Agenda Item AGENDA STAFF REPORT ASR Control 23-000076
MEETING DATE:	04/11/23
legal entity taking action:	Board of Supervisors
board of supervisors district(s):	3
SUBMITTING Agency/Department:	OC Community Resources (Approved)
Department contact person(s):	Dylan Wright (714) 480-2788
	Julia Bidwell (714) 480-2991

Subject: Cartwright Family Apartments Additional Loan Request

ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

No Legal Objection

Discussion

3 Votes Board Majority

Budgeted: N/A

Current Year Cost: N/A

Annual Cost: N/A

Staffing Impact:

# of Positions:

Sole Source: N/A

Current Fiscal Year Revenue: N/A

Funding Source: See Financial Impact Section	County Audit in last 3 years: No
Levine Act Review Completed: Yes

Prior Board Action: 9/27/2022 #34, 4/26/2022 #44, 11/16/2021 #22, 1/12/2021 #30

RECOMMENDED ACTION(S):

Authorize the OC Community Resources Director or designee to increase the amount of the 2020 Supportive Housing Notice of Funding Availability by $1,500,000 with available funding as outlined in the Financial Impact Section.

Authorize the OC Community Resources Director or designee to utilize funds as outlined in the Financial Impact Section for additional loan financing to Cartwright CCR, LLC, formed by C&C Development, Waterford Group and the Riverside Charitable Corporation, for the increased development costs and development of Cartwright Family Apartments, a 60-unit affordable housing development in the City of Irvine.

Approve increase to the previously approved loan commitment in the amount of $567,000 to Cartwright CCR, LLC, formed by C&C Development, Waterford Group and the Riverside Charitable Corporation by $1,500,000 for an amount not to exceed $2,067,000 using available funding as outlined in the Financial Impact Section, subject to contingencies outlined in this Agenda Staff Report.

Approve the increased loan commitment to Cartwright CCR, LLC, formed by C&C Development, Waterford Group and the Riverside Charitable Corporation, with a per unit loan limit of $206,700 for 10 units for households experiencing homelessness, exceeding the per unit loan limits under 2020 Supportive Housing Notice of Funding Availability for a development in the City of Irvine, subject to contingencies outlined in this Agenda Staff Report.

Approve subordination at permanent financing of the previously approved permanent loan amount of $567,000 and the new permanent loan amount of $1,500,000 for an amount not to exceed $2,067,000 to a first trust deed conventional permanent loan of approximately $9,826,480, a second and/or third trust deed City loan of approximately $11,925,000, as set forth in this Agenda Staff Report and authorize the OC Community Resources Director or designee to subordinate to additional senior debt up to 100 percent of the cumulative loan-to-value based on the as-built appraised market value, if necessary, based on any future changes in project financing.

Authorize the OC Community Resources Director or designee to execute subordination agreements; standard set of loan documents and restrictive covenants; and such additional agreements, contracts, instructions, and instruments necessary or appropriate for construction and permanent loan financing.

SUMMARY:

Approval of the additional County loan commitment and subordination of the new and previously approved County loans at permanent financing will help facilitate long-term financing needs for Cartwright Family Apartments and will support the production of supportive housing in Orange County.

BACKGROUND INFORMATION:

On November 5, 2019, the Board of Supervisors (Board) approved Cartwright Family Apartments in the City of Irvine (Development) for Special Needs Housing Program (SNHP) funding for 10 Mental Health Services Act (MHSA) units and authorized the OC Health Care Agency (HCA) Director or designee to execute the Local Government Certification and Regulated Unit Occupancy Restrictions form.

On December 15, 2020, and December 14, 2021, the Board approved submittal of a project application to the State Department of Housing and Community Development (State HCD) along with the required resolution and 20-year services commitment for No Place Like Home (NPLH) Competitive Allocation but did not receive an award. On January 12, 2021, the Board approved the loan commitment to Cartwright CCR, LLC, formed by C&C Development, Waterford Group and the Riverside Charitable Corporation (Developer) in an amount not to exceed $567,000 and eight Housing Choice Project-Based Vouchers (PBVs) from the Orange County Housing Authority (OCHA), subordination of the County of Orange (County) loan at permanent financing to senior debt for the Development.

