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HomeMy WebLinkAbout08/16/2005, BUS 2 - REQUEST BY THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR 600,000 FROM THE CITY'S AFFORDA council 8-16-05 agenda Repout 'w.Nb Bu 5 2- CITY OF SAN LUIS 0 B I S P 0 FROM: John Mandeville, Director of Community Developme�. Prepared.By: Doug Davidson, Housing Programs Manager 7j>_ SUBJECT: REQUEST BY THE HOUSING AUTHORITY OF THE CITY OF SAN LUIS OBISPO FOR$600,000 FROM THE CITY'S AFFORDABLE HOUSING FUND CAO RECOMMENDATION 1. Determine that the Housing Authority's request for $600,000 meets City Affordable Housing Fund award criteria set by previous Council action. 2. Authorize the CAO to negotiate and execute an.agreement with the Housing Authority for a loan of$600,000 from the City's Affordable Housing Fund (AHF). DISCUSSION. Established in 1999, the AHF implements the Inclusionary Housing Program and is funded by the payment of in-lieu affordable housing fees. The Fund has a balance of $1.6 Million. Ordinance 1438 which established the fund describes it as a "fund established and administered by the City, containing in-lieu fees and other funds held and used exclusively to increase and improve the supply of affordable housing." The Ordinance also says the fund shall be administered by the Finance Director and is allocated "at the discretion of the City Council." In 2002, the City approved a grant of$215,000 for Judson Terrace Lodge to help construct a 32-unit apartment project for frail, low-income elderly persons. In February, 2004, the second and last award for AHF funding ($60,000) was approved for start-up*and operating costs of the San Luis Obispo County Housing Trust Fund. (A third grant request from Sojourn Services, Inc. for $25,000 was denied because it did not meet the award criteria.) Affordable Housing Fund Balance The current balance in the Affordable Housing Fund is $1,600,100. Revenues are shown in detail below, as of July 1, 2005: 2000-2001 2001.2002 2002-2003 _ 200372004, 2004-005__ Total____ __,__. . In-lieu Fees 193,700 464,900 747,800 60,500 323,300 $1,790,200 _ - Interest 8,200_ 20,000 28;300 81500 19,900 $84,900 Expenditures 0 0 [215,0001 .[30,000] [30,0001 [275,000] TOTAL 201,900 _ 484,900 . 561,100. 39,000. 313,200 $1,600,100. City of San Luis Obispo,Finance Department r. Housing Authority Request—Affordable Housing:Fund Page 2 Use of Affordable Housing Funds The AHF, the first such fund established in San Luis Obispo County, is relatively unfettered by the "strings" associated with State and Federal funding, making it exceptionally flexible and valuable for meeting local housing needs. Projects receiving City funds must meet State law regarding prevailing wage requirements, and this means developers of most assisted affordable housing developments must pay prevailing wages. Since AHF can be meted out at Council's sole discretion, the process is simple, direct, and efficient, without the long lead times associated with multi-agency grants. AHF funds are the City's most direct financial tool to provide direct funding assistance for the purchase, rehabilitation or construction of affordable housing. Because the funds have been collected "in-lieu" from developers who chose to pay a fee instead of actually building required affordable housing, it is essential that Council allocate funds in a way that maximizes public benefits while considering both housing needs and opportunities. Council funding decisions must be guided by consistency, fairness, and reasonableness, and to assist that effort, Council adopted the following criteria in Resolution 9263 (2001 Series) when considering Affordable Housing Fund requests: 1. Eligibility. Use of the Affordable Housing Fund will increase or improve affordable housing and promote General Plan policies regarding housing and related community goals. 2. Need. There exists a.substantial and overarching need.for the type of housing to be assisted. 3. Suitability. The project to be assisted is appropriate for its location, both in terms of land use and design. 4. Urgency. There exists an urgent or overarching need for the type of housing to be assisted. 5. Financial Effectiveness. But for the requested assistance, the project would not be economically feasible; or AHF funding"leverages" significant additional funding from other sources. 6. Readiness. The project has all necessary City approvalsandis ready to proceed. A funding request may not meet all of these criteria, or may only partially meet one or more criteria. This is, by nature; a subjective process in which the criteria provide a way to compare requests against City housing objectives and other practical considerations. Requests that meet most or all of these criteria are more likely to maximize public benefit and therefore, merit City support. Even if a request appears to meet these criteria, Council may still opt not to fund a particular request or to fund only a portion of the request. Council may instead choose to "save up" in-lieu fees to wield a greater funding effect on a single large, future housing development or to offer a significant incentive to encourage a specific type of affordable housing. In the analysis below, each of the six funding criteria will be discussed and referenced in the appropriate section. Funding Request/Strategy The Housing Authority is requesting $600,000 to assist in the acquisition of a site for a cooperative housing project. The 4.27 acre site, long known as the "Y" property, is located at 851 Humbert Street, between the railroad and South Broad Street. The Housing Authority is in escrow with the current owner, Union Pacific, for the $3.5 Million property. The Housing Authority placed $100,000 down to secure the offer, leaving $3.4 Million to be financed. The )_- 7L Housing Authority Request—Affordable Housing Fund _. Page 3 structure of the financing has not been finalized,but a couple of scenarios seem likely for how to leverage the City's contribution most effectively: 1. The $600,000 could be used to pay the carrying costs (interest) on the property during the pre-development phase. These costs are expected to be $200,000 annually and would provide the Housing Authority 3 years of carrying costs. 