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SR-407-003-017 (2) 'If) 1- ~ p03- to /-::r CC/PA-2 APR 261988 Santa Monica, California CjED:HD:JM: jt city Council Parking Authority: 4/26/88 ./ :).)/ _ r, -... - l TO: Mayor and City council Members Chairperson and parking Authority Members FROM: City Staff SUBJECT: Recommendations Regarding the Development of Parking Lot at 1423 Second street and Designation of Community Corporation of Santa Monica as the Developer INTRODUCTION This report transmits information and recommendations regarding the development of a mixed-use project over the City-owned sur- face parking lot at 1423 second street. The report recommends that the City council and Parking Authority: (1) approve in con- cept the development of the project in accordance with the development criteria described herein: and (2) designate Coromuni- ty Corporation of Santa Monica as the developer of the proposed project. BACKGROUND In the FY 1985-86 Community and Economic Development budget and departmental workplans, the City Council directed staff to ex- amine the feasibility of a Single-Room Occupancy Residential Ho- tel (SRO) Project. The initial steps of this examination included an inventory of the residential hotel units in Santa Monica, and a review of the availability of State and Federal funding sources for the acquisition and rehabilitation of residential hotel units. - 1 - Cc!PA-2 APR 2 6 19B& Over the course of the following two years, staff has worked with Community corporation of santa Monica to locate an appropriate, available site. The City Council directed staff in its FY 1987-1988 Community and Economic Development departmental workplans to continue to manage the development of a Single Room Occupancy (SRO) Project with Community Corporation and to look to the possibility of develop- ing a new SRO. Due to the prohibitively high acquisition costs of suitable properties in the Downtown or Lincoln Corridor areas, staff has not been able to secure a project site which would be economically feasible to develop or rehabilitate. Thus, given the difficulty of locating a site, staff looked to the potential development opportunities offered by City-owned property. staff has identified the Parking Authority-owned sur- face parking lot at 1423 Second street, between Santa Monica and Broadway, as an appropriate site for the development of a mixed- use project which could accommodate twenty-eight (28) units of multi-family rental housing above ground floor commercial space. The downtown location of the Second street site and its proximity to social services, transportation lines, and shopping provides an ideal site for locating a mixed-use project of this kind. The following discusses the proposed project, including project design, financing, developer selection, and the future actions by Council which the project will require. - 2 - . DISCUSSION Project Description The proposed site is 7,500 square feet in area and contains twen- ty-six (26) metered parking spaces. It is zoned C-3 and is sub- ject to the Zone 3 guidelines of the Third street Mall specific Plan. These guidelines allow, with site Review, a development of six stories or 84 feet, with a Floor-Area Ratio (FAR) of 3.0. Preliminary analysis by staff indicates that it would be feasible to develop twenty-eight (28) units of rental housing for very low and moderate income households. The housing would be constructed on the third, fourth and fifth levels, above a theater occupying the first and second levels. The housing units would be self-contained single apartments but would substantially meet the needs of the population typically served by SRO housing, i.e. primarily single non-elderly adults. Priority for occupancy in the units would be given to persons who are direct referrals from local Santa Monica programs serving the homeless and very low income individuals. (In addition, these units could meet future replacement requirements engendered by further development of the Pier.) Approximately 7,500 square feet of commercial space is proposed to be made available to a theater operator. The selected theater operator will meet some of the needs left unmet by the closures of the Cine Latino and Fox International theaters through the showing of Spanish-language cinema. The use of the property in - 3 - this fashion will attract and will be of value to a wide variety of socioeconomic groups. In addition, the theater use will en- sure nighttime activity on the street, enhancing both security for residents and the economic viability of the area. The Condi- tional Use permit process required for the theater will ensure compatibility of this commercial use with the goals of the Third street Mall Specific Plan. The income from the commercial use will help subsidize the operation of the affordable housing com- ponent of the project. project Financing