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HomeMy WebLinkAboutItem 03 - Affordable Housing Project at 801, 807, 809 and 809 ½ E. Santa Ana Blvd. Housing Authority www.santa-ana.org/cd Item # 3 City of Santa Ana 20 Civic Center Plaza, Santa Ana, CA 92701 Staff Report December 7, 2021 TOPIC: Affordable Housing Project at 801, 807, 809 and 809 ½ E. Santa Ana Blvd. AGENDA TITLE: Approve a $1,656,947 Loan Agreement and a 99-year Ground Lease with Shelter Providers of Orange County, Inc. DBA HomeAid Orange County, Inc. for the development of the FX Residences affordable housing project located at 801, 807, 809 and 809 ½ E. Santa Ana Blvd. (Non-General Fund) (Contingent upon approval of City Council Item #16). RECOMMENDED ACTION 1. Approve an amended award of $587,000 in additional funds from the Low and Moderate Income Housing Asset Fund for the development of the FX Residences affordable housing project located at 801, 807, 809 and 809 ½ E. Santa Ana Blvd. to offset a portion of the additional construction costs associated with the project since approval of the pre-loan commitment for the project by the Housing Authority on January 15, 2019. 2. Authorize the Executive Director of the Housing Authority to execute a Loan Agreement with Shelter Providers of Orange County, Inc. DBA HomeAid Orange County, Inc. for $1,656,947 in Low and Moderate Income Housing Asset Funds for the development of the FX Residences affordable housing project located at 801, 807, 809 and 809 ½ E. Santa Ana Blvd., subject to non-substantive changes approved by the Executive Director of the Housing Authority and Authority General Counsel. 3. Authorize the Executive Director of the Housing Authority to execute a ninety-nine (99) year Ground Lease with Shelter Providers of Orange County, Inc. DBA HomeAid Orange County, Inc., for the development of the FX Residences affordable housing project located at 801, 807, 809 and 809 ½ E. Santa Ana Blvd, subject to non- substantive changes approved by the Executive Director of the Housing Authority and Authority General Counsel. 4. Authorize the Executive Director of the Housing Authority to execute a future Subordination Agreement with a senior lender for the development of the FX Residences affordable housing project, subject to non-substantive changes approved by the City Manager and City Attorney. Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 2 2 2 6 4 EXECUTIVE SUMMARY On January 15, 2019, the Housing Authority approved an award of $1,069,947 in funding and agreed to enter into a 99-year Ground Lease for the development of the Frances Xavier Residence affordable housing project by Shelter Providers of Orange County, Inc. DBA HomeAid Orange County, Inc. After nearly three years of predevelopment in which Frances Xavier Residence (renamed to “FX Residences”) worked with staff to secure all of their remaining sources of financing in their capital stack as a condition of the Housing Authority’s award of funds and Ground Lease, staff is now returning to the Housing Authority / City Council for approval of their Loan Agreement and Ground Lease. Due to additional construction costs associated with the project since approval of the award on January 15, 2019, staff is also recommending to amend their award of funds for an additional $587,000. In addition, staff is also recommending approval of a Density Bonus Agreement required for HomeAid’s entitlements to develop FX Residences and a Development Impact Fee Deferral Agreement to offset their costs of construction. A future Subordination Agreement may be necessary at a later date and is included as a Recommended Action. DISCUSSION On January 15, 2019, the City Council approved a pre-loan commitment with HomeAid Orange County (“HomeAid”), with Mercy House Living Centers (“Mercy House”) as the service provider, for $1,069,947 in Low and Moderate Income Housing Asset Funds and a 99-year Ground Lease of 801, 807, 809 and 809 ½ E. Santa Ana Blvd. for the development of the Frances Xavier Residence affordable housing project. The $1,069,947 are former redevelopment agency funds held by the Housing Authority acting as the Housing Successor Agency. The funds are generated from proceeds from the sale of former Redevelopment Agency housing assets, residual receipts from former Redevelopment Agency assets (i.e., loans), as well as a portion of the loan repayments from the former Redevelopment Agency to the City. The Housing Authority owns the land at 801, 807, 809 and 809 ½ E. Santa Ana Blvd. after it was transferred by the former Redevelopment Agency. The project was renamed from Frances Xavier Residences to FX Residences after the City Council approved the pre-loan commitment. The staff report from January 15, 2019 is attached as Exhibit 1 and the pre-loan commitment letter is