SR-407-000-03 (6)
RM:Housing:BM:TR:housing/share/word/staffreports/SB637AGENCYFindings.doc
Agency Meeting: December 17, 2002 Santa Monica, California
TO: Chairperson and Redevelopment Agency Members
From: Agency Staff
Subject: Adoption of Resolution Authorizing Executive Director to Make Findings
Concerning Use of Commercial and/or Private Financing for Affordable
Housing Developments Funded by Agency
Introduction
This report recommends that the Redevelopment Agency adopt a resolution authorizing the
Executive Director to approve findings concerning attempts to obtain commercial and/or
private financing for projects involving new construction or substantial rehabilitation in
which redevelopment project area housing set aside funds (“Housing Funds”) will exceed
50% of the cost of producing the units.
Background
Effective January 1, 2002, Assembly Bill 637 set forth new requirements concerning the
use of redevelopment funds for affordable housing involving new construction or substantial
rehabilitation. In particular, Section 33334.3(j) of the amended Health and Safety Code
requires that where Housing Funds will exceed 50% of the cost of producing affordable
units, the Agency must find, based on substantial evidence, that the use of Housing Funds
is necessary because the Agency or the owner has made a good faith attempt but has
been unable to secure commercial or private means of financing the same level of
affordability and quantity. The purpose of this requirement is to maximize use of outside
financing—otherwise known as “leveraging”.
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Discussion
Leveraging of private financing (i.e., conventional bank loans) for affordable housing
projects has been a common practice of the Agency. Of the 21 Agency loans issued during
the last five years, 17 (81 %) included conventional bank financing. The average amount
of conventional debt on these projects was approximately $360,000. Commercial
financing comprised an average 12% of the cost of developing these projects.
Generally, it is not possible to achieve higher levels of commercial financing in affordable
housing projects in Santa Monica due to the combination of high development costs and
limited rental income. Rents are limited for purposes of targeting low- and very low-income
households. Some projects lack sufficient rental income to qualify for any commercial
financing. In general, banks are reluctant to provide financing for a project unless the
project can support a mortgage of more than $100,000 to $150,000. Whether or not
projects are able to secure commercial financing, it is extremely unlikely that any project
would ever have sufficient rental income to support commercial financing anywhere near
50% of the cost of producing the units.
For this reason, staff anticipates that virtually all projects involving new construction or
substantial rehabilitation and receiving Housing Funds will be subject to the findings
requirements of Section 33334.3(j) of the Health and Safety Code. Due to the frequency of
such projects, staff recommends that the Agency authorize the Executive Director to make
findings on behalf of the Agency. By delegating approval of these findings to the Executive
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Director, staff will also be able to make financial commitments to allow the acquisition of
properties that have abbreviated escrow timeframes due to the competitive real estate
market.
The proposed Resolution shall expire on December 31, 2003. The Resolution shall require
that reports be provided to the Agency on a project-by-project basis documenting
compliance with Health and Safety Code Section 33334.3(j). Staff also intends to present
this information in summary form to the Agency at the end of each year as part of the
Redevelopment Agency Annual Report. A summary of findings to be made by the
Executive Director for each project meeting the criteria set forth in Section 33334.3(j) is
attached to the resolution.
Budget/Financial Impact
The recommendation will not have budgetary or financial impacts.
Recommendations
It is recommended that the Agency adopt the attached resolution authorizing the Executive
Director to make the findings required by Section 33334.3(j) of the Health and Safety Code.
Prepared by: Jeff Mathieu, Director Resource Management Dept.
Bob Moncrief, Housing Manager
Tina Rodriguez, Redevelopment Administrator
Tad Read, Housing Administrator
Attachment: A – Resolution
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