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EXHIBIT 2 <br />Judson Brown, City of Santa Ana January 18, 2019 <br />Lacy Street Project: Preliminary Financial Gap Analysis Page 11 <br />excluding any land costs, are greater than the estimated market rate sales prices of the <br />units. <br />The City and Authority should consider the policy implications for utilizing affordable <br />housing assets for the construction of a custom home -type product which results in <br />substantial cost premiums. As a part of this discussion, the City and Authority may want <br />to discuss selling the Site on the open market and utilizing the sales proceeds to assist <br />affordable projects with more typical construction costs. <br />CONCLUSIONS / ISSUES FOR CONSIDERATION <br />The following summarizes the conclusions of the KMA analysis: <br />1. Based on the currently available information, it is KMA's conclusion that the <br />Project exhibits a $263,000 financial gap. The City proposes to utilize up to <br />$231,000 in Inclusionary Housing Funds to fill the financial gap. As such, KMA <br />concludes that the City's proposed financial assistance amount is supported by <br />the Project's economics. <br />Given the detailed nature of the architectural elements proposed to be included <br />in the Project, KMA recommends that the City/Authority require Habitat to <br />obtain at least two general contractor bids prior to the start of construction. <br />This requirement will ensure that all of the agreed-upon architectural elements <br />are adequately reflected in Habitat's budget. The KMA analysis will need to be <br />updated if the contractors' estimates differ from the costs assumed in this <br />preliminary analysis. <br />KMA recommends that the City/Authority consider the following policy <br />objectives regarding the Project's use of affordable housing assets: <br />a. Is this a desirable site for affordable housing? <br />b. Is it a policy objective to utilize affordable housing funds to construct <br />affordable housing units with custom home specifications, which result in <br />units that are more expensive than more typical affordable housing <br />units? <br />1901009:SA:TRB <br />19090.017.011 <br />