Agenda Item
ASR
Control 23-000076 |
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MEETING
DATE: |
04/11/23 |
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legal entity taking action: |
Board
of Supervisors |
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board of supervisors district(s): |
3 |
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SUBMITTING Agency/Department: |
OC
Community Resources (Approved) |
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Department contact person(s): |
Dylan
Wright (714) 480-2788 |
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Julia
Bidwell (714) 480-2991 |
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Subject: Cartwright Family Apartments
Additional Loan Request
ceo CONCUR |
County Counsel Review |
Clerk of the Board |
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Concur |
No
Legal Objection |
Discussion |
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3
Votes Board Majority |
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Budgeted: N/A |
Current Year
Cost: N/A |
Annual Cost: N/A |
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Staffing Impact: |
No |
# of Positions: |
Sole Source: N/A |
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Current Fiscal Year Revenue: N/A
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Prior Board Action: 9/27/2022 #34, 4/26/2022 #44,
11/16/2021 #22, 1/12/2021 #30 |
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RECOMMENDED
ACTION(S):
1. |
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. |
2. |
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. |
3. |
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. |
4. |
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. |
5. |
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. |
6. |
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