HomeMy WebLinkAbout0302.095..
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City of Palo Alto
City Manager's Summary Report
TO: HONORABLE CITY COUNCIL
FROM: Cm'MANAGER
AGENDA DATE: Jone 12, 1995
DEPARTMENT: PlannIng and
Community Environment
CMR:302:lIS 18
SUBJECT:
BEQIlEST
StBIus Repon on FlnanciDg and Project Costs of Proposed Single
Room Occupanq Housing Project at 72>753 Alma Street, and
Proposed Amendment to the De.elopment Agreement For 1050
Araslradero Road and Related Amendments to the Option
Agreement and Purchase AgreEment For 72>153 Alma Street
This report reviews the curreN status of the proposed sources of financing and estimated
development costs for die single room occupancy (SRO) housing project proposed by the Palo
Alto Housb"" Corporation (PAHC) at nS-753 Alma Street. The report includes infonnatioo
about the recendy initialed re-suuc1Uring of the housing tax credit :allocation system and its
poIeDIial effect on the SRO's fioancing. Alternatives regarding the purcbase of the site are
discussed, and a proposal is presented for Coonc~'. coosideration which would extend the
existing opIion agreement for up to five moruhs through November 30, 1995. The legal
agreements necessary 10 eXleod the site optioo aDd 10 mate Illino< changes in lIle agreements
regarding the process for closing the transactioo are included in the Council packet under
separate cover from the City Al!orney.
RECOMMENDATIONS
Staff recommends thaI the Council:
1) Approve the eX!ension of the optioo agrcemetll for up 10 November 30, 1995 under
the terms negotialed by staff;
2) Authorize the Mayo< 10 execute the AmendroetlllO the Development Agreement aDd
the Amendments 10 the 0pIi00 Agretmetll and Pun:hase Agreement in substantially
similar form 10 thaI included in the Cooncil', patkd from !he City Aruxney;
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l) Dire<:t the CiIy Manager 10 administer the provisions of the amended Optio"
Agreemel1l and Development Agreement; and
4) Dinct staff 10 return 10 Counc\1 with I Budget Amendment Ordinance to allocate the
funds needed to pay !he option extension fee.
roucx IMPUCATiQNS
The optioo CJ</etlSioo cegotiated by staff is consistent with Council's previous actions
suppor".m" in roocept. Ille acquisitioo of !he 725-753 A]"" i:'reet site for development by
PAHC as SRO-!ype housing. However, the extension represents a policy cllange on !he
tinIint o(!be exercise 0( !he site option and Ibe acquisitio<L A more cautious policy is new
proposed by staff rega.-ding lhe timing and !he expendirure of City funds for tlle site, due 10
!he reccGI developments in !he tax credit situation outlined in this report.
ExmmyE SLlMMARY
In November and December dl994, the Council approved in concepr the acquisition of the
property at 125-7S3 AJma Street for development as an SRO housing project.· An option 10
purcluse !he sile was secured, and PABC directed 10 move forward with. Planned
CommuniI)' zooe change application. Since the option was 10 .'pire on June 30, 1995 and
P ABC hoped 10 be able 10 sub.nil for tax credit financing in the seoor>d rO'Jnd 0( rompetition
in July 199~, an accelerated scl!edule for PC zone approval was put in place.
Recent dlanges in !he tax credit program may have an effect on !he fmaocial vialn1ity 0( the
project. The second w.md rompetiOOn set for July 1995 Ius been canceled and the entire
1995 allocation authoO!y will be awarded 10 projects submitted in the previous appIication
round. In addition. IS a r"",It 0( the November elections, there has been a cbange m
leadership 0( !he Tax Credit Allocation Committee (TCAC). The TCAC has decided 10
revise !he wes!Jold criteria and the rating and ranking criteria for scoring applications for
fedecal and state tax credits. The new criteria ... ill be developed over the nexi !hree rncn'hs.
PAHC strucwred and designed Ihe SRO project 10 obtain. lOp SCOfe under the old tax credit
rating SJlslem. DependIng en exactly bow Il!e rating ~m is altered, !he projecr could score
so low that it would be unable 10 oIxain an allocation; if so, it would need to be redesigned
10 be CO!Ilj)edtive under the new system.
