PURPOSE

The purpose of this report is to provide information for the Burbank Redevelopment Agency (Agency) to consider an Affordable Housing Agreement (AHA) (Exhibit A) with the Burbank Housing Corporation (BHC) that will fund the BHC�s acquisition and rehabilitation of 3030 Thornton Avenue (Project) in the Golden State Beautification Area.

BACKGROUND

The BHC submitted on April 18, 2003 a proposal requesting the Agency finance the acquisition and rehabilitation of the Project, the latest in a series of affordable housing projects within focus neighborhoods undertaken by the BHC with Agency assistance. The BHC in partnership with the Agency is acquiring, rehabilitating, and providing strong property management to deteriorated properties in order to stabilize and ultimately revitalize these neighborhoods. 

This partnership was initiated on October 26, 1999 when the Agency and the BHC entered into a Disposition and Development Agreement and the City authorized an AHA with the BHC to rehabilitate and acquire three Agency-owned rental units at 2331 North Fairview Avenue.  Since then, BHC has purchased and upgraded with Agency/City assistance 109 units, including the most recent seven unit project in the Peyton-Grismer area at 1721 Elliott Drive.

It was within this context that BHC submitted a proposal for the Project in response to the owner�s offer to sell.

ANALYSIS

Located on Thornton Avenue between Fairview Street and Ontario Street, the Project is within an R-4 medium density residential neighborhood.  The Project

 The Project is contiguous to another BHC project at 3000-3006 Thornton Avenue, an 8,795 square foot lot with a duplex and a two-story apartment building constructed above a four-car garage.  [1]

BHC proposes to consolidate the two lots at 3000-3006 and 3030 Thornton and enlarge the Project's existing unit into a three bedroom/two bath 945 square foot rental unit that will have an exterior treatment and site work compatible with work earlier completed at 3000-3006 Thornton Avenue.

Scope of the AHA

The AHA and its attendant exhibits, two Agency Promissory Notes, a Regulatory Agreement and two Deeds of Trust, is presented for Agency consideration and is intended to accomplish the following: (1) extend purchase and rehabilitation financing to the BHC by the Agency in the form of Agency Notes secured by a Trust Deed recorded against the Property; 2) prescribe occupancy and affordability requirements and impose property maintenance standards by recording covenants that are restricted in perpetuity via an amended and restated Regulatory Agreement and 3) provide Agency Promissory Notes to structure loan repayment through an amortized loan and a deferred loan forgiven over 55 years to ensure the operations of the Project.

This Project represents a continuing collaborative effort between the Agency and BHC to eliminate blighting conditions in focus neighborhoods by assisting in the acquisition and rehabilitation of deteriorated properties for the purpose of attaching covenants related to income, affordability, occupancy and property management, while adding to the stock of affordable housing.

Affordable Housing Agreement (AHA)

The AHA is a two-party agreement between the Agency and BHC, which describes the terms and conditions for the acquisition and rehabilitation and operation of the property.  The AHA provides for financial assistance lent from the Agency�s Low and Moderate-Income Tax Increment (Twenty Percent) Housing Fund (LMI), establishes the conditions for disbursement of these funds and sets forth the requirements for the operation of the property.

Summarized below are the salient provisions of the proposed AHA under which the Agency agrees to finance the Project for BHC.

�        Agency Assistance

Keyser Marston Associates, Inc. (KMA) prepared an economic analysis for the Agency in response to BHC�s request for $290,000 Agency assistance to acquire and rehabilitate the Project.   BHC has broached with lenders the feasibility of obtaining private financing to leverage Agency funding.  However, the limited cash flow generated by the Project combined with the substantial rehabilitation required by the Project will make this a difficult project to underwrite, except with public funding.

