SR-09-11-2012-3Ftamiiiiii
City of City Council Report
Santa Monica'
City Council Meeting: September 11, 2012
Agenda Item: 3_iF
To: Mayor and City Council
From: Andy Agle, Director of Housing and Economic Development
Subject: Extension and Forgiveness of Housing Trust Fund Loans
Recommended Action
Staff recommends that the City Council:
1. Authorize the City Manager to forgive an existing loan to the Mountain View
Mobile Inn Residents Association (Residents Association) in the amount of
$124,977.01 for 1930 Stewart Street; and
2. Authorize the City Manager to execute a loan term extension until December
2014 for an existing acquisition and predevelopment loan to Community
Corporation of Santa Monica (CCSM) in the amount of $1,161,185 for
1342 Berkeley Street.
Executive Summary
This report discusses two Housing Trust Fund (HTF) loans and seeks City Council
approval to forgive one of the loans and authorize an extension of the term for the other
loan. In 1996, a loan was issued to the Residents Association for the purpose of
performing due diligence associated with the conversion of the property to cooperative
housing and the anticipated acquisition of the mobile home park by residents. That
approach was ultimately not feasible and the City subsequently purchased the property
to preserve it as affordable housing.
Staff recommends forgiving the loan to the Residents Association because the goal of
acquiring the property and preserving it as affordable housing has been achieved.
Another loan involves a typical acquisition and predevelopment loan to CCSM, a local
nonprofit affordable housing developer.
The loan to CCSM was issued in 2004 for the acquisition and predevelopment of a
small lot in conjunction with a larger, adjacent lot that has since been developed as 47
affordable residences. The development of the small lot is challenging due to the
elimination of redevelopment funding in California and its size, which affects its ability to
compete for private financing. City staff recommends extending the term of this loan
until December 2014 to allow sufficient time to create an approach to developing this
site for affordable housing.
1
Background
1930 Stewart Street — Mountain View
Prior to the City's December 2000 purchase of the Mountain View Mobile Home Park
(Mountain View) located at 1930 Stewart Street, the property was privately owned by
the Ring Trading Company. During the early 1990's, the Ring Trading Company
expressed interest in selling the property and the Residents Association intended to
purchase the property and convert it to resident - owned, limited- equity cooperative
housing pursuant to the City's Tenant Ownership Rights Charter Amendment (TORCH).
Since Mountain View served mostly very -low and low- income households, the City
Council supported the effort toward resident ownership and maintaining affordability of
this housing resource.
Also during the 1990's, the Residents Association estimated a total cost of $7.5 million
for acquiring ($5.5 million), converting to cooperative ownership and rehabilitating ($2
million) Mountain View and approached the City for financing assistance involving $4
million of the total cost. To analyze the feasibility of this goal, the City Council directed
staff to work with the Residents Association to provide technical assistance related to
the intended purchase of Mountain View by the residents. The City then entered into a
loan agreement with the Residents Association for an amount not to exceed $272,000
to cover the estimated cost of due diligence regarding property acquisition and
conversion to cooperative resident ownership. Less than one -half of the loan proceeds
were actually disbursed ($124,977), as the feasibility of resident ownership became
insurmountable.
Since the City's purchase of Mountain View in 2000, more than $5 million in
infrastructure upgrades of the property have been completed. Additionally, 19 travel
trailers and mobile homes, obtained by the City as part of the property acquisition, have
been replaced with affordable and sustainable manufactured homes. Furthermore, a
financing_ program was approved by the City Council in 2010 and all nine resident -
owners' applications for financing have been approved. The manufacture and
installation of these nine new homes are pending.
Fj
1342 Berkeley Street
1342 Berkeley Street is a 7,850- square foot vacant parcel currently owned by CCSM.
In 2003, CCSM requested housing trust fund financing from the City for the cost of site
acquisition, predevelopment activities and holding costs. The purpose of the loan was
for the development of affordable housing. Purchase of the site was required by the
seller in conjunction with the purchase of a much larger, adjacent parcel across the alley
(northwest corner of Santa Monica Blvd. and Berkeley Street) that CCSM has since
developed into 47 affordable residences for low- income families. At the time of
acquisition, both properties were owned by one entity, who refused to sell them
separately. The City approved CCSM's financing application and entered into an
Acquisition /Predevelopment Loan with CCSM on February 10, 2004 in the amount of
$1,161,185.
Discussion
Housing Trust Fund (HTF) loans are made pursuant to Guidelines approved by the City
Council for the purpose of preserving or creating affordable housing. Predevelopment
loans are often used as "seed money' to assist eligible borrowers to fund due diligence
expenses, such as environmental studies, soils tests, site surveys, legal work and
feasibility studies, prior to potential site acquisition. Additionally,
acquisition /predevelopment loans are issued to eligible borrowers to fund site
acquisition, holding costs and predevelopment activities such as preparation of
architectural and engineering plans. As the pending development of proposed
affordable housing achieves certain milestones, such as total financing and land use
entitlements, these loans are 'rolled' into larger City loans that are required to close the
funding gap between total development cost of affordable housing and private, state or
federal financing.
