December 7, 2004
SUBJECT: Loan of $476,688 of Community Development Block Grant Funds to Christian Church Homes, a non-profit housing corporation, for the Acquisition of Plaza de las Flores, an Affordable Senior Rental Housing Project at 233 Carroll Street.
REPORT IN BRIEF
Christian Church Homes of Northern California (CCH), a non-profit housing developer, has requested $476,688 of Community Development Block Grant Funds (CDBG) for the acquisition of Plaza de Las Flores to preserve an “at-risk” rental project to ensure that permanent, affordable rental housing for low to very low income seniors whose annual gross incomes range from 25% to 60% of area median income (AMI) for Santa Clara County remains affordable. This project will preserve the affordability of 101 units for the next fifty-five years. The total acquisition cost of the project is approximately $17 million.
During program year 2003-2004, CCH requested $1,450,000. The City committed the available CDBG and HOME funds totaling $973,312 and anticipated that additional funding could be provided from the Housing Mitigation Fund.
Staff recommends funding $476,688 from the available CDBG activities: Housing Acquisition-$250,000, Housing Acquisition Revolving Loan Fund- $126,667 and Preservation of At-Risk Units-$100,021.
BACKGROUND
Plaza de las Flores is a 101-unit affordable senior housing complex at 233 Carroll Street. The project is currently occupied by seniors over the age of 62 years with incomes at 25% to 60% of area median income. Over 90% of the current residents earn at or below 25% of area median income. CCH has managed this facility since it opened in 1983. CCH acquired Plaza de las Flores on August 29, 2003, using special bridge financing comprised of a Preservation Acquisition Loan from the California Housing Finance Agency (CalHFA) and Preservation Opportunity Fund loans administered by CalHFA for the Department of Housing and Community Development (HCD).
These funds were made available when voters in 2002 approved Proposition 46 Bonds to finance the timely preservation of affordable housing projects at risk of converting to market rate, thereby displacing low-income residents. CCH is the sponsor of the first Proposition 46/Preservation Opportunity Fund project in the state, here in Sunnyvale.
As described in the Community Development Strategy, Plaza de las Flores is one of the projects that is “at risk” of a potential loss of affordable units. These units were originally subsidized by the Federal government and were required to remain affordable for a fixed period of time (generally 20 years). Over the next four years, affordable contracts will expire on 390 federally subsidized units, of which 26% are contained in this project.
On March 26, 2003, the Housing and Human Services Commission unanimously approved the total loan funds requested by CCH of $1,450,000 for the acquisition of Plaza de las Flores. On May 6, 2003 (RTC-03-159), Council approved $973,312, the total federal funds available for the project at that time (consisting of $100,021 of CDBG funds and $873,291 of HOME funds). As described in the report to Council, the request for the balance of approximately $476,688 would be submitted to Council after staff, the non-profit and CalHFA completed negotiations of loan terms for all funds to be contributed to the project.
During the last nine months, negotiations preceded with CCH and its major fund contributors: CalHFA, the Department of Housing and Community Development (HCD) and the City. CCH completed negotiations with CalHFA for its final commitment request for permanent, tax-exempt first mortgage financing in the amount of $9,025,000. CCH also received a conditional loan commitment for $3,531,755 from HCD under the Multi-Family Housing Program (MHP); and a loan commitment from the Santa Clara Housing Trust Fund for a deferred loan of $500,000. Additional funds will come from project reserves.
To ensure affordability of the Plaza and that all 101 residential units will continue to be reserved for low to very low-income elderly households, Christian Church Homes entered into a new 20-year Housing Assistance Payment (HAP) contract with the Department of Housing and Urban Development (HUD). Under the HAP program requirements, residents pay only 30% of their income for rent and HUD subsidizes the balance. The HAP contract was renewed for 20 years in November of 2003 and expires in November 2023.
EXISTING POLICY
The Consolidated Plan places a priority on maintaining and increasing the inventory of affordable rental housing for families. The City’s Housing and Community Revitalization Sub-Element contains two goals related to affordable housing in the community:
Goal E: Maintain and increase housing units affordable to households of all income levels and ages.
Goal F: Improve Housing conditions for people with special needs.
Assist new housing development and housing support services for the elderly.
The Community Development Strategy goal of Housing Affordability:
To actively promote the provision and protection of housing which is affordable to households of low and middle income.
DISCUSSION
CCH’s management experience at Plaza de las Flores has demonstrated that there are specific needs that are currently underserved in Sunnyvale. The funding requested by CCH for the acquisition of the project will preserve the affordability of the units by helping to reduce the critical shortfall of affordable housing to low and very-low income seniors in Sunnyvale. Demand for Plaza de las Flores units is considered strong given the lack of available housing for seniors with lower incomes. The property currently has no vacancies. Historically the vacancy rate at the property is less than 1%. 100% of the residents are very low income earning less than 50% of area median income. All apartments at Plaza de las Flores will be affordable to low and very low-income seniors earning less than 60% of area median income; and the lowest rents will be affordable to households at 30% AMI. Under the HUD HAP program requirements, residents pay only 30% of their income for rent and HUD subsidizes the balance.
