Item 38 - Crossroads at Washington Affordable Housing Project

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Crossroads at Washington Affordable Housing Project August 17, 2021 Page 6 1 9 7 8 - Construction costs: As part of the Developer’s due diligence for updating the proforma, they solicited construction estimates from three general contractors and used the median estimate for their proforma. As has been well documented, construction costs (e.g., lumber, concrete, steel, drywall, labor, etc.) have continued to increase at a rapid pace since staff’s last update due to production and supply chain issues. The Developer’s proforma assumes the City/County backstop of the remediation funding but does not include their conditional $1,145,188 Orange County Housing Finance Trust (OCHFT) loan. As such, the Developer has a $2,207,846 financing gap (of which $1,145,188 could be covered by the OCHFT contingent loan) which needs to be addressed. This financing gap was confirmed by Keyser Marston Associates. Due to their financing gap and the September 1, 2021 tax credit deadline, staff is recommending an award of up to seven project-based vouchers (PBVs) to address this financing gap, contingent upon a review of the Developer’s proforma prior to closing to determine if a full award of seven PBVs is necessary. If the Developer does not need the full award of seven PBVs, staff will reduce the PBVs according to their need to close. The First Amended and Restated Pre-Loan Commitment Letter will provide a new commitment of $4,305,182 and seven PBVs to the Developer for the development of the Project (Exhibit 3). Next Steps If this item is not approved, the Developer will decline the FCAA tax credits before their September 1, 2021 deadline and it will take at least another year for the Developer to secure their other sources of financing to develop the Project. If approved, staff will support the Developer to secure funding for the environmental remediation. If the Developer is not successful and the Second Amendment to Option Agreement is triggered, staff will return to the City Council to request approval of an appropriation adjustment to pay for the backstop from the Housing Successor Agency funds or another source of eligible funding. FISCAL IMPACT If the conditions in the Second Amendment to the Option Agreement are met and the Project does proceed, then an environmental remediation backstop shall be available in an amount not to exceed $300,000, payable equally in a 50-50 split between the Housing Authority and County, if the Developer, Housing Authority, and County are not able to receive remediation and cleanup funding from DTSC. The backstop will be made available for expenditure in FY 2021-22 from the Low and Moderate Income Housing Asset Fund, Contract Services account (no. 60718810-62300). Upon final determination of the amount to be paid by the Housing Authority, staff will seek approval to appropriate a portion of fund balance for the expenditure.