title
APPROVE THE 2016 AFFORDABLE HOUSING LOANS PROGRAM ALLOCATION
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Approving the following loans for three affordable housing activities:
a. $225,000 to Stocktonians Taking Action to Neutralize Drugs (S.T.A.N.D.) for the City Central Infill II project;
b. $237,000 to Habitat for Humanity for the Dream Creek project;
c. $2,225,000 to DFA Development, LLC, for the Medico Artist Flats project; and
2. Approving the allocation of 30 low-income housing units to the Medico Artist Flats project pursuant to Article XXXIV of the California Constitution; and
3. Authorizing the City Manager, or his designee, to take actions that are necessary and appropriate, including the execution of loan documents, to carry out the intent of the resolution.
body
Summary
In August 2016, the City issued a Notice of Funding Availability (NOFA) of approximately $2.5 million of affordable housing funds. The purpose of the funding is to provide gap financing for new construction and rehabilitation activities that will result in the provision of housing affordable to households with incomes at or below 80 percent of the Area Median Income (AMI). In response to this NOFA, ten applications were received from seven organizations. Staff reviewed applications for eligibility and presented them to a five-member committee for evaluation and recommendation. The committee included representatives from development, finance, and planning. The committee scored the applications based on four criteria: project readiness, leveraging, capacity and experience of the developer/team, and conformance with Housing Policies. The three highest scoring applications will accomplish goals of the Housing Element and Consolidated Plan and are proposing a significant amount of non-City funds for the projects. It is recommended that funding be allocated to the three projects (Exhibit 1 to the Resolution) as follows:
• City Central Infill II $225,000 of Low and Moderate Income Housing Funds
(LMIHF)
• Dream Creek $237,000 of Neighborhood Stabilization Program (NSP)
Funds
• Medico Artist Flats $2,225,000 of HOME Partnerships Program (HOME) funds
In addition, due to the proposed public financing, the 30 rental units proposed for the Medico Artist Flats project must be approved pursuant to Article XXXIV (34) of the California Constitution, which requires a local election to approve affordable housing projects. In 2010, local voters gave the City Council the authority to approve up to 500 units per year. The proposed units are within this limit.
DISCUSSION
Background
The City previously allocated funds to affordable housing projects on a first-come, first-served basis. However, due to the limited funds available and the number of organizations requesting financial assistance, it was determined that an application process was needed. Through this process, the City’s federal HOME, LMIHF, and some remaining NSP funds will be allocated to specific projects. There is approximately $2,225,000 of HOME funds, $225,000 of LMIHF, and $237,000 of NSP funds available for new projects. A summary of these funding sources follows:
• HOME funds. The City receives an annual allocation of HOME funds from the U.S. Department of Housing and Urban Development (HUD) which may only be used to provide housing affordable to households with incomes at or below 80 percent of the AMI ($47,100 for a family of four).
• NSP funds. The City received two allocations of NSP funds, known as NSP1 and NSP3, from HUD to help stabilize neighborhoods that were affected by foreclosures. The City received $12.1 million through NSP1 and $4.2 million in NSP3 funding. The funds can only be spent on properties acquired through foreclosure. The NSP guidelines require that at least 25 percent of the original grants and 25 percent of the program income generated from the resale of property go to activities that benefit households earning not more than 50 percent of AMI. The remaining NSP funds were used to acquire and rehabilitate foreclosed single-family residences which were resold to qualified low- and moderate-income households with incomes at or below 80 percent to 120 percent of the AMI and for program administration. These plans were first approved by City Council, then were submitted to and approved by HUD.
• LMIHF funds. In 2016, the Successor Agency to the former Redevelopment Agency of the City of Stockton (Successor Agency) made payment on two loans owed to the City’s LMIHF from the Midtown and South Stockton redevelopment project areas. The payment of $1.2 million was approved by the Stockton Successor Agency Oversight Board and the State Department of Finance on the annual Recognized Obligation Payment Schedule (ROPS 16-17). The funds must be used for affordable housing activities within the City of Stockton, and are not restricted to a project area.
A NOFA was released on August 22, 2016, notifying interested parties of the availability of these funds. It was sent to twenty organizations and posted on the City’s website. The NOFA stated that funds were available to provide gap financing for housing projects and that applications would be scored based on four equally weighted criteria, including:
(1) Project Readiness;
(2) Leveraging (amount of non-City funding in the project);
(3) Capacity and experience of developer/team; and
(4) Conformance with other City policies and the City’s Housing Element.
The NOFA resulted in the submittal of ten applications. Three of the applications are requesting financing to assist with single-family projects and seven are for multi-family projects. In total, the applications requested $8.8 million for their projects. Staff identified $2,687,000 in funding available for projects. The following is a brief description of the projects being recommended for funding (Attachment A - Vicinity Map):
• City Central Infill Project II - S.T.A.N.D. requested $278,087 to assist with funding the construction of seven single-family homes on vacant infill lots which they own (approximately $40,000 per home). One home will be located on West Park Street, three on Jefferson Street, one on Poplar Street, one on Peralta Avenue, and one on Sierra Nevada Street. Upon completion, the homes will be sold to households with incomes at or below 80 percent of the AMI. S.T.A.N.D. is requesting funds from the City to pay a portion of the construction costs. The construction loans would convert to forgivable loans to the homebuyers. The project is leveraged with other non-City funds.
