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HomeMy WebLinkAboutCOLUMBUS SQUARE CORRESPONDENCECOLUMBUS SQUARE CORRESPONDENCE No. Name Address/Affiliation Date 1 Michael Vo Gary Pomeroy Columbus Square Board Members N/A 2 Tab Johnson Chairperson, Coventry Court Ad Hoc Committee 06-29-2010 3 Albert Hernandez "The Economics of Coventry Court" (Orig. & Rev. 2) 07-2010 4 Eric Higuchi Elected Board Member, Camden Place HOA; Appointed Director-At-Large, Columbus Square HOA 07-02-2010 5 Michael Vo Gary Pomeroy Columbus Square Board Members N/A 6 Jack and Christine Chen Columbus Square Resident 07-07-2010 From: Darlene Ferguson [mailto:dferguson@meritpm.com] Sent: Thursday, July 01, 2010 10:21 AM To: CITY COUNCIL Cc: g.pomeroy@cox.net; Mvo@owengroup.com; Jon Cernok Subject: C.U.P 09-024. Please see the attached letter from Columbus Square board members regarding the July 7th meeting to discuss C.U.P 09-024. Darlene Ferguson Associate Community Mgr. MERIT Property Management, Inc. I Polaris Way, Suite 100 Aliso Viejo, CA 92656 949-448-6000 (phone) 949-448-5021 (fax) dferguson(c~meritpm.com CONFIDENTIALITY NOTICE This communication is intended only for the use of the individual or entity to which it is addressed. It may contain information that is privileged or confidential and/or exempt from disclosure. Any unauthorized disclosure, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify the sender immediately by telephone or return a-mail and delete the message from your system. Your assistance in maintaining the integrity of a-mail communications is appreciated. [rev1.00_03202007] UvMBUS Honorai l~: Mayor and City Council Member,, The Board of Directors of the Columbus Square Community Association consists of three developer members and two resident members. In order to not influence resident issues, opinions and actions regarding the proposed conversion of Coventry Court from fee simple to for rent apartments the developer members abstain from voting. Anew board was constituted at the annual meeting of our association April 28, 2010. This letter is signed by the two new resident board members Michael Vo and Gary Pomeroy. A special meeting of the board was held on May 25, 2010 to consider the formation of an Ad Hoc Committee for Coventry Court to meet with Lennar Homes and the City regarding the proposed conversion from fee to rental. The Committee was charged with preparing a charter and submitting it to the Board for approval. That approval was given in mid-June. The first meeting with Lennar is scheduled for Thursday July 1, 2010 Therefore, the Board of Directors requests that the special meeting slated for July 7, 2010 be continued to allow time far our committee to meet with Lennar Homes and their representatives to discuss the Association issues with Lennar's proposed revisions to City staff's proposed conditions of approval for C.U.P 09-024. With the above in mind we respectfully request a continu~gce for 60 days or a date the Council feels would be fair to both parties. ~ Respectfully: ~r.ZiG (r0 Michael Vo Gary Pom E3oard Member Board Me Managed by Merit Property Management, Inc. 1 Polaris Way, Suite 100, Aliso Viejo, CA 92656, 800-428-5588, 949-448-6000, f 949-448-6400 COLUMBUS SQUARE COMMUIITITY ASSOCIATION AD HOC COVENTRY COURT COMMITTEE Honorable Mayor and City Council Members, The Ad Hoc Committee for Coventry Court requests that the special meeting slated for July 7, 2010 be continued to allow time for our committee to meet with Lennar Homes and their representarives to discuss the proposed conditions of approval for C,U.P 09- 024. A special HOA board meeting was held to form our committee and we obtained approval of our charter from the board after our first meeting in early June of this year. We have requested and have set our first meeting with Lennar far Thursday July ls` and believe it will take more than one meeting to fully discuss and understand the issues with Coventry Court. Please understand that the S Committee members have full time jobs and family commitments that make it difficult to work on this issue as if it is our full time job. We are dedicated to working on this matter with diligence but feel that to give this process its due we will need additional time. With the above in mind we respectfully request a continuance for 60 days or a date the Council feels would be fair to both parties. Respectful ~` . f' Tab Johnson f Chairperson Coventry Court Committee From: Albert Hernandez [ Sent: Friday, July 02, 2010 7:21 AM To: CITY COUNCIL Cc: Kapadia, Reina Subject: The Economics Of Coventry Court Dear Tustin City Council Members, I have a revised version of the report that was sent earlier in the week. This version contains the addition of a column to Table 3 which estimates the gross income based on a 20% expense rate. This results in $54.49M of gross income over the project life. Thank you, Albert On 7/1/10 1:16 AM, Albert Hernandez wrote: Dear Tustin City Council Members, In preparing for the meeting next Tuesday, I have put together my analysis of some of the economic and social issues related to the Coventry change of tenure. Please review the attachment and provide me any thoughts you care to share. Thanks, Albert Hernandez Tustin, CA 92782 i THE ECONOMICS OF COVENTRY COURT Making a windfall by breaking a promises Albert Hernandez ;...~?* f July zoio Economics of Coventry Court Revision z THE ECONOMICS OF COVENTRY COURT Making a windfall by breaking a promise Albert Hernandez July zoio The Coventry Gold Mine We all know that economics is the driving force behind the application that Lennar has submitted to City of Tustin to convert Coventry Court from ownership tenure to rental tenure. So I decided to do sharpen my pencil and determine how big the prize would be if Lennar would actually be able to compel the City Council to approve their application for change of tenure. My figures are based on facts and figures gathered either from Tustin City documents, Federal and State government agency documents, or were provided by Lennar or Meta Housing Corporation. What I discovered is that Coventry is an inflation protected gold mine that will return money year after year if it converted to a rental project. Approv- ing this application will allow Lennar to create $68M in revenue from what they agreed they would sell for $i8M. It is not surprising that Lennar is hiring consultants and making con- cessions to try to get their application approved. If the application is approved, the list of injured will