HomeMy WebLinkAbout1996-05-21; City Council; 13667; Laurel Tree Apartments. m
CITY OF CARLSBAD - A&DA BILL 113
AB# /3,&‘9 Y TITLE: DEPT. HD. %%
MTG. 512 1 I96 COMMITMENT OF FINANCIAL ASSISTANCE TO CITY Al-l-Y. a- l
DEPT. H/RED LAUREL TREE APARTMENTS CITY MGRa
RECOMMENDED ACTION:
ADOPT Resolution No. ‘?& 186 , as recommended by the Housing Commission, committing
$200,000 of additional financial assistance from the City’s Housing Trust Fund to the Laurel Tree
Apartments affordable housing project, making the City and Redevelopment Agency commitment
to the project a total of $700,000.
ITEM EXPLANATION:
After the Laurel Tree project was approved by the City Council on November 7, 1995, the non-
profit developer, MAAC Project, Inc., applied for an allocation of Low-Income Housing Tax
Credits from the State Tax Credit Allocation Committee (TCAC). This project depends on this
source of financing for its largest subsidy. As MAAC has explained in its letter, Exhibit 2 to the
Housing Commission staff report, they were unsuccessful in their first attempt to obtain tax
credits. This was due not only to the highly competitive nature of this program, but also due to
significant changes TCAC made in the competition criteria for this allocation round.
.With the benefit of feedback from this tax credit round, MAAC worked with City staff, the lender,
the tax credit investor and participating developers to restructure the project application, adding
$1 million of additional subsidy to enhance project affordability. MAAC is asking the City to
supply $200,000 of the additional $1 million. Since affordability is the primary competition
criterion, MAAC believes this will make the project highly competitive.
On May 9, 1996 the Housing Commission considered this request and is recommending (7-O)
approval to the City Council. Staff believes MAAC’s strategy, including the commitment of an
additional $200,000 to the project is sound and necessary, if the project is to be built. The City’s
assistance is highly leveraged and it is directly enhancing project affordability as opposed to
covering cost increases. MAAC has also agreed that, in return for the additional City
participation, they will convey the land to the City for lease-back to the project.
FISCAL IMPACT:
An additional commitment of $200,000 from the Housing Trust Fund brings the City’s total
commitment to Laurel Tree to $700,000. The Housing Trust Fund, created primarily from
inclusionary housing impact fees, contains a balance of $1.2 million. The initial $500,000
commitment was from redevelopment housing set-aside funds and contains a balance of
$775,000 inclusive of the $500,000 commitment.
EXHIBITS:
1. City Council Resolution No. 96 - /8 6
2. Staff Report to the Housing Commission dated May 9, 1996 w/attachments
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CITY COUNCIL RESOLUTION NO. 96-186
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA, TO APPROVE AN
APPROPRIATION OF $200,000 FROM THE CITY OF
CARLSBAD’S HOUSING TRUST FUND TO PROVIDE
FINANCIAL ASSISTANCE TO THE AFFORDABLE HOUSING
PROJECT KNOWN AS THE LAUREL TREE APARTMENTS
PROJECT
WHEREAS, on June 28, 1994, the Housing and Redevelopment
Commission approved a financial commitment of $500,000 of redevelopment housing
set-aside funds to the Laurel Tree Apartment project conditioned upon the project
receiving the necessary land use approvals and other financing; and
WHEREAS, on December 11, 1995, the Laurel Tree Apartment project
received necessary local entitlements from the City of Carlsbad; and
WHEREAS, on April 11,1996, the Laurel Tree Apartment project received
necessary land use approvals from the California Coastal Commission; and
WHEREAS, the Laurel Tree Development Team is preparing to apply for
a Low-Income Housing Tax Credit to finance the Laurel Tree Apartment project; and
WHEREAS, to be highly competitive in the application process to obtain
the Low-Income Housing Tax Credit necessary to finance the Laurel Tree Apartment
project, the Laurel Tree Development Team must take actions to enhance the
affordability of the subject project; and
WHEREAS, to improve the affordability of the Laurel Tree Apartment
project, the project will require an additional cash infusion of $1 million; and
WHEREAS, the Laurel Tree Development Team has obtained an additional
commitment of financing in the amount of $500,000 from private developers and
$300,000 from the Tax Credit Investor; and
. . .
