HomeMy WebLinkAboutItem 21 - Pre-Commitment of Affordable Housing Funds for Habitat for Humanity of OC Community Development Agency
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Item # 21
City of Santa Ana
20 Civic Center Plaza, Santa Ana, CA 92701
Staff Report
November 15, 2022
TOPIC: Pre-Commitment of Affordable Housing Funds for Habitat for Humanity of
Orange County
AGENDA TITLE:
Approve a Pre-Commitment of $2,200,000 in Inclusionary Housing Funds for the
Development of Six Affordable Ownership Units Located at 1921 W Washington Avenue
RECOMMENDED ACTION
Authorize the City Manager to execute a pre-commitment letter with Habitat of Humanity
of Orange County for $2,200,000 in Inclusionary Housing Funds for the development of
six affordable ownership units at 1921 W Washington Avenue, Santa Ana, CA (APN 405-
101-37), subject to non-substantive changes approved by the City Manager and City
Attorney.
COMMUNITY DEVELOPMENT COMMISSION RECOMMENDATION
At its regular meeting on August 24, 2022, the Community Development Commission
recommended to the City Council to authorize the City Manager to execute a pre-
commitment letter with Habitat of Humanity of Orange County for $1,980,000 in
Inclusionary Housing Funds by a vote of 5:0 (Commissioners Frazier, Le, and Martinez
were absent). After that date, Habitat for Humanity needed to revise their project to
incorporate one (1) accessible unit with mobility and communication features to meet
Americans with Disability Act (ADA) requirements, which resulted in an increase of
$220,000.
DISCUSSION
On December 7, 2021, the City Council authorized the Community Development Agency
(“CDA”) to release a Request for Proposals (“RFP # 21-136”) to develop affordable rental
and ownership project(s) in the City of Santa Ana (“City”) with available funds from the
Inclusionary Housing Fund, HOME Investment Partnerships (“HOME”) Program, HOME-
American Rescue Plan (“HOME-ARP”) Program, Project-Based Voucher Program, and
the Neighborhood Stabilization Program fund (Exhibit 1). The RFP also included one land
asset owned by the Housing Authority of the City of Santa Ana. The RFP was prepared
in compliance with the City’s Affordable Housing Funds Policies and Procedures. The
RFP was published on both the City and Housing Authority’s websites and Planet Bids;
a public notice was published in the OC Register on December 10, 2021; and an e-mail
Pre-Commitment of Affordable Housing Funds for Habitat for Humanity of Orange County
November 15, 2022
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was sent out to Orange County’s largest affordable housing membership associations,
interested developers, and nonprofit organizations from CDA’s RFP Process Database.
After the RFP deadline (February 28, 2022), staff conducted a minimum threshold review
and three of the five proposals submitted were determined to be eligible as follows:
C&C Development
Habitat for Humanity of Orange County
Jamboree / WISEPlace
In compliance with the City’s Affordable Housing Funds Policies and Procedures, a
Review Panel, composed of City staff and housing consultants, used the Scoring and
Selection Criteria from the RFP and reviewed the proposed designs for appropriateness
for the proposed target group, compatibility with surrounding uses, cost effectiveness of
construction, and appropriateness of the designs and construction for low maintenance
and long-term durability. After interviews of the development teams, the Review Panel
recommended the following:
•Developer and Project: Habitat for Humanity of Orange County - Washington
Avenue
•Award: $2.2 million from Inclusionary Housing Funds
The pre-commitment letter between the City and Habitat for Humanity of Orange County
(“Habitat for Humanity”) provides the enforceable funding commitment of $2,200,000 for
the development of six affordable ownership units (Exhibit 2) at 1921 W Washington
Avenue, Santa Ana, CA 92706 (APN 405-101-37) (the “Project”). The pre-commitment
letter is conditional on Habitat for Humanity obtaining permits and approvals from the City,
ensuring at least 5 percent of the dwelling units provide mobility features, providing at
least 2 percent of the dwelling units are equipped with communication features, and
establishing a local preference for residents who live and/or work in the City.
In compliance with the City’s Affordable Housing Funds Policies and Procedures, Keyser
Marston Associates was tasked with conducting a financial gap analysis; reviewing the
developer’s estimates and projections of sales price, expenses, reserves and
development costs; and confirming the project’s underwriting and other requirements
pertinent to the funding sources (Exhibit 3). Following this analysis and completion of the
procurement process, City staff affirms the Review Panel recommendation to award
$2,200,000 for the Project and present to City Council for consideration.