include the residents of Coventry, the homeowners in the surrounding commu- nityand the tax base of the City of Tustin. THE APPROACH The economic analysis approach is simple and is based on the examination of cash flows resulting from the two cases. r. Case r consists of the examination of cash flows that would be generated by selling the iS3 affordable homes to qualified buyers. i. Case z provides the examination of cash flows that would result from the rental of the same iq3 units. Economics of Coventry Court Revision z z COVENTRY FOR SALE CASF, In both cases the remaining 8~ market rate units of Coventry Court are not consid- ered in the analysis as Lennar indicates these units are not the drivers for the conversion. Incase z, using published information that was provided when Coventry was a for sale project, the amount of gross revenue that would be generated from the sale of 153 homes is calculated. Appendix "A' shows the pricing as well as number of homes in for each of the four Coventry plans. To determine the gross sales value for the i53 homes, we multiply the price of each unit by the number of units in that category. Several of the plans have two prices for different tiers, for these cases the average price of both tiers is used. Table r shows the amount of gross revenue that would be generated by selling Coven- tryunits as originally planned. This figure is gross revenue which does not account for such items as such as discounts or incentives. So in actual practice the amount realized would be less then the i8.8M that is shown here. "For Sale" Case Cash Flow Generated Plan 1 "Very Low" Homes Plan 1 "Low" Homes Plan 2 "Low" Homes 92,500 38 Plan 2 "Moderate" Homes 239,800 Plan 3 "Moderate" Homes 239,800 Plan 4 "Moderate" Homes 239,800 Totals 2 30 3 153 Table r 3,51 479, 7,194, 71 Economics of Coventry Court Revision 2 3 Plan 1 "Moderate" Homes 199,800 21 4,195,800 COVENTRY FOR RENT CASE The second case we will examine is the case of converting Coventry Court to a rental project. In this case, Lennar's partner Meta Housing Corporation will rent and manage Coventry Court units which will produce a stream of cash flow rental payments over a life- time of 45 years. The amount of rent for each unit is based on the Area Median Income 1 (AMI) for the County of Orange, which, incidentally, is among the highest AMIs in the U.S. Based on information from Meta Corporation, rents to be charge for Coventy units are based on both So%AMI and 6o%AMI as well as the number of occupants planned for a unit. An economic advantage to Meta Housing Corporation, because the rents are indexed to AMI, is that rents will increase as incomes in Orange County increase. A further advan- tage is that rents go up but don't go down. In the case of a decrease in AMI, rents are to re- main "stable" as opposed to adjusting downward2. Indexing rents to AMI provides an effective device to keep up with the pace of infla- tion. In fact, given how AMI has increased over the last five decades in Orange County, there is a good chance that the AMI indexed rents will increase faster than inflation3. Table 3 shows the inflation adjusted present value, based on it cash flow, for each class of unit. The present value (PV) for each class of unit is calculated in the standard way a stream of payments is computed for an annuity, using a discount rate of S% and assuming Orange County AMI will grow at an average rate of 4%. The net discount rate of r% is used in the calculation. The life of the project is assumed to be 4S years. We also assume occu- pancy at 95% although it is not unusual for below market rentals, especially for desirable luxury apartments, to have occupancy greater than 97%. In addition, a figure of ao% is used to compensate for management expenses. The total value of the cash generated from rent- ing Coventry Court as measured in zoio dollars is estimated at $68.iM. Assuming a ao% allocation for expenses, which is over $376,ooo/year in expenses, gross income for the pro- I This statistic is calculated by the US. Department of Housing and Urban Development (HUD). z Based on information provided by Meta Housing Corporation in a-mail. 3 Besides having among the highest AMI in the U.S., the Orange CountyAMI also grows at a rate that is often higher the Consumer Price Index (CPI). Over the last go years the average compounded AMI for Orange County has grown at S.zs% while CPI has increased at a rate of 4.0~%; over the last 3o years OC compounded AMI is 4.3% and the CPI has increased at a rate of 3.68%. In either case, since rents will be tied to the AMI they will adjust to compensate for inflation. This is in an important point, since when we calculate the present value for the stream of rent payments a net discount rate is used to compensate for inflation. Having the ability to raise rents will reduce the discount rate and thereby increase the present value of the stream of rents. Economics of Coventry Court Revision z 4 ject would be $54.4M. That is a very substantial increase of over $i8.6M Lennar would re- ceive by keeping Coventry as a "for sale" project. Another way to look it at is that, per year, Coventry will generate nearly $zM in gross rental revenue just from the affordable units. In less than ten years the amount of revenue would match what Lennar would generate from selling the Coventry homes. The payback period for this project will be within the first decade of the project. "For Rent" Case Cash Flow Generated over project life Plan 1 "Very Low" 871 36 359,694 12,948,984 10,359,187 Homes Plan 1 "Low" 871 23 359,694 8,272,962 6,618,370 Homes Plan 1 "Moderate" 1,045 21 431,551 9,062,571 7,250,057 Homes Plan 2 "Low" 1,255 38 518,274 19,694,412 15,755,530 Homes Plan 2 "Moderate" 1,255 2 518,274 1,036,548 829,238 Homes Plan 3 "Moderate" 1,255 30 518,274 15,548,220 12,438,576 Homes Plan 4 "Moderate" 1,255 3 518,274 1,554,822 1,243,858 Homes Total 153 68,118,519 54,494,815 Table 3 In the "for sale" case, Coventry units ranged between $z6,8oo to $z54~4o0; in the "for rent" case each unit, at 9S% occupancy, could be worth between $359,694 and $Si8,z74 (See Figure r). Even more with higher occupancy. Overall that is an increase of over 350% Economics of Coventry Court Revision a 5 from the "for sale" case4. As if that was not enough, Lennar will qualify for special financing and tax credits for building Coventry Court which makes this "for rent" case even more lu- crative for Lennar. Unit Revenue Comparison ^ "For Sale" Revenue per Unit ^ "For