Agenda Item   

AGENDA STAFF REPORT

 

                                                                                                                        ASR Control  19-000785

 

MEETING DATE:

07/16/19

legal entity taking action:

Board of Supervisors

board of supervisors district(s):

1

SUBMITTING Agency/Department:

County Executive Office   (Approved)

Department contact person(s):

Thomas A. Miller (714) 834-6019 

 

 

Julia Bidwell (714) 480-2991

 

 

Subject:  Selection of Developer for Crossroads at Washington Site

 

      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:

No

# of Positions:

Sole Source:   N/A

    Current Fiscal Year Revenue: N/A

  Funding Source:      N/A

County Audit in last 3 years: No

 

 

    Prior Board Action:          N/A

 

RECOMMENDED ACTION(S):

 

 

1.

Select Related Companies of California as the developer for the lease and development of County-owned property on Santa Ana Boulevard at the off-ramp from Interstate 5 South (APN 398-092-13).

 

2.

Authorize the Chief Real Estate Officer or designee to negotiate a ground lease agreement with Related Companies of California.

 

3.

Authorize the Chief Real Estate Officer or designee to negotiate a joint powers agreement or other required documents necessary to pursue tenants-in-common ownership for the joint development of the County owned property (APN 398-092-13) and City owned property (APN 398-098-14).

 

4.

Authorize the Chief Real Estate Officer or designee to negotiate a transfer agreement of Regional Housing Needs Assessments allocations between the City of Santa Ana and County.

 

 

 

 

SUMMARY:

 

Approval of the ground lease with Related California in response to a Request for Proposal issued by the City of Santa Ana, and subsequent review by the County, will help with development of an affordable housing project on a City-owned site located at 1126 E. Washington Avenue (APN 398-092-14), directly adjacent to a County-owned parcel located on East Santa Ana Boulevard, APN 398-092-13.

 

 

 

BACKGROUND INFORMATION:

 

The County of Orange (County) owns a 0.87-acre parcel of property within the City of Santa Ana (City) that fronts directly onto East Santa Ana Boulevard adjacent to the off-ramp from I-5 South (County Site).  The County Site is vacant and undeveloped, and has been for several decades.  The property was originally acquired in the 1920s, but has since been divided several times due to several I-5 widening projects.  The City owns the property located on Washington Ave., directly adjacent to the County Site (City Site).  The City Site is an assemblage of parcels totaling 1.45 acres.  The City Site was purchased from the California Department of Transportation (CalTrans) as a remnant parcel after the I-5 widening project.  It is currently vacant and undeveloped, as is the County Site.  With direct access to East Santa Ana Boulevard, the County Site also allows development on the City Site to have an easy secondary access for emergencies.  The combined County Site and City Site (Project Site) total 2.28 acres within walking distance from the Santa Ana Regional Transportation Center, a key transit hub for all of Southern California. A map showing the location of both the County Site and City Site is attached hereto (Attachment A). The Project Site is designated District Center in the City’s General Plan and zoned Transit Village in the Transit Zoning Code.

 

RFP Process

 

On July 2, 2018, the City issued a Request for Proposal (RFP) to develop affordable housing projects on the City Site. The City received seven proposals in response to development of the City Site, including proposals from the following developers:

 

Cesar Chavez Foundation

Chelsea Investment Corporation

Community Development Partners

Community HousingWorks

Jamboree Housing

Orange Housing Development Corporation & C&C Development, LLC

Related Companies of California

 

During the RFP process, the County was contacted by affordable housing developers with an interest in utilizing the County Site as a part of their RFP responses to the City.  Consequently, the proposals contemplated the possible addition of the County Site.  As a result, the County served as an advisor to the City’s review panel, consistent with the direction of the Board of Supervisors (Board). 

 

On October 30, 2018, the City’s review panel met and interviewed all developers.  On November 14, 2018, the review panel met a second time to deliberate upon the scoring and selection of the proposals, which resulted in the following scores:

 

Developer Name

Project Name

Final Score

Orange Housing Development Corp & C&C Development, LLC

1126-1146 E. Washington Site

92

Related Companies of California

The Crossroads at Washington

91

Jamboree Housing

REVO Apartments

87

Cesar Chavez Foundation

Santa Ana Place

84

Community HousingWorks

Transformer

80

Community Development Partners

Washington Plaza, GRFLD, Lacy Walk

77

Chelsea Investment Corporation

Cielo

76

 

Since the City Site is located adjacent to the County Site, the City requested County staff to review the top three highest scoring proposals (Orange Housing Development Corp & C&C Development, LLC; Related Companies of California; and Jamboree Housing) for the combined site and advise the City on its determination and recommendation for a final developer of the combined parcels. 