attached as Exhibit 2. After the City Council approves a pre-loan commitment of funding for an affordable housing project, it typically takes a substantial amount of time for a developer to secure their remaining sources of financing in their capital stack. The majority of large multi- family affordable housing projects require Low-Income Housing Tax Credits, which are very competitive for the higher value 9% Tax Credits with only two application deadlines a year and more difficult to finance with the lower value 4% Tax Credits. In this case, HomeAid did not apply for Low-Income Housing Tax Credits, but applied for various other sources of financing through the County of Orange, Orange County Housing Finance Trust and Wells Fargo, among other grantees and lenders. After almost three years since Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 3 2 2 6 4 HomeAid received a commitment of funding and land from the Housing Authority, HomeAid is prepared to close on their financing and begin construction of the project. In order for HomeAid to develop FX Residences and in accordinace with the pre-loan commitment letter approved by the Housing Authority on January 15, 2019, staff is recommending approval of $587,000 in additional funds, a $1,656,947 Loan Agreement, a 99-year Ground Lease, a Density Bonus Agreement, and a Development Impact Fee Deferral Agreement with HomeAid for the development of the FX Residences affordable housing project (“Project”) located at 801, 807, 809 and 809 ½ E. Santa Ana Blvd. $587,000 Award of Additional Funds Due to unanticipated and additional construction costs associated with the Project since approval of the pre-loan commitment on January 15, 2019, staff is recommending to amend the Housing Authority’s original award for $587,000 in additional funds from the Low and Moderate Income Housing Asset Fund. With approval by the Housing Authority, the total award of funds would increase from $1,069,947 to $1,656,947. After receiving the Housing Authority’s award of financial assistance, HomeAid revised their proposed project to add five additional units instead of the 12 units previously proposed. In addition, HomeAid received updated construction cost estimates, which increased the development budget for the Project. The increase in costs is primarily due to the COVID- 19 pandemic and the increase in labor and materials since January 15, 2019. As such, HomeAid is requesting the Housing Authority to provide an additional $587,000 in additional financial assistance to the Project. To address this gap, most recently HomeAid attempted to apply for these funds from Wells Fargo and from the Affordable Housing Program General Fund through the Federal Home Loan Bank of San Francisco. Although Wells Fargo provided a $25,000 grant, the application to the Federal Home Loan Bank was not successful. Keyser Marston Associates, Inc. prepared a financial gap analysis attached as Exhibit 3 and confirmed this remaining financial gap amount. Staff recommends approval of the award of $587,000 in order to move the Project forward and not continue to wait for HomeAid to secure their remaining sources of financing. If not approved by the Housing Authority, the Project will likely be delayed by another year before being recommended to City Council for approval again. Loan Agreement The Housing Successor Agency Loan Agreement is attached as Exhibit 4. The following loan terms are incorporated into the Loan Agreement: Borrower: Shelter Providers of Orange County, Inc. DBA HomeAid Orange County, Inc. Loan Amount: $1,656,947 principal amount from the Low and Moderate Income Housing Asset Fund (Housing Successor Agency) Interest Rate: 3% simple interest compounded annually Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 4 2 2 6 4 Term: fifty-five (55) years from the date of issuance of the Certificate of Occupancy for the Project. Terms of Repayment: Repaid from fifty percent (50%) of residual receipts (pro- rata with payments due in connection with other financing provided) calculated by taking the Annual Project Revenues from the Property for each year, less deductions for Annual Operating Expenses. Disbursement Schedule: 90 percent of the funds will be disbursed upfront for the construction, with a 10 percent contingency. Selection of Tenants: HomeAid shall give preference in leasing units to chronically homeless individuals that live and/or work in the City of Santa Ana. Staff in the Community Development Agency will monitor implementation of the preference. The Loan Agreement has been signed by HomeAid to acknowledge their acceptance of the terms. 