2. The $600,000 could be used as additional down payment lowering the mortgage in effect to $2.8 Million. This would significantly lower the annual carrying costs. In these days of seemingly endless creative financing possibilities, there are other ways the funding could come together. In any case,per AHF funding criteria#5 (Financial Effectiveness), the City's $600,000 contribution would be leveraged many times over with other sources of public and private money to enable acquisition of a$3.5 Million property and development costs of 3 to 4 times that amount. Staff is proposing that the $600,000 be disbursed as a loan. Loan terms would include zero percent interest and the possibility that the Council could forgive -the loan during the five-year pre-development time period. Structuring this as a loan eventually replenishes the AHF for other affordable housing projects in the future. A loan also recognizes the delayed delivery (5 years) of affordable housing with this project. The $600,000 of AHF funds would be used for site acquisition and/or financing, not construction of housing units. A grant would be more appropriate if this project was approved and ready to proceed. The Housing Authority's request (Attachment 3) includes a condition to consider an additional four consecutive annual requests of$100,000 each. Staff is reluctant to go beyond a commitment. of $600,000 at this time. This contribution makes a substantial impact on the feasibility of the project while maintaining a balance of$1 Million in the AHF. The remaining funds can be used to assist another project, especially one that is nearing construction. Both the People's Self-Help project (South Higuera) and Tumbling Waters have "penciled in" AHF funds in their financial equations—requests from both projects are expected this fall. AHF funding could also come into play in the City's negotiations with the Margarita Area developers. If necessary, future Housing Authority requests will be considered in the same manner as this,one and include an update of the project's financing, AHF balance, and status of other potential projects for funding. Cooperative Housing The lines between owning and renting a home are no longer clear-cut. Cooperative housing contains aspects of both renting and owning, falling closer to the ownership side of the spectrum. The owner owns a collective share of the development corporation, the "cooperative", While not owning a unit outright, the collective share of the membership comes with the right to occupy a certain unit. Co-op members have the mortgage interest deduction and property tax advantages of home ownership. In a limited equity housing cooperative (LEHC), such as the subject proposal, resale prices are restricted to maintain permanent affordability and the units must be owner-occupied. Cooperative housing is not new. Urban centers on the east coast have had co-ops for years. Innovative housing concepts, such as cooperative housing and community land trusts, are taking Z-3 Housing Authority Request.—Affordable.Housing Fund Page 4 on more interest as housing prices continue to escalate: As Jerry Rioux, Director of the Housing Trust Fund put it in his recent newsletter; "these alternative forms of housing tenure offer many of the benefits of home ownership - control, cost savings, and the accumulation of wealth = at a lower cost to individual households and society." Communities in California, particularly Oakland and Davis, are seeing the benefits of cooperative housing. David Thompson, internationally recognized expert on cooperative housing, conducted a seminar on April 21, 2005, in San Luis Obispo. About 50 people turned out on a Thursday evening for his presentation. He talked about the cooperative concept in general and how it was applied specifically to a flagship project in Davis. The presentation was taped and shown several times on Charter Cable channel 21 and.a DVD of the presentation was placed in the Council reading file. Mr.Thompson also prepared a benefits summary of the LEHC model which is attached to George Moylan's letter(Attachment.3). Proposed Project A cooperative housing project of 60-80 units geared toward the moderate-income workforce is a different kind of development for the Housing Authority. In the past, their projects have mostly been for the benefit of lower income households. We all know there's a need for workforce housing in San Luis Obispo. For a statistic to validate this claim the housing affordability index says it all. At a median price of$536,000, 11%o of County households can afford to buy a home. (City residents face an even more daunting hurdle to homeownership as the City median sales price exceeds that of the County as a whole.) The need is overarching and urgent as called