TUESDAY, APRIL 24, 2018 SPECIAL CITY COUNCIL MEETING - 7:00 P.M. MAYOR: RUBEN ABRICA VICE MAYOR: LISA GAUTHIER

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1 City of East Palo Alto AMENDED 1 CITY COUNCIL AGENDA EPA Government Center 2415 University Avenue, First Floor - City Council Chamber East Palo Alto, CA TUESDAY, APRIL 24, 2018 SPECIAL CITY COUNCIL MEETING - 7:00 P.M. MAYOR: RUBEN ABRICA VICE MAYOR: LISA GAUTHIER COUNCILMEMBERS: LARRY MOODY, CARLOS ROMERO, DONNA RUTHERFORD Notice of Availability of Public Records: All public records relating to an open session item which are not exempt from disclosure pursuant to the Public Records Act, that are distributed to the majority of the City Council will be available for public inspection at the City Clerk s Office, 2415 University Avenue, East Palo Alto, CA at the same time that the public records are distributed or made available to the City Council. Such documents may also be available on the East Palo Alto website subject to staff s ability to post the documents prior to the meeting. Information may be obtained by calling (650) Community Forum and Special Presentations: Members of the audience may address the City Council on any agenda item or on any item of interest to the public within the Council's purview, before or during the Council's consideration of the item. If you wish to address the City Council, please fill out a Speaker Sheet and give it to the Deputy City Clerk. When your name is called, step to the podium and address the City Council. Speakers are limited to 2 minutes each, and Presentations are limited to 10 minutes. The Mayor has the discretion to lengthen or shorten the allotted times. East Palo Alto City Council Chambers is ADA compliant. Requests for disability related modifications or accommodations, aids or services may be made by a person with a disability to the City Clerk's office at (650) no less than 72 hours prior to the meeting as required by Section 202 of the Americans with Disabilities Act of 1990 and the federal rules and regulations adopted in implementation thereof. 1 Addendum to staff report was added to Item 4a as an attachment.

2 CALL AND NOTICE OF SPECIAL MEETING AT 7:00 P.M. OF THE EAST PALO ALTO CITY COUNCIL TO THE MEMBERS OF THE EAST PALO ALTO CITY COUNCIL: You are hereby notified that I, Ruben Abrica, do hereby call the East Palo Alto City Council in special session to consider only the matters stated on the agenda listed below. Notice to the Public: Members of the public shall have the opportunity to address the City Council concerning any item listed on the agenda before or during consideration of that item. No other items may be discussed at this Special Meeting. 1. CALL TO ORDER AND ROLL CALL 2. APPROVAL OF THE AGENDA (Government Code Section (a)) 3. COMMUNITY FORUM Notice to the public: Anyone wishing to address the City Council on any matter for which another opportunity to speak is not provided on the Agenda, and which is within the Council s purview, is requested to submit a completed Speaker Sheet to the Deputy City Clerk. When your name is called, step to the podium and address the Council. Each speaker is limited to 2 minutes. The Mayor has the discretion to lengthen or shorten allotted times 4. STUDY SESSION ITEM A. Draft Affordable Housing Strategy (Sean Charpentier, Assistant City Manager, Hanson Hom, Special Projects Manager) Recommendation Review documents and provide direction to City staff on the Draft Affordable Housing Strategy 4. ADJOURNMENT This Notice is posted in accordance with Government Code (a) or Members of the public can view electronic agendas and staff reports by accessing the City website at and can receive notification of agenda and staff report postings by subscribing to the Notify Me service at Agendas and staff reports may also be obtained by contacting the City Clerk s Office at Posted April 20, 2018 at 12:30 p.m.

3 UPCOMING CITY COUNCIL MEETINGS: Tuesday, May 1, 2018 (7:30 p.m.) Regular City Council Meeting Tuesday, May 15, 2018 (7:30 p.m.) Regular City Council Meeting Mission Statement The City of East Palo Alto provides responsive, respectful, and efficient public services to enhance the quality of life and safety for its multi-cultural community.

4 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA Study Session Item #4A Date: April 24, 2018 City Council Agenda Report To: Via: From: Subject: Honorable Mayor and Members of the City Council Carlos Martínez, City Manager Sean Charpentier, Assistant City Manager Hanson Hom, Special Projects Manager Draft Affordable Housing Strategy Recommendation Review documents and provide direction to City staff on the Draft Affordable Housing Strategy Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #3: Increaes Organizational Effectiveness and Efficiency Priority #6: Create a Healthy and Safe Community Background The City of East Palo Alto is working on an Affordable Housing Strategy to provide a blueprint for the delivery of affordable housing projects and programs over the next years. The City hired David Paul Rosen and Associates (DRA) to assist with this task. The Bay Area is experiencing a severe housing crisis caused by other Cities developing more jobs than housing units. Between 2010 and 2015, 72,800 jobs were created n San Mateo County, and only 3,844 housing units 1. The elimination of Redevelopment Agencies (RDAs) in 2011 in California, intended to raise 1 San Mateo County Home for All: CA EDD, US Census, American Community Survey 1

5 revenues to mitigate the Great Recession and the State s large budget deficits, also meant approximately $6 billion less dedicated to the creation of affordable housing; which exacerbated the state s housing crisis by eliminating approximately $1 billion in annual revenues earmarked for affordable housing. Thus, as the State came out of the recession and its population grew, affordable housing funding and production dried up. Consequently, housing prices and rents have soared. Controlled for size, East Palo Alto is a leader in providing housing and affordable housing. The City has a very low jobs to housing ratio. East Palo Alto has approximately 0.2 jobs per employed resident. Surrounding cities have 2-3 jobs per employed resident. Approximately 40% of the total housing units in the City have affordability restrictions. Table 1: Affordable Housing in East Palo Alto Units Affordable Income Restricted Rentals 488 Affordable Ownership 90 Affordable Rent Stabilized 2,500 Total Affordable Housing Units 3,078 Total Housing Units 7,819 Percent Affordable Housing 39% Source: 2010 US Census Bureau, East Palo Alto has 488 units of multifamily rental housing that were developed using Low Income Housing Tax Credits. That equals 6.2% of the total housing units in the City, which makes East Palo Alto among the cities with the highest percentages of total housing developed with Low Income Housing Tax Credits. Source: US Census, East Palo Alto also has one of the highest population densities per square mile in the Bay Area at (11,239) compared to San Mateo County s 1,602, or Redwood City s 3,955 and has 2

6 significantly higher percentage of overcrowded units. East Palo Alto also has one of the strongest rent stabilization and tenant protection frameworks in the State. Despite all these efforts, it is still not enough, and far too many East Palo Alto residents are negatively impacted by the housing crisis. The Affordable Housing Strategy will establish priorities that will guide City programs and investments in affordable housing for the next years. The Affordable Housing Strategy is a policy document that will reflect the City Council s priorities for affordable housing and present a blueprint for the implementation of those priorities. In East Palo Alto, the timing is advantageous for the preparation of the affordable housing strategy that will guide the City s response to this severe housing crisis. Affordable housing production is cyclical, and it is possible that the State will be entering a period of high (relative to the past) affordable housing production due to the extreme need and available resources. Currently, the City has resources, in terms of land and financing, for affordable housing; and there are significant local, County, and State funding sources available. The key independent variables in the development of affordable housing are local political support, the availability of local gap financing, the availability of land parcels of sufficient size, and site control. The City has resources for affordable housing development. The City owns 965 Weeks St., a 2.58 acre parcel designated for affordable housing development. The City also has access to approximately $18 million in affordable housing gap financing, including the following sources included in Table 2 below: Table 2: Estimated City Funding for Affordable Housing Source Amount 965 Weeks (Land) TBD Housing In Lieu Fees $6,242,000 TOT Set Aside $1,547,700 Low Mod Successor Agency Funds $606,500 Catalyst Housing Fund (Facebook Settlement) $10,000,000 Housing Assistance Funds $291,800 Total $18,688,000 The next ten (10) years represent a major opportunity for the City of East Palo Alto to significantly expand its leadership in the development of affordable housing. The City s existing funds will be advantageous for leveraging and competing for available state resources for affordable housing projects. This will be especially true if the voters approve the proposed $4 billion State Housing Bond measure slated for the November 2018 ballot. 3

7 The Affordable Housing Strategy will identify the City Council priorities and the blueprint to implement them. The primary goal of the Affordable Housing Strategy is to provide the necessary analysis to assist Council in determining how to more effectively develop, maintain, and protect affordable housing. The demand for affordable housing, however, significantly exceeds the available affordable housing subsidy. The City has to strategize and prioritize the investment of its limited affordable housing funding to ensure alignment with the priorities of the City Council. Affordable Housing Development Models and Programs There are generally 10 types of affordable housing development models and programs. They are described below, along with a general description of their pros and cons. 1. Affordable Ownership Units: These are below market rate ownership units. They are usually targeted for moderate-income households earning between 80% and 120% of the Area Median Income (AMI). ) a) Pros: Help households gain a foothold in ownership and build equity. High leverage per unit because of higher AMIs. b) Cons: Staff intensive to manage. Difficult to enforce resale restrictions. Can be expensive per unit. Do not assist low or very low-income households. 2. Tax Credit Allocation Committee (TCAC) Affordable Rental Units: These are affordable income restricted rental units. Rents are restricted and linked to AMI. Upon vacancy, unit is rented to new tenant at target AMI. These are used for families and individuals. In addition, there are special needs populations like youth, seniors, or the developmentally disabled. There is wide variation with the allowable AMIs from Extremely Low Income (ELI) units at 30% AMI to 60% AMI. The lower the AMI (the higher the affordability) the larger the local subsidy required. TCAC funds for the more valuable 9% LIHTC program are highly competitive. Projects can include new construction or rehabilitation. a) Pros: Rents are controlled at specific income levels. Skilled developers can efficiently produce large number of units. Minimal City staff resources required to manage and monitor. b) Cons: Some people may barely exceed the income limit restrictions and not qualify for the subsidized rental units. The funding structure of these types of projects are usually multi layered that may lead to multiple restrictions due to the sources of funding, which may limit the City s ability to define the qualification and occupancy criteria of the project. 4

8 3. Permanent Supportive Housing for Homeless: These are affordable rental units for the homeless individuals and families that provide significant support services to ensure that the residents remain housed. Incomes typically range from 0-30% AMI. Product type can be Single Room Occupancies (SROs) or apartments. These projects are also eligible for TCAC financing. a) Pros: Provide a comprehensive and real solution for homelessness. b) Cons: Extremely expensive due to very high levels of subsidy and cost of support services. Not financially feasible without ongoing operating subsidies for social services. Potentially, higher neighborhood opposition to projects. 4. Transitional Housing: These are affordable rental units for homeless individuals and families that provide significant support services for up to 24 months to prepare households for permanent housing. Incomes typically range from 0-30% AMI. Typically apartments. a) Pros: Provide high level of subsidy and social services. Can incorporate supportive service elements of a permanent supportive housing for homeless but with defined timelines. b) Cons: Very expensive due high levels of subsidy and cost of support services. Not financially feasible without ongoing operating subsidies for social services. Potential higher neighborhood opposition to projects. General lack of affordable housing complicates transition when the 24 months expire. 5. Rapid Re-Housing: Similar to Transitional Housing, but the goal is to move households into permanent housing as quickly as possible rather than every 24 months. Focus is on housing location services and financial assistance for housing related expenses (e.g., rent arrears, ongoing rent assistance, moving costs). a) Pros: Provide housing quickly to displaced households to help prevent homelessness after displacement. Due to shorter tenancies, can assist multiple households at separate times in one unit. b) Cons: Expensive due high levels of subsidy. Might be difficult to prevent temporary re-housing from becoming permanent housing. 6. Emergency Shelter: Homeless shelter providing beds in a group setting. Incomes typically range from 0-30% AMI. Stays are limited to 90 days. Tenants have to vacate shelter during the day. Typically individuals, although there are special shelters for families. a) Pros: Provide a place off the streets. Generally, low development costs if an existing building can be easily adapted for this use. b) Cons: Challenging to address needs of families. Community opposition is common. Immediate response to homelessness, but does not provide a longer-term housing solution. Challenging to secure funding for operations. 5

9 7. Homeless Drop In Center: Drop in Center where homeless can receive social services, case management, housing referrals. Sometimes provide showers, clothing, and/or laundry as part of their services. Can be connected to an affordable housing development or separate from it. Incomes typically range from 0-30% AMI. Location should have good transit service. a) Pros: Provide needed services. Stand-alone Drop In Center can provide services in commercial buildings. Can be combined with a permanent affordable housing project to achieve housing/service synergies. b) Cons: Stand Alone Drop In Center does not include housing and rely on housing referrals. Challenging to secure funding for construction and operations. 8. Inclusionary Affordable Housing: Affordable Units constructed by a market rate developer as part of a market rate project. Can be both rental or ownership. Often at higher income levels. Can be both individuals and families. a) Pros: Creates mixed income projects. Cost effective, it builds affordable units at the same time as market rate units. b) Cons: Typically higher income, especially for the ownership units. Require significant City Staff resources to manage. 9. Second Units (Detached and Attached): Small attached or detached units generally constructed in the backyard of an existing house. No income or affordability restriction, unless publicly subsidized. Technically not affordable because there is no income or affordability restriction. EPA Municipal Code requires that one of the units be occupied by the owner of the parcel. Often developed first for family or other non market consideration (housing for a child or in-law) a) Pros: Increases available housing units. Rents might not rise as quickly as the market because landlord might place a premium on having a good tenant due to proximity. Garage Conversions are relatively inexpensive. Allows primary homeowner to generate supplemental income. b) Cons: It is exceedingly complicated and expensive to build a legal 2 nd Unit in one s back yard. High construction and rental costs per square foot due to limited construction economies of scale. The 21 Elements 2 nd Unit Calculator estimates that it would cost $265,000 to build a permitted 700 sqft second unit in East Palo Alto. See No deed recorded affordability restriction on second unit or existing unit. Not clear if a good model exists for providing public subsidy and requiring affordability restrictions on 2 nd units, and it would require significant staffing resources to manage such a program. 6

10 10. Anti Displacement Services: Legal assistance to remain housed, rental assistance, first and last month s rent, motel vouchers, housing relocation assistance, and other social and legal services intended to prevent and mitigate displacement. a) Pros: Supports households in need. Can prevent or mitigate displacement and or homelessness. b) Cons: It does not provide housing. It treats the symptoms but does not address the root cause of the problem. Analysis Affordable Housing Strategy Process In July 18, 2017, the City Council awarded the contract to prepare the Affordable Housing Strategy to David Paul Rosen and Associates (DRA). There is a two steps process. First, the presentation of background data and key questions to the community and the City Council. Second, based on the community input and City Council direction, the preparation of a draft and then final Affordable Housing Strategy to be adopted by the City Council. The Background Document is attached to this document. See Attachment 2. The chapters include: 1. Background Report a) Summary of Existing Housing Conditions b) Housing Needs and Market Assessment c) Homelessness Analysis d) Affordability Gap Analysis Staff will present the Background Documents to the community and to the City Council, and receive direction from the City Council. A draft schedule for the Affordable Housing Strategy is below. 1. Week of April 10 th - Release of Draft Background Reports 2. April 16, Stakeholder meetings 3. April 16 th, 6:30pm; Community Meeting 4. April 24 th, 7:30pm; City Council Study Session 5. TBD- July/Sept(?) Preparation/Release of Draft Affordable Housing Strategy based on input from the community and City Council direction 6. TBD- Sept/Oct. Community Meeting for Draft Affordable Housing Strategy 7. TBD- Oct./Nov. City Council meeting for adoption of Draft Affordable Housing Strategy 7

11 The schedule above depends in part on the questions and information requests received by the community and the City Council. Staff will include summaries of the stakeholder and community meetings on April 16 th in the final staff report for the April 24 th City Council Study session. Discrete sections of the Affordable Housing Strategy can proceed in tandem, in particular the City Council direction regarding 965 Weeks. Staff can work on a draft RFP while finalizing the Draft Affordable Housing Strategy. City Council Direction To prepare the draft Affordable Housing Strategy, staff require direction from the City Council. Staff and DRA have attempted to structure the process to facilitate actionable outcomes and priorities. The topic of affordable housing crisis and its potential solutions is expansive. Staff have attempted to create a focused process that balances providing necessary granular information without becoming overwhelming with too many details. Staff and DRA seek Council guidance and priorities for the allocation of City affordable housing financial and land resources to specific priority projects and/or programs serving specific resident populations. Staff have attempted to accomplish this by preparing a list of questions that will guide the City Council prioritization process and a potential draft strategy for discussion purposes only. The Affordable Housing Strategy (AFS) will reflect the City Council s priorities, and staff have prepared limited options and potential courses of action to focus the discussion and to provide a template of what a strategy might resemble. During the review process, it is likely that the community and/or City Council will raise additional questions. Staff has prepared recommendations for many of the questions as a starting point only. The Staff recommendations are merely intended to focus the conversation and provide a template for the type of direction that is ultimately needed. The AFS is a City Council document. The City Council may reject, amend, or accept the Staff recommendations. The severity of the housing crisis and the scarcity of resources necessitate a difficult trade off and prioritization among a variety of valid potential uses for affordable housing resources. The resources available to provide affordable housing are insufficient to address all needs. The City Council will have to make a series of policy decisions to prioritize the allocation of scarce public resources to priority projects and programs. All eligible uses of affordable housing funds meet critical needs, including the homeless, the extremely low income, the working poor, and moderate-income households. Each decision will involve a trade off among a variety of different potential uses. 8

12 To aid in the decision making process, Staff have prepared the East Palo Alto Affordable Housing Options Matrix that identifies the typical programs and projects, the target populations and incomes, and the eligible city funding sources. See Attachment 1. Seven (7) Initial Questions 1. Should the City establish an aspirational goal of achieving a certain number of affordable housing, rental TCAC, deed-restricted units to construct in years? There might be significant (relative to the past) resources available in the next 10 years. Affordable housing development will depend in part on local gap financing and also local political support. The Housing Element, which is based on 7 years of housing needs ( ), includes 118 units of extremely low, very low, and low income housing as part of East Palo Alto s Regional Housing Need. However, the RHNA is a based on regional projections. Staff Recommendation: Establish an ambitious goal of adding 500 net new (not replacement for deed restricted or RSO units) TCAC affordable rental units (low or very low income) in the next years. It establishes a political message that will assist the City and developers in attracting external forms of affordable housing subsidy. East Palo Alto has approximately 500 TCAC affordable rental units. This recommendation would double the amount in the next years. This is an extremely ambitious goal and it would be very challenging to meet. This would exceed the known and likely sources of local East Palo Alto gap financing, and would require county, regional, and State funding sources to provide significant amounts of local gap financing. Accomplishing this goal would require a few larger projects with 150 or more TCAC units. There is limited land available for these larger projects. 2. What type of affordable housing should the Council support on 965 Weeks St.? The City owns 965 Weeks St, a 2.5 acre parcel that will support affordable housing units. The City is working with an appraiser to get a letter of valuation. The Affordability Gap Analysis section of the Background Report includes the analysis of 965 Weeks Street in its feasibility pro formas. The project is eligible for 9% Tax Credits, which allows for a project with deeper levels of affordability (lower AMIs).The project will leverage other sources of county, regional, and state funding. Once the City Council indicates the desired type of affordable housing on 965 Weeks, staff will prepare a Request for Proposals (RFP) to select a developer and begin the selection process. This process does not have to wait the completion of the AFS, and can proceed 9

13 once the City Council has provided sufficient direction to begin drafting an RFP. A potential draft schedule is below. a) Fall 2018/Winter City Council authorizes release of RFP for 965 Weeks Street b) Winter/Spring 2019-City Council authorizes negotiations of an Exclusive Negotiating Agreement (ENA) with a preferred developer for 965 Weeks Street c) Summer/Fall Entitlements for 965 Weeks Street d) Spring/Summer/Fall Building Permits and start of Construction for 965 Weeks St (Depends on funding cycles) e) Fall 2021/Winter Spring Grand Opening 965 Weeks St. The key variables for 965 Weeks are the demographics, income levels, and product types. The options generally include: a) Affordable Ownership Units, % AMI, families b) Affordable Rental Units, 30%-60% AMI; Families, individuals, seniors c) Permanent Supportive Housing for Homeless, 0-30% AMI, Individuals (SROs) or Families d) Other: Emergency Shelter, transitional housing, Rapid Rehousing 0-30% AMI See outline on typologies of affordable housing and East Palo Alto Affordable Housing Options Matrix in Attachment 1 for more information. The Matrix has the affordable housing type, the populations and incomes, and the eligible local funding sources. Staff Recommendation: Pursue a large family (2 and 3 bedroom units) TCAC affordable rental project with at least 30% of the units at 30% AMI (ELI). It is exceedingly difficult to find an affordable 3-bedroom apartment. The housing market does not produce many 3 bedroom units, and East Palo Alto has large household sizes. Large family units help families to stay in East Palo Alto and in East Palo Alto schools. 3. What other housing development priorities should the City pursue? Staff Recommendation: Explore possibility of adding units to existing TCAC affordable rental housing projects. Adding new affordable units to existing affordable housing sites would be an effective and cost efficient method to provide affordable housing. Eden Housing, the owner of the LightTree Apartments, has expressed interest in rehabilitating the existing units and adding approximately 30 net new units on the site. Staff Recommendation: Explore possibility of other projects that would be eligible for 9% TCAC and be of significant size (100+ units) to assist in maximizing development potential. 10

14 4. What other developments and programs should the City pursue to prevent displacement? Staff Recommendation: Implement the RV Safe Parking Program to provide overnight RV Parking Spaces and program management for up to 15+ parking spaces on the City-owned Tanklage site. Staff Recommendation: Pursue a Rapid Rehousing Project with units or apartments. This is consistent with the recommendation from the 2012 Homeless Strategy. See page 16 of the Homeless Analysis section of the Background Report in Attachment 2. Providing anti-displacement services (legal assistance, housing location assistance, and housing costs) is critical, but it is not enough. Housing referrals have limited value when there is simply no housing available. A Rapid Rehousing project would help to ensure that East Palo Alto residents who are displaced have a safe landing location in East Palo Alto to try to find another housing unit in East Palo Alto. This is especially important for displaced families with children in the local school system. Staff Recommendation: Pursue RFP for anti displacement services that complement the RV Safe Parking Program and the Rapid Rehousing Program. 5. What should the City do to encourage legal second units and bring second units without permits into compliance, if possible? Staff Recommendation: Staff recommend waiting until July/September to answer this question to consider and include the input of the 2 nd Unit Taskforce, and make room for the City s budget adoption process. The City Council created 2 nd Unit Taskforce in 2016 to seek ways to minimize displacement, encourage legal second units, and facilitate bringing second units without permits into compliance. The Taskforce has met 4 times between May 2017 and October Accomplishments include: a) Updated the City Ordinance to allow a maximum of 30 days before vacating a red tagged unit. b) Organized and did outreach for two community informational meetings to describe the planning and building requirements for second units c) Presentation on Anti Displacement Services from El Concilio d) Presentation on Code Enforcement Best Practices from San Mateo County Health Department. e) Presentation on Code Enforcement from Christopher Gale, former East Palo Alto Chief Building Official. f) Prepared a Draft Scope of Work (RFP) for Anti Displacement Assistance g) Presentation on Report from Displaced Tenants Workgroup h) Presentation from Josh Abrams, from 21 Elements on encouraging ADUs 11

15 i) Discussion of Draft Priorities and recommendations j) Preparing updated City handouts for garage conversions In addition to the work of the Taskforce, a subcommittee of Rebuilding Together Peninsula, City Planning and Building staff, and PIA have been meeting monthly since December 2017 to bring several garage conversions built without permits into compliance. The Building Division prepared a handout titled: Garage Conversion Submittal Requirement and had the group review it. As background, since 2014, the City has approved approximately 80 ADUs since the zoning amendments were amended in 2014 to facilitate more ADUS Aug 2016 Aug Oct 2017 Total Second units Garage conversions Guest houses Total Should the City explore ways to convert Rent Stabilized Units into TCAC, deed restricted units? There are approximatey 2,500 units in the City s rent stabilization program (RSO). Approximately 1,830 of the RSO units are owned by Woodland Park Communities. However, there are individual owners who own RSO apartment complexes. These apartment complexes, which are not owned by Woodland Park, are occasionally offered on the market for sale. Staff have traditionally strongly discouraged non-profit affordable housing developers from acquiring these RSO apartment complexes due to concerns that there could be displacement due to income standards, immigration status, or occupancy standards (affordable housing funding sources have strict occupancy standards that limit the number of people who can occupy each unit to prevent overcrowding). It is possible that ownership by a non-profit affordable housing developer would be preferable to remaining in private ownership. Also, RSO units convert to market rents upon vacancy, while deed restricted TCAC affordable units rents are restricted to the income levels. There is also the concern that owners might sell them to an unsuspecting private investor who is not familiar with managing a rent-stabilized portfolio. It would require analysis of principles that would guide the acquisition of RSO units by affordable non-profit developers and how it might be accomplished to prevent displacement. Staff Recommendation: This is a complicated and sensitive issue, and staff recommend hearing from the community and the City Council on this complex issue. 12

16 7. Are there additional questions or priorities the City Council would like to be explored? Is there additional information the City Council needs to provide direction on the Affordable Housing Strategy? The AHS is a City Council policy document. There might be priorities or projects or questions that are not covered within the questions above. The City Council might require additional information to provide direction. Staff Recommendation: Staff will return in July/September with the additional information requested. Staff request that additional information be related to producing actionable priorities. The topic of affordable housing is voluminous, and staff are attempting to distill the expansive topic into manageable sections that translate into actionable priorities and policies. Staff will provide the City Council with the information necessary to make an informed policy decision. However, the decision is ultimately a policy decision that reflects the values and priorities of the City Council. Next Steps Staff will receive input and return in July/September with a Draft AFS for Council consideration. Depending on the comfort of the City Council in making the development of 965 Weeks the AHS priority, staff might be able to return with a draft RFP in September for comment and further refinement. The preparation of a final RFP for release most likely will take several meetings. Fiscal Impact NA Public Notice The public was provided notice of this agenda item by posting the City Council agenda on the City s official bulletin board outside City Hall and making the agenda and report available at the City s website and at the San Mateo Co. Library located at 2415 University Avenue, East Palo Alto. In addition, this study session was noticed through several public notices. Environmental NA 13

17 Attachments 1. Affordable Housing Options Matrix 2. East Palo Alto Affordable Housing Strategy, Background Document a) Summary of Existing Housing Conditions b) Housing Needs and Market Assessment c) Homelessness Analysis d) Affordability Gap Analysis 3. Addendum 14

18 ATTACHMENT 1 15

19 ATTACHMENT #1: EAST PALO ALTO AFFORDABLE HOUSING OPTIONS MATRIX Other Housing Programs Housing Development Target Income Level(s) AMI Target Population(s) Eligible City Sources Housing In Lieu Fees 965 Weeks (land) Anti RV Safe Drop In Center Permanent Permanent Supportive Housing with 4%/9% Displacement Parking for Homeless Emergency Transitional Rapid Supportive Drop In Center Single Room Tax Affordable Services Program (w/o housing) Shelter Housing Rehousing Housing for Homeless Occupancy Credits Ownership All All 0 30% 0 30% 0 30% 0 50% 0 30% 0 30% 0 30% 30% 50% 80% All All Homeless Homeless Homeless, Youth Homeless, Families Homeless Homeless Single Adults, Youth Families, individuals, seniors N N N Y Y Y Y Y Y Y Y N N N Y Y Y Y Y Y Y Y TOT Set Aside N N N Y Y Y Y Y Y Y Y Silicon Valley CF/CZI Water Fund Repayment N N N N Y Y Y Y Y Y??? Funds Housing Assistance Funds N N N Y Y Y Y Y Y Y Y Low Mod Successor Housing Funds Commericial Linkage Fee Catalyst Housing Fund (Facebook Settlement) Measure O/General Fund N N N Y Y Y Y Y Y Y Y N N N Y Y Y Y Y Y Y Y N N N N Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Families 16

20 Background Reports City of East Palo Alto April 10,

21 Summary of Existing Housing Conditions City of East Palo Alto March 16, 2018 Public Review Draft DAVID PAUL ROSEN & ASSOCIATES DEVELOPMENT, FINANCE AND POLICY ADVISORS 18

22 PREPARED FOR: City of East Palo Alto PREPARED BY: David Paul Rosen & Associates 3527 Mt. Diablo Blvd, #361 Lafayette, CA Hendrix Street Irvine, CA Summary of Existing Housing Conditions 19

