Agenda Item
City Council
Item #: 10.3. 2/8/2022 File #: 22-0028
TO: Honorable Mayor and Members of the City Council
FROM: Thomas R. Hatch, Interim City Manager
1. SUBJECT
Public Hearing to consider an Agreement to Convey Land with OSH Katella Terrace LLC accepting a land donation of the property located at 1249 E. Katella Avenue from OSH Katella, LLC to facilitate the development of the Katella Terrace Apartments senior affordable housing project.
2. SUMMARY
The proposed Agreement to Convey Land would transfer ownership of the property at 1249 E.
Katella Avenue to the City of Orange for the purpose of facilitating development of a 74-unit senior affordable housing project.
3. RECOMMENDED ACTION
1. Approve the Agreement to Convey Land with OSH Katella Terrace LLC and authorize the Mayor and City Clerk to execute on behalf of the City.
2. Authorize the City Manager to approve and execute documents approved as to form by the City Attorney necessary to carry out the Agreement to Convey Land and the acquisition of the property by the City, including without limitation escrow documents, title documents, conveyance documents and certificate of acceptance.
3. Authorize the City Manager to sign a commitment letter to Katella Terrace LP that is consistent with the provisions of the Agreement to Convey Land.
4. FISCAL IMPACT
Approval of the Agreement to Convey Land would waive approximately $90,000 in litigation fees owed to the City by OSH Katella Terrace, LLC.
5. STRATEGIC PLAN GOALS
Goal 3: Enhance and promote quality of life in the community c: Support and enhance attractive, diverse living environments.
6. DISCUSSION AND BACKGROUND
For over four decades, the Orange City Council has consistently supported the development of quality affordable housing, helping to develop 1,671 units of affordable housing since 1985. In 1981, the City and the YMCA collaborated to create the nonprofit Orange Senior Housing, Inc. (OSH) for the purpose of developing senior affordable housing on a 3.5-acre site adjacent to Hart Park. In 1986, OSH opened Triangle Terrace, a community of 75 senior apartment homes in which every City of Orange Printed on 2/3/2022Page 1 of 3
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Item #: 10.3. 2/8/2022 File #: 22-0028
tenant is provided a HUD Section 8 Voucher, pursuant to a contract between OSH and HUD.
In July 2016, the City Council approved a new ground lease to permit a development partnership including OSH to obtain tax credit financing to renovate Triangle Terrace. Concurrently, the City Council approved an Agreement that allowed OSH to extract cash from the refinancing that would be restricted to investment in senior affordable housing in the city. In November 2016, the refinancing of Triangle Terrace was completed, and the Restricted Amount for investment was determined to be $8,041,349. During 2017-2018, OSH made offers on several sites within the city limits, and reviewed counteroffers with City staff. A consensus was developed to pursue the 1.5-acre site at 1249 E.
Katella Avenue, where a recent change to the City’s zoning ordinance provided for high density senior housing on property with Commercial zoning. Using portions of the Restricted Funds, OSH paid the costs of escrow, due diligence, project design, and entitlement until the plans for Katella Terrace were approved by the City Council in September 2019. The project will create 74 new housing units, 73 affordable units that will be restricted to Lower Income seniors, and one manager unit. In October 2019, a wholly-owned affiliate of OSH purchased the 1.5-acre property.
When a neighboring commercial property owner challenged the entitlement under the California Environmental Quality Act, the City and OSH retained joint counsel to defend the entitlement. The litigation was settled, without change to the project’s design, by an agreement to notify the neighboring property owner whenever the construction of the project would impair traffic on the adjacent street and public alley. During 2020, OSH used portions of the Restricted Funds to demolish a two-story office building and surface parking on the site. OSH continues to use Restricted Funds to maintain the vacant property.
Project Financing
Affordable housing projects require extensive subsidies to ensure they can remain affordable and financially viable over several decades. This typically requires that they receive funding from multiple sources including federal tax credits, which are block granted to the state and awarded on a competitive basis. While this project was delayed by litigation, the state revised its criteria for scoring tax credit projects to award additional points for projects with municipal land ownership. The proposed Agreement to Convey Land would make the project more competitive for federal tax credits by transferring ownership of the land to the City.
Agreement to Convey Land
The proposed Agreement to Convey Land would transfer ownership of the property at 1249 E.
Katella Avenue to the City of Orange. The transfer of land would only occur after receiving approval from the California Department of Housing and Community Development that this transfer is exempt surplus land as defined by Government Code Section 54221(f)(1)(A) and Section 37364. In consideration for the land, the City would waive the approximately $90,000 in legal fees that it is owed by OSH Katella Terrace, LLC for the joint representation in the litigation involving the project entitlement. In addition to waiving legal fees, the City would agree to negotiate exclusively with Katella Terrace, LP (Developer) for the following:
· A Development and Disposition Agreement (DDA) with the Developer for the project, this DDA would require City Council approval
· Finalize the Form of Lease (Attachment 2 to the agreement) to lease the property to the Developer for 60 years
Recommendation
Staff recommends the approval of the Agreement to Convey Land to allow the proposed Katella Terrace senior affordable housing project to be competitive for state tax credits. Staff is also City of Orange Printed on 2/3/2022Page 2 of 3
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Item #: 10.3. 2/8/2022 File #: 22-0028
Terrace senior affordable housing project to be competitive for state tax credits. Staff is also recommending that the City Council authorize the City Manager to issue a commitment letter consistent with the terms of the Agreement to Convey Land. The commitment letter would allow the Developer to seek financing from other sources.
7. ATTACHMENT
· Agreement to Convey Land
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