DATE: November 18, 2024
TO: Mayor and Members of the City Council
VIA: Stefan Chatwin, City Manager
Marlene Subhashini, Assistant City Manager
FROM: Sofia Mangalam, Community Development Director
Nori Jabba, Housing Coordinator
DEPARTMENT: Community Development
SUBJECT: 2024 ASSET MANAGEMENT REPORT ON WORKFORCE
HOUSING
RECOMMENDATION
It is recommended that the City Council, by Minute Order, receive and accept the 2024 Asset Management Report for City-owned Workforce Housing at 501 Pilgrim Drive.
EXECUTIVE SUMMARY
The City of Foster City owns 22 units of rental housing at 501 Pilgrim Drive, commonly referred to as the Workforce Housing Property. Eight (8) of the units are workforce units and 14 are below market rate (BMR) units. Workforce units are rent restricted but not income restricted.
On July 01, 2019, the City Council approved the purchase of 22 units from Summerhill Homes for $7 million. Leasing of the units started in 2022, but due to several factors, all units were not leased until November 2023. Upon one (1) year of fully occupied units, staff prepared a 2024 Asset Management Report (Attachment #1) for the Council’s review and acceptance.
BACKGROUND/ANALYSIS
The 22-unit Workforce Housing property contains five (5) moderate-income two-bedroom units, five (5) low-income units, four (4) very low-income units, and eight (8) workforce units, one (1) of which is for the on-site property manager. The eight (8) units are rented at low-income rates, and one (1) unit is occupied by an on-site property manager who is
an HHAV employee. It should be noted that California State law requires an on-site property management employee for apartment developments of 16 or more units.
Fund 139 Workforce Housing Fund was established as a dedicated fund in the City’s budget to manage expenses and revenues related to the operation and management of Workforce Housing. On April 18, 2022, the City Council, via City Resolution No. 2022- 42, directed staff to allocate the net income from the Workforce Housing to the Capital Asset and Acquisition Replacement Fund (CAARF or Fund 326).
Due to several factors, including the difficulty of filling the moderate-income units, particularly the one-bedroom moderate units, the potential cost of moderate-income unit vacancies, and the substantially greater demand for very low—and low-income units, the initial lease-up of all 22 units took over one (1) year.
The 2024 Workforce Housing Report for Workforce Housing outlines the following:
•Overview and History of the Workforce Housing Development •Initial Lease-up
•Rents and Revenue
•Operations, Maintenance and Repairs
•Financial Analysis
In general, the Workforce Housing property is operating as expected, except for a few unforeseen repairs and expenses experienced in the first two (2) years of operations, issues relating to the management of a residential rental property, and the need to establish policies and protocols for managing invoice processing, late or non-payment of rent and utilities, and security deposit refunds.
A review of expenses vs. revenues shows that the asset is performing well financially.
Table 1 shows Revenue and Expenses since the property acquisition in 2022.
Table 1. Revenue and Expenses for Workforce Units Since Acquisition Fiscal
Year
21-22 21-22 22-23 22-23 23-24 23-24 24-25
(Revised)
Actual Budget Actual Budget Actual Budget Budget
Revenue $4,612 $0 $292,300 $677,458 $632,613 $625,640 $676,262 Expense $13,980 $0 $165,081 $329,136 $790,965 $386,187 $357,208 Net ($9,368) $0 $127,219 $348,322 ($158,352) $239,453 $319,054 The revenues have exceeded expenses for the Workforce Housing property except in FY 23-24. In FY 23-24, $557,446 was transferred from Fund 139 to Fund 326 CAARF to offset the property purchase price. The amount of the transfer is included as an expense.
Due to the City Council’s approval of the appropriation of a carryover for $16,047 for the electric vehicle charging project, FY 24-25 budget was revised to reflect the change.
While the property generates sufficient revenues to cover expenses, revenues were lower than budgeted in FY22-23 due to a later-than-anticipated full lease-up of the building. Leasing of the units started in September 2022, but due to reasons mentioned above, 22 units were not leased until November 2023 and have been fully occupied since then.
CEQA
The acceptance of the report is not subject to review under the California Environmental Quality Act (CEQA) pursuant to Public Resources Code Section 21000, et seq. and the CEQA Guidelines (14 Cal. Code Regs. §§ 15000 et. seq.), including without limitation, Public Resources Code section 21065 and California Code of Regulations 15378 as this is not a “project” that may cause a direct, or reasonably foreseeable indirect, physical change in the environment.
FISCAL IMPACT
The report has no financial impact.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Smart Planning, Development, and the Local Economy
ATTACHMENTS:
Attachment 1 – Workforce Housing Report 2024
Attachment 2 – Resolution 2022-42