23 TABLE OF CONTENTS A. Affordable Housing Income Levels, Rents & Home Prices Target Income Levels Affordable Rents and Home Prices... 2 a. Affordable Housing Cost Definitions... 2 b. Occupancy Standards... 3 c. Utility Allowances... 3 d. Affordable Rents and Sales Prices... 3 B. Demographic Trends and Conditions... 5 C. Existing Affordable Housing Needs and Supply... 8 D. Housing Market Conditions... 9 E. Housing Subsidy Requirements (Affordability Gap) F. Existing Local Financial Resources for Affordable Housing Summary of Existing Housing Conditions 20

24 LIST OF TABLES 1. Affordable Housing Income Limits by Percent of Area Median Income (AMI) and Household Size Affordable Net Rents by Percent of AMI and Unit Bedroom Count Affordable Home Prices by Percent of AMI and Unit Bedroom Count Comparison of Average Market and Affordable Rents Per Unit Affordability Gaps, Rental Prototypes, With and Without Low Income Housing Tax Credits, Highest Competitive Income Targeting, No Land Costs Estimated Sources and Uses, New Construction Rental Housing Prototypes with Low Income Housing Tax Credits, Highest Competitive Income Targeting, No Land Costs Per Unit Affordability Gaps, Rental Prototypes, With and Without Low Income Housing Tax Credits, Lower Income Targeting, No Land Costs Estimated Sources and Uses, New Construction Rental Housing Prototypes with Low Income Housing Tax Credits, Lower Income Targeting, No Land Costs Per Unit Affordability Gaps, Rental Prototypes, With and Without Low Income Housing Tax Credits Highest Competitive Income Targeting, Land Costs at $40/SF Estimated Sources and Uses, New Construction Rental Housing Prototypes with Low Income Housing Tax Credits, Highest Competitive Targeting, Land Costs at $40/SF Per Unit Affordability Gaps, Rental Prototypes, With and Without Low Income Housing Tax Credits, Lower Income Targeting, Land Costs at $40/SF Summary of Existing Housing Conditions 21

25 12. Estimated Sources and Uses, New Construction Rental Housing Prototypes with Low Income Housing Tax Credits, Lower Income Targeting, Land Costs at $40/SF Owner Per Unit Affordability Gaps, Townhome Prototype Available City Funds for Affordable Housing, City of East Palo Alto, June 30, Annually Recurring City Funds for Affordable Housing, City of East Palo Alto Section 8 Housing Choice Voucher Program, Housing Authority of the County of San Mateo LIST OF CHARTS 1. Race and Ethnicity, East Palo Alto and San Mateo County Income Distribution, City of East Palo Alto Income Distribution by % of AMI, City of East Palo Alto Cost-Burdened Households by Income Level Distribution by Rental Housing Units by Rent Paid Summary of Existing Housing Conditions 22

26 Summary of Existing Housing Conditions DRA was retained by the City of East Palo to prepare a Comprehensive Affordable Housing Strategy for the City. This report summarizes the analysis of existing housing conditions in East Palo Alto prepared by DRA as the basis for developing recommended policies and programs to further the production and preservation of affordable housing to best meet the City s needs within existing resource and land constraints. The analysis of existing conditions is detailed in a series of Appendix Reports presented under separate cover. These Appendices are as follows: Affordable Housing Needs Assessment Affordability Gap Analysis Homelessness Analysis Residential Real Estate Market Conditions Key findings from the analysis of existing conditions are summarized below. A. Affordable Housing Income Levels, Rents & Home Prices This section defines affordable housing income levels, rents and home prices in East Palo Alto. 1. Target Income Levels This study uses income limits as commonly defined by the Department of Housing and Urban Development (HUD), the Low Income Housing Tax Credit (LIHTC) Program, and most affordable housing assistance programs. These definitions as a percentage of Area Median Income (AMI) are as follows: Extremely low income: Less than 30% Very low income: 30% to 50% Low income: 50% to 80% Moderate income: 80% to 120% All of these income limits are adjusted by household size using HUD s household size adjustment factors. Table 1 shows 2017 household income limits by percentage of the City s AMI by household size, using the HUD income categories defined above. The 2017 HUD Summary of Existing Housing Conditions 1 23

27 median household income for the San Francisco HUD Metro FMR Area (HMFA) 1 is $115,300 for a four-person household. However, the extremely low (30% AMI), very low (50% AMI) and low income (80% AMI) limits have been adjusted upwards because the Bay Area is a high housing cost area. These limits are effectively based on a median income of about $131,600. For a single person household earning 30% of AMI, the annual income limit translates into an hourly wage of approximately $13.30 on a full-time basis. Table 1 Affordable Housing Income Limits by Percent of Area Median Income (AMI) and Household Size 1 City of East Palo Alto 2017 Household Size Income Category 1 Person 2 Persons 3 Persons 4 Persons 5 Persons 6 Persons 30% AMI $27,650 $31,600 $35,550 $39,500 $42,700 $45,850 50% AMI $46,100 $52,650 $59,250 $65,800 $71,100 $76,350 60% AMI $55,320 $63,180 $71,100 $78,960 $85,320 $91,620 80% AMI $73,750 $84,300 $94,850 $105,300 $113,800 $122, % AMI $80,700 $92,200 $103,770 $115,300 $124,500 $133, % AMI $96,850 $110,700 $124,500 $138,350 $149,400 $160,500 Source: San Mateo County 2017 published income limits; DRA. 2. Affordable Rents and Home Prices a. Affordable Housing Cost Definitions Calculation of affordable rents and home prices requires defining affordable housing expense for renters and owners. For this study, affordable housing expense for renters is defined to include rent plus utilities, which is standard for affordable housing programs and practice. For owners, affordable housing expense is defined to include mortgage principal and interest, property taxes, homeowner s insurance, homeowners/condominium association fees, and utilities. Affordable housing expense is calculated at 30% of household income for renters and owners. 1 FMR stands for Fair Market Rent. The San Francisco HMFA as defined by HUD includes San Francisco, Marin and San Mateo Counties. Summary of Existing Housing Conditions 2 24

28 b. Occupancy Standards Because income definitions for affordable housing assistance programs vary by household size, calculation of affordable rents and sales prices requires the definition of occupancy standards (the number of persons per unit) for each unit size. For the purposes of this analysis, affordable housing cost renters is based on an occupancy standard of 1.5 persons per bedroom (1 person for studio units) or, for example, 3 persons in a two-bedroom unit. This definition is consistent with the Low Income Housing Tax Credit and tax-exempt bond programs, which are the most valuable leverage sources for affordable rental housing. For owner housing, affordable housing cost is calculated based on an occupancy standard of one person per bedroom plus one or, for example, 4 persons in a three-bedroom unit. c. Utility Allowances Affordable net rents are calculated by subtracting allowances for the utilities paid directly by the tenants from the gross rent (or renter affordable housing cost). For purposes of the gap analysis, we incorporated utility allowances effective November 1, 2017 from the Housing Authority of the County of San Mateo. d. Affordable Rents and Sales Prices Table 2 summarizes affordable monthly net rents by income level and unit bedroom count. Table 3 shows affordable home prices by income level and unit bedroom count. Summary of Existing Housing Conditions 3 25

29 Table 2 Affordable Net Rents by Percent of AMI and Unit Bedroom Count 1 City of East Palo Alto Housing Affordability Gap Analysis 2017 Studio 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 30% of AMI $644 $685 $812 $927 $1,024 50% of AMI $1,105 $1,179 $1,405 $1,612 $1,787 60% of AMI $1,335 $1,426 $1,701 $1,954 $2,169 80% of AMI $1,795 $1,919 $2,293 $2,638 $2, % of AMI $2,256 $2,413 $2,885 $3,323 $3, % of AMI $2,717 $2,906 $3,477 $4,007 $4,459 1 San Mateo County published 2017 income limits. Assumes an occupancy standard of 1.5 persons per bedroom. Net rents are calculated assuming 30% of gross income spent on rent and then deducting apartment utility allowances from the Housing Authority of San Mateo County of $47 for a studio, $55 for a one-bedroom unit, $76 for a two-bedroom unit, $99 for a three-bedroom unit, and $121 for a four-bedroom unit (assuming electric heating, cooking and water heating plus other electric) HUD median income was $115,300. Sources: HUD; San Mateo County; Housing Authority of the County of San Mateo; DRA. Table 3 Affordable Home Prices by Percent of AMI and Unit Bedroom Count 1 City of East Palo Alto Housing Affordability Gap Analysis 2017 Unit Size 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 50% of AMI $118,200 $135,900 $153,000 $165,300 60% of AMI $156,000 $178,500 $200,300 $216,200 80% of AMI $231,600 $263,500 $294,800 $318, % of AMI $307,000 $359,300 $401,400 $536, % of AMI $413,000 $466,300 $517,500 $688,400 1 Affordable mortgage principal and interest calculated by deducting the following from affordable owner monthly housing cost: annual property taxes and assessments at 1.20% of affordable home price; HOA dues of $200 per month, property insurance of $100 per month, and utilities of $132, $168, $208 and $249 for one- through four-bedroom units, respectively. Affordable mortgage calculated assuming 5% owner downpayment, 5.0% mortgage interest rate and 30-year mortgage term and amortization. Source: HUD; San Mateo County; DRA. Summary of Existing Housing Conditions 4 26

30 B. Demographic Trends and Conditions Key findings from the analysis of demographic trends and conditions are summarized as follows: The populations of East Palo Alto and San Mateo County declined between 2000 and 2010, but have increased since The population of East Palo Alto has grown at a slightly lower rate than surrounding communities since 2010 (4.6% annually for East Palo Alto; 6.26% for San Mateo County). East Palo Alto s population has grown since 2010 even though the City added no new housing over this period, due in large part to the moratorium on new development resulting from a lack of available water. The result is an increase in the household size in East Palo Alto from 4.04 persons per household in 2010 to 4.25 persons per household in This compares to an average household size of 2.90 persons countywide in The high persons per household in East Palo Alto is an indication of overcrowding, as households double up to reduce housing costs. East Palo Alto has a higher proportion of Hispanic, Black, and Hawaiian/Pacific Islander residents and a smaller proportion of White and Asian residents than the County as a whole. (See Chart 1). Chart 1: Race and Ethnicity, East Palo Alto and San Mateo County 3% 4% 7% 6% 16% 65% 4% 25% 1% 42% 3% 25% Other Asian Hawaiian/Pacific Islander White Black Hispanic East Palo Alto San Mateo County Source: Census 2010; City of East Palo Alto; DRA. Summary of Existing Housing Conditions 5 27

31 East Palo Alto is comprised of 65% renter households and 35% owner households. The City has a 20% to 25% higher proportion of renter households and a correspondingly lower proportion of owner households than Palo Alto, Menlo Park and San Mateo County as a whole. East Palo Alto households have much lower incomes than those of surrounding communities and San Mateo County as a whole. Nearly one quarter (22%) of East Palo Alto s households have incomes less than $24,999, which equals only 28% of the San Mateo County median household income in Another 47% of East Palo Alto s households earn between $25,000 and $75,000. The remaining third of households (31%) have incomes of $75,000 or more. (See Chart 2). Chart 2 Income Distribution City of East Palo Alto % 20% 15% 10% 22.40% 14.9% 15.6% 16.0% 10.1% 21.2% 5% 0% <$24,999 $25,000 to $34,999 $35,000 to $49,999 $50,000 to $74,999 $75,000 to >$100,000 $99,999 Source: 2015 ACS 5-year estimates; DRA East Palo Alto s renter households have significantly lower incomes than its owner households. Over one-third of renter households in East Palo Alto had incomes at or below 30% of area median income, placing them in the extremely low income category, compared to only 12% of owner households. Nearly another third (31%) of renter households are very low income, with incomes below 50% of AMI. Less than 17% of the City s renter households have incomes above 80% AMI, compared to 28% of owner households. (See Chart 3). Summary of Existing Housing Conditions 6 28

32 Source: 2013 HUD CHAS data; DRA. East Palo Alto is primarily a residential community with a relatively small base of jobs and modest projections of employment growth. In 2014, the City contained about 2,700 jobs, or less than 1% of total employment in the market area comprised of East Palo Alto, Menlo Park, Redwood City, Palo Alto, Los Altos and Mountain View. This market area is projected to add about 80,000 jobs between 2010 and The City of East Palo Alto is expected to add about 880 jobs over the same time period. East Palo Alto has 0.23 jobs per employed resident the lowest jobs per employed resident ratio in the Bay Area. The City s tax base is shallow and lacks diversity. Both of these factors reflect East Palo Alto s limited economic development. East Palo Alto s poverty and uninsured rates are about three times higher than those of Palo Alto and Menlo Park. The unemployment rate in East Palo Alto is nearly double those of these other two cities, though it is still low at 5%. Summary of Existing Housing Conditions 7 29

33 C. Existing Affordable Housing Needs and Supply Key findings from the housing needs assessment are summarized as follows: According to the Department of Housing and Urban Development s (HUD s) standard, households paying more than 30% of their gross income on housing costs are considered to be cost-burdened (paying more than they can afford for housing) and households paying more than 50% of gross income on housing are considered severely cost-burdened. Nearly all of the City s households earning less than 30% of AMI are cost burdened (95%) and three-quarters are severely cost-burdened. (See Chart 4). For households earning between 30% and 50% of AMI, three-quarters are costburdened and almost one-third are severely cost-burdened. The City has a total of 1,695 renter households paying more than half of their income on housing. (See Chart 4). 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Chart 4 Cost-Burdened Households by Income Level City of East Palo Alto 2009 to % 74.10% 74.80% 33.60% 51.20% 12.50% 30% 30% to 50% 50% to 80% Source: 2013 HUD CHAS data; DRA. HH Paying Greater Than 30% of Income on Housing HH Paying Greater Than 50% of Income on Housing Summary of Existing Housing Conditions 8 30

34 HUD tracks data on housing problems, including incomplete kitchen facilities, incomplete plumbing facilities, more than 1 person per room and cost burden greater than 50%. In East Palo Alto, more than 1,500 renter households with incomes at or below 30% of AMI, and more than 3,000 renter households with income at or below 80% of AMI, had at least one of these housing problems. HUD defines overcrowding, for the purposes of the U.S. Census, as more than one person per room, excluding bathrooms and kitchens. In 2015, approximately one-third (32%) of East Palo Alto s renter households are overcrowded based on the HUD standard, including nearly one-fifth with more than 1.5 persons per room. Based on data from the National Housing Preservation Database as of September 2017, East Palo Alto has a total of 20 affordable housing projects comprising 627 housing units. The subsidy end date for some of these projects has already expired, so they may no longer be affordable. Housing units subsidized through the Low Income Housing Tax Credit Program (referred to as LIHTC or tax credit units) comprise 6.2% of all housing units in East Palo Alto. This is a higher percentage than San Jose, San Francisco, Palo Alto, Santa Clara County, Menlo Park and San Mateo County. D. Housing Market Conditions Based on data from the American Community Survey (ACS) on the distribution of rental housing units in East Palo Alto by the amount of rent paid and the countywide definition of affordability, approximately half (54%) of East Palo Alto s rental units are affordable to very low and low income households, and almost three-quarters are affordable at the low income level. East Palo Alto s Rent Stabilization and Eviction for Good Cause Ordinance, passed in 2010, has certainly played a role in keeping rents lower than they would otherwise be. However, given the City s much lower incomes compared to the County, most rental units are not affordable to the City s residents, as indicated in the costburden data described above. (See Chart 5). Summary of Existing Housing Conditions 9 31

35 Chart 5 Distribution of Rental Housing Units by Rent Paid City of East Palo Alto Less than $500 $500 to $749 $750 to $999 $1,000 to $1,499 $1,500 to $1,999 $2,000 to $2,499 $2,500 to $2,999 $3,000 or More Source: ACS five-year data; DRA. A comparison of current asking rents for larger apartment properties in East Palo Alto indicate that affordable one-bedroom and two-bedroom rents for moderate income households at 100% of Area Median Income (AMI) are well below average apartment rents in East Palo Alto. For households at 100% of AMI, only affordable rents for studios exceed average market rents. For very low and low income households with incomes below 100% of AMI, the gaps between affordable rents and market rents are substantial. (see Table 4). Summary of Existing Housing Conditions 10 32

36 Very Low Income 50% AMI Table 4 Comparison of Average Market and Affordable Rents City of East Palo Alto 2017 Average Affordable Rent HUD 2018 Low Income 60%AMI Low Income 80% AMI Moderate Income 100% AMI FMR San Mateo Co. 1 Ave. EPA Market Apartment Rent Studio $1,106 $1,336 $1,797 $1,971 $2,335 $1,825 1 Bedroom $1,261 $1,525 $2,053 $2,107 $2,728 $2,383 2 Bedroom $1.405 $1,702 $2,295 $2,518 $3,351 $3,000 3 Bedroom $1,546 $1,875 $2,534 $2,899 $3,925 N/A N/A = Not available (too few units available). 1 From HUD FY 2018 Fair Market Rent Summary, San Mateo County. Sources: DRA. Asking rents in East Palo remain lower than average County rents, but the gap closed substantially between 2013 and From 2013 to 2017, East Palo Alto average asking rents increased much faster than countywide rents, at rates of 15% to 19% in the City compared to 7% to 12% in the County for studio, one-bedroom and two-bedroom units. While San Mateo County average asking rents were 36% to 93% higher than rents in East Palo Alto in 2011 and 2013, by 2017 the gap has narrowed to 12% to 22%, depending upon unit bedroom count. 1 The for-sale housing market East Palo Alto was hit hard by the Great Recession but has recovered, with home prices now exceeding pre-recession values. The estimated current median home value in East Palo Alto is $807,700, up from a low of $296,000 in 2010 and the pre-recession peak of $627,000 in Foreclosure rates in East Palo Alto peaked at 64.5 homes per 10,000 in 2008, a rate almost six times the County average and 60 times the rate in Palo Alto for the same time period. 1 The difference in data sources for 2011 and 2013 (REALFACTS) compared to 2017 (Rentcafe.com) may account for some of this difference (REALFACTS data is no longer available), but DRA comparison of rents at individual apartment properties in East Palo Alto over the 2011 to 2017 period substantiates the fact that East Palo Alto rents have increased more rapidly than rents in the county as a whole. Summary of Existing Housing Conditions 11 33

37 Home prices in East Palo Alto remain well below prices in neighboring communities. The 2017 median home value in East Palo Alto ($807,700) is only 30% of the median home value in Palo Alto ($2.6 million) and 67% of the County-wide median ($1.2 million). E. Housing Subsidy Requirements (Affordability Gap) The affordability gap analysis compares the cost of developing housing in the City with the amount very low, low, and moderate income households can afford to pay for housing. The affordability gap represents the capital subsidy required to develop housing affordable to families at these target income levels. DRA estimated the costs to build new rental and owner housing prototypes based on a review of historical project cost data and analysis of 2017 applications for the Low Income Housing Tax Credit program. DRA modeled an owner townhome prototype at a density of 20 units per acre (Prototype #1) and three rental prototypes at a density of 54 units per acre (Prototypes #2 through #4). The rental prototypes are modeled on the City-owned site at 965 Weeks Street assuming a 35% density bonus. These three prototypes assume surface, mixed surface/structured, and structured parking, respectively, to illustrate the impact of parking costs on the gap. The Low Income Housing Tax Credit Program (LIHTC or tax credits) is the most valuable source of leveraged financing for affordable rental housing available today. While 9% tax credits are highly competitive, 4% tax credits are provided noncompetitively to projects receiving an allocation of tax-exempt bonds, which typically are undersubscribed. DRA estimated the funding gaps for the rental prototypes with and without leverage with 9% tax credits and 4% tax credits with tax-exempt bonds. Since the City owns the Weeks Street site, no land costs were assumed in the rental gap analysis. The Weeks Street site is located in a Qualified Census Tract (QCT), qualifying it for a 30% bonus in eligible basis, increasing potential tax credit equity and reducing the funding gap. Based on the assumptions modelled, there is no funding gap for the 9% tax credit scenarios with the basis boost. However, it should be noted that these are preliminary results that do not take into consideration scoring criteria for 9% LIHTC applications that may require additional local funding (in addition to nominal ground lease) to maximize tie-breaker scoring in order to win an allocation. Table 5 shows the per unit gaps assuming maximum income targeting to be competitive under 4% and 9% tax credits. Table 6 summarizes estimated sources Summary of Existing Housing Conditions 12 34

38 and uses under tax credit financing scenarios for the rental housing prototypes based on this income targeting. Table 7 shows the per unit gaps at an alternative lower income targeting assuming one-third of units affordable at 30% AMI, one-third of units at 45% AMI and onethird at 50% AMI. Table 8 summarizes tax credit sources and uses based on the lower income targeting. Table 8 through 11 repeat the financing analysis adding $40 per square foot, assuming development on a different site in the City. Tables 8 and 9 assume the highest competitive income targeting, and Tables 10 and 11 assume lower income targeting of one-third of units affordable at 30% AMI, one-third of units at 45% AMI and one-third at 50% AMI. Table 5 Per Unit Affordability Gaps Rental Prototypes With and Without Low Income Housing Tax Credits Highest Competitive Income Targeting No Land Costs City of East Palo Alto Affordability Gap Analysis % Tax Credits w/ Tax-Exempt Bonds 2 9% Tax Credits 3 No Tax Credits 1 w/o Basis Boost w/ Basis Boost 4 w/o Basis Boost w/ Basis Boost 4 Prototypes #2: Family Apts; Surface Parking $182,600 $78,900 $52,500 $0 $0 #3: Large Family Apts; Mixed $247,800 $116,300 $88,600 $2,200 $0 Parking #4: Large Family Apts; Structured $308,800 $155,700 $118,900 $21,000 $0 Parking Assumes development on City-owned weeks site under ground lease; no land costs. 1 Assumes 100% of units at 60% AMI. 2 Assumes 20% of units at 50% AMI and 80% of units at 60% AMI. 3 Assumes 10% of units at 30% AMI, 25% of units at 45% AMI, and 65% of units at 50% AMI. 4 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) The City-owned Weeks site is in a QCT. Source: DRA. Summary of Existing Housing Conditions 13 35

39 Table 6 Estimated Sources and Uses New Construction Rental Housing Prototypes With Low Income Housing Tax Credits 1 Highest Competitive Income Targeting No Land Costs City of East Palo Alto Affordability Gap Analysis 2017 Prototype #2 Family Surface Parking 4% Tax Credits, Bonds 9% Tax Credits Prototype 3 Large Family Mixed Parking 4% Tax Credits, Bonds 9% Tax Credits Prototype #4 Large Family Structured Parking 4% Tax Credits, Bonds 9% Tax Credits Tax Credit Equity $15.4 M $29.5 M $18.2 M $37.6 M $21.5 M $45.0 M Permanent Mortg./Bond $19.3 M $12.1 M $20.8 M $13.3 M $20.8 M $13.2 M Financing Gap $7.1 M $0 $12.0 M $0 $16.1 M $0 Total Develop. Cost (TDC) $41.8 M $41.6 M $51.0 M $50.8 M $58.4 M $58.2 M Financing Gap Per Unit 1 $52,500 $0 $88,600 $0 $118,900 $0 Note: See Table 5 footnotes for income targeting. Assumes development on City-owned weeks site under ground lease; no land costs. 1 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) and no land costs. The City-owned Weeks site is in a QCT. Source: DRA. Summary of Existing Housing Conditions 14 36

40 Prototypes Table 7 Per Unit Affordability Gaps Rental Prototypes With and Without Low Income Housing Tax Credits Lower Income Targeting 1 No Land Costs City of East Palo Alto Affordability Gap Analysis % Tax Credits w/ Tax-Exempt Bonds No Tax Credits 1 w/o Basis Boost w/ Basis Boost 2 9% Tax Credits w/o Basis Boost w/ Basis Boost 2 #2: Family Apts; Surface Parking $250,000 $146,700 $120,300 $15,900 $0 #3: Large Family Apts; Mixed $318,600 $186,600 $159,000 $22,200 $0 Parking #4: Large Family Apts; Structured Parking $379,600 $226,100 $189,300 $41,000 $0 Assumes development on City-owned weeks site under ground lease; no land costs. 1 Assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. 2 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) and no land costs. The City-owned Weeks site is in a QCT. Source: DRA. Summary of Existing Housing Conditions 15 37

41 Table 8 Estimated Sources and Uses New Construction Rental Housing Prototypes With Low Income Housing Tax Credits 1 Lower Income Targeting 2 No Land Costs City of East Palo Alto Affordability Gap Analysis 2017 Prototype #2 Family Surface Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Prototype 3 Large Family Mixed Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Prototype #4 Large Family Structured Parking 4% Tax Credits, Bonds 9% Tax Credits 2 Tax Credit Equity $15.4 M $32.2 M $18.2 M $40.3 M $21.5 M $47.7 M Permanent Mortg./Bond $10.1 M $9.5 M $11.3 M $10.5 M $11.3 M $10.5 M Financing Gap $16.2 M $0 $21.5 M $0 $25.6 M $0 Total Develop. $41.8 M $41.6 M $51.0 M $50.8 M $58.4 M $58.2 M Cost (TDC) Financing Gap Per Unit 1 $120,300 $0 $159,000 $0 $189,300 $0 1 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) and no land costs. The City-owned Weeks site is in a QCT. 2 Assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. Source: DRA. Summary of Existing Housing Conditions 16 38

42 Prototypes Table 9 Per Unit Affordability Gaps Rental Prototypes With and Without Low Income Housing Tax Credits Highest Competitive Income Targeting 1 Land Costs at $40 Per Square Foot City of East Palo Alto Affordability Gap Analysis % Tax Credits w/ Tax-Exempt Bonds 2 9% Tax Credits 3 No Tax Credits 1 w/o Basis Boost w/ Basis Boost 4 w/o Basis Boost w/ Basis Boost 4 #2: Family Apts; Surface Parking $218,400 $111,400 $85,000 $28,600 $0 #3: Large Family Apts; Mixed $283,600 $148,800 $121,200 $34,700 $0 Parking #4: Large Family Apts; Structured Parking $344,600 $188,300 $151,400 $53,500 $0 Assumes land costs of $40 per square foot. 1 Assumes 100% of units at 60% AMI. 2 Assumes 20% of units at 50% AMI and 80% of units at 60% AMI. 3 Assumes 10% of units at 30% AMI, 25% of units at 45% AMI, and 65% of units at 50% AMI. 4 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) and land costs at The City-owned Weeks site is in a QCT. Source: DRA. Summary of Existing Housing Conditions 17 39

43 Table 10 Estimated Sources and Uses New Construction Rental Housing Prototypes With Low Income Housing Tax Credits 1 Highest Competitive Targeting 2 Land Costs at $40 Per Square Foot City of East Palo Alto Affordability Gap Analysis 2017 Prototype #2 Family Surface Parking 4% Tax Credits, Bonds 9% Tax Credits Prototype 3 Large Family Mixed Parking 4% Tax Credits, Bonds 9% Tax Credits Prototype #4 Large Family Structured Parking 4% Tax Credits, Bonds 9% Tax Credits Tax Credit Equity $15.4 M $33.9 M $18.2 M $41.9 M $21.5 M $49.3 M Permanent Mortg./Bond $19.3 M $12.1 M $20.8 M $13.3 M $20.8 M $13.2 M Financing Gap $11.5 M $0 M $16.4 M $0 $20.4 M $0 Total Develop. $46.2 M $46.0 M $55.4 M $55.2 M $62.8 M $62.6 M Cost (TDC) Financing Gap Per Unit 1 $85,000 $0 $121,000 $0 $151,400 $0 1 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) and no land costs. 2 Assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. Source: DRA. Summary of Existing Housing Conditions 18 40

44 Prototypes Table 11 Per Unit Affordability Gaps Rental Prototypes With and Without Low Income Housing Tax Credits Lower Income Targeting 1 Land Costs at $40 Per Square Foot City of East Palo Alto Affordability Gap Analysis % Tax Credits w/ Tax-Exempt Bonds No Tax Credits 1 w/o Basis Boost w/ Basis Boost 2 9% Tax Credits w/o Basis Boost w/ Basis Boost 2 #2: Family Apts; Surface Parking $286,600 $179,200 $152,800 $48,400 $0 #3: Large Family Apts; Mixed $354,400 $219,200 $191,500 $54,700 $0 Parking #4: Large Family Apts; Structured Parking $415,400 $258,700 $221,800 $73,500 $0 Assumes land costs of $40 per square foot. 1 Assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. Source: DRA. 2 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) Source: DRA. Summary of Existing Housing Conditions 19 41