The Development will provide 60 units of housing, including 59 rental units to households earning between 30 and 80 percent of the Area Median Income (AMI) and one unit for the property manager. The Development will consist of 15 one-bedroom units, 17 two-bedroom units and 28 three-bedroom units. Ten one-bedroom rental units will be restricted to MHSA eligible individuals experiencing homelessness with rents set at 30 percent AMI, including eight units subsidized with OCHA PBVs. Onsite amenities include a pool, tot lot, community room/fitness center and green space for the residents to enjoy. A range of supportive services will be provided onsite by the HCA and Families Forward, a non-profit corporation, for the supportive housing and affordable housing units based on the specific needs of the households residing in the Development. Typical supportive services include counseling, financial literacy, healthy living education and wellness classes.

On November 16, 2021, the Board approved the transfer of up to $13,038,389 in anticipated and returned SNHP MHSA funding from the State of California Housing Finance Agency (CalHFA) to OC Community Resources (OCCR) and authorized re-commitment of the returned funds to the same developments, which included a $1,574,810 SNHP commitment to the Development.

On April 26, 2022, the Board approved an appropriation of $27 million in American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Funds (ARPA-SLFRF) to OCCR for the purpose of supporting production of permanent supportive housing in Orange County and providing landlord incentives and assisting OCHA tenants with moving costs supporting OCHA’s voucher utilization.

On September 27, 2022, OCCR requested Board consideration to utilize up to $21 million in previously appropriated ARPA-SLFRF to increase the 2020 Supportive Housing Notice of Funding Availability (2020 NOFA) by $20.1 million (or subsequent NOFA as approved by the Board), and up to $900,000 for administration, and return to the Board for funding commitments to individual projects.

Additional Funding Request for Gap Financing

Development costs have significantly increased due to a shortage of material, skilled labor/workforce, inflation, and the rise of interest loan rates. Thus, many developers are identifying large funding gaps as they move towards closing construction loan financing. The Developer has identified a gap of approximately $3,975,000 for the Development and is seeking $1.5 million in financial assistance from the County after working with the general contractor on value engineering and reducing costs to extent feasible. Additionally, the Developer has submitted a funding application to the City of Irvine (City) for an additional $2,475,000 in HOME Investment Partnerships Program American Rescue Plan Funds (HOME-ARP). The City funding request is under review and will be considered for approval by City Council at their April 25, 2023 meeting. The deadline to close on the construction loan is in May, so OCCR is bringing this item to the Board in April.

The Development’s financing plan will be complete with approval of the additional gap financing from the County and the City. Even with the additional funding request, the total County funding amount represents only approximately 8.5 percent of the Development’s total capital financing all units. The County funds are very well leveraged and are below the 18 percent contribution threshold referenced in the 2022 Housing Funding Strategy Update. OCCR intends to close the loan at construction closing and fund at permanent loan closing, which will minimize the County’s risk by ensuring that the Development is built before the County provides the remaining funds. The risks are also mitigated since the Development has a diverse rent affordability structure (rents from 30 to 80 percent AMI) which allows greater rental income to support the ongoing operations.

OCCR staff is recommending Board approval to increase the 2020 NOFA by $1.5 million, increasing the loan commitment to the Development under the 2020 NOFA to up to $2,067,000, and waiver for the Development to exceed the per unit loan limits under the 2020 NOFA. Under the 2020 NOFA policies, the Developer can request $56,700 per unit for a one-bedroom assisted unit located in all other cities outside unincorporated areas and participating cities; however, due to the Development’s financing gap and limited available resources to fill the gap and the quickly approaching deadline to close on construction loan financing, OCCR recommends exceeding the allowable per unit loan limits and underwriting the Development with an approximately $206,700 per unit loan limit for 10 units for households experiencing homelessness, totaling $2,067,000. This request is consistent with recent projects from various developers that have requested additional funding from the County due to increasing development costs.

The Development’s estimated completion date is November 2025, and staff is recommending funding the combined County loan(s) up to $2,067,000 with ARPA-SLFRF (or a combination of funding sources as identified in the Financial Impact Section), which will help the County meet its ARPA-SLFRF expenditure date of December 31, 2026.

The Development was awarded a tax credit and bond allocation from the California Tax Credit Allocation Committee (TCAC) with a May 29, 2023, readiness deadline. The additional County and City loan commitment to the Development will help fill a financial gap so the Developer can close on the construction loan financing in May 2023 and begin construction.

