Agenda packet — Santa Ana City Council, July 18, 2023 (part 9 of 9)

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for youth experiencing homelessness in Orange County. The City received one (1) eligible proposal from Illumination Foundation prior to the deadline of November 22, 2022 at 4:00 p.m.

A Review Panel that consisted of the Homeless Services Division Manager, the Housing Division Manager, a Housing Programs Analyst, the Residential Construction Specialist, and a Senior Planner ensured compliance with the RFP requirements, used the proposal Scoring and Selection Criteria from the RFP, and reviewed the proposed project design for appropriateness for the proposed target population of TAY, compatibility with surrounding uses, cost effectiveness of construction, and appropriateness of the design and construction for low maintenance and long-term durability.

The Review Panel recommends the following award for this project:

Developer: Illumination Foundation
Project Name: Intergenerational Housing Project
Award Recommendation:

HHAP - Homeless Housing, Assistance and
Prevention Program Round 1, 2 and 3 Funds $2,021,319
Project-Based Vouchers Eight (8)
The pre-commitment letter for Illumination Foundation provides the enforceable funding commitment from the City for $2,021,319 in HHAP funds and eight (8) project-based vouchers for the development of the Intergenerational Housing Project located at 918 N.

Bewley Street, Santa Ana, CA 92703 (APN 198-231-10) (Exhibit 1) (the “Project”).

Among various other conditions in the pre-commitment letter, one of the primary conditions is that the developer must provide verification that it has secured all of its remaining financing for the development of the project. This should be in the form of other enforceable funding commitments in the project’s capital stack, which may include fundraising amounts currently committed by the developer, a commitment of affordable housing funds from the County of Orange, Orange County Housing Finance Trust, CalOptima Health, or any other funding source needed in the project’s capital stack to develop the Project and close on the financing. The pre-commitment letter is also conditional on the developer securing any and all permits and discretionary approvals that may be required for the project by the City. The pre-commitment does not obligate the City or any department thereof to approve any application or request for or take any other action in connection with any planning approval, permit, or other action necessary for the construction of the project. This will need to be completed before staff will return to the City Council for consideration of the Grant Agreement for this project.

In compliance with the City’s Affordable Housing Funds Policies and Procedures, Keyser Marston Associates (KMA) conducted a preliminary financial gap analysis to confirm the project’s underwriting, the financial gap, and other programmatic

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requirements related to the funding sources (Exhibit 2). KMA reviewed the developer’s estimates and projections of rents, expenses, reserves, and development costs in accordance with industry-standard underwriting guidelines.

Developer Background
Illumination Foundation is a 501(c)(3) organization that was founded in 2008 with the mission of disrupting the cycle of homelessness in Orange County. They are a dynamic organization with the experience and capacity to acquire, develop, and operate affordable and permanent supportive housing. Illumination Foundation’s experience consists of property acquisition, rehabilitation, conversion, design, and facility operation.

Their ability to develop new projects is reinforced by their ability to conduct operations for completed projects and implement successful programs within them. Their shelters and permanent housing operations involve complex logistics, contract management, accessibility compliance, facility maintenance, and high-quality service delivery.

In addition to development projects, Illumination Foundation operates extensively across several Southern California counties and is frequently called upon to assist communities with urgent needs, such as during the COVID-19 pandemic. During the pandemic, Illumination Foundation took an active role in the implementation of Project Roomkey in Orange County, providing support to converted sites that were created to mitigate the risks of COVID-19 to the most vulnerable.

Besides currently providing the operation of the City’s Navigation Center, Illumination Foundation has additionally completed several developments including the Fullerton Navigation Center (a 150-bed facility), the Riverside Recuperative Care (a 50-bed facility), and four family emergency shelters in the cities of Stanton and Anaheim.

Illumination Foundation also has experience in purchasing a motel for conversion to recuperative care and has partnered with LifeArk to utilize an innovative modular building system to develop an 18-unit prefabricated permanent supportive housing project in El Monte.

Illumination Foundation is a fiscally responsible and financially stable organization. In 2019, they experienced a 24% increase in revenue; in 2020, a 40% increase and more than a 50% growth in 2021. They transitioned from 90% reliance on non-recurring grants and limited donations in their earlier years to more than 80% of revenue from recurring government contracts and program fees as the organization has grown.

Illumination Foundation has additionally invested in ways to engage and retain individual donors.

Illumination Foundation has formed a qualified team of internal staff and developer partners to design a Project that supports the ongoing mission of the property. This includes Westgroup Designs as the architect and JLC Associates as one of three potential contractors who will bid on the project.

Westgroup Designs is known for providing exceptional design solutions for their clients and has an extensive portfolio of outstanding projects including Google’s Orange

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County headquarters. Their expertise in creating distinctive and effective residential communities, especially for the seniors, will be a great asset for this project.

Founded in 1996, JLC Associates is a full-service Commercial General Contractor specializing in tenant improvement construction. They take pride in delivering successful, on time, in budget, high quality completion on each project. Easter Seals of Southern California, Memorial Care Health systems, Experian, and Ingram Micro are a few of their clients.

Project Site
Illumination Foundation is proposing to develop a site formerly used by The Lovers of the Holy Cross Sisters as a convent and preschool. Illumination Foundation acquired the site for $3.9 million. With a total lot area of 38,281 square feet (SF), the Project site is located along Bewley Street, between Hazard Avenue and W. 11th Street. The current property is comprised of two (2) two-story residential units nestled in the back totaling 7,032 SF; a 1,230 SF preschool building facing Bewley Street with an adjacent 586 SF shaded play area; and two storage sheds, each 148 SF connected by a 145 SF covered patio. The premises also boasts a luscious garden graced by numerous varieties of fruit trees. The proposed Project is within one half mile from multiple bus stops.

The property is located within the Garden Grove Unified School District boundaries.

The Planning and Building Agency conducted a preliminary assessment of the site and Project. The proposed site was originally developed as an eleven-unit apartment complex, which was modified to accommodate and be occupied by The Lovers of the Holy Cross Sisters. Illumination Foundation proposes interior renovations of the two existing apartment buildings, along with minor exterior alterations and new entry stairs, in order to rehabilitate the units and convert them back to multi-family residential with a total of eleven units. As proposed, there is no enlargement of the apartment buildings and no increase in the number of units as originally constructed. Moreover, the overall scope of work includes the proposed conversion of an existing storage shed into an Accessory Dwelling Unit (ADU) with two bedrooms. The Project is subject to additional administrative review and approval by the Planning and Building Agency through the City’s building plan check and permitting process. Staff understands that the Project as proposed is administrative and does not require discretionary entitlement approvals, and that it is not subject to additional off street parking due to its proximity to public transit.

Proposed Project
The proposed Project includes 11 units comprised of two (1) one-bedroom units, seven (7) two-bedroom units, and two (2) three-bedroom units; an ADU; and a preschool.

Illumination Foundation’s intergenerational campus will provide housing for homeless seniors and youth (TAY) with young children and preferential entry at the preschool for the young children to create a mutually supportive community. The proposed site plan includes 29 parking spaces with 20 spaces for the tenants and the ADU, and 9 spaces for the preschool including one accessible space and one loading parking stall. This village concept is expected to garner substantial synergistic benefits:

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•Reduce social isolation for seniors.
•Encourage employment for parents deterred by childcare worries. •Provide high quality early education to children.

Unit Mix
The target population for the Intergenerational Housing Project includes individuals experiencing chronic homelessness with a local preference for residents of the Santa Ana community. Eight (8) permanent supportive housing (PSH) units will be restricted to TAY families, two (2) shared housing PSH units will house senior citizens, and one unit will be reserved for an on-site manager. The ADU will be used as the Manager’s Unit and offices for programming. The proposed unit mix and rent restrictions are as follows:

Bedroom Size 30% AMI
(PSH)
50% AMI
(PSH)
Manager’s
Unit Total Units
One-Bedroom (TAY) 2
Two-Bedroom (TAY) 6
Two-Bedroom 1
Three-Bedroom (Senior) 2
TOTAL 8 2 1 11
Resident Services
Illumination Foundation will coordinate the delivery of all resident support services for the intergenerational campus. A comprehensive array of wraparound services will be provided by Illumination Foundation staff to ensure residents achieve healthy, independent, and fulfilling lives. Utilizing staff trained in best practices ranging from trauma informed care and critical time interventions to housing first, Illumination Foundation will ensure all residents have access to the services they need to thrive.

