TITLE
Recommendation to authorize City Manager to execute all documents necessary to accept and expend the Transit Oriented Development funds and Infill Infrastructure Grant funds awarded by the State of California for the proposed development at 1235 Long Beach Boulevard. (District 1)
DISCUSSION
On March 17, 2009, the City Council adopted resolutions authorizing the submission of applications to the California State Department of Housing and Community Development (HCD) for the Transit Oriented Development (TOD) Housing Program and Infill Infrastructure Grant (IIG) Program, in amounts up to $17,000,000 and $20,000,000, respectively, in connection with a proposed mixed-use development at 1235 Long Beach Boulevard by Meta Housing Corporation (Meta). Attached for your reference are copies of the March 17, 2009 Council letters (Attachments A and B). At that time, the proposed development included 356 units in three buildings: the first with rental units and community programming space; the second with rental units in the rear and condominium units facing Long Beach Boulevard; and the third with ground floor retail and condominiums above. The TOD program has a loan and grant component. The IIG program provides grant funds only. The City and Meta were co-applicants for the TOD and IIG grant funds, to enhance the project's chance of receiving funds.
In July 2009, the project was awarded both TOD and IIG funds as shown below. The loan funds were awarded to Meta and the grant funds were awarded jointly to Meta and the City.
Program |
Loan to Meta |
Grant to Meta & City |
Total |
TOD |
$6,741,616 |
$4,039,737 |
$10,781,353 |
IIG |
------ |
$15,069,116 |
$15,069,116 |
Total |
$6,741,616 |
$19,108,853 |
$25,850,649 |
Due to the economic downturn and lack of available financing for condominium development, Meta returned with a proposal to develop the project in two phases, with the rental units in Phase 1 and retail and condominium units in Phase 2. The Department of Development Services approved this phasing plan in December 2009. In February 2010, The Long Beach Housing Development Company (LBHDC) also approved the phasing plan and gap financing of up to $13,145,000 for Phase 1.
On April 15, 2010, HCD approved Meta's phasing plan and also approved the use of the entire $25,850,469 TOD and IIG funds for Phase 1 of the two-phased project. However, performance requirements for use of the funds have been tied to Phases 1 and 2. Specifically, HCD required that at least 200 units be built in Phase 1, as opposed to the original plan of only 186 senior rental units in Phase 1, leaving a minimum of 156 units to be delivered in Phase 2, which can either be for-sale or rental.
While Meta is solely responsible for the repayment of the TOD loan funds under a separate loan agreement with HCD, both the City and Meta, who co-applied for the grant funds, are jointly and severally liable for meeting the HCD program requirements in case of a default. In HCD's calculations, the City is jointly liable for $13,908,853 until completion of Phase 1, which must occur by June 30, 2013, and $5,200,000 until completion of Phase 2, which must occur by June 25, 2017. If development of either phase is not completed by the deadline, the City is jointly liable for repayment of the grant funds.
Staff believes that it is highly unlikely that there would be any potential liability for the City for Phase 1 for the following reasons: Meta has already secured all the necessary financing for the Phase 1 project; HCD documents require that Meta provide a payment and performance bond equal to 100 percent of the construction cost of Phase 1; and Meta has agreed to indemnify the City for any default obligation under Phase 1.
However, due to the current market and financial climate for for-sale condominium projects, financing for Phase 2 is unknown at this time. As mentioned above, if the remaining 156 units in Phase 2 are not completed by June 25, 2017, both Meta and the City are jointly liable to repay $5,200,000 to HCD.
To allow Phase 1 to move forward and at the same time mitigate the City's potential risk in Phase 2, staff has presented a proposal described below to Meta and Century Housing, Meta's land acquisition lender, whose investment in the Phase 2 site amounts to $17,200,000 (compared to LBHDC's acquisition loan of $2,276,000). Both Meta and Century have agreed to the following conditions:
1. Meta, Century, City and the LBHDC will enter into an agreement whereby all parties agree to move forward with a Phase 2 residential project (for-sale or rental) containing at least 156 units, of which no more than 20 percent are affordable, based on a timeline that will allow the project to be completed by June 25, 2017.
2. Century will subordinate its loan to the LBHDC's affordability covenants, which means that even if Century foreclosed on its acquisition loan, any future development in the Phase 2 site must include at least 20 percent affordable units.
Based on a 156-unit development, this 20 percent affordability requirement translates to 31 affordable units. With LBHDC's prior investment of $2,276,000 in the Phase 2 site, that equates to a subsidy of $73,419 per unit, which is a reasonable assistance amount.
3. If Phase 2 does not occur, Meta and City will share equally in the potential $5,200,000 liability, or $2,600,000 each. As previously stated, Meta has accepted this potential liability. By action on November 17, 2010, the LBHDC Board agreed to step in and pay for the City's portion of this liability with housing set-aside funds in case of default. The Council has previously authorized the LBHDC to be the administrator of housing set-aside funds.
Note that LBHDC has already committed $13,145,000 for 200 affordable senior rental units in Phase 1 or a subsidy of $65,725 per unit. If Phase 2 does not occur, adding a $2,600,000 potential liability to the Phase 1 investment will increase the per unit subsidy to $78,725. Compared to other new affordable housing projects previously assisted by the LBHDC, the per unit assistance on the Phase 1 project is reasonable.
This letter was reviewed by Deputy City Attorney Richard Anthony on November 17, 2010 and Budget and Performance Management Bureau Manager Lou Palmer on November 23, 2010.
TIMING CONSIDERATIONS
HCD's approval of the use of all TOD and IIG funds in Phase 1 resulted in additional conditions imposed on the project. Staff became aware of the details and ramifications of these conditions only after receipt of the draft loan and grant documents from HCD in late September 2010 and immediately commenced negotiations with all parties involved (HCD, Meta and Century) to minimize the City's risk. Consequently, staff had to seek LBHDC's approval to accept this liability on behalf of the City on November 17, 2010, before requesting City Council action.
City Council action is requested on December 14, 2010, to allow the City Manager to sign loan documents related to Phase 1 funding sources, including the HCD funds, to meet funding deadlines.
FISCAL IMPACT
The City faces a potential liability of $2,600,000 if Phase 2 is not completed. However, as previously stated, on November 17, 2010, the LBHDC agreed to accept this liability with housing set-side funds, in the event Phase 2 does not occur. Therefore, the City's General Fund would not be impacted.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
AMY J. BODEK, AICP
DIRECTOR OF DEVELOPMENT SERVICES
APPROVED:
PATRICK H. WEST
CITY MANAGER