THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CA M E M O R A N D U M 4 DATE: FEBRUARY 3, 2005 LA1020 TO: FROM: RESPONSIBLE PARTIES: SUBJECT: AGENCY COMMISSIONERS ROBERT R. OVROM, CHIEF EXECUTIVE OFFICER JONATHAN KEVLES, REGIONAL ADMINISTRATOR SUSAN TOTARO, PROJECT MANAGER ACTIONS RELATED TO THE DEVELOPMENT OF 8 AFFORDABLE SINGLE FAMILY HOMES BY HABITAT FOR HUMANITY, SOUTH BAY/LONG BEACH CHAPTER ON CITY OWNED SURPLUS PROPERTY AT L STREET AND LECOUVREUR AVENUE (APN 7423-026-900) IN WILMINGTON, LOCATED OUTSIDE OF THE LOS ANGELES HARBOR INDUSTRIAL CENTER REDEVELOPMENT PROJECT, WATTS-HARBOR REGION (CD 15) COMMITTEE REVIEW: PROJECT REVIEW, JANUARY 13, 2005 RECOMMENDATIONS That the Agency, subject to City Council review and approval: 1. Approve the selection of Habitat for Humanity, South Bay/Long Beach Chapter ( Habitat ) as the developer of 8 single family homes at the southeast corner of L Street and Lecouvreur Avenue (APN 7423-026-900) owned by the City ( City Property ) in response to Request for Proposal No. 04-11 (see map, Attachment A). 2. Approve the Conceptual Design Plan (Attachment B) for the proposed 8 single-family homes ( Habitat Homes ). 3. Concur that the proposed Purchase and Sale Agreement between the City of Los Angeles and Habitat is responsive to the general direction given to the Agency by the City Council in facilitating the development of affordable housing on the City Property. That the Agency and the City Council: 4. Adopt a Finding of Benefit Resolution (Attachment C) to provide up to $100,000 from Los Angeles Harbor Industrial Center Housing Trust Funds ( HTF ) to the City of Los Angeles to assist with the clearing of any encumbrances to title related to prior oil and gas easements and for unforeseen environmental remediation costs.
2 5. Authorize the Chief Executive Officer or designee to negotiate and execute appropriate Agreements between the City of Los Angeles ( City ) through its General Services Department (GSD) Asset Management Division for the use of Los Angeles Harbor Industrial Center Housing Trust Funds to prepare the City property for disposition. SUMMARY In March 2004, the Agency at the request of the City Council issued a Request For Proposal (RFP) No. 04-11 on City owned property located in Wilmington at L Street and Lecouvreur Avenue (City Property). The City property, approximately 1.36-acres (59,177 square feet) is vacant, zoned R1-1XL-0 and located in an established residential neighborhood outside of the Los Angeles Harbor Industrial Center Redevelopment Project Area (Project Area). The City Property has been idle since 1995 when the last of two oil wells was abandoned by EXXON Corporation. The City Property is being declared surplus by the General Services Department - Asset Management Division (GSD) and was identified by the Mayor s Office and the City s Brownfields Program as a development opportunity site. Thus at the request of the City Council, the Agency participated in an interdepartmental effort to develop the site for housing, characterize the extent of any environmental remediation at the site and assist GSD to obtain clear title to the property, which is encumbered with surface rights easements associated with prior oil and gas leases. In addition, the Agency was responsible for developing and issuing the RFP, facilitating the evaluation and selection process with various city departments and seeking community involvement. RFP No. 04-11 indicated a preference for the development of single-family homes for first time homebuyers. The Agency received six proposals in response to the subject RFP, of which Habitat for Humanity, South Bay/Long Beach Chapter (Habitat) proposes to develop eight single family homes on the City Property that will be affordable to families whose annual income does not exceed 50% of the Los Angeles County median. For example, earnings for a very low-income family of four should not exceed $29,750 per year. Agency staff is recommending that the development of the City Property be awarded to Habitat through a Purchase and Sale Agreement between the City and Habitat. The Agency would not be a party to this Agreement. The Habitat Development Team consists of Habitat, a non-profit housing developer, Thomas Drummond, Project Architect, Westland Construction, the general contractor, and Targhee, Inc, the environmental consultant. Agency staff is also recommending that the Agency adopt a Finding of Benefit Resolution to assist the City in the reuse of this property for the development of eight single family homes located one mile north and outside of the Project Area, which will be affordable to very low income families. The Agency will provide up to $100,000 from Los Angeles Harbor Industrial Center Housing Trust Funds (HTF) for removal of any encumbrances related to prior oil and gas leases to enable the City to convey clear title to the property and for environmental remediation assistance.
