PURPOSE

The purpose of this report is to provide information to the Agency to consider an Affordable Housing Agreement (AHA) (Exhibit A) to assist BHC to acquire residential property at 1902 Keeler Street (Property). 

BACKGROUND

Since 1997, the City of Burbank has implemented a pro-active approach to neighborhood revitalization in partnership with the Burbank Housing Corporation.  By investing resources to improve the housing stock, provide affordable housing opportunities, and develop neighborhood-based Activity and Family Resource Centers, we have improved the living conditions of residents in the Verdugo-Lake, Elmwood, Golden State, and Peyton-Grismer Focus Neighborhoods.  Most recently, we identified the Lake-Alameda Focus Neighborhood for revitalization efforts in the coming year. 

In 2002, the City and BHC began implementing neighborhood revitalization efforts in the Peyton-Grismer Focus Neighborhood.  Since that time, BHC has worked with the City to acquire and improve over 100 distressed housing units in that neighborhood.  BHC currently owns and manages a 7-unit apartment building at 1721 Elliot Drive and is in the process of rehabilitating 12 additional residential units at 1729-1735 Elliot Drive.  In addition, BHC is in the process of rehabilitating 70 residential units at 1801-1815 Grismer Avenue and will complete construction of the Peyton-Grismer Activity and Family Resource Center this summer.  While these efforts have already contributed to improving the living conditions of residents in the Peyton-Grismer Focus Neighborhood, more opportunities exist for revitalizing this important neighborhood.   

Earlier this year, at the Joint Study Session on Affordable Housing with the Planning Board and City Council, staff discussed a concept for providing affordable homeownership opportunities to lower and moderate income families living in our Focus Neighborhoods.  Increasing homeownership opportunities will complement our revitalization efforts and contribute towards stabilizing our Focus Neighborhoods.  Staff is currently working with BHC and the Olson Company on a proposed homeownership project in the Golden State Focus Neighborhood that we will bring for the Agency�s consideration at a later date.

In the meantime, BHC has identified a similar opportunity in the Peyton-Grismer Focus Neighborhood for the possible development of such an affordable homeownership project and is requesting Agency assistance to purchase a targeted property listed for sale on the market.

Opportunity Purchase of a Targeted Property

On June 6, 2005, the residential property at 1902 Keeler Street (APN 2468-014-004) was placed on the market for sale.  The list price was $499,900.  The site is approximately 5,590 square feet and consists of a 770 square foot, 2-bedroom, 1-bath house with an extra room built off of a detached garage.  The house is one of the more distressed properties on Keeler Street.  The property is located at the northeast corner of Keeler Street and Elliot Drive within the Peyton-Grismer Focus Neighborhood (Exhibit B).

On June 16, 2005, BHC submitted an offer to purchase the property at 1902 Keeler Street.  BHC�s offer of $500,000 was accepted and a 30-day escrow commenced on June 20, 2005.  Although other offers were made on the property, BHC�s offer prevailed because of the short escrow period offered.  BHC views this as an opportunity to purchase a targeted property that will provide the opportunity for an additional affordable housing unit in the neighborhood and possibly for a larger master plan to develop a residential homeownership project to benefit lower and moderate income families that may currently reside in our Focus Neighborhoods.  

Because of the relatively short 30-day escrow period, BHC has proposed to finance the purchase with a bank loan.  They have negotiated terms of a loan with First State Bank of California (First State Bank).  BHC currently has a beneficial financial relationship with First State Bank.  Earlier in 2005, First State Bank provided BHC with a mortgage loan secured by properties in the Verdugo-Lake Focus Neighborhood.  These funds were used to repay a portion of the Agency�s loan to BHC for restructuring debt.  The terms of the First State Bank loan met the requirements of the Regulatory Agreement between the Agency and BHC and were considered preferable to terms offered by other lenders.  First State Bank has demonstrated their interest in partnering with BHC and the Agency to improve the community.