All residents of the intergenerational campus will receive access to case management services that will assess their needs and craft individualized care plans that utilize resident self-stated goals in accordance with a strength-based and client-centered model. Services related to these goals include income development and financial literacy, tenancy and other life skills, connections to appropriate mental health and medical services and substance use treatment, and transportation.

Illumination Foundation is positioned to provide high quality services because of strong partnerships with affiliated organizations and community partners. Residents will have the opportunity to be referred to the Illumination Foundation Medical Group for behavioral and physical health services; to a subcontractor, Straight Talk, for behavioral health group sessions; on-site medical coordination through nursing student interns; and parenting classes through The Priority Center and Olive Crest.

In addition to a range of community partners, Illumination Foundation will utilize innovative funding through CalAIM to provide programming like day habilitation courses covering topics such as budgeting, credit recovery, meal planning, anger management, and self-esteem building. Along with access to day habilitation courses, residents will also have access to enhanced care management. As part of the Enhanced Care

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Management program, enrolled residents will be assigned a lead care manager that will work with their insurance provider and personal care coordinator to facilitate clinical care.

Beyond those services provided to all residents, children will be assigned a Children and Family Program Navigator who is responsible for overseeing the specific needs of children. Developmental screeners will be completed to ensure children are meeting important developmental benchmarks and staff will have access to a clinician to determine appropriate interventions when benchmarks are not met. The navigator will coordinate care for the children, such as referrals to internal and external resources, like regional center, literacy development, and children vision and dental clinics. Through our partnership with Children's Hospital of Orange County (CHOC), children are able to receive priority appointments to address their health needs.

Lastly, the unique characteristics of this development will present important service opportunities. The on-site preschool operated by Head Start will ensure that appropriately aged children will receive access to schooling and daycare. An on-site garden and chicken coop will allow for the development of community and wellness among residents. The intergenerational nature of the campus will allow for Illumination Foundation to cultivate peer mentorships between senior residents and transitional age youth or single parent residents. These onsite community activities help target the social isolation that can occur with senior populations.

Illumination Foundation has provided services to people experiencing homelessness in the Orange County area for 15 years and currently operates the City of Santa Ana’s Carnegie Navigation Center. This experience and strong working relationship with the City of Santa Ana positions Illumination Foundation to provide the exceptional services the residents of the intergenerational campus deserve.

Community Inclusion
The need for affordable housing opportunities for TAY and seniors experiencing homelessness has become critical. For projects to be successful both in terms of design, development, and implementation, community engagement must be an integral part of each phase of the process. Illumination Foundation has a demonstrated history of working cooperatively with surrounding neighborhoods in all phases of project development, as evidenced, for one example, by the development and planning of the Fullerton Navigation Center. The process involved months of extensive community outreach, as well as partnering with local community groups and organizations in order to address the concerns of Fullerton residents and businesses.

Illumination Foundation will take a reflective and strategic approach to community engagement. This begins with an in-depth understanding of the needs of the community, including the growing need for housing resources and the increasing number of people experiencing homelessness in Orange County. Throughout every step of the development process, Illumination Foundation, along with its development partners, will make active and concerted efforts to identify and reach out to all stakeholders relevant to the project.

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In the early phase of development, this will include attending City Council meetings, scheduling town halls, and creating questionnaires and informative flyers to distribute to stakeholders and community members. Forays into the surrounding community will be made to canvass residents, neighborhood associations, community groups, and nearby businesses to provide information and allay concerns that stakeholders may have. Once the surrounding neighborhood has been canvassed, Illumination Foundation will facilitate town hall meetings, including both virtual and in-person. This will ensure accessibility and ample opportunities for stakeholder voices to be heard. Letters of support from stakeholders will be gathered as needed. Opportunities for focus groups and to answer questionnaires will be made available to individuals with lived experience of homelessness to provide their insight and inform the project. Frontline staff with experience working directly with clients will be afforded opportunities to provide feedback and engage in the program design and Project development process, as Illumination Foundation recognizes the critical importance of their perspective.

Throughout all stages of this Project, Illumination Foundation will seek input and establish collaborative efforts with agencies and nonprofits operating in and near the project, such as Mercy House Living Centers, Fresh Beginnings, and CityNet, among others. Along with development partners, Illumination Foundation will seek to allay any community concerns and incorporate critical feedback into the design and implementation that augments and strengthens their ability to serve the needs of the community. Through a partnership with Head Start, an affordable preschool resource will be available to the surrounding community.

Illumination Foundation will actively consider barriers that stakeholders may experience to attending scheduled town halls and other community engagement efforts, providing accommodations such as coordination of childcare, coordinating transportation, providing meeting locations that are convenient for stakeholders, and providing video or phone conferencing. To best reach all stakeholders, informative flyers will be produced in both English and Spanish, and additional linguistic accommodations will be made as needed. By utilizing direct outreach, social media, and newsletter marketing strategies, leveraging existing relationships and creating new ones, actively involving stakeholders in discussions, and implementing a Good Neighbor Plan, Illumination Foundation will ensure the level of community engagement necessary for a successful Project that benefits the target population and integrates seamlessly into the broader community.

ENVIRONMENTAL IMPACT
Pursuant to the Adaptive Reuse Ordinance (Ordinance No. NS-2874), the proposed project is found and determined to be consistent with the General Plan of the City of Santa Ana. Therefore, in accordance with the California Environmental Quality Act, the recommended action is exempt from further review under Section 15194 (Affordable Housing Exemption), as this project meets all the required criteria as a 100-percent affordable/permanent supportive housing development.

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FISCAL IMPACT
The various agreements, including the grant agreement, is estimated to be finalized for City Council approval in FY 2023-24. Upon future approval of the grant agreement, funds will be budgeted and available as shown below. The Homeless, Housing Assistance and Prevention (HHAP) – Round 1 funds will be part of the proposed carryover of unspent funds which will be presented to City Council in September 2023 for part of this agreement.

Fiscal
Year
Accounting Unit
– Account # Fund Description Accounting Unit,
Account Description Amount
FY 23-24 12218715-69152
Homeless Housing,
Assistance and Prevention
funds Round 1
Loans & Grants $673,773.03
FY 23-24 12218716-69152
Homeless Housing,
Assistance and Prevention
funds Round 2
Loans & Grants $318,510.90
FY 23-24 12218717-69152
Homeless Housing,
Assistance and Prevention
funds Round 3
Loans & Grants $1,029,035.17
Total Grants $2,021,319.10

EXHIBIT(S)

1. Pre-Commitment Letter for Illumination Foundation

2. Preliminary Financial Gap Analysis by Keyser Marston Associates Submitted By: Michael L. Garcia, Executive Director of Community Development Approved By: Kristine Ridge, City Manager

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ANTA ANA CITY COUNCIL
Valerie Amezcua
Mayor
[email protected]
Jessie Lopez
Mayor Pro Tem, Ward 3
[email protected]
Thai Viet Phan
Ward 1
[email protected]
Benjamin Vazquez
Ward 2
[email protected]
P
hil Bacerra
Ward 4
[email protected]
Johnathan Ryan Hernandez
Ward 5
[email protected]
Dav
id Penaloza
Ward 6
[email protected]
MAYOR
Valerie Amezcua

MAYOR PRO TEM
Jessie Lopez

COUNCILMEMBERS
Phil Bacerra
Johnathan Ryan Hernandez
David Penaloza
Thai Viet Phan
Benjamin Vazquez
20 Civic Center Plaza – M25
Santa Ana, California 92702
www.santa-ana.org

CITY MANAGER
Kristine Ridge

CITY ATTORNEY
Sonia R. Carvalho

CITY CLERK
Jennifer L. Hall
July 18, 2023
Pooja Bhalla, DNP, RN Sent via E-mail
Chief Executive Officer
Illumination Foundation
Re: Bewley Street - Intergenerational Affordable Housing Project 918 North Bewley Street, Santa Ana, CA 92703
Pre-Commitment Letter for a Grant of Homeless Housing, Assistance and Prevention Grant funds, and Eight (8) Project-Based Vouchers Dear Ms. Bhalla,
Illumination Foundation (“Developer”) requested financial assistance in connection with the proposed development of an eleven (11) unit intergenerational affordable housing project, with eight (8) units restricted to homeless transitional age youth (TAY) and two (2) units restricted to homeless senior citizens (the“Project”). The Project is to be located at 918 North Bewley Street, Santa Ana, CA 92703 (APN 198-231-10) (the “Site”).