Rent" Revenue per Unit 600000 450000 300000 isoooo Figure i TRANSFERRING PROFITS AND TAX CONSEQUENCES As originally designed, as a "for sale" project, each unit of Coventry would be occu- pied by qualifying individuals and families. Under the covenant defined by the City of Tus- tin, owners are restricted in selling the homes to a buyer that is at the same income level. In addition the sales price is capped by the AMI limits for the project. Thus, as the Orange CountyAMI rises, so will the AMI based sales price cap, which will allow sellers to make a moderate return on the sale of their home. Contrast this with the "for rent" case where an increase in the AMI results in more money in the pockets of Lennar/Meta. By approving the conversion of this project from ownership to rental, the City Council of Tustin will be trans- ferringprofits that would have been made by homeowners to the corporate pockets of Lennar/Meta. 4 This is calculated based on the weighted, by unit type and number of units, Boss revenue stream for each case Economics of Coventry Court Revision z 6 Plan z Low Plan 3 Mod Furthermore, by approving the Lennar application, the City of Tustin will be surren- dering property tax that would have been collected from Coventry property owners. Note that when Coventry homes change owners, those homes would be reassessed and over time the amount of property tax collected from the project would increase in line with AMI. In the case of the for rent case, the building will be assessed when it is built and tax increases will be limited to a% annually. Given that the AMI has been 4% historically, the amount of tax revenue to the City could be reduced by half or even more. THE IMPACT TO THE COMMUNITY Conventional wisdom says, according to Lennar and some City Council members, that affordable housing does not have an impact on property values. In fact there are nu- merous studies that would support this view The flaw in this logic occurs because many of the conclusions of these studies are based on data that are collected in affordable housing projects that are located in the most disadvantaged and low income neighborhoods in urban America. City governments will often locate affordable housing projects on undesirable lots that have older abandoned buildings or are consist of City owned property that has been taken over due to foreclosure because of unpaid taxes. In these cases, the removal of an eye sore and replacement with a new building has a positive effect on the surrounding property values. Coventry Court in not being built in a disadvantage neighborhood or replacing an old abandoned building that is an eye sore. Residents have bought property in Columbus Square with knowledge that Coventry would be built as an affordable housing "for sale" pro- ject. The impact to homeowners in Columbus Square lies in the fact that affordable rental projects, even those targeted for elderly tenants, have a negative affect on surrounding prop- ertyvalues when compared to ownership projects. Following are some highlights from stud- ies that have researched this question: z. A study from Penn University, (Lee Culhane, Watcher, Univ of Penn "The Differen- tial Impacts of Federally Assisted Housing Programs on Nearby Property Values"), conclude that "...homeownership programs have a more beneficial impact on sur- rounding neighborhood than any type of rental assistance programs." z. Lyons and Loveridge, ("An Hedonic Estimation on the effect on Federally Subsidized Housing on Nearby Residential Property Values, Univ of Minn, i~~3) provide quanti- fication of the impact. "Adding one subsidized {rental} within a quarter mile of a Economics of Coventry Court Revision z house has the same dollar impact as removing half a square foot of it living space." The same study also concludes that the effect is 3S% more negative in suburban areas vs. urban areas. For rental projects that are for the elderly, studies find that the impact is variable based on the number of units in the project (Ellen, Schill, Schwarts, Voicu, "Does Federally Subsidized Rental Housing Depress Neighborhood Property Values", New York Univ Law School, zoos). Smaller elderly targeted projects have a positive im- pact on the surrounding neighborhood up to i4o units when the impact on neighbor- ing property values turns negative. 4. Koschinsky, ("Spatial Heterogeneity In Spillover Effects of Assisted and Unassisted Rental Housing", Journal of Urban Affairs, zoos) concludes that in most cases there is negligible or positive impact to property values located near affordable rental hous- ing projects. However, exceptions are cited when affordable rental projects are adja- cent to affluent areas. In this case, based on data from Seattle Wash. Gold Coast Area, a decline in values of a% was observed over time. s. The message is clear that not all affordable rental projects are created equal. Ellen states, ("Spillovers and Subsidized Housing: The Impact of Subsidized Rental Hous- ing on Neighborhoods" ,Harvard University, aoo~). "Both theory and existing evi- dence suggest that neighborhood impact of subsidized, rental housing will differ de- pending on where it is built, the scale of the development, the characteristics of its tenants, and the nature of ownership and management." Additional insight is provided by Ellen (Citation is same as #z), "The greater the relative difference in value between the subsidized and non-subsidized units the greater the negative effect of the presence of subsidized units." SOCIAL IMPACTS OF IIOMEOWNF,RSIIIP Besides the economic ramifications of granting the change of tenure to Lennar, there are significant social benefits of homeownership that will be sacrificed. A policy brief from the U.S. Dept. of Housing and Urban Development identifies fundamental benefits of homeownership: r. "Homeownership enables people to have greater control and exercise more responsi- bility over their living environment." a. "Homeownership helps stabilize neighborhoods and strengthen communities." Economics of Coventry Court Revision z 8 3. "Homeownership helps generate jobs and stimulate economic growth." Studies also find that homeownership has positive affects mental health and directly impacts a persons self-esteem leading to increased satisfaction in life. (Rhoe, Uan Zandt, McCarthy, "The Social Benefits and Costs of Homeownership: A Critical Assessment of Re- search", Harvard University, zooi). In addition homeowners have more invested in the community and thereby have more