CITY OF SAN JOSE CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR, CITY COUNCIL AND SUCCESSOR AGENCY BOARD SUBJECT: SEE BELOW COUNCIL AGENDA: 10/6/15 ITEM: Cj_ 2 Memorandum FROM: Richard A. Keit Jacky Morales-Ferrand Jennifer A. Maguire DATE: Approved Date 7/zi/zr COUNCIL DISTRICT: 3 SUBJECT: NORTH SAN PEDRO HOUSING PROJECT - SECOND AMENDMENT TO AMENDED AND RESTATED OFF-SITE IMPROVEMENT AND DISBURSEMENT AGREEMENT AND PREDEVELOPMENT LOAN FROM CITY OF SAN JOSE TO FIRST COMMUNITY HOUSING, THE AFFORDABLE HOUSING DEVELOPER FOR THE PROJECT RECOMMENDATION (a) The Successor Agency Board adopt a resolution authorizing the Executive Officer or his designee to negotiate and execute: (1) A Second Amendment to the Amended and Restated Off-Site Improvement and Disbursement Agreement ("Improvement Agreement") among the Successor Agency to the Redevelopment Agency of the City of San Jose ("SARA"), North San Pedro Townhomes LLC, San Pedro Life 1 LLC, and First Community Housing ("FCH"), the Affordable Housing Developer for the Project, to amend the Agreement to (a) delete FCH's right to use up to $1,600,000 of Grant Funds for the Affordable Housing Project, (b) allow SARA or another party to the Improvement Agreement to use up to, or a portion of, the $1,600,000 of Grant Funds to reimburse itself for costs previously incurred in connection with the development and construction of the Project as defined in the Disposition and Development Agreements ("DDAs"), and (c) provide that, upon receipt of such funds, the party receiving such Grant Funds shall disburse such funds to FCH to satisfy the remainder of the SARA obligation to provide Affordable Housing Assistance to FCH as defined in the DDAs; and (2) Any other documents as may be necessary to effectuate and finalize SARA obligations related to the North San Pedro Housing Project.
Page 2 (b) The City Council adopt a resolution: (1) Approving a predevelopment loan in an amount not to exceed $800,000 to FCH, or its legal affiliate, to support the development of 135 affordable apartments known as the North San Pedro Affordable Apartments ("Affordable Development") to be located at Bassett and Terraine Streets; and (2) Authorizing the Interim Director of Housing to negotiate and execute all documents to effectuate and finalize this transaction. (c) The City Council adopt the following Appropriation Ordinance amendments in the Low and Moderate Income Housing Asset Fund: (a) Increase the appropriation to the Housing Department for Housing Loans and Grants in the amount of $800,000; and (b) Decrease the Housing Project Reserve appropriation in the amount of $800,000. OUTCOME Approval of the proposed actions will enable First Community Housing, a San Jose-based nonprofit affordable housing developer ("FCH"), to complete construction drawings and apply for permanent financing for 135 affordable apartments as part of the overall North San Pedro Housing development. Timely construction commencement for the affordable apartments is required to ensure that a $24.16 million State Infill Infrastructure Grant (IIG) is retained. These funds provide funding for realignment of the City's downtown street grid and for the development's planned 900 rental and for-sale homes. BACKGROUND North San Pedro Housing Project The former Redevelopment Agency, private developers North San Pedro Townhomes ("NSPT") and San Pedro Life 1 ("SPL"), along with FCH, applied for and were awarded a State of California Infill and Infrastructure Grant ("Grant") for the North San Pedro Housing Project ("Project") in the amount of $24.16 million. The overall Project includes construction of 900 new for-sale and rental homes downtown. In applying for IIG funds, the parties agreed to provide 135 apartments restricted at deep affordability levels. The IIG is being used to fund land acquisition costs, infrastructure improvements including the realignment of Julian Street, new streets and sidewalks, streetlights, traffic signals, and undergrounding of utilities and parks. The affordable housing component of the overall Project ("Affordable Development") was critical to obtaining the IIG award and is a condition of the grant. FCH is the affordable housing developer responsible for designing and constructing the 135 affordable apartments.