45 Table 12 Estimated Sources and Uses New Construction Rental Housing Prototypes With Low Income Housing Tax Credits 1 Lower Targeting 2 Land Costs at $40 Per Square Foot City of East Palo Alto Affordability Gap Analysis 2017 Prototype #2 Family Surface Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Prototype 3 Large Family Mixed Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Prototype #4 Large Family Structured Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Tax Credit Equity $15.4 M $36.6 M $18.2 M $44.7 M $21.5 M $52.1 M Permanent Mortg./Bond $10.1 M $9.5 M $11.3 M $10.5 M $11.3 M $10.5 M Financing Gap $20.6 M $0 $25.9 M $0 $0 $0 Total Develop. $46.2 M $46.0 M $55.4 M $55.2 M $62.8 $62.6 Cost (TDC) Financing Gap Per Unit 1 $153,000 $0 $191,500 $0 $221,800 $0 1 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA). 2 Assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. Source: DRA. Summary of Existing Housing Conditions 20 42

46 Owner affordability gaps for the townhome prototype are shown in Table 13. There are few non-local leveraged financing resources for affordable owner housing development. Table 13 Owner Per Unit Affordability Gaps Townhome Prototype (Prototype #1) City of East Palo Alto Affordability Gap Analysis 2017 Very Low Income Low Income Moderate Income Two Bedrooms $230,400 $187,800 $102,800 Three Bedrooms $294,700 $247,400 $152,900 Average 1 $281,800 $235,500 $142,900 1 Weighted average based on the unit distribution by bedroom count for the owner housing prototype. Source: DRA. Summary of Existing Housing Conditions 21 43

47 F. Existing Local Financial Resources for Affordable Housing Table 14 summarizes existing City funds that could be used for affordable housing projects. Table 15 describes annually recurring City funds for affordable housing and estimated annual revenues by source. Table 14 Available City Funds for Affordable Housing City of East Palo Alto June 30, 2017 Description Fund Cost Center Net Reserve 6/30/17 1. Housing In-Lieu Fees 207 $6,242, Transient Occupancy Tax Housing Set-Aside 207 A11 $1,547, SVCF Funds Housing Assistance Funds 209 $291, Low Mod Successor Housing Funds $606, Office/Industrial Linkage Fee -- Subtotal $8,688, Catalyst Housing Fund (FB Settlement) $10,00,000 Source: City of East Palo Alto; DRA. Summary of Existing Housing Conditions 22 44

48 Table 15 Annually Recurring City Funds for Affordable Housing City of East Palo Alto Description Description of Annual Activity Est. Annually Recurring 1.Housing In-Lieu Fees Varies with Development -- 2.Transient Occupancy Tax Annual TOT Set-Aside $280,000 Housing Set-Aside 3. SVCF Funds Repayments from Capacity -- Fee Up to $2M 4. Housing Assistance Funds BMR Loan Repayments/ $7,500 Pay-Offs 5. Low Mod Successor Housing Varies with Development $25,000 Funds 6. Office/Industrial Linkage Fee Varies with Development -- Subtotal $312, Measure O Current Set Aside $425,000 *During FY Council set-aside $425,000 for certain housing activities. This tax is not a funding source for affordable housing. It is a general tax. Source: City of East Palo Alto; DRA East Palo Alto does not meet threshold size criteria to receive its own allocation of CDBG or HOME funds, but participates in the San Mateo County HOME Consortium for three federal entitlement programs: CDBG, HOME and Emergency Solutions Grant (ESG). The County s FY 2017 allocations were: CDBG $2,379,680 HOME $1,113,097 ESG $206,692 According to the latest Voucher Management System (VMS) report, San Mateo County Housing Authority manages 4,362 active Housing Choice Vouchers. Table 16 summarizes the types of vouchers managed and the monthly cost of each. Summary of Existing Housing Conditions 23 45

49 Housing Needs and Market Assessment City of East Palo Alto March 16, 2018 Public Review Draft DAVID PAUL ROSEN & ASSOCIATES DEVELOPMENT, FINANCE AND POLICY ADVISORS 46

50 PREPARED FOR: City of East Palo Alto PREPARED BY: David Paul Rosen & Associates 3527 Mt. Diablo Blvd, #361 Lafayette, CA Hendrix Street Irvine, CA Housing Needs and Market Assessment 47

51 A. Affordable Housing Income Levels, Rents & Home Prices Target Income Levels Affordable Rents and Home Prices... 2 a. Affordable Housing Cost Definitions... 2 b. Occupancy Standards... 2 c. Utility Allowances... 3 d. Affordable Rents and Sales Prices... 3 B. Demographic Trends and Conditions Population Race and Ethnicity Household Tenure Households, Household Size, and Size of Housing Units Household Income Distribution Local Economy a. Employment Trends and Projections b. Tax Base c. Poverty and Unemployment C. Existing Housing Needs Overpayment Substandard Housing Conditions Overcrowding D. Housing Supply Housing Inventory and Building Trends Existing Affordable Housing Supply E. Housing Market Conditions Rental Housing Market Conditions a. Distribution of Market Rents b. Apartment Asking Rents c. Comparison of Market and Affordable Rents For-Sale Housing Market Conditions a. Market Home Price and Foreclosure Trends b. Single-Family Home and Condominium Sales Prices c. Comparison of Market and Affordable Sales Prices Growth in Median Income, Housing Rents & Home Values 34 Housing Needs and Market Assessment 48

52 List of Tables 1. Affordable Housing Income Limits by Percent of Area Median Income (AMI) and Household Size Affordable Net Rents by Percent of AMI and Unit Bedroom Count Affordable Home Prices by Percent of AMI and Unit Bedroom Count Total Household Population Households by Tenure Households by Household Size and Tenure Comparison of Renter Housing Unit Size and Household Size Household Income Distribution Distribution of Households by Income Level & Tenure Employment Trends and Projections Cost-Burdened Households by Income Level Households with Severe Housing Problems Overcrowded Households by Household Tenure Housing Units by Type Subsidized Housing Tax Credit Affordable Housing Units as a Percent of Total Housing Units Distribution of Rental Housing Units by Rent Paid Average Asking Rents by Unit Bedroom Count Annual Increase in Average Asking Rents Percentage by Which San Mateo County Average Rents Exceed East Palo Alto Rents Comparison of Average Market and Affordable Rents Foreclosure Rates Housing Needs and Market Assessment 49

53 23. Trends in Median Home Values Trends in Median Home Values by Type of Home Single-Family Home Prices Condominium Sales Prices Affordability of Existing Home Sales Growth Rates in AMI, Market Rents and Sales Prices Housing Needs and Market Assessment 50

54 List of Charts 1. Race and Ethnicity Income Distribution Income Distribution by Percent of AMI Lowest and Highest Jobs Per Employed Resident in Core Bay Area Per Capita Property, Sales & Hotel Taxes Poverty & Unemployment Cost-Burdened Households by Income Level Tax Credit Housing Distribution by Rental Housing Units by Rent Paid Housing Needs and Market Assessment 51

55 Housing Needs and Market Assessment This report summarizes key demographic characteristics and measures of affordable housing need in the City of East Palo Alto, in comparison to other communities in San Mateo County and the San Francisco Bay area. A. Affordable Housing Income Levels, Rents & Home Prices This section defines affordable housing income levels, rents and home prices used in the affordable housing analysis. More detail on the methodology and assumptions used in calculating affordable rents and sales prices is provided under separate cover in the Affordability Gap Analysis report. 1. Target Income Levels This study uses income limits as commonly defined by the Department of Housing and Urban Development (HUD), the Low Income Housing Tax Credit (LIHTC) Program, and most affordable housing assistance programs. These definitions, as a percentage of Area Median Income (AMI), are as follows: Extremely low income: Less than 30% Very low income: 30% to 50% Low income: 50% to 80% Moderate income: 80% to 120% All of these income limits are adjusted by household size using HUD s household size adjustment factors. Table 1 shows 2017 household income limits by percentage of the City s AMI by household size, using the HUD income categories defined above. The 2017 HUD median household income for the San Francisco HUD Metro FMR Area (HMFA) 1 is $115,300 for a four-person household. However, the extremely low (30% AMI), very low (50% AMI) and low income (80% AMI) limits have been adjusted upwards because the Bay Area is a high housing cost area. These limits are effectively based on a median income of about $131, FMR stands for Fair Market Rent. The San Francisco HMFA is a HUD-defined metropolitan area. Housing Needs and Market Assessment 1 52

56 Income Category Table 1 Affordable Housing Income Limits by Percent of Area Median Income (AMI) and Household Size 1 City of East Palo Alto 2017 Household Size 1 Person 2 Persons 3 Persons 4 Persons 5 Persons 6 Persons 30% AMI $27,650 $31,600 $35,550 $39,500 $42,700 $45,850 50% AMI $46,100 $52,650 $59,250 $65,800 $71,100 $76,350 60% AMI $55,320 $63,180 $71,100 $78,960 $85,320 $91,620 80% AMI $73,750 $84,300 $94,850 $105,300 $113,800 $122, % AMI $80,700 $92,200 $103,770 $115,300 $124,500 $133, % AMI $96,850 $110,700 $124,500 $138,350 $149,400 $160,500 Source: San Mateo County 2017 published income limits; DRA. 2. Affordable Rents and Home Prices a. Affordable Housing Cost Definitions Calculation of affordable rents and home prices requires defining affordable housing expense for renters and owners. For this study, affordable housing expense for renters is defined to include rent plus utilities, which is standard for affordable housing programs and practice. For owners, affordable housing expense is defined to include mortgage principal and interest, property taxes, homeowner s insurance, homeowners/condominium association fees, and utilities. Affordable housing expense is calculated at 30% of household income for renters and owners. b. Occupancy Standards Because income definitions for affordable housing assistance programs vary by household size, calculation of affordable rents and sales prices require the definition of occupancy standards (the number of persons per unit) for each unit size. For the purposes of this analysis, affordable housing cost for renters is based on an occupancy standard of 1.5 persons per bedroom 1 or, for example, 3 persons in a two-bedroom unit. This definition is consistent with the Low Income Housing Tax Credit and taxexempt bond programs, which are the most valuable leverage sources for affordable 1 The occupancy standard for studio units is one person. Housing Needs and Market Assessment 2 53

57 rental housing. For owner housing, affordable housing cost is calculated based on an occupancy standard of one person per bedroom plus one or, for example, 4 persons in a three-bedroom unit. c. Utility Allowances Affordable net rents are calculated by subtracting allowances for the utilities paid directly by the tenants from the gross rent (or renter affordable housing cost). For purposes of the renter gap analysis, we incorporated utility allowances effective November 1, 2017 from the Housing Authority of the County of San Mateo. d. Affordable Rents and Sales Prices Table 2 summarizes affordable monthly net rents by income level and unit bedroom count. Table 3 shows affordable home prices by income level and unit bedroom count. Table 2 Affordable Net Rents by Percent of AMI and Unit Bedroom Count 1 City of East Palo Alto Housing Affordability Gap Analysis 2017 Studio 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 30% of AMI $644 $685 $812 $927 $1,024 50% of AMI $1,105 $1,179 $1,405 $1,612 $1,787 60% of AMI $1,335 $1,426 $1,701 $1,954 $2,169 80% of AMI $1,795 $1,919 $2,293 $2,638 $2, % of AMI $2,256 $2,413 $2,885 $3,323 $3, % of AMI $2,717 $2,906 $3,477 $4,007 $4,459 1 San Mateo County published 2017 income limits. Assumes an occupancy standard of 1.5 persons per bedroom (1 person for studio units). Net rents are calculated assuming 30% of gross income spent on rent and then deducting apartment utility allowances from the Housing Authority of San Mateo County of $47 for a studio, $55 for a one-bedroom unit, $76 for a two-bedroom unit, $99 for a three-bedroom unit, and $121 for a four-bedroom unit (assuming electric heating, cooking and water heating plus other electric) HUD median income was $115,300. Sources: HUD; San Mateo County; Housing Authority of the County of San Mateo; DRA. Housing Needs and Market Assessment 3 54

58 Table 3 Affordable Home Prices by Percent of AMI and Unit Bedroom Count 1 City of East Palo Alto Housing Affordability Gap Analysis 2017 Unit Size 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 50% of AMI $118,200 $135,900 $153,000 $165,300 60% of AMI $156,000 $178,500 $200,300 $216,200 80% of AMI $231,600 $263,500 $294,800 $318, % of AMI $307,000 $359,300 $401,400 $536, % of AMI $413,000 $466,300 $517,500 $688,400 1 Affordable mortgage principal and interest calculated by deducting the following from affordable owner monthly housing cost: annual property taxes and assessments at 1.20% of affordable home price; HOA dues of $200 per month, property insurance of $100 per month, and utilities of $132, $168, $208 and $249 for one- through four-bedroom units, respectively. Affordable mortgage calculated assuming 5% owner downpayment, 5.0% mortgage interest rate and 30-year mortgage term and amortization. Source: HUD; San Mateo County; DRA. Housing Needs and Market Assessment 4 55

59 B. Demographic Trends and Conditions This section summarizes demographic trends and conditions in East Palo Alto and the surrounding region, setting the stage for the analysis of affordable housing needs to follow. 1. Population Table 4 shows the total household population of the City of East Palo Alto, Palo Alto, Menlo Park and San Mateo County over the 2000 to 2015 period, based on data from the American Community Survey (ACS). The populations of both East Palo Alto and San Mateo County declined between 2000 and 2010, but have increased since The population of East Palo Alto has grown at a slightly lower rate than surrounding communities since Table 4 Total Household Population City of East Palo Alto, Palo Alto, Menlo Park and San Mateo County 2000 to 2015 Household Population Annual Growth Rate East Palo Alto 29,317 27,778 29, % 4.56% Palo Alto 57,930 62,035 65, % 6.31% Menlo Park 29,833 30,308 32, % 5.80% San Mateo County 696, , , % 6.26% Sources: 2000 and 2010 U.S. Census; 2015 ACS 5-Year Estimates; DRA. Housing Needs and Market Assessment 5 56

60 2. Race and Ethnicity Chart 1 compares the racial and ethnic breakdown of East Palo Alto s population with that of San Mateo County. East Palo Alto has a higher proportion of Hispanic, Black, and Hawaiian/Pacific Islander residents and a smaller proportion of White and Asian residents than the County as a whole. Chart 1 Race and Ethnicity East Palo Alto and San Mateo County 3% 4% 7% 6% 16% 65% 4% 25% 1% 42% 3% 25% Other Asian Hawaiian/Pacific Islander White Black Hispanic East Palo Alto Source: Census 2010; City of East Palo Alto; DRA. San Mateo County Housing Needs and Market Assessment 6 57

61 3. Household Tenure Table 5 compares household tenure (renters and owner) in East Palo Alto, Palo Alto, Menlo Park and San Mateo County in East Palo Alto has a 20% to 25% higher proportion of renter households and a correspondingly lower proportion of owner households than the other three jurisdictions. Table 5 Households by Tenure City of East Palo Alto, Palo Alto, Menlo Park and San Mateo County 2015 Renter Households Owner Households Total Households Number Percent Number Percent Number Percent East Palo Alto 4, % 2, % 7, % Palo Alto 11, % 14, % 26, % Menlo Park 5, % 6, % 11, % San Mateo County 106, % 153, % 259, % Sources: 2015 ACS 5-Year estimates; DRA Housing Needs and Market Assessment 7 58

62 4. Households, Household Size, and Size of Housing Units Table 6 shows the number of households by household size and tenure in East Palo Alto for Two-person households comprise the largest share of both renter and owner households in the City, followed by four-person households. Six-person households comprise 17% of renter households and 18% of owner households. The average household size of renter households is slightly smaller than that of owner households in East Palo Alto, at 3.39 persons and 3.51 persons, respectively. The average household sizes of both renter and owner households are about 20% larger in East Palo Alto than in San Mateo County as a whole. Table 6 Households by Household Size and Tenure City of East Palo Alto 2016 Renters Owners Total Household Size HH % HH % HH % One Person % % 1, % Two Persons 1, % % 1, % Three Persons % % 1, % Four Persons % % 1, % Five Persons % % % Six Persons % % % Seven or More % % % Persons Total Households 4, % 2, % 7, % 2015 Average Household Size East Palo Alto 2015 Average Household Size San Mateo Co Sources: 2015 and 2016 ACS 5-Year estimates; DRA Housing Needs and Market Assessment 8 59

63 Table 7 compares the inventory of occupied rental units by bedroom count with the number of households of appropriate household size for those units. There are slightly more studio and one bedroom units than one and two person households (39.2% compared to 38.3%) and slightly more eight or more person households than four or more bedroom units. However, if households are doubling up to afford housing costs, the problem may not be a lack of larger unit sizes but a problem of affordability. Unfortunately, the data combines two and three bedroom units into one category, making it impossible to judge whether there are an adequate number of three bedroom, compared to two bedroom, units. Table 7 Comparison of Renter Housing Unit Size and Household Size City of East Palo Alto 2016 Renter Occupied Housing Units Households 1 No. % No. % Studio % % One Bedroom 1, % 1, % Two and Three Bedroom 2, % 2, % Four or More Bedrooms % % Total Households 4, % 4, % 1 Assumes the following household sizes by unit bedroom count: studio: 1 person; one bedroom: 2 persons; two and three bedroom: 3 to 6 persons; 4 or more bedrooms: 8 or more persons. Sources: ACS 5-Year estimates; DRA. 5. Household Income Distribution The need for affordable housing in East Palo Alto is driven by the household incomes of its households. Table 8 and Chart 2 summarize the income distribution of East Palo Alto households based on data from the American Community Survey (ACS). East Palo Alto households have much lower incomes than those of surrounding communities and San Mateo County as a whole. Nearly one quarter (22%) of East Palo Alto s households have incomes less than $24,999, which equals 48% of the City s median household income in 2015 and only 28% of the San Mateo County median household income in 2015, based on ACS data, and supports an affordable gross rent of only $625 per month. Another 47% of East Palo Alto s households earn between $25,000 and $75,000. The remaining third of households (31%) have incomes of $75,000 or more. Housing Needs and Market Assessment 9 60

64 Annual Household Income Table 8 Household Income Distribution City of East Palo Alto 2015 Number of Households Percent of Households Cumulative Percent Less than $10, % 5.7% $10,000 to $14, % 10.3% $15,000 to $24, % 18.6% $25,000 to $34, % 30.7% $35,000 to $49,999 1, % 48.3% $50,000 to $74,999 1, % 65.8% $75,000 to $99, % 77.2% $100,000 to $149, % 90.3% $150,000 to $199, % 96.6% $200,000 or More % 100.0% Total 7, % -- Median Household Income $52,012 East Palo Alto 2015 Median Household Income $93,623 San Mateo County 2015 Source: 2015 ACS 5-year estimates; DRA Housing Needs and Market Assessment 10 61

65 Chart 2 Income Distribution City of East Palo Alto % 22.40% 21.2% 20% 15% 14.9% 15.6% 16.0% 10% 10.1% 5% 0% <$24,999 $25,000 to $34,999 $35,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 >$100,000 Source: 2015 ACS 5-year estimates; DRA Housing Needs and Market Assessment 11 62

66 Table 9 and Chart 3 show the household income distribution for East Palo Alto by percentage of AMI category and tenure, based on 2013 HUD CHAS data. Over onethird of renter households in East Palo Alto had incomes at or below 30% of AMI, placing them in the extremely low income category. Nearly another third (31%) of renter households are very low income, with incomes below 50% of AMI. An additional 16% of renter households are in the low income category, with incomes between 50% and 80% of AMI. Less than 17% of the City s renter households have incomes above 80% AMI. Table 9 Distribution of Households by Income Level and Tenure City of East Palo Alto 2009 to 2013 Income Level Renters Owners Total HH % HH % HH % <=30% 1, % % 1, % 30% to 50% 1, % % 1, % 50% to 80% % % 1, % 80% to 100% % % % >100% % % 1, % Total 4, % 2, % 7, % Source: 2013 HUD CHAS data; DRA. Housing Needs and Market Assessment 12 63

67 40% Chart 3 Income Distribution by Percent of AMI City of East Palo Alto 2009 to % 30% 25% 20% 15% 10% 5% 0% <=30% 30% to 50% 50% to 80% 80% to 100% >100% Income Level Renters Income Level Owners Income Level Total Housing Needs and Market Assessment 13 64

68 6. Local Economy a. Employment Trends and Projections East Palo Alto is primarily a residential community with a relatively small base of jobs and modest projections of growth. It is likely that most residents will continue to work outside of the City, commuting to other nearby communities such as Menlo Pak, Redwood City, Palo Alto and Mountain View, as well as other locations in the Bay Area. The February 2014 Existing Conditions Report, prepared as part of the East Palo Alto General Plan Update, reported that the City contained about 2,700 jobs, or less than 1.0% of total employment in the market area comprised of East Palo Alto, Menlo Park, Redwood City, Palo Alto, Los Altos and Mountain View. The Association of Bay Area Governments (ABAG) estimates that this market area will add about 80,000 jobs between 2010 and Table 10 summarizes employment trends and projections in East Palo Alto, the market area and Silicon Valley. The City lost employment between 2000 and 2010, during the recession, and is expected to add about 880 jobs between 2010 and Table 10 Employment Trends and Projections East Palo Alto, Market Area and Silicon Valley 1990 to East Palo Alto 1,870 3,043 2,723 3,269 3,604 Market Area 1 347, , , , ,840 Silicon Valley 1,163,680 1,382,731 1,223,526 1,442,352 1,562,046 1 Defined to include East Palo Alto, Menlo Park, Redwood City, Palo Alto, Los Altos and Mountain View Sources: ABAG Preferred Scenario, Jobs-Housing Connection, 2012; General Plan Update Existing Conditions Report, February 2014; DRA. East Palo Alto has 0.23 jobs per employed resident the lowest jobs per employed resident ratio in the Bay Area (Chart 4). The City s low job to employed resident ratio is a reflection of its limited economic development and an indication that East Palo Alto houses a lopsided proportion of the Silicon Valley workforce. Housing Needs and Market Assessment 14 65

69 Chart 4 Lowest and Highest Jobs Per Employed Resident in Core Bay Area Source: ABAG 2013 Projections. b. Tax Base The current East Palo Alto tax base is shallow and lacks diversity. This is a symptom of the City s limited economic development. Correspondingly, East Palo Alto has lower general fund revenue and lower per capita property tax, sales tax, and transient occupancy tax than surrounding cities (Chart 5). Chart 5 Per Capita Property, Sales, & Hotel Taxes Sources: Municipal CAFRs; US Census. Housing Needs and Market Assessment 15 66

70 c. Poverty and Unemployment Chart 6 summarizes the poverty rate, percent of the population without health insurance, and the unemployment rate in East Palo Alto, Palo Alto and Menlo Park. East Palo Alto s poverty and uninsured rates are about three times higher than those of the other two cities. The unemployment rate in East Palo Alto is nearly double those of the other two cities, though it is still low at 5%. Chart 6 Poverty & Unemployment 24% 17% East Palo Alto 5% 9% 6% 7% 5% Palo Alto Menlo Park 3% 3% Poverty Rate % W/O Health Insurance June Unemployment Rate Source: Census and CA EDD C. Existing Housing Needs This section summarizes key measures of affordable housing need in the City of East Palo Alto, identifies the existing inventory of subsidized rental housing, and assesses the current affordability of existing market-rate housing options in the City. The primary data source is HUD Comprehensive Housing Affordability Strategy (CHAS) data. These periodic custom tabulations of U.S. Census Bureau data provide Housing Needs and Market Assessment 16 67

71 information on the extent of housing problems and housing needs, particularly for low income households. Local governments use CHAS data in planning how to spend HUD funds and for other planning purposes. 1. Overpayment According to HUD s standard, households paying more than 30% of their gross income on housing costs are considered to be cost-burdened (paying more than they can afford for housing). Households paying greater than this amount have less income remaining for other necessities such as food, clothing, utilities and health care. The problem is most severe for families with limited incomes. Households paying more than 50% of gross income on housing are considered severely cost-burdened. Table 11 and Chart 7 summarize 2009 to 2013 HUD CHAS data on the number of cost-burdened renter and owner households by income level paying more than 30% of gross income on housing in East Palo Alto, as well as those paying more than 50% of gross income on housing. Nearly all of the City s households earning less than 30% of AMI are cost burdened (95%) and three-quarters are severely cost-burdened. For households earning between 30% and 50% of AMI, three-quarters are cost-burdened and almost one-third are severely cost-burdened. The City has a total of 1,695 renter households paying more than half of their income on housing. Owner overpayment may be considered a choice, as some households choose to pay a higher percentage of their income for the benefits and security of owning a home. The 30% standard for overpayment is considered low for owners. Lenders typically allow owners to pay 35% or more of gross income for mortgage principal, interest, taxes and insurance. A total of 545 owner households in East Palo Alto paid more than 50% of their income toward housing. About 340 of these households had incomes at or below 50% of AMI. Housing Needs and Market Assessment 17 68

72 Table 11 Cost-Burdened Households by Income Level City of East Palo Alto 2009 to 2013 Tenure/% AMI HH Paying Greater Than 30% of Income on Housing HH Paying Greater Than 50% of Income on Housing Households Percent 1 Households Percent 1 Renters 30% 1, % 1, % 30% to 50% 1, % % 50% to 80% % % 80% to 100% % 0 0.0% >100% % 0 0.0% Total 3, % 1, % Owners 30% % % 30% to 50% % % 50% to 80% % % 80% to 100% % % >100% % 0 0.0% Total 1, % % All Households 30% 1, % 1, % 30% to 50% 1, % % 50% to 80% % % 80% to 100% % % >100% % 0 0.0% Total 4, % 2, % Source: 2013 HUD CHAS data; DRA. Housing Needs and Market Assessment 18 69

73 Chart 7 Cost-Burdened Households by Income Level City of East Palo Alto 2009 to % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 93.80% 74.10% 74.80% 51.20% 33.60% 12.50% 30% 30% to 50% 50% to 80% Source: 2013 HUD CHAS data; DRA. HH Paying Greater Than 30% of Income on Housing HH Paying Greater Than 50% of Income on Housing 2. Substandard Housing Conditions Table 12 provides data on households in East Palo Alto with one or more of four housing problems tracked in the CHAS data: incomplete kitchen facilities, incomplete plumbing facilities, more than 1 person per room and cost burden greater than 50%. This data is for the 2009 to 2013 period. More than 1,500 renter households with incomes at or below 30% of AMI, and more than 3,000 renter households with income at or below 80% of AMI, had at least one of the aforementioned housing problems. A total of 1,140 owner households had one or more housing problems. Incomplete kitchen and plumbing facilities account for only a small fraction of housing problems. According to year ACS data, only 10 units in the City lacked complete plumbing facilities and another 29 lacked complete plumbing facilities. Housing Needs and Market Assessment 19 70

74 Table 12 Households with Severe Housing Problems 1 City of East Palo Alto 2009 to 2013 Income Level: Tenure: Less than 30% AMI >30% to 50% AMI >50% to 80% AMI Renters Owners Renters Owners Renters Owners Households With 1 or More of 4 Housing Problems 1 1, , % of Total Households % 90.8% 91.4% 74.6% 76.9% 78.3% 1 Number of households living in housing lacking complete plumbing or kitchen facilities, incomplete plumbing facilities, more than 1 person per room, and cost burden greater than 50%. 2 Percent of total renter and owner households in each respective income category. Sources: HUD CHAS data, 2009 to 2013; DRA. 3. Overcrowding HUD defines overcrowding, for the purposes of the U.S. Census, as more than one person per room, excluding bathrooms and kitchens. Overcrowding is often a symptom of housing unaffordability, as households double up or fit into smaller units to reduce housing costs. Table 13 shows the incidence of overcrowding in the City based on 2015 estimates from the American Community Survey. Approximately one-third (32%) of East Palo Alto s renter households are overcrowded based on the HUD standard, including nearly one-fifth with more than 1.5 persons per room. For owners, the incidence of overcrowding is lower, at about 20% of households. It should be noted that there are no federal legal standards for overcrowding. In a reasonable effort to allocate scarce financial resources for affordable housing, housing programs use occupancy standards, which typically allow for up to two persons per bedroom plus one to occupy an affordable housing unit (e.g., five persons in a twobedroom unit). Housing Needs and Market Assessment 20 71