reason to be civically active. Ample evidence of this is seen in the cohesive opposition of Columbus Square homeowners to the change of tenure application for Coventry. ~OriC1USlOri The economics of Coventry Court as rental units will clearly benefit Lennar/Meta. This comes at the expense of the citizens of Tustin. Lennar originally agreed to build and sell iS3 affordable homes and sell them for $i8.6M. Lennar would now like to rent those same units and receive $68M ($54.4M gross income) under the veil of helping the commu- nity. The economic facts are real and are further validated by Lennar's tenacious pursuit of this application. There are well recognized studies that provide ample evidence that Colum- bus Square owners will be affected by Coventry becoming a rental project. In addition, homeownership benefits will be denied to an already disadvantaged segment of the popula- tion. All because Lennar wants to make even more money in Tustin. We live in America and making a profit for a corporation is a requirement to survive, however, we should also seek to insure it is done in a manner that is fair and honest to the people that live in our city. The City Council needs to remind developers that they have been afforded a privilege to develop in our community and they are expected to live up to their commitments. Economics of Coventry Court Revision a ~ Appendix `A" Plans 1 60 affordable homes • 35 "Very Low" homes priced at $2.6,600 + 23 "Low" homes priced aE X65,500 (Tier 1 } and X88,500 (Tier 27 • 21 "Moderate" homes priced at X187,100 ~Tler 1) and X212,500 (Tier 2~ 692 5q. ft. 1 bedroom, 1 bath Plans 2 40 affordable homes + 36 "Low" homes priced at X85,700 (Tier 1) and X111,600 {Tier 2) • 2'"MOderate" homes priced at 5225,200 (TNer 1~ and X254,400 (T#er 2y 938 sq. ft. 2 bedrooms, 2 baths 938 sq. ft. 2 bedrooms, 2 baths Plans 3 30 affordable homes • 30 "Moderate" homes priced at X225,200 (T1er 1) and $254,400 (Tier 2~ 993 sq. ft. 2 bedroom, 2 baths Plans 4 3 affordable homes 3 "Moderate" homes priced at 5225,200 ~Tler 1j and X254,400 (Tier 2) 1,064 sq. ft. 2 bedrooms. 2 baths Economics of Coventry Court Revisf°n 2 10 THE ECONOMICS OF COVENTRY COURT Making a windfall by breaking a promise. Albert Hernandez .`. July aoto Economics of Coventry Court THE ECONOMICS OF COVENTRY COURT Making a windfall by breaking a promise Albert Hernandez July aoro The Coventry Gold Mine We all know that economics is the driving force behind the application that Lennar has submitted to City ofTustin to convert Coventry Court from ownership tenure to rental tenure. So I decided to do sharpen my pencil and determine how big the prize would be if Lennar would actually be able to compel the City Council to approve their application for change of tenure. My figures are based on facts and figures gathered either from Tustin City documents, Federal and State government agency documents, or were provided by Lennar or Meta Housing Corporation. What I discovered is that Coventry is an inflation protected gold mine that will return money year after year if it converted to a rental project. Approv- ing this application will allow Lennar to create $68M in revenue from what they agreed they would sell for $i8M. It is not surprising that Lennar is hiring consultants and making con- cessions to try to get their application approved. If the application is approved, the list of injured will include the residents of Coventry, the homeowners in the surrounding commu- nityand the tax base of the City of Tustin. THE APPROACH The economic analysis approach is simple and is based on the examination of cash flows resulting from the two cases. r. Case r consists of the examination of cash flows that would be generated by selling the i53 affordable homes to qualified buyers. i. Case a provides the examination of cash flows that would result from the rental of the same rS3 units. Economics of Coventry Court z COVENTRY FOR SALE CASE In both cases the remaining 8~ market rate units of Coventry Court are not consid- ered in the analysis as Lennar indicates these units are not the drivers for the conversion. In case z, using published information that was provided when Coventry was a for sale project, the amount of gross revenue that would be generated from the sale of 153 homes is calculated. Appendix `A" shows the pricing as well as number of homes in for each of the four Coventry plans. To determine the gross sales value for the rS3 homes, we multiply the price of each unit by the number of units in that category. Several of the plans have two prices for different tiers, for these cases the average price of both tiers is used. Table r shows the amount of gross revenue that would be generated by selling Coven- try units as originally planned. This figure is gross revenue which does not account for such items as such as discounts or incentives. So in actual practice the amount realized would be less then the i8.8M that is shown here. "For Sale" Case Cash Flow Generated 1 "Very Low" Homes 1 "Low" Homes 1 "Moderate" Homes Plan 2 "Low" Homes Plan 2 "Moderate" Homes Plan 3 "Moderate" Homes Plan 4 "Moderate" Homes Totals 26,800 36 964,800 77,650 23 1,785,950 199,800 21 4,195,800 92,500 38 3,515,000 239,800 2 479,600 239,800 30 7;194,000 239,800 3 719,400 153 18,854,550 Table r Economics of Coventry Court 3 COVENTRY FOR RENT CASE The second case we will examine is the case of converting Coventry Court to a rental project. In this case, Lennar's partner Meta Housing Corporation will rent and manage Coventry Court units which will produce a stream of cash flow rental payments over a life- time of 45 years. The amount of rent for each unit is based on the Area Median Income I (AMI) for the County of Orange, which, incidentally, is among the highest AMIs in the U S. Based on information from Meta Corporation, rents to be charge for Coventy units are based on both ~o% AMI and 60% AMI as well as the number of occupants planned for a unit. An economic advantage to Meta Housing Corporation, because the rents are indexed to AMI, is that rents will increase as incomes in Orange County increase. A further advan- tage is that rents go up but don't go down. In the case of a decrease in AMI, rents are to re- main "stable" as opposed to adjusting downward2. Indexing rents to AMI provides an effective device to keep up with the pace of infla- tion. In fact, given how AMI has increased over the last five decades in Orange County, there is a good chance that the AMI indexed rents will increase faster