Project Description
Habitat for Humanity acquired the site in December 2021 and will utilize the property’s
R-2 zoning. The Project may require development concessions that must be approved by
the City, and Habitat for Humanity must comply with the City’s Sunshine Ordinance.
The Project is designed with three (3) duplex buildings with “farmhouse-style” architecture
to be constructed with concrete roof tiles, composite wood siding, concrete paving
Pre-Commitment of Affordable Housing Funds for Habitat for Humanity of Orange County
November 15, 2022
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surfaces, and professionally designed landscaping. All units will have approximately
1,430 sq. ft. of interior living space, with 3-bedrooms and 2.5-bathrooms, a private yard
(431 sq. ft.), and a private two-car garage with direct access to each unit (residents will
be required to park vehicles in the garages and not use garages only for storage). The
site plan also includes short-term overflow/guest parking spots (2 standard parking spots
and 1 accessible parking spot).
The three (3) buildings will be constructed concurrently with an anticipated building cycle
of 14 months from the issuance of building permits. The Project will provide six (6)
affordable units for purchase by low-income families who earn up to 80% of the Area
Median Income with a preference for families who live and/or work in the City. Renderings
and photos of the Project are attached as Exhibit 4.
The Developer
Habitat for Humanity of Orange County is a nonprofit organization that: specializes in
affordable housing for purchase by qualifying families, dedicates resources to address
substandard housing, serves as an advocate for fair and just housing policies, and
provides training and access to resources for families. Since 1988, the Orange County
affiliate has completed and sold 231 new homes in this service area, and Habitat for
Humanity has completed 30 affordable homes in the City.
FISCAL IMPACT
The grant agreement is estimated to be finalized for City Council approval in FY 2022-23.
Upon future approval of the grant agreement, funds will be budgeted and available as
shown below:
Fiscal
Year
Accounting Unit
– Account #
Fund
Description
Accounting Unit,
Account
Description
Amount
FY 22-23 41718820-69152 Inclusionary
Housing Fund Loans and Grants $2,200,000
EXHIBITS
1.Staff Report from December 7, 2021
2. Pre-Commitment Letter with Habitat for Humanity of Orange County
3. Preliminary Financial Gap Analysis by Keyser Marston Associates
4. Proposed Project Renderings/Preliminary Site Plan and Photos
Submitted By: Michael L. Garcia, Executive Director of Community Development
Approved By: Kristine Ridge, City Manager
SANTA ANA CITY COUNCIL
Vicente Sarmiento
Mayor
vsarmiento@santa-ana.org
Phil Bacerra
Mayor Pro Tem, Ward 4
pbacerra@santa-ana.org
Thai Viet Phan
Ward 1
tphan@santa-ana.org
Nelida Mendoza
Ward 2
nmendoza@santa-ana.org
Jessie Lopez
Ward 3
jessielopez@santa-ana.org
Johnathan Ryan Hernandez
Ward 5
jryanhernandez@santa-ana.org
David Penaloza
Ward 6
dpenaloza@santa-ana.org
MAYOR
Vicente Sarmiento
MAYOR PRO TEM
Phil Bacerra
COUNCILMEMBERS
Johnathan Ryan Hernandez
Jessie Lopez
Nelida Mendoza
David Penaloza
Thai Viet Phan CITY OF SANTA ANA
COMMUNITY DEVELOPMENT AGENCY
20 Civic Center Plaza M-25
Santa Ana, California 92702
www.santa-ana.org
CITY MANAGER
Kristine Ridge
CITY ATTORNEY
Sonia R. Carvalho
CLERK OF THE COUNCIL
November 15, 2022
Troy Hendrickson
Vice President of Construction
Habitat for Humanity of Orange County
2200 S. Ritchey Street
Santa Ana, CA 92705
Re: Pre-Commitment Letter
1921 W. Washington Ave.
Santa Ana, CA 92701
Dear Mr. Hendrickson:
Habitat for Humanity of Orange County (referred to as the “Developer”), requested
financial assistance in connection with the proposed development of six (6) affordable
ownership units at 1921 W. Washington Avenue, Santa Ana, CA (APN 405-101-37)
(“Project”).
The Project site is located at 1921 W. Washington Avenue. The current structures on the
site have been abandoned for over a decade. The buildings have deteriorated to the point
that they are no longer habitable. The proposed Project will consist of three duplex
buildings and will provide six new affordable ownership opportunities for low-income
families who earn up to 80% of the Orange County Area Median Income in the City of
Santa Ana. All units will be three-bedroom and have a minimum of two-bathroom. Each
unit will have a private two-car garage with direct access to their unit. Units will range in
size from 1,100 sq. ft. to approximately 1,430 sq. ft. of interior living space. In addition,
each unit will have a private yard. One unit will be constructed as an accessible unit with
mobility and communication features in compliance with the California Building Code.
