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HomeMy WebLinkAboutRES NO 105-2021RESOLUTION NO. 10 5., `2 0 21 RESOLUTION TO CONDITIONALLY LEND UP TO $2.5 MILLION DOLLARS IN HOME INVESTMENT PARTNERSHIPS (HOME) FUNDS AND PUBLIC SAFETY AND VITAL SERVICES (PSVS) TO STINE & BERKSHIRE CIC, LP FOR THE CONSTRUCTION OF A 72 -UNIT AFFORADBLE HOUSING COMPLEX, AT 7246 STINE ROAD (APN: 515-031-06) IN BAKERSFIELD, CA. WHEREAS, the Congress of the United States has enacted the "HOME Investment Partnerships" Act ("HOME" herein) at 42 USC 12741 et. seq. of the Cranston -Gonzalez National Affordable Housing Act and amendments ("the Act" herein); and WHEREAS, on November 6, 2018, the Public Safety and Vital Services ("PSVS" herein) measure was passed by the voters to address top community priorities, including reducing homelessness and construction of affordable housing for very low, low and moderate -income households; and WHEREAS, CITY has received funds pursuant to the HOME program from the Department of Housing and Urban Development ("HUD" herein) and has funding from the adoption of the Public Safety and Vital Services Measure; and WHEREAS, CITY desires to maintain affordable housing in the city limits of Bakersfield ("the Targeted Area"); and WHEREAS, Stine & Berkshire CIC, LP (CIC LP) is a limited partnership formed by Chelsea Investment Corporation and Pacific Southwest Community Development Corporation to develop affordable housing; and WHEREAS, CIC LP intends to purchase and construct 72 affordable housing units, which includes one manager's unit, located at 7246 Stine Road (APN: 515-031-06) ("Project Property" herein); and WHEREAS, it is CITY's intent to assist CIC LP in developing affordable housing by lending to CIC LP up to TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000.00) to construct the Project Property; and WHEREAS, CIC LP desires a funding commitment from CITY to apply for nine percent (9%) Low Income Housing Tax Credits to complement costs to purchase and develop all of the affordable units that make up the Project Property. ®�$NKEFpp � rn r �- NOW, THEREFORE, BE IT RESOLVED by the City Council of the City &ToRIGNA� Page 1 of 4 Bakersfield as follows: The above recitals are true and correct and incorporated herein. 2. The City Council finds and declares that it is necessary and in the best interests of the City to provide the following assistance to CIC LP in the development of the Project Property: Up to Two Million Five Hundred Thousand Dollars ($2,500,000.00) of HOME and PSVS funds being provided in the form of a three percent (3%) per annum simple interest residual receipts loan, over a 55 - year term. No interest shall accrue during the construction of the project. 3. This funding commitment is made with the following conditions: 3.1. CIC LP shall successfully obtain 9% federal tax credits yielding an estimated $14,834,894 in gross proceeds from the sale of the tax credits. 3.2. This commitment is based on the project pro -forma dated June 2, 2021, including a minimum project size of 72 units with 8 units affordable to households at 30%, 11 units at 40%, 30 units at 50%, and 22 units at 60% of area median income (AMI), and one manager's unit. 3.3. Key components of the project pro -forma (affordability, developer fee, sources and uses, etc.) shall not change without CITY's administrative approval. 3.4. All HOME and PSVS assisted units shall remain affordable for a minimum of 20 years. 3.5. CIC LP shall sign and record an affordability covenant on the Project Property that secures the affordability and monitoring rights of the City of Bakersfield for the duration of the affordability period. 3.6. Construction of the project shall not commence until CIC LP can demonstrate that all funding is committed for the project's construction and permanent financing; however, construction shall commence within one year of a funding commitment of HOME funds as defined in 24 CFR 92.504. 3.7. CIC LP and staff shall provide regular updates, no less than annually, to the CITY regarding CIC LP's ability to secure financing, particularly as it relates to federal tax credits. The first check-in shall occur in fall 2021, and shall continue annually during the predevelopment period of this project. 3.8. If all financial commitments necessary for the project to be developed are not secured and building permits are not pulled for Sagewood4`�4 Apartments by December 31 st, 2022, this funding commitment shall expire unleM extended by the Bakersfield City Manager. Vn Page 2 of 4 ();[1G,NNL 3.9. If applicable to funding, CIC LP shall take the necessary steps and shall provide adequate documentation annually during project phases (planning, construction, and permanent financing) to ensure that one or more organizations within the project's partnership qualifies and maintains status as a Community Housing Development Organization (CHDO). 