for in AHF funding criteria#2 and#4. The site is currently designated M on the General Plan and the corresponding CS on the Zoning Map. A General Plan Amendment/Zone Change to R-3 or R-4 and project review would require public hearings before the Architectural Review Commission, Planning Commission, and City Council. Speaking to AHF funding criteria #3 (Suitability), the site's location warrants a change to residential. The site is adjacent to the Villa Rosa condominium development. Housing in this location would be compatible with and carry out some of the evolving residential and mixed-use land use patterns envisioned in the Broad Street Corridor Enhancement Plan. As a financing partner, the City can have input early in the process on design and compatibility issues of the Broad Street corridor. Housing Element In light of AHF funding criteria#1 (Eligibility), the following Housing Element programs show how the project will "increase affordable housing and promote General Plan policies regarding housing": Program 6.3.7 Consider amendments to the General Plan to rezone commercial areas for residential use and promote higher density, infill housing. The program goes on to list 7 specific areas to be considered for possible rezoning — area "a" is the Little. Italy district and portions of the Broad Street corridor of which the subject site is specifically included in the map exhibit (see Attachment 2). _i Housing Authority.Request-Affordable Housing Fund _ Page 5 Program 6.3.9 Balance City efforts to focus as much on infill and densification within City limits as on annexation of new residential land. The proposed project for cooperative housing is a perfect example of taking advantage of infill and densification sites within City limits. Program 6.3.10 Seek opportunities with other public agencies and public utilities to identify; assemble, develop, redevelop, and "recycle surplus land for housing. This is a golden opportunity to work with. the Housing Authority and Union Pacific ific Railroad to obtain additional housing in the Broad Street corridor. Summary The request meets 5 of 6 findings for Affordable Housing Fund allocation. Although, the project has not received its land use approvals (funding criteria #6), staff believes the request merits funding. The Council has awarded CDBG funds on several occasions to acquire sites for future housing developments: North Chorro Street and Brizzolara Street (Housing Authority) and South Higuera Street (People's Self-Help Housing) among them. The fact that this award is a loan, and not a grant, reduces the potential impact on the AHF. The Housing Authority is the housing arm of the City and has an excellent record of developing and managing housing developments. In fact, you could say that the Housing Authority is the perfect organization to pull off a project like this. The concept of cooperative housing.relies on an existing entity; the Housing Authority would become the "cooperative". The Housing Authority's organizational framework of developing and managing housing developments will be instrumental to the success of the project. An innovative cooperative housing project in San Luis Obispo would be a big boost for our housing programs and provide another affordablehousing alternative. To make it happen calls for funding commitments early in the process—the acquisition and pre-development stage— when financing needs are at the critical juncture. FISCAL IMPACT None. AHF funds are the Inclusionary Housing in-lieu fees and not part of the General Fund. ALTERNATIVES 1. Allocate the $600,000 from the AHF as a grant rather than a loan. The City has traditionally allocated AHF funds as grants: Grants are easier to administer and do not involve the payment terms, schedule, and monitoring inherent in loans. Although difficult to project due to its history of fluctuation, the AHF will continue to grow. Over the four-year period of collection, approximately $1.8 Million has been.collected, an average of$450,000 a year. �, Jc Housing Authority Request—Affordable.Housing Furid Page 6 2. Consider CDBG (Community Development Block Grant) funds instead of the Affordable Housing Fund. CDBG funds have been awarded quite successfully by the. City for property acquisition for affordable housing developments. In this case, however, CDBG funds are not appropriate. CDBG funds are for the benefit of lower income residents defined as at or below 80% of the County median income: The proposed cooperative housing project is geared toward moderate income and workforce households at incomes from 80% to 120% and possibly up to 1400A In addition, the funding is needed in August and it would not be possible to provide CD_ BG funding in that timeframe. 3. Fund the request at a lesser amount. The $600,000 amount requested was chosen by staff and the Housing Authority for both pragmatic and economic feasibility reasons. It is large enough to make a significant difference in Housing Authority's funding picture, while still maintaining a balance of at least$1 Million in the City's Affordable Housing Fund. Funding the request at a lesser amount would increase the "gap" in financing and jeopardize the feasibility of the project. 4. Convert the loan to a grant at any time during the five-year pre-development time.period. As with Alternative #1, converting the loan to a grant would negatively impact the long-term balance of the AHF—the $600,000 would,not be repaid. The advantages of a grant are outlined in Alternative#1 above. 