These homes will be made available exclusively to qualifying low-income families who
earn up to 80% of the Orange County Area Median Income. The Project will have a
EXHIBIT 2
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preference for families who live or work in the City of Santa Ana. Construction will comply
with all City of Santa Ana, county, and state building codes.
The City of Santa Ana (“City”) has reviewed the Developer's request for financial
assistance, and at the City Council meeting on November 15, 2022, the City Council
authorized and approved issuance of this pre-commitment letter evidencing the
preliminary award of $2,200,000 in Inclusionary Housing Funds consisting of (“City
Assistance”):
- A Conditional Grant in the maximum amount of $2,200,000 from the
Inclusionary Housing Fund held by the City for the Project (“Conditional
Inclusionary Housing Grant”).
This letter shall evidence the City’s pre-commitment of the City Assistance to the
Developer for the Project subject to the conditions described below.
City Assistance:
The amount of the proposed City Assistance has been determined based upon the
City’s review of the Developer's request for the receipt of the City Assistance and the
development proforma and projected cash flows for the Project submitted by the
Developer to the City (“Proforma”). The City Manager has the authority to approve
revised development proformas and projected cash flows for the Project; provided,
however, that the City Assistance is not increased or extended.
The City Assistance shall include the following terms:
The Conditional Inclusionary Housing Grant shall be for a maximum principal
amount of $2,200,000, or as much thereof, as is disbursed for hard and soft
costs in constructing the Project, provided from the Inclusionary Housing Fund.
Provided Developer constructs the Project according to the Scope of Work and
Schedule of Performance, the Developer will be subject to no repayment
obligation. Upon the City’s issuance of a Certificate of Completion, the Grant
Agreement shall automatically terminate. In the event the Project is not
constructed in compliance with the Scope of Work and Schedule of Performance
within two (2) years from the date of the first disbursement of the Grant funds, the
City may terminate the Grant Agreement and may seek repayment of Grant
monies not expended on development and construction of the Project pursuant
to the default remedy provisions of the Grant Agreement.
The six (6) “Housing Units” at the Project shall and will be restricted to an affordable
home purchase price which will require that the six homes be sold to low-income
qualified buyers who earn up to 80% of the Orange County Area Median Income
as set by the Department of Housing and Urban Development (“HUD”). Future
EXHIBIT 2
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sales of such single-family homes will be restricted to income-qualified households
for a period of at least forty-five (45) years.
Developer will have a local preference for families who live or work in the City of
Santa Ana in the selection of low-income qualified buyers.
Developer will ensure that each “Program Participant” (used interchangeably with
“Homebuyer”) means the selected eligible person or Family who will be purchasing
a House. Each Program Participant will be providing not less than five hundred
(500) hours of sweat equity toward the development of their House, or any other
improvements as may be designated by the Developer. Each Program Participant
is to be selected by the Developer as more fully set forth in its Marketing Outreach
and Sales Program.
Developer’s Program to develop affordable ownership opportun ities with financial
support from the City is subject to Chapter 11B of the California Building Code as
public housing. Accordingly, Developer’s Program must comply with California
Building Code section 11B-233.3. Specifically, Developer’s Program must comply
with requirements for mobility features: “In facilities with residential dwelling units,
at least 5 percent, but no fewer than one unit, of the total number of residential
dwelling units shall provide mobility features.” In addition, Developer’s Pro gram
must also comply with requirements for communication features: “In public housing
facilities with residential dwelling units, at least 2 percent, but no fewer than one
unit, of the total number of residential dwelling units shall provide communication
features complying with Section 11B-809.5.” Developer shall comply with these
public housing requirements for their Program in the California Building Code by
constructing one unit in the Project that includes the required mobility features and
communication features.
At the close of escrow for the purchase of each Affordable Unit, the City will require
each Low Income Household purchasing such Unit to execute the following
documents:
o Affordable Housing Resale Restrictions – The Affordable Housing Resale
Restrictions shall permit sales of an Affordable Unit sold to a Low Income
Household only to a qualified Low Income Household with a local
preference for families who live or work in the City of Santa Ana , in each
case, at an Affordable Housing Cost;
o Notice of Affordability on Transfer of Property – The Notice of Affordability
on Transfer of Property shall be for a term of at least forty-five (45) years;
o Promissory Note – The principal amount of the City Promissory Note shall
be in an amount equal to the difference between the sales price of the
Affordable Unit and the fair market value of such unit as if no restriction were
placed thereon, as determined by the sales price of equivalent unrestricted
units on the Sites at the time of such sale. If there are no equivalent
unrestricted units on the Sites at the time of sale, the fair market value of
EXHIBIT 2
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the unit shall be determined by appraisal, which is reasonably acceptable
to the City;
o Deed of Trust; and,
o Homebuyer Loan Agreement.
