Fremont City Council Meeting: 03/19/24 07:00 PM
3300 Capitol Avenue Div/Dept: Housing
Fremont, CA 94538 Category: Affordable Housing
SCHEDULED
Sponsors:
COUNCIL STAFF REPORT (ID # 5091) DOC ID: 5091
Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 1
AFFORDABLE HOUSING AWARDS - Evaluation of Affordable Housing Proposals Received in Response to the 2023 Notice of Funding Availability (NOFA); Request for Council to Appropriate Funds and Adopt Resolutions and Authorize Execution of Agreements for Three Affordable Housing Projects with USA Properties Fund, Inc., The Pacific Companies and Maracor Development, and Community Development Partners
Contact Persons:
Name: Lucia Hughes Dan Schoenholz
Title: Housing Manager Community Development Director
Div/Dept: Housing Community Development
Phone: 510-494-4506 510-494-4438
E-Mail: [email protected] [email protected]
Executive Summary: On August 11, 2023, the City issued a Notice of Funding Availability (NOFA) requesting proposals for new affordable housing projects. Six project proposals were received. One proposal was disqualified due to its failure to meet threshold criteria.
One was later withdrawn resulting in four project proposals remaining for the City’s consideration. A review panel consisting of staff and an outside affordable housing finance professional reviewed the proposals and interviewed each applicant team to discuss the projects in more depth.
After careful consideration of each proposal, staff is recommending that the City Council appropriate $34,850,000 and authorize the City Manager to execute agreements for three affordable housing projects totaling 486 units:
• A 150-unit project located at 37440 – 37482 Fremont Blvd. proposed by USA Properties Fund, Inc. ($12,850,000 in City funding)
• A 240-unit project located at 45021 Warm Springs Blvd. proposed by The Pacific Companies and Maracor Development ($12,000,000 in City funding)
• A 96-unit project located at 39340 Fremont Blvd. proposed by Community Development Partners ($10,000,000 in City funding)
BACKGROUND: In August 2023, the City released a NOFA for the creation of affordable housing in Fremont. Staff conservatively estimated that $30 million in funding would be available to support predevelopment, acquisition and construction or rehabilitation of affordable rental housing. Since the release of the NOFA, approximately $5 million in additional funding has become available, increasing the total funding to $35 million. The City funding is intended to fill the financing gap between a project’s total development cost and other available financing sources but is limited to funding of predevelopment and capital costs only (i.e., no funding for operational subsidies or supportive services).
Eligible projects include new affordable housing for households not exceeding 80% Area Median Income (AMI). The NOFA requires all-electric construction and encourages a target Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 2
mix of affordability levels, including units for extremely low-income households (<30% AMI), very-low income households (<50% AMI), and low-income households (<80% AMI) consistent with established City criteria.
Applicants were required to demonstrate site control (through ownership, a long -term lease, or an option to purchase) and submit the requisite documents (appraisal, Phase I Environmental Assessment, Preliminary Title Report, to name a few) for their proposals to be considered. Six proposals were received, five of which met the proposal threshold criteria:
• A 312-unit, two-phase project (150 units in Phase 1, 162 units in Phase 2) located at 37358 – 37482 Fremont Blvd. proposed by USA Properties Fund, Inc. (USA Properties or USA)
• A 240-unit project located at 45021 Warm Springs Blvd. proposed by The Pacific Companies and Maracor Development (TPC/Maracor)
• A 96-unit project located at 39340 Fremont Blvd. proposed by Community Development Partners (CDP)
• A 101-unit project located at 3811 Washington Blvd. proposed by DANCO Communities (Danco)
• An 80-unit acquisition and rehabilitation project located at 5400 Farwell Place proposed by Eden Housing (proposal later withdrawn by applicant).
Evaluation Process
A panel of staff representing the Community Development Department, the Human Services Department, and an affordable housing finance consultant for the City reviewed each of the proposals and interviewed each applicant team. After review of all the proposals, all five applicant teams were interviewed. The review panel also developed detailed questions for each applicant team and reviewed their responses.
