Date: June 29, 2023
To: Ethan Bindernagel, Assistant City Manager / Community Development Director Troy Fujimoto, City Planner
CITY OF PLEASANT HILL
From: Suzy Kim, Director
RSG, INC.
Subject: Habitat for Humanity 85 Woodsworth DDA Amendment On February 21, 2021, the City Council of the City of Pleasant Hill (“City”) approved a Disposition and Development Agreement (“DDA” or “Agreement”) with Habitat for Humanity East Bay/Silicon Valley (“Habitat” or “Developer”). The City agreed to sell 85 Woodsworth Lane (APN 150-150- 071-2) (“Property”), an 8,886 square foot (s.f.) parcel of vacant land, for $10 and provide a forgivable $285,000 loan to Habitat to assist with the development of four ownership housing units affordable to low and moderate income households (3 low and 1 moderate) (“Project”). The City, as Housing Successor to the Pleasant Hill Redevelopment Agency (“Housing Successor”), is required to develop the Property with affordable housing. The loan is funded with Housing Successor Low and Moderate Income Housing Asset Funds (“Housing Asset Fund”), which is restricted for use on affordable housing.
On May 30, 2023, Habitat requested an amendment to the Agreement to limit the development to three low income units due to site constraints. They are requesting no change to the $285,000 loan. RSG reviewed the Project pro forma and has determined the $285,000 loan ($95,000 per unit) continues to be reasonable based on estimated construction costs, other proposed financing sources, and projected sales price of the homes based on market rates and affordable housing costs.
RSG recommends approving the proposed DDA amendment to continue providing a $285,000 loan for three units and extending timeframes for entitlements and securing other financing. This memo presents RSG’s detailed findings.
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Ethan Bindernagel and Troy Fujimoto
CITY OF PLEASANT HILL
June 29, 2023
Proposed DDA Amendment
Habitat proposes amending the Agreement to reduce the proposed Project to three low income units due to site constraints. When the Agreement was executed, Habitat believed four units was feasible based on the site area indicated on Assessor parcel maps and zoning requirements.
Habitat’s civil engineering consultant later completed a survey of the Property that revealed the total area is less than what the parcel maps indicated. Development will be limited to three units based on the site’s verified size and current zoning. Habitat also requests extensions to Agreement deadlines as shown in Table 1.
Table 1: Proposed DDA Amendments
Current Amended
Purchase Price Donation ($10) No Change
Forgivable Loan Amount $285,000 No Change
Total Units 4 3
Subsidy Per Unit $71,250 $95,000
Affordability Levels 3 Low (80% AMI)
1 Moderate (120% AMI)
3 Low (80% AMI)
Bedroom Sizes 3 Three-Bedroom
1 Four-Bedroom
2 Three-Bedroom
1 Four 4-Bedroom
Deadlines
Entitlements
Other Funding Commitments
Escrow Closing
September 27, 2023
December 31, 2023
January 31, 2024
December 31, 2023
June 30, 2024
July 31, 2024
The $285,000 forgivable loan would be provided after closing escrow on the property to fund predevelopment costs. The loan would eventually roll over into forgivable loans to the individual homeowners of the four homes constructed on the property. Habitat estimates that infrastructure and site development will begin in 2024 and construction will be complete in 2026.
Pro Forma Review
Development Costs
RSG reviewed a Project pro forma dated May 30, 2023 that estimates a total development cost of $2.4 million or $609 per s.f. to develop three units. The original proposal for four units estimated a total development cost of $2.7 million or $503 per s.f. in a Project pro forma dated February 18, Ethan Bindernagel and Troy Fujimoto
CITY OF PLEASANT HILL
June 29, 2023
2021 (see Table 2). This represents a 9.6% reduction in total development costs. The total cost per s.f. increased by 21.2%, however this is reasonable considering the economies of scale for developing three versus four units on an 8,886 s.f. site.
Table 2: Estimated Development Cost
Original Proposal
2/18/2021
Amended Proposal
5/30/2023
Total Units 4 3
Total Development Cost $2,678,475
$669,619 per unit
($626,305 per unit w/o
contingency)
$503/s.f
$2,420,748
$806,916 per unit
($754,171 per unit w/o
contingency)
$609/s.f.