General Provisions:
The City's obligation to provide the City Assistance to the Project is subject to each of
the following conditions:
Developer must provide proof that it has secured all of its remaining financing for
the development of the Project in the form of enforceable f unding commitments,
before staff will return to the City Council for consideration of the Conditional
Grant Agreement for the City Assistance.
Developer shall assume any and all responsibility and be solely responsible for
determining whether laborers employed relative to the construction or installation
of the project must be paid the prevailing per diem wage rate for their labor
classification, as determined by the state, pursuant to labor code sections 1720,
et seq.
All provided funding and Project requirements shall conform to the City’s most
recently adopted Affordable Housing Funds Policies and Procedures, unless
alternative requirements are expressly provided in the executed Conditional
Grant Agreement for the City Assistance or any other documents related to the
development of the Project.
Approval of all required entitlements and discretionary actions, to allow the
construction of six affordable ownership units to be located at 1921 W.
Washington Avenue, Santa Ana, CA (APN 405-101-37).
The City's obligation to provide the City Assistance is and shall remain subject to
all covenants, conditions, and restrictions set forth in the Conditional Grant
Agreement, and in particular the City's analysis of the available funding sources
and development and operating costs of the Project and the overall economic
feasibility of the Project.
Review and approval of the Conditional Grant Agreement evidencing the City
Assistance by the City Council including the Conditional Grant Agreement and
Affordability and Maintenance Restrictions.
10% or $220,000 of the City’s financial assistance will be retained by the City
until construction of the Project is complete.
Developer, at its sole cost and expense, will be responsible for securing any and al l
permits and discretionary approvals that may be required for the Project by the City or
EXHIBIT 2
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any other federal, state, or local governmental entity having or claiming jurisdiction over
the Property or Project. Notably, this pre-commitment letter shall not obligate the City or
any department thereof to approve any application or request for or take any other
action in connection with any planning approval, permit or other action necessary for the
construction, rehabilitation, installation or operation of the P roject.
This pre-commitment letter for the Project will expire on November 15, 2024.
If you have any questions or require any additional information regarding this pre -
commitment letter, please contact Judson Brown, Housing Division Manager, by
telephone at (714) 667-2241 or by e-mail at jbrown@santa-ana.org.
Sincerely,
On behalf of the City of Santa Ana:
_________________________________
Kristine Ridge
City Manager
Attest:
_________________________________
Clerk of the Council
RECOMMENDED FOR APPROVAL:
___________________________
Michael L. Garcia
Executive Director
Community Development Agency
EXHIBIT 2
777 SOUTH FIGUEROA STREET, SUITE 2555 LOS ANGELES, CALIFORNIA 90017 PHONE 213.622.8095
2208010v2:SA:TRB
WWW.KEYSERMARSTON.COM 19090.018.026
ADVISORS IN:
Real Estate
Affordable Housing
Economic Development
BERKELEY
A. Jerry Keyser
Debbie M. Kern
David Doezema
LOS ANGELES
Kathleen H. Head
James A. Rabe
Gregory D. Soo-Hoo
Kevin E. Engstrom
Julie L. Romey
Tim R. Bretz
SAN DIEGO
Paul C. Marra
MEMORANDUM
To: Judson Brown, Housing Division Manager
City of Santa Ana
From: Tim Bretz
Date: October 27, 2022
Subject: Habitat Washington Avenue – Preliminary Financial Gap Analysis
At your request, Keyser Marston Associates, Inc. (KMA) prepared a preliminary financial
gap analysis for the project proposed to be developed at 1921 West Washington Avenue
(Site) by Habitat for Humanity of Orange County (Habitat). The Site is currently owned
by Habitat. Habitat proposes to demolish the existing vacant structures on the Site, and
construct six for-sale units to be sold to low income households (Project). Habitat is
requesting $2.20 million in financial assistance from the City of Santa Ana (City). The
purpose of the KMA analysis is to evaluate Habitat’s financial assistance request.
