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HomeMy WebLinkAbout2009-11-12; Housing Commission; MinutesMinutes of: HOUSING COMMISSION Time of Meeting: 6:00 P.M. Date of Meeting: NOVEMBER 12, 2009 Place of Meeting: CITY COUNCIL CHAMBERS CALL TO ORDER Chairperson Smith called the Meeting to order at 6:00 p.m. PLEDGE OF ALLEGIANCE Commissioner Igoe led with the Pledge of Allegiance. ROLL CALL Present: Commissioners: Emelda Bradwell Susan Igoe Craig Kirk Bobbie Smith Absent: Hope Wrisley Staff Present: Housing and Redevelopment Director: Debbie Fountain APPROVAL OF MINUTES Minutes of July 9, 2009, meeting were approved as written. VOTE: 3-0 AYES: Bradwell, Kirk, and Smith NOES: None ABSTAIN: Igoe (was not present at the July 9, 2009, meeting) ABSENT: Wrisley ITEM NOT ON AGENDA Chairperson Smith introduced Susan Igoe as the new Housing Commissioner. NEW BUSINESS Debbie Fountain, Director of Housing and Redevelopment, presented the item on the agenda which is for a request to purchase credits in the Villa Loma or the Cassia Heights project. The Villa Loma and the Cassia Heights projects were built with the understanding they would have additional units available for purchase. We require any developer that would like to purchase credits within any of those developments to submit a formal request, and that is initially reviewed by the Housing Policy Team. If the request is to purchase ten credits or more, then it has to come to the Housing Commission for a recommendation. Tonight we have a project known as Poinsettia Place. This project is located on Cassia Road at Poinsettia. It is near the Villa Loma project. This project originally, when it moved forward a couple of years ago, proposed a density increase on site. The project initially had a requirement that it needed to produce all of its affordable housing for low income persons on site. They were proposing 14 condominiums to help meet the inclusionary requirement. Since that time, the market has changed quite a bit, and the project originally approved no longer works. They are requesting amendment for their development to reduce the number of units within the project, and the new project is proposed to have 82 townhomes and stacked flat condominiums. They are requesting to be able to purchase credits rather than to produce those units on site. If they were to build the units on site, they would have a 12 unit requirement. If they go off-site and purchase credits, they are required to purchase 14 credits. That is because they would still be able to build their entire 82 market-rate units so they still have to do 15% for low-income persons. The developer, Carlsbad Poinsettia Lands, has submitted their request and a copy of their request is attached to your report tonight requesting they be allowed to purchase these credits. Their justification is centered around what is happening with the economy. The amount they can sell those units for has been HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 2 of 10 reduced. They would still like to move forward with the project and believe the project is feasible if they can purchase credits off-site. The representative for the developer, Dave Jacinto, is here tonight and he would like to make a presentation to you after I finish. So if you have any specific questions on the economics of the project or why this makes sense for them to build that project at this time, you are welcome to ask those questions of the developer as well as staff. This project is a townhome and stacked flat condominium project. It presents some challenges in being able to meet their inclusionary obligation on site as a result. You know as the Housing Commission, that we have the option of second dwelling units for single-family homes, but that is not an option for townhomes or condominiums. That is only permitted for single-family homes. That option is not available to them. Really the only other option is to either purchase credits or to go out into the market and perhaps purchase other condominiums or townhomes and price restrict those and resell them. We have had some developers that have had successfully done that. Otherwise, they can have the units on site. Unfortunately, because the economy is limiting how much they can actually sell their townhomes or condominiums for, they are finding it very difficult to have enough subsidies to be able to do their townhomes or their condominiums on site. The Housing Policy Team did review this request. The Housing Policy Team is made up of staff, which includes our Finance Director, our Community Development Director, our Economic Development and Property Manager who is now our Deputy City Manager, legal assistance through our City Attorney's office, and myself and our Planning Director. We all take a look at these, we review them, and we try to determine if there is a good justification for them purchasing credits. Our ultimate goal is to get units produced. We want to produce whenever we can. However, in this particular case we feel there is adequate justification to allow this developer to purchase credits. The reason we say either Villa Loma or Cassia Heights affordable housing project is it is on a first come, first served basis on the credit purchase. It depends on if there are any credits remaining in Villa Loma, they would buy into that project first. If there are not any units available in that project, then they would purchase them through Cassia Heights. The price they pay for those credits is the price at the time that they