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Home My WebLink About80A - AFFORD HOUSING LOANREQUEST FOR COUNCIL/ HOUSING AUTHORITY ACTION CITY COUNCIL MEETING DATE: JANUARY 15, 2019 TITLE: APPROVE A PRE -LOAN COMMITMENT OF $3,170,547 OF AFFORDABLE HOUSING FUNDS AND EIGHT PROJECT -BASED VOUCHERS TO NATIONAL COMMUNITY RENAISSANCE OF CALIFORNIA AND MERCY HOUSE LIVING CENTERS FOR THE DEVELOPMENT OF THE SANTA ANA UNITED METHODIST CHURCH PROJECT {STRATEGIC PLAN NO. 5, 3C} CITY MANAGER EXECUTIVE DIRECTOR RECOMMENDED ACTION CITY COUNCIL CLERK OF COUNCIL USE ONLY: APPROVED ❑ As Recommended ❑ As Amended ❑ Ordinance on 1s' Reading ❑ Ordinance on 2nd Reading ❑ Implementing Resolution ❑ Set Public Hearing For CONTINUED TO FILE NUMBER Authorize the City Manager and the Clerk of the Council to execute a pre -loan commitment letter with National Community Renaissance of California ("National CORE") with Mercy House Living Centers ("Mercy House") as the service provider for $3,170,547 in Inclusionary Housing Funds for the development of the Santa Ana United Methodist Church affordable housing project located at 609 N Spurgeon Street, Santa Ana, CA 92701, subject to non -substantive changes approved by the City Manager and City Attorney. HOUSING AUTHORITY Approve an award of eight (8) project -based vouchers and authorize the Executive Director of the Housing Authority and the Recording Secretary to execute an Agreement to Enter into a Project - Based Vouchers Housing Assistance Payments Contract with National CORE for the development of the Santa Ana United Methodist Church affordable housing project, subject to non -substantive changes approved by the Executive Director of the Housing Authority and Authority General Counsel. COMMUNITY REDEVELOPMENT AND HOUSING COMMISSION RECOMMENDATION At its special meeting on December 19, 2018, the Community Redevelopment and Housing Commission (CRHC) by a vote of 5:0 (Ramos and Urzua abstained): 1) Recommended that the City Council authorize the City Manager to execute a pre -loan commitment letter with National CORE with Mercy House as the service provider for $3,170,547.00 in Inclusionary Housiggr Xy q for the development of the Santa Ana United Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January 15, 2019 Page 2 Methodist Church affordable housing project located at 609 N Spurgeon Street, Santa Ana, CA 92701. 2) Recommended that the Housing Authority approve an award of eight (8) project -based vouchers and authorize the Executive Director of the Housing Authority to execute an Agreement to Enter into a Project -Based Vouchers Housing Assistance Payments Contract with National CORE for the development of the Santa Ana United Methodist Church affordable housing project. DISCUSSION On June 19, 2018, the City Council authorized the Community Development Agency (CDA) to release a Fiscal Year 2018 — 2019 Request for Proposals (RFP) to develop affordable rental and ownership project(s) in the City of Santa Ana with available funds from the HOME Investment Partnerships Program (HOME), Community Development Block Grant Program (CDBG), Project Based Voucher Program (PBV), Inclusionary Housing Fund, and Housing Successor Agency Fund. The RFP also included land assets currently owned by the Housing Authority of the City of Santa Ana. The RFP was drafted in compliance with the City's Affordable Housing Funds Policies and Procedures adopted by City Council on March 20, 2018. On July 2, 2018, CDA issued RFP # 18-056 for Affordable Housing Development. The RFP was published on both the City and Housing Authority's websites; a public notice was published in the OC Register on July 2, 2018; an e-mail was sent out by Orange County's largest affordable housing membership associations including the Kennedy Commission, 2-1-1 Orange County, and Southern California Association of Nonprofit Housing; and an electronic letter was e-mailed to interested developers and nonprofit organizations who had previously requested to be informed of development opportunities on CDA's RFP Process Database. The first annual deadline for the City's RFP # 18-056 for Affordable Housing Development closed on Wednesday, August 15, 2018 at 5:00 p.m. The City received thirteen (13) proposals prior to the deadline. The affordable housing developers that submitted a proposal are: Affordable Housing Developer Cesar Chavez Foundation Chelsea Investment Corporation Community Development Partners — 2 Proposals Community Housin Works Habitat for Humanity of Orange Count HomeAid Orange Count Jamboree Housing — 2 Proposals National Community Renaissance & Mercy House Living Centers Orange Housing Development Corporation & C&C Development, LLC Related California LINC Housing Corporation After the deadline, staff conducted a minimum threshold review of each proposal to ensure the proposal complied with all of the minimum requirements in the RFP. Following the minimum threshold review, staff formed a Review Panel that consisted of the Executive Director of the 80A-2 Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January 15, 2019 Page 3 City's Public Works Agency with his designee, the Executive Director of the Planning and Building Agency with his designee, the Executive Director of the Community Development Agency, and the Housing Division Manager. The Veterans Affairs Medical Center of Long Beach, the County of Orange, Keyser Marston Associates, and MDG Associates served as advisors to the Review Panel. In compliance with the City's Affordable Housing Funds Policies and Procedures, the Review Panel used the proposal Scoring and Selection Criteria from the RFP to conduct their review and analysis of each proposal. In addition to the Scoring and Selection Criteria from the RFP, the Review Panel also reviewed the proposed project design for appropriateness for the proposed target group, compatibility with surrounding uses, cost effectiveness of construction, and appropriateness of the design and construction for low maintenance and long term durability. On October 30, 2018, the Review Panel met and interviewed all of the developers who submitted a proposal. LINC Housing requested to be removed from consideration prior to their scheduled interview and therefore their proposal was removed from consideration. On November 14, 2018, the Review Panel met a second time to discuss and deliberate upon the scoring and selection of the proposals. Following this deliberative selection process, the Review Panel agreed upon the final scores below based on an average of the Individual Reviewer Scores: • I . Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January 15, 2019 Page 4 Housing Austerity Lend Asset Requested / HUD-VASHVoucben/Nonkoueing Auth Lend Asset Developer Name Project Name FINAL SCORE (Average of Individual Reviewer Scores( 112661146 E. Wminngton Avenue Omlge Housing Developmed Corporslion est CBG D.1aintenl, LLC 1128-1146 E. WsmFtlrglen Site 92 Ream Cdfomle R9Cimsreadsat MaNngtan 91 Jamboree Housing REVOApamnents S7 Cesar CM1esez Founde8on Smaa Ane Piece 04 Community HousIMAJoAs Tasmbmn, 88 Community Development Pesters Wastramn Fla., GRFLD, LegWak 77 Chelsea mesmed Cormanion Club 70 826 N. _msR38 N. Leq Habitat for Humanity d0range CouiM1y Lacy Street P.Jad 82 CommunityDevelopmentPBMms Wasingloa Plena, GRFLD, Lmy Wak 77 801.809 k 89912 E. Santa Am Ord. HomeAld OmWe County Frsnass XeNerRealderm 90 Cenammq DevebpmeMPedmrs WesNngbn Plaza, GRFLD, Laq Mk 77 HUD-VASH Vouchers (As Ilse Pr me, So. WFinancing) Jamboree Housing 9udgeto-m5ne 00 Comt" Development Pesters Weshune Home 61 NooH.,1m Autboriry, land Asset Nalloml Community Renaissance est Mem, House DAng Centers Sada Am United Methodist Clutch Site 93 Based on the scores above and the relative scoring of proposals competing for the same land asset(s) or source of affordable housing funds (e.g. HUD-VASH PBVs), the Review Panel recommends the following award for this project: Developer: National Community Renaissance and Mercy House Project Name: Santa Ana United Methodist Church Site Developer Request: • $3,301,243 • 22 HUD-VASH PBVs Award Recommendation: • Inclusionary Housing Fund: $3,170,547 • Project -Based Voucher Program (PBV): Eight (8) HUD-VASH PBVs Total Award: $3,170,547; Eight (8) HUD-VASH PBVs Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January 15, 2019 Page 5 On December 4, 2018, staff notified National CORE and Mercy House in writing of the award recommendation by the Review Panel, contingent on final approval by the Community Redevelopment and Housing Commission (CRHC) and City Council / Housing Authority (Exhibit 1). The pre -loan commitment letter with National CORE with Mercy House as the service provider for $3,170,547 in Inclusionary Housing Funds for the development of the Santa Ana United Methodist Church affordable housing project located at 609 N Spurgeon Street, Santa Ana, CA 92701 provides the official award from the City (Exhibit 2). In compliance the City's Affordable Housing Funds Policies and Procedures, the City's real estate advisor, Keyser Marston Associates (KMA), has confirmed the underwriting for the Project, the financial gap, and other programmatic requirements related to the funding sources. KMA has reviewed the developer's estimates and projections of