EXECUTIVE SUMMARY
The results of the KMA financial gap analysis are compared to Habitat’s financial
proposal in the following table:
KMA Habitat Difference
Total Development Costs $4,290,000 $4,311,000 ($21,000)
(Less) Total Available Revenue (2,054,000) (2,111,000) $57,000
Estimated Financial Gap $2,236,000 $2,200,000 $36,000
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 2
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As shown in the preceding table, KMA estimates the Project’s financial gap at $2.24
million. Comparatively, Habitat is requesting $2.20 million in financial assistance from
the City. This equates to a $36,000, or less than 2% differential. As such, it can be
concluded that the proposed City financial assistance will not provide a windfall profit to
Habitat.
PROJECT DESCRIPTION
The proposed scope of development can be described as follows:
1. The Site area totals approximately 16,000 square feet, or approximately 0.37-
acres of land area.
2. The Project’s unit mix can be summarized as follows:
a. The Project will include six for-sale units developed in three duplex
buildings, which equates to a density of 16 units per acre.
b. Each of the units will include three bedrooms and two bathrooms.
c. Four units will be approximately 1,430 square feet of gross building area
(GBA) and two units will be approximately 1,165 square feet of GBA,
which results in an average unit size of 1,340 square feet of GBA; and
d. The Project’s total GBA is estimated at 8,050 square feet.
3. Each unit incorporates an attached garage consisting of two parking spaces. An
additional surface parking space will be provided for a van stall. This results in a
total of 13 parking spaces for the Project.
4. All six units will be restricted to low income households per the definitions set
forth in California Health and Safety Code (H&SC).
FINANCIAL GAP ANALYSIS
KMA prepared a pro forma analysis to estimate the Project’s financial gap. The analysis
is located at the end of this memorandum, and is organized as follows:
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 3
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Table 1: Estimated Development Costs
Table 2: Estimated Available Revenue
Table 3: Estimated Financial Gap
Table 4: Silent Second Mortgage Revenue Calculation
Table 5: Affordable Sales Price Calculation
Estimated Development Costs (Table 1)
KMA reviewed Habitat’s October 2022 pro forma, and then independently prepared a
pro forma analysis of the Project. The resulting construction costs are estimated as
follows:
PROPERTY ACQUISITION COSTS
Based on information provided by Habitat, Habitat purchased the Site for $580,000,
which equates to a purchase price of $36 per square foot of land area. Habitat did not
provide an appraisal and/or purchase and sale agreement to confirm the purchase price.
DIRECT COSTS
The direct costs assume that the Project will not be subject to State of California and/or
Federal Davis Bacon prevailing wage requirements. The direct costs can be summarized
as follows:
1. The site improvement costs are estimated at $581,000, or $36 per square foot of
land area.
2. The building costs are estimated at $1.58 million. This equates to $196 per
square foot of GBA, or $263,000 per unit. KMA assumes that the general
conditions and Habitat supervision costs are included in this line item.
3. A direct cost contingency allowance equal to 10% of other direct costs is
provided.
KMA estimates the total direct costs at $2.38 million. This equates to $295 per square
foot of GBA or $396,000 per unit.
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 4
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INDIRECT COSTS
KMA utilized the following assumptions in estimating the indirect costs:
1. The architecture, engineering and consulting costs are estimated at 12% of direct
costs, or $285,000.
2. Habitat estimates the public permits and fees costs at $40,000 per unit, or
$240,000. City staff should verify the accuracy of this estimate.
3. The taxes, legal and accounting costs are estimated at 3% of direct costs, or
$71,000.
4. The insurance costs are based on Habitat’s estimate of $7,200 per unit, or
$43,000.
5. The Developer Fee is set at $480,000, which equates to 13% of net development
costs (excluding the Developer Fee). This estimate is within the range of similar
projects.
6. An indirect cost contingency allowance equal to 10% of other indirect costs is
provided.
KMA estimates the total indirect costs at $1.23 million.
FINANCING COSTS
The financing costs for the Project are estimated as follows:
1. The interest costs to be incurred during the construction period are estimated at
$32,000. This cost estimate is based on the following assumptions:
a. KMA assumes that Habitat will obtain a construction loan from a 3rd party
lender for the Project. KMA estimates the construction loan amount at
$765,000, which is calculated based on the total development costs less
90% of the City’s financial assistance, Habitat fundraising assistance,
Developer Fee, closing costs, and warranty costs.
b. KMA assumes that the construction loan will carry the following terms:
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 5
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i. A 7.0% interest rate;
ii. A 12-month construction period; and
iii. A 60% average outstanding balance.
2. The financing fees for the construction loan are estimated at 1.0 point, or
$8,000.
