STAFF REPORT TO THE CITY COUNCIL
DATE: Meeting of September 13, 2022
TO: Honorable Mayor and Members of the City Council
SUBMITTED BY: Dante Hall, City Manager
Edwin Gato, Director of Finance
SUBJECT: Interim Housing Successor to the former Hercules Redevelopment Agency for a limited period and purposes.
RECOMMENDED ACTIONS:
Consider adopting a resolution that the City of Hercules serve as Interim Housing Successor to the former Hercules Redevelopment Agency for a limited period and for limited purpose; designating the housing assets be administered by the City Manager or his designee(s) in order to, among other administrative actions, facilitate the collection of loan payments, execute loan subordinations, and enable borrowers to pay off loans upon sale or refinance of homes.
FISCAL IMPACT OF RECOMMENDATION:
The cost to the City would be staff time and the cost of a consultant, plus administrative expenses, which the City is currently absorbing in the General Fund for the minimal administration of the housing assets.
DISCUSSION:
As a result of the Legislature’s enactment of Assembly Bill 1X 26 (Stats. 2011, 1st Ex. Sess., chap. 5, the “Dissolution Act”), and the California Supreme Court’s review of and ruling in California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, the City of Hercules Redevelopment Agency (the “Redevelopment Agency”) was dissolved on February 1, 2012.
Pursuant to the Dissolution Act, and affirmed by Resolution 12-005, adopted by the City Council on January 10, 2012, the City of Hercules is serving as the successor agency to the former Redevelopment Agency (“Successor Agency”). By operation of law under Section 34175(b) of the Dissolution Act, all assets, properties, contracts, leases, books and records, buildings, and equipment of the former Redevelopment Agency were transferred to the City of Hercules, as Successor Agency, on February 1, 2012.
Pursuant to the provisions of the Dissolution Act, the City, as Successor Agency, is required to wind down the affairs of the former Redevelopment Agency at the direction of an oversight board, including the disposition of assets. Section 34176 of the Dissolution Act contains provisions relating to the disposition of the housing assets and functions previously performed by the former Redevelopment Agency (the “housing assets and functions”). Specifically, it authorizes the City of Hercules to elect to retain the housing assets and functions, or, if the City elects not to retain the housing assets and functions, then, where there is one local housing authority in the territorial jurisdiction of the former Redevelopment Agency, the housing assets are to be transferred to that local housing authority. If there is no local housing authority, the housing assets and functions are to be transferred to the State of California Department of Housing and Community Development (“HCD”). There is no provision in the Dissolution Act permitting the local housing authority to decline the housing assets or functions or to pass them on to HCD.
The City Council, in Resolution 12-005, elected not to retain the housing assets and functions. In doing so, pursuant to Section 34176(b) of the Dissolution Act, the housing assets and functions are to be transferred to the only local housing authority, which is the Housing Authority of the County of Contra Costa (the “Housing Authority”).
The Housing Authority declined to take any action accepting the housing assets and functions previously performed by the former Redevelopment Agency. Subsequently, the state Department of Finance (“DOF”) wrote a letter to the Housing Authority, a copy of which is attached hereto as Attachment 3, stating among other things: “Finance hereby notifies the Housing Authority that it has no legal basis for refusing to perform the duties required by HSC section 34176 (b)(2).” Nevertheless, the Housing Authority has continued to refuse to perform the statutorily required duties.
This situation has left the housing assets and functions of the former Redevelopment Agency in limbo, to the detriment of the property owners and residents of the City. Because the housing assets are still in the City’s possession but performing duties required by statute are technically the responsibility of the Housing Authority, City staff has performed minimal administration of the Affordable First Time Home Buyer (“FTHB”) loans.
If the Council adopts the resolution that the City of Hercules serve as Interim Housing Successor to the former Hercules Redevelopment Agency, there are currently two pending items for the Council as Interim Housing Successor to consider approving:
A request for approval of subordination agreement for regulatory purposes only from Eden Victoria Limited Partnership. (Attachment 5) The Partnership was formed in May 2002 to acquire, construct, own, and operate a 132-unit affordable housing complex located in Hercules, California, which is currently operating under the name of Victoria Green (the “Project”). The Project was placed in service in May 2004. The general partner of the Partnership is Eden Investments, Inc., which is under the control of the board of directors of Eden Housing, Inc. (“EHI”), a nonprofit public benefit corporation. The property is managed by Eden Housing Management, Inc., a nonprofit organization, and an affiliate of EHI.
The current permanent loan payable to California Housing Finance Agency (CalHFA), bears interest at 5.25% per annum, and will be at its maturity on October 1, 2034. The Partnership intends to refinance this senior loan with a Walker & Dunlop Freddie Mac mortgage. The new refinance mortgage will have a principal amount of $8,250,000, interest rate estimated at 4.63% per annum, 7-year maturity term, and yield maintenance of 1% of the unpaid principal balance. Required monthly debt service payment will be $42,441 (30-year amortization).
Although the City of Hercules (the “City”) does not currently have a loan outstanding on the Project, it does have an existing regulatory agreement established through the former Hercules Redevelopment Agency (Attachment 4). The existing affordability restrictions outlined in the TCAC and HCD regulatory agreements will remain in effect after the refinance through the end of the compliance period.
EHI hereby request the approval of this refinance by the City and the subordination of the City’s existing regulatory agreement to the new senior loan and existing California Department of Housing and Community Development (HCD) loan. By granting this approval request, the Partnership will be able to leverage a lower interest rate and address major needs in the Project’s capital plan. This will increase working capital for the Project and promote long term affordability to serve the low-income families in the City of Hercules.
Staff recommendation: Authorize the City Manager to Execute a Subordination Agreement for Regulatory Agreement by Successor Agency to the Hercules Redevelopment Agency (‘Governmental Entity”) and Eden Victoria Limited Partnership (“Borrower”) for the benefit of Walker & Dunlop, LLC (“Lender”).
A request for Assignment and Assumption Agreement from a participant of the Hercules Affordable Housing Program, as stated in Attachment 6.
Staff recommendation: Authorize the City Manager to Execute the Assignment and Assumption Agreement between the City of Hercules and the new assumed owner.
Staff recommends that the City serve as interim housing successor to the former Redevelopment Agency for a limited period and for limited purposes until the final determination is made what entity will assume responsibility for the housing assets and functions. Finally, City staff is exploring the possibility of becoming the Successor Housing Agency to the Redevelopment Agency and will return to the City Council at a future date with recommendations regarding the next steps.
ATTACHMENTS:
Attachment 1 – Resolution
Attachment 2 – Resolution No. 12-005 (Adopted on January 10, 2012) Attachment 3 – DOF Letter to the Housing Authority
Attachment 4 – Regulatory Agreement with Eden Victoria Limited Partnership entered as of December 1, 2002 Attachment 5 – Subordination Agreement with Eden Victoria Limited Partnership’s new lender Attachment 6 – Assignment and Assumption Agreement with the participant in the Hercules Affordable Housing Program Date Page PAGE \* MERGEFORMAT 1