rents, expenses, reserves and development costs in accordance with industry -standard underwriting guidelines and recommends the full amount of the award based on their underwriting and subsidy layering analysis (Exhibit 3). Project Description After a competitive multi -stage Request for Proposal (RFP) process that included Statement of Qualifitications, proposals, presentations and an interview with the church congregation, National CORE in partnership with Mercy House was selected by the Santa Ana United Methodist Church (UMC) to co -develop an affordable housing community on the 1.74 -acre site owned by UMC. Drawing from more than 55 years of combined experience in the successful development and ongoing management of affordable housing communities, National CORE and Mercy House are both 501(c)(3) private sector non-profit community builders that are ideally suited to collaborate with the Santa Ana United Methodist Church to develop an enriched, transit -oriented eco -system that will support the unique housing needs of the City of Santa Ana. The collaboration between National CORE and Mercy House provides many complimentary resources ranging from in- house general contracting, construction services and property management; great success in competing and receiving state, federal, and private financing; and experience from the development of a large portfolio of award-winning affordable housing developments. All these benefits will ensure the greatest results for the residents and surrounding community. National CORE has been a thought leader and pioneer in developing sustainable models of affordable housing that leverage community resources in a unique combination of quality developments paired with life -enhancing supportive services. Headquartered in Rancho Cucamonga, California National CORE was established in 1992 as a 501(c)(3) non-profit public benefit corporation. Starting with just 248 affordable homes, the company's portfolio has grown to include over 9,000 apartment homes in four states, of which 7,000 units are located in Southern California. National CORE currently serves roughly 27,000 residents and is the developer, owner, operator, and services provider for all our properties, thus ensuring long-term affordability as well as the maintenance of high-quality affordable communities. National CORE's portfolio includes development and management of mixed -income, mixed-use, deeply affordable, new construction and rehabilitation of both family, special needs, Veteran, and senior developments. To date National Core has secured approximately $950M in tax credit equity financing, $875M of tax- exempt bonds allocation and over $300M of public agency subsidy. National CORE recently received $20 million as part of the Transformative Climate Communities (TCC) program in partnership with the City of Ontario and a $20 million Affordable Housing Sustainable Communities (AHSC) program in partnership with the Housing Authority of the County of San Bernardino. 80A-5 Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January15, 2019 Page 6 National CORE has partnered with Mercy House for this project to provide the services and expertise for serving the permanent supportive housing units. Mercy House's innovative and measurable approach to ending homelessness has placed it in the forefront of leadership in homeless services and permanent affordable housing in the region. Mercy House is a Santa Ana based non-profit homeless service provider dedicated to serving populations with the most critical needs such as veterans and individuals who are homeless or disabled. Mercy House has been serving such populations for over 25 year and is intimately familiar with the City of Santa Ana and its housing needs as they are currently operating Emmanuel Residence, a 21 -unit affordable housing with supportive services for individuals with HIV/AIDS, San Miguel Residence, a 9 -unit affordable housing project with supportive services for individuals and families, and The Orchard, a 71 -unit rehabilitated Santa Ana motel serving chronically homeless individuals and small families. The National CORE -Mercy House team is proposing to develop a new transit -oriented affordable housing community on 1.74 acres located at 609 N. Spurgeon Street. The Project site is currently home to Santa Ana United Methodist Church, a well-established anchor in the community. The Project site is one contiguous, rectangular shaped parcel with two existing church buildings fronting Santa Ana Boulevard and a large surface parking lot located on the northern half of the site fronting French Street. The church currently operates out of the newer building located in the southeast corner of the site. The original church located on the southwest corner is no longer operational and has become a nuisance to the community as homeless individuals are utilizing the building for illegal activities. The entire site is designated Urban Neighborhood in the City of Santa Ana 1998 General Plan and zoned Urban Neighborhood 2 (UN -2) in the Transit Zoning Code. The current land use allows for a base density of up to 30 dwelling units per acre. The proposed Project would require City and a State Density Bonus Agreements allowing up to 54.7 units per acre that will be recommended to City Council in January or February 2019. The proposed Project includes the development of a single residential building with 93 units surrounding an interior, landscaped courtyard. Developed at an overall density of 53.4 units per acre, there will be 30 one -bedroom units, 41 two-bedroom units, and 22 three-bedroom units. Seven of the 2 -bedroom units and seven of the 3 -bedroom units will be two story townhomes accessible from the street. The remaining 79 units will be flats/typical apartment units located on the 2"d 3rd and 4th floors over ground level parking. The building has been designed with the two- story townhome units on the exterior fronting Spurgeon and French Streets and transitioning to a four-story courtyard building in the center of the site. This provides a gradual transition from any surrounding lower density uses and visually breaks up the mass of the building. A 2,576 square foot community center to operate best practice supportive services, 1,065 square foot leasing/property management office and approximately 6,300 square feet of flexible non- residential space will be located on the ground floor facing Santa Ana Boulevard activating the street frontage and interfacing with the proposed OC Streetcar platform to be located at the corner of Santa Ana Boulevard and French Street. One vehicular entry point to the site is provided off French Street. The entry point is a 24 -foot driveway providing secured access to the parking garage. Careful consideration for the character and scale of surrounding neighborhood was taken to ensure that the project architecture and massing blends in with the existing surrounding uses. .1 M .I Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January 15, 2019 Page 7 The Project proposes modern architectural style fronting Santa Ana Boulevard and the Mission Revival architectural style fronting the other three streets to be complementary with the surrounding neighborhoods. The modern design is intended to complement the OC Streetcar and activate Santa Ana Boulevard. The Project includes both wall and roof plane articulation, with a public art plaza and grand staircase entry from Santa Ana Boulevard and carries the design elements to each elevation, including the inner portions of the site. The maximum building height of the Proposed Project is 52 feet for the buildings at the interior of the site. Trash enclosures are provided at the northwest corner of the parking garage with pick-up conveniently accessible from Spurgeon Street. The layout of the building creates several unique outdoor areas including both passive and active spaces — a central landscaped courtyard, tot lot playground, BBQ picnic areas, raised planters, drought -tolerant and native ground covers, breezeways and walkways for residents to access community spaces and the surrounding neighborhood. Parking - Within the Transit Zoning Code, the UN -2 zone requires 2 parking spaces per residential unit and 1 parking space per permanent supportive housing unit plus an additional .25 spaces for guests. Per the Transit Code, a total of 176 spaces is required. An additional 43 spaces are required for the non-residential uses at a rate of 1 space per 300 square feet. Additionally, Sec. 41-2003, Affordable Housing Development Incentives, in the Transit Zoning Code allows for tandem parking not to exceed 30 percent of the required parking per residential unit. In contrast to the City's requirements, Assembly Bill 744, allows a developer that is proposing a project within '/z mile of a major transit stop that includes 100% affordable rental units to request that the jurisdiction reduce the minimum parking requirements for the development to .5 spaces per bedroom. As the Project will be adjacent to a future OC Streetcar stop the project qualifies for a reduction in parking. Per AB 744, the Project would be required to provide 92 parking spaces. To accommodate residents, visitors, and staff a total of one hundred and two (102) parking stalls are proposed for a total ratio of 1.1 spaces per unit. Of the 102 proposed parking spaces, there are five (5) accessible spaces - four (4) regular spaces and two (2) reserved for larger vans. There are also six (6) electric vehicle spaces - five (5) regular spaces and one (1) reserved for a larger van. National CORE is requesting a reduction in parking from the Transit Zoning Code based on the demographic of residents living onsite, the location of the Project along the OC Streetcar route, access to existing bus routes, the provision of alternative strategies to reduce vehicle trips including bike program, car sharing and van pooling and parking utilization studies with similar developments. They believe the proposed 102 parking spaces is an appropriate compromise between the City's requirements and the minimum allowed under AB 744. Resident Services - Affordable housing residents will have access to comprehensive services onsite offered by National CORE's Hope through Housing Foundation and Mercy House for the permanent supportive housing residents. All services will be customized to the needs of the residents. National CORE's Hope through Housing Foundation knows that to affect long-term and significant community change, housing is only the first step. Once safe, quality housing is achieved, true revitalization occurs when there is access to resources that promote prosperity, quality of life and physical well-being. HOPE enhances National CORE communities with a wide range of services including youth, economic mobility, health and wellness and social programs. Mercy House will be Hope's primary service Rrgvider for the formerly homeless residents. Mercy Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January 15, 2019 Page 8 House will apply Housing First principles coupled with ongoing education and supportive services in the areas of economic, health, and emotional well-being in order to enhance self-esteem and a sense of personal pride. Affordability Mix - The Proposed Project will be 100% affordable to households earning less than 60 percent of the Area Median Income (AMI) of which 33 units will be set-aside for Permanent Supportive Housing, with one exempt managers unit. The proposed unit mix and rent restrictions are as follows: The total project cost to acquire, rehabilitate and provide the proposed level of affordability in the project is currently estimated to be $46,728,884. The tables below summarize the anticipated costs and proposed funding sources of the project: Project Costs PSH - 30% AMI ELI - 30% AMI VLI — 50% AMI LI — 60% AMI Total 1 -bedroom 30 $ 51,371 Construction Cost $ 32,282,954 30 2 -bedroom 3 6 20 12 41 3 -bedroom $ 1,025,138 5 11 5 21 3 -bedroom Manager $ 46,728,884 $ 502,461 1 Total 33 11 31 17 93 The total project cost to acquire, rehabilitate and provide the proposed level of affordability in the project is currently estimated to be $46,728,884. The tables below summarize the anticipated costs and proposed funding sources of the project: Project Costs Amount Per Unit Acquisition Costs/Closing $ - $ - Architecture/Fees & Permits $ 4,777,500 $ 51,371 Construction Cost $ 32,282,954 $ 347,129 Indirect Construction/Legal $ 611,015 $ 6,570 Developers Fee $ 5,214,601 $ 56,071 Rent -Up Costs/Reserves $ 1,025,138 $ 11,023 FinancingCosts $ 2,817,677 $ 30,298 Total $ 46,728,884 $ 502,461 *Land will be ground leased from the Santa Ana United Methodist Church. Permanent Funding Sources Amount Permanent Loan $ 1,141,473 Tax Credit Equity $ 16,121,773 AHSC $ 20,000,000 General Partner Equity $ 2,714,601 Deferred Fee $ 300,000 Affordable Housing Program $ 920,000 OC HCD/HP Funds $ 2,360,490 City of Santa Ana Funds $ 3,170,547 SNHP Funds $ - Total $ 46,728,884 For the development of this project by National CORE with Mercy House as the service provider, the Review Panel is recommending an award of $3,170,547 in Inclusionary Housing Funds and eight (8) HUD-VASH PBVs following a competitive selection process through RFP # 18-056 in compliance with the City's Affordable Housing Funds Policies and Procedures. After National CORE receives an allocation of low-income housing tax credits for the development of the Commitment of Affordable Housing Funds and PBVs to National CORE and Mercy House January 15, 2019 Page 9 project, staff will return to City Council with the loan agreement for an amount not to exceed the funds committed in the pre -loan commitment letter. On January 8, 2019, the County of Orange Board of Supervisors authorized County staff to submit a joint project application to the State of California Housing and Community Development Department (HCD) for the first round of competitive No Place Like Home (NPLH) funding. The NPLH program will provide funding to support the development of supportive housing for adults with serious mental illness in the City of Santa Ana. The deadline for their NPLH application is January 30, 2019. NPLH funding in the amount of $6,013,136 is being requested from HCD to support the development of up to 16 of the 93 units in the project. The City's pre -commitment letter will enhance and support the Developer's application for this additional source of financing to make the project feasible. STRATEGIC PLAN ALIGNMENT Approval of this item supports the City's efforts to meet Goal # 5 - Community Health, Livability, Engagement & Sustainability, Objective #3 (Facilitate diverse housing opportunities and support efforts to preserve and improve the livability of Santa Ana neighborhoods), and Strategy C (Provide that Santa Ana residents, employees, artists and veterans receive priority for affordable housing created under the City's Housing Opportunity Ordinance or with City funding to the extent allowed under state law). FISCAL IMPACT Upon approval of the loan agreement, funds in the amount of $3,170,547 within the Inclusionary Housing Fund will be made available for distribution (Loans and Grants account no. 41718820- 69152). Each project based voucher is estimated to be valued at $10,550 annually, based on HUD's initial award of the vouchers from April 2018. The actual annual expenditure for the eight vouchers may be different based on when the development of the project is completed and the units are leased. Funds will be budgeted in future fiscal years in the Housing Choice Voucher Program, Housing Assistance Payment account (no. 13618760-69158). Steven A. Mendoza Executive Director Community Development Agency APPROVED AS TO FUNDS AND ACCOUNTS: �� @ov)_Y� Kathryn Downs, CPA Executive Director Finance and Management Services Agency Exhibits: 1. Award Announcement to National CORE and Mercy House 2. Pre -Loan Commitment letter for National CORE and Mercy House 3. Underwriting and Subsidy Layering Analysis by Keyser Marston Associates . 11 Foorlymul MAYOR Miguel A. Pulido MAYOR PRO TEM Michele Martinez COUNCILMEMBERS P. David Benavides Vicente Sarmiento Jose Solorio Sal Tinajero Juan Villegas December 4, 2018 EXHIBIT 1 CITY OF SANTA ANA 20 Civic Center Plaza . P.O. Box 1988 !Santa Ana, California 92702 www.santa-ana.ora CITY MANAGER Raul Godinez II CITY ATTORNEY Sonia R. Carvalho CLERK OF THE COUNCIL Maria D. Huizar Michael Ruane, Executive Vice President Sent via E-mail Larry Haynes, Executive Director of Mercy House National Community Renaissance / Mercy House Living Centers 9421 Haven Avenue Rancho Cucamonga, CA 91730 Subject: Award Recommendations by Review Panel for RFP # 18-056 Dear Mr. Ruane and Mr. Haynes, Thank you very much for your proposal submitted in response to our RFP for Affordable Housing Development (RFP # 18-056). The City of Santa Ana received a total of thirteen (13) proposals requesting over $52 million and 304 Project -Based Vouchers. We thank you for your proposal and your commitment to develop affordable housing for the residents of the City of Santa Ana. In compliance with the City's Affordable Housing Funds Policies and Procedures adopted by City Council on March 20, 2018, staff formed a Review Panel that consisted of the Executive Director of the City's Public Works Agency with his designee, the Executive Director of the Planning and Building Agency with his designee, the Executive Director of the Community Development Agency, and the Housing Division Manager. The VAMC of Long Beach, the County of Orange, Keyser Marston Associates, and MDG Associates served as advisors to the Review Panel. The Review Panel used the proposal Scoring and Selection Criteria from the RFP to conduct their review. In addition to the Scoring and Selection Criteria from the RFP, the Review Panel also reviewed the proposed project design for appropriateness for the proposed target group, compatibility with surrounding uses, cost effectiveness of construction, and appropriateness of the design and construction for low maintenance and long term durability. On October 30, 2018, the Review Panel met and interviewed all of the developers who submitted a proposal. LINC Housing requested to be removed from consideration prior to their scheduled interview and therefore their proposal was removed from consideration. On November 14, 2018, the Review Panel met a second time to discuss and deliberate SANTA ANA CITY COUNCIL Miguel A Pulido Mchde Matinee Vicente samtiento Jose