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SR-6J (24) (g~r F \HOUSING\SHARE\WPFILES\STAFFRPnCBDG 1 wpd MAY 2 6 1998 Council Meeting May 26, 1998 Santa Monica, California To Mayor and City Council From City Staff Subject Recommendation to Increase Construction/Permanent Financing forthe 708 PICO Project and Authonze the One-TIme Modification of Various Housing Trust Fund GUidelines INTRODUCTION ThiS report recommends an Increase m City financing for the 708 PICO Boulevard housing development The City has previously committed $1,999,000 to thiS MERL new construction project Staff recommends Increasmg the commitment by $1,300,000 for a total City subSidy of $3,299,000 Multiple City funding sources Will be used together through the modificatIon of various housing trust fund gUldelmes The proposed $1,300,000 Increase consIsts of $500,000 from MERL, $579,000 from PNHTF, and $221,000 from TORCA Construction Fund In the event suffiCient CDBG funds are allocated to the City-Wide Fund In the FY 98-99 budget allocation, staff recommends that the TORCA funds be replaced WIth the City-Wide CDBG funds BACKGROUND The shortage of affordable housing has become Increasingly cntlcalln Santa MOnica Not only have thousands of Units been lost as a result of the January 1994 Northndge earthquake, but hundreds of units have been Withdrawn from the rental housing market by -1- (,-J MAY 2 6 198 - -~ landlords In accordance with the Ellis Act Currently, It IS estimated that 9,633 (or 29 per- cent) of the City's total renter-households are paYing more than they can afford for housing per the City's FY 1995 - 2000 Consolidated Plan Availability of units continues to be a problem with over 2,400 overcrowded households reported In the Consolidated Plan Waiting lists maintained by the City's Housing Authority and Commumty Corporatron of Santa MOnica (CCSM) further reflect tremendous demand for housing In Santa MOnica As of December, 1997 the Housmg Authority listed more than 900 applicants for Section 8 assistance CCSM currently maintains a waiting list of about 1,000 indiVIduals Development of the proposed project Will add to the City's affordable hOUSing stock at a time of slgmflcant need Project Description The subject property IS a 20-unlt, large family, new construction project which IS located at 708 PICO Boulevard The vacant project site IS currently owned by Commumty Corporation of Santa MOnica (CCSM) which Intends to both develop and manage the proposed project The project Will conSist of a 4-story, 19,600 square foot structure contalmng 20 rental apartments The bUlldmg Will be Type V wood frame construction, over a concrete subterranean parking garage There Will be 34 parkmg spaces A combmatlon of wood trellises and stepped back third and fourth floors Will prOVide architectural articulation The bUilding Will Include ten two-bedroom Units and ten three-bedroom Units All Units are -2- accessible to disabled tenants A community room Will be located at the front of the bUilding and a tot lot on the west Side of the bUilding The project compiles with all applicable zomng reqUirements Two public meetmgs were held In June 1996 DesIgn changes were subsequently made to accommodate recommendations made by neIghbors to the south of the site such as 1) stepping back the fourth floor by about 5 feet, 2) setting back the bUlldmg footprint by about 2 feet, 3) adding mature trees as a privacy buffer between the project and neighbor's pool/tenms areas, and 4) fencing west Side of the property to limIt access onto Side street Architectural Review Board approval was received m October 1996 and Coastal CommIssion approval was received In December 1996 The City made a loan to CCSM In January 1997 to acqUire the site and commence predeveloment activIties ($812,012) and committed additional proceeds toward construction (aggregate commitment of$1 ,999,000 for both acqulsltron and construction) However, CCSM has been unable to raise outSIde funding to fIll the $1,300,000 finanCing gap With Increasing competition for tax credits, allocations are far more difficult to obtain Applications submitted dUring the last two tax credit rounds (March 1997, February 1998) have been unsuccessful In the meantime, CCSM development approvals Will expire Within the next SIX months unless additIonal finanCing IS secured -3- DISCUSSION Fundmg of the financing gap of $1,300,000, with the City's regular and earthquake emergency Commumty Development Slock Grant (CDBG), will promote timely project development, wIll minimize costs, and will help the City achIeve Its CDBG disbursement objectives Fortunately, moving forward to 'fully fund' the project now does not dlsquahfy CCSM from applYing for and receiving a tax credit allocation In future competitive rounds Should CCSM