Below are the updated financial summary highlights of the Permanent Financing phase of the Development:

Source of Funds	Funding Amount
Conventional Permanent Loan	$9,826,480
City of Irvine	$9,450,000
City of Irvine (HOME-ARP) (pending)	$2,475,000
County of Orange (SNHP/MHSA)	$1,574,810
County of Orange (ARPA-SLFRF) (current request plus previously approved)	$2,067,000
Tax Credit Proceeds	$15,763,736
Deferred Developer Fee	$1,752,160
Developer Equity	$100
Accrued/Deferred Interest (City of Irvine)	$69,868
Total Project Costs	$42,979,154

Note: Financing subject to change prior to construction and completion of Development. Underwriting guidelines per 2020 NOFA.

County Loan Terms:

Permanent Loan:	Up to $2,067,000
Interest Rate:	3 percent simple
Term:	55 years
Security:	Fifth Deed of Trust
Payments:	Residual Receipts (13.28%)

With the combined County financial commitment, the County will record rent and occupancy restrictions on 10 one-bedroom units for individuals experiencing homelessness earning at or below 30 percent AMI for a period of 55 years via a regulatory agreement, which will not be subordinated to any conventional deed of trust. Up to eight units will be subsidized with OCHA PBVs. An additional 49 units will be restricted by the City, the TCAC or other lenders to households with incomes between 30 to 80 percent AMI.

Funding of the County loan and commitment of the PBVs are contingent upon the following:

1.	Any and all necessary local approvals by the City.
2.	Evidence of commitment of all construction and permanent financing sources, including the City’s $2,475,000 additional funding request.
3.	Receipt and approval of final project development costs and revised final development proforma and financing plan (including cash flow analysis) to reflect all final funding approvals.

OCCR staff provided an update on the Development’s financing plan and additional funding request to the Project Review Advisory Panel.

The supportive housing units in this development are part of the 2,396 permanent supporting housing units identified in the 2022 Housing Funding Strategy to address housing needs for individuals and households experiencing homelessness. As such, these 10 units of supportive housing units will contribute to the progress of this effort and provide much needed supportive housing in the near future.

Compliance with CEQA: This action is not a project within the meaning of CEQA Guidelines Section 15378 and is therefore not subject to CEQA, since it does not have the potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. The approval of this agenda item does not commit the County to a definite course of action in regard to a project since it is for approval of an additional County permanent loan, subordination of the County loans to senior debt for the Development and to allow the County’s continued support of the production of supportive housing in Orange County. This proposed activity is therefore not subject to CEQA. Any future action connected to this approval that constitutes a project will be reviewed for compliance with CEQA.

Compliance with NEPA: Pursuant to the U.S. Department of Treasury, Interim Final Rule Frequently Asked Questions for SLFRF Program, the National Environmental Policy Act (NEPA) does not apply to Treasury’s administration of the SLFRF program. Projects supported with SLFRF funds may still be subject to NEPA review if they are also funded by other federal financial assistance programs. Per 24 CFR Part 58, an Environmental Assessment of the Development was completed and the Authority to Use Grant Funds were issued by the U.S. Department of Housing and Urban Development (HUD) on December 1, 2020, for HOME funds and on December 17, 2020, for PBVs.

FINANCIAL IMPACT:

The County’s $2,067,000 loan(s) will only affect the notes receivable balance sheet accounts of the fund. Per budgeting practice, the loan is not built into the fiscal year appropriations budget process. Upon issuance of the Certificate of Occupancy, the County $2,067,000 loan(s) will be funded with 100 percent American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Funds (ARPA-SLFRF) Revenue Loss in Fund 15G, HOME Investment Partnerships Program funding in OC Housing Fund 15G, Housing Asset Fund 170, OC Housing Authority Operating Reserves Fund 117, CEO Single Family Housing Fund 15B and/or Real Estate Development Program Fund 135. The previously approved and committed $1,574,810 Special Needs Housing Program (SNHP)/Mental Health Services Act (MHSA) loan will be funded from MHSA Housing Fund 12A at construction close in FY 2022-23.

STAFFING IMPACT:

N/A

REVIEWING AGENCIES:

OC Health Care Agency

ATTACHMENT(S):

Attachment A - California Code of Regulations Title 14 Section 15378
Attachment B - Code of Federal Regulations Title 24 Subtitle A Part 58
Attachment C - Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions