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SR-900-002-01 (3) (!~i~A -:J.. MAY 2 6 1987 C/ED:HD:CR:wp City Council Meeting Redevelopment Agency Meeting: 5/26/87 Santa Monica, California TO: Mayor and City Council Chairperson and Redevelopment Agency FROM: City staff SUBJECT: Recommendation to Authorize the Execution of a Sales Agreement for the Sale of Redevelopment Agency Owned Land to community Corporation of Santa Monica, and Authorization to Execute the U.S. Department of Hous- ing and Urban Development Housing Development Grant Agreement INTRODUCTION This report transmits information and recommendations concerning the execution of a Sales Agreement for the development of forty- three (43) units of affordable cooperative housing to be executed by and between the Redevelopment Agency and community Corporation of Santa Monica (CCSM). The report recommends that the Re- development Agency hold a public hearing as required by Califor- nia Redevelopment Law concerning the sale of land, and adopt the attached resolution approving the sale of land for the develop- ment of affordable housing. The report recommends that the Re- development Agency authorize the Executive Director to finalize and execute the Sales Agreement with the terms discussed herein and transfer the land to CCSM. In addition, the report recom- mends that the City Council authorize the City Manager to execute the Housing Development Grant Agreement with the U.S. Department of Housing and Urban Development (HUD). - 1 - M//lII- :2. MAY 26 198,7 BACKGROUND In April, 1983 the Redevelopment Agency approved a plan for the completion of the Ocean Park Redevelopment proj ect including a requirement that the Agency construct fifty-five (55) units of affordable housing for low and moderate income persons within the Ocean Park area. On September 10, 1985 the Redevelopment Agency established development criteria for the replacement hous- ing and designated CCSM as the developer. At that time the Agen- cy designated forty-three (43) of the units to be developed as a limited equity cooperative, on the sites at Highland, Pier, Ash- land, and Marine; and the remaining twelve (12) units to be de- veloped as rental units, on the sites at Fifth and Sixth streets. The following discusses the Ocean Park 43 project status, design, financing terms including the sales price of the land and the Agency contribution, the major terms of the Sales Agreement, and the HUD Housing Development Grant Agreement. DISCUSSION Project Status CCSM has finalized the architectural work on the forty-three (43) units to be developed at 642 Marine Street, 3005 Highland Avenue, 518-20 Pier Avenue, 536 Ashland, and 504 Ashland Street. CCSM has entered into a construction contract with Alpha Construction for the development of these units, and received a financing com- mitment from Wells Fargo Bank for construction and permanent financing. - 2 - Project Design The sites will be developed as follows: 518 Pier - 15 units, 3005 Highland - 10 units, 536 Ashland - 8 units, 504 Ashland - 6 units, and 642 Marine - 4 units. The unit mix includes fifteen (15) one-bedroom units, fourteen (14) two-bedroom units, thirteen (13) three-bedroom units, and one (1) four-bedroom unit. The project architect is Appleton and Associates Architects. The project elevations have been provided for Agency review. Project Financing Private Financing Terms: CCSM has secured a financing commitment from Wells Fargo Bank for a first trust deed, graduated payment mortgage with a thirty (30) year term in the amount of $2,070,000. This is the maximum mortgage for the development based upon the affordable rents required by the Sales Agreement. HUD - Housing Development Grant Financing Terms: On July 8, 1986 the City Council authorized staff to submit an application for a Housing Development Grant (HDG) from HUD for the Ocean Park 43. On September 24, 1986 the City was notified that a HDG in the amount of $778,603 had been awarded to the City of Santa Monica for the Ocean Park 43. These funds are to be provided to CCSM as a second trust deed deferred payment, residual receipts loan. - 3 - Sales Price of Land The cost of acquiring the five sites was $1,163,491. The sales price of the land was established based upon the difference between the total development costs of the project and the maxi- mum affordable mortgage available to the proj ect. The total development costs of the project are $5,586,010, and the maximum affordable mortgage is $2,070,000. The difference between the total development cost and the maximum mortgage requires the con- tribution of $3,516,010 to the project. Thus, in order to make the provision of affordable rental housing feasible, the Agency must sell the land at a price of one dollar ($1. 