The Project includes the rehabilitation of 2 two-story residential buildings that were previously utilized by The Lovers of the Holy Cross Sisters as a convent and preschool.

The Developer will convert the two residential buildings into eleven (11) rental units comprised of two (2) one-bedroom units, seven (7) two-bedroom units, and two (2) three- bedroom units. Two (2) one-bedroom units and six (6) two-bedroom units will be restricted to homeless TAY at or below 30% of the Area Median Income (“AMI”). The two (2) three- bedroom units will be structured as shared housing for homeless senior citizens at or below 50% of the AMI. One (1) two-bedroom unit will be unrestricted. The Project’s unit mix and rent restrictions are as follows:

EXHIBIT 1

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Bedroom Size 30% AMI
(PSH)
50% AMI
(PSH)
Manager’s
Unit Total Units
One-Bedroom (TAY) 2
Two-Bedroom (TAY) 6
Two-Bedroom 1
Three-Bedroom (Senior) 2
TOTAL 8 2 1 11

The Developer proposes to construct an Accessory Dwelling Unit ( “ADU”) on the Site.

The ADU will be used as office space for supportive services and programming functions.

An existing preschool building is also located on the Site. The Developer proposes to work with Head Start to renovate and operate the preschool space.

As proposed, there is no enlargement of the apartment buildings and no increase in the number of units as originally constructed. Moreover, the overall scope of work includes the proposed conversion of an existing storage shed into an ADU with two bedrooms.

The Project is subject to additional administrative review and approval by the Planning and Building Agency throughtheCity’sbuildingplancheckandpermittingprocess. Staff understands that the Project as proposed is administrative and does not require discretionary entitlement approvals, and that it is not subject to additional off street parking due to its proximity to public transit.

The City of Santa Ana (“City”)and the Housing Authority of the City of Santa Ana (“Housing Authority”)have reviewed the Developer's request for assistance, and at the City Council / Special Housing Authority meeting on July 18, 2023, the City Council and Housing Authority Board authorized and approved issuance of this pre-commitment letter evidencing the preliminary awardof(collectively,the“CityAssistance”):

- A grant in the maximum amount of $2,021,319 funded from Homeless Housing, Assistance and Prevention (“HHAP”) funds held by the City of Santa Ana for theProject(“ HHAP Grant”); and

- Eight (8) U.S. Department of Housing and Urban Development Project-Based Vouchers (“PBV”) from the Housing Authority of the City of Santa Ana.

This letter shall evidence the City’s pre-commitment of the City Assistance to the Developer for the Project subject to the conditions described below.

City Assistance:

The amount of the proposed City Assistance hasbeendeterminedbasedupontheCity’s review of the Developer's request for the receipt of the City Assistance and the development proforma and projected cash flows for the Project submitted by the Developer to the City (“Proforma”). The City Manager has authority to approve revised development proformas and projected cash flows for the Project; provided, however, that the City Assistance is not increased or extended.

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The City Assistance shall include the following general terms:

 The HHAP Grant shall be for a maximum amount of $2,021,319, or as much thereof as is disbursed for hard and soft costs in constructing the Project, provided from the HHAP funds.

 The provision of HHAP funds will be structured as a grant; therefore, no repayment is due to the City unless the Project is in default.

 Cost savings from the Project, if any, will be applied first to repay the City Assistance, as applicable.

 All other funding sources must be secured through enforceable funding commitments prior to disbursement of any of the HHAP Grant funds.

 An environmental review in compliance with the National Environmental Policy Act is required prior to entering into an Agreement to Enter into a Project-Based Vouchers Housing Assistance Payments Contract for the PBVs committed to the Project.

Project-Based Vouchers:

The basic terms of the award are as follows:

 Funding Source: The eight (8) PBVs will be funded exclusively out of the tenant- based voucher program annual budget authority received by the Housing Authority from the U.S. Department of Housing and Urban Development (“HUD”).

 Rents: The PBV Housing Assistance Payments ( “HAP”) Contract rents below are preliminary and contingent upon a reasonable rent determination to be conducted by the Housing Authority at the time of execution of the HAP Contract:

o One-Bedroom: $2,219
o Two-Bedroom: $2,665

In accordance with HUD regulations andSAHA’sAdministrati ve Plan, these rents are subject to review prior to the execution of a HAP contract.

 Annual Amount: The Project will receive PBVs for the eight (8) TAY units:

Unit Size
30% AMI
No. Units Proposed HAP
Contract Rent
One-Bedroom 2 $2,219
Two-Bedroom 6 $2,665

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The estimated maximum annual amount received under this award is $245,136.

These estimates assume 100% occupancy of the units over the twelve-month period with contract rent amounts limited to the current applicable Santa Ana Housing Authority Payment Standard.

 Term: The HAP Contract will have a term of twenty (20) years. Any time before the expiration of the HAP Contract, the Developer may request an additional twenty (20) years, subject to a determination by the Housing Authority that it is appropriate to continue providing permanent supportive housing for homeless TAY or to expand housing opportunities and HUD funding. Subsequent extensions are subject to the same requirements.

 Units Receiving Assistance: The maximum number of units receiving PBV assistance will be the eight (8) TAY units. The PBVs may not be utilized for the two (2) shared housing units.

 Local Preference: All individuals and families shall be homeless individuals with a preference for local residents from the City of Santa Ana based on the City’slocal residency screening criteria, subject to compliance with applicable fair housing laws.

General Provisions:

The City's obligation to provide the City Assistance to the Project is subject to each of the following conditions:

 Developer must provide proof that it has secured all of its remaining financing for the development of the Project, in particular the fundraising amounts currently committed by the Developer, in the form of enforceable funding commitments to develop the Project before staff will return to the City Council for consideration of the HHAP Grant Agreement.

 100% of the affordable units (less one (1) manager’s unit) in the Project will be restricted to homeless households as follows:

o The eight (8) TAY units will be restricted to homeless TAY households earning no more than 30% of the Area Median Income (“AMI”); and

o Each bedroom in the two (2) shared housing units will be restricted to homeless senior citizen households earning no more than 50% AMI.

 The Project consists of ten (10) permanent supportive housing units for homeless individuals and families. All individuals and families shall be referred from the Orange County Coordinated Entry System with a preference for local residents from the City of Santa Ana based on the City’slocalresidencyscreeningcriteria , subject to compliance with applicable fair housing laws.

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 The rent standards for the Project must comply with the strictest of the standards imposed by the funding sources contributed to the Project, as applicable. The HHAP rent standards are set forth as follows:

o The maximum affordable rent for the eight (8) TAY units will be set at the 30% AMI rent limit as published by the California Department of Housing and Community Development ( “HCD”) for the Multifamily Tax Subsidy Programs (“MTSP”); and

o For the three-bedroom shared housing units, the total rent payments must not exceed the 50% MTSP AMI rent limit for a three-bedroom unit.