Solodo P. David eenavidas Juan Villegas Sal Tinajero Mayor Mayor Pro Tem, Ward 2 Wand 1 Wand 3 Ward 4 Ward 5 Ward 6 moulldoasanta-ana.om rrtmadlnez0n;antaana.om vsarmiento(@.ntaana.oma=a-a ao dbenaddes(asanlaana.oro 'Vlleaas(&aantaana.ora Onaiero(asanta-ana.oro upon the final scoring and selection of the proposals. Following this process, the Review Panel agreed upon the final scores below based on an average of the scores from each member of the Panel: i Housing AUMorhy Land Asset Requested I HUD-VASH Vouchers l Non{ ousing Autbody Land Asset Developer Name IFINAL Project Name SCORE (Average of Intlyitlual Reviewer Scores) 1128 8 1146 E. W.Nngbn Avenue � Orarge Housing DerebpmentCorct.rantl CBC Devebpmeid, LI -Cora 1128-1148 E.6asNrgton5ite 82 Rebtetl Califomla 'fm Crossroads at WashMton 91 Jamboree Housing REVO AparrneMs 87 Cesar Chavez Fotmdagon Santa Am Place I 84 Comm iyHouslngWorks Transforary 80 Commmuty Oevelopmem Paners Washington Place, GRFLD, Lacy Walk TI Chelseabnesbnent Corporaflon Glen 76 826 N. Lacy SW N. Lacy Habitat fora aNy of Orange Cc" Lary Sbeeticroject 82 Cormnity Development PaMers WaSNnglan Place, GRFLD, Lacy Walk T] 801, 8Og 8 80912 E. Saha Ana BW. HomeA]d Orange Coaly Fiances XaNer Residence 90 Community DevebpmentPaMers WasNngten Place, GRFLD, Lary Walk T) HUD-VASH VomIes (As Me Pnmay Source of Finarcing) Jamboree Housing Budgetlnn Site 86 CommuYly DevelopmentParters WesUm House 81 Non-Housinc Aud-iry VM AsxM National CammWty Renalssance aM Marty House Citing Gaolers Sa4a AmUni[etl McModist Churoh sire 93 Supporting documentation for the scores above may be provided upon request. 80A-12 Based on the scores above and the relative scoring of proposals competing for the same land asset or source of affordable housing funds, the Review Panel is recommending the following award for your organization to our Community Redevelopment and Housing Commission and to the City Council / Housing Authority for final approval: Developer: National Community, Renaissance and Mercy House Project Name: Santa Ana United Methodist Church Site Developer Request: • $3,301,243.00 • 22 HUD-VASH PBVs Award Recommendation: • Inclusionary Housing Fund: $3,170,547.00 • Project -Based Voucher Program (PBV): Eight (8) HUD-VASH PBVs Review Panel. For the next steps: 1) Please acknowledge your willingness to accept this award recommendation and develop your project (by responding to this e-mail) including the additional requirements listed below that will be incorporated into your final commitment from the City / Housing Authority among various other terms: a. Efforts must be made to incorporate ground -level retail in the project design to incorporate the site into the forthcoming OC Streetcar. b. No less than 35% of the units in the entire project, under any combination of financing sources used to develop the project, must be permanent supportive housing for individuals and families referred from the Coordinated Entry System who are residing in the City of Santa Ana based upon: i. Proof of strong ties to the community, to include current residency of an immediate family member — mother, father, sibling, or grandparent in the City of Santa Ana; ii. Proof that the individual attended a K-12 school in Santa Ana; iii. Proof that the individual resided on property zoned for residential use in Santa Ana and the individual was on the lease and/or paid utilities necessary for legal use of the property for residential purposes; or iv. Knowledge — either first-hand or recorded — by the Santa Ana Police Department that the individual has been a member of the Santa Ana homeless community. 2) Please acknowledge (by responding to this e-mail) your willingness to reimburse the City for the cost of an underwriting and subsidy layering review to be conducted by Keyser Marston Associates (KMA). 3) Staff will complete a National Environmental Policy Act review in compliance with your award of federal funds. 4) Please draft a presentation that you will provide with staff to toe Community Redevelopment and Housing Commission (CRHC) on December 19th at 4:30PM in the City Council Chambers. This presentation must be provided to staff before COB on Tuesday, December 11th. Staff will also coordinate with you on the Staff Report that Will be presented to the Commission and then to !City Council / Housing Authority. 5) Staff will be recommending your award to the CRHC on December 19, 2018 and to City Council and the Housing Authority in January or February 2019. You must be present and ready to present your project at both meetings as well as respond to any questions or concerns. From all of us here at the City, thank you again for your proposal and congratulations on your award recommendation. We look forward to working with you to develop affordable housing for the residents of the City of Santa Ana. Sincerely, Judson Brown Housing Division Manager Community Development Agency Housing and Neighborhood Development Division 20 Civic Center Plaza (M-26) Santa Ana, CA 92701 T: (714) 667-2241 F: (714) 647-6549 www.santa-ana.or-q/cda MAYOR Miguel A. Pulido MAYOR PRO TEM Juan Villegas COUNCILMEMBERS Cecilia Iglesias David Penaloza Roman Reyna Vicente Sarmiento Jose Solorio January 15, 2019 CITY OF SANTA ANA SANTA ANA HOUSING AUTHORITY 20 Civic Center Plaza • P.O. Box 22030 Santa Ana, California 92702 (714)667-2200 w .santa-ana.om Michael Ruane Executive Vice President National Community Renaissance 9421 Haven Avenue Rancho Cucamonga, CA 91730 Larry Haynes Executive Director Mercy House Living Centers EXHIBIT 2 CITY MANAGER Raul Godinez II CITY ATTORNEY Sonia R. Carvalho CLERK OF THE COUNCIL Maria D. Huizar Re: Santa Ana United Methodist Church Site 609 N. Spurgeon Street, Santa Ana, CA 92701 Pre -Commitment Letter for: Inclusionary Housing Funds Loan, Project Based Vouchers Dear Messrs. Ruane and Haynes: National Community Renaissance of California ("National CORE") and Mercy Housing Living Centers (collectively referred to as "Developer") requested financial assistance in connection with the proposed development of a ninety-three (93) unit affordable housing complex to be located at 609 N. Spurgeon Street, Santa Ana, CA 92701 ("Project"). The City of Santa Ana ("City') and the Housing Authority of the City of Santa Ana ("Housing Authority") have reviewed the Developer's request for assistance, and at the City Council/Housing Authority meeting on January 15, 2019, the City Council and Housing Authority Board authorized and approved issuance of this pre -commitment letter evidencing the preliminary award of (collectively, the "City Assistance"): - A loan in the maximum amount of $3,170,547 in inclusionary housing in -lieu fee payments made pursuant to the City's Housing Opportunity Ordinance (Article XVIII.I of Chapter 41 of the Santa Ana Municipal Code) (the "Inclusionary Housing Fund") held by the City of Santa Ana for the Project ("City Loan"); and, SANTA ANA CITY COUNCIL Miguel A Pulido Juan Villages Mcede5amtlente Davld Penalwa Jose S"Imio Roman Reyna Cecilia Iglesias Mayor Mayor Pro Tem, Ward 5 Ward 1 Wad 21aan.o a Wad 3 Ward 4 Ward 6 wulido(alsmlaana,om Ivilleeas0santa-ana.orc vsartnianlc(�santa-ane oro a V Isolono/asanto-ana.ore nevna(yasanta-angor" c1alesiar0santaanaom EXHIBIT 2 Paqe 12 - Eight (8) U.S. Department of Housing and Urban Development -Veterans Affairs Supportive Housing ("HUD-VASH") Project -Based Vouchers ("PBV") for Permanent Supportive Housing for the Project. This letter shall evidence the Agency's pre -commitment of the City Assistance to the Developer for the Project subject to the conditions described below. City Loan: The amount of the proposed City Loan has been determined based upon the City's review of the Developer's request for the receipt of the City Assistance and the development proforma and projected cash flows for the Project submitted by the Developer to the City ("Proforma"). The City Manager and Housing Authority Executive Director has authority to approve revised development proformas and projected cash flows for the Project; provided, however, that the City Assistance is not increased or extended. The City Loan shall include the following terms: • $3,170,547 maximum principal amount, or as much thereof as is disbursed for hard and soft costs in constructing the Project, provided from the City of Santa Ana Inclusionary Housing Fund. • 3% simple interest per annum. Repayment from 50% of Residual Receipts (pro -rata with payments due in connection with other financing provided by other public agencies) (after payment of operating expenses, debt service, any deferred developer fee, and partnership fees to be described in the Agreement) with the remaining 50% to be disbursed to the Developer. Remaining principal and accrued interest due upon the 55th anniversary of the issuance of Certificate of Occupancy and/orfinal building permits or earlierupon sale, refinancing or default. On that date, the City agrees to review the performance of the property and consider in good faith any reasonable request by Developer to modify the terms or extend the term of the City Promissory Notes. Additionally, the City will receive a pro rata share of 50% of the net proceeds received from any sale or refinancing of the Project, after payment of outstanding