PURPOSE

The purpose of this memorandum is to provide the Burbank City Council (Council) with information to consider an Affordable Housing Agreement (AHA) (Exhibit A) between the City and the Burbank Housing Corporation, a community housing development corporation (CHDO), to assist the CHDO acquire and rehabilitate seven rental units at 2325 and 2335 North Fairview Street (Property) (Exhibit B).

BACKGROUND

Located in an R-4 medium density residential neighborhood in the Golden State Beautification focus area, the Property includes two separate parcels:

q       2335 Fairview Street (APN 2464-005-31)

Detached single-family dwelling and a four-unit two-story apartment building, both constructed in 1947 on a 6,795 square foot lot.

q       2325 Fairview Street (APN 2464-005-33)

Two detached single-family dwellings built in 1947 on a 6,795 square foot lot

The two sites making up the Property sandwich 2331-2333 North Fairview Street, acquired by the CHDO from the Burbank Redevelopment Agency on October 26 1999.  As noted on the attached vicinity map (Exhibit C) the CHDO would own 15 units in the Golden State focus neighborhood, with this project representing nearly half that number:

This project is predicated upon a proven strategy for upgrading a neighborhood in decline.   As with other focus neighborhoods, such as the Elmwood area, the approach is to assist the CHDO acquire and rehabilitate properties in the neighborhood, have the CHDO operate these sites as mixed income projects with an affordability component and to construct an activity center from which to provide services that will help to integrate tenants into the community. Other efforts include rehabilitation financing extended to owners of single-family and multifamily properties through the Agency�s Residential Rehabilitation Program and these recent achievements: 

�      Burbank Cottages.  The Agency has joined with M. David Paul and Associates to construct 20 single-family detached units, 10 of which are restricted to moderate-income households and the remaining units sold at market rate. 

�      Cottages Children�s Center.         An important step toward addressing the shortage of quality child care in Burbank, this project will include an 8,600 square foot childcare facility and playground designed to accommodate 92 children.  The facility will be managed by the CHDO and approximately 20 percent of the spaces will be available at affordable rates.

�      Media Studios North Project.  The M. David Paul project adds an office component on the edge of the Golden State neighborhood at the northwest corner of Empire Avenue and Ontario Street.  The project is entitled for 650,000 square feet of Class A office space.  The fourth and final phase  is to include 180,000 square feet is expected to be constructed within the next several months.  

Tonight�s action is to consider an AHA that implements several elements of this approach, that of acquiring and upgrading units and making them affordable to households. The AHA also provides for reconfiguring two single-family units to increase the number of bedrooms in response to the need for more affordable larger bedroom units (three or more bedrooms).[1]   Whenever possible, the City is to incorporate community-serving uses within new and existing residential developments to address the needs of the larger neighborhood.  To this end, staff is to study options to develop an activity center for the area and return with a proposal later.

This project also fulfills one of the housing objectives and programs adopted by the Redevelopment Agency Board (Agency) and City Council as recommended by the Blue Ribbon Task Force on Affordable Housing and as later reiterated at the July 2003 study session on an affordable housing strategy. 

Objective: Sustain and Strengthen Neighborhoods

Program:  Continue acquisition/rehabilitation activities in focus neighborhoods

The City (and/or Agency) assisted the CHDO to acquire for rehabilitation eight other units on three separate sites, part of the 180 units the CHDO operates in Burbank.  This Property would nearly double the CHDO�s units in the Golden State neighborhood. 

ANALYSIS

The AHA and its attendant exhibits, comprised of a Regulatory Agreement, Promissory Note and a Deed of Trust, are presented for City consideration for the purpose of 1) extending purchase financing to the CHDO by the City in the form of a Note secured by a Trust Deed recorded against the Property; 2) integrating the terms of the Property in perpetuity into the recorded covenants that restrict occupancy and affordability and that prescribe property maintenance standards; and 3) structuring loan repayment.

Summarized below are the salient provisions of the proposed Agreement under which the City would assist the CHDO purchase the Property.

Purchase of 2325 and 2335 North Fairview Street

The CHDO has entered into a purchase agreement with the sellers, David and Mary Augustine, for a purchase price of $ 1,123,000, contingent upon City assistance.   This amount is within ten percent of the fair market value based upon an appraisal by Otis E. Hackett & Associates.

The CHDO�s purchase of the Property constitutes a voluntary sale under the Federal Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA).  As such, the owner was notified of the appraised value, and that the CHDO could not condemn the Property should the owner refuse to sell.  

