Title
Recommendation to Approve Pre-Commitment of $6.0 million of the City’s Base Allocation of Funding through the Alameda County Affordable Housing Bond Program for the Eagle Avenue and Site A Affordable Housing Projects. (Housing 266)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Approve Pre-Commitment of $6.0 million of the City’s Base Allocation of Funding through the Alameda County Affordable Housing Bond Program for the Eagle Avenue and Site A Affordable Housing Projects
BACKGROUND
On November 8, 2016, Alameda County voters overwhelming passed the Countywide Housing Bond (Measure A1). The $580 million bond program will fund three homeownership programs and two rental housing development programs. The County Housing and Community Development Department (HCD) will administer the bond program. The Rental Housing Development Fund ($425 million) is intended to create and preserve affordable rental housing for vulnerable populations including homeless people, seniors, veterans, people with disabilities, youth aging out of foster care, and people re-entering the community. Funds will be restricted to projects with a majority of rental units affordable to very-low and low-income households with incomes between 30-60% of Area Median Income (AMI). Twenty percent of the total program units Countywide must serve households earning 20% or less of AMI.
The Rental Housing Development Fund has two components: a base allocation for each city and the unincorporated County and four regional pools to which cities can apply for funding to augment their base allocation. Alameda’s base allocation is $10.4 million. Alameda is in the mid-County region, along with Hayward, San Leandro, and the unincorporated County. The mid-County pool is $50 million.
HCD has begun the process for implementing the bond program with a focus on the initial implementation period through June 2018. As part of this process, an unanticipated issue has been identified. As a result of statements made by then President-elect Trump and pending legislation in Congress regarding reductions in corporate tax rates, the market for Low-Income Housing Tax Credits (LIHTC) was suddenly and significantly impacted. Lower corporate taxes will result in less taxed owed, and therefore, less need for tax credits. The result was a drop in the value of LIHTC to investors, cancellation of commitment letters from investors for projects that were funded in September 2016, and reduction of the anticipated amount of funds that can be raised in the March 2017 tax credit round. Affordable housing projects that were funded in September 2016, or had anticipated applying for funding in March 2017, now have funding gaps due to the reduced value of the LIHTC (an anticipated decline in value from $1.10 - $1.20 to $.90 - $1.00).
HCD is proposing to close the funding gap for Alameda County projects that are faced with this situation by providing an early commitment of funding for each project that would ultimately be paid from the base allocation of each city with an impacted project. This is essentially a funding commitment from the County in anticipation of issuing the first round of affordable housing bonds.
The Alameda Housing Authority’s Eagle Avenue project is a 20-unit affordable family housing project that received its tax credit award in September 2016. As a result of the possibility of reduced corporate taxes, its investor commitment letters were withdrawn and the new offers are at a reduced amount, which has created a $1 million funding gap. In addition, while HCD has not yet proposed a funding commitment for projects that will be applying for tax credit funding in June 2017, staff is anticipating a similar need for a funding commitment from the County for the Site A affordable senior housing project. Gap funds needed for that project, along with the Site A affordable family housing project, total $5 million. Staff is recommending that the City Council approve the use of $6 million of the City’s $10.4 million base allocation to close the $1 million funding gap for the Eagle Avenue project and the anticipated $5 million funding gap for the Site A affordable housing projects.
DISCUSSION
Eagle Avenue Project
In September 2014, the Housing Authority purchased an infill parcel of land from the School District located at the corner of Eagle Avenue and Everett Street (2437 Eagle Avenue). In September 2015, the Planning Board approved the development of 20 affordable townhouse-style units including a manager’s unit, a community room and site amenities.
On September 8, 2016, the California Tax Credit Allocation Committee (TCAC) approved a preliminary reservation of 9% low-income housing tax credits for the development of the project. Based on this allocation, the Housing Authority received offers from three tax credit investors to provide equity financing. Construction plans for the project are going through the City’s building plan check process, a general contractor has been selected, and the project was on track to commence construction in March 2017 with completion anticipated by May 2018.
