SR-900-002-01 (3)
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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).
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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.
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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.
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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
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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
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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,
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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.
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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
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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
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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:
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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
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