January 24, 2022
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TO: Honorable Mayor and City Council
FROM: Housing Department
SUBJECT: APPROVAL OF HOUSING ACQUISITION LOAN AGREEMENT WITH
HERITAGE HOUSING PARTNERS TO PROVIDE PURCHASE
FINANCING IN AN AMOUNT NOT TO EXCEED $450,000 TO
IMPLEMENT PURCHASE OPTION ON AFFORDABLE
HOMEOWNERSHIP UNIT AT 411 N. RAYMOND AVENUE, UNIT #1
RECOMMENDATION:
It is recommended that the City Council take the following actions:
1) Find that the proposed housing financing and acquisition activity, as described in this agenda report, does not have a significant effect on the environment and has been determined to be categorically exempt under Class 26 (Acquisition of Housing) of the State California Environmental Quality Act ("CEQA") and, specifically, Section 15326 of the State CEQA Guidelines; 2) Approve a budget amendment appropriating $450,000 from the lnclusionary Housing Fund Unappropriated Fund Balance to the Housing Department's FY 2022 operating budget for the HHP Housing Acquisition Project; 3) Approve certain key business terms, as described in this agenda report, of the · proposed Housing Acquisition Loan Agreement with Heritage Housing Partners ; and
4) Authorize the City Manager to execute any and all documents necessary to effectuate the staff recommendation.
BACKGROUND:
Since 2012 the City of Pasadena has entered into housing acquisition loan agreements with Pasadena-based developer Heritage Housing Partners ("HHP"), as the non-profit designee, to acquire City-assisted units in affordable homeownership projects developed by HHP, or units in homeownership projects that were developed pursuant to iv\EETli-✓ G. OF __!}1__/_24/2022 AGEt-.JDA ITEM 1\10. _ l _ _ _ _
HHP ACQUISITION LOAN AGREEMENT
January 24, 2022
the City's inclusionary ordinance. These affordable units are subject to deed restrictions which provide the City with the right of first refusal to purchase the property upon the homeowner submitting a Notice of Intent to Sell. If the right of first refusal is not exercised, the homeowner may sell the property at market price in which case the City would receive an equity share of the sale proceeds but the deed restrictions would be extinguished, resulting in the loss of an affordable unit to the market. On the other hand, by exercising the right of first refusal to purchase, the property is preserved as affordable housing within the City's housing stock. Priority in the selection of qualified buyers is implemented in accordance with the City's local preference guidelines.
Recently, a deed-restricted homeownership unit has come up for resale, located at 411 N. Raymond Avenue, Unit #1, in the Herkimer Garden condominium project that was developed by HHP in 2012. The property is a four-bedroom unit, deed-restricted at the low income level. On December 27, 2021, HHP submitted to the City a loan request in the amount of $450,000 to acquire the Property. Staff has evaluated the request and in the interest of preserving the affordability of the Property, it is recommended that the City provide $450,000 in purchase money financing to HHP for the acquisition and resale of the property.
Under the City's previous housing acquisition loan agreements with HHP since 2012 , thirteenJ.Ll.} deed restricted affordable units have been acquired by HHP of which twelve (12) have been resold to qualified low and moderate income first-time homebuyers, and one (1) unit is in the marketing phase for resale to a qualified homebuyer. The acquisition financing extended by the City to HHP are fully repaid from the resale transactions.
HHP is an experienced housing organization with a strong track record in developing, marketing and selling affordable ownership housing. HHP's completed projects in Pasadena include Haskett Court, Fair Oaks Court , Herkimer Gardens , Decker Court, Gill Court, and Summit Grove. The nonprofit has extensive experience working with income-qualified first-time homebuyers with credit issues , and familiarity with mortgage programs designed for these buyers . HHP maintains an interest list of 7,828 subscribers of whom 5,053 have indicated a preference for purchasing a home in Pasadena.
The Internal Housing Loan Committee, at its meeting of January 20, 2022, reviewed and approved the proposed transaction .
KEY BUSINESS TERMS OF HOUSING ACQUISITION LOAN AGREEMENT The City's provision of purchase money financing to HHP shall be made in accordance with a Housing Acquisition Loan Agreement (the "Agreement"). The key terms of the Agreement are as follows:
a) The total amount of the City acquisition financing to shall not exceed $450 ,000 (the "City Loan").
HHP ACQUISITION LOAN AGREEMENT
January 24, 2022
b) HHP shall utilize the City Loan to acquire the deed-restricted homeownership unit located at 411 N. Raymond Avenue, Unit #1 (the "Property"). c) The City Loan shall be evidenced by a promissory note with the City as beneficiary and secured by a first trust deed on the acquired Property. d) HHP shall be required to repay the City Loan within a term of 12 months of the City Loan effective date, unless extended at the discretion of the City Housing Director. Such extension shall not exceed six (6) months. e) To minimize the cost of the affordable housing transaction, the City loan to HHP will bear no interest.
f) HHP's acquisition price for the Property shall not exceed a price based on the affordable housing cost for a low income family, as determined by the City Department of Housing.
g) HHP shall utilize the City loan funds to acquire the Property no later than 3/31/22. h) HHP shall re-sell the Property to a qualified income-eligible family in accordance with the City's affordable housing deed restrictions and the City's local preference policy.
i) The costs related to the transaction shall be reviewed by the Housing Department for approval prior to closing. Such costs may generally not exceed
5.00% of the sales price, which includes a commission to HHP of less than
3.00% for each of the Property. However, the Housing Director has the discretion to approve costs up to 6.00% if the transaction is determined to require greater than normal expenses (e.g. repairs).
COUNCIL POLICY CONSIDERATION:
The proposed action is consistent with the City's General Plan - Housing Element and the Five-Year Consolidated Plan. It also supports and promotes the quality of life and the local economy -- a goal of the City Council's Strategic Plan.
ENVIRONMENTAL ANALYSIS:
The implementation of the staff recommendation to provide financing for the purchase of the subject property does not have a significant effect on the environment and has been determined to be categorically exempt under Class 26 (Acquisition of Housing) of the State California Environmental Quality Act ("CEQA"), and, specifically, Section 15326 of the State CEQA Guidelines. No further CEQA review is required for this activity.
HHP ACQUISITION LOAN AGREEMENT
January 24, 2022
FISCAL IMPACT:
Approval of the subject recommendation will increase the Department's FY 2022 Operating Budget by the amount of $450,000 by transferring said amount from the unappropriated fund balance of the lnclusionary Housing Trust Fund. The proposed City financing to implement HHP's acquisition of the subject properties will be drawn from lnclusionary Housing Trust Fund (Account No. 23916003-816700-51402). The action will reduce the available balance of the lnclusionary Fund to approximately $1.95 million in non-earmarked funds available for new project commitments Prepared by:
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Senior Project Manager
Respectfully submitted,
/':t ).2?- /{,f<l>,:
- WILLIAM K. HU~
Director of Housirr6
Approved by: