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Home My WebLink About80B - JAMBOREE HOUSING PRE-LOAN COMMITMENTREQUEST FOR COUNCIL/ HOUSING AUTHORITY ACTION CITY COUNCIL MEETING DATE: MARCH 5, 2019 TITLE: pal APPROVE A PRE -LOAN COMMITMENT OF $1,687,047 OF AFFORDABLE HOUSING FUNDS AND EIGHTY-NINE PROJECT -BASED VOUCHERS TO JAMBOREE HOUSING FOR THE BUDGET INN PROJECT {STRATEGIC PLAN NO. 5,3C) CITY MANAGER EXECUTIVE DIRECTOR RECOMMENDED ACTION CITY COUNCIL CLERK OF COUNCIL USE ONLY: ❑ As Recommended ❑ As Amended ❑ Ordinance on V 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 Jamboree Housing ("Jamboree") for $1,687,047 in Community Development Block Grant (CDBG) Funds for the development of the Budget Inn affordable housing project located at 1108 N Harbor Blvd, Santa Ana, CA 92703, subject to non -substantive changes approved by the City Manager and City Attorney. HOUSING AUTHORITY Approve an award of eighty-nine (89) 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 Jamboree for the development of the Budget Inn affordable housing project located at 1108 N Harbor Blvd, Santa Ana, CA 92703, 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 Jamboree Housing ("Jamboree") for $1,687,047 in Community Development Block Grant Funds for the development of the Budget Inn affordable housing project located at 1108 N Harbor Blvd, Santa Ana, CA 92703, subject to non -substantive changes approved by the City Manager and City Attorney. Commitment of Affordable Housing Funds and Project -Based Vouchers to Jamboree Housing March 5, 2019 Page 2 2) Recommended that the Housing Authority approve an award of eighty-nine (89) 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 (for Existing or Rehabilitation) with Jamboree for the development of the Budget Inn affordable housing project located at 1108 N Harbor Blvd, Santa Ana, CA 92703. DISCUSSION On June 19, 2018, the City Council authorized the Community Development Agency (CDA) to release a Fiscal Year (FY) 2019 Request for Proposals (RFP # 18-056) 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 proposals include: Affordable Housing Developer Cesar Chavez Foundation Chelsea Investment Corporation Community Development Partners — 2 Proposals Community HousingWorks Habitat for Humanity of Orange County HomeAid Orange County 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 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 Commitment of Affordable Housing Funds and Project -Based Vouchers to Jamboree Housing March 5, 2019 Page 3 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: Commitment of Affordable Housing Funds and Project -Based Vouchers to Jamboree Housing March 5, 2019 Page 4 Housing Authority Land Asset Requested / HUD-VASH Vouch ars y Non+fousing Authority Land Asset Developer Name Project Name ORE (Average fI FINAL SCORE (Average of Individual 112681146 E. Washington Avenue Orange Hosing Devebpmem Corporation and CSC Development LLC 1126-1146 E. Washington Site 92 Related California The Crossroads stWashingbn 91 Jamboree Hosing REVOAparanents 87 Cesar Clavea FOVdatlon Sarna Ara Place 84 Commnaity HosingWaft Transformer 80 Commuity Devebpment Padners Washington Pian, GRFLD, Lacy WaN n Chelsea hNesiment Corporation Clelo 76 826 N. LacyMW N. Lacy Habitat for Hurnady ofCrange County LacySbeelPmiect 82 Comrmaity Development PaNers Washington Pian, GRFLD, lacy WaN n 801, 809 8 809 112 E Santa Ara BNd. HomeAid Orange County Frances XaNer ResIdence 90 Commurity Devebpmern Pareers WasHrgton Plaza, GRFLD, Lacy Walk 71 HILOWASH Vouchers (As the Primary Sauce of Financing) Jamboree Housing Budget lm Site 86 Commuity Oevebpment Partners WesMew House 81 Non -Housing Amhody Und Asset National Commmy Renaissance and Mem, Home UvIng Centers Sarna Am UNted Metiodlst Chmoth 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: Jamboree Housing Project Name: Budget Inn Developer Request: • $2 million • 89 HUD-VASH PBVs Award Recommendation: • Project -Based Voucher Program (PBV): Eighty -Nine (89) HUD-VASH PBVs • Community Development Block Grant Program (CDBG): $1,687,047 80B-4 Commitment of Affordable Housing Funds and Project -Based Vouchers to Jamboree Housing March 5, 2019 Page 5 On December 4, 2018, staff notified Jamboree 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 Jamboree for $1,687,047 in CDBG funds 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 Jamboree proposes to acquire the current Budget Inn and Suites, and rehabilitate the development, adding a community clinic of approximately 4,000 square feet. Jamboree currently has site control through March 2019 via an executed purchase and sale agreement. The award recommendation for 89 HUD-VASH project -based vouchers and $1,687,047 in CDBG Program funds will create permanent supportive housing for 89 homeless veterans with wrap around supportive services. Jamboree has adopted a "whatever it takes" model of supporting the needs of chronically homeless residents, with high success rates at their projects like the Rockwood Apartments and Diamond Apartments in Anaheim, and Doria Apartments in Irvine. All 89 units would be targeted to individuals earning no more than 30% of the area median income that are based on 30% of monthly Supplemental Security Income payments for an individual and assuming the zero -bedroom contract rents based on the 2017 rent schedule. Per the HUD-VASH regulations, this project would be serving individuals that qualify under the McKinney-Vento definition of homelessness. Unit Size No. Units AMI Proposed Rent Studio 89 30% $1,387 Unit Size No. Units AMI Proposed Rent Studio 89 30% $1,387 SOURCES Tax Credit Equity $15,934,856 