HomeMy WebLinkAbout2009-11-19 City Council Item 1 CLTYOF
LAKE LSINO E
� DREAM EXTREME, •
REPORT TO REDEVELOPMENT AGENCY
TO: HONORABLE CHAIRMAN
AND MEMBERS OF THE REDEVELOPMENT AGENCY
FROM: ROBERT A. BRADY
EXECUTIVE DIRECTOR
DATE: NOVEMBER 19, 2009
SUBJECT: AFFORDABLE HOUSING SPECIAL STUDY SESSION
Discussion
Over the last two (2) months, the Redevelopment Agency (RDA) has received an influx
of proposals for affordable housing projects within the City's Redevelopment Project
Areas. During this time, staff received approximately five (5) proposals from four (4)
different affordable housing corporations; Bridge Housing Corporation, Veloce Partners,
Central Valley Coalition, and Fast Building Systems, LLC.
The proposed affordable housing projects are as follows:
The Avenues
The Avenues is a 6.7 acre vacant site on Lake Shore Drive between Avenue 9 and
Avenue 12. The site is currently zoned General Commercial (C -2) and has a General
Plan designation of General Commercial (GC). In order for the project to go forward the
applicant will have to apply for a Zone Change and General Plan Amendment in order
to change the land use of the property from commercial to residential.
The applicant (Bridge Housing) is proposing to purchase the site for $4,000,000 and
given the size of the site is proposing to build two (2) projects. The first project will be a
forty (40) unit senior project and an eighty -five (85) unit family project; for a total of 125
units.
Bridge is proposing to utilize an array of funding sources. The senior project will be
subsidized using HUD 202 funds and Bridge will rent one - hundred percent (100 %) to
extremely low income seniors. The eighty -five (85) unit family project will use nine
percent (9 %) tax credits from County of Riverside HOME funds. The requested RDA
subsidy for the senior project will be approximately $56,000 per unit and the family
project will be $45,000 per unit (see attachment 1).
Affordable Housing Special Study Session
November 19, 2009
Page 2
Harbor Grand
Harbor Grand is an existing 192 unit apartment complex located at 15120 Grand
Avenue, near the intersection of Riverside Drive. The property was built in 1986 and is
in good condition. The project was foreclosed on earlier this year and the bondholders
are marketing it for sale. BRIDGE had previously looked at this deal late last year,
when the asking price was over $18 Million. The current asking price is $12.5 Million or
around $65,000 per unit, well below the replacement cost. The site is currently zoned
High Density Residential (R -3) and has a General Plan designation of Medium High
Density (MHD).
In order to not displace the current residents, the applicant (Bridge Housing), once the
property is acquired, will conduct a formal income qualification process with all of the
current/existing tenants. For those that qualify, the units will be immediately eligible at
the appropriate affordable rental rate. For the remaining tenants, the plan will be to
allow them to stay, and when they voluntarily move out, the unit will be re- leased to an
income qualified tenant.
The applicant has made a purchase offer to the seller for $12,600,000. They have
offered just over the asking price, because of the needed additional time to secure the
proposed financing. Because the property is a foreclosure, it is eligible for
Neighborhood Stabilization Program (NSP) funds that are administered through the
County of Riverside (County). After preliminary discussions with the County, the
applicant plans to apply for $4 Million in NSP funds. The property is not eligible for tax
credits, because of certain rules about holding periods of prior owners, so the other two
(2) sources of financing will be the RDA and a conventional mortgage.
The applicant has estimated a moderate level of rehab for the buildings, approximately
$10,000 per unit, plus the addition of a substantial operating reserve. The purchase
price and rehabilitation scope will be negotiated and finalized based on a thorough
Physical Needs Assessment which will be completed upon acceptance of the purchase
offer. Furthermore, the applicant's preliminary underwriting requires an RDA subsidy of
approximately $46,595 per unit (see attachment 2).
Lakeview Apartments
Lakeview Apartments consists of two (2) adjoining properties located at 32209 & 32211
Riverside Drive. The property is operated as a single 152 unit rental complex but
technically consists of two (2) phases known as Lakeview 1 and Lakeview II. The
phases are owned by separate limited partnerships under the common control of FWC
Realty Services, which also serves as the property management agent.
