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REALLOCATION OF HOME FUNDS FROM THE GRAND VIEW VILLAGE PROJECT TO THE HUNTER STREET APARTMENTS AFFORDABLE HOUSING PROJECT
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution:
1. Authorizing the reallocation of 2011, 2012, 2013, 2014 and 2016 HOME Community Housing Development Organization funds in the amount of $849,000 from the Grand View Village affordable housing loan to the Hunter Street Apartments affordable housing loan.
2. Authorizing the City Manager, or his designee, to take actions that are necessary and appropriate to carry out the purpose and intent of the resolution.
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Summary
Staff recommends reallocation of federal HOME Community Housing Development Organization (CHDO) funds previously committed to VCOR, LP (a partnership between Visionary Home Builders and Ten Space) for the Grand View Village project in the amount of $849,000 to the Hunter Street Apartments, a Visionary Home Builders affordable housing project in Stockton.
To date, VCOR, LP has been unable to secure the financing necessary for the development of the Grand View Village project. Due to statutory timeliness requirements related to the use of HOME funds, the U.S. Department of Housing and Urban Development (HUD) informed the City that federal funds must be de-obligated from the Grand View Village project. The HUD also approved reallocation of HOME CHDO funds on the condition that they be committed and expended to another CHDO project by the end of September 2018.
Staff recommends that funds be reallocated to the Hunter Street Apartments project, which has financing in place but experienced a shortfall due to unexpected increases in construction bids due to a persistent labor shortage in the region. The Hunter Street Apartments project can readily expend the funds before HUD’s expiration date.
DISCUSSION
Background
The City of Stockton is designated as an Entitlement Community by HUD. As an Entitlement Community, the City receives HOME Investment Partnerships (HOME) and Community Development Block Grant (CDBG) formula grant allocations each year from HUD.
Per HUD regulations, the City’s HOME allocation may be used for development of affordable rental housing, homeowner rehabilitation or homebuyer assistance for low-income persons. At least 15% of each year’s HOME allocation must be set aside for specific activities to be undertaken by Community Housing Development Organizations (CHDO). A CHDO is a private nonprofit, community-based organization with staff capacity to develop affordable housing for the community it serves. Currently, Visionary Home Builders is the only City certified CHDO in the City.
In 2014 and 2015, the City Council approved two loans totaling $3,952,547 for the Grand View Village project to VCOR, LP, a partnership between Visionary Home Builders and Ten Space, to assist with property acquisition, pre-development, and construction of the residential units, including $1,622,547 in HOME/CHDO funds, $330,000 in CDBG funds, and $2,000,000 in Series C Redevelopment and Housing Revenue Bond proceeds from the former Redevelopment Agency to the Successor Agency (Attachment A - Resolution 2014-12-16-1211, Attachment B - Resolution 2015-06-09-1202 and Attachment C - Vicinity Map). The loans were approved as two-year loans contingent on obtaining all funding necessary to construct the project. The City Manager was also authorized to approve two one-year extensions. Each loan is secured by a Deed of Trust with Assignment of Rents and Security Agreement. To date, $1,455,778 has been spent, including $330,000 in CDBG funds, $147,278 in HOME funds, and $978,500 in Bond proceeds.
In response to market conditions changing and the delays it caused, revisions to the project scope were necessary to make the project more competitive when applying for Affordable Housing and Sustainable Communities Program (AHSC) funds and low-income housing tax credits. As such, the loans were brought back to City Council in August 2017 (Attachment D - Resolution No. 2017-08-22-1402), authorizing the City Manager to accept the changes to the scope reducing the number of units from 108 to 62 and grant two one-year extensions to VCOR, LP contingent upon the project obtaining all the funds necessary to complete the project. The first of two one-year extensions expired in June 2018, and a final one-year extension was approved through June 2019 with the expectation the Grand View Village project would be awarded approximately $11,000,000 AHSC funds in July 2018.
While VCOR has been working to obtain funding for the Grand View Village development having submitted three applications for AHSC funds, it learned in July 2018 that its third application was unsuccessful, ranking 29 out of 49 applicants.
Present Situation
In July 2018, the City’s HOME program was reviewed by HUD. HUD determined that the Grand View Village project is ineligible for HOME funds because it did not meet timeliness deadlines. As a consequence of not meeting the HUD regulatory requirements, VCOR cannot use the previously approved federal funds for the Grand View Village project.
In lieu of returning the federal funds, HUD is willing to authorize the City to reallocate the funds to another project subject to certain conditions. HUD approved reallocation of the 2011, 2012, 2013, 2014 and 2016 CHDO funds to another Visionary project, Hunter Street Apartments. To meet HUD timeliness requirements, the funds must be committed and expended by the end of September 2018. Visionary’s Hunter Street Apartments project is the only active project that would meet these deadlines and CHDO requirements. Reallocation of the available federal funds will address the funding shortfall created by the unanticipated increase in construction costs.
The Hunter Street Apartments project, located at 804 North Hunter Street and 226 E. Poplar Street in Stockton, was previously allocated Neighborhood Stabilization (NSP) loan funds through the City’s annual Housing NOFA. On June 9, 2015, the City Council approved a $720,000 loan of NSP funds, and on March 29, 2016, the City Council approved an additional $1,280,000 loan of NSP funds (Attachment E - Resolution 2016-03-29-1213). Further, the Hunter Street Apartments project was awarded state AHSC funds, in addition to federal tax credits in the amount of $882,652, and multifamily housing revenue bonds to finance the construction of 71 units of housing with rents affordable to households earning 50-60% of area median income (AMI). The additional $849,000 loan from the City will help fill the gap created by increased construction costs with a total project cost of approximately $28 million.
It is recommended that City Council approve the reallocation of federal HOME CHDO funds previously committed to the Grand View Village project in the amount of $849,000 to the Hunter Street Apartments project. The current loan amount to VCOR, LP will be amended to reduce the loan by $849,000. The loan for the Hunter Street Apartments will be increased by $849,000 for a new loan amount of $2,849,000.
FINANCIAL SUMMARY
The City will incur no financial liability to take this action.
Attachment A - Resolution 2014-12-16-1211
Attachment B - Resolution 2015-06-09-1202
Attachment C - Vicinity Map
Attachment D - Resolution 2017-08-22-1402
Attachment E - Resolution 2016-03-29-12-13