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Lafayette Redevelopment Agency Staff

Report

For:

Redevelopment Agency Board

Eden Housing Inc.'s request to amend the loan agreement to include an

additional $500,000 dedication of redevelopment agency funds to bridge

the funding gap for the senior housing project located at 3246 Mt.

Diablo Blvd.

Purpose

Consider Eden Housing Inc.'s request to commit an additional $500,000 of redevelopment

housing set aside funds towards the Eden Senior Housing Project.

Background

On February 28, 2005, the Senior Housing Task Force was created to help the City Council

meet its goal of providing senior housing in Lafayette. The task force, consisting of two

Councilmembers (Anduri, Federighi), two Planning Commissioners (Lovitt, Chastain) and

three Senior Services Commissioners (Fuchs, Hahn, Miller) met regularly for the next four

years.

In January 2007, based on extensive deliberations after the interviews with the various

developers who responded to the Request For Proposals, the Senior Housing Task Force

selected, and the City Council approved, the nonprofit Eden Housing Inc. as the developer for

this project. After exhaustive research, Eden engaged in negotiations with the property owner

of 3426 Mt. Diablo Blvd. - the Lemos Property. Once a purchase agreement was executed,

Eden submitted a formal development application (L02-08) to construct an independent living

senior housing project. The Lafayette Planning Commission considered and conditionally

approved L02-08 to establish a 46 unit senior housing development in November 2008.

The purpose of this memorandum is to provide the Agency Board with background on the

financing of the project and explain why the dedication of additional funds is necessary.

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Project Financing and Need for Additional Funds

Eden Housing Inc. and the affordable housing industry like most aspect of today's economy

are feeling the affects of the economic downturn. Tax credit investors are only able to offer 72

cents to the dollar which is a decline from the estimated 94 cents on the dollar when Eden

began budgeting for the project back in 2007. The estimated tax credit contribution is now

$6,186,246 instead of the projected $7,113,287.

The loss of tax credits has created a funding

gap for Eden Housing's senior development project in Lafayette.

The funding gap created by current economic climate was brought to the City's attention last

winter.

At that time Eden anticipated receiving development grants to cover the short fall of

$503,949.32.

Eden pursued a waiver of development impact fees to cover the funding gap with the City,

requesting a waiver totaling $500,000 which covered all city fees. The Senior Housing Task

force felt that it could not support a waiver of the $150,000 Lamorinda Transportation Fee

because it required mutual support from other jurisdictions. Eden agreed that it would try to

make up the shortfall in project savings. The Senior Housing Task Force reviewed this

proposal and recommended dedicating an additional $350,000 to cover the project gap with the

funding coming from the Redevelopment Agency's 20% set aside funds rather than a waiver of

impact fees.

Another reason for this funding request is that Eden has applied for tax credits from the

California Tax Credit Allocation Committee (TCAC) which administers the low income

housing tax credIt authorized to encourage private investment in affordable rental housing for

households meeting certain income requirements. The TCAC application includes a tie breaker

used when competing project have identical scores. The 2009 TCAC tie breaker calculation

rates projects on a percentage scale awarding a higher value to projects with a higher

percentage of committed funds. Committed funds are the monies dedicated to the project from

the city, county and permanent lenders.

Eden's financial consultant has reviewed the tax credit application and advised Eden to increase

the percentage of committed funds to development costs finding that applications with a

percentage at or above 50 percent will receive a higher score from the TCAC committee. To

achieve this goal, Eden approached their general contractor and re-analyzed the construction cost

and found ways to reduce the overhead thereby reducing the overall development costs. In

addition they are requesting the dedication of this additional $500,000 from the Lafayette

Redevelopment Agency. This amount would be used to cover the development fees for the

project, successfully bridge the funding gap and make the tax credit application more competitive

by achieving percentage above

50%.

Without this dedication of funds, the project would have a

rating of 47%.