Page 3 Working with the California Department of Housing and Community Development ("HCD"), the parties entered into a Standard Agreement in September, 2011 and a Disbursement Agreement in September, 2012 (collectively, the "Grant Documents"). After the Grant Documents were executed, the parties negotiated and executed amendments to several project related documents, including Amended and Restated DDAs and an Amended and Restated Off- Site Improvement and Disbursement Agreement ("Improvement Agreement"). At the time the Improvement Agreement was originally drafted, it was not necessary to include FCH in the agreement because they were not directly using the grant funds. The DDAs between SARA, NSPT, and SPL were approved by the Successor Agency Board on October 1, 2013, and the Oversight Board on October 10, 2013. The Improvement Agreement was executed by the parties concurrently with execution of the Amended and Restated DDAs. The State Department of Finance approved the DDAs on November 22, 2013. Affordable Development FCH has obtained a Conditional Use Permit (CP 11-034) and FAA approval for the Affordable Development, which will include 118 studios, 16 one-bedroom apartments, and one twobedroom unrestricted manager's apartment. The apartments will be restricted to very low- and extremely low-income residents with approximate maximum incomes of $22,350 and $47,850, respectively. The Affordable Development also plans to set aside more than one-third of its apartments for special needs populations, potentially including homeless veterans and people with developmental disabilities. These residents' incomes will likely be far below those cited above. Under the original DDAs, the former Redevelopment Agency agreed to provide affordable housing assistance to the Affordable Development. The assistance consisted of a $2.5 million grant and the affordable housing site ("Site"), which would be transferred to FCH at no cost. (The Site is indicated as Block G in Attachment 2 to this memorandum.) Given the SARA's existing senior debt and the flow of funds under the Legislation that dissolved redevelopment, the full $2.5 million was not available. SARA has provided $900,000 in existing Bond proceeds to FCH for predevelopment work. The funds have paid for design development and for work on construction documents to reach the approximately 75%-complete level. To satisfy the remainder of the SARA's affordable housing assistance obligation, the City Council and the Successor Agency Board approved a $1.6 million loan ("Loan") from the City to FCH on October 1, 2013. These funds were to be used by FCH to complete the remaining predevelopment work, including the completion of the construction documents. These funds were to remain in the Development as a construction/permanent financing source. However, IIG funds expected to be used to acquire the last remaining parcel for the affordable housing site were unavailable to the Project due to a unique provision in the IIG regulations. This provision does not allow IIG funds to be used for site acquisition for an affordable housing development if the residential portion of the development is built over parking. The Affordable Development, as
Page 4 designed, has the apartments situated entirely over parking. Therefore, in order to acquire the Site, on November 4, 2014 the City Council and the Successor Agency Board approved the use of the $1.6 million to acquire the remaining portion of the affordable housing site rather than loaning the money to FCH. The City successfully acquired that parcel in December 2014 from Legacy Partners. The diversion of the approved Loan funds for land acquisition left FCH short of funds to complete its Construction Documents and to fund related predevelopment costs, including those of engineers, consultants, and lawyers. Over the next 12 months, FCH intends to apply for additional financing from the County of Santa Clara (affordable housing capital funds), the State Department of Housing and Community Development (Veterans Homeless Housing Program funds), Affordable Housing and Sustainable Communities funds (aka Cap and Trade revenues), and the Housing Authority of the County of Santa Clara (VASH and project-based Section 8 vouchers). FCH also intends to apply for 4% Low Income Housing Tax Credits from the State Treasurer's Office and ask the City of San Jose to issue multifamily housing revenue bonds for the development. If FCH is successful at assembling these sources, the Affordable Development would start construction in late 2016. ANALYSIS Second Amendment to the Off-site Improvement and Disbursement Agreement As a result of the inability of FCH to obtain reimbursement of certain predevelopment costs under the IIG, SARA, NSPT, SPL and FCH now desire to amend the Improvement Agreement to (i) delete FCH's right to use up to $1,600,000 of Grant Funds from the Agreement, (ii) allow SARA or another party to the Improvement Agreement to use up to, or a portion of, the $1,600,000 of Grant Funds to reimburse itself for costs previously incurred. These costs are associated with the development and construction of the Infrastructure Project as defined in the DDAs, and (iii) provide that, upon receipt of such funds, the party receiving such funds shall disburse them to FCH to satisfy the remainder of the SARA obligation to provide Affordable Housing Assistance to FCH. Predevelopment Loan. For most affordable rental developments, significant predevelopment work is needed in order to apply for other sources of financing, as low income tax credit awards typically require construction to be started three to four months after award. In order for FCH to start construction in 2016, staff recommends approval of a short-term predevelopment loan of up to $800,000 so FCH can start applying for project financing. The City has already committed its part of the overall permanent development financing by advancing $1.6 million in late 2014 for land purchase. The City provided these funds since SARA only had $900,000 of bond funds available to satisfy its obligation to provide the