actually purchase them. It does not get set tonight. Although right now at Villa Loma the credit price is $49,000; the Cassia Heights price is just under $51,000. If these credits are not purchased for two years or they are purchased in one year, it is whatever credit price is in effect at the time they purchase. So it could go up, it could stay the same, it just depends on what the market is doing. You are not providing any assurances tonight to the developer on how much that credit price will be, but what you would be providing is a recommendation to the City Council that you feel it would be appropriate for this particular project to buy credits within either the Villa Loma or the Cassia Heights project if you feel that adequate justification has been provided to you to do so. That completes staffs report and presentation. I do have a copy of the plans if you would like to see the layout of the particular project. There is an option for the developer to be able to build those units and rent them so they are not necessarily required to sell them, but that still causes a financial feasibility issue for this developer so that wasn't considered a good option. We have offered for them to pay the credit price or to build on site and sell the units and wait until the market will support that. This developer does want to move forward with this project, and has said that if he is allowed to purchase credits, he does believe he can get the financing to move the project forward to build these units. They are a townhome condominium project, which is a little bit more affordable in the market. It is not really affordable for our low income or our moderate income, but it does start to get a little bit more affordable in probably the $400,000 range. We have recommended as a condition that if these credits are not purchased within two years and the project does not move forward for construction, then we will want to reconsider at that time whether it is still appropriate to allow them to buy credits or if the market has changed enough that they could produce the units on site. It does have a two-year window on it and that two years would be from the time the project is approved by the City Council. That ends my presentation, and I would be happy to answer any questions. Chairperson Smith said Ms. Fountain mentioned they had to result to the credits because of the economy. How much of a decline would it be with the finances that we are losing? Ms. Fountain said staff based its assumptions on what they could possibly sell the units for today and what it would cost them to actually build the units. When we work through all the numbers, it is a very small HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 3 of 10 return for the developer. We ran the numbers and we assumed if it costs them say $400,000 to build the units, which is not atypical in this market, to build a quality unit, and if he can only sell the units for about $425,000, he is actually only clearing about $25,000 per unit. If you looked at it over the total number of units that he has, it doesn't cover the subsidy that would be needed to build the affordable units and sell them at an affordable price. If the units cost around $350,000 or $400,000 to build and he can only sell them for say $200,000, which is the affordable price, he has a big subsidy there for the affordable units, and he doesn't have enough on the market rate units to cover for that subsidy. That is where we have seen the big difference is if you can only sell the unit for say $425,000 or $450,000 rather than $800,000 or $900,000 as we saw a few years ago, there is a big difference in what can actually be subsidized. We look at each of these on a case-by-case basis because that may not be true of every single project. We think for this project that the numbers are fairly accurate. That was why we were supporting the purchase of credits. We may bring another one to you at a later time that we think the numbers do work and we wouldn't recommend it, but on this particular case we think it warrants the credit purchase. David Jacinto, from Carlsbad Poinsettia Land, thanked the Commission for the opportunity to speak and also thanked Ms. Fountain for spending quite a bit of time looking at this project as well as the staff members of the City that she has mentioned. They have all had two or three meetings on this and have considered it very carefully and thoughtfully. I appreciate their recommendation and their willingness to work with us on this. We have owned this property for quite some time, our family have been in this business for quite some time as well. You know what has happened to the economy in this state and San Diego County specifically. It has been very, very difficult and the construction industry has probably been hit worst than any group in the state. I don't have to spend too much time talking to you about that. I will give you a quote here from the Wall Street Journal, "We are in the midst of the worst real estate recession since the great depression." That has impacted this project as well as other projects in the area. As Ms. Fountain mentioned, it is financially infeasible with the affordable built on site. It costs about $200,000 more than we can sell them for each one of those units. That wipes out any potential profit for this project. We would actually have a negative with those numbers considered on this site. We went over the numbers a bit with Don Neu, the Planning Director, and he analyzed how we approached it and