DATE: October 3, 2023
TO: Paul Buddenhagen, City Manager
FROM: Chadrick Smalley, Community Development Director
SUBJECT: Resolution Of The City Council Of The City Of Emeryville Authorizing The City Manager To Exercise The Option To Acquire 1500 Park Avenue #314, Execute The Resale Restriction Agreement For Moderate Income Set-Aside Units, And Execute All Other Documents Required To Complete The City’s Acquisition Of 1500 Park Avenue #314 At A Purchase Price Not To Exceed $355,900; And To Expend Up To $13,600 For Repairs, Holding Costs And Any Additional Transactional Costs For A Total Expenditure Not To Exceed $369,500 From The Measure C Housing Bond Fund (Fund 284) As Appropriated For The Below Market Rate Unit Acquisition Program
RECOMMENDATION
Staff recommends that the City Council adopt the above-entitled resolution authorizing the City Manager to exercise the option to acquire 1500 Park Avenue #314, (the “Property”), execute the Resale Restriction Agreement for Moderate Income Set-Aside Units, and execute all other documents required for the City to purchase the Property, and to expend an amount not to exceed $369,500 for acquisition, repairs, holding costs and any additional transactional costs from Measure C Housing Bonds (Fund 284) programmed for Below Market Rate (“BMR”) acquisitions.
BACKGROUND
Prior to 2000, the former Emeryville Redevelopment Agency utilized a portion of tax increment revenues to make a loan for the development of a condominium conversion project, located at 1500 Park Avenue (i.e., Emeryville Warehouse Lofts, “Project”). Pursuant to this loan, twenty percent of the condominium units (26 units) in the Project were required to be affordable to persons and families of moderate income at a restricted sales price. The City has lost the affordability restrictions applicable to one of the twenty-six restricted units at Emeryville Warehouse Lofts due to a foreclosure, therefore, 25 units are currently restricted to moderate income households at this Project.
Peter Christ (the “Seller”) purchased the Property, a one-bedroom unit, on May 16, 2000, for $187,000 as a moderate-income homebuyer. To ensure long-term affordability of the Property, the City required that a Resale Restriction and Right of First Refusal (the “Agreement”) be recorded against the Property. The Agreement will expire on May 19, 2025, and annually the Seller must confirm that they still reside in the Property as their principal place of residency. The City received a notice of intent to sell the Property from the Seller on September 1, 2023.
The Agreement states that the City has 60 days upon receipt of a Notice of Intent to Sell to exercise its Right of First Refusal to purchase or assign its right to purchase to an income-eligible homebuyer to retain the affordability restriction. Upon exercising the City’s right, the unit must close escrow within 90 days. If the City purchases the Property, it can resell the unit to a qualified buyer and retain the Property in its BMR homeownership portfolio. If the City does not exercise its Right of First Refusal, the City’s right to purchase terminates and the owner may sell the unit to any buyer for an unrestricted price. Additionally, if this were to happen, the Agreement attached to the Property would terminate, and the Property would no longer be a part the City’s BMR homeownership portfolio.
If the City elects to purchase the Property, the City would be able to retain the Property as a part of the BMR homeownership portfolio by selling the unit to a new income-eligible homebuyer with a new affordability period. It is particularly critical for the City to retain its existing BMR ownership units because there is no new supply currently anticipated and the cost to retain an existing unit is much less than building a new unit. New homeownership BMR units are typically produced when units are set aside in new project developments through the City’s Affordable Housing Program. There have been no new condominium projects built in Emeryville since the Adeline Place project in 2009, and the several hundred housing units currently in the development pipeline are planned or proposed as rental units.
DISCUSSION
Inspection of Property
The City’s consultant completed an inspection of the Property to ensure the Property is in good condition and on May 10, 2023, the City issued a letter to the Seller listing the items to be completed by the Seller as a part of the resale process. No extensive repairs are required for the Property. The Seller has indicated to staff that they intend to have the work completed as outlined in the letter and will notify the City when they are ready for a final inspection. Upon completion of the second inspection, if any work outlined in the letter is not completed to the satisfaction of the City, the City will deduct the cost of completing any outstanding work from the maximum resale price.
Maximum Resale Price
The Agreement specifies that the resale price of the Property must be fixed at the lower amount arrived at via the following two methods:
Fair market appraised value, if there is substantial chance that the fair market appraised value is less than method # 2.