Page 5 affordable housing assistance. However, the Affordable Development is an important future development as it intends to serve the homeless population with a focus on veterans. The development is appropriate for this population as it is located close to transit, shopping, and other amenities. Therefore, staff recommends that this additional $800,000 predevelopment loan be approved. In addition, the risk associated with the proposed predevelopment loan is minimal. It is shortterm debt that is expected to be fully repaid within one year. The obligation to repay the loan will be on FCH and its legal entity specifically created for this Affordable Development. Furthermore, the Grant funds received by SARA as a result of the amendment to the Improvement Agreement previously discussed, will provide SARA with funds sufficient to pay FCH an additional $800,000 towards its affordable housing obligation. Those funds will be used by FCH to reimburse the City for the predevelopment loan. The proposed predevelopment loan will carry a maturity of six months with one six-month extension at the City's option. In addition to the affordability restrictions required under the IIG by the Department of Housing and Community Development, the City will record additional affordability restrictions against the Site at a later date when the remainder of the Site is transferred to FCH. The City and SARA now hold the Site. The site will be conveyed to FCH at no cost prior to construction closing. Additional predevelopment loan terms and conditions consistent with this approval will be set by the Housing Director's Delegation of Authority under Section 5.06.335 of the Municipal Code. EVALUATION AND FOLLOW-UP SARA staff will periodically advise the City Council and Successor Agency Board regarding the status of the Development. The details of the Interim Director of Housing's approval of business terms will be reported to the City Council and the public in early 2016 in a quarterly Information Memorandum on the use of the (Interim) Director of Housing's Delegation of Authority. The status of FCH's Affordable Development will also be reported to the public in the Housing Department's periodic Production Report, posted to its website in the Data and Reports section at www.sihousing.org. POLICY ALTERNATIVES To arrive at this proposal, staff considered the following options:
Page 6 Alternative #1: Pros: Cons: Reason for not recommending: Deny the requested predevelopment loan. The additional $800,000 being requested could be used for other affordable housing developments or programs. The proposed predevelopment loan will enable FCH to apply for other financing to start development of 135 new affordable apartments, over onethird of which will be available to special needs residents. If FCH successfully competes for certain funding, a portion of the homes will house homeless veterans and developmentally disabled households. Enabling the Affordable Development to proceed timely is critical to retaining the IIG funds. These funds will provide much-needed infrastructure to the City. In addition, the City has already funded part of the Site purchase with Low & Moderate Income Housing funds, so affordability requirements already apply to the Site. Finally, the predevelopment loan will have a short maturity with its repayment coming indirectly through the Successor Agency's contributions. Therefore, the risk of non-repayment is minimal to the City. The proposed development will help address the urgent demand for homeless housing and will enable the retention of IIG funds that will improve the City's infrastructure. PUBLIC OUTREACH/INTEREST This memorandum will be posted on the City's Agenda website for the October 6, 2015, City Council Agenda. If the actions are approved, the details of the Director's approval of business terms will be reported to the City Council and the public in a forthcoming Information Memorandum on the use of the Interim Housing Director's Delegation for the second quarter of Fiscal Year 2015-2016. COORDINATION This item was coordinated with City Attorney's Office. FISCAL/POLICY ALIGNMENT This expenditure is consistent with: the City's Envision 2040 General Plan and the 2014-23 Adopted Housing Element in that it will help the City meet its Regional Housing Needs Allocation and the City's 15% affordable housing goal by providing affordable apartments for extremely low- and very low-income residents. It is also consistent with the City's 2015-20 Consolidated Plan in that it will provide apartments that will be affordable for very low- and
Page 7 extremely low-income households; and, the Community Plan to End Homelessness approved by the City Council in February 2015 in that it proposes to provide housing for the homeless. COST SUMMARY/IMPLICATIONS 1. AMOUNT OF RECOMMENDATION: DEVELOPMENT USES. AMOUNT Soft Costs (architecture, consultants, legal, permits, etc.) $800,000 TOTAL $800,000 2. SOURCE OF FUNDING: Low & Moderate Income Housing Asset Fund (346). 3. FISCAL IMPACT: The recommended budget adjustments would allow for the disbursement up to $800,000 for predevelopment expenses. BUDGET REFERENCE The table below identifies the fund and appropriations recommended to be amended as part of this memorandum. Fund # Appn. # Appn. Name Total Appn Proposed Budget Action 2015-2016 Proposed Operating Budget Page* Last Budget Action (Date, Ord. No.) 346 0070 Housing Loans and Grants $1,300,000 $800,000 XI-5 2 6/23/15, Ord. 29589 346 8437 Housing Project Reserve The 2015-2016 Operating Budget was adopted on June 23, 2015. $24,000,000 ($800,000) XI-5 3 6/23/15, Ord. 29589
Page 8 CEOA Brandenburg Mixed Use Project/ North San Pedro Housing Sites Project GPT03-03-01a and GP03-03-01b. /s/ JACICY MORALES- FERRAND Interim Director of Housing /s/ RICHARD A. KEIT Managing Director Successor Agency JENNIFER A. MAGUIRE Senior Deputy City Manager/ Budget Director Attachments: 1. Development Site 2. Site Map For more information, contact Richard Keit, Managing Director, Successor Agency of the Redevelopment Agency, at 408-795-1849.
ATTACHMENT 1 DEVELOPMENT SITE
ATTACHMENT 2 SITE MAP l-j IW fl-j P 3a ** re"' 1 r - * RJ * pi- -ts-f ;V ; i St. James