PURPOSE

The purpose of this report is to provide information to the Burbank Redevelopment Agency (Agency) on a proposal to lease residential properties owned by the Agency located at 313 and 427 West Valencia Avenue (Valencia Properties) to the Burbank Housing Corporation (BHC) for the purpose of providing affordable rental housing opportunities.  BHC proposes to rehabilitate the Properties with Agency financial assistance and use the properties to provide affordable rental housing opportunities for very low and low-income households.   

BACKGROUND

In May 1999, the Agency purchased a 7,407 square foot site located at 427 West Valencia Avenue.  The site is improved with a single-family home containing 1,203 square feet of living space, including three bedrooms and two baths.  The Agency purchased the property using $221,899 of Housing Set-Aside Funds.

In June 1999, the Agency purchased additional property located at 313 West Valencia Avenue.  This site is 10,041 square feet and contains a four-unit apartment building having 2,771 square feet of living space and consisting of three 1-bedroom units and one 2-bedroom unit.  The site also contains detached garages with alley access.  The Agency purchased the property using $344,155 of Housing Set-Aside Funds. 

Since acquiring the Valencia Properties in 1999, the Agency has maintained their use as affordable rental housing.  The residential units have been professionally managed on behalf of the Agency and revenues generated have paid for such management and supplemented the Agency�s Low and Moderate Income Housing Fund.   

The Valencia Properties are located in close proximity to William McKinley Elementary School (McKinley School).  When the properties were originally purchased, the intent was to acquire additional residential properties adjacent to McKinley School and develop a joint-use playground and park facility in partnership with the Burbank Unified School District (BUSD).  If the properties had been used for this purpose, the Agency�s Housing Set-Aside Fund would have been reimbursed for the purchase of the properties.  Since 1999, the Agency has approached property owners to acquire other adjacent properties to McKinley School and they have been unwilling to sell their property.  In the meantime, BUSD no longer has a vision for this joint use of the properties and current residential real estate values in Burbank make the proposed joint-use project a more costly proposition.

As a result, staff is recommending an alternative use for the Valencia Properties.  Staff is proposing to enter into Disposition and Development Agreements (DDAs) and long-term lease agreements with Burbank Housing Corporation (BHC) to rehabilitate the properties for use as affordable rental housing for very low and low-income households.

ANALYSIS

The proposed use of the Valencia Properties to provide affordable housing for very low and low-income households is consistent with the goals of the Blue Ribbon Task Force on Affordable Housing.  BHC has a proven track record of rehabilitating and operating rental housing that is affordable to very low and low-income households.  Currently, BHC operates or is in the process of rehabilitating approximately 200 housing units in the community.  The majority of these units are affordable to very low and low-income households. 

Condition of Properties and Rehabilitation

The properties are currently maintained in average to good condition.  As stated above, they have been professionally managed on behalf of the Agency since 1999 and the rental income generated has been used to maintain the properties.  However, no significant rehabilitation or improvements have been performed on the properties since being acquired by the Agency in 1999.  The apartment building (313 W. Valencia Avenue) was originally constructed in 1952 and the single-family home (427 W. Valencia Avenue) was originally constructed in 1939.  The age of the properties warrants some rehabilitation work to bring the structures up to current building codes.  

BHC hired a professional licensed contractor and certified building inspector to inspect the properties and assess their condition to determine a scope of rehabilitation appropriate for the long-term use of the residential units.  In addition, BHC reviewed environmental site assessments of the properties previously attained by the Agency.  Based upon these inspections and reports, BHC proposes to perform rehabilitation work on the properties that includes the following:

�        Remediate asbestos containing materials and lead based paint;

�        Replace roofs on both structures;

�        Upgrade electrical systems;

�        Replace plumbing systems;

�        Upgrade heating systems;

�        Repair and seismically bolt foundations;

�        Repair windows and replace exterior doors;

�        Upgrade kitchens and bathrooms;

�        Paint interiors and exteriors;

�        Replace carpeting and vinyl floor coverings;

�        Replace appliances; and

�        Replace garage door hardware.