how we arrived at those numbers. We actually had a projection here of $425,000 from a well respected broker on the outside to establish the value of what these prices would be in the market. We also know to meet the affordable standards, what they would have to sell for. So there is a $200,000 to $225,000 loss for each one of those units. That is the cornerstone of the problem. In addition to that, there are three other points I'd like to make. • One is that with the dramatic drop in the market and the economy, we all know what has happened with the banks and the institutions that finance projects like this. Their pencils are sharper then they have ever been in the fifty years my family has been in this area. They will not finance a project with the affordable units built on site for a couple of a reasons. The first I mentioned, the difficult challenge of making the numbers work. The second is that because this is a for-sale housing project, you run into other problems here with a small number of units like this mixed in to a project like this because every buyer is a for-sale buyer. They are not renters; they are for-sale buyers. They have a homeowner's association that they all share that responsibility with and they all want to be on equal footing. When you have a group that is not on an equal footing, it makes it more difficult. We would be required to pass on that same HOA cost to all parties involved, and that further reduces the price that we can sell them for because it is a pretty good hit to that price. The financing is a very difficult item for this project, and the banks, for the most part, we have talked to La Jolla Bank and Pacific Western and others say they will not finance it with the affordable units in place. • We looked at the possibility of maybe considering subsidies from state and federal and other agencies that subsidize affordable housing. We talked to a number of different groups in the area that do that kind of work. Chelsea Housing is probably the most prominent that you might have heard of. I know Ms. Fountain knows them well. We asked them to analyze it and see if there are some opportunities there that would help make the cost work when we had the previous project. Their comments were, "There are just no programs available in the marketplace for such a small project. It is too cost prohibitive. In your case, it is impractical to expect the homeowner's association to cover the heavy operating expense burden imposed on the Poinsettia Place affordable units and it is not a practical project." I will give you a copy of this. They are telling us there is nothing out there to help us with this like there would be with the Villa Loma or HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 4 of 10 some of these other projects that have been designed and set up and put in place so that they can take advantage of all these different opportunities. In this case, we don't have them. • The final item that I would like to mention to you is that with the original project, we had some opposition from the community. We spent some time after talking to Ms. Fountain and staff telling us that if we could reduce the number of units to below this target number that we could have a good opportunity to get her support for the affordable credits, which they have done. We spent quite a bit of time with the community in going over what they might be interested in changing as well at the same time and in an effort to make them happy. I have a letter from them they sent to the Mayor. I will read a quick item from it. It says, "We also appreciate the developer's efforts to remove the 14 inappropriate located affordable units in this project. While we support the city's effort to provide affordable units, there are more appropriate locations off site where they can be built in larger numbers with specialized cost-effective facilities designed for just that purpose. As president of the Poinsettia Heights homeowner's association and with experience in managing other associations, I can appreciate the added difficulty of accommodating these few affordable units in this high-end project and adjusted HOA dues and special management issues for such a small number of special residents; especially in this litigious society. The challenge is difficult enough without these legal, financial and complicated management issues added to the future board responsibilities. We strongly recommend that the Planning Commission and the City Council approve this revision to the approved Poinsettia project." With that I would like to leave you with this thought: We have worked very hard to make this work. We have reached the point where we are willing to go ahead and complete this project, complete Poinsettia Lane, provide for the three quarters of the site being given away as open space, and all the other requirements that the City of Carlsbad has in mind for us. I think we can make it work with the credits. I appreciate your support. Commissioner Kirk asked Mr. Jacinto, taking into account the purchase of the housing credits, how much of a positive impact will this have on your margin? Mr. Jacinto said it is about $200,000 a unit in cost for each one of those units. The fee right now is about $50,000 so there is $150,000 swing doing it that way. We have a couple less units, but it makes well over a million dollars. That is more than the profit plan for the project. Without it, there is no profit. With it, there is a very thin margin. That is assuming that we dramatically cut