HomeMy WebLinkAboutStaff Report: Campus Commons Senior Housing Project - Financing PlanJuly 6, 2010
MEMORANDUM
Arcadia Redevelopment Agency
TO: Don Penman, City Manager /Executive Director
L
FROM: Jason Kruckeberg, Assistant City Manager /Deputy Executive Directo
Jerry Schwartz, Economic Development Manager J
SUBJECT: Campus Commons Senior Housing Project — Financing Plan
The "Campus Commons" project was presented to the City Council /Redevelopment
Agency at Study Sessions on February 2, and March 2, 2010. During the February 2
Study Session, the development team discussed a funding gap of $6.9 million that the
Agency would need to bridge using its low /mod housing funds to make the project
financially feasible. The Agency did provide a long term loan from low /mod funds for
the Heritage Park senior project. Because of rules regarding the use of those funds for
various types of affordable housing, the Agency can only use 34% of its low /mod funds
for senior housing. There are also rules, as described by the Agency's consultant,
Kathe Head of Keyser Marston Associates, which limit the amount that can be spent
during a specific project period on senior housing (Present to 2014, 2015 - 2025). As
such, if for example, $6.9 million is provided by the Agency, it can contribute $3,544,435
to the project in 2010, with the remaining $3,355,565 available in 2015. (See Exhibit A)
The development team and Agency staff along with KMA and the City Attorney have
analyzed a number of ways to achieve this. It may involve the Agency borrowing the
funds from a third party until 2015. The carrying costs could reach $300,000 -
$400,000 if the third party loan ends up at $3 million.
Keyser Marston, on behalf of the Agency, has reviewed the developer's pro forma for
the project and discussed numerous assumptions and variables with the development
team. As a result, the developer has revised its pro forma to show a gap of $6.4 million
plus any carrying costs for third party Agency loan. This reflects some modifications to
construction costs as well as forecasts for tax credit rates. The developer has indicated
that while its tax credit figure may be more conservative, it would rather exceed its
projected proceeds, than budget aggressively and miss its target. Part of the
development team's approach is to hold $500,000 in a reserve account for the bridge
loan costs. As a result, the developer has requested that the Agency Board approve up
to the entire $6.9 million with the understanding that it will make every effort to maximize
the sale of the tax credits and reduce construction costs so that the entire amount of
Agency low /mod funds won't be needed. Once the developer is able to bid the project,
the development team is comfortable that it can reduce the construction budget while
building the high quality project that it has discussed with the Council. Staff and the
developer are also discussing other possible fees that can be deferred to reduce the
possible loan that will be needed for the project. If the Council /Agency approves the
funding of up to $6.9 million for the project with staff and the development team to work
out the details, then the parties will continue to work to keep the Agency's contribution
as low as possible. The project will include an Owner Participation Agreement and
related documents that will incorporate the financial terms described in this section. If
the financing plan is acceptable, the Owner Participation Agreement (OPA) will be
brought back for Agency Board approval at its July 20, 2010 meeting.
As the project moves forward, the financing program includes a combination of low
income housing tax credits and tax exempt bonds. For the bonds, the City will act as a
facilitator without incurring any repayment obligation. A similar process was used for
the Heritage Park senior housing development. Council approval to facilitate these
bonds for the Campus Commons project will be requested at an upcoming meeting.
These bonds are different than the Agency's own tax allocation bonds that were
approved for pricing at the June 15 Council meeting.
RECOMMENDATION
Authorize the expenditure of up to $6.9 million in Agency low /mod housing funds as a
long term loan to the project to bridge the funding gap for the Campus Commons senior
housing project.
Exhibit A — Keyser Marston Proportionality Analysis
Exhibit B — Project Financing Overview and Analysis
Campus Commons - Financing Plan
July 6, 2010
Page 2 of 2
TABLE 1
AGE RESTRICTED PROPORTIONALITY TEST
$4,045,715 SET -ASIDE REPAYMENT IN FY 10/11
ARCADIA, CALIFORNIA
Period 1
2001 / 2002
2002 / 2003
2003 / 2004
2004 / 2005
2005 / 2006
2006 / 2007
2007 / 2008
2008 / 2009
2009 / 2010
2010 / 2011
2011 / 2012
2012 / 2013
2013 / 2014
2014 / 2015
Total
Available for Age
Restricted Projects $5,344,435
(Less) Heritage Park
Assistance 1,800,000
Net Available Funds $3,544,435
II. Period 2
2015 / 2016
2016 / 2017
2017 / 2018
2018 / 2019
2019 / 2020
2020 / 2021
2021 / 2022
2022 / 2023
2023 / 2024
2024 / 2025
Total
Fiscal Year Set -Aside Deposit
Available for Age
Restricted Projects
III. Period 3
2025 / 2026
2026 / 2027
Available for Age
Restricted Projects
$522,100
648,727
812,894
833,331
758,525
779,031
821,753
870,356
Actual
Revenue
888,000
4,951,715
924,000
942,000
961,000
980,000
Projected
Revenue -
Increased by
2% Annually
$15,693,432
$999,600
1,019,592
1,039,984
1,060,784
1,081,999
1,103,639
1,125,712
1,148,226
1,171,191
1,194,615
Increased by
2% Annually
$10,945,341
$3,727,462
Total $2,461,384
$838,230
IV. Grand Total $8,110,127
Prepared by: Keyser Marston Associates, Inc.