Original acquisition price of $187,000 plus the cost-of-living increase as measured by the Consumer Price Index plus the depreciated value of capital improvements made by the Seller minus the cost of any deferred maintenance remaining at close of escrow.
Method #2 calculates to a maximum resale price of $355,900, assuming that the seller adequately addresses all necessary deferred maintenance items as outlined in the letter referenced above. A comparable one-bedroom unit at Emery Warehouse Lofts was sold in July 2023 for $620,0000; therefore, staff has determined that there is not a substantial chance that the fair market appraised value of the Property is less than the amount calculated via method #2 and will not order an appraisal of the Property. Therefore, staff has determined that the maximum resale price for this Unit is $355,900.
Closing and Holding Costs
In addition to the maximum resale price, the City will be responsible for the closing costs (e.g., title report, escrow agent fee, recording costs, etc.) and holding costs (e.g., homeowner assessments, prorated property taxes, utilities, insurance, etc.) associated with the acquisition of this Unit. Most of the City’s outlay will be recouped once the Property is resold to an income-eligible buyer.
Staff has assumed a six-month holding period to allow for marketing of the unit, selection of an income-eligible buyer through a lottery process, and close of escrow. The estimated closing and holding costs are as follows:
Closing Costs (2% of Purchase Price)
7,150
Holding Costs (6 months)
Insurance
250
Utilities
700
HOA Dues
3,300
Total Holding Costs
4,250
Contingency
2,200
TOTAL
$13,600
Resale of Property
Upon the acquisition of the Unit, the City will engage with Hello Housing, the City’s BMR Homebuyer Consultant, to coordinate a lottery to resell the Property at an affordable purchase price to an income-eligible buyer. Staff will then bring an agenda item to the City Council to authorize the resale of the Unit and execution by the City Manager of the related resale restriction agreement to ensure long-term affordability.
Housing Element
Staff’s recommendation to purchase the Property is supported by the adopted and certified 2023-2031 Housing Element. Specifically, staff’s recommendation implements following program and related policies:
Program I. Preservation of BMR Ownership Portfolio
Policy H-2-3. Preserve At-Risk Units
Policy H-2-4. Promote and Retain Homeownership
FISCAL IMPACT
The City’s Affordable Housing Bond Administration and Expenditure Plan (“Housing Plan”) was adopted by City Council on March 2, 2021 via Resolution No. 21-13 and includes an Acquisition of Below Market Rate (“BMR”) Homebuyer Units Program (Program 1A). The purpose of the program is to acquire BMR units at risk of losing their resale restrictions with respect to affordable pricing and income eligibility of the purchasing household. The Housing Plan allocated $400,000 from the Affordable Housing Fund (Fund 299) and $1,178,373 from Measure C Housing Bond Fund (Fund 284) to support this program.
The Fiscal Year 2023-2024 Budget includes $390,000 from the Measure C Housing Bond Fund (Fund 284) and $400,000 from the Affordable Housing Fund (Fund 299) for this program. Staff recommends the use of Fund 284 for this transaction.
Staff Communication with the Public
Staff has been in communication with the Seller regarding the resale of the Property and has transmitted the inspection results and maximum resale price letter to the Seller. Additionally, the City notified the Seller in writing that the City was interested in exercising its right of first refusal to purchase the unit contingent on City Council approval, and that staff would present the item for City Council consideration on October 3, 2023.
CONFLICT OF INTEREST
None.
Conclusion
Staff recommends that the City Council approve the attached resolution authorizing the City Manager to execute the City’s option under the Right of First Refusal to acquire 1500 Park Avenue #314 from the Seller at an amount not to exceed $355,900 and expend up to $13,600 in closing, repair and holding costs, for a total expenditure not to exceed $369,500, in an effort to retain the Property in the City’s BMR homeownership portfolio.
PREPARED BY: Charles Harris, Community & Economic Development Coordinator II REVIEWED BY: Valerie Bernardo, Community & Economic Development Coordinator II Approved and Forwarded to the
City Council of the City of Emeryville
Paul Buddenhagen, City Manager
Attachments
Draft Resolution including Exhibit A, Resale Restriction Agreement for Moderate Income Set-Aside Units BMR Purchase; 1500 Park Avenue #314
City Council Meeting | October 3, 2023
City of Emeryville
CALIFORNIA
MEMORANDUM