October 3, 2023
Community Development
DATE: October 3, 2023
TO: Mayor Martinez and Members of the City Council
FROM:
Lina Velasco, Director of Community Development
Nannette Beacham, Director of Economic Development
Gabino Arredondo, Interim Executive Director of
Richmond Housing Authority
Subject:
Declaration of Exempt Surplus Land and 12th
Amendment to Disposition and Development Agreement
for Metrowalk Phase 2
FINANCIAL IMPACT: The Successor Agency to the former Richmond Community Redevelopment Agency (Successor Agency)
will Loan and Grant a total of $3.861M in Recognized
Obligation Payment Schedule (ROPS) funds (including a
development Loan for up to $2.187M and a Grant of up
to $1.674M for coordinated entry unit social services) for a 150-unit affordable rental housing development in
Subarea 1 of the Metrowalk Phase 2 Project. The total
Successor Agency funding amount is consistent with
prior ROPS obligations. The Agency funds will leverage total capital and program costs of more than $130M,
including affordable housing development costs of $97M.
Funding includes a highly competitive $43M Affordable
Housing and Sustainable Communities (AHSC) funding
award from the Strategic Growth Council to the project
for transportation and BART station improvements and
the Subarea 1 housing development costs, and $5M in
Infill Infrastructure Grant (IIG) funds for the Subarea 1 housing development.
PREVIOUS COUNCIL
ACTION:
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AGENDA
REPORT
October 3, 2023
STATEMENT OF THE
ISSUE:
A Disposition and Development Agreement, dated
April 11, 2002, was executed by and among the San
Francisco Bay Area Rapid Transit District (“BART”), the former Richmond Community Redevelopment Agency
(“RCRA”), and Richmond Transit LLC (“Richmond
Transit”) (as subsequently amended, to among other
things, reflect the substitution of Pacific West
Communities, Inc. (“Pacific”) for Richmond Transit, the substitution of the Successor Agency for the RCRA, and
the extension of development deadlines, the “DDA”).
The City is proposing to make certain amendments to the DDA, including adding the City as a party in the City’s municipal capacity, providing for the conveyance of the BART-owned portion of the property to the City for
subsequent ground lease of Subarea 1 and a Request for
Proposal process for subsequent subareas, and
increasing the total units from 99 to 520 units, with a minimum forty percent (40%) being restricted for low-
income households. Since the City will require not less than 40 percent (208 units) of the units be restricted for sale or rental to low-income households at affordable rent or affordable sales prices for terms of not less than 55 years, disposition of the land will satisfy the requirements to qualify as exempt surplus land.
RECOMMENDED ACTION:
ADOPT a resolution determining and declaring land
owned by the City and land that will be conveyed to the City from the San Francisco Bay Area Rapid Transit
District (BART) to be Exempt Surplus Land pursuant to
Government Code Section 54221(f)(1)(A); and ADOPT a
Resolution authorizing the city manager to execute the
12th Amendment to the Disposition and Development
Agreement (DDA) by and among the City of Richmond,
the Successor Agency to the Richmond Redevelopment
Agency, Pacific West Communities, and BART for the
Metrowalk Phase 2 Project – Community Development
Department (Lina Velasco 510-620-6841).
DISCUSSION:
In 2002, the San Francisco Bay Area Rapid Transit District (“BART”), the former Richmond Community Redevelopment Agency (RCRA), and Richmond Transit LLC (“Richmond Transit”) entered into a Disposition and Development Agreement (DDA) for the Metrowalk Phase 2 Project (see Attachment 1). That Project envisioned a 99-unit townhome development on the east side of the Richmond BART station in which 50 percent (50%) of the units would be restricted to moderate income households.
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Subsequent amendments to the DDA were made to among other things, reflect the substitution of Pacific West Communities, Inc. (“Pacific”) for Richmond Transit, the substitution of the Successor Agency for the former RCRA, and the extension of development deadlines. Pursuant to the DDA, BART agreed to convey the BART- owned land identified as Subarea 2 and Subarea 3 in exchange for the RCRA’s commitment to fund and build certain station improvements that have now been completed, including a parking garage.
Given City and Statewide goals to locate higher density development adjacent to transit, the City desires to significantly increase the density of the development to achieve these long-term goals. As modified by the proposed 12th Amendment, BART will convey Subarea 2 and Subarea 3 to the City, and subject to the terms and conditions set forth in the DDA 12th Amendment (see Exhibit A of Attachment 2), the City will convey the property to private developers for the development of a three-phased master planned transit-oriented development that will include approximately 520 residential units, of which not less than forty percent (208 units) will be restricted for sale or rental to low- income households at affordable rent or affordable sales prices for terms of not less than 55 years.