Additionally,eachtenant’srentmustnotexceedthelesserof:

 One-third (1/3) of the 50% MTSP AMI rent for a three-bedroom unit; or

 Thirtypercent(30%)ofthe household’sactualincome (inclusive of Supplemental Security Income / State Supplementary Payment payments.

 Illumination Foundation will provide/pay for case management / social service expensesoutsideoftheProject’soperatingbudget.

 Illumination Foundation willcover anyoperating losses duringthe City’s 55-year affordability period.

 Given that Illumination Foundation is proposing to provide a loan to the Project from one of its affiliated entities, Illumination Foundation will incorporate a standstill provision that prohibits Illumination Foundation from foreclosing on the Project

 All provided funding and Project requirements shall conform to the City’smost recently adopted Affordable Housing Funds Policies and Procedures, unless alternative requirements are expressly provided in the executed Grant Agreement for the City Assistance or any other documents related to the development of the Project.

 Approval of all required entitlements and discretionary actions to allow the adaptive reuse and construction (as applicable) of an eleven (11) unit affordable housing complex, with ten (10) units restricted for homeless households, to be located at 918 N. Bewley Street, Santa Ana, CA 92703 (APN 198-231-10).

 The City's obligation to provide the City Assistance is and shall remain subject to all covenants, conditions, and restrictions set forth in the Grant Agreement, and in particular the City's analysis of the available funding sources and development and operating costs of the Project and the overall economic feasibility of the Project.

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 Review and approval of the Grant documents evidencing the City Assistance by the City Council including the Grant Agreement, Affordability Restrictions and Deed(s) of Trust, as reasonably necessary.

 Developer must provide proof that it has received and reviewed three general contractor bids, and that all subcontractors are competitively bid out. Specifically, the Developer must obtain three general contractor bids; all subcontractors must be competitively bid out; and the City must review and approve the final general contractor’s contract. The Project will be subject to State of California prevailing wage requirements.

 Execution of the HAP Contract andallnecessarydocumentsforthePBV’s.

 Compliance with applicable federal regulations set forth in 24 Code of Federal Regulations (CFR) Part 983, and all other federal, state, and local laws and regulations.

Developer, at its sole cost and expense, will be responsible for securing any and all permits and discretionary approvals that may be required for the Project by the City or any other federal, state, or local governmental entity having jurisdiction over the Property or Project. Notably, this pre-commitment letter shall not obligate the City or any department thereof to approve any application or request for or take any other action in connection with any planning approval, permit or other action necessary for the construction, rehabilitation, installation or operation of the Project.

This pre-commitment letter for the Project will expire on July 18, 2025.

If you have any questions or require any additional information regarding this pre- commitment letter, please contact Judson Brown, Housing Division Manager, by telephone at (714) 667-2241 or by e-mail at [email protected] or Terri Eggers, Homeless Services Manager, by telephone at (714) 647-5378 or by e-mail at [email protected].

Sincerely,

On behalf of the City of Santa Ana:

________________________________
Kristine Ridge
City Manager

On behalf of the Housing Authority of
the City of Santa Ana:

________________________________
Michael L. Garcia
Executive Director
Attest:

_________________________________
Jennifer L. Hall
Clerk of the Council / Recording Secretary
EXHIBIT 1

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APPROVED AS TO FORM
Sonia R. Carvalho
City Attorney and Authority General Counsel

___________________________
By: Matthew Cody
Best, Best & Krieger
Special Counsel for the City and Housing Authority

EXHIBIT 1

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777 SOUTH FIGUEROA STREET, SUITE 2555  LOS ANGELES, CALIFORNIA 90017  PHONE 213.622.8095 2306002v3.SA.TRB
WWW.KEYSERMARSTON.COM 19090.018.028
ADVISORS IN:

Real Estate
Affordable Housing
Economic Development

BERKELEY
A. Jerry Keyser
Timothy C. Kelly
Debbie M. Kern
David Doezema

LOS ANGELES
Kathleen H. Head
James A. Rabe
Gregory D. Soo-Hoo
Kevin E. Engstrom
Julie L. Romey
Tim R. Bretz

SAN DIEGO
Paul C. Marra
Linnie A. Gavino
M

EMORANDUM
To: Terri Eggers, Homeless Services Division Manager
Judson Brown, Housing Division Manager
City of Santa Ana
From: Tim Bretz
Date: June 22, 2023
Subject: Bewley Street – Preliminary Financial Gap Analysis At your request, Keyser Marston Associates, Inc. (KMA) prepared a preliminary financial gap analysis for the project proposed to be developed at 918 North Bewley Street (Site) by Illumination Foundation (Developer). The Site is currently comprised of two residential buildings totaling 7,032 square feet of gross building area (GBA), a 1,230 square foot preschool building, and two storage sheds. The Developer proposes to rehabilitate the existing residential buildings and construct a new accessory dwelling unit on the Site. The Developer proposes to create a total of eleven (11) permanent supportive housing (PSH) units on the Site for the following purposes:

1. Eight (8) units restricted to homeless Transition Age Youth (TAY);

2. Two (2) three-bedroom units structured as shared housing and restricted to homeless senior citizens households; and

3. One (1) unrestricted unit for an on-site manager (Project).

The Developer is requesting financial assistance from the City of Santa Ana (City) for the purposes of developing the Project. The purpose of this KMA analysis is to provide a preliminary evaluation of the Developer’s request for assistance from the City.

EXHIBIT 2

City Council
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Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 2

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EXECUTIVE SUMMARY
Estimated Financial Gap
The results of the KMA preliminary financial gap analysis are compared to the Developer’s financial assistance request in the following table:

KMA Developer Difference
Total Development Costs $7,339,000 $7,290,900 ($48,200) (Less) Outside Funding Sources (5,269,500) (5,269,500) -0- Financial Gap $2,069,500 $2,021,300 $48,200

As shown in the preceding table, KMA estimates the Project’s financial gap at $2.07 million, which is $48,200, or less than 3% higher than the Developer’s financial gap estimate. This differential can be considered inconsequential for a Project of this magnitude.

Operating Feasibility
The Developer estimates the Project’s stabilized net operating income (NOI) at approximately $37,000 in the Project’s first stabilized year of operation. In contrast, KMA estimates the Project’s stabilized NOI at negative $37,000 in Year 1 and not becoming positive until Year 10. Per discussions with the Developer, the Developer will cover any cash flow losses. This should be included as a provision in the City’s grant agreement and/or regulatory agreement.

Proposed Funding Sources
The following summarizes the proposed funding sources for the Project:

1. The Santa Ana Housing Authority (Housing Authority) proposes to provide eight (8) Section 8 Project-Based Vouchers (PBVs) that are allocated to the Housing Authority by the United States Department of Housing and Urban Development (HUD). The PBVs will be overlayed on the 8 TAY units – and cannot be utilized for the two shared housing units.

EXHIBIT 2

City Council
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Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 3

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2. The Developer has secured $1 million in fundraising dollars.

3. The Developer has committed to securing at least $1.50 million in additional fundraising dollars for the Project.

4. Illumination Foundation, or one of it’s affiliated legal entities, proposes to provide an approximately $2.77 million loan to the Project.

PROJECT DESCRIPTION
The Developer currently owns the Site. The Site was formerly used by the Sisters of Holy Cross as a convent and preschool. The Site is improved with the following uses:

1. Two (2) two-story residential buildings totaling 7,032 square feet of GBA;

2. A 1,230 square foot preschool building; and

3. Multiple storage sheds and a covered patio.

The Developer proposes to complete the following scope of development:

1. Convert the two residential buildings into eleven rental units comprised of the following unit mix:
a. Two (2) one-bedroom units;
b. Seven (7) two-bedroom units; and
c. Two (2) three-bedroom units.

2. Construct an accessory dwelling unit (ADU) to be used as offices for programming.

3. Renovate the existing preschool building to continue as a preschool use. 1 1 Per the Developer, Head Start will be responsible for any costs associated with the preschool operation.

It is KMA’s understanding that costs for the preschool space were not included in the development budget information provided by the Developer.