Permanent Loan $6,379,792 Orange County Community Foundation $1,500,000 Veterans Housing and Homelessness Prevention $3,560,000 Federal Home Loan Bank Affordable Housing Program $500,000 City of Santa Ana $1,687,047 Deferred Developer Fee $136,157 TOTAL SOURCES $29,697,852 Commitment of Affordable Housing Funds and Project -Based Vouchers to Jamboree Housing March 5, 2019 Page 6 USES Acquisition $15,088,888 Hard Costs $6,700,000 Indirect Costs $2,831,028 Contingency $1,149,953 Financing $2,527,983 Developer Fee $1,400,000 TOTAL USES $29,697,852 The site is located within the Harbor Mixed Use Transit Corridor Specific Plan Area ("HMUTC"). Jamboree has met with staff from the Planning and Building Agency (PBA) to determine the viability of the proposed use at this location and the associated development constraints. Furthermore, PBA staff have also presented the preliminary design concept to others in their department who have indicated conceptual support for the design aesthetic and site plan. This is subject to review of a full submittal, such as was completed for the Santa Ana Veterans Village ("SAW') project, similarly located in the HMUTC. From a zoning perspective, the proposed use is allowed under the existing overlay. As plans are developed fully, Jamboree may approach the City about development incentives; however, discretionary land use approvals should not be needed. The current building is about 31,000 square feet and would include 89 studio units (estimated about 325 square feettunit) to house eligible homeless veteran households referred by the Veterans Affairs Medical Center of Long Beach to the Housing Authority. There would be one on-site employee unit. The parking count would be 107 spaces. The proposed ingress and egress would be achieved via the current driveway onto Harbor Blvd. The rehabilitation would include adding kitchenettes in 53 units, full size refrigerators in all units, new flooring and window coverings, repainting interiors, refinishing the existing tub / showers, replacing all angle stops, swapping out all existing fixtures for low flow fixtures, replacing existing light fixtures with LED fixtures, new dual pane windows, and a host of other items. The existing water boilers will be swapped out with high efficiency boilers utilizing solar thermal to preheat the water. As a part of the rehabilitation, Jamboree will undertake a comprehensive analysis to improve energy efficiency onsite and increase energy efficiency by at least 15% over existing conditions. All units will be fully furnished, providing a turnkey solution for future residents. The lynch pin for the service model onsite is the construction of a new clinical space where there is currently a small pool / spa. Having clinical support in close proximity ensures delivery of needed services to the veterans. Much like SAW, Jamboree will have space for a number of agencies to provide services, such as legal services, job training, and family counseling. This project will also share a similar service model as the SAW, where the Veterans Affairs staff will provide case management services, but greatly enhanced by staff from Jamboree's Community Impact team. As is essential with any permanent supportive housing project, the wrap-around supportive services must integrate effectively with the property management. Jamboree will employ the John Stewart Company as the property: manager, as they are one of the largest and most experienced operators of special needs housing in the state. It will also allow Jamboree to more effectively leverage the relationships they have with various stakeholders at the Veterans Village 80B-6 Commitment of Affordable Housing Funds and Project -Based Vouchers to Jamboree Housing March 5, 2019 Page 7 project, located about a mile away. The proposed development will be leasing after the SAW project, so Jamboree will have relevant experience in working with both the VA and County to ensure they can lease units quickly. Jamboree will finance this development using competitive 9% low-income housing tax credits. The 89 VASH vouchers and $1,687,047 in CDBG Program Funds significantly support the competitiveness of this project in securing this source of project financing. The project will require the award of Veterans Housing and Homelessness Prevention funds from State of California Department of Housing and Community Development, which has only one round of funding annually. This will push Jamboree's 9% tax credit application out to the first round of 2020. At the moment, the capital structure has a 69.62% second tiebreaker score for the competitive 9% tax credits. This score would be very competitive in the Nonprofit — Homeless apportionment, as the range of scores for this past round is between 49%-73%. In this past round, a 69.62% tiebreaker would have been the second highest tiebreaker in the set-aside; a 70% tiebreaker would have allocated in both the first round of 2018 as well as the second round of 2017. Similar to SAW, Jamboree will also secure private community foundation loan from Orange County Community Foundation as well as funding from AHP. For the development of this project by Jamboree Housing, the Review Panel is recommending an award of $1,687,047 in Community Development Block Grant Funds and eighty-nine (89) 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 Jamboree receives an allocation of low-income housing tax credits for the development of the 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. Please note CDBG program expenditures for FY 2017-18 totaled approximately $5.7 million. 