Middle-Income Housing Program
City Council Meeting – January 18, 2022
• Long Beach households earning between 81
and 120 percent of Area Median Income (AMI)
have traditionally struggled to find affordable
housing
• The Housing Element will require 4,158 middle
income units in the next cycle (2022-2029)
• In late 2020 City Staff contacted by California
Statewide Communities Development Authority
(CSCDA) and a local Developer regarding a
bond-financing tool for Middle-Income Housing
• On February 16, 2021, the City Council
approved participation in the Oceanaire
transaction on a pilot basis and requested staff
to prepare and recommend a Long Beach
Middle-Income Housing Program
Background
2 • Middle-income rental housing projects are funded by tax-exempt bonds • In conjunction with the bonds a City enters into a Public Benefit Agreement (PBA) with a Sponsor or Joint Powers Authority (JPA) and a developer (Administrator)
• Bonds are typically structured in two parts, a Series A Bond and a Series B Bond • The A Bond pays for acquisition, financing, reserves, and related costs • The B Bond serves as a form of equity for the project administrator • The bonds provide 100 percent project financing, including all financing and transaction fees
CSCDA Middle Income Housing Bond Program Overview
3 • The JPA (Owner) has the ability to purchase, own and finance existing or newly constructed apartment buildings and can restrict some or all units to moderate/middle-income households
• In the PBA, the City provides the JPA with an ad valorem property tax exemption during the term of the bonds
• The household income restrictions terminate at the end of the bond term, typically 30 years
• The PBA typically allows the City the right to force a sale of the building at any point after the 15th year of the series A Bond’s term and realize any net proceeds from the sale
Program Description
4 • Ensures long term housing affordability
• Ensures adequate long- term property maintenance
• Reduces the risk of foreclosure
• Ensures the available project resources are channeled into the Project to enhance affordability and reduce rents
• Balances the benefits to the City and to the Sponsor/Administrator over time City Objectives for the MIH Program
5 Middle-Income Rental Housing Program
6 Public
Benefits
Agreement
Owner/JPA
Property
Administrator
Host:
City of Long Beach
Property/Asset
Bond Broker
Bond
Offering
Property Manager
Property
Management
Agreement
Property
Administration
Agreement
Ownership
Agreement
• Housing Production and Preservation: Transactions should produce and preserve deed-restricted, moderate-income units that will qualify for Regional Housing Needs Allocation credit
• Housing Affordability: Affordable rents should be based on the State Income Limits household income and gross rent schedules, but may vary based on individual transaction specifics
• Maintain City Property Tax Revenues: Transactions should be structured to maintain City property tax revenue that would otherwise be exempted through payment of an annual “host fee”
• Provide Other Public Benefits:
o New construction to be counted for the Regional Housing Needs Allocation o Conversion within 12 months to Middle-Income Housing for existing projects o Creation of other City tax revenues and jobs
o Preservation of properties that are more than 10 years old Proposed Policies for City Participation
7 • Underwriting Standards:
o Host fee in lieu of City Property Tax
o Third party appraisal
o Tenant rents shall not exceed 30 percent of household income, net tenant-paid utility allowance
o Net present value of cumulative rent discounts to market rate shall equal or exceed cumulative foregone property tax revenue
o Affordability restrictions to include a minimum 55-year deed restriction o Cost and rent exceptions may be allowed if there are other covenants already existing on the property
o Unit mix subject to City review and consideration
Middle-Income Housing Bond Transaction Terms and Conditions 8 • Underwriting Standards:
o Capital expenditure reserves of a minimum of $300 per unit per year o Bonds must have a minimum debt service ratio of 1.0 beginning in Year 1 o Favorable consideration for projects in which bond principal is significantly reduced over the course of the bond term
o Annual rent growth limited, and in no event exceed 4.0 percent per year o Operating expenses should be projected to grow at a minimum of 3.0 percent per year
o Income capitalization rate at the end of the A Bond term must be at least 100 basis points greater than comparable housing developments o Hard costs for new construction to be verified by a City-approved General Contractor and all workers must be paid prevailing wages Middle-Income Housing Bond Transaction Terms and Conditions (cont) 9 Transaction and Annual Fees
10 • Closing fees shall be evaluated to ensure that they meet market standards and should not exceed 2 percent of the development cost • Ongoing fees to all entities shall be evaluated to ensure they meet market standards
• Asset management reserves shall be initially funded at three years’ worth of payments
• No capitalization of accrued interest for a B Bond is allowed • After bond issuance the City shall have the right to approve the amount and terms of any additional subordinate debt exceeding $50,000 • The City shall have the ability to force sale, or exercise a purchase option, at any point after Year 15 of the A Bond term
• The City shall have sole and absolute discretion to approve or reject any changes to Ownership, Asset Manager/Project Administrator, and Property Manager Property Transfer and Encumbrance
11 • The City shall be satisfied that any Joint Powers Authority or Other Sponsors have appropriate housing bond-issuing authority and experience • Project administrators must evidence no less than 40 years of combined experience of key principal staff
• Property Managers shall have successful experience managing at least five large scale affordable housing apartment communities
• Municipal advisor shall also include an independent, Municipal Securities Rulemaking Board registered municipal advisor
Qualifications of Project Team Members
12 • Noticing provided to each tenant advising them of their rights under the terms of the City-approved transaction
• Following conversion, no units shall be rented to tenants with incomes that exceed 120 percent of AMI
• Prioritize transitioning existing tenants into more deeply affordable units • Property Manager will follow the affirmative marketing procedures in compliance with the California Department of Housing and Community Development Affirmative Furthering Fair Housing
• Compliance with City’s Local Preference Policy
• Property Manager shall not discriminate in renting to voucher holders Tenant Protections and Occupancy Process for Acquisition of Existing Projects 13 • Tenant satisfaction survey with response from at least 20 pertcent of tenants
• Market Rents and Property Discounts
• Tenant Summary to include household size, income and rent • Property Financial Report
• Property Condition Report
• Response within 10 days to any reasonable request from the City about maintenance conditions or leasing practices
• These reporting requirements must be included in the transaction’s PBA 14 Annual City Reporting Requirements
• City transaction application review fee to pay for City staff time • Third party underwriting review costs to be reimbursed by the JPA or Project Administrator
• Annual affordable housing monitoring fee (currently $170 per unit) 15 City Application and Annual Compliance Requirements
Adopt a Middle-Income Housing Program to include the policy components included herein.
16 Recommendation
Thank you
17 Oscar Orci
Director of Development Services
[email protected]
Patrick Ure
Housing and Neighborhood Services Bureau Manager
[email protected]