EXHIBIT 2

City Council
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18 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 4

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4. The Project’s residential GBA is estimated at 7,473 square feet, inclusive of the new ADU space.

5. Twenty-nine (29) surface parking spaces will be provided consisting of:
a. Twenty (20) parking spaces for the residential component; and b. Nine (9) parking spaces for the preschool component.

6. The Project’s proposed affordability mix is as follows:
a. Two (2) one-bedroom units and six (6) two-bedroom units will be restricted to homeless TAY households that earn no more than 30% of the Area Median Income (AMI) as published by the California Department of Housing and Community Development (HCD) for Multifamily Tax Subsidy Programs (MTSP);
2 b. Two (2) three-bedroom units will be structured as shared housing for homeless senior citizens that earn no more than 50% MTSP AMI; and c. One two-bedroom unit will be unrestricted and reserved for an on-site manager.

FINANCIAL GAP ANALYSIS
KMA prepared a pro forma analysis to assist in evaluating the Developer’s proposal. The analysis is located at the end of this memorandum, and is organized as follows:

Table 1: Estimated Development Costs
Table 2: Stabilized Net Operating Income
Table 3: Financial Gap Calculation
Table 4: Cash Flow Analysis

2 Although the Project’s financing does not utilize Tax Credits, the City has elected to utilize the MTSP income and rent limits published by HCD.

EXHIBIT 2

City Council
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19 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 5

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Estimated Development Costs (Table 1)
KMA reviewed the Developer’s development cost estimates, and then independently prepared a pro forma analysis for the Project. The resulting development costs are estimated as follows:

PROPERTY ASSEMBLAGE COSTS
The Developer purchased the Site for $3.90 million. The Developer did not provide an appraisal for review. The City may want to require the Developer to provide an appraisal to ensure that the purchase price is consistent with the appraised value.

The Developer was required to pay the Seller’s broker fees, which were set at $156,000, or 4% of the purchase price. The total property assemblage costs are estimated at $4.06 million.

DIRECT COSTS
The direct cost estimates assume that the Project will be subject to State of California prevailing wage requirements. The direct costs applied in this analysis are based on estimates provided by the Developer and can be summarized as follows:

1. The demolition costs are estimated at $71,000.

2. The site improvement costs are estimated at $71,000.

3. The rehabilitation and new construction costs for the ADU are estimated at $2.09 million, or approximately $190,400 per unit.

4. The general conditions and contractor fee costs are estimated at $240,000, or 11% of construction costs.

5. The insurance costs are estimated at 1% of construction costs.

6. A direct cost contingency allowance equal to 15% of direct costs is provided, which is reasonable given the proposed scope of development.

KMA estimates the total direct costs at $2.88 million, or $261,400 per unit.

EXHIBIT 2

City Council
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20 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 6

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INDIRECT COSTS

1. The architecture, engineering and consulting costs are estimated at 3.5% of direct costs.

2. The Developer estimates the public permits and fees costs at $61,900, or approximately $5,600 per unit.

3. The taxes, insurance, legal and accounting costs are estimated at 1.5% of direct costs.

4. The Developer did not include an allowance for marketing and leasing costs.

5. The Developer Fee is set at $183,000, which is equal to 3% of net development costs (total development costs less the developer fee). This estimate is less than typical developer fee amounts for affordable housing projects.

6. KMA included an indirect cost contingency allowance equal to 5% of other indirect costs. The Developer did not include a separate indirect cost contingency allowance in their development budget.

KMA estimates the total indirect costs at $407,600.

FINANCING COSTS
The Developer intends to utilize the City’s financial assistance and other fundraising/grant funds to cover the Project’s construction costs. As such, the Developer assumes that the Project will not be subject to construction loan interest and/or construction loan fees during the construction period. KMA utilized this assumption in the pro forma analysis, and did not include any financing costs. If this assumption changes, the KMA analysis may need to be revised accordingly.

TOTAL DEVELOPMENT COSTS
As shown in Table 1, KMA estimates the total development costs at $7.34 million, which equates to approximately $667,200 per unit. This estimate is approximately $48,200, or less than 1% higher than the Developer’s estimate. This differential is primarily EXHIBIT 2

City Council
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Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 7

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attributed to KMA including higher indirect costs, including an indirect cost contingency allowance, in the KMA pro forma analysis.

Stabilized Net Operating Income (Table 2)
The Project’s funding sources include a loan provided by the Developer, and fundraising/grant funds secured by the Developer. In addition, the City intends to utilize Homeless Housing, Assistance and Prevention (HHAP) grant funds allocated to the City by HCD. To that end, the City will impose the following affordability requirements on the Project:

INCOME RESTRICTIONS

1. The eight (8) TAY units will be restricted to homeless TAY households earning no more than the 30% MTSP AMI income limits as published by HCD.

2. For the three-bedroom shared housing units, each bedroom shall be restricted to a homeless senior citizen household earning up to the 50% MTSP AMI income limit.

RENT RESTRICTIONS

1. The maximum affordable rent for the eight TAY units will be set at the 30% MTSP AMI rent as published annually by HCD.3

2. For the three-bedroom shared housing units, the total rent payments must not exceed the 50% MTSP AMI rent for a three-bedroom unit. Additionally, each tenant’s rent must not exceed the lesser of:
a. One-third (1/3) of the 50% MTSP AMI rent for a three-bedroom unit; or b. 30% of the household’s actual income (inclusive of Supplemental Security Income (SSI) / State Supplementary Payment (SSP) payments.

3 Each of the TAY units will have a PBV, and thus, each TAY tenant can pay no more than 30% of their income towards rent. For underwriting purposes, KMA set the TAY tenant payments at 30% SSI.

EXHIBIT 2

City Council
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22 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 8

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ACHIEVABLE RENTAL INCOME
The Project’s rents must adhere to the most restrictive of the requirements imposed by the funding sources. The rents in this analysis are based on 2022 information published by HUD and HCD. The maximum allowable rents, net of the appropriate utility allowances, are estimated as follows:4
Rent Restriction – TAY Units
1-
Bedroom
Units
2-
Bedroom
Units
30% MTSP AMI / 30% SSI (PSH)
Number of Units 2 6
30% MTSP AMI Rent $728 $864
30% SSI Rent $306 $289
Applicable Rent $306 $289

Rent Restriction – Shared Housing Senior Units
3-
Bedroom
Units
50% MTSP AMI / 30% SSI (PSH)
Number of Units 2
50% MTSP AMI Rent – Three-Bedroom Unit $1,694
1/3 of 50% MTSP AMI Rent $565
30% of SSI for Studio Unit $313
Applicable Rent
Per Bedroom $313
Per Three-Bedroom Unit $939

4 Per the Developer, tenants will only pay for electricity. The basic electric utility charge as published by the Housing Authority on October 1, 2022 is estimated at: $27 for shared housing bedrooms; $34 for one- bedroom units; and $51 for two-bedroom units.

EXHIBIT 2

City Council
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23 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 9

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ESTIMATED EFFECTIVE GROSS RESIDENTIAL INCOME
KMA estimates the residential effective gross income (EGI) at approximately $239,000 based on the following assumptions:

1. The gross rental income is estimated at $50,600.

2. The PBV subsidy overhang income is estimated at $215,000 based on the following payment standards:
a. $2,219 for one-bedroom units; and
b. $2,665 for two-bedroom units.

3. A vacancy and collection allowance equal to 10% of gross rental income is assumed, which equates to $26,600.

ESTIMATED RESIDENTIAL OPERATING EXPENSES
KMA estimates the Project’s residential operating expenses at approximately $107,200 based on the following assumptions:

1. The general operating expenses are estimated at $9,200 per unit per year. This is within the range for similar small affordable housing projects.

2. KMA assumes the Developer will apply for the property tax abatement that is accorded to non-profit housing organizations that own and operate apartment units that are restricted to households earning less than 80% of the Area Median Income. The Developer assumes that the Project will not be subject to any property tax assessment override cost.