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 future approval of the loan agreement, funds in the amount of $1,687,047 will be available in the Community Development Block Grant, Loans and Grants account (no. 13518782-69152). 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 value of the vouchers on an annual basis totals $938,950. The actual annual expenditure for the eighty-nine 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). Foerlliffi Commitment of Affordable Housing Funds and Project -Based Vouchers to Jamboree Housing March 5, 2019 Page 8 Steven A. Mendoza Executive Director Community Development Agency APPROVED AS TO FUNDS AND ACCOUNTS: 14 /�/;, Katlilyn Do s, CPA p� Executive Director G4YF 13s) Finance and Management Services Agency Exhibits: 1. Award Announcement to Jamboree Housing 2. Pre -Loan Commitment Letter for Jamboree Housing 3. Underwriting and Subsidy Layering Analysis by Keyser Marston Associates FOONW46 MAYOR Miguel A. Pulido MAYOR PRO TEM Michele Martinez COUNCILMEMBERS P. David Benavides Vicente Sarmiento Jose Solorio Sal Tinajero Juan Villegas December 4, 2018 CITE( OF SANTA ANA 20 Civic Center Plaza . P.O. Box 1988 Santa Ana, California 92702 www.santa-ana.org EXHIBIT 1 CITY MANAGER Raul Godinez II CITY ATTORNEY Sonia R. Carvalho CLERK OF THE COUNCIL Made D. Huizar Laura Archuleta, President Sent via E-mail Jamboree Housing 17701 Cowan Avenue, Suite 200 Irvine, CA 92614 Subject: Award Recommendations by Review Panel for RFP # 18-056 Dear Ms. Archuleta, 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 upon the final scoring and selection of the proposals. Following this process, the Review SANTA ANA CITY COUNCIL Miguel A Pulido Michele Martinez Vicente Sarmiento(] onq/� P. David Benavides Juan Villages Sal Tinajero Mayor Mayor Pro Tem, Ward 2 Ward fS y Ward Ward Ward (d moulldoaanta-ana.oro mlmanin(a e¢,mntaa.o nam vsarmiento(dsanlaana.oro a a -a dbenavides(dsantaana.om Ivllleaasesanlaana.om stmalemAeanta-anaoro EXHIBIT 1 Panel agreed upon the final scores below based on an average of the scores from each member of the Panel: Housing Authority Land Asset Requested / HUD•VASH Vouchers l No n4tousin9 Authority Land Asset Developer Name Prolect Name FINAL SCORE (Average o/ IntlWitlual ReviewerScores) 1126& 1146 E.WasNngton Avenue Orange Housing Development Coryomtion and C&C DesebpmenL LLC 1126-1146 E. Washington Site 92 Related California The Crossroads at Washington 91 Jamboree Housing REVOApantrnehis 87 Cesar Chavez Foundation Santa Ana Place 84 Commuity HousingWoft Tmrefomar 80 Conradi Devebpment Partners Washington Plain, GRFLD. Lacy Walk 77 Chelsea kwesMent Comoration Cleb 76 826 N. LacyMO N. Lacy Habitat for Hwnanity of Orange County Lacy Street Project 82 CommunityDeeelopment Partiars Washington Piam, GRFLD, LacyWalk 77 801.809 & 80912 E. Saha Are Md. HomeNd Orange County Frances XaNer Residence 90 CommurityDevebpmeMPartres Washington Plans, GRFLD. Lary Wa4t 77 HUD-VASH Vouchers (As the Primary Some of Fiiancing) Jamboree Housing Budget Inn Site 86 Community Development Partners We.mew House 81 Non -Housing Autlnny, Land Asset National Community Renaissance am Merry House IJvifg Centers Santa Ara Unitas! MetintlistChioch Site 93 *Supporting documentation for the scores above may be provided upon request. FOODIME1 EXHIBIT 1 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: Jamboree Housing Project Name: **"Budget Inn**" Developer Request: • $2 million • 89 HUD-VASH PBVs Award Recommendation: • Project -Based Voucher Program (PBV): Eighty -Nine (89) HUD-VASH PBVs • Community Development Block Grant Program (CDBG): $1,687,047.00 This recommendation is contingent upon final approval by the Community 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 exhausted to award the eighty-nine (89) HUD-VASH Project -Based Vouchers to your project as an Existing Housing site in compliance with the federal regulations for the Project -Based Voucher Program at 24 CFR 983. Please coordinate with staff to schedule an inspection of the units and the requirements to certify as an Existing Housing site. b. No less than 100% of the units in the project must be permanent supportive housing for homeless veterans in compliance with the HUD- VASH Program. If less Project -Based Vouchers are accepted for the project, the remaining permanent supportive housing units must be for homeless individuals and families referred from the Coordinated Entry System who are residing in the City of Santa Ana based upon: L 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 FOOTITME EXHIBIT 1 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 coordinate with you a first look of your project in coordination with the City's Planning and Building Agency to verify that the project design complies with the City's requirements. 4) Staff will complete a National Environmental Policy Act review in compliance with your award of federal funds. 5) Please draft a presentation that you will provide with staff to the 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 11 th. Staff will also coordinate with you on the Staff Report that will be presented to the Commission and then to City Council / Housing Authority. 6) 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 .