Considering the uncertainties regaramg possible clunges in the tax credit progra!I1, staff
belie>os that e><!ending the crOOn 10 purchase is an appropriate way 10 proceed with the
project. The extension would .ffi>rd !he Cit} and PAHC the opportunity 10 evaluate the
impact 0( the new tax cred"1'I al)ocatioo system 00 Ihe financial feasibilily of !he project. SUrf
woold relull! 10 Council in the Fall, after the new tax credit plan is adopted, with an
.valuation 0( !he prospects for obIa1"1ing \aJl credit subsidies for the SRO project and
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recommendations regarding the purchase of !he sile.
Utxkr the terms cf the renegolia!ed option. !he City woold pay one·half Ibe curren( option
paymelll of $5,416.67 per month, or $2.'iOll.33. Stanford University bas reached agreement
with !be property ownors (Keenan-Gateo) to pay ooe-half of the moothJy option eXlecsion fee
for up 10 five IIlODllls (approx.imale roaximum of $13,SIX>j. Stanford agreed because
e:<leoomg !be option preserves !be len-year enOtkmelll on !be 1050 Arasua<lero project.
which woald otherwise expire June 3Q if !be City has not acquired title 10 !he Alma
properties.
Whether the option is eJ<lende<! or not, !be City At:orney's office is recommending mL'lO{
changes 10 the Development Agreement and 10 !be Option and Purchase Agreements to
facilitate orderly progress of the transaction if !be Cit"! chooses 10 proceed. The Oevelopmen1
Agreement currently provides IIlat the City (or its nominee) must 'acquire title' 10 !be Alma
properties by June 30, 1995, or else the Deve10pment Agreement vesting on 1050
Arasttadero Road expires. If !he option is extended. elimirulting!be J-une 30 date is necessary
10 protect the parties' interest in !be Development Agreement. If the option is not extended,
but is instead exercised al tbe presenl time, !be minor amendments are .... arranted to allow
time for the orderly closing of !he Alma properties and 10 assure that neither !be City nor
Stanford are harmed by !he title transferring after June 30.
FISCAI.IMPACT
The extended option period postpones !be commitmen( of the $650,000 in funds for the site
purchase '" a time whea !be Council should have more information avail.o!e 10 judge the
degree of risk involved. To date, a IO!al of $379, n8 bas been expended on the prOj>05a1 for
tbe FeasibiJi!y Study. the Option payments, soil studies, title work. .ppraisals and pre·
development rosts.
The lOIal CQSI of the project is currently estimated at $7.97, million including the $650,000
purchase of !be land. The figure includes most of !be expected off·site cOSts, buc does not
include some C05lS PARe is still trying 10 resolve. The principal CQSI issue is the eJ<tra
$300,000 in tosts for the Alma acc=s al'.ernative ~ the garage. A summary of the estimated
sources and uses of funds is as roUows:
Sources qf Fl,lll<k~
Bank Y>rsl Loan (based or: operating cash flow)
lnvestor Equity from Tax Credits
City & Other Subsidies'
Sponsc< (p AHC) £.qui!}'
TDfat Sources of Funds:
CMR:30BS
$1.201,400
$4,538,265
$2,181,655
$45,841
$7,973,171
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Uses of funds·
Lan<! (purchase price ooIy)
Ptedeve1opmellL, Fina!lcing. Transaction CQsts
Hard Coostruction CQsts
Ira] Uses of FundS'
$650,000
$2,421,381
$4,895,790
$7,973,lil
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• Possible sources for Ib.: City's funding are Ib.: Coounercial Hoosing Reserve FUIId, a
possible federal HOME allocation or COBG funds.
ENVIRONMENTAl, M§§MF:-"
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A mitigated negative declaration bas been prepared by staff. covering the assistance by the
City in the acquisition ct /he site for /he purpose of facilitating PAMC'. developmelU
proposal, as cootalned in !he;' application \0 rezone the property at ns ·151 Alma Street
from C[)'S(Pj 10 PC 10 coostruct up 10 107 SRO units in. five-level mixed use build'mg. The
mitigated negative declaration was published on April 14, 1995. Extensio:l of the option
agreemelU is not an action subject 10 the California Envlrorunental Quality Act (CEQA).
Appropriate fe<!eral er.vironmerual review under the Natiooal Environmental Policy Act
(NEP A) will be completed prior 10 any commitmelll of fe<!eral funds for the site acquisition
Of for subsidies for the cO!lS!ru<:Oon.
