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AMENDMENTS TO LOANS FOR THE GRAND VIEW VILLAGE, ANCHOR VILLAGE, AND CAL WEBER 40 PROJECTS
recommended action
RECOMMENDATION
It is recommended that City Council adopt a resolution:
1) Approving an amendment to the loans for the Anchor Village and Grand View Village housing projects to allow the expenditure of a portion of previously approved loans;
2) Approving an amendment to the loan to the Cal Weber 40 project to increase the loan by $525,000 using Low-Moderate Income Housing Funds; and
3) Authorizing the City Manager, or his designee, to execute all documents, including loan documents and subordination agreements, and to take actions necessary and appropriate to carry out the purpose and intent of the resolution.
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Summary
In June 2015, the City Council approved loans to five affordable housing projects (Attachment A - Resolution 2015-06-19-1202), including loans to Anchor Village, LP for the Anchor Village project and to VCOR, LP for the Grand View Village project (Attachment B - Vicinity Map). The loans were approved contingent upon all funding necessary to construct the projects being obtained. To date, neither project has received all of the needed funding, but both developers have indicated that they are making significant progress in the development of the projects. To assist with ongoing development costs, both developers have requested authorization to spend a portion of previously approved City funding. Anchor Village has requested approval to spend up to $600,000 of the $1.2 million City approved loan to cover predevelopment costs. Loans totaling $3.95 million have been approved to VCOR, LP for the Grand View Village project and $337,500 of these funds have been spent to date. VCOR is requesting approval to spend an additional $971,000 to complete the acquisition of 228 and 240 North Hunter Street.
In June 2014, the City approved a $2.5 million loan to DFA Development (DFA) for the Cal Weber 40 project (Attachment C - Resolution 2014-06-24-1506). The project began construction in March 2015, and completion is expected in fall of 2016. During construction, unplanned infrastructure costs have been incurred. The developer has requested an additional loan in the amount of $525,000 to partially off-set the unplanned costs.
DISCUSSION
Background
Prior to 2015, the City allocated funds to affordable housing projects on a first-come, first-served basis. However, in March 2015, the process changed and the City issued a Notice of Funding Availability (NOFA) for its affordable housing funds. The purpose of the funds was to provide gap financing for new construction and rehabilitation activities that would result in the provision of housing affordable to households with incomes at or below 80 percent of the Area Median Income (AMI). The NOFA process also enables the available funding to be used more strategically to assist in meeting the goals established in the City’s Five-Year Consolidated Plan and the Economic Development Strategy, both adopted in 2015, and the objectives of the City’s annual Action Plan. In response to the NOFA, six applications were received.
Two of the projects that were awarded funding as a result of the NOFA were Anchor Village and Grand View Village. The funding was approved contingent upon the developers obtaining all of the funding necessary to construct the projects. Upon obtaining all of the funding, the City would provide the approved funding as 55-year, 3 percent interest loans with repayments of 50 percent of the annual residual receipts. 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 is due at the end of the 55-year term.
To date, neither Anchor Village nor Grand View Village has obtained all of the funding needed to build the developments, but both have made considerable progress in the development of the projects. To assist with the ongoing development costs associated with the projects, the developers of both projects have requested authorization to spend a portion of the previously approved City funding. In addition, a third project, Cal Weber 40, has requested an increase to its loan to assist with unexpected off-site infrastructure costs in order to ensure project completion. The following is an overview of each of the projects and an update on their status.
• Anchor Village. In March 2015, the City approved a $1.2 million loan of Housing Bond funds for Anchor Village to Anchor Village LP, a partnership between Domus Development and A.G. Spanos Companies. These funds are a portion of the remaining proceeds set aside for affordable housing from the 2006 Revenue Bonds Series issued by the Stockton Public Financing Authority for redevelopment and housing projects. Anchor Village will be located at 601 North Hunter Street and will provide 50 units of housing for Veterans and adults with mental illness.