debt and payment in full of any deferred developer fee and establishment of any reserves and transaction costs. • Cost savings from the Project, if any, will be applied first to pay down the City Loan, subject to compliance with the Tax Credit Allocation Committee ("TCAC") Regulations. EXHIBIT 2 Paoe 13 HUD-VASH PBV's: The Project consists of thirty-three (33) permanent supportive housing units for homeless individuals and families, including eight (8) units to be made available at affordable rents to HUD-VASH eligible homeless veterans for a term of fifty-five (55) years. All individuals and families shall be referred from the Orange County Coordinated Entry System, and are residing or working in the City of Santa Ana as defined under the City's criteria. Efforts shall be made to incorporate ground -level retail as an interface for the forthcoming Orange County Streetcar. The HUD-VASH PBV's shall include the following terms: Voucher Source: The eight (8) HUD-VASH PBVs will be funded exclusively out of the tenant -based voucher program annual budget authority received by the Housing Authority from the Department of Housing and Urban Development (HUD). • Rents: The PBV Housing Assistance Payments ("HAP") Contract rents below are preliminary and contingent upon a reasonable rent determination to be conducted at the time of execution of the HAP Contract: o 1 Bedroom - $1,388 In accordance with HUD regulations and the Housing Authority's Housing Choice Voucher Program Administrative Plan, these rents are subject to review prior to the execution of a HAP Contract. Rents and income requirements for the remaining affordable units shall be based on the requirements of the federal Low Income Housing Tax Credit Program as administered by TCAC. • Annual Amount: The Project will receive PBVs for eight (8) units: Unit Size Income No. Units Proposed Rent Total Annual Target Revenue 1 -Br 30% AM] 8 $1,388 $16,656 The estimated maximum annual amount received under this award is $133,248. These estimates assume 100% occupancy of the assisted units over the twelve- month period. Term: The HAP Contract will have a term of twenty (20) years. Any time before the expiration of the HAP Contract, the Developer may request an additional twenty (20) years, subject to a determination by the Housing Authority that it is appropriate to continue providing affordable housing for low-income families or to 80A-17 EXHIBIT 2 Page 14 expand housing opportunities and HUD funding. Subsequent extensions are subject to the same requirements. • Units Receiving PBV Assistance: The maximum number of units receiving PBV assistance will be eight (8). General Provisions: The City's obligation to provide the City Assistance to the Project is subject to each of the following conditions: • Developer must provide proof that it has secured all of its remaining financing for the development of the Project before staff will return to the City Council for consideration of the Loan Agreement. • All provided funding and project requirements shall conform to the City's adopted Affordable Housing Funds Policies and Procedures, unless alternative requirements are expressly provided in the executed Loan Agreement or any other documents related to the development of the Project. • Approval of all required entitlements and discretionary actions, to allow the construction of a 93 -unit affordable housing complex to be located at 609 N. Spurgeon Street, Santa Ana, CA 92701. • The City's obligation to provide the Loan is and shall remain subject to all covenants, conditions, and restrictions set forth in the Loan Agreement, and in particular City's analysis of the available funding sources and development and operating costs of the Project and the overall economic feasibility of the Project. • Review and approval of the documents evidencing the City Loan by the City Council, as applicable. • Execution of HAP Contracts and all necessary documents for the PBV's. Developer, at its sole cost and expense, will be responsible for securing any and all permits and discretionary approvals that may be required for the Project by the City, Housing Authority, or any other federal, state, or local governmental entity having or claiming jurisdiction over the Property or Project. Notably, this pre -commitment letter shall not obligate the City or any department thereof to approve any application or request for or take any other action in connection with any planning approval, permit or other action necessary for the construction, rehabilitation, installation or operation of the Project. This pre -commitment letter for the Project will expire on January 15, 2021. FOODINFOO EXHIBIT 2 Page 15 If you have any questions or require any additional information regarding this award letter, please contact Judson Brown, Housing Division Manager, by telephone at (714) 667- 2241 or by e-mail at (brown ansanta-ana.org. Sincerely, Raul Godinez II City Manager Attest: Maria D. Huizar Clerk of Council FOODYMPO Foorlymcl EXHIBIT 3 )OU KEYSER MARSTON ASSOCIATES. ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT MEMORANDUM ADV13ons IN: Real Estate To: Judson Brown, Housing Division Manager Affordable Housing James A. Rabe Economic Development City of Santa Ana BERKELEYKeyser Julie L. Ramey Tim Bretz eysFrom: A. Jerry Keyserr At your request, Keyser Marston Associates, Inc. (KMA) prepared a financial gap analysis SAN DIEGO Timothy C. Kelly Paul C. Marra National Community Renaissance (CORE) and Mercy Housing Living Centers (Mercy Debbie M. Kern House), collectively referred to as "Developer." As proposed, the project will include 93 David Doezema Date: January 3, 2019 Kevin Feeney Los ANGELES Kathleen H. Head Subject: Santa Ana United Methodist Church Project: Financial Gap Analysis James A. Rabe Gregory D. Soo -Hoo Kevin E. Engstrom Julie L. Ramey Tim R. Bretz At your request, Keyser Marston Associates, Inc. (KMA) prepared a financial gap analysis SAN DIEGO for the project proposed to be developed at 609 North Spurgeon Street (Site) by Paul C. Marra National Community Renaissance (CORE) and Mercy Housing Living Centers (Mercy House), collectively referred to as "Developer." As proposed, the project will include 93 units that will be restricted to extremely -low, very -low, and low income households (Project). The Developer is requesting financial assistance from the City of Santa Ana (City), and Section 8 Project -Based Vouchers allocated to the City of Santa Ana Housing Authority (Authority) by the United States Department of Housing and Urban Development (HUD). The purpose of the KMA analysis is to evaluate the Developer's financial assistance request. EXECUTIVE SUMMARY Estimated Financial Gap The results of the KMA financial gap analysis are compared to the Developer's financial proposal in the following table: 500 SOUTH GRAND AVENUE, SUITE 1480 ➢ LOS ANGELES, CAUFORNIA 90071 ➢ PHONE 213.622.8095 W W W.KEYSERMARSTON.COM 80A-21 1812009:SA:TRB 19090.017.008 Judson Brown, City of Santa Ana Santa Ana United Methodist Church: Financial Gap Analysis EXHIBIT 3 January 3, 2019 Page 2 KMA Developer Difference Total Development Costs $469,000 ,74 $46,729,000 $20,000 Outside Funding Sources 43,550,000 43,558,000 (8,000) Financial Gap $3,199,000- $3,171,000 $28,000 As shown in the preceding table, KMA estimates the Project's financial gap at $3.20 million. Comparatively, the Developer is requesting $3.17 million in financial assistance from the City. This differential can be considered inconsequential. However, it is important to note that the KMA and Developer estimates differ on a line item by line item basis. Proposed Funding Sources The following summarizes the proposed funding sources for the Project: 1. KMA estimates that the Project's stabilized net operating income (NOI) supports $1.13 million in Tax -Exempt Multifamily Bonds (Bonds), which are allocated by the California Debt Limit Allocation Committee (CDLAC). The NOI includes the rental subsidy generated by eight Section 8 Project -Based Vouchers (PBVs) 4. awarded to the Project by the Authority. The Developer is proposing to utilize 4% Federal Low Income Housing Tax Credits (Tax Credits) that are automatically awarded to projects that receive a Bond allocation from CDLAC. The net Tax Credit proceeds are estimated at $16.12 million. The Developer is proposing to apply for a $20.0 million loan of Affordable Housing and Sustainable Communities (AHSC) funds managed by the California Department of Housing and Community Development (HCD). The Developer is proposing to apply for $2.36 million in Orange County Housing and Community Development & Homeless Prevention (OC HCD/HP) funds managed by the County of Orange. 80A-22 1812009:SA:TRB 19090.017.008 EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 3 5. The Developer is proposing to apply for a loan of $920,000 in Affordable Housing Program (AHP) funds awarded by the Federal Home Loan Bank of San Francisco. 6. The Developer is proposing to provide $2.72 million in General Partner Equity to the Project. 7. The Developer is proposing to defer $300,000 of the Developer Fee that is included in the Project's development costs. The deferred amount will be repaid from the cash flow generated by the Project over time. PROJECT DESCRIPTION The proposed scope of development can be described as follows: 1. 