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HomeMy WebLinkAboutRDA Agenda Item No. 5CITY OF LADE LSINOIZE DREAM F.XTREMF. REPORT TO REDEVELOPMENT AGENCY TO: HONORABLE CHAIRMAN AND MEMBERS OF THE REDEVELOPMENT AGENCY FROM: ROBERT A. BRADY EXECUTIVE DIRECTOR DATE: OCTOBER 12, 2010 SUBJECT: LAKEVIEW APARTMENTS AFFORDABLE HOUSING PROJECT Background Lakeview Apartments consists of two (2) adjoining properties located at 32209 & 32211 Riverside Drive. The property is operated and managed as a single 152 unit rental complex but technically consists of two (2) phases known as Lakeview I and Lakeview II. The phases are owned by separate limited partnerships under common control. On July 13, 2010, the Agency Board directed staff to prepare the necessary agreements and related documents evidencing a $1.1 million loan from the Agency's Low and Moderate Income Housing Fund to assist in the acquisition and substantial rehabilitation of Phase II portion of the Lakeview Apartments by the Developer, Bentall Residential, L.P. Although the Agency's financial assistance is directed at Phase 11, the Agency has required that both Phase I and Phase II be subject to a 55 year affordability covenant. Discussion 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.) 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.) 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. AGENDA ITEM NO. 5 Page 1 of 3 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 California Community Redevelopment Law also encourages the preservation and rehabilitation of affordable housing. The viability of this proposed preservation project requires that both phases of the Lakeview project be acquired. The Developer has obtained necessary commitments to complete the acquisition and rehabilitation of Lakeview I and is requesting assistance from the Redevelopment Agency's Low and Moderate Income Housing Fund in connection with the acquisition and rehabilitation of Lakeview Il. While the Redevelopment Agency's financial assistance would be directed only to Lakeview Il, the developer has agreed to name the Agency as a third party beneficiary to the affordability covenants to be recorded against Lakeview I which will allow these units to count toward the Agency's inclusionary housing obligations. With the exception of the on -site manager's unit, all of the units in Lakeview II will count as "inclusionary units." Together Lakeview I and Lakeview II will provide approximately 150 inclusionary units. 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. In response to the Agency's inquiry whether additional parking could be provided, the developer has reviewed the site plan and anticipates an additional 9 parking spaces (5 of which will be handicap accessible) can be provided on -site to improve the parking ratio. 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 rehabilitation work has been prepared and construction bids have been obtained. The estimated construction costs for Lakeview II are approximately $2,636,689. Total project costs, including acquisition, rehabilitation, predevelopment, financing and other indirect costs are estimated at $7,510,047. The developer's proforma was submitted to and reviewed by the Agency's financial consultant Keyser Marston Associates (KMA). KMA has determined that the developer's request for $1.1 million in financial assistance is reasonable. Page 2 of 3 Lakeview Apartments Affordable Housing Project October 12, 2010 Page 3 The attached Affordable Housing Loan Agreement provides for a $1.1 million loan with 1% annual interest. The loan terms provide for annual payment based on residual receipts (excess cash flow after payment of expenses and other debt service). Any outstanding loan balance is due at the expiration of the 55 -year affordability period. The loan will be secured by a deed of trust and is also conditioned upon the recordation of an affordable housing regulatory agreement. The Regulatory Agreement requires 27 rental units (16 1- bedroom, 7 2- bedroom and 4 3 bedroom units) be restricted to occupancy by very low income households. The remaining 37 units will be restricted to occupancy by low income families. Rents will be affordable in accordance with applicable redevelopment law requirements. The affordability restrictions shall run with the land for 55- years. Fiscal Impact $1,100,000 from the Agency's Low and Moderate Income Housing Fund for Fiscal Year 2010/11 Recommendation That the Agency Board take the following actions: 1. Authorize the Executive Director to execute the final form of the attached Affordable Housing Loan Agreement subject to any minor modification as approved by the City Attorney; and 2. Authorize the Executive Director to execute any other ancillary documents necessary to effectuate the Agency loan and affordability covenants. Prepared by: Barbara Leibold, Agency Counsel Approved by: Robert A. Brady Executive Director Page 3 of 3