than inflation3. Table 3 shows the inflation adjusted present value, based on it cash flow, for each class of unit. The present value (P~ for each class of unit is calculated in the standard way a stream of payments is computed for an annuity, using a discount rate of 5% and assuming Orange CountyAMI will grow at an average rate of 4%. The net discount rate of r% is used in the calculation. The life of the project is assumed to be 4~ years. We also assume occu- pancy at 95% although it is not unusual for below market rentals, especially for desirable luxury apartments, to have occupancy greater than 97%. The total value of the cash gener- ated from renting Coventry Court as measured in Zoio dollars is estimated at $68.iM. That is a very substantial increase of over $i8.6M Lennar would receive by keeping Coventry as a "for sale" project. I This statistic is calculated by the U S. Department of Housing and Urban Development (HUD). z Based on information provided by Meta Housing Corporation in a-mail. 3 Besides having among the highest AMI in the U S., the Orange County AMI also grows at a rate that is often higher the Consumer Price Index (CPI). Over the last go years the average compounded AMI for Orange County has grown at Sss% while CPI has increased at a rate of q..o~%; over the last 3o years OC compounded AMI is 4.3% and the CPI has increased at a rate of 3.68%. In either case, since rents will be tied to the AMI they will adjust to compensate for inflation. This is in an important point, since when we calculate the present value for the stream of rent payments a net discount rate is used to compensate for inflation. Having the ability to raise rents will reduce the discount rate and thereby increase the present value of the stream of rents. Economics of Coventry Court 4 Another way to look it at is that, per year, Coventry will generate nearly $aM in gross rental revenue just from the affordable units. In less than ten years the amount of revenue would match what Lennar would generate from selling the Coventry homes. The payback period for this project will be within the first decade of the project. "For Rent" Case Cash Flow Generated over project life 1 "Very Low" 871 36 359,694 es 1 "Low" Homes 871 23 359,694 1 "Moderate" 1,045 21 431,551 2 "Low" Homes 1,255 38 518,274 19,694,412 2"Moderate" 1,255 2 518,274 1,036,548 es 3 "Moderate" 1,255 30 518,274 15,548,220 es 4 "Moderate" 1,255 3 518,274 1,554,822 es 153 68,118,519 Table 3 In the "for sale" case, Coventry units ranged between $a6,8oo to $a54~4o0; in the "for rent" case each unit, at 95% occupancy, could be worth between $359,694 and $Si8,z74 (See Figure r). Even more with higher occupancy. CWerall that is an increase of over 3So% from the "for sale" case4. As if that was not enough, Lennar will qualify for special financing and tax credits for building Coventry Court which makes this "for rent" case even more lu- crative for Lennar. 4 This is calculated based on the weighted, by unit type and number of units, gross revenue stream for each case Economics of Coventry Court S Unit Revenue Comparison ^ "For Sale" Revenue per Unit ^ "For Rent" Revenue per Unit 600000 450000 300000 i5oooo 0 Figure i TRANSFERRING PROFITS AND TAX CONSEQUENCES As originally designed, as a "for sale" project, each unit of Coventry would be occu- pied by qualifying individuals and families. Under the covenant defined by the City ofTus- tin, owners are restricted in selling the homes to a buyer that is at the same income level. In addition the sales price is capped by the AMI limits for the project. Thus, as the Orange County AMI rises, so will the AMI based sales price cap, which will allow sellers to make a moderate return on the sale of their home. Contrast this with the "for rent" case where an increase in the AMI results in more money in the pockets of Lennar/Meta. By approving the conversion of this project from ownership to rental, the City Council of Tustin will be trans- ferring profits that would have been made by homeowners to the corporate pockets of Lennar/Meta. Furthermore, by approving the Lennar application, the City of Tustin will be surren- deringproperty tax that would have been collected from Coventry property owners. Note that when Coventry homes change owners, those homes would be reassessed and over time the amount of property tax collected from the project would increase in line with AMI. In the case of the for rent case, the building will be assessed when it is built and tax increases Economics of Coventry Court 6 Plan r VL Plan r Low will be limited to 2% annually. Given that the AMI has been 4% historically, the amount of tax revenue to the City could be reduced by half or even more. THE IMPACT TO THE COMMUNITY Conventional wisdom says, according to Lennar and some City Council members, that affordable housing does not have an impact on property values. In fact there are nu- merous studies that would support this view The flaw in this logic occurs because many of the conclusions of these studies are based on data that are collected in affordable housing projects that are located in the most disadvantaged and low income neighborhoods in urban America. City governments will often locate affordable housing projects on undesirable lots that have older abandoned buildings or are consist of Ciry owned property that has been taken over due to foreclosure because of unpaid taxes. In these cases, the removal of an eye sore and replacement with a new building has a positive effect on the surrounding property values. Coventry Court in not being built in a disadvantage neighborhood or replacing an old abandoned building that is an eye sore. Residents have bought property in Columbus Square with knowledge that Coventry would be built as an affordable housing "for sale" pro- ject. The impact to homeowners in Columbus Square lies in the fact that affordable rental projects, even those targeted for elderly tenants, have a negative affect on surrounding prop- erryvalues when compared to ownership projects. Following are some highlights from stud- ies that have researched this question: A study from Penn University, (Lee Culhane, Watcher, Univ of Penn "The Differen- tial Impacts of Federally Assisted Housing Programs on Nearby Property Values"), conclude that "...homeownership programs have a more beneficial impact on sur- rounding neighborhood than any type of rental assistance programs." z. Lyons and Loveridge, (`An Hedonic Estimation on the effect on Federally Subsidized Housing on Nearby Residential Property Values, Univ of Minn, 1993) provide quanti- fication of the impact. `Adding one subsidized {rental} within a quarter mile of a house has the same dollar impact as removing half a square foot of it living space." The same study also concludes that the effect is 35% more negative in suburban areas vs. urban areas. 