Sources of Funds

�       Agency Housing Funds                                                  $          290,000

�       BHC Equity                                                                                   5,000

Total                                                                            $          295,000          

Uses of Funds

�       Acquisition                                                                                185,000[2]

�       Direct Costs (e.g., rehabilitation, site work)                                 91,000

�       Indirect Costs (e.g., permits/fees, contingency)                           19,000

Total                                                                            $         295,000

The senior Agency Promissory Note will be a $57,200 thirty-year, three percent interest rate loan repaid annually.  KMA concluded that the Project�s income after operating expenses (viz., net operating income or NOI) would support a fixed debt service loan of $57,200 from the Agency.   BHC would receive any cash flow generated in excess of the debt service payment on the $57,200 Agency loan.  The difference between the Agency direct loan and the Project�s total development costs, $232,800, represents the financial gap that would be filled by a second Agency loan.  Under this junior lien, the Agency would provide another Promissory Note of $232,800, with the entire obligation deferred and forgiven if BHC complies with the income and affordability covenants over the 55-year loan term.

The household occupying the unit will be displaced due to rehabilitation.  Reconstruction of the one-bedroom unit into a three-bedroom dwelling will result in the household being �over housed�, requiring the household to be relocated to a smaller unit, one compatible with a household size based upon the Agency�s maximum occupancy standard of two persons per bedroom plus one additional member.  The Agency will assume all relocation costs as prescribed under State relocation law and conforming guidelines.

�        Terms of Purchase

The BHC is to fulfill to the City�s/Agency�s satisfaction all precedent conditions to the AHA, e.g., 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 Agency approval a fair lease and grievance procedure, a plan for tenant participation in management decisions and an affirmative marketing plan.  In addition, the Agency 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 Site, the AHA also governs key conditions for the long-term operation of the Site that run in perpetuity.

�        Affordability and Income Requirements

Affordability and income covenants will be recorded on the Project to ensure that, as with the adjacent BHC four rental unit project at 3000-3006 Thornton Avenue, the Project will be income and rent restricted in perpetuity defined as the useful life of the land use controls but not less than 55 years (the �Affordability Period� as described in Section 301 of the AHA and Section 4 of the Regulatory Agreement).  The Project will be affordable to tenants whose incomes do not exceed 80 percent of median income for Los Angeles County.

�        Property Maintenance

The BHC is required to maintain the Project in accordance with all applicable local codes, rehabilitation standards and zoning ordinances and at a standard of maintenance commensurate of similar housing units within Los Angeles County (Section 308 of the AHA and Section 10 of the Regulatory Agreement).  To that end, the AHA includes several stipulations to ensure adequate maintenance.

First, the AHA requires that by or before April 1 of each year BHC is to provide an audited financial statement verifying that reserve accounts are adequately capitalized and expenditures conformed to industry standards for operating costs of projects of similar size and including the following key elements.  To guard against overcrowding conditions, the AHA also imposes an occupancy standard that limits household sizes to two persons per bedroom plus one additional person, viz., a three-bedroom unit would have a maximum household size of seven persons (Section 307 of the AHA and Section 9 of the Regulatory Agreement).

The AHA also provides for periodic inspections (Section 310 of AHA and Section 12 of the Regulatory Agreement).  However, if the BHC fails to maintain the Site, the Agency may abate the violation and attach a lien upon the Site or assess the BHC (Section 308 of the AHA and Section 10 Regulatory Agreement).  Again, the Agency has authority to require   replacement of a property manager due to poor performance and to approve another property manager or property management company (Section 309 of the AHA and Section 11 of the Regulatory Agreement).

�       Approval of Sale, Transfer or Assignment

The AHA runs with the land and all of the terms, covenants and conditions are binding upon the BHC and any �permitted� successors and assigns.  The Project may not be sold, transferred, conveyed, encumbered to secure financing, assignment or lease without the prior written approval of the Agency, except for permitted transfers, viz., the Agency (a) subordinates its loan to accommodate financing (Section 104 of the AHA) or (b) the Site is sold, transferred or assigned and the Agency�s restrictions related to housing operations described under Article 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, which would be required to assume the obligations of the BHC under the Agreement and would be considered a community housing development organization or CHDO (Section 504 of the Agreement and Section 19 of the Regulatory Agreement).

ENVIRONMENTAL REVIEW

The Agency, acting as the lead agency has determined that, pursuant to the California Environmental Quality Act (CEQA), State Guidelines Section 15280 this project is Statutorily Exempt as a lower-income housing project and a Public Notice of Environmental Determination has been posted at the Planning Division counter.

