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ADOPT A RESOLUTION APPROVING AFFORDABLE HOUSING LOAN AWARDS TO ELIGIBLE RESPONDENTS TO THE 2024 AFFORDABLE HOUSING NOTICE OF FUNDING AVAILABILITY
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution to:
1. Approve the following loans to three (3) affordable housing developments, provided that, as a condition of funding, the borrower demonstrates to the City Manager’s or designee’s satisfaction that each project meets the underwriting and general requirements of the 2024 Affordable Housing Notice of Funding Availability (NOFA) guidelines:
a. $6,194,432.25 of HOME Investment Partnership Program (HOME) and $843,432.75 of round 3 of Permanent Local Housing Allocation Program (PLHA) Loan to Mutual Housing California for the development of the Fairview Terrace Apartments, a 76-housing unit project;
b. $574,975.25 of round 3 PLHA and $551,918.00 of Low and Moderate Income Housing Fund (LMIHF) Loan to Bridge Housing Corporation for the rehabilitation of the Kentfield Apartments, a 90-housing unit project; and
c. $747,055.12 of HOME Community Housing Development Organization (CHDO) Loan to Visionary Home Builders of California Inc for the development of the Casa de Mariposa Apartments, a 72-housing unit project.
2. Authorize the City Manager, or designee, to defund and reallocate awarded funding if any project is unable to meet the underwriting and general requirements of the NOFA including but not limited to deadlines related to securing of all other funding sources required for project construction and construction start deadlines. Funding to be reallocated to eligible projects that can meet the funding source agency timeliness and general requirements.
3. Authorize the City Manager, or designee, to take actions that are necessary and appropriate to carry out the purpose and intent of this resolution, including the execution of loan documents and the reallocation of funding sources.
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Summary
On January 29, 2024, the City issued a Notice of Funding Availability (referred to as the 2024 Housing NOFA) for a total of $16.1 million from several affordable housing funding sources. Of that amount, approximately $4.5 million was comprised of federal HOME Investment Partnerships (HOME) Program funds, $538,071 of HOME CHDO funds, $261,331 of federal HOME-American Rescue Plan Act (HOME-ARPA) funds, $1.4 million of State Permanent Local Housing Allocation Round 3 (PLHA-3) funds, $2.2 million of Pro-Housing Incentive Pilot (PIP) Program funds, and $6.6 million of state Homeless Housing, Assistance and Prevention Round 3 and 4 Grant (HHAP 3 & 4) funds to provide financing for the development of new affordable housing construction or rehabilitation activities that will result in the creation and preservation of affordable housing rental units targeting households with incomes at or below 80 percent (80%) of the Area Median Income (AMI), or homeownership units targeting households at or below 120% of AMI.
The Housing NOFA closed on March 15, 2024. A total of 11 project proposals were submitted for a total request of $52.5 million. Due to imminent HHAP 3 & 4 commitment deadlines, The Economic Development Department (EDD) conducted an expedited HHAP funding project eligibility review and staff recommended to City Council, who subsequently approved, two of the 11 project proposals through Council Resolution No. 2024-05-21-1212 on May 21, 2024 under which $5.3 million of the $6.6 million of HHAP available funds were allocated to the Calaveras Quarters Apartments and the Satellite Apartments housing projects, both to be developed by Delta Community Developers Corporation.
In addition, the $2.2 million of PIP program funds were ultimately removed from funding allocation through this 2024 Affordable Housing NOFA since none of the project proposals received were determined to be eligible for such funding. As a result, the PIP funding was made available through the City’s Real Property Acquisition Notice of Funding Availability launched in July 2024 and resulted in one project being selected for PIP funding allocation.