Purchase of the Property is dependent upon three funding sources: a CHDO-secured conventional loan leveraged with Federal HOME Investment Partnerships Act (HOME) and equity participation from the CHDO.

AFFORDABLE HOUSING AGREEMENT 

The AHA presented for City consideration is intended to accomplish the following: 1) extend below market interest rate financing to the CHDO to reduce the purchase price and to rehabilitate the Property; 2) provide security to the City for purchase and rehabilitation financing in the form of a Note secured by a Second Trust Deed recorded against the property; and 3) place terms, conditions and covenants affecting housing operations

Scope of the AHA

An agreement between the City and CHDO, the AHA describes the terms and conditions for the acquisition and rehabilitation of the property as required under federal HOME regulations.    The AHA also provides for financial assistance lent from HOME funds, establishes the conditions for disbursement of the City loan and sets forth the requirements for the operation of the property. 

q     City Assistance 

The City is to lend the CHDO $1,080,000 in HOME funds to underwrite a portion of Property acquisition, as well as the direct and indirect costs related to acquisition and rehabilitation costs, including lender fees and closing costs.  The amount of the loan is tantamount to (a) 67 percent of the purchase price of $1,123,000, with the balance provided by a conventional loan from the CHDO's lender plus (b) approximately $373,000 applied towards building rehabilitation, indirect costs (e.g., 10 percent construction contingency, CHDO construction management, closing costs) and financing costs.  The CHDO is responsible for paying development costs exceeding the City�s loan.  Any remaining funds are to be applied to the City loan balance. 

 Sources of Funds

Conventional Mortgage Financing                           $          369,000

Owner Equity                                                                           47,000                     

      City HOME Loan[2]                                                               1,080,000

     Total                                                                            $      1,496,000

Use of Funds

Assemblage Costs                                                     $       1,143,000

            Direct Costs (rehabilitation, Property work)                    315,000

            Indirect Costs                                                                         35,000           

            Financing Costs[3]                                                                        3,000

Total Development Costs                                      $      1,496,000

q     Land Use and Entitlements

 The AHA requires the CHDO to obtain the necessary land use approvals and entitlements and imposes a scope of development.  The CHDO is to rehabilitate the Property in conformance with the Site Plan, the Scope of Development and Schedule of Performance and to obtain all necessary building permits.  Rehabilitation will include improvements, repair, asbestos and lead based paint abatement.   More specifically, rehabilitation will include the following work items:  

�      Room additions and reconfiguration;

�      Remodel kitchens � specific improvements will focus on health and safety issues, however, work may include new counters, fixtures, cabinets and flooring;

�      Remodel bathroom � specific improvements will focus on health and safety issues, however, work may include new bathtubs, toilets, fixtures and flooring;

�      New exterior doors;

�      Upgrade electrical system and plumbing systems;

�      New carpeting;

�      Interior wall repair and paint;

�      Exterior painting;

�      Stair and deck work; and

�      New roofs.

The City, acting as the lead agency, has determined, pursuant to the California Environmental Quality Act (CEQA), State Guidelines Section 15280, that this Property is Statutorily Exempt as a lower-income housing Property and a Public Notice of Environmental Determination has been posted at the Planning Division counter.  City staff separately reviewed and updated a tiered review of the Property under the Federal National Environmental Policy Act (NEPA) in which HUD had previously released funds for acquisition and rehabilitation sites in focus neighborhoods as Categorically Excluded.  

q      Loan Terms

Financing for the acquisition of the Property and any remaining funds to facilitate rehabilitation will be provided through two loans, a first trust deed from a private lender and a second deed of trust with the City.    The City loan of up to $1,080,000 will be deferred and forgiven if the CHDO complies with the income and affordability covenants over the 55-year loan term (in the event that the CHDO defaults, the principal plus three percent interest would be due and payable).    At the time of completion of rehabilitation, any remaining loan balance will be applied towards reducing the City loan principal.

