sr-042479-11dSanta Monica, California, April 18, 1979
T0: Mayor and City Council
FROM: City Staff APR 2 4
1979
SUBJECT: Housing Activities Report
Background
On December 6, 1978, the staff presented a status report to the Council concerning
four specific housing activities: the use of Community Development Block Grant
(CDBG) funds for potential housing site acquisitions; the remaining elderly
housing site in the Ocean Park Redevelopment Project; the City-owned structures
located at 175 Ocean Park Boulevard; and, the development of a condominium
acquisition program. The following updates the December report and requests
certain Council authorizations with respect to these activities. This report has
been submitted concurrently to the Housing Commission. Their comments will be
conveyed to the Council prior to the Council meeting.
Site Acquisition - CDBG Funds
The Council has approved an amount of $400,000 to be set aside from the Fifth Year
CDBG application for housing site acquisition. An additional $500,000 allocated
for rehabilitation loans remains unexpended from prior years' applications and
can be rebudgeted for land acquisition.
Staff has identified two cleared double lots which are currently available for
purchase. These sites are located on the east and west sides of Fifth Street
between Pacific and Strand Streets in an R-3 zone and could accommodate approximately
22-25 housing units. The lots are listed at $649,600 for the 22,400 square feet
of land ($29 per square foot). A 30% down payment is required.
APR 2 4 1979
Mayor and City Council -2- April 18, lg7g
Barnard Way Site
As previously indicated, HUD has, on two separate occasions, rejected the
City's requests for funding of this .9 acre site in the Ocean Park Redevelopment
Project. Consequently, the State Housing Finance Agency was approached as an
alternative funding source, as indicated in the December report. To date, the
City has received an approval of the site from CHFA and an invitation to submit a
full funding application. The deadline to submit this application is May 30, lg7g,
Assuming the approval of the City's application, a private developer, selected by
the City, would acquire the property from the Redevelopment Agency at a pre-
determined price; construct the housing; and, offer the units at a reduced rent
to low and moderate income elderly persons. The rental subsidy would be paid
directly by the federal government, and the project would be generally similar to
the Neilson Villa development located directly across the street. Maximum land
value will be negotiated with CHFA prior to developer selection, and selection
criteria will be finalized and presented to the Council. It is estimated that the
site could accommodate a maximum of fifty X50) units.
175 Ocean Park Boulevard
Staff is continuing the evaluation of the rehabilitation of the two (2) structures
located at 175 Ocean Park Boulevard. Thus far, however, it appears
that absent substantial rent subsidies, the targeted low rents may be insufficient
to amortize the cost of rehabilitation, which is estimated at $270,000 to $300,000.
If the City were able to obtain a commitment for rent subsidies under the HUD
Section 8 Substantial Rehabilitation Program, the picture brightens considerably.
Under this program, a private developer would undertake the rehabilitation and
operation of these units, similar to the new construction program described above.
Mayor and City Council -3- April 18, 1879
Condominium Acquisition Program
Previous staff reports have outlined a conceptual program utilizing CDBG funds
to acquire recently-converted condominiums for resale to low and moderate income
persons. During the course of continuing program development and exploration,
staff has been notified of a HUD request for proposals under their Innovative
Grant Program. This program provides funds to cities for programs which assist
low and moderate income residents to remain in neighborhoods which are in the
process of revitalization. HUD has established May 7, 1879, as the final date
of submission for applications under this program. It is the staff's opinion
that a condominium acquisition and resale program aimed primarily at
in-place tenants who are or will be evicted due to the condominium conversion
process would qualify for consideration by HUD under their published guidelines.
The City, if approved by HUD, could use the funds to absorb the write-down
between the City's acquisition cost and the sales price to low and moderate income
households.
Additionally, staff has become familiar with the concept of mortgage revenue backed
tax exempt bonds which would facilitate the delivery of affordable condominiums to
tow and moderate income persons in conjunction with the condominium acquisition
program or potentially in some cases independent of that program. As an adjunct
to the condominium acquisition program, the impact of the mortgage revenue bonds
is to increase the purchasing power of the low and moderate income household and
consequently reduce the required write-down on the City's resale of acquired
condominiums.
Under the mortgage revenue program, tax exempt bonds could be issued by the City.
The proceeds from the sale of the bonds are committed to the purchase of mortgages
Mayor and City Council -4- April 18, lg7g
originated by local lending institutions
Based on the City committment to
purchase the mortgages and the tax exempt status of the bonds, the lenders are
able to originate mortgages at approximately 8-1/2o interest, this rate. is well
below the going rate and results in a significant increase in the purchasing
power of low and moderate income households. It should be noted that such-bonds
are secured soley by the revenue derived from the mortgage payments and are not
an obligation of the City.
These bonds, which were first authorized by state legislation in Ig75 and are
commonly referred to as SB gg Bonds, have now been issued by several California
cities, primarily through their respective Redevelopment Agencies. The develop-
ment of a bond issue of this nature requires substantial technical expertise.
These bonds are sold on a negotiated rather than bid basis; and the structuring
of the issue including the establishment of reserve funds, obtainment of a
favorable bond rating, etc., significantly affect the ultimate interest rate
achieved.
Although several national bond underwriters have expressed an interest in assisting
Santa Monica in developing a program, EF Hutton and Company has demonstrated the
most substantial relevant experience. They have offered to work with staff on
a contingency basis, and would be compensated only in the event that the Council
specifically authorized a bond issue which is successfully marketed.
As the program is currently envisioned, the below market rate mortgage money
would be made available to low and moderate income persons who would purchase
units acquired through Innovative Grant funds, CDBG funds, or directly from the
converter if the purchase price did not exceed approximately $65,000. It is further
Mayor and City Council -5- April 18, 1979
envisioned that the program would be primarily aimed at existing tenants in
buildings undergoing conversion who would otherwise be unable to purchase the
units they occupy.
Recommendation
It is recommended that the Council:
1. Site Acquisition: Authorize staff to purchase the three double lots located
on Fifth Street between Bay and Strand Streets, subject to a real estate
appraisal, but not to exceed $974,400.~~~=~ ~,~~ )
2. Barnard Way Site: Authorize the staff to prepare developer selection criteria,
evaluate prospective developers and prepare a recommendation for the develop-
ment of the site.
3. 175 Ocean Park Boulevard: Authorize staff to prepare developer selection
criteria and a recommendation to the Council for the rehabilitation of the
structures under the Section 8 Substantial Rehabilitation Program.
4. Condominium Acquisition Program: Authorize staff to prepare and submit an
application for Innovative Grant funds for the Condominium Acquisition Program
and continue the evaluation of the mortgage revenue bond program as it relates
to condominium conversions.
Prepared by: John Jalili
John Hemer
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