Lakeview I contains eighty -eight (88) units and was constructed in 1980 with financing
provided by the US Department of Agriculture Farmers Home Administration (now
known as USDA Rural Development.) In addition to long -term mortgage financing at a
below market rate, USDA also provides rental subsidies that ensure the owner a fixed
monthly rental rate for each unit while tenants pay only thirty- percent (30 %) of their
Affordable Housing Special Study Session
November 19, 2009
Page 3
actual household income toward rent. The financing included a twenty (20) year
regulatory agreement restricting rental of the units only to qualified low income families
at affordable rents until May 15, 2000 (the current owner has voluntarily continued
participating in the program subsequent to that date.) While the project remains under
the USDA program, cash distributions to the owner are limited by USDA.
Lakeview II contains sixty -four (64) units and was constructed in 1981 with financing
provided by the California Housing Finance Agency ("CaIHFA"). In a structure similar to
that used at Lakeview I, the CaIHFA financing was accompanied by a US Department of
Housing & Urban Development Section 8 rental subsidy contract and a thirty (30) year
regulatory agreement that extends to October 26, 2011. Owner cash flow distributions
are also limited by CaIHFA.
Upon expiration of the two (2) regulatory agreements, the owners may repay the
remaining loan balances and cease their participation in the rental subsidy programs.
This would allow the owners to be relieved of the current income restrictions, increase
tenant rents to current market rates, and enjoy increased cash flow and /or sale
proceeds from a disposition of the properties. Properties such as these are referred to
as "expiring use" or "at- risk" developments because the expiration of the current
regulatory agreements creates the potential loss of affordable housing for current
residents and the community.
USDA, CaIHFA, HUD, and other public agencies are committed to the preservation and
restructuring of at -risk properties to ensure that the public policy objective of quality
affordable housing is maintained and to avoid displacement to current low income
residents. To encourage the restructuring of these projects, various programs have
been adopted that are available to Lakeview Apartments.
The renovation scope will be extensive in order to ensure a thorough upgrade to the
properties and their longevity as quality housing for an extended period. A professional
capital needs assessment has been performed for each site, accompanied by
inspections by USDA and CaIHFA. Based on these inspections, a scope of rehab work
has been prepared and construction bids have been obtained. The average rehab cost
per unit is expected to exceed $30,000.
A second mortgage loan of $900,000 ($6,000 per unit) is requested with a 50 year
term, three - percent (3 %) interest rate, and repayment in amortized annual payments
from surplus cash flow that commence upon completion of renovation and after
repayment of the allowed developer fee. To avoid triggering expensive state prevailing
wage requirements, the RDA's 20% housing set -aside funds are the appropriate local
funding source.
In order to allow the RDA to include all 152 units for purposes of its affordable housing
obligations, the RDA will record a regulatory agreement against both Lakeview I and
Lakeview II. However, the RDA loan would only be secured against, and repaid by,
Affordable Housing Special Study Session
November 19, 2009
Page 4
Lakeview II as USDA rental assistance regulations restrict the amount of surplus cash
flow available in the future from Lakeview I. This makes Lakeview I an unreliable
repayment source for an additional subordinate lender such as the RDA (please see
attachment 3).
Lakeshore Village
The applicant, Central Valley Coalition, is proposing to construct one - hundred twenty -
eight (128) affordable apartments located on the south side of Lakeshore Drive between
Viscaya Street and Machado Street. The project currently has a Zoning and General
Plan designation of Lakeshore Village Specific Plan. The applicant did not provide staff
with a financing or "proforma" plan, so the amount of agency subsidization or the cost
per dwelling unit is not know at this time (please see attachment 4).
Pottery Street Affordable Homes
The applicant, Fast Building Systems, LLC, is proposing to construct approximately
fifteen to twenty -three (15 -23) single - family dwelling units. The proposed property is
located at Rupard and East Pottery Street. The site has a current Zoning designation of
Single - Family Residential (R -1) and has a General Plan designation of Medium Density
(MD).
