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SR-400-001-03 (23) . L/Pc-OO/--t:/3 ~-A JUN 1 !t 1988 Santa Monica, California . \ CA:RMM:11427/hpc city council Meeting 6-14-88 STAFF REPORT I TO: Mayor and City Council City Attorney Ordinance Adding Chapter 4B to Article IX of the Santa Monica Municipal Code Implementing Program 10 of the Housing Element FROM: SUBJECT: This staff report transmits to the City council an ordinance adding Chapter 4B to Article IX of the Santa Monica Municipal Code relating to Program 10 of the Housing Element. At its March 2, 1988 meeting, Community and Economic Development Department staff presented an "Outline of Program 10 Components" to the Planning Commission for consideration. The Planning Commission unanimously approved the recommendation of staff with two changes. The changes included adding a definition of "single room occupancy unit" and allowing a developer to build required replacement units off-site if he or she had received a "Category D" removal permit from the Rent Control Board which would so permit. On April 21, 1988, the Housing Commission considered the "Outline of Program 10 Components" incorporating the Planning commission's changes. The Housing commission unanimously approved the Community and Economic Development Department's recommendation. ~-~ JUtl \ ~ \9&& - 1 - . . The accompanying ordinance incorporates the components previously reviewed and approved by both the Planning commission and the Housing Commission with one exception. The ordinance provides that a developer may elect to pay an in-lieu in all circumstances, whereas the planning commission and Housing Commission recommended that this option be available only in limited circumstances. This change has been made because of legal concerns of the City Attorney's office. The ordinance establishes an in-lieu fee amount as recommended by the Community and Economic Development Department. The purpose of establishing an in-lieu fee option under program 10 is to provide an alternative to on-site replacement of mUltifamily residential units which are removed from the residential housing market. Since the goal of Program 10 is to maintain the supply of multifamily housing, the amount of the fee must be sufficient to enable the City to accomplish the development of these units. Thus, the determination of the appropriate fee level required an analysis of the level of equity required to develop new multifamily rental housing in Santa Monica and therefore assumed the leveraging of private debt financing and developer equity. Community and Economic Development staff determined that a per unit fee was more desireable than a fee based upon square footage. Such a fee would be both easier to administer and easier for a property owner to calculate. In determining a reasonable in-lieu fee for Program 10, staff relied upon the data contained in the Rotin Regan & Mouchly ("KRM") study commissioned by the City for the Program 12 fee analysis. The - 2 - . . KRM study established construction costs, land costs, market rents, and operating costs in order to determine reasonable estimates of development costs for multifamily units in the city. In addition, staff used KRM's analysis of typical developer equity contributions in order to determine the availability of reasonable private equity funds. Staff then surveyed available conventional financing instruments to analyze the amount of private debt capital which could be secured based upon market rents. Only fixed-rate instruments were examined as the use of variable rate instruments would not be consistent with the intended use of the in-lieu fees to be collected. The difference between the total development costs by unit type and the amount of private equity and debt available by unit type constitutes the additional equity which is required to develop replacement housing units, and thus is reflected in the amount of the in-lieu fee established by the proposed ordinance. SECTION-BY-SECTION ANALYSIS The following is a section-by-section analysis of the proposed ordinance: Section 9440. This Section sets forth the findings and purpose of the proposed ordinance. Section 9441. This section sets forth the definitions of words and phrases used in the proposed ordinance. Section 9442. This Section provides that the replacement housing requirements outlined in the ordinance apply to all projects as conditions of project approval where the demolition or conversion of multifamily residential units is involved. - 3 - . . Section 9443. This section sets forth the project replacement requirements, which include: 1. One-for-one replacement of multifamily residential dwelling units with mUltifamily residential units of like housing tenure for any project involving the removal of such units. 2. on-site development of replacement units with the exception of "Category D" removal permitted projects which authorize off-site replacelllent and situations where the Zoning Ordinance would prohibit or legal requirements would preclude such on-site development, in which case off-site development is acceptable. 