Construction and Site Work
Other Costs1
Contingency
$1,438,259
$1,066,961
$173,266 (7%)
$1,279,015
$983,498
$158,235 (7%)
1Other Costs include site acquisition, due diligence, design, permits and fees, financing and carrying costs, marketing, and administration
RSG performed a comprehensive analysis of the development costs for the Project using Marshall and Swift Valuation Service (“MVS”) building cost data and determined that Habitat’s estimated development cost is 9.1% higher than RSG’s estimate. RSG also compared the Project to three Habitat for Humanity projects in Southern California, which ranged from $505,000 to $733,000 per unit and $390 to $480 per s.f. for development 4 to 14 units. Habitat explained the cost per unit is higher than normal due to economies of scale and inflation. The design, site work, administrative, finance, and carrying costs do not decrease when reducing the Project from four to three units.
The Developer’s pro forma reports a 12.5% increase in hard costs and site work between February 2021 and May 2023. Increased construction costs are supported by market data.
MVS building cost estimates for Class D urban row townhomes increased by 35.4% between August 2020 and 2022 (the dates their estimates were released). Between February 2021 and May 2023, concrete prices increased by 22.5% and steel prices increased 24.6%. Lumber prices experienced high volatility but decreased 38.1% in the same time period. 1 From the first quarter
1 Federal Reserve Economic Data (concrete, steel, lumber) Ethan Bindernagel and Troy Fujimoto
CITY OF PLEASANT HILL
June 29, 2023
of 2021 to the first quarter of 2023, construction labor wages and salaries increased 11.9%.2 Chart illustrates the increases in producer prices for concrete, steel, and labor, and the volatility in lumber prices through May 2023 (indexed to February 2021).
Chart 1: Concrete, Steel, Lumber, and Labor Producer Prices (Indexed to February 2021)3 Financing Sources
Habitat proposes to develop the Project with assistance from several sources in order to achieve the targeted prices and owner costs as shown in Table 3:
2 Bureau of Labor Statistics
3 Federal Reserve Economic Data, Bureau of Labor Statistics
70.00 80.00
90.00 100.00
110.00
120.00
130.00
140.00
Feb-21Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21Sep-21
Oct-21
Nov-21Dec-21
Jan-22
Feb-22Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22Sep-22
Oct-22
Nov-22Dec-22
Jan-23
Feb-23Mar-23
Apr-23
May-23
Concrete Steel Lumber Labor
T T T T T
Ethan Bindernagel and Troy Fujimoto
CITY OF PLEASANT HILL
June 29, 2023
Table 3: Sources and Uses
Developer Financing
The Developer intends to obtain construction loans and contribute their own equity to construct the Project. Habitat expects to secure a construction loan from Heritage Bank for the home sales proceeds amount. Habitat has a long-standing relationship with Heritage Bank as a lender on all of their recent projects. Habitat will also contribute $54,048 of its own equity.
Developer Financing Buyer Financing1
Construction Loans 906,700 Down Payments 75,000
Developer Equity 54,048 First Mortgages2 831,700
Subtotal $960,748 Subtotal 906,700
City/Housing Successor City/Housing Successor
Housing Asset Fund $285,000 Housing Asset Fund $285,000 Other Gap Financing Other Gap Financing
CalHOME $750,000 CalHOME $750,000
HCD 425,000 HCD 425,000
Developer Financing 54,048
TOTAL $2,420,748 TOTAL 2,420,748
Development Costs Summary
Land Assembly $50,010 Buyer Financing $906,700
Direct Costs 933,488 City/Housing Subsidies 285,000
Indirect Costs 1,437,250 County: GAP 425000
Developer Fee3 CalHOME 750,000
Developer Assistance 54,048
Subtotal $2,420,748
Funding Gap3 0
TOTAL $2,420,748 TOTAL $2,420,748
2 Developer estimates. Falls below 2022 affordable housing cost limits for 70% and 80% AMI households. 4 Will vary based on actual household income of buyers.
Construction Permanent
SOURCES
USES
1 Developer estimates. Subject to change based on applicable income limits at the time the Project is completed and actual household income of buyers.