2. 3. 4. The Site area totals 1.74 acres, or approximately 75,794 square feet of land area. The 93 -unit Project represents a density of 53 units per acre. The Project's unit mix is as follows: The Project's gross building area (GBA) is estimated at 123,062 square feet, and is comprised of the following: a. The residential GBA is estimated at 81,769 square feet; b. The community room GBA is estimated at 2,576 square feet; 1812009:SA:TRB 19090.017.008 Number of Units Unit Size (SF) One -Bedroom Units 30 569 Two -Bedroom Units 41 920 Three -Bedroom Units 22 1,364 Total / Weighted Average 93 912 The Project's gross building area (GBA) is estimated at 123,062 square feet, and is comprised of the following: a. The residential GBA is estimated at 81,769 square feet; b. The community room GBA is estimated at 2,576 square feet; 1812009:SA:TRB 19090.017.008 Judson Brown, City of Santa Ana EXHIBIT 3 January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 4 C. The Project will include Flex Space estimated at 7,720 square feet;' and d. The circulation and common area GBA is estimated at 30,997 square feet. 5. The Project will include 110 at -grade podium parking spaces, which equates to 1.2 spaces per unit. 6. The Project's affordability mix is as follows: Tax Credit @ 30% Median 44 Tax Credit @ 50% Median 31 Tax Credit @ 60% Median 17 Unrestricted Manager's Unit 1 Total Units 93 7. The Project will include 33 permanent supportive housing (PSH) units. FINANCIAL GAP ANALYSIS KMA prepared a pro forma analysis to estimate the Project's financial gap. The analysis is located at the end of this memorandum, and is organized as follows: Table 1: Estimated Development Costs Table 2: Stabilized Net Operating Income Table 3: Financial Gap Calculation Estimated Development Costs (Table 1) KMA reviewed the Developer's January 2, 2019 pro forma and then independently prepared a pro forma analysis of the Project. The resulting development costs are as follows: 'The City should work with the Developer to further define the Flex Space area. 1812009:SA:TRB 19090.017.008 EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 5 Ground Lease Discussion The Site is owned by the Santa Ana United Methodist Church (Church). The Developer will ground lease the Site from the Church for a term of 65 years. The annual ground lease payment is set at an initial amount of $96,000 and is to be escalated at the lesser of the following: 1. The Consumer Price Index for the Los Angeles -Long Beach -Anaheim region for All Urban Consumers (CPI) as published by the United States Department of Labor; or 2. Five percent (5%) per year. The Developer provided an appraisal prepared by Curtis -Rosenthal, Inc on August 23, 2018, which estimated the Fee Simple Market Value of the Site (as vacant) at $4.70 million, or approximately $63 per square foot of land. The annual ground rent payment is set at $96,000 in the first year, which equates to approximately 2% of the appraised value. Typically, ground lease payments are set between 6%-10% of fair market value, and as such, the ground lease payment can be considered below market. However, it is important to note that the ground lease payments will be paid before the Project's residual receipts are calculated. As a result, it is unlikely that the City's loan will be fully repaid by Year 55. Direct Costs The direct costs assume that the Project will not be subject to State of California and/or Federal Davis Bacon prevailing wage requirements. The direct costs applied in this analysis can be summarized as follows: 1. The Project will include a number of improvements to increase the competitiveness of the AHSC application. The Developer and the City are currently negotiating the necessary AHSC improvements; however, it will likely include a combination of sidewalk improvements, crosswalks/safety measures, bikeway improvements, transit improvements, and bus shelter improvements. The Developer estimates the costs of the AHSC Elements and Transit Improvements at $4.35 million. If this estimate changes, the KMA analysis will need to be updated accordingly. 1812009:SA:TRB 19090.017.008 Judson Brown, City of Santa Ana EXHIBIT 3 January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 6 2. The off-site improvement costs are estimated at $1.26 million. City staff should verify the accuracy of this assumption. 3. The Site is currently occupied with church buildings, which will be demolished to complete the Project. The Developer estimates the demolition costs at $1.01 million, or $13 per square foot of land area. 4. The on-site improvement costs are estimated at $40 per square foot of land area, or $3.03 million, which is higher than typical. The Developer stated that the higher than typical costs are due to courtyard waterproofing and stormwater mitigation costs. The tight constraints of the Site will require the Developer to underground the storm water detention, which is more costly than typical basins or bio swales. 5. The Developer estimates the at -grade podium parking costs at $23,000 per space, or $2.53 million. This is at the low end of the typical range for podium parking costs. 6. The Developer estimates the building costs at $123 per square foot of GBA, which equates to $15.19 million. This is at the low end of the typical range for similar affordable housing projects. A $150,000 allowance for furnishings, fixtures and equipment is provided. 8. The contractor costs are estimated as follows: A 14% allowance for contractors' fees and general requirements is provided. b. An allowance for construction bonds / general liability insurance at 2% of construction costs is provided. 9. KMA included a $1.34 million direct cost contingency allowance, which is equal to 5% of other direct costs (excluding the AHSC line items). KMA estimates the total direct costs at $32.55 million. This equates to $264 per square foot of GBA. 1812009:SA:TRB 19090.017.008 EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 7 Indirect Costs KMA utilized the following assumptions in estimating the indirect costs: 1. The architecture, engineering and consulting costs are estimated at 6% of direct costs. 2. The Developer estimated the public permits and fees costs at $2.43 million, or approximately $26,000 per unit. City staff should verify the accuracy of this estimate. 3. The taxes, insurance, legal and accounting costs are estimated at 1.5% of direct costs. 4. There are two external church congregations that utilize space to conduct their ministries in the existing Church buildings. The Developer included a $50,000 allowance to relocate these organizations. 5. An approximately $1,000 per unit allowance for marketing and leasing costs is provided. 6. The Developer set the Developer Fee at $5.22 million, which is the maximum amount allowed by the California Tax Credit Allocation Committee (TCAC). However, the Developer proposes to defer $300,000 of the Developer Fee. In addition, the Developer proposes to contribute $2.72 million in General Partner equity to the Project. As such, the cash portion of the Developer Fee to be received by the Developer at the completion of construction is $2.20 million. 7. An indirect cost contingency allowance equal to 5% of other indirect costs is provided. KMA estimates the total indirect costs at $10.73 million. Financing Costs The Project is proposed to be developed with Tax -Exempt Multifamily Bonds allocated by the CDLAC. To comply with the Internal Revenue Service (IRS) requirements, the Bonds must be equal to at least 50% of the land acquisition costs plus the eligible Tax 1812009SA:TRB 19090.017.008 80A-27 EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 8 Credit basis.2 In addition, the Bond funds must be sufficient to cover the construction costs that do not have funding from other sources. In this case, the Project's estimated N01 can only support a $1.13 million Bond; this will be called the Series A Bond. To fulfill the 50% test, and to provide bridge funding for costs that will be paid for by other sources upon the Project's completion, a Series B Bond totaling $34.47 million must be obtained. The sum of the Series A Bond and the Series B Bonds totals $35.60 million. The financing costs for the Project are estimated as follows: 1. The construction period and absorption period interest costs are estimated at $1.99 million. These costs are based on the following assumptions: a. The construction period interest costs are based on a 4.0% interest rate, an 18 -month construction period, and a 60% average outstanding balance. b. The absorption period interest costs are based on a six-month absorption period with a 100% average outstanding balance. 2. The financing fees for the Bonds are estimated at 1.50 points, or $534,000. 3. The following capitalized reserves will be provided: a. The Developer estimates the costs to provide bus passes to the Project's residents at $609,000; and b. A $176,000 capitalized operating reserve is provided, which equates to three months of operating expenses and debt service payments .3 4. The Tax Credit fees are estimated at $159,000 based on the following assumptions: z The Developer will ground lease the Site from the Santa Ana United Methodist Church. Thus, there are no land acquisition costs. 