3. Replacement units must be comparable in size and amenities to units being replaced. 4. Program 12 of the Housing Element and implementing ordinance adopted pursuant thereto apply replacement units required under this Chapter. 5. A Replacement Plan is required to be submitted to Director of Planning containing certain specified information no less than sixty days prior to the proposed removal of any existing multifamily residential project. 6. Prior to receipt of a demolition permit or building permit for the new project, a developer must obtain a building permit for the replacement units and provide the City with a security instrument in an amount equal to the value of the replacement housing units. These requirements may be waived if the structure on the property has to be demolished due to Health and Safety Code violations, in which case the developer must any to - 4 - . . agree to the recordation of a deed restriction on the subj ect site. Section 9444. This section provides an in-lieu fee option that developers may choose instead of providing replacement units. These fees are based on the numher and size of the units to be removed, and will be adjusted for inflation by the percentage change in the Consumer Price Index between the date of adoption of this ordinance through the month in which payment is made. At least fifty percent of the fee is to be paid prior to issuance of a demolition permit on the subject site, with the balance of the fee due in full prior to the issuance of a certificate of Occupancy for the development on the site or one year from the date of demolition, whichever is first. All fees are required to be secured by an executed of a letter of credit in favor of the City for the remaining amount of the obligation. All payments made pursuant to this Section will be deposited in a Reserve Account separate from the General Fund and will be used only for development of low and moderate income multifamily housing. section 9445. This Section provides that multifamily residential dwelling units developed pursuant to the replacement requirements of the Santa Monica Rent Control Board will count toward the satisfaction of the requirements of this Ordinance if they otherwise meet the Replacement Plan requirements of this Ordinance. Section 9446. This section provides that the provisions of this Ordinance are not intended to supersede any other local ordinances and regulations. - 5 - . . RECOMMENDATION It is respectfully reco~mended that the accompanying ordinance be introduced for first reading. PREPARED BY: Robert M. Myers, city Attorney Laurie Lieberman, Deputy City Attorney - 6 - . . CA:RMM:11426/hpc city Council Meeting 6-14-88 Santa Monica, California ORDINANCE NUMBER (City council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA ADDING CHAPTER 4B TO ARTICLE IX OF THE SANTA MONICA MUNICIPAL CODE IMPLEMENTING PROGRAM 10 OF THE HOUSING ELEMENT THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES ORDAIN AS FOLLOWS: SECTION 1. Chapter 48 is added to Article IX of the Santa Monica Municipal Code to read as follows: CHAPTER 4B. REPLACEMENT HOUSING PROGRAM. SECTION 9440. Pindings and Purpose. The city council finds and declares: (a) In recent years, there has been a significant shift in multifamily residential development from construction of apartments to development of condominiums both by new construction and by conversion. (b) The City of Santa Monica has experienced a significant reduction in the n~~her of multifamily residential dwelling - 1 - . . units due to demolition and conversion from residential to commercial use. (c) The vast majority of multifamily residential units removed from the housing lnarket due to demolition or conversion to commercial use are low and moderate income residential housing units. (d) The demolition and conversion of multifamily residential dwelling units has altered the historic housing stock balance and has contributed to the scarcity of affordable housing in the city. (e) program 10 of the Housing Element of the General Plan of the city of santa Monica adopted on January 25, 1983, provides for a replacement housing program where removal of existing multifamily residential dwelling units occurs in order to preserve and maintain the City's overall housing stock. ( f) Pursuant to the pol ice power, the City has the authority to address both the housing imbalance created by the removal of existing multifamily residential dwelling units and the overall need for housing in the city. - 2 - . . (q) The purpose of this Chapter is to reduce the neqative impact on affordable multifamily housing caused by new commercial and new residential development which requires demolition of existing multifamily housing and by conversion of mul tifamily housing to commercial use. (h) New commercial and new residential development which requires demolition of existing multifamily housing units is qenerating a reduction in the city's overall housing stock, and more particularly a reduction in the city's affordable housing stock, and contributes to the imbalance between jobs and affordable housing in the city. (i) Conversion of rental housing to commercial use is generating a