two ordered the june th meeting of the santa barbara city finance committee do we have any comment from members of the public on any items that are not on the agenda members i'm david ral the housing project planner the city holds the exclusive right to repurchase or an option on a fifty unit low income affordable housing project located at their offer includes maintaining the project's long term affordability for an additional sixty years presidio park apartments was developed as part of the one thousand nine hundred and seventy four urban renewal plan under the springs redevelopment project the redevelopment agency contributed it to the development of presidio park apartments by selling the land at that site for one hundred and seventy seven thousand eight hundred dollars and assisting with h low income site approval the project construction financing was with a forty year hud insured loan in the amount of one million six hundred and sixty two thousand dollars for the contribution they were provided an exclusive right to repurchase the project for eight hundred and thirty one thousand three hundred dollars or fifty percent of the hud insured loan to be executed within ninety days of the loan seven five hundred affordable rental units city staff continued to track the option and in two thousand and twelve with the disillusion of the redevelopment agency the housing successor agency no longer receives an estimated four million dollars of tax increment funding per year in addition the city's entitlement award of federal home funds was significantly reduced from over eight hundred thousand dollars a year to just over three hundred thousand dollars a year given the significant reduction in affordable housing funding the affordable housing staff took on a self funding strategy that strategy included strict enforcement of loan agreements with residual receipt repayment provisions as well as refinancing loans that were doing payable that had remaining balances we would extend the loan require a guaranteed payment and extend the affordability of the project it's part of the self financing strategy staff looked to determine the value of the exclusive right to repurchase needless to say we held numerous internal meetings and discussions and the staffs due diligence included reviewing historical documentation the project's title the physical condition of the property the project's financial statements including rent information and the project section eight housing assistance program also known as a hap contract then the staff was given approval to order an appraisal and to start discussions with the owner the owner also ordered an appraisal and the two appraisals came in at  valuation range of eleven and a half to fourteen and a half million dollars we had some russians with the owner and they made an initial offer and with further discussions here is the terms of the offer the owner is offering to purchase our option for twelve million twenty nine thousand two hundred dollars as i mentioned earlier to exercise the option it would cost the city eight hundred and thirty one thousand three hundred so the owners being credited that amount the city would carry back a loan of eleven million one hundred and ninety seven thousand nine hundred dollars the city interest rate on the loan would be four percent and the term would be four sixty years which represents an amortized payment of forty thousand nine hundred and eighty six dollars and fifty five cents per month we also created an alternative payment plan based on the level of hud subsidies that i'll discuss in a minute the city loan is secured by a first deed of trust and there's no subordination required because the city loan is in first title priority position and the owner will be paying off a loan in escrow that has an estimated balance of three million dollars and the affordability the project would be extended in additional sixty years so let's talk about this alternative repayment provision presidio park apartments estimated annual rental income is one million dollars six hundred thousand comes from what's known as hud project based section eight subsidies the other four hundred thousand coming from tenant rent payments given the current state of the federal budget and the reduction of funding to hud there is concern regarding the level of subsidies so if the hud project based section eight rental assistance program is altered such that the annual rental income has changed during a fiscal year payments under the city loan can be adjusted and the way that process would work is the owner would submit an audited financial set along with their happy on track to verify there had been any type of reduction and this alternative repayment provision is only good for one project year and would revert back to the original payments unless the owner was the submit second set of audited financials for the following year so let's look at a little bit of how this works this is the alternative repayment provision table as you may recall the annual income was one million dollars and so for example if the subsidies were reduced such that the annual rental income dropped to eight hundred thousand dollars a year the monthly payment would decrease to thirty seven thousand three hundred and twenty three dollars if the subsidies were removed altogether and the annual rental income dropped below five hundred thousand the monthly payment would drop to ten thousand dollars a month now this scenario is highly unlikely and there is evidence for that the federal budget that was released this year had reductions in home funding and cdbg funding but there was absolutely no reduction in this project based section eight program what we're trying to do here is create a monthly payment that is at a level where it doesn't create an undue hardship of the project they're able to continue to afford the operating expenses some reserves and if there happens to be some capital expenses like they need a new roof or something like that but once again the alternative repayment provision is only good for that one year and it would revert back to the forty thousand nine hundred and eighty six dollars and fifty five cents unless the owner were to submit another round of financials and show that the subsidy level had dropped such that it it has to drop all the way down to below nine hundred thousand on annual rent in order to have any change in payment whatsoever any interest or principle remaining at the end of sixty years is doing payable included in this offer is an extended ford ability of an additional sixty years to low income tenants with an eighty percent area of meeting income or less once again this is a hud project based section a project there's a total of fifty units forty nine of which are low income tenants and one managers unit with thirty four one bedroom units fourteen two bedroom units and two three bedroom units now why would the city accept this offer from the owner first of all it's a fair offer without requiring any cash lay out lay by the city it's it's a market based offer based on two appraisals it eliminates the uncertainty of future property valuation and cost of any capital improvements in the next two years in particular before the option window opens in addition this is an extremely well maintained property however it is thirty eight years old so that it there could be some future capital same and the property manager would remain the same we're simply removing an option from the title accepting this offers consistent with the city's housing element priorities to promote affordable units preserve affordable housing and specifically to presidio park apartments housing element twenty one point four which is to extend the affordability of p park apartments this funding is extremely important to the affordable housing program because it provides long term income stream which will begin two years before the maturity date of the option and that's a with two years of payment that's a one million dollars head start these funds can be used for low income housing tax credits which is a very competitive application process the more public contribution to those tax credit applications the higher the score and the probability goes up being rewarded tax credits to build project these funds can be used for rehabilitation of existing affordable projects and to support