SR-407-003-16
F:RMDShare\Airports\STAFFREPORTS2004\HOUSINGLOANINCREASES.DOC
Council Meeting: October 12, 2004 Santa Monica, California
To: Mayor and City Council
Chairperson and Redevelopment Agency
From: City Staff
Subject: Housing Trust Fund Loan Increases for Affordable Housing Developments
Located at 2601 Santa Monica Boulevard and 1424 Broadway
INTRODUCTION
This report recommends increases in the amounts of City and Redevelopment Agency
Housing Trust Fund loans for two affordable housing developments sponsored by the
Community Corporation of Santa Monica (CCSM). The developments are located at
2601-2615 Santa Monica Boulevard and 1424 Broadway, and the recommended loan
increases are $750,000 and $850,000 respectively. The loan increases are necessary
due to sudden and unforeseen increases in construction costs reflected in competitive
construction bids recently obtained by CCSM for each development.
Approval of the recommended increases will bring the Housing Trust Fund loan
amounts to $6,150,000 for 2601 Santa Monica Boulevard, and $6,250,000 for 1424
Broadway. Approval of the increases will also permit construction to begin in November
2004, thereby avoiding the forfeiture of more than $16.4 million in private financing that
is now pledged to the developments.
BACKGROUND
CCSM has received all necessary entitlements for the identified two new multifamily
rental developments and CCSM is ready to begin construction in November 2004. The
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development at 2601 Santa Monica Boulevard will contain forty-four units, and the
development at 1424 Broadway will contain forty-one units. Both developments
address a critical shortage of affordable housing by offering two-bedroom and three-
bedroom units for extremely low, very low, and low income families (thirty percent, fifty
percent, and sixty percent of area median income, respectively).
The City’s current Housing Element and Consolidated Plan have both identified low
income and large family households as special needs populations. The completion of
these two developments will assist the City in meeting its Housing Element (Quantified
Objectives) and Affordable Housing Production Program goals for the construction of
new affordable housing.
To date, the City and the Redevelopment Agency (Agency) have jointly committed $5.4
million of Housing Trust Funds to each of the affordable housing developments. CCSM
has also leveraged approximately $7.4 million in Federal Low Income Housing Tax
Credit equity and roughly $800,000 in bank financing for each development.
DISCUSSION
As noted above, the two affordable housing developments have received all of their
development entitlements and more than $16.4 million in private financing. The City
and Agency together have previously committed $10.8 million in Housing Trust Fund
loans to these developments, which are scheduled to obtain their building permits by
the end of this month.
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In September 2004, CCSM received three construction bids for each of these
developments and the lowest bidder in each instance exceeded the budgeted estimate
by more than $1 million. Staff analysis has concluded that these unanticipated
construction costs reflect a combination of rapidly rising materials costs (for example,
cement and lumber), and a limited supply of contractors and subcontractors ready,
willing and able to comply with the prevailing wage requirements of these construction
contracts. Staff has confirmed that other cities funding affordable housing development,
such as Los Angeles, are struggling with similar development financing gaps due to
rising construction costs. CCSM and the banks have agreed to share the burden of the
increased construction costs by increasing their financial participation in these
developments. The City has also been asked to increase its funding.
If the requested loan increases are approved by the Council/Agency, the City and
Agency subsidy per unit, are: $139,773/unit for the 2601 Santa Monica Boulevard
development; and $152,439/unit for the 1424 Broadway development. These subsidies
are less than the current per-unit limit of $180,000 for newly constructed two-bedroom
and three-bedroom units allowed by the Consolidated Housing Trust Fund Guidelines
(Trust Fund Guidelines) adopted by the Council/Agency. However, the requested total
loan amounts per development of $6,150,000 for the 2601 Santa Monica Boulevard
development and $6,250,000 for the 1424 Broadway development exceed the
aggregate limit of $5.4 million per development established in the Trust Fund
Guidelines, and therefore, the Council/Agency approval is required.
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There are adequate funds in the City and Agency Housing Trust Funds to support
these two developments. The sole purpose of these funds is to increase the supply of
affordable housing by providing loans to the nonprofit developers who create such
housing. Therefore, these funds cannot be used for any other purpose other than to
subsidize the production of affordable housing. Finally, staff has concluded that the
lowest bids obtained by CCSM for these developments are fair and reasonable, given
the cost of construction materials and prevailing wage labor costs.
