City Council
Report
City Council Meeting: August 27, 2024
Agenda Item: 11.A
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To: Mayor and City Council
From: Heather Averick, Director, Housing and Human Services Department Subject: Adoption of Resolution and Approval of Release of Request for Proposals for City-Owned Sites Designated for Affordable Housing Development in the City's 6th Cycle Housing Element and Declaration of Sites as "Exempt Surplus Land" in Accordance with the Surplus Land Act
Recommended Action
Staff recommends that the City Council:
1. Declare two City-owned properties located at 1333 4th Street (APNs 4291-011- 909 and 4291-011-910) and 1324 5th Street (APNs 4291-011-900, 4291-011-901, 4291-011-902, 4291-011-903, 4291-011-904, 4291-011-905 and 4291-011-908) as “exempt surplus land” as defined in Government Code 54221(f), adopt a resolution declaring the 4th/5th and Arizona as exempt surplus, authorize the City Manager or his or her designee to take implementing actions necessary to comply with the Surplus Land Act (Government Code sections 54220 et. seq.); and authorize the release of Request for Proposals for ground leasing and development of 4th/5th and Arizona by June 30, 2025.
2. Declare City-owned properties located at Bergamot Station Arts Center located at 2500 Olympic (APNs 4268-013-919 and 4268-014-900) as “exempt surplus land” as defined in Government Code 54221(f), adopt a resolution declaring the Bergamot Station Arts Center as exempt surplus, authorize the City Manager or his or her designee to take implementing actions necessary to comply with the Surplus Land Act (Government Code sections 54220 et. seq.); and authorize the release of Request for Proposals for ground leasing and development of the Bergamot Station Arts Center by June 30, 2027.
3. Adopt a finding of categorical exemption pursuant to Section 15312 of the California Environmental Quality Act (CEQA) Guidelines, a finding of no possibility of significant effect on the environment pursuant to Section 15061(b)(3) (Common Sense Exemption), and a finding that the development of affordable housing on City-owned property was previously analyzed in the 6th Cycle Housing Element Environmental Impact Report.
Background
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6 th Cycle Housing Element Commitments for City-owned Sites The City’s 6th Cycle Housing Element Update (2021-2029) was adopted by the City Council on October 11, 2022 and certified by the California Department of Housing and Community Development (HCD) on October 14, 2022. The Housing Element required the City to demonstrate that the City’s zoning could accommodate the City’s assigned Regional Housing Need Assessment (RHNA) of 8,895 units at each income level:
The Housing Element includes Program 2.E “Commit to the Production of Affordable Housing on City-Owned / Publicly-Owned Land”. Program 2.E states the City’s commitment to plan for a minimum of 1,880 affordable housing units on City-owned sites as shown below.
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Figure A: List of City-Owned Property Committed for 1,880 Affordable Housing Units (from Figure F-7, Appendix F of the Certified 6th Cycle Housing Element) 4 of 12
Housing developments on City-owned sites identified in the Housing Element must meet the following parameters:
• Reserve at least 50% of the development’s floor area for residential use • Contain at least 20% deed-restricted affordable units • Approved through a ministerial process that does not require public hearings Achieving the number of affordable housing units for the 6th Cycle RHNA will be challenging, especially given limited public funding and high land costs in the City.
Therefore, the City Council has committed to prioritizing such land for 100% affordable housing in the Housing Element.
The five City-owned sites designated for affordable housing in the Housing Element are:
Public Parking lots 7, 8, and 12 (Wilshire sites); former Parking Structure 3 (former PS3), 4th & Arizona (1333 4th Street and 1324 5th Street), Bergamot Station Arts Center (2500 Olympic), and Main Street parking lots.
How Affordable Housing is Produced
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Affordable Housing Production Program
Affordable housing in Santa Monica is produced through both private and public funding. The City has an inclusionary housing program called the Affordable Housing Production Program (AHPP) that requires market-rate housing developments to set aside a percentage of units to be deed-restricted for affordable housing split evenly between Very Low, Low and Moderate Income levels. The AHPP was enacted in 1998 and since that time, approximately 35% of all multifamily development has been affordable. Currently, market-rate housing developments are required to provide 15% of a units as affordable. Smaller developments are allowed to pay an in-lieu fee. 100% Affordable Housing Development
Production of housing developments with 100% of the units deed restricted as affordable is only feasible if deeply subsidized by federal, state, and local funding programs, so that the affordable rents charged to lower income households cover the property operating costs and possibly a small, amortized bank loan to offset some of the development cost not subsidized with public or tax credit investor funds. A typical affordable housing development must combine several government funding programs to achieve financial feasibility to cover property acquisition and development cost. Most funding programs available are only open for applications annually, or for some, biannually.
The various financing programs have unique goals, priorities, requirements, and funding periods which must be successfully navigated to bring a development to fruition.
