REPORT TO THE CITY COUNCIL June 26, 2014 FROM: JENNIFER K. CLARK, Director Development and Resource Management Department BY: JOHN ROBERTSON, Interim Manager Housing and Community Development Division CORRINA NUNEZ, Project Manager Housing and Community Development Division SUBJECT ..Title Approve Assignment of a HOME Program Agreement from TFS Investments, LLC to Fultonia West/Cedar Heights Scattered Site, LP for the development of a Scattered Site Project located on APNs 452-274-05, 452-274-16, and 471-220-55T, in the amount of $2,100,000 (Council Districts 3 and 5) ..Body RECOMMENDATION Staff recommends that the City Council approve assignment of HOME Program Agreement from TFS Investments, LLC (TFS) to Fultonia West/Cedar Heights Scattered Site, LP for the development of a Scattered Site Project to be located on APNs 452-274-05, 452-274-16, and 471-220-55T; and authorize the City Manager to sign a restated and superseding HOME Program Agreement, subject to completion of a National Environmental Policy Act (NEPA) assessment for the Cedar Heights site and approval as to form by the City Attorney. EXECUTIVE SUMMARY The City of Fresno Housing and Community Development Division received a request from TFS to assign its HOME Program Agreement from TFS Investments, LLC to Fultonia West/Cedar Heights Scattered Site, LP for the development of a Scattered Site Project: Fultonia West and the Cedar Heights (Exhibit "A" - Scattered Site Map). If the assignment is approved as recommended, TFS and the Housing Authority of the City of Fresno (Housing Authority) will become partners of the newly created Fultonia West/Cedar Heights Scattered Site, LP. Upon assignment the $2,100,000 in HOME Program funds for the Fultonia West Project will become part of the public subsidy needed to secure an award of approximately $6,190,561 in Low Income Housing Tax Credits (LIHTC) for the development at both sites. In addition an estimated $870,000 in former Redevelopment Agency funding and a $90,000 seller financing loan from the Housing Authority will make up the balance of the total development cost estimated at $9,250,561, with an anticipated completion date of May, 2016. BACKGROUND On June 7, 2013, the Housing and Community Development Division released a HOME Notice of Funding Availability for projects that were ready to proceed within the year. On September 12, 2013, the Council approved $2,100,000 in HOME Program funds for the Fultonia West Project, which was to be located at 541 and 545 N. Fulton Avenue in southwest Fresno. Shortly after approval, the Fultonia West Project experienced an approximate $700,000 to $800,000 cost increase for on-site and off-site improvements. This gap in financing prompted TFS to seek additional funds to complete development of the Fultonia West Project. In an effort to close the budget gap, TFS accepted an opportunity to partner with the Housing Authority (Exhibit "B" - Partnership Organizational Chart) to develop a Scattered Site Project whereby the Housing Authority would combine its proposed infill development (Cedar Heights Project) with the Fultonia West Project. As a term of the partnership agreement, the Housing Authority agreed to act as developer and consultant for the preparation and submittal of a LIHTC application to the California Tax Credit Allocation Committee by July 1, 2014. TFS has stipulated that the assignment of its HOME Agreement to the Fultonia West/Cedar Heights Scattered Site, LP is contingent upon an award of LIHTC to the Scattered Site Project. Since the Fultonia West Project already has $2,100,000 in HOME funds and $870,000 in former Redevelopment Agency funds, those funds will become part of the public subsidy needed to secure LIHTC to complete development at both sites. If approved as recommended and subsequently awarded tax credits as anticipated, the proposed Scattered Site Project will enable TFS to close the budget gap for the Fultonia West Project; stretch the City's HOME Program funds to create an additional fourteen affordable housing units; leverage $6,190,561 in LIHTC; complete two infill developments; and create neighborhood revitalization in two of the most underserved areas of the City. The Fultonia West Project alone is not eligible for LIHTC as the tax credit regulations require that thirty percent of the units within the project be 3-bedroom units. To fulfill this requirement and thus be eligible to submit a LIHTC application, the 3-bedroom unit count will come from the Cedar Heights Project, which will have fourteen 3-bedroom units. Location, unit size and rents are as follows: Unit Size # Rent (less utility allowance) Fultonia West 1-bed/1bath 3 $420-$472 2-bed/1bath 27 $563 2-bed/1bath 1 Manager Unit Cedar Heights 