Additionally, at the time of the 2024 Housing NOFA issuance, 2024-2025 HOME funding allocations were unknown, therefore the NOFA did not include 2024-2025 HOME funds. Formal HUD announcement of the 2024-2025 HOME funding allocation was made in May 2024. The 2024 Housing NOFA allowed the City to use new funding allocations to be awarded to projects applications received via this NOFA. Therefore, the funding recommendations made via this item include $1,664,964.25 of 2024-2025 HOME entitlement funds and $208,984.12 of 2024-2025 HOME CHDO funds.
Through this item, the Economic Development Department is recommending awards based on the scores, ranking, and preliminary underwriting analysis conducted by EDD staff and San Joaquin County partner agency subject matter experts for the following three proposed affordable housing projects:
• Fairview Terrace Apartments, a 76-housing unit project: $7,037,865
• Kentfield Apartments, 90-housing unit project: $1,126,893.25
• Casa de Mariposa Apartments, a 72-housing unit project: $747,055.12
The proposed projects are consistent with the City’s affordable housing goals and priorities identified in its Five-Year Consolidated Plan.
DISCUSSION
Background
On January 29, 2024, the Economic Development Department released a NOFA to interested parties of the availability of funds for the development or preservation of affordable housing units in Stockton. The NOFA information was sent to more than 300 community stakeholder contacts including housing developers, shared via multiple social media platforms, posted on the City’s official website, and EDD issued a public media press release. The NOFA stated that funds were available to provide financing for acquisition, construction, rehabilitation/conversion of property for the development of affordable multi-family rental housing projects as well as financing of homeownership development projects and that applications would be scored and ranked based on the following criteria:
• Developer Experience and Capacity
• Financial Efficiency & Leveraging
• Project Readiness
• Project Features
• Past Performance
A summary of the types of funds made available are as follows:
• HOME funds: The City receives an annual allocation of HOME funds from HUD. These funds can only be used to provide financing for affordable housing development for households with incomes at or below 60% of AMI. All HOME funded projects must be completed within four (4) years of the project commitment.
• HOME Community Housing Development Organization (CHDO) funds: Fifteen percent of the City’s HOME allocations for housing development activities must be set-aside for qualified CHDOs that develop affordable housing in the community it serves. All HOME funded projects must be completed within four (4) years of the project commitment.
• HOME-ARP funds: The City received an allocation of American Rescue Plan Act funds administered through the U.S. Department of Housing and Urban Development (HUD). These funds can only be used to provide affordable housing development financing for households who are homeless, at risk of homelessness, and other vulnerable populations. All HOME-ARP funded projects must be completed within four (4) years of the project commitment.
• PLHA funds: The Permanent Local Housing Allocation Grant Program provides funding to local jurisdictions to expand the number of affordable housing units to meet the City's future Regional Housing Needs Allocation (RHNA).
• LMIHF Fund: City of Stockton local funds used for affordable housing activities including but not limited to property acquisition, new construction, and conversion/rehabilitation for households with incomes up to 120% of the AMI.
• Pro-housing Incentive Pilot Program: State of California awarded Pro-Housing Incentives Pilot (PIP) Program funds to the City of Stockton in 2023 to be used for the Development of affordable housing. Funds can be used for property acquisition, new construction, conversion/rehabilitation, or capitalized reserves/operating subsidies for households with incomes up to 120% of the AMI.
• HHAP Round 3 & 4: HHAP funds are designed to support regionally coordinated efforts between the County, Continuum of Care (CoC), and the City to expand and develop local capacity to address immediate homelessness challenges. HHAP funds are focused on moving homeless individuals and families into permanent housing and ensuring those individuals and families maintain their permanent housing.
The NOFA resulted in the submittal of eleven (11) applications from developers, requesting approximately $52.5 million in City affordable housing funding.
