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Current Council Agenda and Past Meeting Information

 

REDEVELOPMENT AGENCY AGENDA ITEM NO. 2

Meeting Date: January 11, 2005

Subject/Title: Approve a Resolution Authorizing the Reservation and Expenditure of Low/Moderate Housing Set-Aside Funds for the Mercy Housing California’s Villa Amador Apartments and Direct Staff to Commence Preparation of Supporting Agreements

Prepared by: Gina Rozenski, Redevelopment Manager

Submitted by: Howard Sword, Community Development Director

RECOMMENDATION
By resolution, authorize reservation and expenditure of Low/Moderate Housing Set-Aside Funds in the amount of $1,400,000 for the Mercy Housing California’s Villa Amador Apartments to be located on the northeast corner of Sand Creek Road and Shady Willow Lane. Direct staff to commence preparation of supporting agreements and documents.

PREVIOUS ACTION
Mercy Housing California’s Villa Amador apartment complex was approved by the Planning Commission in January 2003 (Design Review, Conditional Use Permit and Mitigated Neg Dec). Mercy Housing expects to apply for an extension shortly.

Since City approvals in January 2003, Mercy Housing California (“Mercy”) has discussed with the Redevelopment Agency staff the need for financial assistance necessary for this project’s economic feasibility to provide units for very low income households. Agency staff prepared its due diligence analysis of the proposed Villa Amador affordable family apartment complex and reviewed the necessity for the funding requested by Mercy from the Agency and City.

The corresponding staff report recommending City funding for Villa Amador is calendared on the Council’s agenda this evening.

BACKGROUND
Mercy Housing is a non-profit affordable housing organization. Mercy has sponsored several projects in the City of Brentwood including the sweat-equity homes known as Arroyo Seco Estates behind Big B Lumber, and Marsh Creek Vista located south of Grant Street. Non-profit affordable housing organizations, by their nature, layer several public fund sources to achieve the financing necessary to build affordable units.

The Villa Amador project is a $31.7M project. Mercy has either already obtained or has applied for financial commitments from a variety of funding sources, including their request for $2M from the City of Brentwood and the Brentwood Redevelopment Agency, described as follows:

Sources of Funds
Permanent Financing
Tax Credit Investor Equity (sale of tax credits) $11,378,747
Permanent 1st Mortgage (Tax Credit Rents) 5,250,000
Permanent 2nd Mortgage (HCV Rent Subsidy) 1,740,000
Affordable Housing Program (AHP) (Federal) 507,600
Multifamily Housing Program (MHP) (HCD/State) 5,509,905
Farmworker Grant Program (HCD/State) 999,411
Farmworker Loan Program (HCD/State) 900,000
HOME funds – Contra Costa County 2,000,000
City Housing Trust Fund 600,000
Redevelopment Agency Housing Fund 1,400,000
General Partner Equity 905,000
Deferred Developer Fee 500,000
Total Sources $31,690,663

Villa Amador is a 96-unit family apartment project at the northeast corner of Sand Creek Road and Shady Willow Road, on approximately 8 acres. The project is bordered by residential to the north, agricultural land for future commercial to the west, residential to the south and vacant land to the east designated for a community park and flood detention basin. This will be the second affordable housing project west of Fairview Avenue, is within close proximity to existing and planned commercial areas and a future community park, and is within walking distance of Loma Vista Elementary School.

The approved project is comprised of 14 two-story buildings, with a mix of 1, 2, 3, and 4 bedroom apartments. All units will be for very-low income households. Twenty-five units must be set aside for agricultural workers in compliance with the Joe Serna Jr. Farmworker Grant Program. The project will have a 3800 square foot community building with a child care classroom for 40 children, a computer room, community room, and office space for managers. The project will also have two tot lots, a basketball/volleyball area, a child care play area, and car wash area.

ANALYSIS
The Redevelopment Agency staff’s due diligence for this project included:

• Confirm that the amounts budgeted for the development costs are adequate and reasonable. Review supporting documentation and cost estimates provided by developer, engineering consultants and City, as available, to ensure consistency with assumptions used in the pro forma analysis.
• Review the City-imposed requirements for finishes and features over and above those typically associated with affordable housing developments. To the extent possible, quantify the incremental cost attributable to these additional features.
• Review project revenue and operating expense assumptions to determine if they are reasonable and appropriate.
• Confirm the availability of proposed funding sources and the permanent loan and construction loan funding capacity. Review the amount allocated for the developer fee and the amount of fee being reinvested into the project. Determine whether the developer contribution is reasonable.
• Review the necessity for funding request by Mercy from the City and Agency. Propose reasonable loan terms for the City and Agency subsidy portion of the project.