75 Status (Occupants Per Room) Not Overcrowded (Less than 1.0) Table 13 Overcrowded Households by Household Tenure City of East Palo Alto Renters Owners Total # of HH % of HH # of HH % of HH # of HH % of HH 3, % 1, % % Overcrowded (1.01 to 1.50) % % % Severely Overcrowded % % % (1.50 or More) Total 4, % 2, % 7, % D. Housing Supply This section provides an overview of the City of East Palo Alto s housing supply, building trends and existing rent- and income-restricted rental housing. 1. Housing Inventory and Building Trends Table 14 shows data from the California Department of Finance on the number of housing units by type of unit in East Palo Alto from 2010 to The City s housing stock has remained essentially unchanged over this time period, adding a net total of only 41 units over this period. The single-family detached category added 49 units, while the City lost 8 single-family attached units. Lack of available water to serve new development, which resulted in a moratorium on new development, is the primary factor behind the lack of new residential development in the City. Recent agreement with the County to provide additional water to East Palo Alto ended the moratorium in late Under the City s Secondary Dwelling Unit and Garage Conversion Ordinance, a total of 22 second units, 7 guest houses and 51 garage conversion units have been created since 2014, adding a total of 80 units to the City s supply. The vacancy rate in East Palo Alto declined steadily over the 2010 to 2017 time period but has remained well above the County average. While the City s vacancy rate declined from 11.2% in 2010 to 9.5% in 2017, the countywide vacancy rate has Housing Needs and Market Assessment 21 72

76 hovered around 5% (it was 5.2% in 2017). The number of persons per household in the City has increased since 2010 and is also significantly higher than the County average. The countywide average persons per household was 2.90 in 2017, compared to 4.25 in East Palo Alto. The high persons per household in East Palo Alto is an indication of overcrowding, as households double up to reduce housing costs. Table 14 Housing Units by Type City of East Palo Alto 2010 to Single-Family Detached 4,211 4,214 4,215 4,230 4,260 Single-Family Attached Two to Four Unit Buildings Five Plus Unit Buildings 2,865 2,865 2,865 2,865 2,865 Mobile Homes Total Units 7,819 7,822 7,823 7,836 7,860 Vacancy Rate 11.2% 10.5% 9.7% 9.5% 9.5% Persons Per Household As of January first of each year. Sources: California Department of Finance; DRA. 2. Existing Affordable Housing Supply Table 15 describes federally-subsidized housing projects with use restrictions based on data from the National Housing Preservation Database as of September A total of 20 projects comprising 627 housing units are included on the list. These projects are subsidized with HOME, Low Income Housing Tax Credit (LIHTC or tax credit) and Section 8 programs. The subsidy end date for some of these projects has already expired, so they may no longer be affordable. Table 16 and Chart 8 compare tax credit units as a percentage of the total housing stock in East Palo Alto with selected San Francisco Bay Area communities. Tax credit units comprise 6.2% of all housing units in East Palo Alto, the highest of the communities surveyed. Housing Needs and Market Assessment 22 73

77 Property Name Property Address Total Units Subsidy End Date Type(s) of Subsidies Owner Name Target Tenant Type LIGHT TREE APARTMENTS 1805 E Bayshore Rd 94 01/01/2030 HOME, LIHTC, Section 8 Light Tree Housing Partners Family PENINSULA PARK APARTMENTS 1977 Tate St /01/2031 LIHTC BRIDGE HOUSING CORP Family FREE AT LAST GROUP HOME 1095 Weeks St 6 01/22/2001 HOME FREE AT LAST INC CLARKE AVENUE APARTMENTS 2397 Clarke Ave 15 09/13/2010 HOME EPACANDO WOODLANDS NEWELL 1761 Woodland Ave Apt /01/2044 LIHTC WOODLANDS NEWELL ASSOC LP Family THE WOODLANDS 1767 Woodland Ave 23 12/31/2020 LIHTC MID-PENINSULA WOODLANDS CORP NEWELL ROAD APARTMENTS 44 Newell Rd 26 08/13/2002 HOME MID-PENISULA HOUSING CIAKTUIB RUNNYMEDE GARDENS APARTMENTS 2301 Cooley Ave 78 08/31/2021 HOME, LIHTC MP RUNNYMEDE ASSOCIATES, LP Elderly 2154 DUMBARTON AVE 2154 Dumbarton Ave 1 01/01/2020 LIHTC, Section OAKWOOD DR 2210 Oakwood Dr 1 01/01/2020 LIHTC NUGENT SQUARE 2361 University Ave 32 01/04/2025 HOME, LIHTC NUGENT SQUARE INC Family EPA CAN DO 4-PLEX 2358 University Ave 4 11/19/2022 HOME EPA CAN DO N/A 2372 University Ave 1 04/30/2026 HOME EPA CANDO UNIVERSITY AV ACQ 2376 University Ave 1 02/15/2028 HOME EPA CANDO EPA CAN DO ACQUISTION OF SFR 2380 University Ave 1 06/30/2024 HOME EPA CANDO GLORIA WAY COMMUNITY HOUSING 2400 Gloria Way 38 01/01/2026 LIHTC MIDPEN HOUSING Family COURTYARD AT BAY ROAD 1730 Bay Rd 77 06/30/2026 HOME, LIHTC SANDS DRIVE HOUSING INC Family FREE-AT-LAST HOUSING 211 WESTERIA AVE 4 06/30/2008 HOME FREE AT LAST PENINSULA PARK ( FORMERLY GATEWAY ) CLARKE & O'CONNOR 11 09/10/2024 HOME NAIROBI HOUSING PARTNERS BAY OAKS APARTMENTS Nely Corner Bay + Gloria 36 11/07/2016 HOME MID-PENINSULA HOUSING COALITION Total 627 Note: LIHTC = Low Income Housingt Tax redit Program. Source: National Preservation Databased accessed September 20, 2017; DRA Table 15 Federally Subsidized Housing Projects With Use Restrictions City of East Palo Alto September,

78 Table 16 Tax Credit Affordable Housing Units as a Percent of Total Housing Units East Palo Alto 6.2% San Jose 5.7% San Francisco 4.4% Palo Alto 3.2% Santa Clara County w/o San Jose 2.2% Menlo Park 1.2% San Mateo County 1.1% Source: US Census, Chart 8 Tax Credit Housing Tax Credit Affordable Housing Units as % of Total Housing Units 6.2% 5.7% 4.4% 3.2% 2.2% 1.2% 1.1% East Palo Alto San Jose San Francisco Palo Alto Santa Clara County w/o San Jose Source: US Census, Menlo Park San Mateo County Housing Needs and Market Assessment 24 75

79 E. Housing Market Conditions 1. Rental Housing Market Conditions a. Distribution of Market Rents Table 17 and Chart 9 summarize ACS data on the distribution of rental housing units in East Palo Alto by the amount of rent paid, and estimates the income categories to which those units are affordable, based on affordable rents for two-bedroom units, calculated using San Mateo County AMI from Table 2. Based on the countywide definition of affordability, approximately half (54%) of East Palo Alto s rental units are affordable to very low and low income households, and almost three-quarters are affordable at the low income level. However, given the City s much lower incomes compared to the County, most of these units are not affordable to the City s residents, as indicated in the cost-burden data described above. Table 17 Distribution of Rental Housing Units by Rent Paid City of East Palo Alto Monthly Rent Category Affordable to: Number of Units Percent of Units Cumulative Units Cumulative Percent Less than $500 Very Low 192 4% 192 4% $500 to $749 Very Low 190 4% 382 8% $750 to $999 Very Low % 1,054 23% $1,000 to $1,499 Very Low/Low 1,416 31% 2,470 54% $1,500 to 1,999 Low % 3,348 74% $2,000 to $2,499 Low/Mod % 4,061 89% $2,500 to $2,999 Moderate 341 8% 4,402 97% $3,000 or More Above Mod % 4, % Total 4, % Sources: American Community Survey, five-year data, Housing Needs and Market Assessment 25 76

80 Chart 9 Distribution of Rental Housing Units by Rent Paid City of East Palo Alto Less than $500 $500 to $749 $750 to $999 $1,000 to $1,499 $1,500 to $1,999 $2,000 to $2,499 $2,500 to $2,999 $3,000 or More Source: ACS five-year data; DRA. Housing Needs and Market Assessment 26 77

81 b. Apartment Asking Rents Table 18 compares average advertised asking rents by unit bedroom count in the City of East Palo Alto apartment properties with average rents for San Mateo County during the 2011 through 2017 period. Table 19 shows the annual compound growth rate in rents by unit bedroom count in East Palo Alto and San Mateo County over the same time period. Rents in East Palo remain lower than average County rents, but the gap closed substantially between 2013 and Between 2011 and 2013, East Palo Alto rents increased by 10% to 13% per year and average County rents increased at similar rates of 11% to 13% per year, depending upon unit bedroom count. However, from 2013 to 2017, East Palo Alto average rents increased much faster than countywide rents, at rates of 15% to 19% in the City compared to 7% to 12% in the County for studio, onebedroom and two-bedroom units. Table 20 further illustrates this point, by showing the percentage by which San Mateo County average rents exceed average rents in East Palo Alto. While San Mateo County average rents were 36% to 93% higher than rents in East Palo Alto in 2011 and 2013, by 2017 the gap has narrowed to 12% to 22%, depending upon unit bedroom count. The difference in data sources for 2011 and 2013 compared to 2017 may account for some of this difference (REALFACTS data is no longer available), but DRA comparison of rents at individual apartment properties in East Palo Alto over the 2011 to 2017 period substantiates the fact that East Palo Alto rents have increased more rapidly than rents in the County as a whole. Number of Bedrooms in Unit Table 18 Average Asking Rents by Unit Bedroom Count City of East Palo Alto and San Mateo County 2011 to 2017 East Palo Alto San Mateo County Studio $832 $1,056 $1,825 $1,128 $1,435 $2,235 One Bedroom $973 $1,175 $2,383 $1,553 $1,954 $2,728 Two Bedroom $1,051 $1,300 $3,000 $2,030 $2,520 $3,351 Three Bedroom N/A N/A N/A $2,662 $3,310 $3,925 N/A = Not available (too few units available). Source: REALFACTS (2011, 2013); rentcafe.com (2017). Housing Needs and Market Assessment 27 78

82 Number of Bedrooms in Unit Table 19 Annual Increase in Average Asking Rents 1 City of East Palo Alto and San Mateo County 2011 to 2017 East Palo Alto San Mateo County Studio 13% 15% 14% 13% 12% 12% One Bedroom 10% 19% 16% 12% 9% 10% Two Bedroom 11% 23% 19% 11% 7% 9% Three Bedroom N/A N/A N/A 12% 4% 7% N/A = Not available (too few units available). 1 Annual compound growth rate. Source: REALFACTS (2011, 2013); rentcafe.com (2017). Table 20 Percentage by Which San Mateo County Average Rents Exceed East Palo Alto Rents 2011 to 2017 Number of Bedrooms in Unit Studio 36% 36% 22% One Bedroom 60% 66% 14% Two Bedroom 93% 94% 12% N/A = Not available (too few units available). Source: REALFACTS (2011, 2013); rentcafe.com (2017). Housing Needs and Market Assessment 28 79

83 c. Comparison of Market and Affordable Rents Table 21 compares affordable rents by income level and unit bedroom count with average market rents in the City of East Palo Alto, and with HUD Fair Market Rents (FMRs) for San Mateo County. Affordable one-bedroom and two-bedroom rents for moderate income households at 100% of AMI are well below average apartment rents in East Palo Alto. For households at 100% of AMI, only affordable rents for studios exceed average market rents. For very low and low income households with incomes below 100% of AMI, the gaps between affordable rents and market rents are substantial. HUD Fair Market Rents (FMRs) for San Mateo County are substantially above affordable and average market rents in East Palo Alto. Very Low Income 50% AMI Table 21 Comparison of Average Market and Affordable Rents City of East Palo Alto 2017 Average Affordable Rent HUD 2018 Low Income 60%AMI Low Income 80% AMI Moderate Income 100% AMI FMR San Mateo Co. 1 Ave. EPA Market Apartment Rent Studio $1,106 $1,336 $1,797 $1,971 $2,335 $1,825 1 Bedroom $1,261 $1,525 $2,053 $2,107 $2,728 $2,383 2 Bedroom $1.405 $1,702 $2,295 $2,518 $3,351 $3,000 3 Bedroom $1,546 $1,875 $2,534 $2,899 $3,925 N/A N/A = Not available (too few units available). 1 From HUD FY 2018 Fair Market Rent Summary, San Mateo County. Sources: DRA. Housing Needs and Market Assessment 29 80

84 2. For-Sale Housing Market Conditions a. Market Home Price and Foreclosure Trends The housing market in East Palo Alto was hit hard by the Great Recession but has recovered, with home prices now exceeding pre-recession values. HUD surveyed the number of foreclosure starts on the local level for 2007 and the first six months of 2008, reporting 288 foreclosures out of 4,084 mortgages in the City of East Palo Alto, for a foreclosure rate of 7.1%, compared to 2.3% for San Mateo County. Foreclosures in East Palo Alto peaked at 64.5 homes per 10,000 in 2008, a rate almost six times the County average and 60 times the rate in Palo Alto for the same time period, as shown in Table 22. Foreclosure rates also declined more slowly in East Palo Alto than in surrounding communities. The 2016 foreclosure rate of 1.3 homes per 10,000 is still about twice that in the County and nearby communities. Table 22 Foreclosure Rates 1 East Palo Alto and Surrounding Communities July 2010 to July 2017 East Palo Alto Palo Alto Menlo Park San Mateo County Homes foreclosed per 10,000. Table 16 shows trends in median home values in East Palo Alto and neighboring communities from July 2010 to July Median home values have increased dramatically from the near-bottom prices of the Great Recession in 2010 to current prices in The 2017 median home value in East Palo Alto is only 30% of the median home value in Palo Alto and 67% of the countywide median. However, home values in East Palo Alto have increased at the fastest rate of the communities listed since Housing Needs and Market Assessment 30 81

85 2010. The estimated current median home value in East Palo Alto is $807,700, which exceeds the pre-recession peak of $627,000 in Table 23 Trends in Median Home Values East Palo Alto and Surrounding Communities July 2010 to July 2017 East Palo Alto Palo Alto Menlo Park San Mateo County Median Home Value $296,000 $1,210,000 $1,040,000 $646, $596,000 $2,440,000 $1,970,000 $997, $807,700 $2,639,200 $2,030,000 $1,192,200 Annual Compound Growth Rate % 15% 14% 9% % 4% 2% 9% % 12% 10% 9% 1 Based on Zillow home value index. Sources: Zillow; DRA. Table 23 compares median home values in the City of East Palo Alto during the month July 2017 with those for the entire San Francisco Metropolitan Area, based on data from Zillow. The median home price in East Palo Alto is about 6% lower than the median home value for the entire Metro Area. The median values of condominium and two-bedroom units in East Palo Alto are higher than those for the Metro Area. By comparison, the July 2017 median home value for the San Jose Metropolitan Area was about 20% higher than for the San Francisco Metro Area at $1,027,100. Housing Needs and Market Assessment 31 82

86 Table 24 Trends in Median Home Values by Type of Home City of East Palo Alto and San Francisco Metro July, 2017 East Palo Alto San Francisco Metro Area Median Home Value (All) 1 $807,700 $859,000 Median SF Home Value $810,700 $901,500 Median Condo Home Value $756,500 $656,900 Median Value, 2 BR Homes $773,000 $721,100 Median Value, 3 BR Homes $790,500 $833,100 1 Based on Zillow home value index. Sources: Zillow; DRA. b. Single-Family Home and Condominium Sales Prices Table 25 summarizes sales prices for 133 single-family homes in the City of East Palo Alto sold between March 7, 2017 and March 7, The median home sales price for a three-bedroom single-family home in the City was $850,000. Table 26 shows the prices for 34 condominium sales over the same time period. The median sales price for a two-bedroom condo was $665,000. Table 25 Single-Family Home Prices City of East Palo Alto March 9, 2017 to March 9, Bedroom 3 Bedroom 4 Bedroom 5-6 Bedroom Number of Sales Avr.Price $743,200 $860,600 $1,093,250 $1,056,600 Median Price $757,500 $850,000 $1,137,500 $1,022,550 Low Price $232,000 $200,500 $808,000 $949,500 High Price $1,250,000 $1,780,000 $1,340,000 $1,195,000 Avr. Price/SF $749 $716 $612 $519 Median Price /SF $761 $734 $596 $509 Low Price/SF $230 $130 $388 $398 High Price/SF $1,280 $1,445 $1,047 $683 Source: CoreLogic; DRA. Housing Needs and Market Assessment 32 83

87 Table 26 Condominium Sales Prices City of East Palo Alto March 9, 2017 to March 9, Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Number of Sales Avr. Price $535,000 $765,300 $920,000 $1,188,167 Median Price $540,000 $780,000 $920,000 $1,014,500 Low Price $470,000 $665,000 $902,000 $850,000 High Price $590,000 $840,000 $938,000 $1,700,000 Avr. Price/SF $802 $624 $672 $502 Median Price /SF $808 $638 $672 $494 Low Price/SF $705 $500 $659 $427 High Price/SF $875 $726 $1,047 $585 Source: CoreLogic; DRA. c. Comparison of Market and Affordable Sales Prices Table 27 compares affordable home sales prices with the price distribution of 132 home sales in the City of East Palo Alto between March 9, 2017 and March 9, No homes were sold at prices affordable to very low income households. Only one threebedroom unit (2% of three-bedroom unit sales) was sold at a price affordable at 80% AMI and only 7% sold at prices affordable at 120% AMI. No four-bedroom homes were sold at prices affordable to low or moderate income households. Housing Needs and Market Assessment 33 84

88 Unit Bedroom Count 2017 Affordable Sales Price Low Income 80% AMI Table 27 Affordability of Existing Home Sales 1 City of East Palo Alto March 9, 2017 to March 9, 2018 % of Sales Below Affordable Price 2 Median Income 2017 Affordable Sales Price 100% AMI % of Sales Below Affordable Price 2 Moderate Income 2017 Affordable Sales Price 120% AMI % of Sales Below Affordable Price 2 2 BR $263,500 0% $241,600 0% $466,300 15% 3 BR $294,800 2% $265,900 2% $517,500 7% 4 BR $318,200 0% $285,900 0% $688,400 0% 1 Based on 132 single-family home sales in East Palo Alto between March 9, 2017 and March 9, Includes sales of 34 two-bedroom homes, 64 three-bedroom homes, 28 four-bedroom homes and 6 five- and six-bedroom homes. 2 Equals percent of total home sales (including new and existing homes) by unit bedroom count sold at or below affordable price. Percentages by income level are cumulative. Sources: CoreLogic; DRA. 3. Growth in Median Income, Housing Rents & Home Values The gap between the rents and prices affordable to East Palo Alto households and the market prices of apartments and homes in the City is not only large but growing, as evidenced by trends in median income, rents and home prices. Table 28 summarizes trends in AMI, median household income in East Palo Alto, median gross rents, and median home prices from 2010 to AMI for the San Francisco Metro Area increased at a compound rate of only 0.5% annually from 2010 to The median household income in East Palo Alto increased by 4.7% annually over this period, with the bulk of this growth occurring between 2010 and The City s median income gained ground on the Metro Area AMI, but still remained well below the area median. Housing Needs and Market Assessment 34 85

89 Since affordable rents and sales prices are tied to AMI, affordable rents and sales prices have been increasing at comparable rates. 1 By comparison, market rents increased an average of 4.7% annually over the 2010 to 2015 period, accelerating from 2.5% between 2010 and 2013 to 7.3% from 2013 to The median home value in the City increased at the most rapid pace, at an annual compound growth rate of 15.0% from 2010 to 2015, including a 20% annual rate from 2013 to Table 28 Growth Rates in AMI, Market Rents and Sales Prices East Palo Alto 2010 to 2015 Annual Growth Rate 2010 to to to Area Median Income 1 $99,400 $101,200 $101, % 0.3% 0.5% East Palo Alto Median $71,577 $88,750 $90, % 0.8% 4.7% Income 2 Median Gross Rent 3 $1,154 $1,244 $1, % 7.3% 4.4% Median Home Sales $296,000 $408,000 $596, % 20.9% 15.0% Price 4 1 HUD median income for San Francisco HMFA. 2 Median household income for East Palo Alto from 5-year ACS data. 3 Median gross rent for East Palo Alto from 5-year ACS data. 4 Median home value for East Palo Alto from Zillow. Sources: HUD; ACS; Zillow; DRA. 1 Trends in utility costs for renters and mortgage rates and the other costs of homeownership also affect affordable rents and prices. Housing Needs and Market Assessment 35 86

90 Homelessness Analysis City of East Palo Alto March 16, 2018 Public Review Draft DAVID PAUL ROSEN & ASSOCIATES DEVELOPMENT, FINANCE AND POLICY ADVISORS 87

91 PREPARED FOR: City of East Palo Alto PREPARED BY: David Paul Rosen & Associates 3527 Mt. Diablo Blvd, #361 Lafayette, CA Hendrix Street Irvine, CA Homelessness Analysis 88

92 A. Trends in the Homeless Population, Facilities and Services Homeless Population Shelter and Housing Facilities Serving the Homeless Homeless Services B. East Palo Alto 2012 Homelessness Plan Unmet Needs Plan Recommendations Homelessness Analysis 89

93 List of Tables 1. Homeless Population and Subpopulations, San Mateo County, Homeless Population and Subpopulations, San Mateo County, Sheltered and Unsheltered Homeless Persons, City of East Palo Alto, 2007 to Unsheltered Homeless Population by Location, City of East Palo Alto, Facilities Serving the Homeless Population, San Mateo County, Emergency Shelter Facilities, City of East Palo Alto, Residential Care Facilities, City of East Palo Alto, Summary of Housing, Shelter and Services for Homeless People in East Palo Alto List of Charts 1. Homeless School Children, Ravenswood School District, 2012/13 to 2015/ Homelessness Analysis 90

94 Homelessness Analysis This report summarizes information on homelessness in the City of East Palo Alto and San Mateo County. It includes recent data on trends in the homeless population, an overview of homeless facilities, and available information on group homes, services and programs targeted to the homeless. It also includes data from the Ravenswood School District and summarizes the City s 2012 Homeless Solutions Plan. A. Trends in the Homeless Population, Facilities and Services The Federal government expects communities to develop local plans and approaches for addressing and ending homelessness. In California, this is mainly a County function. In San Mateo County, the Human Service Agency s Center on Homelessness is the lead agency responsible for developing countywide responses to homelessness. The Center staffs the County s two main planning bodies tasked with addressing homelessness: 1) the Continuum of Care (CoC), which oversees the development of a federally-required annual plan and funding application to the U.S. Department of Housing and Urban Development (HUD); and 2) and the Interagency Council on Homelessness (IAC), which oversees the implementation of Housing Our People Effectively (HOPE), the County s plan to end homelessness. The San Mateo County Homeless Census and Survey is a major source of information to help the community understand homelessness in San Mateo County and develop effective solutions to this complex and long-standing problem. The Census and Survey includes two parts: The Census: a point-in-time count of homeless persons living on the streets, in vehicles, homeless shelters, transitional housing and institutional settings (jails, hospitals, substance abuse treatment programs). The Survey: consisting of interviews with a representative sample of unsheltered homeless people designed to collect demographic information (age, gender, disabilities, veteran status) as well as how long and how many times they have been homeless, as well as their use of benefits and services. Homelessness Assessment 1 91

95 The Census and Survey are designed to meet two sets of data requirements: The U.S. Department of Housing and Urban Development (HUD) requirement that communities applying for McKinney-Vento Homelessness Assistance funds (also known as Continuum of Care or CoC funds) provide a point-in-time count of homeless people at least every two years during the last ten days of January. Data on which to evaluate and guide the County s progress toward meeting the goal of reaching a functional zero level of homelessness by 2020 set in the Strategic Plan: Ending Homelessness in San Mateo County. The HUD Continuum of Care survey also includes a snapshot of facilities serving the homeless, including emergency shelters, transitional housing, rapid re-housing, and permanent supportive housing. Data from these sources are described in the following sections. 1. Homeless Population Tables 1 and 2 summarize data on selected demographic characteristics of the homeless population in San Mateo County in 2016 and 2017, respectively. These data indicate a total of 1,361 homeless persons in the County in 2016, falling slightly to 1,253 persons in The number of homeless households similarly declined from 1,203 households in 2016 to 902 households in Approximately 13% of homeless households included children in 2016 and The survey counted 258 persons under 18 (or almost 19% of the total homeless population) in 2016, rising slightly to 263 children and 21% in Over half of the homeless population was unsheltered at the time of the survey during both years. Homeless persons in emergency shelters comprised 12% to 15% of the total population, with transitional housing accounting for the remaining 30% to 32%. Homelessness Assessment 2 92

96 Table 1 Homeless Population and Subpopulations San Mateo County 2016 Sheltered Emergency Transitional Shelter Housing Unsheltered Total Households ,023 With Children Without Children Persons in HH Without Children Persons Age 18 to Persons Over Age Persons in HH With Children Persons Under Age Persons Age 18 to Persons Over Age Total Persons ,361 HUD 2016 Continuum of Care Homeless Assistance Programs Homeless Populations and Subpopulations; DRA. Table 2 Homeless Population and Subpopulations San Mateo County 2017 Sheltered Emergency Shelter Transitional Housing Unsheltered Total Households With Children Without Children Persons in HH Without Children Persons Age 18 to Persons Over Age Persons in HH With Children Persons Under Age Persons Age 18 to Persons Over Age Total Persons ,253 HUD 2017 Continuum of Care Homeless Assistance Programs Homeless Populations and Subpopulations; DRA. Homelessness Assessment 3 93

97 Table 3 summarizes data on the sheltered and unsheltered homeless population in the City of East Palo Alto from the biennial Census and Survey from 2007 to According to the data, the unsheltered population swelled from 222 persons in 2007 to 385 in 2011, and then declined sharply to less than 100 for the last two counts. The sheltered population count is much smaller, but increased steadily from 26 in 2007 to 83 in The City s homeless population as a percentage of the total County increased from 12% in 2007 to a peak of 20% in 2011, falling to 5% in 2013, and then rising again to 10% in Since a vast majority of East Palo Alto s homeless population is unsheltered, the City s share of the unsheltered homeless population is much higher, rising from 20% in 2017 to a peak of 33% in 2011 and falling to 15% in Table 3 Sheltered and Unsheltered Homeless Persons City of East Palo Alto 2007 to 2017 City of East Palo Alto % of Total San Mateo Sheltered Unsheltered Total County Homeless Population % of Unsheltered San Mateo County Homeless Population % 20% % 25% % 33% % 9% % 12% 2017 N/A 98 N/A N/A 15% Source: San Mateo County Homeless Census and Survey, 2007, 2009, 2011, 2013, 2015; San Mateo County One Day Homeless County and Survey, 2017; DRA. The San Mateo County Homeless Census and Survey provides additional information on the location of unsheltered homeless persons. The 2015 Census and Survey provides the breakdown shown in Table 4 below. While the 2017 homeless count has been released, the full 2017 survey has not yet been published. Homelessness Assessment 4 94

98 Table 4 Unsheltered Homeless Population by Location City of East Palo Alto 2015 Total Households Total Persons Number % of Total Number % of Total Street 30 38% 30 32% Cars 17 22% 25 26% RVs 17 22% 25 26% Encampments 15 18% 15 16% Total % % Source: San Mateo County Homeless Census and Survey, 2015; DRA. The City s 2012 Homeless Solutions Plan, described further in Section B below, made the following observations about the characteristics of the homeless population in East Palo Alto based on analysis of survey data: More than 95% of unsheltered homeless people in East Palo Alto were single adults. About 75% of unsheltered homeless people had one or more disabilities (mental illness, substance abuse, chronic health conditions) and about 1/3 are chronically homeless. 1 Unlike the unsheltered homeless, people from East Palo Alto staying in shelters are more likely to be families (57% families with children, 43% single individuals). This is partly a reflection of the higher bed capacity for families with children than for single adults. If the City s homeless population is comparable to the County s as a whole, approximately 27% of unsheltered homeless persons had at one time been on probation and parole. The State of California s recent Public Safety Re- Alignment legislation (AB 109) has increased the number of formerly incarcerated individuals re-entering the community. 1 Defined by HUD as someone with a disability and continuously homeless for at least one year or who had four episodes of homelessness in the past three years. Homelessness Assessment 5 95

