SR-414-003 (7)
'I / L( / 00 3
CC/~_2
AUG 9 1988
Santa Monica, California
.
C/ED:HSG:JG:wp
Redevelopment Agency Meeting: 8/9/88
City Council Meeting
TO: Chairperson and Redevelopment Agency
Mayor and City Council
FROM: city Staff
SUBJECT: Recommendation to (I) Adopt Resolutions Allocating
Funds to the Downtown, Ocean Park lea) and l(b)
Redevelopment proj eat Low and Moderate Income Housing
Trust Fund, (2) Approve Earnest Money Agreement with
Community Corporation of Santa Monica, and (3) Approve
Revised Program Guidelines for the City-wide Housing
Acquisition and Rehabilitation Program
INTRODUCTION
This report transmits for adoption resolutions allocating funds
to the Downtown, Ocean Park lea) and l(b) Redevelopment Project
Low and Moderate Income Housing Trust Fund for use in the
City-wide Housing Acquisition and Rehabilitation Program (CHARP)
as approved in the Fiscal Year 1988-89 Budget. Also transmitted
for approval are a standard Agreement for use of CHARP "earnest
money" funds by Community Corporation of Santa Monica and revised
Program Guidelines for the CHARP Program.
BACKGROUND
At the start of each fiscal year, in order to utilize the
redevelopment tax-increment funds appropriated for affordable
housing development, resolutions finding such activity to be of
benefit to the redevelopment projects must be adopted by the
Agency and the City Council.
In addition, it is necessary to
execute an Agreement with Community Corporation of Santa Monica
- 1 -
c CkA-2
AUG 9 198&
(CCSM) for the disbursal of $75,000 from CHARP for earnest money
deposits.
CHARP was created in 1983 to preserve and expand the stock of
affordable housing in Santa Monica. In Fiscal Year 1987-88 a
total of thirty-six (36) units were assisted with CHARP funds, at
an average per unit cost of $26,500.
The Agency adopted CHARP Program Guidelines in 1983, revising
them in November 1985 and September 1986 to account for changing
market conditions and to ensure the efficient implementation of
the Program. Further revisions of the Guidelines are necessary
at this time to allow flexibility in the use of Program funds in
conjunction with new Federal and state low income housing tax
credit programs.
DISCUSSION
Resolutions of Benefit
California Redevelopment Law allows local Redevelopment Agencies
to use tax-increment funds from a redevelopment project for
activities that will be of benefit to the project. Under the
provisions of this law, activities that will increase or improve
the supply of affordable housing for low and moderate income
households are considered to be of benefit to redevelopment
projects. The City Council must concur in finding the allocation
of funds for off-site housing to be of benefit to the
redevelopment project. In order to utilize the new redevelopment
tax-increment funds of $303,122 appropriated for CHARP in the
- 2 -
FY88-89 budget, the attached resolutions must be adopted by the
Redevelopment Agency and City Council.
Upon adoption of the attached resolutions, the Controller of the
Agency is responsible for placing the Housing Trust Funds in an
interest-bearing account.
Aqreement for "Earnest Money" Funds
In addition to adopting the resolutions, it is also necessary to
approve and execute an Agreement with COllmlunity Corporation of
Santa Monica (CCSM) for use of the $75,000 "Earnest Money"
component of CHARP.
These funds are used for deposits on
properties to be purchased for affordable housing projects, and
as a revolving fund for reimbursable development expenses of
projects which have received prior written approval from the
Agency, and which cannot be obtained on a contingency basis.
The "Earnest Money" Agreement is the standard grantee contract
form used in the community Development Program.
It is the same
Agreement used last year, and there will be no change in the
process of project review or approval authorization. The
Agreement includes all appropriate provisions of state law
applicable to redevelopment agency activities and the usual
Federal and City requirements including accounting procedures,
political activities, and equal employment opportunity.
...
