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SR-407-005-01 C/ED:HSG:jm:wp city Council Parking Authority: November 14, 1989 ;107 -f!:)CJS- 0/ · ~I F/fI.::l. NOV 1 4 1989 ,/ f . " Santa Monica, California TO: Mayor and city council Chairperson and parking Authority Members FROM: City staff SUBJECT: Recommendation to authorize City Manager to negotiate agreements with Retirement Housing Foundation and Santa Monica RHF Housing Inc. pertaining to construction of parking component of HOD 202 Senior Housing Project to be constructed at 1121-1135 Third Street, and authorize appropriation of $950,000 for parking construction. INTRODUCTION This report transmits information and recommendations concerning the development of the parking component of the federally subsi- dized senior housing project to be constructed at 1121-1135 Third street, referred to as Parking Lot Three. The report recommends that the Parking Authority 1) authorize the Executive Director to negotiate an agreement with the project sponsor, Retirement Hous- ing Foundation (RHF) to construct the parking component of the project prior to the funding the federal Section 202 loan; and 2) appropriate $950,000 for construction of the parking facility to be repaid upon funding of the federal section 202 loan. This report also recommends that the City Council authorize the city Manager to modify the existing Agreement for Sale of Air-Rights with Santa Monica RHF Housing, Inc. (Borrower Corporation), limiting the Borrower corporation's responsibility to that of developing the housing component of the project. - 1 - ~L~:f/ . . BACKGROUND On June 24, 1986 staff presented to City Council a report which indicated it would be feasible to develop seventy-two (72) units for low-income seniors on the site of the existing city-owned surface parking lot at 1121-1135 Third Street. Replacement of the existing public parking would be included as a project cost. The project would require a developer to obtain a Section 202 loan from the U.S. Department of Housing and Urban Development (HUD). After issuance of a Request for proposals, on May 13, 1986 the City Council selected the development team led by Retirement Housing Foundation (RHF) to develop plans and seek section 202 funding for such a project. On April 28, 1987 the City Council certified the project Initial study and Negative Declaration, authorized the transfer of Lot 3 from the parking Authority to the city, authorized the sale of the air-rights to RHF, and authorized the city Manager to execute an Option Agreement giving RHF the exclusive right to purchase the air-rights over Parking Lot Three for the senior hous ing project. On September 30, 1987 HUD issued a Notice of Selection for a Sec- tion 202 Fund Reservation which constituted HUD's preliminary commitment of $4,137,700 in loan funds to the single-purpose bor- rower corporation established by RHF for the project, Santa Moni- ca RHF Housing, Inc. - 2 - . . Based upon this commitment, the city Council on February 9, 1988 authorized the city Manager to execute all documents necessary for the sale of the air-rights over Parking Lot 3 to the Borrower Corporation, and approved a General Plan Amendment to allow the proj ect to be constructe.d at the height and density necessary. Having obtained necessary City planning and zoning approvals, RHF submitted for, and received on January 23, 1989 a Conditional Commitment of section 202 funds from HOD. RHF proceeded to develop working drawings and obtain all necessary Coastal Commis- sion and city Planning and Building approvals, and is now prepar- ing to request a Firm Commitment of section 202 loan funds from HUD. The Request for Firm commitment must be submitted prior to November 30, 1989. The discussion below outlines issues raised by HUD subsequent to issuance of their Conditional Commitment in January, and suggests modifications to the project which are necessary to address HUD concerns and allow the developer to proceed with the Request for Firm Commitment of funds from HUD. DISCUSSION The project conceived in 1986 and approved by HUD in issuing its Conditional Commitment in January of this year called for the Borrower Corporation to construct the entire project, including the resident and replacement public parking components of the project. It was anticipated that HUD would fund its Section 202 loan prior to the commencement of all construction, and that the city would use its proceeds from the sale of the air-rights to - 3 - . . fund the construction of HUD ineligible costs, including the public parking and design amenities. However, on May 30, 1989 HOD staff in Washington D.C. informed the Los Angeles HUD Field Office that the project would need to be restructured before a Firm Commitment of Section 202 funds could be issued. HUD staff in Washington determined that the Borrower Corporation established by RHF for the sole purpose of constructing the senior housing could not also assume the liabilities entailed in developing the parking facility. HUD also determined that the parking facility would have to be constructed prior to funding of the Section 202 loan. staff and RHF were able to secure HUD's agreement to certain im- portant modifications to the May HUD directive, but substantial changes to the project are still required to enable the project to obtain a Firm Commitment of Section 202 funds. The modifications to the Third street Senior Housing Project which require city council approval at this time are as follows: 1) The parking facility, including both the resident and replace- ment public parking components, will be developed by RHF, the sponsor corporation, rather than by Santa Monica RHF Housing, Inc., the section 202 borrower corporation. Although there will be a single bid package and bid announcement, and a single general contractor will be selected through a competitive bid process to construct both the parking and housing components, the parking and housing components will be constructed pursuant to separate construction contracts. - 4 - . . This will meet RUD's concerns regarding limiting the financial liability of the Borrower Corporation to the housing component, but will otherwise have no significant impact on the development of the project. 