99 a. School District Data The McKinney-Vento Program is designed to address the problems that homeless children face in enrolling, attending and succeeding in school. Under this program, school districts must ensure that each homeless child has equal access to the same public education. The McKinney-Vento Homeless Assistance Act defines homeless children as individuals who lack a fixed, regular and adequate nighttime residence. The definition includes children who are: Sharing housing due to economic hardship or loss of housing Living in motels, hotels, trailer parks, or camp grounds due to lack of alternative accommodations Living in emergency or transitional shelters Awaiting foster care placement Living in cars, parks, public spaces, abandoned buildings, substandard housing, bus or train stations This definition includes many children who would not be counted as part of the biennial Census and Survey. According to data from the Ravenswood School District, summarized in Chart 1, the number of children meeting the above definition of homelessness increased 40% from 756 in to 1,062 in Over the same time period, total enrollment declined by 7%. As a result, the percentage of homeless children increased from just under 22% in to almost 33% in Homelessness Assessment 6 96

100 Chart 1 Homeless School Children Ravenswood School District to Total Enrollment Homeless Sources: Ravenswood School District; City of East Palo Alto; DRA. Homelessness Assessment 7 97

101 2. Shelter and Housing Facilities Serving the Homeless The HUD Continuum of Care (CoC) Homeless Assistance Programs Housing Inventory Count Reports provide a snapshot of the housing inventory serving the homeless conducted annually during the last 10 days in January. Data from the 2017 count on facilities serving the homeless in San Mateo County is shown in Table 5. The data show a total of 637 year-round beds at emergency shelters and transitional housing facilities, and another 1,205 permanent beds in permanent supportive housing, rapid re-housing and other permanent housing for the homeless. HUD s point-in-time counts do not include persons or beds in permanent supportive housing as currently homeless, therefore the current homeless population of 1,253 persons in the County should be compared to the 637 shelter and transitional housing beds. Of the 637 emergency shelter and transitional housing beds, 73 beds (11%) are dedicated to veterans and 14 beds (2%) are dedicated to youth under 24 years of age. Family Units Table 5 Facilities Serving the Homeless Population San Mateo County 2017 Family Beds Adult-Only Beds Child-Only Beds Total Year- Round Beds Emergency Shelters Transitional Housing Subtotal Permanent Supportive ,205 Rapid Re- Housing Other Permanent Subtotal ,205 Total , ,842 Source: HUD; San Mateo County; DRA. Homelessness Assessment 8 98

102 There is a relatively limited supply of shelter and transitional housing beds in East Palo Alto. The 2015 Homeless Census and Survey identified three facilities in the City designated as emergency shelters. These facilities are listed in Table 6. Project WeHOPE opened a Warming Shelter for use during inclement weather in East Palo Alto in In 2013, Project WeHOPE opened a year-round emergency shelter for adults. The shelter provides cots and a hot meal nightly for up to 55 adult individuals. Up to 30 of the cots are reserved for Transitional/Supportive Housing Clients. The remainder of the available cots are available by referrals through one of the San Mateo County s Core Service Agencies 1, which work in close collaboration with the Human Services Agency. Any cots still available by 7 pm are available for drop-ins. Our Common Ground (OCG) is a treatment program for adults with substance abuse problems and disorders. Free At Last also provides programs and services for addicts seeking recovery, including residential treatment programs for men, women, and women with children. The women s program reserves four beds for children under 6. Table 6 Emergency Shelter Facilities City of East Palo Alto 2015 Provider Program Type Address Total Beds Free At Last AOD 1 Institution 35 Our Common Ground Adult AOD 1 Institution 6 Project WeHOPE Emergency Shelter 1858 Bay Rd. 42 Total 83 1 AOD stands for Alcohol/other Drug program. 1 Core service agencies include Ravenswood Family Health Center, El Concilio, Fair Oaks Community Center, The Opportunity Center, Mid-Peninsula YMCA and Safe Harbor. Homelessness Assessment 9 99

103 a. Residential Care Facilities DRA conducted a search of the California Department of Social Services (CDSS) online database of licensed residential care facilities (including group homes, assisted living and community treatment facilities) to determine how many such facilities are located in East Palo Alto. The search identified the five facilities described in Table 7 below. Addresses are not available for certain residential care facilities, such as those serving children or victims of abuse, to protect the safety and well-being of clients served by these facilities. Therefore, these facilities are not counted in Table 7. Table 7 Residential Care Facilities City of East Palo Alto 2017 Facility Name Facility Type Address Capacity License Date EPA Teen Home Youth and Family Service Transitional Housing Placement Program 163 Verbena Dr. 6 Licensed 6/2005 University Guest Home Adeline Care Community Bay Breeze Serenity Penisoni Care Home The Wright Place Total 38 Sources: California Department of Social Services; DRA. Adult Residential 2126 University Ave. 6 Licensed 8/1993 Assisted Living 143 Daphne Way 6 Licensed 8/2017 Assisted Living 2338 University 6 Pending Ave. Assisted Living 2736 Georgetown 8 Licensed St. 5/1991 Assisted Living 2525 Annapolis St. 6 Licensed 7/2001 Homelessness Assessment

104 3. Homeless Services Homeless people from East Palo Alto are able to utilize a range of programs and services, some within East Palo Alto itself and others located in southern San Mateo County, and to a lesser degree in northern Santa Clara County. While there is a wide range of programs in operation, there is insufficient capacity to meet all of the existing need. East Palo Alto has a number of nonprofit and faith-based organizations providing information and referral and homelessness prevention services. The San Mateo County Human Services Agency manages the South County Homeless Outreach Team, which conducts outreach to homeless people in Redwood City and East Palo Alto. The Ravenswood Health Center services a large number of homeless individuals and has a staff position dedicated to homeless outreach. Many people from East Palo Alto also access safety net services in Santa Clara County, such as the Opportunity Center of the MidPeninsula and the Community Services Agency of Mountain View. Services for homeless people are often provided through drop-in centers. Drop-in centers typically do not provide residential facilities, but offer a range of services, which may include food, clothing, personal care items, lockers, showers, washers and dryers, access to phones, computers and , as well as referrals. The Opportunity Center of the MidPeninsula, located in Palo Alto, is an example of a homeless drop-in center that also includes affordable apartments. The Opportunity Center has two service centers (one designed to serve the general homeless and at-risk populations, and one designed to serve homeless and at-risk women, women with children and families) as well as a medical clinic. Table 8 summarizes homeless resources available in East Palo Alto and nearby in San Mateo County. Homelessness Assessment

105 Type of Facility or Program Information and Referral Services Drop-In Centers Safety Net Services Homelessness Prevention Assistance Table 8 Summary of Housing, Shelter and Services for Homeless People in East Palo Alto Description I&R programs are typically the entry point into the social services system. They respond to inquiries from people who need assistance (either by phone or in person), conduct assessments and screenings and make referrals for services. Provide a range of services, which may include food, clothing, personal care items, lockers, showers, washers and dryers, access to phones, computers and , as well as referrals. Safety net or emergency assistance programs offer food, clothing, emergency financial assistance, etc. Assistance with payment of back rent, rental deposits, utility payments, etc. to prevent homelessness. Resources Available In East Palo Alto: El Concilio/Emergency Services Partnership Ecumenical Hunger Program Bread of Life Evangelistic Outreach Project WeHOPE St. Francis of Assisi Church New Creation Home Ministries New Sweet Home Church Outside East Palo Alto: 211 Call System St. Vincent DePaul Society of San Mateo County Salvation Army Community Service Agency of Mountain View Opportunity Center of the MidPeninsula San Mateo County Core Service Agencies Housing Industry Foundation (HIF) Homelessness Analysis

106 Emergency Shelter Transitional Housing Motel Voucher Programs Permanent Supportive Housing Permanent Affordable Housing Emergency shelters are congregate housing facilities that typically allow stays of about 30 to 90 days. Transitional housing can be either congregate facilities, shared housing units or individual apartments. Transitional housing is time-limited and generally allows stays of 90 days to one year. Motel voucher programs provide short-term assistance. Permanent supportive housing (PSH) is targeted to assist homeless people with disabilities. It is permanent rental housing that provides access to extensive services to help tenants maintain stability. Few people who have recently suffered homelessness can afford market-rate housing. In East Palo Alto: Project WeHOPE Shelter (year-round) InnVision Shelter Network Veterans Hoptel (provides 1-3 nights of shelter and services to veterans receiving medical care at the local Veterans hospital) Free at Last (substance abuse treatment) Our Common Ground (substance abuse treatment) East Palo Alto Teen Home Outside East Palo Alto: Maple Street Shelter, Redwood City (single adults) First Step for Families, San Mateo (families) Haven Family Housing, Menlo Park (families) Hotel de Zink, Palo Alto (single adults) Motel Voucher Program, Shelter Network (families) In East Palo Alto: No permanent supportive housing complexes Several group homes Rental assistance is provided to some EPA residents from San Mateo County and Santa Clara County Housing Authorities through Shelter Plus Care Program. In East Palo Alto: 627+ affordable housing units Homelessness Analysis

107 Street Outreach Health and Behavioral Health Programs Permanent affordable housing provides subsidized rents without extensive services. Mobile outreach often involves multidisciplinary teams (outreach workers, police officers, mental health and substance abuse counselors, etc.) who conduct outreach to chronically homeless persons and help them find appropriate housing. Countywide there are many health, mental health and substance abuse programs targeting homeless people, including the Health Care for the Homeless Program, mental health services funded through the State s Mental Health Services Act (MHSA) and many substance abuse treatment programs. Source: East Palo Alto Homeless Solutions Plan, Final Report, 2012; DRA. Section 8 rental assistance is provided to some EPA residents renting units in East Palo Alto HIP Housing (home sharing program) In East Palo Alto: South County HOT Team (serves EPA and Redwood City) Ravenswood Health Center Homeless Outreach Mobile Health Van (San Mateo County Health Care for the Homeless) In East Palo Alto: Ravenswood Health Center Free at Last (substance abuse treatment) Our Common Ground (substance abuse treatment) Homelessness Analysis

108 B. East Palo Alto 2012 Homelessness Plan In 2011 the City of East Palo Alto commissioned the preparation of a Homeless Solutions Plan in recognition of the growing problem of homelessness in the community. This study was completed in The purpose of the Plan was to identify solutions to reduce homelessness in the City. It identified the highest priority needs, strategies to address those needs, and concrete steps to implement the recommended approaches. 1. Unmet Needs The 2012 Homeless Solutions Plan identified the following as the highest priority needs and gaps in shelter and services for homeless people in East Palo Alto. a. Lack of Emergency Shelters and Services While the County s homelessness plan emphasizes the expansion of permanent housing over shelter beds, the Plan makes the case for increasing shelter bed capacity in East Palo Alto for the single adult/chronically homeless population. East Palo Alto has a disproportionate share of the County s unsheltered single adult population, however, the majority of shelter and transitional beds serving this population are located outside of East Palo Alto. This creates a spatial mismatch between the homeless population and available beds. The WeHOPE Warming shelter in East Palo Alto is in high demand during winter months. In , about 225 individuals used the facility, even though it does not have showers or meals available. About one-third of clients stayed more than 15 days. In 2013, Project WeHOPE opened a year-round emergency shelter for adults in East Palo Alto, as described in the previous section. b. Lack of Supportive and Affordable Housing The City also lacks permanent supportive housing units. Currently, there are no dedicated supportive housing units in the community. c. Lack of Rapid Re-Housing and Housing First Programs Homelessness Analysis

109 In the absence of sufficient housing affordable to homeless people, best practices data suggest the most efficient way to end homelessness is to help homeless people move swiftly into housing, including market-rate and affordable housing. There is limited case management staff and rapid re-housing assistance in the County to make this happen. d. Lack of Institutional and Organizational Capacity The Plan identified the lack of a designated City point person to oversee the City s response to homelessness. Project WeHOPE has established itself as a key provider of services to the homeless community, but there are no other existing communitybased organizations in EPA with a track record of developing or operating housing or shelter for homeless persons on a permanent basis. As a result of these capacity issues, the City may not be represented as effectively as it could be in countywide processes for planning and funding decision-making Plan Recommendations The 2012 Plan made the recommendations listed below, which were considered likely to result in significant improvements and realistic for the near term. Progress towards implementing these recommendations is noted as available. a. Identify a person or team to serve as the City s homelessness lead and increase involvement in countywide efforts to address homelessness. b. Create a year-round shelter in the City with the capacity of 20 to 30 beds for the single adult population. The purpose of this facility would be to meet immediate sheltering and personal hygiene needs and also to serve as an entry point into services and housing. Project WeHOPE opened a year-round shelter in c. Expand the County s existing South County Homeless Outreach Team (HOT) to increase outreach to chronically homeless individuals and help link them to housing. d. Develop rapid re-housing program capacity with capacity to serve at least 25 households. e. Create 10 to 15 dedicated permanent supportive housing units using a leasing or acquisition strategy. Homelessness Analysis

110 Table 16 Section 8 Housing Choice Voucher Program Housing Authority of the County of San Mateo Monthly Cost Per Voucher Type Vouchers Voucher Monthly Cost Standard 890 $1,122 $998,137 Homeownership 11 $1,047 $11,513 Family Unification 80 $1,455 $116,396 Tenant Protection 110 $1,296 $142,573 Moving to Work 3,071 $1,465 $4,498,290 Ported Out 16 $837 $13,396 VASH 184 $1,082 $199,012 Source: HUD Voucher Management System; DRA. Summary of Existing Housing Conditions

111 Affordability Gap Analysis City of East Palo Alto March 16, 2018 Public Review Draft 108

112 PREPARED FOR: City of East Palo Alto PREPARED BY: David Paul Rosen & Associates 1330 Broadway, Suite 937 Oakland, CA Fax Hendrix Street Irvine, CA Fax City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 109

113 Table of Contents Introduction and Summary... 1 Summary of Findings... 2 Methodology... 8 Affordable Rents and Home Prices Affordable Housing Cost Definitions Occupancy Standards Utility Allowances Affordable Net Rents and Owner Monthly Housing Expense Affordable Home Prices Housing Development Costs Per Unit Affordability Gaps with and without Tax Credits City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 110

114 List of Tables 1 Affordable Housing Income Limits by Household Size 2 Per Unit Affordability Gaps, Rental Prototypes, With and Without Low Income Housing Tax Credits, Higher Income Targeting 3 Estimates Sources, Uses and Funding Gaps, Rental Housing Prototypes with Low Income Housing Tax Credits, Higher Income Targeting 4 Per Unit Affordability Gaps, Rental Prototypes, 6 With and Without Low Income Housing Tax Credits, Higher Income Targeting 5 Estimates Sources, Uses and Funding Gaps, 7 Rental Housing Prototypes with Low Income Housing Tax Credits, Higher Income Targeting 6 Owner Per Unit Affordability Gaps, Townhome 7 Prototype 7 Development Prototypes 9 8 Current Monthly Utility Allowances for Rental 12 Housing 9 Affordable Monthly Net Rents Affordable Monthly Owner Housing Cost Affordable Home Prices Key Development and Operating Cost Assumptions 13 Estimated Per Unit Total Development Costs, Renter and Owner Prototypes 14 Development Cost Assumptions and Estimated Budgets, Development Prototypes Affordable Rent Calculations by Income Level Affordable Home Sales Price Calculations Owner Per Unit Affordability Gaps 22 City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 111

115 18 Leveraged Financing Analysis: Rents and 23 Affordable Mortgage, Prototype 2, Highest Competitive Income Targeting 19 Leveraged Financing Analysis: Sources and 24 Uses, Prototype 2, Highest Competitive Income Targeting 20 Leveraged Financing Analysis: Rents and 25 Affordable Mortgage, Prototype 3, Highest Competitive Income Targeting 21 Leveraged Financing Analysis: Sources and 26 Uses, Prototype 3, Highest Competitive Income Targeting 22 Leveraged Financing Analysis: Rents and Affordable Mortgage, Prototype 4, Highest Competitive Income Targeting Leveraged Financing Analysis: Sources and Uses, Prototype 4, Highest Competitive Income Targeting Leveraged Financing Analysis: Rents and Affordable Mortgage, Prototype 2, Lower Income Targeting Leveraged Financing Analysis: Sources and Uses, Prototype 2, Lower Income Targeting Leveraged Financing Analysis: Rents and Affordable Mortgage, Prototype 3, Lower Income Targeting Leveraged Financing Analysis: Sources and Uses, Prototype 3, Lower Income Targeting Leveraged Financing Analysis: Rents and Affordable Mortgage, Prototype 4, Lower Income Targeting Leveraged Financing Analysis: Sources and Uses, Prototype 4, Lower Income Targeting 34 City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 112

116 Introduction and Summary DRA was retained by the City of East Palo to prepare a Comprehensive Affordable Housing Strategy, including an affordability gap analysis to compare the cost of developing new housing in the City at the amount low and moderate income households can afford to pay for housing. The affordability gap represents the capital subsidy required to develop housing affordable to families at target income levels. Since households at lower income levels can afford lower rents or housing payments than those at higher income levels, the per unit affordability gap increases as income targeting deepens to reach households at lower income levels. The methodology, key assumptions and findings of the affordability gap analysis are summarized below. DRA estimates funding gaps for rental housing, with and without leverage from the Low Income Housing Tax Credit Program, and for owner housing. This gap analysis focuses on permanent affordable rental housing and below market-rate (BMR) owner housing. Other types of housing for homeless and/or lower income individuals and households, including emergency shelters, transitional housing, and permanent supportive housing typically involve different building prototypes and very different capital and operating funding sources. The affordability gap analysis uses income limits commonly defined by the U.S. Department of Housing and Urban Development (HUD) and most affordable housing assistance programs. Very low income households are defined as households with incomes up to 50 percent of AMI, low income households are defined as households with incomes between 51 percent and 80 percent of AMI, and moderate income households are defined as those households earning between 81 and 120 percent of AMI. The 2017 AMI equals $115,300 for the San Francisco Metro FMR 1 Area (HMFA). HUD calculates a single median household income figure for the entire San Francisco HMFA, which then applies to each County within the HMFA, including San Mateo County. 1 FMR stands for Fair Market Rent. The San Francisco HMFA is a HUD-defined metropolitan area (a subset of the San Francisco-Oakland-Fremont Metropolitan Statistical Area or MSA) comprised of San Francisco, San Mateo and Marin Counties. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft 1 113

117 Table 1 shows 2017 HUD and California State very low, low and moderate income limits for the City of East Palo Alto for household sizes of one to six persons using HUD household size adjustment factors. Because the Bay Area is such a high cost housing area, income limits for households earning 80% of AMI and below are adjusted upwards from the straight percentage calculation based on AMI. This results in an income limit of $105,350 for a four-person household at 80% of AMI and $65,800 for a four-person household at 50% AMI. These limits are effectively based on a median income of approximately $131,600. Table 1 Affordable Housing Income Limits by Percent of Area Median Income (AMI) and Household Size 1 City of East Palo Alto 2017 Income Household Size Category Person 2 Persons Persons Persons Persons Persons 30% AMI $27,650 $31,600 $35,550 $39,500 $42,700 $45,850 50% AMI $46,100 $52,650 $59,250 $65,800 $71,100 $76,350 60% AMI $55,320 $63,180 $71,100 $78,960 $85,320 $91,620 80% AMI $73,750 $84,300 $94,850 $105,300 $113,800 $122, % AMI $80,700 $92,200 $103,770 $115,300 $124,500 $133, % AMI $96,850 $110,700 $124,500 $138,350 $149,400 $160,500 Source: San Mateo County 2017 published income limits; DRA. Summary of Findings The affordability gap analysis compares the cost of developing housing in the City with the amount very low, low, and moderate income households can afford to pay for housing. The affordability gap represents the capital subsidy required to develop housing affordable to families at target income levels. DRA estimated the costs to build new rental and owner housing prototypes based on a review of historical project cost data and analysis of 2017 applications for the Low Income Housing Tax Credit program. DRA modeled an owner townhome prototype at a density of 20 units per acre (Prototype #1) and three rental prototypes at a density of 54 units per acre (Prototypes #2, #3, and #4). The rental prototypes are modeled on the City-owned site at 965 Weeks Street, assuming a City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 2 114

118 35% density bonus. The three prototypes assume surface, mixed surface/structured, and structured parking, respectively, to illustrate the impact of parking costs on the gap. The Low Income Housing Tax Credit Program (LIHTC or tax credits) is the most valuable source of leveraged financing for affordable rental housing available today. While 9% tax credits are highly competitive, 4% tax credits are provided noncompetitively to projects receiving an allocation of tax-exempt bonds, which typically are undersubscribed. DRA estimated the funding gaps for the rental prototypes with and without leverage with 9% tax credits and 4% tax credits with tax-exempt bonds, as summarized in Table 2. These projections assume the minimum income targeting that scores maximum points under current California Tax Credit Allocation Committee (CTCAC) Regulations. Since the City owns the Weeks Street site, no land costs were assumed in the rental gap analysis, assuming the site would be provided by ground lease to the developer. The Weeks Street site is located in a Qualified Census Tract (QCT), qualifying it for a 30% bonus in eligible basis, increasing potential tax credit equity and reducing the funding gap. Based on the assumptions modelled, there is no funding gap for the 9% tax credit scenarios for this income targeting scenario. Table 3 summarizes estimated sources and uses under these tax credit financing scenarios for the rental housing prototypes. Table 4 shows the gaps for the same rental prototypes assuming lower income targeting that better meets the needs of East Palo Alto households. This income targeting scenario assumes 1/3 of units at 30% AMI, 1/3 at 45% AMI, and 1/3 at 50% AMI. Table 5 summarizes estimated sources and uses under tax credit financing scenarios for the rental housing prototypes assuming this lower income targeting scenario. Owner affordability gaps for the townhome prototype are shown in Table 6. There are few non-local leveraged financing resources for affordable owner housing development. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 3 115

119 Table 2 Per Unit Affordability Gaps Rental Prototypes With and Without Low Income Housing Tax Credits 1 Highest Competitive Income Targeting City of East Palo Alto Affordability Gap Analysis % Tax Credits w/ Tax-Exempt Bonds 2 9% Tax Credits 3 No Tax Credits 1 w/o Basis Boost w/ Basis Boost 4 w/o Basis Boost w/ Basis Boost 4 Prototypes #2: Family Apts; Surface Parking $182,600 $78,900 $52,500 $0 $0 #3: Large Family Apts; Mixed $247,800 $116,300 $88,600 $2,200 $0 Parking #4: Large Family Apts; Structured $308,800 $155,700 $118,900 $21,000 $0 Parking 1 Assumes 100% of units at 60% AMI. 2 Assumes 20% of units at 50% AMI and 80% of units at 60% AMI. 3 Assumes 10% of units at 30% AMI, 25% of units at 45% AMI, and 65% of units at 50% AMI. 4 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) and no land costs. The City-owned Weeks site is in a QCT. Source: DRA. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 4 116

120 Table 3 Estimated Sources and Uses New Construction Rental Housing Prototypes With Low Income Housing Tax Credits 1 Highest Competitive Income Targeting City of East Palo Alto Affordability Gap Analysis 2017 Prototype #2 Family Surface Parking 4% Tax Credits, Bonds 2 9% Tax Credits 3 Prototype 3 Large Family Mixed Parking 4% Tax Credits, Bonds 2 9% Tax Credits 3 Prototype #4 Large Family Structured Parking 4% Tax Credits, Bonds 2 9% Tax Credits 3 Tax Credit Equity $15.4 M $29.5 M $18.2 M $37.6 M $21.5 M $45.0 M Permanent Mortg./Bond $19.3 M $12.1 M $20.8 M $13.3 M $20.8 M $13.2 M Financing Gap $7.1 M $0 $12.0 M $0 $16.1 M $0 Total Develop. $41.8 M $41.6 M $51.0 M $50.8 M $58.4 M $58.2 M Cost (TDC) Financing Gap Per Unit 1 $52,500 $0 $88,600 $0 $118,900 $0 1 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA). The City-owned Weeks site is in a QCT. 2 Assumes 20% of units at 50% AMI and 80% of units at 60% AMI. 3 Assumes 10% of units at 30% AMI, 25% of units at 45% AMI, and 65% of units at 50% AMI. Source: DRA. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 5 117

121 Table 4 Per Unit Affordability Gaps Rental Prototypes With and Without Low Income Housing Tax Credits Lower Income Targeting 1 City of East Palo Alto Affordability Gap Analysis % Tax Credits w/ Tax-Exempt Bonds 1 9% Tax Credits 1 No Tax Credits 1 w/o Basis Boost w/ Basis Boost 2 w/o Basis Boost w/ Basis Boost 2 Prototypes #2: Family Apts; Surface Parking $250,000 $146,700 $120,300 $15,900 $0 #3: Large Family Apts; Mixed $318,600 $186,600 $159,000 $22,200 $0 Parking #4: Large Family Apts; Structured $379,600 $226,100 $189,300 $41,000 $0 Parking 1 Assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. 2 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA) and no land costs. The City-owned Weeks site is in a QCT. Source: DRA. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 6 118

122 Table 5 Estimated Sources and Uses New Construction Rental Housing Prototypes With Low Income Housing Tax Credits 1 Lower Income Targeting 2 City of East Palo Alto Affordability Gap Analysis 2017 Prototype #2 Family Surface Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Prototype 3 Large Family Mixed Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Prototype #4 Large Family Structured Parking 4% Tax Credits, Bonds 2 9% Tax Credits 2 Tax Credit Equity $15.4 M $32.2 M $18.2 M $40.3 M $21.5 M $47.7 M Permanent Mortg./Bond $10.1 M $9.5 M $11.3 M $10.5 M $11.3 M $10.5 M Financing Gap $16.2 M $0 $21.5 M $0 $25.6 M $0 Total Develop. $41.8 M $41.6 M $51.0 M $50.8 M $58.4 M $58.2 M Cost (TDC) Financing Gap Per Unit 1 $120,300 $0 $159,000 $0 $189,300 $0 1 Assumes 130% basis boost for sites in a Qualified Census Tracts (QCT) or Difficult to Development Area (DDA). The City-owned Weeks site is in a QCT. 2 Assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. Source: DRA. Table 6 Owner Per Unit Affordability Gaps Townhome Prototype #1 City of East Palo Alto Affordability Gap Analysis 2017 Very Low Income Low Income Moderate Income Two Bedrooms $230,400 $187,800 $102,800 Three Bedrooms $294,700 $247,400 $152,900 Average 1 $281,800 $235,500 $142,900 1 Weighted average based on the unit distribution by bedroom count for the owner housing prototype. Source: DRA. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report 7 119

123 Methodology The affordability gap analysis compares the cost of housing development in the City to the amount very low and low income households can afford to pay for housing, as described above. The affordability gap represents the capital subsidy required to develop housing affordable to families at target income levels. The methodology, key assumptions and findings of the affordability gap analysis are summarized below. The first step in the gap analysis establishes the amount a tenant or homebuyer can afford to contribute to the cost of renting or owning a dwelling unit. This analysis uses the income level and affordable housing cost definitions defined in prior sections of this report. The second step estimates the costs of constructing or preserving affordable housing in the City. DRA calculated the affordability gap for three owner prototypes and one renter prototype considered representative of recent and current new multifamily and single-family development in the City. The prototypes used in this analysis are detailed in Table 7. Affordability gaps are calculated for one-, two- and three-bedroom units for renters, and two- and three-bedroom units for owners. The third step in the gap analysis establishes the housing expenses borne by the tenants and owners. These costs can be categorized into operating costs, and financing or mortgage obligations. Operating costs are the maintenance expenses of the unit, including utilities, property maintenance, property taxes, management fees, property insurance, replacement reserve, and insurance. For the rental prototypes examined in this analysis, DRA assumed that the landlord pays all but certain tenant-paid utilities as an annual operating cost of the unit paid from rental income. For owner prototypes, DRA assumed the homebuyer pays all operating and maintenance costs for the home. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft 8 120