3. For rental projects that are for the elderly, studies find that the impact is variable based on the number of units in the project (Ellen, Schill, Schwarts, Voicu, "Does Economics of Coventry Court ~ Federally Subsidized Rental Housing Depress Neighborhood Property Values", New York Univ Law School, Zoos). Smaller elderly targeted projects have a positive im- pact on the surrounding neighborhood up to zoo units when the impact on neighbor- ingproperty values turns negative. 4. Koschinsky, ("Spatial Heterogeneity In Spillover Effects of Assisted and Unassisted Rental Housing", Journal of Urban Affairs, Zoo9) concludes that in most cases there is negligible or positive impact to property values located near affordable rental hous- ingprojects. However, exceptions are cited when affordable rental projects are adja- cent to afl~uent areas. In this case, based on data from Seattle Wash. Gold Coast Area, a decline in values of Z% was observed over time. s. The message is clear that not all affordable rental projects are created equal. Ellen states, ("Spillovers and Subsidized Housing: The Impact of Subsidized Rental Hous- ing on Neighborhoods" ,Harvard University, Zook). "Both theory and existing evi- dence suggest that neighborhood impact of subsidized, rental housing will differ de- pending on where it is built, the scale of the development, the characteristics of its tenants, and the nature of ownership and management." 6. Additional insight is provided by Ellen (Citation is same as #Z), "The greater the relative difference in value between the subsidized and non-subsidized units the greater the negative effect of the presence of subsidized units." SOCIAL IMPACTS OF HOMEOWNERSHIP Besides the economic ramifications of granting the change of tenure to Lennar, there are significant social benefits of homeownership that will be sacrificed. A policy brief from the U S. Dept. of Housing and Urban Development identifies fundamental benefits of homeownership: r. "Homeownership enables people to have greater control and exercise more responsi- bility over their living environment." Z. "Homeownership helps stabilize neighborhoods and strengthen communities." 3. "Homeownership helps generate jobs and stimulate economic growth." Studies also find that homeownership has positive affects mental health and directly impacts a persons self-esteem leading to increased satisfaction in life. (Rhoe, Van Zandt, McCarthy, "The Social Benefits and Costs of Homeownership: A Critical Assessment of Re- Economics of Coventry Court 8 search", Harvard University, aooz). In addition homeowners have more invested in the community and thereby have more reason to be civically active. Ample evidence of this is seen in the cohesive opposition of Columbus Square homeowners to the change of tenure application for Coventry. Conclusion The economics of Coventry Court as rental units will clearly benefit Lennar/Meta. This comes at the expense of the citizens of Tustin. Lennar originally agreed to build and sell i53 affordable homes and sell them for $i8.6M. Lennar would now like to rent those same units and receive $68M under the veil of helping the community. The economic facts are real and are further validated by Lennar's tenacious pursuit of this application. There are well recognized studies that provide ample evidence that Columbus Square owners will be affected by Coventry becoming a rental project. In addition, homeownership benefits will be denied to an already disadvantaged segment of the population. All because Lennar wants to make even more money in Tustin. We live in America and making a profit fora corpora- tion is a requirement to survive, however, we should also seek to insure it is done in a man- ner that is fair and honest to the people that live in our city. The Ciry Council needs to re- mind developers that they have been afforded a privilege to develop in our community and they are expected to live up to their commitments. Economics of Coventry Court 9 Appendix `A" Plans i 80 affordable homes • 36 "Very low" hames paced at 526,800 • 23 "Law" homes priced at 566,600 (Tier 1} and 588,500 (Tier 2} • 21 "Moderate" homes priced at ~ 18 7, i 00 (Tier 1} and #212,500 (Tier 2} 692 5q. ft. i Dedroomr i bath Plans 2 4o affordable homes • 38 "Low" homes priced at 588, 700 (Tier i } and X111,500 {Tier 2} • 2 "Moderate" homes paced at 5225,200 (Tier 1} and $.25+3,400 (Tier 2} 938 sq. ft. 2 bedrooms, 2 baths 938 sq. ft. 2 bedrooms, 2 baths Plans 3 30 affordable hames • 30 "Moderate" homes priced at 3225,200 (Tier 1}and 5254,400 (Tier 2) 993 sq. ft. 2 bedroom, 2 baths Plans 4 3 affordable homes • 3 "Moderate" homes priced at 5225,200 (Tier 1) and #254,100 (Tier 2} 1,064- Sq. ft. 2 bedrooms, 2 baths.. Economics of Coventry Court zo From: Eric Higuchi [ Sent: Friday, July 02, 2010 11:11 AM To: carol@govsol.com Cc: CITY COUNCIL Subject: Coventry Court -Comments to Proposed Terms for Mutual Benefit Agreement Dear Ms. McDermott, My name is Eric Higuchi and I am a resident and homeowner at Columbus Square. I am also actively involved in the community as an elected board member of the Camden Place HOA and an appointed director-at-large of the Columbus Square HOA. This message, however, only reflects my personal opinions and should not be construed in anyway as a statement on behalf of the Camden Place or Columbus Square HOA. I am writing in regards to a letter from Government Solutions Inc. dated June 28th, 2010 in re: Coventry Court Senior apartments . Personally, I believe the spirit of the proposed, basic terms are very fair, and, with involvement and collaboration from the community, would make your client's proposed revisions to community very supportable. However, I believe that are absolutely critical questions and comments that must be addressed by the City of Tustin and Lennar prior to approval of Coventry as a for-rent community. I've attached my comments as a word document. I have also included my comments as part of this email (see below). I can be reached at Sincerely, Eric Higuchi 1. The Coventry land, if approved by the City as an age-restricted apartment project with "affordable" units (Coventry), will not be annexed to the Columbus Square Community Association. -If this parcel is not annexed into the association, doesn't this "land lock" the parcel? Want the apartment owner need an access easement from the association in order to traverse across Columbus Square owned streets? If sa, what are the terms of this easement? -t dont believe Coventry Court should be approved anti! the community and developer have memoriafized the terms of this easement. 