as local matching funds along with $1,500,000 from the awarded LHTF grant. Executive Summary: Staff is requesting that the Council commit funding for a future loan and the associated budget amendment for the entitled affordable residential development located at 525 E. Charleston Road. The City is partnering with Eden Housing, the developer, and the County of Santa Clara in the development of a 50-unit residential development. As discussed in this report, some of these housing units will be primarily for persons with developmental disabilities. The County of Santa Clara owns the project site. In a separate but related action, staff is also asking Council to authorize the City to submit a 2022 State HCD Local Housing Trust Fund (LHTF) program grant application, discussed as CMR City of Palo Alto Page 2 ID #14300 on this same meeting agenda. The LHTF program grant is competitive and, if awarded, provides a dollar-for-dollar match to local financial contributions to LHTF qualifying affordable housing projects. Staff has included additional recommended Council actions in this report if the LTHF application is awarded, to meet LHTF requirements. The overall cost of the project is estimated to be almost $45 million. The County has dedicated $8 million and the developer is applying for tax credits to fund the majority of the project. Background On September 27, 2021, the City Council held a Study Session to discuss the details of the proposed project to redevelop the site at 525 E. Charleston Road (i.e. Mitchell Park Place). Eden Housing, the project developer, proposed to build a four-story mixed-use project with non- profit office uses and 50 affordable rental apartments. In addition, in discussing the project details, the study session included an anticipated request for a City contribution of $2 million in support of the project. This report is a follow-up to the discussion to commit the $2 million in City funds. A minimum of 15% of the units will be accessible for the mobility impaired and 10% of the units will have communication features for the visually and/or auditory impaired. Half of the units (25 units) will have a leasing preference for adults with intellectual or developmental disabilities. The total project cost is estimated to be approximately $45,000,000, which includes $8,000,000 in funds from the County of Santa Clara. DISCUSSION The project has already received its land use entitlements. Eden Housing followed a supportive housing expedited permit process as allowed by the Supportive Housing Act (AB 2162). The law requires local entities to streamline the approval of housing projects containing a minimum amount of Supportive Housing by providing a ministerial approval process, removing the requirement for CEQA analysis, and removing the requirement for Conditional Use Authorization or other similar discretionary entitlements. The project was approved on March 8, 2022. Project Description Eden Housing proposes to develop the Mitchell Park Place project on a 0.78-acre site (APN 132- 06-039). Eden Housing will construct 50 affordable housing units in one four-story building including 2,750 sq. ft. of non-profit commercial space. The proposed unit mix is 37 studios, eight one-bedroom units, and five two-bedroom units. One two-bedroom unit will be reserved for an on-site manager. As a special needs housing project located near frequent transit, no City of Palo Alto Page 3 residential parking spaces are required by the City. However, 19 parking spaces will be provided for the commercial space (11 spaces are required by the City), including three parking spaces with electric vehicle charging infrastructure. Bicycle parking will be provided on site with 50 long-term spaces and seven (7) short-term spaces for a total of 57 bicycle parking spaces. Supportive service areas include a community lounge with kitchen, support and meeting space, Eden offices, library and tech lounge, and respite rooms. Eden Housing will construct the improvements and enter into a ground lease of the property. The site is currently improved with a 4,000 square foot, one-story commercial building constructed in 1981 with associated parking areas. The site is covered in impervious surfaces and contains no exposed soil except for small landscaped areas. The site is zoned PF – Public Facilities and the Comprehensive Plan Land Use designation is MISP – Major Institution / Special Facility. Rents and Occupancy of the Apartments The maximum rent for each household will be 30% of a household’s income. The project will have units dedicated for a range of incomes from 30% Area Median Income (AMI) to 60% AMI. Below, Table 1 summarizes the type of unit, affordability level, unit mix, and for reference the 2021 CTCAC monthly rent limit for the unit. Please note that the unit affordability mix assumes the CTCAC income and rent limits and is subject to change. Table 1: Unit Types, Unit Mixes, and Range of Proposed Rents PROPOSED AFFORDABILITY MIX* Units 2021 CTCAC Rent Extremely Low Income Units @ 30% AMI- studio 13 $870 Extremely Low Income Units @ 30% AMI- 1 bed 1 $932 Extremely Low Income Units @ 30% AMI- 2 bed 1 $1,119 Very Low Income Units @ 50% AMI- studio 13 $1,450 Very Low Income Units @ 50% AMI- 1 bed 4 $1,553 Very Low Income Units @ 50% AMI- 2 bed 1 $1,865 Low Income Units @ 60% AMI- studio 11 $1,740 Low Income Units @ 60% AMI- 1 bed 3 $1,864 Low Income Units @ 60% AMI- 2 bed 2 $2,238 Manager's Unit (2 BR) 1 NA Total 50 The overall development cost for the project is estimated to be approximately $45 million. The breakdown of the development budget is listed below in Table 2. Table 2: Development Budget City of Palo Alto Page 4 Total Land & Improvements $146,177 Total Construction $33,342,708 Total Design & Consulting $2,171,550 Total Indirect Costs $6,030,343 Total Finance & Carry Costs $2,983,196 Total