reduction in the City's affordable housing stock and contributes to the imbalance between jobs and affordable housing in the city. (j) The ci ty has a continuing need for low and moderate income housing, and such need is exacerbated by the demolition and conversion of such housing by new developments and commercial conversions. - 3 - . . (k) The Preliminary Draft 1988 Regional Housing Needs Assessment published by the Southern California Association of Governments indicates that there is a continuing need in the City for low and moderate income housing. (1) Any in-lieu fees collected pursuant to this Chapter shall be used only to finance low and moderate income housing units. (m) The replacement requirements of this Chapter will serve to stabilize the overall stock of multifamily residential housing units in the City and thereby provide greater opportunities for low and moderate income households to secure housing in the city. (n) The facts and evidence presented in the Housing Element of the General Plan establish that there is a reasonable relationship between the need for the replacement of low and moderate income housing which is removed either by demolition or conversion and the replacement requirements or in-lieu fee established by this Chapter, and also that there is a reasonable relationship between the use of the in-lieu fee, where - 4 - . . applicable, and the type of development for which the fee is charged. (0) The in-lieu fees required by this Chapter will not exceed the reasonable costs of constructing replacement units. SECTION 9441. Definitions. The following words or phrases as used in this Chapter shall have the following meanings: (a) In-Lieu Fee. A fee paid to the City by a developer subject to this Chapter in-lieu of providing the required replacement housing units. (b) Market-Rate Unit. A dwelling unit which is not subject to the rental regulations of Program 12 of the Housing Element or the Rent Control Law. (c) Multifamily Residential Dwell- inq unit. One or more rooms designed, occupied, or intended for occupancy as separate living quarters for the exclusive use of a single household in a single structure containing two (2) or more units. (d) struction Off-site Development. Con- of multifamily residential - 5 - . . dwelling units on a site other than the site on which units are to be removed. (e) Removal. The demolition, conversion to other use, or other removal of multifamily residential dwelling units from the multifamily residential housing market. (f) Replacement Plan. describing the replacement family residential dwelling required under this Chapter. (q) Single Room Occupancy Housinq Unit. A housing unit which is contained within a residential hotel, rooming house, hotel, or motel where the unit does not contain either private food preparation or sanitary facilities. A plan of multi- un! ts as SECTION 9442. Applicability. As a condition of approval of a project which involves removal of multifamily residential dwelling units, a developer is required to replace all existing multifamily residential dwelling units on the project site in the manner required by this Chapter. - 6 - . . SECTION 9443 . proj ect Replacement Requirements. (a) One-for-one replacement of mUltifamily residential dwelling units with multifamily residential dwelling units of the same housing tenure type as the units removed shall be required as a condition of approval of any project which involves the removal of multifamily residential dwelling units. (b) Replacement units developed on-site unless one following circumstances exist: ( l) The Rent Control Board grants a "Category on removal permit which expressly allows off-site development, in which case so long as the off-site location is in the same neighborhood as the 8i te from which the mul tifamily residential units are to be removed, replacement requirements may be satisfied by off-site development. (2) The Zoning Ordinance prohibits the replacement of all or a portion of the new mUltifamily residential uses on the property. shall of be the - 7 - . . (3) Legal requirements prohibit the replacement of all or a portion of the multifamily residential units on-site. If the circumstances set forth in either subsection (b) (2) or subsection (b) (3) of this Section apply, the requirements of this Chapter shall be satisfied by off-site development that complies with all other requirements of this Chapter. The burden of establishing that the circumstances set forth in subsection (b) (1), (b) (2), or (b) (3) exist shall be on the project applicant. (c) Replacement units shall be comparable in size and shall provide amenities comparable to the multifamily residential units which are to be removed. (d) Replacement units shall be subject to the requirements of Program 12 of the Housing Element and any ordinance implementing Program 12. (e) A Replacement Plan shall be submi tted to the Director of Planning by any developer seeking to remove existing multifamily dwelling units and must contain the following: - 8 - . . (1) Identification of site for development of replacement uni ts and proof of site control. (2) Description of