•D- MAYOR Miguel A. Pulido MAYOR PRO TEM Juan Villegas COUNCILMEMBERS Cecilia Iglesias David Penaloza Roman Reyna Vicente Sarmiento Jose Solorio March 5, 2019 Laura Archuleta President CITY OF SANTA ANA SANTA ANA HOUSING AUTHORITY 20 Civic Center Plaza • P.O. Box 22030 Santa Ana, California 92702 (714)667-2200 www.santa-ana.om Jamboree Housing Corporation 17701 Cowan Avenue, Suite 200 Irvine, California 92614 Re: Budget Inn 1108 N. Harbor Boulevard, Santa Ana, CA 92703 EXHIBIT 2 ACTING CITY MANAGER Steven A. Mendoza CITY ATTORNEY Sonia R. Carvalho ACTING CLERK OF THE COUNCIL Norma Mitre -Ramirez Pre -Commitment Letter for CDBG Loan and Project Based Vouchers Dear Ms. Archuleta: Jamboree Housing Corporation ("Developer") requested financial assistance in connection with the proposed development of an eighty-nine (89) unit affordable housing complex to be located at 1108 N. Harbor Boulevard, Santa Ana, CA 92703 ("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 February 5, 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 $1,687,047 funded from the U.S. Department of Housing and Urban Development (HUD) Community Development Block Grant funds ("CDBG") held by the City of Santa Ana ("City Loan"); and, Eighty-nine (89) 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 City's pre -commitment of the City Assistance to the Developer for the Project subject to the conditions described below. SANTA ANA CITY COUNCIL Miguel A Pugdo Juan Villegas Vicente Sarmiento/� Pe Jose S.I.H. Roman Reyna Cecilia Iglesias Mayor Mayor Pm Tem, Wards Wad ,1 artl Ward3 Ward4 Ward6 mougdoRsantaana.aro M1Isaasnosantaana.oro vsarmiento/olsanta-ana.om I san .o IsolorioRsanta-ana.orn rreynaissanta-ana.org aglesiasAsanta-ana.am EXHIBIT 2 Page 12 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: $1,687,047 maximum principal amount, acquisition costs to construct the Project, the City of Santa Ana. • 3% simple interest per annum. or as much thereof as is disbursed for funded from the HUD CDBG funds held by 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 earlier upon 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 ("ICAC") Regulations. HUD-VASH PBV's: The Project consists of eighty-nine (89) permanent supportive housing units to be made available at affordable rents to HUD-VASH eligible homeless veterans for a term of fifty- five (55) years. All homeless veterans shall be referred from the Veterans Affairs Medical Center of Long Beach through the Orange County Coordinated Entry System, and are residing or working in the City of Santa Ana as defined under the City's criteria. FOODIMEA EXHIBIT 2 Page 13 The HUD-VASH PBV's shall include the following terms: Voucher Source: The eighty-nine (89) HUD-VASH PBVs will be funded exclusively out of the tenant -based voucher program annual budget authority received by the Housing Authority from the U.S. 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 0 Bedroom - $1,387 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 eighty-nine (89) units: Unit Size Income No. Units Proposed Rent Total Annual Target Revenue 0 -Br 30% AMI 89 $1,387 $1,481,316 The estimated maximum annual amount received under this award is $1,481,316. 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 homeless veterans or to 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 eighty-nine (89). EXHIBIT 2 Paqe 14 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 89 -unit affordable housing complex to be located at 1108 N. Harbor Boulevard, Santa Ana, CA 92703. • 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. • Compliance with applicable federal regulations set forth in 24 Code of Federal Regulations (CFR) Part 570 and 24 CFR Part 983. 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. 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 Ibrownna Santa-ana.org. Sincerely, Steven A. Mendoza Acting City Manager Attest: Norma Mitre -Ramirez Acting Clerk of Council .•D- ADviso RS IN: Real Estate Affordable Housing Economic Development BERKELEY A. Jerry Keyser Timothy C. Kelly Debbie M. Kern David Doezema Kevin Feeney Los ANGELES Kathleen H. Head James A. Rabe Gregory D. Soo -Hoo Kevin E. Engstrom Julie L. Romey Tim R. Bretz SAN DIEGO Paul C. Marra KEYSER MARSTON ASSOCIATES ADVISORS IN PUBLIC/PRIVATE REAL ESTATE DEVELOPMENT MEMORANDUM To: Judson Brown, Housing Division Manager City of Santa Ana From: Tim Bretz Date: February 21, 2019 Subject: Budget Inn: Preliminary Financial Gap Analysis EXHIBIT 3 At your request, Keyser Marston Associates, Inc. (KMA) prepared a financial gap analysis for the project proposed to be developed at 1108 North Harbor Boulevard (Site) by Jamboree Housing Corporation (Developer). The Site contains an existing motel which the Developer proposes to acquire and convert into a 91 -unit permanent supportive housing (PSH) apartment project (Project). Eight -nine (89) apartment units will be restricted to extremely -low households and two units will be unrestricted and reserved for on-site managers. The Developer is requesting financial assistance from the City of Santa Ana (City). The City proposes to utilize Community Development Block Grant Program (CDBG) funds which are allocated to the City by the United States Department of Housing and Urban Development (HUD). In addition, the Santa Ana Housing Authority (Authority) proposes to provide 89 HUD-VASH Project -Based Vouchers (PBVs) allocated to the Authority by HUD. The purpose of the KMA analysis is to evaluate the Developer's financial assistance request. 500 SOUTH GRAND AVENUE, SUITE 1480 > LOS ANGELES, CALIFORNIA 90071> PHONE 213.622.8095 wW W.KEYSERMARSTON.COM LFoolimpo 1902016.SA.TRB 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 2 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: KMA Developer Difference Total Development Costs $29,745,000 $29,761,000 ($16,000) Outside Funding Sources (28,075,000) (28,074,000) 1,000 Financial Gap $1,670,000 $1,687,000 ($17,000) As shown in the preceding table, KMA estimates the Project's financial gap at $1.67 million. Comparatively, the Developer is requesting $1.69 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. In addition, KMA has concerns regarding the proposed social services budget. Proposed Funding Sources The following summarizes the proposed funding sources for the Project: 1. 