3.10. CITY expects CIC LP to take all necessary steps, including the reduction of the project developer fee, to avoid returning to CITY for additional subsidies if project costs exceed budget. 3.11. A final subsidy underwriting and layering review is completed by the City of Bakersfield to confirm the projects viability and full compliance with HOME regulations pursuant to 24 CFR 92.250 and PSVS regulations. This underwriting review will occur prior to issuing a funding "commitment" as defined in 24 CFR 92.2. Failure to fix any compliance issues identified with the HOME Investment Partnership Funds (HOME) program, the Public Safety and Vital Services (PSVS) program, or the City of Bakersfield's underwriting and subsidy -layering review during this review will result in the denial of HOME and PSVS funding for this undertaking. 3.12. The City of Bakersfield, pursuant to its Citizen Participation Plan requirements as defined in its 2025 Consolidated Plan and in accordance with 24 CFR 91.105, successfully completes a Substantial Action Plan Amendment, including adoption by the Bakersfield City Council, to allocate HOME funds towards the project. 3.13. CIC LP shall not undertake or commit any funding to choice - limiting actions, including entering into any contracts (including conditional contracts) to undertake such actions prior to the environmental clearance required under the National Environmental Protection Act (NEPA). Any violations of this provision may result in the denial of any funding under this resolution. 3.14. CIC LP understands that this resolution does not constitute a commitment of funds or site approval, and the commitment of funds or approval may occur only upon satisfactory completion of environmental review and receipt by the City of Bakersfield of an approval of the request for release of funds and certification from the U.S. Department of Housing and Urban Development under 24 CFR Part 58. The provision of any funds to the project is conditioned on the City of Bakersfield's determination to proceed with, modify or cancel the project based on the results of the environmental review. 3.15. CIC LP understands that the award or commitment of PSVS funds under this resolution, and all other non -HOME fund sources, is conditioned upon the receipt of HOME funds. o -t' � cn Page 3 of 4 3.16. The City Council gives authority to the City Manager or his designee to carry out the direction of this resolution upon the conditions and terms provided herein. --------------- 0000000 -------------- I HEREBY 000000 -------------- HEREBY CERTIFY that the foregoing Resolution was passed and adopted by the Council of the City of Bakersfield at a regular meeting thereof held on JUN 16 2021 by the following vote: 5AYES: COUNCILMEMBER: ARIAS, GON ALES, W&4i-SMITH, FREEMAN, GRAY, PARLIER : COUNCILMEMBER: Q0 We AB IN: COUNCILMEMBER: ABSEN ' COUNCILMEMBER: E)F- J LIE DRIMAKIS, CMC CITY CLERK and Ex Officio Clerk of the Council of the City of Bakersfield APPROVED JUN 16 2021 By: KAREN GOH MAYOR APPROVED AS TO FORM: VIRGINIA GENNARO CITY ATTORNEY y:.. �q 4���Z'< - 1OSH! UA H. RUDNICKKeputy City Attorney JHR:dII Page 4 of 4 } rn �ORIGNAL BAKERSFIELD THE SOUND 0Fb046ff fka R8,4 ' MEMORANDUM DATE: June 4, 2021 TO: Christian Clegg, City Manager FROM: Cecelia Griego, Economic Development Principal Planner SUBJECT: Staff Analysis of Funding Request by the Stine and Berkshire CIC, LP for Acquisition and New Construction of Sagewood Apartments Project at 7246 Stine Road (APN: 515-031-06) Recommendation: Based on staff's analysis, it is recommended that the City Council adopt a resolution conditionally committing to allocate up to $2,500,000 in federal HOME Investment Partnership (HOME) funds and Public Safety and Vital Services (PSVS) funds as a 55 year deferred, residual receipts loan at 3% per annum to fund the construction of Sagewood Apartments, located at 7246 Stine Road (APN: 515-031-06) in south Bakersfield. Image 1: Map of Proposed Project Site Project Description: Stine and Berkshire CIC, LP (CIC LP) is requesting $2,500,000 in HOME and PSVS funds to assist in the acquisition and development of the Sagewood Apartments, an affordable housing complex serving extremely -low, very -low, and low-income families in south Bakersfield. Sagewood Apartments is located northeast of the intersection of Stine Road and Berkshire Road. CIC LP proposes to develop 72 multi -family housing units with onsite amenities to serve residents. The project, once completed, will include five two-story residential structures, one one-story structures, open space and a play area. The total cost of