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HomeMy WebLinkAboutR07-Redevelopment Agency . REClVELOPlENT AGENCY-OuEST FOR o-ISSION/COUNCIL AOION , From: GLENDA SAUL Ct: Redevelopment Agency Subject: COMMON COUNCIL WORKSHOP ON HOUSING PROGRAMS Date: JULY 24, 1985 Synopsis of Pravious Commission/Council action: On July 1, 1985, the Mayor and Common Council set July 29, 1985 as the date to have a workshop On the 20% set-aside housing program in particular and housing issues in general. Recommended motion: (MAYOR AND COMMON COUNCIL) Q Conduct Housing Workshop ~~/ , Signature Contact person: GLENDA SAUL Phone: 383-5081 Supporting data attached: Ward: FUNDING REQUIREMENTS: Amount: $ Project: Date: No advarse Impact on City: 1-~.;;-!s encil Notes: Agenda Item No. =#4(7 , C Q 0 0 CITY OF SAN BERNARDIRO - REQU.ST FOR COUNCIL ACTION o STAFF REPORT At two sucoessive Redevelopnent O:lIIIInittee meetings, brief discussioos were held regarding a cx:noept paper (attached) developed by the Agency's housing consultant. Briefly, as the Mayor and Ooom:.n O:luncil are aware, 20% of all tax increment revenues IllUSt be set aside for the purpose of providing affordable housing. If the fund for this program is revolved as staff is suggesting, the funds could then be used to provide and attract upscale housing throughalt the City, in keeping with the direction the Mayor and ChrInr-.} O:luncil has previously provided staff. o:>ooucting a housing workshop today to review and analyze the proposed program will allow for an in-depth discussion of its various 0 "'talents and how together, or in various OCIIi>inatioos, they can be employed to meet the housing needs of the City. 7/85 233L c o 75.0264 o o o ~ (!U.r h o CONCEPT PAPER lor Discussion Purposes Only Proposal for a Revol vina Loan Fund to Support Low and Ifoderate Inco_ Dousina in San Bernardino This concept paper discusses the use of San Bernardino's 20% housina set-aside funds from tax-increment revenues for the establisbment of a -revolvina loan fund- to support certain activities which will ultimately result in an increase in the stock of affordable housina in San Bernardino. Assuaptions For purposes of discussion, this proposal assumes that there will be approximately 1 million dollars a year to contribute to this revolvina loan fund and that loans will be made at below-market-rates (probably between 5% to 10% simple interest) in order to encourage activities beneficial to the community which would otherwise not go forward. Further, it is assumed that the loans will be secured by the value of the property. Fundina for the revolving loan fund is assumed to come from the 20% housing set-aside generated by tax-increment revenues from redevelopment projects. S_ry of RecaaeudatiOll8 Three overall goals are proposed for the revolvina loan fund: Goal #1: Addition of Affordable Housing Consistent with the requirements of State law governing the use of tax-increment 20% set-aside funds, the primary goal of the revolving loan fund should be to add to the stock of affordable housing in San Bernardino. This goal can be realized through two (2) methods: a) Creation of new units through supportina iufill and new project development, and; b) upgradina the existing stock of affordable housina to meet local housing code requirements, with priority given to units presently vacant. Goal #2: Disbursement Affordable throughout associated housina supported by the revolving loan fund should be disbursed the community to the extent possible in order to avoid problems with concentration of lower income families in certain areas. Goal #3: Rapid Payback To the extent possible, given the programs selected, the funds should revolve as quickly as possible. An average of five to seven year loan term is suggested, although individual loans could be shorter or longer, given specific circumstances. Once the goal of creation or upgradina of affordable o o o o housing is accomplished, the repayment of the loan plus interest can provide a 0' future source of financial support for either affordable or market rate housing. Four potential programs are described which could be implemented through a revolving loan program. They include: a) AD acqu1aition/rehabilitation program directed to assist non-profit and/or prlvab! cIeYelopers to acquire vacant houses, rehabilitate them and sell or rent t:hea to low and moderate incOJlle families; b) an infill housing program supported by loans for building housing on vacant neighborhoods; c) a