3 CONCEPTUAL DESIGN PLAN Each of the eight homes will be aesthetically different, of a craftsmen style design and offer a combination of three and four bedroom floor plans. Homes will be one and two stories ranging in size from 1,200 to 1,500 s.f. Each home will have 2 bathrooms and a 2-car garage. The homes will be built on individual lots, minimum 5,000 s.f. and 2,000 s.f. of community open space has been included within the development. Habitat intends to set the development back from the property line in addition to providing the following public right-of-way dedications: 5 feet along Lecouvreur Avenue; 2 feet along L Street and a 15-foot corner radius. This will help traffic circulation. New trees and new sidewalks are also planned. HABITAT HOME SALES AND FINANCING STRUCTURE The fair market value of the home when completed is estimated to be $325,000 to $350,000 and will be sold for this price. Habitat will provide a 30-year first mortgage ranging from $100,000 to $125,000 at zero percent interest rate. Qualifying families will be required to provide a 1% down payment for the Habitat first mortgage and must contribute 500 hrs. of sweat equity into the construction of their home. A Homeowner s Maintenance fee is estimated to be $123 per month. TERMS OF THE PROPOSED PURCHASE AND SALE AGREEMENT BETWEEN THE CITY AND HABITAT 1. Habitat has offered to purchase the City property at fair market value estimated at $1.2 million (approximately $20/square foot), however payment to the City would be deferred. 2. Habitat is seeking a 30 year deferred payment loan at zero percent interest rate. 3. The City s loan would, in effect, be transferred to the eight very low-income buyers as a deferred payment, interest-free second trust deed in the amount of at least $150,000 per unit. 4. The City will record a 45-year covenant with an income and deed restriction. 5. Upon future sale of the units by the Homeowners, or no later than 30 years, the City would be repaid and depending on the time of the sale, it is anticipated that the City would also share in equity appreciation of the home. The Habitat Homes will be sold for full market value ($325,000 - $350,000) and the qualifying buyer will only make payments on the Habitat First Mortgage of between $100,000 to $125,000 at zero percent interest rate. No monthly payments would be made on the City s Second Trust Deed Loan or Habitat s Third Trust Deed loan. The deferred payment mortgages deter the qualifying buyer from selling the property at a windfall profit. It is anticipated that the City and Habitat would be repaid its full loan amounts at the end of 30 years and share proportionately in any future appreciation.
4 Below demonstrates how the monthly payment would be allocated toward the Habitat Home, mortgage positions and the distribution of future equity appreciation : Monthly House Payment: $277 - Loan Payment to Habitat $300 - Property Taxes $123 - Insurance /HOA dues $700 - Total Monthly House payment Mortgage and Equity Distribution Using $325,000 Sales Price $100,000 Homeowner 1st Mortgage @ -0%- interest rate (31% share) $150,000 City of LA 2 nd Mortgage @ -0%- interest rate, deferred (46% share) $ 75,000 Habitat 3 rd Mortgage @ -0%- interest rate, deferred (23% share) If the home is sold 9 years later for $450,000, below is an example of the distribution of sales proceeds: $450,000 Sales Proceeds from New Buyer < 70,000> remaining balance on Habitat loan <150,000> City of LA 2 nd mortgage repaid < 75,000> Habitat 3 rd mortgage repaid < 11,750> Sales Commission/Closing Costs < 30,000> Homeowner s Projected Equity $113,250 Total Appreciation Distribution of Appreciation Proceeds in proportion to equity participation: $35,108 to the Homeowner (31%) $52,095 to the City of LA (46%) $26,047 to Habitat (23%) The City would receive approximately $202,095. Habitat would receive approximately $101,047 and the Homeowner would receive approximately $65,108 to put down on a new house. If the original homebuyer stays in the home for thirty years, the borrower will be obligated to pay-off the original principal balance of the City ($150,000) loan. At the end of the forty-five year income restriction period the buyer will have the benefit of 100% of the property s appreciation. CONSTRUCTION COST AND DONATED LABOR Habitat employs highly skilled construction managers and site supervisors to manage its construction activities. In order to keep construction costs low, Habitat has developed partnerships with area tradesmen who volunteer their professional services to build Habitat Homes. Habitat has also secured agreements with labor unions, apprenticeship programs, city colleges, trade schools, and 5 area YouthBuild programs for an ongoing source of skilled labor. Each of these partners utilizes the Habitat site as a hands-on educational opportunity for their members.
