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SR-407-000-05 (11) to .{ DEe 9 1986 C/ED:HSG:AS:wp City Council: 12/9/86 ",~/ Santa Monica, California TO: City Council FROM: City Staff SUBJECT: Request for Approval of an Agreement with Santa Monica Hospital Medical Center, et.al., Concerning Partial Compliance with the Office Project Mitigation Requirements of Ordinance 1367(CCS) INTRODUCTION This report transmits information concerning the work undertaken by Santa Monica Hospital Medical Center (SMHMC) with Community Corporation of Santa Monica (CCSM) in providing affordable housing over the past eighteen months, for which the Hospital has requested credit against the in-lieu project mitigation fees due from the Hospital's Medical Office building. The report recommends that the City Council authorize the City Manager to negotiate and execute an Agreement providing these credits. BACKGROUND In April, 1985 Santa Monica Hospital Medical Center (SMHMC) and Community Corporation of Santa Monica (CCSM) applied to the Redevelopment Agency of the City of Santa Monica for financial assistance in developing affordable housing. At that time, SMHMC and CCSM had received a Removal Permit from the Rent Control Board allowing SMHMC to relocate three buildings at 1325, 1327, and 1331 16th Street to new sites in the city. SMHMC proposed to contribute the buildings and $280,000 in financial assistance to - 1 - 0-T DEe -- 9 1986 CCSM to relocate and rehabilitate the housing units. CCSM and SMHMC requested a deferred loan from the Citywide Housing Acquisition and Rehabilitation Program to assist in making the units more affordable to low income households, and in providing necessary interim financing for site acquisition. On May 14, 1986 the Redevelopment Agency authorized the Executive Director to make CHARP loans for the purchase of two properties, 2407 4th street and 1544 Berkeley, for this project. The Agency made a CHARP loan of $290,000 to CCSM to purchase the first property, 2407 4th street, in June, 1985. In July, 1985, shortly before the Agency was to make the loan for the purchase of the second property, SMHMC filed a request for an exemption from the Rent Control Board for the sixteenth street properties. In order to decide whether it was prudent to proceed with the purchase of the second property, City staff met with SMHMC and agreed to the following: 1. The City would make the interim loans for the purchase of the two properties. 2. SMHMC would donate the buildings to CCSM to be moved and rehabilitated. 3. SMHMC would cover the costs of archi tectural and engineering services reasonably necessary to rehabilitate the units, which were estimated at $24,000. 4. SMHMC would also provide a cash contribution of $200,000 to the project. 5. CCSM and SMHMC would work together to obtain other subsidy sources for the projects. 6. As part of the City's effort to assist SMHMC in recouping the cost of participating in this project, the cash value of the contributions of SMHMC towards the project, over and above the amount that would have been required by the terms of a Rent Control removal permit, if applicable, may be considered as a credit against the in-lieu fees - 2 - required by the Office Project Mitigation program. This provision was considered to be similiar to the interim agreements for payment of fees to non-profit developers that were used by other office developers required to comply with the Office Project Mitigation measures described in the Land Use Element. On September 12, 1985 SMHMC was granted an exemption from rent control for the sixteenth street properties. Therefore, SMHMC no longer had any obligation under the Rent Control Removal Permit terms to provide affordable replacement housing. CCSM and SMHMC continued to work on the projects, however, in anticipation of receiving credits against the in-lieu fees required by the Office Project Mitigation Program from the SMHMC Medical Office Building. DISCUSSION At this time, SMHMC, et. ale has requested City approval of an Agreement granting SMHMC certain credits towards the housing mitigation fees required to be paid by the Medical Office Building to be developed at 1245 16th Street. A draft of the proposed Agreement is attached. This medical office building will have 40,000 square feet of office space, and will therefore be required to pay a fee of $158,750. Ordinance 1367 (CCS) requires that 45% of the fee be paid to a housing reserve fund, 45% of the fee be paid to a parks reserve fund, and 10% be paid to a fund for either housing or parks. In this case, $71,437 is due to the housing and parks funds, and $15,875 is due to the fund for either housing or parks. The key components of this Agreement are outlined below. - 3 - (1) Credit for Costs Incurred by SMHMC SMHMC has incurred a total of $119,000 in architectural and engineering fees on the 4th street and Berkeley projects. SMHMC used an architectural firm that was under contract to the Hospital, Pacific Health Resources. While this exceeds the amount that CCSM would normally spend for architectural and engineering services, the projects did require some reconfiguration in order to meet current codes. Therefore, staff has recommended that SMHMC be reimbursed directly from CCSM for $40,000 in architectural work on the 4th street project, and that SMHMC receive a credit of $60,000 against the office mitigation fees due from the Medical Office Building for architectural work done on the Berkeley project. (2) Donation of Buildings SMHMC has agreed to donate the buildings if they are moved off the Sixteenth street sites by February 15, 1986. The project at 2407 4th street will start construction in December, and the contractor should be ready to move the building to the site when the subterranean parking structure is completed in early February. However, due to difficulties in negotiating with contractors, and in identifying financing and subsidy sources,CCSM estimates that it will not be able to start construction on the 1544 Berkeley project until late January, and the site will not be ready for the building to be moved until mid-March. Therefore, CCSM is working on a temporary relocation plan to store the building off-site until it can be moved. - 4 - (3) Payment of Remainder of Fees After receiving a credit of $60,000 for architectural fees on the Berkeley project, which will be credited towards the fees that would have been paid to the housing reserve fund, the Medical Office Building project will owe $98,750. $71,437 of this will be paid to the parks reserve fund; $11,437 of it will be paid to the housing reserve fund; and $15,876 will be paid to the housing or parks reserve fund. These fees will be paid according to the timelines specified in Ordinance 1367 (CCS). FINANCIAL / BUDGETARY IMPACT There are no financial or budgetary actions required by the recommendations in this report. RECOMMENDATION It is recommended that the City Council authorize the City Attorney and City Manager to negotiate and execute an Agreement granting credits towards the Office Mitigation Fees to Santa Monica Hospital Medical Center. Prepared By: Ann Sewill, Housing Program Manager Department of Community and Economic Development - 5 -