The $31.7M development cost for this project is impacted by many variables, including the requirement to pay prevailing wages. Prevailing wages typically add an estimated 30% to affordable housing projects built by non-profit developers. Prevailing wages are required by government funding sources. Other variables that impact the cost include land price, site configuration and improvements, lower than typical density for high-density residential, and project amenities. The special finishes, features and enhancements imposed by the City on the Villa Amador project include:

• Tile roofs, while a mandate for Brentwood, is an upgrade not typically found in affordable housing projects.
• Additional visitor parking spaces
• Two parking spaces per unit.
• Bicycle parking and improved bicycle/pedestrian access to arterial roads.
• Enhanced architectural features (exterior belly banding and exterior window treatments).
• Wrought iron fencing.
• Block wall with stucco face rather than wood fencing.
• Gated development with security entrance gates.
• Bus shelter.
• Accents added to carports. Wood construction of carports will require fire sprinkler systems.
• Car wash.
• Tot lots are larger than typical.
• More interior fencing.
• Wider interior streets.
• Additional landscaping and irrigation.
• Special lighting features.
• 2.5 bathrooms for 3 and 4 bedroom units is a requirement of CalHFA as a permanent lender.

Compared to other affordable apartment projects in the Bay Area, Villa Amador is on the upper end of development costs partly attributable to the special features imposed on the project. Ultimately, these enhancements should provide Brentwood a well-managed, high quality, and desirable multi-family project.

Mercy had the option to apply for a state density bonus of 25% to increase the number of units allowed on the site. However, upon staff’s recommendation, the density at Villa Amador was intentionally constrained in an attempt to blend the project into the existing context of the surrounding neighborhood. The project is approved at 13 dwelling units per acre. Mid-range density is 15.5 units per acre, and maximum density is 20 units per acre. Lower than normal site utilization inherently increases the cost of the development by lowering economies of scale achieved at higher densities, and decreases revenues due to the reduced number of units.

In summary, the enhancements and features imposed on the project, the enlongated site configuration and subsequent additional site improvements (roadway, fencing, sidewalk, joint trench, etc.) and the lower than normal density decreases Villa Amador’s financial feasibility and increases the gap. Mercy is requesting the City and Agency contribute $2M to this project to fund the gap between all other funding sources and the development costs. The County’s contribution of $2M of HOME funds is contingent on matching funds from the City and Agency.

This will be the second opportunity for the Council to designate a portion of its City’s Housing Trust Fund; this time for an affordable family project. The City’s Housing Trust Fund is comprised of fees paid by housing developers in lieu of building affordable units within their subdivisions. The purpose of the Housing Trust Fund is specifically meant for this type of expenditure: to create affordable, decent, safe and sanitary housing opportunities for lower income members of our community. The City’s contribution of $600,000 to this project implements the Council’s policy to strategically spend its housing funds by leveraging the collected in-lieu fees to create 96 affordable rental units rather than 3 or 4 affordable ownership units.

While the use of City’s Housing Trust Fund is discretionary, Community Redevelopment Law (“CRL”) restricts the use of the Redevelopment Agency’s Low/Moderate Housing Set-Aside Fund (“Agency’s Housing Fund”) by requiring compliance with certain regulations. CRL allows the use of Agency’s Housing Fund outside the redevelopment project areas, however, when the Redevelopment Agency is directly contributing to the development of affordable units, a minimum 15% inclusionary housing obligation is triggered, per Health & Safety Code Section 33413(b)(1). In the case of Villa Amador, 15 units need to be deed-restricted (96 units x 15% = 15 units). But this project is adding 96 very-low income dwelling units to the City’s inventory of affordable units, essentially meeting the Agency’s 15-unit obligation and adding a surplus of 81 units. The Agency will receive one credit for every two units created outside the redevelopment project area, or 48 units. The units will be deed- and rent-restricted for a period of 55 years in favor of both the City and Agency.

Traditionally, the Agency has spent from $12,000 to $50,000 per unit to provide affordable housing in our community. The recommended contribution of $2M will represent a $21,000 per unit contribution on the part of the Agency and City, and well within the Agency’s record of past per-unit contributions.

The need for multi-family, affordable housing is critical in our community as evidenced by the City’s Housing Element and the ABAG-identified housing needs for the City of Brentwood. The State Department of Housing and Community Development is also requiring cities to provide more large-family units, which can be met by the 3- and 4-bedroom units approved for Villa Amador.

The Redevelopment Project Area Committee, the Redevelopment Subcommittee and the Housing Subcommittee recommend Council and Agency approval of the $2M contribution.

CONCLUSION
Proceeding with this project is consistent with the Council’s policy to use City’s Housing Trust Funds to leverage the provision of more affordable units, and is consistent with Community Redevelopment Law, the Redevelopment Plan and the Five-Year Implementation Plan to provide affordable housing. The project integrates the proposed multi-family residential use with the surrounding existing uses, which, in turn, strengthens the immediate neighborhood and the community in general.

Based on staff’s due diligence and review of Mercy’s pro forma analysis, the project requires $2M of additional capital funding to cover the total development budget. Based on our analysis, Mercy Housing California appears to have diligently pursued all readily available funds from federal, state and other sources, and their request for $2M of City and Agency assistance to cover the funding gap in the development is reasonable.