3. The closing costs are set at 2% of affordable sales revenue, or $21,000.
4. The warranty costs are estimated at $43,000, or approximately $7,200 per unit.
KMA estimates the total financing costs at $104,000.
TOTAL DEVELOPMENT COSTS
As shown in Table 1, KMA estimates the total development costs at $4.29 million, which
equates to a $21,000, or less than 1%, differential from Habitat’s estimated
development costs.
It is important to note that the construction industry is currently experiencing extreme
volatility with substantially high inflation. This analysis may need to be revised if the
construction costs vary from the estimates utilized in the analysis.
Estimated Available Revenue (Table 2)
The revenue available to the Project is estimated as follows:
AFFORDABLE SALES PRICE CALCULATIONS
Habitat is proposing to sell all six units to Low Income households. KMA estimates the
Affordable Sales Price based on the H&SC Section 50052.5 calculation methodology and
the following assumptions (Table 5):
1. The household income used in the calculations is based on the 2022 Orange
County median incomes distributed by the California Department of Housing and
Community Development (HCD).
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 6
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2. Since the Project consists of more than four units, the Project is required to have
a homeowner’s association (HOA). Based on a similar project recently developed
by Habitat, the HOA dues are estimated at $425 per month, or $5,100 per year.
3. KMA estimates the homeowner’s insurance costs at 0.35% of the direct costs per
unit, or $1,400 per year.
4. KMA estimates the monthly utilities costs at $227 per month for a three-
bedroom unit based on the 2022-2023 Utility Allowance Schedule published by
the Santa Ana Housing Authority on October 1, 2022.
5. The property tax cost estimate is based on 1.25% of the estimated Affordable
Sales Price.
6. The mortgage interest rate is set at 7.22%. The mortgage is assumed to be fully
amortizing over 30-years and provided by a conventional lender.
7. The home buyer down payment is set at 5% of the Affordable Sales Price.
Based on the assumptions outlined above, KMA estimates the Low Income Affordable
Sales Price at $175,500. The resulting affordable sales revenue is estimated at $1.05
million for the six Low Income units.
In comparison, Habitat estimates the affordable sales price at $185,000. Additionally, it
is important to note that affordable sales price information that Habitat provided did
not entirely follow the H&SC Section 50052.5 affordable sales price calculation
methodology for calculating the estimated affordable sales prices. As such, the KMA
and Habitat affordable sales price calculations may differ more materially in the future.
However, the affordable sales prices will ultimately be determined immediately prior to
the sale of each unit. This analysis may need to be revised if the affordable sales prices
differ from the sales prices utilized in this analysis.
ADDITIONAL REVENUE
Habitat proposes to utilize fundraising contributions to off-set a portion of the
construction costs. As such, Habitat estimates the financial assistance that they can
provide to the Project at $1.0 million, or $167,000 per unit.
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 7
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19090.018.026
ESTIMATED AVAILABLE REVENUE
The Project’s estimated total available revenue is equal to the sum of the Affordable
Sale Price revenue and the Project’s additional revenue. KMA estimates the total
available revenue as follows:
Affordable Sales Price Revenue $1,053,000
Habitat Financial Assistance $1,001,000
Estimated Available Revenue $2,054,000
Financial Gap Calculation
The financial gap is estimated by deducting the Project’s available revenue from the
Project’s total development costs. Based on the preceding analysis, KMA estimates the
Project’s financial gap as follows:
KMA
Total Development Costs $4,290,000
(Less) Total Available Revenue (2,054,000)
Estimated Financial Gap $2,236,000
Per Unit $372,700
As shown in the preceding table, KMA estimates the Project’s financial gap at $2.24
million. Comparatively, Habitat estimates the Project’s financial gap at $2.20 million.
This equates to a $36,000, or less than 2% differential, which is primarily due the
difference in affordable sales price calculations between KMA and Habitat.
Per Habitat’s assistance request, the City proposes to provide up to $2.20 million in
Inclusionary Housing Funds to the Project. Since this amount is less than the financial
gap identified by KMA, it is therefore KMA’s conclusion that the proposed assistance
package will not provide a windfall profit to Habitat.
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 8
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19090.018.026
SILENT SECOND MORTGAGE REVENUE CALCULATION (TABLE 4)
As a basic premise it must be assumed that the total of the liens accepted by a home
buyer cannot exceed the unrestricted market value of the home. Furthermore, based
on previous City homeownership projects, the City will record a second trust deed equal
to the difference between the defined Affordable Sales Price and the estimated market
value of the home.
KMA assumes that the City’s second trust deed will be structured as a deferred payment
loan which are commonly known as silent second mortgages. These loans typically
become due and payable when the home is resold to a non-affordable home buyer.