FISCAL IMPACT

There is no negative impact to the City General Fund.  The Agency will lend $290,000 from LMI funds of which $232,800 will be forgiven.   LMI funds are budgeted and available under account number 305 CD23A 70004.

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:

A         Affordable Housing Agreement

B         Project Site (Pre and Post Rehabilitation)

Bhc3000thornton.doc

May 13, 2003

Judith S. Arandes

Executive Director

Burbank Housing Corporation

241 West Verdugo Avenue

Burbank, California 91510

Sujbect:  Revised Deal Points For 3030 Thornton Avenue Project

Dear Ms. Arandes:

The purpose of this letter is to transmit deal points to the Burbank Housing Corporation (BHC) for the acquisition and rehabilitation of 3030 Thornton Avenue  (Project).  It is expressly acknowledged that this transmittal represents a response by Burbank Redevelopment Agency (Agency) staff to the BHC�s proposal and does not constitute approval by the Agency or City of Burbank (City).

As outlined in your April 18, 2003 proposal, the proposed Project �consists of a very small one-bedroom single-family unit adjacent to� BHC�s recently rehabilitated units at 3000-3006 Thornton Avenue.  In response to BHC�s proposal, Agency staff proposes to recommend that the Agency lend Low and Moderate-Income Tax Increment Housing (20 Percent Set-Aside) funds to the BHC for development costs associated with the acquisition and rehabilitation of the Project in a manner compatible with work previously performed at 3000-3006 Thornton Avenue. 

Please advise me if the revised terms of the attachment are acceptable to BHC�s Board.  After terms are settled, Agency staff will prepare an Agreement for future City Council/Agency Board consideration.  Include in your correspondence board minutes designating parties authorized to sign documents

Sincerely,

BURBANK REDEVELOPMENT AGENCY

Duane Solomon

Housing Development Manager

Attachment

3030 THORNTON AVENUE APARTMENTS PROJECT

BURBANK HOUSING CORPORATION

1.      REHABILITATION BUDGET

Subject to the completion of the Agency�s analysis, the Agency will consider entering into an Affordable Housing Agreement (AHA) for the purpose of lending the BHC up to $290,000 in Low and Moderate-Income Tax Increment Housing funds (LMI) to acquire and rehabilitate 3030 Thornton Avenue (Project).  Rehabilitation is inclusive of all rehabilitation hard costs including construction of two additional bedrooms and new bathroom, demolition, and site work, as well as a construction contingency.  Eligible indirect costs include the issuance of permits and fees,; architectural and engineering services; and legal/closing costs. 

Expenses exceeding this amount are the responsibility of the BHC.  Any remaining budget balance may be applied towards reducing the Agency�s loan.

2.      REHABILITATION STANDARDS

BHC will ensure that the Project is in compliance with HOME property standards as defined under 24 CFR 92.251: the Project will meet all applicable local codes rehabilitation standards, ordinances and zoning ordinance, fulfill the accessibility requirements at 24 CFR Part 8, which implements Section 504 of the Rehabilitation Act of 1973 and covered multifamily dwellings as defined at 24 CFR 100.201, must also meet the design and construction requirements at 24 CFR 100.205, which implement the Fair Housing Act and implement the lead-based paint notification, evaluation and reduction requirements under 24 CFR part 35   The finished exterior treatment and site work at 3030 Thornton Avenue will be compatible with work earlier completed at 3000-3006 Thornton Avenue.

3.      AFFORDABILITY

The Project is to be affordable to low-income households with rents that do not exceed the lesser of Affordable Rents for Lower-Income Households as defined under Redevelopment Law or High HOME Rents less the monthly utility allowance.  The affordability period for the Project is to continue in perpetuity, which means the useful life of the land use controls on the site but not less than 55 years. 

4.      RESTRICTED UNITS

The BHC will restrict occupancy to the Project during the period of affordability to a low-income household, whose gross annual income does not initially exceeding 80 percent of the Los Angeles County median income as adjusted by household size.  The maximum household size may not exceed two persons per bedroom plus one additional person or a maximum household size of seven persons for a three- bedroom unit.