TCAC/Syndication $224,000 Total $44,897,974 Funding sources will include the County, the City of Palo Alto, and tax credits. Please note that the staff also recommends providing approximately $218,669 as a predevelopment loan from the CDBG program in addition to committing the requested funds outlined in the staff recommended Council actions. The CDBG amount is still an estimate since the City has not received its 2022-2023 entitlement amount from HUD. The CDBG amount would be incorporated into the City’s loan agreement. The Council will consider the recommended CDBG allocations separately at its June 20, 2022 meeting. Table 3: Proposed Project Sources Permanent Funding Sources City of Palo Alto $2,000,000* City of Palo Alto CDBG $218,669 CA HCD LHTF $1,000,000 County of Santa Clara $8,000,000 Low-Income Housing (LIH) Tax Credit-LP Capital Contribution $27,878,205 Permanent Financing $2,280,000 Permanent Financing - leveraging PBVs $3,521,000 GP Equity $100 Total $44,897,974 *To be adjusted if the City is awarded LHTF program grant funds. There are sufficient resources in the Affordable Housing Funds (Fund 233 and Fund 234) to support the actions. If the loan and corresponding budget amendment is approved by City Council, staff will execute the budget amendment to allocate the specified funds from the Residential Housing Fund (Fund 233) and Commercial Housing fund (Fund 234) to assist with the development of the project. If the City’s LHTF program grant application is successful, staff will adjust the allocations as per the recommended Council actions. The development cost for each unit is almost $897,000 per unit. As an example of how the City’s financial contribution would assist the project, the City providing $2 million toward the project is equivalent to providing $44,373 per unit in exchange for 49 deed restricted units of City of Palo Alto Page 5 affordable housing. City Affordable Housing Fund Guidelines This is a proposed new construction of an affordable housing project serving households earning up to 60% AMI. This is consistent with the City’s Affordable Housing Guidelines. While the terms of this specific loan will be finalized at a later date, per the Affordable Housing Funding Guidelines, the typical loan terms are a 3% interest rate, deferred, residual receipts, and a 55-year term loan. The loan may be forgiven at Council’s discretion at the end of the loan. Local Housing Trust Fund (LHTF) Program The LHTF program is a State Housing and Community Development (HCD) funding program. The LHTF program serves as a funding source to already established or new affordable housing trust funds managed by local jurisdictions or other eligible applicants. The effect of the LHTF program is that the funds awarded amplify existing local affordable housing trust fund balances, as discussed in CMR ID #14300. The deadline to apply for a 2022 LHTF program grant is May 25, 2022. The City has sufficient balances in the Housing Funds that can be used as local matching funds in the City’s LHTF program grant application. 525 E. Charleston meets the affordability targeting proposed for the City’s LHTF program grant application. The LHTF application is competitive so a Council approval on local funding for 525 E. Charleston would increase the competitiveness of the City’s LHTF program grant application. Awarded applications are expected to be announced in August 2022. Staff will coordinate with Eden Housing regarding the dispersal of the funds. Given the need to make a financial commitment to 525 E. Charleston at this time without knowing if the City will be awarded a LHTF program grant, staff proposes two financial assistance pathways for 525 E. Charleston: 1. Commit a total of $2M for permanent financing loan for 525 E. Charleston, or 2. If the City’s LHTF program grant application is successful, commit $1.5M from Fund 233 for 525 E. Charleston. This $1.5M in Fund 233 would then be used as local matching funds in combination with a LHTF grant disbursement of $1.5M, to increase total financial support to 525 E. Charleston to $3M. The second financial pathway is necessary to outline, as the City’s LHTF application needs to show documentation of any City pre-approval of any LHTF awarded funds to 525 E. Charleston and the source of local matching funds. City of Palo Alto Page 6 Staff will return to Council to amend the budget to reflect the final funding commitments depending if the LHTF application is awarded. Policy Implications The City has affordable housing funds available to contribute to a future project. The staff recommended Council actions in this report would set aside funds for the project at 525 E. Charleston Rd. The funds would be distributed in coordination with Eden Housing. Resource Impact Currently there is sufficient uncommitted balance in the respective housing funds to support either pathway recommended in this report. The recommendation in this report would commit either $2 million or $1.5 million in housing depending on the succuss of the LHTF application. Staff will return to Council to amend the budget to reflect the final funding commitments. Timeline This funding commitment from the City is needed for developer’s tax credit application submittal in July 2022. It is expected that additional funding partners will be identified this year. Once established, further development of the financing plan is anticipated. Environmental Review The commitment of funds does not qualify as a project in accordance of the California Environmental Quality Act (CEQA). In addition, the land use entitlements have already been granted under an expedited project review process under the Supportive Housing Act (AB 2162), which establishes ministerial procedures for the review and approval of the project. Therefore, the project is exempt from CEQA pursuant to Guideline Section 15268.