Ethan Bindernagel and Troy Fujimoto
CITY OF PLEASANT HILL
June 29, 2023
Buyer Financing
The Developer estimates the buyers of the three affordable units will take out a commercial first mortgage (estimated by the Developer at $277,233 per unit) and will contribute an estimated $25,000 towards their down payment.
RSG performed a comprehensive analysis of the maximum purchase price for each unit at low income levels, assuming a 30-year fixed rate mortgage and 7.1% interest rate. Certain expenses also reduce a household’s maximum affordable housing cost. Therefore, RSG accounted for insurance (estimated at $100/month), and property taxes (~1.13% of purchase price annually) when calculating the maximum purchase price.
Pursuant to Health and Safety Code Section 50052.5(b)(3), the affordable housing cost for low income households is 30% of 70% of the AMI adjusted for family size; however households whose gross income falls within 70% to 80% AMI may have a higher affordable housing cost based on 30% of the household’s gross income. RSG estimates that the maximum purchase price is approximately $315,300 to $341,600 per 3- and 4-bedroom unit for 70% AMI households and $342,600 to $371,100 per 3- and 4-bedroom unit for 80% AMI households to meet this requirement. The Developer conservatively assumes a purchase price below these limits of $277,200. A higher purchase price within housing cost limits could help close the Project’s financing gap; the actual purchase price will depend on actual income limits, buyer household income, property tax rates, and insurance rates at the time of purchase.
Low and Moderate Income Housing Asset Funds
The City previously agreed to provide a $285,000 loan from Housing Asset Funds to the Developer to purchase the Property. This equates to $95,000 per unit for three units or $71,250 per unit for four units. The subsidy per unit for three units remains reasonable based on RSG’s experience reviewing affordable housing development pro formas throughout the State.
Other Gap Financing
The Developer plans on applying for CalHOME mortgage assistance funds from the California Department of Housing and Community Development (“HCD”). The Developer should notify the City if they will be asked to partner on this application. The Developer assumes assistance of $250,000 per unit, which is the maximum amount permissible. The Developer also plans on receiving Workforce Initiative Subsidy for Homeownership (“WISH) first-time homebuyer program funds of $25,000 per unit. WISH funds are provided by commercial banks to meet federal Affordable Housing Program (“AHP”) requirements.
Ethan Bindernagel and Troy Fujimoto
CITY OF PLEASANT HILL
June 29, 2023
Gap Financing Need
RSG analyzed the gap financing need per unit and determined that each unit has a gap financing need of $447,400 to $475,000 based on 2023 affordable housing costs for low income households earning up to 70% of the AMI in 3- and 4-bedroom units. The Developer anticipates each buyer will receive a CalHOME loan of $250,000, WISH funds of $25,000, and a Developer-funded loan of $18,000, leaving a remaining gap of $154,400 to $182,000 per unit. The City loan of $95,000 per unit will partially fulfill this need, with a remaining gap of $59,400 to $87,000 per unit.
Note that when calculating the maximum purchase price per unit, RSG conservatively assumed that the low income units would be affordable to households that do not exceed 70% AMI. If the low income units are occupied by households that have an AMI falling within the ranges of 70- 80%, the household’s mortgage limit would increase to be based on 30% of the gross income of the household.
The Developer intends to fill their financing gap with other HCD or County programs and proposes a deadline of June 30, 2024 to secure other financing commitments.
Conclusion
Habitat has made the following progress on the Project to date:
• engaged architectural, civil, geotechnical, and environmental consultants • completed site surveys, geotechnical reports, and Phase 1 environmental assessments • engaged the environmental consultant to complete Phase 2 environmental assessments • engaged City staff in preparing an entitlement package submittal to the City • recorded loan documents
• secured a Habitat Board resolution that commits to providing backstop funding • provided a draft revised site plan and Planned Unit Development concept plan for City review
• started drafting preliminary application drawings
Habitat has made similar progress on the anticipated development of seven units at 250 Cleaveland Road.
The proposed DDA amendment will allow the City to continue its relationship with Habitat to develop the property with affordable housing and meet the City’s Housing Element and Regional Housing Needs Allocation Goals. RSG recommends approving the proposed DDA amendment to continue providing a $285,000 loan for three units and extending timeframes for entitlements and securing other financing.
