COUNCIL
DISTRICT: 77
SNI Area: Tully/Senter
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 Community Home Builders & Associates (CHBA), or its designated affiliate, for the acquisition and development of the Roberts Avenue Family Housing, a 100-unit family development on 3.42 acres of City-owned property, located at the northwest corner of Lucretia Avenue and Vintage Way.
2. Approving business terms for an acquisition/predevelopment loan in an amount not to exceed $3,922,778, a construction loan of up to $7,184,002 (which includes the refinancing of an acquisition loan of $3,422,778 and a predevelopment loan of $500,000), and a permanent loan of up to $4,300,000.
3. Authorizing the Director of Housing to negotiate and execute all necessary documents evidencing the subject DDA with CHBA, or its designee, including loans, deeds, and other related agreements on behalf of the City related to the housing development.
BACKGROUND
On June 27, 2000, the City Council selected Community Home
Builders & Associates as the developer of the Roberts Avenue family housing
project, which will be marketed to teachers, located at the northwest corner of
Lucretia Avenue and Vintage Way. It
also approved a predevelopment loan in the amount of $500,000 to Community Home
Builders & Associates.
On
May 15, 2001, the City Council held a Tax Equity and Fiscal Responsibility Act
of 1986 (“TEFRA”) hearing and adopted a resolution expressing its intent to
issue up to $14,000,000 in tax-exempt multi-housing revenue bonds to finance
the construction of a 100-unit family rental development located at Lucretia
Avenue and Vintage Way. The bonds for
this development will qualify as 501(c)(3) bonds and will be issued on behalf
of a nonprofit organization.
The
noticed public hearing procedure is required for the sale or conveyance of the
subject parcel since it was acquired with 20% Housing Redevelopment Funds. This Notice of Public Hearing was published
on December 3, 2001 and December 10, 2001.
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 part of the
public hearing packet for this matter and have been incorporated into the
subject report.
The
subject DDA addresses approximately 3.42 acres of City-owned property located
on Lucretia Avenue and Vintage Way.
CHBA intends to acquire the site from the City for the construction and
permanent financing of 100 units of family housing which will be marketed to
teachers, with 75 units affordable to very low- and low-income persons or
households.
CHBA intends to
obtain a commitment for a private placement bond structure utilizing Fannie Mae
credit enhancement. If this commitment
is obtained as structured, the bonds would receive a “AAA” rating.
PROJECT
BUDGET AND ANALYSIS OF THE TRANSACTION
A. Summary of the Proposed Transaction
On June 27, 2000,
the City Council selected Community Home Builders & Associates (CHBA) to
develop the Roberts Avenue Family Housing Project on City-owned property. At
the same time, the City Council approved a predevelopment loan in the amount of
$500,000 to CHBA to move forward with project planning and financing
activities.
B. Housing Development Budget and Sources of
Funds
The total project
cost is estimated at $17,387,880. The
permanent financing package includes first-mortgage financing consisting of
tax-exempt bonds to be issued by the City of San José of approximately
$11,490,000, second mortgage financing consisting of tax-exempt bonds issued by
the City of San José of approximately $1,597,880, and the proposed City
permanent loan of up to $4,300,000.
C. Financial Analysis and Restricted Rent Levels
The proposed
transaction involves the sale of City-owned land for an acquisition amount of
$3,422,778, which represents the market value as supported by an appraisal
performed for the City by Cushman & Wakefield as of April 9, 1999. A City note in the amount of $7,184,002 will
be provided to the developer under the terms of the City’s construction loan
agreement.
With one (1)
unrestricted manager unit, 20 units will be rented to family households within
the very low-income category, 55 units will be for moderate-income households
and 24 units will be rented at market rate.
Project rents and operating costs will be based on the federal law
regulating the use of tax-exempt multifamily bond financing for new
construction projects on behalf of Section 501(c)(3) nonprofit entities that
require 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 and 55% of the units be affordable to
households at 80% of the area median income.