Revision of Program Guidelines
The CHARP Program provides thirty-five (35) year deferred payment
loans to eligible borrowers for the acquisition, rehabilitation,
- 3 -
and/or new construction of affordable housing units for low and
moderate households in Santa Monica. A Requlatory Agreement
restricting the rent levels, occupancy, management, and
disposition of the assisted property is recorded to secure each
loan. The proposed revisions involve the following areas: (1)
the use of Program funds as "bridge loans" for affordable housing
developments being syndicated to generate equity capital, and (2)
the per unit loan amount ceiling. These revisions will not
affect any of the project review and approval processes currently
in place. In all other respects the Program guidelines would
remain unchanged.
1. Use of proqram Funds in syndicated Projects
To encourage and assist the development of affordable low income
housing throughout the country, the U. s. Congress created a
program of Federal low income housing tax credits as part of the
Tax Reform Act of 1986. The california legislature enacted an
equivalent program of state low income housing tax credits in
1987. These tax credits may be .1 syndicated, It or sold to limited
partner investors who contribute equity to the housing
developments in exchange for the tax credits. As other Federal
and state housing assistance programs have disappeared,
syndication of tax credits is increasingly being used across the
country to generate equity for affordable housing developments.
communi ty corporation of Santa Monica
with the California Equity Fund (CEF),
equity pool, to syndicate several of
(CCSM) has been working
a corporate tax credit
CCSM's current housing
- 4 -
developments. Sale of the tax credits will generate from
$200,000 to $500,000 in equity per project, directly reducing the
level of City assistance required to make the developments
feasible.
Limited partner equity is typically paid into a syndicated
project over the course of three to seven years as the limited
partners receive the tax credits they have purchased. This
creates the need in syndicated projects for Ubridge loans."
Bridge loans provide the funds required to complete the project
at escrow closing, and are repaid through equity contributions of
the limited partners. Bridge loans are available in the private
market, however they carry high interest rates which absorb a
significant portion of the equity generated through the
syndication.
The proposed revision to the Program Guidelines would make bridge
loans an eligible use of City-wide Housing Acquisition and
Rehabilitation Program funds. These loans would be repaid over a
period of ten years or less, and would bear simple interest at a
rate equal to the "passbook savings rate" established by the U.S.
Department of Housing and Urban Development (HUD), currently five
and one-half percent (5.5%). Projects receiving bridge loans
would be subject to the same requirements as projects receiving
deferred payment loans from CHARP. For projects receiving both a
bridge loan and a deferred payment loan from CHARP, the combined
total of the loans could not exceed the maximum loan amount
specified in the Program Guidelines.
- 5 -
Revising the Program Guidelines to allow the use of CHARP funds
for bridge loans will significantly increase the feasibility of
developing syndicated affordable housing in Santa Monica and will
further leverage scarce City funds by encouraging the syndication
of affordable housing developments.
2. Increase in Maximum Per Unit Loan Amount
The CHARP Program Guidelines specify a maximum project loan
amount of $35,000 per unit. The actual loan amount is based on
the lesser of either (1) the gap between total development costs
and the maximum private mortgage, or (2) the maximum per unit
loan amount. Staff is recommending that the maximum per unit
loan amount be increased to $45,000 at this time due to
escalating land and property costs in Santa Monica and the
decreasing availability of state and Federal housing subsidies.
Property acquisition typically makes up between thirty-five and
forty percent (35% and 40%) of total project cost in new
construction projects, and up to eighty percent (80%) in
acquisition and rehabilitation projects. Rising property costs
therefore significantly increase total development costs and the
level of city assistance necessary to make affordable housing
developments feasible.
As you know, land prices in Santa Monica have risen dramatically
in the past several years. For example, typical vacant land
prices in the pi co Neighborhood have risen from between $20 and
$25 per square foot as little as two years ago to between $30 and
$40 per square foot today, an increase of approximately fifty
- 6 -
percent in only two years. The cost of multifamily properties
suitable for acquisition and rehabilitation has undergone a
similar increase. Current listing prices of such properties
range from $58,333 to $101,500 per unit.
Affordable rents can only capitalize an average of $55,000 in
private debt financing per unit. Acquisition costs of $58,333 to
$101,500 per unit, when added to average rehabilitation costs of
$10,000 per unit, thus result in per unit financing gaps of
between $13,333 and $55,500.
