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HomeMy WebLinkAboutRDA MULTI-FAM ACQUI. 06-06-94 GE'NDA RDA NO. 3 6-6-94 OATE: JUNE 6, 1994 Inter-Com TO: FROM: SUBJECT: WILLIAM A. HUSTON, EXECUTIVE DIRECTOR COMMUNITY DEVELOPMENT DEPARTMENT AUTHORIZATION TO PROCEED WITH MULTI-FAMILY ACQUISITION AND REHABILITATION PROGRAMS RECOMMENDATION It is recommended the Redevelopment Agency authorize Agency staff to proceed with certain implementation activities related to multi- family acquisition and~rehabilitation of 2-4 unit properties in the South Central Project-Area. FISCAL IMPACT The authorization to proceed with the prOposed'programs will have no direct fiscal impact at this time with the exception of administrative time. Ail or a portion of any program costs would need to be appropriated by"the Agency when a formal proposal (development disposition agreement)..is submitted for Agency approval. Agency HousingSet-Aside funds have been programmed for these programs. BACKGROUND'AND DISCUSSION In November, 1993, the Tustin Community Redevelopment Agency approved a Comprehensive Affordable Housing Strategy as required by the California Community Redevelopment Law. This strategyoutlined specific projects and programs to be funded through the Federal Community Development Block Grant Program and Redevelopment Agency housing set-aside funds accumulating in both the South'Central and Town Center Redevelopment Project Areas. The Staff will be providing the Agency with a full presentation workshop on all of the elements in the Affordable Housing Strategy in the near future. However, because of the lead time involved, Staff is now seeking authorization to proceed with two of the programs identified in the affordability strategy at this time. One of the primary concerns of the Agency is the proliferation of duplexes, triplexes and four-plexes in that portion of the South Central Project Area identified as the "Southwest neighborhood". Many of the units in this neighborhood need improvement as they get Redevelopment Agency Report Small Rental Complex Rehabilitation Program June 6, 1994 Page 2 older and suffer the normal deterioration from age, as well as the increased deterioration brought about by overcrowding in some of the units. The Agency is attacking these problems in a number of ways, the primary one being utilization of the City's on-going Rental Housing Rehabilitation Program. In discussin9 the rehabilitation of the existing housing stock in the City, the Strategy calls for four types of programs. These are: Owner Rehabilitation Loans and/or Grants This prQgram is already underway. 2. Rental Rehabilitation Loans and/or Grants This program is already underway. 3. Multi-Family Acquisition, Rehabilitation and Conversion to Ownership Mousing (2-4 unit rehab and resale) 4. Multi-FamilY Acquislt'ion, Rehabilitation and Rental (2-4 unit rehab and ~rental) .. Agency staff are now reqUesting authorization to proceed with initial necessary implementation activities for Programs No. 3 and 4 above. The Affordable Mousing Strategy provides an additional description of each of these programs as shown in Attachment A. The Staff has begun receiving numerous contacts from private and non-profit corporations about the ability and willingness of the Agency to assist in each of the proposed programs. Because the interest of housing providers is currently intense, and because there is a substantial lead tim~'' in identifying a prospective developer, negotiating an agreement and undertaking the work to be done, the staff would like to begin the process in the next few weeks. This will allow each of the programs to get underway in the coming fiscal year. Staff, therefore, reqUests authorization to initiate the "2-4 Unit Rehabilitation and Resale" and "2-4 Unit Rehabilitation and Rental" programs identified in the Comprehensive Affordable Housing Strategy. It is anticipated that staff would coordinate with local real estate interests regarding available properties or properties the Agency wishes to prioritize for developer acqUisition in the South Central Redevelopment Project Area and prepare a ReqUest for Proposal to be issued to profit and non-profit housing developers Redevelopment AGency Report Small Rental Complex Rehabilitation ProGram June 6, 1994 PaGe 3 for each of the proposed programs. The specific level of agency assistance costs for acquiring and rehabilitatinG two or four unit structures in the South Central .Project Area will be derived from the AGency's Affordability G~p Analysis included in the Comprehensive Affordability HousinG Strategy and will be negotiated on each site. More specific negotiation perimeters will be discussed with the AGency on each site program once developers are selected. The AGency would also review and approve any development agreement for each program site in the future. Christine K. S~l%ton. Assistant City--ManaGer Zimmer ~.