2. 3. 4. KMA estimates that the Project's net operating income (NOI) can support a $6.40 million permanent loan. The Developer is proposing to apply for 9% Federal Low Income Housing Tax Credits (Tax Credits) that are competitively awarded by the California Tax Credit Allocation Committee (TCAC). The net Tax Credit proceeds are estimated at $15.59 million. The Developer is proposing to apply for a $1.50 million loan from the Orange County Community Foundation (OCCF). The Developer is proposing to apply for a loan of $3.56 million from the Veterans Housing and Homelessness Prevention Program (VHHP). 1902016.SA.TRB 80B-20 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 3 5. The Developer is proposing to apply for a loan of $890,000 in Affordable Housing Program (AHP) funds awarded by the Federal Home Loan Bank of San Francisco. 6. The Developer is proposing to defer $139,000 of the Developer Fee that is included in the Project's development costs. The deferred amount will be repaid from the cash flow generated from the Project over time. PROJECT DESCRIPTION The proposed scope of development can be described as follows: 1. The Site is comprised of 1.79 acres, or 77,972 square feet of land area. 2. The 91 -unit Project represents a density of 50 units per acre. 3. The Project will include 89 studio units, one (1) one -bedroom unit, and one (1) two-bedroom unit. 4. The Project will include 89 PSH units which will be restricted to households earning no more than 30% of the Tax Credit Median. 5. The Project will include two unrestricted units reserved for on-site managers. 6. The Project will include a 4,000 square foot medical clinic. 7. The Project will include 107 surface parking spaces. 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 TRB 80B-21 119090.17.009 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 4 Estimated Development Costs (Table 1) KMA reviewed the Developer's February 14, 2019 pro forma and then independently prepared a pro forma analysis of the Project. The resulting development costs are estimated as follows: Property Assemblage Costs The following summarizes the property assemblage costs: 1. The Developer proposes to purchase the property for $15.09 million, or $165,800 per unit. The Developer did not provide an appraisal for review. The KMA analysis will need to be revised if the appraised value differs from the proposed purchase price. 2. It should be noted that the Developer does not anticipate any relocation costs for the Project, and a relocation plan was not provided for review. This analysis will need to be revised if the Project is ultimately subject to any relocation expenses. 3. The closing costs are estimated at $25,000, or less than 1% of the proposed purchase price. The total property assemblage costs are estimated at $15.11 million. Direct Costs The direct cost estimates assume that the Project will be subject to Federal Davis Bacon and/or State of California prevailing wage requirements. The direct costs applied in this analysis can be summarized as follows: The Developer assumes that the Project will not be required to complete any off- site improvements. City staff should verify the accuracy of this assumption. 2. The Developer estimates the residential rehabilitation costs at approximately $5.20 million, or $57,100 per unit. The Developer has not completed a physical needs assessment nor finalized the scope of rehabilitation. The KMA analysis will need to be revised if the residential rehabilitation costs differ than the estimates provided by the Developer for this analysis. TRB 80B-22 119090.17.009 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 5 3. The Developer estimates the costs to build out the clinic space at $1.20 million, or $300 per square foot of clinic GBA. This estimate assumes a full build -out of the clinic space including both shell costs and tenant improvement costs. 4. The Developer included a $512,000 allowance for furnishings, fixtures and equipment, which assumes that all of the affordable units are fully furnished. 5. The contractor costs are estimated as follows: a. An 11% allowance for contractor fees and general requirements is provided. b. An allowance for construction bonds/general liability insurance at 2% of construction costs is provided. 6. A direct cost contingency allowance equal to 10% of other direct costs is provided. KMA estimates the total direct costs at $8.48 million. This equates to $93,200 per unit. Indirect Costs KMA utilized the following assumptions in estimating the indirect costs: 1. The architecture, engineering and consulting costs are estimated at 8% of direct costs. 2. The construction management fee is estimated at $100,000. 3. The Developer estimated the public permits and fees costs at $570,000, or $6,300 per unit. City staff should verify the accuracy of this estimate. 4. The taxes, insurance, legal and accounting costs are estimated at 3% of direct costs. An approximately $1,200 per unit allowance for marketing and leasing costs is provided. 6. The Developer set the Developer Fee at $1.71 million, which is equal to the maximum amount allowed by TCAC. 80B-23 119090.17.009 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 6 7. An indirect cost contingency equal to 10% of other indirect costs is provided. KMA estimates the total indirect costs at $3.77 million. Financing Costs The financing costs for the Project are estimated as follows: 1. The construction period and absorption period interest costs are estimated at $1.64 million. These costs are based on the following assumptions: a. The construction period interest costs are based on a 5.0% interest rate, a 13 -month construction period, and a 65% average outstanding balance. The absorption period interest costs are based on a seven-month absorption period with a 100% average outstanding balance. 