Proportionality Requirements

Redevelopment Law requires that local jurisdictions spend their 20% tax increment funds on

affordable housing with the proviso that funds not all be spent on senior affordable housing

(housing that is often less controversial than regular multifamily housing). The proportionality

2 of 4

test requires jurisdictions to spend no more on affordable housing for seniors than the

percentage of the lower income population that seniors represent. Specifically, the law states

that each RDA, over the life of its implementation plan for a project area, expend 20% funds to

assist housing available to all age groups at least in the same proportion as the under-age-65

population bears to the total low-income population of the community as reported in the most

recent federal census.

What this means is, if seniors represent 10% of the lower income population in a particular

jurisdiction, then that jurisdiction cannot spend more than 10% of its redevelopment housing

funds on senior housing over the ten-year life of the implementation plan. Based on current

statistics available through the US Census Bureau and the Housing and Urban Development

Department, the amount of redevelopment money Lafayette can apportion to senior housing is

approximately 44%:

Based on this table, there are a total of 609 "elderly" households of lower income, as defined in

the HUD special tabulations of Census data.

The total number of lower-income households is

1,384; this means that seniors represent 44.0% of the lower-income household population.

Further, State law says that a redevelopment agency that has deposited in the Low and

Moderate Income Housing Fund over the first five years of the period of an implementation

plan an aggregate that is less than two million dollars ($2,000,000) shall have an extra five

years to meet the proportionality requirements. This means that Lafayette could potentially

have an additional five years to ensure the completion of non-senior housing, aggregated over

the implementation plan period (for a total of 15 years).

To date, the Lafayette Redevelopment Agency has committed $3 million to Eden Housing Inc.

and its Senior Housing Project: $2.2 million in direct Redevelopment 20% tax increment funds,

and an advance for the in-lieu fee to be provided by The Woodbury project in the amount of

$800,000.

As of.July 20, 2009 Eden has used $2,800,000 of those funds to cover

predevelopment expenses related to land acquisition, architectural and engineer services, legal

fees, etc.

Based on the proportionality requirement, the City can spend the $2.7 million in Agency funds

(the original $2.2 million approved in 20% funds, plus the current request of $500,000; the

$800,000 from The Woodbury project does not need to comply with the proportionality test),

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as long as it has spent approximately $3.44 million on other housing by the end of the

implementation plan, plus five years, or about 2020.

The following table is a summary of the current funding sources for Eden's Project:

California Community Reinvestment

$698,000

Corporation (permanent Lender)

Lafayette Redevelopment Agency

$3,000,000

Contra Costa County -CDBG

$1,400,000

Contra Costa County -Home

Total Permanent Funds

$19,102,249

Summary

Eden Housing Inc. has requested a dedication of an additional $500,000 towards the approved

senior housing development project. As recommended by the Senior Housing Task Force

these funds can come from the Redevelopment Agency 20% set aside funds which has enough

projected revenue to fund this request. The grant of additional redevelopment money would

successfully bridge the funding gap by covering the development fees for the project and

would enhance the tax credit application by achieving a percentage above

50%.

As such, staff

recommends approval of the request.

Recommendation

Approve the request and direct staff to draft a modified loan agreement increasing the

Agency's contribution to the Eden senior housing project by $500,000 for consideration at the

August 10, 2009 agenda.

Attachments

Written Request for dedication of funds from Eden Housing Inc.

Project Performa provided by Eden Housing Inc.

Written Request for fee waiver from Eden Housing Inc.

3675

22545 Grand Street

Lafayette, CA

94549

Hayward. CA 94541

510,5821460 Phone

Re: Lafayette Senior Housing

510582.6523 Fax

Dear Niroop,

www.edenhousrng.org

Eden is providing this letter detailing the current status of our construction and

permanent funding sources for the Lafayette Senior Housing development at 3426

Mt. Diablo Blvd. The Tax Credit application is based upon these funding sources.

The construction and permanent costs are fully funded with these committed sources

of funds. Consequently, we do not anticipate any funding gap if the City approves

the additional funding request and TCAC awards the tax credits to the project.