After the interview process, Eden Housing withdrew the project proposed at 5400 Farewell Place from consideration; therefore, staff is not providing an analysis of that project.
DISCUSSION/ANALYSIS: A brief summary of each project is provided below.
312-unit (Centerville Station Apartments at 37358 - 37482 Fremont Blvd.) (Phase 1—150 units; Phase 2, 162 units)– USA Properties
USA Properties proposes to construct Centerville Station, a 312-unit affordable housing project on two parcels totaling 4.9-acres. The site is less than a quarter mile from the Centerville Train Station. The site has been vacant for several years due to the bankruptcy of the previous site owner (Silicon Sage). The Zoning for the site is Town Center-Pedestrian (TC-P) District, within the Transit Oriented Development (TOD) Overlay, and the General Plan designation is Commercial-Town Center. Residential uses are permitted as a component of mixed-use projects only. Mixed-use projects within this zoning district must include a substantial commercial component, at least 50 percent of total ground floor area Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 3
that is located within 50 feet of the street frontage shall be designated for commercial and/ or office uses. As described later in this section, the amount of commercial space proposed by USA is less than the standard for mixed-use projects, however no General Plan amendment or rezoning would be necessary because the developer intends to use density - bonus concessions or waivers to allow for reduced commercial space, as permitted under State law.
USA is requesting $24.5 million in City financial assistance for land acquisition. Because of the size of the project, USA proposes to develop the project in two phases but entitle the project as one. Phase 1 and Phase 2 can be developed independently of each other.
Phase 1 would provide a total of 150 units in a five-story building with fifteen units at 30% AMI, thirty units at 50% AMI, forty units at 60% AMI, fifty-three units at 70% AMI, eleven units at 80% AMI and one manager’s unit on a 1.94-acre site. The unit mix includes 83 one-bedroom, 53 two-bedroom, and 14 three-bedroom units. USA is requesting $12.85 million from the City to finance site acquisition for Phase 1.
Phase 2 would provide a total of 162 units in two buildings, one five-story building and one three-story building, with seventeen units at 30% AMI, thirty-three units at 50% AMI, thirty-eight units at 60% AMI, sixty units at 70% AMI, and twelve units at 80% AMI. The unit mix includes 87 one-bedroom, 65 two-bedroom, 10 three- bedroom units and two manager’s units on a 2.96-acre site. USA is requesting $11.65 million from the City to finance site acquisition for Phase 2.
Specific points noted by the evaluation team included:
• The project targets a range of affordability levels (30% to 80% AMI) and a range of unit sizes, meeting the criteria set forth in the NOFA and is located less than a quarter mile from the Centerville Train Station, which will be a convenience for residents.
• The proposed project site has been vacant for several years. The proposed project would add much needed affordable housing in the City and enhance the vitality of the Centerville district.
• USA is a fully integrated real estate enterprise that develops and operates affordable housing projects for over 40 years throughout California (including in Bay Area cities such as Newark, Union City and San Jose), Nevada and Oregon totaling over 2,000 units. Feedback received from references who have past project experience working with USA has been positive.
• A financial review of the project pro forma and USA’s financials indicate that the project is financially feasible, and that USA has the financial capacity to complete the project.
• USA has not previously developed a project in Fremont. • USA is seeking $12.85M for Phase 1 and the balance of $11.65 million for Phase 2.
The total ask of the City is $24.5 million, representing more than 2/3 of the funding available under the NOFA.
• The average per unit subsidy from the City is $79,000 with $85,666 for Phase 1 and $72,000 for Phase 2, well below the average of per unit subsidy for recent affordable housing projects of $110,000.
Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 4
• The proposed project has a total development cost per unit of approximately $533,000 with $538,351 for Phase 1 and $527,773 for Phase 2, the lowest out of all proposals.
