Title
Recommendation to Consent to a Transfer, Assignment, and Assumption of City Deeds of Trust, Promissory Notes, and Regulatory Agreement, New Housing Authority Loan and Affordability Agreement for the Properties at 920 Park Street (Ann B. Diament) and 460 Buena Vista Avenue (China Clipper) and Authorize the Acting City Manager to Negotiate and Execute All Necessary Documents. (Housing 266)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Acting City Manager
Re: Recommendation to Consent to a Transfer, Assignment, and Assumption of City Deeds of Trust, Promissory Notes, and Regulatory Agreement, New Housing Authority Loan and Affordability Agreement for the Properties at 920 Park Street (Ann B. Diament) and 460 Buena Vista Avenue (China Clipper) and Authorize the Acting City Manager to Negotiate and Execute all Necessary Documents
BACKGROUND
As part of the City’s affordable housing program, the City, from time to time, has loaned funds to the Housing Authority of the City of Alameda (Housing Authority) in order to provide funding for affordable housing projects. As part of such transactions, the Housing Authority has executed promissory notes in favor of the City and the City is the beneficiary under the recorded deeds of trust. The Housing Authority is the owner of record for the properties against which the loans have been recorded. The various loan documents provide that the Housing Authority’s interest in the properties that are encumbered by the City loans may be transferred with the City’s consent.
In 2015, the federal Housing and Urban Development Department (HUD) published PIH Notice 2015-05 that clarifies contract requirements for Public Housing Authority (PHA)-owned units under the Project-Based Voucher (PBV) Program. It states that the PBV contract administrator and the property owner cannot be the same legal entity. In response, some PHAs, including the Housing Authority, are establishing a separate, wholly controlled, legal entity to serve as owner at properties where they are both owner and the PBV contract administrator. This new contract requirement will be triggered at the time any existing PBV contracts are renewed, and the first set of renewals will occur on April 30, 2018.
In October 2017, the Housing Authority Board of Commissioners (BOC) authorized the Housing Authority to create a new, wholly controlled, nonprofit entity to be the future owner of Housing Authority-owned properties to comply with HUD’s PBV contracting requirements referenced above. To this end, Housing Authority staff and its legal counsel filed formation documents with the California Secretary of State for Alameda Affordable Housing Corporation (AAHC), a tax- exempt corporation, and received a 501(c)3 tax-exempt status determination from the Internal Revenue Service (IRS). AAHC is a supporting corporation of the Housing Authority, shares the same governing board as the Housing Authority, and is subject to the Brown Act. The AAHC Board of Directors meets quarterly directly after the BOC’s meeting.
The City of Alameda made three loans to the Housing Authority at two of its properties which the Housing Authority needs to transfer to AAHC to comply with the HUD directive. These loans were from the CDBG and HOME program funds and they are summarized in the chart below.
|
Property |
Loan Document |
Amount |
Funds |
|
Anne B. Diament 920 Park Street |
Deed of Trust, recorded 12/10/2013 |
$96,000 |
CDBG funds |
|
China Clipper 460 Buena Vista Ave |
Deed of Trust, recorded 7/1/1998 |
$570,000 |
HOME funds |
|
China Clipper 460 Buena Vista Ave |
Deed of Trust, recorded 4/21/2016 |
$25,000 |
CDBG funds |
Accordingly, the Housing Authority is requesting the City’s consent to allow the Housing Authority to transfer these properties to AAHC, to authorize an assignment and assumption of the existing debt and regulatory agreement to AAHC, to authorize a new “soft” Housing Authority seller loan (described below) and for the City to enter into a new Affordable Housing Agreement and authorization for the Acting City Manager to negotiate and executed the documents described above.
DISCUSSION
Regarding the specific transfer strategy, the Housing Authority wants assurance that the properties that will be transferred to AAHC will be affordable housing in perpetuity, so there is a benefit to maintaining long-term ownership of the land. The Housing Authority proposes to transfer the improvements to AAHC through a grant deed but retain an interest in the land through a 75-year ground lease. This is the same structure the Housing Authority has implemented at the Low-Income Housing Tax Credit limited partnership developments like Stargell Commons and Jack Capon Villa. In addition to the 75-year ground lease, the improvements will be conveyed to AAHC for their as-is value, as substantiated by an appraisal.
The Housing Authority will provide financing for the sale of the improvements to AAHC in the form of a soft seller promissory note, secured with a deed of trust, for each property. These deeds of trust will be senior to the City’s existing deeds of trust on the properties. These two soft seller loans will be at 0% interest rate, 30-year term, and paid from residual cash flow. No cash is being taken out as part of this transaction. This structure is more desirable than a donation because it is less disruptive to the Housing Authority’s operating budget. Currently, any cash flow from the properties comes to the Housing Authority as the owner, and under the new structure the cash flow will come to the Housing Authority in the form of soft loan payments. Along with the ground lease and seller financing, the Housing Authority will record a new Affordable Housing Agreement with the City to provide additional assurance of the properties’ continued use as low-income housing.
This proposed property transfer from the Housing Authority to AAHC is specifically related to the Housing Authority’s ability to renew the PBV contract to continue assisting the low-income families and seniors who reside at these properties. There will be no change in operation or use as affordable housing, which is consistent with the Housing Authority’s mission to provide quality, affordable, safe housing. Upon securing the City’s consent to the transfer, the Housing Authority will prepare a draft Assignment and Assumption Agreement for the respective loan documents (promissory note, deed of trust, and regulatory agreement) consistent with the terms outlined above for the Acting City Manager’s execution.
FINANCIAL IMPACT
There is no financial impact to the General Fund from approving the consent to transfer, assign and assume City deeds of trust, promissory notes and regulatory agreement. All funds loaned were solely CDBG or HOME funds.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The proposed Consent and Assignment are consistent with the City’s loan documents, regulatory agreement, and HOME and CDBG regulations.
ENVIRONMENTAL REVIEW
The proposed Consent and Assignment does not require environmental review under CEQA because it constitutes an administrative activity of the City that will not result in direct or indirect physical changes to the environment and hence, it is not a project. CEQA Guidelines, Section 15378 (b) (5).
RECOMMENDATION
Consent to a Transfer, Assignment, and Assumption of City Deeds of Trust, Promissory Notes, and Regulatory Agreement, new Housing Authority loan and Affordability Agreement for the properties at 920 Park Street (Ann B. Diament) and 460 Buena Vista Avenue (China Clipper) and authorize the Acting City Manager to negotiate and execute all necessary documents.
Respectfully submitted,
Debbie Potter, Community Development Director
Financial Impact section reviewed,
Edwin Gato, Acting Finance Director