Competition for limited funding is strong and requires achieving threshold milestones of project readiness - such as site control, environmental review, and land use entitlements - prior to entering the competitive funding cycle. Therefore, affordable housing developers must carefully choreograph project readiness and State funding cycles to minimize the length it takes to develop. Proposed housing types and target populations should address local needs but must also fit into one of the particular housing category types required by the funding program, such as family, senior, or 6 of 12
persons experiencing homelessness. Designing an affordable housing development often involves tradeoffs, while remaining focused on meeting the needs of lower-income households.
Exempt Surplus and Surplus Land
City Council may designate a property as one of the two “surplus” designations:
1. “Exempt Surplus” designation is where 100% of the residential units are for lowor moderate-income households with a minimum of 75% of the residential units restricted to lower-income households for affordable housing. This includes mixed-use developments with ancillary commercial ground floor uses. This designation allows the City to avoid the prescribed SLA notice and 90-day negotiation process with each developer that responds.
2. “Surplus” designation is when at least 25% of the total residential units are set at affordable housing, as defined in Section 50052.5 of the Health and Safety Code, or affordable rent, as defined in Section 50053 of the Health and Safety Code, to lower income households, as defined in Section 50079.5 of the Health and Safety Code. This designation would require the City to follow the prescribed SLA notice and 90-day negotiation process.
In consultation with the City Attorney’s Office, staff reviewed the remaining three Cityowned sites and determined that two sites – 4 th/5th Arizona and the Bergamot Arts
Center – would be eligible for “exempt surplus” under the Surplus Land Act given the number of affordable housing residences committed in the Housing Element.
City funding sources and availability
The City has various sources of revenues, such as development impact fees, affordable housing loan repayments, and transaction and use tax, which pay into the City’s Housing Trust Funds to subsidize affordable housing development. The main source of housing trust fund revenue for the past several years, approximately $8 million annually, 7 of 12
comes from the increased transaction and use tax adopted by Santa Monica voters in November 2016, known as Measure GSH. A significant portion of the revenue has been and is anticipated to be temporarily utilized to address the City’s liabilities, reducing the overall availability of that revenue source. Santa Monica voters also adopted Measure GS in November 2022, which increases the real estate transfer tax, with the proceeds designated for homeless prevention, rental assistance, and affordable housing production. The new revenue source could become a significant source of revenue for affordable housing development. However, only one full year of implementation and revenue collection has elapsed during the 2023-2024 period, so a reliable estimate of future revenue has not yet been established.
Discussion
Release of Request for Proposal in 2025 for 4th/5th and Arizona Ave Staff recommends moving forward with 4/5th and Arizona Avenue (4th/5th/AZ) for the next release of the RFP and seeks Council approval to release a RFP for the 4th/5th/AZ site per the City’s commitment in Housing Element Program 2.E . The purpose of the RFP process for 4th/5th/AZ is to evaluate and select a proposed development and development team that is qualified to undertake the development of these City-owned sites.
Based on highest and best use analysis of this location, along with the amount of affordable housing units required for this location under the Housing Element, Staff seeks approval for the release of the RFP to include the following:
1. a minimum of 362 affordable residences, with Permanent Supportive Housing permissible
2. flexible open space for community benefit
3. option to include revenue generating source, whether market rate apartments, hotel, or other commercial source of revenue
acknowledgement of the existing commercial leases with Bank of America and Chase Bank which will be in effect through 2026
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The RFP will ask developers to propose financially feasible development options and allow flexibility for developers who have the expertise in affordable housing financing and development design to propose the best uses for this site. Release of the RFP will occur by June 30, 2025.
The land for the 4th/5th/AZ site is approximately three times the size of the two Cityowned sites already in process. California State affordable financing programs are generally not geared toward affordable housing developments of this scale (362 affordable residences). Therefore, financially feasible development on the site may necessitate two or three separate developments, which will increase the overall complexity and staff work associated with bringing this site to fruition.
Remaining City-Owned Sites
The Bergamot Station Arts Center and Main Street Parking Lots are the other two locations designated for affordable housing in the Housing Element. Given the number of units required at both of these locations, as well as the complexity of each location (tenants and replacement parking for Main street businesses), staff recommends proceeding with the release of the RFP for the 4
th/5th/AZ site next. Staff are currently
working on the following for the two remaining City-Owned sites to ensure they are ready for an RFP within the allotted timeframe:
1. Meeting with affordable housing developers who have built affordable artist housing across Southern California, including the Westside of Los Angeles, as we plan for Bergamot Arts Station site
2. Coordination with Cultural Affairs Division regarding affordable artist housing
3. Main Street parking lots and the need for replacement parking is included in the Department of Transportation’s parking study
4. Conducting an environmental study of Main Street sites to determine where the water table is and what is feasible for underground parking Recommendation to Proceed with one RFP at a Time
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Due to staff bandwidth and the complexity of the remaining City-owned sites, as well as the existing City-owned sites underway, staff recommend proceeding with the release of RFPs based on the schedule outlined in the Housing Element. If the RFPs are released every two years as committed in the Housing Element, no additional staff are needed.