EDD staff reviewed all applications and conducted preliminary underwriting analysis along with a project interview process of the top scoring projects. The project interview process was conducted by EDD staff and San Joaquin County partner agency subject matter experts. The City of Stockton is held to stringent regulations by its state and federal funding agencies. As such, the City must conduct a risk assessment of each applicant and its proposal and impose rigorous experience and capacity requirements, in addition to an assessment of the project, to ensure the selected applicant has the ability to comply with the stringent funding requirements. With this consideration and in conformance with the NOFA’s project evaluation criteria, EDD’s project recommendations are being made after considering several project proposal factors, including but not limited to:
• Available funding sources and its respective allowable uses
• Responsiveness to project details as outlined in the NOFA
• Overall project characteristics
• Number of units to be developed
• Developer & team capacity and experience including the ability to meet stringent state and federal regulatory requirements (assessed by the applicant’s past performance and/or information and details provided (or lack of) in the project proposal
• Project funding leverage (amount of non-City funding to be contributed)
• Conformance with the City’s Housing Element, Consolidated Plan, Council Goals, and Homeless Strategic Plan
• Ability to spend funds in a timely manner (based on past performance and/or information/details provided in the project proposal)
Present Situation
After careful review and analysis of each proposal, EDD recommends funding awards to the following projects:
FAIRVIEW TERRACE APARTMENTS
Applicant: Mutual Housing California
Co-Applicant: Stocktonians Taking Action to Neutralize Drugs (STAND)
Project Address: 2222 S Airport Way, Stockton CA 95206
Funding Request: $7,037,865
Funding Recommendation: $7,037,865
Funding Source: HOME
Estimated Total Development Cost: $38,000,000
Estimated Number of Housing Units: 76
Estimated Cost Per Unit: $500,000
Use of Funds: Project Construction
Council District: 6
Previous Award (if any): $0.00
Target Population Served: Seniors
Target AMI Level: 30% to 80% of the Area Median Income
Affordability Restrictions: Affordability covenants will be imposed on the property per funding source(s) requirements.
The Fairview Terrace Apartments project will be a 76-unit (75 affordable, 1 manager unit) new construction affordable housing community for low-income seniors. It will feature 62 one-bedroom units, 13 studio units, and one two-bedroom staff unit. Units are projected to be made available for households earning from 30% to 80% of Area Median Income. Mutual Housing California and Stocktonians Taking Action to Neutralize Drugs (STAND) are the applicants in this project. The project received entitlement approval from the City of Stockton in August 2023 therefore the project could be ready for construction start upon building permit approval by the City of Stockton.
The project will feature a 1,425 square feet (SF) community room that will double as a community cooling and resiliency center during extreme heat events. The community room will feature a kitchen, a computer lab, and seating and tables for recreational activities and gathering. It will open to the exterior courtyard that will also feature shaded seating and tables, community garden beds, and a small pet area. There will also be 1,145 SF of commercial office space for STAND to serve residents, members of the community, and host community engagement and outreach events.
The project has already received a grant award from the California Energy Commission for an extremely innovative positive-net energy design that will far exceed 2022 Title 24 energy standards. Passive and active energy use reduction strategies include optimal building orientation for increased solar panel generation and natural light, metal shading to reduce energy demand, greenscreens and rainwater collection for landscaping and garden bed irrigation, complete electrification of all building systems and appliances, and electric HVAC all-in-one heat pumps with low global warming potential. The project will also feature a domestic hot water system that utilizes excess heat from the solar panels to heat domestic water which will reduce energy used from the grid, a microgrid system with a battery that will supply the project energy during grid peak hours, battery backup to power the building during grid blackouts and emergencies, and the use of recycled and low impact construction materials to reduce embodied carbon emissions.
The project is located in South Stockton, an economically disadvantaged area. The current California Tax Credit Allocation Committee (TCAC) Opportunity Maps lists the area as Low Resource Neighborhood Opportunity. In 2016, South Stockton received its designation as a promise zone. The initiative aimed to improve shared goals such as access to housing, job opportunity, and quality of life.
This project will provide affordable housing to the underserved senior population. The Analysis of Impediments to Fair Housing (AI) that was completed in connection with the 2020-2025 Consolidated Plan identified seniors as a special housing needs population. The AI describes that seniors possess special housing needs due to living on fixed incomes, limited mobility, and physical or mental impairments or disabilities. In order to make housing accessible to this subpopulation, housing must be affordable within their fixed income budget.