All proposed homes will be single -story with three to five (3 -5) bedrooms and two (2)
bathrooms and will energy efficient. The applicant is proposing to designate three to five
(3 -5) dwelling units to very low income buyers and nine to sixteen (9 -16) dwelling units
to low to moderate income. The applicant did not provide staff with a financing or
"proforma" plan, so the amount of agency subsidization or the cost per dwelling unit is
not know at this time (please see attachment 5).
Prepared by: Justin Carlson
Associate Planner
Reviewed by: Tom Weiner
Acting Director of Community Development
Approved by: Robert A. Brady
Executive Director 1
J
Attachments:
1. The Avenues Overview.
2. Harbor Grand Overview.
3. Lakeview Apartments Overview.
4. Lakeshore Village Vicinity and Aerial Maps.
5. Pottery Street Affordable Homes Vicinity Map.
The Avenues
THE AVENUES OVERVIEW
Site Description
The Avenues is a 6.7 acre vacant site on Lakeshore Drive between Avenue 9 and Avenue 12. The site was
originally zoned residential, and the current parcels are laid out as single family lots. More recently, the City
rezoned the site to commercial, although the single family parcel configuration and paper streets are still in
place. BRIDGE has discussed this site with City staff as well as four of the five RDA Board Members.
Staff is concerned about rezoning this site from commercial back to residential. Board Members requested
that we gain community support before bringing the project forward. We address both of these issues here:
Community Support
In response to the request from Board Members, BRIDGE met with the principal and registrar of
Railroad Canyon Elementary. They both felt that the project would not be a concern in the
community and that the nearby Villa Siena (an affordable property) was popular and had a long
waiting list. BRIDGE had been working to schedule a follow up community meeting to reach out to
local residents directly. We have since postponed that meeting due to staff's concerns about the site.
Residential Use
Staff is concerned about the loss of a commercial enterprise in this location. BRIDGE empathizes
with this concern, and wants to explain why this site is an important site for affordable housing in
the City.
The primary source of external subsidy for affordable housing is the Tax Credit program
( "LIHTC "). LIHTC has two types of credit - 9% credits and 4% credits. The 9% credits, as the
number implies, generate more equity than the 4% credit. For a comparison, if Pottery Court were a
4% instead of a 9% deal, it would lose roughly $10 Million in equity equal to over $95,000 /unit.
Another indicator of their value is the competitiveness of the allocations of 9% credits. Pottery
Court scored all of the available points under the 9% criteria, but lost in the tiebreaker. There is no
competition for 4% credits - they are automatic.
Based on these facts, and the RDA's substantial unit deficit and no pipeline aside from Pottery
Court, we are operating under two major assumptions:
1. We should do our utmost to leverage RDA money and minimize the per unit subsidy required
from the RDA.
2. Therefore, we should pursue locations that will score all of the points for 9% credits.
The primary criteria for selecting a site that will compete for 9% credits is the site's proximity to
amenities like schools, grocery stores, transit and parks. The City created a GIS Map that located
the relevant amenities and drew the relevant distance radii around them. This GIS Map shows that
there are three areas with amenity scoring potential - downtown, locations around the Avenues site
and locations along Riverside Drive. We have completed additional analysis, and found the
amenities along Riverside Drive are just slightly too spread out to score in multiple areas. For
example - the grocery stores and the schools are too far apart so that no site, even equidistant
between them, can score under both grocery and school criteria. This was surmountable last year,
with frequent bus service that increased scores, but bus service has since been cut, and we have not
found any qualifying locations on Riverside Drive since that time.
As far as the other eligible area - Downtown is challenged by the small parcels and fragmented
ownership. It is also burdened by relocation in most cases. The cost of the Ayres parcel is over
25% less per square foot than the cost of Pottery Court and that doesn't include the relocation
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The Avenues
expenses at Pottery Court. While searching for a viable location in downtown, all other sites we
explored were more expensive than the Pottery Court site.
Acquisition Price and Gap Financing
BRIDGE is in contract to purchase the entire site for $4,000,000. Given the size of the site, we are
proposing to build two projects here — a 40 unit senior project and an 85 unit family project — for a total of
125 units. The density is lower than at Pottery Court, in response to the surrounding community.