the value of the land. Commissioner Kirk asked what the impact of the HOA fees is. Mr. Jacinto said the HOA fees have not been finally determined yet. We have some special burdens there. We have three quarters of the site that has been set aside for open space, and the HOA will have to bear the burden of that cost of maintaining it and doing annual reviews with the biologists and certain mitigation upkeep and a number of other things that typically would not be required of a project. With the relatively small number of units, those other costs that are typical of a project, which this one has as well, would be spread over a fewer number of units. So the HOA costs are going to be fairly high, probably over $300,000, which is more than what is allotted in Ms. Fountain's typical example of I think $200. So you would have to discount the value of those affordable units to accommodate that extra dollar amount. Commissioner Kirk asked, typically over what period of time is that discounting? Mr. Jacinto answered it is discounted for the life so you basically have to take their monthly outlay that you would have for loan and all of the other costs of owning a home and discount it that additional amount for that HOA cost. Commissioner Kirk asked providing that Mr. Jacinto does get the funding, that this is approved and you get the funding, what is your expected forecasted start date and your complete date? Mr. Jacinto said they are actually planning to roll right into improvement plans here in December, assuming that we get approval from the City Council and the Planning Commission, which I'm hoping we HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 5 of 10 will. I don't see why we shouldn't since this is an improved project over what was previously approved. As soon as we are in a position to start construction, we would start. It typically takes about a year to get those final plans all done. Commissioner Kirk also asked what the duration of the project would be. Mr. Jacinto said the duration of the project depends on the market, of course. If all went well, it would be another year before we sold out. If it doesn't go as well, then it takes longer. Commissioner Igoe thanked Mr. Jacinto and told him he did a nice job presenting his project. How many units are you planning to move forward with? Mr. Jacinto answered 82, which is below the target rate, which was 84. Commissioner Igoe said she supports the quality of life living in Carlsbad with the three quarters of open space. Mr. Jacinto said he agrees. His family has been here for fifty years. I can appreciate what you are saying. In this particular case, we are not only dedicating three quarters of the site to habitat, the habitat that has not been properly maintained, we are improving, which is probably 20% of that. Chairperson Smith thanked Mr. Jacinto for coming and giving the presentation and to Ms. Fountain for her presentation as well. Ms. Fountain added that Mr. Jacinto had shared with the Commission some of the concerns of neighbors. That is normally not a consideration we take into account, whether or not the neighbors want the affordable housing because, as you know, sometimes affordable housing projects can be controversial. I think the important point in this and from what Mr. Jacinto shared is really the cost factor and whether or not it is feasible because we do look at feasibility when we are applying the inclusionary ordinance. As a follow up on the question asked by Commissioner Kirk, when we looked at these numbers and the assumptions that we use, we are looking at them buying credits and selling all 82 units at about $425,000 a unit, their profit on this will only be about 5%. That is typically about half of what we will allow a developer to go up to before we start putting money into a project. So they have a pretty low return on it, but the developer would still like to move forward. Even if their prices go up over the next two years, there is enough margin in there that they are still not going to make a huge amount of money and have us lose the opportunities. We still think even in a couple of years, if they are able to build it, there is still a feasibility issue and we would still support them being allowed to purchase the credits in that case. That was a concern for staff that if the market changes dramatically, they can make a lot more on their units. We look at all of that because we want to make sure that if they doubled in price, then we might have lost out. We don't think that is probably going to happen in the next couple of years, although it would be nice. It is probably not realistic that will happen. There is still a margin in there even if the prices go up a little bit, that we would still feel that it is appropriate to let them purchase the credits. Commissioner Kirk confirmed that we do have 72 unreserved units currently available. Ms. Fountain answered yes. So you have enough credits to allow them to purchase them. Chairperson Smith said Ms. Fountain also mentioned there are other places he could have developed. What other places were considered? Ms. Fountain said Mr. Jacinto might have mentioned in his presentation when the other affordable housing developers were looking at this, they thought there might be other sites that might be appropriate. The HOA next door said there might be other sites that might be more appropriate. We didn't actually analyze another site for them to go build those on; especially if it was only 14. If they were planning on combining with