In January and February 2019, the County conducted in-person interviews with the three developers based upon updated proposals that had been submitted to the County that differed from those originally provided to the City’s Review Panel.  The County’s choice was based upon these revised proposals.  On March 7, 2019, the County met with the City and provided its recommendation for the developer of the Project Site, Related Companies of California (Related).  The County concluded that Related had a more unified site plan and addressed the County’s need for Permanent Supportive Housing (PSH) since Related included 43 PSH units in its revised plan.  A copy of Related’s revised proposal is attached hereto (Attachment B).

Following recommendation by the County, the City’s Review Panel requested the revised proposals from the three developers.  The City’s real estate advisor, Keyser Marston Associates (KMA), completed a preliminary review of the three revised proposals.  Following KMA’s analysis, the City’s Review Panel met again on April 10, 2019, and, consistent with the County’s recommendation, recommended the selection of Related as the developer along with its operator partner, A Community of Friends, for development of the Project Site.

 

Based on the selection and review process, it is recommended that the following selection be made for this combined County and City project pursuant to a ground lease between Related, the City and the County:

 

Developer:      

The Related Companies of California

Operator: 

A Community of Friends (ACOF)

Project Name:

Crossroads at Washington (Project)

Recommendation:

Ground Lease Agreement for 1126 and 1146 E. Washington Site

(APN 398-092-14 and 398-092-13) 

 

KMA provided preliminary financial analysis for the Project based on funding assumptions that will need to be confirmed as part of Related’s application process for funding sources.  KMA will review the developer’s estimates and projections of rents, expenses, reserves and development costs in accordance with industry-standard underwriting guidelines before staff recommends the full amount of the award based on this underwriting.

 

Project Description

 

Related is proposing to develop a new transit-oriented affordable housing community on the Project Site. These parcels are currently vacant and positioned within walking distance from the Santa Ana Regional Transportation Center, a key transit hub for all of Southern California.  The Project Site is on two contiguous undeveloped parcels: the City Site, fronting East Washington Avenue on the northern half of the site; and the County Site, which is directly south of the City Site and fronts on Santa Ana Boulevard.  The five original buildings located on the Project Site were demolished in the 1990s by CalTrans during a freeway-widening project.  The entire Project Site is designated District Center in the City’s General Plan and zoned Transit Village in the Transit Zoning Code.

The Project includes the development of one residential building, subdivided into three residential portions with 86 units surrounding two interior, landscaped courtyard spaces. Developed at an overall density of 37.7 units per acre, the units will be configured as set forth in the table below.  All units will be flat apartments located on the first, second and third floors.  Currently, the building has been designed to buffer courtyards, open green areas and pool area from highway noise and visual pollution.  In addition, a sound wall is proposed along the eastern property line adjacent to the freeway ramp.  Approximately 3,500 square foot of interior community amenities and leasing offices are designed to accommodate supportive and management services (collectively, the Project).

 

One vehicular entry point to the site is provided off Washington Avenue, although this access point may change depending on availability of access from Santa Ana Boulevard during the entitlement process. 

 

The Project proposes a Mission Revival architectural style to complement adjoining neighborhoods and buildings.  In particular, the design is envisioned to complement nearby buildings – similar to the Santa Ana Regional Transportation Center and the Triada at the Station District Apartments (developed by Related).  The Project includes amenities ranging from a children’s tot lot to landscaped areas plaza fronting Santa Ana Boulevard that acts as both a passive and active space at the southern portion of the Project.

 

Project Parking

Parking is located along the western property line, resulting in an efficient layout to maximize parking spaces.  This pattern allows for direct resident access to the buildings.  The proposed site plan includes approximately 110 surface parking spaces, of which 42 spaces would be tandem spaces, which will be assigned to the three-bedroom and four-bedroom apartments.  A vehicular gate is tentatively planned to provide a degree of security.  Car-share/electric charging spaces will be located near the gate.

 

Resident Services

ACOF provides an array of intensive supportive services and connects tenants to the full range of services they need to gain increased independence and remain stably housed.  Integrated services are provided on an ongoing, individualized and flexible basis in concert with tenants’ needs and priorities, both individually and in group settings.

 

Unit Mix

The Project will be 100 percent affordable with 85 units restricted to extremely low income households earning no more than 30 percent of Area Median Income (AMI) of which 43 units will be set-aside for PSH, with one exempt two-bedroom manager’s unit.  The PSH units meets the County’s priorities, and the large bedroom units align with the City’s priorities.  The proposed unit mix and rent restrictions are as follows:

 

Bedroom

Size

30%

AMI (PSH)

30%

AMI   

Manager’s

Unit

Total Units

Studios

16

 

 

16

One-Bedroom

26

 

 

26

Two-Bedroom

1

20

1

22

Three-Bedroom

 

17

 

17

Four-Bedroom

 

5

 

5

TOTAL

43

42

1

86

 

County and City Owned Parcel Land Use Issues and Proposed Solution

The Project Site is comprised of two adjacent parcels, one of which is owned by the Housing Authority of the City of Santa Ana and the other owned by the County.  Developing one affordable housing project across two parcels with differing ownership presents unique challenges from a development, legal and lending perspective.  Through preliminary conversations with Related and the City building official, it was confirmed that splitting the buildings through the existing parcel lines would entail extensive project complications (e.g., separating buildings along parcel lines, etc.) to assure project finance securitization.  As a result, in order to develop the site plan as-is, changes would be necessary in order to make the development amendable to key stakeholders in the Project.