Following the November election, all three investors withdrew their offers. As noted above, this circumstance is a state-wide and national concern for the tax credit program based on the federal government’s stated plans for tax reform. In response to this issue, in December, TCAC granted a blanket extension to the deadlines to close construction financing and to meet the readiness deadline. The original March deadline was extended by 90 days. This means that the closing date must occur by June 30, 2017. The construction completion and occupancy dates are unchanged and must occur by the end of 2018.
After the 90-day extension notice, Housing Authority staff republished an invitation for lender and investor and received new offers. However, the new offers came in significantly lower than the original offers, and created a funding gap of $1 million. To meet the new TCAC deadline to close on financing and commence construction by June 30, 2017, a funding source to fill the $1 million gap must be identified. HCD has proposed an approach to close the funding gap by obtaining an early commitment from impacted cities to allocate a portion of their base allocation to “save” these affordable housing projects that are at risk of losing their funding and delaying much needed housing. A commitment of $1 million from the City’s $10.4 million base allocation will ensure that the Eagle Avenue project will move forward in a timely and cost-efficient manner.
Site A Affordable Housing
In June 2015, the City Council unanimously approved the Site A Development Plan and a Disposition and Development Agreement (DDA) with Alameda Point Partners (APP), for a 68-acre area within Alameda Point. Site A includes 800 housing units (200 affordable), 600,000 square feet of commercial development, and extensive parks and utility infrastructure (Site A Project).
Two hundred (200) of the residential units (25%) at Site A are required to be affordable. One hundred thirty (130) affordable units will be provided in two buildings on Block 8 for low- and very low-income households consistent with the DDA: a family building with 70 units, and a senior building with 60 units. In March 2016, APP assigned the Affordable Housing Implementation Plan to a non-profit affordable housing developer, Eden Housing, thereby designating Eden Housing as the Qualified Affordable Housing Developer for Site A.
Although unsuccessful, APP and Eden Housing expended significant staff and financial resources applying for $23.7 million from the State of California through the Affordable Housing Sustainable Communities (AHSC) grant program to fund the development of Block 8’s family and senior buildings and eligible portions of Site A’s sustainable infrastructure. Additionally, as discussed above, LIHTC pricing has recently dropped dramatically, which has resulted in less funding for affordable housing from one of the few sources of financing for affordable housing that still remains in California after the elimination of Redevelopment tax increment.
In response to these actions, APP and Eden Housing have prepared updated affordable housing financing plans for both the family and senior housing projects. As contemplated in the DDA, the affordable housing financing plans include Veterans Affairs Supportive Housing vouchers from the City of Alameda Housing Authority (Eden applied for these in early February), Alameda County Affordable Housing Bond funds, 4% non-competitive LIHTCs for the family project, 9% competitive LIHTCs for the senior project, Veterans Housing and Homelessness Prevention Program funds, federal Affordable Housing Program funds, AHSC grants from the upcoming 2017 round for the family project, and developer contributions of land, infrastructure and direct monetary contributions.
Per the DDA, APP cannot pull building permits for units beyond 396 market-rate units until all of its financing for the two affordable housing projects has been obtained. It is expected that APP will reach this point in its development schedule by early 2018. As a result, it is crucial to the feasibility and timing of the implementation of the Site A project to apply for and obtain all of its affordable housing financing this year. There are only two rounds of 9% LIHTC applications each year - one in March and one in June. Because funding commitments will not be available in time for the March 2017 deadline, Eden Housing will apply for LIHTC funding in the June 2017 funding round. In order for the senior project to score competitively, Eden must obtain all financing other than its LIHTC funding before submitting its LIHTC application. Based on the latest affordable housing financing plans for the affordable senior housing project, Eden Housing needs $5 million in bond funds from the City’s base allocation for this project in order to score in the competitive range.