The City and Pacific have agreed upon terms for the City’s 99 year ground lease of Subarea 1 to an affiliate of Pacific, and have agreed that the project to be developed on Subarea 1 will be a 150-unit multifamily rental residential project in which at least 149 apartments will be affordable to households whose income does not exceed sixty percent (60%) of Area Median Income (“AMI”), of which 38 apartments will be affordable to households whose income does not exceed thirty percent (30%) of AMI and 36 apartments will be affordable to households whose income does not exceed fifty percent (50%) of AMI.
In accordance with statutory requirements that must be satisfied to support a declaration that disposition of the property qualifies for exemption under the Surplus Land Act, pursuant to the DDA as proposed to be amended, the City will require Subarea 2 and Subarea 3 to be developed with no fewer than 370 residential units of which no fewer than 59 units (or such greater number as necessary to satisfy the requirements of Government Code Section 37364) will be restricted for sale or rental to households whose income does not exceed sixty percent (60%) of AMI, of which at least one-half will be restricted for sale or rental to households whose income does not exceed fifty percent (50%) of AMI. Collectively, the development of Subareas 1, 2, and 3 in accordance with the 12th Amendment will meet the requirements for exemption from the Surplus Land Act. A Joint Resolution (see Attachment 2) of the Successor Agency and the City Council authorizing the City Manager to execute the 12th Amendment to the DDA is proposed for adoption.
The Table in Attachment 3 further summarizes the key changes proposed by the 12th Amendment to the DDA.
Disposition of Surplus Land and the Surplus Land Act
October 3, 2023
The Surplus Land Act (Government Code Section 54220 et seq.) was enacted to promote affordable housing development on unused or underutilized public land throughout the State to respond to the affordable housing crisis, and now requires public agencies, including charter cities, special districts, and successor agencies, to follow certain procedures to dispose of “surplus land” or declare land to be “exempt surplus land” at a regular public meeting prior to disposition. Pursuant to Government Code Section 54221(f)(1)(A), surplus land that is transferred pursuant to Government Code Section 37364 qualifies as “exempt surplus land.”
Government Code Section 37364 authorizes cities to sell, lease, or otherwise dispose of real property to provide housing affordable to persons and families of low- or moderate- income provided that (i) at least eighty percent (80%) of the area of the property will be used for development of housing, and (ii) at least forty percent (40%) of the housing units developed on the property will be affordable to households whose income is not greater than sixty percent (60%) AMI, of which at least one-half will be affordable to households of very low-income (50% AMI). As proposed to be amended, the DDA would require the property to be developed for residential uses consistent with the affordability restrictions set forth in Government Code Section 37364. Therefore, City staff is requesting that the City Council adopt the resolution in Attachment 4 declaring the Property to be Exempt Surplus Land pursuant to Government Code Section 54221(f)(1)(A) and Government Code Section 37364. City staff has provided the draft Resolution to the Surplus Lands Unit of the California Department of Housing and Community Development which has confirmed that the proposed disposition meets the requirements of Government Code Section 37364 and would support a City determination that the property qualifies as exempt surplus land.
Approval of DDA Amendment by Oversight Board and Department of Finance
Pursuant to California Health and Safety Code Section 34181(e), the Contra Costa County Oversight Board may approve amendments to agreements between the former RCRA and private parties if it finds that such amendments will be in the best interests of the taxing entities by reducing Successor Agency liabilities and increasing net revenue to the taxing entities. If the Oversight Board approves the DDA Amendment, such approval will take effect in five business days unless the State Department of Finance (DOF) requests review of the action. In such case, DOF will have 40 days from the date of its request to approve the action or request modification.
The proposed DDA Amendment satisfies the required criteria for the following reasons:
1. Conveyance of BART-owned Parcels. The original DDA provides that BART will transfer the BART-owned parcels (Subareas 2 and 3) to the Agency, or if directed, to the Developer. The DDA Amendment instead provides for BART’s transfer of this land to the City for subsequent conveyance to developers. Shifting responsibility for future conveyance of Subareas 2 and 3 to the City will reduce Successor Agency liabilities and will facilitate the
October 3, 2023
earlier wind-up and dissolution of the Successor Agency because the Successor Agency will not have continuing obligations relating to developer selection, and negotiation and implementation of disposition agreements.