5. Deny the funding request. Staff does not support this approach, since it would.undermine the City's efforts to take strong, innovative steps to address affordable housing needs and to continue working closely with the Housing Authority. Attachments Attachment 1 =Vicinity Map Attachment 2 =Housing Element Figure 1 (Areas for Possible Rezoning) Attachment 3 - Request for Funding (Letter from George Moylan, dated July 19, 2005) Council Reading File DVD of David Thompson Seminar on Cooperative Housing (April 21, 2005) dd/J:/HousingProgra /CCRptAHFRegHA ■- „a � ,.. 111 4 Illlllit'�- ♦ _ ' " L .111111 �► ```° �' - �irr� %►iii- A:. Parcel Number 851 Humbert Street 004-951 -015 f Attachment 2 i Figure 1 Areas to be Considered for Possible Rezoning z d 1 f }C 7 ` b 0 6.3.14 Exempt the construction, relocation, rehabilitation or remodeling of up to four dwellings of up to 1200 square feet each from Architectural Review Commission review. New multi-unit housing may be allowed with "Minor or Incidental" or staff level architectural review, unless the dwellings are located on a sensitive or historically significant site. Attachment 3 1- w LiL 0 _ rauu.ouuua errornxmn Housing Authority 487 Leff Street Post Office Box 1289 San Luis Obispo CA 93406-1289 of the City of (805) 543-4478 fax (805) 543-4992 San Luis Obispo Executive Director-Secretary George J.Moylan July 19, 2005 The Honorable Mayor David Romero and City Council City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Dear Mayor Romero and Council Members: We are asking your participation with us in a development which will bring major benefit and innovation to the housing needs of the community. The program brings homeownership opportunities to a segment of the population disenfranchised by current conditions while significantly adding to the workforce housing stock. This population struggles for their very financial existence in our city. The vehicle is called limited equity cooperative housing and our plan would be to build 60-80 units on the Humbert Street, or Y site as it is called by its current owners the Union Pacific railroad. In addition to being what we think is an excellent site for such housing it is also a key of the redevelopment of the railroad yard as well as a major link in efforts to address traffic circulation problems that exist in the Broad Street corridor. Which as you know is the subject of a recent Caltrans grant to the City. The specifics of our proposal to you are as follows: On May 23 the Housing Authority deposited $100,000 towards the acquisition of the 4.2 acre, $3.5 million dollar site. The Authority has had discussions with, and is in the process of engaging, the services of Mr. David Thompson, an international leader in cooperative housing. Please see his attached memo to me outlining the benefits of limited equity cooperative housing. In addition we have contracted with RRM Design Group to prepare site design and schematics, as well as other Planning and Development services. Hopefully by August 16th, the night we understand you will be acting on our request,we will be able to share the site plan and schematic renderings of the proposed buildings with you. We have also had discussions with First Bank of San Luis Obispo, and its new affiliate Pacific Capital Bancorp over what we think will be attractive financing throughout the development phase and perhaps into management. And because of some of the environmental issues surrounding the site we have had several conservations with representatives of the City's Fire Department as to how best eliminate those environmental concerns. 7 J Attachment 3 The request which I am about to outline is made because the Authority cannot accurately project at this time whether or not we will have the cash flow to carry the project from time of acquisition to time of occupancy with some assistance from the Inclusionary Housing Trust Fund. We feel given the complexities involved in re-zoning and other planning and design efforts the minimum time involved in the development process could be four to five years. Thus even at favorable interest rates we could well be looking at a total interest only cost of$800,000 to $1,000,000 overr the development period.. Given past and possibly future cutbacks in our Federal programs we cannot commit to that depth of obligation at this time, yet we are being asked to close escrow during the month of August. Thus our request to you is an immediate commitment of$600,000 from the Inclusionary Housing Trust Fund to assist in the acquisition of the site. It is further conditioned by an agreement to consider four consecutive annual requests of$100,000 each to assist in the carrying costs of the bank loan. We have had numerous discussions with your Planning,Fire and Public Works staffs as to the development and they all share our opinion that the development of the site in the manner outlined above would be a major boost for affordable housing in the community, the redevelopment of the railroad property, and the transformation of the entire Broad Street corridor. We fully understand that in committing Inclusionary Housing Trust Funds you look for a development that addresses the following specific criteria so here is our narrative on those topics. Eligibility: One of the convenient,aspects of limited equity housing is that the corporation can establish its own criteria for involvement in the program. Given the needs of the City we would work with you as to establishing eligibility