2. Tustin Coventry Seniors, LLC (Coventry Owner), will not be a member of the Columbus Square Community Association (Master Association), no assessments shall be levied by the Master Association against the Coventry property, and votes in the Master Association shall not be exercised by the Coventry Owner. -na comment 3. The Coventry Owner will enter into a recorded, perpetual Agreement with the Master Association, which Agreement shall run with the land pursuant to Section 845 and 1468 of the Civil Code, containing the following material provisions: The Coventry Owner will pay to the Master Association an amount equal to one assessment unit for each rental unit. Assessments for each rental unit will commence upon the first occupancy of the rental unit and will continue regardless of occupancy thereafter. -This term is very vague and 1 believe a praposed, detailed agreement must be made available to the canamunity far comment prior to appraval of Coventry as a for-rent community. l have the following questions: At what rate and canditions wilf Coventry°s fees escalate? • is Coventry subject to special assessments? • Are fees paid per occupied unit, or will fees be paid for all units at Coventry regardless of occupancy? • When are the fee`s effective (when will the Owner of Coventry begin paying fees)? At Cert of Occupancy? At resident occupancy At building permit? • Will fee payments be triggered in phases or for the entirety of Coventry at once? • What recourse does the association have if the awner of Coventry defaults? By collecting an assessment rather than a fee, the association can na longer foreclose on the property to recover last income. What mechanisms are proposed to secure our financial position? b. The renters may use the Master Association facilities on the same basis as all members of the Master Association. -Who will be responsible for distribution of key fobs to Coventry Court residents for access into the master association peal and club roam facilities? -Who wi11 have authority to revoke access to the pool and club morn if Caventry Court residents violate rules? c. All successors and assigns shall be bound by this Agreement. -na Ca!?7ment d. The Coventry Owner/Management will ensure that the Parking Management Plan, approved by the City of Tustin Community Development department will be enforced and that surrounding properties will not be negatively impacted by parking behavior of Coventry tenants or guests. -The Community should have input on the parking management plan. The parking management plan should be subject to city and community review on an annual basis. e. The Coventry property will provide 409 parking spaces of which 200 spaces are enclosed garages, 40 spaces are carports, 130 open parking spaces, 10 ADA accessible parking spaces and 1 ADA van accessible space on-site while it also incorporates 28 parallel street parking spaces along Cambridge Street and Charleston Street immediately adjacent to the property. Of these 409 parking spaces, 36 shall be set aside as guest spaces, and six (6) spaces shall be set aside for employees. -As no easement for parking ar maintenance of these spaces have been discussed, Coventry cannot count the on-street parking spaces as they are not located within the bounds of Coventry's parcel. Please revise your parking count to 3Z spaces and your parking ratio to approx 1,5875. The Coventry Owner will not permit residents to own and maintain any more than 367 vehicles on-site at any given time. -Again, as an easement has not been discussed or proposed, it is not valid to count the 28 on- street parking spaces. if the 36 guest spaces are to be maintained, the tote! number of allowable vehicles must drop frcant 367 to 339 spaces, at minimum. Basic Terms of the proposed Mutual Benefit Agreement between Columbus Square Community Association and Tustin Coventry Seniors LLC, (Meta Housing Corporation, Owner/Developer of Coventry Senior Apartments) Originally distributed March 23, 2010 Updated June 17,2010 1. The Coventry land, if approved by the City as anage-restricted apartment project with "affordable" units (Coventry), will not be annexed to the Columbus Square Community Association. -If this parcel is not annexed into the association, doesn't this "land lack" the parcel? iliton't the apartment owner need an access easernertt from the association in order to traverse across Columbus Square owned streets? if so, what are the terms of this easement? -l don't believe Coventry Cocrrt should be approved until the community and developer have memorialized the terms of this easement. 2. Tustin Coventry Seniors, LLC (Coventry Owner), will not be a member of the Columbus Square Community Association (Master Association), no assessments shall be levied by the Master Association against the Coventry property, and votes in the Master Association shall not be exercised by the Coventry Owner. -no comment 3. The Coventry Owner will enter into a recorded, perpetual Agreement with the Master Association, which Agreement shall run with the land pursuant to Section 845 and 1468 of the Civil Code, containing the following material provisions: a. The Coventry Owner will pay to the Master Association an amount equal to one assessment unit for each rental unit. Assessments for each rental unit will commence upon the first occupancy of the rental unit and will continue regardless of occupancy thereafter. -This term is very vague and 1 believe a proposed, detailed agreement must be made available to the community for comment prior to approval of Coventry as a for-rent community. 