rental housing subsidy loan program which provides a loan to a developer which is used to subsidize rents in 20% of the units to affordable levels for low and moderate income families, thereby qualifying the project for tax-exempt financing, and; short-term construction lots within existing d) a mobile home park assistance program to enable mobile home residents to purchase and upgrade their park through establishing a cooperative corporation. ' There are numerous other programs which could be supported by such a revolving loan fund, including land assembly and land banking, development loans secured by second deeds of trust, and many others. There are also several different ways of administering such a loan fund, including direct administration by RDA staff, contracting with a private lender, contracting with a non-profit community development corporation, or establishing a public non-profit HDC (Housing Development Corporation). The cost of administration of the revolving loan fund would be paid for from interest earned on the loans. Before embarking on such s program, the City might consider using initial 20% set-aside funds to undertake an overall housing strategy study. Such a study would include an independent review and assessment of the housing situation in San Bernardino, including a delineation of the City's housing needs and the resources available locally and from outside sources to meet those needs. Based on this information, an overall strategy would be developed together with suggestions for specific programs to implement that strategy. S_ry of the Law The 20% housing set-aside provisions of the California Health and Safety Code are quite broad, as long as the overall objective of supporting housing for families of low and moderate incoae is _to It is a local agency decision as to whether the funds are to be used for construction or rehabilitation, or some combination. It is a1so a local decision as to whether funds are made available as a grant or a loan (or some combination thereof), support ownership or rental housing, and what proportion of the funds will support low versus moderate income housing (less than 80% and between 80% and 120% of median income, respectively). Expressly permitted activities include: to land, including infrastructure; "acquisition of land; improvements acquisition, rehabilitation or -2- o o o o " construction of structures; and the provision of subsidies necessary to provide housing for persons and families of low or moderate income. Since the provisions are so broad, it is appropriate for the Redevelopment Agency to establish its own internal policies concerning how these funds are to be used so that specific activities can be encouraged. The remainder of this concept paper presents suggestions for these policies. ae-1YiDg Loau veraus Grants It is recommended that the fund be established as a revolving loan fund and that the fund provide loans at between 5% to 10% interest which would be secured by liens or trust deeds on the properties involved. In appropriate cases, security can be further increased through personal loan guarantees by individuals desiring financing from the fund. It is further recommended that the fund make relatively short-term loan collllll1tments, with an average five (5) to seven (7) year loan term and no IIl1n1mUID loan term. It might be possible to revolve the fund collllll1tments even more rapidly, i.e., every two (2) to three (3) years. The advantages of such a revolving .1oan fund are considerable. If correctly structured, the fund can leverage additional private capital. In appropriate situations, interest should be payable over the loan term, rather than accrued and deferred in order to increase monies available for reinvestment. If invested appropriately, the fund itself should grow significantly so that, within ten (10) years, the value of the fund will exceed the total contribution significantly (see attachment MAM). Finally, on a conceptual basis, it is substantially easier to justify loans versus grants in circUlDstances where there are likely to be more applicants than funds available. Should situations arise in which grants or 10anlgrant combinations are necessary, grant funds should be sought from other sources (Foundations, CDBG, UDAG, Rental Rehabilitation, General Revenues, etc.) so that the sanctity of . the loan fund is preserved. Potential Fund Inves~nts Rather than leave the revolving loan fund open-ended, it is recolllBended that, instead, the Redevelopment