The total project development cost is estimated to be $24 million. To date, the project has secured $1.6 million of Mental Health Services Act (MHSA) funding, $5.8 million of Affordable Housing and Sustainable Communities (AHSC) funding from the State Department of Housing and Community Development (HCD), and has an approved bank construction loan of up to $11 million.
AHSC is a new program funded under the larger Cap and Trade program and is targeted to infill and compact transit-oriented developments and infrastructure activities. As a part of this funding, Anchor Village LP received a $500,000 grant which will be used to make transportation improvements in the area surrounding the project site. It is envisioned that the funds will be provided to the City to improve the accessibility of the path of travel between the project site and San Joaquin Regional Transit District’s (RTD) Downtown Transit Center by funding curb cuts and the installation of ramps. They also hope to use the funds for other types of improvements such as the installation of bike racks at the Transit Center.
Anchor Village LP has also applied for Nine Percent Low Income Housing Tax Credits to provide the remaining funding for the project. The tax credits could be approved on June 8, 2016. Once tax credits are approved, the project must start construction within 180 days. To begin construction, the final plans must be completed, which will require extensive work by the architect and engineers. Anchor Village LP has paid all the previous predevelopment costs, but is asking for use of the City’s loan funds to pay this final portion.
• Grand View Village. The City has approved loans totaling $3,952,547 to VCOR, LP, a partnership between Visionary Home Builders and Zac Cort, for the Grand View Village project. In December 2014, the City approved a $467,547 loan which consisted of $330,000 of Community Development Block Grant (CDBG) funds to assist with the acquisition costs of three parcels located at 228 and 240 North Hunter Street and $137,547 of HOME funds to pay for predevelopment costs (Attachment D - Resolution 2014-12-16-1211). Through the NOFA process, an additional $3,485,000 loan was approved, funded with $2 million of Housing Bond Funds and $1,485,000 of HOME funds.
Grand View Village is a proposed mixed-use affordable housing project to be located on a portion of the block bordered by Miner Avenue, Hunter Street, San Joaquin Street, and Channel Street. The project will include approximately 19,000 square feet of commercial space on the ground floor and 106 housing units on the upper floors.
The total project development cost is estimated to be $41 million. VCOR is proposing to use multiple funding sources to finance the project, including AHSC, Nine Percent Low Income Housing Tax Credits, and private financing.
Within the commercial space, VCOR is planning to provide some basic uses needed downtown, including a grocery store. In addition, through the AHSC program, VCOR is requesting funding to construct the Miner Avenue Streetscape improvements on one block of Miner Avenue between Hunter Street and San Joaquin Street. The improvements include widening the sidewalk and installing landscaping, a bicycle lane, and a landscaped median (Attachment E - Miner Avenue Streetscape).
The project will be constructed on what are currently six separate parcels. To date, VCOR has acquired two of the parcels and a third is owned by a limited liability company controlled by one of VCOR’s partners. The Delta Hotel property was acquired with no City assistance and a second parcel, which included the Avenue Inn, was purchased with $287,500 from the previously approved bond proceeds loan (Attachment F - Resolution 2015-07-07-1208). A purchase agreement has been entered into with the owner of the remaining three properties, two of which are located at 228 and 240 North Hunter Street and one vacant parcel that does not yet have an address, but escrow has not closed. The City funded a $50,000 deposit from the CDBG loan which was approved to assist with the acquisition of these properties. VCOR has also made deposits totaling $50,000 and has been making monthly payments which go toward the purchase price. VCOR is now requesting approval to spend $971,000 of previously approved loans to complete the acquisition of these remaining three parcels.
• Cal Weber 40. The Cal Weber 40 project includes the renovation of two buildings, located at 506 and 520 East Weber Avenue in downtown Stockton, into a mixed-use project. The ground floor is currently occupied by a variety of commercial uses and will remain commercial. The second and third floors of the buildings, which were vacant, are being renovated into 40 housing units. The project developers are also constructing a parking deck over a City-owned public parking lot to provide parking for the project’s tenants. Additional parking is also being constructed on a separate lot purchased from the City at market rate. A deck, which will provide open space for the residents of the building, is being built above the new parking lot (Attachment G - Cal Weber Rendering).
