Agenda Report. Agenda Item No. 5a. Attachment 6 DATE: JULY 5, 2016 CITY COUNCIL TO: FROM: COMMUNITY AND ECONOMIC DEVELOPMENT DEPARTMENT - HOUSING

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1 Attachment 6 Agenda Item No. 5a Agenda Report DATE: JULY 5, 2016 TO: CITY COUNCIL FROM: COMMUNITY AND ECONOMIC DEVELOPMENT DEPARTMENT - HOUSING SUBJECT: RESOLUTION TO APPROVE A FUNDING REQUEST FOR SITE ACQUISITION 1250 LAS JUNTAS WAY HABITAT FOR HUMANITY AFFORDABLE HOUSING DEVELOPMENT STATEMENT OF ISSUE: Habitat for Humanity of the East Bay/Silicon Valley (Habitat) is requesting $3.15 million in City Housing Funds for the acquisition of 1250 Las Juntas Way in Walnut Creek for a proposed affordable ownership housing development of up to 52 units. The proposed project will include one-, two-, three-, and four-bedroom units and will be affordable to low- and moderate- income households. With the receipt of new housing impact fees combined with a proposed reallocation of reserve funds, funding sufficient for a $3.15 million acquisition and predevelopment loan is now available. RECOMMENDED ACTION: The Council Housing and Community Development Committee (HCD Committee) recommends that City Council approve 1) the transfer of $550,000 from the Administration and Program Reserve Funds to the New Construction/Acquisition Reserve Fund, and 2) a $3,150,000 site acquisition and predevelopment loan to Habitat, funded from the New Construction/Acquisition Reserve fund (Fund 173, fund 175), and from the Housing Successor Agency Fund (Fund 177). Site History The former Las Juntas Swim Club opened in 1956, and remained an active swim club until early 2000 when the swim club members elected to sell it. In 1996, 1250 Las Juntas was rezoned from Single Family to M-3, bringing it into compliance with the 1989 General Plan update which changed the land use designation from Single Family Low (SFL) to Multifamily Low (MFL). In 2002, the Contra Costa County Redevelopment Agency (County RDA) acquired 1250 Las Juntas Way in Walnut Creek to provide temporary parking for BART patrons during construction of the Pleasant Hill/Contra Costa Centre BART parking garage. The 2.05 acre site is located adjacent to the Contra Costa Centre BART Station, bound by the BART tracks and Las Juntas Way to the southeast side, the Iron Horse Trail and a condominium development to the west, and single family

2 July 5, 2016 Page 2 residential homes on the north and east. The County RDA purchased the site from the former Las Juntas Swim Club, whose members elected to sell the property (as indicated above). In 2006, after the opening of the BART parking garage, the City and the County RDA issued a joint RFQ seeking a developer for a mixed-income, multifamily residential development. By 2008, the selected developer for the site, the Olson Company, was unable to come to a satisfactory business arrangement with the County and negotiations were terminated. The housing market crash occurring at that time had a substantial and detrimental effect on the proposed project. After the dissolution of Redevelopment Agencies in 2012, the site became an asset of the County in its capacity as housing successor to the Contra Costa County Redevelopment Agency. The County and City have long desired to see affordable multi-family housing developed on the site. After dissolution, the County maintained a minimum affordability requirement for the site of 20%. In November of 2014, Habitat submitted a letter of interest to Contra Costa County to purchase the site at a below market price of $3.15 million (since that time Habitat has negotiated a slightly lower cost for acquisition, leaving some remainder of the City funds for predevelopment expenses). The County was interested in selling the site to Habitat for the development of affordable housing in Walnut Creek, the sale proceeds from which would be used to develop other affordable housing developments in the unincorporated County. Over the next 18 months, Habitat met with City staff and the HCD Committee, seeking support for the acquisition and the project concept, and continued to meet with the County to negotiate and secure a Purchase and Sale Agreement. Because of the depth and length of affordability, the County was willing to sell the site at a below market rate price, and conditioned that a regulatory agreement be recorded against the property requiring the construction of units affordable to low- and moderate- income households that would remain affordable for a minimum of 45 years. On March 29, 2016, the County Board of Supervisors approved the purchase and sale agreement. Site acquisition does not commit the city to a particular course of action when evaluating the proposed development project. Proposed Project Habitat is proposing to construct up to 52 units of affordable ownership housing. The project will include one-, two-, three- and four-bedroom units, 75% of which would be affordable to lowincome, and 25% affordable to moderate-income households. The project would be developed in three phases over the next five years, and the units would be maintained as affordable for a minimum of 65 years. Each time the unit is sold or transferred within a 65 year period, the affordability term starts over. The project is conceived as a three story townhome style development, with a density of approximately 27 dwelling units per acre. The project as envisioned would require approval of a density bonus as well as concessions for a density bonus above 35%, reduced setbacks, and additional height allowance. The subject site is zoned Multi-family residential, M-3 and multi-family residential is a permitted use. The applicant would be seeking approval of a tentative subdivision map by the Planning Commission and design review by the Design Review Commission. As the highest approving body, the Planning Commission would be the approval authority for the density bonus request and the concessions.

