To:   HONORABLE MAYOR AND                   From:   Leslye Corsiglia

                        CITY COUNCIL

 

   Subject:   SEE BELOW                                               Date:   November 10, 2003

 

COUNCIL DISTRICTS: 4, 3

SNI AREA: (3) None, (1) Washington

 

SUBJECT:    PUBLIC HEARING FOR APPROVAL OF A DISPOSITION AND DEVELOPMENT AGREEMENT FOR THE TRANSFER AND CONVEYANCE OF CITY-OWNED PROPERTY TO SILICON VALLEY HABITAT FOR HUMANITY, OR AN AFFILIATED ENTITY, AND FUNDING FOR THE DEVELOPMENT OF TWELVE SINGLE-FAMILY HOMES ON FOUR SITES IN THE CITY OF SAN JOSE

                       

 

RECOMMENDATION

 

It is recommended that the City Council hold a public hearing and adopt a resolution:

 

1.      Approving a Disposition and Development Agreement (DDA) between the City of San José and Silicon Valley Habitat for Humanity, or an affiliated entity, including a predevelopment loan of up to $100,000, for the development of single-family homes on the following sites in the City of San José:

 

S/W corner of Murphy Ave. and Ringwood Ave.                  2 units

S/s of Murphy Ave., between Ringwood and Lundy Avenues            6 units

S/s of Murphy Ave., between Ringwood Ave. and Lakepark Dr.  3 units

Willow St., between Locust St. and Palm St.                                     1 unit 

 

2.      Finding that the use of 20% Low- and Moderate-Income Housing Funds for the following projects is of benefit to the Redevelopment Project Areas in San José:

 

S/W corner of Murphy Ave. and Ringwood Ave.

S/s of Murphy Ave., between Ringwood and Lundy Avenues

S/s of Murphy Ave., between Ringwood Ave. and Lakepark Dr.

 

 

BACKGROUND

 

On October 29, 2002, the City Council adopted an Appropriation Ordinance to establish a transfer to the General Fund in the amount of $13,259,000 for the transfer of administration of eight (8) City surplus properties to the Department of Housing, including the four (4) properties contemplated in this memorandum.

 

The noticed public hearing procedure is required for the transfer and conveyance of the subject parcels since they were acquired with 20% Low- and Moderate-Income Housing Funds.  This Notice of Public Hearing will be published on November 14, 2003 and November 21, 2003.  A summary report of this DDA has been completed by Keyser Marston Associates, Inc. pursuant to Section 33433 of California Redevelopment law.  The results of that analysis are on file with the City Clerk for this matter and have been incorporated into the subject report.  

 

PROJECT DESCRIPTION

 

The subject DDA addresses the transfer of the following four (4) vacant properties, which are currently owned by the City of San José, for the development of twelve (12) units of for-sale housing affordable to very low-income households:

                                                                                                                                            Number

Location                                                                                                  Acreage                of Units

SW corner of Murphy Ave. and Ringwood Ave.                                        .138                         2

S/s of Murphy Ave., between Ringwood and Lundy Avenues         .482                         6

S/s of Murphy Ave., between Ringwood Ave. and Lakepark Dr.               .217                         3

Willow St., between Locust St. and Palm St.                                              .119                         1

                                                                                                            Total   12

 

The City is proposing to transfer the properties to Silicon Valley Habitat for Humanity (SVHH), or its affiliate, which would develop the properties for for-sale housing that would be affordable to very low-income households earning less than 50% Area Median Income (AMI).  The units will be a mix of three and four bedrooms.    

 

PROJECT BUDGET AND ANALYSIS OF THE TRANSACTION

 

A.  Summary of the proposed Transaction

 

The conveyance of four (4) parcels to SVHH, or its affiliate, will be accomplished by a DDA in consideration for 45 years of affordability to very low-income households.  The City will be providing a $100,000 predevelopment loan that will be used for predevelopment expenses, including architect and engineering fees, which will be repaid in full from proceeds from the sale of the housing units.  Pursuant to the Delegation of Authority approved by the City Council on June 25, 2002, the City Manager will approve the specific business terms of the predevelopment loan. After the properties are transferred to SVHH, the City will close on the $100,000 predevelopment loan and secure the loan with a first deed of trust on the largest parcel: S/s of Murphy Ave., between Ringwood and Lundy Avenues.  The deed of trust will be released when the loan is repaid in full, which is anticipated to be upon sale of the six units at Murphy Ave.  No additional outlay of City funds is anticipated for the development of the properties. 

 

B.  Housing Development Budget and Sources of Funds

 

The total cost to construct each of the homes is estimated to be between $250,000 and $350,000.  For the construction of all twelve homes, the total project cost is estimated to be between $3,250,000 and $4,550,000.  In addition to the City’s $100,000 predevelopment loan, SVHH will finance the costs for the project, including architect and engineering fees, permit fees and materials through cash donations, pro bono services and the volunteers of SVHH. 

