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Home My WebLink About04/29/1991, C-2 - CONSIDERATION OF AN AGREEMENT WITH THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR THE DEVELOPMENT AND OPERATION OF A LOW INCOME HOUSING PROJECT ON CITY-OWNED PROPERTY LOCATED AT 1090 ORCUTT ROAD IN SAN LUIS OBISPO. �IIIII�ItlIIIIVIII�I��I�I�u�I I "J r MEETING DATE: city O San lues OBISPO -ui-ql COUNCIL AGENDA REPORT ITEM NUMBE - FROM: John Dunn, City Administrative Officer Prepared By: Deb Hossli, Administrative Analyst` SUBJECT: Consideration of an agreement with the Housing Authority of the City of San Luis Obispo for the development and operation of a low income housing project on City-owned property located at 1090 Orcutt Road in San Luis Obispo. CAO RECOMMENDATION: Adopt a resolution authorizing the Mayor to execute an agreement with the Housing Authority to develop a low income housing project on City-owned property at 1090 Orcutt Road in San Luis Obispo. DISCUSSION: Background At the November 20, 1991 meeting, the Council conceptually approved a proposal to enter into a long-term lease with Housing Authority for the development of low income housing for the elderly and handicapped on City-owned property located at 1090 Orcutt Road in San Luis Obispo. The Orcutt Road property was originally acquired in 1957 to accommodate a cloverleaf style interchange between Orcutt Road and Laurel Lane. Because the Council has since approved a modified design for the project, the Orcutt Road property is no longer necessary and therefore surplus to City needs. Lease Agreement Overview In order to carry out the Council's direction, staff has developed a lease agreement with the Housing Authority for the long-term use of the Orcutt Road site (see Attachment 1) . Under the negotiated agreement: * The City will provide the Housing Authority with use of the Orcutt Road property for fifty-five years at a cost of $1 per year. Upon expiration of the lease agreement, the property, along with the site improvements, will become the property of the City. * The Housing Authority, in turn, will use the site to construct and operate a minimum of eighteen (maximum of twenty-four) low income rental units. The housing units would be rented throughout the term of the lease to elderly and handicapped families with incomes at or below 80% of the County's median income as set by the Federal Department of Housing and Urban Development. * The term can be extended, if agreed by both parties, for the sole purpose of continuing to provide low income housing. 64. i°�� ►�IIIIIIIII��j��l city of San lues osispo MM M COUNCIL AGENDA REPORT * The Housing Authority will have two years from the date of securing a building permit to complete the project. If a building permit is not secured within five years following the execution of the lease, the lease will be considered void by both parties. Consistent with the City' s Water Allocation Regulations, the Housing Authority will have the option of waiting until a water allocation is available or participating in the retro-fit program to secure a building permit for the project. Lease Agreement Analvsis For the most part, the recommended agreement with the Housing Authority is straight forward and contains standard lease provisions. However, the following issues relating to the lease require additional explanation: * Lease Costs Staff is recommending that the property be leased to the Housing Authority for $1 per year. Providing the property at such a nominal cost is a critical element to the success of the project. While, the Housing Authority does intend to take advantage of the federal government's tax credit program to reduce the project's financing expenses, the cost of the land is a more crucial component. From the Housing Authority's perspective, the project becomes less viable as the land costs rise. The project would simply not be feasible if the Council charged fair market value for the- site (which was appraised at $260, 000) . Staff discussed other alternatives with the Housing Authority to provide some reduced level of repayment for the land over an extended period of time. Staff concluded, however, that the project and the City would be better served if those monies could be channeled into creating a more compatible and higher quality project. * Lease Versus Sale of Property Staff is recommending that the City lease the property to the Housing Authority for a period of fifty-five years, as opposed to selling the property outright. This represents a reasonable term for the Housing Authority to secure long-term financing and provides the City with the flexibility to re- evaluate its long-term need for the Orcutt Road property. * Water Allocation Under the negotiated agreement, the Housing Authority will have the option of waiting until a water allocation is �2 z d1Nn��i�II�IIIIIIIIIiII�III city of San LUIS OBISp0 Ik COUNCIL AGENDA REPORT available or participating in the City's retro-fit program to secure a building permit for the project (other alternatives available to the Housing Authority under the Water Allocation Regulations are not viable) . Because of the costs associated with participating in the retro-fit program, estimated to be between $18, 600 and $48, 300 for the project, the Housing Authority will more than likely opt to wait until a water allocation is available. Given the uncertainty associated with the City's future water supplies, the decision to wait until a water allocation is available could result in a delay of many years to the project. Therefore, staff has included a provision whereby the lease would be considered void if a building permit for the project has not been secured within five years following the execution of the agreement. This will protect the City from entering into a long-term lease that the Housing Authority could potentially not fulfill within a reasonable time-frame because of water conditions or other reasons. (The agreement includes an amendment provision, which could be exercised to extend this timeframe, if deemed appropriate by the City at the end of the five year period. ) CONCURRENCES: The Housing Authority has reviewed the lease and concurs with its terms and conditions. They would request, however, that the Council consider providing an exemption to the Water Allocation Regulations under Section 17.89. 030, • part B. item six (see Attachment 3) . This Section excludes government development projects from being required to secure a water allocation prior to beginning construction. This issue is addressed below as an alternative to the staff recommendation. FISCAL IMPACT: Approval of the lease will not result in any additional costs to the City. However, the Orcutt Road property has been appraised at $260, 000. By entering into a fifty-five year lease agreement with the Housing Authority, the City loses the opportunity to sell or lease the property at a greater rate of return. ALTERNATIVE: Exempt the Housing Authority from being required to secure a water allocation for their low-income housing project. The City's Water Allocation Regulations contain a provision that exempts "government developments" from being required to have a water allocation prior to beginning new construction. Given the nature of the services provided by the Housing Authority and the oiHa►�u��Illlllllll��' li�lll citY of san Luis OBI SPO Emma COUNCIL AGENDA REPORT fact that California State law defines them as a public corporation, it is reasonable to assume that an exemption can be provided under this section. Taking this approach would speed the construction process and reduce the costs of the project. It would make needed housing available to elderly and handicapped low income members of community in the shortest time-frame possible. The downside, however, relates to project's impact on the City's water supplies. While providing affordable housing is an important goal of the City Council, water is currently the City's highest priority. Therefore, in weighing the two policy issues (the desire for low- income housing versus water conservation) , staff has based its recommendation on water being the more immediate and compelling concern at the present time. ATTACHMENTS: 1 - Resolution 2 - Lease Agreement 3 - Letter from Housing Authority DH\ha-rept