Agenda Item
City Council
Item #: 8.3. 10/11/2022 File #: 22-0540
TO: Honorable Mayor and Members of the City Council
THRU: Rob Houston, City Manager
FROM: Jeff Adams, Interim Community Development Director
1. SUBJECT
Continued Public Hearing to consider amendment to the Fiscal Year 2022-2023 Annual Action Plan to allocate HOME Investment Partnership funds to the Villa St. Joseph Affordable Housing project and approval of the preliminary award letter of HOME Investment Partnership funds to assist with gap funding needed to close on construction financing. (Continued from September 13, 2022) (Relates to Agenda Item 3.5)
2. SUMMARY
The U.S. Department of Housing and Urban Development requires the City to amend the Fiscal Year 2022-2023 Action Plan in order to allocate $651,244 in HOME Investment Partnerships funds to the Villa St. Joseph Affordable Housing project. The HOME funding will be used towards gap funding needed to close on construction financing as a result of increased construction costs and interest rates.
3. RECOMMENDED ACTION
1. Approve the submittal of the amended Fiscal Year 2022-2023 Action Plan to the U.S.
Department of Housing and Urban Development for the allocation of HOME funds to the Villa St.
Joseph Affordable Housing Project.
2. Authorize the appropriation of $127,487 from HOME (317) unreserved fund balance to 317.9661.56571.30210 - Rehab/Dev Loans - Villa St. Joseph.
3. Authorize the transfer of $523,757 from expenditure account number 317.9660.56510.11250 - HOME Developer Projects to expenditure account number 317.9660.56571.30210 Rehab/Dev Loans - Villa St. Joseph.
4. Authorize the City Manager to execute the preliminary award letter of $651,244 in HOME Investment Partnerships funds for the Villa St. Joseph Affordable Housing Project and for all Department of Housing and Urban Development documents related to this commitment.
5. Authorize the City Manager to make minor language changes or adjustments to commitment letter, agreement, and related documents if needed and execute on behalf of the City.
4. FISCAL IMPACT
The total expenditure for this commitment is $651,244 and will be funded in Rehab/Dev Loans - Villa St. Joseph (30210) through HOME Investment Partnerships Program (317).
5. STRATEGIC PLAN GOALS
Goal 3: Enhance and promote quality of life in the community City of Orange Printed on 10/6/2022Page 1 of 3
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Item #: 8.3. 10/11/2022 File #: 22-0540
c: Support and enhance attractive, diverse living environments. e: Develop and strengthen collaborative partnerships to enhance and promote quality of life programs, projects, and services.
6. DISCUSSION AND BACKGROUND
Mercy Housing California 107, L.P (Mercy Housing) is proposing to develop the Villa St. Joseph affordable housing project that will convert the existing vacant Sisters of St. Joseph Motherhouse into 50-dwelling units for seniors at 480 S. Batavia Street. The affordable housing development will have 49-rental units for seniors 62 and over and one managerial unit for staff.
In December 2021, Mercy Housing secured a four percent tax-exempt bond allocation from the California Debt Limitation Allocation Committee (CDLAC). However, as the project moved towards construction finance closing in June 2022, a $3.2 million gap was identified as a result of increased construction costs and interest. The City is providing financial assistance to fund $1.6 million of the $3.2 million financial gap request from Mercy Housing. This report is one of two on the October 11, 2022 agenda that addresses the financing for the proposed project. The other associated report addresses the Affordable Housing Loan Agreement that covers the three City funding sources being considered including:
· $651,244 in HOME Investment Partnerships (HOME) funds, of which:
o $127,487 is HOME Program Income, made up of the principal and interest repayment of previous HOME loans administered
o $523,757 in HOME entitlement funds
· $576,000 in Redevelopment set-aside funds
· $372,756 of development in-lieu fees
This report fulfills the additional requirement by the U.S. Department of Housing and Urban Development (HUD) to amend and submit the Fiscal Year 2022-2023 Annual Action Plan to HUD for the allocation of HOME funds to the project and hold a public hearing. The Action Plan identifies activities and funding sources the City intends to utilize to address the priority needs identified in the 2020-2024 Consolidated Plan required by HUD for the use of CDBG and HOME funds. The amended Action Plan was published for a 30-day public review period from August 4, 2022 through September 2, 2022. An extended review period for the amended Action Plan was published for an additional 12-days from September 29, 2022 through October 10, 2022 as a result of the Public Hearing being continued from the September 13, 2022 City Council Meeting. No public comments were received.
Per the Citizen Participation Plan, the City’sCommunity Development Block Grant (CDBG) Program Committee convened on August 16, 2022 to discuss the funding request from Mercy Housing. The Citizen Participation Plan is a HUD required document that outlines the City’sstrategy for ensuring the participation of citizens and other interested parties in the development of HUD related documents including the Action Plan. At the meeting, the CDBG Committee voted to recommend to Council the allocation of $651,244 in HOME funds to Mercy Housing California, LLC and amend the Fiscal Year 2022-2023 Action Plan to add the allocation.
The City worked collaboratively with the County of Orange to meet $3 million of the $3.2 million gap funding requested by Mercy Housing. The County of Orange approved $1.4 million in gap financing at its September 27, 2022 Board of Supervisors meeting for the project. Additionally, Mercy Housing was successful in receiving additional increased equity financing from Enterprise, its equity investor, City of Orange Printed on 10/6/2022Page 2 of 3
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Item #: 8.3. 10/11/2022 File #: 22-0540
was successful in receiving additional increased equity financing from Enterprise, its equity investor, to help close the remaining $200,000 gap still needed after the City’s $1.6 million financing commitment.
Actual project funding of the project with HOME funds will be contingent upon the completion of environmental review and approval by HUD. The City used the analysis completed by the County of Orange for the Environmental Assessment to complete the City’sEnvironmental Assessment (as required by HUD) for the project funding commitment. The environmental review determines if a project will have a significant impact on the quality of the human environment. The environmental assessment for the Villa St. Joseph Project did not identify any environmental impacts and was available for public review and comment from September 1, 2022 to September 15, 2022. No comments were received. The environmental assessment was submitted to HUD for review and approval on September 23, 2022 and expected to receive final approval by Friday, October 7, 2022.
The City also completed a subsidy layering and underwriting analysis to ensure that it does not invest any more HOME funds (alone or in combination with other funds) than are necessary for the project and to ensure that the owner’s/developer’sprofit or return on their investment is appropriate and reasonable, given the size, type, and complexity of the project.
In addition, the following requirements must be met by the applicant:
· Acquire firm commitments from all funding sources in sufficient amounts to complete the project;
· Meet all applicable requirements of the HOME Program (24 CFR Part 92); · Establish a budget and schedule, with borrower certifying that construction is ready to begin within 12 months; and
· Execution of the City’s HOME Loan documents.
7. ATTACHMENTS
· Draft Preliminary Award Letter
· 1st Amendment to the FY2022-2023 Annual Action Plan
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