SR-407-004-01
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C/ED:HSG:CR:wp
Redevelopment Agency Meeting: 9/9/86
city Council Meeting
Santa Monica, California
TO:
Chairperson and Redevelopment Agency
Mayor and City Council
FROM:
City staff
SUBJECT:
Recommendation to Approve Revised Program Guidelines
for the Citywide Housing Acquisition and Rehabilita-
tion Program and the pico Neighborhood Housing Trust
Fund Program
INTRODUCTION
This report transmits recommendations for revisions to the cur-
rent program guidelines for both the Citywide Housing Acquisition
and Rehabilitation program. (CHARP) and the pico Neighborhood
Housing Trust Fund (PNHTF) Program.
BACKGROUND
The CHARP and PNHTF Programs were created to preserve and expand
the stock of affordable housing in Santa Monica. The CHARP Pro-
gram operates city-wide, and the PNHTF Program operates only in
the pico Neighborhood of the City. In 1983 the operating guide-
lines for the CHARP and PNHTF programs were adopted by the Re-
development Agency and the City Council respectively.
These
guidelines were revised in November 1985 to reflect necessary
changes in order to ensure the efficient implementation of these
programs.
To date, the Agency and the City through these programs have pro-
vided community Corporation of Santa Monica with loan funds for a
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total of fourteen (14) projects containing 176 units. The fol-
lowing discusses the revisions to the program guidelines which
are recommended at this time.
DISCUSSION
The CHARP and PNHTF Programs provide thirty-five (35) year de-
ferred payment principal and interest loans to eligible bor-
rowers. The guidelines require a minimum of 75% benefit to low
and moderate income persons or households. A Regulatory Agree-
ment is recorded securing each loan which restricts the rent
levels, occupancy, management, and disposition of the property.
Program funds may be used to acquire, rehabilitate, and/or con-
struct rental or cooperative housing in Santa Monica.
The proposed revisions involve the following areas; (1) the per
unit loan amount ceiling, and (2} the amount of the development
fee, and the timing of release of funds. These are technical
revisions only, and will not affect any of the project review and
approval processes currently in place. In all other respects the
operating guidelines would remain unchanged.
1. Increase in the Per Unit Loan Amount:
The guidelines specify a per unit loan ceiling in order to deter-
mine the maximum possible loan on a project. The actual loan
amount is based on the lesser of the gap between total develop-
ment costs and the maximum private mortgage, or the per unit loan
amount; the current per unit loan amount is $25,000, or 33% of
the total cost. It is recommended that the per unit loan amount
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be increased to $35,000 per unit, or 40% of total cost. There
are several factors which require this increase including the
lack of stable rental subsidies, and the costs of land and prop-
erty acquisition.
While the costs of construction and land have remained high,
stable rental assistance programs, such as the section 8 Moderate
Rehabili tat ion Program, or the Section 8 New Construction Pro-
gram, have been significantly cut or eliminated. The loans made
in 1985-86 depended heavily on the availability of these sub-
sidies. The cut in federal funds for housing, and the consequent
reduction in rental subsidies has widened the gap between the
maximum private debt a project can carry and the total develop-
ment costs.
Table 1 below illustrates the average development
cost per unit compared with the maximum loan amount per unit at
affordable rents without rental subsidies by income range.
TABLE 1
Average Per Unit
Development Cost
Pico Nghb. Ocean Park
Per Unit Maximum Loan
With Afford. Rents by Income Range
Very Low
50%
Low
80%
Moderate
120%
$72,000 $76,000
(Average $74,000)
$17,800 $36,200 $63,980
(Average Max. Loan $39,320)
(Note: Assumptions include: financing at 10.35%, 30 yr fixed, 98%
occupancy, 1.12 debt service coverage ratio, two-bedroom units)
The average per unit gap between development costs and the maxi-
mum loan amount is $34,680; therefore, a per unit subsidy of
$35,000 is necessary to make projects financially feasible.
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One of the most important factors affecting the development of
affordable housing are land and property acquisition costs. Land
costs make up approximately thirty to thirty-five percent (30%-
35%) of total project costs. Land costs vary widely throughout
the city. In order to provide flexibility to develop projects
where land and suitable mUlti-family buildings are available it
is necessary to increase the per unit loan ceiling to cover the
gap between total project costs and the maximum affordable
mortgage.
The increase in the per unit loan amount will permit the projects
to provide housing to low income tenants with or without Section
8 subsidies. This will broaden the availability of these units
to include those not eligible for Section 8, such as low income
single persons displaced by the Ellis Act.
2. Increase in Development Fee:
The current program guidelines provide for a developer fee of one
percent (1%) of total development costs. It is recommended that
this fee be increased to one and one-half percent (1.5%). The
fee is used by the developer to pay for the administrative costs
associated with project development. The packaging of affordable
housing projects has become more complex, requiring a high level
of expertise from the development team in order to succeSSfully
put these projects together. The increase in fee is necessary to
cover the real administrative costs associated with project
development.
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This increase is recommended after careful consideration of the
current city support of CCSM, which has been the primary borrower
under these programs. The BUD accepted standard for administra-
tive costs for housing programs is fifteen percent (15%) of capi-
tal funds allocated to the program. In FY 1986-87 CCSM has been
granted a total of $202,500 in City funds for the administrative
budget. The projected local capital resources for the year are
$4.51 million. By increasing the development fee to 1.5%, CCSM
would receive approximately $97,000 for the development of 90
units currently under development. This will bring the total
projected administrative support for CCSM to $299,500, which is
well below the HUD accepted standard for administrative costs.
The increased fee will have a negligible effect on total develop-
ment costs, and will allow non-profit developers to recoup their
actual project administrative costs.
In addition to increasing the development fee it is also recom-
mended that a change in the timing of the fee be authorized.
Currently the development fee is paid out to the developer upon
loan closing. However, on larger proj ects which have a longer
proj ect timeline, the developer is incurring costs during the
planning stages that will not be recouped until months later.
Therefore, it is proposed that at the request of the developer
the development fee may be released in three stages as follows:
1) one-third of the fee upon receipt of all local and state
planning approvals,
2) one-third of the fee upon issuance of the construction
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bid package, and
3) the final one-third of the fee at loan closing.
The staging of the dev~lopment fee as detailed coincides with the
amount of administrative time required, and will result in the
efficient project development. No other changes in the program
guidelines are required at this time.
FINANCIAL/BUDGETARY IMPACTS
There are no financial or budgetary impacts resulting from the
recommendations in this report.
RECOMMENDATIONS
It is recommended that:
(1) The Redevelopment Agency approve the revisions to the
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program guidelines for the citywide Housing Acquisition
and Housing Rehabilitation Program as described in this
report; and
(2)
The city council approve the revisions to the program
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guidelines for the Pico Neighborhood Housing Trust Fund
Program as described in this report.
Prepared By: Candy Rupp, Development Analyst
Ann sewill, Housing Program Manager
Department of community & Economic Development
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