2. The construction loan and permanent loan financing fees are estimated as at 1.0 point. 3. A $320,000 capitalized operating reserve is provided. This equates to three months of operating expenses and debt service payments. 4. The Tax Credit fees are estimated at $104,000 based on the following assumptions: a. A $2,000 application fee; b. A $410 per unit monitoring fee; and C. Four percent (4%) of gross Tax Credit proceeds for one year. KMA estimates the total financing costs at $2.38 million. Total Development Costs As shown in Table 1, KMA estimates the total development costs at $29.75 million, or $326,900 per unit. This is approximately $16,000 less than the Developer's estimate, which can be considered an insignificant difference. 1902016.SA.TRB 80B-24 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 7 Stabilized Net Operating Income (Table 2) The Project's funding sources include Tax Credits, VHHP funds, and CDBG 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. HCD publishes regulations regarding the applicable rents for projects with VHHP funds, and HUD defers to HOME Program rents for projects with CDBG 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 and the HOME Program. The maximum allowable rents, net of the appropriate utility allowances, are estimated as follows: Rent Restriction) Studio Tax Credit @ 30% Median $574 VHHP @ 30% Median $574 CDBG @ Low HOME $913 30% SSI $273 Applicable Rent $273 The Authority will provide HUD-VASH PBVs for the 89 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 2019 FMR for a studio unit is set at $1,387 per unit per month. 'For the purposes of underwriting, the rents for the PSH units are set at the lesser of 30% of SSI and the rent restrictions imposed by the funding sources. TRB 80B-25 119090.17.009 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 8 Estimated Effective Gross Income KMA estimates the Project's effective gross income at $1.34 million based on the following: 1. The gross tenant -paid rents are estimated to total $291,600. 2. The gross HUD-VASH PBV subsidy is estimated to total $1.19 million. 3. Laundry and miscellaneous income is estimated to average $9 per unit per month, or $9,800 per year. 4. A 10% vacancy and collection allowance is provided. Estimated Operating Expenses The operating expenses are estimated at $853,400 based on the following: The general operating expenses are estimated at $5,200 per unit per year. 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 $7,000 per year. 3. The social service expenses are estimated at $311,500, which equates to $3,500 per unit. KMA has concerns with the proposed social services budget, which is discussed in further detail at the end of this memorandum. 4. The VHHP Loan has a required debt service payment equal to 0.42% of the VHHP Loan amount, which equals $15,000 per year. 5. The replacement reserve deposits are set at $500 per unit per year, which is required by the VHHP Program. Estimated Stabilized Net Operating Income The Project's EGI is estimated at $1.34 million, and the operating expense are estimated at $853,400. This results in estimated stabilized net operating income of $488,700. 80B-26 190 1016SA. 19090.017.009009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 9 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 Permanent Loan To estimate the maximum permanent loan that can be supported by the Project's NO], KMA assumed that the loan would underwritten be based on the following requirements: 1. A 115% debt service coverage ratio; 2. A 5.75% interest rate; and 3. A 35 -year amortization period. KMA estimates that the Project's stabilized NOI can support a $6.40 million permanent loan. Tax Credit Proceeds KMA estimates the net Federal Tax Credit proceeds at $15.59 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 91 Tax Credit units, or the threshold basis limits established by TCAC. In this case, the depreciable costs are less than the threshold basis limits as follows: a. The Project's acquisition basis is estimated at $12.10 million; and The Project's construction cost basis is estimated at $12.82 million. 2. To increase the competitiveness of the Project's Tax Credit application in the TCAC tiebreaker process, the Developer is proposing to voluntarily exclude $2.49 million from the Project's eligible construction cost Tax Credit basis. TRB 80B_27 199090.0 7.009 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 10 The Project is a special needs project, and per TCAC regulations, is allowed to increase the eligible construction cost Tax Credit basis by 30%. 4. The annual Federal Tax Credit rate is set at 9.0%. This rate is applied over the 10 -year Federal Tax Credit period. 5. 100% of the Project's building area that is included in eligible basis is located in units that qualify for Federal Tax Credits. 