another developer and building a larger project, say there were several developers that went together and built a 50 unit complex or something, then it might make some financial sense. But for him to pick another site and build 14 units is probably not realistic. When we built Villa Loma with extra credits and HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 6 of 10 we built Cassia Heights, we knew these smaller projects with these smaller requirements were going to probably have this need so it was built with them in mind. Commissioner Kirk recommended approval to the City Council to allow the developer/builder for Poinsettia Place development to purchase 14 affordable housing credits at Villa Loma or Cassia Heights affordable housing projects in order to satisfy the requirements of the inclusionary housing ordinance for the Poinsettia Place development. Commissioner Igoe seconded. VOTE: 4-0 AYES: Bradwell, Igoe, Kirk, and Smith NOES: None ABSTAIN: None ABSENT: Wrisley Ms. Fountain said that item will go to the City Council for a final approval. My understanding is the project itself, the 82 units, will be going to the Planning Commission in December 2009 for action and then it will have to go to the City Council as well. The second item on the agenda tonight is an update on affordable housing in general. I handed out a packet of information to the Housing Commission. One of the charts you have in your packet is a project list. This is intended to show you that from 1996, when we started with our first project, which was Villa Loma, we have been keeping track of all the affordable housing developments that have been built in Carlsbad to meet the inclusionary housing requirement. There are even some that aren't in the inclusionary housing, but have been built for affordable housing purposes. We keep track of what type of product it is, apartments, second-dwelling units, which is referred to as SOU, condominiums, townhomes, or single-family homes. We keep track of whether they fall into affordability for extremely low, very low, or low income, and we also track them by quadrant so we know how many we have in each quadrant of the city. Villa Loma was built in 1996, and it is apartments; they are one-, two-, three- and four-bedroom units. We have 172 in the very low income affordability category and a 172 in the low income category for a total of 344 and that project is in the southwest quadrant. At the very bottom of this chart, you will see it starts at Robertson Ranch, and these are projects that are pending. They have been approved or in the process for approval, but they haven't been constructed yet. We are even trying to keep track of what we know is coming in the future. If you go to page two of that handout, it will show you what our totals are in each category. Each section has it by category and income level. Then at the very bottom of the chart, it shows you how many are in the northwest quadrant, northeast, southeast and southwest that are either built and on the ground or pending. We have over 2,100 units that are currently on the ground in the City of Carlsbad. We have about 430 in the planning process or at various stages of permit approval. If we look at the total, we have about 2,577 units that we know are either going to come on line soon or are already on the ground. The bulk of those are already on the ground. Dividing it up in quadrants has been helpful when we have new projects that come forward, because sometimes one of the arguments we get is there is too much affordable housing in one quadrant of the city. With this chart, we can show them the affordable housing is being built where the market rate housing is getting built. You can see for the southeast and the southwest there is a large number of affordable housing units but they also have the most new development. The northeast and the northwest have been more built out over time so they are smaller sites that are coming on line, but they are still getting their fair share of affordable housing as well. This shows it is dispersed throughout the community. So it isn't in just one quadrant of the city, and that has been important to the City Council. The affordable housing is dispersed throughout the city. We are not putting it all in one location. If at any time you want a copy of our updated list, feel free to contact our office and we can send you that at any time. This is the most current one, the most updated one to date. As we get new projects HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 7 of 10 proposed or if projects change, then we will update. I will try to bring that to you every now and then so you will have the most current one. Another item in your packet is titled, "Affordable Housing in Carlsbad." It is general information and it starts out with: What is Affordable Housing? This is one of our frequently asked questions documents. If we get asked about what is affordable housing, why do we do affordable housing in Carlsbad, this shares with you what we typically share as answers to those questions. This way if you ever get asked those questions and maybe don't know how you should answer it, you can turn to this information sheet and it will tell you how staff is answering the question. You may have additional answers. On the second page of that handout, it provides information on the different programs that we have in Carlsbad for affordable housing. The first is the inclusionary housing ordinance, which is one of our key programs. We also have the