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HomeMy WebLinkAbout1993-11-22 HAC MIN . . . MINUTES SPECIAL HOUSING ADVISORY COMMITTEE MEETING Monday November 22, 1993 2:30 p.m. Conference Room 1 Public Services Building CALL TO ORDER/ROLL CALL PRESENT: Joe Casillas, J.R. de Jesus Chantengco, Dan Dennison ABSENT: Allen King (Excused) Maggie Helton (Excused) STAFF: Housing Coordinator Arroyo, Administrative Office Assistant II Gonzalez GUESTS: Dan Marcus SBCS, Merritt Hodson EX-OFFICIO: Mitch Thompson (absent) 1. APPROVAL OF MINUTES MSC (J.R. Chantengco/Dennison) (3-0-2 Helton, King absent) to approve September 29 and October 27, 1993 minutes. MSC (Casillas/J.R. Chantengco) (3-0-2 Helton, King absent) to approve Casillasls excused absence due to other business commdtments and to approve King's absence due to illness, both for September meeting. MSC(J.R.Chantengco/Dennison) (3-0-2 Helton, King absent) to approve King's absence due to illness for the October meeting. MSC (J.R. Chantengco/Dennison) (3-0-2 Helton, King absent) to approve King's absence due to illness, and to approve Helton's absence, she was out of town, both for the Special November 22 meeting. 2. PALOMAR APARTMENTS - Mr. Arroyo stated that the reason for this special meeting of this committee is to respond to a proposal submitted to the City by South Bay community Services (SBCS). The proposal will be going before Council tomorrow night. The request for $85,000 as a predevelopment loan to cover a good faith deposit and predevelopment costs associated with the acquisition of the Palomar Apartments. The Palomar Apartments, one of four apartment projects here in Chula Vista that are considered to be "a risk". There are four HUD 236 apartments complexes in the City, which are Castle Park, Oxford Terrace, Rancho Vista, and Palomar. All of these except for Palomar have opted to continue to work with HUD to maintain affordability. Palomar apartment owner has filed an intent to sell. The City in the past 2 years has been working with SBCS to preserve these type of units. This type of affordability is very important and it has been listed as a high priority in the City's Housing Element and the CRAS. Staff feels that losing affordability of these units can trigger significant impact on the tenants. SBCS has until the end of the month to submit such a deposit in order to be first in line to acquire these units. SBCS plans to obtain 95% of the financing from HUD, who has funds available for this purpose. There remains a 5% gap of approximately of $400,000 which SBCS is proposing to obtain, either from the owner, from an equity consortium which staff believes is in the processing of being developed, or from HUD it self. HUD has stipulated that there might be an opportunity for additional funding if no local funding is evident. The $85,000 request from the City translated into $500 cost per unit to the City, and based on $400,000 if SBCS were to come back requesting such a amount, will be about $3,000 a unit to the City. Mr. Arroyo pointed out that the total price being asked for the apartments is $10,100,000 which is based on two MIA appraisals which translate to about $60,000 per unit. What is significate here is that these apartments have a significate percentage of . three bedroom units (27%) which is a big factor in the price that is being asked. Mr. Arroyo gave the floor to Dan Marcus from South Bay Community Services to give a presentation on the Palomar Apartments. Mr. Marcus stated the SBCS was not involved with the negotiating of the price nor can they be to buy this building. That price was set by HUD by these two appraisals. For the last couple of years SBCS has been talking about this project and it has been outlined in both CRAS and Housing Element as a top priority. Mr. Marcus stated that the rentals are very affordable, for one bedroom is $285. and up to $338. for a three bedroom, and those rents are half of the current market rates. The property is "at risk" of increasing the market rate in which case most of the tenants would have to move out that couldn't afford it. The people who live there are generally very low income and low income large families. There is a scarcity of three bedroom units in Chula Vista. A sampling of Chula Vista rnuli-farnily units done by Market Profile shows that only 7% of the apartment units in Chula Vista are three bedrooms, and this property has 27% of its units are three bedrooms and that is a real plus for this project. The county looked at acquiring some three bedrooms apartments in Chula Vista last year and they could not find a property that had more than ten three bedrooms units, so again this property stands out. When the county went out looking at the price of the properties they found an average price per comparable three bedroom units at $90,000 a unit. So $60,000 a unit for the cost of the Palomar Apartments is more than comparable to recent REO sales which is much less than comparable three bedroom sale that the county was looking at. HUD guarantees financing for 95% of the transaction, but the trick is where is SBCS's going to get the other 5%? There are some other outlets where SECS would go, mainly HUD and private sources before SBCS would come to the City, but there is a potential of coming back to the City for 5% of the transaction which is estimated at $400,000. . Mr. Marcus stated that the reason coming to the City now is because SBCS needs to put a deposit down with the owner for site control. SBCS needs to begin to do some environmental testing, legal work, and need a financial consultant to help start analyzing potential sources of financing and applying for those financing sources. If SBes comes to the City for the 5% gap of the City's money, every dollar of Chula Vista tax payers money will be leverage over 20 private dollars. If the City were to build new units the maximum would be ten units that could be build for this amount and if the City bought another property, that property maybe could have 40 to 50 units which wouldn't have as many three bedrooms. Mr. Marcus added that those are some key points to consider. . In addition, Mr. Arroyo added that of the $85,000 being requested, $50,000 will be going towards a good faith deposit which would be refundable to the City. What would be a risk is the $35,000 to be used for the