• Dream Creek - Habitat for Humanity submitted a request for $295,833 to assist with the construction of five homes on Glenhaven Way (approximately $59,000 per home). Habitat purchased nineteen lots in this subdivision, and to date, fourteen homes have been constructed. The homes which would be constructed are the same as described above. Upon completion, the homes will be sold to households with incomes at or below 60 percent of the AMI. The construction loans would convert to loans to the homebuyers. Habitat also has CalHome funding and California Self-Help Housing Program funds from HCD to assist with the construction of these homes.
• Medico Artist Flats - DFA Development, LLC, submitted a request for $2,500,000 to assist with the construction of a 41-unit multifamily project located in the Medico Dental building (approximately $61,000 per unit). Thirty of the units will be affordable to households with incomes at or below 30 percent to 80 percent of the AMI. This project is an anchor in the Open Window Master Development Plan approved by Council in February 2016. The Open Window project is a mixed use, mixed income project in downtown Stockton. The Medico project is leveraged with other non-City funds.
A summary of the remaining projects is below. Based on the committee’s score and funding available, these projects are not recommended to receive funding from this NOFA process.
Non-funded projects
|
Project Name |
Developer |
Type of Project |
Funding Request |
|
Claremont Manor |
Housing Authority of County of San Joaquin |
Multi-family |
$137,064 |
|
Community Dwellings |
The Barrow Foundation |
Group home |
$100,000 |
|
Crossway Residences |
Housing Authority of County of San Joaquin |
Multi-family |
$845,191 |
|
Fontana Towers |
Community Housing Development Group, LLC |
Multi-family |
$2,500,000 |
|
Inner City Duplexes |
S.T.AN.D. |
Multi-family |
$530,341 |
|
Simbad Court |
Visionary Home Builders |
Single-family |
$600,000 |
|
Villa de San Joaquin |
Visionary Home Builders |
Multi-family |
$1,000,000 |
Present Situation
As noted above, a committee evaluated the applications based on the readiness of the project to proceed, the amount of non-City funding in the project, the capacity and experience of the developer/team, and the conformance of the project to City policies. Upon review of the applications by the committee, the three highest scoring applications are high-quality projects that will assist the City in meeting the adopted housing goals and are proposed by experienced developers. These projects will make significant contributions to improving the neighborhoods where they will be located. In addition, the projects are proposing to use significant amounts of non-City funds. For these reasons, staff is recommending that the following loans be approved for two single-family projects and one multi-family project:
Proposed funded projects
|
Project |
Applicant |
Est. # of Units |
Total Project Cost |
City Funds Requested |
Proposed Funding |
Source |
|
City Central Infill |
S.T.A.N.D |
6 |
$1,668,087 |
$278,087 |
$225,000 |
LMIHF |
|
Dream Creek |
Habitat for Humanity |
4 |
$603,771 |
$295,833 |
$237,000 |
NSP |
|
Medico Artist Flats |
DFA Development |
41 |
$11,217,317 |
$2,500,000 |
$2,225,000 |
HOME |
|
|
TOTAL |
|
$13,489,175 |
$3,073,920 |
$2,687,000 |
|
It is recommended that the loans to both S.T.A.N.D. and Habitat be two-year, zero percent interest loans. S.T.A.N.D. and Habitat own the parcels where the single family homes will be built. Habitat purchased the properties from the bank that foreclosed on the subdivision, thereby making its project eligible for the use of NSP funds. Both projects are expected to complete construction and be sold to qualified buyers in late 2017. Upon sale of the homes to qualifying households, the loans would be assumed by the homebuyers. The homebuyer loans for the Habitat project will be as thirty-year, three percent interest loans. The homebuyer loans for the S.T.A.N.D. project will be as 15-year forgivable loans. If the homes are sold prior to the 15-year term, any funds remaining, after the primary mortgage has been paid off, would be used to repay some or all of the homebuyer’s loan from the City.
Consistent with the terms of loans made for previously funded multi-family housing projects, it is recommended that the loan to DFA Development, LLC, for the Medico Artist Flats project be approved contingent upon the project receiving all necessary funding. DFA Development has a purchase option agreement in place for the Medico Building and expects to complete the rehabilitation project mid-2019. It is further recommended that the loan terms be 55-year, three percent interest, with payments of fifty percent of 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.
Compliance with Article XXXIV
Article XXXIV of the California Constitution requires a local election to approve affordable housing projects when the majority of the units are financed in whole or in part by the local government. In November 2010, local voters gave the City Council the authority to approve the development of up to 500 publicly assisted low-income housing units each year for a ten-year period. The Council is being asked to allocate 30 of the authorized units to the Medico Artist Flats project. The proposed units are within the limit approved by the voters. In 2015, 136 of the 500 units authorized by the voters were approved by Council. The 30 units currently being requested will be the first ones approved in 2016.
FINANCIAL SUMMARY
No General Funds dollars will be used for these projects.
HOME funds in the amount of $2,225,000 are currently available in account numbers 058-8530-640 and 058-8531-640 which would fund the loan for the Medico Artist Flats project.
NSP3 Program funding in the amount of $237,000 is available in account numbers 063-8526-640 and 064-8526-640 which would fund the loan for the Dream Creek project.
LMIHF funds in the amount of $225,000 are currently available in account number 329-7380-640 which would fund the loan for the City Center Infill project.
Attachment A - Vicinity Map