3 July 5, 2016 Page 3 The applicant intends to submit a formal development application in September of 2016 following the close of escrow. In order to meet the deadline for the Affordable Housing Sustainable Communities (AHSC) program in March of 2017, development review by the City will be expedited to assist Habitat in obtaining project entitlements. If awarded the AHSC grant, the project is expected to be under construction by Funding Request Habitat is currently requesting a $3.15 million acquisition and predevelopment loan, and anticipates requesting an additional $1,000,000 future subsidy for the project. A total project subsidy of $4,150,000 would be a per unit subsidy of $79,807, or 16.5% of the total per unit cost, well below the maximum subsidy amount of 25% set by City policy. These additional funds are expected to become available as contributions are made to the City Funds by other new development. The acquisition and predevelopment loan would be structured as a forgivable loan secured by a deed of trust recorded against the property. The deed would be partially reconveyed with the sale of each home. The City will be in line to receive excess sale proceeds through the resale restriction recorded against each individual home. Project Financing Habitat is estimating a total project cost of $25,217,000. The sources and uses are shown in the table below. Sources Uses City of Walnut Creek Site Acquisition & Due $ 4,150,000 Diligence $ 3,045,000 AHSC/County $ 5,000,000 Design Consultants $ 672,000 Habitat Fundraising $ 4,532,000 Site Work $ 3,850,000 Home Sale Proceeds-Low $ 6,777,000 Unit Construction $ 11,166,000 Home Sale Proceeds-Mod $ 4,760,000 Fees $ 1,958,000 Admin Costs $ 1,776,000 Finance and Carrying Costs $ 2,060,000 Marketing Costs $ 690,000 Total Sources $25,217,000 Total Uses $25,217,000 Alternative project designs 52 Units with two Concessions: Prior to submitting its funding request, Habitat submitted a Preliminary Review Team (PRT) application for a 52-unit project that required only two concessions: additional density bonus and setbacks. However, the three story building type did not allow for sufficient ceiling height as it resulted in ceilings under 8 for all floors, and the lowest point on the third story was 6 7. In reviewing the project at PRT, staff did not think the proposed height would be acceptable to the Commissions and recommended redesigning the project. The 25 height limit for the site was originally established when the land use designation was single-family and the site was zoned Single Family R-10. When the Measure A initiative was passed by the voters in 1985, the 25 zoning height limit was frozen even though the 1989 General Plan changed the land use designation to Multi-Family Low and the site was rezoned to M-3 in The M-3

4 July 5, 2016 Page 4 zoning district has a standard height limit of 30 unless otherwise frozen by Measure A. In order to achieve livable ceiling heights, Habitat intends to requests a height concession allowing for a building height consistent with the M-3 height limit of 30. No formal application has been submitted because the development plans are conceptual pending approval of this funding request. 39 Units with two Concessions: Habitat reviewed the feasibility of developing a two-story townhome style project (similar to Pleasant Creek Homes) on the site, which would result in 39 units. This alternate project concept would also include one-, two-, three- and four-bedroom units; and as conceived would still maintain the same affordability ratio of 75% affordable to low-income households and 25% affordable to moderate-income households. The project would have a gross density of approximately 20 dwelling units per acre. As a two story development, Habitat would not require a concession for height and the density bonus would not exceed 35%. However, the design would still require setback concessions and the unit designs would have to change to provide all of the parking in surface parking lots as opposed to attached garages in the higher density design. Other funding sources may also be at risk because the density may not be sufficient to qualify for AHSC funds. The lower density would also alter the project s financing such that Habitat would be requesting a higher City contribution, both in dollar value and as a percent of overall cost. The table below shows the primary differences between the proposed project and the lower density alternative. Proposed Project Alternative Project Total # of Units bdrm bdrm bdrm bdrm 12 3 Total # of Bedrooms Density 27 DUA 20 DUA Density Bonus 80% 35% Height 29' 18' Stories 3 2 Total Parking Surface Garage 57 0 Tandem 0 10 Total City Request $ 4,150,000 $ 5,053,000 Acquisition/Predevelopment $ 3,150,000 $ 3,150,000 Construction $ 1,000,000 $ 1,903,000 Total Project Budget $ 25,217,000 $ 20,212,000 Per Unit Cost $ 484,942 $ 518,256 Subsidy Per Unit $ 79,808 $ 129,564 % of total unit Cost 16.46% 25.00%