receive an allocation, approXimately $1,900,000 In City funds will be returned to the City as program Income to be reused The $1 ,300,000 flnancmg gap will be funded as follows (1) MERL Emergency Earthquake Supplemental COSG - $500,000, (2) Regular CDBG - $579,000 (PNHTF), and (3) TORCA Construction Fund - $221,000 WIth regard to earthquake funds, thiS commitment and expenditure will assist the City to meet ItS federal expenditure deadhne of February 28, 2000 Earthquake funds Will be drawn from MERL projects that have receIved commitments but have now opted out of the MERL program With reg a rd to reg u la r CDBG, the City IS In the process of accelerating ItS commitment and expenditure of available funds to conform to Department of HOUSing and Urban Development (HUD) regulations In the event suffiCIent City-Wide CDBG funds are available, the TORCA Construction funds Will be replaced To allow the above funding sources to be used together, various trust fund modifications are requested These modifIcations are summarized below - One-time waiver of the MERL per project funding cap of $2 million dollars; -4- - One -time waiver of the PNHTF geographic restriction whIch limits projects to within the PIca neighborhood, - One-tIme waiver of PNHTF loan terms to bnng this funding source Into conformity with the MERL Column J II GUidelines, - Approval to use TORCA Construction Funds under the MERL Column III GUidelines, and - Approval to use City-Wide COBG Funds under the MERL Column III GUidelines PROJECT FUNDING Use of Funds Estimated development costs and per unit cost information IS summarized below In the event CCSM IS successful In obtaining tax credits, the tax credit Investor Will reduce the City subSidy from approximately $165,OOO/umt to about $70,OOO/umt Total Estimated Development Costs Cost/Umt Land $ 517,362 $ 25,868 Construction $2,472,500 $ 123,625 Soft Costs $ 618,218 $ 30,911 Total $3,608,080 $ 180,404 Aggregate CIty CommItment (Current and Proposed) $3,299,000 SubSidy/Unit $ 165,000 Estimated City Commitment (After Tax Credit Pay m) $1,400,000 SubSidy/Unit $ 70,000 -5- - - - - ---- --- -- Source of Funds Financing sources are summarized for both a non-tax credit and tax credit transactIon In the event tax credits are obtained, the Investor eqUity pay In IS estimated at approximately $2,000,000 Nearly all these proceeds Will be used to pay down the City loan to about $1,400,000 Sources Without Tax Credit AllocatIon Construction Period Permanent Bank $0 $228,080 AHP (A) $0 $81,000 City $3,299,000 $3,299,000 Deferred Costs $3,299,000 $3,608,080 Sources With Tax Credit Allocation Construction Period Permanent Bank $0 $187,000 AHP (A) $0 $81,000 City $3,299,000 $1,400,000 Tax Credit Equity $2.000,000 Total $3,299,000 $3,668,000 (A) Affordable Housing Program (AHP) forgivable grant awarded by the Federal Home Loan Bank February 1997 -6- ------ - BUDGET/FINANCIAL IMPACT SufficIent funds are available to fund the $1,300,000 Increase as follows, $500,000 from MERL COSG Emergency Earthquake Recovery funds from Account Number 19-700-695- 00000-4481-00000, $579,000 from the PNHTF which consists of $227,089 from Account Number 19-720-264-20094-8905-99047 and $351,911 from Account Number 19-720-264- 20095-8905-99047, and $221,000 from the TORCAAccount Number 14-720-264-20096- 8905-99377 In the event suffiCient COSG funds are allocated to the City-Wide COSG Fund In the FY 98-99 budget, TORCA funds Will be replaced Therefore, there Will be no financial or budgetary impacts RECOMMENDA liONS It IS recommended that the City Council Increase construction financing by $1 ,300,000 for the 708 PICO Boulevard housmg development through (1) Approval of a one-time waIver of the MERL per project funding cap of $2 million dollars such that an additional $500,000 can be allocated to the proJect, (2) Approval of a one-time waiver of the PNHTF geographic restnctlon such that an additional $800,000 can be allocated to the proJect, (3) Approval of a one-time waiver of PNHTF loan terms to bnng thiS funding source Into conformity With the MERL Column III GUidelines, key loan terms to be waived Include Interest rate, loan term, and payment deferral penod, -7- (4) Approval to use Tenant Ownership Rights Charter Amendment (TORCA) Construction Funds under the MERL Column III GUidelines such that an additional $221,000 can be allocated to the proJect, and (5) Approval to use City-Wide COSG Funds under the MERL Column III GUidelines such that the $221,000 of TORCA ConstructIon Funds can be replaced (In the event COSG funds are allocated In the FY 98-99 budget allocation) Prepared by Jeff Mathieu, Director of Resource Management Bob Moncrief, Housing Manager Tina Rodriguez, MERL Program Coordinator Ellen Alderman Com IS, Senior Administrative Analyst -8-