3-bed/1bath 14 $361 - $575 Although the City will be receiving eleven HOME units (five 2-bedroom and six 3-bedroom) instead of the original thirteen proposed by the Fultonia West Project, the City may count all forty-five units, from the Scattered Site Project, in its Housing Element Annual Progress Report to the State. Reducing the number of HOME units from thirteen to eleven eliminates the cost associated with a mandatory federal prevailing wage and thereby reduces the overall development budget. Fultonia West, as revised, will consist of six two-story art deco style buildings with 1- and 2-bedroom apartments units. Amenities include private patios, outdoor community area, on-site property management, security, dual pane windows, and energy efficient appliances. The 1-bedroom units are approximately 642 sq. ft. and the 2-bedroom units are approximately 778 sq. ft. Cedar Heights will consist of two 2-story apartment buildings with a maximum of fourteen 3-bedroom apartment units of approximately 1,083-1,237 sq. ft. each. Cedar Heights is also proposed to include a tot lot play area, landscaping, parking and walkways. In total, there is proposed to be approximately 40,339 square feet of living space at a cost of $229 per sq. ft. ($9,250,561/40,339 sq. ft.) (Exhibit "C" - Site Plan and Elevations). The Scattered Site Project cost is estimated at $9,250,561, of which $2,100,000 in HOME Program funds will help to finance eleven affordable housing units within the Fultonia West and Cedar Heights locations. An estimated $870,000 in Redevelopment Agency funding, a $90,000 seller financing loan from the Housing Authority and approximately $6,190,561 in LIHTC will make up the balance of financing to complete the Scattered Site Project (Exhibit "D" - Finance Plan/Cash Flow Statement/Project Budget). Restatement of the HOME Program Agreement will consist of the following changes: * Reduce the number of HOME units from thirteen to eleven * Extend the loan maturity date from thirty to fifty-five years * Provide for the assignment of the HOME Agreement to the newly created LP * Include required tax credit language * Convert the prior $450,000 (developer fee) grant proportion to loan funds * Reference the Cedar Heights site * Remove the $1,050,912 conventional loan * Include the NEPA finding for the Cedar Heights site * Update of the Exhibits and signature pages Completion date of this Scattered Site Project is scheduled for May, 2016. Once completed, the Scattered Site Project units will assist the City in meeting its affordable housing goals as identified in the Housing Element of the 2025 General Plan and 2010-2014 Consolidated Plan. This Scattered Site Project is also expected to make a positive impact in two neighborhoods by offering quality, durable, affordable infill housing. The Project is also expected to create an estimated fifty plus construction and trade-related jobs for the duration of the development. This item was placed on the June 11, 2014, Housing and Community Development Commission agenda for consideration. ENVIRONMENTAL FINDINGS A June 30, 2013, California Environmental Quality Act (CEQA) assessment of the Fultonia West activities was completed and resulted in Exempt Status. An August 9, 2013, NEPA assessment of the Fultonia West activities was completed and resulted in a Finding of No Significant Impact. A May 19, 2014, CEQA assessment of the Cedar Heights activities was completed as part of a rezone application and resulted in a Categorical Exemption. A May 27, 2014, NEPA assessment of the Cedar Heights activities was completed and resulted in a Finding of No Significant Impact. In order to meet the LIHTC application deadline, staff is recommending approval of this item contingent upon authorization to use grant funds, for the Cedar Heights Project, from the U.S. Department of Housing and Urban Development (HUD). In accordance with HUD direction, the City may approve the assignment of the HOME Agreement, contingent upon the expiration of HUD's environmental comment period, which is set to expire on June 28, 2014, and receipt of the signed Authorization to Use Grant Funds form. LOCAL PREFERENCE Not applicable FISCAL IMPACT The Scattered Site Project has no impact to the General Fund and is located in Council Districts 3 and 5. The total project cost will be estimated at $9,250,561, funded with $2,100,000 in HOME Program funds, an estimated $870,000 in Redevelopment Agency funding, a $90,000 seller financing loan from the Housing Authority, and approximately $6,190,561 in LIHTC. Attachments: Exhibit A - Scattered Site Map Exhibit B - Partnership Organizational Chart Exhibit C - Site Plan and Elevations Exhibit D - Finance Worksheet/Cash Flow Statement/Project Budget