To assist the project, in June 2014 the City approved a $2.5 million loan to DFA. The loan and its obligations have since been assumed by Cal Weber Associates LP. Cal Weber Associates LP is a limited partnership between Riverside Charitable Corporation and DFA Development. The project began construction in March 2015, and completion is expected by July 2016.
During construction, unplanned off-site infrastructure costs totaling over $1 million have been incurred by the developer. These costs include trenching across American Street and through the City’s parking lot to move an electrical transformer off-site, replacing sidewalks around the project, and revising the storm drain system in the City’s parking lot. The costs were unplanned at the beginning of the project and are indicative of the difficulties of constructing in-fill projects where the condition of the existing infrastructure is often unknown. To assist with the unexpected costs, the developer has requested an additional $525,000 loan from the City.
Present Situation
• Anchor Village. Anchor Village has received all of the funding necessary to construct the project except for the tax credits. Upon approval of the tax credits, construction must start within 180 days. Because of the expense associated with completing the final construction drawings, it is typical for these types of projects to wait and invest those funds after the tax credits have been awarded.
To help ensure compliance with the tax credit deadlines, Anchor Village is requesting authorization to spend up to $600,000 of the $1.2 million City loan to pay the architects and engineers fees for completing the construction drawings. If the request is approved, the City’s loan will be secured by a lien placed on the property (Attachment H - Anchor Village Loan Agreement). Upon all of the financing being obtained, as is typical for these types of projects, the City’s loan will be subordinated to the other funding. Even in a subordinate position, upon completion of the project, there will be sufficient value to secure the City’s loan.
• Grand View Village. As noted above, the City has approved loans totaling $3,952,547 for this project and to-date, $337,500 of the loan funds have been spent.
A $330,000 CDBG loan approved in December 2014 was to assist with the acquisition of 228 and 240 North Hunter Street. VCOR originally intended to obtain a bank loan for the remaining portion of the purchase price, however, because an appraisal indicated that the property was valued below the selling price, the bank loan was not approved and the deadline to close escrow was extended. Since that time, $50,000 of the CDBG loan was used to provide a deposit for the property. VCOR has also made deposits totaling $50,000 and has also been making monthly payments to the property owner. All these payments will apply to the purchase price if VCOR purchases the property.
A new appraisal shows the property value has increased, but is still below the purchase price. Therefore, instead of obtaining a bank loan, VCOR has requested authorization to use $971,000 of the approved City loans to purchase the property. If the request is approved, the City will have loaned a total of $1,021,000 for the acquisition of these properties. The current appraisal shows that the property is valued at slightly more than the amount being considered, so if the project does not move forward, the City’s loan could be repaid upon sale of the property. The gap between the purchase price and the City’s loans has been paid by VCOR.
It is recommended that if the Council authorize the use of $971,000 for the property acquisition, that the loan be funded with $280,000 of the CDBG funds that were previously approved for this use and $691,000 from the Housing Bond funds. This additional expenditure will bring the total amount of City funds invested in Grand View Village to $1,308,500, leaving a remaining balance of $2,644,047 from the $3,952,547 in approved City loans. All the loans expenditures will be secured by liens on the properties. Below is a table showing the approved loans, funding sources, and the expenditures to date, and the requested expenditures for the Grand View Village project.