 

C.  Financial Analysis and Restricted Expense Levels

 

The proposed transaction involves the fee transfer by grant deed of City-owned land, which has the following fair market values:

 

Location                                                                                                             FMV                    

SW corner of Murphy Ave. and Ringwood Ave.                                               $198,000

S/s of Murphy Ave., between Ringwood and Lundy Avenues                $709,000

S/s of Murphy Ave., between Ringwood Ave. and Lakepark Dr.                      $331,000

Willow St., between Locust St. and Palm St.                                                     $104,000

 

The fair market values of the first three properties were based on appraisals completed by Carneghi-Bautovich and Partners on March 7, 2002.  The fair market value of the fourth property was determined by an estimate of value completed by the Department of General Services in March 2002 using the Residential Land Value Study for 2002, completed by Diaz, Diaz and Boyd, Inc.     

 

The proposed transaction involves the fee transfer by grant deed of City-owned land, which has a combined fair market value of $1,342,000, for zero dollars.  This transaction is essentially the same as if the City were to be making a grant in the amount of $1,342,000 to the developer for the acquisition of the land.  We can conclude from the analysis completed by Keyser Marston Associates, Inc. that the consideration for the transfer of the City properties without cost is essentially the long-term provision of the affordable units to very low-income households.

 

Each home will be sold at cost to the homebuyer, which will be at a below market price.  The difference between the sales price and the market price of the home will represent a “market discount” to the homebuyer that will be determined at the time of sale based on market comparables.  If the property is sold at market rate the “market discount” will be repaid to the City under the terms of the Repurchase Option and Covenant Running with Land Agreement to be recorded on the property.

 

 

SVHH will maintain a 30-year affordability resale restriction on each of the homes.  This restriction will limit resale of each unit to a very low-income qualified homebuyer at a restricted affordable price.  The City will also record an affordability restriction, for a term of 45 years.  Under the City’s affordability restriction, the seller of any unit will be required to pay a share of equity earned to the City.  Following the expiration of the SVHH’s affordability restriction, i.e., after year 15, an owner may sell to another income-qualified homebuyer at a restricted affordable price, or in the alternative, may sell to a non-qualified buyer.  If the owner sells to a non-qualified buyer, the seller will pay the City the amount of the land value for each of the assisted unit plus an equity share and the City’s affordability restriction will be terminated.  Under the latter scenario, the owner will be able to deduct its “sweat equity” prior to the calculation of the equity share proration.

 

ANALYSIS

 

The development of the four sites by SVHH will yield a total of twelve new ownership units for very low-income households.  The City owns all four sites and intends to transfer the sites to SVHH for development. The total project cost for all twelve units is estimated between $3,250,000 and $4,550,000, with a per unit cost of between $250,000 and $350,000.  SVHH depends on donations of land, materials and services and the work of volunteers to minimize the cost of building the home.  SVHH does not earn a profit on any of the homes.  The home is then sold at cost to a very low-income family, which is chosen through SVHH’s selection process.  Buyers must meet certain criteria, including creditworthiness, history of steady income and live in overcrowded and substandard housing conditions.  The families must complete 500 hours of sweat equity in building the home.  The homeowner will pay small monthly, no-interest mortgage payments over a term of 30 years to SVHH. 

 

PUBLIC OUTREACH

 

It is anticipated that the zoning process for all four properties will require published notices of public hearings before the Planning Commission at which time neighborhood residents may provide input.  SVHH plans to host neighborhood meetings to present their plans for the properties to neighborhood residents.

 

LEGAL IMPLICATIONS

 

The subject hearing is required by State Redevelopment Law.  An Option to Repurchase and Convenants Running with the Land Agreement which will include affordability restrictions with a 45-year term will be recorded on the subject property.  One of the units covered by this affordability restriction will serve as a replacement unit for a house located at 367 N. 14th Street.  The replacement unit for the house had been allocated to the Las Plumas Warehouse site when the City Council approved the transfer of the property to the Housing Department for the development of affordable housing on October 19, 1999.  Since the property is no longer considered for the development of affordable housing, the replacement unit allocated to the site must be reallocated to a new site.    

TIMELINE

 

Anticipated Transfer of Properties to SVHH                 December 2003          

Anticipated Construction Start                          May 2004

Anticipated Construction Completion                May 2005

 

COORDINATION

 

Preparation of this memorandum was coordinated with the Department of Planning, Building and Code Enforcement and the Office of the City Attorney.

 

COST IMPLICATIONS

 

Funds to purchase the sites were disbursed from the Housing Department's Fiscal Year 2002-2003 Budget.  This funding is consistent with the Council approved Budget Strategy Memo, adopted on January 31, 2003.

 

REDEVELOPMENT PROJECT AREA FINDINGS

 

The following properties are not located within a Redevelopment Project Area:  SW corner of Murphy Ave. and Ringwood Ave; S/s of Murphy Ave., between Ringwood and Lundy Avenues; and S/s of Murphy Ave., between Ringwood Ave. and Lakepark Dr.  Thus, it is required that the City make a finding, on behalf of the Redevelopment Agency, that any such project which utilizes redevelopment funds is a benefit to redevelopment areas.  Since housing for very low- and low-income families and households is identified as vital to support the City’s economic growth, much of what is planned to occur in Downtown and industrial redevelopment project areas, staff recommends that the City Council find that the use of any 20% Low- and Moderate- Income Housing Funds for the Development to be a benefit to these redevelopment project areas.

 

CEQA

 

Exempt, PP03-04-128

 

LESLYE CORSIGLIA

Director of Housing

 

Attachment