CCSM is currently exploring financing options to increase the private financing amounts
and value engineering options to reduce the construction cost of these developments.
In the event additional private sources of funding are obtained, or cost savings
achieved, the final City/Agency loan amount will be reduced accordingly. Development
cost and funding sources are summarized in the following tables:
2601Santa Monica Boulevard
TOTAL ESTIMATED DEVELOPMENT COSTS
Land Acquisition $ 3,269,693
Development $ 11,109,939
TOTAL: $ 14,382,233
TOTAL ESTIMATED FUNDING SOURCES
City/Agency Housing Trust Funds $ 6,150,000
Tax Credit Equity $ 7,436,000
Bank Loan $ 796,233
TOTAL: $ 14,382,233
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1424 Broadway Development
TOTAL ESTIMATED DEVELOPMENT COSTS
Land Acquisition $ 3,647,898
Development $ 10,828,356
TOTAL: $ 14,477,678
TOTAL ESTIMATED FUNDING SOURCES
Housing Trust Funds $ 6,250,000
Tax Credit Equity $ 7,371,000
Bank Loan $ 856,678
TOTAL: $ 14,477,678
The loan terms for each development are consistent with the Trust Fund Guidelines
previously adopted by the Council/Agency and are summarized in Attachment A.
BUDGET/FINANCIAL IMPACT
A loan of $5,400,000 from City and Agency housing trust funds has been previously
approved for each of the aforementioned developments. Sufficient funds are available
in the following accounts to fund the two loan increases totaling $1,600,000:
HOUSING TRUST FUND ACCOUNTS
Account # Amount
H15004902.16800.589000 $ 133,254
H15004902.16900.589000 $ 145,501
H15004902.17900.589000 $ 858,873
H15004902.18800.589000 $ 436,272
H15004903.16800.589000 $ 26,100
$ 1,600,000
Total:
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RECOMMENDATIONS
It is recommended that the City Council and Redevelopment Agency:
(1) Approve a housing trust fund loan to Community Corporation of Santa Monica not to
exceed $6,150,000 for the development of forty-four affordable housing units at 2601
Santa Monica Boulevard; and
(2) Approve a housing trust fund loan to Community Corporation of Santa Monica not to
exceed $6,250,000 for the development of forty-one affordable housing units at 1424
Broadway Boulevard.
Prepared by: Jeff Mathieu, Director, Resource Management Department
Bob Moncrief, Housing Manager
Ron Barefield, Housing Administrator
Tina Rodriguez, Redevelopment Administrator
Jim Kemper, Senior Administrative Analyst
Mike Strader, Senior Administrative Analyst
Gary Flora, Construction Specialist
Attachment A - Housing Trust Fund Loan Amounts And Terms
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Attachment A
HOUSING TRUST FUND LOAN AMOUNTS AND TERMS
2601 Santa Monica
1424 Broadway
Blvd.
Loan Increase
$ 750,000 $ 850,000
Amount
Total Loan Amount
$ 6,150,000 $ 6,250,000
w/Increase
City: $ 1,691,967 City: $ 3,350,000
Loan Sources
Agency: $ 4,458,033 Agency: $ 2,900,000
Interest Rate
0 - 3% simple 0 - 3% simple
Fifty-five years from Fifty-five years from
Term
Certificate of Occupancy Certificate of Occupancy
Promissory Note, Deed of Promissory Note, Deed of
Security
Trust, and Regulatory Trust, and Regulatory
Agreement Agreement
A mix of extremely low, A mix of extremely low,
very low, and low income very low, and low income
Affordability
households [30%, 50%, households [30%, 50%,
and 60% of median and 60% of median
income, respectively] income, respectively]
Payments made annually Payments made annually
from “residual receipts” from “residual receipts”
Repayment
[net income, if any]; loan [net income, if any]; loan
due at end of term. due at end of term.
The loan may be prepaid The loan may be prepaid
without penalty, but all without penalty, but all
covenants will remain in covenants will remain in
Prepayment
effect for at least fifty-five effect for at least fifty-five
years. years.
Not allowed without prior Not allowed without prior
written approval of the written approval of the
Resale of Property
City/Agency during the City/Agency during the
term of the Regulatory term of the Regulatory
Agreement. Agreement.
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