The project aims to provide access to basic services such as transportation, grocery/retail, parks, library, schools, healthcare, and social services. The City’s Housing Element points out the importance of not only providing access to alternative forms of transportation to seniors, but also but also safe, walkable neighborhoods. Some services are within a walkable distance, but all are within a 5-mile radius.
Fairview Terrace will also be incorporating a variety of energy saving features and systems that will directly impact monthly utility costs and deliver energy bill savings to tenants. The project participated in the Energy Commission’s EPIC challenge and was selected to receive $9 million in grant funds (in addition to the $1 million already awarded) to advance to construction. Residents will directly benefit from the use of renewable energy which will improve affordability, health, and comfort while helping meet the state’s climate goals.
KENTFIELD APARTMENTS
Applicant: Bridge Housing Corporation
Co-Applicant: N/A
Project Address: 4545 Kentfield Road, Stockton CA 95207
Funding Request: $2,354,017
Funding Recommendation: $1,126,893.25
Funding Source: PLHA Round 3 & LMIHF Fund
Estimated Total Development Cost: $2,354,017
Estimated Number of Housing Units: 90
Estimated Cost Per Unit: $26,156
Use of Funds: Rehabilitation/Preservation of Affordable Housing
Council District: 2
Previous Award (if any): $9.7 Million (RDA & HOME in 2006 & 2008)
Target Population Served: Low Income Families
Target AMI Level: 50% to 60% of the Area Median Income
Affordability Restrictions: Affordability covenants will be imposed on the property per funding source(s) requirements.
Kentfield Apartments is an existing multifamily, 100% affordable rental community for income eligible families. Originally developed in 1966, Kentfield underwent a Low-Income Housing Tax Credit (LIHTC) syndication, acquisition rehabilitation in 2006. The development consists of 90 affordable family apartment units. The project is affordable to area families making 50% and 60% of the area median income. This rehabilitation will help meet capital needs of an affordable housing property and assist in preserving much needed quality rental housing for lower-income families.
Kentfield Apartments is located on approximately a 3.06-acre site. There are three residential apartment buildings (Building 1: 33 units, Building 2: 25 units, Building 3: 32 units), a Community Building, and 91 on-site parking spaces. All buildings are slab-on-grade stick-frame construction.
The scope of work includes three project categories: sitework, building repairs/replacements, and dwelling unit appliance replacements.
For the sitework, the scope of work includes replacing the rolling wrought iron entrance gate and wrought iron fencing at the western perimeter, paving and striping the asphalt-paved drive and parking areas, replacing the hardware of pedestrian entrance gates, landscaping/groundcover work, repairing concrete walkways, hydro jetting the storm drain and sewer lines, and replacing the tot-lot rubber mat ground cover.
For the building repairs/replacements, the scope of work includes repairing the damaged stucco exteriors throughout the property, repairing upper level walkways throughout the property (wood plank flooring & lightweight concrete), replacing a subset of damaged windows throughout the property, replacement of the asphaltic composition shingled roofing, replacement of the built-up roofing with mineral surface cap sheet, and renovation of the common areas (including replacement of flooring, cabinets, countertops, and appliances).
For the dwelling units, the scope of work includes replacement of refrigerators, ranges/ovens, and range hoods.
Kentfield Associates, a single-purpose entity that is controlled by BRIDGE Housing Corp., is the current owner. BRIDGE Housing Corp. will follow its procurement protocols and obtain a General Contractor to manage the rehabilitation process. BRIDGE does not anticipate hiring/requiring a project architect or engineer as part of this rehabilitation. BRIDGE Housing Property Management will continue to act as the Managing Agent.