PREPARED BY: Catherine Siegel. Housing Coord"matoc
DEPARTMENT HEAD REVIEW:
CITY MANAGER APPROYAL: ~~
FLEMING
City fanager
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City of Palo Alto
City Manager's Report
Status Report on FInancing and Project Costs or Pr~ SingJe
Room Occupancy Housing Project at 125-753 Alma Street, and
Proposed Amendment to the Develo~2D1 Agreement For 1050
Arastradero Road and Related Amendments to the Option
Agreement and Purcbase Agreement For 725-753 Alma Street
BFmMMENDATIONS
Staff recommends that the Council:
IJ Approve the extension 01 the option agreement for up 10 November 30, 1995 onder
the terms negotiated by staff;
2) Autbcrize the Mayor 10 execute the Amendment Ie the Development Agreemen! and
the Amendments to the Option Agreement and Purchase Agreement in substantially
similar funn to that included in the Coonci!'. packet from Ell. City Anorney;
3) Direct the City Manager 10 administer the p<ovisions of the ameOOe<i Option
Agreement and DevelopmetJI Agreement; and
4) Direct staff 10 return 10 Council with l Budget Amendment Ordinance 10 allocate the
funds needed 10 pay the option euension fee,
BACKGROUllln
011 November 2&. 1994. Cooncil approved l mo6on thaI:
• Approved in coocepc: the acquisiOOn of the 125 -1S3 Alma property for the
developmetll 01 SRO type housing; and
• Directed staff 10 prepare the appropriate environmental documentation 10 permit the
exercise or the option 10 purchase; and
• Directed staff 10 prep""'. I funding and <!eve!oprnetll agreemellllllith the Palo Alto
Housing Coiporation (p ABC) 10:
-l} as&ign the option 10 P ARC;
b) provide $650,000 '" P ABC 10 purchase the site; and
c) provicle funding for preparanon of the zoning entitlement aWUcafion and
financing applications.
On De<:ember 19, 1994. C()uocil approved a motion that:
• Directed the City Manager 10 extend the City's option 10 purchase the SRO site
through June 30, 1995, 10 allow lime for completion of an envito!llIlental r.view
process covering the pun::hase of the property and the development applicanon k>r the
proposed SRO project; and
• Adopted I Budget Amendment Ordinance (BAa) 10 provlde $32,501 in Housing
Rese"e Funds (Industrial • Comme!1:ial ACC(l\I!\() k>r payment of the option elGension
fees required in the option agreement.
On January 11. 1995, Ccuncil approved a funding and loan agreomeIll. wiLl] PAHC, and
related SAO for up 10 $295,000 in Housing Reserve Funds (lndustrial-CommerciaJ Account)
k>r predevelopment expenses necessary 10 obtain the zomng entitlement and 10 secure
financing. As part of the predevelopmeOl funding agreement, the City agreed 10 assign its
option 10 purchase the site 10 PAHC under mutuaUy agreed upon ",rms and e<>ndiUons.
All accelerated project impleme!l!ation schedule was attached 10 the January 17th ""ff report,
with the oojective of compleling the development review process by June 5!h and closi!lg
=row 011 the site pun::hase by the June 30th deadline as specified in the Purchase Agrecmenl
Tbe P'<JCeSSing 0{ the zoning entitlement and environmeruaJ review has proceeded occo<cing
10 schedule, and acfion on the PC ordinance is • ~par.te item on this .gend.. However.
!here have been important changes in the !aX credit si~Jation in the las! two months, which
increase the level ol nncertainly associated with financing development of an SRO on the site
at this lime. Tbere are also issues relaled to the site remediation process, which have made
!be planned June 30th closing date very unlikely. Analysis of these two key issues is in tlIe
discussion section of Ihls Deporr.
POLlCY IMPUCAllONS
The option exlension negorlated by staff is consistent with Cooncil's pW'loos actions
supporting. in concept, the acquisition 0{ the 725-151 Alma Street site for development by
p ABC as SRO-type housing. However. the extension represents a polley change on tlIe
timing of the exercise of the site option and the acquisitioo. A more cautious pofq is DOW
proposed by sratr regarding the liming and the expenditure ol City funds k>r We site, due 10
!he recent developments in the tax credit situafion ootlined in this report.
