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HomeMy WebLinkAbout2021-02-23; City Council; ; Acquisition of 2687 Leighton Circle, an Affordable Housing Resale Unit, and Expenditure of Community Development Block Grant and Housing Trust Funds in the amount of up tMeeting Date: Feb. 23, 2021 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: David de Cordova, Housing Services Manager david.decordova@carlsbadca.gov, 760-434-2935 Subject: Acquisition of 2687 Leighton Circle, an Affordable Housing Resale Unit, and Expenditure of Community Development Block Grant and Housing Trust Funds in the amount of up to $255,000 District: 3 Recommended Action Adopt a resolution authorizing the deputy city manager, administrative services, to appropriate $150,000 from the Community Development Block Grant Special Revenue Fund and $105,000 from the Housing Trust Fund and authorizing the city manager to execute all required documents to complete the purchase of 2687 Leighton Circle. Executive Summary The City of Carlsbad received notice that an affordable housing unit in the 100-unit Mulberry condominium project in Bressi Ranch is available for the city to purchase to preserve affordable housing in Carlsbad as part of its affordable housing efforts. Council Policy Statement No. 73 (Exhibit 2) authorizes the city manager or designee to exercise the city’s option to purchase an existing affordable housing unit, subject to City Council appropriation of funds and acceptance of the grant deed. Staff is recommending that the City Council approve the city purchase the home using $150,000 from the Community Development Block Grant Special Revenue Fund and $105,000 from the Housing Trust Fund. Approving this resolution would allow the city to complete the acquisition process for this affordable housing property. The city will own the property at the end of this transaction, with the intent to resell it to an eligible lower-income buyer. Discussion Program overview The city adopted an inclusionary housing ordinance in 1993 that requires all residential developments greater than six units to restrict 15% of the total number of homes in a project as affordable to low-income households. Residential developers have the option to produce rental or ownership properties to satisfy the inclusionary requirements. As a condition of the inclusionary housing program, homebuyers of restricted affordable homes enter into an CA Review: RK Feb. 23, 2021 Item #3 Page 1 of 14 agreement with the city that requires them to notify the city when they intend to sell their properties and allow the city the option to purchase them at restricted prices. During the first 15 years of ownership, an affordable unit may only be sold at a restricted, affordable price, either to the city or a low-income homebuyer. After 15 years, owners may sell their units at a market price if the city does not exercise its purchase option. Upon a market sale of an affordable unit, the city recaptures its original subsidy plus contingent interest. The unit’s affordability restrictions are removed, and the city’s share of sale proceeds are deposited into the Housing Trust Fund to create additional affordable housing opportunities. On the other hand, by exercising the purchase option, the city preserves the housing unit’s affordability and can resell it to an eligible lower-income buyer. As the owner, the city could place additional restrictions on the property and could resell it at a lower price to create more affordable housing opportunities. The property and the purchase To fulfill its inclusionary housing obligation in 2005, the Bressi Ranch developer built the Mulberry complex of 100 affordable condominiums and sold the units to low-income homebuyers (Exhibit 3). The condominium at 2687 Leighton Circle is one of those affordable units, and would be the city’s eighth purchase in this neighborhood. On Dec. 3, 2020, the owner of the affordable housing unit notified the city of their intent to sell. On Dec. 30, 2020, the city responded that it would exercise the option to purchase the unit and then entered into a purchase and sale agreement with the owner on Jan. 7, 2021. Staff determined that the purchase is consistent with City Council Policy No. 73’s guiding principles in that: •The unit would be at-risk of converting to market rate since the owner’s resale restriction agreement with the city has been in effect for more than 15 years. •Community Development Block Grant funds are available to partially cover the purchase, the acquisition is consistent with the FY 2020-2025 Consolidated Plan priority to “increase and preserve affordable housing opportunities for low-and-moderate income households” and it is an approved activity in the FY 2020-21 Community Development Block Grant Annual Action Plan. •Sufficient funding exists in the Housing Trust Fund to cover the remaining acquisition