124 Table 7 Development Prototypes City of East Palo Alto Affordability Gap Analysis 2017 Prototype 1 Prototype 2 Prototype 3 Prototype 4 w/o DB Total Housing Unit Count Description Townhomes Family Apartments with Surface Parking Large Family Apts. With Mixed Parking Large Family Apts. With Structured Parking Large Family Apts. With Structured Parking Tenure (Renter/Owner) Owner Rental Rental Rental Rental Total Site Area (Acre) 2.50 Acres 2.52 Acres 2.52 Acres 2.52 Acres 2.52 Acres Total Site Area (SF) 108, , , , ,771 Density (Units Per Acre) Construction Type Wood Wood Wood Wood Wood Parking Type Garage Structured/UG Structured/UG Structured/UG Structured/UG Approximate Building Stories 3 Stories 4 Stories 4 Stories 4 Stories 3 Stories Total Gross Building SF (Excl. Pkg.) 53, , , ,444 91,833 FAR Net Residential Square Feet (NRSF) 53,000 SF 102,700 SF 109,700 SF 109,700 SF 81,250 SF Net Rentable SF Ground Floor Retail 0 SF 0 SF 0 SF 0 SF 0 SF Net SF Community Space 0 SF 1,800 SF 1,800 SF 1,400 SF 1,400 SF Net Rentable SF Total 53,000 SF 104,500 SF 111,500 SF 111,100 SF 82,650 SF Building Efficiency Ratio (%) 100% 90% 90% 90% 90% Total Gross Building SF (Excl. Pkg.) 53, , , ,444 91,833 Building Footprint 17,667 29,028 30,972 30,861 30,611 Site Coverage Ratio 16% 26% 28% 28% 28% Unit Bedroom Count Distribution Studio/Loft 0% 0% 0% 0% 0% One Bedroom 0% 40% 25% 25% 25% Two Bedroom 20% 50% 50% 50% 50% Three Bedroom 80% 10% 25% 25% 25% Total 100% 100% 100% 100% 100% Units by BR Count Studio/Loft One Bedroom Two Bedroom Three Bedroom Total Residential Units Unit Size (Net SF) Studio/Loft One Bedroom 650 SF 650 SF 650 SF 650 SF Two Bedroom 900 SF 800 SF 800 SF 800 SF 800 SF Three Bedroom 1,100 SF 1,000 SF 1,000 SF 1,000 SF 1,000 SF Average Unit Size 1,060 SF 760 SF 813 SF 813 SF 813 SF Parking Ratio (Spaces/Unit) Studio/Loft One Bedroom Two Bedroom Three Bedroom Total Parking Spaces Based on Ratio Average Spaces/Unit Structured/Underground Parking Spaces 0 Spaces 0 Spaces 102 Spaces 203 Spaces 75 Spaces Surface Parking 0 Spaces 183 Spaces 101 Spaces 0 Spaces 75 Spaces Garage Parking Spaces (3) 95 Spaces 0 Spaces 0 Spaces 0 Spaces 0 Spaces Total Parking Spaces Provided 95 Spaces 183 Spaces 203 Spaces 203 Spaces 150 Spaces Gross SF/Parking Space (Incl. Circulation) 350 SF 350 SF 350 SF 350 SF 350 SF Total Gross Parking SF 33,250 SF 64,050 SF 71,050 SF 71,050 SF 52,500 SF Struct/Underground Parking SF 0 SF 0 SF 35,700 SF 71,050 SF 26,250 SF Parking SF Surface 0 SF 64,050 SF 35,350 SF 0 SF 26,250 SF Garage Parking SF 33,250 SF 0 SF 0 SF 0 SF 0 SF Sources: City of East Palo Alto; DRA. 121

125 Financing or mortgage obligations are the costs associated with the purchase or development of the housing unit itself. These costs occur when all or a portion of the development cost is financed. This cost is always an obligation of the landlord or owner. Supportable financing is deducted from the total development cost, less any owner equity (for owner-occupied housing, the downpayment) to determine the capital subsidy required to develop the prototypical housing unit affordable to an eligible family at each income level. For rental housing prototypes, the gap analysis calculates the difference between total development costs and the conventional mortgage supportable by net operating income from restricted rents, plus any other sources available to subsidize the housing. For owners, the gap is the difference between development costs and the supportable mortgage plus the buyer s downpayment. The purpose of the gap analysis is to determine the fee amount that would be required to develop housing affordable to the very low and low income households who will need to find housing in the City in connection with new residential development in the City. Therefore, no other housing subsidies, or leverage, are assumed. A leveraged financial analysis examining the impact of tax credits on the funding gaps is contained at the end of this report. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

126 Affordable Rents and Home Prices AFFORDABLE HOUSING COST DEFINITIONS Calculation of affordable rents and home prices requires defining affordable housing expense for renters and owners. Affordable housing expense for renters is defined to include rent plus utilities, which is standard for affordable housing programs and practice. For owners, affordable housing expense is defined to include mortgage principal, interest and PMI; property taxes (including special assessments); property insurance; homeowner s association (HOA) dues; and utilities. For both owners and renters, affordable housing expense is calculated at 30 percent of household income, per City policy. Defining affordable housing expense at the top of each income range for the purposes of calculating affordable rents and sales prices means that the resulting affordable rent or home price is not affordable to most households in the income category. Therefore, the City s internal policy is to define affordable housing expense for low and moderate income households at a mid-point of the income range. For low income households, affordable housing expense is calculated at 60 percent of AMI. For moderate income households, affordable housing expense is calculated at 80 percent of AMI. OCCUPANCY STANDARDS Because income definitions for affordable housing assistance programs vary by household size, the calculation of affordable rent and affordable owner housing cost requires the use of occupancy standards (the number of persons per unit) for each unit size. For the purposes of this analysis, affordable housing cost for renters is based on an occupancy standard of 1.5 persons per bedroom, consistent with the Low Income Housing Tax Credit program. For example, the occupancy standard used to calculate affordable rents would be three persons for a twobedroom unit. For owners, affordable housing cost is based on an occupancy standard of one person per bedroom plus one, consistent with California Health and Safety Code Section 50053(h). Therefore, the occupancy standard for purposes of calculating affordable sales prices is 4 persons for a three-bedroom unit, and 3 persons for a two-bedroom unit. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

127 UTILITY ALLOWANCES Affordable net rents are calculated by subtracting allowances for the utilities paid directly by the tenants or homeowners from the total affordable housing cost. For this calculation, DRA has incorporated 2017 utility allowances from the Housing Authority of the County of San Mateo for multifamily housing (apartments, condos and duplexes). Renter utility allowances assume residents pay for electric heating, cooking and water heating, plus other electric and the landlord pays for trash collection and water. Owner utility allowances include water and trash collection. The resulting utility allowances are summarized in Table 8. Published utility allowances may be higher than actual utilities expected in new Low Income Housing Tax Credit (LIHTC) projects, which are required to be highly energy efficient and are allowed to calculate lower allowances that vary from project to project using the California Utility Allowance Calculator (CUAC). Actual utility allowances for an individual unit would also depend upon a variety of factors, including the utilities that are in fact paid by the residents (e.g., water, gas, electricity, sewer, trash), the type of appliances and heating units contained in the units and whether appliances and heating units require electricity or gas. Table 8 Current Monthly Utility Allowances Renter and Owner Housing Prototypes East Palo Alto Affordability Gap Analysis 2017 Unit Bedroom Count Renter Utility Allowance 1 Owner Utility Allowance 2 One Bedroom $55 $132 Two Bedrooms $76 $168 Three Bedrooms $99 $208 Four Bedrooms $121 $249 1 Assumes electric heating, cooking and water heating, and other electric. 2 Equals renter utility allowance plus water and trash collection. Source: Housing Authority of the County of San Mateo, 2017; DRA. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

128 AFFORDABLE NET RENTS AND OWNER MONTHLY HOUSING EXPENSE Table 9 summarizes affordable monthly net rents by income level based on the assumptions described above. Table 10 summarizes monthly affordable housing costs for owners. Owner housing cost calculations assume monthly property insurance costs of $100, monthly HOA dues of $200, and annual property taxes, estimated at 1.20 percent of the affordable home price, including assessments. Table 9 Affordable Net Rents by Percent of AMI and Unit Bedroom Count 1 City of East Palo Alto Housing Affordability Gap Analysis Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 30% of AMI $685 $812 $927 $1,024 50% of AMI $1,179 $1,405 $1,612 $1,787 60% of AMI $1,426 $1,701 $1,954 $2,169 80% of AMI $1,919 $2,293 $2,638 $2, % of AMI $2,413 $2,885 $3,323 $3, % of AMI $2,906 $3,477 $4,007 $4,459 1 San Mateo County published 2017 income limits. Assumes an occupancy standard of 1.5 persons per bedroom. Net rents are calculated assuming 30% of gross income spent on rent and then deducting apartment utility allowances from the Housing Authority of San Mateo County of $47 for a studio, $55 for a one-bedroom unit, $76 for a two-bedroom unit, $99 for a three-bedroom unit, and $121 for a four-bedroom unit (assuming electric heating, cooking and water heating plus other electric) HUD median income was $115,300. Sources: HUD; San Mateo County; Housing Authority of the County of San Mateo; DRA. Table 10 Affordable Monthly Owner Housing Cost 1 East Palo Alto Affordability Gap Analysis % AMI 60% AMI 80% AMI One Bedroom $1,153 $1,384 $1,845 Two Bedrooms $1,297 $1,557 $2,075 Three Bedrooms $1,441 $1,730 $2,306 Four Bedrooms $1,557 $1,858 $2,490 1 Owner affordable housing costs are calculated assuming an occupancy standard of one person per bedroom plus one and 30% of gross income spent on housing. Source: U.S. Department of Housing and Urban Development; DRA. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

129 AFFORDABLE HOME PRICES Table 11 shows affordable home prices by income level, based on the affordable monthly owner housing cost by income level and deductions for property taxes, property insurance and HOA dues. The maximum affordable home price is estimated assuming a 5% owner downpayment, a 5.0% mortgage interest rate and 30-year mortgage term. Table 11 Affordable Home Prices by Percent of AMI and Unit Bedroom Count 1 City of East Palo Alto Housing Affordability Gap Analysis Owner Townhome Prototype 2017 Unit Size 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom 50% of AMI $118,200 $135,906 $152,956 $165,251 60% of AMI $156,071 $178,530 $200,334 $216,236 80% of AMI $231,647 $263,451 $294,764 $318,207 1 Affordable mortgage principal and interest calculated by deducting the following from affordable owner monthly housing cost: annual property taxes and assessments at 1.20% of affordable home price; HOA dues of $200 per month, property insurance of $100 per month, and owner utility allowances from Table 4. Affordable mortgage calculated assuming 5% owner downpayment, 5.0% mortgage interest rate (including PMI) and 30-year mortgage term and amortization. Source: HUD; San Mateo County; DRA. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

130 Housing Development Costs DRA estimated the costs to build the new rental and owner housing prototypes based on a review of historical project cost data and analysis of 2017 applications for the Low Income Housing Tax Credit program. A summary of the CTCAC data reviewed is contained in Appendix A. Key assumptions land costs, hard costs and ongoing annual operating costs are summarized in Table 12. No land acquisition costs are assumed for the Rental prototypes assuming they are developed on the City-owned Weeks site. If the City contributes the land to a partnership or an LLC that will develop the affordable housing, the site will be valued by market appraisal at the time of the transaction and an equal loan amount will become an obligation of the partnership. Table 12 Key Development and Operating Cost Assumptions East Palo Alto Affordability Gap Analysis Prototype and Market Land Cost Scenario Land Acquisition Cost Per Unit 1 Hard Cost Per Unit Total Development Cost Per Unit (Average) Annual Operating Costs Per Unit 2 Townhomes (Prototype 1) $108,900 $193,000 $432,000 N/A With Garages Family Apartments, Wood $0 $231,100 $353,000 $6,400 Frame Flats, Surface Parking (Prototype 2) Large Family Apartments, $0 $292,700 $437,000 $6,400 Wood Frame Flats, Mixed Parking (Prototype 3) Large Family Apartments, Wood Frame Flats, Struct/UG Parking (Prototype 4) $0 $338,200 $505,000 $6,400 1 For rental prototypes, assumes development occurs on the City-owned Weeks site. Land cost not included. 2 For rental prototypes. Assumes property tax exemptions. Source: DRA City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

131 Table 13 summarizes per unit development costs by prototype and unit bedroom count. The key cost differences between Rental Prototypes #2, #3 and #4 is the cost of structured parking. Prototype #2 assumes surface parking for the smaller family project. Prototype #3 assumes 50% surface parking and 50% structured/underground parking and Prototype #4 assumes all structured/underground parking. Unit Bedroom Count Table 13 Estimated Per Unit Total Development Costs Owner and Renter Prototypes City of East Palo Alto Affordability Gap Analysis 2017 Prototype #1 Prototype #2 Prototype #3 Prototype 4 Owner Townhomes Stacked Flat Apartments Family Units Stacked Flats Large Family Units Stacked Flats Large Family w/ Struct. Pkg. One Bedroom N/A $302,250 $350,000 $404,000 Two Bedrooms $366,300 $372,000 $430,400 $497,000 Three Bedrooms $447,700 $465,000 $538,000 $621,000 Average 1 $431,400 $353,400 $437,100 $504,600 1 Weighted average based on the unit distribution by bedroom count and unit sizes (net square feet) for the housing prototypes. Source: DRA. Development cost assumptions and estimates for the prototypes are detailed in Table 14, which is presented with the rest of the tables referred to below following the end of the text. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

132 Per Unit Affordability Gaps with and without Tax Credits The per unit subsidy required to make new housing affordable to very low and low income residents was calculated by subtracting per unit development costs from the per unit mortgage or home price supportable from affordable rents and owner housing cost. Table 15 calculates affordable rents by income level and unit bedroom count for East Palo Alto in Table 16 calculates affordable home sales prices for the owner prototype by unit bedroom count, based on estimated deductions for utilities, HOA dues (estimated at $200 per month), property insurance (estimated at $100 per month), and property taxes based on 1.2% of the affordable home price for taxes and assessments. Table 17 calculates per unit affordability gaps for owner townhomes, Prototype 1, by unit bedroom count and income level. For the rental housing prototypes, DRA estimated the funding gaps without tax credits, and with 9% tax credits and with 4% tax credits and tax-exempt bonds. Underwriting assumptions for these scenarios are consistent with 2017 California Tax Credit Allocation Committee Regulations. Key assumptions include threshold basis limits and exceptions, debt coverage ratio, occupancy standards, and competitive income targeting, among others, as detailed in the table footnotes. Table 18 shows estimated rents, operating costs, net operating income and supportable permanent mortgage under the 9% and 4% tax credit scenarios for Prototype #2 (four-story wood-frame with surface parking) under the highest income targeting scenario that scores maximum points. Table 19 shows the estimated sources and uses and funding gaps for Prototype #2 under the 9% and 4% tax credit scenarios with these income targeting assumptions. The tax credit analysis is repeated for Prototype #3 (four-story wood-frame with a mix of surface and structured/underground parking) in Table 20 (net operating income and supportable mortgage) and Table 21 (sources and uses and funding gaps). The tax credit analysis is repeated for Prototype #4 (four-story wood-frame with 100% structured/underground parking) in Table 22 (net operating income and supportable mortgage) and Table 23 (sources and uses and funding gaps). City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

133 Tables 24 through 29 repeat the analysis of Tables 18 through 23 under a lower income targeting scenario that assumes 1/3 of units at 30% AMI, 1/3 of units at 45% AMI, and 1/3 of units at 50% AMI. City of East Palo Alto Affordability Gap Analysis March 16, 2018 Public Review Draft Report

134 Table 14 Development Cost Assumptions and Budgets Renter and Owner Prototypes City of East Palo Alto Affordability Gap Analysis 2017 Prototype 1 Prototype 2 Prototype 3 Prototype 4 Townhomes Family Apartments with Surface Parking Large Family Apts. With Mixed Parking Large Family Apts. With Structured Parking 0 Tenure Owner Rental Rental Rental Construction Type Wood Wood Wood Wood Total Residential Units Average Unit Size (Net SF) 1, Residential Net SF 53, , , ,700 Total Net SF 53, , , ,100 Total Gross SF Building Area (Excluding Parking) 53, , , ,444 Structured/Underground Parking Spaces Garage Parking Spaces Total Parking Spaces Total Parking SF 33,250 64,050 71,050 71,050 Site Area (SF) 108, , , ,771 Approximate Building Stories FAR (Based on Gross SF) ASSUMPTIONS Hard Cost Assumptions Land Price Per Site SF $50 $0 $0 $0 Per Hsg. Unit $108,900 $0 $0 $0 Hard Construction Cost Per Net SF (1) $150 $250 $250 $250 Site Improvements Per Net SF (1) $0 $0 $0 $0 Structured/Underground Parking Cost Per Space N/A $0 $50,000 $50,000 Garage Parking Cost Per Space Incl. in Hard Costs N/A N/A N/A Gen. Contractor O&P, Bonds, Ins 16.5% 16.5% 16.5% 16.5% Hard Cost Contingency % of Hard Costs 5.0% 5.0% 5.0% 5.0% Permits and Fees Cost Per Unit $28,000 $25,000 $25,000 $25,000 Financing Costs % of Hard Costs 15.0% 10.0% 10.0% 10.0% Other Soft Costs (2) % of Hard Costs 20% 20% 20% 20% Developer Overhead and Profit (3) % of TDC 10.0% 10.0% 10.0% 10.0% Owner Housing Sales Costs % of Gross Sales 5% 5% 5% 5% DEVELOPMENT BUDGET Land Acquisition $5,445,000 $0 $0 $0 Buildings and Site Improvements $7,950,000 $25,675,000 $27,425,000 $27,425,000 Structured Parking $0 $0 $5,100,000 $10,150,000 Contractor P&O, General Cond., Bonds, Insurance $1,311,750 $4,236,375 $5,366,625 $6,199,875 Hard Cost Contingency $397,500 $1,283,750 $1,626,250 $1,878,750 Permits and Fees $1,400,000 $3,375,000 $3,375,000 $3,375,000 Financing Costs $1,192,500 $2,567,500 $2,872,000 $3,757,500 Other Soft Costs $1,931,850 $6,239,025 $7,903,575 $9,130,725 Developer Overhead and Profit $1,962,860 $4,337,665 $5,366,845 $6,191,685 Total Development Costs, Including Land $21,591,460 $47,714,315 $59,035,295 $68,108,535 TDC Per Housing Unit $432,000 $353,000 $437,000 $505,000 TDC per SF Living Area $407 $465 $538 $621 Total Development Costs, Excluding Land $16,146,460 $47,714,315 $59,035,295 $68,108,535 TDC per SF Living Area $305 $465 $538 $621 (1) Hard construction costs exclude parking; gross square feet exclude parking areas. (2) Includes design, insurance, legal, accounting, and financing costs. (3) Represents market rate developer overhead and profit. Revised for 4% and 9% tax credit scenarios to comply with TCAC Regulations. Sources: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

135 Table 15 Affordable Rent Calculations By Income Level Renter Housing Prototypes City of East Palo Alto Affordability Gap Analysis 2017 Assumptions 2017 Median Income, San Mateo County $115, HUD Very Low Income Limit, 4 Persons, San Mateo County $65,800 Affordable Housing Cost As a % of Income 30% No. of Bedrooms One Bedroom Two Bedroom Three Bedroom Household Size 1.5 Persons 3.0 Persons 4.5 Persons Household Size Income Adjust. Factor (1) 75% 90% 104% Renter Utility Allowance (2) $55 $76 $99 Affordable Rents by Income Level One Bedroom Two Bedroom Three Bedroom 30% of Median Annual Gross Income $29,610 $35,532 $41,059 Affordable Monthly Housing Cost $740 $888 $1,026 Less: Monthly Utility Allowance ($55) ($76) ($99) Affordable Monthly Rent $685 $812 $927 45% of Median Annual Gross Income $44,415 $53,298 $61,589 Affordable Monthly Housing Cost $1,110 $1,332 $1,540 Less: Monthly Utility Allowance ($55) ($76) ($99) Affordable Monthly Rent $1,055 $1,256 $1,441 50% of Median Annual Gross Income $49,350 $59,220 $68,432 Affordable Monthly Housing Cost $1,234 $1,481 $1,711 Less: Monthly Utility Allowance ($55) ($76) ($99) Affordable Monthly Rent $1,179 $1,405 $1,612 60% of Median Annual Gross Income $59,220 $71,064 $82,118 Affordable Monthly Housing Cost $1,481 $1,777 $2,053 Less: Monthly Utility Allowance ($55) ($76) ($99) Affordable Monthly Rent $1,426 $1,701 $1,954 80% of Median Annual Gross Income $78,960 $94,752 $109,491 Affordable Monthly Housing Cost $1,974 $2,369 $2,737 Less: Monthly Utility Allowance ($55) ($76) ($99) Affordable Monthly Rent $1,919 $2,293 $2, % of Median Annual Gross Income $98,700 $118,440 $136,864 Affordable Monthly Housing Cost $2,468 $2,961 $3,422 Less: Monthly Utility Allowance ($55) ($76) ($99) Affordable Monthly Rent $2,413 $2,885 $3, % of Median Annual Gross Income $118,440 $142,128 $164,237 Affordable Monthly Housing Cost $2,961 $3,553 $4,106 Less: Monthly Utility Allowance ($55) ($76) ($99) Affordable Monthly Rent $2,906 $3,477 $4,007 (1) HUD published factors for adjusting household income by household size. (2) Assumes tenant pays electric heating, cooking and water heating, and other electric. Source: Housing Authority of the County of San Mateo, 11/1/2017. Source: DRA. City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

136 Table 16 Affordable Home Sales Price Calculations, Owner Housing Owner Housing Prototypes City of East Palo Alto Affordability Gap Analysis 2017 ASSUMPTIONS 2017 Median Income, San Mateo County $115,300 Affordable Housing Cost As a % of Income 30% No. of Bedrooms 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Household Size, Health and Safety Code 2 Persons 3 Persons 4 Persons 5 Persons Household Size Income Adjust. Factor 80% 90% 100% 108% Owner Utility Allowance (1) $132 $168 $208 $249 Monthly HOA Fee/Maint. Cost $200 Monthly Property Insurance $100 Property Tax Rate 1.20% Downpayment as a % of Affordable Home Price 5.00% Mortgage Interest Rate (Including PMI) 5.00% Term (Years) 30 AFFORDABLE HOUSING PAYMENT (PITI) 1 Bedroom 2 Bedroom 3 Bedroom 4 Bedroom Very Low Income 50% AMI Annual Gross Income $46,120 $51,885 $57,650 $62,262 Affordable Monthly Housing Cost 30% $1,153 $1,297 $1,441 $1,557 Less: Utilities ($132) ($168) ($208) ($249) Less: HOA/Maintenance Expense ($200) ($200) ($200) ($200) Less: Property Insurance ($100) ($100) ($100) ($100) Less: Property Taxes/Assessments (1) 1.20% ($118) ($136) ($153) ($165) Available for Principal and Interest $603 $693 $780 $843 Supportable Mortgage $112,290 $129,111 $145,308 $156,989 Afford. Sales Price w/ 5.00% $118,200 $135,906 $152,956 $165,251 Low Income 60% AMI Annual Gross Income $55,344 $62,262 $69,180 $74,714 Affordable Monthly Housing Cost 30% $1,384 $1,557 $1,730 $1,868 Less: Utilities ($132) ($168) ($208) ($249) Less: HOA/Maintenance Expense ($200) ($200) ($200) ($200) Less: Property Insurance ($100) ($100) ($100) ($100) Less: Property Taxes/Assessments (1) 1.20% ($156) ($179) ($200) ($216) Available for Principal and Interest $796 $910 $1,022 $1,103 Supportable Mortgage $148,267 $169,604 $190,318 $205,425 Afford. Sales Price w/ 5.00% $156,071 $178,530 $200,334 $216,236 Moderate Income 80% AMI Annual Gross Income $73,792 $83,016 $92,240 $99,619 Affordable Monthly Housing Cost 30% $1,845 $2,075 $2,306 $2,490 Less: Utilities ($132) ($168) ($208) ($249) Less: HOA/Maintenance Expense ($200) ($200) ($200) ($200) Less: Property Insurance ($100) ($100) ($100) ($100) Less: Property Taxes/Assessments (1) 1.20% ($232) ($263) ($295) ($318) Available for Principal, Interest, Taxes $1,181 $1,344 $1,503 $1,623 Less: Property Taxes/Assessments (1) 0.00% $0 $0 $0 $0 Supportable Mortgage $220,064 $250,278 $280,025 $302,297 Assumed Assessed Value at Sale 95.00% $231,647 $263,451 $294,764 $318,207 Available for Mortg. Principal and Interest $1,181 $1,344 $1,503 $1,623 Supportable Mortgage $220,064 $250,278 $280,025 $302,297 Afford. Sales Price w/ 5.00% $231,647 $263,451 $294,764 $318,207 (1) HUD published factors for adjusting household income by household size. (2) Property taxes calculated based on assessed value equal to affordable sales price with downpayment. Source: DRA. City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

137 Table 17 Owner Housing Per Unit Affordability Gaps Prototype 1 Townhomes City of East Palo Alto Affordability Gap Analysis 2017 Income Level No. of BR Unit SF Maximum Monthly Housing Cost Affordable Sales Price Per Unit (2) Total Development Cost Per Unit (3) Total Units Total Affordable Sales Price Total Development Cost (3) Affordability Gap Gap Per Unit Very Low Income $1,297 $135,900 $366, $1,359,000 $3,663,000 $2,304,000 $230,400 Low Income $1,557 $178,500 $366, $1,785,000 $3,663,000 $1,878,000 $187,800 Moderate Income $2,075 $263,500 $366, $2,635,000 $3,663,000 $1,028,000 $102,800 Very Low Income 3 1,100 $1,441 $153,000 $447, $6,120,000 $17,908,000 $11,788,000 $294,700 Low Income 3 1,100 $1,730 $200,300 $447, $8,012,000 $17,908,000 $9,896,000 $247,400 Moderate Income 3 1,100 $2,306 $294,800 $447, $11,792,000 $17,908,000 $6,116,000 $152,900 Very Low Income Low Income Weighted Average (1) 2,000 $1,412 $149,580 $431, $7,479,000 $21,571,000 $14,092,000 $281,840 Weighted Average (1) 2,000 $1,695 $195,940 $431, $9,797,000 $21,571,000 $11,774,000 $235,480 Moderate Income Weighted Average (1) 2,000 $2,260 $288,540 $431, $14,427,000 $21,571,000 $7,144,000 $142,880 (1) Weighted average based on unit distribution by bedroom count for the owner housing prototype. (2) From Table 13. (3) From Table 11. Source: DRA. City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

138 Table 18 Leveraged Financing Analysis: Rents and Affordable Mortgage Prototype 2 Higher Income Targeting City of East Palo Alto Affordability Gap Analysis No Tax Credits Projections 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits No Tax Credits 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits Number of Units by Income Level Percent of Units by Income Level and Unit Bedroom Count 30% AMI 30% AMI 30% AMI 30% AMI One Bedroom % 0% 10% Two Bedroom % 0% 10% Three Bedroom % 0% 10% Four Bedroom % 0% 10% 45% AMI 45% AMI 45% AMI 45% AMI One Bedroom % 0% 25% Two Bedroom % 0% 25% Three Bedroom % 0% 25% Four Bedroom % 0% 25% 50% AMI 50% AMI 50% AMI 50% AMI One Bedroom % 20% 65% Two Bedroom % 20% 65% Three Bedroom % 20% 65% Four Bedroom % 20% 65% 60% AMI 60% AMI 60% AMI 60% AMI One Bedroom % 80% 0% Two Bedroom % 80% 0% Three Bedroom % 100% 0% Four Bedroom % 100% 0% Monthly Gross Rents Monthly Rent by Income Level and Bedroom Count (1) 30% AMI 30% AMI Tax Credit Rents One Bedroom $0 $0 $3,425 One Bedroom $685 Two Bedroom $0 $0 $5,684 Two Bedroom $812 Three Bedroom $0 $0 $927 Three Bedroom $927 Four Bedroom $0 $0 $0 Four Bedroom $1,024 45% AMI 45% AMI One Bedroom $0 $0 $14,770 One Bedroom $1,055 Two Bedroom $0 $0 $21,352 Two Bedroom $1,256 Three Bedroom $0 $0 $5,764 Three Bedroom $1,441 Four Bedroom $0 $0 $0 Four Bedroom $1,596 50% AMI 50% AMI One Bedroom $0 $12,969 $41,265 One Bedroom $1,179 Two Bedroom $0 $18,265 $60,415 Two Bedroom $1,405 Three Bedroom $0 $4,836 $14,508 Three Bedroom $1,612 Four Bedroom $0 $0 $0 Four Bedroom $1,787 60% AMI 60% AMI One Bedroom $77,004 $61,318 $0 One Bedroom $1,426 Two Bedroom $113,967 $91,854 $0 Two Bedroom $1,701 Three Bedroom $27,356 $21,494 $0 Three Bedroom $1,954 Four Bedroom $0 $0 $0 Four Bedroom $2,169 Gross Rents $2,619,924 $2,528,832 $2,017,320 Total Units: 135 Less: Vacancy ($130,996) ($126,442) ($100,866) One Bedroom 54 Less: Operating Costs ($864,000) ($864,000) ($864,000) Two Bedroom 67 Less: Replacement Reservses $0 ($47,250) ($47,250) Three Bedroom 14 Net Operating Income $1,624,928 $1,491,140 $1,005,204 Four Bedroom 0 Annual Debt Service $1,354,107 $1,242,617 $874,090 Permanent Mortgage Amount $18,821,134 $19,289,725 $12,149,246 Vacancy Rate (2) 5.00% 5.00% 5.00% Annual Operating Cost Per Unit $6,400 $6,400 $6,400 Annual Replace. Reserve/Unit (1) $0 $350 $350 Mortgage Interest Rate 6.00% 5.00% 6.00% Debt Coverage Ratio Term (Years) Assumptions (1) Based on 2017 HUD Median Family Income, San Mateo County of $115,300, net of utility allowances. (2) TCAC requires a min. vacancy rate of 5.0% and min. annual replacement reserves of $300 per unit for new construction projects. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