2. Conveyance of BART and City-owned Parcels. The original DDA provides for the sale of the phase two property to the developer for the sum of $900,655 financed by a no-interest forgivable loan and developer’s obligation to pay a percentage of net proceeds from the sale of for-sale units remaining after deduction of all costs of planning, designing, financing, constructing, and developing the units, developer and contractor overhead costs, and payment of ten percent (10%) of gross sale proceeds to developer as developer’s profit. This developer payment obligation would accrue after all for-sale dwellings developed on the site are sold. The DDA Amendment provides for the ground lease of the City-owned Subarea 1 parcel and the lease or sale of Subareas 2 and 3 to the selected developers.
The original DDA would have resulted in no sale proceeds payable to the Successor Agency, and the amount of any proceeds that would have been payable from the future sale of for-sale units pursuant to the original DDA is speculative with respect to the amount and timing of any such payment.
Under the DDA Amendment, the taxing entities may benefit from increased property tax revenue if the parcels are sold at fair market value and reassessed.
3. Successor Agency Development Loan. The original DDA provides for the Successor Agency to provide a no interest, unsecured, forgivable development loan in the amount of $3,861,000, allocated among the three development phases. The DDA Amendment does not increase the amount of Successor Agency funding but reallocates the funds to provide a $2.87 million loan for the Subarea 1 project that would bear three percent (3%) interest and be repayable from Subarea 1 residual surplus cash, and a grant not to exceed $1.674 million to finance a reserve to support tenant services for permanent supportive housing. The grant funds will be deposited in a reserve/sinking fund account with withdrawals approved by the City. These modifications will benefit the taxing entities because (i) the Successor Agency’s ROPS obligation to provide this financing will be completed earlier, and (ii) repayments of the development loan principal and accrued interest will offset other ROPS obligations, thereby increasing revenue to the taxing entities.
4. Successor Agency Homebuyer Loans. The original DDA provides for the Successor Agency to provide homebuyer loans in the amount of $2.5 million. These would be repaid over a 20-year period. The DDA Amendment eliminates this obligation. This change reduces Successor Agency liabilities by $2.5 million, eliminates Successor Agency obligations to originate and monitor loans, and will facilitate the earlier windup and dissolution of the Successor Agency.
October 3, 2023
5. Closing Costs. The DDA Amendment provides that all escrow, closing, and title insurance costs are to be paid by the developer. This reduces Successor Agency payment obligations.
Additional Benefits to City. The DDA Amendment provides the following additional benefits for the City:
City has control over land disposition and developer selection for Subareas 2 and 3.
The Project is structured to be consistent with the requirements for exemption from the Surplus Lands Act.
The ground lease of Subarea 1 will provide the City with long-term control over the site. The ground lease will provide for payment of a share of residual receipts to the City after the Successor Agency development loan is repaid.
The restructured project provides for affordable housing in the first phase with supportive tenant services, and flexibility to provide rental or for-sale housing at mixed-income levels in the Subarea 2 and Subarea 3 projects. The DDA Amendment specifies affordability requirements that were not included in the original DDA, and provides for an increase in the total number of residential units to be developed.
NEXT STEPS
If the City Council and Successor Agency Board approve the 12th Amendment to the DDA, the Successor Agency Board will seek approval by the Oversight Board and the Department of Finance. The Subarea 1 Project has obtained the majority of its funding through the Infill Infrastructure Grant (IIG) and Affordable Housing Sustainable Communities (AHSC) programs; however, an allocation of private activity tax exempt bonds from the California Debt Limit Allocation Committee (CDLAC) and four percent (4%) Low Income Housing Tax Credits (LIHTC) from the California Tax Credit Allocation Committee (TCAC) are needed to fully finance development of the Subarea 1 project.
Once all necessary financing is secured and construction plans are approved, Pacific and the City will agree on the final Financing Plan, construction and permanent loan and LIHTC equity financing agreements, and the construction contract for the Subarea 1 project. After all financing for construction loan closing is secured, the City will close on the ground lease simultaneously with the construction loan, and not before. BART has agreed to convey the land for Subareas 2 and 3 to the City within 30 days of the execution of the DDA Amendment. The City will undertake a future Request for Proposals process to select developers for those subsequent phases.
DOCUMENTS ATTACHED:
Attachment 1 – Disposition & Development Agreement (DDA) with prior Amendments Attachment 2 – Joint Resolution Authorizing Execution of 12th Amendment to the DDA Exhibit A – 12th Amendment to DDA
October 3, 2023
Attachment 3 – Summary of Key Changes to DDA
Attachment 4 – Exempt Surplus Land Resolution