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DISCrlSSION
Cba0ies in Taa; CrNjt Allocation Process
One of !be key reasons 10 complete !be zoning entit.'ement process by early ,= was !be
expe<:ta600 !bat P AHC woul<l be able 10 apply for a I99S tax credit allocation in Ibe sero.1d
roond of competilioo. wh.~h had been previously announced for July 1995. Proper zoning
is lthreshold requjrement for !be tax credit application. However, there have been major
changes in the tax credit siruation in the 13.'1 two months, whk:h may affect !be financial
vI.bility of the projce! ilself. On May 3rd, !be California Tax Credit Allocation Committee
(fCAC) cancelled the luly roond of tax credit applications and decided to award !he entire
1995 allocation authority 10 applicants that had applied in t.ie initial March 1995 round.
Response 10 the tax credit program has been unprecedented this year. TCAC received 160
applications in March, including many extremely .. ·.n qualified projects.
TCAC is also under !leW leaden;hip as a rerult of !be November ele<tions. TCAC is
ccmposed of three voting members. Two members are .le<ted (the Stale Treasurer and the
Stare CootrDller), and one is • State official (the DirOl.'IO< of Finance) appoinled by !be
Governoc. Mati Foog. the new State Treasurer. is now the Chairperson a.1d Don MaddY is
the new Executive Director. Under their leadership, TCAC has decided 10 revise its
'Qualified Allocation Plan" (QAP), whk:h is the documeru that sets the threshold criteria and
the rating and ranking criteria for scoring applications for federal and stale tn credits.
TCAC', stated concerns are 10 make the tax credits more efkctive and efficieru and to award
credits 10 projects and 10 areas of the State where there is greatest need. Anolher tey
emphasis of the reform effort is 10 award la, credits 10 projects ,,'hicl! meel certain, yet 10 be
defmcd, cost benchma.'is. There is • strong coocern among housing advocates and nooprofits
operating in the high housing cost, urban areas, that the result of this effort .. iIl be 10 transfer
a greater proportion of the State'. tax credit allocation 10 projects in the lower COS! (mland)
areas of the Stale, The new QAP will be developed over the next ~ir.., montlls wit!! adoption
planned for September. TC.,,"C has already scheduled two public meetings (on June 12 and
15th) 10 gather input from program lISen;. A statewide tax credit lISen; group !las been
formed 10 develop their own proposals for revisions to the Plan. PARe and .. .aff w11l be
monitoring the activities and proposals from both the lISen group and from TCAC 10
determine bow they relate 10 the feasibilily of the SRO project and, as appropriate,
commenting on the proposals, so !bat the specific needs of low income housing developmeIJ!
in Palo Alto do 1l<J( go unheard.
PAHC structured and designed the SRO project 10 obtain • lOp score under the old tax credit
rating system. Depending on exatlly bow the rating system is altered, the project could scor.
so low that it would be unable to obtain an allocation; if so, it ,,"'oold need 10 be reeesigned
10 be competitive WIder the new system.
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Considering the \llICertainties regarding passible changes in the In credit program, ~taff
belleves thaI extending !he option is the appropriate way 10 proceed with the ptojecL The
extension cf the option period would aff<>rd the City and P AHC an opportunity 10 evaluate
ibe impact of the new laX creal! allocation $)'stem on the financial feasibility of P AHC's SRO
project. Staff would return 10 Council in OcIo!Jer with an assessment of the eff<Ct of me new
Plan and reeommendations regarding ibe nercise of !he site option. The City will ne.ed ID
assign the option 10 P ARC, prior 10 P ARC proceedIng with • Ia< credit applkatklu !his
December.
Under the terms of tbe renego<ia!ed option. !he City would pay one-lWf !he currelll option
paymenl of $5,416.67 per mooth. or $2,708.33. Stanford University bas reached agreemelll
with !he property owners (Xeenan-(la!cs} 10 pay ooe-balf of tbe monthly c.poon e~tensioo fee
tor up 10 five montlls. Slrulford agreed because utending the option pr=rves tbe ten-year
entitlement on the 1050 Arastradero project, which would otherwise e~pire June 30, If tbe
City (0< jtg nominee) bas not acquIred title 10 !he Alma properties. Staff will return 10
Council wit.h • Budge! Amendment Ord"l1'.3DCe 10 provide funds Joe !he paymelll of Ihe option
fees from the Hoosing Reserve Funds. The additional option cost .. 'oold be about $13,500,
if extended for the Ihll five i!lOntlls.