00) and con- tribute $1,573,916 in Agency funds to the project. The Redevelopment Agency appropriated $3.5 million for the development of the Ocean Park Fifty-Five units, or approximately $63,636 per unit. A total of $796,697 was provided to the Ocean Park 12 rental units, leaving a total of $2,703,303 to be allo- cated to the payment of the development costs of the Ocean Park 43. These funds are sufficient with the HDG to make the Ocean Park 43 project feasible. Terms of the Sales Agreement The Sales Agreement details the disposition and development re- quirements of the land. The Sales Agreement contains the condi- tions and covenants regarding the use of the land and the opera- tion of the improvements by the developer as required in exchange for the Agency's writedown of the land and contribution of funds - 4 - to the development of cooperative housing. The Agreement is similar to the agreement approved for the Ocean Park 12 component of the Ocean Park Replacement Housing Project. The Agreement will include subordination language which is neces- sary in order to obtain the private lender financing to leverage Agency funds. The Agency will have the option to cure any mortgage default by the Developer in order to prevent foreclo- sure, however if foreclosure does occur then the private lender would be released from the covenants and conditions on the land. The covenants and conditions and the subordination provisions in the Agreement are similar to those executed with private developers on Redevelopment Agency proj ects such as Ocean Park Villas, and Barnard Park Villas. The major terms of the Agree- ment are discussed below. Limited Equity Cooperative In establishing the development criteria for the Ocean Park Fifty-Five units, a portion of the units were set aside for development as a limited equity cooperative. The Agreement re- quires that CCSM provide the technical assistance and on-going training as required by the residents of the property in order to establish a limited equity cooperative. During the initial years of the project, CCSM will remain the borrower and responsible party for compliance with the covenants in the Agreements. CCSM - 5 - will enter into a Lease Agreement with the cooperative which pro- vides the cooperative with control over the administration, man- agement, and maintenance of the property, and allows for the cooperative to obtain title to the property after ten (10) years. Rent Limits California Redevelopment Law requires that the units be afford- able to households with incomes at or below 120% of the median. The rent limits were determined based upon the criteria approved by the Agency on September 10, 1985 and the HOD HDG rent require- ments. The HOD HDG Program regulations require that twenty per- cent (20%) of the units in the development be affordable to very low income households. CCSM will be required to provide ten (10) units at rents affordable to very low income households earning less than 50% of the median income, eighteen (18) units at rents affordable to low income households earning between 51% and 80% of the median income, and remaining fifteen (15) units will be provided at rents affordable to moderate income households earn- ing between 81% and 120% of the median income. Occupancy Requirements The Agreement requires that occupancy be restricted to ten house- holds with very low incomes, eighteen households with low in- comes, and fifteen households with moderate incomes, adjusted for family size. The Agreement stipulates that in addition to con- firming that applicants are eligible when they first move in, - 6 - CCSM must obtain information from the tenants each year to deter- mine whether or not the household is eligible to continue to re- side in the unit. If upon such confirmation it is determined that the income of a low income household has increased 20% above the low income range then the household will be required to pay the moderate income rent. Moderate income households whose in- comes rise above the moderate income range will be notified of such determination, and given ninety days to vacate the unit. This procedure is consistent with the practice in federal or state-assisted housing projects and is recommended to ensure that the Agency's funds benefit low and moderate income tenants over the life of the development. In addition, the HUD HDG regula- tions require that at all times at least twenty percent (20%) of the units are occupied by very low income households. Thus, CCSM must retain the proportion of very low income units at all times. Cooperative Membership Shares Each household selected for occupancy in the property will be required to purchase a cooperative membership share. The share price will equal two times the unit rent. The appreciation on the value of the share will be limited to ten percent (10%) sim- ple interest per annum, in accordance with the legislation describing limited equity cooperatives as detailed in California Health and Safety Code section 33007.5. This level of apprecia- tion provides sufficient incentive for investment in the coopera- tive, while ensuring the continued affordability of membership shares in future years. - 7 - Selection Policy The selection policy for the units sets forth preferences in renting units in accordance with California Redevelopment Law, and the HUD HDG Program regulations. Persons displaced as a result of the Ocean Park Redevelopment project will have first priority in the