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HomeMy WebLinkAboutED RA Below Market Rate Housing Unit PurchaseCITY OF SAN RAFAEL AGENDA ITEM NO.: 3 MEETING DATE: April 5, 2010 San Rafael Redevelopment Agency Agenda Report Department: Redevelopment Prepared by. � �'�9, v,� �� � tU,'�.�-1, Initials: Nancy Mackle, Econcninc Development Director Ken Nordhoff, Aecutive Director SUBJECT: A RESOLUTION OF THE SAN RAFAEL REDEVELOPMENT AGENCY FOREGOING THE OPTION TO PURCHASE A BELOW MARKET RATE HOUSING UNIT (APN 011-310-11) RECOMMENDATION: Staff recommends that the Agency Board 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 Muir Terrace development was executed in 1996 but the development was not completed and offered for sale until 2004. The BMR Agreement between the developer and the City of San Rafael required one BMR unit and set the sales price to be affordable to a three person household at 100% of County Median Income. FOR AGENCY SECRETARY ONLY File No.: Agency Meeting: Disposition: The BMR program was consequently altered for BMR units to be priced to be affordable to households at 90% of County Median Income. Due to the difference in the Median Income requirement the Muir Terrace unit was more expensive than most of the units in the program. In addition, the unit is smaller than BMR units in traditional San Rafael subdivisions because Muir Terrace was designed as an infill project on a small lot. When the initial buyer moved, Marin Housing could not find another qualified buyer within the allotted time period due to the price and the unit size. Pursuant to Resolution 2008-08, the Agency loaned Marin Housing the funds to purchase the unit and provided a $35,000 permanent subsidy to reduce the price of the unit to make it affordable to households earning up to 80% of County Median Income. The current owner is the second owner of the unit. Marin Housing has not been able to identify another qualified and interested buyer during the sixty day period allowed by the Resale Restriction. Marin Housing contacted 41 qualified households and held one open house. This writ is still more expensive than other comparable units in the program and there are market rate units available in the County at similar prices. Therefore, staff believes that an additional price reduction will be necessary to attract qualified buyer. ANALYSIS: The current public subsidy for this unit is $46,816. San Rafael Redevelopment Agency provided $35,000 for permanent subsidy to reduce the price of this unit and $3,576 to the buyer as a local match for the American Dream Downpayment Assistance program. This program provides Federal funding to low income households purchasing housing and is administered by Marin Housing. In addition to the Agency funding, Marin Housing costs were $12,990 for the five month period before the unit was resold. Marin Housing was able to recoup some funds due to a rent back from the initial owners while their new house was being built. Exhibit A shows the public subsidies provided to date for this unit and the estimated additional public subsidies required to sell the unit to another qualified household. The total estimated public subsidy required from San Rafael and Marin Housing exceeds $100,000. Staff does not believe that additional public investment in this unit is warranted and recommends the unit be released to the open market. The resale agreement allows San Rafael to recoup 75% of the difference between the BMR price and the final sales price less sales costs. Exhibit A provides an estimate of the funds that could be recovered upon sale. San Rafael does not have a history of releasing units from the program. The last time a similar situation occurred was in the early 1990's with Marin Lagoons. In the past ten years San Rafael has provided funding to retain units in Baypoint and Redwood Village. The Agency purchased units at Boyd Court and Capri and provided funding for Marin Housing to purchase units at Mission Townhomes and Redwood Village. All of these units, with the exception of Capri, were resold to other qualified buyers. The Capri unit is in contract. Many cities with ownership BMR programs, including Novato and Petaluma, have released BMR units because the BMR sales prices exceeded the market rate price. In San Rafael, the BMR prices do not exceed the market prices but the gap is narrowing and there is more market rate inventory available in the lower price ranges that are competing with our BMR units. Page 3 FISCAL IMPACT: The City and Agency received this unit from the developer as a condition of development. The Agency provided the $35,000 subsidy from the Agency's affordable housing fund. Staff estimates that about $18,000 of those funds will be recouped if the unit sells on the open market for $350,000. OPTIONS: • Adopt the resolution instructing Marin Housing to not exercise the option to purchase for this unit; thereby releasing the unit from the BMR program. • Direct Marin Housing to exercise the option and provide a loan of $325,000 for the purchase price and costs. Staff is not recommending this option, because we believe the Agency will need to provide an additional permanent subsidy to further reduce the sales price in order to resell the unit. This additional subsidy would be in addition to the $35,000 subsidy already provided by the Agency. • Direct Marin Housing to exercise the option and provide a loan of $325,000 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 REQUH2ED: Authorization to release the unit from the program. ATTACHMENTS: A: Analysis of the public subsidies provided to date and the estimated additional public subsidies required to sell the unit to another qualified household. Exhibit A 1120 Mission Public Subsidy to Retain Unit in BMR Program MHA purchase price of the unit from the initial buyer $333,000 less: SRRDA sales price reduction to 80% of median 298 000 Initial Public subsidy- permanent price reduction Other Costs/Subsidies: $35,000 SRRDA down payment_-ADDI local match MHA costs $3,576 $9,353 MHA interest to San Rafael for purchase loan Rentback from initial owenr-awiting new home construction $3,637 k14 750 Public subsidy to date $46,816 Current resale price per BMR agreement- with CPI increase $299,550 less: MHA suggested 2010 resale price in current market $250,000 Secondary Public subsidy- permanent price reduction Other Costs_ /Subsidies: $49,550 Estimated closing costs $700 Escrow costs (2%) Additional Public Subsidy Required to Maintain in BMR program $5,991 $56,241 Grand Total Public Subsidy Required at new price of $250,000 $103,057 Public Subsidy to Release Unit from BMR Program Estimated Open Market Sales Price $350,000 Less: Commission 6% $21,000 Less: MHA fee 2% $5,991 Less: Current BMR Price 299 550 Difference between Market and BMR Price $23,459 SRRDA Recapture of Funds upon Sale - per BMR Agreement 75% $17,594 SAN RAFAEL REDEVELOPMENT AGENCY RESOLUTION NO. A RESOLUTION OF THE SAN RAFAEL REDEVELOPMENT AGENCY FOREGOING THE OPTION TO PURCHASE A BELOW MARKET RATE HOUSING UNIT (APN 011- 310-11) WHEREAS, the City Council (the "City Council") of the City of San Rafael (the "City") has adopted and amended, from time to time, the Redevelopment Plan (the "Redevelopment Plan") for the Central San Rafael Redevelopment Project Area (the "Project Area"); and WHEREAS, the Redevelopment Agency of the City of San Rafael (the "Agency") is responsible for administering the Redevelopment Plan to cause redevelopment of the Project Area, including the provision of housing available at affordable housing cost to low and moderate income households; and 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, in 1996, the City of San Rafael and Muir Terrace Homes of San Rafael, LLC 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 Muir Terrace; 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 San Rafael Redevelopment Agency previously provided a $35,000 permanent subsidy to reduce the sales price to make it affordable to a low income purchasers and the unit was resold to a low income household; and WHEREAS, the current owner has tendered a purchase offer to Marin Housing to purchase the unit; and WHEREAS, Marin Housing has not been able to find a qualified buyer to purchase the BMR unit at Muir Terrace within the 60 day period allowed under the Resale Restriction and option to purchase; and WHEREAS, Marin Housing has recommended the Agency provide additional funding to further reduce the sales price to make it attractive to a qualified household; and WHEREAS, the Agency does not desire to expend any additional funding on this unit. NOW, THEREFORE, BE IT RESOLVED that the Agency 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 this Resolution shall take immediate effect upon adoption. I, ESTHER C. BEIRNE, Agency Secretary of the San Rafael Redevelopment Agency, hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the members of said Agency held on the 5th day of April, 2010, by the following vote, to wit: AYES: MEMBERS: NOES: MEMBERS: ABSENT: MEMBERS: ABSTAIN: MEMBERS: ESTHER C. BEIRNE , Agency Secretary