HomeMy WebLinkAbout0422.091f
September 12, 1991
HONORABLE CiTY COUNCrL
Palo Alto, California
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330 EVERETT AVE.HUE PROPOSED FINANC.IN_~ RESOBMI_TTJt.L
Members of the council:
E.ru;!_ort in Brief
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This report relays Community Housing Inc. (CHI) 's second request
for use of City Housinq in Lieu funds for the lease and development
of a 51-en it senior housing project at 330 Everett Ave, The
Federal Department of Housing and urhan Development (HUiJj has
extended the d~~dline for submi~ting Section 202 funding applica
tions to September 30, 1991.
BaekgrOl,1D4
On July 22, 1991 Co~ncil approved the P.C~ zone change request but
denied CHI's proposed financing request for 330 ~~erett, Avenue, as
presented in staff lepor-ts CMR;320:91 and CMR:367:9.1~ As out~ined
in CMR=320;91~ CHI proposed using EUD Section 202 runds and City
Housing in Lieu funds for the construction of the project and
Co~unity Develcpment Bloc.x Grant (CDBG), state and/or private
funds for acquisition of the property. Specifically CHI was
. requesting councj I approval for Housing in IJieu funds in the. form
of a $665,000 modified loan to be paid back on an -as available"
basis, and a $315,000 grant. The grant monies were to be used to
provide City-required amenities that cannot be funded by section
202 or CDBO funds. The use of the city funds would be conditioned
upon the approval of Section ~02 funding.
CMR;422:91
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staff recommended Council deny the req~est for two reasons. First,
Housing in LieLl cOlI'mercial account funds .'Quld have to be used
since there are no Residential account funds available. By Council
policy, Commercial account funds must be used to con~t.ruct new
worker ~ousing which ""::>llid prcclud.:! use for senior housing.
Council had previously waived the policy a~d allo~ed a loan from
the Commercia! account to the Residential account for the purchase
of an existing family complex at 630 Los rtobles.. That loan of '$1
million from the Co~ercial to the Residential account ~as made
with the understanding that it would be paid back frOm the
Reside.ntial account. If approved~ the grant from the ResiQ.e~t.ial
account .... ould put the account $1.3 mill ion • in debt· to the
commercial acco~nt.
Second, the '$665 i 000 loan is based on a lease of the subj ect
property. Staff reported that to date, 10-3;ns and grants from
Housing in Lieu funds have been used only for the outright purchase
of land. As proposed, the lease option and ground lease previde a
mechanism whereby the existing commercial loans on the property
'Would be paid off (by the $665, COO), thereby creating a low
interest loan that is extremely beneficial to the property owner.
On the day of the council meeting CHI submitted an amended request
that Council approve only the grant of $315,000. The applicant
eXJlained that HUD's Section 202 funding process had ~wo levels cf
funding approval. The first phase required CHI to show proof ot
funds for the City-required ar.1enities. If council approved the
grant, CHI would have more time to resolve the ground lease
financing issue. Staff recommended Counc~l deny that request for
the following three reasons:
1) Staff could not reco~~nd L~uncil approve the $315,000 grant
1a'ithotlt a total understar.Jing ')f the entire financia~ arrange
ments .
.2} Commitment of the in.itial '$315,000 grant may obligate the
Council to cvmmitment of future funds.
3) The grant of the $315,000 'Would require a loc:.n to the Resider~
tial account from the Commercial aCCOullt which 'Would take
several years to be repaid by the Residential account.
HUD subseq~ently extended the Section 202 funding request deadline
and CHI has returned to Council again requesting the grant of the
$315,000 for the City-required amenities.
