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RESOLUTION NO. 2014-001 OF THE CHULA VISTA HOUSING AUTHORITY OF THE CITY OF CHULA VISTA AUTHORIZING THE ISSUANCE OF MULTIFAMILY HOUSING REVENUE BONDS IN ONE OR MORE SERIES IN A CUMULATIVE AND AGGREGATE PRINCIPAL AMOUNT NOT TO EXCEED $8 MILLION FOR THE PURPOSE OF FINANCING THE ACQUISITION AND REHABILITATION OF THE KIKU GARDENS (GARDEN VILLAS) HOUSING PROJECT; APPROVING AND AUTHORIZING THE EXECUTION AND DELIVERY OF ANY AND ALL DOCUMENTS NECESSARY TO ISSUE THE BONDS, COMPLETE THE TRANSACTION AND IMPLEMENT THIS RESOLUTION, AND RATIFYING AND APPROVING ANY ACTION HERETOFORE TAKEN IN CONNECTION WITH THE BONDS
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RECOMMENDED ACTION
Recommended Action
Authority adopt the resolution.
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SUMMARY
The City of Chula Vista received a request from C&C Development Group, dba RAHD Group ("Applicant") to consider the issuance of tax exempt obligations to finance the acquisition and rehabilitation of 100 existing affordable units at Kiku Gardens (Garden Villa) Apartments (the "Project"). The Project is located at 1260 Third Avenue in southwest Chula Vista. The rehabilitation will improve the property and extend the term of the affordable rents for 55 years. At this time, the Chula Vista Housing Authority is asked to approve the issuance, sale, and delivery of multi-family housing revenue bonds upon award of the bond allocation from the California Debt Limit Allocation Committee ("CDLAC").
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed Project for compliance with the California Environmental Quality Act (CEQA) and has determined that the Project is categorically exempt pursuant to Section 15301(Class 1[a]) (Existing Facilities) of the State CEQA Guidelines because the project is only for the issuance bonds, the acquisition and rehabilitation of an existing apartment development. Thus, no further environmental review is necessary.
BOARD/COMMISSION RECOMMENDATION
On November 13, 2013, the Housing Advisory Commission voted to recommend the issuance of Tax Exempt Multi-Family Revenue Bonds to assist in the Project financing.
DISCUSSION
On December 10, 2013, the Chula Vista City Council conducted a public hearing and adopted Resolution No. 2013-258 approving the issuance, sale and delivery of multi-family housing revenue bonds for Kiku Gardens Apartments and the Chula Vista Housing Authority adopted Resolution No.2013-059 regarding its intention to issue tax exempt obligations for the Project (Attachment 1: Locator Map).
The Applicant will receive approval from the California Debt Limit Allocation Committee (CDLAC), the State bonding authority on May 21, 2014. The Chula Vista Housing Authority will be the conduit bond issuer for an aggregate amount not to exceed $8 million. The bond allocation and tax credit contributions will be used to substantially finance the Project.
The Development Team
C&C Development Group, LLC, dba RAHD Group, is currently under contract to purchase the property located at 1260 Third Avenue. DAL Development, LLC ("DAL") is a for-profit housing developer that will assist C&C Development Group, LLC, in the acquisition and development of the Project.
C&C Development Group, LLC has successfully acquired and rehabilitated over 450 residential units in California, of which 355 are in San Diego, previously funded through the U.S. Department of Housing and Urban Development (HUD). Upon close of escrow, the Applicant and Hearthstone Housing Foundation (Hearthstone), a nonprofit service agency organized under section 501(c)(3) of the Internal Revenue Service Code, will create a new limited partnership, Kiku Gardens Housing Partners, LP, to own and operate the Project. The new partner, Hearthstone is a non-profit organization formed in 1991 and currently provides services to Hillside Apartments in San Diego and Spring Villa Apartments in Spring Valley.
The Proposed Project
The Project is an existing 100-unit affordable complex originally built and financed in 1983 through HUD. The affordability covenants are set to expire in ten years. To preserve the affordability of the project and to take advantage of tax credit financing, the existing owner, Kiku Gardens (Garden Villas), will sell the project to a new partnership formed by the Applicant, named Kiku Gardens Housing Partners, LP, a California limited partnership. Given the age and the desire to preserve the affordability, the Applicant is proposing the acquisition and rehabilitation of the property using bond financing and tax credits to ensure continued long term use and viability.
The scope of the proposed renovation includes interior renovations to the units, new roof, upgrades to mechanical systems, electrical system, plumbing system, and other exterior finishes. Improvements will be made to common areas including the community room, library, central laundry, outside garden patio area, and computer lab for all residents.