~deve'lo~nt ProGram ManaGer RZ: CAS: kbc\4plxauth, rz ATTACHMENT b. Multi-Family Acquisition, Rehabilitation, and Conversion Ownership Housing to Many of the City's duplexes and fourplexes in the South Central Project Area are owned by absentee landlords and managed by apartment management companies. Absentee owners of rental units purchased for future speculative value, perhaps with the thought of redevelopment of existing properties, may be less inclined to make a short-term investment to maintain the condition of existing p ..mpenies, while submitting to long-term affordability restrictions. A multi-family acquisition and rehabilitation program is proposed whereby the Agency acts directly or as a catalyst for the acquisition, rehabilitation and, where possible, conversion of these units to ownership housing, such as condominiums or cooperatives. i. Resale to Qualified Buyers Units could be converted to condominiums and.sold to qualified low or moderate income buyers with first time homebuyers assistance. If substantial rehabilitation is involved, the Agency is required to restrict the occupancy to eligible families for the longest feasible time, but not less than 10 years for owner, housing assisted with Low and Moderate Income Housing Funds. The Agency shoUld also study 'and determine whether it wishes to require units sold to qualified buyers to include resale ~xa'ictions which limit the extent to which home prices may increase. This preserves the benefit of the Agency's subsidy for future owners of the unit. Even if the homeowner's potential financial benefit from Inice appreciation is limited, the ,o. _w~.er.contin. u.e.s.to re~_ ive the remaining benefits of ~wn_ea~: mortgage interest deduction, mmteo appreciation, family and neighborhood stability. For single-family housing (including condominiums) with income limits or maximum sales prices, the Agency could require that a regulatory agreement, restrictive covenant, or other'document giving notice to future owners of the housing restrictions is recorded in the CoUnty ~rder's office. Covenants set forth the limitations on the use of the property in question and the length of the limitations. Covenants alone, however, may not be enough to insure compliance with whatever limitations that may be set out by the Agency. Particularly with ownership housing, :-the Agency may not discover noncompliance with the covenantS, since the Agency would not be'directly involved in future property sales. Also, enforcement of the covenants would generally require a lawsuit which is expensive and time-cong. Structuring financial assistance in the form of deferred loan secmv, d by a deed of trust on the assisted property can provide further asstLrance that affordabi~ will be maintained. A deed of trust provides that if the borrower defaults in a promise (either for repayment or maintenance of housing affordabili, ty), the Agency can take over the property. Relatively quick and inexpensive nonjudicial foreclosure prigs can be used instead of the longer and more expensive remedy of a lawsuit. Moreover, thc Agency would be entitled to notice upon sale of the property, thus reducing thc chances of undiscovered violations. Tustin Affordable Housing Program Elements Final Report 11 July 31, 1993 The major risk with a deferred loan, or "sleeping second", program without covenants is that the owner will choose to sell the unit at market prices and repay the loan. While the Agency's investment is protected, the unit may be lost to the affordable housing stock if the repayment provisions are not carefully structured to remove incentives for selling, out of the program guidelines. The combination of a deferred loan and recorded restrictions reduces the risk that the unit will be converted to market rate housing. ii. Scattered Site Cooperative Ownership As an alternative to resale of units as condominiums, the units could be.retained in scattered site, cooperative ownersh, ip. Cooperative ownership typically requires a limited downpayment, with resale prices linked to an annual increase on the owner's downpaymenc By law, the annual increase on the downpayment is limited to 10% annually. In practice, the return on the owner's downpayment is usually s. pecified at a simple interest rate between 2% and 6% annually. Under most forms of cooperative ownership, boards of directors are elected based on one vote per housing unit. The Board or a membership committee may'screen and approve new members. Community organization and involvement is key to su~ful operation of a cooperative. Ongoing training for the board and membership is imperative. The cooperative must also have professional management (i.e. a management company), although residents may take on some of the management and maintenance functions to cut costs. The minimum size for a successful cooperative is considered to be about 50 units (preferably higher for a scattered site cooperative). Additional units may be added over time. If scattered site cooperative ownership were to be pursued for some of the fourplexes in Tustin, reaching the threshold size during the start-up of the cooperative may be difficult if units are purchased only as they come on the market. One alternative may be for units to be held as rentals'by a nonprofit until sufficient units are acquired to warrant conversion to a scattered site cooperative. .