5 July 5, 2016 Page 5 Funding Availability Currently, the City has a total of $ 4,342,837 available in three reserve funds: New Construction/Acquisition, Programs, and Administration. Housing fees are distributed to the reserve funds per Council direction as follows: Commercial Linkage Fees 100% New Construction/Acquisition Housing Impact Fees 15% Administration, 15% Program, and 70% New Construction/Acquisition Currently the Administration and Program reserve funds are above sufficient levels to support ongoing operations of the City s housing programs. Therefore, in order to fund the recent St. Paul s Commons project and this acquisition request, the HCD Committee supported staff s recommendation to transfer some of the Administration and Program reserves to the New Construction/Acquisition fund. A portion of that transfer was approved in March concurrent with the funding for St. Paul s Commons and the remaining transfer is recommended now as shown in the table below. Both St. Paul s Commons and Habitat for Humanity will be seeking additional funding within the City s guidelines for maximum per unit funding. Based on the project pipeline, the City anticipates receiving an additional $3.5 million in fees from new development during the next 18 months.

6 July 5, 2016 Page 6 HCD Committee Recommendation The HCD Committee reviewed Habitat s funding request and project concept and is recommending approval of the acquisition and predevelopment loan, noting that the project meets the City s funding guidelines as outlined below. Site Control: Habitat for Humanity entered into a Purchase and Sale Agreement with Contra Costa County in April of They are currently in the due diligence phase and hope to close escrow this summer. Developer Experience and Track Record: Habitat for Humanity of the East Bay/Silicon Valley has been revitalizing neighborhoods, building affordable and sustainable housing, and empowering families through successful homeownership since Habitat has partnered with volunteers, the community, and qualified families with limited incomes to strengthen communities in Alameda, Contra Costa, and Santa Clara counties. In 2014, Habitat successfully developed Pleasant Creek Homes in Walnut Creek, consisting of 10 affordable ownership units near the Walnut Creek BART station. Per unit subsidy required (maximum of 25%): The proposed project has a per-unit cost of $484,952 and Habitat is requesting the City provide $79,808 per unit (at the full funding request of $4.15 million), which is equal to 16.5% of the total cost. The alternative project would have a per-unit cost of $518,256 and would require a per-unit subsidy of $129,564, or 25%. The need for the type of housing proposed: The city has an identified need for affordable housing of all types, including affordable for sale units. The cost of housing, both for sale and rent, has increased more than 70% in the last six years in Walnut Creek, while the area median income has increased a mere 4.75% percent during the same time period. The current affordable housing and displacement crisis is a high profile issue being discussed at every level of local, regional and State government, reflecting the extreme and growing need for affordable housing. This ownership project will meet the specific needs of individuals and families, which may include persons at risk of becoming homeless or displaced due to the rising rental market, seniors, and people with disabilities. The suitability of the site: The site is well-suited for this type of development. The flat, regularly shaped 2-acre site is designated in the General Plan and by zoning for multi-family development, and was previously developed as a community swim center and as a BART parking lot. Access is provided from Las Juntas Way via existing driveway easements under the elevated BART tracks, and the Iron Horse Trail passes immediately adjacent to the site. The site is within a quarter-mile of the Contra Costa Centre / Pleasant Hill BART Station. Fund Availability: If the City transfers $550,000 from the Administration and Program reserve funds to the New Construction/Acquisition fund, there will be sufficient funding available for the $3.15 million request. Additional funding requests may be forthcoming, and would be subject to separate review and consideration. Additional fee revenues are expected to be collected in the next few years from several large projects that are in the pipeline.

7 July 5, 2016 Page 7 ENVIRONMENTAL REVIEW: The funding commitment is exempt under the general rule that CEQA only applies to projects that could have an adverse impact on the environment. No physical change in the environment would occur with the funding commitment because the agreement includes a provision that the actual development project remains subject to the full discretion of the City, at which time environmental review would be appropriately conducted. FINANCIAL IMPACTS: There are no impacts to the general fund. The reallocation of funds will reduce balances in the Program reserve and Administration reserve funds by a total of $550,000. The funding for Habitat will reduce the New Construction/Acquisition reserve fund balance by $3.15 million. These funds would be replenished with incoming impact fee payments. The attached resolution will authorize the transfer of funds and the funding for Habitat to acquire the site from the County. ALTERNATIVE ACTION: City Council could decide not to approve any funds for the project, or to approve a different amount. DOCUMENTS: Attachment 1: Draft Resolution Attachment 2: Term Sheet Attachment 3: Attachment 4: Vicinity Map and Ariel Photo Correspondence received since June 30, 2016 COUNCIL ACTION RECOMMENDED: Move to adopt the Resolution authorizing a $550,000 fund transfer from Housing Program and Administration reserve funds to the New Construction/Acquisition Reserve Fund; and a $3.15 million acquisition and predevelopment loan to Habitat for Humanity East Bay/Silicon Valley for the Acquisition and Predevelopment of an affordable for sale project at 1250 Las Juntas Way. STAFF CONTACT: Margot Ernst, Housing Program Manager , ext ernst@walnut-creek.org