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WHEREAS, the Laurel Tree Development Team has an additional need for
$200,000 in financial assistance and is requesting this assistance from the City of
Carlsbad; and
WHEREAS, the Laurel Tree Development Team has offered to convey the
property for the Laurel Tree Apartment project to the City of Carlsbad as a condition
of the financial assistance agreement between the City and the Laurel Tree
Development Team and then lease the property back from the City for the purposes
of project operations; and
WHEREAS, the Housing Commission has recommended to the City
Council that the appropriation be approved because the Commission believes that the
City’s financial participation in the Laurel Tree Apartment project will be a sound
investment based on the high leverage of City funds to private funds in producing 138
units of affordable housing for the City of Carlsbad.
NOW, THEREFORE, BE IT HEREBY RESOLVED by the City Council
of the City of Carlsbad, California, as follows:
1. The above recitations are true and correct.
2. That the use of $200,000 from the Housing Trust Fund, together with
the previously approved commitment of $500,000 from the
Redevelopment Housing Set-Aside Fund, will promote the City of
Carlsbad’s housing goals through the production of 138 affordable
apartment units within the Laurel Tree Apartment project.
3. That any commitment of City financial assistance is conditioned on the
Laurel Tree project obtaining all other necessary financing and approvals.
4. The City Council hereby authorizes the City Manager, or his designee,
upon consultation with the City Attorney to execute documents required
for the appropriation of $200,000 from Housing Trust Fund, as well as
the previously approved $500,000 from the Redevelopment Housing Set-
CC RESO NO. 96-186 -2-
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Aside Fund, to the Laurel Tree Apartment project to financially assist in
the production of 138 affordable housing units and to convey the
property for the Laurel Tree Apartments to the City of Carlsbad which
will then be leased back to the Laurel Tree Development Team.
PASSED, APPROVED, AND ADOPTED at a regular meeting of the City
Council of the City of Carlsbad, California, held on the 21st day of May, 1996,
by the following vote, to wit:
AYES: Council Members Lewis, Nygaard, Kulchin, Finnila, Hall
NOES: None
ABSENT: None
ABSTAIN: None
ATTEST:
ALETHA RAUTENKRANZ, City Clqrk
CC RESO NO. 96-186 -3-
- - EXHIBIT 2
Tlw City of CarlsLd Ho,uing & Redcr&m.cnt Depu~mcPt A REPORT TO THE HOUSING COMMISSION
Item No. 1
Staff: Eva, Becker
IL+-, & Redevelopment Director
DATE: MAY 9,1996
SUBJECT: LAuRELdTREEAPAR-Ilbmmx - Request for recommendation of approval of
an additional financial commitment to the Laurel Tree Apartments Affordable
Housing Project in the amount of $200,000.
I. RECOMMENDATION
That the Housing Commission ADOPT Resolution No. 96005, recommending APPROVAL
to the City Council of an additional financial commitment to the Laurel Tree Apartments
affordable housing project of $200,000 from the City’s Housing Trust Fund, making the City
and Redevelopment Agency commitment to the project a total of $700,000.
II. PROJECT BACKGROUND
On June 28, 1994 the Housing and Redevelopment Commission approved a financial
commitment of $500,000 of redevelopment set-aside funds to the Laurel Tree Apartments,
conditioned on the project receiving necessary land use approvals and other fmancing. On
November 7, 1995, the City Council approved the necessary local entitlements for the project,
and on April 11, 1996, Coastal Commission approval was granted.