In November 2008, Eden requested a fee waiver

$503,949.32

to cover an anticipated

funding gap at that time. After this request was made, a decision was made not to

include the Lamorinda Transportation fee in the waiver request and therefore the

request was verbally reduced to $350,000. Eden Housing expected that it wOuld be

able find sufficient project savings to cover the $150,000 gap. The Senior Housing

Task Force agreed to recommend providing gap funding in the amount of $350,000.

However, rather than a fee waiver, the Senior Housing Task Force agreed to

recommend that the Redevelopment Agency of the City of Lafayette to provide an

equivalent amount of funding necessary to satisfy the gap and require the payment

of all applicable fees.

Subsequently, project cost estimate was refined culminating in the projected hard

and soft costs as shown in the attached proforma.

The second, and now the controlling reason for the additional funding request to the

City of Lafayette was to maximize our tie breaker score in the tax credit application.

The tax credit application is extremely competitive. Only projects that earn perfect

scores will receive a funding award. In the current tax credit round there are 20

projects competing for funds in the same region as Lafayette and only 3 projects are

expected to be funded. The tie breaker calculation employed by TCAC measures the

total committed permanent sources divided by the total development costs (excluding

the developer fee and land costs).

The projects with the highest percentage of

committed funds will be awarded the available credits. Eden's financial consultant

advised.that in order to be competitive, the tie breaker score needed to exceed

50%.

The original tie breaker score was 47.65%. By securing the additional City funds and

by working with the general contractor to lower the anticipated construction costs, we

brought the tie breaker up to 50.05%.

While we are not assured to receive the award,

we strongly believe that we have maximized our chances.

Eden

Housing does

not discriminate based

race, color, religion. sex, handicap, familial status, national origin, or any other

arbitrary basis. TDD/TY 1800.735.2922

(St-

Attachment #

The additional $500,000 in funding would not be paid until the construction closing at

the start of construction. If we receive the tax credit award, the construction closing

would take place in February 2010.

Sincerely,

Woody Karp

Senior Project Developer

Eden - Lafayette 202 W/ CREDITS

Eden - Lafayette Senior

SOURCES OF FUNDS

First Mortgage

Contra Costa County COBG

Contra Costa Coonly HOME

HCD - InlitI Grant Program

Investor Capital Contributions

Deterred Developer Pen

TOTAL PERMANENT SOURCES

needs lobe cnmrrrilled by 0/17

9510,923 17 mo *5, .0001 6.00%

10,314,569 Total Construction Sources

USES OF FUNDS

ACQUISITION

Total Land Cost or Vutue

Site Mninlennnce

Demolition

Tine und Legal

Total Acquisition Cool

Total Rehabilitation Cost

NEW CONSTRUCTION

Ott Site Work

Silo Work and Utilities

Sir oclures

Phnlovoltaics and Solar Hot Wuler

Generul Requirements

Contractor Overhead

Conlraclor Proflt

Covlructor Bond and Insurance

Total New Construction Costa

ARCHITECTURAL FEES

Design

Superwslon

Total Architectural Costs

SurveylEoglneeriog/testlng/const mgmtrcout estImator

CONSTR. INTERESTS FEES

Consl. Loan Inlerent (Conventional)