criteria for participants. We perceive the units would be occupied by individuals and families whose income did not exceed 120%of County median income, the State criteria for moderate income homeowners. Need: In a community where the median priced home sells for well in excess of $500,000 there can be little argument that there is a need for homeownership housing for people whose incomes fall below 120%of median. Suitability: With its location adjacent to Villa Rosa;as well as the Broad Street corridor and close to downtown there should be a consensus that this development is appropriate for its location, land use and design. Timing: Because of the complexities involved in developing this site units will not be built immediately. However, our point would that there is immediacy.involved in our request in that Union Pacific is,going to hold us to a close of escrow by the end of August and it appears we will need your contribution in order to close. z�� Ip t. Attachment 3 Financial Effectiveness: the proposal should score very high in this respect. Your total $1,000,000 contribution will support a development which pencils out even at this early date as costing$12 to $15 million to build. And we do believe those are conservative cost estimates. However, even more importantly the development will provide homeownership opportunities for 60 to 80 families and individuals who would otherwise be excluded from such opportunities in this expensive housing market. Readiness: This proposal does not score well given that it has absolutely no City approvals and is not ready to proceed. However, City staff has been aware of the proposal for many months and is supportive of the development in it's conceptual stage. Moreover, you have a 37-year track record of this agency producing affordable housing when it has access to land. This letter is being written somewhat prematurely because of the City's need to agendize the topic as well as my need to go on a two-week vacation as of Thursday, July 21. However, I fully intend to have additional information available for your prior to your meeting of Tuesday, August 16. Sincerely, George J.Moylan Executive Director Attachment cc: Ken Hamp* tan Doug Davidson Attachment 3 :yy,am� July 17, 2005 To: George Moylan, Executive Director, Housing Authority of San Luis Obispo Fr: David J. Thompson,Neighborhood Partners,.LLC. Re: The tool of a limited equity housing cooperative in creating and retaining permanently affordable home ownership versus a condo or single family home A comparison of condominiums and single family housing to limited equity housing cooperatives (LEHCs)reveal the following outcomes (please also see the attached article from the 2004 Cooperative Housing Journal published by the National Association of Housing Cooperatives); • Co-operatives are the oldest form of home ownership in the USA for multi-family .developments. Individual home owners own stock or memberships in the cooperative corporation that owns and operates the housing. As an owner of the co-op, they have the right to occupy a unit in the development. • Limited Equity Housing Co-operatives or LEHCs are a specific type of co-op that, under California law,provides permanently affordable homeownership. • Co-op and LEHC members are homeowners who are eligible for California's home owner's property tax exemption, state and federal income tax deductions for the mortgage interest and property taxes they pay, and capital gains exclusions upon the sale of their home. • LEHCs have an excellent record in California of providing the lowest per unit cost for home ownership programs. LEHCs can create more home ownership units per acre than single family homes and lower per unit development costs than a condo. • LEHCs have a low cost of entry into a home ownership program. (the cost of entering a LEHC (a share which can run from $500 up and no closing costs- versus a down payment and closing costs for each sale of a condo or,single family home). There are a range of excellent home ownership programs in California. However, many people do not qualify to use them. More applicants find themselves eligible to join a LEHC than other home ownership programs. • In high cost housing areas, LEHCs always trend lower in housing costs than condos or single family homes. As a% of income LEHCs are the only home ownership model that over time provides a housing unit affordable at a lower% of median income relative to the market. • Generally, affordable home ownership needs to be subsidized to bring the cost down to certain income groups. It is important to recognize that the subsidy needed for a LEHC is a one time subsidy per unit at the be igi�na.However; in a condo or single family home created to serve the same goals a subsidy is required upon each sale to achieve the same ends. A cooperative can set up a share loan fund to assist future buyers.. Local businesses and organizations can invest in the share loan fund to assist their own employees into home ownership. A share loan fund can of course be funded at the beginning and sustain itself over time. 1 ,Z -iZ Attachment 3 • The transfer costs upon sale of membership in a LEHC.are far lower than when a sale occurs in a condo or single family home..Because the LEHC is a single blanket mortgage there is no real estate transaction in a LEHC. Therefore the real transfer costs in a LEHC are usually less than$500 per unit. The actual cost in most LEHCs is actually zero. Neither the buyer nor the seller of