SR-407-003-23~_ . .
~ ~;tyof City Council Report
Santa Monica~
City Council Meeting: July 11, 2006
Agenda Item: S G
To: Mayor and City Council
Chairperson and Redevelopment Agency
From: Jeff Mathieu, Director, Resource Management
Subject: Housing Trust Fund Loan and Grant for Proposed Nineteen Unit
Affordable Housing Development Located at 2900 4t" Street
Recommended Action
It is recommended that the City Council and the Redevelopment Agency:
1) approve a Housing Trust Fund loan and grant to the Community Corporation of
Santa Monica in an amount not to exceed $5,867,993 for the acquisition, general
rehabilitation, and remediation of a nineteen unit affordable housing development
located at 2900 4th Street; and
2) authorize the City Manager and Executive Director to negotiate and execute all
documents necessary to provide this funding.
Executive Summary
The Community Corporation of Santa Monica (CCSM) has applied for Housing Trust
Fund financing in the amount of $5,867,993 to acquire, rehabilitate, and remediate an
existing nineteen unit apartment building located at 2900 4t" Street. Typically, such
financing is approved administratively pursuant to the Housing Trust Fund Guidelines
(Guidelines) adopted by the City Council and the Redevelopment Agency (Agency).
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However, due to escalating real estate prices and construction costs, the amount of the
proposed financing exceeds the existing per unit financing limits ($144,000 for one-
bedroom units; $168,000 for finro- and three-bedroom units) established in the
Guidelines; therefore, Council/Agency approval is required. The units will be affordable
to low-income households (60% of area median income) for a period of at least 55
years. Current maximum eligible incomes for the one, two, and three-bedroom units in
this building will range from approximately $33,000 to $42,000, and current maximum
rents will range from approximately $674 to $843.
Discussion
The City's current Housing Element and Consolidated Plan have identified low-income,
large family households in Santa Monica with special housing needs for priority
assistance. The acquisition of an existing apartment building containing units suitable
for large, low-income households will assist the City in serving this special needs
population.
The property is located at the corner of 4th Street and Ashland Avenue. It consists of a
two-story building over subterranean parking. The structure was built in 1963 and has
19 units of which two are three-bedroom, nine are two-bedroom, and eight are one-
bedroom units. The property also has a laundry room and 22 parking spaces.
The rehabilitation and mitigation of the property involves exterior and interior
improvements. The exterior work includes a new roof, railings, windows, and painting
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the building. The interior work includes upgrading the electrical and plumbing systems,
carpeting and vinyl flooring, replacement of bathroom fixtures and bathtubs, painting the
unit interiors, and asbestos and lead removal as needed. The cost of this work is
estimated at $1,002,942.
The purchase price of the property is $4,375,000. A City-commissioned appraisal of the
property was completed in May 2006 and estimated the market value of the property at
$4,375,000. The total development cost of acquiring and improving the property is
estimated at $5,867,993 or $308,842 per unit. In addition to the purchase price and
estimated cost of the rehabilitation work, this total cost includes expenses for
environmental consultants, architects, a developer fee, permit fees, temporary
relocation, and contingency funds. The projected net income for the property is
insufficient to finance a bank loan.
Table 1 summarizes the sources and uses of the proposed financing. An outline of the
acquisition, rehabilitation, and remediation budget is included in this report as
Attachment A.
Table 1
Total Estimated Development Costs
Acquisition [with closing costs] $ 4,392,500
Rehabilitation and Remediation $ 1,002,942
Other Development Costs $ 472,551
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TOTAL: $ 5,867,993
Total Estima#ed'Fundinq Sources
Redevelopment Housing Trust Fund - Loan $5,367,993
Redevelopment Housing Trust Fund - Grant $500,000
TOTAL: $ 5,867,993
The terms of the proposed financing are provided in Attachment B. These terms require
that the units are restricted as affordable housing for at least 55 years, with an option to
continue the restrictions for an additional 25 years (cumulative total of 80 years) when
the loan would be forgiven and the grant conditions fully met. Loan payments are made
from net income after paying all of the operating expenses and funding the replacement
reserve account. The source of the financing is the Redevelopment Housing Trust
Fund, which receives tax increment revenue from the City's redevelopment project
areas. The proposed financing will be in the form of a forgivable loan, and the
remaining portion will be in the form of a conditional grant. The portion identified as a
conditional grant must be structured as a grant because these funds were generated
from the sale of tax exempt bonds. At the end of the loan and grant terms (55 or 80
years), the City will have the option to take title to the property.
