To: Board of Commissioners of the Community Development Commission
Department or Agency Name(s): Sonoma County Community Development Commission
Staff Name and Phone Number: Benjamin Wickham, 707-565-7542
Vote Requirement: Majority
Supervisorial District(s): 1st District
Title:
Title
Village Green II Apartments -Transfer of Ownership to Burbank Housing Development Corporation.
End
Recommended Actions:
Recommended action
Board of Commissioners:
A) Approve Sonoma County Community Development Commission (Commission) developer selection for Village Green II;
B) Authorize the Commission to execute a Purchase and Sale Agreement designed to transfer ownership of Village Green II Apartments to the Burbank Housing Development Corporation in order to preserve existing affordable housing in Sonoma County;
C) Authorize the Commission to issue a seller carry-back loan not to exceed $3,700,000.
(First District)
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Executive Summary:
The Commission is seeking to transfer Village Green II Apartments (“Property”) and associated management of the affordable housing project to an owner/operator with proven expertise and background in providing high quality property management services and housing to extremely low-income and very low-income seniors. In order to locate a qualified owner/operator, the Commission engaged in a comprehensive and competitive process which resulted in a group of well-designed and thoughtful development proposals. There are two key reasons for taking this action:
(1) The Commission is not organized for long-term ownership and operation of affordable housing properties. In view of this, the Commission sought a qualified sponsor with significant experiencing managing affordable housing regulated by the United States Department of Agriculture Rural Development (USDA RD) program.
(2) As the Property passes the 35-year mark in its existence, it has become apparent that a number of major physical components are in critical need of repair. The Capital Needs Assessment performed by Elizabeth McLachlan Consulting several years ago, and updated by Basis Architecture & Consulting in 2018, has revealed close to $3 million in capital repairs needed to keep the Property in a safe and decent condition for the residents. The Commission is not in a position to provide the level of capital contribution needed to carry out these repairs; additionally, as a public agency, the Commission is unable to apply for tax credit financing in order to complete these necessary repairs.
Transferring ownership of the Property to an owner/operator who can qualify for tax credits and use said funds to address capital improvements and repairs will preserve this Property while maintaining an adequate level of reserves for future capital needs. The transfer will include a requirement, dictated in the Purchase and Sale Agreement, to recapitalize the asset and promptly address capital needs at the Property. Based on the results of the proposal review committee, Commission staff recommends that Burbank Housing Development Corporation be selected, recognizing their proposal best meets the Commission’s and the Board’s stated goals for this project.
Discussion:
Village Green II, consisting of 34 apartment homes, is a tranquil and pleasant senior housing community tucked into a verdant neighborhood on the bucolic west side of the City of Sonoma. The residents benefit from the USDA RD project-based rental assistance program which keeps 28 of the 34 households’ total rent at 30% of their actual income. Vacancies are extremely rare at this Property, and are promptly filled from an extensive waiting list. Preservation of this valuable asset is critical, particularly given the extreme shortage of affordable housing in Sonoma County.
City of Sonoma declined to retain its former redevelopment agency housing functions, and the Sonoma County Housing Authority therefore became the housing successor entity for Sonoma. Sonoma’s redevelopment housing assets and obligations, excluding liabilities, transferred to the Commission as of February 1, 2012, as parent agency of the Sonoma County Housing Authority, without any action on the part of the Commission. As a result of these transfers, the Commission received ownership of the Village Green II Apartments, 650 4th St., Sonoma.
The Commission’s goal with this Board Item is to assure the long-term sustainability of a precious housing resource by taking advantage of available capital sources and rehabilitating the Property. As an aging but high-quality affordable housing project, Village Green II is a prime candidate for tax credit financing to fund needed capital repairs and improvements.
Key Considerations:
• Staff analysis indicates that Tax Credit Syndication is the most effective way to raise the capital necessary to make immediate capital repairs to Village Green II and to make sufficient capital improvements so as to make the property sustainable into the future. Tax Credit Syndication involves the creation of a limited partnership in which investors into the project, represented by a syndicator, maintain 99.9% of the ownership interest in an asset and receive the benefit of the tax credits; at the same time, the general managing partner assumes day-to-day responsibility for the property while holding a 0.1% ownership interest. The Commission is not able to enter into such a limited partnership agreement with a tax credit investor.
• USDA RD, which must approve any transfer of ownership, initially recommended this strategy to the Commission. USDA RD has provided a clear outline of the steps it requires to approve and complete the transfer of ownership process.
