SR-9-A (54)RMD:JM:PB:MS:quake\loanpro2.itm
Council Meeting: September 20, 1994
To: Mayor and City Council
From: City Staff
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Santa Monica, California
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Subject: Recommendations regarding Establishment of the
Multifami.ly Earthquake Repair Loan Program
Introduction
This report provides information regarding establishment of the
Multifamily Earthquake Repair Laan Program, a federal~y funded
prflgram to assist in repair af mu~tifamily rental housing damaged
by the Northridge-Reseda Earthquake, and ~ecommends that City
Caunci3:
(1) Approve the attached loan program Guidelines and Procedures,
and
(2) Authorize staff to develop and issue a Notice of Fund
Availability announcing the availability of such funds,
receive applications for such funds and make commitments
pursuant to these guidelines.
(3) Allocate funds for program loans, technical assistance, and
administrative purpases.
BACRGRDUND
On April 4, 1g94, the City received an allocation af $2,027,000
in federal HOME funds under the Emergency Supplemental
Appropriations Act of 199~, and on August 23, 1994 an additional
allocatian of $b,351.,000 from the Presidential Contingency Fund.
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Both allocations will be used to assist in repairing damage
caused by the Nor~hridge-Reseda Earthquake.
These funds may be used for activities that are eligible under
the regular HOME Program, including acquisition, construction,
reconstruction, and rehabilitation of hausing. In order to
facilitate rec~tery efforts, the U.S. Department af Housing and
Urban Develvpment waived many of the statutory and r~gulatory
requirements that normally apply to the HOME Program.
However, HUD also provided additional requirements, including a
requirement that prohibited use of these disaster relief funds
for activities rei~bursable by the Federal Emerqency Management
Agency (FEMA) or available through tha Small Business
Administration (SBA). In ard~r to be eligible for funding under
the Presidential Contingency Funds, properties must also be
located in census tracts in which at least 100 units of
multifamily hausing were damaged by the earthquake.
Staff was guided in the overall de~elopment of the program by
several objectives: 1} to target funds to uninhabitable units in
arder to return displaced tenants to the com~munity as quickly as
possible; 2j to reduce rent increase pass-throuqhs for lower
income tenants, and 3) to replac~ the affordab~e housing stock
lost in the earthquake.
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DISCIISSION
Staff r~commends that Supplemental HOME funds and Presidential
Contingency Homes Funds be utilized for three purposes:
1} $7,546,504 (90~) for direct iaans under this program;
2) $638,800 (7.6~) for administration of the Mult~family
Earthquake Repair Loan Program; and
3) $202,700 {2.4~) for provision of technical assistance
ta owners and purchasers of earthquake damaged
properties to assist in working with other lenders and
leveraging additional funds.
Staff recommends that loans be made utilizing the Program
G~ideZines and Procedures provided as Attachment A. In
deveiaping the guidelines and procedures, staff re~ied heavi~y ~n
the City of Los Angeles Housing Department's earthquake
experience and programs, but adapted these programs to meet the
unique needs of the city of Santa Monica. Participants in the
development of the guidelines inciuded representatives from
Planning and Cflmmunity De~elapment Department, City Attorney's
Office, City Manager's Office, Resource Management Department,
and Rent Cflntral Board Staff. Staff also reviewed information
provided by the Sma~l Business Administration regarding declined
loan appiicatians, and petitions for rent increases submitted to
the Rent Contral Board for sample red and yellow tagged
multifami~y rental housing.
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Staff distributed a draft of the guidelines to the Housing
Commission, Planning Commission, Rent Control Board, and other
interested parties. Comments received regarding the draft
guidelines and the staff ~esponse to these comments are
summarized in Attachment B. An example of how the Standard Loan
program might be used ta repair a damaged apartment building is
provided in Attachment C.
SU~II~ARY OF PROGRAM GUIDELINES
Staff is proposing ~.oan terms designed to make the program
accessible to a wide variety of projects, under two program
camponents, the Standard Loan Proqram and the Deeper
AffordabiZ3ty Laan Program. Pragram req~irements for these
components differ in several respects, inc~uding eligible uses,
maximum loan amounts, ~epayment requirements, and affordability
requirements.
•Eligible Properties
Eligible Properties would consist of multifamily rental housing
(with at least'two units) with ye~low ar red tagged units located
in the City of Santa Manica. Praperties must have applied for an
SBA loan and received a dispasition letter, indicating approval
or disapproval.
•Eliqible Uses
Program loans may be used to pay for costs f~r which funds are
not available from FEMA, SBA, earthquake insurance~ or ather
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sources. Funds may be used for repair of earthquake damage and
related costs. For Deeper Affordability Loans, refinancing af
existing debt, acquisition, and reconstruction of housing
demolished as a result of the earthquake will be allowed.
+ Magimum Loan amount
For Standard Loans, the proposed maximum loan amount is $25,000
per unit. For Deeper Affordability Loans, the maximum loan
amount is $~a,ooa per unit for an SR4 or ane bedraom unit,
$70,000 per unit ~or a two bedraom unit, and $80,000 per unit far
a three or more bedroom unit.
