October 15, 2024
Community Development
DATE: October 15, 2024
TO: Mayor Martinez and Members of the City Council
FROM:
Lina Velasco, Director of Community Development
Anthony Stubbs, Financial Advisor, California Municipal Finance Authority
Subject:
Resolution Approving the Issuance of Bonds for the Vue
at 3600 Apartments Affordable Housing Project
FINANCIAL IMPACT: The proposed Bonds to be issued by the California Municipal Finance Authority (CMFA) for the Project will be the sole responsibility of the Borrower, and the City will have no financial or legal obligation for the Project or the repayment of the Bonds. All financing documents with respect to the issuance of the Bonds will contain clear disclaimers that the Bonds are not obligations of the City or the State of California but are to be paid for solely from funds provided by the Borrower.
The Board of Directors of the California Foundation for Stronger Communities, a California non-profit public
benefit corporation (the “Foundation”), acts as the Board of Directors for the CMFA. Through its conduit issuance activities, the CMFA shares a portion of the issuance
fees it receives with its member communities and
donates a portion of these issuance fees to the
Foundation for the support of local charities. With respect to the City of Richmond, it is expected that a portion of the issuance fee attributable to the City will be granted by the CMFA to the general fund of the City. Such grant may be used for any lawful purpose of the City.
AGENDA
REPORT
October 15, 2024
The acquisition transfer from the current owner to Sierra Ridge 3600, LLC will result in a one-time transfer tax
payment of $1,422,000 based on the anticipated purchase price of $47,400,000. With the increased number of
affordable units, staff also anticipates a decrease of
property tax revenue in the amount of $5,400 per year.
PREVIOUS COUNCIL
ACTION:
June 7, 2022
STATEMENT OF THE
ISSUE:
The California Municipal Finance Authority (“CMFA”)
requests that the City Council consider adopting a
Resolution approving the issuance of Tax Equity and
Fiscal Responsibility Act (“TEFRA”) revenue bonds, in an amount not to exceed $65,000,000, for the benefit of
Step Up Housing (the “Sponsor”), on behalf of Sierra Ridge 3600, LLC, or another ownership entity to be created by the Sponsor, or an affiliate of the Sponsor for the purpose of owning the project described herein (such LLC or other ownership entity being referred to herein as the “Borrower”) as part of a plan to finance or refinance the acquisition, rehabilitation, improvement and equipping of a
multifamily rental housing project located at 3600 Sierra Ridge Avenue, Richmond, California (the “Project”).
RECOMMENDED ACTION:
ADOPT a resolution approving the issuance of the bonds
by the California Municipal Finance Authority for the sole purpose of satisfying Tax Equity and Fiscal Responsibility Act requirements for the acquisition, rehabilitation,
improvement and equipping of a multifamily rental
housing project located at 3600 Sierra Ridge Avenue,
Richmond - Community Development Department (Lina
Velasco 510-620-6841).
DISCUSSION:
In June 2022, the City Council authorized the execution of a 30-year extension to the current Regulatory Agreement and Declaration of Restrictive Covenants related to this property. The proposed acquisition, rehabilitation, improvement and equipping of a multifamily rental housing development by California Municipal Finance Authority (CMFA) would not change the overall number of affordable units but would extend the period of time the units would be required to remain affordable from 2053 to 2054 or 2055, which would be 30 years from execution date.
October 15, 2024
California Municipal Finance Authority (CMFA)
The CMFA was created on January 1, 2004, pursuant to a joint exercise of powers agreement to promote economic, cultural and community development, through the financing of economic development and charitable activities throughout California. To date, over 350 municipalities, including the City of Richmond, have become members of CMFA.
The CMFA was formed to assist local governments, non-profit organizations and businesses with the issuance of taxable and tax-exempt bonds aimed at improving the standard of living in California. The CMFA’s representatives and its Board of Directors have considerable experience in bond financings.
Project to be Financed
The Borrower requested that the CMFA serve as the municipal issuer of the Bonds in an aggregate principal amount not to exceed $65,000,000 of qualified 501(c)(3) bonds.
The proceeds of the Bonds will be used to finance or refinance the acquisition, rehabilitation, improvement and equipping of a multifamily rental housing project located at 3600 Sierra Ridge Avenue, Richmond, California.
Project Summary
Align Finance Partners, LLC ("Align") and Sack Capital Partners, LLC ("Sack" and, together with Align, the "Project Administrator") represent Step Up Housing, a California nonprofit public benefit corporation ("Step Up"), in connection with Step Up's acquisition, financing and operation of a 240-unit multifamily project located at 3600 Sierra Ridge Avenue in Richmond, California, commonly known as "Vue at 3600" (the "Project").
Step Up plans to finance the acquisition of the Property through the issuance and sale of 501(c)(3) bonds. Step Up will use the proceeds of the bonds to pay the acquisition costs of the Project, finance the cost of certain capital improvements, fund certain reserves relating to the financing and/or the Project, and pay costs and expenses incidental to the issuance of the bonds.
Project
The Project consists of 240 units in nine residential buildings and one community building located on an approximate 12.06-acre parcel in Richmond, California. The approximate net rentable square footage of the Project is 176,868 square feet. The Project was constructed in 1990.