99-Year Ground Lease The 99-year Ground Lease is attached as Exhibit 5. The 99-year Ground Lease is between the Housing Authority (“Agency” and “Lessor”) and HomeAid as the “Tenant”. In its simplest form, the Ground Lease binds the Housing Authority into a 99-year Ground Lease with HomeAid to develop, manage and maintain the FX Residences Project on the Housing Authority’s land at 801, 807, 809 and 809 ½ E. Santa Ana Blvd. The purpose of the Ground Lease is to lease the parcels owned by the Housing Authority to HomeAid for no more than 99 years from the date they receive their Certificate of Occupancy. The following terms are incorporated into the 99-year Ground Lease: Term: ninety-nine (99) years, commencing on the Effective Date of the lease, and shall expire at 12:00 midnight Pacific Standard Time on the 99th anniversary of the Commencement Date. The Effective Date is the date when the Tenant takes possession of the property and is entitled to start construction. The Commencement Date is the date when the Tenant receives their Certificate of Occupancy. Tenant accepts the parcel “as-is”. Tenant shall pay to Housing Authority a base rent in the amount of one dollar ($1.00) per year. Tenant shall pay directly to the taxing authorities all taxes required and utility costs. Tenant shall construct and during the entire Term operate, maintain, replace and repair the improvements upon the property for only the following required uses: o multifamily affordable housing, and appurtenant improvements, including, without limitation, parking; o permanent supportive housing units and related services; and o related commercial and community-serving uses, as approved by the Lessor. Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 5 2 2 6 4 The Housing Authority may enter the premises upon two (2) business days’ prior written notice to Tenant in order to determine whether Tenant is complying with Tenant’s obligations or to enforce any rights given to the Housing Authority under the Lease. On a monthly basis, the Tenant shall maintain a reserve fund to pay for the costs of major replacements, renovations or significant upgrades of or to the Project. The Tenant shall contribute to a Capital Improvement Fund one percent (1%) of the total rent collected by Tenant from sub-tenants from the previous month. Throughout the Term of the Lease, Tenant shall, at Tenant’s sole cost and expense, keep and maintain the premises and all Improvements now or hereafter constructed and installed on the premises in good order, condition and repair. In the event the whole or any part of the improvements shall be damaged or destroyed by fire or other casualty, damage or action of the elements which is fully covered by insurance required to be carried by Tenant pursuant to the Lease or in fact caused by Tenant, at any time during the Term, Tenant shall with all due diligence, at Tenant’s sole cost and expense, repair, restore and rebuild the improvements on substantially the same plan and design as existed immediately prior to such damage or destruction and to substantially the same condition that existed immediately prior to such damage. Tenant will purchase all required insurance at Tenant's expense and provide active certificates of insurance, including all endorsements required by the Housing Authority. Other terms and conditions binding the Tenant in regards to Condemnation, Subletting, Default and Remedies under the lease, Holding Over the lease term, Leasehold Mortgages, and Best Management Practices. The 99-year Ground Lease has been signed by HomeAid to acknowledge their acceptance of the terms. The approval of the 99-year Ground Lease is contingent on approval of the award of additional funds and the Loan Agreement. Density Bonus Agreement The Density Bonus Agreement was approved unanimously by the Planning Commission on March 22, 2021. The Agreement is attached as Exhibit 6. As proposed, the Project will utilize waivers from development standards and/or development concessions through the Density Bonus Agreement as permitted pursuant to California Government Code sections 65915 through 65918 as implemented by the Santa Ana Municipal Code (SAMC) Sections 41-1600 through 41-1607. Staff is recommending approval of the Density Bonus Agreement as the Project satisfies the purpose and intent of the Transit Zoning Code (TZC) to promote a pedestrian-oriented environment with a mix of land uses and will provide additional affordable housing stock to an underserved segment of the City’s population. The California Density Bonus law allows developers proposing five or more residential units to seek increases in base density for providing on-site housing units in exchange for providing affordable units on site. To help make constructing on-site affordable units Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 6 2 2 6 4 feasible, the law allows developers to seek up to three incentives/concessions and an unlimited number of waivers, which are essentially