• Interest Rate
As long as the project is in good standing, no intarest will be
charged. Upon an event of default, however, intErest shall
accrue at a rate af 2~ abo~e the prime rate per annum, simple
interest.
• Paymeats
In arder to assist property owners to complete repairs, re-rent
their properties, wark ~ut any ]~ender forbearance, and otherwise
recover economically from the earthquake, no payments will be due
far a period of two years. For Standard Loans, beginning in year
three, however, payments wi~l b~ due with the balance of the loan
amartized over the remaining 28 years of a 30 year loan term.
For Deeper Affardabiiity Loans, if the project cannot afford ta
amortize the loan, payments may be deferred and made on a
residual receipts basis.
• occuga~ncy
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As provided in the Cit~'s Earthquake Recovery Act, farmer tenants
shall be given priority to reoccupy units damaged by the
earthquake. Under the HOME regulatians, all units assisted with
HOME funds must be occupied by households earning less than 80~
of inedian coun~y income. For Deeper Affordability Loans,
returning households must earn less than 80~ of inedzan incame
and new hauseholds must earn no more than 50~ of inedian county
inco~e. Incomes shall be determined at time af initial occupancy
of the tenant household after campletion of repairs.
Tn addition, owners of projects assisted with Presidential
Contingency Funds must provide preference for occupancy to
tenants formerly residing in buildings damaged by the earthquake.
• Rent restrictions
For Standard Loans, rents may nat exceed 3flg of the income of a
household earning no mare than 80~ of inedian income. For Deeper
Affordability Laans, rents may not exceed 30~ of the monthly
income of a household earning na more than 50~ af inedian income.
~n addition, rents may not exceed the Maximum Allowable Rent
allawed by the Rent Contro~ Board, including any rent increase
approved under a Q-Petition filed with the Rent Control Board ~or
earthquake repair wark nat funded by this program. Far Standard
Loans, rent pass-throughs for earthquake work funded by this
pragram may not exceed the eligible cost of the work, amartized
over a 30 year period. FQr D~eper Affordability Loans, rent
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pass-throughs for earthquake work funded by this pragram will not
be a~lawed.
• Restriatioa period
The Ioan restrictions will apply for the term of the loan for
Standard Loans, and for 55 years far Deeper Affordability Loans.
The r~strictions sha1~ be recorded against the property and sh~ll
remain in forcE and effect regardless of whether the loan is
prepaid for Deeper Affordability L~ans. For Standard Loans,
restrictions will remain in effect for a minimum of 15 years.
• ~aqe requirements
Properties where HOME funds are used to assist 12 ar more ~nits
must comply with requirements of the Davis-Bacon Act regarding
payment of wages. Because compliance with this requirement may
add substantial costs to the project, where projects remain in
good standing for a two year period, the City will f~rgive
fifteen percent (15$) of the portion of the loan amount utilized
for construction at the end of the two year period.
• Priorities
In allocating funds, the City shall consider the fol~owing
priorities:
* Ability to leverage other funds
• Cost per unit
• Historic significance
• Number of affordable units propased
• Speed of implementatiQn
• Use of funds for rehabilitation
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• Buildings with high accupancy rates before the
earthquake.
FINANCIAL/HIIDGETARY IMPACTS
See Exhibit 1 far Financia]./Budgetary impacts.
RBCOMMENDATIONS
It is recommended that the City Cauncil:
(1) Approve the attached loan program Guidelines and Procedures,
{2) Authoriza staff ta develop and issue a Notice af Fund
Availability announcing the availability af such funds,
receive app~icatians for such funds and make commitments
pursuant to these guidelines;
(3) Apprave the additianal positions and budget changes as set
forth in Exhibit ~;
Prepared by: Jeff Mathieu, Directar~ Resaurce Management
Paula Burrier, Manager, Housing and Redevelopment
Mike Strader, ~enior Administrative Analyst
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Exhibit 1
FINANCIAL/HUDGETARY IMPACTB
To implement this $8,388,000 program, the ~ollawing budget increases are
necessary:
Revenues
$2,027,000 from Emergency Supplemental Appropriations Act af 1994 at
account number 20-620-264-00000-0320-10000
6,3~~.,aoa from Presidential Contingency Funds at aecount number ZO-620-
264-OOOa0-0326-104Q0
$8,388,OOU
Expenditures
A. Emergency Supplemental Appropriations Act of 1994
$1,670,248 far program loans at account number 20-700-695-00000-4461-00000
202,700 for technical assistance at account number 2Q-700-695-00000-
4462-OOD00
154,052 for administration casts at account number 2D-700-695-00000-
44b3-00000
$2,027,000 Total
B, Presidential Contigency Funds
$5,875,252 for program loans at account number 20-700-695-OOd00-4471-00040
484,748 for administration costs at accaunt number Zo-~aa-~695-00000-
4473-00000
$6,361,000 Total
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