Income and Rent Restrictions
For bond financing, Section 142 (d) of the Internal Revenue Services Code requires either a minimum of 20 percent of the rental units in the Project to be available for occupancy by persons or families whose income does not exceed 50 percent of the area median income (AMI) for the San Diego Primary Metropolitan Statistical Area, or alternatively, at least 40 percent of the rental units are required to be available for occupancy by persons or families whose income does not exceed 60 percent of the AMI. The units will be made available at affordable rents established by the applicable State law.
The project will exceed the affordability requirements by setting aside 30 units for very low income households at 50 percent of AMI, and 69 units for low income households at 60 percent of AMI, with one unit reserved for the resident manager. The rents will also be set using these income levels (i.e. 30 units at 50% and 69 units at 60%). The Project proposes to maintain the income and rent restrictions for Kiku Gardens for a period not less than 55 years, exceeding the 30-year term of the bonds. These income and rent restrictions will be outlined within the bond regulatory agreement to be recorded against the property.
The Project also has an existing Section 8 financing contract with HUD. This allows the tenants to pay only 30 percent of their income, with HUD paying the remaining portion of the rent. HUD will continue to provide a Section 8 contract for the property for a 20 year period. Additionally, the applicant has applied for an increase in the Section 8 rent based on post rehabilitation market rent, which is $1,150 for a One Bedroom unit. The actual rent currently paid by the tenants will not increase due to the HUD assistance.
Compliance with the income and rent restrictions will be subject annually to a regulatory audit and annual tax credit certification. Compliance with strict property management policies and procedures will ensure that income and rent restrictions will be maintained for the full 55-year compliance period.
Proposed Financing of Project
The Tax Exempt Multi-Family Revenue Bonds and Low Income Housing Tax Credit financing will support the majority of the estimated $16.63 million total development cost of the Project. The Housing Authority will serve as the issuer of $8 million in tax exempt bonds to be made available as a public offering for short term tax exempt bonds, with a long term taxable loan from Freddie Mac, as guarantor, and Citi Community Capital, as servicer. The Applicant will also apply for approximately $4.63 million in Low Income Housing Tax Credits. With the bond and tax credit financing, no additional City financing is needed for the Project. The Department of Housing and Urban Development's Section 8 contract for the Project will remain in place for 20-years.
Bond Documents
At this time, the Chula Vista Housing Authority is being asked to approve in substantial form all documents related to the bond issuance. Bond documents presented for the Housing Authority's consideration have been prepared by Stradling Yocca & Rauth, serving as bond counsel for the City of Chula Vista and its Housing Authority. These documents are listed below and are attached to this report.
§ The Bond Regulatory Agreement specifies the regulations for the use and operation of the Project (see Attachment 2).
§ The Trust Indenture for the Bonds specifies the terms and conditions for the issuance and selling of the Bonds and use of the bond proceeds (see Attachment 3).
§ The Loan Agreement for the Bonds specific the terms and conditions of the Loan financing for the project (see Attachment 4).
§ The Bond Purchase Agreement describes the terms of the Bond Purchase between the Issuer and the Purchaser (see Attachment 5).
§ The Official Statement is the offering document by which the underwriter will market the bonds to the public (Attachment 6).
Article 34
Article 34 of the California Constitution requires that voter approval be obtained before any "state public body" develops, constructs or acquires a "low rent housing project". The Project is existing and has a contract for financial assistance from the Federal Government for affordable units. Therefore, the project is exempt from the requirement.
DECISION-MAKER CONFLICT
Staff has reviewed the property holdings of the Housing Authority and has found no property holdings within 500 feet of the boundaries of the property which is the subject of this action. Staff is not independently aware, and has not been informed by any Housing Authority member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City's Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. The acquisition and rehabilitation of Kiku Gardens (Garden Villas) apartments to preserve the ongoing affordability supports the following strategic goals:
Economic Vitality
Provides an opportunity for investment in western Chula Vista and promotes an environment for residents to prosper; and,
Connected Community
Provides opportunities that enrich the community's quality of life.
CURRENT YEAR FISCAL IMPACT
Bond financing is a self-supporting program with the borrower responsible for the payment of all costs of issuance and other costs of the bonds. The Housing Authority will receive an origination fee for its services in issuing the bonds equivalent to 1/8 of 1% of the bond loan, approximately $10,400. Other costs related to the issuance of the bonds will be paid from bond proceeds. The bonds will be secured by the Project and will not constitute a liability to or an obligation of the City's General Fund.
ONGOING FISCAL IMPACT
Staff costs associated with monitoring compliance of the regulatory restrictions and administration of the outstanding bonds will be reimbursed from an annual administrative fee of approximately $10,400 (based upon 1/8 of 1% of the permanent bond loan) paid to the Housing Authority by the owner.
ATTACHMENTS
1. Locator Map
2. Bond Regulatory Agreement
3. Trust Indenture
4. Loan Agreement
5. Bond Purchase Agreement
6. Official Statement