Based upon comparable projects, construction costs will be ap- proximately $875,000 for the housing componentJ and $350,000 for the theater component of the development. Total development costs, including soft costs, are estimated to be $1,900,000. The projected rents and the income from the commercial space, rented at approximately $1.00 per square foot, will allow the project to carry private financing of approximately $1,000,000. In addition, recent Federal Tax legislation provides for an an- nual tax credit over ten years to projects which provide new units for lower income households. The state of California also provides a companion tax credit program which provides for a credit over four and one-half years. It is estimated that equity from these two programs would be $650,000. The combination of private debt financing and tax credit equity will leave a gap of approximately $250,000. Therefore a city subsidy of approximate- ly $250,000 or $8,929 per unit would be required. - 4 - In order to make the project financially feasible the City may be required to lease the property to the Developer at less than the fair market value for the leasehold interest. While, typically, the fair market value of a leasehold interest would be approxi- mately 10% of the fair market value for purposes of sale, the public benefit of the project would enable the City to lease the property for what the projectls affordable rent structure could support. Program Eligibility The source of city funds for the proposed proj ect would be the Citywide Housing Acquisition and Rehabilitation Program (CHARP). The proposed development would meet the eligibility criteria for CHARP funding. No specific appropriation for this project is re- quired at this time, as funding determinations are done ad- ministratively in accordance with city Council approved program guidelines. Should the project be designated to meet replacement housing re- quirements, future council action would be required to appropri- ate the necessary funds from a source other than CHARP, as re- placement housing is not an eligible use under either program. Housing Development criteria 1. Household Types to be Served In keeping with the City Council r s previous direction to staff regarding the development of an SRO proj ect, staff recommends that the project be comprised of O-bedroom efficiency units. - 5 - Twenty-one (21) of the units will be made available to households earning less than 50% of the Los Angeles County median income ($13,400). The remaining seven (7) units will be available to households earning between 50% and 120% of the County median in- come ($29,820). 2. Rent Levels The rents for the units will be established in such a way as to maximize affordability to persons who are not eligible to receive Federal rental assistance. Rents will range from a low of $295 to a high of $722 per month depending on household income. 3. Design standards The project will consist of twenty-eight (28) O-bedroom units of approximately 510 square feet. In order to increase the livability and marketability of the units, staff recommends that each unit have its own bathroom and cooking facilities. Approxi- mately 7,500 square feet in ground floor commercial space will be provided. Developer Selection After consideration of the history and needs of this project, it is recommended that the City Council reaffirm its prior selection and directly designate Community corporation of Santa Monica (CCSM) as the developer of the proposed project. CCSM has worked with staff for the past two years to identify potential project sites and sources of funding, and has demonstrated the skills and - 6 - experience necessary to develop and manage a proj ect of this type. The Developer will select an architect, prepare specific plans for the site in consultation with City staff, obtain necessary Coastal Commission and City approvals, obtain firm construction cost bids and select a contractor, and present final financing and site plans to City staff for approval. Future Actions Required 1. Transfer of Title The title to 1423 Second street is currently held by the Parking Authority. parking Authority law prevents the Parking Authority from using the property for non-parking purposes and from enter- ing into a "below market.. lease for the property. Therefore it will be necessary for the Parking Authority to transfer ownership of the land to the City of Santa Monica, as the city may lease the property to the Developer at less than fair market value. In order to transfer the property, the City and Parking Authority will be required to make findings as to the public benefit which necessitates the transfer, as was done most recently in transfer- ring the Edwards Center site from the Parking Authority to the City. 2. Lease A9reement The City and the Developer will execute a Lease Agreement govern- ing operation of the property, similar to the 175 Ocean Park - 1 - Boulevard Lease Agreement. The City would retain ownership of the land, while the Developer would own and operate both the housing and commercial components of the project subject to the conditions of the Lease Agreement. 