This project was originally financed through a combination of equity from the syndication of Low-Income Housing Tax Credits from California Tax Credit Allocation Committee (TCAC), a Bank of America 1st Mortgage, a City of Stockton Loan Agreement (Originally with successor agency “Redevelopment Agency of the City of Stockton”), and a 2nd City of Stockton loan. Kentfield Associates will continue to manage this property in accordance with all applicable TCAC, tax credit equity investor, and City requirements.
Ultimately, preserving Kentfield Apartments’ long-term viability by allowing this rehabilitation to proceed will benefit residents that live within the housing community. The population that lives on site will remain with the new improvements, and the vacant units that currently exist will be more marketable allowing for fast market absorption.
CASA DE MARIPOSA
Applicant: Visionary Home Builders of California Inc
Co-Applicant: N/A
Project Address: 2260 Netherton Avenue, Stockton CA 95205
Funding Request: $5,500,000
Funding Recommendation: $747,055.12
Funding Source: HOME CHDO
Estimated Total Development Cost: $42,996,363
Estimated Number of Housing Units: 72
Estimated Cost Per Unit: $597,172
Use of Funds: Project Construction
Council District: 6
Previous Award (if any): $600,000 (HOME 2022)
Target Population Served: Farmworker Housing
Target AMI Level: 30% to 80% of the Area Median Income
Affordability Restrictions: Affordability covenants will be imposed on the property per funding source(s) requirements.
Casa de Mariposa is a planned low-income multi-family development project proposed by Visionary Home Builders of California (VHB). The project will receive funding from the US Department of Agriculture for development purposes which requires the project to be 100% farmworker housing. Tenant income levels are projected to be from 30% to 80% of the area’s median income (AMI).
The Analysis of Impediments to Fair Housing (AI) that was completed in 2020 in connection with the 2020-2025 Consolidated Plan identified farmworkers as a special housing needs population. According to the AI, while farmworkers were identified as being an essential component of the regional agricultural system, they face challenges in obtaining adequate and affordable housing due to high poverty rates, large household sizes, and linguistic isolation. Due to limited capital in farmworker housing, the farm-working community frequently ends up in overcrowded, substandard housing that is often geographically isolated and lacks essential services, increasing their risk of homelessness.
The main design goal of the Casa de Mariposa project is to create an overall sense of community for the development’s residents. The project will comprise 71 affordable units and one unit for an on-site manager, totaling 72 units. All units are located within nine two-story townhouse buildings. This project will offer 1-bedroom, 2-bedroom, 3-bedroom, and 4-bedroom units to accommodate a wide range of family types, as well as a community center that will house a manager/leasing office and a community room.
Casa de Mariposa units will have a full kitchen with pantry cabinets, inside unit laundry rooms with full-size washers and dryers included, and separate dining and family rooms. The project will have a 4800 square foot Community Center. The Community Center is a gathering place for the residents to attend meetings, adult education classes and join in on the resident’s events, building camaraderie amongst the tenants. There will also be a conveniently located leasing office within the Community Center, along with a separate, creative space for a Head Start Early Education center. These free services provide education programs for children ages 3-5 years of age, which will prepare them for school.
Separately, also within the space, a Computer Lab will be provided for the tenants. VHB understands the need of computers for all ages in today’s tech world and many of these low-income families do not have the financial means to purchase a home computer. The lab will provide computers and technical service. A teen center will provide teenagers with a space to socialize with friends within the community in a social, relaxing atmosphere. VHB will hold workshops such as homebuyer education, rental counseling, and financial literacy all within the Community Center.
Casa de Mariposa will be situated on a parcel that currently is in the process of being divided. The full 11-acre parcel is improved with another VHB low income/farm worker community, Casa de Esperanza, a previously completed 70-unit affordable housing project constructed in 2014, which is adjacent to the proposed project. The elevation style was chosen to follow Stockton’s Casa de Esperanza. The Mediterranean elevation style was chosen to follow the Central California lifestyle and is enhanced with concrete villa-style roof tiles, stucco wall finish with a large portion of manufactured stone accent veneer, iron railings, stair rails, accent details, and gable end roof elements with strong overall ridgelines. Two different color schemes will be used to further set each building apart. All units will incorporate a cost-effective design consistent with the Universal Design Guidelines. To add energy efficiency, the project is designed to achieve a Green Point Rating Certification.