occupancy of units. Preferences will be given to Santa Monica residents, (including persons who work full-time in Santa Monica as defined by HUD regulations). The nature of tenure requires households to be able and interested in par- ticipating in a limited equity cooperative and the Agreement re- quires that a selection committee containing experts in coopera- tive formation and management be utilized. Persons displaced as a result of the Ellis Act will be given preference in consider- ation, however they must meet all other occupancy criteria, in- cluding ability to participate in a limited equity cooperative. The preferences will be applied after the household has met the occupancy requirements regarding income as detailed above. Reversion of the Land The term of the Agreement has been set at forty (40) years from the date the land is transferred to CCSM. This Agreement is similar to the Ocean Park 12 Agreement but provides for an addi- tional disposition option, due to the establishment of a limited equity cooperative, and the necessity for the cooperative to have the opportunity to own the property. The Agreement provides that if the Cooperative holds title to the property at the end of the term of the Agreement, then the Cooperative may continue to hold - 8 - title and pay to the Agency the maximum affordable mortgage and record a deed restriction on the property which requires that the property remain as affordable housing. If, however, at the end of the term the Cooperative has not ob- tained ownership to the property, then the Agency has the right to repurchase the land and improvements for $1.00. If the Agency chooses not to exercise this right, the Developer may pay to the Agency the value of the land and improvements on the basis of the continued use as affordable rental housing, and execute a deed restriction including covenants on occupancy and rent levels. As the city council directed on the Ocean Park 12 Agreement, the Agreement also requires that if the Agency does purchase the property it must be used for the purposes of affordable housing. Housing Development Grant Agreement The Housing Development Grant Program requires the execution of a Grant Agreement between the city and HUD. The Agreement details the responsibilities of the City in monitoring the use of the funds and the on-going management and maintenance of the property in accordance with HUD regulations. The term of the Agreement is twenty years. Agency Requirements for Sale Prior to the sale of any property acquired with tax increment funds the Agency must hold a public hearing and adopt a resolu- tion authorizing the sale of the land to the developer. A notice - 9 - was published in the Evening Outlook, indicating that the Re- development Agency will hold a public hearing on this item prior to acting on the staff recommendation. FINANCIAL/BUDGETARY IMPACTS Funds for the Ocean Park Replacement Housing Project were ini- tially appropriated in FY 1984-85 and have been reappropriated in the FY 1986-87 budget. The total Agency cash contribution to this part of the project is $1,573,916. To date the Agency has expended $291,471.25 for approved predevelopment costs for the Ocean Park 43. The actions recommended in this report will re- quire the disbursal of an additional $1,282,444.75. Funds are available in the following account numbers: TOTAL: $1,000,000.00 $ 121,663.00 $ 110,803.17 $ 49,978.58 $1,282,444.75 16-720-264-000-905 18-720-264-535-905 18-720-263-535-905 18-720-264-129-905 Also it is necessary for the city Council to appropriate $778,603 for the Ocean Park 43 project and to establish a revenue and ex- penditure account for the $778,603 HDG Grant, as follows: Revenue Account No. 20-932-302-000-000 Expenditure Account No. 20-720-264-326-905 RECOMMENDATIONS It is recommended that the Redevelopment Agency: - 10 - 1. Conduct a public hearing and hear public comment on the sale of land to Community corporation of Santa Monica for the development of affordable cooperative housing. 2. Adopt the attached resolution authorizing the sale of land at 642 Marine Street, 3005 Highland Avenue, 518 pier Avenue, 536 Ashland, and 504 Ashland to Community corporation of Santa Monica for the development of affordable cooperative housing. 3. Authorize the Executive Director to negotiate and execute the Agreement for Sale of Land for Development of Housing which shall include the provisions detailed in this report, and disburse up to $1,282,444.75 in Agency funds appropriated for the Ocean Park Replacement Housing Project. It is recommended that the City Council: 1. Authorize the City Manager to finalize and execute the HUD Housing Development Grant Agreement and any other documents required by HUD for receipt of the Housing Development Grant. 2. Appropriate the HOD Housing Development Grant of $778,603 and establish revenue and expenditure accounts as detailed in this report. Prepared by: Candy Rupp, Acting Housing Program Manager Housing Division Department of Community & Economic Development Attachments: 1. Notice regarding Public Hearing 2. Resolution authorizing the sale of land - 11 -