• The proposed project has an annual service budget of $590 per unit per year. • USA intends to develop an objectively-compliant project with use of density bonus waivers or concessions to allow for a reduced commercial component and reduced open space provisions, as allowed under State density bonus law for projects that provide affordable housing meeting specific target unit thresholds. The developer will pursue a reduction in ground floor commercial spaces (2,446 square feet in Phase 1 and 3,650 square feet in Phase 2 totaling 6,600 square feet). USA proposed to provide the commercial spaces at below-market rental rates to a to-be- determined local community-serving organization or a commercial/retail tenant. USA will work with the City’s Economic Development Department on design considerations and to identify potential tenants for the spaces. • Under California Density Bonus law, and pursuant to Assembly Bill 2097, the proposed project is not subject to a parking minimum requirement. USA would provide 0.85 space per unit which is consistent with other similar successful communities that USA has developed and manages in the region. • The estimated date of completion for Phase I is January 2027 and July 2027 for Phase 2.
• Phase 1 and Phase 2 can be developed independently of each other. The financing plan for Phase 1 would not change if Phase 2 were not awarded City funding.
• Staff is recommending funding for Phase 1 only, as described in the Recommendations section.
A preliminary site plan and a location map of the proposed project are included as Attachment A and Attachment A1 respectively.
240-unit (45021 Warm Springs Blvd.) - The Pacific Companies and Maracor Development
The Pacific Companies and Maracor Development (TPC/Maracor) are jointly proposing a 240-unit affordable housing project on Warm Spring Blvd. less than 0.25 mile from the Warm Springs BART Station. The 2.9-acre site is designated Innovation Center in the General Plan, and is located within Planning Area 8 (BART Area) of the Warm Springs Innovation (WSI-8) zoning district. No General Plan Amendment or Rezoning would be necessary to implement the proposed project.
The four-story modular construction project would provide sixty units at 30% AMI; sixty units at 50% AMI; one hundred and eighteen units at 80% AMI and two manager’s units. The unit mix includes 58 studios, 56 one-bedroom, 62 two-bedroom units and 64 three-bedroom units. TPC/Maracor is requesting $12 million in City financial assistance for construction, or $50,000 per unit.
The evaluation team noted the following:
Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 5
• The project targets a range of affordability levels (30% - 80% AMI) and a range of unit sizes, meeting the criteria set forth in the NOFA and is located less than a quarter mile from the Warm Springs BART Station.
• TPC /Maracor has two affordable housing projects underway in Fremont on Osgood Road and they have partnered together on two other affordable projects located in the Bay Area. Staff’s experience in working with the applicant has generally been positive. Feedback received from references who have past project experience working with TPC has been positive.
• TPC is a fully integrated real estate enterprise that develops and operates affordable housing projects throughout the western United States, having completed over 225 affordable housing projects totaling over 9,000 units with an additional 30 projects in development or construction.
• Maracor’s principals have entitled and constructed over 7,000 units, including two in San Francisco totaling 414 units.
• A financial review of the project pro forma and TPC’s financials indicate that the project is financially feasible and that TPC has the financial capacity to complete the project.
• The City funding requested at $50,000 per unit is by far the lowest out of all proposals, making this project extremely cost effective for the City. • The proposed project financing structure leverages $25 million in private debt, reducing the need to rely on other soft financing or public subsidies, allowing the project to move forward relatively quickly.
• The proposed project’s total development cost per unit is approximately $684,000 below the average cost per unit of $750,000 for affordable developments in the region.
• TPC/Maracor’s proposal includes a proposed annual budget of $35,000 for a third-party social service provider, or $147/unit per year. This is the lowest proposed service budget of all the proposals, however it satisfies the Tax Credit Allocation Committee’s prescribed commitment for the project mix and resident population that TPC serves.
• TPC/Maracor intends to develop an objectively-compliant project that invokes density bonus waivers or concessions for an increased building setback and reduced private open space provisions. No General Plan Amendment or Rezonin g would be necessary to implement the project.
• The proposed project would provide approximately 240 parking spaces or one space per unit.
• The estimated date of project completion is end of 2027.
A preliminary site plan and a location map are included as Attachment B and Attachment B1 respectively.