- c. "Rental Rehabilitation Loans or Grants As in the case Of the owner rehabilitation program, .the CountY will administer and provide loans and grants citywide to rental property owners for rehabilitation where the majority of existing tenants are at eligible income levels for assistance. It is also recommended that the :-Agency continue to provide loans and grants to owners of rental property in need of moderate rehabilitation where a majority of existing tenants (51%) are at o~ below 120% of median income and rents remain within Fair Market Rent (FMR) levels for the term of the loan. Again, housing set-aside and future CDBG and/or HOME funds will be ~. In the case of the CDBG and HOME programs, the City will need to ensure program guidelines respond to the spoeffic legislative restrictions of each of these programs. Tustin Affordable Housing Program Elements Final Report 12 July 31, 1993 d. Multi-Family Acquisition, Rehabilitation and Rental Units purchased from absentee landlords and rehabilitated could be retained in non-profit ownership and rented to qualifying low income tenants with rental restrictions in place. If substantial rehabilitation is involved, the Agency is required to restrict the occupancy to eligible families for the longest feasible time, but not less than 15 years for rental housing assisted with Low and Moderate Income Housing Funds. The Agency would record in the County Recorder's office a regulatory agreement, resuictive covenant, or other document outlining the rental resuictions placed on the property. 5. New Housing Construction Program Pu~_ oseff arget Groups · The City will assist the development of affordable new owner and rental housing in. Tustin compatible with surrounding neighborhoods. In particular, the City has identified several- potential sites for new owner townhome development in Old Town. Sites may also be identified for new ownership or rental infill developmcac Consistent with the City's housing policies, priority for new construction assistance will be given to ownership housing. The City's proposed General Plan proposes a number of mixed-use site opportunities in O1d Town where new ownershiptownhomes could be consum'ted. The recent report prepared by the American Institute Of Architects' Regional/Urban Desi~ Assistance Team (R/UDAT) recommended mixed-use development including resideatial uses as desirable for Old Town from a land use and marketing perspective. The 1991 "Old Town Tustin Market Analysis" prepared by.W'dliams-Kuebelbeck & Associates also projected a significant demand potential for multi-family housing in this area. This program would assist in the construction of oWnership ~ownhome units in Old Town targeted to moderate income households. · .. The City has limited opportunities for new ownership and rental construction on inf'dl sites in the City. This program would aSSist the development of affordable units within newly constructed projects in either the South Central or Town Center Project Areas. -_ Tvoe of Assistance a. New Owner Housing Construction The Agency will provide fmancial assistance for new owner housing construction not to exceed the amount of the affordability gap using Low and Moderate' Income Housing Funds. The Agency is required to restrict the occupancy of newly constructed housing to eligible families for the longest fe,xsible time, but not less than !0 years for new ownership housing assisted with Low and Moderate Income Housing Funds. Tustin Affordable Housing Program Elements Final Report 13 July 31, 1993 As described above for program 4.b., stmcttuing the financial assistance in the form of a deferred second mortgage, in combination with a regulatory agreement, restrictive covenant, or other document recorded against thc property, could assure that affordability is maintained for In the case of density bonus units and the use of other fmandal incentives, provisions of Government Code Section 65915 would apply required continuing affordability of all lower income density bonus units for 30 years or a longer period as required by construction mortgage financing assistance, mortgage insurance, or rental subsidy programs. Tustin Affordable Housing Program Elements l'mal Report 14 July 31, 1993