6. The net syndication value supported by the Tax Credit is ultimately determined based on competitive market conditions and on the timing of disbursements. Based on currently available information, the Developer estimates the proceeds at $0.97 per gross Tax Credit dollar. OCCF Loan The Developer is proposing to apply for a loan of $1.50 million from OCCF. VHHP Loan The Developer is proposing to apply for a loan of $3.56 million from the VHHP Program. AHP Loan The Developer is proposing to apply for a loan of $890,000 in AHP funds. Deferred Developer Fee The Developer is proposing to defer $139,000, or 8% 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 overtime. Total Available Outside Funding Sources As shown in Table 3, the outside funding sources available to the Project are estimated at $28.08 million. Financial Gap Calculation Based on the preceding analysis, KMA estimates the Project's financial gap as follows: 1902016.SA.TRB 80B-28 19090.017.009 Judson Brown, City of Santa Ana Budget Inn: Preliminary Financial Gap Analysis Total Development Costs (Less) Total Available Funding Sources Financial Gap Per Unit February 21, 2019 Page 11 $29,745,000 (28,075,000) $1,670,000 $18,400 As shown in the preceding analysis, KMA estimates that the Project exhibits a $1.67 million financial gap. In contrast, the Developer is requesting $1.69 million in financial assistance from the City. This represents a $17,000 differential, which is an approximately 1% difference. It is the KMA opinion that a difference of this magnitude can be considered insignificant. SOCIAL SERVICE EXPENSE DISCUSSION The Developer is currently estimating the social service expenses at $311,500 per year, which equates to $3,500 per affordable unit. This budget assumes one full-time program manager, two full-time service coordinators, and one part-time peer counselor. The Developer is proposing to be the social service provider for the Project, and to pay for 100% of the social service expenses through the Project's operating income. In contrast to the Developer's proposal, other developers typically partner with non- profit social service providers that obtain funding from other county and state entities to pay for a portion of the social service costs. Thus, in most instances, the project itself is not paying for a significant portion of the social service expenses directly out of project operations. As a result, the Developer's proposed social services budget is significantly higher than the budgets included in recent similar projects that KMA has reviewed in the Southern California region. For reference purposes, similar projects in Orange County have social service budgets that range from $1,500 to $2,000 per affordable unit per year. The inclusion of 100% of the social service expenses in the Project's operating budget, reduces the NO[ available to obtain permanent loan proceeds, which in turn increases the Project's financial gap. For example, if the social services budget were reduced to $178,000 ($2,000 per affordable unit per year), the Project's NO[ could support an additional $1.75 million in permanent loan proceeds, which would reduce the Project's 1902016.SA.TRB 80B-29 19090.017.009 Judson Brown, City of Santa Ana Budget Inn: Preliminary Financial Gap Analysis February 21, 2019 Page 12 financial gap on a dollar -for -dollar basis. In addition, these expenses decrease the annual cash flow available to repay the City's loan. KMA and the Developer had lengthy discussions regarding the proposed social services budget, but were not able come to an agreement. During these discussions, KMA proposed the following structure: 1. The permanent loan may be underwritten based on the Developer's proposed social services budget of $3,500 per affordable unit, or $331,500. 2. However, the automatically approved social services budget will be limited to $2,000 per affordable unit, or $178,000. The remaining $133,500 of the budget ($311,500 - $178,000 = $133,500), will be subject to review and approval by the City each year. This structure would allow the City to evaluate the level of social services and corresponding budget on an annual basis. This structure would also allow the City to encourage the Developer to seek out additional social service funds from other entities. If in any year the City determines that the additional $133,000 is not warranted, it would result in additional cash flow to the Project that would work its way through the Project's cash flow waterfall and ultimately repay the City's loan sooner than anticipated. As noted above, KMA discussed this concept with the Developer; however, the Developer was not amenable to accepting any annual caps on the social services budget that were less than the proposed $311,500 budget. CONCLUSIONS/ RECOMMENDATIONS The following summarizes the conclusions of the KMA analysis: 1. Based on the currently available information, and if it is assumed that the City approves a $311,500 per year social services budget, it is KMA's conclusion that the Developer's request for $1.69 million in City assistance and 89 HUD-VASH PBVs is supported by the Project economics. 1902016.SA.TRB 80B-30 19090.017.009 Judson Brown, City of Santa Ana February 21, 2019 Budget Inn: Preliminary Financial Gap Analysis Page 13 2. However, KMA does not recommend that the City approve the social services budget as proposed. Instead, KMA recommends the following structure: The permanent loan may be underwritten based on the Developer's proposed social services budget of $3,500 per affordable unit, or $311,500 per year. b. The Developer will be entitled to expend $2,000 per affordable unit, or $178,000 without a requirement to receive City approval for the expenditures. C. Any proposed additional social services expenditures, up to a maximum of $133,500 ($311,500 - $178,000 = $133,500), must be submitted to the City for review and approval each year. 3. Typically, soft lenders of affordable housing projects will split 50% of a project's residual receipts based on a pro rata distribution determined by their respective loan balances. However, based on discussions with the Developer, it is likely that OCCF will request 75% of the Project's residual receipts, which is much higher than OCCF's pro rata share. As such, KMA recommends that the City work with the Developer to negotiate a more equitable residual receipts distribution among the soft lenders. 