Predeselopment Interest

Originalinn Fee © .75%

Ourrk const inspecliuns, other costs

Contractor's Bond Premium

Tunes

Insurance

Tiltn and Recording

Total Conulructlon tntnrnnt nod Foes

Total Permanent FInancIng Costs

Rnsnrne for Parlnnrship wanugarnent lee and issuer moniloring tee

Total Reserve ConIc

Total Appraisal Conts

Total Construction Cootingeucy Costa

OTHER

Tan Credit App.IAIIOCittnrritnring fees

Environmentat!soils

Site Security

Impacl Fees

Permit Processing toes

Other - soIl cost contingnnoy

Total Other Costs

Totat Project Cost

DEVELOPER COSTS

Developer OverheadlPrnlil

Consullanyprocessing Aent

Prnject Admirrinlrulion

DICer

Total Developer Costs

TOTAL PROJECT COST

Syndication Cosls

Legal - Syndicalinn/Org

AcCountuol

Consollanl - Syndicalion

Total Syndication Costa

TOTAL PROJECT COSTS INCL. SYNDICATION

Monthly

Total

INCOME

Rent

Total

TOtal

Utility

Gross

Annual

Unit tree

hot Units

Charged

Monthly

Annual

Allowance

Rents

Gross Rents

ER 20% AMI

463

1,652

22.224

502

2,005

SR 40%AMI

630

9,450

113,400

dES

10,035

5R50%AMI

767

19,925

Gross Residential Income

18,400

88,202

65,829

Realderrtral rncome

453,260

484,592

476,206

488,112

500,314

512.622

525,643

538 784

Laundry/wlscinonme

3,E64

3,961

4,000

4,161

4,295

4,372

4,481

4,593

4,708

4,028

Efteclrse Gross Income (EGI)

Less Annual Operating Expenses

3,50%

282,200

271,377

280,875

290,705

380,861

311,411

322,311

333.502

345,257

357.352

389.859

352,804

389,202

415,089

424 422

Net Annual Operalrng Income

Less Operating Reserve

Less Replacement Reserves

Partnership Management Pen

Effectrne Gross Income (EGI)

525,857

843,206

806,796

570,705

584,974

559,598

614,568

625.553

948,701

Less Annual Operating Eopenses

487,034

Net Annual Operating Income

37 751

Less DebI Service

66,202

68,202

66,202

MHP Debt service

Leon Operating Reserve

Less Replacement Reserves

Canh Flow

6,079

3,653

1,620

.930

-3,708

59,475

55,205

52.670

40,558

Eden - Lafayette 202 W/ CREDITS

Applicable cost units

Plus Prevailing Wage Boost

Plus Energy Efficiency Boost

Plus Structured Parking

Plus Photovoftaic Boost

Plus Elevator Boost

Plus Impact Fees

Total Basis Limit

Less voluntary basis reduction

Eligible Basis

High cost factor

Federal Credit Amount

State Credit Amount

Equity from Federal Credit

Equity from State Credit

Total Equity

less syndication costs

itted Funds

Development Cost less land and dev fee and offsites

0 lesser of 5% or actual cost

13,755,405

I 30.00% DDA for 2009

5 higher affordability than we'll use in

3675

Re: Lafayette Senior Housing Development

Development Fee Waiver Request

Dear Ms. Srivatsa,

www.edonhousing.org

Eden Housing is extremely excited about the strides made towards achieving our mutual goal

of developing an affordable senior rental project in Lafayete's downtown.

We have worked

hard to incorporate all of the valuable comments and recommendations from the City's

Planning Commission, Design Review Commission, Circulation Committee, and Downtown

Street Improvement Committee and believe we have designed a development that will be a

dynamic addition to the Lafayette Community.

Unfortunately, we are not immune from the difficulties of the financial crisis. According to

our financial consultant and discussions with potential tax credit investors, the amount that

investors are willing to offer has dropped from the originally estimated 94 cents to 85 cents to

the dollar. This has resulted in an estimated contribution of $6,186,246 instead of the

estimated $7,113,287. We should be able to apply for additional funding from the HCD lnfill

Grant program and two green building programs to account for a substantial portion of the

shortfall'.

The City of Lafayette could greatly aide our ability to reduce the funding gap by waiving the

following development impact fees that would otherwise be charged to a new development.

2) Park Facilities Fee

3) Park Fees Program Admin Fee

1% of Parkland and Park Fees

$3,5 15.32

4)Lamorinda Transportation Fee

Total fee waiver request

$503,949.32

We truly appreciate the commitment made by the City of Lafayette to insure the success of

the Lafayette Senior Housing development and hope the city will be able to approve this

does

riot dsc.rirnnate based on race. coor. religion. sex, hOndicOp. famiflal status. riahnrial origin, or any other

arbitrary beds. TDD/TTY 1.800.735.2922

Attachment #