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SR-901-009-03 (3) {!(!,/~' 2-. JAN 1 3 1987 C/ED:HD:CR:wp Redevelopment Agency Meeting: 1/13/87 Santa Monica, California /;>' TO: Chairperson and Redevelopment Agency FROM: Redevelopment Agency Staff SUBJECT: Recommendation to Authorize the Execution of a Sales Agreement for the Sale of Redevelopment Agency Owned land at 2400 Fifth Street and 2207 sixth street to Community Corporation of Santa Monica INTRODUCTION This report transmits information and recommendations concerning the execution of a Sales Agreem~nt for the development of twelve (12) units of affordable rental housing to be executed by and between the Redevelopment Agency and Communi ty Corporation of Santa Monica (CCSM). The report recommends that the Redevelop- ment Agency hold a public hearing as required by California Re- development Law concerning the sale of land, and adopt the at- tached resolution approving the sale of land for the development of affordable housing. In addition, the report recommends that the Redevelopment Agency authorize the Executive Director to finalize and execute the Sales Agreement with the terms discussed herein and transfer the land to CCSM. BACKGROUND In April, 1983 the Redevelopment Agency approved a plan for the completion of the Ocean Park Redevelopment Project that included a requirement that the Agency construct fifty-five (55) units of affordable housing for low and moderate income - 1 - persons within d'C'J~,.~ :;AN '1 3 1987 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 12 project status, design, financing terms including the sales price of the land and the Agency contribution, and the major terms of the Sales Agreement. DISCUSSION Project Status CCSM has finalized the architectural work on the twelve (12) units to be developed at 2400 Fifth Street and 2207 sixth Street, entered into a construction contract with Salter Construction for the development of these units, and received a financing commit- ment from Wells Fargo Bank for construction and permanent financing. Project Design Each site will contain six units with twelve parking spaces. The unit mix includes four (4) one-bedroom units, four (4) two- bedroom units, three (3) three-bedroom units, and one (1) four- bedroom unit. The project architect is Koning, Eizenberg Archi- tects. The project elevations have been provided for Agency review. - 2 - 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 $530,311. This is the maximum mortgage for the development based upon the affordable rents re- quired by the Sales Agreement. Sales Price of Land The cost of acquiring the two sites was $332,656. 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 $1,327,008, and the maximum affordable mortgage is $530,311. The difference between the to- tal development cost and the maximum mortgage requires the con- tribution of $796,697 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 $464,041 in cash 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. This is within the budgeted amount for the Ocean Park Project. - 3 - 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 to the development of rental housing. The Agreement will include subordination language which is necessary 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 foreclosure, however if foreclosure does occur then the private lender would be released from the covenants and conditions on the land. The covenants and condi- tions and the subordination provisions in the Agreement are simi- lar to those executed with private developers on Redevelopment Agency projects such as Ocean Park Villas, and Barnard Park Vil- las. The major terms of the Agreement are discussed below. Rent Limits The rent limits were determined based upon the criteria approved by the Agency on September 10, 1985. CCSM will be required to provide eight (8) units at rents affordable to low income house- holds earning less than 80% of the median income, with six (6) of these units affordable to very low income households with Section 8 certificates. The remaining four (4) units will be provided at rents affordable to moderate income households earning between - 4 - 81% and 120% of the median income. The initial rent levels by bedroom size are detailed in Attachment 1 to this report. Occupancy Requirements California Redevelopment Law requires that the units be afford- able to households with incomes at or below 120% of the median. The Agreement requires that occupancy be restricted to eight households with low incomes and four households with moderate incomes, adjusted for family size. The Agreement stipulates that in addition to confirming that applicants are eligible when they first move in, CCSM must obtain information from the tenants each year to determine whether or not the household is eligible to continue to reside in the unit. If upon such confirmation it is determined that the income of a low income household has in- creased 20% above the low income range then the household will be required to pay the moderate income rent. Moderate income house- holds whose incomes 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. Tenant Selection Policy The tenant selection policy for the units sets forth preferences in renting units. In accordance with California Redevelopment - 5 - Law, persons displaced as a result of the Ocean Park Redevelop- ment Project have first priority in the occupancy of units. Ad- ditional preferences were established based on housing needs set forth in the City's Housing Element, as follows: 1) Persons who are residents, or who are employed full- time in Santa Monica, 2) Persons who are currently paying greater than thirty percent (30%) of their income for rent; and 3) Persons who are currently residing in substandard housing. These 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 fifty (50) years from the date of the receipt of the Certificate of Occupancy. At the end of the term the Agency has right to repurchase the land and improvements for $1.00. If the Agency chooses not to exercise this right the Developer may either pay to the Agency; (1) the fair market value of the land and improvements at it's highest and best use, or (2) the value of the land and improvements on the basis of the continued use as affordable rental housing, and execute a new deed restriction including covenants on occupancy and rent levels for a term of thirty (30) years. These options allow the Agency to determine the ultimate disposition of the property, and either allow for the continued ownership and opera- tion by CCSM as affordable housing, or to recoup the Agency's original investment. - 6 - 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 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 FY 1986-87 budget. The total Agency cash contribution to this part of the project is $464,041. To date the Agency has expended $90,683.42 for approved predevelopment costs for the Ocean Park 12. The actions recommended in this report will require the dis- bursal of an additional $373,357.58. Funds are available in the following account numbers: 18-720-263-128-905 18-720-263-129-905 18-720-264-128-905 TOTAL: $162,856 $ 62,103 $148,398.58 $373,357.58 RECOMMENDATIONS It is recommended that the Redevelopment Agency: 1. Open a public hearing and hear public comment on the sale of land to Community Corporation of Santa Monica for the - 7 - development of affordable rental housing, and close public hearing. 2. Adopt the attached resolution authorizing the sale of land at 2400 Fifth street and 2207 sixth street to Community Corpora- tion of Santa Monica for the development of affordable rental 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 $373,357.58 in Agency funds appropriated for the Ocean Park Replacement Housing Project. Prepared by: Candy Rupp, Development Analyst Housing Division Department of Community & Economic Development Attachments: 1. Rent Schedule 2. Notice regarding Public Hearing 3. Resolution authorizing the sale of land 4. Agreement for Sale of Land for Development of Housing - 8 - ATTACHMENT 1: INITIAL RENT SCHEDULE # OF UNITS SIZE BY BD INITIAL RENT LOW/MOD 4 1 Bedroom $463* low income 2 2 Bedroom $574 low income 2 2 Bedroom $861 mod. income 1 3 Bedroom $655* low income 2 3 Bedroom $983 mod. income 1 4 Bedroom $740* low income *Rent at or below the BUD Fair Market Rent for Section 8 Existing Housing Payments Program - 9 -