The cost of the proposed rehabilitation work for both properties, including contractor fees and a contingency allowance, is estimated to be approximately $220,000.  BHC is proposing to perform the rehabilitation with financial assistance from the Agency. 

• Explanation of relocation rights and benefit options;

• Assistance completing relocation claims, rental applications and appeals forms, as requested;

• Assistance in locating comparable decent, safe and sanitary replacement housing;

• Moving assistance payments; and

• Replacement housing payments, including rental assistance or down-payment assistance.

Generally, relocation assistance is determined based upon monthly housing need over a 42-month period and limited to $5,250 per household plus an allowance for moving expenses. Some households may be eligible for Last Resort Housing Payments depending upon household income, current housing costs and the cost of comparable replacement housing in the market.  Last Resort Housing Payments are payments in addition to replacement housing payments and are determined based upon the difference between each household�s current rent or 30% of gross income, whichever is less, and the market rent for a comparable replacement unit of sufficient size to accommodate the household over a 42 month period.

As part of the Relocation Plan, OPC performed a rental housing survey to identify comparable replacement housing units in close proximity to the Valencia Properties.  The survey identified an adequate number of available market-rate units to meet the potential needs of households that may be relocated from the Valencia Properties.  In addition, BHC�s Tenant Selection Plan gives preference to households displaced by governmental actions.  Thus, relocated households will be given first opportunity to rent available and comparable BHC units at an affordable rent.  BHC has indicated there may be available affordable units to accommodate at least two of the households currently residing in one-bedroom units.  The other households, requiring larger three-bedroom units or a comparable single family home, may receive relocation payments to rent or purchase another home in the private market. 

The total, actual amount of relocation assistance that may be necessary to relocate the four (4) households has not yet been determined.  The relocation budget for the Valencia Properties is estimated to be $120,000 for replacement housing payments, moving allowances and last resort housing payments, if necessary, as previously described.  

In conformance with state relocation guidelines, the Relocation Plan has been made available for 30 days public review and comment and notice was provided to the current residents of the Valencia Properties.  No public comments were received.  Staff is recommending that the City Council approve the attached Valencia Properties Relocation Plan (Exhibit 2).

Operation of Properties

The properties will be reserved for very low-income and low-income households and rented to tenants at the statutorily established affordable rents.  However, at this time it is difficult to identify the ultimate mix of very low and low-income households that will reside in the properties.  To ensure that no tenant will be required to pay more than the defined affordable rent for their unit, and to avoid overstating the project�s potential cash flow, staff proposes that the Agency evaluate the project as though the rent on all the units is limited to the very low-income level. 

In addition, staff proposes to establish a rent subsidy reserve that BHC may use to stabilize rental income to ensure that operating expenses are attained.  The rent subsidy reserve will be established as part of the DDAs for each property in the form of a grant available to BHC.  The maximum amount of rent subsidy that may be necessary during the first five years of operation is approximately $75,000 or $15,000 annually.  Therefore, staff is proposing that the Agency establish a rent subsidy reserve account of $75,000 for the first five years of operations of the Valencia Properties. 

During the initial five years of operations, if sufficient revenues are generated, BHC will use excess revenues to build up a long term operating reserve account funded by the properties.  This long term operating reserve will replace the Agency�s rent subsidy reserve after the fifth year of operations.  Payments to the long term operating reserve account, rent subsidy reserve, and BHC overhead will be made prior to residual receipts payments to the Agency.

Summary of Terms of Disposition and Development Agreements

The proposed Disposition and Development Agreements (DDAs) between the Agency and BHC will allow for lease of the Agency-owned properties to BHC for a period of 55 years at a lease rate of one dollar per year per property until such time as the Agency loan is fully repaid and 100 percent (100%) of the residual receipts generated by the properties thereafter.  Lease of the properties in lieu of sale will enable the Agency to hold the properties for possible future reuse.  If necessary, the Agency will be responsible to relocate the existing tenants at the properties at a budgeted cost of $120,000.  The Agency will provide a loan to BHC in the amount of $220,000 to rehabilitate the properties.  The Agency will also establish a rent subsidy reserve in the amount of $75,000 ($15,000 annually) for the first five years of the properties operations that BHC may use to subsidize tenant rents.  