96-unit (39340 Fremont Blvd.)- Community Development Partners
CDP is proposing a 96-unit project located at 39340 Fremont Blvd near the corner of Fremont Blvd. and Walnut Ave. in downtown Fremont. The site is near transit stops, grocery stores, pharmacies, shopping centers, medical facilities and parks. A vacant dental office currently occupies the 0.72-acre site. The General Plan designation for the site is Commercial – City Center and the zoning is Downtown Mid Zone (D-MD) and Downtown Edge (D-E), which allows for various residential uses to be constructed Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 6
above ground level commercial uses. As described later in this section, CDP is not proposing ground level commercial uses, however no General Plan amendment or rezoning would be necessary because the developer intends to use density-bonus concessions or waivers to allow for reduced commercial space, as permitted under State law. The project would provide four stories of residential units above a ground - floor podium used for parking and amenity space. It would provide 10 units at 30% AMI; 10 units at 50% AMI; 65 units at 60% AMI; 10 units at 70% AMI; and one manager’s unit. The unit mix includes 47 one-bedroom, 25 two-bedroom and 24 three- bedroom units. CDP is requesting a total of $10 M in City financial assistance for pre- development ($1 million) and construction ($9 million), or $104,000 per unit.
Specific points noted by the evaluation team included:
• The project targets a range of affordability levels, (30% - 70% AMI) and a range of unit sizes, meeting the criteria set forth in the NOFA. • While CDP has not developed a project in Fremont, it has built, preserved or actively developed 45 projects, comprising over 4,300 units throughout California (includ ing Morgan Hill, Vacaville and San Jose (currently in the pre-development phase)), Oregon, Nevada, and Arizona. Feedback received from references who have past project experience working with CDP has been positive.
• A financial review of the project pro forma and CDP financials indicate that the project is financially feasible, and that CDP has the financial capacity to complete the project.
• The project includes a budget for social services provided of over $100,000/year, and is the highest services budget of any of the proposals, at $1,042/unit/year. • The $104,000 per unit City subsidy requested is the highest ask of any of the four proposals, but is still below the average per unit subsidy for recent affordable housing projects of $110,000.
• The total development cost per unit of approximately $739,000 is the highest of the three recommended projects but is still within the industry average in the Bay Area., • The estimated project completion date is spring of 2027. • CDP intends to develop an objectively-compliant project that invokes density bonus waivers or concessions for a flexible community space along the building’s ground floor Fremont Boulevard frontage in-lieu of a commercial tenant space and a reduced ground floor ceiling height. No General Plan Amendment or Rezoning would be necessary to implement the project.
• The proposed project would provide 58 parking spots or 0.60 space per unit.
A preliminary site plan and a location map are included as Attachment C and Attachment C1 respectively.
The following project proposal is not being recommended for funding.
101-unit (located at 3811 Washington Blvd.) – DANCO Communities
Danco is proposing a project with 101 units that would provide 12 units at 30% AMI; 11 units at 50% AMI; 77 units at 60% AMI; and one manager’s unit. The unit mix includes 32 studio, 18 one-bedroom, 26 two-bedroom and 25 three-bedroom units. The 0.98-acre site’s General Plan designation is Commercial - Town Center, and the site is located within the Town Center – Pedestrian (TC-P) zoning district and the Transit Oriented Development Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 7
(TOD) Overlay. Residential uses are allowed under the current General Plan and zoning as part of a mixed-use project.
Danco is requesting $10,261,555 in City financial assistance for land acquisition and pre- development, or $101,600 per unit.
Specific points noted by the evaluation team included:
• While Danco does not have any Fremont specific experience in the development of affordable housing, it has built or actively developed almost 40 projects, throughout California (including one in Oakland and one San Jose). • The acquisition cost of the land at $9,000,000 was supported by the original appraisal which valued the land at $9,010,000 million or $9.2 million per acre, by far the highest acquisition cost out of all proposals. The appraisal contained inaccurate information and inconsistent assumptions. Based on staff’s feedback, Danco submitted a revised appraisal, however the appraised value did not change. Upon hearing from staff that the $9.2 million per acre land cost is not consistent with other comparable sites in Fremont and therefore, not justifiable for funding recommendation, Danco had the appraisal further revised, reflecting an updated appraised value of $7.16 million. The acquisition price was lowered to $8 million. The revised proposed acquisition price is higher than the latest appraised value and still by far the highest per acre cost out of all proposals.