Federal and state housing assistance programs previously
available to finance affordable housing development have been
sharply curtailed in recent years, and in some cases eliminated.
Tax-exempt financing at below-market interest rates, for example,
had been used widely for affordable housing development but is no
longer available. Thus, given dwindling outside resources and
rapidly escalating property costs, and in order to continue
financing affordable housing developments throughout the city,
and not just in areas where property prices are lowest, a maximum
per unit CHARP loan amount of $45,000 is recommended. Applicants
for CHARP loans will continue to be required to seek out
diminishing Federal and state financing resources and will be
assisted by City staff in doing so.
FINANCIAL/BUDGETARY IMPACTS
The Fiscal Year 1988-89 budget includes a total appropriation of
$500,000 for the City-wide Housing Acquisition and Rehabilitation
- 7 -
Program.
This appropriation is reflected in the following
accounts:
Funds Requiring Resolutions of Benefit
16-720-264-000-942
18-720-264-128-942
18-720-264-129-942
Downtown Fund
Ocean Park l(b) Fund
Ocean Park l(a) Fund
$102,649
$146,345
$54,128
$303,122
TOTAL
!unds Not Requiring Resolutions of Benefit
16-720-264-731-942
16-720-264-000-942
18-720-264-128-942
18-720-264-129-942
Vitale Gilpin Fund
Earnest Fund Repayment
Earnest Fund Repayment
Earnest Fund Repayment
TOTAL
$121,878
$37,500
$27,375
$10,125
$196,878
The adoption of the attached resolutions will have no additional
budgetary impact. The approval of the Agreement with CCSM will
result in the expenditure of $75,000 from the fOllowing accounts:
16-720-264-000-942
18-720-264-128-942
18-720-264-129-942
$37,500
$27,375
$10,125
RECOMMENDATIONS
It is recommended that the Redevelopment Agency:
(1) Adopt the attached Resolution of the Redevelopment
Agency of the City of Santa Monica allocating $102,649
into the Downtown Redevelopment Project to provide
funds for CHARP, and finding the provision of
affordable housing to be of benefit to the Downtown
Redevelopment Project.
- 8 -
(2) Adopt the attached Resolution of the Redevelopment
"'-
'JlL~'- .-
Agency of the city of Santa Monica allocating $54,128
into the Ocean Park Redevelopment project lea) to
provide funds for CHARP, and finding the provision of
affordable housing to be of benefit to the Ocean Park
Redevelopment Project lea).
(3) Adopt the attached Resolution of the Redevelopment
Agency of the city of Santa Monica allocating $146,345
into the Ocean Park Redevelopment Project l(b) to
provide funds for CHARP, and finding the provision of
affordable housing to be of benefit to the Ocean Park
Redevelopment Project l(b).
(4) Approve the attached Agreement by and between the
Redevelopment Agency of the City of Santa Monica and
Community Corporation of Santa Monica for $75,000 in
CHARP Earnest Money funds.
(5) Approve the revisions to the program Guidelines for the
city-wide Housing Acquisition
and
Rehabilitation
Program as discussed in this report.
It is recommended that the City Council:
(6) Adopt the attached Resolution of the city Council of
the City of Santa Monica finding the use of funds in
the Downtown Redevelopment Project Low and Moderate
Income Housing Trust Fund to be of benefi t to the
Downtown Redevelopment Project.
- 9 -
(7) Adopt the attached Resolution of the City Council of
the city of Santa Monica finding the use of funds in
the Ocean Park lea) Redevelopment Project Low and
Moderate Income Housing Trust Fund to be of benefit to
the Ocean Park lea) Redevelopment Project.
(8) Adopt the attached Resolution of the city council of
the city of Santa Monica finding the use of funds in
the Ocean Park l(b) Redevelopment Project Low and
Moderate Income Housing Trust Fund to be of benefit to
the Ocean Park l(b) Redevelopment Project.
Prepared by: Jack Gardner, senior Development Analyst
Candy Rupp, Housing Program Manager
Department of Community and Economic Development
;charprep
- 10 -