SR 03-05-2019 3B
City Council
Report
City Council Meeting: February 26, 2019
Agenda Item: 8.B
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To: Mayor and City Council
From: Andy Agle, Director, Housing and Economic Development, Housing Division
Subject: Proposed Affordable Housing at 1834-1848 14th Street
Recommended Action
Staff recommends that the City Council:
1. Authorize the City Manager to negotiate and execute all necessary documents to
make a Housing Trust Fund loan to Community Corporation of Santa Monica, for
the acquisition and development of the property located at 1834 -1848 14th Street,
in an amount consistent with Housing Trust Fund Guidelines loan limits, to
construct a proposed affordable housing development with more than 50
residences; and
2. Approve the staff recommendations outlined in this report regarding the amount
of developer fees and implementation of the local priority policy.
Summary
Community Corporation of Santa Monica has requested a Housing Trust Fund (HTF)
loan for property acquisition and construction of 55 affordable residences at 1834, 1840,
1844, and 1848 14th Street. The requested loan amount, loan terms, and proposed
affordable housing are consistent with the Council-approved HTF Guidelines. However,
City Council approval is required for loans that fund affordable housing developments of
more than 50 residences.
Discussion
Community Corporation of Santa Monica (CCSM) is a local nonprofit organization
founded in 1982 that develops and manages affordable housing in Santa Monica.
CCSM currently owns and operates 89 affordable housing developments, totaling 1,719
residences, throughout Santa Monica.
CCSM has entered into a purchase agreement and opened escrow for 1834, 1840,
1844, and 1848 14th Street (Property). An aerial map is included as Attachment A.
The Property currently contains commercial buildings on four adjacent properties
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totaling approximately 30,000 square feet of land. CCSM has applied to the City for a
Housing Trust Fund (HTF) loan to acquire and develop affordable housing on the
Property. Staff has evaluated the loan request and conceptual affordable housing
development, which is discussed below.
Proposed Affordable Housing
CCSM proposes to acquire the Property and begin the predevelopment process with
the intention of developing 55 residences for low-income households. The target
population is small and large families earning between 30 percent and 80 percent of the
area median income. The requested per-residence loan amount is below the loan limits
established in the HTF Guidelines.
The conceptual development would maximize the allowable building envelope, including
55 affordable residences and 3,500 square feet of space for CCSM’s maintenance
department, for a total of 44,615 square feet. The zoning district requires a
Development Review Permit for 100 percent affordable housing developments of more
than 50 residences. If Council approves an HTF loan for the Property, CCSM would
initiate at least two community meetings seeking design input prior to submitting a
formal development proposal to the City. The proposed development would be required
to seek approvals from the Planning Commission and Architectural Review Board.
Proposed Rent and Apartment Mix
The proposed rent levels for the development would comply with affordability
requirements and goals in the HTF Guidelines. The following table shows the proposed
affordability levels and residence types for the development:
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Proposed Affordability Levels and Residence Mix
Residence Type
% of Area Median Income Number of
Affordable
Residences 30% 40% 50% 60% 80%
One-Bedroom 3 4 12 8 - 27
Two-Bedroom 2 5 4 1 2 14
Three-Bedroom 2 2 1 7 2 14
Total 7 11 17 16 4 55
Proposed Funding Sources and Uses
CCSM has applied for an acquisition and predevelopment loan of $14,112,228 to
acquire the Property and start the predevelopment process, which includes community
meetings regarding design, securing land-use entitlements, preparation of construction
drawings, competing for Low-Income-Housing Tax Credits, and obtaining bank
financing. CCSM estimates that the proposed development would require an additional
$1,342,993 for construction, for a total City HTF loan of $15,455,221.
