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Agenda Item
ASR
Control 24-000115 |
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MEETING
DATE: |
03/26/24 |
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legal entity taking action: |
Board
of Supervisors and Orange County Housing Authority |
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board of supervisors district(s): |
2 |
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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: Approve
Loan and Project-Based Vouchers for the Orion Apartments
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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:
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No |
#
of Positions: |
Sole
Source: N/A |
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Current Fiscal Year Revenue: N/A
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Prior Board Action: 2/28/2023 #32 |
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RECOMMENDED
ACTION(S):
Acting as the Board of Supervisors:
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1. |
Authorize the OC
Community Resources Director or designee to utilize up to $921,150 in
available funding as outlined in the Financial Impact Section for loan
financing to Orange 702, L.P., formed by USA Properties Fund Inc. and
Riverside Charitable Corporation, for the development of the Orion
Apartments, a 166-unit affordable and supportive housing development located
at 1800 East La Veta in the City of Orange, pursuant to the 2023 Supportive
Housing Notice of Funding Availability. |
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2. |
Approve the loan
commitment to Orange 702, L.P., formed by USA Properties Fund Inc. and
Riverside Charitable Corporation, in the amount not to exceed $921,150,
subject to contingencies outlined in this Agenda Staff Report. |
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3. |
Approve
subordination of the $921,150 loan at construction financing to a first trust
deed loan of approximately $29 million and second trust deed loan of
approximately $5 million, and at permanent financing to a first trust deed
loan of approximately $19,475,000, with the ability to increase 10 percent
due to an increase of construction costs, 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 the project financing. |
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4. |
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. |
Acting as the Board of Commissioners to the Orange County Housing
Authority:
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5. |
Approve the
selection of the Orion Apartments for the utilization of eight (8) Housing
Choice Project-Based Vouchers in
accordance with the policies and procedures identified in the Orange County
Housing Authority Administrative Plan and authorize the execution of related
documents, instruments and agreements. |
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6. |
Authorize the
Executive Director of the Orange County Housing Authority to execute any
document necessary related to the commitment of the U.S. Department of
Housing and Urban Development Housing Choice Project-Based Vouchers in
connection with the Orion Apartments, provided the commitment incorporates
the business and financial terms set forth in this Agenda Staff Report and is
approved as to form by County Counsel. |
SUMMARY:
Approval of the
County construction to permanent loan, commitment of eight (8) Housing Choice
Project-Based Vouchers and subordination of the County loan at permanent
financing to senior debt for the Orion Apartments will help facilitate
long-term financing needs for the Orion Apartments and support the production
of supportive housing in Orange County.
BACKGROUND
INFORMATION:
On February 28,
2023, the Board of Supervisors (Board) approved the recommended changes in
policy and process for the 2023 Supportive Housing Notice of Funding
Availability (2023 NOFA) and authorized the OC Community Resources (OCCR)
Director or designee to issue the 2023 NOFA making up to $67.1 million in
funding and up to 210 Housing Choice Project-Based Vouchers (PBVs) available
for the development of extremely low-income housing and return to the Board for
funding commitments to individual projects.
In November 2023,
Orange 702, L.P., a limited partnership formed by USA Properties Fund Inc. and
Riverside Charitable Corporations (Developers) submitted a response to the 2023
NOFA with a funding application requesting $921,150 and eight (8) PBVs for a 166-unit
affordable and supportive senior rental housing development, Orion Apartments
(Development). The Development will be located at 1800 East La Veta in the City
of Orange (City).
USA Properties
Fund (USA), a for-profit company established in 1981, is the lead developer and
an experienced housing developer, builder and manager of apartment homes in
California and other western states. USA’s portfolio includes conventional
apartments as well as affordable and senior housing options and currently has approximately
12,000 rental units. Their property management arm, USA Multifamily Management,
manages more than 90 apartment communities in California and Nevada. USA has
developed and partnered on the development of a number of affordable housing
projects in Orange County, including Vintage Aliso (Phase I) and Liberty Aliso
(Phase II), which were developed through a public-private partnership,
resulting in the creation of 402 units of new multifamily housing in the City
of Aliso Viejo that was completed in 2019. Most recently, USA partnered with
Jamboree Housing Corporation to develop Pelican Harbor (formerly known as
Huntington Beach Senior Housing), a 43-unit senior community with 33 units
restricted by the County of Orange (County) for seniors experiencing homelessness,
which is slated to complete construction in July 2024.