2) Upon receipt by RHF of the Firm commitment for section 202 funds, the Parking Authority will disburse funds to RHF for con- struction of the parking facility and related site improvements. A six month construction period is estimated for the parking facility. RHF's obligations to construct the parking facility will be detailed in a Construction Agreement. Construction on the project will proceed only after HUD has is- sued its Firm Commitment to fund the Section 202 loan. Insofar as HUD has never reneged on a Firm Commitment, RUDIs Firm commitment to this project will ensure that HUD will fund the section 202 loan upon satisfactory completion of the garage. satisfactory completion of the garage will be certified by an architect agree- able to HUD, the Borrower, and the City. HOD will also partici- pate in construction observation to ensure their ultimate accep- tance of the garage. The Parking Authority will retain ownership of the air-rights above Lot 3 until the garage is completed. Upon completion, the resident parking component, along with the air-rights for the housing development, will be conveyed to the City, and then sold to the Borrower Corporation when the HUD loan is funded. The amount of Parking Authority funds used to construct the garage, plus interest, will be paid to the Parking Authority by the city - 5 - . . from proceeds from the sale of the air-rights to the Borrower Corporation. A Payment Agreement will detail the City's obliga- tion to utilize sales proceeds to pay the Parking Authority. The HOD section 202 loan will make available to the Borrower Cor- poration the funds necessary to purchase the air-rights from the City and construct the housing facility. Based upon current cost estimates and a maximum HUD mortgage of $4.4 million, the maximum HUD-allowable value for the air-rights is estimated to be $1,299,000. The balance of the HUD loan will be used for con- struction of the housing facility. This report recommends that the City Council and parking Authori- ty authorize the City Manager and Executive Director to negotiate and execute an agreement with RHF to construct the parking facility, a modificat1on agreement amending the terms of the ex- isting Agreement for Sale of Air-Rights with the Borrower Cor- poration, a Payment Agreement between the city and Parking Au- thority, and such other documents necessary to accomplish the construction of the project as described herein. FINANCIAL/BUDGETARY IMPACTS The Parking Authority will provide $950,000 to RHF for construc- tion costs of the 110-space parking component of the Third street Senior Housing Project. The existing appropriation for $450,000.00 for the Second Street Mixed Use project in Account Number 77-770-610-25689-8926-99159 and an additional $500,000 from Parking Author1ty Fund Balance will be appropriated to Ac- count Number 77-770-610-29790-8926-99159 for disbursement to RHF - 6 - . . for construction of the parking facility. The Second street proj- ect will be able to proceed without the use of Parking Authority funds. The city will pay the Parking Authority $950,000, plus interest, upon completion of the garage from proceeds of the sale of the resident parking component and housing project air-rights. Inter- est will be paid at the prevailing rate earned on City investments. RECOMMENDATIONS It is recommended that the Parking Authority: 1. Authorize the Executive Director to negotiate and execute a Construction Agreement, and any such other documents necessary to accomplish the construction of the lID-space parking facility component of the Third street Senior Housing Project by Retirement Housing Foundation. 2. Authorize the Executive Director to convey and sell to the city of Santa Monica the llO-space parking structure, and to negotiate and execute all agreements and documents necessary to accomplish this transaction. 3. Reallocate the existing appropriation of $450,000.00 in Account Number 77-770-610-256B9-B926-99159, and appropri- ate an additional $500,000 from Fund Balance, to Account Number 77-770-610-29790-8926-99159 for disbursement to RHF for construction of the ll0-space parking structure. - 7 - . . It is recommended that the city Council: 1. Authorize the city Manager to negotiate and execute a Modification Agreement, amending the existing Agreement for Sale of Air-Rights between the city and Santa Monica RHF Housing, Inc. (Borrower corporation), to limit the Borrower Corporation's responsibility to development of the housing component of the Third street Senior Housing Project, and to revise the estimated sales price of the project air-rights to $1,299,000. 2. Authorize the city Manager to negotiate and execute an Agreement between the city of Santa Monica and the Parking Authority of the City of Santa Monica, pursuant to which the city will purchase the parking component of the Third street Senior Housing Project for $950,000 plus interest from proceeds of the sale of air-rights to the Borrower Corporation, and to negotiate and execute all other agree- ments necessary to accomplish this transaction. Prepared By: Jeff Mudrick, Acting Housing Program Manager Department of Community and Economic Development :staff202 - 8 -