City of Sacramento
City Council - 2PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2024-00369 3/12/2024 Consent Item 1.
Approving Forgiveness of Accrued Interest on The Terraces at Capitol Park (1609 O Street) Loan
File ID: 2024-00369
Location: 1609 O Street, District 4, Represented by Councilmember Valenzuela Recommendation: Adopt a Housing Authority Resolution 1) approving the forgiveness of loan interest in an amount not to exceed $1.4 million (accrued interest), after the principal is repaid for The Terraces at Capitol Park and 2) delegating authority to the Executive Director, or her designee, to take any and all actions necessary to forgive the accrued interest.
Contact: Christine Weichert, Director, Development Finance, (916) 440-1353, [email protected]; Whitney Hinton, Program Manager, Development Finance (916) 440-1325, [email protected], Sacramento Housing and Redevelopment Agency
Presenter: Whitney Hinton, Program Manager, Development Finance (916) 440-1325, [email protected], Sacramento Housing and Redevelopment Agency Attachments:
1-Description/Analysis
2-Housing Authority Resolution
3-Vicinity Map
Description/Analysis
Issue Detail: In August of 1992, the Council approved a loan from the Redevelopment Agency of the City of Sacramento for $1,351,071, at 3% simple interest, to 16th & O Street L.P. (Developer) for the construction of The Terraces at Capitol Park (Project), a 60-unit affordable housing development.
The State of California owns and leases the land to Capitol Area Development Authority (CADA) at no cost. In 1992, CADA leased the land to the Developer for a 55-year term, at an annual lease amount of $53,268.
The project provides 59 studio units at 40 percent of the Area Median Income (AMI) to senior residents aged 55 years or older, plus one manager’s unit.
File ID: 2024-00369 3/12/2024 Consent Item 1.
Over the last several years, the project has encountered financial challenges as rents have not kept up with the operating costs and increased rehabilitation needs. The outstanding loan was due and payable in June 2023, and the Developer defaulted on the loan. The Project was sold to CADA in December 2023 for $825,000 along with the assumption of the existing Agency loan, including all payment obligations related to any and all outstanding principal and interest due and owing. There is no other debt on the property.
In order for acquisition of this property to be financially feasible and viable for the ongoing operations and maintenance of the property, CADA is requesting the accrued interest to be forgiven.
The appraised value of the project was $2.1 million in January 2022. The value of the property is lower than the amount owed on the Agency loan. The Project’s value may be further diminished by the necessary rehabilitation improvements that will be required in the upcoming ten-year period including, a new roof, exterior paint, heating/cooling systems, tree maintenance, and other capital improvements, totally approximately $850,000.
CADA will be responsible for establishing a new replacement reserve out of net cash flow. According to CADA, the project should produce approximately $70,000 to $85,000 in annual net cash flow based on recent project operations. This projected cash flow will only cover the estimated cost improvements that will be required over the planned 10-year replacement period, and will not cover any project debt.
All project cash flow will go into capital item replacement, maintenance, and repairs for the property.
The project may still need additional CADA assistance if unexpected maintenance needs emerge.
CADA is continuing to explore options for complete rehabilitation of the project to further housing quality and the overall building life of the project. Eliminating existing debt from the property positions the property most favorably for this option, while ensuring ongoing affordability of the housing.
The outstanding principal balance of this loan is $1,351,071, with approximately $1.4 million in accrued interest. Staff is requesting to forgive the accrued interest after the principal is repaid.
Policy Considerations: The recommended actions are consistent with the 2021-2029 Housing Element, which encourages the provision of a variety of quality housing types to create affordable and inclusive housing.
Economic Impacts: None.
Environmental Considerations: The project has been analyzed in accordance with the California Environmental Quality Act (CEQA) and has been determined not a project pursuant to CEQA Guidelines §15378, due to administrative activities. The National Environmental Policy Act is not
File ID: 2024-00369 3/12/2024 Consent Item 1.
applicable as there are no federal funds.
Sustainability: The proposed Project has been reviewed for consistency with the goals, policies and targets of the Sustainability Master Plan and the 2030 General Plan. If approved, the project will advance the following goal, policy, and target of goal number one - Energy Independence, specifically by reducing the use of fossil fuels and providing long-term affordable and reliable energy.