The Riverside
Charitable Corporation (RCC), the co-developer and a 501(c)(3) non-profit
partner, was founded in 1988 and provides partnership management and partners
to provide social services to various low-income housing tax credit entities in
which it has an ownership interest. The mission of RCC is to help those who
cannot afford the necessities of life. RCC has assisted in the development of
over 128 communities to date, housed over 15,800 families and provided services
to over 12,000 families.
The proposed
Development will provide 166 units of affordable and supportive housing,
including 111 one-bedrooms and 55 two-bedroom rental units, including two
managers’ units. Of these units, eight (8) one-bedroom rental units will be
restricted to Mental Health Services Act (MHSA) eligible seniors experiencing
homelessness with rents set at 30 percent Area Median Income (AMI), to include
five (5) units restricted by the County through a 55-year regulatory agreement
and three (3) units restricted by the Orange County Housing Finance Trust
(Trust). The eight (8) one-bedroom units will be subsidized with Orange County
Housing Authority (OCHA) PBVs. The remaining 156 rental units will be restricted
at 30 to 70 percent AMI by the California Tax Credit Allocation Committee
(TCAC) and/or other funding sources.
The proposed
Development will consist of two four-story buildings and one two-story
building, both with elevators, and surface parking on 3.85 gross acre parcel.
Onsite amenities include approximately 1,300 square foot club room with a
hospitality kitchen, a computer room, a fitness center, food storage lockers,
laundry rooms, bike stalls, and 17,900 square feet of outdoor courtyard space
with several barbecue grills, outdoor bench and picnic seating areas, a
resident tended garden and a fenced dog park.
Onsite property
management services will be provided by USA Multifamily Management. The Orange
County Health Care Agency will provide supportive services to eight (8) MHSA
units with households who meet the MHSA eligibility criteria, sourced through
the Coordinated Entry System. Life Skills Training and Educational Programs,
Inc. (LifeSTEPS), a non-profit corporation, will provide on-site supportive
social services to all residents at the Development. LifeSTEPS formed in 1996
and is one of the largest providers of social and supportive services for
residents of affordable housing in California. LifeSTEPS currently provides
service coordination to over 19 properties in Orange County, encompassing over
2,100 units of senior and multi-family housing. LifeSTEPS will leverage its
relationships with local non-profit and governmental agencies to access as many
additional resources as possible for all residents. All services are geared
toward supporting residents to maintain their housing and to learn, grow and
thrive in the community.
Permanent Financing and PBVs
The Developers are
requesting a construction to permanent loan financing under the 2023 NOFA in
the amount of $921,150 to be available to the project at construction and
conditions placed on the loan have been satisfied. The County loan will be
subordinate to financing as outlined in the financial summary below. OCCR is
requesting authorization 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. In
determining the maximum additional senior debt to which the County will
subordinate its loan, OCCR will calculate the senior debt plus the County loan
and subtract that total from the current (within last six months) as-built
appraised market value. If the current as-built appraised market value exceeds
the cumulative senior debt plus the County loan, the County may subordinate to
additional senior debt, if necessary, for the viability of the project.
The Developers
have secured a $2.2 million loan commitment in Low- and Moderate-Income Housing
Asset Funds (LMIHAF) from the City. A unique feature of the financing for the
Development is a private ground lease with a publicly traded company by the
name of iStar/Safehold (NYSE: SAFE). This financing strategy helped to create
an additional subsidy of $7 million that enabled the project to obtain a bond
allocation from the State California Debt Limit Allocation Committee (CDLAC) in
2023. Additionally, RCC is investing $4 million in the Development.
The Developers are
requesting eight (8) PBVs to be available to the Development after construction
is completed and a Certificate of Occupancy is issued. The eight (8) PBVs will
be guaranteed for 20 years, consistent with U.S. Department of Housing and
Urban Development (HUD) regulations and will provide rental subsidies to eight
(8) of the one-bedroom units restricted to 30 percent AMI by the County.
The Development
received an allocation of tax-exempt bonds in 2023 with a readiness deadline of
February 2024; however, as development costs have significantly increased due
to a shortage of material, skilled labor/workforce, inflation, as well as the
rise of interest loan rates, the Developers needed to secure additional
financing to fill the funding gap. The Developers also had to request a
three-month extension from CDLAC to extend their readiness deadline from
February 2024 to May 2024 which was approved. The additional funding
commitments from the City and the Trust with the approval of the requested
County loan and PBVs will enable the Developers to close on the construction
loan financing and meet the readiness deadline. OCCR intends to close on the
County’s loan at construction loan closing and disburse funds during
construction.