Am!llde.o. __ Reguest
On August 9. staff met ~ith the representative from CHI to discuss
BUD'S Section 202 guidelines and how they might be interpreted to
resolve st~f!/S concerns. Staff ""as informed that CHI was now
CMR:422:91 2
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a~~re that the structure of the previously prcposed ground lease
would not be acceptable to HUD. CHI again requested the $315,000
grant~ however, stating tr.at this .. ould ensure their ccntinue-d
eligibility for section 202 fir.ancing l and that a3 the HUt) revieW"
process progressed, they hoped to ... ·ork out $o-me a!.ternative lease
or acquisition process with the property owner. The grant ~ould be
contingent on CHI's obtaining HUO approval_
City staff is concet:ned by ern' s appar~nt rec.::lmmendation that tt,e
City transfer its respon.5ibility for under$tandinq the complete
financial arrangements tc HUD staff I i. e., if HUD approves the
section 202 funding, City staff W'ol.!ld have abrogated its review
responsibilities to BUD. of ~qual or greater concern to staff is
the statement included in the HUD requirements that "secondary
financing rous~ be by a public body.n HUD's requirement strongly
increases the likelihood CHI will return to City council to ask for
the additiona 1 $665, ODe need~d to compl~te the project.
At thi~ 'Writing, staff has rio more information a.bout the proposed
financial arrangement than it had at the origir.al application.
Conseq\lently~ staff \IIould lik.e to have such in.formation provided
for Lytton IV prior to dedication of city monies to tne project~
Finally, staff continues to be concerned about the questionable
finarocial health of the Lytton III project. In an information
report (CMP.:)87:91) dated August 15, 1991 staff informed Council
that Lytton Gardens, Inc. {LGI) , estal:llished by CHI in 1980, had
failed to make full payments in December 1989, June 1990~ December
1990, and June 1991 on debt service for bonds issued under the City
of Palo Alt.o~ $ name for the' Lyttor. III Health Care Center.. The.
reserve account for the bonds has been reduced fl.~om $1.2 million tOo
$400.000. In addition, City staff has been unable to obtain
audited financial statefficnts for Lytton III since fiscal year 1988-
89. unaUdited stateme:1ts prepared by LGI st~ff do riot. provide
staff 'With confidence that the Lytton II! project ... ill attain
suffi~ient profitability to replenish the debt service reserve O~
to initiate requi~ed prinCipal repayments ~oming due beginning in
1995~ staff believes that if adequate financ~al information had
been supplied by eliI and revia'",red prior to issuance of debt under
the City's name, the potential problems with Lytton III might have
become apparent.
·Add.itional IJ:l.fo.;-m.ation Regue.~.te.~ from CHI
In a letter dated August 28, 1991 staff informed the applicant that
staff would again recommend council deny CHI's applica~ion for the
$315,000 grant unless the applicant could furnish information which
had been pre .... iously req'iJested in June 1990, in anticipation of
CHI's request fer a loan from the Housing in T~ieu Fund. The
information requested includes!
CMR:422:91 3
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1) At .. updated L:l"t'con IV pro for~a including the costs associated
.... ith CHIts gaining Ifcontrol of tCle property.-
2) Revised accurat.e relot..:ation costs.
3} Breakdown of design, engineering and construction costs~
including any documentation. Resolution of the easement
through 325 Lytton and City-o·,.r!1ed land.
4.) Development costs inclu.ding, but not limited to;
4. Demolition
b. Sewer/off-sit.e improvements
c. Fire hydrants
d. Electrical services
5) Construction costs that are in accordance with Federal
competitive bidding, non-discrimination and Davis-Bacon Labor
standards r~quirements.
6) A sound m~nageroent plan that includes:
a. A description of the proposed 1I1anagement team for the new
facili~y (experience, etc.)
b. Revised c3sh floW' analysis based on above costs .. pro
jected rents and 1-lUD' s Section Z02 guidelines.
1} Title reports far each of the properti ~s sh':'l\,ring current
o;'i1E'.rship.
B) Copies of lean dccuments for each property.
9) An appraisal establishing the current value of the property.
lOj A copy of the c~rent property owner's family trust.
This informat.ion is vital for evaluation of any loan application
fo!" City monies. CHI·.13 iniot"Ltea staff that th~y are compilinq
information at the date this report is being written. but will not
be able to provide it by t.he September 16 COuncil meeting .
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ReCOmmeaC!ati.PA
Based on the inforz:-:a'tion submitted in this report and. without the
detailed information requested by staff and t:te time to ar.alyze
that information, staff can~ot provide Council ~ith the assurance
that the 330 Everett project is financially viable a~d t~erefore
recommends denidl o! CHI's request.
Respectt~lly submitted,
ce: Community Housing rnc~
CMR:422:91 5