Commission/Committee Action: Sacramento Housing and Redevelopment Commission: At its February 21, 2024, meeting, the Sacramento Housing and Redevelopment Commission reviewed the staff recommendation for this item. The votes were as follows:
AYES: Duncan, Nunley, Amanfor, Morgan, Ramos, Ross, Staajabu, Starks, Woo NOES: None
ABSENT: Griffin, Osmany
Rationale for Recommendation: Staff recommends the approval of this request. Based on the appraised value of the property, forgiveness of the accrued interest on the Agency loan will support the feasibility of the project and continued operations of the project.
Financial Considerations: CADA will repay the principal balance of $1,351,071. Upon this payment, the Agency will forgive accrued loan interest not to exceed $1.4 million.
Local Business Enterprise (LBE): The items discussed in this report have no M/WBE or Section 3 impact; therefore, M/WBE and Section 3 considerations do not apply.
RESOLUTION 2024-
Adopted by the Housing Authority of the City Sacramento
on date of
Approving Forgiveness of Accrued Loan Interest for The Terraces at Capitol Park (1609 O Street)
BACKGROUND
A. The Terraces at Capitol Park (1609 O Street) is a 60-unit affordable housing development built in 1992. The project provides 296 square-foot studio units at very low income (40% of Area Median Income) to senior residents aged 55 years or older. In August 1992, the Redevelopment Agency of the City of Sacramento approved a construction and permanent loan not to exceed $1,351,071 (Loan) to 16th and O Street, LP for the construction of the 60-unit affordable housing development.
B. In 2011, the California legislature enacted AB 1X 26 which, coupled with a subsequ ent decision of the Supreme Court of California, resulted in the dissolution of redevelopment agencies, including the Redevelopment Agency of the City of Sacramento (“RACS”), a public body, corporate and politic, as of February 1, 2012, and the transfer of all assets, properties, contracts and leases of RACS to its successor agency.
C. By Sacramento City Council Resolution No. 2012 -018 dated January 31, 2012, the City of Sacramento (“City”) affirmatively elected to serve as the successor agency to RACS. As successor agency, City designated the Housing Authority of the City of Sacramento (“HACS”) as the successor housing agency to retain housing-assets and housing-functions previously performed by RACS.
D. By HACS Resolution No. 2012-001 dated January 31, 2012, HACS affirmatively elected to serve as the successor housing agency to RACS.
E. The land is owned by the State of California and leased to Capitol Area Development Authority (CADA) at no cost. In 1992, CADA leased the land to the developer for a 55-year term. Over the last several years the project has fallen into financial despair and the outstanding principal amount of the Loan with the Housing Authority of the City of Sacramento was due and payable in June 2023 . T he developer defaulted on the loan.
CADA worked with the developer to identify options for the s ale and/or debt struct uring of The Terraces at Capitol Park. The project ownership was transferred to CADA in December 2023, with the existing Sacramento Housing Redevelopment Agency (Agency) loan assumed by CADA.
F. The outstanding principal balance of the Loan is $1,351,071, with approximately $1million in accrued interest. CADA intends to fully repay the principal of the loan upon approval of this request. Due to the feasibility of the acquisition by CADA and future project operations, staff is requesting to forgive the accrued interest of the Loan not to exceed $1,400,000, when the principal is repaid for The Terraces at Capitol Park.
G. The project has been analyzed in accordance with the California Environmental Quality Act (CEQA) and has been determined not a project pursuant to CEQA Guidelines §15378, due to administrative activities. The National Environmental Policy Act is not applicable as there are no federal funds.
BASED ON THE FACTS SET FORTH IN THE BACKGROUND, THE HOUSING AUTHORITY OF THE CITY RESOLVES AS FOLLOWS:
SECTION 1.
All evidence presented having been duly considered, the findings, including environmental findings regarding this action, as stated above, are found to be true and accurate and are hereby approved adopted.
SECTION 2.
The interest accrued on the Loan shall be forgiven in an amount not to exceed $1,400,000 (Accrued Interest), when the principal is repaid for The Terraces at Capitol Park.
SECTION 3.
The Executive Director, or her designee, is authorized to take any and all actions necessary to forgive the Accrued Interest.
CHANGING LIVES
The Terraces at Capitol Park
Capitol
Park
Fremont
Park
- The Terraces at Capitol Park
(1609 0 Street)
The Terraces at
Capitol Park
0 I
Feet
150
I
300
I
Attachment 3
SHRAGIS
January 19, 2024