proposed replacement units, e.g., size of units and n~mhers of units. (3) Schedule for construc- tion, and estimated completion and occupancy date for replacement units. (4) Such other information as the City may require. The Replacement Plan must be submitted for review and approval no less than sixty (60) days prior to the proposed removal of any existing multifamily residential project. Prior to receipt of a demolition permit or building permit for the proposed new project, a developer must obtain a building permit for the replacement housing units and provide to the City a security instrument in a form acceptable to the City in an amount equal to the value of the replacement housing units as determined by the Building Department. (f) In the event that demolition of a property as a public nuisance is permitted in accordance with Municipal - 9 - . . Code section 9123, the requirement for submi tta1 of a Replacement Plan and receipt of a Building Permit may be temporarily waived on the condition that the developer agrees to the recordation of a deed restriction on the subject site. The deed restriction shall run with the land and shall require compliance with the replacement requirements of this Chapter prior to the development of any permitted use on the subject site. SECTION 9444. In-Lieu Fees. ea) In lieu of complying with section 9443, the replacement housing requirements of this Chapter may be satisfied by payment of a fee to the City in the amount required by this section, in which event section 9443 shall not apply. (b) The amount of fee required pursuant to this Section shall be based on the number and the size of the units to be removed and not replaced as follows: - 10 - . . 0 Bedroom or Single Room Occupancy unit $20,000 per unit 1 Bedroom $30,000 per unit 2 Bedrooms $37,000 per unit 3 Bedrooms $44,000 per unit 4 or More Bedrooms $51,000 per unit (c) Any fee required pursuant to this Section shall be adjusted for inflation by the percentage change in the Consumer Price Index {nCPI"} between the date of adoption of this Chapter through the month in which payment is made. For purposes of this Section, CPI shall mean the index for Urban Wage Earners and Clerical Workers for the Los Angeles/Long Beach/Anaheim statistical area, as published by the United states Department of Labor, Bureau of Labor Statistics. {d} At least fifty percent (Sot) of the total fee required pursuant to this section shall be paid prior to the issuance of a demolition permit or a building permit for any development on the subject site. The balance of the fee shall be paid in full prior to the issuance of a Certificate of Occupancy for any development on the subject site, or - 11 - . . one year from the date of demolition, whichever is first. (e) Any fee required by this Section shall be secured by execution and delivery to the City of an irrevocable letter of credit or other form of security acceptable to the city in favor of the City for the remaining amount of the obligation. The letter of credit or other acceptable security shall be delivered to the City prior to the issuance of a building permit for any demolition or development on the subject site. (f) Any payment made pursuant to this section shall be deposited in a Reserve Account separate from the General Fund to be used only for development of low and moderate income housinq. Any interest income earned by monies in such account shall be expended only for development of low and moderate income housing. SECTION 9445. Relation to Replacement units Required by Rent Control Board. Mul tifamily residential dwelling units developed pursuant to replacement requirements of the Santa Monica Rent - 12 - . . Control Board shall count toward satisfaction of this Chapter if otherwise meet the Replacement requirements described herein. the they Plan SECTION 9446. Applicability of other City Ordinances and Regulations. None of the provisions in this Chapter are intended to supersede any provision of the Ci ty Charter, ordinances, regulations, or resolutions concerninq demolition of residential housing, relocation of displaced tenants, rent control removal requirements, or inclusionary housing requirements applicable to multifamily residential projects. SECTION 2. Any provision of the Municipal Code or appendices thereto inconsistent with the provisions of this Ordinance, to the extent of such inconsistencies and no further, is hereby repealed or modified to that extent necessary to effect the provisions of this Ordinance. SECTION 3. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance, and each and - 13 - . . every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional, without regard to whether any portion of this Ordinance would be subsequently declared invalid or unconstitutional. SECTION 4. The Mayor shall sign and the City Clerk shall attest to the passage of this Ordinance. The City Clerk shall cause the same to be published once in the official newspaper within 15 days after its adoption. This Ordinance shall become effective 30 days from its adoption. APPROVED AS TO FORM: f1..ti,4 /.on.. ~r"--. ROBERT M. MYERS {j City Attorney - 14 -