Agency define a certain specific nUlDber of loan programs for which funding will be made available to eligible projects. In addition, general overall priorities should be established so that a balance of affordable housing activities is achieved from loan collllll1tments. These priorities are discussed in the following section. The following programs are suggested for potential loan fund investments: 1. Acquisition/Rehab1l1tation PrORT": Given the fact that there are a significant nUlDber of vacant, boarded-up single-family houses in certain areas of San Bernardino, a nUlDber of which have been repossessed by Federal agencies, funding could be made available for non-profit agencies and private developers to negotiate for and purchase some of these homes with the agreement to rehabilitate -3- 000 0 them within a short period after purchase and either rent or resell them. In the case where rehabilitated ho~s are to be rented, rehabilitation funding could be made available through the City's Rental Rehabilitation program, The hOlies would either be sold or refinanced within three (3) years in order to pay back the revolving loan fund. In the case where the houses are resold after rehabilitation, financing for rehabilitation would be secured by the developer from private sources. Resale to owner occupants could be encouraged through SOlIe forgiveness of a portion of the interest due on the acquisition loan. Prior agreements would 88sure that rent levels and lor sales prices were affordable to families at or below 120% of median income. 2. InUll HouBin& Proar..: Another appropriate use for the revolving loan fund would be to make short-term construction loans for building housing on vacant lots within existing neighborhoods. Developers would apply directly for these loans and would bave to secure a commitment for take-out financing prior to loan approval. Where there were existing substandard blighted structures on these sites, additional funds could also be made available for demolition. With or without demolition, the economic viability of the project would need to be clearly ascertained prior to loan approval. Given the intricacies of construction finanCing, it is reco_ended that an arrangement be negotiated with a local bank which makes construction loans. Funds for the loan could be deposited with the bank in an interest-bearing account, and progress inElpections _de by the bank prior to release of payments. While this arrangement will involve additional loan fees, it is preferable to direct oversight of the construction loan by the Redevelopment Agency. Construction loans for infill housing could be made at 10% interest, which is approximately 6% below current rates. If demand for this program is substantial, an alternative method would be to negotiate with a local lender an interest-rate subsidy program for construction loans, whereby the lender would make the loan under its own fee structure and underwriting standards, and the City would provide a subsidy payment to reduce the effective interest rate to 10%. The advantage of this technique would be substantial leverage. The subsidy would be secured by a lien on the property, in subordinate position to the construction loan, and be repaid with interest from the proceeds of the take-out financing. Additional steps could be taken concurrently by the City to provide further incentives for infill (please see "Concept Paper: City of San Bernardino Infill Housing Program), such as fee vai vera, fast-tracking of proposed infill projects, building code modifications and other such incentives. 3. Rental Housing Subsidy Loa1IB: A third program for the revolving loan fund would be a "rental housing subsidy" loan program. This is an innovative concept pioneered by the San Francisco Foundation in supporting the construction of affordable housing in Marin County through a non-profit housing development corporation. -4- o o o o This concept works as follows. A developer is proceeding with the development of a market-rate rental housing project. Construction financing has already been arranged privately. The fund provides the developer with a five (5) year loan with interest accrued and deferred until the end of the loan term, repayable to the non-profit HOC. In return, the developer agrees to reduce the rents on 20% of the units to be affordable to 80% of _dian income. This arrangement l18kes the project an 80/20 project and qualifies it for tax-exempt financing, further reducing the costs of