Should City Council desire and direct Staff to proceed with the release of an RFP for two city-owned sites concurrently, it will require two additional Senior Development Analysts prior to the release of the RFPs one in the Housing Division and one in the Economic Development Division - to assist with lease negotiations, drafting and executing master ground leases, overseeing tenant retention efforts and transitioning site operations involving City commercial tenants. The Economic Development Division would also require funds to retain a commercial broker to assist with tenant relocation/retention efforts at the Bergamot site.
Beyond city staffing and consulting resources, there are additional concerns in successfully financing more than one affordable housing development if the City moved forward with two or more city-owned sites simultaneously. There are very limited resources to leverage outside funding from the State of California budget and LowIncome Housing Tax Credits, of which State funding for affordable housing was significantly reduced in the State budget.
Having competing affordable housing developments may limit the leveraging of resources while also increasing the timeline for the start of construction if financing is not achieved. Furthermore, Low-Income Housing Tax Credits are increasingly competitive and limited, which funds typically 50% of an affordable housing development. Lastly, funding from the Affordable Housing and Sustainable Communities (AHSC or Cap & Trade) program are increasingly becoming a key role in financing larger affordable housing which requires transportation/transit component that significantly reduces greenhouse gas emissions. While the AHSC program brings additional transportation funding to the City if the development is successful in its application, more than one development application in a round may be limited in the 10 of 12
ability to identify a qualifying transportation project for each affordable housing development.
Environmental Review
The actions to adopt a framework for the development of affordable housing on Cityowned sites and declaration of sites as surplus lands are categorically exempt from environmental review pursuant to Section 15312 of the California Environmental Quality Act (CEQA) Guidelines as the action involves the first step in the sale of surplus government property that is not located in an area of statewide, regional, or areawide concern identified in Section 15206(b)(4) of the State CEQA Guidelines. Furthermore, the actions are exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines, which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” No development is being authorized at this time. Furthermore, the issuance of RFPs for development of affordable housing on these City-owned sites was analyzed as part of the 2021-2029 6th Cycle Housing Element Environmental Impact Report (EIR) [SCH No. 20212269242021] that was certified by Council on October 12, 2021, with an Addendum to the EIR approved on October 11, 2022. Development of affordable housing on City-owned properties implements a portion of that 6th Cycle Housing Element, and is consistent with the Housing Element EIR. Therefore, no further CEQA review is necessary.
Next Steps
Consistent with the goals established in the Emergency Order on Homelessness and the Housing Element, the City will issue an RFP for the City-owned site located at 4 th/5th/AZ by June 30, 2025.
After evaluating proposals, staff will return to City Council for recommendation and selection of a development team, terms for disposition of City land, and a Housing Trust Fund loan if required under the Housing Trust Fund Guidelines. 11 of 12
Past Council Actions
Date Council Action
April 9, 2019 Authorize issuance of a request for
proposals for the development of
affordable housing on City-owned
property at 1318 Fourth Street, and
authorize staff to continue to explore
similar opportunities on other City-owned
properties.
March 23, 2021 Resolution declaring the City-owned
property at 1333 4th St as surplus land
and the City-owned property at 1318 4th
St. as exempt surplus land.
January 11, 2022 Authorize the City Manager to negotiate and execute an Exclusive Negotiating
Agreement with EAH, Inc. for a mixeduse, affordable housing development on the city-owned site located at 1318-20
Fourth Street.
October 11, 2022 Adoption of 6th Cycle Housing Element
March 14, 2023 Resolution declaring the City-owned
properties at 1217 Euclid Street, 1211-
1217 Fourteenth Street, and 1146
Sixteenth Street as exempt surplus land.
March 21, 2023 Ordinance implementing Housing
Element Phase 1 Programs.
March 19, 2024 Award RFP #365 to Hollywood
Community Housing Corporation (HCHC)
for the future development of affordable
housing on City-owned property at 1217
Euclid Street, 1211-1217 Fourteenth
Street and 1146 Sixteenth Street; and
authorize the City Manager to negotiate
and execute an Exclusive Negotiating
Agreement with HCHC.
Financial Impacts and Budget Actions
There is no immediate financial impact or budget action necessary because of the recommended action. Staff estimates that the potential parking revenue loss due to the 12 of 12
closure of Parking Lot 27 would be an average of $361,000 annually from the General Fund. Staff will continue to analyze the potential loss of revenues and will return to Council if specific budget actions are required in the future.
Prepared By: Natalie Verlinich, Housing Manager
Approved Forwarded to Council
Attachments:
A. Attachment A - Fact Sheets on City-Owned Sites Identified in the Housing Element
B. Attachment B - Resolution
C. Written Comments