3. The Developer did not include supportive services costs in their pro forma. Per discussions with the Developer, the Developer will provide / pay for supportive services expenses outside of the Project’s operating budget. The Developer estimates these costs at $120,000 per year; however, the City should memorialize this concept in the City’s grant agreement and/or regulatory agreement.

EXHIBIT 2

City Council
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24 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 10

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4. The Developer provided an allowance for replacement reserve deposits at $545 per unit per year. This is a reasonable allowance given the small size of the Project.

RESIDENTIAL STABILIZED NET OPERATING INCOME
The Project’s residential EGI is estimated at $239,000, and the operating expenses are estimated at $107,200. This results in an estimated residential stabilized NOI of $131,800.

TOTAL PROJECT STABILIZED NET OPERATING INCOME
In addition to the $131,800 in residential NOI, the Developer intends to lease the preschool space to Head Start. The Developer estimates the preschool lease payments at $5,000 per month, or $60,000 per year. When the preschool lease payments are added to the residential NOI, KMA estimates the Project’s total NOI at $191,800.

Financial Gap Calculation
The financial gap is estimated by deducting the available outside funding sources from the Project’s total development costs. The outside funding sources anticipated to be received by the Project are described below.

AVAILABLE FUNDING SOURCES
Illumination Foundation Loan
The Developer, or one of its affiliated legal entities, proposes to provide a loan to the Project. The proposed terms of the Illumination Foundation Loan include the following:

1. Interest-only payments based on a variable interest rate set at the Wall Street Journal (WSJ) Prime Rate. The WSJ Prime Rate is currently set at 8.25%.

2. The Developer anticipates repaying this loan through a capital campaign.

Therefore, no repayment term was specified. However, the Developer did not provide the loan documents for review.

EXHIBIT 2

City Council
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25 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 11

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KMA estimates the Developer will need to provide a $2.77 million loan to the Project.

Based on an 8.25% interest rate, the annual interest rate payments would equate to $228,500 per year.

Fundraising / Grant Funds
The Developer proposes to utilize the following additional funding sources for the Project:

1. The Developer has secured $1 million in fundraising dollars.

2. The Developer has committed to securing at least $1.50 million in additional fundraising dollars for the Project.

TOTAL AVAILABLE FUNDING SOURCES
As shown in Table 3, KMA estimates the outside funding sources available to the Project at $5.27 million.

ESTIMATED FINANCIAL GAP
Based on the preceding analysis, KMA estimates the Project’s financial gap as follows:

Total Development Costs $7,339,00
(Less) Total Available Outside Funding Sources (5,269,500) Financial Gap $2,069,500
Per Unit $188,100

As shown in the table above, KMA estimates that the Project exhibits a $2.07 million financial gap. In comparison, the Developer is requesting $2.02 million in financial assistance from the City. This represents a $48,200, or less than 3% differential, which can be considered inconsequential for a Project of this scope.

EXHIBIT 2

City Council
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26 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 12

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CASH FLOW ANALSYIS
KMA also conducted a cash flow analysis to evaluate the Project’s operating feasibility during the City’s 55-year affordability period.

The following describes the basic cash flow assumptions:

1. Year 1 is based on the pro forma rent and expense assumptions presented in the stabilized NOI analysis (Table 2).

2. Additional revenue and expense assumptions are as follows:
a. The affordable rental income and PBV subsidy income are escalated at

2.5% per year.
b. The general operating expenses and replacement reserve deposits are escalated at 3.5% per year.
c. The property taxes are escalated at 2.0% per year.
d. The preschool lease revenue is escalated at 3.0% per year.

3. KMA set the interest-only payments on the Illumination Foundation Loan at $228,500 per year.

As shown in Table 4, the Project’s cash flow after debt service is negative in Years 1 - 9.

KMA estimates that the operating deficits during this initial 9-year period total approximately $180,000. In comparison, the Developer’s cash flow assumes that the Project’s net cash flow remains positive after the Project reaches stabilization in Year 2.

Per discussions with the Developer, the Developer will cover any cash flow losses. This should be included as a provision in the City’s grant agreement and/or regulatory agreement.

EXHIBIT 2

City Council
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27 7/18/2023

Terri Eggers / Judson Brown, City of Santa Ana June 22, 2023 Bewley Street – Preliminary Financial Gap Analysis Page 13

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CONCLUSIONS / RECOMMENDATIONS
The following summarizes the conclusions of the KMA analysis:

1. Based on the currently available information, it is the KMA conclusion that that Developer’s request for $2.02 million in financial assistance from the City is supported by the Project’s economics.

2. If the Developer secures additional outside funding sources not envisioned in this analysis, the City’s financial assistance amount should be decreased commensurately.

3. The Developer did not include case management / social services expenses in their pro forma submittal. As such, KMA assumes that the Developer will provide/pay for these services outside of the Project’s operating budget. The City should memorialize this concept as a provision in the City’s grant agreement and/or regulatory agreement.

4. KMA estimates that the Project’s net cash flow may be negative during the first nine years of operations. Per discussions with the Developer, the Developer will cover any operating losses during the City’s 55-year affordability period. This concept should be included as a provision in the City’s grant agreement and/or regulatory agreement.

5. Given that the Developer is proposing to provide a loan to the Project from one of its affiliated legal entities, the City may want to require the Developer to incorporate a standstill provision in the Illumination Foundation Loan documents that prohibits the Illumination Foundation from foreclosing on the Project.

6. The Project may generate significant cash flow after the Illumination Foundation Loan is repaid. The Housing Authority may want to review the Project’s operating information prior to renewing the PBV contract at the end of the initial PBV term to ensure that eight (8) PBVs are still required by the Project.

7. The Developer did not provide an appraisal for review. The City may want to require the Developer to provide an appraisal to ensure that the purchase price is consistent with the appraised value.

EXHIBIT 2

City Council
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28 7/18/2023

TABLE 1

ESTIMATED DEVELOPMENT COSTS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I. Property Assemblage Costs
Property Acquisition Costs 1 $3,900,000
Seller Broker Fees 4.0% Purchase Price 156,000
Total Property Assemblage Costs $4,056,000
II. Direct Costs 2
Demolition $71,000
Site Improvements 71,000
Rehabilitation & New Construction Costs 3 11 Units $190,400 /Unit 2,094,400 General Conditions / Profit 11% Construction Costs 240,000 Insurance 1% Construction Costs 24,000
Direct Cost Contingency 15% Other Direct Costs 375,000
Total Direct Costs 11 Units $261,400 /Unit $2,875,400
III. Indirect Costs
Architecture, Engineering & Consulting 3.5% Direct Costs $100,600 Public Permits & Fees 4 11 Units $5,630 /Unit 61,900
Taxes, Insurance, Legal & Accounting 1.5% Direct Costs 43,100 Marketing/Leasing 11 Units $0 /Unit 0
Developer Fee 5 3% Net Dev. Costs (Exc. Developer Fee) 183,000 Soft Cost Contingency Allowance 5% Other Indirect Costs 19,000 Total Indirect Costs $407,600
IV. Total Financing Costs 6 $0
V. Total Rehabilitation & New Const Costs 11 Units $312,600 /Unit $3,439,000 Total Development Costs 11 Units $667,200 /Unit $7,339,000 1 2
3 4
5 6
Based on Developer's estimates. The estimates assume that prevailing wage requirements will be imposed on the Project.

Based on Developer estimate. An appraisal was not provided for review.

Based on Developer estimate. City staff should verify the accuracy of this estimate.

Based on Developer estimate.

The Developer did not include any financing costs in their development budget. If the Illumination Foundation Loan accrues interest during the development period, the addition of these interest costs (estimated at $228,500/year) may increase the Project's financial gap.

Based on Developer estimate. Includes the costs to rehabilitate the existing residential buildings and to newly construct an ADU on the Site.

Per Developer, Head Start will be responsible for any costs associated with the preschool building.

Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; Pf; trb
EXHIBIT 2

City Council
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TABLE 2

BEWLEY STREET PSH PROJECT
I. Effective Gross Residential Income 1
2-Bedroom Manager's Unit 1 Unit @ $0 /Month $0
1-Bedroom Units (TAY PSH) - PBV 2 2 Units @ $306 /Month 7,300 2-Bedroom Units (TAY PSH) - PBV 2 6 Units @ $289 /Month 20,800 3-Bedroom Units (Senior PSH - Shared Hsg) 3 2 Units @ $939 /Month 22,500 Section 8 Subsidy
1-Bedroom Units (TAY PSH) - PBV 2 Units @ $1,906 /Month 45,700 2-Bedroom Units (TAY PSH) - PBV 6 Units @ $2,352 /Month 169,300 (Less) Vacancy and Collection 10.0% Gross Income (26,600) Total Effective Gross Residential Income $239,000
II. Residential Operating Expenses
General Operating Expenses 11 Units @ $9,200 /Unit $101,200 Property Taxes 4 0
Supportive Services 5 11 Units @ $0 /Unit 0
Replacement Reserve 11 Units @ $545 /Unit 6,000
Total Residential Operating Expenses 11 Units @ $9,700 /Unit ($107,200) III. Residential Stabilized Net Operating Income $131,800 IV. Preschool Income 6 $60,000
V. Total Project Stabilized Net Operating Income $191,800 1 2
3 4
5 6 Based on Developer estimate.

Assumes the Developer will apply for the property tax welfare exemption accorded to non-profit housing organizations that own and operate apartment units restricted to households earning no more than 80% AMI.

The two 3-bedroom units will be structured as shared housing for senior citizens. KMA assumes that the City will restrict each bedroom's rent to the lesser of: 1/3 of the 50% MTSP AMI rent for a 3-bdrm unit or 30% of each household's income.

SANTA ANA, CALIFORNIA
Per Developer, tenants will only pay for electricity. KMA deducted a utility allowance for Basic Electricity based on the utilility allowance schedule published by the Santa Ana Housing Authority on October 1, 2022: $27 for shared housing bedrooms; $34 for one-bedroom units; and $51 for two-bedroom units.

Based on Orange County 2022 Incomes distributed by HUD. As pertinent, the rents are based on rents published in 2022 by HCD for MTSP programs and 30% CA SSI.

The Developer did not include any supportive service costs in the pro forma. KMA assumes the Developer will provide/pay for case management/social services outside of the Project's operating expenses.

STABILIZED NET OPERATING INCOME
Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; Pf; trb
EXHIBIT 2

City Council
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TABLE 3

FINANCIAL GAP CALCULATION

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I. Available Funding Sources 1
Illumination Foundation Loan Amount $2,769,500
Developer - Committed Fundraising $1,000,000
Developer - Additional Fundraising $1,500,000
Total Available Funding Sources $5,269,500
II. Financial Gap Calculation
Total Development Costs $7,339,000
(Less) Total Available Funding Sources (5,269,500)
Total Financial Gap 11 Units $188,100 /Unit $2,069,500
1 Based on Developer estimate.

See TABLE 1
Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; Pf; trb
EXHIBIT 2

City Council
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31 7/18/2023

TABLE 4

CASH FLOW ANALYSIS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
Year 1
Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
I. Gross Residential Income 1
Tenant-Paid Income $50,600 $51,865 $53,162 $54,491 $55,853 $57,249 $58,680 PBV Subsidy Income 215,000 220,375 225,884 231,531 237,320 243,253 249,334 (Less) Vacancy Allowance (26,560) (27,224) (27,905) (28,602) (29,317) (30,050) (30,801) Effective Gross Base Income $239,040 $245,016 $251,141 $257,420 $263,855 $270,452 $277,213 II. Residential Operating Expenses 2
General Operating Expenses $101,200 $104,742 $108,408 $112,202 $116,129 $120,194 $124,401 Property Taxes 0 - - - - - - Supportive Services 0 - - - - - - Replacement Reserve 6,000 6,210 6,427 6,652 6,885 7,126 7,376 Total Operating Expenses $107,200 $110,952 $114,835 $118,855 $123,014 $127,320 $131,776 III. Residential Net Operating Income $131,840 $134,064 $136,306 $138,565 $140,841 $143,132 $145,437 Preschool Income 60,000 61,800 63,654 65,564 67,531 69,556 71,643 IV. Project Net Operating Income $191,840 $195,864 $199,960 $204,129 $208,371 $212,688 $217,080 (Less) Interest Only Pmts - Illumination Foundation Loan 3 (228,484) (228,484) (228,484) (228,484) (228,484) (228,484) (228,484) V. Net Cash Flow ($36,644) ($32,620) ($28,524) ($24,355) ($20,113) ($15,796) ($11,404) Nominal Dollars $16,247,243 $2,524,000 NPV @ 6% Discount Rate 1 2
3 The affordable rents and PBV subsidy are assumed to increase by 102.5%/year. Assumes Year 1 is at stabilization.

General operating expenses/supportive services/replacement reserve deposits are assumed to increase by 103.5%/year, and property taxes at 102.0%/year.

Based on a $2,770,000 loan balance and an 8.25% interst rate. Per discussions with the Developer, KMA assumes that this loan will be paid off within the first 10 years of operations through a capital campaign.

Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; CF; trb
EXHIBIT 2

City Council
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TABLE 4

CASH FLOW ANALYSIS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I.

Gross Residential Income 1
Tenant-Paid Income
PBV Subsidy Income
(Less) Vacancy Allowance
Effective Gross Base Income
II.

Residential Operating Expenses 2
General Operating Expenses
Property Taxes
Supportive Services
Replacement Reserve
Total Operating Expenses
III. Residential Net Operating Income
Preschool Income
IV. Project Net Operating Income
(Less) Interest Only Pmts - Illumination Foundation Loan 3 V. Net Cash Flow
Nominal Dollars
1 2
3 The affordable rents and PBV subsidy are assumed to increase by 102.5%/year. Assumes Year 1 is at stabilization.

General operating expenses/supportive services/replacement reserve deposits are assumed to increase by 103.5%/year, and property taxes at 102.0%/year.

Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 $60,147 $61,651 $63,192 $64,772 $66,392 $68,051 $69,753 $71,496 255,567 261,957 268,506 275,218 282,099 289,151 296,380 303,789 (31,571) (32,361) (33,170) (33,999) (34,849) (35,720) (36,613) (37,529) $284,143 $291,247 $298,528 $305,991 $313,641 $321,482 $329,519 $337,757 $128,755 $133,261 $137,925 $142,753 $147,749 $152,920 $158,272 $163,812 - - - - - - - - - - - - - - - - 7,634 7,901 8,177 8,464 8,760 9,066 9,384 9,712
$136,388 $141,162 $146,103 $151,216 $156,509 $161,987 167,656 $173,524 $147,755 $150,085 $152,426 $154,775 $157,132 $159,496 $161,863 $164,233 73,792 76,006 78,286 80,635 83,054 85,546 88,112 90,755 $221,548 $226,091 $230,712 $235,410 $240,186 $245,041 $249,975 $254,989 (228,484) (228,484) (228,484) $0 $0 $0 $0 $0
($6,936) ($2,393) $2,228 $235,410 $240,186 $245,041 $249,975 $254,989 Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; CF; trb
EXHIBIT 2

City Council
3 –
33 7/18/2023

TABLE 4

CASH FLOW ANALYSIS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I.

Gross Residential Income 1
Tenant-Paid Income
PBV Subsidy Income
(Less) Vacancy Allowance
Effective Gross Base Income
II.

General operating expenses/supportive services/replacement reserve deposits are assumed to increase by 103.5%/year, and property taxes at 102.0%/year.

Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 $73,284 $75,116 $76,994 $78,919 $80,892 $82,914 $84,987 $87,112 311,384 319,169 327,148 335,327 343,710 352,303 361,110 370,138 (38,467) (39,428) (40,414) (41,425) (42,460) (43,522) (44,610) (45,725) $346,201 $354,856 $363,728 $372,821 $382,141 $391,695 $401,487 $411,524 $169,545 $175,479 $181,621 $187,978 $194,557 $201,367 $208,414 $215,709 - - - - - - - - - - - - - - - - 10,052 10,404 10,768 11,145 11,535 11,939 12,357 12,789 $179,597 $185,883 $192,389 $199,123 $206,092 $213,305 $220,771 $228,498 $166,604 $168,973 $171,338 $173,698 $176,049 $178,390 $180,716 $183,026 93,478 96,282 99,171 102,146 105,210 108,367 111,618 114,966 $260,082 $265,255 $270,509 $275,844 $281,260 $286,756 $292,334 $297,993 $0 $0 $0 $0 $0 $0 $0 $0
$260,082 $265,255 $270,509 $275,844 $281,260 $286,756 $292,334 $297,993 Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; CF; trb
EXHIBIT 2

City Council
3 –
34 7/18/2023

TABLE 4

CASH FLOW ANALYSIS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I.

Gross Residential Income 1
Tenant-Paid Income
PBV Subsidy Income
(Less) Vacancy Allowance
Effective Gross Base Income
II.

General operating expenses/supportive services/replacement reserve deposits are assumed to increase by 103.5%/year, and property taxes at 102.0%/year.

Year 24 Year 25 Year 26 Year 27 Year 28 Year 29 Year 30 Year 31 $89,289 $91,522 $93,810 $96,155 $98,559 $101,023 $103,548 $106,137 379,391 388,876 398,598 408,563 418,777 429,246 439,978 450,977 (46,868) (48,040) (49,241) (50,472) (51,734) (53,027) (54,353) (55,711) $421,813 $432,358 $443,167 $454,246 $465,602 $477,242 $489,173 $501,403 $223,259 $231,073 $239,160 $247,531 $256,195 $265,161 $274,442 $284,048 - - - - - - - - - - - - - - - - 13,237 13,700 14,179 14,676 15,189 15,721 16,271 16,841 $236,495 $244,773 $253,340 $262,207 $271,384 $280,882 $290,713 $300,888 $185,317 $187,585 $189,827 $192,039 $194,218 $196,360 $198,460 $200,514 118,415 121,968 125,627 129,395 133,277 137,276 141,394 145,636 $303,732 $309,553 $315,454 $321,435 $327,495 $333,635 $339,854 $346,150 $0 $0 $0 $0 $0 $0 $0 $0
$303,732 $309,553 $315,454 $321,435 $327,495 $333,635 $339,854 $346,150 Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; CF; trb
EXHIBIT 2

City Council
3 –
35 7/18/2023

TABLE 4

CASH FLOW ANALYSIS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I.

Gross Residential Income 1
Tenant-Paid Income
PBV Subsidy Income
(Less) Vacancy Allowance
Effective Gross Base Income
II.

General operating expenses/supportive services/replacement reserve deposits are assumed to increase by 103.5%/year, and property taxes at 102.0%/year.

Year 32 Year 33 Year 34 Year 35 Year 36 Year 37 Year 38 Year 39 $108,790 $111,510 $114,298 $117,155 $120,084 $123,086 $126,163 $129,318 462,251 473,808 485,653 497,794 510,239 522,995 536,070 549,472 (57,104) (58,532) (59,995) (61,495) (63,032) (64,608) (66,223) (67,879) $513,938 $526,786 $539,956 $553,455 $567,291 $581,473 $596,010 $610,910 $293,989 $304,279 $314,929 $325,951 $337,359 $349,167 $361,388 $374,036 - - - - - - - - - - - - - - - - 17,430 18,040 18,672 19,325 20,002 20,702 21,426 22,176 $311,419 $322,319 $333,600 $345,276 $357,361 $369,869 $382,814 $396,212 $202,518 $204,467 $206,355 $208,178 $209,930 $211,605 $213,196 $214,698 150,005 154,505 159,140 163,914 168,832 173,897 179,114 184,487 $352,523 $358,972 $365,496 $372,093 $378,762 $385,501 $392,310 $399,185 $0 $0 $0 $0 $0 $0 $0 $0
$352,523 $358,972 $365,496 $372,093 $378,762 $385,501 $392,310 $399,185 Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; CF; trb
EXHIBIT 2

City Council
3 –
36 7/18/2023

TABLE 4

CASH FLOW ANALYSIS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I.

Gross Residential Income 1
Tenant-Paid Income
PBV Subsidy Income
(Less) Vacancy Allowance
Effective Gross Base Income
II.

General operating expenses/supportive services/replacement reserve deposits are assumed to increase by 103.5%/year, and property taxes at 102.0%/year.

Year 40 Year 41 Year 42 Year 43 Year 44 Year 45 Year 46 Year 47 $132,550 $135,864 $139,261 $142,742 $146,311 $149,969 $153,718 $157,561 563,209 577,289 591,721 606,514 621,677 637,219 653,149 669,478 (69,576) (71,315) (73,098) (74,926) (76,799) (78,719) (80,687) (82,704) $626,183 $641,838 $657,884 $674,331 $691,189 $708,469 $726,180 $744,335 $387,128 $400,677 $414,701 $429,215 $444,238 $459,786 $475,879 $492,534 - - - - - - - - - - - - - - - - 22,952 23,756 24,587 25,448 26,338 27,260 28,214 29,202 $410,080 $424,433 $439,288 $454,663 $470,576 $487,046 $504,093 $521,736 $216,103 $217,405 $218,596 $219,668 $220,613 $221,422 $222,088 $222,599 190,022 195,722 201,594 207,642 213,871 220,287 226,896 233,703 $406,125 $413,127 $420,190 $427,310 $434,484 $441,710 $448,983 $456,301 $0 $0 $0 $0 $0 $0 $0 $0
$406,125 $413,127 $420,190 $427,310 $434,484 $441,710 $448,983 $456,301 Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; CF; trb
EXHIBIT 2

City Council
3 –
37 7/18/2023

TABLE 4

CASH FLOW ANALYSIS

BEWLEY STREET PSH PROJECT

SANTA ANA, CALIFORNIA
I.

Gross Residential Income 1
Tenant-Paid Income
PBV Subsidy Income
(Less) Vacancy Allowance
Effective Gross Base Income
II.

General operating expenses/supportive services/replacement reserve deposits are assumed to increase by 103.5%/year, and property taxes at 102.0%/year.

Year 48 Year 49 Year 50 Year 51 Year 52 Year 53 Year 54 Year 55 $161,500 $165,537 $169,676 $173,918 $178,266 $182,722 $187,290 $191,973 686,215 703,370 720,955 738,978 757,453 776,389 795,799 815,694 (84,771) (86,891) (89,063) (91,290) (93,572) (95,911) (98,309) (100,767) $762,943 $782,017 $801,567 $821,606 $842,147 $863,200 $884,780 $906,900 $509,773 $527,615 $546,082 $565,195 $584,976 $605,451 $626,641 $648,574 - - - - - - - - - - - - - - - - 30,224 31,282 32,376 33,510 34,682 35,896 37,153 38,453 $539,997 $558,897 $578,458 $598,704 $619,659 $641,347 $663,794 $687,027 $222,946 $223,120 $223,109 $222,902 $222,488 $221,853 $220,986 $219,873 240,714 247,935 255,373 263,034 270,925 279,053 287,425 296,047 $463,660 $471,055 $478,482 $485,937 $493,413 $500,907 $508,411 $515,921 $0 $0 $0 $0 $0 $0 $0 $0
$463,660 $471,055 $478,482 $485,937 $493,413 $500,907 $508,411 $515,921 Prepared by: Keyser Marston Associates, Inc.

File name: Bewley Street_6 6 23; CF; trb
EXHIBIT 2

City Council
3 –
38 7/18/2023

Santa Ana City CouncilJuly 18, 2023

Santa Ana City Council
July 18, 2023