the project to the developer. In return, the developer agrees to pay a significant interest rate on the loan. The llIIount of the loan and the interest rate are calculated so that, after five (5) years, the total llIIOunt due is sufficient to constitute the dowupayment on the purchase of the 20% affordable units. The non-profit can then elect to purchase the units, thereby preserving their affordability over the long term, or recapture the initial investment plus interest accrued and use it to support other affordable housing activities. A variation of this model could be adopted for San Bernardino, either with or without the participation of a non-profit. Without the non-profit, the original investment plus interest, would be returned to the fund at the end of the five (5) year term. In addition to earning interest on the investlllent, the financing subsidy loan also creates a five (5) year rent subsidy which, unlike most rent subsidies, is paid back with interest. 4. Mobile Bolle Park Aasistance PrOgrlllll A forth program for the revolving loan fund would be a mobile home park assistance program. Mobile home park residents are generally low to moderate income faailies who own their units and rent space in a mobile home park. As rents have increased, and as parks are sold for other purposes, park residents have increasingly become concerned with maintaining the affordability and stability of their living arrangements. Where possible, park residents have jointed together, sometimes in conjunction with residents of other parks, and formed stock cooperatives or limited equity cooperatives which purchase the park from the current owner. The purchase price might also include funds for rehabilitation of park improvements or infrastructure. The revolving loan fund could provide some temporary financial assistance to assist park residents in acquisition and rehabilitation and perhaps also help to arrange for attractive finanCing, including arranging for tax-exempt borrowing rates for the cooperative. There are numerous other uses for a revolving loan fund, of course. It is recommended, however, that consideration be given to limiting the number or progrlllls to a saall number, such as the above four, so that program administration does not become overly complex. It is also recommended that the fund not become involved in direct ownership or management of units. Administration of the fund is discussed further below. Priorities As indicated above, State law leaves the decision to the local community concerning how to allocate funds from the 20% housing set-aside. -5- o o o o In setting priorities, the following issues should be addressed: a) What should the percentage of funds allocated to support low versus moderate income families' (Suggestion: 30% low; 70% moderate) b) What should be the allocation between rental and owner-occupant progr8IDs' (Suggestion: 40% rental; 60% owner-occupied) c) What should construction1 construction) be the allocation between rehabilitation and (Suggestion: 30% rehabilitation; 70% new new Instead, perhaps it would be easier to consider fund allocations in light of the four progr8IDs proposed above. In this regard, and of course depending on demand, the allocation aight be: 20% acquisitionlrehabilitation, 25% infil! housing, 35% rental housing subSidy, and 20% mobile home park assistance. These would not necessarily have to be year-by-year allocations. Depending on the flow of funds generated by the 20% set-aside, it might be more appropriate to .phase-in. these progr8IDs one at a time over, say, a three (3) year period. The phase-in could relate to illDlediate needs and priorities as determined by the Mayor and ColDlllon Council. Initiation and hogr.. AIl.1ft1stration The Revolving Loan Fund progr8ID should be reviewed conceptually and approved in concept by the Mayor and ColDlllon Council. The Mayor and Co_on Council IDllY wish to add additional priorities and lor requirements to the program, such as locational preferences or consistency with other City revitalization and redevelopment policies. It would be appropriate to consider the programs supported by the revolving loan fund as part of an overall housing strategy for San Bernardino. The results of the study would be included in an update to the housing element and thereby incorporated into part of the City's General Plan. Therefore, it is recolDlllended that the City consider funding a study intended to review the housing situation in San Bernardino, identify