construction is estimated to be $15,240,105, while the total project is estimated to be $24,698,332. CIC LP currently has site control of the property via an option agreement, which allows for four six month extensions to complete the transfer of the property by April 26, 2023. Once all financing is secured and construction is ready to begin, ownership and management of the development will be transferred to a limited partnership. Analysis: On November 10, 2020 City staff completed the 2020 Notice of Funding Availlc ,iil -Y r Paged �oRIGNAL identify projects to utilize PSVS funds to develop affordable housing. Eight applications were received and, upon scoring, Sagewood Apartments was the top ranked project for City staff. Staff recommended $1.5 million in PSVS funding be reserved for the development. Concurrently, CIC LP applied for HOME funds in October 2020 and was recommended for funding to the Budget and Finance Committee of the Bakersfield City Council in February 2021. The City has HOME funding available in the 20/21 and 21/22 Action Plan to commit to the project. To do so, the Bakersfield City Council will need to adopt an Action Plan Amendment to allocate those funds. CIC LP intends to apply for 9% low-income housing tax credits in July 2021 and is waiting for their award letter from the Department of Housing and Community Development for their Joe Serna Funds. If successful in the upcoming round of tax credits, CIC LP will receive notification of its award in September 2021 and will subsequently be required to secure a construction contractor and pull building permits within 180 days. Because of regulatory requirements of California Tax Credit Allocation Committee and the Department of Housing and Community Development, CIC LP will make rents affordable to low- income households at 30% (8 units), 40% (11 units), 50% (30 units), and 60% (22 units) of area median income (AMI), and provide one manager's unit. Thirty-five units will be set-aside for farmworker families. CIC LP is requesting a total of $2,500,000 in HOME and PSVS funds at 3% per annum interest to be repaid from residual receipts. The note will be secured by a Deed of Trust on the property for a term of 55 years. Due to the amount and nature of assistance requested under HOME and PSVS, the project affordability period would be a minimum of 20 years. Financials: The proposed financial sources and uses for the project are shown in the table below and subject to change upon the Project's construction loan close: LENDER/SOURCE TERM IN MONTHS INTEREST RATE AMOUNT OF FUNDS RESIDUAL RECEIPTS Joe Serna Funds 396 1% $4,764,463 Yes (Annual servicing payment required) Permanent Debt Loan 180 4.40% $2,549,400 No City Loan HOME 660 3% $1,000,000 Yes City Loan (PSVS) 660 3% $1,500,000 Yes Total Permanent Financing $9,813,863 Tax Credit Equity ---- ---- $14,834,894 No Deferred Developer Fee $49,564 No Total Sources of Funds $24,698,322 USES OF SOURCE FUNDS Land Costs/Acquisition $1,275,000 New Construction $14,446,888 Architectural/Engineering Fees $577,750 Finance Fees and Interest $1,857,143 Developer Impact and Permit Fees $1,661,387 Legal Fees $117,500 Reserves $142,282 Contingency $948,914 Soft Costs $1,471,457 Developer Costs $2,200,000 AK o� 'gam HOME and PSVS Loan (Review of Financial/Underwriting Criteria for Feasibility): The a�plicant v � pro -forma was reviewed in light of industry standards and financial ratios such as net income of the projects gross potential rent and debt coverage ratio (DCR). The following table summarizes the financial ratio analysis within industry standards. Sagewood Apartments Industry Standard Ratios DCR - 1.16 (stabilization year) I DCR - 1.15-1.50 Net income/Gross potential rent - 3.0% 1 Net income/Gross potential rent - 8% or less In addition, the project exhibits positive cash flow throughout the 20 -year affordability period, putting the project in a strong position to succeed. Environmental Clearance: The HUD environmental review requirements for this project pursuant to 24 CFR 58 are underway. This resolution will constitute a preliminary award pending environmental clearance in accordance with Community Planning and Development (CPD) Notice 15-09. As such, NEPA clearance is not required for this type of commitment, however environmental contingency is required to be inserted in the document to ensure no funds (HOME and non -HOME) are committed to the project, in accordance with HUD's definition of a commitment, until the review is complete. Further, it gives the City the right to cancel funding to the project pending the outcome of the environmental review. Certification of Government Assistance: The developer has provided evidence that governmental assistance will be needed to build the project. Their