3 Per the Developer, for the purposes of calculating the capitalized operating reserve, the operating expenses exclude property taxes, social service expenses, bond issuer fees, and replacement reserve deposits. 1812009:SA:TRB 19090.017.008 EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 9 a. A $2,000 application fee; b. A $410 per unit monitoring fee; and C. One percent (1%) of gross Tax Credit proceeds for one year. KMA estimates the total financing costs at $3.47 million. Total Development Costs As shown in Table 1, KMA estimates the total development costs at $46.75 million, which equates to approximately $502,700 per unit. In comparison, the Developer estimates the total development costs at $46.73 million. This equates to a less than 1% differential, which can be considered an insignificant difference. Stabilized Net Operating Income (Table 2) The Project's funding sources include Bonds, Tax Credits, AHSC funds, and City Inclusionary Housing Funds. These programs all publish the applicable income limits for households that are qualified to reside in the development. TCAC publishes rent standards for projects that receive Tax Credits. CDLAC and HCD publish regulations regarding the applicable rents for Projects with Bond funds and AHSC funds, respectively. Per City staff, the City will apply Tax Credit rent standards to units funded with Inclusionary Housing Program funds. The Developer will be required to adhere to the strictest of the standards imposed by the funding sources contributed to the Project. Tenant -Paid Rents The rents used in this analysis are based on 2018 income and rent information published by TCAC. The maximum allowable rents, net of the appropriate utility allowances, are estimated as follows:° 4 The utility allowances are estimated at: $41 for one -bedroom units; $55 for two-bedroom units; and $71 for three-bedroom units. 1812009:SA:TRB 19090.017.008 • A • L�' Judson Brown, City of Santa Ana Santa Ana United Methodist Church: Financial Gap Analysis EXHIBIT 3 January 3, 2019 Page 10 Rent Restriction 1 -Bedroom 2 -Bedrooms 3 -Bedrooms Tax Credit @ 30% (PSH Units)a 30% of Social Security Income $226 $212 NA TCAC $574 $683 NA Applicable Rents $226 $212 NA Tax Credit @ 30% $574 $683 $781 Tax Credit @ 50% $984 $1,175 $1,350 Tax Credit @ 60% $1,189 $1,421 $1,634 The Housing Authority will provide PBVs for eight of the income -restricted units. The PBV payments are based on the difference between the rent paid by the tenant and the fair market rent (FMR) approved by HUD. The 2018 FMRs for the one -bedroom PBV units are set at $1,347 per unit per month. Estimated Effective Gross Income KMA estimates the Project's effective gross income (EGI) at $1.01 million based on the following: 1. The gross tenant -paid rents are estimated to total $947,900. 2. The gross Section 8 PBV subsidy is estimated to total $107,600. 3. Laundry and miscellaneous income is estimated to average $10 per unit per month, or $11,200 per year. 4. The vacancy and collection allowances applied to the Project are as follows: s The rents for the PSH units are set at the lesser of 30% of Social Security Income or 30% of the Tax Credit Median. 1812009:SA:TRB 19090.017.008 FO M U EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 11 A 5% vacancy and collection allowance is applied to the gross income generated by the non -PSH units, the Section 8 Subsidy, and the laundry/miscellaneous income; and b. A 10% vacancy and collection allowance is applied to the gross income generated by the PSH units that will not receive a PBV. Estimated Operating Expenses The operating expenses are estimated at $871,500 based on the following: 1. The general operating expenses are estimated at $5,505 per unit per year. 2. KMA assumes that the Developer will apply for the property tax abatement that is accorded to non-profit housing organizations that own and operate apartment units restricted to households earning less than 80% of the area median income. The property tax assessment overrides are estimated at $5,000. 3. The social services expenses are estimated at $123,100, which includes $89,630 for case management services for the PSH units. 4. The Developer will ground lease the Site from the Church for a base annual ground rent payment of $96,000 per year. The ground rent payments will escalate annually at the lesser of CPI or five percent (5%). 5. The Bond Issuer Fee is estimated at $5,000 per year. 6. The AHSC Loan has a required debt service payment equal to 0.42% of the AHSC Loan amount, which equals $84,000 per year. The replacement reserve deposits are set at $500 per unit per year, which is required by the AHSC Program. Estimated Stabilized Net Operating Income The Project's EGI is estimated at $1.01 million, and the operating expenses are estimated at $871,500. This results in estimated stabilized net operating income of $138,000. 1812009:SA:TRB 19090.017.008 80A-31 EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 12 Financial Gap Calculation The financial gap is estimated by deducting the available outside funding sources from the Project's total development costs. The outside funding sources anticipated to be received by the Project are described in the following sections of this memorandum. Available Outside Funding Sources Tax -Exempt Multifamily Bonds To estimate the maximum Bonds that can be supported by the Project's NO[, KMA assumed that the Bonds would be underwritten based on the following requirements: 1. A 146% debt service coverage ratio;6 A 5.60% interest rate; and 3. A 20 -year amortization period. KMA estimates that the Project's stabilized NOI can support $1.13 million in Bonds. Tax Credit Proceeds KMA estimates the net Federal Tax Credit proceeds at $16.12 million. This estimate is calculated based on the following assumptions: 1. The Project's eligible Tax Credit basis is equal to the lesser of the depreciable costs for the 93 Tax Credit units, or the threshold basis limits established by TCAC. In this case, the depreciable costs of $39.98 million are less than the threshold basis limits. 2. The Project is located in a 2019 Qualified Census Tract. This allows the requested eligible basis to be increased by 30%. The Developer set the annual Federal Tax Credit rate at 3.30%. This rate is applied over the 10 -year Federal Tax Credit period. 'The cumulative debt service coverage ratio inclusive of the Bonds, AHSC mandatory loan payment and Issuer Fee is 120%, which is typical for affordable housing transactions. 1812009:SA:TRB 19090.017.008 80A-32 Judson Brown, City of Santa Ana EXHIBIT 3 January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 13 4. 100% of the Project's building are that is included in the eligible basis is located in units that qualify for Federal Tax Credits. 5. The net syndication value supported by the Tax Credits is ultimately determined based on competitive market conditions and on the timing of disbursements. Based on currently available information, the Developer estimates the Tax Credit proceeds at $0.94 per gross Tax Credit dollar. AHSC Loan The Developer anticipates receiving a $20.0 million AHSC Loan. Orange County Housing and Community Development & Homeless Prevention Funds The Developer is proposing to apply for $2.36 million in OC HCD/HP funds managed by the County of Orange. AHP Loan The Developer is proposing to apply for a loan of $920,000 in Affordable Housing Program (AHP) funds awarded by the Federal Home Loan Bank of San Francisco. Deferred Developer Fee The Developer is proposing to defer $300,000, or 6% of the Developer Fee that is included in the Project's development costs. The deferred amount will be repaid from the cash flow generated by the Project over time. General Partner Equity The Developer is proposing to provide $2.72 million in General Partner Equity to the Project. This equates to 52% of the Developer Fee that is included in the Project's development costs. Total Available Outside Funding Sources As shown in Table 3, the outside funding sources available to the Project are estimated at $43.55 million. 1812009SA:TRB 19090.017.008 EXHIBIT 3 Judson Brown, City of Santa Ana January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 14 Financial Gap Calculation Based on the preceding analysis, KMA estimates the Project's financial gap as follows: Total Development Costs $46,749,000 (Less) Total Available Funding Sources (43,550,000) Financial Gap $3,199,000 Per Unit $34,400 As shown in the preceding analysis, KMA estimates that the Project exhibits a $3.20 million financial gap. In contrast, the Developer is requesting $3.17 million in financial assistance from the City. This represents a $28,000 differential, which is an approximately 1% difference. It is the KMA opinion that a difference of this magnitude can be considered insignificant. CONCLUSIONS / RECOMMENDATIONS The following summarizes the conclusions of the KMA analysis: 1. The Developer will be ground leasing the Site from the Church. The City Attorney should review the ground lease agreement and specific ground lease terms prior to executing loan documents with the Developer. 