The loss of affordable units at a time of high housing costs will have a severe impact on these low to very-low income senior households. Therefore, the city’s contribution will help to prevent the loss of 101 affordable units that are at risk of converting to market rate, preserve the affordability of the units for fifty-five years and avoid the displacement of 135 senior residents.
The total funds requested from Sunnyvale for acquisition financing is $1,450,000, or $14,356 per unit. This is substantially lower than the $25,000 to $50,000 average cost per unit currently used as underwriting guidelines by staff.
The proposed $476,688 loan from the CDBG fund and the prior approval of $100,021 will have a loan term for thirty years at 3.6% simple interest. CCH will dedicate its residual income towards loan repayment. Of the residual income received by CCH, the City will receive 64.55% of all surplus cash, while HCD will receive 35.45%. The prior approval of $873,291 of HOME funds will have a term of thirty years at 3% simple interest. The City will receive amortized payments every year the project can maintain a 1.08 debt service coverage ratio (dscr) or better.
The City’s funding commitment has assisted CCH to secure other funding sources. In addition to acquiring the facility and preserving existing affordability levels, CCH will upgrade the facility. Rehabilitation of the facility will include the following: replace roof and roof-top mechanical systems, upgrade health and safety items, waterproof residential unit balconies, upgrade residential unit kitchens and bathrooms, and upgrade elevator and common-area accessibility.
FISCAL IMPACT
There are no financial impacts on the City’s General Fund. The City’s financial involvement will be through the direct CDBG and HOME fund loans for the acquisition financing of the property.
CCH has requested a $476,688 loan of CDBG funds, the remaining balance of its original request of $1,450,000, for the acquisition of Plaza de las Flores. Adequate funding is currently available in the CDBG Housing Acquisition activity, Project 823762; Housing Acquisition Revolving Loan Fund, Project 823761; and Preservation of At-Risk Units activity, Project 824390. Funds in both the Housing Acquisition activity and Housing Acquisition Revolving Loan Fund have become available due to cancellation of another project.
In 2003, Council approved the available federal funding for the project in the amount of $973,312 (consisting of $100,021 of CDBG funds and $873,291 of HOME funds).
Conclusion
CCH’s request of a total of $476,688 from the City for gap financing from available CDBG funds would help to preserve Plaza de las Flores as affordable senior housing. As previously stated, CCH has successfully obtained funding for the acquisition from the California Housing Finance Agency (CalHFA), which has provided funding from the Preservation Opportunity Fund specifically created by Proposition 46 Bonds to provide bridge financing to facilitate preservation projects, as well as permanent loans. CCH has also obtained commitments from HCD for MHP funds and from the Santa Clara County Housing Trust Fund.
PUBLIC CONTACT
Public contact was made through posting of the Council agenda on the City’s official notice bulleting board, posting of the agenda and report on the City’s web page, and the availability of the report in the Library and the City Clerk’s Office.
ALTERNATIVES
1.Approve additional request and loan of $476,688 from CDBG funds for the acquisition of Plaza de las Flores to Christian Church Homes.
2. Do not approve the acquisition loan.
RECOMMENDATION
Staff recommends alternative 1. Approve loan of $476,688 from CDBG funds for the acquisition of Plaza de las Flores to Christian Church Homes. Funding for this project is currently available in the following CDBG activities: 823762, 823761 and 824390.
The project meets the underwriting criteria described in the Community Development Strategy and is consistent with Consolidated Plan and General Plan goals of serving a high-need group, provides affordability restrictions over a long term, and has a strong development/management team to assure timely performance.
Funding for acquisition financing of Plaza de Las Flores, a senior housing, and “at-risk” project of conversion to market rate rents will help to preserve the affordability of 101 units of senior housing. The loan will ensure that permanent, affordable rental housing for low to very low-income seniors whose annual gross incomes range from 25% to 60% of area median income for Santa Clara County remains affordable. The project is a good example that addresses underserved community needs and the City’s local goals and housing needs such as: providing affordable housing for low to very low-income seniors, preserving “at-risk” units from conversion to market rate, providing special housing needs-supportive services for very low-income elderly persons and providing affordable senior housing within close proximity to transportation services. The project addresses a critical housing need to maintain existing affordable senior rental housing in Sunnyvale.
The Plaza de las Flores project is an opportunity to further the goals of affordable housing that the City recognizes and continues to support. Choosing not to support this project would be contrary to established goals and actions described in the city’s General Plan, Consolidated Plan and Community Development Strategy.
Reviewed by:
Annabel Yurutucu,
Housing Officer
Prepared by: Katrina L. Ardina, Housing Programs Analyst
Reviewed by:
Robert Paternoster Director,
Community Development
Approved by:
Amy Chan
City Manager
Attachment
A. Plaza de las Flores-Pro-Forma (pdf format)