Following discussions with the City and County, staff tentatively agreed to pursue a joint ownership of the parcels through a tenants in common (TIC) ownership structure.   Consolidating ownership retains the integrity of the site plan and does not require a redesign or complicate the development, permitting or lending processes.  CEO Real Estate staff recommends that each landowner execute a grant deed to merge the parcels into one parcel owned jointly by the County and City, and to convey a proportional property interest in the respective parcels into a jointly held TIC ownership structure.  This TIC structure would result in a jointly owned Project Site with title to be held individually to the extent of each party's proportional interest in the combined two parcels.  The percentage ownership for each landowner will be determined based on the percentage of the current acreage between the two parcels. The County Site is 36.3% of the Project Site and the City Site is 63.7%. 

 

Subsequently, one ground lease agreement with the County and City as TIC can then be entered into with Related for site development.  With direction from the Board, CEO Real Estate staff will draft, negotiate and execute a joint powers agreement, or similar document, and any other necessary actions to pursue TIC ownership with the City and development of the Project. The terms of the ground lease will also be negotiated with Related and the City and will be contingent upon Board approval.  Current KMA analysis supports a 62-year term ground lease.  A copy of the KMA’s current financial analysis is attached hereto (Attachment C). 

 

Proposed Funding

The City’s preliminary funding commitments are as follows:

 

  •  

A loan in the maximum amount of $963,951.00 from the Neighborhood Stabilization Program; and,

  •  

A loan in the maximum amount of $3,007,489.00 from the HOME Investment Partnerships Program.

 

The City's funding obligation is subject to the following conditions: (1) Related must provide proof that it has secured all of its remaining financing for the development of the Project; and, (2) Related must provide proof that the County has approved or committed to approve a 62-year term ground lease for the County’s portion of the property.

 

The County’s conceptual funding, pending application and approval by the Board, is as follows:

 

  •  

County/OC Community Resources (County/OCCR) PSH Loan of approximately $2,280,701; and,

 

  •  

Forty-three Project-Based Vouchers for PSH (estimated $8.9 million value).

 

The County has not made any funding commitment as yet since OC Community Resources has not received a formal application from Related for this funding or these proposed vouchers.

 

Repayment of the City loans will occur from 33.3% of the Project residual receipts (after payment of operating expenses, debt service, any deferred developer fee, and partnership fees), with 33.4% of the Project residual receipts going to the County for repayment of the County/OCCR loan as well as capitalized ground rent, and the remaining 33.3% to be disbursed to Related.

 

The ground lease payments will be structured as capitalized ground rent payments based on the appraised fair market value of the Project Site. Related estimates the current value of the Project Site at $5,580,000. This figure will need to be confirmed through an appraisal, but based on Related’s assessment, the capitalized ground rent payments are estimated as follows:

 

  •  

The capitalized ground rent payment for the County Site is estimated to be a minimum of $2,500,000, with 3% simple interest, which will be repaid of the County’s residual receipts after the repayment of the County/OCCR loan, and,

  •  

The capitalized ground rent payments for the City Site is estimated to be $3,080,000, with 3% simple interest.

 

These amounts will be secured by a promissory note on the Project Site and be repaid through a share of the Project’s residual receipts to be paid to the County and OCCR respectively.  KMA estimates that with the 62-year term both the County/OCCR loan and the ground rent can be fully repaid.

 

Regional Housing Needs Assessment (“RHNA”)

The City indicates that it is open to a transfer of its RHNA allocation to potentially reduce the County’s RNHA obligation.  A memorandum of agreement may be required to facilitate any potential allocation of these units, and will be explored with the City during negotiations related to the TIC structure and lease terms.

 

Compliance with CEQA: This action is not a project within the meaning of CEQA Guidelines Section 15378 and is therefore exempt from CEQA since it will not result in any direct or indirect physical change in the environment and does not involve an irrevocable commitment of resources by the County to the activity. It is therefore exempt from CEQA. Any further action that constitutes a project will be reviewed for compliance with CEQA, and future development of the site by Related would be subject to CEQA.

 

 

 

FINANCIAL IMPACT:

 

Related is proposing to pay capitalized ground rent payments for the County Site, estimated to be $2,500,000, with 3% simple interest, from residual receipts after the repayment of the County/OCCR loan.

 

 

 

STAFFING IMPACT:

 

N/A

 

REVIEWING AGENCIES:

 

OC Community Resources/Housing and Community Development

 

 

ATTACHMENT(S):

 

Attachment A - Map of County and City Sites
Attachment B - Related California Proposal
Attachment C - KMA Current Financial Analysis