KMA assumes that the City’s silent second trust deed will fall second in the lien
hierarchy behind the conventional first trust deed mortgage.
The calculations used to estimate the supportable silent mortgages are presented in the
following sections of this analysis.
Market Rate Sales Prices
In Summer 2022, KMA conducted a survey of recent home sales comparables for the
Project’s nearby market area for the purpose of estimated the current silent second
mortgage amount. Based on this survey, KMA estimates the market rate sales price for
an attached three-bedroom unit at $680,000.
Available Silent Second Mortgage Revenue
Based on the estimated market rate sales prices, the available silent second mortgage
revenue is estimated at as follows:
Three-
Bedroom Unit
Market Rate Sales Price $680,000
(Less) Affordable Sales Price (175,500)
Silent Second Mortgage Amounts (Per Unit) $504,500
EXHIBIT 3
Judson Brown, City of Santa Ana October 27, 2022
Habitat Washington Avenue – Preliminary Financial Gap Analysis Page 9
2208010v2:SA:TRB
19090.018.026
It is important to note that this calculation will need to be revisited once sales of the
units commence. At that point, the appraised market values of the homes and the
defined Affordable Sales Prices will be utilized to determine the silent second mortgage
amount.
CONCLUSIONS / ISSUES FOR CONSIDERATION
The following summarizes the conclusions of the KMA analysis:
1. Habitat is requesting $2.20 million in financial assistance from the City. Based on
the currently available information, it is KMA’s conclusion that the Project
exhibits a $2.24 million financial gap. This represents a $36,000, or less than 2%
differential. Thus, it can be concluded that Habitat’s proposed financial
assistance request is supported by the Project’s current economics.
2. The Affordable Sales Prices cannot be finalized until the Project commences sales
activities. It is likely that the actual Affordable Sales Prices will vary from the
amounts estimated in this analysis.
3. KMA recommends that the City retain 10% of the City’s financial assistance
amount (or $220,000) until after the completion of construction. If the
assumptions utilized in this analysis change materially, the financial gap analysis
should be re-evaluated prior to the release of that amount to ensure that the
$220,000 is still warranted by the Project.
4. It is important to note that the construction industry is currently experiencing
extreme volatility with substantially high inflation. In addition, the financial
markets are also experiencing volatility with respect to interest rates and
underwriting standards. This analysis may need to be revised if the construction
costs and/or financing assumptions vary from the estimates utilized in the
analysis.
EXHIBIT 3
TABLE 1
ESTIMATED DEVELOPMENT COSTS
6 FOR-SALE LOW INCOME UNITS
HABITAT FOR HUMANITY - WASHINGTON AVE
SANTA ANA, CALIFORNIA
I.Acquisition Costs 1 15,973 Sf Land $36 /Sf Land $580,000
II.Direct Costs 2
On-Site Improvements 15,973 Sf Land $36 /Sf Land $581,000
Building Costs 8,053 Sf GBA $196 /Sf GBA 1,578,000
General Conditions 3 0%Construction Costs 0
Habitat Supervision 3 0%Construction Costs 0
Contingency Allowance 10%Other Direct Costs 216,000
Total Direct Costs 6 Units $395,833 /Unit $2,375,000
III.Indirect Costs
Architecture, Engineering & Consulting 12%Direct Costs $285,000
Public Permits & Fees 4 6 Units $40,000 /Unit 240,000
Taxes, Legal & Accounting 3%Direct Costs 71,000
Insurance 6 Units $7,200 /Unit 43,000
Developer Fee 5 13%Net Development Cost (Excl. Dev Fee)480,000
Contingency Allowance 10%Other Indirect Costs 112,000
Total Indirect Costs $1,231,000
IV.Financing Costs
Interest During Construction 6 $765,000 Loan 7.0%Interest $32,000
Loan Origination Fee $765,000 Loan 1.0 Point 8,000
Closing Costs 2.00%Sales Revenues 21,000
Warranties 6 Units $7,183 /Unit 43,000
Total Financing Costs $104,000
IV.Total Development Costs 6 Units $715,000 /Unit $4,290,000
1 Based on Habitat estimate. An appraisal or purchase and sale agreement was not provided for review.
2
3
4
5 Based on estimate provided by Habitat.
6
Based on Habitat estimates. Assumes that prevailing wage requirements will not be imposed on the Project.
The total loan amount is equal to the total development costs less the Developer Fee, closing costs, warranties, Habitat fundraising and 90% of the
City's financial assistance amount. The construction loan interest is based on a 12-month construction period and is estimated to have a 60%
average outstanding balance.