On December 11, 1995 the Laurel Tree development team, lead by the non-profit MAAC Project, Inc., applied for a Low-Income Housing Tax Credit allocation from the State Tax Credit
Allocation Committee (TCAC). Raising approximately $10.5 million in equity through the sale
of Tax Credits is the primary source of subsidy fmancing for this $16.7 million project.
Although Laurel Tree presented a strong application, it did not receive an allocation of Tax
Credits. This was due not only to the highly competitive nature of this program, but also due
to significant changes the state made in the competition criteria. It was difficult to predict how
these changes would affect the application. With feedback from this round of allocations,
MAAC is now able to determine how the application must be improved to be successful in the
next round of the competition for which applications are due by May 28, 1996.
MAAC and City staff have worked on an approach to the revised application which is the basis
of staff’s recommendation.
LAUREL TREE APARTMENTS
MAY 9, 1996
PAGE 2
The MAAC Reauest:
In Exhibit 2, MAAC explains their strategy regarding the revised Tax Credit application and the
request for additional assistance from the City. The exhibit also compares the proposed
proforma “Sources and Uses” of funds with the proforma submitted with the December, 1995
Tax Credit application.
In order for Laurel Tree Apartments to compete successfully for Tax Credits, the affordability
must be enhanced. This increases the project’s competitive “point” score since affordability is
the primary competition criterion. MAAC has calculated that the improved affordability will
require an additional cash infusion of $1 .O million to compensate for the decreased bank loan
which can be supported by the rents.
MAAC agreed with the staff that this additional financial burden should be distributed, and if
the City was asked to assist, the City’s additional commitment should be highly leveraged by that
of the participating developers and investor. MAAC was successful in obtaining commitments
of $500,000 from Kaiza Poinsettia Corporation and Lennar/Bramalea. The Tax Credit investor
has agreed to invest an additional $300,000. In addition, the City is being asked for an
additional $200,000.
MAAC is confident that the additional financing will result in a highly competitive application
under TCAC’s new system.
Staff Analysis of MAAC’s Reauest:
Because of the changes in the TCAC allocation system, the Laurel Tree project will require
additional financial assistance in order to obtain its largest source of financing. Staff believes
the MAAC team has performed a sound analysis of the unsuccessful first round application and
has developed an appropriate strategy for the next round. The strategy is not one of covering
increased costs; rather it is a need to increase project affordability for the Tax Credit
competition.
MAAC has obtained the majority of additional funding from the participating developers and its
Tax Credit investors. As Exhibit 2 indicates, the City remains highly leveraged, with each
dollar of City assistance leveraging over $20.00 in other subsidy capital. The participating
developers ($3.4 million), Tax Credit investor ($10.5 million) and the Federal Home Loan Bank
($. 5 million) are supplying 95 % of the needed subsidy cost. In return for the City’s additional
investment, MAAC is also offering to convey the Laurel Tree site to the City. The City would
lease the land to MAAC on a long term basis similar to the Villa Loma ground lease. This land
is valued at $1.2 million in the proforma.
h
. LAUREL TREE APARTMENTS
MAY 9, 1996
PAGE 3
Regarding developer participation, Kaiza and Lennar/Bramalea had previously increased their
participation by $300,000 and the landowner reduced the land purchase price by $200,000 to
compensate for the inability to obtain $500,000 in federal HOME funds for the project. This
$5OO,ooO was required to match the City’s initial $500,000 commitment.
While the City’s initial $500,000 commitment to Laurel Tree was made from redevelopment set-
aside, staff is recommending use of the Housing Trust Fund to fund the additional $200,000.
The Housing Trust Fund has grown to a balance of $1.2 million, and it is an appropriate source
for support of a project related to the inclusionary housing program. The redevelopment set-
aside balance is substantially lower at $775,000 (including the initial $500,000 cormnitment to
Laurel Tree).
III. SUMMARY
Staff believes this is a necessary action if the Laurel Tree Apartments is to be built. The City’s
participation continues to be sound investment based on the high leverage of City funds in
producing these 138 affordable units.
Iv. ExHlBlTs
1.
2.