5 More than 4,000 volunteers donate thousands of hours each year to Habitat construction sites. Volunteers are closely supervised and instructed by experienced, full-time site supervisors and crew leaders. Habitat utilizes subcontractors for some of the more skilled parts of construction, such as concrete finishing, plumbing, grading, and drywall finishing. The use of volunteer labor and on-staff construction personnel gives Habitat a high degree of control over the construction process, resulting in a high quality product and quick completion at a very affordable price. The total development cost is estimated to be $2,670,268, of which $1,062, 291 is attributable to direct construction cost (or $132,786 per unit); $1,222,000 for land cost; $365,978 for soft costs; and $20,000 for financing costs (see Attachment D, Development Costs Table). Construction of the project would be monitored by the City. The Evaluation Team with support from the WIPAC and members of the Wilmington Community recommended the selection of Habitat for the following reasons: 1. The Habitat development and cost proposal appeared to provide the maximum public benefit with all eight homes being affordable to 50% median income households or very low income families. The average household income in Wilmington is 40% of median or $23,800 annual earnings for a Family of Four. The median household income for LA County is $53,500 for a Family of Four. 2. Habitat is providing the borrowers with a first mortgage of between $100,000 to $125,000 at zero percent interest rate and each family will be required to provide a 1% down payment ($10,000 to $12,500). 3. A condition for purchasing a Habitat Home, each family is required to participate in a comprehensive homebuyer s education course. Classes on maintenance are offered, after the homebuyer moves in. Borrowers must attend the following mandatory classes and workshops: Basic Home Maintenance: repair, warranties, guarantees Escrow Process Financial Planning, Money Management and Budgeting Habitat for Humanity South Bay-Long Beach History Lawn Maintenance- seeding, plants Media Relations Predatory Lending and Credit Issues 4. Habitat provides ongoing support and assistance to all the homebuyers even after they move in. 5. Upon completion of the project, Habitat will remain an active part of the development. It will facilitate the creation of the Homeowner s Association and assume the property management responsibilities. Additionally, Habitat will be instrumental in crafting and enforcing the Habitat Homes CC&Rs.