IDlljor needs and appropriate local and outside resources to meet those needs, and fOrllUlate an overall housing strategy of which the revolving loan fund would be a principal part. Present and future housing programs could then be reviewed in light of the overall strategy, and priorities established. The strategy itself could be re-evaluated periodically and progress toward goals ascertained. Administration of the fund will require staff time to discuss the program with potential applicants, review and prioritize proposals, brief the Mayor and ColDlllon Council periodically, take appropriate corrective action when necessary, and other duties as required. There will obnously be significant costs associated with the administration of the revolving loan fund. The costs of adlllinistration should be paid for out of the fund, and preferably from interest earned on the funds invested. The adlllinistrative structure could take many forms, including direct administration by RDA staff, contracting with a private lender, contracting with a non-profit cOlDlllunity development corporation, or establishing a public non-profit housing development corporation. The first method is the simplest, and the last method is the most complex but has significant advantages in -6- o o o o terms of flezibility, the ability to attract additional outside capital, administer other affordable housing progr8llls, earn development fees, and yet remain under the City's control. A housing strategy study could ascertain whether the establishment of a public non-profit HOC was appropriate in San Bernardino, given the requiruents of the revolving loan fund and other potential programs which the HOC might administer. Conclusion This concept paper 18 intended as a discussion piece regarding the use of the funds from the 20% housing set-aside to support affordable housing in San Bernardino. It can be further expanded at your request. If the Redevelopment Agency is interested in implementing the loan progr8llls described above, the spec1fi~s of each progr8111 can be developed in further detail for subsequent review. 638L -7- o o o o ArlACIIMERT PUJOl P1lOJBCTIOKS POll. THE llEVOLVIlfG LOAN FUND Fund Projections Assumptions: That 1 million will be contributed to the fund at the beginning of each year.* That there will be a. 5% loss reserve. That costs for administration of the fund will be approximately $50,000 per year, growing to $100,000 in year 10. Beginning Ending Fund Interest Admin. Loss Fund Year Balance Contribution Earned Fee Reserve Balance 1 -0- $1,000,000 $ 80,000 $ 50,000 $ 50,000 $ 980,000 2 $ 980,000 1,000,000 158,400 50,000 57,920 2,030,480 3 2,030,480 1,000,000 242,438 50,000 163,646 3,059,272 4 3,059,272 1,000,000 324,742 50,000 219,201 4,114,813 5 4,114,813 1,000,000 409,185 75,000 276,199 5,172,799 6 5,172,799 1,000,000 493,824 75,000 333,331 6,258,292 7 6,258,292 1,000,000 580,663 75,000 391,948 7,372,007 8 7,372,007 1,000,000 669,760 75,000 452,088 8,514,679 9 8,514,679 1,000,000 761,174 100,000 513,793 9,662,062 10 9,662,062 1,000,000 852,965 100,000 575,751 10,839,276 *The Agency anticipates that, within the next two (2) years, approximately 1 million dollars per year will be available for the revolving loan fund from 20% of tax-increment revenues. 585L . o o o o CITY OF SAN BERNARDINO SINGLE FAMILY RESIDENTIAL MORTGAGE REVENUE BONDS ISSUE OF 19B6 CITY COUNCIL/COMMISSION HOUSING WORKSHOP JUly 29, 19B5 HOUSING WORKSHOP OUTLINE I. Home Mortgage Revenue Bond Allocation Process in California A. Mortgage Bond Allocation Committee 1. Application List B. San Bernardino's allocation request - $100 million 1. Applied in January, 1985 2. Currently No. lB on Application List 3. Will likely be No.2 on Application List for 1986 C. Granting of allocation - February, 1986 D. Estimated allocation to be granted - $35 to 25 million 1. Entitlement - $20 million 2. Supplemental - $15 to $25 million II. Authority for Issuance A. Federal authority - Section 103A of Internal Revenue Code of 1945, as amended (Mortgage Subsidy 80nd Tax Act of 1980) 8. State authority - A8 1355 III. Program Rules and Regulations A. Eligible Mortgagors 1. Principal place of residence 2. OWner occupant 3. Intend to occupy for 2 years 4. First time homebuyer a. Except for "Targeted Areas. homes b. Except 10% of Home Mortgages ~ o o o o 5. Maximum Household Incomes a. Median household income - $31,150 b. First occupant - $41,625 (150% of median) $38,100 (120% of median) c. Not first occupant - $38,100/$34,925 (120%/110% of median) - $31,150/$28,515 (100%/90% of median) 8. Purchase Price Limitations 1. Riverside-San Bernardino PMSA Average Area Purchase Price 2. New residence - $110,600 a. $121,660 (110% of $110,600) b. $132,120 for Targeted Area Homes (120% of $110,600) 3. Existing residence - $111,100 a. $129,410 (110% of $111,100) b. $141,240 for Targeted Area Homes (120% of $111,100) C. New Construction or Substantial Rehabilitation vs. Existing 1. Newly constructed homes or substantial rehabilitation - at least 60% of bond proceeds available to fund loans a. Substantial rehabilitation - costs of rehabilitation equals or exceeds 20% of home value after rehabilitation 2. Existing residences - up to 40% of bond proceeds D. Targeted Areas (see attached map) 1. 20% set-aside for one year after bond proceeds first made available 2. No first time homebuyer requirement E. Delivery Period - 34 months IV. Home Mortgages A. 30 year term, fixed rate B. Level payment mortgages 1. 3-2-1 buydown option o o o o C. Graduated payment mortgage (GPM) 1. Negative amortizing loan 2. Monthly payments increase 7.5% annually in first 5 years, level payments thereafter 3. Effective qualifying rate 3% lower than actual rate D. Existing Residences 1. Bond related demand in San Bernardino - $lDO million E. Home Improvement Loans 1. To finance alterations, repairs or i~rovements that protect or improve the livability or energy efficiency of an owner-occupied residence 2. Maximum loan amount - $15,000 3. No first time homebuyer requirement 4. Problems a. Lack of demand/interest b. Mortgage insurance c. Qualified lenders to operate program d. Rating agency acceptance e. Payment of the up-front bond issuance related costs F. Rehabilitation Loans 1. Federal requirements a. Home must be 20 years old b. 75% or more of the existing external walls must be retained as external walls in the rehabilitation process c. Rehabilitation costs must equal 25% or more of the mortgagor's adjusted basis in the residence 2. Two types of Rehabilitation Loans a. Loan to a new occupant to purchase a home that has been rehabilitated b. Loan to the current occupant to finance the rehabilitation costs and outstanding loan on the home 3. Mortgagor does not have to be a first time homebuyer o o o o 4. Maximum loan amount a. 90% of lesser of appraised value or sales price; or b. 97% of first $25,000 of appraised value, 95% of balance up to $90,000 5. Problems a. Generating adequate demand b. Qualified lenders to operate program c. Maximum loan amount too low d. Rating agency acceptance e. Payment of the up-front bond issuance related costs G. Insurance 1. Private mortgage guarantee insurance 2. FHA insurance 3. Standard hazard insurance (with earthquake coverage) 4. Special hazard insurance H. Down payment - 5% I. Origination fee - .50% J. Servicing fee - .20 to .30% K. Approximate mortgage interest rate - 9.50% to 10.0% 1. Based on current bond market conditions 2. Takes into account Bond rating, Investment Agreement rates, municipal bond market and on-going program expenses L. Assumptions M. Affidavits V. Financing Options A. Moody's/Standard & Poor's/Fitch/FGIC/MBIA/AMBAC options VI. Costs of Issuance A. Developer Cash (4-5 points); or B. Developer Letter-of-Credit (5-6%) C. Effect of negative arbitrage D. City Contribution E. Lender Contribution . o o o o VII. Tentative Financing Timetable A. Solicit Developers to participate in Program - August to November, 1985 B. Determine initial structure of Program - September to November, 1985 C. Interested Developers submit Developer Questionaires - December, 1985 D. Feasibility Study and drafting of Bond documents initiated - January, 1986 E. Determine Program structure and submit issue to bond insurance firms/rating agencies - January/February, 1986 F. San Bernardino receives allocation - February, 19B6 G. Issue receives insurance commitment/rating - February/March, 1986 H. Developers pay fees - February/March, 1986 I. 80nds priced and marketed - March, 1986 J. Issue closes - March/April, 1986 K. Mortgage money available - March/April, 1986 \ \ r I <~ . .9 &< >--~.' .It .-$1" ~ - ; , ~ ) "" 2-_ ~ ..... ~ 1 <:': I "" I :;, \ .,. \ _I l , ........J__- )--, ./ \. ( -' J ( ~ / ;:::: l.t v, ~ ~ ""'" no,.. ... . ~ - = - " o '< ~ ~ ~ -c ~ " :E .;,' ,:" "",,,- ;~ , '01:1." "1'i~~~NvS t>'so~ , ..- -.. -~ .. o - - .. .S! .. c: c o z .... ~ p:: ell [!ij ~ III Z ell en "" o >< Eo< .... C) o en ell ~ p:: < ~ ~ Eo< ffi p:: ell Eo< / . , V)Y' . . / ./ -. .