rental assistance program. We have a down payment and closing cost assistance program to help people purchase homes with the community. We also give money to social service agencies, homeless shelters as part of our programs, and on a case-by-case basis we will look at acquisition and rehab. If someone has an apartment building available for sale and somebody wants to buy that, and then if the city will give some money that person might reduce the rent, we will look at those on a case-by-case basis. We also have information on who owns and operates the affordable housing in Carlsbad. That is probably one of the largest misunderstandings. Most people think that we own the housing and that it is basically public housing. The only project that the city actually owns is the Tyler Court apartments. All of the other developments are privately owned and privately operated, although in some cases we do own the land underneath like Villa Loma or Cassia Heights. A private developer or an affordable housing developer usually is the one who actually owns and manages those. We do not do any of the screening for applicants for that. We do have an interest list in our office, but those private owners are the ones who do all the screening and the renting of those units. That is probably one of the biggest misconceptions of what happens when we say we help produce these units. Many times it is thought that we actually own and operate them, and we do not. Commissioner Kirk asked if there is a consolidated list for people who apply for that. Would their name go on a list that is a master list? Ms. Fountain said we do not. We have an interest list so if there are new developments that come on line, we will give that list to developers so they can make the contact. Each of those individual developments actually keep their own interest list. We have information on our website that says who they can call to get on that list. It is the easiest way to do it, because not all the developments have the same criteria for who can benefit from them. Some might be extremely low income, some might be very low income and some might be low income. They really need to apply to the individual developments. Commissioner Kirk asked about the criteria and is it the same for each category. Ms. Fountain said yes. The income level of what is considered low, what is considered very low and what is considered extremely low would be consistent. Each of the developments, however, might have a different number of units that are available at the different income levels. Commissioner Kirk asked if there is any other criteria that a developer could apply to that or is it really consistent for all? Ms. Fountain said the income requirements and how they set their rents are the same for all of them. Different developments though could have some different criteria depending on something like Tyler Court that is a senior-only project so they might have criteria it is for seniors only. Then they may also have different credit requirements, how much of minimum rent they have to pay on their own versus where they could get rental assistance or some other. They might have some slightly different rules, but for the most part they tend to be the same. It depends on their funding source that they receive their other money to subsidize the project and what kind of conditions it might have on it. HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 8 of 10 Commissioner Kirk commented that is informative, because he just assumed it is all the same. Ms. Fountain said for the most part it is, but there are some differences and that is why it is easier if they contact those developments directly so they can find out those rules. Ms. Fountain continued the Housing Commission was given the Welcome Homes brochure in their packet. It contains the personal stories that are shared because that really is what affordable housing is about in the end; it is about the people that are served. It isn't about a building; it is about the people that are served. The other items you have in your packet; there is one called Funding the Local Gap, affordable housing finance. I am sharing this with you primarily because I just recently made a presentation at a housing conference, and developers often are asking how much money does the city have, do you have money to help with projects, how do you decide which projects get this funding. I thought this might be helpful for the Housing Commission to have this information as well since you do review financial assistance requests. This shares that we currently have about $15,000,000 that we have available to assist new developments. That is a combination of housing trust fund monies, redevelopment, housing set aside monies, and we can get some CDBG and HOME monies as well. We assisted to date about $30,000,000 worth of subsidies from the City of Carlsbad. That does not include the subsidies that they get from other state and federal programs. That is just what the city has put into projects. That has helped us to produce over 2,100 units of affordable housing, which means we are working really hard to leverage our money really well and try to get the most bang for our buck so that we can do as many units as possible with that amount of money. The housing trust fund itself is a revolving type fund. All of the money that goes out of that is disbursed in the form of a loan. So we get loan payments back. We are not your traditional loan like you would see at a bank where you have to make a monthly