6 6. Habitat has demonstrated its commitment to a public participation process that will include conducting a design charrette to solicit input from the community on the architectural features of the homes and gather volunteer labor for construction. 7. Habitat has a demonstrated track record for building for-sale housing that is affordable to families earning less than 60% of the Los Angeles median income 8. Habitat/South Bay/Long Beach Chapter has received the following Awards: Partnership Achievement Award City of Long Beach Outstanding Nonprofit Long Beach Chamber of Commerce Clarence Jordan Award for Creativity and Innovation Millard Fuller Award for Most homes built in the West Region Habitat for Humanity Top 40 Building Affiliates HABITAT QUALIFICATIONS Habitat for Humanity South Bay/Long Beach (Habitat) is one of over 2000 affiliates of Habitat for Humanity International that has combined to develop over 100,000 houses worldwide. The South Bay/Long Beach Chapter of Habitat was founded in 1990 by David and Diana Reed and over its 14 year history has grown to be one of the largest Habitat for Humanity Affiliates in the Western United States. Since its inception, Habitat/South Bay has completed 63 homes and currently has 11 more homes under construction. Habitat/South Bay has a $6 million operating budget, a professional staff of 21, and anticipates completing an additional 50 homes by July 2006. Habitat builds both single-family homes and town homes, has the experience to rehabilitate existing houses, and convert multi-unit apartment buildings into permanent, for-sale housing. Habitat has recently developed the Green Trails Project in Wilmington, a 26-unit two-story townhouse development on a 2-acre site with the City of Los Angeles. Habitat has requested to use the City Property for its 2005 Hollywood for Habitat Blitz Build, which is scheduled for the second and third week of November 2005. Thus Habitat is requesting that Agreements with the City be executed by February 2005 in order to allow sufficient time to obtain its entitlements and carry out the construction. The Hollywood for Habitat Blitz Build is typically a large media event that attracts great recognition for local municipalities. The 2000 Blitz Build was held in Wilmington for the Green Trails Project. RE March 18, 2004 Report to the Agency Board to issue RFP No. 04-11 at the request of the City Council for the development of affordable housing at L Street and Lecouvreur Avenue in Wilmington. March 3, 2004 City Council approval authorizing the Agency to issue an RFP for city owned surplus property for the development of affordable housing (Council File No. 04-0328).
7 SOURCE OF FUNDS Los Angeles Harbor Industrial Center Housing Trust Funds PROGRAM AND BUDGET IMPACT The recommended actions are consistent with the Agency s FY05 Work Program and Budget for the LA Harbor Industrial Center Redevelopment Project. ENVIRONMENTAL REVIEW The proposed housing project is statutorily exempt, pursuant to Section 15280 (lower-income Housing Projects) of the state CEQA Guidelines, and categorically exempt, per Section VII (c) (15) of the Agency s CEQA Guidelines. BACKGROUND The City Property is bordered by L Street to the north, Lecouvreur Avenue to the west, Eubank to the east and Denni Street to the south in a predominantly residential neighborhood. The City Property is located one mile north of the LA Harbor Industrial Center Project, which has no residentially designated areas but generates HTF. The property, owned by the City since 1947, contained two oil production wells, which generated oil lease revenue to the City. The Oil and Gas Lease (Lease) was originally executed in 1945 between A. Schuh, the previous property owner, and Atlantic Oil Company. The City and Exxon Corporation respectively became the successors in interest to the Lease and based on City records, the Lease expired in 1989. Exxon abandoned the two oil wells in 1993 and in 1995. The property has remained idle and underutilized since that time. In 2000, the City s Brownfields Program Team recognized the Property s redevelopment potential. Three environmental site assessment reports were completed April 2001, June 2001 and August 2003 to provide clarification as to the impacts of the abandoned oil wells on the future development of the site. Some minor surface contamination was found in the August 2003 investigation, and underground oil well apparatus remain that may be possible obstructions at depth. It is expected that the minor surface contamination can be easily removed during construction with no permanent impact to future residents at the site. The Agency administers the Los Angeles Harbor Industrial Center Redevelopment Project, which is 232 acres in size, located south of the City Property with no residentially zoned land within its boundaries. A redevelopment goal of the LA Harbor Redevelopment Plan is to facilitate the provision of affordable housing opportunities outside of the Project Area pursuant to State Redevelopment law in cooperation with various other city departments by promoting new housing development or rehabilitation. The WIPAC has requested that the Project Area s HTF be used to promote the development of affordable housing and provide home ownership opportunities to residents of Wilmington. For this reason, in March 2004, the Agency issued RFP No. 04-11 soliciting proposals for a quality designed residential development with a preference for single-family homes for first time homebuyers. Agency staff made the RFP available for downloading on the Agency Website and advertised the notice of the RFP in the following newspapers: Daily Breeze, Korea Times, LA Opinion, LA Sentinel, and Wilmington Community News. In addition, Agency staff mailed pre-solicitation notices of the RFP to over 350 firms and individuals, including minority outreach organizations. A primary objective is to create housing for families with children, thus encouraging adequate open space, storage, landscaping and