Whether 0< 00( the option is extended, the City Attorney's office is reco!ll!llending minor
changes 10 !he Devek>pmeru Agreement and 10 the Option and Purchase Agreements 10
facil.~ orderl, progress of ibe transaction if the City chooses 10 proceed. The Development
Agreement currently provides !hat the City (or jtg no.-ninee) must 'acquire tille' 10 the Alma
properties by June 30, 1995, Qf else the Development Agreement vesting on 1050
Arasttadero Road e"Pires. At the sam<: time, the fee payment woold reven to the origir.al
staff recommended 'double housing fee' of .bout $470,OQ(\, taL"-r than the full cost of the
Alma properties of $650,000. li the option is extended, eliminating the June 30 <!ate is
necessary to prolecl the parties' interest in the De-,.lopment Agreemeul. This is • substantial
pan of ibe coosideration motivating Slanford 10 contribute 10 the eXlended option payments.
If the opIioo is not extended, but is instead exercised at the present time, the minoc
amendments are warranted 10 allow time Joe the oo!erly closing of the Alma properties and
10 assure that neither the Cit) 00< Stw!ord is harmed by the title transferring after June 30.
SUe Remediation
The results of the City'. due dillseoce process '-x the 'Phase U' sci! investigations were not
available on the entire site until last month. In January, City staff discovered that the two
1993 Lowney SO!1lests and reports bad not covered the entire site, just the 753 Alm. loL
The City elected 10 proceed quickly with the soil samples and lesting of the remainder of the
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site. 1be final repoct on ~ 725 Alma lot IeSts was submined by Lowney on May IOtb and
does 00( indicate any soil coolamination OIl that portion oi!be site. In SUIIllI'.M)', !be various
site investigations by Lowney Associates Joond only isolated and relatively mlooo: spots oi soo]
coo!aminatlon on !be 153 Alma portion oi!be site. Lowney recommends remediating !he soil
affected by leakage from the small tanks that held hydraulic fluid for !he lifts in the auto
repair building and some spoIS of suspected conlaminated soil in the tiU that covers !be site.
However, k is possible that during the dean-up process additiooal, and possibly costly,
problems may he revealed. The Purchase Agreemen! limits !be seller's responsibility 10 just
$2,500 for clean-up of any contamination found during remediation thai was 00( previously
Ide!llified in the Lowney repons. However, that Agreemen.: gives the Cily !be right 10
withdraw from !be purchase should.the clean-up expenses become 100 greal Staff does 00(
consider it pruden! for title 10 !be site 10 transfer prior \(J completion of the site remediation
and receip! of c1carance from appropriate regulatory 2gencies.
ALIERNATIl'Vj
Purchase the Site as SQon as Possible
Council could adopt • motion 10 exercise !be option immedlately and close escrow on !he site
purchase as soon as possible. The Council has previously agreed. in the predevelopmeot
funding agreement .. ith PARC approved in January, 1995,10 assign !be option 10 PARC if
!be City decides 10 .xercise it. If this alternative is adopted. !ben Council should approve
the revisions in u..e 105() Arastradero Development Ag=ment and in the 725-753 Alma
Option and P".zrchase ."greement, which relate to the process of closing !hi transaction and
the deletion of the June 30 closing deadline as submined !he Ci,y Attorney. Staff would
prepare. for !aler Council action, an agreemeiJ! hetweea the Cily and P ARC regarding the
funding of the acquisition and the terms and conditions under which the op..ion would he
assig;>ed. A Budget Amendment Oramance would also be prepared \0 provide funds for the
purchase.
If tile Council decides 10 exercise the option at !his time, there is still a need 10 amend the
legal documents which relate to the option and !be deadline for closing escrow on the
purchase. The Council's December 1994 apprcvaJ oithe six month eXlensKm of the site
option was made with the as..--umpOon that tile seDers would proceed lO.remec!iate the site
rontamination. during the term of the eXlension, 50 it .. 'oold be possible 10 close escrow by
the June 30Ih expiration of !he opIioo agreemell!. The sellers I!ad indicated !hey expected the
site clean-up 10 lake about three weeks and the regulatory clearance 10 take two months,
assuming all wen! weD. However, the sellers bave jus! begun !be process of site remediation.