sources and uses statement above shows the breakdown of sources needed to complete the project. Site Acquisition: CIC LP currently has the property under an option agreement with the current owner. Upon receiving the Authority to Use Grant Funds under NEPA, the applicant will be able to purchase the property. The acquisition cost is estimated at $1,275,000 which is supported by a third -party appraisal. The site consists of approximately 4.29 acres of vacant land. The appraised value of the property's improvements will be completed as the limited partnership moves towards closing its permanent debt financing. Project Site Development: The total project cost is about $24.70 million and will be financed in part by City of Bakersfield HOME and PSVS funds in conjunction with tax credit equity, Department of Housing and Community Development (HCD) Loan, private bank loan, and a deferred developer fee. Development of 1 1 of the 72 units will be covered by the City's HOME funds, while another 11 units by covered under the City's PSVS funds. The developer's construction budget ($14.447 million) was reviewed by staff and appears to be customary and reasonable in terms of industry standards. Since HOME funds will only cover cost associated with eleven units, Davis -Bacon will not be triggered. Further, the projects use of City funds meets an exemption under California Labor Code 1720(c) (1). Therefore, the property is also exempt from state prevailing wage. Staff's Comments and Recommendations: Staff has reviewed the proposal by CIC LP using HOME and PSVS project evaluation criteria for affordable housing projects. These guidelines help the City evaluate projects that use federal and local funds to ensure that the proposal is financially feasible and meets the requirements of the HOME program and PSVS program. Project Factors Reviewed: • The funding request of $2.5 million is reasonable and fills the funding gap for this project. The City's underwriting review is available for review upon request. 0 Page 130 ORiG,NAL • The developer fees are reasonable and customary for a project of this nature. • Construction fees are reasonable for a project of this magnitude. Monitoring and Reporting: City staff will monitor the projects progress during construction. Once completed, staff will enter its post -monitoring process for 20 years. During this time, staff will conduct annual property reviews to ensure all HOME and PSVS units are in compliance, including a review of the tenant incomes and rents, and walking the property to verify all buildings are being properly maintained. Conclusion: The developer's pro -forma was reviewed in light of industry standard financial ratios - net income of the project's gross potential rent and debt coverage ratio (DCR). With the HOME and PSVS funds, the DCR for the project is 1.16 for its first three years of operation and its net income of the gross potential rent for the first three years is 3.0%. Further, the project exhibits positive cash flow throughout the period of affordability. Both standards place the project at a comfortable place financially to succeed, if funded. The project's rents are set at low rates by regulation. Without the City of Bakersfield's funds, the project will need to find another source to leverage in order to make the project viable. This project's main objective is providing sustainable affordable housing to low-income individuals, including a set-aside for farmworker units. By funding this project, City of Bakersfield would achieve three objectives: 1. It would help sustain affordable housing for low-income individuals; 2. Provide affordable housing for farmworkers families in South Bakersfield; 3. Provide stable housing to an important component of our local economy who, due to the economic structure of the agriculture industry, often find themselves working in lower paying positions. As such, their ability to fit housing costs within their budget is often stretched thin. The City's Consolidated Plan 2025 identifies a high priority need for this type of housing. The project also meets one of the thirteen funding priorities for PSVS by reducing homelessness through the construction of affordable housing. Funds are eligible and available from Annual Action Plan funding in Fiscal Year (FY) 2020/2021 and 2021/2022. Additionally, $1,500,000 in PSVS funds are reserved for the project from the City's 2020/2021 PSVS allocation. Based on staff's analysis, it is recommended that the City allocate up to $2,500,000 in HOME and PSVSV funds as a 55 year deferred (residual receipts loan @ 3%) to fund the construction of Sagewood Apartments, located at 7246 Stine Road (APN: 515-031-06). Attachments: Resolution Conditionally Committing HOME and PSVS Funds >- r Page 14