1 have the fallowing questions: • At what rate and conditions will Coventry's fees escalate? • is Coventry subject to special assessments? « Are fees paid per occupied unit, or will fees be paid for all units at Coventry regardless of occupancy? • When are the fee's effective (when will the Qwner of Coventry begin paying fees)? At Cert of CJccupancy? At resident occupancy? At building permit? • Will fee payments be triggered in phases or for the entirety of Coventry at once? • What recaurse daes the assaciatiori have if the owner of Coventry defaults? By callecting an assesstrrent rather than a fee, the association can no longer fareclose on the property to recover lost income. What meehanisms are proposed to secure our financiai position? b. The renters may use the Master Association facilities on the same basis as all members of the Master Association. -Who will be responsible far distribution of key fobs to Coventry Court residents for access into the master associatian poal ar~d club room facilities? -Who will have authority to revoke access to the pool and club roam if Coventry Court residents violate rules? c. All successors and assigns shall be bound by this Agreement. -no comment d. The Coventry Owner/Management will ensure that the Parking Management Plan, approved by the City of Tustin Community Development department will be enforced and that surrounding properties will not be negatively impacted by parking behavior of Coventry tenants or guests. -The Community should have input an the parking management plan. The parking management plan should be subject to city and community review on an annual basis. e. The Coventry property will provide 409 parking spaces of which 200 spaces are enclosed garages, 40 spaces are carports, 130 open parking spaces, 10 ADA accessible parking spaces and 1 ADA van accessible space on-site while it also incorporates 28 parallel street parking spaces along Cambridge Street and Charleston Street immediately adjacent to the property. Of these 409 parking spaces, 36 shall be set aside as guest spaces, and six (6) spaces shall be set aside for employees. -As no easement far parking ar maintenance of these spaces have been discussed, Coventry cannot count the 28 ran-street parking spaces as they are not located within the bounds of Coventry's parcel. Please revise your parking count to 381 spaces and year parking ratio to approx 2.5875. -1 suspect this would also require an updated parking study. As this study would be tied to the CUP approval and not to your environmental approvals, expense would be minimal and the delay wauld be limited to the time it would take to conduct the study. I have pushed for an updated study and parking survey for aver half a year. Given the applicant`s canfidence that the community is in fact aver parked, there seems to be no risk in conducting a survey to validate the parking retie. Again, the allowable parking ratio was a special variance from the Tustin Legacy S;pecr`fic Plan granted by the City Council, that variance had expired with the original CUP. tt would assuage my concerns greatly if the ratio is confirmed thraugh an updated parking study and detailed survey. f. The Coventry Owner will not permit residents to own and maintain any more than 367 vehicles on-site at any given time. -Again, as an easement has net been discussed ar propased, it is net valid to taunt the 28 an-street parking spaces, if the 36 guest spaces are to be maintained, the fatal number of allowable vehicles must drop from 367 to 339 spaces, at minimum. Honorable Mayor and City Council Members, We are writing this letter on behalf of The Board of Directors of the Columbus Square Community Association. This Board established an Ad Hoc committee to meet with the Developer and Proposed Operator of Coventry Court as apartments. Because we believed there was not sufficient time to cover all of the issues prior to the City Council meeting our Board and Committee asked for a continuance. The first meeting was held Thursday July I, 2010 between our Committee, Lennar and Meta Housing. At the beginning of the meeting, our Committee asked Lennar if they had requested a continuance from the City Council. Lennar said lets ga over some of the issues first and then we will decide if a continuance is needed. After a fruitful discussion of the issues, it became obvious to our Committee that more meeting and discussions would be necessary and asked Lennar to request a continuance. . The Lennar representative said that there would be no continuance requested and that the Partners had met earlier this afternoon and voted not to request a continuance. At this point, the meeting became very contentious and broke up. Our Board of Directors wants the City Council to know our great disappointrnent in the actions of Lennar in our efforts to resolve our issues and concerns with Coventry Court being changed from senior fee simple to senior apartments. The Committee members believe Lennar acted in bad faith by not disclosing their decision to not request a continuance at the outset. We believe a continuance is necessary to resolve issues that were openly discussed at the July 1, 2010 meeting. Respectfully: 7 Michael Vo Gary Pomeroy President Vice President A Merit Managed Commtmity iVlerit Property Management, Inc, 1 Polaris Way, Suite IUU, Aliso Viejo, CA 92656 8E)U-428-5588 p 949-448-6U00 f 949-448-64UU Estrella, Patty From: Sowder, Debra Sent: Wednesday, July 07, 2010 2:22 PM To: Deborah Gavello; Doug Davert; Jerry Amante; Jim Palmer; John Nielsen Cc: Binsack, Elizabeth; Estrella, Patty Subject: FW: Denial of Coventry application to become retal property From: Jack Chen [ Sent: Tuesday, July 06, 2010 11:10 PM To: CITY COUNCIL Subject: Denial of Coventry application to become retal property Dear Counsel Members, As an active voting member of the community. We ask that at the meeting tomorrow, 07/10/2010 you do not grant a request for continuance and that you listen to your constituents and the planning commissions recommendation to deny the permit of Lennar to convert Coventry from Ownership to Rental. Coventry Court was originally considered as a plan part of the greater Villages of Columbus which were proposed as 100 percent ownership units and apartments were not considered as part of the original development plan. Lennar has more than ample time to talk to each and every community member. The change from ownership to rental tenure is not a minor amendment to the project as Lennar presented The proposed change causes and affect the well being and our quality of life. We as a community strongly opposes this development to become a rental unit. It is our belief that Lennar is trying very hard to stall and delay so that they can wear down the community. Please I urge you to listen to your constituents, and do not grant a continuance and vote NO tomorrow night and deny the permit to convert Coventry from ownership to rental. Respectfully yours, Jack and Christine Chen Colombus Square Resident