SR-407-003-24~
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~ ~;tYo, C~ty Counc~l Report
Santa Monica
City Council Meeting: July 11, 2006
Agenda Item: g-~
To: Mayor and City Council
Chairperson and Redevelopment Agency
From: Jeff Mathieu, Director, Resource Management Department
Subject: Housing Trust Fund Loan for Proposed Twenty-Two Unit
Affordable Housing Development Located at 2211 4th Street
Recommended Action
It is recommended that the City Council and the Redevelopment Agency:
1) approve a housing trust fund loan to the Community Corporation of Santa Monica
in an amount not to exceed $6,782,455 for the acquisition, general rehabilitation,
and remediation of a twenty-two unit affordable housing development located at
2211 4th Street; and
2) authorize the City Manager and Executive Director to negotiate and execute all
documents necessary to provide this funding.
Executive Summary
The Community Corporation of Santa Monica (CCSM) has applied for Housing Trust
Fund financing for $6,782,455 to acquire, rehabilitate, and remediate an existing twenty-
two unit apartment building located at 2211 4th Street. Typically, such financing is
approved administratively pursuant to the Housing Trust Fund Guidelines (Guidelines)
adopted by the City Council and the Redevelopment Agency (Agency). However, due
to escalating real estate prices and construction costs, the amount of the proposed
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financing exceeds the existing per unit financing limits ($144,000 for one-bedroom units;
$168,000 for two- and three-bedroom units) established in the Guidelines; therefore,
Council/Agency approval is required. The units wili be affordable to fow income
households (60% of area median income) for a period of at least 55 years. Current
maximum eligible incomes for the one and two-bedroom units in this building will range
from approximately $33,000 to $37,000, and current maximum rents will range from
approximately $674 to $759.
Discussion
The City's current Housing Element and Consolidated Plan have identified low- income
households in Santa Monica for priority assistance. The acquisition of the existing
apartment building will be restricted to low-income households.
The property is located at the corner of Pacific and Fourth Streets. It consists of a two-
story building over subterranean parking. The structure was built in 1972 and has 22
units of which two are two-bedroom, and twenty are one-bedroom units. The property
also contains a laundry room and 34 parking spaces.
The rehabilitation and remediation of the property involves exterior and interior
improvements. The exterior work includes a new roof, light fixtures, railings, and
windows, stuccoing the building, and landscape improvements. The interior work
includes gas wall heaters, carpeting and vinyl flooring, plumbing and light fixtures,
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painting the unit interiors, and lead and asbestos removal as needed. The cost of this
work is estimated at $1,099,226.
The purchase price of the property is $5,025,000. A City-commissioned appraisal of the
property was completed in May 2006 and estimated the market value of the property at
$5,050,000. The total development cost of acquiring and improving the property is
estimated at $6,782,455 or $308,293 per unit. In addition to the purchase price and
estimated cost of the rehabilitation work, this total cost includes expenses for
environmental consultants, architects, a developer fee, permit fees, temporary
relocation, and contingency funds. The projected net income for the property is
insufficient to finance a bank loan.
Table 1 summarizes the sources and uses of the proposed financing. An outline of the
acquisition, rehabilitation, and remediation budget is included in this report as
Attachment A.
Table 1
Total Estimated Development Costs
Acquisition [with closing costs] $5,045,100
Rehabilitation and Remediation $ 1,099,226
Other Development Costs $638,129
TOTAL: $ 6,782,455
Total EEstimated Fundins~ Source
Redevelopment Housing Trust Fund - loan $ 6,782,455
TOTAL: $ 6,782,455
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The terms of the proposed financing are provided in Attachment B. These terms require
that the units are restricted as affordable housing for at least 55 years, with an option to
continue the restrictions for an additional 25 years (cumulative total of 80 years) in
exchange for loan forgiveness. Loan payments are made from net income after paying
all of the operating expenses and funding the replacement reserve account. The source
of the financing is the Redevelopment Housing Trust Fund, which receives tax
increment revenue from the City's redevelopment project areas. The proposed
financing will be in the form of a forgivable loan. At the end of the loan term (55 or 80
years), the City will have the option to take title to the property.
Environmental Analvsis
The acquisition and proposed rehabilitation of the existing property at 2211 4th Street is
categorically exempt from the California Environmental Quality Act (CEQA) pursuant to
Section 15301 of the CEQA guidelines regarding rehabilitation of existing housing..
Budqet/Financial Impact
The housing trust fund loan amount to be awarded to Community Corporation of Santa
Monica is not to exceed $6,782,455. Funds are available in the following accounts:
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H 15004907.589000.17900
Tc
$6,086,878
L• $ 6,782,455
After committing funds to the 2211 and 2900 4th street projects the remaining balance of
Housing Trust Funds would be approximately $4,600,000.
Prepared by:
Bob Moncrief, Housing Manager
Approved:
su( C~-irector,
Management Department
~mo~ft Ewell
Manager
ATTACHMENTS: A- Acquisition, Rehabilitation, and Remediation Budget
B - Loan Term Details
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Forwarded to Council:
ATTACHMENT A
ACQUISITION, REHABILITATION, & REMEDIATION BUDGET
PROJECT NAME 2211 4th Street
STREET ADDRESS 2211 4th Street
CITY Santa Monica
# of Units: 22
Square Footaqe of Buildinq 18,530
TOTAL
COSTS $/UNIT
ACQUISITION
Land & Building 5,025,000 228,409
Closing Costs 20,1 00 941
SUBTOTAL: ACQUISITION 5,045,100 229,323
HARD COSTS
Rehabilitation & Remediation 1,099,226 49,965
SUBTOTAL: HARD COSTS 1,099,226 49,965
SOFT COSTS
Architecture , Engineering, & Technical Assistance 9,400 427
Other Soft Costs 396,700 18,032
SUBTOTAL: SOFT COSTS 406,100 18,459
Hard & Soft Contingency 232,028 10,547
SUBTOTAL: CONTINGENCY 232,028 10,574
TOTAL DEVELOPMENT COSTS 6,782,455 308,293
ATTACHMENT B
Housing Trust Fund Loan Terms
Amount $6,782,455
Interest Rate Equal to Federal Home Loan Mortgage
Corporation rate for 30-year fixed-rate loan
Term 55-years; a 25-year extension is permitted if the
Regulatory Agreement is similarly extended
Security Promissory Note, Deed of Trust, and Regulatory
Agreement
Affordability Eligible households will be low income (60% of
median income)
Payments made annually from 50% of "residual
receipts" [net income from operation of the
Repayment property]; If loan term and Regulatory Agreement
are extended 25 years, and the property is
satisfactorily operated for that period, any loan
balance is forgiven.
The loan may be prepaid in whole or in part at any
Prepayment time without penalty, but all covenants will remain
in effect for at least 55 years.
Resale of Not allowed without prior written approval of the
Property City/Redevelopment Agency during the term of
the Regulatory Agreement.
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