Below are the
updated financial summary highlights of the Construction and Permanent
Financing phase of the Development:
|
Construction Source of Funds |
Funding Amount |
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Tax Exempt Loan
(Bond Allocation) |
$29,000,000 |
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Bridge Loan |
$5,000,000 |
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County of Orange
(MHSA) |
$921,150 |
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City of Orange
Loan |
$2,200,000 |
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Riverside
Charitable Corporation Loan |
$4,000,000 |
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Orange County
Housing Finance Trust |
$503,502 |
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Safehold/iStar
Subsidy |
$7,000,000 |
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Tax Credit
Proceeds (4% BofA) |
$2,925,970 |
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Proceeds from
Construction NOI |
$51,646 |
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Deferred
Developer Fee |
$10,028,041 |
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Total Sources of Funds |
$61,630,309 |
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Permanent Source of Funds |
Funding Amount |
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Tax Exempt Loan
(Bond Allocation) |
$19,475,000 |
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County of Orange
(MHSA) |
$921,150 |
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City of Orange
Loan |
$2,200,000 |
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Riverside
Charitable Corporation Loan |
$4,000,000 |
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Orange County
Housing Finance Trust |
$503,502 |
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Safehold/iStar
Subsidy |
$7,000,000 |
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Tax Credit
Proceeds (4% BofA) |
$21,689,921 |
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Proceeds from
Construction NOI |
$2,225,197 |
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Deferred
Developer Fee |
$3,615,539 |
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Total Sources of Funds |
$61,630,309 |
Note: Financing is
subject to change prior to construction and completion of Development.
Underwriting guidelines are per the 2023 NOFA.
Loan Terms:
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Permanent Loan: |
Up to $921,150 |
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Interest Rate: |
3 percent simple |
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Security: |
Third Deed of
Trust at Construction Financing; Second Deed of
Trust at Permanent Financing |
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Term: |
55 years from
Qualified Project Period |
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Payments: |
Residual
Receipts per the 2023 NOFA (approximately 6.04%) |
The County will
record rent and occupancy restrictions on five (5) one-bedroom units for
seniors experiencing homelessness earning at or below 30 percent AMI for a
period of 55 years via a regulatory agreement, which will be subordinated to
the California Municipal Finance Authority (CMFA), pursuant to the 2023 NOFA
policy which allows the County to subordinate to a municipal financing
authority issuing bond debt.
The specific rent
and occupancy restrictions may ultimately change based on the final financing
structure of the Development.
Funding of the
County loan and commitment of the PBVs are contingent upon the following:
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1. |
Completion
and approval of National Environmental Policy Act (NEPA). |
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2. |
Evidence
of commitment of all construction and permanent financing sources. |
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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. |
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4. |
Completion
and approval of the Subsidy Layering Review. |
The Project Review
Advisory Panel reviewed staff recommendation to pass the project on
underwriting at their January 30, 2024, meeting and had no concerns.
The proposed
Development will help to address homelessness by providing supportive housing
units as part of the 2,396 permanent supporting housing units identified in the
Housing Funding Strategy 2022 Update to address housing needs for individuals
and households experiencing homelessness. As such, these eight (8) supportive
housing units will contribute to the progress of this effort and provide much
needed supportive housing in the near future. Additionally, the eight (8) units
of supportive housing units will follow the best practices, guiding principles
and commitments of the Homeless Service System Pillars Report which was created
by the Commission to End Homelessness and accepted by the Board on October 18,
2022.
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 County loan,
commitment of eight (8) PBVs, subordination of the County loan 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:
Per 24 Code of Federal Regulations Part 58, an Environmental Assessment of the
project is being compiled and will be submitted to HUD for approval along with
the Request for Release of Funds upon completion.
FINANCIAL IMPACT:
This loan
commitment 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. The County $921,150 loan will be funded after
construction loan closing in May 2024, (Fiscal Year 2023-24) with 100 percent
Mental Health Services Act (MHSA) in Fund 12A and/or Federal HOME Investment
Partnerships Program (HOME) Funds and/or HOME American Rescue Plan Act
(HOME-ARP) Funds and/or 15G Reserves in Fund 15G.
STAFFING IMPACT:
N/A
REVIEWING
AGENCIES:
Health Care Agency
CEO Office of Care Coordination
ATTACHMENT(S):
Attachment A - California Code of
Regulations Title 14 Section 15378
Attachment B - Code of Federal Regulations Title 24 Subtitle A Part 58