The project will be situated on a 4.98-acre site which is currently an unimproved portion of land bordered by Highway 99 on the East, off-ramp on the South, Mariposa Road on the West, and residential housing along its Northern property line.
Casa De Mariposa is consistent with the City of Stockton General Plan Housing Element, to preserve, improve, and expand the supply of decent affordable housing for lower-income households, along with promoting economic development activities that create, attract, and retain jobs and promote economic activity and vitality, especially those that provide economic opportunities for low- and moderate-income persons. The project is near a residential area with access to schools, shopping, medical services, social services, and employment opportunities.
According to the TCAC database, there are no affordable farmworker housing projects currently being planned or proposed in the Market Area. Given the low vacancies at income-restricted complexes and the presence of waiting lists, the proposed complex will positively impact the Market Area.
Visionary Property Management Group (VPMG) will be the property management company after construction completion. VPMG is a division of Visionary Home Builders of California, Inc. In 2015, VHB created VPMG to maintain the integrity of structure, compliance and continue strengthening the community. Visionary Property Management Group currently oversees a portfolio of twenty-seven properties. Twenty of those properties are tax credit communities. Five sites are HUD affiliated developments, while three others are participating in USDA Rural Development Programs. The remaining sites are layered with HOME, Local City and County programs, various HCD sources, Bonds, MHP, and NSP funds, among others.
Applicant Scoring and Ranking Criteria
Based on staff and partner agency review and the available funding sources, the projects being recommended are consistent with the City’s Five-Year Consolidated Plan, Homeless Strategic Plan, Housing Element and the 2024 Affordable Housing NOFA criteria.
Applications were evaluated in two stages:
1) Threshold Review: The Threshold Review evaluated the completeness of the application and compliance with program and threshold requirements.
2) Technical Scoring and Evaluation: Projects were evaluated by EDD staff based on the NOFA Project Evaluation Criteria which included developer experience and capacity, financial efficiency and leveraging, project readiness, project features, and past performance. The top scoring projects were then interviewed by EDD staff and San Joaquin County partner agency subject matter experts.
The City applications received represent the development of 148 newly constructed affordable housing units and rehabilitation of 90 existing affordable housing units. Due to the limited amount of funding, several of the projects are being recommended for funding that is less than the amount requested in their respective applications, with a requirement that these applicants seek additional external funding sources to leverage the City's funding commitment. In compliance with HUD underwriting requirements, the City will require HOME-funded projects to secure all other sources of funding prior to entering into a HOME written agreement with the City.
Consistent with the terms of loans made for previously funded multi-family housing projects, staff is recommending that the City financing have a 55-year loan term with interest accruing at 3% and repayment made from residual receipts, proportionate to the City loan percentage of total permanent funding. Residual receipts are the amount of revenue remaining after all operating expenses are paid. If the annual residual receipt payments do not pay off the loan, the remaining balance would be due as a lump sum at the end of the 55-year term. A Deed of Trust, Promissory Note, and Regulatory Agreement will be executed to secure the City’s investment and affordability of the units. The loan proceeds may be used by the developer for pre-development costs, construction costs, and development consultant costs. HOME-funded projects will have a 55-year loan term with a 20-year affordability period, consistent with the maximum affordability period recommended for HOME-assisted projects. A longer affordability period may be imposed if the project is also supported with state HCD funds.
FINANCIAL SUMMARY
There will be no financial impact to the City’s General Fund or any other unrestricted fund as a result of this action. There is sufficient budget in HOME (230-233), LMIHF (290-293) and PLHA (280-281), funds to support the recommendation.