variances from development standards that would help the project be built without significant burden and without detriment to public health. The first version of the Density Bonus Law was adopted in 1979 and has since been amended various times. Recent revisions allow affordable housing developers to request incentives/concessions and/or waivers for 100-percent affordable developments, even if they do not require a numerical density bonus in units. Moreover, in early 2017, the law was amended to restrict the ability of local jurisdictions to require studies to “justify” the density bonus and requested incentives/waivers and places the onus on local jurisdictions to prove that the incentives/concessions or waivers are not financially warranted. Due to the project’s 100-percent affordability rate, HomeAid can seek up to three density bonus concessions and unlimited waivers, pursuant to Section 65915 et al. of the California Government Code (Density Bonuses and Other Incentives). In addition, California Assembly Bill No. 2345, approved September 28, 2020, revised the State Density Bonus Law originally adopted in 1979 to provide additional benefits for projects that include qualifying affordable housing. The bill requires that housing development in which 100 percent of all units (exclusive of manager units) are for lower-income households receive a maximum density bonus of eighty percent (80%). Pursuant to Section 65915 et al. of the California Government Code, HomeAid is requesting a 70- percent (70%) state density bonus. As outlined by Table 1 below, the maximum unit yield for the 0.344-acre site using the TZC standards and the State density bonus is 18 units and the applicant is proposing to develop 17 units on the site. Table 1: Density Bonus Calculation Density or Bonus Allowed for Project Under State Density Bonus Law Proposed by Project Base Density of the UN-2 zoning class for the property is 30 units per acre 10 units (0.344 acres x 30 units/acre base density based on Courtyard Housing type, which is the most “intense” type allowed in UN-2). 10 Units Add on the 80-Percent State Density Bonus 8 units (10 x 0.80)+7 Units Total Units 18 units maximum 17 units proposed The purpose of the State Density Bonus Law is to encourage the development and availability of affordable housing by requiring the inclusion of affordable housing units within new developments. Pursuant to California Government Code sections 65915 (d)(1) and 65915 (e)(1), a local jurisdiction is limited in its ability to deny requested concessions and waivers and is preempted from denying the Density Bonus Agreement. The conditions of approval proposed for the project are intended to address any of the project’s potential impacts. Table 2 outlines the incentives/concessions and waivers requested by HomeAid. Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 7 2 2 6 4 Table 2: Requested Incentives/Concessions TZC Standard Requirement Provided Sec. 41-2020 – Lot Width and Depth Lot Depth – 130’-0” – 250’-0” Lot Width – 125’-0” – 200’-0” Lot Depth – 150’-0” Lot Width – 100’-0” – Requires Concession for lot width at 25 feet less than the minimum (1 of 3), Cal. Gov’t Code Sec. 65915 (d)(1) Sec. 41-2003 – Tandem Parking Sec. 41-2003 of the TZC allows for tandem parking not to exceed 30% of the required parking per residential unit. 10 Tandem parking spaces proposed out of 12 spaces provided (83% of parking) - Requires Concession to exceed the minimum by 53% (2 of 3), Cal. Gov’t Code Sec. 65915 (d)(1) Sec. 41-2024 – Open Space Standards Common open space is required to be designed as a courtyard and be equal to 15 percent of the lot area. The required open space would be approximately 2,247 square feet. Common open space is provided as a 1,877-square-foot interior courtyard. – Requires Concession provide 12.5 percent of the lot area (3 of 3), Cal. Gov’t Code Sec. 65915 (d)(1) Sec. 41-2020 – Permitted Building Type The UN-2 land use designation does not permit the Stacked Dwelling Building Type A Stacked Dwelling Building Type is proposed at this location which is not permitted, pursuant to the TZC – Requires Waiver to allow Stacked Building Type, Cal. Gov’t Code Sec. 65915 (e)(1) Sec. 41-2024 – Landscape Standards Trees are required to be planted at the rate of one 24-inch box tree per 25 lineal feet of front yard. No trees are proposed or can be accommodated along Garfield Street. In addition, less than one tree per 25 lineal feet can be accommodated along Santa Ana Boulevard – Requires Waiver to allow no tree along the Garfield frontage and 1 tree per 37.5 lineal feet along Santa Ana Boulevard, Cal. Gov’t Code Sec. 65915 (e)(1) In addition, the site is parked in compliance with California Government Code Section 65915(p)(3)(A) and provides 0.71 spaces per unit, inclusive