The 40 unit senior project is planned to be subsidized using the HUD 202 program. This program provides
both capital and operating subsidies, allowing us to rent 100% of the units to extremely low income seniors
(those on a single fixed source of income like Social Security). The property will not carry any conventional
debt, but it will use 4% tax credits. The RDA subsidy would be just under $56,000 per unit.
The 85 unit family project would be a 9% tax credit project using County HOME funds (like Pottery Court)
and RDA funds. The minimal RDA subsidy would be just under $45,000 per unit. However, in order to be
more competitive for tax credits, we may request a slightly higher subsidy. We will be able to better assess
the competition and make this determination in summer 2010.
Rents, Incomes and Relocation
As mentioned above, the 40 senior units would have an operating subsidy which would allow us to serve the
lowest income seniors in Lake Elsinore. All of the units are underwritten at 30% of Median, which
translates to $13,980 per year ($1,156 per month) for one person in Riverside for 2009. However, the HUD
202 subsidy would allow us to rent to seniors with incomes even below this amount.
The family units would be a more traditional mix of incomes from 30% of median income up to 60% of
median income. We have only 10% of the units at 60% of median, due to rents and market conditions. We
spoke with the nearby affordable complex, Villa Siena, earlier this year and they had a waiting list on their
50% of median income units, but vacancies in their 60% of median income units.
There is no relocation cost on this site, as the parcels are currently vacant.
Benefits to the City
The Avenues parcel is one of very few opportunities for the RDA to take advantage of 9% tax credits on a
large scale without high assembly and relocation costs. It therefore represents one of a few locations where
we can heavily leverage RDA funds.
For the future residents, the location of this site near the elementary school will clearly benefit the families
with small children, but it will also be a benefit for the seniors. BRIDGE has a number of projects that
encourage intergenerational relationships and activities, and this site could be an excellent location for this
type of program. While we have not worked out details of services and programming, if this site moves
forward, BRIDGE would work with the school, and the school's independent after - school program provider
to build a relationship with both the senior and family property. There could also potentially be a
community building that is available to the school and the two properties, where programs are held for all
groups to participate in together.
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The Avenues
Preliminary Sources and Uses
SENIOR:
Construction Permanent
Sources of Funds Per Unit: Period Period
TBD ( Const) $ 7,150,886
HUD 202 143,055 $ - $ 5,722,192
RDA 55,680 $ 2,227,200 $ 2,227,200
Investor Equity $ 100,000 $ 2,580,643
GP Equity (0.01% of LP pay -in) $ - $ 250,000
TOTAL SOURCES $ 9,478,086 $ 10,780,035
Uses of Funds
Acquisition / Demolition $ 1,619,404 $ 1,619,404
Construction $ 5,449,523 $ 5,449,523
A/E, Permits $ 1,383,305 $ 1,383,305
Indirect Expenses $ 322,804 $ 322,804
Financing and Carry Costs $ 594,891 $ 594,891
Other $ 111,065 $ 411,230
Developer Fee $ - $ 1,000,000
TOTAL USES $ 9,480,993 $ 10,781,158
NET SURPLUS(SHORTFALL) $ (2,907) $ (1,123)
FAMILY:
Construction Permanent
Sources of Funds Per Unit: Period Period
TBD ( Const) $ 15,454,000
TBD (Perm) $ - $ 1,870,000
RDA 44,788 $ 3,807,000 $ 3,807,000
County EDA 4,000 $ 340,000 $ 340,000
Investor Equity $ 100,000 $ 14,967,126
GP Equity (0.01% of LP pay -in) $ - $ 400,000
TOTAL SOURCES $ 19,701,000 $ 21,384,126
Uses of Funds
Acquisition / Demolition $ 2,420,596 $ 2,420,596
Construction $ 12,702,904 $ 12,702,904
A/E, Permits $ 2,560,489 $ 2,560,489
Indirect Expenses $ 462,914 $ 462,914
Financing and Carry Costs $ 1,365,757 $ 1,365,757
Other $ 188,809 $ 471,537
Developer Fee $ $ 1 400,000
TOTAL USES $ 19,701,469 $ 21,384,197
NET SURPLUS(SHORTFALL) $ (469) $ (71)
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The Avenues
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Harbor Grand
HARBOR GRAND OVERVIEW
Site Description
Harbor Grand is an existing 192 unit apartment complex in Lake Elsinore located at 15120 Grand Avenue
near the intersection of Riverside Drive. The property was built in 1986 and is in good condition. The
project was foreclosed on earlier this year and the bondholders are marketing it for sale. BRIDGE had
previously looked at this deal late last year, when the asking price was over $18 Million. The current asking
price is $12.5 Million or around $65,000 per unit, well below the replacement cost.
