SR-11-B (28)
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OCT 9 1990
C/ED: HSG: NW: DA: (LINCASH\PROPERTY)
Council Meeting: October 9, 1990
Santa Monica 1 Calif.
TO: Mayor and city council
FROM: City Staff
SUBJECT: Recommendation to Approve the Purchase of
2827 Lincoln/827 Ashland Avenue with Citywide Housing
Trust Fund Dollars and to Enter into Related Agreements.
(Lincoln/Ashland Project)
INTRODUCTION
This report presents recommendations regarding a mixed-use project
to be developed by Community Corporation of Santa Monica (nCCSM") at
2827 Lincoln Boulevard/827 Ashland Avenue ("Project"). The report
recommends that the city Council: 1) approve a one-time waiver of
the Citywide Housing Trust Fund program guidelines to enable the
ci ty to use the funds directly for property acquisition; 2)
authorize the City Manager to enter into interim loan agreements
with the State of California and McDonalds Corporation to acquire
the site;
3) authorize the City Manager to negotiate and enter
into a Property Disposition Agreement with CCSM for the development
of 45 units of affordable housing and 10,000 square feet of
commercial space;
and 4) authorize the City Manager to proceed
with all actions necessary to draw Citywide Housing Trust Fund
monies and close on the site acquisition.
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BACKGROUND
The Citywide Housing Trust Fund ("Program") guidelines, adopted
March 27, 1989, allow loans to be made to nonprofit developers of
affordable housing. Program guidelines require City Council
approval of any project which will receive a Program loan in excess
of $2,000,000. On December 12, 1989, the City council approved the
Lincoln/Ashland project and authorized staff to proceed with
processing a loan commitment of $2,700,000.
The site consists of a 65,000 square foot parcel located at the
northeast corner of Lincoln Boulevard and Ashland Avenue in the
Sunset Park neighborhood. It is currently owned by McDonalds
corporation. The project will consist of 14 one-bedroom units, 16
two-bedroom units, 14 three-bedroom units and one four-bedroom
unit. This project provides affordable housing to families with
children by addressing the critical shortage of three-bedroom units
in the city.
PROGRESS TO DATE
Significant progress has been made by CCSM on the development and
financial aspects of the proposal. Killefer Flammang Purtill
Architects have been retained for design services. The plans are
being reviewed by the Planning Division, and an EIR consultant has
been retained. A construction contractor has been hired and has
begun working with the architect on project specifications.
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CCSM has submitted all of the appropriate financing applicatlons
necessary for this project. Firm commitments have been received
from a private lender for the residential development, from the
state and from the city. The reservation of tax credits, which
will draw in the private equity dollars through tax credit
syndication, will not be committed until November. The commercial
bank loan is currently being negotiated. All of the financing
commitments are expected to be received by January 1991, with
funding to occur by June of 1991. Construction will commence in
June 1991 and be completed by June 1992.
LAND ACQUISITION
CCSM entered into escrow with McOonalds Corporation in October 1989
with an anticipated closing date of October 1990. McDonalds is not
able to extend escrow beyond the October deadline. Financing for
land acquisition will be as follows:
Citywide Housing Trust Fund
state of California Predevelopment Loan
McDonalds Corooration
Total Land/Closing Costs
$ 2,690,000
$ 920,000
$ 300,000
$ 3,910,000
Permanent funds will be available in June 1991. In order to
acquire the land now, CCSM has secured a predevelopment loan from
the state, and McDonalds has agreed to carry a junior lien until
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permanent funds are available. The City has also agreed to provide
funds for land acquisition on an interim basis. The City's total
interim investment is within the limit of the Council previous
approval. The City loan to the project will ultimately be reduced
to approximately $1.4 million ($31,000 per unit) when permanent
loans are funded.
LOAN SECURITY
The City's primary objective is to ensure the development of 45
units of affordable housing. To meet this objective, the City
cannot take a subordinate lien position. A junior lien position
jeopardizes the City's ability to reasonably protect its affordable
housing funds and to control the progress of the development
because the city is not in a position of being able to compel the
developer to take specific actions. Normally, the City does take
junior lien positions, but only when projects are ready to start
construction and permanent financing has already been committed.
The predevelopment loan from the state represents the largest sum
of money that they have ever loaned to a single project. Because
of the size of their loan, they, too, are unwilling to take a
subordinate lien position.
To resolve the issue of loan security, City staff and CCSM are
proposing that the City purchase the property directly, using
ci tywide Housing Trust Funds as equity, and enter into a loan
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agreement along with CCSM as co-borrower for the state loan.
This solution enables the state to maintain a first lien position,
and gives the City control in the form of site ownership. This
interim structure will remain in effect until the permanent
financing sources are in place (June 1991). At that time, the
City's investment will be converted to a loan, and will be reduced
to it's permanent loan amount (approximately $1.4 million).
The City staff also recommends that the City enter into a Property
Disposition Agreement with CCSM. This enables CCSM to demonstrate
to its lenders that they still retain site control, and sets forth
the process by which the land title will be transferred to CCSM
once specific development conditions have been met. The Land
Disposition Agreement enhances the City's ability to ensure that
the objective of developing affordable housing is met. The
Agreement provides that the City will replace CCSM with a
substitute developer in the event that CCSM does not perform as
anticipated. This solution provides all parties (CCSM, the state,
McDonalds and the City) with what they need in order to accomplish
site acquisition in October.
FINANCIAL/BUDGETARY IMPACT
No financial or budgetary action is required at this time. The
proposed Project is eligible for funding under Citywide Housing
Trust Fund Program guidelines; a Program loan was approved on
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December 12, 1989. The City Council has previously appropriated
$4.4 million for expenditure pursuant to Program guidelines.
RECOMMENDATIONS
It is recommended that the City council:
1. Approve a one-time waiver of the citywide Housing Trust
Fund program guidelines for the Lincoln/Ashland project to
enable the City to use the funds directly for property
acquisition.
2. Authorize the city Manager to negotiate and enter into a loan
agreement and other documents, as required, with McDonalds
Corporation and with the state of California. CCSM will
execute the same loan documents as co-borrower.
3. Authorize the City Manager to negotiate and enter into a
Property Disposition Agreement, along the lines outlined in
this report with CCSM to develop 45 units of affordable housing
and related commercial space.
4. Authorize the City Manager to proceed with necessary action to
draw Citywide Housing Trust Fund monies for this purpose.
Prepared by: Nancy West, Housing Program Manager
Denise Altay, Senior Development Analyst
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