It is DOt expec!ed that !be proc=. includIng !he regulatory agency clearance. can he
comple!ed by June 30, 1995. It is also necessary 10 mocfuy Ille Development Agreemell! for
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1050 Arastr2dero Road 10 pemllt !he extension of the c~ 0( escrow deadline in !he
Purchase At:reement.
If the sill: is acquired IiOd P ARC is subsequently unable 10 oblain • !AX credit allocation and
oCher necessary financing 'for the SRO, as presently planned, Lien !here are oCher alternatives
1hat could be pursued for the development of either a re--designed SRO or Ille coosidera6on
0( iII alll:rnative I15C of the site.
• Rt;Ses;gn the SRO: P ARC could re--design the SRO 10 better nJak:lI !he new !AX credit
rankIDg system, Measures which might be considered are major reductions in COS! (such as
eliminaring one level 0( parking). increasing Ihe ware of local fuoomg andio< deeper
largefing to provide greater affordability,
• Re-design!he SRO As. More Market-Rate Product: PAMe, oc another developer, could
investigate !he fmandal feasibult) of developing a SRO modeled on the Cur'.ner Inn project
in San Jose, which bas 80 percent of the units rented at marlet rents and 20 percent of Ihe
units rented at affordable rents k> "cry low income household" Wording bas been added 10
the PC zone ocdinaoce 10 requir. that any project which does DO( serve low 0< very low
inrome boosebokls would require additional review by !he City and an amendment k> the PC
zooo,
• Ahemative Use of Site 10 Benefl! Low Income Persons: The City could evaluare the nse
of the site foc other purposes which are ellgible under the Community Development Block
Gnnt (CDBG) program. for example, a seNke center for programs operated by agencies
such as !he Urban MlDistry and Ihe Red Cross,
CoonciI coold allow the site option k> e"Pire on June 30th by taking no action. In this case,
!he 1()5() Arastradero Development Agreement. incluifmg its ten year ennml1leru provision.
would automatically Iermlnate and the bousing mitigation fee for the 1050 Arastradero project
would revert from !he $650,000 amount. that is tied 10 the purchase of !he AIm. property.
10 twice the normal bousing fee, tt about $470,00}, Since PAHC and the City v.culd DOl be
obligated 10 purchase !he sill:, staff would recommend thai the Planned Community 20ne
change application be continued 10 a date nncertain. 10 anow P ARC 10 negOliale an option
agreement 10 buy !he site directly from !he sellers 0( \0 withdraw the application.
fISCAl. IMPACT
The extended option period postpones \he commilment of Ibe $650,00} in funds for !he site
purchase. \0 a time when the Council should have moc~ information available 10 judge the
degree of risk involved in expending the funds, By OclOber, the CiIy and PAMe e<peclto
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have a greater onderstanding of t!J<: prospects lor securing a tax crar:! allocation and the o!her
financing neo3ed 10 ~ the project as planned.
Funds Expended To (\ale, a Iota! 0( about $192,000 in City Housing Reserve Funds have
been obligated oc expended and anaddi.tiooal $103,000 bas been committed 10 PARe for pre·
devolopmelll expenses wxler Contract No. C507«n. 10 prepare architectural and
engineering plans; ~ envirorunentol, marketing and fmancing studies; pay for City
appIlcation fees and process :be 2O!ling entitlement and environmen!aI review. PARC was
also paid lor !be COClpletiO!l o(!he Feasibility Study. Funds '"'v: abo been expended alre\.'tIy
by Ille City, 10 secure the sire option and !be EXtension and 10 investigate !be soil and
groundwater cooditions on t!J<: site. Tbe expenditures are as foIlcw.:
$97,500
$65,<.00
$25,228
$192,000
$379.728
Initial Option Payment and FltSt Exlension
F<""..sibility Study Contract wit!; P ARC
Lowney Soil and GroundW1iter Studies, True, Appraisal
Estimated F~ndi\ures 10 6iSI95 Under $295,000 PIe·Development
Contract
TOIal Costs to Date
frq)ecl!:d DeyelQpmen!. Cnst:; and CitY Sgbsi<I.Y P ARC bas recently updated the financial pm
forma on !be SRO's development and operating costs. Tbe IO!al development cost is now
estimated at about $1.97 million, including !be $650 ,000 purcbase price 0( the land. Of the
$1.97 million in costs, almcst $5 million are hard construction costs 0( !he t-uild"mg and
garage. Tbe $1.97M figure includes most o(!he expected off·sile costs, inciuding the e:<hauS!
