SUBJECT: APPROVAL OF AN OPTION AGREEMENT FOR THE
PURCHASE OF THE VINTAGE TOWER APARTMENTS, A 59-UNIT MID-RISE APARTMENT BUILDING
LOCATED AT 235 EAST SANTA CLARA STREET, AND APPROVAL OF A FUNDING COMMITMENT TO
FIRST UNITED METHODIST CHURCH TOWER PROPERTIES, L.P., OR ITS DESIGNATED
AFFILIATE, FOR THE ACQUISITION AND REHABILITATION OF THE PROPERTY.
COUNCIL DISTRICT: 3
SNI AREA: None
RECOMMENDATION
It is recommended that the City Council/Agency Board adopt a resolution:
1. Approving an Option Agreement for the purchase of the Vintage Tower Apartments, a 59-unit mid-rise apartment building located at 235 East Santa Clara Street for $5,200,000 by First United Methodist Church Tower Properties, L.P., or an affiliated entity, from the City of San José.
2. Approving a funding commitment for a loan of up to $2,225,000 to First United Methodist Church Tower Properties, L.P., or its designated affiliate, for the acquisition and rehabilitation of the property.
BACKGROUND
On December
11, 2002, First United Methodist Church Tower Properties, L.P. (“Sponsor”)
submitted a funding application to the Housing Department for the acquisition,
rehabilitation and permanent financing of the Vintage Tower Apartments, an
existing mid-rise apartment building located at 235 East Santa Clara Street. The development consists of 58 one-bedroom
units and one studio unit. The sponsor
is requesting funding in the form of a loan commitment of up to $2,225,000 in
City funding for permanent financing.
The Vintage
Tower Apartments was originally constructed in 1928 as a medical/dental
facility and entirely renovated and converted to apartments and first floor
commercial space in 1988. The
renovation was funded by a $2,685,000 loan from the Redevelopment Agency of the
City of San José (the Agency) and funds from the California Housing Finance
Agency (CalHFA). The property was
acquired by the Agency in a foreclosure sale on March 30, 1998. Since the foreclosure, the Housing
Department has retained a private property-management company to oversee the
day-to-day operations of the property.
ANALYSIS
It is recommended that the City Council/Agency Board approve an option
agreement, which will permit the City to transfer the property to the Sponsor
under certain conditions. If the
conditions are met, the actual transfer of the property will be accomplished
through a Disposition and Development Agreement (DDA), which staff will present
to the City Council/Agency Board for approval when the complete financing
structure of the project is known. The
purchase price has been set at $5,200,000 and this value is supported by an
appraisal completed by Hulberg and Associates on February 7, 2003. Proceeds from the sale of the property will
be used to pay off an existing loan from the Agency in the amount of $2,685,000
and a first mortgage from CalHFA in the amount of $2,422,063.
The affordability mix
of the development and estimated rents will be:
Studio 1BR Total
VLI
(50% AMI) 0 12 @ $864 12
LI
(60%AMI) 1 @ $982 32
@ $990 33
Market
Rate 0 14
@$1,100 14
Total
Units 1 58
59
The total estimated cost to acquire the property and complete the
rehabilitation is $9,440,434. The
Sponsor will apply to the California Debt Limit Allocation Committee (CDLAC)
for an allocation of tax-exempt bonds to be issued by CalHFA for approximately
$5,000,000 in the second round of funding in April 2003. Should the Sponsor be
awarded an allocation for the Development, the Sponsor will then secure an
allocation of tax credits from the California Tax Credit Allocation
Committee. Prior to submitting an
application to CDLAC, the Sponsor will secure commitments from lenders for the
tax-exempt bond financing structure and from investors for the sale of the tax
credit equity.
It is recommended that the City approve a funding commitment of up to
$2,225,000 for the purchase of the City-owned property.
Affordability Restrictions were recorded on the Property on March 30,
1998. As part of the proposed City
loan, new Affordability Restrictions with a 55-year term will be recorded
against the property. Such
Affordability Restrictions may be subordinated as permitted by State Law.
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 loan.
COST IMPLICATIONS
With the sale
of the property, the existing $2,685,000 Agency loan will be repaid. The City will make a new loan of up to $2,225,000
to the Sponsor, resulting in a net payment to the City in the amount of
$460,000. This funding is consistent
with the Council approved Budget Strategy memo, adopted on February 4, 2003.
PUBLIC OUTREACH
The public will have an
opportunity to present testimony during the Disposition and Development
Agreement City Council approval process.
Additionally, a TEFRA
Hearing, which is another method of notifying the community of CalHFA’s intent
to issue tax-exempt private activity bonds for this Development, will be
scheduled within the next 60 days. The
public hearing notice will be published in the San José Mercury News for a
public hearing before the City Council if and when the project receives a
tax-exempt bond allocation.
RELOCATION
None required.
This report has been prepared by the Housing Department in coordination with the Office of the City Attorney, the Redevelopment Agency and the Department of Planning, Building and Code Enforcement.
Exempt (PP03-03-090)
DEL D. BORGSDORF
City Manager
SUSAN SHICK
Redevelopment Agency
Executive Director