File name: Sr Proportionality_1_21_10.xls
Exhibit A
34%
34%
$1,218,507 Increased by
1,242,877 2% Annually
34%
TABLE 2
AGE RESTRICTED PROPORTIONALITY TEST
$4,045,715 SET -ASIDE REPAYMENT FY 14/15 -15/16
ARCADIA, CALIFORNIA
I. Period 1
2001 / 2002
2002 / 2003
2003 / 2004
2004 / 2005
2005 / 2006
2006 / 2007
2007 / 2008
2008 / 2009
2009 / 2010
2010 / 2011
2011 / 2012
2012 / 2013
2013 / 2014
2014 / 2015
Total
Available for Age
Restricted Projects
(Less) Heritage Park
Assistance
Net Available Funds
II. Period 2
2015 / 2016
2016 / 2017
2017 / 2018
2018 / 2019
2019 / 2020
2020 / 2021
2021 / 2022
2022 / 2023
2023 / 2024
2024 / 2025
Total
Fiscal Year Set -Aside Deposit
Available for Age
Restricted Projects
III. Period 3
2025 / 2026
2026 / 2027
Total
Available for Age
Restricted Projects
IV. Grand Total $8,110,127
Prepared by: Keyser Marston Associates, Inc.
File name: Sr Proportionality_1_21_10.xls
$522,100
648,727
812,894
833,331 Actual
758,525 Revenue
779,031
821,753
870,356
888,000
906,000 Projected
924,000 Revenue -
942,000 Increased by
961,000 2% Annually
1,980,000
$12,647,717
$4,307,210 34%
1,800,000
$2,507,210
$4,045,315
1,019,592
1,039,984
1,060,784
1,081,999
1,103,639
1,125,712
1,148,226
1,171,191
1,194,615
Increased by
2% Annually
$13,991,056
$4,764,687
$1,218,507 Increased by
1,242,877 2% Annually
$2,461,384
$838,230
34%
34%
Exhibit B
CAMPUS COMMONS — PROJECT FINANCING OVERVIEW AND ANALYSIS
Project Overview:
• 43 apartments — low and very low income senior citizens
• 23,100 sq. ft. site
• Amenities provided in each unit, including washer /dryer
• Project amenities include community room with kitchen, pool, patio, walking path
• Extra sound insulation and window tinting
Primary Project Funding:
• Total Project Cost - $12.423 million (including land acquisition)
• 4% Tax Credits (competitive process — application due July 22, 2010)
• Tax Exempt Bonds (City to act as conduit, similar to bonds for the expansion of
Methodist Hospital; used for Heritage Park senior project on Las Tunas)
• Funding gap of $6.4 million (plus carrying costs for third party bridge loan);
down from original gap of $6.9 million due to cost reductions
Filling the Funding Gap:
• Use of Redevelopment Agency low and moderate income housing fund
• Agency can spend 34% of its housing fund on low income senior housing
• Due to rules related to funding periods, the Agency can spend up to $3,544,435
on project between 2010 and 2014
• Remaining $2,855,565 could be paid in 2015
• Developer needs these funds as part of construction funds for the project
• Most likely solution — Agency borrow from third party with payback in 2015
• Developer has budgeted $500,000 of carrying costs for Agency loan — total
developer request is $6.9 million ($6.4 m + $500,000 carrying costs). Do not
anticipate carrying costs reaching this amount. Any "savings" returned to Agency
Reducing the Funding Gap:
• Increase proceeds from sale of tax credits (higher sales price — everyone's goal)
• Delay or defer certain fees and costs until 2015, including City fees, developer
fee, etc.
• Approval of $6.9 million will allow us to work at reducing the final gap
• Will look at all options for funding — third party loan is the likeliest outcome