an LEHC membership needs to pay transfer fees,title insurance,recording fees, loan fees, points and other costs that are typical for the sale of condos or single family homes. • Affordable housing policy in California frequently fails to take into account the high turnover of occupancy in California and the costs associate with that reality. Transfer costs for a condo or a single family home can remove a lot of the perceived economic gain. During downturns in the market LEHC members retain their value whereas condos and single family homes lose value. • LEHCs are the only home ownership model in California which by state law must be owner occupied. This legal requirement ensures that the units made available for home ownership do not become rentals. This gives jurisdictions the strongest assurance of retaining thehousing.stock.for owner occupancy and ensuring the unit does not become a rental. • LEHCs are more legally capable of giving housing preferences to specific groups such as where one member of the household works for a public agency in SLO or where one member of the household works in SLO. • Banks and other mortgage institutions are reluctant to accept resale and other occupancy restrictions on single family homes in perpetuity. A LEHC is the strongest protection against affordable homes being turned into rentals. • There are always more households who qualify to live in a LEHC than a condo or single family home.This is due to the fact that a LEHC is qualifying a household only based upon their capacity to pay the monthly carrying charges. • LEHCs are better set up to do low cost self monitoring of affordable housing goals. This relieves city staff or other public agencies of the high cost of monitoring the operation and sale of affordable home ownership programs such as condos or single family homes. • Members of a LEHC are still eligible to participate in first time home buyer programs. • Certain members of LEHCs are income eligible to obtain$15,000 per home in forgivable loans from the Federal Home Loan Bank of San Francisco and up to $50,000 per home from the CalHome program. Co-op members are also eligible to obtain up to $30,000 under the BEGIN program. I believe the City of San Luis Obispo was recently approved for a BEGIN grant e LEHCs are professionally managed and required to budget for replacement reserves. This protects the long time life of the entire property by providing replacement funds. • Jurisdictions are allowed to nominate appointees to the board and retain approval of by laws and annual budgets of a LEHC. Other entities such as the local school district and the Chamber of Commerce could be assigned seats on the board to allow them a stake and say in the operation of the LEHC. 2 t/moi✓�:✓�f/.� -7•,'-..�-� �= a�� i . H" "a1�/J• ' �� t✓n �^,' � =ndn for //11 irltJ� eting ed _ LigL0 v Housing Authority 487 Leff Street Post Office Box 1289 Sin Luis Obispo CA 6�-1289 of the City of (805) 543-4478 fax (805) 543-4992 San Luis Obispo Executive Director-Secretary George J.Moylan July 19, 2005 The Honorable Mayor David Romero and City Council City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Dear Mayor Romero and Council Members: We are asking your participation with us in a development which will bring major benefit and innovation to the housing needs of the community. The program brings homeownership opportunities to a segment of the population disenfranchised by current conditions while significantly adding to the workforce housing stock. This population struggles for their very financial existence in our city. The vehicle is called limited equity cooperative housing and our plan would be to build 60-80 units on the Humbert Street, or Y site as it is called by its current owners the Union Pacific railroad. In addition to being what we think is an excellent site for such housing it is also a key of the redevelopment of the railroad yard as well as a major link in efforts to address traffic circulation problems that exist in the Broad Street corridor. Which as you know is the subject of a recent Caltrans grant to the City. The specifics of our proposal to you are as follows: On May 23 the Housing Authority deposited$100,000 towards the acquisition of the 4.2 acre, $3.5 million dollar site. The Authority has had discussions with, and is in the process of engaging,the services of Mr. David Thompson, an international leader in cooperative housing. Please see his attached memo to me outlining the benefits of limited equity cooperative housing. In addition we have contracted with RRM Design Group to prepare site design and schematics, as well as other Planning and Development services. Hopefully by August 16"', the night we understand you will be acting on our request,we will be able to share the site plan and schematic renderings of the proposed buildings with you. We have also had discussions with First Bank of San Luis Obispo, and its new affiliate Pacific Capital Bancorp over what we think will be attractive financing throughout the development phase and perhaps into management. And because of some of the environmental issues surrounding the site we have had several conservations with representatives of the City's Fire Department as to how best eliminate those environmental concerns. The request which I am about to outline is made because the Authority cannot accurately project at this time whether or not we will have the cash flow to carry the project from time of acquisition to time of occupancy without