To:   HONORABLE MAYOR AND                   From:   Leslye Corsiglia

                        CITY COUNCIL

 

   Subject:   SEE BELOW                                               Date:   11-24-03

 

COUNCIL DISTRICT: 3

SNI AREA: Spartan-Keyes

 

SUBJECT:    PUBLIC HEARING FOR APPROVAL OF A DISPOSITION AND DEVELOPMENT AGREEMENT FOR THE SALE AND CONVEYANCE OF CITY-OWNED PROPERTY TO ROEM DEVELOPMENT CORPORATION, OR AN AFFILIATED ENTITY, FOR THE DEVELOPMENT OF THE BELLA CASTELLO AT KELLEY PARK APARTMENTS, A PROPOSED 79-UNIT FAMILY RENTAL DEVELOPMENT LOCATED ON THE SOUTHEAST CORNER OF 12th STREET AND KEYES STREET 

 

RECOMMENDATION

 

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

 

Approving a Disposition and Development Agreement (DDA) between the City of San Jose and ROEM Development Corporation (ROEM), or an affiliated entity, for the development of the Bella Castello at Kelley Park Apartments, a 79-unit development on a 1.64-acre City-owned property, located on the southeast corner of 12th Street and Keyes Street.

 

BACKGROUND

 

On March 13, 2002, the Housing Department released a Request for Qualifications/Proposals to a comprehensive list of Housing Developers to solicit submissions for the development of a 1.64-acre City-owned site located on the southeast corner of 12th Street and Keyes Street.  After completing the review of the proposals, it was determined that ROEM Development Corporation (ROEM) would be recommended as the developer for the site.

 

On April 30, 2002, the City Council approved a resolution authorizing the Director of Housing to enter into exclusive negotiations with ROEM to develop the Bella Castello at Kelley Park Apartments (Development).  

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) surplus properties to the Department of Housing, including the property contemplated

in this memorandum.

 

On June 24, 2003, the City Council approved a funding commitment of up to $4,265,000 for the Development and an option agreement for the purchase of the property.

 

In September 2003, the California Tax Credit Allocation Committee approved an allocation of 9% federal tax credits for the Development.

 

Under Redevelopment Law the noticed public hearing procedure is required for the sale or conveyance of the subject parcel since it was acquired with Low- and Moderate-Income Housing Funds.  This Notice of Public Hearing will be published on November 28, 2003 and December 5, 2003.  A summary report of this DDA and analysis 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 this report.  

 

PROJECT DESCRIPTION

 

The subject DDA will transfer approximately 1.64 acres of vacant property located at the southeast corner of 12th Street and Keyes Street, which is currently owned by the City of San Jose.  The City is proposing to transfer the site to ROEM, or its affiliate, for the development of 79 units of family housing affordable to low-, very low- and extremely low-income households.  Additionally, the development will include approximately 2,500 sq. ft. of ground floor commercial space within the building.  

 

PROJECT BUDGET AND ANALYSIS OF THE TRANSACTION

 

A.  Summary of the proposed Transaction

 

The sale and conveyance of the subject site to ROEM, or its affiliate, will be accomplished by a DDA.  Pursuant to the DDA, the City will be providing an acquisition/predevelopment loan of up to $4,265,000 that will consist of $2,024,000 for the City-owned land and $2,241,000 for a number of project expenses, including architect and engineering fees, permit fees and financing fees.  The City loan will cover $2,024,000 of the total land price of $2,075,000, which is the portion attributed to the housing.  The remaining $51,000, which is attributed to the 2,500 sq. ft. of ground floor commercial space, will be paid from other funding sources.  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 construction/permanent City loan that will supercede the acquisition/predevelopment loan.  The acquisition/predevelopment loan will likely be subordinated to the first mortgage lender at the time that it converts from an acquisition/predevelopment loan to a construction/permanent loan. 

B.  Housing Development Budget and Sources of Funds

 

The total project cost is estimated at $24,600,000.  The permanent financing structure includes first mortgage financing from ARCS Mortgage of approximately $8,500,000, tax credit equity of approximately $9,884,000, an AHP loan of $474,000, a City loan of up to $4,265,000, and the remaining sources from exemptions, lease-up and interest income and deferred developer fee.

 

C.  Financial Analysis and Restricted Expense Levels

 

The proposed transaction involves the fee transfer by grant deed of City-owned land, which has a fair market value of $2,075,000 that was based on an appraisal completed by Carneghi-Bautovich and Partners on March 7, 2002.  The transaction contemplates a loan by the City of $4,265,000, which will consist of land and predevelopment costs associated with preparing the property for actual construction.    

 

Project rents and operating costs will be based on the federal law regulating the use of federal tax credits that require the units remain affordable for a period of 55 years.  Under the terms of the DDA for this Development, nineteen (19) units will be restricted to low-income households, fifty-one (51) units will be restricted to very low-income households and eight (8) units will be restricted to extremely low-income households for a period of fifty-five years. 

 

The affordability mix of the development and estimated rents will be:

 

                                                1BR                 2BR                      3BR                    Total                   

LI (60% AMI)                                                 13 @ $1,370          6 @ $1,580          19

VLI (50%AMI)                        2 @ $953        22 @ $1,133         15 @ $1,306          39

VLI (45% AMI)                       2 @ $854          7 @ $1,014          3 @ $1,169          12

ELI (30% AMI)                       4 @ $557          3 @ $658             1 @ $758              8

Manager Unit                                                     1 Unrestricted                                      1             

Total Units                                8                     46                         25                          79

 

D.  Inclusionary Housing Policy

 

The parties understand and agree that this project is subject to the Redevelopment Agency (RDA) Inclusionary Housing Policy as amended by the RDA on September 30, 2003 and agree that the Project will include the required number of inclusionary units.  ROEM has provided the funds sufficient for the development of the required affordable units under the City’s inclusionary policy

 

ANALYSIS

 

The Development consists of 79 units of rental housing and 2,500 sq. ft. of ground floor retail that will be constructed on a 1.64-acre City-owned site. ROEM is preparing to close the financing for the Development in January 2004 in preparation to begin construction in February 2004.  It is anticipated that the project will be ready for occupancy in Fall 2005.

PUBLIC OUTREACH

 

ROEM hosted a neighborhood meeting on May 8, 2003 at the Leninger Center at Kelley Park.  Representatives from Council District 3, the Planning, Building and Code Enforcement Department and Public Works Department were among the attendees.  The Planned Development rezoning process included published notices of public hearings before the Planning Commission on June 11, 2003 and the City Council on June 17, 2003 at which neighboring residents provided testimony.

 

LEGAL IMPLICATIONS

 

The subject hearing is required by State Redevelopment Law.  Affordability restrictions with a 55-year term will be recorded on the subject property.

 

TIMELINE

 

Anticipated Transfer of Property to ROEM                   January 2004   

Anticipated Construction Start                          February 2004

Anticipated Construction Completion                October 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 site 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.

 

CEQA

 

Mitigated Negative Declaration, PDC 03-018

 

 

LESLYE CORSIGLIA

Director of Housing