The CHDO is to retain the Property�s Net Profit defined as the net cash flow from the Property after payment of operating expenses and debt service on the bank loan. This is consistent with the City�s recent practice of assisting the CHDO develop sufficient funding to operate new activities within focus neighborhoods and to increase administrative capacity to continue taking on new projects. Operating expenses are inclusive of actual cash outlays to operate the Property, such as maintenance and utility costs and an asset management fee of eight percent.  In addition, the CHDO is to maintain a capital replacement reserve capitalized at $250 per unit per year, a property management fee of $35 per unit per month (or a standard property management fee acceptable to the City, e.g., five percent of effective gross income) and an operating reserve capitalized at two percent of effective gross rent during the first full calendar year after completion of rehabilitation.  The CHDO is to have property insurance commensurate with the full replacement value of the Property.

q     Terms of Sale

The CHDO is to fulfill to the City�s satisfaction all precedent conditions to the AHA, e.g., securing private financing acceptable to the City, completing a tenant survey and submitting an acceptable Management Plan.  The Management Plan must include a written tenant selection policy and a tenant participation plan.  The written tenant selection policy and a tenant participation plan must incorporate for City approval a fair lease and grievance procedure, a plan for tenant participation in management decisions and an affirmative marketing plan.   In addition, the City may require replacement of the manager or management company for poor performance and have right of approval of a new manager or management company.

Housing Operations under the AHA

In addition to describing the terms of sale and subsequent rehabilitation of the Property, the AHA also governs key conditions for the long-term operation of the Property that extend into perpetuity defined as the useful life of the land use controls but not less than 55 years.

q     Income and Affordability Requirements 

Affordability and income covenants will be recorded on the Property to ensure that all units will be restricted throughout the Affordability Period extending in perpetuity (Section 301 of the AHA and Section 4 of the Regulatory Agreement).[4]  One one-bedroom unit will be affordable to a very low-income household, with rents that do not exceed affordable rents for very low-income households as defined under HOME regulations (Low HOME rents).   The remaining units, including three one-bedroom units, a one-bedroom unit being converted into a four-bedroom unit, a two-bedroom unit being reconfigured into a three-bedroom unit and an existing three-bedroom unit, will be affordable to low-income households, with rents that do not exceed affordable rents for low-income households as defined under HOME regulations (High HOME rents).

q     Property Maintenance

The CHDO is required to maintain the Property in accordance with all applicable local codes, rehabilitation standards, ordinances and zoning ordinances and at a standard of maintenance commensurate to similar housing units within Los Angeles County (Section 307 of the AHA and Section 10 of the Regulatory Agreement).   To guard against overcrowding conditions, the AHA also imposes an occupancy standard for tenants occupying units subsequent to the AHA that limits the one-bedroom household size to three persons (Section 306 of the AHA and Section 9 of the Regulatory Agreement) and a three-bedroom unit to seven persons. 

The AHA also provides for periodic inspections (Section 309 of AHA and Section 12 of the Regulatory Agreement).   However, if the CHDO fails to maintain the Property, the City may abate the violation and attach a lien upon the Property or assess the CHDO (Section 307 of the AHA and Section 10 Regulatory Agreement).  Again, the City has authority to require replacement of a property manager due to poor performance and to approve another property manager or property management company.

q     Approval of Sale, Transfer or Assignment

The AHA extends in perpetuity and all of the terms, covenants and conditions are binding upon the CHDO and any �permitted� successors and assigns.   The Property may not be sold, transferred, conveyed, encumbered to secure financing, assignment or lease without the prior written approval of the City, except for these permitted transfers: (a) the City subordinates its loan to accommodate financing (Section 106 of the AHA) or (b) the Property is sold, transferred or assigned and the City�s restrictions related to housing operations described under Section 300 (income, affordability, occupancy, maintenance) are continued.   Approval of sales, transfers or assignments would be restricted to only those proposed assignees or transferees demonstrating comparable operational experience and capability, who would be required to assume the obligations of the CHDO under the Agreement and would be considered a CHDO (Section 504 of the Agreement and Section 22 of the Regulatory Agreement).

AMENDMENT TO THE CITY CONSOLIDATED PLAN

The attached notice (Exhibit D) regarding a proposed substantial amendment to the City�s Consolidated Plan indicates that the City would consider infusing up to $1,080,000 in HOME funds to the Project.  This represents an amendment to the City�s fiscal year 2003-04 Annual Action Plan to the federal Consolidated Plan. 

FISCAL IMPACT

There will be no direct fiscal impact to the City General Fund.  Federal HOME funds are budgeted and available under 128.CD25A.70005.0000.14579

RECOMMENDATION

Staff recommends that the City Council adopt the proposed resolution approving the Affordable Housing Agreement with the Burbank Housing Corporation. 

EXHIBITS

A         Affordable Housing Agreement

B         Site/Plot Plan

C         Vicinity Map

D         Fiscal 2003-04 Consolidated Plan Amendment

CHDOpiibeagr.doc

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