stack on Ellison's. However, it does DOt include costs fur some City required items that
P ARC is stiJl trying 10 resolve wilh ahernative measures. The principal COSI issue is tbe exlra
$300.000 in costs for the Abn.a access ahernativ. for !he garage. Even if !be City is able and
willing 10 fund the aMltional cost of items, such as !he Alma garage access, the IO(a]
development cost and Iota! construction cost P'!r unit are expected !O be irnportan! criteria in
the award of the housing tax credits. If tDtal costs are 100 high. the project may not be
competitive in the tax credlt al1ocation process.
A tDtal subsiol)' of aw.oxima\ely $2.2 million (meluding !he land c.ost) will be required, in
addition 10 the projected $4.5 millOn of housing tax credit investments. PARC is pursuing
a variety of funding sources. The project's cash flow (from the residential rents and the
rommercW office space) is expected 10 SUJ>IXl<1 a Sl.2 million bani< loan. PARe is working
wilh interested lenders 10 obWn permanent flnancing through the Federal Home Loan Bank
Board's Affordable Housing PIogram (AHP). Part of !be Barker Hocel financing was
prO\ided under !his program. The AHP program could potentiaUy contribute subsidies of
about $550,000 10 the project in !he form 0( • DO payrr..,nt. forgivable second Ican.
Applications for the nen round of AHP funding are dUe in October. with awards in
Fagclfotl4
•
/
• ,..J--
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N(}',ember of !his year. There is also. good possibility that PAHC can obtain a $)00.000
loan from Santa Clara County's Hoosing Bond Trust Fund. While this is a sman amount, it
would malee the project more attractive 10 the ocher funding sour~ ...
Possible sources for the City', portion of the fundIng gap are the Comlllercial Houslng
R=rve Fund. a possible federal HOME alIocalioo oc COBG funds. Staff inlends 10 apply
10 the StIle for a $1 million gr2IlI of 1995 HOME funds wbich. if received. will be osed for
a portion of the City's CIJIltributioo 10 the project. Applkations ",ill tle due in early
Septtmber 1995, and awards wi1I be made in November 1995. The final amount of the City's
contribution .... ill be determined laler. A preliminarY summary of the projected uses and
sources of funds has been prepared by PAHC.
Summary or Estjrnate4 Soon:es and J)""" or Fund:;
SQyrces of FundS·
Bank Fmt Loan (based on "I"'ratlng casb flow)
lnvestor Capital from Tn Credirs
Local &< Other Subsidies
SpollSO< (P ARC) Equity
Tm! Sources of fynds'
Uses of Funds'
Land (purchase price only)
. PredevelopmeDl. Financing, Transaction Costs •
ConstrUction Costs
To/;!! (]g, of Funds'
$\,207,400
$4,5.38,265 .
S2,18I,65S
$45,841
$1,973,171
$650,000
$2.421,.381
$4,895,790
$1,973,171
There are otberco.;ts wbkll. either have already been. or will be, funded separately. Some
of these costs have already been paid separately and directly by the C;':y. They include !he
feasibility study, the soil and grounc!water studies, the site appraisal and !he site option
payments. Staff is also considering !he possibility of having !he City coolracl klr and fund
!he off-site costs such as !he slOrnl drain, sidewalk, seliler conr~tioos, etc., directly with
honsing 0< CDBG funds, if this is beneficial in terms of !he projecrs tax credit rating.
Total EstjrnarN Project Costs
The project costs are compared 10 costs for !he re<:ently completed Carron Street Inn SRO.
wbkh was built by !he Mid-Peninsula Housing Coalition in SmmY"ale, in !he foUowing table.
The two projects are not strictly comparable, since !he Sunnyvale project was built on a larger
P'a:gt )1 of 14
•
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. .
.,.', .
-. -;..-.