CCSM proposes to leverage the City’s HTF loan with $23,747,625 of tax-credit equity, a
bank loan of $1,531,105, and a proposed capitalized lease payment of $1,785,000 for
the proposed replacement of CCSM’s maintenance facility from an adjacent site (1826
14th St.) to the Property. The capitalized lease payment and the bank loan will fund the
pro rata costs for development of CCSM’s maintenance facility so that the City’s HTF
loan will only fund the development costs of the residential portion of the project. The
following table illustrates the anticipated financing sources and uses for the proposed
affordable housing development. Descriptions of the funding sources are presented in
Attachment B.
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1834-1848 14th Street Estimated Funding Sources and Uses
SOURCES Amount Per
Residence Per Bedroom
Bank Loan $1,531,105 $27,838 $15,785
City of Santa Monica $15,455,221 $281,004 $159,332
Tax Credit Equity $23,747,625 $431,775 $244,821
Capitalized Lease
Payment for CCSM
Maintenance Facility
$1,785,000 $32,455 $18,402
Deferred Developer Fee $249,406 $4,535 $2,571
Total Sources $42,768,357 $777,607 $440,911
USES Amount Per
Residence Per Bedroom
Acquisition Costs $11,970,877 $217,652 $123,411
Construction Costs $23,309,093 $423,802 $240,300
Soft Costs $7,488,387 $136,153 $77,200
Total Uses $42,768,357 $777,607 $440,911
Staff has reviewed the estimated costs and proposed sources of funds and determined
that the construction costs, soft costs, and proposed funding sources are reasonable. At
$281,004 per residence of City subsidy, the request falls below the HTF loan limits.
Merits of the Application
Under the HTF Guidelines, staff evaluates the merits of a loan r equest and proposed
development based on the criteria identified below:
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Criteria Merits of the Loan Request
(1) Significantly increases
affordable housing opportunities
for households who have
difficulty finding housing
including the homeless, large
families, the disabled, seniors,
and persons traditionally served
by Single-Room Occupancy
housing.
The proposed development would increase
affordable housing opportunities for large families
in Santa Monica who typically have difficulty
finding appropriately sized housing in the city.
The unit mix includes 14 two-bedroom
residences and 14 three-bedroom residences, or
51 percent of the development.
(2) Cost-effective or achieve
the lowest possible subsidy per
unit for City resources.
The proposed City subsidy would be leveraged
by approximately $23,747,625 in tax credit equity
(or 56% of the total permanent financing) from
the 9% Low Income Housing Tax Credits from
the State of California, $1,531,105 in a
permanent bank loan (4% of the total permanent
financing), and $1,785,000 in a capitalized lease
payment (4% of the total permanent financing).
CCSM will continue to explore other funding
sources such as the state’s Affordable Housing
and Sustainable Communities Program during
the predevelopment period to ensure that the
proposed development is cost-effective and
achieves the lowest possible subsidy per unit for
City resources.
(3) Benefit a high percentage
of very low- and low-income
households by ensuring deeper
affordability.
51 of the 55 residences would target low-income
households at or below 60% of the area median
income (AMI). 3 of the remaining 4 residences
would target households at or below 80% of the
area median income (AMI). The remaining
residence would be reserved for an onsite
manager. Additionally, the proposed development
would provide deeper affordability with seven
residences at 30% AMI, 11 residences at 40%
AMI, and 18 units at 50% AMI.
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Criteria Merits of the Loan Request
(4) Located in areas currently
underserved by affordable
housing developments.
The proposed development is in the Pico
Neighborhood. See Attachment C which includes
a map illustrating the locations of City-funded
affordable housing and further discusses the
geographic distribution of City-funded affordable
housing. Given the proximity to transit (both the
Expo Line and bus routes), schools,
supermarkets, parks, and other services, the
proposed development would provide new
affordable housing opportunities for low-income
households as well as convenient access to
valuable community amenities.
(5) Address an area of need
identified in the Housing
Element of the City of Santa
Monica.
Santa Monica’s Housing Element includes the
goal of producing housing for all income
categories (Goal 2.0), including providing financial
assistance to nonprofit housing developers for
affordable housing (Objective 2.c) and facilitating
the development of special-needs housing which
includes large families (Objective 2.f)
(6) Addresses a particular
need identified in the Council-
approved Housing Trust Funds
Plan.
