1318 FOURTH STREET AFFORDABLE RENTAL HOUSING
Topic/Item Disposition and Development Agreement Deal Points Definitions Lessor: City of Santa Monica (“City”);
Lessee: EAH, Inc., Affiliate (“Developer”);
Collectively: (“Parties”);
Disposition of Development Agreement and Ground Lease: (“Agreement”) or (“DDA”) Development Site The project site is comprised of approximately 30,000 square feet, between Arizona Avenue and Santa Monica Boulevard, located at 1318-1320 Fourth Street in Santa Monica, CA 90401. The proposed project will bring 122 affordable rental units targeted to Santa Monica households.
Approximately 53 units will be reserved for 30% Area Median Income (AMI) households, with approximately 67 units reserved for 60% AMI households, and 2 manager units - without income reservation. 50 of the units will be set aside as Permanent Supportive Housing.
The building will have the following amenities: furnished resident common spaces; five (5) laundry rooms; a bike storage facility with storage lockers for items such as scooters, children’s bikes, car seats, helmets; landscaped open areas; an outdoor children’s play area. Utilization of the bike storage facility will be provided at no additional cost to the residents.
Permanent Supportive Housing units will be fully furnished and include: loveseat, nightstand, end table, 4-drawer chest, dining table, dining chairs, (at minimum full-sized) mattress, (at minimum full-sized) bed frame, bed bug cover.
There will be two floors of underground parking. One floor of parking inclusive of 56 spaces will be for the use of the commercial tenant to the extent required by the entitlements, and 60 parking spaces will be for the sole use of the residents and on-site staff.
The project includes approximately 19,000 square feet of ground floor commercial space. The affordable housing, together with the ground floor commercial space and two levels of underground parking, are herein referred to as the “Project.”
Good Faith
Negotiation
In case of any dispute arising from this Agreement, including any question regarding its interpretation, validity, or termination, Parties will use best efforts to resolve the dispute by good faith negotiation.
Local Entitlements The Parties understand and agree that the Developer is eligible to apply for a local streamlined ministerial approval process and therefore the Project is exempt from California Environmental Quality Act (“CEQA”). Both residential and commercial uses are permitted by right; however, approval of a Conditional Use Permit (CUP) is required per the Zoning Ordinance for general markets greater than 15,000 square feet in that zone.
Coastal Development
Permit
The Project is in the Coastal Zone. Developer is responsible for obtaining a Coastal Development Permit.
Predevelopment
Expenses
All predevelopment expenses will be paid by Developer; provided however, the City will provide $2,000,000 in HUD Community Project funding available to EAH for use in connection with predevelopment expenses associated with the Project.
Developer Fee Developer to receive a maximum net developer fee for the Project, subject to future modification consistent with the maximum allowable developer fee per CA LIHTC regulations at time of closing. The deferred fee can be taken ahead of the City’s share of residual receipts up to $2,239,066, which is the fee limit in the Santa Monica Housing Trust Fund Guidelines for 122 units. Please note this amount is updated annually and the amount at closing will be used. Anything more would have to come out of the Developer’s residual receipts payment.
Ground Lease Term There will be separate leases for residential and commercial. Each ground lease will have a term of 99 years, but in year 55, the rent will be reset to Fair Market Value (FMV) rent taking into account any existing affordability restrictions and based on the rents paid for comparable properties in the area. The terms of the ground leases will commence upon concurrent closing of escrow for financing the project, as more fully specified in the DDA.
Ground Lease
Rent for Residential
and Commercial
Leases
City will provide a 99-year ground lease , during first 55 years of the lease, an annual payment of $1 per year plus residual rent in the amount of the City’s Percentage of residential residual receipts; provided however, the aggregate residual rents payments shall not exceed the fair market value of residential project. For purposes hereof, City’s Percentage shall mean percentage derived from a fraction in which the principal amount of appraised value of the residential portion property is the numerator and the sum of the residential property value plus all other public agency residual receipts Loans is the denominator, multiplied by fifty percent (50%).
The annual commercial ground rent will be calculated as 6% of the commercial gross building area appraised value as of the closing date and shall be paid from commercial residual receipts. The annual commercial ground rent amount shall increase at Consumer Price Index (CPI) per year, with a floor of 2% and a ceiling of 4%. The City will receive 100% of commercial residual receipts until the annual payment equates to the annual commercial ground rent. Commercial rent
that is unpaid in any year shall not accrue. After the City receives the annual ground rent amount, the City and Developer will share the commercial residual receipts at a 50/50 split. The residual receipts calculations will be different for the residential and commercial.
General Partner Asset
Management Fee
Developer’s maximum yearly general partner asset management fee for the residential lease will be capped as follows:
$25,000, inflated annually at 3%.
Limited Partner Asset
Management Fee
Developer’s maximum yearly investor asset management fee for the residential lease will be capped as follows: $10,000, inflated annually at 3%.