cost. Staff recommends the City Council authorize the execution of all required documents to complete the purchase of the property, which includes acceptance of the grant deed and authorize expenditure of $150,000 in Community Development Block Grant Special Revenue Fund and $105,000 from the Housing Trust Fund to cover the purchase price, related escrow and other processing fees necessary to complete the acquisition. The city would likely incur some additional costs to refurbish the unit and prepare it for resale. Once completed, this would become the tenth affordable housing resale unit the city has acquired. The City Council approved an Affordable Housing Resale Program in December 2020, and these acquired units will be re-sold consistent with the adopted resale program. Feb. 23, 2021 Item #3 Page 2 of 14 Fiscal Analysis The homeowner purchased the home at Mulberry in 2005 at the restricted, subsidized price of $163,600. The restricted price for the city to buy this affordable unit is based on the change in area median income levels during the seller’s period of ownership. Over the past 15 years, area median income increased by 46.2%, resulting in a restricted purchase price of $239,183. Staff anticipates that there will be additional acquisition costs including escrow fees. Staff is requesting that the City Council approve the expenditure of $150,000 from the Community Development Block Grant Special Revenue Fund and $105,000 from the Housing Trust Fund Housing Trust Fund money, for a total of up to $255,000 to cover all acquisition costs for the subject property. As a condition of the city’s option to purchase, a 6% transaction fee, amounting to $14,351, is to be paid to the City of Carlsbad at the close of escrow because the city is acting as the real estate agent for this transaction. Funds paid at the close of escrow will be returned to the Housing Trust Fund. There are sufficient funds available in the Community Development Block Grant and Housing Trust Funds for the purchase. Next Steps With the council’s approval, the city manager or designee will execute all acquisition documents to complete the purchase of the home and subsequently record the grant deed to transfer ownership of the home to the City of Carlsbad. The home will then be resold to a lower-income household at a later date pursuant to the Affordable Housing Resale Program approved by the City Council in December 2020. Environmental Evaluation (CEQA) This action does not constitute a “project” within the meaning of California Environmental Quality Act under Public Resources Code section 21065 in that it has no potential to cause either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment and therefore does not require environmental review. Public Notification and Outreach Public notice of this item was posted in accordance with the Ralph M. Brown Act and it was available for public viewing and review at least 72 hours prior to the scheduled meeting date. Exhibits 1.City Council Resolution 2.Council Policy Statement No. 73 3.Location map Feb. 23, 2021 Item #3 Page 3 of 14 RESOLUTION NO. 2021-047 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, AUTHORIZING THE DEPUTY CITY MANAGER, ADMINISTRATIVE SERVICES, TO APPROPRIATE $150,000 FROM THE COMMUNITY DEVELOPMENT BLOCK GRANT SPECIAL REVENUE FUND AND $105,000 FROM THE HOUSING TRUST FUND AND AUTHORIZING THE CITY MANAGER TO EXECUTE ALL REQUIRED DOCUMENTS TO COMPLETE THE PURCHASE OF AN AFFORDABLE HOUSING UNIT AT 2687 LEIGHTON CIRCLE WHEREAS, the property owner of 2687 Leighton Circle provided notice to the city on Dec. 3, 2020, indicating the owner's intent to sell or transfer ownership of the restricted affordable housing unit at the noted location; and WHEREAS, City Council Policy No. 73 authorizes the city manager or designee to exercise the city's option to purchase an existing affordable housing unit, subject to City Council appropriation of funds and acceptance of the grant deed; and WHEREAS, the purchase is consistent with City Council Policy No. 73 guiding principles in that: 1) the unit would be at-risk of converting to market rate since the owner's resale restriction agreement with the city has been in effect for more than 15 years; 2) Community Development Block Grant funds are available to partially cover the purchase, the acquisition is consistent with FY 2020-2025 Consolidated Plan priorities and is an approved activity in the FY 2020-21 CDBG Annual Action Plan; and 3) sufficient funding exists in the Housing Trust Fund to cover the remaining acquisition cost; and WHEREAS, the purchase approval by the City Council enables the city to preserve and extend the affordability of the existing unit, and to resell it to an eligible buyer in accordance with the City of Carlsbad Affordable Housing Resale Program. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1.That the above recitations are true and correct. 