|
GRAND VIEW VILLAGE LOAN APPROVALS AND EXPENDITURES |
|
Date Loan Approved |
Funding Source |
Loan Amount |
Spent To Date |
Request to Spend |
Total Spent if Request Approved |
|
12-16-14 |
CDBG |
$330,000 |
$50,000 |
$280,000 |
$330,000 |
|
12-16-14 |
HOME - Predevelopment |
$137,547 |
$0 |
$0 |
$0 |
|
06-09-15 |
Bond Proceeds |
$1,485,000 |
$287,500 |
$691,000 |
$978,500 |
|
06-09-15 |
HOME |
$2,000,000 |
$0 |
$0 |
$0 |
|
TOTALS |
|
$3,952,547 |
$337,500 |
$971,000 |
$1,308,500 |
The use of the remaining funds, which total $2,644,047, will still be conditioned upon the project obtaining all of the funds necessary to construct the project. It is further recommended that the City’s commitment of the remaining funds be limited to a period of two years from the date of the initial approval of the majority of the funds, which was in June 2015, with the City Manager having the authority to approve two additional one-year extensions. The City Manager’s approval will be based on the project’s progress in obtaining the other funding and the time limits imposed by the various funding sources. If the project has not secured the other funding during this time period, the remaining loan funds may be reallocated to a new project (Attachment I - Grand View Village Loan Agreement).
If the expenditure of the loan funds is authorized, the escrow will close on the property by June 30, 2016. The timeline to obtain the remaining funds is dependent on HCD’s process for allocating the AHSC funds, but assuming it continues with a once-a-year cycle, VCOR will submit an application for AHSC funds in the spring of 2017, with the award of funds announced in the summer of 2017. This would allow for a tax credit application to follow in early 2018. If tax credits are awarded, construction would start at the end of 2018.
• Cal Weber 40. Due to unplanned infrastructure costs exceeding $1 million, Cal Weber Associates has requested a $525,000 increase to its original $2.5 million loan. As discussed previously, these costs arose from additional work that could not have been identified until construction was underway and the condition of the existing infrastructure could be fully evaluated. Some costs were also associated with changes to the infrastructure design after construction had begun.
In tax credit projects, it is typical for the project budget to include overhead, profit and a developer fee. Cal Weber’s budget included approximately $1 million in developer fee and profit, which is normal for projects of this size. If the City’s loan amount is increased by $525,000, the developer is still absorbing close to half of the unplanned costs, thereby reducing their profit and developer fee by approximately half.
If the loan increase is approved, it is recommended that it be funded with repayments to the Low-Moderate Income Housing fund from the Supplemental Educational Revenue Augmentation Fund (SERAF) repayments. In 2011, the former Redevelopment Agency borrowed funds from its Low-Moderate Income Housing Fund to make required SERAF payments, which were mandated by the State to meet funding obligations to schools. The SERAF repayments will be available July 1, 2016.
If approved, the City’s loan will be increased to a total of $3,025,000. The original loan was approved as a 55 year, 3 percent interest loan, with annual payments of 50 percent of residual receipts with any remaining balance due in 2070. It is recommended that this additional loan be provided as an amendment to existing loan agreement and that these terms not be affected, making the entire $3,025,000 due in full by 2070 (Attachment J - Cal Weber Amendment #1 to the Loan Agreement).
FINANCIAL SUMMARY
No General Funds dollars will be used for these projects.
Adequate funds in the amount of $600,000 are available in Account 329-7380-640, Low-Moderate Income Housing fund, for the Anchor Village loan.
Adequate funds in the amount of $280,000 are available in Account 054-8523-640, CDBG Loan fund, and in the amount of $691,000 in Account 329-7380-640, Low-Moderate Income Housing Fund for the Grand View Village acquisition loan.
Funding for the $525,000 loan increase for Cal Weber 40 have been included in the FY 2016-17 Proposed Budget in Account 329-7380-640, Low-Moderate Income Housing fund.
Attachment A - Resolution 2015-06-19-1202
Attachment B - Vicinity Map
Attachment C - Resolution 2014-06-24-1506
Attachment D - Resolution 2014-12-16-1211
Attachment E - Miner Avenue Streetscape
Attachment F - Resolution 2015-07-07-1208
Attachment G - Cal Weber Rendering
Attachment H - Anchor Village Loan Agreement
Attachment I - Grand View Village Loan Agreement
Attachment J - Cal Weber Amendment #1 to the Loan Agreement