Seller Grant Subject to appropriation, City will provide a Department of Housing and Urban Development (HUD)Community Project Funding grant to Developer in the amount of $2,000,000, the proceeds of which will be spent on predevelopment third party costs reimbursed to the Developer prior to closing. The grant will be memorialized in a grant agreement executed concurrently with the DDA.
DDA Exhibits Will include, at a minimum:
1. Legal Description
2. Supportive Services Plan
3. List of Furnishings for PSH units
4. Permanent Supportive Housing Retention Plans used by Developer
5. Lease
6. House Rules
7. Security Plans
8. List of Amenities
9. Scope of Development
10. Schedule of Development
11. Pro Forma Budget
12. Pro Forma Sources and Uses (Financing Plan)
13. Regulatory Agreement
14. Property Management Plan
15. Form of Ground Lease1
16. Memo of Ground Lease
17. Assignment of Plans and Contracts
18. Tenant Selection Plan
19. Reciprocal Easement Agreement between the two lease areas Project-Based
Vouchers
The Santa Monica Housing Authority will provide 50 Project-Based Vouchers (PBVs) for the Permanent Supportive Housing units in the Project.
Financing Sources Developer is required to obtain financing necessary to fully fund the Project, which includes the identified amount and date of applications:
4% tax credits and tax-exempt bonds and may include several other sources of financing, including, without limitation, funding from the State of California’s Housing and Community Development Affordable Housing and Sustainable Communities (AHSC) program and the Infill Infrastructure Grant (IIG) program. The City will agree to act together with EAH Inc. as a co-applicant with respect to any AHSC application.
Permanent Debt and
Tax Credit Equity
Developer agrees to do a solicitation process for lenders and investors to obtain most competitive pricing, terms and conditions.
Construction Bids The Developer will comply with City requirements regarding prevailing wage. Developer will provide the City with a list of subcontractors and conduct prevailing wage compliance review. Developer agrees to do a solicitation process for contractors to obtain most competitive pricing, terms and conditions, consisting of at least three General Contractor bids.
Financing Plan
Modifications
As changes are made during the predevelopment phase and prior to Project Closing, Developer shall submit to City for review updated versions of the Financing Plan reflecting any changes from prior versions submitted to the City. City and Developer shall jointly approve changes to the Financing Plan through construction loan closing. Developer and City will meet and confer if costs increase to create a funding gap. If the funding gap cannot be closed within 36 months from execution of the DDA, the City will have the right to terminate the Agreement. City can terminate the Agreement for cause if Developer is in default (subject to all applicable notice and cure provisions) of the DDA. [Note: Nov 2027 is when we are projecting to close construction financing]
Assignment of Plans
and Contracts
The City shall require the Developer to assign land use entitlements, plans, and contracts. This assignment shall survive termination of the DDA.
City Approval Rights City shall have approval rights, which shall not be unreasonably withheld or delayed, over:
a. Architect and General Contractor
b. Property Manager, Property Management Plan, Lease, Tenant Selection Plan, House Rules, Housing Retention Process, Security Plan
c. Service Provider and Services Plan
d. Key documents, including but not limited to the Limited Partnership Agreement and Construction Contract e. The Project’s development budget and annual operating budget f. Withdrawals from the operating and replacement reserves, consistent with the requirements of the lender/investor. g. Transfer or sale of leasehold interest, and refinancing, consistent with the requirements of the lender/investor h. Transfer of general partner, or managing general partner interest and all associated transfer documents i. Partnership and financing documents
j. Selection of any commercial tenant, commercial lease and lease terms.
Transfer or
Assignment
Developer agrees to City first approval rights over transfer or assignment that are industry standard for tax credit financed developments.
DDA Upon approval of the Term Sheet by the City Council, Developer and City staff will negotiate a Disposition and Development Agreement (DDA) containing all terms and conditions of the transaction for approval by the City Council.
The City Council reserves the right to reject the recommended DDA. The DDA will extend until at least January 1, 2028, to provide site control required for funding applications.
Tenant Selection Subject to federal and state fair housing laws and the regulatory requirements of any Project funders, the Project must utilize a City-administered waitlist – the City’s Below Market Housing waitlist to fill affordable units, and the Santa Monica Housing Authority’s waitlist to fill the Permanent Supportive Housing units, which would utilize a coordinated entry system with priority for SMPP applicants.
Security The City shall approve the Security Plan as part of the DDA. Developer is required to provide security in accordance with the Security Plan. If the city believes that the Security Plan is insufficient, the City can request a meet and confer with the Developer to reassess the Security Plan. Including without limitation that the Security Plan shall include at a minimum one year of evening and weekend security for the first year of operation. City can request a meet and confer after the first year of operation.
City Housing Trust
Funds Loan
If a funding gap should occur, City staff may approve HTF loans that comply with the underwriting criteria and loan limits within the City’s HTF Guidelines. Any request outside of these limits will be brought before City Council for approval.
Repayment of the loan would be paid from 50% of residual receipts.
City Regulatory
Agreement
The term of the City Regulatory Agreement will be 99 years from the date of the Certificate of Occupancy.