of handicapped and guest parking. The California Density Bonus Law allows 0.5 spaces per unit for rental projects that are 100-percent affordable to lower income households, and within one-half mile of an accessible major transit stop. The site provides 12 total parking spaces or 0.71 spaces per unit, which includes ten tandem-parking stalls and two van accessible parking stalls. The Density Bonus Agreement has been signed by HomeAid to acknowledge their acceptance of the terms. Development Impact Fee Deferral Agreement The Development Impact Fee Deferral Agreement will defer the collection of the Project’s development impact fees until prior to issuance of the certificate of occupancy instead of requiring payment of the fees at the time of building permit issuance. The Agreement is attached as Exhibit 7. HomeAid’s reason for the request is that they are entitled by State Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 8 2 2 6 4 law to deferred payment of fees intended for public facilities or improvements and the deferral of such development impact fees will help facilitate the financing, development and construction of the project. Specifically, California Government Code Section 66007 states that “any local agency that imposes any fees or charges on residential development for the construction of public improvements or facilities shall not require the payment of those fees or charges, notwithstanding any other provision of law, until the date of the final inspection, or the date the certificate of occupancy is issued, whichever occurs first.” The specific development impact fees that are part of this deferral request include the following: Development Impact Fee Amount Park Acquisitions and Development $377,400 Fire Facilities $81,600 Transportation System Improvement Authority (Combined Non-Residential and Residential-Multifamily) $51,000 TOTAL $510,000 As an affordable housing project, the project qualifies for this request for deferral of their development impact fees. The Development Impact Fee Deferral Agreement will defer approximately $510,000 of the development impact fees for the development of the Project. The following terms are incorporated into the Agreement: Fee Deferral and Amount: The deferred collection of the development impact fees in the estimated amount of approximately five hundred, ten thousand dollars ($510,000). Deferral Period: The development impact fees will be deferred until the final inspection or issuance of a certificate of occupancy for the Project, whichever comes first. Extension: An extension of the Agreement may only be granted by the City Council. Payment Security: Payment of fee is a personal obligation of the owner, or any successor secured by the property, and if left unpaid, shall be collected as a special lien against the property. Recordation of Agreement and Lien against Property: The Agreement will be recorded in the Official Records of the County of Orange and the Agreement shall contractually bind the owner to pay the development impact fees and shall constitute a lien against the property. Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 9 2 2 6 4 The intended goal of the collection of development impact fees at the time of building permit issuance is to ensure that the payment of the fees is completed prior to the vesting of development rights by a project developer. Development impact fees for development projects include customary fees to defray costs for the City to provide development services under the permit, outside agency fees as applicable, and established development impact fees. While deferral of collection of development impact fees is not a routine practice, HomeAid submitted their request under California Government Code Section 66007 and the City is required to consider their request. The collection of the development impact fees for a new residential development is to generally fund planned acquisition and development of parks and open space within the City to mitigate the impacts that new developments will have on the demand for parks and open space within the City. While the request will defer the collection of the development impact fees to a later time in the development process, it will not waive or prevent the City from collecting the fee through protections and securities provided to the City under the agreement. Furthermore, the fees will be paid prior to the actual impact, as no residents will be allowed to occupy the Project until payment is received by the City. The Development Impact Fee Deferral Agreement has been signed by HomeAid to acknowledge their acceptance of the terms. Subordination Agreement As a public lender for an affordable housing project such as this, the private market senior lender typically requests a subordination agreement