Looking at the other prospects that BRIDGE has in Lake Elsinore, this site would provide good balance for a
portfolio of affordable units spread throughout the City. Pottery Court is in downtown, the proposed
Ayres /Avenues project is in the southern part of the town and Harbor Grand is in the northern region.
The site is fairly well located, being close Lakeside High School and a public library. A bus route runs
along Riverside Drive about 0.25 miles from the site. The closest grocery store is about 1 mile away.
Acquisition Price and Gap Financing
BRIDGE has made a purchase offer to the seller for $12,600,000. We have offered just over the asking
price, because we will need additional time to secure the proposed financing. Because the property is a
foreclosure, it is eligible for Neighborhood Stabilization Program (NSP) funds that are administered through
the County. After preliminary discussions with the County, BRIDGE plans to apply for $4 Million in NSP
funds. The property is not eligible for tax credits, because of certain rules about holding periods of prior
owners, so the other two sources of financing will be the RDA and a conventional mortgage.
We have assumed a moderate level of rehab for the buildings — $10,000 per unit — plus the addition of a
substantial operating reserve. The purchase price and rehabilitation scope will be negotiated and finalized
based on a thorough Physical Needs Assessment which will be completed upon acceptance of our purchase
offer.
Our preliminary underwriting requires an RDA subsidy of $46,595 per unit. As a point of comparison,
Pottery Court has a commitment from the RDA for $35,938 per unit, and it is additionally leveraged with tax
credits and the HUD HOPE VI Main Street Grant. Tax Credits at Pottery Court provide over $155,000 per
unit in subsidy and the HUD HOPE VI Grant provides over $8,000 per unit. At Pottery Court the County is
contributing close to $4,000 per unit and at Harbor Grand, the NSP Loan will be over $20,000 per unit.
Rents, Incomes and Relocation
The goal for this acquisition is not to displace the current residents, but rather to create affordable units to
meet the RDA's obligations, clean up a property as needed and provide long term affordability as costs in
this region rise. Based on our preliminary review of rents and tenant profiles, we expect that the majority of
the tenants currently living at the property will qualify to live in affordable housing. As part of the due
diligence process, we will request more detailed income information from the tenants to get a better handle
on the number of tenants who qualify and at which income levels.
Once we purchase the property, we will do a formal income qualification process with all of the tenants. For
those that qualify, the units will be immediately eligible to be counted towards the RDA's goals. For the
remaining tenants, the plan will be to allow them to stay, and when they voluntarily move out, the unit will
be re- leased to an income qualified tenant.
Benefits to the City
Harbor Grand is an excellent opportunity for the City to immediately count almost 200 units towards its
affordable goals. It is also a unique opportunity for the City to bring a significant amount federal NSP funds
to the City and greatly help to leverage the RDA set aside funds.
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Harbor Grand
Preliminary Sources and Uses
SOURCES AND USES
Permanent
Sources of Funds Per Unit: Period
TBD (Perm) $ 4,730,000
IRDA : 44595 i$ 1046,10
County NSP 20,833 $ 4,000,000
TOTAL SOURCES $ 17,676,189
Uses of Funds
Acquisition / Closing Costs $ 12,870,000
Construction $ 2,766,748
A/E, Permits $ 312,094
Indirect Expenses $ 385,306
Financing and Carry Costs $ 72,300
Other $ 919,741
Developer Fee $ 350,000
TOTAL USES $ 17,676,189
NET SURPLUS(SHORTFALL) $ (0)
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