. ~----~-... -,,'" . .. ";.-' . , .-.
site wid! Slifface parldng, which red~ costs. The two level 'truaured parldng in the Alma
SRO adds about $1.3M in hard coostruction costs. However, the Sunnyvale project had a
prenlJing wages re<j\lirement. which lends 10 incre:ase construction costs about 10 10 15
peIUll4 had more amenities (three kitchens) and • more compli<ated floor pIar-~ When the
cost of the SlrUCnlted parking is factored out, the estimated costs for tlle Alma SRO are
reasooable ill relationship 10 costs \0 build the Sunnyvale projecL All costs for the Alma SRO
ne approximate and are rounded off. The Sunnyvale costs are actual costs and are shown
in brac;kets.
Total Development Total Construction Residential
Cost Costs (locI. Construction Cost
Garage) (lOW less $1.3 M
for garage}
Land & Soft Costs $3,100,00:>
(Sunn IVale) [$2,866,240]
Construction $4,900,000 $4,900,000 $3,600,000
Less: OffICe Share $400,000 $300,000 \\ $180,000
Total SRO Cost $7.600,000 $4 ,600,000 $1,420,000
[Sunnyvale} [$6,388,600} [$3.522,393} [$3,3 II ,7?Oj
Total Cost Per $71.000 $43.000 $32,000
Unit For 101 units
(Sunnyvale} ($52,800! [S29.IOOj [S27.4OOj .
Cost Per Total Sq. $109 $66 $86
Ft. {69,502· net (39,670 sq.ft on 3
of office sq.ft) residential fIoo<s)
[Sunnyvale} [NfAJ [NIAJ [$79.94]
ENYIRONMENTAJ. ASSF,SSMEN]'
A mitigated negative declaration bas been prepared by staff. covering the assistance by the
City in the ar..quisition of the site for the pmvose of fadlitatIDg PAHC". development
proposal. as contained in their apptiQtion 10 rezOile the property at 725 -753 Alma Street
from CD-s(p) 10 PC 10 construe! up 10 107 SRO units in a five-level mixed use building. The
mitigated negative declaration was pubflshed on April 14. 1995. £r.tension of the <>pIion
agreement is oot an lOtion subject 10 the California Environmental Quality Act (CEQA).
Appropriate federal environmental revjew under the National Environmental Policy Act
Page 13 or 14
',"-::--~.-"~---'-,-----".
" " .
-... -~
o
-, :.. , .
""', -,
, "' -'
(NEPA) wiI! be completed prio< 10 any commitment 0( federotl f~nds for !he site acquisition
or for subsidies for !he constr<lCliolL
STEPS FOf,J.OWlNG APPROYAL
Assuming that \be Council awroves the ex1enSion of the site option, 1hen staff and P ARC will
proceed with the fo!Iowing .. .eps 10 secure financing for the development,
\, Theeity will "PM 10 !he State lOr me maximum gratlto($! million in HOME
funds (deadline will be Sept 8th) for me SRO project.
2, Staff will work witlt P ARC to monitor the development 0( !he new La:< credit
plan and keep TCAC and oIller groups informed, regarding tl'.e City's coocerns
related 10 the SRO and low income housing development in Pal<> AJt.o,
3, Staff will return 10 Council in OctOOer after TCAC adopts a new Ia:< credit
alklcatioo plan, with recommendafuns on the exercise of the site option and
f.mding 0( me sire acquisition and !he dev<lopment of the project itself,
4, PARC will proceed with financing and subsidy app!icalions foe
• Bank financing through AHP program
• Ocher funding as availabie
• Tax credits in the next applicalion period (scheduled for December 11. 1995)
AJTACHMENTS
None; !he legal documents to eXleoo the option and 10 make lI'ioor cbanges 10 the
Developmeol Agreement and the Option and Purchase Agreement are in the Council' 5 packet
\Inder separate cover from the City Attorney,
cc: Palo Alto Housing Olrporalion
Planning Commission
Cbarles J, Keenan ill and Mo.';' T, Gates, Jr,
Independent BMW
Earl and Cye Ellison
University Park Association. clo V'l£ginia &; Don filion
Patricia I!z. Earl Sclunidt
Rose &: Bill Thoits
Palo Alto Plaza Homeowners Assn,
E,A,Maas
Bill McCann
CMJUOV~S
-. ~
Page 14 of 14