Section 108 is a Community Development Block Grant (“CDBG”) loan guarantee provision that assists community development activities by encouraging local jurisdictions to borrow funds from the capital market and leverage such borrowed funds with pledges of future CDBG funds. On May 2, 2006, by Resolution No. 067943, the Board approved a Section 108 loan application submission to HUD on behalf of Trestle Glen at El Camino Transit Village (“Trestle Glen” or “Project”), a 123-unit affordable project located next to the Colma BART Station. The County submitted a Section 108 loan request of $7.145 million. Subsequently, as discussed below, HUD recommended increasing the Section 108 loan amount request to $10.745 million.
The development of Trestle Glen is sponsored by BRIDGE Housing Corporation. As is typical for a nonprofit developer wishing to take advantage of low income housing tax credits which provide equity financing to a project, BRIDGE has set up an ownership structure which includes Northpoint Housing, Inc., a nonprofit corporation wholly-owned by BRIDGE Housing Corporation (“Northpoint Housing”). Northpoint Housing has an active role in the general partner entity of the limited partnership, Trestle Glen Associates, which will be the ultimate legal owner and developer of the Project. On November 14, 2006, by Resolution No. 068382, the County increased CDBG/HOME funding to Trestle Glen by $1.5 million, for a total contract obligation of $2 million for the Project. The same resolution approved transfer of the obligations from a BRIDGE subsidiary nonprofit to Northpoint Housing. For convenience, references to BRIDGE are intended to include the appropriate BRIDGE-related entity, including Northpoint Housing.
On November 17, 2006, Northpoint Housing acquired the 2.7 acre site adjacent to the Colma BART Station. BRIDGE is currently undergoing the land use entitlement process to split the site into two distinct parcels: (1) a 1.7-acre parcel for the development of 123 affordable housing units (“Trestle Glen”); and (2) a 1.0-acre parcel to be sold to a for-profit developer for the construction of 32 market-rate townhouse condominiums. The entire 155-unit plan, now known as El Camino Transit Village, will eventually house families with a spectrum of incomes. A 60-slot child care is also planned as part of Trestle Glen.
On November 8, 2006, the County Planning Commission approved the El Camino Transit Village project by certifying the mitigated Negative Declaration and approving BRIDGE’s applications for a subdivision map change to create the two parcels, design review approval, air rights subdivision for the 32-townhome condo development, a use permit for the on-site child care facility, density bonuses, and a grading permit. On January 23, 2007, this Board denied the Town of Colma’s appeal of the Planning Commission’s approval of the project and approved the Project’s
Minor Subdivision, air rights Major Subdivision, Density Bonuses, Grading Permit, Use Permit, and Design Review, and certified the mitigated Negative Declaration.
Total Project costs are estimated at $51 million, including land purchase. BRIDGE hopes to start construction by mid-summer 2007.
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Section 108 loan funds will be used to replace temporary financing used to purchase the property and to assist with project development costs. In June 2006 the County submitted a request to HUD for $7.145 million of Section 108 loan funds. In addition, BRIDGE had intended to use proceeds from the sale of the market-rate parcel to assist with project development costs. However, upon review, HUD determined that for the internal project financing to work under HUD rules, the County should increase its initial Section 108 loan amount to $10.745 million, with BRIDGE then using the proceeds from the sale of the market-rate parcel to pay back part of the Section 108 loan principal.
Given that sale proceeds from the market-rate parcel are expected to be in the range of $3.6 million, HUD recommended that the County borrow $3.6 million over the original amount of $7.145 million, for a total of $10.745 million. This would allow the Project to benefit from funding equal in amount to the sale proceeds. The 1.0-acre parcel for the development of the townhomes is expected to be sold some time in mid-to-late 2007, as part of an arms-length transaction, with land use entitlements already in place.
Should the sale of the market rate parcel be accomplished before the Section 108 funds become available, HUD will not require that the sale proceeds be paid back to the County. However, the County’s agreement with Northpoint Housing will require that the sale proceeds be used entirely to support project development, and that the County’s Section 108 loan will be reduced to at least the original $7.145 million amount originally agreed upon. BRIDGE is in agreement with this plan, which is consistent with their financing strategy.
To date HUD has completed review of the County’s Section 108 request, with HUD approval in progress. Once HUD completes the approval process, and the loan documents between HUD and the County are approved by County Counsel, the Director of Housing will execute the Section 108 loan documents with HUD. Because of timing issues related to BRIDGE needing the Section 108 funds as soon as practicable, the agreement and loan from the County to Northpoint is made contingent upon successful conclusion of the HUD approval process and County Counsel approval of the HUD loan documents.
The County CDBG, HOME, and Section 108 outstanding investment in the project translates to $103,618/unit, but drops to $74,350/unit upon paydown of the Section108 loan to $7.145 million. While the investment is deep, it is still cost-effective and in line with County funding of many new construction projects targeting a similar affordability. Trestle Glen will serve households with incomes ranging from 30% to 50% of area median income. Many of the previous affordable housing developments approved for County CDBG/HOME funding targeted households at 50% to 60% of area median income. Rents at these levels have proven to be still out of reach for extremely low- and very low-income families.
There are two repayment streams for the Section 108 funds: (1) County repayment to HUD over 20 years with payments guaranteed out of future annual CDBG entitlement grants and project operating surplus cash; and (2) Project repayment to the County over 55 years structured on a residual receipts basis – that is, only project operating surplus cash will be diverted for repayment during the life of the loan; and at the end of the 55-year term, a balloon payment will be due to the County on any unpaid balances. Accordingly, the monies necessary to repay the Section 108 loan will be kept in existing identified accounts and no County general funds will be at risk.
The Contractor, Northpoint Housing, has assured compliance with the County's Contractor Employee Jury Service Ordinance, as well as all other contract provisions that are required by County ordinance and administrative memoranda, including but not limited to insurance, hold harmless, non-discrimination and equal benefits. Real Property Services has reviewed and approved the Agreement and County Counsel has reviewed and approved the Resolution and the Agreement as to form. Risk Management has reviewed and approved the insurance coverage provided in the Agreement.
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