5.      LOAN TERMS

The senior Agency Promissory Note will be a $57,200 thirty-year, three percent interest rate loan repaid annually.  KMA concluded that the Project�s income after operating expenses (viz., net operating income or NOI) would support a fixed debt service loan of $57,200 from the Agency.   BHC would receive any cash flow generated in excess of the debt service payment on the $57,200 Agency loan.  The difference between the Agency direct loan and total development costs, $232,800, represents the financial gap that would be filled by a second Agency loan.  Under this junior lien, the Agency would provide another Promissory Note of $232,800 with the entire obligation deferred and ultimately forgiven if BHC complies with the income and affordability covenants over the 55-year loan term.

6.      MONITORING

By mid-July of each year beginning 2004, the BHC will provide a certification of the number of units actually occupied by and made affordable to very low, low and moderate-income households. The BHC is to provide with its annual payment to the Agency, beginning April 1, 2005, and an annual financial statement reviewed by an independent certified public accountant that would confirm the actual Project operating expenses described herein.

BHC will ensure that the Project is in compliance with HOME property standards as defined under 24 CFR 92.251: the Project will meet all applicable local codes rehabilitation standards, ordinances and zoning ordinance and fulfill the accessibility requirements at 24 CFR Part 8, which implements Section 504 of the Rehabilitation Act of 1973 and covered multifamily dwellings as defined at 24 CFR 100.201, must also meet the design and construction requirements at 24 CFR 100.205, which implement the Fair Housing Act.    The Project will be periodically inspected to ensure compliance with local codes and housing quality standards.

7.      TENANT PROTECTIONS

BHC agrees to abide by the Agency-approved property management plan, which includes a written tenant selection policy, a tenant participation plan incorporating a fair lease and grievance procedure as well as a plan for tenant participation in management decisions.  Tenant selection will conform to Section 8 guidelines in which local residency is given preference.

8.      AFFIRMATIVE MARKETING

BHC agrees to abide by an Agency-approved affirmative marketing plan describing the affirmative marketing requirements and procedures to be implemented for the Project including the methods for informing the public and potential tenants about Federal fair housing laws, procedures to inform and solicit applications from persons in the housing market area not likely to apply for the housing without special outreach and records that will describe actions taken by the BHC to affirmatively market units and to assess the results of these actions.

9.      RELOCATION

Based upon the Agency�s occupancy standards (two persons per bedroom plus one other person, one household will be displaced due to rehabilitation.  Reconstruction will increase the number of bedrooms, causing the current household to be �over housed�.  The Agency will assume all relocation costs as prescribed by State relocation law and implementing guidelines.   

10. ENVIRONMENTAL REVIEW DOCUMENTS

The City shall be responsible for any costs associated with the environmental review process/documentation required under the National Environmental Protection Act (NEPA) and the California Environmental Quality Act (CEQA).  City staff will commence the environmental review process at the earliest feasible time and will complete its review before the obligation of funds. 

11. DEVELOPMENT TEAM

The Owner acknowledges that the BHC was selected, in part, due to the City�s determination that the BHC met the Federal definition of a community housing development corporation (CHDO), and that the BHC is authorized to administer the Agreement and to operate the Project in the behalf of the Owner.  The City retains the right to approve any changes to the project team of the BHC.

12. PREVAILING WAGE

Subject to legal review, exclusive use of Agency LMI funds for an affordable housing project does not trigger State prevailing wage requirements

13. SCHEDULE OF PERFORMANCE

q      Escrow to close upon BHC meeting Precedent Conditions, no later than June 15, 2003.

q       BHC to commence construction no later than October 1, 2003.

q      Construction to be completed within four (4) months of Agency and City authorizing a Notice to Proceed, but no later than February 1, 2004.

q       Final Certificate of Completion to be issued within forty-five (45) days of completion of construction, subject to an inspection, which confirms that the project complies with the Scope of Development, but not later than March 18, 2004