Housing Commission Resolution No. 96-005
Letter dated April 19, 1996, from MAAC Project (Request for Adiiifional C&J Financial
Contribution Laurel Tree Tax Credit Appliw!ion)
EB/ar
4/96
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HOUSING COMMISSION RESOLUTION NO. 96-005
A RESOLUTION OF THE HOUSING COMMISSION OF THE
CITY OF CARLSBAD, CALIFORNIA TO RECOMMEND TO
THE CITY COUNCIL THE APPROVAL OF AN
APPROPRIATION OF $200,000 FROM THE HOUSING
TRUST FUND TO PROVIDE FINANCIAL ASSISTANCE TO
THE AFFORDABLE HOUSING PROJECT KNOWN AS THE
LAUREL TREE APARTMENTS PROJECT
WHEREAS, on June 28, 1994, the Housing and Redevelopment
Commission approved a financial commitment of $500,000 of redevelopment
housing set-aside funds to the Laurel Tree Apartment project conditioned upon the
project receiving the necessary land use approvals and other financing; and
WHEREAS, on December 11, 1995, the Laurel Tree Apartment project
received necessary local entitlements from the City of Carlsbad; and
WHEREAS, on April 11, 1996, the Laurel Tree Apartment project
received necessary land use approvals from the California Coastal Commission; and
WHEREAS, the Laurel Tree Development Team is preparing to apply for
a Low-Income Housing Tax Credit to finance the Laurel Tree Apartment project; and
WHEREAS, to be highly competitive in the application process to obtain
the Low-Income Housing Tax Credit necessary to finance the Laurel Tree Apartment
project, the Laurel Tree Development Team must take actions to enhance the
affordability of the subject project; and
WHEREAS, to improve the affordability of the Laurel Tree Apartment
project, the project will require an additional cash infusion of $1 million; and
WHEREAS, the Laurel Tree Development Team has obtained an
additional commitment of financing in the amount of $500,000 from private
developers and $300,000 from the Tax Credit Investor; and
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WHEREAS, the Laurel Tree Development Team has an additional need
for $200,000 in financial assistance and is requesting this assistance from the City
of Carlsbad; and
WHEREAS, the Laurel Tree Development Team has offered to convey
the property for the Laurel Tree Apartment project to the City of Carlsbad as a
condition of the financial assistance agreement between the City and the Laurel Tree
Development Team and then lease the property back from the City for the purposes
of project operations; and
WHEREAS, the Housing Commission believes that the City’s financial
participation in the Laurel Tree Apartment project will be a sound investment based
on the high leverage of City funds to private funds in producing 138 units of
affordable housing for the City of Carlsbad.
NOW, THEREFORE, BE IT HEREBY RESOLVED by the Housing
Commission of the City of Carlsbad, California, as follows:
1.
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4.
The above recitations are true and correct.
That the use of $200,000 from the Housing Trust Fund, together with
the previously approved, commitment of $500,000 from the
Redevelopment Housing Set-Aside Fund, will promote the City of
Carlsbad’s housing goals through the production of 138 affordable
apartment units within the Laurel Tree Apartment project.
That any commitment of City financial assistance is conditioned on the
Laurel Tree project obtaining all other necessary financing and
approvals.
The Housing Commission recommends to the City Council that the City
Manager, or his designee, upon consultation with the City Attorney to
execute documents required for the appropriation of $200,000 from
Housing Trust Fund, as well as the previously approved $500,000 from
the Redevelopment Housing Set-Aside Fund, to the Laurel Tree
HC RESO NO. 96-005 -2-
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Apartment project to financially assist in the production of 138
affordable housing units and to convey the property for the Laurel Tree
Apartments to the City of Carlsbad which will then be leased back to
the Laurel Tree Development Team.
PASSED, APPROVED, AND ADOPTED at a regular meeting of the
Housing Commission of the City of Carlsbad, California, held on the 9th day of May,
1996, by the following vote, to wit:
AYES: Chairperson Calverley, Commissioners: Michael
Schlehuber, Ofelia Escobedo, Bailey Noble, Bob Rose,
Cheri Sato and Kathleen Wellman.