mortgage payment that is set. Basically, we work off of surplus cash. That starts small in the first few years, and then it tends to grow over the years. Fortunately, all of our projects right now are making some type of payment; they may range in how much they are making. It has surprised a lot of people that we are actually getting some of our money back. It will be over time, and it will take a while, but that helps us fund new projects when that money comes back. Our Redevelopment Agency currently is receiving about $720,000 a year that has to be set aside specifically for affordable housing. It cannot be used for other projects. As appropriate, we will come to the Housing Commission and ask for financial assistance for a project. As you will remember, the last project we had, the Tavarua Senior Apartments, we recommended to you that the Redevelopment Agency housing set-aside money be used entirely to fund that request. That was about 3.7 million dollars. We look at them and determine which is the best pot to take the money out of, and then we would come to you and make that recommendation. Some of those funds need a couple of years to get enough money into them to fund a project. That is what happened to the Redevelopment Agency money. It took us several years to get a lump sum that was big enough to actually help a project. Sometimes we will see that accrue for a few years. We also have CDBG and HOME funds that we are eligible for each year. The HOME money is set aside for affordable housing only. Some of the CDBG is set aside and then we determine appropriate projects for that. Part of the handout shows the criteria we look at when we review a project. These are guidelines; they are not hard and fast rules. When we are looking at a project and we are looking at the project financial pro forma, these are some of the guidelines that we use. If we are looking at land cost, we would what to see that land cost is not more than 15% of the total cost of the project. We have it broken down into consultants, permit fees, development fees, and total construction. We have learned this over the years of how much each is appropriate for each of these areas. We compare the projects and make sure we don't see them overestimating some of those costs. We don't want our money to go in just to be paying a developer fee. That is not what we are looking for our money to be used for. We are looking for our money to assist the project in leveraging other funding to come into it. We want to make sure that none of these numbers seem like they are totally out of line. If they are, then we will ask the developer why that is. HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 9 of 10 If they don't have a good justification, we will tell them to rework their numbers before we decide how much money to put in. These are just general guidelines. We share these with developers so they understand what we are looking at. It doesn't mean that we might not adjust these at any given time for a specific project. Those are general guidelines so I thought they might be helpful for you to know what we are telling developers when they are looking at their costs. If we are looking at how much subsidy we are going to put into a project, we have a general policy on what we are recommending. It will differ depending on whether it is an inclusionary housing project where the developer has a responsibility to build it versus where they want to do an affordable housing project like the Cassia Heights apartments where a developer bought a piece of land and said he wanted to build affordable housing, but wasn't attached to any master developer that had an inclusionary requirement. We have only had one new project funded in the past two years. That is indicative of the economy and what is happening. If you are not getting the market rate development built, there isn't the demand for the affordable by the market. We are seeing our number of projects slowing down. We are hoping as the economy improves, that we will see a change in that. We do have additional funding to be able to still fund some new projects, but they are having a difficult time getting their financing from other locations and we are never a 100% funder. With this information sheet, you also have some spreadsheets that track our rental projects and what their costs have been over the year. If you look at where we started in Villa Loma and those were being built at about $96,000 a unit and our last affordable housing project, which was the Glen Ridge apartments, their per unit cost was $320,000. So there has been a substantial increase in cost. Some of that is land, some of it is just construction cost, all of them together has increased the cost. It isn't any cheaper to build affordable housing, than it is market rate development housing. Sometimes the difference is how many units we can get and the density and how you can spread those costs across the units, but as you can see, we are still having substantial costs. We haven't really seen, even with this economy that per unit cost going down very much. We are still seeing land costs staying high and part of that is that people aren't selling so there aren't a lot of comps in the area to determine the appropriate value for a piece of land. We really haven't seen construction costs come down substantially. Some areas you have seen it, but one interesting thing we have noticed is even with the construction being down, the contractors can't really afford to discount their projects very