Ethan Bindernagel and Troy Fujimoto
CITY OF PLEASANT HILL
June 29, 2023
Attachments
Habitat amendment request letter and proforma dated May 30, 2023 Attached as separate documents
May 30, 2023
Attn: Suzy Kim
RSG
720 Gilman Street
Berkeley, CA 94710
Re: Affordable Housing Disposition and Development Agreement (“DDA”) dated 4/23/2021 85 Woodsworth Lane, Pleasant Hill, CA
Hello Suzy,
Per recent discussions between the City of Pleasant Hill and Habitat for Humanity regarding the above‐ referenced agreement, it has been determined that the property located at 85 Woodsworth Lane cannot be developed as initially proposed.
At the time the DDA was executed, a preliminary development plan had been created based on the site area indicated on the Contra Costa County Assessor Parcel Maps. This plan included the construction of four (4) units. A survey of the project site conducted by our civil engineering consultant revealed the total area of the site is less than what is indicated on the Parcel Maps. Based on the verified site size and the maximum density allowed by the site’s current zoning, the development will be limited to three (3) units.
This letter requests the DDA be amended to include the following changes:
1. Total unit count reduced from four (4) units to three (3) units.
2. Units shall consist of two (2) three‐bedroom and one (1) four‐bedroom homes, all of which will be Low‐Income units.
3. Deadlines be updated as follows:
a. Entitlements: December 31, 2023
b. Other Funding Commitments: June 30, 2024
c. Escrow Closing: July 31, 2024
Habitat requests that the City financing provided by the DDA remain unchanged. An updated project proforma is attached.
Please contact me at (510) 338‐9392 or [email protected] with any questions.
Regards,
Melanie Mintenko
Melanie Mintenko
Project Manager
1ft Habitat for Humanity®
East Bay/Silicon Valley
IMAGINE WHAT MORE
WE CAN BUILD
EAST BAY
2619 Broadway
Oakland, CA 94612
SILICON VALLEY
513 Vall ey Way
Mil pitas, CA 95035
Hab itat EB SV.org
866.450.4432
@Hab itatEBSV
Habitat for Humanity East Bay/Silicon Valley
Project Name:
Project Address:
Date: 5/30/2023
Summary Budget Affordability Profile:
3 Units at Low AMI
70.0% Average AMI
1 BED 2 BED 3 BED 4 BED Total Homes Percentage
Unit Gross Sq. Ft. 590 1030 1224 1444
Very Low 0000 0 0%
Low 0021 3 100%
Mod 0000 0 0%
Market 0000 0 0%
Total Units 0021 3 100%
Total Sq. Ft. 0 0 2,448 1,444 3,892
Project Timeline
Start Finish
Land Contract 2021 2021
Entitlement & CD 2022 2024
Infrastructure and Site Development 2024 2025
Construction of All Homes 2025 2026
Permanent Cash Sources*
% of
Total Per Unit Total Cost
Contributions ‐ Habitat for Humanity 54,048 18,016 2.2% City: City of Pleasant Hill 285,000 95,000 11.8% County: GAP FINANCING NEEDED 425,000 141,667 17.6% County: CalHome 750,000 250,000 31.0% HCD2: 0 ‐ ‐ 0.0% DTSC/EPA 0 ‐ ‐ 0.0% Home Sales Proceeds VL 40‐60% ‐ ‐ 0.0% Home Sales Proceeds L 60‐80% 831,700 277,233 34.4% Home Sales Proceeds M 80‐120% ‐ ‐ 0.0% Home Sales Proceeds Market 0.00 ‐ ‐ 0.0% AHP/WISH Funds: AHP 75,000 25,000 3.1% Total Permanent Sources 2,420,748 806,916 100.0% Development Costs*
% of
Total Per Unit Total Cost
Site Acquisition 50,010 16,670 2.1% Site Remediation & Demolition ‐ ‐ 0.0% Design 396,680 132,227 16.4% Site Work 352,906 117,635 14.6% Unit Construction 926,109 308,703 38.3% Fees 210,000 70,000 8.7% Admin 192,561 64,187 8.0% Finance & Carrying Costs 101,774 33,925 4.2% Marketing 32,473 10,824 1.3% Project Contingency 158,235 ‐ 6.5% Total Development Costs 2,420,748 754,171 100.0% Pleasant Hill
85 Woodsworth
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