for the Housing Authority’s loan agreement in order to ensure the senior lender will be paid back before the Housing Authority’s loan. In this case, staff are uncertain if a subordination agreement is going to be requested by the private market senior lender or another lender. If necessary, the subordination agreement will be drafted and finalized at the conversion from the construction loan to the permanent loan. Project Description The Project includes the construction of a new affordable rental residential development consisting of 17 units, 1,120 square feet of group space (e.g., lobby, lounge/loft, and laundry areas), and a 389-square foot community room. The development will consist of a two-story building with flats/apartment units, trash enclosure, ten covered parking stalls, and one van accessible surface-parking stall. It will feature onsite amenities such as communal laundry facilities on the first and second floor, onsite bicycle storage, 400 square feet of on-site storage, and 608 square feet of office space. One unit will be set aside for the onsite manager while 16 units are proposed as affordable to chronically homeless households earning less than thirty percent (30%) and twenty-five (25%) of the area median income (AMI). Each of the seventeen units will be one-bedroom and will contain a full kitchen, a single bedroom, a full bathroom, and open/common (living) areas. Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 10 2 2 6 4 Open space will be provided through a private interior courtyard approximately 1,877 square feet in size. The design and layout of the proposed courtyard creates a unique outdoor area within the development that functions as a passive outdoor space. The courtyard will feature an exterior art wall/mural and a robust landscape palette with a variety of hardscaping materials, trees, and shrubs. Trees and shrubs include, but are not limited to, queen palms, camphor and crape myrtle trees, Indian Hawthorne, red kangaroo paw, and blue ice yellow- wood. Landscaping and a block wall will provide buffering/screening for the adjacent single- family residences to the north. The block wall will feature a varied wall height to allow for proper egress and fire access to building on the adjacent property, which is too close the existing property line. The Project features a Mission Revival architectural style common of many multiple-family or mixed-use residential communities under construction in Santa Ana and the region. The residential structure is designed to fully screen all mechanical equipment within the structure and parapet walls. The Mission Revival style respects and complements the surrounding neighborhood, including the Triada at the Station District located on the corner of Santa Ana Boulevard and Lacy Street across the street from the Project, which was completed in 2013. The Project will be constructed by the same general contractor as the Triada. Overall, the project will include a design and solid construction materials that will ensure that the Project ages well for the duration of the building’s lifetime. The Project is proposed to be entirely affordable with 16 units of permanent supportive housing for individuals experiencing chronic homelessness. Nine (9) of the units will be permanent supportive housing for households earning no more than 30% of the Area Median Income; seven (7) of the units will be permanent supportive housing for households earning no more than 25% of the AMI; and one (1) of the units is reserved for an on-site manager. There will be a local preference for chronically homeless residents of Santa Ana who live or work in the City. The unit mix and rent restrictions are as follows: Unit Size No. Units AMI 9 30% 7 25%1-Bedroom 1 Manager’s Unit FISCAL IMPACT Funds for the loan agreement in the amount of $962,952.30 (90% of the original award amount) are available in the Low and Moderate Income Housing Asset Fund, Loans and Grants account (no. 60718830-69152) for expenditure in the current fiscal year. Upon approval of the appropriation adjustment by City Council in Item #14, an additional $528,300 (90% of the additional award amount) will be available in the same Loans and Grants account for expenditure. The remaining $165,694.70 (10%) will be budgeted and included in the FY 2022-23 annual budget. Loan Agreement and Ground Lease Agreement for FX Residences December 7, 2021 Page 11 2 2 6 4 EXHIBITS (See City Council Agenda Item #16 for exhibits listed below) 1. Staff Report from January 15, 2019 2. Pre-Loan Commitment Letter 3. Keyser Marston Associates, Inc. Financial Gap Analysis 4. Housing Successor Agency Loan Agreement 5. 99-Year Ground Lease 6. Density Bonus Agreement 7. Development Impact Fee Deferral Agreement Submitted By: Steven A. Mendoza, Assistant City Manager