NOES: None.
ABSENT: Commissioner Scarpelli.
ABSTAIN: None.
ATTEST:
EVAN E. BECKER
Housing and Redevelopment Director
HC RESO NO. 96-005 -3-
NANCY CALVERLEY, Chairperson
Housing Commission
EXHIBIT 2
A MULTI-PURPOF SOC@L SERfICE AGENCY ..i .x :.:; ..~j~~~jj,&& g$ $; ‘WZZC?$*Z & *., ‘%Wfg?~\*:
COMMUNITY DEVELOPMENT DEI’ARTME
1770 Fourth Avenue, San Diego, CA 92101
N
April 19, 1996
Mr. Evan Becker Director of Housing and Redevelopment City of Carlsbad 2965 Roosevelt Street, Suite B Carlsbad, CA 92008
RE: Request for additional city financial contribution Laurel Tree Tax Credit Application
Dear Evan:
The Laurel Tree affordable housing project did not receive funding from the State Tax Credit Allocation Committee’s first application round. The awards made during this round were questioned on many fronts as a result of changes that were made in the evaluation criteria subsequent to the application deadline. The result was that projects serving special needs populations and areas where low costs or high public subsidies were available were successful in obtaining awards.
The Laurel Tree project was not ranked high enough to receive an allocation. It is understood that under the criteria used in the first round, the Laurel Tree project scored 40 points. The cut off for funding was 51 points. The normal progression from one application round to another is that the cut off point rises by 3 to 4 points. This means that it is likely that all projects competing in the second round will revise their applications with an eye toward achieving a minimum score of 53-54 points.
Under the terms of the l&WC/Laurel Tree option agreement, MAAC is allowed to apply for Tax Credit funding in the second round. The application period for this round will close on May 28,1996. MAJW has already begun to prepare the application for re- submittal.
The key to being competitive under the State’s new criteria is to increase affordability by reducing rent levels. This reduces the project’s capacity to support conventional funding which, in turn has to be made up from other sources.
MAAC has negotiated a $500,000 increase in developer contributions, the equity investor has increased their equity participation by $300,000, and MAAC has reduced its developer fees. These actions should be sufficient to make the project marginally competitive at the projected threshold of 53 points. Laurel Tree is a large project and is requesting a significant amount of tax credits, as such, there is considerable risk in assuming that it can receive an award at the minimum level.
Richard Juaru Charles W. Flacks Sylvia Martinez Jennifer Somers FAX
(619) 595-7070 (619) 595-7071 (619) 595-7072 (619) 595-7074 (619) 595-7077
SAN DIEGO
COUNTY CAP
The Laurel Tree project can he solidly competitive with a score of approximately 55 points. In order to accomplish this under the new criteria, the project needs another $200,000 in contributions. At this point, all sources of funding have been exhausted. The.equity partners are stretched to their limit, the developers are nearing the point where the Villa Loma alternative is becoming viable and MAAC is at the break point on developer fees.
MAAC is requesting that the City of Carlsbad increase its contribution to the project by $200,000 to provide a margin for competitiveness. In return, as an incentive for additional investment, MAAC is willing to give ownership of the Laurel Tree site to the City subject to the City granting a 55 year lease to MAAC. This would give the City full control of the land at the end of the lease period in return for its additional contribution.
MAAC is committed to making the Laurel Tree project a reality. This request for additional funding is made in response to changes in the State’s evaluation criteria over which MAAC has no control and only after exhausting all other sources. The ownership interest in the land is being offered to insure that the City’s increased contribution is secured by having full long range control of the Laurel Tree site.
In order to meet the May 28, 1996 application deadline for second round funding, we need to resolve this issue as soon as possible. Your assistance in scheduling this request for early City Council consideration is much appreciated.
cc: James Elliot Marty Orenyak