• In response to staff’s request for the required audited financial statements (as stated in the NOFA document), Danco submitted reviewed financial statements of DANCO Communities. A review of financial statements is less expansive in scope and carries less assurance than an audit. Moreover, audited financial statements include an opinion by the auditor whereas a review does not; therefore, the review panel is unable to ascertain whether Danco is financially sound and has the financial capacity to complete the project.
• The proposed project has an annual service budget of $19,800 or $198 per unit per year which is the second lowest out of the four projects presented on this staff report.
• Although the request of $101,600 per unit from the City is below the average per unit subsidy for recent affordable housing projects of $110,000, the project has the highest total development cost per unit out of all proposals of over $780,000. • The proposed five-story project would add significant bulk and massing to the site’s Main Street frontage, which abuts an area of established, low-scale single-family housing. The project may also require significant revision to satisfy right-of-way dedication and Fire Department access requirements. Additionally, the project features only limited lobby and amenity spaces along the site’s frontages (in -lieu of commercial spaces), hindering activation.
• The estimated project completion date is at the end of 2026.
Recommendations for Funding and Supporting Analysis
After careful evaluation, staff recommends that City Council:
1) Provide $12.85 million in funding in the form of a 55-year loan at a rate of 3% simple interest as stated in the NOFA to USA Properties Funds, Inc. to develop Phase 1, a 150-unit project located at 37440-37482 Fremont Blvd. The acquisition loan will be evidenced by a Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 8
loan agreement and promissory note and will be secured by the land in addition to assignment of project plans and specifications. The developer has confirmed that Phase 1 and Phase 2 can be developed independently of each other. The cost per unit in City subsidy is reasonable. USA is a highly experienced affordable housing developer in California (including the Bay Area), Nevada and Oregon. The proposed project site is located less than one-quarter mile from the Centerville Train Station and would enhance the vitality of the Centerville district by redeveloping part of a blighted site and bringing hundreds of new residents and a modest amount of new commercial space to the area.
The funding will be used to finance the Phase 1 land acquisition cost. The acquisition loan will be evidenced by a loan agreement and promissory note and will be secured by the land in addition to assignment of project plans and specifications.
Staff is not recommending funding for Phase 2 at this time, for the following reasons:
• USA has not completed a project in Fremont previously. Funding Phase 1 will provide USA the opportunity to demonstrate its ability to successfully complete a Fremont project.
• The three recommended projects are in different neighborhoods, consistent with the City’s goal to diversify affordable housing locations. Funding USA’s Phase 2 request would necessitate eliminating funding for one of the other recommended projects, thus reducing the geographic diversity of the funded projects.
2. Provide $12 million in funding (in the form of a 55-year loan at a rate of 3% simple interest as stated in the NOFA) to The Pacific Companies and Maracor Development to develop 240 units of affordable housing located at 45021Warm Springs Blvd. The construction loan will be evidenced by a loan agreement and promissory note and will be secured by the land in addition to assignment of project plans and specifications.
TPC is a highly experienced affordable housing developer in California and the western United States. TPC is partnering on two projects with Maracor in Fremont which are under development. The project is extremely cost effective. With a request of $12 million for construction, the cost per unit City subsidy is $50,000, the lowest of all proposals. Also, there is no reliance on soft public subsidies, allowing the project to reach completion in a timely manner. Because the site has long been planned for a multi-family residential project, no General Plan Amendment or rezoning is necessary for the project to move forward. The proposed project is situated less than 0.25 mile from the Warm Springs BART station.
3. Provide $1 million in pre-development funding, and $9 million in construction funding, for a total amount of $10 million (in the form of a 55-year loan at a rate of 3% simple interest as stated in the NOFA) to Community Development Partners to develop a 96-unit affordable housing project located at 39340 Fremont Blvd. The acquisition and predevelopment loan will be evidenced by a loan agreement and promissory note and will be secured by the l and in addition to assignment of project plans and specifications.