The HTF Guidelines Initial Plan was approved by
City Council in July 2018 identifying affordable
housing for four target populations: seniors,
persons living with disabilities, larger families, and
small families/individuals. The proposed
development addresses the identified need of
affordable housing for large families and small
families/individuals.
(7) Loan Applicant’s past and
projected effectiveness
implementing the City-
established local preferences
(i.e. households which live or
work in Santa Monica).
CCSM has achieved moderate success in
ensuring that Santa Monica residents and
workers are beneficiaries of their affordable
housing through outreach and local marketing
strategies. CCSM has been working with City
staff on improving implementation methods to
increase the intended outcomes anticipated by
the local priority policy. Below is an additional
recommendation regarding local preferences.
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Staff Recommendations
Staff believes the proposed affordable housing development reflects appropriate target
populations, affordability levels, and leveraging of non-City funding. However, staff has
identified two additional recommendations related to the proposed loan:
Proposed Developer Fee
Most affordable housing financing programs, including the HTF Guidelines, allow an
affordable housing developer to be paid a “developer fee” from the financing to offset
costs associated with development. The HTF Guidelines establish maximum developer
fees that can be paid from housing trust funds for developments of 50 residences or
fewer. The HTF Guidelines stipulate that developer fees are to be negotiated for larger
developments, without providing specific direction or criteria to assist in determining an
appropriate negotiated developer fee. For context, the HTF Guidelines establish that
new construction developments between 31 and 50 residences qualify for a developer
fee of $18,456 per residence, which would equate to $1,015,080 for the proposed 55 -
residence development. CCSM has requested a developer fee of $34,076 per
residence, or $1,874,180 in total. The requested developer fee is included in the
requested $15,455,221 City Loan, with $249,406 of the requested developer fee to be
deferred until completion and to be paid through the development’s operating income.
The maximum developer fees established by the HTF Guidelines are lower than the
amounts allowed by most other funding entities. However, Santa Monica typically
provides higher loan amounts per residence than other jurisdictions. Staff believes that
the additional work and extended timeline associated with discretionary land use
approvals for the proposed 55-residence development (i.e., development review permit)
may warrant a modest increase above the maximum per-residence developer fee
established for developments of 31-50 residences. However, the requested developer
fee represents a substantial premium that staff does not believe is warranted. For the
proposed development, staff recommends a developer fee of five percent (5%) above
the HTF Guidelines’ established maximum of $18,456 per residence for smaller
developments, or $19,379 per residence, for a total of $1,065,845. If Council approves
the staff recommendation, the requested loan amount mentioned earlier in the report
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would be decreased accordingly. Approximately $250,000 of developer fees would
continue to be deferred to be recaptured through operating income.
Local Priority Policy
The HTF Guidelines include a local priority policy, which requires that priority in
affordable housing is to be given to households who live or work in Santa Monica as a
condition of City funding. The proposed affordable housing development is located in
the Pico neighborhood. Some residents in the Pico neighborhood have expressed
concern regarding barriers to obtaining affordable housing in CCSM prop erties. Under
the HTF Guidelines, CCSM is required to follow the local preference policy and market
affordable housing opportunities to Santa Monica residents and workers. Additionally,
CCSM proposes to complete targeted marketing to Pico Neighborhood re sidents and
has committed to offering credit-repair workshops in the coming months, as poor credit
histories can act as a barrier for housing applicants.
While staff is supportive of the proposed targeted marketing, staff has concerns that
CCSM’s implementation of the local priority policy does not align with City protocols for
achieving prioritization for locals. CCSM and staff have been discussing approaches for
implementation of the local priority policy to increase the effectiveness and achievement
of desired outcomes. Staff recommends that the proposed loan be conditioned upon
CCSM utilizing the existing City-administered waitlist for the development, which the
City will update the waiting list as needed. The existing City-administered waitlist
implements the local priority policy in a manner that is consistent with the City’s
methodology, which sorts by, and gives priority to, households that live or work in Santa
Monica.