On December 18, 2018 the Commission released a Request for Proposals (RFP) seeking a qualified firm to assume ownership of the property, recapitalize finances, and carry out a substantial rehabilitation project. Three development proposals were received by the closing date of the RFP on February 5, 2019. An RFP Selection Committee (comprised of a community member from Sonoma and employees of the Commission) reviewed and ranked the three proposals received based on criteria outlined in the RFP materials.
The Committee unanimously approved Burbank Housing Development Corporation as the most qualified proposal. The proposers are listed below in the order they were ranked by the RFP Review Committee.
1. Burbank Housing Development Corporation
2. PEP Housing
3. W&J Investments
Key Considerations in recommendation:
The Commission feels that Burbank Housing Development Corporation should be chosen as developer/owner for Village Green II due to their ability to robustly meet the following priorities stated in the RFP. These include:
1. Property Management Experience: Burbank has more extensive experience managing USDA Rural Development housing; USDA RD regulatory and reporting requirements are unique and can be difficult to navigate. Burbank’s current portfolio features 6 Rural Development-funded projects. Burbank also currently manages 10 properties that are exclusively senior housing.
2. Demonstrated Financial Capacity: Burbank’s proposal demonstrated superior financial capacity, as reflected in audited financial statements included in their proposal. Burbank’s proposal spoke to the organization’s ability to access credit and to attract a tax credit investor.
3. Recapitalization and Substantial Physical Property Rehabilitation Plan: Burbank’s proposal presented a detailed, comprehensive approach to recapitalization; their rehabilitation plan was thorough, addressing both immediate capital needs as well as improvements that will create long-term stabilization and improved living conditions for residents.
4. Quality Development Project Experience: Burbank’s proposed development team has very strong, relevant experience with the acquisition and rehabilitation of various types of affordable housing, including USDA Rural Development-funded projects, as demonstrated by several recent projects in Sonoma County.
5. Organizational Capacity: Burbank has a strong, deeply experienced team encompassing real estate development, finance, construction, management and resident services. Burbank’s division directors and managers have proven experience in handling complex real estate transactions.
Action Requested: The Commission seeks Board of Commissioners authorization to:
(1) Finalize developer selection for Village Green II Transfer of Ownership
(2) Execute a Purchase and Sale Agreement designed to transfer ownership of Village Green II to the selected developer.
(3) Authorize the Commission to issue a seller carry-back loan not to exceed $3,700,000.
Prior Board Actions:
03-11-2014 - Approve five (5) resolutions authorizing the Executive Director of the Sonoma County Community Development Commission to open bank accounts for Village Green.
11-13-2012 - Authorized CDC staff to perform all functions associated with ownership of real properties acquired through dissolution of redevelopment, in compliance with the Commission’s adopted Procurement Policy and all other applicable laws, regulations and policies.
Fiscal Summary
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Narrative Explanation of Fiscal Impacts:
Balance sheet items associated with Village Green II (Assets and liabilities, including operating cash, reserves, existing debt principal) will be transferred to the selected Developer according to the Purchase and Sale Agreement, which will be drafted based on the deal points specified herein; the Commission will issue and hold a seller carry-back note in an amount not to exceed $6,000,000 for the difference between the appraised purchase price plus closing costs and the net book value of the Village Green II existing mortgage debt assumed by the selected Developer The anticipated terms of the seller carry-back note will be 3% simple interest, deferred over a 30-year term, residual receipts payments as defined in Commission Loan Policies. Total acquisition value is (1) current appraised value of $2,810,000 plus (2) cash-on-hand at $1,562,000=$4,372,000; minus (3) existing debt of $735,000 equals (4) note value of approximately $3,637,000.
This transaction will not have a net cost to the Commission. The Commission will record changes to its Balance Sheet with a reduction of capital assets and associated operating cash for the assets transferred to the selected Developer, a reduction in notes payable for the mortgage obligation assumed by the selected Developer, and a new note receivable for the seller carry-back note described above. The difference between the purchase price and the net value of the assets and mortgage obligation transferred will be recorded as a Gain on Sale.
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Narrative Explanation of Staffing Impacts (If Required):
None
Attachments:
1) PowerPoint presentation of RFP process and deal points
2) Resolution authorizing purchase and sale of Village Green II
Related Items “On File” with the Clerk of the Board:
None