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Home My WebLink AboutED BMR Purchase Forego; Marin HousingCrrY OF 1� UL. Agenda Item No: 3 b Meeting Date: June 4, 2012 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: Economic Development Prepared by: Stephanie Lovette, Economic City Manager Approval SUBJECT: A RESOLUTION OF THE SAN RAFAEL CITY COUNCIL AUTHORIZING MARIN HOUSING TO FOREGO THE OPTION TO PURCHASE A BELOW MARKET RATE HOUSING UNIT (APN 155-376-08) RECOMMENDATION: Staff recommends that the City adopt the attached resolution instructing Marin Housing not to exercise the purchase option for this Below Market Rate unit and allow the unit to be sold in the open market. BACKGROUND: The City has contracted with the Marin County Housing Authority ("Marin Housing") to administer the Below Market Rate ("BMR") program for ownership units. The BMR Agreement provides that each contract conveying a BMR unit to a buyer include a resale restriction and an option to purchase constituting a right of first refusal to Marin Housing ("Resale Restriction"). The majority of BMR unit resales occur between a willing seller and another low or moderate -income family that has been qualified by Marin Housing. In these situations Marin Housing does not provide funds for the unit acquisition. Occasionally, Marin Housing is in the position of exercising the resale option because another qualified buyer has not been identified within the allotted time period. The original BMR Agreement for the McInnis Park II (Capri) development was executed in 2004. The BMR Agreement between the developer and the City of San Rafael required eleven BMR units and set the sales price of six units to be affordable to households earning 80% of County Median Income and five units to be affordable to households earning 90% of County Median Income. ANALYSIS: The owner desires to sell this unit. Marin Housing staff has determined that the restricted resale price of $298,494 is very close to the market value of unrestricted units in this development, estimated to be $315,000. The minimal differential between the BMR restricted price and the price of an unrestricted unit will make it difficult to sell this BMR unit without a substantial cost reduction. Therefore, Marin Housing is recommending that the unit be released from the BMR program. FOR CITY CLERK ONLY File No. Council Meeting: ' Disposition: ~ = -edw, tit-' SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 The owner will be allowed to sell the unit without price restrictions. However, the BMR Resale Restriction provides that any proceeds in excess of the restricted price, net of reasonable sales expenses, will be paid to Marin Housing. Marin Housing will use these funds for the benefit of the San Rafael BMR ownership program. The requirement to provide all of the net profit from the sale of the unit to Marin Housing may result in a lower sales price for this unit because the seller has no incentive. This could result in a very low sales price for this unit, further depressing prices in this development. Therefore, staff is recommending that the owner be allowed to keep a maximum of $10,000 above the net restricted resale price and the remainder of the net sales proceeds be remitted to Marin Housing. San Rafael does not have a history of releasing units from the program. One unit was released in the Muir Terrace development in 2010 and several units were released in the Marin Lagoon development in the early 1990's. In the past ten years San Rafael has provided funding to retain units in Baypoint and Redwood Village. The former San Rafael Redevelopment Agency purchased units at Boyd Court and at Capri and provided funding for Marin Housing to purchase units at Mission Townhomes and Redwood Village. Many cities with ownership BMR programs, including Novato and Petaluma, have released BMR units because the BMR sales prices exceeded the market rate price. There is a strong possibility that San Rafael will lose more BMR ownership units because of the narrowing gap between BMR restricted resale prices and market value. Traditionally, San Rafael has been able to use Redevelopment Agency affordable housing funds to provide a small amount of subsidy ($50,000) to reduce sales prices of BMR units. These small subsidies have been enough to make the BMR prices low enough to be attractive to qualified low-income buyers. The City cannot provide any additional subsidies due to the shut down of redevelopment by the State. FISCAL IMPACT: The City received this unit from the developer as a condition of development. The City has not provided any funding for this unit. OPTIONS: • Adopt the resolution instructing Marin Housing not to exercise the option to purchase for this unit; thereby releasing the unit from the BMR program and allow the owner to retain a maximum of $10,000 of excess net sales proceeds. • Direct Marin Housing to exercise the option and provide a loan of $299,000 for the purchase price and costs. Staff is not recommending this option, because we believe the City will need to provide an additional permanent subsidy to further reduce the sales price in order to resell the unit. • Direct Marin Housing to exercise the option and provide a loan of $299,000 for the purchase price and costs. This will provide additional time for Marin Housing to find a qualified buyer. If a qualified buyer cannot be found in a timely manner, the unit could be released to the open market. Staff is not recommending this option because we believe that a qualified buyer will not be interested without further price reductions and the holding costs for the unit may not be recouped even if the unit is released