Environmental Analysis
The acquisition and proposed rehabilitation of the existing property at 2900 4th Street is
categorically exempt from the California Environmental Quality Act (CEQA) pursuant to
Section 15301 of the CEQA guidelines regarding rehabilitation of existing housing.
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Budget/Financial Impact
The housing trust fund loan/grant amount to be awarded to Community Corporation of
Santa Monica is not to exceed $5,867,993. Funds are available in the following
accounts:
HOUSING TRUST FUND ACCOUNTS
H 15004906.589000.17900 $3,722,670
H 15004906.589000.18800 $159,900
H 16005005.589000 $181, 000
H 16005006.589000 $600,000
H 18005005.589000 $704,423
H 17067400.589000 $500,000
After committing funds to the 2211 and 2900 4th street projects the remaining balance of
Housing Trust Funds would be approximately $4,600,000.
Prepared by:
Bob Moncrief, Housing Manager
Approved:
~ ~.-C,,~t~
la~lhi~u, Director, Resource
gement Department
Forwarde Council:
P. amont well
City Manager
ATTACHMENTS: A- Acquisition, Rehabilitation, and Remediation Budget
B- Loan & Grant Term Details
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ATTACHMENT A
ACQUISITION, REHABILITATION, & REMEDIATION BUDGET
PROJECT NAME 2900 4th Street
STREET ADDRESS 2900 4th Street
CITY Santa Monica
# of Units: 19
Square Footage of Building 16,120
TOTAL
COSTS $/UNIT
ACQUISITION
Land & Building 4,375,000 230,263
Closing Costs 17,500 921
SUBTOTAL: ACQUISITION 4,392,500 231,184
HARD COSTS
Rehabilitation & Remediation 1,002,942 52,786
SUBTOTAL: HARD COSTS 1,002,942 52,786
SOFT COSTS
Architecture , Engineering, & Technical Assistance 11,400 600
Other Soft Costs 252,642 13,297
SUBTOTAL: SOFT COSTS 264,042 13,897
Hard & Soft Contingency 208,511 10,974
SUBTOTAL: CONTINGENCY 208,511 10,974
TOTAL DEVELOPMENT COSTS 5,867,993 308,842
ATTACHMENT B
HOUSING TRUST FUND LOAN and GRANT TERMS
Loan Terms Grant Terms
Amount $5,367,993 $500,000
Equal to Federal Home Loan
Interest Rate Mortgage Corporation rate for 30- Not applicable
year fixed-rate loan
55-years; a 25-year extension is 55 years; a 25-year extension is
Term permitted if the Regulatory permitted if the Regulatory
Agreement is similarly extended Agreement is similarly extended
Promissory Note, Deed of Trust, Conditional Grant Promissory
Security and Regulatory Agreement Note, Deed of Trust, and
Re ulato A reement
Eligible households will be low Eligible households will be low
Affordability income [60% of inedian income] income [60% of inedian income]
Payments made annually from
50% of "residual receipts" [net Not applicable;
income from operation of the
property]; if loan term and 1/80t" of the grant amount is
Repayment Regulatory Agreement are forgiven on an annual basis if the
extended 25 years, and the property is satisfactorily operated
property is satisfactorily operated during the previous year.
for that period, any loan balance
is forgiven.
The loan may be prepaid in
whole or in part at any time
without penalty, but all covenants Not applicable
Prepayment wiii remain in effect for at least 55
years. ~
Not allowed without prior written Not allowed without prior written
approval of the City/ approval of the City/
Resale of Redevelopment Agency during Redevelopment Agency during the
Property the term of the Regulatory term of the Regulatory Agreement.
Agreement.
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