2.That the Deputy City Manager, Administrative Services, is authorized to appropriate $150,000 from the Community Development Block Grant Special Revenue Fund and $105,000 from the Housing Trust Fund for the property purchase at 2687 Leighton Circle. Feb. 23, 2021 Item #3 Page 4 of 14 3. That the city manager is authorized to execute all required documents, including the Acceptance of the Grant Deed (Attachment A), for the purchase of said property, and to expend $150,000 from the Community Development Block Grant Special Revenue Fund and $105,000 from the Housing Trust Fund to cover the purchase price, related escrow and other processing fees to complete the acquisition. Additionally, said funds are authorized for costs related to refurbishing and preparing the unit for resale. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 23rd day of February, 2021, by the following vote, to wit: AYES: Hall, Blackburn, Acosta, Bhat-Patel, Schumacher. NAYS: None. ABSENT: None. MATT HALL, Mayor ATM1)4YAAVIA"NY-' BARBARA ENGLESON, Cif y Clerk (SEAL) Feb. 23, 2021 Item #3 Page 5 of 14 Attachment A Feb. 23, 2021 Item #3 Page 6 of 14 Feb. 23, 2021 Item #3 Page 7 of 14 Feb. 23, 2021 Item #3 Page 8 of 14 Feb. 23, 2021 Item #3 Page 9 of 14 Feb. 23, 2021 Item #3 Page 10 of 14 {city ofCarlsbad Council Policy Statement Category: AFFORDABLE HOUSING Exhibit 2 Policy No. 73 Date Issued: 12-08-2020 Effective Date: 12-08-2020 Resolution No. Cancellation Date: Supersedes No. 2020-234 N/A 73, issued 1/22/08 Specific Subject: City Option to Purchase Resale Affordable Housing PURPOSE: To provide procedural guidelines for staff when exercising the city's option to purchase restricted affordable housing ownership units that were created under the lnclusionary Housing Program. The city's primary interest in exercising its option to purchase affordable units is to preserve, extend and enhance affordability covenants to subsequent lower-income purchasers and to provide additional housing opportunity to underserved populations. The policy will establish the authority, selection criteria, and resale requirements for the identification, acquisition and disposition of these affordable units. BACKGROUND: The city's lnclusionary Housing Ordinance requires developers of residential projects with more than six units to provide fifteen percent of the homes to lower income households at an affordable price. Developers may satisfy the ordinance requirements by providing rental or for sale {ownership) units. Ownership units produced under the lnclusionary Housing Program have affordability restrictions for 30 years. Under the initial requirements of the lnclusionary Housing Program, low-income homebuyers were required to execute resale agreements that allowed them to sell their homes at market rate to a non-low-income homebuyer if they repaid the city any outstanding loan amounts and paid the city a share of the equity from the sale. This initial policy resulted in the loss of many of the for-sale affordable units in the city. To more effectively implement inclusionary housing requirements {CMC 21.85.040{E)), the policy was changed to require a restricted unit to be sold to another low -income household during the first 15 years of the 30-year affordability term. In year 16 and later, the home could be sold to a non-low-income household with the repayment of the city subsidy loan with a share of equity {also referred to as contingent interest). The revised policy also required that the city would be given an option, or first right of refusal, to purchase the affordable unit at a restricted price upon notice of intent to sell from the owner. The city could also assign its option to a "city-designated purchaser", defined as another public agency, a nonprofit corporation, or an eligible low-income purchaser. The restricted price option to purchase or assign is a requirement for participation in the homeownership program and applies throughout the entire 30-year term of the loan. For the restricted affordable housing ownership units, if the city declines its option to purchase the unit or to assign the option to a city-designated purchaser, the owner is required to resell the Page 1 of 3 Feb. 23, 2021 Item #3 Page 11 of 14 Policy No. 73 affordable home to another low-income household during the first 15 years of ownership at a restricted affordable price established by the city. After the initial 15 years, and if the city declines to exercise its option to purchase or to assign its option to a city-designated purchaser, the resale agreement permits the owner to sell the unit at market value to a non-low-income buyer and the city recaptures its subsidy together with shared equity (contingent interest) up through the 30th year of the resale agreement. The revenue from the loan payoff and shared equity is deposited into the city's Housing Trust