139 Table 19 Leveraged Financing Analysis: Sources and Uses Prototype 2 Higher Income Targeting City of East Palo Alto Affordability Gap Analysis 4% Tax Credit w/ Tax Exempt Bonds 9% Tax Credits No Tax Credits w/o Basis Boost w/ Basis Boost w/o Basis Boost w/ Basis Boost Assumptions SOURCES AND USES Total Units 135 PERMANENT SOURCES OF FUNDS Acres 2.52 Federal Tax Credit Equity (1) $0 $11,877,466 $15,440,705 $29,488,029 $29,488,029 Unit/Acre Permanent Mortgage/Bond $18,821,134 $19,289,725 $19,289,725 $12,149,246 $12,149,246 Deferred Developer Fee (2) $0 $0 $0 $0 $0 Gap Financing Required $24,656,806 $10,648,584 $7,085,344 $0 $0 TOTAL SOURCES $43,477,940 $41,815,775 $41,815,775 $41,637,275 $41,637,275 Permanent Gap Financing/Unit $182,643 $78,878 $52,484 $0 $0 Difference in Per Unit Cost Compared to "No Tax Credit" Scenario 4% Tax Credits 9% Tax Credits PERMANENT USES OF FUNDS Land Acquisition Costs $0 $0 $0 $0 $0 $0 $0 Bldg. Construction Costs $25,675,000 $25,675,000 $25,675,000 $25,675,000 $25,675,000 $0 $0 Parking Construction Costs $0 $0 $0 $0 $0 $0 $0 Hard Cost Contingency $1,283,750 $1,283,750 $1,283,750 $1,283,750 $1,283,750 $0 $0 Permits and Fees $3,375,000 $3,375,000 $3,375,000 $3,375,000 $3,375,000 $0 $0 Financing Costs $2,567,500 $2,446,000 $2,446,000 $2,567,500 $2,567,500 ($900) $0 Other Soft Costs $6,239,025 $6,320,025 $6,320,025 $6,320,025 $6,320,025 $600 $900 Capitalized Operating Reserve (3) $0 $216,000 $216,000 $216,000 $216,000 $0 $0 Developer Fee/Profit (4) $4,337,665 $2,500,000 $2,500,000 $2,200,000 $2,200,000 $0 $0 TOTAL COST $43,477,940 $41,815,775 $41,815,775 $41,637,275 $41,637,275 Total Cost Per Unit $322,059 $309,746 $309,746 $308,424 $308,424 ($300) $900 Assumptions and Calculations 4% Tax Credits 9% Tax Credits Tax Credit Basis Land Acquisition Costs (9) N/A $0 $0 $0 $0 0% 0% Direct Construction Costs N/A $26,958,750 $26,958,750 $26,958,750 $26,958, % 100% Permits and Fees N/A $3,375,000 $3,375,000 $3,375,000 $3,375, % 100% Financing Costs N/A $1,956,800 $1,956,800 $1,540,500 $1,540,500 80% 60% Other Soft Costs N/A $5,056,020 $5,056,020 $3,792,015 $3,792,015 80% 60% Developer Overhead and Profit N/A $2,500,000 $2,500,000 $1,400,000 $1,400, % 100% Total Undajusted Tax Credit Basis N/A $39,846,570 $39,846,570 $37,066,265 $37,066,265 95% 89% Threshold Basis Limits Basis Boost (%) (5) N/A 100% 130% 100% 130% Total Adjusted Tax Credit Basis N/A $39,846,570 $51,800,541 $37,066,265 $48,186,145 Tax Credit Rate (6) N/A 3.24% 3.24% 9.00% 9.00% Annual Tax Credits (7) N/A $1,291,029 $1,678,338 $3,335,964 $4,336,753 Tax Credit Pricing N/A $0.92 $0.92 $0.90 $0.90 Maximum Federal Tax Credit Equity (8) $11,877,466 $15,440,705 $30,023,675 $39,030,777 % of Cost in Basis N/A = not applicable. (1) Minimum of maximum tax credit equity or amount needed for feasibility. (2) DRA did not estimate the deferred developer fees that could be used to reduce or close the gap. (3) CTCAC minimum capitalized operating reserve equals 3 months of operations plus debt service for tax credit projects. (4) Based on California Tax Credit Allocation Limits for 4% and 9% tax credit projects. based on total project costs excluding acquisition, developer fee, consultant fee and capitalized reserves. (5) Projects located in a Qualified Census Tract (QCT) or Difficult to Develop Area (DDA) are eligible for a 30% basis boost. (6) Current tax credit percentages for February, (7) Adjusted tax credit basis multiplied by tax credit rate. (8) Equals annual tax credits multiplied by tax credit pricing multiplied by 10 years. (9) Assumes Weeks site is provided by the City under ground lease. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

140 Table 20 Leveraged Financing Analysis: Rents and Affordable Mortgage Prototype 3 Higher Income Targeting City of East Palo Alto Affordability Gap Analysis No Tax Credits Projections 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits No Tax Credits 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits Number of Units by Income Level Percent of Units by Income Level and Unit Bedroom Count 30% AMI 30% AMI 30% AMI 30% AMI One Bedroom % 0% 10% Two Bedroom % 0% 10% Three Bedroom % 0% 10% Four Bedroom % 0% 10% 45% AMI 45% AMI 45% AMI 45% AMI One Bedroom % 0% 25% Two Bedroom % 0% 25% Three Bedroom % 0% 25% Four Bedroom % 0% 25% 50% AMI 50% AMI 50% AMI 50% AMI One Bedroom % 20% 65% Two Bedroom % 20% 65% Three Bedroom % 20% 65% Four Bedroom % 20% 65% 60% AMI 60% AMI 60% AMI 60% AMI One Bedroom % 80% 0% Two Bedroom % 80% 0% Three Bedroom % 100% 0% Four Bedroom % 100% 0% Monthly Gross Rents Monthly Rent by Income Level and Bedroom Count (1) 30% AMI 30% AMI Tax Credit Rents One Bedroom $0 $0 $2,055 One Bedroom $685 Two Bedroom $0 $0 $5,684 Two Bedroom $812 Three Bedroom $0 $0 $2,781 Three Bedroom $927 Four Bedroom $0 $0 $0 Four Bedroom $1,024 45% AMI 45% AMI One Bedroom $0 $0 $9,495 One Bedroom $1,055 Two Bedroom $0 $0 $21,352 Two Bedroom $1,256 Three Bedroom $0 $0 $12,969 Three Bedroom $1,441 Four Bedroom $0 $0 $0 Four Bedroom $1,596 50% AMI 50% AMI One Bedroom $0 $8,253 $25,938 One Bedroom $1,179 Two Bedroom $0 $18,265 $60,415 Two Bedroom $1,405 Three Bedroom $0 $11,284 $35,464 Three Bedroom $1,612 Four Bedroom $0 $0 $0 Four Bedroom $1,787 60% AMI 60% AMI One Bedroom $48,484 $38,502 $0 One Bedroom $1,426 Two Bedroom $113,967 $91,854 $0 Two Bedroom $1,701 Three Bedroom $66,436 $52,758 $0 Three Bedroom $1,954 Four Bedroom $0 $0 $0 Four Bedroom $2,169 Gross Rents $2,746,644 $2,650,992 $2,113,836 Total Units: 135 Less: Vacancy ($137,332) ($132,550) ($105,692) One Bedroom 34 Less: Operating Costs ($864,000) ($864,000) ($864,000) Two Bedroom 67 Less: Replacement Reservses $0 ($47,250) ($47,250) Three Bedroom 34 Net Operating Income $1,745,312 $1,607,192 $1,096,894 Four Bedroom 0 Annual Debt Service $1,454,427 $1,339,327 $953,821 Permanent Mortgage Amount $20,215,512 $20,791,000 $13,257,446 Vacancy Rate (2) 5.00% 5.00% 5.00% Annual Operating Cost Per Unit $6,400 $6,400 $6,400 Annual Replace. Reserve/Unit (1) $0 $350 $350 Mortgage Interest Rate 6.00% 5.00% 6.00% Debt Coverage Ratio Term (Years) Assumptions (1) Based on 2017 HUD Median Family Income, San Mateo County of $115,300, net of utility allowances. (2) TCAC requires a min. vacancy rate of 5.0% and min. annual replacement reserves of $300 per unit for new construction projects. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

141 Table 21 Leveraged Financing Analysis: Sources and Uses Prototype 3 Higher Income Targeting City of East Palo Alto Affordability Gap Analysis 4% Tax Credit w/ Tax Exempt Bonds 9% Tax Credits No Tax Credits w/o Basis Boost w/ Basis Boost w/o Basis Boost w/ Basis Boost Assumptions SOURCES AND USES Total Units 135 PERMANENT SOURCES OF FUNDS Acres 2.52 Federal Tax Credit Equity (1) $0 $14,490,954 $18,219,429 $37,291,505 $37,581,879 Unit/Acre Permanent Mortgage/Bond $20,215,512 $20,791,000 $20,791,000 $13,257,446 $13,257,446 Deferred Developer Fee (2) $0 $0 $0 $0 $0 Gap Financing Required $33,453,158 $15,695,372 $11,966,896 $290,374 $0 TOTAL SOURCES $53,668,670 $50,977,325 $50,977,325 $50,839,325 $50,839,325 Permanent Gap Financing/Unit $247,801 $116,262 $88,644 $2,151 $0 Difference in Per Unit Cost Compared to "No Tax Credit" Scenario 4% Tax Credits 9% Tax Credits PERMANENT USES OF FUNDS Land Acquisition Costs $0 $0 $0 $0 $0 $0 $0 Bldg. Construction Costs $27,425,000 $27,425,000 $27,425,000 $27,425,000 $27,425,000 $0 $0 Parking Construction Costs $5,100,000 $5,100,000 $5,100,000 $5,100,000 $5,100,000 $0 $0 Hard Cost Contingency $1,626,250 $1,626,250 $1,626,250 $1,626,250 $1,626,250 $0 $0 Permits and Fees $3,375,000 $3,375,000 $3,375,000 $3,375,000 $3,375,000 $0 $0 Financing Savings $2,872,000 $2,750,500 $2,750,500 $2,872,000 $2,872,000 ($900) $0 Other Soft Costs $7,903,575 $7,984,575 $7,984,575 $8,025,075 $8,025,075 $600 $900 Capitalized Operating Reserve (3) $0 $216,000 $216,000 $216,000 $216,000 $0 $0 Developer Fee/Profit (4) $5,366,845 $2,500,000 $2,500,000 $2,200,000 $2,200,000 $0 $0 TOTAL COST $53,668,670 $50,977,325 $50,977,325 $50,839,325 $50,839,325 Total Cost Per Unit $397,546 $377,610 $377,610 $376,588 $376,588 ($300) $900 Assumptions and Calculations 4% Tax Credits 9% Tax Credits Tax Credit Basis Land Acquisition Costs (9) N/A $0 $0 $0 $0 0% 0% Direct Construction Costs N/A $34,151,250 $34,151,250 $34,151,250 $34,151, % 100% Permits and Fees N/A $3,375,000 $3,375,000 $3,375,000 $3,375, % 100% Financing Costs N/A $2,200,400 $2,200,400 $2,297,600 $2,297,600 80% 60% Other Soft Costs N/A $6,387,660 $4,790,745 $4,815,045 $4,815,045 80% 60% Developer Overhead and Profit N/A $2,500,000 $2,500,000 $1,400,000 $1,400, % 100% Total Undajusted Tax Credit Basis N/A $48,614,310 $47,017,395 $46,038,895 $46,038,895 95% 91% Threshold Basis Limits Basis Boost (%) (5) N/A 100% 130% 100% 130% Total Adjusted Tax Credit Basis N/A $48,614,310 $61,122,614 $46,038,895 $59,850,564 Tax Credit Rate (6) N/A 3.24% 3.24% 9.00% 9.00% Annual Tax Credits (7) N/A $1,575,104 $1,980,373 $4,143,501 $5,386,551 Tax Credit Pricing N/A $0.92 $0.92 $0.90 $0.90 Maximum Federal Tax Credit Equity (8) $14,490,954 $18,219,429 $37,291,505 $48,478,956 % of Cost in Basis N/A = not applicable. (1) Minimum of maximum tax credit equity or amount needed for feasibility. (2) DRA did not estimate the deferred developer fees that could be used to reduce or close the gap. (3) CTCAC minimum capitalized operating reserve equals 3 months of operations plus debt service for tax credit projects. (4) Based on California Tax Credit Allocation Limits for 4% and 9% tax credit projects. based on total project costs excluding acquisition, developer fee, consultant fee and capitalized reserves. (5) Projects located in a Qualified Census Tract (QCT) or Difficult to Develop Area (DDA) are eligible for a 30% basis boost. (6) Current tax credit percentages for (7) Adjusted tax credit basis multiplied by tax credit rate. (8) Equals annual tax credits multiplied by tax credit pricing multiplied by 10 years. (9) Assumes Weeks site is provided by the City under ground lease. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

142 Table 22 Leveraged Financing Analysis: Rents and Affordable Mortgage Prototype 4 Higher Income Targeting City of East Palo Alto Affordability Gap Analysis No Tax Credits Projections 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits No Tax Credits 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits Number of Units by Income Level Percent of Units by Income Level and Unit Bedroom Count 30% AMI 30% AMI 30% AMI 30% AMI One Bedroom % 0% 10% Two Bedroom % 0% 10% Three Bedroom % 0% 10% Four Bedroom % 0% 10% 45% AMI 45% AMI 45% AMI 45% AMI One Bedroom % 0% 25% Two Bedroom % 0% 25% Three Bedroom % 0% 25% Four Bedroom % 0% 25% 50% AMI 50% AMI 50% AMI 50% AMI One Bedroom % 20% 65% Two Bedroom % 20% 65% Three Bedroom % 20% 65% Four Bedroom % 20% 65% 60% AMI 60% AMI 60% AMI 60% AMI One Bedroom % 80% 0% Two Bedroom % 80% 0% Three Bedroom % 100% 0% Four Bedroom % 100% 0% Monthly Gross Rents Monthly Rent by Income Level and Bedroom Count (1) 30% AMI 30% AMI Tax Credit Rents One Bedroom $0 $0 $2,055 One Bedroom $685 Two Bedroom $0 $0 $5,684 Two Bedroom $812 Three Bedroom $0 $0 $2,781 Three Bedroom $927 Four Bedroom $0 $0 $0 Four Bedroom $1,024 45% AMI 45% AMI One Bedroom $0 $0 $9,495 One Bedroom $1,055 Two Bedroom $0 $0 $21,352 Two Bedroom $1,256 Three Bedroom $0 $0 $12,969 Three Bedroom $1,441 Four Bedroom $0 $0 $0 Four Bedroom $1,596 50% AMI 50% AMI One Bedroom $0 $8,253 $25,938 One Bedroom $1,179 Two Bedroom $0 $18,265 $60,415 Two Bedroom $1,405 Three Bedroom $0 $11,284 $35,464 Three Bedroom $1,612 Four Bedroom $0 $0 $0 Four Bedroom $1,787 60% AMI 60% AMI One Bedroom $48,484 $38,502 $0 One Bedroom $1,426 Two Bedroom $113,967 $91,854 $0 Two Bedroom $1,701 Three Bedroom $66,436 $52,758 $0 Three Bedroom $1,954 Four Bedroom $0 $0 $0 Four Bedroom $2,169 Gross Rents $2,746,644 $2,650,992 $2,113,836 Total Units: 135 Less: Vacancy ($137,332) ($132,550) ($105,692) One Bedroom 34 Less: Operating Costs ($864,000) ($864,000) ($864,000) Two Bedroom 67 Less: Replacement Reservses $0 ($47,250) ($47,250) Three Bedroom 34 Net Operating Income $1,745,312 $1,607,192 $1,096,894 Four Bedroom 0 Annual Debt Service $1,454,427 $1,339,327 $953,821 Permanent Mortgage Amount $20,215,512 $20,791,000 $13,257,446 Vacancy Rate (2) 5.00% 5.00% 5.00% Annual Operating Cost Per Unit $6,400 $6,400 $6,400 Annual Replace. Reserve/Unit (1) $0 $350 $350 Mortgage Interest Rate 6.00% 5.00% 6.00% Debt Coverage Ratio Term (Years) Assumptions (1) Based on 2017 HUD Median Family Income, San Mateo County of $115,300, net of utility allowances. (2) TCAC requires a min. vacancy rate of 5.0% and min. annual replacement reserves of $300 per unit for new construction projects. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

143 Table 23 Leveraged Financing Analysis: Sources and Uses Prototype 4 Higher Income Targeting City of East Palo Alto Affordability Gap Analysis 4% Tax Credit w/ Tax Exempt Bonds 9% Tax Credits No Tax Credits w/o Basis Boost w/ Basis Boost w/o Basis Boost w/ Basis Boost Assumptions SOURCES AND USES Total Units 135 PERMANENT SOURCES OF FUNDS Acres 2.52 Federal Tax Credit Equity (1) $0 $16,575,314 $21,547,908 $42,128,331 $44,956,529 Unit/Acre Permanent Mortgage/Bond $20,215,512 $20,791,000 $20,791,000 $13,257,446 $13,257,446 Deferred Developer Fee (2) $0 $0 $0 $0 $0 Gap Financing Required $41,693,148 $21,026,161 $16,053,567 $2,828,198 $0 TOTAL SOURCES $61,908,660 $58,392,475 $58,392,475 $58,213,975 $58,213,975 Permanent Gap Financing/Unit $308,838 $155,749 $118,915 $20,950 $0 Difference in Per Unit Cost Compared to "No Tax Credit" Scenario 4% Tax Credits 9% Tax Credits PERMANENT USES OF FUNDS Land Acquisition Costs $0 $0 $0 $0 $0 $0 $0 Bldg. Construction Costs $27,425,000 $27,425,000 $27,425,000 $27,425,000 $27,425,000 $0 $0 Parking Construction Costs $10,150,000 $10,150,000 $10,150,000 $10,150,000 $10,150,000 $0 $0 Hard Cost Contingency $1,878,750 $1,878,750 $1,878,750 $1,878,750 $1,878,750 $0 $0 Permits and Fees $3,375,000 $3,375,000 $3,375,000 $3,375,000 $3,375,000 $0 $0 Financing Costs $3,757,500 $3,636,000 $3,636,000 $3,757,500 $3,757,500 ($900) $0 Other Soft Costs $9,130,725 $9,211,725 $9,211,725 $9,211,725 $9,211,725 $600 $900 Capitalized Operating Reserve (3) $0 $216,000 $216,000 $216,000 $216,000 $0 $0 Developer Fee/Profit (4) $6,191,685 $2,500,000 $2,500,000 $2,200,000 $2,200,000 $0 $0 TOTAL COST $61,908,660 $58,392,475 $58,392,475 $58,213,975 $58,213,975 Total Cost Per Unit $458,583 $432,537 $432,537 $431,215 $431,215 ($300) $900 Assumptions and Calculations 4% Tax Credits 9% Tax Credits Tax Credit Basis Land Acquisition Costs (9) N/A $0 $0 $0 $0 0% 0% Direct Construction Costs N/A $39,453,750 $39,453,750 $39,453,750 $39,453, % 100% Permits and Fees N/A $3,375,000 $3,375,000 $3,375,000 $3,375, % 100% Financing Costs N/A $2,908,800 $2,908,800 $2,254,500 $5,527,035 80% 60% Other Soft Costs N/A $7,369,380 $7,369,380 $5,527,035 $2,254,500 80% 60% Developer Overhead and Profit N/A $2,500,000 $2,500,000 $1,400,000 $1,400, % 100% Total Undajusted Tax Credit Basis N/A $55,606,930 $55,606,930 $52,010,285 $52,010,285 95% 89% Threshold Basis Limits Basis Boost (%) (5) N/A 100% 130% 100% 130% Total Adjusted Tax Credit Basis N/A $55,606,930 $72,289,009 $52,010,285 $67,613,371 Tax Credit Rate (6) N/A 3.24% 3.24% 9.00% 9.00% Annual Tax Credits (7) N/A $1,801,665 $2,342,164 $4,680,926 $6,085,203 Tax Credit Pricing N/A $0.92 $0.92 $0.90 $0.90 Maximum Federal Tax Credit Equity (8) $16,575,314 $21,547,908 $42,128,331 $54,766,830 % of Cost in Basis N/A = not applicable. (1) Minimum of maximum tax credit equity or amount needed for feasibility. (2) DRA did not estimate the deferred developer fees that could be used to reduce or close the gap. (3) CTCAC minimum capitalized operating reserve equals 3 months of operations plus debt service for tax credit projects. (4) Based on California Tax Credit Allocation Limits for 4% and 9% tax credit projects. based on total project costs excluding acquisition, developer fee, consultant fee and capitalized reserves. (5) Projects located in a Qualified Census Tract (QCT) or Difficult to Develop Area (DDA) are eligible for a 30% basis boost. (6) Current tax credit percentages for February, (7) Adjusted tax credit basis multiplied by tax credit rate. (8) Equals annual tax credits multiplied by tax credit pricing multiplied by 10 years. (9) Assumes Weeks site is provided by the City under ground lease. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

144 Table 24 Leveraged Financing Analysis: Rents and Affordable Mortgage Prototype 2 Lower Income Targeting City of East Palo Alto Affordability Gap Analysis No Tax Credits Projections 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits No Tax Credits 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits Number of Units by Income Level Percent of Units by Income Level and Unit Bedroom Count 30% AMI 30% AMI 30% AMI 30% AMI One Bedroom % 33% 33% Two Bedroom % 33% 33% Three Bedroom % 33% 33% Four Bedroom % 33% 33% 45% AMI 45% AMI 45% AMI 45% AMI One Bedroom % 33% 33% Two Bedroom % 33% 33% Three Bedroom % 33% 33% Four Bedroom % 33% 33% 50% AMI 50% AMI 50% AMI 50% AMI One Bedroom % 34% 34% Two Bedroom % 34% 34% Three Bedroom % 34% 34% Four Bedroom % 34% 34% 60% AMI 60% AMI 60% AMI 60% AMI One Bedroom % 0% 0% Two Bedroom % 0% 0% Three Bedroom % 0% 0% Four Bedroom % 0% 0% Monthly Gross Rents Monthly Rent by Income Level and Bedroom Count (1) 30% AMI 30% AMI Tax Credit Rents One Bedroom $12,330 $12,330 $12,330 One Bedroom $685 Two Bedroom $17,864 $17,864 $17,864 Two Bedroom $812 Three Bedroom $4,635 $4,635 $4,635 Three Bedroom $927 Four Bedroom $0 $0 $0 Four Bedroom $1,024 45% AMI 45% AMI One Bedroom $18,990 $18,990 $18,990 One Bedroom $1,055 Two Bedroom $27,632 $27,632 $27,632 Two Bedroom $1,256 Three Bedroom $7,205 $7,205 $7,205 Three Bedroom $1,441 Four Bedroom $0 $0 $0 Four Bedroom $1,596 50% AMI 50% AMI One Bedroom $21,222 $21,222 $21,222 One Bedroom $1,179 Two Bedroom $32,315 $32,315 $32,315 Two Bedroom $1,405 Three Bedroom $6,448 $6,448 $6,448 Three Bedroom $1,612 Four Bedroom $0 $0 $0 Four Bedroom $1,787 60% AMI 60% AMI One Bedroom $0 $0 $0 One Bedroom $1,426 Two Bedroom $0 $0 $0 Two Bedroom $1,701 Three Bedroom $0 $0 $0 Three Bedroom $1,954 Four Bedroom $0 $0 $0 Four Bedroom $2,169 Gross Rents $1,783,692 $1,783,692 $1,783,692 Total Units: 135 Less: Vacancy ($89,185) ($89,185) ($89,185) One Bedroom 54 Less: Operating Costs ($864,000) ($864,000) ($864,000) Two Bedroom 67 Less: Replacement Reservses $0 ($47,250) ($47,250) Three Bedroom 14 Net Operating Income $830,507 $783,257 $783,257 Four Bedroom 0 Annual Debt Service $692,090 $652,715 $681,093 Permanent Mortgage Amount $9,619,560 $10,132,393 $9,466,722 Vacancy Rate (2) 5.00% 5.00% 5.00% Annual Operating Cost Per Unit $6,400 $6,400 $6,400 Annual Replace. Reserve/Unit (1) $0 $350 $350 Mortgage Interest Rate 6.00% 5.00% 6.00% Debt Coverage Ratio Term (Years) Assumptions (1) Based on 2017 HUD Median Family Income, San Mateo County of $115,300, net of utility allowances. (2) TCAC requires a min. vacancy rate of 5.0% and min. annual replacement reserves of $300 per unit for new construction projects. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

145 Table 25 Leveraged Financing Analysis: Sources and Uses Prototype 2 Lower Income Targeting City of East Palo Alto Affordability Gap Analysis 4% Tax Credit w/ Tax Exempt Bonds 9% Tax Credits No Tax Credits w/o Basis Boost w/ Basis Boost w/o Basis Boost w/ Basis Boost Assumptions SOURCES AND USES Total Units 135 PERMANENT SOURCES OF FUNDS Acres 2.52 Federal Tax Credit Equity (1) $0 $11,877,466 $15,440,705 $30,023,675 $32,170,553 Unit/Acre Permanent Mortgage/Bond $9,619,560 $10,132,393 $10,132,393 $9,466,722 $9,466,722 Deferred Developer Fee (2) $0 $0 $0 $0 $0 Gap Financing Required $33,858,380 $19,805,917 $16,242,677 $2,146,878 $0 TOTAL SOURCES $43,477,940 $41,815,775 $41,815,775 $41,637,275 $41,637,275 Permanent Gap Financing/Unit $250,803 $146,710 $120,316 $15,903 $0 Difference in Per Unit Cost Compared to "No Tax Credit" Scenario PERMANENT USES OF FUNDS 4% Tax Credits 9% Tax Credits Land Acquisition Costs $0 $0 $0 $0 $0 $0 $0 Bldg. Construction Costs $25,675,000 $25,675,000 $25,675,000 $25,675,000 $25,675,000 $0 $0 Parking Construction Costs $0 $0 $0 $0 $0 $0 $0 Hard Cost Contingency $1,283,750 $1,283,750 $1,283,750 $1,283,750 $1,283,750 $0 $0 Permits and Fees $3,375,000 $3,375,000 $3,375,000 $3,375,000 $3,375,000 $0 $0 Financing Costs $2,567,500 $2,446,000 $2,446,000 $2,567,500 $2,567,500 ($900) $0 Other Soft Costs $6,239,025 $6,320,025 $6,320,025 $6,320,025 $6,320,025 $600 $900 Capitalized Operating Reserve (3) $0 $216,000 $216,000 $216,000 $216,000 $0 $0 Developer Fee/Profit (4) $4,337,665 $2,500,000 $2,500,000 $2,200,000 $2,200,000 $0 $0 TOTAL COST $43,477,940 $41,815,775 $41,815,775 $41,637,275 $41,637,275 Total Cost Per Unit $322,059 $309,746 $309,746 $308,424 $308,424 ($300) $900 Assumptions and Calculations 4% Tax Credits 9% Tax Credits Tax Credit Basis Land Acquisition Costs N/A $0 $0 $0 $0 0% 0% Direct Construction Costs N/A $26,958,750 $26,958,750 $26,958,750 $26,958, % 100% Permits and Fees N/A $3,375,000 $3,375,000 $3,375,000 $3,375, % 100% Financing Costs N/A $1,956,800 $1,956,800 $1,540,500 $1,540,500 80% 60% Other Soft Costs N/A $5,056,020 $5,056,020 $3,792,015 $3,792,015 80% 60% Developer Overhead and Profit N/A $2,500,000 $2,500,000 $1,400,000 $1,400, % 100% Total Undajusted Tax Credit Basis N/A $39,846,570 $39,846,570 $37,066,265 $37,066,265 95% 89% Threshold Basis Limits Basis Boost (%) (5) N/A 100% 130% 100% 130% Total Adjusted Tax Credit Basis N/A $39,846,570 $51,800,541 $37,066,265 $48,186,145 Tax Credit Rate (6) N/A 3.24% 3.24% 9.00% 9.00% Annual Tax Credits (7) N/A $1,291,029 $1,678,338 $3,335,964 $4,336,753 Tax Credit Pricing N/A $0.92 $0.92 $0.90 $0.90 Maximum Federal Tax Credit Equity (8) $11,877,466 $15,440,705 $30,023,675 $39,030,777 % of Cost in Basis N/A = not applicable. (1) Minimum of maximum tax credit equity or amount needed for feasibility. (2) DRA did not estimate the deferred developer fees that could be used to reduce or close the gap. (3) CTCAC minimum capitalized operating reserve equals 3 months of operations plus debt service for tax credit projects. (4) Based on California Tax Credit Allocation Limits for 4% and 9% tax credit projects. based on total project costs excluding acquisition, developer fee, consultant fee and capitalized reserves. (5) Projects located in a Qualified Census Tract (QCT) or Difficult to Develop Area (DDA) are eligible for a 30% basis boost. (6) Current tax credit percentages for February, (7) Adjusted tax credit basis multiplied by tax credit rate. (8) Equals annual tax credits multiplied by tax credit pricing multiplied by 10 years. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

