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SR-9-A (54)RMD:JM:PB:MS:quake\loanpro2.itm Council Meeting: September 20, 1994 To: Mayor and City Council From: City Staff 3 ~ i 1 ~~ 1 Santa Monica, California SEP 2 D 1~`~ 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. _ SEP Z D ~9~ ~ ~ ~~~ 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. 2 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. 3 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 4 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 5 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 6 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 7 • 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 8 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 9