much because they don't have many projects. It is difficult for them to balance that. I also gave you a chart on funding sources and how it breaks down. This might be helpful information for you as you are talking about affordable housing or if you are thinking about affordable housing. Recently, the City of Carlsbad started a new program where they go out into the community and talk about what is on their mind and what they are thinking about. One of the questions that came up recently is: Why is there not more affordable housing in Carlsbad? Initially, people jump to it being expensive to build in Carlsbad as the reason, but there are a lot of reasons why it is a challenge to produce affordable housing in Carlsbad. You have high land cost, you have construction costs, but all of these when added together, it is not only difficult to build affordable housing; it is difficult to build market rate housing. The City Council still supports affordable housing, still wants to see more built, it is just that the challenges are not only our ability to produce it, but just all of the other funding sources, the tax credit program has changed, which has always been a big equity partner in these projects. It has become very, very competitive to get tax credits. There are not as many companies out there that need tax credits because they are not making a lot of money. All of that plays together and creates more challenges. It is not getting easier to do affordable housing, but we are hoping as the economy improves, we will start to see this loosen up a little bit more and we'll get back to where we were with affordable housing. We just had our grand opening at the end of the summer for six of the Habitat for Humanity homes. That was exciting for those families to move in. They are struggling to build the second phase due to weak fund raising. It's been difficult for Habitat to get all the funds they need. They still plan on building the second phase, but they are just going to take a little bit longer until they can pull all the funding together for that project. HOUSING COMMISSION MINUTES NOVEMBER 12, 2009 PAGE 10 of 10 Unfortunately, the Tavarua senior apartment project did not get tax credits in the first round so they are going into the next round which will be about spring time of 2010 and try again. They are trying to increase their score as it is a competition. I believe there were about ten projects that went in this round and four or five were funded because they just didn't enough tax credits to extend to all of those projects. All of the projects scored really well, and most of them got into tie-breaking scores to get above the line when they got funded. Only one senior project was funded. The rest were family projects. Senior projects don't always compete as well, but they are hoping to improve their scores by looking at some other public funding sources. They have not given up. They still would like to get that project done, and I think it will be a good project for the community. Commissioner Kirk asked for the affordable housing projects is there an audit for the developer post completion. We are provided with numbers, we have a financial forecast, but conditions change. This could go on for a couple of years or longer. How do we close that gap? Ms. Fountain answered there actually is an audit that is required every year of all of the projects. It is mostly because they are all nonprofit organizations. The organization itself is required to do an audit and then each individual project is audited. We get a copy of that information and part of that audit information helps determine their amount of their loan payment to us because it determines their surplus cash in their project. We also have monitoring requirements where we can look at their records, we can go to their site and we do annual site inspections. Most of these projects are not only audited by the City of Carlsbad, but they are audited by the tax credit agency. Since that is the IRS there is a heavy hammer for most of these projects. Chairperson Smith asked has there ever been a problem with the developer not living up to the contractual agreement and the city would have to pull the contract? Ms. Fountain said we have not had any affordable housing projects where there has been an issue where we have cancelled a contract or called a loan or any type of action like that. We do have within our agreements if there are management issues with a project, that we have the right to require removal of the management company or replacement of the management company. We have had to do that a couple of times, but the problems have been resolved and we haven't had to go any further in terms of our enforcement action. Chairperson Smith asked what about breach of contract? Ms. Fountain said we have not had that happen. Part of the reason is the person who receives the tax credit can also lose their tax credit status so that is a big hammer in terms of compliance, at least for the first ten years of a project. DIRECTOR'S REPORT Ms. Fountain said we will probably need a meeting in January, but I know we won't have a meeting in December so please enjoy the holidays. If you have anything between now and our next meeting, feel free to call our office at any time. ADJOURNMENT By proper motion, the meeting of November 12, 2009, was adjourned at 7:10 p.m. Deborah Fountain Housing and Redevelopment Director PATRICIA CRESCENT! Minutes Clerk MINUTES ARE ALSO TAPED AND KEPT ON FILE UNTIL THE WRITTEN MINUTES ARE APPROVED.