3. Payment Agreement In order to ensure that the transfer of the property does not adversely impact the Parking Authority Fund it will be necessary for the City and Parking Authority to enter into a Payment Agree- ment. The Payment Agreement will provide for an annual payment of the lease revenues received by the City to the Parking Authority Fund. staff will return with the resolutions required for the transfer of ti tIe, the Lease Agreement, and the Payment Agreement for council review and approval. Replacement Parkinq The proposed project would not replace the existing parking on- site, but the existing twenty-six (26) spaces would be included in the expansion of Parking structure Six, which is adjacent to the site. The Parking and Traffic Engineer is currently conduct- ing an area-wide parking analysis which will help determine the replacement parking needs. At the start of construction the Parking Authority will lose the use of the twenty-six (26) currently available metered parking spaces. The Parking Authority currently receives approximately - 8 - $10,600 per year in revenues from these meters. In order to mini- mize the impact to the Parking Authority Fund resulting from the loss of revenues, the Lease Agreement between the City and the Developer will require payment equivalent to the loss to the Parking Authority. As new construction in the Third street Mall Assessment District, the project will be required to pay the District assessments for parking necessitated by the new development. Despite the con- tribution to the Assessment District, the Coastal Commission could still require that parking be provided on-site for the new uses. The proposed project analysis assumes the contribution to the Assessment District would meet the need for new parking. FINANCIAL/BUDGETARY IMPACT No financial or budgetary action is required at this time. The proposed project is eligible under the Citywide Housing and Ac- quisition and Rehabilitation program and projects are approved administratively, assuming program funds are available and pro- gram guidelines are met. RECOMMENDATIONS It is recommended that the City Council and Parking Authority: 1. Approve in concept the project at 1423 Second street to be developed according to development criteria recommended by this report and authorize the City Manager to review and commit the use of CHARP funds in accordance with City Council approved Pro- gram Guidelines. - 9 - ~ 2. Designate Community Corporation of Santa Monica as developer of the project. Prepared by: Jeff Mudrick, Sr. Development Analyst Candy Rupp, Housing Program Manager Department of Community & Economic Development - 10 - public viewing areas including a roof-top observation deck, pilots' lounge and other public amenities. It also includes about 10,000 square feet of commercial office space surrounding an atrium on the lower parking lot level. Artists have been encouraged to focus their proposals on the sod roof, courtyard and interior lobby. An exhibition of five finalists will be held in June, 1988. 5. Pier The sum of $73,700 is allocated for artwork on or adjacent to Santa Monica pier in a manner to be determined by a selection committee consisting of an artist, PRe representative and Paul Leaf. An R.F.P. will be devised to conform to special design and construction plans when they become available. 6 . Art Bank The sum of $20,000 is allocated for purchases of art for the City's Art Bank collection. A plan to purchase outdoor sculpture for the courtyard of City Hall will be studied by an implementation committee consisting of Jane Ullman, Judy Neveau and Michael McCarty. 7. The sum of $5,551 is allocated in the General Fund account for a contingency reserve. - 4 - __,8'0""-"-- Time Line Artist Designation Date Installation Date Big Wave 1984 September, 1988 Solar Web 1985 March, 1989 Main Library April, 1988 November, 1988 Airport August, 1988 December, 1988 Pier Undetermined Undetermined Art Bank November, 1988 February, 1989 Budget and Fiscal Impact $122,551 is available in Percent for Art General Fund Account #01-740-560-000-905. $73,700 is available in P.F.A. Pier Account #30-740-560-000-905. $34,700 is available in P.F.A. Airport Account #33-740-560-000-905. The total budget and fiscal impact of the 1987/88 Art Plan is $230,951. Recommendation This report recommends Council approve the 1987-88 Art Plan for the Percent for Art program and expenditures totaling $230,951 as proposed by the Arts commission. Prepared by: Lynne C. Barrette, Assistant City Manager Henry Korn, Arts Director (artplan2) - 5 - .....~.,.,...