COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Human Services Agency

Office of Housing

DATE:

September 21, 2004

BOARD MEETING DATE:

October 19, 2004

TO:

Honorable Board of Supervisors

FROM:

Maureen Borland, Director, Human Services Agency

Steve Cervantes, Director, Office of Housing

SUBJECT:

Approve a First Amendment to the Agreement with Bay Road Housing Limited Partnership, for the Development of the Courtyard at Bay Road

RECOMMENDATION:

Adopt a resolution:

1. Authorizing the execution of a First Amendment to the Agreement with Bay Road Housing, Limited Partnership, to add $1 million to the Original Agreement, for a total of $2 million, for the Courtyard Project, and to clarify the terms and conditions of the funding; and

2. Authorizing the Director of the Human Services Agency to execute subsequent amendments and minor modifications not exceeding $25,000 per funding source, and to make minor changes in the types of services provided by Bay Road Housing Limited Partnership, under the Agreement.

BACKGROUND:

Community Housing Developers (CHD), a nonprofit housing development organization, is developing a 77-unit affordable rental family housing development in East Palo Alto. While this venture is CHD’s first housing project in San Mateo County, CHD has extensive housing development experience in Santa Clara County.

CHD originally requested $2 million of FY 2003-04 Community Development Block Grant/HOME Investment Partnerships funds, on behalf of the project, known as the Courtyard at Bay Road. Due to limited funds, the County, on October 23, 2003, under Resolution 066327, approved only $1 million, which was used for land acquisition.

The City of East Palo Alto has been financially creative in its support by providing short-term funding of $2.5 million for predevelopment purposes, and its intention to provide operating subsidies (structured as a loan) up to $1.2 million over the first 20 years of project operations. The City is also deferring payment of the park-in-lieu fees of approximately $352,000. Upon issuance of a building permit for the project, the City will apply for State Workforce Housing Funds (under Proposition 46) to be used to offset the obligation.

As the project has been approved for low income housing tax credits, CHD formed a limited partnership, Bay Road Housing, Limited Partnership, to benefit from the tax credit proceeds. As is typical in tax credit transactions with nonprofit developers, CHD is acting as the nonprofit general partner in the limited partnership.

Currently, CHD, in conjunction with the City of East Palo Alto, is requesting another $1 million dollars for the Courtyard development. The project forecasts a budget shortfall even after a project redesign due to a tight budget impacted by uncontrollable increasing costs of steel and wood.

The Office of Housing has set up a Housing Development Reserve to be able to fund projects as they arise during the off-cycle funding cycle.

DISCUSSION:

The Courtyard has secured most of its financing in order to proceed with construction, estimated to begin this Fall 2004.

From a County investment perspective, the project is cost-effective. Based on the number of units being built, the $2 million of County CDBG/HOME funds translates into a subsidy of approximately $25,900 per unit. The total development cost for the Project is estimated at $23.5 million, or $306,100 per unit, including land. The County investment represents 8% of the project costs, an attractive investment in return for 77 brand new affordable units to the County housing market. For comparison purposes, other recent County investments in affordable housing ranged from a low of $8,000 per unit (Rotary Floritas Senior Housing in San Mateo) to a high of $134,000 per unit (Lakeside Apartments in Pacifica).

The additional $1 million funding for the Courtyard, as with the original $1 million funding, will be structured as a loan to be repaid out of project surplus cash over 30 years at 3% simple interest.

In complying with HUD’s public participation requirement, this project was reviewed by the public advisory group, the Housing and Community Development Committee (HCDC) Housing Subcommittee for Off-Cycle Projects. On August 26, 2004, the HCDC, by proxy vote, at the Housing Subcommittee, unanimously recommended the project for another $1 million.

This Agreement has been approved by the County Counsel's Office, CMO Real Property, and meets U.S. Department of Housing and Urban Development (HUD) regulations. Risk Management has reviewed and approved the Contractor’s insurance coverage.

VISION ALIGNMENT:

This action keeps the commitment of: Offering a full range of housing choices; and goal number 9: Housing exists for people at all income levels and for all generations of families. The Project contributes to this commitment and goal by increasing the supply of workforce housing in a city that has been historically economically impacted and in an area presently undergoing revitalization. The project will enhance the current revitalization efforts.

FISCAL IMPACT:

The term of this Agreement, as amended, is 11/01/2003 through 12/31/2034. Funding for this First Amendment for an additional $1,000,000 comes from the HOME Investment Partnerships program. There is no net County Cost. The project is included in the Office of Housing Budget for FY 2004-05.