to the open market. • ACTION REQUIRED: Authorization to release the unit from the program and allow the owner to retain a maximum of $10,000 of excess net sales proceeds. ATTACHMENTS: A: Letter from Marin Housing. SAN RAFAEL CITY COUNCIL RESOLUTION NO. 13349 A RESOLUTION OF THE SAN RAFAEL CITY COUNCIL AUTHORIZING MARIN HOUSING TO FOREGO THE OPTION TO PURCHASE A BELOW MARKET RATE HOUSING UNIT (APN 155-376-08) WHEREAS, The City of San Rafael General Plan Policy H-19 requires all new residential developments to include a portion of the units affordable to low and moderate income households; and WHEREAS, There are currently 115 affordable ownership units in San Rafael that have been developed pursuant to General Plan Policy H-19; and WHEREAS, in 2004, the City of San Rafael and MHP 11, a California Limited Partnership, Renascor, LLC General Partner, initially entered into an Agreement to Provide a Below Market Rate Housing Unit ("BMR") and the Marin County Housing Authority ("Marin Housing") agreed to administer the BMR unit at McInnis Park 11; and, WHEREAS, the Below Market Rate Housing Agreement provides that each contract conveying a Below Market Rate unit to a buyer include a resale restriction and an option to purchase constituting a right of first refusal to Marin Housing ("Resale Restriction"); and WHEREAS, the current owner has tendered a purchase offer to Marin Housing to purchase the unit; and WHEREAS, Marin Housing has undertaken an analysis comparing the resale price for the unit and the fair market value and has determined that the resale value approximates fair market value and therefore Marin Housing recommends that the unit be released from the program; and WHEREAS, The Resale Restriction for this unit provides that any proceeds of the sale in excess of the Restricted Resale Price after a reduction of reasonable selling expenses will be paid to Marin Housing to be used for BMR administrative expenses for San Rafael. NOW, THEREFORE, BE IT RESOLVED that the San Rafael City Council hereby: Instructs Marin Housing to forego the option to purchase and allow the owner to sell the unit on the open market, thereby releasing the unit from the BMR resale restrictions. BE IT FURTHER RESOLVED that the City Council hereby instructs Marin Housing to allow the owner to retain a maximum of $10,000 of net sales proceeds to provide an incentive to achieve the higher resale value. BE IT FURTHER RESOLVED that the City Council hereby instructs Marin Housing to undertake any actions to assure that any funds received by Marin Housing from the sale of this unit be expended by Marin Housing on administration of the remaining 114 BMR ownership units in San Rafael. BE IT FURTHER RESOLVED that this Resolution shall take immediate effect upon adoption. 1, Esther C. Beirne, Clerk of the City of San Rafael, hereby certify that the foregoing Resolution was duly and regularly introduced and adopted at a regular meeting of the City Council of the City of San Rafael, held on Monday, the fourth day of June, 2012, by the following vote, to wit: AYES: MEMBERS: Connolly, Heller, Levine, McCullough & Mayor Phillips NOES: MEMBERS: None ABSENT: MEMBERS: None ESTHER C. BEIRNE, City Clerk &ttaobmeof\ May 14, 2012 Stephanie Lovette Economic Development Manager City of San Rafael Re: 301 North Avenue, #210 Stephanie: 4020 Civic Center Drive San Rafael, CA 94903-4173 Executive Director Dan Nackerman Early this year the Housing Authority was approached bvthe owners ofthe above subject property asking how they would goabout selling their unit. Adthe time ofthe inquiry xo calculated the owner's resale price as provided by their Resale Restriction Agreement and determined that price tobe$288.494. Further analysis determined that this resale price approximated fair market value for an unrestricted unit. It was determined that / full marketappra�o|baconduobedbuoece�aintheact a|feirmarketva|ue Theoppmoiaa|--/eturne�an unrestricted fair market value of In the owners issued the Housing ��o�mof|n�n�T�n��am pnn�dedinthe Resale Reotdot�nAgneemonLAs ' uired.yWHAhas oG�d oehodhoemenjoe the ooUonbupurchase the prope�yotthe calculated $298,494. --''iventheooatof marketing, the unit would have to be listed atapproximately $315'0O0 and attempted to be sold to anew below market rate homeowner. The likelihood ofselling aBMR unit ata priceequal to a fair market value unit is non-existent. MHA recommends the release of this unit from the program and allow the owner to sell on the open market. The Resale Restriction Agreement provides that any proceeds of sale in excess of the resale calculated price of $298,494 and after reduction of reasonable selling expenses (commissions not to'exceed 6%) will be paid to the Housing Authority for the benefit of the jurisdiction (Gan Rafael). VVolook forward boSan Rahaa'o acceptance of the release and sale recommendation orother appropriate guidance aoSan Rafael deems appropriate. Rich Stevick Home Support & Compliance CITY OF SAN RAFAEL ROUTING SLIP / APPROVAL FORM INSTRUCTIONS: USE THIS FORM WITH EACH SUBMITTAL OF A CONTRACT, AGR T ORDINANCE OR RESOLUTION BEFORE APPROVAL BY COUNCIL / AGENCY. SRRA / SRCC AGENDA ITEM NO. DATE OF MEETING: 6/4/12 FROM: Stephanie Lovette DEPARTMENT: Economic Development DATE: May 25, 2012 TITLE OF DOCUMENT: A RESOLUTION OF THE SAN RAFAEL CITY COUNCIL AUTHORIZING MARIN HOUSING TO FOREGO THE OPTION TO PURCHASE A BELOW MARKET RATE HOUSING UNIT APN 155-376-08 Deparlment Head (signature) *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** (LOWER HALF OF FORM FOR APPROVALS ONLY) APPROVED AS COUNCIL / AGENCY APPROVED AS TO FORM: AGENDA ITEM: , , 6 City Manager (signature) City Attorney (signature)