The project is located within close proximity to transit stops, grocery stores, pharmacies, shopping centers, medical facilities and parks which makes it highly convenient for the residents. The conversion of a blighted site into a residential community will add to the vibrancy of the corridor and will support the already-extensive retail offerings in the neighborhood. A financial review of the project pro forma and CDP’s financials indicate that Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 9
the project is financially feasible, and that CDP has the financial capacity to complete the project. The supportive service budget is the most robust of all proposals, and the cost per unit of City subsidy of $104,000 is reasonable.
FISCAL IMPACT: There is approximately $35 million available for the development of affordable housing. Staff is recommending appropriations for the following projects totaling $34.85 million:
1. $12.85 million for the 150-unit Phase 1 project proposed by USA Properties Fund, Inc., with $8.85 million to be appropriated from the Affordable Housing In-Lieu Fee Fund (Fund 196) and $4 million to be appropriated from the Low- and Moderate- Income Housing Asset Fund (Fund 111).
2. $12 million for the 240-unit project proposed by The Pacific Companies and Maracor Developments to be appropriated from the Affordable Housing In-Lieu Fee Fund (Fund 196).
3. $10 million for the 96-unit project proposed by Community Development Partners to be appropriated from the Affordable Housing In-Lieu Fee Fund (Fund 196)
ENVIRONMENTAL REVIEW: The City’s approval of the NOFA is exempt from to the California Environmental Quality Act (CEQA) pursuant to, without limitation CEQA Guidelines Section 15061(b)(3) and/or 15378(b)(2), (4) and/or (5), and section 15262 Feasibility and Planning Studies, each as a separate and independent basis. The action is a governmental fiscal or administrative action which will have no potential to adversely affect the environment, directly or indirectly. The projects seeking the City’s NOFA funding are too speculative for meaningful CEQA analysis at this time, and where the City is providing predevelopment funding prior to preparation of site-specific CEQA analysis, they are exempt as feasibility and planning studies. During their entitlement stage, each project will be individually reviewed for environmental impacts in accordance with CEQA guidelines.
ATTACHMENTS:
• NOFA Reso - USA Properties
• NOFA Reso - TPC Maracor
• NOFA Reso - CDP
• Attachment A - USA Phase 1 Site Plan
• Attachment A1 - USA Project Location Map
• Attachment B - TPC-Maracor - Site Plan
• Attachment B1 - TPC Project Location Map
• Attachment C - CDP Site Plan
• Attachment C1 - CDP Project Location Map
RECOMMENDATIONS:
1. For the 150-unit project proposed by USA Properties Fund, Inc. adopt a Resolution authorizing the City Manager or her designee to: 1) execute loan documents and take such other actions as required to provide a loan of $12.85 million (in the form of a 55- year loan at a rate of 3% simple interest); 2) Correspondingly, appropriate Council Staff Report (ID # 5091) Meeting of March 19, 2024 Updated: 3/15/2024 2:22 PM by Susan Gauthier Page 10
$8.85 million to the project from Fund 196 (affordable housing fees) and $4 million to the project from Fund 111 (Low Moderate Income Housing Asset Fund).
2. For the 240-unit project proposed by The Pacific Companies and Maracor Development, adopt a Resolution authorizing the City Manager or her designee to:
1) execute loan agreements and take such other actions as required to provide a loan of $12 million (in the form of a 55-year loan at a rate of 3% simple interest); 2) Correspondingly, appropriate $12 million to the project from Fund 196 (affordable housing fees).
3. For the 96-unit project proposed by Community Development Partners, adopt a Resolution authorizing the City Manager or her designee to: 1) execute loan agreements and take such other actions as required to provide a loan of $10 million (in the form of a 55-year loan at a rate of 3% simple interest); 2) Correspondingly, appropriate $10 million to the project from Fund 196 (affordable housing fees).