Regulatory Agreements
The Project is subject to an existing regulatory agreement (the "Existing Regulatory Agreement") with the Successor Agency to the Richmond Community Development Agency. The Existing Regulatory Agreement was entered into in 2010 and amended in 2022. The Existing Regulatory Agreement covers 40% of the units and provides that 20% of the units must be restricted to households earning 50% or less of the area
October 15, 2024
median income ("AMI") and 20% of the units must be restricted to households earning 80 percent or less of the AMI. Half of the units restricted to households earning 50 percent or less of the AMI (i.e., 10% of units), also have rent restrictions which limit rent to no more than 30 percent of 50 percent of the AMI. The Existing Regulatory Agreement expires in 2053.
At closing, the Project Administrator will record an additional regulatory agreement against the property (the "New Regulatory Agreement") restricting 20 percent of the units at the Project to tenants earning 50 percent or less of the AMI and 55 percent of the units at the Project to tenants earning 80 percent of the AMI, with corresponding rent restrictions. The remaining units in the Project (i.e., 25% of the Project) will not be restricted.
Units that count toward compliance with the Existing Regulatory Agreement can also count toward compliance with the New Regulatory Agreement.
The Tables A and B below show the affordable units under the existing and proposed regulatory agreements:
Table A: Existing Regulatory Agreement Affordable Units
# of
Units
% of
Project
50% AMI 80% AMI
24 10% Tenant Income Restrictions
only
24 10% Tenant Income and Rent
Restrictions
48 20% Tenant Income Restrictions
only
96 40%
Table B: Proposed New Regulatory Agreement Affordable Units
# of
Units
% of
Project
50% AMI 80% AMI
48 20% Tenant Income and Rent
Restrictions
132 55% Tenant Income and Rent
Restrictions
180 75%
October 15, 2024
Property Tax Exemption
The Project currently qualifies for a property tax exemption based on tenant income levels. The percentage of the Project that qualified for the property tax exemption since 2019 is as follows:
Tax Year Exemption %
2019-2020 73.8%
2021-2022 76.7%
2022-2023* 47.4%
2023-2024 75.3%
*Management at the Project did not finish its annual welfare exemption filing audit prior to the due date, resulting in a lower exemption than typically achieved.
Step Up plans to apply for a property tax exemption covering 75 percent of the Project throughout the projected hold period due to the recordation of the New Regulatory Agreement. Staff estimates this will result in a decrease of property tax revenue of $4,923 per year.
Property Improvements:
With respect to the rehabilitation work, Step Up Housing plans to make over $4 million in capital improvements and repairs. The foregoing includes interior unit upgrades, common area repairs and improvements, and addressing deferred maintenance.
Interior unit upgrades will be completed at unit turn to ensure that the units maintain quality. Currently, the condition of the units varies across the project. They estimate that each unit will require $5,000 in rehabilitation work for flooring, paint, cabinets, windows, etc. The exact scope will depend on the individual unit. They are budgeting $1.85 million ($7,708/unit) for interior rehab work.
Step Up Housing also plans to spend approx. $2.22 million on common area work to address deferred maintenance and upgrade common areas. Specifically, Step Up Housing will replace common area windows that are failing and causing leaks, repair water damage from leaky windows, reseal / restripe the parking lot to address cracking, and create greater accessibility to the leasing center.
Tax Equity and Fiscal Responsibility Act (TEFRA) Hearing - October 11, 2024 As required by the Tax Equity and Fiscal Responsibility Act of 1982 (as set forth in Section 147 (f) of the Internal Revenue Code of 1986), in order for all or a portion of the Bonds to qualify as tax-exempt bonds, the City must conduct a public hearing (the “TEFRA Hearing”) providing the members of the community an opportunity to speak in favor of or against the use of tax-exempt bonds for the financing of the Project. Prior to such TEFRA Hearing, reasonable notice must be provided to the members of the community. City and CMFA staff held a public hearing on October 11, 2024, at 10 am
October 15, 2024
that was held via toll free number and was published on the City’s webpage for at least seven (7) days. At the TEFRA hearing, no comments were submitted for consideration.
The City Council must, in its discretion, decide whether to provide its approval of the issuance of the Bonds by CMFA for the financing of the Project.
SYNERGISTIC POLICIES:
Housing Element Program 1.K: Housing for Extremely Low-Income Households encourages the City to undertake efforts to assist in the acquisition or development of properties for housing affordable to low-income households including actively assisting and supporting developers with funding applications to support the development of extremely low-income housing, including facilitating funding of site acquisition and project construction through strategies such as issuance of tax-exempt bonds or other financing mechanisms to support land acquisition and/or construction of housing units affordable to extremely low-income households.
CONCLUSION:
City staff recommends that the City Council adopt a Resolution approving the issuance of bonds by the CMFA for the Project. In summary, the transfer will result in a substantial net benefit to the City, in view of the increase of 156 rent-restricted units, one-time property transfer tax revenues of $1.42 million, and essentially flat property tax revenues to the City going forward. It will be important that the City memorialize the proposed changes in affordability in the new regulatory agreement.
NEXT STEPS:
The new buyer has asked the City to consent to the transfer of the existing regulatory agreement to them. City staff is currently working with its outside legal counsel and financial advisor in reviewing this request to ensure the transferee demonstrates it has qualifications, experience and financial resources necessary to manage the project and otherwise fulfill the obligations in the City’s Regulatory Agreement.
DOCUMENTS ATTACHED:
Attachment 1 – Resolution