some assistance from the Inclusionary Housing Trust Fund. We feel given the complexities involved in re-zoning and other planning and design efforts the minimum time involved in the development process could be four to five years. Thus even at favorable interest rates we could well be looking at a total interest only cost of$800,000 to $1,000,000 over the development period. Given past and possibly future cutbacks in our Federal programs we cannot commit to that depth of obligation at this time, yet we are being asked to close escrow during the month ofAugust. Thus our request to you is an immediate commitment of$600,000 from the Inclusionary Housing Trust.Fund to assist in the acquisition of the site. It is further conditioned by an agreement to consider four consecutive annual requests of$100,000 each to assist in the carrying costs of the bank loan. We have had numerous discussions with your Planning, Fire and Public Works staffs as to the development and they all share our opinion that the development of the site in the manner outlined above would be a major boost for affordable housing in the community, the redevelopment of the railroad property, and the transformation of the entire Broad Street corridor. We fully understand that in committing Inclusionary Housing.Trust.Funds you look for a development that addresses the following specific criteria so here is our narrative on those topics, Eligibility:.One of the convenient aspects of limited equity housing is that the corporation can establish its own criteria for involvement in the program..Given the needs of the City we would work with you as to establishing eligibility criteria for participants.. We perceive the units would be occupied by individuals and families whose income did not exceed 120% of County median income,the State criteria for moderate income homeowners. Need: In a community where the median priced home sells for well in excess of $500,000 there can be little argument that there is a need for homeownership housing for people whose incomes fall below 120% of median. Suitability: With its location adjacent to Villa Rosa, as well as the Broad Street corridor and close to downtown there should be a consensus that this development is appropriate for its location, land use and design. Timing: Because of the complexities involved in developing this site units will not be built immediately. However, our point would that there is immediacy involved in our request in that Union Pacific is going to hold us to a close of escrow by the end of August and it appears we will need your contribution in order to close. Financial Effectiveness: The proposal should score very high in this respect. Your total $1,000000 contribution will support a development which pencils out even at this early date as costing $12 to S15 million to build._And we do believe those are conservative cost estimates. However, even more importantly the development will provide homeownership opportunities for 60 to 80 families and individuals who would otherwise be excludedfrom such opportunities in this expensive housing market. Readiness: This proposal does not score well given that it has absolutely no City approvals and is riot ready to proceed. However, City staff has been aware.of the proposal for many months and is supportive of the development in it's conceptual stage. Moreover, you have a 37-year track record of this agency producing affordable housing when it has access to land. This letter is being written somewhat prematurely because of the City's need to agendize the topic as well as my need to go on a two-week vacation as of Thursday, July 21. However, I fully'intend to have additional information available for your prior to your meeting of Tuesday,August 16. Sincerely, George J. Moylan Executive Director Attachment cc: Ken Hampian Doug Davidson , July 17;2005 To: George Moylan, Executive Director, Housing Authority of San Luis Obispo Fr: David.J. Thompson,Neighborhood Partners,LLC: Re: The tool of a limited equity housing cooperative in creating and retaining permanently affordable home ownership versus a condo or single family home A comparison of condominiums and single family housing to limited equity housing cooperatives (LEHCs) reveal the following outcomes (please also see the attached article from the 2004 Cooperative Housing Journal published by the National Association of Housing Cooperatives); • Co-operatives are the oldest form of home ownership in the USA for multi-family developments. Individual home owners own stock or memberships in the cooperative corporation that owns and operates the housing. As an owner of the co-op, they have the right to occupy a unit in the development. • Limited Equity Housing Co-operatives or LEHCs are a specific type of co-op that,under California law,provides permanently affordable home ownership. • Co-op and LEHC members are home owners who are eligible for California's home owner's property tax exemption, state and federal income talc deductions for the mortgage.interest and property taxes they pay, and capital gains exclusions upon the sale of their home. o LEHCs have an excellent record in California of providing the lowest per unit cost for home ownership programs. LEHCs can create more home ownership units per acre than single family homes and lower per unit development costs than a condo. • LEHCs have a low cost of entry into a home ownership program. (the cost of entering a LEHC (a share which can run from $500 up and no closing