BHC agrees to lease the properties from the Agency and operate them as affordable rental housing for very low-income and low-income households for a period of 55 years.  BHC will use the Agency loan to fund rehabilitation of the properties in accordance with the rehabilitation scope of work summarized above.  The terms of the Agency loan are proposed to be 3% simple annual interest and BHC agrees to repay the loan over the 55-year term of the lease from residual receipts generated by the properties.  Repayment of the Agency loan is contingent on the project generating sufficient cash flow to fulfill the obligation within the 55-year term.

A summary of the DDA financial terms is listed below:

• Lease Term:                           55 years at $1 per year per property until Agency loan is repaid and 100% of residual receipts thereafter.

• Agency Loan

-        Rehabilitation Loan:                  $220,000

-        Interest Rate:                              3% simple interest annually

-        Loan Repayment:                     Residual receipts contingent on the properties generating sufficient cash flow to fulfill the obligation within the 55-year term after allowable operations costs.

• Rent Subsidy Reserve:          $75,000

• Relocation:                              $120,000

• Income and Affordable Rents:   Very Low-Income and Low-Income

Disposition of Public Property

Section 33431 of California Redevelopment Law requires that the Agency conduct a public hearing prior to disposing of real property purchased with Agency funds.  In addition, the City Council must adopt a resolution authorizing the Agency to sell or lease small residential properties containing four or less dwelling units to be restricted for the use and occupancy of low or moderate-income households.  The City Council Resolution authorizing the lease of small housing projects is attached hereto and this report serves as the instrument informing the City Council of the specific leases of the Valencia Properties to BHC. 

ENVIRONMENTAL REVIEW

The Agency, acting as the lead agency pursuant to California Environmental Quality Act (CEQA), has determined that the proposed use of the properties is categorically exempt under CEQA guidelines section 15301 and 15303 pertaining to existing facilities with negligible or no expansion of use and new small structures.  A Public Notice of Environmental Decision has been posted at the Planning Division counter. 

FISCAL IMPACT

The current fiscal impact to the Agency of the proposed project is estimated at $415,000.  This amount includes the Rehabilitation Loan, Rent Subsidy Reserve and Relocation costs as summarized below:

Rehabilitation Loan:                  $220,000

Rent Subsidy Reserve:             $  75,000

Relocation:                                 $120,000

Total:                                           $415,000

There are currently sufficient funds in the Low & Moderate Income Housing Unappropriated Fund Balance for these activities.  A budget amendment appropriation is necessary to reallocate $415,000 from the Low & Moderate Income Housing Unappropriated Fund Balance (account number 305.ND000.30004.0000.000000) to a new Valencia Properties Lease project (account number 305.CD23A.70005.0000.16576) for the proposed costs. 

The actual expenditures for Relocation and the Rent Subsidy Reserve may be less than shown.  The Rehabilitation loan is to be repaid from residual receipts generated by the properties.  In addition to the current estimated Agency cost of $415,000, the Agency previously expended $566,054 to acquire the properties in 1999 for a total Agency cost of $981,054. 

RECOMMENDATION

Staff recommends that the City Council:

1. Adopt the attached Resolution authorizing the Agency to sell or lease small housing projects pursuant to California Health and Safety Code Section 33433.

2. Adopt the attached Resolution approving the Valencia Properties Relocation Plan.

Staff recommends that the Redevelopment Agency:

1. Adopt the attached resolution approving the Disposition and Development Agreement with the Burbank Housing Corporation for 313 West Valencia Avenue.

2. Adopt the attached resolution approving the Disposition and Development Agreement with the Burbank Housing Corporation for 427 West Valencia Avenue.

3. Adopt the attached resolution approving $415,000 budget amendment appropriation from the Low & Moderate Income Housing Unappropriated Fund Balance.  

EXHIBITS

Exhibits 1                     Photos of Properties

Exhibit 2                       Valencia Properties Relocation Plan

Exhibit 3                       Disposition and Development Agreement for 313 West Valencia Avenue

Exhibit 4                       Disposition and Development Agreement for 427 West Valencia Avenue

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