Fund to create additional opportunities for affordable housing within the city. POLICY: By adopting this policy, the City Council grants authority to the City Manager, or designee, to accept or decline the option to purchase a restricted affordable housing ownership unit at a restricted low- income price during the full term of the resale agreement. This policy shall apply to all units restricted under a Resale Restriction Agreement and Option to Purchase in order for a housing development to comply with the requirements of the city's Inclusionary Housing Program. The decision to accept or decline the option to purchase a restricted affordable housing ownership unit will be guided by the following principles: 1. The unit would be at-risk of conversion to market rate if the city declines its option to purchase it; or 2. The public interest is served well through purchase of the unit by the city and resale to a qualified lower-income household; or 3. An underserved population will benefit greater from the city's purchase and resale of the unit; or 4. An affordable housing opportunity will be enhanced through the city's purchase and resale of the unit; and 5. Special funding (such as CDBG, HOME, Successor Housing Agency funds) is available and/or is required to be expended in a timely manner and the city's purchase of the unit is a qualified expenditure of these funds; or 6. When special funding is unavailable, sufficient Housing Trust Fund dollars are available to purchase the unit. The City Manager, or designee, will consider options to purchase as written notices of intent to sell from restricted affordable housing ownership units are received. If the city receives notices of intent to sell from multiple owners at a given time, the City Manager, or designee, may rank order them based on the principles above. For example, an affordable unit that is at-risk of conversion to market rate (i.e., can be sold to a market rate purchaser after 15 years) will be prioritized for acquisition over a unit that is not at-risk (i.e., must be sold to a low-income buyer). Other factors, such as purchase price, amount of available funding, size, location and condition of the unit may be taken into account when rank ordering multiple options to purchase units. Upon a decision by the City Manager, or designee, to exercise the option to purchase a restricted affordable housing ownership unit, the City Manager, or designee, will proceed accordingly to complete the purchase transaction and present it to the City Council for consideration and final action, accepting the Grant Deed for the property. Page 2 of 3 Feb. 23, 2021 Item #3 Page 12 of 14 Policy No. 73 Upon approval of the City Council of the acquisition and completion of the purchase transaction, the restricted affordable housing ownership unit will be resold by the city according to the Affordable Housing Resale Program Guidelines recommended for approval by the Housing Commission and approved by the City Council, and which may be amended from time to time to update policies, process and/or resale priorities. As an alternative to accepting the option to purchase the restricted affordable housing ownership unit, the City Manager, or designee, is authorized to assign the city's option to an eligible low-income purchaser. This alternative is appropriate when: a) there is insufficient funding available or there are higher priority uses for the available funding; and b) the unit would be at-risk of conversion to market rate if the city declines its option to purchase it. In such a case the City Manager, or designee, will assign the city's purchase option to an eligible purchaser drawn from a waiting list maintained in accordance with the Affordable Housing Resale Program Guidelines. Assignment of the city's purchase option to another public agency, nonprofit corporation, or an eligible purchaser not on the waiting list will require City Council approval. If the city is unable to accept or assign its option to a city-designated purchaser, then the City Manager, or designee, is authorized to decline the option and allow the restricted affordable housing ownership unit to be sold according to the terms of the resale agreement. The City Manager's, or designee's, decision to decline the option to purchase will be valid for no more than 180 days. If the unit owner has not completed the sale of their home within this time frame, the unit owner will be required to file another notice of intent to sell and grant the city another opportunity to exercise or assign its option to purchase the unit at an affordable price. All sales of city-owned restricted affordable housing ownership units require City Council approval. Page 3 of 3 Feb. 23, 2021 Item #3 Page 13 of 14 Street Map Plus Report For Property Located At 2687 LEIGHTON CIR, CARLSBAD, CA 92009-3052 EXHIBIT 3 Feb. 23, 2021 Item #3 Page 14 of 14