the administration of the affordable housing program so the recommendation is that the finance committee recommend that council approved the sale of the exclusive right to repurchase the property located at four hundred and twenty east dale agera street to presidio park lp for the amount of twelve million twenty nine thousand two hundred dollars approve alone to presidio park lp in the amount of eleven million one hundred and ninety seven thousand nine hundred dollars a proven affordability control covenant imposed on real property and authorized the community development director to execute such agreements and related documents as necessary this concludes my presentation rob frederick's from the housing authority would like to come up and make a when he's done i'd like to open it up to questions at that time i'd also like to point out we have mark walden in the front row here representing the owner gnk if you'd like to ask him any questions as well thank you thank you mister all for the excellent report mister fredrick thank you good afternoon rob frederick's with the housing authority city of santa barbara this is a property that is directly adjacent to our offices off of laguna street and de la guerra there and it was developed at the same time that we developed our agency developed presidio springs and presidio gardens the senior and family developments so this is a development that we've been tracking ever since it was developed by goldrich cast and it's it's an important affordable housing asset to the community and one that we did not want to have lost once the the affordability initial affordability covenant expired so  we are we my commission along with staff have reviewed this plan by goldrich guests in the city and we feel it's a fair deal for the city and boat and for goldrich cast and it preserves the affordability set stated there extending the affordability covenant for another sixty years so that's very important that we have that covenant extended for that sixty year time period and to us once when the redevelopment agency went away but throughout the state it really affected our community's ability to continue to produce the needed affordable housing having these the loan funds come into the city through the loan re payments will really help bring up to a not the full level of the formal redevelopment agency but will certainly help in assisting developers such as the housing authority people self help housing corp halibut housing corporation to to develop new affordable housing through the low income housing tax credit program and others with this additional funding source that comes back into the city that has to be used to support affordable housing fit for example if the housing authority were to acquire a property like this or to be part of the property management team in terms of the economy of scale of your portfolio versus a separate entity well  property would have worked fine in our portfolio it fits it's within our operations and within our sphere of influence so it would have been a good fit however you know we don't need to build as long as there's affordability covenants built in we don't need to be the only operator of affordable housing in the community goldrich guess has proven themselves to have done an admirable job over the forty the forty year time span of both developing and managing and operating the program they under the hud contract they're required to work with our agency in filling vacancies pulling people off our wait list to offer vacancies at the development so they work closely they're there man and on site managers with us to fulfill those vacancies so while yes it would be fine for for the property to be within our portfolio it's it's perfectly fine for another private developer as long as they're a good developer and operator of affordable housing to be a player in the community as well great thank you councilman roy i appreciate following up that little more that up a little more what kind of cash flow would the housing authority get out of that what i mean the comparison i would think would be is what would we do to to hang on if we hang on to the property and ran it and then what's what's the business side of it  you know obviously the the wild card in here is the whole section eight business and whether it's going to gonna hold a long term and and also the affordability covenant aspect i would imagine that thousand authority would have if it if you just were to take the option you would have the ability to be more flexible on the affordability ability since there would not be a covenant on you of course want to keep everything at the as lower level as you could but if you needed to bump it up you could so was that was that a spreadsheet done or you have any anything on that front number white that's an excellent question we actually reviewed the pros and cons if you will of this transaction versus holding it and there's so much uncertainty in the next couple of years in terms of things such as property valuation in terms of capital improvements that may be needed in addition by executing the option today as i mentioned earlier we start receiving payments two years earlier and that puts us ahead of the game about one million dollars and if we were to take on ownership of this project and hire a property manager it is true that there's a potential for a little bit  extra cash flow maybe fifty thousand dollars a year but it would given the fact that we have a million dollar head start if you will it would take twenty years to catch up to that financial break even  and property ownership multifamily affordable ownership for ourselves would be something new we could have purchased the property multifamily affordable ownership by the city we could have assigned it over let's i guess that's what i was more thinking then but what we must city what we've got here is a market offer and we're executing at two years early we're requiring low income tenants and most of the ten are way below low income the hap contract dictates the subsidy levels and you're right in that the hap contract is one of the uncertainties moving forward which by locking in our sales price now with a potential for a flexible payment plan we've locked and and locked out a lot of the uncertainty that we might have experienced in the next couple of years and i can imagine is there a benefit by going to the private sector by having a private owner do you is there a tax benefit there that's what the kicker is that's a lot that's allowing more cash to come the city's way is that is that the the extra benefit that the that the private i mean i'm thinking for example of the of the the methane project down the energy project down next to the sushi area possibly the private sector came in and they get tax deductions out of the out of the process that's what makes the project more feasible is that what's going on here where there's there extra tax benefits by from the heading toward the prospective private owner i'm not sure the exact benefits to the private owner for for us we don't take depreciation like a private organization would on on on a deal and but we also don't pay property taxes either on on any of our properties so water or income tax right the the current owner is it's got a portfolio as i've mentioned earlier and they actually manage manage and operate seven thousand five hundred affordable units so they're in the business although being a private owner they're in the business of affordable housing up and down the state of california i hear that  again thinking is there you're saying there's forty thousand dollars a year difference between this the mortgage being a mortgage holder rather than being an owner and management and that's obviously a very small amount of money we we do we look at our complete portfolio of what what it costs for similar sized properties i don't have it at off the top of my head and i wouldn't want to give you wrong we intend percent be in the right range  thirty yeah okay thank you any other questions is there anyone else they'd like to speak to this matter to you you're just here for questions okay anybody else they'd like to speak to this all right well it's back to the committee well i'm seems like a reasonable proposal and would move the staff recommendation is there a second any discussion all those in favor of the motion say