Agenda Item
City Council
Item #: 10.2. 4/12/2022 File #: 22-0170
TO: Honorable Mayor and Members of the City Council
FROM: Rob Houston, City Manager
1. SUBJECT
Public hearing to consider approval of a Disposition and Development Agreement with Katella Terrace, L.P. for the Katella Terrace senior affordable housing project. Resolution No. 11386.
2. SUMMARY
Disposition and Development Agreement to lease the property at 1249 E. Katella Avenue to Katella Terrace, L.P. for the development of 74 units of affordable senior housing.
3. RECOMMENDED ACTION
Adopt Resolution No. 11386. A Resolution of the City Council of The City of Orange, (1) Approving the Disposition and Development Agreement by and between the City of Orange and Katella Terrace, L.P. and its attachments, establishing the terms and conditions for the Ground Lease of certain property located at 1249 E. Katella Avenue, Orange, California and the development of an affordable residential rental project for senior lower income households on said property; (2) Approving the Ground Lease of said property to a limited partnership entity for such project; and (3) Approving other related actions.
4. FISCAL IMPACT
There is no fiscal impact to the City as the land will be leased at its appraised fair market value.
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 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 City of Orange Printed on 4/7/2022Page 1 of 3
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Item #: 10.2. 4/12/2022 File #: 22-0170
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 might affect 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.
Agreement to Convey Land
On February 8, 2022, the City Council approved an Agreement to Convey Land that would transfer ownership of the property at 1249 E. Katella Avenue to the City of Orange. The transfer of land will 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 waived 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 agreed to negotiate exclusively with Katella Terrace, LP (Developer) for the proposed Development and Disposition Agreement (DDA).
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 Agreement to Convey Land makes the project more competitive for federal tax credits by transferring ownership of the land to the City. The proposed DDA will allow Katella Terrace, L.P. to seek additional sources of funding for the project.
Disposition and Development Agreement
The proposed DDA would provide for the City to lease the property to Katella Terrace, LP for the development of 74 senior affordable units. The ground lease will have the following terms:
· A term of 60 years
· Rent will include the fully capitalized rent which is equal to the appraised fair market value of the property, plus an annual $5,000 administration fee
· The entire amount of the capitalized rent will be prepaid by the tenant using proceeds from the City Ground Rent Loan
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Item #: 10.2. 4/12/2022 File #: 22-0170
· The City Ground Rent Loan is a residual receipts loan with 3% simple interest and a sixty-year term
The proposed Resolution and DDA will be considered after a public hearing. The notice of the public hearing was published once a week for two weeks per legal requirements, and the summary report and proposed DDA have been available for public inspection for two weeks.
Recommendation
Staff recommends the approval of Resolution No. 11386 for the development of the Katella Terrace senior affordable housing project.
7. ATTACHMENTS
· Disposition and Development Agreement by and between City of Orange and Katella Terrace, LP
· Resolution No. 11386
· Summary Report
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