146 Table 26 Leveraged Financing Analysis: Rents and Affordable Mortgage Prototype 3 Lower Income Targeting City of East Palo Alto Affordability Gap Analysis No Tax Credits Projections 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits No Tax Credits 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits Number of Units by Income Level Percent of Units by Income Level and Unit Bedroom Count 30% AMI 30% AMI 30% AMI 30% AMI One Bedroom % 33% 33% Two Bedroom % 33% 33% Three Bedroom % 33% 33% Four Bedroom % 33% 33% 45% AMI 45% AMI 45% AMI 45% AMI One Bedroom % 33% 33% Two Bedroom % 33% 33% Three Bedroom % 33% 33% Four Bedroom % 33% 33% 50% AMI 50% AMI 50% AMI 50% AMI One Bedroom % 34% 34% Two Bedroom % 34% 34% Three Bedroom % 34% 34% Four Bedroom % 34% 34% 60% AMI 60% AMI 60% AMI 60% AMI One Bedroom % 0% 0% Two Bedroom % 0% 0% Three Bedroom % 0% 0% Four Bedroom % 0% 0% Monthly Gross Rents Monthly Rent by Income Level and Bedroom Count (1) 30% AMI 30% AMI Tax Credit Rents One Bedroom $7,535 $7,535 $7,535 One Bedroom $685 Two Bedroom $17,864 $17,864 $17,864 Two Bedroom $812 Three Bedroom $10,197 $10,197 $10,197 Three Bedroom $927 Four Bedroom $0 $0 $0 Four Bedroom $1,024 45% AMI 45% AMI One Bedroom $11,605 $11,605 $11,605 One Bedroom $1,055 Two Bedroom $27,632 $27,632 $27,632 Two Bedroom $1,256 Three Bedroom $15,851 $15,851 $15,851 Three Bedroom $1,441 Four Bedroom $0 $0 $0 Four Bedroom $1,596 50% AMI 50% AMI One Bedroom $14,148 $14,148 $14,148 One Bedroom $1,179 Two Bedroom $32,315 $32,315 $32,315 Two Bedroom $1,405 Three Bedroom $19,344 $19,344 $19,344 Three Bedroom $1,612 Four Bedroom $0 $0 $0 Four Bedroom $1,787 60% AMI 60% AMI One Bedroom $0 $0 $0 One Bedroom $1,426 Two Bedroom $0 $0 $0 Two Bedroom $1,701 Three Bedroom $0 $0 $0 Three Bedroom $1,954 Four Bedroom $0 $0 $0 Four Bedroom $2,169 Gross Rents $1,877,892 $1,877,892 $1,877,892 Total Units: 135 Less: Vacancy ($93,895) ($93,895) ($93,895) One Bedroom 34 Less: Operating Costs ($864,000) ($864,000) ($864,000) Two Bedroom 67 Less: Replacement Reservses $0 ($47,250) ($47,250) Three Bedroom 34 Net Operating Income $919,997 $872,747 $872,747 Four Bedroom 0 Annual Debt Service $766,665 $727,290 $758,911 Permanent Mortgage Amount $10,656,101 $11,290,055 $10,548,330 Vacancy Rate (2) 5.00% 5.00% 5.00% Annual Operating Cost Per Unit $6,400 $6,400 $6,400 Annual Replace. Reserve/Unit (1) $0 $350 $350 Mortgage Interest Rate 6.00% 5.00% 6.00% Debt Coverage Ratio Term (Years) Assumptions (1) Based on 2017 HUD Median Family Income, San Mateo County of $115,300, net of utility allowances. (2) TCAC requires a min. vacancy rate of 5.0% and min. annual replacement reserves of $300 per unit for new construction projects. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

147 Table 27 Leveraged Financing Analysis: Sources and Uses Prototype 3 Lower Income Targeting City of East Palo Alto Affordability Gap Analysis 4% Tax Credit w/ Tax Exempt Bonds 9% Tax Credits No Tax Credits w/o Basis Boost w/ Basis Boost w/o Basis Boost w/ Basis Boost Assumptions SOURCES AND USES Total Units 135 PERMANENT SOURCES OF FUNDS Acres 2.52 Federal Tax Credit Equity (1) $0 $14,490,954 $18,219,429 $37,291,505 $40,290,995 Unit/Acre Permanent Mortgage/Bond $10,656,101 $11,290,055 $11,290,055 $10,548,330 $10,548,330 Deferred Developer Fee (2) $0 $0 $0 $0 $0 Gap Financing Required $43,012,569 $25,196,316 $21,467,841 $2,999,490 $0 TOTAL SOURCES $53,668,670 $50,977,325 $50,977,325 $50,839,325 $50,839,325 Permanent Gap Financing/Unit $318,612 $186,639 $159,021 $22,218 $0 Difference in Per Unit Cost Compared to "No Tax Credit" Scenario PERMANENT USES OF FUNDS 4% Tax Credits 9% Tax Credits Land Acquisition Costs $0 $0 $0 $0 $0 $0 $0 Bldg. Construction Costs $27,425,000 $27,425,000 $27,425,000 $27,425,000 $27,425,000 $0 $0 Parking Construction Costs $5,100,000 $5,100,000 $5,100,000 $5,100,000 $5,100,000 $0 $0 Hard Cost Contingency $1,626,250 $1,626,250 $1,626,250 $1,626,250 $1,626,250 $0 $0 Permits and Fees $3,375,000 $3,375,000 $3,375,000 $3,375,000 $3,375,000 $0 $0 Financing Savings $2,872,000 $2,750,500 $2,750,500 $2,872,000 $2,872,000 ($900) $0 Other Soft Costs $7,903,575 $7,984,575 $7,984,575 $8,025,075 $8,025,075 $600 $900 Capitalized Operating Reserve (3) $0 $216,000 $216,000 $216,000 $216,000 $0 $0 Developer Fee/Profit (4) $5,366,845 $2,500,000 $2,500,000 $2,200,000 $2,200,000 $0 $0 TOTAL COST $53,668,670 $50,977,325 $50,977,325 $50,839,325 $50,839,325 Total Cost Per Unit $397,546 $377,610 $377,610 $376,588 $376,588 ($300) $900 Assumptions and Calculations 4% Tax Credits 9% Tax Credits Tax Credit Basis Land Acquisition Costs N/A $0 $0 $0 $0 0% 0% Direct Construction Costs N/A $34,151,250 $34,151,250 $34,151,250 $34,151, % 100% Permits and Fees N/A $3,375,000 $3,375,000 $3,375,000 $3,375, % 100% Financing Costs N/A $2,200,400 $2,200,400 $2,297,600 $2,297,600 80% 60% Other Soft Costs N/A $6,387,660 $4,790,745 $4,815,045 $4,815,045 80% 60% Developer Overhead and Profit N/A $2,500,000 $2,500,000 $1,400,000 $1,400, % 100% Total Undajusted Tax Credit Basis N/A $48,614,310 $47,017,395 $46,038,895 $46,038,895 95% 91% Threshold Basis Limits Basis Boost (%) (5) N/A 100% 130% 100% 130% Total Adjusted Tax Credit Basis N/A $48,614,310 $61,122,614 $46,038,895 $59,850,564 Tax Credit Rate (6) N/A 3.24% 3.24% 9.00% 9.00% Annual Tax Credits (7) N/A $1,575,104 $1,980,373 $4,143,501 $5,386,551 Tax Credit Pricing N/A $0.92 $0.92 $0.90 $0.90 Maximum Federal Tax Credit Equity (8) $14,490,954 $18,219,429 $37,291,505 $48,478,956 % of Cost in Basis N/A = not applicable. (1) Minimum of maximum tax credit equity or amount needed for feasibility. (2) DRA did not estimate the deferred developer fees that could be used to reduce or close the gap. (3) CTCAC minimum capitalized operating reserve equals 3 months of operations plus debt service for tax credit projects. (4) Based on California Tax Credit Allocation Limits for 4% and 9% tax credit projects. based on total project costs excluding acquisition, developer fee, consultant fee and capitalized reserves. (5) Projects located in a Qualified Census Tract (QCT) or Difficult to Develop Area (DDA) are eligible for a 30% basis boost. (6) Current tax credit percentages for (7) Adjusted tax credit basis multiplied by tax credit rate. (8) Equals annual tax credits multiplied by tax credit pricing multiplied by 10 years. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

148 Table 28 Leveraged Financing Analysis: Rents and Affordable Mortgage Prototype 4 Lower Income Targeting City of East Palo Alto Affordability Gap Analysis No Tax Credits Projections 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits No Tax Credits 4% Tax Credits, Tax Exempt Bonds 9% Tax Credits Number of Units by Income Level Percent of Units by Income Level and Unit Bedroom Count 30% AMI 30% AMI 30% AMI 30% AMI One Bedroom % 33% 33% Two Bedroom % 33% 33% Three Bedroom % 33% 33% Four Bedroom % 33% 33% 45% AMI 45% AMI 45% AMI 45% AMI One Bedroom % 33% 33% Two Bedroom % 33% 33% Three Bedroom % 33% 33% Four Bedroom % 33% 33% 50% AMI 50% AMI 50% AMI 50% AMI One Bedroom % 34% 34% Two Bedroom % 34% 34% Three Bedroom % 34% 34% Four Bedroom % 34% 34% 60% AMI 60% AMI 60% AMI 60% AMI One Bedroom % 0% 0% Two Bedroom % 0% 0% Three Bedroom % 0% 0% Four Bedroom % 0% 0% Monthly Gross Rents Monthly Rent by Income Level and Bedroom Count (1) 30% AMI 30% AMI Tax Credit Rents One Bedroom $7,535 $7,535 $7,535 One Bedroom $685 Two Bedroom $17,864 $17,864 $17,864 Two Bedroom $812 Three Bedroom $10,197 $10,197 $10,197 Three Bedroom $927 Four Bedroom $0 $0 $0 Four Bedroom $1,024 45% AMI 45% AMI One Bedroom $11,605 $11,605 $11,605 One Bedroom $1,055 Two Bedroom $27,632 $27,632 $27,632 Two Bedroom $1,256 Three Bedroom $15,851 $15,851 $15,851 Three Bedroom $1,441 Four Bedroom $0 $0 $0 Four Bedroom $1,596 50% AMI 50% AMI One Bedroom $14,148 $14,148 $14,148 One Bedroom $1,179 Two Bedroom $32,315 $32,315 $32,315 Two Bedroom $1,405 Three Bedroom $19,344 $19,344 $19,344 Three Bedroom $1,612 Four Bedroom $0 $0 $0 Four Bedroom $1,787 60% AMI 60% AMI One Bedroom $0 $0 $0 One Bedroom $1,426 Two Bedroom $0 $0 $0 Two Bedroom $1,701 Three Bedroom $0 $0 $0 Three Bedroom $1,954 Four Bedroom $0 $0 $0 Four Bedroom $2,169 Gross Rents $1,877,892 $1,877,892 $1,877,892 Total Units: 135 Less: Vacancy ($93,895) ($93,895) ($93,895) One Bedroom 34 Less: Operating Costs ($864,000) ($864,000) ($864,000) Two Bedroom 67 Less: Replacement Reservses $0 ($47,250) ($47,250) Three Bedroom 34 Net Operating Income $919,997 $872,747 $872,747 Four Bedroom 0 Annual Debt Service $766,665 $727,290 $758,911 Permanent Mortgage Amount $10,656,101 $11,290,055 $10,548,330 Vacancy Rate (2) 5.00% 5.00% 5.00% Annual Operating Cost Per Unit $6,400 $6,400 $6,400 Annual Replace. Reserve/Unit (1) $0 $350 $350 Mortgage Interest Rate 6.00% 5.00% 6.00% Debt Coverage Ratio Term (Years) Assumptions (1) Based on 2017 HUD Median Family Income, San Mateo County of $115,300, net of utility allowances. (2) TCAC requires a min. vacancy rate of 5.0% and min. annual replacement reserves of $300 per unit for new construction projects. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

149 Table 29 Leveraged Financing Analysis: Sources and Uses Prototype 4 Lower Income Targeting City of East Palo Alto Affordability Gap Analysis 4% Tax Credit w/ Tax Exempt Bonds 9% Tax Credits No Tax Credits w/o Basis Boost w/ Basis Boost w/o Basis Boost w/ Basis Boost Assumptions SOURCES AND USES Total Units 135 PERMANENT SOURCES OF FUNDS Acres 2.52 Federal Tax Credit Equity (1) $0 $16,575,314 $21,547,908 $42,128,331 $47,665,645 Unit/Acre Permanent Mortgage/Bond $10,656,101 $11,290,055 $11,290,055 $10,548,330 $10,548,330 Deferred Developer Fee (2) $0 $0 $0 $0 $0 Gap Financing Required $51,252,559 $30,527,106 $25,554,512 $5,537,315 $0 TOTAL SOURCES $61,908,660 $58,392,475 $58,392,475 $58,213,975 $58,213,975 Permanent Gap Financing/Unit $379,649 $226,127 $189,293 $41,017 $0 Difference in Per Unit Cost Compared to "No Tax Credit" Scenario PERMANENT USES OF FUNDS 4% Tax Credits 9% Tax Credits Land Acquisition Costs $0 $0 $0 $0 $0 $0 $0 Bldg. Construction Costs $27,425,000 $27,425,000 $27,425,000 $27,425,000 $27,425,000 $0 $0 Parking Construction Costs $10,150,000 $10,150,000 $10,150,000 $10,150,000 $10,150,000 $0 $0 Hard Cost Contingency $1,878,750 $1,878,750 $1,878,750 $1,878,750 $1,878,750 $0 $0 Permits and Fees $3,375,000 $3,375,000 $3,375,000 $3,375,000 $3,375,000 $0 $0 Financing Costs $3,757,500 $3,636,000 $3,636,000 $3,757,500 $3,757,500 ($900) $0 Other Soft Costs $9,130,725 $9,211,725 $9,211,725 $9,211,725 $9,211,725 $600 $900 Capitalized Operating Reserve (3) $0 $216,000 $216,000 $216,000 $216,000 $0 $0 Developer Fee/Profit (4) $6,191,685 $2,500,000 $2,500,000 $2,200,000 $2,200,000 $0 $0 TOTAL COST $61,908,660 $58,392,475 $58,392,475 $58,213,975 $58,213,975 Total Cost Per Unit $458,583 $432,537 $432,537 $431,215 $431,215 ($300) $900 Assumptions and Calculations 4% Tax Credits 9% Tax Credits Tax Credit Basis Land Acquisition Costs N/A $0 $0 $0 $0 0% 0% Direct Construction Costs N/A $39,453,750 $39,453,750 $39,453,750 $39,453, % 100% Permits and Fees N/A $3,375,000 $3,375,000 $3,375,000 $3,375, % 100% Financing Costs N/A $2,908,800 $2,908,800 $2,254,500 $5,527,035 80% 60% Other Soft Costs N/A $7,369,380 $7,369,380 $5,527,035 $2,254,500 80% 60% Developer Overhead and Profit N/A $2,500,000 $2,500,000 $1,400,000 $1,400, % 100% Total Undajusted Tax Credit Basis N/A $55,606,930 $55,606,930 $52,010,285 $52,010,285 95% 89% Threshold Basis Limits Basis Boost (%) (5) N/A 100% 130% 100% 130% Total Adjusted Tax Credit Basis N/A $55,606,930 $72,289,009 $52,010,285 $67,613,371 Tax Credit Rate (6) N/A 3.24% 3.24% 9.00% 9.00% Annual Tax Credits (7) N/A $1,801,665 $2,342,164 $4,680,926 $6,085,203 Tax Credit Pricing N/A $0.92 $0.92 $0.90 $0.90 Maximum Federal Tax Credit Equity (8) $16,575,314 $21,547,908 $42,128,331 $54,766,830 % of Cost in Basis N/A = not applicable. (1) Minimum of maximum tax credit equity or amount needed for feasibility. (2) DRA did not estimate the deferred developer fees that could be used to reduce or close the gap. (3) CTCAC minimum capitalized operating reserve equals 3 months of operations plus debt service for tax credit projects. (4) Based on California Tax Credit Allocation Limits for 4% and 9% tax credit projects. based on total project costs excluding acquisition, developer fee, consultant fee and capitalized reserves. (5) Projects located in a Qualified Census Tract (QCT) or Difficult to Develop Area (DDA) are eligible for a 30% basis boost. (6) Current tax credit percentages for February, (7) Adjusted tax credit basis multiplied by tax credit rate. (8) Equals annual tax credits multiplied by tax credit pricing multiplied by 10 years. Source: DRA City of East Palo Alto Affordability Gap Analysis Public Review Draft Report March 16,

150 CITY OF EAST PALO ALTO OFFICE OF THE CITY MANAGER 2415 UNIVERSITY AVENUE EAST PALO ALTO, CA ATTACHMENT 3 City Council Agenda Report Date: April 24, 2018 To: Via: From: Subject: Honorable Mayor and Members of the City Council Carlos Martínez, City Manager Sean Charpentier, Assistant City Manager Hanson Hom, Special Projects Manager Draft Affordable Housing Strategy- Addendum Comments Received Recommendation Review written comments and comments from Stakeholder and Community meetings on Monday April 16, Alignment with City Council Strategic Plan This recommendation is primarily aligned with: Priority #3: Increaes Organizational Effectiveness and Efficiency Priority #6: Create a Healthy and Safe Community Attachments 1. Comments from Non Profit Developer Stakeholder Meeting 4/16/18 2. Comments from Community Service/Advocacy Organization Stakeholder Meeting 4/16/18 3. Comments from Public Community Meeting 4/16/18 4. Written Comments Received (3) 147

151 #1. Comments from Non Profit Developer Stakeholder Meeting 4/16/18 PUBLIC COMMENTS Affordable Housing Strategy Non-Profit Housing Developers Stakeholders Meeting April 16, :00 am 12:30 pm East Palo Alto City Hall Council Chambers Attendance: Toby Lieberman, Bay Area LISC Victoria Wong, MidPen Housing Corporation Felix Au Young, MidPen Housing Corporation Andrea Osgood, Eden Housing Kevin Leichner, Eden Housing Pam Berkowitz, Housing Trust of Silicon Valley Stover Yang, Housing Trust of Silicon Valley Mike Kramer, Woodland park Communities Boris Vatkin, HEART Regina Celestin Williams, First Community Housing Geoff Morgan, First Community Housing Leora Tantuatco, First Community Housing Ryan Querubin, Bridge Housing Candice Gonzales, Palo Alto Housing Paster Bains, Project WeHope Public Comments: 1. Fast track RFP for Weeks site to take advantage of available competitive funds and state housing bond measure that is going to the voters for approval this November. 2. Consider doing an RFQ instead of a RFP; the latter is a time-intensive and is a significant investment for developers. 148

152 3. Consider a phased project. Evaluate competitiveness of one large project for 9% tax credit funding. One project may create a larger financial gap if insufficient 9% tax credits funds are available for the cycle. 4. Conversely, trade-off of phasing is that it could affect project efficiency and development costs. 5. Does the County have any available funds? Identify other sources of funds such as County Affordable Housing Funds (formerly Measure K). 6. Leverage land cost for additional financing. 7. Identify other source of potential funds such as Stanford Funds and regional philanthropic sources affordable housing units is not too ambitious. Non-profits developers should coordinate efforts to buy land so as to not drive up the cost. 9. In addition to developing Weeks site, consider using City funds to buy another site before land price goes up. 10. TCAC has a Scattered Sites Program that allows combining sites near each other into one project application; however, involves more complexities than a single site. 11. Correlate and align housing costs and development standards with proposed Zoning Code; for example, parking standards and individual balconies add development cost and affect feasibility of producing affordable housing. 149

153 #2. Comments from Community Service/Advocacy Organization Stakeholder Meeting 4/16/18 PUBLIC COMMENTS Affordable Housing Strategy Community Service/Advocacy Organizations Stakeholders Meeting April 16, :30 pm 3:00 pm East Palo Alto City Hall Council Chambers Attendance: Roxana Franco, Nuestra Casa Julia Garcia, Nuestra Casa Marina Yu, RFHC Duane Bay, ABAG/MTC Senseria Conley, REHC Belén Seava, SMC Health System Patricia Lopez, RCC JT Faraji, RCC Fr. Larry Goode, St. Francis Robert Jones, EPA Can Do Stewart Hyland, FIA René Ortega, CLSEPA Carlos Romero, Council Member Public Comments: 1) Measure O funds are missing from table of available funds. 2) Explore Habitat for Humanities housing model to create ownership units for 80% AMI households. 3) Explore Community Land Trust model for homeownership to target very low-income households. 4) Rapid Rehousing Strategy Is there a more comprehensive strategy? Consider another strategy such as a City master lease program for Woodland Park. Would be a good 150

154 transition program before a Rapid Rehousing project is developed which might take several years. 5) Provide information or a graph that shows the amount rents are spiked when units turnover to new tenants. This would show the effect of Costa Hawkins and inability to restrict such rent increases. 6) For context, show effects of rent control and Costa Hawkins limitations over time. 7) Discuss local preference policies and practices in Strategy for background. 8) Focus is on new construction; the constraints of rehabilitating existing housing units is not covered in the staff report. 9) Rent Stabilization Ordinance concern that some new units (e.g., TCAC units) may not be covered under the RSO instead of all rental units in the City. 10) Prevent rent spiking and keep rents affordable for tenants moving to another unit within EPA; this should also apply for tenants moving from one Woodland Park unit to another in the complex. 11) Further explain the difference between RSO and TCAC units in terms of effect on rent increases. 12) More renter protections are needed. Given Costa-Hawkins limitations, explore requirement for relocation payments when a tenant moves or vacates a unit. 13) EPA should play a more active role in advocating for state reform of the Costa-Hawkins Act. 14) Include an advocacy section in the Affordable Housing Strategy; work with Home for All for advocacy. 15) Address what can be done to protect existing EPA tenants. 16) TCAC units 50% of these units should be reserved for EPA residents. 17) RSO Units set funds to retain these units as affordable when tenants move out, such as creating a City Section 8 voucher program. 18) Concern with erosion of lower-rent RSO units with the turnover of tenants. 19) City can market heavily for local preference, but if County funds are involved, it can influence the priority list and selection process. 20) Would the Weeks Street development occur at the same time as the funding for antidisplacement services? 21) Can a rehab housing project occur at the same time as the Weeks project? 22) What type of housing is anticipated on the Weeks site townhomes (ownership) or apartments (rentals)? 23) CCI - Strategy is missing a group of people; 350 people are on the waiting list in need of one-bedroom or one-room units. 24) Consider a program to address earthquake vulnerability; many RSO units are soft-story structures and the City could suffer a major loss of affordable units in a large earthquake. 25) Need a regional discussion to deal with providing more affordable housing. 151

155 26) Strategies seem to emphasize adding housing for new residents moving into the City rather than addressing and protecting the housing needs of existing residents, which should be the priority. 27) Support establishing an aspirational goal for building new affordable housing units, but should also set a goal for percentage of affordable units in the City. 28) It is a constraint that previous incarcerated individuals are not eligible for TCAC units. 152

156 #3. Comments from Public Community Meeting 4/16/18 PUBLIC COMMENTS Affordable Housing Strategy Community Meeting April 16, :30 pm 8:30 pm East Palo Alto City Hall Council Chambers Attendance: Brian Perkins, Office of Congresswomen Spier William Brian Websls, EPACT Education Fund Mike Kramer, Woodland Park Communities Jose Rocha, Resident Mia Rocha, Resident Doroteo Garcia, El Comité de Vecinos Jon White, Adode Services Mike Mashack, Resident Quency Phillips, Bay Area LISC Patricia Garcia, El Comité de Vecinos Patrick Brock, Woodland Park Teeda Stiles, Resident Bob Gomez Stuart Hyland, Faith in Action Annie Wu, Ravenswood Family Health Services Geoffrey Morgan, First Community Housing Julio Garcia, Nuestra Casa Bernodo Huerta, FIA Bertha Chipayo Francisca Guzman, Resident Tayischa Deldridge, RFHC Jane Howell, Alternate, Second Unit Task Force (some attendees did not sign in) Public Comments: 1) What is a rent restricted unit? 153

157 2) Rapid Rehousing Has City done any benchmarking to determine how many units are feasible and needed? 3) Has City talked to County and Life Moves about people who have vouchers but no units are available? 4) Do we know how many affordable units are needed in EPA? 5) How do we build up (i.e. higher density) to create more housing units? 6) Has City considered putting housing over the Ravenswood Shopping Center? Consider shared parking to reduce parking requirement. 7) It takes days to find rental units per Abode Services representative. 8) Need both rent control and deed-restricted units. 9) What about putting housing in the Ravenswood Business District? 10) Consider providing housing for veterans. 11) Consider buying large single-family lots with lots of vacant land to add housing units. 12) We need a Housing Director. 13) Prefer building inclusionary units instead of collecting in-lieu fees. 14) Count second units as affordable units. 15) Can we project what the area median income (AMI) will be in years? 16) Look at building studio units in addition to larger family units. 17) Consider legacy residents provide right of first refusal for units (local preference priority). 18) Provide more mobile homes that can be moved. 19) Work to repeal Costa-Hawkins. 20) Work with State Department of Developmental Disabilities to fund housing units for the disabled. 21) Concern with allocating funds for BMR inclusionary ownership units due to past failure with monitoring which resulted in a loss of units. 22) Be careful with transferring units from RSO to non-profited rental restricted units. Will exclude certain populations due to tenant requirements. 23) Mobile home parks are a good source of affordable housing. 24) Facebook funds are a disgrace; too minimal. 25) Reach out to private corporations for housing funds. 26) Be careful where higher-density buildings are placed. 27) Build in local jobs with construction of housing. 28) What happened to Four Corners project? 29) Consider option for long-term lease of surplus school district property for affordable housing. 30) Deed restricted units have strict regulations, and tenant restrictions will change this community. Existing residents will be displaced because they will not qualify for BMR units. 154

158 31) Long standing gentrification issue has continued unabated. Who are buying the $1.2 million homes? They are not EPA residents. 32) Support new housing construction and not converting RSO units to TCAC units. 33) Post presentation on the website. 155

159 #4. Written Comments Received (3) April 17, 2018 To Hanson Hom; I am a resident of EPA and I have some comments about our below market strategy. In particular, I would like to talk about the strategy of building structures exclusively dedicated to below market housing. I think this is a bad idea. Please allow me to explain why. I present to you the picture above -- this is the area where I grew up -- social housing projects of the 60s and 70s which almost universally failed wherever they were built. The windows are boarded up here, but it was not much different with windows, trust me. It was an awful place to grow up, in part because we did not have the socio-economic power to demand proper maintenance and the city was always struggling to find funds. It was a slum, and public-sponsored slum. Furthermore, because of the fact that we were poor and vulnerable, the area attracted drug dealers and sexual predators. Finding needles in the common areas was just expected and I cannot even count the number of times as a child that I was approached by strangers who exposed themselves to me and asked me to touch or lick their penises. This was just something I expected and I was totally adjusted to it unless they were grabby, and then it got scary. We even had our own serial killer (Clifford Olson) who raped and murdered children. He approached me once and asked me to help find his puppy. Luckily I knew to run away. I'd never seen as many police cars as when my mom called to report that, and fortunately he was caught soon after. I like to think maybe I helped with that. 156