The City's HTF loans are intended to facilitate long -term affordability of housing and
complete repayment is generally not feasible. To ensure affordability and in lieu of loan
repayment, properties receiving HTF loans are subject to covenants requiring 80 years
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of affordability. During the affordability (i.e. covenant) period, loan repayment is
deferred and may be forgiven ultimately. However, to the extent a property has net
cash flow after paying all of the operating expenses, debt service (bank loan) and
depositing required amounts into replacement reserves for future capital improvements,
one -half of those funds are remitted to the City and deposited into the HTF.
1930 Stewart Street — Mountain View Mobile Home Park
The City approved a $272,000 Predevelopment Loan with the Residents Association on
April 3, 1996 to cover the costs of due diligence work associated with intended resident
acquisition of the property and conversion to cooperative ownership, such as legal,
survey, inspection, and environmental studies. Only $124,977 of the Loan amount was
actually disbursed, primarily for legal fees ($110,000) related to the preparation of a
TORCA conversion application. The balance of the loan disbursement funded site
surveys ($11,000), inspections and other miscellaneous costs.
As mentioned in this report, the resident purchase of Mountain View and conversion to
cooperative ownership was ultimately not feasible. Many of the members of the
Residents Association are no longer living at Mountain View, most of the current
residents are very low- income and low- income households and the Loan was not
secured (i.e., residents did not own the property). Additionally, HTF loans are intended
to create affordable housing and are not premised on repayment. The goal of City HTF
loans is long -term affordability. The goal of preserving Mountain View as affordable
housing was achieved when the City purchased the property in the year 2000 and
restricted it for occupancy by low- income households. In accordance with the HTF
Guidelines, the loan proceeds were used for expenses associated with attempting to
acquire the property for cooperative ownership and preserving affordable housing.
Therefore, staff recommends that the HTF loan provided to the Residents Association,
in the amount of $124,977, be forgiven.
CI
1342 Berkeley Street
Since executing the acquisition /predevelopment loan in February 2004, the
development of 1342 Berkeley Street was given low priority to allow CCSM and the
Housing Division to focus on several other affordable housing developments that were
in the pipeline. The low priority reflected the fact that the small lot would only
accommodate a very small project (5 -8 units) that could be difficult to finance. Tax -
credit financing is awarded on a competitive basis and typically provides funding to
cover approximately one -half of the total development costs. To be successful in
obtaining an allocation of tax - credit financing, a typical affordable housing development
would involve more than 30 units, as the larger scale achieves an economy of scale.
City staff and CCSM determined it was preferable to have CCSM hold off on pursuing
tax - credit financing for this small property and proceed with tax - credit financing
applications for large affordable housing developments, which likely would be much
more competitive in obtaining funding awards. This strategy proved fruitful in the award
of tax - credit allocations for several affordable housing projects.
To allow additional time to determine the best approach to developing this small lot, the
City granted two extensions of the 2004 acquisition and predevelopment loan for this
property. The HTF Guidelines currently limit the term of an acquisition and
predevelopment loan to 4.5 years, inclusive of the allowable extensions. During late
2010, City staff had reviewed a CCSM application for City HTF financing and in 2011
was preparing to issue a funding commitment for this property. However, during this
time, the State legislature passed a law eliminating redevelopment agencies throughout
California. Santa Monica Redevelopment Agency funding (referred to as 'tax- increment
financing') had been the primary funding source for affordable housing. The current
challenge regarding development of this site involves providing funding for the
development of this property, in light of the elimination of Redevelopment Agency
financing. Therefore, staff recommends the term of this loan be extended until
December 2014 to allow City staff and CCSM sufficient time to pursue alternative
funding approaches for the development of this property.
Financial Impacts & Budget Actions
Forgiveness of the $124, 977.01 in loan funds to Mountain View Residents Association
can be charged to account H14073401.589000.
Regarding the extension to the term of the $1,161,185 loan to CCSM for the 1342
Berkeley Street property, there is no immediate financial impact as a result of the
recommendation to extend the loan term. If the development of this property proceeds
with standard affordable housing financing, the existing acquisition and predevelopment
loan will be 'rolled' into a larger, permanent loan. The permanent loan would have an
80 -year term that provides loan forgiveness at the end of the term, as long as CCSM
operates the property as affordable housing during the loan term.
Prepared by: Jim Kemper, Housing Administrator
Approved:
r~
Andy Agle, Director
Housing and Econo Development
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Forwarded to Council:
Rod Gould
City Manager