Housing Commission Input
At its January 17, 2019 meeting, the Housing Commission voted unanimously to
support providing an HTF loan to CCSM for a 55-residence affordable housing
development at the Property. The Commission shared staff concerns about the
requested developer fee and implementation of the City’s local priority policy.
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Past Council Actions
07/25/2017
(Attachment D)
Current Version of the Housing Trust Fund Guidelines
07/24/2018
(Attachment E)
Housing Trust Fund Initial Plan
Financial Impacts and Budget Actions
Funding to make a loan to Community Corporation of Sa nta Monica for the affordable
housing development at 1834-1848 14th Street is available in the Citywide Housing
Trust Fund.
Prepared By: Natalie Verlinich, Senior Development Analyst
Approved
Forwarded to Council
Attachments:
A. Proposed Development Location
B. Description of Funding Sources
C. Dispersal of Affordable Housing
D. Current Version of the Housing Trust Fund Guidelines (Web Link)
E. Housing Trust Fund Initial Plan (Web Link)
Attachment A
Proposed Development Location
1834, 1840, 1844 & 1848 14th Street, Santa Monica, CA
Attachment B
Description of Funding Sources
Bank Loan
Community Corporation of Santa Monica (CCSM) anticipates obtaining an amortized
bank loan estimated at $1,531,105 based on the development’s projected available
cash flow after paying all operating expenses.
City Loan
CCSM has requested a loan from the Citywide Housing Trust Fund estimated at
$15,455,221 ($14,112,228 during the acquisition and predevelopment phase).
Tax Credit Equity
CCSM anticipates applying for, and receiving, an award of Low Income Housing Tax
Credits (LIHTC) from the State of California. LIHTCs awarded to CCSM (a nonprofit,
with no tax liability) would then be sold to private investors who provide funding (i.e.,
equity) for construction of the development in exchange for use of the tax credits.
Capitalized Lease Payment
CCSM proposes to utilize 3,500 square feet of commercial space to replace its existing
maintenance facility (currently at the adjacent 1820 14th Street site, which will be
demolished as part of a new affordable housing development for seniors). To finance
the construction of the new maintenance facility, CCSM is proposing to contribute
$1,785,000 in the form of a capitalized (i.e., lump sum) lease payment for the first 17
years. The amount of the lease payment is based upon market value lease rates in the
area, discounted to reflect the prepayment of 17 years rent in a lump sum. After Year
17, CCSM proposes an annual lease payment based on the market lease rate for
commercial space.
Deferred Developer Fee
CCSM is proposing a portion of the developer’s fee ($249,406) be deferred, not be paid
as part of the development expense. Instead the deferred portion of the developer fee
would be paid from operating cash flow for a maximum of ten years.
Attachment C
Dispersal of Affordable Housing
The HTF Guidelines include a priority for developments which “are located in areas
currently underserved by affordable housing developments”, so that affordable housing
opportunities are dispersed throughout the City. However, the HTF Guidelines do not
preclude funding affordable housing in neighborhoods which have been served by
previous affordable housing developments.
The proposed development is in the Pico Neighborhood. Residents in the Pico
neighborhood have previously expressed concerns about a concentration of affordable
housing in the Pico neighborhood, as well as gentrification. The proposed loan to
create affordable housing can help mitigate gentrification and promote diversity without
displacement of any residents. City-funded affordable housing since 2014 has been
distributed as follows:
City-Funded Affordable Housing Since 2014
# of Properties Neighborhood
2 Pico
2 Sunset Park
1 Downtown
1 Mid-City
1 Mid-City/Pico
1 North of Montana
1 Ocean Park
The following map illustrates the distribution of City-funded affordable housing
throughout all multifamily neighborhoods in the City.
Attachment C (continued)
Dispersal of Affordable Housing