To: HONORABLE MAYOR AND From: Leslye Corsiglia

CITY COUNCIL

COUNCIL DISTRICTS: 6, 9

SNI AREA: None

SUBJECT: PUBLIC HEARING FOR APPROVAL OF A DISPOSITION AND DEVELOPMENT AGREEMENT FOR THE TRANSFER AND CONVEYANCE OF CITY-OWNED PROPERTY TO THE SAN JOSE CONSERVATION CORPS, OR AN AFFILIATED ENTITY, FOR THE DEVELOPMENT OF NINE SINGLE-FAMILY HOMES ON TWO 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 Jose and the San Jose Conservation Corps, or an affiliated entity, for the development of single-family homes on the following sites in the City of San Jose:

S/s of Meredith Ave., between Lincoln Ave. and Coolidge Ave. 1 unit

Blossom Hill Ave. opposite the terminus of Croydon Ave. 8 units

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

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 property located on the S/s of Meredith Ave., between Lincoln Ave. and Coolidge Ave.

On April 8, 2003, the City Council adopted an Appropriation Ordinance to establish a transfer to the General Fund in the amount of $760,000 for the transfer of administration of the City surplus property located on Blossom Hill Ave. opposite the terminus of Croydon Ave. to the Department of Housing.

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 May 12, 2003 and May 19, 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 two (2) vacant properties, which are currently owned by the City of San José, for the development of nine (9) units of for-sale housing affordable to moderate-income households:

Number

Location Acreage of Units

S/s of Meredith Ave. and Coolidge Ave. .070 1

Blossom Hill Road opposite terminus of Croydon Ave. .404 8

Total 9

The City is proposing to transfer the properties to the San Jose Conservation Corps (SJCC), or its affiliate, which would develop the properties for for-sale housing that would be affordable to households earning less than 120% of 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

Conveyance of two (2) parcels to SJCC, or its affiliate, will be accompanied by a DDA in consideration for 45 years of affordability to moderate-income households. 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 approximately $250,000. For the construction of all nine homes, the total project cost is estimated to be $2,250,000. SJCC will finance the remaining soft costs, such as architect and engineering fees, permits and fees and hard construction costs with financing from a line of credit with Comerica Bank. The line of credit will be repaid in full with proceeds from the sale of the homes upon completion.

C. Financial Analysis and Restricted Rent Levels

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

Location FMV

S/s of Meredith Ave. and Coolidge Ave. $122,000

Blossom Hill Road opposite terminus of Croydon Ave. $760,000

The fair market value of the first 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 fair market value of the second property is based on an appraisal completed by Carneghi-Bautovich and Partners on March 7, 2002.

The proposed transaction involves the fee transfer by grant deed of City-owned land, which has a combined fair market value of $882,000, for zero dollars. This transaction is essentially the same as if the City were to be making a grant in the amount of $882,000 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 moderate-income households.

The sale price of the homes will be determined prior to completion based on median income limits and qualifying factors for moderate-income households. Under present market conditions for first mortgage financing and available programs for second mortgage financing, a four-person household earning approximately 90% of median income could qualify to purchase the homes if they are marketed at an estimated below market sale price of $275,000.

The difference between the below market 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. The City will secure an interest in the “market discount” for each home by recording a deed of trust secured by a note that would be due upon resale of the home. The City will also record a 45-year affordability restriction that will have an equity share provision that will be in effect for the 45-year term. Upon resale, the homebuyer will pay the City the amount of the note, plus an equity share, at which time the 45-year affordability restriction will terminate. In the alternative, the homebuyer may sell the home to another income-qualifying homebuyer at a restricted affordable price.

ANALYSIS

The Sponsor is a nonprofit organization that operates the Youthbuild San Jose program (Youthbuild), which provides young corpsmembers with valuable training in the construction trades by working with professional journeyman on construction projects. The development of the two sites by SJCC will yield a total of nine new ownership units for moderate-income households. The City owns the two sites and intends to transfer them to SJCC for development. The total project cost for all nine homes is estimated to be $2,250,000, with an average per unit cost of approximately $250,000. SJCC has secured outside funding from Comerica Bank to complete the construction of the homes, which will be repaid when the homes are sold. SJCC will earn a development fee of five percent of the construction costs for the development of the properties.

The Housing Department’s Homebuyer Program, in coordination with Neighborhood Housing Services Silicon Valley (NHSSV), will assist the Sponsor in determining the sale price and marketing each home to a qualified homebuyer as well as assisting the homebuyer in securing financing. NHSSV maintains a waiting list of financially pre-qualified homebuyers who have also completed a homebuyer-training course operated by NHSSV.

PUBLIC OUTREACH

For the site located at the S/s of Meredith Ave. and Coolidge Ave., a Planning Director’s Hearing was held on February 26, 2003 and a Special Use Permit and a Development Variance were approved. Property owners within 500 feet of the property were notified of this hearing.

A meeting of the Planning Commission will be held to consider the Planned Development zoning for the site located at Blossom Hill Road opposite the terminus of Croydon Ave. Property owners will be notified of community meetings and public hearings at which they may provide input.

LEGAL IMPLICATIONS

The public hearing is required by State Redevelopment Law. Affordability restrictions with a 45-year term will be recorded on the subject property.

TIMELINE

Anticipated Transfer of Properties to SJCC June 2003

Anticipated Construction Start             March 2004

Anticipated Construction Completion             September 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

The site located at Blossom Hill Road opposite terminus of Croydon Ave. is included in the Economic and Neighborhood Development City Service Area (CSA) Investment Proposals for Fiscal Year 2003-04 to provide an infusion of cash to the City’s General Fund. 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 subject sites are not located within a Redevelopment Project Area. 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-, low- and moderate-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

Meredith Avenue, Exempt, SP02-081.

Blossom Hill Road, Exempt, PP03-05-167.

LESLYE CORSIGLIA

Director of Housing

Attachment