2. Based on the KMA cash flow analysis (Table 4), the Project's NCI is estimated to go negative in Year 31.7 Thus, the Project may require financial restructuring during the City's 55 -year loan term. 3. Based on the KMA cash flow analysis, it is unlikely that there will be sufficient residual receipts to fully repay the City's loan within the 55 -year loan term. As such, there will likely be an outstanding loan balance due and payable at the end of Year 55. 7 The cash flow analysis utilizes the typical underwriting assumptions of escalating income at 2.5% per year and operating expenses at 3.5% per year. 1812009:SA:TRB 19090.017.008 Judson Brown, City of Santa Ana EXHIBIT 3 January 3, 2019 Santa Ana United Methodist Church: Financial Gap Analysis Page 15 4. While the construction costs appear reasonable, they are at the low end of the range currently being seen for similar projects in the Southern California region. As such, KMA recommends that the City require the Developer to obtain three general contractor bids prior to selecting a general contractor. The three bids should be provided to the City for review and approval. 5. The Developer proposes to receive a $5.22 million Developer Fee for the Project, which is the maximum amount allowed by the California Tax Credit Allocation Committee (TCAC). However, the Developer proposes to defer $300,000 of the Developer Fee. In addition, the Developer proposes to contribute $2.72 million in General Partner equity to the Project. As such, the cash portion of the Developer Fee to be received by the Developer at the completion of construction is $2.20 million. The City should ensure that the cash Developer Fee component is in line with similar affordable housing projects developed in partnership with the City. 6. As noted above, the Developer proposes to contribute $2.72 million of the Developer Fee to the Project as Developer Equity. The City should ensure that the following repayment terms are applied to the Developer Equity: a. The Developer Equity can only be repaid via the Project's cash flow through the Developer's share of residual receipts; b. The Developer Equity will not be secured by a promissory note; and C. The Developer Equity can only be repaid upon sale/transfer of the Project after the City's financial assistance is repaid in full. 1812009:SA:TRB 19090.017.008 FO ' i0:cu-111K TABLE 1 ESTIMATED DEVELOPMENT COSTS 1 SANTA ANA UNITED METHODIST CHURCH PROJECT SANTA ANA, CALIFORNIA I. Direct Costs ` AHSC Elements $850,000 AHSC Transit Improvements 3,500,000 Off-site Improvements 1,264,000 Demolition Costs 75,794 Sf Land $13 /Sf land 1,006,000 On-site Improvements 75,794 Sf Land $40 /5f Land 3,027,000 Parking Costs 110 Spaces $23,000 /Space 2,530,000 Residential Shell Costs 123,062 Sf GBA $123 /Sf GBA 15,193,000 Furnishings, Fixtures & Equipment 150,000 Contractor Fees / General Requirements 3 14% Construction Costs 3,223,000 General Liability Insurance / Const Bonds 3 2% Construction Costs 460,000 Contingency Allowance 3 5% Other Direct Costs 1,343,000 Total Direct Costs 123,062 Sf GBA $264 /Sf GBA $32,546,000 II. Indirect Costs Architecture, Engineering & Consulting 6.0% Direct Costs $1,953,000 Permits & Fees 4 93 Units $26,075 /Unit 2,425,000 Taxes, Ins, Legal & Accounting 1.5% Direct Costs 488,000 Relocation Costs 50,000 Marketing&Leasing 93 Units $968 /Unit 90,000 Developer Fee s 15% Eligible Costs 5,215,000 Contingency Allowance - 5% Other lndirects 511,000 Total Indirect Costs $10,732,000 III. Financing Costs Interest During Construction Series A Bond 6 $1,133,000 Loan Amount 4.00% Interest $63,000 Series B Bond 7. $34,469,000 Loan Amount 4.00% Interest 1,930,000 Financing Fees Series A Bond $1,133,000 Loan Amount 1.50 Points 17,000 Series B Bond $34,469,000 Loan Amount 1.50 Points 517,000 Capitalized Reserves Bus Passes 8 609,000 Operating Reserve 9 3 Months Oper Expenses & Dbt Svc Pmts 176,000 TCAC Fees 10 159,000 Total Financing Costs $3,471,000 IV. Total Development Costs 93 Units $502,700 /Unit $46,749,000 1 The Developer will ground lease the Site from the Santa Ana United Methodist Church. z Based on Developer estimates. Estimates assume prevailing wage requirements will not be Imposed on the Project. 9 Perthe Developer, the costs for the ASHC Elements and Transit Improvements are excluded from this calculation. 4 Based on Developer estimate. The estimate should be verified by City staff. 9 Based on Developer estimate. The maximum amount allowed by TCAC is equal to 15% of the Project's eligible Tax Credit basis. 6 Includes debt on the 80% of the Tax Credit Equity which will not be funded during construction. Assumes an 18 -month construction period with a 60% average outstanding balance and a 6 -month absorption period with a 100% average outstanding balance. 7 Equal to the unfunded construction costs minus the Series A Bond amount; an 18 -month construction period with a 60% average outstanding balance; and a 6 -month absorption period with a 100% average outstanding balance. 8 Based on Developer estimates. 9 Per the Developer, for the operating reserve estimate, the operating expenses exclude property taxes, social services, issuer fee, AHSC payment, and replacement reserve deposits. 10 Includes a $2,000 application fee; $410/unit monitoring fee; and 1% of the gross Tax Credit proceeds for one year. Prepared by: Keyser Marston Associates, Inc. Filename: SA United Methodist Church -41% TC—AHSC-1 3 198AF/kn!36 EXHIBIT 3 TABLE 2 STABILIZED NET OPERATING INCOME SANTA ANA UNITED METHODIST CHURCH PROJECT SANTA ANA, CALIFORNIA I. Gross Residential Income 1 Manager's Unit 1 Unit $0 /Unit/Month $0 Tax Credit @ 30% Median (PSHI 8 Units $1,121 /Unit/Month 107,600 1 -Bedroom Units @ (569 -Sq 30 Units $226 /Unit/Month 81,400 2 -Bedroom Units @ (92D-59 3 Units $212 /Unit/Month 7,600 Tax Credit @ 30% Median 5.00% Gross Non -PSH Income (48,300) 2 -Bedroom Units @ (920 -Sq 6 Units $683 /Unit/Month 49,200 3 -Bedroom Units @ (1,364-Sf) 5 Units $781 /Unit/Month 46,900 Tax Credit @ 50% Median 2 -Bedroom Units @ (920-Sf) 20 Units $1,175 /Unit/Month 282,000 3 -Bedroom Units @ (1,364-Sf) 11 Units $1,350 /Unit/Month 178,200 Tax Credit @ 60% Median 93 Units $1,324 /Unit 123,100 2 -Bedroom Units @ (920-Sf) 12 Units $1,421 /Unit/Month 204,600 3 -Bedroom Units @ (1,364-Sf) 5 Units $1,634 /Unit/Month 98,000 Section 8 Subsidy Tax Credit @ 30% Median 1 -Bedroom Units @ (569-Sf) 8 Units $1,121 /Unit/Month 107,600 Gross Rental Income 93 Units $1,055,500 Laundry and Miscellaneous 93 Units $10 /Unit/Month 11,200 (Less) Vacancy & Collection Allowance 5.00% Gross Non -PSH Income (48,300) (Less) Vacancy & Collection - PSH 10.00% Gross PSH Income (8,900) Effective Gross Income $1,009,500 II. Operating Expenses General Operating Expenses 93 Units $5,505 /Unit $511,900 Property Taxes z 93 Units $54 /Unit 5,000 Services 93 Units $1,324 /Unit 123,100 Ground Lease Payment 3 96,000 Bond Issuer Fee 93 Units $54 /Unit 5,000 AHSC Mandatory Payment 4 $20,000,000 AHSC Loan 0.42% AHSC Loan 84,000 Replacement Reserve 4 93 Units $500 /Unit 46,500 Total Operating Expenses 93 Units $9,371 /Unit $871,500 III. lNet Operating Income$138,000 ' Based on Orange County 2018 Incomes distributed by HUD. Based on rents published in 2018 by TCAC. Utility Allowances per the Developer: $41 for 1-Bdrm units; $55 for 2-Bdrm units; and $71 for 3-Bdrm units. z Based on the assumption that the Developer will receive the property tax abatement accorded to non-profit housing organizations that own and operate apartment units restricted to households earning less than 80% of the area median income. 3 The Developer provided an appraisal prepared by Curtis -Rosenthal, Inc. on August 23, 2018, which estimates the Fee Simple Market Value of the Site as vacant at $4.70 million. The initial year ground rent payment is equal to approximately 2% of the appraised value, which can be considered a below market ground lease payment. 4 Based on the requirements of the Affordable Housing and Sustainable Communities (AHSC) Program. Prepared by: Keyser Marston Associates, Inc. Filename: SA United Methodist Church -4% TC_AHSC_1 3 181DAma TABLE 3 FINANCIAL GAP CALCULATION SANTA ANA UNITED METHODIST CHURCH PROJECT SANTA ANA. CALIFORNIA I. Available Funding Sources Tax -Exempt Multifamily Bonds 1 Net Operating Income $138,000 N01 (See Table 2) Income Available for Mortgage 1.46 OCR Interest Rate 5.60% Interest Rate Tax -Exempt Multifamily Bonds Tax Credit Ectuiri 2 Gross Tax Credit Value $17,151,000 Syndication Rate $0.94 /Tax Credit Dollar Net Tax Credit Equity AHSC 3 OC HCD/HP Funds 3 AHP 3 Deferred Fee 3 6% Total Developer Fee GP Equity 3 52% Total Developer Fee Total Available Funding Sources II. Financial Gap Calculation Total Available Funding Sources (Less) Total Development Costs $94,317 Debt Service 8.32% Mortgage Constant EXHIBIT 3 $1,133,000 $16,122,000 $20,000,000 $2,360,000 $920,000 $300,000 $2,715,000 $43,550,000 (46,749,000) $43,550,000 III. I Financial Surplus/ (Financial Gap) 93 Units ($34,400) /Unit ($3,199,000) 1 Assumes 20 -year amortization term. 2 Assumes a $40.0 million eligible basis, plus a 130% difficult -to -develop premium, a 3.3% Tax Credit rate and an applicable fraction of 100.00%. 3 Based on Developer estimate. Prepared by: Keyser Marston Associates, Inc. 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