Based on Habitat estimates. City staff should verify the accuracy of this estimate.
Assumes that the general conditions and supervision costs are included in the Building Costs line item.
Prepared by: Keyser Marston Associates, Inc.
File name: Habitat Washington Avenue_10 27 22.xlsx; Pf
EXHIBIT 3
TABLE 2
ESTIMATED AVAILABLE REVENUE
6 FOR-SALE LOW INCOME UNITS
HABITAT FOR HUMANITY - WASHINGTON AVE
SANTA ANA, CALIFORNIA
I.Projected Sales Revenue 1
Low Income Three-Bedroom Unit 6 Units $175,500 /Unit $1,053,000
II.Habitat Financial Assistance 2 6 Units $166,833 /Unit $1,001,000
III.Estimated Available Revenue 6 Units $342,330 /Unit $2,054,000
1 See TABLE 5 for the KMA affordable sales price calculations.
2 Per Habitat.
Prepared by: Keyser Marston Associates, Inc.
File name: Habitat Washington Avenue_10 27 22.xlsx; Pf
EXHIBIT 3
TABLE 3
ESTIMATED FINANCIAL GAP
6 FOR-SALE LOW INCOME UNITS
HABITAT FOR HUMANITY - WASHINGTON AVE
SANTA ANA, CALIFORNIA
I.Total Development Costs See TABLE 1 $4,290,000
II.(Less) Estimated Available Revenue See TABLE 2 ($2,054,000)
III.Estimated Financial Gap 6 Units $372,670 /Unit $2,236,000
Prepared by: Keyser Marston Associates, Inc.
File name: Habitat Washington Avenue_10 27 22.xlsx; Pf
EXHIBIT 3
TABLE 4
SILENT SECOND MORTGAGE REVENUE SAMPLE CALCULATION
6 FOR-SALE LOW INCOME UNITS
HABITAT FOR HUMANITY - WASHINGTON AVE
SANTA ANA, CALIFORNIA
I.Silent Second Mortgage Amounts
Available Silent Mortgage Revenue
Estimated Market Rate Sales Price 1 $638,000
(Less) Low Income Affordable Sales Price 2 (175,500)
II.Available Silent Mortgage Revenue (Per Unit)$462,500
1
2 The final Affordable Sales Prices will be set prior to the sale of each unit.
Based on KMA survey of sales comparables for attached three-bedroom units in Summer 2022. The market rate sales price will be determined by
a fair market value appraisal that assumes no income restrictions prior to the sale of each unit.
Prepared by: Keyser Marston Associates, Inc.
File name: Habitat Washington Avenue_10 27 22.xlsx; Pf
EXHIBIT 3
TABLE 5
AFFORDABLE SALES PRICE CALCULATIONS
LOW INCOME SALES PRICES
HABITAT FOR HUMANITY - WASHINGTON AVE
SANTA ANA, CALIFORNIA
Low Income Sales Price 1
Three-Bedroom Unit
I.Income Available for Housing Expenses
Benchmark Household Size 4
Median Household Income $119,100
Income as % of Median 70.00%
% Income Allotted to Housing Costs 30.00%
Total Income Available for Housing Expenses $25,011
II.Ongoing Expenses
HOA Fees $5,100
Insurance @ 0.35% of Direct Costs Per Unit 1,385
Annual Utilities Allowance 2 2,724
Property Taxes @ 1.25% of Affordable Sales Price 2,194
Total Ongoing Expenses $11,403
III.Income Available for Mortgage Debt Service $13,608
IV.Affordable Sales Prices
Supportable Mortgage @ 7.22% Interest Rate 3 $166,700
Home Buyer Down Payment @ 5.00% of Affordable Sales Price 8,800
V.Affordable Sales Prices $175,500
1
2
3
Based on the utility allowances published by the Santa Ana Housing Authority on October 1, 2022.
Based on the interest rate published by Bankrate.com on October 24, 2022.
Based on the California Health and Safety Code Section 50052.5 definition. The affordable sales prices will ultimately be determined immediately
prior to the sale of the units.
Prepared by: Keyser Marston Associates, Inc.
File name: Habitat Washington Avenue_10 27 22.xlsx; CC Afford
EXHIBIT 3
EXHIBIT4
PROPOSED PROJECT ꢀENDꢁꢂGS/ꢃꢄLIMꢅNARY SꢅTE PLAN
AND PHOTOS
Current Structures
at
1921 Washington
Avenue
Habitat for Humanity of
Orange County
will demolish these
structures
to build affordable
housing units