As a result, staff is recommending that the City Council approve the commitment of $5 million from its base allocation for the Site A projects. The commitment of these funds will provide essential funding for the Site A affordable projects that will help facilitate the construction of 130 low- and very low-income affordable housing units in 2018, and will help ensure that the implementation of the overall Site A project and construction of its required infrastructure will be successful and stay on schedule.
As noted above, HCD is currently focused on assisting projects that received an award of LIHTCs in September 2016, or are applying for LIHTC funds in March 2017. The County has not yet agreed to provide advance commitment letters in time for the June 2017 round. However, staff, APP, and Eden Housing have formally requested that the County consider providing this advance commitment letter for the June 2017 LIHTC round for the Site A projects. If approved by the City Council this evening, staff, APP, and Eden Housing will continue to solicit assistance from the County in keeping the Site A projects on track.
Conclusion
The County is focused on disbursing bond funds for near-term projects through 2018. With the disruption of the LIHTC marketplace, the focus of the bonds has narrowed to those high-priority projects, such as Eagle Avenue, that are at risk of losing their LIHTC award due to the newly created funding gaps, and projects that will be applying for LIHTCs in March 2017. Staff has also requested that the County assist with projects that will be applying for LIHTCs in June 2017. The combined requested commitment for these projects is $6 million. The City’s base allocation is $10.4 million with another $50 million competitively available in the mid-County pool. These three projects are the City’s highest priority affordable housing projects because they will add another 220 affordable housing units to Alameda and are the most “project-ready” with start dates in the next 1-2 years. Other affordable housing projects in the pipeline include: 1) Rosefield Village, a 40-unit Housing Authority-owned project in the west-end of Alameda that has reached the end of its useful life and is proposed to be torn down and replaced with a 60-unit development (for a net new of 20 units); 2) up to 267 units in the Main Street Neighborhood sponsored by the Alameda Point Collaborative, Operation Dignity and Building Futures with Women and Children; and 3) up to 90 units of housing for formerly homeless families and individuals at North Housing. These pipeline projects are likely to commence construction in the next three to five years. While not staff’s recommendation, in lieu of committing funding from the base allocation to the Eagle Avenue project and Site A projects, the Council could retain these funds for prospective future projects.
City Council approval of a commitment of $6 million from its County Affordable Housing Bond base allocation of $10.4 million will ensure that the Eagle Avenue and Site A affordable housing projects continue to move forward and be built as expeditiously as possible, bringing new affordable units to the Alameda community within 1-2 years.
FINANCIAL IMPACT
There is no impact to the City’s General Fund from allocating $6 million from the City’s base allocation of County affordable housing bond funds. The bonds are general obligation bonds issued by the Alameda County that are repaid by property owners throughout the County as part of their property tax bill.
If the City Council declined to allocate $6 million for the Eagle Avenue and Site A affordable housing projects, the result could be a loss of funds previously committed to the Eagle Avenue project and an inability for the Site A projects to compete for additional affordable housing funding. This could result in none of the projects being built in the foreseeable future.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
These affordable housing projects are anticipated to be built pursuant to a number of City documents including the Five-year Affordable Housing Pipeline, the Housing Element of the General Plan and the Site A DDA.
ENVIRONMENTAL REVIEW
No environmental review is required for this allocation because the project contemplated by the use of these funds is categorically exempt from further environmental review under CEQA because it is an infill project that (1) is consistent with the City’s General Plan and zoning ordinances, (2) is within the City limits, is no more than five acres, and surrounded by urban uses, (3) has no value for habitat or endangered species, (4) will cause no significant effects relating to traffic, noise, air quality or water quality and (5) can be served by all required utilities and public services. CEQA Guidelines, section 15332.
RECOMMENDATION
Recommendation to Approve Pre-Commitment of $6 million of the City’s Base Allocation of Funding through the Alameda County Affordable Housing Bond Program for the Eagle Avenue and Site A Affordable Housing Projects
Respectfully submitted,
Debbie Potter, Community Development Director
By,
Jennifer Ott, Base Reuse and Transportation Planning Director
Financial Impact section reviewed,
Elena Adair, Finance Director