It is staff’s recommendation that the Agency direct staff to reserve and expend $1.4M of its Low/Moderate Housing Set-Aside Fund for contribution to the Villa Amador project. The contribution shall be secured by long-term loan payable in full in 55 years or upon sale of the property or change of ownership, with 3% annual simple interest accrued and deferred. A 55-year deed-restriction constituting an affordability covenant on the property shall be recorded in favor of the City and Agency. Staff also recommends that the $1.4M Agency contribution and the City’s $600,000 contribution be used to provide upfront financial assistance through payment of a portion of the developer fees approximated at $3.3M, which serves to function as a long-term deferral of fees assuming the contributions would be structured as a long-term 55 year loan.

In addition, staff requests the Agency to direct staff to commence preparation of supporting agreements and documents.

FISCAL IMPACT
This project commits $1.4M from the Agency’s Low/Moderate Housing Set-Aside Fund. The Low/Moderate Housing Fund had a fund balance of $800,000 as of November 30, 2004, anticipated revenues of $800,000 and expenditures of $550,000 during the 04/05 fiscal year. Tax increment revenues in 2005/06 for the Agency’s Low/Moderate Housing Set-Aside Fund are estimated to be in excess of $900,000. The Housing Set-Aside Fund is stable and healthy, and can financially support the Villa Amador project, especially since this project is expected to be multi-year.

Attachments: Resolution
Site Plan

RESOLUTION NO. RA-

A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF BRENTWOOD AUTHORIZING THE RESERVATION AND EXPENDITURE OF LOW/MODERATE HOUSING SET-ASIDE FUNDS IN AN AMOUNT NOT TO EXCEED $1,400,000 FOR THE DEVELOPMENT OF MERCY HOUSING CALIFORNIA VILLA AMADOR, A MULTI-FAMILY HOUSING PROJECT, AND DIRECTING STAFF TO COMMENCE PREPARATION OF SUPPORTING AGREEMENTS AND DOCUMENTS

WHEREAS, California Community Redevelopment Law provides that a redevelopment agency shall establish a Low/Moderate Housing Fund (“Housing Fund”) and deposit a portion of tax increment revenues annually into the Housing Fund for the purpose of increasing, improving and preserving the supply of low and moderate income housing available at affordable housing cots; and

WHEREAS, the Brentwood Redevelopment Agency (“Agency”) desires to support the availability of housing opportunities for very low, low and moderate income residents within the community; and

WHEREAS, the Agency has been requested to financially support a portion of the necessary development costs to construct Villa Amador, a 96-unit, very-low income, multi-family project sponsored by Mercy Housing California (“Mercy”), approved by the City of Brentwood (“City”) to be located on the northeast corner of Shady Willow Lane and Sand Creek Road; and

WHEREAS, Mercy possesses the qualifications and management resources necessary to insure the development of the Villa Amador Project in accordance with the purposes and objectives of the Agency’s Redevelopment Plan, and the City’s General Plan and design guidelines; and

WHEREAS, Mercy HUD has approved funding commitments for the Villa Amador Project from a combination of other public fund sources such as Federal Low Income Housing Tax Credit program, California Housing and Community Development Joe Serna Farmworker Housing Grant program, a California Housing and Community Development Multi-Family Housing Program loan, Federal Home Loan Bank Affordable Housing Program (AHP) funds, tax-exempt bond financing, and Contra Costa County HOME loan; and

WHEREAS, Contra Costa County has approved $2,000,000 of HOME funds for the Villa Amador Project contingent on a matching contribution from the Agency and City; and

WHEREAS, the Agency has performed its due diligence and review of the Villa Amador Project’s financial pro forma, determined the adequacy and reasonableness of the development costs, reviewed the revenue and operating expenses for appropriateness, confirmed the availability of non-Agency funding sources, and reviewed the necessity for the $2,000,000 funding request from the Agency and City of which $1,400,000 shall be funded by the Agency’s Housing Fund and $600,000 shall be funded by the City’s Housing Trust Fund; and

WHEREAS, the Agency has funds available in its Housing Fund to contribute to a portion of the cost of the development fees for the Villa Amador Project; and

WHEREAS, Mercy has requested funding from the Agency in the amount of $1,400,000 in support of the Villa Amador Project to combine with other public fund sources including $600,000 from the City’s Housing Trust Fund and $2,000,000 from the Contra Costa County’s HOME grant; and

NOW, THEREFORE BE IT RESOLVED that the Redevelopment Agency of the City of Brentwood hereby authorizes:

1. The reservation and expenditure of Agency Housing Funds in an amount not to exceed $1,400,000 to assist Mercy Housing California in funding a portion of the development fees associated with the construction of the Villa Amador Project, subject to the preparation and approval by the Agency of an agreement specifying the specific terms and conditions of participation with Mercy Housing California relating to the development of the project.

2. The expenditure of Agency Housing Funds to provide certain professional and legal services associated with preparing necessary agreements and documents specifying the specific terms and conditions of participation to support of the Villa Amador Project.

3. Staff to commence preparation of the necessary agreements and documents to support the Villa Amador Project such as, but not limited to, a Participation and Loan Agreement, Affordability Agreement, and Promissory Note. Final agreements and notes shall be returned to the Agency for their review and approval.

PASSED, APPROVED AND ADOPTED by the Redevelopment Agency of the City of Brentwood at a regular meeting held on the _____ day of ____________, 2005 by the following vote:
 

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