predevelopment costs. Based on the agreement, staff would require that the $50,000 come back to the City upon SBCS obtaining the total financing. Member Casillas questioned on page 2 of the work sheet that was passed out, one of the paragraphs stated that SBCS requested that City of Chula Vista approve a $85,000 forgivable? But, what staff is saying of that $50,000 is guaranteed to corne back. So it is not really $85,000 forgivable, but $35,000? Mr. Arroyo stated that was correct. Member Casillas asked whether the 5% gap would be in the form of a loan if SBCS was to make such request? Mr. Arroyo stated that the City would require for it to be an amortize loan. Mr. Marcus stated that HUD looks at how much debt service is on the project, they would look at how much SBCS owe the City, money on existing mortgage, and money on this new mortgage that is going to be guaranteed by HUD, take all the debt service amount out of the operating expenses which include replacement reserves. HUD would then add on a vacancy factor and then HUD will corne up with a number to be used for rents. HUD is basically saying that they will provide Section 8 rental subsidies for families. That's how SBCS knows that they will get enough rent to pay back the City loan. Mr. Marcus met with the City Attorney early today, and they discussed structuring the loan at 7% for 30 years so the City will be getting a good market return. Member Casillas . . . asked if there is any possibility that it can be structure so that the positive cash flow be more than projected? In other words pay the City back faster than 30 years. Mr. Marcus stated that SBCS will never touch a dime of positive cash flow of this project, but if there was to be any positive cash flow HUD places that money in what they call a residual receipt account, which it sits there for use on the project as a reserve if something were to happen, otherwise it just sits there in a fund so it is not SBCS's fund it will be HUD's fund. Member de Jesus Chantengco asked if these were projected for subsequent years to be higher and SBCS only charges so much rent, and there is a deficit, how does SBCS adjust for that? Mr. Marcus responded that it would be the same thing. There is a pretty large reserve that they are requiring up front to deal with the negative cash flow situation in any given year, but then they would readjust the rents. Member Casillas asked if all those families that are paying low rent at the Palomar Apartments, meet the criteria of low income? Mr. Marcus responded yes, those families have to qualify to live there, but even on top of that 145 out of 168 which is 85% would qualify for more help. Member Casillas asked what is the possibility of the number increasing to gain assistance towards 168 as to opposed to 145? Dan Marcus responded that ideally that would be the goal, as people would move out staff would move in another low income Chula Vista family. Member Casillas asked if there was a time limit that those families can stay in those units? Dan Marcus responded no, it is a federal law, they canlt have a time limit on the property. Member Casillas asked how old are the appraisals? Mr. Arroyo stated that the last one is dated March 1993 and the one before that is dated November 1992. The first one was done by the owner and the second was done by HUD. HUD requires two appraisals to come to a figure. Dan Marcus stated that the process is that the owner gets an appraisal and HUD gets an appraisal, if they are within 5% of value then they can both negotiate and come to a price. If theylre not, then they have to commission a third party that they both agree on to valuate the property, and whatever value the third party comes up with that is what it is going to be. These two appraisals came very close. The owner's appraisal was $10,150,000 and the HUD appraisal was $10,175,000 so it is well within the 5%. They had to have the GAD review, which took time and that is why there is a lag time in the appraisal dates. Member de Jesus Chantengco mentioned that its interesting to know that the owner did an appraisal at $10,150,000 and six months later HUD did an appraisal which was $10,175,000 and stated that the market did not improve in those six months. All of the appraisals that he has done have gone down and it is an interested observation that should be noted. Mr. Arroyo stated that what is before the committee is to consider a request for $85,000 to cover a good faith deposit and predevelopment costs and that the City is not making any commitments in terms of covering the 5% gap. Staff is requesting that the proposal be approved and that SBCS make a good effort to find the funding from other sources as indicated. Member Dennison stated that he feels the City needs affordable housing. Also, he stated that the City should look into it and take advantage of the deal, his recommendation is to consider it. MSC (J.R. Chantengco/Casillas) (3-0-2 Helton, King absent) to offer to put in a bid to approve an $85,000 fund of which $50,000 is refundable and $35,000 will be forgivable in order for SBCS to be first in line in this offer to purchase. Amendment to motion: (Casillas/Dennison) would like to amend to the motion to include a request that the City engage HUD in reviewing this appraisal to ensure the reality of today market rate. Dan Marcus stated that if the committee wants an additional appraisal should SBCS ask for additional monies or should City staff commission it? Member Casillas suggested to contact a couple of appraisal firms to see if they can pro bono. . . . 3. ORAL COMMENTS - None 4. STAFF REPORTS - Juan reported on CRAS, staff is proposing to come back to the committee to review the CRAS. The public hearing was continued for one month period in order to get comments and opinions from the whole community. The period is ending this week, so the committee has to reconvene to review the final components of the report before it goes to Council. The date that staff is recommending for final review is December 7, therefore, staff can take the final CHAS report to council on December 14. 5. MEMBERS COMMENTS - None 6. ADJOURNMENT - At 4:40 p.m. to the next tentative special December 7, 1993 meeting in the Public Services Building. /~; / ,/_1 / ~ '//('6('1. ~ [71 -?ru~7C) / ~ e1o, A lCla Gonzalez t J lAG\B:\ 11-22-93.MINJ DISK #2