costs - versus a down payment and closing costs for each sale of a condo or single family home). There are a range of excellent home ownership programs in California. However,many people do not qualify to use them. More applicants find themselves eligible to join a LEHC than other home ownership programs. o In high cost housing areas, LEHCs always trend lower in housing costs than condos or single family homes. As a%of income LEHCs are the only home ownership model that over time provides a housing unit affordable at a lower% of median income relative to the market. • Generally; affordable home ownership needs to be subsidized to bring the cost down to certain income groups. It is important to recognize that the subsidy needed for a LEHC is a one time subsidy per unit at the beginning. However, in a condo or single family home created to serve the same goals a subsidy is required upon each sale to achieve the same ends. A cooperative can set up a share loan fund to assist future buyers. Local businesses and organizations can invest in the share loan fund to assist their own employees into home ownership. A share.loan fund can of course be funded at the beginning and sustain itself over time. 1 • The transfer costs upon sale of membership in a LEHC are far lower than when a. sale occurs in a condo or single family home. Because the LEHC is a single blanket mortgage there is no real estate transaction in a LEHC. Therefore the real transfer costs in a LEHC are usually less than $500 per unit. The actual cost in most LEHCs is actually zero. Neither the buyer nor the seller of an LEHC membership needs to pay transfer fees; title insurance, recording fees, loan fees, points and other costs that are typical for the sale of condos or single family homes. • Affordable housing policy in California frequently fails to take into account the high turnover of occupancy in California and the costs associate with that reality. Transfer costs for a condo or a single family home can remove a lot of the perceived economic gain. During downturns in the market LEHC members retain their value whereas condos and single family homes lose value. • LEHCs are the only home ownership model in California which by state law must be owner occupied. This legal requirement ensures that the units made available for home ownership do not become rentals. This gives jurisdictions the strongest assurance of retaining the housing stock for owner occupancy and ensuring the unit does not become a rental. • LEHCs are more legally capable of giving housing preferences to specific groups such as where one member of the household works for a public agency in SLO or where one member of the household works in SLO. • Banks and other mortgage institutions are reluctant to accept resale and other occupancy restrictions on single family homes in perpetuity. A LEHC is the strongest protection against affordable homes being turned into rentals. o There are always more households who qualify to live in a LEHC than a condo or single family home. This is due to the fact that a LEHC is qualifying a household only based upon their capacity to pay the monthly carrying charges. • LEHCs are better set up to do low cost self monitoring of affordable housing_ goals. This relieves city staff or other public agencies of the high cost of monitoring the operation and sale of affordable home ownership programs such as condos or single family homes. • Members of a LEHC are still eligible to participate in first time home buyer programs. • Certain members of LEHCs are income eligible to obtain$15,000 per home in forgivable loans from the Federal Home Loan Bank of San Francisco and up to $50,000 per home from the CalHome program. Co-op members are also eligible to obtain up to $30,000 under the BEGIN program. I believe the City of San Luis Obispo was recently approved for a BEGIN grant • LEHCs are professionally managed and required to budget for replacement reserves. This protects the long time life of the entire property by providing replacement funds. • Jurisdictions are allowed to nominate appointees to the board and retain approval of by laws and annual budgets of a LEHC. Other entities such as the local school district and the Chamber of Commerce could be assigned seats on the board to allow them a stake and say in the operation of the LEHC. 2 I 5 council -memo anc)um city of san Luis oaispo DATE: August 11, 2005 RECEIVED TO: City Council , AUG 112005 VIA: Ken Hampian, CAO �`� SLO CITY CLERK FROM: John Mandeville, CDD Directo SUBJECT: August 16ei Cominunications Item: Request by Housing Authority for AHF funds At the request of staff, the Housing Authority has submitted a conceptual site plan for the proposed Cooperative Housing project on Humbert Street: This is a preliminary concept plan intended to give the Council an idea of what the project site plan might look like. The concept plan has not been reviewed by staff or any of the advisory bodies and will undoubtedly change during the review process. Attachment: Conceptual Site Plan—Humbert St.Cooperative Housing N 6 C��� �**Wop L RED FILE 1COUNCIL L CDD DIR Ao z =IN DIP MEETING AGENDA �, a,CAo 2 =IRE CHIEF DATE ITEM # tATTC=INEY ,� PW DIR 1 CLERK'ORIG A POLICE CHF ❑ DEPT HEADS (�RPC DIP it, UTIL DjP HR DIP, caz AMH) -1s adoaa r B 19 , CD !� as e C2 9 S i � a w -i a --I3 c Nt ° 0 a :3 pe S, su c N N O N � P+ o Q lu O �Qr � � ^ X a X Q W .xi s _ X Z W v O ' 1 r � I MA TI i cr MMON y 1 D < rD M r 00 00 rD 0 CD Uq -_ o =2 °' o /vu Cr C V N N C O