4. The City should 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. 1902016.SA.TRB 80B-31 19090.017.009 TABLE 1 ESTIMATED DEVELOPMENT COSTS BUDGET INN SANTA ANA. CALIFORNIA I. Property Assemblage Costs Property Acquisition Costs Closing Costs Total Land Assemblage Costs II. Direct Costs Off-site Improvements Residential Rehabilitation Costs Clinic Space Building Costs Furnishings, Fixtures & Equipment Contractor Fees / General Requirements Construction Bonds / General Liability Insurance Contingency Allowance Total Direct Costs III. Indirect Costs Arch, Eng, & Consulting Construction Management Public Permits & Fees Taxes, Insurance, Legal & Accounting Marketing & Leasing Developer Fee Contingency Allowance Total Indirect Costs IV. Financing Costs Interest During Construction Financing Fees Construction Loan Permanent Loan Operating Reserve TCAC Fees Total Financing Costs IM 1 91 Units $165,800 /Unit $15,089,000 0.17% Acq Costs 25,000 $15,114,000 2 3 $0 4 91 Units $57,100 /Unit 5,196,000 4 4,000 Sf GBA $300 /Sf GBA 1,200,000 4 91 Units $5,621 /Unit 512,000 11% Construction Costs 704,000 2% Construction Costs 96,000 10% Other Direct Costs 771,000 91 Units $93,200 /Unit $8,479,000 8% Direct Costs $678,000 100,000 ' 91 Units $6,263 /Unit 570,000 3% Direct Costs 254,000 91 Units $1,220 /Unit 111,000 6 15% Eligible Basis 1,714,000 30% Other Indirect Costs 343,000 $3,770,000 6 $25,461,000 Loan Amount .5.00% Interest $1,639,000 $25,461,000 Loan Amount 1.00 Points $6,399,000 Loan Amount 1.00 Points 3 Months Operating Expenses/ Debt Service 7 255,000 64,000 320,000 104,000 $2,382,000 Total Construction Costs 91 Units $160,800 /Unit $14,631,000 Total Development Costs 91 Units $326,90D /Unit $29,745,000 2 Based on Developer estimate. An appraisal was not provided for review. 2 Estimates assume prevailing wage requirements will be imposed on the Project. 3 Based on Developer estimate. The estimate should be verified by City staff. 4 Based on Developer estimates. A detailed scope of work or physical needs assessment was not provided for review. s This is the maximum amount allowed to be included in the Project's eligible Tax Credit basis. 6 Includes debt on the 90% of the Tax Credit Equity which will not be funded during construction. Assumes a 13 -month construction period with a 65% average outstanding balance and a 7 -month absorption period with a 100% average outstanding balance. r Includes a $2,000 application fee; $410/unit monitoring fee; and 4% of the gross Tax Credit proceeds for one year. Prepared by: Keyser Marston Associates, Inc. 80B-32 Filename: Jamboree Budget Inn -2 19 19; PF -9%; trb TABLE 2 STABILIZED NET OPERATING INCOME BUDGET INN SANTA ANA, CALIFORNIA I. Gross Residential Income 1 Manager's Unit 2 Units $0 /Unit/Month $0 A. Base Rental Income Low HOME/TC @ 30% Median Studio Units @ (306-Sf) 89 Units $273 /Unit/Month 291,600 B. HUD-VASH PBV Income Studio Units @ (306-Sf) Low HOME/TC @ 30% Median 89 Units $1,114 /Unit/Month $1,189,800 Laundry/Miscellaneous Income 91 Units $9 /Unit/Month 9,800 Gross Income $1,491,200 (Less) Vacancy & Collection Allowance 10% Gross Income (149,100) Effective Gross Base Rent Income $1,342,100 II. Operatine Expenses General Operating Expenses 91 Units $5,213 /Unit $474,400 Property Taxes 1 91 Units $77 /Unit 7,000 Social Services 3 89 Affordable Units $3,500 /Unit 311,500 VHHP Mandatory Debt Service 4 $3,560,000 VHHP Loan 0.42% VHHP Loan 15,000 Replacement Reserve 4 91 Units $500 /Unit 45,500 Total Operating Expenses $853,400 III. I Net Operating Income $488,700 1 Based on OC Incomes distributed by HUD. As pertinent, the rents are based on those published in 2018 by TCAC, the HOME Program, and 30% of SSI. The project will pay for all utilities and no utility allowances are deducted from the gross rents. z Based on Developer estimate. Assumes that the Developer will receive the property tax abatement accorded to non-profit housing organizations that develop income -restricted apartments. 3 Based on Developer estimate. 4 Based on the requirements imposed by the VHHP Program. Prepared by: Keyser Marston Associates, Inc. 80B-33 Filename: Jamboree Budget Inn -2 19 19; PF -9%; trb TABLE 3 FINANCIAL GAP CALCULATION BUDGETINN SANTA ANA, CALIFORNIA I. Available Funding Sources Permanent Loan Net Operating Income Income Available for Mortgage Interest Rate Permanent Loan Federal Tax Credit Equiri Gross Tax Credit Value Syndication Rate Net Federal Tax Credit Equity OCCF VHHP AHP Deferred Developer Fee Total Available Funding Sources II. Unfunded Financial Gap Calculation Total Available Funding Sources (Less) Total Development Costs $488,700 NOI (See Table 2) 1.15 DCR 5.75% Interest Rate $16,071,000 97% /Tax Credit Dollar $425,000 Debt Service 6.64% Mortgage Constant $6,399,000 $15,587,000 3 $1,500,000 3 $3,560,000 ' $890,000 3 8% Total Developer Fee $139,000 $28,075,000 $28,075,000 (29,745,000) Unfunded Financial Gap 91 Units $18,400 /Unit $1,670,000 1 Assumes a 35 -year amortization period. ' Assumes a $10.3 million requested unadjusted eligible basis, which includes a $2.49 million voluntary basis reduction, a 130%difficult-to-develop premium, a 9.0% Tax Credit rate and an applicable fraction of 100%. 3 Based on Developer estimate. Prepared by: Keyser Marston Associates, Inc. 80B-34 Filename: Jamboree Budget Inn -2 19 19; PF -9%; trb