The remaining 25% of the units will be at market rates. The City has recorded 55-year affordability
restrictions on the property.
D. Proposed Business Terms of the DDA
Acquisition/Predevelopment Loan
Borrower: Community Home Builders
& Associates, or its affiliate
Loan Amount: $3,922,778
Term: 24
Months
Interest rate: No interest
Repayment: City’s
Construction loan
Recourse: The
City’s Acquisition Loan will be recourse
Construction Loan
Borrower: Community
Home Builders & Associates, or its affiliate
Loan Amount: $7,184,002
(includes the $3,922,778 acquisition/predevelopment loan amount)
Term: 24
Months
Interest: 3%
per year simple interest
Repayment: City’s
Permanent Loan and bond proceeds
Recourse: The
City’s Construction Loan will be recourse
Permanent Loan
Borrower: Community
Home Builders & Associates, or its affiliate
Loan Amount: $4,300,000
(includes the $3,922,778 acquisition/predevelopment loan amount)
Term: 55 years
Interest rate: 3% per year simple interest with unpaid accrued
interest compounding to principal at the end of each year.
Repayment: Residual
receipts of 75% of net cash flow. Net cash flow payments in excess of
outstanding interest to apply to loan principal. Full repayment of all principal and interest due at maturity.
Loan to Value: 100%
Recourse: The City’s permanent loan
shall be non-recourse.
Subordination: As allowed by State law.
Affordability: The City’s 30-year Affordability Restrictions will
be amended to run for 55 years and require that 20 of the units be affordable
to very low-income households, 55 units will affordable to low-income
households, 24 units will be rented at market rate and 1 manager unit will be
unrestricted.
Security: The
City’s loan will be secured by a deed trust during the construction period and
permanent loan period. A Promissory
Note containing the above repayment provisions will be executed and 55-year
Affordability Restrictions will continue to run with the property.
ANALYSIS
The PD Rezoning
for the Roberts Avenue Senior Housing was approved by the City Council on March
20, 2001.
The project
consists of 100 units of family housing that will be preferentially marketed to
teachers. The housing and parking will
be constructed on a 3.42-acre parcel located on Lucretia Avenue and Vintage
Way.
As noted above,
the purchase price for the family portion of the land has been set at
$3,422,778. This value is supported by an appraisal performed for the City of
San José by Cushman & Wakefield as of April 9, 1999. The City owns the subject property and
intends to sell it to the sponsor for the development of the Roberts Avenue
Family Housing development. The total project cost is estimated at
$17,387,880. The permanent financing
package includes first- mortgage financing consisting of tax-exempt bonds
issued by the City of San José of approximately $11,490,000, second-mortgage
financing consisting of tax-exempt bonds issued by the City of San José of
approximately $1,597,880, and the proposed City loan of up to $4,300,000.
It is anticipated
that the grading will begin in December 2001 and that the project will be ready
for occupancy in Spring 2003.
The sponsor has hosted two community outreach meetings on December 13, 2000 and February 21, 2001, at the R. F. Kennedy Elementary School. Also, the PD permit process for this project will require a public hearing with notices sent to surrounding residents.
On April 4, 2001,
the sponsor participated in the Franklin McKinley Teacher Resource Fair to
provide teachers with information about the new housing project. The sponsor has also met with the National
Hispanic University, Santa Clara University, the Resource Area For Teachers
(RAFT) and San José State University as part of their teacher outreach efforts.
LEGAL ISSUES
An
affordability restriction with 55-year requirements has been recorded on the
property. A tax regulatory agreement
with 55-year affordability requirements will be recorded on the property with
the issuance of bonds. The closing of
the City’s acquisition loan will include the recordation of an amended City
55-year affordability restriction.
The preparation of this
report has been
coordinated with the Office of the City Attorney.
Funds not already
disbursed are available in the Housing Department’s Fiscal Year 2001-02 budget.
CEQA
ND.
LESLYE
CORSIGLIA
Acting Director of Housing