8 common area amenities for its residents and maximizing the land payment received for the City Property. The RFP also included the Phase 1 (April and June, 2001) and Phase 2 (August 2003) Environmental Site Assessment Reports prepared respectively by Professional Services Industries, Camp Dresser and McKee, and Ninyo and Moore. These consultants were retained by the City s Brownfields Team and their reports revealed the following findings: 1. Multiple oil wells have been drilled in the area near the City Property 2. Two oil wells were operated on the City Property and were abandoned in 1993 and 1995. 3. Building construction at the site may require passive ventilation for methane and must be planned taking into consideration underground oil well apparatuses. 4. Minor residual soils contamination related to oil production was found. The RFP noted that the City, through the Agency, plans to remediate the property to applicable or relevant standards for reuse as housing. The RFP identified the following developer criteria: 1. A housing developer with experience dealing with potential soils problems and abandoned oil wells 2. A builder with the financial capability to complete the project 3. A developer with successful management experience 4. A developer that is willing to work with the Community In May 2004, six responses were received: 1. Habitat for Humanity 2. Mayans Development 3. Mustard Seed, LLC 4. The Olson Company 5. Sunnyland Development and RRS (Rodney Shepherd) Development 6. U-Turn Development THE EVALUATION AND SELECTION PROCESS On June 24, 2004 the Wilmington Industrial Park Advisory Committee (WIPAC) convened a meeting for the Wilmington Community at large to have an opportunity to meet the RFP respondents and comment on their proposed development program and design. With the exception of U-Turn Development, all of the abovementioned developers presented their proposals to the community. At this meeting, community members expressed the following concerns: Preference for single-family homes of quality design to enhance the neighborhood. The homes be placed on minimum 5,000 s.f. individual lots. Lecouvreur Street is narrow, thus all parking for the development should be provided on site. Develop Covenants, Conditions and Restrictions (CC&R s) to discourage and prohibit use of the garages for storage, to discourage parking on the street by residents, thereby minimizing traffic congestion. Four developers teams: Habitat for Humanity, Mayans Development, The Olson Company, and Sunnyland Development and RRS (Rodney Shepherd) Development were interviewed by an Evaluation Team comprised of representatives from the Mayor s Office, Councilwoman Janice
9 Hahn s Office, Department of General Services - Asset Management Division, Environmental Affairs Department and the Agency. Members of the WIPAC and Wilmington Community were also invited and observed the interviews. The Evaluation Team with support from the WIPAC and members of the Wilmington Community recommended the selection of Habitat for the following reasons: offered the most number of affordable units at 50% median income. offered the best below market rate, first mortgage at 0% interest. offered the highest land payment price to the City. Targhee, Inc., the environmental consultant has extensive experience in regulatory compliance and recycling of former industrial and oil well producing properties. All Targhee engineers have a minimum of ten years experience and are California Registered Environmental Assessors. Targhee cited prior experience with developing housing on a 20-acre crude oil tank farm, the Huntington Beach Marine Terminal site, as well as other sites in Long Beach. The Huntington Beach site had extensive contamination that was remediated to an unrestricted use. demonstrated extensive experience in the tenant selection process, cited prior housing management and CC&R compliance experience; and will provide on-going support and technical assistance to the homeowner after the home is sold. The other development firms and their proposals were not considered for one or more of the following reasons: The housing proposal s individual lot sizes ranged from 2,800 to 4,400 s.f.; while the Wilmington community expressed preference for a minimum lot size of 5,000 s.f. The requested Agency and City financial assistance was not available or the land payment to the City was not sufficient. The firm did not demonstrate experience building homes on property with abandoned oil wells; or The firm s proposal did not address or respond to the criteria in the RFP, therefore they were deemed to be non-responsive to the RFP. Robert R. Ovrom Chief Executive Officer by Richard L. Benbow Chief Operating Officer There is no conflict of interest known to me with regard to any Agency officer or employee concerning this report.
10 Attachments A: Project Area Map B: Conceptual Design Plan C: Finding of Benefit Resolution D: Development Costs Table