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Subject: SUNSET SQUARE FAMILY APARTMENTS
DEVELOPMENT |
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It is recommended that the City Council take the following action regarding Sunset Square Family Apartments Development (the “Development”):
1.
Adopt
a resolution expressing its intent to issue up to $12,000,000 in multifamily
tax-exempt revenue bonds to finance the acquisition-rehabilitation of a 96-unit
family rental housing project located at 2080 Alum Rock Avenue.
The Sunset Square Family Apartments Development (the “Development”) is an existing family rental housing development of 96 units consisting of one, two and three-bedroom units located at 2080 Alum Rock Avenue. The Development sponsor, Charities Housing Development Corporation, or an affiliated development entity created by it (the “Sponsor”), plans to fund the acquisition-rehabilitation of the development with the proceeds of up to $12,000,000 of tax-exempt multifamily housing revenue bonds. The Sponsor has submitted an application to the City requesting that the City issue bonds for this development. The Sponsor has also requested a loan from the City. City rehabilitation/construction and permanent loan business terms will be brought to the City Council when the Sponsor secures all financing commitments.
The Development was constructed in 1964. The Sponsor acquired the development on March 27, 2001. In addition, the Sponsor will be investing approximately $10,000 per unit for rehabilitation. The Sponsor does not presently expect the need to permanently relocate any tenants as a result of the Bonds or the acquisition-rehabilitation.
At this time, the Sponsor is
seeking only an inducement resolution to preserve its ability to finance its
costs associated with the short-term bridge loan for the acquisition and
rehabilitation of the development with tax-exempt bonds. The Sponsor expects to ask the City to file
an application with the California Debt Limit Allocation Committee (“CDLAC”)
for the first round of allocations in 2002.
At that time, the City Council will be asked to hold a Tax Equity and
Fiscal Responsibility Act of 1986 (“TEFRA”) hearing for the development and to
adopt a resolution authorizing the filing of an application with CDLAC and
authorizing the Director of Housing to negotiate and execute a Deposit and
Escrow Agreement with the Sponsor.
The adoption of the
inducement resolution does not obligate the City to take the aforementioned
actions.
Federal law regulating the
use of tax-exempt multifamily bond financing requires that 20% of the project’s
units must be made available to very low-income households (those earning 50%
or less of the area median income) for the period that the bonds are
outstanding. Federal law does not place
affordability restrictions on the remaining units. The units set aside for very low-income households must remain
affordable for a period of not less than 15 years and must be indistinguishable
from other units in size, location and amenities.
The Project is expected to be 100% affordable with at least
20% of the units reserved for very low-income families and the remaining units
reserved for low-income families (earning no more than 60% of area median
income). The income restrictions on the
units are expected to be in place for 55 years.
Under federal regulations
for cost recovery, reimbursement of expenditures with bond proceeds can only
occur if the City adopts an official resolution of intent to issue bonds. This resolution may apply to expenditures
made within 60 days prior to the adoption of the resolution and, in general,
the reimbursement must be made no later than three years after the original
expenditure. The resolution of intent
must describe the project and state the maximum principal amount of obligations
expected to be issued for the project.
Financing Team
Recommendations for the financing team for the development will be presented to the City Council at the time of the TEFRA hearing and the resolution authorizing the filing of the application with CDLAC and the negotiation of a Deposit and Escrow Agreement, expected in January 2002.
LEGAL ISSUES
Should bond allocation or City funding be provided, affordability restrictions for a term of 55 years will be recorded against the property to ensure long-term affordability for low and very low-income households.
PUBLIC OUTREACH
A TEFRA Hearing will be held for the Development prior to the filing of an application with CDLAC. The TEFRA Hearing is a method of notifying the community of the City’s intent to issue tax-exempt private activity bonds for this Development. The public hearing notice will be published in the San Jose Mercury News at least 15 days prior to the date of the public hearing. Additionally, Housing staff will work closely with CDLAC to ensure that the City’s projects meet the necessary criteria for private activity bond allocation.
The adoption of the inducement
resolution will have no impact on the City. When issued, the bonds for the
development will be secured solely by Project revenues and any credit
enhancement. The terms of any City loan for the development will be brought to
the City Council when the Sponsor secures all financing commitments.
COORDINATION
This report has been prepared by the Finance and Housing Departments in coordination with the City Attorney’s Office.
SCOTT P. JOHNSON
Director, Finance Department
LESLYE
CORSIGLIA
Acting
Director, Housing Department