Agency Gap Financing

BHC has proposed to obtain a first mortgage loan from First State Bank to purchase the property at 1902 Keeler Street.  The amount of the loan ($100,000) was determined by the amount of debt service that the rental income of the property could support.  BHC estimates that the property could generate rental income of approximately $1,200 per month.  This amount is consistent with moderate-income rents for a 2-bedroom home and would support the monthly payment on a conventional amortized mortgage loan of approximately $100,000 at 6.5% interest, plus taxes, insurance, and maintenance costs.  This loan amount, combined with BHC�s equity contribution of $25,000 results in a financing gap of $384,000 (including closing costs estimated at $9,000), which is proposed to be filled with a deferred payment, second mortgage loan provided by the Agency as summarized below.  

* Financing gap includes closing costs estimated at $9,000.

The gap financing provided by the Agency allows BHC to further build their capacity and relationship with First State Bank.  The bank has expressed interest in continuing to be a partner for future BHC transactions.   

BHC will fund minor rehabilitation at 1902 Keeler Street and rent the property to a moderate-income household.  The rental income generated will be used to repay a portion of the mortgage loans obtained to purchase the property.  BHC may propose to enter into an Affordable Housing Agreement with the Agency for a proposed affordable ownership project in the future. 

The Property is located within an R-3 zone.  The residential neighborhood immediately adjacent to the proposed project site is zoned R-4 to the north and east along Peyton Avenue and Grismer Street, respectively, and R-3 to the west of Keeler Street.  There are a number of single-family residential homes along Keeler Street, some with one or two additional units built in the rear of the property.  Any future development of the Property would provide an important transition or linkage between the adjacent R-3 and R-4 zones.  BHC would consider a project design that would complement the existing lower density residential uses along Keeler Street while improving traffic circulation on Elliot Drive. 

Terms of AHA

The terms of the AHA requires BHC to acquire and operate the Property as an affordable rental unit for lower and moderate-income households for a period of 55 years.  Acting as the lead agency, the Agency has determined that pursuant to the California Environmental Quality Act (CEQA), the Property is categorically exempt in accordance with CEQA guidelines. 

Under the terms of the AHA, the Agency will provide a no-interest deferred repayment loan in the amount of $384,000 to BHC to purchase the property at 1902 Keeler Street.  The Agency loan will be secured by a second deed of trust on the property, subordinate to a first mortgage loan of approximately $100,000 from First State Bank. 

BHC will be responsible to fund minor rehabilitation to the Property to ensure that it meets acceptable federal, state and local housing quality standards and will maintain the Property in a decent, safe and sanitary manner, in accordance these standards.  BHC will operate and manage the property as an affordable rental unit for moderate-income households (< 120% Area Median Income). 

BHC may bring back for the Agency�s consideration, a proposal to develop an affordable homeownership project on the site.  Any future development of the Property will be subject to a new Affordable Housing Agreement to be considered by the Agency.  If the proposed development of an affordable homeownership project does not occur, BHC will rent the property at an affordable rent to moderate income households for a period of 30 years.  At the completion of 30 years, the Agency will have the right to revise the AHA to target lower income households for the remaining 25 year term of the AHA.

CONCLUSION

The property at 1902 Keeler Street has been listed for sale on the market.  BHC has requested the Agency�s assistance to purchase the Property for use as an affordable rental unit for moderate-income households.  BHC may propose to develop the property as an affordable homeownership project in the future.  Staff recommends that the Agency adopt the proposed resolution to approve the attached AHA and provide gap financing in the amount of $384,000 to assist BHC with the acquisition of 1902 Keeler Street.   

FISCAL IMPACT

The Agency will provide a deferred repayment loan of $384,000 to the Burbank Housing Corporation.  This loan will be secured by the improved residential property located at 1902 Keeler Street.  There are currently sufficient funds in the Agency�s Low & Moderate Income Housing Fund in account number 305.CD23A.70005.0000.13057 for acquisition of 1902 Keeler Street.

RECOMMENDATION

Staff recommends that the Agency adopt the proposed resolution to approve the Affordable Housing Agreement and related documents between the Burbank Redevelopment Agency and the Burbank Housing Corporation.    

EXHIBITS

Exhibit A -      Affordable Housing Agreement

Exhibit B -      Parcel Map

Exhibit C -      Photos of Property